Deepak Nitrite Limited (506401) Earnings Call Transcript & Summary

[Audio Gap] Mr. Maulik Mehta, Executive Director and CEO ; and Mr. Somsekhar Nanda, Deputy CFO, with us. We will begin the call with opening remarks from the management, followed by interactive question-and-answer session. At the outset, I would like to clarify that certain statements made or discussed on the call today may be forward-looking in nature. And a disclaimer to this effect has been included in the investors communication shared with you earlier. To begin with, Mr. Mehta will share with us the operating performance and the growth plans of the company. Followed by Mr. Nanda, who shall be taking us through the financial and segmental performance. I'll hand over the call to Mr. Mehta for his opening comments. Thank you, and over to you, sir.

Hi. Good day, everybody, and welcome to Deepak Nitrite's Q3 and 9 months 2021 Earnings Conference Call. I trust that you and your families are safe and in good health. I hear both positive and negative news all the time about COVID and the vaccine drive. And I really pray that all of us stay careful and at the same time, optimistic. I hope you would all have had the opportunity to go through the entire document, which was distributed earlier. I would also like to share that Mr. Sanjay Upadhyay is not available today. That is because of a happy reason that he has taken a personal leave for the week. And Mr. Som Nanda will be proxying on his behalf. As we have shared, Deepak Nitrite is in its 50th year of operation. And over these last 5 decades, we have and will continue to uphold high standards of operational governance and corporate governance. The diverse product offerings developed and the process knowledge ingrained over 50 years remain exemplars towards a solution to global challenges. Our focus on people first has enabled us to win dedication of all employees fostering cross-functional teamwork that is positioned to navigate uncertainty of business and economic cycles. The dedication from our teams has allowed us to rapidly overcome the impact of the lockdown, which caused severe disruption and a loss of over 1 month of production in Quarter 1. The lingering effects of the pandemic still persist in some of the end use segments like paper, textiles and oil. But we are pleased to have delivered a standout performance upon resuming operations to lift our YTD performance back to a year-on-year growth trajectory. Operational excellence at all plants and customer stickiness has led to consolidated revenues of INR 1,240 crores in Quarter 3, higher by 9% compared to last year. Growth has been led by the segments of phenolic and Finance Specialty Chemicals. while Basic Chemicals was affected by temporary raw material unavailability and is seeing a steady progression towards pre-COVID levels of demand. Our Performance Products segment is clearly impacted by the sharp drop in prices, which were unusually elevated last year. Although product prices in Performance Products segment has not yet normalized, on a general basis, we witnessed demand and plant capacity utilization returning to pre-COVID levels, and we hope to see the same trajectory moving into Q4. The improved performance of the Sign and Specialty Chemicals segment and the Phenolic segment, including the accretive accumulation of contribution from IP have guided a significant improvement in consolidated EBITDA, which stood at INR 340 crores and was higher by 25% year-on-year. PBT for quarter 3 was INR 290 crores, higher by 38% on a year-on-year basis, lifted by the operating performance and reduced financial costs of the company. As a result, profit after tax grew by 38% from INR 157 crores last year to INR 217 crores in Quarter 3 this year. What I would like to highlight here is how we have progressively scaled our operation during the year. After this disruption in end of March and a substantial part of Quarter 1, we have steadily rebuilt our momentum over Quarter 2 and now in Quarter 3. In fact, as we had also mentioned in Quarter 2, you would have seen that we have grown our PBT, both stand-alone and