13 October, 2008

Gujarat NRE Coke

Current market price: Rs 31

Target price: Rs 69

Upside: 122%

Brokerage: SBICAP Securities

Gujarat NRE Coke (GNCL) is the largest non-captive independent coke manufacturer in India with an installed capacity of one million tonne per annum (mtpa). The company has planned to expand the current coke manufacturing capacity to 1.25 mtpa by December 2008 and further to 2.5 mtpa by FY09E. GNCL has already started mining at the Australian mines and it is expected to produce around one mtpa of coking coal for FY09E and slowly scale up to over seven mtpa by 2013E.

The prospects of the coke industry are bright on the back of strong demand from major steel consuming sectors like infrastructure and low domestic per capita consumption of steel (mere 39 kilos as against the world average of 150 kilos). GNCL’s topline is expected to grow at a CAGR of 52 percent over FY08-FY10E.

The company currently imports nearly 30-40 percent of its coking coal requirement. The margins of the company would stabilise at 23-24 per cent at the operating profit level, once the company starts sourcing 80-90 percent of its coking coal requirement from its Australian subsidiary.

The stock trades at 7.4x and 6.4x its FY09E and FY10E earnings, respectively Maintain Buy.

CMP on 10 October, 2008

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