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GoI buying back fertiliser bonds and to compensate losses partially
Government of India (GoI) is buying back outstanding fertiliser bonds from
fertiliser companies at a discount, and compensating for 50% of their losses. This
is likely to reduce their recurring interest cost and positively impact profitability
(due to write-back of losses provided earlier). While one-time EPS benefit will be
9-14%, we expect recurring cash flow and EPS benefit to be in the range of 5-10%
for Zuari, Coromandel, and Chambal.
Zuari has already rendered 50% of the fertiliser bonds to GoI (total bonds
outstanding were INR 4.4 bn in Zuari’s standalone books and another INR 9.3 bn
in the books of Paradeep Phosphates, wherein Zuari's effective interest is ~40%).
Company-wise impact
One-time positive EPS impact
• Coromandel: ~9% for FY12 (i.e. PAT impact of INR 690 mn. Coromandel has
INR 1,378 mn worth loss on MTM write downs, as on March 31, 2010).
• Zuari: ~14% for FY12 (i.e. PAT impact of INR 520 mn. Zuari has INR 1,058
mn worth loss on MTM write downs, as on March 31, 2010).
• Chambal: ~8% for FY12 (i.e. PAT impact of INR 210 mn).
• On top of this, Coromandel and Zuari are also having booked loss of ~INR 242
mn and INR 133 mn, respectively, on account of sold fertiliser bonds. We
expect GoI to consider compensating these losses as well.
Recurring EPS benefit on account of easing of working capital cycle is likely to
result in benefits arising out of negative carry (the incremental cost of financing
the funds locked in fertiliser bonds) for the above companies. The benefit is
expected to be to the extent of ~4% of the value of the fertiliser bonds.
• EPS impact on Coromandel is expected to be ~6% and 4% for FY11 and FY12,
respectively (i.e. ~INR 350 mn).
• EPS impact for Zuari is expected to be ~10% and 8% for FY11 and FY12,
respectively (i.e. ~INR 320 mn).
• EPS impact for Chambal is expected to be ~5.0% and 4.5% for FY11 and
FY12, respectively (i.e. ~INR 130 mn).
According to media reports, GoI has approved buy-back of fertiliser bonds of INR
140 bn to compensate for 50% losses incurred by the fertiliser industry (on
account of these bonds as well as on bonds sold earlier by these companies). GoI
had issued bonds of INR 275 bn in 2007-08 and 2008-09 to fertiliser companies
against subsidies. These companies had sold more than half the bonds issued to
them at a loss to raise cash. The cumulative value of bonds held by the fertiliser
industry is INR ~140 bn, of which, IFFCO holds INR 66 bn, Indian Potash INR 28.6
bn, Coromandel INR 10 bn, and Zuari INR 9 bn. RBI has reported to have bought
bonds of INR 57.6 bn last week.
We recommend ‘BUY’ on Coromandel and Zuari, and ‘HOLD’ on Chambal.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GoI buying back fertiliser bonds and to compensate losses partially
Government of India (GoI) is buying back outstanding fertiliser bonds from
fertiliser companies at a discount, and compensating for 50% of their losses. This
is likely to reduce their recurring interest cost and positively impact profitability
(due to write-back of losses provided earlier). While one-time EPS benefit will be
9-14%, we expect recurring cash flow and EPS benefit to be in the range of 5-10%
for Zuari, Coromandel, and Chambal.
Zuari has already rendered 50% of the fertiliser bonds to GoI (total bonds
outstanding were INR 4.4 bn in Zuari’s standalone books and another INR 9.3 bn
in the books of Paradeep Phosphates, wherein Zuari's effective interest is ~40%).
Company-wise impact
One-time positive EPS impact
• Coromandel: ~9% for FY12 (i.e. PAT impact of INR 690 mn. Coromandel has
INR 1,378 mn worth loss on MTM write downs, as on March 31, 2010).
• Zuari: ~14% for FY12 (i.e. PAT impact of INR 520 mn. Zuari has INR 1,058
mn worth loss on MTM write downs, as on March 31, 2010).
• Chambal: ~8% for FY12 (i.e. PAT impact of INR 210 mn).
• On top of this, Coromandel and Zuari are also having booked loss of ~INR 242
mn and INR 133 mn, respectively, on account of sold fertiliser bonds. We
expect GoI to consider compensating these losses as well.
Recurring EPS benefit on account of easing of working capital cycle is likely to
result in benefits arising out of negative carry (the incremental cost of financing
the funds locked in fertiliser bonds) for the above companies. The benefit is
expected to be to the extent of ~4% of the value of the fertiliser bonds.
• EPS impact on Coromandel is expected to be ~6% and 4% for FY11 and FY12,
respectively (i.e. ~INR 350 mn).
• EPS impact for Zuari is expected to be ~10% and 8% for FY11 and FY12,
respectively (i.e. ~INR 320 mn).
• EPS impact for Chambal is expected to be ~5.0% and 4.5% for FY11 and
FY12, respectively (i.e. ~INR 130 mn).
According to media reports, GoI has approved buy-back of fertiliser bonds of INR
140 bn to compensate for 50% losses incurred by the fertiliser industry (on
account of these bonds as well as on bonds sold earlier by these companies). GoI
had issued bonds of INR 275 bn in 2007-08 and 2008-09 to fertiliser companies
against subsidies. These companies had sold more than half the bonds issued to
them at a loss to raise cash. The cumulative value of bonds held by the fertiliser
industry is INR ~140 bn, of which, IFFCO holds INR 66 bn, Indian Potash INR 28.6
bn, Coromandel INR 10 bn, and Zuari INR 9 bn. RBI has reported to have bought
bonds of INR 57.6 bn last week.
We recommend ‘BUY’ on Coromandel and Zuari, and ‘HOLD’ on Chambal.
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