Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Deepak Nitrite Ltd (BOM:506401, Financial) reported strong double-digit growth in revenue and profitability on a year-over-year basis, including a 21% growth in total income and 36% growth in EBITDA.
- The Phenolics segment saw impressive year-on-year growth of 37%, driven by sustained demand across various end-use applications.
- The company has made significant progress in strengthening its product portfolio through backward and forward integration in manufacturing units.
- Deepak Nitrite Ltd (BOM:506401) has maintained a strong balance sheet with a net debt negative position and continuing cash generation of around INR1,000 crores per annum.
- The company is moving forward with a four-year plan to enhance capabilities and seize opportunities in both domestic and international markets, with significant investments planned in new projects.
Negative Points
- The global chemical industry continues to face substantial challenges, including cautious customer sentiment and ongoing inventory destocking by China, which is sustaining price pressure on realization.
- There was soft demand in the agrochemicals segment, which is expected to recover later in the year.
- The Advanced Intermediates segment experienced pressure on realization, resulting in reduced EBITDA.
- The potential impact of the ongoing crisis in Bangladesh on the textile and garmenting industry is yet to be properly assessed.
- Freight costs have increased by about 10% to 15% compared to last year, impacting the competitiveness of Deepak Nitrite Ltd (BOM:506401)'s products in export markets.
Q & A Highlights
Q: Can you provide more details on the acetophenone project? Is it a byproduct of phenol production, and will it reduce our dependence on external raw materials?
A: Acetophenone will be manufactured using byproducts from phenol production, adding significant value. While I won't comment on specific raw material usage, the focus is on market sales, which will be value accretive compared to current byproduct valuations. The product has significant market potential both domestically and globally, with applications in flavors, fragrances, solvents, pharma, and agrochemicals.
Q: What is the outlook for DASDA and OBA products in FY '25, given their performance in FY '24?
A: Despite a challenging FY '24, we remain bullish on DASDA and OBA due to growing demand, especially in South Asia. We expanded capacity by 18-20% and improved operational efficiency. The demand migration towards South Asia will turn our previous competitive disadvantage into an advantage, with improved market penetration and customer acceptance.
Q: Can you provide more color on the volume growth in the Advanced Intermediates segment?
A: While agrochemicals remain soft, other products have seen healthy volume recovery. We've migrated our customer base to more stable regions, maintaining high production rates. Overall, volumes grew by 5% sequentially, with domestic volumes performing well despite pricing pressures from Chinese destocking.
Q: What are the medium-term aspirations for the specialty chemicals investment and other new products?
A: The focus for FY '25 will be on commissioning the INR2,000 crores worth of projects. The larger MOUs will pick up pace in FY '26. Different teams are working on technology tie-ups, engineering, and project execution, ensuring a smooth transition from current projects to new ones.
Q: Can you break down the CapEx for FY '25 and clarify if it includes the polycarbonate compounding project?
A: The INR1,200 crores CapEx for FY '25 does not include the polycarbonate compounding project, which is a separate pilot plant. The CapEx is split between upstream integration (60%) and downstream projects (40%), excluding land and infrastructure costs of around INR300-350 crores.
Q: What is driving the recent uptick in phenol spreads, and is it sustainable?
A: The uptick in phenol spreads is driven by robust domestic demand and competitive advantages due to high ocean freight costs for imports. While spreads can fluctuate, our focus on efficient production and market demand ensures stable performance.
Q: How will the new R&D facility enhance Deepak Nitrite's competitive advantage?
A: The new R&D center will focus on chemical intermediates for traditional industries, housing pilot plants for scaling up from lab to industrial scale. This will support innovation and operational efficiency, positioning us well in both domestic and international markets.
Q: What is the impact of the ongoing crisis in Bangladesh on your business?
A: The situation in Bangladesh is still developing, and its impact on the textile industry, a significant consumer of dyes and pigments, is yet to be fully assessed. While our direct exposure to Bangladesh is minimal, we are monitoring the situation closely to understand its potential short-term effects.
Q: Can you provide more details on the INR14,000 crores CapEx plan, especially for phenol, BPA, and polycarbonate?
A: The INR14,000 crores CapEx includes doubling phenol capacity, downstream BPA, polycarbonate plants, and 200 kt of aniline. The polycarbonate compounding plant is a pilot project, and large-scale compounding will be a separate investment based on customer validation and market demand.
Q: How will the backward integration projects like fluorination and nitric acid impact margins in the Advanced Intermediates segment?
A: The benefits of these backward integration projects will be tangible by Q4, with partial improvements visible in Q3. These projects will enhance operational efficiency and margin profiles in the Advanced Intermediates segment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
