Reduce Deepak Nitrite; target of Rs 1935: Prabhudas Lilladher

Prabhudas Lilladher's research report on Deepak Nitrite

Deepak Nitrite (DN) reported sluggish numbers YoY (topline down 9%) on account of inventory destocking, slowdown in EU & other markets and dumping of products by China. Management expects Advanced Intermediates segment & phenolics division to recover only in H2FY24, however major volume growth to be seen post commercialization of downstream products. While we remain positive on the long term story, phenolics margins will remain under pressure due to capacity additions in China, in our view. We thereby forecast EPS to decline to Rs 61 in FY24 before recovering to Rs 88 in FY26.

Outlook

We anticipate ~12% EPS CAGR over FY23-26E. Considering large commodity nature of business, we value the stock at 22x P/E on FY26E EPS of Rs 88 and retain ‘Reduce’ rating with TP of Rs1,935 (earlier Rs1,803).

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