Chambal Fertilisers

Investment case

10x P/E urea + TAN

Why this business

Chambal Fertilisers (K.K. Birla group) is India's largest private-sector urea producer with three gas-based plants at Gadepan, Rajasthan, and also trades/markets DAP, MOP and complex fertilisers plus a fast-growing crop-protection, specialty-nutrient, seeds and biologicals business (17 launches in FY26, 3 mn acres under biologicals). It commissioned a Rs 1,645 cr, 2.4 lakh tpa Technical Ammonium Nitrate plant (with 2.1 lakh tpa weak nitric acid) on 20-Aug-2026 using surplus ammonia, entering the mining-explosives market.

What we believe

1. 01Cheapest quality name in the portfolio: 8.7x TTM / 9.6x FY27e / 8.7x FY28e PE, 2.6% dividend yield, ROE 20.8% and ROCE 25.4% (FY26), near-net-cash balance sheet (borrowings Rs 1,068 cr vs equity Rs 10,408 cr).
2. 02Earnings have been resilient through the gas shock: FY26 PAT Rs 1,953 cr (+18%), Q1FY27 EBITDA Rs 826 cr (+9% YoY) with margin up to 16.4% even as revenue fell 12%.
3. 03New non-subsidy earnings stream: 2.4 lakh tpa TAN plant (Rs 1,645 cr capex, Casale technology, L&T EPC) began commercial production 20-Aug-2026, described as high-margin and import-substituting for mining explosives.
4. 04Non-urea growth engines: complex-fertiliser EBIT +67% and crop-protection/specialty EBIT +13% in Q1FY27; biologicals revenue +57% in FY26; 15 more launches planned for FY27.
5. 05Policy tailwind: government kept the FY27 urea subsidy at Rs 1.168 lakh crore and is discussing a new urea investment policy supportive of brownfield expansion by efficient producers like Chambal.

Why now

8.7x TTM PE and 1.6x P/B (price 418 / BV 260) with 20% ROE and 25% ROCE; stock is down ~24% over one year (screener) despite FY26 PAT +18% - de-rated on Hormuz gas/subsidy fears; 10-yr profit CAGR 22%. EV/EBITDA n.m.; dividend yield 2.6%.

Market disagreement

• Coromandel International: Coromandel trades at 31.3x TTM PE / 4.7x P/B with ROE 16% and Q1FY27 PAT -24% on DAP import-cost pressure; Chambal at 8.7x / 1.6x with 20% ROE is a much cheaper way to own fertiliser + crop-protection.
• GNFC: GNFC is similarly cheap (8.5x, 0.96x P/B, 3.5% yield) but ROE is only 9% and it took a 60%-of-contract gas cut during the Hormuz crisis; Chambal's 20% ROE, TAN upside and private-sector execution justify the small premium.
• National Fertilizers (NFL): NFL is a PSU with 7.5% ROE, Rs 3,964 cr debt, FY26 PAT of only Rs 211 cr on Rs 21,519 cr revenue and Q1FY27 sales -21%; Chambal earns ~9x NFL's profit on similar revenue.

Position sizing

Cyclical Small cap  0.9% of the PMS on $31 Jul 2026 (August rank not in top 30). Satellite positions are owned for an asymmetry, sized up when the cycle rewards risk and reduced when it does not.

Catalysts

• TAN plant commercial production started 20-Aug-2026 - first full-quarter contribution in Q3FY27 (Jan-2027 results).
• Q2FY27 results (late Oct-2026) showing urea volume normalisation as gas allocation recovered to 76% of requirement and kharif demand.
• Government notification of the new urea investment policy / any hike in NBS rates for rabi 2026-27 (Oct-2026), and Hormuz de-escalation lowering LNG costs.

Risks and response

• Gas availability/price: Chambal's Gadepan plants run on RLNG; renewed Hormuz disruption or spot LNG spikes cut urea volumes (Q1FY27 urea revenue Rs 2,860 cr 'despite production challenges') and energy-norm reimbursement lags.
• Subsidy/working-capital risk: FY27 subsidy budget (Rs 1.71 lakh cr) is well below likely outgo (Rs 2 lakh cr+), risking delayed payments; screener shows debtor days up from 16 to 36.
• Traded-fertiliser (DAP/MOP) margins depend on government NBS rates vs import cost (DAP import dependence ~50%); TAN ramp-up and explosives-market pricing are unproven.

Thesis-break conditions

Not stated separately on this page; the risk list carries the monitoring triggers.

Review history

• 8 Sep 2026 · Yash Palod · one-pager in "Why We Own What We Own" (p65) · portfolio as of $31 Jul 2026
• 31 Aug 2026 · Classification in the August top-30: —

Source: Buoyant_Why_We_Own_What_We_Own_Sep2026.pdf (portfolio as of 31 July 2026), p65. Internal; external publication of these fields is controlled by audience policy.