Edelweiss is bullish on Deepak Fertilizer has recommended buy rating on the stock with a target price of Rs 531 in its research report dated November 06, 2017.
Edelweiss' research report on Deepak Fertilizer
Deepak Fertiliser’s (DFPC) Q2FY18 numbers were marginally below estimates. PAT came in at INR462mn (up 72% YoY on low base) versus INR566mn estimate due to lower-than-expected fertiliser margin and higher tax provisioning. Commissioning of NPK plant and higher chemical trading propelled top line 34% YoY to INR12.3bn. Factoring in weak H1FY18 numbers, we revise FY18E EBITDA/PAT down 15%/20%. However, as we expect DFPC’s earnings momentum to pick up fuelled by fertiliser business and higher utilisation in TAN, we revise up FY19E EPS 5%. On anticipated sustenance of earnings momentum underpinned by significant capex planned over 2-3 years, we revise up our target multiple from 12x to 14x FY19E EPS. DFPC also entails rerating potential from DBT and rerating in chemical sector. Consequently, we raise our TP to INR531 (INR438 earlier) and maintain ‘BUY’.
Factoring the impact of lower margin in the chemical segment in H1FY18 (inventory losses related to ammonia and lower TAN prices), we revise our FY18E EBITDA/PAT down 15%/20%. However, as we expect DFPC’s earnings momentum to pick up fuelled by fertilizer business and higher utilisation in TAN, we revise up FY19E EPS 5%. Also, factoring in revenue potential from planned capex (NPK of 0.3MTPA and Dahej nitric acid Plant) we revise up our multiple to 14.0x. Maintain ‘BUY’ with TP of INR531.
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