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Tracom March 2013
Tracom March 2013
Special Report
Economic Analysis
GDP growth weakens further to 4.5% in Q3
The pace of economic growth weakened further in the third quarter after remaining in the range of 5-5.5% in the previous three quarters, mainly on the back of growth moderation witnessed in the services sector. Further, poor performance of agriculture, mining and manufacturing sectors, also dragged the third quarter growth numbers to over 3-year low. Though the widespread slowdown could be seen across all sectors, weak growth seen in private consumption spending, which contributes around 58% to overall GDP, remained a matter of concern. Moreover, prevailing high interest rates, declining rupee and slowing down of investment played the major part in drying out the consumer sentiments. With this, growth for the first nine months of the current financial year came at 5% much lower than 6.6% growth witnessed in the same period previous year. On the supply-side front, growth in agricultural sector slowed further to 1.1% in the third quarter as against 1.2% in Q2 of 201213, and considerably lower than 4.1% in the same quarter previous year, mainly due to unfavourable distribution and amount of monsoon rainfall, which dampened yields of some crops. As per the second advance estimates of crop production for the kharif crop of 2012, the decline is expected in production of coarse cereals, pulses, sugarcane, oilseeds, cotton and rice as against the final production figures if previous fiscal. Reversing the trend so far followed by the industrial sector, growth for the third quarter stood at 3.3% marginally higher than 2.7% in the previous quarter and 26% in the same quarter previous year, mainly on the back of increase seen in manufacturing and electricity. Growth of manufacturing improved to 2.5% in the third quarter against 0.7% growth in the same period previous year and 0.8% in the previous quarter. Even data from the IIP showed that there was considerable improvement when compared with a 8% contraction seen in the previous quarter against 1% de-growth in the third quarter. The input of manufacturing to GDP growth, however remained low at 0.4% in the third quarter.
Growth trends in major sectors (%)
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Performance of electricity, gas & water supply too, improved moderately to 4.5% in Q3 from 3.4% recorded in the previous quarter, however remained comparatively lower to the 7.7% growth witnessed in the same quarter previous fiscal, belowaverage monsoon rainfall, which extremely affected the growth of hydroelectricity generation on a yearly basis and thereby affecting power supply to industrial sector. Similarly, mining and quarrying sector, though recording a de-growth of 1.4% in the third quarter, showed improvement against 2.6% decline witnessed in the same quarter last fiscal, mainly reflected due to subdued growth of coal output and worsening de-growth of natural gas output, which were mainly on the back of the continuing ban on iron ore mining in some states. The economys another bellwether, services sector moderated to 6.1% in the third quarter from 7.2% in the previous quarter and 8.3% in the same quarter previous fiscal. Similarly, contribution of services to GDP growth declined to 76% of the reporting period from 83% in record in the previous quarter. The weakness mainly contributed by further downturn seen in trade, hotels, transport and communication at 5.1% as against 6.9% in the same quarter a year-ago. Similarly, the financing, insurance, real estate & business services sector witnessed an all-time low growth of 7.9% in the quarter against 9.4% in the previous quarter and comparatively lower than 11.4% in the same quarter a year before. Even growth of community, social & personal services segment slowed to 5.4% for the reporting quarter. Private final consumption expenditure improved to 4.6% as against 3.7% seen in the previous quarter, however substantially weaker when compared with 9.2% growth recorded in the same quarter a year-ago, which shows that purchasing power still remains subdued, though consumer sentiments improved somewhat in recent months. The growth in gross fixed capital formation as a percentage of GDP stood at 32.4% in the third quarter, as against 31.8% growth in the same quarter last fiscal. On the whole, with across the board slowdown and continued contraction witnessed in mining growth, overall growth came at 15-quarter low-level, highlighting continuing signs of slowdown and high interest rates. However, showing a remarkable increase in the months of January and February, the manufacturing PMI, signaled a likely turnaround in the manufacturing activity, though sustainability remains doubtful. Further, risks emanating from the US and Euro-zone, may affect the growth going forward, mainly exports which will remain subdued given low growth in the US and Europe, despite a weaker rupee. On the agricultural front, favourable rainfall in the enduring quarter and prospects of rabi crop appearing to be somewhat
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Tracom RESEARCH
Date : 22 March 2013
better, growth in the fourth quarter is expected to improve. As a result, mild recovery seen in industrial activity and expected improvement in service sector activity, may help the GDP growth to show some improvement in the upcoming quarter. Further, the sluggish growth witnessed in Q3 may prompt the Reserve Bank of India (RBI) to to cut the repo rate in the mid-quarter policy review in March, which may improve the business sentiments. solved, are unlikely to come down anytime soon.
