tracom march 2013

7/29/2019 Tracom March 2013

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Date : 22 March 2013

Tracom rESEarcH

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GDP gwth wees futhe t 4.5% Q3

The pace of economic growth weakened further in the thirdquarter after remaining in the range of 5-5.5% in the previous three

quarters, mainly on the back of growth moderation witnessed in the

services sector. Further, poor performance of agriculture, mining

and manufacturing sectors, also dragged the third quarter growth

numbers to over 3-year low. Though the widespread slowdown

could be seen across all sectors, weak growth seen in private

consumption spending, which contributes around 58% to overall

GDP, remained a matter of concern. Moreover, prevailing high

interest rates, declining rupee and slowing down of investment

played the major part in drying out the consumer sentiments.

With this, growth for the rst nine months of the current nancial

year came at 5% much lower than 6.6% growth witnessed in the

same period previous year.

On the supply-side front, growth in agricultural sector slowed

further to 1.1% in the third quarter as against 1.2% in Q2 of 2012-

13, and considerably lower than 4.1% in the same quarter previous

year, mainly due to unfavourable distribution and amount of

monsoon rainfall, which dampened yields of some crops. As per

the second advance estimates of crop production for the kharif

crop of 2012, the decline is expected in production of coarse

cereals, pulses, sugarcane, oilseeds, cotton and rice as against the

nal production gures if previous scal.

Reversing the trend so far followed by the industrial sector,

growth for the third quarter stood at 3.3% marginally higher than

2.7% in the previous quarter and 26% in the same quarter previous

year, mainly on the back of increase seen in manufacturing and

electricity. Growth of manufacturing improved to 2.5% in the third

quarter against 0.7% growth in the same period previous year and

0.8% in the previous quarter. Even data from the IIP showed that

there was considerable improvement when compared with a 8%contraction seen in the previous quarter against 1% de-growth

in the third quarter. The input of manufacturing to GDP growth,

however remained low at 0.4% in the third quarter.

Economic analySiS

Performance of electricity, gas & water supply too, improved

moderately to 4.5% in Q3 from 3.4% recorded in the previous

quarter, however remained comparatively lower to the 7.7%

growth witnessed in the same quarter previous scal, below-

average monsoon rainfall, which extremely affected the growth of

hydroelectricity generation on a yearly basis and thereby affecting

power supply to industrial sector. Similarly, mining and quarrying

sector, though recording a de-growth of 1.4% in the third quarter,

showed improvement against 2.6% decline witnessed in the same

quarter last scal, mainly reected due to subdued growth of coal

output and worsening de-growth of natural gas output, which

were mainly on the back of the continuing ban on iron ore mining

in some states.

The economys another bellwether, services sector moderated to

6.1% in the third quarter from 7.2% in the previous quarter and

8.3% in the same quarter previous scal. Similarly, contribution

of services to GDP growth declined to 76% of the reporting period

from 83% in record in the previous quarter. The weakness mainly

contributed by further downturn seen in trade, hotels, transport

and communication at 5.1% as against 6.9% in the same quarter a

year-ago. Similarly, the nancing, insurance, real estate & business

services sector witnessed an all-time low growth of 7.9% in the

quarter against 9.4% in the previous quarter and comparativelylower than 11.4% in the same quarter a year before. Even growth

of community, social & personal services segment slowed to 5.4%

for the reporting quarter.

Private nal consumption expenditure improved to 4.6% as against

3.7% seen in the previous quarter, however substantially weaker

when compared with 9.2% growth recorded in the same quarter

a year-ago, which shows that purchasing power still remains

subdued, though consumer sentiments improved somewhat in

recent months. The growth in gross xed capital formation as a

percentage of GDP stood at 32.4% in the third quarter, as against

31.8% growth in the same quarter last scal.

On the whole, with across the board slowdown and continued

contraction witnessed in mining growth, overall growth came at

15-quarter low-level, highlighting continuing signs of slowdown

and high interest rates. However, showing a remarkable increase

in the months of January and February, the manufacturing PMI,

signaled a likely turnaround in the manufacturing activity, though

sustainability remains doubtful. Further, risks emanating from the

US and Euro-zone, may affect the growth going forward, mainly

exports which will remain subdued given low growth in the US

and Europe, despite a weaker rupee.

On the agricultural front, favourable rainfall in the enduring

quarter and prospects of rabi crop appearing to be somewhat

Special repot

Gowth tends in majo sectos (%)

-8

-6

-4-2

0

2

4

6

8

10

12

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Manufacturing Electricity

Headline Inflation IIP Growth

Mining


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better, growth in the fourth quarter is expected to improve. As

a result, mild recovery seen in industrial activity and expected

improvement in service sector activity, may help the GDP growth

to show some improvement in the upcoming quarter. Further, the

sluggish growth witnessed in Q3 may prompt the Reserve Bank of

India (RBI) to to cut the repo rate in the mid-quarter policy review

in March, which may improve the business sentiments.

Inaion acclras marginall o 6.8% in Fb;rmains blow 7-prcn mark

Snapping trend of four consecutive monthly declines, ination

based on the wholesale price index (WPI) for the month of

February rose marginally to 6.8%, however remained below the

psychological 7-percent mark. The price rise was mainly on the

back of upward revision of diesel prices and further decisionto adjust prices on a monthly basis by the government, though

prices in other major categories was on a softening pace. Ination

for the month of December was revised marginally upwards to

7.3% as compared to earlier estimates of 7.2%, mainly revealing

the impact of fuel price hike. So far in the nancial year, build-up

ination was 5.7% as against 6.6% in the same period a year ago.

