Fertiliser | Fertilizer | Natural Gas

Fertilizer Sector

Deepak Fertilizers & Petrochemicals Chambal Fertilizers Coromandel International Zuari Industries

Institutional Research

Emerging from regulatory shackles …

Swarnendu Bhushan swarnendu.bhushan@hdfcsec.com 91-22-6171 7327

HDFC Securities Limited, Trade World, C. Wing, 8th Floor, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai 400 013 Phone: (022) 6171 7330 Fax: (022) 6615 2374

Fertilizer Sector

Table of Contents
Executive Summary ............................................................................................................................................................. 3 Global Scenario .................................................................................................................................................................. 13

Companies
Executive Summary ........................................................................................................................................................... 18 Deepak Fertilizers & Petrochemicals ................................................................................................................................. 19 Chambal Fertilizers & Chemicals ....................................................................................................................................... 27 Coromandel International ................................................................................................................................................... 34 Zuari Industries................................................................................................................................................................... 40

March 12, 2010

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Fertilizer Sector

EXECUTIVE SUMMARY
Fertilizer sector stocks have recovered due to the allocation of KG D-6 gas, which has reduced cost and increased utilization levels of fertilizer plants. Many of these plants ran on expensive naphtha or FO / LSHS feedstock. Closed units are also likely to open due to this cost reduction. High population density per unit of arable land and low yields have been the bane of Indian agriculture and one of the most efficient ways to abate the condition is by proper nutrient management of the soil. The consumption of fertilizers in India is expected to grow by 4% CAGR till FY12. Urea is expected to witness a supply deficit of 5.4mmtpa by FY12.

Deepak Fertilizers & Petrochemicals CMP Target Recommendation Bloomberg Code Market Cap ($ bn) 104 109 HOLD DFPC IN 0.2

Limited land, rising population to drive fertilizers growth
With one of the highest population densities per unit of arable land, farm productivity will have to improve dramatically if national food security is to be ensured. Better nutrient management thus becomes critical. Fertilizer demand is expected to grow at a CAGR of 4% till FY12. But a deficit of 5.4mmt in urea, the most widely consumed fertilizer, is expected by FY12. Phosphatic and potash fertilizers also remain matters of concern due to the lack of indigenous raw materials. While indigenous sources form 510% of raw material requirement for phosphatic fertilizers, there are no known commercial sources of potassium salts in India, raw materials for potash fertilizers.

Chambal Fertilizers & Chemicals CMP Target Recommendation Bloomberg Code Market Cap ($ bn) 59 82 BUY CHMB IN 0.6

Availability of cheaper feedstock (natural gas) to bring down costs
The use of natural gas will bring down the feedstock cost by over 60% for urea plants running on naphtha or FO / LSHS. This will not only increase utilization of underutilized gas based plants, but help revive closed plants. The reduced cost will also ease the subsidy burden of the government already saddled with a high fiscal deficit. A step towards deregulation and freeing of fertilizer prices While Urea was under mandatory pricing control under the New Pricing Scheme, Stage-III, the government recommended an MRP for DAP, MOP, MAP, TSP, SSP, Ammonium Sulphate and 11 other complex fertilizers under the Concession Scheme. Recently, the government hiked the retail price of urea and introduced nutrient based subsidy with effect from Apr 1, 2010. Though there have been no further details on the magnitude of subsidies, we believe subsidy per unit of nutrient will be set in such a way that subsidy levels remain virtually unchanged. The new nutrient based subsidy mechanism will prove an important step towards complete deregulation of the sector.

Coromandel International CMP Target Recommendation Bloomberg Code Market Cap ($ bn) 316 326 HOLD CRIN IN 1

Zuari Industries CMP Target Recommendation Bloomberg Code Market Cap ($ bn) 583 805 BUY ZUAR IN 0.4

Recommendations
We initiate coverage on four fertilizer companies – Deepak Fertilizers (HOLD), Chambal (BUY), Coromandel (HOLD) and Zuari (BUY). Our valuations are based on one year forward EV/EBITDA multiples of the stocks.
Company Name Deepak Fertilizers Chambal Fertilizers CMP (Rs/share) Target Price (Rs/share) Recommendation 104 59 316 583 109 82 326 805 Hold Buy Hold Buy

Swarnendu Bhushan swarnendu.bhushan@hdfcsec.com 91-22-6171 7327

Coromandel International Ltd Zuari Industries

Source : Company, HDFC Securities Institutional Research

March 12, 2010

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Fertilizer Sector
Limited land, growing population and heavy dependence on agriculture to increase domestic demand of fertilizers
With a rural population of around 66%, India derives about one-fifth of its GDP from agriculture. With one of the highest population densities per unit of arable land, increasing urbanization and growing population, factor productivity will have to go up to attain self sufficiency in food. Removing the accumulated nutritional deficiency through balanced nutrition management is the best method of improving factor productivity. Reports suggest that yields could improve 36% and 41% if site-specific nutrient management is adopted. Poor monsoons have sent food prices soaring in the domestic market despite easing of international food prices. Fertilizers can play a major role in increasing yield and reducing food prices.

Balanced use of fertilizers essential for achieving food security

Chart 1: Yield improvement through right use of fertilizers in Indian conditions
Rice Wheat Crops, Vol 2, 2008 (no. 3) Yield as per current practice (t/hectare) 6.03 3.56 Improvement (%) 36 41

Source: Economic viability of site specific nutrient management in rice wheat cropping system, Better

Chart 2a: Rising rice prices in India
260 240 220 200 180 160 140 120 100 May-94 Mar-95 Jan-96 Nov-96 Sep-97 Jul-98 May-99 Mar-00 Jan-01 Nov-01 Sep-02 Jul-03 May-04 Mar-05 Jan-06 Nov-06 Sep-07 Jul-08 May-09

Chart 2b: Rising wheat prices in India
280 260 240 220 200 180 160 140 120 100 May-94 May-95 May-96 May-97 May-98 May-99 May-00 May-01 May-02 May-03 May-04 May-05 May-06 May-07 May-08
Sep-09

Source: Bloomberg, HDFC Securities Institutional Research

Source: Bloomberg, HDFC Securities Institutional Research

Chart 2c: Global food price index
900 800 700 (US$/MT) 600 500 400 300 200 Nov-08 Nov-09 Sep-08 Jan-09 Sep-09 May-08 May-09 Mar-08 Mar-09 Jan-10 Jul-08 Jul-09

Chart 2d: Global cereals price index
500 450 400 350 300 250 200 150 100 50 0 Sep-05 Sep-06 Sep-07 Sep-08 Mar-06 Mar-07 Mar-08 Mar-09

Source: FAO, HDFC Securities Institutional Research

Source: FAO, HDFC Securities Institutional Research

March 12, 2010

(US$/MT)

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May-09

5. If agricultural practices are bettered.9% respectively.0 3.6%.4 14.7% and 4.8 3.1 3.0 3.7 5.7 9.3 th 400 350 300 (mmt) 250 200 150 100 50 0 Foodgrains Demand th (#/sq.7 For direct consumption.9 8. SSP and complex fertilizers 4. excludes demand for complex fertilizers th Source: XI Five Year Plan. HDFC Securities Institutional Research N 14. the use of urea will be lower (compared to P & K fertilizers) going forward. 2010 Page 5 .1 8. the CAGR for consumption growth of urea over FY08-12 will be 3.000 2.8 4.2 4.5 4.500 1. Chart 4a: Demand growth of primary nutrients mmt 2007-08 2008-09 2009-10 2010-11 2011-12 P 6.9 SSP 3. HDFC Securities Institutional Research Chart 4b: Demand growth of major fertilizers mmt 2007-08 2008-09 2009-10 2010-11 2011-12 CAGR08-12 1 Urea 25.6 4.3 K 2. HDFC Securities Institutional Research March 12.1 27. 4.5%.4 15.5 8.500 2.9 28.9 16.9 15.7 7.4 6.3 CAGR08-12 Total 23 24 25 26 27 3.1 9. But. km.1 6.2% and that of DAP.3 8. MOP.500 3.7 2.4 26.3:2.) Oilseeds Sugarcane Supply Source: XI Five Year Plan.6 MOP 3.9 9.2:1.8 3.0 7. Consequently.000 1.4 4.0 4.4 3.2 DAP 7.3 4.Fertilizer Sector Chart 3a: Estimated food shortage in India by FY12 Chart 3b: India has a high population density per unit of arable land 3.3 27.9 Source: XI Five Year Plan.7 8.5 3. HDFC Securities Institutional Research Demand for fertilizers to grow at 4% CAGR over FY08-12 Poor knowledge of nutrient management and cheap urea have disturbed the nutrient balance in the soil.000 500 0 Australia US Spain France Thailand Mexico Brazil India Pakistan Italy Germany UK Bangladesh China Sri Lanka South Japan Source: Rockford.2 3.5 1 Complex 7. the existing balance is 5. Indian soil and weather conditions suggest that the optimum ratio of N:P:K should be 4:2:1.

This will cause a deficit of 5. FAI further estimates that demand of phosphatic fertilizers will grow to 8.4mmt of urea. rock phosphate. 3. recent gas discoveries. 3. Chart 5a: Urea supply deficit to continue 35 30 Chart 5b: Demand-supply balance of Nitrogenous fertilizers 160 140 120 100 80 60 40 20 0 FY 82 FY 85 FY 88 FY 91 FY 94 FY 97 FY 00 FY 03 FY 06 FY 09 (mmtpa) 20 15 10 5 0 FY09 Capacity th FY10E FY11E Demand FY12E Production th (lakh ton) 25 Import Consumption Source: FAI. for phosphatic fertilizers is met through indigenous sources. HDFC Securities Institutional Research Source: XI Five Year Plan.27mmt of P2O5 by FY14 but domestic production would lag behind at 6.9mmt of DAP Due to shortage of gas in the country there were no major capacity expansions in urea manufacturing.9mmt by FY12.9mmt for DAP Of the three main nutrients N.4mmt of urea. P and K. new LNG terminals and expanding gas pipelines have made capacity addition and revival of closed plants possible. Though 5-10% of the raw material. Demand of DAP is expected to rise to 9. Until gas was discovered at KG D-6. the raw material for potash fertilizers.4mmt for urea. Supply gap by FY12 – 5.3mmt. HDFC Securities Institutional Research Chart 5c: Demand-supply balance of Phosphatic fertilizers 70 60 (lakh ton) 50 Chart 5d: Demand-supply balance of Potash fertilizers 40 35 30 (lakh ton) 25 20 15 10 5 0 FY82 FY85 FY88 FY91 FY94 FY97 FY00 FY03 FY06 FY09 40 30 20 10 0 FY 82 FY 85 FY 88 FY 91 FY 94 FY 97 FY 00 FY 03 FY 06 FY 09 Production th Import Consumption th Production Import Consumption Source: XI Five Year Plan. HDFC Securities Institutional Research March 12.8mmt in FY12 capacity expansion through de-bottlenecking. While urea demand is set to rise to 28.Fertilizer Sector Domestic supply deficit by FY12 .5mmtpa by FY12 and the shortfall is expected to be 3. fertilizer companies desisted from expanding capacities leading to continued deficit. India has sufficient raw materials only for nitrogenous fertilizers.5. HDFC Securities Institutional Research Source: XI Five Year Plan.17mmt. brownfield / greenfield expansions / revival of closed units is likely to rise only to 23. But. 2010 Page 6 . we have no known commercial source of potassium salts. XI Five Year Plan.

