Motilal Oswal's research report on Deepak Nitrite
Deepak Nitrite (DN) reported a beat on our estimates. EBITDA came in 32% higher than our estimate at INR4.1b, while EBITDA margin, at 21.9%, was also higher than our estimate of 16.9% – albeit, at a multi-quarter low. FSC segment revived, while Basic Intermediates and the Performance Products segments performed well in 4QFY22. EBIT margin in the Phenolics business stood at 16%. However, the same expanded in the Basic Intermediates segment. -EBIT mix for Basic Intermediates/Fine and Specialty Chemicals improved to 25%/20% from 19%/15% in 3QFY22, with the contribution from Phenolics at 45% (down from an average of 64% in 1HFY22). The contribution from Performance Products decreased to 10% in 4QFY22 from 13% in 3QFY22, although volumes and sales realization improved significantly in 2HFY22. DN has maintained its highest ever utilization rate of 120% in the Phenolics business in 4QFY22, leaving limited growth in this segment from volume accretion. The company commissioned its new captive power plant along with its second IPA plant (capacity of 30ktpa). This would help DN with a stable supply of power without running the risk of maintenance shutdowns.
Outlook
Despite a capex of INR15b over the next two years, DN is expected to turn net cash positive by FY23, with FCF generation of INR12.9b over FY23-24. We value DN at 26x FY24 EPS and reiterate our Neutral rating with a TP of INR2,320.
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