Commodities

Pack
August 2021
Commodities Pack

The table gives out the basic financial details of the 15 Stocks

Book Change Change Last Divi-

Sr Equity CMP Net Sales EPS P/E
Company Industry FV Mkt cap Value in sales PAT FY21 in PAT P/BV Div dend
No Latest Aug 10, 2021 FY21 TTM TTM
latest y-o-y y-o-y %. Yield

1 Aarti Industries Chemicals - Organic - Large 181.3 5 923.5 33,477 129.7 4506.1 7.6% 523.5 -2.4% 16.7 55.2 7.1 90 0.5%

2 ACC Cement - Major - North India 187.8 10 2297.0 43,134 723.2 13486.8 -12.1% 1549.7 -312.6% 111.6 20.6 3.2 140 0.6%

3 BPCL Refineries 2,169.3 10 444.7 96,467 247.2 230162.6 -19.1% 12099.3 144.0% 54.3 8.2 1.8 790 17.8%

Fertilizers - Nitrogenous /
4 Coromandel Inter 29.3 1 827.2 24,269 175.6 14213.5 8.2% 1329.2 24.8% 48.3 17.1 4.7 1200 1.5%
Phosphatic

5 Grasim Inds Textiles - Acrylic Fibre 131.6 2 1490.6 98,096 995.2 76397.8 1.7% 4540.9 -17.1% 71.4 20.9 1.5 450 0.6%

6 HPCL Refineries 1,418.6 10 258.0 36,591 268.2 232164.2 -13.3% 10662.9 199.8% 73.4 3.5 1.0 227.5 8.8%

7 Hindalco Inds.* Aluminium 224.7 1 427.0 95,931 296.1 131985.0 11.7% 3805.5 -3.6% 29.5 14.5 1.4 300 0.7%

8 Hindustan Zinc Metal - Zinc 845.1 2 309.4 130,710 76.5 22071.0 20.4% 7980.0 17.3% 20.6 15.0 4.0 1065 6.9%

9 JSW Steel Steel - Large 241.7 1 722.2 174,558 193.2 78059.0 9.8% 7965.4 -15.4% 59.7 12.1 3.7 650 0.9%

10 NMDC Mining / Minerals 293.1 1 168.4 49,351 102.0 15370.1 31.4% 6277.0 72.9% 21.4 7.9 1.7 776 4.6%

11 Reliance Industr Refineries 6,339.4 10 2088.1 1,323,707 1041.5 466924.0 -21.9% 43710.3 2.5% 75.0 27.8 2.0 70 0.3%

12 Tata Power Co. Power Generation And Supply 319.5 1 130.1 41,555 65.2 32488.1 11.5% 1484.1 74.1% 4.5 28.7 2.0 155 1.2%

13 Tata Steel Steel - Large 1,203.0 10 1373.6 165,239 608.2 153308.4 4.9% 8107.3 85.4% 69.0 19.9 2.3 250 1.8%

14 Torrent Power Power Generation And Supply 480.6 10 456.5 21,938 211.9 12172.7 -10.8% 1290.9 -15.2% 23.4 19.5 2.2 110 2.4%

Pesticides / Agrochemicals - Indian

15 UPL 152.8 2 771.1 58,916 273.4 38694.0 8.2% 3061.7 37.5% 41.7 18.5 2.8 500 1.3%
- Large

Source: Capitaline Database, *= standalone nos, All figures in Rs. except for Equity, Sales FY21, PAT FY21 and marketcap (which are in Rs.Cr.), CMP is as of August 10 2021, EPS is adjusted for extraordinary items, Past dividend yield may
not necessarily sustain in future

