DEEPAK NITRITE "Responsible Chemistry" Annual report Synopsis FY20-21

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Deepak is one of India’s leading and fastest growing chemical intermediates manufacturing companies. During our five decades of existence, we have consistently delivered on the expectations of all stakeholders. We are a preferred partner for leading downstream companies across 30 countries in 6 continents, who trust us for our quality, supply reliability, environmentally sustainable operations and ability to meet their evolving needs. Having presence in Basic Chemicals, Fine & Speciality, Performance Products and Phenolics (Phenol, Acetone & Iso-Propyl Alcohol), we play an important role in our customers’ value chain.

Our products find application in the manufacturing of downstream products for multiple sectors and play a crucial role in driving nation’s development and meeting the needs of end consumers. We are building on this through continuous investment in research and development, modern technologies and new capacities.

Deepak Nitrite is founded on five key attributes – agility, innovativeness, responsiveness, ownership and Outcomes-driven. They guide our strategy and actions towards delivery of long-term growth and help strengthen our reputation as a trusted and responsible company that is committed to its stakeholders.

➰ Vision

To become the FASTEST GROWING Indian chemical intermediates company.

Business Operation

Manufacturing Plants

We have a total of six fully integrated manufacturing plants across India spread across five locations in Gujarat, Telangana and Maharashtra. All our manufacturing units are compliant to ISO 9001 (quality), ISO 14001 (environmental) and ISO 45000 (health and safety) standards. We have conducted Together for Sustainability (TfS) Audit at Roha, Taloja and Nandesari units to facilitate the improvement of sustainability performance. Further, our plants are authorised to use Responsible Care logo certifying their sustainability contribution and strengthening organisation brand value.

1. Nandesari, Gujarat

- Basic Chemicals, Fine & Speciality Chemicals. The first and flagship manufacturing facility

2. Dahej, Gujarat

- Basic Chemicals, Performance Products

3. Dahej, Gujarat (DPL)

- Phenol, Acetone and IPA

4. Roha, Maharashtra

- Intermediates for Agrochemicals, Dyes and Speciality Chemicals

5. Taloja, Maharashtra

- Synthetic Organic Chemicals, Fine and Speciality Chemicals Strategically connected to Nhava Sheva port

6. Hyderabad, Telangana

- Performance Products

Strategically located plants

3 plants near CETP
5 plants in vicinity of customers
4 plants near ports

From the Chairman & MD Desk - Deepak C Mehta

On the back of marked success and excellence, we have achieved a milestone of 50 years supporting the Indian chemical industry. Our journey has been transformational from a small company in Vadodara with a handful of products and employees into an emerging conglomerate with over 4,700 employees and a comprehensive product portfolio catering to multiple industries globally. Having said that, our focus on import substitution throughout this period remains unaltered and we are proud to serve the nation.

This Golden Jubilee Year provided us a platform to demonstrate our capabilities and buoyancy amidst unprecedented challenges. We lived to our reputation and converted it into a landmark year, delivering strong operating efficiency which resulted in increased productivity and profitability. Alongside, we undertook calibrated expansion initiatives to set the foundation for future growth.

Deepak is a well-known Indian player in the chemical industry due to its technical expertise, understanding of complex chemistries, efficient handling of technical processes, and a long-term commitment of building deep relationships with stakeholders. We have been one of the first adopters of the ‘Make in India’ ideology. Over the years, we have significantly diversified our portfolio, while enhancing processes, strengthening relationships, and introducing sustainability strategies to create shared value for all stakeholders.

We have prudently invested funds to improve growth prospects and steadily strengthen financial position while remaining committed to the core value and objectives of people, planet, and profit. With our robust manufacturing platform and capabilities, we look ahead with excitement towards the numerous opportunities that have emerged because of increased global attention on India’s potential.

Furthermore, through planned introductions of newer products and ventures, we are laying the foundations for future development. We continue to experience uptick in demand from a myriad of end-user industries, and this trend is expected to continue, going forward.