09 t 0.Fertilizer Sector Use of natural gas to bring down feedstock costs by more than 60% Currently.17 1.14 0.2 Cost reduction by using Natural Gas over Coal % 29.62 Unit mmBtu t t t Source: Industry. HDFC Securities Institutional Research March 12.02 0.36 Chart 6d: Feedstock cost per tonne of fertilizer Fertilizer Ammonium sulphate Urea UAP(28-28-0)* DAP(18-46-0) NPK(14-35-14)# NPK(17-17-17)# NPK(19-19-19) NPK(12-32-16) Nitrophosphate (15-15-15) Natural Gas US$ 58 130 80 52 39 48 52 32 22 Naphtha US$ 179 398 245 159 119 146 159 99 66 Fuel Oil US$ 115 255 157 102 76 93 102 64 42 Coal US$ 83 185 114 74 55 68 74 46 31 Source: Industry.23 NPK(14-35-14)# 0.24 9 0. Department of Fertilizers.87 0.10 *total amount including that required to make urea included as end product #excludes small quantities of urea added in the end product 1 Only for feedstock Source: Industry.14 Nitrophosphate (15-15-15) 0.24 9 0. Department of Fertilizers.26 Urea 0.27 10 0.87 0. only 66% of domestic urea manufacturers use natural gas.8 Source: HDFC Securities Institutional Research Chart 6b: Feedstock requirement per tonne of Ammonia Feedstock Natural Gas Naphtha 1 Fuel Oil 1 Coal 1 Only for feedstock Quantity 36 0.34 0. Feedstock cost to decrease by 60% Chart 6a: Feedstock cost reduction by use of natural gas Feedstock cost reduction by using Natural Gas over Naphtha % 67.4 Cost reduction by using Natural Gas over FO/LSHS % 49.21 NPK(19-19-19) 0.91 3. The use of natural gas will decrease feedstock cost of naphtha-based plants by 67% and of FO/LSHS-based plants by 49%.54 0.1 4 0. HDFC Securities Institutional Research t 0.23 NPK(12-32-16) 0.22 0. with lower subsidies.25 0.9-1.17 NPK(17-17-17)# 0. the main beneficiary will be the government. We expect feedstock cost to drop by over 60% when plants shift to natural gas from naphtha and FO/LSHS. 2010 Page 7 .6 22 0.55 0.65 0. Department of Fertilizers.16 0. 30% use naphtha and the rest FO/LSHS.58 UAP(28-28-0)* 0.36 DAP(18-46-0) 0. HDFC Securities Institutional Research Chart 6c: Feedstock requirement per tonne of fertilizer Fertilizer Ammonia Natural Gas 2 Naphtha Fuel Oil 1 Coal 1 t mmBtu t Ammonium sulphate 0.34 0.18 6 0.80 0.20 0.98 2.22 0.37 13 0. But.15 5 0.22 8 0.

it is used as a heating medium. FO/LSHS or gasified coal. it will also replace other fuels as a source of energy. The XIth five year plan set urea production capacity at 32.5mmscmd of gas from KG D-6 to fertilizer companies.0 Naphtha US$/t 690.0 Source: Bloomberg.Fertilizer Sector Chart 6e: Price assumptions for our calculations Natural Gas US$/mmBtu 6. It is set to increase to 80mmscmd soon. estimates show capacity would rise only to 23. lack of LNG terminals and poor pipeline connectivity. hydrogen is sourced from natural gas (mostly methane. naphtha. Ammonia (NH3) is formed by high pressure catalytic reaction of nitrogen and hydrogen. We expect natural gas demand for fertilizer industry to rise from 42mmscmd now to 58mmscmd in FY12E. KG D-6 currently produces 60mmscmd of gas. Natural gas will not only be a cheaper feedstock for urea production.9mmtpa by FY12. CH4). LNG imports and CBM gas would cover any possible shortages. HDFC Securities Institutional Research Natural gas availability to increase capacity utilization of gas based plants EGoM allocated 15.9 Coal US$/t 85. Increased availability and better pipeline connectivity will also encourage revival of closed units and setting up of new projects to augment urea capacity. higher emissions from coal and operational challenges have forced most plants to switch to alternate feedstocks. Moreover. But. But this is changing fast following gas discovery at RIL’s KG D-6 gas block. They will be able to maintain high utilization levels. O C NH2 NH2 Sourced from natural gas / naphtha / FO / LSHS / coal gasification Chart 7: Projected gas demand by fertilizer sector 80 70 60 (mmscmd) Gas demand to grow to 58mmscmd by FY12E 50 40 30 20 10 0 FY10E FY11E FY12E FY13E FY14E Source: FAI. While air is the source of nitrogen. While natural gas is not needed as a feedstock for non-nitrogenous fertilizers. This will ensure gas supply to gas-based plants. March 12.3mmt. 2010 Page 8 . We do not foresee any problem in gas availability although accessibility could still be a problem for few plants. HDFC Securities Institutional Research Chemical structure of urea Gas demand by fertilizer sector to rise Nitrogenous fertilizers need ammonia for their production. India has had a severe deficit in gas due to poor domestic production. Though cheap.9 Fuel Oil US$/t 466.

75 0. mn) Exchange rate (Rs/US$) Total cost/subsidy saving (Rs.9 25 7.48 0.9bn through use of KG D-6 gas Gas allocation from KG D-6 (mmscmd) mmBtu of natural gas (mn) Natural gas feedstock per ton of urea (mmBtu) Urea that can be produced from KG D-6 natural gas (mmt) Cost saving per ton of urea by use of natural gas (US$) Total cost saving (US$.9bn. HDFC Securities Institutional Research 1.95 2.51 0.273 0.200 1. Using the above assumption of feedstock requirement per unit of urea and price assumptions.5mmscmd gas to the fertilizer sector.88 0.Fertilizer Sector Chart 8: Gas allocation from RIL’s KG D-6 block to fertilizer companies Gas allocation from KG D-6 to fertilizer companies (mmscmd) Haldia-Bijaipur-Jagdishpur (HBJ) NFL Vijaypur-I & II CFCL Gadepan I & II IFFCO Aonla I & II IFFCO Phulpur I & II KSFL Sahajahanpur TCL Babrala IGFL Jagdishpur SFC Kota Non-HBJ Kribhco Hazira NFCL Kakinada I & II GNFC Bharuch GSFC Vadodara RCF Trombay V RCF-Thal IFFCO Kalol Deepak Fertilizers Total Source: Ministry.52 0.549 0.178 15.978 0. HDFC Securities Institutional Research March 12.5 194. we estimate total saving to be about Rs.1tr in FY09.72 0.96.1 1.945 Refer chart 5a for details Source: Bloomberg. 2010 Page 9 . HDFC Securities Institutional Research Source: Dept of Fertilizers.8 265 1 2. Chart 9a: Subsidy burden of government 1.063 47 96.000 800 600 400 200 0 FY03 FY04 FY05 FY06 FY07 FY08 FY09 (Rs bn) Chart 9b: Savings of Rs96.37 1.65 1.342 0. Since the production of gas from KG D-6.15 1. the government has allocated 15. mn) 1 15.62 15mmscmd of KG D-6 gas allocated to fertilizer companies Use of natural gas to bring down subsidy significantly Fertilizer subsidies rose sharply to Rs1.

the Department of Fertilizers adopted nutrient based pricing for all fertilizers in June 2008. Nutrient based pricing Right balance of nutrients in the soil is needed for optimum farm productivity. lack of knowledge in the right mix of nutrients led to more usage of cheaper urea over other fertilizers.94:1 in 1993-94. This new policy was based on import price parity (IPP) with a floor of US$250/mt and a ceiling of US$425/mt. the government announced another investment policy for urea. 2010 . MAP. Revival of public sector plants would be recognized at 95% of IPP. expansion.3:2. NPS-III retained the group classification of RPS (see Appendix 1). As a consequence. Setting up of a new urea plant in the existing premises would have a minimum investment of Rs30bn. This led to a distortion in nutrient ratio to 9. The urea thus produced would be considered at 90% of IPP. The government continues to control movement of urea up to 50% of production. Government sets an indicative MRP for fertilizers. All new projects would be based on non-APM gas. ammonium sulphate and eleven complex fertilizers) are regulated through a concession scheme. The base cost for each group is determined using FY03 average. MOP. The policy included revamp. The additional urea thus produced would be considered at 85% of IPP. A deduction of Rs50/t is made for pre-92 naphtha & FO/LSHS based units and Rs75/t for other units due to reduced capital related charges. In 1991. the appropriate nutrient ratio is 4:2:1 for N:P:K. This parity in pricing of nutrients across fertilizers is expected to improve the nutrient balance in the soil. the farm gate prices of nutrients were based at their existing prices in straight fertilizers Urea. post-92 naphtha and mixed energy plants. 2010. and SSP. For Indian conditions. Escalation or de-escalation of variable costs subject to pre-set energy norms is provided on actuals. The scheme further incentivized plants which were either closed or running on naphtha/FO/LSHS/coal to convert to natural gas. Greenfield projects would be based on a bidding process at a discount to IPP. This led to a significant drop in MRPs as mentioned below.9:2. revival of existing units and Greenfield/brownfield projects. the year before decontrol of phosphatic and potash fertilizers.68:2. DAP.2Gcal /mt of urea) subject to a maximum of US$25/mt of urea. Realizing the importance of the right nutrient balance. Companies are compensated on the difference between cost of sales and the indicative MRP. NPS Stage-III valid till 31 Mar 2010 st Concession Scheme Phosphatic and potash fertilizers (DAP. TSP. All this will depend on floor and ceiling prices.4:1. Industry level average cost of sales is determined. Page 10 Nutrient imbalance can cause the following adverse effects Degradation of downstream water quality Destruction of coastal marine ecosystems Development of photochemical smog Rising levels of greenhouse gas nitrous oxide March 12. 98% for pre-92 gas plants. MOP. Revamp projects must have a limit of upto Rs10bn. The policy failed miserably. Sales and other taxes on input materials are also compensated for. As more fertilizers were included in the Concession Scheme. The policy further compensates for gas transportation charges on actuals (upto 5.2:1 in 2005-06. SSP. The timeline is limited to units that start production within four years of policy notification. Capacity utilization was fixed at 93% for pre-92 naphtha and FO/LSHS plants. the ratio improved to 5. Post decontrol. Transportation cost of gas is paid separately. In Sept 2008. the ratio was 5. Pricing policy for new investment in urea The 2004 policy of attracting investments for setting up urea units was based on long run average cost.Fertilizer Sector Existing policy for fertilizers New Pricing Scheme Stage-III Urea pricing is controlled by the New Pricing Scheme Stage-III (NPS-III) which is valid till Mar 31.

145 7.360 8. subsidies could be further cut as the government and market are testing the waters going forward. Additionally. response has not been much.100 7. gas availability will ease the burden significantly.455 9. However.460 3.350 4.481 7.100 8.350 4.350 7. HDFC Securities Institutional Research Recent policy updates beyond NPS-III and further expectations NPS-III is valid till FY10.300 8. As the government battles the high fiscal deficit.660 6.06.830 9.300 from 18. India will have a urea deficit of 5.295 6. We understand the government will fix the nutrient subsidy in such a way that the current magnitude of subsidies are maintained.08 4. 2010 Page 11 .487 Indicative prices post nutrient based pricing Single Super Phosphate Ammonium Sulphate Complex Fertilizers (N:P:K:S): 16:20:00:13 20:20:00:00 20:20:00:13 23:23:00:00 28:28:00:00 10:26:26:00 12:32:16:00 14:28:14:00 14:35:14:00 15:15:15:00 17:17:17:00 19:19:19:00 Source: Department of Fertilizers. Despite the incentives provided in NPS-III for converting to gas based plants. we expect a re-grouping of the plants in the new pricing policy.400 10. However.03 to 17.03.875 5. 2010.350 7.08 4. We expect the deadline to be extended and additional fiscal benefits offered to attract investments. some plants will not be able to run on gas as they do not have pipeline access.000 9.280 7. retail prices of urea have been increased by 10% with effect from April 1. But.460 3. We expect the deadline for mandatory conversion to be extended. As plants have been investing in upgrading their cost structures.400 7.4mmt by FY12.03.050 8.Fertilizer Sector Chart 10: Prices of fertilizers post Nutrient based pricing scheme MRP (Rs per mt) Urea DAP Muriate of Potash (MOP) Mono Ammonium Phosphate (MAP) Tri Sulphur Phosphate from 12.455 9.185 5. This will benefit DIL.197 7.080 8.804 6. the rising fiscal deficit has forced the government to cap the subsidy through a nutrient based subsidy policy where fixed subsidy would be provided per unit of nutrient in fertilizers. MFL.343 6.480 8.121 5.350 5.280 8.980 8. Despite new investment policy for urea.637 7. Policy updates and our expectations going forward March 12. MCFL. details of the subsidy per unit of nutrient have not been provided. SPIC and ZIL.830 9.

SPIC.Fertilizer Sector Chart 11: Further expectations post NPS-III Driver have access to gas pipelines Continued supply deficit Expected consequence extension as they do not lie on the gas grid (DIL Kanpur. emphasis on providing connectivity Some non-gas plants do not Few plants have requested for March 12. MFL. ZIL etc) Need for domestic capacity or JVs abroad Investments in plant upgradations Source: Industry. HDFC Securities Institutional Research Changed cost structures Extension of urea plant investment policy and encouragement of JVs where gas is cheaply available Regrouping of plants New fertilizer policy expectations Extension of deadline to convert to gas based. 2010 Page 12 .

