Deepak Nitrite Limited (506401) Earnings Call Transcript & Summary

Good day, and welcome to Q2, FY '22 Earnings Conference Call of Deepak Nitrite Limited hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nishid Solanki from CDR India. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and thank you for joining us on Deepak Nitrite's Q2 and H1 FY '22 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 opening remarks from the management team followed by an interactive question-and-answer session. At the outset, I would like to clarify that certain statements made or discussed on the conference call today may be forward-looking in nature, and the disclaimer to this effect has been included in the investor communication shared with you earlier. To begin, Mr. Maulik Mehta will share views on the operating performance and the growth plans of the company, followed by Mr. Sanjay Upadhyay, who shall take us through the financial and segmental performance. The results documents have been shared with you earlier and have also been posted on company's website and exchanges. I now invite Mr. Mehta to share his opening comments. Thank you, and over to you, sir.

Hello, can you hear me?

Yes, sir. We can hear you.

Yes, sir. We can hear you.

Okay. Good afternoon, everybody, and a warm welcome to you on Deepak Nitrite's Q2 and H1 FY '22 Earnings Conference Call. I believe you had the opportunity to go through our results documents that were shared with you earlier. I'll begin by briefly taking you through the major operational highlights for the second quarter ended 30th September and the major developments and strategic approach for the coming year. Mr. Upadhyay will then present to you a financial overview during the period under review. And following that, we can have our forum for the Q&A session. First of all, I want to congratulate all investors, stakeholders and my entire team for the undaunting support extended towards the company during an extremely turbulent macroeconomic context. And the company has exhibited an exemplary performance during Q2, defying several challenges that were posed by global events. As you know, Deepak Nitrite continues to be a forerunner in the Indian chemical industry, particularly in harnessing import substitution opportunities. The company's business strategies prioritize the development of integrated product chains over standalone products, and this has led us to establishing a diversified product portfolio with a reliable supply backbone to cater to a growing demand of major corporations in India and overseas. A resilient business model is created where our products are finding applications across more than 30 end segments, and hence, it balances out some of the vagaries of the market. The second quarter actually witnessed significant volatility in market demand and supply, even as it marked the return to human normalcy. In commercial and industrial operations across the country following the second wave, there was a contrasting environment at the start of the quarter and towards the end. COVID was at its peak at the end of the first quarter, but the economic downturn and the market sentiment was very low in the beginning of the second quarter. Many industries have adopted a wait-and-watch approach, were not stocking materials. There were sharp -- continued increases in the cost of raw materials, utilities and especially logistics. However, things started improving around mid-quarter with a robust demand pickup and better realization in spite of many of these challenges. The company saw to it that all its plants were run efficiently at optimal capacity. The quarter saw volume growth across all the segments. Amidst this rapidly evolving backdrop, we focused on managing supply chain constraints and leveraged operational excellence to help mitigate the worst of the volatility. It's been an excellent performance by our team given the confluence of factors. As I said, we worked hard to maintain margins and where possible, while keeping on growing our market share across the businesses. We believe this will yield substantial advantages and sustainable advantages as we move to an elevated demand scenario. As mentioned earlier, our approach has -- instead of timing the market, both from RM and FG side, we have focused on back-to-back formula-based arrangements with suppliers and customers, both where the contracts are signed with a predetermined benchmark index on an annualized basis, which allows us to procure at a best rate possible. Parallelly, with our customers also, in many cases, we have formula-based pricing, whereby we are able to pass on raw material price increases after a period of time. We believe under the current situation of high volatility this is the most optimal approach one can have. For example, in our Basic Intermediates segment, we have increased our market share during the quarter. We selectively implemented price increases in Q2 to partially pass on higher cost. As a result, we have witnessed strong growth in volumes and have been able to strengthen our customer relationships. We did this strategically because we are implementing brownfield expansions and debottlenecking for key products in this segment, leading to an increase in capacity in Q3. After partially passing on costs in Q2, we will be further implementing price increases in Q3. So Basic Intermediates as a segment have done well and enjoys an excellent outlook as, it is said to witness improved price and volume momentum from the third quarter. Moreover, Basic Chemicals has been rebranded as Basic Intermediates since the products now integrate towards a greater value addition to our existing and potential customers. For the Fine & Specialty Chemicals segment, we were able to demonstrate resilience and supply planned volumes to committed customers despite the challenges on ground. Also an important point to note is that last year had a high base due to a sharp spillover of volumes from the April, May months into the August, September months. Even as the input cost inflation has been absorbed this quarter, we are very well placed to transmit this increase in input costs through higher realizations as we're entering the second half of this fiscal, which is seasonally strong for businesses like agrochemicals. The outlook for this business is positive. We've entered into multiyear agreements with leading customers for existing products. Further, we are augmenting capacity for some key agrochemical intermediates, which will come onstream in April, 2022. I'm happy to say that even before completion of this project we have tied up the entire volume. The growth outlook for Fine & Specialty is further enhanced by greenfield CapEx programs that are due for commissioning in 12 to 15 months, starting Q3 next year. We anticipate further elevation in this trajectory of performance from these programs. A large majority of the new production is formula-linked with pass through pricing. Coming to Performance Products, SBU. Here, the [indiscernible] industries have witnessed a more protracted impact from the pandemic last year and also this year. However, in Q2, the market has started improving, and we witnessed positive volume growth. Given the supply situation in China, customers are procuring larger volumes of both optical brighteners and the key raw materials than usual now. Since major end-user segments have returned to pre-COVID levels, the Performance Products business is expected to witness a sharp turnaround with prices already firming up into the third quarter. The Phenolics business continues delivering strong performance quarter-on-quarter. We witnessed volume growth in Q2. The whole approach here is to run the plant at an optimal capacity and at the highest operational efficiency. In this segment also, we have increased volume, thereby enhancing our market share. The first quarter had witnessed an abnormal impact on asset owned pricing due to the cyclone in the U.S. However, in the second quarter, pricing has normalized. Commissioning of the CoGen Power Plant and the additional IsoPropyl Alcohol capacity during this third quarter shall also firm up the performance. With growth reported by every business unit and key product cluster, the business is in very good shape as we had been having superior control over all aspects of the company, including operations, marketing, procurement, technical services project and finance. I would take this opportunity to state that at this challenging time of talent management, attrition has been negligible, and the right talent force is in place and motivated to work with the company to take it to the next level. Even as we have [indiscernible] debt and maintained dividends, we have been able to strategically deploy cash flow into growth projects, which will further improve the business proposition. This includes the brownfield project and debottlenecking for key products in the Basic Intermediates towards the end of the third quarter. There will be an enhanced capacity for agrochemical intermediates coming onstream over the next 6 to 8 months. New agrochemical intermediates further also -- INR 300 crores that we have already announced in our new site in Dahej, expected to be commissioned in H2 of next year. And we are, as I mentioned, expecting to commission IPA [too] to manufacture 30,000 tonnes of additional capacity and the 29-megawatt CoGen Plant during this current quarter. Over and above, the expansion program for Phenol and Acetone downstream products of INR 700 crores will come into force as was informed earlier. All of these products -- all of these projects will also enable us to progress further up the value chain, delivering both volume and value gains across operations. For me, the key takeaway in Q2 is how efficiently our teams have navigated through very challenging circumstances to deliver sustainable outcomes, having control over all aspects of business. We're moving in the right direction to become a diversified chemical major where we maintain our stalwart position in existing products and further innovate to develop new products and platforms. More importantly, we seek to forge deeper long-term partnerships with strategic customers to deliver scale and volumes. While doing this, we will continue to focus on process intensification and operational excellence. One such example is our medium-term partnership with one of the world's largest agrichemical majors for supply of a key intermediate. As you may know, Deepak Phenolics is expanding the IPA facility and enhancing its utility to add new downstream solvents. These solvents are largely employed in the life sciences paints, coatings industry. The company aspires to be a world-class provider of solvents that are ideally integrated with its diverse product portfolio. In key achievements across the quarter, Deepak Nitrite was awarded the best compliance company for the codes under responsible care by the Indian Chemical Council. Deepak Nitrite also received the Divya Bhaskar, Pride of Gujarat award, for the most responsible company. Moreover, Deepak Foundation was awarded the Time CSR Award 2021 for Project Sangaath. To conclude, we remain -- we continue to remain focused on maintaining our agility that enables us to seize opportunities arising from swift changes in the industry landscape. With contributions from upcoming brownfield expansions and greenfield projects with value-added forward integration, we will reinforce our competitiveness and position across value chains. Thank you. I would now like to hand over the call to our CFO, Mr. Sanjay Upadhyay, to address the forum and take you through the financial performance.

