BUY CMP 59.60 Target Price 75.00 RASHTRIYA CHEMICALS & FERTILIZERS LTD Result Update (PARENT BASIS): Q3 FY15 APRIL 6 th 2015 ISIN: INE027A01015 Index Details Stock Data Sector Fertilizers BSE Code 524230 Face Value 10.00 52wk. High / Low (Rs.) 74.75/31.10 Volume (2wk. Avg. Q.) 251000 Market Cap (Rs. in mn.) 32880.72 Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY14A FY15E FY16E Net Sales 65876.00 78938.51 88016.44 EBITDA 6403.60 9828.30 11718.12 Net Profit 2498.90 4241.03 5158.51 EPS 4.53 7.69 9.35 P/E 13.16 7.75 6.37 Shareholding Pattern (%) 1 Year Comparative Graph RASHTRIYA CHEMICALS & FERTILIZERS LTD BSE SENSEX SYNOPSIS Rashtriya Chemicals and Fertilizers Ltd (RCF), a Government of India Undertaking is a leading fertilizer and chemical manufacturing company with about 80% of its equity held by the Government of India. In Q3 FY15, Net profit jumps to Rs. 943.10 million an increase of 78.28% against Rs. 529.00 million in the corresponding quarter of previous year. The company s net sales registered 39.95% increase and stood at a record Rs. 19697.60 million from Rs. 14075.00 million over the corresponding quarter of previous year. During the quarter, operating profit is Rs. 2055.10 million as against Rs. 1400.40 million in the corresponding period of the previous year. Profit before tax (PBT) at Rs. 1329.80 million in Q3 FY15 compared to Rs. 801.40 million in Q3 FY14, registered a growth of 65.93%. The Company has approved for setting up 2 MWp PV Grid Connected Crystalline Solar Power Plant at Trombay, Mumbai including O&M of 5 years period. RCF has signed two joint Venture Agreements with GAIL, CIL and FCIL to set up an integrated Coal Gasification cum Fertilizer and Ammonium Nitrate complex at Talcher in Odisha. Net Sales and PAT of the company are expected to grow at a CAGR of 8% and 22% over 2013 to 2016E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Rashtriya Chemicals & Fertilizers Ltd 59.60 32880.72 4.53 13.16 1.31 15.00 National Fertilizers Ltd 29.95 14692.80 2.39 12.53 0.98 0.00 Bharat Agri Fert & Realty Ltd 104.30 551.30 17.00 6.14 0.81 25.00 Gujarat State Fertilizers & Chemicals Ltd 86.00 34269.10 11.80 7.29 0.82 100.00
QUARTERLY HIGHLIGHTS (PARENT BASIS) Results updates- Q3 FY15, Rs. In million Dec-14 Dec-13 % Change Net Sales 19697.60 14075.00 39.95 PAT 943.10 529.00 78.28 EPS 1.71 0.96 78.28 EBITDA 2055.10 1400.40 46.75 The company has achieved a turnover of Rs. 19697.60 million for the 3 rd quarter of the current year 2014-15 as against Rs. 14075.00 million in the corresponding quarter of the previous year. EBITDA of Rs. 2055.10 million in Q3 FY15 and increase of 46.75% against the corresponding period of last year. In Q3 FY15, net profit of Rs. 943.10 million against Rs. 529.00 million in the corresponding quarter of the previous year. The company has reported an EPS of Rs. 1.71 for the 3 rd quarter as against an EPS of Rs. 0.96 in the corresponding quarter of the previous year. Break up of Expenditure (Rs in millions) Break up of Expenditure % Q3 FY15 Q3 FY14 CHNG Cost of Materials consumed 8713.90 6526.60 34% Purchase of traded goods 1335.80 29.80 4383% Employee benefit expenses 1230.50 1150.50 7% Power and Fuel 3974.60 3160.20 26% Freight and Handling charges 2086.10 1253.60 66% Dep and amortization exp Other expenses 459.90 329.30 40% 1264.50 1143.80 11%
