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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.
See the verdict — free →How durable is the business?
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.”
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.”
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