Why Deepak Fertilisers Share Price is Falling

It's unfortunate, disappointing and heart breaking, but it's okay if it happens sometimes.

This is just me composing myself whenever Sachin Tendulkar got dismissed on 99 runs, just one run away from his century. Sometimes even the best players don't score well.

Take the recent semi-final encounter between India and England. Suryakumar Yadav, the star of Indian T20 cricket team, had a wonderful world cup. He scored quick runs and took Indian team over the finish line.

But in the semi-final encounter, he failed to deliver. India lost to England, marking their exit from the world cup.

A week later, Suryakumar Yadav was back to basics and scored a sublime century against New Zealand.

Similarly, in case of investing, even fundamentally strong stocks with bright growth prospects underperform. In this article, we will look at the example of Deepak Fertilisers.

Deepak Fertilizers share price was on a dream run in the last one year. On a YoY basis, the company has delivered multibagger returns of 118%.

However, in the past one month, the winds have changed and its share price has taken a fall.

Deepak Fertilisers is down 26% in the last one month.

Let's find out why the shares are under pressure.

Quarterly results decline on a sequential basis

For the quarter ended 30 September 2022, Deepak Fertilisers reported a total revenue of Rs 27,464 million (m) (about Rs 2,7464.4 crore). This is 10% lower compared to the June 2022 quarter.

The net profit for the same period came in at Rs 2,756 m, which is 37% lower compared to previous quarter. On similar lines, profit margins have also fallen by 4.3% in the said quarter.

The current quarter's profit took a dip because of the rise in expenses and unseasonal rains. The unseasonal and excessive rains impacted the chemical as well as fertiliser sector.

It was a seasonally weak quarter for the chemical segment. Every year, the company's second quarter performance is subdued.

Stake sale by promoters

The promoter holding of a company indicates the promoter's trust in the company. If promoters trust the company will fetch them high returns, they would have a high investment in the company.

In July-September 2022 quarter, promoters of Deepak Fertilizers have reduced their stake by 2.1%.

While we don't know why they sold stake, promoter selling stake raises some questions even if it's for valid reasons.

Why the fall looks like a temporary blip

On a sequential basis, the company may not have performed well but the YoY performance is excellent.

Deepak Fertilizers posted nearly a 3-fold jump in its net profit to Rs 2,756 m compared to a PAT of Rs 933 m witnessed in Q2 of the previous financial year.

Its half yearly bottom-line has crossed full-year profitability for the financial year 2021-22.

If we take a look at the shareholding pattern of Deepak Fertilisers, FIIs have been continuously increasing their stake.

For the quarter ended 30 September 2021, FIIs held a minor stake of 1.6% in company. However, after a year, as of the 30 September 2022, FIIs hold a stake as high as 16.3% in the company.

FIIs have continuously bought stake for the past four quarters now. This is also one reason why the stock saw a steep rise before falling in the past one month.

So some profit booking was expected.

Investors often book profit after the company reports good results because they are worried the stock may fall in the future. If they can sell their shares at a high price, they might be able to make more profit than if they hold on to the shares for some time.

This is a typical example of stock price falling after reporting stellar quarterly results, because investors feel the company's earnings could drop in future quarters.

A shift of companies from China to India presents a big opportunity for the Indian chemical sector and Deepak Fertilizers will aim to make the most out the situation.

China commands a 20% share in the global speciality chemical industry worth US$ 800 bn (about Rs 65,360 bn).

Even a 5% shift from China to India will unleash a US$8 bn opportunity for speciality chemical companies in India. Within five years, India could double its share in the global chemical industry.

The sector is poised to become the trillion-dollar sector of 2025. No wonder the best chemical stocks in India have been on rise.

Deepak Fertilizer's chemical segment witnessed strong growth and contributed approximately 86% of total segment profits in the first six months of the current financial year.

Chemicals revenues grew by 74% on a YoY basis. The margin for the first half of the financial year expanded to 35% from 17% in the previous financial year.

Today, the company has signed a binding term-sheet with Aarti Industries for 20-year Nitric Acid offtake and supply arrangement valued at over Rs 80 bn.

What followed was a 7% rally in Deepak Fertilizer shares.

So you see, the company faces tailwinds but if it continues to deliver as it did in the past couple of quarters, exciting times await for Deepak Fertilizers.

About Deepak Fertilisers and Petrochemicals

Deepak Fertilisers and Petrochemicals is the leading manufacturer of industrial chemicals such as Nitric Acid Iso Propyl Alcohol (both pharma as well as industrial grade IPA) and food grade liquid carbon dioxide in the country.

Presently it is engaged in manufacture trading and sale of bulk chemicals and value added real estate.

It has manufacturing facilities at Taloja in Maharashtra, Srikakulam in Andhra Pradesh, Panipat in Haryana, and Dahej in Gujarat.

To know more about the company check out its financial factsheet.

You can also compare it with peers:

Deepak Fertilizers vs Mangalore Chemicals

Deepak Fertilizers vs Madras Fertilizers

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