for the reporting month as against 7.1% in January, mainly due to price-rise seen in LPG, high speed diesel and petrol,
Inflation
termed as core inflation continued its declining trend for the sixth consecutive month to 3.8% as compared to 4.1% in the previous month.
Inflation
11.4% for the reporting month from 11.9% in January, mainly on the back of decline seen in prices of vegetables (4.3%), pulses (2.7%) and fruits (0.7%).
Inflation
steady at 8.2% in February, primarily led by a fall in prices of sugar (1.3%) and edible oils (0.6%).
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also impact the inflation route going forward. Similarly, food inflation for the month though moderating, remained in the double-digit zone at 11.4%, mainly highlighting
WPI Inflation
CPI Inflation
Tracom RESEARCH
Date : 22 March 2013
the prevailing supply-side and institutional pricing constraints. Further, estimation of lower production of vegetables, cereals, pulses and oilseeds in the current year owing to severe winter in the northern food producing states, is also likely to impact the prices going forward. On the other hand, the decline in non-food articles inflation mainly in the prices of oil seeds and minerals have led to the overall decline in inflation. Inflations monthly trend: 12-Nov Primary Articles Food Articles Fuel & Power Manufactured Products All Commodities 9.4 8.5 10 5.4 7.2 12-Dec 10.6 11.2 9.4 5 7.1 13-Jan 10.3 11.88 7.1 4.8 6.6 13-Feb 9.7 11.4 10.5 4.5 6.8 high inflation, continue to affect the overall industrial output. On a collective basis, growth in April-January period of current fiscal expanded by 1% as compared to 3.4% in the same period a year ago. Similarly, growth in eight core industries also registered a growth of 3.9% in January as against 2.5% growth in the previous month.
Sectoral Performance:
Inflation related to manufactured products also eased to 36month low level of 4.5% for the reporting month from 4.8% in the previous month, mainly due to moderation seen in prices of global commodity and the continuing subdued demand conditions. Moderation in both its food and non-food components led to the decline. Further, indicating moderation of demand side pressures, the non-food manufacturing component of inflation also called as core inflation eased to 3.8% as compared to 4.1% in January, reflecting the fall in commodity prices - sixth consecutive decline. On the whole, inflation based on WPI though remained below the psychological 7-percent mark, increased owing to upsurge seen in fuel prices. However, going forward trend is likely to be on the declining side with prices of vegetables and pulses expected to continue its softening tendency, though drastic changes are not expected with a lower production estimation. More than that, core inflation continuing its declining trend and food inflation being supply driven and not owing to excess demand, is the most cooling factor for the policy makers. On the other hand, the retail inflation measured by the CPI with its persistent upward movement is also likely to come down, but will remain in the double-digit zone going ahead.
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Contracting
quarrying output declined by 2.9% as compared to a contraction of 2.1% in the previous month, mainly on the back of regulatory and environmental issues, which is still continuing to plague the mining sector. However, on a cumulative basis, the pace of contraction for the first 10-month of the fiscal eased to 1.9% as against a de-growth of 2.5% in the same period a year ago.
Q3 2011- 12
Q4 2011- 12
Q1 2012- 13
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Q3 2012- 13
GDP at fac tor c ost elec tric ity, gas & water supply agric ulture, forestry & fishing trade, hotels, transport
mining & quarrying c onstruc tion manufac turing financ ing, ins., real est. & bus.
