Chemical Sector | Initiating Coverage

BUY (25%)
Deepak Fertilisers & Petrochemicals Corporation Ltd. (DFPC IN) Target Price: Rs282
%)

Market leader ready to take the next step Stock Information Share Holding Pattern (%)
CMP (INR) 226 Dec 20 Sep 20 Jun 20
Key Takeaways: Market Cap (INR bn) 24 Promoters 54.9 52.2 52.2
 We initiate our coverage on Deepak Fertilisers and Petrochemicals Corporation Limited (DFPC) as the company has Face Value (Rs.) 10 - Pledged 74.54 75.71 75.71
capacities in both chemical and fertilizer segment manufacturing Isopropyl Alcohol (IPA), Nitric Acid (concentrated & 52 Week H/L 249/ 69 FII / NRI 2.57 2.8 2.7
dilute), Methanol, Liquid CO2, Ammonia, Technical Ammonium Nitrate (TAN), Bentonite Sulphur, NP and NPK O/S Shares (mn) 103 MF/DII 1.72 1.83 2.36
fertilisers. 30 day Avg Volume (mn) 1.8 Others 40.81 43.17 42.75
 Amongst the industrial chemical segment, DFPC is the second largest manufacturer of Nitric acid in S.E. Asia and largest
manufacturer of Nitric Acid and IPA in India. Stock Relative Performance
 The company is the only manufacturer of solid TAN in India and the only producer of explosive grade Low density DFPC Nifty50

porous prilled Ammonium Nitrate (LDAN) in India.

 In the crop nutrition segment, DFPC is the only manufacturer and marketer of prilled Nitro Phosphate fertilizer in India
as well as the largest manufacturer and marketer of Bentonite Sulphur along with being the market leaders in speciality
and water soluble fertilisers in India.
 The company is in the process of doing capex for backward integration project to produce Ammonia in-house which will
reduce the company’s dependence on imported raw materials like Ammonia.
Apr-16Jul-16Oct-16Jan-17Apr-17Jul-17Oct-17Jan-18Apr-18Jul-18Oct-18Jan-19Apr-19Jul-19Oct-19Jan-20Apr-20Jul-20Oct-20Jan-21

DFPC enjoys major market share amongst its major products: DFPC enjoys 70% market share (manufactured) in IPA, 71%

market share in CNA, 42% market share in TAN and 19% market share in crop nutrition business. The company is the only Financial Snapshot FY20 FY21E FY22E FY23E
Revenue (Rs mn) 46,854 56,153 60,639 67,760
producer of solid TAN in the country and ranked amongst the top 5 TAN producers in the world. Further, DFPCL also imports IPA
EBITDA (Rs mn) 4,643 7,635 8,377 8,781
in order to augment the limited capacity.
EBITDA Margin (%) 10% 14% 14% 13%
PAT (Rs mn) 892 4,117 4,595 5,006
Strong consistent performance from crop nutrition business (CNB): The company enjoys 19% market share in core market of EPS (Rs) 10.0 41.1 45.8 49.9
Maharashtra in the CNB segment. Also, DFPC enjoys 20% market share in water soluble fertilizers (WSF) foliar and PE (x) 7.5 5.5 4.9 4.5
micronutrients and 40%+ market share in Bentonite Sulphur. DFPC has close to 3800+ dealers in 12 states, with over 24,000 EV/EBITDA (x) 6.8 5.6 5.0 4.4
retailers. In line with the company’s strategic decision to move from commodity to differentiated fertilizer segment, DFPC sold ROE (%) 3.7% 16.3% 14.2% 13.4%
about 3,20,160 MT of Smartek (differentiated NPK) during 9MFY21, a growth of 124% YoY. ROCE (%) 5.0% 10.4% 10.9% 10.4%
Source: Company Fillings, Ashika Institutional Research

Valuation & Outlook: DFPC is the leading manufacturers of Iso Prophyl Alcohol, NP prill 24:24:0 fertiliser and Technical
Ammonium Nitrate in India catering to agriculture, pharmaceutical, mining, chemicals and infrastructure sector in India. The
Company’s products are exported to 29 countries across six continents. CNB offers products like nitro phosphate fertilisers,
NPK fertilisers (Smartek) and water soluble fertilizers and has a strong presence in Maharashtra, Karnataka and Gujarat. At
CMP, the company is trading at 4x FY23 EPS and 4.4x FY23 EBITDA, we value the company with an average of P/Ex and EV/
Research Analyst :
EBITDAx assigning a multiple of 6x and 5x respectively and arriving at a price target of Rs282 which is an upside of 25%. Thus,
Harmish Desai | +91 22 6611 1778 | [email protected]
we have a ‘BUY’ rating on the stock.

