rashtriya chemicals & fertilizers...
TRANSCRIPT
Rashtriya Chemicals & Fertilizers Ltd(RCF)
HOLD CMP: Rs.107.05 Market Cap: Rs.59058.41mn.
Date: 1 Feb,2010.
Key Ratios:
Particulars FY09 A FY10E FY11E
OPM(%) 6 8 9
PAT(%) 3 4 5
ROE(%) 13 13 14
ROCE(%) 13 11 12
P/BV(x) 1.08 3.08 2.66
P/E(x) 8.55 24.2 19.3
EV/EBDITA(x) 12.1 13.8 12.5
Debt Equity(x) 0.85 0.78 0.71
Key Data:
Sector Fertilizers
Face Value 10.00
52 wk. High/Low (Rs.) 117.90/30.50
Volume (2 wk.
Avg.)(lakh)
114.44
BSE Code 524230
SYNOPSIS
• RCF is the one of the largest fertilizer and chemical
company in Asia.
• RCF is one of leading producers of fertilizer in India.
It has product portfolio consisting Sujala, Suphala
15:15:15, Suphala 20:20:0, Ujjwala, Microla and
Biola.
• The company has a total of four urea fertilizer
plants, two complex fertilizer plants, four ammonia
plants and several industrial product plants.
• R.C.F is the only manufacture of DMF in India
• The company's manufacturing facilities are located
at Trombay and Thal in Maharashtra.
• The revenue of the company for the quarter ended
on Dec 31st decreased 29.5 % YoY while profit
increased 13%.
• The topline of the company is expected to grow at
a CAGR of 8% over 2008A to 2011E.
Share Holding Pattern:
V.S.R. Sastry
Vice President
Equity Research Desk
91-22-25276077
Dr. V.V.L.N. Sastry Ph.D.
Chief Research Officer
Table of Content
Investment Highlights ................................................................................................................................... 3
Peer Group Comparison ................................................................................................................................ 5
Financials ....................................................................................................................................................... 6
Charts ............................................................................................................................................................ 9
Outlook and Conclusion .............................................................................................................................. 11
Industry Overview ....................................................................................................................................... 11
Investment Highlights
• Results Updates (Q3 FY10)
The bottomline of the company for the quarter increased at 13% yoy that is Rs.777.80mn
from Rs.687.80mn of same period of last year. Total revenue for the third quarter stood at
Rs.16065.80 mn from Rs.22782.00 which is 29.5% decreased than that of a year ago period.
EPS for the quarter stood at Rs.1.41 per equity share of Rs.10.00 each.
Expenditure of the company decreased 33% YoY to Rs.14762.50mn from Rs.21905.30mn of
same period of last year. Interest expenses for the quarter stood at Rs.32.9mn. OPM &
NPM for the quarter stood at 9% and 5% respectively.
Quarterly Results - Standalone (Rs in mn)
As at Dec - 09 Dec - 08 %Change
Net Sales 16065.80 22782.00 (29.5)
Net Profit 777.80 687.80 13
Basic EPS 1.41 1.25 13
Equity Capital 5516.90 5516.90
• Registration of CDM Project
Rashtriya Chemicals & Fertilizers Ltd (RCF) has informed BSE that the Company has been
informed by UNFCCC that the Company's CDM project "N20 abatment in HP Nitric Acid
Plants" has been registered
Company Profile
Rashtriya Chemicals & Fertilizers (RCF) is engaged in manufacturing of fertiliser and industrial
products. RCF is government undertaking with a turnover of over Rs 5000 crore.
The company was selected to be part of the Coal Gasification Committee by ministry of
chemicals and fertilizers.
The company's manufacturing facilities are located at Trombay and Thal in Maharashtra. These
facilities have received various certifications such as ISO-14001 for the environmental systems,
ISO 9002 certification for quality control and OSHAS-18001.
