Deepak Nitrite held a conference call on 10 November 2022 to discuss the results for the quarter ended Septeember'22 and way forward. Mr. Maulik Mehta, Executive Director and Chief Executive Officer, Mr. Sanjay Upadhyay – Director, Finance & Group CFO and Mr. Somsekhar Nanda –CFO of the company addressed the call.

Highlights of the Concall

• On June 02, 2022, an incidence of fire occurred around the warehouse section of company's one of the manufacturing sites located at Nandesari, Gujarat. This incident led to the damage of certain property, plant and equipment inventory and has interrupted business for which the company has completed all the necessary actions for restoration of the facilities and to restart the operations at full capacity. he company is adequately insured for reinstatement value of damaged assets and loss of profits due to business interruption. The company has launched a claim of this incident with the insurance company and the survey is currently ongoing.

• The Nandesari plant of the company lost 100% of production for one month, and upon receiving directions from various authorities operations has been resumed in a phased manner from the early July period, and full production capacity has been achieved in October.

• For the month of July operations at Nandesari facility were made using them far more expensive natural gas rather than coal, which is historically the fuel of choice.

• The company saw a volume drop of about 15% in Q2FY23 compared to previous quarters because it ws restarting its nadesari plant in a safe manner.

• Revenue grew 25% to Rs 4019 crore in H1FY23 driven by strong volume growth in the phenolic segment.

• The company operated all of its plants with the exception of Nadesari plant at optimal utilization rates.

• The phenolics plant operated at a continuously high utilization throughout the entire quarter, despite the regular monsoon disruptions that take place on power, thanks to the newly commissioned power plant.

• The company witnessed declining pricing in the phenolic business in beginning of the quarter. As a global supply chains undergo realignment in Q2, Europe was consuming less phenol. Likewise, China saw a moderation in demand as the economy awaited the results of the CCP elections that take place once every five years.

• Overall, volume growth has been strong in the quarter but costs of key raw materials and utilities have been challenging for the industry in general.

• Revenues rose 17% in Q2FY23 to Rs 1961 crore. Last year the company had benefited from above average realizations in key products especially in the phenolic segment.

• Advanced intermediates revenues rose 32% to Rs 1415 crore despite significant input price inflation, there was a wild fluctuation in exchange rates.

• The company has been successful in passing on cost increases, while maintaining and growing market share demand for key products in advanced intermediate segment as demand remains robust.

• Deepak phenolics also delivered a strong top line performance during the first half with revenue increasing by 22% to Rs 2625 crore. EBITDA performance tapered due to declining realizations. However, this was partially offset by better manufacturing efficiencies and active raw material and utility management supported by cost control initiatives.

• Deepak phenolics continue to achieve high average plant utilization. However profitability has been impacted due to a reduction in price of phenol and an unprecedented rise and volatility in the rate of key raw materials.

• The company expects the margins to be better in upcoming quarters as these situations return to normal and the relationship between the raw materials and the finished product is re-maintained, where both of these are used for the same purpose.

• All projects are progressing well and are being commissioned in phases. The first one was commissioned in the month of October for which the entire volume for the next five years is tied up. All other projects are on track and will be commissioned in phases over the next 12 to 15 months.

• The company announced an investment into chemical manufacturing for products that use energy both as a raw material as well as utilities in the Sultanate of Oman. Since the cost of fuel based inputs are generally lower and cleaner in the Middle East, it believes that this project will have a good future given a sustained growth in demand for the relevant products both in Asia as well as globally. Deepak proposes to invest 51% in equity in this business, which will manufacture products, where it already has a very deep customer connect and market insight.

• The company targets to double its sales in next 3-4 years. Growth in bottom line of the company maybe a little bit faster due to numbers of backward projects integration taking place.