We had recommended Liberty Phosphate on 29th March, 2012 at Rs 64. The stock has more than doubled and created a new all time high @ 160 today. The stock has closed at about 148 today and we recommend an exit from the stock.
Though the stock may seem cheap but there are several negatives/limitations:
- The industry is highly dependent on Government policies. Any change can lead to significant change in prospects in a very short term.
- The SSP industry though doing well as of now but its highly competitive. There are hardly any entry barriers and hence over a longer term, the margins should moderate.
- The company’s equity has increased in past and the promoters had increased their holding at very cheap prices by doing preferential allotments to themselves. This is negative for minority shareholders.
We feel there are several better ideas we are invested in for long term compounding. One may switch to GRP, Smruthi, Sree Rayalseema Hypo, Narmada Gelatine, Sree Sakthi Paper, Sahyadri etc.
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?
Continue reading Liberty Phosphate Ltd.