ZUARI INDUSTRIES LTD - Myirisbreport.myiris.com/firstcall/ZUAAGRCH_20110122.pdf · ·...
Transcript of ZUARI INDUSTRIES LTD - Myirisbreport.myiris.com/firstcall/ZUAAGRCH_20110122.pdf · ·...
1
SYNOPSIS
Zuari Industries was incorporated in 1967 as Zuari Agro Chemicals to manufacture urea and complex fertilisers. Being part of the K.K. Birla Group, the company set up a plant in Goa in partnership with US Steel Corporation.
The company forayed into various business areas such as cement, furniture, hybrid seeds, engineering consultancy, financial services, and oil tanking through a route of subsidiaries and joint ventures.
PAT and Operating profit of the company are expected to grow at a CAGR of 27% and 18% over 2009 to 2012E respectively.
The Company has signed Gas Supply Agreement with GAIL (India) Ltd. for supply of RLNG to its fertilizer plant. The RLNG will be used as feed stock in place of Naphtha for Company's plant at Zuarinagar, Goa. The expected date of
supply of RLNG is January 01, 2013.
During the quarter, the company has reported Net Profit increased to Rs. 365.70 million from Rs.248.90 million in previous year same quarter.
Years Net sales EBITDA Net Profit EPS P/E
FY 10 43237.30 2563.60 1569.60 53.32 11.82
FY 11E 62503.49 3167.81 1853.48 62.96 10.01
FY 12E 71879.02 3314.33 1918.30 65.16 9.67
Stock Data:
Sector: Fertilizers
Face Value Rs. Rs.10.00
52 wk. High/Low (Rs.) 895.00/419.00
Volume (2 wk. Avg.) 21000
BSE Code 500780
Market Cap (Rs.In mn) 18547.20
Share Holding Pattern
1 Year Comparative Graph
Zuari Industries Ltd BSE SENSEX
C.M.P: Rs.630.00 Target Price: Rs. 712.00
Date:22nd Jan 2011 BUY
ZUARI INDUSTRIES LTD
Result Update: Q3 FY 11
2
Peer Group Comparison
Name of the company CMP(Rs.) Market
Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)
Zuari Industries 630.00 18547.20 53.32 11.82 1.74 45.00
Coromandel
International 244.85 68964.2 24.99 9.80 4.81 500.00
Chambal Fertilisers 76.90 32006.4 6.71 11.46 2.30 19.00
Gujarat State
Fertilisers 341.15 27188.1 58.52 5.83 1.27 45.00
Investment Highlights
Q3 FY11 Results Update
Zuari Industries Ltd disclosed results for the quarter ended December 2010. Net
sales for the quarter moved up 38% to Rs.15318.80 million as compared to
Rs.11068.00 million during the corresponding quarter last year. During the
quarter, the company has reported Net Profit increased to Rs. 365.70 million from
Rs.248.90 million in previous year same quarter. The Basic EPS of the company
stood at Rs.12.42 for the quarter ended December 2010.
Quarterly Results - Standalone (Rs in mn)
As At Dec-10 Dec-09 %change
Net sales 15318.80 11068.00 38%
PAT 365.70 248.90 47%
Basic EPS 12.42 8.45 47%
3
Basic EPS of the company stood at Rs. 12.42
4
Break up of Expenditure
Expenditure for the quarter stood at Rs.14708.50mn, which is around 38%
higher than the corresponding period of the previous year. Raw material cost of
the company for the quarter accounts for 41% of the sales of the company and
stood at Rs.6222.30mn from Rs.5600.10mn of the corresponding period of the
previous year. Purchase of Traded Goods cost increased 61%YoY to Rs.5570.1mn
from Rs.3463.00mn and accounts for 36% of the revenue of the company for the
quarter.
OPM and NPM for the quarter stood at 4% and 2% respectively from 4% and 2%
respectively of the same period of the last year.
5
Board recommends Dividend
Zuari Industries Ltd has recommended an equity dividend of 45% - Rs. 4.50 per
share.
