Buy Deepak Fertiliser; target of Rs 204:Emkay

Emkay's research report on Deepak FertiliserStrong 28% yoy growth in revenues to Rs 10.5bn, higher than our est led by higher sales in both chemical and fertiliser segment Chemical segment EBIT margin improvement of 540bps to 13% driven by strong growth in TAN and CNA/DNA. Fertiliser segment continues to post EBIT losses due to gas unavailability and delay in subsidy push interest cost PAT at Rs 235mn against mere Rs 13mn previous year is below est due to lower other income, higher interest cost and higher tax rates Cut FY16E EPS by 10.5% to factor in increased interest cost on the back of higher subsidy outstanding and increased working capital requirement. Maintain Buy with target price of Rs 204 (10x FY17E EPS) We cut our FY16 earnings estimate by 10.5% to factor in in the weak YTD performance in the fertiliser segment that has been posting losses as well as increasing subsidy burden which has deteriorated working capital and consequently increased interest costs. Our FY17 EPS has subsequently reduced by 1%. We remain positive on the chemical segment and build in 13% EBIT margins for the segment while we expect fertiliser segment to post marginal profits from next fiscal. We continue to maintain Buy rating on the stock with an unchanged target price of Rs 204 (10x FY17E EPS).

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