Monday, June 21, 2010

RCF FPO: Strong Growth, Mega Plans, But Lookout for Offer Discount

Though not as large as Coromandel (BSE: 506395, NSE: COROMANDEL) of Murugappa, Zuari (BSE: 500780, NSE: ZUARIAGRO) of Birlas, or GSFC (BSE: 500690, NSE: GSFC) in the joint sector, RCF (BSE: 524230, NSE: RCF) is public sector’s biggest enterprise in the vital fertilizer sector. And that single fact is holding many promises in the outlook on Rashtriya Chemicals & Fertilisers. The best example is RCF’s joint plan with Coal India and GAIL (BSE: 532155, NSE: GAIL) to revive the mega Talcher plant of Fertiliser Corporation of India at Rs. 10,000 crore, a move that will make the company the most powerful in its sector. No wonder then that RCF’s FPO is keenly awaited, and is likely to be dominated by new issue of shares to fund expansion. With nitrogenous fertilisers still amply subsidised and the pricing of complex fertilisers flexible under NBS, Rashtriya Chemicals & Fertilizers is one of the safer plays. The good monsoon can provide the perfect backdrop for this FPO. However, a lot will depend on the discount from market-price at which the FPO is offered, as the scrip trades at a P/E of over 19 years, significantly above the industry average of 14 odd. The P/B of 2.35 also signals more than full pricing. But RCF definitely has long-term value as the company continues to exhibit robust growth with profits never dipping in the last five years, and sales only dipping once, which was in the last financial year due to a huge base formed during the previous year.

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