Basic Evaluation of GNFC – Financials, Key Metrics & Extra

Basic Evaluation of GNFC: The latest ‘China Plus One’ technique benefitted manufacturing corporations throughout a number of industries. Chemical substances are one such sector that noticed sharp quantity progress as corporations all over the world diversified their sourcing. Greater gross sales and earnings modified the fortunes of many struggling companies. On this article, we will conduct a elementary evaluation of GNFC or Gujarat Narmada Valley Fertilizers & Chemical substances, one such turnaround fertilizers and chemical substances inventory.

Basic Evaluation of GNFC

On this article, we will carry out a elementary evaluation of GNFC or Gujarat Narmada Valley Fertilizers & Chemical substances. We’ll begin by getting ourselves acquainted with the historical past and enterprise of the corporate, adopted by an business overview. Later, a number of sections are dedicated to income progress, return ratios, and debt evaluation. A spotlight of the longer term plans and a abstract conclude the article on the finish.

Firm Overview

Gujarat Narmada Valley Fertilizers & Chemical substances (GNFC) was included in 1976 as a joint sector enterprise between the Authorities of Gujarat and the Gujarat State Fertilizers & Chemical substances (GSFC). At current, the whole promoter shareholding stands at 41.18% with the Gujarat Govt. and GSFC proudly owning 21.38% and 19.80% stakes respectively.

The corporate is concerned within the manufacturing and promoting of fertilizers and chemical substances. One of many leaders within the agrochemicals business, it produces fertilizers equivalent to Urea and Nitrophosphate. 

As for its chemical substances division, the corporate has arrange chemical and petrochemical services for Methanol, Formic Acid, Nitric Acid, and Acetic Acid. These chemical substances discover their makes use of throughout rubber, textiles, tanneries, and pharmaceutical industries.

Moreover, GNFC is engaged within the buying and selling of fertilizers together with Di-Ammonium Phosphate (DAP), Muriate of Potash (MOP), Single Tremendous Phosphate (SSP), and Metropolis Compost. 

It additionally gives QC laboratory companies for business testing of chemical substances of assorted varieties. Along with this, its info expertise subsidiary gives knowledge heart administration, DSCs, e-procurement, IP-based video surveillance, and extra such companies. Nonetheless, the contribution of those divisions to the whole revenue of the corporate is comparatively low.

Speaking in regards to the income segments, chemical substances are the most important phase, accounting for 70% of the whole revenues in FY22. That is adopted by a 29% share of fertilizers.

Having examine GNFC, allow us to transfer forward to know in regards to the agrochemicals sector and chemical substances sector intimately, the 2 key industries wherein it operates.  

Business Overview

Taking ahead our elementary evaluation of GNFC, we get ourselves acquainted with the agrochemicals and chemical substances industries on this part.

Fertilizers Business

India is the second-largest shopper and the third-largest producer of fertilizers on this planet. Home manufacturing of fertilizers is simply capable of meet two-thirds demand of the nation. Complete home manufacturing for the latest fiscal yr stood at 43.6 million tonnes (MT). The steadiness of 17.8 MT was imported.

During the last yr, home manufacturing decreased barely by 2 MT led by NP/NPCs.

On the identical time, 2021-22 was a tricky yr for the business globally. The price of uncooked supplies rose sharply. Consequently, the businesses elevated the costs of fertilizers.

You may be understanding already that fertilizer is a backed commodity in India for farmers. The federal government took the brunt of upper costs by offering extra subsidies to Indian farmers. The annual subsidy invoice is predicted to the touch Rs. 2.15 lakh crore this yr.

As for the business progress prospects, the Indian fertilizer market is predicted to register a CAGR of 11.9% throughout 2022-2027 based on the information from Mordor Intelligence. 

Chemical Business

India’s chemical business is the sixth largest on this planet as per gross sales quantity. The sector employs over 2 million folks producing over 80,00 kinds of chemical substances and petrochemicals yearly.

Sectors equivalent to meals & beverage, textile, leather-based, steel extraction & processing, petroleum refining, rubber, and prescribed drugs are the foremost shoppers of chemical merchandise.

