Buy GSFC CMP: Rs.74.00; Target: Rs.100

Fertiliser segment clocked in revenue growth of 34.5 per cent y-o-y to Rs.1,287.4 crore led by 

• 10.7 per cent volume growth (including 155.8 per cent volume growth in imports); 
• Additional cost build up because of increase in gas costs (which is a pass through) due to new gas pooling policy; 
• Impact of higher gas costs for the month of June (unaccounted for in Q1 results, gas pooling policy was effective from June 1, 2015). GSFC procured gas at prices which were lower than the gas pooling price and hence implementation of the same has increased the gas cost for the company.

Industrial segment revenue de-grew by 9.5 per cent y-o-y to Rs.474.8 crore led by lower price of industrial chemicals. Profitability may remain under pressure for GSFC in the near term with lower chemical prices and increasing subsidy for the fertiliser segment, completion of Rs.230 crore worth of capex will aid topline growth in FY17E. 

Margins are also expected to expand with improvement in Capro-Benzene spread and easing of raw material procurement issues. Topline and bottomline is expected to grow at a CAGR of 7.8 per cent and 22.3 per cent, respectively, during FY15-17E.