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Q2FY2011Update

Sector: Fertilisers
RESEARCH
BSE Sensex: 20,032
HOLD
NAGARJUNA FERTILISERS & CHEMICALS LTD CMP Rs34
TP Rs45

29 October 2010
IMPRESSSIVE PROFITABILITY
Nagarjuna Fertilisers' (NFCL) Q2FY11 results were better than
Satish Mishra +91-22-6618 6488
expectations as net sales doubled to Rs11.2bn (+110.4% YoY)
on the back of higher trading and manufactured fertilisers’ satish.mishra@pinc.co.in
volume. Higher trading led OPM to contract by 375bps to 10.4%.
Urvashi Biyani +91-22-6618 6334
Higher other income and lower depreciation (-36% YoY)
urvashi.biyani@pinc.co.in
resulted in net profit to grew by 3.5x YoY to Rs284mn against
our estimate of Rs142mn.
Higher trading drives revenues: Trading revenues has increased
significantly in Q2FY11 (import of DAP and MOP). Trading is
contributing ~53% in revenues in H1FY11. Manufactured Urea volume
was also higher in Q2FY11 as last year there was a shutdown of QUARTERLY SNAPSHOT (Rs mn)
~1month in Q2FY10 to hookup de-bottleneck unit. Quarter Ended
Reasons for higher trading volumes in H1FY11: Mar-10 Jun-10 Sep-10
• Higher margins in trading: Realisation for traded complex Net Sales 5,161 3,308 11,220
fertilisers are as per NBS where as their international prices were YoY Gr (%) (4.6) 0.5 110.4
significantly lower in H1FY11 (Ex DAP is subsidised @ USD500/ Op. Profits 1,101 1,018 1,162
MT, however, avg international price in H1FY11 was USD475) OPM (%) 21.3 30.8 10.4
• Favourable forex movement: As per NBS calculation, INR-USD Adj. Net Profit 230 271 284
Result Review

is fixed at 46 for FY11, however, with strengthening rupee, actual YoY Gr. (%) 82.6 17.5 246.7
conversion factor is hovering towards 44.5 & directly adding to margins
Investment in NOCL: Nagarjuna Fertiliser holds 51% stake in
Nagarjuna Oil Corporation Limited. This is a 6mn MT p.a. refinery STOCK DATA
coming up at Cuddalore, Tamil Nadu and is expected to be
Market Cap Rs14.6bn.
commissioned by FY13. Total capex for this project is RsRs70bn.
Book Value per share Rs36.9
NOCL is contributing Rs9 in our target price with a GRM of USD6.5/
Eq Shares O/S (F.V. Rs10) 428.2mn.
bbl against management guidance of USD8.5/bbl.
Free Float 62.1%
VALUATIONS AND RECOMMENDATION Avg Traded Value (6 mnths) Rs188mn
52 week High/Low Rs40/27
At CMP of Rs34, NFCL is trading at P/E & EV/EBITDA of 9.5x &
Bloomberg Code NFCL IN
12.5x respectively for FY12E estimates. Availability of natural gas
Reuters Code NGFR.BO
coupled with benefits from revamping should lead net profits to grow
by 3.7x in FY11 from FY09. We maintain our earning estimates for
FY11 & FY12, however, rolling forward to FY12 earnings our new
SOTP target price is Rs45 (10x P/E FY12E EPS for fertiliser PERFORMANCE (%)
business and Rs9 for NOCL). We maintain our ‘HOLD’
recommendation due to huge capex involved in refinery business. 1M 3M 12M
Absolute 11.1 9.7 4.2
KEY FINANCIALS Rs mn Relative 9.0 (2.7) (14.6)
FY08 FY09 FY10 FY11E FY12E
Net Sales 21,936 23,719 19,879 22,444 23,312
YoY Gr.(%) 20.8 8.1 (16.2) 12.9 3.9 RELATIVE PERFORMANCE
Op. Profits 3,034 3,286 3,669 4,365 4,931
Op. Marg.(%) 13.8 13.9 18.5 19.4 21.2 Nagarjuna Fert BSE Rebased
60
Adjusted Net Profit 225 324 664 1,185 1,539
YoY Gr.(%) (29.1) 44.1 104.8 78.6 29.9 45
KEY RATIOS
Dil. EPS (Rs) 0.5 0.8 1.6 2.8 3.6 30
ROCE (%) 7.5 8.1 8.6 8.0 6.8 15
RoE (%) 1.3 2.0 4.2 7.3 8.9
PER (x) 64.7 44.9 21.9 12.3 9.5 -
EV/Net sales (x) 1.4 1.3 1.9 2.4 2.7 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10

EV/EBITDA (x) 9.4 9.3 9.8 11.8 12.5


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RESEARCH

Nagarjuna Fertilisers & Chemicals Ltd.