www.hdfcsec.com 2
Commodities Pack
Aarti Industries Ltd
(M Cap ₹33,477 Cr)
• Aarti Industries Limited (AIL) is a well-diversified chemical company headquartered in
Mumbai. The company is the only Indian manufacturer of Nitro FluoroAromatics, via
Halex chemistry, and PDA. It manufactures 125 products with chemistry of benzene,
aniline, sulphuric acid, toluene and methanol. The company is one of the leading global
suppliers of dyes, pigments, agrochemicals, pharmaceuticals and rubber chemicals.
AIL has maintained its dominant market position in the Nitro chloro benzene (NCB) and
D-chloro Benzene (DCB) -based specialty chemicals segment. It is the largest producer
of benzene derivatives in India, and a major player among global manufacturers, with
a 25-40% global market share across various products. The group has a diversified
revenue profile, reflected in no single customer or product contributing more than 8%
to revenue. AIL is well diversified catering to industries such as polymer additives,
pigments, dyes, paints, pharmaceuticals, agrochemicals, fertilizers, and FMCG,
insulating it from downturn in any particular industry.
• AIL posted above expected Q1FY22 results (consolidated) with revenue growing by
45.2% YoY, and 11.6% QoQ to Rs 1,503.4 crore, led by growth across all the segments
viz, specialty chemicals (56.6% YoY growth) driven by return of demand from
established markets; Pharmaceuticals (7.3% YoY revenue growth). EBITDA grew by
72.4% YoY to Rs 313.8 crore, as price hikes in raw material and logistics cost was
passed on to the customers. PAT grew by 98.4% YoY to Rs 165.1 crore. The specialty
chemicals segment registered a 9-10% QoQ volume growth in Q1. There was demand
recovery seen to pre-COVID levels for most of its products. Global demand also picked
up owing to relaxation in curbs. AIL expects Dicamba market to grow in FY23 when
inventory channel is consumed and also wants to supply intermediates, going forward.
Higher capacity utilization and better product mix was seen during the quarter. Value-
added products contributed 70% during Q1. The management re-iterated its revenue
guidance of 25-35% for FY22.
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• For Q1FY22, the CAPEX was at Rs 295 crore, and AIL expects to incur CAPEX of Rs
1,500 crore for FY22-23E. Major projects that are to be completed by FY23 are - USFDA
capacity expansion in API unit at Tarapur; (b) Expansion cum asset up-gradation for
acid unit at Vapi; (c) Unit for 2nd and 3rd long term contract at Dahej SEZ; (d) Unit for
3rd long term contract at Jhagadia; (e) NCB capacity expansion at Vapi. For FY24, the
company has lined up growth projects, like adding 40+ products for Chemical, and 50+
for Pharma. Between FY22-24 the CAPEX is slated to be at around Rs 2,500-3,000
crore for chemicals, and Rs 350-500 crore for Pharma, which is expected to drive
growth from FY25 and beyond. The toluene segment in India is mainly untapped and
catered to through imports; AIL will benefit in the long term by entering this segment.
• The ongoing pandemic has called for increased consumption of drugs, which bodes
well for the company. The API market (both domestic and exports) is expected to
witness strong growth. Going forward, the company is eyeing to deepen its penetration
in therapies such as antihypertensive, cardiovascular, oncology, corticosteroids etc.
In order to tap these opportunities AIL has plans to demerge its specialty chemical
business. This COVID has called for big usage of paracetamol (medicine to subsidise
fever; commonly sold over the counter) among individuals. AIL manufactures PNCB
(Para Nitro Chloro Benzene) which is a pharma intermediate that goes into paracetamol
manufacturing. The export market demand has also shot up with industries like textiles,
engineering polymer (7-8% growth globally, as it is replacing metals), construction,
paint and automobile. Crude price volatility (Benzene is produced from Naptha which
is a crude derivative), delay in commissioning of projects, FOREX fluctuation, are a few
risks.
• Despite an elaborate CAPEX spend in the last three fiscals (~Rs 3,000 crore) operating
and net profit remained range bound with moderate return ratios. Ramp up of newly
added capacities, leading to increase in scale of operation and improvement in return
metrics, will remain closely monitored.
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Commodities Pack
ACC Ltd
(M Cap ₹43,134 Cr)
• ACC has over 8+ decades of strong brand recall in India. It has 8% market share in the
cement industry in India. ACC had a total installed capacity of 34.5 million tonnes per
annum (mtpa) (post commissioned of Sindri plant) with a large marketing infrastructure,
Pan-India presence with ~56,000 channel partners, ~11,000 dealers and strong
operational linkages with Ambuja Cements and LafargeHolcim as a parentage.
• The company has continuous focus on improvement in profitability with control over
cost. Parvat is an efficiency optimization programme initiated in 2019 to bring radical
changes in the cost structure and to improve delivered cost. In 2020, about 500
initiatives were implemented successfully in manufacturing alone. This move helped
ACC achieve cost saving of Rs.110/T resulting in cost savings of over Rs.250 cr in
CY20.
• ACC continued to reduce average clinker factor across the full range of cement
portfolio. During the year, the company increased the blended cement portfolio from
89% to 90%. All these initiatives helped in significant reduction of average clinker
factor by 1.37%.
• The company plans to add 24MW of WHRS by Q2CY22, which would reduce its blended
power costs. It is also adding wet flyash dryers at three locations, which will reduce its
flyash cost. Over the next 10 years, it plans to increase waste material consumption by
5x. It is also implementing direct dispatches to lower handling costs.
• On the project front, the company has commissioned the new grinding unit at Sindri in
the state of Jharkhand, which is one of the fastest capex projects to be implemented
despite the challenges posed due to COVID-19. The new facility will add 1.4 MTPA of
cement capacity to its existing 3 MTPA unit at this site.
• Its realizations and profitability get impacted by the extant demand and supply, which
are inherent risks associated with the cement industry. The cement industry is likely
to add 78mnT cement capacity over FY21-FY24E. The company is exposed to any
adverse volatility in the prices of the commodities, fuel, power and freight costs.
www.hdfcsec.com
BPCL
(M Cap ₹96,467 Cr)
• BPCL is India’s second-largest oil marketing and the third-largest refining company,