RCF has also received Indira Gandhi Memorial award for Pollution Control and the Rajiv Gandhi
Award for Clean Technology awarded to Thal plant.
Products
Fertilizers
RCF is one of leading producers of fertilizer in India. It has product portfolio consisting Sujala,
Suphala 15:15:15, Suphala 20:20:0, Ujjwala, Microla and Biola.
Industrial products
Under this the company produces methanol, methylamines, ammonium nitrate, sodium nitrate,
ammonium bi-carbonate, formic acid, dimethyl formamide, dimethylacetamide etc. Currently
RCF is the only company that manufactures of DMF in India.
RCF produced 23 lakh metric tonnes of fertilizers, 9.13 lakh metric tonnes of nitrogen, 0.7 lakh
metric tonnes of phosphate and 0.7 lakh metric tonnes of potassium. Further it also produced
1.34 lakh metric tonnes of various industrial chemical products.
Peer Group Comparison
Name of the
company
CMP
(As on 1
Feb, 2010)
Market
Cap.
(Rs. Mn.)
EPS
(Rs.)
P/E
(x)
P/BV
(x) Dividend(%)
Rashtriya Chemical
& Fertilizers Ltd 107.05 59058.2 3.71 28.8 3.53 12
Chambal Fertilizers
& Chemicals Ltd 66.20 27553.0 6.81 9.72 2.23 18
Shiva Fertilizers 39.05 250.9 2.98 13.1 1.31 8
Deepak Fertilizers 111.45 9830.4 18.9 5.87 1.22 40
Key Concerns
• Government’s interference and extensive control on the pricing, distribution and
movement of fertilizers.
• Relative prices of fertilizers may affect the company’s sales.
Financials
12 Months Ended Profit & Loss Account (Standalone)
Particulars FY 08 A FY 09 A FY 10 E FY11 E
(Rs.Mn) 12m 12m 12m 12m
Net Sales 51,402.70 83,659.80 58641.76 64505.93
Other Income 960.9 831.1 496.98 506.92
Total Income 52,363.60 84,490.90 59138.74 65012.85
Expenditure -48,517.90 -79,618.30 -54435.83 -59345.46
Operating Profit 3,845.70 4,872.60 4702.91 5667.39
Interest -593.2 -749.3 -207.66 -218.04
Gross Profit 3,252.50 4,123.30 4495.26 5449.35
Depreciation -831.8 -866.3 -897.93 -933.8
Profit before Tax 2,420.70 3,257.00 3597.33 4515.51
Tax -839.2 -1,141.20 -1156.56 -1467.5
Net Profit 1,581.50 2,115.80 2440.77 3047.97
Equity Capital 5,516.90 5,516.90 5,516.90 5,516.90
Reserves 9,872.20 11,213.50 13,654.27 16,702.24
EPS 2.87 3.84 4.42 5.52
Quarterly Ended Profit & Loss Account (Standalone)
Particulars June 09 A Sep 09 A Dec 09 A Mar 10 E
(Rs.Mn) 3m 3m 3m 3m
Net Sales 8,430.00 17,919.50 16,065.80 16226.46
Other Income 115.6 110.9 133.9 136.58
Total Income 8,545.60 18,030.40 16,199.70 16363.04
Expenditure -7,852.00 -16,911.20 -14,762.50 -14910.13
Operating Profit 693.60 1,119.20 1,437.20 1452.91
Interest -99.3 -44.2 -32.9 -31.26
Gross Profit 594.30 1,075.00 1,404.30 1421.66
Depreciation -216.3 -224.5 -226.3 -230.83
Profit before Tax 378.00 850.50 1,178.00 1190.83
Tax -62.5 -289.3 -400.2 -404.56
Net Profit 315.50 561.20 777.80 786.27
Equity Capital 5,516.90 5,516.90 5,516.90 5516.90
EPS 0.57 1.02 1.41 1.43
*A=Actual, E=Estimated
Charts
Comparative Graph
RCF BSE SENSEX
Outlook and Conclusion
• At the current market price of Rs.107.05, the stock trades at a P/E of 24.20x and 19.38x for
FY10E and FY11E respectively.
