Deepak Nitrite Limited (506401) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. On behalf of Antique Stockbroking, I welcome everyone to Deepak Nitrite's Q1 FY '21 Earnings Conference Call. We have with us today Mr. Maulik Mehta, Executive Director and CEO; Mr. Sanjay Upadhyay, Director, Finance and CFO; and Mr. Somsekhar Nanda, Deputy CFO. We will begin the call with remarks by management, followed by Q&A session. At the outset, I would also like to mention that certain statements made or discussed on the conference call today may be forward-looking in nature. The disclaimer, to this effect, is included in the Investors communication and also applies to this conference call. To begin with, Mr. Maulik Mehta will share with the opening with us the operating performance and the growth plans of the company, followed by Mr. Upadhyay, who shall take us through the financial and segmental performance. The result documents have been shared with you earlier and have also been posted on company's website. I now turn the call to Mr. Sanjay Upadhyay, who will be here to introduce Mr. Maulik Mehta. Over to you, sir.

Good afternoon, everybody. It gives me immense pleasure to introduce Mr. Maulik Mehta. Maulik is the eldest son of Shree Deepak Mehta, our Chairman and Managing Director. He has been actively involved in the activities of the company of almost 12 years. Maulik has assumed several key roles in the organize, encompassing business strategy, business development. And he has been a part of core team in the OBA turnaround. He has been working towards growth strategy of the company since 2016. Now I hand over the mic to Maulik.

Thank you, Mr. Upadhyay, for the very kind words, and good afternoon, everybody. Thank you for your time. I hope your loved ones and you are keeping very safe and in good health. First of all, I would like to thank you for your good wishes as I take this position up with humility and respect for the values that have taken Deepak to the position where it is acknowledged as a company of high-class governance. I trust you have read the earnings documents, and we'll have questions. But first, let me share the company's perspective. This quarter has brought all of us to deal with a perfect storm of challenges: COVID-19 and the consequential lockdown; volatile oil and petrochemical prices; Cyclone Nisarg; manpower constraints; serious constraints on logistics, both onshore and offshore, which could be especially damaging to chemical companies. Deepak, with 6 plants spread over 3 states, nonetheless delivered a resilient performance despite operating for a little less than 2 months in a very volatile environment. Deepak adheres to the 3 Ps of sustainable growth. People, profit -- people, planet and profit. Now financial metrics are always the ultimate barometer of performance, but there are some facts that I would like to share with you. We studied the fallout of China's reopening bottlenecks in March, and we took several initiatives and key measures. The group carried each and every employee with it through the quarter, on roled or contract, raising salaries and wages, widened medical coverage, distributed medicines and food, offered medical tests, to safely house critical employees in a worst-case scenario. Our employees and workers, too, rewarded the company by ensuring that not a single plant of Deepak suffered because of lack of human resources, with -- despite the strictest regulatory restrictions on attendance. Deepak's product basket, by its nature, requires it to move thousands of tons of chemicals every single day between raw materials and finished goods. And of course, this can be a daunting challenge when each state and port has its own restrictive policies. As I mentioned, we studied the easing of China's lockdown, and we took those preemptive measures to ensure that it kept multiple failsafe in place for the kind of logistics that seems like clockwork at any other time. Deepak, therefore, enjoyed preferential transport rates and priority with regards to its volume movement throughout the quarter. The EHS team was thoroughly aware that a restrictive manufacturing environment can lead to catastrophic oversights and process management and storage. With the intention of never wasting a good crisis, the company ramped up development and deployment of further automation and plant safety. On profit, I'm actually happy to note that the company was able to maintain or increase margins in nearly all its products, with the exception of the intermediate and finished products in the Performance segment. They were anyways riding a temporary tailwind because of plant issues at competing plants in China. Along with this, the largest end segments of paper and textile have been deeply affected by COVID-19 situation worldwide. Therefore, amidst these uncertainties, Deepak Nitrite was able to deliver a steady performance during the quarter under review. Revenues de-grew by 36%, and this was in line with the lower capacity utilization, approximating 65% over the quarter. Essentially, we ran the company for 2 months. We ran the production plant for 2 months over a 3-month window. Similarly, EBITDA, too, was lower because of the twin effects of muted capacity utilization, because of the lockdown and softening of demand in the Performance Products segment. Deepak Nitrite managed to take advantage of favorable demand trends in the global chemical industry. Global majors are emphasizing its chemical production out of China. Essentially, they're looking for a China Plus One derisking strategy and are looking at expanding its supply arrangements and alternate markets like India. I believe that this is a network effect. As more and more chemical intermediates are manufactured in India, the rate of acceleration -- there is a momentum generated when it becomes even more attractive over a period of time. This has helped us in strengthening our market position, given our deep expertise and our diversified product portfolio. Further, with widespread occurrence of the coronavirus, we presume the move to diversify and derisk supply chains will, as I mentioned, be increasingly escalating. Now let me share some key updates on the performance of Deepak Phenolics, a wholly owned subsidiary. In late March 2020, Deepak Phenolics had shut down its plant as per government mandates, and it reopened only in early May. The production ramped up in a safe and staggered manner post the lockdown. Domestically, the demand for phenol has declined and so has the prices. However, we were prompt to increase our export volumes to offset this impact. In a major development, at the peak of the lockdown in April, we commissioned our premium-grade isopropyl alcohol plant, with a capacity of 30,000 tonnes per annum, to supply this critical commodity locally at a time of great necessity. I want to make a particular point here. The IPA plant was commissioned by our own team in the absence of the foreign technology provider who could not travel to India during COVID. The key positive for us was the demand in the pharmaceutical-grade IPA and acetone, both of which witnessed strong pull, reflecting an increase in a positive net income despite an effective shutdown of 40 days. The recently commissioned IPA plant has already been ramped up to 110% of its capacity, while maintaining all safety standards. I would like to thank the team for their tireless efforts across the board during this pandemic situation. Now moving to the stand-alone operating performance in Q1. Our domestic revenue stood at INR 157 crores as against INR 320 crores in the corresponding period last year. This was because the company constrained its production because of the lockdown, and we reoriented our volumes to serve the export market, taking advantage of a depreciated currency. Our export revenue stood at INR 187 crores as against INR 227 crores last year. This is a de-growth of 18% year-on-year. As I mentioned, the focus was higher on exporting to countries in Asia and Europe that were a little bit further on the path of recovery from the lockdown -- from the coronavirus. Another development I would like to share with you. Under Phenolics, after achieving such a high-capacity utilization in a very short period, we are expanding our IPA capacity with an additional 30,000 tonnes to make it 60,000 per annum on total, and we're doing this in a fast-track manner. I hope to complete it over the next 9 months. Now prolonged lockdowns have also impacted capital projects in Deepak Nitrite, which will now be commissioned in the third and the fourth quarters. The company has all the ingredients that make it a very sound partner for discerning multinationals looking at a long-term sourcing strategy from India. We have strategically located land parcels that we have acquired; very robust balance sheet, with almost 0 debt; significantly increased spending on R&D, over the last 2 years, we have increased our R&D spending to about 200% of what it was before; and a track record of managing safe -- large volumes of product safely and hazardous chemistry in an environmentally sustainable manner. Deepak serves many end industries: agrochemicals, pharma, dyes, personal care. These continue to see strong demand. While some other industries like paper, textile and fuel additives have already begun on an admittedly protracted recovery. DNL's new value-added products, which are predominantly in the agrochemical and pharmaceutical spaces, we've already started developing our newly acquired plots, and we shall soon come back to you with plans thereof. Over the shorter term, the brownfield expansions that are nearing completion, DPL's IP expansion and a large CoGen Power Plant, will soon improve earnings. I sincerely pray that all of you remain safe in a very challenging time. And I am sure that around the next quarter's con call, we would have surpassed some, if not most, of the hurdles caused by the pandemic. With this, I conclude, and would now hand over the call to our Director, Finance and CFO, Mr. Sanjay Upadhyay. Thank you very much.

