Sample Company Analysis - GNFC( Stage-1)

Answer every question and fill all the details before moving to Annual Report Analysis and Discounted Cash Flow-based Intrinsic Value calculation

About the Company:

Gujarat Narmada Valley Fert. & Chem. Is one of India's leading companies engaged in the manufacturing and selling of fertilizers, industrial chemical products and rendering IT services

Gujarat Narmada Valley Fertiliser Company (GNFC) was set up in Bharuch, Gujarat in the year 1976. The company is a  joint sector enterprise that was promoted by the Government of Gujarat and the Gujarat State Fertilizer Company (GSFC). In 2012 the company changed name from Gujarat Narinada Valley Fertilizers Company Limited to 'Gujarat Narmada Valley Fertilizers & Chemicals Limited'. GNFC started its manufacturing and marketing operations by setting up in 1982, one of the world's largest single-stream ammonia-urea fertilizer complexes. Over the next few years, GNFC successfully commissioned different projects - in fields as diverse as chemicals, fertilizers and electronics. Since inception, GNFC has worked towards an extensive growth as a corporation. A growth which respects the environment and springs from the progressive vision of GNFC.   GNFC today has extended its profile much beyond fertilizers through a process of horizontal integration.

GNFC today has extended its profile much beyond fertilizers through a process of horizontal integration. Chemicals/Petrochemicals, Energy Sector, Electronics/Telecommunications and Information Technology form ambitious and challenging additions to its corporate portfolio.

GNFC's regional offices are located across India, namely in Ahmedabad, Bangalore, Bhopal, Chandigarh, Pune, Hyderabad, Jaipur, Lucknow and New Delhi.

