Liberty Phosphate Ltd - Rs 19.00
Established in 1977, Liberty Phosphate Ltd (LPL) is the flagship company of the Liberty Group engaged in manufacturing Single Super Phophate (SSP) and NPK fertilizers. Ironically, company is the largest manufacture of SSP commanding nearly 10% market share in the country. Its ‘Double Horse’ brand is very popular among farmers and is having highest sales in India. SSP is a multi-nutrient fertilizer which contains phosphate as primary nutrient and sulphur & calcium as secondary nutrients along with magnesium, zinc, boron, manganese, copper, etc. Considering the deficiency in Indian soil, use of SSP has been recommended by Central Ministry (Fertilizer), Local State Agriculture Department, State Agriculture Universities as well Agriculture Scientists. Accordingly, the SSP fertilizer is a subsidized product which is affordable and preferred by small and marginal farmers. In various crops, which require more of sulphur and phosphate like oilseeds, pulses, sugarcane, fruits & vegetables, tea etc, SSP is an essential fertilizer. However, SSP is under the indirect control of the Central and State Government under the concession Scheme of de-controlled phosphatic and potassic fertilizers.
Presently with six plant across India, the group has total manufacturing capacity of 725,000 mtpa of SSP fertilizer and 165,000 mtpa of NPK fertilizer. Out of these, four manufacturing facilities viz Udaipur & Kota in Rajasthan, Nandesari in Gujarat, Pali in Maharashtra belong to LPL having an combined installed capacity of 463,000 mtpa of SSP. Because of its multi-locational establishment, LPL has the advantage of proximity to the availability of raw materials/markets and hence is one of the lowest cost producers of SSP. However in FY08, company produced only 194,827 tonne (against 280,288 tonne in FY07) of SSP representing merely 40% capacity utilization and 4374 tonne of NPK due to unfavorable business condition. Actually during last fiscal, price of sulphuric acid, one of the important raw materials shot up substantially and this being unable to pass on to farmers, made the production unviable. To compensate this rise in cost of production, central govt has recently with effect from 1st May 2008, increased the subsidy amount to be given to manufacturers of SSP from Rs 1125/- per tonne to Rs 3600~5600/- per tonne. Despite such increase in subsidy amount, SSP manufacturers are still finding it difficult to cover up the cost of production as prices of sulphuric acid and rock phosphate are trading high. Hence further, govt has also incorporated escalation/de-escalation clause in the subsidy of SSP correlating it with the prices of Sulphur and Rock Phosphate.
To summarize the above, LPL is going thru a difficult phase which may improve going forward either by raw material prices cooling off or by further increase in subsidy or by resetting of selling price. Meanwhile to fund its working capital requirement, last year LPL raised nearly 7 cr thru issue of preferential shares and equity shares. It is further raising 5 cr thru allotment of 28 lac equity shares to promoters and others @ Rs 18 per share. Incidentally, for FY08 despite a decline of 30% in sales to Rs 102 cr, PAT increased by 15% to Rs 1.60 cr posting an EPS of Rs 2.40 on equity of Rs 6.70 cr. Against this LPL entered the current year with a bang, doubling its sales for the June quarter to Rs 67 cr whereas net profit zoomed up 1000% to Rs 4.60 cr thereby posting an EPS of Rs 7/- for the single quarter alone. Even in such conditions, LPL has targeted a production and sales volume of 300,000 mtpa of SSP in the current year. Thus it can register sales of Rs 175 cr and profit of Rs 4.50 cr for FY09 i.e. EPS of Rs 5 on diluted equity of Rs 9.50 cr. Investors can hold or even buy at declines as scrip can appreciate 50% once the market sentiment turns positive.
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