Q4FY23 Review: Deepak Nitrite: FY24 to witness stable earnings

15 May 2023 , 01:38 AM

Q4 earnings were predominantly driven by decent recovery within Phenol business, as availability of feedstock improved and cost inflation subsided. Nandesari unit operated for 10-11 months during FY23, and the plants are now running at full utilisation. Management expects 15-18% vol. growth for sodium nitrite and sodium nitrate during FY24. Analysts of IIFL Capital Services cut FY23-25 EPS by 3-5%, to factor a more gradual recovery in standalone operations and some delays across multiple growth projects.

Phenol drives higher 4Q profitability: 

DNL reported slightly betterthan-expected earnings, driven by decent improvement in Phenolics profitability and lower-than-expected opex (7% below IIFLe). However, standalone business profitability declined 9% QoQ and came in 11% below IIFLe. In Q4FY23, Phenol plant achieved above 120% utilization and has also achieved the highest-ever domestic quarterly sales. Phenol demand in India has improved considerably over last few quarters.

Multiple capex projects for FY24-25: 

At the onset of FY24, phenol debottlenecking from 250Kt to 300Kt will be completed in Q1FY24. Fluorination and Photo-Chlorination backward-integration project will be completed by Q3FY24. Sulphuric acid concentration unit at Nandesari and upstream integration of phenol plant is targeted for Q4FY24. Acetone downstream solvents: MIBK and MIBC, got delayed from Q4FY24 to Q1FY25, owing to delay in finalising technology collaboration with a European corporate. Polycarbonate compounding project will take 18 months; sodium nitrite project in Oman will take 24-30 months.

Better visibility vs peers: 

While there is weakness in global market for dyes and pigments-based applications, management expects recovery to play out in India. Besides, normalisation of operations at Nandesari unit will drive 15-18% volume growth in FY24. Consistently higher utilization of phenol plant, along with completion of 50Kt debottlenecking, will result in further volumes during FY24. At 20x 25 P/E, valuations are reasonable, along with better visibility vs Atul and Aarti Industries. Analysts of IIFL Capital Services remain positive on the stock.