Tracom RESEARCH
Date : 22 March 2013
January period against a 2.9% fall in the same month a year ago.
zone, the pace of contraction eased substantially to 0.9% in reflecting the impact of high interest rate. On a cumulative basis, output somewhat eased to 3.2% against 3.7% witnessed in the same period a year ago.
a revised 1.8% in the previous month. On a cumulative basis, growth stood at 2.8% for the first ten months of the fiscal against 5.8% growth in the corresponding months of the previous year.
On the whole, industrial growth for the reporting month have come in better than expected, reflecting a pickup in manufacturing activity and good show by the electricity sector. Though some signs of recovery is seen, but it would be too early to presume that the slowdown has bottomed out and recovery is around the corner. Similar is the case with the HSBC manufacturing PMI, which increased to 54.2 in February up from 53.2 in January, which also shows that the slowdown in growth is bottoming out, but how long it sustains remains a question. Apart from manufacturing and electricity, consumer goods output moving into the positive territory for the month, after showing de-growth in the last two months, indicates a turnaround in consumption demand. On the other hand, continuous fall in capital goods output signifying that investment demand is yet to pick up and slowing consumer demand, as seen by the steepest fall in car sales in 12-year remain a cause for concern. Meanwhile, data released by the SIAM showed commercial vehicles registered a de-growth of 24%, followed by passenger vehicles (8%) and two-wheelers (1%) in February. Taking a view of this, IIP growth is expected to perform somewhat better in the remaining months of the current financial year, however, in view of low base, output may record a lower growth for the upcoming month.
CRR unchanged at 4%
RBIs Policy Stance
Leaving the hawkish monetary policy stance, the apex bank for the second time this year, slashed the repo rate, which was much in-line with the streets expectation. Further, slowing economic growth, along with recent moderation in WPI numbers, mainly the core inflation and governments move headed for fiscal consolidation have prompted the apex bank to shift its stance to support growth, while remaining cautious on inflationary expectations. However, what came as a disappointment, was the RBI leaving CRR unchanged, since liquidity conditions have remained comparatively tight after the apex bank Q3 policy review. This time also the RBI clearly reinstated its stance to boost growth and also emphasized on addressing growth risks emanating from global as well as domestic fronts. However, going forward as per the RBI, the headroom for further easing is quite limited given the elevated food inflation, recent change in fuel prices, increasing wedge between WPI & CPI and high current account deficit.
Tracom RESEARCH
Date : 22 March 2013
Company Research
Rashtriya Chemicals and Fertilizers - Buy Investment overview
Stock Data
Current Mkt Price (Rs) 52 Week High 52 Week Low Mkt Cap (Rs. in Cr) Return in last one Month (%)
22/03/13
36.05 66.95 36.55 1997.11 -30.94
RCF a government of India undertaking is a leading producer of Fertilizers in the country. report an improved operational performance.
The companys effort to de-bottleneck the Thal unit helped it The company has announced a joint venture ammonia-urea
plant at Ghana, which will be commissioned by 2016-17. based pricing mechanism for extra production
RCF will be able to reap benefits under the Import Parity Price
Business Overview
Rashtriya Chemicals and Fertilizers (RCF) a Government of India undertaking was incorporated on 6th March, 1978 and it came into being as a result of the re-organization of the erstwhile Fertilizer Corporation of India Limited. At the time of its formation, the company had one operating unit, viz. Trombay (old plants) and two major projects under implementation viz. Trombay IV expansion and Trombay V expansion, besides the West, South Marketing Zones and the Bombay Purchase and Liaison office. RCF was the first fertilizer company in India to commission a green field, mega fertilizer complex at Thal-Vaishet in the state of Maharashtra RCF is one of the leading producers of Fertilizers in India. Sujala, Suphala 15:15:15, Suphala 20:20:0, Ujjwala, Microla and Biola are its major fertilizers RCF has a total installed capacity of about 10.54 lakh tonnes of Nitrogen and 1.17 lakh tonnes of P2O5 and 0.45 lakh tonnes of K2O.Besides fertilizers, the Company also produces a number of industrial chemicals such as Methanol, Concentrated Nitric Acid, Methylamines, Ammonium Bicarbonate, Sodium Nitrate/Nitrite, DMF, DMAC, etc. RCF pioneered the manufacture of basic chemicals such as Methanol, Sodium Nitrate, Sodium Nitrite, Ammonium bicarbonate, Methylamines, Dimethyl Formamide, Dimethylacetamide in India. Today R.C.F is the only manufacture of DMF in India. Product characteristics, consumer needs, economy to the consumers and safety are the primary considerations in determining the type of packaging and modes of transportation for each of the products.
