Buy Deepak Fertiliser; target of Rs 438: Edelweiss

Edelweiss is bullish on Deepak Fertiliser has recommended buy rating on the stock with a target price of Rs 438 in its research report dated August 16, 2017.

August 18, 2017 / 17:05 IST

26 Aug, 2025 12:21

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Edelweiss' research report on Deepak Fertiliser

Deepak Fertiliser’s (DFPC) Q1FY18 consolidated sales, at INR12.8bn (20% plus YoY), surpassed estimates, but PAT of INR374mn (-17% YoY) disappointed owing to decline in chemical profitability. Chemical margins were affected by the sharp volatility in input prices (mainly ammonia), even as fertiliser business improved profitability (segment profit of INR261mn versus loss of INR133mn in Q1FY17) as the new NPK plant was commissioned. With improving profit contribution by fertiliser division (EBIT of INR1.4bn in FY18E versus loss of INR0.1bn in FY17) and recovery in pending subsidies, we raise our FY18/19E EPS by 7%/6% to INR32.7/36.5. We also raise our target multiple to 12x (from 9x) as earnings visibility enhances and return ratios improve. Consequently, we raise our TP to INR438 (INR308 earlier) and maintain ‘BUY’.

Outlook

We expect earnings visibility to enhance, balance sheet and return ratios to to improve (RoCE of ~17% by FY19 from ~10% in FY17) following improvement in fertiliser business. As a result, we raise our FY18/19E earnings by 7%/6%, target multiple to 12x (from 9x) and target price to INR438 (INR308 earlier), while maintaining ‘BUY’ on the stock.

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