ChambalFertilizers&Chemicals

MultipleTriggersAhead
July20,2011 Manish Mahawar manishmahawar@plindia.com +91-22-66322239

Rating Price Target Price Implied Upside Sensex (PricesasonJuly20,2011) Tradingdata Market Cap. (Rs bn) Shares o/s (m) 3M Avg. Daily value (Rs m)

Accumulate Rs85 Rs95 11.8% 18,654

35.2 416.2 237.8

Majorshareholders Promoters Foreign Domestic Inst. Public & Other

55.10% 6.99% 12.67% 25.24%

Strongvolumegrowthandhigherotherincomeresultedbetterthanexpected PAT: Companys EBITDA de-grew by 5.4% YoY to Rs1796m (PLe- Rs1759m). EBIT/MT in urea business de-grew by 11.7% YoY to Rs1728/MT. Company has received subsidy related to earlier years amounted to ~Rs100m during the quarter v/s ~Rs250-Rs300m in Q1FY11. Excluding earlier year subsidy, EBIT/MT grew by 12.1% to Rs1548/MT. Trading margin was positively surprised on the back of better treasury and inventory management. Companys trading EBIT margin stood at 9.8%. Textile EBIT margin was under pressure because Chambal has considered inventory write down due to fallen cotton prices during the quarter. Companys long term contract in shipping business (four out of six ships) has expired during the quarter. At present, Chambals all ships are at spot price (i.e. US$15000/Day) which is much lower than contract price (i.e. US$22000/Day). Hence, companys shipping business EBIT margin has fallen sharply to 11.4% (PLe 10.5%). Companys other income grew by 27.8% YoY to Rs194m. Chambals Q1FY12 PAT de-grew by 8.9% YoY to Rs729m (PLe Rs627m). Contd2
Keyfinancials(Y/eMarch) Revenues (Rs m) Growth(%) EBITDA (Rs m) PAT (Rs m) EPS (Rs) Growth(%) Net DPS (Rs) Source:CompanyData;PLResearch Profitability&Valuation EBITDAmargin(%) RoE(%) RoCE(%) EV / sales (x) EV / EBITDA (x) PE (x) P / BV (x) Netdividendyield(%) Source:CompanyData;PLResearch 2010 18.0 16.0 7.3 1.4 8.0 16.2 2.5 2.2 2011 13.6 16.0 7.0 1.0 7.4 14.6 2.2 2.2 2012E 13.5 17.4 8.3 0.8 6.3 12.0 2.0 2.2 2013E 13.4 16.4 9.1 0.8 5.6 11.4 1.8 2.2 2010 41,942 (26.0) 7,567 2,172 5.2 (3.7) 1.9 2011 57,798 37.8 7,863 2,406 5.8 10.8 1.9 2012E 62,976 9.0 8,517 2,929 7.0 21.7 1.9 2013E 63,878 1.4 8,560 3,097 7.4 5.7 1.9

StockPerformance (%) Absolute Relative

1M 7.9 3.5

6M 12.4 14.1

12M 26.6 22.6

Price Performance (RIC:CHMB.BO, BB CHMB IN)

(Rs) 120 100 80 60 40 20 0
Nov-10 Jul-10 Sep-10 Mar-11 Jan-11 May-11 Jul-11

Source:Bloomberg

Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report

Q1FY12ResultUpdate

StronggrowthinureasalesvolumeduringQ1FY12result: Chambal Fertilisers and Chemicals (Chambals) Q1FY12 standalone net sales grew by 21.2% YoY to Rs11,644m (PLe Rs9966m), primarily due to growth of 28.0% YoY to 5.5Lac in urea sales volume. However, urea production volume grew by 1.9% YoY to 4.8Lac despite having 8 days and 15 days planned shutdown in Gadepan I and Gadepan II plant, respectively. Sales of trading, shipping and textiles businesses were as per our expectation.