with a consolidated refining capacity of 38.3 mtpa, representing 15% of India’s total
installed capacity. The company operates two refineries, both along the west coast: a
12-mtpa refinery in Mumbai, and a 15.5-mtpa refinery in Kochi. BPCL, through its JV,
BORL, operates a 7.8-mtpa refinery in Bina. On the refining side, and further recovery
in global demand will be important for improvement in product cracks (mainly diesel).
We estimate GRM at US$ 4/bbl and US$4.5/bbl for FY22E and FY23E, respectively.
• Retail operations are supported by a nationwide marketing network comprising 18,637
retail outlets and 2,241 kilometre of product pipeline. Going forward, we expect
marketing sales volume at 42.7 MMT, 46.8 MMT in FY22E, FY23E, respectively,
taking into account partial closure of activities in Q1FY22E. Recent completion of
modernization and expansion of capacities at refineries in Kochi, Kerala, and Bina,
Madhya Pradesh should further enhance the GRM.
• The divestment plans of government stake (~53%) from the company, along with
opening up of global economy, higher GRMs, and expectation of Indian economy to
improve in FY22E, could support the company’s financials in short to medium term.
• BPCL has undertaken several projects, which include increasing the refining capacity
at Kochi (from 9.5 mtpa to 15.5 mtpa, commissioned in fiscal 2018) and at Bina (from
6.0 mtpa to 7.8 mtpa, commissioned in fiscal 2019), setting up a petrochemical unit,
modernizing and augmenting the pipeline and city gas distribution (CGD) infrastructure,
and investing in exploration and production.
• The progress on divestment, response by bidders and subsequent valuation
ascertained to the company will be a key monitorable. However, economic slowdown,
volatility in oil and gas prices and regulatory changes in Oil and Gas industry could
impact its growth story in near future. The changing macro-economic scenario can
have an impact on the growth plans of the Company.
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Commodities Pack
Coromandel International Ltd
(M Cap ₹24,269 Cr)
• Coromandel International is the flagship company of the Murugappa Group, which
owns ~60% of Coromandel through sister company E.I.D. Parry (India). Coromandel
International is India’s leading agriculture solutions provider operates in two major
segments: Nutrient & other allied businesses which include Fertilisers, Speciality
Nutrients, Organic Compost, and Crop Protection. The Company is the second largest
manufacturer and marketer of Phosphatic fertiliser in India (~16% market share).
• Coromandel is among India’s top 5 players in crop protection chemical business and
it focuses on off-patented molecules as well. It has the capability to manufacture 15
technical items and is globally the third largest producer of Mancozeb.
• The Company derives ~15% of its revenues from Crop Protection which contributes to
19% of EBIT. Domestic business contribution stood at ~51% while 14% from Asia, 12%
from Africa and 13% from South America and the balance from others. By 2022-23,
around 26 Crop Protection molecules are going off patent. This provides a tremendous
opportunity to generic manufacturers, who can now introduce new products and boost
their revenues.
• Mana Gromor is a one stop solution for the farmers. It provides an entire range of Multi-
Brand Farming Solution. Coromandel Retail operates around 800 stores in Andhra
Pradesh, Telangana, Karnataka and Maharashtra, offers the entire range of agri-input
products and services to around 3 million farmers.
www.hdfcsec.com
• Coromandel has done capex at Vizag fertiliser unit and this is self-sufficient in its acid
requirement after this expansion. Coromandel has recently expanded its production
capacity of phosphoric acid, the most important input for phosphate fertiliser, from
0.2mtpa to 0.3mtpa. With this, Coromandel now captively produces ~50% of its acid
requirement.
• In FY21, the company registered ~8% growth in revenue led by growth in both nutrients
and crop protection business. EBITDA margin improved 100bps at 14.2%. PAT for the
year increased 25% on strong operational performance and lower interest costs.
• The Company has strong balance sheet with only working capital loans and that
too declined significantly in the last 2 years on better working capital management.
Coromandel has very strong return ratios of > 20%.
• The failure of the monsoon (and/or adverse climatic conditions) may put pressure on
demand for farm inputs. Increase in working capital and delay in release of DBT related
subsidies may add worries. The shortages of inputs may lead to a spike in the cost of
raw materials including sulphuric acid and phosphoric acid.
• Intensification of competition, soft global agrochem market and higher RM prices are
some other risks faced by the company.
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Commodities Pack
Grasim Ltd
(M Cap ₹98,096 Cr)
• Grasim is the flagship company of Aditya Birla Group. Currently, it is a leading global
player in VSF, and is the largest chemicals (Chlor-Alkalis), cement and diversified
financial services (NBFC, Asset Management and Life Insurance) player in India. It
is a leading global producer of Viscose Staple Fibre, the largest Chlor-Alkali, Linen
(textiles) and Insulators player in India. Through its subsidiaries, UltraTech Cement and
Aditya Birla Capital, it is also India’s largest cement producer and a leading diversified
financial services player. Grasim is the promoter of Ultratech Cement with 57.3% stake
in the company. In Aditya Birla Capital, Grasim is one of the promoters with 54.2%
stake. Grasim has ~11% stake each in Vodafone Idea and Aditya Birla Fashions and
holds 3.9% stake in Hindalco.
• The backward integration of GIL’s VSF business, along with captive pulp capacity
(about 50%) and caustic soda requirement (100%) together forms about 80% of the
company’s raw materials costs. In FY21, the VSF and chemical businesses contributed
approximately 76% and 38% to GIL’s total EBITDA, respectively. The completion of the
ongoing capex programme will enable GIL to maintain its market share and competitive
advantages in both businesses. Furthermore, the company’s foray into the paints
segment will improve its business diversification, and linkages with UCL on the back of
leveraging its brand, sector know-how and dealer network.
• The company reported Q1FY22 numbers on 13th Aug, supported by growth in
cement (32.7% YoY; 17.5% QoQ), viscose pulp business (22.9% YoY; 20.4% QoQ)
strong underlying domestic demand, better realizations and enhanced products
