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Gujarat NRE Coke
Third quarter in a row!
Event
ƒ 4QFY11 beats our estimates: GNC reported standalone Q4 results on
Sunday which were 31% ahead of our estimates. It remains on track to reach
our full year consolidated estimates and with improving outlook is well poised
to show a sharp increase in profitability. Maintain Outperform.
Impact
ƒ Q3 standalone results – recovery continues: Net sales at Rs4.6bn were
up 5%QoQ driven by a 12% increase in coke realisation. EBITDA at Rs652mn
is up 24% QoQ as costs were helped by consumption of coking coal
inventory. Net profit at Rs508mn is one of the highest reported since 3QFY09
and up 148% QoQ.
ƒ Reducing inventory: GNC has successfully reduced coking coal inventory by
285kt during the quarter and we expect that this will be further reduced in the
next quarter to a more normal level of 300k. Coke inventory has not been
reduced much (~21kt) but is expected to reduce by 50-60k tin 1Q. The profits
will be seen in consolidated results as the Australian subsidiary has directly
sold its production to Chinese customers.
ƒ All eyes on Australian subsidiary now: GNC’s Australian subsidiary GNM
(GNM AU, A$0.56, OP, TP: A$1.1, Sophie Spartalis) had reported mid year
earnings of A$25.3mn and we expect that continued strength in coking coal
prices will help this business deliver strong earnings. Its mine development
remains on track and is the key catalyst for earnings.
ƒ Bullish fundamentals for coking coal: We remain extremely bullish on
coking coal fundamentals and expect prices of US$251/t for coking coal and
US$464/t for coke for FY12. We estimate that every US$10/t increase in coke
and coking coal prices would increase earnings by 4–5%.
Earnings and target price revision
ƒ No Change.
Price catalyst
ƒ 12-month price target: Rs95.00 based on a Sum of Parts methodology.
ƒ Catalyst: Strengthening coking coal prices
Action and recommendation
ƒ Maintain Outperform: GNC has underperformed the market in the past few
months on concerns about profitability. We believe that given the lack of
consolidated financial results, investors have been caught looking at just
standalone profits which are becoming a smaller and smaller proportion of
profits.
ƒ The company is currently trading at 5x PER on FY2012E as compared to
global coking coal companies at 10x. We believe that the current valuation is
a good opportunity to take entry before results of the mining subsidiary.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Gujarat NRE Coke
Third quarter in a row!
Event
ƒ 4QFY11 beats our estimates: GNC reported standalone Q4 results on
Sunday which were 31% ahead of our estimates. It remains on track to reach
our full year consolidated estimates and with improving outlook is well poised
to show a sharp increase in profitability. Maintain Outperform.
Impact
ƒ Q3 standalone results – recovery continues: Net sales at Rs4.6bn were
up 5%QoQ driven by a 12% increase in coke realisation. EBITDA at Rs652mn
is up 24% QoQ as costs were helped by consumption of coking coal
inventory. Net profit at Rs508mn is one of the highest reported since 3QFY09
and up 148% QoQ.
ƒ Reducing inventory: GNC has successfully reduced coking coal inventory by
285kt during the quarter and we expect that this will be further reduced in the
next quarter to a more normal level of 300k. Coke inventory has not been
reduced much (~21kt) but is expected to reduce by 50-60k tin 1Q. The profits
will be seen in consolidated results as the Australian subsidiary has directly
sold its production to Chinese customers.
ƒ All eyes on Australian subsidiary now: GNC’s Australian subsidiary GNM
(GNM AU, A$0.56, OP, TP: A$1.1, Sophie Spartalis) had reported mid year
earnings of A$25.3mn and we expect that continued strength in coking coal
prices will help this business deliver strong earnings. Its mine development
remains on track and is the key catalyst for earnings.
ƒ Bullish fundamentals for coking coal: We remain extremely bullish on
coking coal fundamentals and expect prices of US$251/t for coking coal and
US$464/t for coke for FY12. We estimate that every US$10/t increase in coke
and coking coal prices would increase earnings by 4–5%.
Earnings and target price revision
ƒ No Change.
Price catalyst
ƒ 12-month price target: Rs95.00 based on a Sum of Parts methodology.
ƒ Catalyst: Strengthening coking coal prices
Action and recommendation
ƒ Maintain Outperform: GNC has underperformed the market in the past few
months on concerns about profitability. We believe that given the lack of
consolidated financial results, investors have been caught looking at just
standalone profits which are becoming a smaller and smaller proportion of
profits.
ƒ The company is currently trading at 5x PER on FY2012E as compared to
global coking coal companies at 10x. We believe that the current valuation is
a good opportunity to take entry before results of the mining subsidiary.
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