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GNFC in a sweet spot after anti-dumping duty recommendation

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ET INTELLIGENCE GROUP: The Directorate General of Trade Remedies (DGTR) has recommended imposing anti-dumping duty on imported toluene diisocyanate (TDI), a specialty chemical, from several countries including China. If implemented by the government, it will benefit Gujarat Narmada Valley Fertilizer and Chemicals (GNFC), which is the largest producer of TDI in India. GNFC’s stock gained over 2 per cent on Monday amid a volatile broader market.

TDI is used in the production of flexible foam applications including bedding, furniture, car seats and packaging. TDI price in the domestic market has risen by over 50 per cent in the past few weeks due to several outages in the US and Europe. According to reports, nearly 30 per cent of the supply in Europe is missing. As a result, the TDI price trend has reversed after consistently falling for over a year. TDI is currently quoted at Rs 175 per kg compared with Rs 118 per kg in August. A possible anti-dumping duty may offer GNFC more room to raise prices in the domestic market.

GNFC has two TDI plants with a total capacity of 64,000 million tonnes per annum (MTPA). At one of the plants with 14,000 MTPA capacity, the current capacity utilisation is nearly 140 per cent while it is 81 per cent at the other plant with 50,000 MTPA capacity. The only other company producing the chemical in India is BASF with a capacity of 7,500 MTPA. In addition, BASF also imports the chemical.

In the first six months of the calendar year 2020, the company reported a net loss of Rs 65 crore in the chemical segment on revenue of Rs 882 crore, of which TDI was the largest contributor. In the previous cycle between FY16 and FY18 when TDI prices rose from Rs 110 per kg to over Rs 300 per kg, GNFC’s net profit rose to Rs 789 crore from Rs 172 crore. In FY20, net profit was Rs 498 crore.

The benefit of the latest rise in TDI price along with any benefit from the anti-dumping decision may be visible from the December quarter. The company’s other major business of fertilizers, which contributes nearly half to the revenue, is also expected to fare well due to the upbeat trend in the rural economy and higher sowing area following a normal monsoon season. At Monday’s closing price of Rs 213.1, the stock was traded at a trailing price-earnings multiple of 6.6.

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