Good coverage on basics of industry, DN as a case study 45:00 onwards
One interesting call out in Q &A by Mr Anish is that DN is very good at getting ADD implemented in every area/product they enter and gives example as well - on lighter note, don’t know if this qualifies for exceptional capabilities 
or exceptional connects 
Yes for that matter BASF, BAYER, DOW Chemicals are all chemical businesses. As a investor we should see business trajectories and management intent to give fair treatment to minority shareholders. If we base analysis ONLY as per the past events we won’t be able to make fair judgement about future, Afterall investing is unfolding movie and not a static picture. That said past can’t be ignored completely for serious management lapses , frauds etc. Also having very clean past record doesn’t guarantee on future returns. Stock market investing is all about taking calculated RISKs, allocation and diversification
A question on Deepak Nitrite and other Specialty Chemicals cos
How does higher crude prices impact these cos specifically DN as most of its RMs are crude linled? Do they actually benefit as higher prices mean higher absolute profits when they eventually pass on RM costs
Downside could be higher freight/power costs - In a concall DN mentioned its more a Phenol transport company which also incidentally manufacturers Phenol
Higher crude oil prices will impact margins directly.
How much it impacts, depends on the company’s pricing power to pass the inflation costs down. Very few chemical companies can pass it directly, most will pass with delays. Even fewer can absorb those costs and not have it affect their margins by increasing operational efficiency in their cycle.
Phenol spreads were expected to cool down. Performance products saved the bottom line. Wonder what happened there. For some reason, fine and specialty chemicals has degrown again this quarter. Looking fwd to the call.
Prime reason as stated for degrowth in F&S is the rise in prices of Basic intermediates division, which serve as RM for F&S. As transfer pricing takes place,
F&S Margins have fallen to 25% (ebitda). Which is disappointing but on the other over the coming quarters they expect to pass on the RM Cost inflation in F&S division.
Not a linear story, more or less will be a lumpy compounder. As real triggers will come from F24 & FY25. As large capex’s start getting commercialized.
These results also show the true nature of the business. A diversified and integrated chemical company, diversification saving it from a disastrous performance. As PP segment picked up. Next quarter to be likely good if current pricing trends persist, as Phenol spreads are back to 120 Rs per KG and Dasda prices have further increased by 14% MoM.
Things yet to play out:-
1100 crore capex announced.
2000 crore QIP probably for additional capex.
Will we see a different DNL by FY25-FY26? Only time will tell.
Disclosure:- Biased, and not SEBI registered.
Import Substitution* : This is very important to retain / gain local customers
Finance costs were low on account of sizeable prepayments of term loan made during the period || The Company has prepaid Rs. 100 crore of project loan during the quarter without any prepayment penalty
Brownfield expansion of IPA was commissioned on 19th December 2021. This has doubled the IPA capacity to 60,000 MTPA ( This will definitely help topline in Q4FY22)
IPA is the first of a basket of downstream derivatives of phenol and acetone that will drive forward integration in the product portfolio of DPL. This will result in increased captive consumption of these commodity products and enable us to deliver value added products to our customers.
There is one key observation between Deepak and DMCC (later are also completed the 350 TPD sulphuric acid plant so that they can focus more on downstream high margin products ), focusing more on backward integration to produce the basic raw material for captive consumption
If we observe Q2FY22 commentary most of the pharma companies complained about prices of solvents , in some solvents they have gone up by more than 100%
In the last concall Mr. Mehta said they are going to focus on solvents ( I am assuming he is referring to Pharma )
Very very important in chemical companies. One has to have this as one important parameter in their investment thesis . (Lessons have to be learned from Hikal and Gujrat Flourochem , former is sheer negligence )
Management
Young lad Mr. Mehta 37 years old at the helm supported top notch R&D team
Questions / Clarifications needed
As a process, our business segments are interwoven. This means that if prices of BI increases, you may see a simultaneous dip in FSC segment, as internal product transfers take place at market prices. And accordingly, higher margin in one segment may result in lower margin for other. This year has been very strong for BI segment. In FSC segment, as most are long term contracts, there is some lag in
passing the input costs
If they are backward integrated and price rise in Basic Intermediates (they are producing them in house ?) this should help them to maintain good margin in downstream products ? Could someone please explain ?
Believe answer lies in your notes itself, the highlighted part.
In prevailing global supply chain disruptions - Interdependence of one segment with another will ensure that not all three can fire at once, and one benefits at cost of other’s margins, atleast the pattern so far.
Backward integration in normal supply chain scenarios will work with better rhythm.i.e. BI stays at lower margin range it is supposed to be thus lower input prices, RM cost in control ensures end products at better margins which they should deliver.
Given lag( or ability ) in passing the RM inflation ( BI ) price increase to end FSC
causes downstream product margins pressure.
Concall summary -deepak nitrite
Investor Presentation
Source: Shared by Dr Dhiman Bhattacharya @DrdhimanBhatta1 on twitter
Tale of two chemical power house, if without names it is being presented - would look something like this
Balance sheet
while not in pic , debtor days are also similar
both have used debt+equity to fund growth
With so many similarities- market values A at 50+ PE and B at 25+ PE
A is Aarti industries and B is Deepak nitrite
Both are aggressive in Capex, dominance in their chemistry, smart mgmt.
Point of post is that beyond numbers, there is lot that market may be seeing - margin volatility( though at annual consol both seems similar - FY 22 is excluded), promoter perception, capital allocation history, commodity vs spec chem perception ( though Deepak guides 20%+ margins for commodity phenolics).
Lot can happen for Deepak in journey ahead, some re-rating, sizable growth, higher margin downstream products incl solvents, New chemistry platforms and so on. Not a QoQ journey, years to go.
Invested in both and excited about possibilities for DN and chemical industry as whole
Heard the concall. Love the way management (Maulik Mehta) answers questions with absolute clarity.Headline commentary
No word on Capex/progress on QIP. Strange there were not a lot of questions on capex and ZERO questions on QIP…My view - Management’s focus in on maintaining wallet share/volumes and executing on capex. They explained their strategy quite well - Happy to get back on this stock, had booked out at 2650
Corporate Chat / Twitter Important statement on inorganic growth and valuations. What seems as high valuation / overvalued today 50/100/150 PE can be looked at with a different thought process. One must look at what the buying company WILL DO with the acquisition, the big view/ ambition they have with it. With an acquisition whose earnings can be leveraged right away and the asset can be doubled in six months, can be looked at.
Deepak Management interview with ET Now - 'R&D A Big Value Driver For Chemical Space' | Maulik Mehta, CEO & ED, Deepak Nitrite | Exclusive - YouTube
First Insider purchase post March 2020, that too by CEO of phenolics (unit driving majority revenue and profits)
https://www.screener.in/insiders/details/74123/
While as an investor we hear management mostly, Get to know him here,
My previously asked question might be relevant in current crude oil pricing scenarios.
Margins will be impacted in short term and medium term(in case they are not able to pass on prices completely). Whoever they source benzene from (most probably Aarti ? as per views I received), will pass on the prices to DN and then they will have to pass on too causing some short term impact depending upon they take 1-3 quarters.
Vinati maybe heavily impacted though and their margins may decline for medium term at least.
Crude Oil prices impact is not felt in India due to elections,so the company pays what other retailers are paying isn’t it, I know they might not consume petrol and diesel more of Crude “Crude Oil” but want to get some light on this, sorry i might be sounding like a noob here.