Thank you, Maulik, and good [Technical Difficulty]

[Operator Instructions] Ladies and gentlemen, thank you for patiently waiting. We have the management back in the conference. Over to you, sir.

So during the quarter under review, we have delivered a steady performance amidst challenging operating scenario. The quarter gradually experienced a rebound in normalcy in economic and industrial activity across the country, demonstrating that the country had emerged on the impact for the pandemic severe second wave, particularly in the months of April and May. On the back of improving pricing, clearly on elevated volume outlook, the business is very strongly positioned, both for the intermediate immediate term as well as over the medium term. In that position -- positive backdrop, let me share the key performance for H1 FY '22. On a consolidated basis, revenues are up by 93% at INR 3,224 crores. Despite challenges such as severe second wave in H1 FY '22, the performance of [ H1 FY '20 ] ((sic)) [ H1 FY '21 ] is not comparable owing to the impact of the nationwide lockdown as well as more severe pandemic related impact in the prior period of the year. EBITDA stood at INR 885 -- INR 855 crores in H1 FY '22, higher by 83%. Margin maintained momentum at 27% in H1 FY '22 in spite of significant pricing input cost. PBT and PAT expanded by 107% to INR 747 crores and INR 557 crores in H1 FY '22. All in all, the company has been extremely responsive in order to capitalize on the enhanced operating environment benefit. In addition, incremental gains in the business BI, SBU and the Phenolics divisions have fueled the company's performance. Though the macro environment has returned to normal during the later part of H1 FY '22, challenges resulted from soaring input prices. Supply restriction, global trade bottlenecks due to container shortage and higher cost of utilities and domestic logistics also were observed. The company undertook several initiatives to ensure sufficient input availability in order to operate the manufacturing units at the high level of utilization, enabling it to achieve significant revenue growth and established new profit benchmark in H1. Demand remains robust across all SBU and product categories. As production volumes have increased, the company is currently operating at high utilization levels. In Q2 FY '22, on a consolidated basis, revenues came in at INR 1,690 crores, up by 70% year-on-year basis. Continued improvements across key established business sectors supported the resilient performance. Particularly in the BI segment -- BI, PP and Phenolics segment significantly improved their workforce during the quarter owing to increased operational leverage as a result of more favorable operating environment. Despite the challenges in input availability and logistical issues, the Fine & Specialty segment -- sector generated constant volumes in accordance to the business strategy. In Q2 FY '22, EBITDA stood at INR 395 crores, higher by 41% on a year-on-year basis, translating into EBITDA margin of 23%. PBT grew by 49% on year-on-year basis to INR 342 crores in Q2 FY '22. Attributing -- this was attributed largely to outstanding performance in Phenolics business. During the quarter, PAT came at INR 254 crores, higher by 49% as a result of improved operational and financial efficiency and duly supported by higher revenues. Overall, we ended the quarter on a strong note amidst very volatile macroeconomic situation. While the performance was in anticipated lines, the second half of the fiscal is likely to be even stronger seasonally as well. This trend is expected to continue in the foreseeable future. The other aspect that I wish to cover is the improved capital structure of the business. We have used cash flows to pay down debt, derisk the business, increase the operational efficiency. As a result, despite the sharp rise in the working capital due to increased input prices, the operations remained highly capital efficient and improved ROCE. The ROCE for the past 12 months has improved significantly to 52% on a consolidated basis. This was 32% at the same time last year. With that, I will now request the moderator to open the forum for question-and-answer session.

[Operator Instructions] The first question is from the line of Nirav Jimudia from Anvil Research.

Question to Mr. Maulik Mehta. Sir, I had 1 question on the business segments like Basic Chemicals and Fine & Specialty business. So like as per our current run rate in the half yearly performance, we are at almost INR 1,800 crores of top line combining both the business together. So how is the integration in each of these business segments? Let's say, if we are producing or selling the products, how much we are backwardly integrated for the Intermediates which are required for these finished products as well as the forward integration in terms of the integration within this business segment, sir? Or else, if you can help us explain that in terms of the number of products, what we are currently producing and selling in these 2 business segments. How much we are internally producing those Basic Intermediates and how much we are dependent on the outside world since the availability and pricing has been an issue in the latest situation currently, sir? So this is the first question.

Okay. This is a very large question. I'll try to give you a flavor. Now in Deepak Nitrite, there is a good significant amount of integration that is there between all of the BUs. There was a time just about a decade ago when there were no BUs. It was a functional organization. The BUs have been created to do a better job of taking and creating the best value in the different application segments. So what I can tell you is that whether it is in Basic Intermediates, whether it is in Specialties or whether it is in Performance, the key product, the -- I mean the downstream -- wherever we have gone downstream that Intermediate happens to be a key product. Now there may be other raw materials that are imported or that are bought from the outside like acids or like petrochemicals or things like hydrogen and all. But at the end of the day, those are gases or acids or whatever that are used to react our upstream product, which we also sell into the market again downstream. So you will find, for example, products like sodium nitrite, whether it is nitrotoluene, et cetera, featuring as important feedstock in Fine & Specialty also in Performance Products. So between Deepak Nitrite product, there's a very tight integration. Deepak Phenolics today is a stand-alone company which makes 3 products. Moving forward into the new company that we have already discussed earlier, there will be a tighter integration between Deepak Nitrite products and downstreams, Deepak Phenolics products and downstreams. I'll also mention one last point. Integration very often is not only about products but also about processes and plants. So where there is a possibility of creating high level of fungibility we have gone into developing new products so that the same plant as and when required can also be used to manufacture something which is a different starting and ending product in a different segment but has overlap of the process and the plant asset.

