Ladies and gentlemen, good day and welcome to the Deepak Nitrite Q2 FY 2027 earnings conference call hosted by IIFL Capital Services Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. 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. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. I now hand the conference over to Mr. Ranjit Cirumalla from IIFL Capital Services Limited. Thank you, and over to you.
Thank you, Nessa. Good afternoon, everyone, and thank you for joining us on Deepak Nitrite's Q2 and H1 FY 2027 earnings conference call. Today, we have with us Mr. Maulik Mehta, Deputy Managing Director, Mr. Sanjay Upadhyay, Director, Finance and Group CFO, and Mr. Somsekhar Nanda, CFO of Deepak Nitrite Limited. We will begin the call with opening remarks from the management team, followed by an interactive Q&A session. To begin, Mr. Maulik Mehta will share views on the operating performance and growth plans of the company, followed by Mr. Sanjay Upadhyay, who shall take us through the financial and segmental performance. The result documents have been shared with you earlier and have been posted on the company's website. I will now invite Mr. Mehta to share his opening comments. Thank you, and over to you, sir.
Thank you. Good afternoon, everybody, and a warm welcome to Deepak Nitrite's Q2 and H1 FY 2027 earnings conference call. Thank you for your continued interest in the company. Our investor presentation and financial results have already been shared, and I trust you've had an opportunity to review them. I will begin by sharing our perspective on the operating environment, business performance, and strategic developments, following which Mr. Upadhyay will take you through the financial results in greater detail.
At the outset, I'm delighted to announce that we have achieved the best-ever performance in Deepak Nitrite's operating history of over five decades, delivering record revenue and EBITDA on both a quarterly as well as a half-yearly basis. Consolidated revenue from operations for Q2 stood at INR 3,091 crore, registering a sequential growth of 19% and year-on-year growth of 61%. What makes this achievement particularly noteworthy is the challenging environment in which it has been accomplished. I'd like to congratulate our entire team for its commitment, agility, and outstanding execution.
The global chemical industry continues to navigate significant volatility arising from geopolitical developments, disruptions to international trade, elevated freight and energy costs, as well as uneven demand across end-use applications. These developments are also influencing sourcing preferences, with customers increasingly valuing assured delivery, consistent quality, as well as reliability of supply. For Deepak, this environment has presented opportunities as well as challenges.
Our extensive domestic manufacturing footprint, integrated operations, and ability to respond swiftly to evolving market conditions have enabled us to capitalize on such opportunities while mitigating disruptions across our businesses. On Phenolics, this was our principal driver for the quarter's performance, achieving its highest-ever top line and profitability. Disruptions to international supply chains, higher landed costs of imports, and firm domestic demand created a favorable market environment.
Importantly, our teams were able to capitalize on these conditions through proactive procurement of critical feedstocks, maintaining consistently high operating rates, and ensuring dependable supplies to customers. Despite challenges in securing our basket of inputs, we sustained high throughputs across the Phenolics chain, with several assets operating at or above their rated capacities. This reflects the quality of [audio distortion] supported by an improvement in the demand across various product categories, capacity-led expansion in select product lines, and the gradual ramp-up of recently commissioned facilities.
We are also continuing to diversify our product portfolio, customer base, as well as geographic presence. This approach is intended to reduce dependence on individual products or markets, improve our ability to serve customers, and create a more resilient earning base. A key priority for us continues to be the development of integrated manufacturing platforms that improve raw material security, enhance cost competitiveness, and enable greater value addition. This is over and above best-in-class carbon footprints, as well as an overall integrated cost platform.
The stabilization of our ammonia-to-amines chain, together with the expansion of our nitration as well as hydrogenation capabilities, represents an important milestone in this journey. These investments strengthen supply security and provide the infrastructure required to develop a far broader range of downstream products. During the quarter, we continued with the ramp-up of recently commissioned assets, including the nitric acid facility, while progressing with the commercialization as well as scale-up for manufacturing downstream products such as MIBK, MIBC, as well as their derivatives.
Moreover, toward the end of the quarter, Deepak Chem Tech also commissioned its chlorination, which is in addition to the photo-halogenation assets, as well as its specialty chemicals plant in Dahej, with a capital investment of approximately INR 300 crore, including associated utilities and infra. The commissioning strengthens the group's manufacturing footprint and expands the specialty chemicals portfolio, enabling Deepak Nitrite to cater to a wider range of customer requirements and capture emerging growth opportunities.
As the plant ramp-up in operations, they are expected to drive incremental revenues, improve capacity utilization, as well as generate operational efficiencies and t his will also lead to margin improvement, as well as strengthening of the overall company's performance. These facilities, as they stabilize, and customer requirements, as they translate into commercial volume, are expected to provide a greater manufacturing flexibility and support optimized cost efficiencies.
On our integrated polycarbonate project, we continue to advance in line with its execution roadmap. Progress at Dahej, alongside the dismantling and relocation activities in Germany, are expected to steadily build up the foundation for our entry into advanced materials. We are also progressing well with customer qualifications for the polycarbonate compounds across multiple applications. Looking ahead, we remain encouraged by the opportunities across businesses. In Phenolics, our priority is to sustain high throughput, strengthen downstream value addition, and grow wallet share.
Within Advanced Intermediates, improving capacity utilization, new product introductions, and the ongoing recovery in deferred demand provide additional avenues for growth. As our new assets progressively ramp up and customer qualifications translate into commercial volumes, we expect an increasingly diversified contribution from our portfolio. While geopolitical uncertainties and price volatility may persist, we believe Deepak is better equipped than ever to respond to changing market conditions. Our focus continues to remain on maximizing asset turns to our existing lines while building new platforms for long-term growth. With this, I'd like to hand over the call to Mr. Sanjay Upadhyay to take you through the financial performance of the quarter as well as the first half. Thank you.
Thank you, Maulik, and good afternoon, everyone. I'll take you through the financial and segmental performance for the quarter and half-year ended September 30, 2026, followed by an update on our balance sheet and capital allocation. Consolidated financial performance for the quarter two marked another record quarter for Deepak Group. Consolidated revenue from operations increased to INR 3,091 crore, registering growth of 61% year-on-year and 19% sequentially.
