Ajcon Global is bullish on Gujarat State Fertilizers & Chemicals (GSFC) and has recommended buy rating on the stock with a target of Rs 100 in its June 19, 2014 research report.
"Gujarat State Fertilizers & Chemicals Limited (GSFC) was established in 1962 and promoted by the Gujarat Government which holds about 38 percent stake in the company. GSFC operates in two broad divisions – 'fertilizers' and 'industrial chemicals' segments. The former contributes to over two-thirds of the overall revenues, while the latter contributes the balance. Within its fertilizer segment, GSFC sells products such as Di-ammonium phosphate (DAP), Ammonium Phosphate Sulphate, urea amongst other complex fertilizers. Within the industrial segment, the key product sold is caprolactam. The same is used in manufacturing Nylon-6. Its applications are in the manufacture of fibres for textile and tyre cords, molding engineering components and other extrusion profiles and monomer castings. GSFC is a market leader in caprolactam and (DAP) markets. Caprolactam is basically a material used to manufacture nylon-6. It is also used in molding engineering components and other castings. GSFC has manufacturing capacity of 70,000 MTPA. Over the last five years the share of caprolactam in total sales has been going up. Since benzene is the key raw material required to manufacture caprolactam the end product price is dependent upon the movement in benzene prices. High volatility in benzene prices affects the demand for caprolactam. However, as the company operates in a regulated industry its financials and return ratios have been quite volatile. Nonetheless, after the Nutrient Based Subsidy came into effect in April 2010, the margins and return ratios of the company have not only witnessed stability but also registered improvement. This also led to a substantial re-rating in the stock."
"At the current price of Rs 75.75 the stock is trading at a multiple of 8x its trailing 12 month (TTM) earnings and 0.72x of its FY14 Book Value. The company continues to remain a strong player in the caprolactam market. Q4FY14 results were encouraging on both topline and margin front. The company has also announced future capex plans of Rs 51bn for setting up of a new 100,000 tons caprolactam plant and 40,000 ton melam ine plant which would drive the topline growth over the next 3- 4 years subject to the regulatory approvals are in place," says Ajcon Global research report.
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