Further, receding for the sixth straight month, core ination for

the reporting stood at 3.8% as against 4.1% in the previous month,

mirroring the slowdown in prices of commodities.

On the other hand, coming in sharp contrast to WPI, ination

based on the consumer price index (CPI) accelerated to 10.9% in

February from 10.8% in the previous month - the fth consecutive

monthly rise. The upward pressure was mainly due to higher

prices of vegetables, edible oil, cereals and protein-based items,

which kept the retail ination in the double-digit terrain for

the third successive month. The highest price-rise of 21.3% was

witnessed in vegetable basket followed by cereals 17%, egg, meat

and sh by 15.7% and pulses by 12.4%. On the whole, food prices

increased by 13.7% for the reporting month against 13.36% in the

previous month. Further, in urban areas, retail ination rose to10.8% in February from 10.7% in the previous month and for rural

areas, it increased to 11% for the month. The rising difference

between WPI and CPI ination is mainly due to higher weightage

of food articles, which until and unless supply side constraints are

solved, are unlikely to come down anytime soon.

Pric-ris across produc groups:

Ination related to fuel & power group rose sharply to 10.5%for the reporting month as against 7.1% in January, mainly

due to price-rise seen in LPG, high speed diesel and petrol,

mirroring the recent increase in fuel prices.

Ination related to non-food manufacturing products alsotermed as core ination continued its declining trend for the

sixth consecutive month to 3.8% as compared to 4.1% in the

previous month.

Mineral ination moderated to 0.6% in February against 2.1%in the previous month, mainly due to decline witnessed in

copper and iron ore prices.

Ination related to primary food articles eased slightly to11.4% for the reporting month from 11.9% in January, mainly

on the back of decline seen in prices of vegetables (4.3%),

pulses (2.7%) and fruits (0.7%).

Ination for primary non-food items too softened to 10.1% forthe month as compared to 10.5% in January, reecting decline

prices of oilseeds (23.4%).

Ination related to manufactured food products remained

steady at 8.2% in February, primarily led by a fall in prices ofsugar (1.3%) and edible oils (0.6%).

Overall food ination including primary and manufacturingremained relatively rm at 10.2% in February.

The trend reversal in the ination number was mainly due fuel

and power category, which paced higher to 10.5% for the reporting

month against 7.1% seen in the previous month, primarily

reecting the lagged impact of fuel price hike effected in January

and subsequent months. The price-rise in LPG component was the

highest at 26.2% followed by high speed diesel, petrol, kerosene,

ATF, which gained pace. The government, in a move that could

drastically trim its budget-busting subsidy bill, allowed the state-

run oil marketing companies to raise the price of subsidised diesel

in small amounts every month and capping of subsidized LPG

cylinders to 9 per household.

The impact of Rs 0.45 per litre diesel price hike has nally entered

the system, fuelling the overall ination. Apart from this, even the

transporation cost are also revised on account of the higher fuel

costs. Not only this, full impact of the diesel price hike is yet to

come, which will get passed in the subsequent months. Moreover,

the movement of international crude oil prices and rupee would

also impact the ination route going forward.

Similarly, food ination for the month though moderating,

remained in the double-digit zone at 11.4%, mainly highlighting

WPI / CPI Inflation

0

2

4

6

8

10

12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

WPI Inflation CPI Inflation


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the prevailing supply-side and institutional pricing constraints.

Further, estimation of lower production of vegetables, cereals,

pulses and oilseeds in the current year owing to severe winter

in the northern food producing states, is also likely to impact the

prices going forward. On the other hand, the decline in non-food

articles ination mainly in the prices of oil seeds and minerals

have led to the overall decline in ination.

Inaions monhl rnd:

12-Nov 12-Dc 13-Jan 13-Fb

Primary Articles 9.4 10.6 10.3 9.7

Food Articles 8.5 11.2 11.88 11.4

Fuel & Power 10 9.4 7.1 10.5

Manufactured Products 5.4 5 4.8 4.5

All Commodities 7.2 7.1 6.6 6.8

Ination related to manufactured products also eased to 36-

month low level of 4.5% for the reporting month from 4.8% in the

previous month, mainly due to moderation seen in prices of global

commodity and the continuing subdued demand conditions.

Moderation in both its food and non-food components led to the

decline. Further, indicating moderation of demand side pressures,

the non-food manufacturing component of ination also called

as core ination eased to 3.8% as compared to 4.1% in January,

reecting the fall in commodity prices - sixth consecutive decline.

On the whole, ination based on WPI though remained below the

psychological 7-percent mark, increased owing to upsurge seen

in fuel prices. However, going forward trend is likely to be on the

declining side with prices of vegetables and pulses expected to

continue its softening tendency, though drastic changes are not

expected with a lower production estimation. More than that, core

ination continuing its declining trend and food ination being

supply driven and not owing to excess demand, is the most cooling

factor for the policy makers. On the other hand, the retail ination

measured by the CPI with its persistent upward movement is also

likely to come down, but will remain in the double-digit zone

going ahead.

Indusrial growh rbounds o 2.4% in Januar;shows signs of rcovr

After remaining in negative territory for two consecutive months,

industrial growth rebounded in January to 2.4% as against a revised

de-growth of 0.5% in the previous month, mainly on the back of pick-

up in manufacturing output, further signaling improvement in the

underlying trend. Though continued contraction is witnessed in

capital goods and consumer durables output, which is dampening

the industrial outputs further upmove, thereby highlighting the

continued weakness of investment activity. Further, the existing

high interest rate scenario and varied consumption pattern due to

high ination, continue to affect the overall industrial output. On

a collective basis, growth in April-January period of current scal

expanded by 1% as compared to 3.4% in the same period a year

ago. Similarly, growth in eight core industries also registered a

growth of 3.9% in January as against 2.5% growth in the previous

month.

