From the Desk of Chairman & Managing Director
Your Company has embarked upon ambitious project, which will cater to Phenol and Acetone demand, a larger portion of which was imported until now. Your Company aims to provide 65% of India’s demand for Phenol and Acetone. At full capacity, the supply will save the nation’s USD 400 million that would otherwise be spent on imports each year.
Dear Stakeholders,
The Financial Year 2017-18 has proved to be a mix of risks and opportunities for the chemical industry. The global economy continues to grow at a brisk pace, albeit under the shadow of trade barriers, volatile oil prices and nationalist agendas - threats that will hurt mismanaged organisations and provide opportunities to well-managed ones. Let us take a look at some of the global externalities that is impacting the world economy - a taciturn Chinese premier, unchallenged by elections for the near future, has tied his reputation to pollution and corruption control; a reticent American policy is focussed on one-on-one deals instead of multi-party agreements and an ‘America First’ agenda; there is uncertainty about Iran and Venezuela’s oil reserves reaching those badly in need of them; and Europe remains mired in confusion about its own membership and economic policies. The world over, money is turning to look towards India as a safe harbour to offer stability and high returns.
The global chemical industry has looked at rampant M&A to achieve its 5.5% growth rate - Dow and DuPont, Bayer and Monsanto, LyondellBasel and Braskem may be the headlines, but there are many more just under the radar that are sure to change the landscape we have known for so many years. The crackdown on polluting industries in China has pushed increased demand toward India’s agrochemical and dyes manufacturers who are rapidly expanding to ensure a sustainable competitive advantage. The global hunt intensifies for partners in developing countries that share similar values of responsibility and Environment Health and Safety (EHS) competitively.
India is on the way to regaining its momentum that was temporarily affected by various monetary exercises over the last two years. Higher per capita consumption, a stable GST, and focussed approach by the government on infrastructure are all effectively accelerating growth. The Government is also improving ease of access to physical and digital infrastructure with schemes designed to bring its far-flung masses into the mainstream. The PM’s ‘Make in India’ projects may have had a rocky start but are anticipated to gather momentum. The metric of India’s growth may be gauged by the fact that USD 337 billion the country added to its GDP between 2016 and 2017 is more than USD 323 billion added by Germany and France combined.
The performance demonstrated by Deepak Nitrite Limited highlights your Company’s strengths in such an environment. With only minor changes to its production capacity, your Company has managed its business processes to optimise profits by strengthening customer and supplier relationships, operational excellence initiatives and effective governance. It is well-positioned to now use these streamlined practices in brownfield and greenfield expansions. Your Company has taken advantage of this inflection point to further fortify its core competencies and value system, starting with a re-imagined brand identity that retains the goodwill created by decades of responsibility, ethics and, the vibrancy of growth.
Your Company has put plans in motion to expand its capacity to cater to a growing demand in products where it has a competitive advantage. While your Company remains committed to being an intermediate supplier, increasingly it is wooed by fine chemical companies to become their partner of choice. Rallis, a TATA company recognised your Company with the ‘Most Collaborative Partner in 2017’ award. Your Company has embarked upon ambitious project, which will cater to Phenol and Acetone demand, a larger portion of which was imported until now. Your Company aims to provide 65% of India’s demand for Phenol and Acetone. At ful capacity, the supply will save the nation’s USD 400 million that would otherwise be spent on imports each year. As a reliable domestic supplier, your Company also plans to develop the downstream products, which shall foster new verticals to grow the segment of value-added import substitutes that are in high demand locally.
Expansion Plans
In FY 2017-18, your Company, through its wholly-owned subsidiary, Deepak Phenolics Limited (DPL), made substantial progress, in its ongoing project at Dahej, to manufacture 2,00,000 MTPA of Phenol and 1,20,000 MTPA of co-product Acetone. This project is also going to manufacture 2,60,000 MTPA of Cumene, feedstock to manufacture Phenol and Acetone. The demand for Phenol in India is growing at about 10%-12% per annum, which your Company is seeking to leverage on. Technology for manufacturing Phenol and Acetone has been sourced from Kellogg Brown & Root International Inc. and technology for manufacturing Cumene has been sourced from UOP LLC.
This project entails a capital outlay of Rs 1,400 Crores. I am glad to inform that, we could achieve financial closure, for both debt and equity, successfully at desired terms. You are all aware that your Company completed third QIP of Rs 150 Crores in January 2018 towards achieving closure of equity. What is even more heartening is, while all the existing institutional investors participated in this QIP too, we could also bring in additional blue chip investor.
In view of the impending commissioning of Phenol project, DPL’s leadership team is already in place and the marketing team has commenced customer outreach programme. Looking at the size of the project, it will be commendable to mention that DPL team has achieved 12 million safe man-hours. I am happy to share that, this greenfield project is expected to be commissioned in the first half of the current fiscal year.
Apart from the above, your Company is also in the process of expanding capacities of some of its existing products in order to cater to the growing demand and we expect these projects to be commissioned by the first half of the current fiscal year.
