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Zuari Industries’ (Zuari) PAT came below expectations on the back of a
lower‐than‐expected EBITDA margin and lower fertiliser sales volume. A
fire accident that resulted in plant shutdowns and a product mix skewed
towards traded fertilisers resulted in the lower margin. Currently both
urea and NPK plants are up and running. While we maintain a positive
long term outlook on Zuari, in view of the lost fertiliser volume (from
unplanned shutdowns), we revise FY12E earnings down by 8% but retain
FY13E EPS. We maintain our ‘BUY’ recommendation on the stock.
Disruption in manufacturing operations hits profitability
Zuari posted a YoY revenue decline of 9.7% at INR18.9bn on the back of a 25.6%
volume fall, largely due to the shutdown of urea and NPK plants during Q2FY12.
This led to a drop in manufacturing volume by 33% YoY. EBITDA margin is below
expectations at 2.7% against 5.1% in Q2FY11 on account of shut downs, resulting
in lower operating leverage. The sales product mix, skewed predominantly towards
traded fertilisers, also contributed to lower EBITDA margin. PAT came below
expectations at INR476mn, posting a YoY decline of 41%.
Key highlights
• Due to the fire accident to the pipeline carrying naphtha to Zuari, urea plant
was shut down for 63 days (40 days during Q2FY12) while NPK plant was shut
down for 20 days (16-17 days in Q2FY12).
• Owing to soaring raw material prices and depreciating rupee, Zuari took 15%-
20% price hike in Q2FY12 and another 20%-25% during Sep-Oct on its NPK
fertilisers.
Outlook and valuations: Operations back on track; maintain ‘BUY’
On account of lost volume due to plant shut downs coupled with lower trading
volume, we have revised down our FY12E EPS to INR93.3/share while maintaining
FY13E EPS at INR126.9/share. In October 2011, operations at NPK plant as well as
at urea plant returned to normalcy. Currently, Zuari is available at 5.7x and 4.2x
consolidated P/E of FY12E and FY13E respectively. We maintain our ‘BUY’
recommendation on the stock with SOTP target price of INR907/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Zuari Industries’ (Zuari) PAT came below expectations on the back of a
lower‐than‐expected EBITDA margin and lower fertiliser sales volume. A
fire accident that resulted in plant shutdowns and a product mix skewed
towards traded fertilisers resulted in the lower margin. Currently both
urea and NPK plants are up and running. While we maintain a positive
long term outlook on Zuari, in view of the lost fertiliser volume (from
unplanned shutdowns), we revise FY12E earnings down by 8% but retain
FY13E EPS. We maintain our ‘BUY’ recommendation on the stock.
Disruption in manufacturing operations hits profitability
Zuari posted a YoY revenue decline of 9.7% at INR18.9bn on the back of a 25.6%
volume fall, largely due to the shutdown of urea and NPK plants during Q2FY12.
This led to a drop in manufacturing volume by 33% YoY. EBITDA margin is below
expectations at 2.7% against 5.1% in Q2FY11 on account of shut downs, resulting
in lower operating leverage. The sales product mix, skewed predominantly towards
traded fertilisers, also contributed to lower EBITDA margin. PAT came below
expectations at INR476mn, posting a YoY decline of 41%.
Key highlights
• Due to the fire accident to the pipeline carrying naphtha to Zuari, urea plant
was shut down for 63 days (40 days during Q2FY12) while NPK plant was shut
down for 20 days (16-17 days in Q2FY12).
• Owing to soaring raw material prices and depreciating rupee, Zuari took 15%-
20% price hike in Q2FY12 and another 20%-25% during Sep-Oct on its NPK
fertilisers.
Outlook and valuations: Operations back on track; maintain ‘BUY’
On account of lost volume due to plant shut downs coupled with lower trading
volume, we have revised down our FY12E EPS to INR93.3/share while maintaining
FY13E EPS at INR126.9/share. In October 2011, operations at NPK plant as well as
at urea plant returned to normalcy. Currently, Zuari is available at 5.7x and 4.2x
consolidated P/E of FY12E and FY13E respectively. We maintain our ‘BUY’
recommendation on the stock with SOTP target price of INR907/share.
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