Deepak Nitrite Ltd’s investors would have hoped for some succour from the news that the Indian government is considering levying an anti-dumping duty on imports of Diamino Stilbene Disulphonic Acid (Dasda) from China. Deepak’s stand has been vindicated as the Directorate General of Trade Remedies (DGTR) has found merit in its complaint. The DGTR proposed a reference-price-based duty where importers would pay the difference between the arrival price and a reference price of $3,453 per tonne.
Following the news, the stock opened on a positive note on Friday, gaining 3.5% intraday, before the rally fizzled out and the stock hit another 52-week low.
What is Dasda’s significance for the company? Deepak Nitrite has two business segments: advanced intermediates and phenolics. Advanced intermediates mainly cater to the agrochemicals, dyes and pigments industries. Dasda is used in dyes, though its separate numbers are not disclosed.
While advanced intermediates contributed just 15% to total earnings before interest and taxes (Ebit) in the first three quarters of FY26 (9MFY26), at its peak, the measure stood at 57% in Q1FY24. Its contribution fell sharply to 9% in Q3FY26, as the Ebit margin shrank to 2% from 16% in Q3FY25, largely owing to dumping of chemicals from China.
If dumping of Dasda and other chemicals from China into India is reduced, either due to anti-dumping duties or a sharp depreciation of the rupee versus the Chinese yuan, the advanced intermediates' segment could become a big driver of future Ebit growth. The rupee has depreciated by 6% against the Chinese yuan so far in 2026.
Navigating geopolitical, valuation hurdles
That apart, Deepak is also seeking to increase its cost competitiveness in advanced intermediates through backward integration. It commissioned the nitric acid plant in December and completed vertical integration across the ammonia—nitration—amines chain. The management is likely to eliminate the dependence on spot sourcing of nitric acid from Q4FY26 onward, which should lower production costs.
The worst is behind for the advanced intermediates segment, barring disruptions from the war in West Asia. The phenolics segment already showed signs of stability in Q3, maintaining an Ebit margin of 10.9%, unchanged quarter-on-quarter but up by 200 basis points year-on-year. The Ebit margin benefited from higher volumes even as spreads (the price of finished goods minus raw materials) remained weak.
The Deepak management expects sequential performance improvement in Q4FY26, and again in Q1FY27. The management had shared the outlook before the Iran war began, and after clarity on the US-tariff-related uncertainties. So, the management guidance has yet to account for the adverse impact of war-related supply disruptions.
Even if all the positive news eventually translates into higher earnings, Bloomberg consensus estimates already factor in EPS growth of 44% in FY27. While this growth rate looks impressive, it is largely due to the low base effect, as FY27 net profit would only match FY25 levels even after such high growth.
The stock has lost more than 50% from its peak of ₹3,169 reached on 1 August 2024. However, the stock trades at a price-to-earnings (P/E) multiple of 26x based on Bloomberg consensus FY27 EPS, which is expensive given the company’s commodity nature of business. A P/E re-rating is unlikely, as Deepak Nitrite’s earnings growth is generally lumpy and more correlated with capital expenditure-led volume growth than with margin-led growth driven by pricing power.