Thank you, Maulik. Good afternoon, everyone, and a warm welcome to our Q1 FY '21 earnings call. I will take you through the financial highlights for the quarter ended June 30, 2020. During Q1, we witnessed several challenges in rapid succession, such as petrochemical volatility, the Nisarg cyclone, particularly impacting our ROAs, the nationwide lockdown and the resultant constraint on manpower and operations. We operated our plants effectively only for 2 out of 3 months during the quarter. And despite the turbulent operating environment, we are able to ensure a resilient performance. And as reiterated over last few con calls, at least for our old DASDA prices, we have witnessed correction in DASDA prices, as was expected, and we believe some effect of the lockdown is additionally playing out in the current pricing of DASDA. Stand-alone revenues for the quarter stood at INR 355 crores as compared to INR 554 crores in Q1 FY '20. EBITDA was INR 102 crores, lower by 46%, as against INR 188 crores in the corresponding period last year. EBITDA was impacted due to reduced revenue and operating deleverage on account of fixed costs incurred during the shutdown. PBT stood at INR 85 crores in Q1 FY '21, contracting by 48% when compared to INR 164 crores in the same period last year. Profit after tax for the quarter stood at INR 64 crores as against INR 107 crores in Q1 FY '20, de-growth of 41% on a year-on-year basis. Depreciation for the quarter was INR 14 crores, while the finance cost declined by 55% to INR 3 crores in Q1 FY '20. Now coming to our segmental performance in Q1 FY '21. The Basic Chemicals reported a 32% moderation in revenue range for almost 2 months of operation. The fuel additives segment, that relies on volume of diesel refining by refiners, experienced a demand compression and volume recovery may be prolonged. But other products, however, continue to witness sustained demand. Revenue growth in Fine & Specialty segment grew by 21%. This segment benefited from the strong consumer demand from the agrochemical and personal care segments, cost-efficient -- efficiency initiatives and better fixed cost absorption. Also, the Performance segment was almost affected by COVID-19, a revenue contraction of 76%, while the detergent end segment has retained its business. The pandemic significantly impacted both paper and textile demand. This has had a domino effect on the quantity of optical brighteners and DASDA, which was in short supply last year, but has now transitioned to oversupply because of the demand contraction. These are, however, believed to be a short-term blip, and we expect the situation to return to normalcy soon. Coming to our segmental performance in Q1 FY '21. Revenues from Basic Chemicals stood at INR 153 crores against INR 226 crores in Q1 FY '20. This segment contributed around 43% to total revenues. EBIT margin improved from 16% to 24% in year-on-year basis. In Fine & Specialty Chemical segment, the revenues came at INR 140 crores in Q1 FY '21, growing by 21% on year-on-year. Fine & Specialty segment contributed to 40% of total revenues. EBIT margin improved from 22% to 44%. In the Performance Products segment, revenue stood at INR 61 crores in Q1 FY '21. This segment contributed 17% of total revenues, with EBIT came in lower at 11% during the quarter under review. For the quarter and of the year, consolidated revenue stood at INR 681 crores, PBT stood at INR 133 crores and PAT at INR 99 crores, respectively. Deepak Phenolics, too, operated for only 2 out of 3 months during the quarter. We had witnessed revenue de-growth of 33% or 1/3 on a year-on-year basis. As can be -- from the numbers, there was a significant rise in profitability on a year-on-year basis due to improved spread. EBITDA grew 26% year-end to INR 48 crores in Q1 FY '21 compared to INR 37 crores in Q1 last year. Please note that this increase in EBITDA is after absorbing fixed cost for 3 months over the revenues of 2 months. The improved EBITDA for Q1 is flowed through the bottom line, too. The profit after tax in Q1 FY '21 is INR 36 crores, higher by 50% year-on-year. As Maulik has already spoken about the launch of the IPA sanitizer plant in April 22. This product has performed well and marked the first phase in our plan to create a basket of downstream derivatives of phenol and acetone in order to enhance the value of Phenolics proposition. Even that the plant is operating at more than 100% capacity utilization, we are now undertaking doubling of capacity of IPA plant from 30,000 to 60,000 tonnes, and this expansion should come on stream in the fourth quarter. We are currently consuming around 30% of acetone production. The brownfield expansion of the IPA capacity will increase the number to 60%. The financial margin of the company is very strong and is currently operating at a comfortable net debt-to-equity ratio of 0.04, which is almost 0 debt company on stand-alone basis and 0.45 on a consolidated level. The company enjoys a robust liquidity position, with cash and liquidity investments amounting to around INR 150 crores on a consolidated basis. With that, I would request the moderator to open the forum for question-answer session. Thank you.