Scoral Prformanc:

Manufacturing sector, which accounts for 75.5% of the overallindex, registered a growth of 2.7% for the reporting month as

against a de-growth 0.5% in the previous month. In terms of

industries, sub-sectors displaying growth leveled at 11 and

sub-sectors undergoing contraction stood at 11 in January.

Amongst the 22 industry groups, electrical machinery &

apparatus recorded the highest growth of 46.7%, followedby tobacco products by 19.8%, wearing apparel, dressing and

dyeing of fur with 18.1%. On a collective basis, growth in

April-January period witnessed a growth of 0.9% as against

3.7% in the same period the previous scal.

Contracting further for the reporting month, mining &quarrying output declined by 2.9% as compared to a contraction

of 2.1% in the previous month, mainly on the back of regulatory

and environmental issues, which is still continuing to plague

the mining sector. However, on a cumulative basis, the pace of

contraction for the rst 10-month of the scal eased to 1.9% as

against a de-growth of 2.5% in the same period a year ago.

Showing a marked improvement, electricity output expandedby 6.4% for the reporting month as against 3.2% in January.

However, the pace of growth on a collective basis, slowed to

4.7% for the rst 10-month of scal from 8.8% growth in the

corresponding months a year ago.

Prformanc in h Us-basd cagor:

Reecting the persistent weakness in the investment cycle,capital goods sector again registered a negative growth of 1.8%

for the reporting month against a revised 0.6% in the previousmonth and de-growth of 2.7% a year ago, further signifying

that investment demand is yet to pick up. On a collective

basis, the sector showed a dismal performance amongst us-

based categories with output contracting by 9.3% in the April-

GDP at factor cost

-4

-2

0

2

46

8

10

12

Q3 2011-12 Q4 2011-12 Q1 2012-13 Q2 2012-13 Q3 2012-13

GDP at factor cost mining & quarrying

electricity, gas & water supply construction

agriculture, forestry & fishing manufacturing

t rade, hotels, transport financ ing, ins. , real est . & bus.


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January period against a 2.9% fall in the same month a year

ago.

Recovering some lost ground, intermediate goods expanded

by 2% for the reporting month from a revised 0.7% in theprevious month, mainly on the back of pickup in the pace of

growth of renery products. Output for the rst 10-month of

scal registered a positive growth of 1.7% against a contraction

of 0.8% in the same period of last scal.

Output of consumer durables though remained in negativezone, the pace of contraction eased substantially to 0.9% in

January against a fall of 8.2% in the previous month, mainly

reecting the impact of high interest rate. On a cumulative

basis, output somewhat eased to 3.2% against 3.7% witnessed

in the same period a year ago.

Coming in contrast, consumer non-durables output witnessedan expansion of 5.3% for the reporting month against de-

growth of 0.4% recorded in December 2012. However, output

during April-January period witnessed a moderate growth of

2.3% as compared to 6.6% growth in the corresponding months

a year ago.

Basic goods also registered a growth of 3.4% in January againsta revised 1.8% in the previous month. On a cumulative basis,

growth stood at 2.8% for the rst ten months of the scal

against 5.8% growth in the corresponding months of the

previous year.

On the whole, industrial growth for the reporting month have

come in better than expected, reecting a pickup in manufacturing

activity and good show by the electricity sector. Though some

signs of recovery is seen, but it would be too early to presume

that the slowdown has bottomed out and recovery is around the

corner. Similar is the case with the HSBC manufacturing PMI,

which increased to 54.2 in February up from 53.2 in January,

which also shows that the slowdown in growth is bottomingout, but how long it sustains remains a question. Apart from

manufacturing and electricity, consumer goods output moving

into the positive territory for the month, after showing de-growth

in the last two months, indicates a turnaround in consumption

demand. On the other hand, continuous fall in capital goods

output signifying that investment demand is yet to pick up and

slowing consumer demand, as seen by the steepest fall in car sales

in 12-year remain a cause for concern. Meanwhile, data released

by the SIAM showed commercial vehicles registered a de-growth

of 24%, followed by passenger vehicles (8%) and two-wheelers

(1%) in February. Taking a view of this, IIP growth is expected to

perform somewhat better in the remaining months of the current

nancial year, however, in view of low base, output may record a

lower growth for the upcoming month.

RBIs Mid-Quarr Monar Polic Rviw:mh 2013

Much in-line with the streets expectation and based on an

assessment of the current macroeconomic situation, the ReserveBank of India (RBI), in its mid-quarter monetary policy review,

slashed key interest rates for the second time year this year by 25

basis points to 7.5% and consequently the reverse repo, determined

at a spread of 100 basis points, was revised to 6.5%. Marginal

Standing Facility (MSF) and bank rate have been revised to 8.5%,

lower than the 8.75% prior to the rate cut. However, left the cash

reserve ratio (CRR) unchanged at 4%, since a major section of

market partakers were expecting a cut in this section, mainly on

the backdrop of liquidity tightness. Banks on an average have

been borrowing more than Rs 1 lakh crore on a daily basis fromRBIs Liquidity Adjustment Facility (LAF) facility, which is way

above its comfort zone. The apex bank had slashed the CRR by

25 basis points in the last policy review in January. On the other

hand, moderating core ination and slowing economic growth

prompted the RBI to go in for a repo rate-cut this time, which

would help to reduce the cost of borrowing for individuals and

corporate, provided banks pass-on the benets to end-users.

RBIs Polic Dcision

Short-term lending rate called repo lowered by 25 bps to 7.50%from 7.75%

Reverse repo rate and Marginal Standing Facility (MSF) ratestands automatically lowered by 25 bps each to 6.50% and

8.50% respectively.

