Capitaline

Analyst Meet / AGM 28-May-20

Conference Call

Deepak Nitrite

Current capacity utilisation across all plants is around 70%

Deepak Nitrite held a conference call to discuss the results for the quarter ended Mar20 and way forward. Mr. Umesh Asaikar - Executive Director & CEO, Mr. Sanjay Upadhyay - Director, Finance & Chief Financial Officer and Mr. Somsekhar Nanda- Sr. GM, Finance of the company addressed the call.
Highlights of the Concall

The company temporarily suspended operations at all of its manufacturing facilities from March 25, 2020 in view of the pan-India lockdown imposed by the Central Government to prevent and contain the spread of COVID 19. The operations were resumed in a phased manner from mid - April 2020 upon obtaining necessary permissions. The current capacity utilisation across all plants is around 70%.

The company has not witnessed any significant order cancellation due to COVID-19 pandemic.

Sales impact in Q4 FY20 due to CoVID-19 was estimated at Rs. 52 crore, while the impact on EBITDA was approximately Rs. 30 crore

Demand for specialty chemical intermediates is expected to be resilient as reduced demand from established customers and end-user industries is partially replaced by increased demand for intermediates required for products such as pharmaceuticals, agro-chemicals, sanitizers and disinfectants

The immediate focus of the company is to conserve cash, restore operational efficiency and productivity while further de-risking the business by rebalancing product mix across a more diversified base of end user industries.

Deepak Nitrite continues to benefit from the favorable developments taking place in the global chemical industry with China de-emphasizing its chemical manufacturing and global market players are looking to establish supply arrangements in alternate markets including India. With global spread of the novel Corona virus, the company believes that there may be some acceleration in the shift to diversify and derisk supply chains

Standalone revenue growth was impacted due to 10 days of lockdown in March20. Still revenues were higher by 8% Y-o-Y at Rs. 526 crore in Q4 FY20.

FY20 ended on a positive note with record topline performance and highest ever PAT despite disruptions caused due to the CoVID-19 pandemic. The company ticked all boxes with volume growth, improved realisations as well as cost control. This was further supported by reduced finance costs and a favourable rate of corporate tax.

The company has re-commenced manufacturing operations in a phased manner based on approvals from local authorities and is focused on safely and steadily increasing utilisation levels while exercising tight control over costs

Revenues from exports were at Rs. 257 crore in Q4 FY20 compared to Rs. 138 crore in Q4 FY19, resulting in robust growth of 86% Y-o-Y. This was driven by robust demand for key products in the Fine and Speciality chemicals and Performance products segment in export markets coupled with favourable trend in realisation.

Basic chemical segment reported revenues of Rs. 226 crore in Q4 FY20 compared to Rs. 250 crore in Q4 FY19. De-growth in the segment is largely attributable to the closure of production facilities due to the national lockdown. The momentum has recovered post re-starting of the facilities.

Revenues from the fine and speciality chemical segment stood at Rs. 158 crore in Q4 FY20 compared to Rs. 121 crore in Q4 FY19, growing by 30% Y-o-Y. Strong demand and favourable realisations in export markets resulted in healthy performance in the segment. Overall performance has also been bolstered by benefits accruing from backward integration initiatives and capacity expansion for certain products.

The performance products segment delivered strong growth of 22% to Rs. 154 crore in Q4 FY20 as against Rs. 126 crore in Q4 FY19. DNL has recalibrated the mix of geographies and end-user industries for this segment which has resulted in better product acceptance and enhanced realisations. Leveraging its backward integrated operations, DNL has also capitalised on favourable demand-supply situation for DASDA caused by disruptions in China.

Dasda prices in the performance product segment have reduced significantly from US $17 to around US$4. The company had previously maintained that Dasda prices earlier were not sustainable. With covid-19 pandemic downstream user segment like OBA and paper are seeing reduced demand. At these prices also margins are good enough.

DPL ended FY20, it first full year of operations, with phenol production volumes just short of 200,000 tons or 100% capacity utilisation. The shortfall was due to shutdown of the plant for 10 days in March 2020 due to the nationwide lockdown.DPL commenced commercial production of Isopropyl Alcohol (‘IPA') at its manufacturing facility situated at Dahej, Gujarat effective April 21, 2020. This facility has capacity to manufacture 30,000 MT of IPA annually.

IPA is a solvent primarily used by Pharmaceutical companies and is also used for manufacturing sanitizers.

The Company has stated that it plans to develop capacities to produce value added derivatives of phenol and acetone through forward integration. The launch of the capacity to manufacture IPA represents the first step towards achieving the vision of developing a comprehensive basket of downstream derivatives.

The company has acquired various parcels of land during the year for its expansion plans. This includes 127 acres acquired at Dahej, 1.4 acres acquired in Hyderabad adjoining its existing facility and 1.5 acres acquired in Roha again adjoining its existing facility. The company has paid Rs. 141 crore in aggregate for these land parcels, which has been capitalized during the year

The company feels its liquidity position remains comfortable. It has not opted for the moratorium given by the RBI and have been servicing its debt on schedule even during lockdown and it has still surplus unutilized working capital funds available in its banks.

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