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CD Equisearch
Deepak Nitrite (Buy)
CMP: ₹344
Target: ₹396
To dodge biting slowdown in domestic market, Deepak Phenolics continue to make inroads in overseas markets. Deepak Nitrite’s overall exports got a leg up not least due to shifting global capacities for certain products. Part of increase in exports has been attributed to increase in volumes, widening customer base and enrichment of product mix. For instance, chemical intermediates demand has seen a noticeable jump of late both in domestic and export markets largely because of reduced availability of intermediates from China.
The stock currently trades at 9.5x FY20e EPS of ₹36.37 and 8.7x FY21e EPS of ₹39.64. Massive jump in earnings in Deepak Nitrite’s performance products business cast spell on the sustainability of current earnings momentum — FY20e earnings estimates revised upwards by about 120 per cent. Headwinds in phenolics business are not obscure. Low chance exists of perceptible expansion in phenolics crack spreads over the next few quarters. As a consequence, sub 10 per cent earnings growth is estimated for next fiscal. Balancing odds, we advise accumulating the stock with revised target of ₹396 (previous target: ₹332) based on 10x FY21e earnings.
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