GSFC’s Q4FY13 result disappointed on the margin front. Adjusted EBITDA margins
stood at 9.9% (‐930bps YoY/‐50bps QoQ) primarily due to pressure in the chemicals
segment. However, capro‐benzene spreads have bottomed out and we expect
subsequent quarters to witness gradual improvement in chemicals margins.
Commencement of TIFERT is likely to boost manufactured fertiliser volumes and
margins in FY14E. We have downgraded estimates by 7%/2% to Rs 13.9/15.7 in
FY14E/15E due to lower fertiliser prices and volumes combined with slow recovery
in capro‐benzene spreads. However, we maintain ‘Accumulate’ (revised target
price Rs 66) due to attractive valuations. Union Ministry’s directive to recover
subsidy on ammonium sulphate is likely to remain a major overhang on the stock
(though management clarified that they have approached the Delhi High Court and
are confident of the outcome in GSFC’s favour).
! Q4FY13 results disappointed due to lower margins: GSFC reported PAT of
Rs584m, -75% YoY which included employee provisioning of Rs520m related to
wage revision of employees at its polymer and fibre units. This employee
provisioning included Rs400m of one-off items related to gratuity, pension
liabilities and was non-recurring in nature. After adjusting for the one-offs of
Rs400m, adjusted PAT stood at Rs984m, -47% YoY and significantly below est. of
Rs1.4bn. Though revenues at Rs 17.0bn, 11% YoY were slightly lower than est. of
Rs17.7bn, the primary disappointment was at the margins front. Adjusted
EBITDA margins stood at 9.9% (est. of 13.3%) due to lower margins in the
chemicals segment.
! Adjusted chemicals margins stood at 11.5% (est. of 16.0%); fertiliser margins
stood at 8.6% (est. of 10.0%): Adjusted chemicals margins stood at 11.5% (est.
of 16.0%) due to pressure on caprolactam-benzene spreads. Spreads remained
weak due to lower caprolactam prices (US$2400/mt), while benzene
(US$1400/mt) remained at elevated levels. Fertiliser margins also witnessed
pressure due to huge inventory in the system.
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stood at 9.9% (‐930bps YoY/‐50bps QoQ) primarily due to pressure in the chemicals
segment. However, capro‐benzene spreads have bottomed out and we expect
subsequent quarters to witness gradual improvement in chemicals margins.
Commencement of TIFERT is likely to boost manufactured fertiliser volumes and
margins in FY14E. We have downgraded estimates by 7%/2% to Rs 13.9/15.7 in
FY14E/15E due to lower fertiliser prices and volumes combined with slow recovery
in capro‐benzene spreads. However, we maintain ‘Accumulate’ (revised target
price Rs 66) due to attractive valuations. Union Ministry’s directive to recover
subsidy on ammonium sulphate is likely to remain a major overhang on the stock
(though management clarified that they have approached the Delhi High Court and
are confident of the outcome in GSFC’s favour).
! Q4FY13 results disappointed due to lower margins: GSFC reported PAT of
Rs584m, -75% YoY which included employee provisioning of Rs520m related to
wage revision of employees at its polymer and fibre units. This employee
provisioning included Rs400m of one-off items related to gratuity, pension
liabilities and was non-recurring in nature. After adjusting for the one-offs of
Rs400m, adjusted PAT stood at Rs984m, -47% YoY and significantly below est. of
Rs1.4bn. Though revenues at Rs 17.0bn, 11% YoY were slightly lower than est. of
Rs17.7bn, the primary disappointment was at the margins front. Adjusted
EBITDA margins stood at 9.9% (est. of 13.3%) due to lower margins in the
chemicals segment.
! Adjusted chemicals margins stood at 11.5% (est. of 16.0%); fertiliser margins
stood at 8.6% (est. of 10.0%): Adjusted chemicals margins stood at 11.5% (est.
of 16.0%) due to pressure on caprolactam-benzene spreads. Spreads remained
weak due to lower caprolactam prices (US$2400/mt), while benzene
(US$1400/mt) remained at elevated levels. Fertiliser margins also witnessed
pressure due to huge inventory in the system.
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