Sharekhan`s view on Liberty Phosphate

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Sharekhan`s view on Liberty Phosphate

Sharekhan has come out with its report on Liberty Phosphate.

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Sharekhan has come out with its report on Liberty Phosphate .

"Liberty Phosphate was incorporated in 1976 to produce essential nutrients like sulphur for crops. It has around 18% share of the domestic SSP market. In India the total consumption of SSP has grown at a compounded annual growth rate (CAGR) of 8% over FY2008-11. Being the industry leader Liberty Phosphate has better capacity utilisation as compared to some of its peers. It has grown its revenues at a strong CAGR of 56% over FY2008-11. This along with a significant improvement in its operating profit margin (OPM) helped its bottom to grow at a CAGR of 179% over the same period."

"The SSP industry was almost dead due to the unfair policy adopted by the Government of India of subsidising SSP and favouring the manufacturers of DAP and complex fertilisers. But the introduction of the nutrient-based subsidy (NBS) scheme and the declaration of sulphur as an important crop nutrient, in line with nitrogen, phosphorus and potassium (NPK), revived the SSP industry. The Government of India included sulphur in the NBS policy from April 1, 2010. thereby providing a level playing field to the manufacturers of SSP with regard to the DAP and complex fertiliser makers. According to the NBS policy, the subsidy for all major nutrient, NPKS, are fixed by the government while the maximum retail price (MRP) of a product is flexible and is fixed by companies according to the cost of production in order to maintain the margin"

"One of the key advantages enjoyed by Liberty Phosphate is the easy availability of raw materials from local suppliers, eg rock phosphate from Rajasthan Mines and sulphuric acid from Hindustan Zinc. Rock phosphate and sulphuric acid are the basic raw materials required for the production of SSP. Liberty Phosphate is having a long-term contract with the local suppliers of these raw materials."

"Liberty Phosphate is one of the largest manufacturers of SSP and can grow by capitalising on its brand name and distribution network. Given the aggressive expansion of its manufacturing capacities Liberty Phosphate can potentially grow at a CAGR of around 22% over the next two years. In terms of valuations, the stock trades at around 1.6 x FY2013 rough estimates; this makes it one of the cheapest stocks in the complex fertiliser space. However, in view of the stock's extremely low both market cap and volumes at the counter, we do not have it under our active coverage," says Sharekhan research report.

Non-Institutions holding more than 90% in Indian cos

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To read the full report click on the attachment