Deepak Nitrite’s Q1FY23 results were affected by the fire incident in Nandesari, Gujarat. Although EBITDA/PAT was down 22% each year, management remains confident of medium to long-term growth as the restart of plant operations and an almost aggressive capex plan. 15 billion in FY23E, highlighted brokerage Edelweiss.
The brokerage house believes that suitable entry of Deepak Nitrite into phenol and now aggressive expansion plan in phenol/acetone derivatives offers strong growth opportunities driven by import substitution. With capital expenditure commencing from Q3 of FY23, it expects earnings growth to pick up pace in the second half of FY23.
Edelweiss retains its ‘Buy’ rating specialty chemical stock with a target price of 3,127 per share, indicating a potential increase of over 50% from current stock levels. Deepak Nitrite shares are down around 20% so far in 2022 (YTD).
Driven by strong realizations, the chemical maker’s revenue growth was 36% YoY while EBITDA/PAT was down 22% (above estimates) each. Despite contraction in spreads, the phenol business maintained profitability on a sequential basis, the brokerage had highlighted in an earlier note on Q1 results.
Deepa Nitrite has aggressive growth capex 15 billion for FY23, target of capacity addition in advance intermediates and phenol derivatives. It plans to enter solvents manufacturing after the commissioning of the phenol derivatives plant.
Management at AGM guided for import substitution of various polycarbonate. Edelweiss believes that its entry into the value added segment of phenol will be a significant positive in its transformation from a commodity player to a specialty manufacturer. Margins are also expected to remain positive on the back of growth in the fine and specialty business.
The company will set up manufacturing units for solvents such as MIBC and MIBK. It seeks to expand phenol production through barrier removal activities. The management plans to increase the overall phenol production to 0.3mn tonnes by FY24E.
Deepak Nitrite has finalized three new products which are import substitution products used in gas-liquid complex reactions. The company expects EBITDA of 20-30% on these molecules.
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