>DEEPAK FERTILISERS & PETROCHEMICAL CORP. LTD. (PINC RESEARCH)

Deepak Fertilisers & Petrochemicals Corporation Ltd. (DFPCL) posted a 1.2%YoY de-growth in sales to Rs3.3bn in Q4FY09 against our estimate of Rs3.2bn. OPM expanded by 152bps to 20.4% driven by fall in operating expenses. With higher other income (+155%) and lower effective tax rate, net profit grew by 26.5% to Rs396mn against our estimate of Rs258mn.

■ OPM expands on lower trading volume
Declined in traded goods by ~25% YoY to Rs0.9bn and decrease in cost of other expenses to net sales by 167bps led OPM to increase by 152bps to 20.4%.

■ Ishanya getting firm
Ishanya mall is making its mark in the interiors and exteriors in western Maharashtra. It registered over 1.3mn footfalls with conversion rate of ~35%.

■ Availability of gas to boost performance
DFPCL has begun purchase of consignments of LNG through GAIL pipeline (Dahej-Uran). Once regular gas supply starts from KG basin, company will be able to increase its capacity utilisation and eventualy profitability will improve.

■ Projects / New initiatives
DFPCL augmented its technical Ammonium Nitrate capacity to 132k MT from 90k MT p.a. in FY09. It further plans to raise its capacity of Ammonium Nitrate by 300k MT p.a.at Taloja plant with a capex of Rs6bn, which is expected by Oct’10. Commissioning of Bentonite Sulfur plant (25k MT p.a.) at Taloja and Ammonia tank (15k MT) at JNPT is over and now company should be able to limit its exposure to highly volatile ammonia prices. Nitric acid facility with 450 MT p.d. should be commissioned by H1FY10 which will make DFPCL among the largest producer of Nitric acid in Asia.

VALUATIONS AND RECOMMENDATION
At the CMP of Rs86, DFPCL is trading at a P/E of 6.2x and EV/ EBITDA of 3.5x FY10E. Favourable fertiliser policy & expected increase in availability of gas post RIL KG basin development, augurs well for DFPCL. We maintain our ‘BUY’ recommendation with a target price of Rs98, which implies a P/E of 7x FY10 earnings that is less than 5years historical median P/E of 7.4x.


To see full report: DEEPAK FERTILISERS & PETROCHEMICAL CORP. LTD.