GMDC - Gujarat Mineral Development Corporation

I think it depends on how one looks at it. On the one hand, the stock is quoting at reasonable valuations of 8x and also offers a dividend yield of about 2.5%. It has exclusive rights for extracting lignite, bauxite and manganese in Gujarat and so it has a virtual monopoly. The Company is also debt-free. When the commodity cycle turns, or if coal prices increase, there will be increased demand for the company's product, lignite.

The downside is that the company is a PSU and that too engaged in the commodity space. Being a PSU, it is subject to the dictates of the Government, which may act in a manner that does not benefit the minority shareholders. Being a commodity stock, one cannot predict the future prospects owing to the uncertainty of commodity prices.

The company has not shown much growth in the past five years. The five year sales CAGR is about 5% while the five year profit CAGR is about 12%. In the past five years, the stock has given a negative return of 18%. In the past 10 years, the stock has lost 24%.

I think the larger issue is whether one at all wants to invest in PSU stocks, and that too in the commodity space. There is a report in the ET of how PSU stocks eroded investor wealth worth Rs 6,83,314 crore in 3 years. Suppose this trend continues in the future as well?

So, I suggest a careful evaluation of all available options, both in the private and public space, before deploying capital. Also, one should look at the stocks already in the portfolio. If there are stocks that are doing well, it may be a good idea to consider increasing the allocation of capital to them.