1

SYNOPSIS

Gujarat State Fertilisers & Chemicals (GSFC) incorporated in 1962, is engaged in manufacturing of fertilizers and industrial products. It was earlier known as Gujarat State Fertilizer Company (GSFC) which was joint sector enterprise set up by the Government of Gujarat.

GSFC's incessant strive for product diversification and value addition has created a product mix ranging from more than 24 brands of fertilizers to petrochemicals, chemicals, industrial gases, plastics, fibers and other products.

The Company has marketing network spread across India in states like Andhra Pradesh, Chhattisgarh, Gujarat, Haryana, Karnataka,MadhyaPradesh, Maharashtra, Punjab, Rajasthan, Daman and Uttar Pradesh.

Net Sales and PAT of the company are expected to grow at a CAGR of 15% and 61% over 2010 to 2013E respectively.

During the quarter, the company has reported Net Profit increased to Rs.2051.40 million from Rs. 368.20 million in previous year same quarter.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 47550.50 12726.30 7493.70 94.02 3.64

FY 12E 54207.57 15739.12 9490.00 119.07 2.87

FY 13E 60712.48 17605.76 10606.64 133.08 2.57

Stock Data:

Sector: Fertilizers

Face Value Rs. Rs.10.00

52 wk. High/Low (Rs.) 412.90/230.00

Volume (2 wk. Avg.) 21000

BSE Code 500690

Market Cap (Rs.In mn) 27257.40

Share Holding Pattern

1 Year Comparative Graph

Gujarat State Fertilisers

& Chemicals Ltd BSE SENSEX

C.M.P : Rs.342.00 Target Price : Rs.390.00 Date : 23rd June 2011 BUY

GUJARAT STATE FERTILIZERS & CHEMICALS

LTD

Result Update: Q4 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 (%)

Gujarat State Fert 342.00 27257.40 94.02 3.64 0.96 45.00

National Fert 90.00 43857.7 2.82 31.70 2.55 10.50

Coromandel Intl 322.75 91012.6 24.63 13.11 6.34 500.00

Zuari Inds 634.50 18680.1 56.68 11.19 1.51 45.00

Investment Highlights

Q4 FY11 Results Update

Gujarat State Fertilizers & Chemicals Ltd disclosed results for the quarter ended

March 2011. Net sales for the quarter moved up 43% to Rs.11224.90 million as

compared to Rs.7825.50 million during the corresponding quarter last year.

During the quarter, the company has reported PAT increased to Rs.2051.40

million from Rs. 368.20 million in previous year same quarter. The Basic EPS of

the company stood at Rs.25.74 for the quarter ended March 2011.

Quarterly Results - Standalone (Rs in mn)

As At March-11 March-10 %change

Net sales 11224.90 7825.50 43

PAT 2051.40 368.20 457

Basic EPS 25.74 4.62 457

3

Basic EPS of the company stood at Rs. 25.74

4

Break up of Expenditure

Expenditure for the quarter stood at Rs.8055.30mn, which is around 12% higher

than the corresponding period of the previous year. Consumption of Raw Material

cost of the company for the quarter accounts for 52% of the sales of the company

and stood at Rs.5850.30mn from Rs.4959.20mn of the corresponding period of

the previous year. Other Expenditure cost increased 5%YoY to Rs.1172mn from

Rs.1119.70mn and accounts for 10% of the revenue of the company for the

quarter.

OPM and NPM for the quarter stood at 31% and 18% respectively from 13% and

5% respectively of the same period of the last year.

5

FY11 Performance

Net profit of the company has increased at 194% yoy Rs.7493.70mn from

Rs.2544.80mn of same period of last year. Total revenue for the year stood at

Rs.47550.50 mn from Rs.40191.90 which is 18% increased than that of a year ago.

EPS for the year stood at Rs.94.02 per equity share of Rs.10.00 each.

