Basic Evaluation of Deepak Nitrite

Basic Evaluation of Deepak Nitrite: The identify Deepak Nitrite at all times enters the dialog every time buyers speak concerning the current growth of the chemical substances sector in India. The inventory has given multi-bagger positive aspects to hundreds of buyers. However is there extra to it? Or all of the growth is completed and over now? On this article, we’ll conduct a basic evaluation of Deepak Nitrite Ltd. and attempt to know if there’s greater than meets the attention.

Basic Evaluation of Deepak Nitrite

We’ll begin off with a short spotlight of the enterprise of the corporate and the way its product portfolio has modified through the years. Later, we’ll race by way of the business panorama and financials of the inventory. A bit on future plans and a abstract conclude the article on the finish.

Firm Overview

Deepak Nitrite Ltd. (DNL) is a fast-growing chemical middleman Indian firm with a well-diversified portfolio. It’s the largest producer of sodium nitrite, sodium nitrate, Phenol, and Acetone in India. 

DNL has included over 50 years in the past in 1970 in Gujarat by C.Okay. Mehta, father of the current chairman and MD Deepak C. Mehta. 

As of in the present day, it produces 30+ merchandise from its 6 manufacturing crops. The corporate serves over 1,000 clients throughout 45 nations globally. It had a powerful workforce of two,006 workers on the finish of FY22.

Deepak Nitrite has been a key beneficiary of the growth of the Indian chemical substances business within the final half-decade. Within the sections forward, we’ll learn extra about this and the way it has change into a most popular selection of Indian firms for Phenolics, which they used to import earlier.

Phase Evaluation

The product line of DNL will be divided into 4 segments:

Primary intermediates are customary merchandise like sodium nitrite, sodium nitrate, and so forth which discover purposes in industries corresponding to petrochemicals, rubber, agrochemicals, and industrial explosives.

Effective & specialty chemical substances are specialised, high-margin merchandise. The corporate caters to the particular wants of shoppers within the paper, private care, pharma, and extra such sectors.

Efficiency merchandise are chemical substances (utilized in paper, detergents, and different industries) that add specific traits to any product. 

Phenolics division expanded quickly lately as DNL change into an import substitute for Indian automotive, pharma, rubber, and varied gamers.

Income Segments of Deepak Nitrite

The desk beneath exhibits how the income segments of Deepak Nitrite have grown through the years.

The share of various product segments of DNL in its income has modified through the years. Essentially the most vital is the Phenolics section development (it comes beneath Deepak Phenolics, a wholly-owned subsidiary of Deepak Nitrite now) which grew to account for 62% of the corporate’s revenues in FY22. Arrange in 2014, Phenolics was a small division of the corporate producing insignificant earnings earlier.

Phase Outcomes of Deepak Nitrite

Equally, the desk beneath highlights the share of income earlier than curiosity and taxes (earnings earlier than curiosity and taxes) of various divisions of DNL.

Geographical Segments

The exports accounted for 22.49% of the entire earnings of the corporate in FY22. Home gross sales fetched a majority of 77.51% of the entire income.

We at the moment are nicely conscious of what the corporate does and the way it has matured through the years. Allow us to equip ourselves with the Indian chemical substances business panorama as a part of our basic evaluation of Deepak Nitrite.

Trade Overview

In response to the information from FICCI, India holds a 4% market share within the $ 5,027 billion value international chemical substances business. China stands as the biggest producer with a 39% share. The ‘commodity’ chemical substances and ‘specialty’ chemical substances make up round 80% and 20% of the entire market respectively.

Since 2017, the Chinese language chemical business began faltering as the federal government got here down harsh to regulate air pollution and emissions. Due to this, the costs elevated worldwide. The structural change introduced an enormous alternative for Indian firms as most of them already had eco-friendly practices in place. 

The Indian specialty chemical substances sector is estimated to double its share within the worldwide market from 4% presently to six% by 2026. The annual development has been pegged at 18-20% in FY22 and 14-15% in FY23. 

Going ahead, the outlook and income visibility are anticipated to remain sturdy for the Indian gamers as MNCs shift their chemical necessities to India and different APAC nations.

