INDIA - AGRI INPUTS - Monthly Update

INSTITUTIONAL EQUITY RESEARCH
Agri Inputs
It’s a good start to the year! 15 July 2015

INDIA | AGRI INPUTS | Monthly Update

Modestly higher monsoons, strong water table buoys crop sowings: Cumulative rainfall for Read inside
the country until July was 13% higher than LPA — higher by 20%/15%/28% in central

India/south Peninsula/north‐west India and 1% lower in north and east India. About 92% of • Key crop sowings
the met sub‐division has received excess/normal monsoon and rest deficient/scanty.
Current water table is 29% ahead of last year and 45% higher than the normal storage (10‐ • Agri valuation metrics
year average). Around 42% of the normal area (105mn hectares) under Kharif crops have • Key commodity price trends
been sown up to 10th July, which is 62% ahead of last year’s sowing. Rice sowing is lagging
• Q1FY16E earnings estimates
marginally (‐5% yoy) while cotton/pulses has improved by 95%/44%. Improved MSPs
particularly for oilseeds/coarse cereals have led to their acreage rising 4/2‐fold. Maize • Fertiliser industry sales volume
sowings have also improved remarkably (up 67% yoy). As per experts, unseasonal rains in • Global fertiliser price outlook
Q4FY15 and in‐time adequate rains in Q1FY16 improved soil moisture — positive for the
agri‐inputs sector. • Company notes: Tata Chemicals,
Deepak Fertilisers
Fertiliser industry dispatches improving: Fertiliser dispatches improved 19% in Q1FY16 to
12.2mmt due to depleting inventories, rising production, and imports. Urea dispatches
improved by 7% (despite higher base) to account for 57% of overall volumes. P&K
manufacturing improved 11% to 3.04mmt – while Zuari Group has shown a marked
improvement in production, Coromandel continues to suffer mainly due to lower
phosphoric acid availability. Fertiliser imports (especially P&K) almost doubled yoy to
2.2mmt, which is a cause of concern. DAP spreads have improved by Rs 350/mt qoq mainly
due to fall in ammonia costs and moderate increase in retail prices.
Q1FY16 agri inputs earnings preview: Among agri inputs, a couple of companies will show
strong earnings on last year’s weak base, seeds might benefit from early sowing, and
fertilisers could benefit from margin improvement and lower interest outgo. In a seasonally
small quarter and going by intense competitive pressure, we see rise in interest cost for
select crop‐chemical plays.
Fertilisers: Normalised inventories and improving margins (led by price hike) is positive.
Higher share of low‐margin imports and lower production of high‐margin DAP will tame
expectations. In FY16E we see urea companies producing beyond rated capacity (Chambal,
Tata Chemicals), which should support overall earnings. Tata Chemicals and Zuari
Agrochemicals should report high growth following low base last year.
Crop Chemicals: Given lower sprays and fall in acreage in H2FY15, the year started with
excess channel inventory. This, along with heightened competition could adversely affect
working capital and therefore earnings of select companies. We expect mixed results. Gauri Anand (+ 9122 66679943)
ganand@phillipcapital.in
Seeds: Expect industry to benefit from early sowing and last year’s low base. Hybrid seeds,
cotton/maize/rice to benefit in particular.
Agri inputs comparative valuation metrics: Attractive dividend yield limits investment downside
CMP __Adj. EPS (Rs) __ CAGR ___PER (x) ___ ‐‐‐‐PBR(x)‐‐‐‐ EV/Ebitda(x) Div Yield
Rs FY16E FY17E FY015‐17E FY16E FY17E FY16E FY17E FY16E FY15 (%) Rating
Chambal Fertilizer 58 8.2 8.6 16.2 7.1 6.7 1.0 1.0 7.6 3.4 Buy
Coromandel Fert. 246 19.9 24.5 32.6 12.4 10.0 3.3 3.0 8.0 1.8 Buy
Deepak Fertilizer 143 15.0 25.0 ‐2.3 9.5 5.7 0.8 0.8 5.3 4.5 Buy
Kaveri Seeds 765 54.1 65.2 22.2 14.1 11.7 6.9 4.9 4.8 1.0 Buy
Monsanto India 3200 76.2 89.6 20.4 42.0 35.7 14.8 13.2 32.5 1.1 Buy
PI Industries 660 20.9 26.3 20.9 31.6 25.1 10.2 8.0 18.1 0.8 Neutral
Rallis India 260 10.0 12.6 24.8 25.9 20.7 6.3 5.8 15.0 1.0 Neutral
Tata Chemicals 457 34.9 37.6 9.5 13.1 12.1 1.9 1.7 5.6 2.2 Buy
UPL 523 32.2 34.5 12.0 16.2 15.2 3.8 3.2 4.0 1.7 Buy
Zuari Industries 200 24.1 NA NA 8.3 NA 1.0 0.9 9.2 1.0 Buy
Average 17.4 18.0 15.9 5.0 4.2 11.0 1.9
Source: Bloomberg, PhillipCapital India Research Estimates
Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

