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FIIs, LIC increase stake in this multibagger chemical stock; do you own it?

FIIs, LIC increase stake in this multibagger chemical stock; do you own it?

With over 10 times return, shares of Deepak Nitrite delivered multibagger return to investors during the past five years while the benchmark BSE Sensex gained 1.73 times during the same period. 

With over 10 times return, shares of the company delivered multibagger return to investors during the past five years while the benchmark BSE Sensex gained 1.73 times during the same period With over 10 times return, shares of the company delivered multibagger return to investors during the past five years while the benchmark BSE Sensex gained 1.73 times during the same period

At the time when foreign institutional investors (FIIs) offloaded shares worth over Rs 1 lakh crore during the June quarter, a multibagger stock from the chemical space managed to attract them amid the falling market. This is Deepak Nitrite.

The latest shareholding data available with the BSE showed that overseas investors upped their stake to 9.07 per cent in the company as of June 30 against 8.76 per cent in the preceding quarter ended March 31. Meanwhile, the country’s biggest institutional investor Life Insurance Corporation of India (LIC) also increased its stake to 4.64 per cent from 3.64 per cent earlier. On the other hand, mutual funds reduced their stake to 5.39 per cent from 5.85 per cent during the same period.

With over 10 times return, shares of the company delivered multibagger return to investors during the past five years while the benchmark BSE Sensex gained 1.73 times during the same period. On the other hand, Deepak Nitrite has cracked nearly 29 per cent to Rs 1,771.60 on a year-to-date basis till July 8, 2022. The 30-share index Sensex declined 6.47 per cent in 2022 so far. According to JM Financial, Deepak’s phenol spreads have been under pressure due to elevated crude prices.

Graphic: Pragati Srivastava

In terms of valuation, the price-to-earnings (P/E) ratio of Deepak Nitrite was at 49.70 times on July 8, 2022 against its five-year average of 38.91 times. For the year ended March 31, 2022, the company posted a consolidated net profit of Rs 1,066.64 crore, up 37.48 per cent on a year-on-year basis.  Earlier, the company had reported a profit of Rs 62.90 crore in FY16, Rs 96.46 crore in FY17 and Rs 611.03 crore in FY20. Gross sales of the company also jumped over 5 times to Rs 6,802.19 crore in FY22.

JM Financial believes that Deepak Nitrite may report a net profit of Rs 1,148.50 crore in FY23 and Rs 1,355.30 crore in FY24. It further projected that return on invested capital is likely to grow from 31 per cent in FY22 to 34 per cent each in FY23 and FY24. The brokerage in June gave a ‘Buy’ rating to Deepak Nitrite with a target price of Rs 2,760.

Deepak Nitrite is one of India's leading chemical companies. The company manufactures almost a hundred products across three major categories including bulk and commodity chemicals, fine and specialty chemicals and optical brightener agents. It holds a strong market position in India in several of its chosen niches within the chemical industry.

The company’s internal R&D has recently helped to add successful new products to its line-up. Deepak Nitrite’s global distribution network spans more than 30 countries and has aided in scaling-up exports to around 34 per cent of standalone revenue. The company has five manufacturing plants and an R&D facility, all in India, and has recently commissioned its mega phenol-acetone project.

Going ahead, YES Securities believes that the June quarter earnings of Deepak Nitrite are likely to be impacted by weakness in phenol prices and margins. It foresees a 9.2 per cent year-on-year fall in profit after tax of Deepak Nitrite. On the other hand, the brokerage sees 23.70 per cent year-on-year growth in revenue.

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