consolidated in each successive quarter of this financial year. Operationally, domestic revenue stood at INR 864 crores as against 550 -- sorry, INR 659 crores. This grew at 31% quarter-on-quarter. There has also been a fairly sharp recovery in domestic economic activity, and we have moved quickly to capture greater wallet share across key customer segments. Export revenues rose to INR 368 crores in Quarter 3 as compared to INR 326 crores in Quarter 2. Despite challenges on international shipping due to container and ship unavailability. The emphasis was on the key geographies that were recovering faster, resulting in better movement of goods and smoother international trade. This has helped us grow export revenues even when some of our markets are faced with challenges of a second wave and also mutations in the virus resulting in additional rounds of lockdown and restrictions. Moving to segmental performance. The Basic Chemicals segment reported revenues of INR 196 crores, up 14% on a sequential basis despite short-term challenges. This was in line with our strong recovery in the economic activity across the country backed by plant initiatives undertaken by the company. Finance Specialty Chemicals delivered a consistent performance with revenues of INR 211 crores. Performance was also supported by stable realizations of key products with positive demand landscape across the portfolio. Performance Products segment delivered a robust sequential performance with revenues of INR 90 crores in Quarter 3, delivering a gain of 34% quarter-on-quarter. Both capacity utilization and customer demand have started to return to pre-COVID levels towards the end of Q3 and are expected to further improve moving forward. Deepak Phenolic's witnessed revenue increases of 37% quarter-on-quarter, with EBITDA growing by similar numbers of 36%. EBITDA margin stayed firm at 25.5% and the pressure from rising input prices was offset by operating leverage gains. Initiatives to elevate plant performance has resulted in utilization of over 115% consistently. Forward integration into value-added derivatives like IPA, have resulted in improved contribution in both Q2 and Q3. In key developments, I'm happy to share that we have commenced land development operations at our newly procured site in the hedge, which is also 127 acres. The site will house the capacity augmentation of the stand-alone business. Again, this site will see development in phases. The brownfield expansion of the IPA business is also on track and will be commissioned towards the end of Q4 or early Q1. Brownfield expansions in Deepak Nitrite were completed at the tail end of Q3. And we look forward to maintaining wallet share to customers who are witnessing demand growth. In the second week of October, we set up a new subsidiary called Deepak Clean Tech that would house some of our upcoming new products. Thus, we are optimistic that the consolidated entity will witness encouraging improvements along the length and breadth of group verticals. To conclude, I would like to add that Deepak is well poised for growth through various initiatives. Even as we return to pre-COVID levels, there is a visible demand uptick from global customers who place strong emphasis for Deepak's products and quality over most competition. Early initiatives to derisk our supply chain from China have also resulted in mitigating most of the impact of supply chain challenges faced in the Indian industry. We believe that with a proven capability and track record and a high degree of forward and backward integration in such a challenging environment, we are well equipped globally and nationally. That, together with contribution from our forthcoming brownfield expansion and the large greenfield expansion, housing value-added forward integration will serve to strengthen our competitiveness position and help us expand market share, creating value for all of our shareholders. Thank you. And I would now like to hand over the call to our Deputy CFO, Mr. Nanda, to address this forum and briefly take you through the financial performance during this period under review.

