Deepak Nitrite’s shares saw a significant surge, rising nearly 7 percent to reach a record high of Rs 2,619.80 on the NSE following a double upgrade by Morgan Stanley, elevating the stock from “underweight” to “overweight.” The international brokerage also revised the target price for the specialty chemicals stock to Rs 2,985, indicating a potential upside of 22 percent from the previous closing price.
Morgan Stanley attributed the increase in the target price to a higher valuation multiple for the base business and an increased medium-term capital expenditure. According to analysts, Deepak Nitrite’s substantial new investment cycle, exceeding $1 billion, could propel the next phase of re-rating for the stock, akin to the significant value creation observed from 2016 to 2019.
This capital expenditure cycle is anticipated to bring about stabilization in the core business, operational enhancements, volume growth, and fortification of the balance sheet, as highlighted by analysts.
Morgan Stanley is optimistic about Deepak Nitrite’s potential to double its base earnings by 2028, driven by the company’s endeavor to become an integrated, downstream phenolics producer. The brokerage firm expressed confidence in the company’s ability to replicate its past successes, particularly its significant market share capture in India’s phenol market and the substantial increase in consensus estimates between FY 2020 and 2022.
Analysts foresee further room for outperformance by Deepak Nitrite due to its superior operating metrics and top-tier returns, especially as new investments materialize and reflect in the company’s earnings.
However, Morgan Stanley also highlighted potential risks such as project delays, sluggish execution, and subdued earnings, which could impact its estimates.
The brokerage firm has revised its earnings forecast for FY25-26, anticipating a 3-7 percent increase, reflecting the partial realization of ongoing capital expenditure and improved core earnings supported by a gradual industry uptick.
As of 12:20 pm, Deepak Nitrite shares were trading 3.8 percent higher at Rs 2,543.00 on the NSE. Over the past year, the stock has surged by 31 percent, outperforming the benchmark Nifty 50, which rose by 23 percent during the same period.
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