Deepak Nitrite Vs Deepak Fertilisers: Specialty chemicals and fertilisers companies have been in focus in the last few years with many reporting multi-fold growth in their profits.
The Deepak Group has been at the forefront with its two stocks: Deepak Nitrite and Deepak Fertilisers & Petrochemicals. How are the two companies related? What are the differences in their business?
In this article, we’ll attempt to answer these and other questions by performing a comparative analysis of Deepak Nitrite vs Deepak Fertilisers.
Deepak Nitrite Vs Deepak Fertilisers
For our comparative study of the two companies, we’ll read about their businesses and the scale of their operations. Next, we’ll go through their financials. Lastly, a highlight of their future plans and a summary conclude the article.
Deepak Nitrite Vs Deepak Fertilisers – Company Overview
Both the companies, Deepak Nitrite Ltd. (DNL) and Deepak Fertilisers & Petrochemicals Ltd. (DFPCL) were started by Chimanlal K. Mehta. DNL was set up in 1970 while DFPCL came 9 years later. Presently, Deepak Mehta and Sailesh Mehta, C. K. Mehta’s two sons manage DNL and DFPCL respectively. Let us read more about them now.
Deepak Nitrite Ltd. (DNL) is one of the fastest-growing Indian chemical intermediary companies with over 50 years of legacy. It is the largest manufacturer of sodium nitrite, sodium nitrate, Phenol and Acetone in the country.
The company owns 6 state of the art production facilities with 2 under-construction project sites. It has a large portfolio of more than 30+ products which are used by more than 1,000 customers in 46 countries around the world.
Its chemicals find their end applications in a multitude of industries including petrochemicals, rubber, agrochemicals, paper, pharmaceuticals, detergents, and more. It broadly makes two types of products: Advanced Intermediates (AI) and Phenolics.
Talking about its revenue share, the AI division and Phenolics division contributed 38% and 62% of the total FY23 revenue respectively. Their EBIT contribution stood at 48% and 52% respectively. India brought 80% of the total income for the company while the balance came from customers outside India.
Deepak Fertilisers & Petrochemicals Corporation
Deepak Fertilisers & Petrochemicals Corporation Ltd. (DFPCL) is one of the largest chemicals and fertiliser companies in India. It is involved in the production of industrial chemicals, mining chemicals and crop nutrition products.
It makes nitric acrid, isopropyl alcohol, methanol, carbon dioxide, nitro phosphate, nitrogen phosphorous potassium variants, water-soluble fertilizers, ammonium nitrate, and more. Recently, the company started a home lifestyle centre called Creaticity to tap the value-added real estate market in India.
Broadly, its chemicals are used in steel, solar, dyes, explosives, cosmetics, mining, pharmaceuticals, agriculture, paints, and other industries.
DFPCL owns four production facilities with a cumulative capacity of 3 million MT per annum. Additionally, its two sites for ammonia and ammonium nitrate are under construction.
Talking about the revenue segments of Deepak Fertilisers, it earned a majority of 56.7% of its income from manufacturing and trading of industrial and mining chemicals.
Another 43% came from the production and trading of fertilisers. Its other business activities bought less than 1% of the total income for the company.
We got a good understanding of the two companies. Let us now move forward to read about the industries in which they operate.
Deepak Nitrite Vs Deepak Fertilisers – Industry Overview
India held a small 3-3.5% share worth $170-180 billion in the global chemicals market in 2021. Broadly, it is projected to grow at a CAGR of 9-10% per annum to reach $290-310 billion in value by $290-310 billion by 2027 and eventually $850-1,000 billion in value by 2040 commanding a significant 10-12% of the global market.
The chemicals industry is segmented into five sub-segments: specialty chemicals, inorganic chemicals, petrochemicals, fertilisers, and others (pharma, personal care, etc). Out of this, the market experts expect the specialty chemicals demand to grow the fastest at 11.5% CAGR during 2021-2027.
The inorganic and petrochemicals sub-sectors are anticipated to expand at a CAGR of 11% each during the period to reach $25 billion and $90-100 billion during the period. Fertilisers, already a mature market is expected to grow slower at a 6% annual rate.
Going forward, a variety of factors including a shift in demand to emerging economies, consolidation of players, government support, diversification of global supply chains, rising per capita consumption, and digitalisation are expected to accelerate the growth of the Indian chemical industry.
Deepak Nitrite Vs Deepak Fertilisers – Financials
Revenue & Net Profit Growth
The revenues and net profit of both companies increased at a fast pace during our study period. DNL and DFPCL reported a net profit of Rs 852 crore and Rs 1,221 crore in FY23 respectively. DNL’s profit after tax was low on account of weak demand and margin compression.