mix. Chemicals, Caustic soda and Allied chemicals revenue grew by 14.1% YoY to Rs
1,472 crore, and 14.9% QoQ on strong demand, improved capacity utilization and
higher prices for chlorine, caustic soda and epoxy material. There was a growth
in the domestic demand by 9% YoY, VAP portfolio also reported a 17% YoY growth
during Q4FY21, and share of value-added products in the overall sales mix as a result
improved to 26% in Q4FY21 from 22% in Q3FY21. The domestic Caustic Soda business
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and Advanced Material business reported a strong operational performance during the
quarter. The caustic soda capacity utilisation improved to 94% in Q4FY21 from 89%
in Q3FY21. International caustic soda prices improved sequentially led by temporary
supply disruptions in the later part of the quarter. The paint business was seen taking
baby steps reflected with hiring senior professionals and specialists for the business.
Financial services also reported a 16.5% YoY (10.8% QoQ) growth at Rs 5,561.8 crore.
• The Company has plans to increase its epoxy business capacity by 125 KTPA and in
the Chlor-Alkali business by 200 TDPA through brown-field expansion at Vilayat Gujrat,
which will take the total capacity to 1,400 TDPA at Vilayat, Gujrat. The VSF expansion
project at Vilayat with line-1 scheduled to be commissioned in Q2FY22 and line-2 in
Q3FY22. This expansion will primarily meet the customer requirements in the country’s
Western region. The expansion will be commissioned in 24 months post receipt of
statutory clearances/approvals. The company gave a CAPEX guidance of Rs 2,604
crore in FY22 and incurred Rs 1,508 crore (excluding paints and fertilizer business) in
FY21. Consumer sentiments got boosted in H2FY21, and demand perpetuated from
thereon, led to a sharp recovery in the Global textile fibre. The consumers had a higher
inclination towards comfortable, casual & value for money clothing which gave way to
higher demand for cellulosic fibre and VSF.
• The demand for VSF and chemicals businesses is cyclical in nature and vulnerable
to economic slowdown. Also, the profitability in these segments remains exposed to
input costs, demand environment and industry capacity additions.
• Its realizations and profitability in cement business get impacted by the extant demand
and supply, which are inherent risks associated with the cement industry. The cement
industry is likely to add 78mnT cement capacity over FY21-FY24E. The company is
exposed to any adverse volatility in the prices of the commodities, fuel, power and
freight costs.
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Commodities Pack
HPCL
(M Cap ₹36,591 Cr)
• Hindustan Petroleum Corporation Ltd (HPCL) has dominant market position as one of
India’s top-three oil marketing companies. HPCL’s marketing business is the strongest
amongst its peers with consistent market share gains in auto fuel segment despite
rising private competition. HPCL’s strong operational profile driven by dominant market
position supported by established marketing and distribution network and scale-up in
refining capacity provides comfort.
• HPCL plans to invest over Rs 60,000 crore in the next five years to build and develop
infrastructure. HPCL’s capex plans include the implementation of major projects such
as the capacity expansion at both its refineries, expansion of its pipeline network and
setting up of new pipelines.
• Its most recent and major refinery expansion had taken 1.5-2 years to stabilize. The Kochi
refinery also took almost 1.5 years to completely stabilize. Expansion at Visakhapatnam
is expected to be completed by FY22- end, while the slurry hydrocracker is likely to
come up only by this CY22-end.
• A gradual revival in the crack spreads of key petroleum products (gasoline and
gasoil) fuelled by a vaccination-led revival in the global demand, along with the
commencement of enhanced capacities at both Mumbai and Vishakapatnam refineries
will support HPCL’s GRM in FY22. The benchmark Singapore GRM recovered to US$
2.2/bbl in May 2021 from US$ 0.5/bbl (average) in FY21. With the refinery upgradation
in Vishakapatnam (to be completed by Q4FY23), the complexity level of HPCL’s
refineries will improve, increasing the distillate yield, thereby boosting its profitability.
• Delay in implementation of Vizag refinery expansion and residue upgrade projects could
impact earnings growth from this refinery. Besides, economic slowdown, volatility in
oil and gas prices and regulatory changes in the industry, any adverse development in
project cost and timelines, and stabilisation of operations are key concerns.
www.hdfcsec.com
Hindalco Ltd
(M Cap ₹95,931 Cr)
• Hindalco, the flagship company of the Aditya Birla Group, is one of the largest players
in the global aluminium and copper market. Its domestic aluminium business is fully
integrated with aluminium smelting and alumina capacities of 1.28ktpa and 3mtpa,
respectively. It also has a 500ktpa copper smelter. Hindalco’s overseas subsidiary
Novelis is the global leader in aluminium products, with 3.8mt of shipments in FY21.
Novelis recently acquired Aleris for US$2.8bn.
• Hindalco’s domestic operation reported highest EBITDA Margin at 19% since 2010 led
by strong realisation of aluminium (Al). Strong Al realisations should continue, although
Al cost of production will also see a jump, of ~5% on sequential basis, led by strong
coal prices. Over the medium term, the target is to increase captive share of coal
through further coal block wins. Copper EBITDA should sustain at Rs 300 cr/qtr, as
volumes normalise going forward.
• Novelis continues to get benefits from higher demand strong metal prices. Management’s
sustainable EBITDA/tonne guidance of USD 500+ and also raised possible synergy
benefits from Aleris to USD 220 mn, with attainment of current run rate of USD 100 mn.
• Expansion in Novelis’ recycling, casting, and rolling facilities in Pinda, Brazil is on
track, with commercialization expected in Q2FY22. The Guthrie, Kentucky automotive
finishing plants in the US and in Changzhou, China are both also ramping up well. As
part of the integration, expansion project in Zhenjiang, China, is expected to begin in
the current year with investments of USD 375 million over three years. This includes a
new cold mill, automotive casting house, recycling capabilities, hot mill upgrade, etc.
• Hindalco has also approved capex for downstream Flat Rolled Project (FRP) at its
existing facilities at Hirakud & Aditya. The total investment for the project is Rs 3000
crore for the capacity of 170 KTPA of FRP Product. The commercial production from
