Thread by @alphaspotcap

Deepak Nitrite Analysis! 🇮🇳

A Detailed thread 🧵👇🏻
#investing #stocks

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DNL started as a sodium nitrite & sodium nitrate manufacturer, before gradually widening its product portfolio over the years. Now it has a leading market position in most of its products.

It has also been doing smart acquisitions of companies with complementary product.

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Phenol Market:

The global phenol market is estimated to grow by a CAGR of 4.2% between 2022 & 2027 to reach a value of $24.07 bn.

Asia Pacific currently has the largest market share (52.5%) followed by Europe and North America.

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The Indian chemical industry is expected to be led by specialty chemicals as companies have plans to boost production to raise their export share. As a result, capacity expansions will be undertaken across the domestic industry with increased capital expenditure.

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Challenges:

The company is seen under some pressure due to:

• High Input Costs which is seeing no signs of slowdown
• It’s Phenol plants are running over its capacity already.
• It’s plans to enter new chemistry. Success in which is uncertain.

(5/13)

Strengths:

• Position-

DNL has been in the chemical industry for nearly 5 decades. It is a market leader in the domestic market for sodium nitrite & nitrate, nitro toluenes & fuel additives. It is also among the top 3 global players for xylidines, cumidines & oximes.

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Products-

While the company started with a limited portfolio it has grown its product portfolio to include high-value speciality chemicals.

Currently, it has a product portfolio of over 100 products. The company has added pharma & agro-chem products to its portfolio

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Multi-purpose manufacturing facility, with significant backward and forward integration linkages -

It’s production facilities include processes that allow vertical integration for most products, leading to significant cost savings.

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Healthy ramp-up of phenolics and IPA operations at DPL–

DPL’s phenol-acetone plant showed a capacity utilisation of over 125% in FY22 despite the second wave of the pandemic in Q1 FY22, resulting in healthy revenue & cash flow generation for DNL on a consolidated basis

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Capex planning:

The company has a capex of ₹1,400cr to be incurred over next 2 years towards expansion and addition of downstream products. Such sizeable capex plans expose the company to execution & market risks, although it has a strong completion track record.

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Liquidity:

The Group has a surplus free cash & liquid investments of ~₹200 cr. DNL also has a sanctioned fund-based working capital facility of ₹320 cr at a standalone level, the utilisation of which is negligible.

It has repayment obligations of ₹67.2cr in FY23.

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Positive triggers to watch out for:

If DNL is able to sustain healthy revenue growth & profit margins on a consolidated basis, backed by a change in the product mix towards more value-added products.

However margin pressure is less likely to go away soon

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Shareholding Pattern:

• Promoters : 45.72%
• FIIs : 8.76%
• DIIs : 10.03%
• Public : 35.50%

Debtor days : 61
Cash Conversion Cycle : 67
ROCE : 45%
Sales Growth 5 years : 38%
Profit growth 5 years : 87%
Stock Price CAGR 5 years : 70%
ROE 5 Years : 34%
OPM : 24%

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The company is roughly trading 35% below its ATH. Do you see a revival soon?

@caniravkaria @kuttrapali26 @AnishA_Moonka @stockifi_Invest