Company Profile
Zuari Industries was incorporated in 1967 as Zuari Agro Chemicals to manufacture
urea and complex fertilisers. Being part of the K.K. Birla Group, the company set up a
plant in Goa in partnership with US Steel Corporation. As a company dedicated to
partnering for prosperity with the Indian farmer, Zuari’s operations are spread across
five key marketing areas. The company has a manufacturing facility at Goa, with four
plants, dedicated to providing these markets with urea, DAP and NPK based fertilizers.
These fertilisers are both affordable and effective. Zuari deals in agricultural inputs
such as seeds, speciality fertilisers, and pesticides, making it a single window
agricultural solution provider.
The wide variety and reach of the group’s companies has enabled Zuari to diversify
into several related and unrelated sectors. Zuari has established itself as a key brand
in sectors such as furniture, oil tanking, seeds, and investments, apart from
agricultural inputs.
6
Company Products
Fertilisers
The company manufactures a range of fertilisers such as NPK in various ratios such
as 0:0:60, 10:26:26, 12:32:16, 19:19:19, 18:46:0 and 0:0:50. It also produces urea.
The company markets its product under the brand name Jai Kisaan.
Fungicide
The company manufactures fungicides to fight diseases such as leaf spots, wilts,
blights, blasts, rusts, damping off, powdery mildew, and smuts. It has developed
products such as Bensaan, Copper 25, Copsaan, Hexaan, Jk Cyclo, Mancomet, and
Mancosaan.
Herbicides
The company manufactures products that are used in the pre-emergence and post
emergence stages pf crop cultivation. Zuari Industries has developed products namely
Atrasaan, Benzy 700, Butasaan, Glysaan 41, Kleen 58, Kleen 80, Oxyfen 235,
Parachlor 24 and Prety 50.
Speciality Fertilisers
The company manufactures products to improve shelf life of crops, vegetables and
fruits. Under this segment, it has developed products namely Atom 61, Boon 45, Boost
52, Calnit 19, Poorna 19 and Sulpho 50.
Insecticides
The company is engaged in manufacturing solutions to fight against bollworms, white
fly and sucking pests. It has created products such as Aphasaan, Carbosaan, Dozer,
Lamda-2.5, Supreme etc.
7
Organic Manure
The company produces organic manures and micronutrients.
Plants
Ammonia
Zuari Industries Ltd Ammonia plant is based on the ICI Steam reforming process.
Under this process, naphtha is used as feedstock. The manufacturing process for
Ammonia results in Carbon dioxide (CO2) being produced as a by-product. Both the
Ammonia and the Carbon dioxide generated are essential for the manufacture of urea.
Zuari’s Ammonia plant has an installed capacity of 660 metric tonnes per day.
Urea
The Urea plant is a single stream plant and utilises a Mitsui Toatsu total recycle- C
process. The plant has a capacity of 1,140 metric tonnes per day. The urea plant
boasts of an upgraded water recovery system. Barometric condenser water is recycled
in a close-loop cooling tower. Recycled water is used for sealing gland packing of
various pumps. Water that accumulates due to the blow down from the tower is
reused as process water in the manufacturing process.
NPK – A
By adopting technology based on the slurry granulation process, the NPK A plant can
manufacture complex fertilisers (NPK) such as 28:28:0 (Uramphos), 18:46:0 (Samrat),
19:19:19 (Sampurna), and 14:35:14 (Sampatti). Zuari’s NPK plant incorporates the
latest in pipe reactor technology, which ensures that the fertilisers produced in this
plant are some of the highest fertiliser grades in the country. The NPK plant has
reduced the effluent it generates by adopting numerous processes.
NPK – B
Zuari’s NPK B plant was established in 1984. The plant manufactures DAP. The plant
has an installed capacity of 1,100 metric tonnes per day.
8
The technology adopted in the NPK B plant like the NPK A plant is based on the slurry
granulation process. This process is highly efficient and produces the minimum
amount of emissions. The NPK B plant utilises process condensate from the Ammonia
plant once it is passed through a hydrolyser stripper, recycling and reducing wastage
in the process. The high standard of safety in the plant is achieved by a variety of well-
established processes such as air monitoring. The NPK B stack is analysed for
Sulphur dioxide, Ammonia and suspended particulate matter.