Share Holding
Y-o-Y Performance
(Rs. in Cr..)
Particulars Net Sales Other Income Total Expenditure Operating Profit Interest Profits After Tax Reserve & Surplus Reported EPS(Rs) Core EBITDA Margin (%)
Mar 2012 6433.71 166.73 6031.02 569.42 52.53 248.83 1617.86 4.51 6.16
Mar 2011 5524.43 174.91 5159.52 539.82 72.57 244.71 1458.80 4.44 6.53
Change(%) 16.46 -4.68 16.89 5.48 -27.61 1.68 10.90 1.68 -5.54
Financial Health
For the third quarter ended December 31, 2012 RCF reported a 37.13% rise in its net profit at Rs 73.98 crore for the quarter as compared to Rs 53.95 crore for the same quarter in the previous year. However, total income from the operation of the company decreased by 3.04% at Rs 1567.83 crore for the quarter under review as compared to Rs 1617.05 crore for the quarter ended December 31, 2011.
Tracom RESEARCH
Date : 22 March 2013
Segment wise, Trombay units revenue declined by 5.77% to Rs 612.98 crore, while Thals unit revenue improved considerably by 37.32% to Rs 688.73 crore. On the other hand the revenue from Trading segment plunged by 43.48% to Rs 260.98 crore.
Q-o-Q Performance
(Rs. in Cr..)
Particulars Net Sales Expenditure Other Income EBITDA Interest Net Profit EBITDA Margin (%) NPM (%) EPS
Dec 2012 1567.83 1438.5 15.94 145.27 14.44 73.98 9.06 4.61 1.34
Dec 2011 1595.45 1523.09 38.89 111.25 0.25 53.95 6.83 3.31 0.98
Change(%) -1.73 -5.55 -59.01 30.58 5676.00 37.13 32.60 39.25 37.13
Industry Scenario
India is primarily an agriculture based economy with around 60 percent of the population dependent on them. The Indian Fertilizer Industry is one of the allied sectors of the agricultural sphere. With the development of fertilizer industry, Indian agricultural development has been made possible. It has played a vital role in the green revolution. India has emerged as the third largest producer of nitrogenous fertilizers. The adoption of back to back Five Year plans has paved the way for self sufficiency in the production of food grains. In fact production has gone up to an extent that there is scope for the export of food grains. This surplus has been facilitated by the use of chemical fertilizers. Today, India stands as the second largest consumer of fertilizers behind China. The Indian fertilizer sector is the one of the most regulated sectors in India. It consists of two key segments - urea fertilizer and non urea fertilizers. Within these two segments, the urea fertilizer accounts for around 50% of the total fertilizer consumption, being regulated by the government as the price and the subsidy is fixed by the government. While, the non urea segment, which consists the DAP, complex NPK and MOP fertilizers, functions under a fixed subsidy and variable pricing freedom being granted by the government since April 2011. The subsidies on Indian fertilizer have been rising at a constant rate. This is due to the rise in the cost of production and the inability of the government to raise the maximum retail price of the fertilizers. Infrastructure constraints have been hindering the growth of the fertilizer sector in India. While, Most ports face severe capacity constraints in handling high volumes on a sustained basis, the Railway facilities and port-rail connectivity need to be strengthened significantly. The movement of fertilizers has so far been traditionally done through rail and road mode. To provide a supplementary and alternative mode of transport, Department of Fertilizers (DOF) is now considering use of Inland Waterways especially National Waterways for transporting fertilizers. In a recent development the Inland Waterways Authority of India (IWAI) has invited expression of interest (EOI) for multimodal transportation of fertilizers between Haldia and Patna on National Waterway1. With this, the fertilizers transportation is set to enter a new phase.