Okay. So sir, a related question to this would be in terms of the brownfield expansions, what you've been doing for the finance specialty business as well as some of the debottlenecking exercise what you mentioned in your opening remarks. So the new products which would come into the business through this exercise, how we are placed? So would these products be filling up the gap in terms of the backward integration for our existing product portfolio? Or those products would be for the backward integration for the products what we are currently manufacturing?

No, brownfield expansion, the way we mean it is that we're going to be making more of the same. This is what we will be doing between Q3 and Q1 of next year. The greenfield products are products where we are going to start manufacturing that, and that's not something that we have made before. That will come from H2 next year.

Okay. So that is about the INR 350 crores CapEx what you mentioned. That would be for the new products, what we'll be launching for this division, and that would be basically accompanying our backward as well as a forward integration for the products we manufacture?

Yes, they have a tight integration. But let me also point out that they are not part of Deepak's existing stable of products.

Okay. Okay. Okay. And sir, one last point would be, with this new products what will be manufacturing, to what level our integration would be further go up? If you can just share your views on that.

See, when we choose a particular product, what we ask ourselves is, why should we make it? What is our unfair advantage? What is our right to win? Meaning somebody or the other is already making this in the world, right? And they may have fully depreciated plants. So what is the right that Deepak has to win with brand new capital? In India, we all know, capital cost is quite high compared to most other places in the world. So we have to have overwhelming reasons why Deepak should be the right company to make this. Now it could be many, it could be because of significant process expertise that we have that we believe we would be the best to make it; it could be because there is a very, very high CAGR of demand; it could be because the customer that would look at it, the customer where we have some sort of very significant tie-up where they say, say, "look, if Deepak makes it, I am happy to give a premium to Deepak over other suppliers, and I will give you the largest share." Finally, it is, as you mentioned earlier, because there is a significant raw material set, which is a finished product that we are currently making and selling in the market. Many of these -- I mean we give weightages to all of these, and we need to have several of these in the green for us to take up a project. And when we go into investing into a brand new product, normally, that would mean that at least 2, if not 3 of these, are very much in the green and that there should not be any major alarm bells. So we get all of the products that we're talking about right now. We have been in deep conversations with customers. In most cases, we have a very, very significant part of our plant production already tied up in formula base pass-through pricing. So now moving forward, the investment risk is low and our operational competency is high. The products that they require are products that we are very familiar with.

Niraj (sic) [Nirav], one point I would like to mention here, as your question was very valid, see this business, Deepak Nitrite business model, though we have 3 SBUs like Fine & Specialty, Bulk and PP, but all the SBUs are interwoven, so to say, it's only integrated. The product goes from one segment to another. So sometimes when people question that the Fine & Specialty margin for [Foreign Language]. Sometimes what happens at one segment, one product is doing very well in BC, but same product finds replication in F&S. So F&S margin is bound to be -- because we transfers at the market price. So this is bound to happen, but one should not feel like it. It's overall EBITDA margin we look at rather than looking at one particular SBU, one particular segment because it's all fully integrated business. Each segment finds replication in other segments. So my -- this thing would be to look at the overall business rather than just splitting that into this SBU and this product and -- so It doesn't make much of a sense. Though outside market, of course, they will look at -- but that's the reality of the business.

Correct. And -- so in terms of this capacities what we will be setting up and going into operation, how quickly can we utilize the capacities fully? And if you can mention the asset turnovers too, that would be helpful, sir.

See, normally, our asset turnover will be 1.75, it's somewhere between 1.5 to 2, but we can take on average 1.75, okay? And our -- we have announced a project like if we include Phenolics also to tune of around INR 1,100 crores, INR 1,200 crores over and above that some debottlenecking as Maulik has mentioned. So around INR 1,250 crores CapEx are there lined up. So we are very excited. You will see the results one by one, like some expansions are -- for BC is coming in next quarter itself for this quarter. And every quarter, you have something or other. The Phenols, IPA and this is also starting now, the CoGen Plant. So every quarter some new thing coming up. So I mean business is on a very sound footing as Maulik was also mentioning because the existing products are doing really well. And on top of it, with these all expansions and -- I mean we are taking all corrective steps whatever is required to deliver a performance which everybody appreciates. That's all I can say.

The next question is from the line of Abhijit Akella from IIFL.

Just a couple from my side. One was on the growth projects that you've talked about. So there's a very full pipeline it seems of projects across all the segments. Just wondering if there is one aggregate CapEx number that we can share that we are executing over, say, the next couple of years? What is the total CapEx outlay that you are planning across all these segments combined?

We have -- today, we have already announced around INR 1,200 crores to INR 1,300 crores. And there are others in pipeline, and it will be a significantly large amount. I won't say it will be a small amount. But to give details, Abhijit, will be a little difficult at this stage. It makes -- you would be rather holding it to -- let it be cleared by the Board and then announcing rather than just giving a number. But then you can -- I can tell you with confidence that a lot of projects are there in pipeline, a lot of opportunities for the business as such, both in Phenolics and the Nitrites, no doubt on that.

Sure, sure. And just to clarify on the Phenolics CapEx, you just mentioned about INR 1,250 crores. Previously, we had talked about INR 700-odd crores in the Solvents. So this INR 1,250 crore number includes the IPA doubling and the power plant. Is that correct or is there something else also included?

I don't know, Abhjit. The point is INR 700 crores is Phenolics, INR 500 crores is Deepak Nitrite, including the debottlenecking and everything, plus, the IPA [indiscernible] I'm not counting at all because these are considering everything is already done. That -- if you include that, it will INR 1,400 crores, INR 1,500 crores.

Okay. Got it. And in addition to that, of course, we have debottlenecking at the Basic Intermediate segment, which is coming up this quarter, plus we have -- within the next 6 to 8 months, we have the agrochemical intermediate debottlenecking as well?

Yes, yes.

Yes. Also, I can tell you from Deepak Nitrite side, not Phenolics, but Nitrite side, most of these investments, the customer base and the volumes have already been tied up.

That's great. That's heartening to hear. Second, just on the margin outlook. We've seen some dip in the margins this quarter as we've seen across the entire chemical industry actually because of these rising input costs and logistics costs. But you did talk about the increase in certain prices -- product prices, such as, for example, in Performance Products. So in that context, could you please share an outlook for how you see margins trending across the various segments over the second half of the year and beyond?

