Friday, March 30, 2012

>Liberty Phosphate: For solid gains

The share of Liberty Phosphate Ltd. (LPL) (Code: 530273) (Rs.68) is recommended for solid appreciation in the medium-term based on the company’s expansion plans and its highly encouraging results. 

Incorporated in 1987, LPL manufactures single super phosphate (SSP) and sells the fertilizer under the ‘Double Horse’ brand for various crops like oil seeds, groundnut and potato. 

LPL also produces SSP in granulated form called GSSP. It also makes nitrogen, phosphorus and potassium (NPK), fertiliser, soil conditioner, phospho bupsum, magnisium sulphates, and zinc sulphate. LPL has four manufacturing units situated at Udaipur (Rajasthan), Nandesari (Gujrat), Kota (Rajasthan) and Pali (Maharashtra). The company’s state-wise SSP capacity is as follows: Rajasthan 800 tonnes per day (TPD), Gujarat 200 TPD, Maharashtra 150 TPD, and Madhya Pradesh 300 TPD. 

Proximity to raw material sources/markets coupled with a dedicated multi-disciplinary work force has enabled LPL to respond to spurts in demand. 

The raw material required for manufacturing SSP is Rock Phosphate and Sulphuric Acid. Indigenous rock phosphate is available in plenty from the Jhamarkotra mines, Udaipur. 

Sulphuric Acid is supplied by Hindustan Zinc situated at Udaipur. Presently, the company purchases about 10,000 tonnes per month of sulphuric acid for its various units by way of long term agreement with Hindustan Zinc. LPL’s prestigious clients include Tata Chemicals, Zuari, GNFC, Chambal Fertilizers, Gujarat Agro Industries, Oil Federation and MP Agro Industries and various farmers. 

LPL, the largest producer and supplier of Single Super Phosphate (Powder & Granulated) plans to boost its production capacity from 5,62,000 MTPA to 9,24,000 MTPA. 

Currently, the unit at Udaipur in Rajasthan is operating at full capacity of 2,64,000 TPA of SSP/GSSP. The company recently completed capacity expansion at its Nandesari unit in Gujarat from existing 1,00,000 TPA to 1,98,000 TPA. LPL has applied for capacity expansion at its unit in Kota in Rajasthan from 132000 to 198000 TPA of SSP/GSSP. Environment Clearance is under process and is expected to be finalized by May 2012. Besides, LPL plans to expand capacity at its Pali unit in Maharashtra from 66000 to 132000 TPA and to install a SSP plant of 132000 TPA capacity at its Rae Bareilly unit in Uttar Pradesh. During FY11, net profit ballooned by 411% to Rs.33.1 crore on 78% higher sales of Rs.364 crore and the EPS stood at Rs.23. 

During Q3FY12 net profit advanced 25% to Rs.12.6 crore on 32% increased sales of Rs.109 crore. During 9MFY12, net profit surged 39% to Rs.33 crore on 8% higher sales of Rs.324 crore. The EPS for 9MFY12 works out higher at Rs.23. LPL’s small equity capital of Rs.14.4 crore is supported by reserves of Rs.74 crore, which gives its share a book value of Rs.61. The promoters hold 55% in the equity capital. Foreign holding is 13.9% and with PCBs holding is 2.4% leaves 28.7% with the investing public. 

Coming to its future prospects, SSP is a straight phosphatic multi-nutrient fertilizer which contains some other essential micro nutrients in small proportions. It is a poor farmer's fertilizer (price-wise) and an option to optimise the use of phosphatic fertilizers. It also helps to treat sulphur deficiency in soils (40% Indian soil is sulphur deficient) for further enhancement of yields at the least cost. In various crops like oilseeds, pulses, sugarcane, fruits and vegetables, tea etc, which require more of sulphur and phosphate SSP is an essential fertilizer.

India is the second largest consumer of fertilizers in the world next to China. Demand for fertilizer will keep on increasing in future to ensure food security of the country. To meet the increasing demand future policies should encourage creation of domestic capacity of fertilizer as international prices are volatile.
Currently, the fertilizer industry operates under stringent regulations. The FM has recently in his Budget Speech emphasised more focus on SSP industry and related crops.

LPL can lay claim to be the catalyst in the transformation of Indian Agriculture with high capacity and strong dealership network catering 13 States in the country directly as well as through co-partners and pioneer fertilizer companies like Chambal Fertilizers & Chemicals, GNFC, Zuari Industries. During FY12, LPL is expected to register sales of Rs.450 crore with net profit of Rs.40 crore, which would fetch an EPS of Rs.27.8. At the current market price of Rs.68, the share is traded at a P/E multiple of 2.4 on FY12 estimated earnings. A conservative P/E of even 4 will take its share price to Rs.100 in the medium-term and fetch a decent gain of about 50%. LPL’s business is dependent upon policy dispensations of the Government. Any change is likely to affect the projections and plans.