This midcap specialty chemicals stock logs fresh 52-week high after climbing over 7%; here’s why

Shares of the midcap specialty chemicals company Deepak Nitrite in trade today  (May 6, 2024) marked a new 52-week high of Rs 2620, after gaining over 7 per cent. The sharp rally in the stock was triggered after global brokerage Morgan Stanley double upgraded the stock to ‘overweight’ from the earlier ‘underweight’ view.

Also, the brokerage has raised the stock’s target price to Rs 2985 from Rs 1625, suggesting a potential upside of over 22 per cent from the last close.

The foreign brokerage held that the company’s new investment cycle could drive the next leg of ‘re-rating’, not unlike the nearly 5x + value creation seen between 2016-19.  The company’s push to become the country’s integrated, downstream phenolics producer more than doubles gross block, helps capture a sizable chunk in an underserved, around US$2 billion domestic market and sets the stage for a doubling in base earnings by 2028, added the brokerage’s report.

Also, it added that after the execution of its greenfield-phenol capacity, the company’s multiples have steadily expanded and have sustained at around 2x those of its global chemical peers since 2021, which is a key surprise. Taking cognisance of the industry-leading operational metrics and top-quartile returns, the brokerage sees more room for outperformance as new investments fructity and earnings inflect.

The brokerage raised its FY25-26 earnings forecast by 3-7 per cent, reflecting part fruition of the ongoing capex and better core earnings aided by a calibrated industry uptick.