Chemical Sector Before Reading this report, you must refer to the disclaimer on the last page 7 April 2021
 Initiating Coverage | DFPC

Key Investment Rationale

Leading manufacturer of IPA:

 DFPC is the largest manufacturer of IPA, enjoying a market share of 70% in FY2019-20 with an installed capacity of 70,000 MTPA.
 The major application of IPA is in the production of pharmaceuticals (APIs and formulations), accounting for 80% of product offtake. IPA is also
used in the manufacture of inks, coatings and specialty chemicals. IPA demand was driven by the growth of the pharmaceutical industry.
 Towards the end of FY2019- 20, a demand surge emerged from the hand sanitizers segment owing to the onset of COVID-19. Following the
COVID-19 outbreak, DFPC commenced IPA supplies to hand sanitizer manufacturers, besides launching its own brand of hand sanitizers, IPA
wipes and rubbing alcohol, from April 2020, helping mitigate domestic scarcity.
 IPA manufactured by DFPC meets international quality standards for use in pharmaceuticals, coatings and inks, specialty chemicals and cosmetics.
For critical applications in the pharma sector, DFPCL offers IPA conforming to stringent standards such as IP, BP, Chinese Pharmacopeia USP, to
name a few.
 DFPC exports to various markets in USA, Europe, Africa and Middle East. To maintain its leadership position and to cater to the growing domestic
demands, DFPCL also imports and supplies Isopropyl Alcohol from other global producers.

Exhibit1: Production and Sales (MT): DFPC has the only capacity of IPA in the country and enjoys a Exhibit2: DFPC has an installed capacity of IPA (70,000 MT) and the contribution to the topline is
market share of 70% through captive and import efforts increasing along with increase in realization levels

6,000 1,10,000
72,469

72,331
71,177

62,793

95,000
60,387

60,200

Rs mn
3,000

80,000
71,296

71,125

74,100

61,274

61,584

44,003

- 65,000
FY16 FY17 FY18 FY19 FY20 9M FY21 FY16 FY17 FY18 FY19 FY20 9M FY21

IPA production IPA sales IPA sales IPA realization/ tonne

Source: Company Fillings, Ashika Institutional Research Source: Company Fillings, Ashika Institutional Research

Chemical Sector Page | 2

 Initiating Coverage | DFPC

Key Investment Rationale (contd….)

Largest manufacture of Nitric acid:

 DFPC is the largest producer of Nitric Acid in India, with a total installed capacity of 1.1 MMT per annum.
 During April 2019, the company commissioned a new plant in Dahej with CNA production capacity of 92,400 MTPA and DNA production capacity
of 148,500 MTPA.
 DFPC is competently placed to service the growing DNA requirements of fragmented markets in Central and North India from Dahej. With a
complement of three locations, Dahej, Taloja and Srikakulam, DFPC is the only Nitric Acid producer in India with the ability to supply the product
from multiple facilities.
 During the year, they developed two new grades of Nitric Acid in line with market demand of 61.5% and 33% purity levels, besides regular grades
of purity levels of 98%, 72%, 68%, 64% and 60%. The shift in manufacturing activity of chemical intermediates from China to India is becoming
more evident with passage of time. Merchant sales in international market also reduced substantially from Korean and Taiwanese producers
resulting in NA shortages.
 By far the principal use of nitric acid (80%) is in the manufacture of fertilizers. Of this 96% is used to make ammonium nitrate and calcium
ammonium nitrate. A relatively small amount of ammonium nitrate is used to make explosives. 80% of CNA is used in the manufacture of
Nitroaromatics.
 Some nitric acid is used to make intermediates in the polymer industry, notably in the manufacture of hexanedioic acid (adipic acid) to
make polyamides, TDI (toluene diisocyanate or methylbenzene diisocyanate) and dinitrobenzene. Nitrobenzene is used to make aniline which is a
key reagent for making dyes.

Exhibit3: Nitric acid (NA) production and sales (MT): DFPC is the largest producer of Nitric Acid in India, Exhibit4: DFPC’s combined Nitric Acid facility of around 8,31,600 MT is supported by on-site ammonia
with a total installed capacity of 1.1 Mn MT per annum. Gap in DNA Prod & Sales is due to Captive thus ensures reliable supply. DFPC saw impact in realization due to high input cost which impacted
TheshiftinmanufacturingactivityofchemicalintermediatesfromChinatoIndiaisbecomingmoreev
consumption for TAN, CNA, SNA, ANP. Similarly gap in CNA is due to consmption for SNA utilization but with backward integration of ammonia, realization is expected to increase going ahead

8,00,000 identwithpassageoftime.Similarpriceimprovementisseeninexportsmarketsaswell.Merchantsal
8,000 60,000

esininternationalmarketalsoreducedsubstantiallyfromKoreanandTaiwaneseproducersresultin
ginNAshortages.
4,00,000
Rs mn 4,000 40,000

-
FY16 FY17 FY18 FY19 FY20 9M FY21 - 20,000
Dilute Nitric Acid production Dilute Nitric Acid sales FY16 FY17 FY18 FY19 FY20 9M FY21

Concentrated Nitric Acid production Concentrated Nitric Acid sales NA sales NA Realisation

Source: Company Fillings, Ashika Institutional Research Source: Company Fillings, Ashika Institutional Research

Chemical Sector Page | 3

 Initiating Coverage | DFPC

Key Investment Rationale (contd….)

