I find recent Deepak bhai interview had some data related to IPA here:
Regards,
Sathish
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Result is strong in all front,
Result is good given last 10 days of production on march end still they are able to achieve good top line, even though the raw material price went down they are able to manage the top line good. And dasda price realisation reduced compared qoq as mgmt already communicated. Given all these circumstances the top line improved qoq is too good. And ebitda margin of 35% standalone business very good,but this is tend to go down next quarter onwards. And as per mgmt guideline they are able to achieve 15% ebitda margin on phenol segment is great achievement, and they are able to run the phenol segment full year at full capacity without hiccups,is very good achievement.
Bought landbank across all sites around 140 acres will help for next set of CapEx . Eagerly waiting for concal hear from mgmt next set of CapEx.
Regards,
Sathish
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Deepak nitrite concal summary:
- Last 10 days of production due to lockdown and 50cr topline impact and 30cr ebitda lost
- Dasda price came down to 4$ from 14$. This is as expected as end user industries paper and detergent. Both factories closed down and so demand compression lead to price could not sustain elevated prices prevailing pre covid.4$ is going to bottom for it , as no new capacity came up and no clarity on china company started production back
- Management didn’t have clarity on near term impact, so postponing the CapEx related announcement till next quarter,that time mgmt will get some clarity on the situation, from March most of mgmt bandwidth spent on safely shuting down plant, and take care of their employees and safely restart production and slowly ramping up. So they temporarily postponing to next quarter
- After restart on avg company capacity utilisation reached 70%
- Not seeing any challenge in raw material sourcing and delivering products to end customer
- Newly commissioned IPA of 30000mt will give 300cr topline next year and for that company going to consume 30000mt acetone internally. So if I consider 1 kg acetone 30 rs so they are diverting 100cr acetone to earn 300cr on ipa. So incremental revenue of 200cr for next year from ipa
- As acetone is co product and they are not seeing any pressure on producing required acetone for pent up demand for ipa. They are able to produce required quantity of phenol and acetone. As acetone total capacity is 120000mt and only 30000mt diverted ,already phenol plant running at 70% so no issue producing that amount
- Not opted for mortarium paid all loan interest as per schedule
- As usual statement from all chemical companies, mgmt said they are receiving increased enquiries from their global customer to derisk supply chain from china and it is accelerated after the covid related china trust factor .
- As global gdp will contract, india gdp contract but indian chemical industry will not see much impact as india going to capture the china market share
- Deepak bhai son Moulik mehtha now elevated to CEO position
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Debt to Equity is at 0.66 as per screener. Is this okay ? Is there any anyway to find out the company’s debt for the last 3/5 years? I am looking for yoy trend of debt.
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Better metric is interest coverage ratio in my opinion. And last 3 years debt level is not good indicator for Deepak nitrite as they were doing large CapEx for 1500cr phenol plant which is done through 1000cr loan. Last year they commissioned the plant we may see reduce debt going forward.
Sathish
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The foray into sanitizers, is it not going out of their core area? The FMCG players are the big guys here. They know how to target and get customers to buy their products in B2C.
Is this not ‘deworsification’?
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Hi,
Deepak nitrite doing IPA which is raw material for sanitizer and in IPA is derived from acetone ,so it only improve their margin and sanitizer foray is by Deepak fertilizer not Deepak nitrite
Regards
Sathish
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Thanks Sathish for the clarification. I just read about the CapEx news which was done in 2019. Also I see interest coverage ratio is at 8, which I feel is better.
IPA prices by chinese suppliers are up 100%. Apt timing to starting IPA production by Deepak Nitrite
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IPA for sanitzers is price capped.
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Deepak Nitrite has the largest acetone and phenol plants and their prices have been rocketting
Acetone is up 159%
Phenol 20% up
sources: http://www.sunsirs.com/uk/prodetail-464.html
http://www.sunsirs.com/uk/prodetail-582.html
disclosure: invested tracking quantity
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Yes for sanitizer it is capped but for pharma usage it is not capped. And Deepak producing pharma grade IPA additional to industrial grade IPA will see some additional benefits.
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Just thinking what is left for Deepak Nitrite after huge base effect of DASDA tailwind, and from where next incremental 2000cr revenue bump up will come to achieve Deepak bhai vision of achieving 1billion dollar revenue by 2022-2023.
