The Hindu Business Line : GMDC: A highly undervalued `disinvestment candidate'

Rumours of the company being a disinvestment candidate have been dogging the counter for a while. "There is talk that disinvestment could happen by April-May 2004," a broker said.

According to the market grapevine, one of the frontrunners, said to be looking at bidding for the soon-to-be divested stake, is the Reliance Group.

GMDC is a premier mining corporation in Gujarat with exclusive rights to mine lignite. Lignite constitutes 90 per cent of the revenue and 95 per cent of the profits.

Analysts maintain that the company is highly undervalued considering its monopolistic advantage of mining rights.

"GMDC is poised to capture the emerging power scenario with its huge lignite reserves offering high business visibility. Besides, it has other mineral reserves like alumina, not factored in the earnings, offering potential upside in the earnings matrix," an analyst from a leading domestic brokerage said.

Going forward, there is a perception that strong non-coking coal prices will ignite demand for lignite as an alternative fuel source. The opening of two new lignite mines in Tadkeshwar (in Surat) and Mata-no-Madh (Kutch) - the economics of which are said to be favourable for the company given their proximity to the user industry - is expected to expand lignite consumption.

"The company is well placed as far as lignite reserves are concerned. With the estimated reserves of Gujarat at 1,800 million tonnes, GMDC has nearly more than 70 per cent of direct mining rights in the State, which should be enough to last it for more than a century," market sources said.

According to analysts, the company intends to leverage its lignite reserve to seize business opportunity in power by setting up of 250 MW pithead lignite power projects at a cost of Rs 1,380 crore. While phase I of the project is expected to be commissioned by September 2004, phase II is to be commissioned by January 2005.

"GMDC would be able to derive cost competitiveness from the fact that its plants are located at the pithead of the lignite mines, providing saving in transportation costs. Besides in the lignite base power plants, tariffs are not vulnerable to oil and gas price volatility," an analyst tracking the company reasoned.

The company is also said to have entered into a power purchase agreement with Gujarat Electricity Board to sell power.

The stock ended the day at Rs 180 with around 26,243 shares traded on the BSE. On the NSE, the stock ended at Rs 180 with around 56,911 shares traded.

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