GNFC - The big becoming bigger!


(Mridul) #103

I think there are three parts to this, which i have listed separately.

One, capital subsidy for fertilizer segment (naphtha to natural gas conversion), which is 108 cr as of now and will be booked in cash flows by Oct 2018. This is of course outside book.

Two, energy norm dispute which will not be part of the other income and will not be booked under P&L. Mgmt said - “We have taken it strongly with the government and this time also we have decided that we will go all over in that and take up with the Department of Fertilizer but these are government related matters and we cannot say for certain but we have insulated our balance sheet because of these issues. These are all sitting outside of books, which was 238 last quarter which is now 247 Crores as of Q3.”. So whenever this amount comes, it goes straight to cash flows. No P&L impact, no other income, no exceptional gains? or will come under exceptional gains?

Three, fertilizer subsidies (this is not capital subsidy…different than point one) as of Dec 31, and will form part of other income whenever it comes. Three excludes two is what they said in concall, so i listed it separately.

Correct me if i am wrong.


(Capsule91) #104

@Mridul
Agreed but i am not sure with the 247cr, as that will be a contingency gain… but on the otherside they mentioned this yr they incurred 25cr loss in terms of energy norms


, Are they saying all this losses are cumulatively amounting to 247crs over the prev yrs, coz they told previosuly they were consuming even 6.7gkal pmt urea whi h has cone down to 6.54…
If that is the case they they might just add the cash flow to the balance sheet … But contingency gains are included in pl statement as per best of my knowledge…

I have another question, specially from you, since you take a thorough negative stand on the other income …
Even if the fertilizer subsidy stops, and dbt is rolled out… As per dbt model they will add the subsidy as per pos sales in weekly basis and book receivables until discharged by the gov, which they are skeptical of , related to timely discharge of subsidy…
In that case although receivables will get increased, but optically we will still get the subsidy in other income booked, so no fall in other income will be seen…
Downside to this will be the working capital requirement, which they are saying , the cycle will get increased initially, origin of this is completely based on the timely subsidy payment which they are skeptical of…that incurs a bit of finance cost… But that will be post october, by then we will be debt free, and we dont hv to rely on receivables for anything… We already have enough internal accrualsa nd by then i will expect the expansion will be done…

So the only downside is fin cost mild increase due to working capital cycle getting prolonged and overlapped…
Other income will continue to be shown in pl as it is…
So no effe t on the total topline
So where is the problem you note…?

Also note, if they can convince the gov about the energy norms , then we may also stop losing 25cr a year on account of this in thr urea segment…that will be a win win situation…


(suhagpatel) #105

When GNFC shut down TDI plant recently in January, Navin Shetty from CNBC TV18 mentioned that TDI earns 60-70% of total profit for company. So we have to calculate accordingly.

Are you saying that entire 540cr are invested by GNFC? Its 15:85 JV with GNFC having equity investment of 24Cr whereas ecophos will invest 134Crs. So total investment will be on similar lines as per my understanding.

@Capsule91 Thanks for digging out all the information in your recent posts. Amazing work.

Regards,
Suhag


(Capsule91) #106

I have a case to project the worst case scenario if tdi prices crashes, overwhich a lot of us are losing sleep…

Gnfc tdi capacity- 67000mtpa
Current quarter capacity utilization 101%

For the sake of simplicity and to minimize speculation bias i will stick to 100% capacity utilization in the coming fiscals

So quarterly tdi capacity 16,750 mtpq

Now, q3 minimum price was 4300$ and maximum price was 4500$ internationally, domestic prices were higher, but we will take 4400 as a mean point price which is generating the current topline…

Read the following…

Fine…
So at present topline generated from tdi is
16750 mtpq x 4400 usd= 471.68cr rupee 1usd=64rs

At 3000usd equilibrium point,
16750mtpq x3000usd=321.6cr rupee 1$=Rs.64

Quarterly topline loss=150.08cr rupee
Considering ballpark pat margin of tdi is 30%…
(Overall current pat margin is 13.9%)

We will be losing 45cr PAT and Rs.2.7 each quarter , if tdi prices to tumble to 3000$ pmt from 4500$ pmt at present…the historic low was just below 3250$…
Here is the price trend in 2017…

