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Improved spreads drive margin expansion

Deepak Nitrite reported Q1FY27 revenue of INR25.8bn, up 36.4% YoY and 21.6% QoQ. Reported revenue included an incentive of INR215mn for the Phenolics segment from the Government of Gujarat, compared with INR172mn in Q1FY26. The Advanced Intermediates segment reported revenue of INR8bn, up 33% YoY, while EBIT increased 89% YoY and 100% QoQ to INR670mn, supported by backward integration benefits and an improving product mix. The Phenolics segment delivered its best-ever quarterly performance, with revenue of INR17.8bn, up 36% YoY and 24% QoQ, while EBIT surged 254% YoY to INR4.18bn. EBIT margin expanded sharply to 23.5%, driven by a significant improvement in phenol-acetone spreads amid supply disruptions caused by the West Asia crisis. On the capex front, the company expects to commission the MIBK, MIBC, and Acetophenone projects in August, while the multi-purpose agrochemical intermediates facility is scheduled to be commissioned during Q2FY27. The Polycarbonate project also remains on track for commissioning in H2FY29.

DN continues to pursue multiple growth initiatives, primarily focused on expanding its Phenolics portfolio. However, our analysis indicates that global phenol overcapacity remains a structural concern, while the elevated phenol-acetone spreads have already begun moderating on a week-on-week basis. As supply conditions normalize, we expect spreads and margins to gradually revert. The stock is currently trading at ~32x FY28E EPS. We value the company at 29x FY28E EPS and maintain our 'REDUCE' rating with a target price of INR1,586

Consolidated revenue increases by 36.4% YoY and 21.6% QoQ:

Deepak Nitrite consolidated revenue stood at Rs25.8bn (36.4% YoY/ 21.6% QoQ; PLe: Rs21.7bn, Consensus: Rs23.1bn), increased driven by 33% and 36% YoY increased in Advance intermediate segment and Phenolics segment revenue respectively

EBITDA increases by 185% YoY and 44%QoQ:

EBITDA stood at Rs5.4bn, increased by 185% YoY and 44% QoQ (vs Rs1.9bn in Q1FY26 and Rs3.8bn in Q4FY26). EBITDA margin came at 21% (vs 10% in Q1FY26 and 17.7% in Q4FY26; PLe: 16.5%). Gross profit margin was 37% (vs 28% in Q1FY26 and 35% in Q4FY26; PLe: 33.2%).

Segmental mix: Phenolics accounted for 69% of total revenue in Q1FY27, with EBIT/kg improving to INR21.5 compared to INR16.5 in Q4FY26. During the quarter, the segment received a government incentive of INR215mn for Deepak Phenolics, compared to INR684mn in Q4FY26. Advanced Intermediates contributed 31% of total revenue and reported an EBIT margin of 8.3%, compared to 4.7% in Q4FY26. Overall, Phenolics contributed 86% of total EBIT, while Advanced Intermediates accounted for the remaining 14%. Excluding the government incentive, the Phenolics segment reported an adjusted EBIT margin of 22.6% in Q1FY27 versus 16.0% in Q4FY26, while adj EBIT/kg improved to INR20.4 from INR12.5 in the previous quarter, driven by higher better product spreads, and improved manufacturing efficiencies.

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