GMDC has seen its lignite volume taper off in the past few years. Decline in international coal prices and heavy state taxation further weighed on lignite pricing. We expect lignite volumes to be close to bottoming out, while strengthening international coal prices and GST led normalization in taxation should help support lignite pricing and profitability.HDFC Securities initiate with a BUY and a TP of Rs 125 (5.0x FY18 EV/EBITDA).
Valuation and view: With repeated disappointments on volume front weighing it down, GMDC trades at inexpensive valuations (3.6/2.9x FY17/18 EV/EBITDA and 10-11 P/E). Despite excess cash, payouts have been dismal. Higher payouts/buybacks, in line with other PSUs, should help rerate the valuations further.