project is expected to commence by FY25. The 500 KT Utkal Alumina expansion
project to begin commercial production in Q2FY22.
• Key risks on investment are steep decline in aluminium prices on the LME and lower
than expected profitability at Novelis that could adversely impacted the consolidate
earnings.
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Commodities Pack
Hindustan Zinc Ltd
(M Cap ₹130,710 Cr)
• Hindustan Zinc specializes in the exploration, mining and smelting of zinc, lead
and other non-ferrous metals. The company’s products include zinc ore, lead zinc
concentrate, zinc, lead, cadmium, silver and sulfuric acid.
• Going ahead, Hindustan Zinc has guided that both mined metal and finished metal
production in FY22 will be higher than FY21. For FY22, company projected mined and
refined metal production to be in the range of 1,025-1,050kt and saleable silver at
~720t. It expects Zinc cost of production to remain below USD 1,000 per/t. The project
capex for FY22 is expected to be ~US$100 million.
• Hindustan Zinc has a huge reserve base, which provides strong earning visibility. Total
R&R (Reclamation and rehabilitation) increased to 448 MT as the company replenished
more than it consumed during the year. Total contained metal in ore reserves is 9.16
MT of zinc, 2.55 MT of lead and 295.5 million ounces of silver. The mineral resources
contain 14.9 MT of zinc, 6.3 MT of lead and 618.7 million ounces of silver. At current
mining rates, the R&R underpins metal production for more than 25 years.
• The company received Most Sustainable Company in the Mining Industry- 2021 and
Best Application & Use of Renewable Energy awards.
• Significant rise in price of zinc, lead, and silver would bring down demand leading
to lower topline growth for the company. Rise in zinc cost of production will impact
profitability of the company.
www.hdfcsec.com
JSW Steel Ltd
(M Cap ₹174,558 Cr)
• JSW Steel is one of the most efficient steel manufacturers in India, has ~52% share from
value add and special products (FY21) and has taken timely measures to add capacities
and make acquisitions. JSW Steel has historically has been able to achieve average annual
incremental ROIC of 14% which is above the weighted cost of capital of 11% over the past
decade. This has been achieved through efficient in house project management team and
prudent capital allocation.
• Significant incremental demand for steel is expected from several developed and
emerging nations like the US, UK, Australia, China and India. Significant investments in
various infrastructure projects underpin the demand for steel. China is the largest steel
manufacturer, producing around 1 billion tons of steel and accounting for approximately
50-60% of the world demand. It is significantly ramping up investments in infrastructure.
Indian manufacturers are earning handsome revenues by exporting steel to China.
Domestic demand has started gaining momentum once again as many states are relaxing
the lockdowns. Developed countries will lead the next leg of growth, as they are planning
to spend a massive amount on infrastructure. Europe as a part of green deal and renovation
wave and the US as a part of President Biden’s ‘Build Back Better’ plan are going to be the
key drivers of steel demand.
• In the short term, we expect Indian steel makers to export a greater proportion of steel. Steel
prices could remain firm in FY22 as China’s steel capacity is unlikely to grow. JSW, being the
lowest cost producer, remains well positioned in the industry and will derive benefits for the
next few years from its low-cost brownfield expansion.
• The capex for backward integration and brownfield expansion could support margins as
well as incremental volumes. High realisation will sustain next few quarters which led the
higher revenue and PAT estimates.
• The steel industry is inherently cyclical in nature and sensitive to the shifting business
cycles. Any slowdown in future in the demand of steel and oversupply from international
market at cheaper rates will adversely impact the Indian steel industry. The prices of key
raw material for the industry – iron ore and coking coal – have been volatile in the recent
times. Whilst some part of the iron ore requirement is met through captive mines, the coking
coal requirement is largely met through imports, where volatility in prices has impacted the
margins.
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Commodities Pack
NMDC Ltd
(M Cap ₹49,351 Cr)
• NMDC Limited is an India-based company engaged in mining of iron ore. The Company’s
segments include Iron Ore, and other minerals & services. It is also engaged in the
production and sale of diamond, sponge iron and wind power. Its projects under
construction include Bailadila Deposit-11/B, Kumaraswamy Iron Ore Project, 1.2 million
tons per annum (MTPA) Pellet Plant at Donimalai, 3.0 million tons per annum (MTPA)
Integrated Steel Plant in Chhattisgarh, Panthal Magnesite Project, Screening Plant III
at Kirandul Complex, Screening Plant II at Donimalai Complex, doubling of Railway
Line between Kirandul and Jagdalpur, Steel Plant at Bellary and Rail Link between
Dalli RajharaRowghat Jagdalpur Railway Line Project. It proposes to diversify into other
commodities, such as steel making raw materials (coking coal, manganese ore nickel);
fertilizer raw materials (rock phosphate potash), and thermal coal. It also proposes to
invest in raw materials, such as tungsten and rare earth minerals.
• NMDC is getting benefitted by potentially higher iron ore prices in domestic market
post bidding process of merchant mines. We believe that sales volumes growth is likely
to be propelled by the incremental volumes from Karnataka sector.
• The board of NMDC has approved the scheme of demerger of NMDC and NMDC Steel
in a manner that would mirror the shareholding pattern of NMDC in NMDC Steel. The
steel plant has a CWIP of ~ Rs 18,600 cr. With NMDC’s board approving the scheme of
demerger of steel plant, we believe the market will start giving value to the same.
• The pellet plant should gradually ramp-up as NMDC has replaced the pressure filter in
the plant which had some problems. This will increase the profitability.
• Deflation in global metal prices, increase in competition of domestic market from
Odisha based miners, and continues loss at pellet plant would impact the topline and
bottom line of the company.
www.hdfcsec.com
Reliance Industries Ltd
(M Cap ₹1,323,707 Cr)
• Reliance Industries Ltd (RIL) is one of India’s largest private sector companies, with
diverse interests, including petrochemicals, oil refining, and upstream oil and gas
