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Institutional Equities Initiating Coverage Deepak Nitrite Ltd 30th December 2016 Recommendation BUY CMP as of
Institutional Equities Initiating Coverage Deepak Nitrite Ltd 30th December 2016 Recommendation BUY CMP as of

Institutional Equities

Initiating

Coverage

Deepak Nitrite Ltd

30th December 2016

Recommendation

BUY

CMP as of 30th December 2016 (Rs)

92

Target Price (Rs)

158

Potential Return

72%

Stock Details

Sector

Chemicals

Bloomberg Code

DN IN

Reuters Code

DPNT BO

52 week high/low

134/56

No of shares (O/S) mn

116.3

Market Cap (Rs mn)

10,699

Daily Average Volume (BSE+NSE) - 1 year

189,290

Sensex/Nifty

26,626/8,186

Shareholding Pattern (%)

 
 

Sep-16

Jun-16

Mar-16

Promoters

52.0

52.0

51.8

MFs

6.4

6.4

5.6

FPIs

2.9

2.8

0.0

FIs/Banks

0.6

0.6

0.0

Others

38.3

38.3

42.7

Source: BSE

Price Chart 200 150 100 50 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Stock Sensex Ni y
Price Chart
200
150
100
50
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Stock
Sensex
Ni
y
Source: ACE Equity
Rebased to a scale of 100

Analyst:

Jinesh Joshi, CFA

E:

instresearch@acm.co.in

D

: (022) – 2858 3739

B

: (022) – 2858 3333

Earnings to sail in a new orbit after phenol expansion!

Entry into the phenol market, expected turnaround in the performance products (PP) division, and inherent scalability potential of pharma and personal care intermediates (a high margin business) is likely to make Deepak Nitrite Ltd (DNL) a potential earnings compounder. We expect the phenol venture to be the biggest earnings contributor. Our calculations reveal (see exhibit 7) that at 80% utilization levels, the phenol project can add Rs 15.8 bn to the topline and Rs 565 mn to the bottomline of DNL. Turnaround in the PP division, which has been into losses since the past seven quarters would further boost earnings and return ratios. EBITDA breakeven is expected to be achieved by Q4FY17 while the PBT is expected to turn into black by Q3 or Q4 of FY18. As seen in exhibit 20, on a steady state basis, the PP division has the potential to generate RoCE of 18.8% (at peak utilization levels). Even on a conservative basis, the PP division can generate RoCE of ~10.6%. Launch of pharma and personal care intermediates is expected to be another earnings kicker. Revenue from pharma and personal care intermediates (part of the fine and specialty chemical segment) was Rs 300 mn in FY16 and management exuded confidence to reach Rs 3,000-3,500 mn (revenue multiplier of 10-12x) in 3-4 years. Being a high margin (average 20.4% EBIT margin over last 3 years) business, this would not only boost growth, but also uplift DNL’s earnings profile.

We believe that on account of the above mentioned factors, sales and profits are expected to grow at a CAGR of 32.1% and 36.4% respectively over FY16-19E. We believe DNL is a classic earnings expansion story with a blend of turnaround possibility and RoC improvement. Hence, despite being a commodity play, which seldom has any competitive advantage, we assign a P/E multiple of 13x. We initiate coverage with a BUY rating and TP of Rs 158 (72% upside) on a diluted EPS of Rs 12.2 for FY19E.

Import substitution to drive phenol sales: As seen in exhibit 3, there is a huge demand supply gap (production is significantly lower than consumption) in the phenol and acetone market, which is met by imports (see exhibit 4). To exploit domestic production deficiency, DNL decided to set up a plant with a capacity of 200,000 metric tons per annum (MTPA) for phenol and 120,000 MTPA for acetone. Once the new plant becomes operational, DNL will become a virtual monopoly (largest player) since imports would get substituted. Better inventory management (transit time on import is saved) and logistics savings owing to buying from a domestic supplier vis-a-vis an importer would induce customers to buy from DNL.

Turnaround in the PP division to boost RoC profile: The PP division majorly consists of two products viz; optical brightening agent (OBA) and Di-amino Stilbene Di-sulphuric acid (DASDA). Although OBA has generated strong sales with increasing volumes over the last 2 years, it is yet to breakeven. The losses are attributable to lower utilization and long customer validation cycles. We expect a turnaround soon since DNL is adding new customers, scaling the existing ones, and focusing on export markets. This is expected to boost RoC profile as OBA can easily generate a steady state EBITDA margin of 12-13%.

Fine and specialty chemical (FSC) would aid topline growth: FSC segment includes niche products that require high value addition. The products are tailored to suit customer requirements. This is a low volume, high margin business. Although the pharma intermediates business is expected to be a revenue multiplier, even the core FSC business ex-pharma is expected to grow at a healthy pace since the de-bottlenecking exercise is being undertaken and some additional capex is being incurred to boost sales.

Deepak Nitrite Ltd - Initiating Coverage ACMIIL IE

1

Institutional Equities Initiating Coverage Deepak Nitrite Ltd     Spread management would be the key
Institutional Equities Initiating Coverage Deepak Nitrite Ltd     Spread management would be the key

Institutional Equities

Initiating

Coverage

Deepak Nitrite Ltd

   

Spread management would be the key in the basic chemicals (BC) business:

This is a high volume, low margin business and is significantly influenced by crude volatility (30-35% of the segment is crude linked). Hence, spread management is critical to ensure margins remain intact when crude prices fluctuate. In the last two years, although revenue growth has been muted due to decline in crude prices, margin has expanded indicating superior spread management skills. Going ahead, maintaining/improving spreads will be the key to deliver margin growth.

Exhibit: 1

Key Financials

 

Particulars (Rs mn)

FY13

 

FY14

FY15

FY16

FY17E

FY18E

FY19E

Sales

10,194

 

12,696

13,272

13,357

12,785

13,463

30,773

EBITDA

722

 

1,140

1,397

1,683

1,595

1,777

4,400

EBITDA Margin

7.1%

 

9.0%

10.5%

12.6%

12.5%

13.2%

14.3%

PAT

378

 

383

534

651

1,209

741

1,655

PAT Margin

3.7%

 

3.0%

4.0%

4.9%

9.5%

5.5%

5.4%

EPS(Rs)

 

3.6

3.7

5.1

6.1

10.4

5.4

12.2

DPS(Rs)

 

0.8

1.0

1.0

1.2

1.3

1.4

1.5

D/E(x)

 

1.2

1.7

1.6

1.0

1.4

1.5

1.5

P/E(x)

 

7.3

11.7

13.4

11.2

8.2

15.6

7.0

RoE

13.5%

 

12.5%

15.4%

13.7%

20.8%

8.9%

16.9%

RoCE

8.6%

 

