Deepak Nitrite as a buy and hold candidate would have been okay if it would have been held since around 2015-16 till Oct 2021, a period of 5 years. Stock price went up from levels of 50-60 to 3000. This is the period during which early signs of sectoral tailwinds in chemicals sector began and gradually became stronger over period of time, and now it seems the sector is facing headwinds in terms of supply glut and demand problems. One good thing about Deepak Nitrite was that the massive capex came on stream at a very opportune time and that helped company post big profits on a small base, which resulted in multibagger returns.
But trying to extrapolate similar kind of returns from here to next 10 years is a tricky proposition. Its difficult to extrapolate returns of a mere 5-7 years and project earnings trajectory for next maybe 5-10 years. If you look at the business segments of Deepak nitrite, basic chemicals and phenol are pure commodity business prone to vagaries of demand and raw material price volatility. Company does not have much pricing power. Fine and speciality chemicals is a good segment of business. Company does mention about getting into fluorine chemistry products, but my gut feel is that they might have missed the bus, with companies like guj fluoro, navin fluorine etc making hay while the sun is shining for the sector.
The problem here is of recency bias. We tend to remember and pick out companies that have created huge wealth in recent past. A lot of investors had similar affinity to Laurus Labs, but forgot that it was a company that enjoyed strong tailwinds in the form of API demand, some pockets of shortages, some company specific tailwinds etc and it all came together to create a big winner.
Immediately post its IPO, in some investor whatsapp groups I frequent, Laxmi Organics was touted to be a buy and hold for ever kind of company. It was more because of the kind of price fancy prevalent at that time than a genuine attempt at understanding the business model.
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