• On the basis of EV/EBDITA, the stock trades at 13.81 xs and 12.50 xs for FY10E and FY11E
respectively.
• Price to Book Value of the stock is expected to be at 3.08 and 2.66 respectively for FY10E and
FY11E.
• The Net sales of the company are expected to grow at a CAGR of 8% over 2008 to 2011E.
• We recommend ‘HOLD’ in this particular scrip with a target price of Rs.120.00.
Industry Overview
Fertilizer sector
� The Indian fertilizer industry has succeeded in meeting almost fully the demand of all
chemical fertilizers except for MOP. The industry had a very humble beginning in 1906,
when the first manufacturing unit of Single Super Phosphate (SSP) was set up in Ranipet
near Chennai with an annual capacity of 6000 MT. The Fertilizer & Chemicals Travancore
of India Ltd. (FACT) at Cochin in Kerala and the Fertilizers Corporation of India (FCI) in
Sindri in Bihar were the first large sized -fertilizer plants set up in the forties and fifties
with a view to establish an industrial base to achieve self-sufficiency in food grains.
Subsequently, green revolution in the late sixties gave an impetus to the growth of
fertilizer industry in India. The seventies and eighties then witnessed a significant
addition to the fertilizer production capacity.
� Fertilizer sector is a very crucial for Indian economy because it provides a very important
input to agriculture. The fertilizer industry in India has played a pivotal role in achieving
self – sufficiency in food grains as well as in rapid and sustained agriculture growth.
India is the third largest producer and consumer of fertilizers in the world after China
and the United States. The growth of the Indian fertilizer industry has been largely
determined by the policies pursued by the government. The government exercised
extensive controls on the pricing, distribution and movement of fertilizers. The industry
is capital intensive and the production process energy intensive with the combined cost
of feedstock and fuel accounting for anywhere between 55 and 80 per cent of cost of
production, depending on the type of fertilizers.
Determinants of Fertilize Demand
• Rainfall and irrigation facilities
• Relative prices of fertilizers
• Cropping pattern
• Government policies
Rising demand for fertilizers
� There has been significant growth in the consumption of fertilizers in last three years
due to overall good monsoon. The growth in NPK consumption was 9.50% in 2004-05,
10.60 % in 2005-06 and 8.40% per cent in 2006-07.Against the robust growth in
consumption, domestic fertilizer production has remained range – bound in the last
decades. The surge in fertilizers demand and stagnant to modest increase in production
has widened the gap between consumption and production causing larger dependence
on imports. Therefore, the rising demand for fertilizers is providing ample scope for the
companies in this sector to increase their production capacity and volumes thereby,
driving the growth of fertilizer sector.
� The installed capacity as on 30.01.2003 has reached a level of 121.10 lakh MT of
nitrogen (inclusive of an installed capacity of 208.42 lakh MT of urea after reassessment
of capacity) and 53.60 lakh MT of phosphatic nutrient, making India the 3rd largest
fertilizer producer in the world. The rapid build-up of fertilizer production capacity in the
country has been achieved as a result of a favorable policy environment facilitating large
investments in the public, co-operative and private sectors. Presently, there are 57 large
sized fertilizer plants in the country manufacturing a wide range of nitrogenous,
phosphatic and complex fertilizers. Out of these, 29 unit produce urea, 20 units produce
DAP and complex fertilizers 13 plants manufacture Ammonium Sulphate (AS), Calcium
Ammonium Nitrate (CAN) and other low analysis nitrogenous fertilizers. Besides, there
are about 64 medium and small-scale units in operation producing SSP
� The Indian fertilizer industry has come a long way since its early days post
independence. India today is one of the largest producer and consumer of Fertilizers in
the world. India’s production in terms of nutrients (N & P) reached a level of 155 lakh
MT in 2005-06 from 0.39 lakh MT in 1951-52. Similarly, consumption of fertilizers in
terms of nutrients (NPK) has also grown from about 0.66 lakh MT in 1951-52 to nearly
184 lakh MT in 2004-05.
