GNFC - Turnaround Taking Hold


(ASHISHGUPTA) #1

GNFC
M.Cap: 1150 Cr CMP: 74

Introduction
I have started a brief discussion about the topic in my post “Profit Lies Where One Is Watching”.

Since then the company has show a remarkable turnaround. it has turned profitable. So I have started a new topic for this so that a more concentrated view about the company can emerge and we can discuss the prospects.

COMPANY
Gujarat Narmada Valley Fertilizer Company is a Government of Gujarat joint sector company with Gujarat State Fertilizer Corporation. It deals in fertilizers and chemicals.Plants are designed by reputed builders and Capacity data is given below:


GNFC lso ensures very high throughput.

                        PRODUCTION   FOR YEAR 2014-2015

Agile Management
Now as you can see its Methanol production is low because its not feasible to produce Metahnol in India because of unavailability of natural gas. So Management started import of methanol. DIsplaying management agility.

A Blast and Share goes to ashes
India imports 500000 tonnes of Toulene Di-Isocyanate (TDI) , a raw material to manufacture Foam and import is ever increasing due to high demand. GNFC is the only producer of TDI. It goes on to establish a new plant of 50000 tonnes at Dahej (mentioned as TDI-II in above report), increasing its capacity to 65000 tonnes from 15000 tonnes (mentioned as TDI-I in above report).

On The Fateful Night of January 9, a phosgene gas leak takes place at TDI-II plant leading to closure of the plant for a year due to Pollution Control Board notice leading to a loss of 789 cr, including 330 cr writeoff.

Glommy Days are Behind
In the previous two quarters, its has turnaround to profits as chemical business start outperforming. Also losses at TDI plant is reduced and will turnaround as soon as startup phase is over.

Also interest cost is reducing as it has started paying off debt. Also it also include a insurance award of 34 cr pending since 2008. But still it is a good turnaround.
Acoording to management commentary the TDI plant will break even this quarter as it has started operating at more than 100% efficiency.

Dividend Yield
The company continuously pay a dividend of Rs 3.5 per share, except previous year due to losses. At current price, it translate into 5% yield.

Growth Ahead
The Gujarat Narmada Valley Fertilizers Company Ltd (GNFC) will be implementing a Rs 4,463 crore expansion project in Bharuch district of Gujarat, where it will increase the existing production capacity almost three times for Urea, Ammonia and Aniline at the Narmadanagar plant. The Union Ministry of Environment and Forests and Climate Change accorded environmental clearance to the brownfield project where company plans to hike the existing production capacity of Urea from 7.2 lakh MTPA (million ton per annum) to 21.25 lakh MTPA, Ammonia production from 6.3 lakh MTPA to 16.52 lakh MTPA and Aniline production from 48,000 MTPA to 1.26 lakh MTPA.

As part of this expansion project, the company has also planned to set up a Water Soluble fertilizers (NPK) plant having a capacity of 5000 MTPA, and another plant for TDI-MDI blends of 7800 MTPA capacity. The water soluble fertilizer plant is being set up with an eye on the fast expanding drip irrigation network in Gujarat and other states.

Its quiet economical as Chambal Fertilizers is adding 1MTPA capacity at Rs 6700 cr.

Disclosure: i personally doesn’t have any stake in the company.


Profit lies where no one is watching: some turnaround plays
(sushildarveshi) #2

any idea on source of funds for expansion (accruals / debt / dilution…) and its cost?


(Vineet Reynolds) #3

Any idea on when this project would be completed. The news source I read, did not carry any information from the company. RCF is also considering expansion, with commissioning expected only by 2018.

With raw material prices (natural gas primarily, which is somewhat linked to crude oil prices), any capacity expansion would translate into much higher earnings if realized sooner. The New Urea Policy 2015 is a bonus because it aims to encourage in domestic output of urea production; it is credit negative after a certain point so energy efficiency is important, The Gas Price Pooling Policy levels the playing field for manufacturers, by providing natural gas at a uniform price to all urea fertilizer producers.

General notes on industry

This is an sector outlook published by HDFC Bank. There is enough demand for urea based fertilizers, with domestic supply lagging behind.

