BUY CMP 100.35 Target Price 115.00 GUJARAT STATE FERTILIZERS & CHEMICALS LTD Result Update (PARENT BASIS): Q2 FY15 DECEMBER 11 th 2014 ISIN: INE026A01025 Index Details Stock Data Sector Fertilizers BSE Code 500690 Face Value 2.00 52wk. High / Low (Rs.) 124.50/43.70 Volume (2wk. Avg.) 275000 Market Cap (Rs. in mn.) 39989.48 Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY14A FY15E FY16E Net Sales 54124.90 60349.26 66685.94 EBITDA 6858.70 8815.38 10163.52 Net Profit 3421.70 5160.19 6060.13 EPS 8.59 12.95 15.21 P/E 11.69 7.75 6.60 Shareholding Pattern (%) 1 Year Comparative Graph GUJARAT STATE FERTILIZERS & CHEMICALS S&P BSE SENSEX SYNOPSIS Gujarat State Fertilizers & Chemicals Ltd is engaged in manufacturing of fertilizers and industrial products. In Q2 FY15, Net profit jumps to Rs. 1243.10 million an increase of 22.67% from Rs. 1013.40 million in the corresponding quarter of previous year. The company s net sales registered 4.48% increase and stood at Rs. 14816.00 million from Rs. 14180.20 million over the corresponding quarter of previous year. Operating profit is Rs. 2023.10 million as against Rs. 1936.60 million in the corresponding period of the previous year. Reported earnings per share of the company stood at Rs. 3.12 in Q2 FY15 as against Rs. 2.54 in Q2 FY14. During the quarter, Profit before tax stood at Rs. 1735.60 million as against Rs. 1451.80 million over the corresponding quarter of previous year. Total income during the quarter stood at Rs. 15206.20 million as compared to Rs. 14592.90 million in Q2 FY14,, an increase of 4.20%. Net profit grew by 117.57% to Rs 2325.40 million for the end of H1 FY15 from Rs 1068.80 million for the end of H1 FY14. Net Sales and PAT of the company are expected to grow at a CAGR of 2% and 5% 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 (%) Gujarat State Fertilizers & Chemicals Ltd 100.35 39989.48 8.59 11.69 0.95 100.00 Chambal Fertilisers and Chemicals Ltd 64.25 26741.40 7.00 9.18 1.22 19.00 Rashtriya Chemicals and Fertilisers Ltd 67.35 37156.20 6.65 10.13 1.48 15.00 National Fertilizers Ltd 37.15 18225.00 1.90 19.55 1.22 0.00
QUARTERLY HIGHLIGHTS (PARENT BASIS) Results Updates- Q2 FY15 Gujarat State Fertilizers & Chemicals (GSFC) incorporated in the year 1962, is engaged in manufacturing of fertilizers and industrial products has reported its financial results for the quarter ended 30 SEPTEMBER, 2014. Months Sep-14 Sep-13 % Change Net Sales 14816.00 14180.20 4.48 PAT 1243.10 1013.40 22.67 EPS 3.12 2.54 22.67 EBITDA 2023.10 1936.60 4.47 The company s net profit jumps to Rs. 1243.10 million from Rs. 1013.40 million in the corresponding quarter ending of previous year, an increase of 22.67%. Revenue for the quarter rose by 4.48% to Rs. 14816.00 million from Rs. 14180.20 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs. 3.12 a share during the quarter as against Rs. 2.54 over previous year period. Profit before interest, depreciation and tax is Rs. 2023.10 million as against Rs. 1936.60 million in the corresponding period of the previous