[Operator Instructions] The first question is from the line of Ankit Gor from Systematix.

Sir, my first question with regards to F&SC division. Obviously, we have done relatively better there. If you can just give us some detail about, is it because of spread? It seems it's because of spread as well as new product launches. Can you throw some light there, sir, that would be helpful to understand? That was my first question.

See -- in Phenolics, yes, of course, the year is better.

Sorry to interrupt, sir. I was talking about FSC, the Fine & Specialty division.

Sorry, I couldn't hear that clearly.

Sorry, sir.

Fine & Specialty, I mean, the result is clear. But Fine & Specialty, yes, we are doing this to our advantage as Deepak Nitrite, as we have been saying always. If you see the performance this year, Fine & Specialty has done exceptionally well in the first quarter. And demands are growing. All the products which are growing in agro, particularly. There is a subdued -- but in pharma and agro, demand is growing and the margins are better on top of it. The depreciating rupee is also helping us. So combined, you are seeing a better percentage of EBITDA, and we expect that to continue that trend. So somewhere, where we are finding the Performance Product relatively is down because of textile and paper. The agro and pharma, these also picked up. So this is the beauty of Deepak Nitrite business, and we expect this to continue. On the -- whatever you are finding in F&SC, in terms of revenue and margins, yes, we feel this will continue.

Okay that's great to hear.

That's high level, but yes, it is certainly better.

Yes. That's great to hear, sir. Because the margins were 44%, rough average -- roughly, our average of 30%, 32%. So if -- so if currency has played there, sir, can we assume that export was higher this quarter? And will it continue then, then you are saying that the elevated performance will be maintained?

Yes, yes. It would certainly higher, and then it will continue to remain at that level.

Okay, okay. And sir, my question...

And our products are strategically valuable to our customers. And keeping that in mind, we are expecting that the demand and the strategic nature of the products that we manufacture will continue to see, by and large, the same sort of performance.

Okay. So sir, just to elaborate in on it. Can we assume that we haven't launched a new product, per se, but our existing product portfolio has created this wonder in terms of end users, which is agrochem and pharmaceuticals. Can we assume that way? We haven't -- there's a mixture of 2 things, currency as well as, obviously, the existing product portfolio. Can we assume that way?

So there is one more segment, which is the health care, particularly in pharma. So I mean, all in all, yes, what you are saying is right. This segment is doing well.

Okay. And sir, my second question with regards to IPA. We are kind of doubling capacity, which is adding 30,000 tonnes with a CapEx of about 50 Cr. Would you mind giving a CapEx, please? We build in setting up first 30 Cr, which is Phase 1. What was the CapEx that time, sir?

This is certainly lower than the first CapEx. We -- why you want to know the numbers and how much it is, but this is -- because we already have one plant there in addition so you don't pay on certain expenses, the technology fees and the pipelines and all these things. So there is certainly a saving.

[Operator Instructions] The next question is from the line of Rohit Nagraj from Sunidhi Securities.

Sir, my first question is in terms of amount. So we have said that this time around, we have exported phenol because of probably the market was not good in the Indian context. So whether there was the export realizations were better or were they at a discount? And what was the EBITDA for the Phenol segment?

See, we are exporting phenol because, as you know, domestic market is a little down. And that's true because client is -- because of lockdown and -- so we have exported phenol. And it's a good sign. The company is utilizing the full capacity today, whether it is export or domestic. And any capacity, if it is used at full, I mean, the efficiencies are bound to go up. When you run your plants seamlessly, continuously, margins, of course, domestic margins are slightly better than export margin. But then it makes a lot of sense in exporting and utilizing your full capacity so that you're able to run your plant efficiently.

Okay. And what was the EBITDA number for this quarter? Operating profit number or EBITDA profit for Phenol segment?

EBITDA for the Q1, you want to know?

Right, sir.

You want as a percentage how much, or you want to know the...

No, absolute number, sir, in terms of crores.

I'd say INR 80 crores to INR 85 crores.

Okay. And sir, second question is on the HSE front. So recently, we have seen that there have been a lot of incidences across the chemical industry. So on a strategy basis, how are we placed? And what are the actions that we have taken from the -- our safety perspective, plant safety perspective?

So Deepak, in any case, has been a company which has heavily invested in EHS, even in the past. It is important for us, regardless of the outside scenario, being that we are manufacturers of products which require hazardous chemistry. Anyways, we have a very high standard that we maintain also, being accredited with Responsible Care. And what we have done in the last 3 months is we have kept in mind that whatever plants we operate, we operate with a constrained manpower. These are the limits that were imposed by state and central governments. And therefore, before any action is taken with regards to restarting production, with regards to increasing utilization in a staggered manner, we do comprehensive audits, not just of the process, but also of the way that material is stored and the way that material is moved once it leaves the factory premises. A lot of these things have now been automated by systems that have been developed in-house, in many cases, software that has been developed in-house. So what we have now done is we have a lot of internal products, software products, that we have developed to map it out and ensure that relevant audits are done at a very frequent basis. During the lockdown, in fact, I'm happy to share that while we may have done business reviews, perhaps once a month, we did safety reviews once a week. And after every incident that may have taken place outside, there was a safety review conducted to understand what happened, how it would affect us in a similar case and a worst-case scenario of water scenario, and we have preplanned. This actually helps us a lot even in minimizing our production loss during the Nisarg cyclone. Although we were not able to achieve 0 production loss, that was impossible. And this has also helped us in ensuring that we sustain a level of productivity, even right now, with very heavy rains flashing Bombay and neighboring areas.

The next question is from the line of Rahul Jain from Credence Wealth.

Am I audible?

Yes.

Yes, Rahul.

And sir, at the outset, let me congratulate you for commissioning this 30,000 IPA plant in the times of necessity. In fact, we worked to ramp it up to 110%. And now, on a fast track basis, we are doubling the capacity. So congratulations to the entire team at Deepak. I have 2 questions. First, sir, you have spoken in your communication release about brownfield expansions in the Phenolics in the third and fourth quarter to come. My question is much more broader. If you could share some details about what kind of products we are looking into. Maybe not naming the exact product, but some slight action-wise, how are we looking at the value-added product segment? And say, next 2 years, where do we see the contribution of value products relative to where you're going from where we stand today?