AGRI INPUTS MONTHLY UPDATE
Key developments in the sector

Kaveri Seeds – Lowers cottonseed volume guidance to 85mn packets in FY16 from
95mn packets earlier based on a faulty batch of seed inventory, disruptive trade
practices by peers, and the Rs 100/packet price cut imposed in Maharashtra.
Maintained that 80% of sales so far are on cash & carry. Gained market share in
MP, Gujarat, Maharashtra, and partly in non‐credit part of Telengana. However, the
company retains 15%+ volume growth in non‐cotton portfolio. Kaveri has cautioned
and lowered guidance mainly due to (1) shortage of inventory (faulty batch of seed
inventory that had germination issues and had to be discarded) and (2) its strategy
to refrain from higher credit sales. In non‐credit markets such as MP, Gujarat, and
Maharashtra, Kaveri expects to have gained market share in cotton in FY16. Since
cotton is a relatively low‐margin product, we see earnings impact to be <5% in FY16
(thus cautious FY16, intact FY17). Valuations are attractive, visibility on growth
remains.

Tata Chemicals – Intends to sell its fertiliser business (press quotes a price of about
US$1bn). This divestment is strategic and consistent with other periodic hive offs; it
is selling assets in the same rigorous way that it acquired them in the past. A
successful strategic divestment of its fertiliser business would allow it to
concentrate on higher‐growth opportunities, pay down debt, help reinvest capital
in core activities leading to higher long‐term growth and creating value for its
stakeholders.

Deepak Fertilisers – The Delhi HC ordered the government to resume gas supply
(stopped in May 2014) to its P&K plant. However, the supply is expected to continue
only until the government unveils a new policy. The court has also said that P&K
fertiliser manufacturing companies should be treated equally with urea companies in
gas allocation. The stock has been under pressure for over a year now on these
concerns, despite improving opportunity for its flagship product ammonium nitrate
(used in explosives for blasting in coal mines). Its fertiliser segment barely managed
to breakeven at EBIT in FY15 because of the supply cut (vs. Rs1.5bn in FY14). Our
rough estimates suggest that the resumption could buoy its earnings by 40% in FY16E
(not in street estimates). Trades 10x FY16E PER, offers 4% yield.
Key crop sowings in Kharif: Oilseeds/cereals/cotton and maize acreage picks up
mn hect FY16 FY15 %
Oilseeds 101.26 22.24 355%
Rice 89.59 94.73 ‐5%
Cotton 87.83 45.1 95%
Coarse Cereals 81.8 38.36 113%
Sugarcane 44.29 43.92 1%
Pulses 32.61 22.71 44%
Maize* 29.77 17.85 67%
Jute & Mesta 7.74 8.05 ‐4%
Total 445.11 275.1 62%
rd th
*Maize data is as on 3 July; whilst for all other crops it is as of 10 July. Source Ministry of Agriculture


Fertiliser sector continued to underperform due to Hybrid Seeds: Early onset of monsoon helped
lack of material positive catalysts continue outperformance
Fertiliser Hybrid Seed makers
180 Sensex Chambal 700
Sensex Kaveri
160 Coromandel Deepak 600 Bayer Corp Monsanto
140 Tata Chem
500
120
100 400
80 300
60
200
40
20 100
0 0

Large Agrochemicals Mid Size Agrochemicals
700 Sensex PI 1200
Sensex Insecticides
600 Rallis United P
1000 ShardaCrop Excel Crop
Dhanuka
500
800
400
600
300
400
200
100 200
0 0

Source: Bloomberg, PhillipCapital India Research Estimates

Rebounding industrial sentiment: Caprolactum‐Benzene Methanol prices improve as well
spreads improve
Caprolactum Benzene Methanol Prices CFR India (US$/mt)

