Chambal Fertiliser -Results in line with estimates: Alchemy

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Results in line with estimates
Higher trading leads to strong top line growth
 During 2QFY11, Chambal Fertiliser has reported good set of numbers. Steep rise in
trading revenues of fertilisers (`7.1bn compared to 1.38bn in 2QFY10) led to 60%
YoY growth in revenue to `15.4bn.
 Urea volumes during the quarter grew 3% YoY to ~595,000 tonnes. Textile
revenues during the quarter increased 19% YoY, while shipping division continued
to suffer from low day rates leading to 13% YoY de-growth in revenues



Better profitability from fertiliser trading and textile division leads to EBIDTA growth
 EBIDTA for the quarter grew 23.5% YoY to `2.1bn. While EBIT from manufactured
fertiliser declined 3% YoY to `1.2bn, Chambal Fertiliser gained from trading of
fertilisers.
 EBIT from trading of fertiliser increased 217% to `278mn compared to `87mn in
2QFY10. Post NBS implementation, the company has benefitted from efficient
trading of complex fertilisers.
 Shipping division continued to suffer from MTM loss on US$ interest rate swaps.
MTM loss for the quarter was at `297mn.
 Textiles division performed well and posted EBIT of `86mn compared to `20mn in
2QFY10. PAT for the quarter grew 33% YoY to `862mn.


Valuations
Chambal Fertiliser is currently trading at 10.8x FY11E and 10.4x FY12E earnings. New
Pricing Scheme-III (NPS-III) which was effective from 01 October 2006 till 31 March 2010
has expired, and government is expected to come out with NPS-IV in the near future.
Looking at nutrient based subsidy (NBS) scheme implemented in April 2010, we expect
the new policy for urea manufacturers to be favourable to the industry. In fact in the
next 1-2 years, government is looking to bring urea under Nutrient Based Subsidy (NBS),
which will be a big positive for efficient urea producers like Chambal Fertiliser.
The stock has already achieved our target price. In view of expectations of urea being
included in NBS, we expect re-rating of the urea producers in line with complex fertiliser
producers. We remain positive on future prospects of the company and expect good
upside if urea is included in NBS. Currently we value Chambal Fertiliser at 11x FY12 EPS
(10x earlier) and maintain Accumulate on the stock with target price of `85 (`75 earlier).