Shares of Deepak Nitrite have generated more than 900% return for its shareholders over the past five years. Over the past 5 years, the share price has risen from Rs 191 to Rs 2,041, recording a return of around 968% over this period.
Long-term investors have seen even greater gains investing in the stock, as it has jumped more than 11,000% over the past ten years. The company’s share price surged by Rs 17.94 to hit the Rs 2,041 mark today.
However, shares have fallen more than 33% from their all-time high, reached in October 2021, putting the stock firmly in hold on the bears. The certificate hit a 52-week low of Rs 1,682.15 on July 1, 2022 and a 52-week high of Rs 3,020 on October 19, 2021.
Can this multibagger turn around? Here’s what the experts say:
According to a recent report by broker Anand Rathi, India’s chemicals sector is in a good position to take advantage of this change and capture a significant share of the market.
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“Indian chemical manufacturers are poised to emerge as a credible alternative and in some cases the leading suppliers to global companies. While all players in the Indian chemical sector would benefit from this change, chemical manufacturers Specialty chemicals could benefit the most due to higher barriers to entry and potential for value-added niche products,” he said.
He further added that Deepak Nitrite, from its first product “sodium nitrate” to its latest foray into “phenol and acetone”, has focused its efforts on products for which domestic demand was largely dependent on imports. Import substitution has always been a major driver of the company’s overall business plan.
In addition, the company continues to focus on launching value-added downstream products with the aim of replacing imports primarily to take advantage of the more favorable demand environment. It has paid off its debt over the past three years and “paid off Rs 280 crore in FY22, bringing the net D/E ratio to -0.05x from 0.2x in FY22. 21″.
Motilal Oswal maintained its “Neutral” rating on the title. “The stock is trading at 24x/23x FY23E/FY24E EPS. With price environment remaining volatile and opportunities for earnings growth limited until new expansions come online (downstream phenol products will drive consumption phenol captive by 35 to 40%), “It said.
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He noted that despite capex of Rs 1,500 crore over the next two years, the company is expected to generate positive net cash by FY23, with FCF generation of Rs 1,090 crore during FY24. However, management remains focused on commodities, rather than specialty products or complex commodities, for the time being.
“The company has already captured a large market share in sodium nitrite and nitrate, and we expect growth in these verticals to peak. However, the company is constantly innovating. It is entering the field of fluoridation by leveraging its current processes,” Sreeram Ramdas – Vice President, Green Portfolio told Business Today.
“We are talking about management that has kept its word. Current investment plans of Rs 1,500 crore should start contributing to revenue over the next 1.5 years. Assuming an asset turnover rate of 2x, the company will add Rs 3,000 crore to its revenue by FY25, an increase of 44%,” he said.
“Given that most of this capex is for debottlenecking and upstream integration, we expect margins to hold. Therefore, given the recent correction in valuations, admirable performance, robust investment plans and modest export reliance, we are bullish on Deepak Nitrite,” he added.
JM Financial also has a “Buy” call on the stock with a target price of Rs 2,895 per share. He expects the phenol-acetone gap to continue its upward trajectory in 2HFY23.
Notably, insurance giant Life Insurance Corporation of India (LIC) increased its stake to 5.028% from 4.977% previously.
On Thursday, LIC announced the purchase of an additional stake in chemical maker Deepak Nitrite to increase its overall stake in the company to more than 5%.
The increase of 0.051% was at an average cost of Rs 2,074.49 per coin. It is an investment in the normal course of a transaction through an open market purchase, LIC said.
With a market capitalization of over Rs 27,000 crore, shares of the chemicals maker are above the 50-day and 100-day moving averages but below the 5-day, 20-day and 200-day moving averages.