CRR unchanged at 4% and SLR unchanged at 23% of NDTL.

RBIs Polic Sanc

Leaving the hawkish monetary policy stance, the apex bank for

the second time this year, slashed the repo rate, which was much

in-line with the streets expectation. Further, slowing economic

growth, along with recent moderation in WPI numbers, mainly

the core ination and governments move headed for scal

consolidation have prompted the apex bank to shift its stance

to support growth, while remaining cautious on inationary

expectations. However, what came as a disappointment, was

the RBI leaving CRR unchanged, since liquidity conditions have

remained comparatively tight after the apex bank Q3 policy

review.

This time also the RBI clearly reinstated its stance to boost growth

and also emphasized on addressing growth risks emanating fromglobal as well as domestic fronts. However, going forward as per

the RBI, the headroom for further easing is quite limited given

the elevated food ination, recent change in fuel prices, increasing

wedge between WPI & CPI and high current account decit.


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Rashria Chmicals and Frilirs - Bu

Invsmn ovrviw

RCF a government of India undertaking is a leading producerof Fertilizers in the country.

The companys effort to de-bottleneck the Thal unit helped itreport an improved operational performance.

The company has announced a joint venture ammonia-ureaplant at Ghana, which will be commissioned by 2016-17.

RCF will be able to reap benets under the Import Parity Pricebased pricing mechanism for extra production

Businss Ovrviw

Rashtriya Chemicals and Fertilizers (RCF) a Government of India

undertaking was incorporated on 6th March, 1978 and it came into

being as a result of the re-organization of the erstwhile Fertilizer

Corporation of India Limited. At the time of its formation, the

company had one operating unit, viz. Trombay (old plants)

and two major projects under implementation viz. Trombay IV

expansion and Trombay V expansion, besides the West, South

Marketing Zones and the Bombay Purchase and Liaison ofce.

RCF was the rst fertilizer company in India to commission a

green eld, mega fertilizer complex at Thal-Vaishet in the state

of MaharashtraRCF is one of the leading producers of Fertilizers in India. Sujala,

Suphala 15:15:15, Suphala 20:20:0, Ujjwala, Microla and Biola are

its major fertilizers

RCF has a total installed capacity of about 10.54 lakh tonnes of

Nitrogen and 1.17 lakh tonnes of P2O5 and 0.45 lakh tonnes of

K2O.Besides fertilizers, the Company also produces a number of

industrial chemicals such as Methanol, Concentrated Nitric Acid,

Methylamines, Ammonium Bicarbonate, Sodium Nitrate/Nitrite,

DMF, DMAC, etc.

RCF pioneered the manufacture of basic chemicals such as Methanol,Sodium Nitrate, Sodium Nitrite, Ammonium bicarbonate,

Methylamines, Dimethyl Formamide, Dimethylacetamide in India.

Today R.C.F is the only manufacture of DMF in India. Product

characteristics, consumer needs, economy to the consumers and

safety are the primary considerations in determining the type of

packaging and modes of transportation for each of the products.

Financial Halh

For the third quarter ended December 31, 2012 RCF reported a

37.13% rise in its net prot at Rs 73.98 crore for the quarter as

compared to Rs 53.95 crore for the same quarter in the previousyear. However, total income from the operation of the company

decreased by 3.04% at Rs 1567.83 crore for the quarter under

review as compared to Rs 1617.05 crore for the quarter ended

December 31, 2011.

Stock Data 22/03/13

Current Mkt Price (Rs) 36.05

52 Week High 66.95

52 Week Low 36.55

Mkt Cap (Rs. in Cr) 1997.11

Return in last one Month (%) -30.94

Share Holding

Performance in last one year

comPany rESEarcH

Y-o-Y Performance

(Rs. in Cr..)

Particulars Mar 2012 Mar 2011 Change(%)

Net Sales 6433.71 5524.43 16.46

Other Income 166.73 174.91 -4.68

Total Expenditure 6031.02 5159.52 16.89

Operating Prot 569.42 539.82 5.48

Interest 52.53 72.57 -27.61

Prots After Tax 248.83 244.71 1.68

Reserve & Surplus 1617.86 1458.80 10.90

Reported EPS(Rs) 4.51 4.44 1.68

Core EBITDA Margin (%) 6.16 6.53 -5.54


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Segment wise, Trombay units revenue declined by 5.77% to Rs

612.98 crore, while Thals unit revenue improved considerably by

37.32% to Rs 688.73 crore. On the other hand the revenue from

Trading segment plunged by 43.48% to Rs 260.98 crore.

Indusr Scnario

India is primarily an agriculture based economy with around

60 percent of the population dependent on them. The Indian

Fertilizer Industry is one of the allied sectors of the agricultural

sphere. With the development of fertilizer industry, Indian

agricultural development has been made possible. It has played

a vital role in the green revolution. India has emerged as the third

largest producer of nitrogenous fertilizers. The adoption of back

to back Five Year plans has paved the way for self sufciency in

the production of food grains. In fact production has gone up to

an extent that there is scope for the export of food grains. Thissurplus has been facilitated by the use of chemical fertilizers.

Today, India stands as the second largest consumer of fertilizers

behind China.

The Indian fertilizer sector is the one of the most regulated sectors

in India. It consists of two key segments - urea fertilizer and non

urea fertilizers. Within these two segments, the urea fertilizer

accounts for around 50% of the total fertilizer consumption, being

regulated by the government as the price and the subsidy is xed

by the government. While, the non urea segment, which consists

the DAP, complex NPK and MOP fertilizers, functions under a

xed subsidy and variable pricing freedom being granted by the

government since April 2011. The subsidies on Indian fertilizer

have been rising at a constant rate. This is due to the rise in the

cost of production and the inability of the government to raise the

maximum retail price of the fertilizers.

