Deepak Nitrite held a conference call on 27 January 2022 to discuss the results for the quarter ended Dec'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 was challenging, characterized by rising costs and constraints in supply of inputs. Raw material prices remained elevated together with heightened utility costs including power & fuel.

• Some of the issues that plagued the second quarter had some amount of lingering effect in third quarter as well, especially issues like soaring raw material costs, logistics and supply chain challenges, high cost of fuels like gas, furnace oil, especially also coal. However, the company sees strong demand coming up across segments.

• The company has been able to pass on hikes in raw material prices to consumers wherever strategically feasible. Overall, it anticipates the demand to continue to stay robust, given that several industries are getting back to pre-COVID production levels.

• The company has underutilized capacities both in basic intermediates and speciality chemicals despite having a strong order book as there was unavailability of raw material because suppliers raise force majeure. However the company remains confident as the situation normalizes, material movement will be available.

• The company expects sustainable phenol Ebitda ranges to be around 20-23%.

• The company expects phenol and acetone will remain strong drivers for its profitability going forward.

• The company expects sustainable fine and speciality chemical margins to be around 35-40%.

• As a process, the company's business segments are interwoven. This means that if prices of BI (Basic Intermediates) increases, there may be simultaneous dip in FSC (Fine & Specialty Chemicals) segment, as internal product transfers take place at market prices. And accordingly, higher margin in one segment may result in lower margin for other. This year has been very strong for BI segment. In FSC segment, as most are long term contracts, there is some lag in passing the input costs.

• Overall, the demand scenario appears robust with several industries getting back to pre-COVID production levels with incremental demand coming out of strategic shift in global supply chain from China to other countries including India

• The company continued its robust revenue momentum fueled by solid growth trajectory in Phenolics. This was further supported by gains in BI and PP segment led by positive demand and higher realisation for key products

• The company has prepaid Rs. 100 crore of project loans during the quarter without any prepayment penalty

• Brownfield expansion of IPA was commissioned on 19th December 2021. This has doubled the IPA capacity to 60,000 MTPA

• Basic Intermediates segment (erstwhile Basic Chemicals) benefited from healthy realization gains as price hikes were undertaken for key products, in-line with higher input costs. Strong performance was achieved despite curtailed production of few products in Q3FY22 owing to temporary disruption of critical raw material at vendor's end due to force majeure. Volume growth for 9MFY22 came in at 10%.

• The company expects the performance of BI segment to sustain based on shift in global supply chain to India as well as encouraging demand trajectory

• The performance of FSC segment must be seen in light of significant challenges linked to logistics. In addition to this, the company witnessed elevated raw material costs from basic chemicals segment, as internal product transfers take place at market prices. Due to nature of contracts, the prices are not instantly passed on, but with some time lag

• Performance of FSC segment going forward will be driven solid demand across products, ability to pass on cost increase to customers and incremental gains

• Momentum in DASDA demand is seen, resulting in higher realization and OBA was also able to pass on this increase in DASDA costs. Margins of OBA and topline are also reflecting the same. This build up is expected to continue in the upcoming period as well. Volume growth for 9MFY22 remained strong, at 44%.

• The company remains well poised to capture incremental demand coming out of key applications across textiles, paper and detergents, all of whom have resumed production to Pre-COVID levels.

• Phenolics business has delivered promising gains, backed by higher average capacity utilization of 117%. This is a result of favorable demand in India and key export geographies