Deepak Nitrite gains 8% in three days on Crisil's credit rating upgrades

Going forward, growth over the medium term will be driven by trecovery in demand from Basic Chemical (BC) and Performance Product (PP) segments and continued steady outlook for FSC and Phenol segments

Shares of Deepak Nitrite were up 5 per cent at Rs 1,603 on the BSE in intra-day trade on Tuesday, having gained 8 per cent in the three trading days after the rating agency Crisil upgraded bank loan facilities of the company to 'stable' from 'positive'. The stock of the commodity chemicals company had hit a record high of Rs 1,691.55 on March 4.

“Crisil has upgraded long term rating outlook of Deepak Nitrite, for bank loan facilities of Rs 750 crore of the Company, from "CRISIL M-/Positive" to "CRISIL AA/Stable" and has re-affirmed short term rating as "CRISIL A1+,” the company said in an exchange filing on Thursday, March 18.

The rating action takes into consideration sustained improvement in Deepak Nitrite group’s business risk profile, despite the impact of Covid in the first quarter, supported by better product diversity through ramp-up of its phenol and isopropyl alcohol (IPA) business, as well as sustained growth in performance of its key business segments especially fine and speciality chemicals (FSC), Crisil said in rating rationale.

"Going forward, growth over the medium-term will be driven by a recovery in demand from Basic Chemical (BC) and Performance Product (PP) segments and continued steady outlook for FSC and Phenol segments. The group will be further investing in Brownfield and Greenfield expansion in the BC and FSC segments and the addition of downstream products under Phenol segment. New products will support growth from fiscal 2023 onwards," it said.

In the past three months, the stock has rallied nearly 80 per cent as compared to a 7 per cent gain in the S&P BSE Sensex. For the October-December quarter (Q3FY21), the company delivered a strong operational performance with consolidated earnings before interest, taxes, depreciation, and amortisation (Ebitda) growing 25 per cent year-on-year (YoY) to Rs 340 crore in the December quarter.

The consolidated Ebitda margin expanded by 330 basis points (bps) to 27.4 per cent. The margin accretion has been driven by the increased volumes and higher efficiency in plant operations of the phenolics business supported by better sourcing, logistics and marketing for the wider product basket including IPA, which commenced in Q1 of the current fiscal.

The management said in the backdrop of volatile input prices and persistent sluggishness in some end-use industries like oil, paper, textile we have achieved a strong sequential recovery in both revenues and profitability and expect the trend to continue in January-March quarter (Q4FY21).