Rashtriya Chemicals And Fertilisers - Disappointing Results - PINC Result Review

DISAPPOINTING RESULT

Rashtriya Chemicals & Fertilisers' (RCF) Q1FY11 results were lower than our expectations as net sales declined by 6.1% YoY to Rs7.9bn and OPM declined by 146bps to 5.4%. Lower operating margin coupled with higher tax rate (33.2% against 16.5% YoY) led net profit to de-grew by 37.8% to Rs196mn against our estimate of Rs334mn.

VALUATIONS AND RECOMMENDATION

At CMP of Rs84, RCF is trading PER of 20.1x & 16.4x and EV/EBITDA of 10.3x & 7.8x respectively for FY11 & FY12 estimates. De-bottlenecking and brown-field expansion should generate an additional EPS of Rs2.5 to Rs10.7 depending on the international Urea prices. We maintain our 'HOLD' recommendation for the stock due to high valuation.

Any development regarding the commercial usage of large land bank at Chembur and disinvestment (not valued in our estimates) will be the positive triggers.

Source : Equity Bulls

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