GEECL earnings underline financial resilience during COVID

Despite challenging market conditions and complete lockdown triggered by the COVID pandemic, Great Eastern Energy Corporation Ltd. (“GEECL”) has demonstrated a resilient business model, reporting a healthy cash profit and reducing the company’s overall debt, the U.K. based leading brokerage and research firm, SP Angel (“SPA”) has said in its post-earnings report. GEECL, which is listed on the London Stock Exchange and operates a coal bed methane project in West Bengal, reported its earnings for the first half of the current financial year (April-March) on Wednesday.

GEECL reported revenues of US$13.1m for the first half of the financial year compared to US$19.2m a year ago on a constant currency basis with the YoY drop attributed to the national lockdown in India from 23 March 2020 until the end of June 2020. The lockdown to combat the spread of COVID has subsequently been gradually relaxed.

While the slowdown in economic activity adversely impacted sales in H2 2020 and H1 2021, the company has taken appropriate measures to minimize the impact by optimizing costs and increasing efficiencies.

This has led to a healthy EBITDA of US$6.9m (H1 2020: US$11.15m) and a cash profit of US$3m in the period. Further, underlying the performance in H1 despite the COVID impact, the gross debt of GEECL fell by US$6.6m in the period to US$68.3m, and net debt fell ahead of SPA estimates to US$58.9m (H1 2020: US$63.0m, SPA est. US$59.1m).

According to the brokerage’s note, bucking the trend of much of GEECL’s E&P peers, the Company maintains a prudent approach to capital discipline, continuing to pay down its debt position and not taking up the optional debt moratorium allowed by the Reserve Bank of India due to COVID-19.  This has resulted in a significant fall in GEEC’s net debt/equity ratio to 0.64 (H1 2020: 0.71). On current market trends and additional revenues weighted to H2 2021, SPA has forecast that GEECL will end its financial year with a net debt position of c.US$55m.

As per SPA, the company will continue to remain robust in its liquidity position given a stable pricing model and an unchanged receivable position relative to revenues. With the gradual resumption of overall economic activities, operations of the Company effective second quarter started moving towards normalcy.

Operationally, GEECL has been progressing in a manner resulting in further incremental production increases and cash flows. The much anticipated GAIL gas pipeline is reported to complete in February 2021 which will help in expanding the business for GEECL.  The pipeline will run adjacent to GEEC’s acreage resulting in increased connectivity to the considerable Kolkata market, enhancing project economics, and acting as a springboard for the Company’s aggressive 144-well drilling campaign commencing next year.

Once completed, the pipeline will enable connectivity to several large industrial plants, in addition to 25 others across areas where City Gas Distribution rights have been awarded. The total demand in the region is envisaged at c.700MMscf/d allowing GEECL to significantly ramp up its operations at Raniganj (South) given the exponential demand.

In conclusion SPA’s take is as follows: A positive set of figures released today, and shareholders will be encouraged by the financial resilience exhibited in challenging market conditions in our view. The Company’s strategy of optimizing production, as well as pursuing further exploration continues, as is the exploitation of its potentially transformational shale acreage. More recently, the Indian Government has taken positive steps to accelerate growth in the country’s economy, and as a result, demand for hydrocarbons in India continues to grow, recently evidenced from rising LNG import data. Today’s results further highlight the Company’s compelling investment case in our view, outperforming much of its peer group. GEECL’s current valuation, therefore, remains deeply undemanding and we reiterate our STRONG BUY stance and 252p/share Target Price.

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