Tuesday, July 29, 2008

Buy Call

Buy Call on Gujarat NRE Coke

With coal prices going through the roof, it was a foregone conclusion that Gujarat NRE Coke would post a superlative performance for first quarter ended 30th June 2008, it was only a question of “how superlative”.

YoY, exuberant would be more like it. On a whopping 154% rise in net sales, the company’s EBIDTA rose over two times, the PBT of the company rose 2.26 times and PAT was up by a whopping 2.20 times at Rs.94.40 crore. But the margins indicate that there is some pressure. OPM was down from 42.10% to 34.68% and NPM was down from 28.76% to 25%.

QoQ, the performance was mixed. Though net sales was down marginally by 0.8%, it managed to reduce its operating costs by 14.38% and this helped the EBITDA which was up 23%. It reduced its interest outgo by 13% and depreciation rose 31%. PBT rose 28%. Its taxation for the quarter was down 22% and this further helped boost the net profit, which was up 47%. Unlike YoY, the QoQ margins showed an improvement. OPM was up from 27.85% and NPM from 16.87%, which is quite substantial.

The company currently manufactures one million tonne of coke from its three existing facilities in Gujarat and Karnataka. An additional 0.25 mt capacity is being commissioned at Dharwad, which is expected to go on stream by March 2009. It plans to set up a one million tonne coke manufacturing facility at Nellore in Andhra Pradesh, at a capex of Rs.450 crore, to be financed mostly from internal accruals and is expected to be commissioned by 2010. It has dropped its rights issue plan.

It has also lined up Rs.600 crore worth of power projects. It has installed 30 MW wind power capacity and installation of another 30 MW at Rs.170 crore is to be completed by September 2008. The company is also installing 60 MW waste heat recovery power plants at its coke plants, costing Rs.300 crore. Once all these go on stream, the total power generation capacity is expected to be 147.5 MW.

The company has also lined up investments tuning over $500 million (of which it has already invested $300 million) in developing its two coal mines in Australia, which is expected to take its total coal production capacity to 7 million tonnes by 2012-13. This investment is also being funded through internal accruals. Goes on to show, how much money the company managed to make due to soaring coal prices. And it’s gratifying to know that instead of sitting on these gains, it is ploughing back the gains and distributing to shareholders also. It has recommended a bonus issue in the ratio of 2 shares for every five held. This is the sixth bonus since 1995-96.

The average net realisation of the company has gone up from Rs 8,600 a tonne to Rs 19,100 a tonne during Q1. From $450 a tonne in April, spot coke prices reached $600 a tonne in June and is now ruling at $700. The company sells 60% of its production on spot basis.

Clearly, the prospect for coal remains highly bullish in the current fiscal too. One can consider buying this stock at every decline for good long term gains.

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