Gentlemen, good day and welcome to the Deepak Nitrite Limited Q3 FY24 earnings conference call hosted by IIFL Securities Limited. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal your operator by pressing star, then zero on your touch-tone phone. Please note that this conference call is at the outset. I would like to clarify that certain statements made or discussed on the conference call today may be forward-looking in nature, and a disclaimer to this effect has been included in the investor communication shared with you earlier. I now hand the conference over to Mr. Ranjit from IIFL Securities Limited. Please go ahead. Thank you.
Thank you, Mano. Good afternoon, everyone, and thank you for joining us on Deepak Nitrite's Q3 9M/9Month FY24 earnings conference call. Today we have with us Mr. Maulik Mehta, Executive Director and CEO; Mr. Sanjay Upadhyay, Director, Finance and Group CFO; and Mr. Somsekhar Nanda, CFO of Deepak Nitrite Limited. We'll begin the call with the opening remarks from the management team, followed by an interactive Q&A session. To begin, Mr. Maulik Mehta will share views on the operating team performance and the growth plans of the company, followed by Mr. Sanjay Upadhyay, who shall take us through the financial and segmental performance. I now invite Mr. Mehta to share his opening comments. Thank you and the overview for.
Good afternoon, everybody. Thank you for taking the time out to join our earnings call. The results documents were shared with you earlier, and I hope you've had the opportunity to glance through them. I will now walk you through the operational highlights and strategic actions during the third quarter and nine months of financial year 2023/24. Mr. Upadhyay, I will then present you with the financial overview during the period under review. Following that, we will open up the forum for a Q&A session. Global chemical industry continues to witness adverse conditions also in the third quarter. The combination of uneven economic growth, sustained inflationary pressures, and present interest rate regimes have spawned periods of recessive conditions leading developed economies. Geopolitical tensions have added to the cost of doing business, including stretched cash conversion cycles accompanied by the cost optimization focus in many sectors.
a result, global consumption trends have been adversely impacted so far, and the flow-through impact to the chemical sector has meant that there was persistent softness in demand from certain regions as well as certain sectors. Our customers are responding to these challenges by reevaluating their requirements, tightening their inventory levels, and negotiating supply costs. Amidst this, we have witnessed Chinese suppliers continue to undertake aggressive steps to destock the inventory of intermediates that have been building up. How have we responded to this perfect storm? Firstly, we focused on optimizing our assets and driving efficiency in order to enhance competitiveness. Lately, our plants have been de-bottlenecked. Moving forward, greenfield capacity was supplemented with organic growth where brownfield expansion was stopped. Secondly, we have leveraged our brand equity and market position to prioritize wallet share and reliable supplies to our key strategic relationships. We improved production volumes.
Need to be placed with customers, and we have reported increased volume levels. Thirdly, we continue to evaluate areas for process efficiency and cost optimization. These initiatives have provided savings in areas such as yield enhancement, reduction in power and fuel costs, as well as a reduction in CO2 emissions. Deepak's broad portfolio and versatile plant capabilities have allowed the company to focus on driving volume-led growth in certain pockets, which have enabled it to counterbalance the demand sentiment in other parts of the portfolio. As a result, this has led to a 13% quarter-on-quarter increase in top line , with provisions made for further improvements as the operating environment improves. Robust growth in the Phenolics segment, driven both by volume gains and improved realizations, has been a key driver for this attractive growth, supported by focused initiatives to enhance operating efficiency and debottlenecking via software and hardware.
In terms of segmental performance, Advanced Intermediates have reflected secular demand recovery in certain industries such as agrochemicals, textiles, dyes, and pigments, while other end applications like construction infrastructure and home care continue to show healthy demands. Mixed sentiment in end-user industries, influenced by cautious buying behavior and resilient petrochemical-linked raw material prices, let us prioritize wallets. Several key intermediates recorded the highest-ever quarterly sales and production following the commissioning of OpEx initiatives. While prices of some key inputs have decreased, others, which are petrochemical-linked, remain firm due to low operating rates in refineries plus war premiums on crude. We anticipate that the timing of backward integration and brownfield capacity expansion will align with a more secular demand improvement going forward. In our Phenolics business, we delivered a solid performance on the path of improving plant efficiency.
Additionally, the implementation of Advanced Process Control and favorable weather conditions have facilitated record production figures for phenol and cumene this quarter, elevating average utilization to a new benchmark. Meanwhile, our ongoing projects such as photohalogenation, high-pressure fluorination, acid units, and others are progressing well, and are expected to be commissioned as planned. The operation and commissioning teams are actively involved in preparing for the system handover, with high-pressure fluorination and photofluorination commissioning being anticipated within this current quarter. Regarding the acid units, construction and equipment erection activities are at peak, with most equipment deliveries completed. Other expansion projects such as MIBK, MIBC, and hydrogenation, amongst others, are also taking shape and are on track to commissioning as per plan. The polycarbonate compounding project is steadily progressing as well. Customers have accepted and appreciated product quality as delivered.
A notable development: we signed a memorandum of understanding worth INR 9,000 crore on January 31st, 2024. This adds to the previous MOU worth INR 5,000 crore on May 23, 2023, aggregating to almost INR 1,000 crore. The projects covered by this investment of about INR 9,000 crore will be completed by 2027. The focus, sorry, the projects of all the investments that have been announced will be completed in 2027. The focus for this recent announcement will be on manufacturing three new products: polycarbonate resin, methyl methacrylate PMMA resins, and compounds, as well as aniline. Additionally, we have signed a term sheet with Petronet LNG, which is based in New Delhi, which derisks our growth trajectory by ensuring critical raw material availability via. We are set to offtake 250 KTPA of propylene and 11 KTPA of hydrogen over a 15-year period from the initial delivery.