10.3%

11.6%

13.3%

8.3%

6.1%

14.3%

Data Source: ACMIIL Institutional Research, Company

 

Deepak Nitrite Ltd- Initiating Coverage ACMIIL IE

2

Institutional Equities Initiating Coverage Deepak Nitrite Ltd Investment thesis Entry into the phenol market would
Institutional Equities Initiating Coverage Deepak Nitrite Ltd Investment thesis Entry into the phenol market would

Institutional Equities

Initiating

Coverage

Deepak Nitrite Ltd

Investment thesis Entry into the phenol market would drive growth via import substitution: Phenol and
Investment thesis
Entry into the phenol market would drive growth via import substitution:
Phenol and acetone are organic compounds derived from benzene and propylene
(crude derivatives). Both compounds are quite versatile in nature and are used as
intermediates for diverse applications. Phenol is primarily used in
manufacturing various commercial products and finds application in laminates,
paints, automotive lining, rubber adhesives, pesticides, moldings among others.
Acetone finds application in healthcare, paints, thinners, inks, acrylic sheets etc. The
market for phenol and acetone is expected to grow at a CAGR of 5.9% and 9.6%
over CY15-CY20E respectively on strong demand emanating from end user
industries.
Exhibit: 2
Market size of phenol in India
Market size of acetone In India
19
30
28
20
27
17
25
22
23
25
15
21
13
14
15
12
20
15
10
10
5
5
0
0
CY15
CY16E
CY17E
CY18E
CY19E
CY20E
CY15
CY16E
CY17E
CY18E
CY19E
CY20E
Data Source: ICIS, International conference Indian petroleum, EY
Over FY08-FY15 the consumption (in volume terms) of phenol and acetone in
India has grown at a CAGR of 4.6% and 4.2% respectively. However, during the same
period, production of phenol and acetone declined at a CAGR of 7.9% and 8.2%
respectively. Thus, a large part of the domestic demand was met through imports.
Despite consumption being steady, a secular declining production trend indicated
issues with domestic manufacturers.
Exhibit: 3
Phenol & acetone consumption trend in India
Phenol & acetone production trend in India
300
100
258
240
232
76
80
250
75
80
72
212
202
66
200
172
60
176
165
60
51
150
47
47
46
142
145
44
150
43
124
130
42
126
37
112
113
40
29
100
26
50
20
0
0
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
Phenol
Acetone
Phenol
Acetone
Data Source: GoI (Chemicals and petrochemicals statistics 2015). FY16 data is not published as yet. MT = Metric tons
As seen in exhibit 3, there is a huge demand supply gap (production is
significantly lower than consumption) in the phenol and acetone market. In order to
exploit this untapped potential, DNL decided to set up a plant domestically with a
capacity of 200,000 MTPA for phenol and 120,000 MTPA for acetone. Once the new
plant becomes operational, DNL will become a virtual monopoly (largest player)
as imports will get substituted. While there will be no pricing differential or quality
advantage by buying locally rather than importing, customers will save on
logistics cost by buying from DNL. Their inventory management will also be better
and working capital cycle shall improve as transit time on imports will be saved.
000' MT
Rs bn
000' MT
Rs bn

Deepak Nitrite Ltd - Initiating Coverage ACMIIL IE

3

Institutional Equities Initiating Coverage Deepak Nitrite Ltd Exhibit: 4 Phenol & acetone import trend in
Institutional Equities Initiating Coverage Deepak Nitrite Ltd Exhibit: 4 Phenol & acetone import trend in

Institutional Equities

Initiating

Coverage

Deepak Nitrite Ltd

Exhibit: 4 Phenol & acetone import trend in India Import proportion trend of phenol &
Exhibit: 4
Phenol & acetone import trend in India
Import proportion trend of phenol & acetone
250
100%
214
200
85%
81%
200
173
80%
83%
71%
74% 83%
65%
147
60%
62%
58%
69%
74%
150
60%
127
123
60%
61%
103
93
80
117
56%
101
59%
96
40%
100
103
78
65
68
20%
50
0%
0
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
Phenol
Acetone
Phenol
Acetone
Data source: GoI (Chemicals and petrochemicals statistics 2015). FY16 data is not yet published. MT = Metric tons
In the past 3-4 years, 70-80% of India’s phenol and acetone requirement
was met by imports. This was precisely the period when production fell and
consumption increased (see exhibit 3) leading to a jump in imports. Korea, Taiwan,
and Thailand are the leading countries which benefited out of the rising phenol and
acetone demand from India.
Exhibit: 5
Top 5 import destinations
Ranking*
Phenol
Import Qty (MT)
Acetone
Import Qty (MT)
1
Korea
45,373
Taiwan
70,607
2
Thailand
33,136
Korea
26,885
3
Taiwan
20,177
Singapore
10,241
4
Singapore
19,166
Belgium
7,202
5
South Africa
18,778
Saudi Arabia
6,588
Data source: GoI (Ministry of chemicals & petrochemicals)
* Based on the latest data available as of FY15. MT = Metric tons
We believe DNL is favorably placed to capture the demand arising from import
substitution since competitive risks are low. Hindustan Organics Ltd (capacity of
11,500 and 7,100 MTPA odd for phenol and acetone respectively) and SI Group
(capacity of 39,500 and 24,000 MTPA odd for phenol and acetone respectively) are
the only two players that manufacture phenol and acetone domestically. In terms
of scale, they are no match to DNL.
Even if a new player decides to enter the market sensing the opportunity, DNL
will have a first mover advantage as it is already seeding clients and building
relationships. Getting environmental clearance is also cumbersome, which gives
DNL sufficient lead time to tackle late entrants.
Earnings to explode after Dahej expansion: To capitalize on the deficiency in
domestic market, DNL is planning to set up a new plant to manufacture phenol and
co-product acetone at Dahej. Total capital outlay is expected to be around Rs 12 bn.
As of 2QFY17, Rs 2 bn has been invested in the project and additional Rs 4 bn will
be invested by the end of FY17. Following is a detailed snapshot of the project:-
000' MT

Deepak Nitrite Ltd- Initiating Coverage ACMIIL IE

4

Institutional Equities Initiating Coverage Deepak Nitrite Ltd Exhibit: 6 Project Details Date of commissioning
Institutional Equities Initiating Coverage Deepak Nitrite Ltd Exhibit: 6 Project Details Date of commissioning

Institutional Equities

Initiating

Coverage

Deepak Nitrite Ltd

Exhibit: 6

Project Details

Date of commissioning

4QFY18

First full year of operations

FY19

Total phenol capacity (tons)

200,000

Total acetone capacity (tons)

120,000

Total capital outlay (Rs mn)

12,000

D/E mix

60-40

Debt (Rs mn)

7,200

Equity (Rs mn)

4,800

Data source: Company

The debt component is tied up with Axis bank having a moratorium period of 4.5 years and an interest rate of 10.75%. Approximately Rs 300-400 mn of debt has

already been drawn till date. In order to fund the equity contribution, DNL concluded

a QIP (raised Rs 833 mn) in FY16 and sold an idle land parcel in Pune for Rs 793 mn.

