Prabhudas Lilladher sees 20% upside in this chemical stock. Should you buy?
Stocks to buy today: Shares of Chambal Fertilisers & Chemicals Limited have been in base building mode for last seven to eight months. The chemical stock has dipped to the tune of 10 per cent in last six months and it has been trading in the range of ₹290 to ₹310 in last one month. Prabhudas Lilladher believes that the chemical and fertilizer stock is all set to breakout from this base building zone and may go up to ₹360 apiece levels, delivering over 20 per cent return to its positional shareholders in long term. Chambal Fertilisers share price today is ₹295 apiece levels on NSE.
Highlighting the fundamentals that may attract buying interest of Dalal Street bulls, Prabhudas Lilladher says, “Chambal Fertilisers & Chemical Ltd posted solid growth in overall fertilizer volumes up 72% YoY to 1.39 mn mt (Urea and P&K sales volume were at -2%/+72% YoY to 0.87/0.52mn mt respectively) and agrochemical revenues up 184% YoY to ₹1.9bn, resulting in an overall revenue growth of 75% YoY to ₹82.9bn. Margins were largely impacted (down 420bps YoY to 8.1%) due to a) high cost inventory; b) adverse forex and c) inadequate subsidy in P&K fertilizers. EBITDA came it at ₹6.7bn, up 15% YoY.”
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The brokerage went on to add that the chemical company remains hopeful on reversal of ₹2.4bn one-offs provisions taken in 1HFY23 pertaining to government recognizing subsidy payable amount, lower than the specified NBS policy on closing inventory of March’22. The company has also revised its TAN expansion plans in 1HFY23 having total capital outlay of Rs16.45bn (Rs11.7bn earlier) to build 0.24 mn mt (0.22 mn mt earlier) and is expected to be commissioned in next 34 months.
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‘Revenues were in-line with estimates, however margins were lower due to a) high cost inventory; b) adverse forex and c) inadequate subsidy in Phosphatic (P&K) fertilizers. Going forward, we expect healthy subsidy disbursal from the Govt. to continue (9M’23 subsidy receipts of ₹156.9bn; ₹28.9bn in January’23) resulting in improved working capital and lower interest burden,” brokerage said.
On its suggestion to positional investors in regard to Chambal Fertilizers shares, Prabhudas Lilladher said, “Given delay in Technical Ammonium Nitrate (TAN) project by almost a year (likely to be commissioned in 1HFY26) and limited growth visibility in the existing business, we cut our target multiple from 10x to 9x (5 year high/low average 1 year forward 15x/3x/7x). Maintain ‘BUY’ with revised TP of ₹360 based on 9XFY25 EPS (earlier Rs410 based on 10XFY25 EPS).”
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Ganesh
http://ganesh@finplay.inFinance enthusiast, Mutual fund expert.