Mr. Nanda, your audio is not audible.

Is it okay?

Yes, I can hear you.

Yes. Thank you. Good afternoon, everybody, and a warm welcome to Deepak Nitrite's earnings call. I will take you through the financial highlights for the quarter ended December 31, 2020. During the third quarter, many high-frequency indicators such as demand for power, volume of railway freight, number of U.S. based deals degenerated, monthly vehicle sales, collections in GST, highway toll collections, have demonstrated a reshaped recovery pointing towards a fairly comprehensive economic rebound. Leveraging this rebound in economic activity supported by internal initiatives to restore operations. Deepak Nitrite has delivered a resilient performance. Looking at the third quarter performance, stand-alone revenues improved by 10% to INR 491 crores in third quarter compared to INR 448 crores in the previous quarter. This rise in stand-alone revenues has come from a positive contribution from all 3 strategic business units. In the third quarter of current financial year, EBITDA was INR 149 crores compared to INR 139 crores reflected in the immediately preceding quarter, registering 7% growth on a stand-alone basis. The EBITDA margin declined by 72 basis points from 31% to 30% owing to limited availability of certain raw materials despite long-term contracts in place, which resulted in stock value plant and spot purchases at higher cost for a temporary period. The PBT of the company has been steadily increasing in each successive quarter of this fiscal year with a stand-alone PBT increasing from INR 85 crores in the first quarter, going up to INR 125 crores in the next quarter followed by INR 132 crores in the current, which is the third quarter. And we expect similar trajectory in the last quarter as well. EBITDA performance supported by lower finance costs resulted in accretive PBT growth in Q3. Profit after tax for the third quarter was INR 98 crore as against INR 92 crores, growing by 6% on a Q-o-Q basis. On a consolidated basis, turnover stood at INR 1,240 crores in the third quarter compared to INR 991 crores in the preceding quarter, which is higher by 25%. The growth in volumes in the Phenolics business was enhanced capacity that was due to enhanced capacity utilization above 100%, which has given us this robust transaction in revenue. Consolidated EBITDA stood at INR 340 crores in third quarter compared to INR 280 crores in last year, the same quarter, higher by 2%. Consolidated PBT and PAT have both increased 27% on a Q-o-Q basis as higher turnover has been supported by lower finance cost. Basic Chemicals revenue grew by 14% to INR 196 crores in third quarter against INR 172 crores in the preceding quarter. EBIT improved by 15% to INR 47 crores in Basic Chemicals business unit with EBIT margin of 24%. Finance and Specialty Chemicals revenue came in at INR 211 crores in the third quarter. And on unexpected 22% Y-o-Y basis, Finance Specialty Chemicals segment reported an EBIT of INR 91 crores, which is about a 43% EBIT margin. Performance Product segment revenues stood at INR 90 crores in third quarter, reporting a growth of 34% over the previous quarter. This segment contributed EBITDA of INR 8.2 crore as shared with Maulik, this segment had weakness to normalization of customer demand and volumes and any recovery in realization will drive the performance going ahead. Deepak Phenolic's witnessed an encouraging performance in third quarter as revenues increased by 37% to INR 747 crores against INR 545 crores in the preceding quarter. The segment reported an EBITDA of INR 174 crores, resulting in an EBIT margin of 23% in third quarter compared to 22% in second quarter. The company has focused On operational efficiency at this facility and has driven utilization beyond 115% of stated capacity during this quarter. Our teams have also displayed impressive agility in seamlessly coordinating the material movement considering ongoing constraints logistically in terms of raw materials and finished product. On the balance sheet front, the financial position of the company is stable and it is sound. It is using its cash flows to steadily reduce debt. On a stand-alone basis, D&L -- Deepak Nitrite as a company is [indiscernible] while Deepak Phenolics gearing ratio is around 0.7x, which brings a consolidated net debt to ratio -- debt to equity ratio 0.28x. The company enjoys a robust liquidity position with cash and liquid investments amounting to nearly INR 80 crores on a consolidated basis. With that, I would now request the moderator to open the forum for question-and-answer session.

[Operator Instructions] The first question is from the line of Karan Rathod from AUM Advisors.

Congrats on a wonderful set of numbers. My question is directly towards Maulik. Maulik, if you can outline for us a little bit about your sort of medium- to long-term growth CapEx initiatives. It will be very, very helpful to figure out how you guys will grow going forward. And this could be a combination of your base phenolic business capacity expansion now that you're running at record capacity utilization over there or downstream products into phenol and acetone derivatives, your base business as well. And some of the sort of dual sourcing strategies that you discussed on earlier calls where India could be a very good sort of sourcing destination on the China plus 1 theme. So if you can just outline how you have thought about your sort of growth CapEx initiatives over the next 3 to 4 years would be very, very helpful.

