Target: ₹360
CMP: ₹298.10
We trim our FY23/24/25 EPS estimates by 2 per cent/3 per cent/3 per cent citing: volatile raw material (RM) cost scenario; inability to fully pass on inflated cost; and expectation of reduced NBS subsidy (Nutrient based subsidy) announcement from government.
In Q3, Chambal Fertilizers (CHMB) reported decent set of numbers with Revenue/ EBITDA/PAT growth of 75 per cent/15 per cent/-1 per cent YoY.
Revenues were in-line with estimates, however margins were lower due to high cost inventory, adverse forex and inadequate subsidy in Phosphatic (P&K) fertilisers.
Going forward, we expect healthy subsidy disbursal from the Government to continue (9M’23 subsidy receipts of ₹15,690 crore; ₹2,890 crore in January’23) resulting in improved working capital and lower interest burden.
The company has also revised its Technical Ammonium Nitrate (TAN) expansion plans in H1-FY23 having total capital outlay of ₹1,645 crore (₹1,170 crore earlier) to build 0.24 million mt (0.22 million mt earlier) and is expected to be commissioned in next 34 months
Given delay in TAN project by almost a year (likely to be commissioned in H1-FY26) and limited growth visibility in the existing business, we cut our target multiple from 10x to 9x (5 year high/low average 1 year forward 15x/3x/7x).
Maintain ‘Buy’ with revised a target price of ₹360 based on 9XFY25 EPS (earlier ₹410 based on 10XFY25 EPS).