25 per day Lots of food for thought…while millions sleep on empty stomachs Sub-Saharan Africa Southern Asia 3. Fertilizers. bio-safety of such crops is yet to be confirmed on a commercial scale.9mn Sudanese are in need of food assistance.3%.5% from 1980-2009.8mn Kenyans are highly or extremely food insecure driven by multiple seasons of inadequate rainfall. 2010 Page 13 .6mn Somalians (50% of the population) are in need of emergency food assistance as of Dec 2009.1% for wheat. high food prices and escalating conflicts for agricultural resources • 6. Nutrient management holds the key to this. Global supply deficit in food to continue without dramatic improvement in farm productivity The annual supply gap in global production of rice has averaged at 4. the demand for rice has grown at a CAGR of 1. HDFC Securities Institutional Research 0 10 20 30 40 50 60 70 * Includes all developing regions.4% since 1980 while it has been a staggering 18.2mn Ethiopians are in need of food assistance due to below average “kremti” rains in 2009 affecting plantations • 5. Chart 12: % of population living below US$1. While inventions in genetically modified crops hold promise.Fertilizer Sector Global Scenario Food security one of the most pressing issues globally With more than 1bn hungry people in the world. While the global population has grown at a CAGR of 1. civil conflicts further Transition countries of South-Eastern Europe Developing regions* Northern Africa Commonw ealth of Independent States Western Asia 1 990 1 999 2005 201 Target 5 Latin America & the Caribbean worsening the food crisis Source: FAO.8% and wheat by 1. food security is a matter of grave concern. by increasing yield have a major role to play in reducing food prices. HDFC Securities Institutional Research March 12. the Commonwealth of Independent States and transition countries of South-Eastern Europe Source: UN Millenium Development Goal Report. With ever increasing population. primarily driven by South-Eastern Asia continuing conflicts and poor rains during main “gu” season of 2009 Eastern Asia • 3. Rising food prices make it inaccessible to the poor. dramatic improvement in farm productivity is the only way to overcome a food crisis.

3 P 38.8mmt by 2013/2014.0 (5.0 5.000 250.4 158 165.0 15.000 700.4% and 19.000 300.7%.000 500.0 15.8mmt. Urea prices went up by 64% y-o-y in 2008 while the increase was 126%. it was significantly higher at 10. IFA said the demand for fertilizers will rebound in 2010 to 165. HDFC Securities Institutional Research Source: Bloomberg.5% for phosphate and potash fertilizers.7 23.7 156.2% and 13.Fertilizer Sector Chart 13a: Global supply gap for rice 500. Chart 14a: Demand of each nutrient mt of nutrients 2007 2008 2009 2010 N 100.6% for nitrogenous.0) (%) 10. phosphate and potash fertilizers.6 103. USDA.6% y-o-y in 2008 for urea.0 (%) 20. 2010 Page 14 . Recovery in demand will be led by potash fertilizers which declined most in 2008.0 Demand supply gap Global rice consumption Global rice production Global rice demand Demand supply gap Global wheat consumption Global wheat production Global wheat demand Source: Bloomberg.7% on account of higher fertilizer prices.000 450.0 30. HDFC Securities Institutional Research Global fertilizer demand expected to be strong in 2010 Fertilizer consumption has grown at a CAGR of 4. 133% and 159% for DAP.6 K 28.0 25.3 35. HDFC Securities Institutional Research (MT) y-o-y growth Global nutrient consumption Source: Earth Policy.000MT) 650. USDA. 6.000 450. Fertilizer prices were driven mainly by high natural gas prices.0 5.000 400.0 0.000 1992 1998 2004 1980 1986 2007 1983 1989 1995 2001 35.000 (1.000 350.000 550. HDFC Securities Institutional Research March 12.000 750.8 Chart 14b: Fertilizer consumption trend 180 160 140 120 100 80 60 40 20 0 1960 1985 1950 1955 1965 1970 1975 1980 1990 1995 2000 2005 20 15 10 5 0 -5 -10 (%) Source: IFA.0 Chart 13b: Global supply gap for wheat 800.000 (1.1 22 25 Total 167.6 99 100.0 0.000MT) 400. Recoveries in demand are expected at 2. In 2008 consumption declined 6.000 600.1% during 1950-2009. IFA. Though the decline was low at 1. MAP and MOP respectively.4 37.3 34.0 10.000 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 20. Fertilizer demand is further expected to rise to 186.

000 (US$/MT) 800 600 400 200 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010(YTD) 0 (50) (100) 150 100 Chart 15c: Annual average price of MOP 800 700 600 500 400 300 200 100 0 2010(YTD) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 200 150 (%) 100 50 0 (50) y-o-y growth MAP price (%) 50 (US$/MT) y-o-y growth MOP Price Source: Bloomberg.200 1. HDFC Securities Institutional Research March 12.Fertilizer Sector Chart 15a: Annual average price of Urea 600 500 (US$/MT) 400 300 200 100 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010(YTD) 80 60 40 (US$/MT) Chart 15b: Annual average price of DAP 1. HDFC Securities Institutional Research Chart 15c: Annual average price of MAP 1.200 1. 2010 Page 15 . HDFC Securities Institutional Research Source: Bloomberg.000 150 100 50 0 (%) 20 0 (%) 800 600 400 200 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010(YTD) y-o-y growth DAP price (20) (40) (60) (50) (100) y-o-y growth Urea price Source: Bloomberg. HDFC Securities Institutional Research Source: Bloomberg.

3mmt in 2010. Supply would be 41mmt against demand of 35mmt.supply Global capacity of phosphoric acid is expected to rise from 46.8mmt in 2010. Almost half of the annual capacity additions are expected to come from China. HDFC Securities Institutional Research March 12.8mmt in 2009 to 36. Despite recovery of 6. Chart 16: Global demand-supply of urea 170 165 160 (MMT) 155 150 145 140 135 2008 Demand Source: IFA.Fertilizer Sector Global urea demand . The global capacity is expected to rise from existing 170.8mmt in 2009 to 178. supply is expected to continue to be less than demand.6mmt in 2009 to 47. Chart 17: Global demand-supply of phosphoric acid 45 40 35 30 (MMT) 25 20 15 10 5 0 2008 Demand 2009 2010 Supply Source: IFA. The capacity of processed phosphate fertilizers – MAP.6mmt in 2010.2% in demand for phosphate fertilizers. HDFC Securities Institutional Research 2009 2010 Supply Global phosphate fertilizers demand . 2010 Page 16 .supply IFA believes supply will continue to shadow demand in 2010 despite an expected growth of 6% in demand of urea to 157mmt. China will continue to be a major player. DAP and TSP – is expected to rise from 34.

8mmt in 2009 to 43. Israel and US Global capacity of potash fertilizers is expected to rise from 41.8mmt in 2009 to 43. supply will continue to overshadow demand.1mmt in 2010. Chart 19: Global demand-supply of elemental sulphur 60 50 40 (MMT) 30 20 10 0 2008 Demand 2009 Supply 2010 Source: IFA. It is estimated that the supply would be 39mmt against demand of 26mmt. It is estimated that despite recovery of 4% in demand of phosphate fertilizers. Chart 18: Global demand-supply of potash fertilizers 45 40 35 30 (MMT) 25 20 15 10 5 0 2008 Demand Source: IFA. Russia. 2010 Page 17 .1mmt in 2010. It is estimated that despite recovery of 4% in demand of phosphate fertilizers. HDFC Securities Institutional Research March 12. It is estimated that the supply would be 39mmt against demand of 26mmt. Belarus. HDFC Securities Institutional Research 2009 2010 Supply Global elemental sulphur demand .Fertilizer Sector Global potash fertilizers demand .supply Global capacity of potash fertilizers is expected to rise from 41. Germany.supply 80-90% of production is from Canada. supply will continue to overshadow demand.

With a 12m target price of Rs82/share.4 4. Coromandel International and Zuari Industries Ltd. they will also provide it with grounds to further incentivize capacity expansions due to substantial deficit in the domestic market.73mmtpa.5 5.Companies Executive Summary With rising fiscal deficit and NPS-III to lapse in FY10. It also has a phosphoric acid plant. its presence in the industrial chemicals segment is expected to grow stronger. which is likely to contribute 70% of its revenues going forward. It has a JV in Singapore for sourcing rock phosphate. Coromandel Industries is one of the largest players in phosphatic fertilizers in the country.8 36.4 CIL 33.72mmtpa of DAP and other phosphatic fertilizers. It has a capacity of 2. We recommend HOLD on the stock with a 12m target price of Rs109/share.9 2. We expect it to benefit the most from government incentives on capacity expansion and addition in urea production. Strong revenues and high EBITDA margins are expected from the shipping segment due to strong demand for oil. Recent interest in fertilizer stocks reflects a renewed interest in this sluggish sector which is expected to emerge out of government regulations. With a capacity of 1.6 9.3 5. The company is likely to benefit from any policy changes incentivizing capacity expansion/addition in urea manufacturing. the stock has seen a huge spurt.4 8.1 11. With an additional capacity of 300.9 109. the government recently hiked the retail price of urea by 10% and introduced nutrient based subsidy post NPS-III.5 6. In the next few months the company is expected to come out with more clarity on its forays into naphtha derivatives and mining consultancy. ZIL also has 40% stake in Paradeep Phosphates Ltd.4 29. Deepak Fertilizers is expecting strong growth in the industrial chemicals segment.3 4.4mmtpa. We initiate coverage on four stocks – Deepak Fertilizers & Petrochemicals Ltd.1 1 1 CFCL 8.6 2.200mtpd of complex fertilizers. which meets 50% of its requirements. EPS P/E P/BV FY10E FY11E FY10E FY11E FY10E FY11E DFPCL 12. Chambal Fertilizers is the largest private urea manufacturer in the country. HDFC Securities Institutional Research EV/EBITDA FY10E FY11E 4. it will reduce its exposure to volatile phosphoric acid prices.2 21. The company has also diversified into shipping and textiles.1 24.9 6.9 Source: Company. Zuari Industries is a very strong player in phosphatic and complex fertilizers.2 Target price (Rs) 109 82 326 805 Recommendation HOLD BUY HOLD BUY March 12.31mmtpa of phosphatic fertilizers. It does not produce urea.9 4. With its strong commitment to reduce the fiscal deficit. we initiate coverage on Zuari Industries with a BUY. Chambal Fertilizers. While the gas will cut feedstock cost for nitrogenous fertilizers. As its phosphoric acid JV in Tunisia becomes operational by 2011. It produces 2.3 1.4 9. It is likely to switch to natural gas by Jan 2013 when GAIL starts its supply of RLNG. With a 12m target price of Rs805.6 1. Deepak Fertilizers is the only manufacturer of prilled TAN in the country.5 7.1 34.000mtpa by Q3FY10E. However.2 8.3 8. Paradeep Phosphates has a capacity of 0.132mmtpa of SSP.2 0.8 9.1 19. 2010 Page 18 . 0. While these moves will help the government reduce subsidies.3 ZIL 109. nutrient based subsidy will help the government cap its exposure to rising international prices. With the recent introduction of nutrient based subsidy and freeing of prices of DAP and MOP.2 7 1. we initiate coverage on Chambal Fertilizers with a BUY rating.815mmtpa of DAP and 0.8 5 4. its urea facility uses naphtha as a feedstock. We initiate coverage on Coromandel Industries with a HOLD rating and a 12m target price of Rs326/share.3 ROE (%) FY10E FY11E 13. It also has a urea manufacturing capacity of 0.7 24. the industry and the market expected bold steps from the government following the discovery of huge natural gas reserves at KG D-6.

