Deepak Nitrite Limited (‘DNL’), one of India’s leading chemical intermediates company announced its financial results for the second quarter and half year ended 30th September, 2021. The second quarter of FY22 was witness to significant volatility in market demand and supply. While the human impact of the second wave of the pandemic moderated by June, demand uncertainty receded only by the end of the quarter. The first half of FY22 therefore, offered contrasting business environments- robust demand in the beginning gave way to sharp increases in costs of raw materials, utilities and logistics. In this backdrop, DNL’s efforts to double down on supply chain challenges and operational excellence opportunities helped mitigate the worst of the volatility and will yield sustainable advantages as we move to elevated demand scenarios. The company has worked to maintain margins where possible while keeping or growing its market share across businesses.
Domestic requirements for chemical intermediates are on an upswing, presenting new opportunities for companies like DNL. Moreover, international customers are reinforcing their supply chains and are seeking a strategic shift from a philosophy of ‘just in time’ to ‘just in case’- a move that benefits the company’s wide portfolio of key intermediates. In line with the global shift in supply chains, the Basic Chemicals (BC) SBU has been renamed Basic Intermediates (BI) to realign toward a model of providing security of supply of high-quality intermediates to strategic customers.
Financial Highlights (Consolidated)
H1 FY2022 Vs. H1 FY2021 (y-o-y)
Revenues were up 93% at Rs. 3,224 crore in H1 FY22 compared to Rs. 1,673 crore in H1 FY21. Overall, the Company has been highly responsive in order to optimise opportunities from the improved operating environment. In addition, the growth has been led by incremental gains in the BI SBU as well as the Phenolics business. EBITDA of Rs. 855 crore in H1 FY22 compared to Rs. 468 crore in H1 FY21, up by 83%. The improved operating performance in the current year-to-date has driven EBITDA growth. EBITDA margin has been largely stable on a y-o-y basis at 27% in H1 FY22 despite unprecedented rise in input prices. PAT grew by 107% at Rs. 557 crore in H1 FY22 compared to Rs. 269 crore in H1 FY21. All functions of the Company have contributed towards attaining newer benchmark of profitability in the first half. EPS for H1 FY22 was Rs. 40.84 per share (of face value of Rs. 2 each) as compared to Rs. 19.73 per share in H1 FY21.
Q2 FY2022 vs. Q2 FY2021 (y-o-y)
Revenues were up 70% at Rs. 1,690 crore in Q2 FY22 compared to Rs. 991 crore in Q2 FY21. SBUs of BI, PP and Phenolics delivered scaled up performance during the quarter benefiting from operating leverage on account of better operating environment. The FSC segment delivered stable volumes according to business plan despite constraints to availability of inputs and challenges with respect to logistics. EBITDA was Rs. 395 crore in Q2 FY22 compared to Rs. 280 crore in Q2 FY21, higher by 41% on a y-o-y basis. The EBITDA Margin was 23% compared to 28% in the same quarter of corresponding year due to combination of higher input prices as well as increased cost of power and logistics PAT was Rs. 254 crore in Q2 FY22 compared to Rs. 170 crore in Q2 FY21, higher by 49%. In addition to the strong operational performance, PAT performance was enhanced by the reduction in finance costs. EPS for Q2 FY22 was Rs. 18.65 per share (of face value of Rs. 2 each) as compared to Rs. 12.48 per share in Q2 FY21.
CMD’s Message
Commenting on the performance, Mr. Deepak C. Mehta, Chairman & Managing Director, said, “We are embarking on the next phase of our transformation into a diversified chemical company that has the dual capability to maintain its leadership position in its existing value chain while applying itself to innovative new platforms and products. I anticipate a deeper partnership between Deepak and its strategic customers as significant volumes of our current and future products are supplied as part of long term, formula linked arrangements. In the meanwhile, the company will continue to place a high degree of importance to the twin pillars of process intensification and operational excellence in a responsible and sustainable manner. Going forward, growth will be driven by planned expansion initiatives across SBUs and tactical introduction of several downstream chemicals and complex chemical platforms. We remain focused on our agility enabling us to capitalise on opportunities that emerge from rapid shifts across the industry landscape. Our entry into newer solvents will diversify our product portfolio, expand our client base, and increase the percentage of complex, high-margin products in the mix, thereby enhancing our business proposition.”
Performance Highlights
Segmental Performance – H1 FY2022 Vs. H1 FY2021 (y-o-y)
Basic Intermediates: BI segment reported revenues of Rs. 516 crore in H1 FY22 as against Rs. 319 crore in H1 FY21, higher by 62%. Despite constrains around logistics and input cost pressures, the Company prioritized strategic opportunities to pass on increased costs while maintaining growth in market share. The performance was also supported by favorable demand scenario augmented by shift towards India by global customers due to supply chain challenges. Fine & Specialty Chemicals: In the FSC segment, revenues stood at Rs. 405 crore in H1 FY22 as compared to Rs. 350 crore in H1 FY21, a growth of 16%. Inspite of several challenges on ground as well as reversion of product realisations to normal levels, the Company was able to demonstrate resilience and supply its planned volume commitments to customers. Also, performance of H1 FY22 has to be seen in light of high base of same period last year which was exceptional as there was a sharp spill over of volumes from April-May 2020 to Aug-Sept 2020. Moving ahead, the Company is strategically tying up more business in multi-year formula kind of contracts with quarterly pass through mechanism to insulate from the volatility in RM prices. In a significant development, the Company entered into medium term contract with one of the world’s leading agrochemical majors, which will result in business sustainability and volume spurt for agrochemical intermediates that will aid in growth of the BU. Performance Products: In the PP segment, revenues grew by 55% to Rs. 198 crore in H1 FY22 vs. Rs. 128 crore in H1 FY21. Supply challenges in China have resulted in customers purchasing more than usual quantities of both OBA and DASDA, which will aid the prices going forward. With key end-user industries of paper and textiles are expected to be doing better, the volume and margin momentum is expected to further accelerate.
Deepak Phenolics: In the Phenolics business, revenues grew by 143% to Rs. 2,145 crore in H1 FY22 as compared to Rs. 882 crore in H1 FY21. The plants registered average capacity utilization of around 120% supported by favorable demand trends and attractive pricing for both Phenol and Acetone. While EBITDA soared by 147% from Rs. 226 crore in H1 FY21 to Rs. 561 crore in H1 FY22, the EBITDA margin stood at 26% in H1 FY22.
About Deepak Nitrite
Ranked among Fortune India Next 500 and Forbes Asia (under Billion) Top 200, Deepak Nitrite Limited (DNL) is one of the fastest growing chemical intermediates with diversified portfolio that caters to the dyes and pigments, agrochemical, pharmaceutical, plastics, textiles, paper and home and personal care segments and petro-derivates intermediates- phenolics, acetone and IPA in India and overseas. Its products are manufactured in six plants across five locations, which are all accredited by Responsible Care.