Gujarat Mineral Development Corporation Ltd Management Discussions.

Global Mining Scenario

The World Banks Metals and Minerals Price Index increased 1.7 percent in the first quarter of 2019 (q/ q). This was a rebound from a decline in the fourth quarter of 2018 that followed an even steeper decline in the preceding quarter. The price increase reflected supply concerns, progress in trade negotiations between the United States and China, and fiscal stimulus in China. Metal prices are anticipated to continue rebounding from their 2018 trough but average 1.9 percent lower in 2019. Risks are broadly balanced. Downside risks include a weaker-than expected demand boost from Chinas fiscal stimulus and a prolonged stall in U.S.-China trade negotiations.

Alone among base metals, aluminum prices dropped 5.1 percent in the first quarter as supply concerns receded in early 2019. Sanctions imposed on the Russian aluminum producer Rusal in April 2018 were lifted in January 2019. A production embargo on the worlds largest alumina refinery, Alunorte in Brazil (10 percent of global alumina supply excluding China), due to alleged environmental breaches was lifted although the resumption of full production is still awaiting federal court approval. Aluminum production and smelter capacity have expanded in China where environmental curbs were less stringent than expected. Aluminum prices are projected to fall by 8 percent in 2019 reflecting lower alumina prices and large aluminum over capacity in China. Most base metal prices face upside risks from the possibility of tighter-than-expected environmental policies and slower- than-expected easing of commodity-specific supply bottlenecks.

(Source: A Commodity Market Outlook, April, 2019)

Indian Economy & Mining Sector Perspective

As per the provisional estimates of national income, the growth of real Gross Domestic Product (GDP) for 2018-19 is estimated at 6.8 percent. The growth rates of GDP at constant prices were 8.2 percent and 7.2 percent respectively for 2016-17 and 201718 (Figure - 1). The growth of GDP at constant prices for fourth quarter (Q4) of 2018-19 was 5.8 percent, as compared to 8.1 percent in Q4 of the previous year.

IIP (Index of Industrial Production) of mining sector grew by 3.2 percent in May 2019, as compared to a growth of 5.8 percent in May 2018. During April-May 2019, production of mining sector grew by 4.1 percent, as compared to a growth of 4.8 percent during the corresponding period of previous year.

(Source: Ministry of Finance, Department of Economic Affairs, Economic Division, Monthly Economic Report, June, 2019)

FDI upto 100 percent is allowed in exploration, mining, minerals, processing, metallurgy and exploration of metal and non-metal ores under the automatic route for all non-fuel and non-atomic minerals including diamonds and precious stones. During April 2000-December 2018, FDI inflows into metallurgical industries stood at US$ 11,152.87 million. During the same period, FDI inflows in the mining, diamond and gold ornaments and coal production sectors stood at US$ 2,321.59 million, US$ 1,151.45 million and US$ 27.73 million respectively.

(Source: Metal and Mining Report, April 2019, Indian Brand Equity Foundation)

The Gross Value Added (GVA) accrued from mining and quarrying sector at 2011-12 prices for the first quarters of 2017-18 is estimated at Rs 85,911 crore, indicated a decrease of about 0.7% over that in the same period of previous year. Similarly, the quarterly estimates of GVA (at current prices) for the first quarter of the year 2017-18 is estimated at Rs 82,270 crore. The mining and quarrying sector contribution (at current price) to GVA accounted for about 2.3 % for the first quarter of the year 2017-18. (Source: Ministry of Mines Annual Report 2017-18)

India is the 3rd largest producer of coal. Coal production in the country stood at 688.8 million tonnes in FY18. It stood at 739.36 million tonnes in FY19. India has the 5th largest estimated coal reserves in the world, standing at 319.02 billion tonnes in FY

2018- 19.

(Source: Metal and Mining Report, July 2019, Indian Brand Equity Foundation)

Geological Survey of India (GSI) has augmented coal resource in different states and the total resource of coal of the country stands at 3,15,148.81 million tonnes and that of lignite stands at 44698.14 million tonnes as on 01.04.2017.

