Best Fertiliser Stock: Chambal Fertiliser vs Deepak Fertiliser

In 2023, the Indian fertiliser industry was valued at Rs 942 billion (bn). It's expected to grow to Rs 1,038 bn by the end of 2032, growing at a compound annual growth rate (CAGR) of 4.2%.

The primary growth drivers for this growth will be increased agricultural demand and strategic government initiatives to boost the industry.

To add to this, following the government's Atmanirbhar Initiative, India's dependency on imports has reduced significantly.

Moreover, India has also established itself as a global leader in nano agricultural inputs such as nano fertilisers and micronutrients.

All this is driving the growth of the Indian fertiliser industry, and the two companies that could be primary beneficiaries are Chambal Fertiliser and Deepak Fertilisers.

Let's look at how these two companies compare against each other in terms of various parameters.

Business Overview

#Chambal Fertilisers and Chemicals

The company is engaged in the business of manufacturing urea and marketing other fertilisers such as di-ammonium phosphate ("DAP"), muriate of potash ("MOP"), NPK fertilisers, speciality plant nutrients, and crop protection chemicals.

It is one of the largest urea manufacturers in the country, with a 13% market share. The company has three manufacturing units with a capacity to produce 3.4 million (m) tons of urea.

It also has an extensive distribution network of 20 regional offices, 4,200 dealers, and 60,000 retailers that help the company cater to farmers in over 10 states.

#Deepak Fertilisers and Petrochemicals Corporation

The company is engaged in manufacturing fertilisers, industrial chemicals, bulk and speciality fertilisers, and technical ammonium nitrate.

It also offers agri services such as farming diagnostics and solutions and is India's first and largest retail destination for home interiors and design.

The company is the largest manufacturer of nitric acid and the only manufacturer of prilled and medical grade ammonium nitrate in India.

It enjoys over 40% market share in the technical ammonium market in India.

Deepak Fertilisers has three manufacturing units with an installed capacity of 1.3 million metric tonnes per annum (MTPA) of industrial chemicals, 0.48 million MTPA of technical ammonium, and 1.1 million MTPA of crop nutrition.

It also has an extensive distribution network of 600 field team members, 4,000 direct dealers, and 20,000 retailers.

Particulars	Chambal Fertilisers	Deepak Fertilisers
Market Cap (in Rs billion)*	209.2	134.5

Source: Equitymaster|* as of 22nd August 2024

In terms of marketcap, Chambal Fertilisers is leading with a marketcap of Rs 209.2 bn, as against Rs 134.5 bn of Deepak Fertiliser.

It is also leading in terms of performance on the stock market with an 88.4% return, as against the 85.1% return of Deepak Fertilisers. The market index (Nifty 50), on the other hand, gave a return of 27.6%.

#Revenue

Chambal Fertilisers earns the majority of its revenue (97%) from the manufacturing and sale of fertilisers, and the remaining 3% comes from crop protection and speciality nutrients business.

However, it plans to diversify its revenue by doubling the share of crop protection segment in the next 3 years.

In the last five years, the company's revenue has grown at a compound annual growth rate (CAGR) of 8% on account of high growth from crop protection segment.

However, in 2024, the company saw a decline in revenue by 35% on account of higher raw material prices, owning to lower urea production, and decreased urea demand from the agricultural industry on account of unfavourable weather conditions.

For Deepak Fertilisers, industrial chemicals contribute majorly (59%) to the revenue, followed by fertilisers (40%), and real estate and windmill (1%).

In the last five years, the company's revenue grew at a steady CAGR of 13.1% owing to volume growth. However, in the last year, its revenue declined by 23.2% owing to lower commodity prices.

Between the two companies, Deepak Fertilisers is leading in terms of revenue growth.

Revenue

Net Sales (in Rs m)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Chambal Fertilisers	1,22,060	1,27,190	1,60,688	2,77,728	1,79,664	8.00%
Deepak Fertilisers	46,854	58,085	76,633	1,13,007	86,761	13.10%

Source: Equitymaster

#Profitability

The two metrics to check while analysing profitability are earnings before interest tax depreciation and amortisation (EBITDA) and profit after tax (PAT). A growing EBITDA and net profit indicate healthy operations.

In the last five years, the EBITDA of Chambal Fertilisers grew by a CAGR of 2.7%, whereas it reported a muted growth in net profit. High raw material prices and reduced demand for urea across the globe have impacted profit growth.

Deepak Fertilisers, on the other hand, reported a growth of 20.3% in EBITDA and a 38.7% growth in net profit.

The primary reason for high growth in profits is due high demand for chemicals. However, in the last one year, the profits reduced by over 50% on account of fall in sales.

However, with the industry expected to revive on account of favourable monsoon and growing demand for fertilisers, the profits of both companies are expected to improve in the medium term.

Profitability

EBITDA (in Rs m)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Chambal Fertilisers	20,102	25,247	23,498	19,871	23,008	2.70%
Deepak Fertilisers	5,597	9,883	13,999	22,495	14,095	20.30%
PAT (in Rs m)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Chambal Fertilisers	12,266	17,476	15,661	10,338	12,758	0.80%
Deepak Fertilisers	890	4,064	6,875	12,209	4,572	38.70%
Gross Profit Margin	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Chambal Fertilisers	16.50%	19.80%	14.60%	7.20%	12.80%
Deepak Fertilisers	11.90%	17.00%	18.30%	19.90%	16.20%
Net Profit Margin	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Chambal Fertilisers	10.00%	13.70%	9.70%	3.70%	7.10%
Deepak Fertilisers	1.90%	7.00%	9.00%	10.80%	5.30%

Source: Equitymaster

#Debt Management

It is important to understand the debt-to-equity ratio of a company to know what are its fixed financial obligations. A high debt indicates high obligations.

