GMDC Share Price Breaks 15-Year Resistance; Can It Sustain the Momentum?

Gujarat Mineral Development Corporation Ltd (GMDC), a state-owned mining and mineral processing company, saw its share price break a 15-year resistance level of Rs 360 on Tuesday, October 12, 2023. The stock soared by 20% to hit a 52-week high of Rs 403.70 on the National Stock Exchange (NSE), before closing at Rs 382.35. The stock witnessed heavy trading volumes, as over 21.6 crore shares changed hands on the NSE, compared to the average daily volume of 1.1 crore shares in the past two weeks. The stock also outperformed the Nifty Metal index, which gained 4.5% on Tuesday.

What is driving this rally and what are the prospects for GMDC’s stock in the future? In this article, we will explore the factors behind GMDC’s strong performance, the company’s business profile, and the outlook of various analysts on the stock.

GMDC is one of the largest mining companies in India, engaged in the exploration and production of lignite, bauxite, fluorspar, and manganese. The company also operates power plants and provides mineral consultancy services. The company has a network of mines and plants across Gujarat, Rajasthan, and Madhya Pradesh.

One of the main reasons behind GMDC’s share price rally is its impressive performance in the third quarter of fiscal year 2024. The company reported a net profit of Rs 266.12 crore for the quarter ended December 31, 2023, compared to a net loss of Rs 122 crore in the same period last year. The company’s revenue also increased by 47% year-on-year to Rs 855.41 crore, driven by higher volumes and prices of lignite and bauxite.

The company’s earnings beat market expectations, as analysts had projected a net profit of Rs 200 crore and revenue of Rs 800 crore for the quarter. The company also improved its operating margin from -1.8% to 5.2%, despite higher raw material costs and freight charges.

Another factor that has boosted GMDC’s share price is its strategic divestment plan, which is expected to unlock value for its shareholders. The company has been identified by the government as one of the candidates for strategic sale, as part of its disinvestment target of Rs 1.75 lakh crore for FY24.

The company has appointed SBI Capital Markets as its transaction advisor to carry out the divestment process. The company has also initiated steps to sell its stake in some of its joint ventures and subsidiaries, such as Neelachal Ispat Nigam Ltd (NINL), Gujarat State Electricity Corporation Ltd (GSECL), and Gujarat Alkalies and Chemicals Ltd (GACL).

The company expects to complete the divestment process by March 31, 2024, subject to regulatory approvals and market conditions. The company hopes to realize a fair value for its assets and generate cash inflows for its business expansion and debt reduction.

A third factor that has supported GMDC’s share price is its positive outlook for the current quarter and the rest of the fiscal year. The company expects to benefit from the strong demand and prices of lignite and bauxite in both domestic and international markets. The company also expects to improve its operational efficiency and profitability by leveraging its digital platforms and optimizing its logistics costs.

The company has set a revenue target of Rs 3,000 crore and a net profit target of Rs 300 crore for FY24. The company also plans to increase its production capacity of lignite and bauxite by investing in new mines and plants.

So, should you buy, sell or hold GMDC shares after its Q3 results and divestment plan? Here is what some of the analysts have to say about the stock:

• Motilal Oswal: The brokerage firm has maintained a ‘buy’ rating on GMDC with a target price of Rs 450 per share. It said that GMDC is a value play on the metal cycle recovery and divestment potential. It also said that GMDC has a strong balance sheet with a net cash position of Rs 1,200 crore.
• ICICI Direct: The brokerage firm has maintained a ‘hold’ rating on GMDC with a target price of Rs 400 per share. It said that GMDC has delivered a decent performance in Q3 FY24 despite challenges in logistics and raw material availability. It also said that GMDC’s divestment plan is a key trigger for re-rating.
• HDFC Securities: The brokerage firm has maintained a ‘sell’ rating on GMDC with a target price of Rs 350 per share. It said that GMDC’s Q3 FY24 results were below expectations due to lower margins and higher expenses. It also said that GMDC’s valuation is expensive compared to its peers.
• Edelweiss: The brokerage firm has maintained a ‘reduce’ rating on GMDC with a target price of Rs 375 per share. It said that GMDC’s Q3 FY24 results were mixed, with higher revenue but lower profitability. It also said that GMDC’s divestment plan is uncertain and may face delays.

In conclusion, GMDC’s share price has broken a 15-year resistance level of Rs 360 after its Q3 results and divestment plan, reflecting its strong fundamentals and growth prospects. The company has reported a net profit of Rs 266.12 crore in Q3 FY24, compared to a net loss of Rs 122 crore in Q3 FY23.

The company has also been identified by the government as one of the candidates for strategic sale, which is expected to unlock value for its shareholders. The company has a positive outlook for the current quarter and the rest of the fiscal year, as it expects to benefit from the strong demand and prices of lignite and bauxite.

However, the company also faces some challenges and risks such as higher raw material costs, logistics issues, and global uncertainty. Most of the analysts have a cautious view of the stock and recommend a ‘hold’ or ‘sell’ rating, with target prices ranging from Rs 350 to Rs 450 per share.

This post GMDC Share Price Breaks 15-Year Resistance; Can It Sustain the Momentum? was originally published at Finance Crave