Industry leader in India’s highly attractive TAN market:
 Technical Ammonium Nitrate (TAN) is a critical ingredient used in mining (extracting raw materials in mines and quarries), explosives (raw
material for the manufacture of all types of industrial explosives) and pharmaceutical industries.
 Smartchem Technologies Limited (STL), a wholly-owned subsidiary of DFPC, is one of the world’s largest TAN manufacturers, producing high-
density ammonium nitrate (HDAN), low-density ammonium nitrate (LDAN) and ammonium nitrate melt (AN Melt).
 DFPC is the only producer of explosive grade ammonium nitrate solids in India and also manufactures medical grade ammonium nitrate, widely
used in the production of medical grade nitrous oxide for use as an anaesthetic/ analgesic.
 The TAN product portfolio includes low density porous prill Ammonium Nitrate, high density uncoated prill Ammonium Nitrate, medical grade
uncoated prill Ammonium Nitrate, Ammonium Nitrate solution (ANSOL), etc.
 Technical Ammonium Nitrate is delivered directly to customers located in India and in the International market such as Middle East, Africa, South
Asia and South-East Asia.
 The production facilities of the Company are located at Taloja in Maharashtra and Srikakulam in Andhra Pradesh.
 DFPC has built on its unique position in the low-density ammonium nitrate (LDAN) segment with customer transformation initiatives to drive the
market from conventional explosives to Ammonium Nitrate Fuel Oil (ANFO).
 The company’s principal markets comprise private coal, limestone, and the quarrying/construction industries.
 The domestic TAN demand is projected to grow at 4% per annum till 2035.

Exhibit5: Production and sales (MT): DFPC has 0.48MMT of capacity in TAN with utilizations levels at Exhibit6: DFPC has an additional planned capacity of 3.76MMT to be commissioned in 28 months which
90%. will be responsible for incremental growth going ahead

14,000 30,000
5,05,947

4,40,212
4,10,355

Rs mn
7,000 27,000
3,48,960
3,38,483

2,92,870
3,49,290

3,39,350

4,20,721

5,06,190

4,36,203

2,94,917

- 24,000
FY16 FY17 FY18 FY19 FY20 9M FY21 FY16 FY17 FY18 FY19 FY20 9M FY21

TAN production TAN sales TAN Sales TAN Realization

Source: Company Fillings, Ashika Institutional Research Source: Company Fillings, Ashika Institutional Research

Chemical Sector Page | 4

 Initiating Coverage | DFPC

Key Investment Rationale (contd….)

Crop Nutrition Business (CNB):
 Smartchem Technologies Limited (STL) is a 100% subsidiary of Deepak Fertilisers And Petrochemicals Corporation Limited (DFPCL) and is one of the
leading manufacturers of nitro phosphate fertilisers (nitrogen in both nitrate and ammoniacal forms), NPK fertilisers (Smartek) and speciality
fertilisers like sulphur bentonite with a fast releasing technology.
 STL is also a leader in speciality fertiliser supplies. Crop Nutrition Business (CNB) offers consistent and high purity enhanced efficiency fertiliser
products like nitro phosphate fertilisers, NPK fertilisers (Smartek) and water soluble fertiliser under the brand name of ‘Mahadhan’.
 The Company has a strong presence in Maharashtra, Karnataka and Gujarat, collectively known as the horticultural belt of India. The Company has
also expanded its presence to South and North states of India.
 It operates largely in important cash crops (sugar cane, cotton, groundnut soybean and onion) and horticulture (F&V) regions, strengthening its
business. The Company is a market leader in NP and NPK market in Maharashtra with a market share of about 19%. The subsidiary has a strong
marketing, sales and distribution network across 12 states with 150 sales and marketing personnel, 3800+ dealers and 24,000 retailers.
 The Company is targeting to attain a leadership position in Maharashtra; and aims to be among the top 3 players in select other states within the
next three to five years.
 The Company is promoting sulphur, an essential nutrient for crop productivity, through Bensulf, which comprises 90% sulphur. It has one of the
largest manufacturing capacities of Bensulf in India and is a market leader in this product. The Company recently introduced a differentiated Bensulf
product called ‘Bensulf Super Fast’, which was developed within the Company.

