Goa Carbon: Recommendation Review

We had recommended Goa Carbon to our investors in DSIJ Vol. 26 Issue No. 10 (dated April 25-May 08, 2011) when the scrip was trading at Rs 93.50. Our recommendation was backed by factors like the consistent dividend payment history of the company, good financial performance and capacity expansion plans of around 280000 MTPA in a JV with Sinoway International Holdings, Hong Kong. In addition to these factors, the realisations were moving northward and we expected the volumes for Calcined Petroleum Coke (CPC) to remain stable.

We had reviewed the scrip in DSIJ Vol. 26 Issue No. 17 (dated August 1-14, 2011), when it was trading at Rs 91. Citing factors like the dividend yield and sustained margins, we recommended that investors should hold the counter. However, the scrip has witnessed a decline since then and is trading at Rs 73, down 22 per cent. The primary factor behind the decline is a lacklustre show during the December 2011 quarter, wherein the company posted a loss of Rs 2.90 crore on account of poor realisations. Further, the frequent closure at the Goa, Bilaspur and Paradeep plants due to lack of demand from domestic as well as export markets impacted its overall performance.

Capacity expansion in terms of the JV with the Hong Kong-based company is on stream and will be completed in the H2 2012. However, one major problem is that the company has foreign currency loans payable in FY13. It has already accounted for the exchange loss of Rs 14.15 crore in the 9M FY12. With the demand for commodities yet to pick up, rising crude prices have only made matters worse for the company. We recommend that investors should exit from the counter.