Sell Deepak Nitrite; target of Rs 1300: Motilal Oswal

Moneycontrol • 1 day ago

Original source

Key Investment Pillars

  • Phenolics segment growth: DN's Phenolics segment drove the strong 2QFY27 performance, with a 72% YoY revenue growth and 3.6x YoY EBIT growth, due to favorable realizations amid import disruptions and healthy domestic demand.
  • Advanced Intermediates (AI) segment recovery: The AI segment showed a 38% YoY revenue growth, driven by steady demand in established products, improved realizations, and initial contributions from new products, with a target of 14-15% EBIT margin in FY28.
  • New project ramp-ups: DN has commissioned new plants, including chlorination and specialty chemicals, and is ramping up production of Methyl Isobutyl Ketone (MIBK) and Methyl Isobutyl Carbinol (MIBC), with optimal utilization targeted in FY28.
  • Polycarbonate complex: DN is building India's first integrated polycarbonate complex, with a 165ktpa resin plant expected to be completed in FY29, and full optimization by FY31.

Thesis Validation Checklist

  • Sustained Phenolics profitability: Monitor if Phenolics segment margins remain healthy in 3QFY27, driven by favorable realizations and cost optimization.
  • AI segment margin expansion: Track if AI segment EBIT margin reaches the targeted 14-15% in FY28, driven by new product contributions and cost pass-through.
  • New project utilization: Monitor the utilization levels of newly commissioned plants, including MIBK and MIBC, and the progress of the polycarbonate complex.
  • Import normalization: Watch for signs of import normalization, which could impact DN's competitiveness and profitability.
  • Competition and market share: Monitor the competitive landscape and DN's market share in the Phenolics and AI segments.