Accumulate Deepak Nitrite; target of Rs 251: CD Equisearch

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CD Equisearch's research report on Deepak Nitrite

Vitality in DNL's basic chemicals business (gross revenues up 12.6%; EBIT up 38.3%) and recognition of insurance claim of Rs 18.33 crs ($2.8m) on account of loss of profits due to business interruption from the fire at its Roha facility last fiscal, failed to buttress revenues (net revenues up a measly 6.1%) last quarter. Delays in getting clearance from local authorities for select high value products in the FSC segment coupled with short supply of some products precluded production of some high margin products. As a result, FSC's gross revenues (excluding insurance claim sum) nosedived 12.9% and EBIT by a worrying 52%.

Outlook
The stock currently trades at 32.9x FY18e EPS of Rs 6.50 and 20.5x FY19e EPS of Rs 10.45. Recovery in earnings this fiscal partly rests on sustained firmness in crude oil markets and resurrection in exports of key FSC intermediates. Widening on newer regions (Europe for instance) and end-user industries with patented products for performance products segment is aimed at curtailing losses. Yet vulnerability of earnings to near unpredictability of market reach with regards to phenol and acetone capacities cannot be sorely gainsaid. We therefore assign accumulate rating on the stock with revised target of Rs 251 (previous target: Rs 144) based on 24xFY19 earnings, over a period of 6-9 months.

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