EBITDA reached a record INR 643 crore, growing at 187% year-on-year and 16% quarter-on-quarter, with EBITDA margins sustained at 21%. PBT increased to INR 543 crore, with PAT reached INR 398 crore, representing sequential growth of 16% and 15% respectively. For H1 FY 2027, consolidated revenue stood at INR 5,682 crore, registering 48% year-on-year growth. EBITDA increased 173% to INR 1,197 crore, with margins expanding to 21% compared with approximately 11% in corresponding quarter last year. PAT increased 221% to INR 743 crore. The significant year-on-year improvement reflects higher operational throughput, favorable product economics, effective procurement, and better utilization of our manufacturing assets.
Now, on segmental performance, Phenolics delivered highest-ever quarterly revenue of INR 2,291 crore, an increase of 29% sequentially and 72% year-on-year. EBIT increased to INR 515 crore, up 23% quarter-on-quarter, and with EBIT margin of approximately 22%. For H1 FY 2027 , the segment recorded revenue of INR 4,066 crore and EBIT of INR 933 crore. I'm sure many of you would have noticed that just in first six months of this financial year, the EBIT of INR 933 crore has surpassed previous highest annual EBIT of INR 867 crore, which was registered in FY 2022. We believe the business is well-placed to sustain the momentum and will be setting a new benchmark in annual performance for this segment by the end of the financial year.
The improvement was driven by a combination of healthy capacity utilization, favorable domestic realization, and procurement efficiencies. While product spread remains subject to market conditions, the business continues to benefit from its manufacturing scale and ability to optimize product and feedstock economics. We will continue to strengthen our segment through ongoing debottlenecking, downstream integration, and disciplined commercial execution. These initiatives are intended to support sustainable profitability while allowing us to respond effectively to changing market conditions.
In Advanced Intermediates, quarterly revenue stood at INR 811 crore, representing 38% growth year-on-year, and marginal sequential increase in the EBIT stood at INR 49 crore compared with INR 67 crore in Q1 FY 2027 , with EBIT margin at 6%. For H1 FY 2027 , revenue reached at INR 1,615 crore, while EBIT doubled year-on-year to INR 116 crore. The sequential moderation profitability reflected the headwinds from input prices, some variation in customer volumes, as well as impact of duties, logistics, and freight rates.
As Maulik indicated, headwinds for Advanced Intermediates businesses are tailwinds for Phenolics. Our integrated model allows us to position ourselves favorable for these changes. On balance sheet and capital allocation, consolidated net worth increased to INR 6,521 crore at the end of September 2026. Consolidated net debt stood at INR 1,657 crore compared to INR 1,676 crore at the end of the previous quarter. Consequently, our net debt-to-equity ratio improved to 0.25x from 0.27x. Working capital management also continued to improve, with net cash conversion cycle reducing to 53 days from 57 days in Q1. This reflects our ongoing focus on inventory efficiency, receivable management, and financial discipline.
As we progress on our expansion program, our capital allocation priorities remain centered on disciplined project execution, prudent leverage, and improving returns from both existing and newly commissioned assets. The financing arrangements for our growth investments are in place. We continue to monitor project expenditure, funding requirements, and cash flow closely to preserve our financial flexibility.
Looking ahead, our financial priorities are clear: sustaining operating efficiencies, improving cash conversions, and progressively translating our investment program into higher asset productivity and earnings contributions. While external market conditions will continue to influence our near-term profitability, our focus will remain on strengthening the underlying financial performance of the group and ensuring that growth is supported by sound capital allocation. With that, I would request the moderator to open the floor for questions. Thank you.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question 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 handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Nirav Jimudia from Anvil Wealth. Please go ahead.
Yeah. Good afternoon, sir, and congratulations on excellent set of numbers. Few questions from my side, sir. First on the AI segment, like when we observe our numbers, we have already achieved EBITDA run rate of FY 2026 in first half of FY 2027 and y ou touched upon few of the aspects that in the month of July, there were the imports which came by, and there were some pressure on the capacity utilization for the end-user industries. From a broader perspective, if you can share your thoughts in terms of which of the products in the AI segment have seen a volume increase or improvement in the capacity utilization, and if you can just extrapolate your thoughts with respect to second half of FY 2027, how it looks like, and some thoughts on FY 2028, that would be very helpful.
Okay. Hi, Nirav. When I referred to imports, largely these were for sodium nitrite as well as nitro aromatics, so d omestic demand is strong. And while we work proactively to see how to purchase ammonia and other critical raw materials in Q1, one thing that happened is that consumers saw the market price, not the price at which we imported, and preemptively decided to import their products in significant volumes because the demand for them was certain. While we managed to service some of the customer requirements, we were not able to manage as much as was required by them, and this therefore led to dealing with imports in Q2.
Largely, as I mentioned, these are nitro aromatics and sodium nitrite. Looking forward in Q3 and onwards, Q4 and beyond that also. We have seen most of these consumers return back to Deepak as their preferred source of supply, and we have also intimated to the broader market that Deepak now stands ready to be able to cater to the entirety of their requirement.
This has led to an increase in confidence, orders being placed at an accelerated rate. So what we saw in Q2, we believe that we are better placed to be able to address this kind of demand in Q3, Q4, and onwards. Our integrated upstream assets from the month of September onwards have already been able to demonstrate in excess of 100% capacity utilization, and we will keep on ramping up as we look forward. This is based on our own operational excellence initiatives.
Perfect. Sir, just wanted your thoughts on the fluorination CapEx, what you mentioned, that we have completed at a CapEx of INR 300 crore. Combination of that, coupled with the fact that the nitration benefit would start coming up fully from second half of FY 2027 , how does the profitability reset is happening at the AI segment? We have seen a steady run rate, but what could be a broader sense in terms of understanding from you that this could be a steady state run rate, and it would start improving from, let us say, fourth quarter or next year could be a good assumption where we could see a substantial improvement in our AI segment profitability?
