Accumulate Madras Fertilisers stock in small lots for solid gains

Madras Fertilisers Ltd is in the business of manufacturing urea, ammonia, complex fertilisers and bio fertilisers at its facilities in Manali, Chennai. Madras Fertilisers Ltd was set up in the year 1966 as a joint venture between the Government of India and AMOCO India Inc of USA in the equity contribution ratio of 51:49% respectively. Subsequently in 1972, National Iranian Oil Co (NIOC), which is an undertaking of the Government of Iran acquired 50% of the shareholding of AMOCO in Madras Fertilisers Ltd. With this acquisition the shareholding of AMOCO and NIOC stood at 24.5% each while the Government of India held the balance 51% stake. Subsequently, in the year 1985, the shareholding of AMOCO was proportionately purchased by Government of India and NIOC. As a result of this transaction, the Government of India and NIOC shareholding was revised to 67.55% and 32.45% respectively. In 1984, the company came with a rights issue of equity shares and the shareholding of Madras Fertilisers became 69.78% and 30.22% respectively. The company’s performance during the last three year period has not been anything great as it did not post any growth at all. But the last two quarter performance of the company has been totally exceptional and has propelled the stock price to its life-time high of Rs 96. But analysts are not sure of its future potential of improvement in earnings and could turn out to be a one quarter wonder. Analysts are debating whether Madras Fertilisers is a good buy at the current level of Rs 60 as it is trading at a hugely low price to earnings ratio level of 4 times compared to the industry aggregate of around 14. From an intrinsic value point of view, research analysts feel that Madras Fertilisers seems undervalued. Investors can accumulate the stock in small lots for solid gains from a medium term investment point of view.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.