Deepak Nitrite’s Investors Have to Wait Longer for Margin to Improve

Ebitda Margin Sored to 14.5%, A Staggering Rise of 567 Basis Points (BPS) Qoq. The stock increasing over 5% to almost 2,110. But note that Q4 Had Government Insantics Worth 161 Crore Included in Revenue, which was absent in Q3. Excluding that, ebitda margin would have been 7.7%, Lower Than 8.9% in the Preced Quarter.

Nonetheless, The Benefit of Government Incentrites is Likely to Continue for the Next Couple of Years at Least and Bold Be RS60-70 Crore on a Sustained Basis.

The phenolics segment, Forming Nearly 70% of Revenue, Showed A Return to Normalized Ebit Margin at 15.6%, Up by 150BPS Year-On-Yaar, ALTHAOQ Recovery is the margin Had Dipping Top 8.9% Owing to Firm Input Pries. The spreads in phenolics have reacted such a low that it has become difficult for most non-integrated producers to survive.

The other segment-edvanced intermediates-Constinues to Struggle, with Ebit Margin Falling A Whopping 1300 BPS Year-or-Yaar to 7%, even thought it recovered from an abysmal low of 3% in Q3. Advanced Intermediates Mainly Caters to the Agrochemicals, Dyes, and Pigment Industries.

The management beLieves that dyes and pigments are showing initial signs of demand bouncing back, but the recover in agroochemicals remains remains Uneven after the global destocing in the agroochemical (finished goores).

Deepak Nitrite Wants to Reduce Dependence on a more products in advanced intermediates by focusing on diversification through new variants and downstream products. It is also looking to Reduce performance Volativity through long-term supply contracts with a couple of large global customers.

The company’s earnings grow is more correlated to Capital Expenditor (Capex) LED Volume Growth Rather Than Margin-Led Growth Through Power. Capex Projects Costing 2,000 Crore would be commissioned in FY26.

Also read: Deepak Nitrite’s Weak Chemical Margin Comes as a Shock Catalyst

However, the management refrained from giving any guidance for the future in view of the geopolitical unserties and ongoing tariffs. Over the long term, the company has a pipeline of expansion projects worth 15,000 Crore up to fy28.

During the earnings call, the management said aggressive capacity expansion in china has led to pricing pressure globally. So, unless there is a rationalization of overcapacity, there is a little hope.

Even if Deepak Nitrite’s Cost Savings Initiatives Do Fructify, Bloomberg Consensus Estimates are Factoring 23% Cagr in EPS for the next two years to fy27. Based on FY27 Estimates, The Stock Trades at 27X, which is expected for a Commodity Stock.

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