Deepak is a key domestic chemical manufacturer given our deep chemistry knowledge, diversified product mix, manufacturing experience, scale, backward integration and R&D capabilities. Over the past five decades, we have successfully implemented an import substitution strategy for a wide range of products, such as sodium nitrite, nitro toluene, fuel additives, DASDA, OBA and phenol. Our recent venture into the Isopropyl Alcohol, downstream of Acetone, manufacturing with commissioning of 30,000 MT plant is another step forward. With this product, we have met the needs of domestic industries who otherwise imported it as well as served the country when most needed as it is a key raw material used in sanitizers. It has also strengthened our margins and minimized commodity price volatility exposure while setting a foundation for expanding into downstream products. Doubling of the IPA plant to further reduce the country’s dependence on imports has been taken up on a fast track basis and should be ready in couple of months .

We continued to operate at high utilisation levels at all facilities, especially the phenol plant which operated at around 115% capacity. India is indeed a lucrative market for the chemical industry, and Deepak is an ideal candidate to capitalise on this trend, thanks to its diverse product offerings and decades of manufacturing experience.

Message from CEO Desk - Maulik D Mehta

Despite losing a month’s production at the start of the fiscal year, we reported revenues of ` 4,382 Crores in FY 2020-21, growing 3% on a year-on-year basis. The growth was driven by strong performance in the Phenolics and Fine and Speciality Chemical businesses. Our wide portfolio of products helped mitigate lower sales in businesses whose demand was impacted by the pandemic or the oil crisis. We also delivered enhanced profitability, reporting a 29% growth in Profit before Tax to ` 1,042 Crores in FY 2020-21, and thus surpassing the milestone of ` 1,000 Crores. The financial performance has been accompanied by implementation of strategic initiatives and growth plans, positioning us to be able to set aspirational targets for the coming years.

Over the last five decades, our product portfolio and embedded process expertise have served as role model for addressing first domestic, and then global opportunities. Looking forward, we would continue adhering to the three P’s of sustainable growth – People, Planet, and Profit in that order – as we maintain focus on value creation for all stakeholders.

Phenolics was able to maintain more than 100% capacity utilisation sustainably by building a bench strength of suppliers & customers. This allowed us to pivot effortlessly when one or more end segments were facing challenges.

Based on the encouraging demand trajectory, we have initiated key capex projects during the fiscal. This includes land development at our newly acquired Dahej site, comprising 55 acres out of total 127 acres in the first phase. This facility will support capacity enhancement for key products in the standalone business. Brownfield expansion of IPA is also nearing completion which will double our IPA capacity to 60,000 MTPA, and other existing products are being expanded in line with market growth. Forward integration projects based on phenol and acetone are currently being finalised, and shall be launched soon.

In another important development, we will be investing around ` 300 Crores into new products based on environmentally friendly technologies for agrochemical and pharmaceutical intermediates. We are also in the process of building a world-class Technology Centre at Vadodara which will further strengthen our R&D and piloting capabilities. In terms of our technology platforms, we have further developed our competency in nitration, reduction and diazotisation – and also added new platforms like fluorination and photochlorination.

As a result of these planned developments, we are confident that the consolidated entity will see promising improvement across the length and breadth of the Group’s verticals.

Strategic priorities for FY22-FY25

Our capacities and competencies provide us a robust platform while our people, partnerships and processes drive our operational excellence. We believe there are significant opportunities for growth and our strategic priorities are geared towards sustained value creation.

S1 Expand Capabilities

Greenfield land development at Dahej and brownfield expansion at Nandesari, Roha and Taloja plants to enhance capacity of key products.
Brownfield expansion to double IPA capacity to 60,000 MTPA nearing completion
Completion of captive power plant is nearing
Setting up world-class Technology Centre to strengthen R&D

S2 Enhance Margin

Optimise product mix with additional value-added products
Continued process optimisation, productivity improvements and energy conservation initiatives to reduce costs
Improve asset fungibility in line with customer’s schedule for key intermediates

S3 Operational Excellence and Safety

Asset integrity study & OEE across all locations to improve productivity and reduce effluents in existing plants
Enhance use of narrow band technologies for manufacturing and automation
Newly developed Technology Centre to have a specially designed intesification cell
Ensuring better capacity utilisation and better process towards cost leadership

S4 Widen Product Portfolio

Explore Integration opportunities across all business segments using Deepak’s ‘Right to Win’ Template
Meaningfully enhance core technology platforms including nitration, reduction and diazotisation; and build platforms including fluorination and photochlorination
Investment towards manufacturing products that utilise core technology platforms for new agrochemical and pharmaceutical intermediates

