Capitaline

Analyst Meet / AGM 06-Nov-19

Conference Call

Deepak Nitrite

Expects H2FY20 performance to be better than H1FY20

Deepak Nitrite held a conference call to discuss the results for the quarter ended September 2019 and way forward. Mr. Umesh Asaikar - Executive Director & CEO, Mr. Sanjay Upadhyay - Director, Finance & Chief Financial Officer and Mr. Somsekhar Nanda- Sr. GM, Finance of the company addressed the call.
Highlights of the Concall

Standalone revenues was up by 32% YoY to Rs. 572 crore in Q2 FY20 driven by strong growth in both bulk commodities and performance products segment, which have benefited from robust demand growth. These segments witnessed an all-round performance across key products and markets. The Fine & Speciality Chemicals segment witnessed a stable performance as the company continued to take strategic position on select products enabling higher margins amidst temporary volume moderation.

EBITDA grew sharply by 213% to Rs. 216 crore. EBITDA margins have expanded to 37.7% compared to 15.9% in the same period of last year. Due to the reset of global supply chains, there have been demand-supply mismatches in certain products. Deepak Nitrite has benefited by rationalizing production towards those products enjoying high realizations enabling it to deliver robust profitability.

Domestic revenues for the quarter stood grew 22% YoY to Rs. 335 crore. The company delivered volume growth across established products combined with better realizations amidst slowing economic growth,

Revenues from exports were up 52% YoY to Rs. 231 crore in Q2 FY20. Strategic initiatives undertaken to incrementally enhance volumes, widen the customer base and enrich the product mix have enabled the company to capitalise on the opportunities emerging across the global industry landscape to ensure a better export performance.

The bulk commodities segment reported 17% YoY growth in revenues to Rs. 236 crore in Q2 FY20. Bulk commodities segment reported strong volume growth of 10% accompanied by higher realizations supported as the company leveraged its cost leadership position to serve the demand for its products. The basic chemical segment continued to deliver strong upsurge in profitability.

Revenues from the Fine & Speciality Chemicals segment came in at Rs. 138 crore in Q2 FY20 as compared to Rs. 144 crore in Q2 FY19. Q2 has shown 12% volume and 20% revenue growth over Q1. The company is taking strategic positions on key products in the Fine & Speciality Chemicals portfolio enabling better margin performance. The company is taking steps to steadily enhance volumes in the forthcoming quarters.

The performance products segment grew 119% YoY to Rs. 212 crore. The company has leveraged its strength as a fully integrated manufacturer to capitalise on favourable industry trends and deliver a robust performance.

Deepak Phenolics recorded a turnover of Rs. 443 crore in the quarter under review, with EBITDA of Rs. 43 crore. Slowing economic growth globally and the subdued activity levels in the automotive and real estate sector in India are presenting a challenging backdrop for demand of end use products and resultant prices. As a result, crack spreads are prevailing at the lower end of the range.

Due to a planned shutdown of the plant for 14 days during the quarter, there was a decline in Revenue and EBITDA of Deepak Phenolics on a sequential basis. The plant achieved capacity utilisation in excess of 100% during the quarter. It also achieved highest ever level of production in a single day in Sept 2019.

Deepak Phenolics continued to maintain its leadership position in the domestic market as it reached out to more number of customers to augment its base. Keeping in mind the depressed domestic market conditions, the Company is making significant efforts to support exports in order to utilise the plant in a more efficient way. Meanwhile, the downstream projects for Acetone are progressing well and production is expected to commence by the end of this financial year.

The company expects all the three Strategic Business Units (SBU) to deliver sustained growth over near term led by planned capacity expansions and product rationalizations and extensions. While bulk commodities and performance products segment will continue with its growth momentum, fine and speciality companies segment is expected to deliver an improved performance on the back of new product launches and capacity augmentation.

Debt equity ratio stood at 0.18 at the end of Q2FY20 while on a consolidated basis it was 0.86.

The company expects capex of Rs 400 crore each in FY20 and FY21.Capex in FY20 includes Rs 150 crore for Deepak Phenolics and the balance for the Deepak Nitrite.

The company has maintained its growth guidance for fine and speciality chemicals at 10-15%.

DASDA (performance product) is doing extremely well in Q3FY20 as well and it may continue to do well in Q4FY20 as well but not at the current rate. OBA (Optical Brightening Agent- performance product) is also doing well. Deepak Nitrite is the world's only fully-integrated manufacturer of OBA, with vertical integration from Toluene to PNT and further into DASDA and OBA

The company expects DASDA prices to settle lower from current prices but it will be much higher than the earlier level.

The company is debottlenecking capacities in all the segments. In Bulk commodities the company is increasing capacity by 20%. The growth from next year will come from increased volumes. But the company is waiting for environmental clearance.

The company expects H2FY20 performance to be better than H1FY20.

The company expects to grow more than 15% in topline in coming years.

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