Dalal & Broacha Stock Broking Pvt. Ltd.

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Result Update @ Dalal & Broacha

Gujarat State Fertilizers & Chemicals Ltd.

February 05, 2013
Apurva Shah (Research Analyst) (022) 6714 1449 Milind Karmarkar (Head Research) (022) 6630 8667 Nilay Dalal / (Equity Sales) (022) 3290 3017

BUY Cu rre nt Pri ce Ta rge t Pri ce Upside 52 We e k Ra n ge

Rs 64 Rs 93 45% Rs 91 / Rs 64

GSFC Q3 FY13 result was above our expectation. Net sales increased by 33% YOY to Rs. 17294.3 mn from Rs. 13000.2 mn, on back of robust growth in fertilizer segment by 40.6% to Rs.12637.9mn. Industrial segment too posted healthy growth of 16% to Rs.4656.4mn. EBITDA reduced by 10.5% to Rs.2308.3mn in Q3FY13 vs Rs.2579.6mn in Q3FY12. Operating margins reduced by ~650bps. Decrease in employee cost and power cost by 320bps and 230bps respectively was off set against increase in raw material cost by 1280bps as percentage to sales, which impacted the margins. Due to increase in raw material cost, margins of fertilizer and industrial segment both have dropped by 200bps and 1730bps respectively. Interest expense increased by 328% to Rs.108.4mn from Rs.25.3mn. Net profit decreased by 20.8% to Rs.1364.9mn from Rs.1723.5mn. EPS for the quarter stood at Rs.3.4.
Segment wise breakup (Rs. Mn) Segments Q3 FY13 Q3 FY12 YOY Q2 FY13 QOQ Ferti l i zer (13.3%)* 12637.9 8989.2 40.6% 9208.8 37.2% Chemi cal s (9.1%)* 4656.4 4011 16.1% 4951.4 6.0% Total 17294.3 13000.2 33.0% 14160.2 22.1% *Fi gure i n bra ket i ndi ca tes EBIDTA ma rgi n for quarter per s egment

KEY SHARE DATA Market Cap Rs 25.5 BN/$481.3MN EV / Sales 0.4 EV / EBIDTA 2.0 180804 Vol ume (BSE + NSE) No of o/s s hares 398.5 Face Val ue 2 Book Value 88.3 BSE / NSE 500690 / GSFC Reuters GSFC.BO Bl oomberg GSFC IN Equity
Shareholding (%) Period Promote rs MF / Ba nks / FI FII Publ i c & Othe rs Total
130.0 120.0 110.0 100.0 90.0 80.0 70.0 60.0 50.0
1/ 30 2/ /20 29 1 3/ /20 30 1 4/ /20 30 1 5/ /20 30 1 6/ /20 30 1 7/ /20 30 1 8/ /20 30 1 9/ /20 3 1 10 0/2 /3 01 11 0/2 /3 0 12 0/2 1 /3 01 0/ 20 1

Dec 12 37.8 26.6 11.6 23.9 100.0

Sep 12 37.8 26.5 11.9 23.8 100.0

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G SFC

Sensex

Conference call highlights: Company paid one time expense of Rs.15cr for the settlement of arrears of union at its sikka unit. Company had shut down its caprolactam plant for 15-20 days for modernization, the cost of which was Rs.80cr. Due to this production was impacted. The modernization of caprolactam plant will help the company reduce its benzene raw material cost by ~4.5%. Methanol project is in pre commissioning phase and will start by feb end. Interest expense increased due to increase in working capital, as they did not recieve subsidy since Sept 2012. Valuation: The stock is trading at 4.5x FY13E EPS of Rs. 14.6 and 3.8x FY14E EPS of Rs. 17.2. We recommend buying the stock at current level.
% Growth 194.5 1.1 -23.0 17.7 EPS 18.8 19.0 14.6 17.2 P/E (x) 3.5 3.5 4.5 3.8 ROE % 30.1 23.9 15.5 15.8 RoCE % 36.6 30.2 20.8 22.3

Year Net Sales % Growth EBIDTA OPM % PAT FY 11 47,550.5 18.3 11,718.9 24.6 7,493.7 FY 12 53,018.3 11.5 11,346.5 21.4 7,575.7 FY 13E 59,786.9 12.8 9,034.6 15.1 5,830.7 FY 14E 65,803.0 10.1 10,958.0 16.7 6,862.1 Dalal & Broacha Research is available on Bloomberg DBVS<GO>

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G S F C - R e s u l t U p d a te Q 3 F Y13 Q 3 F Y 12 1 7 2 9 4 .3 1 3 0 0 0 .2