3,500 600
3,000 500
2,500
CFR USD/Mt
400
CFR USD/Mt
2,000
300
1,500
200
1,000
100
500
‐ ‐

Spot soda ash prices moderate Henry hub gas prices cool off
(in line with fall in energy prices)
Soda ash Spot Europe … Henry Hub Spot ($/mmbtu)
6.0
310
300 5.0
290 4.0
USD/bag (5kg)
USD/bag (5kg)
280
3.0
270
260 2.0
250 1.0
240
0.0
230

DAP spreads improve by about Rs 350/mt qoq Glyphosate prices continue to reel under pressure due to
Q4FY15 Q1FY16 QoQ% excess supply and poor offtake
Ammonia $/mt 500 460 ‐8
Rock Phosphate $/mt 128 129 1 40000 China Chemicals SunSirs Glypho
Phos Acid $/mt 805 805 0
35000
DAP $/mt 475 470 ‐1
Urea $/mt 315 340 8 30000
Exch Rate ($/INR) 62 63 2 25000
Cost of Material 20000
N $/mt 113 104 ‐8
P $/mt 370 370 0 15000
Total raw material cost $/mt 483 474 ‐2 10000
Total costs $/mt 557 546 ‐2
5000
Cost of Prodn Rs/mt 34,675 34,648 0
Subsidy Rs/mt 12,350 12,350 0 0
Revenue Rs/mt 35,950 36,250 1
Margins Rs/mt 1,275 1,602 26
Source: Bloomberg, PhillipCapital India Research


Key commodity prices overview: Cotton/Corn prices improve whilst all else remained flat qoq
US Cotton spot price US Wheat spot price
1.00 10.0
0.80 8.0
USD/bushel (60lb)
0.60 6.0
USD/pound
0.40 4.0
0.20 2.0
0.00 0.0

Brazil white Sugar spot price US Gulf Soyabeans fob price
4.0 700
3.5 600
3.0
500
2.5
USD/bag (5kg)
400
USD/Mt
2.0
300
1.5
1.0 200
0.5 100
0.0 0

Corn Black Sea port FOB Price
350
300
250
200
USD/Mt
150
100
50

Source: Bloomberg, PhillipCapital India Research


Sectoral outlook
Sector Key observation/ outlook Earnings plays
Agri Inputs Seeds: In time, adequate, and wide spread monsoons to have (‐) Monsanto India; (+) Kaveri Seeds
improved sowings over last year
Fertilisers: Higher share of low‐margin P&K traded fertilisers. (+) Chambal Fert; (+) Tata Chemicals
Urea volumes lower. Profitability to be led by savings in
interest outgo and marginal improvement in gross margins
Crop‐chemicals: Improved sentiments should lift topline (+) PI Ind, CSM business to aid growth
growth; however higher channel inventory should pressure
OPM/net margins
Outliers for the quarter Zuari, Tata Chemicals earnings reversing to the mean

