Deepak Fertilisers - Q1FY13 Conference Call Update - Emkay

We attended Deepak Fertilisers' Q1FY13 conference call to discuss the results and the future business outlook. Here are the key takeaways-

* Increase in raw material costs put pressure on margins- Deepak Fertilisers' Q1FY13 EBITDA margins dropped to 16.1% due to costs pressures. In the chemicals segment, steep increase in ammonia & propylene costs impacted margins, while fertiliser segment profit was impacted due to lower volumes & increase in phos acid prices.

* Increase in ammonia prices impacted TAN margins- Technical Ammonium Nitrate (TAN) margins declined to 21-22% compared to 25% last year. Margins were impacted due to increase in ammonia prices. Though company was able to pass on bulk of the increase in ammonia prices & maintain absolute margins, however % margins declined due to higher selling prices.

* IPA profitability to remain subdued- Steep increase in propylene prices impacted Iso Propyl Alcohol (IPA) margins during the quarter with margins dropping to 12% in IPA from 20% last year. However, management indicated that cost increases will be gradually passed on, thereby aiding margin improvement by Q3FY13. For FY13, management expects IPA to clock margins of ~15%.

* Ammonia prices to ease by end of CY12- Global Ammonia prices increased steeply from $450/mt in April-2012 to $690/mt currently due to supply-side issues. Though ammonia prices are expected to remain firm in the near-term; however management expects prices to ease by the end of CY12 as some of the plants globally may resume production from Dec-2012.

* Modification completed at Ishaanya- Modification is almost complete at Ishanya, the specialty mall and management expects performance to improve in this unit from Q4FY13.

* TAN plant operated at 60% blended capacity utilization - Company produced 64,900mt of TAN solid during Q1FY13 & operated at 60% blended capacity utilization during the quarter. IPA capacity utilization stood at 100% during the quarter.

* Phos acid negotiation done at $885/mt - Un-availability of phos acid due to delay in negotiations impacted fertiliser volumes during the quarter. However, management indicated that phos acid volumes have been contracted now & negotiation have been done at $885/mt

* Weak monsoons & high prices have impacted demand for DAP & MoP - Complex fertiliser sales have been impacted due to deficient monsoons & increase in prices. Management indicated that DAP & MoP sales have been impacted, but Deepak's flagship product Ammonium Nitro Phospate (ANP) sales have not been impacted significantly.

Source : Equity Bulls

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