Fertiliser sector has been a major under performer and has not even participated in the recent broadbased midcap rally
I think policy initiative could be a major trigger - govt came with urea policy in feb 2012 and the same could be finalised soon
Stocks like GSFC and chambal are quoting at close to 52 week lows would be a safe bets?
Not including quality names like coromandel as it did participated in last 3 years quality rally
Any views opinions folks?
Regards,
Excel
GSFC is very close to itâs 52 week low-64 (Cmp-67.60) .With Modi ji coming to power most likely stock has a great chance of moving after 20th and more so since fertilizer reforms are also going to be implemented sooner than later.
However even with fundamentals being so strong itâs barely holding ground above 71.
Regards,
Rajarshi
GSFC - One of the very few fundamentally sound and safe stocks. It is being dragged down due to market volatility and technical reasons. Therefore, it is more appropriate to analyse the price movement wrt technical.
For those who believe in slow investing / turtle investors, GSFC offers a very good opportunity to make 2x - 3x returns without much risk of loss.
As they say, one picture is worth more than a thousand words. So is the case with monthly price chart of GSFC. Saying anything more is just superfluous.
GSFC aims Rs 300 crore revenue from non-core businesses (seems possible given the use of Nylon 6 by NHAI). Also, GSFC has lined up an investment of Rs 15,000 crore to expand capacity over the next 2 years. This is huge given the current Gross Block is just Rs 4,742 crore and current market capitalisation is Rs 3006 crore (source: moneycontrol)
Disclosure: Invested
GSFC is very interesting fertiliser story coming again as per technical view if close above 77 will wait for 100 soon
So after Sugar, could 2017 be an year for the Fertilizer stocks?
Any updates Regarding GSFC, chemical products they mfg. eg. caprolactum which is used for tyre manafacturing and melamine have good demand and the prices are good. Also the profitability in fertilizers has increased.
Kindly share if someone has more updates on caprolactum prices and its positive impact on gsfc profit projects.
Gsfc â Analyst Meet
Q-What about Ammonium sulphate subsidy?
The ammonium sulphate Subsidy matter from 2013-16 has been submitted to Finance Ministry . It will resolved in 2-3 Month and company will get subsidy, Upto 2013 all claims are received . From March 2017 Claims for subsidy is getting regularly received from government.
DBK impact is still yet to see what will be the actual impact, but What we assume is going to happen is We will be in serious cash crunch for all the companies.
For P&K fertilisers the actual appreciation of sales is very limited very small window twice in a year and we have to keep on producing the material throughout the year. We are trying to address this thing :-
One is collect all our money like sodium sulphate, P&K , etc and going to create âwartches â to manage our cash flow.
Second Long term goal is we are to open 800 outlets , So 30-40 % of our product is sold through our own store and then we were able to manage our product sales in a much better manner.
Thus we are planning to increase our outlet in our primary market of Rajasthan, Madhya Pradesh and Maharashtra.
We donât want to expand very aggressively, first need to see business climate.
In Rajasthan it is going to start 6-7 outlets. In Madhya Pradesh and Maharashtra also process is going to open first pilot Outlets and see whatâs impact and possible impact and then we will take decision.
So these are few strategies
Q-What is the current agro spread and given current economy and market scenario, How you see that fluctuate the near future ?
Our agro spread during last year was 911 $ and in current month there has been small increase in basic price but still two more trading is left in September Month. So we expect agro spread will be stable and in November and December there will not see any pressure from environment regulations so good season will be there in India.
Q-Will our volume like we have valued the earlier coated bill 1.9-2 Million Ton , Fertilizer Volume from FY 18 Now already Six Month Has been gone due to monsoon so what you think will we achieve that numbers ?
So Far We are on track, Our agro Business we are very much confident to achieve it.
Q-In Immediate term we are looking on Capex of 400 Crore for Melamine. All other Capex will be coming in 2020-21 So First of all what will be the optimistic EBITDA we are looking for this Mega mine and what kind of initial ROE we are expecting and what will be Capex Schedule at 2018-19-20 ?
In Melamine as we got approval of 400 crore actual capex is of 800 Cr and we had already spend 400 crore on it and remaining 400 crore will be spend in this year or next year.
