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Valuation of Fertilizer
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Submitted To

Prof. D.S Prasad

Submitted By

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Index
S.
No.

Topic

Page
No.

Fertilizer Industry

Company Profile

2.1

Gujarat State Fertilizers Corporation

(GSFC)

2.2

Chambal Fertilizers & Chemicals

2.3

Deepak Fertilizers Corporations

Justifications and Descriptions

Valuations

4.1

Valuations for GSFC

4.2

Valuations for Chambal Fertilizers

10

4.3

Valuations for Deepak Fertilizers

11

Conclusion

12

References

13

1.Fertilizer Industry in India:

Fertilizer production is capital intensive and presently the cost of production of indigenous
material is high and returns on investment are low. The Indian fertilizer industry, which achieved
phenomenal growth in eighties, witnessed decline in the growth rate during the nineties. In the
recent past, the fertilizer industry has not attracted any significant investment. Due to sufficient
indigenous capacity and low international prices of urea the Government of India decided that no
new grassroots projects will be alloId during the next three years. Lack of availability of natural
gas in the country has prompted investors to collaborate for joint ventures abroad for urea
production. Gulf countries, due to abundant availability of gas, nearness to Indian shores and
investment friendly environment, are becoming the first choice for joint ventures. So it can be
seen that, Indian Governments keenness on the implementation of Indo-Oman Fertilizer Project
is obvious.

2. Company Profile
2.1 Gujarat State Fertilizers Corporation (GSFC):
Company Background:
Since its beginning, in 1962, GSFC has consistently translated the facet of care in its every
activity. GSFC has gone up by 30% year-to-date (40% since coverage); hoIver it is still at 40%
discount to its private sector peers like CFL & Tata Chemicals. Its public sector image and sloIr
earnings growth would make it difficult to bridge this valuation gap. HoIver, a 9% (Rs 230)
upside from here is certain from yesterdays Rs. 192.30.
GSFC has plans to invest about Rs 20 billion in expanding and setting up new capacities in its
chemicals business. The revenues from this would kick in only beyond FY09 and thus in the
near term the fertilizer division would drive its topline through higher utilization and better
realisation
JV in Tunisia on the cards:
Gujarat State Fertilizers & Chemicals Ltd (GSFC) and Coromandel Fertilizers Ltd (CFL)

alongwith Group Chimique Tunisien (GCT) & M/s Compagnie Des Phosphates De Gafsa (CPG)
are setting up a joint venture project in Tunisia for production of 3,60,000 MTs of Phosphoric
Acid per annum by 2008.

2.2 Chambal Fertilizers & Chemicals:

Company Background:
Chambal Fertilisers & Chemicals (CHAMBAL), a part of the K.K. Birla group, is a diversified
conglomerate having interests in fertilizers, phosphoric acid, agri-inputs & seeds, agribiotechnology, textiles, food processing. Promoted by Zuari Agro Chemicals in 1985, the
company got its current name on Jan. 12, 1989. The managing director of the company is Anil
Kapoor.
The company`s two hi-tech nitrogenous fertilizer plants in Gadepan (Rajasthan), having a
capacity of 1.7292 million tons of urea per annum, becomes India`s largest urea producer in the
private sector.

2.3 Deepak Fertilizers Corporations:

Company Background:
The genesis of Deepak Fertilisers And Petrochemicals Corporation could be said to be in the
year 1970 when Mr. C. K. Mehta set up Deepak Nitrite Ltd, combining his skills in trading and
manufacturing. DNL grew by leaps and bounds, surpassing expectations of all investors and also
won many prestigious awards like the Sir P.C.Ray award, for being the best Chemical Industrial
unit in India.
Deepak Fertilizers is now executing two projectsan Ammonia storage facility at JNPT and a
300 MTPA AN manufacturing facility at Paradip in Orissa on the East Coast of India.

3 Justifications and Descriptions:

4

So the purpose of the above discussions is to know that even if Indian economys scenario today
is grim but the fundamentals and prospects of these companies are good enough.
On the basis of these facts, I have taken certain assumptions while calculating the concerned
growth rates.

