Deepak Nitrite – Leading Indian producer of Sodium Nitrate

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Deepak Nitrite all set to capture opportunities across the chemicals and speciality chemicals landscape 

About the Company

From a bulk commodity products
manufacturer, Deepak Nitrite Ltd. (DNL) has evolved into a specialty chemical company operating in three key division i.e Basic Chemicals, Fine and Specialty
Chemicals and Performance Products with facilities located at Dahej, Nandesari,
Roha, Taloja and Hyderabad. DNL has a number of credits to its name for
manufacturing of chemicals holds a leading position in products such as Sodium
Nitrite, Nitro toluene – the only company in India to have fully integrated OBA
setup.

The company dictates 80% domestic market share
in sodium nitrite and 50% market share in nitro toluene. Also, nitro toluene
acts as a key raw material for the Performance Chemicals segment. The end-user
applications of DNL’s products vary from agrochemicals, dyes, and pigments to
pharmaceuticals, rubber chemicals, refinery, textile, and colorants.
 

In FY 2019-20, the Company invested 270 Crores
towards initiatives on capacity expansion and debottlenecking of existing
plants. This expenditure also covers the new 125-acre land purchased at Dahej
during the year. This land is strategically located surrounded by key suppliers
and customers paving the path for ample opportunity for growth.

Chemical Markets – Globally

Basic chemicals are expected to see the largest
growth of any chemical segment, at a 2.1 percent forecast for 2024. The global
specialty chemicals market size was valued at USD 630.0 billion in 2019 and is
expected to grow at a compound annual growth rate (CAGR) of 3.7% from 2020 to
2027. Global Phenol Market to Grow at 3.40% During 2020- 2025, Stimulated by
Advancements in Production Technology.

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Asian & Indian Market

The world’s leading chemical company was Japan’s Shin-Etsu Chemical. Asia has the world’s largest share of the
global chemicals market, at 56.6% in 2019. It has consistently accounted
for more than 50 percent of the global chemicals market since 2012. India is
the 3rd largest manufacturer of chemicals in Asia and the 6th largest manufacturer
in the world.

Indian Chemical Market

India has the potential to become the 4 Largest
chemical producer in the world growing at 9% p.a. for the next 5 years.
The Indian chemical industry is expected to double to US$
300 billion by 2025, recording an annual growth rate of
15%-20%
.The total FDI in Chemicals (excluding fertilizers)
from April 2000 to December 2019 stood at US$ 17.4 billion. The Indian
Chemical Council’s aim to achieve a turnover of
US$ 300 billion by 2025 backed by Government’s support in
proposed infrastructure and policy changes. The investment
required for this is estimated to be around
US$ 75-100 billion and the primary objective is to reduce
India’s dependence on imports.

Improved Financial Ratio

The company demonstrated strong all-around performance led by healthy growth across its Strategic Business Units (SBUs).
On a Standalone basis, revenues climbed to 2,230 Crores, 25% higher than the
previous year.

EBITDA registered at 804 Crores, up by 161% from
the previous year resulting to EBITDA margins of 36%, higher by 18.77%. Profit
Before Tax (PBT) was recorded at 706 Crores, up by 232% from last year. Profit
After-Tax (PAT) stood at 544 Crores, representing an improvement of 294%
compared to FY 2018-19.

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Segmental Growth over the Years

Basic
Chemicals

Basic Chemicals reported sales of 940
Crores in FY 2019- 20, growing by 5%. Closure of production facilities due to
the national lockdown impacted the revenue momentum towards the end of Q4 FY
2019-20. This has, however, recovered post-re-starting of the facilities.

Overall, the Company will continue to
swiftly capitalize the opportunities by diverting capacity towards products
that enjoy better demand scenario, and will leverage its cost leadership
position to drive market share gains.

 

Fine
& Speciality Chemicals

Fine & Speciality Chemicals
segment’s revenue grew by 9% to 585 Crores in FY 2019-20. EBIT for this segment
grew by 33%. The Company witnessed increased demand for key products in the
export markets which also led to solid realization gains.

The performance was also bolstered by
benefits accruing from backward integration initiatives and capacity expansion
for established products. With a strong product portfolio, the Company is on
track to deliver a stellar performance in the FSC segment in the coming years.

 

Performance
Products

Performance Products the segment reported a stellar performance during the year under review growing robustly
by 91% translating to Revenues of 768 Crores. Company’s efforts of re-orienting
its industry mix and geography mix to ensure better product acceptance played a
major role in driving the performance.

Further,
the Company’s position as a fully integrated supplier of OBA has strengthened
its competitive edge. During the year, Company witnessed healthy realization
gains in DASDA owing to China’s temporary disruptions, which bolstered its overall performance in the PP segment. Performance Products has contributed 34%
to the Company’s Total Revenues.

Capacity
Build-up

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With
future CAPEX to be incurred largely through internal accruals, the Free Cash
Flow to the Firm (FCFF) should turn positive. On the back of sustained CAPEX,
debt in absolute terms will largely remain flat.

In FY
2019-20, the Company invested 270 Crores towards initiatives on capacity
expansion and debottlenecking of existing plants. This expenditure also covers
the new 125-acre land purchased at Dahej during the year. Deepak Phenolics,
which is now in the process of safe scaleup to capacity. DPL had it first full
year of operations in FY 19-20, wherein its Phenol production volumes were just
short of 200,000 tons or above 90% capacity utilization.

Source: Grandview Research

Expert Market Research

Company Annual Reports 

Mckinsey Report

Data Bridge Market Research

Disclaimer: The information provided on Shuchi Nahar’s Weekend Blog is for educational purposes only. The articles  may contain external links , references and compilation of various publicly available articles. Hence all the authors are given due credit for the same. All copyrights and trademarks of images belong to their respective owners and are used for Fair Educational Purpose only. 

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Shuchi Nahar

Shuchi Nahar

Shuchi is NISM Certified Equity Research Analyst, CFA - Level 1, a student of Law and Finance, and an aspiring CS.
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