Diwali Greetings - Deepak Fertilizers and Petrochemicals

Dear Blog Members,

May the divine light of Diwali bring lot of joy, peace and prosperity to you and your family

Last 18 months were very tough for investors. We have also limited our activity but now time has come to move ahead with market by leaving all the negative behind.  

Deepak Fertilisers & Petrochemicals Corporation Ltd (DFPCL)

Corporate film

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DFPCL is multi-product Indian conglomerate with four business verticals —industrial chemicals, agribusiness, specialty chemical and value added real estate.  Over the period of last four decades it has established a prime position in manufacturing of ammonia, isopropyl alcohol, methanol, nitric acid, low-density prilled ammonium nitrate, specialty fertilisers, farming diagnostics and solutions, nitro-phosphate fertilizers in its state-of-the-art plants operating with world class technology.

The value added real estate is India's 1st revolutionary concept retail destination for Home Interiors & Design. DFPCL is having market leadership position in Speciality Fertilisers, Technical Ammonium Nitrate (TAN) and Isopropyl Alcohol (IPA).

The Company has manufacturing facilities in Taloja – Maharashtra, Srikakulam – A.P., Panipat – Haryana and Dahej – Gujarat. The Company has adopted some of the global state-of-the-art technologies that enable it to manufacture and supply high quality products that meet global standards.

Products / Services and Application

Investment Rationale

DFPCL has developed a unique business model where synergies and diversities can be mutually inherent, allowing the Company to build its financial strength, generate free cash flow and invest in growth, both in India and globally.

DFPCL has expanded its portfolio in the agri-business segment and moved from bulk fertilisers to specialties /customised products. Company is developing customized products for specific crop and soil. 

It has gained the reputation of being the total nutrient management services provider to the Indian farmers through its unique initiative - Mahadhan Saarthi. it helps the farmers by providing farming solutions including diagnostic and advisory services. It also allows farmers to market their produce in domestic and international markets. This initiative by the company ensures higher yields and profitability to the farmer. Government's continuous thrust on rural & infrastructure development along with an ambitious goal to double farmers' income by 2022 will augur well for the company. 

DFPCL is one of India’s largest and most reputed manufacturers of Nitro Phosphate fertilisers and speciality fertilisers like Sulphur Bentonite. It has gained the reputation of being the sole manufacturer of 24:24:0 in India and amongst market leaders for water solubles, specialty fertilisers and Bentonite Sulphur.

In Chemicals, the Company is moving up the value chain from bulk chemical commodities to developing industry specific product grades. The company is the sole producer of IPA in the domestic market and caters to 85-90% of the market demand through its manufacturing capacity as well as imports. DFPCL is also the leading manufacturer of concentrated nitric acid (CNA) in the domestic market. It is one of the very few companies in the world with US FDA / Pharmacopoeia certification for these products, making it the supplier of choice for the Indian pharmaceutical industry.

DFPCL is having a strong and direct relationship with over 500 Industrial customers in India and globally. Further, DFPCL is having strong distribution network of over 80 channel partners across India and it exports its products to over 50 countries globally.

DFPCL has diversified business product portfolio comprising of fertilisers and industrial chemicals and the strong market position held in the industrial chemicals business with leadership in ammonium nitrate (TAN), nitric acid and IPA. It gives high financial flexibility in case of slump in any one business vertical.

DFPCL is one of the largest producers of Technical Ammonium Nitrate (TAN) in the world and the only producer of explosive grade low density prilled AN in India and is on its path towards becoming a global player. Company has successfully entered into Mining Services and Consultation to expand the value chain.

DFPCL is better placed among its competitors and enjoys the advantage of largest single-location manufacturer of Dilute Nitric Acid (DNA). The company has the advantage of its strong customer relationships and its domestic geographical presence and this provides the superiority among its peers.

DFPCL has laid its own 43 km gas pipeline from the coastal fall point Uran to its plant located at Taloja.

It has built India’s first true Lifestyle Centre, Creaticity - a family destination with offerings ranges from home, fashion, lifestyle, food and entertainment. 

DFPCL has hired global consulting firm McKinsey & Company in September 2016 for corporate rejig. Since than it has started transforming itself from  commodity to specialties and value added customised products. 

The company has ability to change its product mix in response to changes in market conditions. It is a reflection of its operating flexibility which partially mitigates the risks associated with cyclicality. It has helped DFPCL to maintain stability in its operating profits despite considerable changes in its operating environment.

DFPCL is going through major  expansion, company has excellent track record to complete the key projects in stipulated timeline. In the recent past, it has already completed and  stabilize the commercial production of nitric acid plant at new plant in Dahej Gujarat and  NPK (Nitrogen, Phosphorous, Potassium) complex fertilisers facility at Taloja which would result in healthy increase in revenues and profits in coming quarters.  

Promoters C K Mehta / S C Mehta are having very vast experience in chemical industry and proven successful track record. The management keep the control and evaluating the strength of balance sheet regularly. Most of capex is funded through debt and equity along with some strategic investors. The current capex is backed by International Finance Corporation (IFC)

Conclusion

DFPCL has dominant market position in all business verticals. Nitro -chem industry is growing at a steady pace which augurs well for the company with a clear emerging demand supply gap in the market. Domestic demand outlook for most of the company products will remain strong and it will be driven from agri, industrial, mining and infrastructure sector. Company is on strong footing for long-term sustainable growth and leadership in chemicals business.

In recent market correction it corrected more than 70% without any change in fundamental of the company. It is very good investment opportunity at cmp Rs 102 for both mid  term and long term ( 2 year to 5 years ). It can be bought + / - 10% from cmp with 10-20 % of portfolio allocation.