Okay. We expect Q3 to be, in terms of EBIT percentage, somewhere between Q1 and Q2, I think closer to Q1 in terms of percentage. In terms of absolute, we expect to have numbers which, including the addition of the assets which were commissioned in DCTL, add substantially from Q3 and Q4 onwards. So I would assume that in Q4 EBIT percentage should be better than Q3, and on an annualized basis from next year onwards, we should see further improvement. Some of these investments that we have commissioned, especially in Ag Chem, they are linked to annualized procurement or contracts that are there with customers.
So those happen in line with their campaign runs, b ut the way that we have commissioned those assets, they are over-engineered to be able to do a multiplicity of reactions as well as products. So w hen we looked at fluorination, even at that time, I had clarified that these are over-engineered assets. They are able to do not just aromatic fluorination, but pyridine fluorination as well. The same concept applies for the chlorination as well as the photochlorination, as well as the specialty chemical assets. So this will allow us a broad spectrum of applications where we are, in a way, de-linked from campaign management that our customers may have in some applications, and we should be able to perform a very broad range of chemistries over and above what we traditionally perform.
Perfect. Sir, second question is on the Phenolics side. So last time you said that we have made ourselves ready for close to around 4 lakh tons of annual volumes. Just wanted your thoughts that whether we have achieved that sort of run rate in Q2, and on a consistent basis, is it possible that we can run the plant at that sort of run rate on a full-year basis from next year onwards? That is question number one. In addition to that, if you can share your thoughts on IPA also, because I think there were some propylene shortages in India, and because of which we could have an advantage on. So if you can share your thoughts on IPA utilization for second quarter, and how do you see it for second half, that would be very helpful. Thank you so much.
Sure. With regards to asset capability, I think we have come close enough to the 4 lakh ton ± . We will continue to see how we can squeeze out more production. In the last six months, there has been a disturbance with regards to propylene availability. So very often what we have ended up needing to do is buy from non-traditional sources, and even if it has been at higher prices, in order to make sure that we continue to maintain a kind of presence. So I would not say that Q2 has run at a consistent 4 lakh ton capacity.
I would say that it is less than that, but not significantly less. Proactive procurement strategies is what has helped us optimize. And moving forward, as we expect winter months, which always help with an improvement in throughput, that will also give us some benefit and t his management of raw material costs and better placement with regard to our product, this is what will lead us to a sustained profitability in Q3. When you asked about isopropyl alcohol, IPA—
Yeah.
—yes, companies in the world make it via the propylene route, and Deepak Nitrite makes it via the acid route. So any disturbance in propylene supply is something that would possibly affect other manufacturers more than Deepak Nitrite and t here, we do have this benefit. By and large, we have run IPA at 100%. For us, we always focus on the integrated value. So if we find that acetone is able to drive more value, IPA is able to drive more value, and now we have also commissioned our MIBK and MIBC assets. So all put together, we are approaching the business via an integrated platform play.
Perfect, sir. Thank you so much, and festival wishes to the entire team of Deepak Nitrite.
Thank you, Nirav .
Thank you. The next question is from the line of Archit Joshi from Nuvama. Please go ahead.
Hi. Very good evening, sir, and season's greetings. So first question on Phenolics. So generally, as analysts, the dichotomy that we face is the calculated spreads that we have for phenol acetone versus what Deepak Nitrite reports are significantly different. And like you said, the sourcing strategy would have definitely helped, sir. At this juncture, when we are seeing a new entrant in the Indian market coming into the Phenolics domain, how do we see this in terms of supply-demand? All the spreads that we have been able to maintain so far, given the dominating situation that we were in terms of the capacity that we have. Any thoughts on the outlook of phenol acetone for us?
So I would say that largely, the profitability for the phenol acetone value chain for us is largely linked to the accelerating consumption of phenol acetone and the downstreams in India, right? It is, in a way, the depreciating currency, the high freight rates, insurance rates, and the delayed arrivals of import volumes into India are actually the advantage. Of course, in Q1, the government had also removed the duty on imports of phenol, and appreciate their support in reinstating it in Q2. So these are the aspects which actually create more of an opportunity for local manufacturers.
Frankly, I look at any high-quality manufacturer actually increasing the animal spirits of investment opportunities in India for consumption of phenol acetone and their derivatives. So, I believe that this will actually accelerate consumption of phenol. Over and above that, I think that the geographic spread as well as the consumption patterns and the multiple SKUs that we have in place actually cater more to the growing demand, which is focused more on West India as well as Southwest India.
I think we're well-placed, and I don't see any significant disturbance arising from an increased local manufacturing. We've seen that with Deepak itself, where we increased from a startup of about 2 lakh tons to right now, where there has been, by and large, no letup in the kind of imports that have come. But the cost to the consumer is what has changed substantially. So now, with broader localized manufacturing, I think customers will be very happy to invest and consume more.
Noted, sir. Just an addendum to that would be, I mean, if we look at the Phenolics performance, as you indicated, this is a record high performance, probably at par to what we did in the previous super cycle during COVID. But I guess at that point in time, the drivers for the phenol acetone story at that point in time and right now might be slightly different, given that there's a war situation at play. Sir, is this the sustainable performance that we can expect, given the cycle where we are in? Because maybe a couple of quarters back, we were talking about China's dominance, and despite that, we have been able to deliver extremely strong results, so I just wanted to get your sense on where are we in the cycle over here in Phenolics?
Right. I always appreciate these questions about cycles because it gives an impression that certain parts of the business are "commodity", and other parts of the business are "specialty". I generally push back against this assumption because I believe that the distinguishing factor between something considered commodity and specialty is the kind of control that one has over the consumption landscape as well as the cost base. Now in the last six months, I can also tell you that the price of our feedstock, for example, propylene, in many cases, we actually paid double the price that we would have paid, and possibly close to double the index, simply because that is how hard we had to work to proactively move propylene over to us, given the geopolitical circumstances.
This is not traditional, but this ability to do this at a large scale and ensure that we are satisfying customer requirement actually moves us away from what one would consider as a commodity. Because in reality right now, there is no super cycle. A super cycle generally exists when the demand trajectory is consistent, and then there is a gap between existing capacity and capacity coming on stream in the near future. So the capacities which were announced several years ago in China, in Southeast Asia, etc. , they have already come online. If you look at it from that macro perspective, really speaking today, there should be absolutely no super cycle. What you are seeing—
Right.
