5 Minutes Read
Deepak Nitrite shares surge to a two-year high after a ‘double upgrade’
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
Listen to the Article (6 Minutes)
Summary
Morgan Stanley has raised its price target on Deepak Nitrite to reflect a higher multiple for the base business and a higher medium-term capex.
Shares of specialty chemicals company Deepak Nitrite Ltd. surged to the highest level since January 2022 after brokerage firm Morgan Stanley double-upgraded the stock to “overweight” from its earlier rating of “underweight.”
Morgan Stanley has also upgraded its price target on Deepak Nitrite to ₹2,985 from ₹1,625 earlier. The revised price target implies a potential upside of 22% from Friday’s closing levels. The price target has been raised to reflect a higher multiple for the base business and a higher medium-term capex.
The brokerage wrote in its note that Deepak Nitrite’s new and largest investment cycle so far could drive the next leg of re-rating for the stock. Along with this capex cycle comes the bottoming of its base business, operational and volume enhancements and a strong balance sheet.
Deepak Nitrite is set to double its base earnings by 2028, according to Morgan Stanley backed by the company’s push to become an integrated, downstream phenolics producer.
“We think the stars are aligned for Deepak Nitrite to recreate its previous success when it captured nearly 50% in India’s phenol market, leveraged a margin upcycle and saw consensus estimates rise by nearly 60% between financial year 2020 – 2022,” according to Morgan Stanley.
Deepak Nitrite’s multi-year pipeline of nearly $1 billion in investments is already under way. After the commencement of the company’s greenfield phenol capacity, Deepak Nitrite’s multiples have steadily expanded and have sustained at nearly double of its global chemical peers since 2021, which, as per Morgan Stanley, is a key surprise.
The brokerage sees further room for outperformance for Deepak Nitrite due to its industry-leading operating metrics and top-quartile returns and as new investments fructify and reflect in the company’s earnings.
Project slippages, slow execution and sluggish earnings are some of the key risks to Morgan Stanley’s estimates.
65% of the 20 analysts that have coverage on Deepak Nitrite have a “buy” rating on the stock, while four have a “sell” rating. The other three have a “hold” recommendation.
Shares of Deepak Nitrite are trading 6.5% higher at the start of trade on Monday to ₹2,618.85. With today’s surge, the stock has turned positive for the year, while it has risen 33% in the last 12 months.
Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout
3 Mins Read
Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter
Daily Newsletter
