Gujarat NRE

A Strategy Analysis

Prepared By:

Abhishek Dalvi

Mangesh Gulkotwar

Rohit Sharma Kadiyala

Akshat Malhotra

Vijay Pareek

Shruti

Mehul Panchal
Strategy Formulation & Implementation – Gujarat NRE Coke Ltd. Page 1
 TABLE OF CONTENTS

INTRODUCTION......................................................................................................................3
GUJARAT NRE COKE.............................................................................................................5
Manufacturing........................................................................................................................5
Mining....................................................................................................................................5
Performance............................................................................................................................6
Listing.....................................................................................................................................6
Future Plans............................................................................................................................7
Business Plans........................................................................................................................7
Subsidiaries.............................................................................................................................7
INTERNAL ANALYSIS...........................................................................................................9
VRIO FRAMEWORK...........................................................................................................9
Corporate Governance............................................................................................................9
Organizational Structure.......................................................................................................10
Envioronment Conservation.................................................................................................11
Financial Strength.................................................................................................................12
EXTERNAL ANALYSIS........................................................................................................13
Industry Overview................................................................................................................13
World Industry......................................................................................................................13
Domestic Industry................................................................................................................14
Sourcing Coking Coal..........................................................................................................15

Strategy Formulation & Implementation – Gujarat NRE Coke Ltd. Page 2

 INTRODUCTION

Lets first get to know our product better !!!

What is Metcoke?

Coke is made by destructive distillation of a blend of selected Bituminous coals (called

Coking coal or Metallurgical coal) in special high temperature ovens in the absence of
oxygen until a greater part of the volatile matter is driven off. The resulting product, COKE,
consists principally of Carbon. 

Traditionally, chemistry, size & strength (both cold as well as hot) have been considered the
most important properties for use in the blast furnace. The quality of the constituent coals
determines the characteristics of the resultant coke.

Coke is primarily used to smelt iron ore and other bearing materials in blast furnaces, acting
both as a source of heat and as a chemical reducing agent to produce pig iron or hot metal.
Coke, iron-ore and limestone are fed into blast furnace, which runs continuously. Hot air
blown into the furnace burns the coke, which serves as source of heat and as an oxygen
reducing agent to produce metallic iron. Limestone acts as a flux and also combines with
impurities to form slag. Coke also serves as a structural material to support the deep bed of
coke/iron oxide/limestone that makes up much of the furnace volume. It is in this last role
that its properties are crucial. It is important that it does not degrade (e.g. break up into small
particles) during its descent through the oxidizing hot gases passing through the stock region
of the furnace.

To produce high quality blast furnace coke, high quality coal must be used. High quality
coals are those coals that when coked together produce the highest stability and CSR (Coke
Strength after Reactivity) to support the blast furnace burden and allow maximum
production.

Low Ash Metallurgical Coke (LAMC) is required for metallurgical and chemical industries
and is used as the primary fuel where high temperature and uniform heating is required.

Potential Customers:

The industrial consumers of LAMC include

a. Integrated steel plants

b. Industry/foundries producing Ferro Alloys, Pig Iron, Engineering Goods, Chemicals,

Soda Ash and Zinc units etc.

Coke is an essential raw material for many industries. Hence we need to look at the industry
structure in line with the major consuming sectors of the economy.

Integrated steel producers 

The Indian coke industry is dominated by the integrated steel plants (ISPs). These units

Strategy Formulation & Implementation – Gujarat NRE Coke Ltd. Page 3

possess captive coking facilities. The production of coke by the ISPs is estimated at around
13.70 million tonnes (FY 2007-08). Coke produced by these units is a blend of imported coal
and indigenous varieties; hence, the coke quality differs with each producer and cannot be
sold in the open market in large quantities.

Secondary steel sector (Mini Blast Furnaces)

There are currently more than 20 pig iron producing units (mini-blast furnace route). These
units need an annual 9.74 million tonnes of coke for their operations. Presently, only a few
companies possess captive coke manufacturing facilities while the other units rely largely on
imported Chinese coke.

