Hold Deepak Nitrite; target of Rs 1960: Prabhudas Lilladher

Prabhudas Lilladher's research report on Deepak Nitrite

Due to sharp correction in price, we upgrade to HOLD with TP of Rs.1,960. Deepak Nitrite’s (DN) Q3FY25 revenue stood at Rs19bn, down 5.3% YoY and 6.3% QoQ. Operating performance for the quarter was impacted as plants remained idle due to deferral in demand, lag adjusted recovery in agchem, increase in RM cost as well as oversupply from Chinese counterparts. Planned maintenance shutdown at its phenolics plants further led to a decline in performance and an increase in phenol imports. Nitric acid project is expected to be commissioned by the end of this quarter, while MIBK/MIBC and acetophenone projects are expected to come online by H1FY26. Other projects like nitration and hydrogenation will come online by H2FY26. The management has guided to complete all the polymer-related projects by Dec’27. The company has been taking a number initiatives to propel growth, majorly in the phenolics segment. However, we believe that even though domestic demand for all its products will remain robust, threat of influx of cheaper imports will keep margins under pressure. The agchem business continues to face headwinds, which are likely to continue in the near term.

Outlook

We anticipate an EPS CAGR of ~8% over FY24-27E. Valuing the stock at 28x P/E on FY27E EPS, we upgrade to 'HOLD' rating with a target price of Rs.1,960.