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Fertilizer Policy Update
Department of fertilizers (DOF) has announced revised NBS rates for FY12,
wherein the NBS rates have been increased on an average by 37% for all complex
fertilizers compared to FY11 rates. Subsidy rates per Kg for primary nutrients, i.e.
N (Nitrogen), P (Phosphate) and K (Potash) is increased by 18%, 12% and 1%
respectively. While, for S (Sulphur) is lowered by 5%.
The revision in rates is on account of higher international prices of raw materials
and fertilizers. Earlier, GOI was expecting that the prices would come down (in
FY12) which in turn have led to lower subsidy burden. However, global price
moved higher than expected forcing the government to revise rates. In addition to
increase in the NBS rates, GOI has notified the benchmark rates for fertilizers,
indicating manufacturer not to increase the farm gate prices considerably from the
current level.
The increase in the NBS rates is beneficial for the complex fertilizers players like
GSFC, Zuari Industries, Coromandel International and RCF. The margin for these
players will improve in FY12 due increased subsidy rates.
Outlook for GSFC
The revised subsidy rates will improve the margin for GSFC in FY12 as DAP is
contributing ~70% of the fertilizers revenue. The joint venture (TIFERT) for
manufacturing phosphoric acid will help GSFC to increase the DAP volumes at
lower cost. The production is expected to commence in Q1FY12. On the chemical
segment, the spread between caprolactam and benzene continuous to be on a higher
side, which would lead to an increase in the GSFC margin.
Valuation and Recommendation
GSFC’s revenue is expected grow at CAGR of 19%, from `40,192 million in FY10
to `56,459 million in FY12E. However, PAT is expected to increase at a CAGR of
72% during FY11E and FY12E on account of improvement in margin for both
fertilizers and industrial products segment. We believe the revised NBS policy
would have a positive impact on GSFC as it derives majority of its revenue from
DAP. We expect, EPS to grow at CAGR of 73% during FY10 to FY12E from
`31.9 to `94.6. At CMP of `366, stock is trading at 4.6x and 3.8x of FY11E and
FY12E EPS of `79.9 and `94.6 respectively. We assign PE multiple of 5x to
FY12E EPS of `94.6 for GSFC and arrive at a target of `473. We maintain
“BUY” recommendation on GSFC stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Fertilizer Policy Update
Department of fertilizers (DOF) has announced revised NBS rates for FY12,
wherein the NBS rates have been increased on an average by 37% for all complex
fertilizers compared to FY11 rates. Subsidy rates per Kg for primary nutrients, i.e.
N (Nitrogen), P (Phosphate) and K (Potash) is increased by 18%, 12% and 1%
respectively. While, for S (Sulphur) is lowered by 5%.
The revision in rates is on account of higher international prices of raw materials
and fertilizers. Earlier, GOI was expecting that the prices would come down (in
FY12) which in turn have led to lower subsidy burden. However, global price
moved higher than expected forcing the government to revise rates. In addition to
increase in the NBS rates, GOI has notified the benchmark rates for fertilizers,
indicating manufacturer not to increase the farm gate prices considerably from the
current level.
The increase in the NBS rates is beneficial for the complex fertilizers players like
GSFC, Zuari Industries, Coromandel International and RCF. The margin for these
players will improve in FY12 due increased subsidy rates.
Outlook for GSFC
The revised subsidy rates will improve the margin for GSFC in FY12 as DAP is
contributing ~70% of the fertilizers revenue. The joint venture (TIFERT) for
manufacturing phosphoric acid will help GSFC to increase the DAP volumes at
lower cost. The production is expected to commence in Q1FY12. On the chemical
segment, the spread between caprolactam and benzene continuous to be on a higher
side, which would lead to an increase in the GSFC margin.
Valuation and Recommendation
GSFC’s revenue is expected grow at CAGR of 19%, from `40,192 million in FY10
to `56,459 million in FY12E. However, PAT is expected to increase at a CAGR of
72% during FY11E and FY12E on account of improvement in margin for both
fertilizers and industrial products segment. We believe the revised NBS policy
would have a positive impact on GSFC as it derives majority of its revenue from
DAP. We expect, EPS to grow at CAGR of 73% during FY10 to FY12E from
`31.9 to `94.6. At CMP of `366, stock is trading at 4.6x and 3.8x of FY11E and
FY12E EPS of `79.9 and `94.6 respectively. We assign PE multiple of 5x to
FY12E EPS of `94.6 for GSFC and arrive at a target of `473. We maintain
“BUY” recommendation on GSFC stock.
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