Deepak Fertilizer and Petrochemicals Corporation - upcoming projects to drive growth; result update Q3FY08; maintain Buy

Deepak Fertilizer and Petrochemicals Corporation (DFPC IN, INR 119, maintain Buy)

Deepak Fertilizer and Petrochemicals Corporation’s (DFPCL) Q3FY08 results were in line with our expectations, with revenues registering 12.5% Y-o-Y and 26.3% Q-O-Q (at INR 2.7 bn) driven by growth in the chemicals business. EBITDA of INR 451 mn registered growth of 11% Y-o-Y and 40% Q-o-Q driven by better realisations from the chemicals business. Net profit of INR 245 mn remained flat Y-o-Y on account of lower other income and higher interest cost.

The chemicals segment registered growth of 27.6% Y-o-Y driven by strong growth in both manufacturing and trading goods. Trading revenues grew by 16% Y-o-Y and 153% Q-o-Q on account of increased prices of methanol, which improved from INR 11,000/tonne in the previous quarter to INR 22,000/tonne in Q3FY08. The company expects methanol prices to stabilize at these levels. The fertilizer segment’s revenues declined by 19% Y-o-Y on account of low availability of phosphoric acid in international markets.


DFPCL’s Dahej Uran gas pipeline was commissioned in the quarter. The company is in the process of entering into a long term contract for supply of gas which will help considerably reduce its cost of raw materials, thereby contributing to better margins. Its retail venture Ishanya, the specialty mall, has begun operations; it has already opened up 2 lakh square feet space housing over 1,000 brands and is expected to open 50,000 square feet in the next quarter, when it is expected to break even. Further, the ammonium nitrate plant at Paradip is on track and targeted for completion in FY10E.

We expect DFPCL to register revenues of INR 9.8 bn in FY08E and INR 10.9 bn in FY09E. Our FY10 revenue estimate stands at INR 14.7 bn due to contribution from the ammonia nitrate plant, IPA, and the retail venture. On our EPS estimate of INR 13.7 and INR 17.3, the stock is trading at a PE of 8.6x and 6.8x our FY09 and FY10 estimates, respectively. We maintain our ‘BUY’ recommendation on the stock.