For other projects like Phosphorus Acid Plant and P&K Plant we are in planning phase will not give any commitment except a commitment would be a 10 Megawatt . So our projects expand will be in range of 50 Crores only. This Year we are working on rerating of our existing Ammonia Plant , Because after the Mega mine Plant we will need more Ammonia so we are working on that and expected the cost in a range of 150-200 Crore which will increase the production by 50,000 ton per annum and that will come in next 2 years step so expecting a outflow of 350 crore in next year.
Q-What will be the EBITDA generated on this Melamine?
See EBITDA Margins of melamine has been quite stable in last 3-4 years . In initial years ,So Capital cost will be more and thus EBITDA margin will be in range of 18-20%.
Q- In balance sheet there is an Old Mine non core Investment which is above 2500 Crore which is not giving any additional return so why we donât think of diversify this non core investment ?
Ans- In our Investment, majority are strategic investments .
In Gujarat Industries Power Companies we are getting power in a capital power plant and we are getting power at a very reasonable price .
the moment we diverse ,we loose the capitive Power status .
The port at Dahej is a stragec Investment which is more important right now since we have acquired land there and got a board seat in it and also company has start paying dividends . We would like to remain in this typical port terminal project because of Dahej Interest.
Q-What about Gujarat Gas and GNFC?
GNFC is giving very high returns right now and we are the promoters of GNFC .Again another strategic investment .Initially infact we and state government came together to start it.
Gujarat State Communication Company is a another strategic investment where we are now taking advantage of water soluble fertilizers and GT is doing very good and having synergy with JJRC .
We have some small investments in Equities and even Gujarat Gas etc all these are cross holdings they have invested in us , the moment we withdraw they will also withdraw .
There are few shares of IDBI and Value Conductors . That we can say we will diversify we donât have any interest and we have already taken decision to diverse these small ones including Gruh , IDBI and Manglore Chemicals, Rest I donât think there will be any significant investment.
We are infact when second plant was Design , there was a space created for doubling our capacities . Space was kept for various sections for expansion so we have got rights under technology license to replicate the plant . We had started a project where we bring Caproplate from plant One (older plant) and quality has improved and one of the section new plant i.e second one is getting ready right now which will be ready from this December or January /
We have very serious thought of replicating other section and doubling our capacity and thus will be at very very low cost ,Because a lot of utility and manpower will be saved so our inventory of equipment and spare parts will also be saved.
Q- Since Last 50 years we have invested and in next 5 year we want to invest twice of last 50 years . So in next 3-4 years we will be investing around 4-5000 crores So What will be your vision about the company after 5 Year from now and how u are going to plan this 5000 Crores and as per Mr Nanavati Statement of getting 1000 Crore as bottom line after 4-5 years .
So whether 1000 Crore will be after providing whole financial cost and most important where you see this company after 5 years ?
Ans- We see that after 5 year this company will remain doing what we doing right now and we will do it more Professionally and we want to become a undisputed leader in phosphate Fertilizers One, Amonnium sulphate Two , Third is Caproplat and melamine. We are now focusing on our Capacity Efficiency we want to become most Efficient producers of these products .
Now Idle assets or lovely assets which have to start improving that return like JT where we are having around 160 odd acres of land , then we have bought 8200 cross pipeline to our plant and in the plant we have very elaborate logistics infrastructure and we are getting hardly 3 ships per month at this JT .
Now we have already completed a study as how we can harvest the best potential of this JT and it looks very attractive and If it will be properly manage then we expect around 10 Crores rupees will be annual net Profit come from this proper management .
I Donât think that there will be any fertiliser company holding this type of asset and this will convert us to get a subsidy flow of good amount if manage properly.
Second we perceive that our future growth will come from Sikka .
Sikka is ryt now in 10 lakh annum capacity and all the raw materials are imported , so we want to now get into the backward integration by setting up a phosphorus acid plant which will give us adequate let say 50-60 % of future requirement also. So right now at Phosphorus plant is at initial stage and at the end of year it will close to maximum capacity.
So around 1.8 lakh tons of phosphoric acid will come from there.
If we set a one scale , around 3.6 lakh ton of Phosphoric acid this will give us opportunity to double our capacity at Sikka and we keep on importing little bit but Sikka we are targeting around 100 Cr net profit on Sikka . So Sikka will this profit will become more then aound 200 Crore net profit because Phosphuric acid plant will give a huge advantage from others in terms of cost of production.