Result Update @ Dalal & Broacha

Pa rti cu l a rs ( R s . M n ) N e t S a le s E xp e n d i tu re R a w m a te ri a l s co n s u m e d E m p l o ye e E xp e n s e s Po w e r co s t O th e r E xp e n s e s T O T A L E X PE N D IT U R E EB ID TA O th e r I n co m e I n te re s t D e p re ci a ti o n PB T T a x e xp e n s e PA T E xce p ti o n a l I te m R e porte d PA T EPS N o . o f E q u i ty s h a re s F a ce V a l u e M a rg i n s O PM PB T N PM T a x R a te A s p e rce n ta g e o f S a l e s R a w M a te ri a l Co n s u m e d E m p l o ye e E xp e n s e s P o w e r Co s t O th e r E xp e n s e s

Y -O - Y 3 3 .0 %

Q 2 F Y13 1 4 1 6 0 .2

Q -O -Q 1 8 .1 %

( 1 1 4 3 0 .6 ) ( 1 0 1 8 .7 ) ( 1 0 0 2 .9 ) ( 1 5 3 3 .8 ) (1 4 9 8 6 .0 ) 2 3 0 8 .3 1 9 3 .8 ( 1 0 8 .4 ) ( 3 4 8 .3 ) 2 0 4 5 .4 ( 6 8 0 .5 ) 1 3 6 4 .9 0 .0 1 3 6 4 .9 3 .4 7 9 7 .0 2 .0

( 6 9 2 9 .2 ) ( 1 1 8 2 .3 ) ( 1 0 5 2 .7 ) ( 1 2 5 6 .4 ) ( 1 0 4 2 0 .6 ) 2 5 7 9 .6 3 0 7 .1 ( 2 5 .3 ) ( 3 2 7 .6 ) 2 5 3 3 .8 ( 8 1 0 .3 ) 1 7 2 3 .5 0 .0 1 7 2 3 .5 2 1 .6 7 9 7 .0 1 0 .0

6 5 .0 % -1 3 .8 % 2 2 .1 % 4 3 .8 % -1 0 .5 % -3 6 .9 % 3 2 8 .5 % 6 .3 % 1 9 .3 %

( 9 4 7 7 .3 ) ( 8 9 2 .9 ) 0 .0 ( 1 7 6 2 .4 ) ( 1 2 1 3 2 .6 ) 2 0 2 7 .6 4 5 9 .9 ( 3 2 .4 ) ( 3 3 9 .9 ) 2 1 1 5 .2 ( 6 1 0 .6 ) 1 5 0 4 .6 0 .0 1 5 0 4 .6 3 .8 7 9 7 .0 2 .0

-1 7 .1 % -1 2 .3 % -1 0 0 .0 % 1 4 .9 % 1 9 .0 % -1 2 .2 % 1 3 7 .3 % -7 0 .1 % - 2 .4 % 3 .4 % -1 0 .3 % 1 0 .2 % 1 0 .2 %

2 0 .8 % 2 0 .8 %

1 3 .3 % 1 1 .8 % 7 .9 % 3 3 .3 %

1 9 .8 % 1 9 .5 % 1 3 .3 % 3 2 .0 %

1 4 .3 % 1 4 .9 % 1 0 .6 % 2 8 .9 %

-6 6 .1 % -5 .9 % -5 .8 % -8 .9 %

- 5 3 .3 % -9 .1 % -8 .1 % -9 .7 %

- 6 6 .9 % -6 .3 % 0 .0 % - 1 2 .4 %

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Disclaimer This document has been prepared and compiled from reliable sources. While utmost care has been taken to ensure that the facts stated are accurate and opinions given are fair and reasonable, neither the Company nor any of its Directors, Officers or Employees shall in any way be responsible for the contents. The Company, its Directors, Officers or Employees may have a position or may otherwise be interested in the investment referred in this document. This is not an offer or solicitation to buy, sell or dispose off any securities mentioned in this document. For Further details Contact Mr. Milind Karmarkar Mr. Chirag Shah Ms. Hiral Sanghvi Mr. Kunal Bhatia Mr. Lalitabh Shrivastawa Mr. Ashutosh Garud, CFA Ms. Purvi Shah Mr. Apurva Shah Email ID milind.karmarkar@dalal-broacha.com chirag.shah@dalal-broacha.com hiral.sanghvi@dalal-broacha.com kunal.bhatia@dalal-broacha.com lalitabh.s@dalal-broacha.com ashutosh.garud@dalal-broacha.com purvi.shah@dalal-broacha.com apurva.shah@dalal-broacha.com Contact No. 022 67141445 022 67141447 022 67141444 022 67141442 022 67141450 022 67141448 022 67141446 022 67141449 Sector Head Research Head Equity Sales IT, Retail Auto, Auto Ancillary, FMCG Banking & NBFCs Capital goods Pharma Agrochemicals, Fertilizers Fax:

Address :- 508, Maker Chambers V, 221 Nariman Point, Mumbai 400 021 Tel: 91-22- 2282 2992, 2287 6173, (D) 6630 8667 91-22-2287 0092