Buy This Chemical Stock For 30% Return: Recommended By IIFL Securities

The broker firm IIFL Securities has a "buy" call on the stock of Deepak Nitrite Limited (DNL), with a 30% upside potential. Deepak Nitrite is one of India's most successful and fastest-growing chemical manufacturing companies. This stock is expected to gain up to 30% and might achieve a price target of Rs. 2890 per share. The brokerage company recommends a 'Buy' on the stock at a market price of Rs 2190-2270, however, the stock is now trading at Rs 2,297.25.

Company’s performance

According to the brokerage, DNL's Basic Chemicals (BC) segment surprised, with a further sharp improvement in margins (up +530bps QoQ) to 34%. The company took advantage of the positive price trend across certain products. Demand for Fine & Speciality Chemicals continues to be strong.

"The company is in the advanced stages of doubling the IPA plant capacity and also improving on the power utility costs (via a captive power plant). Management expects these projects to contribute from 3QFY22" IIFL Securities has said.

"In terms of new CAPEX, the company has announced a plan to invest Rs7bn into downstream products of phenol and acetone, namely new import-substitute solvents. DNL will invest Rs3bn in new chemistries like fluorination in order to expand specialty product lines" described by the brokerage.

IIFL Securities has also claimed that "DNL aims to select only those products in which the company could be among the top-3 global suppliers for the next 10- 15 years. The key focus areas in terms of end-use segments would be solvents, life science chemicals, and dyes & pigments." The brokerage has further clarified in its research report that "Apart from growth projects, DNL is setting up a premium high-tech R&D center. The company will make higher investments in R&D initiatives and launch new products in coming years."

Financial summary of DNL according to IIFL Securities

Consolidated (Rs mn)	Revenue	EBITDA Margin (%)	EPS	EPS growth (%)	P/E (x)	RoE (%)	RoCE (%)
FY22E	59,945	25.8	72.3	27.2	29.1	35.3	40.4
FY23E	66,404	26.1	84.1	16.2	25.1	30.4	36.4

Disclaimer

The above stock is picked from the brokerage report of IIFL Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.