Deepak Fertilizers and Petrochemicals

Stock Opportunities
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About the company-

  1. Products- INDUSTRIAL CHEMICALS- Iso Propyl Alcohol, methanol, Ammonium nitrate(AN), Dilute nitric acid(DNA), strong nitric acid(SNA), concentrated nitric acid, Propane, Hydrogen
    FERTILIZERS- nitro phosphate 24:24:0,bentonite sulphur, bio fertilizers,water soluble fertilizers and select mixtures
    MINING SERVICES AND CONSULTATIONS- Only manufacturer of Technical ammonium nitrate in India which is a key ingridient in mining industry
    Holistic mining services provider of end to end solution in geology, mine consulting and contract mining
    VALUE ADDED REAL ESTATE-
    Ishanya – India’s first true Lifestyle Centre. Located in Pune, Western Maharashtra

  2. Plant capacities-
    Installed Capacity Unit (MTPA)
    Ammonia -1,28,700
    CNA- 1,38,600
    DNA- 7,02,900
    Methanol- 1,00,000
    Iso Propyl Alcohol- 70,000
    TAN (across Taloja & Srikakulam)- 4,69,000
    CO2 - 33,000
    Nitro Phosphate -2,29,500
    Bentonite Sulphur- 25,000

  3. Company strengths-

Over three decades of technology depth, financial prudence
and human motivation

Multi-product portfolio spanning a variety of sectors – built in
resilience against economic downturns

Plants at Taloja, Western Maharashtra, India

100% Subsidiary – Smartchem Technologies at Srikakulam,
Andhra Pradesh

Ranked Fourth among chemicals manufacturers in India

Only manufacturer of 24:24:0 in India

Amongst market leaders in India for specialty products, water
solubles, specialty fertilisers and Sulphur Bentonite

Among the best recognised brands in the industry—Mahadhan
and Bhoodan— drawn across a wide range of fertiliser products

Network of 4,500 dealers and sub-dealers to ensure penetration
across 7 states – Maharashtra, Karnataka, Gujarat, Madhya
Pradesh, Punjab & Haryana

Strong farmer relationships through 12 Saarrthie centres serving
11,500 farmers

The only IPA and TAN manufacturer in India & the largest Nitric
Acid and AN producer in SEA

Assimilated world’s finest technologies available for products

DFPCL has invested resources in India for production of major
fruits such as grapes & banana. The advantages of these two major
crops in India are:
Large acreage under these two crops therefore good quantity of fruit
is available for marketing
Quality and supply chain is fairly streamlined with packing facilities.
DFPCL’s next mandate crop is Pomegranate
Pomegranate is grown almost round the year with 90% of the area in
Maharashtra – our current location
DFPCL’s agronomists will supervise for production and quality.
DFPCL’s outreach to major cities for domestic sale of fruits &
vegetables
Supply to major super markets as well as into whole sale trade
Proximity to the Middle-East markets as well

  1. NEW PROJECTS-
    Recently announced two new projects in Agri-business at a total
    investment of Rs. 415 crores

Capacity augmentation project at Taloja
Project will more than double the existing capacity at the integrated
fertiliser complex
Will enhance capacity of NPK grades complex fertilisers from 2,29,000
MTPA to 6,00,000 MTPA

Company will gain additional flexibility to produce all NP / NPK grades
with fortification of micro-nutrients

Greenfield Bentonite Sulphur plant
New BenSulf plant at Panipat in Haryana – Northern India
Plant will produce 32,000 MTPA of BenSulf
Both projects are expected to be completed in 30-months from
commencement

WEAKNESSES
Capital Intensive business
Average return on equity figures
Business employs a good amount of Debt

INTERESTING FACTS-

Liberal dividend policy

In May 14, the supply of natural gas from RIL,GAIL to Deepak’s Fertilizers was stopped resulting in a huge blow for the company via cost over runs.

As a result the financial performance of the company in the past 6 qts has been poor. Net margins have fallen from 6-8% to 2%.

However when the gas supply resumes( as Delhi High court has directed the govt to do so in Jul and Oct this year), it will be a huge trigger for the company resulting in huge gains in EPS

Agressive promoter group buying in the company post the stock price correction (in Jan-Mar qtr, increasing the stake by 4.5% to 50%)

By all indications, gas supply should be restored next year and hence the earnings may explode.

Thus it can end up becoming a huge turnaround opportunity

3 Likes
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Good post,

Disc: I hold the stock from the IPO days.

The big triggers are govt. regulated, if it does, there is huge value to be unlocked. These guys are powerful business and political men. All your hypothesis and arguments are capped due to regulations and Farmers issues

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As a topic starter, you are suppose to disclose your holding in the stock. Please do so immediately.

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Disc: I am not holding the stock…still in analysing mode!!!

Another positive( which i believe is already priced in is the fact that the company is out of the MCPL bidding war as it has sold its stake in that company)

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Please make your disclosure of holding in the first post itself.

1 Like
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Deepak Fertilisers chart pattern shows a typical cup and handle pattern.

For those un initiated some salient points about the pattern.

The shape of the pattern is that of a rounding U shaped cup and a shallow smaller handle which is having a slightly downward drift.

The pattern can take six to sixty five weeks to form. (many a times this timelines are interpreted arbitrarily and what is important is the formation).

The points joining the tops of the cup is the neckline and that usually has traditionally been offering resistance from where stock prices react .

The handle portion is a smaller formation of shorter duration than the cup and has a downward drift. The hallmark of the handle is the very low volumes during its time frame. Immediately prior to handle formation and specifically after breakout, the volumes show a sharp jump.

