Buy GSFC; target of Rs 99: SPA Research

GSFC reported mixed set of numbers in Q1FY17 as topline declined by 4.9% YoY to INR 10821mn (below our estimate) and PAT declined by 54.1% YoY to INR 463 mn (as per our estimates). OPM contracted by 470bps yoy to 9% due to significant increase in employee costs and other expenses. The fertilizer segment is expected to do well in FY17 on expectations of good monsoons but pricing pressure on fertilizers and deficit rains in Gujarat (major market) raises few concerns. Decreasing Capro-Benzene spread continues to put pressure on industrial segment revenue. We maintain BUY rating on the stock with a target price of INR 99 based on SOTP valuation method.

Commencement of production of FDY plant (started in H2CY15), WSF plant (H2FY16) and Nylon-6 plant (H1CY16) is expected to aid topline and bottom line growth till FY18E. Profit growth may be partially affected due to lower chemical prices and increasing subsidies. Topline and bottom line is expected to grow at a CAGR of 13.7% and 24.2% respectively between FY16-18E. We maintain BUY rating on the stock with a target price of INR 99 based on SOTP valuation method (6x FY18E earnings and Investment value of INR 11/share after 40% holding company discount).For all recommendations, click hereDisclaimer: 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.