About Rs 1,200 mn is expected to be raised via internal accruals over a period of 3 years leaving a gap of ~ Rs 1,974 mn. Board approval for QIP to fund the shortfall is already taken and DNL may raise the money at an opportune time.

To analyze the financial implications of the phenol venture we hypothesize three

scenarios viz; bull, base and bear. In each scenario, we change our assumption to get

a better understanding of growth and profitability from undertaking the venture. A brief financial snapshot is presented below:-

Deepak Nitrite Ltd - Initiating Coverage ACMIIL IE

5

Institutional Equities Initiating Coverage Deepak Nitrite Ltd   Exhibit: 7   Income Statement (Rs mn)
Institutional Equities Initiating Coverage Deepak Nitrite Ltd   Exhibit: 7   Income Statement (Rs mn)

Institutional Equities

Initiating

Coverage

Deepak Nitrite Ltd

 

Exhibit: 7

 

Income Statement (Rs mn)

Bear case

Base

case

Bull case

 

Particulars

FY19E

 

FY19E

FY19E

Comments

Capacity utilization

70%

 

80%

90%

Since demand already exists, the plant is expected to achieve utilization of 60-70% in the first year of operations. Seed marketing has already begun and DNL is in talks with prospective clients.

Phenol volume (tons)

140,000

 

160,000

180,000

 

Acetone volume (tons)

84,000

 

96,000

108,000

 

Price of Phenol (Rs per ton)

66,387

 

69,881

73,375

We use average phenol price of US$ 1,043 per ton prevailing over the last 1 year (US benchmark) and exchange rate of Rs 67 to arrive at the cost of phenol for the base case scenario. For bull & bear cases we increase/decrease the one year average price by 5%. However, we do not make any changes in our exchange rate assumption.

Price of Acetone (Rs per ton)

45,892

 

48,307

50,722

We use average acetone price of US$ 721 per ton prevailing over the last 1 year (US benchmark) and exchange rate of Rs 67 to arrive at the cost of acetone for the base case scenario. For bull & bear cases we increase/decrease the one year average price by 5%. However, we do not make any changes in our exchange rate assumption.

Phenol sales

9,294

 

11,181

13,208

 

Acteone sales

3,855

 

4,637

5,478

 

Total sales

13,149

 

15,818

18,686

The project has a fixed asset turn of 2-2.5x. Thus, sales of Rs 24-30 bn could be easily realized on the investment. However, as crude prices increase/decrease, product realizations will follow course and the math can change.

Indicative EBITDA margin

13.0%

 

14.0%

15.0%

Margins are dependent on crude prices. If crude prices hover between US$ 50-100, margins could range between 12-18%. However, important metric to track here is crack. It is the difference between price of phenol & acetone (final output) and benzene & propylene (raw materials). Tracking crack is important because each product has its own demand & supply dynamics. Hence, every time realizations may not move in tandem with crude. Current crack is about US$ 600-660 per ton. Higher the crack better the margins irrespective of the movement in crude prices.

Absolute EBITDA

1,709

 

2,215

2,803

 

Depreciation

504

 

504

504

We apply 5 year average depreciation rate of 4.2% on Rs 12,000 mn

Absolute EBIT

1,205

 

1,711

2,299

 

EBIT margin

9.2%

 

10.8%

12.3%

 

Interest:-

         

1) On term loan

774

 

774

774

10.75% on Rs 7,200 mn

         

Working capital cycle for the project is expected to be 45 days. Based on the

2) On working capital

77

93

109

number of days we deduce the working capital requirement and assume 50% of it will be funded via debt at a rate of 9.5%.

PBT

354

 

844

1415

 

Tax

117

 

279

467

We assume tax rate of 33%

PAT

237

 

565

948

 

PAT margin

1.8%

 

3.6%

5.1%

 

Project RoE

4.9%

 

11.8%

19.8%

Equity base of Rs 4,800 mn

Project RoCE

8.8%

 

12.3%

16.1%

Fixed asset of Rs 12,000 mn plus working capital needs based on cycle projection of 45 days.

Data source: ACMIIL Institutional research, Bloomberg,

Company

 

Deepak Nitrite Ltd- Initiating Coverage ACMIIL IE

6

Institutional Equities Initiating Coverage Deepak Nitrite Ltd As seen in exhibit 7, PAT for the
Institutional Equities Initiating Coverage Deepak Nitrite Ltd As seen in exhibit 7, PAT for the

Institutional Equities

Initiating

Coverage

Deepak Nitrite Ltd

As seen in exhibit 7, PAT for the base case scenario from the phenol venture
As seen in exhibit 7, PAT for the base case scenario from the phenol venture could
be in the region of Rs 565 mn in FY19. DNL’s FY16 PAT from the core business was Rs
651.5 mn. Thus, even if we assume FY16’s PAT remains stagnant on a conservative
basis, profit could easily double by FY19. A bull case scenario could result in PAT of
Rs 948 mn, indicating that the profitability is expected to explode once the Dahej
project comes on stream by FY19.
Exhibit: 8
Phenol price movement
Acetone price movement
2000
2000
1500
1500
1000
1000
500
500
0
Data source: Bloomberg
Note: For phenol we use the US benchmark. Since acetone is a co-product and not actively traded, we use the Chinese benchmark
Prices of phenol and acetone corrected towards the end of CY14, post which they
have maintained a similar trajectory. We have used the past one year average
price for our financial projections to capture the prevailing situation in the market
accurately. By FY19, prices could be significantly different transpiring into a different
profitability number.
Gross margin for the phenol project to be better than the core business: Phenol
and co-product acetone is derived from cumene, which is derived from benzene and
propylene.
Exhibit: 9
Raw material value chain
Input
Units
Output
Units
Comments
Benzene
0.87
Cumene
1.31
0.87
unit of benzene and 0.47 unit of propylene gives 1.31 units of cumene
Propylene
0.47
Input
Units
Output
Units
Cumene
1.31
Phenol
1
1.31
units of cumene gives 1 unit of phenol and 0.61 unit of acetone
Acetone
0.61
Data source:Company
US$ per MT
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
US$ per MT
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16

Deepak Nitrite Ltd - Initiating Coverage ACMIIL IE

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Institutional Equities Initiating Coverage Deepak Nitrite Ltd     A detailed gross margin analysis for
Institutional Equities Initiating Coverage Deepak Nitrite Ltd     A detailed gross margin analysis for

