Will maintain 35% margins on low ammonia cost: Deepak Fert

Deepak Fertilizers and Petrochemicals will maintain margins at 35 percent if ammonia prices remain low going ahead, says VC and MD Shailesh Mehta. The company posted 11.8 percent increase in net profit at Rs 45.44 crore for the second quarter ended September on higher income.

Speaking to CNBC-TV18, Mehta says the company holds 24.5 percent stake in Mangalore Chemicals and is reviewing all options to increase its stake as the consolidated purchases of raw materials and traded products would be beneficial to both the companies.

Below is the verbatim transcript of Shailesh Mehta’s interview on CNBC-TV18

Q: Can you give us the details of your results, talk about margins as well as the outlook for this fiscal?

A: The key impact that we had is in terms of imported ammonia prices and what we had projected last year, ammonia prices had shot through the roof. Some of the global plants were coming back into production and new ammonia plants were also to come in. As predicted, those plants have come into production and ammonia prices have started softening, the global prices. From that perspective, second half of the year should also have reasonably positive impact of lower ammonia prices and the rest of the operation seem to be in an even keel.

Q: What are the consolidated margins of the entire company and the segmental breakup of the chemical as well as the fertilizer business in terms of margin specifically?

A: As far as the topline goes, the chemical business has grown by 55 percent and bottomline has grown roughly by 35 percent. Fertilizer business topline has grown by 33 percent and bottomline has grown by 21 percent which is evident from our segment results. Going forward, as we see things unfold, similar positive current should continue.

Q: The positive impact that you have seen on your EBITDA, is that likely to continue? How will margins look like, not just in this year but even in FY15?

A: The EBITDA positive growth that we have seen over last year, which emanates out of margins, is something which should continue for the balanced part of the year as well.

Q: Are you likely to deliver 35 percent margins going ahead as well?

A: In comparison to last year, if ammonia prices remain in the current dimension, it would be speculative to say that but we are seeing generally a positive current.

Q: How much are you expecting in terms of volumes for FY14?

A: We are seeing better capacity utilisation of new capacity that we had put up last year and so, volume increase in first half should get reflected in second half.

Q: What is your final plan for Mangalore Chemicals and fertilizers (MCF)? Will this add value to your strategy going ahead? There have been reports that you are going to increase stake in the company also, is that true?

A: We have acquired 24.5 percent equity in Mangalore Chemicals and the logic has been the synergies and complementary synergies that we see between Deepak Fertilizers’ marketing territories and MCF’s marketing territories. In addition to the NPK complimentary strength between the two geographies, we also see that adding urea to our basket which MCF produces; we could be looking at good synergies.

One could look at consolidated purchases of raw materials, consolidated purchases of the traded products that would bring synergies and advantage to both the companies and that is why we have taken this strategic step.

Q: Are you in talks with Mr Poddar?

A: We are reviewing all options and over the next few months, some of these aspects should unfold.

Q: Will that be one of the things on your agenda?

A: Certainly. We have looked at the MCF’s investments from a strategic perspective and that is something we will look at every opportunity.