basic eps of the company stood at rs. 25breport.myiris.com/firstcall/gujstafc_20110623.pdf2011/06/23...
TRANSCRIPT
1
SYNOPSIS
Gujarat State Fertilisers & Chemicals (GSFC) incorporated in 1962, is engaged in manufacturing of fertilizers and industrial products. It was earlier known as Gujarat State Fertilizer Company (GSFC) which was joint sector enterprise set up by the Government of Gujarat.
GSFC's incessant strive for product diversification and value addition has created a product mix ranging from more than 24 brands of fertilizers to petrochemicals, chemicals, industrial gases, plastics, fibers and other products.
The Company has marketing network spread across India in states like Andhra Pradesh, Chhattisgarh, Gujarat, Haryana, Karnataka,MadhyaPradesh, Maharashtra, Punjab, Rajasthan, Daman and Uttar Pradesh.
Net Sales and PAT of the company are expected to grow at a CAGR of 15% and 61% over 2010 to 2013E respectively.
During the quarter, the company has reported Net Profit increased to Rs.2051.40 million from Rs. 368.20 million in previous year same quarter.
Years Net sales EBITDA Net Profit EPS P/E
FY 11 47550.50 12726.30 7493.70 94.02 3.64
FY 12E 54207.57 15739.12 9490.00 119.07 2.87
FY 13E 60712.48 17605.76 10606.64 133.08 2.57
Stock Data:
Sector: Fertilizers
Face Value Rs. Rs.10.00
52 wk. High/Low (Rs.) 412.90/230.00
Volume (2 wk. Avg.) 21000
BSE Code 500690
Market Cap (Rs.In mn) 27257.40
Share Holding Pattern
1 Year Comparative Graph
Gujarat State Fertilisers
& Chemicals Ltd BSE SENSEX
C.M.P : Rs.342.00 Target Price : Rs.390.00 Date : 23rd June 2011 BUY
GUJARAT STATE FERTILIZERS & CHEMICALS
LTD
Result Update: Q4 FY 11
2
Peer Group Comparison
Name of the company CMP(Rs.) Market
Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)
Gujarat State Fert 342.00 27257.40 94.02 3.64 0.96 45.00
National Fert 90.00 43857.7 2.82 31.70 2.55 10.50
Coromandel Intl 322.75 91012.6 24.63 13.11 6.34 500.00
Zuari Inds 634.50 18680.1 56.68 11.19 1.51 45.00
Investment Highlights
Q4 FY11 Results Update
Gujarat State Fertilizers & Chemicals Ltd disclosed results for the quarter ended
March 2011. Net sales for the quarter moved up 43% to Rs.11224.90 million as
compared to Rs.7825.50 million during the corresponding quarter last year.
During the quarter, the company has reported PAT increased to Rs.2051.40
million from Rs. 368.20 million in previous year same quarter. The Basic EPS of
the company stood at Rs.25.74 for the quarter ended March 2011.
Quarterly Results - Standalone (Rs in mn)
As At March-11 March-10 %change
Net sales 11224.90 7825.50 43
PAT 2051.40 368.20 457
Basic EPS 25.74 4.62 457
3
Basic EPS of the company stood at Rs. 25.74
4
Break up of Expenditure
Expenditure for the quarter stood at Rs.8055.30mn, which is around 12% higher
than the corresponding period of the previous year. Consumption of Raw Material
cost of the company for the quarter accounts for 52% of the sales of the company
and stood at Rs.5850.30mn from Rs.4959.20mn of the corresponding period of
the previous year. Other Expenditure cost increased 5%YoY to Rs.1172mn from
Rs.1119.70mn and accounts for 10% of the revenue of the company for the
quarter.
OPM and NPM for the quarter stood at 31% and 18% respectively from 13% and
5% respectively of the same period of the last year.
5
FY11 Performance
Net profit of the company has increased at 194% yoy Rs.7493.70mn from
Rs.2544.80mn of same period of last year. Total revenue for the year stood at
Rs.47550.50 mn from Rs.40191.90 which is 18% increased than that of a year ago.