Institutional Equities

Initiating

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Deepak Nitrite Ltd

   

A detailed gross margin analysis for the phenol venture is presented below:-

Exhibit: 10

Gross profit analysis for the phenol project

Bear case

 

Base case

Bull case

 

Particulars

FY19E

 

FY19E

FY19E

Comments

Cumene requirement (tons)

183,400

 

209,600

235,800

Based on input-output ratio of 1.31:1 for cumene: phenol

Benzene requirement (tons)

121,800

 

139,200

156,600

Based on input-output ratio of 0.87:1.31 for benzene:

cumene

Propylene requirement (tons)

65,800

 

75,200

84,600

Based on input-output ratio of 0.47:1.31 for propylene:

cumene

Price of benzene (Rs per ton)

40,800

 

42,947

45,094

We use average benzene price of US$ 641 per ton prevailing over the last 1 year (US benchmark) and exchange rate of Rs 67 to arrive at the cost of benzene for the base case scenario. For bull & bear cases we increase/decrease the one year average price by 5%. However, we do not make any changes in our exchange rate assumption.

Price of propylene (Rs per ton)

47,865

 

50,384

52,903

We use average propylene price of US$ 752 per ton prevailing over the last 1 year (US benchmark) and exchange rate of Rs 67 to arrive at the cost of propylene for the base case scenario. For bull & bear cases we increase/decrease the one year average price by 5%. However, we do not make any changes in our exchange rate assumption.

Total cost of benzene (Rs mn)

4,969

 

5,978

7,062

 

Total cost of propylene (Rs mn)

3,150

 

3,789

4,476

 

Total raw material cost (Rs mn)

8,119

 

9,767

11,537

Total cost of benzene and propylene

Net sales (Rs mn)

13,149

 

15,818

18,686

See Exhibit 7

Gross profit (Rs mn)

5,030

 

6,051

7,148

 

Gross margin

38.3%

 

38.3%

38.3%

We have assumed that the price of phenol and acetone (output) and benzene and propylene (input) will increase/ decrease by 5% in bull and bear scenarios respectively. In effect, we have assumed that the crack spread is constant. Hence, margins are stagnant.

Data source: ACMIIL Institutional research, Bloomberg,

Company

 
   

Indicative gross margin from the phenol venture is ~38%. Over the past 5 years, DNL’s average gross margin stood at 34.4%. Thus, entry into the phenol market is expected to be margin accretive for DNL. Please note that our gross margin assumptions for the phenol project are based on average US benchmark prices. Duties and taxes generally tend to influence local market prices of these products leading to a potentially different scenario.

Deepak Nitrite Ltd- Initiating Coverage ACMIIL IE

8

Institutional Equities Initiating Coverage Deepak Nitrite Ltd Exhibit: 11 Benzene price movement Propylene price
Institutional Equities Initiating Coverage Deepak Nitrite Ltd Exhibit: 11 Benzene price movement Propylene price

Institutional Equities

Initiating

Coverage

Deepak Nitrite Ltd

Exhibit: 11 Benzene price movement Propylene price movement 2000 2000 1500 1500 1000 1000 500
Exhibit: 11
Benzene price movement
Propylene price movement
2000
2000
1500
1500
1000
1000
500
500
0
0
Data source: Bloomberg. Note: For both benzene and
propylene we use US benchmark
Fine specialty chemical business set to grow at robust pace: The fine specialty
chemical (FSC) segment includes niche products requiring high value addition. These
products are tailored to suit customer requirements. This is a low volume, high
margin business. Key products include specialty agrochemicals, xylidines, oximes,
and cumidines. These products are used as intermediates in the color, pigment, fuel
additive, agrochemicals, personal care, and healthcare sectors. This segment is less
affected by crude volatility, but is vulnerable to forex fluctuations as majority of the
sales come from exports.
Revenue from the FSC segment declined 9.7% YoY to Rs 3,262.0 mn in FY15 since
some products witnessed temporary slowdown due to disruption across geographies.
However, margin expanded by 160 bps to 19.0% during the year. The performance in
FY16 was noteworthy with sales increasing 20.6% YoY to Rs 3,933.7 mn led by volume
growth of 24% and improvement in product mix. The EBIT margin from the division
increased to 24.7% in FY16 due to a shift towards high margin products. During FY16,
DNL expanded its FSC portfolio by launching pharma and personal care intermediates.
Sales from the pharma and personal care intermediates stood at Rs 300 mn in FY16
(nil in FY15) and the management expects the same to increase to Rs 3,000-3,500
mn in 3-4 years. Since pharma intermediates are highly specialized in nature, strong
R&D expertise and personalized customer engagement is needed to understand their
requirements. Over the years, DNL has strengthened its R&D capability (new products
launched in the last few years have contributed significantly towards sales) and is
engaging with customers to deepen relationships. Moreover, quite a few products in
the pharma intermediates are witnessing capacity expansion which is an indication
the management is pretty much on track as far as expanding the share of pharma &
personal care intermediates is concerned.
Excluding the pharma intermediates, which contributed 7.6% to the FSC’s topline in
FY16, the core FSC business is also on the growth track since additional capex is being
incurred. Despite healthy management guidance, we expect sales of the FSC segment
to increase at a CAGR of 9.4% over FY16-19E as we would prefer to adopt a wait and
watch approach and monitor performance from the pharma intermediates over the
next 2-3 quarters.
Exhibit: 12
FSC division sales trend
FSC division EBIT margin & RoCE trend
6,000
40%
5,151
33%
32%
5,000
4,479
29%
4,128
30%
3,934
25%
4,000
3,614
3,262
19%
20%
17%
3,000
10%
2,000
0%
1,000
FY14
FY15
FY16
FY14
FY15
FY16
FY17E
FY18E
FY19E
EBIT margin
RoCE
Data source: Company, ACMIIL Institutional research
Rs Mn.
US$ per MT
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
US$ per MT
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16

Deepak Nitrite Ltd - Initiating Coverage ACMIIL IE

9

Institutional Equities Initiating Coverage Deepak Nitrite Ltd Performance products division is a chink in the
Institutional Equities Initiating Coverage Deepak Nitrite Ltd Performance products division is a chink in the

