Deepak Fertilisers low on fuel to pursue MCF takeover battle

Sagging financial metrics mean it will be difficult for Deepak Fertilisers to go ahead with the bidding war, say analysts

Pune-based Deepak Fertilisers, which sold its 2.2 per cent stake in Mangalore Chemicals on Monday, is low on fuel to pursue the takeover of Mangalore Chemicals and Fertilizers after its financial metrics have sagged over the past year due to stoppage of gas supply to its plant, say analysts.

The company can use the proceeds of its stake in MCF worth Rs 300 crore to repay debt and improve its earnings per share (EPS), say analysts.

For the September quarter, Deepak Fertilisers reported its lowest quarterly profit in the last 10 years at Rs 10 crore with annual revenue at Rs 1,020 crore. Inadequate gas supply lowered its volumes and led to a 43 per cent decline in its earnings before interest, depreciation, tax and amortisation (Ebitda) to Rs 60.9 crore. Lower other income and higher depreciation further weakened the results for the September 2014 quarter, said an analyst.

Against this backdrop, analysts say, it was difficult for Deepak Fertilisers to join a bidding war over MCF with the cash-rich Adventz group. “The biggest blow to the company was lack of gas supply, which brought down its manufacturing fertilisers’ volume to almost nil. Besides, the ongoing turmoil in the Indian mining sector is another drag for the company,” said an analyst. The company has moved the Delhi High Court to resume its gas supply as margin pressure will continue till there it is restored.

On Monday, the company sold a 2.2 per cent stake in MCF, thus backing off from a takeover battle. With the sale, Deepak Fertilisers’ stake has come down to 29 per cent in MCF. The UB Group has a 21.97 per cent stake and its partner the Adventz group has 16.47 per cent in MCF. The company holds shares worth Rs 300 crore in MCF and can use this money to bring down its debt worth Rs 1,365 crore. On Wednesday, MCF shares were trading at Rs 89 a share.

Deepak Fertilisers was trading at Rs 142 a share on Wednesday even as analysts cut the company’s 2014-15 earnings by as much as 56 per cent on unavailability of gas in the first half of the financial year.

A Deepak Fertilisers spokesperson declined to comment on its plans to exit MCF. But on Monday, Deepak Fertilisers’ chief financial officer and president, Somnath Patil, said the company was still the majority stakeholder with 28 per cent. “How does 2.2 per cent even matter? We will shortly come out with a decision. It will be premature to say that we have lost interest in Mangalore Chemicals,” he told this paper.