GNFC - The big becoming bigger!

Company is short term debt free now. There are many good things happening recently. First analyst meet yesterday was one of them. They mentioned that they will be uploading the meeting transcripts soon (Not sure if other companies do that. Pardon my ignorance here). CMD is trying hard to build a professional image for a PSU.

As far as TDI prices are concerned, there is definitely a downtrend even for domestic prices as well. Prices hovered around Rs. 295/Kg for May-June. Now quoting at Rs. 280/Kg which was last seen around Aug-2017. Going forward, TDI prices will remain flat or even go down Y-o-Y basis as we are looking at a bigger base now.

Growth in other chemicals, Echopose JV and Capex should drive the growth forward.

Regards,
Suhag

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Detailed presentation - https://www.bseindia.com/xml-data/corpfiling/AttachLive/afe607b0-b0b4-429f-af5b-9ab6d33a95a8.pdf

Summary of recent GNFC Analyst Meet 2018 (fwd)

Chemicals

· There are total 41 plants around the globe producing TDI with a total capacity of 300,000 MT out of which GNFC has about 67,000 MTPA Capacity

· GNFC manufactures 50,000MT of pure TDI and 15,000 MT of TM blend (TDI blend)

· GNFC has 65% of domestic market share for TDI while rest is imports

· GNFC holds 60% of domestic market share for Aniline while rest is imported

· The prices of Aniline have gone up by 24% in 1 year

· GNFC is the only manufacturer of Formic acid, Aniline and Methanol in India

· The demand of Acetic Acid is 1.5 mn MT per year in India and GNFC has a capacity of 159,000 MT while the rest is imported

· GNFC is the only manufacturer of Formic acid in India and has a domestic market share of 65%.

· The demand of formic acid in India is about 36,000 MT out of which 22,000 is supplied by GNFC

· Formic acid is used in rubber extraction; the demand is expected to go up in future on the back of increase in rubber plantation in North East India

· GNFC uses imported Ethanol which is cheaper than domestic ethanol used by other manufacturers

· The company has a strict policy of not supplying acetic acid to other domestic manufacturers of ethyl acetate since the manufacturing process of ethyl acetate is more cost efficient via acetic acid route

· According to GNFC and Covestro the supply from SADARA TDI plant has been absorbed in the market and would not cause any disruption in the prices

· The TDI prices are expected to correct but there won’t be any drastic downfall in the prices

· The demand for TDI goes down in monsoon and rises back up after September

· The export price for TDI is about USD 3500 to 3800/MT

· The TDI 2 plant has been running at 105% capacity utilization for last 2 weeks without any issues.

Expansion

· The company would be spending roughly around Rs 20 bn on expansions for various chemicals such as Formic Acid (~7500 MTPA), CNA (50,000 MTPA), Ammonia(150 TPD), Acetic Acid (planning in process)

· The company expects about 12 – 13% ROI on the CAPEX.

Others

· GNFC is a strict follower of Make in India campaign and all the product it manufactures are import substitute

· GNFC exports to 67 countries out of which 31 are in Africa

· The company has zero long term debt and zero working capital

· Exports grew by 49% in 5 years

· The prices for neem fruits went up to Rs 16/ kg from Rs 1 – 2/ kg in past few years

· The take-off in fertilizer segment was low in June due to delay in monsoon. However there has been a pick up in fertilizer sale in July.

· GNFC produces more than 1 mn MT of fertilizer and this segment contributes about 30% to the revenue.

· About 24% of total urea production was used for industrial manufacturing purpose and to limit this use of urea, the GoI has mandated need coating for urea fertilizer. 30 mn MT of urea requires ~25,000 MT of Neem coating.

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There are news that Gujarat Government has appointed MS Dagur (IAS) as MD, GNFC relieving Dr Rajiv K Gupta (IAS) - Current CMD.

Though there is no official communication on BSE yet.