Institutional Equities

Initiating

Coverage

Deepak Nitrite Ltd

Performance products division is a chink in the armor: The performance products (PP) division majorly
Performance products division is a chink in the armor: The performance products
(PP) division majorly consists of two products viz; optical brightening agent (OBA)
and Di-amino Stilbene Di-sulphuric acid (DASDA). OBA is a brightener commonly
having application in industries like paper (65%), detergent (20%) and textiles (15%).
DNL is the only fully integrated manufacturer of OBA having vertical integration from
toluene to para nitro toluene (PNT) and further into DASDA and OBA.
Having complete backward integration makes DNL immune to the price vagaries
of intermediate raw materials like PNT and DASDA. It gives DNL an edge vis-à-vis
competition as it can customize the raw material at each stage to suit customer
requirements (liquid, solid or powdered state). DNL has 60-65% market share for
OBA in the domestic market and has more than 100-105 clients.
DNL ventured into the OBA business towards the end of FY14. OBA business
generated revenue of Rs 1.2 bn in FY15 and Rs 1.7 bn in FY16 with increasing
volumes, but is yet to breakeven. The losses are attributable to lower utilization and
long customer validation cycles. The current utilization is in the range of 35-40%.
Despite being in business for 2-3 years, utilization has been low since the
product requirement is custom specific and thus there is a long waiting period to
establish a supply agreement. However, the management exuded confidence that
OBA should generate sales in excess of Rs 2.25 bn in FY17 since they have been adding
customers (made in-roads in Southeast Asia). Further, we expect a gradual scale up
(initially the customer tenders order to the tune of 10-15% of his requirement) once
the client develops confidence in terms of performance and product quality. EBITDA
breakeven is expected to be achieved by Q4FY17 while the PBT is expected to turn
into black by Q3 or Q4 of FY18. At peak utilization, OBA has the potential to generate
sales of Rs 5.5-5.6 bn with a 12-13% EBITDA margin
Exhibit: 13
OBA sales trend
DASDA sales trend
3,000
2,000
2,436
2,500
1,462
2,039
1,500
1,700
1,827
2,000
1,037
1,500
1,200
1,000
783
680
609
1,000
500
500
0
0
FY15
FY16
FY17E
FY18E
FY19E
FY15
FY16
FY17E
FY18E
FY19E
Data Source: Company, ACMIIL Institutional research
DASDA is an intermediate used for manufacturing OBA. Since DNL has in house
capabilities to manufacture DASDA, it is not dependent on external suppliers to
procure the same. Entire requirement of DASDA to manufacture OBA is met
internally while the balance output is sold in the open market to other OBA
manufacturers. DASDA sales stood at Rs 1.4 bn and Rs 1.0 bn in FY15 and FY16
respectively. DNL plans DASDA output based on internal needs and external
demand. At peak utilization, DASDA has potential to generate sales of Rs 1.3-1.4 bn
with a steady state EBITDA margin of 8-9%.
We expect sales of the PP division to grow at a CAGR of 3.6% over FY16-19E.
Although the management is confident about a turnaround in OBA division by
2HFY18, we choose to be conservative owing to lengthy customer validation
cycle. Customers are highly receptive about the quality standards, which can result in
delayed off-take.
Rs mn
Rs mn

Deepak Nitrite Ltd- Initiating Coverage ACMIIL IE

10

Institutional Equities Initiating Coverage Deepak Nitrite Ltd Exhibit 14 PP division sales trend PP division
Institutional Equities Initiating Coverage Deepak Nitrite Ltd Exhibit 14 PP division sales trend PP division

Institutional Equities

Initiating

Coverage

Deepak Nitrite Ltd

Exhibit 14 PP division sales trend PP division EBIT margin & RoCE trend 4,000 FY14
Exhibit 14
PP division sales trend
PP division EBIT margin & RoCE trend
4,000
FY14
FY15
FY16
0%
3,046
2,662
2,737
3,000
2,719
2,610
-2%
-3%
1,759
2,000
-7%
-10%
1,000
-15%
0
-20%
EBIT margin
RoCE
FY14
FY15
FY16
FY17E
FY18E
FY19E
Data Source: Company, ACMIIL Institutional research
Crude volatility to dampen the basic chemicals business: The basic chemicals (BC)
business includes products like nitro toluenes, fuel additives and sodium nitrite/
nitrate. These chemicals find application in color, rubber chemicals, explosives, dyes,
pigments, food colors, pharma, petrol and diesel blending. This is a high volume,
low margin business and is significantly influenced by crude volatility (30-35% of the
segment is crude linked).
DNL is a market leader in sodium nitrite (contributed 16% to the topline in FY16),
sodium nitrate and nitro toluenes in India. Over the last 4-5 years volumes of sodium
nitrite have grown from 90 tons per day (tpd) to about 170 tpd. DNL has launched a
special grade sodium nitrite for the export market in FY16 and the response has been
good. Thus, volume growth is expected to be healthy.
Fuel additive is another key product in the segment. These additives help
refineries maximize fuel efficiency and reduce carbon emission which increases the
overall quality of the fuel. Over the past few years, fuel additive was a key growth
driver for DNL. However, the growth has been constrained in the last 2-3 years due
to volatility in crude prices and availability of good quality Iranian crude. This has
resulted in excess capacity in plants. DNL has three plants for fuel additives and the
capacity in one of the plant is now diverted into manufacturing another product.
DNL is looking to tap export markets for fuel additives and it has received orders
from US and Canada. Thus, the management has shifted focus on exports and new
products to utilize idle capacity, which is expected bear fruits by the end of FY17.
Topline from the BC segment was flat in FY15 but declined in FY16 and 1HFY17 due
to decline in crude oil prices. Despite a decline in topline, margin has expanded as
DNL was able to maintain spreads. We expect sales to grow at a CAGR of 0.6% over
FY16-19E.
Exhibit: 15
BC division sales trend
BC division EBIT margin & RoCE trend
8,000
7,496
38%
7,396
40%
37%
6,859
6,746
6,351
6,136
30%
28%
6,000
20%
12%
4,000
10%
12%
10%
2,000
0%
FY14
FY15
FY16
FY17E
FY18E
FY19E
FY14
FY15
FY16
EBIT margin
RoCE
Data source: Company, ACMIIL Institutional research
Rs Mn
Rs Mn

Deepak Nitrite Ltd - Initiating Coverage ACMIIL IE

11

Institutional Equities Initiating Coverage Deepak Nitrite Ltd Company overview Established in 1970, Deepak Nitrite Ltd
Institutional Equities Initiating Coverage Deepak Nitrite Ltd Company overview Established in 1970, Deepak Nitrite Ltd

