GNFC

Huge basket of agri-chemicals
Bharuch (Gujarat)-headquartered Gujarat Narmada

Valley Fertilisers & Chemicals Ltd (GNFC) is a prominent PSU, a joint sector enterprise promoted by the Gujarat government and Gujarat State Fertilisers and Chemicals Company (GSFC) – both holding a total of 41.18 per cent in its equity. The company is engaged in the businesses of fertilisers, industrial chemicals, and information technology. It has set up one of the world’s largest singlestream ammonia-urea fertilizer complexes and manufactures fertilisers such as urea, ammonium nitro phosphate (ANP) and calcium ammonium nitrate (CAN). Among industrial chemicals, the company manufactures methanol, active acid, aniline, toluene di-isocyanate (TDA), formic acid and nitric acid. It also trades in some fertilisers and chemicals.

GNFC diversified into IT services in 1989 by setting up Ncode Solutions which offers digital certificates that can integrate with applications such as emails, workflow, enterprise-wide applications or secure VPNs. The digital certificates can be used by individuals, corporates and governments to secure online B2B/B2C applications and other online transactions.

The company has steadily grown in its financial performance, with the sales CAGR during the last five years being 12 per cent and the profit CAGR being 13 per cent. What is more, prospects for the company going ahead are all the more encouraging. Consider:

• GNFC has established a market position in fertilisers with its fertiliser brand well entrenched with the farmer community especially in Gujarat, and has a market leadership in chemicals like methanol, acetic acid, aniline and TDI. The company’s strength lies in its product diversity and ability to switch among product streams in tune with market conditions. Accordingly, for a particular product segment in the chemicals portfolio, GNFC was able to maintain profitable operations over the years.

MORE CAPEX

• The company is undertaking steps to improve the profitability and marketshare of its diversified product basket while most of its plants are running at more than 100 per cent capacity utilization. It has from time to time undertaken debottlenecking and revamping activities to enhance capacity and improve efficiencies. Besides the ongoing capex, it has envisaged Rs 1,350 crore capex for sizeable expansion in capacities of its key products.
• Research analysts at HDFC Securities maintain, “With the expectation of an above-average monsoon and economic revival going ahead, we believe there would be higher demand for the company’s products in the fertiliser segment. On the other hand, chemical buoyancy is expected to continue going ahead. With high cash reserves and strong cash flow generation expected to continue, the company, which is trading at relatively cheap valuations, looks a formidable bet in the current high interest rate environment.”

FINANCIALS BOOM

• Despite fluctuations in the profitability rate, GNFC is going from strength in its financial performance. During the last 12 years, its sales turnover has expanded almost three times from Rs 3,862 crore in fiscal 2012 to Rs 10,227 crore in fiscal 2023, with operating profit shooting up more than three times from Rs 551 crore to Rs 1,879 crore and the profit at net level surging more than five times from Rs 284 crore to Rs 1,464 crore. The company’s financial position is very strong, with reserves at the end of March 2023 standing at Rs 8,851 crore – over 57 times its equity capital of Rs 155 crore. It is a virtually debt-free entity with borrowings of only Rs 3 crore in fiscal 2023, and its balance sheet is very healthy.

The company’s shares with a face value of Rs 10 a piece are quoted around Rs 588, which is quite attractive for new buyers.

PERFORMANCE INDICATORS (Rs. in crore)

RICO AUTO INDUSTRIES

World-class auto parts for OEMs

Gurugram (Haryana)-headquartered Rico Auto Industries, a world-class engineering company, is an auto ancillary firm that specializes in high precision, fully machined aluminium and ferrous casting auto components and assemblies for automotive OEMs across the globe. Though it started its career as a 100 per cent ancillary to Hero MotoCorp, the company gradually expanded into the personal vehicle space with Maruti Suzuki. Subsequently, it spread its wings wider and today is serving more than 30 domestic and global customers across all categories. Rico Auto has 15 manufacturing plants and counts all major domestic and global OEMs as its clients. The company also manufactures EV components like electric motor housing and proprietary design parts like engine oil pumps and engine water pumps.

Though the overall pace of growth has remained irregular, the company has been on a sustained growth path for the last five years. During the last 10 years, its sales CAGR has remained around only 4 per cent but its profit CAGR has been remarkable at 46 per cent. What is more, prospects for the company going ahead are all the more encouraging. Consider:

DOWN AND UP

• The company’s sales turnover had declined from Rs 1,505 crore in 2012 to Rs 1,346 crore in fiscal 2014, and dropped further to Rs 1,007 crore in fiscal 2016, but thereafter there has been a steady rise with the number recovering to Rs 1,470 crore in fiscal 2021 and crossing Rs 2,300 crore in fiscal 2023. Rico Auto’s operating profit also moved in the same fashion and after declining from Rs 127 crore in fiscal 2012 to Rs 99 crore in fiscal 2016, and further dropping to Rs 89 crore in fiscal 2021, it bounced back to Rs 158 crore in fiscal 2022 and shot up further to Rs 221 crore in fiscal 2023. Likewise, the net profit also slumped from Rs 22 crore in fiscal 2012 to Rs 3 crore in 2014 and plunged into the red by incurring a loss of Rs 14 crore in fiscal 2021, but soon regained lost ground to record a profit of Rs 24 crore in fiscal 2022 and took a high jump to Rs 51 crore in fiscal 2023.
• The company’s financial position is steadily improving, with reserves at the end of March 2023 more than doubling from Rs 328 crore in fiscal 2012 to Rs 676 crore in fiscal 2023 – almost 48 times its equity capital of Rs 14 crore, that too after a 1:1 bonus issue in 2002. The company has been regularly paying dividends, the rate for the last year being 75 per cent.
• Knowledgeable circles, especially institutional investors, have started taking interest in accumulating these shares. While the promoters have fully maintained their holding at over 50 per cent, FIIs (foreign institutional investors) have raised their stake from 0.5 per cent in December 2021 to 1.4 per cent in December 2022 and domestic institutional investors have upped their holding from 0.7 per cent to 1.43 per cent. This trend reflects their anticipation of better days ahead for Rico Auto.

MARQUEE CLIENTS

• Of late, the company has received orders from marquee OEM names, including BMW and Toyota, largely driven by its strong engineering capabilities. It has emerged as a single-source supplier for a set of components in the Toyota Hybrid which has been outsourced for the first time by Toyota. Also, at home the company is a single-source supplier of pumps at Maruti Suzuki.
• The majority of machines at Rico are fungible and can be used for making a various of components as per demand, resulting in limited capital expenditure requirements. The company also manufactures its own machines. Also, before incurring any capex, it secures sufficient orders to cover the capex for a particular project.

The company’s shares of the face value of Rs 10 are quoted around Rs 96. Research analysts feel the price can go up to Rs 110-Rs 115 in a relatively short period.

PERFORMANCE INDICATORS (Rs. in crore)