Additional leverage is a readily available option, as the company is underleveraged, going by the standards in the fertiliser industry. Its present debt-equity ratio is 0.89:1. Even if the debt-equity ratio is stretched to 2:1, it would make at least 70 per cent of the resources available without increasing the financial risk of the company too much. Going by its recent financial performance, generating large amounts of cash internally also will not be a problem. But the funding problems will compound if one takes into consideration the proposed PET project, and the much-needed expansions and upgradation of its various downstream capacities, such as weak nitric acid, concentrated nitric acid, acetic acid and the ammonia plant upgradation, which will cumulatively require an additional outlay of Rs 120-150 crore.

At the same time, the company has large investments in its subsidiary and other companies. For example, its subsidary Narmada Chematur Petrochemicals Ltd, which has turned profitable, hasoutstanding advances from GNFC to the tune of Rs 47 crore (in addition, GNFC has made equity investments of Rs 69.5 crore in this company). In Gujarat Narmada Auto Ltd (the failed scooter venture), GNFC still has outstanding loans worth Rs 40.5 crore, which the management is hopeful of recovering, though the company has been in the process of liquidation for sometime now. In addition, it has invested Rs 100 crore in US 64 and other mutual-fund schemes. The company has an investment portfolio of Rs 234 crore (at book value) and total loans made to various companies amount to Rs 113 crore. These investments together have managed to provide a return on investment of just 7.5 per cent. Considering that these investments comprise almost 22 per cent of the total assets, the overall return on investments come to just 9.7 per cent, making a strong case for disposal of these surplus assets. Though the eventual fate of these investments (whether or not the company will be allowed to dispose of such assets) is as yetunknown, the successful liquidation or reversal of these investments and assorted advances will certainly strengthen its financial position.

Its main fertilisers business has put in better performances in the last year, and the potential for improvement remains, especially as the threat of reduction of subsidies on urea have disappeared for the foreseeable future, given the last budgetary fiasco over fertiliser pricing. Fertiliser sales contribute to almost half the revenues of GNFC, with another one third coming from the sale of downstream products and by-products like nitric acid, methanol and acetic acid. The elimination of uncertainty over urea subsidies and consequently the pattern of pricing and subsequent demand will hasten the process of investment in fertiliser projects rather than on diversifications, which should improve its profitability and the returns on investment.

The GNFC stock has been reflecting the negative sentiment affecting the fertiliser sector as a whole. The stock at present hasrisen a little, after testing its all-time (13-year) low of Rs 16.75. But despite the extreme valuations, the stock trades at a steep discount to its book value of Rs 49 and offers an equity yield of 13 per cent.