Accumulate Chambal Fert; target of Rs 80: PLilladher

Prabhudas Lilladher is bullish on Chambal Fertilisers and has recommended accumulate rating on the stock with a target of Rs 80 in its July 17, 2012 research report.

“Fertiliser Ministry has given its nod to draft the New Investment Policy (NIP) without any cap on gas pricing; this policy will need an approval from the CCEA. In February 2012, Group of Ministers (GoM) had given in-principal nod to the NIP to attract new investments in the Urea sector, with gas prices between US$6.5-US$14/mmbtu. Post CCEA approval, 4-5 new plants (1.1m MT/each) are expected to come on-stream. Further, the government is considering giving incremental Rs350/MT as fixed cost reimbursement to the existing urea players.”

“Urea demand is likely to grow by 2-2.5% CAGR in the next 3- 4 years. At present, India’s urea consumption and production is 30m MT and 22m MT, respectively. Import of urea has now touched the level of 8m MT (~27% of domestic consumption). Hence, there is immense pressure on Indian government to take decision on whether to BUY or MAKE urea. On non-urea fertilizers, government has to make a long-term strategy to tie up globally for raw materials. On account of rising non-urea fertilizer prices and inventory push in the last quarter, non-urea fertilizers dispatches have witnessed a sharp decline during Q1FY13. Company believes that actual demand for fertilisers is likely to pick up in August/September 2012.”

“We are downward revising our FY13E EPS by 3.6% considering lower urea volume. We expect Chambal’s consolidated PAT to grow at FY12-14E CAGR of 10.2% (v/s 10.8% in FY05-12). Post our upgrade in May 2012, stock has given return of ~10%. Hence, we are downward revising our rating from ‘BUY’ to ‘Accumulate’ with the revised TP of Rs80 (10xFY13E EPS) considering limited upside. Any positive policy outcome could be an upside trigger to our estimate as well as TP. If the government approves incremental fixed cost reimbursement by Rs350/MT to urea players, we expect Chambal’s FY13E EPS to upgrade by 12.5% to Rs9.0. Stock has a dividend yield of 2.5% at CMP,” says Prabhudas Lilladher research report.  

Non-Institutions holding more than 90% in Indian cos

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