Mukul Agrawal picks stake in Deepak Fertilisers in Q2 amid 45% rally year-to-date

Mukul Agrawal portfolio stocks: Deepak Fertilisers and Petrochemicals Corporation Ltd. (DFPCL), a prominent player in India’s fertiliser and petrochemical sectors, has caught the attention of ace investor Mukul Agrawal. During the second quarter ended September 2024 (Q2FY25), Agrawal made a notable move by purchasing 15 lakh shares, equivalent to a 1.19 per cent stake in the company. His name did not appear in the company’s shareholding list during the previous quarter, which implies that he either did not hold any shares or his holdings were below the reporting threshold of ₹2 lakh in nominal value.

Agrawal’s decision to invest in DFPCL comes amid consistent gains in the stock. In 2024, the stock has surged 45 per cent year-to-date (YTD), building on its impressive performance over the last year, where it saw a near 50 per cent increase in value. This rise has been driven by the company’s expansion strategies, robust fundamentals, and the overall positive sentiment surrounding India’s agricultural and chemical sectors.

Institutional Stake and Changing Shareholding Patterns

Agrawal is not the only one who showed interest in Deepak Fertilisers. Domestic institutional investors, including banks, mutual funds, non-banking financial companies (NBFCs), insurance companies, and venture capital funds, also ramped up their holdings in the company. 

At the end of Q2FY25, these institutions collectively owned a 10.02 per cent stake, or 1.26 crore shares, up significantly from 6.3 per cent (79.5 lakh shares) in the previous June quarter. This rise in institutional ownership reflects the growing confidence in the company’s ability to deliver long-term growth.

Meanwhile, foreign institutional investors (FIIs), who had a 9.84 per cent stake in the June quarter, slightly reduced their holdings to 9.67 per cent (1.22 crore shares) in Q2FY25. Despite this minor decline, the continued presence of FIIs highlights the global interest in the company’s growth prospects, particularly in the Indian fertiliser and chemicals market, which has been bolstered by government initiatives and rising demand for sustainable agricultural solutions.

Stock Price Performance: A Strong Bullish Run

Deepak Fertilisers has been on a remarkable bull run over the past year, with the stock appreciating by nearly 50 per cent. In 2024 alone, the stock has gained 45 per cent YTD, demonstrating consistent monthly gains. After four straight months of positive performance, the stock climbed another 7.6 per cent in October.

The stock rose by 2 per cent in September, 12.5 per cent in August, 37.3 per cent in July, and 20 per cent in June, highlighting a strong growth trajectory. However, prior to this bullish streak, the stock experienced a dip of 6.6 per cent in May, following a 20 per cent rally in April. The first three months of the year saw a decline, with the stock falling 0.3 per cent in March, 18.3 per cent in February, and 9 per cent in January.

Currently, the stock is trading around 15 per cent below its peak of ₹1,163.75, which it touched in early October. Despite this slight pullback, the stock has surged by 119 per cent from its 52-week low of ₹453.20, recorded in March 2024. The stock’s strong upward trend reflects growing investor confidence in Deepak Fertilisers, which continues to strengthen its position in the fertiliser and chemicals market.

Brokerages’ Take: Downgrade to ‘Hold’ by MarketsMOJO

Despite the stock’s stellar performance over the last year, some concerns have emerged regarding its financial health and growth outlook. MarketsMOJO downgraded the stock to ‘Hold’ from ‘Buy’ on October 14, 2024. The downgrade came despite the company demonstrating high management efficiency, with a Return on Capital Employed (ROCE) of 15.22 per cent and a strong annual operating profit growth rate of 34.58 per cent.

One of the key reasons behind the downgrade is the company’s declining profitability. Despite generating a solid return of 59.66 per cent over the past year, Deepak Fertilisers’ profits have fallen by 40.4 per cent. This decline in profitability has raised red flags, especially considering the company’s high debt-to-EBITDA ratio of 2.73 times. Such a high ratio could indicate potential challenges in managing debt levels and may impact the company’s financial stability in the long term, the brokerage said.

Additionally, in its latest financial results for the June 2024 quarter, the company reported flat performance, with net sales declining by 20.90 per cent and profit after tax (PAT) falling by 23.84 per cent. This underwhelming performance, coupled with a 36.13 per cent increase in interest expenses, has contributed to the cautious outlook from brokerages like MarketsMOJO.

Despite the recent downgrade, Deepak Fertilisers & Petrochemicals Corp remains a key player in the Indian fertiliser market, which is expected to grow significantly in the coming years. As per the brokerage, the company’s strategic expansion into petrochemicals and focus on improving operational efficiency positions it well to capitalise on future growth opportunities.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.