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RECO : BUY TP : Rs530
Investment Rationale
§ GSFC is one of the biggest beneficiary of the Nutrient based subsidies (NBS) scheme on account of its captive
ammonia production facility
§ We expect company’s EBITDA margins to improve from 11% in FY10 to 18% in FY2013 owing to
implementation of NBS and improvement in chemicals margins
§ TIFERT project for phos acid capacity for 3.6 lac mtpa will boost raw material availability (by 1.8 lac mtpa), which
will further boost company’s volume growth in FY13
§ Caprolactam prices rebounded to $3580/mt in Sep’11 as compared to $3190/mt in June’11. Spreads bounced
back & reached all time high of $2465/mt in the first half of Sep’11, surpassing its previous peak of $2390/mt
achieved in Mar 2011. Current all time high spreads are likely to sustain in the near term driven by tightening
caporolactam supply situation & recent stabilization in benzene (raw material) prices which would support
margins for the remainder of FY12
§ Company has further expansion plans for few of its chemical products which include methanol, caprolactam,
melamine to support its chemical business
Valuations
§ It holds cash of Rs 8.5 bn as of now which is likely to increase to Rs 15bn (cash/share of Rs 194) by FY13E.
GSFC also held liquid investments to the tune of Rs 4.2bn (Rs 53/share) in its books at end of FY11. With 48%
of cmp in cash and equivalents and FY12 EV/EBITDA of 2.0x, P/E of 5x, valuation remains compelling.
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