Exhibit6: Manufactured fertilizer sales (Rs mn): The revenue from CNB has been on the up from the past
Exhibit5: Production and sales (MT): DFPC has 0.3MMT, 0.6 MMT & 57,000MT capacity of NP, NPK and
six quarters and the company aims to increase the percentage to the topline by addition of new products
Bentonite sulphur at 78%, 46% and 38% utilization levels (9M FY21)
and distributors

4,00,000

2,00,000

14,866

15,291

15,855

15,811
5,211

6,036
-
FY16 FY17 FY18 FY19 FY20 9M FY21

NP production NP sales NPK production NPK sales FY16 FY17 FY18 FY19 FY20 9M FY21

Source: Company Fillings, Ashika Institutional Research Source: Company Fillings, Ashika Institutional Research

Chemical Sector Page | 5

 Initiating Coverage | DFPC

Key Investment Rationale (contd….)

Exhibit16: Fertiliser sales (Rs mn): DFPC strategic decision to move from commodity to differentiated
Exhibit15: Fertiliser sales (Rs mn): The margins of the company’s fertiliser segment improved
fertiliser segments, sales of differentiated grade NPK was up 83% YoY. They moved 100% of its bulk
substantially from ~ -1.7% in FY19 to positive 8.3% in 9M FY21
fertiliser portfolio to differentiated products

11,373

7,438
14,866

15,291

15,855

15,811
5,211

6,036
5,763

3,205

3,247

3,538
14,829

11,799

18,071

22,728

19,112

19,349
FY16 FY17 FY18 FY19 FY20 9M FY21

FY16 FY17 FY18 FY19 FY20 9M FY21 Manufactured fertilisers Traded fertilisers

Source: Company Fillings, Ashika Institutional Research Source: Company Fillings, Ashika Institutional Research

Exhibit18: Smartchem has a strong marketing, sales and distribution network across 12 states with 150
Exhibit17: Production and sales (MT): DFPC is the largest manufacturer of Bentonite Sulphur in India
sales and marketing personnel, 3800+ dealers and 24,000 retailers and already commands a 19% market
with an installed capacity of 57,000 MT
share in Maharashtra
26,910
24,678

22,721

21,590
14,692
14,543
13,332

15,872

20,762

23,898

23,500

22,896

FY16 FY17 FY18 FY19 FY20 9M FY21

Bentonite Sulphur Production Bentonite Sulphur Sales

Source: Company Fillings, Ashika Institutional Research Source: Company Fillings, Ashika Institutional Research

Chemical Sector Page | 6

 Initiating Coverage | DFPC

Key Investment Rationale (contd….)

Capex done for Ammonia and TAN will aid growth going ahead:
 DFPC has already done Rs15bn capex on ammonia project. The numbers in terms of the going forward capex would get frozen once they finalize
all contracts.
 The project is expected to be completed in calendar year FY2023. The land acquisition is completed and they are in the final phases of negotiating
other contracts and would then resume the progress of ammonia project.
 With TAN project, they have been in the process of getting all the required approvals, environmental approvals and other regulatory approvals.
The management is hopeful that in next two quarters they should be in a position to get most of the approvals
 As far as IPA is concerned again, they are watching the environment and the situation in terms significant volatility of IPA prices.
 The raw material prices whether it is RGP or acetone have also seen volatility. Hence, for the time being IPA capex is on hold.

Value Added Real Estate (VARE):

 This business segment has a lifestyle retail centre called Creaticity (formerly ‘Ishanya’). This division focuses on three categories – home & interior
(H&I), food & beverages (F&B) and entertainment - with a mix of national and international retail brands in H&I, several casual dining and fine
dining F&B outlets and specific entertainment spaces catering to different age groups.

Exhibit5: Ammonia production (MT): Ammonia is one of the key raw materials and DFPC has a planned Exhibit6: Revenue (Rs mn): VARE is a business segment is the developmental stage and the company has
capex which is expected to be commissioned in 26-28 months high hopes from it

297 291
240
1,07,535

1,12,027

164 175 169

66,863

63,683

98,808

65,778

FY16 FY17 FY18 FY19 FY20 9M FY21 FY16 FY17 FY18 FY19 FY20 9M FY21

Source: Company Fillings, Ashika Institutional Research Source: Company Fillings, Ashika Institutional Research

