RCF OFS issue fairly valued; subscribe to issue, says Angel

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26 Aug, 2025 12:21

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Angel Broking has come out with its report on Rashtriya Chemicals & Fertilizers (RCF)'s offer for sale (OFS) issue. According to the research firm, the Government of India is divesting 68,961,012 shares (12.5% stake) in the company out of its shareholding of 92.5% in the domestic market through OFS. One can subscribe to this issue, says Angel.

Investment Arguments
New Urea Investment Policy to boost expansion plan

The recently approved New Urea Policy is likely to encourage fertilizer companies to set up new plants and expand existing capacities, thereby reducing dependence on imports. India currently imports ~30% of its urea requirement. The new policy provides moderate upside to companies as the government plans to give 12-20% post-tax returns (earlier, returns were less than 12%) on fresh capital infused by manufacturers for both - setting new urea plants, and for the expansion or modernisation of the existing plants. The government plans to facilitate this by providing subsidy on gas prices (the main feedstock of urea, accounting for ~80% of the cost) subject to its price remaining at or below the level of US$14/mmbtu.

The company is geared up with a capacity expansion plan of urea at Thal by 12.7lakh MT p.a. to be completed in the next three years with a capex of ~Rs 4,112cr, which the company plans to fund through a mix of equity, debt and internal funding. The project has been cleared by pre-Public Investment Board (PIB) and the company is now seeking PIB’s and CCEA’s approval.

Great distribution network and high brand recall
RCF has ~6,314 dealers across the county as well as over 500 co-operative marketing societies that facilitate its pan-India reach. The company enjoys a high brand recall with brands like Ujjwala (urea); Suphala 15:15:15 and Suphala 20:20:20 (NPK); Biola (bio-fertilizers); Microla (micro nutrients) and Sujala (water soluble fertilizers). Further, given the high brand recall, RCF enjoys a market share of 10.7% in the urea market, 5.5% in the NPK market and 7.3% in the MOP market.

Company overview
RCF is a Miniratna PSU incorporated in 1978 as a chemical manufacturer. The Government of India’s shareholding in the company stands at 92.5%. RCF is in the business of manufacturing and marketing of various fertilizers and chemicals and is among the leading players in its industry segment. Its products enjoy high brand recall. It is the fourth largest producer of urea (sold under the brand name Ujjwala) with a market share of 10.7% and total capacity of ~23lakh MT p.a. in India. The company has two operating units at Trombay and Thal in Maharashtra. RCF has expanded its revenue stream and product portfolio through sale of imported diammonium phosphate (DAP) and muriate of potash (MOP).

Outlook and valuation
The new urea investment policy and capacity expansion plans provide the company a healthy outlook but being a public sector company in a highly regulated industry, the implementation of projects as well as the policies might get delayed, which may pose a risk to the company’s future. The company has fixed a floor price of Rs 45, which is at a premium of 2.6% from its current market price (CMP). At the CMP, the stock is trading at a PE of 8.7x on TTM basis and at the floor price of the issue of Rs 45, it is trading at 9.0x on TTM basis. We recommend investors to SUBSCRIBE the RCF issue as it is fairly valued and the successful completion of projects in pipeline will provide upside to the stock in the future.

Shares held by Central Governments/State Governments

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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