(Source: Ministry of Mines Annual Report 2017-18)

According to Ministry of Mines, India has the 7th largest bauxite reserves- around 2,908.85 million tonnes in FY 2016-17. Aluminium production stood at 0.92 million metric tonnes during April-June 2018 and is forecasted to grow to 3.33 million tonnes in FY 2019-20. India has vast mineral potential with mining leases granted for longer durations of 20 to 30 years.

(Source: Metal and Mining Report, April 2019, Indian Brand Equity Foundation)

India is the worlds second-largest producer of cement. The sectors strong expansion over the past decade has been a key contributor to rising coal demand. Cement Production is expected to increase at a CAGR of 5-6% between FY 2016-17 to FY

2019- 20. Cement production in India increased from 230.49 million tonnes in FY 2011-12 to 297.56 million tonnes in FY 2017-18. During April 2018-February 2019, cement production stood at 304.20 million tonnes. Sales of cement in India grew at 13.6 per cent year-on-year to 275.7 million tonnes during April 2018- January 2019. The Union Budget has allocated Rs 139 billion (US$ 1.93 billion) for Urban Rejuvenation Mission: AMRUT and Smart Cities Mission. Governments infrastructure push combined with housing for all, Smart Cities Mission and Swachh Bharat Abhiyan is going to boost cement demand in the country. As of October 2018, the Government of India has auctioned 23 limestone blocks and 42 more limestone blocks are expected to be auctioned by March 2019.

(Source: Sectoral Report on Cement, April 2019, Indian Brand Equity Foundation)

The power sector accounts for a large share of the consumption of coal in country. In FY 2017-18, 2016-17, power generation in India was 1249.19 TWh. Power generation in India expanded at a CAGR of 5.35 % during FY 2008-09 to 2018-19. Coal based power generation is forecasted to grow at a CAGR of 6.5% during 2017-18 to 2022-23. This increase is expected to boost non-coking coal consumption at a CAGR of 5.4% to 1,076 million tonnes in FY 2022-23 from 826 million tonnes in FY 2017-18. Around 85.97% of total power generation was done through thermal power plants, while hydro and nuclear plants contributed 3.18% and 10.46% respectively in FY 2017-18.

(Source: Metal and Mining Report, April 2019, Indian Brand Equity Foundation)

Industry Structure and Development

The country is endowed with huge resources of many metallic and non-metallic minerals. Mining sector is an important segment of the Indian economy. Since independence, there has been a pronounced growth in the mineral production both in terms of quantity and value. India produces 95 minerals- 4 fuel-related minerals, 10 metallic minerals, 23 non-metallic minerals, 3 atomic mineral and 55 minor minerals (including building and other materials).

(Source: Ministry of Mines Annual Report 2017-18)

Indias metal and mining sector has witnessed strong growth over the past few years. GVA (Gross Value Added) from mining & quarrying reached US$ 51.31 billion in FY 2018-19 SAE (Second Advance Estimate). Mineral Production in India has also surged, achieving a CAGR of 5.72% between 2013-14 and 2017-18E to reach US$ 17.62 billion in 2017-18. The operative mines (excluding atomic minerals, petroleum (crude), natural gas (utilized) and minor minerals) in India have increased to an estimated 1,531 in 2017-18 from 1,508 in 2016-17. As of December, 2018, 18 mineral blocks have been auctioned. Production of as many as 95 minerals is undertaken in India, including 4 fuel minerals, 10 metallic minerals, 23 non-metallic minerals, 3 atomic minerals and 55 minor minerals (including building and other materials). Odisha was the leading producer of minerals with production worth in FY 2018-19 (up to July 2018) excluding fuel, atomic and minor minerals, followed by Rajasthan, Karnataka, Chhattisgarh and Jharkhand with production of minerals worth US$ 1.03billion, US$ 0.53billion, US$ 0.43 billion, US$ 0.39 billion and US$ 0.12 billion respectively. Production of metallic minerals in the country has increased from US$ 7.30 billion in 2011-12 to US$ 8.23 billion in 2017-18E. During the same period, production of non-metallic minerals increased from US$ 0.95 billion to US$ 1.20billion. Production of metallic minerals and non-metallic minerals in India FY 2018-19 (upto July, 2018) was US$ 2.71 billion and US$ 0.43 billion respectively.

