Deepak Nitrite Limited — Q3 FY25 earnings call

Call held 17 Feb 2025

Management summary

Q3 FY25 was characterized by management as an 'abnormal' quarter where challenges in both Advanced Intermediates and Phenolics segments converged. Profitability was hit by a maintenance shutdown in Phenolics, inventory destocking in Agrochemicals, and stubborn raw material prices. However, management remains bullish on a recovery starting Q4 FY25, driven by new project commissionings and normalized demand.

Highlights

  • Consolidated Revenue of ₹1,924 crore, down 5% YoY and 6% QoQ due to a 'perfect storm' of challenges.

  • EBITDA stood at ₹190 crore, a significant decline from ₹318 crore in Q3 FY24, impacted by higher raw material costs.

  • Advanced Intermediates segment revenue fell 18% YoY to ₹552 crore with EBIT margins compressing to 3%.

  • Phenolics segment revenue was ₹1,366 crore, impacted by a scheduled maintenance shutdown resulting in a 12,000-15,000 MT production loss.

  • Nitric acid complex is in the commissioning stage, expected to add ₹70-80 crore in annualized margin expansion from Q1 FY26.

  • Management expects a recovery in Agrochemical demand between Q4 FY25 and Q2 FY26.

  • Major polymer projects (Polycarbonate) are on track for commissioning by December 2027.

Key financials

  1. Revenue ₹1,924 Cr -5%YoY
  2. EBITDA ₹190 Cr -40.2%YoY
  3. PAT ₹98 Cr
  4. PBT ₹135 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
₹1,918 Cr Total
  • Phenolics ₹1,366 Cr 71.2%
  • Advanced Intermediates ₹552 Cr 28.8%

Guidance & targets

Margin

  • Nitric Acid Project Annualized Margin Expansion Margin · FY26 onwards · Medium confidence ₹70-80 crore
    But you can anticipate that somewhere between Rs. 70 crore to Rs. 80 crore, on an annualized basis, is the margin expansion that you would see from the single project.

    — Maulik Mehta, Executive Director & CEO

  • Advanced Intermediates Standalone EBIT Margin Margin · Medium Term · Medium confidence 17-18%

    Previously 18-20% → 17-18%

    But without that, if I am only looking at cost optimization... around 17%, 18% is the target that we should look at, at Deepak Nitrite, on a standalone basis.

    — Maulik Mehta, Executive Director & CEO

Capacity

  • Polymer Projects Commissioning Capacity · FY28 · High confidence December 2027
    All major polymer projects are expected to be commissioned by December 2027.

    — Maulik Mehta, Executive Director & CEO

  • MIBK, MIBC, Acetophenone Commissioning Capacity · H1 FY26 · Medium confidence H1 FY2026

    Previously Q4 FY25 → H1 FY2026

    MIBK, MIBC, acetophenone and other backward and forward integrations are expected to be commissioned in H1 FY2026.

    — Maulik Mehta, Executive Director & CEO

Risks & concerns

  • Raw Material Price Volatility

    medium

    Stubborn prices for benzene, propylene, toluene, and xylene impacted margins in Q3.

    Management acknowledged

  • China Dumping in DASDA

    medium

    Dumping of dye intermediates (DASDA) has led to an Indian government investigation.

    Both acknowledged

  • Project Execution Delays

    medium

    Nitric Acid and MIBK/MIBC projects have slipped by 1-2 quarters, impacting overhead capitalization and ROCE.

    Analyst acknowledged

Areas of evasion (2)

  • Specific percentage of global phenol capacity that is non-integrated.
  • Specific technology provider for the BPA project.

Q&A highlights

2 direct
EBITDA impact vs Revenue decline in Standalone Direct
Agrochemical Intermediates certainly have played a role in the kind of margin dip that you see in Q3... assets were idled until the customer demand pickup resumed.

Explains that the disproportionate EBITDA hit was due to operating deleverage from idling plants during a demand lull.

Asked by Nirav Jimudia

Phenolics EBIT reduction and imports Partial
Q3 also had an annualized maintenance shutdown, which resulted in some loss of productive up time... a lot of consumers may have taken a position with regards to short term import of phenol.

Confirms that the shutdown not only hit production but also allowed temporary import penetration, though management expects this to normalize by March.

Asked by Arun Prasath

Project delays and ROCE impact Direct
There is an impact on ROCE because of these delays... But end result you will certainly, certainly, find that once all the projects are running, the things have changed dramatically.

Management acknowledges the short-term drag on capital efficiency due to delays in Nitric Acid and MIBK projects but defends the long-term integration strategy.

Asked by Chirag Shah

2 min read 5 chapters

Detailed narrative

The 'Perfect Storm' in Q3 FY25

Management described Q3 as an abnormal period where multiple headwinds hit simultaneously. The Phenolics segment faced a scheduled maintenance shutdown, resulting in a production loss of 12,000 to 15,000 metric tonnes. Simultaneously, the Advanced Intermediates segment suffered from end-of-year destocking by international agrochemical customers, leading to temporary idling of plant capacities. These factors, combined with 'stubborn' raw material costs for benzene and propylene, led to a sharp decline in EBITDA to ₹190 crore from ₹318 crore YoY.

Strategic Shift Toward Integration and Polymers

Deepak Nitrite is aggressively pursuing a strategy of deep integration to insulate itself from global volatility. The upcoming Nitric Acid complex is a key pillar, expected to provide ₹70-80 crore in annualized margin expansion starting Q1 FY26. Furthermore, the company is moving into the polymer value chain, with major projects like Polycarbonate resin production targeted for completion by December 2027. Management emphasized that these integrated facilities will make them the lowest-cost domestic producers, effectively discouraging imports.

Agrochemical Recovery and Market Share Strategy

Despite the 18% YoY revenue drop in Advanced Intermediates, management noted that volume dispatches began picking up at the tail end of Q3 for EU and non-EU customers. They expect the domestic agrochemical industry to resume demand towards the end of Q4 FY25. The company has prioritized a 'market share strategy' in Phenolics and dye intermediates, choosing to maintain wallet share even at the cost of temporary margin compression, betting on a recovery in spreads from March onwards.

Addressing Project Delays and ROCE Concerns

Analysts raised concerns regarding the delay in commissioning key projects like Nitric Acid and MIBK/MIBC, which have slipped into FY26. Management acknowledged the impact on Return on Capital Employed (ROCE) due to capitalized overheads and delayed revenue. However, they defended the delays as necessary to ensure plants are 'fully sorted' for immediate ramp-up to capacity. They highlighted that the Nitric Acid plant's location in Nandesari, connected via pipeline, offers 'enduring benefits' that outweigh the short-term delay.

Phenolics Outlook and Import Dynamics

The Phenolics segment remains the company's largest revenue contributor. While Q3 was hit by the shutdown and a surge in imports, management believes the situation will normalize by March 2025. They argued that non-integrated global players are currently operating at borderline profitability, and with India's growing demand (7-8% CAGR), Deepak's expanded capacity of ~350,000 MT is well-positioned to capture domestic growth. They noted that traders who imported during the shutdown have suffered due to price volatility, which should reduce import appetite in the coming quarters.

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