S5 Sustainable Growth

Sustained alignment to Responsible Care, Together for Sustainability (TfS), and Nicer Globe principle: Target is to achieve a TfS score of 90+ across all our plants
Focus on value from waste initiatives. Conduct regular energy audit for all locations
Promote a positive HSE culture and maintain safe operations
Proactive compliance with all local & national regulatory requirements

Intellectual Capital

Our expertise in complex chemistry in combination with our sophisticated R&D infrastructure enables us to bring to our customers advanced intermediates that support sustainability. We are also developing new technology platforms and driving digitalisation to gain efficiency in operations and improve customer satisfaction.

Robust R&D infrastructure

Deepak Nitrite’s innovation infrastructure consists of a centralised research facility at Nandesari, Gujarat. Recognised by the Department of Scientific & Industrial Research, Government of India, it is equipped with the latest instruments and equipment. A team of 70+ qualified and dedicated research scientists are driving innovation at the facility, enabling us to bring products and processes which are differentiated, economical and environment-friendly. The R&D facility also houses state-of-the-art pilot plants, a safety laboratory and an environment laboratory. The pilot facility facilitates seamless scale-up from R&D trials to commercial production. The process safety lab has been established to support safer and faster commercialisation of new products. The environment laboratory is driving utility reduction and value from waste, aligned with our focus on sustainable chemistry.

In FY 2020-21, we set-up a new digitally-enabled analytical / process engineering laboratory (mini-plant) aligned to our business requirements.

- 70+ R&D strength

- 13 PhDs

Social & Relationship Capital

Building Long Standing Relations with Customers

- Adhering to the IS standard globally.

- Certified by BIS/REACH registered.

- Long-term contracts with key bulk customers and adhering to agreed contracts

- Ensuring timely and best quality of products as per customer needs on a consistent basis

- Robust pricing strategies ensuing a win-win situation

Value-added Services

- Customised packaging in bags/drum/ ISO tanks/Bulk vessel/tankers (tailormade packing as per customer requirements)

- Drumming facility at various locations

- The products are sent to B2B customers across diverse sectors through sea, rail, and road routes

Marquee Client

Managing Material Matters

Material matters are those which impact, or could impact, our ability to create value over the short, medium and long term as we pursue our ambition to build a sustainable future. These material issues have been arrived at basis our regular stakeholder engagements, our risk management process and market monitoring. We continuously manage these issues to achieve our objectives.

Business Risk Mitigation

We are continually making investments in new chemistries backed by deep market research and supported by our expert R&D team who focus on innovating to develop new and better products.

We are also undertaking calibrated capacity expansions across multiple plants to meet the growing demand for our products.

We enjoy deep and long-standing relations with most of our customers who continue to do business with us because of better quality products, our system and processes, and ability to meet their needs.

We have focus on manufacturing new agrochemical and pharma intermediates, thus further diversifying our operations.

All our manufacturing facilities are ISO 9001 certified.

We ensure adequate liquidity at all times and maintain healthy gearing levels through our prudent treasury and cash flow management capabilities. Our cash and liquid investments stood at ` 220 Crores as on March 31, 2021.

We effectively use cash flows to finance expansion projects and to repay debts, resulting in a healthy Net Debt : Equity Ratio of 0.15x as on March 31, 2021.

We have improved our credit rating during the year strengthening our brand reputation.

Long-term contracts with suppliers to ensure sustained raw material availability.

Practice demand forecasting to better plan production and secure raw materials.

The Company has commenced land development operations at the newly procured site in Dahej, and it is nearing completion on the 55-acre site, out of total 127 acres. With effect from October 9, 2020, the Company had also established a wholly-owned subsidiary ‘Deepak Clean Tech Limited’ (“DCTL”), to produce chemical and pharma intermediate products, interwoven with our existing products and process chemistry knowledge, also towards creating new platforms like fluorination and photochlorination.