Particulars Net Sales Total Income Total Expenditure Operating Profit Profits After Tax
Balance Sheet
(Rs. in Cr..)
Particulars Share Capital Reserve & Surplus Total Liabilities Investments Current Liabilities Net Current Assets Total Assests
Latest developments:
The government has garnered about Rs 310 crore by divesting 12.5 per cent of its stake in Rashtriya Chemicals and Fertilizers Ltd through an offer for sale. The auction, in which 69 million RCF shares were sold, was subscribed 1.3 times the number of shares on offer. Most bids were at Rs 45.02, against the minimum offer price of Rs 45 a share.
Tracom RESEARCH
Date : 22 March 2013
(Rs in crore)
Investment Rationale
Rashtriya Chemicals and Fertilizers, a leading urea producer, also manufactures complex fertilisers and industrial chemicals reported
37 per cent increase in its net profit for the quarter ended December 31, 2012. Total expenditure of the complex fertiliser producer also declined to Rs 1,469.36 crore from Rs 1,560.93 crore in the reviewed period. However, total sales of the company fell by almost 3 per cent. The companys effort to efforts to de-bottleneck the Thal unit helped it report an improved operational performance for the quarter. Though, poor sales impacted the profit at Trombay unit. Trading business revenue too came lower as the company substantially scaled down the trading business due to low demand for agriculture inputs and constraints at ports, though the business turned profitable for the quarter after reporting a loss of Rs 29 crore in the same quarter last year on a mark-to-market hit. and patronage. It enjoys a 10.7% market share in Urea Sector and its Urea is sold under the popular brand name Ujjwala. While it holds, 5.4% market share of Complex Fertilizers, which are sold under the brand name Suphala. RCF produces complex fertilizers under the 15:15:15 & 20:20:0 Grades. It is also into the Specialty Fertilizers, sold as Bio-Fertilizers (Biola), Micronutrients (Microla) and Water Soluble Fertilizers (Sujala). The companys industrial chemicals portfolio comprises 15 products such as methanol, ammonium nitrate, nitric acid and methylamines. The diversification gives the company an edge over its peers in case the profitability in one of the fertilizer business is at risk. been mooting setting up additional streams of ammonia and urea which will add 12.7 lakh MT per annum of urea capacity at a cost of Rs 4,112.5 crore. Through the global bidding process, the company has already selected the contractor to set up the plant on lump sum turnkey basis (LSTK). The company is also in the process of lining up other construction and project management consultancy contracts and expects to start process design and construction work on the project in May. The company has also announced a joint venture ammonia-urea plant at Ghana, which will be commissioned by 2016-17 and a 5 lakh tonne single super phosphate plant at Thal among others. The total outlay for these projects is estimated at Rs 18,700 crore. The Thal brownfield expansion is likely to be favourable, but the large debt-funded capex may stretch the capital structure of the company in the medium term. provided Rs 65,971 crore toward fertilizer subsidies, marginally lower than the Rs 65,974 crore in the current financial year. But even going by the conservative estimates the fertilizer subsidy bill comes at around Rs 90,000 crore for the year to March. The quantum of subsidy is the function of fertilizer consumption and represents the difference of the normative delivered cost of fertilizer and notifies selling price of fertilizers. In the current fiscal year, the budgeted amount for fertilizer subsidy was exhausted by the end of the second quarter. While, most companies have not received any payout from the government for last few months. RCF is borrowing from the market to finance delayed payments. Due to a rise in borrowings, RCFs finance costs have more than doubled in the nine months beginning April 2012 from a year earlier. Due to delay in payment, it is becoming increasingly difficult for the fertiliser companies to make payment for the feedstock for want of working capital. of Rs 45. Though, the price has corrected a lot since OFS but considering the companys performance of consistent profit making and dividend paying one since inception, we are hopeful of recovery soon. It holds a diversified portfolio with additional revenue streams from bulk industrial chemicals and is also engaged in trading of fertilizers. The company has recently completed a major revamp of its plants at Thal which has increased its urea capacity from 17 lakh MT per annum to 23 MT per annum. The revamped plants have been commissioned and have already achieved the day-to-day high capacity and low energy consumption targets. The company will be able to reap benefits under the IPP (Import Parity Price) based pricing mechanism for extra production beyond the cut-off capacity in the current fiscal. As it allows manufacturers to sell a portion of production at reassessed capacity to the farmers freely in any part of the country.
