Deepak Nitrite held a conference call on 10 August 2022 to discuss the results for the quarter ended June'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

• The company continues to maintain a high level of production at all its facilities, while complying with all regulatory mandates, rules and safety requirements.

• Increased capacity from incremental investments and sustained demand from end user industries continue to drive growth, both top line and bottom line through the company.

• Revenue growth of 35% yoy at Rs 2057.99 crore has been achieved despite the loss of production at Nandesari unit for nearly one month during the quarter due to unfortunate incident of fire in the warehouse section of the manufacturing facility at Nandesari, Gujarat.

• Post the fire incident, all plants are running at full capacity as per permissions given by statutory bodies as of July 2022 except SNI/SNA which is currently operating at 50 capacity. This will move to 755 by mid September and is expected to be fully operational by October 2022

• Finished goods pricing has been passed on in most key products with further actions to be undertaken in certain products with some lag. The company continued to witness significant price increases in key raw materials which impacted the margin

• Total of Rs 210 crore has been invested in Deepak Chem Tech Limited (wholly owned subsidiary) till date, of which Rs 20 crore was invested in Q1FY23

• Q1FY23 witnessed high volatility in exchange rate resulting in fluctuation of 5.33% (highest at 79.00 and lowest at 75.00). The company resorted to dynamic hedging strategies to reduce risk of forex volatility, which yielded Rs 2.16 crore of exchange gain.

• The company continues to be debt free with a sizeable net worth of Rs 3573 crore on a consolidated basis. This will help to leverage the balance sheet for future expansion activities.

• The captive power plant at Dahej, with a capacity of 29 MW, commenced generation in May 2022. The availability of captive and reliable power supply will enable operating plants at higher efficiency on sustainable basis.

• OPM fell to 17.3% in Q1FY23 compared to 29.6% in Q1FY22 due to dynamic operating environment characterized by force majeure in global gas supply contracts, rising cost of power in Europe leading to plant shutdowns and stringent anti COVID measures implemented by Chinese Authorities and sharp rise in global prices of inputs. Moderation in EBITDA margin is also due to higher utility costs, increase in freight and logistics costs as well as impact from return of business overheads which had been compressed last year owing to subsequent waves of pandemic.

• Reduction in debt and consequently lower interest cost has aided the PAT. Increase in other income due to yield on surplus funds invested has also contributed.

• Advanced Intermediates revenue increased 39% to Rs 739 crore in Q1FY23 while Ebitda grew 2% to Rs 149 crore. High exchange rate volatility was witnessed during the quarter, in addition to steep inflation in key inputs

• Advanced Intermediates profitability was not commensurate with the revenue growth chiefly because of two factors rising input prices and lag effect in passing on the prices to customers. The company expects margins will improve in the ensuing quarters as periodic repricing of products is regular business process.

• Deepak Phenolics revenue increased 33% to Rs 1338 crore in Q1FY23 steered by volume gains and maintaining customer wallet share across key products supported by the significant achievement of the plant clocking average utilization of 129%

• Deepak Phenolics margins were impacted due to normalising realization of joint product Acetone in relation to prior period where pricing was exceptionally high with respect to delta over feedstock. The sharp rise in input prices which are to be passed on combined with higher cost of coal resulting in more than doubling of utility costs have also impacted margin performance

• Deepak Phenolics demand trajectory remains solid, and the company is well poised to realise incremental gains in this segment through timely introductions of downstream derivative products of phenol and acetone.

• In order to enhance its backward integration capabilities, the company has proposed to add new capacities of key raw materials This will not only ensure stable supply of key inputs, but also offer margin advantage.

• The company is also expanding its capacity for captive treatment of waste. This will lead to reduction in procurement of the targeted chemical from the open market and is expected to be commissioned in Q3FY22.

• The company is doing a capex of Rs 700 crore in Deepak Phenolics solvents.