This long-term agreement provides Deepak with assured access to crude feedstocks for its production processes at a competitive cost. Further, considering the supply will be through pipelines, not only will it be safe and cost-effective, but it will have nil environmental impact as compared to road and rail transport. In conclusion, our steadfast focus on enhancing operational excellence, optimizing assets, and solid project execution has allowed us to set new production benchmarks in several key intermediates. India's robust economic growth presents opportunities for the chemical industry at a global scale, and we are excited about not only our growth potential but the opportunity for Deepak to be an anchor for tomorrow's India growth potential.
Through strategic and substantial investments in new and brownfield projects, including those in the Phenol Acetone value chain and aimed at upstream and downstream integration, our expanded capacities will enable us to serve not only the baseline growth as envisaged but also a production migration from high-cost regions. In fact, our long-term plan envisages creating one of the most integrated chemical and petrochemical complexes globally, which is sure to unlock new frontiers for Deepak and India's burgeoning chemical industry. We believe our ability to capitalize on these opportunities, ensuring growth, value maximization, and serving the nation sustainably will benefit all stakeholders. I would now like to hand the call over to Mr. Sanjay Upadhyay, who will address this forum and take you through the financial performance and key updates during the period.
Thank you, Maulik, and good afternoon, everyone. Thank you for joining us on this call today. I will walk you through the highlights of the financial results for this quarter and 9M ended December 31, 2023. Deepak Nitrite has demonstrated stable and resilient performance this quarter in the face of challenging market conditions prevailing in the global chemical industry during the third quarter, in fact, throughout the year. We have been consistently communicating about the increased level of volatility in the industry, warranting faster response times, and sharper strategic initiatives to capture key parts of the value chain. We have demonstrated this during the quarter as the company successfully expanded its market share in all businesses and increased revenues across various business areas.
By maintaining consistent and reliable supplies, Deepak Nitrite has upheld its long-standing relationship with the customers, resulting in increased volumes across key product categories and balanced mix of domestic and export sales. Consequently, the company's operations have remained highly efficient in capital utilization, reflected in an enhanced return on capital employed of 26% in Q3 FY24, continuing its streak of robust performance over the past 12 quarters. Now coming to the financial performance in Q3 FY24, on a consolidated basis, revenue came in at INR 2,023 crores as compared to INR 1,795 crores in Q3 FY24. On a quarter-on-quarter basis, EBITDA came in at INR 318 crores from INR 319 crores, almost flat in Q2. EBITDA margin was stable at 16% despite pressures of higher raw material costs and other utilities, adds to the INR 202 crores from INR 205 crores in Q2.
Profitability aligns with the operational performance of the company, which was impacted due to lower realization and higher sizing of the raw material. In the entering quarter, the circumstances are anticipated to improve. In 9M FY24, on a consolidated basis, revenues are lower by 7% to INR 5,613 crores as compared to INR 6,046 crores 9 months 2023. EBITDA stood at INR 879 crores in 9M FY24 compared to INR 976 crores in 9 months FY23. Margins were stable at 15% in FY24. Net came at INR 557 crores as above INR 618 crores. On the operating front, our domestic business revenues stood at INR 1,572 crores and INR 4,474 crores in Q3 and 9 months, respectively. Export revenues are INR 451 crores in Q3 and INR 1,134 crores in 9 months. On a consolidated basis, domestic key exports disclosed at 78%-22%.
Now, moving to the segmental customer performance, in the Advanced Intermediates segment revenues were set at INR 635 crore in Q3 FY24 or INR 684 crore in Q3 FY24, while EBITDA stood at under INR 23 crore during the quarter under review. In 9 months FY24, revenue came in at INR 2,084 crore and EBITDA came in at INR 390 crore, calculating into a margin of 19% despite the current environmental challenging circumstances. Deepak Nitrite has also adjusted product pricing to offset the rising input costs, maintaining margin performance compared to the previous period, signaling a proactive approach to amid market challenges. Deepak Phenolics believe that an encouraging performance revenue grew by 20% to INR 1,355 crore in Q3 FY24 versus INR 1,124 crore in Q2, while EBITDA stood at INR 201 crore and EBITDA margin came in at 15% in the quarter.
During the 9 months, revenue degrew by 6% to INR 3,558 crores and EBITDA came in at INR 497 crores, translating into a margin of 14%. Last year, on balance sheet side, the company's financial aims were significantly enhanced, and the company continues to maintain a zero-debt position with a net worth of INR 4,543 crores on a consolidated basis and INR 2,839 crores standalone, thereby strengthening its balance sheet for the future expansion. Additionally, DNL has bought a unit in the sale of INR 656 crores, and Deepak Chem Tech Limited its wholly-owned subsidiary with INR 566 crores invested in Q3 FY 2024. DPL repaid its remaining balance during Q3 to become debt-free, following the footsteps of DNL, which has been debt-free for several quarters now. The group as a whole enjoys liquid investments of INR 386 crores.
During the quarter, DNL has invested INR 17 crores in Deepak Oman Industries to acquire 32% stake.