Remember from my previous posts i established, the is very high possibility of tdi prices to remain between 4300 to 4500 till july…

So to sum it up, considering every other parameters of q3 remains the same…
We will be posting, 14.7-2.7 =12rs eps every quarter, 48-50 annually…with ecophos in the fold, we will be generating extra 4rs eps (ref…
GNFC - Turnaround Taking Hold)
So in total in fy20, the net annular eps is 52-54rs…
Just taking into account only tdi worst case and adding ecophos…
If a mdi capacitu starts, we can still hope to maintain a 60rs eps even with tdi in the worst case condition…

@suhagpatel to your question…

From q1 concall

@Mridul
For a general idea about worldwide capacity utilization of tdi plant and forward estimate, have a look…

So that is 70%…
Dow Sadara may top a 70%, releasing 1,40,000mtpa of tdi…

Upto next quarter we have a total of 4,60,000mtpa capacity shut down in europe…

Disclaimer… The volumes in tdi has been taken to be constant going forward…

Note… no antidumping duty is on sadara… And dow has targetted india in its marketting list…look prev posts for excerpts…
What can make the situation more grave, sadara also targets middle east and africa, same as gnfc… Hopefully gnfc captures enough indian volumes by july… But importing tdi from sadara is more costlier than gnfc, so that is a catch due to shipping


(suhagpatel) #107

Thanks. Can you help me understand how this 15:85 JV of equity will translate into total 524 crore of investment by GNFC. I was under assumption that investment will be as per the share in JV. As i mentioned above equity portion of GNFC in JV is 24Cr.

Regards,
Suhag


(suhagpatel) #108

Based on the TTM EPS company is trading cheap compared to GSFC, NFL etc. I know EPS and PE are not the only factors to value a company but GNFC has better product mix than some of the listed peers still its trading cheap compared to them.

Any views of seniors here to value the company in a contrarian way will surely help.

Regards,
Suhag


(Capsule91) #109

Fundamently speaking crude seems to have topped and coming down…
This is good!
US inventories picking up…
This is a weekly view

So is natural gas…
A weekly and daily view respectively…


So is benzene…


Hopefully expense is going to come down in q4…


(Capsule91) #110


(Capsule91) #111

Finally, Expansion Plan for MDI and Acetic Acid is expressed by MD himself…
And this is not only MDI isolated production, now they can also produce TM80 the mdi tdi blend which they were saying is on the cards since q1!!
This ia a february 2018 document!

As i have been repeatedly saying, jubilant life is going to set up a 50,000tonne pa acetic anhydride capacity which will req 65000 tonne pa acetic acid from 2019…
Presently they import acetic acid…
But with gnfc increasing capacity, acetic acid shall be procured from gnfc…
So we have got a confirmed full capacity utilization of acetic acid capex after coming online…

Gnfc will be moving into historic reigns…!


(suhagpatel) #112

Read the entire interview here. Page 22-23.

Regards,
Suhag


(Capsule91) #113

Any idea what this trading business of chemical means?? What kinds of margins?

Also i am surprised md still targets 50cr of neem based product topline within this fy!!..i think this is show biz…
In q3 only 3 cr was the topline, in q2 even not that… At the best 5cr has come this fiscal as of now…! Hope we dont end up with 50cr topline instead of 500cr as targets for future…
But 25000 outlets including emalls ia very promising effort…


(Capsule91) #114

The contingency gain of 247cr which is expected to be received on account of energy norm dispute…
This is the actual reason for the dispute…

This amount has not been included in the fertilizer revenue… and this was 216cr in fy16 end now 247cr, and so on receipt it will directly get added to the topline in the other income portion

Another thing due to this energy norm we are currently losing 10cr of topline every quarter, and the company say they have taken it up strongly with the gov…
So not only if this dispute is settl3d, we are gonna get 247cr one time topline plus will add 10cr to fertilizer segment each quarter!!

There is too much of buffering possible in gnfc, that even a tdi price crash cant affect the financials at all…!!


