Select brokerage notes are turning positive on Deepak Nitrite after the shares had a massive 15% fall on February 14, weighed down by disappointing third quarter earnings.
DAM Capital has a Buy call on Deepak Nitrite with a target of Rs 2,142 per share, while Morgan Stanley has put a target of Rs 3000 per share along with a Overweight call.
The phenolics business of the company saw a production outage which had impacted its costs. However, the plant operations have stabilised this quarter and impact due to higher imports is expected to 'normalize' in March, said Morgan Stanley. The Advanced Intermediates business too is expected to 'meaningfully revive' during Q4FY25, and the recovery should sustain into the first half of FY26, Morgan Stanley added. The upcoming projects could see some delay, Morgan Stanley added.
"Normally the business cycles of Advanced Intermediates and phenolics are generally such that on an overall basis they complement each other. This is the first time we are experiencing both the businesses are going through short term challenges," Deepak Mehta, Chairman and Managing Director of the company had said in the earnings presentation.
DAM Capital too believes the Advanced Intermediates business is expected to be 'significantly better' in Q4FY25, as compared to the third quarter. The Phenolics business, which has been hit by higher imports, should normalize by Q1FY26, said the DAM Capital note.
The company has embarked on commissioning multiple projects over next 2-3 years, and the EBITDA margin accretion should see a pick up from H2FY25, said DAM Capital. The agro chemicals business is expected to normalise by Q2FY26, said DAM.
The chemicals manufacturer had reported a 51.5 percent on-year drop in net profit for the third quarter of FY25, with income falling to Rs 98 crore from Rs 202 crore a year ago.
Based on the results, DAM Capital has slashed its EPS targets for FY25e and FY27e by 20% and 12%, respectively.
Shares of Deepak Nitrite are lower by a percent in early trade on February 18, extending the YTD selloff to 25%. The broader market is struggling with small and midcap shares faring worse than the benchmarks. The Smallcap index entered bear territory, while midcap index remains about 18 percent below record highs.
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