Deepak Fertilizers share value has jumped 48 per cent to this point this yr, regardless of steep correction in benchmark indices on inventory markets. The inventory could rally round 52 per cent extra, in accordance with analysts at IIFL Securities. The brokerage maintains a optimistic outlook on the economic and agricultural chemical compounds producer inventory as, at 10x FY23ii P/E, it continues to seek out valuations engaging. Deepak Fertilizers’ administration lately reiterated that the corporate’s ammonia and ammonium nitrate (TAN) growth tasks are on monitor. Also, peak debt ranges is probably not as excessive as initially anticipated as a result of wholesome money era. Deepak Fertilizers is India’s high producer of TAN, nitric acid and isopropyl alcohol (IPA) and a distinct segment maker of NPK fertilisers.
Stock Rating: Buy
Target value: Rs 900, Upside 52%, Horizon: 12 months
Analysts at IIFL securities imagine that whereas nitric-acid realisations and spreads are anticipated to maintain in FY23, TAN spreads could soften. Thus, EPS development in FY23 is anticipated to be muted. However, the corporate is more likely to ship significantly wholesome development in FY24 and FY25, as its key capex tasks are commissioning then. Additionally, Ammonia costs sustaining at present ranges might additional enhance development and FY24/25 Ebitda. “By FY26, when each capex tasks ought to be working at optimum utilisation, we count on EPS to strategy Rs 85-90 ranges, they stated. Even a modest 10x P/E by then would suggest a Mar-2025 goal value of ~Rs 1,020-1,080 (and doubtlessly larger, if DFPCL switches to the brand new tax regime).
Investment Rationale:
Expansion tasks on monitor: The ammonia and TAN growth tasks are on monitor, to be commissioned in 1QFY24 and 2QFY25, respectively. While ammonia costs have corrected within the final month, advantages from the ammonia growth can be far more than envisaged, ought to ammonia costs maintain at present ranges, the brokerage famous. Debt funding can also be more likely to be decrease than estimated as a result of wholesome money flows generated in FY22. Elevated nitric-acid spreads will assist maintain money flows.
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Nitric-acid demand continues to be wholesome: Improved realisation and demand of downstream derivatives continues to uphold demand of nitric acid. The Aarti Industries administration believes that availability of nitric acid will enhance in 2HFY23 and has additionally acknowledged intentions to arrange a concentrated nitric-acid plant. However, it’s going to nonetheless should buy weak nitric acid from the open market. GNFC administration has acknowledged that off offtake of nitric acid stays strong.
TAN spreads could face near-term headwinds: Deepak Fertilizers administration expects TAN spreads may very well be in danger within the close to time period as Russian provides re-enter the market. Thus, although nitric-acid spreads stay elevated, advantages could doubtless be offset by diminished spreads of TAN. “While we expect FY23 growth to be muted, the growth phase is likely to start in FY24, as the two big capex projects are capitalised,” stated analysts.
(The inventory suggestions on this story are by the respective analysis analysts and brokerage corporations. FinancialExpress.com doesn’t bear any duty for his or her funding recommendation. Capital markets investments are topic to guidelines and laws. Please seek the advice of your funding advisor earlier than investing.)
Source: www.financialexpress.com”