Recommendation from Chemical Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year. 

Mangalore Chemicals & Fertilizers Ltd : FERTILISING GROWTH WITH STRATEGIC EXPANSION

HERE IS WHY
✓ Riding the fertiliser boom with India's agri-growth.
✓ Upcoming merger and NPK plant investment.
✓ Backward integration plans for phosphoric acid.

The Indian fertiliser industry is on a robust growth trajectory, having reached a market size of ₹982.0 billion in 2024. Looking ahead, IMARC Group expects the market to reach ₹1,401.0 billion by 2033, exhibiting a compound annual growth rate (CAGR) of four per cent during 2025–2033. This growth is driven by increased agricultural demand and strategic government interventions. India is the world's second-largest producer of fruits and vegetables. The growing population, rapid urbanisation, and increasing food consumption are escalating the demand for fertilisers. Keeping in mind the importance and growing demand for fertilisers to ensure food security, for this issue of Choice Scrip, we recommend Mangalore Chemicals and Fertilizers Limited (MCF).

MCF is a subsidiary of Zuari Agro Chemicals, an Adventz Group which is an Indian conglomerate. MCF is the largest manufacturer of chemical fertilisers in the state of Karnataka. The main products are Urea, Di-Ammonium Phosphate (DAP), NP 20:20:00:13, Ammonium Bi-Carbonate (ABC).

In Q3FY25, net revenue increased by 51.05 per cent YoY to ₹967.66 crore compared to ₹640.61 crore from the previous year's same quarter. On a sequential basis, revenue increased by 24.63 per cent from ₹776.39 crore. For the Q3FY25, PBIDT excluding other income increased by 25.54 per cent and stands at ₹102.76 crore from ₹81.85 crore in the previous year's same quarter. PAT showed an increase of 74.02 per cent, stands at ₹57.39 crore from ₹32.98 crore in the previous year's same quarter. On a sequential basis, PAT increased by 117.47 and stands at ₹26.39 crore.

In 9MFY25, the company's revenue from urea products was 59.11 per cent, while non-urea products contributed 40.89 per cent. The company’s production capacity stands at 3.8 lakh metric tons (LMT) for urea and 2.85 LMT for DAP and complex fertilisers. The company has taken up a project to expand its sulphuric acid production capacity from 100 to 400 t/d. It is scheduled for completion in August 2025. The sulphuric acid shall be used for captive consumption for production of NP 20:20:00:13 and other products, substituting import/purchase of the acid significantly. Surplus steam from the sulphuric acid plant shall be utilised in urea production.

The company is currently undergoing a merger process with PPL. After the merger is complete, the company management has stated that it will proceed with new investments in an NPK plant at MCFL. The company is also exploring options for backward integration for phosphoric acid, which is being considered either at Paradeep or potentially as a joint venture in Morocco. This acid will be utilised for the existing NPK plants as well as for future expansions. Over the years, the company's cash flow management has shown marked improvement, particularly in terms of working capital efficiency and cash conversion cycle.

The company’s share is currently trading at a PE of 16.9x, higher than the industry PE of 16x and its three-year median PE of 11.2x. The PEG ratio also stands at 0.48x. The company's three-year sales growth stands at 21 per cent while three-year profit growth stands at 32 per cent. Considering the company's business, we recommend BUY.