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Deepak Nitrite’s 1QFY25 earnings print was weaker than our and consensus expectations. The miss was primarily on account of lower-than-anticipated margins in the advanced intermediates business while phenolic business performance was robust. Going ahead, i) recovery in ex-agro segments is likely to continue while agro pick-up is likely to be towards end-3QFY25, ii) Deepak will benefit from backward integration from fluorination and nitric acid capex given it would flow through from 4QFY25, iii) MIBK/MIBC commissioning is expected in 4QFY25, full benefit of which will begin from FY26, and iv) INR 140bn worth of projects getting commissioned by end-CY27 should augur well for growth starting FY28E. Accounting for 1QFY25 results and management commentary, we cut our FY25/26 EBITDA/EPS estimates by ~4%/2%. We maintain BUY with a revised Mar’26 TP of INR 3,180/share (based on 30x Mar’27E EPS) from Sep’25 TP of INR 2,685 earlier (based on 27x Sep’26E EPS) to factor in a) long-term growth prospects of the upcoming polycarbonate and other phenol/acetone downstream capacities and ii) improving phenolics spreads. We remain constructive on the name from the long-term perspective. However, due to the sharp run-up in the stock price (~40%) since our detailed report in Mar’24 (click here), near-term upside is likely to be limited, in our view. Hence, we recommend to BUY in case of any correction.

*  Phenolics EBIT in line with JMFe: Deepak Nitrite’s 1QFY25 consolidated gross profit came in 3% below JMFe at INR 6.7bn (up 2%/22% QoQ/YoY) as revenue was 1% below JMFe but 2% above consensus at INR 21.7bn (up 2%/23% QoQ/YoY) and gross margin was lower than anticipated at 30.8% (vs. JMFe of 31.5% and 30.7% in 4QFY24). During the quarter, other expenses were in line at INR 2.6bn (vs. JMFe of INR 2.6bn). As a result, EBITDA was 8%/2% below JMFe/consensus and stood at INR 3.1bn (up 3%/47% QoQ/YoY) and PAT came in 11%/4% below JMFe/consensus at INR 2bn (down 20% QoQ while up 35% YoY). Deepak’s phenolics EBIT was in line and stood at INR 2.1bn (vs. JMFe of INR 2.1bn, up 1%/137% QoQ/YoY) as phenolics EBIT margin increased slightly to 14.2% (vs. JMFe of 14% and 14.1% in 4QFY24) and phenolic revenue was below our estimates at INR 14.6bn (vs. JMFe of INR 15bn). The company plans to commercialise acetophenone (side-stream of phenol production) over the next 12 months.

*  Advanced intermediates (AI) EBIT significantly lower than anticipated: Deepak’s advanced intermediates EBIT came in below our expectation at INR 665mn (vs. JMFe of INR 1.0bn and INR 1.3bn in 4QFY24) as advanced intermediates EBIT margin decreased to 9.3% (vs. JMFe of 14.5% and 9% in 4QFY24, ex-insurance payments) offsetting higher-thanexpected revenue of INR 7.2bn (vs. JMFe of INR 7bn and INR 6.7bn in 4QFY24).

*  Estimate 21% EPS CAGR over FY24-27E; maintain BUY: We estimate 24%/21% EBITDA/EPS CAGR over FY24-27E. We maintain BUY with a revised Mar’26 TP of INR 3,180 (based on 30x Mar’27E EPS) as we see strong growth potential over the next 5-7 years from the commissioning of INR 140bn worth capex.

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