Deepak Fertilisers to demerge its mining chemicals & fertilizers biz; stocks rises 6%

The commodity chemicals and agrochemicals player received the principle approval to demerge its mining chemicals and fertilizers businesses with the composite scheme of the arrangement, it said in an exchange filing.

Smartchem Technologies (STL) (demerged company), Deepak Mining Services (DMSPL) (resulting company) and Mahadhan Farm Technologies (MFTPL) (transferor company), and their respective shareholders, the filing said.

Following the announcement, shares of Deepak Fertilisers (DFPCL) gained about 6% to Rs 861 on Friday, before retreating to Rs 831.5 at 10.50 am. The scrip had settled at Rs 812.4 on Thursday.

Over the past few years, DFPCL improved its operational performance, generated cash flows, and strengthened the balance sheet, while focusing on increasing investments in greenfield expansions.

"The proposed corporate restructuring shall considerably help create strong independent business platforms within the larger DFPCL brand umbrella, hence enhancing stakeholders' value over time," said Sailesh C Mehta, Chairman and Managing Director, DFPCL.

Shares of Deepak Fertilizers delivered multibagger returns in the last year, rising over 120% in 2022, so far. The stock has jumped about 40% in last six months.

IIFL Securities, in its report released on December 12, 2022, said that it was impressed by the execution of the new Ammonia plant. "The Rs 4,300 crore capex commenced on March 31, 2021, is on track to get commissioned by April or May 2023."

"We assume the Ammonia project to contribute $230/t of Ebitda, though, at current realisations, benefits could be much higher. We retain our positive stance on the stock as valuations are attractive," it added with a buy rating and a target price of Rs 1,070.

Finished goods prices have gone up in the last few quarters due to rising raw material prices. But better pass-through of the price increases has been seen in these past few quarters, said Choice Broking in its December 2022 report.

From a demand perspective, the company remains a bullish play, it said. "TAN margins used to be lower historically; however, strengthening in demand and lowering of RM costs for DFPCL should keep margins reasonably elevated," it said without rating the stock.

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