(Source: Metal and Mining Report, April - 2019, Indian Brand Equity Foundation)

Favourable Policies are Supporting the Sector Growth

• Aims to bring in more transparency, better regulation and enforcement, balanced social and economic growth along with sustainable mining practices.

• Proposes to grant industry status to mining with the objective of boosting financing of private sector.

• Supports merger and acquisition of mining players.

• The MMDR Act of 1957, witnessed amendments in 2015 for the promotion and development of the mining industry in India, that includes making auctions the sole method for the allotment of mineral concessions and mandating the establishment of District Mineral Foundation (DMF).

• FDI of up to 100 % is permitted under the Automatic Route to explore and exploit all non-fuel and non-atomic minerals and process all metals as well as for metallurgy.

• FDI caps for coal and lignite has been increased to 100 % under the automatic route.

• In March 2018, the government allowed 100% FDI in coal mining.

• Government of India is encouraging private ownership for steel operations and other high priority industry.

• Profits of companies producing specified metals are given tax concession under the Income Tax Act.

• Low custom duty on the capital equipment used for minerals

• Companies who do mining in backward districts are eligible for complete tax holiday for a period of 5 years from the commencement of production and 30% tax holiday for 5 years thereafter.

• Government of India significantly reduced the duty payable on finished steel products and has stream lined the associated approval process.

• Focuses on up-gradation of the skill sets to foster adaptation of new state of art technology.

• Aims to increase the capacity and quality of training infrastructure and trainers to address human resource needs.

(Source: Metal and Mining Report, April - 2019, Indian Brand Equity Foundation)

Growth Drivers for Mining Sector

• Rise in infrastructure development and automotive production driving growth in the sector.

• Power and Cement industries also aiding growth in the metals and mining sector.

• Demand for iron and steel is set to continue, given the strong growth expectations for the residential and commercial building industry.

• India holds a fair advantage in cost of production and conversion costs in steel and alumina.

• Its strategic location enables convenient export to developed as well as the fast developing Asian markets.

• There is significant scope for new mining capacities in iron ore, bauxite, and coal.

• Considerable opportunities for future discoveries of sub-surface deposits.

• The Ministry of Steel aims to increase the steel production capacity to 300 million tonnes by 2030-31 from 134.6 million tonnes in 2017-2018 indicating new opportunities in the sector.

• 100 per cent FDI allowed in the mining sector and exploration of metal and non metal ores under the Automatic Route.

• Approval of MMDR Bill (2011) to provide better legislative environment for investment and technology.

• National Mineral Policy 2019 launched for transparency, better regulation and enforcement, balanced social and economic growth into the sector.

(Source: Metal and Mining Report, April - 2019, Indian Brand Equity Foundation)

Performance of GMDC (FY 2018-19)

A. Product wise performance

a. Lignite:

Lignite mining continues to be the main operation of the company. GMDC currently has 6 operational Lignite mines. The mines are located in Kutch, South Gujarat and Bhavnagar region. Out of total Profit before Tax (PBT) of the company about 80% is from Lignite Mining Operations.

GMDCs six active lignite mines together produced 91.90 lakh Metric Tonnes of lignite during the FY 2018-19. GMDC is the largest merchant seller of Lignite in the country.