Chambal Fertilizers & Chemicals

MultipleTriggersAhead: Expected urea policy: We believe that Chambal would be major beneficiary in the case of expected urea policy because Company is one of the efficient and biggest private urea player in India. Government is planning to introduce nutrient based subsidy (NBS) for Urea. Chambal is likely to gain from firm urea prices: At present, global urea prices are ruling at above US$500/MT (v/s PLe US$350/MT) on the back of strong demand and high energy cost. If the global prices sustain at present level during FY12E than we believe that Chambals incremental (de-bottlenecking) capacity would get benefit. Considering average urea price of US$400/MT for the year FY12E, we expect that our FY12E EPS could upward revise by ~15%. IMACIDtobenefitfromhigherphosphoricacidprices:We believe that Companys 33.3% Joint venture IMACID would be beneficiary in the case of higher phosphoric acid prices. At present, phosphoric Acid prices are up by ~25% YoY to ~US$980/MT (PLe US$1000/MT) Demerger of shipping division positive, But, capital infusion is concerning: Chambal is demerging its shipping business from standalone business and merging it with companys wholly owned subsidiary India Steamship Limited (ISS) . Chambal will infuse capital of Rs3.4b to ISS by subscribing 41m equity shares of Rs10 each for Rs80/share and 10m redeemable preference share of Rs10each as par. ISS will issue one equity share for every eight shares held by Chambals shareholders. Chambal will list the ISS to provide liquidity to the ISS shareholders, going forward. Company has six ships in standalone business and is contributing insignificant to the consolidated PAT currently. Post completion of demerger, we believe that Chambals stake in ISS would come down from 100% to ~45% and ISS would be an Associate instead of Subsidiary. Hence, Chambals consolidated balance sheet would re-structure/improve post de-merger. We expect that Chambals consolidated debt equity would come down from 1.6x in FY11 to ~1.1x. We expect that impact on PAT would be insignificant going forward. We believe that capital infusion of Rs3.4b to ISS would not add any value to Chambals business. We expect that if company would take debt to finance capital infusion than Chambal revised debt/equity would be ~1.4x. In our view, de-merger of noncore (Shipping) business would be positive for Chambals business, going forward. As of now, we have not incorporated any impact on financials on account of de-merger. Valuation and Outlook: Considering Chambals current valuation and earnings growth, we believe that stocks potential upside looks limited. However, we expect that potential upside could be higher considering positive triggers, going forward. Hence, we maintain our Accumulate rating on the stock.

July 20, 2011

Chambal Fertilizers & Chemicals

Exhibit1: Y/eMarch NetSales

Q1FY12ResultOverview(Rsm)Standalone Q1FY12 9,848 Q1FY11 YoYgr.(%) Q4FY11 6,955 FY12E 41,397 FY11 39,326 YoYgr.(%) 5.3 11,644 9,605 21.2 7,768 49,822 47,482 4.9 7,706 27.8 1,796 1,899 (5.4) 814 8,425 8,156 3.3 15.4 19.8 660 242 194 360 683 (3.5) 300 (19.2) 152 27.7 268 34.5 10.5 16.9 17.2 652 219 682 5 2,706 893 1,448 2,680 1.0

Total Expenditure EBIDTA Margin(%) Depreciation EBIT Interest Other Income PBT Less: Tax Taxas%ofPBT AdjustedPAT Less: Ex-Od Items incl. forex Loss/ (Gain) ReportedPAT Source:CompanyData,PLResearch Exhibit2: Y/eMarch SegmentRevenue Own Manufactured Fertilizers Traded Goods Textile Shipping NetSales SegmentResults(EBIT) Own Manufactured Fertilizers Traded Goods Textile Shipping Total EBIT(%) Own Manufactured Fertilizers Traded Goods Textile Shipping EBIT% Source:CompanyData,PLResearch SegmentalBreakup(Rsm)

