Shares of Deepak Nitrite today fell as much as 10% to Rs2,201 after the chemical company announced its earnings post market hours on Wednesday. After today's fall, shares of Deepak Nitrite is down significantly from its record high of Rs3,020, hit earlier this month.  Consolidated net profit dipped to Rs254 crore in the September quarter, down from Rs302 crore in the June quarter. But as compared to year-on-year basis, profit is up significantly from last year's Rs170 crore. Total income rose to Rs1,681 crore from Rs1,526 crore in the June quarter.

According to Motilal Oswal, Deepak Nitrite reported “a mixed bag of result, with EBITDA 10% higher than our estimate at INR3.9b, while EBITDA margin was lower at 23% (est. 26.7%) – the lowest since 4QFY19". 

"Phenolics continue to aid the performance of other segments, as the EBIT margin in Fine and Specialty Chemicals dip for the fourth consecutive quarter and the same for Basic Chemicals normalize," the brokerage said. 

The brokerage has downgraded the stock to neutral. “The stock trades at 31x/29x FY23E/FY24E EPS, owing to the limited earnings growth opportunity till the time its greenfield expansions get commissioned (phenol downstream products would result in captive phenol consumption of 35-40%). We downgrade the stock to Neutral. Valuing the stock at 28x Dec’23E EPS, we arrive at a target price of Rs2,300," Motilal Oswal said in a note. 

The brokerage however said that the “management’s increased focus towards advanced/high value products would aid margin expansion and sustainability for the company, which investors are most wary of. It would also result in a multiple re-rating for the stock as the mix of Specialty/complex chemistry products increases. Despite a capex of Rs1800 crore over the next three years, it is expected to turn net cash positive by FY23E, with an FCF generation of Rs1800 crore over FY22-24E."

Rahul Sharma, Co-Founder, Equity99, says investors could look at accumulating the stock at lower levels. “Deepak Nitrite has a good ROCE of 39.9% & an ROE of 39.6%. It has reduced its debt and has a debt/equity ratio of just 0.25x. The company has delivered superb PAT growth of 64.84 percent CAGR over the last 5 years. It has been consistently generating positive increasing operating cash flows over the last 3 years. Promoters are major shareholders holding 45.69%, DII – 10.61%, FII – 10.85%. The company has a free float of just 32.85%," he said citing the positives about the company. 

In the short term, however, the stock might face little correction and then consolidation but the long-term view is intact with retaining price of 3000 levels, he added.