We initiate coverage on Deepak Fertilisers (DFPC) with BUY and SoTP-based TP of Rs2,000 (implies 10x EV/EBITDA). DFPC is a leader in mining and industrial chemicals, with the lion’s share in domestic markets; it is also the market leader in water-soluble fertilizers. Its product portfolio is well aligned with India’s growth story, and it has plans to move from commodity to specialty offerings across existing product portfolios. Technical ammonium nitrate (TAN) expansion in Gopalpur, nitric acid (NA) expansion in Dahej, and the Equinor contract’s pricing benefit in ammonia manufacturing will drive at least 50% EBITDA growth over FY26-28E. DFPC has restructured its businesses into different entities (DMSL: mining chemicals; MAL: crop nutrition), which it plans to demerge in the next 2-3 years; this will lead to value unlocking and multiple re-rating across businesses. In our view, value of the mining business with an expanded TAN capacity of ~1mmt (Dec-27E EBITDA of ~Rs17bn at 12x EV/EBITDA is Rs19bn) is higher than the overall current market cap of DFPC.
Mining Chemicals – Backward integration to reduce volatility DFPC is the largest producer of TAN in India, with total capacity of ~1mmt by FY26E. It backward integrated into ammonia in CY24 (capacity of 507ktpa), with a view to capture spreads across the value chain, right from natural gas, and reduce volatility for the overall business. TAN remains in a sweet spot, with growing demand in critical industries like coal/limestone/metals mining and explosives; accordingly, DFPC has carried out brownfield and greenfield expansions. DFPC has better margins in this business because of ~40% market share, leading to better pricing power and a transition toward totalcost-of-ownership (TCO) projects across mining and infrastructure clients.
Industrial Chemicals – Steady growth to continue with new nitric acid capacity DFPC’s industrial chemicals portfolio consists of Iso Propyl Alcohol (IPA, 70ktpa) and NA (~1,120ktpa), in which it has key market share and long-term contracts with large customers in the Indian market. The business is steadily transitioning from commodities to specialty chemicals, with DFPC focusing on a customer-centric approach, eg, in IPA, it has introduced a pharma variant and in NA, it has introduced solar grade. DFPC is in the process of expanding its NA capacity in Dahej by 450ktpa by end-FY26 which will position it as the largest NA producer in Asia. DFPC is also exploring growth opportunities in solar photovoltaics and semiconductors, where demand for high-purity specialty chemicals is set to rise with increased public and private investments.
Crop Nutrition business – To benefit from brand business/new launches DFPC is the market leader in bentonite sulphur and water-soluble fertilizers in India, with strong presence in Maharashtra, Gujarat, and Karnataka. It is steadily expanding across other southern and northern states. The tie-up with the Haifa Group will aid technological advancements to promote high-performance specialty fertilizers and improve crop yield.
