Q3FY24 Review: Deepak Fertilizers & Petrochemicals: Benefits from ammonia plant to kick in soon

5 Feb 2024 , 04:06 PM

Deepak Fertilizers & Petrochemicals (DFPCL) reported weak results on the back of severe pressure in the Fertilizer segment and TAN business. Contribution from ammonia plant too was negligible given the plant was in the midst of establishing scale and efficiency. Going forward, TAN and Nitric Acid is expected to improve on the back of lower dumping and improved demand while the state approved incentives are expected to kick-in soon for Ammonia plant. 

While TAN sales during the quarter were impacted due to higher and cheap imports, Nitric acid was impacted due to the scheduled plant maintenance during Q3 along with low demand from downstream industries. The performance is expected to improve gradually in the ensuing quarter. Further, analysts at IIFL Capital Services expect ammonia plant to start aiding profitability from FY25 onwards. Their estimates assume moderation in TAN and Nitric Acid margins, but should they rise, there is upside risk. In this context, valuations are reasonable.

Analysts at IIFL Capital Services have cut their FY24 estimated earnings by 23% and lowered FY25-26 estimates by 10-19% as they adjust ammonia spreads. Their SOTP-based, Target Price (rolled forward to March 2025) comes down to ₹705 (earlier ₹780).