GNFC - The big becoming bigger!

Overdependence on tdi will hurt them. Before that happens, they have to come out with right plans. Stock movement will depend on TDI price for time being.

Fertilizer segment is in losses, reasons for which have been discussed in detail in last few concalls. There has been gradual improvement.

Numbers are spectacular and certainly above estimates. Would be an interesting concall.

2 Likes

Waiting for @Capsule91 view on GNFC results? Really respect your research and I too agree that GNFC is at top of the TDI cycle and tdi prices could correct in q2.

One thing which i observed is current TDI prices are $4000-$4200 where as they were $4200-$4500 in the beginning of April when Nigel visited GNFC and interviewed CMD.

Capex authorized in Fomic and acetic acid. Talks are on with RCF for their fomic acid plant.

No mention of turning fertilizer division profitable, Neem or IT.

Need to wait for concall to get more details.

Regards,
Suhag

3 Likes


Some details n future prospects of fertilizer business shared in this interview.

Expansion plans

2 Likes

Good insight (Bloomerberg interview)…

Long term debt free now. 1700 cr working capital requirements few years back has been reduced to 250 cr. Further planning to bring it down to zilch. Company has reached a state where topline has to be increased by capex.

Expects TDI prices to stabilize ~4000 USD. Domestically, they have been selling around 3 lac plus. Huge domestic demand coming in and is expected to remain healthy going forward.

Speaking on margins stability at 20-25% - He said there is room for improvement in many other chemicals as far as margins are concerned. He said urea/ammonia business was effected this year due to technical issues, which resulted in low capacity utilization. This will be resolved going forward.

Board has authorized Mr. Gupta for following CAPEX
Capex in Acetic Acid (1 Million TPA consumption in India, of which merely 160000 TPA is produced domestically, that too solely by GNFC),

Formic Acid (36000 TPA consumption in India, of which 22000 TPA manufactured by GNFC, and rest is imported. They are trying to tweak their existing plant to increase production ~6000-8000 TPA. Talks with RCF are going in full swing as well to purchase their closed Formic Acid plant. If acquisition materializes, GNFC will be able to fulfill the entire domestic demand in next few years.

Also planning to expand in concentrated Nitric Acid and in Ammonia production.

TDI - Approval received from the board for 150 cr capex to increase TDI plant utilization to 120%.

Theme is to focus on key chemicals where imports are excessive, and where domestic production is falling short of demand.

All this capex would be funded through a mix of internal accruals and debt.

Neem - Massive marketing activities would be conducted in next 608 months. Reiterated 500 cr topline target in next 3 years. Capacities are being ramped up for neem soap plant and stuff.

7 Likes

At present valuation of 9 PE, stock seems highly undervalued.
70% revenue comes from chemical segment where industry PE is far above 20 so even considering 15 PE significant room left for upside so it passes margin of safety parameters even considering slide reduction in tdi prices…
Aggressive openings of retail outlets and debt free condition can significantly improve bottom line as company is looking for more and more export opportunities
Don’t find any big negative except TDI price volatility…can you guys pls share other negatives if I have missed?

1 Like

Quantum of capex in the vicinity of 1000cr+ (next 2 years) - listen in at approx. 7:40 in the video.

4 Likes

Yes infact he has said 1000 to 2000 cr
More than 60% requirement of Formic acid and ascetic acid are fulfilled by import in india today so they can easily capture market without impacting margins(some expert advice needed though to analyse margin)…so it is not only TDI price story at all
Huge cash flow to come in in upcoming time

But I want to know negative side which are not discussed in this video
Can old members through some light on negatives?

