Do you see Fertilizer profits as a downside risk right now? Margins from Fertilizers were at 4% in Q3FY22, and have been loss making/single digit margins for 6-7 years now with a few exceptional quarters. To me, the larger question is of how TAN products will perform, since they form a majority of the bottomline. I’m still of the view that Q3FY22 is a peak quarter for TAN, and won’t see significant improvement on this vertical until capex comes onstream.
As an aside, higher up in the thread, you used to say that Deepak Fertilizer was your largest holding. Could you please share what made you change your mind in the last 3-4 months to exit completely?
Positive for Deepak Fertiliser as it is venturing both into Ammonia as well as Ammonium Nitrate
For ammonium nitrate, of which the fertiliser industry is a major user, the ministry of coal has proposed a production-linked incentive (PLI) scheme. “In order to provide initial support, the ministry has asked the finance ministry to set up a PLI for ammonium nitrate manufacturing.
This would bring volumes and ensure the price is competitive to that of the import markets,” said an official. Senior executives said the PLI scheme is being pegged at 20 per cent of sales. India currently imports close to 20 per cent of its ammonia and ammonium nitrate consumption, primarily from Turkey, Russia, and Bulgaria. In a recent investors’ meeting, the ministry of coal pointed out that recent global events indicate a need for development of indigenous capacity.
All positive but few negative points in the presentation :
"IPA sales volumes decreased by 42% y-o-y in Q1 mainly due to raw water
shortage and inability to pass through the rising cost of propylene raw
material and fuel. " IPA business once in lime light during COVID period is now below breakeven…
“Demand and pricing for all grades of Nitric Acid are relatively subdued as it is typically expected during the monsoon season.”
Q2 results are expected to be muted…
“In Q1 FY23, TAN Business achieved a capacity utilization of 111%. Volumes were supported by continued demand from Coal as reflected in Coal India’s and SCCL’s OB performance”
Tan business seems to be at peak volume with no capacity left for further volume growth, further TAN demand is muted in monsoon season becasue of lower mining activity…
There is an element of cyclicality in the business and Q1 apparently seems to be at peak performacne.
Q) TAN realisations are some 80% higher, how sustainable is this trend? A) Volumes overall went up due to demand, this lead to higher realisations. Secondly, while RM costs went up, we saw increases in finished good prices.
I think Deepak Sold to Customers (may be Contract) linking Price with escalating International Prices
considering reliable/prefer supplier preference (which may be the key variable)
If this variable is Gas/Ammonia or whatever and its corresponding prices on some time basis, then that will determine Profitability going forward
ANI Melt no offstake, meanings Solar/other customer - no demand OR used other competitors with better contract/terms in this inflation scenario
Demand generally pickups in Q3 and Q4 as its cylical as per earlier comment and other segments should hopefully improve
The chairman is a man of irony it seems. The stock has tumbled more than 10%. Markets are likely expecting the revenue to contract in the upcoming quarters.
Smart decision by management to announce Demerger at the peak of the cycle but investors are smarter.
Edit: Another 10% down
Discl: Bought single digit shares after Demerger news