So just to reiterate, brownfield expansions were in Deepak Nitrite, although we have already delineated the names of the brownfield expansions in Deepak Phenolics, primarily those are the IT expansion and the CoGen Power Plant. But CoGen, by itself, is supposed to improve the bottom line. It is not a brownfield expansion of volume. Now in Deepak Nitrite, what we have focused on largely are segments that we will continue to focus on with new value-added products. And those are the agrochemical intermediates and, in a couple of places, intermediates that are going into either pharma as a segment or into personal care as a segment. We hope and we believe, based on our internal strategies, that we will continue to see a positive CAGR in terms of demand. In the long term, these continue to be end segments that we will invest in. And so therefore, the new value-added products, which we will introduce at the appropriate time, will largely cater to these segments. We may add a couple of other products in segments like dyes and intermediates, but that will come about over a period of time, and as long as they are within the ambit of our internal strategy.

Sure. Sir Maulik, you mentioned in your opening remarks about China Plus One strategy. And also, you did hint about of being account partner for multinationals, for these long-term relationships so -- and in quarter 1, you have increased some exports on the phenolic side. So just to understand, are we seeing some inquiries for certain products of ours? Or -- which are -- which structured not there to 6, 9 months back. And are we talking to some of the large global players for certain kind of relationships, tie-ups or products to be sold?

So this is -- it's a very premature question. I would love to answer this question after perhaps some time. We just mentioned -- as I mentioned, that we have an attractive opportunity in terms of being good business partners who understand the nature of hazardous chemical manufacturing. We have a solid balance sheet, and we have a lot of other strategic assets, which we can deploy based on our internal calculations of what would be a good, sound product to invest into.

Sure. Directionally, we are working towards that side. Is my assumption right?

See, we are always open for some good opportunities, Rahul. Now, as and when it comes, we'll certainly let you people know. But then this is, as Maulik rightly said, it is too early to speak about anything. But the company will always see, today, if we are, like I -- Maulik also said in his opening remarks, that we are spending heavily in R&D. If you heard Mr. Mehta talking that we are developing a new R&D center and shifting from our current location, building up a strong R&D team. So we have acquired a lot of land. So we are working on all the front. It is not only one. It can be inorganic opportunity also. It can be, just like what we discussed, some good tie-up, if it comes. But these are all the values which any growing company will look at a continuous basis. And there is nothing which stops it, and we are not -- we don't have a blocked mindset on any of these such good opportunities, if at all, it comes our way.

Right. I'd just like to add one point that, as a company, this is not new for us. We, and many products, have enjoyed relationships which span a decade, maybe 2 decades in consistently supplying to international partners. So this is not new for us. I -- it would be rude of me to say that this is a new strategy that we're trying out. No. We are recognized as good dependable business partners. In this case, we're recognized as good, dependable business partners who also happen to have a manufacturing setup in India. Now as companies look at derisking away from China, sometimes it's very simple that the potential and opportunity for manufacturing will move to India. Whether we tie up with anybody or not, India will increasingly become a more attractive land for chemical industries to increase their value-added product basket.

The next question is from the line of Shikha Mehta from Equitree Capital.

Sir, I just had a couple of questions. Could you give the utilization per sector wise, so in Basic Chemicals, Fine & Specialty and in Performance?

Are you talking about Q1?

Yes.

As we have already said that we are in around -- except one, because of lockdown, and we started our manufacturing in a phased manner in a very safe environment. So some plants where -- I mean, it's a common sense in management. We've seen that some plants are -- where we have good margins, we started first. And some products where margins are a little low, we started later. So it's difficult to give you, it has -- to give plant-wise. It doesn't make sense. So overall, you take that at a 65% utilization everywhere. It's in bulk also. And in bulk, like fuel already was a little down or less little down now because transport industry is not running to the -- so these things keep happening. So overall, it was a 65% utilization. That much, I think, we can say.

Okay. And sir, could you give some idea on the pricing of DASDA and OBA? Because I think in FY '20, it had almost risen by 150% and 50%, respectively. So right now, where are we? And what do we see is most like a stable pricing?

Okay. First of all, asking for a stable pricing in the middle of a pandemic, we would not be able to give you a dependable answer, and you would not be satisfied with whatever answer that comes. Nonetheless, yes, last year, DASDA did enjoy a bull run. And this was primarily because of supply constraints from China, which is, by and large, the only other manufacturer of this critical product that goes into the optical brightening agents. And because of that, it enjoyed an abnormally high price. Today, if I was to counter by that, I would say that the price today is "abnormally low" because about 98%, 99% of DASDA goes into optical brightening agents. And the largest segment for this, as an end industry, are paper and textiles. Now while paper and textile are currently going through a muted recovery process, you will expect the upstream product here, in this case, DASDA, to also suffer. Over a period of time, as this recovery goes back to perhaps some version of what it was before COVID, you will also see the prices and the demand and consumption for these products accordingly scale up. This is not the right time for you to ask us whether this is 150% or 50% and all of that. The right time to ask will be when you're looking at a relatively stable market and a relatively stable consumption.

Right. And so for our IPA, we were doubling our capacity into the next 9 months. So right now, there's a disruption in the market due to COVID and there's extensive demand for this. But 9 months down the line, do we see demand being as it is right now?

No, see, we have not, even strategical, considering that this kind of pricing will continue. I mean, it can remain, it may not remain. So -- but as a strategy, it makes a lot of sense for us. We have been saying this again that we want to invest in derivatives. And we thought, since we have already put up the first plant, and that has done exceptionally well, it makes a lot of sense for us to double the capacity so that the acetone is capitally consumed, and we get better value out of it. So these calculations, whatever we make, we do not make calculation based on the current pricing and then not realizing how can -- like with DASDA, I mean, nobody can assume that DASDA values remain at that level and then you set up a new big capacity. So this is all it is. I mean this is -- but it makes sense to invest, and we are invested. In our above-normal calculations of pay base and ROCE, not considering normal price, if it fits, yes, the company will certainly invest.