Operating profit of the company stood at Rs.12726.30mn. OPM for the year stood

at 26.76%. Expenditure of the company increased 0.34% YoY to Rs.35836.20 mn.

Interest expenses for the year stood at Rs.137.80mn.

Segment Revenue

6

Board recommends Dividend

Gujarat State Fertilizers & Chemicals Ltd has recommended a dividend of Rs.

7.00 per Equity Share of Rs. 10/- each (70%).

Company Profile

With a market presence exceeding 45 years GSFC has carved out an irreplaceable

image for itself on the Indian marketing scene. Integration of technologies and brilliant

innovative research ensures that the products touch all walks of life. From household

consumer to core industrial consumer, GSFC continuously fulfils multi-fold needs of

the market.

GSFC's incessant strive for product diversification and value addition has created a

product mix ranging from more than 24 brands of fertilizers to petrochemicals,

chemicals, industrial gases, plastics, fibers and other products.

Gujarat State Fertilizers & Chemicals (GSFC) incorporated in 1962, is engaged in

manufacturing of fertilizers and industrial products. It was earlier known as Gujarat

State Fertilizer Company (GSFC) which was joint sector enterprise set up by the

Government of Gujarat.

Earlier the equity structure consisted of 49% of State Government and the rest of

public and financial institutions. Currently, the State Government has reduced its

equity participation to 38.4%. The motive behind formation of this organisation was to

support farmers.

7

Manufacturing units

The company’s manufacturing units is located at

Kosamba,

Sikka and

Nandesari.

It has marketing network spread across India in states like Andhra Pradesh,

Chhatisgarh, Gujarat, Haryana, Karnataka, Madhya Pradesh, Maharashtra, Punjab,

Rajasthan, Daman and Uttar Pradesh.

GSFC has set up several companies such as Gujarat Narmada Valley Fertilizers

Company, Gujarat Industries Power Company, Gujarat Green Revolution Company,

GSFC Investment and Leasing Company, GSFC-Polymer Unit and GSFC - Fiber Unit.

Products

GSFC has created more than 24 brands of

Fertilizers,

Petrochemicals,

Chemicals,

Industrial gases,

Plastics,

Fibers and

Other products.

8

Industrial Products- Under this it manufactures

Anhydrous Ammonia,

Argon Gas,

Caprolactam,

Melamine,

Methyl Ethyl Ketoxime,

Nylon-6,

Oleum and

Sulphuric Acid.

Agro products- In this segment the company manufactures a range of

Fertiliser,

Bio-fuels and

Seeds.

Biotech products- The Company manufactures range of biotech products under

various brands such as

Sardargib,

Sardar Eco Green,

Sardarvam,

Sardartrap and

Sardarlures,

Sardarneem,

Sardaramin and

Sardaramin Granules.

9

Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in million) FY10A FY11A FY12E FY13E

12m 12m 12m 12m

Description

Net Sales 40191.90 47550.5 54207.57 60712.48

Other Income 1130.10 1012.00 1103.08 1213.39

Total Income 41322.00 48562.50 55310.65 61925.87

Expenditure -35715.30 -35836.20 -39571.53 -44320.11

Operating Profit 5606.70 12726.30 15739.12 17605.76

Interest -306.20 -137.80 -136.45 -147.25

Gross Profit 5300.50 12588.50 15602.67 17458.50

Depreciation -1409.30 -1464.00 -1522.56 -1674.82

Profit before Tax 3891.20 11124.50 14080.11 15783.69

Tax -1346.40 -3630.80 -4590.12 -5177.05

Profit after Tax 2544.80 7493.70 9490.00 10606.64

Equity Capital 797.00 797.00 797.00 797.00

Reserves 20644.3 27489.5 36979.5 47586.14

Face Value(Rs.) 10.00 10.00 10.00 10.00

EPS 31.93 94.02 119.07 133.08

*A=Actual, *E=Estimated

10

Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in million) 30-Sep-10 30-Dec-10 30-Mar-11 30-Jun-11