Abhijit, I would like to -- again, I would say here that -- see, margin is an outcome of what you do. As a strategy, we believe that optimal utilization of the plants are very key, like, in Phenolics, now if you -- take for example of [indiscernible]. Last quarter, we had 31% and this time it is 22%. Are we saying that that margin is bad? You see the top line growth, you see the overall growth in the business. I mean somewhere margins are getting into our own this thing. Agree, we have to focus on absolute number rather than focusing only on margin percentage. Because if I grow the business, percentage can vary, percentage cannot -- we cannot target a particular percentage of EBITDA margin and then do the business. That way we cannot work in chemical industry, right? But however, to answer your question, again, I will stick to my own guidance, which I have given earlier also and I'll stick to that. In BC, it will be somewhere between 27% to 32%. In F&S, it will be somewhere between 36% to 42%. And PP is going up. PP can further go up today. What I said around 15% to 20%, but the way things are moving, it will be higher in the third and fourth quarter. So can be in the range of 25% or something.

Okay. And these are all EBITDA margins, right, Sanjay?

Sorry?

These are all EBITDA margins?

EBITDA margins, yes.

Right. And Phenolics, would you expect to sustain around these levels or improve a bit?

Yes, yes. I expect this to sustain at this level.

Got it. One last thing, and I'll come back in the queue. You mentioned the new agrochemical contract you've signed with one of the leading global customers. So -- and then the investor communication also talks about various long-term formula-linked arrangements that you're kind of working on. So could you share some more insights into this deal? And any further such negotiations you might be having in the pipeline?

So I can share here. What we are doing is something that we have discussed before in similar con calls. We are working on what we're calling our Depend on Deepak initiative, where we start getting into very deep conversations with strategic customers where they are also expecting a certain level of growth. They have already been depending on Deepak in many of these cases, but it has not transitioned itself into a multiyear collaboration and partnership. So what we do is we have these conversations and we start penning an arrangement together where they are also expecting a certain level of growth. And there, what we do is then we tie up the volume for that growth. We preemptively put in the investment, where there are always X, Y, Z clauses and all that. And then essentially, their focus goes only and only onto product development, market development because they are essentially derisked with regard to volumes. And it is important for us as key partners to convince them about why they should be able to depend on Deepak, right? Now at the end of the day, you will find raw material prices increasing or decreasing, you will find utility cost increasing or decreasing, and that is a general reality. It is our job to convince the customer that with all of these they would still be better off depending on Deepak. And that is the conversation we have been having more and more successfully in more and more products. And the product that you talked about, where we've tied up with in the medium term, medium term meaning 3 to 5 years, is just one example, but it is by no means the only one. And we're doing this increasingly in more and more products as we ourselves develop our sense of confidence in doing this. Earlier, Deepak itself stayed away from this because we said, look, we have 10-year, 15-year relationships with these customers. They have been depending on us. They have been giving us a lion's share of their requirements, why bother to get into them. But as we have gone ahead in the last couple of years we have realized that also their focus then can shift towards business development, market development rather than worrying about annual discussions with Deepak. And that has successfully transpired itself into a more solidified relationship, which was always there. And we hope to be able to continue this trend wherever we find that there is good value for the customers and for the company.

[Operator Instructions] The next question is from the line of Rohit Nagraj from Emkay Global.

Sir, the first question is, you have mentioned about the increased market share and I think we've been talking about it since past 1 year. So what are the -- what have been the steps that we have taken to gain those market share across our product segment? And allied question to that is, this is predominantly because some of the smaller players in India have gone out of the system or is it because of the import substitution products that we have been providing?

I actually didn't understand the question.

So let me tell you about this market share. For example, say, sodium nitrite. We just said that there's a brownfield expansion. And I mean our market share is in the range of, say, 70% to 80%. We are actually moving towards 75% to 80% now. This is where somewhere the customer has got that belief in the Deepak Nitrite products, and we are able to deliver also on this. And when we say market share, it's not only we talk of domestic, we consider export market also. Of course, we will be very small in sodium nitrite insofar as export is concerned. But still, we have our presence in U.S. and Europe on this. So...

And Southeast Asia.

And Southeast Asia. Whereas in Phenolics, if you see the capacity is going up and up. And every time we are in -- earlier, we felt that we will be having 60% or 65% of the market share. Today, because the market has expanded, we are still at 60%, 65%. But still, we are having enough opportunity to go on increasing our production because, see, the production -- people [indiscernible] capacity, but actually, it is not capacity. It's the right word [indiscernible] there is capability of producing rather than capacity of producing. So somewhere people will ask, how can you grow further. But then you can see every time we are growing further on all the -- so more and more we produce more and more markets we are capturing. Our market share has remained intact in most of the products and where it's growing, in fact, in most of the products. And we do not let go market share let me tell you, honestly, because -- and that is the key here. It -- just focusing on EBITDA but not focusing on market share doesn't help the chemical business. You'll have to retain your market, grow and then only focus on the EBITDA. So any of the product -- you name any product, and we will be at least above 50%, 60% in whichever segment we are operating. And in some products, it will be around 70%, 75% also.

Right, sir. Sir, second question is on the medium-term contract for one of the largest players that you have mentioned. So any understanding maybe after 5 years, we are looking at a certain percentage of our revenues coming in from such long-term contracts? Any strategy that we are planning or devised for the same?

No, we don't work with a predetermined target in terms of percentage or anything like that. I know that's a workable business model for many companies. For us, what we do is we say, okay, is there a value that both sides can gain from having this kind of formalized relationship? Otherwise, in general, in every single one of our products, our customers know and appreciate how well they can depend on Deepak. So if they are already depending on Deepak, there has to be a good value-add to both sides to get into this kind of a discussion. Now it just so happens that right now we are getting into many of these conversations. Many of them will transpire into formal arrangement. Some of them will stay at an informal arrangement. And in some cases, we will ourselves decide that, look, the right way forward is to ensure that there is an anchor customer or 2. But beyond that, we should focus on spot opportunities because we are well entrenched in that segment. We have a good dealer and distributor network. We have our team spread out very well, and we believe that the company will further benefit from having an open position. So with all of these vagaries, saying that there is X or Y strategy, the strategy could be product specific, the strategy, in many cases, could be customer-specific. So we don't foresee any sort of strict number that we need to achieve. We have not taken this as our own targets.

Got it, sir. Sir, just one clarification on the CapEx front. So INR 1,250 crores, INR 1,300 crores is excluding the Deepak Clean Tech CapEx or is it including?

No, no, it's a part of this.

It includes this. I mean as far as you are concerned, it is the company that you have invested in.

The next question is from the line of Kumar Saumya from Ambit Capital.

Sir, my question is regarding this medium-term contract. If you could throw some light on the tenure of this contract and how much revenue are we planning to extract from this contract? And post this, how do we plan to utilize it? And if you can highlight more, if you can give clarity on, is it exclusive supply agreement or are we supplying to other customers [indiscernible] production?

