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Monday, October 15, 2007

Gujarat NRE Coke Ltd -A gem of a gem

I recomended the scrip yesterday to my clients and it rocked big time today.Here is the report.



I have been trying to figure out scrips with high growth and great prospects for last many days.As i prefer high comfort level in my businesses or scrips i try to spot the things which makes one feel that they are with the right hands and returns would be humangously higher than what other average consultant provides.After studying for several hours and doing a lot of research i am glad to provide you all, the scrip which i feel would make lot of wonders in the months and years to come.I have recomended these scrip to you people sometimes back but since then the story has changed a lot and so has the price.But potential is so immense here that i wouldnt be surprised if these scrip comes numero-uno in terms of price apreciation in coming years.Anyway all said and done,just consider:-




Scripscan-Gujarat NRE Coke Ltd
CMP-93
Target-150
Duration=9-12 months
Traded=Nse-bse


1)Domestic per capita steel consumption in our country currently stands at 39 kg, whereas the global average is 150 kg and that of developed countries is 400-650 kg. Even if we take a conservative estimate of reaching the world average by 2020, India's demand must burgeon to 194 million tonnes at a CAGR of 10% over the same period on a higher production base. This will ensure a sustained demand for coke. With the Indian economy now expected to report a sustainable annual growth beyond 8%, the demand for coke from its core industries - steel and cement - is expected to increase sharply, creating a wide foreseeable gap between supply and demand.

2)Gujarat NRE Coke has hardly any comparable peer in india.Now it would be prudent to note that China dominates the global coke market due to the fact that the country, besides being the largest steel producer and consumer, is also the largest producer, consumer and exporter of coke.India is expected to emerge as the second largest coke producer, next only to China over the next decade.Now here is something for you:-

Recently a chinese coal company Hidili, has proposed an initial public offering.Hidili"s valuation is around 29 times its expected 08 earnings whereas gujarat nre coke is presently quoting at just 15 times its 08 earnings.In the last fiscal 07,Gujarat NRE Coke clocked higher revenues of $127 million compared to Hidili"s $109 million.Gujarat NRE Coke's total coal resources are measured to be nearly 589 million tonne, valued at $1 per tonne.In comparison, Hidili's resources of 217 million tonne are valued at $8.4 per tonne.Hidili has an Enterprise Value(EV) of around $1.4-1.8 billion,gujarat nre coke is not even at its half on the lower estimated band.Gujarat NRE Coke is expected to overtake Hidili in terms of production in coal by FY11, as Gujarat NRE Coke's newly acquired mines go on-stream.

3) Another amazing thing which tempts me to recomend the company is that,Gujarat nre coking coal mines reserves posses reserves enough to last for more than 100 years,i repeat more than 100 years.The valuatuons of these mines are estimated to be around 3000crs.

4)In North America, the shortage of coke is currently estimated at more than 7.5 million tonnes per annum, an estimate that is likely to increase due to further shutdowns of obsolete capacity. In the UK and France, the shortage is estimated at over 2 million tonnes per annum. Other European countries are also shutting down plants: Coke-manufacturing units are being increasingly relocated to Asia.All these are going to result in sustained demand for the company.

What the management says:-On words of Mr Arun.k.Jagatramka,
One of the leading factors fuelling the rise in met-coke price is global scarcity ofhard coking coal. There is decrease in coke supply on account of global shutdown ofmet-coke capacity including closure of old coke units in China due to environmentalconcerns. Moreover, China has been increasing export tax to check exports. Global cokedemand has also increased.All these factors make me feel very bullish on the long-term prospect of the commodity.

Recent announcement-Gujarat NRE Coke has anounced that the holdings of FIIs in the shares of the company has gone up from 5 % in May/June, 2007 to 23.79% last month on account of market purchases made by them as well as upon conversion of FCCBs issued by the company in 2005 and 2006.So even the Foxes(FII"S) have been eating the counter.Certainly you know the reason now.Dont you?

Aggresiveness at most extreme-Do you know gujarat nre coke bought 3 coal mines from australia and a stake in a new zealand coking mine?Do you know one of mine it bought from BHP Billiton,the largest and the biggest in its business.Do you know these company is the only company from india to have these in its hold.Other companies fromm our country not even have an indirect ownership.

Add more to your kitty-The company has nil competition,its an integrated player from coking coal or in met coke.No industry entrants atleast in coming 4-5 years.Huge scale and reserves.Well lets end it here.You all have got it.

Conclusion-These is such a wonderful company to own for.A pure steel proxy,I see the company overtaking hidili in terms of valuations with time.Infact as one the largest backward integrated company the company may even command a sharp premium to that of Hidili.The management is just a show-piece and its of no doubt they would surpass several milestones in the coming days.Its such an investor friendly company if my calculation is correct,the company has rewarded its shareholders with over 10 liberal bounuses in the last 3 years.With the kind of steel demand that we talking about and the demand-supply mismatch,Gujarat nre stands to benefit and capitalise on the oppurtunity the most.At 90 odd rs,You are getting the worls"s most competitive met coke producer,its a scrip to own in every dips.A fantastic buy even at current levels.





Regards,
ARUN
I can be reached at-arunanalyst@rediffmail.com

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