Strong Fundamental Analysis of Deepak Nitrite for 2023-24

Whenever investors talk about the recent boom in the chemical sector in India, Deepak Nitrite’s name always pops up. Fundamental Analysis of Deepak Nitrite of the stock has given multi-bagger gains to thousands of investors. But is there more to it? Or is the whole boom over and over now? In this article, we will undertake a fundamental analysis of Deepak Nitrite Limited and try to find out if there is much more to it than that.

Fundamental Analysis of Deepak Nitrite

We will begin with a brief overview of the company’s business and how its product portfolio has changed over the years. Later, we’ll run through the industry landscape and the stock’s financials. A section on future plans and a summary end at the end of the article.

Company Overview

Deepak Nitrite Limited (DNL) is a fast growing chemical intermediates Indian company with a well diversified portfolio. It is the largest producer of Sodium Nitrite, Sodium Nitrate, Phenol and Acetone in India.

DNL was started 50 years ago in Gujarat in 1970 by C.K. Mehta is the father of the present Chairman and MD Deepak C. Mehta.

As on date, it produces 30+ products from its 6 manufacturing plants. The company serves more than 1,000 customers in 45 countries globally. It had a strong workforce of 2,006 employees at the end of FY22.

Deepak Nitrite has been a major beneficiary of the boom of the Indian chemical industry in the last half a decade. In the following sections, we will read more about how it has become the preferred choice of Indian companies for phenolics, which they used to import earlier.

Fundamental Analysis of Deepak Nitrite

segment analysis

DNL’s product line can be divided into 4 segments:

1. Basic intermediates are standard products like sodium nitrite, sodium nitrate etc. which find application in industries like petrochemicals, rubber, agrochemicals and industrial explosives.

2. Fine and specialty chemicals are specialized, high-margin products. The company caters to the specific requirements of the clients in the areas of Paper, Personal Care, Pharma and such others.

3.Performance products are chemicals (used in paper, detergent and other industries) that add special characteristics to any product.

4. The Phenolics division has expanded rapidly in recent years as DNL has become an import substitute for Indian automotive, pharma, rubber and various other players.

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Revenue Segment of Deepak Nitrite

The table below shows how the revenue segments of Deepak Nitrite have grown over the years.

The share of DNL’s various product segments in its revenue has changed over the years. Most significant is the growth of the Phenolics segment (it comes under Deepak Phenolics, now a wholly owned subsidiary of Deepak Nitrite) which grew to 62% of the company’s revenue in FY22. Established in 2014, Phenolics was a small division of the company that previously generated negligible income.

Geographic segment

Exports accounted for 22.49% of the company’s total revenue in FY22. Domestic sales garnered a 77.51% majority of total revenue.

Now we are well aware of what the company does and how it has matured over the years. As part of our fundamental analysis of Deepak Nitrite, let us equip ourselves with the Indian chemical industry scenario.

Industry Overview

According to FICCI data, India has a market share of 4 per cent in the $5,027 billion global chemical industry. China is the largest producer with 39% share. ‘Commodity’ chemicals and ‘specialty’ chemicals make up about 80% and 20% of the total market, respectively.

From 2017 onwards, the Chinese chemical industry began to falter as the government tightened controls on pollution and emissions. Due to this the prices increased all over the world. The structural change presented a huge opportunity for Indian companies as most of them already had eco-friendly practices in place.

The Indian specialty chemicals sector is projected to double its share in the worldwide market by 2026 from 4% to 6% at present. The annual growth is pegged at 18-20% in FY22 and 14-15% in FY2023.