5 1. we believe capacity utilization will remain high.1 10.7 6. 2010 Page 19 .5 1.5bn. However.301 3.1 15. mn) EPS (Rs) EPS growth (%) P/E (x) ROE (%) ROCE (%) 8. We do not see any reasons for delay.499 17.370 15.9 0. Using the same average multiple and average EBITDA of FY11E and FY12E. we value the stock at Rs109/share. Mining and quarrying industry is likely to see 5-12% demand growth. mn) EBITDA margin (%) Net Profit (Rs. It is the only manufacturer of prilled TAN in the country. we expect little change in FY11E EBITDA even if the plans come up in the near future.874 3.311 14. The company commissioned a new 450tpd Dilute Nitric Acid (DNA) plant in FY10E. TAN finds extensive usage in the explosives industry.6 39.6 (21. We recommend a HOLD with a 12m price target of Rs109/share The company has been trading at an average one year forward EV/EBITDA of 4.9 10. Due to this.9 2.5 13.9 Sensex and Stock Movement Sensex 275 230 185 140 95 50 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 DFPCL Op Revenues (Rs.7 The company is adding another 300.4 Shareholding Pattern Promoters FIs.0 9.7 1.BO DFPC IN 88.5 1. FY07 FY08 11. especially from the Middle East.0 FY11E 14.090 12.com 91-22-6171 7327 EV/EBITDA (x) D/E (x) P/B (x) Source: Company. It is also the only producer of IPA in the country.Deepak Fertilizers & Petrochemicals Corporation HOLD CMP Target Stock Return 104 109 4.bhushan@hdfcsec.947 2.6 3.Week high / low Rs126 / 49 3M 6M 12M Absolute (%) Relative (%) 2.2 920 10. As the company is yet to clarify on its diversification plans.8 1. It is planning to diversify into ammonia derivatives in the future. for our valuation.1 1.8 0.9 107.5 25.256 21. It is also planning to use its expertise in TAN usage to diversify further into mining consultancy. However.4 0. The company plans to commission the factory by Q3FY11E.4 Swarnendu Bhushan swarnendu.7 17.6) 11.1 5.3) 8. Using one year forward EV/EBITDA multiple of 4. TAN plant to be commissioned by Q3FY11E Stock Performance (%) 52 .8x since 2006 post implementation of NPS Stage-III.6 19.653 18.3 8.133 17. It is further expanding its TAN capacity by 300.265 23. mn) EBITDA (Rs.9 10.930 19.027 11.1 FY10E 13.5 0.168 Key Stock Data Sector Reuters Code BLOOMBERG Code No.9 1. micronutrients).3 FY09 14. concerns continue over highly volatile raw material prices and low import prices due to subsidized natural gas offered to international players.0 0.9 6.6 1. of Shares (mn) Market Cap (Rs bn) Market Cap ($ bn) 6 mth avg traded value (Rs.000mtpa TAN plant at a capex of Rs6. FY12E earnings could be impacted.641 2. Nifty Sensex 5.3 0.7 1.4 4. Installation has already begun.2 1.0 15.7 16.0 6. FIIs Public & Others Source : Company (%) 42.4 15.2 10. The long lead items have been ordered and equipment has started coming.4 19.1 8.6 4.228 19. The project is on track.9 (4.7 60.8x. HDFC Securities Institutional Research March 12. we derive the 12m target price at Rs109/share.6 10.9 0.7 0.000mtpa.0 FY12E 19. we have assumed that the plant will start production only from FY12E. mn) Fertilizers DPFE. With expansion of TAN capacity and possible forays into new business segments (ammonia derivates. mining consultancy. the company presents an exciting future going forward. However.729 1.8% Deepak Fertilizers & Petrochemicals Corp Ltd Deepak Fertilizers & Petrochemicals Corp Ltd (DFPCL) is one of the largest manufacturers of industrial chemicals in the nation.9 5.1 10.2 35 More of a chemicals play The industrial chemicals segment contributed 58% of revenues in FY10E.4 18.152 22.4 8.0 1.6 17.647 4.

mn) Avg market cap of FY11E and FY12E (Rs. HDFC Securities Institutional Research March 12.Deepak Fertilizers & Petrochemicals Corporation Valuation We use one year forward average EV/EBITDA for valuation of DFPCL. We understand that with RIL’s IPA plant dismantled (acquired from NOCIL).000 15 10 (Rs/MT) 30.000 0 FY07 FY08 FY09 FY10E FY11E FY12E IPA price realization (Rs/mt) 0 -5 -10 Growth y-o-y (%) Source: Company.000 60.561 4. mn) Net Debt @ FY12E (Rs.000mtpa. HDFC Securities Institutional Research 2. mn) # of outstanding stocks (mn) 12m target price (Rs/share) Source: Company. mn) Net Debt @ FY11E (Rs. We have assumed a 10% per annum rise in sales over average sales of FY07-09 for our valuation.650 88 109 The only producer of IPA in India DFPCL has an IPA production capacity of 70.1x. It has also developed cosmetic grade IPA.931 over FY07-09.238 3.941 7.885 4. P/E and P/BV respectively. IPA is used primarily as a solvent in the pharma/electronics/cosmetics industry. the stock is trading at 5. Chart 20: Valuation of Deepak Fertilizers EBITDA @ FY11E (Rs. At the CMP of Rs104. The IPA plant is certified by US Pharmacopeia under excipient verification programme.043 7. Chart 21a: Capacity utilization of IPA plant 100 90 80 70 60 (%) 50 40 30 20 10 0 FY07 FY08 FY09 FY10E FY11E FY12E Chart 21b: Realizations for IPA 70.000 20. 2010 Page 20 (%) 40. 10. and no new capacities announced so far. mn) We value the stock using one year forward EV/EBITDA to derive a target price of Rs109/share Target EV/EBITDA multiple Avg EV of FY11E and FY12E (Rs.000 5 . mn) Avg EBITDA of FY11E and FY12E (Rs. HDFC Securities Institutional Research Source: Company. DFPCL would remain the only producer of IPA in the country.000 50.142 7.8x one year forward EV/EBITDA since 2006. mn) Avg net debt of FY11E and FY12E (Rs. post implementation of NPS Stage-III.8 17.492 9.8x and 1x its one year forward EV/EBITDA. The company has been trading at an average of 4. The average realization of IPA per mt has been Rs51.000 10. mn) EBITDA @ FY12E (Rs.

we assume average utilization of FY08 and FY09 going forward. it has to run the plant to process the take-or-leave volume of natural gas and minimize losses.000mtpa. non-APM gas (R-LNG from Hazira and gas from GAIL) is used for other products. The demand is primarily for production of methanol.5 Source: XI five year plan.7-11. it should also be noted that the company has take-or-pay contract for some natural gas.000 0 FY07 FY08 FY09 FY10E FY11E FY12E Growth y-o-y (%) 40 30 20 10 0 (10) (20) (%) (Rs/MT) TAN price realization (Rs/mt) Source: Company. The advantage is in terms of better transportation. Chart 22a: Demand driver for TAN Sector Copper Zinc Aluminium Cement & Limestone Steel Coal th Domestic Demand Growth (%) 6 8 5-8 9-11 10.Deepak Fertilizers & Petrochemicals Corporation The only producer of prilled TAN in India With a capacity of 132. it is one of the largest producers of TAN in the country. The XIth five year plan envisaged that to support the GDP growth rate.000 6. The expansion is in progress and the plant will be commissioned in Q3FY11. The company maintains that if methanol prices fell below US$200/mt. Mining industry is the main growth driver for TAN.000 2.000mtpa. For our valuation. The landed cost of non-APM gas is roughly US$6/mmBtu for DFPCL. we have assumed that the additional capacity will start contributing in FY12E.000 4. demand of mineral ores would increase by 5-12%. 2010 Page 21 .000 16.000 18. the prilled form is best suited for applications in the explosives industry. It is adding another 300.2 9. Of all forms of TAN available in the market.000 10. we assume a 90% utilization of the plant going forward. even if it is unable to recover its variable costs.000 14.000 12. lower cost and ease of operability in manufacturing explosives. Hence.000 8. it would be unable to recoup its variable cost. Hence. For our valuation. HDFC Securities Institutional Research Source: Company. HDFC Securities Institutional Research Chart 22b: Capacity utilization of TAN plant 92 90 88 86 (%) 84 82 80 78 76 FY07 FY08 FY09 FY10E FY11E FY12E Chart 22c: Realizations for TAN 20. March 12. However. HDFC Securities Institutional Research High natural gas price could be a dampener DFPCL uses ~1mmscmd of natural gas. nitrogenous fertilizers and power generation. While APM gas is used for production of fertilizers and power generation.

000 0 FY07 FY08 FY09 FY10EFY11EFY12E Methanol price realization (Rs/mt) (10.0) (20.000 5. 2010 Page 22 (%) 15. It could add a lifestyle segment and a food court going forward. HDFC Securities Institutional Research Source: Company.0 0. The company plans a face lift for the mall to increase footfalls and revenues.0) (30. the company continues to educate farmers on enhancing quality and farm productivity.Deepak Fertilizers & Petrochemicals Corporation Chart 23a: Capacity utilization of methanol plant 70 60 50 Chart 23b: Price realization for methanol 25. ensuring smoother export to developed countries. Chart 24: Industrial chemicals to drive growth 120 100 80 (%) 60 40 20 0 Q1FY09 Q2FY09 Q3FY09 Q4FY09 Fertilisers Q1FY10 Realty Q2FY10 Others Q3FY10 Chemicals Source: Company.000 . The company also commissioned its specialty fertilizer plant to produce sulfur bentonite.0 40.0 10.0 (Rs/MT) (%) 40 30 20 10 0 FY07 FY08 FY09 FY10E FY11E FY12E 10. Face-lift planned to increase revenues from Ishanya The 5. industrial chemicals accounted for roughly 58% of its revenues. Ishanya has seen rough weather in the economic recession. The fertilizer finds usage in fruits and vegetables. It helps the members in obtaining global Good Agricultural Practices certification. HDFC Securities Institutional Research March 12. More of a chemicals player In FY09.0) Growth y-o-y (%) Source: Company. Going forward. HDFC Securities Institutional Research Nutrient management and advisory services to increase market penetration Through its Mahadhan Saarthie Centres. the company expects this segment to contribute ~70%.5 msq ft specialty mall.0 30.0 20.000 20.000 50.

This is much cheaper than the landed cost of non-APM gas at US$6/mmBtu. Furthermore.5-2/mmBtu. The expertise it has gained in supplying TAN to the explosives industry has emboldened it to diversify into mining consultancy. The company cannot compete with major international players in ammonia pricing. 2010 Page 23 . It is currently in talks with international players for a tie-up to provide consultancy in areas related to over-burden stripping in mines. The company is also thinking of increasing its presence in high margin low volume micronutrients segment. Hence. They source natural gas at US$0. Middle Eastern ammonia manufacturers have access to highly subsidized natural gas. to compete in the market. the government is mulling an increase in APM gas price.Deepak Fertilizers & Petrochemicals Corporation Future triggers for re-rating DFPCL is using its experience to diversify into related businesses. the company is considering diversification into value added ammonia derivates. March 12.

047 5. mn) FY07 6.702 FY10E 9. Loans & Advances Liabilities Provisions Misc expenditure not written off Current Liabilities & Provisions Source: Company.990 3.035 2.450 3.619 50 1.027 (30.903 254 671 1.9) 746 1.376 2.203 4.152 (3.293 373 920 19.046 2.085 500 0 2.5) 1.715 (7.482 8.205 3.313 914 1.754 8.7 459 1.350 2.336 1.482 3.359 1.256 35.116 500 0 2.616 FY12E 10.189 3.558 FY09 8.328 634 209 1.250 2.265 11.848 2.300 0 11.393 2.027 745 209 1.459 37.012 1.440 10.8) 10. 2010 Page 24 .781 1.253 705 5.348 2.657 870 849 2.131 1.579 32.174 2.941 50 1.040 116 370 1.6 FY08 11.090 18.872 28.126 50 1.370 25.5 938 2.213 495 5 2.336 407 134 2.000 14.602 33 897 6.942 2.228 48.953 500 0 3.585 FY11E 9.408 1.7 FY10E 13.767 FY08 7.787 1.500 0 12.840 9.052 890 238 2.453 Shareholders' funds Total Loans Deferred Tax Liability Net Block Capital work in progress Fixed Assets Investments Inventories Sundry Debtors Cash and bank balances Other current assets Loans & advances Current assets.6 515 1.000 11.6 9.989 2.486 8.1 10.142 3.063 6.230 1.394 1.729 43.6 15.405 2.263 317 10 936 4.288 360 8 926 3.039 3.9 FY11E 14.206 1.078 692 7.4 11.713 171 128 1.5 593 2.670 580 1.375 900 1.128 442 12 2.4 FY09 14.873 2.079 6. mn) FY07 8.0 1.4 7.881 7.103 6.250 900 1.125 2.491 FY12E 19.483 8.375 2.930 31.520 2.600 0 9.064 694 1. HDFC Securities Institutional Research Balance Sheet (Rs.494 662 6.499 23.399 Operating Revenues % growth Operating Expenses EBITDA % growth Depreciation EBIT Interest Other Income PBT Exceptional Items Tax Reported PAT % growth Source: Company.5 464 1. HDFC Securities Institutional Research March 12.Deepak Fertilizers & Petrochemicals Corporation Income Statement (Rs.046 900 2.425 360 19 1.653 60.000 13.

