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Our View

DN’s reported 1QFY24 operating profit at Rs 2bn (-41% YoY & -40% QoQ), stood below than our and street estimates led by industry wide challenges such as China oversupply leading to weaker phenol prices, inventory destocking, slowdown in EU. DN has utilized its own inventory to be able to take benefit of low prices of raw material. Despite of challenging environment operated plant at 135% utilization in phenolics, though correction in phenolics cracks impacted revenue. AI marginally grew its Ebitda margin by 100bps, sequentially it is expected margins to increase for all segments. Supplying key intermediates to China in pharma & agro. Projects worth Rs 25bn are under executions. MOU signed with Govt. of Gujarat, to invest Rs 50bn through DCTL with focus on import substitution, to complete by CY27.

Result Highlights

Revenue: The consolidated net-revenue stood at Rs 17.6bn (-14% YoY; -10% QoQ). Performance impacted due to destocking, slowdown in EU, aggressive dumping by China. The phenol plant operated at ~ 135% utilization, achieving highest ever phenol production and sales.

* Consolidated Ebitda & PAT: Consolidated Ebitda stood at Rs 2bn (-41% YoY; -40% QoQ) and PAT stood at Rs 1.5bn (-36% YoY; -36% QoQ).

* Standalone Ebitda & PAT For the 1QFY24 Standalone Ebitda stood at Rs 1.2bn (- 10% YoY; -14% QoQ); Standalone PAT stood at Rs 858mn (-12% YoY & -15% QoQ).

* Phenolics (DPL): Revenue stood at Rs 10.7bn stood lower by 20% YoY & 9% QoQ; However, EBIT at Rs 876n stood lower by 53% YoY and 51% QoQ; Ebit margin in 1Q stood sequentially lower at 8.2% (4Q: 15.1%). Decline in line with contraction of phenol spreads, the plant also went under annual maintenance.

* Advanced Intermediates (AI): Revenue at Rs 7bn stood lower 3% YoY & 12% QoQ. EBIT at Rs 1.1bn stood lower by 13% YoY and 16% QoQ. The margin profile stood marginally lower at 16 QoQ (from 17% in 4QFY24). Wallet share grew across business.

* Project Update: Photo-halogenation & Halex plant to be commissioned in H2 of FY24, Acid Plant to start commercial production in FY24, both these to secure supply of critical raw materials. Acetone derivatives MIBK & MIBC to be commissioned in FY25. Sodium Nitrite plant in Oman progressing well. Phenol debottlenecking to add 10% capacity. Projects worth Rs 25bn under execution. DCTL to invest Rs 50bn in Gujarat, phase 1 to be ready in CY25 and complete project by CY27

Valuation

We value DN at Rs 2355/sh on SOTP basis, where value of AI segment is estimated at Rs 840/sh and the value of DPL is estimated at Rs 1452/sh with other investments forming the rest. Our TP implies a P/E of 24x FY25e, while stock is currently trading at 21x. We revise our rating to ADD

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