Chambal Fertilisers' debt-to-equity ratio is 0.2x, as compared to 1.2x five years ago. Superior operating efficiency and liquidity have helped the company deleverage its balance sheet despite high capex.

The company is currently investing Rs 16.5 bn in a manufacturing plant with a capacity to produce 2.4 m MTPA of technical ammonium nitrate and 2.1 m MTPA of nitric acid.

Deepak Fertilisers, on the other hand, has a debt-to-equity ratio of 0.6x, as against 1x five years ago.

The company managed to reduce its debt, despite high capex. However, it expects the debt to increase on account of its ongoing capex.

It is investing Rs 19.5 bn in capex on a brownfield nitric acid plant, and it also recently commissioned greenfield ammonium plant.

Debt Management

Debt to Equity Ratio (x)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Chambal Fertilisers	1.2	0.6	0.4	0.3	0.2
Deepak Fertilisers	1	0.8	0.6	0.6	0.6

Source: Equitymaster

#Financial Efficiency

The two important metrics to measure a company's financial efficiency are return on equity (RoE) and return on capital employed (RoCE). A high ratio is considered better.

The RoE and RoCE of Chambal Fertilisers averaged 24.9% and 25.1%, respectively, whereas Deepak Fertilisers ratios averaged 13.9% and 16%, respectively.

Clearly, Chambal Fertilisers is leading in terms of financial efficiency.

Financial Efficiency

ROCE	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Chambal Fertilisers	23.10%	31.70%	26.60%	19.50%	24.60%
Deepak Fertilisers	8.20%	15.90%	18.80%	24.20%	12.70%
ROE	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Chambal Fertilisers	34.70%	33.30%	24.50%	14.60%	17.50%
Deepak Fertilisers	4.20%	15.00%	17.70%	24.10%	8.50%

Source: Equitymaster

#Dividend

A company that pays regular and high dividends is considered stable as it indicates it is generating consistent profits.

To assess the dividend of a company we look at three metrics, namely, dividend per share, dividend yield, and dividend payout ratio.

In the last five years, Chambal Fertilisers' dividend per share increased by 12.5%, its dividend yield averaged 2.8%, and its dividend payout averaged 21%.

For Deepak Fertilisers, the dividend per share increased by 32%, its dividend yield averaged 2.5%, and the dividend payout averaged 19.7%.

Both companies aren't dividend paymasters. However, the dividend yield of the companies is on the higher side, and have consistently increased dividend payments.

Dividend

Dividend Per Share (Rs)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Chambal Fertilisers	4.2	7.8	7.8	7.8	7.5	12.50%
Deepak Fertilisers	2.1	6.1	8.6	10	8.5	32.00%
Dividend Yield	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Chambal Fertilisers	3.70%	3.30%	1.80%	2.80%	2.20%
Deepak Fertilisers	4.00%	3.30%	1.60%	1.80%	1.70%
Dividend Payout Ratio	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Chambal Fertilisers	13.60%	17.90%	19.90%	30.20%	23.60%
Deepak Fertilisers	30.10%	18.90%	15.80%	10.30%	23.50%

Source: Equitymaster

#Valuation

It is important to understand a company's valuation metrics to know if it overvalued or undervalued when compared to its peers.

The two valuation metrics are price to earnings ratio (PE), and price to book value ratio (PB).

Chambal Fertilisers PE and PB are 16.4x and 2.9x, respectively, whereas Deepak Fertilisers' PE and PB is 24.8x, and 2.4x respectively.

If we compare the three-year average, Chambal Fertilisers' PE and PB are 12.5x and 2.1x, whereas Deepak Fertilisers' ratios averaged 15.1x and 2x.

Clearly, Deepak Fertilisers' shares are overvalued compared to Chambal Fertilisers' shares.

Valuations	Chambal Fertilisers	3-Year Average	Deepak Fertilisers	3-Year Average
PE (x)	16.4	12.5	24.8	15.1
PB (x)	2.9	2.1	2.4	2

Source: Equitymaster

Which Fertiliser Stock is Better: Chambal Fertiliser or Deepak Fertiliser?

Chambal Industries is leading in terms of absolute revenue and profit numbers. It is also leading in terms of debt management, financial efficiency, and dividend payments.

Deepak Fertilisers, on the other hand, is leading in terms of revenue growth and profit growth.

Being the largest manufacturer of nitric acid and the only manufacturer of medical-grade ammonium nitrate, the company has several plans to grow its business. It is investing in expanding its nitric acid and ammonia capacity to cater to the growing demand.

The company is also investing in the crop protection business to ensure steady growth in this segment.

It has entered into long-term gas supply agreements with companies to ensure steady and consistent revenue and profitability.

Chambal Fertilisers, on the other hand, is focussing on expanding its ammonium nitrate and nitric acid capacity.

It is also planning to launch new products in its crop protection segment, and double its pipeline from the current pipeline of 12 products.

This move is expected to take its revenue to about Rs 17.5 bn by financial year 2027 from Rs 5.3 bn in financial year 2024.

Overall, both companies are gearing up to benefit from the recovery of the fertiliser sector.

Moreover, government policies and subsidies are helping the companies cope with raw material increases and support the growth of the fertiliser industry in India.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here.