Deepak Nitrite held a conference call on 17 February 2024 to discuss the results for the quarter ended December 2024 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 operating performance of the company in the quarter was aberrant arising from a perfect storm of plants being idled because of deferred demand, lag adjusted recovery in agrochemical intermediates, and elevated raw material prices and oversupply from China.

• Advanced intermediates and phenolics typically exhibit a counter-cyclical nature, balancing each other out. However, for the first time, both segments encountered challenges simultaneously.

• The overall demand for agrochemical intermediates typically lags by one quarter, affecting segment performance, resulting in a temporary underutilization of plant capacities during the quarter. Further, raw material costs have also impacted product margins. The company expects margin expansion in this quarter.

• The Indian government has initiated investigations into the dumping of certain products. Combined with forex volatility, this is expected to support margin expansion back to normalised levels.

• On the agrochemicals side, the company plants were idled as customers prioritised inventory destocking. It is already experiencing volume pickup from international customers beginning this quarter and is expecting domestic customers to start lifting by the end of the quarter. It expects thereafter demand patterns to normalize.

• Advanced intermediates volume dispatches for both European Union (EU) and non-EU customers commenced towards the end of Q3 FY25.

• Deepak Phenolics margins were compressed because of high input costs and a planned maintenance shutdown, leading to an unusual increase in imports. On the positive side, post-startup, capacity utilization has risen by 10%, coinciding with the arrival of import shipments. As the market absorbs the increased domestic supply, the need for imports is expected to decline. Additionally, the new acetophenone production asset is set to be commissioned in H1FY26.

• Nitration and hydrogenation will be commissioned together in H2FY25 (Fluorination block was commissioned in Q4FY24). The company has secured medium-term agreements that align well with their expanded capacities for hydrogenation.

• The company has successfully completed their expansion and cost improvement initiatives for agrochemical and dye intermediates, which will enable higher volumes at lower costs in segments where demand is resilient.

• The company has introduced new products from its existing assets, which are expected to drive revenue and margin improvement. The result of this will be partially reflected in Q4FY25.

• The nitric acid complex project is under pre-commissioning stage and is expected to be featured well from Q1FY26 onwards with additional nitration capacities coming in line. The overall capex requirement has remained largely within their estimations. However, due to delays of a couple of quarters, there is an additional impact on overheads which will be capitalised.

• In the MIBK (Methyl Isobutyl Ketone)/MIBC (Methyl isobutyl carbinol) project, all the engineering and procurement procedures are completed. The same is anticipated to be commissioned by H1FY26. This will broaden the company's footprint in the energy sector and mark its entry into advanced solvents for life science applications.

• The company's long-term strategy for the polymer business is progressing quickly. They have secured long-term agreements for key building blocks at competitive rates and have contracted to acquire assets for the production of polycarbonate resins, an area where India is entirely import dependent. This strategy is further accretive by ensuring the existing capacities, ensuring growth without adding to global production. All major polymer projects are anticipated to be commissioned by December 2027.

• The R&D Centre at Savli, Vadodara, having an estimated total capital expenditure of Rs 115 crore is on track for completion by March 2025. As of January 2025, about 85% of the project is completed.

• The company is well aware of its increasing ammonia consumption and has diversified its sourcing strategy, including both import and domestic availability. Additionally, they have invested in expanding their storage capacity, allowing for better de-risking of the supply chain. Moreover, they are confident of sourcing ammonia at rates aligned with international indices, particularly those in Middle East and South Asia.

• The projects initially scheduled for commissioning in Q3 & Q4 FY25 have been delayed in their final stages. However, they are expected to drive growth starting from Q1 FY26.

• The company is optimistic about margin recovery as demand stabilizes, new projects ramp up and cost-optimization initiatives to take effect, positioning it in an improved profitability in the upcoming quarters.