- Last year phenol , acetone revenue is bottom of commodity cycle. And recent uptick in phenol price may add good boost to topline and bottom-line . (As 50% revenue come from this segment).
- Rampup in capacity utilisation in OBA business, currently running at 50% capacity utilisation
- 100 bps margin improvement due to reduce power cost and other cost saving measures
- Last year FSC segment is not operated at optimum level,but trend started showing uptick q4 onwards. So expecting better performance for this year
- 300cr incremental revenue from IPA business.
- If Deepak able to get ADD on his products it will be added benefit
Regards,
Sathish
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https://myinvestmentdiary.com/quarterly-result-analysis/deepak-nitrite-ltd-q4fy20-analysis/ gud analysis
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Edelweiss report on Chemicals sector: Q4 analysis, trends, covid impact, deeper analysis of 6 companies inclusive of Deepak Nitrite
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Full Report
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Deepak nitrite was close to this explosion 8 km. Not sure if the company is running or closed due to local tensions.
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On 26 May, Shri Mautik Mehta elevated as Executive Director ft CEO of the Company with effect from 1st June, 2020.
He is of age 37 Year, having 12 yr of experience, son of Shri D. C. Mehta, Chairman and Managing Director and nephew of Shri A. C. Mehta, NonExecutive Director.
Isn’t he is too young to be CEO of the company.
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Deepak Nitrite- Transformation into Specialty Player underway…
Written by- Amit Babbar (July 9 2020)
Putting basic chemistry in place and then building specialty blocks on top…this has transformed Aarti Industries from Benzene manufacturer to Specialty player supplying lucrative Benzene (and later Toluene) derivatives. PAT margins improved from 6% in 2014 to 13% in FY20- resulting in PE re-rating from 5x to 30x… Deepak Nitrite could follow a similar trajectory.
Chemicals manufacturer since 5 decades, Deepak Nitrite has history of ramping up market shares across chemistries- having dominant market share in most of its key products.
Started getting into Phenol few years back- commissioned a massive 1400 cr plant with textbook style execution.
Now sitting on an absolute goldmine as Phenol considered building block for vast number of high potential derivative products.
Company literally can pick and choose from a vast array of equally remunerative products, each with massive import substitution opportunity in India.
Opportunities include setting a polycarbonates (Bisphenol) capacity in India. Despite sizeable domestic demand, there is no domestic production of polycarbonates. These also include high margin Phenolic resins manufacturing opportunity- something no Indian manufacturer can produce at the moment.
Other big lucrative opportunities include use in agriculture and pharmaceuticals.
2 of the biggest drugs in India- Paracetamol and Aspirin- have Phenol as base material, and almost fully imported in India. Paracetamol is made by treating Phenol with Sodium Nitrate (leading to 4 Amino Phenol or PAP, the API) and Acetic Anhydride. Aspirin can be made by reacting Phenol with Salicylic Acid and Acetic Anhydride. Given the strong chemistry skills of Deepak Nitrite these should not be tough to master.
Strong chance most of the existing Phenol could get used entirely in high value derivatives itself- that would complete transition from a bulk commodity producer to a specialty chemicals producer.
Company already handpicked its first opportunity- announced capex on Isopropyl Alcohol (IPA), comes from Acetone- a co product in Phenol production facing strong tailwinds as Pharma localisation picks up. This is expected to hit peak utilisation levels in record time !
With these kind of opportunities it is baffling stock trades at a 10x (trailing) PE multiple !
Even the base product (Phenol) has zero competition as the only 2 other competitors are almost out of the market now ! New players cannot compete as tricky chemistry to master that most definitely requires outside technology- multiple players have tried in past and failed- a prominent player in west India tried with own r&d and failed miserably.
Interestingly even at this point financials for Deepak Nitrite are in much better shape than Aarti’s- with better margins and return profile and strong cash generation- almost 700 cr a year. While improved performance in DASDA segment can be argued, even on normalised basis a 1/3rd valuation difference is simply not justified.
Company recently bought a 127 acre new land for expansion, 2x the land bought earlier for Phenol- potential products’ market is so big just 1-2 product lines can potentially fill the entire 127 acres !
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