There are a few points to be noted on an industry-wide basis:

  • Urea usage among other fertilizers. The desirable ratio of Nitrogen, Phosphorus and Potassium in soil is 4:2:1, and this does not seem to be the case in India, with the blame falling on lower cost of urea, and higher costs for phosphoric and potassic fertilizers. This seems to have risen out of the Nutrient Based Subsidy scheme that now controls cost of urea in reference to the others. If there is overuse, at some point, urea use may be discouraged and regress to the mean. Ultimately, this is dependent on the crops grown and cropping system in specific regions.
  • Installed capacity in China. The current Chinese export policy for urea means that urea spot prices are cheaper in the international markets. We source around 70% of urea from domestic sources so there isn’t a lot of impact on financials of Indian fertilizer companies, which are more dependent on government subsidy for revenue. But, it does not mean impact on sales will be negligible. There is installed capacity in Ukraine that hasn’t come on, after the crisis in that country.
  • Plants using coal or other cheaper sources as feedstock for urea tend to have lower operating costs than ones using natural gas. Case in point, the Ramagundam unit of FCIL was shutdown because it used naphtha that became more expensive; it is now being revived to use natural gas. Chinese urea is mostly from coal. So, operating costs may fluctuate among companies, in accordance with raw material costs; the current low prices of natural gas may not be realizable over a long period.

Disclosure: Uninvested currently


(ASHISHGUPTA) #4

I WILL ANSWER IT ONE BY ONE.

  1. SOURCE OF FUND IS EQUITY PLUS DEBT. RATIO IS STILL NOT DECLARED but cost will be about 4400 cr.
    2.Urea is a international commodity. India imports 8MTPA of urea, and domestic prices are cheap as GOVT pay a fixed price and a fixed return on capital. In case urea is decontrolled than also it will be beneficial as India has no source of phosphorous, so DAP will always be expensive.
  2. Also you must not think about china angel in all cases as here transport cost is more than production cost.
    4.Largest exporters of urea are middle eastern countries and Trinidad as they have abundant cheap gas which china doesn,t have.

(GreyCells) #5


(Krishnendu) #6

Is there anyone still tracking this company ? With the sectoral turn around Anti dumping duty on TDI on the card this will have a huge opportunity to grow.


(mukul aggarwal) #7

Disclosure: Not Invested


(Krishnendu) #8

Resent trigger point for this stock :-

  1. Import duty on TDI
  2. Cashless township & DBT
  3. Locally produced urea consumption on high volume

Concerns :-

  1. Monsoon impact
  2. Cyclical demand
  3. Price control by Govt.

(Dazzled beginner) #9

Can u give the source of this news… Coz the market cap of the company itself is 4400odd and now they are undertaking a capex of 4400 crore… If they do it right then company can go into different league… Or am I missing something here


(nikhilbora) #10

please can any one give a monthly price chart of TDI chemical prices from GNFC.

Need to analyse the tdi prices. Kindly help


(Krishnendu) #11

Time will going to be tough for domestic fertilizer company with the impact of GST.

  1. Current Tax was from 3-8% where as with GST it will be 12% so price hike likely and hence the importer will benefit from it where the domestic company suffer.

  2. Natural Gas has kept out of GST which contribute to 70% of the input cost on which the company can not claim the tax benefit where as it will be charged at 15%.

  3. Increase the working capital need for the domestic company and will be helpful for the importers unless some strong Anty Dumping Duty have been proposed.


(Krishnendu) #12

Hi,

Does anyone is having any information on the proposed JV in Iran ?


(Dyutiman Banerjee) #13

(Krishnendu) #14

(Akbar Khan) #15

If smuggling is stopped, sales should come down, creating oversupply.


(Krishnendu) #16

(Raj A A) #17

TDI prices skyrocketing .GNFC to be benefitted.


(Krishnendu) #18

CARE and CRISIL both upgrade their rating on Debt Instruments …


(Raj A A) #19

Acetic acid hits 33 month high on Tight supply. GNFC has 1 MT capacity of Acetic acid.


(suhagpatel) #20

Did anyone attend the AGM on Sep 29? Please share details if any.

Regards,
Suhag