INSUBCONTINENT EXCLUSIVE:
NEW DELHI: This Vadodara-based smallcap company has a market capitalisation of just over Rs 3,300 crore, but is a big favourite among
institutional investors.
As many as 33 foreign portfolio investors (FPIs), nine mutual funds (MFs) and two alternative investment funds own
nearly one-fourth of shareholding in this chemical manufacturer.
Some brokerages say the company may report up to three times surge in
earnings over next two years
The stock has rallied 850 per cent in last five years, and some analysts see another 50 per cent upside in the near term.
The company is
Deepak Nitrate.
Its manufacturing plants at Nandesari and Dahej in Gujarat, at Hyderabad in Andhra Pradesh and at Roha and Taloja in
Maharashtra produce both basic chemicals, including organic and inorganic chemicals, and niche chemicals, such as xylidines, cumidines and
oximes and colour Intermediates.
These products have diverse applications in agrochemicals, textiles, detergents, rubber, paper, colourants,
petrochemicals and pharma sectors, among others.
What should help the company's financials going ahead is its ongoing project for phenol
and its co-product acetone, for which the company has already raised about Rs 380 crore via three rounds of qualified institutional
The project is at the pre-commissioning stage and is likely be commissioned by July end
The management aims for 70-75 per cent utilisation rate in FY19 itself.
Demand for phenol has been growing at 9-10 per annually cent in
Besides, there has also been an uptick in demand globally, thanks to shutting of a large global facility for phenol production in the
US.
Besides, some downstream projects in China have led to greater captive consumption of Chinese phenol capacity
This has led to lower exports from China, resulting a surge in phenol prices
Phenol spreads have widened sharply to $850 per tonne from a projected $600 over the past few months
Deepak Nitrate's facility will have a total capacity to produce 200,000 mtpa of phenol and 120,000 mtpa of acetone
Nitrite is moving closer to realising a quantum jump in earnings over the next 2-3 years, driven primarily by the imminent commissioning of
its new phenol capacity and supported by healthy growth prospects in other businesses
Our estimates imply tripling of EPS over the next two years
the brokerage said.
Given the surge in surge in acetone-phenol spreads, brokerage Edelweiss Securities has revised its estimates for the
target price is 49.40 per cent higher from the prevailing price of Rs 253
IIFL's 12-month target of Rs 305 suggests a 20 per cent upside.
The company told stock exchanges in a filing that it has received
regulatory consent for its backward integration facility at Roha, where it expects to reach full capacity utilisation in the fine and
specialty chemical (FSC) segment this year, which may aid margin expansion.
Profitability margin is expected to improve further in FY19, as
the company has planned brownfield expansion across all business segments to take advantage of the extant situation in the Chinese chemical
This will entail a capital expenditure of Rs 60 crore, the company said.
Given the medium-term growth opportunities such as downstream
expansion into phenol derivatives, IIFL expects the stock valuations to move closer to peer averages once the phenol project is commissioned
The stock trades at 15 times FY20 PE, which is at a 20 per cent discount to the peer average.
For FY18, the company reported 60 per cent
surge in net profit at Rs 83.46 crore compared with Rs 52.15 crore reported for FY17
Ebitda margin for the year rose by 230 basis points to 14.6 per cent from 12.3 per cent reported for the same period last year
Total income grew 18 per cent to Rs 1,466.68 crore.