exploration and production, retail and digital services. It is the second-largest refiner
in the country with a single location refinery. Moreover, it is among the top 10 global
petrochemical manufacturers and the leading player in the India. RIL has market
capitalisation of ~Rs 14 lac crore.
• The company’s debt free status post large fund raising program, dominant leadership
position in the petrochemical segment, massive scale of downstream business with
highly complex refinery asset which leads to better GRMs than benchmark Singapore
GRM, plans to expand its fuel retail business in a joint venture with British energy
major BP, enjoying highest revenue market share of 36% in Reliance Jio, and dominant
market position in organized retail segment are key growth drivers in revenue as well
as profitability.
• Reliance is in the process of transferring its oil to chemical (O2C) business to its wholly-
owned subsidiary, Reliance O2C Ltd (O2C), through a scheme of arrangement to be
approved by the National Company Law Tribunal (NCLT).
• Reliance Retail Ltd (RRL) is the largest retailer in the country and enjoys a leadership
position both in terms of revenue as well as profitability. The growth is driven by new
store expansions especially, in Tier-2, Tier-3 and Tier-4 cities, favourable product mix
and increasing footfalls. To strengthen its ecommerce business, RRL and WhatsApp
have entered into an agreement to launch its new digital commerce platform ‘JioMart’
which will work towards serving consumers in partnership with traditional retailers.
Apart from this, in telecom space, the company is focused in customer acquisition and
investment in technologies, increase in monthly ARPU is expected to continue over the
medium term.
• Steep decline in demand for the refining as well as petrochemicals businesses, volatility
in crude oil prices, competitive intensity associated with the telecom segment, and
fluctuations in foreign exchange rates are key concerns.
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Commodities Pack
Tata Power Ltd
(M Cap ₹41,555 Cr)
• Tata Power Ltd (TPL) with 105 years of track record is India’s largest integrated power
company with a significant international presence. Along with its subsidiaries it is
present across the entire power value chain of conventional and RE (renewable energy)
and next generation customer solution. It has successful public-private partnerships
in generation, transmission & distribution in India. Tata Power is serving more than 2.6
million distribution consumers in India and has developed the country’s first 4,000 MW
Ultra Mega Power Project at Mundra (Gujarat) based on super-critical technology.
• The company had a decent Q1FY22 (consolidated) performance with consolidated
revenue up by 54.5% at Rs 9,968 crore YoY led by acquisition of Odisha discoms and
strong execution across the solar EPC segment. EBITDA was up by 34.3% YoY at Rs
2,324.5 crore, due to integrated PAT at Mundra plus coal mining business (from the
rise in coal prices) and higher EPC revenue. PAT was up by 601% YoY, at Rs 465.7
crore aided by lowered interest expenses, along with higher share from JV companies.
However, generation business was down by 13.9% YoY and 12.2% QoQ; RE segment
reported a revenue growth of 86.7% YoY, however, was down by 41.1% QoQ; T&D
business was up by 95.3% YoY and 25.6% QoQ. Tata Power commenced its operations
in Northern Odisha (NESCO) through a Joint Venture with Government of Odisha for
distribution and retail supply of electricity in five circles comprising Balasore, Bhadrak,
Baripada, Jajpur and Keonjhar serving 2 million consumers.
Tata Motors and Tata Power inaugurated India’s largest grid-synchronized, 6 MW solar
carport at the Tata Motors car plant in Chikhali, Pune, Maharashtra. It commissioned
India’s largest natural ester filled 110/33/22 kV, 125 MVA power transformer in the
Mumbai Transmission network at the BKC receiving station in collaboration with
Hitachi, ABB Power Grids and Cargill. The solar EPC order backlog stood strong at Rs
7,260 crore. Furthermore, the liquidation across its RE business is expected to happen
during FY22, monetary proceedings from which will be put to use.
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• The company’s shift from a customary utility company to a B2C business, wherein, it
is providing services like, EV charging (~40% market share), home automation, solar
roof top/pumps, microgrids, etc, has worked in its favour, especially in EV/rooftop/
pumps category. These budding segments have huge potential and the company
has already envisaged an overall opportunity size of $45 bn over the next four years.
Further, high coal prices, penetration in distribution space, asset monetisation in
the RE space leading to strong FCF generation together bode well for Tata Power.
Further, government’s target of 30% EV sales by 2030, will open up various avenues
for the company. With this in view, the government has laid out its own plan (for e.g.
introduced FAME-II--a subsidy scheme for faster development of EV landscape) to
develop public charging facilities with at least one charging station in a 3X3km range
across various cities, one station every 25km on both sides of highways and one fast/
rapid charging station every 100km on both sides of highways.
• Its presence across the value chain of the power sector (generation, transmission and
distribution, power trading, as well as fuel supply (imported coal mining and shipping))
cushions it from project-specific issues and helps achieve operating efficiencies and
better working capital management at the group level. The company has a network
of 600 public charging stations across 110 cities and 27 highways which is already a
market share of more than 50%. Along with presence in AC/DC charging, it has setup
80 ultra-high capacity chargers for public transport buses. Further, it has binding
MOUs with Tata Motors, JLR and MG Motors (all market leaders in Electric vehicles)
for home charging network.
• The EV market is still at nascent in India, where over the past five years the share of
EV sales has increased from 0.1% to merely 0.87%. This shift from being a conventional
energy company might be a long road to success. Moreover, the charging infrastructure
is quite critical in India. When the wattage increases charging would become quite
difficult, as general usage of 4W+ vehicles for long distance travel and parking
constraints in homes, the necessity for faster public charging stations becomes more
commanding.
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Commodities Pack