Infrastructure constraints have been hindering the growth

of the fertilizer sector in India. While, Most ports face severe

capacity constraints in handling high volumes on a sustained

basis, the Railway facilities and port-rail connectivity need to be

strengthened signicantly. The movement of fertilizers has so far

been traditionally done through rail and road mode. To provide

a supplementary and alternative mode of transport, Department

of Fertilizers (DOF) is now considering use of Inland Waterways

especially National Waterways for transporting fertilizers. In a

recent development the Inland Waterways Authority of India

(IWAI) has invited expression of interest (EOI) for multimodal

transportation of fertilizers between Haldia and Patna on National

Waterway1. With this, the fertilizers transportation is set to enter

a new phase.

Las dvlopmns:

The government has garnered about Rs 310 crore by divesting

12.5 per cent of its stake in Rashtriya Chemicals and Fertilizers

Ltd through an offer for sale. The auction, in which 69 million RCF

shares were sold, was subscribed 1.3 times the number of shares

on offer. Most bids were at Rs 45.02, against the minimum offer

price of Rs 45 a share.

Prot & Loss

(Rs. in Cr..)


Net Sales 6433.71 5524.43 16.46

Total Income 6600.44 5699.34 15.81

Total Expenditure 6031.02 5159.52 16.89

Operating Prot 569.42 539.82 5.48

Prots After Tax 248.83 244.71 1.68

Balance Sheet

(Rs. in Cr..)


Share Capital 551.69 551.69 0.00

Reserve & Surplus 1617.86 1458.80 10.90

Total Liabilities 5658.88 3787.73 49.40

Investments 0.00 0.00 0.00

Current Liabilities 530.37 142.87 271.23

Net Current Assets 1108.20 1030.67 7.52

Total Assests 5658.88 3787.73 49.40

Financial Key Ratios

Particulars Mar 2012 Mar 2011

Reported EPS (Rs) 4.51 4.44

Core EBITDA Margin (%) 6.16 6.53

EBIT Margin (%) 6.53 7.63

ROA (%) 5.27 5.81

ROE (%) 11.91 12.73

ROCE (%) 14.27 14.93

Price/Book (x) 1.44 2.18

Net Sales Growth (%) 16.46 -2.09

EBIT Growth (%) -0.06 3.05

PAT Growth (%) 1.68 4.43

Total Debt/Mcap (%) 0.41 0.12

Q-o-Q Performance

(Rs. in Cr..)

Particulars Dec 2012 Dec 2011 Change(%)

Net Sales 1567.83 1595.45 -1.73Expenditure 1438.5 1523.09 -5.55

Other Income 15.94 38.89 -59.01

EBITDA 145.27 111.25 30.58

Interest 14.44 0.25 5676.00

Net Prot 73.98 53.95 37.13

EBITDA Margin (%) 9.06 6.83 32.60

NPM (%) 4.61 3.31 39.25

EPS 1.34 0.98 37.13


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Invsmn Raional

Rashtriya Chemicals and Fertilizers, a leading urea producer, also manufactures complex fertilisers and industrial chemicals reported37 per cent increase in its net prot for the quarter ended December 31, 2012. Total expenditure of the complex fertiliser producer also

declined to Rs 1,469.36 crore from Rs 1,560.93 crore in the reviewed period. However, total sales of the company fell by almost 3 per cent.

The companys effort to efforts to de-bottleneck the Thal unit helped it report an improved operational performance for the quarter.

Though, poor sales impacted the prot at Trombay unit. Trading business revenue too came lower as the company substantially scaled

down the trading business due to low demand for agriculture inputs and constraints at ports, though the business turned protable for

the quarter after reporting a loss of Rs 29 crore in the same quarter last year on a mark-to-market hit.

RCF has a diversied product portfolio and manufactures various Fertilizers and Chemicals which have a high degree of brand recalland patronage. It enjoys a 10.7% market share in Urea Sector and its Urea is sold under the popular brand name Ujjwala. While it holds,

5.4% market share of Complex Fertilizers, which are sold under the brand name Suphala. RCF produces complex fertilizers under

the 15:15:15 & 20:20:0 Grades. It is also into the Specialty Fertilizers, sold as Bio-Fertilizers (Biola), Micronutrients (Microla) and Water

Soluble Fertilizers (Sujala). The companys industrial chemicals portfolio comprises 15 products such as methanol, ammonium nitrate,

nitric acid and methylamines. The diversication gives the company an edge over its peers in case the protability in one of the fertilizer

business is at risk.

Rashtriya Chemicals & Fertilisers has embarked on a major expansion at its Thal unit at a cost of Rs 4,112.5 crore. The company hasbeen mooting setting up additional streams of ammonia and urea which will add 12.7 lakh MT per annum of urea capacity at a cost of

Rs 4,112.5 crore. Through the global bidding process, the company has already selected the contractor to set up the plant on lump sum

turnkey basis (LSTK). The company is also in the process of lining up other construction and project management consultancy contracts

and expects to start process design and construction work on the project in May. The company has also announced a joint venture

ammonia-urea plant at Ghana, which will be commissioned by 2016-17 and a 5 lakh tonne single super phosphate plant at Thal among

others. The total outlay for these projects is estimated at Rs 18,700 crore. The Thal browneld expansion is likely to be favourable, but

the large debt-funded capex may stretch the capital structure of the company in the medium term.

