Indian GSFC share is a compelling buy at current market price

Date:01-13-2021

India is the second largest consumer of fertilisers and manufacturer of urea in the world. The Indian fertiliser industry is seeing good times with increased productivity levels on the back of rising demand. Because of the heavy usage of urea by the Indian farmer, the Indian government has taken a strict stand by limiting the use of the urea, tackling the diversion to other businesses and check the hoarding and speculation. 

The procurement of fertiliser by the Indian farmer has been extremely promising for the half year ended September 2020, climbing sharply by 20% to 402 lakh metric tonnes. Fertiliser sales have grown on the back of improved liquidity in the hands of the farmers after a good monsoon season, plus increase in the minimum support price announced by the government for farm produce. The fertiliser reform process followed by the government is to ensure that there is better quality of data available, thereby there is no subsidy leakage at the ground level. 

Gujarat State Fertilisers & Chemicals is a state-owned company engaged in the development of crop nutrition solutions operating through two business segments: fertilizer products and industrial products. It offers fertilizer products such as urea, ammonium sulphate, di-ammonium phosphate, ammonium phosphate sulphate and traded fertilizer products. It also offers chemicals. 

The company’s industrial products include Caprolactam, Nylon-6, Nylon Filament Yarn, Nylon Chips, Melamine, Methanol, Polymer products and traded industrial products. It offers sulphuric acid, phosphoric acid and monomer. The company’s plants are located at Vadodara, Surat and Jamnagar in Gujarat. 

The company has recently announced that it is taking up the manufacture of Calcium Nitrate which is a promising water soluble fertilizer and is entirely imported, making it the first company in the country to manufacture the indigenous fertiliser. India’s annual requirement of this product is around 1,20,000 MT which is entirely imported. The company reported good Q2FY2021 financial results with sales at Rs 2,110 crore and net profit at Rs 172.75 crore.

Analysts expect GSFC’s earnings to grow at a faster clip in the next few years on the back of increased sales and robust cash flows. The GSFC share price looks sensible to invest at the current market price of Rs 84. The intrinsic value relative to the price makes it a compelling buy looking at the growth potential of the company.