Growing Sustainability

Emission Management

Reducing our carbon footprint is an important focus area for us. We have installed a continuous monitoring system which helps in significantly controlling emissions and only emits traces of secondary pollutants such as PAN (Peroxyacetyl nitrate). During the year, we have undertaken measures like installation of electrostatic precipitator, bag filter and scrubber system in the boilers to reduce emissions. We have also replaced older inefficient Boilers with the newer ones which shall also have significantly lower air emission. In our effort to offset carbon footprint, we have purchased ` 40.65 Lakhs of Renewable Energy Certificates (861 non-solar and 3,204 solar).

Management Discussion & Analysis

Global economic growth is expected to rise to 6% in CY2021 and stay at 4.4% in CY2022 (Source: IMF World Economic Outlook March 2021 https://www.imf.org/en/Publications/WEO) after witnessing a severe contraction in CY2020 due to the COVID-19 pandemic.

Overall, the economic impact of the pandemic is being assessed as less adverse than originally feared. The growth contraction in CY2020 is estimated to be -3.5%, which is 0.9% lower than the previous forecast, reflecting stronger-than-expected momentum in the second half of the year. Among leading global economies, the United States outlook for CY2021 has been boosted by 2% over the previous estimate. Japan’s CY2021 outlook was revised up by 0.8% points owing to the additional support from fiscal policies enacted at the end of CY2020. Activity in the Eurozone and the United Kingdom is expected to remain below end-2019 levels through CY2022. Asia has been impacted fairly severely by the pandemic, leaving aside China, which has posted a remarkable recovery in the latter half of CY2020 after facing a severe disruption at start of the pandemic.

Asia

Due to the pandemic, the Asia-Pacific (APAC) region suffered a significant recession in CY2020, with APAC GDP contracting by an estimated 1.5% Y-o-Y. In CY2021, APAC GDP growth is estimated to be 5.7% Y-o-Y, based on expectations that progressive introduction of COVID-19 vaccines in CY2021 would aid economic activity. China, the only country in the world to have registered positive growth in CY2020, is expected to accelerate its gains. (Like really??)😅

The International Monetary Fund (IMF) revised its CY2021 growth projections for Emerging and Developing Asia from 8.0% to 8.3% after improving India’s economic outlook for the year. ASEAN’s economic growth was lowered to 5.2% in CY2021 from the previous projection of 6.2%.

Indian Economic scenario

India is expected to become one of the world’s top three economies over the next decade, attributable to its strong democracy and strategic alliances. Based on recent forecasts, India is set to reclaim the title of the fastest-growing economy in the world. The IMF World Economic Outlook of April 2021 (World Economic Outlook, April 2021: Managing Divergent Recoveries (imf.org)) has pegged the Indian economic rebound to 12.5% in CY2021, from a contraction of -8.0% in CY2020, and the growth rate is expected to be 6.9% in CY2022. India has, however, been hit by a second wave of COVID-19, disrupting economic activities in several metro cities, and management of this will be crucial for recovery.

In domestic assessment, both the Union Budget and the Reserve Bank of India’s (RBI) first Monetary Policy Committee (MPC) meeting in 2021 have predicted a strong recovery, with GDP growth in double digits in FY 2021-22. While the MPC forecasts 10.5% real GDP growth in FY 2021-22, the Budget assumes nominal growth of 14.4%.

The Government of India announced a US$ 36 billion stimulus package in November 2020 to create jobs and provide liquidity support to various sectors, including tourism, aviation, construction, and housing. In addition, the Union Cabinet approved production-linked incentives (PLI) schemes for various sectors, which will provide US$ 27 billion over five years to help the country build jobs and boost production. By CY2025, the Government of India plans to increase public health investment to 2.5% of GDP. Under the ‘Make in India’ initiative, the Government is looking to elevate the manufacturing sector’s contribution to GDP from its current level of 17% to 25%.

Industry structure & development

According to the American Chemistry Council (ACC), the global chemical output volume is expected to increase by 3.9% in CY2021, following a decline of 2.6% in CY2020, the highest decline in the past 40 years. Chemical production is anticipated to expand by 4.4% in Asia, followed by 4.1% in North America, and 4.6% in Latin America, during CY2021.

