GSFC Q3FY18: Net sales up ~39% y-o-y; Buy |

GSFC reported ~39% YoY growth in net sales in Q3FY18 to INR 15375mn on account of strong growth (~49% YoY) in fertilizer segment. Capro-Benzene spread at $1000/ton in February would help EBITDA margins in coming quarters. GSFC expects payment of balance INR 7 bn AS subsidy in 1-2 quarters. Melamine plant capex is expected to be commissioned by September 2018. We retain buy rating with target price of INR 161 based on SOTP valuation.


– EBITDA margins increased 340 bps YoY

– Capro-Benzene spread to boost margins

– Strong volume growth in Fertilizer segment

Outlook & Valuation

GSFC has guided for strong volume growth in fertilizer segment in FY19. Steady increase in Capro-Benzene spread is expected to benefit Industrial chemical segment. Melamine plant of capacity 40000 MT is expected to be commissioned by Q2FY19. AS subsidy of INR 7 bn+ is expected by FY18 which will help to reduce working capital burden. We estimate revenue/PAT CAGR of 15%/12% respectively whereas EBITDA margin is expected to increase ~150+ bps to ~11%+ between FY17-19E. We retain BUY rating with target price of INR 161 based on SOTP valuation (9x FY19 earnings + investment value of INR 43/share after ~40% holding company discount) in next 12-15 months.

   Click here to read the full report