Expect 30-40% return in GNFC: Ashish Chugh

Chugh told CNBC-TV18, "GNFC is a pure value play in the fertiliser sector. This company is a government of Gujarat undertaking where Gujarat government holds close to 41% stake. The company is broadly in two business segments; this company is into fertilisers and also industrial chemicals. The fertiliser of the company is sold under Narmada brand which is a well established brand and they have got distribution network all across the country."

He further added, "Besides fertiliser and industrial chemicals this company also has a small IT infrastructure and IT services business though it does not contribute much to the revenues of the company. The company also has a 33 mw power cogen plant."

"This company has undertaken various expansions in the past two years and all these expansions would be fully operational by FY13. Company has spend close to Rs 4,000 crore for doing the six expansion projects, three of these expansion projects have already gone on stream and the balance three will be operational by the end of FY13."

"If we see the financials of the company FY11 sales were about Rs 2,850 crore and profit after tax was about Rs 266 crore. This PAT of 266 crore include insurance claim of about Rs 110 crore, so there was other income of about Rs 110 crore in FY11. In the first nine months of the current financial year this company has achieved sales of about Rs 2,700 crore, which is almost similar to what it did for the full year, profit after tax is about Rs 208 crore, which is up by 60% over the same period last year, full year PAT can be in the range of about Rs 260 crore to 270 crore which would result in an EPS of about Rs 17-18."

"At the current price of about Rs 83 the stock is discounted at a PE of less of 5 and this company has been a regular dividend payer for the past 20 years. It has got uninterrupted track record of dividend and last year paid about 32.5%, which at the current price results in a dividend yield of about 4%. So at the current price I see safety in the stock and I don’t expect the stock to go down too much from these levels in case of market fall but at the same time it has potential to return about 30-40% in a timeframe of about six months to a year."

Disclosure: I and my family have a small position in the stock of GNFC. We don’t hold Gati Limited.