(Capsule91) #115

I just bumped into another source of 1000cr topline in the 2017AR, dont know how many of you noted this ,but i am taken by pleasent surprise!!
A total of 1017.79cr of government grant is yet to be received by Gnfc including current and noncurrent…and this is going to come within next 4-5 years, although the amount received yet is very less…
And the best part? Its hidden in deferred income in liabilities portion of balance sheet…
Only 123cr has been received yet, and this grant forms a part of other income…
Note… this is not subsidy!

Take a look at the details from Ar2017…


This was the status of the same segment in 2016Ar…

And finally this is H1 balance sheet deferred income …

Just an intro on deferred income…

So it seems we have another 1000cr topline in next 4 years…
I will have to do further queries on this in q4 concall, but still this gives visibility of Rs.61.53 eps in next 5 years, averaging to rs.12 per year, which is not happening as the inflownis pretty less, in H1 as i showed you only 30cr has been received, same has last yr… Hopefully they will receive torrents as 5year timeline is there, but have to ask the cfo in concall regarding this…

Gnfc is like a pandoras box of value!!


([email protected]) #116

@Capsule91 - really appreciate the effort which is put behind the GNFC story, I am new to the investing world, the detailed approach taken by you is definitely a motivation for newbie like me.


(Capsule91) #117

Also note Fertilizer subsidy isNOT a part of other income, and gov grants do not include subsidy…
This is a misconception!
The subsidy is booked in the fertilizer topline and added to receivables!!


(Capsule91) #118

Disc… off topic pov…

Crude back to dec levels, more downside to come…a very strong evening star pattern on weekly charts…
But us markets are still nervous…


But 10yr us bond yields is showing reversal signal already… If crude and bond yield crumbles , the only thing that is left to be worrysome is us interest rate hike to fuel inflation…
Overall with micros looking good on individual stock and crude in the downtrend indian market should restart moving up… Next week is result mega week for mid and small caps…!


(rahulshares) #119

Thanks @Capsule91

With your analysis, its clear there is quite a lot of support if in case there are lower TDI prices. And considering the comfort on valuations and good cash flows, GNFC seems to have good value even at current prices.

I believe once management announces capex plans it will definitely be cheered by market. I believe management has been too conservative in focusing on reducing debt and has delayed in giving clarity on capex plans.

Disc: Invested.


(Capsule91) #120

Disc…non informative visionary post…
Gnfc is actually one of the rare turnaround story, which after turnaround still has lot of potential…

6 verticals…Basic and speciality chemical, fmcg, fertilizer, ecommerce plus a new chemical trading business… All available at throw away price and valuation!!
Add to that further capex from internal accruals and still free cash flow left to generate dividends, a excellent management with good access through concalls…
@pandi.rao who cannot get absorbed into this vortex…
I am greatful if my little work can inspire anyone…
I want to see gnfc becoming a mdi major plus a tm80 monopoly, then if valuations get stretched with no further growth visibility, my book in gnfc will end…
Hope to get a 10x componding by then, i already have a 12x compounded capital invested here, from bepl 6x followed by meghmani organics 2x…


(Capsule91) #121

@rahulshares excellent conclusion sir!

I too believe the atory has not begun …
I posted previously even in the worst case tdi prices we will lose an eps of 10 annually, against that we have a basic buffer of 16 eps from fy20 consisting of ecophos conti gent liability saving etc , all i have discussed, add to that 15.2 eps from that 247cr gain and 2.5 eps from 40cr annual saving on energy norm dispute… plus another 10rs eps from this gov grant annually… Also that 50rs hike in subsidy pmt urea that fertilizer companies are asking for, but with crude crashing lets see what happens…

So a tdi crash can produce a 10rs eps loss, we have 44rs eps buffer going forward excluding the rest of the topline generating current eps…
And once capex starts generating earnings, we know what will happen…

Those who are getting frustrated or bearish or skeptical about prices and worst of all booking out are going to regret it big time…

I think remaining invested in gnfc throughout the capex cycle and even later can give sich level of compounding return!


(Chid59) #122

Could you let us know when you first identified GNFC as a value proposition and at what price entered, Capsule91.