Gujarat NRE Coke - Rs.89.00

Last year we recommended this scrip at 22.50 and since then it has given huge return along with bonus and dividend. Keeping its future growth in mind we still find it reasonably cheap and recommend it for medium term. Gujarat NRE Coke Ltd (GNCL) was incorporated in the 1986, by Mr. G.L. Jagatramka and his son, Mr. A.K. Jagatramka for producing Low Ash Metallurgical Coke (LAMC). LAMC is a variety of coke with an ash content of around 12%. It is the vital ingredient that fires the blast furnaces of the Nation as the corest of its core selects burn bearing materials to produce steel. It is used both for its high calorific value and its environment friendly nature and heat furnaces for a variety of other industries like soda ash plant, steel industry, zinc smelters, foundries & Ferro Alloys. Today GNCL has emerged as the largest producer of LAMC in India.

In March 2003 to consolidate its business Gujarat NRE Power Limited (78,000 TPA) and Aparna Projects Private Limited (1,17,000 TPA) were merged with GNCL. Companys manufacturing unit is located at Dharampur, Jamnagar in Gujarat with current production capacity of 3,58,000 TPA. Recently company has also set up second plant at Bhachau, Kandla consisting of 9 chimney for manufacture of 3,24,000 TPA of LAMC. Few chimney has already started the commercial production and the entire plant is expected to be operational by December 2004 in phases which will take the total capacity to 6.82,000 TPA. The Company expects to get a production of 1,50,000 ton from the new plant by March 2005. Due to the huge global demand and short supply, coke price have shot up 300~400 per centcompared to last year. To take the maximum benefit of this uptrend GNCL group company has set up one more plant at Karnataka in joint venture with Kalyani Steels Ltd with annual capacity of 324000 MT which is expected to be operational by March 2005. With this plant GNCL will cross the landmard production capacity of 1million TPA. For future company group has also plans to set up additional 4,00,000 TPA in Dharwar Karnataka. On the raw material side also company has tied up with its entire requirement of coking coal requirement for its coke plant at Jamnagar and the new unit being set up near Kandla Port for the year 2004-05 with Australian and South African Coal Mining Companies. Sitting on huge cash company is thinking for forward integration & is planning to acquire a pig iron production unit with a capacity 1,50,000 TPA, promoted by the Goa-based Dempo group.

The effect of coke price and expansion is clearly visible in last 2 qtrs with NP jumping 6~7 times. Company is expected to end this year Sept 2004 with sales of 310 cr and NP of 95 cr which means an EPS of 23 Rs. For FY05 with its full capacity going operational, company is expected to register sales of 580 cr and earn NP of 150 cr leading to an EPS of 36 on current equity. So at CMP this scrip is trading at a PE of less than 4 for FY04 earning and at 2 for FY05 earning. Investors can expect handsome return over a period of time.