The treasury grants for the quarter expands to INR 5.7 crore in Q3 FY24 and INR 22 crore in the first nine months of FY24. The group has undertaken many digitalization initiatives. One of the key initiatives successfully implemented is SAP, along with customer relationship management, Ariba, and logistics tools from November 2023. DPL has installation complete. First, and DPTL and DNL are set to follow sequentially. Furthermore, the company has implemented measures to enhance operational efficiencies through process optimization, yield improvements, and cost reductions in power and water consumption. Our project pipeline remains robust, and investments of around INR 2,000 crore are expected to be commissioned between January 27, 2024. This will steadily add to the capacity to backward integration, providing incentives to the growth. With that, I would now request the moderator to open the forum for questions and answers session. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking. There are more than 20 participants in the conference. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Ladies and gentlemen, you may press star and one to ask questions. We have our first question from the line of Nirav Jimudia from Anvil. Please go ahead.
Yeah, good afternoon, team. So I have two questions, one on the standalone and then on the Phenolics. Sir, if you can share for Q3 and for nine months of FY 2024, what sort of volume growth we have witnessed in the standalone business? And along with, if you can just share your thoughts on how much of our current capacity, including those de-bottlenecking, is currently utilized and has a scope for further utilization?
Nero, nine months, I think our volume growth is in the range of 17%-20% in nine months. Okay. And as regards capacity, I mean, we are using around 80%-85% capacity. Some plants are having surplus capacity. But then it's not very difficult for us to de-bottleneck and go ahead in case. So capacity is just a word. I mean, you must have that broken down by the, "It's not capacity," "Khali kya We can always in fact, last this year, we have demonstrated that one of the plants, we have spent a little amount and then produced additional products, which was never there in our budget or never in our pipeline. A sudden demand came, and we could produce that. So that way, our plants are flexible, multi-product plants, and team is capable of delivering.
You can take around 80%-85% capacity levels for the nine months.
I'll just add one thing, that our de-bottlenecking exercises have been a mix of hardware as well as software, not only in Phenolics, which we have also mentioned, also in Advanced Intermediates. This is also coming on the back of a lesson that we learned about two years ago when we realized that we were unable to grow our wallet share because in many places, our capacities had peaked. So with a judicious mix of OpEx as well as increased assets, we have ensured that our capacity is more than the current increased volume that we are pushing out into the market. So wherever possible, we have created headroom, as I mentioned in my initial remarks.
Where we feel like by and large, we will not be able to go much further here, we have also initiated plans for large-scale CapExes, which would be greenfield, for example, the Oman plant.
Got it. Sir, let's say if we consider the backward integration projects, what you mentioned, the nitric acid part, and couple with the headroom of the capacities available with us in terms of the de-bottlenecking and some pockets where it is currently underutilized, what's a fair assessment in terms of our quarterly EBITDA again moving to those ranges of INR 150 crore, which we used to do on a quarterly basis in FY23? Because this quarter, if we see, we were at INR 112 crore. So if you can just help us, what would be the combination of volume growth as well as the benefits of backward integration facilities can help us to take that level of run rate in which of the quarters of FY25?
So rather than getting into quarter number and pegging ourselves to that, what I can share is that both of these will have their own compounding value that they can give. And all of this depends significantly in terms of the improvement in the uptake for the products that we make. Over this period of time, we have, in that sense, gone through the baptism of fire and by increasing our wallet share at the expense of competition, when their wallet share reduces, their operating costs also increases. As our de-bottlenecking as well as backward integration commissioning, it will allow us to maximize on this position that we have what the advantage to take.
I won't give you an answer with a quarter, but I can tell you that one way or another, this is the direction that it will trend in, whatever numbers you are giving, either add a quarter or subtract a quarter. But when these plants come online, this is the cumulative benefit.
Sir, any expected timelines which you can share when the nitric acid plant would be commissioned?
I can just share that we've already announced by and large, every quarter, there will be some plant or another being commissioned. Some is upstream, some is downstream, some is in AI, some is in Phenolics. So rest assured, we will see good value over a period of time being increased to the top line and the bottom.
Got it, sir. Maulik, just one question to what you mentioned. Agrochemicals, textures, dyes, and pigments have been showing a subdued growth. So if you can just help us know how much of our standalone business would be our standalone revenue would be coming from these four broad segments currently?
It would be a considerable amount. But what I was sharing was largely the situation that was at play in Q3. Agrochemicals, especially the products that we give to multinationals, in some cases, they have had a difficult year in 2023 CY. As they close their books, they would also want to move forward with the minimum overhang in terms of inventory and working capital. So Q4 is going to be incrementally better than Q3 in terms of volume. Now, in some products, there is continuing to be a softness in terms of demand. In some places, that is largely because of the specific customers where their balance sheets also may be stretched. In other places, we are finding that there is a fragile improvement.
Now, for products where Deepak is into the dyes, the textile intermediate, there also, we are seeing certainly that there is an improvement in demand if I compare Q4 and Q3. But all of these things, at the end of the day, are sequential in nature. So I'm comparing not to the last year, but to the previous quarter.
Got it. Sir, second question is on the Phenol business. Based on the reported volumes, what we have shown in the presentation, I think our OpEx comes closer to $185-$190 if we do some rough math. So does it include the benefit of that 29-megawatt captive power plant which I have set up? And if yes, going forward, is there any further scope of reduction in our operating cost? Along with it, if you can just share some list of initiatives which you have taken in the Phenolics business over the last one or two years to bring down our operating cost and improve the efficiency levels.
Now, several measures are taken. This performance will not come if you are just relying on the market volatility, right?
Absolutely.
