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Lower traded fertiliser volume drives EBITDA 

Revenue drop led by gas costs and lower traded volumes

Chambal Fertilisers (CHMB IN) reported mixed Q3, with EBITDA at INR 6.3mn (down 6% YoY), lower than INR 6.9bn estimated. But PAT at INR 4.6bn (up 42% YoY) was in-line due to higher-than-expected share of profit from JV (at INR 558mn versus expectations of INR 100mn). Topline declined 48% to INR 43bn due to 23% reduction in gas price and 77% reduction in traded fertilizer volume to 118,000 tonnes. CPC sales grew 7% YoY in a tough environment.    

Subsidy levels to decide traded fertilizer volume

The management indicated in the conference call that traded fertilizer business managed to break-even in Q3 despite steep reduction in subsidy. Revision in Nutrient based subsidy (NBS) is on the anvil but till the time subsidy is not raised, sale of Di-ammonium Phosphate (DAP) by the industry is unviable. Volume for the traded fertilizer business hereon may be strategic depending on the prevailing subsidy rates. Other factors such as portfolio approach and keeping the channel satisfied may also be considered before budgeting on traded fertilizer volume.

Valuation: Downgrade to Reduce with a higher TP of INR 345

CHMB is evaluating its entry into Nitric acid value chain post completion of the Technical Ammonium Nitrate project. The will trim concerns on capital allocation. Till the TAN plant starts in H2FY26, profitability may be led by energy efficiency projects and growth in crop protection.

Profitability trajectory of the traded fertilizer business is hinged on the prevailing NBS subsidy mechanism. We up our EBITDA/PAT estimates by 5%/8% for FY24E on better-than-expected profitability in traded fertilizer business and by 2.5%/10% for FY25E on better profitability from Urea business. Downgrade to Reduce from Accumulate due to 23% run up in stock price in the last 3 months with a higher TP of INR 345 from INR 314 on 10x FY25E EPS of INR 34.5.

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