May 11, 2021

Deepak Nitrite Share price rises over 10%: Fundamentals explained for Investors

Deepak Nitrite is a leading player in the Indian chemical intermediates industry. It is the largest producer of phenol and acetone in India and a leading global producer of sodium nitrite and sodium nitrate. The company’s manufacturing facilities are located at Nandesari, Dahej (Gujarat), Roha, Taloja (Maharashtra) and Hyderabad (Telangana), and its research and development facility is located at Nandesari (Gujarat).

Deepak Nitrite is a leading player in the Indian chemical intermediates industry. It is the largest producer of phenol and acetone in India and a leading global producer of sodium nitrite and sodium nitrate. The company’s manufacturing facilities are located at Nandesari, Dahej (Gujarat), Roha, Taloja (Maharashtra) and Hyderabad (Telangana), and its research and development facility is located at Nandesari (Gujarat). The current share price of Deepak Nitrite is Rs 1217, up Rs 107 or 9.7%.

Deepak Nitrite Business Segments:

Basic Chemicals (16% of rev) – Mainly oil, rubber and dye industry. Largest player in sodium nitrite / nitrate, fuel additives and nitro-toluene
Fine & Specialty Chemicals (17% of rev) – Mainly pharma, agrochem and personal care
Performance Products (7% of rev) – Mainly paper, textiles, detergents. Backward integration to DASDA is a +ve
Phenolics (60% of rev) – Main growth driver. Capacity working at over 100% currently. Products include phenol, acetone and isopropyl alcohol (IPA).

Deepak Phenolics:

Deepak Nitrite produces 200ktpa of phenol and 120ktpa of its co-product acetone and 2,600ktpa of cumene. This plant is eight times larger than all existing facilities in India. DPL is doubling its IPA capacity to 60ktpa from 30ktpa (commonly used disinfectant for sanitizers). Products cater to industries like plywood, pharma, adhesives, sanitisers, chemicals and paints. The company substituted majority of the local market imports of Phenol and Acetone, reportedly attaining a market share of ~65% in the country as per HDFC Sec. The brokerage sees Deepak Phenolics revenues shoot from Rs 2000 cr in FY20 to Rs 3100 cr in FY23 with EBIT higher by 3x to Rs 550 cr in the same period.

Deepak Nitrite Management says:

Land development activity has commenced at the newly acquired site measuring 127 acres at Dahej Continued shift from China to India for manufacture of chemicals which is already evident and potential for further acceleration in upcoming quarters Platform for continued growth through planned introductions of newer products and projects Second phase of the IPA plant is progressing well and remains; Commissioning in Q4 Brownfield expansion at Nadesari plant along with other downstream products in the Phenolics business to contribute towards growth.

Market Expert and Analyst Darshan Mehta highlights that the Market cap of Deepak Nitrite is only Rs 15000 cr, he believes that Deepak Nitrite is an excellent company with strong fundamentals and is growing consistently at a rapid pace. He believes huge rerating will be possible when street realizes it’s not a commodity business anymore. There is not much sell side research which may increase leading to more institutional interest when happens. Deepak Nitrite is doing capex which is paying off towards growth. Has a history of turning over assets.

Darshan belives that Deepak Nitrite has market leadership across most of its product segments. He says Deepak Nitrite is Cheaper than peers in valuation (one of the cheapest) with much better financials. He says Debt to Equity ratio of Deepak Nitrite stands at 0.28 vs 0.74 last year. He highlights that Promoter stake in the company is good and has been increasing for the past 2 years. The Company is highly backward integrated. Production Linked Incentives (PLI) scheme for specialty chemicals if it happens is good.

Deepak Nitrite Key Risks:

Pricing of global commodities Competition

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