Accumulate Chambal Fert; target of Rs 89: PLilladher

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Accumulate Chambal Fert; target of Rs 89: PLilladher

Prabhudas Lilladher is bullish on Chambal Fert and has recommended accumulate rating on the stock with a target of Rs 89 in its January 18, 2012 research report.

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Prabhudas Lilladher is bullish on Chambal Fert and has recommended accumulate rating on the stock with a target of Rs 89 in its January 18, 2012 research report.

"Chambal Fertilisers and Chemicals' (Chambal's) Q3FY12 standalone net sales grew by 32.2% YoY to Rs17,966m (PLe: Rs14,838m), primarily on account of 16.4% YoY growth in urea volumes and 57.8% YoY growth in trading sales. However, urea production volume stood at ~5.5Lac MT. Sales of shipping and textiles businesses were as per our expectation. Better-than-expected sales were mainly on account of higher trading sales (Rs7.9bn v/s PLe: Rs6.0bn)."

"Chambal's EBITDA de-grew by 3.9% YoY to Rs2,039m (PLe: Rs2,235m). EBIT/MT in urea business de-grew by 12.2% YoY to Rs1,688/MT (down by 24.9% QoQ, PLe: Rs1940/MT). Company had received subsidy related to earlier years which amounted to Rs220m during Q2FY12. Excluding earlier year's subsidy, EBIT/MT de-grew by 9.2% QoQ. Company has strong trading margins on the back of better treasury and inventory management. Company's trading EBIT margin stood at 6.1% (PLe: 5.5%). Chambal is carrying ~50K MT of DAP inventory at the end of the quarter. Textile EBIT margin was under pressure because Chambal has considered marginal amount of inventory write-down due to fallen Cotton/Yarn prices during the quarter. Company believes that most of the inventory write-down has already been completed. Company's long-term contract in shipping business (four out of six ships) had expired during Q1FY12. At present, all of Chambal's ships are at a spot price (i.e. US$15000/Day), which is much lower than contract price (i.e. US$22000/Day). Hence, EBIT margin of the company's shipping business has fallen sharply to negative 4.2% (PLe: - 4.7%). Company has provided lower tax rate of 21.7% (PLe: 33%) during Q3FY12. Chambal's Q2FY12 adjusted PAT de-grew by 4.1% YoY to Rs862m (PLe: Rs884m)."

"We have trimmed our FY12E/FY13E estimates by 8.3%/16.9% on considering lower urea and phosphoric acid prices and lower profit in shipping business. We expect Chambal's consolidated PAT to grow at three year's CAGR (FY11-14E) of 12.7% (v/s 7% in FY05-11). At present, stock is trading at one-year forward P/E of 10.6x. Stock has been trading in the range of 6x-13x for the past ten years. We maintain our 'Accumulate' rating on the stock, with revised TP of Rs 89 (i.e. 12xFY13E EPS). We believe that any positive outcome like NBS scheme, new investment policy and hike in urea prices at the farmer level would be the key upside trigger for the stock in the near term and it will lead to an upward revision in our estimates as well. We have not considered any benefit in our estimates related to policy," says Prabhudas Lilladher research report. 

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