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Chambal Fertilisers: RECO : ACCUMULATE TP : Rs 86
Investment Rationale
§ Chambal Fertilisers is one of the leading urea players in India, constituting 10% of the domestic urea capacity.
Chambal is proxy play on urea since it contributes ~ 80% to its profits
§ Chambal is one of the biggest beneficiaries of the change in Urea policy where subsidy on company's additional
urea production of ~140 thousand mt will be linked with International Price Party (IPP) with a floor and ceiling of
US$ 250 - 425/ mt. It expected to contribute ~15% to company’s profit in FY11
§ Expected policy changes in urea like urea decontrol and bringing it under Nutrient Based Scheme (NBS) is
positive for Chambal due to its energy efficiency, strong distribution network and access to feedstock. Under
NBS, company should benefit from the low production cost due energy efficiency
§ It has further plans to increase its capacity through debottlenecking / brownfield which will benefit from current
IPP linked subsidy. In recent budget, fertiliser companies have been given infrastructure status which is likely to
result in lower tax rates for new projects however additional gas allocation for new projects is key concern
Valuations
§ We expect revenue to grow at a CAGR (FY10-12E) of 7.5% and PAT at 14.5% with FY11E/FY12E EPS of Rs
8.5 / Rs 8.6. RoIC to improve from 12% in FY10 to 16% by FY12E. At current valuations of 8x and dividend yield
of ~3%, the stock looks attractive. Demerger of its shipping business and policy announcements are near term
catalysts for the company
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Chambal Fertilisers: RECO : ACCUMULATE TP : Rs 86
Investment Rationale
§ Chambal Fertilisers is one of the leading urea players in India, constituting 10% of the domestic urea capacity.
Chambal is proxy play on urea since it contributes ~ 80% to its profits
§ Chambal is one of the biggest beneficiaries of the change in Urea policy where subsidy on company's additional
urea production of ~140 thousand mt will be linked with International Price Party (IPP) with a floor and ceiling of
US$ 250 - 425/ mt. It expected to contribute ~15% to company’s profit in FY11
§ Expected policy changes in urea like urea decontrol and bringing it under Nutrient Based Scheme (NBS) is
positive for Chambal due to its energy efficiency, strong distribution network and access to feedstock. Under
NBS, company should benefit from the low production cost due energy efficiency
§ It has further plans to increase its capacity through debottlenecking / brownfield which will benefit from current
IPP linked subsidy. In recent budget, fertiliser companies have been given infrastructure status which is likely to
result in lower tax rates for new projects however additional gas allocation for new projects is key concern
Valuations
§ We expect revenue to grow at a CAGR (FY10-12E) of 7.5% and PAT at 14.5% with FY11E/FY12E EPS of Rs
8.5 / Rs 8.6. RoIC to improve from 12% in FY10 to 16% by FY12E. At current valuations of 8x and dividend yield
of ~3%, the stock looks attractive. Demerger of its shipping business and policy announcements are near term
catalysts for the company
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