>Chambal Fertilisers and Chemicals (PRABHUDAS LILLADHER)

Expansion plan – On track

* De-bottlenecking of Gadepan-I urea plant completed: De-bottlenecking of the Gadepan-I urea plant has been completed and the commercial production has commenced from March 31, 2009. Post the de-bottlenecking, plant capacity has increased from 2850tpd (tonne per day) to 3100tpd. The de-bottlenecking of the Gadepan-II urea plant is on and expected to be completed during May 2009. It will increase the capacity from 2850tpd to 3000tpd. Total capex for the debottlenecking would be around Rs4,500m (Rs3,000m for Gadepan-I and Rs1,500m for Gadepan-II plant). Chambal Fertilisers and Chemicals (Chambal) is expected to get the KG basin gas from the current month. We believe that Chambal will add EBIT of Rs636m in FY10E on the back of de-bottlenecking of both the urea plants and use of the KG basin gas.

* Shipping business: Chambal has five Aframax ships in their portfolio (added three new ships during the year) at present. The company has a long-term time contract till the end of FY10 for all the ships, with an average freight of US$22,000 per day per ship. They will further add one more ship in Q4FY10. Chambal has taken a debt at an attractive rate of Libor plus 40bps to 90bps for the shipping business. All the ships are fully insured.

* Debt and bond position: At present, Chambal has total debt of Rs21,500m, which consists of a long-term debt of Rs18,000m and working-capital debt of Rs3,500m. The company has a fertiliser bond of Rs3,800m in their books. They could book a provision for MTM losses on such bonds. We have assumed 5%
discount i.e. Rs190m in our FY09E estimate.

* Valuation: Chambal’s 90% of the urea business is on cost plus 12% post tax ROE (i.e. fixed earning) basis and shipping business is on time contract till FY10E. Hence, we believe that a downward pressure on earnings would be less. We maintain an “Accumulate” rating on the stock.

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