—is the result of a buoyant domestic demand coupled with the general disruptions which take place with geopolitical material movement. This is not linked to a commodity super cycle as you would otherwise define.
Right.
And this gives companies that have large-scale efficient manufacturing and good wallet share a much better control than one would anticipate as a commodity.
Noted, sir. Just one last bit. Correct me if I am wrong. The polycarbonate commissioning is pushed back to FY 2030. I believe it was somewhere in FY 2029. Any reasons if that is what you have mentioned?
Yeah. Hey, thank you. Thank you, Archit, for clarifying, asking this question. I anticipated it.
Yeah.
I think what the investor deck is supposed to imply is with regards to an integrated propylene to polycarbonate commissioning.
Sure.
The phenol and BPA commissioning, as I have highlighted earlier, BPA is kind of that middle child, but the phenol commissioning will be in line with the commissioning of the feedstock, PDH plant, as well as the piping. The polycarbonate resin plant commissioning is actually slated as earlier than that. So, we continue to remain in line with our FY 2029 number. However, the integrated asset from propylene to polycarbonate resin is in line with the feedstock availability plan. So, you will see the polycarbonate resin certainly come in earlier. It will be using bought-out BPA perhaps for a brief bit of time and I hope that clarifies your question.
Of course, sir. Of course. Thanks a lot, and wishing you a happy Diwali in advance. Thank you.
Thank you, Archit.
Thank you. The next question is on the line of Sanjesh Jain from ICICI Securities. Please go ahead.
Yeah, good afternoon. Thanks, Maulik, for taking my question. First, on the Advanced Intermediates segment, you mentioned that the upstream, which I believe is nitric acid, is running at 100% now, which is both concentrated and diluted nitric acid. We have commissioned nitration, hydrogenation, and chlorination plant now. This year, we are hoping to complete, what, INR 230 crore-INR 240 crore of EBIT. With all these new plants and the entire benefit reaching, say, in 2028, 2029, where do we see the Advanced Intermediates EBIT reaching for us in absolute term?
In 2028, 2029?
Yes, Maulik.
Okay. Sanjesh, the nitric acid plant has been commissioned. The chlorination, photochlorination, hydrogenation, fluorination, all of these plants have also been commissioned. With regards to absolute EBIT, those are conversations that we are having with certain customers for new applications where these are contractual in nature. We are confident of being able to have a significant market share. What you are asking about is with regards to full asset utilization of all our assets, including nitration and nitric acid, right?
Correct.
There, I would expect about another I think about INR 240 crore is what we are seeing this year. If I was to look at next year, it would be roughly in the range of about INR 400 or so crore, INR 400 crores, INR 420 crore. There is an upside available. We can assume that INR 250 crore plus another INR 250 crore is the kind of visibility that we have on steady state for the existed investments.
That is very clear and helpful. A lot of this incremental EBIT will be more contractual in nature, so less volatile in terms of absolute EBIT. That will be a fair assumption?
Yeah, because there will be formula-linked and cost-positive clauses.
The volatility in the Advanced Intermediates should significantly reduce as we commission and utilize most of this capacity, correct?
So just for clarification, we are estimating that in the next year, with all the assets that have been commissioned running at steady- state, we should be targeting something along the lines of about 14%-15% EBIT.
14%- 15% EBIT. That is versus what we are—
To be clear.
That means we are looking at what, 20%+ EBIT margin in the new capacity, right? Because existing one is generating close to 11%. We are looking at 14%, 15%. That means incremental EBIT is upwards of 20%.
We are also seeing an improvement in the legacy product portfolio.
Legacy product portfolio.
It will be balanced across legacy as well as new commissioned assets.
Got it. And where are we in the discussion? Do you think we will close all this discussion in next three, four months, and the uptick should be visible starting FY 2028 in the EBIT in the AI business?
We are already in ongoing conversations, but i n many cases, we have already started supplying the trial volumes from our commercial assets. They are done, and the testing is done while we engage with customers. Looking at FY 2028, I think FY 2028 should look like a normalized year with all the assets running at relatively optimized utilization.
And Maulik, can you give some more color on the end application for these new capacities that we are commissioning?
They're diversified. In a couple of applications, for example, the chlorination and fluorination, they are targeted at agrochemical customers. With regards to the specialty chemicals CapEx that was announced and commissioned, I would say that it is more to do with electronic chemicals, and there is some opportunity also to play in the legacy applications. In a couple of cases, the assets which include hydrogenation, which include certain things like aldol condensations and those things, they would be focused on the solvent basket as well as on the electronics applications, so t hey would go into products such as polyimides and all and f inally, these are not new investments, but these are products that we are also expanding for the personal care segment. This is more for skincare and haircare.
Super. And then now that a large part of Advanced Intermediates CapEx are commissioned, now the full focus will be on the polycarbonate integrated facility, or we are also looking at expanding the capacity in Advanced Intermediates in next 12- 18 months?
The lion's share of the investment will focus on the polycarbonate facility. There is some investment planned for the AI business, but it will be marginal. It will be more of debottlenecking in a few cases and I think there is one case where we're looking at fresh investment, two cases. So one is where we're putting up an AHF and an ultra-ultra-pure DHF plant.
Okay.
But that is not coming in Deepak Nitrite. That is coming in a separate entity. It will also supply the AHF to Deepak Nitrite, so we will be self-sufficient on that front.
And this is purely for captive, or we are looking at AHF supply beyond the captive consumption?
So, just to clarify, Deepak Nitrite will be buying this from another entity for its own captive consumption. That entity will be selling into the solar and electronic applications.
Applications. This will be our own, as in it will be 100% subsidiary of Deepak Nitrite, right? Or we are looking for a JV or a partner in that case?
It is not a subsidiary of Deepak Nitrite.
Okay. Got it. One last on the Phenolics side. Where are we in acetophenone that we commissioned last year? Are we completely producing that?
