Deepak Fertilisers share rises 6% on demerger plan

Shares of Deepak Fertilisers and Petrochemicals Corporation (DFPCL) jumped 6% in opening trade on Friday after its board approved the demerger of its mining chemicals and fertilisers businesses. The corporate restructuring will unlock growth potential for each of the businesses and provide focused leadership and simple structure, the company said in a post-market hour filing on Thursday.

Boosted by the development, Deepak Fertilisers share price opened marginally higher at ₹817.10 against the previous closing price of ₹812.40 on the BSE. Extending opening gains, the stock gained as much as 6% to ₹861, while market capitalisation rose to ₹10,660 crore. The stock has given a stellar return of 122% in the past one year, while it has risen 40% in a six month period. However, the stock has lost its momentum in recent times, trading 19% lower than its 52-week high of ₹1,061.70 on October 21, 2022. It touched a 52-week low of ₹355.85 on December 20, 2021.

“The board of directors of the company at their meeting held on 15th December, 2022, have accorded its in-principle approval to the composite scheme of arrangement between Smartchem Technologies Limited (STL), Deepak Mining Services Private Limited (DMSPL), and Mahadhan Farm Technologies Private Limited (MFTPL),” Deepak Fertilisers said in the filing.

STL and DMSPL are wholly-owned subsidiaries of Deepak Fertilisers, one of India’s leading producers of industrial chemicals and fertilisers, and MFTPL is step down subsidiary of the company.

Under the scheme of arrangement, TAN business (mining chemicals) will be demerged from STL to DMSPL to enable sector specific strategic and financial investments in respective businesses. It will also strengthen customer service, distribution network, and overall economies of scale for all the business verticals.

Besides, MFTPL, a wholly owned subsidiary of STL, will be merged with STL to simplify the group corporate structure and economies of scale for all the business verticals (including reduction of overhead / administrative costs).

This scheme of the demerger is subject to customary, statutory, and regulatory approvals including approvals of respective shareholders and creditors, NCLT, and all other regulators.

Sailesh C. Mehta, chairman and managing director, said: “Over past few years, DFPCL group has significantly improved its operational performance, generated cash flows, and strengthened balance sheet whilst focusing on increasing investments in greenfield expansions. The proposed corporate restructuring shall considerably help create strong independent business platforms within the larger DFPCL brand umbrella, hence enhancing stakeholders' value over time.”

He added that the transformation strategy has been executed to focus on customised specialty in place of the commodity; move from volume to value; and shift from competition pricing to value pricing.

"This radical shift in strategy was deemed necessary to significantly improve customer experience, enhance market share, and build a sustainable brand. In terms of growth trajectory and value creation, both TAN and Crop Nutrition business have attained a strategic size and relevance to deserve stand-alone corporate identities and focussed leadership. This transaction shall provide the required strategic flexibility to drive long-term growth and value creation for the end customers, employees and other stakeholders,” he added.