CHAMBAL FERTILISERS:

India’s low per capita consumption of fertiliser, production deficit, and higher dependence on imports has meant continuous emphasis on agriculture to improve production and farm efficiencies benefitting players such as Chambal Fertilisers. The company is the largest private sector manufacturer of urea (fertiliser) having about 1,500 dealers and 20,000 retail outlets spread in over ten states. Besides fertilisers, the company also has presence in the areas of agri-inputs such as pesticides, micro nutrients, seeds and other imported fertilisers enabling diversification and capturing related opportunities in the sector.

Chambal has been benefiting out of its JV (holds 33.3 per cent stake) with IMACID and Tata Chemicals. This JV manufacturers phosphoric acid (raw material to produce diammonium phosphate or DAP) and has been a key beneficiary of high phosphoric acid prices. Although phosphoric acid prices, which had risen to over $1,400 and have now corrected to about $750-760 per tonne, they are relatively on the higher side.

On the urea front, the approval of new urea policy (in August 2008), where the prices for future expanded capacity has been partly de-controlled, should help companies like Chambal. The gains would accrue in the form of improving profitability and return on equity, through de-bottlenecking and expansion of capacities. On these lines, Chambal is debottlenecking its urea capacity of 1.72 million tonne by 140,000 tonne by April 2009. This, along with the availability of cheap feedstock would mean higher profits. The company has also signed a MoU with Reliance Industries for the supply of the gas from KG basin.

Though its fertiliser business remains on a strong footing in the near term, its other businesses (about 20 per cent of total revenues) —shipping and textile---could be the dampeners to its prospects. Overall, considering that Chambal is a leading player with sizable operation and presence across segments, it should emerge as a key beneficiary of the increased focus on agriculture in the long run.

HERO HONDA:

With 60 per cent of its sales coming from rural markets and given a favourable monsoon and higher MSPs, Hero Honda is likely to grow faster than its peers. Its rural focus, a majority of sales done on cash basis and good performance of its mainstays Splendor and Passion helped the company tot up sales of nearly 30 lakh (9.6 per cent growth) for the first 10 months of FY09. Despite their smaller base and higher export sales, Bajaj Auto and TVS Motors have recorded a decline of 10 per cent and 4 per cent respectively, yielding significant market share to the two-wheeler leader in the process. Given its pricing and the popularity of its bikes in the rural segment, the company may not fully pass on the benefits of lower raw material prices resulting in higher operating profit margins. Despite a dip in volumes (albeit marginally) in the December quarter, lower raw material costs, sales of premium bikes (Hunk, CBZ X-treme and Karizma) and tax breaks on its plant at Haridwar, has helped the company improve its EBIDTA and net margins on quarter-on-quarter as well as year-on-year basis.

 While the company’s rural focus will continue with Har Gaon, Har Aangan sales initiative, Hero Honda is also trying to expand its base in Tier-2 and Tier-3 cities by increasing its customer touch points to 3,500 from 3,000 currently. While it has outgunned its competition in every department and deserves a premium, the current price has already factored in these developments. Consider buying on dips.

 HINDUSTAN UNILEVER:

 There is little doubt that individuals in rural areas have deeper pockets these days. The changing consumption pattern led by rising aspirations and higher purchasing power means good growth potential for FMCG companies.

In addition, penetration levels of many FMCG products are less than half in rural areas as compared to urban markets, reflecting tremendous potential going ahead. However, companies which already have a major rural ba