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Target: ₹2,504
CMP: ₹1,976.80
Recovering from the after-effects of fire at its Nandesari plant in Q1 this year, Deepak Nitrite is expected to show improved throughput over the course of the current fiscal. With an unflinching focus on import substitution and launch of derivatives of phenol and acetone, new products (mainly advanced solvents) are expected to be unveiled in the next few quarters, though scaling such products would barely be a small feat not least due to operational challenges therewith.
Post commissioning of second IPA plant in Q4, there are plans to commission projects worth ₹1,500 crore, including value-added products of phenol and acetone; new chemistries such as photo chlorination and fluorination; upstream and downstream integration projects.
Despite growth catalysts seemingly in place, the company is little untouched by heightened volatility in phenol and acetone prices, leading to no minor fluctuations in earnings. Though higher capacity utilisation of phenol plant has helped circumvent some of the external stress, risks associated with entrenched energy crisis in Europe and operational challenges in ramping up capacities of newer products cannot be undermined.
The stock currently trades at 29.5 x FY23e EPS of ₹67.22 and 22.2x FY24 EPS of ₹89.43. Boosted by recovery in phenol prices and increased off-take of value-added derivatives of phenol and acetone, earnings are projected to rise by a third next fiscal on the back of improving margins.
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