Financial Table (Rs mn)


Sep-09 Sep-10 YoY (%) Jun-09 QoQ (%) 1H FY10 1H FY11 YoY (%)
Net Sales 5,332 11,220 110.4 3,308 239.2 8,622 14,528 68.5
EBITDA 752 1,162 54.5 1,018 14.1 1,689 2,180 29.0
EBITDA Margins % 14.1 10.4 30.8 19.6 15.0

Other Income 12 44 269.0 11 314.3 23 55 142.3


Interest 333 510 53.1 312 63.5 640 822 28.4

Depreciation 319 204 (36.0) 320 (36.2) 632 524 (17.0)


PBT 112 492 340.0 397 23.9 441 889 101.8
Tax (%) 26.8 42.4 31.7 29.0 37.6

PAT 82 284 246.7 271 4.5 313 555 77.5


EPS 0.2 0.7 246.7 0.6 4.5 0.7 1.3 77.6

satish.mishra@pinc.co.in 2
RESEARCH

Nagarjuna Fertilisers & Chemicals Ltd.


Year Ended March (Figures in Rs mn)

Income Statem ent FY08 FY09 FY10 FY11E FY12E Cash Flow Statem ent FY08 FY09 FY10 FY11E FY12E
Net sales 21,936 23,719 19,879 22,444 23,312 Pre-tax profit 401 458 1,114 1,943 2,523
Growth (%) 20.8 8.1 (16.2) 12.9 3.9 Depreciation 1,202 1,210 1,282 1,059 1,170
Operating Profit 3,034 3,286 3,669 4,365 4,931 Total tax paid (389) (396) (526) (758) (984)
Growth (%) 8 8 12 19 13 Chg in w orking capital 535 944 (780) (1,900) (920)
Other income 198 120 218 131 207 Other items 1,630 1,693 1,490 1,363 1,238
EBDITA 3,232 3,406 3,886 4,496 5,138 Cash flow from oper. (a) 3,380 3,909 2,580 1,708 3,027
Growth (%) 5 5 14 16 14 Capital ex penditure (1,923) (7,071) (10,015) (15,000) (12,000)
Depreciation 1,202 1,210 1,282 1,059 1,170 Chg in inv estments 353 - - - -
EBIT 2,031 2,196 2,605 3,437 3,968 Other inv esting activ ities - - (1) (269) (193)
Interest paid 1,630 1,693 1,490 1,494 1,445 Cash flow from inv. (b) (1,570) (7,071) (10,015) (15,269) (12,193)
PBT (before E/o items) 401 503 1,114 1,943 2,523 Free cash flow (a+b) 1,810 (3,162) (7,436) (13,561) (9,166)
Tax prov ision 176 179 450 758 984 Equity raised/(repaid) 375 0 13 - -
E/o Income / (loss) - - - - - Debt raised/(repaid) 241 3,680 14,561 8,000 10,000
Net profit 225 324 664 1,185 1,539 Interest Paid (1,624) (1,667) (1,492) (1,494) (1,445)
Adjusted net profit 225 324 664 1,185 1,539 Div idend (incl. tax ) (12) 0 0 (250) (250)
Growth (%) (29.1) 44.1 104.8 78.6 29.9 Others 53 2,357 126 - -
Diluted EPS (Rs) 0.5 0.8 1.6 2.8 3.6 Cash flow from fin. (c) (967) 4,371 13,208 6,255 8,305
Growth (%) (29.1) 44.1 104.8 78.6 29.9 Net chg in cash (a+b+c) 843 1,209 5,772 (7,306) (861)

Balance Sheet FY08 FY09 FY10 FY11E FY12E Key Ratios FY08 FY09 FY10 FY11E FY12E
Equity capital 4,652 4,652 4,654 4,654 4,654 OPM(%) 13.8 13.9 18.5 19.4 21.2
Reserves & Surplus 12,395 12,079 11,129 12,064 13,352 Net margin (%) 1.0 1.4 3.3 5.3 6.6
Shareholders' funds 17,047 16,731 15,783 16,718 18,006 Div idend y ield (%) 0.0 0.0 1.5 1.5 1.5
Deferred Tax Liability 1,966 1,812 1,811 1,811 1,811 Net debt/Equity (x ) 1.0 1.2 2.0 2.4 2.7
Total debt 16,721 19,250 31,317 39,317 49,317 Net Working Capital (day s) (50.1) (71.1) (104.9) (97.8) (65.0)
Minority Interest 0 2,848 3,439 3,439 3,439 Asset turnov er (x ) 0.6 0.6 0.4 0.4 0.3
Capital Employed 35,734 40,641 52,351 61,286 72,574 ROCE (%) 7.5 8.1 8.6 8.0 6.8
Net fix ed assets 29,556 33,114 38,266 52,207 63,037 ROE (%) 1.3 2.0 4.2 7.3 8.9
Cash & cash Eq. 1,950 2,946 7,132 1,726 1,785 EV/Net sales (x ) 1.4 1.3 1.9 2.4 2.7
Net other current assets 2 2 2 2 2 EV/EBITDA (x ) 9.4 9.3 9.8 11.8 12.5
Ex p pending allocation 4,226 4,579 6,951 7,351 7,751 PER (x ) 64.7 44.9 21.9 12.3 9.5
Total assets 35,734 40,641 52,351 61,286 72,574 Price/Book (x ) 0.9 0.9 0.9 0.9 0.8

