Buy Deepak Fertilisers, target Rs 406: Emkay Global

Emkay Global Financial Services has a buy call on Deepak Fertilisers & Petrochemicals Corporation Ltd. with a target price of Rs 406. The current market price of Deepak Fertilisers & Petrochemicals Corporation Ltd. is Rs 298.15 Time period given by the brokerage is a year when Deepak Fertilisers & Petrochemicals Corporation Ltd. price can reach defined target.

Deepak Fertilisers & Petrochemicals Corporation Ltd., incorporated in 1979, is a midcap company with a market cap of Rs 2516.05 crore.

Investment rationale by Emkay Global


 Consolidated net revenues increased by 60% YoY to Rs19bn in Q4FY18, driven by healthy growth across both the segments. Chemical revenues increased by 61% yoy to Rs14.5bn and fertilisers revenues increased by 30% yoy to Rs4.5bn.

 Highest quarterly volume growth in TAN, Nitric Acid and Fertilisers. TAN sales volume increased by 28% yoy to 129,083 MT and Nitric Acid volumes increased by 35% yoy to 52,206 MT. Fertiliser sales volume at ~144,680 MT registered a growth of 49% yoy.

 However, consolidated EBITDA margin contracted by 400bps yoy to 6.8% due to increase in cost of key RM, higher sale of traded chemicals and forex loss of Rs60mn compared to gain of Rs20mn in Q4FY17.

 We trim our FY19/20E EPS by 19%/11% to factor in lower performance in Q4FY18. We trim our EBITDA margin assumption by 120bps/70bps to factor higher phos acid prices. We maintain our BUY rating with a target price of Rs 406 based on SOTP valuation.