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For quarter ended Mar'17, net sales de-grew by 4% to Rs 325.44 crore. The bulk and chemicals segment (BCC) sales grew by 17% to Rs 171.87 crore and PBIT stood at Rs 29.09 crore up by 60% YoY with PBIT margin at 16.9%. Fine & Specialty chemicals (FSC) de-grew by 26% to Rs 90.54 crore, with PBIT at Rs 15.02 crore, down by 52% YoY and PBIT margin stood at 16.6%. Performance product (PP) segment reported a 4% decrease in net sales to Rs 68.57 crore while the loss at PBIT level for the segment stood at Rs 0.77 crore as compared to loss of Rs 2.92 crore for Mar'17 quarter.
The OPM came in at 12.1%, down by around 160 bps compared to 12.1% in Mar'17 quarter. Thus, OP was lower by 16% to Rs 39.35 crore. Other income was lower by 62% to Rs 0.30 crore in Mar'17 quarter. Interest costs was higher by 7% to Rs 8.30 crore and depreciation was up by 4% to Rs 10.67 crore. PBT was thus lower by 30% to Rs. 20.68 crore in Mar'17 quarter. There was an EO income of Rs 4.20 crore for Mar'17 quarter pertaining to transfer of its leasehold rights as compared to Nil for Mar'16 quarter. Thus, PBT after EO for Mar'17 quarter stood at Rs 24.88 crore, down by 15% YoY. Total tax was lower by 53% to Rs 4.12 crore on YoY. Finally, PAT came in at Rs. 20.76 crore in Mar'17 quarter up by 1% YoY.
Performance for the 12 months ended Mar'17
For the 12 months ended Mar'17, net sales de-grew by 9% to Rs 1221.56 crore. The bulk and chemicals segment (BCC) sales de grew by 6% to Rs 634.57 crore and PBIT stood at Rs 90.93 crore up by 14% YoY with PBIT margin at 14.3%. Fine & Specialty chemicals (FSC) de-grew by 9% to Rs 359.36 crore, with PBIT at Rs 85.09 crore, down by 12% YoY and PBIT margin stood at 23.7%. Performance product segment reported a 12% decrease in net sales to Rs 240.09 crore while the loss at PBIT level for the segment stood at Rs 14.19 crore as compared to loss of Rs 8.71 crore for the 12 months ended Mar'17.
The OPM came in at 11.9%, down by around 60 bps thus, OP was lower by 13% to Rs 145.14 crore. Other income was up from Rs 1.54 crore to Rs 3.94 crore for 12 months ended Mar'17. Interest costs was lower by 36% to Rs 13.27 crore and depreciation was up by 9% to Rs 20.98 crore. PBT was higher by 12%. There was an EO income of Rs 74.97 crore for 12 months ended Mar'17 representing profit from sale of land as compared to Nil for 12 months ended Mar'16. Thus, PBT after EO was up by 65% to Rs. 150.88 crore. Total tax was up by 48% to Rs 38.83 crore on YoY. Finally, PAT came in at Rs. 112.05 crore for 12 months ended Mar'17 up by 72% YoY.
During FY2017, the Company was required to shut down its DASDA manufacturing facility at Hyderabad, due to flooding. As a result, DNL received an order from the Telangana State Pollution Control Board for closure of one of the three units. After reviewing the compliance status of the order, TSPCB granted interim revocation order, followed by permanent revocation order and the plant operations were completely restored. In a separate incident, a fire broke out at a distillation column of the facility in Roha, Maharashtra which manufactures Fine & Speciality Chemical intermediates. Three out of four affected units at Roha have resumed production in a phased manner while the fourth unit is expected to be restarted during May, 2017.
Commenting on the results, Mr. Deepak C. Mehta, Chairman & Managing Director, said,
"Financial Year 2017 was a challenging year for the Company and I am happy to report a fairly resilient performance indicating the robustness of our business model. Notwithstanding the changing dynamics in export markets as well as disruptive events in the domestic market, DNL has made continued progress in enhancing its product portfolio, market presence, customer engagements and developing new products.
Overall performance during the year could have been far superior, but for the impact due to one-time developments which led to temporary shutdown of facilities at Roha as well as Hyderabad. Both the facilities have now resumed production. The last phase of resumption of one plant at Roha is expected during ensuing days.
The Company made significant advancement in its Greenfield project of Phenol & Acetone with investments of over Rs. 475 crore till date, while committed amount towards the project has been higher than Rs. 900 crore. We have achieved complete financial closure of debt funding for this project and have also very recently concluded the second round of QIP to raise Rs. 150 crore. Along with internal accruals, the funds raised will be deployed as we expect to commission this project in the last quarter of current financial year. This project will elevate the operational profile and growth prospects of the Company, once commissioned.
In line with our emphasis on rewarding shareholders, we have declared a dividend of Rs. 1.20 per share in FY17. This is the 43rd consecutive year of dividend payment by Deepak Nitrite underlining the sustainability of the business model. The dividend rate has been maintained despite expanded capital base as well as one-time developments.
Going forward, we are excited about the prospects of our enhanced product portfolio in Fine & Speciality Chemicals and Basic Chemicals segments which will provide renewed momentum. In the Performance Products segment, we are widening our focus on newer regions and end-user industries with newer patented products. We have also put in place some exciting initiatives in processing of by-products and waste management which will elevate our operating performance further. The combination of these initiatives and the impending commissioning of our Phenol project will enable us to scale new heights and accelerate value creation for our stakeholders."
Other highlights
During FY17, one-time developments have impacted production and sales volume. However, product mix enhancements and aggressive marketing helped the Company to increase volumes in Q4 in the BC segment which has partly compensated for the shortfall and narrowed the overall volume decline in FY17 to 4%.
