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Higher Spreads led to expansion in margins

Deepak Nitrite reported consolidated revenue of INR30.7bn in Q2FY27, up 62% YoY and 19% QoQ, The Phenolics segment delivered its highest ever quarterly revenue of INR22.9bn, up 72% YoY and 29% QoQ, while EBIT increased to INR5.2bn, with reported margins of ~22.5%. Performance was driven by stable domestic demand, higher landed costs of imports amid global supply chain disruptions, favorable domestic realizations and procurement efficiencies. The Advanced Intermediates segment reported revenue of INR8.1bn, up 38% YoY, while EBIT declined to INR488mn from INR670mn in Q1FY27, with margins at 6%, impacted by higher input costs, variations in customer volumes, duties and elevated logistics and freight costs. On the capex front, the company commissioned chlorination, photo-halogenation and specialty chemicals facilities at Dahej, while nitric acid, MIBK/MIBC capacity is ramping up. Management expects Advanced Intermediates EBIT margins to improve to 14–15% in FY28, supported by higher utilization of newly commissioned assets, backward integration and improved legacy portfolio performance. The polycarbonate project remains on track, with resin commissioning targeted ahead of the integrated chain in FY29, while overall project execution is expected in FY30

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 are supporting performance, but addition capacity commissioning in India and as supply conditions normalize, we expect spreads and margins to gradually revert. The stock is currently trading at ~25x FY29E EPS. We value the company at 24x Sep’28E EPS and maintain our 'REDUCE' rating with a target price of INR1,419.

Consolidated revenue increases by 61.8% YoY and 19.4% QoQ:

Deepak Nitrite consolidated revenue stood at INR30.7bn (61.8% YoY/ 19.4% QoQ); PLe: INR 25.4bn, Consensus: INR24.3bn), increased drive by 72% increase in Phenol segment and 38% YoY increase in Advance intermediate segment. H1FY27 revenue stood at Rs56.5bn increased 49.1% YoY

EBITDA increases by 207% YoY and 16%QoQ:

EBITDA stood at INR6.3bn, increased by 206.9% YoY and 16% QoQ, while EBITDA margin came at 20.4% (vs 10.7% in Q2FY26 and 21% in Q1FY27; PLe: 19.1%). Gross profit margin was 34.8% (vs 27.6% in Q2FY26 and 36.8% in Q1FY27; PLe: 35.5%).

Segmental mix:

Phenolics accounted for 74% of total revenue in Q2FY27, with EBIT/kg improving to INR24 compared to INR7.3 in Q2FY26 (Assumed). Advanced Intermediates contributed 27% of total revenue and reported an EBIT margin of 6%, compared to 3.9% in Q2FY26. Overall, Phenolics contributed 91% of total EBIT, while Advanced Intermediates accounted for the remaining 9%. Including the government incentive, the Phenolics segment reported an adjusted EBIT margin of 22% in Q2FY27 versus 11% in Q2FY26, while adj EBIT/kg improved to INR27 from INR22 in the previous quarter, driven by higher better product spreads, and improved manufacturing efficiencies.

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