No, we commissioned it, and the product has been manufactured. It is also being sold. In some cases, we are working on seeing how we can expand the basket also. So, we have received orders, we have started supplying, and we should see ramp-up of it. I mean, it will certainly be seen and present in Q3, and we should be able to ramp up to full capacity very soon.
Sorry, one last question, Maulik Mehta. Sorry for sticking here. On MIBK, MIBC, how much have we started utilizing, or it is more profitable right now to sell acetone, and we are looking to ramp up eventually, probably next quarter or quarter after that?
We have started ramping up. I think right now we are at about 60%. We are confident about being able to reach 100% and exceeding that at short notice because the asset is extremely efficient. However, of course, we look at it from an integrated approach, so p rofitability will dominate the decision. But asset has been cleanly commissioned, and it is operating at and beyond the target efficiencies.
That is very helpful, Maulik, for answering all those questions, and best of luck for the coming quarter.
Just one more question.
Yeah.
So we recently were able to also get REACH registrations for both MIBK as well as MIBC, and we will also be focusing on export participation of this product. Europe continues to remain a large consumer for applications in such things such as frothing agents and mining chemicals.
But an export solvent will be as efficient as selling it in the domestic market from the profitability perspective?
Yes. We believe that we will focus on wherever the opportunity for the best profitability is, but t o be clear, even in the given circumstances, the export market, especially in Europe, East and West, is extremely attractive. So, we will be participating there with our REACH registration all done in Deepak's name.
Got it. Very clear. Thanks, Maulik. Thanks for answering all those questions.
Thanks, Sanjesh.
Thank you. The next question is from the line of Arun Prasath from Avendus Spark. Please go ahead.
Yeah. Thank you. Thanks for the opportunity. Just, Maulik, you talked about the robust domestic demand of phenol, which is leading to good margins for our Phenolics segment. Just wanted to understand on an annualized basis this year, what is the gross phenol consumption by the Indian market in terms of KT, and how much of that is imported? Secondly, the imports, it is coming from which geographies? Is it Japan, Korea, or other Southeast Asian nations, and how it has changed over the last six to nine months? That will be very helpful to understand the source of these imports.
Okay. So generally, the capacity for India to consume phenol is currently about 6 lakh tons, growing at about 6%-7% annually. I can't really comment about where it is being imported from because a lot of data about import/exports, etc., there is a limited visibility about that. But generally speaking, phenol and acetone are imported from East Asia and I can't comment whether the traditional sources of imported phenol continue to remain the same, but perhaps. Now a lot of these regions are also facing their own shortages with regards to feedstocks such as naphtha.
One thing is, the question that always comes to people's minds with regards to chemicals is the presence of China and its presence in the Indian market with regards to these products. Generally speaking, I'm preempting your question, but generally, we don't see China really participating in the phenol landscape in India and w e are not anticipating this also in the short to medium term.
Now we don't know how each of these individual countries are managing their own feedstock crises. But what I can tell you is that India is a buoyant market. It has its own SKUs, which are different from what you would assume in China, Europe, East Asia and g enerally, this is a very long tail of small, medium, and large consumers going into chemicals, laminates, and solvents. This is non-traditional if you look at markets abroad, where the focus is largely on things like polycarbonates.
No, that is very helpful. But what I am trying to understand is, say we have roughly, from what you said, India consumes close to 600 KT- 650 KT of phenol.
650 KT, yeah.
So probably, yeah. And if our capacity is 400 KT and if we are going to fully operate it, the imports should be around close to 200 KT, 250 KT on a steady state. And if our domestic competition starts, these imports should go somewhere else. The question is, will this put some kind of dragging down the industry spreads, at least in a short or medium term? Of course, on a long-term basis, it is a growing market, we will all grow, but will it reduce the profitability or realized spreads for us because of this excess phenol for a few quarters?
That is a key question. And secondly, on the acetone side, especially the new competition which is going to start up, they do not have really any acetone consumption downstream units, which means that they will be selling in export markets or domestic markets, which will probably reduce acetone prices. Will it have any second-order effect on the acetone downstream products, which will also overall reduce our profitability?
Okay. So I understand that your key question, if I keep all these things aside, is about maintaining a degree of profitability. First of all, I am confident about Deepak's wallet share and market share. The key lever that we have kept in mind with regards to our strategic footprint is acetone and Deepak now stands as India's largest acetone consumer. Now keeping that in mind, we believe that consumers import products such as phenol simply because they have to and g iven the opportunity, they would prefer to buy from a domestic source where their capital blockage and the exposure to volatility, including trade, including timing, including forex, is therefore limited.
The market is a market which is what we consider home territory, which is the Gujarat, Maharashtra, Southwest India and t his is where we believe that we have a good degree of confidence, including in dealing with imports from what were traditionally lower-cost manufacturing countries. We believe that this is relatively consistent with whatever we have been saying so far also. So I believe that whatever it is over the next year or two years, we have had these conversations before when there has been an anticipation of somebody or the other coming in with new phenol capacities.
Largely, Indian consumers have already managed to consume that plus expanded capacities of companies such as Deepak. So we believe that even if new capacity, as and when they come in and they get commissioned, there is enough and more consumption, even excluding the growth, to cater to India's manufacturing as well.
Okay. Understood. Just one clarification on this. If the consumers' or customers' capacity will be resilient as and when the supply of phenol comes, which is what you are implying, which category of the end customers can quickly add capacities to absorb this additional local availability of the phenol? Any categories you would like to call out?
I think that is actually, Arun, I appreciate, that is an excellent question. Thank you for that. I think largely you would see the plywood and laminate industry, the specialty laminates, what we call the decorative laminates industry, in some cases, the chemical industry, as well as the agrochemical industry. I am not mentioning the automotive industry, even though it is extremely fast-growing, because the base is small compared to other applications, compared to international applications and t hat is also fast-growing. That is also traditionally Western India. So I feel like we have an unusual mix of applications in India, and I believe that, as I said, chemicals, laminates, agrochemicals, and automotives would be the ones which are able to quickly expand their consuming capacity.