The next question is from the line of Bharat Gupta from Edelweiss.

I have 2 questions. First is in regard to the Basic Chemicals segment. So we have seen that there has been a considerable amount of improvement in terms of the margin is concerned, where the company used to enjoy a margin in the range of 15% to 16%. So that has improved gradually to 24% to 25%. Can you show some color like what steps management has taken like in order to improve of the margin profile in this segment? Is it because of the change in product mix?

So Bharat, see, like somebody asked me Fine & Specialty, also earlier question that 44%, 45%, and is this sustainable or not? If you are an existing investor, if you heard our earlier -- all con calls, I always believe in giving a range of margins rather than giving a particular figure. So if you -- earlier, as you rightly said, yes, the margins in this segment, bulk, was around, say, it was the range of 15% to 18%. Last year, we had given a guidance that it is moving up, and it can move up from 18% to 22%. Okay. So you can take on the upper side. Now this year, again, I'm saying, yes, it has gone up. So somewhere between, you can take around 22% to 24% -- 20% to 24%, 25%. I think that would be a safer margin to assume rather than assuming 20-80 where we are. Similarly, in Fine & Specialty also, to assume 45% is a little -- it can remain. I'm not saying no, but better to take a safer view and take a range of EBITDA margins somewhere between 38% to 42%, 45%. You know, that seems a safer way. So I think that...

I was just asking about what is the reason behind the improvement in margins, sir. Is it because we have like improved our product portfolio in this particular segment as well that is catering out the improvement in margin?

No product portfolio change in this bulk chemical. It is the existing products only. But existing products are doing well. We are seeing better efficiencies in existing products. We have little -- expanded some capacity also. So you are seeing this result. So overall -- and the raw model prices are also down. So overall, we are benefited by this segment.

I can say that part of it is -- most of it actually is cost excellence initiatives. As Mr. Upadhyay has said, we've been more efficient with our processes and perhaps we've also done a good job on procurement of raw materials.

Sure, sir. That's really helpful. My second question is in regard to the value-added segment, which you are seeing in terms of IP in the downstream products. So can you give us a sense about the market size of the value-added segments out there in India like particularly if we come out to downstream products of acetone and phenol. And what kind of a margin profile is there with respect to the downstream products? Is it in line like with the Fine & Specialty Chemicals?

No, no. It won't be in line with Fine & Specialty. It cannot be so high in phenol and acetone downstream, okay? It will certainly be better than whatever we are enjoying in because then, otherwise, okay, by itself it cannot come if it is not better. But not like Fine & Specialty, let me tell you.

Any approximate like we can share about in the range like what can be the range for the value-added margin segment, which we will be aiming for -- like for IPA?

I can tell you that if in any products, we see the payback has to be less than 3 years, okay, normally. But if it makes a strategic sense, we are not averse to 4 years also. But somewhere, you can take, say, between 3 to 4 years payback if it makes sense in -- as strategy because we have been talking of down, it makes a lot of sense to go ahead with the derivatives. So if it is in around 3 to 3.5 years payback, we'll certainly go ahead with the project. So accordingly, margins are calculated.

The next question is from the line of Ankit Gor from Systematix.

Sir, my question with regards to IPA only. One of our competitors is also into IPA, but he has a different process of doing it for, via oxygen. And we have obviously acetone process. So just if you can give us some primer that what -- which process is more beneficial and which is less hazardous to the environment?

So first of all, you've given some qualitative comments. There's no one who makes it from oxygen. So that is a misnomer. I think you are referring to propylene. Nonetheless, if you're asking which one is better...

Yes. I'm in guess, sorry. So propylene, yes.

Right. So that is a very qualitative statement. If you're asking better in OpEx, CapEx, speed to market, quality, these are all variables. Both of these processes have the strength. IPA from acetone is only viable if you have your own acetone manufacturing, or at least that is the significant strength that Deepak is able to leverage. And for us, therefore, this was a natural effect.

The next question is from the line of Alisha Mahawla from Avendus Wealth.

Just had a question with respect to IPA. I believe in one of your earlier calls, you had mentioned that the industry capacity is about 1 lakh. So once we double our capacity, is there enough scope for this to be absorbed like you said earlier in a comment that assuming the current demand that we're seeing may not be sustainable? [Technical Difficulty]

Thank you for patiently waiting. We have the management reconnected. You can go ahead, please.

So I'm not sure if you heard my question. Should I repeat it?

Yes. Please repeat it.

Yes. So I was just asking -- my question was with respect to IPA. I believe in some earlier calls, you had mentioned that the industry capacity is about 1 lakh. And while you said that the current demand -- uptick in demand that we're seeing may or may not be sustainable. So this doubling of capacity that we're looking to come onstream by end of the year. Is there scope for it to be absorbed?

Yes, yes. Certainly. So IPA will be able to -- I mean, see, IPA is exported also. So let's not look at...

No. But there's a mistake here. The capacity is not the same as demand. The demand is closer to 2 lakh tonnes. The Indian manufacturing capacity right now may be closer to a lakh. So you're seeing about 1 lakh tonnes imported into India. On a normal basis, I'm not talking about during a pandemic. And therefore, there will always be some headroom even after an expansion. There will always be opportunities to export if that is more valuable. But we are seeing that there is more than enough headroom after expansion as well to satisfy the Indian demand.

Thank you for the clarification. Also, I guess I missed this number. What will be the percentage of acetone that will be consumed internally once this capacity is expanded?

It's 1:1.

Okay. Okay. Great. And sir, lastly, if you can just comment on what is the current DASDA price. While I know we can't, in any format, predict how the trend will go considering the weakness in demand and the abnormal situation, just what is the price currently?

No point in [ guessing ]. I mean what is the current price keeps on fluctuating, depending on the demand growing and this. So no point in giving you some price and you start calculating some numbers. It makes no sense. We do not want to misguide you on that, let that -- earlier, we have been saying that DASDA will have a new normal. So let's wait for the business to settle down and then paper and textile business to revive, which may happen in Q2, Q3 and then we'll discuss our DASDA, what is -- I mean neither we had said earlier also that what is the DASDA price and I only want to say this. It can -- we don't want to [ guess ] and give you some numbers.