Domestic revenues stood at Rs. 735.72 crore in FY17 from Rs. 794.58 crore in the same period last year. Apart from marginal effect from demonetisation, the performance was impacted by one-time developments which affected the overall volumes.
Revenues from exports came in at Rs. 469.79 crore in FY17 compared to Rs. 525.75 crore in FY16, partly affected by impact on production volumes due to one-time developments.
Revenues from the BC segment stood at Rs. 634.57 crore in FY17 compared to Rs. 674.56 crore in FY16. Demand for fuel additives went down. Since its plants are multipurpose, it has switched to other products giving better contribution, though topline has been impacted.
Revenues from FSC segment were at Rs. 359.36 crore in FY17 compared to Rs. 393.37 crore in FY16. Volume growth declined by 3% during the year. The segment was on course to record a strong year but for the incident at Roha. Better momentum driven by favourable monsoons as well as higher traction in personal care and pharma intermediates would support growth in the FSC segment in FY18.
PP segment reported revenues of Rs. 240.09 crore in FY17 compared to Rs. 273.68 crore in FY16. Volumes de-grew by 5% due to shutdown of Hyderabad facility. This was further helped by change in product mix towards application in textiles and detergents and widening its focus to include additional markets and end-user industries in order to achieve accelerated volume growth.
The Company had engaged a leading business consultant to review its business processes and suggest measures to drive enhanced value. Based on the report, several initiatives have been identified and implemented. These include debottlenecking of processing facilities to improve throughput, processing of by-products and better waste management to enhance production efficiencies and synergies. The benefit of these initiatives will result in improved operating efficiencies as well as cost savings in the ensuing financial years.
Other Developments
The Company raised Rs. 150 crore through Qualified Institutional Placement (QIP) in March 2017 at a price of Rs. 104 per equity share (including premium of Rs. 102 per share). DNL witnessed a strong response from high quality domestic institutional investors. The proceeds which will be deployed towards funding the Greenfield Project for manufacture of Phenol and Acetone saw demand from several marquee investors resulting in subscriptions of over 2.2 times the issue size, exceeding Rs. 340 crore. Prominent investors who participated in the QIP include Reliance Mutual Fund, ICICI Lombard General Insurance Company, Birla Sun Life, Insurance Company, ICICI Prudential Mutual Fund, IDFC Mutual Fund and Dalton India (Master) Fund LP, amongst others.
The insurance company is considering an interim release in the claim for damage of property at Roha plant. This is at an advanced stage and the initial survey for the claim of loss of profit owing to business interruption at Roha has been provided by surveyor. However, this is not booked in the current quarter and shall be booked in due course.
Outlook
Moving into financial year 2018, DNL is well placed to capture the growth opportunities arising in the end user industries. The Company has restarted all but one of the facilities and full operation is getting restored in ensuing days.
Fine & Specialty chemicals segment would lead the growth momentum as a result of encouraging demand scenario in the global as well as domestic markets and higher contribution from personal care & pharma intermediates. Further, the Company has set up small facilities for backward integration of some agro-chemical products and pharma intermediates which will commence operation in FY18. These will meaningfully enhance the profitability of these products.
The Basic Chemicals segment will witness continued momentum due to enhancing of product mix as well as addition of new category defining products. The Company has spent Rs. 20 crore in FY16-17 to set up processing of new products which will contribute to both topline and bottomline from FY2017-18. Performance Products segment is also expected to demonstrate improved performance going forward as a result of multiple strategic initiatives undertaken by the Company which is expected to result in better customer acceptance for OBA in the global markets. In addition, the Company is focusing more on the detergents and textiles industry in order to enjoy better profitability.
Update on Project for Manufacture of Phenol and Acetone
As underlined earlier, DNL is implementing a mega project to manufacture 200,000 MTPA of Phenol and 120,000 MTPA of the co-product Acetone. This will be supported by manufacturing 260,000 MT of Cumene, which is a Feedstock for manufacturing Phenol and Acetone. A wholly owned subsidiary, viz. Deepak Phenolics Limited has been set up for this project. The proposed Phenol Plant will be located at Dahej in the State of Gujarat, with a capital expenditure of Rs. 1,400 crore to be funded by 60 : 40 debt to equity ratio.
DNL will address the opportunity offered by the supply deficit in the domestic market which is currently met by imports. In addition to competitiveness on cost due to supplying the domestic markets from a plant located in India, DNL will leverage the latest manufacturing technologies in its state-of-the art plant which will reduce wastage and is more efficient in utilization of inputs and energy. It will enable the country to save foreign exchange and provide a market leadership position to Deepak Nitrite in Phenol & Acetone in India while strongly elevating its growth prospects.
In Q4 FY17, the Company raised Rs. 150 crore through second round of Qualified Institutional Placement (QIP) at a price of Rs. 104 per equity share (including premium of Rs. 102 per share). The equity portion required for the said project has been largely tied up through the proceeds from both rounds of QIP, sale of land as well as internal accruals of last two financial years. Debt portion has also been fully tied up on a ring-fenced basis.
The World-class Phenol & Acetone project is taking good shape and it has attained substantial progress in the construction work. This project is expected to be commissioned in the last quarter of current financial year. Till date, the Company has invested an amount of close to Rs. 475 crore. Overall, more than Rs. 900 crore has been committed for this project implementation till date. Seed marketing initiatives has resulted in initial volumes being supplied and the demand for phenol is improving in the domestic market. The objective of the seed marketing initiative is to develop working relationships with the customers together with understanding the demand pattern and the overall logistics.
The Board of Directors of the Company recommended a dividend of Rs. 1.20 per equity share of face value of Rs. 2 each.
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