Brokerage firm Motilal Oswal has kept a 'Sell' rating on Deepak Nitrite, setting a target price of Rs 1,300. While the company reported strong profit growth for the second quarter, analysts remain cautious about high valuations and the potential for earnings to normalize. Investors should note the stock's current price compared to this target.
Motilal Oswal Financial Services has maintained a 'Sell' rating on Deepak Nitrite, setting a target price of Rs 1,300. This view comes despite the chemical manufacturer reporting a strong second quarter for the 2027 fiscal year. As of November 2, 2026, the company's shares were trading at approximately Rs 1,533.
In the second quarter of fiscal 2027, Deepak Nitrite saw its net profit jump 235% compared to the same period last year, reaching Rs 398 crore. Its operating profit, or EBITDA, surged 187% to Rs 643 crore, with margins expanding to 20.8%. This growth was primarily driven by the Phenolics segment, which benefited from localized import disruptions and steady demand in the domestic market.
Analysts at Motilal Oswal remain concerned about the company's long-term valuation. While they have increased their earnings estimates for fiscal 2027 by 54% due to the strong recent performance, their outlook for fiscal 2028 remains largely unchanged. The brokerage firm values the company at 20 times its estimated earnings for the 2028 financial year, which results in the Rs 1,300 price target. The main concern for analysts is that the current rally in the stock price may have moved ahead of the company's long-term earnings potential.
Investors should also consider that the recent strength in the Phenolics segment was partially supported by temporary factors, such as supply issues for imports. Analysts worry that as these conditions normalize, profit margins in this segment could moderate. Furthermore, the Advanced Intermediates business has faced pressure from competition, including preemptive imports and higher costs, which could continue to affect profitability.
Another point for investors to watch is the company's capital spending. Any potential delays or cost increases in major projects, such as the polycarbonate unit, could impact the company's cash flow and future financial performance. The sustainability of the recent earnings growth, balanced against these valuation and operational risks, will be the key factor for market participants to monitor in the coming quarters.