On the concern side the under-provisioning of subsidies is costing fertilizer companies dearly. For the next scal year, the budget hasprovided Rs 65,971 crore toward fertilizer subsidies, marginally lower than the Rs 65,974 crore in the current nancial year. But even

going by the conservative estimates the fertilizer subsidy bill comes at around Rs 90,000 crore for the year to March. The quantum of

subsidy is the function of fertilizer consumption and represents the difference of the normative delivered cost of fertilizer and noties

selling price of fertilizers. In the current scal year, the budgeted amount for fertilizer subsidy was exhausted by the end of the second

quarter. While, most companies have not received any payout from the government for last few months. RCF is borrowing from the

market to nance delayed payments. Due to a rise in borrowings, RCFs nance costs have more than doubled in the nine months

beginning April 2012 from a year earlier. Due to delay in payment, it is becoming increasingly difcult for the fertiliser companies to

make payment for the feedstock for want of working capital.

At the CMP of Rs 36.05, RCF is trading at a TTM P/E of 7.21x and 4.18x respectively, we recommend BUY in the scrip with a price targetof Rs 45. Though, the price has corrected a lot since OFS but considering the companys performance of consistent prot making and

dividend paying one since inception, we are hopeful of recovery soon. It holds a diversied portfolio with additional revenue streams

from bulk industrial chemicals and is also engaged in trading of fertilizers. The company has recently completed a major revamp of its

plants at Thal which has increased its urea capacity from 17 lakh MT per annum to 23 MT per annum. The revamped plants have been

commissioned and have already achieved the day-to-day high capacity and low energy consumption targets. The company will be ableto reap benets under the IPP (Import Parity Price) based pricing mechanism for extra production beyond the cut-off capacity in the

current scal. As it allows manufacturers to sell a portion of production at reassessed capacity to the farmers freely in any part of the

country.

* EPS & P/E latest (Rs in crore)Pr group comparison:

Company Year End Net Sales PBDIT PAT PATM% EPS P/E*

RCF 201203 6433.710 402.71 249.24 3.87 4.52 7.20

Tata Chemicals 201203 7987.28 1051.99 586.60 7.34 23.03 12.08

Coromandel Interntl. 201203 9823.27 1061.30 693.27 7.06 24.53 10.03

National Fertilizers 201203 7305.29 307.67 126.73 1.73 2.58 0.00


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Fertilizer industry plays the important role in making the country

self-reliant in food grain production. The Indian fertilizer sector

is the one of the most regulated sectors in India and also the

allied sector of agriculture sphere. At present, the Indian fertilizer

industry consists of two key segments - urea fertilizer and non

urea fertilizers. Within these two segments, the urea fertilizer

accounts for around 50% of the total fertilizer consumption,

regulated by the government as the price and the subsidy is xed

by the government. While, the non urea segment, which consists

the DAP, complex NPK and MOP fertilizers, functions under a

xed subsidy and variable pricing freedom being granted by the

government since April 2011. Today, India stands as the second

largest consumer of fertilizers behind China.

N, P, K Frilirs

The fertilizers contain the three basic nutrients for agriculture:nitrogen (N), phosphorous (P) and potassium (K). India lacks

potassium resources and has to entirely depend upon import for

meeting the requirement of potassium fertilizers for agricultural

usage. The country is also decient in phosphatic (P) resources with

around 90% requirement of it is being met through direct import

of nished phosphatic fertilizers or phosphatic raw materials for

indigenous production of phosphatic fertilizers. While, N is the

only fertilizer, the requirement of which is largely (around 80%)

met through the domestic production. The annual consumption

of fertilizers, in nutrient terms (N, P & K ), has increased from

0.07 million MT in 1951-52 to more than 29 million MT in 2011-

12 and per hectare consumption, has increased from less than1 Kg in 1951-52 to the level of 135 Kg now. The consumption

of nutrients (N,P,K) have been increasing sharply over the past

years leading to increasing import dependence towards meeting

the requirement of fertilizers in the country. On the other hand,

there has been no signicant investment in the fertilizer sector in

the last several years, which led to stagnant domestic fertilizers

production capacities. Currently, around 38 per cent of the total

fertilizer consumption is fullled through imports.

Sgmnal Analsis

Ue

Urea is the most important fertilizer in the country because of

its high content (46%N) and constitutes about 78 percent of thetotal nitrogen consumption in the country. In India, urea is the

only fertilizer, whose 80% demand is met through the domestic

production. However, this segment of the industry is facing the

unfavorable demand supply situation. India was self sufcient in

urea till 2001-02, but with the rising demand and the lack of major

investments, domestic demand has outpaced the production.

Over the past ve years (FY08-FY12), urea production growth

was remained stagnant. In FY12, urea production was 22.05

million tonnes, which increased at a low average growth rate

of 1.74 percent of the past ve years, whereas, the consumption

has increased by 4.09 percent average growth rate to 29.7 million

tonnes in FY12. Stagnant production growth vis-a-vis rising

consumption trend has led to the rise in the urea import. In FY06,

urea import was 9 percent of the consumption, which increased

to 27 percent of consumption in FY12, reecting low investment

in the urea sector. Presently, the gap between the production and

consumption is around 6 to 8 million tonnes. However, the gap is

expected to reduce in the future because of the implementation of

new urea policy, 2012.