We now have learn concerning the firm, its segments, and the chemical substances sector to date in our basic evaluation of Deepak Nitrite. Within the sections forward, we’ll do a fast SWOT evaluation and race by way of the financials of the inventory.

SWOT Evaluation of Deepak Nitrite

Strengths

DNL has a complete product portfolio throughout 4 segments catering to shoppers in varied sectors thereby diversifying related dangers and serving to it to acquire new shoppers simply.

Weaknesses

Uncertainty within the uncooked supplies and gas prices can damage revenue margins as the corporate shouldn’t be capable of move by way of elevated prices for long-term agreements.

Alternatives

Like up to now, DNL’s technique of substituting imports for important merchandise will assist it to capitalize on value-added downstream merchandise sooner or later.

Threats

Obsolescence threat and a brief provide of expert labor for advanced chemical processes are two vital threats to the corporate.

Deepak Nitrite – Financials

Income & Web Revenue Development

Over the past six years, the working revenues of Deepak Nitrite have grown at a CAGR of 29.31% from Rs 1,455 crore in FY17 to Rs 6,802 crore in FY22. The annualized development of working revenue and web revenue is excessive at 50.30% and 85.91% on low bases respectively.

The desk beneath exhibits the working income, working revenue, and web revenue of the corporate for the earlier six fiscals.

*The web revenue for FY17 has been adjusted for an distinctive revenue of Rs 70 crore.

Working & Web Revenue Margins

Following the growth of the Indian chemical substances business, the margins of the corporate additionally expanded multi-fold through the years. 

Diminished manufacturing and stringent environmental norms elevated the costs of chemical substances globally. Moreover, the China+1 technique introduced extra demand. This helped Indian producers stand consistent with international gamers, leading to vital development of their revenue margins.

The desk beneath brings ahead the development within the working margins and web revenue margins of DNL. 

Return Ratios: RoCE & RoE

The return ratios of Deepak Nitrite have improved considerably due to the earnings from the Phenolics and Effective & Speciality Chemical substances segments. The figures within the desk beneath convey the transition of DNL right into a extremely worthwhile enterprise.

Larger income made Deepak Nitrite a financially secure inventory. However how? The earnings development has helped Deepak Nitrite to deleverage itself. We learn extra about this within the subsequent part.

Debt/Fairness & Curiosity Protection

Discover within the desk beneath how the administration has paid again the debt to carry down the debt-to-equity ratio. Moreover, elevated shareholders’ funds and earnings earlier than curiosity & taxes additional improved debt to fairness ratio and curiosity protection ratio of the inventory.

Future Plans Of Deepak Nitrite

To this point we solely seemed on the earlier years’ information as a part of our basic evaluation of Deepak Nitrite. On this part, we’ll attempt to get an concept of what lies forward for the corporate and its buyers.

The administration has deliberate to speculate round Rs 1,500 crore in FY22 and FY23 to enter upstream/downstream merchandise and enhance the effectivity of current product strains.

The Rs 700 crore CAPEX of the phenolics subsidiary will possible get accomplished by FY24 including high-value solvents with backward integration capabilities to the product portfolio.  

Moreover, the corporate has been de-risking its manufacturing operations by organising a Sodium Nitrate plant in Oman by investing $ 15 million within the JV with a 51% stake.

Moreover, the administration has earmarked a brand new funding of Rs 1,000 crore to arrange a world-class facility for Polycarbonate compounding enterprise.

Basic Evaluation of Deepak Nitrite – Key Metrics

Earlier than we hit the tip, allow us to rapidly revise the important thing metrics of the inventory.

In Conclusion

The current Q3FY23 outcomes (Rs 209 crore revenue on the gross sales of Rs 1,991 crore) inform how the administration is steering Deepak Nitrite in direction of increased development sooner or later. Buyers should maintain an in depth eye on the working margins and quarterly gross sales development to see the place the inventory goes. 

In your opinion, what will be sudden pace bumps for buyers within the close to future? How about you tell us your views on DNL within the feedback beneath?

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Vikalp Mishra is a commerce graduate from the College of Delhi. He likes to write down on finance, cash and enterprise. He’s a voracious reader with a real curiosity in investing. Drop him a mail at [email protected].