Deepak Nitrite - Interesting play in the chemicals space

Here is a short write-up on Deepak Nitrite.

§         Established in 1970s by Mr. C.K. Mehta

§         Market leader in India for Sodium Nitrite / Nitrate & Nitro Toluenes.

§         DNL is a top 3 global supplier for products like Cumidines and Oximes

§         On par with global players in colour intermediates business

§         Exports are around 44% of sales (FY12) & 29% YTD (FY13)

§         Manufacturing of hazardous chemicals is shifting from developed economies to developing economies due to environmental hazards. India is benefiting from this trend.

§         Diversified  customer  base  consisting  of  some  of  the  largest chemical  companies  in  the  world,  including  Sygenta  Global,  Bayer  Crop  Science,  BASF, Kemira,  Lanxess,  Clariant,  Isochem,  Lonza,  IOC,  Reliance &  Essar.

§         Fuel additives & Solar Salts are expected to be significant growth drivers in the future.

§         Fuel additives grew by 56% in Fy12. It was 98 cr in FY12. In 9mFY13, it is already 130 cr with Q3 35cr. Company is expecting 150-160 cr from this segment this year.

Segments	Organic Intermediates	Inorganic Intermediates	Fine & Specialty Chemicals
Product Categories	Nitro Toluenes, Fuel Additives, Nitro Chloro Benzene, Xylidines, Cumidines	Sodium Nitrite, Sodium Nitrate	DASDA, Oximes, Fuel Additives,  Specialty chemicals
Applications	Agro-chemicals, Pigments, Dyestuffs, Fuel Pharmaceuticals	Pigments, Dyes,, Rubber Chemicals, Explosives, Food Colour, Electro Plating Glass	Paper,  Detergent,  Textiles, Agrochemicals,  Fuel Additives, Pharmaceuticals
% of revenue	57%	16%	27%

Financials

Market Cap: Rs. 273.42 Crores
Current Price: Rs. 260.40
Book Value: Rs. 267.78
Stock P/E: 7.20
Dividend Yield: 2.30%
Stock is Rs. 10.00 paid up
52 Week High/Low: Rs. 325.00 / Rs. 139.00
Dividend Payout Ratio: 16.54%
Debt to equity: 1.18 (high... key monitorable)
Price to book value: 0.97
EPS FY12 = 22.06

9M EPS FY13 = 27.14
Fy13 EPS (exp) = 31-32
FY14 EPS (exp) = 38-40

For the next 2 years, earnings can grow 30%. If there is a moderate PE re-rating (only possible if the mid/small cap market sentiment improves) to 9-10, the price in a year can be around 350-400.

Disclosure: I am invested in Deepak Nitrite and my views are likely to be biased.