Buy Deepak Nitrite with a target of Rs 346: Anand Rathi

Deepak Nitrite is one of the leading global player for several niche chemical products like Xylidines, Cumidines, Oximes & Colour Intermediates. It caters to several industries - Colorants, Petrochemicals, Agrochemicals, Rubber, Pharmaceuticals, Paper, Textile, Detergents, Fine & Specialty Chemicals, etc.

The company commissioned the plant at Dahej, Gujarat, in November last year that can manufacture up to 200,000 tonnes of phenol and nearly 120,000 tonnes of acetone, a by-product, annually.

The company’s revenue averaged Rs 400 crore in the past five quarters, according to its exchange filings. It’s set to rise by an additional Rs 550-600 crore on a quarterly basis once the Dahej plant’s utilization crosses 90 percent.

Propelled by higher off take of high margin products and firm overall realizations, revenues of Deepak's basic chemicals business rose by a satisfying 14.8%, in 9MFY19, a marked improvement from 7.3% reported last fiscal.

Despite absence of long term contracts for both phenol and acetone, this business reported EBITDA of some Rs 37 crore in Q3, partly helped by no timid capacity utilization.

Reduced imports from China coupled with higher dependence on agro chemicals sector, largely explains the recent robustness in performance chemicals business, triggering increased output of both chemicals ‘DASDA’ and ‘OBA’.

We continue to remain positive on the stock and maintain our buy rating on the stock with a target price of Rs 346 per share.