I mean, you must appreciate that by increasing the capacity itself, the overhead cost per ton goes down significantly. That's the major, major advantage which people are missing. And it improves the efficiency of the plant. On top of it, there are logistical improvements what we have done, increasing the size of containers, which will, of course, reduce the cost as well as ESG beneficial. We have taken every Advanced Process Control management system, which is also controlling our processes and then improving the yields and production and thereby yield. And then valorization of products, that is also helping us in a big way. So several and these efforts are on. This doesn't stop at this. It continues. So various, various times, we have a very, very capable team of people handling this. So I don't worry on this.
I think these people efficiencies and the productions of the Phenol is absolutely, I would say, controlled well by the team. All improvements, whatever possible, people are doing there on all the fronts.
Including sustainability. So we are continuing to reduce our carbon footprint on a per kg of production. Keep in mind that we also, in many cases, have to take up the cost of logistics of getting the raw materials as well as, in some cases, giving the final product. So when we look at improvements, we look at net ops basically.
Sir, just a small clarification here. Does the benefit of the 29 MW fully capture this quarter, or some benefit is yet to be yielded here?
The power plant benefit is fully captured.
Fully captured here, no?
Yes.
Okay. Thank you so much, sir, and wishing you all the best.
Thank you.
Thank you. We have our next question from the line of Govind from Nvest Analytics Advisors. Please go ahead.
Hello?
Yes, Mr. Govind. Please go ahead.
Yes.
Yes.
Good afternoon, sir. Congrats for a resilient performance despite the troubles had been. So as you know, there has been a demand slowdown at global level despite that you people have sustained the performance in terms of top line and bottom line. So two parts of question on this. Whether the inventory restocking by the Chinese players is over and can we expect the things getting normalized in FY25? And secondly, how do you see the chemical prices, specifically the phenols and the acetones, shaping up in the near term followed by in FY25?
Okay. See, first of all, this concept about restocking, I emphasized it last time. I'll just reemphasize it again. Restocking essentially means that for whatever reason, a manufacturer believes that his cost of manufacturing tomorrow, for whatever reason, may be a little bit either the same or more. And hence, he's choosing to manufacture today but is then trying to push it out so that he can manufacture sorry, less, so he can manufacture tomorrow. Now, at the same time, the headwind is the customer's ability to take. And the customer's ability to take is linked to his ability to sell. So restocking is not a situation which is something that happens in a transient manner. It is the rate of restocking which is the question. And the rate of restocking, obviously, has to slow down because the inventory levels themselves get depleted as restocking is accelerated right now.
So over a period of time, you will see a slowdown in the restocking where the demand and the supply, by and large, start to come to a parity. Generally, this will happen over the next couple of quarters depending on the end-use. And in places where there may be geopolitical uncertainties or economic uncertainties, interest rate uncertainties, those will all play some role or another in either convincing a customer to choose to buy more regardless of whether they need it or not or buy less in order to maintain a low balance sheet overhead. Now, when it comes to products like Phenol and Acetone, these are manufactured as well as consumed in large volume. And they are made by players all over the world.
There's a significant part of it which is also the freight component, a significant part of it which is also the ability to hold inventory. So moving forward, it's not going to be about whether phenol price or acetone prices go up or down. It's going to be about how they move in relation to their upstream and downstream prices. So when we look at our performance, it is about whether we are able to manage the product pricing to continue to give a sustainable margin over materials. I don't care if benzene prices go up and propylene prices go up as long as I'm able to pass it on. What I care about is that I'm focused on volume improvement, quality improvement, and my domestic consumption base is continuing to show robust growth in demand. And I am there cost-competitively manufacturing and supplying them the quality they need.
I am reasonably satisfied as long as my plant is always able to ensure whatever is being required is being manufactured.
Thank you, sir. We will move ahead to the next question. We have our next question from the line of Abhijit Akella from Kotak Securities. Please go ahead.
Yeah. Good afternoon, and thanks for taking my questions. First, just on the INR 9,000 crore MOU signed with the Gujarat government, there are two sets of new products mentioned within that which is the MMA and PMMA and Aniline. So if it's possible to share some further color around the breakdown of CapEx between these, the capacities that we plan to set up, and your revenue and margin expectations for these, that would be really helpful. Thank you.
So, Abhijit, I don't think we need to go into a breakup of the CapExes because there will be lots of scope for optimization in this in terms of one. Yeah, whether it is with regards to land or utilizing certain assets as allocations and things like that, like boilers and things like this. Now, the reason that I feel, and by the way, these are not just two products. MMA and PMMA are made using feedstocks which we are already very comfortable using, feedstocks such as acetone, ammonia, etc. And what is critical here to keep in mind, Abhijit, is that it will also involve a signation block of significant capacity. Now, this will be at a world scale as usual when it comes to Deepak.
This will be a significant fundamental asset which will then be available to the Indian ecosystem, obviously, for Deepak's specialty chemical needs and all that moving forward. So Signation today, generally, is not performed in India. Maybe with some small capacity here or there. Similarly, when you're looking at polycarbonates, you're looking at particular process competencies which will then be put here at a world scale. And it will allow those processes, whether it is like calcination or melt, to be used for various different specialty chemical applications. So today, if I was to hypothetically say that I will have 100-ton requirement for Signation, I will invest in 110-ton capacity, 120-ton capacity. This will allow me to get into niche specialty molecules as well as large commodity players.
Most of these, including the ones that we have announced like polycarbonates, this is a resin which will then go downstream into the compounding. The margins of all of these will be either equal to or, in an accretive manner, better than what you are currently seeing in Deepak Phenolics. On a net basis or consolidated basis, you will see a blended EBITDA which sits comfortably between Deepak Nitrite's normalized situation where it has upstream and downstream integration as well as Deepak Phenolics' EBITDA profile.
