Deepak Nitrite, a leading supplier of organic, inorganic and fine chemicals, specializes in hydrogenation, nitration, customized molecule development, hazardous reactions and toluene derivatives. Its products - manufactured at its plants in Nandesari & Dahej in Gujarat, Roha and Taloja in Maharashtra, and at Hyderabad in Andhra Pradesh - finds end use in agro-chemicals, dyestuffs, pigments, inks, whiteners, pharmaceuticals, fuel additives, textiles and paper. For few products like sodium nitrite, sodium nitrate and nitro toluenes it has market supremacy in India, while for some like xylidines, cumidines and oximes it is amongst top global suppliers.
Valuation: The stock currently trades at 18.4x FY17e EPS of Rs 6.78 and 16.4x FY18e EPS of Rs 7.64. Ramification of adverse fx movement, project delays and subtlety of FWA business - Rs 8.7 crs deficit last fiscal - could somewhat annul forbearance of entrenched FSC (Fine & Specialty Chemicals) and BCC (Bulk Chemicals & Commodities) segments. Yet high entry barriers for the phenol business - multitude of government approvals being one of the many - are nauseating for new entrants. Ample scope exists to launch key derivatives of phenol and acetone at a later stage. They assign buy rating with target of Rs 153 based on 20x FY18e earnings (peg ratio: 0.9) over a period of 6-9 months.
Q1FY17 saw a muted addition of 3000-4000 members and 1 new gym only. The heat wave in India during the month of April the growth of the business- revenues grew by a mere 11.9%. • Over the last four-six quarters, franchisee has become an integral part of the company’s operations. Out of the 177 gyms owned/ operated by it, almost 50-55 gyms are in the franchisee model. Going ahead, the company plans to add another 12-15 gyms under the same model which will be operational within the next three quarters.
Valuation:. The intention to forg venture with David Lloyd Leisure (Europe’s leading premium sports, health and leisure group) for the development of 7-10 clubs in India along with demerger - one focusing on gyms and the other focusing on properties and value added services- is symptomatic of renewed business focus. Transformation into a wellness company (better services and infrastructure) will further make its offerings more eclectic. Growing disposable income and awareness regarding fitness augurs well for the business expansion. Average earnings growth of 21.5% over the next two years is doubtless worthy of notice. We retain ‘buy’ rating on the stock with a revised target of Rs. 338 (previous target Rs 319) implying a 12x FY18e EPS over a period of 9-12 months. (PEG ratio: 0.6)
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