year. Break up of Expenditure During the quarter, total expenditure stood to Rs. 13431.80 million rose by 33 per cent as against Rs. 10099.70 million in Q2 FY14. Break up of Expenditure (Rs in millions) Q2 FY15 Q2 FY14 % CHNG Cost of Material Consumed 7409.00 9633.70-23% Purchase of Stock in Trade 408.30 483.40-16% Power & Fuel 1208.30 1172.30 3% Employee Benefits Expense 910.30 997.50-9% Depreciation & Amortization Expense 248.70 361.50-31% Other Expenses 1423.70 1953.30-27%
Segment Revenue COMPANY PROFILE Gujarat State Fertilizers & Chemicals (GSFC) incorporated in the year 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. It operates in two segments, Fertilizer Products and Industrial Products. The Company has bagged the Fertilizer Association of India - Western Region (FAI-WR) Mahadhan Award for Excellence in Crop improvement & productivity for the year 2013-14. Products GSFC has created more than 24 brands of fertilizers, petrochemicals, chemicals, industrial gases, plastics, fibers and other products. Industrial Products Anhydrous Ammonia Argon Gas Caprolactam Melamine Methyl Ethyl Ketoxime Nylon-6 Oleum Sulphuric Acid
Other Products Acetone Cyanohydrine - ACH Anone-Anol Mixture Cyclohexane Cyclohexanone Hydroxyamine Sulphate Methacrylic Acid - MAA Methyl Methacrylate - MMA Nitric Acid l Nylon-6 Filament Yarn Polymethyl Methacrylate (Pellets) Polymethyl Methacrylate (Sheet) Sulfonated Melamine Formaldehyde Water Soluble Polymers Agro Products Fertilizers Urea Ammonium Sulphate Di-Ammonium Phosphate APS - 20:20:0 NPK - 12:32:16 NPK - 10_26_26 Water Soluble Fertilizers Micro Mix Gypsum. Bio- Fertilizers Bio-Fuels Plant Tissue Culture Seeds Biotech Products Organic Nutrient (Sardaramin) Protein Hydrolysate Organic Nutrient (Sardaramin Granules) Protein Hydrolysate Granules.
FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as at March 31, 2013-2016E FY13A FY14A FY15E FY16E SOURCES OF FUNDS Shareholder's Funds Share Capital 797.00 797.00 797.00 797.00 Reserves and Surplus 38619.19 41108.52 46268.79 52328.91 1. Sub Total - Net worth 39416.19 41905.52 47065.79 53125.91 Non Current Liabilities Long term Borrowings 2393.12 2243.72 2355.91 2450.14 Deferred Tax Liabilities 2391.76 2616.62 2747.45 2829.87 Long term Provisions 1972.41 1629.71 1825.28 2007.80 2. Sub Total - Non Current Liabilities 6757.29 6490.05 6928.63 7287.81 Current Liabilities Short term Borrowings 12657.85 5245.35 2203.05 1035.43 Trade Payables 5377.57 5354.77 5515.41 5625.72 Other Current Liabilities 2083.53 3252.60 3057.44 2904.57 Short Term Provisions 2884.02 2848.65 2335.89 1938.79 3. Sub Total - Current Liabilities 23002.97 16701.37 13111.80 11504.52 Total Liabilities (1+2+3) 69176.45 65096.94 67106.22 71918.24 APPLICATION OF FUNDS Non-Current Assets Fixed Assets Tangible Assets 13555.86 20077.79 22085.57 23852.41 Intangible Assets 93.58 85.26 88.67 91.33 Capital work-in-progress 6840.71 1849.94 1553.95 1320.86 a) Sub Total - Fixed Assets 20490.15 22012.99 23728.18 25264.60 b) Non-current investments 6724.16 8274.16 