Deepak Nitrite Limited — Q2 FY25 earnings call

Call held 14 Nov 2024

Management summary

Deepak Nitrite delivered a resilient Q2 FY25, where strong volume growth and high utilization in the Phenolics business offset significant pricing and demand headwinds in the Advanced Intermediates (AI) segment, particularly from European agrochemical customers. The call was dominated by the strategic announcement of a ₹5,000 crore foray into Polycarbonates, marking a major downstream integration step. Management remains focused on a massive ₹14,000 crore capex cycle to diversify into advanced chemistries while maintaining a debt-free balance sheet.

Highlights

  • Consolidated Revenue reached ₹2,053 crores in Q2 FY25, a 14% YoY growth driven by the Phenolics segment.

  • EBITDA for Q2 stood at ₹319 crores, remaining flat YoY due to pricing pressure in Advanced Intermediates.

  • Phenolics segment revenue surged 29% YoY to ₹1,443 crores with a steady 15% EBIT margin.

  • Advanced Intermediates revenue declined to ₹606 crores (vs ₹670 crores YoY) with margins compressing to 8% due to agrochemical slowdown.

  • Announced a major ₹5,000 crore investment for Polycarbonate resins, including acquiring a 165,000 MTPA plant from Trinseo PLC in Germany.

  • Total capex plan of ₹14,000 crores outlined through 2027, with ₹7,000 crores already committed.

  • Maintained a zero-debt position on a net basis with a liquid surplus of approximately ₹800 crores.

  • Reported a healthy consolidated ROCE of 23% despite a challenging global macroeconomic environment.

Concerns

  • China Dumping and Overcapacity

Key financials

  1. Revenue ₹2,053 Cr +14%YoY
  2. EBITDA ₹319 Cr 0%YoY
  3. PAT ₹194 Cr
  4. EBITDA Margin 15%
  5. ROCE 23%
  6. Net Worth ₹5,125 Cr

What they filed

Q1 FY27: revenue up 31.9%, net profit up 116.7% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue605 552 654 612 616 +2%694 +26%718 +10%807 +32%
EBITDA75 42 78 60 47 −37%45 +7%73 −6%110 +83%
Net profit142 17 54 30 112 −21%8 −53%39 −28%65 +117%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Revenue
₹2,049 Cr Total
  • Phenolics ₹1,443 Cr 70.4%
  • Advanced Intermediates ₹606 Cr 29.6%

Guidance & targets

Capex

  • Total Capex Plan Capex · till 2027 · High confidence ₹14,000 crores
    So around INR 7,000 crore, we have committed... And balance INR 7,000 crore is there as part of MOU... So this all total is INR 14,000.

    — Sanjay Upadhyay, Director (Finance) and Group CFO

Capacity

  • Polycarbonate Resin Capacity Capacity · by end 2027/2028 · High confidence 165,000 metric tonnes
    DCTL will acquire Trinseo's assets, including all proprietary equipment with an annual capacity of 165,000 metric tonnes.

    — Maulik Mehta, Executive Director and CEO

  • Nitric Acid Project Commissioning Capacity · H2 FY25 · High confidence Commissioning
    The nitric acid project is expected to be commissioned in H2 FY25.

    — Maulik Mehta, Executive Director and CEO

Profitability

  • EBITDA addition from new projects Profitability · H2 2026 onwards · Medium confidence 2% to 4%
    So between 2% and 4% on an EBITDA addition to the regular business operations.

    — Maulik Mehta, Executive Director and CEO

Risks & concerns

  • China Dumping and Overcapacity

    high

    Persistently underpriced product availability from China has prevented a broader recovery in pricing for Advanced Intermediates.

    Both acknowledged

  • Agrochemical Sector Cyclicality

    medium

    Weak demand trends and destocking in Europe have led to reduced offtake and muted realizations.

    Management acknowledged

  • Logistical Challenges

    low

    Increasing freight rates and longer sailing times have exacerbated short-term challenges.

