Deepak Nitrite under pressure? Emkay changes tune and here’s what it’s watching

Deepak Nitrite posted a 44% YoY decline in Q1FY26 EBITDA to ₹1.7 billion, aligning with Emkay Global’s estimates but falling short of consensus. The brokerage cut FY26–28 EBITDA estimates by up to 28%, citing margin pressure in phenolics and muted demand in advanced intermediates, and slashed its target price by 10% to ₹1,800, retaining a ‘Reduce’ rating.

Emkay Global noted that the advanced intermediates (AI) segment saw a 15% YoY revenue drop to ₹6.1 billion due to weak agrochemical demand, though end-use sectors like dyes, detergents, and home care remained stable. EBIT margin in this segment shrank to 5.9% from 9.3% a year ago due to operating deleverage.

The phenolics division posted ₹12.9 billion in revenue, down 12% YoY. However, sequential EBIT margin improved to 7.8% from 5.7% last quarter, aided by cost optimization and better realizations. Management expects sustained margin pressure from Chinese capacity additions and cheaper imports.

Deepak Nitrite is executing multiple capex projects. FY26 capex is now pegged at ₹8–10 billion (earlier ₹12–15 billion), with a long-term plan of ₹100 billion by FY28 to set up a phenol-BPA-polycarbonate plant. The plant is expected to offer a 5–5.5 year payback with 16–18% IRR. Trial runs have begun at the concentrated nitric acid plant, and other units like MIBK, MIBC, and nitration are expected to go live in H2FY26.

Despite operational streamlining and new product pipelines, Emkay remains cautious. The firm cited limited volume growth and persistent pricing pressure in phenolics as key risks to earnings.