India is the fifth largest producer of steel in the world and is slated to become the second
largest by the year 2015-16. With a benchmark of even 200 million tonnes of steel by 2020,
India faces an acute shortage of coking coal. Every tonne of steel produced in the blast
furnace route requires one tonne of coking coal. For additional 150 million tonnes of steel, at
least 120 million tonnes of additional coal would need to be imported (assuming 80% of new
capacity using the BF route).

Foundries, chemical units

 Large number of small consumers scattered throughout the country.

 Their individual consumption is not large enough to justify the setting up of a captive
coke plant.
 Continued dependence on merchant cookeries/imported coke.
 Cumulative demand by the foundries is estimated at around 3 million tonnes per
annum.

Chemical/zinc units

 Few units in this category primarily concentrated in the west.

 Gross annual demand estimated at around 2 million tonnes.
 Demand met by local production.

Strategy Formulation & Implementation – Gujarat NRE Coke Ltd. Page 4

 GUJARAT NRE COKE

Gujarat NRE Coke Limited, the largest independent manufacturer of Low Ash Metallurgical
Coke in India, has been a profit making organization since its inception in 1986. The
company became a public limited company on 5th July, 1993. From the year 1998, under the
able leadership of Mr Arun Kumar Jagatramka, the  company has  witnessed growth @
speed of thought.

Manufacturing
The Company started coke manufacturing in its first facility located at Khambhalia,
Jamnagar, with 3 chimneys and a production capacity of 0.1 million tonnes per annum (TPA)
in 1994-95. Since then, the company has grown in leaps and bounds. At present, three
existing coke plants in Bhachau and Khambhalia in Gujarat and Dharwad in Karnataka
produce Met Coke – a commodity of critical importance to keep India’s steel dream burning.
At present GNCL has an total installed capacity of 1.25 MTPA of Low Ash Metallurgical
Coke (Met Coke). Gujarat NRE operates a state of the art steel plant of rolled and alloy steel
products of 0.311 MMTPA at Bhachau in Gujarat. The company also has two coal washeries
with installed capacity of 0.75 MMTPA each, fully operational in Khambhalia as well as in
Bhachau in Gujarat. These coal washeries located adjacent to the coke plants in Gujarat, wash
and sort coal imported from Australia. In addition, it has invested in wind farms with total
power generation plan through waste heat 240 MW close to its plant site to get low cost
power and save precious natural resources. Moreover, all plants have captive power plants
(under commission) to generate electricity from the waste heat emanating from the coke
making process. The company has always strived to maintain the highest quality standards
and has the distinction of being the first Indian company to have exported Met Coke from
India to Europe and South America. In 2004, the company exported the first ever coke
consignment from India to Brazil and subsequently to South Africa. It further strengthened its
presence in international market by exporting coke to Italy in June 2005. Through repeat
orders and adhering to the best of standards, the company has consolidated its export market
in South America, Brazil and South Africa.

Mining
The Company owns and operates 2 coal mines, NRE No.1 Colliery and NRE Wongawilli
colliery (Avondale and Elouera collieries consolidated to NRE Wongawilli Colliery) having
about 560 million tonnes insitu resources of finest grade metallurgical coal with excellent
coking properties. 

NRE No. 1 Colliery (formerly know as South Bulli Colliery), spreading over 6421hectares
with  resources of over 300 million tonnes of coking coal and located in the Southern
Coalfields of New South Wales, Australia.

NRE Wongawilli colliery (Avondale and Elouera colliery) has  estimated coal resource of
about 260 million tonnes. The company is working to emerge as one of the largest coking
coal producers in Australia. Mining facility is being refurbished  at a steady pace, and
production is being progressively increased to 7 million tonnes per annum by 2015.

Mineral Resources – Strategic Investment

It has made strategic investment in Sydney based Rey Resources Limited which gives it the

Strategy Formulation & Implementation – Gujarat NRE Coke Ltd. Page 5

exploration access to a previously unexplored area of about 4000 sq kms in Western
Australia. The wholly owned subsidiaries of Rey Resources Limited are also scouting for
copper and gold in South America, which too will add to the NRE basket of resources. Such
partnerships strengthen the position of the Company in terms of long-term coal supply and
market positioning in commodity market.

