Chambal Fertilisers & Chemicals Ltd - Q2FY13 Conference Call Update - Emkay

Reco: ACCUMULATE
CMP: Rs67
Target Price: Rs98

Q2FY13 Conference Call Update

We attended Chambal Fertilisers' Q2FY13 conference call to discuss the quarterly performance as well as future business outlook. Here are the key takeaways-

- Shipping continues to remain under pressure- Shipping segment continues to face recessionary trends and management expects environment to remain challenging in the medium term. Current charter rates stand at $13000/day.

- Textiles performance improved- Textiles reported improved performance during Q2FY13 with revenues increasing by 15% yoy. EBIT improved to Rs 53mn compared to loss of Rs 90mn last year.

- Working capital increase driven by higher credit days & pending subsidy- Companies have been offering credit period of ~60 days to push complex fertiliser sales which has increased working capital requirements. Further, subsidy on imported fertiliser is still pending from July'12. Chambal's subsidy receivable stands at Rs 13bn (incuiding urea subsidy of Rs 7.5bn). Management indicated that subsidy will be released by January'13 once the govt. goes through with the additional budget allocation during the winter session of Parliament.

- Software business performance below expectations- Though software business performance has improved on a yoy basis, it remains below expectations. EBITDA for this segment was marginally positive in H1FY13 & management has been able to trim losses. For FY13, software business is expected to post loss of $10-11mn at the bottomline level.

- Complex fetiliser sales impacted due to high prices- Industrywide complex fertiliser sales have been impacted to the tune of 20-30% due to high prices. Delayed monsoons further impacted sales.

- Chambal gained market share in complex fertiliser from co-operatives- Though industrywide complex fertiliser sales have been under pressure , Chambal has gained market share from co-operatives as some of these co-operatives did not indulge in trading this year.

- IMACID expected to breakeven in FY13- IMACID performance was subdued during Q1FY13 due to non-agreement over phos acid rates. However, IMACID is performing well currently & Chambal expects this business to breakeven in FY13

- Shipping recorded gain of Rs 110mn from scrap sale- Shipping recorded gain of Rs 110mn during Q2FY13 from the scrap sale of one ship (whose sales proceeds amounted to Rs 310mn while carrying cost stood at Rs 200mn). Carrying cost of remaining 5 ships stands at $280-290mn.

- Avg. gas cost stands at ~$9.7/mmbtu- Avg. gas cost for Gadepan I for H1FY13 stood at $9.37/mmbtu while avg. gas cost for Gadepan II stood at $10.07/mmbtu.

Source : Equity Bulls

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