Lignite sale of GMDC has decreased by nearly 13.31% in FY 2018-19 compared to FY 2017-18.

b. Bauxite

Other than Lignite, GMDC is also operating Bauxite mines in Gujarat. The operations are located in districts of Kutch as well as Devbhoomi Dwarka. The Bauxite deposits of Gujarat are clustered deposits with numerous pocket deposits present in near-by vicinity. GMDC is currently mining nine Bauxite deposits, of which eight are in Kutch and one is in Devbhoomi Dwarka. In FY 2018-19 GMDC has produced 3.94 lakh metric tonnes Bauxite from its eight operating mines (Gadhsisa Group of Bauxite Mines) in Dist. Kutch and has produced 0.421 lakh metric tonnes Bauxite from its Mevasa Bauxite Mines in Dist. Devbhoomi Dwarka. GMDCs production capacity of Bauxite is likely to be stable in coming years. GMDC envisages to cater the needs of major value addition plants of mineral in the state.

c. Power

GMDC Power Division consists of ATPS Thermal Power Plant, Wind Power Plants and Solar Power Plants. A total 1623.30 Millions Units of power was produced in FY 2018-19.

Akrimota Thermal Power Plant: The Generation as well as PLF of ATPS for 2018-19 is 1187.43 Millions Units and 54.22% PLF respectively. ATPS received national level runner up award by Mission Energy Foundation in the category of Efficient Management of Fly Ash TPP <=500 MW.

Wind Power Plants : GMDC consists of 200.9 MW Capacity of Wind Power Projects and are situated at different locations in Gujarat. The PLF of wind projects has reported 24.34% in the FY 2018-19 with total Generation of 428.31 Million Units as compared to 21.76% PLF and generation of 382.76 Million Units in the FY 2017-18. Wind Power generation for FY 2018-19 increases by 12% as compared to the previous year because of the constant follow up and supervision of the O&M Contractors.

Solar Power Plant: GMDC has 5 MW Solar Power Project situated at Panandhro Lignite Project. The solar power plant has generated 7.56 Million Unit Power with PLF of 17.26% which is 15% rise in Generation as compared to the previous year.

d. Exploration Activities

To establish behaviour of mineral deposit along with quality & quantity of the ore , GMDC initiated mineral exploration practices by study of Satellite Imagery and GIS Technology, Geological Mapping & Geo - physical surveys, Pitting and trenching, Conventional Mineral Exploration by drilling for Lignite, Bauxite , Manganese and other associated mineral deposit followed by mineral analysis and preparation of exploration report as per requirement of Ministry of Coal & Ministry of Mines by using latest computer software.

We have also carry out geological mapping with the help of satellite images & GIS technology over possible bauxite & laterite bearing areas in Kutch and established addition bauxite bearing areas for stage - II exploration.

B. Financial performance

The companys profit before depreciation, tax and exceptional items has increased by 5% from Rs 669.58 Crore to Rs 701.09 Crore over the past year. Total market capitalisation of the company stands out at Rs 2577 Crore as on 31st March, 2019.

Particulars 2016-17 2017-18 2018-19
Turnover 1,58,235 2,06,996 1,87,968
Profit before Depreciation, tax and exceptional items 42,510 66,860 70,109
PBT 44,598 55,692 60,495*
PAT 32,422 43,460 13,879
Dividend (%) 150 175 100

(*before exceptional item)

The details of significant changes in key financial ratios, along with detailed explanations thereto is given hereunder:-

Name of Accounting Ratio

Financial Year

Change Explanation for significant change in Accounting
2018-19 2017-18 % Ratios
DebtorsRs Turnover Ratio 14.53 17.99 -19.21% No Significant change
Inventory Turnover Ratio 22.04 29.30 -24.79% No Significant change
Current Ratio 6.06 3.56 70.18% The Change in Current Ratio is mainly on account of repayment of Rs 15,100 Lakh to NALCO during FY 201819 as approved by the Govt of Gujarat.
Operating Profit Margin 32.18% 26.91% 19.62% No Significant change
Net Profit Margin 7.38% 21.00% -64.38% Reduction in Net profit margin percentage is on account of loss on investment in Bhavnagar Energy Company Limited (BECL) which is merged with Gujarat State Electricity Corporation Ltd with loss of Rs 29,765 Lakh as per notification dated 27 Aug, 2018 issued by Energy and Petroleum Department, Govt of Gujarat which has been shown as exceptional item in the Statement of Profit and Loss also.