The company also has a strategic investment in Pluton Resources Limited (also listed in
ASX). The investment is directed towards securing various exploration licences and
exploratory work in Australia, targeting gold, silver, copper, iron ore and possibly uranium
amongst other minerals.

The company with startegic investment of around 11% in Pike River Coal Ltd, New
Zealand, the producer of Ultra Low-ash  coking coal, for supply of 0.4 million tonnes per
annum. That coal having about 1% ash content can be termed as blending sweetener.

Performance
The company has experienced robust growth at a CAGR of 50% with its turnover showing a
magnanimous increase from Rs.56.36  cr in 2000-01 to Rs. 1308.02 cr. in quarter ended
December 2008. During the same period, the profits of the company have risen sharply from
Rs.  Rs.4.16cr to Rs. 210.41cr. The company has continuously rewarded its shareholders
through dividends and bonus issues. The company has given 5 bonuses in the last 6 years and
has consistently paid dividends on the enhanced equity base thereby increasing the receipts in
the hands of the stakeholders. The company has paid an aggregate dividend per share of
Rs.67.23 in the last 8 years (from 2001), totaling Rs.216.76 cr.

The company prides itself in being environment friendly and has espoused a slew of
measures in keeping with this mission. It has adopted the non-polluting non-recovery
technology of coke manufacture and has invested in  wind farms in Gujarat for a clean form
of renewable energy, saving precious fossil fuel. This has enabled the company to be eligible
of being a beneficiary of Carbon Credit under the Kyoto Protocol Agreement.

Listing
Gujarat NRE Coke is the first company to be listed in this sector, and today stands peerless,
widely held and way ahead of its competitors. The stocks of the company are traded on the

Strategy Formulation & Implementation – Gujarat NRE Coke Ltd. Page 6

Bombay and National Stock Exchanges of India and have seen constant appreciation of
capital. Against an investment of Rs.3.75 per share in June 2001, the investor received a total
dividend of Rs.68.48 per share plus holding shares worth Rs.761 (adjusted for bonus issues)
as on 30th October 2009, thereby depicting a compounded return of 103% per annum over
the last 9 years on an average.

Future Plans
The unprecedented crash in the commodity prices witnessed during the second half of the
financial year 2008-09 coupled with global inancial crisis had a major impact on the
companys performance during the year under review. The market took its own time to
regroup, stabilise and commence recovery. The lower commodity price along with the fall in
margins affected the companys topline and bottomline. Consequently, the Company reported
income from operations of Rs.246.98 Crores during the financial year ended 31st March,
2010 as compared to Rs 357.01 Crores during the previous year. The net profit after tax
earned during the financial year ended 31st March, 2010 amounted to Rs. 51.87 crores as
compared to Rs.107.24 crores during the previous year.

This was 6th bonus issue by your Company in the span of last 7 years.

Business Plans
Your Company continues to focus its business plans on its core competence i.e. coking coal
and metcoke. It owns and operates through its Subsidiaries, two coking coal mines in
Australia having an estimated resource of 560 million tonnes of good quality coking coal.
The mines are under production and are undergoing extensive expansion, which would take
the projected output to around 6 million tonnes in next 3-4 years. It also holds strategic stakes
in various resource companies in Australia and New Zealand through its Australian
Subsidiaries. The Company also plans to increase its existing metcoke producing capacity of
1.25 MTPA by setting up Greenfield and Brownfield coke plants in the States of Andhra
Pradesh, Gujarat and Karnataka by ramping up the total production capacity to around 4
million tonnes per annum in a period of another 3-4 years. In line with its commitment to
cleaner environment, your Company has already undertaken implementation of power plants
through waste heat recovery for captive consumption having a capacity of 60 MW which are
expected to be implemented in phases by 2011-12 in addition to the existing capacity to
generate 87.5 MW of power through wind mills.

