Shares of Deepak Nitrite have delivered over 900 per cent return to its shareholders in the last five years. In the past 5 years, the share price jumped from Rs 191 to Rs 2,041, logging around 968 per cent return in this period.
Long-term investors have made even bigger gains by investing in the stock as it has surged over 11,000 per cent in the last ten years. The share price of the company jumped from Rs 17.94 to reach the Rs 2,041-mark today.
However, the shares have fallen over 33 per cent from its all-time high, hit in October 2021, putting the stock firmly in bear grip. The scrip touched a 52-week low of Rs 1,682.15 on July 1, 2022, and a 52-week high of Rs 3,020 on October 19, 2021.
Can this multibagger stage a turnaround? Here's what experts say:
According to a recent report by brokerage Anand Rathi, India’s chemicals sector is in a good position to profit from this change and capture a sizable share of the market.
"Indian chemicals manufacturers are poised to emerge as a credible alternative and, in some cases, primary suppliers to global firms. While all in the Indian chemicals sector would benefit from this shift, specialty chemicals manufacturers could gain the most due to higher entry barriers and potential for value-added niche products," it said.
It further added that Deepak Nitrite, from its first product ‘sodium nitrate’ to its latest foray into ‘phenol and acetone, aligned its focus on products where domestic demand was largely import-dependent. Import substitution has always been a major driver of the company’s overall business plan.
Also, the company continues to focus on launching value-added downstream products with the goal of substituting imports primarily to capitalize on the more favourable demand context. It has been paying off debt in the last three years and "repaid Rs 280 crore in FY22, taking the net D/E ratio to -0.05x, vs 0.2x in FY21."
Motilal Oswal has maintained its 'Neutral' rating on the stock. "The stock trades at 24x/23x FY23E/FY24E EPS. With the pricing environment remaining volatile and limited earnings growth opportunities till the time greenfield expansions get commissioned (phenol downstream products will result in a captive phenol consumption of 35-40 per cent)," it said.
It noted that despite a capex of Rs 1,500 crore over the next two years, the company is expected to turn net cash positive by FY23, with a FCF generation of Rs 1,090 crore over FY24. However, the management’s focus remains on commodities, rather than Specialty products or Complex Commodities, as of now.
"The company has already captured a vast market share in the Sodium nitrite and nitrate space, and we expect growth from these verticals to peak. However, the company is constantly innovating. They are going into the Fluorination space by leveraging their current processes," Sreeram Ramdas - Vice-President, Green Portfolio told Business Today.
"We are talking about a management that has walked the talk. Current capex plans of Rs 1,500 crore are expected to begin revenue contribution within the next 1.5 years. Assuming an asset turnover ratio of 2x, the company will be adding Rs 3,000 crore to its top line by FY25, which is a 44 per cent increase," he said.
"Since most of this capex is for debottlenecking and backward integration, we expect margins to sustain. Hence, given the recent correction in valuations, the admirable return metrics, robust capex plans, and modest export reliance, we are bullish on Deepak Nitrite," he added.
JM Financial also has a 'Buy' call on the stock with a target price of Rs 2,895 per share. It expects the phenol-acetone spread to continue its upwards trajectory in 2HFY23.
Notably, the insurance behemoth Life Insurance Corporation of India (LIC) increased its stake to 5.028 per cent from 4.977 per cent earlier.
On Thursday, LIC announced buying an additional stake in chemicals maker Deepak Nitrite to take its overall shareholding in the company to over 5 per cent.
The increase of 0.051 per cent was at an average cost of Rs 2,074.49 per piece. This is an investment in the ordinary course of transaction through open market purchase, LIC said.
With a market capitalisation of more than Rs 27,000 crore, the chemical manufacturer's shares stand higher than 50-day and 100-day moving averages but lower than 5-day, 20-day and 200-day moving averages.
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