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Recommendation from Fertilizers Sector

January 26
13:29 2018

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

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HERE IS WHY
Positive Government reforms
Decrease in Gas price
Increased Capacity utilisation

BSE Code: 523630 
CMP: Rs.60.90 
FV: Rs.10 
BSE Volume: 77979 

National Fertilizers Limited (NFL), a reputed PSU in India, is engaged in the production and marketing of urea, neem coated urea, bio-fertilizers (solid and liquid) and several allied industrial products such as nitric acid, ammonium nitrate, and nitrate, among others. The company’s business is significantly driven by its urea manufacturing and marketing operations with a marked presence across the world. 

The company’s urea production hit its highest level of production of 38.10 LMT during the year, achieving an overall capacity utilisation of 118 per cent for the corresponding period. 

The good monsoons in 2017 has boosted the fertilizer market, while the growing agricultural economy and increasing demand of urea is set to increase the company’s profitability in the short and medium terms. The company is likely to capitalise on reduced gas price as it will reduce the input costs, and the introduction of direct benefit scheme for urea subsidy will manifest as a major demand driver for fertilizers 

On the sales front, the company hit its all time high sales of 39.75 LMT including record sale of urea at 37.58 LMT, 2.14 LMT of imported DAP and 0.03 LMT of bentonite sulphur. The sales of the company surged to a record high in several segments and were significantly higher than the previous year’s figures. 

On the financial front, the net sales of National Fertilizers increased by 12.49 per cent to Rs.2,132.71 crore in the second quarter of FY18, as against Rs.1,895.85 crore in the same quarter of the previous financial year. The company’s profit before interest, depreciation and taxation increased by 11.92 per cent to Rs.1,968.15 crore in the second quarter of the financial year 2018, as against Rs.137.39 crore in the second quarter of FY17. The company’s net profit surged by 46.09 per cent to Rs.66.72 crore in the second quarter of FY18 as compared to Rs.45.67 crore in the second quarter of FY17. 

On the annual front, the company’s net sales dropped slightly by 1.68 per cent to Rs.7,6634.22 crore in the financial year 2017 on a yearly basis. The PBIDT of the company also witnessed a marginal decline of 0.32 per cent to Rs.555.21 crore in the corresponding financial year on a year-on-year basis. The company’s profit after tax increased by 4.80 per cent to Rs.208.16 crore in the financial year 2017 as compared to the previous fiscal. 

On the valuation front, the company’s TTM PE (x) stood at 11.82x, while the industry PE stood at 20.23x. The TTM PE of the company’s peers, RCF and Coromandel International stood at 32.55x and 22.26x, respectively. The company’s profit after tax margin stood at 2.72 per cent and it recorded a return on equity of 11.84 per cent

Although the stringent regulations under New Urea Policy and the lower price of urea in the international market pose potential threat for the sector and the company; the incentives under NUP-2015 and NIP-2012 provide ample growth and expansion opportunities. With growing focus on agriculture, relief measures for farmers and the accruing benefits of reforms such as GST, the stock is likely to continue its growth momentum on the bourses. We recommend our investor-readers to BUY the stock.. 

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