Liberty Phosphate Ltd.

Agriculture

Liberty Phosphate (BSE:530273) is one of the largest manufacturer of SSP (Single Super Phosphate) Fertilizer. The fortunes of the company have changed over the last 2-3 years since the introduction of the Nutrient Based Subsidy (NBS) policy by the Government. Under the NBS, the subsidy amount for each fertilizer is fixed based on the nutrient composition in the fertilizer. This is the first time, the policy recognized Sulphur content in SSP while fixing the subsidy. With better subsidy, SSP is much cheaper to other fertilizers and hence the usage and production is increasing rapidly after years of stagnation. Hence the existing SSP manufacturers are witnessing growing turnover along with higher margins.

The stock looks interesting due to its cheap valuations at CMP of Rs.64:

  • Stock is trading at just 2 times its trailing twelve month earnings.
  • Stock is available at just 1.1 times BV.

Now the question comes, is this performance sustainable and growing?

Being a sort of commodity sector, its tough to imagine that company would continue operating at 15%+ operating margins but given the changes in the industry and limited production capacities, the good times are continuing. But on the longer term, as the entry barriers are limited, the competition has to come in and margins should scale down. The other significant risk remains on the Government policy side.

In last few years the promoters have substantially increased their stake from about 35% in 2005 to 55% now and have been doing open market purchases consistently at current levels also. But the negative about past increase is that majority of the raising was done via preferential allotment during 2008-09 period when the stock price was quite low in the range of Rs. 13-20.

Some positive technical inputs from friends:

As per a couple of friends who are good at technical analysis, the chart indicates are positive technical break-out and if so, one may see good upsides over short to medium term.

Liberty_Phosphate

Overall, the stock looks interesting and we have made a small initial position at current levels. Company has 4 plants and is increasing their capacities; paid a maiden dividend of 12% and is available at a market cap of only Rs.91.12 Crore. Being a low PE stock with good growth, the investors participation can give good rewards.

Thus currently we are participating in the stock with a short term view but on getting a healthy input from management and investors, we might gradually increase our exposure for a long term bet.

  • Sandeep Somani

    Liberty Phosphate will show better margins as compared to Rama Phosphates and Khaitan Chemicals since Liberty is not into trading business of soya which happens to be a loss making one

  • mathew

    ayush,
    do u track alphageo.??the company into oil exploration.after many quarters of huge losses,they are on the verge of coming back to profits.If we include the huge amount set aside for depriciation,they are well in the green. Trading at 65 with huge discount to its life high of above 1000. R J is into it and his avg cost is around 80.

    • Ayush

      Hi,

      Not tracking the same.

      • Nishit Kumar

        Ayush,
        do you think GSFC or GNFC is better bet then LP?

        • Ayush

          Having recommended LP here, we do feel it has better prospects of re-rating when viz other cos in this field.

  • Guruprasad V

    Is this company scam tainted one. At different time zones this company has been trading around 3 PE levels. What is the reason for this?

    • Ayush

      Haven’t come across anything particularly negative. The reason for low PE could be that the markets are expecting current expansion in margins to be temporary.

  • shri

    Sir,
    Do you run any stock recommendation service?

    • Ayush

      No 🙂 We share our ideas on this website itself.

  • Carlos501b

    You have the Midas touch, Ayush 🙂 Liberty’s got budgetary benefits 🙂

    • Ayush

      Lol 😉

      • Subhash

        Ayush,
        what do you think of GNFC as its in fertilizers.

        • Ayush

          Hi,

          Not tracking the same closely but yes on face of nos looks cheap.

  • DeepakkumarPrasad

    Hi Ayush,

    Do you track Cravatex Ltd. This stock seems to have a mad bull run. Every other day it makes new 52 week high. Recently it has given 1:1 bonus and Rs 5 dividend per share. All this happening in last 2 years.
    Is this stock good for long term investments.

    -Deepak

    • Ayush

      Hi Deepak,

      Its a promising growth co but the stock has already had a great run…the valuations are not cheap now. But if the co continues delivering 30%+ growth for next few years, the stock can still deliver.

  • Ayush

    Hi,

    Thanks for raising the concerns…it really helps us in not getting carried away and making the quality better 🙂

    I did notice the notes in the last quarter but as the quantum was not mentioned in Dec results, I missed the same. Still the impact of the same would be about 35% on the reported half year profits and not 70%. Full year profits would still be about 25 Cr+, resulting into a good EPS.

    Yeah, I had read the report mentioned…it gives very good insights. We are positive on smaller players as may be they are undiscovered by the markets and trading at cheaper valuations + they are expanding faster.

    Haven’t been able to interact with the management. Trying to do the same…will update when done.

    Thanks & Regards,

  • Prabhat Anantharaman

    Hi Ayush,

    What is your take on the management? Kindly share some views on this

    • Ayush

      Hi,

      The quality of mgmt seems to be average.

  • Jerry

    ayush,

    can we enter into pondy oxides and piccadilly agro at cmp?both seems cheap???

    • Ayush

      Both the cos do seem to have value. Once may do buying in 2-3 phases

  • Yarlayt

    whts urs LT tgt in LP , can we enter @cmp:disqus
    thanks

    • Ayush

      If the co is able to maintain the profits, the stock can be in the 125-150 range over the medium term.

  • Vivek Gautam

    Ayush,

    Has LPL any plans of entering into Hotel business as a resolution was passed to this effect which may be Diworsefication?

    Its a cyclical stock n with now Zuari,RCF<Coromondel n others entering onto SSP sector when wud the downcycle start?Any USP for this co like access to RM etc specially due to 30 year old connect IN middleast n africa to RM?