I have assumed that trend following by these 3 companies is the trend of the Industry, as
these 3 companies are biggies in the Fertilizer sector. So I have discounted these trends
while calculating CAGR of different factors.

I have taken risk free interest rate as 8%.

Operating incomes growth rate is taken as CAGR on the basis of last 5 years trend.

The depreciation rate is hovering around at an average of 143.4 in case of GSFC since
last 5 years, so taking average I have taken it at 143. In other two companies I have taken
CAGR of 5 years trend.

Interest expenses are on a continuous reducing path since last 5 years only in case of
GSFC, but in case of other two companies, it is increasing continuously. So continuing
the trend I have taken CAGR of last 5 years and thereby calculated for the next 5 years.

Capital expenditure is on an increasing path since last 5 years for all the 3 companies, so
thats good news for the investors. Thus I have calculated CAGR of last 5 years trend.

Change in working capital is also on an increase since last 5 years and again I have taken
CAGR of this trend.

Taking the growth rate of free cash flow thus received through all these calculations, I
got that rate as 2.5% and hence I calculated the terminal value at the last year, and
thereby calculated the Present value of all the future cash flow and the perpetuity thus
calculated.

Cost of equity (ke) is calculated by the CAPM model, through using the beta value that I
have got from the average monthly closing prices of the stock over the last 5 years
period.

Cost of capital (WACC) is calculated taken into consideration of the debt % in the total
capital employed of the firm.

Growth rate (g) of the firm is calculated by taking the growth rate of free cash flows I
have just calculated and adding in it 2% on account of industry and robust Indian
economys future expected growth.
5

Thereby using this growth rate and cost of capital (WACC) I have calculated the value of
the firm.

By using growth rate in the free cash flow per share, I have calculated the growth rate in
the growth in equity price by adding in it extra 2% on account of industry and Indian
economys expected growth.

Then this discount rate (ke) and growth rate is used to calculate the terminal value of the
equity and discounting it to the present value of equity. Thereby by adding all the present
value of the future cash flows, I got the value of the equity today.

4 Valuation
4.1 Valuations

for GSFC:

Growth rate of free cash flow coming out to be 2.5%

6

Monthly average Beta value for the period of 5 years is 1.016

Terminal value for the firm is Rs. 1862.59 crore and for equity is Rs. 331.74

WACC is coming out to be around 15% and cost of capital (Ke) is 17%.

Growth rate (g) of the firm (including future economic & industry growth account) is
4.49% and growth of equity is 7.80%

Hence value of the firm is Rs.2778.15 crore and value of the equity is Rs. 459.76.

GUJARAT FERTILIZER'S FCFF

201011
Operating
Income
depreciation
EBIT

560.9
143
417.9
76.25

Interest
Taxes
NOPLAT
depreciation
Capex
Change in WC
FCF
Terminal
value
P.V. of FCF
WACC
g
Value of the
firm

105.12
236.53
143
10.29
213.69
155.55

155.55

201112

201213

201314

201415

201516

592.41
71
143
449.41
71

625.70
52
143
482.70
52

660.86
37
143
517.86
37

697.99
78
143
554.99
78

737.21
85
143
594.21
85

63.960
57

53.651
87

45.004
65

37.751
12

31.666
67

118.25
35
267.20
3
143
10.488
03
230.76
02
168.95
48

133.02
8
296.02
53
143
10.689
87
249.19
4
179.14
15

149.64
83
323.21
08
143
10.895
6
269.10
03
186.21
49

168.34
51
348.90
16
143
11.105
28
290.59
68
190.19
95

189.37
79
373.17
39
143

168.95
48

179.14
15

186.21
49

190.19
95

0.15
0.044879
39
2778.
153

201617

0.0561
9
same

0.1611
7
0.1249
39

11.319
313.81
05
191.04
44
1862.5
98
2053.6
43

Rate

195.79
75

same
0.0192
45
0.0798
83
0.0248
79

GUJARAT FERTILIZER'S FCFE

201011
Operating Income
depreciation
EBIT

201112

201213

201314

201415

201516

592.41
71
143
449.41
71

625.70
52
143
482.70
52

660.86
37
143
517.86
37

697.99
78
143
554.99
78

737.21
85
143
594.21
85

63.960
57

53.651
87

45.004
65

37.751
12

31.666
67

133.02
8
296.02
53
35.86
260.16
53
7.97
32.643
08
143
17.942
28
10.585
95
10.689
87
1.3412
64
0.7913
46
249.19
4
31.266
49
18.447
23
23.990
45