1 Like

tdi price being the most glaring negative to me…
on march 9th the basf geismer plant came online after force majeure…
around[1.3lakh mtpa tdi capacity, citation needed, out of touch a bit now]

all the while, it went offline the international prices started climbing to 4600usd/mt in march , the ath…
which started falling like a wedge to 4000usd/mt…

similar price action was seen in mdi, which also hit a 15months low, prior to this move in tdi prices…

I wonder when basf, Ludwigshafen with its 3lakh mtpa and sada ra with 2 lakh mtpa will start production in full swing just a few months from now, what will happen to the prices of tdi…

Its a thing to be happy about, we are going to get non tdi cash flows with expansion also besides the ecophos, and finally something atleast directional in term of time[6-8months] frame has been mentioned in the neem division strategy, still no plans in details, only words…

net net, i love the diversification oncoming , but i am equally disappointed, that no plans for an MDI plant was mouthed, atleast now, thats the real cash cow waiting in the timeline of gnfc, specially when a MOU has already been signed with the technology provider, Connel chemical… another being tdi blend, tm80…

lets see what they have to say in concall about this…

Disclaimer… Reduced to 60%, on this result rally…

2 Likes

I think even if there is some price reduction of TDI, it was already factored in in the valuation as GNFC is trading at 9 PE,
And dependency on TDI price movements more or less compensated by diversification

Disc: Holding and no plan to reduce position in near term

good point…
but i differ…
in a cyclical section on a top and starting to downtrend… “low pe ratio can go even lower”…

and if tdi prices stabilize to pre hurricane harvey levels, then what i have calculated, there will be atleast 23.52% reduction of topline from tdi…[excluding capex on tdi]

3 Likes

Agree, Many thinggs will be cleared out in concol. Lets see

the md is constantly telling, this company should not be valued on tdi basis, there is a reason behind that, i feel…
and we have asked so many time to the management in previous 3 concalls about the prices, even in a rephrased manner, they have one comment to that…“we cannot comment on chemical prices”…

so yiah, it will be interesting what they have to say this time

1 Like

Already anti dumping duty is applied on TDI, so at what extent you expect, basf- Ludwigshafen capacity will impact gnfc?
As far as I know gnfc has monopoly of TDI in indiabas read in some news articles so there should be some pricing power
Can you pls through some light on it?

2 Likes

Yiah 2 things here…
Tdi is sold at spot prices always, both dom n int…

So basically the more supply comes flooding in the international spot prices should fall with compititive pricing, this has direct effect on the export orders…
Domestically , india has no anti dumping on sadara, tdi… If u can search back feb posts i have mentioned that dow dupoint pointed in their concnall the marketing region of sarada will be exactly same as gnfc south east asia, east africa and including india…
Already indian companies have started receiving samples from sadara and the reviewnia satisfactory for use…
This poses a difficult scene…
Without antidumping from sadara, and most possibly lower tdi prices internationally, there should be a compitive pricing war domestically itself also…
Also recently gnfc infact received orders from china in tdi segment for exports, with the chinese antidumping on european tdi being lifted, i doubt how much that will continue…

Also there is a point anti dumping dosent mean i cannot reveive dumps from those countries, i very much can… If the tdi prices falls that much to the extent to make those prices plus antidumping charges plus shipping to be more compititive to the current tdi price, then gnfc has to reduce the prices too…

One thing i have noted and keeps me relaxed is the before lifting the antidumping on european tdi in china, the chinese indegenous companies were given an option to appeal against it and there was just no opposition at all…
Seems like chinese tdi production revival is a long time away… Although i keep an eye on what that yantai tdi plant startup is a thing to be watched

1 Like

The market has till date perceived GNFC as a TDI only company. However there are certain triggers(facts) that warrant attention :

  1. It is the sole producer of formic acid and acetic acid in the country. With the new CAPEX of around 1000 crores in line it is confident of catering to the entire domestic demand. This is a diversification step to reduce reliance on TDI.

  2. It is planning to increase TDI capacity by 20% by investing 150 crores. Given the increase in prices in crude, reduction of production in China and the highly volatile nature of TDI there is a strong chance that prices will remain stable in the medium term.
    Domestic market share of TDI has increased from 43% to 66% which the company further aims to increase to 75%.
    This means company has monopoly position in three important chemicals.

  3. Company has reduced working capital to a meagre 227 crores which it aims to further reduce to zero. This means most of the sales are cash sales and it has strong bargaining power wrt to its customers.

