Nuvama sees 44% downside in GMDC; retains 'Reduce' rating post Q1 results

Nuvama Institutional Equities has reiterated its 'Reduce' rating on Gujarat Mineral Development Corporation (GMDC), citing expensive valuations and muted growth in core operations. The brokerage has slashed its target price to Rs 231 from Rs 237, implying a sharp 44 per cent downside from Tuesday's closing price of Rs 412.80.

GMDC reported an in-line EBITDA of Rs 170 crore in Q1 FY26, down 20 per cent year-on-year (YoY), mainly due to a 14 per cent YoY decline in lignite sales volumes and a higher cost of production per tonne. Mining revenue dropped 11 per cent YoY to Rs 685 crore, while mining EBIT declined 20 per cent YoY to Rs 173 crore. Blended realisation per tonne was Rs 3,294, largely flat YoY, but a dip in operating leverage resulted in a fall in EBIT per tonne to Rs 876, down Rs 67 YoY.

"Despite acquiring land at Bhavnagar mine and planning new capacity additions, execution remains slow and growth visibility is yet to translate into tangible performance," Nuvama noted. It highlighted that while the Bhavnagar ramp-up is expected to gradually improve volume from 2 million tonnes (mt) to 3.5mt, meaningful growth may only be visible in FY27. Volumes are expected to rise at a compound annual growth rate (CAGR) of 12 per cent over FY25–27 to reach 10.1mt, down from the earlier estimate of 11mt.

On the power front, EBIT rose to Rs 106 crore in Q1 FY26 from Rs 40 crore a year earlier, aided by better profitability in the wind power segment and reduced fixed costs at the closed 250MW lignite power plant. A turnaround at this plant is expected in the second half of FY26.

GMDC has also begun phased land acquisition at its Baitarani coal block (15mtpa capacity) in Odisha, with mining operations slated to start in FY27. The upcoming Lakhpat lignite mine (3mtpa capacity) is expected to begin by FY26-end.

However, Nuvama emphasised that it has yet to receive any official update on GMDC's progress in the rare earth minerals segment, which has been a point of investor interest.

"Given the slow pace of operational ramp-up and lack of clarity on rare earth mining, we maintain a cautious stance. Current valuations remain rich in light of these execution risks," the brokerage concluded.