DFpCL is expecting CNA demand from 85KT to 300KT from Fy24 to Fy30. Company would like to leverage its leadership position in CNA segment and would be expanding its CNA production capacity by 150 KT PA based on increased demand.
WNA demand is expected to rise from approx. 140 KT in FY24 to 330 KT by FY30. The demand growth is driven by captive and merchant demand, particularly from Nitroaromatics and other downstream industries. Accordingly, the DFPCL plans to expand its WNA capacities by 300 KTPA.
I was going through ConCall and found they are dicussing about price of Ammonia produced in -house and imported.
So, we are currently looking at FOB Middle East prices of about $230 to $250 odd in that range
and given the current gas prices, I think overall we would somewhere be between $125 to $150
odd negative in terms of our import parity prices versus the prices at which we would be
producing ammonia.
So what does it means?
Imported Ammonia price is $230 to $250 and in-house produced will cost between $125 to $150?
- So what does it means?
At the time of the conference call, import prices were cheaper than their cost of production by $125-$150
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Than this will be huge deterrent to the profit margin of the company.
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lol what? whatâs even the point of such humongous backward integration then? Could do a smaller capex to narrow the range than to fully eliminate it
In a commodity business you have to undergo through both the ends of pendulum swing. Sales and margins of the Company were phenomenal during last 3 years and they are bound to revert to mean which is also evident from last 10 year figures so nothing surprising.
Mar 2012 Mar 2013 Mar 2014 Mar 2015 Mar 2016 Mar 2017 Mar 2018 Mar 2019 Mar 2020 Mar 2021 Mar 2022 Mar 2023 TTM
OPM % 17% 12% 13% 8% 8% 11% 9% 7% 10% 17% 18% 19% 16%
Jun 2020 Sep 2020 Dec 2020 Mar 2021 Jun 2021 Sep 2021 Dec 2021 Mar 2022 Jun 2022 Sep 2022 Dec 2022 Mar 2023 Jun 2023
OPM % 20% 14% 15% 17% 15% 12% 18% 25% 24% 18% 17% 17% 12%
With the Commissioning of Ammonia Plant now onwards Depreciation & Interest from Ammonia plant will hit the bottom line without any incremental contribution(top line and bottom line) at the current stage. Further, there is a downward trend accros the chemical sector where even so called specialty chemical business are also not being sparedâŚ
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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 itâs 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 itâs operations so by the time sunset sectors show downward trend, the company should have adjusted itâs 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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On a monthly basis you can track it here: https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/energy-transition/051023-interactive-ammonia-price-chart-natural-gas-feedstock-europe-usgc-black-sea
Otherwise, I have been just scouting for articles posting about the latest rate. The latest number I have got is of 390 USD here: Urea, DAP prices rise up to $150 per tonne in the global market - Farmer News: Government Schemes for Farmers, Successful Farmer Stories
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So this article was last updated in mid-August and post that I have been tracking the articles I shared. But you are right, till the data updates we donât have any direct visibility into ammonia prices. I have tried to find ways to track it in realtime but havenât been able to. I guess these charts will update once a month or so, post which we can compare August and September averages which should give us a sense into ammonia prices and profitability from a raw material standpoint.
Couple of other things which I tracked which seem positive:
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Demerger - The co plans to demerge into three entities and re-list them in public (estimating in FY25) which should unlock value from a PE standpoint. But the market should start pricing this in with the news of the demerger. Itâs about time, has been filed since almost a year now. Tracking it here
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Fertiliser Sales in NPK from volume standpoint have grown in July (August data is yet to arrive). You can track it here: https://www.fert.nic.in/monthly-bulletin
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Coal Indiaâs production was higher in August. CIL is largest consumer of TAN for DFPCL in India. Reference article
I have taken a heavy position in this stock since past 9 months and havenât moved it yet. I missed the rally when I did the mistake of exiting it around 250. But I am being data-driven atm (and hoping for good data in coming months).
Future potentials like Solar and Steel Grade Nitric Acid, Ammonia Profitability, Lift on TAN Export Ban, etc excite me in this stock. I do believe itâs a 3x opportunity in the next 15 months (only if things go in the right direction). Hereâs my math:
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Company did an Annual EPS of INR 95.86 in March 2023. By end of December 2024, I am betting this to go upto INR 105. I am estimating this through all the opportunities I talked about earlier. It requires a 16% growth in their annual sales with 10% net profit margin.
