Deepak Fertilisers and Petrochemicals Corporation (DFPC IN, INR 130, Buy)
We recently visited the manufacturing facilities of Deepak Fertilisers and Petrochemicals Corporation (DFPCL) at Taloja (Maharashtra). Production ramp up at the new Technical Ammonium Nitrate (TAN) plant is underway at a brisk pace, which is currently running at a capacity utilisation of close to 50% (management has been guiding for FY13 exit capacity utilisation of ~75%); the older TAN facility continues to operate at 100% capacity utilisation. Its manufacturing facilities are well integrated to take advantage of most of the by-products and have minimal wastage. Over the years, the company had mastered the technology used for various products, which has substantially improved efficiencies. Maintain ‘BUY’.
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Strengthening leadership in chemicals and expanding in fertilisers
TAN plant: DFPCL has strengthened its leadership position by the recent addition of 300,000 MT/annum TAN capacity to its existing 132,000 MT/annum capacity at Taloja (total Indian market size of 650,000 MT). The new plant has been ramping up capacity utilisation at a steady pace. This plant comprises 100,000 MT HDAN capacity and 200,000 MT LDAN. On the other hand, the older facility has no such dedicated production capability of producing both LDAN and HDAN simultaneously. This is likely to give more flexibility to DFPCL in terms of its product mix within TAN.
IPA plant: DFPCL’s 70,000 MT/annum IPA facility is the only domestic supplier, accounting for ~70% of Indian market share by virtue of high quality IPA with over 99.8% purity. Moreover, with certification from US Pharmacopoeia, DFPCL’s IPA has ready acceptance in a wide variety of industries like pharma, paints and cosmetics.
Fertilisers: DFPCL has improved its capacity utilisation from ~25% in FY09 to over 75% in FY12 on its 0.23mn MT/year Ammonium Nitro Phosphate capacity. To this, it is adding ~0.37mn MT/year brownfield capacity over the next 2.5 years at a capex of ~INR3.6bn.
Outlook and valuations: Attractive; maintain ‘BUY’
While the gas allocation issue continues to be an overhang, the stock is available at attractive valuations, quoting at 4.7x and 4.1x consolidated P/E and at 3.1x and 2.8x consolidated EV/EBITDA for FY13E and FY14E, respectively. We have a ‘BUY’ recommendation on the stock with a target price of INR198 per share based on 4.5x FY13E EV/EBIDTA.
Regards,
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