0 5.107) 494 (2.6 FY10E 8.160) 538 (1.1 88.064 0 593 (694) 31 (543) 1.2 10.294) 2.584 (76) (380) 2. HDFC Securities Institutional Research Ratio Analysis FY07 FY08 8.537) 859 (1.721 (2.0 0.205 (746) 0 (1.4 21.348 493 1.4 9. HDFC Securities Institutional Research Chart 25: One year forward P/E 180 160 140 120 (Rs) 100 80 60 40 20 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Source: Company.9 10.000) 14 (1.1 4.0 0.6 0.6 FY11E 11.1 1. HDFC Securities Institutional Research (11x) (10x) (9x) (6x) March 12.000) 1.903 254 938 (671) (692) (234) 1.2 18.0 1.7 FY12E 5.4 Source: Company.492 135 (310) 1.678) 1.6 8.0 0.1 10.2 88.5 0.127 1.399 0 1.293 0 459 (373) 222 (1.9 10.2 15.619 FY12E 2.284 1.5 19.6 9.4 7.1 88.1 1.9 3.8 P/E (x) P/BV (x) EV/EBITDA (x) EBITDA margin PAT margin Diluted # of equity shares (mn) Diluted EPS (Rs) RoE (%) RoCE (%) Net debt to equity (x) 10.0 4.Deepak Fertilizers & Petrochemicals Corporation Cash Flow Statement (Rs.622) 241 (21) (361) (142) (42) 317 FY09 2.4 FY09 6.250) (44) (2.7 1.2 12.670 0 515 (580) (43) 160 1.0 20.2 9.3 8.4 16.169) 1.1 5.2 12.491 0 1.000) 1.126 FY11E 1.7 8.689 (2.7 17.4 15.700 0 (352) 1.1 88.8 13.125 (464) 0 (7) 2.4 15.318 133 360 FY08 1.145 (3.9 19. mn) FY07 1.4 1.000) 0 (3.3 6.8 21.2 10.4 0.7 0.941 PBT Exceptional Items Depreciation Tax paid Change in deferred tax liability Change in net working capital Operating cash flow Capex Change in investments Investing cash flows Change in borrowings Other financing activities Dividend paid Financing cash flow Net change in cash Closing cash balance Source: Company.8 88. 2010 Page 25 .1 9.2 5.5 17.200 0 (567) 633 322 1.986) 522 (0) (510) 13 (475) 1.498 (2.000) 0 (2.4 9.602 FY10E 1.451 (2.3 88.

000 8.000 14.000 10. HDFC Securities Institutional Research (1x) (1.1x) (0.9x) (0.000 16.8x) Chart 27: One year forward EV/EBITDA 20.000 6.000 0 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Source: Company. HDFC Securities Institutional Research (6x) (5x) (4x) (3x) March 12.000 2.000 4.000 18.000 12.Deepak Fertilizers & Petrochemicals Corporation Chart 26: One year forward P/BV 180 160 140 120 (Rs) 100 80 60 40 20 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Source: Company. 2010 (Rs mn) Page 26 .

bhushan@hdfcsec.168 Key Stock Data Sector Reuters Code BLOOMBERG Code No.2 CFCL’s foray into shipping and textiles provides it additional sources of income.181 20.4x its one year forward P/E.9 1. The recent hike of 10% in urea retail price will reduce the subsidy burden of the company.210 20. Margins in the textiles segment were hit due to 40% hike in minimum support price of cotton.5 0.8 69.0) 13. The government is likely to announce a new urea investment policy in the light of the current and medium term supply gap in the domestic market.1 8.5 7. We value the stock at Rs82/share.6 325 The largest private sector urea manufacturer With a reassessed capacity of 1. Deregulation of DAP and MOP will also improve margins further. mn) Fertilizers CHMB.2 -1.21 52.2 Sensex and Stock Movement Sensex 230 185 140 95 50 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Chambal Op Revenues (Rs.4x and 1.3 We recommend a BUY with a 12m price target of Rs82/share The stock is currently trading at 7.0 21.6 7.36 (19.416 8.4 0.813 4. Using the same average multiple and average EBITDA of FY11E and FY12E. With the recent hike of 10% in retail prices. Shipping and textiles contributed 15% of its standalone revenues in FY09.083 2.7 1.1 3.2 24.2 8.6) 22.3 17.6 -36.000DWT. CFCL has diversified into shipping and textiles. FY07 FY08 32. 2010 Page 27 .653 11. its subsidy burden is expected to come down.2 1. The shipping segment had an EBITDA margin of 43% in FY09 and textiles 5%.9 2.2 17.60 (51.485 17.5 13.2x.642 8.4 7.com 91-22-6171 7327 D/E (x) P/B (x) Source: Company. CFCL has the largest urea manufacturing capacity in the country in the private sector.4 FY12E 48.8 1.4 3. CFCL exports ~25% of its textile production to Europe and Asia.4 3. FIIs Public & Others Source : Company (%) 53.2 4.974 6.73mmtpa. Diversified into shipping and textiles Stock Performance (%) 52 . With another ship joining the fleet in Q1CY10. The company is likely to take advantage of the favorable policy. At CMP of Rs59/share.6 17.22 52.055 5. it provides an upside of 38%.0 1.6 2.8 2.3) 11.529 8. It has five Aframax tankers with a total capacity of 5.9 1.8 7.00.469 4.4 5. The company is likely to benefit from this. an upside of 38% over the CMP.422 8.9 1. The government is likely to come up with a new urea investment policy to encourage investment in the sector.133 17.641 15. The company has been trading at an average one year forward EV/EBITDA of 5. It clocked a utilization rate of 110% in FY09.Chambal Fertilizers & Chemicals BUY CMP Target Stock Return 59 82 38% Chambal Fertilizers & Chemicals Chambal Fertilizers & Chemicals Ltd (Cfcl) is the largest private player in urea. mn) Adj EPS (Rs) EPS growth (%) P/E (x) ROE (%) ROCE (%) EV/EBITDA (x) 29.6 4.9 FY10E 45. mn) EBITDA margin (%) Adj Net Profit (Rs.9x since 2006 post implementation of NPS Stage-III.8 2.2 2. 5.7 5. HDFC Securities Institutional Research March 12.7 Swarnendu Bhushan swarnendu.48 57.7 8.8 12. mn) EBITDA (Rs.25 (2.8 5.2 25. Birla Textiles Mills has a spindle capacity of 83.2 17.049 15.064 9.1 3. EV/EBITDA and P/BV respectively.376 units.187 5. Both contribute ~15% of the standalone revenues and are expected to improve margins as shipping rates improve.Week high / low Rs75 / 34 3M 6M 12M Absolute (%) Relative (%) -1. contribution will grow further.BO CHMB IN 416.7 1.8 6.8 9. Nifty Sensex 5.1 FY09 55.716 9. we derive at the 12m target price at Rs82/share.0 1. of Shares (mn) Market Cap (Rs bn) Market Cap ($ bn) 6 mth avg traded value (Rs. Shareholding Pattern Promoters FIs.6 FY11E 45.3 9.5 29.

this will not have any effect on earnings in the near term.428 34.4% of its standalone revenues in FY09. HDFC Securities Institutional Research 1.9% in FY09.97mmt in FY09. However. mn) Net Debt @ FY11E (Rs. 2010 Page 28 . With sales of 1. the dependence on subsidies will decrease. mn) Avg net debt of FY11E and FY12E (Rs. Chart 29: Decrease in subsidy for CFCL due to 10% hike in urea price Urea production (mmt) Existing retail price (Rs/ton) Increase in retail price (%) Decrease in subsidy for CFCL (Rs. EV/EBITDA and P/BV respectively. post implementation of NPS Stage-III. HDFC Securities Institutional Research 9. The company has been trading at an average of 5. mn) Target EV/EBITDA multiple Avg EV of FY11E and FY12E (Rs. mn) # of outstanding stocks (mn) 12m target price (Rs/share) Source: Company.059 416.487 20. mn) Source: Company. March 12.2x.9x one year forward EV/EBITDA since 2006. The government recently hiked the retail price of urea by 10%.485 8. CFCL is likely to take advantage of this. Chart 28: Valuation of CFCL EBITDA @ FY11E (Rs.4x and 1.73 4. Although this will not have any impact on earnings. It further engages in trading of fertilizers which accounted for 28.3% of its standalone revenues. DAP accounted for 75.Chambal Fertilizers & Chemicals Valuation We have used one year forward average EV/EBITDA for valuation of CFCL. With revenues of Rs11. The EBITDA margin from the fertilizer segment was 11.833 5.2 82 Fertilizer policies key to future earnings With a reassessed capacity of 1.5% of traded products in FY09. CFCL is the largest private manufacturer of urea in the country. At the CMP of Rs59.73mmtpa.181 8.6 The government is also likely to come up with a new investment policy for capacity expansions in urea manufacturing.582mn. the stock is trading at 7. mn) Avg market cap of FY11E and FY12E (Rs.830 10 835.365 18. mn) Net Debt @ FY12E (Rs.4x its one year forward P/E. it accounted for 50. 5. mn) Avg EBITDA of FY11E and FY12E (Rs. mn) EBITDA @ FY12E (Rs.9 52.491 16.

000 200 150 100 50 0 -50 -100 (Rs/mt) (%) 200 100 0 15. The rates fell sharply in 2009 due to lower demand of oil.Decontrol of DAP and MOP To implement nutrient based subsidy. HDFC Securities Institutional Research Source: Company.000 25. Ratna Shradha and Ratna Namrata.Ratna Urvi. Ratna Puja.000 10. Nonetheless. it added another ship in Q1CY10.000 5.000 6.000 2. HDFC Securities Institutional Research Nutrient based subsidy .000 10. we do not expect this to have an effect on the earnings before H2FY11. This capacity is divided among five Aframax tankers. the government has decontrolled DAP and MOP.000 50. as oil demand is likely to increase in 2010.000 0 FY10E FY07 FY08 FY09 FY12E FY11E FY06 30 25 20 15 10 5 0 -5 -10 -15 (%) 112 110 108 106 104 FY06 FY07 FY08 FY09 FY10E FY11E FY12E Urea price realization (Rs/ton) Growth y-o-y (%) Source: Company. In addition to this.000 30. we have taken FY11E realization to be the same as FY10E and FY12E realizations 5% higher than that of FY11E.000 10.000 (%) . the rates are also likely to improve going forward. HDFC Securities Institutional Research Source: Company.00.000 0 FY07 FY08 FY09 FY10E FY11E FY12E FY06 600 500 400 Chart 31b: MOP realizations 35.000 4.000 0 (100) FY10E FY11E DAP realizations (Rs/ton) Growth y-o-y (%) MOP realizations (Rs/ton) Growth y-o-y (%) Source: Company. HDFC Securities Institutional Research Contribution from shipping segment to rise CFCL forayed into shipping by acquiring India Steamship in 2004.Chambal Fertilizers & Chemicals Chart 30a: Urea plant utilization 118 116 114 Chart 30b: Urea realizations 14.000DWT.000 (Rs/mt) 8. However. We expect earnings to rise.000 30. Chart 31a: DAP realizations 60. Ratna Shruti.000 12. Clarity is yet to emerge on this.000 20. 2010 Page 29 FY12E FY06 FY07 FY08 FY09 (%) 300 20. March 12. In the absence of further details. India steamship has a total capacity of 5.000 (Rs/mt) 40.

It has a capacity of 83. IMACID.768mn and EBITDA margin of 5.500 2. 2010 Page 30 . March 12.3 lakh tonnes to 3.500 1.000 1. HDFC Securities Institutional Research Textile segment unlikely to be a major contributor CFCL forayed into textiles by establishing Birla Textiles Mills in 2000.66% each to Tata Chemicals in 2005.000 2.4% in FY09.000 4.000 500 0 FY06 FY07 FY08 FY09 FY10E FY11E FY12E Source: Company. CFCL exported nearly 25% of its textiles to Europe and Asia. The capacity was increased from 3. Morocco In one of the largest private investments by an Indian company. We expect the contribution to remain at these levels going forward. Morocco to produce liquid sulphur and phosphoric acid.500 (Rs. CFCL and OCP later divested 16.65 lakh tonnes after de-bottlenecking in 2004. Production commenced in 1999.376 spindles at Baddi.000 3. CFCL entered into a JV with Office Cherifien Des Phosphates (OCP). mn) 3.Chambal Fertilizers & Chemicals Chart 32: Shipping revenues 5. This segment reported revenues of Rs2.500 4.

