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Research
Deepak Fertilisers - Higher input costs derail chemicals margin - Edelweiss
Posted On : 2012-05-23 11:07:29( TIMEZONE : IST )
Deepak Fertilisers' (DFPCL) Q4FY12 PAT, at INR455mn, came in below our expectation owing to lower-than-estimated EBITDA margin. While fertiliser segment continued its strong performance, margin pressures were prevalent in the chemicals segment owing to high raw material prices. Factoring in the latter, we have lowered our FY13E EPS 7%. Also, the uncertainty on government's proposal for profit sharing on gas supplied to non-urea manufacturers like DFPCL is likely to be an overhang on the stock for some time. However, owing to attractive valuations, we maintain 'BUY' with a revised target price of INR198. DFPCL announced INR4.2bn capex in fertilisers to be executed over the next 30 months.
Lower-than-expected EBITDA margin impacts profitability
Despite a strong standalone revenue growth of 61% in Q4FY12, PAT came below expectation at INR455mn (down 8% YoY) owing to poor EBITDA margin at 13.1% (down 800bps YoY and 350bps QoQ). The negative surprise in EBITDA margin was on account of pressure on chemicals margin, owing to high propylene prices coupled with incremental replacement of manufactured ammonia with imported ammonia due to a 20-day planned shutdown of the ammonia plant during Q4FY12. While chemicals margins are better currently, they are likely to be lower than earlier quarters going ahead.
Key highlights
- Two fertiliser projects announced: INR3.6bn brownfield NPK expansion to more than double current capacity and INR0.6bn greenfield Bentonite sulphur plant. To be executed over next 30 months.
- Management continues to guide TAN sales volume of 0.3mn MT in FY13.
- Announced dividend of INR5.5/share (dividend yield 4.2%) vis-Ã -vis INR5.0/share in FY11.
Outlook and valuations: Attractive; maintain 'BUY'
On account of the persistent pressure on the chemicals segment margin, we have factored in lower EBITDA margin of 18.4% in FY13 vis-Ã -vis earlier estimate of 20.8% and lowered our EPS estimate to INR27.8/share. Currently, the stock is available at 4.8x and 4.2x consolidated P/E for FY13E and FY14E, respectively. Owing to attractive valuations, we maintain our 'BUY' recommendation, with a revised target price of INR198 per share (INR220 earlier) based on 4.5x FY13E EV/EBIDTA.