Subsidiaries
Your company strongly believes that coking coal imports would be essential to keep the
Indias steel dreams burning as India takes giant strides in its quest to become second largest
producer of steel by 2020. Accordingly, the Company has already invested around $ 300
million in its mining operations in Australia with plans to further invest $ 400 million to
ensure sufficient supply of coking coal to its production facilities in India. The Company
manages its mining operations in Australia through its wholly owned subsidiary M/s. Gujarat

Strategy Formulation & Implementation – Gujarat NRE Coke Ltd. Page 7

NRE Ltd and other wholly owned subsidiaries as well as step down subsidiaries. The mining
of premium quality low ash coking coal at both the mines in Australia are going on as per
schedule and it is expected to cross 2 MTPA by the end of the financial year 2010-11. The
summary of financial performance of the these subsidiaries is provided in the statements
under Section 212 of the Companies Act, 1956 annexed to the Annual Accounts. The wholly
owned Indian subsidiaries of the Company, M/s. Manor Dealcom Pvt. Ltd recorded an
income of Rs.3.72 lacs and net profit after tax of Rs.3.13 lacs for the year under review as
compared to an income of Rs. 0.80 Lacs and net profit after tax of Rs. 0.14 Lacs respectively
reported last year. M/s. Huntervalley Coal Pvt. Ltd recorded an income of Rs.4.48 lacs and
net profit after tax of Rs.3.78 lacs as compared to an income of Rs. 0.74 Lacs and net profit
after tax of Rs. 0.13 Lacs respectively reported last year.

Strategy Formulation & Implementation – Gujarat NRE Coke Ltd. Page 8

 INTERNAL ANALYSIS

VRIO FRAMEWORK

Rarity

Value
Internal Imitability
Analysis

Organization

It is carried out to ascertain if a company has the resources and capabilities to gain
competitive advantage. Hence resources and capability are measured on the four factors:

 Values

 Rarity

 Imitability

 Organization

We now look at the various resources available at Gujarat NRE Coke Ltd.

Corporate Governance

Gujarat NRE Coke Limited defines Corporate Governance as a systematic process by which
companies are directed and controlled keeping in mind the long term interest of the
stakeholders. It firmly believes that good Corporate Governance is the foundation of
corporate excellence. It focuses on equitable treatment of all shareholders and reinforces that
it is “your company” and it belongs to you, the shareholders

Strategy Formulation & Implementation – Gujarat NRE Coke Ltd. Page 9

Gujarat NRE Coke is committed to good Corporate Governance by creating an environment
based on entrepreneurship, professionalism and pursuit for excellence.

The company’s corporate governance is based on two core principles:

 Management must have executive freedom to drive the enterprise forward without
undue restraints: and
 This freedom of management must be exercised within a framework of effective
accountabilit

The above belief and core principles of Corporate Governance adopted by Gujarat NRE Coke
leads the company’s governance philosophy, trusteeship, transparency, independence,
fairness, accountability and social responsibility, which in turn is the basis of public
confidence in corporate system.

Organizational Structure
Board of Directors  

The Board of Directors of Gujarat NRE Coke Limited comprises of individuals from various
fields in manufacturing and finance with substantial years of experience in their respective
fields. The Board has been framed keeping in view the best practices in Corporate
Governance.

Mr Girdhari Lal Jagatramka (Chairman Emeritus)

Mr Girdhari Lal Jagatramka, is the main promoter of GNCL. He has more than five decades
of business experience. Mr Jagatramka started with the business of trading coke with Bharat
Coking Coal Ltd. (BCCL). Thereafter, he took up the project of manufacture of Metallurgical
Coke in Gujarat NRE Coke Ltd.

Mr Arun Kumar Jagatramka (Chairman & Managing Director)

Mrs Mona Jagatramka (Director)

Mr Subodh Kumar Agrawal (Director)

Mr Chinubhai R. Shah (Director)

Dr. Basudeb Sen (Director)

Dr. Mahendra Kumar Loyalka (Director)

Mr S. Murari (Director)

Chief Financial Officer: Mr P. R. Kannan

Company Secretary: Mr Manoj K Shah

Strategy Formulation & Implementation – Gujarat NRE Coke Ltd. Page 10

Envioronment Conservation
Gujarat NRE Coke is an environmentally responsible corporate citizen. Our resolute
commitment to contribute to a healthy environment is reflected in our name, "NRE stands
for Natural Resources and Environment." The company does not believe that it has
received the earth’s resources on inheritance, but rather views itself as a custodian,
conserving and creating wealth for the children of tomorrow. The belief that environment
conservation is fundamental to the survival of any organization combined with a desire to
contribute more to the environment than what we acquire from it, has led us to adopt a
proactive strategy to save the earth, and in implementing stringent pollution control measures.

