GNFC: Capital Subsidy and TDI Price Rise Brings More Strength recommended GNFC: Chemicals Overtakes Fertilizers on 4Sep2016 at Rs. 150. At current market price of Rs. 186, the stock is already giving returns of 24% in about a months time.

Based on the data gathered from further study of GNFC balance sheet, update from the AGMs and the global happenings related to TDI (key product of GNFC), here are certain updates on the same.

  • Capital Subsidy of 760 crores to be received over next 2 years: GNFC underwent a capex of Rs. 1215 crores for conversion of “LSHS/FO” feed stock to “Gas”. This project was completely subsidized by government such that the reimbursement of entire cost including the interest of this project is being paid to GNFC by Government in form of capital subsidy. This Capital Subsidy recoverable from government amounted to Rs. 1215 crores is to be receivable over a period of 5 years from the date of commencement i.e. On October 10, 2013. GNFC has already received Capital Subsidy of Rs. 627 crores including interest recoverable. As on March 2016, GNFC is yet to receive Capital grant of Rs. 760 crores including accrued interest on subsidy till FY18. The pending capital subsidy receivable of Rs. 760 crores will help balance a large part of its long term borrowing of Rs. 1037 crores. From a different standpoint, the Grant receivable is also quite substantial in comparison to its market cap of Rs. 2900 crores (at cmp: 186.5). To sum it up, the Rs. 760 crores grant will substantially help to further strengthen its balance sheet.

  • Improvement in TDI prices will make the TDI plant substantially profitable: GNFC TDI plant at Dahej had incurred heavy losses to the tune of Rs. 1132 crores over the last 2 years (FY15 & FY16). This was mainly due to lower utilization (less than 60% utilization) and lower price for TDI (Rs. 100 per kg). However, both problems with TDI plant now stand corrected. The TDI plant is now running at a full capacity of 100% and the TDI prices have now stabilized and showing a uptrend in price. The prices stabilized at Rs 150 / kg near the end of Q1FY17 (Jun17). Further over the last 30 days (sep-oct2016), the TDI prices further increased from Rs 150 / kg to more than Rs 210 / kg. Even when the prices were better than the lows of Rs. 100-140 / kg, in Q1FY17 TDI Dahej plant made a loss of Rs.34 crores only as against Rs. 90 crores run rate. Now with the TDI price easily higher at Rs 150 to Rs 210 levels, the TDI plant has already turned around well. The effects of the same will be partially seen in Q2FY17 and should be seen fully from Q3FY17.Bringing the table back again from the previous report:


  • Higher TDI prices seem to be staying for a reasonable period: As mentioned, the TDI prices have increased to the tune of 20% in the last 3-4 weeks. Apart from improving demand, the recent sharp run-up has been partially led by a German plant shutting its 3 lakh tons capacity due to malfunction in nitric acid supply and TDI plant of Hanwha group, OCI and BASF down for maintenance purpose for a period of 1-2 months. As seen in the past, even slight change in demand – supply dynamics has always led to sharp changes in the price. The same phenomena has led to the boost in TDI prices. Even if the TDI prices correct from its peak after a few months, they should remain at 180-200 levels giving a reasonable profit for GNFC. 

  • Application to Ministry of Commerce for Imposing  Anti-Dumping Duty on Import of TDI: Gujarat Narmada Valley Fertilizers & Chemicals (GNFC) has filed an application on 5Oct2016 in accordance with customs tariff act, 1975 for initiation of anti-dumping investigation and imposition of anti-dumping duty concerning to imports of TDI from China PR, Japan and Korea RP. GNFC has claimed that they are sole producer of TDI in India and constitute major proportion of domestic production (nearly 100% share of Domestic production). As per the application, there are strong chances of anti-dumping duty being levied on imports of TDI. If its comes true, it will further aid towards the TDI profitability led by stability in of higher TDI prices.

  • GNFC and EcoPhos JV to help improve efficiency of Chemical Plant: GNFC is currently executing a 15%:85% JV with EcoPhos where GNFC has to invest a small sum of Rs. 24 crores as equity. The main purpose for GNFC JV with EcoPhos is to consume around 1.5 lakh tons of Hydrochloric acid (HCI) being produced as a byproduct in the TDI plant. Currently GNFC has to spend a reasonable amount of time and funds to treat HCI. This however, will turn into a profit making product instead of a cost burning by-product for the company once the JV starts.

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