Segment Revenue Latest Updates The Company has approved for setting up 2 MWp PV Grid Connected Crystalline Solar Power Plant at Trombay, Mumbai including O & M of 5 years period. The total estimated cost of the project is Rs. 144.28 million. Rashtriya Chemicals and Fertilizers Ltd (RCF) has signed two joint Venture Agreements with GAIL India Ltd (GAIL), Coal India Ltd (CIL) and Fertilizers Corporation of India Ltd (FCIL) to set up an integrated Coal Gasification cum Fertilizer and Ammonium Nitrate complex at Talcher in Odisha. COMPANY PROFILE Rashtriya Chemicals and Fertilizers Limited (RCF) a Government of India Undertaking is a leading fertilizer and chemical manufacturing company with about 80% of its equity held by the Government of India. It has two operating units, one at Trombay in Mumbai and the other at Thal, Raigad district, about 100 KM from Mumbai. Government of India has accorded "Mini-Ratna" status to RCF. RCF is one of the earliest units set up in the country with a vision of growth in fertilizer production for food security. It manufactures Urea, Complex Fertilizers, Bio-fertilizers, Micro-nutrients, 100 per cent water soluble fertilizers, soil conditioners and a wide range of Industrial Chemicals. It produces 23 lac MT Urea, 6.5 lac MT Complex fertilizers and 1.6 lac MT of Industrial Chemicals every year. The company is a household name in rural India with brands "Ujjwala" (urea) and "Suphala"(complex fertilizers) which carry high brand equity. RCF has countrywide marketing network in all major states. Apart from the own manufactured products, the Company is also engaged in marketing of SSP and imported fertilizer inputs like, DAP, MOP & NPK fertilizers. Besides
fertilizer products, RCF also produces almost twenty industrial chemicals that are important for the manufacture of dyes, solvents, leather, pharmaceuticals and a host of other industrial products. Chemicals essential for every industry from food and drugs to Synthetic fibres, from textiles and cement to pesticides and paints; from explosives to specialty solvents and dye stock are produced by RCF. RCF also pioneered the manufacture of basic chemicals such a Methanol, Ammonia, Ammonium Nitrate, Sodium Nitrate, Sodium Nitrite, Ammonium Bicarbonate, Methylamines, Dimethyl Formamide and Dimethyl acetamide, Formic Acid, Argon in India. Today RCF is the only manufacturer of Dimethyl Formamide in India. As part of modernization, RCF has recently modernized its Ammonia I, Nitric Acid, Methanol and ANP plants. This has facilitated plants to sustain operations and meet technological challenges of improved efficiency, lower energy consumption and maintain environmental norms. It has also resulted in company achieving the highest standards of safety and product quality.
FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as at March 31, 2013-2016E FY13A FY14A FY15E FY16E I. EQUITY AND LIABILITIES: A. Shareholders Funds a) Share Capital 5516.90 5516.90 5516.90 5516.90 b) Reserves and Surplus 18036.00 19567.00 22854.26 25139.68 Sub-Total-Net worth 23552.90 25083.90 28371.16 30656.58 B. Non-Current Liabilities: a) Long-term borrowings 2163.70 3321.10 3155.05 3091.94 b) Deferred Tax Liabilities [Net] 2430.50 2570.00 2492.90 2467.97 c) Other Long Term Liabilities 438.40 552.00 546.48 579.27 d) Long Term Provisions 1038.50 1032.00 1424.16 1580.82 Sub-Total-Long term liabilities 6071.10 7475.10 7618.59 7720.00 C. Current Liabilities: a) Short-term borrowings 14568.40 13349.80 8677.37 7375.76 b) Trade Payables 7380.70 4929.70 6852.28 7400.47 c) Other Current Liabilities 4755.70 3313.90 4076.10 4361.42 d) Short Term Provisions 1914.70 1996.10 1596.88 1469.13 Sub-Total-Current Liabilities 28619.50 23589.50 21202.63 20606.78 