No. So we -- what I can tell you is -- I can't give you any numbers and I certainly can't give you any numbers because what if my customer is listening to this call. But in all seriousness, what we had in our discussions is that the -- see, these are growing molecules that the customer uses our products for. So they themselves cannot give us a fixed volume number. But what they tell us is that we have an obligation to supply a minimum percentage of their requirement. We have to give them a priority tomorrow if push comes to shove and their requirement increases, we have to agree to be giving them volume instead of giving it out in the spot market. All of these are give and take at the end of the day. What I can tell you is that for this particular product we give them a specific kind of SKU, which is tailor-made for their consumption. And therefore, while we may sell the base -- the mother product to other companies and other customers, this particular kind of SKU in this bespoke manner, we focus on giving to this customer. That also allows us to create some sort of an entry barrier with regards to competition. I hope that answers your question.

Yes, sir. That does. And sir, again, repeating on the earlier question, the INR 1,300 crores includes INR 700 crores of total CapEx, right?

Yes, yes.

Once again, this just highlights that this is what we have announced so far. This is not the end of it, but this is what we have clarity -- clearance from the Board to be able to tell the shareholders.

The next question is from the line of Naresh Vaswani from Sameeksha Capital.

My first question is on the prices of Phenol and Acetone, which are imported right now...

Sorry to interrupt you, Naresh, may I request you to speak on the handset mode, please? Your audio is not very clear.

Hello? Am I audible now?

You're audible, sir, but there's a slight echo. If you can come on the handset, it will be great.

Now am I audible?

Please go ahead, sir.

The pricing of Phenol and Acetone which are being imported [ at the prices ] what we are able to in the domestic market. So how much difference is it because these [Indiscernible] imports increasing and in that what kind of spreads -- do you see the spreads compressing in coming quarters? That was my first question.

Your voice was not clear. When was pricing -- what is that you're saying?

Prices of Phenol and Acetone, yes?

So you want to know the prices?

No, I wanted to know, with the ADD going off, will there be more imports because the duty structure which was there is no longer now?

No, no. I just answered to Abhijit that we are confident that we'll retain the margin, which is 22%. Again, I am not just sticking to one figure, but it will be somewhere between 20% to 22% margin we will be retaining. There's no question of antidumping affecting us or nothing like that.

What I can share is antidumping from one country or another, Phenol is like water. Water will come from everywhere. It will -- it's not like you can block one place and then the cup will not fill up with water. It's all about what is the price, what is the movement, what is the available supply. And let me assure you, there is ample supply of Phenol in the world and there's also ample consumption of Phenol in the world. Before Deepak came in, India was almost entirely supplied by imports, right? And today, there are N number of countries. So the countries which have this antidumping revoked do not actually factor in any substantial way whatsoever, whether it is with volumes or with prices in the Indian ecosystem. So we ourselves are not very worried. We don't think you should be very worried. Imports will continue. But generally speaking, not really from the countries where it got revoked, it is a rather free market and everything depends at the end of the day on prices and on demand supply.

Right. And on the CapEx front, out of the total, how much is for the brownfield?

So around INR 150 crores to INR 200 crores will be for brownfield.

The next question is from the line of [ Kishan ] Gupta from [indiscernible] Research.

So what factors do you think have enabled you people to run this Phenol capacity at some 120% or more?

I think factors are all our efficiency. And we have got a very good technical team what I can say. I just say this dialogue, what you say, capacity is namesake, capability is more important. But we like that idea, that yes, we can do it.

Actually, for us also, this has been a very, very good learning. As Mr. Upadhyay said, we should focus not on talking about the nameplate design capacity. In fact, when we began this project, we didn't have a lot of money. We didn't have a lot of land. We had to do what best we could do with what we had. [indiscernible] of constraint. And then over getting a good handle on how to run the plant, we ourselves learnt that as long as we minimize the peaks and troughs and we focus on the throughput, the more peaks -- the highs and the lows that you have, the lower the throughput can become. But when you streamline it to make sure that it is homogeneous in that sense, you put in the right kind of advanced process controls and you have to ensure that efficiency, efficiency, efficiency is the name of the game here. You automatically find that there are new kind of ceilings that you are able to find. Frankly speaking, when we started running the plant, we ourselves thought that 105%, 108% of the capacity is the best that we will be able to do. And in fact, right now, we have gone far, far in excess of that. And even then, we are finding that if we make this small change here, this efficiency improvement there, we can further improve the throughput. So if you ask us if we have reached our ceiling, no, we haven't. And we've learned from past experience as Mr. Upadhyay said that the ceiling is in our mind. We have to focus on improving capability. We will improve the output automatically. And as we do this, we amortize the fixed cost over a larger and larger base.

Essentially, is it -- can you replicate this for other businesses or other plants as well?

That's where we've been challenging ourselves.

We have been doing that regularly. Otherwise, the growth...

No, I'm talking about over 100%. I'm talking about over 100%.

Yes, we have done it successfully in a couple of other products. We ask ourselves that question, why can't we do it everywhere. And the short answer is, it's easier to do when it is a continuous plant, but that does not mean that we are resting on that answer. The job that operational excellence has is process intensification, do more with the same. And we've significantly improved in many of our products. We are working on others. We have not raised our hands in failure yet. So the job for us is not done. It is ongoing.

And somewhere it will need some small capacities also. It's not that it's always free. Like [indiscernible] we are saying there will be some investments. But the idea is to run the plant optimally. The benefit of this is that you already have utilities, you already have a plant running. You have to just add one reactor or I mean whatever is required from a technical point of view or you can use the same thing with higher utilization also. So this is where the key lies.

So do you think if people have some sort of competitive advantage in running this Phenol plant at this utilization or others can also do it?

I don't know. Others have not demonstrated yet, we have demonstrated.

Not globally? Global players have not been able to demonstrate that?

See, we don't -- we can't answer that because this is not what we spend our time asking ourselves. But what I can tell you is...

You can always compare and know like -- you're talking about the efficiency, right? You're talking about efficiency. So we're just trying to understand like how efficient you are compared to others for this business.

But you have seen our own performance, why compare with somebody else. When we have said our capacity is 2 lakh tonnes and today, we are selling and producing on more than 2.30 lakh tonnes, 2.40 lakh tonnes. What more do you want? Why compare with somebody else what he's doing? We are doing our best and we're doing reasonably well, that much we can say.

The next question is from the line of Dhruv Muchhal from HDFC Asset Management.

Sir, the first question was, I was doing this math. For your RM cost, for the Phenol business, what I was doing was consolidated minus the stand-alone should effectively give me the Phenol business, largely the Phenol business numbers, if I'm not wrong. And if I look at the RM cost after doing this math, the RM cost in the Phenol business has increased significantly versus if I look at benzene and propylene prices, they have not changed much. This is -- I'm referring the Bloomberg benchmarks for benzene and propylene on a Q-o-Q basis. So what could be driving this? I'm just trying to understand that.

What could be driving the raw material cost or what could be driving the...

Yes. What could be driving the significant increase in raw material costs on a Q-o-Q basis, which is not suggested by the benchmarks? It could be probably the lag that 1Q -- the 4Q prices are now reflecting. I'm just trying to understand what could be this.

