>Deepak Fertilisers & Petrochemicals Corporation

Beats estimate, cost pressure continues…


􀂄 Better‐than‐expected quarter: Deepak Fertilizer and Petrochemicals’ (DFPC’s) net sales grew by 33.8% YoY to Rs6,341m (PLe: Rs4,839m). Higher fertiliser trading sales resulted in better-than-anticipated Q1FY13 sales. Chemicals and Fertiliser volumes grew by 9.6% and 2.2% YoY, respectively. Complex fertiliser volumes de-grew by 6.5% YoY on account of liquidation of inventory as industry had pushed the same during Q4FY12. DFPC’s EBITDA de-grew by 9.5% to Rs1,022m (PLe: Rs966m). EBITDA margins have fallen by 770bps YoY (up 320bps QoQ) to 16.1% mainly due to higher input cost (ammonia and propylene) in the chemical segment. Further, higher contribution of fertiliser trading business (low
margin business) has resulted in lower EBIT margin in the fertiliser business. We believe that the rupee depreciation has also impacted the same. Chemical segment’s EBIT margin has came down by 800bps YoY to 20.4% (up 410bps QoQ). Finance cost is up by 109.6% YoY to Rs266m (up 9.0% QoQ) due to an increase in working capital with the delayed receipt of government subsidy and full capitalization of new TAN plant. Adjusted PAT de-grew by 28.8% YoY to Rs455m (PLe: Rs389m).


􀂄 Key Highlights: Management believes that global ammonia prices would ease from H2FY13 which would consequently ease the stress on company margins, going forward. Company is steadily ramping up the capacity utilization at the new TAN plant and is expected to produce 2L MT (~70% utilization level).


􀂄 Maintain ‘Accumulate’: During FY04-12, stock traded in the P/E band between 4x-7x. We maintain our “Accumulate” rating on the stock, with the target price of Rs148 (i.e.6xFY13E). Stock has dividend yield of 4.2% at CMP. We believe that cost pressures will continue in the next couple of quarters and further, issue of KG basin gas allocation to P&K producers would be a near-term risk to the stock.

RISH TRADER