In CY2021, China’s global chemical output is estimated to grow at 5.4%. The COVID-19 outbreak exposed structural flaws in the global supply chain, with overdependence on China. Japan and the United States confirmed their intention to pivot their supply chains away from China. Thus, given the amount of dependence on China, the only alternative country with the scale, the skills, and the space to service Western demand effectively is India. As part of their efforts to diversify chemical sourcing, global manufacturers shifted a portion of their supply chains away from China to India, further strengthening its position as an emerging manufacturing hub for the global chemical industry.

Structure of industry in India

The Indian chemical industry is one of the fastest-growing in the world. It encompasses over 80,000 commercial products, is widely diversified, and can be categorised into bulk chemicals, speciality chemicals, agrochemicals, petrochemicals, polymers, and fertilisers. India is the world’s 6th largest producer of chemicals and contributes 3% to the global chemical industry. It is the 3rd largest producer in Asia. It is also the world’s 3rd largest consumer of polymers and 4th largest producer of agrochemicals. The Indian chemical industry was valued at US$ 178 billion in CY2019 and is expected to grow at a 9.3% CAGR to US$ 304 billion by CY2025. In India, speciality chemicals account for 22% of the total chemicals and petrochemicals market.

Looking ahead, for the period FY 2020-25, demand for chemical products is anticipated to improve at a rate of about 9% annually. This will be led by demand for speciality chemicals and supported by demand for petrochemicals and polymers. Therefore, Indian chemical companies have raised their capital expenditure commitments substantially in the past couple of years. Capacity expansion will be undertaken across the domestic industry and this is expected to translate into strong business performance. By CY2025, the Indian chemical industry will have contributed around US$ 300 billion to the country’s GDP, aiding India’s journey towards a US$ 5 trillion economy. The agrochemicals market is expected to grow at an annual rate of 8%, reaching US$ 3.7 billion in FY 2021-22 and US$ 4.7 billion in FY 2024-25.

Moreover, the chemical industry has been amongst the least affected by pandemic-related lockdowns, owing to its significance across the key end-user industries, including pharmaceuticals. As a result, it is anticipated to outperform the country’s GDP growth, going forward. The Government of India identifies the chemical industry as an important growth driver; it is expected to account for 25% of the manufacturing sector’s GDP by CY2025. In fact, India’s per capita chemical consumption is low while compared to other developed countries, making India a desirable investment and growth destination.

The growth of the chemical industry in India can be attributed to the following pillars of progress:

1. Establishing an alternative sourcing destination:

Over the past two decades, there has been overdependence on China as the key source for several building blocks in the global supply chain. While there has been awareness among global customers of the competence of Indian players, based on parameters such as quality, costs, consistency, and environment management, the shift in market share up to the last decade was gradual. This structural imbalance was sharply exposed during the pandemic, and now leading global players are seeking alternative sources for raw materials and intermediates in an accelerated manner, presenting strong prospects for Indian chemical majors to leverage this opportunity.

2. Enhanced focus on R&D:

The Indian chemical industry has been expanding its R&D footprint. As it strives to enhance its global market share, leading players are deploying strategies that offer more than just cost competitiveness. In order to increase wallet share, the focus has shifted to value addition, and this has sharpened the focus on R&D. The drive is now to develop products in an innovative manner in order to emerge as a global hub for speciality chemicals.

3. Improved infrastructure:

There has been a prioritisation of infrastructure development in India in recent years. Apart from improvement in ports, airports, highways, inland waterways, storage infrastructure, and logistics, the drive to establish focused industrial parks and zones is accelerating the development of local industry. Setting up of PCPIRs (Petroleum, Chemicals, and Petrochemicals Investment Regions) with single-window clearances and improved all-round facilities is beneficial for the Indian chemical industry.

4. Deeper integration of processes and operations:

During the 1990s-2010s, the Indian chemical industry was trailing its regional peers in order of preference from global customers. This forced several Indian players to innovate and explore pockets of opportunity that were too nascent for competitors. As the industry has matured and leading players have grown, they have steadily enhanced capabilities and pursued value addition in product mix. This has allowed them to build their process expertise to drive deeper integration in operations and move beyond basic building blocks to products of higher complexity.