Q1FY16E earnings estimates
(Rs mn) Jun‐15E Mar‐15 QoQ (%) Jun‐14 YoY (%) Result Update highlights
Chambal Fertiliser
Revenues 20,162 15,531 29.8% 19,966 1.0% ‐ Higher urea volumes; improved shipping freight and fertiliser trade to
EBITDA 2,028 450 350.7% 1,812 11.9% support topline growth
EBITDA margin (%) 10.1 2.9 9.1 ‐ Shipping freight revival to support margins somewhat
PAT 990 34 2789.4% 713 38.9% ‐ Lower interest outgo to further support earnings growth
EPS (Rs) 2.1 0.1 2789.4% 1.7 23.0%
Coromandel Intl.
Revenues 19,760 29,976 ‐34.1% 18,807 5.1% ‐ Overall volumes improve 20%; however own manufactured volumes
EBITDA 1,265 1,597 ‐20.8% 1,220 3.7% estimated to have declined by about 5%
EBITDA margin (%) 6.4 5.3 6.5 ‐ Margins could improve, but higher trading is a cause of concern
PAT 434 687 ‐36.8% 326 33.3% ‐ Lower interest outgo to support further earnings growth
EPS (Rs) 1.2 2.4 ‐49.0% 1.1 33.3%
Deepak Fertilisers
Revenues 8,946 9,310 ‐3.9% 9,454 ‐5.4% ‐ Lower chemical realisation and no gas availability for fertilisers hurts
EBITDA 911 808 12.8% 1,047 ‐13.0% revenue/earnings
EBITDA margin (%) 10.2 8.7 11.1
PAT 419 272 53.9% 437 ‐4.2%
EPS (Rs) 4.7 3.0 53.9% 5.0 ‐4.2%
Kaveri Seeds
Revenues 9,577 399 2297.5% 8,269 15.8% ‐ Delayed season last year to support topline growth
EBITDA 2,701 84 3097.8% 2,324 16.2% ‐ Margins to hold at last year levels
EBITDA margin (%) 28.2 21.1 28.1
PAT 2,649 13 21063.0% 2,304 15.0%
EPS (Rs) 38.4 0.8 21063.0% 33.4 15.0%
Monsanto
Revenues 2,595 674 284.9% 2,648 ‐2.0% ‐ Pricing pressure on glyphosate to pull down revenue growth
EBITDA 830 (104) ‐900.7% 828 0.3% ‐ Higher share of high‐margin seeds
EBITDA margin (%) 32.0 (15.4) 31.3 ‐ Lower interest to supports further
PAT 747 (81) ‐1023.5% 710 5.2%
EPS (Rs) 43.3 (4.7) ‐1023.5% 41.1 5.2%
PI Industries
Revenues 5,670 5,370 5.6% 4,712 20.3% ‐ Rev mix of Agri/CSM to be at 40:60
EBITDA 1,304 953 36.9% 1,080 20.8% ‐ Higher share of low margin agri
EBITDA margin (%) 23.0 17.7 22.9 ‐ Higher tax outgo to weigh on profits
PAT 856 646 32.4% 756 13.2%
EPS (Rs) 6.3 4.7 32.4% 5.6 13.2%
Rallis India
Revenues 5,013 3,219 55.7% 4,685 7.0% ‐ Tepid growth largely helped by seeds
EBITDA 652 444 46.8% 589 10.7% ‐ Flat margins
EBITDA margin (%) 13.0 13.8 12.6
PAT 450 213 111.0% 370 21.6%
EPS (Rs) 2.3 1.1 111.0% 1.9 21.6%
Tata Chemicals
Revenues 38,900 48,205 ‐19.3% 36,950 5.3% ‐ Lower freight cost to impact soda ash revenues somewhat, fertiliser to
EBITDA 5,482 5,896 ‐7.0% 3,194 71.6% support topline growth
EBITDA margin (%) 14.1 12.2 8.6 ‐ Absence of loss‐making units, reversion to the mean
PAT 2,055 2,409 ‐14.7% 778 164.1% ‐ Lower interest outgo further supports
EPS (Rs) 5.1 9.4 ‐14.7% 3.1 164.1%


(Rs mn) Jun‐15E Mar‐15 QoQ (%) Jun‐14 YoY (%) Result Update highlights
United Phosphorus
Revenues 30,875 36,243 ‐14.8% 27,567 12.0% ‐ Cross currency effects to weigh down revenue growth
EBITDA 5,866 7,849 ‐25.3% 5,226 12.3% ‐ Higher share of high margin India
EBITDA margin (%) 19.0 21.7 19.0 ‐ Lower other income
PAT 2,865 4,401 ‐34.9% 2,575 11.2%
EPS (Rs) 6.7 10.4 ‐34.9% 6.0 11.2%
Zuari Agrochemicals
Revenues 13,383 15,000 ‐10.8% 10,295 30.0% ‐ Volume resurgence and price growth
EBITDA 872 717 21.6% 167 421.1% ‐ Adhoc subsidy increase and energy savings
EBITDA margin (%) 6.5 4.8 1.6 ‐ Lower interest to supports further
PAT 282 125 126.0% (379) ‐174.6%
EPS (Rs) 9.1 3.0 126.0% (9.0) ‐174.6%
Source: Company, PhillipCapital India Research


Fertiliser industry dispatches
(in mt) Q1FY15 Q1FY16 YoY% FY15
Coromandel Fert
DAP Imports 6,036 130,065 2,054.82 180,881
Coromandel: Production volumes
DAP manufactured 95,440 26,045 (72.71) 265,714
continue to suffer due to lower
MOP Imports 15,951 18,148 13.77 154,044
availability of phosphoric acid;
Complex Fertiliser Manufactured 324,803 337,469 3.90 2,176,061
however, improving spreads should
Complex Fertiliser Imports 444 287 (35.36) 3,305
support overall margins
SSP 23,018 20,550 (10.72) 117,494
SSP ‐ Liberty 57,038 94,922 66.42 442,311
Urea 104,739 96,932 (7.45) 1,024,102
Manufactured Vol's 500,299 478,986 (4.26) 3,001,580
Total Vol's (excl Urea) 522,730 627,486 20.04 3,339,810
Chambal Fert
DAP Imports 123,999 173,497 39.92 634,627 Chambal: Weak base supports strong

