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Monday, November 21, 2011

Mangalore Chemicals & Fertilizers Ltd:-Buy/sell/growth prospect and recommendation,news and results,target price and analysis,view/outlook,multibagger

Scripscan:Mangalore Chemicals & Fertilizers Ltd

Story:Mangalore Chemicals and Fertilizers has a 1,100 tonne per day urea plant that is about 380,000 per year, and about 800,000 tonne per day complex fertilizer plant with captive 35 megawatt power generation capacity. The equity base is very low for the company at Rs 120 crore and the company posted an EPS of about Rs 4.50 for the first half of FY12.Apart from that, the company has huge surplus land at Mangalore.If you take the western coast, there are no large fertilizer plants in Karnataka or beyond. In Goa you have Zuari Agro, in Maharashtra, you have RCF. The combination of urea and complex fertilizers is seen in very few like with Tata Chemicals and GSFC. In general, either you have a standalone urea manufacturer like Indo-Gulf, Chambal Fertilizer, or you have a standalone complex fertilizer maker like Coromandel International. But this is a combination of both which in today's time, makes it a very interesting play.Any capacity expansion now on the cards and the policy of the government will come very soon in this week, all that makes it give it good prospects. Besides, Mallya Group is holding about 30% stake in the company. Market cap of the company as of today is quite low at about Rs 450 crore.Even if you add the term loan, I am excluding the working capital, which is bugged by the inventory; the enterprise value of the company is less than Rs 600-650 crore.In my view, if somebody wants to acquire this company, the prospective buyer will pay at least Rs 2000 crore for this entire infrastructure which is held by the company. So I don’t think that in the given situation, UB Group will be too keen to continue with this because six to eight months back also, the news was floating was that they are looking to exit from the plant. But there are many suitors for this plant. As I said because of the strategic location, the company catering largely to Karnataka and Kerala, both are the agri-based states.Take the instance of even UB Group opting to expand stake, they will think of expanding the capacity of urea to 5000 tonne per day. Complex fertilizer capacity which is now at 800 tonne can get enlarged to about 4000-5000 tonne per day with a very lower investment. Urea you need a huge investment. So I think this is an excellent stock available now at a price to book of 0.7 times, PE multiple of four times.At one time GSFC used to rule at a PE multiple of four which has now increased to about seven-eight times. So again this is a very interesting play available in the fertilizer space. A combination of all this makes it a good buy. But one has to keep a view of 6 to 12 months on the stock.

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