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Research
Deepak Fertilisers - Acquires stake in Mangalore Chemicals - Edelweiss
Posted On : 2013-07-04 21:22:27( TIMEZONE : IST )
Deepak Fertilisers (DFPCL) has acquired a 24.46% stake in UB group owned Mangalore Chemicals and Fertilisers (MCF) through its wholly owned subsidiary SCM Soilfert for a total investment of ~INR1.8bn (~INR62/share). We believe if the company acquires a controlling stake, DFPCL will have: 1) access to urea and non-urea capacity of 0.38mMT and 0.26mMT, respectively and 2) access to newer markets like Andhra Pradesh, Karnataka, Kerala and Tamil Nadu. We maintain 'BUY'.
Acquires 24.46% stake in MCF
DFPCL has acquired a 24.46% stake (~29m equity share) of MCF through its wholly owned subsidiary SCM Soilfert with an investment of ~INR1.8bn (~INR62/share). DFPCL believes that the investment is strategic and a good fit for its business. DFPCL has presence in Gujarat, Haryana, Madhya Pradesh, Punjab, Uttar Pradesh and Maharashtra. We believe MCF will provide DFPCL with: 1) access to urea and non- urea capacity of 3.8Lac MT and 2.6Lac MT, respectively and 2) access to newer markets like Andhra Pradesh, Karnataka, Kerala and Tamil Nadu.
About MCF
MCF is a part of the UB Group and is the only manufacturer in Karnataka. The main products are urea, di-ammonium phosphate (DAP), NP 20:20:00:13, ammonium bi-Carbonate (ABC), sulphuric acid, specialty fertilizers, nutrient products and an industrial product called sulphonated naphthalene formaldehyde (SNF) used in the construction industry. MCF has urea and non-urea capacity of 0.38MT and 0.26MT, respectively. The company has a brand called 'Mangala'. The company's net sales and PAT in FY13 were INR27.8bn and INR0.67bn, respectively. Promoter/DII/public shareholdings as on 31st March, 2013 were 22.0%/8.6%/69.3%.
Outlook
Having witnessed sharp erosion in EBITDA margin during FY13, the company expects its chemical business margin to improve 300-400bps in coming quarters led by recent correction in raw material prices. At CMP, the stock continues to trade at attractive valuations and dividend yield of ~6%. We maintain 'BUY' with a target price of INR145 per share based on 6.5x FY14E EPS.
