Deepak Fertilisers rallies 6%, hits new high on strong demand outlook

Shares of Deepak Fertilisers & Petrochemicals Corporation (DFPCL) hit a new high of Rs 1,048 as they rallied 6 per cent on the BSE in Thursday's intra-day trade, in an otherwise range-bound market, on strong demand outlook. The stock of the leading producers of industrial chemicals and fertilisers company was trading higher for the fourth straight day, surging 17 per cent during the period. In comparison, the S&P BSE Sensex was down 0.10 per cent at 59,047 points at 01:18 PM.

DFPCL is the second largest manufacturer of Nitric Acid in South East Asia, and the largest in India. The company is the leading manufacturer and marketer of Iso Propyl Alcohol (IPA), largest manufacturer of Bentonite Sulphur, and a market leader in specialty and water-soluble fertilisers in India. It is setting up a 5.1 lakh MTPA ammonia facility near its existing operations at Taloja for backward integration. The project is expected to get commissioned by Q1FY24.

In April-June quarter (Q1FY23), DFPCL had reported 233 per cent year-on-year (YoY) jump in its consolidated profit after tax (PAT) at Rs 436 crore, on the back of 59 per cent YoY growth in revenue of Rs 3,031 crore. Operating EBITDA margins had increased from 15.2 per cent in Q1FY22 to 24.3 per cent in Q1FY23.

The company's market leadership in key product segments and strong demand outlook is expected to drive business growth and profitability. With a positive outlook for mining, infrastructure and power sector, the company expects to benefit from increased Technical Ammonium Nitrate (TAN) demand, a trend that is likely to sustain.

"Higher reservoir levels and appropriate monsoon coverage in our core command region is being witnessed. Consumption in Q2 is expected to increase supported by higher commodity prices for cash crops due to robust climatic conditions," DFPCL's management had said while announcing Q1 results on July 19.

Long-term growth is expected to be underpinned by change in product mix, head room availability of additional capacities emerging from better operational management, and debottlenecking along with greenfield expansions, the management had said.

"The demand and prices for nitric acid are expected to remain strong owing to diminishing availability of down streams of from China and resultant higher pricing. The shift of global supply chain trend towards India will continue to drive strong demand of Nitric Acid from downstream customers. The IPA small pack demand both from Pharma and LR grade are expected to remain strong," the company said in their FY22 annual report.

"Strong revenue and steady margin could drive a 17.5 per cent CAGR in net profit over the next two years. The long-term growth of the company is expected to be underpinned by a change in its product mix, head room availability of additional capacities emerging from better operational management and de-bottlenecking, along with greenfield expansions. Some of the key positives include strong growth prospects of the TAN business, high regulatory entry barriers, improving capacity utilisations, and a strong uptick in return ratios," HDFC Securities said in its Diwali picks.