5. Increased base of manufacturing in India:

The growth of Indian manufacturing has resulted in manifold increase in size and requirements of the domestic market. Across industries, several products that were hitherto being imported are now being manufactured locally, as critical mass has been achieved in local demand. This has led to a sharp rise in the domestic customer base for both basic and advanced chemicals. Policies such as ‘Make in India’, ‘Aatmanirbhar Bharat’ and Production-Linked Incentives (PLI) coincide with the emergence of attractive sub-markets of local demand along with fairly reasonable access to resources such as capital, technology, labour, and infrastructure. For ‘Make in India’ to succeed, base industries such as chemicals must be at the forefront of the strategy.

6. Technological innovation:

Digitalisation is a critical lever to enhance efficiency and productivity. Implementing digital initiatives such as the Internet of Things (IoT), Machine Learning (ML), and Artificial Intelligence (AI) has enabled chemical companies to make faster and better decisions. These companies have shortened the amount of time it takes to transform ideas into action by analysing large amounts of data quickly, thereby accelerating the pace of change across the industry.

Company performance

In FY 2020-21, the Company delivered a remarkable overall performance. This progress was aided by growth across the Company’s strategic business units (SBUs). Revenue from operations, including other income, stood at ` 4,381 Crores, higher by 3% compared to last year. EBITDA registered 20% gains over the previous year, and stood at ` 1,269 Crores. EBITDA margins came in at 29%, higher by 400 basis points (bps) year-on-year. The Company undertook several enhancements in the product mix, improved realisations and cost-reduction efforts that helped deliver better margins. Profit before Tax (PBT) came in at ` 1,042 Crores, up by 29% from last year. Profit after Tax (PAT) stood at ` 776 Crores, delivering a growth of 27% compared to the previous financial year.

Revenue contribution from the domestic market stood at 71% while 29% came in from exports. The Company witnessed robust demand from key end-user industries. Steady demand in key export geographies resulted higher export revenues.

In FY 2020-21, Deepak Phenolics Limited (‘DPL’), wholly-owned subsidiary of the Company, successfully commissioned its IPA plant in Dahej in April 2020, during the peak of the nationwide lockdown, while adhering to all the safety guidelines. DPL demonstrated swiftness in movement of materials despite facing a volatile macroenvironment. Newly launched products such as IPA enabled the Company to deliver better profitability. The brownfield expansion of IPA is progressing as per schedule and is expected to be completed soon.

The Company has formed a new subsidiary named Deepak Clean Tech Limited to pursue its ambition of developing value-added downstream derivatives and thus deepening its core business. This subsidiary will house new and upcoming products that will expand the overall product offerings of the Company.

The Board of Directors of the Company has recommended final dividend of ` 4.50 (Rupees Four and Paise Fifty only), being 225%, and a special dividend of ` 1.00 (Rupee One only), being 50% of the equity share of ` 2 each. Accordingly, the total dividend for FY 2020-21, if declared by the Members, will be ` 5.50 (Rupees Five and Paise Fifty only), being 275%, per equity share of a face value of ` 2 (Rupees Two only) per share, amounting to ` 75.02 Crores.

Performance of business unit

The product offerings are classified under key Strategic Business Units (SBUs), namely Basic Chemicals (BC), Fine and Speciality Chemicals (FSC), Performance Products (PP), and the newly added Phenol & Acetone segment. The Company has a wide portfolio of chemical intermediates that serves end-user industries in India and worldwide, ranging from dyes and pigments, agrochemicals, pharmaceuticals, plastics, textiles, paper, home and personal care, petro-derivates intermediates-phenolics, acetone, IPA, and a plethora of other business sectors. Certified by Responsible Care, its products are manufactured across six key locations. They are strategically situated at Nandesari, Dahej (Gujarat), Roha, Taloja (Maharashtra), and Hyderabad (Telangana), and its R&D facility is located at Nandesari (Gujarat).

The Company has become a global chemical company with growing market share in essentially all of its key products. It has substantially expanded its global presence in the key geographies of Europe, the United States, Japan, Latin America, the Middle East, and the Far East over the years. In all, it exports to over 30 countries. It has been an undisputed leader in terms of cost leadership across key products. DNL’s aim is to broaden its footprint in high-value intermediates, and it is on the path to do so, through a multitude of initiatives and growth strategies.

Basic Chemical

Within Basic Chemicals (BC), DNL manufactures nitrites, nitrogen toluidines and fuel additives. As most of these chemicals are manufactured and sold in high volumes with a higher price sensitivity, cost leadership plays a pivotal role in gaining competitive advantages, which is required to drive growth and profitability. Primarily manufactured to standard requirements, these chemicals are dependent on raw material availability and affordability.

