"We are bullish on Gujarat Narmada Valley Fertilizers & Chemicals (GNFC) as it is the largest and only Indian manufacturer of specialty chemicals such as TDI, has turned around completely," says Akash Jain, Vice-president, Equity Research at Ajcon Global Services.
We are bullish on Gujarat Narmada Valley Fertilizers & Chemicals (GNFC) as it is the largest and only Indian manufacturer of specialty chemicals such as TDI, has turned around completely.
The company has turnaround successfully from a loss-making company with a debt of about Rs 4,000 crore earlier. Not only the company has its debt significantly in Q4FY18, it also having impressive OPMs in the range of 27 percent.
It has repaid its entire long-term debt and around 80 percent of its short-term borrowings which has resulted a balance debt of Rs 230 crore in books. The massive reduction in debt will lead to savings of finance cost in coming years We expect a target of Rs 550 by FY19 end.
The company has expanded its product range to include formic acid, acetic acid and TDI, the last being an input into mattress manufacturing. The company has started exporting ethyl acetate and formic acid which is expected to bring traction to the segment in coming days. The Company’s key product TDI prices have started rising up in April 2018 (around Rs 310/kg) post a temporary weakness in March (dipped from Rs 330/kg to Rs 290/kg), which is a positive for the company. Rising TDI prices along with Company’s focus to improve utilisation levels to almost 110 percent will augur well for the Company in coming quarters. The management is now focusing on ramping up its non-TDI business which would help in diversifying risks inherent due to the highly corrosive nature of its TDI plants.
The company witnessed robust Q4FY18 results. It witnessed 39 percent growth in PAT on YoY basis. GNFC’s standalone revenue for the quarter rose by 34.3 percent on YoY basis to Rs. 1,764 crore led by jump in revenue from fertilizers segment and chemicals segment by 50 percent YoY and 36 percent YoY. For the full year as well, the company clocked robust performance.
FY18 revenue saw a jump of 20 percent to reach Rs 5,916 crore while EBITDA rose by 113 percent to Rs 1,391 crore. Further, its net profit stood at Rs 789.5 crore, up 51 percent YoY. We believe the growth for company is likely to continue amidst rising demand for its products and improving output.
The management has guided capacity utilisation of about 105-110 percent from 93 percent in the latest quarter. The fertilizer business is still reporting losses but is expected to turn around this year. At the current price, the stock is trading at 9 times trailing twelve months earnings as compared to more than P/E of 20x of similar companies.Disclaimer: The author is Vice-president, Equity Research at Ajcon Global Services. The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.