Stock Review: Deepak Fertilizers and Petrochemicals Company (DFPCL)

 

New Plant Will Help Co Gain From Mining, Infra Demand

 

THE stock of Pune-based Deepak Fertilizers and Petrochemicals Company (DFPCL) has outperformed the broader market over the past one year. The scrip has more than doubled during the period against the 21% gain posted by the benchmark, Sensex.

   The scrip, which touched its alltime high of . 199.2 on Tuesday, crashed 10% to . 179.6 on Wednesday as the company's September 2010 quarter results failed to meet investor expectation. The company reported a 15% growth in net profit to . 41.4 crore.

   During the quarter, the company's top-line grew by nearly 16% to . 410 crore against the yearago period on account of improved volumes and stable fertiliser prices globally. While revenue from the fertiliser segment surged nearly 30% to . 189 crore, the chemicals arm of the business recorded a nearly 12% jump to . 235 crore.

   The chemicals and fertiliser segments of the company recorded robust growth during the September 2010 quarter, but the realty arm Ishanya continued to be a laggard. It posted a 2.8% drop in revenue to . 3.1 crore. However, this is much lower than a nearly 14% drop recorded by the segment in the last two quarters. This project has been making losses for the past several quarters. Originally conceived as a specialty mall for interiors and exteriors, the company is planning to re-launch the arm as a full family-entertainment centre. It could take a few more quarters for this project to break even.

   During the quarter, the operating margin dropped by nearly 130 basis points to 14.5% against the year-ago period. This was due to the increase in gas prices, which is the major feed for the company's end products. The company expects the margin to improve on account of stable raw material prices going ahead.

   With the commissioning of the technical ammonium nitrate (TAN) plant at Taloja during the September 2010 quarter, the TAN production capacity of the company has tripled to 7.32 lakh tonnes per annum. This will help the company to cater to the strong demand in the mining and infrastructure sectors in the coming quarters. It intends to achieve 100% capacity utilisation of the plant by the end of FY12.

   At the current market price of . 177.1, the company's scrip is trading at nearly eight times its earnings for the trailing 12 months. With the TAN plant becoming operational and the easy availability of natural gas and other raw materials, the company is expected to fare well in the coming quarters.