TOTAL-EQUITY AND LIABILITIES (A+B+C) 58243.50 56148.50 57192.37 58983.37 II. ASSETS: D. Non-Current Assets: Fixed Assets i. Tangible Assets 14150.40 16164.00 16487.28 17311.64 ii. Intangible Assets 16.70 32.70 39.24 43.16 iii. Capital work-in-progress 1842.50 771.90 787.34 826.70 a) Sub-Total-Fixed Assets 16009.60 16968.60 17313.86 18181.51 b) Non Current Investments 180.40 178.60 350.06 420.07 c) Long Term Loans and Advances 1288.80 1314.90 1591.03 1750.13 d) Other non-current assets 189.60 309.60 108.36 113.78 Sub-Total-Non-Current Assets 17668.40 18771.70 19363.30 20465.49 E. Current Assets: a) Inventories 12050.60 8025.40 9469.97 10322.27 b) Trade Receivables 25792.10 27690.90 26021.78 25588.42 c) Cash and Bank Balances 1757.40 709.50 1362.24 1634.69 d) Short Term Loans and Advances 672.50 370.80 574.74 632.21 e) Other Current Assets 302.50 580.20 400.34 340.29 Sub-Total-Current Assets 40575.10 37376.80 37829.07 38517.88 TOTAL-ASSETS (D+E) 58243.50 56148.50 57192.37 58983.37
Annual Profit & Loss Statement for the period of 2013 to 2016E Value(Rs.in.mn) FY13A FY14A FY15E FY16E Description 12m 12m 12m 12m Net Sales 68944.90 65876.00 78938.51 88016.44 Other Income 929.90 740.40 765.79 804.08 Total Income 69874.80 66616.40 79704.30 88820.52 Expenditure -63459.60-60212.80-69876.00-77102.40 Operating Profit 6415.20 6403.60 9828.30 11718.12 Interest -882.50-1312.90-1224.91-1335.15 Gross profit 5532.70 5090.70 8603.39 10382.96 Depreciation -1731.50-1417.50-2130.30-2471.14 Profit Before Tax 3801.20 3673.20 6473.09 7911.82 Tax -992.20-1174.30-2232.06-2753.31 Net Profit 2809.00 2498.90 4241.03 5158.51 Equity capital 5516.90 5516.90 5516.90 5516.90 Reserves 18036.00 19567.00 22854.26 25139.68 Face value 10.00 10.00 10.00 10.00 EPS 5.09 4.53 7.69 9.35 Quarterly Profit & Loss Statement for the period of 30 June, 2014 to 31 Mar, 2015E Value(Rs.in.mn) 30-Jun-14 30-Sep-14 31-Dec-14 31-Mar-15E Description 3m 3m 3m 3m Net sales 15046.20 22133.40 19697.60 22061.31 Other income 108.70 166.40 139.40 351.29 Total Income 15154.90 22299.80 19837.00 22412.60 Expenditure -13330.00-19548.70-17781.90-19215.40 Operating profit 1824.90 2751.10 2055.10 3197.20 Interest -310.90-343.40-265.40-305.21 Gross profit 1514.00 2407.70 1789.70 2891.99 Depreciation -242.20-954.50-459.90-473.70 Profit Before Tax 1271.80 1453.20 1329.80 2418.29 Tax -432.30-677.90-386.70-735.16 Net Profit 839.50 775.30 943.10 1683.13 Equity capital 5516.90 5516.90 5516.90 5516.90 Face value 10.00 10.00 10.00 10.00 EPS 1.52 1.41 1.71 3.05
Ratio Analysis Particulars FY13A FY14A FY15E FY16E EPS (Rs.) 5.09 4.53 7.69 9.35 EBITDA Margin (%) 9.30 9.72 12.45 13.31 PBT Margin (%) 5.51 5.58 8.20 8.99 PAT Margin (%) 4.07 3.79 5.37 5.86 P/E Ratio (x) 11.71 13.16 7.75 6.37 ROE (%) 11.93 9.96 14.95 16.83 ROCE (%) 20.22 18.73 29.75 34.50 Debt Equity Ratio 0.71 0.66 0.42 0.34 EV/EBITDA (x) 7.46 7.63 4.41 3.56 Book Value (Rs.) 42.69 45.47 51.43 55.57 P/BV 1.40 1.31 1.16 1.07 Charts
OUTLOOK AND CONCLUSION At the current market price of Rs. 59.60, the stock P/E ratio is at 7.75 x FY15E and 6.37 x FY16E respectively. Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.7.69 and Rs.9.35 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 8% and 22% over 2013 to 2016E respectively. On the basis of EV/EBITDA, the stock trades at 4.41 x for FY15E and 3.56 x for FY16E. Price to Book Value of the stock is expected to be at 1.16 x and 1.07 x for FY15E and FY16E respectively. We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs.75.00 for Medium to Long term investment.
