CFO's Communique


Dear Shareholder,

We stand on the cusp of 50 glorious years of excellence and value creation. This has been a long and fulfilling journey where Deepak Nitrite Limited (DNL) has successfully demonstrated its capabilities and perseverance to evolve from a local manufacturer of Bulk Chemicals into a global provider of Chemical intermediates. It is fitting that we are on the verge of 50th year on the back of new records set for revenues, operating margins, profitability and return ratios. Our track record over this journey of 5 decades, gives us immense pride as we have built deep relationships with leading enterprises in India and overseas, established a manufacturing footprint of global scale and positively impacted the lives of employees, associates, partners and through our Foundation, served society at large. A notable milestone for any institution, we will take this opportunity to further strengthen DNL and set it for higher course in the years ahead.

Deepak Nitrite Limited (DNL) has successfully demonstrated its capabilities and perseverance to evolve from a local manufacturer of Bulk Chemicals into a global provider of Chemical intermediates.

Effective Project Management & Strengthening Team Bond

During fiscal 2019-20, DNL witnessed healthy demand for products both locally and internationally and has delivered a comprehensive performance characterised by higher volumes, increased realisations as well as cost optimisation. We were able to report improved margins in all of the business segments on a standalone basis as well as higher profitability in its wholly owned subsidiary, Deepak Phenolics Limited (DPL).

Through DPL, we achieved a key milestone by substituting majority of the local market imports of Phenol and Acetone, and reportedly attaining a market share of about 65% in the country. DNL has been a frontrunner in tapping the import substitution opportunity in India, thereby delivering long-term benefits to the country. Additionally, it has also been successful in producing and selling pharma grade Acetone.

Backed by our diversified portfolio- mix, DNL continued to leverage on the better export demand for Fine and Speciality Chemicals products and DASDA which led to rise in the share of exports in the overall business mix. We have been able to capitalise on the demand from large global customers who are graduating towards high quality and competitive global suppliers as they seek to diversify their sourcing requirements away from China. We are fortunate to have delivered a robust performance in the first 11 months of FY 2019-20 that the Company was able to withstand the impact on the business from the COVID-19 pandemic towards the end of the fiscal year.

DNL acquired several land parcels as a part of its capacity expansion and growth plan. This comprises a big parcel of land acquired at Dahej, Gujarat, followed by smaller parcels of land acquired in Hyderabad and in Roha. The land acquired during FY 2019-20 has been capitalised wherein the Company had paid ₹ 141 Crores in aggregate for these land parcels.

Phenolics-Performance Update

During FY 2019-20, DPL has also delivered a robust performance with healthy profitability despite cyclicality in Phenol and Acetone prices globally. 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 utilisation. The shortfall was owing to the loss of production following the nation-wide lockdown and consequent restrictions ordered by the Government. Despite many challenges, DNL has managed to operate a large, global scale plant at near full capacity utilisation in the first complete financial year. This indicates the scale of effort, preparedness and efficient management of complex material logistics.

In April 2020, DPL commenced commercial production of Isopropyl Alcohol (‘IPA’). IPA is a solvent primarily used by Pharmaceutical companies and is also used for manufacturing sanitizers. The plant has a production capacity of 30,000 MT annually which is expected to serve humanity at the time of crisis when the entire World is combating Covid-19 pandemic since IPA enables supply of sanitizers. And of course, this marks the first step towards the vision of establishing a basket of downstream derivatives of Phenol and Acetone.

Capital Structure

Supported by the resilience and efficient operations of DNL, the Balance Sheet and cash position are robust. It will ensure that there will be no impact on its ability to meet its liabilities as and when they fall due,amidst this pandemic scenario. DNL has adequate liquidity to continue its operations unabated. It has lowered its borrowing position, improved operational and Balance Sheet ratios amidst exhibiting a strong Balance Sheet and Cashflow. As of March 31, 2020, the Debt Equity ratio for DNL was 0.14x on a standalone basis and 0.69x on a consolidated basis, both of which remain within comfortable range of leverage.

Enhanced Credit Rating

DNL is well placed in the industry, delivering quality guided by a robust product mix. Thus, on the back of steady performance over the years, ICRA has upgraded long term credit rating from "ICRA A+/Positive" to "ICRA AA-/Stable" while retaining short term credit rating at highest notch i.e. at " ICRA A1+"; while CRISIL assigns with a long term credit rating of 'CRISIL AA-/ Stable and short term rating of “CRISIL A1+”,which is the highest rating in short term category. In case of DPL, ICRA has upgraded the long term credit rating from "ICRA BBB" to “ICRA A=" and also upgraded the short term credit rating from "ICRA A3+" to "ICRA A2+".

This is primarily owing to Company’s sustainable business performance, commercial viability across most segments of its products, diversified product portfolio, constant innovation and efficient operations.

Shareholder Value Creation

In view of the robust performance, the Board of Directors had declared an Interim Dividend of ₹ 4.50 per equity share of ₹ 2 each for the FY 2019-20 which was substantially higher than dividend declared in the prior years.

Furthermore, we are also encouraged that despite this challenging operating environment, our teams are working on continued business growth and higher market share. As an organization, we are confident that our fundamentally strong business model and deep relationships built over last 50 years will enable us to emerge from these challenges as a stronger enterprise.

On behalf of the Board of Directors and the management of the Company, we would like to reassure you that we are carefully navigating through the current situation with a focus on stability even as our appetite for growth in the future remains undiminished.

I would like to thank all of you, our shareholders, for your trust and faith in DNL. We remain committed to creation of sustainable value for all our stakeholders and I look forward to your continued support in the future. Trust you, your families and your communities are safe. Take care and stay healthy.

Best Regards,