MOSL: DEEPAK NITRITE (Buy) - Focus on advance/high-value products intensifies
DEEPAK NITRITE: Focus on advance/high-value products intensifies
(DN IN, Mkt Cap USD3.7b, CMP INR2039, TP INR2350, 15% Upside, Buy)
- Deepak Nitrite (DN) reported a beat on our estimates, driven by better-than-expected margins in Phenolics and margins expansion in Basic Chemicals. The EBIT margin for the Fine & Specialty and Performance Products segments contracted.
- Despite the huge beat on our estimate, we continue to highlight the risk of overall margin contraction from the normalization of phenolics product prices. As a result, we build in an EBITDA margin of 27% in FY22E (up from 26% earlier) and 26% for FY23/24E. That said, strong domestic demand for phenolics, with higher exports to countries such as the US and China, could keep product prices and margins strong in this segment – presenting an upside risk to our estimates.
- At the 50th AGM, the management guided that the company aims to transition from being a chemical intermediates company to an advance products one (leaning towards life sciences – the need of the hour). On this path:
- DN would continue to focus on bringing more products under the Fine & Specialty segment and close the gaps in the production value chain. Around 125 acres of land at Dahej (called Dahej-II) would be developed to focus primarily on advance specialty/intermediates in the Life Sciences segment, especially in fluorination.
Deepak Nitrite Limited is a chemical manufacturing company. The Company offers Sodium Nitrite, 2 Ethyl Hexyl Nitrate and Optical Brightening Agent (OBA). The Company's segments include Bulk Chemicals and Commodities (BCC), Fine and Speciality Chemicals (FSC), and Fluorescent Whitening Agent (FWA). The BCC segment offers nitro tolunes, fuel additives and sodium nitrite/nitrate. The FSC segment offers specialty chemicals, xylidines, oximes and cumidines. The FWA segment offers diamino stilbene disulfonic acid (DASDA) and OBA. 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 Company also offers color intermediates. The Company's products cater to several industries, such as colorants, petrochemicals, agrochemicals, rubber, pharmaceuticals, paper, textile and detergents.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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