Zuari Holdings - Stage set for strong growth - Edelweiss

Zuari Holdings (ZHL), the demerged fertilizer entity of Zuari Industries, is likely to post strong profitability CAGR of 24% over FY13-15E. ZHL is likely to get listed on the stock exchanges in FY13. Post demerger of Zuari Industries, we have dropped coverage on it but continue to cover ZHL. We value ZHL at INR466/share, based on 8x FY13E P/E.

Strong growth likely in FY13-14

ZHL posted standalone PAT of INR436mn in Q4FY12 (vis-à-vis our estimate of INR414mn) on the back of better-than-estimated revenue and EBITDA margin. While FY12 standalone PAT of ZHL was at INR1.03bn and consolidated PAT at INR2.06bn (including financials of Paradeep Phosphates), they do not include Q1FY12 profitability (demerger happened with effect from July 1, 2011). Also, ZHL's profitability was hit somewhat in FY12 owing to a fire accident disrupting raw material supply to Goa facility (adversely affecting volumes in Q2FY12 and Q3FY12). The impact is, however, offset to some extent by strong performance at Paradeep. Going forward, ZHL is likely to make up in FY13 for the lost fertilizer volumes of FY12. Also, in FY14, NPK plant capacity in Goa is likely to be expanded to 1mn MT from the current 0.7mn MT. Also, with the urea feed stock converting to gas, ZHL is likely to improve its urea capacity utilization. All these could result in strong growth for ZHL over the next two years.

Outlook and valuations: Deep value While we await balance sheet details of ZHL, we present our profit and loss estimates for the company. We believe that the demerger will help ZHL get multiple rerating for mitigating investors' concerns about the possible deployment of fertiliser profits in nonsynergic businesses. We value ZHL at INR466/share, based on 8x P/E on FY13E basis.

Source : Equity Bulls

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