Understand. Thank you. And with regard to the financing of these projects, will it primarily be debt-financed? And if so, is there a sort of peak debt-to-EBITDA number that you have in mind going forward?
Abhijit, we'll come back to you on this when we crystallize our baseline costs. It's too premature to tell you today how it's going to only give you one word more that we are having a strong value zero debt company and INR 5,000 crore net worth line. So there is enough room for debt also and enough room for equity also. There is no issue as such on finances because the finances also depend on the requirement, how it comes, the cash flows, year one, year two, year three. So we have time to plan our things in a most beneficial way to all.
Sure. Sure. Thank you. One last thing is just on the INR 2,000 crore of new investments that are being commissioned during CY24. So this would include all the projects listed on slide number 10, so polycarbonate compounding, fluorination asset, MIBK. All of these basically getting commissioned during CY24?
Yes. Yes. By December 2024, we are expecting.
There will be one specialty chemical which will reach that a little bit by one to two months. Now, of course, we're still trying to see how we can optimize that.
By and large, December.
Yeah. Yeah.
Right. And FY26, you would expect all of these projects to pay off optimally, or it would be a slightly graded kind of ramp-up for some of these?
They will all go into production ramp-up as we have normally our plan for production ramp-up, which includes CAPEX, and it also includes optimizing as quickly as possible. Now, asking us whether we will have a payback by 2020, is that what you're asking us?
Just sort of asking about the optimal utilization. Can we sort of expect most of these will be at optimal levels by fiscal 2026 itself for?
Yeah. Out on that, yeah, we have accelerated ramp-up plan. I mean, safety is the primary focus. So as long as safety is kept in place, the ramp-up plan, in terms of customer requirements, they are staying faster, better.
Yeah. Yeah. It will be okay with you. There's no issues on that.
Okay. Understood. Thank you so much, and wish you all the best.
Thank you very much.
Thank you. We have our next question from the line of Vivek Rajamani from Morgan Stanley. Please go ahead, Mr. Vivek.
Hi, sir. Yeah. Am I audible?
Yes.
Yeah. Hi, sir. Thank you so much for the presentation. Two questions from me. Firstly, sir, on the Advanced Intermediates side, I think you mentioned in the earlier participants that Q4, you think it's going to be better from a volume perspective from Q3. My question was, looking at the recovery from an FY25 standpoint, do you think it's going to be more of the case of us seeing sequential recovery every quarter going into the next year, or do you still think, given what you're seeing in the industry, it's still a situation where you see a recovery one quarter and then maybe a step back? I just wanted to get your thoughts more in terms of the pace and trajectory of recovery going into FY25. That was the first question. And the second one was on Phenolics.
Just given the De-bottlenecking and all the initiatives that you've done and the industry spreads, I would have thought that the sequential improvement would have been much higher on the phenolic side. Just wanted to clarify if there was something different that was happening in this quarter. Thank you so much.
Thanks, Vivek. I'll just answer your second question first. I would be interested in seeing the data that gave you an indication that the improvement should be significantly better. From every data point that we see, I think that Q3 has been a strong performance for Phenolics given the current macroeconomic climate, given the fact that there is not a single plant pretty much in most of the world which is into merchant sales of Phenol which is operating at anywhere close to 140%-150% like Deepak is. I would be curious to understand the data. It would help me also make better estimations in the future. Nonetheless, what we can share is that the team on the ground and the technical team continues to find further headroom for improvement, whether it is on capacity or on efficiency, that continues.
We encourage the team to be creative in looking for opportunity for improvement. Now, with regards to the first question, whether the recovery will be consistent and secular in nature, this is difficult to say. From where we are looking right now, it does seem like it, but it is a fragile recovery. Geopolitical, economic shocks seem to have become a norm over the last few years. And there is already a lot of stuff which is priced in. But escalation in any of these things remains to be seen as possible black swan. We believe that more than anything else, India will continue to be a remarkably bright arc in the middle of all of this uncertainty. And hence, Indian consumers and Indian customers will be the most benefited by having domestic suppliers of key raw materials such as Deepak.
We see how the improvement on a global scale pans out. But rest assured that India will always be a couple of hundred bits ahead of the rest of the world in terms of rate of recovery.
Sure. Very clear. Thank you so much for the answers. Just one bookkeeping question from my side. What would be the current Phenol nameplate capacity after all your de-bottlenecking that you've done so far?
No, we've forgotten that. It used to be 200,000 tons when we commissioned it in 2018. I don't think anyone has asked the team this again.
No worries. Thank you so much, sir, and all the very best.
Thank you, Vivek.
Thank you, sir. We have our next question from the line of Rohit Nagaraj from Centrum Broking. Please go ahead.
Yeah. Thanks for the opportunity. So my first question is on the phenol front. So have we seen any new capacities coming in China and maybe Korea or other parts of the world? And how do we see the spread going ahead? Will they continue to improve and stabilize here, or probably FY25, when we start, whether they will be able to go up? Thank you.
No, no. There's lots of capacity that has been commissioned over the last year, especially in China and the Far East. That was expected in any case. Now, with regards to spread, again, difficult question to answer in the current situation. You see, what has happened is that the Red Sea, as well as what is happening currently with regards to the Panama Canal, has almost split the world into two. Freight rates and extended cash conversion cycles are forcing customers to make very different kinds of buying decisions compared to what they would make if it was only linked to demand consumption. Now, keeping this in mind, keeping also in mind that Asia is the world's largest manufacturer of petrochemicals, spread is a very difficult point to put in place because it is not just about the spread between phenol and benzene or propylene.
