Deepak Nitrite AR FY23 Notes
Business
- Largest player of acetone and phenol in India, largest producer of sodium nitrite in India, top 3 in world for xylidines and oximes
- Domestic vs Export = 57:43
- Segment View
- Advanced Intermediates
- Products - Sodium Nitrite, Sodium Nitrate, Nitro Toluidines, Fuel Additives, Nitrosyl Sulphuric Acid, Xylidines, Oximes, Cumidines, Speciality Agrochemicals, Optical Brightening Agent (OBA), DASDA
- Applications - Colourants, Petrochemicals, Rubber, Agrochemicals, Pharmaceuticals, Water treatment, Glass industries, Textiles, Industrial Explosives, Fuel Additives etc.
- Revenue Contribution - 38%
- EBIT Contribution - 48%
- 21% growth in FY23
- EBIT margins impacted by input costs increase and lag in passing them
- 70% market share for sodium nitrite/nitrate
- Phenolics
- Products - Cumene. Acetone, Phenol, Isopropyl Alcohol, AMS
- Applications - Laminate & Plywood, Automotive, Construction, Pharmaceuticals, Adhesives, Sanitisers, Rubber, Chemicals, Paints, etc.
- Revenue Contribution - 62%
- EBIT Contribution - 52%
- 16% growth in FY23 with capacity at 120% but margins impacted and down to 14%
- 56% market share in Phenol, Acetone & IPA
- Getting to downstream polycarbonates Phenol → Bisphenol A → polycarbonates
- Advanced Intermediates
- Capex plans
- 2500 Cr capex
- Brownfield expansion for existing products, commissioning in H1FY24
- New unit for agro-chem intermediate
- Greenfield expansion for polycarbonate compounds. End demand will be 5G boxes, EV batteries, medical devices etc.
- Backward integration project to incorporate new chemistry platforms like photochlorination and fluorination, to reduce supply chain risks in the agro space and expand the range of products using these chemistries, commissioning in Q3FY24
- Forward integration from acetone to MIBK-MIBC solvents which are value added products to enhance utilisation of acetone internally, commissioning in Q1FY25
- Brownfield expansion for existing products, commissioning in H1FY24
- 51% investment in Oman subsidiary for raw materials and energy procurements
- MoU with Gujarat government for 5000 Cr for advanced intermediates, phenol and Bisphenol-A
- 2500 Cr capex
- Industry trends
- Chemical sector growth to be 11-12% till 5-6 years globally
- Agchem and food ingredients growth to be stronger in spec chem industry
- Make in India, PLI
- China + 1 & Europe + 1 trend
- Management commentary
- Focus on forward & backward integration
- Focus on import substitution
- Measures against fire incident taken
- Establishing captive power supply
- Focus on right to win and ROCE
- Future performance will be driven by multi-year contracts, successful pilot projects and new products
- Develop alternate vendors for supply security
- Commissioned capacity installation at Spent Sulfuric Acid Concentration (SAC) plant for captive power consumption as well as reduced procurement from open market
- Asian phenol plants operated at 60-65% capacity while Deepak at 120%
- Digital & other initiatives
- CRM integration with ERP
- Realtime order management system and inventory management
- Sensors in transportation units for safety
- ABB auto filing to automate loading of tankers
- GPS tracking for RM shipments
- LIMS system for lab automation
- tEG for supply chain and logistics automation
- APC system for operational excellence, to ensure stability and prevent disruptions
- IP21 for historical data analytics
- Vibration monitoring system for health monitoring of machinery, oil analysis, corrosion monitoring
Risks
- Raw material prices volatility
- Crude dependent business
- Logistics cost increase hampers business
- Fire risk
- Environment risk
- Manufacturing technology obsolescence risk
- Competition in commodity products
- Power costs
- Unfavourable Duty structure (if any)
Capital Allocation
- CFO = 650 Cr vs EBITDA at 1292 Cr
- Capex = 361 Cr
- Dividend = 12%
- Debt repayment = 243 Cr
- Cash on balance sheet = 300 Cr + 1300 Cr receivables
- Should be able to fund 2500 Cr capex with internal accruals largely as annual CFO can be 800-900 Cr in FY24