172 1.864 6.619 1.545 3.998 1.850 1.690 1 18.6 49.547 2.719 0 1.495 1.117 3. mn) FY07 9.000 0 3.177 2.819 26 25.699 3.4 2.000 0 3.137 FY12E 20.849 859 11.829 4.880 4.642 7.710 44 1.027 2.4) 24.000 0 3.874 0 3.529 3.449 3.064 (1.8 27.188 82 1.3) 36.119 337 1.386 738 3.435 3.321 6.422 (3.950 7.6 FY10E 45.539 6.737 1.800 0 24.435 Shareholders' funds Others Total Loans Deferred Tax Liability Net Block Capital work in progress Fixed Assets Intangible assets Investments Goodwill Inventories Sundry Debtors Cash and bank balances Other current assets Loans & advances Current assets.226 FY09 12.529 3.592 313 4.181 (0.288 17 17.243 2.422 3.120 2.062 416 4.591 993 795 2.361 981 218 736 3. HDFC Securities Institutional Research Balance Sheet (Rs.716 (18.739 87 688 1.129 45 20.797 1.855 6.430 2.9 40.9) 2.520 1.193 0 3.2 FY11E 45.390 0 26.049 8.083 (32.3 FY12E 48.000 26. 2010 Page 31 .Chambal Fertilizers & Chemicals Income Statement Income Statement (Rs.3) 2.363 1.521 1.122 FY10E 15.3) FY08 32.211 16.026 1.359 3.035 1.8 2.038 3.393 66 1.297 3.500 2.006 5.266 1.416 56.485 (7. Loans & Advances Liabilities Provisions Misc expenditure not written off Current Liabilities & Provisions Source: Company.547 2.683 2.656 2.589 0 17.940 310 4.686 6.902 2.185 6.851 1.000 30.121 16.074 15.469 (4.509 3.822 17.156 8.016 6.356 2.4 FY09 55.306 3.500 2.653 31.791 6.8 2.247 31.813 67.900 FY08 11.393 726 756 2.506 9.337 3. HDFC Securities Institutional Research March 12.400 0 8.861 2.139 16.4) 35.439 2.000 28.075 223 0 3.000 0 26.836 1.6) 2.500 2.641 (2.487 5.861 0 3.319 6.145 24.974 74.275 6.883 9.124 4.390 14 4.874 2.197 FY11E 18.400 0 8.213 1.0) Operating Revenues % growth Operating Expenses EBITDA % growth Depreciation EBIT Interest Other Income PBT Exceptional item Tax PAT Adj PAT % growth Source: Company.458 2.817 3.527 19.210 38.547 0 3.055 8.137 1.400 21.187 20.662 23.321 3.400 0 8.082 12.405 25 3.866 0 1.447 3.294 7. mn) FY07 29.043 0 22.281 29.500 0 28.

119 2.393 FY08 3.6 FY10E 7.8 2.9 6.5 FY09 11.4 17.2 1.425) 56 1.973 87 (876) 10.487 (1.1 FY08 13.120 (688) (757) (5.Chambal Fertilizers & Chemicals Cash Flow Statement (Rs.6 2.502 (500) 0 0 (500) (4.000) 0 0 (1.962) 1.458 (756) (706) 171 4.4 7.9x) March 12.6 4.579) 1.286 (5) 736 (1.946) (5) (1) (6.9 20. HDFC Securities Institutional Research (2.7x) (1.321 FY10E 4.0 1.8 1.2 5.2 8.686 (1.60 12.300) (2.200) 0 (876) (5.493 (212) (876) 5.2 8.449 FY09 3.866 2.8 5.2 8.2 4. mn) FY07 1.235) (2.1 8.719 2.297) 0 (408) 5.826 2.2 1.7 8.855 (1.4 5.509 FY12E 4.3 1.953) 10.500) (0) (876) (5.4 416.536) (10.7 0.031 (876) (1.6 FY11E 7.1 7.4 4.076) (74) 1.817 (1.805) (13.435 PBT Depreciation Tax paid Change in deferred tax liability Change in net working capital Operating cash flow Capex Change in investments Change in goodwill Investing cash flows (3.280) (2.36 17.307) 1.22 17.8 11.9 416.359 FY11E 4.7 9.2 2.198 10.8 15.270 2.9 20.2 8.376) 151 1.500) 193 0 (1.214) (1. 2010 (Rs) Page 32 .9 3. HDFC Securities Institutional Research Chart 33: One year forward P/E 100 90 80 70 60 50 40 30 20 10 0 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Source: Company.6 416.8 416.3 1.000) (4.1 3.8 P/E (x) P/BV (x) EV/EBITDA (x) EBITDA margin Adj PAT margin Diluted # of equity shares (mn) Diluted Adj EPS (Rs) RoE (%) RoCE (%) Net debt to equity (x) Source: Company.25 17.4 7.7 3.027) (540) 6.527 (1.1x) (1.2 1.249) Change in borrowings Issuance of equity Dividend paid Financing cash flow Net change in cash Closing cash balance Source: Company.2 5.800) (6.718 (2. HDFC Securities Institutional Research Ratio Analysis Ratio Analysis FY07 22.8 2.48 21.6 1.872 4.753 2.8 5.281) (5.184 431 1.5x) (0.1 9.0 15.0 416.1 FY12E 7.969) 0 6.5 416.404 2.337) 0 312 6.306) (3.21 24.462 (26) (876) 560 (2.

000 45.000 50. 2010 (Rs mn) Page 33 .000 55.000 40.5x) (5.000 15.0x) (4. HDFC Securities Institutional Research (10x) (8x) (7x) (5x) Chart 35: One year forward EV/EBITDA 65.000 25.000 60. HDFC Securities Institutional Research (Rs) (6.000 20.5x) (5.000 35.5x) March 12.Chambal Fertilizers & Chemicals Chart 34: One year forward P/BV 100 90 80 70 60 50 40 30 20 10 0 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Source: Company.000 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Source: Company.000 30.

8 2. in Tunisia for manufacturing phosphoric acid. mn) 1.5 0. Maharashtra.101 EPS 9.039 14. CIL has also set up a subsidiary.96 EPS growth (%) 21.31mmtpa of ammonium phosphatic fertilizers.9 14. CIL’s pesticide business grew by 23% in FY09 to Rs3bn. It is primarily into fertilizers.6 FY10E 63.3 34. Its presence in the international market will help tide over any adverse effect of poor domestic agricultural activity and cheaper imports.336 8. It has also set up rural retail stores across Andhra Pradesh. Pesticides.0 275.D.6 62.6 29.3 1.107 8. Coromandel Getax Phosphates Pte Ltd in Singapore and is setting up a phosphoric acid manufacturing plant through a JV in Tunisia. With over 400 rural retail centers.741 33.3 8.0 Net Profit (Rs. CIL is also setting up a JV. of Shares (mn) Market Cap (Rs bn) Market Cap ($ bn) 6 mth avg traded value (Rs. 0. mn) Fertilizers CORF. Coromandel Brasil Ltd for exporting its pesticides to Latin America.815mmtpa of DAP and 0. Tamil Nadu.3 5.BO CRIN IN 140.9 55.77 14.9 67.13 14.6 21.128 EBITDA margin (%) 9.8x since 2006 post implementation of NPS Stage-III.3 0.133 17. P/E and EV/EBITDA respectively.6 63.Week high / low Rs323 / 80 3M 6M 12M Absolute (%) Relative (%) 35. The plant is expected to be commissioned by 2011.5 5. it provides an upside of 3%.595 39.4 16.bhushan@hdfcsec.3 31.4 13. Commissioning of the Tunisian JV in 2011 will further boost profitability.9 P/E (x) 34.815mmtpa of DAP and 0.9 1 27 One of the largest manufacturers of phosphatic fertilizers With a capacity of 2.913 8.132mmtpa of SSP.2 34. FIIs Public & Others Source : Company (%) 64.901 13.994 4.3 FY12E 67. which holds 62.com 91-22-6171 7327 March 12.7 18.0 1.5 3. the stock has been trading above 5x its one year forward EV/EBITDA.0 7. 0.3) 9. However.6 22. Gujarat and Jammu & Kashmir.3 5. The company has been trading at an average one year forward EV/EBITDA of 4.2 ROCE (%) 9.9 4. the pesticides business witnessed a growth of 23% in FY09.3 EV/EBITDA (x) 28.5 6.7x its one year forward P/BV.2 7.854 41.294 9. 2010 Page 34 . 8.87% equity.3 43.5 2. Stock Performance (%) 52 . pesticides and specialty chemicals.3x.6 27. it has set up a JV.168 Key Stock Data Sector Reuters Code BLOOMBERG Code No. Parry (India).133 36.83 (15.3 5.8 5.174 14. the company is expected to benefit from increasing purchasing power in rural areas. At the CMP of Rs316/share. mn) 979 2.9 170.6 6.0 D/E (x) 1. as expectations rose on deregulation of fertilizers other than urea.9 FY11E 64.9 Sensex and Stock Movement Sensex 350 300 250 200 150 100 50 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Coromandel Swarnendu Bhushan swarnendu.3 7. To ensure efficient sourcing of rock phosphate.1 Shareholding Pattern Promoters FIs. Nifty Sensex 5.132mmtpa of SSP. HDFC Securities Institutional Research FY09 95. CIL’s specialty nutrient segment offers products in secondary and micro-nutrients.63 8.6x and 5. water soluble fertilizers and municipal compost.Coromandel International HOLD CMP Target Stock Return 316 326 3% Coromandel International Ltd (CIL) CIL belongs to the Murugappa Group and is a subsidiary of E.706 10. CIL has a capacity of 2.I.573 EBITDA (Rs.8 7.1 ROE (%) 19.8 14. The company has 8 manufacturing plants in Andhra Pradesh.92 166.6 11. TIFERT.31mmtpa of ammonium phosphatic fertilizers. FY07 FY08 Op Revenues 20. We value the stock using 5x the average EBITDA of FY11E and FY12E to arrive at 12m target price at Rs326/share. specialty nutrients & rural retail to provide additional momentum With a revenue of Rs3bn.7 23.665 37.6 P/B (x) Source: Company.0 We recommend a HOLD with a 12m price target of Rs326/share The stock is currently trading at 2.6 20.1 1.7 0. CIL is one of the largest manufacturers of phosphatic fertilizers in the country.

0 48. the stock has been trading at above 5x its one year forward EBITDA. mn) Target EV/EBITDA multiple Avg EV of FY11E and FY12E (Rs.039 9. Hence. we value the stock using 5x its one year forward EV/EBITDA to arrive at a 12m target price of Rs326/share.032 4. At the CMP of Rs316. mn) Net Debt @ FY12E (Rs.3x.174 10. The project is scheduled to be commissioned by 2011. mn) Net Debt @ FY11E (Rs.6x and 5.815mmtpa of DAP and 0. P/E and EV/EBITDA respectively.602 140 326 One of the largest manufacturers of phosphatic fertilizers CIL has a total capacity of 2. On the basis of this expectation. 0. Fertilizers contributed 73% of the standalone revenues in FY09. 8. we expect it will take some time for significant change in revenues/profitability. The project cost is estimated at US$550mn. The recent deregulation of DAP and MOP prices will benefit the company going forward. 2010 Page 35 . We do not expect significant change in the segmental contributions going forward. mn) Avg market cap of FY11E and FY12E (Rs. CIL will be investing US$29mn for 15% equity in the project. it provides an upside of 3%. TIFERT. However. mn) # of outstanding stocks (mn) 12m target price (Rs/share) Source: Company. as sufficient clarity is yet to emerge on the nutrient based subsidy mechanism.429 45. The stock has spurted recently on expectation of partial deregulation of the fertilizer sector. which is setting up a manufacturing plant for phosphoric acid. mn) Avg net debt of FY11E and FY12E (Rs. mn) EBITDA @ FY12E (Rs.7x its one year forward P/BV. March 12.132mmtpa of SSP. HDFC Securities Institutional Research 9. CIL has set up a JV in Singapore. Coromandel Getax Phosphates Pte Ltd for sourcing of rock phosphate.466 393 2.606 5. Chart 36: Valuation of CIL EBITDA @ FY11E (Rs.31mmtpa of ammonium phosphatic fertilizers. It has also set up a JV in Tunisia. The government recently announced the introduction of nutrient based subsidy and freed prices for DAP and MOP.Coromandel International Valuation CIL is currently trading at 2. mn) Avg EBITDA of FY11E and FY12E (Rs.

the initiative is expected to add further to the topline of the company.Coromandel International Chart 37: Fertilizers contributed 73% of the revenues in FY09 Others 12% Pesticides 15% Fertilizers 73% Source: Company. 2010 Page 36 . In 2008. access to international markets is a crucial hedge against any downside in domestic supply.57 Specialty nutrient segment CIL offers products across secondary & micro nutrients (bentonite sulphur. the demand of agrochemicals in India is closely related to the agro-climatic conditions prevailing in these states. CIL has an R&D pilot plant at Visak where it develops customized fertilizers. Revenues from traded goods in these centers stood at Rs2bn in FY09.6 3 3 0. Coromandel Brasil Ltd to expand its pesticides business. zinc. Chart 38: Fertilizers contributed 73% of the revenues in FY09 Country Consumption (Kg/hectare) Taiwan Japan Korea Europe USA India Source: XI five year plan document. water soluble fertilizers (all major grades popular in the country) and municipal compost. Hence. CIL has a JV. HDFC Securities Institutional Research Pesticides contribute Rs3bn of revenues in FY09 With over-dependence on a few crops and a few states. CIL is the market leader in bentonite sulphur. HDFC Securities Institutional Research 17 12 6.57kg/hectare. it also introduced lifestyle products on a trial basis in seven centers. March 12. India has one of the lowest usage of pesticides at 0. It currently has more than 400 such centers. Rural retail initiative CIL forayed into rural retail through opening Maha Gromor Centre (MGC) in 2007 to sell agrirelated products. It has extended the sale of lifestyle products to 50 centers by March 2009. sulpho zinc and boron). CIL received exclusive manufacturing and marketing permission for two new WSF grades from government for three years. With increase in rural purchasing power.

