Deepak Fertilisers Righs Issue review (May apply)

Deepak Fertilisers and Petrochemicals Corporation Limited Logo

•    DFPCL group is primarily engaged in agriculture-related business.
•    The company is one of the leading players of TAN in domestic markets.
•    Company's future hinges with cyclical ups and downs of the Agri/mining sector.
•    Investors may consider an investment with a long term perspective.

Deepak Fertilizers & Petrochemicals Corp. Ltd. (DFPCL) is the flagship company of the well-diversified group. The group is engaged in the business of fertilizers, agri services, bulk chemicals, mining chemicals and value-added real estate.

The company enjoys a strong market position in the existing chemical business of ammonia nitrate ('AN'), nitric acid and IPA. It is one of the leading players of TAN in the domestic market supported by the superior quality product offering in the form of Low-Density AN ('LDAN'), which commands a premium over AN-melt manufactured by domestic players and the imported fertilizer grade AN. The company is also the sole producer of IPA in the domestic market and caters to 75¬80% of the market demand through its manufacturing capacity as well as imports. The Company is also the leading manufacturer of concentrated nitric acid ('CNA') in the domestic market.

DFPCL is issuing 13392663 equity shares of Rs. 10 each at a fixed price of Rs. 133 per share by way of the rights issue to mobilize Rs. 178.12 cr. The company is issuing 3 shares for every 20 shares held as on September 17, 2020. Full money is to be paid on application.

The promoters and promoter group has confirmed that they will subscribe full rights entitlements and will also subscribe to the extent of 75% of the issue size in case of under subscription. The company also reserves the right to apply for additional shares in the issue, if any, complying with SEBI listing regulations of minimum shareholding.

DFPCL will utilize the net proceeds of a rights issue for repayment/prepayment of inter-corporate deposits (Rs. 125.00 cr.), reduction of the consolidated borrowings (Rs. 15.00 cr.) and general corpus fund (Rs. 36.05 cr.). The company will be spending Rs. 2.07 cr. for the entire rights issue process.

The issue opens for subscription on September 28, 2020, and will close on October 12, 2020. Post allotment, shares will be listed on BSE and NSE. The issue is solely lead managed by BOB Capital Markets Ltd. and KFin Technologies Pvt. Ltd. is the registrar to the issue.

Company's current paid-up equity capital of Rs. 89.28 cr. will stand enhanced to Rs. 102.68 cr. post this issue. DFPCL is looking for a market cap of Rs.1365.61 cr. on the basis of post rights issue paid-up equity capital.

For the last two fiscals, on a consolidated basis, DFPCL has posted turnover/net profits of Rs. 6796.36 cr. / Rs. 73.47 cr. (FY19) and Rs. 4780.83 cr. / Rs. 89.01 cr. (FY20). The company reported other income of Rs. 54.30 cr. and Rs. 95.45 cr., depreciation provisions are Rs. 171.46 cr. and Rs. 213.53 cr. and tax provisions were Rs. 36.32 cr. and Rs.14.07cr. respectively for these two fiscals.

For Q1 of FY21, it has earned a net profit of Rs. 121.14 cr. on a turnover of Rs. 1385.67 cr. If we annualize latest earnings and attribute it on post rights equity, then asking price is at a P/E of around 2.82 (provided company maintains such earnings). Sustainability of such performance is a major concern.

Based on FY20 earnings, the issue is priced at a P/E of 15.30 based on fully diluted equity post rights issue.

Its equity capital of post rights of Rs. 102.68 cr. is supported by free reserves of Rs. 2256.23 cr. As on June 30, 2020 promoters were holding 52.20% equity shares of the company.

The scrip quoted at Rs. 173.45 on cum-right (on September 15, 2020) and opened at Rs. 165.00 ex-right (on September 16, 2020). On Friday, September 18, 2020, it closed at Rs. 164.80 indicating market cap of Rs. 1692.12 cr. Last 52 week, scrip has marked high/low of Rs. 187.06/55.29.

Conclusion / Investment Strategy

Considering improved performance for Q1, bright prospects following good monsoon this year, the company is poised for better times ahead. Investors may invest in this right offer with a long term perspective.

Review By Dilip Davda on Sep 19, 2020

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).

About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

The Deepak Fertilisers Rights Issue Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered Rights Issue Analysts tells you if Deepak Fertilisers Rights Issue worth investing. The Deepak Fertilisers Rights Issue Note sets the Rights Issue expectations in systematic way which tells you if Deepak Fertilisers Rights Issue good to buy (good or bad / yes or no). The Rights Issue Forecast tells you weather to invest in Deepak Fertilisers Rights Issue by providing Rights Issue recommendations i.e. subscribe, avoid and neutral.