Deepak Fertilizers & Petrochemicals Corp Ltd
A typical 2 pager on why the company seems interesting
Incorporated in 1979, Deepak Fertilisers and Petrochemicals Corporation Ltd is in the business of fertlisrs, agri services, bulk chemicals, mining chemicals and real estate.
Key Development: Ammonia Manufacturing
Company has set up a 510,000 MTPA capacity to manufacture ammonia at Taloja. Instead of purchasing Ammonia from Middle East, Deepak Fertilizers will now procure Natural Gas domestically and manufacture Ammonia in house for its raw material needs.
The Greenfield Ammonia plant was successfully commissioned in Q2 FY24 on August 4th, 2023. Medium-term gas contracts have been secured with reliable suppliers such as GAIL, IGS, and GSPC.
Economics of Ammonia
Value unlocking
Eventually the TAN business & fertilizer business will be de-merged. The monopolistic & high ROCE nature of chemicals business will ensure higher valuation for this portion of business. Also with backward integration of Ammonia, the company has a moat in terms of cost production.
Valuation
Deepak Fertilizers can now generate an EBIT of ~Rs.2200 crores. With additional TAN capacity coming in H2FY26 the max profitability of will certainly be higher.
Looking at the opportunity at hand it would be prudent to value the company at 8-10x EBIT.
Disclaimer:
PARTH KOTAK (PROPRIETOR: PLUS91) is a SEBI Registered (SEBI Registration No. INA000018081) Investment Advisory Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.