Iron ore consumption of a country is highly linked to GDP per capita, and as there is inflection point here- once GDP per capita crosses a certain level, steel consumption will just go up at a pretty fast rate.
While- you can build new steel plants with money- you can’t build new iron ore mines just like that.
Iron ore is a limited resource like crude.
We import majority of crude.
They key point is- international iron ore prices are more than double of Indian prices if you add logistic costs.
Once our iron ore supply falls short of increasing demand by steel industry, the domestic prices will just take off.
Will take a few years. Rome wasn’t built in an year!
One can compare EV/EBITDA of GPIL with other companies selling pellets/iron ore- Jindal Saw, Lloyd metals, Sandur manganese. Other companies have much higher valuations, and much lower growth and don’t have this much cash too!
Jindal Saw EV is 11000 crore, annual EBITDA is 1700 cr. EV/EBITDA of 6.7, which is normal for a commodity company. Jindal saw has lot of debt too.
Lloyd metal EV is 15000 crore, EBITDA is 800 cr, EV/EBITDA is 19- as it is priced in for increase in mining capacity.
Since GPIL is doubling capacity, EV/EBITDA of 10 will give it a valuation of 17000 crore.
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