  4. A Debt free company with almost 1400 crores of cash flow (which can also be free cash flow) indicates strong fundamentals. This offers a high margin of safety to the stock.

  5. Interest Savings in future will be atleast 100 crores from now on.

  6. Ecophos jv will help in positive contribution where the company once paid price to dump HCL. This again lead to savings of approx 50 crores yearly.
    As the MD said a penny saved is a penny earned.

  7. Fertiliser segment included a provision of 100 crores due to difference in energy consumption norms. Also in the past, for qtr 2 & 3 company made approx provisions of 40 crores each. Provisions reduce the net profit but not the cash flow.

  8. Come the monsoon season and Fertiliser segment might also post Profit.
    All these facts indicate that the company is in the right track as the management is also walking the talk.
    Also the company is due to receive subsidy benefits from the govt to the tune of 800-1000 crores.
    Keeping all above facts in mind I believe the company is very undervalued presently.
    Profit in value Investing is made where no one is looking. In long term the stock has strong potential for upward re rating because of its multiple triggers. Till then one needs to have conviction in the stock and patience to sit tight.

P.S the name of the thread should be changed now as the turnaround has happened a couple of years ago.
Disc : invested.

6 Likes

Done…

And excellent analysis…
Agree on all point expect the TDI, with so much supply coming back online and being added, the prices cannot remain stable…
The last uptrend of the tdi prices happened due to hurricane harvey taking out the us production lines, and the situation is reversing fully and well before expected timeline…add to that is sadara…
And also without antidumping from sadara, i see the pricing war happen domestically also…

1 Like

Thank you for changing the name. What the price will be in future only time will tell. However the global demand is still more than the global supply even after sadara coming on board. The company has increased domestic market share to 66%, I believe it can command a little pricing power with it’s monopoly status. Also in sheela foam website prices have reverted back to Rs 310/kg.
The company has 5000mt of export order pending though the revenue might not be much 150crores, ebitda from same could be roughly 50+ crores.
It is Exporting to 50+ countries. The market is huge to absorb both sadara as well gnfc and others. TDI is like oil where producers are not breaking price as they are all able to sell at higher prices

1 Like

Guys…Has anyone here done some analysis on the rev/pat contribution from other prominent chemicals, especially those which Mr. Gupta keeps on referring to in his interviews - Formic Acid, Ethyl Acetate and stuff. He keep iterating that market should not value GNFC as pure play TDI, which in my opinion is completely incorrect. If one chemical forms majority of your profits, how can you even say that? You want market to believe in something which is incorrect.

My question regarding contribution from other chemicals… as i am trying to understand what can the large incoming capex for these other chemicals bring to GNFC’s.

I have been maintaining my stance here regarding TDI cylicality despite good demand. In cyclicals, it is all about supply! With such large capacity coming online, price should crack irrespective of what Mr Gupta says. He said prices will remain stable around 4300-4400 (when they were are 4500-4600). We already are around 4000. So, simple thing - he is just selling his company and his results! No one can predict chemical prices one yr forward. It is all fuzzy projections which can go awry.

3 Likes

No data is there whatsoever to find the individial realization from chemicals…
I will be cautious to remark of the md is reporting wrong figures, because the most data out there about the tdi prices are derived from mainly china local floating prices…
The statememt that the compamy should not he valued in terms of tdi, is a round the head thing for me , as i read caution in that and the oncoming downcycle in tdi is reflected and he knows the valuation degradation to gnfc in terms of market price that will occur if tdi prices revert back to pre hurricane harvey levels…
Also i dont think the capex plans will get valued any sooner until the moment it finally comes online and shows figure addition, as all chem prices have topped out, presently…

Disclaimer… Exited the scrip with all the holdings today(based on the oncoming uncertainity that i dont want to be a part of specially when its core fundamental in stress, technically i suspect this is wyckoff disrribution and the last point of supply in phase d of the schematics that is happening)… will be trackimg fundamentals

3 Likes