Hold Deepak Nitrite; target of Rs 1883: Prabhudas Lilladher

Prabhudas Lilladher's research report on Deepak Nitrite

Following the recent price correction, we upgrade the stock to ‘HOLD’ with a revised target price of Rs1,883, valuing it at 32x FY27E EPS. DN’s Q1FY26 adjusted revenue stood at Rs18.7bn, declining to 13.6% YoY and 7% QoQ. Operating performance was impacted by ongoing pricing pressure, oversupply from China, and a decline in spreads. The Advanced Intermediates segment witnessed stable volumes across most products, except agrochemical intermediates, which were affected. The Phenols segment reported steady volumes, but profitability remained subdued due to an influx of cheap imports. Going forward, spreads in the phenolics segment are expected to see some uptick. Projects such as CNA and Hydrogenation were commercialized during the quarter. WNA and the R&D centre are expected to be commissioned in Q2FY26, while Nitration, MIKB, and MIBC projects are likely to come online in H2FY26. The total planned capex for the polycarbonate value chain stands at Rs85bn; however, the management’s guidance of only Rs8bn-10bn capex for FY26 suggests the polycarbonate resin project is unlikely to be commissioned by Dec’27 as previously guided.

Outlook

DN has been undertaking numerous growth initiatives, primarily in the Phenolics segment. While domestic demand for all products is expected to remain robust, the threat of cheap imports will likely keep margins under pressure. The agrochemicals business is expected to continue facing headwinds in the near term. The stock is currently trading at ~31x FY27 EPS. We upgrade to ‘HOLD’ rating.