GSFC Fertilizers and chemicals giant on a roll Sector Fertilizers CMP - 69 Target 130 Reco - BUY Basic Details Sensex 27,123 Sensex P/E 18.74 Nifty 8,110 Nifty P/E 21.68 Stock P/E 5x Industry P/E 10.95 Scrip Details Market Cap Rs 2,750 Crs Face Value 2 Share Capital 79.7 Crs 52 Week L/H 43.7 88.30 BSE Code 500690 NSE Code GSFC Gujarat State Fertilizer & Chemicals Ltd. (GSFC), one of the bluechip companies from the stable of Gujarat Government ventures, is a well diversified fertiliser and chemical producing company with products like Caprolactum and Nylon in the Industrial Segment and Urea, Ammonia Sulphate (AS), Di-Ammonium Phosphate (DAP), NPK, Sulphuric Acid and Phosphoric Acid in the fertilizer segment. GSFC has posted an excellent set of Q1FY15 numbers with Topline rising to Rs 1,269 Crs (Rs 1,032 Crs) and EBITDA jump of 235% YoY to Rs. 185 Crs (Rs. 55 Crs) and PAT showing a whopping growth of 1,853% to Rs 108 Crs (Rs.6 Crs), on a equity base of Rs 79 Crs. GSFC is embarking on the massive capacity expansion plan for products like DAP, Nylon-6, Caprolactum and Water Soluble Fertilizers over the next 2 years. Water soluble fertilizers is likely to go on stream by the last quarter of the current financial year. The cost control measures on the front of power, Gas consumption, interest cost etc. and thrust on expanding the topline is likely to substantially improve the performance in the current year and onwards. GSFC with a likely Topline of Rs 6,500 Crs, huge capacities of fertilizers and Shareholding Pattern (%) Particulars June-14 Mar-14 Promoters 37.84 37.84 industrial chemicals created at extremely modest cost, BV/share of Rs 105, on the FII 18.87 18.3 trajectory of strong growth and large expansions, commands a MCAP of little over DII 19.52 20.15 Rs. 2,700 Crs, grossly undervaluing the company, P/BV of only 0.65x, Others 23.77 23.71 consistently rewarding the investors with dividend payouts (last 2 years 100%) and Total 100 100 modest PE of only 5x, offers excellent investment opportunity to all the investors. Q1FY15 V/S Q1FY14 GSFC is likely to gross the Topline of over Rs 6,500 Crs in FY15 and with substantial improvements in the profitability, could post EPS of around Rs 13/share, making it an attractive BUY at a current market price of Rs 69 and a PE of little over 5x, indicating potential for strong growth and appreciation. Even if this expected solid performance is valued at a moderate PE of 10x, one can expect the 12-18 months Target Price of Rs 130/share. We recommend STRONG BUY at CMP and at alldeclines. Consolidated Financial Performance Q1FY15 Particulars Quarter Ended % change Full year Ended Q1FY15 Q4FY14 Q1FY14 QoQ YoY FY 14 Revenue 1,269 1,568 1,032 19% 23% 5,570 EBITDA 184 247 55 26% 234% 484 PAT 108 134 6 19% 1853% 342 EBITDA M 15% 16% 5% 9% PAT M 9% 9% 1% 6% EPS 2.72 3.37 0.14 8.59 Eq.Sh.Cap 80 Reserves 4,111 (Amt. in Crs)
Company Profile - GSFC GSFC, a prestigious, multi product, multi location, large integrated Fertilizers and Chemicals manufacturing Company having annual turnover of over. Rs.5500 Crs is embarking upon a major growth trajectory by setting up new projects and modernizing existing facilities. The following figures show the major products of the company and its expansion plan. Product Existing Capacity Additional Capacity Remarks Nylon - 6 7,000 MT 15,000 MT -at Vadodara unit -tie-up with M/s Lurgi, Germany and M/s Tata Consultancy Engineers -planned to be operational by Q2FY15 - investment of Rs. 125 Cr. DAP 5,04,000 MT 5,00,000 MT -operational by Q1FY16 Caprolactum 70,000 MT 100000 MT - 20,000MT of old plant capacity to be phased out, so net capacity will be 150,000MT - Investment of Rs. 4000 Cr. Water - tie-up with M/s Hindustan Dorr-Oliver Soluble - 20000 MT - Planned to be operational by Q1FY15 Fertilizers - investment of Rs. 40 Cr. Melamine - 40000 MT - In final stages of finalising the project - Investment of Rs. 1100 Cr
Past Years at Glance Financial Performance for the Year Ended 31 st March (Amt in Crs) Particulars 2009 2010 2011 2012 2013 2014 Q1FY15 Revenue 5,952 4,132 4,856 5,464 6,391 5,570 1,269 EBITDA 922 561 1,273 1,263 936 650 185 Depreciation 143 141 146 129 132 145 28 Interest 39 31 14 20 36 45 4 PAT 499 254 749 758 518 342 108 EPS 63 32 94 95 13 8.59 2.72 EBITDA % 15% 14% 26% 23% 15% 12% 15% PAT Margin % 8% 6% 15% 14% 8% 6% 9% Sh Cap 79.7 79.7 79.7 79.7 79.7 79.7 79.7 Reserves 1,852 2,064 2,749 3,437 3,862 4,111 4,111 CMP 25 51 73 86 57 66 69 MCAP 199 406 582 3,427 2,271 2,630 2,750 P/E 0.40 1.59 0.78 0.91 4.38 7.68 8.00 Book Value 24 27 35 44 49 53 105 P/BV 1.03 1.90 2.06 1.95 1.15 1.26 0.66 MCAP/Revenue 0.03 0.10 0.12 0.63 0.36 0.47 2.17 Dividend % 45% 45% 70% 75% 100% 100% GSFC had muted growth of barely 2%till FY2013 but decreased in FY14 due to higher pile up