The figures below represent the operating revenues and net profits of Deepak Nitrite and Deepak Fertilisers & Petrochemicals Corporation for the past five years.
|DNL Operating Revenue||7,972||6,802||4,360||4,230||2,700||31%|
|DNL - Net Profit||852||1,067||776||611||174||49%|
|DFPCL - Operating Revenue||11,301||7,663||5,808||4,685||6,742||14%|
|DFPCL - Net Profit||1,221||687||406||89||73||102%|
(figures in Rs Cr except for CAGR)
Moving on to studying margins for our comparative study of Deepak Nitrite vs Deepak Fertilisers, we can say that Deepak Nitrite operates at higher margins because of its presence in specialty chemicals space. Excluding FY23, DNL demonstrated wider EBITDA and PAT margins than DFPCL throughout our study period.
The figures below represent the past five years’ EBITDA and net profit margins of Deepak Nitrite and Deepak Fertilisers & Petrochemicals Corporation.
|DNL - EBITDA Margin||16.8||24.2||29.1||25.1||15.9|
|DFPCL - EBTDA Margin||19.2||17.7||16.4||9.9||6.8|
|DNL - Net Profit Margin||10.7||15.7||17.8||14.4||6.4|
|DFPCL - Net Profit Margin||10.8||9.0||7.0||1.9||1.1|
(figures in %)
Moving further on our profitability analysis, the return ratios of DNL and DFPCL converged in FY23 because of lower profits on Deepak Nitrite. However, looking at historical figures we can say that Deepak Nitrite is more profitable than Deepak Fertilisers.
The table below presents the previous five years’ return on capital employed (RoCE) and return on equity (RoE) of Deepak Nitrite and Deepak Fertilisers & Petrochemicals Corporation.
|DNL - RoCE||27||40||37||37||17|
|DFPCL - RoCE||23||18||15||8||9|
|DNL - RoE||23||38||40||46||17|
|DFPCL - RoE||24||17||15||4||3|
(figures in %)
Both companies have done an impeccable job of bringing down the debt levels. During our study period, Deepak Nitrite became debt free while Deepak Fertilisers’ debt/equity ratio came down to 0.7 in FY23 from 1.5 in FY19. Furthermore, both stocks have exhibited improvement in their interest coverage ratios.
The table below showcases the debt/equity ratios and interest coverage ratios of Deepak Nitrite and Deepak Fertilisers & Petrochemicals Corporation for the previous five financial years.
|DNL - Debt/Equity||0.0||0.1||0.3||0.7||1.1|
|DFPCL - Debt/Equity||0.7||0.7||0.9||1.3||1.4|
|DNL - Interest Coverage||54.0||48.4||17.1||8.0||4.2|
|DFPCL - Interest Coverage||11.6||9.0||4.1||1.4||1.5|
Deepak Nitrite Vs Deepak Fertilisers – Future Plans
So far we looked at the previous fiscals’ data for our comparative study of Deepak Nitrite Vs Deepak Fertilisers. In this section, let us attempt to know what lies ahead for the companies and their investors.
Future Plans of Deepak Nitrite
- DNL has announced a significant investment of Rs 2,500 crore over the next years toward various projects.
- Its management is presently focused on ensuring raw materials availability, backward integration, product portfolio diversification, and incorporation of new chemistry platforms.
Future Plans of Deepak Fertilisers
- DFPCL has earmarked a large investment of Rs 4,350 crore to increase its capacity of ammonia to 6,28,700 MTPA by FY26.
- Additionally, it has planned a capital expenditure of Rs 2,201 crore to reach 8,62,900 MTPA production of technical ammonium nitrate by FY26.
Deepak Nitrite Vs Deepak Fertilisers – Key Metrics
We are almost at the end of our comparative study of Deepak Nitrite Vs Deepak Fertilisers. Let us take a quick look at the key metrics of the stock.
|Market Cap (Cr.)||₹28,009||₹6,930.36|
|Price to Book Value||6.75||1.36|
As we conclude our comparative study of Deepak Nitrite vs Deepak Fertilisers, we can say that in various aspects, DNL is a stronger business than DFPCL, although beaten down in this fiscal. Despite this, it trades at a higher PE giving a market capitalization of Rs 27,437 crore against Rs 6,700 crore of DFPCL.
However, with heavy CAPEX plans, Deepak Fertilisers and Petrochemicals does not seem to be behind much. Investors might not be taken into account the future earnings from these new projects.
Which company can outperform in the longer run? Which of the two do you hold or plan to buy in the near future? How about we continue this conversation in the comments below?
Written By Vikalp Mishra
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