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11.2x FY2012E
CMP : Rs650
RECO : BUY
TP : Rs870
Investment Rationale
§ CIL has presence in Di-Ammonium Phosphate (DAP) and complex fertilisers and commands approx 15% market
share. It also has presence in the non fertiliser business which includes agrochemicals, specialty fertilisers, micro
nutrients etc and contributes approximately 10% to revenues
§ CIL’s presence in complex fertilisers and its raw material sourcing arrangements make it a key beneficiary of the
recently announced Nutrient Based Scheme which is likely to drive its fertiliser profitability
§ Its non subsidy business enjoys high margins of 20-30% compared to ~10% in fertilisers. The company has
plans to increase contribution from this business from 30% to 50% in the next three years. We expect CIL to
leverage its strong brand equity and its rural retail chain of 400 own stores in Andhra Pradesh to sell its products
and support growth in non subsidy based business
§ With improved profitability in fertiliser segment and rising share of high margin business, EBITDA margins are
expected to improve by 600 bps to 15.3% We expect fertilizer EBITDA to grow at CAGR (FY10-12E) of 18%
while that of non subsidy base business at a CAGR of 40%. We expect PAT to grow at CAGR of 43%
Valuations
§ We expect CIL to generate free cash of Rs 6-7 bn every year and hold net cash of Rs 6 bn by FY11. We expect
the company to report an EPS of Rs 44.5 and Rs 57.9 in FY11E and FY12E, respectively. FOSKAR listing and
inorganic growth plans are future positive triggers for the stock
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