EPS for the year stood at Rs.94.02 per equity share of Rs.10.00 each.
Operating profit of the company stood at Rs.12726.30mn. OPM for the year stood
at 26.76%. Expenditure of the company increased 0.34% YoY to Rs.35836.20 mn.
Interest expenses for the year stood at Rs.137.80mn.
Segment Revenue
6
Board recommends Dividend
Gujarat State Fertilizers & Chemicals Ltd has recommended a dividend of Rs.
7.00 per Equity Share of Rs. 10/- each (70%).
Company Profile
With a market presence exceeding 45 years GSFC has carved out an irreplaceable
image for itself on the Indian marketing scene. Integration of technologies and brilliant
innovative research ensures that the products touch all walks of life. From household
consumer to core industrial consumer, GSFC continuously fulfils multi-fold needs of
the market.
GSFC's incessant strive for product diversification and value addition has created a
product mix ranging from more than 24 brands of fertilizers to petrochemicals,
chemicals, industrial gases, plastics, fibers and other products.
Gujarat State Fertilizers & Chemicals (GSFC) incorporated in 1962, is engaged in
manufacturing of fertilizers and industrial products. It was earlier known as Gujarat
State Fertilizer Company (GSFC) which was joint sector enterprise set up by the
Government of Gujarat.
Earlier the equity structure consisted of 49% of State Government and the rest of
public and financial institutions. Currently, the State Government has reduced its
equity participation to 38.4%. The motive behind formation of this organisation was to
support farmers.
7
Manufacturing units
The company’s manufacturing units is located at
Kosamba,
Sikka and
Nandesari.
It has marketing network spread across India in states like Andhra Pradesh,
Chhatisgarh, Gujarat, Haryana, Karnataka, Madhya Pradesh, Maharashtra, Punjab,
Rajasthan, Daman and Uttar Pradesh.
GSFC has set up several companies such as Gujarat Narmada Valley Fertilizers
Company, Gujarat Industries Power Company, Gujarat Green Revolution Company,
GSFC Investment and Leasing Company, GSFC-Polymer Unit and GSFC - Fiber Unit.
Products
GSFC has created more than 24 brands of
Fertilizers,
Petrochemicals,
Chemicals,
Industrial gases,
Plastics,
Fibers and
Other products.
8
Industrial Products- Under this it manufactures
Anhydrous Ammonia,
Argon Gas,
Caprolactam,
Melamine,
Methyl Ethyl Ketoxime,
Nylon-6,
Oleum and
Sulphuric Acid.
Agro products- In this segment the company manufactures a range of
Fertiliser,
Bio-fuels and
Seeds.
Biotech products- The Company manufactures range of biotech products under
various brands such as
Sardargib,
Sardar Eco Green,
Sardarvam,
Sardartrap and
Sardarlures,
Sardarneem,
Sardaramin and
Sardaramin Granules.