User industries for BC:

Colourants
Rubber chemicals
Explosives
Dyes
Pigments
Food colours
Pharmaceuticals
Petrol & diesel blending
Agrochemicals

In FY 2020-21, this segment generated total revenues of ` 760 Crores, a decrease of 19% over the previous year. Due to lost production caused due to nationwide lockdown and lower demand for diesel, the fuel additives segment experienced a demand drop in the beginning of the fiscal. Although the oil and dye industries are still reeling from the pandemic’s impact, other end-user segments fared well. EBIT stood at ` 195 Crores, down 7% from the previous year.

Fine & Speciality Chemical

DNL manufactures niche and specialised products under its Fine & Speciality Chemicals segment (FSC). These are developed inhouse, using the Company’s expertise in process engineering and technical knowhow. Among other things, it produces speciality chemicals such as Xylidines, Oximes, and Cumidines. These products are specially tailored to the client’s specifications and are typically manufactured in lower volumes, but command higher value. Quality of the product, deep connections, stable and efficient processes, as well as compliance with global standards are all essential for these products.

User industries for FSC:

Agrochemicals
Colourants
Pigment
Pharmaceuticals and personal wellness

The FSC segment revenue grew by 31% to ` 767 Crores in FY 2020-21. EBIT for this segment grew by 90%. The segment continued to witness healthy performance traction, based on encouraging demand across multiple end-user industries, especially agrochemical and personal care. Efforts towards cost optimisation and adding new products for the pharma segment increased the momentum. The FSC segment is constantly supported by a strong order book position and solid capacity utilisation levels.

Performance Product

The Performance Products (PP) segment of the Company has two key products at present: Optical Brightening Agents (OBA) and DASDA. These products have specific attributes and serve to enable particular characteristics to the end-product. DNL is differentiated as a fully integrated manufacturer of OBA, with operations commencing from conversion of basic input toluene into PNT and thereafter into DASDA and further into OBA. These products must meet stringent performance criteria and technical specifications as specified by global clients. Given its expertise and technical knowhow, DNL has been able to establish itself as a preferred supplier and has also strategically diversified its clientele across geographies and end-user industries.

User industries for PP:

Paper
Detergents
Textiles

During the period under review, the PP segment witnessed a decline in revenues to ` 304 Crores because of resultant effect caused by COVID-19 in end user industries. Due to this, EBIT also declined to a level of ` 23 Crores. With the unlocking of economy after the first phase, there was gradual demand pickup across the key end-user industries and DNL has witnessed a recovery in volumes. Due to the onset of second wave and re-imposing of restrictions, there was some impact on performance but at significantly lesser magnitude than the first wave. DNL is well placed to capitalise on recovery in demand from end-user industries going ahead.

Deepak Phenolics Limited

DPL has already established itself as the most trusted player in the domestic market for phenol and acetone, with a market share of much above 50%. DPL implemented initiatives to improve plant performance, which resulted in consistent capacity utilisation of around 115%. Forward integration into value-added derivatives such as IPA has resulted in increased contribution. Projected doubling of the IPA plant will enable your Company to further reduce India’s reliance on imports.

User industries for Phenol, Acetone and IPA Phenol:

ply, laminates, foundry, paints, rubber, surfactants, pharmaceuticals, agro-chemicals
Acetone & IPA: pharmaceuticals, paints, adhesives, thinners

During FY 2020-21, DPL reported ` 2,563 Crores of revenues with ` 421 Crores Profit After Tax. Despite significant challenges faced during the year due to pandemic-led disruptions, the team showed impressive resilience in driving volumes and maintaining the business momentum.

Geographical performance

Domestic Revenues for FY 2020-21 stood at ` 3,088 Crores, compared to ` 3,158 Crores in FY 2019-20. Revenue contribution from Exports stood at ` 1,272 Crores, up by 19% compared to ` 1,072 Crores in the previous financial year. The Company was swift to target key export geographies that were on the path of quick post-pandemic recovery. Steady revival in economic activity, combined with cost excellence initiatives undertaken by the Company, helped increase market share in the domestic markets.