Yes. And thank you for the question. So there was a lot of questions there. I'll try my best to answer them. So on Deepak Nitrite and in Deepak Phenolic's, both of the companies have opportunities that are in line now for announcements over the next few months, which will be on growth. Deepak Nitrite is looking at both downstream and upstream products. The upstream products will lead to better resilience, and the downstream product will lead to expansions of the value chains and competencies, which Deepak already possesses as well as a couple of new platforms that will allow us to manufacture new value-added products in new verticals. Deepak Phenolics will be looking at increasing the market share in its current product as well as prioritizing the downstream products, which come from phenol and acetone as raw materials. So if you ask about a priority, I would say that Deepak Nitrite priority has always been the same to occupy as large space in the value chain that it is present in as well as systematically add new verticals that it has a great degree of confidence about being a global player in. With Deepak Phenolics the priority will be, first, to ensure that it has the right downstream products. And as and where the opportunity presents itself to be able to expand the base product manufacturing, but we also do feel like the current plant has some further gas in its tank in order to increase productivity.

So is there any indication you could draw it from a size perspective? What sort of CapEx are we looking at over the next 2, 3 years?

So I think it would be safe to say that over the next year, we are looking at something along the lines of about INR 400 crores or so in Deepak Nitrite. And about INR 200 crores to INR 300 crores in Deepak Phenolic plus/minus.

The next question is from the line of Rohit Nagraj from Sunidhi Securities.

Congrats on the set of numbers. Sir, the first question is just explanation of the earlier one. So in terms of our R&D strategy for new product development, where are we more inclined work? So I understand that in nitride, the Performance Products segment is not where probably there would be incremental opportunity while the basic chemicals are relatively of high volume decent margin business. So how it is focused in terms of our strategy? And which are the usual segments that we are trying to bank on? Is it really only the pharma segment or agro segment or any other emerging segments?

Okay. Thanks for the question. As I have highlighted even in the last con call, we don't look at products based on which segment they are in. So if you see our Basic Chemicals segment, we look at contribution and EBITDA numbers that a lot of other companies might consider as par for the course for the specialty segment. And similarly, even with phenol and acetone, we look at our segments as just a marketing direction, so it has either push or pull But when we invest in R&D, we invest based on process capabilities. And process capabilities, so for example, if you're talking about unique nitration or hydrogenation, now these are processes that can be equally applicant in basic chemical products, finance specialty products and phenol and acetone. So at the end of the day, what we look at is R&D for improving a particular process chemistry. And once that improved process chemistry is there, we are able to launch new products, which may have required a very unique setup also competency that we either have or we have been working on developing. It is coincidental that many of the products that we are coming into are focused on the agrochemical and pharma segment. But rest assured that the process innovation is one that will also take us into improved realization of existing basic products and new value-added basic products. One very simple example is when we manufacture food grade sodium nitrite. At the end of the day, while the product is sodium nitrite. The product that we started our journey 50 years ago with, it's a very niche market. It is a very demanding set of customers And the kind of product that is given to them, while it shares characteristics with the basic product has a unique manufacturing process. So I would as it is to classify our R&D investments into business segments because that is not the intention of the R&D. The R&D is to ensure that we are able to get good products, which at the end of the day, may have an anchored customer in one segment, but at various stages, either upstream, downstream or as an intermediary stream can also be attractive to other segments. It's difficult to elaborate more than this.

That was pretty elaborate. The second question is for the phenolic segment. So we have operated at 115% utilization this quarter. So how are we seeing the utilization rate going in the future quarter? And a light question to that, when are we having our maintenance shutdown? And then what would be the frequency of maintenance shutdown thereafter?

So we got lucky and unlucky because of the pandemic and in Q1, we were able to tie in the maintenance shutdown along with the national shutdown. And if you ask where we are going in Q4 compared to Q3, where we already had a high operating performance. As I mentioned earlier, we still believe that there is gas left in the tank. The plant has been put up in an extremely robust manner. And as the team gains more and more confidence about its nuances, it's able to further improve productivity. So now while we say that it is 115% of design capacity, our internal confidence, it just means that this is a new benchmark that we have to ensure that we cross. So 115% for us now becomes a baseline number internally.

