Gujarat State Fertilisers & Chemicals Ltd (GSFC) was set up half a century ago to manufacture agricultural nutrients to enable farmers to shift to high yield products. Over the years it has widened its product range, enhanced its manufacturing, marketing and research and development processes to emerge as a leader in the field of fertilisers and industrial chemicals. GSFC is the largest manufacturer of caprolactam, which is a chemical input used for the manufacture of nylon fibre. Benzene is a key raw material used for the manufacture of caprolactam and any change in the price impacts the overall profitability of the company. The spreads between Benzene and caprolactam have doubled over the last few quarters on account of lower production in China and also due to the closure of FACT’s plant in India. Caprolactam prices are expected to remain firm for the next few years as no new capacities are likely to be added, plus several European companies including BASF have closed down their caprolactam facilities. The company has solid hidden wealth in its investment portfolio. The total value of its quoted investments stood at Rs 1,949 crore for March 2017 as against Rs 1,078 crore and Rs 482 crore as of March 2016 and March 2015, respectively, showing how it has wisely deployed its earnings. GSFC holds 3.08 crore shares of GNFC, which has risen from Rs 290 a year back to Rs 490 at present. Its investment of 16.55 crore shares in Gujarat Alkalies and Chemicals has grown tremendously, with the stock rising from Rs 400 to Rs 635 at present. Similarly, its holding of 93.83 crore shares in Gujarat Gas has also risen, with the stock price climbing by 15% in the last one year. Apart from these listed entities, GSFC also holds investment in other unlisted companies with a carrying cost of around Rs 525 crore. The company’s fertiliser division has also shown excellent volume growth and improved margins and should get a fresh impetus with the onset of a normal monsoon. On the other hand, its ammonia plant is expected to operate at full capacity levels up from 80% capacity utilisation a few quarters back, adding sufficiently to its bottom line. This should also help reduce the power cost due to additional steam generation. The GSFC stock definitely needs a fresh re-rating and valuation on the bourses on the back of many positives. Many analysts foresee an upside in the GSFC stock, recognising the inherent strength of its hidden investment portfolio, expected higher profitability and higher payout ratios in the near future. The GSFC stock currently trading at Rs 110 is not a short term investment buy or a trader bet, but a solid long term investment buy with its stock price expected to double in three years.

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