NPK Imports urea production growth
MOP Imports 36,243 38,451 6.09 199,086
SSP 41,681 43,416 4.16 187,717
Urea 487,303 525,406 7.82 1,948,737
GSFC
DAP manufactured 56,928 42,525 (25.30) 302,666
DAP Imports 28,043 4 (99.99) 52,954
Complex Fertiliser Manufactured 63,235 80,488 27.28 348,823
Ammonium Sulphate 65,738 72,010 9.54 315,912
Urea 84,257 85,578 1.57 353,066
Tata Chemicals
DAP Imports 25,293 64,680 155.72 330,487
DAP manufactured 48,442 2 (100.00) 82,848
MOP Imports 7,764 11,616 49.61 123,206
Complex Fertiliser Manufactured 62,629 84,659 35.18 509,384
SSP 31,658 19,401 (38.72) 197,055
Urea 306,113 289,962 (5.28) 1,243,157
Zuari Industries
DAP Imports 31,540 97,204 208.19 206,114 Zuari: Improved phosphoric acid
DAP manufactured 50,111 19,609 (60.87) 157,448 availability, uninterrupted urea
MOP Imports 43,751 14,380 (67.13) 224,016 production and commissioning of SSP
Complex Fertiliser Manufactured 64,368 135,490 110.49 487,049 plants supports volume growth
Complex Fertiliser Imports 14 ‐ NA 119
SSP ‐ 5,356 NA 5,580
Urea 70,070 120,835 72.45 360,562
Industry
NPK imports 50,499 98,136 94.33 327,838
DAP Imports 487,896 1,632,079 234.51 4,040,178 Industry: Urea growth continues to be
MOP Imports 432,815 455,938 5.34 2,784,095 robust; P&K manufacturing should
NPK Mfg 1,292,442 1,558,818 20.61 8,340,026 improve with higher phosphoric acid
DAP Mfg 667,954 618,290 (7.44) 3,549,096 availability, but higher trading is a
SSP 778,313 859,474 10.43 4,197,108 cause of concern
Urea 6,564,894 7,021,370 6.95 31,907,280
Total 10274813 12244105 19.2 55145621
Manufactured P&K Vol's 2,738,709 3,036,582 10.88 16,086,230
Traded P&K Vol's 971,210 2,186,153 125.10 7,152,111
Source: Department of Fertilisers, PhillipCapital India Research


Global fertiliser price outlook timid following balanced supply: IFA reports indicate
global urea market has entered an era of oversupply after 2015, led by
unprecedented expansion in low‐cost ME, Africa (MEA) and US, Brazil and India.
Competition among traditional exporters in the MEA, China, and FSU will intensify,
resulting in price pressure. Also, Morocco, China, and Saudi Arabia are expected to
see large capacity addition in phosphoric acid — as a result, prices could remain
under pressure.
World phosphoric acid potential supply/demand balance
(in mmt) 2013 2014 2015 2016E 2017E
Supply
Capacity 54.6 57.2 58.7 60.3 63.7
Potential Supply 45.5 46.9 48.5 50.2 52
Demand
Fertiliser Demand 36.1 37.1 38.1 39 39.8
Non‐fertiliser Use 5.2 5.4 5.5 5.7 5.8
Distribution Losses 0.8 0.8 0.9 0.9 0.9
Total Demand 42.1 43.3 44.5 45.5 46.5
Potential Balance 3.5 3.6 4 4.7 5.5
% of Supply 8% 8% 8% 9% 10%
Source: Industry, PhillipCapital India Research

World urea (potential supply/demand balance)
(in mmt) 2013 2014 2015 2016E 2017E
Supply
Capacity 198.4 207 214.6 221.3 236.3
Potential Supply 182.1 188.6 195.3 202.3 207.4
Demand
Fertiliser Demand 143.2 147.6 151.4 154.4 157.4
Non‐fertiliser Use 28.6 30.5 33.6 36.1 37.7
Total Demand 171.8 178.1 184.9 190.6 195.2
Potential Balance 10.3 10.5 10.4 11.7 12.2
% of Supply 5.7% 5.6% 5.3% 5.8% 5.9%


