Specialty chemical stock down 30% from highs. Should you buy post Q4 results?
- Edelweiss has retained its ‘Buy’ rating on specialty chemical stock on good long-term growth prospects
Despite a sharp increase in input cost, Deepak Nitrite reported Q4FY22 results in line with analysts' estimate. However, margins fell off 920 bps year-on-year (YoY) to 21.9% due to increase in realisations, though EBITDA/mt remains stable.
“While rising input costs have pressured margins, absolute profitability remains stable. We believe Deepak Nitrite would benefit from ongoing capex,” said brokerage and research firm Edelweiss in a note.
The brokerage has retained its ‘Buy’ rating on Deepak Nitrite shares with a TP of ₹3,127 based on a rollover to Q2FY24E, and good long-term growth prospects.
Deepak Nitrite reported revenue growth of 28% YoY, mainly due to rising prices. Management remains confident of protecting absolute margins on per mt basis given acceptability from customers and efficient cost management, Edelweiss highlighted.
“We remain positive on the future outlook of the company. Despite inflationary environment, management guided for ₹15 bn of capex coming online over next 12-18 months. However, rising input prices and cautious margin outlook lead to cut in PAT estimates by 2%/3% for FY23/24E,” said another brokerage Ambit.
The brokerage house has maintained Buy rating on the specialty chemical stock with target price of ₹3,011. Shares of Deepak Nitrite are down over 30% from its all time high, whereas the stock is down 19% in 2022 (YTD) so far.
Key risks, as per Ambit, could be project delays, sustained volatility in raw material prices, and macro headwinds in key geography like India.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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