Emkay Global Financial Services has recommended reduce rating on Gujarat State Fertilizers & Chemicals (GSFC) with a target of Rs 70 in its October 22, 2012 research report.
“GSFC reported Q2FY13 results below our est due to lower margins. Revenues at Rs 14.1bn, 12% yoy were slightly lower than est of Rs 15.0bn due to lower fertiliser revenues. However, EBITDA at Rs 2.0bn, -33% yoy (against est of Rs 2.5bn) disappointed due to lower fertiliser margins (6.1% against est of 12.0%) & amount of Rs 250mn incurred as donation to a education trust jointly promoted by GSFC & Govt. of Gujarat. EBITDA margin at 14.3% (-970bps yoy/-250bps qoq) stood lower than est of 16.4%. PAT for the quarter stood at Rs 1.5bn, -29% yoy lower than est of Rs 1.7bn.”
“GSFC reported fertiliser revenues of Rs 9.2bn, 15% yoy slightly lower than est of Rs 9.9bn. However, fertiliser margins at 6.1% (against est of 12.0%) disappointed due to lower margins in imported DAP trading & Rs 250mn of urea de-escalation adjustment related to previous years recorded during the quarter. Chemicals reported revenues of Rs 5.0bn, 7% yoy in line with est. Chemicals margins at 26.7% (against est of 21.0%) was impressive. Though chemicals segment profitability was impacted due to lower caprolactam-benzene spreads, however improvement in nylon-caprolactam spreads & strong margins in other industrial chemicals offset the decline.”
“Though Caprolactam-benzene spreads continue to remain lower by 37% yoy but the same is likely to improve marginally going forward. Ammonia prices remain intact which is also boosting company’s chemical segment profitability. GSFC is likely to commission its Methanol plant by Q3FY13 and company has already made necessary arrangements for gas (feedstock for methanol). With sharp drop in in stock price, ~10% since our last recommendation, we upgrade the stock from reduce to hold while keeping the target price unchanged at Rs 70,” says Emkay Global Financial Services research report. Shares held by Mutual Funds/UTI 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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