Domestic brokerage and research firm IIFL has maintained its positive outlook on shares of Deepak Fertilizers, as at 10x P/E of FY23, making it an attractive valuation. While nitric-acid realization and spread are expected to remain stable in FY13, tan spread may soften. Thus, EPS growth in FY13 is expected to remain muted, the brokerage highlighted in a note.
IIFL retains its buy rating chemical stock with a target price of 900, implying a potential increase of over 45% from current levels. Shares of Deepak Fertilizers are up around 53% so far in 2022 (YTD).
The company’s management has reiterated that the Ammonia and TAN expansion projects are on track. In addition, peak debt levels may not be as high as was initially anticipated due to healthy cash generation. The brokerage said demand for nitric-acid is likely to remain strong, but tan spread could soften as Russian supplies re-enter the market.
“However, the company is likely to deliver fairly healthy growth in FY24 and FY25 as its major capex projects are underway. With ammonia prices remaining at current levels, growth and FY24/25 Ebitda may increase further. By FY26, when both the capital expenditure projects are running at optimum utilization, we expect the EPS to reach 85-90 levels. By then the modest 10x P/E would mean March-2025 target price will be ~Rs 1,020-1,080 (and potentially more, if DFPCL switches to the new tax regime),” it added.
Deepak Fertilizers and Petrochemicals Corporation Limited (DFPCL) is India’s top producer of Ammonium Nitrate (TAN), Nitric Acid and Isopropyl Alcohol (IPA) and a niche manufacturer of NPK fertilizers.
The company has focused on import substitution strategy throughout its history, and has consequently built a major market share in India across all of its major chemical products. The main manufacturing facility of DFPCL is located at Taloja. The company also has facilities at Dahej, Srikakulam and Panipat.
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