Rashtriya Chemicals & Fertilizers Ltd

Transcription

1 Rashtriya Chemicals & Fertilizers Ltd OFS Note Market Data Current Market Price (`) Week High (`) Week Low (`) Market Capitalization (`) 24, STOCK SCAN BSE Code NSE Code RCF Bloomberg Ticker RCF IB Reuters Ticker RSTC.BO Face Value (`) Equity Share Capital (In ` Mn) 5, Average P/E 14.4x Beta vs Sensex 1.13 Average Daily Volume 230,377 Dividend Yield 3.2% PEG Ratio NA Rashtriya Chemicals & Fertilizers Ltd (RCF), a Mini Ratna company, is engaged in the fertilizer business. It is the 2 nd largest (after National Fertilizer) listed urea manufacturer with a capacity of 2.04 Mn MT. Govt is going to divest its 12.3% stake on 8 th March 2013 through the Offer-For- Sale (OFS) route. Investment Highlights Debottlenecking of Thal Unit has increased its urea manufacturing capacity from 17 Lakh MT to 20 Lakh MT per annum and has saved energy consumption by 0.6 Gcal/MT of ammonia which has helped to boost top-line as well as margins. Capacity expansion to reduce dependency on import, boost top-line and margins. Capacity expansion (1.27 Mn MTPA) through the JV with Coal India is likely to boost margins as the company will get coal (at a much cheaper rate than the market price) as feed stock. Through the setting up of 1 Mn MTPA urea capacity at Ghana under 51:49 JV with the Ghana Govt, RCF may get natural gas at $2.5/mmbtu as compared to the current domestic natural gas price of ~$6.8/mmbtu. It will help to grab the overseas market and improve its margins. The Thal (Thal III Project) expansion plan is going to add 12.7 Mn MT per annum in urea capacity at a cost of `4,112.5 cr. The design and construction work is expected to start from May 2013 and likely to take 3 years to start the production. In addition to that, RCF is likely to be granted an investment allowance of 15% on the investment RCF is planning to enter into a long term agreement with Canadian Potash developer Encanto Potash for having 8% discount over prevailing market price of MOP which is likely to expand its margins. RCF is expected to get ` cr in March 2014 for transfer of development rights for the land taken by MMRDA for the completion of Eastern Freeway. This is likely to improve cash balance of the company. Exhibit. RCF Ltd Financial Performance at a glance Particulars (`in Mn) FY2010 FY2011 FY2012 FY2013E FY2014E Revenue 56, , , , , Growth(%) -32% -3% 16% 15% 20% EBITDA 3, , , , , EBITDA Margins 6.87% 7.24% 6.21% 6.60% 7.01% Net Profit 2, , , , , Net Pofit Margins 4.12% 4.43% 3.87% 4.07% 4.22% Net Profit Growth 11% 4% 2% 21% 24% EPS BVPS P/E P/BV ROE 13% 13% 12% 13% 14% EV/EBITDA Source: Company Data, Sector- Fertilizer - 1 -

2 Company Overview Rashtriya Chemicals & Fertilizers Ltd (RCF) was incorporated in the year of 1978 as a PSU and during , Govt divested 7.5% stake to the institutions and retailers. The company is in the business of Urea, Complex Fertilizers, Bio-fertilizers, Micro-nutrients, Methanol, Nitric acid, Ammonium bi-carbonate, Ammonium Nitrate Melt and Formic Acid. RCF has two manufacturing units at Maharashtra. The Thal unit got ISO 14001, OHSAS and ISO-9001 certifications for the manufacturing of Ammonia, Urea, Suphala, Ammonium Nitrate Melt, Methanol, Nitric acid and Sulphuric Acid. On the other hand, Trombay Unit received ISO 14001, OHSAS certifications for Ammonia, Urea, Methylamines and Formic Acid production. Energy Consumption at Thal Revenue Contribution, Company Data, Company Data Rock phosphate, Muriate of potash, Mono-ammonium phosphate and Natural gas are the key raw materials. The company has Research & Development centre at Mumbai which was established in the year of 1965 for the development of new products like Bio-Fertilizer (Biola), Liquid Micro-nutrients (Microla) and Water Soluble Fertilizer (Sujala 19:19:19). RCF has 6,314 dealers across India to cater the need of the farming community. Production-Capacity Product Capacity (Mn Production (Mn Ton) Ton) FY10 FY11 FY12 FY13 9M Urea-Thal Urea-Trombay Suphala 15:15: ANP 20:20: Industrial Products , Company Data Dealers across Markets Markets Location % of dealers Primary Maharashtra, AP, 70% Karnataka Secondary Gujarat, MP,TN, UP, 18% WB, Hariyana, Delhi, Bihar, Punjab, Chattisgar h Tertiary Rest 12%, Company Data - 2 -

3 Issue Details Govt is going to divest its 12.5% stake which is around 6, 89, 61,012 equity shares with a face value of `10 each. With the help of this OFS, Govt could fetch ~` cr. The floor price has been fixed at `45 per share which is 3% premium on the closing price of `43.85 (7 th March 2013). The OFS will take place on a separate window of the stock exchange on 8 th March 2013 from 9.15 am to 3.30 pm. The stake sales will be undertaken by two appointed Brokers: ICICI Securities Ltd IDBI Capital Market Services Ltd Allocation Methodology: Minimum of 25% reserved for Institutions Rest for the Retail Investors SHP (%) Particulars Pre-issue Post-issue Govt 93% 80% Public 7% 20%, Company Data View Currently RCF is trading at a PE multiple of 8.74x (TTM) whereas the average 2-year PE multiple is 14.4x. Govt has set an attractive floor price of `45 per share. Over the years, RCF has gradually become the 2 nd largest listed urea maker and we have strong visibility on the company s earning as RCF has taken significant initiatives for cost rationalization by entering into long term agreements for supply of key raw materials at a subsidized rate, reducing its import dependency and energy consumption. We recommend SUBSCRIBE to the OFS

4 Ajay Jaiswal: President, Investment Strategies, Head of Research: Fundamental Research Name Sectors Designation ID Nitin Prakash Daga IT, Telecom & Entertainment AVP-Research Naveen Vyas Midcaps,Market Strategies AVP-Research Gargi Deb Agriculture & Pharma Research Analyst Sutapa Roy Economy Research Analyst Sanjeev Jain BFSI Research Analyst Anik Das Mid Cap Research Analyst Neha Majithia Mid Cap Research Analyst Soumyadip Raha Mid Cap Executive Research Saroj Singh Mid Cap Executive Research Kapil Bhati Mid Cap Executive Research Technical & Derivative Research Vinit Pagaria Derivatives & Technical VP Ranajit Saha` Technical Research Sr. Manager Institutional Desk Dhruwa Mittal Institutional Equities Sr. Manager Puja Shah Institutional Desk Dealer PMS Division Siddharth Sedani PMS Research AVP Recommendation Expected Absolute Returns (%) over 12 months Strong Buy >20% Buy between 10% & 20% Hold between 0% & 10% Underperform between 0% & -10% Sell <-10% - 4 -

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