Stock Review: Rashtriya Chemicals and Fertilisers (RCF)

Thal plant coming on-stream and growing demand for complex fertilisers will help co post stable results

 

 

The shares of state-owned fertiliser manufacturer Rashtriya Chemicals and Fertilisers (RCF) plunged over 6% since Wednesday's opening price to . 73.7 after the company announced disappointing results for the June 2011 quarter. Costly natural gas and raw material prices have hit the company's profitability during the quarter, pulling down the shares. Still the company has additional capacities coming up in the second half of the year, which could help it expand its bottom line sustainably.

During the June 2011 quarter, while the company's top line rose nearly 10% to . 868.4 crore, the bottom line plunged almost 80% to . 4 crore.

This can be attributed to the increasing prices of inputs such as rock phosphate and muriate of potash, which led to a 400-basis point jump in raw material prices in relation to sales during the quarter against the corresponding period last year. This led to a 268-basis point contraction in the company's operating profit margin, which stood at 2.7% during the quarter. Besides, the company's Trombay unit, which accounts for around 45% of the company's overall business, remained shut for a short period during the quarter following some technical issue.

However, despite the dismal results, capacity-expansion plans coming on stream are a positive for the company. RCF is increasing the existing urea capacity at Thal in Maharashtra through de-bottlenecking at a capex of . 500 crore, which is expected to commission by the second half of the current fiscal, thereby adding considerably to the company's top line for FY13.

Also, the state-run company has plans to spend . 12,000 crore towards expansion of its urea manufacturing capacity at Thal plant as well as Talcher in Orissa. Gail India and Coal India will be the joint venture partners for the company's Talcher expansion unit. These plants, which could each add 1.15 million-tonne urea capacity, can commence operations over next 3-5 years.

Given the revamping of the Thal plant coming on-stream and growing demand for complex fertilisers, the company is expected to post stable results in the coming quarters. Also, any positive announcement from the new urea NBS policy should be beneficial for the company, going ahead.