Buy Deepak Fert; target of Rs 190: KRChoksey

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Buy Deepak Fert; target of Rs 190: KRChoksey

KRChoksey is bullish on Deepak Fert and has recommended buy rating on the stock with a target of Rs 190 in its August 18, 2011 research report.

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RELATED NEWS Accumulate Axis Bank; target of Rs 1463: JRG Securities Buy Jain Irrigation; target of Rs 195: A C Choksi Buy Indraprastha Gas; target of Rs 450: A C Choksi ALSO READ See previous views by KRChoksey See what other Experts & Brokerages are saying about Deepak Fert See messages about Deepak Fert Deepak Fert BSE | NSE 01/06/12 Are Mutual Funds betting on Deepak Fert?

KRChoksey is bullish on Deepak Fert and has recommended buy rating on the stock with a target of Rs 190 in its August 18, 2011 research report.

"Deepak Fertilizer & Petrochemicals Corporation Ltd. (DFPCL) reported a strong topline growth of 36% y-o-y to Rs 472 crores driven by manufactured chemical segment. Revenue from Chemical segment improved by 44 % y-o-y to Rs 347.2 crores primarily driven by healthy volumes & higher realizations. Fertilizer segment registered revenue growth of 14% y-o-y to Rs 147 crores on the back of strong volumes in specialty fertilizers. EBITDA grew by 22% y-o-y to Rs 113 crores, led by strong volume growth. However EBITDA margins declined by 267 bps y-o-y on the back of 281 bps y-o-y decline in the gross margins. Adj Net profit improved by 22% y-o-y to Rs 63.9 crores, partially impacted by lower other income & higher interest cost."

"Chemical segment registered a strong growth of 44% y-o-y to Rs 332.7 crores on the back of strong volumes (TAN, Methanol, IPA) & higher chemical prices (Methanol & IPA). However margins for the chemical segment declined by 527 bps y-o-y due to higher raw material cost (imported ammonia) & lower margins from the new TAN facility. Average rate of gas also increased to ~$8.5/mmbtu in Q4FY11. The company has announced a capex of Rs 25 crores for setting up a new Nitric Acid plant at Taloja, with a capacity of 46,200 mtpa and is expected to commission by FY13. Company had taken price hikes in Q4FY11 for TAN & IPA and has taken a price hike in IPA again in this quarter considering the significant rise in Ammonia prices (up by 50%) & gas prices (up by 20%)."

"We expect chemical segment to perform strongly going forward, with new TAN facility being fully operational & improved demand for industrial chemicals. Revenue from fertilizer segment increased by 14% y-o-y to Rs 147 crores on the back of 17% y-o-y & 14% y-o-y increase in the manufactured fertilizer & Traded fertilizer segment. Margins for the segment improved significantly by 388 bps y-o-y on the account of higher sales of specialty fertilizer which enjoy higher margins."

"We expect DFPCL to continue its strong performance on account of improved capcity utilization in the chemical segment. Also with setting up of new nitric acid plant & new TAN plant fully operational, ramping up of production would result in improved volumes for the chemical segment going forward. We believe demand for Industrial chemicals in the domestic market to remain & expect DFPCL to sustain margins on account of product mix & price hikes. We expect DFPCL revenue to grow at a CAGR of 18% over FY11-13E driven by higher contribution from the Industrial Chemical segment. At the CMP of Rs. 161, DFPCL is trading at 6.8x its FY12E EPS of Rs 23.7 & 5.9x FY13E EPS of Rs 27.4. We recommend a BUY on the stock with a target price of Rs 190 based on 8x FY12E EPS of Rs 24," says KRChoksey research report.

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