RCF has a diversified product portfolio and manufactures various Fertilizers and Chemicals which have a high degree of brand recall
Rashtriya Chemicals & Fertilisers has embarked on a major expansion at its Thal unit at a cost of Rs 4,112.5 crore. The company has
On the concern side the under-provisioning of subsidies is costing fertilizer companies dearly. For the next fiscal year, the budget has
At the CMP of Rs 36.05, RCF is trading at a TTM P/E of 7.21x and 4.18x respectively, we recommend BUY in the scrip with a price target
Tracom RESEARCH
Date : 22 March 2013
N, P, K Fertilizers
The fertilizers contain the three basic nutrients for agriculture: nitrogen (N), phosphorous (P) and potassium (K). India lacks potassium resources and has to entirely depend upon import for meeting the requirement of potassium fertilizers for agricultural usage. The country is also deficient in phosphatic (P) resources with around 90% requirement of it is being met through direct import of finished phosphatic fertilizers or phosphatic raw materials for indigenous production of phosphatic fertilizers. While, N is the only fertilizer, the requirement of which is largely (around 80%) met through the domestic production. The annual consumption of fertilizers, in nutrient terms (N, P & K ), has increased from 0.07 million MT in 1951-52 to more than 29 million MT in 201112 and per hectare consumption, has increased from less than 1 Kg in 1951-52 to the level of 135 Kg now. The consumption of nutrients (N,P,K) have been increasing sharply over the past years leading to increasing import dependence towards meeting the requirement of fertilizers in the country. On the other hand, there has been no significant investment in the fertilizer sector in the last several years, which led to stagnant domestic fertilizers production capacities. Currently, around 38 per cent of the total fertilizer consumption is fulfilled through imports.
Imports, Consumption & Production
35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 FY07 Imports FY08 FY09 FY10 FY11 FY12
M.Tonnes
Consumption
M.Tonnes
M.Tonnes
Consumption
Production
Production
Consumption
Import
$ /Tonne
8.00
Tracom RESEARCH
Date : 22 March 2013
potassium 50% and chloride 46%. While, the country does not have potassic (K) resources and has to entirely depend upon import for meeting the requirement of MOP. In FY12, the MOP consumption declined by 22 percent to 3 MT, from 3.89 MT recorded in the FY11. Rising prices of the MOP and declining subsidy in the non urea sector were the major reasons for the contraction in MOP consumption.
Muriate of Potash (MOP) 700 600 500 5 4
the new policy, the government will give 12-20 percent post-tax return on fresh capital infused by the manufacturers for setting up of new plants as well as for expansion and revamp of the existing ones. To ensure this return, the government would also cover the entire cost of natural gas, which is the main feedstock of urea, and accounts for 80 per cent of the cost. In determining the cost of production of new plants to be set up after the policy comes into effect, the government has set a floor and ceiling price of urea, based on the price of natural gas plus 12-20 percent equity returns. It also proposed for covering the subsidy on gas price within the range of $6.5-14 mmBtu.
M.Tonnes
$/Tonne
400 300 200 100 0 FY06 FY07 FY08 FY09 FY10 FY11 Pric es FY12 Consumption
3 2 1 0
Fertilizers Subsidy
The quantum of subsidy is the function of fertilizer consumption and represents the difference of the normative delivered cost of fertilizer and notifies selling price of fertilizers. However, increase in fertilizer subsidy has become a major concern for the government due to its rising fiscal deficit. In the FY12, the government subsidy for urea was Rs. 32,398 crore, which increased by 18.45 percent average growth rate of the past five years (FY08-FY12). While, for non urea fertilizers, the subsidy amount was Rs. 28,576 crore in financial year 12, too showing the rising trend. The increase in fertilizers subsidy has been partially due to increase in consumption of fertilizers and mainly due to sharp rise in price of fertilizer inputs and finished fertilizers leading to increase in normative delivered cost of the subsidizers fertilizers at farm gate level. Over the last five years, the increase in Indian imports with the stiff demand-supply conditions of fertilizers in the international market has led to a sharp rise in international prices of finished fertilizers and fertilizer inputs. However, international prices of fertilizers and raw material creeping higher in 2008-09, led to the massive amount of subsidy in that year.
