Deepak Fertilisers & Petrochemicals Corporation - Prabhudas Lilladher

Result disappoints, cost pressure remains

Q4FY12 result disappoints: Deepak Fertilizer and Petrochemicals' (DFPC's) net sales grew by 61.5% YoY to Rs6,887m (PLe: Rs5,546m), primarily on account of better-than-expected fertiliser trading sales. DFPC's EBITDA grew by mere 0.8% to Rs887m (PLe: Rs1,158m). EBITDA margins have fallen by 770bps YoY (down 600bps QoQ) to 12.9% mainly due to higher input cost (ammonia and propylene) in the chemical segment. We believe that the rupee depreciation has also impacted the same. Further, ammonia plant shut down for two weeks forced DFPC to import ammonia at higher prices. Chemical segment's EBIT margin has came down by 1260bps to 16.3% on YoY basis (down 770bps QoQ). Fertiliser segment has shown strong perfomance durign the quarter. Adjusted PAT de-grew by 20.2% YoY to Rs395m (PLe: Rs552). Lower-than-expected PAT was primarily due to lower margin in the chemical segment and higher finance cost. Company has forex gain of Rs60m (considered as exceptional item). Hence, reported PAT stood at Rs455m.

Key Highlights: Company has indicated that TAN plant is expected to operate at 70% capacity utilization durign FY13. Company has not entered into phosphoric acid contract for H1FY13 as yet; however, expected to sign the contract soon. Company is planning to expand its complex fertiliser capacity (incl. single grade to multi grade) from 2.3Lac MT to 6Lac MT with the capex of Rs3.6bn with debt/equity ratio of 2:1. Further, DFPC is expanding its Bentonite sulphur capacity from 25K MT to 62K MT with the capex of Rs0.6bn. Both the projects are expected to be complete in 30 months timeframe from commencement.

Maintain 'Accumulate': We are downward revising our FY13/FY14 EPS by 20%/15%, considering lower margin in chemical business. We believe that cost pressure and KG basin gas allocation to P& K producers would be a near-term risk to the stock. During FY04-12, stock traded in the P/E band between 4x-7x. We maintain our "Accumulate" rating on the stock, with the target price of Rs148 (i.e.6xFY13E). Stock has dividend yield of 4.2% at CMP.

Source : Equity Bulls

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