9
Financial Results
12 Months Ended Profit & Loss Account (Standalone)
Value(Rs.in million) FY10A FY11A FY12E FY13E
12m 12m 12m 12m
Description
Net Sales 40191.90 47550.5 54207.57 60712.48
Other Income 1130.10 1012.00 1103.08 1213.39
Total Income 41322.00 48562.50 55310.65 61925.87
Expenditure -35715.30 -35836.20 -39571.53 -44320.11
Operating Profit 5606.70 12726.30 15739.12 17605.76
Interest -306.20 -137.80 -136.45 -147.25
Gross Profit 5300.50 12588.50 15602.67 17458.50
Depreciation -1409.30 -1464.00 -1522.56 -1674.82
Profit before Tax 3891.20 11124.50 14080.11 15783.69
Tax -1346.40 -3630.80 -4590.12 -5177.05
Profit after Tax 2544.80 7493.70 9490.00 10606.64
Equity Capital 797.00 797.00 797.00 797.00
Reserves 20644.3 27489.5 36979.5 47586.14
Face Value(Rs.) 10.00 10.00 10.00 10.00
EPS 31.93 94.02 119.07 133.08
*A=Actual, *E=Estimated
10
Quarterly Ended Profit & Loss Account (Standalone)
Value(Rs.in million) 30-Sep-10 30-Dec-10 30-Mar-11 30-Jun-11
3m(A) 3m(A) 3m(A) 3m(E)
Description
Net Sales 13006.60 12651.40 11224.90 12347.39
Other Income 438.30 129.90 297.80 268.02
Total Income 13444.90 12781.30 11522.7 12615.41
Expenditure -9834.30 -9115.20 -8055.30 -8766.65
Operating Profit 3610.60 3666.10 3467.40 3848.76
Interest -40.60 -24.80 -31.80 -30.21
Gross Profit 3570.00 3641.30 3435.60 3818.55
Depreciation -358.00 -374.30 -388.30 -385.53
Profit before Tax 3212.00 3267.00 3047.30 3433.02
Tax -1141.90 -980.80 -995.90 -1119.17
Profit after Tax 2070.10 2286.20 2051.40 2313.86
Equity Capital 797.00 797.00 797.00 797.00
Face Value(Rs.) 10.00 10.00 10.00 10.00
EPS 25.97 28.69 25.74 29.03
*A=Actual, *E=Estimated
11
Key Ratio
Particulars FY10 FY11 FY12E FY13E
EPS (Rs.) 31.93 94.02 119.07 133.08
EBITDA Margin (%) 13.95% 26.76% 29.03% 29.00%
PAT Margin (%) 6.33% 15.76% 17.51% 17.47%
P/E Ratio (x) 7.34 3.64 2.87 2.57
ROE (%) 11.87% 26.49% 25.12% 21.92%
ROCE (%) 14.82% 31.72% 31.34% 28.28%
EV/EBITDA (x) 3.33 2.14 1.73 1.55
Debt-Equity Ratio 0.32 0.26 0.20 0.16
Book Value (Rs.) 269.03 354.91 473.98 607.07
P/BV 0.87 0.96 0.72 0.56
Charts:
12
13
14
Outlook and Conclusion
At the current market price of Rs.342.00, the stock is trading at 2.87 x FY12E and 2.57 x FY13E respectively.
Price to Book Value of the stock is expected to be at 0.72 x and 0.56 x respectively for FY12E and FY13E.
Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs.119.07 and Rs.133.08 respectively.
The Company has marketing network spread across India in states like Andhra Pradesh, Chhattisgarh, Gujarat, Haryana, Karnataka,MadhyaPradesh, Maharashtra, Punjab, Rajasthan, Daman and Uttar Pradesh.
Net Sales and PAT of the company are expected to grow at a CAGR of 15% and 61% over 2010 to 2013E respectively.
During the quarter, the company has reported Net Profit increased to Rs.2051.40 million from Rs. 368.20 million in previous year same quarter.
On the basis of EV/EBITDA, the stock trades at 1.73 x for FY12E and 1.55 x for FY13E.
15
We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.390.00 for Medium to Long term investment.
Industry Overview
� The Indian fertilizer industry has succeeded in meeting almost fully the demand
of all chemical fertilizers except for MOP. The industry had a very humble
beginning in 1906, when the first manufacturing unit of Single Super
Phosphate (SSP) was set up in Ranipet near Chennai with an annual capacity of
6000 MT. The Fertilizer & Chemicals Travancore of India Ltd. (FACT) at Cochin
in Kerala and the Fertilizers Corporation of India (FCI) in Sindri in Bihar were
the first large sized -fertilizer plants set up in the forties and fifties with a view
to establish an industrial base to achieve self-sufficiency in food grains.
Subsequently, green revolution in the late sixties gave an impetus to the growth
of fertilizer industry in India. The seventies and eighties then witnessed a
significant addition to the fertilizer production capacity.