149.64
83
323.21
08
35.86
287.35
08
7.97
36.054
05
143
17.942
28
10.585
95
10.895
6
1.3670
76
0.8065
75
269.10
03
33.764
15
19.920
85
25.912
57

168.34
51
348.90
16
35.86
313.04
16
7.97
39.277
49
143
17.942
28
10.585
95
11.105
28
1.3933
85
0.8220
97
290.59
68
36.461
33
21.512
18
27.529
15

189.37
79
373.17
39
35.86
337.31
39
7.97
42.322
95
143
17.942
28
10.585
95

26.811
79
15.818
96
19.183
41

118.25
35
267.20
3
35.86
231.34
3
7.97
29.026
73
143
17.942
28
10.585
95
10.488
03
1.3159
38
0.7764
04
230.76
02
28.953
6
17.082
62
21.753
65

19.183
41

21.753
65

23.990
45

25.912
57

27.529
15

560.9
143
417.9
76.25

Interest
Taxes
NOPLAT
Equity Dividend
Earnings
No. of shares
EPS
depreciation
depreciation/
Share
depreciation/
Share*(1-DR)
Capex
Capex/Share
Capex/Share*(1DR)
Change in WC
Change in WC/
Share
Change in WC/
Share*(1-DR)
FCFE/Share

105.12
236.53
35.86
200.67
7.97
25.178
17
143
17.942
28
10.585
95
10.29
1.2910
92
0.7617
44
213.69

Terminal value
P.V. of FCFE
ke
g

0.17
0.0780
19

201617

0.0561
9
same

0.1611
7
0.1249
39

same

same

0.0192
45

11.319
1.4202
01
0.8379
18
313.81
05
39.373
96
23.230
64
28.840
34
331.74
02
360.58
05

Rate

0.0798
83

30.513
64

0.0580
19

Value of the
equity

459.76
64

4.2 Valuations

for Chambal Fertilizers:

Growth rate of free cash flow coming out to be -4.17%, due to the past trend of meager
increasing trend in operating income but generously increasing expenses (both operating
& non-operating) that the company is following.

Monthly average Beta value for the period of 5 years is 0.95

Terminal value for the firm is Rs. 82.7 crore and for equity is Rs. 3.6

WACC is coming out to be around 19% and cost of capital (Ke) is 13.22%.

Growth rate (g) of the firm (including future economic & industry growth account) is
-41.49% and growth of equity is 4.08%

Hence value of the firm is Rs.3944.63 crore and value of the equity is Rs. 227.05.

CHAMBAL FERTILIZER'S FCFF

201011

Operatin
g Income
Deprecia
tion
EBIT
Interest
Taxes

2596.
54
176.6
2419.
94
105.8
5
66.5

2011-12

2012-13

2013-14

2014-15

2015-16

2749.4
7
184.61
03
2564.8
6
127.55
06
75.632

2911.4
08
192.98
4
2718.4
24

3082.8
83
201.73
74
2881.1
46
185.21
04
97.833

3264.4
58
210.88
8
3053.5
7
223.18
08
111.26

3456.72
7
220.453
5
3236.27
4
268.935
6
126.550

153.7
86.019

201617

Rate

0.058897
73
0.045358
53
0.205012
36
0.137335

NOPLAT
Deprecia
tion
Capex
Change
in WC
FCF
Terminal
value
P.V. of
FCF
WACC
g
Value of
the firm