Subsidiary Companies
Zuari Seeds
Zuari Seeds was incorporated in 1995 to produce and market a range of field and
vegetable crop seeds and conduct R&D activities. Later in 2003 Green Tech Seeds
International was merged with Zuari Seeds. The company sells products under the
brand name Jai Kisaan.
Simon India
Simon India (SIL) was a joint venture between Zuari Industries and Overseas Holdings
in order to conduct business in area of engineering and project management expertise
for group companies and outside customers. Presently this company is 100%
subsidiary of ZIL and provides engineering solutions in area of chemical, metallurgical,
refinery, petrochemical, fertiliser and infrastructural sectors and many more.
Indian Furniture Products
Incorporated in 1997 the company is engaged in business of manufacturing ready to
assemble furniture. The company became 100% subsidiary in the year 2002 and has
capacity to manufacture 200,000 units of particle board and MDF based furniture,
annually.
9
Zuari Infrastructure and Developers
Incorporated in 2006, the company was previously known as Zuari SEZ. The company
was established to develop Special Economic Zone (SEZ) for Information Technology
(IT) and Information Technology Enabled Services (ITES).
Zuari Developers
Formerly known as Anil Kumar M N Developer, the company became subsidiary on
December 2007. The company conducts business activities such as developing the
land for commercial/ residential purpose and will be entering into a suitable
agreement with its holding Company and other agencies.
Joint Venture Companies
Zuari Maroc Phosphates Ltd.
Paradeep Phosphates Limited
Zuari Indian Oiltanking Ltd.
Zuari Rotem Speciality Fertilisers Limited.
Associate Companies
Gobind Sugar Mills Ltd.
Chambal Fertilisers and Chemicals Limited.
10
Financials Results
12 Months Ended Profit & Loss Account (Standalone)
Value(Rs.in million) FY09A FY10A FY11E FY12E
12m 12m 12m 12m
Description
Net Sales 61217.60 43237.30 62503.49 71879.02
Other Income 634.80 565.30 414.31 439.17
Total Income 61852.40 43802.60 62917.80 72318.18
Expenditure -59814.10 -41239.00 -59749.99 -69003.86
Operating Profit 2038.30 2563.60 3167.81 3314.33
Interest -606.60 -172.10 -305.41 -334.18
Gross Profit 1431.70 2391.50 2862.40 2980.15
Depreciation -177.50 -195.10 -214.37 -235.81
Profit before Tax 1254.20 2196.40 2648.03 2744.34
Tax -321.40 -626.80 -794.55 -826.05
Profit after Tax 932.80 1569.60 1853.48 1918.30
Equity Capital 294.40 294.40 294.40 294.40
Reserves 8979.60 10394.20 12247.68 14165.98
Face Value(Rs.) 10.00 10.00 10.00 10.00
EPS 31.68 53.32 62.96 65.16
*A=Actual, *E=Estimated
11
Quarterly Ended Profit & Loss Account (Standalone)
Value(Rs.in million) 30-Jun-10 30-Sep-10 30-Dec-10 31-Mar-11
3m(A) 3m(A) 3m(A) 3m(E)
Description
Net Sales 9517.40 20969.80 15318.80 16697.49
Other Income 76.30 185.90 74.20 77.91
Total Income 9593.70 21155.70 15393.00 16775.40
Expenditure -9070.60 -19907.90 -14708.50 -16062.99
Operating Profit 523.10 1247.80 684.50 712.41
Interest -77.20 -50.40 -85.90 -91.91
Gross Profit 445.90 1197.40 598.60 620.50
Depreciation -53.10 -53.00 -53.60 -54.67
Profit before Tax 392.80 1144.40 545.00 565.83
Tax -114.70 -330.80 -179.30 -169.75
Profit after Tax 278.10 813.60 365.70 396.08
Equity Capital 294.40 294.40 294.40 294.40
Face Value(Rs.) 10.00 10.00 10.00 10.00
EPS 9.45 27.64 12.42 13.45
*A=Actual, *E=Estimated
12
Key Ratio
Particulars FY09 FY10 FY11E FY12E
EPS (Rs.) 31.68 53.32 62.96 65.16
EBITDA Margin (%) 3.33% 5.93% 5.07% 4.61%
PAT Margin (%) 1.52% 3.63% 2.97% 2.67%
P/E Ratio (x) 4.37 11.82 10.01 9.67
ROE (%) 10.06% 14.68% 14.78% 13.27%
ROCE (%) 14.92% 11.01% 12.35% 11.66%
EV/EBITDA (x) 2.00 7.23 5.85 5.60
Debt-Equity Ratio 0.34 1.01 0.91 0.83
Book Value (Rs.) 315.01 363.06 426.02 491.18
P/BV 0.44 1.74 1.48 1.28
Charts:
13
14
15
Outlook and Conclusion
At the current market price of Rs.630.00, the stock is trading at 10.01 x FY11E and 9.67 x FY12E respectively.
