Home / Markets / Stock Markets /  Chemical stock may rally over 45% as IIFL sees upside

Domestic brokerage and research firm IIFL has retained its positive stance on Deepak Fertilisers shares, as at 10x FY23ii P/E, it continues to find valuations attractive. While nitric-acid realisations and spreads are expected to sustain in FY23, TAN spreads may soften. Thus, EPS growth in FY23 is expected to be muted, the brokerage highlighted in a note.

IIFL has maintained its Buy rating on the chemical stock with a target price of 900, implying a potential upside of more than 45% from the current level. Deepak Fertilisers shares are up about 53% in 2022 (YTD) so far.

The company's management has reiterated that the ammonia and TAN expansion projects are on track. Also, peak debt levels may not be as high as initially anticipated due to the healthy cash generation. While nitric-acid demand is likely to remain robust, TAN spreads may soften as Russian supplies re-enter the market, the brokerage said.

“However, the company is likely to deliver considerably healthy growth in FY24 and FY25, as its key capex projects are commissioning then. Ammonia prices sustaining at current levels could further increase growth and FY24/25 Ebitda. By FY26, when both capex projects should be running at optimal utilisation, we expect EPS to approach Rs85-90 levels. Even a modest 10x P/E by then would imply a Mar-2025 target price of ~Rs1,020-1,080 (and potentially higher, if DFPCL switches to the new tax regime)," it added.

Deepak Fertilisers And Petrochemicals Corporation Limited (DFPCL) is India’s top producer of ammonium nitrate (TAN), nitric acid and isopropyl alcohol (IPA) and a niche maker of NPK fertilisers. 

The company has focussed on a strategy of import substitution throughout its history, and has consequently built up dominant market shares in India across all its major chemical products.  DFPCL’s main manufacturing facility is located at Taloja. The company also has facilities at Dahej, Srikakulam and Panipat.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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