Deepak Nitrite Drops 11.34% In Two Days After Q4 On Rising Costs, Supply-Chain Woes

Shares of Deepak Nitrite Ltd. dropped more than 11% in two sessions as analysts cut target prices after surging expenses and supply-chain disruptions weighed on the chemical maker's fourth-quarter performance.

The company's net income fell 8% over the year earlier to Rs 267 crore in the three months to March 31, according to its May 4 exchange filing. That compares with the Rs 273-crore consensus estimate of analysts tracked by Bloomberg.

Its revenue rose during the period but margin contracted.

Q4 FY22 Highlights (Consolidated, YoY)

• Revenue up 28% at Rs 1,872 crore, against the Rs 1,884-crore forecast.

• EBITDA at Rs 410.33 crore versus Rs 454.66 crore.

• Margin stood at 21.9% compared with 31%.

• The company also recommended a dividend of Rs 7 apiece, of face value of Rs 2 each, for FY22 subject to shareholders' nod. The dividend, if approved by shareholders at the ensuing annual general meeting, will be paid within 30 days from the date of AGM.

The Vadodara-based firm is India's leading producer of sodium nitrate and is among the top three global manufacturers of xylidines, cumidines, and oximes. It also makes nitric acid, ammonium nitrate and hydroxylamine sulphate, besides dyes, dyestuffs and nitro aromatics.

The shares closed 6.11% lower on Friday at Rs 2,028.6.

According to at least two brokerages, a surge in input costs, higher employee expenses, power and fuel costs dragged down the company's operating performance. High crude prices catalysed a rise in cost of key raw materials—benzene and propylene. That, they said, could cause margin headwinds.

But Deepak Nitrite's capital investment commitment of Rs 1,500 crore over two years in upstream and downstream projects, benefits from China+1 strategy, recovery in demand and plans to expand focus on solvents and fine and specialty chemicals may help, the brokerages said.

Of the 15 analysts tracking the company, nine maintain a ‘buy', three suggest a ‘hold' and three recommend a ‘sell', according to Bloomberg data. The average of the 12-month target price compiled by Bloomberg implies an 18.2% upside.

Of the seven analysts who have updated their recommendation for Deepak Nitrite after the results, six reduced target but maintained their stance. Asian Market Securities downgraded the stock to ‘hold' from ‘accumulate'.

The stock's trading volume was twice the 30-day average.

Here's what brokerages have to say about Deepak Nitrite's Q4 results and growth prospects.

• Maintains 'buy', but cuts target price to Rs 2,881 from Rs 2,976—still an implied upside of 33%.

• Soaring input costs, higher employee costs, power and fuel costs led to Q4 miss.

• The company may not be able to pass on raw materials costs.

• Cuts EPS estimates by 12.4% and 3.2% for FY23E and FY24E to account for margin headwinds and compression in phenol-acetone spreads.

• Q4 earnings miss is reflective of "the darker side of supply-chain disruption".

• Maintains 'neutral', cuts target price to Rs 2,320 from Rs 2,374—still an implied upside of 7.38%.

• The company delivered a strong performance in basic intermediates and performance products segment.

• Sees limited scope for growth in phenolics business as the firm reported highest ever utilisation rate of 120%.

• Sees volatility in pricing environment, limited earnings growth opportunities as key concerns.