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Now this could be completely wrong, but I do value this company at a PE of 18. The company has always been looked from a fertiliser co standpoint but with itâs transition towards speciality chemicals the PE should be higher especially as the demerger approaches.
P.S - Invested and biased. But if there are similar opportunities with less assumptions, please do let me know
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Hi,
Hi, The Q2 quarter falls under monsoon which is like a seasonal low in terms of volumes, The management in PPT have mentioned that next quarter the volumes would fall.
I think personally I am interested in seeing how the market would react to next quarter and then take a decision. Please note next quarter we would have the depreciation effect.
you can track ammonia price here on a monthly basis, this would give a better idea
There is no significant recovery and they are still at loss or par.
The biggest challenge to assess is how much is already priced in the market, I personally will be in a better position to decide on this company after Q2.
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Yeah fully agreed with your comments. I am particularly interested in the story after the Q2 this year. Gas prices are up and that should reflect in ammonia soon.
But would like to understand something which I havenât been able to wrap my head around. Why doesnât the ammonia unit economics donât work at 250 USD cost price? Is it because global players are selling ammonia at a significant loss. Because freight cost advantage, the SGST advantage, thermal advantage should in theory work similarly, no matter the cost right? Or the gas DFPCL is getting is expensive?
Would love to know if someone knows/understands this. From a Q2 perspective I agree, not going to be very bright. Might see lower profits or profits like Q1. Especially because even gas prices are high at the moment.
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China bans urea exports. Urea is made from ammonia and hence the demand is likely to rise (ammonia is raw material for urea). Should impact ammonia price and get the run up. I was able to track the latest price of ammonia at 300USD (was at 350 USD in August End) Middle East FOB. Check screenshot attached. This all is being reflected in price action.
I still think because of high gas prices, the prices need to touch upwards of 400-450 so that the ammonia plant starts making sense.
Sources:
Ammonia Price - Indian Petrochem Database (You can get a trial subscription for 5 days, otherwise itâs 5K)
China Ban News - Bloomberg
Disclosure - Invested
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Some key updates:
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SGX has launched Ammonia Futures, citing other use cases of Ammonia (to make hydrogen) which can give us a sense of Ammonia Prices: Ammonia - Singapore Exchange (SGX)
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Average Ammonia Cost Quoted in Monthly Bulletin | Department of Fertilizers is 314 USD and looking at futures looks like in September was upwards of USD 400. This falls closer to profitable ranges for the new Ammonia Plant. Major supplier in Saudi Arabia Maaden has been in shutdown affecting spot ammonia availability. Although this is a weak quarter, the EBIDTA might get a good lift from ammonia profitability. Or at-least should be able to deliver the proof-of-concept for the same for the month of September.
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IPA prices have shot up by 30.0% on YoY basis and 40% in past 3 months. Deepak Fertilizers and Deepak Nitrite are the only domestic manufactures of these.
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Demerger to complete in Q3 as per management. Should unlock strategic investments and if re-listed offer tremendous upside. This is primarily because chemical businesses like IPAs and Mining should get much higher PE as they fall under speciality chemicals. Company is also working on solar nitric acid and steel grade nitric acid. TAN sales should pick up in Q3.
Markets are always forward looking, hence I believe there should be some upside in this stock soon. Looks promising on 1-year horizon.
Disclosure - Invested
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hi dear, you summarised it really well, I am also the long term holder. just wanted your insights on their land parcel in Pune , I had been there as company used to have AGM over there and itâs a decent size land parcel in good locality, looking at the investment interest in Pune and other cities from major Global companies for their GCCs , I think that land parcel could turn out to be pretty decent add-on to have. Management had commented about this in recent con call and may be we see something soon! your comments will definitely help. thanks
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Not sure about any update on land sir.
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Ammonia Prices have been relatively high in the month of September hence I believe ammonia plant will contribute to EBIDTA margins. The prices may get lower in coming quarters as Middle East plants start operating but I believe should be in ranges comfortable for DFPCL.
As quoted before by management TAN sales wonât be high this quarter due to cyclical nature hence the value of ammonia profitability might not be that high. But Coal India has produced record coal even in this quarter. So we never know.
I am particularly excited about the demerger in Q3 as it opens up an opportunity to compete with likes of Solar Industries Limited in explosives category. Solar consumes AN from likes of DFPCL. They have the supply chain advantage there although market entry might take a while. Just from a valuation perspective it should open high PE doors.
Would love the forumâs perspective here.
Latest Sources for Ammonia Prices:
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