� Fertilizer sector is a very crucial for Indian economy because it provides a very
important input to agriculture. The fertilizer industry in India has played a
pivotal role in achieving self – sufficiency in food grains as well as in rapid and
sustained agriculture growth. India is the third largest producer and consumer
of fertilizers in the world after China and the United States. The growth of the
Indian fertilizer industry has been largely determined by the policies pursued by
the government. The government exercised extensive controls on the pricing,
distribution and movement of fertilizers. The industry is capital intensive and
the production process energy intensive with the combined cost of feedstock
and fuel accounting for anywhere between 55 and 80 per cent of cost of
production, depending on the type of fertilizers.
16
Determinants of Fertilize Demand
• Rainfall and irrigation facilities
• Relative prices of fertilizers
• Cropping pattern
• Government policies
Rising demand for fertilizers
� There has been significant growth in the consumption of fertilizers in last three
years due to overall good monsoon. The growth in NPK consumption was 9.50%
in 2004-05, 10.60 % in 2005-06 and 8.40% per cent in 2006-07.Against the
robust growth in consumption, domestic fertilizer production has remained
range – bound in the last decades. The surge in fertilizers demand and stagnant
to modest increase in production has widened the gap between consumption
and production causing larger dependence on imports. Therefore, the rising
demand for fertilizers is providing ample scope for the companies in this sector
to increase their production capacity and volumes thereby, driving the growth
of fertilizer sector.
� The installed capacity as on 30.01.2003 has reached a level of 121.10 lakh MT
of nitrogen (inclusive of an installed capacity of 208.42 lakh MT of urea after
reassessment of capacity) and 53.60 lakh MT of phosphatic nutrient, making
India the 3rd largest fertilizer producer in the world. The rapid build-up of
fertilizer production capacity in the country has been achieved as a result of a
favorable policy environment facilitating large investments in the public, co-
operative and private sectors. Presently, there are 57 large sized fertilizer plants
in the country manufacturing a wide range of nitrogenous, phosphatic and
complex fertilizers. Out of these, 29 unit produce urea, 20 units produce DAP
and complex fertilizers 13 plants manufacture Ammonium Sulphate (AS),
Calcium Ammonium Nitrate (CAN) and other low analysis nitrogenous
17
fertilizers. Besides, there are about 64 medium and small-scale units in
operation producing SSP
� The Indian fertilizer industry has come a long way since its early days post
independence. India today is one of the largest producer and consumer of
Fertilizers in the world. India’s production in terms of nutrients (N & P) reached
a level of 155 lakh MT in 2005-06 from 0.39 lakh MT in 1951-52. Similarly,
consumption of fertilizers in terms of nutrients (NPK) has also grown from
about 0.66 lakh MT in 1951-52 to nearly 184 lakh MT in 2004-05.
� The Indian Fertilizer industry, given its strategic importance in ensuring self–
sufficiency of food grain production in the country, has for decades, been under
Government control. The Government has over the years, provided subsidies/
concessions through the fertilizer companies to farmers and the manufacturers
have been compensated through various schemes. Though the Government
control helped in meeting the objective of ensuring creation of capacities and
ultimately achieving self-sufficiency in food grain production, it did not
encourage improving efficiencies in the sector.
� Burgeoning subsidy bill and the need to focus on fiscal prudence, Government
polices in recent times are aimed at encouraging efficiencies in the sector. Policy
measures like the new pricing scheme have made the operations of less efficient
players unviable. The Government polices today are oriented towards achieving
the stated objective of total deregulation in the sector. However, the uncertainty
over exact policy parameters and absence of a comprehensive long term policy
has not augured well for the industry. The financial year 2006-07 began with
practically no clarity on the policy parameters for both nitrogenous and
phosphatic fertilizers.
� Another important issue confronting the sector is with respect to the feedstock.
