Buy GNFC; target of Rs 135: Emkay

“GNFC’s Q2FY12 results were in line at the EBITDA level however lower interest costs and higher other income boosted APAT. Company reported revenues of Rs 10.2bn, +27% yoy higher than est of Rs 8.1bn due to higher fertiliser revenues. Fertiliser reported revenues of Rs 6bn, 28% yoy higher than est of Rs 4.6bn. Chemicals reported revenues of Rs 4bn, against est of Rs 3.5bn. However, EBITDA was in line with est at Rs 1.48bn, 28% yoy. EBITDA margin during the quarter stood at 14.5% against est of 17.6%. APAT of Rs 808mn, 27% yoy was higher than est of Rs 720mn driven by lower interest costs and higher other income. Company reported interest costs of Rs 56mn (est of Rs 100mn) while it reported other income of Rs 89mn (est of Rs 50mn).” 

“Chemicals segment reported revenues of Rs 4bn, 26% yoy higher than our est of Rs 3.5bn. Segment reported EBIT of Rs 943mn, 4% yoy in line with est of Rs 930mn. Chemicals margins for the quarter stood at 24% (-510bps yoy/ 700bps qoq) against est of 27%. In Q1FY12, chemical segment suffered due to ammonia plant shutdown which resulted in margins as low as 17%. However, with the resumption of plant, margins improved 700bps qoq. Company’s 300 MTPD Weak Nitric Acid-II Project commenced operations from July 23, 2011. Fertiliser segment reported revenues of Rs 6bn, 28% yoy higher than est of Rs 4.6bn . Total fertiliser volumes for the quarter stood at 263,000mt (est of 248,000mt) as compared to 261,000mt last year. Segment reported EBIT of Rs 173mn (compared to loss of Rs 18mn last year) ahead of our estimates of Rs 139mn driven by higher topline. Fertiliser margins stood at 2.9% in line with estimates of 3.0%.”

"We believe commissioning of WNA-II plant is likely to drive revenues growth in FY12E while commissioning of Ethyl Acetic and TDI plant will boost top line in FY13E. Due to volatile chemical prices, we continue to base our target price on FY12E estimates. We maintain our estimates of Rs 19.3/Rs 25.7 for FY12/FY13 and maintain target price of Rs135,” says Emkay Global Financial Services research report.

Institutional holding more than 40% in Indian cos

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