1,137 1,216 (6.5) 161 5,718 5,476 4.4 1,020 (12.4) 1,156 25.2

1,089 1,068 1.9 624 4,826 4,457 8.3 33.1 25.1 92 161 (42.8) 0.8 30.0 25.9 (58) 49 NA

729 801 (9.0) 619 3,378 3,301 2.3 637 640 (0.4) 677 3,378 3,252 3.9

Q1FY12 7,000 2,899 714 889

Q1FY11

YoYgr.(%)

Q4FY11 5,399 1,031 870 771

FY12E 27,272 16,069 2,561 3,220

FY11

YoYgr.(%)

5,260 33.1 2,857 1.5 740 (3.4) 658 35.2

24,142 13.0 16,069 2,846 (10.0) 3,408 (5.5)

11,503 9,515 20.9 8,071 49,122 46,464 5.7

958 285 (11) 101

848 13.0 200 42.9 99 NA 175 (42.1)

467 120 96 155

4,744 643 161 270

3,627 30.8 929 (30.8) 389 (58.6) 546 (50.6)

1,333 1,321 0.9 838 5,818 5,490 6.0

13.7 9.8 (1.6) 11.4

16.1 7.0 13.4 26.5

8.6 11.6 11.1 20.1

17.4 4.0 6.3 8.4

15.0 5.8 13.7 16.0

11.6 13.9

10.4 11.8 11.8

July 20, 2011

Chambal Fertilizers & Chemicals

Exhibit3: StableUreaBusinessRealizationandMargin
Realization 14,000 12,000 10,000 8,000 6,000 4,000 2,000 EBIT

(Rs/MT)

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12 Q1FY12

Source:CompanyData,PLResearch Exhibit4: VolatileOtherBusinesssMargin

Shipping 30.0 20.0 10.0 Trading Textile

(%)

0.0 -10.0 -20.0 -30.0

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Source:CompanyData,PLResearch

July 20, 2011

FY12E

FY12E

Chambal Fertilizers & Chemicals

IncomeStatement(Rsm) Y/eMarch 2010
NetRevenue Raw Material Expenses Gross Profit Employee Cost Other Expenses EBITDA Depr. & Amortization Net Interest Other Income ProfitbeforeTax Total Tax ProfitafterTax Ex-Od items / Min. Int. Adj.PAT Avg.SharesO/S(m) EPS(Rs.) 41,942 41,942 34,374 7,567 3,189 888 3,490 1,142 2,348 176 2,172 416.2 5.2

2011
57,798 57,798 49,935 7,863 3,229 1,137 3,497 1,268 2,229 (177) 2,406 416.2 5.8

2012E
62,976 62,976 54,459 8,517 3,258 1,010 4,249 1,561 2,688 (241) 2,929 416.2 7.0

2013E
63,878 63,878 55,318 8,560 3,273 785 4,503 1,647 2,856 (241) 3,097 416.2 7.4

BalanceSheetAbstract(Rsm) Y/eMarch 2010

Shareholder's Funds Total Debt Other Liabilities TotalLiabilities Net Fixed Assets Goodwill Investments Net Current Assets Cash&Equivalents OtherCurrentAssets CurrentLiabilities Other Assets TotalAssets 14,334 27,412 2,958 44,704 30,602 3,290 631 10,182 2,019 14,721 6,558 44,704

2011
15,815 25,803 2,495 44,114 28,198 2,937 1 12,978 2,482 18,237 7,742 44,114

2012E
17,819 19,837 2,495 40,151 24,327 2,937 1 12,887 1,630 19,386 8,129 40,151

2013E
19,991 14,837 2,495 37,323 21,304 2,937 1 13,082 1,692 19,586 8,196 37,323

CashFlowAbstract(Rsm) Y/eMarch
C/F from Operations C/F from Investing C/F from Financing Inc. / Dec. in Cash Opening Cash Closing Cash FCFF FCFE

2010
(3,191) (499) 1,389 (2,302) 4,321 2,019 (6,866) (4,487)

2011
3,302 157 (2,996) 463 2,019 2,482 3,102 1,494

2012E
5,426 614 (6,892) (852) 2,482 1,630 4,926 (1,041)

