Hey Value2017 . I’d hoped my post above would clarify this but il go into more details and il even use the management quotes from their concalls and AGM for the same in a paraphrased manner:
- Please read the investor presentation. Management mentioned that due to lockdown they missed about a months worth of revenue. They also mentioned that the paper and textile industry was hit badly due to the lockdown. There was low demand for Phenol domestically too due to the lockdown. Now even, with all these issues their revenue for this month was just 33 percent lower than normal. With oba/dsda/phenol in so less demand this quarter should have been a washout but it wasnt. You have to ask why was that? And then check what they’ve told us
- Phenol demand domestically was less due to lockdown. So they began exporting it to recovering countries in Asia and Europe. They have the capacity to continue doing this even when the domestic market recovers due to all their capex.IPA and Acetone had high demand domestically and this will not stop anytime soon and now IPA will have double capacity soon. If demand slows down
it means covid has gone …which means oba and dsda is back… so win win. They had issues exporting last quarter due to the lockdown but those issues are gone now. - Growth in Specialty chemicals was 20+ percent. Since it deals in pharma and agro chem this Will continue to increase for some time. Management has almost completed brownfield expansion for the same and even finished debotttling agrochem and will complete a powerplant for the same this year. They also mentioned that they will choose capex based on people’s needs and those are veering towards life sciences instead of infra. R&D has increased too…based on what the management is saying regards FSC expect it to be for this segment. So this will be a huge growth driver. Look at the margins in specialty chemicals and look at the PE of specialty chemical companies.
- Basic chem margins improved and results were surprisingly flat even with a lockdown. So there’s no major surprises expected here in either direction.
Overall, when investing in a company like Deepak nitrite expect commodity based cycles… but look at how management plugs in the gaps in a down cycle to ensure that the results don’t fall off a cliff and infact still stay stable. IPA, FSC and Phenol exports will carry Deepak through this year . The textile and paper industry will slowly come back and so will domestic demand. Now imagine Deepak nitrite in a few quarters when the upcycle returns with a FSC segment contributing a huge chunk to revenue and PAT, Phenol with high demand in both India and abroad(+forward integration at some point), paper and textile industry fully functioning for dasda and oba to be back in fashion and basic chemicals offering a safe revenue stream.
Note: I could be wrong about all this too and I am not a SEBI advisor. So please don’t take this as an investment call from me. Please flag and delete if this is considered a repetition and doesn’t add value to the thread