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Resilient operating performance amid industry headwinds Operating performance above our estimate

* Deepak Nitrite (DN) reported a strong operating performance in 2QFY27 on a low base. Its EBITDA surged 3.1x YoY to INR6.4b, led by 3.6x YoY EBIT growth in the Phenolic segment and 2x growth in the Advanced Intermediates (AI) segment. This growth was driven by favorable Phenolics realizations amid import disruptions and healthy domestic demand, alongside market-share recovery and initial new-product contributions in AI.

* We expect near-term performance to remain healthy, supported by sustained Phenolics profitability in 3QFY27 and a recovery in AI margins as higher costs are passed through. New-product ramp-ups and improving asset utilization should support further earnings growth. We expect import flows to normalization by FY28 and could moderate Phenolics segment margins.

* Factoring in the better-than-expected 2QFY27, we increase our FY27 earnings estimates by 54%, while we largely maintain estimates for FY28. We expect a CAGR of 12%/28%/25% in revenue/EBITDA/PAT over FY26-28. We value the stock at 20x FY28E EPS to arrive at our TP of INR1,300. Reiterate Sell.

Phenolics drives record quarterly performance

* DN reported strong 2QFY27 revenue growth of 62% YoY to INR30.7b (vs. est. INR21.1b), driven by robust performance in both the phenolics (up 72% YoY to INR23b) and AI segments (up 38% YoY to INR8.1b).

* Gross margin came in at 34.8% (vs 27.6% in 2QFY26), while EBITDAM stood at 20.4% (vs. 10.7% in 2QFY26). Employee costs as a % of sales stood at 4.1% (vs. 5.2% in 2QFY26), while other expenses stood at 10.3% (vs. 11.6% in 2QFY26).

* EBITDA grew 3.1x YoY to INR6.3b (our est. INR2.9b), and EBIT for Phenolics grew 3.6x YoY to INR5.2b, while EBIT for AI grew 2.1x to INR488m.

* AI EBIT margin stood at 6% vs. 3.9% in 2QFY26, while Phenolics EBIT margin stood at 22.5% vs. 10.9% in 2QFY26.

* Adj. PAT stood at INR4b (est. of INR1.6b), up 3.3x YoY.

* 1HFY27 revenue/EBITDA/Adj PAT grew 49%/3x/3.2x YoY to INR56.5b/ INR11.7b/INR7.4b.

* Gross debt as of Se’26 stood at INR16.6b vs. INR15.3b as of Mar’26.

Valuation and view

* While pricing volatility and geopolitical disruptions persist, DN is benefiting from healthy domestic Phenolics demand and improved local supply competitiveness. Process improvements, backward integration and cost optimization should support operating efficiency, while new-product ramp-ups and higher utilization of recently commissioned assets are expected to drive AI earnings growth.

* Factoring in the better-than-expected 2QFY27, we increase our FY27 earnings estimates by 54%, while we largely maintain estimates for FY28. We expect a CAGR of 12%/28%/25% in revenue/EBITDA/PAT over FY26-28. We value the stock at 20x FY28E EPS to arrive at our TP of INR1,300. Reiterate Sell.

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