Fertiliser Sector Update Q2FY12 performance remains encouraging :Emkay

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Fertiliser Sector Update

Q2FY12 performance remains encouraging

n     Q2FY12 results for agri-inputs universe (ex Tata Chemicals, results pending) has been encouraging with revenues and APAT above our est by 10% and 14%, respectively

n     Companies’ fertiliser division performance has been encouraging due to sharp increase in fertiliser prices despite 140bps yoy / 80bps qoq decline in EBIT margins to 11.7%

n     Chemical segment margins also remain robust with EBIT margins at 30% (+20bps yoy / 150 bps qoq)

n     Post the results we have upgraded earnings for DFPCL while Rallis has seen downgrade. Chambal (upgrade) has been adjusted for withdrawal of its shipping demerger

n     Managements outlook on agri business (fertilisers and agrochemicals) remain positive on account of encouraging outlook for Rabi crop and strong farm produce prices

n     We expect that while rising input cost may put pressure on chemical segment margins in subsequent quarters global slowdown may also hurt demand

n     Raw material availability for complex fertiliser remain our key concern while any further price increase in complex fertiliser prices may hamper fertiliser demand

n     UPL and DFPCL are our top pick post the results along with GSFC (BUY on attractive valuations) and Coromandel (earnings momentum to continue)

n     We also recommend BUY on Tata Chemicals pre results on expectation of strong Q2FY12 results

Company	CMP	TP	Current Reco	Previous Reco	Earnings change
					FY12	FY13
Chambal Fertilisers	88	98	Accumulate	Buy	3%	-4%
Coromandel Int'l	333	435	Buy	Buy	NA	NA
Deepak Fertilisers	165	250	Buy	Buy	6%	10%
GNFC	91	135	Buy	Buy	NA	NA
GSFC	461	530	Buy	Buy	NA	NA
Rallis India	160	197	Buy	Buy	-10%	-6%
United Phosphorus	142	215	Buy	Buy	1%	0%
Tata Chemicals	312	400	Accumulate	Accumulate	NA	NA

Source: Emkay Research
*Tata Chemicals will declare its results on 11^th Nov, 2011