Buy GSFC; target of Rs 96: SPA

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26 Aug, 2025 12:21

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SPA's reserach report on Gujarat State Fertilizers & ChemicalsGSFC, a PSU, is engaged in manufacturing of Fertilisers (62% of revenue) and Chemicals (38%). In the Fertiliser division, the company manufactures Urea (Market share- 1%), Di-Ammonium Phosphate (MS- 6%), Ammonium Sulphate (MS- 79%), Ammonium Phosphate Sulphate (MS- 11%), etc. In the Chemicals division, GSFC manufactures Caprolactam (MS- 72%), Melamine (MS- 33%), MEX Oxime (MS-90%), Nylon-6 Chips (MS-38%), etc. GSFC has established position in the domestic fertiliser and chemicals manufacturing industry. It hashigh operational and business synergies due to its integrated manufacturing operations, diversified product offerings and market leadership position in its industrial chemical products, especially caprolactam and melamine. The fertiliser division's by-products such as steam and intermediates such as industrial gases, hydroxyl amine are either sold directly in the market or further processed to make industrial products for example MEK-Oxime. Ammonium sulphate, a byproduct of caprolactam, is a fertiliser.While in the near term, completion of INR 2.3 bn of capex and easing of phosphoric acid supplies provides decent revenue visibility, INR 52 bn of capex lined up in the highly profitable industrial segment provides long term growth opportunity.Margins are likely to expand with increasing capro-benzene spread and easing of raw material procurement issues.We expect GSFC to regain its track record of consistently delivering profitable growth, which was marred by external factors (crashing commodity costs and geopolitical conflicts) in the last 3 years. Topline and bottomline is expected to grow at a CAGR of 7.8% and 22.3% respectively between FY15-17E. We initiate coverage on the stock with SOTP based target price of INR 96 (Valuing core business at 6x FY17E earnings and investment value of INR 6/share after providing 40% holding company discount).GSFC Ltd., engaged in manufacturing of Fertilisers (62% of revenue) and Industrial Chemicals (38%), is amongst the most profitable companies in the industry. Sorting out of phosphoric acid procurement issues is expected to fuel growth in fertiliser segment whereas improvement in Capro - Benzene spread will improve the performance of Industrial segment.Investments in new products and capacity additions are expected to support revenue growth and full effect of the same will be seen in FY17E. We initiate coverage on GSFC with a BUY recommendation with SOTP based TP of INR 96(Valuing core business at 6x FY17E earnings and investment value of INR 6/share).

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