Financial Daily from THE HINDU group of publications
Sunday, Oct 17, 2004
Financial Daily from THE HINDU group of publications Sunday, Oct 17, 2004 |
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Investment World
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Stocks Markets - Recommendation Gujarat NRE Coke: Buy Sowmya Sundar
The company is expected to scale up earnings substantially in the near-to-medium term due to higher margins on the sale of coke.
Bumper realisations
NRE Coke makes met coke, a significant raw material for steel and chemical industries. The global upswing in metals, especially steel, has led to a steep rise in the demand for, and the price of, coke. Coke prices now rule at around $250 per tonne. As further capacities are expected to come up only by 2005-06 and demand would still outstrip supply, prices are expected to remain firm in the near term. The price of coking coal, on the other hand, has not risen lock-in-step. NRE Coke has contracted coking coal for $65 per tonne till March 2005 (the landed cost is close to $95 per tonne). Therefore, margins are expected to scale up substantially in the next two/three quarters. A further rise in coking coal price is expected for 2005-06. However, the recent acquisition of a mine in Australia would bring in fresh coal capacities by March 2005. Thus, despite the acute shortage for coking coal, NRE Coke's supplies are tied up.
Capacity expansion to aid growth
The company supplies predominantly in the domestic market. The demand for met coke in the country is estimated at 20 million tonnes by 2005 (up from 17 million tonnes in 2004). Non-captive manufacturers such as NRE Coke meet more than 50 per cent of the demand. NRE Coke is one of the largest manufacturers of coke with a capacity of 3.5 lakh tonnes now. Its capacity is expected to rise to 14 lakh tonnes by December 2005. The greeenfield expansion at Kandla is expected to begin full commercial production by March 2005. The capacities at Kandla and Jamnagar total 7.21 lakh tonnes per annum. With the commissioning of capacities by 2005, NRE Coke is all set to cater to the rising demand.
Exports, a maiden effort
NRE Coke made its first shipment of 21,000 tonnes to Brazil in July 2004 at $371 f.o.b value. This breakthrough order is a significant step towards coke exports from India as that country imports 70 per cent of its requirements. The huge margin on the export order is also expected to improve earnings for the September quarter 2004 substantially.
Outlook
The outlook for the next three quarters appears bright due to the huge escalation in margins on account of lower contracted price of the raw material. In the long term, the additional capacities would start adding volumes. The rise in volumes would make up for any margin erosion due to higher raw material costs.
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