But it is also about whether the product is in what is called contango or backwardation. So we buy our benzene in a manner which is an N minus one, and we sell our phenol at current market rates. This gives us this delta of about a month, month and a half where we have that breathing room. And it gives us the opportunity to optimize our pricing policies with regards to the feedstock availability. Now, this visibility is key for us to make the right decisions when it comes to marginal overhaul. Moving forward, the spread may increase or decrease based on whether it becomes easier to move material around the world like it was a year ago or a couple of years ago.
If there continue to remain such obstacles like what is happening right now around the Suez Canal or around the Panama Canal, then that will change both seller and buyer behaviors. Right now, with the current situation with crude prices as well as the geopolitical premiums, there's a lot of refineries which have gone into voluntary lower run rate for voluntary shutdowns. But these will all come back in, and that will allow a significant improvement in the flow of feedstock such as benzene now. How this translates into phenol is also a matter of how it is consumed and how customers stock it. So we will see. It's not a good time to crystal ball gaze and give you a perspective of the next few quarters. But what we are ensuring we are doing is maintaining a broad purchasing scope.
So we don't depend on one or two suppliers only. We buy from as many suppliers as possible. We tighten our purchasing rate because we are very large consumers. And we are also exactly where we need to be in terms of supplying to our customers who don't want to be depending on a very long credit cycle in order to get their Phenol, Acetone, or IPA. And moving forward over the next 6, 8 months, we will also become significant consumers of our own products. So we have to ensure that our de-bottlenecking capacity is allowing us to maintain our wallet share despite an internal consumption story also.
Sure, sir. I got that, sir. Also, second question in terms of the total INR 14,000 crore of investment in Gujarat, just to get a perspective in terms of whether the projects will come all together or maybe some projects will come in 2026, and the rest of them will come in 2027.
So we've clarified that about 2,000 out of that is in advanced phases of execution and will be commissioned over a period of time over the next few quarters. The remainder of that, we're working along with technology providers in order to optimize which comes first, which comes second. But it's clear what needs to happen by the end of 2027, right? So look at it from the perspective of ensuring knowing that for a company like Deepak, 2027 end is a very clear perspective. We have to make sure that we get our things right for which we have good internal strength, financial strength, as well as technical strength. So if you look backwards from 2027, you'll see a very clear picture emerge. Well, it almost becomes irrelevant whether things that clump together bundle together or not.
What will also add a leap to this is that once these capacities, as we mentioned earlier, of phenol, too, of cyanation, of various processes for making the polycarbonate and the compounding come into place, it gives us a wide constellation of applications for the spec chem industry for which we are also keeping some amount of dry powder on the side in terms of investment availability. So 2027 will see a marked base increase for Deepak, both in the "commodity chemicals" which will be downstream with the current play as well as what one would qualify as specialty chemicals which will be multi-step synthesis, including these processes which are not exactly, but almost for the first time in India.
I've got that, sir. Just one last clarification. Given that we have operated the phenol plant at close to about 88,000 tons of capacity during this quarter, if I just calculate on an annual basis for four quarters, the capacity comes to about 350,000. Would that calculation be right? Thank you.
Yeah, that calculation is right. But you can't multiply because each quarter, we have seen some changes in quarters. But I mean, what you are saying is right. It is around that only.
Sure. That helps a lot. Thanks a lot and all the best. Thank you.
Thank you very much.
Thank you, sir. We have our next question from the line of Pawneesh Kumar from [Uncertain] . Please go ahead.
Yes. Good afternoon, everyone. Am I audible?
Yes.
Ye s, yes.
Good afternoon.
Yes. So first question is that with the kind of projects that we have planned in upcoming 2-3 years, what kind of operating margins are we looking at? In last quarter, we did around 15%-15.5% operating margins. What kind of operating margins are we looking at with all the capacities up and running?
See, let's understand one thing. Whatever announcements we have made, as mentioned by our chairman, Deepak will be the most integrated petrochemical plant, maybe perhaps in the world only. This will be we will add certainly to whatever current margins we are seeing because ultimately, we are going downstream in the product. We are going upstream also in the product. So combination of all these things, I mean, it puts Deepak on a different horizon also better. I mean, so when we talk of this 9,000 announcement, and I would like to answer you in financial numbers, the payback should be or would be in the range of, say, 5 years, 5, 5 and a half. But then we depend on various uncertainties in the market. But this is the calculation. And roughly, one should expect 2%-3% higher than what normal phenol margin is in all these projects.
You can calculate accordingly.
Okay. Secondly, I wanted to know, sir, in the last annual report, there was a mention of a QIP that was planned for Deepak Nitrite.
Okay. We'll come back to you on all these things. See, we will have to finance INR 14,000 crore project. Out of the INR 2,000 crore is already done, but say, INR 12,000 crore capacity. So we will get that. We have to sit and work it out because we are having enough room for debt. We have enough cash available. We are generating; this is what we are talking about, INR 2,000 crore on hand. So depending on the cash flow requirement every year. I mean, as I mentioned in my earlier remark also, this is too early to answer your question. How are we going to whether QIP होगा, ये होगा? And certainly, come back to you once we finalize our process. I don't want to jump unless I am saying something. It's very easy for me to say a date and ECB होगा या international, etc.
Let's work it out and then come back to you rather than just giving a lot of numbers of figures.
Fair enough, sir. Fair enough. Just.
I just wanted to take this opportunity to answer your earlier question here.
Yes, sir.
See, I would like you at least to think about Deepak as a balanced portfolio of equities and bonds. You'll have individual businesses that are countercyclical by their nature. So the most significant question that you should be asking is whether you believe in the fundamentals of the company.