STAGE-1

Question	Rational behind the question	Answer	Judgement based on Answer
What does the company do?	To get a basic understanding of the business	GNFC is engaged in the manufacturing and selling of fertilizers, industrial chemical products and rendering IT services
Who are its promoters? What are their backgrounds?	To know the people behind the business. A sanity check to eliminate criminal background, intense political affiliation etc.	Gujarat State Investments Limited (21.38%) Gujarat State Fertilizers & Chemicals Ltd (19.80%) Mr. M. S. Dagur, IAS, has been Managing Director and Director at Gujarat Narmada Valley Fertilizers & Chemicals Limited since July 16, 2018. Mr. Dagur served as Managing Director of Gujarat Alkalies & Chemicals Ltd., from July 19, 2011 to February 26, 2014. Mr. Dagur served as a Director of Gujarat Industries Power Co. Ltd., since August 9, 2011 until March 4, 2014. He served as a Director of Gujarat Alkalies & Chemicals Ltd. since July 19, 2011 until February 26, 2014.
What do they manufacture (in case it is a manufacturing company)?	To know their products better, helps us get a sense of the product’s demand supply dynamics	GNFC Manufactured Fertilizers Urea [NARMADA Urea] Ammonium Nitrophosphate [NARMADA PHOS] Narmada Plus (19:19:19) Neem De-Oiled cake GNFC Traded Fertilizers DiAmmonium Phosphate Muriate of Potash Single SuperPhosphate City Compost GNFC Chemicals: Methanol, Formic Acid, Nitric Acid and Acetic Acid. While Methanol finds applications in chemicals, resins etc., Formic Acid is used mainly in rubber, textiles, tanneries and pharmaceuticals industries. Both Methanol and Formic Acid are regularly being exported to international markets. From <https://www.gnfc.in/chemicals/chemicals.html> Name and Description of main product % to total turnover Of the company Neem Urea 21.73 % (including amount of subsidy) Toluene Di-Isocynate (TDI) 26.33 %
How many plants do they have and where are they located?	To get a sense of their geographic presence. Also at times their plants could be located in a  prime location, and  the value of such location could go off balance sheet, making the company highly undervalued	All the manufacturing Plants of the Company are located at the Registered Office situated at P.O. Narmadanagar - 392 015, Dist. Bharuch. The Company has set up a 50,000 MTPA TDI-II Project at P.O. Dahej - 392130, Taluka - Vagra, Dist. Bharuch. Activities in the area of Information Technology (IT) are being carried out at the Registered Office as also at GNFC Infotower, 3rd Floor, Bodakdev, Gandhinagar-Sarkhej Highway, Ahmedabad - 380 054 and at GIFT City, 14th Floor, GIFT One Road, 5-C Zone- 5, Gandhinagar - 382355.
Are they running the plant in full capacity?	Gives us an idea on their operational abilities, demand for their products, and their positioning for future demand	Plant Production Capacity Utilization (%) Ammonia  138 Urea (including Technical Grade) 118 Ammonium Nitro phosphate (ANP) 152 Methanol  069 Acetic Acid 157 Formic Acid 220 Aniline 120 Toluene Di-Isocyanate (TDI-I) 122 Toluene Di-Isocyanate (TDI-II) 085 Ethyl Acetate 126 Weak Nitric Acid (WNA-I) 122 Weak Nitric Acid (WNA-II) 124 Concentrated Nitric Acid (CNA) - I/II/III  107
What kind of raw material is required?	Helps us understand the dependency of the company. For example the raw material could be regulated by Govt. (like Coal) or the raw material needs to be imported either of which needs further investigation	Natural Gas, Rock Phosphate, Coal, Fuel Oil, Toluene, Benzene, Caustic Soda, Chlorine, Oil(FOHV),Packaging Materials. Carbon Monoxide to produce Formic Acid is available at Company's Dahej Plant.
Who are the company’s clients or end users?	By knowing the client base we can get a sense of the sales cycle and efforts required to sell the company’s products
Who are their competitors?	Helps in knowing the competitors. Too many competing companies means margin pressure. In such a case the company has to do something innovative. Margins are higher if the company operates in – monopoly, duopoly, or oligopoly market structure	Name Last Price Market Cap. (Rs. cr.) Sales Turnover Net Profit Total Assets Coromandel Int 451.15 13,193.35 10,943.11 659.41 5,902.57 Chambal Fert 151.85 6,320.12 7,461.11 480.17 8,507.09 GNFC 342.35 5,320.76 5,837.31 789.52 4,687.54 GSFC 110.50 4,403.18 6,270.57 475.73 8,302.85 Rashtriya Chem 62.40 3,442.53 7,318.63 78.80 4,184.34 Fert and Chem 41.55 2,688.58 1,928.67 -130.51 637.69 NFL 35.95 1,763.63 8,928.29 212.77 4,992.47 Deepak Fert 142.25 1,254.72 3,187.27 112.89 2,984.05 Zuari Agro Chem 237.25 997.83 4,647.57 41.95 3,710.42 SPIC 27.25 554.92 1,993.61 37.23 568.47 Nagarjuna Fert 8.70 520.32 3,921.39 -21.52 2,544.06 Mangalore Chem 40.80 483.54 2,688.93 60.58 1,806.77 Oswal ChemandFe 17.35 445.56 20.19 43.24 2,267.67 Madras Fert 24.15 389.06 1,617.14 -44.81 1,014.42 Zuari Global 120.40 354.46 14.26 17.96 2,089.17 Aries Agro 100.30 130.43 265.18 14.15 291.22 Agri-Tech 57.90 34.39 0.16 20.62 108.74 From <https://www.moneycontrol.com/competition/gujaratnarmadavalleyfertilizerschemicals/comparison/GNV>
Who are the major shareholders of the company?	Besides the promoter and promoter group, it helps to know who else owns the shares of the company. If a highly successful investor holds the shares in the company then it could be a good sign	Life Insurance Corporation of India (7.59%) Fidelity Puritan Trust - Low Priced fund(3.65%) General Insurance Corporation of India(2.32%) Reliance Mid-Small Cap Fund(1.44%) Aditya Birla Sun Life Pure Value Fund(1.25%) Dolly Khanna(1.02%) Aditya Birla Sun Life Small and Midcap Fund(0.51%) The New India Assurance Company Limited(0.51%)
Do they plan to launch any new products?	Gives a sense on how ambitious and innovative the company is. While at the same time a company launching products outside their domain raises some red flags – is the company losing focus?
Do they plan to expand to different countries?	Same rational as above	Today, we export to 66 countries, including China and Korea. Last year, we exported a total quantity of 26,000 tonnes. This year's target is 30,000 tonnes. We also promote exports of non-TDI chemicals. After a gap of 10 years, we started formic acid exports and are also expanding exports of ethyl acetate and methyl formate. From <https://www.thehindubusinessline.com/companies/gnfc-is-much-more-than-just-a-tdi-maker-says-md-rajiv-kumar-gupta/article23968523.ece>
What is the revenue mix? Which product sells the most?	Helps us understand which segment (and therefore the product) is contributing the most to revenue. This in turns helps us understand the drivers for future revenue growth	Name and Description of main product % to total turnover Of the company Neem Urea 21.73 % (including amount of subsidy) Toluene Di-Isocynate (TDI) 26.33 %	There are two segments to our revenues, fertilisers (35 per cent) and chemicals (65 per cent).
Do they operate under a heavy regulatory environment?	This is both good and bad – Good because it acts a natural barrier from new competition to enter the market, bad because they are limited with choices when it comes to being innovative in the industry
Who are their bankers, auditors?	Good to know, and to rule out the possibility of the companies association with scandalous agencies
How many employees do they have? Does the company have labour issues?	Gives us a sense of how labour intensive the company’s operations are. Also, if the company requires a lot of people with niche skill set then this could be another red flag	Number of permanent employees on the rolls of Company at the end of the year :2434 On Contract basis: 680 Do you have an employee association that is recognized by management? Yes. GNFC Employees Union Percentage of permanent employees who are members of recognized employee association 57% (as on April 2018)
What are the entry barriers for new participants to enter the industry?	Helps us understand how easy or difficult it is for new companies to enter the market and eat away the margins
Is the company manufacturing products that can be easily replicated in a country with cheap labour?	If yes, the company may be sitting on a time bomb – think about companies manufacturing computer hardware, mobile handsets, garments etc.
Does the company have too many subsidiaries?	If yes, you need to question why? Is it a way for the company to siphon off funds?	Gujarat Ncode Solutions Limited : Subsidiary (100% shares owned) Gujarat Green Revolution Co. Ltd.:  Associate 46.87% shares owned