Price to Book Value of the stock is expected to be at 1.48 x and 1.28 x respectively for FY11E and FY12E.
Earning per share (EPS) of the company for the earnings for FY11E and FY12E is seen at Rs.62.96 and Rs.65.16 respectively.
PAT and Operating profit of the company are expected to grow at a CAGR of 27% and 18% over 2009 to 2012E respectively.
The Company has signed Gas Supply Agreement with GAIL (India) Ltd. for supply of RLNG to its fertilizer plant. The RLNG will be used as feed stock in place of Naphtha for Company's plant at Zuarinagar, Goa. The expected date of supply of RLNG is January 01, 2013.
During the quarter, the company has reported Net Profit increased to Rs. 365.70 million from Rs.248.90 million in previous year same quarter.
On the basis of EV/EBITDA, the stock trades at 5.85 x for FY11E and 5.60 x for FY12E.
16
We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.712.00 for Medium to Long term investment.
Industry Overview
The Indian fertilizer industry has succeeded in meeting almost fully the demand of all
chemical fertilizers except for MOP. The industry had a very humble beginning in
1906, when the first manufacturing unit of Single Super Phosphate (SSP) was set up
in Ranipet near Chennai with an annual capacity of 6000 MT. The Fertilizer &
Chemicals Travancore of India Ltd. (FACT) at Cochin in Kerala and the Fertilizers
Corporation of India (FCI) in Sindri in Bihar were the first large sized -fertilizer plants
set up in the forties and fifties with a view to establish an industrial base to achieve
self-sufficiency in food grains. Subsequently, green revolution in the late sixties gave
an impetus to the growth of fertilizer industry in India. The seventies and eighties
then witnessed a significant addition to the fertilizer production capacity.
Fertilizer sector is a very crucial for Indian economy because it provides a very
important input to agriculture. The fertilizer industry in India has played a pivotal
role in achieving self – sufficiency in food grains as well as in rapid and sustained
agriculture growth. India is the third largest producer and consumer of fertilizers in
the world after China and the United States. The growth of the Indian fertilizer
industry has been largely determined by the policies pursued by the government. The
government exercised extensive controls on the pricing, distribution and movement of
fertilizers. The industry is capital intensive and the production process energy
intensive with the combined cost of feedstock and fuel accounting for anywhere
between 55 and 80 per cent of cost of production, depending on the type of fertilizers.
17
Determinants of Fertilize Demand
Rainfall and irrigation facilities
Relative prices of fertilizers
Cropping pattern
Government policies
Rising demand for fertilizers
There has been significant growth in the consumption of fertilizers in last three years
due to overall good monsoon. The growth in NPK consumption was 9.50% in 2004-
05, 10.60 % in 2005-06 and 8.40% per cent in 2006-07.Against the robust growth in
consumption, domestic fertilizer production has remained range – bound in the last
decades. The surge in fertilizers demand and stagnant to modest increase in
production has widened the gap between consumption and production causing larger
dependence on imports. Therefore, the rising demand for fertilizers is providing ample
scope for the companies in this sector to increase their production capacity and
volumes thereby, driving the growth of fertilizer sector.
