YES Securities' research report on Deepak Nitrite
DN’s reported 3QFY23 operating profit at Rs 3.15bn (-11% YoY & +16% QoQ), stood below our but marginally above street estimates. The miss on estimates stemmed primarily form weaker than estimated margins as higher input cost environment posed a challenge. The Ebitda margins, nevertheless improved QoQ to 16% (2Q: 14%) driven by improvement in per ton margins for most products, as DN passed on the increase in raw material price to a large extent. The domestic demand environment was however healthy, with Phenol, DASDA and OBA productions reaching record levels. The earnings prognosis appears strong due on going investment of Rs 15bn in a) capacity expansion of Phenol plant (DPL) by 50%, by the end of 4QFY24, b) debottlenecking of existing capacities at DNL, c) addition of 40ktpa of MIBK and 8ktpa of MIBC capacities as part of Rs 7bn investment in Phenol-Acetone derivatives by 4QFY24, d) agrochem expansion and commissioning of SAC plant by 4QFY23 and e) Rs 10bn foray into 35tmt Polycarbonates plant. In our view, expansion of Phenol capacity and foray into value added downstream solvents would provide renewed momentum to DN’s earnings, with prospects of revenue doubling over next 3-4 years.
Outlook
We value DN at Rs 2515/sh on SOTP basis, where value of AI segment is estimated at Rs 1072/sh and the valued of DNL is estimated at Rs 1445/sh. Our TP implies a P/E of 19x FY24e, vs 14x stock is currently trading at.
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