At first blush, the stand-alone earnings of Gujarat NRE Coke Ltd, with its metallurgical coke and steel operations, look decent.
Revenue has increased 16% from a year ago to Rs 459.83 crore. Volume growth numbers are not available as the company has not released production figures.
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However, executives indicated the revenue increase was because of an increase in realizations. Coke prices had increased by as much as 40% from the quarter ago by the middle of February.
The company has managed to curb its expenses growth to 5.76%, largely because it had a huge amount of unused coal inventory. Because of floods in Queensland, the heart of the Australian coal mining territory, spot prices of coking coal had increased, but larger inventories saved Gujarat NRE Coke. These savings are expected to be carried forward to the current quarter as well.
With cut in staff costs helping, operating profits grew 181% to Rs 65 crore. Operating margins widened by 8.33 percentage points to 14.18%. The company was also able to save some 11% on interest costs because of lower working capital needs and better utilization of cash; though a cash flow statement wasn’t available.
Ergo, despite a higher tax outgo, it clocked an almost 38 times increase in net profit. That perhaps explains why the stock price increased by 1.9% on Wednesday when the broader market closed flat.
The stock, an old mid-cap favourite, has underperformed the BSE-200 Index of the Bombay Stock Exchange by a large margin since the beginning of this year. That could be because of a couple of reasons.
One, although the company indicated that it has brought down its debt by converting its foreign currency convertible bonds, it led to an equity base dilution of about 3.5%.
Secondly, Gujarat NRE Coke’s consolidated numbers—that include the mining profit from its Australian coking coal subsidiary in which it has a 75% stake—come with a lag. Higher coking coal prices mean higher mining profits and margin pressure on metallurgical coke, which the parent makes, and vice-versa.
Thus, even though coke prices are forecast to increase this fiscal, investors will have a clearer view on the stock only after the subsidiary’s numbers are published.
Graphic by Yogesh Kumar/Mint
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