Tata Chemicals
Tata Chemicals intends selling off its fertiliser business. Media reports peg the deal
consideration at US$1bn. This divestment is strategic and consistent with other
periodic hive offs – it is selling assets in the same rigorous way that it focused on
acquisitions in the past. A successful strategic divestment of its fertiliser business
would help Tata Chemicals concentrate on higher‐growth opportunities, pay down
debt, and re‐invest capital in core activities leading to higher longer‐term growth
and creating value for stakeholders. In the near term, the recent restructuring
initiatives in the UK should reverse earnings to its mean over the next two years.
Thus, with improved cash flows, limited capex, and a consequent fall in debt,
dividends should rise further. Improving capital discipline and bettering earnings
mix (rising share of resilient consumer businesses) should result in higher returns
and a rerating seems imminent. Reiterate Buy with a PT of Rs 530.

Selling assets in the same rigorous way it focused on acquisitions: The fertiliser
business includes 1.2mmt each of urea and NPK capacity and a one‐third stake in a
phosphoric acid JV in Morocco. As per press reports, the deal could be worth about
US$ 1bn. The divestment is strategic and consistent with other hive offs that were
non‐core and less profitable, such as cessation of soda ash production in Winnington,
halving of capacity in Northwich, Europe, and mothballing its soda ash plant in Kenya.
It has also hived off its non‐core initiatives such as Jatropha, Khet‐Se, and its STPP
plant in Haldia.

The deal consideration: Its urea facility in Babrala, UP, is among the best of its kind in
India and comparable to the best in the world. Tata Chemicals has an established
presence in the north Indian states of Uttar Pradesh, Punjab, Haryana, Bihar, and
Uttaranchal, which account for 48% of the total domestic demand for urea. Tata
Chem’s phosphatic fertilisers are sold under the brand name 'Paras' which leads the
market in West Bengal, Bihar, and Jharkhand. The Haldia facility has production
volumes exceeding 1.2mmt. Given the strong brand recall and proximity to feed and
markets, the company is bound to earn a decent valuation.

While the replacement cost of a similar asset works out to Rs 100bn or US$ 1.6bn, it’s
likely the company may get >US$ 1bn (also considering the one‐third stake in
IMACID). In FY15, the fertiliser business earned an adjusted EBIT of Rs 3.3bn and
could be servicing an interest of Rs 1.5bn (subsidy outstanding at Rs 19bn), thus
accounting for 15% of overall profits. Giving the lower fertiliser profitability, the
earnings (also led by pairing down of debt) could improve by 12‐15%, but the bigger
leap would be on return ratios led by the immense deleveraging (about 600bps) to
22% (2x PBR bodes well with PT of Rs 530).

Strategic divestment key to raising capital and deploying it to core businesses: Tata
Chem has drawn up an ambitious vision called ‘Leap 2020’ where it has set a target to
triple market capitalisation, grow consumer business revenues four fold (Rs12 to
50bn), enhance farm business (to Rs80bn from Rs25; non‐subsidised – largely crop
chemicals and micro‐nutrients) and improve chemical revenues (to 120bn from
Rs85bn). A successful strategic divestment of its fertiliser business would help Tata
Chemicals concentrate on higher‐growth opportunities, pay down debt, and re‐invest
capital in core activities leading to higher longer‐term growth and creating value for
stakeholders. Improved capital efficiency should meaningfully drive return ratios
sustainably.

Deepak Fertilisers
Deepak Fertilisers: Gas supply to resume! The Delhi HC ordered the government to
resume gas supply (stopped in May 2014) to its P&K plant. However, the supply is
expected to continue only until the government unveils a new policy. The court has
also said that P&K fertiliser manufacturing companies should be treated equally with
urea companies in gas allocation. The stock has been under pressure for over a year
now on these concerns, despite improving opportunity for its flagship product
ammonium nitrate (used in explosives for blasting in coal mines). Its fertiliser
segment barely managed to breakeven at EBIT in FY15 because of the supply cut (vs.
Rs1.5bn in FY14). Our rough estimates suggest that the resumption could buoy its
earnings by 40% in FY16E (not in street estimates). Trades 10x FY16E PER, offers 4%
yield.

At the ruling ammonia price of <US$ 440/mt, Deepak’s P&K plant is profitable. Should
the government resume gas supply, the production cost of ammonia would be US$
385/mt. Thus, under both scenarios, Deepak’s P&K plant (24:24:00) would turn
profitable. As per our calculations, manufactured fertilisers, account for 25% of
overall earnings of Rs25/share in FY17E.

