Gujarat NRE Coke Ltd (GNCL) - Buy Stocks Report On Valuations

Gujarat NRE Coke Ltd (GNCL) is the largest independent producer of metallurgical coke in India, having a coke manufacturing capacity of 1 Mtpa, which is getting increased to 1.25 Mtpa by March 09. Here is a buy stocks report on current and future valuations of the company.

Investment Rationale
It is also the only Indian company to have acquired captive coking coal mines outside India. GNCL has already started the mining in Australian mines and is expected to produce around 1 million MT of coking coal for FY09E and slowly scale up to over 7 million MT by 2013E.

The domestic demand for coke has to be fulfilled through imports from Australia, Canada, USA, or China as India does not have reserves to that extent. And, taking into consideration various other issues, Australia seems to be the most suitable location to import coking coal.

IMPORTANT STATS

52 Week H/L: 175/17
Shareholding Pattern
Promoters: 45%
DII’s: 5%
FII’s: 20%
Others: 30%

Market Cap: 1,149.12
EPS (TTM): 5.82
P/E: 4.18
P/C: 3.86
Book Value: 23.48
Price/Book: 1.04
Div(%): 25.00
Div Yield(%): 10.27
Market Lot: 1.00
Face Value: 10.00
Industry P/E: 9.83


After its Australian mines become fully operational, the company would be using nearly 80‐90 percent of its coal requirement from the mines for coke business and the remaining would be sold in the open market. This will improve the margins of the company as the Australian coking coal business has better margins than the Indian coke business.

We have valued Gujarat NRE Coke Ltd on the EV/EBITDA based methodology. The stock is presently trading at an EV of 2.4 (x) FY10E EBITDA. We have given a target EV of 3.5 (x) FY10E EBITDA and recommend buying stocks of Gujarat NRE Coke Ltd with a target price of Rs 37.

The stock price has fallen due to concerns regarding the falling coking coal and coke prices, all the negatives have been discounted in the stock price and the stock looks very attractive at current levels. A better than expected rise in coking coal and coke prices may lead the stock to even higher levels. The company’s captive coking coal mines and captive power plant will help it in sustaining the slowdown in the economy.
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