    • Ayush

      Hi Vivek,

      Thanks for pointing towards the resolution…had missed the same. Yeah, its a sort of cyclical but as of the now the SSP sector is doing pretty well and this one seems to be trading cheaply.

  • Vivek Gautam

    Has LPL taken in its books the hit due to subsidy rule change by GOI like Jubilant Ind n Rama Phosphate? How genuine are the numbers of LPL as one of my friennd is saying that both cash n outstandings are increasing in books?WHo r the holders of nearly 17% public satke ?r they the NRI associates of the promoters n does it implies that the promoter stake is nearly 70 %?

    Spoke to PDIL people who audit all the SSP cos.They r postive on the future of all SSP makers.

    • Ayush

      Hi Vivek,

      Thanks for the update. No, LPL hasn’t considered the subsidy impact on the opening balance of raw material and are contesting the same. Recently I also noticed that Jubilant has already considered the same and may be LPL will also have to provide for the same.

      The 17% stake in the public category does seem to be of related party.

      The good thing for LPL could be the series of expansion it has undertaken for the coming year.

  • SSP-Interested

    Hello Ayush,

    Did you get a chance to talk to the promoters. There seems to be transfer of shares through open market from the NRI’s to the promoter account – This is an immaterial issue – overall makes no difference.

    On the way the company is accounting for the subsidy – this is a real cause of concern. It is almost like books being cooked. will appreciate your help in reaching out to the promoters/Company Sec.
    SSP-Interested

    • Ayush

      Hi,

      Haven’t been able to speak to the promoters. Apart from t/f of shares between promoters, the promoters have also been buying from open market.

      Yes, the subsidy accounted on the opening balance of raw material is a bit concerning.

  • Vivek Gautam

    Prabhudas Lilladher has come with its quarterly earning estimates on agri products & chemicals sector for March 2012. In India, fertilizer sales volume has shown growth of mere 0.3% YoY on account of 3.5% YoY decline in non-urea fertilizers volume during Apr11-Feb12. Non-urea (manufactured) fertilizers, excluding Single super phosphate (SSP), de-grew by 8.7% YoY and the imported/traded non-urea fertilizers dropped by 5.6% YoY during the sameperiod.
    On the other hand, urea sales volume, which has partially offset the decline of non-urea fertilisers, grew by 4.1% YoY during Apr11-Feb12 v/s 7.1% during FY11. SSP has shown tremendous growth of 37.1% YoY during Apr11-Feb12.
    In India, we believe that agri inputs players could show sustainable steady growth on the back of government`s focus on rising agricultural productivity. Hence, we are positive on agri inputs like fertilizers, seeds, crop protection and industry.
    We expect that growth of agri output (like rice, sugar etc.) players would depend on commodity cycle. Further, government`s focus on higher MSP on farm produce to incentivize farmers and final commodity price control on the back of inflationary scenario is expected to add pressure on the profitability of domestic agri output players.

    • Ayush

      Wow…35%+ volume growth is pretty good. Thanks for sharing the details.

  • Hardtoget
  • Vivekgautam3

    hOW WERE THE LATEST RESULTS aYUSH? ANY ANALYSIS ?

    • Ayush

      The latest results were fantastic…we have increased our exposure post the results.

      • Vivekgautam3

        Some more detailed analaysis please.also any other top picks at current price.also any views on rec,oil,ongc,Eil,nhpc.Vivek gautam

        • Ayush

          Will try to do a post soon. Sorry don’t track the rest of the cos closely

      • Avinash

        Ayush,
        do you think the sector will face testing times due to RE depreciation as I read that company imports their raw materials which may impact the margins?

        • Ayush

          Yeah, rupee depreciation and reduction of subsidy for FY12-13 is a concern and perhaps this is why the stock hasn’t been rewarded by the markets till now

  • Biggainz

    any gyan on BASANT AGROTECH RS 4.5

    • Ayush

      We don’t track the same

  • Pingback: Brief updates of Financial Results 2012()

  • SSP-Interested

    Dear Ayush,

    Any views on this stock at a all time high of 90 rupees? Do you think it is time to book profits for this? I am still very skeptical about the way things are going in the company. The dividend announcement was a good one – Hope to see a generous dividend from the promoters.

    Also wanted to get your inputs on the debt and cash flow of the company. Please do update when you get a chance.

    regards,
    – SSP-Interested

    • Ayush

      Hi,

      Yes, the stock has done well and our interest was due to the excellent nos and hence the valuation mismatch. As the stock has just made a new high, may be the momentum will continue.

      We are also waiting for the dividend announcement and the balance sheet for more clarity.

  • mathewg

    Ayush, Do you track LGS Global, Dynamatic Tech or Zee Learn…

    • Ayush

      We don’t track the same

  • guest

    aysush, any updates on the latest results of LPL? vivek gautam

    • Ayush

      Hi, the company has posted its audited results today…on the nos the things look ok but the concern is on the mgmt quality side.

      It would had been better if the company had paid higher dividend.

  • guest

    any updates on latest results?

  • vikas

    Ayush ji , any reason Liberty has fallen from 97 to 75, any negatives in results or some reason being, if aware pl share

    • Ayush

      Hi,

      The feedback hasn’t been good on the quality of promoters. Hence we are also cautious now. Awaiting more details/clarity.

  • kushal dalal

    Ayush,

    Any update on Liberty as it almost came back to your recommended price.
    I initially bought it and then book profit at higher level.
    Can i re-enter or as you have mentioned the feedback of promoter hasn’t been good so stay away?

    • Ayush

      It does seem to have value at these prices one may take some exposure.

      Yes, feedback on mgmt hasn’t been good and hence we are cautious.

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