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S P I C
Our verdict on S P I C isn’t the consensus take — see where we landed, and the one risk the bull case glosses over.
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The cost advantage is expanding as the company successfully transitioned to a gas-based unit, qualifying for higher fiscal incentives. Energy efficiency improved to 6.176 Gcal/MT. (1 expanding)
“The Company has become a gas-based Urea manufacturing unit since 13th March 2021 and is therefore eligible for higher fiscal incentives in the form of subsidy income due to higher energy norms... The Company has been included in the Gas Pool with effect from 1st May 2024 considering the Company has fully moved to Gas based manufacturing.”
The company successfully completed its transition to a 100% natural gas-based feedstock model by the end of the financial year, which is expected to improve energy efficiency and subsidy eligibility. (1 expanding)
“the plant was modified to be 100% natural gas based and subsequently it was commissioned during the end of the financial year.”
The distribution moat remains strong and stable, with the company maintaining its role as Lead Fertilizer Supplier and managing a vast network of ePOS devices and Samridhi Kendras. (2 stable)
“Your Company is the Lead Fertilizer Supplier (LFS) for Tamil Nadu and Puducherry... There are 12,673 numbers of ePOS devices deployed... Your Company established 2,473 numbers of PMKSK spread across Tamil Nadu, Puducherry, Kerala, Karnataka, Andhra Pradesh, Telangana & Maharashtra.”
The company remains 100% focused on the Indian domestic market, specifically serving 6 states and 1 union territory in South and West India. (1 stable across 1 engine)
“Other operating revenues (Refer Note 23 (ii) below) 10.43 [for Year ended 31 March 2024]”
Other operating revenues, including facility sharing and scrap sales, remained a minor part of the business and saw a slight contraction of 5.9% compared to the previous year. (1 contracting, 1 expanding)
“Other operating revenues (Refer Note 23 (ii) below) 955.33 [vs] 1015.83”
See the full cited Business Model analysis of S P I C
What could break the thesis?
Subsidy dependence remains high, accounting for approximately 80% of total revenue (Rs. 2,296.61 Crores out of Rs. 2,828.82 Crores). The risk is stable as the final retention price for the New Urea Policy is still pending government notification. (2 stable, 1 high-severity)
“The Company has recognised subsidy income of `. 1,933.43 Crores for the year ended March 31, 2024. The Company recognises concession (subsidy) income receivable in accordance with the New Pricing Scheme for Urea from the Department of Fertilizers, Government of India.”
The risk is easing as operations recommenced on March 18, 2024, and the company has recognized substantial insurance claims to recover losses. (1 easing, 1 high-severity)
“During the financial year 2023-24, the Plants were in operation for about 260 days only... Re-assessed Capacity of 6,20,400 MT production could not be achieved due to frequent disturbance in plant machineries and heavy flood because of Michaung cyclone.”
The risk is intensifying. TPL's major product (LAB) saw reduced contributions due to the expiry of anti-dumping duties on imports from China, Iran, and Qatar in April 2022. (3 intensifying, 1 easing, 1 stable, 2 high-severity)
“The District Collector, Tuticorin vide his letter dated, 21 August 2009 had demanded ₹ 168.74 Crore... towards lease rent for the utilization of 415.19 acres of sand quarry poramboke lands... In September 2023, Single bench at Madras High Court had directed the Company... to pay ₹168.74 Crores.”
The risk is intensifying as the company has fully transitioned to Natural Gas (NG) as its primary feedstock. While more efficient, it increases sensitivity to global gas price volatility. (1 intensifying, 1 stable)
“The Company’s operating activities require the ongoing purchase of natural gas and reliquified natural gas. Prices are subject to price fluctuations on account of the change in the demand supply pattern.”
This is an emerging risk. While Nano Urea has been introduced, it currently lacks farmer momentum due to nutrient instability and high application costs. (2 emerging)
“The introduction and promotion of Nano Urea by IFFCO is getting momentum in the market... It is expected that Nano Urea will take a small share of urea used for top dressing.”
See the full cited Risk analysis of S P I C
Read the full thesis on S P I C
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