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Improved realization & volumes drive revenue growth

Our View

DN reported a broadly in-line 4QFY22, with operating profits at Rs 4.1bn(-10% YoY; +17% QoQ). While higher raw material and energy prices impacted profitability on YoY, on sequential basis, improved volume and pass through of costs in long term contracts helped improve margins. Going ahead DN expects to sustain revenue/earnings growth momentum through a) incremental passing on of higher costs over 1HFY23, b) higher focus on long term (annual & multiyear contracts), c) de-bottlenecking of capacities and improved efficiencies and d) phased commissioning of board approved capex of Rs 15bn,

Result Highlights

Revenue: The consolidated net-revenue stood at Rs 18.7bn (+28% YoY; +9% QoQ) primarily driven by stronger pricing across segments and improved volume through de-bottlenecking of capacities, particularly in the BI and FSC segments.

Consolidated Ebitda & PAT: Consolidated Ebitda stood 10% YoY lower but 17% higher QoQ at Rs 4.1bn. Consol. PAT stood at Rs 2.7bn (-8% YoY; +10% QoQ). The FY22Ebitda & PAT stood at Rs 16bn (+28% YoY) and Rs 10.7bn (+37% YoY)

Standalone Ebitda & PAT: Standalone Ebitda stood at Rs 2.05bn (+32% YoY; +29% QoQ), primarily on stronger earnings in Basic & FSC segments. FY22 Ebitda and PAT stood at Rs 6.5bn (+21% YoY) and Rs 4.9bn (+37% YoY).

Phenolics Segment: Revenue at Rs 11.2bn stood higher by 20% YoY & 9% QoQ; However EBIT at Rs 1.76bn stood lower by 34% YoY & 4% QoQ ; Ebit margin stood sequentially lower at 16% (3Q: 18%) on account of higher energy costs

Fine & Specialty Segment (FSC): Revenue stood at Rs 2.35bn (+14% YoY; +14% QoQ) and EBIT stood at Rs 767mn (-4% YoY; +44% QoQ); Ebit margin stood sequentially higher at 33% (3Q: 26%).

Performance Products Segment (PP): Revenue stood at Rs 1.6bn (+86% YoY; -5% QoQ); EBIT stood at Rs 398mn (+1205% YoY; -15% QoQ); Ebit margin stood sequentially lower at 25% (3Q: 28%), further moderation expected going ahead

Basic Intermediates Segment (BI): Revenue stood at Rs 3.99bn (+63% YoY; +15% QoQ); EBIT stood at Rs 965mn (+37% YoY; +40% QoQ); Ebit margin stood sequentially higher at 24% (3Q: 20%) on pass through of costs and better pricing

Valuation

We maintain our REDUCE rating and value DN at Rs 2120/sh on SOTP basis, implying a target P/E multiple of 20.6x FY24e, as against 22.2x the stock is currently trading at.

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