Recognizing industry-leading metrics and top-quartile returns, Morgan Stanley anticipates Deepak Nitrite to outperform further as new investments yield results and earnings improve.
Shares of Deepak Nitrite surged nearly 7 percent to hit a record high of Rs 2,619.80 on NSE after Morgan Stanley double-upgraded the stock to "overweight" from its earlier rating of "underweight."
The international brokerage also raised the target price on the specialty chemicals stock to Rs 2,985, implying a 22 percent upside from the previous closing price.
The price target has been raised to reflect a higher multiple for the base business and a higher medium-term capex. According to analysts at Morgan Stanley, Deepak Nitrite's new and largest investment cycle so far could drive the next leg of re-rating for the stock, not unlike the nearly 5x value creation seen from 2016 to 2019.
With this capital expenditure cycle of over $1 billion, there's also the stabilization of its core business, operational improvements, volume enhancements, and a robust balance sheet, analysts noted.
Morgan Stanley expects Deepak Nitrite to double its base earnings by 2028, backed by the company's push to become an integrated, downstream phenolics producer.
"We think the stars are aligned for Deepak Nitrite to recreate its previous success when it captured nearly 50 percent in India's phenol market, leveraged a margin upcycle, and saw consensus estimates rise by nearly 60?tween the financial year 2020 - 2022," the brokerage said.
Analysts see further room for outperformance for Deepak Nitrite due to its industry-leading operating metrics and top-quartile returns and as new investments fructify and reflect in the company's earnings.
Project slippages, slow execution, and sluggish earnings are some of the key risks to the international firm's estimates.
Morgan Stanley has raised its FY25-26 earnings forecast for Deepak Nitrite by 3-7 percent, reflecting part fruition of the ongoing capex and better core earnings aided by a calibrated industry uptick.
At 12:20 pm, Deepak Nitrite shares were trading 3.8 percent higher at Rs 2,543.00 on the National Stock Exchange (NSE). In the last year, the stock has risen 31 percent, outperforming benchmark Nifty 50 which has risen 23 percent during this period.
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