[Operator Instructions] The next question is from the line of Rohit Nagraj from Sunidhi Securities.

So just one question in terms of the investment that we have done over the [indiscernible] plants and HSE during the last couple of years. How much have we invested in it? And incrementally also from the CapEx perspective, what is the guidance for this year because I think in last con call, you had indicated we'll have a better understanding post-Q1 budgets.

This is too short term. The investments have not already been made. They're not in the past. We have always invested heavily into effluent treatment. We continue to. We have a medium-term target, which we can discuss over a period of time. But the goal being that we need to minimize the footprint that the company puts with regards to all effluent management: air, water, solid, et cetera. And this is not, as I mentioned, a short-term thing that you will see an answer or even some sort of a return on investment as a calculation. Please bear with us over the next medium term and we should be able to come back to you but with qualitative feedback, not quantitative, as you're asking.

Sure, sir. Sir, and the CapEx number for this year?

I mean what is the concern? These are all continuous investment, what we make in any chemical unit. I mean somebody asked earlier also that blast and some accident in this. So this is a process. I mean everybody will have to follow this HSE guideline on a meticulous -- I have already said also in past that our Board agenda the first item is HSE when we discuss. So company give importance to this, and that's a part of a process. Investments are being -- are a part of a process. So nothing...

And all our new [ products and even ] expansion -- so just one second. As a company, we are committed to not increasing the size of our footprint. So as we add new volume or new products, the environment treatment costs are already baked into the CapEx. There's no separate CapEx for looking at it saying, okay, now we've added production. Now we will add CapEx for effluent treatment. No, they are both part of the same package.

And to answer you on payback, any material which is drained out or which is vented out in the air, if it is recovered, like the [indiscernible] , then there is always a benefit what company gives. That [indiscernible] is converted into a good product and main product. But we do not -- that is a part of our process and that is how the efficiencies in the plant -- the productions are calculated. So that's a part of our chemical process.

So actually, that is -- from that, I'd just like to segue into making one point. A lot of our -- I will not go into the numbers, but a lot of our attention has gone into creating an initiative of value from waste where we recover byproduct, develop it into a value-added product and sell that as well as not a byproduct, not a waste product, but a product that is actually required by a target industry. So this is a sustainable improvement. We have made investments, and this is an ongoing initiative. And you will see this as a continuing cornerstone of our strategy, that we do genuinely believe in investing into a circular economy. If we are seeing an improvement in our EBITDA margins now and if we hope to continue seeing this in the future, part of that will definitely come from improving the way that we manage what was originally called waste and we develop good value-added products for strategic industries.

Yes. My apologies, I was talking about the growth CapEx number. So acetone project is one and probably some debottlenecking projects, which are underway. It was not related to [indiscernible] or HSE because I understand that whenever we are coming out with a new project, this will be embedded in the project cost.

So as a company, we have looked at making investments of about INR 200 crore in DNL and about INR 200 crores in DPL in the short term. This is -- you will see the results of that over the next several quarters -- the next few quarters. And then these are the brownfield expansions that we've already spoken about and what we've already mentioned in DPL. The new value-added products as and when they come about, we will be happy to introduce them in the appropriate forum.

The next question is from the line of Roshan Nair from Equentis Health Advisory.

So what is our dependence on raw materials from China? And can you throw some light on how is the situation right now?

So while we do buy a couple of raw materials from China, let me reiterate that we have no dependence on buying it from China. We -- as a company, we have always, not just now but even before, we have a policy of derisking our supply base. And generally speaking, we will buy from more than one supplier, ideally from more than one country. Now this has just exacerbated itself over the last couple of years. Today, we are happy to say that, by and large, you will not see a single product of Deepak having any sort of strategic dependency on China as a raw material. We still do consider China, in some cases, as a customer, but we are not -- we are not dependent on them for raw material supplies.

Okay. Sir, apart from IPA, what other plans we have in downstream? Can you throw some light on that?

We'll leave this for next several quarters' discussions. I discuss everything this time only.

The next question is from the line of Rajesh Vora from Jainmay Ventures.

Congratulation, Maulik, for being elevated to CEO position.

Thank you so much.

I have 2 questions -- most welcome. I have 2 questions. First, on being the CEO, you have been with the company for a while and being a CEO of the -- from the promoter family, what is the rebuild game plan you have laid out for your team for the next 4 to 5 years, if you can give in some share of that, would be very useful. And the second question is a little near term, which I will ask maybe after you answered this.

Okay. Sure. Thank you for leaving me guessing for the second part. Okay. So first of all, as Mr. Upadhyay very kindly mentioned, I have been with the organization for quite a while now. And I have taken various roles and responsibilities from working in the plant to working in HR and IT, marketing and strategy. So first of all, let me mention that several years ago, around 2017, we did study the market environment and sentiment. And back then, we decided that the way things are going, the world's dependency on China and its own internal concerns, worldwide there will be some sort of a dealing. And since then, we have worked strategically to improve our profit and balance sheet so that we can concentrate on developing growth opportunities in -- at the right time once there is this increase in the strategic bent for a China Plus One strategy. We did not expect it to be of this magnitude. We did not expect it to be this sudden, but luckily -- I think luck has a lot to play. There's good luck and bad luck. But in this case, perhaps some good strategy came in place where we have poised now for looking at taking advantage of this China Plus One. And seeing that India is also developing into a more attractive space for chemical intermediate manufacturing. So that has worked out well. On the other hand, one of my personal key desires is to create a mega initiative called Depend on Deepak. And this is to identify how we can improve the value that key stakeholders see in Deepak, whether it is customers or potential customers, employees or potential employees, and of course, investors such as you. And we will look over a period of time at how we can increase our attractiveness to such key stakeholders. And based on that, hopefully, you will continue to support us in our growth story.

Sure. Very interesting. So Depend on Deepak has become sort of a buzzword and that's where you want to take it as a -- to the customers?

We're working on making it a buzzword.

Okay, okay. And the second question is on 40 -- roughly 40 days of shutdown that caused the -- impacted the performance. While one quarter doesn't make anything, just as a -- just to understand how much was it attributable to those 40 days? Did you internally do any rough cut guesstimate of if the lockdown wasn't there, the revenue growth could have been less lower which is logical. But is there any color that you can share with us on that?