9432.54 10564.45 c) Long Term loans and advances 2079.51 2165.09 2251.69 2319.24 d)other non-current assets 321.23 353.00 381.24 404.11 1. Sub Total - Non Current Assets 29615.05 32805.24 35793.66 38552.40 Current Assets Inventories 6878.34 6911.93 7119.29 7261.67 Trade receivables 29083.59 19840.88 17537.91 18516.22 Cash and Bank Balances 1632.25 3863.89 4598.03 5241.75 Short-terms loans & advances 1428.10 1083.94 1430.80 1688.34 Other current assets 539.12 591.07 626.53 657.86 2. Sub Total - Current Assets 39561.40 32291.71 31312.56 33365.84 Total Assets (1+2) 69176.45 65096.94 67106.22 71918.24
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 62533.00 54124.90 60349.26 66685.94 Other Income 1380.90 1570.50 1645.88 1761.10 Total Income 63913.90 55695.40 61995.15 68447.03 Expenditure -54553.70-48836.70-53179.77-58283.51 Operating Profit 9360.20 6858.70 8815.38 10163.52 Interest -362.50-451.40-173.79-191.17 Gross profit 8997.70 6407.30 8641.59 9972.36 Depreciation -1320.50-1453.20-1206.16-1302.65 Profit Before Tax 7677.20 4954.10 7435.43 8669.71 Tax -2496.20-1532.40-2275.24-2609.58 Net Profit 5181.00 3421.70 5160.19 6060.13 Equity capital 797.00 797.00 797.00 797.00 Reserves 34370.60 41108.60 46268.79 52328.91 Face value 2.00 2.00 2.00 2.00 EPS 13.00 8.59 12.95 15.21 Quarterly Profit & Loss Statement for the period of 31 st Mar, 2014 to 31 st Dec, 2014E Value(Rs.in.mn) 31-Mar-14 30-Jun-14 30-Sep-14 31-Dec-14E Description 3m 3m 3m 3m Net sales 15180.90 12432.00 14816.00 15171.58 Other income 495.50 255.80 390.20 421.42 Total Income 15676.40 12687.80 15206.20 15593.00 Expenditure -13204.00-10840.90-13183.10-13551.26 Operating profit 2472.40 1846.90 2023.10 2041.74 Interest -47.00-36.00-38.80-43.84 Gross profit 2425.40 1810.90 1984.30 1997.90 Depreciation -380.80-272.60-248.70-258.65 Profit Before Tax 2044.60 1538.30 1735.60 1739.25 Tax -703.70-456.00-492.50-521.77 Net Profit 1340.90 1082.30 1243.10 1217.47 Equity capital 797.00 797.00 797.00 797.00 Face value 2.00 2.00 2.00 2.00 EPS 3.36 2.72 3.12 3.06
Ratio Analysis Particulars FY13A FY14A FY15E FY16E EPS (Rs.) 13.00 8.59 12.95 15.21 EBITDA Margin (%) 14.97 12.67 14.61 15.24 PBT Margin (%) 12.28 9.15 12.32 13.00 PAT Margin (%) 8.29 6.32 8.55 9.09 P/E Ratio (x) 7.72 11.69 7.75 6.60 ROE (%) 14.73 8.17 10.96 11.41 ROCE (%) 21.27 16.83 19.41 20.25 Debt Equity Ratio 0.43 0.18 0.10 0.07 EV/EBITDA (x) 5.71 6.36 4.53 3.76 Book Value (Rs.) 88.25 105.16 118.11 133.31 P/BV 1.14 0.95 0.85 0.75 Charts
OUTLOOK AND CONCLUSION At the current market price of Rs. 100.35, the stock P/E ratio is at 7.75 x FY15E and 6.60 x FY16E respectively. Earnings per share (EPS) of the company for the earnings for FY15E and FY16E are seen at Rs. 12.95 and Rs. 15.21 respectively. On the basis of EV/EBITDA, the stock trades at 4.53 x for FY15E and 3.76 x for FY16E. Price to Book Value of the stock is expected to be at 0.85 x and 0.75 x respectively for FY15E and FY16E. We recommend BUY in this particular scrip with a target price of Rs. 115.00 for Medium to Long term investment.
