This Mid Cap Chemicals Stock Gave 757.95% Return In 5 Years, Brokerage Suggests Buy For 26% Upside

CD Equisearch initiates a "buy" on the stock of Deepak Nitrite Ltd. (DNL) for a 26% potential upside from its current level over a period of 6-9 months with a target price of Rs 2,504 apiece. DNL is a mid-cap company that operates in the Chemicals sector, having a market capitalisation of Rs 27,171.54 crore.

Sorted into advanced intermediates and phenolics, DNL's product portfolio comprises organic, inorganic and fine chemicals - for use in detergents, colorants, paper, agro chemicals, rubber etc.

Stock Outlook & Returns

The stock last traded at Rs 1,992.15 apiece on NSE, gaining 0.35% compared to the previous close. Its 52 week high is Rs 2,690.05 apiece, and the 52 week low is Rs 1,681.15 apiece on NSE. The stock moved down 2.78% in the past 1 week. In the past 1 and 3 months, it moved down by 6.15% and 4.06%, respectively. Over a year, it moved down by 18.43%. In 3 years, it has given 425.22% multibagger returns and in 5 years it gave 757.95% multibagger returns.

Business Updates

Despite fire around the warehouse section of Deepak's Nandesari plant in Q1 which led to damage of certain property, plant and equipment and inventory, Deepak managed to report all but 26% growth in revenues of its advanced intermediates business though on little growth in its EBIT. EBIT margin thus declined to 20.2% from 23.6% in the same quarter a year ago as overall volumes dipped 15% when compared to that in same period a year ago.

Accentuated by energy crisis in Europe, Deepak's phenolics business - despite decent volume growth in Q2, was badly impacted by fall in phenol prices. Margins, thence, declined to 8% from 19.3% in Q2 of previous year (14.1% in Q1), thus precipitating 53.4% drop in EBIT of phenolics segment. Rising benzene prices also spoilsport last quarter.

Operating profit

Overall operating profit though declined by a back breaking 29.9% not least due to elevated cost of utilities, fall in volumes and costs incurred in restarting the Nandesari (Gujarat) plant in a phased manner. Flat lining of interest and depreciation barely help arrest the fall in earnings - PAT descended by 31.4% to Rs 174.47 crs compared with Rs 254.34 crs in the same period a year ago. Higher power & fuel costs impacted profits too: surged to Rs 145.23 crs in Q2 from Rs 101.57 crs, partly due to use of high cost natural gas; though its earnings impact was just Rs 4 crs in Q2.

CD Equisearch Recommends buy for a target price of Rs 2,504/share

The stock currently trades at 29.5 x FY23e EPS of Rs 67.22 and 22.2x FY24e EPS of Rs 89.43. Thanks to fire at its Nandesari plant and gutwrenching meltdown in margins of phenolics business - precipitated by fall in phenol prices globally - earning estimates for the current fiscal has been cut by quarter. Yet launch of new products post gradual commissioning of new integrated projects would doubtlessly support earnings next fiscal - estimated to grow by a third, though on a low base. "Balancing odds, we believe that the stock merits a buy rating with revised target of Rs 2504 (previous target: Rs 2723) based on 28x FY24e earnings, over a period of 6-9 months," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of CD Equisearch. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.