While various initiatives as stated above shall bear fruit in the ensuing years, I would like to highlight several achievements towards sustainable growth - People, Planet, Profit - in particular.
While your Company remains committed to being an intermediate supplier, increasingly it is wooed by fine chemical companies to become their partner of choice. Rallis, a TATA company recognised Deepak Nitrite Limited with the ‘Most Collaborative Partner in 2018’ award.
People
Your Company’s family has grown significantly in both size and competency over the last decade. Your Company has been awarded Gujarat’s Best Employer for 2017 by the World HRD Congress - an acknowledgement of the several initiatives to generate ideas, ownership and recognition at all levels from shop floor to senior management.
The Phenol project, registered 12 Million safe man-hours without incidents this year. It has also developed in-house talent for technology implementation at the factory floor and R&D centres.
Planet
Your Company remains steadfastly committed to the environment. Besides Responsible Care, it is also part of the Nicer Globe and Together for Sustainability initiatives that make it a partner of choice for discerning international chemical companies.
Your Company continues to invest in its CSR outreach programmes through its Charitable arm, Deepak Foundation, which focusses on neonatal care, tribal and rural skill development, and education. Deepak Foundation was conferred with the ICC Award for Social Responsibility, the GCSRA award for cohesive partnership under the large companies’ category for its obstetric and new born care unit in Jabugam. Deepak Foundation also received CSR Leadership awards for publicprivate partnership and women’s empowerment from ET NOW Band recognition for woman and child care project from FGI.
On Environment Health and Safety (EHS) front, Deepak Nitrite Limited’s Nandesari plant was awarded by Gujarat Safety Council, Vadodara and DISH, Gujarat for achieving 8.7 Million accident-free man-hours.
Profit and Performance
After reconstruction of the plant at Roha in record time, post the fire incident, your Company was able to report resilient performance during the year. An impressive 60% growth in profit was backed by revenue growth of 18% during the year. Your Company’s revenue, including other income, stood at Rs 1,467 Crores at the end of FY 2017-18, which saw EBIDTA at Rs 214 Crores, up by 40% from the previous fiscal, and PBT excluding exceptional items grew by 65% to Rs 122 Crores in the same period. I am happy to share that the Fine and Speciality Chemicals division is back to normal operations after last year’s production disruptions.
Domestic turnover, with y-o-y growth of 14%, stood at ` 968 Crores to contribute 65% of your Company’s revenue. Exports contributing 35% of total turnover, grew 9% y-o-y, underlining the overall robustness of your Company’s business model. Europe led the exports growth, contributing around 46% of export revenue, followed by Asia at 30% and USA at 16%.
This performance underlines your Company’s inherent robustness and its strong ability to combat challenges such as raw material price volatility. It also endorses the success of your Company’s visionary focus, which continues to drive performance and growth across all matrices, including 1200% growth in market capitalisation in just five years.
I am happy to announce that as a reward for the confidence reposed by the shareholders, the Board of Directors of your Company have recommended a dividend of Rs 1.30 per equity share on a face value of Rs 2/- (65%), on the expanded capital base of your Company, against the dividend of Rs 1.20 per equity share declared in the previous year.
Let me now share with you some of the highlights of the performance of your Company’s Strategic Business Units (SBUs).
Basic Chemicals
Basic Chemicals segment grew 7% in sales, contributing to half the total revenues and 14% EBIT of your Company. With a strong entry barrier resulting from the high cost involved in setting up operations, and your Company’s efficient logistics management, this segment will continue to report sustained growth in the coming years.
Fine and Speciality Chemicals (F&SC)
The F&SC segment reported a remarkable 24% increase in revenue, growing to Rs 463 Crores, with an EBIT of 25%, during the year. With capacity rationalisation in China, coupled with growing demand from consumer-facing industries and the importance of maintaining cost-effective production, the Indian F&SC segment is poised for multi-fold growth in the coming years, which your Company is favourably positioned to harness. Your Company’s capex and brownfield expansion initiatives place it in a leadership position to ride this wave of opportunity.
Performance Products
With 20% of the total revenue, at Rs 299 Crores, this segment reported 14% year-on-year growth. Going forward, your Company sees potential for further strengthening this segment, as a result of its strategic focus on the key markets of its presence.
Outlook
Your Company continues to excel in all SBUs on the back of buoyant market conditions, process improvements acrossmarkets and demand in the end user industries. This trend is expected to grow and further expand in the ensuing year, while our Phenol and Acetone project will lead us to the next orbit of transformational growth by this year.
On behalf of the Board of Directors, I would like to thank the entire team at Deepak Nitrite Limited and its family of stakeholders for their continued support and confidence reposed in the vision of your Company.
Your Company’s revenue, including other income, stood at Rs 1,467 Crores at the end of FY 2017-18, which saw EBIDTA at Rs 214 Crores, up by 40% from the previous fiscal, and PBT excluding exceptional items grew by 65% to Rs 122 Crores in the same period. I am happy to share that the Fine and Speciality Division is back to normal operations after last year’s production disruptions.
Best wishes,
Deepak C. Mehta
Chairman & Managing Director
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