The installed capacity as on 30.01.2003 has reached a level of 121.10 lakh MT of
nitrogen (inclusive of an installed capacity of 208.42 lakh MT of urea after
reassessment of capacity) and 53.60 lakh MT of phosphatic nutrient, making India
the 3rd largest fertilizer producer in the world. The rapid build-up of fertilizer
production capacity in the country has been achieved as a result of a favorable policy
environment facilitating large investments in the public, co-operative and private
sectors. Presently, there are 57 large sized fertilizer plants in the country
manufacturing a wide range of nitrogenous, phosphatic and complex fertilizers. Out
of these, 29 unit produce urea, 20 units produce DAP and complex fertilizers 13
plants manufacture Ammonium Sulphate (AS), Calcium Ammonium Nitrate (CAN)
and other low analysis nitrogenous fertilizers. Besides, there are about 64 medium
and small-scale units in operation producing SSP.
The Indian fertilizer industry has come a long way since its early days post
independence. India today is one of the largest producer and consumer of Fertilizers
18
in the world. India’s production in terms of nutrients (N & P) reached a level of 155
lakh MT in 2005-06 from 0.39 lakh MT in 1951-52. Similarly, consumption of
fertilizers in terms of nutrients (NPK) has also grown from about 0.66 lakh MT in
1951-52 to nearly 184 lakh MT in 2004-05.
The Indian Fertilizer industry, given its strategic importance in ensuring self–
sufficiency of food grain production in the country, has for decades, been under
Government control. The Government has over the years, provided subsidies/
concessions through the fertilizer companies to farmers and the manufacturers have
been compensated through various schemes. Though the Government control helped
in meeting the objective of ensuring creation of capacities and ultimately achieving
self-sufficiency in food grain production, it did not encourage improving efficiencies in
the sector.
With the Burgeoning subsidy bill and the need to focus on fiscal prudence,
Government polices in recent times are aimed at encouraging efficiencies in the
sector. Policy measures like the new pricing scheme have made the operations of less
efficient players unviable. The Government polices today are oriented towards
achieving the stated objective of total deregulation in the sector. However, the
uncertainty over exact policy parameters and absence of a comprehensive long term
policy has not augured well for the industry. The financial year 2006-07 began with
practically no clarity on the policy parameters for both nitrogenous and phosphatic
fertilizers.
Another important issue confronting the sector is with respect to the feedstock.
Natural gas which is the main feedstock for production of nitrogenous fertilizers is
available in limited quantities and the industry competes with the power sector for its
share. With the Government policy favoring conversion to gas based units, the
demand for gas is only expected to go up in the future, which may in turn lead to
further shortages.
19
________________ ____ _________________________ Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
20
Firstcall India Equity Research: Email – [email protected]
C.V.S.L.Kameswari Pharma
U. Janaki Rao Capital Goods
B. Prathap IT
D. Ashakirankumar Automobile
A. Rajesh Babu FMCG
H.Lavanya Oil & Gas
A.Prathibha Diversified
G.Bharani Bhukta Banking
Dheeraj Bhatia Diversified
Manoj kotian Diversified
Nimesh Gada Diversified
Firstcall India also provides
Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO’s, QIP’s, F.P.O’s,Takeover
Offers, Offer for Sale and Buy Back Offerings.
Corporate Finance Offerings include Foreign Currency Loan Syndications,
Placement of Equity / Debt with multilateral organizations, Short Term Funds
Management Debt & Equity, Working Capital Limits, Equity & Debt
Syndications and Structured Deals.
Corporate Advisory Offerings include Mergers & Acquisitions(domestic and
cross-border), divestitures, spin-offs, valuation of business, corporate
restructuring-Capital and Debt, Turnkey Corporate Revival – Planning &
Execution, Project Financing, Venture capital, Private Equity and Financial
Joint Ventures
Firstcall India also provides Financial Advisory services with respect to raising
of capital through FCCBs, GDRs, ADRs and listing of the same on International
Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and
other international stock exchanges.
For Further Details Contact:
3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai 400 071
Tel. : 022-2527 2510/2527 6077/25276089 Telefax : 022-25276089
E-mail: [email protected]
www.firstcallindiaequity.com