Rainwater Harvesting

Bhachau receives an annual rainfall of around 500 mm. This arid region receives scanty
rainfall and has an acute shortage of water. Gujarat NRE coke has introduced rain water
harvesting near its plant in Bhachau. It has built two large ponds where rainwater is collected
and the entire water is recycled and resued in the plant.

Gujarat NRE Coke has also made investments in erecting check dams in Bhachau in
partnership with Government of Gujarat for the purpose of rainwater harvesting

Green belts have been constructed covering a considerable portion in and around the plant
area in all the three plant locations. Annual plantation activities are also carried in
continuation of this effort.

Clean Power Generation

Gujarat NRE Coke has made considerable investments in wind power generation. It has an
installed capacity of 87.5 MW clean energy.

The company is also in the process of commissioning 60 MW waste heat recovery power
generation facility

Clean Technology in production

The company employs non-polluting non-recovery technology in coke production, which is

inherently superior in environmental cleanliness as it operates under negative pressure. This
results in drawing in air if there are any leaks in the coke oven chamber gates, rather than
letting out polluting gases. Further, the vibrating screens and cutters are covered to control
the releases of coal dust into air thereby reducing air pollution.

GNCL is a part of the emerging carbon credit market through Clean Development
Mechanism (CDM) under the Kyoto Protocol agreement. The efforts of the company towards
reducing greenhouse gas emissions have made the company eligible for earning carbon
credits, which besides generating increased returns will strengthen its commitment of being a

Strategy Formulation & Implementation – Gujarat NRE Coke Ltd. Page 11

socially responsible citizen. The company enjoys a clean environment record and is a
recipient of the Greentech Safety Silver Award in June 2003, in recognition of its
environment management initiatives.

Financial Strength
Liabilities have been reduced by 120 Cr to 558 Cr in the FY 2009-10.

Current Assets have increased from 1716 Cr to 1961 Cr in the said financial year.

Reserves and Surplus have increased from 671 Cr to 852 Cr.

The profit after tax has dropped by more than 50%

Strategy Formulation & Implementation – Gujarat NRE Coke Ltd. Page 12

 EXTERNAL ANALYSIS

Industry Overview
Coke is a derivative of coking coal. It plays a very significant role in the metallurgical
process. Coke is the main source of heat and is also the reducing agent required to facilitate
the conversion of metallurgical ores into metal during the smelting process.

Coke production has traditionally been captive in the integrated steel and pig iron plants.
Hence there is no surplus for merchant trading. As far as India is concerned, most of the coke
oven batteries are located in the eastern region of the country in proximity to steel units. As a
result, coke consumers in the western and southern regions rely primarily on imported coke.

Coke also finds application in a number of other sectors such as the cement industry, pit
furnaces for small castings and gas producers among others.

World Industry

The world coke consumption in 2001 - 357 million tonnes

The world coke consumption in 2007 - 698 million tonnes

In North America, coke production has declined over the last decade. The shortage is
currently estimated at 7.5 million tonnes and is likely to increase. In UK and France each, a
shortage of two million TPA has been estimated. Other European countries are also shutting
capacity and coke-manufacturing capacities are being relocated to Asian countries.

Major Competitor

China is the leading coke producer in the world. Its total consumption of coke was about
111 million tonnes in 2001 and increased to 360 million tonnes in 2008.

Its annual coke exports have increased from around 600 tonnes in 1986 to 15.27 million
tonnes in 2007, which was more than 50 per cent of the world’s total trading volume of coke.

In the wake of present downturn, the exports have declined to around 80000 to 85000 tonnes
monthly, as is clear from the December’08 and January’09 figures. China’s coking coal
output in 2007 stood at 335 million tonnes, accounting for nearly 60% of global production.
China’s coke finds market in more than 30 countries and regions in the world.

