Hold GSFC; target Rs 70: Emkay

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26 Aug, 2025 12:21

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Emkay Global Financial Services has recommended hold rating on Gujarat State Fertilizers & Chemicals (GSFC) with a target price of Rs 70, in its January 11, 2013 research report.

"Gujarat State Fertilizers & Chemicals (GSFC) has entered into a strategic pact with Karnalyte Resources to secure its long term potash supply arrangement. GSFC will acquire 19.98% stake in Karnalyte at total consideration of C$45mn (Rs 2.5bn). GSFC has committed for an offtake of 350,000 mt p.a. from the 1st phase of the mine near Wynyard, Saskatchewan, which would increase to 600,000 mt p.a. as capacity increases during Phase 2, for a period of 20 years. We believe this arrangement will help to secure potash availability for GSFC in the longer term & strengthen its product portfolio. Phase-1 is currently in construction & it would take around 3-4 years to start commercial production.

GSFC has announced that it has entered into a strategic pact with Karnalyte Resources Inc. to secure its long-term potash supply arrangement. GSFC will subscribe 19.98% equity stake in Karnalyte at a price of $8.15/share resulting in an outflow of C$45mn (approx Rs 2.5bn). GSFC has also agreed to commit approx. $15 mn in the next rounds of public equity financing by Karnalyte to finance the construction of Phase 1. GSFC has agreed for a committed offtake of 350,000 mt p.a., from the first phase of Karnalyte's planned potash mine near Wynyard, Saskatchewan, which would increase to 600,000 mt p.a. as capacity at the project increases during Phase 2, for a period of 20 years from the commencement of commercial production.

Since India is fully dependent on global suppliers for potash, this arrangement will secure GSFC’s procurement of potash in the long run & strengthen its product portfolio. GSFC also intends to utilize part of the potash procured from Karnalyte for production of high grade NPK fertilizers at Sikka, for which new facilities are being constructed. Phase-1 of the project is currently under construction phase & it would take ~3-4 years to start commercial production from this project.

Though this arrangement would secure availability of potash for GSFC, however the benefit of it might come only 3-4 years later when commercial production starts. Maintain HOLD with target price of Rs 70. At CMP of Rs 70, stock trades at 4.9x FY14 earnings of Rs 14.8, EV/EBITDA of 2.5x. Caprolactam-benzene spreads continue to remain depressed at $835/mt due to weak caprolactam prices," says Emkay Global Financial Services research report.

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