In line with our expectations, Deepak Fertilisers & Petrochemicals Corp (DFPCL) has reported a healthy revenue growth of 60% Y-o-Y to Rs3.4 billion in Q4FY08, driven by higher iso-propyl alcohol sales and revenues from its Ishanya project.
While the EBITDA margin declined 55bps Y-o-Y on account of rising raw material prices, it was still higher than our estimate owing to lower-than-expected operating expenses. Other income declined significantly following foreign exchange losses during the quarter, which explains the modest 14.7% growth in net profit to Rs319 million.
The company is expanding its diluted nitric acid capacity to 1,350MT/day from 900MT/day by June 2009 with a total investment of Rs1.1 billion. This is expected to elevate its market share from 48% to 58%, while boosting the production of nitro phosphates and ammonium nitrate.
Deepak Fertilizers has started to procure 0.2–0.3mmscmd of LNG from GAIL through its Dahej-Uran pipeline, which is expected to increase plant capacity utilisation. It also expects gas supply from the Reliance KG-basin to commence soon. This apart, Ishanya will lend an added dimension to profitability. We maintain our BUY recommendation on the stock with a price target of Rs183.