Whalesbook
Deepak Nitrite has seen a significant drop of nearly 30% in its stock value during 2025, lagging behind its peers in the Nifty Chemicals index. The cautious sentiment among most brokerages suggests no immediate recovery is anticipated. Nuvama Institutional Equities, for instance, revised its FY26 earnings per share (EPS) forecast downwards by over 32% due to cautious commentary, maintaining a 'hold' rating with a reduced target price.
Shrikant Chouhan of Kotak Securities points to a confluence of factors, including phenol and acetone spreads being at multi-year lows and soft demand for agrochemical intermediates. Globally, the phenolics market is facing oversupply, exacerbated by new capacities from China and South Korea. This oversupply, coupled with delayed customer offtake in agrochemicals and execution risks for new projects, is pressuring margins and earnings.
Gagan Dixit from Elara Capital forecasts this underperformance phase could continue until the first half of 2026, as a large portion of Deepak Nitrite's products are in oversupplied markets, and the company lacks presence in high-growth areas like CDMO. While a significant ₹14,000 crore capital expenditure is expected to boost revenues by FY29, near-term earnings will be affected by phenolics and acetone oversupply from China and weak demand. Some market participants note that higher depreciation from new capacities could also subdue earnings until they reach better utilization levels. SBI Securities highlights the impact of US tariffs and Chinese dumping, forcing the company to shift volumes which affects realisations.
The company reported a consolidated revenue of ₹1,922 crore and a profit after tax of ₹119 crore in Q2 FY26, showing a modest 6% quarter-on-quarter increase. EBITDA margins improved by 100 basis points to 12%.
Motilal Oswal Financial Services has maintained a 'sell' rating, while Emkay Global Financial Services recommends a 'reduce'.
Impact:
The primary impact is on Deepak Nitrite's stock price and investor sentiment. The challenges in the phenolics and advanced intermediates segments, along with global oversupply and trade policies, are creating significant headwinds. Brokerages are revising earnings forecasts downwards, and target prices are being cut, reflecting a cautious near-term outlook. The company's extensive capex plans offer long-term potential, but benefits are expected to materialize only from FY27 or FY29 onwards, suggesting a period of subdued performance in the interim.
Impact Rating: 7/10
Difficult Terms:
Nifty Chemicals index: A stock market index that tracks the performance of chemical companies listed on the National Stock Exchange of India.
FY26E EPS: Estimated Earnings Per Share for the fiscal year ending March 2026. EPS is a measure of a company's profitability attributable to each outstanding share of common stock.
Phenolics: A class of chemical compounds derived from phenol, often used in industrial applications. Phenol itself is a key chemical used to make plastics, resins, and various other industrial products.
Advanced Intermediates: Chemical compounds that are used as building blocks or starting materials in the synthesis of more complex chemical products, such as pharmaceuticals, agrochemicals, and specialty chemicals.
Spreads: In the chemical industry, spreads often refer to the difference between the selling price of a product and the cost of its raw materials. Narrow spreads indicate lower profitability.
Agro-linked intermediates: Chemical components used in the production of agricultural products like pesticides, herbicides, and fertilizers.
Oversupply: When the production or availability of a product exceeds the demand for it, leading to lower prices.
Commissioning risks: Potential issues or delays that can arise during the process of bringing a new plant or project into operation.
Meaningful alpha: Investment returns that significantly exceed the returns of a benchmark index or the broader market.
Capex: Capital Expenditure, which is money spent by a company to acquire, upgrade, and maintain physical assets like buildings, machinery, and technology.
Backward integration: A strategy where a company gains control over its supply chain by acquiring or developing businesses that produce its raw materials or components.
CDMO: Contract Development and Manufacturing Organization. These companies provide drug development and manufacturing services for the pharmaceutical and biotechnology industries.
EBITDA: Earnings Before Interest, Tax, Depreciation, and Amortisation. It is a measure of a company's operating performance and profitability, excluding non-operating expenses and non-cash charges.
Basis points: A unit of measure equal to 1/100th of a percentage point. 100 basis points equal 1%.
PAT (Profit after tax): The net profit of a company after all expenses, taxes, and interest have been deducted.
US tariffs: Taxes imposed by the United States government on imported goods, which can increase their price and affect international trade.
Dumping: The practice of exporting goods at a price lower than their normal value, often to gain market share.
Realisation: The actual price received by a seller for a product or service.
EBIT margin: Earnings Before Interest and Tax margin, calculated as EBIT divided by revenue. It indicates profitability from core business operations.