Thursday, February 23, 2006

Rain Calcining and Gujarat NRE Coke

Yesterday, Sonal was rather excited about a tip he received in the morning. His anonymous tipper said "Buy Rain Calcining .. it's about to shoot up". The CMP of the stock was 40.2 in the morning, and before Sonal could check ... he eventually did that at 2:15 pm ... the price of the stock was 48.35 rupees.

In a serious bid to redeem ourselves from this folly, we set out to negate our dissapointment by trying to prove how wrong we would have had been, if we'd bought the stock. So here goes "our search for skewed analysis"

Share capital - 129.00 crs
Loans - 286.07 crs
Investments - 0.00 crs
Net CA - 107.71 crs
FV - 10 rupees per share
Dividend - 0 rupees per share
CMP - 40.2 rupees (morning price)
LY profit - 12.00 crs

At a P/E of 51.12 and an NCAV of negative 13.77 rupees/share, this was sure not practical. However the company has been posting some very good results.
Q1, 2005 : 13.60 crs
Q2, 2005 : 13.05 crs

Assuming similar trends, I estimate a maximum yearly profit of 42 crs because of (a) the tax charges (at a half-yrly income of 26.65 crs, the tax should be around 9 crs; the co. has surprisingly factored -2.51 and +2.71 crs for the two quarters) and (b) the interest charges (apportioned amount for half yr is only 10.91 crs while 10% of 286 crs would be close to 28.6 crs). At 42 crs of profit, P/E comes to 14.89 but the NCAV remains at (13.77). The company might just be in a position to give a dividend of 40 paise, which will not excite any market.

The company is outside my comfort zone. So, we didn't buy the stock. Today it fell to 43.80 rupees on the NSE.

Instead we checked out another company which works in the same industry - Coke/Metallurgical Coke production.

The business stats of Gujarat NRE Coke are -
Share Capital - 94.32 crs
Loans - 52.10 crs
Net CA - 77.15 crs
FV - 10 rupees per share
Dividend - 4.00 rupees per share
CMP - 86 rupees a share (Feb 23)
LY Profit - 90.78 crs

Like Rain Calcining, the profits for Gujarat NRE Coke have grown in Q1 and Q2 - 45.20 (32.76 in Q1, 2004) and 39.01 (27.83 in Q2, 2004). On this basis, I estimate a profit closing for this company at 120 crs for this year, which would mean a P/E of 6.76 (excellent). The NCAV of the stock is 3.36 (low).

Gujarat NRE Coke has one very good feature in it's unutilised debt capacity. On an interest coverage of 4, I estimate a total debt carrying capacity of 226.95 crs on LY numbers. Which means the m-cap of this stock (811.16) is around 358% of it's debt carrying capacity - fairly decent.

Oops.. and did I mention, at a profit of 120 crs - i would estimate a dividend payout of rupees 3.5 (outlay for the company would be 32.92 crs) ... which means a dividend yield of 4.07%.

Confession - I bought this stock yesterday at 89.8 rupees !!!


Blogger Shankar said...

Gujarat NRE up by 8% today (at 3:05 IST) !!!

3:04 PM  
Blogger Prasanth said...

Looks like you hit the sweet spot !!

5:55 PM  
Anonymous Anonymous said...

the increase may be attributed to some speculation and nothing else....

4:51 PM  
Blogger Shankar said...

On the comment by anonymous - Speculation .. maybe. This is interesting ... i come across a number of people who would define a movement in price in different connotations. Some would say -
1. Punters are hoarding the stock
2. The stock was undervalued, it is now going up
3. There is news that " .." is about to happen so stock has gone up ...

All kinds of news. Value investing requires you to look at financials, management, future of the business and your own comfort level. I reached all 4 while figuring out Gujarat NRE. Period.

6:15 PM  

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