No color so to speak. I mean we did -- one thing is there during the lockdown. The teams internally had to end up looking at so many different scenarios for their planning. What if the lockdown extends, what if the downstream industries are more affected, what if transport is unavailable. What -- we invented an exercise to say what if 30% or 40% of all our employees contracted COVID at the same time. So I mean doing these exercises is, by itself, just preparing us for a what-if scenario. While we did do an internal calculation, frankly speaking, it would not lend much weight now that the quarter is over. But we can say that right now, hopefully, as the world economy and as the Indian economy opens up, so will we expect to see that Deepak is able to ensure that it remains in the position that it has been despite a 40-day lockdown.

Wow. Wonderful, Maulik. That's very insightful, and wish you all the very best for the next 4, 5 years and beyond.

Thank you so much. Thank you for the support.

The next question is from the line of Pallavi Deshpande from Sameeksha Capital.

Just 2 questions. First would be on DASDA. So I understand that Tsaker is the largest capacity in China. The figure has that at 35,000 tonnes and they are expanding to 55,000 tonnes. So would that mean that -- and given their 50% global market share, would that mean that this market would be under pressure for the next 1 to 2 years.

Okay. If I can just mention here, companies like Tsaker -- this is a personal belief that I have that a lot of Chinese companies put up a certain capacity regardless of what the end demand in the market is. Perhaps cost of capital is lower for them than it is for others in the world. But nonetheless, the question is not about the capacity that Tsaker had put up several years ago. This is not a recent phenomenon. And this was not done last year when the prices were high. With that in mind and with that said, Deepak continues to manufacture DASDA not because it is not because it is interested in punishing itself. This is still a positive cash generator. And other than that, we believe that we are an extremely efficient manufacturer of DASDA. Over and above that, customers worldwide have acknowledged that Deepak's DASDA quality is unmatched. There is no question of anyone who is able to today match Deepak's DASDA quality. And therefore, there will always be discerning buyers. We believe that regardless of what shape and size China's capacity is, there will always be space for an Indian Deepak to manufacture and sell DASDA.

That helps a lot. On my second question, just wanted to understand in terms of the CapEx for this year or what would that be if you could just reconfirm that? And in terms of last year's CapEx, that included a purchase, I think, of INR 77 crores from Deepak Fertilizers on capital equipment. For which division would that have been if you could just elaborate?

We have not bought equipment from Deepak Fertilizers, okay. This is a land parcel, which we have bought. That is at Dahej, which we have actually shared with all of you. So this land is strategically located and it makes a lot of sense for all our growth plans in future that we develop this and which we have actually started developing that piece of land. So no equipment as such. And CapEx is also some -- because of corona and some CapEx is COVID, the CapEx actually got carried forward. Like CoGen, we had said earlier that CapEx will be completed by first week of first quarter. But then now force majeure clause are applicable and see there is a delay. So Maulik just mentioned about INR 400 crores. So this is, again, some portion is of last year of the credit for CapEx-es plus this IPA to Deepak Nitrite brownfield expansions we are planning. So overall, we see at around INR 400 crores CapEx this year. But provided things change [ and adding ] in the sense that we are allowed to work. Otherwise, what is happening today that -- I mean, because of the labor shortage and -- because of the peer shortages that the supply -- equipment suppliers and we are observing delays in supply also. So these are all -- these assumptions that things will get normalized soon and the migrant workers also are resurging. Like some states have again declared lockdowns. So unless those things are opening -- I mean we are assuming things so -- but this is our plan. We certainly have a plan to go ahead with our development of Dahej, the new part of land -- piece of land, plus setting up the plant. But it is taking a while and we are waiting for the right time to come.

The next question is from the line of Kumar Saumya from Systematix.

Sir, my first query is regarding the Deepak Phenolics. So overall, consolidated margins were driven by majorly by Deepak Phenolics performance. So now that we know that the sales price are better, so if you could quantify or give a ballpark number about the contribution of IPA and the sales of Deepak Phenolics and operating profits?

I think we have to see -- I don't agree with you that Deepak Phenolics because Deepak Phenolics margins are high.

I'm feeling offended here.

No, sir. On a stand-alone basis...

I don't understand because Deepak Nitrite margins are better than Deepak Phenolics, but leave that aside. I'm not getting into that. The point is that why you want to know IPA separated and acetone. We are developing a downstream -- downstreams are developed to see that we are getting better value out of that. So please look at that as a combined business rather than just segregating this and that. But currently, if you ask me, yes, IPA is delivering a robust performance because it is finding application in hand sanitizers. And if you ask me again, we certainly believe that this habit of using sanitizers and the handwashing [ practice ] on to stay because people are getting used to it. So that's what our belief is. But even otherwise, I said earlier also that we see people -- we are -- we have considered normalized synergy and then invest here. So you will certainly see overall combined a good performance in phenolics as well as Deepak Nitrite.

I just want to add that despite the amount of airtime it gets, IPA use in sanitizers is still a subset of IPA use in the pharmaceutical industry. So as the pharmaceutical industry increases its own capacities in India, you would naturally expect them to be just as dependent on IPA from wherever. So let's not always look at it as a subset of what if people stop cleaning their hands. Regardless, as long as people continue to take medicines, I think we should be okay, don't you?

The next question is from the line of Madhav Marda from Fidelity Investments.

So my question involves, basically, in the first quarter, did -- in general, for our product portfolio, did we see better spreads because raw material prices were a bit lower owing to crude going down, but our prices -- our own end product prices held up better. Is that a fair understanding to us?

You see our, yes, end products in Fine & Specialty, particularly, you can say this, we has certainly happened. Even in bulk also that our end product pricing are good where the raw prices have gone down.

Okay. And sir, just for my understanding, do these spreads basically normalize over time? Or like how does it work? Because I would assume that your customers would probably want better pricing looking at the lower raw material prices for you? How should we think about it?