Opportunities and Threats for GMDC:

Opportunities

• As six mining leases are reserved by the Central Government for GMDC, it will boost the Lignite Production which will help in increasing revenue of GMDC.

• There are large amount of reserves of Limestone at our upcoming Lakhpat Punrajpur Mining, Panandhro Extension & Bharkandam. GMDC is approaching various cement companies across India for setting up of Cement Plant where GMDC will be a long term Limestone supplier.

• As the market of overburden minerals like Silica Sand, Ball Clay & Bentonite is increasing, entering into the beneficiation industry of these overburden minerals will have a larger scope in terms of revenue, customer base and market share. GMDC is planning to enter into this beneficiation Industries by the way of long term supplies of respective minerals.

• Joint Detailed Exploration of Manganese bearing area in Dist. Panchmahal & Baroda to be carried out with M/s MOIL Ltd. for further development of a new business prospects.

Threats

• Imported Coal

• Shifting technology from Coal/Lignite to alternate fuels like Natural Gas, FO, etc

• Land acquisition

Outlook

GMDCs measured drive is outlined by extension of activities on three facades, namely, venturing into exploration activities; increasing the geographical reach within Gujarat and diversifying operations in sectors such as renewable power generation and other minerals. The future outlook of GMDC may include the following :

• To identify and reserve new lignite and bauxite leases within Gujarat

• To establish itself as a nodal agency for exploration in scientific manner within Gujarat as well as India

• To venture into renewable power generation options in its mined out area as reclamation of exhausted projects needs to be carried out

• To promote training and development in the mining sector to cater the need of skilled manpower in the sector

• To cater Limestone to the Cement Plants in Kutch from our upcoming mines

• To explore new business opportunities for Manganese in Dist. Panchmahal & Baroda jointly with M/s MOIL Ltd.

Risks and Concerns

Various activities undertaken to achieve the goals make the Company susceptible to various risks. It has to be recognized that risks are not merely the hazards to be avoided but in many cases offer opportunities which create value ultimately leading to enhancement of shareholdersRs wealth, and ensuring sustainability of operations.

Mining companies are required to ensure restoration of mined out areas, and that some of the revenue/costs of the mining go towards strengthening of environmental resources and ecosystem resilience in adjoining areas. GMDC is actively undertaking activities to ensure sustainable development. Increasing environmental concerns will lead to higher costs. Land acquisition is also a challenge for GMDC as the new legal framework for land acquisition would result in higher land cost.

Internal Control and its adequacy

GMDC has put in place all the necessary internal controls adequately. The company has an in-house Internal Audit Department and internal check procedures on the purchase of items such as stores, chemicals, machinery. Similar checks and procedures are also devised for sale of goods. The company has appointed Internal Auditors for various Projects and Head Office, who are required to submit periodical reports to the top management. The company also avails services of professional and Chartered Accountants for physical verification of assets.

Human Resource and Industrial Relations

During the year under review there was no material development in human resource and industrial relations. The Company had harmonious relations between management and the employees. As on 31st March, 2019, the Company had 1375 employees.

Cautionary Statement

Statements in the Management Discussion and Analysis, describing the Companys objectives, projections and estimates, contain words or phrases such as will, aim, believe, expect, intend, estimate, plan, objective, contemplate, project and similar expressions or variations of such expressions, are forward-looking and progressive within the meaning of applicable laws and regulations. Actual results may vary materially from those expressed or implied by the forward looking statements due to risks or uncertainties associated therewith depending upon economic conditions, Government policies and other incidental factors. Readers are cautioned not to place undue reliance on these forward looking statements.