� The Indian Fertilizer industry, given its strategic importance in ensuring self–sufficiency
of food grain production in the country, has for decades, been under Government
control. The Government has over the years, provided subsidies/ concessions through
the fertilizer companies to farmers and the manufacturers have been compensated
through various schemes. Though the Government control helped in meeting the
objective of ensuring creation of capacities and ultimately achieving self-sufficiency in
food grain production, it did not encourage improving efficiencies in the sector.
� Burgeoning subsidy bill and the need to focus on fiscal prudence, Government polices in
recent times are aimed at encouraging efficiencies in the sector. Policy measures like
the new pricing scheme have made the operations of less efficient players unviable. The
Government polices today are oriented towards achieving the stated objective of total
deregulation in the sector. However, the uncertainty over exact policy parameters and
absence of a comprehensive long term policy has not augured well for the industry. The
financial year 2006-07 began with practically no clarity on the policy parameters for
both nitrogenous and phosphatic fertilizers.
� Another important issue confronting the sector is with respect to the feedstock. Natural
gas which is the main feedstock for production of nitrogenous fertilizers is available in
limited quantities and the industry competes with the power sector for its share. With
the Government policy favoring conversion to gas based units, the demand for gas is
only expected to go up in the future, which may in turn lead to further shortages.
� The Indian fertilizer industry has come a long way since its early days post
independence. India today is one of the largest producer and consumer of Fertilisers in
the world. India’s production in terms of nutrients (N & P) reached a level of 155 lakh
MT in 2005-06 from 0.39 lakh MT in 1951-52. Similarly, consumption of fertilizers in
terms of nutrients (NPK) has also grown from about 0.66 lakh MT in 1951-52 to nearly
184 lakh MT in 2004-05. The Indian Fertilizer industry, given its strategic importance in
ensuring self– sufficiency of food grain production in the country, has for decades, been
under Government control.
� The Government has over the years, provided subsidies/concessions through the
fertilizer companies to farmers and the manufacturers have been compensated through
various schemes. Though the Government control helped in meeting the objective of
ensuring creation of capacities and ultimately achieving self-sufficiency in food grain
production, it did not encourage improving efficiencies in the sector. With the
burgeoning subsidy bill and the need to focus on fiscal prudence, Government polices in
recent times are aimed at encouraging efficiencies in the sector. Policy measures like
the new pricing scheme have made the operations of less efficient players unviable. The
Government polices today are oriented towards achieving the stated objective of total
deregulation in the sector. However, the uncertainty over exact policy parameters and
absence of a comprehensive long term policy has not augured well for the industry. For
instance, the financial year 2006-07 began with practically no clarity on the policy
parameters for both nitrogenous and phosphatic fertilizers.
� Another important issue confronting the sector is with respect to the feedstock. Natural
gas which is the main feedstock for production of nitrogenous fertilizers is available in
limited quantities and the industry competes with the power sector for its share. With
the Government policy favouring conversion to gas based units, the demand for gas is
only expected to go up in the future, which may in turn lead to further shortages.
Similarly, in the case of phosphates, on account of the limited availability of phosphoric
acid and rock phosphate in the country, domestic units are dependent to a large extent
on imports. In view of the limited availability of the main feedstock within the country,
fertiliser companies today are exploring the possibility of setting up joint ventures
abroad to tie up their feedstock requirements. Though a few joint venture agreements
have been signed with respect to supply of phosphoric acid, only a couple of joint
ventures have been established with respect to urea. Domestic players have also not
been able to enter into long term gas supply agreements primarily due to differences
over pricing.
_______________________________________ _____________
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