Buy Deepak Fertilisers; target Rs 202: Unicon Investment

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Buy Deepak Fertilisers; target Rs 202: Unicon Investment

Unicon Investment is bullish on Deepak Fertilisers & Petrochemicals (DFPC) and has recommended buy rating on the stock with a target price of Rs 202 in its August 17, 2011 research report.

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Unicon Investment is bullish on Deepak Fertilisers & Petrochemicals (DFPC) and has recommended buy rating on the stock with a target price of Rs 202 in its August 17, 2011 research report.

"Deepak Fertilisers & Petrochemicals Ltd. (DFPC) posted Q1 FY12 result in line with Unicon estimates. Total income rose by ~34% to INR 4,807mn in the quarter. Chemical segment (manufactured) registered a revenue growth of 44% YoY to INR 3.3bn on account of 31% growth in volumes. However, volumes were below our estimates and were affected by lower availability of raw materials. Average realisation rose by ~10% during the quarter. However, margin from chemical segment contracted to 28.4% due to higher cost of ammonia for the new TAN facility. Manufactured fertiliser segment showed a revenue growth of 16% YoY as compared to 12% YoY growth in traded fertiliser segment. Fertiliser revenues grew by 15% in the quarter. Margin for this segment improved to 15% due to higher trade volume of high margin fertilisers. EBITDA increased by 22.2% YoY to INR 1,129mn while EBITDA margin contracted by 253bps to 23.8%. Higher input cost affected the margins of the company. Net profit increased by 22.5% to INR 639mn in the quarter. Net profit margin dropped from 14.5% to 13.3% over the same period."

"Lack of competition, switching of major mining & infrastructure players to technical grade AN (from fertiliser grade AN) and strong growth in infrastructure in Southeast Asia (especially India in 12th Five Year Plan) would support TAN growth. The management expects its new TAN facility to achieve a utilisation level of 70% in FY12. Better utilisation of ANP unit and revision of fertiliser prices under NBS provide strong revenue visibility for the fertiliser segment. Estimates of better monsoon this season have further lit up the sector prospects. The govt. expects 4% increase in fertiliser consumption this year. Contribution from bentonite sulphur is expected to rise stably till FY13. Stock is trading at 5.7x its FY13E earnings. We upgrade the stock to BUY with a price target of INR 202," says Unicon Investment research report.

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To read the full report click on the attachment