of inventory in DAP segment, policy issues with respect to implementation of Nutrient Based Subsidy (NBS), rupee volatility, lesser prices in international markets, lack of demandd from Automobile, consumer durable industries i etc. but with stable tbl Macro economic conditions in Europe, gas price already factored in by raising the prices of Ammonium Phosphate Sulphate, we expect exports to increase in this fiscal and expect revenue to grow to Rs ~6,500 Crs and PAT ~Rs 560 Crs in FY15. GSFC s Q1FY15 Topline grew on account of large production across the board especially in Urea as well as both fertilizer and industrial product but lost turnover in methanol as they could not operate the plant because of a price range of $ 300 - $ 325. GSFC in order to increase its Topline has 2 projects underway as on date, Nylon- 6 and water soluble fertilizers. Water soluble fertilizer is expected to be completed somewhere around Diwali and Nylon-6 civil work is complete. GSFC will directly benefit from the provisions made by union government in the budget providing for 72,970 Crs of subsidy against Rs 65,971 Crs as was in the interim budget though it may not be sufficient to meet the entire requirement because there is a substantial overhang of unpaid subsidy in the last years. GSFC has been declaring a dividend of 100% since the past two years. The dividend declared was Rs. 2/- share in FY14.
Peer Comparison (Amt in Rs. Crs) Particulars GSFC Deepak Fertlizer Deepak Nitrite Chambal Fertilizer RCF Coromandel International Revenue 5570 3969 1271 9016 6641 10114 EBITDA 686 563 115 779 640 864 EBITDA M 12% 14% 9% 9% 10% 9% PBT 495 337 58 289 367 517 PBT M 9% 8% 5% 3% 6% 5% Finance Costs 45 100 28 207 131 240 % to sales 1% 3% 2% 2% 2% 2% PAT 343 240 38 234 250 364 PAT M 6% 6% 3% 3% 4% 4% Eq. Sh. Capital 80 88 10 414 551 28.32 Reserves 4,111 1,365 297 1,642 1,957 2,232 EPS 9 27 37 6 4.53 12.46 CMP 69 175 81 60 57.2 310 MCAP 2,760 1,540 85 2,496 3,152 8,779 PE 767 7.67 648 6.48 219 2.19 10.0000 12.63 24.88 BV 105 165 61 50 45.52 79.81 P/BV 0.66 1.06 1.32 1.21 1.26 3.88 The above table indicates that GSFC s FY14 PAT is highest amongst its peers at Rs 343 Crs on a Topline of Rs 5,570 Crs and EBITDA at RS 686 Crs GSFC s EBITDA and PAT margin is the highest amongst its peers at 12% and 6% as compared to industry average of 10% and 4% respectively. GSFC s Reserves & Surplus and Cash & Bank Balance is highest amongst its peers at Rs. 4,111 Crs and 368 Crs respectively which will be useful for funding its expansion plans. GSFC is the third largest company in terms of MCAP and is undervalued at 7x as compare to the industry average of 10.64 X. GSFC is likely to gross the Topline of over Rs 6,500 Crs in FY15 and with substantial improvements in the profitability, could post EPS of around Rs 13/share, making it an attractive BUY at a current market price of Rs 69 and a PE of little over 5x, indicating potential for strong growth and appreciation. Even if this expected solid performance is valued at a moderate PE of 10x, one can expect the 12-18 months Target Price of Rs 130/share.
Registered Office: 1 &1-A, 3rd Floor, Birla Mansion, 134,Nagindas Master Road, Fort, Mumbai- 400 023. Corporate Office: 702/703, Embassy Centre, Nariman Point, Mumbai- 400 021. Board line: 61539100 Fax: 61539134-35 / 66315520 Tel: 61539105 / 09 / 10 Email: research@nvsbrokerage.com EQUITY RESEARCH DESK Mr. Nalin Shah Mr. Rau Thakur Ms. Foram Parekh Ms. Deepa Bhatia Mr. Nikhil Shah Mr. Lokesh Kashikar Ms. Zahabiya Rangoonwala Mr. Ankit Merchant Ms. Manisha Thakkar EQUITY DEALING DESK: Mr. Nalin Shah Mr. Rau Thakur Mr. Raju Madhupog Ms. Poonam Sawant Note: We may arrange meeting with the management for Institutional investors/large investors, if requested by them. Disclaimer: This document has been prepared by the Research Desk of M/s NVS Brokerage Pvt. Ltd. and is meant for use of the recipient only and is not for circulation. This document is not to be reported or copied or made available to others. It should not be taken as an offer to sell or a solicitation of an offer to buy, any security. The information in our report is not intended as financial advice. The information contained herein is obtained and collated from sources believed reliable and we do not represent it as accurate or complete and it should not be relied upon as such. The opinion expressed or estimate made are as per the best judgment as applicable at that point of time and are subject to change without any notice. NVS Brokerage Pvt. Ltd. along with its associated companies / officers/ employees may or may not, have any position in, or purchase and sell securities referred to herein. NVS Brokerage Pvt. Ltd, its affiliates, directors, its proprietary p trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within.