Measuring implication is the height of cup added to the breakout point and this usually provides minimum price targets. Many a times these targets can be exceeded.

attached deepak fertiliser chart with comments in the charts. (this is not a recommendation but an example of a well known pattern shown in charts)

disc: bought today as a techno funda bet.

deepak fertiliser daily line chart.png1336×638 20.3 KB

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Hello Hitesh,

I am new member for ValuePickr and was trying to identify the pattern as you mentioned (cup-and-handle). To my novice eyes - another script seemed to form similar pattern. ATULAUTO. I don’t mean to hijack this thread but, as you have elaborated the pattern details, could help to ask you if you would consider this to be a good cup-and-handle formation?

It seemed to have all the qualities:

  1. Long cup - bottomed
  2. small handle – during which volume was significantly less

Also – what is the usual entry/SL/exit criteria for this type of technical bets?

ATULAUTO.png1314×648 45 KB

disc: Do not hold any position on ATULAUTO or Deepak Fertilizer. Trying to learn

1 Like
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hi

for cup and handle ideal cup is rounding bottom kind of cup. Shallow cups are not preferred.

And the handle part should not correct more than 50% of the whole upmove of the cup. Smaller and shallower handle is better. Important is the volume surge during breakout and volume drop during the formation of the handle.

stop loss is the bottom of the handle.

5 Likes
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Hitesh Sir,

If we look at the chart for last 5 years, there is another Cup-Handle pattern formation. Text book definitions say, this can range between 6 weeks to 6 years. So, does this increase the probability of a positive breakout?

Pasted image930×551 31.3 KB

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I am more enthused about the short term daily charts bcos the pattern is almost classical.

Another fertiliser sector stock gsfc also shows an inverted head and shoulders pattern developing. Breakout will be confirmed once it closes above 75-76 with vols on a sustained basis.

attached chart with comments put in.

It seems something might be happening in fertiliser sector bcos many other stocks also seem to be showing bullish formations.

disc: invested in chambal, gsfc and deepak as opportunistic mainly technical bets. (this should not be considered as a recommendation but only technical observations and technicals are notorious for failing :grinning:)

gsfc daily.png1336×619 18.4 KB

2 Likes
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Hi Hitesh,

I think a similar pattern is being observed in RCF (Rashtriya Chemicals and Fertilizers Ltd). Not sure about the volume part though

Regards
Aditya

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Please do let me know where to pick up the chart from because:

  1. I think in case of GSFC, its not a perfect cup
  2. In case of RCF, the volumes at the breakout of handle are significant, Its a classical formation and very strong signal in my opinion. The fundamentals of the company are also above average.
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attached a recent hdfc securities visit note on deepak fert. detailed report on the company.deepak fert hdfc visit note nov 2015.pdf (222.4 KB)

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aditya,

gsfc is an inverted head and shoulders pattern. Whats needed is a heavy volume breakout to confirm the pattern.

I cant see any cup in rcf. However the chart does look bullish. Which time frame are u seeing a cup in RCF? And against two great quarters i.e q1 and q2 of fy 16 for both chambal, gsfc and deepak, rcf results have been lacklustre.

Even Coromandel International chart seems interesting. On monthly candle stick pattern, it has posted a bullish engulfing pattern in Oct 2015 and since then seems to be consolidating.

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Thanks Hitesh for the detailed reply. I assumed a cup formation in RCF from 19 Aug 2015 to 1 Oct 2015. What is interesting is the abnormal volumes at the right end of the handle (on 27 Nov and 1 Dec). But I maybe wrong as I have just started on technical analysis.

I have covered Deepak Fertilizers. Its a great company, and so is Coromandel,

Yes, on a quarterly results basis, RCF does lag other fertilizer companies. It also lacks the product premiums that Coromandel and Deepak enjoy.

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The chart u mention in RCF has a narrow cup (ideally we want a rounding cup) and handle corrected more than 50%, something like 61.8% down to 45.5 before recovering.

Having said all that if and when the move comes about it will be a secular move in all companies. Something similar to sugar sector. And this is provided the move materialises. :grinning:

Many a times in these sectoral moves the more dirty and lagging companies tend to provide the maximum moves. But to be on safer side to avoid too much capital loss in case the thesis doesnt work out, it is better to stick to better quality companies.

1 Like
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I agree. Deepak has potential triggers as the HDFC Sec report mentions (cheaper gas, higher availability of gas leading to greater utilization), plus any upside from pick up in mining activity. Even if the technical part does not play out, it is a safer bet.

Also, the subsidy receivables problem that plagues fertilizer companies, including better ones like Coromandel, is less accentuated in the case of Deepak.

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One red flag in the case of Deepak. I could not find the detailed rationale on CARE’s website. Rating revised downwards from AA to AA-

http://money.livemint.com/news/company/news/care-revises-ratings-assigned-to-bank-facilities-of-deepak-fertilisers-409907.aspx

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Hi Sir,

Is Rama Phosphates, a nanocap, also forming a cup handle pattern (Nov 5, 2014 to Nov 2, 2015 for the cup and rest handle)? Though volumes are required for the confirmation of breakout at the end of the handle.

Rama Phosphates is manufacturing SSP fertilizers and sulphuric acid.

Regards
Sri Krishna Bhutra

20

hi

I cant make out any specific cup and handle pattern but stock seems in an uptrend.

you can drop the sir bit.

regards
hitesh.

1 Like