Tata Steel Ltd

(M Cap ₹165,239 Cr)

• Tata Steel is aiming to double Indian operations steel production capacity to 40 million
tonnes (MT) by 2030. The doubling of domestic production capacity would be done
through both organic as well as inorganic way. The company would prefer on organic
growth for the flat product segment and would look at inorganic opportunities for the
long product segment. In terms of product-wise break-up, by 2030 the target is to
increase the production capacity of flat product portfolio to 30 MT (presently from 15.6
MT) and increase the production capacity of long product portfolio to 10 MT (from 4
MT currently).
• The company is aiming at net debt/EBITDA at 2x across cycles wherein 2x would be
the upper limit. For FY22E, net debt/EBITDA is likely to be lower than 2x, given higher
growth in earnings due to higher steel prices. In FY22, the company would like do a
capex of ~Rs 10000-12000 crore for the India operations and Rs 3500 crore for the
European operations majority of which would be maintenance capex.
• Tata Steel is currently in good spot on the back of relatively healthy steel prices both
in the global and domestic markets and deleveraging of the balance sheet. On account
of a healthy operating environment, we remain positive on the stock.
• The steel industry is inherently cyclical in nature and sensitive to the shifting business
cycles. The slowdown in the demand of steel and oversupply from international market
at cheaper rates could adversely impact the Indian steel industry. The prices of key raw
material for the industry – iron ore and coking coal – have been volatile in the recent
times. Whilst some part of the iron ore requirement is met through captive mines, the
coking coal requirement is largely met through imports, where volatility in prices has
impacted the margins.

• The deleveraging of balance sheet would continue, going forward, also, auguring well.
During FY21, the net debt reduction was to the tune of ~US$4 billion. For FY22, the
steel manufacturer is targeting over US$2 billion gross debt reduction wherein it will
prioritise offshore debt prepayment.

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Commodities Pack
Torrent Power Ltd
(M Cap ₹21,938 Cr)
• Torrent Power, the integrated power utility of the Torrent Group, is one of the largest
companies in the country’s power sector with presence across the entire power value
chain – generation, transmission and distribution. The company has an aggregate
installed generation capacity of 3,879 MW comprising of 2,730 MW of gas-based
capacity, 787 MW of renewable capacity and 362 MW of coal-based capacity. Further
Renewable projects of 815 MW are under development, of which LOAs have been
received and PPA has been executed for projects of 515 MW. With the acquisition
of 50 MW Solar Power Plant, total generation capacity, including under development
capacity, will be 4,744 MW with renewable capacity of 1,652 MW. Under distribution
business Torrent distributes nearly 14.5 billion units to over 3.7 million customers in
the cities of Ahmedabad, Gandhinagar, Surat, Dahej SEZ and Dholera SIR in Gujarat;
Bhiwandi, Shil, Mumbra and Kalwa in Maharashtra and Agra in Uttar Pradesh. Torrent
Power is widely considered to be the leading power distributor in India and in its
licensed areas in Gujarat has the distinction of having the lowest AT&C losses and best
reliability indices.
• Management has guided for Rs 1,450 crore capex in FY22 (vs. Rs 1,300 crore in FY21) in
its regulated distribution area driving steady profit growth despite Covid led lockdowns.
Torrent is expected to incur Rs 1200 crore of annual capex in its distribution businesses
– Ahmedabad, Surat and Dahej that operate on a regulated model with 15.5% return
on regulated equity. Torrent Power had emerged as the highest Bidder (L1) for the sale
of 51% stake in the Discoms for Dadra & Nagar Haveli (DNH) and Daman & Diu, with
a winning bid of Rs 555 crore (media article) beating ReNew Power and Adani Power
(L2) bids of Rs 450 crore and CESC’s bid (L3) of Rs 300 crore. However, the Bombay
High Court has suspended the tender process in a PLI case filed before the court. The
company has also tied up 8 cargoes at a price of INR 4.36/mmbtu equivalent to 70% of
its FY22 requirement. Plus, the Gujarat Electricity Regulatory Commission (GERC) has
approved (GERC link) Unosugen’s 278MW long-term power purchase agreement (PPA)
with Ahmedabad and Surat distribution circles, which will boost the profitability of the
company.
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• Q1FY22 net generation was higher across all its plants YoY, except for DGEN (had zero
generation) and gas plants (down by 14.2%), with SUGEN up by 4.3%, UNOSUGEN up
by 100.7%, AMGEN up by 327.4%, and thermal up by 0.5%. There was a significant
reduction in T&D losses in franchised distribution businesses, which was severely
impacted in the comparative quarter of last year due to COVID 19 pandemic. Interest
cost decreased, both due to lower debt and reduction in interest rates. However PAT
fell 44% YoY due to lower merchant sales, lower solar PLFs and higher depreciation/
O&M expenses. Further, the AMGEN plant is about to retire in Dec 22, for which the
management is in discussion with GERC to increase the life of the asset by paying
additional Rs 0.22/unit.
• Torrent targets to commission 100 MW of solar capacity by July 2022 (PPA - GUVNL
at Rs 1.99/unit) and 300 MW of capacities by Nov 2022 (PPA - TPLD at INR2.22/unit).
Furthermore, it has acquired 50MW of solar project in Maharashtra (PPA with SECI
at Rs 4.43/unit) for an EV of Rs 320 crore (net equity – Rs 100 crore). Furthermore,
Torrent is working on reviving SECI V 115 MW solar project for which commissioning
extension has been provided until Feb 2022. The company has a debt of Rs 6670 crore
with a healthy net D/E of 0.6x and net debt/EBITDA of 1.8x as on FY21. This gives it
enough room for funding these capacities.
• Gas price volatility is a constant threat to the company, although, Torrent has majority
of FY22 gas requirements tied up, however, a lot depends on future gas price movement
expected to be finalised closer to Q4FY22. Regulatory, leverage, alternative low cost
power source and commodity price risks (especially coal) are some concerns faced by
the company.
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Commodities Pack

