So I see couple of things, now going for the company (Pros):
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Ammonia prices are going back up (have recent articles price have jumped to near USD 400/ton) which makes things work for the Ammonia Plant. Ammonia downcycle has been playing for a while now and the demand seems to have been picking up. If prices keep rising, there could be a turnaround here in profit margins.
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An angle still exists to offload a bit of Ammonia in the domestic market to match up some negatives. This was also mentioned in the concall. All other ammonia manufacturers in India are PSUs and consuming it majorly internally.
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IPA business is expected to perform strong. Fertilizer segment might do good due to the uptick of activity in monsoon season as quoted by Antique Broking. But there are mixed signals here due to some media reports highlighting rainfall deficit.
Cons:
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Gas prices are going up. The company has dynamic contracts with Brent Index and JKM pricing. If the the uptick is too high then the negative in ammonia might continue. But the management has quoted that they have done some hedging here.
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If fertiliser subsidy is not adjusted with price rise of ammonia (in case ammonia prices increase), again there could be potential impact like Q1 of FY24.
My thesis why the risk reward is beneficial:
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Low PE as compared to other chemical companies. I believe the market still values it like it’s peer fertiliser companies which are PSUs. There should be a re-rating story here. Demerger and listing could also be a trigger for this.
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Company seems innovative in it’s operations so by the time sunset sectors show downward trend, the company should have adjusted it’s product portfolio.
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If export gates for TAN open which the management mentioned in their commentary government is considering then there is a good opportunity.
Would love to know what others think. I do believe by end of next year (November 2024) the EPS could hit into 130-150 ranges deriving a target price range between 1300-1900.
Disclosure – Deepak Fertiliser and Petrochemicals is a stock in my portfolio.
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