However, the important bit is the court ruling (para 53, pg 31), which says the cut was
arbitrary and that it should be uniformly implemented for all P&K manufacturing
units. The court order actually directs DoF to supply gas to Deepak until it decides to
discontinue gas for all P&K manufacturers (such as Deepak, RCF and GSFC). Para 53 is
appended below.

53. Since the respondents have adopted a policy to suspend supply of gas to P&K
Fertiliser units, the said decision ought to be implemented uniformly for all P&K
manufacturing units. It is not open for the respondents to suspend the supply of gas
to the petitioner while continuing the same to other P&K Manufacturing units,
namely, RCF or GSFC. In the circumstances, the respondents are directed to resume
the supply of gas to the petitioner till the time the Government of India are in a
position to implement their policy to discontinue supply of gas for manufacture of
P&K Fertiliser by other units as well.
Fertilizer spreads to immensely improve on resumption of domestic gas
Blended cost of gas 8.8 $/mmbtu
INR/USD 63
Cost of ammonia production 367 $/mt
Ammonia 387 $/mt
Phos Acid 830 $/mt
DAP 400 $/mt

Cost of Material
Total Material 304 $/mt
Add: 5.15% Customs duty 16 $/mt
Add: Credit (1.03%) 3 $/mt
Add: Other costs incl utilities, conversion, selling&disnt 55 $/mt
Total costs 378 $/mt
Cost of Prodn 23,814 Rs/mt
Total SP 31,893 Rs/mt
Margins (before freight, interest, depn) 8,079 Rs/mt



Management
Vineet Bhatnagar (Managing Director) (91 22) 2300 2999
Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6667 9946
Jignesh Shah (Head – Equity Derivatives) (91 22) 6667 9735
Research
Automobiles Economics Midap
Dhawal Doshi (9122) 6667 9769 Anjali Verma (9122) 6667 9969 Amol Rao (9122) 6667 9952
Nitesh Sharma, CFA (9122) 6667 9965
Infrastructure & IT Services Portfolio Strategy
Banking, NBFCs Vibhor Singhal (9122) 6667 9949 Anindya Bhowmik (9122) 6667 9764
Manish Agarwalla (9122) 6667 9962 Deepan Kapadia (9122) 6667 9992
Pradeep Agrawal (9122) 6667 9953 Technicals
Paresh Jain (9122) 6667 9948 Logistics, Transportation & Midcap Subodh Gupta, CMT (9122) 6667 9762
Vikram Suryavanshi
Consumer, Media, Telecom Production Manager
Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Metals Ganesh Deorukhkar (9122) 6667 9966
Jubil Jain (9122) 6667 9766 Dhawal Doshi (9122) 6667 9769 (9122) 6667 9951
Manoj Behera (9122) 6667 9973 Database Manager
Oil&Gas, Agri Inputs Deepak Agarwal (9122) 6667 9944
Cement Gauri Anand (9122) 6667 9943
Vaibhav Agarwal (9122) 6667 9967 Editor
Pharma Roshan Sony 98199 72726
Engineering, Capital Goods Surya Patra (9122) 6667 9768
Ankur Sharma (9122) 6667 9759 Mehul Sheth (9122) 6667 9996 Sr. Manager – Equities Support
Hrishikesh Bhagat (9122) 6667 9986 Rosie Ferns (9122) 6667 9971
Sales & Distribution Corporate Communications
Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976
Shubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747
Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745
Sidharth Agrawal (9122) 6667 9934 Execution
Bhavin Shah (9122) 6667 9974 Mayur Shah (9122) 6667 9945

Contact Information (Regional Member Companies)

