>CHAMBAL FERTILISERS & CHEMICALS (PRABHUDAS LILLADHER)

Results as per expectation

■ Standalone Q4FY09 results: Chambal Fertilisers and Chemicals’ (Chambal’s)
Q4FY09 net sales grew by 43.4% YoY to Rs8,708m (our expectation was Rs7,773m), on the back of higher trading sales and other income. Chambal’s adjusted PAT grew by 107.9% to Rs593m (Our expectation was Rs618m).

■ Q4FY09 highlights: Net sales of urea business grew by mere 8.8% to Rs4,853m since Chambal had shut down Gadepan-1 plant for 36 days during the quarter due to hook-up activities for de-bottlenecking of plant. Trading sales have grown by 831% to Rs1,535m (Our expectation was Rs1,175m). Company has added three ships in H1FY09, which resulted in a YoY growth of 61.7% in the shipping business revenue to Rs1,211m in Q4FY09. EBIT margins of all the segments were as per our expectation, except trading business. During the quarter, the company has changed the accounting treatment for interest to trading creditors by charging into operating cost instead of finance cost as earlier. Hence, Chambal has charged full year interest in Q4FY09 that resulted in lower finance cost and loss in trading business during the quarter.

■ Balance sheet position: Chambal holds a fertiliser bond of Rs3,671.5m as on March 31, 2009. The company has booked MTM losses of Rs281m in Q4FY09. Chambal has consolidated gross debt of about Rs20,000m and cash of Rs7,000m as on the balance sheet date.

■ 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 FY10. Hence, we believe that a downward pressure on earnings would be less. We expect PAT to grow at two year’s CAGR (FY09-11E) of 9.5%. While on the basis of historical rolling band chart of last ten years, Chambal has traded in the range of 4x-16x. We maintain our ‘Accumulate’ rating on the stock, on the basis of 9x at FY10E earnings.

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