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We hosted Deepak Fertiliser’s Q4FY12 conference call to
discuss the results as well as overall business scenario. Here
are the key takeaways-
§ Chemical segment margins impacted in Q4 due to ammonia plant shutdown-
Deepak reported chemical margins of 16.3% in Q4FY12 (-1260bps yoy/ -770bps
qoq). Margins were negatively impacted during the quarter due to ammonia plant
shutdown for 2 weeks forcing the company to source ammonia from outside.
§ Though TAN margins were reasonably healthy, IPA margins suffered due to
increase in propylene costs- Deepak maintained margins of 22-23% in Technical
Ammonium Nitrate (TAN). However, Isopropyl Alcohol (IPA) margins suffered due to
increase in its raw material, propylene, costs. While Q4FY12 average prices for IPA
stood at Rs 71,000/mt propylene prices stood at Rs 61,000/mt.
§ Deepak expects to clock margins of 20%+ in chemicals segment- Management
expects chemical segment margins to be >20% in FY13 as TAN margins remain
stable at 22-23%. IPA margins are expected to be around 15% as company has
recently undertaken price hikes (to pass on higher raw material costs as well as
rupee depreciation since IPA is Import Parity Price linked). Further, with product mix
shifting towards higher proportion of TAN in FY13, margins are likely to be >20%.
§ TAN volumes for FY13 expected to be around 300,000mt- While Deepak sold
203,000mt of TAN in FY12, management expects TAN volumes to be around
300,000mt for FY13 implying capacity utilization of 70%.TAN demand suffered in
FY12 due to sluggish mining activities however things have improved in Q1FY13.
IPA demand is also expected to be stable in FY13.
§ New TAN plant had margins of 18% while old plant operated at 25% in FY12-
While Deepak’s new TAN plant clocked margins of 18% in FY12, old plant operated
at margins of 25%.
§ Fertiliser witnesses sluggish offtake in Q1FY13- Though companies have been
able to successfully clear complex fertiliser inventory in Q4FY12 at the expense of
higher discounts and increased credit period, however increased inventory at
dealers/retailers level, is likely to result in lower offtake of complex fertilizers in
Q1FY13.
§ Subsidy receivables to be cleared soon- At the end of Q4FY12, Deepak had
subsidy receivable to the tune of Rs 2.2bn compared to subsidy receivable of Rs
600mn at end of Q4FY11. However, Deepak has recently received Rs 500mn and
expects to further receive substantial amount within 15 days.
§ Phos acid contracts likely to be in the range of $850-$900/mt- Deepak is still in
the negotiation phase for phos acid contract and expects to close the deal soon at
around $850 levels.
§ Fertiliser margins improve due to increased specialty fertilizer trading-
Deepak’s fertiliser margins have improved in FY12 due to higher proportion of
traded specialty fertilizers. While trading of bulk fertilizers carries margins of 3-4%,
specialty fertilizers trading margins are close to 15%.
§ NPK fertiliser capacity expansion to be funded primarily by debt- Deepak
announced the capacity expansion of its NPK grade complex fertilisers from
2,29,000 MT pa to 6,00,000 MT p.a. at a cost of Rs 3.6bn. This project will be
funded in the ratio of 2:1 debt equity and management expects Internal Rate of
Return (IRR) of 17% from this project. Meanwhile, the greenfield Bentonite Sulphur
project to be set up at a cost of Rs. 550 mn will be funded through internal accruals
and will have an IRR of 20%. Management is also actively looking for new
opportunities in chemicals segment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We hosted Deepak Fertiliser’s Q4FY12 conference call to
discuss the results as well as overall business scenario. Here
are the key takeaways-
§ Chemical segment margins impacted in Q4 due to ammonia plant shutdown-
Deepak reported chemical margins of 16.3% in Q4FY12 (-1260bps yoy/ -770bps
qoq). Margins were negatively impacted during the quarter due to ammonia plant
shutdown for 2 weeks forcing the company to source ammonia from outside.
§ Though TAN margins were reasonably healthy, IPA margins suffered due to
increase in propylene costs- Deepak maintained margins of 22-23% in Technical
Ammonium Nitrate (TAN). However, Isopropyl Alcohol (IPA) margins suffered due to
increase in its raw material, propylene, costs. While Q4FY12 average prices for IPA
stood at Rs 71,000/mt propylene prices stood at Rs 61,000/mt.
§ Deepak expects to clock margins of 20%+ in chemicals segment- Management
expects chemical segment margins to be >20% in FY13 as TAN margins remain
stable at 22-23%. IPA margins are expected to be around 15% as company has
recently undertaken price hikes (to pass on higher raw material costs as well as
rupee depreciation since IPA is Import Parity Price linked). Further, with product mix
shifting towards higher proportion of TAN in FY13, margins are likely to be >20%.
§ TAN volumes for FY13 expected to be around 300,000mt- While Deepak sold
203,000mt of TAN in FY12, management expects TAN volumes to be around
300,000mt for FY13 implying capacity utilization of 70%.TAN demand suffered in
FY12 due to sluggish mining activities however things have improved in Q1FY13.
IPA demand is also expected to be stable in FY13.
§ New TAN plant had margins of 18% while old plant operated at 25% in FY12-
While Deepak’s new TAN plant clocked margins of 18% in FY12, old plant operated
at margins of 25%.
§ Fertiliser witnesses sluggish offtake in Q1FY13- Though companies have been
able to successfully clear complex fertiliser inventory in Q4FY12 at the expense of
higher discounts and increased credit period, however increased inventory at
dealers/retailers level, is likely to result in lower offtake of complex fertilizers in
Q1FY13.
§ Subsidy receivables to be cleared soon- At the end of Q4FY12, Deepak had
subsidy receivable to the tune of Rs 2.2bn compared to subsidy receivable of Rs
600mn at end of Q4FY11. However, Deepak has recently received Rs 500mn and
expects to further receive substantial amount within 15 days.
§ Phos acid contracts likely to be in the range of $850-$900/mt- Deepak is still in
the negotiation phase for phos acid contract and expects to close the deal soon at
around $850 levels.
§ Fertiliser margins improve due to increased specialty fertilizer trading-
Deepak’s fertiliser margins have improved in FY12 due to higher proportion of
traded specialty fertilizers. While trading of bulk fertilizers carries margins of 3-4%,
specialty fertilizers trading margins are close to 15%.
§ NPK fertiliser capacity expansion to be funded primarily by debt- Deepak
announced the capacity expansion of its NPK grade complex fertilisers from
2,29,000 MT pa to 6,00,000 MT p.a. at a cost of Rs 3.6bn. This project will be
funded in the ratio of 2:1 debt equity and management expects Internal Rate of
Return (IRR) of 17% from this project. Meanwhile, the greenfield Bentonite Sulphur
project to be set up at a cost of Rs. 550 mn will be funded through internal accruals
and will have an IRR of 20%. Management is also actively looking for new
opportunities in chemicals segment.
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