THE THUNDER PICKS

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The Monsoon Effect

India is an agriculture country, agri space contributes around 33% to national exchequer. The showers are a blessing for the country, with the meteorological department forecasting a normal monsoon this year, there is optimism for India's trillion-dollar economy. This year's 'normal' monsoon would help boost the agricultural output and bring down the rising inflation. The monsoon accounts for 80 per cent of the rainfall in India. Even if the monsoon is delayed by few days, it can have an adverse effect on the economy as about half of India's farm output comes from crops sown during the June-September rainy season. Monsoon is a key to determine agricultural output, inflation, consumer spending and overall economic growth. While a normal rainfall signals growth and prosperity, a below normal rainfall could spell disaster making food more expensive, aggravating the power, water shortage, hitting industrial production which in turn will put more pressure on the government's kitty. Companies related with agri space will get benefit as fertilizer companies have strong co-relation with the rains, hence they are likely to report strong earnings on the back of a bountiful monsoon, which has led to an increase in fertilizer, pesticides, chemical, FMCG and other agri space demand. With this background, we like to introduce our The Thunder Picks - Tata Chemical, GSFC, United Phos. Coromandel Intrl. for 3 months time horizon.

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Tata Chemical
Investment Argument

CMP 370

Target 415

TCL plan to expand SSP capacity through debottlenecking is on track and is expected to complete by Q4FY2012E. Further, 0.2 mn tn debottlenecking capacity for domestic salt is expected to commence operation by March 2012. TCL is also currently undertaking study for increasing soda ash capacity at GCIP by 0.4 mn tn. TCL along with its subsidiary Rallis India has presence across all segments in Farm inputs, from seeds, to agri inputs like Fertilizers and agrochemicals. Recently TCL through BMGL has acquired 100% stake in UK's largest vacuum salt producer British Salt for GBP 93 mn about 6x CY 09 EBIDTA. This seems fairly valued considering expected future cash flow from gas storage opportunity that this acquisition offers. Except Urea other fertilizer prices are decontrolled and the subsidy is based on the prices decided by government under Nutrient Based Subsidy (NBS). Urea price decontrol is under discussion as well. The fertilizer business of TCL currently falls under subsidized and non subsidized business; the subsidized business is a good volume and stable cash flow business where as non subsidized business is a good operating margin business.

Note: Sales & PAT Figures in Crs

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GSFC
Investment Argument

CMP 354

Target 425

GSFC has current cash on its book of Rs 670 crores (84 / share) with negligible long term debt. Further it has liquid investments of Rs 540 crores (Rs 68/ share) make it very tempting bet for investor. GSFC Form a JV with Groupe Chimique Tunisien (GCT) and Compagnie des Phosphates de Gafsa (CPG), and Coromandel Fertilisers Ltd (CFL). The joint venture company, Tunisian Indian Fertilizers (TIFERT) will produce 360,000 tonnes of phosphoric acid per annum. The production will be divided 50% between Coromandel and GSFC. This will help GSFC to run DAP plant at full capacity. The project is expected to be operational in Q1FY12. GSFC is leader in the manufacturing of caprolactam with the installed capacity of 70,000 tonnes per annum. Caprolactam contributed close to 50% of the revenue in the industrial product segment over past five years. Similarly, it contributed on an average of 16% in the total revenue over last five years. GSFC's incessant strive for product diversification and value addition has created a product mix ranging from more than 24 brands of fertilizers, petrochemicals, chemicals, industrial gases, plastics, fibres and other products. The Company has marketing network spread across India.

Note: Sales & PAT Figures in Crs

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United Phos.
Investment Argument

CMP 159

Target 180

UPhos posted strong result in Q4 FY11 registering ~23% YoY growth in revenues to INR 18,055mn. Growth in revenue was driven by 20% increase in volume and 3% rise in prices. Revenue growth was seen in all geographies except EU where it declined by 17% in the quarter. UPhos recently acquired 50% stake in Sipcam Isagro Brazil (SIB) from Isagro. SIB specializes in manufacturing and distribution of formulations, with strengths in insecticides and fungicides. It caters the requirements of USD 7bn Brazilian agrochemical market. This unit would drive 3-4% revenue growth in FY12E. We expect strong growth from this business going forward. EBITDA increased by 24.2% YoY to INR 3,923mn with 29bps expansion in EBITDA margin to 21.1%. Increase in sales price was nullified by equivalent rise in raw material prices leading to stable margins. Net profit soared by 35.5% YoY to INR 2,493mn in the quarter. Profit Margin also expanded from 12.0% to 13.2% on account of change in taxation charges and exceptional items.

Note: Sales & PAT Figures in Crs

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Coromandel Interl.
Investment Argument

CMP 341

Target 384

Coromandel's prospects in its core business of complex/phosphatic fertilisers are underpinned by the big supply deficit in the domestic fertiliser market, which is met by imports. It is these domestic shortages that have helped Indian fertiliser producers register fairly strong volume growth even in the bad monsoon years in recent times. In 2009-10, a drought year, Coromandel's fertiliser sales volumes had shown decent growth. Coromandel has also charted forays into several new non-fertiliser businesses that could piggyback on its extensive rural distribution network. The company already markets agrochemical formulations and is building capacity to cater to the growing contract manufacture requirements of players in this market. Coromandel has managed an impressive scaling up of its sales and profits over the last five years, helped partly by inorganic growth. While its sales expanded at 32 per cent compounded annually, net profits have risen at an impressive 47 per cent. It is also investing in the manufacture of micronutrients and organic fertilisers, nascent markets with good potential. The company is investing in a rural retail network, which it plans to use both for procurement of farm products and to deliver consumer goods.

Note: Sales & PAT Figures in Crs

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Thank you

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