Deepak Nitrite Shares Fundamental Analysis and Future Outlook
Deepak Nitrite is the largest producer of Sodium Nitrate in India since 1972. It is also one of the top 3 global players in Xylidines, Cumidines and Oximes chemicals and has a presence in 30 countries. Overall the company exports it’s 100+ products to 1100+ customers across 6 continents which includes some well-known companies like Bayer, Unilever, Reliance, BASF etc.
- The company has 5+ manufacturing plants and R&D centres across India and has 1400+ employees. The business model of the company is such that 42% of the revenue comes from basic chemicals, 29% comes from fine and speciality chemicals and 29% comes from performance products.
- The basic chemicals are manufactured at Dahej and Nandesari plants and include Nitro Toluenes, Sodium Nitrate and fuel additives which are generally used in paints, petrochemicals and Tyre industry.
- The fine and speciality chemicals manufactured at Roha and Taloja facilities include Cumidines, Oximes and Specialty Agro-chemicals. They are used in Pharmaceuticals, Paper and Agro Industries.
- The performance products manufactured at the Hyderabad facility includes various grades of Optical Brightening Agent (OBA). It is used in Paper, Detergents, Textiles, Coating Applications in Printing and Photographic Paper.
- Overall the management has diversified the products along with their manufacturing locations which indicates operational excellence in the company.
I have evaluated the company on 10 fundamental categories and each has been given a rating out of 5 stars. From this, I have arrived at a combined stock rating for the company.
This is the summary of the analysis. You can read the detailed analysis with the excel models on my blog (Check the source link)
Source: Deepak Nitrite Shares Fundamental Analysis and Future Outlook
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The company is looking forward to expanding its capacity in Phenols due to the increasing demand in India. As of last year, Deepak Phenolics contributed 60% of India’s demand in Phenols and 67% in Acetone. The number is expected to grow as companies move away from Chinese exports.
- The Dahej greenfield project was commissioned with an investment of INR 1400 crores. It is based on cutting-edge KBR and ThyssenKrupp Technology and is completely IoT enabled. This plant has best-in-class energy efficiency in the Industry. This will overall improve operational efficiency and profitability of the company in the future.
- Deepak Nitrite reported solid Q3 results for FY 2020 with a revenue increase of 28% YoY and PAT increase of 349% YoY. This was majorly driven by increased sales of phenolics and acetone.
- The company will witness production and revenue loss due to COVID-19 outbreak and the disrupted supply chains across the world. The situation is only expected to be temporary and the demand will pick up as companies start moving away from China and look for an alternate supplier of basic chemicals in the near future.
Overall the company does not have a highly differentiated business but has established a wide scale of operations especially in Phenols and Acetone market in India. The management focus is also on expanding this business and taking advantage of the disruption in Chinese chemical exports.
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