Deepak Nitrite Research Reports By Ventura & CD Equisearch

Ventura initiating coverage report

“On the back of its strong R&D capabilities, Deepak Nitrite Ltd (DNL) has a proven track record of identifying high growth new product categories and successfully scaling them up. The recent initiative to enter into the phenol acetone segment has been a game changer for the company. In only 5 months of operations, it has achieved good profitability and 100% utilization. It is also looking to undertake further capacity addition in downstream derivatives of the phenol acetone chain. Apart from its strong business fundamentals, the environmental clamp down in China which has resulted in a favorable pricing uptick and gradual migration to sourcing from India. DNL is expected to be one of the key beneficiaries.

On the back of above, we expect DNL to a clock revenue growth of 22% CAGR to INR 4,919 crore by FY22 with EBITDA and PAT growing faster at a CAGR of 26% to INR 823 crore and a CAGR of 34% to INR 421 crore respectively. Operating margins are expected to expand 140 bps to 16.7% whereas net profit margins are expected to expand by 210 bps to 8.6% by FY22. ROE and ROCE too are expected to improve to 21.6% (+420 bps) and 23% (+620 bps), respectively. With future capex to be incurred largely through internal accruals, the Free Cash Flow to the Firm (FCFF) should turn positive. On the back of sustained capex, debt in absolute terms will largely remain flat. However, Debt to Equity, Interest coverage and Debt to EBITDA are expected to improve.

We initiate coverage on Deepak Nitrite Ltd as a BUY with a price objective of INR 401, representing a potential upside of 36% from the CMP of INR 295 over a period of 30 months. We have used the PE multiple approach to value Deepak Nitrite and assigned a multiple of 13x on FY22 EPS of INR 30.8 to arrive at the target price.”

CD Equisearch Research Report on Deepak Nitrite

“The stock currently trades at 21.7x FY19e EPS of Rs 11.94 and 15.6x FY20eEPS of Rs 16.58. Reduced imports from China coupled with higher dependence on agro chemicals sector, largely explains the recent robustness in performance chemicals business, triggering increased output of both DASDA and OBA. Estimate of some 38.8% growth in earnings next fiscal largely hinges on seamless domestic penetration of phenol & acetone market. Chinese government’s expansive crackdown on polluting industries would support domestic off take of agrochemicals, dyes and pigments; though seasonality of agro chemicals business is no small threat. On balance, we maintain our buy rating on the stock with revised target of Rs 332 (previous target: Rs 295) based on 20x FY20e earnings, over a period of 9 months.”