shares of Deepak Nitrite fell by as much as 10% today ₹2,201 after the chemical company announced its earnings after market hours on Wednesday. Shares of Deepak Nitrite are well below their record highs after today’s fall ₹3,020, hit earlier this month. consolidated net profit fell ₹254 crore in the September quarter, down from ₹302 crore in the June quarter. But compared to year-on-year basis, profit has increased significantly over last year ₹170 crores. total income increased ₹to 1,681 crore ₹1,526 crore in the June quarter.
According to Motilal Oswal, Deepak Nitrite reported “a mixed bag of results, with EBITDA at INR3.9b being 10% higher than our estimate, while the EBITDA margin was below 23% (esti. 26.7%) – as of 4QFY19. lowest since”.
“Phenolics continues to aid the performance of other segments, as EBIT margins in fine and specialty chemicals declined for the fourth consecutive quarter and remained the same for basic chemicals,” the brokerage said.
The brokerage has downgraded the stock to neutral. “The stock trades at 31x/29x FY23E/FY24E EPS, owing to limited earnings growth opportunity unless its greenfield expansion is triggered (phenol downstream products will result in captive phenol consumption of 35-40%). We downgrade the stock to neutral. Valuing the stock at 28x Dec’23E EPS, we are . reach the target price of ₹2,300,” Motilal Oswal said in a note.
The brokerage, however, said that “management’s increased focus towards advanced/high value products will help in margin expansion and stability for the company, which investors are most wary of. This will also lead to multiple re-ratings for the stock as Specialty/ Increases mix of complex chemistry products irrespective of capex ₹1800 crores over the next three years, it is expected to be net cash positive by FY23E, with FCF generation ₹1800 crores over FY22-24E.”
Rahul Sharma, Co-Founder, Equity99, says that investors can consider investing in the stock at lower levels. “Lamp Nitrite has a good ROCE of 39.9% and an ROE of 39.6%. It has reduced its debt and its debt/equity ratio is just 0.25x. The company has delivered an impressive PAT growth of 64.84% CAGR in the last 5 years. It has been generating consistently positive growing operating cash flow over the last 3 years. Promoters are the major shareholders holding 45.69%, DII – 10.61%, FII – 10.85%. The company has a free float of just 32.85%,” he said, citing the positives about the company.
He added that in the short term, though, the stock may face slight correction and then consolidation, but the long term outlook remains intact with the 3000 level being held, he added.
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