Unique Monopoly

Established in 1963 by the Gujarat Government, Gujarat Mineral Development Corporation (GMDC) is engaged in the mining of lignite, bauxite, fluorspar, and manganese ore and power generation. GMDC is one of the largest miner and seller of lignite in India, which also contributes 80 per cent to the revenue of the company. Currently GMDC operates five lignite mines Panandhro, Tadkeshwar, Mata-no-Madh, Rajpardi and Bhavnagar, which is the largest mines among the five. The company's Akrimota thermal power project operates from Nani Chher in Kutchh district with the capacity of 250MW. Strength GMDC's biggest strength is uninterrupted demand for lignite in Gujarat and being a monopoly. These two give it the necessary pricing power and also creates a moat. In comparison, Coal India, its biggest rival has its nearest plant 700 km away, which makes it an expensive proposition for consumers in Gujarat. Moreover, GMDC commands a better margin over Coal India by checking on its costs by way of less employee cost and also lower power and fuels costs. For instance, employee cost in case of Coal India accounted for 34 per cent of the net revenues in FY13 while GMDC checked it at 6 per cent thus offering a cheaper product. What more, GMDC also benefits from its pricing being insensitive to international prices because its customers are SMEs with boilers that are designed to run on domestic lignite. This restricts the end-users from switching to other form of coal. Further, the company's bauxite segment has witnessed good volumes growth in the past three years at an annualised rate of 37 per cent, which is expected to conti

This article was originally published on September 16, 2014.