Good monsoon performance, stable fertiliser sales
· In a written reply to the Lok Sabha, the Minister of State for Chemicals and Fertilisers stated that the Nutrient Based Subsidy (NBS) announced for 2010-11 is on an annual basis. Since this scheme was launched only recently, the government is not considering changes in NBS. This announcement puts to rest speculation that the government is thinking of amending the NBS policy.
· International urea prices strengthened to US$ 275, (up 13.6%) from ~US$ 230/t in early July 2010 on uptick in demand; Indian DAP prices have been contracted at US$ 450-460/t until December 2010 whereas international prices increased to US$ 500/t. We expect a small increase in urea prices and believe that DAP prices would hold up.
· Indian manufacturers contracted phosphoric acid during 2Q at US$ 780/t versus last quarter's price of US$ 775/t.
· International prices of other key raw materials such as ammonia and sulphur have shown an increasing trend. Ammonia prices increased 7.8% to US$ 345 from US$ 320/t in early July and sulphur increased 33% to US$ 120/t from US$ 90/t in early July. International rock phosphate prices have been steady at ~US$ 150-160/t throughout June and July and we expect them to remain steady.
· In July, rain fall picked up and was excess-to-normal in northwest, central and southern peninsular India whereas it was below normal in northeast India. As of August 18, overall rainfall in India was just 5% less than the Long Period Average, resulting in comfortable water storage levels in major reservoirs. Agricultural activity for the season has been in full swing, and sown area for major crops has increased. This augurs well for the fertiliser industry.
| Valuation | ||||||
| Company | Rating | CMP | EPS ( Rs.) | PER(X) | ||
| (Rs.) | FY 11 E | FY 12 E | FY 11 E | FY 12 E | ||
| CFCL | OP | 71 | 6.5 | 6.3 | 10.5 | 10.8 |
| Coromandal International | Buy | 530 | 45.7 | 57 | 11.6 | 9.3 |
| Deepak fertilisers | OP | 158 | 22.3 | 28.5 | 7.1 | 5.6 |
| GNFC | OP | 125 | 10.3 | 18.3 | 12.1 | 6.8 |
| GSFC | Buy | 293 | 43 | 49.1 | 6.7 | 6 |
| RCF | UP | 85 | 4.9 | 5.1 | 17.4 | 16.8 |
| Tata Chemical | OP | 401 | 35 | 42.7 | 11.4 | 9.4 |
| Zuari Industries | Buy | 737 | 74.2 | 84 | 9.9 | 8.88 |
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