Chemical Sector Page | 7

 Initiating Coverage | DFPC

Mining industry in India

 India is the third largest producer of coal. Coal production in the country stood at 729.10 million tonnes (MT) in FY20 and reached 361.46 MT in
FY21 (as of November 2020). India ranks fourth in terms of iron ore production worldwide, and the production of iron ore in FY20 stood at 206.45
MT. India has ~8% of the world’s iron ore deposits. India became the world’s second largest crude steel producer in 2019 with production at
111.2 MT. Production of aluminium stood at 3.65 MT in FY20. Aluminium export from the country reached US$ 18.24 million in FY20 (till January
2020).
 TAN is the base product of all mining explosives; the properties of explosives are dependent on the type/physical characteristics of TAN being
used.
 Even as CIL produced 602 million tonnes of coal in 2019-20, which was lower than 607 million tonnes produced during the previous fiscal year, it
outlined a target to raise output to a billion tonnes by 2024.
 In November 2020, the Union Coal Minister, Mr. Pralhad Joshi, stated that 19 mines have successfully been auctioned; this is the highest number
of successfully auctioned mines in any tranche of coal auctions. The country’s first-ever commercial mining auction will garner a total revenue of
Rs. 6,656 crore (US$ 900.59 million) annually from mines spread over the following five states—Madhya Pradesh, Chhattisgarh, Odisha,
Jharkhand and Maharashtra.
 Government introduced Mineral Laws (Amendment) Bill, 2020, to open a new era in Indian coal & mining sector, especially to promote “ease of
doing business”.
 Government introduced National Infrastructure Pipeline in 2019 with plans to invest Rs. 100 lakh crore (US$ 1.43 trillion) over the next five years.
 The Ministry of Steel aims to increase the steel production capacity to 300 million tonnes by 2030-31 from 134.6 million tonnes in 2017-2018,
indicating new opportunities in the sector.
Exhibit9: CIL produced 602 million tonnes of coal in 2019-20, which was lower than 607 million tonnes
Exhibit10: Iron ore production (MT): India ranks fourth in terms of iron ore production worldwide, and
produced during the previous fiscal year, it outlined a target to raise output to a billion tonnes by
the production of iron ore in FY20 stood at 206.45 MT. India has ~8% of the world’s iron ore deposits.
2024.

235
202 205 206
185
64

64
62
61
60

58
50
37
539

554

567

607

602
33
29
11

10

2015-16 2016-17 2017-18 2018-19 2019-20

22
(Provisional)
2016 2017 2018 2019 2020 2021 (upto
CIL SCCL OTHERS CAPTIVE March)

Source: Company Fillings, Ashika Institutional Research Source: Company Fillings, Ashika Institutional Research

Chemical Sector Page | 8

 Initiating Coverage | DFPC

IPA industry in India

 DFPCL is the leading producer of the merchant Iso Propyl Alcohol (IPA) in India withan installed capacity of 70 KT.
 Further, DFPCL as a responsible partner, also imports IPA in order to augment the limited capacity and has managed to achieve a market share of
over 70% in India. Two major overseas producers namely LG Chem Korea and Shell Singapore have supported DFPCL and are their major
distributor in India.
 Demand is expected to grow at 6% through FY26. Pharmaceutical industry is the leading application of IPA in India. Contributed 75% of the total
consumption in 2019-20, a trend which is likely to continue through 2025-26.
 Together inks/coatings and derivatives applications accounted for 13% of the total consumption. Inks/coatings market is expected to witness
strong growth as a result of healthy growth in Automotive, electrical & electronics, shipbuilding, furniture, industrial segments, etc. Indian inks
and industrial coatings segments are still dominated by solvent technology, a trend which is likely to continue through 2025-26. Within the others
category, sanitizer and disinfectants to experience healthy growth after COVID.
 Iso-propanol is one of the most widely used solvents in the world and is also used as a chemical intermediate. The solvent industry is the largest
consumer of Iso-propanol, consuming more than half of the total global production. Chemical industry, and coating and ink industry are other
major end consumers of iso-propanol in the country, which are also expected to grow in the coming years.
 The largest domestic producer of IPA is, Deepak Fertilisers and Petrochemicals Corporation Limited, which has an installed capacity of 70,000
metric tons per annum and commenced production from 2006.

Exhibit10: DFPC IPA production (MT): DFPC is the largest manufacturer of IPA, enjoying a market share of
Exhibit9: IPA prices (Rs/ kg)
70% with an installed capacity of 70,000 MTPA.
300 300

150 150

0 0
02-Jul-19

02-Jul-20
02-Jan-19

02-Jan-20

02-Jan-21

2010-11 2019-20 2025-26P

Capacity Domestic production Imports Exports Domestic demand

Source: Company Fillings, Ashika Institutional Research Source: Company Fillings, Ashika Institutional Research

Chemical Sector Page | 9

 Initiating Coverage | DFPC

Nitric Acid market in India:

 Nitric acid demand in India witnessed a CAGR of 3.38% during the period 2015-2020 and is projected to achieve a healthy CAGR during the
forecast period. Nitric acid is one of the major chemicals with different grades available in the market such as Dilute Nitric Acid (DNA) 60%,
Concentrated Nitric Acid (CNA) 98%, Strong Nitric Acid (SNA) with 64%, 68% and 72% used in different applications in multiple industries.
 The major demand of nitric acid is derived from fertilizer industry to produce Ammonium Nitrate. Domestic manufacturer consumes nitric acid
for captive use to produce nitrate-based fertilizer. 80% of CNA is used in the manufacture of Nitroaromatics.
 Nitric acid is also used to produce nitro aromatics such as Nitro Benzene and Nitro Toluene, etc. Demand for nitric acid application has recently
improved in the electronic industry & steel industry also. With government’s initiatives such as Make in India and reducing the import of
explosives from the overseas countries, the domestic end user such as Ordnance Factory and some private players are focusing on enhancing
their production output, which is anticipated to fuel the demand for nitric acid in the coming years.
 Deepak Fertilisers & Petrochemicals Corporation Ltd., Rashtriya Chemicals and Fertilizers Ltd., Gujarat Narmada Valley Fertilizers & Chemicals Ltd
are the major producer of nitric acid in India. Deepak Fertilisers & Petrochemicals Corporation Ltd has set up a green field project of producing
nitric acid in FY2019 located in Dahej, Gujarat.
 The total capacity of nitric acid in India is around 2044 KTPA with Deepak Fertilisers & Petrochemicals Corporation Ltd holding a maximum share
in its production and capacity in comparison to the other three leading players. The domestic production of nitric acid has surged, and the exports
of nitric acid have improved. Thus, the overall rising application of nitric acid in steel, pharmaceuticals, aromatics and explosives industry is
anticipated to boost the demand for nitric acid during the forecast period.

