Deepak Nitrite held a conference call on 05 August 2021 to discuss the results for the quarter ended June'21 and way forward. Mr. Maulik Mehta, Executive Director and Chief Executive Officer, Mr. Sanjay Upadhyay – Director, Finance & CFO and Mr. Somsekhar Nanda – Deputy CFO of the company addressed the call.

Highlights of the Concall

• The operating environment during the quarter was characterized by soaring input and energy costs, volatility in foreign exchange rate, inbound and outbound logistic limitations, as well as relatively high logistics and utility expenses

• Revenues improved by 125% to Rs. 1,534 crore in Q1FY22, owing to recovery in standalone operations especially basic chemicals (BC) and fine and specialty chemicals (FSC) segments supported by sharply improved performance of DPL (Deepak Phenolics).

• Deepak Nitrite (DNL) & DPL have actively catered to both domestic and export markets to drive higher volumes and capitalized on favourable realization even when some of the end-user industries are yet to return to pre-COVID levels of activity

• EBITDA margin improved by around 200 basis points to 30%. Operating leverage from recovery in revenues combined with benefits from higher realization and cost management initiatives have aided the EBITDA performance.

• The BC segment reported revenues of Rs. 249 crore in Q1 FY22 as against Rs. 153 crore in Q1 FY21, higher by 63%. Performance during the quarter has been achieved despite short term impact witnessed in the MSME sector which is large customer base for the basic chemicals product due to resurgent second wave and challenges around logistics. The Company has capitalized on pricing opportunities to maintain performance even as some end-user industries continue to be impacted by pandemic-led drop in activity. Gradual rise in input commodities have helped to reap better realizations during the quarter. However, future margin will depend on the pace of demand recovery.

• The FSC segment revenues grew by 48% to Rs. 207 crore in Q1 FY22 compared to Rs. 140 crore in Q1 FY21. Disruption to export-import bound logistics has impacted volumes this quarter. Further, profitability has been impacted by rising commodity prices

• The PP (performance products) segment revenues came in at Rs. 93 crore in Q1 FY22 vs. Rs. 61 crore in Q1 FY21, up 54%. While key end-user industries are yet to recover to pre-COVID levels, there has been an improvement in volumes in the PP segment. With DASDA prices also inching back to normalcy, the PP segment has delivered an improved performance this quarter.

• Deepak Phenolics revenues grew by 202% to Rs. 999 crore in Q1FY22 compared to Rs. 331 crore in Q1FY21. The plant continues to be operated at high utilization with the quarterly average utilization at 110% despite constrained movement of manpower and materials during the peak of the second wave. This has allowed the Company to capitalize on favourable demand trends and attractive pricing for both Phenol and Acetone. While EBITDA soared by 263% Y-o-Y from Rs. 86 Cr in Q1 FY21 to Rs. 313Cr in Q1 FY22, the EBITDA margin stood at 31% in Q1 FY22 as compared to 26% in Q1 FY21.

• The company is in advance stage of doubling the IPA plant at Deepak Phenolics and strengthening its utility capability. It is also looking forward to investing another 700 crore to add new solvents, which are downstream of Phenol & Acetone. These solvents which are required for Life Science Industry, such as Pharma & Agrochemicals, would also support growing demands in coating segment. The company would take around 20-26 months to complete the projects. Earlier on it had already announced investments to add new chemistries like fluorination to expanding speciality product lines with an investment of over 300 crores.

• The company plans to consume around 30-35% of phenol and acetone inhouse.

• The company sees a good demand of phenol and acetone along with demand of downstream products which are good import substitute and good value drivers.