Deepak Fertilisers Is A Value Pick; Buy Says Anand Rathi For Rs. 810 Target Price

The company is on its path to become future-ready

According to the Anand Rathi Research, "DFPCL have maintained its leadership position and market share across all its product offering. It is the largest producer of TAN commanding a market share of ~43% and the only manufacturer of high-efficiency fertiliser (NPK & Bensulf) with a market share of 19%.

"Being a market leader with commendable market share in all the segments and various initiatives (Capex, product differentiation, product plus solution approach) undertaken by the company, DFPCL is getting itself future-ready to ride on India's growth story," it added.

Investment Rationale in Deepak Fertilisers as per Anand Rathi

Capex to drive Growth and Margins: DFPCL is currently undertaking two Capex plans.

TThe expansion of TAN capacity by 376 ktpa with a planned investment of Rs. 2,200 crore. The commissioning is estimated to be in Q2FY25. As of the December quarter of Fy22, the company operated at nearly full capacity. The incremental capacity will help the company gain additional market share and will also open opportunities for export to neighbouring countries. The company's TAN business riding on the country's growth story shall be favoured by the host of tailwinds.

Also, the company is setting up a Greenfield Ammonia Project at Taloja with a total Capacity of 510 ktpa. The backward integration will help the company to have zero dependence on imports or domestic third-party ammonia suppliers. The total planned investment for the project is Rs 4,350 crore however the cost incurred till date is Rs 2,074 crore. The Company expects 18% to 20% IRR on the project which works out to overall ~$200-$230 per metric ton savings. Further, the capex will help to bring over Rs. 25,000 Crore Import Substitution over the next 10 years in line with the PM's Atmanirbhar Bharat Dream.

Product differentiation boosting company's margins

In FY2020-21, the company has shifted from 100% NPK production of plain grade to differentiated NPK providing a boost to its volumes substantially by as much as 198% YoY. Also, during the course of its turnaround as a differentiated player, the company's margins also increased from (1.7)% in FY19 to 7.5% during FY21. Also, during the December ended quarter, the company launched Croptek which is being sold at a premium to other fertilisers and hence lucrative for the company. Going ahead, the product is expected to gain wider adoption.

Also, in order to confront the COVID situation, the company also has endeavoured into the hand sanitiser and disinfectant category in April 2020. "In line with its differentiation strategy the company is developing "IPA based" strong product range with 16 SKUs in hand sanitisers, disinfectants and wipes", adds the brokerage report.

Buy for the target price of INR 810 or over 24% upside

The brokerage firm says, "The company has taken various initiatives which include transforming from commodity to speciality product player, backward integration in the value chain, product plus solution approach which have started yielding results. With capex getting commissioned during FY24 and FY25 the company will further benefit with margin expansion and growth in topline. We initiate our coverage with BUY rating on Deepak Fertilizers and Petrochemicals Corporations with a target price of INR 810 per share. At CMP the stock is trading at 9.4x times FY24E earnings."