DEEPAKFERT - Deepak Fertilizers &Petrochemicals Share Price

Management Outlook and Key Points:

1. Positive Financial Performance:

• Revenue Growth: Consolidated revenue surged 39% YoY to Rs.2,579 crore in Q3 FY25, driven by strong demand across all segments.
• Profitability: EBITDA rose 72% YoY to Rs.486 crore (margin expansion to 19%), while net profit jumped 318% to Rs.253 crore.
• Volume Growth: Mining chemicals (TAN) volumes grew 19%, crop nutrition sales rose 64%, and IPA (isopropyl alcohol) sales increased 36%.

2. Strategic Drivers for Growth:

• Alignment with India's Growth Sectors: Mining (coal, cement), agriculture (crop-specific fertilizers), and specialty chemicals (pharma/electronics-grade products) provide tailwinds.
• Backward Integration: The ammonia plant (critical raw material) stabilizes operations, reducing volatility and enhancing competitiveness.
• Commodity-to-Specialty Shift: Focus on premium products like pharma-grade IPA, steel-grade nitric acid, and value-added fertilizers (e.g., Smartek, Croptek) to boost margins.

3. Capacity Expansion:

• New Projects: Technical ammonium nitrate (TAN) plant in Gopalpur and nitric acid facility in Dahej are on track for H2 FY26 commissioning. These will address supply constraints and tap rising demand.
• Debottlenecking: Ongoing operational efficiencies to maximize existing capacity utilization (85"“105%).

4. Segment-Specific Outlook:

• Mining Chemicals: Strong Q4 demand expected from coal/cement sectors; TAN volumes to benefit from infrastructure push.
• Industrial Chemicals: Nitric acid margins stable; IPA demand to rise with anti-dumping duties and pharma/electronics growth.
• Crop Nutrition: Focus on specialty fertilizers (e.g., water-soluble variants) to drive rural penetration and margin improvement.

5. Debt and Capex:

• Net debt to peak at ~Rs.5,500 crore in FY26 (post-expansions) but will decline post-operational cash flow generation.
• LNG supply from Equinor (from FY27) to reduce gas costs by ~20%, enhancing ammonia plant economics.

6. Corporate Restructuring:

• Demerger completed, enabling focused growth for each business (mining, crop nutrition, chemicals) under separate entities.

Summary: Management remains confident in sustaining growth via capacity expansions, premiumization, and operational excellence, supported by India's economic momentum. Margins are expected to stabilize/improve with specialty product mix and cost optimization.

Question 1:
"When we see our current run rate of TAN and WNA production, our ammonia requirement comes to close to around 4,25,000 tons. And once our expansion of TAN and WNA goes through, this requirement will go up to 6,20,000 tons. How are we placed in terms of ammonia requirement for the Gopalpur project? Will ammonia be transported from Taloja to Gopalpur?"

Answer Summary:
The new ammonia plant (500,000+ tons) meets current demand, with surplus sold in the merchant market. Future expansions (Gopalpur/Dahej) will rely on imported ammonia for cost efficiency. Existing Taloja production may supplement, but importing to Gopalpur is more viable commercially.

Question 2:
"What is the expected IRR for the new TAN and nitric acid projects, and what will be the peak debt in FY26?"

Answer Summary:
IRR for new projects is expected in the high teens, driven by market-aligned pricing. Net debt is projected to peak at INR 5,500 crores by H2 FY26, reducing gradually post-operational cash flows. Debt will be split between subsidiaries (DMSL for TAN, DFPCL for industrial chemicals).

Question 3:
"With existing capacities at peak utilization and expansions 3"“4 quarters away, what will drive growth in the interim?"

Answer Summary:
Growth will focus on premium product segments (e.g., pharma-grade IPA, crop-specific fertilizers), operational debottlenecking, and market segmentation. Specialty solutions (e.g., blasting services, electronic-grade chemicals) and NPK capacity optimizations will sustain margins.

Question 4:
"How will Equinor's LNG supply impact cost structure starting Q1 FY27?"

Answer Summary:
Equinor's LNG supply from FY27 Q1 will reduce gas costs by ~20%, lowering ammonia production costs. This will enhance profitability resilience amid price volatility, with breakeven thresholds shifting downward.

Question 5:
"How did the crop nutrition business sustain margins despite volume fluctuations?"

Answer Summary:
Margins were maintained through specialty product growth (Smartek/Croptek volumes up 186% and 56%, respectively) and a diversified business mix. Seasonal alignment with TAN/industrial chemicals provided natural hedging, while value-added solutions offset commodity pressures.