493 713 3.634 8.208 15.236 400 7.735 3.435 457 979 17.901 9.001 5.005 2.238 2.174 3.887 3.359 16.402 718 12.011 8.120 9.859 1.545 876 2.854 14. mn) FY07 FY08 FY09 FY10E FY11E FY12E Operating Revenues % growth Operating Expenses EBITDA % growth Depreciation EBIT Interest Other Income PBT Tax PAT % growth 20.667 10.200 19.649 999 1.108 2. 2010 Page 37 . HDFC Securities Institutional Research Balance Sheet Balance Sheet (Rs.994 33.1 746 8.000 10.3 57.048 1.587 31.039 9.0 522 3.100 0 7.594 320 160 1.696 2.605 400 8. mn) FY07 FY08 FY09 FY10E FY11E FY12E Shareholders' funds Total Loans Deferred Tax Liability Net Block Capital work in progress Fixed Assets Investments 5.033 0 7.537 8.511 5.336 153.859 2.803 10.985 7.606 699 432 3.873 2.3 399 1.459 400 7.253 8.800 0 7.454 Liabilities Provisions Current Liabilities & Provisions 5.428 732 0 7.300 0 7.665 11. Loans & Advances 4.475 1.474 11.541 1.446 4.015 4.120 17.059 13.242 17.688 278 7.249 6.149 8.450 13.966 2.8 761 8.141 1.790 5.0) 55.029 1.107 9.528 38.4 724 9.695 0 4.101 114.563 5.581 1.761 113 3.741 (15.200 Inventories Sundry Debtors Cash and bank balances Other current assets Loans & advances Current assets.3) 64.072 2.783 1.741 Source: Company.339 1.115 7.706 5.636 2.3 67.156 34.206 8.777 2.573 81.923 5.107 96.7 87.7 95.899 4. HDFC Securities Institutional Research March 12.939 19.200 14.913 (33.3 63.6 55.384 1.644 32.8 33.200 13.907 8.200 23.0 37.4 562 7.040 1.211 1.Coromandel International Income Statement Income Statement (Rs.714 8.128 107.708 795 7.066 8.983 12.389 11.074 8.371 613 5.6 18.140 5.671 1.367 4.316 539 0 8.390 2.051 8.133 8.000 9.294 0.626 12.200 14.955 10.595 166.229 8.431 825 7.0 Source: Company.294 108 7.000 9.

273 Closing cash balance 1.5 FY11E 8.253 3.696 746 (2.5 0.83 34.654) (1.154 3.222 225 (299) 1.637) 5.5 5.6 0.9 9.8 8.1x) (1.177) (50) 7.108 761 (2.367) (795) 2.6 1.238) 111 (5.277 206 (1.63 29.7 14.695 1.072 4.339 522 (1.77 27.563) 0 19 5.6 14.6 4.201) 1.537 4.3 6.6 20.0 11.7 18.7 128 9.397 (2.281 (623) 7.4 140 33.6 7.284 Capex Change in investments Investing cash flows (586) (283) (868) (4.0 P/E (x) P/BV (x) EV/EBITDA (x) EBITDA margin PAT margin Diluted # of equity shares (mn) Diluted EPS (Rs) RoE (%) RoCE (%) Net debt to equity (x) 34. mn) FY07 FY08 FY09 FY10E FY11E FY12E PBT Depreciation Tax paid Change in deferred tax liability Change in net working capital Operating cash flow 1.181 (5.2 FY12E 7.435 399 (457) (38) (185) 1.250) 8. 2010 Page 38 .735 562 (3.92 55.96 31.7 140 39.501) (4.3x) March 12.800) 0 (1.700) 0 (1.2 14. HDFC Securities Institutional Research Ratio Analysis FY07 FY08 21.908) 0 (1.126) (1.663 7.140) (30) (6.148 1.13 19.8 0.512) 1.616) (800) 8 (792) (600) 0 (600) (500) 0 (500) Change in borrowings Issuance of equity Dividend paid Financing cash flow Net change in cash 1.6 2.907 Source: Company.6 7. HDFC Securities Institutional Research (2.634 5.3 9.7 Source: Company.9 3.7 23.0 140 36.434 4.3 2.4 16.294) (716) (2.923) 0 (293) 6.9 6.5x) (2.3 1. HDFC Securities Institutional Research Chart 39: One year forward P/E 350 300 250 (Rs) 200 150 100 50 0 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Source: Company.0 5.984) (3.3 0.938 916 (573) 5.2 1.712) (4.5x) (1.898 8.9 5.Coromandel International Cash Flow Statement (Rs.490) (2.5 13.098 (2.3 28.847 3.6 140 41.3 14.370 7.5 140 14.777 724 (2.9 7.1 FY10E 9.1 5.386) (7.051) 1.3 8.1 8.2 FY09 7.

5x) (4.000 40.000 10.5x) (3. HDFC Securities Institutional Research (8x) (5.000 50.000 20. 2010 Page 39 .5x) Chart 41: One year forward EV/EBITDA 60.5x) (3x) March 12.5x) (3.Coromandel International Chart 40: One year forward P/BV 350 300 250 (Rs) 200 150 100 50 0 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Source: Company.000 0 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Source: Company.5x) (4. HDFC Securities Institutional Research (5.000 (Rs mn) 30.

2 3.0 1. P/E and EV/EBITDA respectively.4 7.926 6.6 71.1 13. P/E and EV/EBITDA respectively. ZIL sold 0. real estate.bhushan@hdfcsec.BO ZUAR IN 29. Israel.3 3. mn) EPS EPS growth (%) P/E (x) ROE (%) ROCE (%) 36. has a total capacity of 0.175 8.A.1bn in FY09. petroleum terminalling services and specialty fertilizers.168 Key Stock Data Sector Reuters Code BLOOMBERG Code No.4 0. JVs to increase contribution going forward Through its subsidiaries and JVs. Morocco.0 3.884 131.9 20.2 0. PPL.3 4. EPC.235 109.9 7.8 Swarnendu Bhushan swarnendu. cement. cement.9x.9x.325 45.23mmtpa cement plant and a 50MW power plant at Gulbarga while Zuari Rotem Specialty Fertilisers Ltd.0 65.0 39.0 5.2 0.4x and 5.9 4.1 Shareholding Pattern Promoters FIs. terminalling services of petroleum products and EPC.141 38.225mmtpa which meets about 50% of the requirement of PPL.024 102.Week high / low Rs633 / 110 3M 6M 12M Absolute (%) Relative (%) 34. Negev Ltd. PPL also has a phosphoric acid plant of 0.5 4.8 1.200tpd of complex fertilizers. FIIs Public & Others Source : Company (%) 34.0 5.4 1.3x and 4.1 3. FY07 FY08 FY09 FY10E FY11E FY12E Sensex and Stock Movement Sensex 450 370 290 210 130 50 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Zuari Op Revenues EBITDA (Rs.3) 5.com 91-22-6171 7327 EV/EBITDA (x) D/E (x) P/B (x) 1.181 6.3 67.7 Source: Company. it holds 40% stake in Paradeep Phosphates Ltd (PPL). PPL recorded sales of Rs56. 2010 Page 40 . Subsidiaries.8 417.4 25.8 (13.132 2. With nutrient based subsidy and freeing of prices.9 0. The specialty fertilizer plant will initially produce 19:19:19 and 20:20:20 grades and later other grades would be added as per market demand.8 1.7 2. is expected to gain from the nutrient based subsidy regime going forward.4 17.7 165.055 8.5 We recommend a BUY with a 12m price target of Rs805/share The stock is currently trading at 0.4 2. Nifty Sensex 5. the stock is trading at 0. mn) Fertilizers ZURI.374 8. HDFC Securities Institutional Research March 12.203 5. thereby ensuring lesser exposure to highly volatile phosphoric acid prices. a JV with Rotem Amfert.4 10. Its wholly owned subsidiary Gulbarga Cement is constructing a 3. mn) EBITDA margin (%) Net Profit (Rs.988 2. in which it has 40% stake. With respect to FY11E.4 19.4 25.000mtpa of water soluble fertilizers.9) 15. It is a significant player in urea with a reassessed capacity of 0. We value the stock using the same average multiple 5x and the average EBITDA of FY11E and FY12E to arrive at 12m target price at Rs805/share. Using EV/EBITDA of 5x.8 7.3 30.0 1. real estate.4 65 One of the largest manufacturers of phosphatic & complex fertilizers ZIL has a total capacity of 2.. Through its 50:50 JV with Maroc Phosphore S. is constructing a plant to produce 24.6 9. hybrid seeds. it provides an upside of 38%.8 3.9 0.72mmtpa of DAP and other phosphatic fertilizers.1 40.2 11.1 0.5 (0.1x its one year forward P/BV. ZIL is also diversified into furniture.686 3. of Shares (mn) Market Cap (Rs bn) Market Cap ($ bn) 6 mth avg traded value (Rs.133 17.0 216.6 14.7 65. Zuari is likely to gain tremendously. ZIL has presence in furniture.0 14.Zuari Industries BUY CMP Target Stock Return 583 805 38% Zuari Industries Ltd (ZIL) ZIL.7 5. Stock Performance (%) 52 .3 72.6 14.290 8.4mmtpa. We initiate coverage on ZIL with a BUY recommendation. a major player in phosphatic fertilizers. we arrive at a 12m target price of Rs805/share.5 0. 5.533 2. Through its subsidiaries and JVs. At the CMP of Rs583/share. The company has been trading at an average one year forward EV/EBITDA of 5x since 2006 post implementation of NPS Stage-III.3x P/BV.25mmt of DAP in FY09.224 109.1 312.33mmt of MOP and 0.3 18.5 34.371 5. 5.8 13.1 24.0 88.

Zuari Seeds Ltd (ZSL). ZSL has launched Bt. Chart 42: Valuation of ZIL EBITDA @ FY11E (Rs. mn) Target EV/EBITDA multiple Avg EV of FY11E and FY12E (Rs.100tpd. ZSl recorded sales of Rs0.45% stake in PPL. With respect to FY11E.4x and 5.704 29.. mn) Avg market cap of FY11E and FY12E (Rs. Ammonia plant has a capacity of 660tpd. Republic of Nauru exited in 1993. mn) # of outstanding stocks (mn) 12m target price (Rs/share) Source: Company.000 units annually. 2010 Page 41 .ft. The facility has four plants. The Goan plant was the result of collaboration between Birlas.374 6. The stock is currently trading at 0. the stock is trading at 0. Cotton and sold 125. mn) Net Debt @ FY11E (Rs. a 15% y-o-y increase. Indian Furniture Products Ltd (IFPL) manufactures ready-to-assemble furniture at its plant at Kakkalur.623 2. and has the capacity to produce 200. is into the business of hybrid seeds. The plant is spread over an area of 225. mn) Avg net debt of FY11E and FY12E (Rs. International Finance Corporation and the Bank of America. ZIL’s another wholly owned subsidiary. Chennai. Subsidiaries and JVs ZIL’s wholly owned subsidiary. DAP plant came into operation in 1986 followed by sulphuric acid. The phosphoric acid plant provides for 50% consumption requirements of PPL. We value the stock using the same average multiple 5x and the average EBITDA of FY11E and FY12E to arrive at 12m target price at Rs805/share.4mmtpa. P/E and EV/EBITDA respectively.000 in FY09. HDFC Securities Institutional Research 5. The urea manufacturing plant has a reassessed capacity of 0. Morocco. March 12. Morocco which currently owns 80.000sq. The facility has two plants to manufacture complex fertilizers.337 6. which was turned into a JV with Republic of Nauru. it provides an upside of 38%.4 805 Strong presence in phosphatic and complex fertilizers Zuari’s fertilizer plant was established in 1973. Government of India divested its stake in 2002 to 50:50 JV of ZIL and Maroc Phosphate S. At the CMP of Rs583/share.9x.0 28. The urea plant is currently using naphtha as a feedstock.055 5. mn) EBITDA @ FY12E (Rs. ZIL has signed a deal with GAIL for using RLNG as feedstock for its urea plant from 1st Jan 2013.1x its one year forward P/BV.A. thus shielding it partially from highly volatile phosphoric acid prices. ZIL also has 40% stake in PPL through its JV with Maroc Phosphore S.3bn in FY09. mn) Net Debt @ FY12E (Rs. The company has been trading at an average one year forward EV/EBITDA of 5x since 2006 post implementation of NPS Stage-III.3x and 5. 5. mn) Avg EBITDA of FY11E and FY12E (Rs.633 23. phosphoric acid and power plant in 1992.644 4. The revenue in FY09 was Rs1bn. each with a capacity of 1. US Steel Corporation. ZIL’s stock has surged northwards in the last few months.714 5.Zuari Industries Valuation With expectations of partial deregulation of the sector. PPL was incorporated as a public sector company in 1981.A.. It aims to double this number in FY10E. 5. P/E and EV/EBITDA respectively.9x.1x P/BV.

