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.
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.