Sell Deepak Nitrite, target price Rs 1,488: HDFC Securities

HDFC Securities has a sell call on Deepak Nitrite Ltd. with a target price of Rs 1488 The current market price of Deepak Nitrite Ltd. is Rs 1883.8. Deepak Nitrite, incorporated in 1970, is a Mid Cap company with a market cap of Rs 25741.46 crore, operating in the Chemicals sector.

Deepak Nitrite's key products/revenue segments include Fine Chemicals, Export Incentives, Scrap, Sale of services and Other Operating Revenue for the year ending 31-Mar-2024.

Financials

For the quarter ended 31-12-2024, the company has reported a Consolidated Total Income of Rs 1924.39 crore, down -6.28 % from last quarter Total Income of Rs 2053.27 crore and down -4.86 % from last year same quarter Total Income of Rs 2022.78 crore. The company has reported net profit after tax of Rs 98.13 crore in the latest quarter.

The company's top management includes Mr.Deepak C Mehta, Mr.Sanjay Asher, Mrs.Purvi Sheth, Mr.Punit Lalbhai, Mr.Vipul Shah, Mr.Prakash Samudra, Mr.Girish Satarkar, Mr.Meghav Mehta, Mr.Ajay C Mehta, Mr.Sanjay Upadhyay, Mr.Maulik D Mehta, Mr.Dileep Choksi. Company has Deloitte Haskins & Sells LLP as its auditors. As on 31-12-2024, the company has a total of 14 Crore shares outstanding.


Investment Rationale
HDFC Securities maintains a Sell rating on Deepak Nitrite (DNL), with a price target of Rs 1,488. Deepak Nitrite is venturing into polycarbonate (PC) manufacturing with an investment of Rs 50 billion and is also expanding into polycarbonate compounding. The PC plant shall commence operation by FY28-end and start contributing to the revenue from FY29. The brokerage believes the company will announce capex for setting up a PC intermediate plant (Bisphenol A) and additional phenol capacity in the ensuing quarters. However, the balance sheet will become debt-ridden (from being debt-free) with a peak net debt to equity of 0.6x and net debt to EBITDA of 1.9x in FY28. The RoCE will fall from 16% in FY24 to 13% in FY29. The RoE will improve by 260bps in FY27 to 20% but will fall to 16% by FY31. The stock is trading at 23.4x/19.3x FY26E/27E. EBITDA/APAT was 50%/53% below their estimates, owing to lower-than-expected revenue and higher-than-expected raw material cost.

Promoter/FII Holdings
Promoters held 49.24 per cent stake in the company as of 31-Dec-2024, while FIIs owned 6.59 per cent, DIIs 23.22 per cent.