Understood. And Maulik, probably I missed it. I have not heard any recent updates on our polycarbonate compounding, how that is performing, how many grades we have got it approved from the customer, since we are probably 18 months away from the PC resin plant start. This is very critical, right? How we are progressing there?
Right now, as I had mentioned earlier, this is, in essence, a pilot asset. So our focus right now is on being able to have an approval at as many end applications as possible. So while we may have 500 different customers, our focus is on broadening the number of applications. Right? I am not getting into tons. The tons could be 100 tons, 500 tons, 10,000 tons. Our focus would be on the number of applications, so r ight now, we are approved with electronic grade applications. We are approved with some degree of mobility, some degree of, what do you call it, plastics for—
Sorry. Y eah, I forgot a key one, but this is defense as an application. This is very fast-growing, but the size in India is something which will be substantially larger 18 months down the line than it is currently. There also, we are approved with a multiplicity of applications. These are all for different properties. Right now, our priority focus remains electronics, mobility, defense, and we will see how to expand that beyond.
Arun, I would request you to rejoin the queue for a follow-up question. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the queue. The next question is from the line of Ankur Periwal from Axis Capital. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Just two quick ones. One on the polycarbonate side, wherein you highlighted that we are getting specific grades approved for the pilot asset. Once the full-scale commercial plant is there, how much time will the product approval cycle take here?
No. So the production approval cycle is for the compounds, not for the resin. So the resins are already being imported at in excess of about 2 lakh. 2 lakh tons was about the general import last year. Now it is even higher. So when I was referring to product validations and acceptances, those are for segments like I mentioned earlier, electronics, defense, mobility. These are the places where there is a long approval cycle, t hat's why we prioritize these early.
And by the time the plant is up and running, we will in parallel have also seen how we can ensure that we are quickly expanding our compounding facility. This will be done in line with these approvals. By and large, we will sell the resin into the market, but we will also be selling the compounds. We already have a capacity in place. We will be able to expand that capacity at short notice.
Sure. The integrated asset, as you highlighted, will get commissioned in financial year 2030. What timeframe do you believe it will take for us to reach an optimum utilization here?
So, I think the polycarbonate asset will probably be close to optimally utilized by the time the upstream integration is done. This will be from bought-out intermediate in the meanwhile and t hen once the upstream integration is done, the profitability will be on an integrated chain. Somewhere along this timeline is also when we will have expanded the compounding. So, we will be selling the resin into the market, which is already being imported in substantial volumes. We will also be selling the compound, which fetch obviously a higher price alongside the resin for different applications.
So by and large, I would say that in FY 2031, you already have seen a fully optimized utilization of polycarbonate. You would be seeing an increasing utilization of the compounding facility and the upstream phenol, acetone, and BPA, w e are, of course, going to be the consumers for that, so that you will see a ramp-up in extremely short order.
Ankur, I would request you to rejoin the queue for a follow-up question. A reminder to all the participants to limit your questions to two per participant. Next question is from the line of Abhijit Akella from KIE. Please go ahead.
Yeah. Thank you. Good evening. Just a quick question on the CapEx guidance for this year and next year, please. We have done about INR 700-odd crore in the first half, so what would a reasonable number to expect be from a full-year standpoint and then for next year?
Abhijit, sorry, are you talking from cash flow perspective or the CapEx per se, the capitalization?
I meant from the perspective of the cash flows. I mean, on the cash flow statement, we have shown about INR 700-odd crore.
Cash—
Good. Yeah.
—that around INR 800 crore-INR 900 crore further in the second half. We have already pumped in the equity required, whatever, around INR 50 crore is left, so now bank will have to start funding because we already tied up with the bank. So, more or less, our equity funding is done, and for this year, it is around INR 800 crore-INR 900 further.
Okay. For the next two years also, I mean, until the polycarbonate project is complete, if you could just help us with the—
Next year—
Year.
—further to INR 2,400 crore, and in the subsequent year is also around INR 2,500 crore, and the remaining in the third year, around INR 1,000 crore. Around INR 2,500 crore in the third year. That is—
Sorry to interrupt you, sir. We are losing on your audio. Can you please repeat?
Abhijit, can you hear me?
Yes, I can, but the audio was a little bit disturbed, so if you could please just say that one more time, please.
INR 2,200 crore-INR 2,400 crore next year, INR 2,500 crore in the second year, that is FY 2028-2029, and balance in the third year, which will be in the range of INR 2,500 crore-INR 3,000 crore.
Okay, thank you so much. And the total CapEx across these four years, including whatever we have already incurred as of last year, all of it will be around INR 11,500? Is that the right number?
INR 11,700 crore.
INR 11,700 crore.
INR 11,700 crore.
Got it. Thank you so much. And the other one I had quickly was, if it is possible to share the Phenolics volumes for the first half of this year.
Volumes are, Maulik was explaining, I mean, if you go by the exact numbers, we do not want to share with you, but our capacity utilization is significantly high. First quarter, we had a shutdown, which is not there in the second quarter, so our n umbers, better not to share with you.
Okay, thank you so much. All the best.
Thank you, Abhijit.
Thank you. The next question is on the line of Aditya Iyer from HDFC Securities. Please go ahead.
Hi, good afternoon. Am I audible?
Yes.
Yes, sir.
Okay. Congratulations on a great set of numbers. I have a few questions. So could you give us a breakup on volume versus value-driven growth in this quarter?
Thanks, Aditya. You need to add more color to that question.
So just a breakup on volume versus value-driven growth. How much was led by the pricing? How much was led by the volumes which we could push?
No, I mean, generally, I can tell you that in terms of volume compared to the previous year, I think we were at roughly about the same. Keep in mind, please, that this is not a reflection of capacity. This also accommodates a significant increase in the environment temperature in the summer this year and t his does not include the debottlenecking initiatives that we've done, so w e do have more headroom available compared to last year, but t his is actually more reflective of what we were able to produce because of limited feedstock availability and t hat too, what we were able to produce was based on very proactive procurement strategies from non-traditional sources.
