Deepak Fertilisers Navigates Q2 FY26 with Strategic Growth Amidst Market Headwinds

Deepak Fertilisers and Petrochemicals Corporation Limited (DFPCL) has reported a resilient performance for the second quarter and first half of fiscal year 2026, showcasing strategic growth initiatives despite a challenging global economic landscape. The company achieved a healthy 9% year-on-year (YoY) growth in operating revenues for Q2 FY26, reaching ₹3,006 crore, and an impressive 13% YoY growth for the first half, totaling ₹5,665 crore. Net profit after tax (PAT) for H1 FY26 also saw an 11% increase, underscoring the company's ability to maintain profitability.

While the overall financial picture remains robust, the quarter presented a mixed bag across DFPCL's diverse business segments. The Technical Ammonium Nitrate (TAN) business demonstrated remarkable resilience, recording a 29% YoY volume growth. The Crop Nutrition business, a key focus area for DFPCL's specialty strategy, delivered an exceptional 54% YoY growth, driven by enhanced volumes in Croptek, TAN, and IPA. This strong performance in core segments highlights the success of DFPCL's strategic shift towards value-added and crop-specific solutions.

Segmental Performance: A Closer Look

The segmental revenue breakdown for Q2 FY26 reveals the primary drivers of DFPCL's top line:

Despite these strong performances, the Industrial Chemicals segment, particularly Iso Propyl Alcohol (IPA) and Ammonia, faced significant headwinds. The Chemicals segment experienced a 21% YoY decline, primarily due to global oversupply, sharp corrections in acetone prices, and increased US imports impacting IPA margins. The Ammonia business was also affected by global price volatility and operational constraints, with FOB Middle East prices averaging around $300 per metric ton, significantly lower than the previous year. Management acknowledged these challenges, attributing them to global geopolitical shifts and extended monsoons impacting demand.

Strategic Initiatives and Future Outlook

DFPCL's strategic roadmap continues to focus on expanding its manufacturing footprint and enhancing its specialty product portfolio. The Gopalpur TAN project, aimed at making DFPCL the 3rd largest pure-play TAN producer globally with a capacity of ~1.0 MMTPA, is 87% complete. Similarly, the Dahej Nitric Acid project, which will establish DFPCL as Asia's largest manufacturer of Nitric Acid with ~1.2 MMTPA WNA capacity, is 70% complete. Both projects are on track for commissioning by Q4 FY26, representing a combined capital expenditure of ₹4,658 crore. These expansions are strategically located to leverage proximity to key markets and raw material sources.

In a significant move to bolster its mining solutions portfolio, DFPCL completed the full acquisition of Platinum Blasting Services (PBS), its Australian subsidiary. This acquisition strengthens DFPCL's presence in the high-potential Australian mining market and reinforces its forward integration strategy, positioning DMSL (Deepak Mining Solutions Limited) to enhance its leadership in mining solutions across Australia and India.

Management is also proactively addressing the challenges in the Ammonia segment. A planned shutdown in Q4 FY26 is expected to enhance capacity by approximately 10% and improve operational efficiencies, particularly in gas consumption. This, coupled with an attractive LNG gas contract with Equinor kicking in by mid-next year, is anticipated to significantly reduce the breakeven EBITDA level for the Ammonia business, paving the way for a robust turnaround.

Financial Health and Management Vision

DFPCL's financial health remains strong. Despite a substantial capital expenditure outlay of ₹870 crore in H1 FY26, net borrowing increased only marginally to ₹3,402 crore. The net debt-to-EBITDA ratio stands at a healthy 1.74x, supported by improved operational performance and capital infusion. The company expects its new plants to achieve around 70% capacity utilization in FY27, rising to over 80% in FY28, with an expected ROCE of 20% plus for these new projects.

The management's commentary emphasizes a clear focus on value-added products, customer engagement, and operational agility. The strategic shift from commodity to specialty products is yielding tangible results, with specialty products now contributing a significant share to revenues. The company anticipates a strong Rabi 2025 season, driven by favorable monsoons and robust demand for its Crop Nutrition products. While acknowledging the impact of a GST rate cut on Ammonia plant incentives, management is focused on internal cost efficiencies and advocating for government support.

DFPCL's Q2 FY26 performance reflects a company strategically investing in growth and diversification, skillfully navigating market complexities, and maintaining a strong financial foundation for future value creation. The disciplined execution of its strategic roadmap positions DFPCL for sustained growth and enhanced market leadership in its core segments.