Fundamental Analysis of Deepak Fertilisers: As the world’s population grows, it will increase pressure on food supplies and demand for higher crop yields. To achieve that, chemical companies will help farmers with a cost-effective way of improving the yield and the quality of their crops. One such chemical company is Deepak Fertilisers.
In this article, we will perform the Fundamental Analysis of Deepak Fertilisers and Petrochemicals Corporation Ltd. Keep reading to find out more
Fundamental Analysis of Deepak Fertilisers
We’ll start with a brief overview of India’s leading producers of fertilisers and industrial chemicals, then move on to a market overview, business segments, financial analysis, and future plans anticipated by the company to gain a competitive advantage over the rest of the market, and finally, a summary to wrap up the article.
Company Overview
One of India’s top manufacturers of industrial chemicals and fertilisers is Deepak Fertilisers & Petrochemicals. A multi-product Indian conglomerate founded in 1979 as an ammonia manufacturer with an annual revenue of over $500 million USD and a product line that includes industrial chemicals, bulk and specialty fertilisers, farming diagnostics, and solutions, fresh produce, technical ammonium nitrate, and value-added real estate, which includes India’s 1st & largest revolutionary concept retail destination for Home Interiors & Design.
DFPCL is the Leading manufacturer and marketer of Isopropyl Alcohol (IPA) in India and the Largest Manufacturer of Nitric Acid in South East Asia. In order to meet the unique needs of the industry and customers, the company is creating specialized grades of nitric acid and IPA.
DFPCL is one of the leading manufacturers of Technical Ammonium Nitrate in the world, it is the only producer of prilled TAN solids in India and also manufactures medical-grade Ammonium Nitrate. Best-in-class technical services have been launched by the company to boost downstream productivity for the mining industry’s end users.
Business Segments
The Company is engaged in the manufacture of Industrial Chemicals (Nitric Acid, Isopropyl Alcohol, Methanol, and Carbon Dioxide) Crop Nutrition (Nitro Phosphate, Nitrogen Phosphorus Potassium variants, Water Soluble Fertilisers, and Bentonite Sulphur), and Technical Ammonium Nitrate (Mining Chemicals).
Industry Overview
An important sector that significantly contributes to the nation’s agricultural production and general economic growth is India’s fertiliser and chemical industry.
The need for fertilisers has grown over time due to their importance in providing crops with needed nutrients. Between 2023 and 2028, the fertiliser market in India is anticipated to increase at a CAGR of 4.7%, with a forecasted value of USD 1160.18 billion at that time.
More than 80,000 commercial goods are produced by India’s extremely varied chemical sector, which may be generally divided into bulk chemicals, specialty chemicals, agrochemicals, petrochemicals, polymers, and fertilisers.
The Indian chemicals market was worth $178 billion in 2019 and is projected to grow by 9.3% annually to $304 billion by 2025. By 2025, the demand for chemicals is anticipated to increase by 9% annually, and by 2030, it is anticipated that the chemical sector would contribute $383 billion to India’s GDP.
Due to the increase in demand from end-user sectors including food processing, personal care, and home care, the specialty chemicals market in India is expanding. Specialty chemical producers in India are increasing their production capacity to meet the increased local and international demand.
India’s chemical industry has a chance to develop significantly as multinational corporations try to reduce the risk in their China-reliant supply chains.
Deepak Fertilisers – Financials
Revenue & Net Profit Growth
Deepak Fertilisers operational sales have increased at a CAGR of 10.88% during the previous five years, from Rs 6,742 crore in FY19 to Rs 11,301 crore in FY23. On low bases, the annualized increase of operating profit and net profit is considerable, at 36.49% and 74.96%, respectively.
The table below illustrates the company’s operational revenue, operating profit, and net profit over the preceding five fiscal years.
| Fiscal Year | Operating sales(Cr) | Operating profit(Cr) | Net profit(Cr) |
|---|---|---|---|
| 2023 | 11,301 | 2165 | 1221 |
| 2022 | 7,663 | 1356 | 687 |
| 2021 | 5,808 | 961 | 406 |
| 2020 | 4,685 | 465 | 89 |
| 2019 | 6,742 | 457 | 73 |
| 5-yr CAGR | 10.888 | 36.49 | 75.66 |
Operating & Net Profit Margins
The firm aggressively explored new markets, decreased operational expenditures, and finally grew its top line by purchasing raw materials from cheaper sources, significantly increasing the company’s profits.
| Fiscal Year | Operating Profit Margin(%) | Net Profit Margin(%) |
|---|---|---|
| 2023 | 19.90 | 10.80 |
| 2022 | 15.26 | 8.97 |
| 2021 | 13.36 | 6.99 |
| 2020 | 7.38 | 1.9 |
| 2019 | 5.07 | 1.13 |
Return Ratios: RoCE & RoE
The profitability ratios have improved significantly over the years. The company has optimized its turnover, and effectively and efficiently they have used their capital effectively and efficiently by reducing unnecessary costs.
| Fiscal Year | ROCE(%) | ROE(%) |
|---|---|---|
| 2023 | 23.36 | 23.88 |
| 2022 | 17.95 | 17.46 |
| 2021 | 15.02 | 14.81 |
| 2020 | 7.8 | 4 |
| 2019 | 8.64 | 3.36 |
Debt/Equity & Interest Coverage
Short-term loans are usually required in the manufacturing business to pay suppliers, procure raw materials, and employees’ wages. Over the years, the company has successfully been able to reduce the debt-to-equity ratio by properly utilizing working capital, and the same applies to the interest coverage ratio.
| Fiscal year | Debt/Equity | Interest Coverage(Times) |
|---|---|---|
| 2023 | 0.71 | 11.55 |
| 2022 | 0.67 | 9.04 |
| 2021 | 0.87 | 4.13 |
| 2020 | 1.33 | 1.43 |
| 2019 | 1.44 | 1.49 |
Key metrics of Deepak Fertilisers
Before we hit the end, let us quickly revise the key metrics of the stock.
| CMP | ₹ 565 | Market Cap(Cr.) | ₹ 7,136 Cr |
| EPS | ₹ 95.9 | Stock P/E | 5.90 |
| RoCE | 26.3 % | ROE | 27 % |
| Promoter Holding | 45.46 % | Book Value | ₹ 401 |
| Debt to Equity | 0.73 | Price to Book Value | 1.45 |
| Net Profit Margin | 10.8 % | Operating Profit Margin | 19.20% |
Future Plans of Deepak Fertilisers
- The company has announced the demerger of its mining chemicals and fertilizers business eventually it will increase its profitability and cash injection.
- The company wants to shift its overall business to move from commodity to specialty, value-added, and innovative products.
- The company wants to expand the production and storage of its key raw material – ammonia in Q1 of FY24 which will reduce the impact of volatile ammonia pricing and it will increase the margins.
In Conclusion
The government is educating farmers on the right use of fertilizers and pesticides to boost soil fertility, which is raising the demand for fertilizers. The central government is offering subsidies to fertilizer manufacturers, which will help the fertilizer and chemical industries prosper in the next few years.
Deepak Fertilisers & Petrochemicals Corporation has huge potential to enter into new markets And the company has strong financials over the years.
With that, we complete our article on fundamental analysis Deepak Fertilisers and Petrochemicals Corporation. We hope you found this post useful and interesting. Good luck with your investments!
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