Deepak Nitrite Company Analysis

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Written By: Shuchi Nahar | Subscribe to Shuchi’s Blog | Linkedin Profile

Deepak Nitrite is a leading producer of Sodium Nitrate in India. It’s all set to capture opportunities across the chemicals and specialty chemicals landscape in India.

Let’s dig deeper into Deepak Nitrite Company Analysis and find out what advantages it has over its peers.

About the Company

From a bulk commodity products manufacturer, Deepak Nitrite Ltd. (DNL) has evolved into a specialty chemical company operating in three key divisions i.e Basic Chemicals, Fine and Specialty Chemicals, and Performance Products with facilities located at Dahej, Nandesari, Roha, Taloja, and Hyderabad.

Deepak Nitrite 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 a 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.

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Business Segments of Deepak Nitrite

Deepak Nitrite Company Analysis

Size of Global Chemical Markets

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.

Size of Global Chemical Market

Asian & Indian Chemical 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.

Market Size of Chemical Industry in India

Chemical Industry in India

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 chemical industry in India 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 the 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 Ratios

The company demonstrated strong all-around performance led by healthy growth across its Strategic Business Units (SBUs).

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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 in 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.

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 on the opportunities by diverting capacity towards products that enjoy better demand scenarios and will leverage its cost leadership position to drive market share gains.

Fine & Specialty 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.

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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

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 its 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.

Also Read: The Future of Chemical Industry in India

Source: Grandview Research | Expert Market Research | Company Annual Reports | Mckinsey Report | Data Bridge Market Research

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Written By: Shuchi Nahar | Subscribe to Shuchi’s Blog | Linkedin Profile

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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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