The company operating margins increased 290 bps to 27.9% leading to 10% increase in operating profits to Rs 275.95 crore. Other income was Rs 3.7 crore compared to Rs 7.85 crore. Interest cost was down 34% to Rs 19.57 crore. Depreciation fell 11% to Rs 31.24 crore. PBT was up 18% to Rs 228.84 crore. Effective rate of taxes was up 340 bps to 25.6%. PAT reported was up 13% to Rs 170.19 crore. 

Segment wise, Basic Chemicals Segment revenue stood at Rs 165.84 crore, down by 30% YoY because of slow pick up by end use segments such as textile, oil and fuel additives and also due to temporary supply disruption and accounted for 17% of sales. PBIT from the same was down 30% to Rs 40.73 crore and accounted for 15% of total PBIT with PBIT margin at 24.6% same as Sep19 quarter. The company expects volumes and prices to pick up in upcoming months, with some traction already underway in September, as demand from the dyes industry returns to pre-COVID levels. 

Fine and speciality chemicals segment revenue stood at Rs 209.9 crore up by 52% YoY and accounted for 21% of sales. PBIT from the same was up 170% to Rs 102.11 crore and accounted for 38% of total. PBIT margins stood at 48.6% as compared to 27.4% for Sep19 quarter. The FSC segment delivered a stellar performance with revenue growth of 52% y-o-y. The business remains a star performer although capacity utilization was affected partially by COVID19 related government mandates and short term challenges from shipping lines. The business is supported by a strong order book, thereby improving Q3 performance even better. 

Performance products segment revenue stood at Rs 72.9 crore down by 66% YoY and accounted for 7% of sales. PBIT from the same was Rs 4.92 crore compared to Rs 116.79 crore in Sep19 quarter and accounted for 2% of total PBIT. PBIT margins stood at 6.7% as compared to 55.1% for Sep'19 quarter. The current pandemic has significantly impacted consumption thereby affecting volumes and margins. The company has seen signs of recoveries in volume and expects to achieve a normalized performance as demand picks up worldwide. 

Phenolics segment revenue stood at Rs 545.85 crore compared to Rs 434.22 core in Sep19 quarter and accounted for 55% of sales. PBIT from the same was Rs 121.92 crore compared to Rs 24.21 crore and accounted for 45% of total PBIT. PBIT margins stood at 22.3% for Sep20 quarter compared to 5.6% in Sep19 quarter led by new products such as IPA. With manifold increase in exports, the company was able to maintain high capacity utilization. The business would continue to put effort in this direction. Despite consistent challenges in interstate logistics for raw materials and finished goods, the team demonstrated admirable agility in ensuring material movement. These challenges are not expected to show up in coming quarters.

Commenting on the performance, Mr. Deepak C. Mehta, Chairman & Managing Director, said, "Inspite of several challenges, the company could achieve stellar performance on a consolidated basis. This has been made possible due to significant hard work put in by the team to ensure highest capacity utilization where possible through planning to mitigate supply chain challenges. For example, when domestic markets were down due to COVID, the team resorted to aggressive export positioning to ensure maximum plant utilization. 

Challenges due to the epidemic have certainly tested our business model and our large range of products covering varied business segments have ensured that the company could take on challenges in one segment by exhibiting better performance in the other segments. 

DNL's performance and attractiveness is highly influenced by its breadth and depth of products and process competency. This resilience has been instrumental in delivering dependable returns regardless of the myriad challenges that were faced through the quarter. 

While in the near term, investments that increase our competitiveness will start bearing fruit, the company continues to broaden its range of products as well as invest into value addition. In the long term, increased investments towards R&D, operational excellence, adding new products, are contributing to achieving ‘Atmanirbhar' for the Nation. 

I remain cautiously optimistic that DNL will continue to deliver sustainable value to all its internal and external stakeholders."

Standalone performance 

Standalone revenues declined 22% to Rs. 448 crore as compared to Rs. 572 crore in Q2FY20. Phased recovery from lockdown and social distancing measures impacted utilisation levels on a y-o-y basis in the standalone operations. Further, realisations in the PP segment were abnormally high in the same period last year resulting in a high base effect. On a consolidated basis, revenues were Rs. 991 crore in Q2FY21 compared to Rs. 1,011 crore in Q2FY20. A stellar performance from the phenolics business despite increased imports combined with additional contribution from IPA has enabled the company to substantially recoup the shortfall in standalone revenues.  

Standalone EBITDA was lower at Rs. 139 crore as against Rs. 216 crore reported in the corresponding quarter of last year, de-growth of 35%. Accordingly, the EBITDA margin was 31.1% in Q2 this year compared to 37.7% in Q2 of last year. Constraints on peak production at plants due to Covid-19 related

restrictions and the reversion of PP segment realisations from the abnormally high base of last year have led to a moderation in the EBITDA margin, which remains robust at over 30%. 

Standalone PAT for Q2 was Rs. 92 crore as against Rs. 179 crore in Q2FY20, lower by 48%. Strong performance in DPL coupled with contribution from entire basket of existing products has driven the sharp growth in profitability.

Performance for the half year ended Sep20 

For half year ended Sep20, net sales fell 19% to Rs 1661.83 crore. The company operating margins increased 300 bps to 27.5%. As a result operating profits fell 9% to Rs 457.58 crore.  

Other income was Rs 10.45 crore compared to Rs 19.44 crore. Interest cost was down 27% to Rs 44.3 crore. Depreciation fell 9% to Rs 62.25 crore. PBT was down 8% to Rs 361.48 crore. 

Effective tax rate was down 300 bps to 25.5%. PAT reported was down 5% to Rs 269.14 crore. 

For the 6 months, sales from the Basic chemical segment fell 31% to Rs 318.73 crore and accounted for 19% of sales. PBIT from the same was down by 18% to Rs 77.29 crore and accounted for 17% of total with PBIT margin at 24.2%.  

Sales from the fine and speciality chemicals segment rose 38% to Rs 349.67 crore and accounted for 21% of sales. PBIT from the same was up 150% Rs 164.44 crore and accounted for 37% of total with PBIT margin at 47%. 

Sales from the performance products segment fell 71% to Rs 126.86 crore and accounted for 8% of sales. PBIT from the same was Rs 11.42 crore and accounted for 3% of total PBIT with PBIT margin at 9%. 

Sales from the phenolics segment was Rs 876.53 crore compared to Rs 934.85 core in Sep19 and accounted for 52% of sales. PBIT from the same was Rs 190.54 crore and accounted for 43% of total with PBIT margin at 21.7%.

Outlook by the company 

India is on the cusp of gaining significant market share in the global chemical industry based on its manufacturing capabilities and track record. This along with global major's focus on opting India as an alternate supplier for their chemical requirements will elevate the performance momentum for leading Indian chemical players. 

Within this backdrop, Deepak Nitrite is very well placed with its customised and attractive portfolio offerings catering to multiple large end-user industries 

The scrip is currently trading at Rs 741