Recommendation From Fertilizers Sectors
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
RCF
NOURISHMENT FOR YOUR INVESTMENT PORTFOLIO!
HERE IS WHY
Normal monsoon expected
JVs with CIL, GAIL, FCIL
Favourable government policies
Rashtriya Chemicals and Fertilizers (RCF), a miniRatna government undertaking, is a leading fertiliser and chemical manufacturing company. The company produces approximately 23 lakh metric tonnes (MT) of urea, about 6.5 lakh MT of complex fertilizers and about 1.6 lakh MT of industrial chemicals. In 9MFY18, its revenue mix consisted of fertilisers (about 85 per cent), industrial chemicals (about 10 per cent) and trading (about 5 per cent).
RCF is planning to set up 3850 MTPD urea and 2200 MTPD ammonia plants in Odisha with an investment of Rs 7700 crore to be made by a joint venture. For this, the company has signed MoUs with Coal India, GAIL and FCIL to cater to increased urea demand. Further, a revival in demand is expected as the Ministry of Fertiliser aims to stop import of urea completely by FY22.
On the financial front, RCF posted a 17.83 per cent increase in its net sales to Rs 1,985.06 crore in the third quarter of FY2018 as compared to Rs 1,684.72 crore in the same quarter of the previous year. The company ’s PBIDT increased by 0.80 per cent to Rs 111.40 crore in the third quarter of FY2018 on a year-on-year basis. However, the net profit of the company declined by 71.03 per cent to Rs 17.92 crore in the third quarter of FY2018 as compared to Rs 61.85 crore in the same quarter of the previous fiscal.
On an annual basis, the company posted a 12.40 per cent decline in its net sales to Rs 7,200 crore in FY2017 as compared to Rs 8,218 crore in FY2016. The PBIDT of the company also declined by over 12 per cent to Rs 415.83 crore in FY2017 as against Rs 473.10 crore in the previous fiscal. However, the company posted an increase of 3.83 per cent in its net profit to Rs 179.26 crore in FY2017 on a year-on-year basis.
On the valuation front, the company posted an ROE of 6.24 per cent and ROCE of 6.55 per cent in March 2017. Further, it posted a PE of 42.9x as against an industry PE of 19.34x. Its debt-toequity ratio declined from 1.06x in 2016 to 0.60x in 2017. The company has been maintaining a healthy dividend payout of 32.74 per cent.
Recently, the government approved Department of Fertiliser’s proposal to continue Urea Subsidy Scheme (USS) up to 2019-20 and for disbursement of fertiliser subsidy. The continuation of USS will ensure the timely payment of subsidy to the urea manufacturers, resulting in timely availability of urea to farmers. Also, the early predictions by various weather forecasting agencies like Skymet and IMD indicating normal South-West monsoon augurs well for the company.
Given the government’s intention to double farmers' incomes by 2022, agri-input players are expected to report strong growth in FY19. The declining subsidy and implementation of direct benefit transfer (DBT) brighten the prospects of fertiliser companies. We recommend our reader-investors to BUY the stock.
