No quick fix for Deepak Nitrite: Why analysts expect more pain before gain?

“The company reported an in-line performance, but commentary on the near-term outlook was rather cautious. Hence, this triggered a sharp downward revision in our FY26E EPS by 32.7%," said Nuvama Institutional Equities in a report dated 14 November. The brokerage cut its FY27 and FY28 earnings forecasts by 8.5% and 8.0% and kept its ‘hold’ stance intact, while pruning the target price to ₹1,718 from ₹1,848.

Shares of Deepak Nitrite were trading at around ₹1,701 on Friday morning.

Navin Fluorine International led the pack with an 85% rise, the strongest performer on the Nifty Chemicals index. UPL followed with a 54.3% gain, while SRF added 26.6%.

On the other hand, PCBL Chemical was the second-weakest in the cohort after Deepak Nitrite, declining 22.6%, and Himadri Specialty Chemical was down 22%.

Business cycle

Even though the long-term picture looks promising, the broader view among analysts is that Deepak Nitrite is unlikely to deliver any meaningful alpha, or return in excess of a benchmark index in the near term, especially when peers may offer superior returns.

Why does the near term still look challenging?

Deepak Nitrite’s weak stock performance this year is mainly because both its key businesses—phenolics and advanced intermediates—have been under pressure at the same time, said Shrikant Chouhan, head of equity research, Kotak Securities.

Phenol and acetone spreads are still near multi-year lows, and demand for agro-linked intermediates has been soft, which has pulled down margins and earnings. Naturally, this has kept sentiment weak and the stock has corrected more than peers, Chouhan explained.

“The near-term challenge is simply the cycle," said Chouhan.

Oversupply now

Phenolics is in an oversupply phase globally, especially with new Chinese and Korean capacity, and that keeps spreads weak. The intermediates business has also seen delayed offtake from customers, particularly in agrochemicals. On top of that, the company is executing several first-time projects in India, so timelines and commissioning risks remain, the Kotak Securities researcher explained.

“The business should do better once phenol spreads normalise and new projects start contributing, but this is still a few quarters away," he said. Investors with a longer horizon can consider it gradually, but those looking for clearer earnings visibility may find better opportunities elsewhere, he added.

Chouhan notes that while the new capex projects will widen the product portfolio and bolster backward integration, their real benefits should start reflecting only from FY27.

According to Gagan Dixit, research analyst at Elara Capital, the company’s phase of underperformance is likely to linger until the first half of 2026 as well. The key concern, he says, is that nearly 70-80% of Deepak Nitrite’s product basket is currently stuck in an oversupplied market, while the company still lacks a presence in high-growth segments such as CDMO, batteries, and water. (CDMO is short for contract drug manufacturing operations.)

New capacities

Dixit is positive on Deepak Nitrite in the long-term as a capex of ₹14,000 crore is estimated to add ₹1,800 crore to revenue (~22% of FY25) by FY29E. “But near-term earnings performance would be hit by phenolics/acetone oversupply by China and weak demand," he said. The brokerage has retained its accumulate rating but cut target price to ₹1,853 from ₹1,907.

The ongoing expansion is in polycarbonate (PC) compounding, phenol derivatives and specialty chemicals capacity. Additionally, Nitric acid and MIBK/MIBC capacities will come online in Q4 and specialty chemicals multi-purpose plant may be commissioned in Q1FY27. (MIBK/MIBC are compounds that work as a solvent in the manufacture of dyes, oils, resins, and coatings, among other uses.)

In the short run, earnings may stay a bit subdued since higher depreciation will weigh on growth until those plants start running at healthier utilization levels, market participants said.

In Q2 FY26, the company’s consolidated revenue came in at ₹1,922 crore, compared to ₹1,914 crore in the first quarter. Ebitda margins were up by 100 basis points at 12%. Profit after tax stood at ₹119 crore, up 6% on-quarter. (Ebitda is short for earnings before interest, tax, depreciation, and amortisation, a key measure of profitability of operations of a business, especially in manufacturing.)

Tariff effect

That said, the operational performance of the company has been impacted by the US tariff actions and continued dumping from China which has been impacting the realisations, pointed out Sunny Agrawal, head–fundamental research at SBI Securities.

“To offset the US tariffs and maintain its market share, the company has shifted volumes to the domestic market and other export geographies which impacts realisations and margins," he said.

During 2QFY26, advanced intermediates segment witnessed significant pressure on profitability (EBIT margin of 4% in 2QFY26 vs 8% in 2QFY25 and 6% in 1QFY26), led by sharp pricing pressure leading to drag on overall company’s profitability. Relatively, Phenolics vertical delivered sequential growth in sales and profitability, thereby softening the impact of the other vertical, Agrawal highlighted.

Motilal Oswal Financial Services has retained its sell rating on the stock while Emkay Global Financial Services has a ‘reduce’ recommendation. Emkay also expects a revenue upside to come in from FY29 onward.

What would make the stock come out of its slump?

For the stock to break out of this slump, a few triggers are essential: a cyclical revival in phenol and acetone prices and fresh capex going on stream to meaningfully scale up revenues, Dixit explained.

Agrawal of SBI Securities has a neutral view on the stock. He feels that the finalization of the India-US trade deal or improvement in the global growth outlook can lead to improvement in investor sentiment for the stock.