Deepak Fertiliser Raises Rs 99 crore by Selling Land Parcel

Deepak Fertiliser

Deepak Fertilisers and Petrochemicals Corporation – the maker of fertilizers and chemicals – has raised Rs 99.2 crore by selling a non-core industrial land parcel in Dahej, Gujarat.

The move was a part of its strategy to divest non-core assets.

The deed of assignment was executed in December 2019 and the transfer order from Gujarat Industrial Development Corporation was received accordingly.

The company has received the sale consideration and paid all the related charges and its share of transfer fees.

While Deepak Fertilizers’ fiscal third-quarter performance still awaited, the company during the July-September quarter posted 40% rise in consolidated net profit to Rs 24.94 crore even as net sales fell 34.9% to Rs 1,150.74 crore.

Last September, the company received environment clearance for expansion of its fertiliser facilities in Raigad of Maharashtra, which would entail an investment of Rs 190 crore.

The union environment ministry has issued a clearance to the company’s proposal after taking into account the recommendations of a panel of experts.

Deepak Fertilizer aims to increase the fertilisers production capacity from the existing 6 lakh tonnes per annum (TPA) to 11.25 lakh TPA.

This would involve increasing production capacity of multiple grades of NPK fertiliser from 6 lakh TPA to 8 lakh TPA and continue production of 3,25,000 tonnes of Ammonium Nitro Phosphate per annum with the existing ANP plant.

Meanwhile, FY 19 has been a perfect storm for DFPCL, wherein several unprecedented circumstances have adversely impacted its performance.

Its TAN Business continued to perform well, whereas the Crop Nutrition and its IPA businesses faced challenges on account of adverse market conditions and an increase in raw material prices.

An important milestone for company was the commencement of commercial production for new Greenfield Plant at Dahej, Gujarat, which has been set up with an investment of about Rs 550 crore, has production capacities of 92 KTPA for CNA and 149 KTPA for DNA, and is expected to operate at full capacity and make a positive impact from its first year of operation itself considering strong customer demand.

This plant is strategically located in the vicinity of large consumers of CNA which produces Nitroaromatics for specialty chemicals.

The Company has tied up for about 70% of the CNA volumes to ensure stable margins and regular off takes from this facility.

Post addition to these new capacities, the company’s market share is expected to increase to 54% from 45% at present.

Additionally, more capacity expansion projects are planned for ammonia (500000 MTPA), IPA (100000 MTPA), TAN (376000 MTPA), and NPK fertilizer (200000 MTPA).

During Oct 2019, the International Finance Corporation (IFC) successfully subscribed to the first tranche of US$ 30 million (i.e. approx. Rs.210 Crores), by way of Compulsory Convertible Debentures (CCDs) and Foreign Currency Convertible Bonds (FCCBs) into DFPCL and its wholly-owned subsidiary Smartchem Technologies Limited (STL)

The funding is part of IFC’s US$60 million investment commitment by way of CCDs and FCCB. The second tranche of US$ 30 million (i.e. approx. Rs. 210 Crores) is expected to be subscribed in the next three months.

The promoters of DFPCL have infused further Rs. 25 Crores into the company towards the conversion of warrants into equity shares.

Also warrants of Rs. 200 Crore were issued to the promoters at a price of Rs. 308.79, out of which 25% of the amount (i.e. Rs. 50 Crores) was already infused in October 2018. The rest of the money is yet to be received by the company.

In Q2 FY20, TAN sales were impacted mainly on account of reduction in sales volumes of LDAN (27%) and HDAN (23%) backed by incessant and extended rains in the mining region, stagnant growth in cement production, weak infrastructure development and de-growth in Coal India’s coal production.

The volume loss was offset to some extent by sales volume gain of TAN Solutions (37%) and better price realizations in HDAN and TAN solutions. The situation is expected to improve over H2 onwards.

Hence we believe that as compared to H1 FY20, the second-half performance is likely to be significantly better due to better product selling prices and debt repayments expected in this time frame ahead.

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