Accumulate GSFC; target of Rs 530: Emkay

Emkay Global Financial Services is bullish on Gujarat State Fertilizers Company (GSFC) and has recommended accumulate rating on the stock with a target of Rs 530 in its June 1, 2012 research report.

“GSFC reported revenues of Rs 15.3bn, 37% yoy higher than est of Rs 11.4bn driven by higher chemicals & fertiliser revenues. Fertiliser revenues came at Rs 10.8bn, 52% yoy higher than est of Rs 7.9bn. Chemicals revenues stood at Rs 4.5bn, 12% yoy higher than est of Rs 3.5bn. GSFC reported EBITDA of Rs 2.9bn, -5% yoy higher than est of Rs 2.1bn driven by higher revenues. EBITDA margin came at 19.2% against est of 18.9%. APAT for the quarter stood at Rs 1.9bn, -5% yoy higher than est of Rs 1.4bn. APAT has been adjusted for Rs 255mn of insurance claim relating to breakdown during 2007 included in other income. APAT has also been adjusted for Rs 185mn of exceptional items. For FY12, GSFC reported revenues of Rs 53bn, 13% yoy with APAT of Rs 7.5bn, 5% yoy. GSFC’s board recommended dividend of Rs 7.5/share for the year. Board has also approved sub-division of face value of shares of Rs. 10/- each fully paid up into 5 (Five) equity shares of Rs. 2/- each fully paid.”
“GSFC reported EBITDA of Rs 2.9bn, -5% yoy higher than est of Rs 2.1bn driven by higher revenues. EBITDA margin came at 19.2% (-850bps yoy/-60bps qoq) against est of 18.9%. Decline in EBITDA margin is primarily because of decline in chemicals margins on a yoy basis. Chemical EBIT margins declined 1200bps yoy/390bps qoq to 22.7% though they were in line with est. Caprolactam prices continue to trend downward due to lower demand and are currently ruling at.$2400/mt compared to average caprolactam prices of $2850/mt during Q4FY12. Consequently, spreads have declined to $1320/mt currently compared to $1665/mt in Q4FY12.”
“Due to decline in caprolactam-benzene spreads, we expect GSFC’s earnings to decelerate in FY13. GSFC had been a beneficiary of the strengthening caprolactambenzene cycle during FY11-12 however earnings have started decelerating due to decline in spreads. Nonetheless, GSFC continues to trade at attractive valuations of 6.0xFY13E and P/BV of 0.9x. With 55% of cmp in cash and equivalents and FY13 EV/EBITDA of 3.1x, we maintain our Accumulate rating on the stock,” says Emkay Global Financial Services research report.  Institutional holding more than 40% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies 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. To read the full report click on the attachment

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