Let us talk about the huge merger in the chemical fertilizer space from 2 weeks ago which nearly flew under the radar!
The 2 K.K. Birla companies (Paradeep Phosphates and Mangalore Chemicals) coming together immediately unlocked a pan-India presence and opened the production capacity to make it one of the largest fertilizer producers of India.
The firm has complete backward integration and strategic alliances that will ensure a steady and cost-effective supply of raw materials even in crisis. Government is hitting hard to level the playing field, increase transperancy and bring sustainability into the mix.
Few things to keep in mind:
-
The Indian fertilizer market is projected to be worth $1.2T by FY 2028, increasing at a compound annual growth rate (CAGR) of 4.9% between FY 2023 and FY 2028. Government subsidizes nearly 80% - 90% of the fertilizer products today
-
Fertilizer prices skyrocketed last year when EU added sanctions against Belarus on Fertilizer exports putting an artificial pressure on margins
-
K.K. Birla group owns anywhere between 30% - 40% of the market through several companies like Zuari Agro, Manglore Chemicals, Chambal Fertilizers (2nd largest private producer after Coromandel) and ofc PPL – Paradeep phosphates.
-
PPL or Paradeep has plans to enter the nano-fertilizer market, a space that Nirmala Sitharam clearly called out as one of the focus on government in this fiscal budget
-
Paradeep grew at 47% CAGR between 2020 and 2023, resulting in revenues of ₹133B. Infact they grew at high growth of 69% last year too – this was primarily due to capacity being doubled with the acquisition of the Gujarat plant from Zuari Argo, its parent house. EBITDA improved by 27% despite the rise in raw material costs. This rise can be attributed to increased sales and production efficiencies.
-
Equity research analysts have predicted that share prices will rise by 30 – 35% in this year.
-
So the stock is undervalued at the moment by 25% -30% across the different valuation metrics that you take. I have covered relative and DCF in this mix. Used Chambal fertilizers, Coromandel International, Deepak Fertilizer, Gujarat State fertilizer, Indian potash, Indo gulf fertilizer and a couple others for the relative valuation.
So overall, its an interesting hidden gem that can grow in couple of cycles after the correction is complete.
Please check out the link where I further detail this out. Your feedback will help me course correct and increase the depth of my analysis:
The Next Big Stock Idea | Riding the growth on back of a fertilizer merger | Paradeep Phosphates
Subscribe To Our Free Newsletter |