Reduce Deepak Nitrite; target of Rs 2438 Prabhudas Lilladher

Prabhudas Lilladher's research report on Deepak Nitrite

Deepak Nitrite’s (DN) Q2FY25 revenue stood at Rs20.3bn, a 14.3% YoY increase but a 6.2% decline QoQ. The YoY growth was driven by a 29% rise in revenue from the Phenolics segment. However, the Advanced Intermediates (AI) business faced challenges due to issues with key customers in Europe. Photochlorination, hydrogenation and nitration projects are anticipated to come online in H2FY25, and MIBK/MIBC and acetophenone projects in H1FY26, enhancing DN’s growth prospects. Additionally, the company announced Rs50bn capex to produce PC resins, aligning with its strategy to double phenol capacity over the next 4 years. Despite these growth initiatives, near-term headwinds are likely to continue in the Advanced Intermediates business. While DN's entry into PC is expected to support domestic demand by substituting imports, the influx of cheaper imports from China could create margin pressures.

Outlook

We anticipate an EPS CAGR of ~9% over FY24-27E. Valuing the stock at 34x P/E on FY26/FY27E EPS, we retain 'Reduce' rating with a target price of Rs2,438.