Deepak Nitrite’s shares have recently recorded a significant decline. After the company’s weak quarterly results, its stock fell by up to 14% on Friday, reaching a new 52-week low of ₹1,921.40.
Over the past month, the stock has declined by 16.5%, year-to-date (YTD) by 22%, and in the past six months by 31%. Even over the last year, the stock has dropped by 13%
Weakness in Quarterly Results
The company’s Q3 FY25 results were weaker than expected. Deepak Nitrite’s consolidated net profit declined by 51.5% to ₹98.09 crore, compared to ₹202.05 crore in the same quarter last year.
Revenue also saw a decline. In Q3 FY25, consolidated revenue fell by 5.3% to ₹1,903.40 crore, compared to ₹2,009.23 crore a year ago.
Decline at the Operational Level
Deepak Nitrite’s recent quarterly results revealed a major decline in operational performance. The company’s EBITDA (Earnings Before Interest, Tax, Depreciation & Amortization) dropped 44.7%, which is a significant concern.
Drop in EBITDA and Margins
In the December quarter, the company’s EBITDA stood at ₹168.5 crore, compared to ₹304.6 crore in the same period last year.
EBITDA margin also fell from 15.2% to 8.9%, indicating a decline in profitability.
Reasons Behind the Decline in Operating Performance
1. Increased Raw Material Costs:
- In recent months, raw material prices have been volatile, leading to higher production costs.
- This has put pressure on margins and impacted the company’s cost structure.
2. Weak Demand and Lower Realizations:
- There has been volatility in the demand for chemical products in both domestic and international markets.
- The decline in the prices of some products has prevented the company from achieving expected profits.
3. Industry-Specific Challenges:
- The chemical sector is currently facing challenges, making it difficult for the company.
- Supply chain disruptions and global economic slowdown have also had an impact.
4. Increase in Energy and Operational Costs:
- The costs of energy and other essential production resources have increased, raising overall operating expenses.
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Is There Hope for Recovery?
- The company expects demand from international markets to improve, which could boost revenue.
- The prices of some raw materials are expected to stabilize, which could improve margins.
- Demand in the domestic market is also expected to rise from Q4, potentially leading to better performance in the coming months.
Buying Opportunity After the Decline?
For Short-Term Traders:
- Technical analysts believe Deepak Nitrite’s stock has entered the oversold zone, which means a technical rebound may be possible in the near future.
- However, if investing for the short term, it’s advisable to use a stop-loss to limit potential losses.
For Long-Term Investors:
- The company’s fundamentals remain strong in the long run. However, it may be better to wait for a couple of more quarters before making an investment.
- Investors should wait for the stock to stabilize and show strong buying signals before entering
DIP Strategy for Investment:
- If looking to invest, consider Systematic Investment Plan (SIP) or Staggered Investment Strategy instead of investing the full amount at once.
- This will allow you to buy shares at different price levels, reducing risk.
Analysts suggest that investors should wait for stability before making decisions. If a recovery occurs, it could be an opportunity to exit with profits.
The decline in Deepak Nitrite shares is a concern for investors. However, the company expects that improving demand from international clients and raw material price stabilization could lead to a better situation in the coming quarters. Investors should remain cautious and make informed investment decisions.
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