Exhibit9: Fertiliser industry has the highest requirement of nitric acid in India Exhibit10: DFPC has the highest capacity (MT) of NA in the India - Gap in DNA Prod & Sales is due to
Captive consumption for TAN, CNA, SNA, ANP. Similarly gap in CNA is due to consmption for SNA
8,00,000
7% 7%
Defense & Explosive
8% manufacturers
Pharmaceuticals
4,00,000
15% Nitro Aromatics

Fertilisers -
FY16 FY17 FY18 FY19 FY20
63% Others
Dilute Nitric Acid production Dilute Nitric Acid sales
Concentrated Nitric Acid production Concentrated Nitric Acid sales

Source: Company Fillings, Ashika Institutional Research Source: Company Fillings, Ashika Institutional Research

Chemical Sector Page | 10

 Initiating Coverage | DFPC

Company Background

 Deepak Fertilisers and Petrochemicals Corporation Ltd. (DFPC) is among India’s leading producers of fertilizers and industrial chemicals.
 The company was set up in 1979 as an Ammonia manufacturer, DFPC has a product portfolio spanning industrial chemicals, bulk and specialty
fertilisers, farming diagnostics and solutions, technical ammonium nitrate and value added real estate, which includes India’s 1st & largest
revolutionary concept retail destination for Home Interiors & Design.
 DFPC has manufacturing facilities in Taloja – Maharashtra, Srikakulam – A.P., Panipat – Haryana and Dahej – Gujrat.
 The Company’s products are exported to 29 countries across six continents. The Company has manufacturing facilities across India in
Maharashtra (Taloja), Gujarat (Dahej), Andhra Pradesh (Srikakulam) and Haryana (Panipat).
 They are engaged in the manufacture of Industrial Chemicals (Nitric Acid, Iso Propyl Alcohol, Methanol and Carbon Dioxide) Crop Nutrition (Nitro
Phosphate, Nitrogen Phosphorous Potassium variants, Water Soluble Fertilisers and Bentonite Sulphur) and Technical Ammonium Nitrate (Mining
Chemicals).

Exhibit9: Revenue share from different products Exhibit10: Installed capacities (MT) of different products manufactured by DFPC

4%
4% ANP, NPK, Bensulf, WSF

11% IPA & Propane

2,31,000

8,85,000

1,00,000

1,28,700

4,86,900

3,00,000

6,00,000
35%

70,000

66,000

57,000
TAN
Methanol
10%
Nitric Acid

IPA

TAN
Ammonia
Methanol

Liquid CO2
Dilute Nitric Acid

NP fertiliser
Concentrated Nitric

NPK fertiliser

Bentonite Sulphur
Bulk chemical trading
1%

Acid
Outsourced bulk fertilisers

25% 10% Others

Source: Company Fillings, Ashika Institutional Research Source: Company Fillings, Ashika Institutional Research

Chemical Sector Page | 11

 Initiating Coverage | DFPC

Clarification on promoter pledge:

 During October 2019, International Finance Corporation (IFC) subscribed to the first tranche of US$ 30 million (i.e. approx. Rs.210 Crores), by way
of Foreign Currency Convertible Bonds (FCCBs) and Compulsory Convertible Debentures (CCDs) into DFPCL and its wholly owned subsidiary
Smartchem Technologies Limited (STL).
 Non-Disposal Undertaking (NDU) was provided by the promoter of DFPCL to IFC for CCDs issued by Smartchem Technologies Ltd., which is usual
in such transactions.
 As per the undertaking, the promoters undertook not to dispose the shares (as distinct from a pledge). The NDU ensures that the promoters will
continue to own the shares and not run the risk of losing management control.
 The fact that the encumbrances were only a ‘non disposal undertaking’ in nature was communicated by the promoters to the stock exchanges.
 Interestingly, the promoters increased their equity stake from 51.50% (March2019) to 54.90% (December 2020), a reflection of enhanced
confidence in the Company’s prospects.

