Deepak Nitrite Downgraded to Rs 1354: Prabhudas Lilladher Initiates Sell Recommendation
Deepak Nitrite Faces Challenges in Polycarbonate Resin Market
The Indian polycarbonate (PC) resin demand has been growing at a remarkable 14% Compound Annual Growth Rate (CAGR) during the period of 2020-25. However, a significant portion of this demand is being met through imports, which account for all of the demand in the country. The upcoming 165 tonnes per annum (tmt) PC resin capacity addition by Deepak Nitrite is expected to help reduce the country's reliance on imports.
Despite this positive development, the PC resin industry is facing significant challenges, including overcapacity and poor utilization. In recent times, around 5% of global capacity has been forced to shut down due to these issues. The upcoming fully integrated PC resin capacity addition by Deepak Nitrite, valued at INR85 billion, may have an adverse impact on the company's return ratios. This is particularly concerning since the company's Trinseo plant is based on older technology from Dow and is primarily designed to produce commodity-grade PC.
| Company | Global Capacity Shutdown (%) |
|---|---|
| Deepak Nitrite | 0% |
| Industry Average | 5% |
Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data
As a result of these factors, we have downgraded our recommendation for Deepak Nitrite to 'REDUCE' with a target price of INR1,354. The recent rally in the stock has made the risk-reward profile unfavorable, prompting us to take this stance.
Investor Takeaway
Investors should consider reducing their exposure to Deepak Nitrite due to unfavorable risk-reward post recent rally.
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