So, keeping that in mind, while we do have headroom, while the teams are actively engaged on the procurement, and we are engaged with the customers, I believe that we have operated at what we would call an optimal run rate with regards to efficiency, although not regards to running the plant as hot as possible. So, that answers your question with regards to value. We did not leave anything on the table with regards to efficiencies of converting raw material into final product.
Okay. And ould you give us some working number for phenol and acetone prices for H2 FY 2027, even a ballpark number?
I think that conversation is an offline conversation. More importantly, these price trends are linked to consumption patterns as well as our ability to pass through high cost of raw materials over. So as the raw material environment improves compared to what Q1 was, where Q1 was extremely volatile, Q2 has improved somewhat.
Thank you. The next question is on the line of Rohit Nagraj from 360 ONE Capital. Please go ahead.
Thanks for the opportunity, and congrats on a strong Phenolics performance. So first question is in terms of acetone captive consumption post-MIBK, MIBC, and IPA. How much of the acetone will be captively consumed? Just a follow-up on MIBK, MIBC, given that the capacities now are operating at, say, 60%, as you mentioned earlier, is it safe to assume that FY 2028 will be able to operate those capacities at full utilization? Thank you.
Okay, thanks, Rohit. I think at the moment, our ability to consume acetone would be somewhere in the range of about 60%-65% of our production and o ur decision would be based on overall profitability at an integrated approach.
Right. This 60%-65% includes the MIBK, MIBC utilization as well?
Yeah, it includes a reasonable estimation of the capacity that we have. It may not include the 100% utilization. We may have headroom available there. We've been able to optimize on the MIBK norms as well.
Right. MIBK, MIBC FY 2028 will be able to operate at optimal utilization?
That is what we are looking at. And now with the REACH registration and our ability to participate in the European market, this is the enabling lever that we were looking for.
Question.
Thanks.
Sorry, this MIBK, today also we are running at around 100% capacity. We can run but d epending on the pricing and depending, as Maulik was explaining, the integrated approach, what makes sense between acetone and IPA and MIBK, a call is taken. It is extremely difficult to pinpoint and give you number of which one will run at 60%, which will run 70%. Generally, what Maulik said, around 60%-65% can be consumed captively but it depends on the economics, how we run the plant, depending on the numbers then.
Yeah. I will also clarify that the receipt of the REACH registration, which is in Deepak's name, so it is not a shared registration. This took place, if I am not mistaken, after Q2 so t his will feature in the current and forthcoming quarters. It was not a feature of Q2.
Sure. A second question, for the integrated project, from polycarbonate perspective, whether there will be any phenol acetone available to sell in the merchant market, or is it that we will be captively utilizing entire phenol acetone for downstream bisphenol A and polycarbonate? Thank you.
Okay. Rohit, we go with the same model that the part of the CapEx is our ability to place products at every stage into the market. So, whether it is phenol, acetone, cumene, bisphenol, PC resin, we are able to participate in the market with all of these things. Generally, we should be in a position to be able to participate up to about 100 KTPA from our new capacity with regards to phenol in the market also. Now this may change depending on the rate at which we choose to expand PC production, because this is also very fast-growing in terms of import. So, the opportunity is there. The entire integrated site infra is already there. It will be there by the time we commission and b y and large, we will be able to add another 80-1 00 KTPA in the market from the new capacity.
Thank you. The next question is from the line of Sajal Kapoor from Antifragile Thinking. Please go ahead.
Yeah, thank you for the opportunity. Good afternoon, Maulik, and congratulations to you and the team on a record half. I have two questions as a long-term shareholder, both more reflective than numerical. First, you made a lovely point today that the line between commodity and specialty is really about control over the consumption landscape and the cost base. As Deepak has moved from capacity creation to platform creation, where have you seen that control grow the most, and what has been the most interesting change for you as it happened? That is my first question. Thank you.
Okay. Sajal, first of all, thank you for continuing to invest in Deepak . So with regards to control, by and large, the first thing to believe is in the resilience of the Indian growth story. Now there are always going to be challenges and opportunities for this story in India. We are, of course, neighbors to China, which is the world's largest producer, exporter, dumper, whatever you want to call it, of products all the way from chemicals and downstream. That does not define India's opportunity base. So India's opportunity base is linked to a good understanding of placing product in India.
Control comes from having that relationship, regardless of whether it is small, medium, or large, and understanding the way that this product is applied and consumed so i t is not a single SKU that fits everything. It is the ability to be able to provide an SKU, the quality, the performance, as is required and w hile Deepak's story is not just India's story, having India's consumption base as an anchor available, this allows us to be able to optimize and focus on efficiency when we are targeting export markets.
So there, the opportunity is to be able to, whether you call it a China+1 or a de-risking, there we are able to stand shoulder to shoulder along with the best in the world with regards to carbon footprint, with regards to environment safety, and with regards to integrated approaches. Our customer benefits from the scale of operations that we have, benefits from the multiplicity of products that we have.
So very often, even in those applications when we are talking to multinationals, what we are able to provide is a very large breadth of products, which go into multiple applications that are multiple points of their distinct supply chain. This is what creates that resilience and w hen we refer to control, that control is not on an individual product. It is with regards to the total value that we place as a basket with customers. Our focus is to see how we can improve that.
Hmm. No, that's very helpful, Maulik. Second, you opened by highlighting the team's commitment, agility, and outstanding execution, and that's excellent. But beyond that, what's one thing about the business that has pleasantly surprised you over the years, despite the chaos and disruption that are unlikely to go away? What is that element of surprise? Because most often what happens is, amid this randomness, chaos, and disorder, we kind of forget to appreciate that if something has survived despite all that, it may have gained either market share relative to a weaker competitor or something else. Thank you.
Sajal, keeping that in mind, look, the main job of the promoter is to allocate capital and to be able to manage a certain risk appetite. One thing that has pleasantly surprised me, and it continues to surprise me despite knowing the capability of our team, is, frankly speaking, the ability of the team to take this kind of a risk appetite and walk ahead and ensure that any supply shocks, any market shocks, whatever, that the kind of shock-absorbing capability that the team has developed gives any capital allocator more and more confidence into not just investing in the products, we're investing in the team, and we're investing in the team's capability to continue running the business despite all of these geopolitical shocks, etc .