ZIL has a 50:50 JV with Indian Oil Tanking Ltd which provides terminalling facility for petroleum products naphtha. It recorded revenues of Rs1. Karnataka. 2010 Page 42 . ZIL has a 50:50 JV with Rotem Amfert Negev Ltd. which has three subsidiaries. GCL has mining lease for 989 hectares in Gulbarga. Zuari Chambal Insurance Brokers Ltd. The JV has a stake of 80. The 24.18mmt of traded fertilizers.000mt plant will initially produce water soluble fertilizer grades 19:19:19 and 20:20:20. Zuari Developers Pvt Ltd.45% in PPL. March 12. Zuari Commodity Trading Ltd. another wholly owned subsidiary. The company is setting up 3. PPL recorded sales of Rs56. ZIL has a 50:50 JV with Maroc Phophates S. The JV is constructing a plant at Baramati..67% stake in Zuari Investments Ltd. and Zuari Financial Services Ltd.1bn in FY09 by selling 1mmt of its own produced fertilizers and 0. ZIL has 66. It has an order book of Rs4bn worth of projects in India and overseas. Morocco. It will later be used for manufacturing other water soluble fertilizers. Israel for manufacturing specialty fertilizers. provides EPC services. Zuari Infrastructure & Developers Ltd (ZIDL) was incorporated to develop IT and ITES SEZs. GCL is in the process of land acquisition and obtaining other regulatory approvals for the project. high speed diesel and kerosene.5bn in FY09. another wholly owned subsidiary.23mmtpa cement plant and a 50MW power plant in Gulbarga.Zuari Industries Simon India Ltd (SIL). motor spirit.A. is developing 73 acres of land in Karnataka. ZIL acquired 100% stake in Gulbarga Cement Ltd (GCL) in 2008.

354 4.3) 72.440 FY09 11.653 18. HDFC Securities Institutional Research Balance Sheet (Rs.914 5.068 30.913 526 9.632 4 5.046 365 7.884 20.881 214 3.452 9.930 3.8 36.475 1.702 31.863 600 17.9) 88.988 124.775 2.145 4.455 2.961 16.871 6.147 915 3.926 8.370 3.997 5.2 66.262 3.216 665 9.423 600 18.882 9.971 766 841 5.0 402 1.814 6. HDFC Securities Institutional Research March 12.318 39.235 7.5 Source: Company.164 (23) 1.511 3.500 0 3.803 3.045 0 1.411 FY08 8.7 315 5.057 718 759 5.374 1.238 32.587 0 1.2 86.075 0 4. mn) Shareholders' funds Minority Interest Total Loans Deferred Tax Liability Net Block Capital work in progress Goodwill Fixed Assets Investments Deferred Tax Assets Inventories Sundry Debtors Cash and bank balances Other current assets Loans & advances Current assets.484 9.580 4.158 9.000 2.290 108.190 18 1.175 45.181 56.051 8.058 3.930 3.024 165.203 (26.534 (650) 3.297 0 11.533 (20.293 1.463 FY11E 18.950 2.5 399 2.957 15.886 3.001 29.545 7.316 7.152 300 1.0 33.500 0 3.168 300 1.773 17.779 698 274 1.2) 385 2.041 1.000 0 3.647 0 8.456 1.000 0 7.606 0 441 1.263 2.973 14.354 13.877 627 32.877 6.8 39.507 73 1.585 1.214 288 1.000 0 7.824 (600) 3.468 9.6 317 5.275 3.686 9.261 0 12.528 (505) 3.Zuari Industries Income Statement (Rs.356 2.993 158 4.912 0 12.474 1.930 3.7) 59.098 0 1.000 2.860 600 19.740 455 761 6.224 (0.3 61.077 907 1.889 2.105 13. mn) FY07 FY08 FY09 FY10E FY11E FY12E Operating Revenues % growth Operating Expenses EBITDA % growth Depreciation EBIT Interest Other Income PBT Exceptional Items Tax Reported PAT Minority adj Adj PAT % growth 36.047 0 1.262 7 5.023 FY12E 23.505 FY10E 14.055 12.000 2.132 1.426 4.785 (550) 3.8 318 4.460 Source: Company.0 65.503 9.016 21. 2010 Page 43 .368 58 1.171 132 1. Loans & Advances Liabilities Provisions Current Liabilities & Provisions FY07 7.371 3.930 3.420 3.282 3.611 18.0 67.344 3 8.141 (13.184 300 1.856 6.325 216.244 2.000 0 7.511 4.

6 14.9 109.205) 6.349 402 (158) (78) (1.3 29.215) 1.856 Source: Company.4 Source: Company.581 2.7 3.7 5.7 29.2 11.538) 1.000) 650 (106) (650) (4.4 109.1 4.1 P/E (x) P/BV (x) EV/EBITDA (x) EBITDA margin Adj PAT margin Diluted # of equity shares (mn) Reported Diluted EPS (Rs) Adj EPS RoE (%) RoCE (%) Net debt to equity (x) 13.5 FY10E 5.1 7.9 4.4 38.1 2.4 7.4 10.4 1.8 3.8 8.737 3.119 550 (89) (1.511) 0 (465) 4. HDFC Securities Institutional Research (5x) (4x) (3x) (2x) March 12.479) 0 (300) 346 46 2.8 29.6 0.365 (2.4 0.0 3.0 45.3 29.814 FY11E 5.746 1.0 14.4 143.6 6.0 2.6 29.859 (44) (462) (5.877 FY12E 6.882 FY10E 5.047 318 (1.9 18.7 30.4 9.3 5.4 131.8 38.730 (3.8 1. HDFC Securities Institutional Research Ratio Analysis FY07 FY08 15.768) 2.045 315 (1.4 8.953 0 (300) 0 (300) (3.Zuari Industries Cash Flow Statement (Rs.0 2.1 13. mn) PBT Depreciation Tax paid Change in deferred tax liability Change in net working capital Operating cash flow Change in goodwill Capex Change in investments Investing cash flows Change in borrowings Issuance of equity Dividend paid Misc Financing cash flow Net change in cash Closing cash balance FY07 4.7 1.275) 0 (188) 3.3 0.1 FY09 5.5 109.3 8.068) 1.151 8.5 19.9 0.058) (1.3 1.262) (214) (7.2 0.4 102. HDFC Securities Institutional Research Chart 43: One year forward P/E chart 700 600 500 (Rs) 400 300 200 100 0 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Source: Company.606 399 (441) 50 (732) 882 (83) (245) 367 39 (818) (0) (105) (23) (946) (26) 2.9 29.0 4.7 102.7 FY11E 5.9 24.589) 63 1.594) (0) (105) 160 (1.2 4.385 0 (300) 0 (300) (4. 2010 Page 44 .584) (1.0 25.0 2.098 317 (1.587 385 (1.368) (3.3 0.171 FY08 1.8 14.9 131.4 109.078) (5.3 8.500) 600 (89) (600) (3.145 FY09 4.685) (252) (828) (1) (87) 3 (913) 1.106) (21) 1.4 FY12E 4.703 1.

HDFC Securities Institutional Research (6x) (4x) (3x) March 12.000 15.000 30.000 (5x) 25. 2010 Page 45 .000 5.000 (Rs mn) 20.Zuari Industries Chart 44: One year forward P/BV chart 700 600 500 (Rs) 400 300 200 100 0 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Source: Company. HDFC Securities Institutional Research (1x) (0.8x) (0.6x) (0.000 0 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Source: Company.000 10.4x) Chart 45: One year forward EV/EBITDA chart 35.

Department of Fertilizers. Group-V Group-VI FO/LSHS GNVFC-Bharuch NFL-Nangal NFL-Bhatinda NFL-Panipat Mixed Feedstock GSFC-Baroda IFFCO-Kalol RCF-Thal IFFCO-Aonla Indo Gulf.Jagdishpur KRIBHCO-Hazira NFL-Vijaipur RCF-Trombay-V* CFCL-Kota Tata OCFL NFCL-Kakinada Exp IFFCO-Aonla Exp NFL-Vijaipur Exp DIL-Kanpur* IFFCO-Phulpur FACT-Cochin* MCFL-Mangalore MFL-Madras SPIC-Tuticorin ZIL-Goa CFCL-II *Not in production Source: New Pricing Scheme Stage-III.200 1.400 1.000 (US$/mt) Appendix 2d: International MOP prices 1.000 (US$/mt) (US$/mt) 800 600 400 200 0 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Source: Bloomberg. HDFC Securities Institutional Research Appendix 2c: International MAP prices 1. HDFC Securities Institutional Research Source: Bloomberg.400 1. 2010 (US$/mt) Page 46 . HDFC Securities Institutional Research March 12. HDFC Securities Institutional Research Appendix 2a: International urea prices 900 800 700 600 500 400 300 200 100 0 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Appendix 2b: International DAP prices 1.200 1.000 900 800 700 600 500 400 300 200 100 0 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 800 600 400 200 0 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Source: Bloomberg. HDFC Securities Institutional Research Source: Bloomberg.Appendix Appendix 1: Grouping of plants under NPS Stage-III Group-I Gas (Pre 1992) BVFCL-Namrup Group-II Gas (Post 1992) NFCL-Kakinada Group-III Naphtha (pre 1992) SFC-Kota Group-IV Naphtha (post 1992) IFFCO-Phulpur Exp.

500 2.000 500 0 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Source: Bloomberg.500 1. 2010 (US$/mt) (US$/mt) Page 47 .Appendix Appendix 3a: International Ammonia prices 900 800 700 600 500 400 300 200 100 0 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Appendix 3b: International Phosphoric Acid prices 2. HDFC Securities Institutional Research March 12. HDFC Securities Institutional Research Appendix 3c: International Sulphur prices 900 800 700 600 500 400 300 200 100 0 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 (US$/mt) Appendix 3d: International Rock Phosphate prices 500 450 400 350 300 250 200 150 100 50 0 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Source: Bloomberg.000 (US$/mt) 1. HDFC Securities Institutional Research Source: Bloomberg. HDFC Securities Institutional Research Source: Bloomberg.

state. of the losses or the damages sustained due to the investments made or any action taken on basis of this report. availability or use would be contrary to law or regulation or what would subject HDFC Securities Ltd or its affiliates to any registration or licensing requirement within such jurisdiction. based upon information obtained in good faith from sources believed to be reliable. including but not restricted to. or the income derived from them. Such information has not been independently verified and no guaranty. is made as to its accuracy. completeness or correctness. associates. March 12. the values of which are influenced by foreign currencies effectively assume currency risk. country or other jurisdiction where such distribution. If this report is inadvertently send or has reached any individual in such country. HDFC Securities Ltd and other group companies. HDFC Securities Ltd. distributed or published for any purposes with out prior written approval of HDFC Securities Ltd . This document may not be reproduced. fluctuation in the prices of shares and bonds. any person or entity who is a citizen or resident or located in any locality. reproduction. or other services for. wherever mentioned. its directors. downloading. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. The information and opinions contained herein have been compiled or arrived at. This document is for information purposes only. representation of warranty. express or implied. the same may be ignored and brought to the attention of the sender. especially. In addition. financial or otherwise. securities and financial instruments dealt in the report. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not. etc. diminution in the NAVs.Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. are subject to exchange rate fluctuations. USA. This report is not directed to. printing. analysts or employees do not take any responsibility. to buy or sell any securities or other financial instruments. publication. All such information and opinions are subject to change without notice. Foreign currencies denominated securities. its directors. HDFC Securities Ltd may from time to time solicit from. and should not be construed as an offer or solicitation of an offer. investors in securities such as ADRs. 2010 Page 48 . any company mentioned in this mail and/or its attachments. which could have an adverse effect on their value or price. employees may have various positions in any of the stocks. reduction in the dividend or income. changes in the currency rates. or perform broking. or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organisations described in this report. or intended for display. reproducing or for distribution to or use by.

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