Capitaline

Analyst Meet / AGM 10-Aug-18

Conference Call

Deepak Nitrite

Expects the phenol project to have a capacity utilisation of 90% by the end of FY19

Deepak Nitrite conducted conference call to discuss the financial results and performance of the company for the quarter ended June 2018. Executive Director & CEO- Mr. Umesh Asaikar, Director Finance and Chief Financial Officer - Mr. Sanjay Upadhyay and Sr. GM Finance - Mr. Somsekhar Nanda addressed the call
Highlights of the Concall

The company has witnessed above average volatility in commodity prices in recent weeks which impacted input prices led by volatility in currency exchange rates partly due to the tariff wars undertaken globally and partly due to rebalancing of the interest rates by the central banks across the globe including RBI.

The company has been able to successfully pass on rising input costs to customers and have managed to report higher volumes across export and local markets amidst rising oil prices.

Q4 is usually best quarter for the company followed by Q3, Q2 and Q1 because of seasonality of some products particularly in agrochemicals segment. And this is the first time in history of the company that Q1FY19 performance is better than Q4FY18

The company is running all its plants at around 80-85% capacity utilizations.

The company is investing another 70-75 crore in each segment for brownfield expansion across business segment which will commissioned and available in second half of current year.

The company expects a topline growth of 15-20% in FY19 from existing business and a healthy bottom-line.

Net sales rose 33% in Q1FY19 at Rs. 421.82 crore as compared to Rs. 316.85 crore (excluding Fire and loss of profit insurance claim of Rs. 22.5 crore) reported in Q1 FY18. All of the Strategic Business Units (SBUs) contributed positively to the topline performance. While Basic Chemicals witnessed improving demand and pricing for key products, Fine & Speciality Chemicals saw strong traction especially in export markets. The Performance products segment has also delivered an encouraging performance on the back of strategic initiatives implemented earlier.

Domestic revenues stood at Rs. 265.05 crore in Q1FY19 from Rs. 214.95 crore in the same period last year, growing by 23% Y-o-Y. Environmental challenges and production disruptions in China led to volume gains for local customers boosting domestic revenues.

Revenues from exports came in at Rs. 153.82 crore in Q1FY19 compared to Rs. 98.36 crore in Q1 FY18, higher by 56%. Export performance was driven by strong demand trends in key markets across all segments, currency tailwind and stabilisation of operations compared to the same quarter in the previous financial year.

Basic Chemical revenues stood at Rs. 222.62 crore in Q1FY19 compared to Rs. 180.44 crore in Q1 FY18, growing by 23% Y-o-Y. Improved demand traction from the domestic customer industries resulted in volume growth of 7% in the basic chemical segment.

Revenues from Fine and Speciality Chemical (FSC) segment were Rs. 122.37 crore in Q1FY19, higher by 49% compared to Rs. 81.94 crore in Q1 FY18. Revenue growth was backed by solid volume growth of 25% in the FSC segment due to a favourable demand environment in domestic as well as export markets as well as benefit from a moderate base.

The PP (performance products) segment reported revenues of Rs. 80.51 crore in Q1 FY19 compared to Rs. 60.61 crore in Q1 FY18, a growth of 33% y-o-y. The company strategy to turnaround the PP segment has delivered results and this has helped the PP segment to turn EBIT positive.

EBITDA came in at Rs. 56.89 crore, higher by 66% as against to Rs. 34.17 crore (excluding Rs. 18.33 crore – Net of Expenses, due to insurance claim) reported in Q1 FY18. EBITDA margins improved by 270 bps to 13.5%, as compared to 10.8% in Q1 FY18. Combination of higher contribution from all business segments, benefits of operating leverage and better product acceptance enabled the increase in EBITDA.

The company expects its margins to further elevate in the ensuing quarters led by brownfield expansion in some of its projects, its cost leadership and external factors like China situation and weakening of rupee which are leading to higher realisation

Total debt stands at Rs 431 crore at the end of June 2018 quarter translating into debt equity ratio of 0.45

The company is implementing a mega project to manufacture 200,000 MTPA of Phenol and 120,000 MTPA of the co-product Acetone. This is being supported by capacity to manufacture 260,000 MT of Cumene, which is a feedstock for manufacturing Phenol and Acetone. This project is being implemented in a 100% subsidiary, i.e. Deepak Phenolics (DPL). The proposed Phenol Plant will be located at Dahej in the State of Gujarat, with a capital expenditure of Rs. 1,400 crore being funded by debt and equity in the ratio 60: 40. Deepak Nitrite will address the opportunity in the domestic market which is currently met by imports. Local availability of Phenol and Acetone is expected to boost the production of derivatives and downstream intermediates, which will expand the overall market in the country.

All pre-commissioning activities have been concluded and the mega-greenfield project is on the verge of commissioning. Currently the company is doing trial runs at the plant and is expected to be commissioned in the month of August, 2018

The company expects the phenol project to have a capacity utilisation of 90% by the end of FY19

Current Benzene phenol spread is around US $ 830 per tonne.

The company would consider for derivatives of phenol and acetone after 9-12 months of commissioning of the plant and start of cash flow

Current demand of Phenol is around 350,000 MT which is expected to grow around 10-12% per annum.

Phenol demand is also growing globally, due to which, the demand-supply capacity is moving towards equilibrium, as downstream projects in China which commenced earlier during the current calendar year have led to greater captive consumption of Chinese Phenol capacity. Developments in the Chinese market have been accompanied with shutdown of a large global facility for production of Phenol in the US. These factors have resulted in firming up of overall prices of Phenol globally

FY19 appears encouraging as the company expects to deliver sustained growth across all the Strategic Business Units - Basic Chemicals, Fine & Speciality Chemicals and Performance Products

Growth will be led by Basic Chemicals due to focus on further strengthening of product portfolio as well as brownfield capex to enhance capacities of major products.

The FSC segment will benefit from full capacity utilisation during the year after receiving the regulatory consent for the backward integration facility at Roha. In order to take advantage of growing demand, the company has further invested Rs 60-70 crore for increasing capacity in existing products in basic chemical and FSC segments. These projects shall be commissioned by Q2FY2019. With the additional capacity, the company shall see much improved performance in second half of FY2019 and thereafter

PP segment will benefit from the improved demand and pricing trends in the local and export markets combined with better efficiency and utilisation of the plant. The company expects the reorientation of geographic focus of this business segment to enable better results in the coming quarters.

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