Institutional Equities

Initiating

Coverage

Deepak Nitrite Ltd

Company overview Established in 1970, Deepak Nitrite Ltd (DNL) is a diversified chemical company with
Company overview
Established in 1970, Deepak Nitrite Ltd (DNL) is a diversified chemical company with
expertise in numerous chemical processes such as nitration, hydration, alkylation,
oxidation and chlorination. The business is divided into three segments namely basic
chemicals (BC), fine and specialty chemicals (FSC) and performance products (PP).
DNL has five plants in Gujarat, Maharashtra and Telangana. Sodium nitrite (16%
of FY16 sales), 2 ethyl hexyl nitrate (17%) and OBA (13%) are key products of the
company.
Exhibit:16
Details on manufacturing facilities
Business segmentation
Region
Particulars
Particulars
Key products
Basic Chemicals
Bulk commodity
manufacturing, on site
Nandesari, Gujarat
Sodium nitrite, sodium nitrate, nitro
toluenes and fuel additives
nitration & specialty agrochemicals
Dahej, Gujarat
OBA production
Taloja, Maharashtra
Hydrogenation
Fine & specilaty chemicals
Xylidines, oximes, cumidines, agro
intermediates, pharma & personal care
intermediates
Roha, Maharashtra
Nitration and specialty agrochemicals
Hyderabad, Telangana
DASDA production
Performance products
OBA and DASDA
Data Source: Company
Data Source: Company
The products manufactured by DNL cater to several industries like colorants,
petrochemicals, rubber, paper, textile, and detergents. DNL’s products are exported
to over 30 countries across six continents. Europe (48% of export sales), USA (23%)
and (China 8%) are the biggest markets for DNL. BASF, Lubrizol, Reliance Industries,
Bayer Cropscience, Eastman chemicals, BPCL, IOC, and Monsanto are the DNL’s key
customers with a marquee relationship.
Exhibit: 17
Application wise sales breakdown
Geographical sales breakdown
2%
100%
6%
4%
2%
4%
100%
1%
1%
1%
2%
1%
17%
13%
21%
80%
20%
23%
80%
58%
61%
61%
62%
26%
17%
22%
56%
56%
60%
60%
23%
21%
44%
42%
44%
39%
38%
39%
40%
40%
59%
58%
54%
51%
51%
20%
20%
0%
0%
FY11
FY12
FY13
FY14
FY15
FY16
FY12
FY13
FY14
FY15
FY16
Color
Agro
Fuel
Pharma
Others
Domes c
Exports
Data source: Company
Deepak Nitrite Ltd- Initiating Coverage ACMIIL IE
12
Institutional Equities Initiating Coverage Deepak Nitrite Ltd A list of important milestones in the history
Institutional Equities Initiating Coverage Deepak Nitrite Ltd A list of important milestones in the history

Institutional Equities

Initiating

Coverage

Deepak Nitrite Ltd

A list of important milestones in the history of DNL is presented below:-

Exhibit: 18

Key milestones of DNL 1984-Acquisi on of Sahayadri dyestuffs 2007- Acquisi on of DASDA division
Key milestones of DNL
1984-Acquisi on of
Sahayadri dyestuffs
2007- Acquisi on of
DASDA division from
Vasant Chemicals
2010 - Entry into fuel
addi ves business
1970-80
1981-90
1991-2000
2001-2010
2010-Present
1970-
Incorporated as
private company
1972- Sodium
nitrate plant
commissioned at
Nandesari
1992- Commissioned
nitro aroma c plant at
nandesari
1995- Commissioned
hydrogena on plant at
Taloja
2000- Acquired Aryan
pes cides
2013- Brownf ield
expansion at
Nandesari for
inorganic salts
2014- Dahej facility
for OBA fully
commissioned
2014- Bonus &
stock split
Source:Company

DNL is undertaking a greenfield expansion plan at Dahej to manufacture phenol and acetone. Once the project comes on stream by FY19 (first full year of operations) DNL would become a virtual monopoly player in India. The business composition is expected to witness a paradigm shift with entry into the phenol market.

Exhibit: 19

Segmental sales breakdown 100% 14% 20% 20% 20% 20% 80% 51% 28% 25% 29% 32%
Segmental sales breakdown
100%
14%
20%
20%
20%
20%
80%
51%
28%
25%
29%
32%
33%
60%
10%
40%
56%
17%
58%
48%
47%
20%
51%
22%
0%
FY14
FY15
FY16
FY17E
FY18E
FY19E
BC
FSC
PP
Phenol
Data source: Company, ACMIIL Institutional research

Deepak Nitrite Ltd - Initiating Coverage ACMIIL IE

13

Institutional Equities Initiating Coverage Deepak Nitrite Ltd Key risks Execution risk in the phenol project:
Institutional Equities Initiating Coverage Deepak Nitrite Ltd Key risks Execution risk in the phenol project:

Institutional Equities

Initiating

Coverage

Deepak Nitrite Ltd

Key risks

Execution risk in the phenol project: DNL has received environmental clearance for the Dahej project and work at the site has already begun. Thus, execution risk arising from bureaucratic delays is minimal. However, DNL will have to raise Rs~2 bn as equity contribution towards the project in the next 3-5 quarters. While a QIP approval has already been taken and DNL is in talks with prospective investors, if negotiations take longer than expected execution delays could arise.

Delay in turnaround of PP division: The PP division has been into losses since the past seven quarters. The management expects a breakeven at the EBITDA level in Q4FY17 with a complete turnaround (PBT positive) by 2HFY18. However, since OBA has long customer validation cycle, if the turnaround takes longer than expected profitability would remain muted.

Volatility in raw material prices: Caustic soda, 2 ethyl hexanol, toluene, nitric acid, benzene, cumene and ammonia are key raw materials for DNL. Prices of most raw materials have declined over the past one year due to decline in crude prices. However, DNL was able to maintain spreads, which uplifted the margin profile. Inability to maintain spreads in case of excessive raw material volatility can hurt margins.

Deepak Nitrite Ltd- Initiating Coverage ACMIIL IE

14

Institutional Equities Initiating Coverage Deepak Nitrite Ltd   Outlook and valuation   The core business
Institutional Equities Initiating Coverage Deepak Nitrite Ltd   Outlook and valuation   The core business

Institutional Equities

Initiating

Coverage

Deepak Nitrite Ltd

 

Outlook and valuation

 

The core business of DNL (except FSC) is commoditized in nature with no competitive advantage. Raw materials are crude linked and thus increasing efficiency and maintaining spreads is an important margin lever. We believe there are three key triggers 1) turnaround in the PP division, 2) entry into phenol market and 3) scalability potential of the FSC division that can uplift the EBITDA margin and RoC profile for DNL.

Trigger 1) The PP division has been in losses over the past seven quarters. However, a turnaround is expected by 2HFY18. This can materially boost RoCE since out of the total capital employed of Rs 10,258.4 mn as of FY16, roughly Rs 3,708.4 mn (36% of total) is employed in the PP division. Thus, ~1/3rd of the capital employed is not generating any returns at this juncture, thereby depressing overall return ratios. We believe the core business (excluding phenol) RoCE has potential to rise meaningfully once the PP division turns back into the green.

As seen in exhibit 20, on a steady state basis, the PP division has potential to generate RoCE of ~18.8% (at peak utilization levels). Even on a conservative basis, the PP division can generate RoCE of ~10.6%.

