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* Deepak Nitrite has reported a growth of 16.7% in its consolidated revenues at ?19,617 million in Q2-FY23 as against ?16,814 million in Q2-FY22. The performance wan driven by growth in Advanced Intermediates which grew ~20% followed by Phenolics business growing by 12.9% YoY. The overall growth during the quarter was impacted by disruption at company’s Nandesari plant and higher base in previous year quarter in Phenolics business.

* On the profitability front, the company’s consolidated operating margins (Ex. Other Income) stood 13.8%% at ?2,709 million in Q2-FY23 as against 23% at ?3,865 million in Q2-FY22. The decline in operating performance was mainly attributable to due to combination of higher input prices including fuel, power and raw materials as well as loss of production due to Nandesari incident and lower realisation in Phenolics business.

* The consolidated PAT margins for the company during the quarter stood 8.9% at ?1,741 million as against 15.1% at ?2,540 million in Q2-FY22. Lower depreciation and interest cost and higher other income cushioned PAT margins to some extent.

* On segment basis, Advanced Intermediates segment revenues stood at ?6,853 million in Q2-FY23 compared to ?5,697(A) million in Q2-FY22, growing by 20.3% Y-o-Y. The EBIT margins for the segment stood at 20.2% as against 23.2% in same quarter previous year. The margins were impacted due to higher input costs and disruption at Nandesai plant.

* On its Phenol and Acetone business, the company has achieved capacity utilisation of more than 100% on a sustained basis in the latest quarter. The revenues for the phenolics business stood ?12,841 million in Q2-FY23 as against ?11,370 million in same quarter previous year. During the quarter the margins in the phenolics segment were lowest for the company due to adverse phenol-acetone spread owing to global volatile prices in crude oil derivative prooucts. The spread reached to its lowest levels in a decade during the quarter. However, the spread has improved significantly and is at reasonable levels of above $600 which should aid in improvement in overall margins for the company.

* Going ahead, the management has also pursued to move higher up in the specialty chemicals value chain gradually driven by planned expansion initiatives across SBUs and tactical introduction of several downstream chemicals and complex chemical platforms. The company is also planning to backward integrate into some products to further improve profitability and also expects to deeper partnership between its strategic customers as significant volumes of its current and future products are supplied as part of long term.

* We have incorporated current financials and updated our numbers for the company. We continue to remain positive on the stock and maintain our BUY rating on the stock with a revised target price of ?2,650 per share.

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