All right. And the next maintenance shutdown now?

We'll announce it, but we won't be expecting any impact in Quarter 4.

The next question is from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund.

Sir, my question is largely on the -- I mean, if you look at the last 2 years, I mean, we have done a commendable job as far as debt reduction and cash flow is concerned on a consolidated basis as well as on the Deepak Phenolic side. Sir, my question is, if I look at the opportunities in hand because a fair amount of final goes into medicine. I mean, you're typically talking about anti-infectives. I also believe that it is used in vaccine reservation as well. And in like with this kind of an opportunity and the government talking about PLI seen several companies are talking about investing. Where do you think that our investment should be in the next 3 years? And where do you think the growth should be as far as the Deepak's concern?

Okay. That's a very nuanced question. Thank you. So Deepak Phenolics is in a position where it's able to look at a good mix of smaller volume, higher value downstreams, and higher volume but medium value downstream as well. In short, the answer will be a mix of the 2. So we are well aware of the short-term opportunities offered by PLI. And we are also well aware that at the end of the day, the opportunity must be one that is sustainable with or without PLI. So whether it is PLI or tariffs and nontariff barriers and these things. At the end of the day, we pick and choose our products based on whether there is sustainability without using these temporary crutches. And luckily, we are seeing a good set of opportunities to be able to go downstream in smaller volume and in higher volume for both phenol and acetone. I think a series of announcements over the next several months will give a good indication of how we are going about prioritizing these.

And sir, would we be also targeting phenol derivatives? I mean, have we developed capabilities internally to the point where we can commercially look at some kind of final derivatives in the next year, couple of years?

Yes, of course. This is our first priority in the Deepak Phenolic segment. Also, I must highlight that the goal of Deepak moving forward is not to always look at something which is only a phenol derivative or acetone derivative. There are a lot of opportunities that present themselves which requires phenol or cumene or acetone as raw materials, but also use process competencies that are there in Deepak Nitrite. So there will be a lot of mix and match. This is one of the key reasons why we considered a new subsidiary called Deepak Clean Tech, which is able to use both Deepak Nitrite and Deepak Phenolic advantages to create a very clear right to win in the new products that we go into. So you will see products that will have a lot of synergy from both the parent companies. And therefore, we believe that these will be a good reason why Deepak with its process first -- process before product way of thinking has a good reason to succeed regardless of global market conditions, regardless of potential competition from international players because here, we have harnessed the last 50 years of good, steady improvement in competencies.

Perfect. And sir, with respect to our investment, I mean, We are currently having a net debt of about INR 570 crores. And I mean, the INR 350 crores kind of EBITDA, which we are doing -- translating to about anywhere between INR 280 crores to INR 300 crores of cash. I mean, I would assume that largely in the next 2 to 3 quarters, we should be more or less debt free. From the business side, I mean, where do you think our comfort will be as far as the net debt to EBITDA is concerned? Both on the consolidated side stand-alone as well as on the subsidiary side?

I'm not comfortable right now.

Okay. Okay. But is there any number that we have, I mean, in terms of where the debt -- net debt to EBITDA would be at.

I can't answer this question, but I can tell you that while we have good robust plans for growth. And Mr. Nanda and the finance team is extremely tight on corporate governance. I think he will give you a more balanced view.

See, our objective is to have a balance of both growth and as a good capital structure. Now traditionally, if you see, and if you have joined our call, you would have seen that never ever we have thought of saying or we have said that it was like to be a 0-day company, a very low lever company. We would like to grow and which means you'll have to be having capital infused in form of debt or equity. And for that matter, if we have to increase our debt level, we'd not believe in 0 debt level, if you have to increase our debt level, that is fine. As long as the capital structure is healthy, and that gives momentum to the company. And this is what we have been reiterating and this philosophy we'll also obey in the years to come. While Maulik just annunciated the -- delineated the growth plans of the group. In that path, we don't think that though we'll be having very healthy cash flow coming in from the operation. We may not be shy way of ourselves some borrowing also because borrowing terms are very, very good for us this time.

