Fertiliser - Volumes surge on anticipation of robust kharif demand; : Edelweiss PDF Link

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Non-urea fertiliser sales volume surged in Q4FY12 on account of restocking by  distributors ahead of the kharif season, after weak offtake during Q3FY12 fueled by poor rainfall during rabi season. Owing to the robust sales volume growth, most domestic fertiliser companies are expected to post strong revenue and profitability growth for Q4FY12 YoY. While Q1FY13 is likely to register subdued sales volume vis-à-vis Q4FY12, the outlook for FY13 is positive on account of improved availability of phosphoric acid and lower raw material prices. In the domestic fertiliser space, we remain positive on Coromandel International (Coromandel).

Strong revival in non-urea volume in February-March

While the poor post-monsoon rainfall resulted in non-urea sales volume plunging ~18% YoY during December 2011-January 2012, demand surged in February on better rainfall and restocking of distribution network for the upcoming kharif season resulted in 107% YoY sales surge during February-March. On the other hand, urea sales volume declined 1.4% YoY. The strong non-urea fertiliser sales during the quarter pacify concerns of likely inventory losses in Q1FY13 (owing to lower NBS subsidy in FY13 vis-à-vis FY12) for fertiliser companies to a great extent. 

Outlook: Positive; upcoming monsoon season is key

Owing to the steep growth in fertiliser sales volume, we expect complex fertiliser companies like Coromandel, Zuari Industries (Zuari) and GSFC to post strong growth in revenue and profitability for Q4FY12 YoY. For Coromandel and Zuari, on account of the Q4FY12 sales volume being higher than our expectation, there is a likelihood of Q4FY12 numbers beating our estimates (Table 6) by 15-20%. While we expect subdued profitability from these companies during Q1FY13, on back of lower inventories being carried into FY13 and some losses on these inventories owing to lower subsidy from government in FY13 vis-à-vis FY12, the outlook for FY13 is positive. This is on account of the improved availability of raw materials like phosphoric acid and lowering of raw material costs in FY13 vis-à-vis FY12. While prospects for the fertiliser sector look bright, the key will be good monsoon in the upcoming kharif season.

In our coverage universe, we have ‘BUY’ on Coromandel and Zuari and ‘HOLD’ on Chambal. Based on DCF, we have a fair value target of INR395 for Coromandel (CMP: INR285), INR238 for Zuari (CMP: INR163) and INR84 for Chambal (CMP: INR82).

Fertiliser - Volumes surge on anticipation of robust kharif demand; sector update

Regards,