Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Chambal Fertilizers & Chemicals
Robust top line, poor bottom line
Chambal posted disappointing 2QFY12 results, with revenue growing
7% YoY, but EBITDA contracting 9% YoY due to 1) expiration of
shipping contracts, 2) inventory write-off due to fall in cotton, leading
to both the shipping and textile segments generating losses. Chambal
has scrapped its plan to de-merge the shipping division due to
unfavourable negotiations and covenants put forward by European
banks. We trim our FY12 and FY13 estimates by 12% and 7% and reduce
our Fair Value to Rs. 82, maintaining our NEUTRAL stance.
Robust top line
Chambal delivered weak Q2FY12 earnings despite revenues growing by 6% YoY
to Rs. 16,383m (ESIB estimate Rs. 16,200m). Urea revenue grew by 14% YoY in
spite of a drop in urea volumes to the tune of 6%, on the back of per ton
realization on urea rising by 21% due to higher gas prices. Whilst the volume of
traded products was down 25% YoY, higher realizations of complex fertilizers
led to only a marginal decline of 4% in revenues from trading. Shipping and
Textile revenues grew by 38% and 13% YoY respectively.
Poor bottom line
In contrast to revenue performance, there was a 9% YoY decline in EBITDA as
Shipping and Textile fell into the red. The textile division posted an EBIT margin
of -9.9% as compared with a 10.7% margin in the same period last year.
Meanwhile with the expiration of its long-term shipping contracts in Q1FY12,
Chambal now deploys its ships at c.20% lower spot rates, leading to the
adjusted EBIT margin from shipping falling to -5% as compared with 6% during
the same period last year. Adjusting for tax credits, profit after taxes contracted
by 25% YoY to Rs. 738m in 2QFY12.
Shipping de-merger shelved
Chambal also announced it is shelving the plan to de-merge its shipping division
(de-merger plan announced in July ’11). The rationale management gave us was
1) unfavourable covenants levied by the lenders, 2) worsening credit conditions
in Europe and 3) a slowdown in the global shipping industry. Management was
at pains to stress it would still increase focus on the core business, and the
demerger had been deferred not cancelled. But the shipping de-merger is
important as Chambal’s balance sheet is stretched (gearing 1.6x) because of
high capital intensity of the shipping division, and it does not leave much room
for the company to raise future debt to fund any expansion plans. And as we’ve
seen again this quarter, investors remain exposed to losses in a non-core
shipping business eroding profitability coming from the core business.
Chambal’s growing attraction was as an increasingly pure fertilizer play at a time
the industry de-regulated, but that investment case has been impaired.
Trim estimates, revise price target
Given the weak outlook for shipping and textiles, we trim our earnings estimates
for FY12 and FY13 by 12% and 7% respectively. We have modelled shipping and
textiles segment to be in the red for FY12E as well as FY13E and to break even
only in FY14E, while IT division is in profit in FY13E. We expect the margin in
manufactured fertilizers to increase by +200 bps in FY12E on the back of higher
IPP linked realisations. Furthermore, the increasing price of phosphoric acid
leads us to build in margin expansion in the IMACID division. We have also
factored in that the new SSP plant with capacity of 200K tones will be functional
in 1Q FY13 and will work at 60% capacity in FY13. Chambal currently trades at
13x our FY12 earnings estimates. Our DCF analysis suggests a Fair Value of Rs.
82 (previous FV Rs. 91) implying a 6% downside. We reiterate our NEUTRAL
stance on the stock.
Risk to our fair value
Improvement in shipping and textiles division performance will lead to upward
revision in our estimates. Also, de-regulation of urea, which we have not factored
in, could lead to increase in our fair value.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Chambal Fertilizers & Chemicals
Robust top line, poor bottom line
Chambal posted disappointing 2QFY12 results, with revenue growing
7% YoY, but EBITDA contracting 9% YoY due to 1) expiration of
shipping contracts, 2) inventory write-off due to fall in cotton, leading
to both the shipping and textile segments generating losses. Chambal
has scrapped its plan to de-merge the shipping division due to
unfavourable negotiations and covenants put forward by European
banks. We trim our FY12 and FY13 estimates by 12% and 7% and reduce
our Fair Value to Rs. 82, maintaining our NEUTRAL stance.
Robust top line
Chambal delivered weak Q2FY12 earnings despite revenues growing by 6% YoY
to Rs. 16,383m (ESIB estimate Rs. 16,200m). Urea revenue grew by 14% YoY in
spite of a drop in urea volumes to the tune of 6%, on the back of per ton
realization on urea rising by 21% due to higher gas prices. Whilst the volume of
traded products was down 25% YoY, higher realizations of complex fertilizers
led to only a marginal decline of 4% in revenues from trading. Shipping and
Textile revenues grew by 38% and 13% YoY respectively.
Poor bottom line
In contrast to revenue performance, there was a 9% YoY decline in EBITDA as
Shipping and Textile fell into the red. The textile division posted an EBIT margin
of -9.9% as compared with a 10.7% margin in the same period last year.
Meanwhile with the expiration of its long-term shipping contracts in Q1FY12,
Chambal now deploys its ships at c.20% lower spot rates, leading to the
adjusted EBIT margin from shipping falling to -5% as compared with 6% during
the same period last year. Adjusting for tax credits, profit after taxes contracted
by 25% YoY to Rs. 738m in 2QFY12.
Shipping de-merger shelved
Chambal also announced it is shelving the plan to de-merge its shipping division
(de-merger plan announced in July ’11). The rationale management gave us was
1) unfavourable covenants levied by the lenders, 2) worsening credit conditions
in Europe and 3) a slowdown in the global shipping industry. Management was
at pains to stress it would still increase focus on the core business, and the
demerger had been deferred not cancelled. But the shipping de-merger is
important as Chambal’s balance sheet is stretched (gearing 1.6x) because of
high capital intensity of the shipping division, and it does not leave much room
for the company to raise future debt to fund any expansion plans. And as we’ve
seen again this quarter, investors remain exposed to losses in a non-core
shipping business eroding profitability coming from the core business.
Chambal’s growing attraction was as an increasingly pure fertilizer play at a time
the industry de-regulated, but that investment case has been impaired.
Trim estimates, revise price target
Given the weak outlook for shipping and textiles, we trim our earnings estimates
for FY12 and FY13 by 12% and 7% respectively. We have modelled shipping and
textiles segment to be in the red for FY12E as well as FY13E and to break even
only in FY14E, while IT division is in profit in FY13E. We expect the margin in
manufactured fertilizers to increase by +200 bps in FY12E on the back of higher
IPP linked realisations. Furthermore, the increasing price of phosphoric acid
leads us to build in margin expansion in the IMACID division. We have also
factored in that the new SSP plant with capacity of 200K tones will be functional
in 1Q FY13 and will work at 60% capacity in FY13. Chambal currently trades at
13x our FY12 earnings estimates. Our DCF analysis suggests a Fair Value of Rs.
82 (previous FV Rs. 91) implying a 6% downside. We reiterate our NEUTRAL
stance on the stock.
Risk to our fair value
Improvement in shipping and textiles division performance will lead to upward
revision in our estimates. Also, de-regulation of urea, which we have not factored
in, could lead to increase in our fair value.
No comments:
Post a Comment