So frankly, whether it is in some cases where one part of the business benefits and another part of the business where there is a short-term impact and then it gets clipped, multiple engines moving at the same time, etc. , really speaking, the biggest surprise over the last many years has been in how the company is able to manage risk and manage to run along with the promoter with regards to maximizing shareholder value and profitability. Now, the market will reward how it rewards and what it rewards based on its risk returns perception. But I can tell you one thing, that this team, the kind of products that we make, this market, this customer base has rewarded us time and time and time again. And I am excited for the shareholders to be able to appreciate that as much as I have.
Thank you. The next question is from the line of Rishabh Tripathi from Multidimensional Centric. Please go ahead.
Thanks for allowing me to ask question. Maulik Sir, in Q1 of the call, I think previous year, we were talking about we are also trying to explore CDMO opportunities. Is there any traction on that, or it is still in a planning or some stage it is, wherein future we might have some opportunities?
Rishabh, this is not in planning. This is already in execution. So for example, personal care, this is all CDMO opportunities. In some cases in Ag Chem, these are also CDMO opportunities. The plants that we have put up, they are, in terms of the technology, the first time in the world that this technology has been put up at industrial scale. And the opportunity that has come has been by collaborating with the customer in that case also, so t his is not something that we are anticipating in the future.
Yes, one thing I will mention is that we are in the process of substantially expanding our R&D in terms of kilo lab to pilot scale to semi-commercial scale before going to industrial scale. That is an ongoing activity that is taking place. I have not really gone deep into that because the total investment is not material compared to the revenue and the profit of the company, b ut in terms of the assets and the available chemistries, it is a multifold expansion in terms of capability at every scale, including very difficult-to-master chemistries such as organometallic chemistries, including chemistries which are into imide manufacturing.
So these go into high-end applications. These are not high volume, but extremely high in value, where the value comes from going from single nine to triple nine, meaning 99.9%- 99.999% purity. And that is where we are already participating, and that is where we will see an uptick in terms of the profitability as we increase the scale of these products.
Thanks, Maulik, for this answer. I think this piece of optionality directly hit the terminal value of Deepak. I think that is something which is still being not appreciated. But second question I have is, sir, in the line, generally, Deepak's story is being currently assumed to be start to begin once our polycarbonate plant is on. I just wanted to understand, after this high base of FY 2027, which we will have till the time this integration gets completed and we are into the commissioning and commercial supply of polycarbonate, we will be able to sustain some revenue growth on this high base, let us say 12%-15%, and maintain our 18%-20% EBITDA margin while having this growth. That would be my last question. Thank you, sir.
Rishabh, as I have mentioned, we are looking at substantial improvement even in the AI business. A large part of the new investments have been commissioned only in the last few months, so they have yet to participate on an an annualized basis in their full format. Meanwhile, even the solvents basket, whether it is MIBK, MIBC, acetophenone, etc. , these have only now come into play, so t hey will also add. I do not look at it from Phenolics side or AI side. At the end of the day, these are new participants.
As I mentioned earlier, there are two investments which we are still working on. They are for products where there is a very high right to win for Deepak because of the integration, the chemistry, as well as the customer value. So these are in a very advanced stage. Once we are able to lock these out, the investment will begin, but other than that, the design engineering, etc. , has already been done. In terms of investment, I clarified that the phenol to polycarbonate investment is the lion's share. But in terms of IRR, the other investments are also substantial in nature from the IRR perspective, although not from the gross perspective.
Thank you. The last question is on the line of Vansh Gupta from Prescient Capital. Please go ahead.
Yes, hello. Hi, sir. Am I audible?
Yes, yes. You are audible.
Right. Thank you so much for the opportunity, sir. I have just a couple of questions. First one being that in our investor presentation, this time we have spoken about surplus capacity in China continuing to exert pressure on the global chemical market. But if I remember correctly, in the past two quarters, you had taken a stance wherein you had stated that anti-involution is somewhat helping us in the Advanced Intermediates space. So is there any change in the competitive environment, especially from Chinese competition, both in the Phenolics segment as well as the Advanced Intermediates segment, which is making us a bit cautious?
No. In fact, in the Phenolics segment, as I clarified earlier, there is really no participation from China in the Phenolics segment. In the AI segment, while China does participate, generally speaking, it participates when the domestic manufacturing is not able to keep pace with the consumption requirement. As we saw, when we were not able to give the market as much as it required in Q1, the result was Q2. Keeping that in mind, there is what you would call an anti-pollution campaign or a crackdown on certain hazardous chemistries in China. And I believe at the end of the day, this is also good for China as a manufacturing base, but sometimes it operates in a monolithic tendency where the government instructs private companies what to do.
Be that as it may, China has taken several steps to rein in destructive tendencies to over-compete and destroy value at every stage. India, and in many cases, Deepak in particular, will be able to actually get the advantage of this. So Chinese capacity exists. It is world-scale and substantial and efficient to that extent, but efficiency of scale does not necessarily mean efficiency of profitability and a s we see this anti-pollution campaign and the crackdown on gray-scale or illegal manufacturing shaping up, we are seeing that there is a resurgence in certain chemistries, such as nitro aromatics, where we are seeing buoyant domestic as well as Western demand.
In many cases, we are actually seeing an enhancement in demand for our products in China also. So b y and large, I would continue to feel cautiously optimistic, but the ammonia to amines value chain improvement is already being visible across chemicals, and so is the propylene to polycarbonate chain. At the moment, we participate until phenol and its downstreams, and the future, we will participate downstream as well.
Thank you. That was the last question for the day. Now I would like to hand the conference over to the management for the closing comments.
Thank you, everybody, for joining today's call. Thank you for your continued interest in Deepak Nitrite. We continue to believe that the future over the next quarter and next few quarters will be conversations which are about how Deepak has added accretive value consistently. On behalf of the entire Deepak family, we wish you all a happy Diwali, prosperous new year ahead. We look forward to engaging with you in the coming months, your questions, and we look forward to continued constructive discussion. Thank you very much.
Thank you all.
On behalf of IIFL Capital Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.