Reduce Deepak Nitrite; target of Rs 1419: Prabhudas Lilladher

Moneycontrol • 1 day ago

Original source

Key Investment Pillars

  • Deepak Nitrite's Phenolics segment drove Q2FY27 performance, with revenue up 72% YoY and EBIT margins at 22.5%, supported by stable domestic demand, higher landed costs of imports, and favorable domestic realizations.
  • The Advanced Intermediates segment reported lower EBIT margins due to higher input costs and logistics challenges, but management expects improvement to 14-15% in FY28 with higher utilization of new assets and backward integration.
  • The company is expanding its Phenolics portfolio and has commissioned new facilities, with plans for further capacity expansion, including a polycarbonate project.
  • Global phenol overcapacity remains a structural concern, and the current high phenol-acetone spreads are expected to normalize, impacting margins.

Thesis Validation Checklist

  • Watch for signs of margin compression in the Phenolics segment as global supply conditions normalize.
  • Monitor the progress of the polycarbonate project and its potential impact on the company's growth and profitability.
  • Track the utilization rates of newly commissioned assets in the Advanced Intermediates segment and the effectiveness of backward integration efforts.
  • Observe the company's ability to manage input costs and logistics challenges in the Advanced Intermediates segment.
  • Keep an eye on industry trends, including phenol and acetone spreads, and their impact on Deepak Nitrite's performance.