No, no, no. These sales are not that we are linked to end product pricing -- raw material pricing, particularly Fine & Specialty. That's why I said that, yes, Fine & Specialty margins are better, okay. And then because there is something called demand also in the market. The prices are also demand and supply. So there is a -- certainly, we are finding traction in our supply and demand. So these margins are improved because of that also. Okay. So I don't think there is going to be -- but again, don't, again, take the same margin and calculations. Keep a range of margin. That's all I, again and again, request you people that don't just go to number and fix. So -- but then margins have improved and it will continue to remain better as compared to in bulk in Fine & Specialty as compared to last year also. See, this is the beauty of Deepak Nitrite, the performance of these products are not doing [ as further ] because of the DASDA and OBA as we explained, but Fine & Specialty and bulk chemicals are doing well. That's why you are seeing the better number and which will continue in Q2. Hopefully, things remain -- we are assuming again, all of us that things will -- the COVID situation normalizes and things are revising across. If there are some, again, lockdowns and COVID situation worsens, then I mean both -- these are the things beyond anybody's control.

The next question is from the line of Swarnabha Mukherjee from Edelweiss Broking.

Sir, my first question is related to the capital projects that you mentioned will get commissioned in Q3 and Q4. So any top level guidance you can give in terms of revenue potential that these may have or maybe in terms of asset turn you can guide? Or I mean, if I can refresh the question, what I'm trying to understand is that from the CapEx that we are doing, what kind of organic growth you would expect over, say, some time in future?

See, any CapEx, I mean, normally, you can take -- it can be better in Fine & Specialty for our asset turnover, it will be 2:1, okay? And again, I am saying the margins are in payback around 3 years, less than 3 years. This is what the company follows that principle and policy. So there are delays because of the COVID and this. So projects are done, but this is a safe assumption. You can take this. Okay. So -- I mean, Q3, Q4, as Maulik just mentioned about that, because these are the projects which are -- which got stuck in corona in this. So we are expecting that to complete in around Q3, Q4.

Right. Right. So sir, you mentioned that these would be majorly focused in agro, pharma and personal care. So is it fair to assume that mostly this is in the Fine & Specialty segment than other 2 segments?

Yes. In agro...

So the end industries are mixed, but I mean you should expect a reasonable contribution. And you should expect a reasonable top line growth. But I mean, it's actually spread over a couple of end segments. Not just one. Nonetheless, all of them, what we are expecting is we are not seeing that there is a lack of demand. So we are not worried about expanding and then facing a market, which does not want those products. The market is there, it is demanding more and we are working very hard to ensure that we are able to supply them as soon as possible.

Yes. That is very helpful, sir, very detailed. Sir, on the margin going forward, so Fine & Specialty margins particularly were extremely strong this time. So it would be great if you could give some color by segment, ballpark range would do, where you think on a normalized basis margins would stand given your current product mix? For the base business segments as well as Deepak Phenolics, if possible?

Again, I say that, yes, margins in Fine & Specialty is certainly better. Margins in BC is certainly better, yes. It is -- again, products are in demand. The depreciating rupee is also helping us. Okay. In phenolics also because of IPA, these things are -- things have improved. So our Performance not doing well, Performance products, but other 2 segments will continue to do well, that much I can tell you now. But I cannot guarantee you that 40% -- 45%, 46% margin what you're seeing in Fine & Specialty will remain at that level. But for, say, it is certainly going up and it is sustainable margin, you can take a range between, I'll say, 38% to 42%, 43%. That will be a safer. If it -- I mean, it can go up to 45% also, but I don't want to unnecessarily put a very high risking on this. So everywhere, things have improved, our efficiencies have improved. We are running our products, all the plants. We're taking all the cares of COVID situation on this. So you will certainly, certainly see a better number in future, that much we can tell you. But not the exact margin EBITDA numbers.

I think one point you can take all this from is that we've worked very hard to improve, as Mr. Upadhyay has said, our efficiencies, our cost excellence. And we have good strategic customers who are, in fact, sticky. So that is, I think, the only guidance that is -- that should be required, given that it is up to God and up to the pandemic.

Right. Sir, absolutely agree. And we definitely -- I think I would like to congratulate you for such great performance across segments, even in challenged times. Sir, just last question. Any guidance or color on your debt side how you're going to handle that? And also, just wanted to thank you really for the detailed annual report that you have come up with. I think it gives a lot of color in understanding the business. Thank you, sir. So if you could answer on the debt part.

Debt at Deepak Nitrite is almost a 0-debt company, you can say. Combined, we are at a debt equity of 0.45, which is a -- I mean, it is -- what should I say? This is quite comfortable and it can buy things. But since we have plans for investments also, we just don't want to see it and become a 0-debt company, which I have said in past also. There are certainly -- we have our plans. And so debt side will not -- it will not cross any level. Today, if you see, I mean, our internal [indiscernible] are so good and so we need not borrow. So it will be very, very comfortable debt-to-equity. It will never ever be beyond. Even today, with this also, it cannot close 1, 1:1 also.

The last question is from the line of Pallavi Deshpande from Sameeksha Capital.

Just, again, a follow-up. On the DASDA side, if you could just provide any numbers with regard to our production in the first quarter and what would be the current utilization level.

DASDA, again, DASDA demand in this -- demands are, again, normalizing but to -- it's taking time. So we are not running at 100% capacity in DASDA, let me tell you. Okay. And probably in OBA also. This is a segment where a major application is in textile and paper. So detergent is doing well and DASDA is finding application in detergent where the margins are also better. So we are supplying to detergent industries, but paper and textile where we are supplying. The demand is subdued so there is a [ delay ] here. And it is -- I mean, we'll talk about it after maybe 1 or 2 quarters when things normalize. And we -- today, we ourselves do not know how things will unfold in maybe the second quarter.

Right, sir. And sir, secondly, on the phenol side, the value-added product. Any -- I mean which area there would be, if you could just -- I mean, which area would you be working on, on the phenol?

It will be too early to talk about phenol derivatives in this, and we'll come back to you. And certain things are the company works on. I mean, it cannot be -- everything cannot be shared unless there are complete plans and we come up with our own announcements in this. So I mean you'll have to bear with us.

Thank you. Due to time constraint, I would now like to hand the conference over to the management for closing comments.

So thank you all for joining our con call. Hopefully, we answered, clarified to the extent possible. If there are further questions in this, yes, you can get in touch with my investors team. Mr. Nanda will be glad to answer and reply to your queries.