Stocks to buy: Analyst at Kotak Sec bets on Deepak Nitrite, Ujjivan SFB

Shrikant Chouhan of Kotak Securities continues to like Deepak Nitrite from a near-term perspective, as elevated phenol spreads and a stronger Q1FY27 should support robust earnings

Stocks to Buy Today: Recommendations by Shrikant Chouhan, Kotak Securities

 

Deepak Nitrite – Add

CMP – ₹1,670

FV – ₹1,950

Resistance – ₹1,700-1,760

Support – ₹1,610-1,570

 

Deepak Nitrite is one of India's leading integrated chemical companies with a diversified presence across Phenolics and Advanced Intermediates. The company manufactures over 36 products serving pharmaceuticals, agrochemicals, plastics, dyes, pigments, electronics, and personal care industries, supported by seven manufacturing facilities and strong backward integration. Over the past few years, Deepak has steadily evolved from a commodity chemical producer to a specialty and value-added chemicals player through investments across the phenol value chain, fluorination, nitration, and polycarbonate.

 

 

The company reported a sharp earnings recovery in Q4FY26, driven primarily by the Phenolics business. Ebitda rose 74 per cent QoQ as phenol spreads expanded significantly following geopolitical disruptions in the Middle East, while the Phenolics segment contributed nearly 90 per cent of consolidated EBIT during the quarter. Management expects an even stronger Q1FY27 as elevated phenol spreads prevailed throughout the quarter, unlike Q4FY26 where the benefit was limited to only one month. The company also built raw material inventories ahead of the disruption, allowing it to capture higher margins despite supply chain volatility.

 

Beyond the near-term windfall, Deepak continues to execute a large pipeline of growth projects. Commercialisation of MIBK is expected during FY27, fluorinated products are scheduled to commence from Q3FY27, while India's first integrated polycarbonate project remains on track for commissioning in 2028. The company is also investing over Rs100 crore in R&D while expanding backward integration, renewable energy adoption and supply-chain resilience, positioning itself for long-term growth across high-value sectors such as pharmaceuticals, electronics and electric mobility.

 

While earnings are likely to remain exceptionally strong over the next one to two quarters, supported by elevated phenol spreads, we believe these windfall gains are unlikely to sustain over the longer term. Spreads have already corrected from recent peaks, and higher prices are expected to invite customer pushback over time, leading to a gradual normalisation in profitability during FY28.

 

We continue to like Deepak Nitrite from a near-term perspective, as elevated phenol spreads and a stronger Q1FY27 should support robust earnings. Over the longer term, the company remains a high-quality chemicals player with a strong execution track record and a healthy pipeline of growth projects. Note that, much of the current earnings surge appears cyclical rather than structural. We therefore have an Add rating with a fair value of ₹1,950 given the risks of normalising phenol spreads, project execution and rising leverage.

   

Ujjivan Small Finance Bank – Buy

CMP – ₹67

FV – ₹75

Resistance – ₹69-72

Support – ₹65.5-62

 

Ujjivan SFB has evolved from a pure-play microfinance lender into a diversified small finance bank, with its book increasingly balanced across microfinance, affordable housing, MSE, and financial institutions group (FIG) lending. The share of microfinance in gross advances has fallen from 85 per cent in FY17 to 36 per cent in FY26, while affordable housing (26 per cent), MSE (15 per cent), and FIG (8 per cent) have scaled meaningfully a structural de-risking of the franchise that management intends to extend further, targeting 56 per cent secured loans by FY27 versus 49 per cent currently.

 

Growth has been healthy and broad-based: the overall loan book grew 27 per cent yoy in FY26 to ₹40,700 crore, with affordable housing up 43 per cent yoy and MSE up 58 per cent yoy, even as microfinance growth normalized to a steadier 13 per cent yoy after industry-wide stress. Deposits grew 21 per cent yoy, with CASA up 36 per cent yoy, improving the funding mix. Management guidance for FY27 points to continued 25 per cent credit growth, underscoring confidence in the diversified engine.

 

The more compelling story, though, is the asset quality and profitability normalization playing out over FY26-27. Credit cost has fallen sharply from FY25 stress levels toward a more sustainable 1.4-1.5 per cent range, gross slippages have declined to among the lowest in the SFB/microfinance peer set, and net NPLs sit at just 0.4 per cent. This has driven RoA from 1.3 per cent in FY26 toward a guided 1.6-1.8 per cent and RoE from 10.7 per cent toward the mid-teens (15-16 per cent) over FY27-29E, a durable, multi-year re-rating path rather than a one-quarter blip.

 

The intrinsic appeal is this combination: a bank that has weathered the recent microfinance cycle better than most peers (lowest slippage ratio in its cohort), is now diversifying into higher-growth, better-yielding secured segments, carries comfortable capital (Tier-1 comfortably above regulatory requirements), and is entering a phase where return ratios structurally improve as the mix shift matures. For an investment horizon of a year or more, this positions Ujjivan to compound book value at healthy rates while asset quality tailwinds and margin stability play out.

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(Disclaimer: This article is by Shrikant Chouhan, head equity research, Kotak Securities. View expressed are his own.)