Fundamental Wringer of Deepak Nitrite: The name Deepak Nitrite unchangingly enters the conversation whenever investors talk well-nigh the recent tattoo of the chemicals sector in India. The stock has given multi-bagger gains to thousands of investors. But is there increasingly to it? Or all the tattoo is washed-up and over now? In this article, we’ll self-mastery a fundamental wringer of Deepak Nitrite Ltd. and try to know if there is increasingly than meets the eye.

Fundamental Wringer of Deepak Nitrite

We’ll start off with a unenduring highlight of the merchantry of the visitor and how its product portfolio has reverted over the years. Later, we’ll race through the industry landscape and financials of the stock. A section on future plans and a summary conclude the vendible at the end.

Company Overview

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

DNL has incorporated over 50 years ago in 1970 in Gujarat by C.K. Mehta, father of the present chairman and MD Deepak C. Mehta.

As of today, it produces 30 products from its 6 manufacturing plants. The visitor serves over 1,000 customers wideness 45 nations globally. It had a strong workforce of 2,006 employees at the end of FY22.

Deepak Nitrite has been a key payee of the tattoo of the Indian chemicals industry in the last half-decade. In the sections ahead, we’ll read increasingly well-nigh this and how it has wilt a preferred nomination of Indian companies for Phenolics, which they used to import earlier.

Segment Analysis

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

1. Basic intermediates are standard products like sodium nitrite, sodium nitrate, etc which find applications in industries such as petrochemicals, rubber, agrochemicals, and industrial explosives.
2. Fine & specialty chemicals are specialized, high-margin products. The visitor caters to the specific needs of clients in the paper, personal care, pharma, and increasingly such sectors.
3. Performance products are chemicals (used in paper, detergents, and other industries) that add particular characteristics to any product.
4. Phenolics division expanded rapidly in recent years as DNL wilt an import substitute for Indian automotive, pharma, rubber, and various players.

Revenue Segments of Deepak Nitrite

The table unelevated shows how the revenue segments of Deepak Nitrite have grown over the years.

The share of variegated product segments of DNL in its revenue has reverted over the years. The most significant is the Phenolics segment growth (it comes under Deepak Phenolics, a wholly-owned subsidiary of Deepak Nitrite now) which grew to worth for 62% of the company’s revenues in FY22. Set up in 2014, Phenolics was a small semester of the visitor generating insignificant income earlier.

Segment Results of Deepak Nitrite

Similarly, the table unelevated highlights the share of profits surpassing interest and taxes (earnings surpassing interest and taxes) of variegated divisions of DNL.

Geographical Segments

The exports rumored for 22.49% of the total income of the visitor in FY22. Domestic sales fetched a majority of 77.51% of the total revenue.

We are now well enlightened of what the visitor does and how it has matured over the years. Let us equip ourselves with the Indian chemicals industry landscape as part of our fundamental wringer of Deepak Nitrite.

Industry Overview

According to the data from FICCI, India holds a 4% market share in the $ 5,027 billion worth global chemicals industry. China stands as the largest producer with a 39% share. The ‘commodity’ chemicals and ‘specialty’ chemicals make up virtually 80% and 20% of the total market respectively.

Since 2017, the Chinese chemical industry started unpleasing as the government came lanugo harsh to tenancy pollution and emissions. Considering of this, the prices increased worldwide. The structural transpiration presented a huge opportunity for Indian companies as most of them once had eco-friendly practices in place.

The Indian specialty chemicals sector is unscientific to double its share in the worldwide market from 4% presently to 6% by 2026. The yearly growth has been pegged at 18-20% in FY22 and 14-15% in FY23.

Going forward, the outlook and revenue visibility are expected to stay strong for the Indian players as MNCs shift their chemical requirements to India and other APAC nations.

We have read well-nigh the company, its segments, and the chemicals sector so far in our fundamental wringer of Deepak Nitrite. In the sections ahead, we’ll do a quick SWOT wringer and race through the financials of the stock.

SWOT Wringer of Deepak Nitrite

Strengths

DNL has a comprehensive product portfolio wideness four segments catering to clients in various sectors thereby diversifying associated risks and helping it to obtain new clients easily.

Weaknesses

Uncertainty in the raw materials and fuel financing can hurt profit margins as the visitor is not worldly-wise to pass through increased financing for long-term agreements.

Opportunities

Like in the past, DNL’s strategy of substituting imports for hair-trigger products will help it to capitalize on value-added downstream products in the future.

Threats

Obsolescence risk and a short supply of skilled labor for ramified chemical processes are two significant threats to the company.

Deepak Nitrite – Financials

Revenue & Net Profit Growth

Over the last six years, the operating 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 growth of operating profit and net profit is upper at 50.30% and 85.91% on low bases respectively.

The table unelevated shows the operating revenue, operating profit, and net profit of the visitor for the previous six fiscals.

*The net profit for FY17 has been adjusted for an unrenowned profit of Rs 70 crore.

Operating & Net Profit Margins

Following the tattoo of the Indian chemicals industry, the margins of the visitor moreover expanded multi-fold over the years.

Reduced production and stringent environmental norms increased the prices of chemicals globally. Furthermore, the China 1 strategy brought increasingly demand. This helped Indian manufacturers stand in line with global players, resulting in significant growth in their profit margins.

The table unelevated brings forward the resurgence in the operating margins and net profit margins of DNL.

Return Ratios: RoCE & RoE

The return ratios of Deepak Nitrite have improved significantly considering of the earnings from the Phenolics and Fine & Speciality Chemicals segments. The figures in the table unelevated convey the transition of DNL into a highly profitable business.

Higher profits made Deepak Nitrite a financially stable stock. But how? The earnings growth has helped Deepak Nitrite to deleverage itself. We read increasingly well-nigh this in the next section.

Debt/Equity & Interest Coverage

Notice in the table unelevated how the management has paid when the debt to bring lanugo the debt-to-equity ratio. Additionally, increased shareholders’ funds and earnings surpassing interest & taxes remoter improved debt to probity ratio and interest coverage ratio of the stock.

Future Plans Of Deepak Nitrite

So far we only looked at the previous years’ data as part of our fundamental wringer of Deepak Nitrite. In this section, we’ll try to get an idea of what lies superiority for the visitor and its investors.

1. The management has planned to invest virtually Rs 1,500 crore in FY22 and FY23 to enter upstream/downstream products and increase the efficiency of existing product lines.
2. The Rs 700 crore CAPEX of the phenolics subsidiary will likely get completed by FY24 subtracting high-value solvents with wrong-side-up integration capabilities to the product portfolio.
3. Additionally, the visitor has been de-risking its manufacturing operations by setting up a Sodium Nitrate plant in Oman by investing $ 15 million in the JV with a 51% stake.
4. Furthermore, the management has earmarked a new investment of Rs 1,000 crore to set up a world-class facility for Polycarbonate compounding business.

Fundamental Wringer of Deepak Nitrite – Key Metrics

Before we hit the end, let us quickly revise the key metrics of the stock.

In Conclusion

The recent Q3FY23 results (Rs 209 crore profit on the sales of Rs 1,991 crore) tell how the management is steering Deepak Nitrite towards higher growth in the future. Investors will have to alimony a tropical eye on the operating margins and quarterly sales growth to see where the stock is going.

In your opinion, what can be unexpected speed bumps for investors in the near future? How well-nigh you let us know your views on DNL in the comments below?

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