Fertilizer Subsidy
90000 80000 70000 60000 50000 40000 30000 20000 10000 0 FY07 Urea FY08 FY09 FY10 FY11 FY12
Outlook
The fertilizer industry is one of the vital industry for the Indian economy as it manufacture a very critical raw material for agriculture which is the major occupation in the country. With the improving farm economics and rising thrust on irrigation, the consumption of fertilizers has been increasing sharply leading to increasing import dependence towards meeting the requirement of fertilizers in the country, as there has been no significant investment in the fertilizer sector in the last several years. However, in the near term, the urea production is expected to improve with the implementation of the new urea policy whereas for non urea sector the stagnancy in domestic production would remain because of the constraints in the availability of raw materials. Since major demand for non-urea fertilizer is met through imports, decreasing subsidy levels and weak rupee have increased the farm gate prices of non-urea (DAP, MOP) fertilizers, thereby affecting demand. Further, in order to contain overall fertilizer subsidies, the government is likely to continue to reduce Nutrient based Subsidy (NBS) rates in FY14 and beyond, which may necessitate further increase in MRPs and is indicting a challenging time ahead for non-urea fertilizers. There is an urgent need to balance the use of urea and non-urea fertilizers, which will be helpful for the soil conditions.
M.Tonnes
Non Urea
Tracom RESEARCH
Date : 22 March 2013
Stock Recommendation
Deepak Fertilizers Corporation & Petrochemicals
trading at Rs 94.00 at a P/E multiple of 5.13x and EV / EBIDTA of 4.01, we would recommend a HOLD in the stock, keeping in view its expansion plans in local and global markets.
Deepak Fertilizers & Petrochemicals is one of the leading manufacturers of industrial chemicals and fertilizers in India. It is a multi-product Indian conglomerate with an annual turnover of over $300 million with a multi-product portfolio spanning industrial chemicals, bulk and specialty fertilizers, farming diagnostics and solutions, technical ammonium nitrate, mining services and consulting and value added real estate. The company has been looking at overseas opportunities, particularly, with a view to securing raw materials for its plants for which it has inked a memorandum of understanding (MoU) to participate in a bidding process for a Phosphate project in Togo, West Africa, as a part of a consortium comprising Balamara Resources, a resources company, and Minemakers, an experienced phosphate company. Both the companies are Australian ASX listed. The company has undertaken a project for FY14 and FY15 to expand its nitro phosphate capacity to 600,000 tonnes with a capital expenditure of Rs 360 crore, it has also undertaken capacity expansion for Bentonite sulfur where the capex is about Rs 56 crore. The company has registered a fall of 36.25% in its net profit at Rs 31.65 crore in Q3FY13 as compared to Rs 49.65 crore in the corresponding quarter previous year. However, the total income from the operation of the company has increased by 3.63% to Rs 623.35 crore in the third quarter ended December 31, 2012 as compared to Rs 601.49 crore in the same quarter last year. Recently, one of its subsidiaries, Deepak Mining Services (DMSPL) has entered into a strategic partnership with the Australia-based RungePincockMinarco (RPM), through its subsidiary International Mineral Asset Transactions. The JV will be called Complete Mining Services. This agreement creates a jointly owned Indian based joint venture company to provide advisory technology and professional training services to the mineral resources sectors within India and the surrounding geographies of the Indian sub-continent. The company expects softer ammonia prices in Q4 and Q1 of FY14. In the next 18 to 24 months the company expects ammonia prices should drop globally in line with new capacities coming in markets like the US and some in the Middle East. This should improve the companys margins from the current levels and also help it to improve its capacity utilization particularly of TAN. The scrip is currently
Tracom RESEARCH
Date : 22 March 2013
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