Buy This Small-Cap Fertilizers & Chemicals Stock For 17% Gains, Standalone Net Profit Rose 108.24%

A renowned brokerage firm, Hem Securities recommended investors buy the stocks of the Gujarat Narmada Valley Fertilizers & Chemicals (GNFC) for a target price of Rs 700 per share. Considering the target price, if the investors buy the stocks of the company, they can expect potential gains of 17%.

Stock Outlook

The Current Market Price (CMP) of the GNFC is Rs 597.95 per share, it was opened at Rs 580 per share on 04 July 2022. The 52-week low is Rs 314.10 per share, recorded on 24th August 2021 and the 52-week high is Rs 912 per share, recorded on 05th April 2022. PE ratio is 5/43, and the PR ratio is 1.13. EPS-TTM Is Rs 110.05. The ROE is 21.40%. It is a small-cap company with a market cap of Rs 9,293.27 crore.

Considering the estimated target price of Rs 700 per share and the CMP of the stock, it has the potential to gain nearly 17%.

In the last 5 years, it has given continuous positive returns. In the past 1 year, it has given 61.63%, in the past 3 years it has given 135.69%, and in the past 5 years, it has given 112.38% of positive returns, respectively. However, within the past 1 year, it has not performed well. In the past 1 month, it declined 9.59%, and in 3 months it gave negative returns of 32.11%. The stock has performed well on long-term investment.

Q4FY22 Results

Gujarat Narmada Valley Fertilizers & Chemicals (GNFC) standalone net profit rose 108.24% to Rs 643.26 crore on a 59.93% jump in net sales to Rs 2771.71 crore in Q4 March 2022 over Q4 March 2021. During the quarter, total expenses rose 47.18% to Rs 1,961.01 crore. The cost of materials consumed soared 59.38% to Rs 1,177.74 crore while power, fuel and other utilities expenses jumped 33.28% to Rs 315.57 crore. The fertilizer segment turned positive mainly due to subsidy breather in case of ANP (mix fertilizer), settlement of freight and subsidy rates of Urea. For the full year, net profit jumped 147.20% to Rs 1703.75 crore on a 68.51% increase in net sales to Rs 8642.29 crore in the year ended March 2022 over the year ended March 2021.

FY22 Performance Review

The operational revenue at 8,642cr of FY 21-22 is 69% higher and PBT at 2,298cr is 142% higher than those of corresponding period of FY 20-21.

Industrial Chemicals business did extremely well, where some of the chemicals like weak nitric acid, concentrated nitric acid, ammonium nitrate melt, acetic acid etc fared quite well. Production and sales of Ethyl Acetate, Ammonium Nitrate and Nitro Benzene have been highest. Weak Nitric Acid and Methyl Format also recorded highest ever sales volume.

On fertilizer front, there has been a commendable Government of India (Gol) support in releasing timely subsidy in spite of spiralling natural gas prices and other input costs by increasing the extra budget allocations. The gas pool price has increased by 80% YoY i.e. FY 21-22 V/s FY 20-21. Gol's additional support of continuing the mixed fertilizer subsidy has been a big relief to industry. Gol has also revised the freight subsidy rates from year 2016-17 to 2020-21. All these measures bode well for fertilizers.

Valuation & Outlook

According to Hem Securities, "We derive comfort from the demonstrated track record of the company in fertilisers and chemicals businesses, diversified product profile with the company being the sole/largest manufacturer of key chemicals such as Toluene Di-Isocyanate (TDI), aniline and acetic acid. Further, its presence in multiple states and strong brand recall in these areas, strong financial risk profile coupled with high financial flexibility on account of absence of any long term debt, negligible utilisation of working capital limits and generation of substantial cash accruals."

The brokerage added, "Though the company is exposed to risks like volatility in fuel prices and exchange rates, but this can be overlooked based on the expected future growth of the bulk chemical & fertilizer industries, & GNFC's strong market position in its operating segments. We expect the company to have a steady growth momentum going forward and exceed the 3-year sales CAGR of around 15% revenue given its strong capex plans. Hence, on an overall basis, the Company looks interesting and investors should evaluate the opportunity for investing in the stock at current levels."

About - Gujarat Narmada Valley Fertilizers & Chemicals Limited

Gujarat Narmada Valley Fertilizers & Chemicals Limited (GNFC), is a joint sector enterprise promoted by the Gujarat State Investments Limited. (GSIL), a Government of Gujarat undertaking, and the Gujarat State Fertilizers & Chemicals Ltd. (GSFC). The company was set up in Bharuch in 1976 while its manufacturing and marketing operations were started in 1982. The company operates businesses mainly in Industrial Chemicals, and Fertilizers apart from the small presence of IT services. In the chemical segment, it has a product portfolio of various bulk chemicals that are used in industries for manufacturing various speciality chemicals as well as end products.

Disclaimer

The stock has been picked from the brokerage report of Hem Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.