% of total share
% of total No. of Shares
Particulars Type of Pledge Total No. of Shares capital
share capital (encumbered)
(encumbered)

Robust Marketing Services Private Limited Pledge 98,37,429 9.58% 87,57,947 8.53%

Nova Synthetic Limited Non-disposal Undertaking 4,35,92,875 42.46% 3,52,81,977 34.36%

Source: Company Fillings, Ashika Institutional Research

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Historical PE Band & SWOT Analysis

Exhibit9: P/E band chart Exhibit10: 1 year forward P/E chart

600 30.00

300
15.00

0
0.00
01-04-2016

01-06-2016

01-08-2016

01-10-2016

01-12-2016

01-02-2017

01-04-2017

01-06-2017

01-08-2017

01-10-2017

01-12-2017

01-02-2018

01-04-2018

01-06-2018

01-08-2018

01-10-2018

01-12-2018

01-02-2019

01-04-2019

01-06-2019

01-08-2019

01-10-2019

01-12-2019

01-02-2020
01-04-2016 01-04-2017 01-04-2018 01-04-2019

Close Price 6.3x 10.2x 14.2x 18.1x 22x 25.9x Forward PE Median SD+1 SD-1

Source: Company Fillings, Ashika Institutional Research Source: Company Fillings, Ashika Institutional Research

Strengths: Weakness:
 More than four decades of knowledge and experience  Dependence on imported raw materials like Ammonia, Phosphoric Acid
 Strong dealer network and loyal customer base across market segments  Working capital intensive business with dependence on government subsidy
 De-risked through multi-product portfolio servicing consumers across diversified sectors  Lag effect of passing the increase in raw material price to end customers
 Among the handful manufacturers of IPA and TAN Solids in India and the second largest Nitric
Acid producer in South East Asia
 Well-established sourcing partners with port and gas pipeline infrastructure for importing raw
materials

Opportunities: Threats:
 Being present in critical growth sectors of the economy, the Company is poised for strong growth  Regulatory oversight in fertilisers and TAN business
with the overall growth of the Indian economy.  Volatility of Ammonia, Natural Gas and USD/INR exchange rates, impacting raw material pricing
 focus on improving agricultural productivity through multiple initiatives including removal of soil  Potential threat of new entrants which could adversely impact leading market position in several
nutrient imbalance and encouraging NPK sector products
 Scaling up exports in TAN  Getting timely environmental clearance for new capex plan
 Strengthening of market position through announced capex plan
 Backward integration to produce Ammonia in-house

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Key Management Personnel

Source: Company Fillings, Ashika Institutional Research

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Operating Performance Analysis

Exhibit27: Revenue (Rs mn): Topline growth going ahead is expected to be derived more from the sales Exhibit28: EBITDA & EBITDA Margin: Strong performance by CNB in the recent past has helped boost
of manufactured products as against traded margins

9,000 15.0%

Rs mn
4,500 10.0%
43,092

41,501

59,949

67,421

46,854

51,673

56,025

60,409
0 5.0%
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E EBITDA EBITDA Margin

Source: Company Fillings, Ashika Institutional Research Source: Company Fillings, Ashika Institutional Research

Exhibit29: PAT & PAT Margin: Tapping into the sanitizer segment and strong performance from TAN and Exhibit30: Margin Comparison: We believe margin expansion going ahead will be led by TAN and NA
CNB will be responsible for incremental growth going ahead segments

5,000 10.0% 15.0%

10.0%
Rs mn

2,500 5.0%

5.0%

0 0.0% 0.0%
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

PAT PAT Margin EBITDA Margin EBIT Margin PAT Margin

Source: Company Fillings, Ashika Institutional Research Source: Company Fillings, Ashika Institutional Research

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Financial Projection

Exhibit31: P&L Statement (Rs mn) FY20 FY21E FY22E FY23E Exhibit32: Balance Sheet (Rs mn) FY20 FY21E FY22E FY23E

46,854 56,153 60,639 67,760 Non-Current Assets:

Net Revenue
Property, Plant and Equipment 24,262 25,262 32,262 37,262
Cost of goods sold 33,096 39,307 42,448 48,110
Capital Work in Progress 13,096 13,641 14,840 16,768
Gross Profit 13,758 16,846 18,192 19,651 Good will on consolidation 409 313 329 350
Employee Cost 3,062 2,753 3,144 3,754 Non Current Tax Assets - Long - Term 1,211 1,332 1,466 1,612
Other Expenses 6,054 6,458 6,670 7,115 Other Non-current Assets 2,892 3,182 3,500 3,850
Total Reported Non-current Assets 45,262 45,328 54,117 61,738
Total Expenses 42,211 48,518 52,262 58,979
Inventories 6,837 8,077 8,044 9,647
EBITDA 4,643 7,635 8,377 8,781
Trade Receivables 12,758 15,042 15,105 17,827
Depreciation and Amortization 2,135 2,157 2,264 2,378 Cash and Cash Equivalents 1,576 2,967 3,865 2,606
EBIT 2,507 5,479 6,113 6,403 Bank Balances 1,017 712 783 861

