Results better estimates, urea/trading surprise: Chambal's Q3 results bettered our estimates on the topline/Ebitda and PAT front by 10/4/5% resp - Urea division bettered our estimates on the topline/Ebit front.
Urea division revenues/Ebit topped our estimates and grew 26%/22% yoy to Rs 10.25 bn/1.4 bn. Ebit margins improved to Rs 2400/mt against Rs 2100/mt in H1FY13; largely led by external ammonia sales. Overall revenues improved 72% qoq to Rs 23.4 bn; however Ebitda improved only by 4% to Rs 1.94 bn (below estimates). The reported PAT is Rs 1095 mn and the adj PAT is Rs 994 mn below our estimates by 6%.
Revenues at Rs 20.87 bn, degrew 11% qoq (up 17% yoy) largely led by lower trading, understandably given weak demand. Ebitda at Rs 2.1 bn grew 8.2% qoq; largely helped by margin expansion in urea division. PAT, however degrew 12% qoq to Rs 961 mn; largely led by halving of other income and higher interest and depreciation charge.
Trading surprises, Textile holds up too: Trading revenues topped estimates and Ebit doubled on yoy/qoq basis to Rs 838 mn (highest trading EBIT ever). Adj for profits on selling a scrapped ship, we work the Shipping division losses to have increased marginally qoq. Fall in freight rates, higher bunker costs could have pulled down shipping division performance. Textile division that was weighed down by volatile cotton prices and huge inventory losses in FY12 reported marginal profits of Rs 53 mn (Rs 12 mn in Q1FY13). Like other fert companies, CHMB's working capital cycle has lengthened as well. Inventory/debtors have risen to 107/162 days compared to 33/114 days respectively; however this is expected to ease in the coming quarters.
Valuations attractive; Reiterate Buy: FY13E earnings driver could be firming urea prices (implies max realizations of US$400/mt) and profits from technology division, the two also to be helped by further INR weakening. Given poor offtake, likely erratic monsoon and excess channel inventory, we viewed opportunity to trade in fertilizers in FY13E to be limited; however the trading EBIT has increased by 71% to Rs 2 bn in 9MFY13. Marginal improvement in performance of shipping, technology and IMACID to support earnings in FY14E; should urea International prices come off too. While we model flat earnings during FY13-15E; we argue levers exists in terms of higher urea prices, sooner than expected revival of software business, weak INR and policy support to help earnings surprise on the upside. We maintain reforms in Urea are a compulsion than a choice. Valuations attractive (7.9x FY13E PER; 1.4x PBR and 5.3x EV/Ebitda); offers dividend yield of 3.0%; positive policy pronouncements in urea to augment earnings and stock performance over medium term. Reiterate Buy with a revised PT of Rs 85 (Earlier Rs 90).