The sector grew at a CAGR of seven% from FY10 to FY15. After that, the expansion slowed down to five% between FY16 and FY20. The business registered a degrowth of 5.34% to $ 177 billion in FY21 as a result of decrease demand and supply-chain disruption.

As for the longer term progress prospects, the sector is projected to develop at a CAGR of 9.3% yearly to the touch $ 304 billion in worth by 2025.

GNFC – Financials

Income & Web Revenue Progress

The revenues of GNFC had been on a gentle decline since FY 2017-18. In FY21, it clocked working income of Rs 5,129 crore, down from Rs 5,917 in FY18. There was an analogous decline in web earnings, nevertheless it was offset by margin enlargement in FY18.

Nonetheless, working revenue climbed 68.49% to Rs 8,642 crore in FY22. The rise in web revenue was a lot sharper with 147% to Rs 1,704 crore, aided by margin enlargement and better volumes.

This alteration within the fortunes of GNFC comes on the again of the growth within the chemical substances business due to the ‘China Plus One technique adopted by many corporations. For example, revenue grew by Rs 4,492. The chemical substances phase grew by a whopping 83% or Rs 2,741 crore in opposition to the 43% or Rs 757 crore progress of the fertilizers division. 

The desk beneath presents the working revenues and web revenue of GNFC for the final 5 years.

We noticed how the chemical substances division has aided the turnaround of the corporate. Within the subsequent part of our elementary evaluation of GNFC, we’ll see how the revenue margins have behaved through the years.

Margins: Working Revenue & Web Revenue

The working revenue margin (OPM) and web revenue margin (NPM) of the Gujarat-based firm expanded in FY22. The OPM and NPM reached their highs of 26.63% and 19.71% respectively.

The desk beneath highlights the restoration within the revenue margins of GNFC over the earlier 5 monetary years.

We will notice how larger realisations and quantity progress helped the corporate to publish broader margins and subsequently 1.5x progress within the web revenue. Within the subsequent part, we learn in regards to the impact of upper profitability on the return ratios.

Return Ratios: RoCE & RoE

Following the go well with of the underside line and topline progress, the return ratios of GNFC improved considerably within the latest fiscal. The return on fairness (RoE) and the return on capital employed (RoCE) touched their highs of 24.24% and 32.74% respectively.

The figures beneath spotlight the return ratios of the corporate over the past 5 years.

Within the knowledge above, we are able to discover a disparity in RoE and RoCE with the previous being lesser than the latter. The distinction means that GNFC has nil or low monetary leverage. Learn forward to seek out out extra about this. 

Debt to Fairness & Curiosity Service Protection

GNFC has largely been a debt-free inventory with virtually nil debt ranges. The administration additional paid again the borrowings in FY21. 

For the monetary yr ending FY 2021-22, GNFC reported a debt-to-equity ratio of 0 and an curiosity service protection ratio of a whopping 665 on the again of very low-interest expenses. 

The desk beneath highlights the debt-to-equity ratio and curiosity service protection ratio of GNFC for the previous few years.

GNFC – Key Metrics

We are actually virtually on the finish of our elementary evaluation of GNFC. Allow us to take a fast take a look at the important thing metrics of the inventory.

In Conclusion

We are actually on the finish of our elementary evaluation of GNFC. From what we have now learn to this point, we are able to conclude that it has been a significant beneficiary of the chemical substances sector growth. For a debt-free inventory, with excessive return ratios, it turns into crucial to know what lies forward of the inventory.

The reserves of the corporate stand bloated with nil capital expenditure and low dividend payout. In your opinion, how will the administration of GNFC spend all its earnings? Will it pay larger dividends, purchase different corporations or put money into its enterprise? Going ahead, how the earnings are being spent and their quantity progress must be one thing buyers should be careful for. What’s your perspective on GNFC? How about you tell us within the feedback beneath?

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Vikalp Mishra is a commerce graduate from the College of Delhi. He likes to jot down on finance, cash and enterprise. He’s a voracious reader with a real curiosity in investing. Drop him a mail at [email protected].