Natural gas which is the main feedstock for production of nitrogenous fertilizers
18
is available in limited quantities and the industry competes with the power
sector for its share. With the Government policy favoring conversion to gas
based units, the demand for gas is only expected to go up in the future, which
may in turn lead to further shortages.
� The Indian fertilizer industry has come a long way since its early days post
independence. India today is one of the largest producer and consumer of
Fertilisers in the world. India’s production in terms of nutrients (N & P) reached
a level of 155 lakh MT in 2005-06 from 0.39 lakh MT in 1951-52. Similarly,
consumption of fertilizers in terms of nutrients (NPK) has also grown from
about 0.66 lakh MT in 1951-52 to nearly 184 lakh MT in 2004-05. The Indian
Fertilizer industry, given its strategic importance in ensuring self– sufficiency of
food grain production in the country, has for decades, been under Government
control.
� The Government has over the years, provided subsidies/concessions through
the fertilizer companies to farmers and the manufacturers have been
compensated through various schemes. Though the Government control helped
in meeting the objective of ensuring creation of capacities and ultimately
achieving self-sufficiency in food grain production, it did not encourage
improving efficiencies in the sector. With the burgeoning subsidy bill and the
need to focus on fiscal prudence, Government polices in recent times are aimed
at encouraging efficiencies in the sector. Policy measures like the new pricing
scheme have made the operations of less efficient players unviable. The
Government polices today are oriented towards achieving the stated objective of
total deregulation in the sector. However, the uncertainty over exact policy
parameters and absence of a comprehensive long term policy has not augured
well for the industry. For instance, the financial year 2006-07 began with
practically no clarity on the policy parameters for both nitrogenous and
phosphatic fertilizers.
19
� Another important issue confronting the sector is with respect to the feedstock.
Natural gas which is the main feedstock for production of nitrogenous fertilizers
is available in limited quantities and the industry competes with the power
sector for its share. With the Government policy favouring conversion to gas
based units, the demand for gas is only expected to go up in the future, which
may in turn lead to further shortages. Similarly, in the case of phosphates, on
account of the limited availability of phosphoric acid and rock phosphate in the
country, domestic units are dependent to a large extent on imports. In view of
the limited availability of the main feedstock within the country, fertiliser
companies today are exploring the possibility of setting up joint ventures
abroad to tie up their feedstock requirements. Though a few joint venture
agreements have been signed with respect to supply of phosphoric acid, only a
couple of joint ventures have been established with respect to urea. Domestic
players have also not been able to enter into long term gas supply agreements
primarily due to differences over pricing.
_______________ ____ _________________________ Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
20
Firstcall India Equity Research: Email – [email protected]
C.V.S.L.Kameswari Pharma
U. Janaki Rao Capital Goods
D. Ashakirankumar Automobile
A. Rajesh Babu FMCG
H.Lavanya Oil & Gas
T.Joshna Devi Diversified
Dheeraj Bhatia Diversified
Manoj kotian Diversified
Nimesh Gada Diversified
Firstcall India also provides
Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO’s, QIP’s, F.P.O’s,Takeover
Offers, Offer for Sale and Buy Back Offerings.
Corporate Finance Offerings include Foreign Currency Loan Syndications,
Placement of Equity / Debt with multilateral organizations, Short Term Funds
Management Debt & Equity, Working Capital Limits, Equity & Debt
Syndications and Structured Deals.
Corporate Advisory Offerings include Mergers & Acquisitions(domestic and
cross-border), divestitures, spin-offs, valuation of business, corporate
restructuring-Capital and Debt, Turnkey Corporate Revival – Planning &
Execution, Project Financing, Venture capital, Private Equity and Financial
Joint Ventures
Firstcall India also provides Financial Advisory services with respect to raising
of capital through FCCBs, GDRs, ADRs and listing of the same on International
Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and
other international stock exchanges.
For Further Details Contact:
3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai 400 071
Tel. : 022-2527 2510/2527 6077/25276089 Telefax : 022-25276089
E-mail: [email protected]
www.firstcallindiaequity.com