Deepak Fertilizers and Petrochemicals Corporation Limited (DFPCL) BSE Code: 500645

CMP (BSE): 150

CMP (NSE): 151

Industry: Commodity Chemicals

DFPCL is among the leading Indian producers of Industrial chemicals. The products of DFPCL are methanol, iso- propyl alcohol (IPA), concentrated and dilute nitric acid, liquid CO2 and ammonium nitrate. These chemicals address the needs of the industrial customers in various sectors such as pharmaceuticals, DMT, pesticide, drugs and dye intermediates and refining of precious metals, resin, textile, fertilizer, rubber, petrochemical, fibre, polyester and mining chemicals, among others. The wide range of customers provides the company resilience against the cyclical impact of a single sector. Thus the company is well diversified, which helps it guard itself from the ups and downs in the global economy.

Some of the major raw materials for the company are natural gas and its derivative ammonia. The company had an assured feedstock (natural gas) availability since the company is well connected to the National Gas Grid to receiver gas from multiple sources like RLNG, Panna Mukta Tapti basin, KG basin and ONGC (C-series) among others. The company has signed quantity contracts for ammonia with an overseas supplier. The prices of natural gas and ammonia are expected to remain range bound in 2010-2011, placing the company in a favourable competitive position and thus helping it in maintaining its profit margins in the future.

The company is the market leader for IPA and nitric acid. It is an important player in methanol and CO2. It is the only manufacturer of IPA in India and is one of the very few companies in the world with a US pharmaceutical certification for IPA, making it the supplier of choice for the pharmaceutical industry. It will also emerge as the Asia’s largest producer of nitric acid.

DFPCL's new Technical Ammonium Nitrate (TAN) project at Taloja is ready for mechanical completion and should be commissioned on schedule this year. This would further drive volumes across the TAN segment of the chemicals business propelling DFPCL into a new growth trajectory. DFPCL has already announced that it has signed firm Ammonia contracts with a leading supplier from the Middle-East for this new project. Upon commissioning of this plant, the Company will be the fifth largest manufacturer of TAN in the world and will derive considerable advantages from the higher scale.

There are certain trends that are positive for the company’s current product profile.

• The horticulture production in India’s agri-products basket is rising almost twice as fast as other products. Also the India’s agri- export turnover is expected to double in the next 4 years to nearly USD 14 billion by 2014. The company will be well placed with its strong brands, robust distribution networks and emerge as a partner of choice for the farmers.
• After the Nutrient – Based Subsidy (NBS) regime, a policy that envisages subsidies based on the nutrient content of the fertilizer, rather than on the fertilizer per se; the various fertilizer companies are set to benefit, including DFPCL.
• Globally, the mining sector is poised for expansion. A clear demand- supply gap exists, especially in the East and South- East Asia, the Middle-East and South Africa. DFPCL is expected to exploit this opportunity. Capital investments in the infrastructure projects is on the rise. Key benchmark industries like cement, which are vital customers for TAN (Technical Ammonium Nitrate) have shown good growth and the outlook remains positive.

DFPCL has announced its 1st quater results and showed strong growth in both sales and volumes across all its products, backed by ample natural gas availability and higher operating efficiencies and this will continue in future. It is quoting at 7.14 PE, whereas the industry PE is 15.39. Considering the industry PE, the stock should quote around 320. It provides a dividend yield of 3% (dividend paid = Rs. 4.5 for the year 2009-2010). The EPS for the year 2009-2010 was Rs.19.51. This quater's EPS is posted as Rs.5.92. This continued in future would bring the total EPS for the year 2010-2011 to be approximately around 24. This would result in a growth of about 23% for the year 2010-2011.

It is a good long term stock with good fundamentals. The stock has recently surged due to the good 1st quater results posted by the company. The stock at around 130 levels would be a very good buy. This might be a potential MULTIBAGGER in future.

Happy Investing.