Monday may prove to be crucial for Deepak Fertilisers & Petrochemicals, as its petition for resumption of natural gas supplies is up for final hearing in the Delhi High Court.
In one of its last decisions before vacating office in May 2014, the UPA government had disconnected domestic gas supply to the ₹3,800-crore company on grounds that it produces phosphatic (P) and potassium (K) fertilisers, which are traded at market prices unlike urea.
Deepak claimed that it was singularly affected by the decision as gas supplies to other P&K fertiliser makers — Rashtriya Chemicals and Fertilizers (RCF) and Gujarat State Fertilisers & Chemicals (GSFC) — were continued, as they also make urea. Gas is used to produce ammonia, which is one of the basic ingredients in the manufacture of chemical fertilisers.
The discontinuation of gas supply has not augured well for the company. Its fertiliser capacity has been idling since May. Fertiliser accounts for nearly a third of Deepak Fertilisers’ revenue.
While the company retained its market share by resorting to trading, its margins were seriously impacted.
The story got more complicated as its two other business verticals, ammonium nitrate and industrial chemicals, have not done well either. Ammonium nitrate is used in the manufacture of explosives, which are used extensively in the mining sector.
The topsy-turvy state of affairs in the captive coal mining sector has impacted demand for ammonium nitrate. Excess supply has also kept industrial chemical prices low. The net result has been huge. The company’s operating margin fell from 13.47 per cent in December 2013 to 7.47 per cent in December 2014. Net margin narrowed from 6.34 per cent to 0.15 per cent. Profit after tax is down from ₹64 crore to ₹1.25 crore.
Promoters’ stake upDeepak Fertilisers’ share price has, however, remained relatively firm compared with its plummeting profits. From around ₹120 a year ago, the stock touched a peak of ₹185 before settling at ₹138.75 on Thursday.
The shares were on a high in August-September last year, when the company was aggressively bidding for control over Vijay Mallya’s Mangalore Chemicals and Fertilizers.
The scrip was down nearly 10 per cent, from ₹142 to ₹127, in the first half of February.
However, a nearly 4.42 per cent market acquisition by the promoters, in phases, between February 19 and March 19, reversed the trend.
According to market disclosures, Chairman and Managing Director Sailesh Chimanlal Mehta has enhanced his holding from 21.86 per cent to 24.13 per cent. His wife Parul Sailesh Mehta’s stake has gone up from 1.13 per cent to 3.28 per cent during this period.
The total promoter holding in the company has gone up from 45.46 per cent to 49.88 per cent.
The promoters are free to enhance the stake by another 0.5 per cent this fiscal.