Other Income 955 964 1,012 1,063 Other Current Assets 1,487 2,577 2,461 2,175
Total Current Assets 24,055 30,001 30,937 33,863
Finance Cost 2,429 1,710 1,719 1,577
Total Assets 69,318 75,329 85,054 95,601
Profit Before Tax 1,033 4,732 5,406 5,889

Profit After Tax 892 4,117 4,595 5,006 EQUITY AND LIABILITIES
Source: Company Fillings, Ashika Institutional Research Share Capital 893 1,003 1,003 1,003
Total Equity 22,239 26,349 30,951 35,955
Long Term Borrowings 20,843 21,051 18,946 17,051
Long-term Provisions 569 626 688 757
Other Non-Current Liabilities 678 746 821 903
Total Reported Non-current Liabilities 22,107 22,428 20,462 18,721
Short Term Borrowings 7,193 2,877 2,906 2,935
Trade Payables 12,945 15,077 15,816 18,399
Others Financial Liabilities 3,378 3,519 3,500 3,466
Total Current Liabilities 24,972 23,044 23,929 26,652
Total Equity and Liabilities 69,318 75,329 85,054 95,601
Source: Company Fillings, Ashika Institutional Research

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Financial Projection contd…

Exhibit33: Cash Flow Statement (Rs mn) FY20 FY21E FY22E FY23E Exhibit34: Ratios FY20 FY21E FY22E FY23E

Net Profit before Tax & Extraordinary Items 1,031 4,732 5,406 5,889 RoE 3.7% 16.3% 14.2% 13.4%
RoCE 5.0% 10.4% 10.9% 10.4%
Cash Generated from/(used in) Operations 5,954 6,570 9,884 7,841
RoA 1.3% 5.5% 5.4% 5.2%
Net Cash Used in Operating Activities 5,783 5,954 9,073 6,957
P/E 7.5 5.5 4.9 4.5
Net Cash Used in Investing Activities -1,557 1,255 -4,380 -4,774
P/B 0.3 0.9 0.7 0.6
Net Cash Used in Financing Activities -3,538 -5,818 -3,795 -3,443 EV/ EBITDA 6.8 5.6 5.0 4.4

Net Inc/(Dec) in Cash and Cash Equivalent 688 1,391 898 -1,259 EPS 10.0 41.1 45.8 49.9

Cash and Cash Equivalents at End of the year 1,576 2,967 3,865 2,606 BVPS 249.1 262.8 308.7 358.6

Source: Company Fillings, Ashika Institutional Research Debt/ Equity 1.3 0.9 0.7 0.6
Source: Company Fillings, Ashika Institutional Research

Chemical Sector Page | 17

 Initiating Coverage | DFPC

Corporate Office:
1008, Raheja Centre, 10th Floor, 214, Nariman Point, Mumbai - 400021, Ph-022–66111700, Extn.-726
Website:www.ashikagroup.com

Ashika Stock Broking Limited (“ASBL”) or Research Entity has started its journey in the year 1994 and is engaged in the business of broking
services, depository services, distributor of financial products (Mutual fund, IPO & Bonds). This research report has been prepared and
distributed by ASBL in the sole capacity of a Research Analyst (Reg No. INH000000206) of SEBI (Research Analyst) Regulations 2014. ASBL is a
wholly owned subsidiary of Ashika Global Securities (P) Ltd., a RBI registered non-deposit taking NBFC Company. Ashika group (details is
enumerated on our website www.ashikagroup.com) is an integrated financial service provider inter alia engaged in the business of Investment
Banking, Corporate Lending, Commodity Broking, Debt Syndication & Other Advisory Services. There were no significant and material
disciplinary actions against ASBL taken by any regulatory authority during last three years.

Recommendations and Absolute Returns (%) Over 1 Year Horizon

BUY Stock expected to provide positive returns of > 10% over a 1-year horizon
NEUTRAL Stock expected to provide positive returns of > 0% to < 10% over a 1-year horizon
REDUCE Stock expected to provide returns of < 0% to -10% over a 1-year horizon
SELL Stock expected to fall > 10% over a 1-year horizon

Digitally signed by HARMISH DESAI

DN: c=IN, o=Personal,

HARMISH DESAI
2.5.4.20=35415b94f2ce9537dc5930aa03cafd61deb9750d0638c8a3
2ed7a9712ed53bdf, postalCode=401107, st=MAHARASHTRA,
serialNumber=99c8872f42b48f1ff375b4bc163f86046fb5220301e8b
eae022d6f88bd574ceb, cn=HARMISH DESAI
Date: 2021.04.07 14:07:43 +05'30'

Chemical Sector Page | 18

 Initiating Coverage | DFPC

Disclosure
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Chemical Sector Page | 19