INDUSTRY OVERVIEW India and China account for 40% of global consumption in Fertilizer Industry. The 2013-14 monsoon was one of the best monsoons in recent history and this significantly improved the agricultural prospects for both kharif and rabi seasons. Commodity prices ruled high despite record production level of 260 MM tons estimated for the year 2013-14, indicating rising demand for agricultural products. The fertiliser sector has seen the revival of phosphatics consumption. The overall industry DAP consumption levels have revived in 2013-14 due to good monsoon. The import volumes declined in 2013-14 to 33 lakh tons in response to the high pipeline inventory situation while the domestic production levels have remained flat at 36 lakh tons. The total sale of Complex fertilisers in India has remained relatively constant at 2012-13 levels and was 71 lakh tons in 2013-14. The industry s production volumes have increased from 62 lakh tons in 2012-13 to 69 lakh tons in 2013-14 while imports have been almost negligible at 4 lakh tons. This lowering of imports resulting from demand contraction and a good monsoon in 2013-14 have allowed the industry to reduce pipeline stocks that had been built up during the year 2011-12. The various expansions projects announced by domestic manufacturers to meet future demand is likely to increase the availability of complex fertilisers from domestic production as we go forward. The prices of all phosphatic fertilisers and raw materials have been relatively stable in 2013-14 as compared with the volatility and steep increases seen in 2012-13. In addition, the stability of the rupee in 2013-14 has also helped in maintaining phosphatic fertiliser prices. MOP consumption has declined by 44% over 2010-11 levels to 22 lakh tons in 2013-14 and imports have declined by 50% over the same period to 32 lakh tons. Outlook Global production & trade of DAP have increased China, Saudi Arabia & Morocco account for all production increases. Global Food demand to increase 1.5x by 2030. India s crop productivity is low by global standards - needs to increase to meet demand. Irrigated Area in India has been steadily increasing. Cropping Intensity has also steadily increased, which has gone up from 118% in early 1970s to 140% in FY11. A continuation of this trend is likely to push up demand for fertilizers. India s nutrient application rates will have to increase to improve productivity. India s Nutrient consumption (Kg/Ha) is lower than countries like China (396), Bangladesh (204) and Pakistan (184). Long-term demand drivers and fundamentals are strong in India. Population growth, urbanization and resulting food demand will be primary growth drivers. Nutrient application rates will have to increase from current levels to sustain supply response to demand. Cropping intensity, irrigation and other agricultural factors are improving. Under the NBS Policy MRP/Farmgate prices has been decontrolled - Companies are free to set the price. Urea Demand has remained stable due to high levels of
subsidy. Both WSF and Sulfur markets continue to show accelerated growth and their markets are expected to grow at CAGR of 20%. Disclaimer: This document is prepared by our research analysts and it 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 we do not represent that it is accurate or complete and it should not be relied on as such. Firstcall Research or any of its 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. Firstcall Research and/ or its affiliates and/or employees will not be liable for the recipients investment decision based on this document.
Firstcall India Equity Research: Email info@firstobjectindia.com C.V.S.L.Kameswari Pharma & Diversified U. Janaki Rao Capital Goods B. Anil Kumar Auto, IT & FMCG M. Vinayak Rao Diversified G. Amarender Diversified Firstcall Research Provides Industry Research on all the Sectors and Equity Research on Major Companies forming part of Listed and Unlisted Segments For Further Details Contact: Tel.: 022-2527 2510/2527 6077 / 25276089 Telefax: 022-25276089 040-20000235 /20000233 E-mail: info@firstobjectindia.com www.firstcallresearch.com