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Chambal Fertilisers’ (Chambal) Q3FY12 adj. PAT at INR865mn surpassed
our estimate owing to the lower‐than‐expected tax on account of change
in the shipping division’s taxation policy. While performance of urea and
traded goods was steady, shipping and textiles drag profitability. Reported
PAT was hit by exceptional deferred tax liability owing to change in
shipping division’s taxation policy from FY12. We maintain ‘HOLD’.
Fertiliser business steady; textiles and shipping drag
Chambal’s Q3FY12 standalone revenue grew 32.2% YoY (ahead of estimate) despite
urea sales declining 2.9%, owing to strong growth in traded goods revenue. EBITDA
margin declined 420bps YoY to 11.4% (lower than estimate) owing to product mix
skewed towards lower margin traded products vis‐à‐vis higher margin manufactured
products, coupled with losses in shipping and textiles. While the company reported loss
of INR12mn, adjusting for the exceptional deferred tax liability of INR929mn, MTM gain
of INR11.6mn on USD interest rate swap transactions and tax credit gain related to
earlier years of INR43.6mn, Chambal’s adjusted PAT dipped 9% YoY to INR865mn.
Shipping division opts out of tonnage tax scheme
Owing to losses posted by and weak outlook for the shipping division, Chambal has
opted out of the tonnage tax scheme and moved to normal taxation scheme for the
division, so as to lower tax outflow. Ergo, it had to account for the difference in the
written down value of the shipping division’s fixed assets, leading to an exceptional
deferred tax liability of INR929mn and a similar quantum is likely to be provided for in
Q4FY12. While the company will have to continue with normal taxation for shipping
business for the next 10 years, we believe Chambal will demerge the shipping entity
when the outlook improves and move back to tonnage tax for the new demerged entity.
Outlook and valuations: Non‐core biz drags; maintain ‘HOLD’
The urea pricing policy as well as new investment policy for urea continues to be
debated by the government and the uncertainty in these policies is likely to be an
overhang on the stock. While the benefit of import price parity (IPP) linked pricing for
urea production over the revamp cut off quantity is likely to flow in for Chambal during
Q4FY12, losses from the shipping division, textiles and the software subsidiary are likely
to offset these gains on consolidated basis. We maintain our estimates for the company
and our DCF based fair value at INR84/share. Currently, the stock is available at 12.3x
and 11.2x consolidated P/E of FY12E and FY13E, respectively. We maintain ‘HOLD’.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Chambal Fertilisers’ (Chambal) Q3FY12 adj. PAT at INR865mn surpassed
our estimate owing to the lower‐than‐expected tax on account of change
in the shipping division’s taxation policy. While performance of urea and
traded goods was steady, shipping and textiles drag profitability. Reported
PAT was hit by exceptional deferred tax liability owing to change in
shipping division’s taxation policy from FY12. We maintain ‘HOLD’.
Fertiliser business steady; textiles and shipping drag
Chambal’s Q3FY12 standalone revenue grew 32.2% YoY (ahead of estimate) despite
urea sales declining 2.9%, owing to strong growth in traded goods revenue. EBITDA
margin declined 420bps YoY to 11.4% (lower than estimate) owing to product mix
skewed towards lower margin traded products vis‐à‐vis higher margin manufactured
products, coupled with losses in shipping and textiles. While the company reported loss
of INR12mn, adjusting for the exceptional deferred tax liability of INR929mn, MTM gain
of INR11.6mn on USD interest rate swap transactions and tax credit gain related to
earlier years of INR43.6mn, Chambal’s adjusted PAT dipped 9% YoY to INR865mn.
Shipping division opts out of tonnage tax scheme
Owing to losses posted by and weak outlook for the shipping division, Chambal has
opted out of the tonnage tax scheme and moved to normal taxation scheme for the
division, so as to lower tax outflow. Ergo, it had to account for the difference in the
written down value of the shipping division’s fixed assets, leading to an exceptional
deferred tax liability of INR929mn and a similar quantum is likely to be provided for in
Q4FY12. While the company will have to continue with normal taxation for shipping
business for the next 10 years, we believe Chambal will demerge the shipping entity
when the outlook improves and move back to tonnage tax for the new demerged entity.
Outlook and valuations: Non‐core biz drags; maintain ‘HOLD’
The urea pricing policy as well as new investment policy for urea continues to be
debated by the government and the uncertainty in these policies is likely to be an
overhang on the stock. While the benefit of import price parity (IPP) linked pricing for
urea production over the revamp cut off quantity is likely to flow in for Chambal during
Q4FY12, losses from the shipping division, textiles and the software subsidiary are likely
to offset these gains on consolidated basis. We maintain our estimates for the company
and our DCF based fair value at INR84/share. Currently, the stock is available at 12.3x
and 11.2x consolidated P/E of FY12E and FY13E, respectively. We maintain ‘HOLD’.
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