And would we also...

I'll request you to come back in the question queue for a follow-up question. [Operator Instructions] The next question is from the line of Naresh from Samita Capital.

Congratulations, sir, on a great set of numbers. Sir, my first question is our company has been focusing on operational efficiencies. Last time also, you had mentioned that in Phenolics most of the increase in margin is probably due to operational efficiency. And right now, so you mentioned we expect the gross margin going down. And we were able to utilize the plant at a higher capacity and thereby maintaining the margins. So can you illustrate a bit more in detail how do you plan to -- I mean, how do you achieve these efficiencies. That would help, sir. And the second is on this incremental revenue, which has come in with Phenolic, how much is due to this 15% additional capacity, which we were able to place and how much of it is due to the higher final prices in this corporate?

I think higher prices of finished goods should always be seen in the light of higher prices of raw materials. But with regards to improvement in productivity and operational excellence, it's not a single point answer that we can give you. What we can tell you is that the company invests in good manufacturing practices across and in phenolic and in a couple of other locations. We aggressively use both software and sensor-based IoT in order to ensure that there is minimal wastage of material time and manpower. So across the board, what we are seeing is that there is opportunities for improvement and incremental improvement. But when you're talking about volumes as high as we're talking about of lakhs of tonnes, these incremental improvements result in good significant and sustainable bottom line gains. So it's -- giving this answer on a con call is impossible. But rest assured, what we can tell you is that this is the result of looking at the same boring set of numbers and processes and looking very hard at any and every point of improvement. A lot of these opportunities are thrown up by the kind of sensors that we have deployed and the software that we use for modeling.

Sure. And my next question is on the basic chemicals and finance facility, what would be the current capacity utilization? And how much scope do we have in terms of expansion, considering the ACs, which we have got recently? And how much capacity we are planning to add in these 2 segments in the next 2 years?

So we keep on adding capacity as in when we feel it is necessary. Like I mentioned earlier, some brownfields were completed in Q3 as earlier intimated. And we will continue to do this. So on an average, you can say that Q3 was about 85% capacity utilization in these 2 segments. A lot of it was because of temporary unavailability of raw materials. And some of it was because the end customers in a few of our products are in the MSME segment. So they were still in the process of reopening. They had their own internal challenges. But in Q4, we find that most, if not all, of the MSME customers has reopened and are looking at robust demand for their end products. So moving forward, it will be interesting to see how capacity utilization moves up from its current stage because we are expecting at least a reduction in the challenges of raw material availability and definitely a good demand uptick from customers across the board.

The next question is from the line of Sabyasachi Mukerji from Centrum.

First of all congratulations to the entire team for our announced a contest of especially on the Deepak Nitrite side. My question is -- first question is on the little in the broad medium to long-term perspectives. So you have kind of guided that for the next months, few months, you'll be coming up with a series of announcements on the growth plans. But qualitatively, if you can throw some color on for the next 3 to 5 years kind of plan in terms of CapEx. A, if you can quantify that CapEx and the expected asset turns will be likely to generate out of that. So that is my first question.

I don't think it is correct for us to be able to vacillate on the CapEx number. What I can tell you is that the way that we choose products is with a very rigorous set of conditions, which we call Deepak's right to win, where we say that any new product that we get into, it must have a payback of 3 years. It must have a good reason whether it is in upstream or downstream integration, process competency, customer synergy, all of these things, 5 or 6 points that are mentioned in that, and we go through a rigorous set of conditions. Now all I can say, giving you an indication today is that we have quintupled the expenditure on R&D in the last 2 years. And we would not have done this unless we had a very aggressive and a robust set of opportunities in front of us. So today, I'm unfortunately not able to give you the kind of details and color that you would want to have in this con call. But I can tell you that our growth trajectory, at least the one that we're considering internally is aggressive. And at the same time, one where we're able to back it with a good reason why Deepak should be the company to win in this kind of a product. So we are very confident about the opportunities that are there in front of us. We're very confident in the long-term viability and the the long-term contracts that we will have with anchor customers. And we've already clarified that these products will not be specifically in one segment or another. But there will be definitely a bias towards agrochemical and pharma. That does not preclude other segments as well.