              Basic Checklist

Variable	Comment	Significance	Answer	Judgment based on Answer
Gross Profit Margin (GPM)	> 20%	Higher the margin, higher is the evidence of a sustainable moat	19.18%
Revenue Growth	In line with the gross profit growth	Revenue growth should be in line with the profit growth
EPS	EPS should be consistent with the Net Profits	If a company is diluting its equity then it is not good for its shareholders	₹66.83
Debt Level	Company should not be highly leveraged	High debt means the company is operating on a high leverage. Plus the finance cost eats away the earnings
Inventory	Applicable for manufacturing companies	A growing inventory along with a growing PAT margin is a good sign. Always check the inventory number of days
Sales vs Receivables	Sales backed by receivables is not a great sign	This signifies that the company is just pushing its products to show revenue growth
Cash flow from operations	Has to be positive	If the company is not generating cash from operations then it indicates operating stress	₹1819 Crores	cash flow from operations is positive
Return on Equity	>25%	Higher the ROE, better it is for the investor, however make sure you check the debt levels along with this	18.97%
Business Diversity	1 or 2 simple business lines	Avoid companies that have multiple business interests. Stick to companies that operate in 1 or 2 segments	Fertilizers (35 per cent) and chemicals (65 per cent) From <https://www.thehindubusinessline.com/companies/gnfc-is-much-more-than-just-a-tdi-maker-says-md-rajiv-kumar-gupta/article23968523.ece>
Subsidiary	Not many	If there are too many subsidiaries then it could be a sign of the company siphoning off money. Be cautious while investing in such companies.

Ratios Analysis

Ratios	Value	Interpretation/Judgement	Any other comment/observation
Quick ratio	1.05
Current ratio	1.53
P/E Ratio	5.14
ROCE (%)	23.81 %
Return on Assets(%)	12.39 %
ROE (%)	18.97 %
Dividend Yield (%)	2.18 %
Debt to Equity	0.07
Interest Coverage Ratio	35.42
Price to Book Value Ratio	1.13
Price to Sales	0.81
Earnings yield	26.21%
PEG Ratio	0.4	lower is better

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