GNFC gets demand notice from DoT

Gujarat Narmada Valley Fertilizers & Chemicals (GNFC) – the state owned fertiliser maker – has received a demand notice from the Department of Telecommunication (DoT) of Ministry of Communications for service dues worth over Rs 15,019.97 crore inclusive of interest for V-SAT & ISP licenses that the company held during financial years 2005-06 to 2018-19.

This notice is issued in the wake of Supreme Court’s October 24 judgment in favour of DoT which implied that telecom service providers, internet service providers (ISPs) and virtual network operators, among others, would now need to pay their dues basis a wider definition of adjusted gross revenue (AGR) including non-core items.

GNFC is currently examining the demand notice by DoT as well as the SC judgment and seeking legal advice on the same.

The company will decide the future course of actions in the subject matter based on the legal advice.

GNFC, a joint sector enterprise promoted by the government of Gujarat and GSFC, has witnessed a fast erosion in its market capitalisation as it continued to pass through tough times.

One of the main reasons was that its toluene di-isocyanate (TDI) plant at Dahej had seen cost and time overruns.

The TDI plant was made operational and the company became the only producer of TDI in India and South East Asia and the largest producer of formic acid, aniline, methanol and acetic acid.

About 65% of GNFC’s revenue came from chemicals, while 35% was from fertilizers.

GNFC also spearheaded Prime Minister Narendra Modi’s pet project of promoting Neem-coated urea across the country.

DoT’s demand notice will surely add stress on its finances which will reflect in its share price.

However we believe that this demand from Dot looks highly unrealistic as the quantum of this order is even more than its current net worth of Rs 5067 crs ad on Sept 2019.

Additionally Gnfc is still a low leverage company with hardly Rs 200 crs as short term debts but has cash equivalents to the tune of Rs 1166 crs as on Sept 2019

Hence until more clarity co rd in we expect the stock to remain a under performer in the next 6 months. More importantly markets are closely observing the price trends in TDI where prices are down by 40% from the peak levels.

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