Exhibit: 20

PP division steady state RoCE potential

 

Particulars

At

peak utilization

On a conservative basis

Comments

Sales potential of OBA (Rs mn)

 

5,500-5,600

3,850

We assume a 30% discount on lower band of the peak utilization figure

Sales potential of DASDA (Rs mn)

 

1,300-1,400

910

We assume a 30% discount on lower band of the peak utilization figure

Steady state EBITDA margin for OBA

 

12-13%

10%

We assume a 200 bps cut in steady state margin

Steady state EBITDA margin for DASDA

 

8-9%

6%

We assume a 200 bps cut in steady state margin

Steady state EBIT margin for OBA

 

11%

9%

We further assume 100 bps cut to account for depreciation

Steady state EBIT margin for DASDA

 

7%

5%

We further assume 100 bps cut to account for depreciation

Steady state EBIT for OBA (Rs mn)

 

605

347

 

Steady state EBIT for DASDA (Rs mn)

 

91

46

 

Total EBIT (Rs mn)

 

696

392

 

Capital employed of PP division as of FY16 (Rs mn)

 

3,708

3,708

Majority of the capex is done. Thus, any major increase in capital employed is not foreseen

RoCE

 

18.8%

10.6%

 

Data Source: Company, ACMIIL Institutional research

 
 

Even if we assume that ~27% of the PP EBIT of Rs 392 mn (calculated on a conservative basis) is wiped out due to intersegment adjustments (see exhibit 21) based on last 3 years’ historical trend, incremental EBIT addition of Rs 286 mn (Rs 392 mn*0.73) can come in at the overall company level. This can potentially boost the RoCE by 250-300 bps.

Deepak Nitrite Ltd - Initiating Coverage ACMIIL IE

15

Institutional Equities Initiating Coverage Deepak Nitrite Ltd     Exhibit: 21   EBIT adjustment factor
Institutional Equities Initiating Coverage Deepak Nitrite Ltd     Exhibit: 21   EBIT adjustment factor

Institutional Equities

Initiating

Coverage

Deepak Nitrite Ltd

   

Exhibit: 21

 

EBIT adjustment factor analysis

 

Particulars (Rs mn)

 

FY14

FY15

 

FY16

Comments

Total segment EBIT

 

1,282

1,361

 

1,681

Arrived after adding segmental EBIT of all 3 divisions

Reported company wide EBIT

   

844

1,037

 

1,289

As reported in income statement

Inter-segment EBIT adjustment

   

439

324

 

392

 

EBIT adjustment factor

 

34.2%

23.8%

 

23.3%

 

Data source: Company, ACMIIL Institutional research

 
   

Trigger 2) As seen in exhibit 7, the phenol project has the potential to generate sales of Rs 15.8 bn and profit of Rs 565 mn in FY19E (base case scenario). If our base case scenario materializes, DNL is all set to compound revenue and profit by 32.1% and 36.4% respectively over FY16-FY19E. Considering the volatility in crude prices and lengthy customer validation cycle we have been extremely conservative in our growth estimates (3.8% sales CAGR over FY16-19E) for the core business. Despite our conservative stance, sales and profits are set to double by FY19E. Entry into the phenol market would not only take DNL into a different growth orbit but also expand the margin and return ratios.

The phenol project has the potential to generate RoE and RoCE of 11.8% and 12.3% respectively (base case scenario). However, at peak utilization, the phenol project can generate EBITDA of Rs 3,500-4,000 mn translating into RoCE of 21.5% to 25.1% at the lower and higher bands respectively.

Exhibit: 22

 

RoCE potential of phenol project

 

Particulars (Rs mn)

 

At peak utilization

Comments

EBITDA

   

3,500-4,000

As per management

Fixed asset

   

12,000

Project cost

Working capital

   

1,950

Deduced based on working capital cycle projection of 45 days

Capital employed

   

13,950

 

Depreciation

   

504

See exhibit 7

EBIT at lower end

   

2,996

 

EBIT at higher end

   

3,496

 

RoCE at lower band

   

21.5%

 

RoCE at higher band

   

25.1%

 

Data source: Company, ACMIIL Institutional research

 

Trigger 3) The FSC segment offers huge scalable opportunity with an entry into pharma and personal care intermediates. Revenue from pharma and personal care intermediates was Rs 300 mn in FY16 and the management has guided for a target of Rs 3,000-3,500 mn in 3-4 years time. Even on a conservative basis, if we assume that 50% of the guidance is achieved in three years and sales from the non-pharma and personal care segment remains stagnant, FSC division could report a topline in excess of Rs 5.3 bn. As this is a high margin business, it could significantly boost the bottomline of DNL.

Considering these factors we assign DNL a P/E multiple of 13x. We value DNL on FY19E basis to capture the upside from phenol venture accurately. We factor in dilution that would emanate from raising further equity while calculating the EPS for FY19E. We believe this is critical as not accounting for dilution would inflate EPS and return ratios from the phenol venture presenting an inaccurate picture. For analytical purposes, we have assumed that the QIP would happen at Rs 100. This can result in 17% dilution.

Deepak Nitrite Ltd- Initiating Coverage ACMIIL IE

16

Institutional Equities Initiating Coverage Deepak Nitrite Ltd Exhibit: 23 Dilution analysis Total equity required (Rs
Institutional Equities Initiating Coverage Deepak Nitrite Ltd Exhibit: 23 Dilution analysis Total equity required (Rs

Institutional Equities

Initiating

Coverage

Deepak Nitrite Ltd

Exhibit: 23

Dilution analysis

Total equity required (Rs mn)

4,800

QIP done (11.75 mn shares @ 70.90) (Rs mn)

833.1

Land sale at Pune (Rs mn)

792.6

Internal accruals over 3 years (Rs mn)

1,200.0

Balance (To be raised via QIP)(Rs mn)

1,974.3

Additional shares to be issued if dilution happens at Rs 100 (mn)

19.7

Existing shares (mn)

116.3

Extent of dilution

17.0%

No of shares post dilution (mn)

136.0

Data source: Company, ACMIIL Institutional research

Based on the expanded equity base of 136 mn shares our FY19E diluted EPS stands at Rs 12.2. Applying this to our target multiple gives a target price of Rs 158 (upside of 72% from current levels and CAGR of 27% over the time period). We initiate with a BUY.