Got it. Understood. That's helpful. My second question is on the phenolic part. You have clocked almost INR 750 crores kind of a quarterly revenue in this quarter. And you mentioned that this is kind of a benchmark that we are setting for the next quarters or so. So my question is that comes to almost INR 3,000 crores of annual revenue, if I just annualize the number. And going energy will also add some of the downstream products and the IPs to CapEx will also come. So do we expect this number to move not of this INR 3,000 crores annual? And how will the margin trajectory be getting into consideration that we will be adding downstream products also. So if you can give some color on that.

So basically, the top line in the phenolics depends on the crude price and hence, the prices of propylene ranging and hence, phenolic acetone. It may not be always true for us to say that we'll be achieving at least this. What Maulik has stated was that we are setting a benchmark for us about the volume and held the capacity utilization, not on the top line. Top line depends on many external factors over which we have no control. Having said that, it will depend on the national market. What is happening elsewhere in the globe, say, in the U.S. or in Singapore or in Thailand, depending on that, the top line will keep on moving. What we are concerned with is the profitability and the volume and the operational efficacy of our plan. I hope this gives a better color of your question.

Also, I would like to correct my earlier comment and replace the word benchmark with baseline. What I intended to say is that the performance that has been demonstrated in a sustainable manner becomes a new baseline for us because we are not only confident about ensuring that these volumes are sustainable. We always look at seeing how we can identify opportunities to increase volume and reduce per kilo cost. So margin over materials and volumes are our 2 key drivers.

[Operator Instructions] The next question is from the line of Tejas Sen from Nippon in Asset Management.

No different...

Please speak a little louder.

Yes, sorry. Is it fine now?

Yes. Yes.

Just delving more on the CapEx side. I mean, that's where I think everyone of us to need clarity. You said INR 400 crores of CapEx in Deepak Nitrite. And I think on the gross block of 20, which was broadly INR 1,000 crores for only Deepak Nitrite, I think that would be 40% kind of addition in just 1 year. Secondly, if we look at the EC, environmental clearance, which the company got in Deepak Nitrite and Deepak Phenolics. One in Deepak Phenolics, there was a lot of capacity addition, which is at the proposed level both for phenol and acetone and even cumene, I think you have asked for doubling the capacity. And secondly, there are a lot of new products which you have asked for approval, which -- where we have got the approval in Deepak Nitrite as well. So again, just some elaboration on that. That is the understanding right that the 40% capacity addition we're doing in Deepak Nitrite [ one ]? And the 30% to 40% expansion is what we are looking at in Deepak Phenolics as well?

No. I will correct certain assumptions there. We don't really look at growth block as a way to quantify our growth opportunities. So I really cannot elaborate on that point. However, INR 400 crores is a mix of new products and upstream. So these are products where we believe that there is a good reason why they will bolster Deepak's profitability. And in some cases, and in other cases, bolster Deepak's top line growth. So it is not just a significant volume of new products that we are adding. It is -- there is some of that, and there is some of improving the fortification of Deepak Nitrite's profitability. And on Deepak Phenolics announcements will be, as I mentioned shortly, but IPA is anyway coming up. We have another internal project for improving our bottom line by ensuring that we have good sustainable clean power, and that is also ongoing. So both of these things are expected to be seeing the light of day as scheduled, and they will further add to both top line and bottom line, similarly with Deepak Nitrite. So I would not consider a comparison to the gross block. It is inaccurate and it will lead to a lot of confusion.