United Phosphorus Ltd

(M Cap ₹58,916 Cr)

• United Phosphorus (UPL) is a global leader in agricultural solutions and has a healthy mix
of high-value crops and high-growth geographies. Arysta’s acquisition strengthened
UPL’s global positioning and helped it to emerge as an end-to-end solutions provider
in the global agri input space.
• The company has manufacturing facilities across 48 locations and is present across
more than 138 countries. The company’s thrust on research and innovation has helped
it garner ~1,123 patent and over 13,000 registrations. The acquisition has strengthened
UPL’s long-term growth prospects as product registration has doubled from its earlier
levels of 6,500, considering the fact that it takes between 2-5 years for getting
products registered.
• UPL has moved up in global ranking to the fifth position post Arysta’s acquisition
(earlier seventh). The company has successfully integrated 25+ companies post the
acquisition in the past 20 years.
• UPL had ended FY21 on a strong note in terms of deleveraging and synergy benefits
from the Arysta acquisition. Gross debt stood at Rs 28800cr while net debt at Rs
22100cr as on Mar-2021.
• UPL’s 15% YoY growth in EBITDA in FY21 surpassed its 10-12% guidance. For FY22,
it expects revenue growth at 7-10%, with EBITDA growth at 12-15% and net debt to
EBITDA at < 2 times. The ratio was at ~2.5 times in FY21 and as high as 3 times at the
end of FY20.
• The failure of the monsoon (and/or adverse climatic conditions) may put pressure
on demand for farm inputs. Increase in working capital cycle may add worries.
Intensification of competition, soft global agrochem market and higher RM prices are
some other risks faced by the company. Currency fluctuation might impact as UPL has
a significant presence in various geographies especially in Latin America (LatAm). High
debt levels could raise concerns especially in weak period of business.

• The Company derived 38% of revenue from Latin America (LatAm), 17% from Europe,
15% from US, 12% from India and 18% from RoW markets in FY21.

• UPL’s net debt increased ~7x to US$ 3.8bn following the Arysta acquisition in Sep-18,
leading to a significant rise in net debt/EBITDA ratio to ~2.5x vs. ~1x on average over
the last five years. Hence, we believe deleveraging will remain one of the concerns for
investors in the medium term. UPL had managed cost synergies of US$ 235mn in two
years with the Arysta acquisition, against the guidance of US$ 200mn.

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Commodities Pack

Price Chart

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Commodities Pack
Stock Analyst Educational Qualification Holding
Aarti Industries Debanjana Chatterjee Msc in Economics, PGDM in Finance No
ACC Jimit Zaveri MBA - Finance No
BPCL Abdul Karim MBA No
Coromandel Inter Kushal Rughani MBA No
Grasim Inds Debanjana Chatterjee Msc in Economics, PGDM in Finance No
HPCL Abdul Karim MBA No
Hindalco Inds. Chintan Patel MSc – Financial Mathematics No
Hindustan Zinc Chintan Patel MSc – Financial Mathematics No
JSW Steel Chintan Patel MSc – Financial Mathematics No
NMDC Chintan Patel MSc – Financial Mathematics No
Reliance Industr Abdul Karim MBA No
Tata Power Co. Debanjana Chatterjee Msc in Economics, PGDM in Finance No
Tata Steel Chintan Patel MSc – Financial Mathematics No
Torrent Power Debanjana Chatterjee Msc in Economics, PGDM in Finance No
UPL Kushal Rughani MBA No

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