Manish Bhandari - Ceo, 'Vallum Capital Advisors'

Deepak Fertilisers stands to gain from its vertically integrated operations and leadership position in key specialty chemicals

Just like Chakravyuha engulfs Abhimanyu in the epic Mahabharata, Deepak Fertilisers & Petrochemicals was also engulfed with a multitude of problems. Two consecutive years of severe drought in rural India im-pacting fertiliser business, delay in mining owing to regulatory changes impacting its technical ammonia nitrate (TAN) business, shutdown of natural gas supply, a key feedstock, by the government for two years on account of non-existence of a clear policy on allocation of gas to private sector companies, resulted in bunching of receivables and debt on the company’s balance sheet. Not to mention the high volatility of raw material prices from ammonia to natural gas, falling prices of iso propyl alcohol (IPA), the failed takeover of Mangalore Chemicals and a bleeding real estate business.

All of the above resulted in operating profit falling by 23% over the past two years to ₹428 crore and net profit declining by 15%, despite a revenue growth of 15% to ₹4,590 crore.

But the company’s ability to build formidable businesses in all the segments it operates - be it fertilisers, industrial chemicals, mining chemicals - held the stock in good stead through its tough times. The company has managed to build a leadership position in key specialty chemicals and the fact it is fully vertically integrated from natural gas to complex fertilisers gives it a strong position in the segments it operates. When the fertiliser business went through tough times, the company’s ability to scale up its mining chemicals and IPA business through imports helped it sail through a difficult period. The complex fertiliser business collapsed to sales of ₹120 crore in FY15 from average sales of ₹600 crore owing to non-availability of natural gas supply.