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:

1. 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

2. Fertilizer prices skyrocketed last year when EU added sanctions against Belarus on Fertilizer exports putting an artificial pressure on margins

3. 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.

4. 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

5. 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.

6. Equity research analysts have predicted that share prices will rise by 30 – 35% in this year.

7. 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

Quoting ET Article which is nearest to present Market conditions.
CA Rudramurthy BV, MD, Vachana Investments, says “for me it is very clear one has to be in largecaps and use this dip to buy only quality stocks, stay away from mid and smallcaps for some more time. Let this leverage effect and all the unsecured loan book issues which are all happening fundamentally, correct for some time and then look into quality mid and smallcap or else do to avoid them very much.”

Another good set of nos from Avanti, with sales growing by 14% and EPS by 16%. Management seemed quite bullish on demand in 2024 and are targeting 17% volume growth in feeds segment and 20% in processed shrimp segment. Concall notes below.

FY24Q3

• Present RM price: 129/kg (vs 138/kg last quarter), 53/kg soyabean (vs 54/kg last quarter), 30/kg wheat flour (29/kg last quarter)

• Processed shrimp sales grew 30% YOY (35% volume growth)

• 2024 feed volume: Expect 10-15% growth to 12.5-13 lakh MT – Avanti’s target is 6 lakh MT (vs 5.13 lakh MT in 2023)

• 2024 shrimp sales: Expect 15,000 MT (vs 12,478 MT in 2023) . Strengthening exports to USA and Canada, and venturing into new markets of Japan and Korea

• Seeing short term benefits from geopolitical problems in Ecuador

Disclosure: Invested (position size here, no transactions in last-30 days)

One more video to understand on sugar cycle where Anil Sir has shared his insight on the current changes

Anil Goel ji – Sugar to Ethanol Transformation

Occasionally there are companies holding significant empty plots which are marked in book at historical prices. As such they are not reflected in its profits or book value but the company can always sell or develop these land banks boosting their future earnings. In such cases it is useful to consider market value of the land while determining the valuations of stock.

Dmart’s case is different. Its land holdings are being fully utilized by building stores over it which saves rent expenditure. This reflects in better profit margins for the company. Hence its properties are already being accounted into its earnings and there is no need to separately deduct market value of its land bank from the market cap.