Very recently, the Ministry of Chemicals and Fertilizers had a meeting with industry experts to deal with the scarcity of fertilizers. The gravity of the situation can be understood in the context of the Rabi planting season in October. Fertilizer stocks are in the news for several reasons. In June this year, China ordered some of its major fertilizer companies to halt their exports to ensure a stable supply in domestic markets. Second, a good monsoon in a few states, aided by farm subsidies, boosted demand for fertilizer. Apart from that, CF Industries Holdings, the world’s largest nitrogen plant, had to declare a force majeure event. The company has expressed its inability to fulfill orders for the Donaldsonville, Louisiana, nitrogen facility, which closed before Hurricane Ida. India, along with North America and Brazil, continue to drive nitrogen requirements. These factors have contributed to the recent upturn in fertilizer stocks which is expected to continue in the short term. After scanning the world of fertilizers, we selected two promising values.
1. Fertilizers and chemicals Travancore Ltd (NS 🙂
Travancore Fertilizers and Chemicals Company manufactures petrochemicals and fertilizers. The Group’s products include ammonia, sulfuric acid, phosphoric acid, ammonium, urea, caprolactam, nitric acid and sodium carbonate. The company plans to restart its caprolactam plant that has been closed for eight years. He has completed the test and expects the plant to be fully operational soon. FCTL has reduced its debt in recent quarters in order to reduce its financial costs. In addition, it has steadily increased its turnover and bottom line over the past five years. The company’s 3-year revenue CAGR remained at 19%, while its CAGR net profit over the same period was 68%. Among the peer group, FCTL’s return on capital employed was the highest at 102%. Although its PE-based valuation remains higher among its peers, we believe the stock may offer better results in the short term.
In the first quarter of fiscal 2022, the company’s total income increased 16.6% to Rs 843.54 from Rs 723.31 crore in the corresponding fiscal year 2021. Its reported PAT jumped 125.1% to Rs 149.76 crore from Rs 66.53 crore during the comparison period. Institutional investors’ holding of 8.96% has remained unchanged since the March 2021 quarter. The stock receives a buy indication based on vital technical parameters such as RSI, Momentum, MACD, 10 days / 20 days / 50 days / 100 days / 200 days.
2. Chambal Fertilizers & Chemicals Ltd (NS 🙂
Chambal Fertilizers and Chemicals Ltd manufactures ammonia, urea, pesticides and other products for agriculture and other agricultural applications. The company also provides consultation services to farmers on their seeding programs. During the Covid-19 pandemic, production, shipments and sales of CFCL were not affected and the company’s plant operated at normal levels. On the balance sheet / financial level, the company has reduced its debt in recent quarters. Most notably, CFCL posted a healthy after-tax profit CAGR of 53.9% over the previous five years. Moreover, its return on equity remained decent at 29.3%, and the CAGR was 28.46% in three years.
In the first quarter of fiscal 2022, Chambal Fertilizers’ total revenue increased 9.3% year-on-year to Rs 3,574.77 crore, from Rs 3,271.14 crore in the corresponding quarter of l Fiscal year 2021. PAT increased 9% to 342.17 crore from 314.03 crore during the comparison period. In June 2021, the pledges of promoters decreased by 1.64%, with an increase of 1.37% and 0.87% in the holding of FII and DII for the quarter. In fact, the IFIs have steadily increased their stake in the business over the past three quarters. Vital technical indicators like the Average Directional Index, RSI, Momentum, MACD and 10 Day / 20 Day / 50 Day / 100 Day / 200 Day EMA signal a buy on the stock.