2013E
6,238 (250) (5,925) 62 1,630 1,692 5,988 988

QuarterlyFinancials(Rsm) Y/eMarch Q2FY11

NetRevenue EBITDA %ofrevenue Depr. & Amortization Net Interest Other Income ProfitbeforeTax Total Tax ProfitafterTax Adj.PAT 15,570 2,370 15.2 677 269 1,424 441 982 861

Q3FY11
13,704 2,238 16.3 667 231 1,341 442 898 1,074

Q4FY11
8,451 1,496 17.7 652 219 624 5 619 677

Q1FY12
11,838 1,991 16.8 659 242 1,089 360 729 637

KeyFinancialMetrics Y/eMarch Growth

Revenue (%) EBITDA (%) PAT (%) EPS (%)

2010
(26.0) 0.4 (3.7) (3.7)

2011
37.8 3.9 10.8 10.8

2012E
9.0 8.3 21.7 21.7

2013E
1.4 0.5 5.7 5.7 13.4 4.8 9.1 16.4 0.7 11.4 1.8 5.6 0.8 36.6 5.9 31.9

KeyOperatingMetrics Y/eMarch
Fertilizers Sales (Rs m) Trading Sales (Rs m) Shipping Sales (Rs m)

2010
22,407.7 7,610.9 2,766.0

2011
24,142.2 16,068.7 2,845.7 15.0 5.8 19.2

2012E
27,271.6 16,068.7 2,561.1 17.4 4.0 10.5

2013E
27,365.4 16,068.7 2,561.1 17.4 4.0 11.6

Profitability
EBITDA Margin (%) PAT Margin (%) RoCE (%) RoE (%) 18.0 5.2 7.3 16.0

13.6 4.2 7.0 16.0

13.5 4.7 8.3 17.4

Fertilizers EBIT (%) 17.0 Trading EBIT (%) 2.9 Shipping EBIT (%) 20.7 Source:CompanyData,PLResearch.

BalanceSheet
Net Debt : Equity Net Wrkng Cap. (days) 1.8

1.5

1.0

Valuation
PER (x) P / B (x) EV / EBITDA (x) EV / Sales (x) 16.2 2.5 8.0 1.4

14.6 2.2 7.4 1.0

12.0 2.0 6.3 0.8

EarningsQuality
Eff. Tax Rate 32.7 Other Inc / PBT Eff. Depr. Rate (%) 5.8 FCFE / PAT (206.6) Source:CompanyData,PLResearch.

36.3 5.9 62.1

36.7 5.9 (35.5)

July 20, 2011

Chambal Fertilizers & Chemicals

Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209 RatingDistributionofResearchCoverage

70% 60%

60.4%

%ofTotalCoverage

50% 40% 30% 20% 10% 0% Buy Accumulate Reduce

22.9% 15.3% 1.4% Sell

Accumulate Sell TradingSell UnderReview(UR) : : : : Outperformance to Sensex over 12-months Over 15% underperformance to Sensex over 12-months Over 10% absolute decline in 1-month Rating likely to change shortly

PLsRecommendationNomenclature
BUY Reduce TradingBuy NotRated(NR) : : : :

Over 15% Outperformance to Sensex over 12-months Underperformance to Sensex over 12-months Over 10% absolute upside in 1-month No specific call on the stock

This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. We may from time to time solicit or perform investment banking or other services for any company mentioned in this document. ForClients/RecipientsinUnitedStatesofAmerica: All materials are furnished courtesy of Direct Access Partners LLC ("DAP") and produced by Prabhudas Lilladher Pvt. Ltd. ("PLI"). This material is for informational purposes only and provided to Qualified and Accredited Investors. You are under no obligation to DAP or PLI for the information provided herein unless agreed to by all of the parties. Additionally, you are prohibited from using the information for any reason or purpose outside its intended use. Any questions should be directed to Gerard Visci at DAP at 212.850.8888.

July 20, 2011