Buy GSFC; target Rs 530: Emkay

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Buy GSFC; target Rs 530: Emkay

Emkay Global Financial Services is bullish on GSFC and has recommended buy rating on the stock with a target price of Rs 530 in its October 21, 2011 research report.

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Emkay Global Financial Services is bullish on GSFC and has recommended buy rating on the stock with a target price of Rs 530 in its October 21, 2011 research report.

"GSFC continued strong show with Q2FY12 PAT at Rs 2.12 bn (+3% yoy on strong base) above our est driven by strong performance of fertiliser and chemicals. Fertiliser EBIT margins at 15% (est 11%) and chemical margins at 34.3% (est 35%), driven by higher spread in caprolactam, supported PAT growth despite lower revenues. Despite lower than est revenues, strong performance below the EBITDA line driven by lower than est interest, depreciation and higher other income boosted PAT. With 48% of cmp in cash and equivalents and FY12 EV/EBITDA of 2.0x, P/E of 5x, stock offers attractive investment opportunity."

"GSFC reported revenues of Rs 12.6bn, -3% yoy lower than est of Rs 14.4bn. Fertiliser segment reported revenues of Rs 8bn, -12% yoy against est of Rs 10.3bn. Chemicals segment reported revenues of Rs 4.6bn, 20% yoy higher than est of Rs 4.1bn. However, EBITDA of Rs 3.0bn, -4% yoy was in line with est due to higher fertiliser margins. Company reported EBITDA margin of 24% (-41bps yoy/131bps qoq) against est of 20%. APAT of Rs 2.1bn, 3% yoy is above our est of Rs 1.8bn led by higher margins & higher other income. Company reported other income of Rs 411mn against est of Rs 270mn. Also, reported interest costs of Rs 7mn were lower than est of Rs 80mn. AEPS of Rs 26.7, 3% yoy is higher than est of Rs 22.4."

"GSFC has been beneficiary of strong caprolactam cycle, which has helped the company in strong cash generation. It holds cash of Rs 8.5 bn as of now which is likely to increase to Rs 15bn (cash/share of Rs 194) by FY13E. GSFC also held liquid investments to the tune of Rs 4.2bn (Rs 53/share) in its books at end of FY11. With 48% of cmp in cash and equivalents and FY12 EV/EBITDA of 2.0x, P/E of 5x, valuation remains compelling. Company's both the segments - fertiliser and chemicals, continue to post robust results driven by favourable chemical spread and low cost manufacturing advantage in complex fertiliser. We re-iterate BUY with target price of Rs 530," says Emkay Global Financial Services research report.

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