In an interview with CNBC-TV18, Arun Kumar Jagatramka, Managing Director of Gujarat NRE Coke, spoke about the company's performance and its further growth.
Here is a verbatim transcript of an exclusive interview with CNBC-TV18.
Q - How have your end product prices panned out since the end of the second quarter? In the second quarter while you were better over first quarter, there was a significant drop in margins YoY. Do you think the third quarter is a better story?
A - If you compare on a successive quarter basis right from March quarter, the coke prices have been moving up. Every quarter they have moved up by about INR 2,000 to INR 3,000. In January, they were up INR 10,000, in March-April they were at about INR 12,000 to INR 13,000, around June-July they had crossed INR 15,000 and in September-October they had been touching about INR 17,000 to INR18,000. This upward trend has been there from INR 10,000 to INR 11,000 to about INR 17,000 to INR 18,000. So it augers well for the industry.
Last one month they have been stable at around INR 18,000. I would expect the next up-move to trigger a big demand review in markets like Europe and South America where there have been enquiries started coming in. Sellers, in the first quarter this year, are looking to augment their supply and they have started floating enquiries. Once these enquiries crystallize into actual orders by them, I would expect prices to move up further.
Q - China has now turned into a net importer. How is that going to impact your demand since the volumes are actually flat on a QoQ basis? If you look at the second quarter, do you sense a major support and an up tick from China? About 61% of your topline still comes from your domestic markets. How is that expected to pan out over the next couple of quarters?
A - Our focus is always on the domestic market because in India there is a very high demand-supply gap in coal and coking coal. We are the second largest importers of coking coal from Australia and have been the largest importer of coke from China.
This year, China has stopped coke exports; from about 14 million tonnes to 15 million tonnes they are expected to export less than a million tonne. With respect to coking coal, compared to their imports of about 4 million tonne to 5 million tonne this year they are set to import about 25 million tonne to 30 million tonne. This has actually changed the dynamics of the coking coal market and the spot has been tighter at USD 170 as compared to USD 125 to USD 128 at the counter price. I feel that USD 170 to USD 175 would be a pretty high number for coking coal and it will push up costs in the steel industry certainly.
Q -You had plans to raise USD 60 million through a foreign currency convertible bond (FCCB). Are there any fund raising plans and are your CAPEX plans intact?
A - Our CAPEX plans are more or less on stream. At the moment, we are concentrating on putting up the vested power plants which we expect to start putting up online from next year. The quarter million tonne expansion is already complete and it is in procedure of being heated up. In overseas, we have already started the longwall in the Longville Coal Hearing.
Now we are in the process of placing order for longwall for the first mine, which we would expect to be operational in about two years time. This year, our coal production is almost doubling compared to last year. It is up by 30% to 40%. For fund raising in India, we are contemplating a USD 50 million to USD 60 million FCCB for which the reservations is with the share holders.
Q - You are going to become pretty much an integrated coke supplier once Australia comes on stream. Will it cater to all your raw material requirements? When will it come in stream? I believe you needed around USD 700 million. Would you be looking at some further sort of equity infusion into your Australian subsidiary? Are there some more forms of fund raising going forward?
A - Currently, we are holding around 82% to 83% in the Australian subsidiary. The fund requirement, over the next four years, is about USD 500 million. More than half of which will come from internal accruals. The balance will be raised with a mix of debt and equity. We are prepared to dilute our equity from the current 82% to 70% or 60%. This will be done to infuse liquidity into that market and also to get funds.
(Sourced from CNBC-TV18)
