Mangalore Chemical–CMP 32

crops in rows

We had discussed about Mangalore Chemicals at our blog about in December, 2010 @ 37. Our interest was due to good results in first half and expectation of better times ahead. After a weak quarter of March (due to annual closedown and higher depreciation on impairment), the company has posted good set of results for June Quarter:

Particulars June 11 June 10 % Variation FY 2011
Sales 583.45 489.29 19.2% 2520.11
PBIDT 43.73 26.85 62.9% 159.07
Tax 2.75 6.23 -55.9% 34.51
PAT 29.70 12.54 136.8% 77.54
EPS 2.51 1.06   6.54

If one looks at the whole fertilizer sector, there is a lot of interest in these stocks as major reforms are expected. Agri related sector is doing well and with upcoming reform, investments should increase and better results should be seen.

We feel that Mangalore Chemical is one of the cheapest stock in the sector and stock at CMP of 32 provides a very favorable risk reward ratio due to strong fundamentals:

  • Stock is trading at 5 times FY 2011 EPS of 6.5. For FY 2012, the company may do better than last year.
  • Company has a good Book Value of 33. Stock is trading at less than Book Value.
  • Co has raised dividend from 10% last year to 12% in FY 2011.
  • Mangalore Chemicals is part of the Vijaya Mallaya group and M Cap of the company is just about 380 Cr.

Mangalore Chemicals & Fertilizers

MCF (Mangalore Chemicals & Fertilizers) is the largest manufacturer of chemical fertilizers in the state of Karnataka. MCF is part of the UB group and Dr. Vijay Mallya is the chairman of the company.

MCF has been a steady performer over the last few years and has been growing regularly at about 20% with stable margins.

The fertilizer sector as such is not a very attractive sector for investors as there are lots of Government policy influences and hence the returns are very much capped in this sector. But over last one year, the government has been bringing some changes and making better policies. There is also a small probability of Govt. decontrolling the urea sector.

What has aroused our interest in this stock? – the attractive valuations at which the company is available and the spectacular Q2 result by the company (though it may be a one time thing also).

Attractive Valuations (CMP 37):

  • Stock is trading at just 5 PE based on trailing twelve month results
  • Stock is available at 1.2 times FY 2010 BV and at equal to BV on expected FY 2011 results.

Stellar Q2 results:


IF the first 6 months of performance gets repeated, the stock will give excellent returns but a repeat of Q2 might not happen. A more likely scenario is – MCF might end up doing 2900-3000 Cr+ turnover with a Net Profit in the range of 75-85 Cr for FY 2011.

The interest cost have also reduced significantly and hence the company is in a very stable financial position. There is also is a possibility of the UB group selling out to a more serious player and may help in unlocking of the under-valuation.

In all, it seems to be a good low risk stock with high probability of better times ahead.

Financial Statements:

Company Website | Get the Company’s Annual Report @