    Management acknowledged

Areas of evasion (1)

  • Specific IRR and payback periods for the Polycarbonate project were deferred until the full 'basket' of related projects (BPA, Phenol expansion) is announced.

Q&A highlights

2 direct
Polycarbonate Asset Acquisition and Strategy Direct
Trinseo is not exiting the business. They're just exiting the manufacturing of polycarbonate resins... they will look at buying the resin from Deepak as we relocate their assets to India.

Clarifies that the technology partner remains a customer, de-risking the massive investment and ensuring immediate offtake.

Asked by Rohit Nagraj, Centrum Broking

Advanced Intermediates Revenue Dip Direct
So INR 100 crore was not linked to any single customer... It was linked more to the end segment, which is agrochemicals... we can anticipate that this is the agrochemical slowdown that every other Indian Company... is facing.

Quantifies the impact of the agrochemical sector downturn on the company's high-margin segment.

Asked by Nirav Jimudia, Anvil Corporation

Financial Impact of New Capex Partial
I think H2 2026 will be the first half where all of these investments will be commissioned and we'll be able to realize the benefits on an annualized basis.

Provides a timeline for when the current ₹2,000 crore capex cycle will start reflecting in the bottom line.

Asked by Chirag Shah, White Pine Investment Management

2 min read 5 chapters

Detailed narrative

Strategic Leap into Advanced Materials

Deepak Nitrite has officially commenced its foray into Advanced Materials through its subsidiary, Deepak Chem Tech Limited (DCTL). The board approved a ₹5,000 crore project to manufacture polycarbonate resins, leveraging a technology licensing and asset purchase agreement with Trinseo PLC. This includes acquiring a 165,000 MTPA plant currently located in Germany, which will be relocated to India. This move addresses India's 240,000 MTPA demand, which is currently 100% met through imports, positioning Deepak as a pioneer in domestic production.

Phenolics Segment Anchors Performance

The Phenolics business continues to be the primary growth engine, with Q2 revenues growing 29% YoY to ₹1,443 crores. Despite a 'brutal summer' affecting operations, the segment maintained a healthy 15% EBIT margin. High capacity utilization and favorable domestic consumption trends in the phenol and acetone chain helped offset the weakness in other business areas. Management noted that the segment's resilience is a result of deep integration and high wallet share with domestic customers, who contribute 84% of total revenue.

Advanced Intermediates Face Cyclical Headwinds

The Advanced Intermediates (AI) segment saw a revenue dip to ₹606 crores from ₹670 crores YoY, with EBIT margins contracting to 8%. This was primarily due to a slowdown in the global agrochemical sector and destocking by European customers, leading to a roughly ₹100 crore sequential revenue impact. While volumes were maintained by pivoting to non-traditional geographies, realizations remained muted due to competitive pricing from China. Management expects a recovery in this segment starting from Q4 FY25 as destocking cycles conclude.

Massive Capex and Project Pipeline

The company is in the midst of a transformative ₹14,000 crore capex cycle. Key projects nearing completion include the Nitric Acid plant and photochlorination/hydrogenation blocks, all expected in H2 FY25. Looking further ahead, MIBK, MIBC, and Acetophenone projects are slated for H1 FY26. Management estimates these new investments will add 2% to 4% to the consolidated EBITDA margin once fully operational. The company's zero-debt status and ₹800 crore cash surplus provide a strong foundation for funding these ambitious expansions.

Operational Efficiency and R&D Focus

Deepak Nitrite reported a consolidated ROCE of 23%, reflecting high capital efficiency even during a heavy investment phase. The new R&D center near Vadodara is on track for commissioning in H2 FY25, with ₹115 crore capex allocated. This facility is expected to significantly enhance capabilities in advanced chemistries and support the polycarbonate compounding strategy. Management emphasized that their integrated model—spanning from basic chemicals to advanced intermediates and now resins—creates a 'resilient bulwark' against global volatility.

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