Yes. So first of all, the prices that we pay for our raw materials are not always exactly the same as the published prices. That's dependent on our discussion with the supplier. It could be based on the previous month or it could be based on an average of a quarter or something like that. It's different for different. Similarly, what I can also say is that at the end of the day, we, of course, do also consume, for example, hydrogen. And between these key raw materials, there are also other smaller raw materials that are there that do play a role. It's not like they are completely absent.

Sure. No. The only thing was the increase seems substantial, so I was just wondering is it primarily to do with the lag impact or is there something else? The lag is understandable, but I was just trying to understand, is there anything besides the lag?

See, the prices of benzene have gone up. The volumes are going up. You can't -- the problem is that we can't make an absolute number and then arrive at some numbers because there could be...

One point which you may not have considered or if you have, I don't know. Would you have considered the cost of utilities?

No. So I was referring just to the RM cost.

All of it can [indiscernible]

Benzene has gone up, the volumes are higher. So I mean the combination of all. There could be stock also [indiscernible] consumption.

[Indiscernible].

Okay. For simplicity, I assume that you were operating at 115%, which you have already reached. So 115% to 120% utilization in 1Q and 2Q. If it's a stretch probably we can take it later. I will try to take it later off-line. No worries.

Yes.

And just one other question was -- actually 2 small questions. First is on the Basic Chemical, you mentioned that we are expanding capacities and which will be commissioned in 3Q. So what -- in terms of you can give some percentage in terms of volume, how much volume can increase after this capacity expansion? It will help us in our growth forecast.

For that one product, it would increase it -- now again, this is a question of capacity versus capability. But if I were to say capacity, the increase would be about 15% or so.

Sure. And sir, the last question was the INR 1,200 crores to INR 1,300 crores CapEx that we planned, first is, what duration do we plan to spend this CapEx? This is also why I'm asking this is in context of 1H CapEx. 1H CapEx number seems a bit low, which is about INR 82 crores on a consolidated basis. So I just wanted to understand this INR 1,200 is to be spent over what period?

In the next 1.5 years.

Okay. Sir, the larger part will come in the next year from a cash flow basis?

It starts from today. It's not that the larger part, but yes, the larger cash flow would come in the first half of next year or maybe second half of next year.

The next question is from the line of Ranjit Cirumalla from B&K Securities.

I have a couple of questions. Again, a bit -- apologies if the question is kind of a repetitive. I have this confusion on the CapEx front. I'm looking at the Board approved CapEx, which you are saying around INR 1,100-odd crores. And on record, we have this INR 700 crores on the Phenolics and INR 300 crores to INR 400 crores on the Deepak Nitrite. Do we have to consider it as a company? Would definitely help us if you can provide a bit of granularity with the 3 different [Indiscernible] we would be having. [indiscernible]

See, INR 700 crores is in Phenolics.

Sorry, sir?

INR 700 crores we have announced in Deepak Phenolics, you must have read that. INR 300 crores to INR 330 crores In Deepak Nitrite, which is announced. Plus, there are debottlenecking CapEx, which we do not make much publicity about because these are all a regular -- we believe this is a normal feature what we spend could be in the range of INR 150 crores, INR 175 crores, okay? Plus we have [indiscernible] the other things like IPA, which we are already there, which itself is around INR 250 crores, INR 260 crores, okay? So there are several things which are not -- I mean no announcement are there because these are all, we believe, is a routine thing which in any case we do. See, INR 50 crores, INR 60 crores debottlenecking, we don't make an announcement. But overall, it is in this range.

Yes, sir. But these announcements are not including Deepak Clean Tech, so we also kind of alluded that we would be doing some CapEx in the Deepak Clean Tech as well. So I was looking at that particular figure.

Deepak Clean Tech [indiscernible] we've answered just a few minutes back. Deepak -- do you see the total CapEx?

Yes. INR 700 crores is Phenolics and INR 400 crores is for Deepak Nitrite, that is...

Deepak Nitrite but that is Deepak Clean Tech, around INR 300 crores to INR 350 crores.

This is helpful and clarified. And second question was in the release you have mentioned that both the quantities of OBA and DASDA are like higher than the usual quantity. So here, just wanted to get a sense, are we likely to see the similar exuberance that we have [indiscernible] couple of years back or this is going to be a bit below that? Qualitative commentary would help.

It's not the right -- honestly speaking, it is not good for us to answer that also because this is -- when you start seeing something and it is sudden and it is significant, you don't know whether it is something that will continue. At the end of the day, for us, what -- we are not here in the spot market. Our goal is to remain sustainable. And our goal is to be strategic suppliers. Of course, we will take advantage of any opportunity that comes. There's no doubt about it. But if you ask somebody in the beginning of a volatile change, what they expect the average over the next many months should be, whatever answer it will be will be wrong from the perspective of [indiscernible]. So please, I would not look forward to answering this question.

Yes, sir, certainly. Perfectly fine. That's more on the price commentary. I was more looking from the demand exuberance, sir.

Volume demand has been growing certainly, which we mentioned about 3 quarters ago from a very, very low base. Today, by and large, all of the downstream industries are up and running largely to whatever it was at pre-COVID levels in terms of volumes. Now like any other industry, they are dependent on our whole variety of raw materials. The demand is very strong, especially in segments like paper, which were very depressed in the -- for the longest time. The demand is very strong. It's their job to make sure that they get all of the key raw materials that they need in order to supply to that growing demand. How well they do it will play a large role in the kind of demand that they have for our products. There's no point in being able to get 3 out of 5 raw materials because you still cannot make the finished product. Today, we are seeing strong demand. We're seeing rising prices, and we are seeing a high level of customer confidence. Tomorrow, we don't know.

Yes, sir. And finally, a bit on the supply side also. Is the industry will be able to meet that demand? Do we have enough supplies?

Like I mentioned that the segments are now operating at pre-COVID levels. And there is -- today, if you read in the news, in the U.S., in Europe, in Southeast Asia, everywhere they are essentially crying about running out of paper, printed paper. They're not able to make these kind of pamphlets and brochures and things like that. So there's a very high demand. Now that does not necessarily translate automatically into high demand for Deepak products, we're intermediates, like there would be other suppliers of other intermediates. If they can make sure that they're able to get all of those, which right now they are able to, we need to see how the situation transpires. Today, it looks positive. Tomorrow, wait and see.

The next question is from the line of Faizal Hawa from H.G. Hawa & Company. As there's no response from this participant, we'll move to the next question, which is from the line of Rajiv Sehgal, an Individual Investor.

At the outset, I would like to congratulate the management for an outstanding set of numbers in difficult market conditions. I have 2 questions. Number one, how dependent are Deepak Nitrite and Deepak Phenolics on import of raw materials from China? My second question relates to launch of derivative products of Phenol and Acetone. Here, I'd like to know what is the time line for the launch of these new products? And secondly, what is the estimated annual revenue in year 1 when these products are launched?