Agreed, sir. Agreed. Hello?
Yeah, yeah. Yeah. Thank you for the answer, Maulik Bhai and Somsekhar. Just last question, sir. Abhi humne bahut saare apna announcements humne kiye hain recently. INR 9,000 crore we have promised in Gujarat. Then INR 5,000 crore we also had promised in Gujarat. Then we have some projects coming up in Oman also. Just for the benefit of all the audiences, can you please summarize all the projects that we are planning in next four, five years?
Summarize? You want to make you name the products?
The KPIs that we are doing in next 4, 5 years? Can you please summarize all of them?
We've announced that we're getting into specialty chemicals, upstream integration including hydrogenation. We are getting into a greenfield expansion of phenol, acetone. There will be this Bisphenol A which will be as a downstream of phenol and acetone as well as an upstream of polycarbonate resin. We will also be making MMA which, as you noticed, was a tongue twister for me when I was discussing. That will then also go into making of PMMA. We will also be manufacturing aniline which, by the way, will be what one would call a high-grade aniline, okay? So just to be clear, it is not the average PU-grade aniline, but it is what you call an aramid-grade aniline. You also will be looking at an investment in Oman which we have announced, and we're calling it a phase one announcement because this will be for sodium nitrite and sodium nitrate.
We will also be putting up an investment for a world-class research and development center which is also, by the way, progressing well and should see the light of day maybe by about 12 months from now. And over and above this, you have the infrastructure development which will house all of these projects because they will need the utilities and other assets online as well. The reason that we put up a separate project management company is to ensure a high degree of governance because we will be doing multiple projects at the same time in multiple geographies. And for what it's worth, we do not make announcements about CapExes incurred for de-bottlenecking downstream expansion. And we also do not announce CapExes if they are involved in specialty chemical products which will be delivered in Deepak's basket as an additional to what we are currently developing.
Those are not mentioned, not included, and not discussed. These large-scale projects which we have announced, by and large, these are all happening semi-concurrently and by our internal team. Some of these will have external technology suppliers who have demonstrated globally plans of world-scale capacity.
Thank you so much, Maulik Bhai. Thank you so much.
Thank you.
Thank you, sir. We have our next question from the line of Mrunal from Axanoun Investment . Please go ahead.
Hello. Am I audible?
Yes, sir. You are audible.
Whatever the products that we are manufacturing, is there any anti-dumping duty on any of the products?
No, no. Not today. Currently, that is on aniline. Anything for you or not yet? We are not manufacturing.
Okay. You're talking about existing products?
Yes.
No.
Okay. And the KPIs that you have announced around next?
Hello?
Oh, Mr. Mrunal, we are unable to hear you. Yes, we are unable to get to Mr. Mrunal. We will move on to the next question. We have our next question from the line of Chirag Shah from White Pine Investment Management. Please go ahead.
Yeah. Thanks for the opportunity. See, most of the questions are answered. There are two questions then, very basic ones. If I compare F22 as a base and currently, if you can annualize nine months if required, how is the volume growth that we have seen in Phenolics and other than Phenolics? In a very simple way, if I have to ask you. For our business, what has been the volume growth ballpark if you can indicate?
Across Deepak Nitrite standalone and Phenolics, there has been volume growth. You can assume that it is somewhere between 15%-17%.
17%-20%. It depends on per annum basis or from point to point?
You ask from a base number, no?
Yeah. So point to point, right? Okay. And it is similar for both or Phenolics would have a higher and other would have lower?
Oh, gross volume for Phenolics is always higher.
Okay. Okay. And the second question is now you have partly answered. Historically, you always used to maintain that a bit the margin guidance broadly should be 16%-20% based on business cycle, product mix, etc., etc. Given the value addition that we are looking to do and including downstream also in that, shouldn't this ballpark guidance actually show a significant uptick when the projects stabilize?
That product mentioned that, yes, the guidance is right to 16%-20%. With all this because this is going further downstream and even somewhere it is upstream also. It should add to, though it may not add to the top line if it is captive, but it should add 2%-3% over current EBITDA margins, EBITDA profile.
Is it right to look at 12 months out the project stability? If you start a project today, you should see those benefits 12 months out. That is the right way to look at it?
No, it depends. Project stabilization is different for different products. So if you're using a hazardous chemistry, for example, you need to have a very slow scale-up so that you can measure the impact with regards to the internal equipments as well. If you're using assets which have generally a very robust manufacturing profile, you can scale up fast. And in some cases, the scale-up is also contingent with regards to in line with the customer's buying requirements. For example.
Fair point.
There are a couple of specialty chemicals which we will be making which will be high value, but the customer himself or herself requires about six months with regards to ensuring that the product is remaining stable with regards to shelf life. So these are depending on different products and different chemistries.
Last question is, you mentioned that for the new KPIs that you are doing, ballpark payback is 5 years. So if I do a very basic math, it is actually ROC diluted as compared to what current ROCs that we have. Any thought on that side?
No, no.
I mean, I'm just looking at the reported ROCE. I'm just looking at the reported ROCE.
New KPIs versus today's ROCE, you are considering the depreciated assets. So there is a big difference between the two. You can't compare today's situation with the new KPIs. After 3, 4 years, even whatever investments we are making when we start generating profit, you will have the same ROCE in the initial phase.
No, I thought five-year payback.
Compare.
No, no. So thanks for this because I was wondering, 5-year payback, generally, when you say 5-year payback, the first 2-year payback ROCEs would be significantly lower and then it will scale up, right? So that's why I was trying to understand how you are looking at this 5-year payback number. Okay.
