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.