Deepak Fertiliser's (DFPCL) Q2FY11 standalone results were in-line with our expectations as net sales grew by 15.7% YoY to Rs4.1bn (our estimate was Rs4.0bn) on the back of higher contribution from fertiliser segment. OPM contracted by 167bps to 18.7% due to lower margins in the chemical business. Consequently, net profit grew by 14.7% to Rs414mn against our estimate of Rs459mn. Profitability in Q2FY11 is lower by Rs33.5mn due to difference in provisional and actual fertiliser's subsidy for FY10.
VALUATIONS AND RECOMMENDATION
We maintain our earning estimates for FY11 and FY12. At the CMP of Rs180, DFPCL is trading at a PER of 9.5x & 7.1x and EV/ EBITDA of 5.5x & 4.2x for FY11E & FY12E respectively. Though our earlier price target of Rs178 is achieved, we reiterate our 'BUY' recommendation for DFPCL on the back of timely commissioning of TAN facility, increased availability of raw materials and encouraging complex fertiliser's policy. Our revised target price is Rs220 (5x FY12E EV/EBITDA).