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DN’s Q3 EBITDA at Rs3bn (flat YoY/QoQ) was below consensus/our estimates of Rs3.3bn. While the current environment remains subdued for chemicals, on several headwinds including lower global consumption, the management guided that it is focusing on operational and process efficiencies to maintain cost competitiveness. DN raised its stake in its Oman entity to 51%, where it plans to expand its sodium nitrite production capacity. Deepak Chem Tech (DCTL) signed an MoU worth Rs90bn in Jan-24, with the Government of Gujarat to manufacture 3 new downstream products. Company has also signed a termsheet with PLNG for offtake of propylene and hydrogen, to ensure a secure supply of both these raw materials. Our FY24/25/26 estimates remain unchanged. We maintain ADD with unchanged SoTP-based TP of Rs2,600/sh.

DN sees muted performance in the quarter, on demand headwinds

The advanced intermediates (AI) segment was muted on subdued demand recovery in end-use industries, such as agrochemicals, textiles, and dyes & pigments (construction, infrastructure, and homecare industries have healthy growth visibility). Though volumes grew YoY, the pricing environment remains lackluster. Higher volumes in Phenolics (on conducive season), coupled with operating leverage gains and process optimization, contributed to the steady performance in this business. DN registered its highest-ever production volumes, of 88,378MT of phenol and 121,571MT of cumene.

Greenfield & brownfield capex on

track Management has guided for commissioning of ongoing projects worth Rs20bn in CY24. The photo halogenation and fluorination platforms for BTC/BTF are expected to commission in Q4FY24. Similarly, other projects like nitric acid plant, MIBK, MIBC, hydrogenation facility, etc. too are expected to commission over the next few quarters. DN has signed a term sheet with Petronet LNG for offtake of 250KTPA of propylene and 11KTPA of hydrogen via its pipeline at Dahej. This arrangement will span over 15 years from the date of initial delivery, and ensures assured access to crucial feedstock for its production processes, thus paving the way for consistent output and operational stability

DCTL signed an MoU worth Rs90bn with the Government of Gujarat

Deepak Chem Tech (DCTL) signed an MoU worth Rs90bn with the Government of Gujarat in Jan-24, taking the total value of MoUs signed to ~Rs140bn (previously signed an MoU worth Rs50bn in May-23 for MIBK, MIBC, Bisphenol-A & Polycarbonate Compounding). This MoU has been signed to manufacture 3 new products – polycarbonate, methyl methacrylate (MMA)/poly methyl methacrylate (PMMA) resins & compounds, and aniline. DCTL aims to complete these projects by 2027; this will create 1,300 direct and indirect employment opportunities. Such MoUs reaffirm DN’s aim to capture the downstream value chain, thus capitalizing on its first-mover advantage.

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