Deepak Nitrite held a conference call on 22 May 2024 to discuss the results for the quarter ended March 24 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 faced a challenging business environment owing to Chinese dumping, continued recessive trend in EU Zone and general weakness in market due to uncertain future caused by geopolitical tension at several geographies.

• The company has commenced manufacturing operations at its fluorination plant at Dahej effective 21 March 2024 alongside establishing a new unit for specialty salts in Sankarda near Vadodara. The specialty salts facility is a forward integration into formulations of existing products & operates on a pilot scale for trial quantities. The fluorination asset bolsters Deepak's backward integration for a crucial agrochemical intermediate, enhancing its supply chain resilience. In addition, It will allow the company to expand its technical toolkit for contract manufacturing opportunities. Emphasis is on serving the domestic market.

• Additionally, the company signed long term supply deal with Petronet LNG, based in Dahej that is expected to de-risk its growth trajectory by ensuring the availability of the critical raw materials. The company would offtake around 250 KTPA of Propylene and 11 KTPA of Hydrogen for its expanded capacities.

• MIBK (methyl isobutyl ketone) and MIBC (methyl isobutyl carbinol) plants progress has been satisfactory. The project will be commissioned as per schedule. Majority of the engineering and procurement work has been completed and construction and erection activities are at full swing.

• Acid Unit has achieved significant progress and all long lead equipments received and erected. Manufacturing is expected to commence later this year.

• Other expansion projects including are taking concrete shape and will be commissioned in a phased manner starting Q2FY25.

• The company is building a state-of-the-art Research & Development Centre in Savli, Vadodara, with completion aimed for March 2025

• Production volumes increased by 16% in FY24 while it improved market share despite moderated environment with lower sales price

• The company achieved highest production and sales volume in the last three years for sodium nitrite, fuel additives and specific agro intermediates.

• Domestic and export mix stood at 80:20 during Q4FY24. The domestic business generated a revenue Rs 1,712 crore, while the export business stood at Rs 414 crore, during the quarter.

• Standalone export share rose to 47% in FY24 from 43% in FY23.

• Deepak Phenolics (DPL) achieved highest quarterly sales for Phenol in Q4. Further, DPL achieved highest quarterly production of IPA.

• The company funded Rs 709 crore & Rs 5 crore to its wholly owned subsidiaries Deepak Chem Tech Ltd. and Deepak PMC Ltd. respectively while its invested Rs 27 crore in Deepak Oman Industries FZC LLC, securing a 51% stake

• Around Rs 2,000 crore of new investments is expected to be commissioned in CY24.

• Revenue increased 8% in Q4FY24 led by strong gains in the Phenolics segment which witnessed continued volume growth owing to high plant utilization and operating efficiencies. Volume ramp up post debottlenecking initiatives at the existing plant contributed to this momentum.

• Sequential performance was maintained in the advanced intermediates segment despite subdued pricing trajectory amid a benign raw material price environment. This was led by volume gains. while agrochemicals is still witnessing demand headwinds, other applications related to pharma as well as discretionary sectors like dyes & pigments, textiles & paper, homecare and glass among others are seeing a gradual volume led recovery.

• Advanced intermediates achieved higher volumes through a mix of product basket diversification and focus on end user categories that witnessed better demand. Overall, both domestic and export customers worked on a lean inventory cycle due to moderated demand and ongoing geopolitical tensions

• Advanced intermediates margin during Q4FY24 stood at 20% against 14% in Q3FY24 while for FY24 it stood at 16% as compared to 18% in the previous year.

• The company expects initiatives around backward integration and brownfield capacity expansion will elevate the performance trajectory of advanced intermediaries going forward, in-line with expected improvement in demand during H2FY25.

• Phenolics volume growth was 12% during the year

• Strong performance in phenolics was attributed to continued high sales volumes in Phenolics. Despite weak prices of Phenol during the quarter, the company was able to improve the margins due to highly integrated manufacturing infrastructure with consistently high utilization levels.

• Deepak Chem Tech Limited, a wholly owned subsidiary signed 2 additional MOUs worth Rs 14,000 crore (adding up to prior MOU) with the government of Gujarat in Q4FY24 to manufacture 3 new products. It would invest this amount across these projects with an aim to commence its Phase 1 by 2024-2025 and complete the remaining by 2027. Out of the prior MOUs, around Rs 1,800-2,000 crore of capital outlay has already been incurred.

• The company mentioned that several expansion projects are taking shape and will be commissioned in a phased manner starting Q2FY25.

• The company mentioned that the agrochemical segment would remain sluggish and will revive from Q2FY25 onwards

• The capital outflow would be around Rs 1,000-1,200 crore in FY25 from FY24 levels of Rs 800-Rs 900 crore