Recommendation: Buy
CMP = Rs 149 (as of Wednesday)
Price target: Rs 188
Result highlights:
- Net sales of Deepak Fertilisers & Petrochemicals Corporation (DFPCL) grew by 2% year on year (yoy) to Rs 216.9 crore. The chemical division and the fertiliser division contributed 69% and 31% respectively to the net sales.
- The revenue from the chemical division increased by 29% yoy to Rs 155.8 crore on the back of a strong contribution from isopropyl alcohol (IPA), while the sales from the fertiliser division dropped by 32% yoy to Rs 70.7 crore due to reduced availability of phosphoric acid in the international market and lower availability of material for trading.
- Operating profit during the quarter grew by 26% yoy to Rs 32.2 crore. A strong contribution from the chemical division expanded the overall operating profit margin (OPM) by 290 basis points to 14.9%. The increased raw material cost including that of the outsourced ammonia and propylene decreased the segmental PBIT margin for the chemical division, while the higher price realisation reduced the segmental loss for fertiliser division.
- The completion of Dahej-Uran pipeline would improve the natural gas supply to Taloja plant from December 2007, which would help in replacing naphtha with natural gas for steam generation, depending upon its supply. Natural gas at around $8.5 per Million British Thermal Units (MMBTU) would cost almost half the price of naphtha.
- The company is expected to complete land acquisition process for its ammonium nitrate project in Orissa by November 2007. The plant with a 300,000TPA capacity is expected to be operational by November 2009.
- The company's specialty mall Ishanya, for interiors and exteriors, is expected to commence operations from the third quarter, ahead of the festive season. The company has already leased out nearly 80% of the 550,000 square feet leasable area at an average rental price of Rs 46 per square foot.
- At the current market price of Rs 149, the stock is trading at 8.7x its FY2009E earnings and at an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 6.5x.
- I maintain Buy recommendation on the stock with a price target of Rs 188 with 6 months time frame.