But I think I answered that. I mean, this is generally ballpark number. Some projects will have 3 years. Some projects will have 4 years. We are talking of INR 14,000 crore investment. So it cannot be.
Okay. And lastly, this INR 2,000 crore CapEx that we are doing now, because there is an element of backward integration in this also, how should we look at the asset turnover here? If you can help us understand because there is a lot of projects coming up with a lot of different type of value addition happening. So on a INR 2,000 crore, once the project stabilizes, what kind of gross asset turn one should look at? Hello? Hello? Hello? Hello?
Thank you. We have our next question from the line of Dhara from ValueQuest. Please go ahead.
Hi, Maulik?
Yes, ma'am. Please go ahead.
Thank you for this opportunity. I just want to understand what is happening around one of the largest.
Sorry to interrupt, ma'am. We have the management line disconnected. I will connect the management line. Just a moment.
Sure.
Ladies and gentlemen, we have the management back with us. Please. Over to you, sir.
Yeah. So I think I answered already. So I don't know whether further questions are there.
Yes, Ms. Dhara. You can go ahead with your question.
Yeah. Sure. Thank you for the opportunity. So one of the largest phenol manufacturers in Europe has shut its capacity. So are we seeing any benefits coming in terms of volumes and realization and our volume share increasing? And when is the full capacity for phenol coming in and what is the kind of timeline?
So we are seeing that already here. We are able to sell such a volume that itself shows that.
If you are referring to the recent shutdown in Germany.
Yes, yes. The recent shutdown.
So that is a forced measure. It is not a shutdown like how you have heard about in other places in Europe which is a permanent closure. This is a forced measure. Now, it starts off with some level of sentimental buying. We don't comment on that. Sometimes it will be there. Sometimes it will be more of desperation in terms of volume, pricing. So those are all parts of regular business. So I would not comment about the impact of enhanced forced measures. And we'll see how long it stands out because they themselves have not, to the best of my knowledge, declared how much time it will take in line with a forced measure . We remain capable of supplying increased volume if there is a requirement. And in the meanwhile, we are focused on ensuring that plays the role.
Okay. If you can share the timeline for the greenfield Phenol expansion.
Before 2027, it should be commissioned. Before end of 2027 because that is when we will be consuming this increased amount of propylene.
What would be the size in terms?
It can happen at that time also.
Okay. And the capacity would be?
I think similar, by and large. Maybe it will be a little bit more adventurous with regards to the capacity, but assume it will be something similar to what we have currently.
Okay. One bookkeeping question. If you can share the Phenol volume numbers in the last three quarters that you have done.
Scale volume, production?
What do you mean? What do you mean?
Sales volume. Sales volume done in the last three quarters, if you can give that number.
I don't think we should share the numbers on the quants. What is the relevance? Because these numbers are inclusive of Acetone, of IPA, of AMS, whatever else. I don't know. So.
I just wanted to see on a standalone basis how much of the growth is led by volume.
We've already mentioned that there has been 13% revenue growth. That has been volume-led growth. So total volume growth is around 17%-20% in the commodity line one. That's what we have seen. Now, we don't want to give you details of each product and that will not be right for us to.
Okay. Sure. Thank you. That's informative.
Thank you. We have our next question from the line of Garveet Gohil from Nvest Analytics . Please go ahead.
Hi. Thanks for the opportunity. Just one question on the photohalogenation and chlorination part. So how is ramp-up going to happen and what contribution do you expect in FY25, sir?
So with regards to the ramp-up, the ramp-up will be in a structured manner. The requirement is already there. Partially, it will be assumed internally and partially, the production will be sold externally. But the same asset will also be used to manufacture other products. And that is why the assets have been what we call up-engineered. So photohalogenation products will also be sold out. The high-pressure chlorination will be a downstream from the halogenation. That will also have further downstreams going into both Deepak Nitrite's requirements as well as our customer's requirements. On a blended basis, I would qualify that in the medium term, the margin profile is in one way similar to what you normally expect from Deepak, so.
I was asking from the contribution to top line.
As to month-on-month, simply because there are always those challenges where you want to make sure that you're doing things safely first and then efficiently second.
Yes, sir. That I understand. Just can you share any number like what percentage utilization do we expect in FY25?
By the end of the second quarter, I think we should have a very high utilization.
Understood, sir. Understood. That's it from my side.
I mean, frankly speaking, also, just I want to be very honest here. I'll say that when it comes to both of these processes, these are not easy and these are also the first time that Deepak, as a company, is doing it. We're committed to doing it safely and responsibly. We also have the best talent in the country who's going to help us. So our confidence is based on the confidence that our teams have. But we're also humble enough to accept that this is a new chemistry for us. So whatever it is, we will err on the side of caution. Our people on the ground are our most valuable commodities.
What is the peak revenue do we expect from these chemistries?
difficult to answer because some of these are going to be, as I mentioned, products that Deepak itself will consume and sell, but some of these are also going to be used for co-development with our customers for pipe chemistry. So those will depend; the revenue coming in will depend on the kind of agreements that we have in place with our customers. Those are all covered by NDA. So even though these are just a handful of assets, it's difficult to give you an answer because it's a blended product portfolio.
Understood, sir. Thank you, sir. Thank you very much. All the best for the future.
Thank you so much.
Thank you. Ladies and gentlemen, due to time constraint, that was the last question for today. I now hand the conference over to the management for closing comments.
Thank you all for joining this call. In case any further clarification requires.