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Quick Pointers:

* MoU worth Rs90bn with the Government of Gujarat on January 31, 2024; adding to the previous MoU worth Rs50bn as of May 23, 2023 for an aggregate of ~Rs140bn

* Phenolics plant utilization at 140-150% for Q3FY24

Deepak Nitrite (DN) topline grew 13% QoQ anchored by solid growth in the Phenolics segment, driven by robust volume growth and improved realization. Advanced Intermediates segment experienced subdued demand recovery in agrochemicals, textiles and dyes & pigments segment. The company has announced plans for large scale capex including brownfield and greenfield expansion and expects to commence all the projects before 2027. The stock is currently trading at 30x FY26E EPS and 19x FY26E EV/EBITDA. We anticipate ~7% EPS CAGR over FY23-26E. We value the stock at 26x P/E at FY26 EPS and retain ‘Reduce’ rating with TP of Rs1,985(earlier Rs1,935).

* Segmental Performance: Advanced intermediates revenue -17.5%/0.6% YoY & QoQ to Rs6.7bn, while EBIT margins stood at 14% for the quarter. Phenolics division showed impressive volume growth with revenue up by 14.2%/20.5% YoY & QoQ to Rs13.4bn. Phenolics plant operated at a utilization of approximately 140%.

* Consolidated revenue stood at Rs 20bn (1% YoY/ 13% QoQ; PLe: 17.3bn), driven by 14% YoY/20% QoQ increase in Phenolics division revenue to Rs13.5bn. For 9MFY24, topline declined by 7.6% to Rs55.5bn from Rs60bn, while EBITDA & PAT margins remained flat at 32.3%/10% respectively. ? Gross profit margin was at 31.7% (vs 34.4% in Q2FY24 and 32.8% in Q3FY23; PLe: 32.9), inline with the actual margin.

* Even though topline improved 13% QoQ, EBITDA came in flat at Rs3bn (vs Rs3.1bn in Q3FY23 and Rs3bn in Q2FY24), due to significant increase in raw material cost. EBITDA margin came at 15.2% (vs 15.8% in Q3FY23 and 17% in Q2FY24). 9MFY24 EBITDA stood at Rs8.1bn, 13% down YoY.

* Reported PAT came in flat at Rs2bn (-3.4% YoY/ 1.5% QoQ), while margins were at 10% in Q3FY24 vs 10.5% & 11.5% in Q3FY23 & Q2FY24 respectively. ? Concall takeaways: Global chemical industry continues to witness adverse conditions (2) Chinese suppliers taking steps to destock the inventory of intermediates (3) Segmental Performance: Phenolic segment showed robust growth, driven by volume gains and improved realizations, subdued demand recovery in industries such as agrochemicals, textiles and dyes, and pigment, healthy demand for construction infrastructure and home care (4) Ongoing projects such as photohalogenation, high pressure fluorination, acid unit and others are progressing well and are expected to be commissioned as planned (5) High pressure fluorination, acid unit commissioning is anticipated in this Deepak Nitrite (DN IN) February 15, 2024 Q3FY24

* Concall takeaways: Global chemical industry continues to witness adverse conditions (2) Chinese suppliers taking steps to destock the inventory of intermediates (3) Segmental Performance: Phenolic segment showed robust growth, driven by volume gains and improved realizations, subdued demand recovery in industries such as agrochemicals, textiles and dyes, and pigment, healthy demand for construction infrastructure and home care (4) Ongoing projects such as photohalogenation, high pressure fluorination, acid unit and others are progressing well and are expected to be commissioned as planned (5) High pressure fluorination, acid unit commissioning is anticipated in this quarter (5) Expansion projects such as MIBK, MIBC and hydrogenation going as per plan (6) Additional MoU worth Rs90bn signed with Gujrat government, which leads to total MoU of Rs140bn for manufacturing of polycarbonate resins, methyl methacrylate MMA, polymethyl methacrylate, PMMA resins, all projects to be completed by 2027, Rs20bn worth investment to be commissioned in coming quarter (7) Domestic : Export revenue mix came in at 15.72 : 4.51bn (8) The company is net debt free (9) DNL has invested Rs170mn in Deepak, Oman Industries to acquire 32% stake (10) For Agrochemicals Q4FY24 is expected to be better than Q3FY24 (11) All new projects which are expected to be commissioned in CY24 are expected to reach optimal level in FY26 (12) Phenol plant, which is operating at 140%-150% capacity, operated at 88000 tons for Q3FY24, total yearly capacity is around 350,000 tons (13) Phenol total volume growth is around 17% to 20% in cumulative in 9MFY24 (14) New investments to add 2% to 3% over current EBITDA margins (15) Fragile recovery is expected for Advanced intermediate segment.

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