Strategy Formulation & Implementation – Gujarat NRE Coke Ltd. Page 13

Domestic Industry

India has the fourth largest proven reserve of coal. Though India has 257.38 billion tonnes of
reserve, Indian coal is of poor quality, with high ash content. Nearly 83% of Indian coal
reserve is of non-coking variety. Out of the 456.4 million tonnes of coal produced in 2008,
power, steel and cement sectors accounted for 77%, 4% and 3% of the offtake respectively.
57% of India’s coal import in 2008, accounted for coking coal. The main source of imported
coking coal is Australia.

The demand and production of coke in India for 2008 is:

(million
Production (million tonnes)
Demand1 tonnes)
Integrated steel plants 14.70 Integrated steel plants 13.70
Secondary steel sector 9.74 Secondary steel sector 3.39
Foundries 3.00 Dhanbad/East coast cookeries 4.50
Others 2.00 Met coke plants (West cost) 2.70
TOTAL 29.44 Total 24.29
DEFICIT 5.15    

1
Internal Company Estimates

Strategy Formulation & Implementation – Gujarat NRE Coke Ltd. Page 14

Coking Coal Demand Projections (in million tonnes)

Year 2004/05 2006/07 2011/12

Coke consumption 21 25 60
Coking Coal Required 28 35 84
Indian Coal 8 8 9
Net Import Demand (equivalent coal) 21 27 75

In India, the merchant metallurgical coke capacities are largely situated in western
India, logistics and proximity to a large consumer market being the primary factors
contributing to this skewed concentration. 
In the East, there are a large number of small cokeries with capacities ranging
between 6,000 TPA to 48,000 TPA. Their cumulative capacity is estimated at around
50 lac TPA. These units are primarily situated near the Dhanbad coal belt. Besides,
there are government-owned coke plants on the east coast.

OPPORTUNITY:

GNCL manufactures LAMC of various specifications and sizes, customized to meet the
requirements of the clients. This also helps build a healthy relationship which translates into a
long term relationship. With the economy looking very buoyant after the speedy recovery the
demand outlook for superior quality coke seems good and the company is striving to bridge
the demand supply gap by adding fresh capacity and manufacturing high quality coke.

Sourcing Coking Coal

Major operating mines of coking coal are found in Bowen Basin in Australia, Shanxi in
China, Western Canada and Appalachia in USA. Coking coal deposits are also available in
Mozambique, Mongolia, Elga in Russia and Maruwai in Indonesia.

Coke is one of the major inputs in steel making. Rapid economic growth and on-going
domestic infrastructure developments in the Chinese steel market is propelling the global
steel demand. The global steel industry is likely to resurface from the volatile conditions
witnessed in the recent past. The spurt in demand is projected to aid in rapid industry
consolidations and capacity expansions mostly in China and other countries in the Asia-
Pacific region.

China is the largest steel market as well as the largest producer of steel in the world. Demand
for steel in China is projected to reach 595 million metric tonnes by the year 2012, at a very
high CAGR of about 16%, as stated by Global Industry Analysts, Inc.

The steel industry in China, which represents 36% of global steel output, accounts for nearly
70 per cent of the total demand for coke. The rapid infrastructure development in China has
turned the country into a steel importer as opposed to its traditional status of being a steel

Strategy Formulation & Implementation – Gujarat NRE Coke Ltd. Page 15

exporter. Consequently, coke being produced in China is being consumed internally.
This has created a major imbalance in the worldwide coke trade.

United States is the second largest market and the steel consumption was estimated to be
over 133 million metric tonnes for the year 2007.

The current Global Steel Market is over 1.5 Billion Metric Tonnes.

The graph depicts the extreme price volatility of coking coal and coke prices. Coke prices,
like that of all other commodities are cyclical in nature. While many try to ride the cycle, no
one can claim complete knowledge of the same, which continues to baffle and burn with
impunity.

ACTION TO BE TAKEN

Long term commitment to the business is required from Gujarat NRE, which has already
been the case, to ensure that every time the prices go down, the downturn can be used to
invest in capacities, to create and enhance production facilities so that when the upturn
comes, production can meet demand and more wealth can be created.