Okay. First of all, with regards to the import dependency on China, see, we do import from China, but we don't solely import from China for any of our raw materials. So if you ask us with regards to your criticality, I would say that it is not high. And I would say that we look at China like any other source, but we have others, including domestic sources. From that front, we are derisked. Of course, at the end of the day, these can create sticker shocks on prices and all, but we believe that we're in a good place in our key dependents, and we have been able to pass on our cost increases in Q3 so far. Now with regards to the revenue growth, et cetera, of the new products, what Mr. Upadhyay mentioned is that you would target something between about -- around the 1.5-odd asset turnover ratio. So that would give you a good indication. And...

But if your question is specifically about year 1 operation, you can take 70%, 75% of utilization.

I had 2 questions here. Number one, what is the time line for the launch of these derivative products of Phenol and Acetone? And secondly, how much would -- how much incremental revenue would these derivative products give you in year 1 of the date of their launch?

So to answer specifically, time lines will be 1.5 years from now, okay? And first year operation will be, we can take -- of course, our target will be to take 100%, but we can take roughly 75% of utilization. So if the revenue is 1.5, maybe accordingly you can calculate.

So just to clarify, when we say asset turnover we talk about incremental revenue, we don't talk about cannibalized revenue as well. That we are able to make anyway without making an investment.

The next question is from the line of Jay Bathija from JB Investment. There seems to be no response form this line, so we'll move to the next question. The next question is from the line of Satjeet Singh, an individual investor.

My question has been answered. Thank you so much.

The next question is from the line of Venkat Rao, an individual investor.

I'm a first time investor and I'm a data scientist by profession. My question is to Mr. Maulik. Sir, can you tell us how important is artificial intelligence going to be in Deepak's future? And how is it adding value to Deepak, if there are any projects that use AI?

Okay. Artificial intelligence and machine learning, frankly -- if I'm honest, it is as important as you want it to be. You can make it the most critical aspect, you can make it something that you can just ignore. Look, we have been implementing machine learning and AI across many of our plants. We have got a lot of value from it. What we focus on doing is making sure that at every stage, especially when you're implementing advanced process control you're capturing data. Whether you are able to make use of the data immediately or you are able to use this bank of data that you have developed over many months, even 6, 8 months from now in order to project a trend. At the end of the day, data is useless unless it converts itself into knowledge and insight. We've started that journey. We're quite happy with the results. We hope to be able to take more such initiatives across more such plants and not just in plants, but also with regards to the supply chain. It is a calculated step. And our goal is to see that we do it right. We don't do it because it's the flavor of the season. We certainly don't do it because a lot of these big 3 consulting firms are pushing it.

The next question is from the line of Gaurav Singhal, an individual investor.

Am I audible?

Yes, yes.

Sir, just 1 question. You had explained on last call about Fine & Specialty Chemicals and how it's dependent on global situation of shipping. Just wanted to understand if that situation is improving because we have been seeing continuous -- not much but there is -- over last 3 quarters, there has been a decline in say -- is that situation improving?

So I asked this question to the logistics head before this call because I anticipated it. And very happily, he told me this situation is now not getting worse.

Okay. That's good enough. So clearly, I mean...

I'll highlight -- sorry, I'll just highlight one thing. See, right now, it's well known that there is some sort of production and therefore a supply constraint for material coming out of China. Some of these reasons are decision based, some of these are consequence based. And therefore, China being a very high center of gravity in terms of material movement across the world, when that reduces its trading, we will, therefore, immediately find a knockdown availability of ships to the rest of the world, including India. Today, therefore, the situation seems less dire than it was a few months ago. Now if and when after a couple of quarters, China comes back and in what form it comes back and how that affects the freight, we don't know. This is a question that not just not Deepak, not just the chemical industry, not just India is grappling with. But today, it certainly seems to have given us a brief [indiscernible]. It has nowhere at all come back to what it was pre-COVID. So let's just be clear about that. Prices are still elevated, but supply has improved.

Okay. So I mean with some lag, it would be possible to pass on the cost and actually resume some kind of growth in the business?

We were hoping so. But again, I have to warn that this is still an evolving situation.

The next question is from the line of [Manish Jain] from Moneylife Advisory Services.

So my first question is, how did you see -- how do you foresee revenue composition 3, 4 years from now? What will be the major contributor to revenue in the future?

What will be the major contributor?

Can you repeat?

Yes, sorry. How do you foresee the revenue composition 3, 4 years from now?

It will be good.

No, the revenue composition like what will be the major growth will -- major revenue driver will be?

It's difficult to project. Frankly speaking, we're making investments in all the segments. We're expecting growth so far in all the segments. And we remain bullish. Now the journey from now towards the next 3 years, there's a lot of new -- strategic moves that we will be making that we would not have made many years ago. And that will actually dictate a lot more. So for example, we are looking at getting into an entirely new segment like that has been announced, for example, with solvents. Today, we have almost no place in this other than some small volume of Acetone and IPA. But what we're going into our downstream is more value-adding solvents. How we are able to leverage this and develop a business model which is allowing us to take a larger share and more value-enhancing share will factor into how we take our strategic business decisions with regards to business unit structure and some such. So it's a journey for us. We will get into -- but you can safely say that across all of the engines we are expecting some or the other level of growth over the next year, 2 years, 3 years.

Okay. Understood. And secondly, what will be the -- what is the capacity utilization across business segments today?

Now if you ask us capacity utilization or capability utilization?

Both, if you can...

Actually, this is -- this question is very relevant because across the segment everywhere we can increase the capacity and we do that regularly. So if I tell you we are running at 90%, but that doesn't make much sense. We will grow, to answer your question, no doubt on all the segments, all the fronts. You will see -- as I mentioned in the last call also, you will see a completely different Deepak Nitrite from 5 years from now. The last 5 years also we had said that -- in fact, our Chairman said in one of the meetings, I think it was [indiscernible] I don't know which one, where he said that -- this question of what is your growth -- what is your vision? He said, I want to reach, say, $1 billion turnover. Now that was absolutely -- at that time our turnover was maybe INR 1,200 crores to INR 1,400 crores, and he were targeting INR 6,500 crores. Touchwood, I think this year, we will touch INR 6,500 crores. So you see this is what it is. 4, 5 years back we made some steps, we took some steps, we have delivered. And we actually, as a company, we deliver more than what we promise. That is our accepted truth. So here also will find a completely different Deepak Nitrite after 4, 5 years. Have patience and have -- trust us for whatever steps we are taking. That's all I can say.

The next question is from the line of an [indiscernible] individual investor.

So my first question is related to the revoke of antidumping duty recently by our ministry. And second question is related to the dual control regime from China. How are we seeing this opportunity? And the third question, last question is, so regarding the new chemistry which we are pouring into agriculture, so is it related to fluorine chemistry? And -- yes, that's it.