2247.
59
176.6
720.6
2
300
1403.
57

1403.
57
0.19
0.417
68

82
2361.6
77
184.61
03
890.39
93
373.71
93

9
2478.7
04
192.98
4
1100.1
79
465.55
37

5
2598.1
02
201.73
74
1359.3
83
579.95
46

95
2719.1
2
210.88
8
1679.6
56
722.46
74

8
2840.78
7
220.453
5
2075.38
6

1282.1
68

1105.9
55

860.50
17

527.88
44

85.8550
5

527.88
44

82.2730
2
168.128
1

1282.1
68

1105.9
55

860.50
17

63

900
49.9
95

0.235601
7
0.245730
94
0.417676
7

3944.
638

CHAMBAL FERTILIZER'S FCFE

2010-11

Operating
Income
Depreciation
EBIT
Interest
Taxes
NOPLAT
Equity
Dividend
Earnings
No. of shares
EPS
Depreciation

2596.54
176.6
2419.94
105.85
66.5
2247.59
74.92
2172.67
41.62
52.20255
176.6

201112

201213

201314

201415

201516

2749.4
7
184.61
03
2564.8
6
127.55
06
75.632
82
2361.6
77

2911.4
08
192.98
4
2718.4
24

3264.4
58
210.88
8
3053.5
7
223.18
08
111.26
95
2719.1
2

3456.7
27
220.45
35
3236.2
74
268.93
56
126.55
08
2840.7
87

0.0588
98
0.0453
59

86.019
9
2478.7
04

3082.8
83
201.73
74
2881.1
46
185.21
04
97.833
5
2598.1
02

74.92

74.92

74.92

74.92

74.92

same

2286.7
57
41.62
54.943
7
184.61
03

2403.7
84
41.62
57.755
5
192.98
4

2523.1
82
41.62
60.624
26
201.73
74

153.7

10

2644.2
41.62
63.531
95
210.88
8

2765.8
67
41.62
66.455
24
220.45
35

201617

Rate

0.2050
12
0.1373
36

same

Depreciation/
Share
Depreciation/
Share*(1-DR)
Capex
Capex/Share
Capex/Share*(
1-DR)
Change in WC
Change in WC/
Share
Change in WC/
Share*(1-DR)
FCFE/Share

4.243152
2.50346
720.62
17.31427
10.21542
300
7.208073
4.252763
40.23782

4.4356
16
2.6170
13

4.6368
09
2.7357
17

4.8471
27
2.8598
05

5.0669
86
2.9895
22

5.2968
17
3.1251
22

720.62

720.62

720.62

720.62

720.62

17.314
27
10.215
42
373.71
93
8.9793
2
5.2977
99
42.047
49

17.314
27
10.215
42
465.55
37
11.185
82
6.5996
32
43.676
17

17.314
27
10.215
42
579.95
46
13.934
52
8.2213
65
45.047
28

17.314
27
10.215
42
722.46
74
17.358
66
10.241
61
46.064
44

17.314
27
10.215
42

42.047
49

43.676
17

45.047
28

46.064
44

Terminal value
P.V. of FCFE
ke
g
Value of the
equity

4.3 Valuations

40.23782

0.2356
02

0.2457
31

900
21.624
22
12.758
29
46.606
65
3.6099
44
50.216
6

47.57
62

0.0208
02

13.22
0.040802
227.05
2

for Deepak Fertilizers:

Growth rate of free cash flow coming out to be -1.62%, due to the past trend of meager
increasing trend in operating income but generously increasing expenses (both operating
& non-operating) that the company is facing.

Monthly average Beta value for the period of 5 years is 0.87

Terminal value for the firm is Rs. 28.9 crore and for equity is Rs. 158.2

WACC is coming out to be around 19% and cost of capital (Ke) is 17%.

Growth rate (g) of the firm (including future economic & industry growth account) is
-1.62% and growth of equity is -1.22%

Hence value of the firm is Rs.2668.12 crore and value of the equity is Rs. 586.81.
11

DEEPAK FERTILIZER'S FCFE

Operating
Income
depreciation
EBIT
Interest
Taxes
NOPLAT
Equity Dividend
Earnings
No. of shares
EPS
depreciation
depreciation/
Share
depreciation/
Share*(1-DR)
Capex
Capex/Share
Capex/Share*(1DR)
Change in WC
Change in WC/
Share
Change in WC/
Share*(1-DR)
FCFE/Share
Terminal value
P.V. of FCFE
Ke
g
Value of the
equity

