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RECO : BUY TP : Rs435
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, compost 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
Nutrient Based Subsidy Scheme which is likely to drive its fertiliser profitability
§ Its non subsidy business enjoys high margins of 20-30% compared to ~10% in fertilisers. Attractive growth of 30-
40% in non-subsidy business is likely to drive the company’s earnings going forward. 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
§ Government has revised the NBS rates for FY12 which are ~22% higher than the previous year and is in line with
global prices which should help CIL maintain its margins
Valuations
§ We expect the company to report 24% CAGR (FY11-13E) in revenues and 33% in PAT. With improved
profitability in fertiliser segment and rising share of high margin business, EBITDA margins are expected to
improve by 150 bps to 12.3% in FY13E
§ We expect CIL to generate free cash of Rs 4-5 bn every year. We expect the company to report an EPS of Rs
26.4 and Rs 32.3 in FY12E and FY13E, respectively. FOSKAR listing and inorganic growth plans are future
positive triggers for the stock
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