Another thing we are doing like internal efficiency, we get 2 more assets which we donât know where comparable, in filament and polymer unit . Now we are seriously working on either key assets become profitable or we just close the plants .
We has already shifted 100 Manpower from this 2 Units to our GFTL Outlets for further growth of it . So manpower is already stabilised now and Incase we are working on 2-3 options for both these units and one of the option we will take at this end of year. So when we talk about a 5 year stand, what will happen without much of investments these investments and expansion . Phospsuric acid require some investment , Caprocaite will require little investments, JT will require some investments . These 2-3 investments will give us a stable 4-500 Crore of rupees turnover and without other things we were talking So we are targeting CAGR of 24.
Internal efficiency will help us to achieve it .
Q- Wouldnât you and GNFC coming together will give any benefits , will it make any sense ?
We donât find any commercial relate as both are in different segments .We are Ammonia based company and GNFC besides an ammonia plant they are more on Carbon Monoxide .
The raw material is also different .So these doesnât make any synergy between these two companies .
Q- GST Impact
Ya so your observation is right that importer of DAP is charged at 5% and sales at 5% , While in processed ammonia it will be 18% GST, so we have more input credit . But for us , we have other chemicals where unlike other fertiliser companies We charge 18% GST on Sales. So we can set off 18% GST paid on imported processed ammonia .
So it will come under huge refund case but now it wil be a question for all when government will refund . It will create impact in blockage of Working Capital. We expect to set off this on month to month basis so we donât expect blockage ITC Credit on a long term basis .
First Priority is of launch of GST then to take care of Second to take care of technical features .
Future Outlook
The Company thinking in short term and near term goal in 4 - 5 areas.
As per news article BASF is stopping ammonia, caprolactam, and toluene diisocyanate production at its site in Ludwigshafen, Germany, PERMANENTLY
with this can we see upside in GSFC and other Indian fertiliser companies ?
Due to uncertain monsoon and El nino probability, India may witness monsoon deficit, I think market is waiting for this event to take place with sowing starting this month end onwardsâŚ
Well yes that should certainly help GSFC if demand remains good amidst all the recession noiseâŚ
going by GUJARAT government formula⌠for GSFCâŚthe PAT is 900 cr approxâŚso 30% of it is 270crâŚand total outstanding shares is 39.5 cr âŚso minimum 7 rs per share can be given as dividend âŚalso since promoter shareholding of GSFC is less at 38%âŚthere is high chances of buyback and not split since face value is already 2 âŚothers please comment whether you concur with my views.
Shouldnât GSFC be made to pay dividend on its networth criteria? Its current networth is âš11,772 Cr
According to direction given by gujarat govt., Every SPSU would pay a minimum annual dividend of 30% of PAT or 5% of the net worth, whichever is higher subject to the maximum dividend permitted under the extant legal provisions.
GSFC book value is 300 so 5% of net worth amounts to ~ 11850 crores. 5% of net worth is 592 crores, which when divided by o/s shares gives ~15-16 Rs share dividend. On current CMP that would give 10% yield
Now comes 4200 crores investment done in other state PSU & GSFC would be major beneficiary of their dividends too.
I think dividend should be somewhere in range of Rs 15-25 per share, which makes it very attractive buy
| - | High Cash Reserves and solid working capital base provide good support for capex led growth. |
|---|---|
| - | With high net worth proportion in the overall balance sheet size and long term debt free position, the company has a strong financial position to fund its capex plans and wither future shock. |
| - | Profitable operations supported by subsidy release support from GoI and increased prices from company has helped improve cash position. |
| - | Company reached highest turnover in history due to fertilizer sales. |
| - | Capex planned for FY24 is 700 crores and plans to spend in a phased manner. |
| - | Company is planning to move towards the pharma industry and is considering the organic fertilizer business. |
| - | Company is considering increasing its capex and portfolio but is cautious about government regulations and dividend payouts. |
| - | Government has proposed lower urea prices and restructuring programs. Company is stocking up on fertilizers due to upcoming monsoon season and expects good demand. |
| - | Company is carrying high-cost inventory due to reduced subsidies and is trying to protect margins. |
| - | Company is considering restructuring and splitting, but it is far off and needs evaluation. Bonus and share buyback plans are being discussed but need evaluation. |