Okay. But on the proposed capacity addition in Deepak Phenolics where you have asked for 6,500 tonnes over 21,000 tonnes on a monthly basis. And on the acetone, again, it is 5,200 tonnes on 12,800 tonnes on a monthly basis. So is this part of Dahej Unit 2 plan where we are looking at addition? Or is it the brownfield expansion where we can really de-bottleneck? [Technical Difficulty]

Ladies and gentlemen, please stay connected while we rejoin the management back to the call. Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected to the call.

I don't know till when -- so that question, again, on the Deepak Phenolics one, when I was looking at the EC of Deepak Phenolics for December last year. There's nearly 30% volume addition, which you're looking at phenol acetone level. So -- and you mean we are looking at doubling the capacity. So on that, if you -- is it part of [ Dahej ] Unit 2? Or is it the de-bottlenecking at the Unit 1?

Yes. So this is the -- one of it is because of the -- what you see right now in terms of the volumes that we are able to manufacture, you see some of that subsumed within. And some of this is what we are looking forward to from the existing site in the forthcoming quarters.

Okay. Okay. At [ Dahej 2 ] unit, you will be looking at predominantly for Deepak Nitrite only all the new products or even for the expansion of the existing products?

No, let me reiterate that The new site will have products that have both raw material and process competency coming in from both companies. And we will be seeing a significant set of products some of which will be higher value, some of which will be higher volume. And I would not say that these products are definitely linked to one or the other. And that's also the rationale behind why we have taken certain administrative steps.

The next question is from the line of Hasmukh Gala from Finvest Advisors.

Yes. Sir, thank you for a very good set of numbers. Just 2 questions from my side. How do you see the pricing trend per se in different businesses, like in Performance Products, you said that last year was very high and now it has drastically come down. So for the major products that we have, going ahead with the robust demand, which you are expecting, what kind of pricing trend do you see? That is my first question.

So there's an optimistic answer. There's a pessimistic answer. To be honest, if you're talking -- are you talking specifically about performance products? Or are you talking about...

No, in general. In general.

Right. So in general, in my commentary in the previous investor con call at the end of -- after Q2 results. We said that in a lot of segments, we are seeing that there is a revival in volume demand. And we are expecting that there will be a revival in prices, perhaps one step after the demand increase. And we remain -- we are taking that position. We have seen across the board in, I think, pretty much all of our products an increase in prices. Now unfortunately, in some of our segments, in Q3, for a part of Q3, we also saw an unavailability of raw materials, which led to some sort of a margin compression. But as I mentioned earlier, we have seen these challenges being moderating in scope and impact now. So we are expecting not only that the volume increase, which was already creeping in at some part of Q3, continuing robustly in Q4. We're also seeing a price increase. If I look at, say, performance products, we are seeing a price increase of about 10% to 12%. And in basic chemicals, also, we are seeing an increase in prices of about the same. Of course, at the same time, we are also seeing some increase in raw material prices, but our primary goal right now is: a, to see how much that we should be able to pass on pretty much all of it forward; and two, that our first goal must be volume availability should not be challenged. So we have worked very hard with the supply chain teams in the last month -- last 2 months to ensure that regardless of raw material prices: A, we need to be well covered; and b, we need to have these discussions constantly with our customers that this is the market environment. Customers have also been appreciative of that, and it is demonstrated by the increase in stickiness of key customers. So actually, even though prices are increasing, in some cases, increasing more than competitor prices. We are seeing no letup in customer stickiness. We have actually increased customer stickiness, if I may say, so over the last 2 months.

Okay. Sir, my second question in Deepak Phenolic, the average EBITDA margin in last 2 years, if you see full year has been around 12%. Now with the increased flow of downstream products, [ kicking ] project and all that, what will be the ideal level of margin we will be looking at?