Okay. For the first question, which is about the antidumping duty, I do not expect that it will impact us much. If the prices are going to go up, they'll go up. If they're going to go down, they'll go down, but it will not be because of these revocations. And with regards to your second question, sorry, what was it -- about fluorine?

Dual control regime in China.

So with regard to dual control, I think there is a value to the investor community in studying the dual control policy. For what it's worth, the policy has been in place over the last year as well. They have just been implementing it far more strictly right now. And we believe that they will continue to implement it strictly, definitely up to the Feb Beijing Olympics, but we strongly also feel that they will continue to implement it to a large extent all of next year. Now the impact of this, that is very tightly linked to what people understand from it and how different industries react to it because the goal of the dual control policy is for it to be dynamic, for it to reward provinces that are doing well and for it to punish provinces which are not doing well while at the same time ensuring that overall as a country it is working towards its net zero emissions by such and such a date. And all of this has already been outlined. Now for the chemical industry, in particular, this will lead to short-term disruptions, in many cases lead to opportunities, in some cases lead to supply-side shocks. And in many cases, for Deepak, it is also actually leading to interesting opportunities to export more to China. Any which ways, what happens is that the policy along with the current shortage that they are facing in utilities along with their internal target for the Beijing Olympics are creating a significant shock. This will, over a period of time, evolve into something which is more sustainable. We don't see that right now, the kind of situation that is there is sustainable. Nonetheless, we are taking the opportunity to see where all we can gain by creating those kinds of relationships with the customers where we are able to leverage and demonstrate our dependability. And in another -- in other cases, we are seeing where we can, as I mentioned, look at export opportunities even if it is to China. Third question was about fluorine. As we've announced, yes, fluorination will be one of the process platforms that we are investing in the new site at Dahej. This will be part of the newly announced subsidiary. And therefore, there are different kinds of products that can be fluorinated. But fluorination as a new process competency to add to Deepak's stable, that is the intention.

Okay, sir. So in that case, the fluorination will be -- we are targeting agriculture industry or the electric vehicle industry? And how are we differentiating from the leading companies like Navin Fluorine?

See, fluorination is a step, okay? It is one unit process. Now by itself a process is not what is going to differentiate you. Today, we are, for example, we're in nitration, we're in hydrogenation, we are in diazotization, so many other things, but there are so many other companies that are in it, right? There are companies, and very, very well-regarded companies that are in these, where nobody actually asks us how we will differentiate ourselves. Yes, with regards to fluorination, key aspects of it are things like availability of raw materials, safety and operational excellence in those fronts. That's what we have to work on, but fluorination is one step. We are linking it with other steps which we have a very deep level of familiarity with. Nitration, reduction, chlorination, all of these things are steps that we have been doing for decades now, and we know what we are doing. So we would not see ourselves comparing or competing with Navin, but what we're doing is we're expanding our product basket with new products that will now utilize a process which was not yet part of our stable. We have, in any case, even today, a lot of fluorinated products that we sell. But until recently, we have been buying the key raw materials. Now we will not only make some of those key raw materials but we will be making other products which as of right now will find their application in the agrochemical and the pharma spaces. But as we go ahead, we are working with key customers -- strategic customers to develop products using the same facilities which will go into other segments. But a lot of agrochemical formulations, a lot of pharmaceutical formulations happen to require products which require fluorination.

Okay, sir. So to conclude that, so fluorination, we are targeting agriculture industry and not electric vehicle industry, right?

We are interacting with opportunities in that space. If you ask us what we will do -- what is going to be the first product out of the plant? The first product out of the plant will be targeting the agro and the pharma space. But these are plants, at the end of the day, which are very fungible. So you can use them to make other products as well. We optimize it in the best way that we know how.

We will take one last question from the line of Ravi Mehta from Deep Financial.

Just a couple of questions. One was the medium-term contracts that you signed, are these newer molecules jointly developed by our company with the customers or you get the molecule and you develop the process? Or -- how does it work?

No. So what we have announced are molecules, which we have, in any case, has the mother product, but we have customized them in some way and form specifically to optimize their use by the target customer.

So it's not jointly developed.

Yes, it is not jointly developed.

Sure. One more question was on the Basic Chemical vertical being rebranded as BI. So does it involve some value addition to the basic material and making an intermediate, is that a way to look at it at this rebranding? Or it's more of signing strategic contracts and having focus and that's why it is so?

It's a strategic reorientation for Deepak, to be honest, because it means that internally, we have to realign ourselves towards taking a very balanced view, not just on opportunistic and short-term view, where we are talking to, say, strategic customers to see how we can ensure that there is a long-term collaboration. In other cases, what we are making sure that we do is we focus, of course, on opportunities -- spot opportunities as and where they come. But finally, we are also recognizing that the products that we make which we had -- there was a time a few years ago where this segment was actually called Bulk and Commodity Chemicals. From that, it translated into Basic Chemicals. And now I believe it is the right next step for it to be considered a Basic Intermediates, not a chemical just by it -- not the basic chemical because we are also finding that the products we make are becoming more and more critical for our key end segments. And therefore, they are expecting Deepak to be playing a more and more active role in ensuring that their supply pipeline remains dependable. So the kind of conversations that we are having, the way that we are realigning ourselves internally is now to have a view and acknowledging that the importance of our products has increased in our customers' minds.

And are we going 1 or 2 steps in the process to arrive at this level, like from Basic Chemicals, maybe 1 or 2 steps forward to get into an intermediate?

See, we are widening the basket over a period of time also. And this will, therefore, also -- otherwise, what ends up happening is we constantly internally are in this flux about whether a downstream of BI product should be in BI or it should be in specialty for what we've taken a call internally is that any product which at the end of the day is a push product, meaning that it is requiring an extremely strong tie-up with the end segment with a particular customer in the end segment who is not only an anchor customer but is also going to dictate whether we succeed or fail. Those kinds of products will become specialty products, whereas products where the focus must always remain on process excellence, product excellence, but there are multiple different end segments, multiple applications and multiple kinds of customers. Those will be considered products which are well suited to BI. And therefore, it's now -- moving forward, when we decide where the products are to be categorized in specialty or BI, it will no longer be on the basis of what is the kind of margin that one should expect. It should be on the basis of what are the most important levers that we should be focusing on. Yes, we will go downstream. Sometimes those downstreams will feature into an enriched specialties BU addition and sometimes, it will remain within BI. Sometimes some things that we may make in specialties may deserve its own BU tomorrow. But this is all evolving and it's basis not just something as simple as a margin.

Sure. And just lastly, one clarification. The expanded IPA capacity in the CoGen Plant, is it commissioned in the H1 or it's going to be commissioned now?

It's in process right now. Commissioning in a period.

In this quarter, third quarter.

Okay. So it will be ready probably in this quarter?

Yes, yes.

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

Thank you, everyone, for joining this call. In case any further clarifications are required, you can get in touch with Mr. Somsekhar Nanda, our Deputy CFO. Wish all of you a very Happy Diwali.

Happy Diwali. Happy New Year.

Thanks once again.

Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.