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 ankit shah's Stock Idea
Ankit shah is Bullish on Deepak Nitrite Ltd.
Idea Submitted on 06Dec,2018
  • 5 Total Ideas
  • 2 Active Ideas
  • 3 Closed Ideas
  • 0 Friends
  • 0 Followers
  • Avg. Returns
     -2.66%
    Rank
    53
    Success Rate
      20%
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      Idea Status :  Closed
    Stop Loss Triggered
    Idea Closed at 225 (10Dec,18 10:41:am)
     Time Frame
    3months
     Start Price
    239.3
     Target Price
    260
     Stop Loss
    225
     Projected Gain
    20.7 (8.65% Upside)
     Returns Achieved
    -14.3     -5.98%
     Analysis
    [table]     [/table]Deepak Nitrite (DEN)delivered 22% revenue growth (2% above our expectations) led by consistent[b]performance in its basic and specialtychemicals business coupled with improving traction in the performance products business. Further, strong margins across segments including performance products led to a 31% growth in EBITDA (18% above our estimates). Considering the higher crude prices adversely impacting performance across relatedindustries, we believethe company put upa strong show. DEN also announced commercial production at its acetone-phenol plant in Dahej starting 1[/b]st [b]November, 2018. Continued buoyancy in theglobal acetone-phenol market has kept spreads high in the business over the past one year creating significant profitability potential in the near term.[/b] Strong order booking and high spreads toaid in faster ramp-up of Dahej unitWhile demand for phenol continues to bestrong in the domestic market, the company is also securing market for acetone with its product quality meeting pharma standards (60% of acetone demand comes from pharmaceuticals industry). The company expects to achieve nearly 75% utilisation        for        the        remaining        FY19        and        nearly        85%        for        FY20. Force majeure announced by Ineos for two of its phenolunits in Europewill add to the globalsupply pressure and is expected to keep input-output spreads highthereby benefitting DEN in the near future. Post stabilization and ramp-up of theacetone-phenol capacity, the company has plans to invest in setting-up downstream capacities in FY20. This will aid in meeting two objectives: 1.) 30% captive utilisation of capacities thereby reducing dependence on end-user market; 2.) expanding the opportunity size by penetrating into phenol derivatives which are currently import dependent. The company expects to unveil the same in the subsequent two quarters. Strong operating margins in performance products gives a goodoutlookThe performance products business hadbeen a laggard for the company in its past 4 years of operations. However, continued focus on margin driven growth and customer acquisition led to a 15% EBIT margin during the quarter. While DASDA is being fully utilisation with high captive consumption into optical brightening agents (OBA), the OBA unit itself is currently operating near 50% utilisation and is expected to improve steadily y-o-y. Brownfield expansion and currency tailwinds to benefit goingforwardDEN has commissioned the brownfield capexof INR 60 cr in expanding its basic and specialty chemicals capacity by nearly 20%. The company expects this investment to materialise into higher volumes growth in the subsequent quarters.35% of DEN’s standalone revenuesare from exportswith as much exposure to foreign currencydebt. With loans being restated periodically, the company is expectingto benefit from currency movements in revenues. Outlook and valuationsWith the commencement of acetone-phenolplant and strong growth in its base business as well, DEN is all-set to benefit in terms of better ROCE and free cash flows in the medium term. Our earnings estimates per share for FY19/FY20 are 12.8/21 respectively. We value the company at 18x FY20E EPS of INR 21 and maintain our ‘BUY’ recommendationwith a target price of INR 378/share.
     Stock Price Movement (EOD Basis)
     C.M.P Deepak Nitrite
    232
    Sentimeter
    Buy Calls: 5 Sell Calls: 0
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