Emkay's research report on Gujarat State Fertilizers & Chemicals (GSFC)
Driven by drop in crude oil prices, benzene prices have corrected sharply by 30% mom to US$720/mt in Dec’14 resulting into significant jump in caprolactam – benzene spread to US$1255/mt in Dec’14 as against US$990/ mt in previous month
Every $100/tonne increase in spreads translates into 6% increase in our AEPS estimates. We expect improvement in spread and recent weakness in currency to have favoubale impact on company’s earnings in FY16
GSFC to also benefit from improving demand supply scenario in complex fertiliser as higher inventory concerns wane away
"We believe that there are multiple triggers which includes – improving demand supply scenario of complex fertiliser industry, receipt of its pending subsidy from the government, favourable changes in fertiliser policies, which may have favourable impact on company’s earnings. With attractive valuations at P/E of 6.9x, P/BV of 0.8x and dividend yield of ~3%, we reiterate our BUY recommendation on the stock with a target price of Rs 140", says Emkay Global Financial Services research.
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