INDUSTRY OVERVIEW Agriculture, the mainstay of the Indian Economy, is an important driver of macro-economic performance and is also a critical element for the growth strategy. The twelfth Five Year Plan of the Government of India (2012 17) aims at achieving the growth rate of 9.56%. The final growth target has been set at 9% by the endorsement plan at the National Development Council (NDC) meeting. To achieve these objectives, "Twelve Strategy Challenges" have been identified to produce the desired results. Enhancing the Capacity for Growth, more mobilization of investment resources; better allocation of these resources through more efficient capital markets; higher investment in infrastructure through both public and Public Private Partnership (PPP) routes; and more efficient use of public resources coupled with skill enhancement and faster generation of employment, managing environment, markets for efficiency and inclusion, decentralization, empowerment and Information, technology and innovation, securing the energy future for India, accelerated development of transport Infrastructure would bring the desired growth. The performance of Indian agriculture is still heavily dependent on rainfall behaviour and south west monsoon, comprising 75% of total annual rainfall during June to September. For the country as a whole, cumulative rainfall during monsoon was 6% above the LPA. The cumulative seasonal rainfall was above normal/excess over all the four homogenous regions except east and north-east India, where it was 28% below LPA. Our entire marketing zone including home market Gujarat received very good rainfall. Due to bountiful rains, all major reservoirs were full. This was a good news for country s agriculture, where 53% of the gross cropped area is rain-fed and monsoons alone account for more than 76% of the total annual rains. Good rains gave boost to fertilizer sales but sales of Phosphoric fertilizers did not pickup due to various reasons. Fertilizer Industry Performance All India sales of DAP during 2013-14 declined by 25% from 91.27 Lakh MT during 2012-13 to 68.79 Lakh MT in 2013-14. Intense increase in the prices of DAP/NPK grades & MOP due to reduction in subsidy, increase in ammonia prices and heavy downslide in rupee against US dollar impacted the demand negatively. Farmers prefer to use low priced Urea and Phosphatic fertilizers. At the same time, the market witnessed heavy price war & credit war due to heavy stocks of fertilizers with traders. This impacted the margins of manufacturers/suppliers. The state wise sales also reflected negative sales pattern of DAP in our major marketing zones. In home market Gujarat, sales of DAP experienced a marginal decline (-4%) from 3.95 Lakh MT in 2012-13 to 3.78 Lakh MT in 2013-14. All states except Karnataka & Chhatisgarh registered decline in DAP sales. Northern states of Punjab, Haryana & UP also experienced decline in sales.
Outlook for 2014-15 The demand outlook for the fertilizer industry is positive in 2014-15. However, a sluggish recovery would be there for the industry as it continues to face significant challenges and qualms, especially the gas price hike front. With significant amount of channel inventory having got cleared, partly due to liquidity pressures faced by the industry, the demand outlook for 2014-15 seems to be better. It is estimated that a relatively moderate overall volume growth in 2014-15 with imports of non-urea fertilizers expected to grow by 15%-20%, although overall volumes may not cross 2012-13 levels. All this depend on monsoon behavior during Kharif 2014. As per Skymet & IMD arm (Pune based Regional Climate center), India will be having a weak monsoon season as EL Nino conditions are likely to develop. Further, the government has increased the fixed cost compensation for Urea by approving the modified NPS-III according to which there will be an increase in the fixed cost of Urea by Rs. 350/- per ton and a further Rs. 150/- per ton for plants that are more than 30 years old, for 2014-15. This move would boost the profitability of the players to some extent. It would, however, increase the subsidy outflow for the Government by Rs. 900 to Rs. 1000 Crores. Generally farmers of Gujarat prefer indigenous Fertilizers than imported one. Besides NP/NPK products, demand of Sardar DAP is likely to continue at the present level. Considering your Company s presence in potential markets and enjoying better brand preference, there may not be much problem in selling available quantity of DAP. Your Company has opened new depot/s in Gujarat, Maharashtra & Rajasthan. 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.
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