Neutral Deepak Nitrite; target of Rs 1890: Motilal Oswal

Motilal Oswal's research report on Deepak Nitrite

Deepak Nitrite (DN) reported a miss on our estimate. EBITDA came in 9% lower than our estimate at INR2.7b, while EBITDA margin – at 13.8% – was also below our estimate of 16.3%, the lowest since 1QFY19. The miss was largely due to the Phenolic segment. EBIT margin contracted to 8% in Deepak Phenolics, the lowest since 4QFY20. Management announced that it has commissioned a project (for an agrochemical product) in Oct’22 for which the entire volumes are tied up for the next five years – it expects another project to be commissioned in Nov’22, which would be margin accretive.

Outlook

The stock trades at 24x/23x FY23E/FY24E EPS. With pricing environment remaining volatile and limited earnings growth opportunities until the time Greenfield expansions get commissioned (phenol downstream products would result in captive phenol consumption of 35-40%), we maintain our Neutral rating. We value the stock at 22x FY24E EPS, to arrive at our TP of INR1,890.