Capitaline

Analyst Meet / AGM 13-Aug-20

Conference Call

Deepak Nitrite

Current capacity utilisation across all plants is around 70%

Deepak Nitrite held a conference call to discuss the results for the quarter ended June20and way forward.Mr. Maulik Mehta, Executive Director and Chief Executive Officer, Mr. Sanjay Upadhyay – Director, Finance & CFO and Mr. Somsekhar Nanda – Deputy CFOof the company addressed the call.
Highlights of the Concall

Revenues grew by 36% in Q1FY21 compared to Q1FY20 due to lower capacity utilization of around 65% during the quarter because of the lockdown. Essentially, the company ran for two months over a three month window.

Ebitda stood lower because of the twin effects of muted capacity utilization because of the lockdown and softening of demand in the performance products segment

Global chemical companies are emphasizing its chemical production out of China. Essentially they're looking for china plus one de risking strategy and looking at expanding new supply arrangements and alternate markets like India.

In late March 2020 Deepak Phenolics shut down its plant after government mandates, and it reopened only in early May. The production ramped up in a safe and staggered manner post lockdown. Domestically the demand for phenol has declined and so as the crisis however, the company was prompt to increase its export volumes to offset this impact.

In April, the company commissioned its premium grade isopropyl alcohol clubbed with a capacity of 30,000 tonne per annum to supply this critical commodity locally at a time of great necessity

The demand within the pharmaceutical grade IPA and acetone, both of which witnessed strong pull reflecting an increase in a positive net income despite an effective shutdown of 40 days. Recently, commissioned IPA plan has already been ramped up to 110% of its capacity.

Domestic revenues stood at Rs. 157 crore in Q1 FY21 as against Rs. 320 crore in Q1FY20. This was partly because the company was constrained in its production, and it reoriented our volumes to serve the export market taking advantage of a depreciated currency.

Export revenues were Rs. 186 crore in Q1FY21 compared to Rs. 227 crore in Q1FY20, reporting de-growth of 18% YoY. The focus was higher on exporting to countries that were on the path to recovery from the effects of the virus: Asia and Europe.

The company is expanding its IPA capacity with an additional 30,000 tonne to make it 60,000 per annum on total with a capex of Rs 50 crore. It is doing this in a fast track manner and hope to complete it over the next nine months.

The IPA domestic demand is closer to two lakh tonne while the Indian manufacturing capacity right now is closer to around a lakh tonne and the balance is imported into India on a normal basis and not during pandemic.

The company will come out with more value added products of phenol and acetone at appropriate time. The company is increasing spend on R&D.

Prolonged lock downs also impacted capital projects in the company which the company expects to commission in the third and the fourth quarters.

The company expects that Brownfield expansions that are nearing completion and a large cogent power plant will soon improve earnings.

Basic Chemicals segment reported a 32% moderation in revenues, running for slightly under 2 months of operations. The fuel additives segment that that rely on volume of diesel refining by refiners experienced demand compression and volume recovery may be prolonged. The other products however continue to witness consistent demand

The company expects Basic chemicals margins to be around 22-24% in the coming quarters.

Fine & Specialty Chemicals revenue grew by 21% YoY. Customer demand for the largely agrochemical and personal care segments continues to be robust, and cost excellence initiatives have borne fruit. The company expects FSC to continue to be a growth engine in forthcoming quarters

The company expects its higher PBIT margins of 44.6% in Fine & Specialty Chemicals during the current quarter compared to 24.1% in Q1FY20 to continue in coming quarter

Performance Products segment has been the most affected by COVID-19- a 76% contraction in revenue. While the detergent end segment has retained its volume requirements, both paper and textiles demand have been substantially affected by the pandemic. This has had a domino effect on optical brighteners' volumes and DASDA, which was in short supply last year, has transitioned into oversupply. The company expect the situation to normalize as the paper industry is expected to show cautious recovery over the next couple of quarters.

Capex is around Rs 200 crore each in Deepan Nitrite and Deepak Phenol.

The company is well-placed to capitalise on the China Plus One scenario and working on Depend on Deepak strategy.

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