Strategy Formulation & Implementation – Gujarat NRE Coke Ltd. Page 16

 External Environment Analysis:

Michael Porters Five Forces Model

Rivalry among Competing firms: Medium

 Gujarat NRE is the largest independent manufacturer of Met Coke in India

 It is the only company with coking mines outside India (It has 2 mines in Australia)
 The company is set to emerge as one of the largest coking coal manufacturers in
Australia
 Domestic Competitors: BLA Industries, Saurashtra Fuels and Antai Balaji. But these
are much smaller than Gujarat NRE
 Much larger Met Coke plants are present like SAIL, TISCO and RINL but these are
for captive consumption
 Many of GNCLs customers are small foundries, they cannot integrate backwards and
set up Met Coke plants

Threat of new entrants: Low

 Initial investments required are very high

 Coke reserves in India are not of good quality, a Met Coke company therefore has to
have presence in markets like Australia to successfully compete in he market

Strategy Formulation & Implementation – Gujarat NRE Coke Ltd. Page 17

Threat of Substitute products: Low

 Steel manufacturing industry picking up after recession

 India, China going in for major investments that will require huge amounts of Met
Coke

Bargaining power of Suppliers: Low

 Current demand of Met Coke exc eeds the supply

 Gujarat NRE owns coal mines in Australia that produce high quality coke in high
quantities

Bargaining Power of Buyers: Low

 Since Gujarat NRE is the largest player in the industry, Prices can be set upon with a
certain degree of confidence.
PRICING POLICY
While price (per unit) of ‘primary commodities’ such as, agricultural products and
minerals is observed to be determined by the market forces of demand and supply,
the price of ‘manufactures’ is determined /administered by firms based on the average
/marginal cost to accommodate profits. The margin of ‘mark-up’ in turn, depends on
the degree of monopoly is thus able to charge a higher margin of mark-up compared
to a competitive firm.

Strategy Formulation & Implementation – Gujarat NRE Coke Ltd. Page 18

 If a public sector has a monopoly in supply ,it may fix its price at the level that will
maximize the mark –up as well as the gross profits .that may not ,however ,happen
since the government may intervene to moderate the price in the interest of consumers
or the user industries .In general ,the governments fix/administer the price in the
interest the price of goods (and services) being produced by public sector entities
based on
(a) The true costs of goods and services,
(b) Cross subsidization between one group and another or between one sector and
another,
(c) Below the costs if that can stimulate demand under conditions of excess/
unutilized capacity,
(d) Differential prices norm for peak and off-peak demand and
(e) Different prices /multi-tariffs to include discounts for purchase of larger volumes
or for various other incentives.

The public sector enterprises in India have had to work under the price regime, for
goods and services produced by them, administered by the Government.
Paradoxically, while these central public sector enterprises had to avail the
government approval for fixing their prices, they have been price takers for the inputs
they utilised for their respective outputs. As such, if the output prices were not raised
and the inputs cost went up, this led to losses to these enterprises. Better capacity
utilisation meant larger losses to the enterprises. This situation was reviewed in the
wake of post- 1991 economic liberalisation. With the dismantling of administered
price mechanism there after the price of products and services of these central public
sector enterprises are now determined on economic grounds and by the market forces.

The central Government was empowered under the CCO (colliery control order),
1945 read with the Essential Commodities Act, 1955 to fix the grade wise and colliery
wise prices of coal. The pricing of coal has been completely deregulated after the
Colliery Control Order, 2001 notified w.e.f 1 st January 2000 rescinding the Colliery
Control Order, 1945. Under the Colliery Control Order, 2000, the Central
Government has no power to fix the prices of coal and coal companies themselves are
competent to fix grade–wise prices of coal produce by them based on economic
grounds. The extant pricing policy in regard to coal supply to power and other sectors
is under examination of the Government. In respect to coking coal and LAM COKE
imported from abroad,
Importers are free to determine their selling prices in the domestic market without any
restrictions.

Strategy Formulation & Implementation – Gujarat NRE Coke Ltd. Page 19