Regards,
Suhag

Notification has come:

We hereby inform that Government of Gujarat
(GoG) vide its Notification No.AIS/35.2018/24/G dated 12/7/2018 has
withdrawn the nomination of Dr. Rajiv Kumar Gupta, IAS as Government
Director from date he relinquishes the charge as Managing Director of the
Company

Vide aforesaid Notification, GoG has nominated Shri M.S. Dagur, IAS as
Government Director on the Board of the company from the date he assumes
the charge as Managing Director. Shri M.S. Dagur, IAS will be formally
appointed as Managing Director of the company at the ensuing Board Meeting.

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TDI Prices are falling much faster than what GNFC & former CMD wanted us to believe.

Current price @ Rs. 255/Kg. Steep fall of Rs. 25/Kg in about two weeks.

Disc: Invested

Regards,
Suhag

What about the international or chinese spot prices?

Chinese prices were around 27500/tn till last week.

BASF restarts TDI plant. Immediate impact on TDI prices in Europe and Middle East.

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GNFC:Strong
Revenue growth strong in both chemicals and fertilizers biz
EBIT loss in fertilizers biz expands
EBIT profit in chemicals almost doubles

Q1FY19-YoY
Revenue up 64% at 1604cr
Ebitda up 80.4% at 311.35cr
OPM at 19.4% vs 17.6%
PAT up 178% at 185.5cr

GNFC has written off unrealized subsidiary amount of Rs. 127 Crs in current quarter due to uncertainty of collection from Government. This has resulted in higher other expenses impacting the profits. Subsidiary of 8.29 cr for current quarter also not recognized.

Regards,
Suhag

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Listened to Sheela Foam concall. TDI price today is 250 rs/kg. They’re expecting it to go down further to 220 to 225 rs/kg. They’re even thinking that, given the current scenario, the price should settle down between 175 to 200 rs/kg in the long-term - next 1 to 2 yrs. Basically, TDI has peaked and now on the down cycle.
TDI being the major contributor to the topline of GNFC, this explains the Q1 of GNFC and the price action after the result.

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Comparing YoY it was great results however QoQ was obviously not good. Q1 was mainly impacted by the subsidiary write off and now company is staring at a lower TDI prices. We are already at par with last year’s TDI prices so GNFC will have a larger base to compare with lower TDI prices. Other chemicals which are trading at multi year highs and interest cost savings should support the profits to some extent.

On the management side, new CMD or any other management personnel from company has not spoken after the results. This is in stark contrast to the earlier CMD (Mr. Gupta) who used to always come on business channels next day to share company views and plan for the future. Management change has come at a bad time for the company.

Regards,
Suhag

Did GNFC conduct any concall after Q1 results? I don’t see any announcement or transcript on BSE.

Regards,
Suhag

No communication with Investors after new MD taking charge.
Seems he is quite opposite to Dr.Rajiv Gupta.

Thats sad. The current MD looks typical babu whereas Mr Gupta created a professional image of GNFC.

I find it surprising that even the CFO or other management team did not find any merit in having a concall.

Regards,
Suhag

The new MD was earlier in charge of Gujarat Alkalies which has been a bigger turnaround as compared to GNFC. Moreover GNFC is debt free, operating with a negative working cycle (which may improve more favourably after weekly DBT) and has a monopoly/monopolistic position in many speciality chemicals it produces. The fertiliser segment may report a profit this quarter. Keeping all these in mind can we not cut the management some slack for atleast one quarter and have faith in them.

Regards
Aditya

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GNFC’s cash from Ops for FY18 stood at 1818cr vs 1445cr in FY17.
Current Mcap at 6000cr.
Of course, this CFO may not be replicable in FY19 but in the absence of LT borrowings, this would still mean substantial FCF generation.

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any idea what’s the current TDI price trending at? Used to get this info handily from Sheela Foam’s website but that hasn’t been updated since mid-July.

Rs. 250/Kg is the current price. Sheela has Rs. 255/Kg updated in July.

Regards,
Suhag