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Tuesday, February 22, 2011

Mid cap stock analysis - Deepak fertiliser

Mid cap stock analysis report of Deepak Fertilizer. Market leading positions for products it manufactures makes it a mid cap stock to buy among fertilizer sector stocks.

Deepak Fertilizers and Petrochemicals Corporation Limited operates mainly in 3 segments: chemicals, agri-business & specialty retailing. Major products of company are methanol, various grades of nitric acid, iso propyl alcohol, carbon dioxide and hydrogen. Company also have explosives division which manufactures low density ammonium nitrate, used to make ammonium nitrate-fuel oil (ANFO), blasting agents and emulsified ANFO (HANFO).

Agri-business division of Deepak fertilizer manufactures 23:23:0 prilled nitrophosphate fertilizer, the brand name is Mahadhan. Company has dealer network of more than 1000 dealers to market Mahadhan. The Company subsidiaries include, Smartchem Technologies Ltd., Deepak Nitrochem Pty. Ltd. and Deepak Mining Services Pvt. Ltd.

Deepak fertilizer is a leading manufacturer of products mentioned above and enjoys good market share in India for these products. Technical Ammonium Nitrate (TAN) is the main product which enjoys 30% share with leadership in market. Company’s another product, Iso Propyl Alcohol (IPA), has 75% market share in India. It is used in industries such as pharma, agro-chem, organic chemicals, imaging chemicals, healthcare sector and paints.

Recently Deepak fertilizers has announced their plans to setup a plant with investment of Rs. 100 crores. This expansion will ramp up its production capacity and further strengthen its revenues.

Stock valuation
Estimated revenues for company in FY 11 are at Rs. 1545 crores, a 16% growth over previous year. Similarly, estimated revenues for FY 12 are at Rs.2082 crores, a jump of 35% over FY 11 estimates. This would take EPS at Rs.25 in FY 12. So at current stock price, Rs.160, the stock trades at forward P/E (FY 12) of only 6.4 which makes it a good bargain.

One may buy stocks of Deepak fertilizer in 1-2 years investment portfolio for target price of Rs.200. Any dips in current price can be considered as a good opportunity to invest in it.

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