3m(A) 3m(A) 3m(A) 3m(E)

Description

Net Sales 13006.60 12651.40 11224.90 12347.39

Other Income 438.30 129.90 297.80 268.02

Total Income 13444.90 12781.30 11522.7 12615.41

Expenditure -9834.30 -9115.20 -8055.30 -8766.65

Operating Profit 3610.60 3666.10 3467.40 3848.76

Interest -40.60 -24.80 -31.80 -30.21

Gross Profit 3570.00 3641.30 3435.60 3818.55

Depreciation -358.00 -374.30 -388.30 -385.53

Profit before Tax 3212.00 3267.00 3047.30 3433.02

Tax -1141.90 -980.80 -995.90 -1119.17

Profit after Tax 2070.10 2286.20 2051.40 2313.86

Equity Capital 797.00 797.00 797.00 797.00

Face Value(Rs.) 10.00 10.00 10.00 10.00

EPS 25.97 28.69 25.74 29.03

*A=Actual, *E=Estimated

11

Key Ratio

Particulars FY10 FY11 FY12E FY13E

EPS (Rs.) 31.93 94.02 119.07 133.08

EBITDA Margin (%) 13.95% 26.76% 29.03% 29.00%

PAT Margin (%) 6.33% 15.76% 17.51% 17.47%

P/E Ratio (x) 7.34 3.64 2.87 2.57

ROE (%) 11.87% 26.49% 25.12% 21.92%

ROCE (%) 14.82% 31.72% 31.34% 28.28%

EV/EBITDA (x) 3.33 2.14 1.73 1.55

Debt-Equity Ratio 0.32 0.26 0.20 0.16

Book Value (Rs.) 269.03 354.91 473.98 607.07

P/BV 0.87 0.96 0.72 0.56

Charts:

12

13

14

Outlook and Conclusion

At the current market price of Rs.342.00, the stock is trading at 2.87 x FY12E and 2.57 x FY13E respectively.

Price to Book Value of the stock is expected to be at 0.72 x and 0.56 x respectively for FY12E and FY13E.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs.119.07 and Rs.133.08 respectively.

The Company has marketing network spread across India in states like Andhra Pradesh, Chhattisgarh, Gujarat, Haryana, Karnataka,MadhyaPradesh, Maharashtra, Punjab, Rajasthan, Daman and Uttar Pradesh.

Net Sales and PAT of the company are expected to grow at a CAGR of 15% and 61% over 2010 to 2013E respectively.

During the quarter, the company has reported Net Profit increased to Rs.2051.40 million from Rs. 368.20 million in previous year same quarter.

On the basis of EV/EBITDA, the stock trades at 1.73 x for FY12E and 1.55 x for FY13E.

15

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.390.00 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.

16

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

17

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 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.

� 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

18

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.

� 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

Fertilisers 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. For instance, the financial year 2006-07 began with

practically no clarity on the policy parameters for both nitrogenous and

phosphatic fertilizers.

19

� 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 favouring 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. Similarly, in the case of phosphates, on

account of the limited availability of phosphoric acid and rock phosphate in the

country, domestic units are dependent to a large extent on imports. In view of

the limited availability of the main feedstock within the country, fertiliser

companies today are exploring the possibility of setting up joint ventures

abroad to tie up their feedstock requirements. Though a few joint venture

agreements have been signed with respect to supply of phosphoric acid, only a

couple of joint ventures have been established with respect to urea. Domestic

players have also not been able to enter into long term gas supply agreements

primarily due to differences over pricing.

_______________ ____ _________________________ 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 – info@firstcallindia.com

C.V.S.L.Kameswari Pharma

U. Janaki Rao Capital Goods

D. Ashakirankumar Automobile

A. Rajesh Babu FMCG

H.Lavanya Oil & Gas

T.Joshna Devi Diversified

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: info@firstcallindiaequity.com

www.firstcallindiaequity.com