Two Fertilizer Stocks to Hold for Short Term

  • Stock Market Analysis

Very recently, the Chemicals and Fertilizers Ministry had a meeting with industry experts to address the scarcity of fertilizers. The gravity of the situation can be understood in the context of the Rabi sowing season in October. Fertilizers stocks are in the news for multiple reasons. In June this year, China ordered some of its key fertilizer companies to suspend exports to ensure stable supply in the domestic markets. Secondly, good monsoon in a few states aided by farm subsidies boosted fertilizers demand. Apart from it, CF Industries Holdings—the world's largest nitrogen facility had to declare a force majeure. The company expressed inability to execute orders from the Donaldsonville, Louisiana nitrogen facility that shut ahead of hurricane Ida. India, along with North America and Brazil, continues to drive nitrogen requirements. These factors contributed to the recent rally in fertilizer stocks which is expected to continue in the near term. After scanning the fertilizers universe, we selected two stocks that hold promise.

1. Fertilisers And Chemicals Travancore Ltd (NS: FCTL )

The Fertilisers and Chemicals Travancore company manufactures petrochemicals and fertilisers. The Group's products include Ammonia, Sulphuric Acid, Phosphoric Acid, Ammonium, Urea, Caprolactam, Nitric Acid, and Soda Ash. The company has been mulling to restart its Caprolactam plant in close down for the last eight years. It has completed the trial run and expects the plant to be fully operational soon. FCTL has reduced debt over the previous few quarters to bring down finance costs. Plus, it has grown its top line and bottom line steadily over the last five years. The company's 3-year revenue CAGR remained 19%, whereas its net profit CAGR during the same period was a whopping 68%. Among the peer group, FCTL's return on capital employed has been the highest at 102%. Although its valuation based on PE remains on a higher side among peers, we believe the stock can deliver better in the near term.

In Q1FY2022, the company's total income grew 16.6% to Rs 843.54 from Rs 723.31 crore in the corresponding fiscal 2021. The company's EBITDA increased 64.6% year-on-year to Rs 219.72 crore from Rs 133.49 crore in Q1FY2021. Its reported PAT jumped 125.1% to Rs 149.76 crore from Rs 66.53 crore during the period under comparison. Institutional investors' holding of 8.96% remained unchanged since Mar 2021 quarter. The stock receives a ' buy ' indication based on vital technical parameters such as RSI, Momentum, MACD, 10-day/20-day/50-day/100-day/200-day EMA.

2. Chambal Fertilisers & Chemicals Ltd (NS: CHMB )

Chambal Fertilisers and Chemicals Ltd manufactures ammonia, urea, pesticides, and other products for farming and other agricultural applications. The company also provides consulting services to farmers on their seeding programs. During the Covid-19 pandemic, CFCL's production, dispatches, and sales remained unaffected, and the company's plant operated at normal levels. On the balance sheet/financial front, the company has reduced debt over the last few quarters. Most notably, CFCL posted a healthy profit after tax CAGR of 53.9% over the previous five years. Plus, its return on equity has remained decent at 29.3%, and CAGR was 28.46% in three years.

In Q1FY2022, Chambal Fertilisers' total income grew 9.3% year-on-year to Rs 3,574.77 crore from Rs 3,271.14 crore in the corresponding quarter of fiscal 2021. PAT expanded 9% to 342.17 crores from 314.03 crores during the period under comparison. In June 2021, promoters' pledges decreased by 1.64%, with a 1.37% and 0.87% rise in the quarter's FIIs' and DIIs' holding. In fact, FIIs have been consistently raising their stake in the company for the last three quarters. Vital technical indicators such as Average Directional Index, RSI, Momentum, MACD, and 10-day/20-day/50-day/100-day/200-day EMA signal a 'buy on the stock.

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  • Niraj Chinai @Niraj Chinai
    I am already invested in Chambal Fertilizer. Can you please throw some light for short term target or it should be converted to portfolio stock on permenant basis?
    Like 1
    • Chirag Garg @Chirag Garg
      For short term 360 @Niraj Chinai
      Like 0
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  • Bhaskar Wankhede @Bhaskar Wankhede
    hi
    Like 0

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