1-year forward P/E Band 1-year forward EV/EBITDA

200 80,000 16x

50x 14x
150 60,000 12x
40x
10x
100 30x 40,000 8x

20x
50 20,000
10x

- -
Apr-04 Nov -05 Jul-07 Feb-09 Oct-10 Apr-04 Nov -05 Jul-07 Feb-09 Oct-10

satish.mishra@pinc.co.in 3
RESEARCH

T E A M

EQUITY DESK
Sadanand Raje Head - Institutional Sales sadanand.raje@pinc.co.in 91-22-6618 6366
Technical Analyst

RESEARCH
Vineet Hetamasaria, CFA Auto, Cement vineet.hetamasaria@pinc.co.in 91-22-6618 6388
Nikhil Deshpande Auto, Auto Ancillary, Cement nikhil.deshpande@pinc.co.in 91-22-6618 6339
Vinod Nair Construction, Power, Capital Goods vinod.nair@pinc.co.in 91-22-6618 6379
Ankit Babel Capital Goods ankit.b@pinc.co.in 91-22-6618 6551
Hitul Gutka Power hitul.gutka@pinc.co.in 91-22-6618 6410
Subramaniam Yadav Construction subramaniam.yadav@pinc.co.in 91-22-6618 6371
Madhura Joshi Power madhura.joshi@pinc.co.in 91-22-6618 6395
Satish Mishra Fertiliser, Engineering satish.mishra@pinc.co.in 91-22-6618 6488
Urvashi Biyani Fertiliser, Engineering urvashi.biyani@pinc.co.in 91-22-6618 6334
Rohit Kumar Anand IT Services rohit.anand@pinc.co.in 91-22-6618 6372
Namrata Sharma Media namrata.sharma@pinc.co.in 91-22-6618 6412
Karan Taurani IT Services karan.taurani@pinc.co.in 91-22-6618 6382
Bikash Bhalotia Metals, Mining bikash.bhalotia@pinc.co.in 91-22-6618 6387
Harleen Babber Metals, Mining harleen.babber@pinc.co.in 91-22-6618 6389
Dipti Vijaywargi Metals, Mining dipti.vijaywargi @pinc.co.in 91-22-6618 6393
Naveen Trivedi Pharma, FMCG naveent@pinc.co.in 91-22-6618 6384
SALES
Anil Chaurasia Equities anil.chaurasia@pinc.co.in 91-22-6618 6483
Rajeev Gupta Equities rajeev.gupta@pinc.co.in 91-22-6618 6486
Shailesh Kadam Derivatives shaileshk@pinc.co.in 91-22-6618 6349
Ganesh Gokhale Derivatives ganeshg@pinc.co.in 91-22-6618 6347

DEALING
Mehul Desai Head - Sales Trading mehul.desai@pinc.co.in 91-22-6618 6303
Naresh Panjnani Co-Head - Sales Trading naresh.panjnani@pinc.co.in 91-22-6618 6333
Amar Margaje amar.margaje@pinc.co.in 91-22-6618 6327
Ashok Savla ashok.savla@pinc.co.in 91-22-6618 6321
Sajjid Lala sajjid.lala@pinc.co.in 91-22-6618 6337
Raju Bhavsar rajub@pinc.co.in 91-22-6618 6322
Kinjal Mehta kinjal.mehta@pinc.co.in 91-22-6618 6333
Chandani Bhatia chandani.bhatia@pinc.co.in 91-22-6618 6324
Hasmukh D. Prajapati hasmukhp@pinc.co.in 91-22-6618 6325
Manoj Parmar manojp@pinc.co.in 91-22-6618 6326
SINGAPORE DESK
Amul Shah amul.shah@sg.pinc.co.in 0065-63270626/27/28

DIRECTORS
Gaurang Gandhi gaurangg@pinc.co.in 91-22-6618 6400
Hemang Gandhi hemangg@pinc.co.in 91-22-6618 6400
Ketan Gandhi ketang@pinc.co.in 91-22-6618 6400
COMPLIANCE
Rakesh Bhatia Head Compliance rakeshb@pinc.co.in 91-22-6618 6400
Infinity.com
Financial Securities Ltd
bright thinking SMALL WORLD, INFINITE OPPORTUNITIES

Member : Bombay Stock Exchange & National Stock Exchange of India Ltd. : Sebi Reg No: INB 010989331. Clearing No : 211
1216, Maker Chambers V, Nariman Point, Mumbai - 400 021; Tel.: 91-22-66186633/6400 Fax : 91-22-22049195

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