Mukul Agrawal Takes Fresh Position in Smallcap Fertilizer Stock

In the complex world of the stock market, a few individuals have become legendary figures known as investing wizards.

Their names are associated with creating wealth, consistently outperforming the market, and amassing huge fortunes.

Each of these investors has taken a unique path to success, reflecting their different personalities. Some trust their instincts when picking stocks, while others use innovative strategies to manage their investments.

Despite their varied methods, they all share a common goal: the relentless pursuit of better returns. Many people look to these successful investors' portfolios, hoping to follow in their footsteps and achieve similar wealth.

In the Indian stock market, Mukul Agarwal is one such skilled investor.

Recently, he added a fertiliser stock to his portfolio.

Who is Mukul Agrawal?

Mukul Agrawal is a prominent investor in India, who is known for his microcap stocks and smallcap stock picks.

His style of investment involves a mix of offence and defence.

He follows an offensive strategy for most of the time after proper analysis. He also keeps two separate portfolios for investing and trading.

Which Fertiliser Stock Did Mukul Agrawal Buy and Why?

The stock in question is Deepak Fertilisers & Petrochemicals Corporation.

Established in 1979, Deepak Fertilisers and Petrochemicals is engaged in manufacturing fertilisers, industrial chemicals, bulk and speciality fertilisers, and technical ammonium nitrate.

According to the data available on BSE, Mukul Agrawal bought 1.5 million (m) equity shares of Deepak Fertilisers & Petrochemicals Corporation in the September 2024 Quarter.

It represents a stake of 1.2% in the company. His total investment is worth about Rs 1,467.0 m as of the stock's last trading price on 22 October 2024.

Mukul Agrawal had no prior stake in Deepak fertilisers and if he did, it would be less than 1% as his name does not emerge on the shareholders list.

While the exact reason behind this ace investor's decision to buy the stock remains unknown, here's what we believe might have influenced the move.

#1 Subsidiary Merger Approval

On 1 July 2024, Deepak Fertilisers secured approval from the National Company Law Tribunal for a scheme of arrangement involving Mahahdhan AgriTech Ltd. (MAL), Deepak Mining Solutions Ltd. (DMSL), and Mahadhan Farm Technologies Ltd. (MFTPL).

This scheme will take effect once a certified copy of the order is filed with the Registrar of Companies by the respective subsidiaries.

As part of this arrangement, the technical ammonium nitrate business of MAL will be demerged into DMSL, which is a wholly-owned subsidiary of Deepak Fertilisers. Shareholders of MAL will receive one fully paid-up equity share of DMSL for each equity share of face value Rs 10 held in MAL.

The scheme also stipulates that MFTPL, being the transferor company, will be dissolved and will no longer be a subsidiary of MAL.

Since MFTPL is entirely owned by MAL, no new shares will be issued or allotted upon its amalgamation, leading to the cancellation of all shares held by MAL in MFTPL, as noted in the exchange filing.

This strategic restructuring might have been a reason for Mukul Agarwal to add Deepak Fertilisers to his investment portfolio.

#2 Management Change

On 6 August 2024, Prasad Vasant Joglekar was appointed as the President of commercial of Deepak Fertilisers and Petrochemicals Corporation Limited (DFPCL).

With approximately 30 years of extensive experience in various fields such as strategic sourcing, supply chain management, logistics, and procurement of both commodity and speciality chemicals, Joglekar brings a wealth of knowledge to the role.

Before joining DFPCL, he held the position of President - Supply Chain at Jubilant Ingrevia Limited, where he honed his expertise in optimising supply chain operations.

The addition of Joglekar to the management team may serve as a significant factor for Mukul Agarwal in deciding to invest in Deepak Fertilisers.

A strong leadership change can lead to improved operational efficiencies and innovative strategies, potentially driving future growth and profitability for the company.

#3 Consecutive Mutual Funds Buying

Mutual funds have shown a strong buying trend in Deepak Fertilisers' stock. This marks the second consecutive quarter in which mutual funds have increased their holdings in the company.

In the March 2024 quarter, mutual funds held 1.4% of the stock, which rose significantly to 4.04% in the June 2024 quarter, reflecting an increase of 2.7%.

Furthermore, in the September quarter, their holdings further escalated to 6.1%, marking an additional increase of 2%.

This consistent accumulation by mutual funds can signal strong confidence in the company's future prospects, making it an attractive investment for Mukul Agarwal.

A Close Look at the Financials

For the June 2024 quarter, revenue declined marginally to Rs 62.8 bn from Rs 23.1 bn. Deepak Fertilisers' experienced 75% year-on-year (YoY) growth in net profit to Rs 2 bn from Rs 1.1 bn a year back.

For FY24, Deepak Fertilisers' recorded a 23% YoY decline in revenue, totalling Rs 86,761 m. The net profit for the year declined 62.6% to Rs 4,572, primarily due to lower sales.

Deepak Fertilisers Financial Snapshot (FY20-24)

(Rs m, Consolidated)	FY20	FY21	FY22	FY23	FY24
Revenue	46,854.00	58,085.00	76,633.00	113,007.00	86,761.00
Revenue Growth (%)	(-30.5)	24	31.9	47.5	(-23.5)
Net Profit	890	4,064.00	6,875.00	12,209.00	4,572.00
Net Profit Margin (%)	1.9	7	9	10.8	5.3
Return on Equity (%)	4.2	15	17.7	24.1	8.5
Return on Capital Employed (%)	8.2	15.9	18.8	24.2	12.7

Source: Equitymaster

Over the past five years, its revenue saw a compound annual growth rate (CAGR) growth of 5.2%, while net profit grew at 44.2%.

Deepak Fertilisers' has maintained a strong return on equity (RoE) and return on capital employed (RoCE), averaging a healthy 13.9% and 16%, respectively.

What Next?

DFPCL signed a 15-year gas supply agreement with Equinor that will start in May 2026. This agreement will ensure a continuous supply of natural gas, which will help improve margins.

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.

How Shares of Deepak Fertilisers have Performed Recently

The share price of Deepak Fertilisers has declined by 7% in the past one month.

Over the past one year, shares of the company have rallied 57%. In the past five years, shares have delivered multibagger returns of over 867%.

The company touched its 52-week high of Rs 1,163.9 on 3 October 2024 and its 52-week low of Rs 450 on 13 March 2024.

About the Company

Deepak Fertilisers and Petrochemicals Corporation is the leading manufacturer of industrial chemicals in India.

It is one of the major manufacturers of nitric acid, Iso propyl alcohol (IPA), food grade liquid carbon dioxide, and methanol.

The manufacturing facilities of the company are located at Taloja Maharashtra and Dahej Gujarat.

The company imports and supplies very few selected solvents to maintain its leadership position domestically.

It is engaged in the business of fertilisers, agri services, bulk chemicals, mining chemicals, and value-added real estate.

It has a strong distribution network of 50 channel partners and direct relationships with 600 industrial customers in India and globally.

The company owns India's most significant technical ammonium nitrate (TAN) complex which produces ammonium nitrate (AN) melt, high-density AN, and low-density AN.

Deepak Fertilisers is India's largest TAN (solids) manufacturer and is also one of the world's top 5 largest merchant TAN manufacturers.

It enjoys a 45% market share in the segment with about 85% plus capacity utilisation.

For more details about the company, you can have a look at Deepak Fertilizers' factsheet and quarterly results on our website.

You can also compare Deepak Fertilisers with its peers.

Deepak Fertilisers vs Gujarat State Fertilisers

Deepak Fertilisers vs Chambal Fertilisers and Chemicals

Deepak Fertilisers vs Rallis 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...