DEEPAK FERTILISERS- New TAN capacity lends strong earnings visibility:: Edelweiss,

Visit http://indiaer.blogspot.com/ for complete details �� ��


DEEPAK FERTILISERS AND PETROCHEMICALS
New TAN capacity lends strong earnings visibility



􀂄 Net revenue and profit in line with estimates
Deepak Fertilisers and Petrochemicals Corporation (DFPCL) posted standalone
revenue growth of 15.7% to INR 4,108 mn and EBIDTA growth of 6.2% Y-o-Y in
Q2FY11. Net profit came at INR 414 mn, up 14.2% Y-o-Y. DFPCL has taken a
one-time hit of INR 33.5 mn in fertiliser segment towards prior period subsidy
settlement. Adjusted for this, PAT was at INR 448 mn. EBIDTA margin has been a
negative surprise in Q2FY11, which stood at 18.7% i.e., down 160bps Y-o-Y.
EBITDA margin in Q2FY11 was lower predominantly due to
• Lower realisation of iso propyl alcohol (IPA)
• Higher cost of raw materials – propylene and natural gas
• Unscheduled shut down of fertiliser and IPA plant for few days
• Higher volume of lower margin traded fertilisers
EBITDA margin to improve in H2FY11 vis-à-vis Q2FY11 on account of
• Higher contribution from TAN and manufactured fertilisers
• Improvement in IPA realisation
􀂄 New TAN plant completed on schedule; trial production in progress
The new 300,000 MT per annum TAN plant has been completed on schedule at an
estimated cost of INR 6,550 mn. Currently, trial production is in progress and
commercial production is expected to start in November 2010. Management has
guided for production of ~60,000 MT in FY11 and ~210,000 MT in FY12 from the
new plant. Management stated that the company has received firm enquiries for
export orders of ~100,000 MT for CY11.
􀂄 Outlook and valuations: New TAN plant to boost earnings; maintain ‘BUY’
With the new TAN plant getting commissioned on schedule and strong outlook on
own manufactured fertiliser volumes, we have revised upwards revenue estimates
for FY11 and FY12 by 3.4% and 2.0%, respectively, and EPS estimates by ~8%
and ~6%, respectively. Currently, DFPCL is available at 8.6x and 6.9x
consolidated P/E and at 5.7x and 4.2x consolidated EV/EBITDA of FY11E and
FY12E, respectively. We maintain ‘BUY’ recommendation on the stock, with an
increased target price of INR 220 per share based on 5x FY12E EV/EBIDTA.