Deepak Nitrite Ltd - Initiating Coverage ACMIIL IE

17

Institutional Equities Initiating Coverage Deepak Nitrite Ltd   Financials (Standalone)   Income Statement
Institutional Equities Initiating Coverage Deepak Nitrite Ltd   Financials (Standalone)   Income Statement

Institutional Equities

Initiating

Coverage

Deepak Nitrite Ltd

 

Financials (Standalone)

 

Income Statement

 

Particulars (Rs mn)

FY13

 

FY14

FY15

FY16

FY17E

FY18E

FY19E

Net Sales

10,194

 

12,696

13,272

13,357

12,785

13,463

30,773

YoY Growth

29.1%

 

24.5%

4.5%

0.6%

-4.3%

5.3%

128.6%

EBITDA

722

 

1,140

1,397

1,683

1,595

1,777

4,400

EBITDA Margin

7.1%

 

9.0%

10.5%

12.6%

12.5%

13.2%

14.3%

Depreciation

189

 

296

360

395

428

485

954

EBIT

532

 

844

1,037

1,289

1,167

1,292

3,447

Interest

114

 

280

380

391

249

269

1,169

Other income

107

 

18

21

15

49

13

37

Exceptional items

 

-

-

-

-

708

-

-

PBT

526

 

582

677

913

968

1,037

2,314

Tax

148

 

198

143

262

466

295

660

Tax Rate

28.1%

 

34.1%

21.1%

28.7%

27.8%

28.5%

28.5%

PAT

378

 

383

534

651

1,209

741

1,655

PAT Margin

3.7%

 

3.0%

4.0%

4.9%

9.5%

5.5%

5.4%

EPS (Rs)

 

3.6

3.7

5.1

6.1

10.4

5.4

12.2

Data Source: ACMIIL Institutional Research, Company

 

Balance Sheet

 

Particulars (Rs mn)

FY13

 

FY14

FY15

FY16

FY17E

FY18E

FY19E

Share capital

105

 

105

209

233

233

272

272

Reserves & Surplus

2,701

 

2,971

3,259

4,526

5,585

8,070

9,521

Net worth

2,806

 

3,075

3,468

4,759

5,817

8,342

9,793

Long term debt

2,393

 

2,713

2,386

1,589

4,309

8,389

8,389

Short term debt

707

 

1,907

2,310

2,349

2,699

2,849

4,799

Total Debt

3,101

 

4,620

4,696

3,938

7,008

11,238

13,189

Current liabilities & Provisions

2,689

 

2,457

2,529

3,247

3,319

3,354

7,420

Others

291

 

414

543

642

719

721

1,610

Total Liabilities

8,887

 

10,566

11,236

12,587

16,864

23,656

32,012

Net Block

4,430

 

5,324

5,867

6,074

10,046

15,961

15,931

Non- current investments

 

13

31

172

654

1,562

1,562

1,562

Cash

 

95

64

27

39

19

574

2,197

Inventories

1,044

 

1,300

1,050

1,209

1,261

1,328

2,867

Debtors

2,423

 

2,922

3,110

2,963

2,872

3,061

6,998

Other current assets

 

28

13

76

32

26

27

62

Short term loans & advances

634

 

660

520

535

511

539

1,231

Current investments

 

-

-

-

675

119

119

119

Current assets

4,223

 

4,959

4,784

5,453

4,808

5,647

13,473

Others

221

 

251

413

405

447

485

1,046

Total Assets

8,887

 

10,566

11,236

12,587

16,864

23,656

32,012

Data Source: ACMIIL Institutional Research, Company

     

Deepak Nitrite Ltd- Initiating Coverage ACMIIL IE

18

Institutional Equities Initiating Coverage Deepak Nitrite Ltd Cash Flow   Particulars (Rs mn) FY13  
Institutional Equities Initiating Coverage Deepak Nitrite Ltd Cash Flow   Particulars (Rs mn) FY13  

Institutional Equities

Initiating

Coverage

Deepak Nitrite Ltd

Cash Flow

 

Particulars (Rs mn)

FY13

 

FY14

FY15

FY16

FY17E

FY18E

FY19E

PAT

 

378

383

534

651

1,209

741

1,655

Depreciation

 

189

296

360

395

428

485

954

Inc/Dec in working capital

(364)

 

(1,205)

(214)

379

59

(304)

(2,968)

Others

 

39

383

372

475

72

14

805

CF from Operating activity

 

243

(142)

1,052

1,900

1,769

936

446

Inc/Dec in Fixed assets & CWIP

(1,578)

 

(965)

(832)

(512)

(4,400)

(6,400)

(923)

Inc/Dec in investments

 

-

-

-

(675)

556

-

-

Others

 

22

(6)

(34)

(423)

(908)

-

-

CF from Investment activity

(1,556)

 

(971)

(866)

(1,610)

(4,751)

(6,400)

(923)

Inc/Dec in share capital

 

-

-

-

807

-

39

-

Inc/Dec in debt

 

647

1,432

274

(590)

3,070

4,230

1,950

Dividends paid

 

(63)

(83)

(104)

(104)

(151)

(190)

(204)

Others

(112)

 

(267)

(393)

(392)

44

1,940

355

CF from Financing activity

 

473

1,082

(223)

(279)

2,963

6,019

2,101

Inc/Dec in cash

(840)

 

(31)

(37)

11

(20)

555

1,623

Opening balance

 

935

95

64

27

39

19

574

Closing balance

 

95

64

27

39

19

574

2,197

Data Source: ACMIIL Institutional Research, Company

 

Ratios

 

Particulars

FY13

 

FY14

FY15

FY16

FY17E

FY18E

FY19E

Profitability Ratios

               

RoE

13.5%

 

12.5%

15.4%

13.7%

20.8%

8.9%

16.9%

RoCE

 

8.6%

10.3%

11.6%

13.3%

8.3%

6.1%

14.3%

RoA

4.3%

 

3.6%

4.8%

5.2%

7.2%

3.1%

5.2%

Valuation Ratios

               

P/E

 

7.3

11.7

13.4

11.2

8.2

15.6

7.0

P/BV

 

1.0

1.5

2.1

1.7

1.7

1.4

1.2

EV/EBITDA

 

8.3

8.1

8.9

7.1

11.3

12.4

5.0

EV/Sales

 

0.6

0.8

1.0

0.9

1.4

1.6

0.7

Per share

               

EPS (Rs)

 

3.6

3.7

5.1

6.1

10.4

5.4

12.2

DPS (Rs)

 

0.8

1.0

1.0

1.2

1.3

1.4

1.5

Book value (Rs)

 

26.8

29.4

33.2

40.9

50.0

61.3

72.0

Capital structure ratios

               

D/E (x)

 

1.2

1.7

1.6

1.0

1.4

1.5

1.5

Current ratio (x)

 

1.6

2.0

1.9

1.7

1.4

1.7

1.8

Quick ratio (x)

 

1.2

1.5

1.5

1.3

1.1

1.3

1.4

Turnover ratios

               

Fixed asset turnover (x)

 

2.3

2.4

2.3

2.2

1.3

0.8

1.9

Debtor days

 

87

84

86

81

82

83

83

Inventory days

 

37

37

29

33

36

36

34

Payable days

 

79

45