201011

201112

201213

201314

201415

201516

1052.1
4

1213.3
32
52.823
42
1160.5
08
20.373
17
61.753
55
1078.3
82
30.87
1047.5
12
8.82
118.76
55
52.823
42
5.9890
5
3.5335
4
47.622
03
5.3993
23
3.1856
01
285.71
43
32.393
91
19.112
41

1302.9
64
57.416
6
1245.5
48
23.025
41
67.786
93
1154.7
36
30.87
1123.8
66
8.82
127.42
24
57.416
6
6.5098
19
3.8407
93

11.337
87
6.6893
42

1129.8
65
48.597
69
1081.2
67
18.026
42
56.257
17
1006.9
84
30.87
976.11
37
8.82
110.67
05
48.597
69
5.5099
42
3.2508
66
37.797
63
4.2854
46
2.5284
13
169.03
09
19.164
5
11.307
05

6.8027
21
4.0136
05
482.94
53
54.755
7
32.305
86

1399.2
19
62.409
17
1336.8
09
26.022
94
74.409
78
1236.3
77
30.87
1205.5
07
8.82
136.67
88
62.409
17
7.0758
7
4.1747
63
75.595
26
8.5708
91
5.0568
26
816.32
65
92.554
03
54.606
88

1502.5
83
67.835
86
1434.7
48
29.410
69
81.679
69
1323.6
57
30.87
1292.7
87
8.82
146.57
45
67.835
86
7.6911
41
4.5377
73
95.244
06
10.798
65
6.3712
02
1379.8
44
156.44
49
92.302
47

97.396
7

100.08
59

100.00
1

94.943
72

81.189
83

52.438
61

81.189
83

158.20
19
210.64
05

44.71
1007.4
3
15.95
51.25
940.23
30.87
909.36
8.82
103.10
2
44.71
5.0691
61
2.9908
05
30
3.4013
61
2.0068
03
100

97.396
7
0.17
0.1212
7

100.08
59

100.00
1

586.86
1

12

60

94.943
72

201617

Rate
0.0738
73
0.0869
53
0.1301
83
0.0977
01

same

same

0.2599
21

0.6903
09

46.07
94

0.1212
7

DEEPAK FERTILIZER'S FCFF

Operating
Income
Depreciation

201011

201112

201213

201314

201415

201516

1052.
14

1129.8
65
48.597
69
1081.2
67
18.026
42
56.257
17
1006.9
84
48.597
69
37.797
63
169.03
09

1213.3
32
52.823
42
1160.5
08
20.373
17
61.753
55
1078.3
82
52.823
42
47.622
03
285.71
43

1302.9
64
57.416
6
1245.5
48
23.025
41
67.786
93
1154.7
36
57.416
6
482.94
53

1399.2
19
62.409
17
1336.8
09
26.022
94
74.409
78
1236.3
77
62.409
17
75.595
26
816.32
65

854.9
4

848.75
29

797.86
87

669.20
68

406.86
41

854.9
4

848.75
29

797.86
87

669.20
68

406.86
41

1502.5
83
67.835
86
1434.7
48
29.410
69
81.679
69
1323.6
57
67.835
86
95.244
06
1379.8
44
83.594
7
28.907
84
54.686
9

44.71
1007.
43

EBIT
Interest

15.95
51.25

Taxes
NOPLAT
depreciation

940.2
3
44.71
30

Capex
Change in WC
FCF
Terminal
value
P.V. of FCF
WACC
g
Value of the
firm

100

60

201617

0.073
87
0.086
95
0.130
18
0.097
7

0.259
92
0.690
31
52.58
46

0.19
1.629
04
2668.
006

5 Formulae Used
FCFE = Net Income+ Dep- Capital Exp- WC Principal repayments

Value =
t =1

FCFEt
(1 + k )t

13

Rate

-1.629

Where k is the cost of equity for the company

FCFF = NOPAT+ Dep- Capex- WC

References
1.

www.economywatch.com

2.

www.nseindia.com
14

3.

www.deepakgroup.com

4.

www.gsfcltd.com

5.

www.chambalfert.com

6. Damodaran On Valuation

15