D au Phsphte (DaP)Diammonium phosphate is the worlds most widely used

phosphorus fertilizer. It constitutes 20 percent phosphorus and 46

percent of its composition with oxygen. DAP constitutes the 39

percent of the total fertilizer imports. Over the past ve years (FY08-

FY12), DAP consumption increased by 7 percent at an average

growth rate and import increased by 20 percent of average growth,

while production growth declined by 1.9 percent average growth

of the past ve years, reecting the low indigenous capacities for

DAP due to the raw material constraints and their international

pricing levels. In comparison to the rising consumption, the DAP

production is expected to remain stagnant due to lack of raw

material, as since 2010, the rising price trend of DAP has beenaffecting its consumption. In FY12, DAP consumption declined by

8 percent to 10.2 M.Tonnes from 11.1 M. Tonnes in FY11.

mute f Ptsh (moP)

Muriate of Potash is the most common potassium source used in

the agriculture with its nutrient composition of approximately

SeCtOR OUtLOOK : FeRtILIzeR INDUStRy

Imports, Consumption & Production

0.00

5.00

10.00

15.00

20.0025.00

30.00

35.00

FY07 FY08 FY09 FY10 FY11 FY12

M.Tonnes

Imports Consumption Production

Di Ammonium Phosphate (DAP)

0.00

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4.00

6.00

8.00

10.00

12.00

FY06 FY07 FY08 FY09 FY10 FY11 FY12

M.

Tonnes

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$

/Tonne

Production Consumption Import Price

Urea

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M.Tonnes

Production Consumption Import


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potassium 50% and chloride 46%. While, the country does not have

potassic (K) resources and has to entirely depend upon import for

meeting the requirement of MOP. In FY12, the MOP consumption

declined by 22 percent to 3 MT, from 3.89 MT recorded in the

FY11. Rising prices of the MOP and declining subsidy in the nonurea sector were the major reasons for the contraction in MOP

consumption.

Frilirs Subsid

The quantum of subsidy is the function of fertilizer consumption

and represents the difference of the normative delivered cost

of fertilizer and noties selling price of fertilizers. However,

increase in fertilizer subsidy has become a major concern for the

government due to its rising scal decit.

In the FY12, the government subsidy for urea was Rs. 32,398 crore,

which increased by 18.45 percent average growth rate of the past

ve years (FY08-FY12). While, for non urea fertilizers, the subsidy

amount was Rs. 28,576 crore in nancial year 12, too showing therising trend. The increase in fertilizers subsidy has been partially

due to increase in consumption of fertilizers and mainly due

to sharp rise in price of fertilizer inputs and nished fertilizers

leading to increase in normative delivered cost of the subsidizers

fertilizers at farm gate level.

Over the last ve years, the increase in Indian imports with the

stiff demand-supply conditions of fertilizers in the international

market has led to a sharp rise in international prices of nished

fertilizers and fertilizer inputs. However, international prices of

fertilizers and raw material creeping higher in 2008-09, led to the

massive amount of subsidy in that year.

Nw Ura Invsmn polic, 2012

In order to incentivise capacity creation in the urea segment, the

Cabinet Committee of economic Affairs (CCEA) approved the

new urea investment policy on December 13, 2012. The new urea

policy, aims to attract fresh investment of about Rs.35,000 crore

to increase domestic production by eight million tonnes. Under

the new policy, the government will give 12-20 percent post-tax

return on fresh capital infused by the manufacturers for setting up

of new plants as well as for expansion and revamp of the existing

ones. To ensure this return, the government would also cover the

entire cost of natural gas, which is the main feedstock of urea,and accounts for 80 per cent of the cost. In determining the cost of

production of new plants to be set up after the policy comes into

effect, the government has set a oor and ceiling price of urea,

based on the price of natural gas plus 12-20 percent equity returns.

It also proposed for covering the subsidy on gas price within the

range of $6.5-14 mmBtu.

issues d ces f the set

Unbalancd Us of Frilirs: In India, while, the consumption

of N, P and K fertilizers have been increasing, the ratio of use of

nutrients remains imbalanced. The use of nitrogen is much more

as compared to other nutrients. In order to get maximum yield

and maintaining the soil fertility, all essential nutrients must besupplied in required quantity and in balanced proportion. So, there

is need to give more attention to the balanced use of fertilizers.

Lack of Invsmn in Frilir Scor: There has been no

signicant investment in the fertilizer sector in the last several

years, which led to stagnant domestic fertilizers production

capacities in comparison to the rising consumption. Thereby, an

urgent need is being felt to encourage investments in the fertilizer

sector to promote domestic production of all major nutrients.

Rising Frilir Subsid: Due to increase in consumption of

fertilizers as against the stagnant domestic fertilizer production

and sharp rise in the price of fertilizer inputs and nishedfertilizers the fertilizer subsidy over the past many years has been

increasing.

technological and R&D issues: Indian fertilizer industry is lacking

technology and R&D inputs as compared to developed countries,

which reects the need of high capital investment into the sector.

out

The fertilizer industry is one of the vital industry for the Indian

economy as it manufacture a very critical raw material for

agriculture which is the major occupation in the country. With

the improving farm economics and rising thrust on irrigation, the

consumption of fertilizers has been increasing sharply leading toincreasing import dependence towards meeting the requirement

of fertilizers in the country, as there has been no signicant

investment in the fertilizer sector in the last several years. However,

in the near term, the urea production is expected to improve

with the implementation of the new urea policy whereas for non

urea sector the stagnancy in domestic production would remain

because of the constraints in the availability of raw materials.

Since major demand for non-urea fertilizer is met through imports,

decreasing subsidy levels and weak rupee have increased the farm

gate prices of non-urea (DAP, MOP) fertilizers, thereby affecting

demand. Further, in order to contain overall fertilizer subsidies,

the government is likely to continue to reduce Nutrient basedSubsidy (NBS) rates in FY14 and beyond, which may necessitate

further increase in MRPs and is indicting a challenging time ahead

for non-urea fertilizers. There is an urgent need to balance the use

of urea and non-urea fertilizers, which will be helpful for the soil

conditions.

