Result Flash Note - Deepak Nitrite Strong Trajectory of Earnings with Inexpensive Valuations

Independent Research Analyst

Mamta Verma

DC India Research

DC India Research LLP (DCIR) is based out of Mumbai, India.

We specialize in providing customized, independent research across listed and unlisted companies in India across equities and credit including sectoral research. Our customers include India focussed PE funds, special situation funds, domestic AMCs, Wealth Advisory& PMS firms, Rating Agencies & Investment Advisors. 

The DCIR board consists of prominent names from the industry as well as CIO’s of Hedge funds.

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/5845" target="_blank" data-smartkarma-citation="entities:5845:1">Deepak Nitrite (DN IN)</a>
 DNL is favorably positioned to capture opportunities emerging across the chemicals and specialty chemicals landscape. China, which is the world’s largest supplier for multiple chemicals and specialty chemicals, has enhanced its focus on environmental protection and sustainable manufacturing processes. As a result, local Chinese producers are faced with higher cost of operations which will increase the landed cost of chemicals. This has improved the competitiveness of alternate suppliers, opening up opportunities for established players with proven capabilities and abundant capacity such as DNL. 
The Greenfield project of the Company for manufacture of Phenol &amp; Acetone is set to commence commercial operations shortly post which DNL would become domestic market leader for Phenol &amp; Acetone through its subsidiary Deepak Phenolics Ltd. The outlook for Phenol remains favorable as the product is finding new applications resulting in increased local demand (currently higher than 0.3mntpa). As the local supply is limited, there has been an increase in imports. Further, the availability of raw materials in the local market has eased considerably while margins are improving as a result of infrastructure led growth in the downstream market globally. The combination of these factors is contributing to a strong tailwind ahead of the commissioning. 
Top-line guidance of $1bn by FY21 (implies ~60% CaGR over FY18-21, ~4xs growth) through expansion of phenol project, expansion in range of performance products, demand revival in end-user industries &amp; increasing geographical distribution, expansion of margins through increase in contribution of high-margin products like pharma, personal care &amp; agro-chemical intermediates and best-in-class board and management are some of the key reasons contributing to the strong medium term outlook on the stock.

Deepak Nitrite (DN IN)
 DNL is favorably positioned to capture opportunities emerging across the chemicals and specialty chemicals landscape. China, which is the world’s largest supplier for multiple chemicals and specialty chemicals, has enhanced its focus on environmental protection and sustainable manufacturing processes. As a result, local Chinese producers are faced with higher cost of operations which will increase the landed cost of chemicals. This has improved the competitiveness of alternate suppliers, opening up opportunities for established players with proven capabilities and abundant capacity such as DNL. 
The Greenfield project of the Company for manufacture of Phenol &amp; Acetone is set to commence commercial operations shortly post which DNL would become domestic market leader for Phenol &amp; Acetone through its subsidiary Deepak Phenolics Ltd. The outlook for Phenol remains favorable as the product is finding new applications resulting in increased local demand (currently higher than 0.3mntpa). As the local supply is limited, there has been an increase in imports. Further, the availability of raw materials in the local market has eased considerably while margins are improving as a result of infrastructure led growth in the downstream market globally. The combination of these factors is contributing to a strong tailwind ahead of the commissioning. 
Top-line guidance of $1bn by FY21 (implies ~60% CaGR over FY18-21, ~4xs growth) through expansion of phenol project, expansion in range of performance products, demand revival in end-user industries &amp; increasing geographical distribution, expansion of margins through increase in contribution of high-margin products like pharma, personal care &amp; agro-chemical intermediates and best-in-class board and management are some of the key reasons contributing to the strong medium term outlook on the stock.

Deepak Nitrite: All Round Perf in Q2FY19 Led by Strong Dom Dd. New Phenol Plant Adds to +ve Outlook.