Zuari Agro Chemicals Ltd - Research Report

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Zuari Agro Chemicals Ltd

Reco Price
Rs. 207.00
Price Target (1.5 - 2 Years)
Rs. 432.00


Nov 09, 2016
CNX Nifty




Strong Monsoon and release of subsidy payment will be the key trigger for the stock.

Improved Industry scenario:
We observe that Q2FY17 was subdued for the industry on account of high channel inventory. Rainfall was 3% below LPA with a good spread across all regions, except some parts of Karnataka and Andhra Pradesh. Sowing was 4% above the normal level. Crop area increased to 106.8mn hectares from 103.09mn hectares. Sowing of pulses and paddy increased 2.6% and 29% respectively. Sugarcane and cotton acreage declined 7.7% and 11%, respectively. Sales of urea increased by mere 2.6% for the quarter. However, for H1FY17, sales of urea declined 6.8%. DAP and complex fertilizers sales declined 3.2% and 3%, respectively, for the quarter and 16% and 7%, respectively, for H1FY17. MOP sales improved by 10% during the quarter. Potash sales improved 6% during H1FY17. Due to fall in raw material prices, import of DAP also declined. Management highlighted that despite low sales from the company to dealers on account of high channel inventory, demand from farmers increased. Due to better rains, moisture level in the soil is good and hence we remain optimistic about the rabi season and expect bumper sowing.

Strong Capex:
With a capex outlay of Rs 150-175 crores on the sulphuric acid plant, gypsum pond and debottlenecking of detrain of complexes which will get commissioned in April or May 2017, ZAC is expanding its complex fertiliser capacity by 0.25mn‐0.3mn MT in FY18. Further, management is also evaluating plans to revamp the Goa plant and Mangalore chemicals and fertilizers plant which will lead to increase in capacity and energy savings in the future. We believe effective implementation of gas price pooling will likely lower the subsidy burden and result in debt reduction in FY17. Further, normalized channel inventory, better plant utilization and lower interest costs will drive future performance of the company.

Direct Benefit Transfer (DBT):
It has been observed that both the NIC and fertilisers department have been proactive in implementation of DBT. For the pilot run, 16 districts have been selected out of which the scheme has to be implemented in 8 districts by October 31, 2016 and in the remaining 8 by December 31, 2016. Management has highlighted that the government has been constantly working towards developing infrastructure for DBT and the scheme would prove to be a turnaround for the sector.

Subsidy outstanding as on September 30, 2016, stood at Rs 1040 crores versus Rs 1038 crores on June 30, 2015, and Rs 1710 crores on March 30, 2016. ZAC has received Rs 670 crores till date. Going forward, management believes subsidy is likely to be lower on effective implementation of gas price pooling. Consequently, it will help cut debt and boost the margins by reduction in interest outflow.

Raw material:
Prices of the raw material have remained stable in Q1FY17. However, they are expected to decline from the present levels. Management highlighted that the prices of DAP have reduced from USD765/MT in Q1FY17 to USD610/MT in Q2FY17 and are expected to be USD580/MT going forward. Ammonia prices have corrected from USD370-380/MT to USD230/MT.

Non-subsidy business:
Contribution forms a minor portion of the business. However, for the first five months of FY17, all 100 stores were operational. Out of the 100 stores, 24 stores were profitable. Overall, the management expects this business to perform better going forward.

Stock Data

CMP (Rs)
Face value (Rs)
52 Week Range (Rs)
262.90 - 117.15
Market cap (Rs Crores)
Price To Book Value (x)
P/E Ratio (x)

One Year indexed Stock Performance

Zuari Agro Chemicals LtdSensex
Zuari Agro Chemicals Ltd
Return (%)


(in %)

+91 22 6639 3000



The agro-chemicals sector in India is expected to reach the market size of US$ 7.5 billion by FY 2019, growing at a compound annual growth rate (CAGR) of 12 per cent from US$ 4.25 billion in FY 2014, as per a report by the Tata Strategic Management Group. Exports are expected to contribute 60 per cent of the industry by FY 2019. Mr Narayan Yadav, Chairman of the Parliamentary Standing Committee on Agriculture, who released the report, suggested a balanced approach in the use of agro-chemicals and environmental care. He urged the scientific community to develop agro-chemicals that boost the yield without having adverse impact on the environment. The report also indicates that using original crop protection chemicals can increase productivity of crops by 25-50 per cent. The report further underscored the need for both the government and crop protection chemicals manufacturers to work closely with farmers to educate them on correct usage of pesticides and new researches and developments.


Zuari is a single-window agricultural solution provider. They partner with Indian farmers for progress and prosperity. It enables agricultural self-sufficiency and economic independence by providing fertilisers that are both affordable and effective.

Zuari’s operations are spread across five key marketing areas. The company has a manufacturing facility at Goa, with four plants, dedicated to manufacturing urea, DAP and NPK based fertilizers. Their wide variety and reach has enabled to diversify into additional sectors like furniture, oil tanking, seeds, and investments, apart from agricultural inputs.

Profit & Loss Statement:- (Consolidated)
(Rs Crores)
Mar 14
Mar 15
Mar 16
Mar 17E
Mar 18E
  • Net Sales
  • Growth (%)
  • Total Expenditure
  • Margin (%)
  • Other Income
  • Operating Profit
  • Interest
  • PBDT
  • Depreciation
  • Profit Before Taxation & Exceptional Items
  • Exceptional Income / Expenses
  • Profit Before Tax
  • Provision for Tax
  • Profit After Tax
  • Adjusted EPS
  • 7340.75
  • -
  • 7132.92
  • 207.84
  • 2.83
  • 80.20
  • 288.04
  • 379.82
  • -91.78
  • 34.02
  • -125.80
  • 59.80
  • -66.00
  • -9.44
  • -56.56
  • -10.52
  • 7635.39
  • 4.01
  • 7336.88
  • 298.51
  • 3.91
  • 72.94
  • 371.45
  • 318.29
  • 53.17
  • 30.06
  • 23.11
  • -
  • 23.11
  • 6.62
  • 16.49
  • 2.13
  • 9997.46
  • 30.94
  • 9616.47
  • 380.99
  • 3.81
  • 85.16
  • 466.15
  • 500.15
  • -34.00
  • 72.32
  • -106.32
  • -5.53
  • -111.85
  • -24.38
  • -87.47
  • -21.64
  • 11300.50
  • 13.03
  • 10805.60
  • 494.90
  • 4.38
  • 145.50
  • 640.40
  • 500.00
  • 140.40
  • 65.30
  • 75.10
  • -
  • 75.10
  • 20.50
  • 54.60
  • 13.51
  • 12350.60
  • 9.29
  • 11800.50
  • 550.10
  • 4.45
  • 150.50
  • 700.60
  • 500.00
  • 200.60
  • 69.40
  • 131.20
  • -
  • 131.20
  • 36.50
  • 94.70
  • 23.43
Source: Stockaxis Research, Company Data


ZAC’s FY13-15 performance was spoiled by multiple headwinds. We believe these were odd events and anticipate a rebound in FY17/18 owing to better monsoon and release of government subsidy. We Initiate ‘BUY’ on attractive valuations with TP of Rs 432 based on 18.43x FY18E EPS. The stock trades at 15.98x FY17E and 9.21x FY18E EPS.



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