Reduce Deepak Nitrite; target of Rs 1799: Prabhudas Lilladher

Prabhudas Lilladher's research report on Deepak Nitrite

DN’s Q4FY25 adj revenue at Rs20.2bn increased by 6% QoQ, but decreased by 4% YoY. Operating performance of the company was impacted by ongoing pricing pressure, oversupply from China as well as elevated input costs, which appear to have softened now. Sequentially, Advanced Intermediates segment benefitted from volume gains in key products and new offtake agreements, though agrochem business continues to remain under pressure. Phenolics segment saw higher volumes, but profitability remained subdued due to the influx of cheap imports. Projects like CNA, WNA, hydrogenation, nitration and R&D center are expected to be commissioned in Q2FY26, while MIKB and MIBC are likely to come online in Q3FY26. The total capex planned for the polycarbonate value chain is 85bn, however the management has guided just Rs12bn capex for FY26, which makes us believe that the polycarbonate resin project will not commission by Dec’27 as guided earlier.

Outlook

DN has been undertaking numerous growth initiatives, majorly in Phenolics segment. However, we believe that even though domestic demand for all its products will remain robust, the threat of cheap import influx will keep margins under pressure. Agrochem business is likely to continue to face headwinds in the near term. We anticipate EPS CAGR of ~8% over FY25-27E. Valuing the stock at 30x P/E on FY27E EPS, we maintain ‘Reduce’ rating with target price of Rs1,799.