Deepak Nitrite held a conference call on 29 October 2021 to discuss the results for the quarter ended Sep'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 second quarter of FY22 was witness to significant volatility in market demand and supply. While the human impact of the second wave of the pandemic moderated by June, demand uncertainty receded only by the end of the quarter. The first half of FY22 therefore offered contrasting business environments- robust demand in the beginning gave way to sharp increases in costs of raw materials, utilities and logistics. The company has worked to maintain margins where possible while keeping or growing its market share across businesses.

• Domestic requirements for chemical intermediates are on an upswing, presenting new opportunities for companies like Deepak Nitrite. Moreover, international customers are reinforcing their supply chains and are seeking a strategic shift from a philosophy of 'just in time' to 'just in case'- a move that benefits the company's wide portfolio of key intermediates.

• Production volumes have improved and the company is operating at high utilization levels and demand remains buoyant across all SBUs and product categories.

• The basic chemicals (BC) SBU has been renamed basic intermediates (BI) to realign toward a model of providing security of supply of high-quality intermediates to strategic customers.

• The company has increased its market share in its basic intermediate segment during the quarter. The company has selectively implemented price increases in Q2 to partially pass on higher costs. As a result, It has witnessed strong growth in volumes and have been able to strengthen its customer relationships. The company did this strategically, because it is implementing brownfield expansions and debottlenecking for key products in this segment, leading to an increase in capacity in Q3. The company will be further implementing price increases in Q3 after partially passing on costs in Q2

• Basic intermediate enjoys an excellent outlook, as it is set to witness improved price and volume momentum from the third quarter.

• In fine & specialty hemicals the company was able to demonstrate resilience and supply its planned volume commitments to customers despite the challenges on ground

• The outlook for fine & specialty chemicals business is positive as it has entered into multiyear agreements with leading customers for existing products. Further, it is augmenting capacity for some key agro chemical intermediate, which will come on stream in April 2022. Even before completion of this project, it has tied up the entire volume.

• The new agro chemical intermediate of another Rs 300 crore that it had announced in its Dahej site is expected to be commissioned in H2 of next year.

• The growth outlook for fine & specialty chemicals is further enhanced by Greenfield capex programs that are due for commissioning in 12-15 months, starting Q3 next year. A large majority of the new production is formula linked with pass through pricing.

• The market has started improving for performance products in Q2 and the company witnessed positive volume growth. Given the supply situation in China, customers are procuring larger volumes of both OBA and DASDA, which will aid the prices going forward. With key end-user industries of paper and textiles are expected to be doing better, the volume and margin momentum is expected to further accelerate.

• The company has increased volumes in the Phenolics business, thereby enhancing its market share during the quarter. The plants registered average capacity utilization of around 120% supported by favorable demand trends and attractive pricing for both Phenol and Acetone. The commissioning of the cogen power plant and the additional isopropyl alcohol capacity during third quarter shall also firm up the performance.

• Deepak Phenolics has prepaid Rs. 100 crore of project loan during the quarter without any prepayment penalty.

• The company has already announced around capex of about Rs 1200-1300 crore and there are other in pipeline and it will be a significantly large amount. However details will be shared later. Announced capex includes Rs 700 crore for Depak Phenolics to add new solvents, which are downstream of Phenol & Acetone and Rs 500 crore for Deepak Nitrite for debottlenecking projects

• The company has maintained its Ebitda margins guidance. In basic chemicals, it will be somewhere between 27-32%, in fine and speciality chemicals it will be between around 36-42% and for performance products it will improve and be around 25%. For Phenolics it expects to maintain around current levels.