SINGAPORE MALAYSIA HONG KONG
Phillip Securities Pte Ltd Phillip Capital Management Sdn Bhd Phillip Securities (HK) Ltd
250 North Bridge Road, #06‐00 Raffles City Tower, B‐3‐6 Block B Level 3, Megan Avenue II, 11/F United Centre 95 Queensway Hong Kong
Singapore 179101 No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur Tel (852) 2277 6600 Fax: (852) 2868 5307
Tel : (65) 6533 6001 Fax: (65) 6535 3834 Tel (60) 3 2162 8841 Fax (60) 3 2166 5099 www.phillip.com.hk
www.phillip.com.sg www.poems.com.my
JAPAN INDONESIA CHINA
Phillip Securities Japan, Ltd PT Phillip Securities Indonesia Phillip Financial Advisory (Shanghai) Co. Ltd.
4‐2 Nihonbashi Kabutocho, Chuo‐ku ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A, No 550 Yan An East Road, Ocean Tower Unit 2318
Tokyo 103‐0026 Jakarta 10220, Indonesia Shanghai 200 001
Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141 Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809 Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940
www.phillip.co.jp www.phillip.co.id www.phillip.com.cn
THAILAND FRANCE UNITED KINGDOM
Phillip Securities (Thailand) Public Co. Ltd. King & Shaxson Capital Ltd. King & Shaxson Ltd.
15th Floor, Vorawat Building, 849 Silom Road, 3rd Floor, 35 Rue de la Bienfaisance 6th Floor, Candlewick House, 120 Cannon Street
Silom, Bangrak, Bangkok 10500 Thailand 75008 Paris France London, EC4N 6AS
Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921 Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017 Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835
www.phillip.co.th www.kingandshaxson.com www.kingandshaxson.com
UNITED STATES AUSTRALIA SRI LANKA
Phillip Futures Inc. PhillipCapital Australia Asha Phillip Securities Limited
141 W Jackson Blvd Ste 3050 Level 37, 530 Collins Street Level 4, Millennium House, 46/58 Navam Mawatha,
The Chicago Board of Trade Building Melbourne, Victoria 3000, Australia Colombo 2, Sri Lanka
Chicago, IL 60604 USA Tel: (61) 3 9629 8380 Fax: (61) 3 9614 8309 Tel: (94) 11 2429 100 Fax: (94) 11 2429 199
Tel (1) 312 356 9000 Fax: (1) 312 356 9005 www.phillipcapital.com.au www.ashaphillip.net/home.htm
INDIA
PhillipCapital (India) Private Limited
No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013
Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in


Disclosures and Disclaimers

PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives and Private Client Group. This report has been
prepared by Institutional Equities Group. The views and opinions expressed in this document may or may not match or may be contrary at times with the views, estimates, rating,
target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.

This report is issued by PhillipCapital (India) Pvt. Ltd. which is regulated by SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in
this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only and neither the
information contained herein nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale
of any security, investment or derivatives. The information and opinions contained in the Report were considered by PCIPL to be valid when published. The report also contains
information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this
information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading
does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements
and past performance is not necessarily an indication to future performance.

This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors must
undertake independent analysis with their own legal, tax and financial advisors and reach their own regarding the appropriateness of investing in any securities or investment
strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. In no circumstances it be used or
considered as an offer to sell or a solicitation of any offer to buy or sell the Securities mentioned in it. The information contained in the research reports may have been taken from
trade and statistical services and other sources, which we believe are reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that
such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice

Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all
aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.

Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s
personal views about all of the subject issuers and/or securities, that the analyst have no known conflict of interest and no part of the research analyst’s compensation was, is or will
be, directly or indirectly, related to the specific views or recommendations contained in this research report. The Research Analyst certifies that he /she or his / her family members
does not own the stock(s) covered in this research report.

Independence/Conflict: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services
from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking
services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it or its
employees, directors, or affiliates may hold either long or short positions in such securities. PhillipCapital (India) Pvt. Ltd may not hold more than 1% of the shares of the
company(ies) covered in this report.

Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of
any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to
the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment
objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest
rates, as well as by other financial, economic or political factors. Past performance is not necessarily indicative of future performance or results.

Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither
PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed
herein are current opinions as of the date appearing on this material and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the
information current.

Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorized use or disclosure is prohibited. No reprinting or reproduction,
in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety.

Caution: Risk of loss in trading in can be substantial. You should carefully consider whether trading is appropriate for you in light of your experience, objectives, financial resources
and other relevant circumstances.

For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd. which is the employer of the research analyst(s) who has prepared the research report. The
research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker‐dealer and therefore
the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise
comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst
account.

This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a‐6(b)(4) of the U.S. Securities and Exchange Act,
1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major
Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or
transmitted onward to any U.S. person, which is not the Major Institutional Investor.

In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major
Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker‐dealer, Marco Polo Securities Inc. ("Marco Polo").Transactions in
securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer.

PhillipCapital (India) Pvt. Ltd.
Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013


INDIA - AGRI INPUTS - Monthly Update

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

INDIA - AGRI INPUTS - Monthly Update

Uploaded by

Copyright:

Available Formats

INSTITUTIONAL EQUITY RESEARCH

Caprolactum Benzene Methanol Prices CFR India (US$/mt)

DAP Imports 123,999 173,497 39.92 634,627 Chambal: Weak base supports strong

You might also like