Muriate of Potash (MOP)

0

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$/Tonne

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M.Tonnes

Consumption Prices

Fertilizer Subsidy

0

10000

20000

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50000

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90000

FY07 FY08 FY09 FY10 FY11 FY12

M.Tonnes

Urea Non Urea Total Fertilizers Subsidy


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Dpak Frilirs & Prochmicals

cpt

Deepak Fertilizers & Petrochemicals is one of the leading

manufacturers of industrial chemicals and fertilizers in India. It

is a multi-product Indian conglomerate with an annual turnover

of over $300 million with a multi-product portfolio spanning

industrial chemicals, bulk and specialty fertilizers, farming

diagnostics and solutions, technical ammonium nitrate, mining

services and consulting and value added real estate. The company

has been looking at overseas opportunities, particularly, with a

view to securing raw materials for its plants for which it has inked amemorandum of understanding (MoU) to participate in a bidding

process for a Phosphate project in Togo, West Africa, as a part of a

consortium comprising Balamara Resources, a resources company,

and Minemakers, an experienced phosphate company. Both the

companies are Australian ASX listed. The company has undertaken

a project for FY14 and FY15 to expand its nitro phosphate capacity

to 600,000 tonnes with a capital expenditure of Rs 360 crore, it has

also undertaken capacity expansion for Bentonite sulfur where the

capex is about Rs 56 crore. The company has registered a fall of

36.25% in its net prot at Rs 31.65 crore in Q3FY13 as compared

to Rs 49.65 crore in the corresponding quarter previous year.

However, the total income from the operation of the company

has increased by 3.63% to Rs 623.35 crore in the third quarter

ended December 31, 2012 as compared to Rs 601.49 crore in the

same quarter last year. Recently, one of its subsidiaries, Deepak

Mining Services (DMSPL) has entered into a strategic partnership

with the Australia-based RungePincockMinarco (RPM), through

its subsidiary International Mineral Asset Transactions. The JV

will be called Complete Mining Services. This agreement creates

a jointly owned Indian based joint venture company to provide

advisory technology and professional training services to the

mineral resources sectors within India and the surrounding

geographies of the Indian sub-continent. The company expects

softer ammonia prices in Q4 and Q1 of FY14. In the next 18 to

24 months the company expects ammonia prices should drop

globally in line with new capacities coming in markets like the USand some in the Middle East. This should improve the companys

margins from the current levels and also help it to improve its

capacity utilization particularly of TAN. The scrip is currently

trading at Rs 94.00 at a P/E multiple of 5.13x and EV / EBIDTA

of 4.01, we would recommend a HOLD in the stock, keeping in

view its expansion plans in local and global markets.

Gujara Sa Frilirs & Chmicals

Gujarat State Fertilizers & Chemicals (GSFC) is a leading

manufacturer of quality products of Chemical Fertilizers and

Industrial Products. The companys manufacturing units is located

at Kosamba, Sikka and Nandesari. It has a marketing network

spread across India in states like Andhra Pradesh, Chhattisgarh,

Gujarat, Haryana, Karnataka, Madhya Pradesh, Maharashtra,

Punjab, Rajasthan, Daman and Uttar Pradesh. The company has

reported 20.81% fall in its net prot at Rs 136.49 crore for third

quarter ended December 31, 2012 as compared to Rs 172.35 crore

for the same quarter in the previous year. However, total income

of the company has increased by 33.03% at Rs 1729.43 crore for

the quarter under review as compared to Rs 1300.02 crore for

the quarter ended December 31, 2011. Recently GSFC acquired

nearly 20 per cent stake for around $45 million or Rs 250 crore in

Karnalyte Resources Inc., a Canada based potash player. Karnalyte

has issued GSFC approximately 5,490,000 common shares of

Karnalyte at a price of $8.15 per common share. As previously

announced, Karnalyte and GSFC have agreed to a committed off-

take agreement for the purchase of approximately 350,000 tonnes

per year (TPY) of potash from Phase 1 of the Project, increasing

to 600,000 TPY with the commencement of Phase 2. The off-take

agreement will continue for approximately 20 years from the

commencement of commercial production of Phase 1.With this,

GSFC has secured a signicant amount of high quality potash

to distribute in a market that is fully dependent on imports.

The company has received an Environmental Impact Statement

(EIS) approval from the Saskatchewan Ministry of Environment

(MOE) for its Canadian project for potash mining with Canada

based Karnalyte Resources Inc. (KRN). EIS approval is essential

to the advancement of the Wynyard Carnallite Project, and was a

condition of the $45 million strategic investment by the company.

The scrip is currently trading at Rs 59.00, at a P/E multiple of 3.43x

and at EV / EBIDTA 1.81x, we would recommend Buy in the

scrip, its stake acquisition in Karnalyte Resources is likely to give

it a boost.

STock rEcommEnDaTion


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Disclaimer : This document has been prepared by Tracom Stock Brokers Pvt. Ltd. and Accord Fintech Pvt. Ltd. and

is being distributed in India by Tracom Stock Brokers Pvt. Ltd., a registered broker dealer. This information in the

document has been complied by the research department. Due care has been taken in preparing the above document.

However, this document is not, and should not be construed, as an offer to sell or solicitation to buy any securities.

Any act of buying, selling or otherwise dealing in any securities referred to in this document shall be at investors sole

risk and responsibility. This document may not be reproduced, distributed or published , in whole or in part, without prior

permission from the company. Copyright - 2009 - Accord Fintech Pvt. Ltd. and Tracom Stock Brokers Pvt. Ltd.

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tracom march 2013

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