Rashtriya Chemicals an underperformer: HDFC Securities

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HDFC Securities has revised its rating on Rashtriya Chemicals and Fertilisers to underperformer from sell with a target price of Rs 68 in its September 5, 2008 research report. "The earnings growth for the company has been rather slow on account of inadequate availability of gas (only 50% of its requirement of 6 mmscmd, thus compelling it to use expensive naphtha) and a larger equity base (551 million share). At 18x FY09E & 16x FY10E PER, 12.4x FY10E EV/Ebitda and poor ROEs of 6.4% FY10E, we believe most positives of the 16% CAGR in profits during FY08-10E, is virtually captured."

"We maintain our target price at Rs 68, (upside of 9.8%) and revise our rating to Underperformer from Sell earlier. The reasons to assign Underformer rating despite 10% upside from current levels are lingering concerns on availability of gas, gas pricing, poor RoEs and expensive valuation compared to Indian (8.3x FY10E Median PE, excl Nagarjuna Fertilisers) and global peers," says HDFC Securities' research report.

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