DNL has maintained its position as a supplier of choice for key domestic customers with cost leadership. Production efficiencies as well as a favorable product mix resulted in robust volume growth for select products.

Exports delivered a growth of 19% in the period under review, as a result of deepening customer engagements in key geographical regions and the global supply chain’s China+1 strategy. This momentum was further supported by the Company’s efforts to run plants at optimum utilisation levels. During the year, Europe contributed 46%, compared to 44% in the previous financial year. Contribution from Asia (including Middle East) is 37%, while the US contributed 15%. On a consolidated basis, mix of Domestic Sales versus Exports has been 71:29.

SWOT Analysis

Strength

1. Wide range of products with diverse application

2. International presence & deep-rooted relationships

3. Sustainable approach

4. Strong supply chain efficiency and logistics management

5. Solid technical knowhow

6. Competent management team

Weakness

1. Volatility in raw material

2. Scarcity of sustainable energy resources

3. Adverse movement in foreign exchange

Opportunity

1. Substitution of imports

2. Government support & initiatives

3. Encouraging prospects for Indian exporters

Threats

1. Risk of obsolescence:

2. Limited trained manpower

Outlook

The domestic market of India is huge and has tremendous potential to grow; alongside, the Company has an established presence in international markets, too. This is an advantageous spread that helps the Company identify opportunities anywhere as soon as they begin to emerge. The Company has the agility, product portfolio, manufacturing excellence, and sustainability focus to seize opportunities arising in any of the geographies where it is present or may enter in future, as its operations are aligned with the latest norms. Its speciality solutions offer precision and optimal efficacy to customers who demand international standards. As global companies look to diversify sourcing, the China+1 focus is set to be a major growth driver for the Company.

Phenol is contributing to the concept of a self-reliant India, as the Phenol and Acetone segment clocked record turnover and solid margins. The wholly-owned subsidiary showed extreme resilience during the pandemic in ensuring material movement, and plant capacity utilisation was consistently outstanding. During the most difficult times, DPL commissioned its IPA plant and met the domestic demand for sanitisers; IPA capacity is now being doubled to 60,000 MTPA. This performance has proved the Company’s capabilities, and the main aim of this business vertical would remain import substitution (for IPA products from China, Korea, and Taiwan) and introduction of more value-added products.

Efficient Capital Allocation

Deepak Nitrite apportions profits earned and cash generated during the year into three primary uses – reinvesting for growth, reduction of debt and returns to shareholders. As has been shared earlier, the Company is undertaking expansion across multiple business lines to reinvest for growth. Due to its increased scale, it is able to self-finance its calibrated growth plans.

The Company enjoys a stable position on the balance sheet front. It has steadily reduced debt in recent quarters and has emerged stronger through the pandemic on the back of the improved financial position over the last 12 months. Your Company achieved debt-free status, on a standalone basis, during this fiscal. Deepak Phenolics which has just completed around 2.5 years of operations since commissioning of its mega project and has invested in capacity to manufacture IPA this fiscal, pre-paid substantial part of its borrowing apart from honoring committed repayments. Consequently, the consolidated net debt to equity ratio is comfortable at 0.15x. The Company enjoys a robust liquidity position with cash and liquid investments amounting to nearly ` 220 Crores on a consolidated basis as of March 31, 2021.

Credit Rating

Deepak Nitrite has a strong reputation and is a market leader in several product categories. This has resulted in consistently improving financial performance. As a result, ICRA has upgraded long-term credit rating from “ICRA AA-” to “ICRA AA” of Deepak Nitrite. The outlook has been revised from Positive to Stable. Further, they have re-affirmed short-term credit rating at “ICRA A1+”. CRISIL upgraded its long-term credit rating outlook, from “CRlSlL AA-/Positive” to “CRlSlL AA/Stable” and has re-affirmed short-term rating as “CRlSlL A1+”.

With respect to subsidiary, Deepak Phenolics Limited, ICRA has upgraded the long-term credit rating by two notches, from “ICRA A” to “ICRA AA-” and the shortterm credit rating has also been upgraded from “ICRA A1” to “ICRA A1+”, which is the highest in the category.

Financial Indicators

Revenue grew marginally by 3%. Revenue growth was benign owing to shutdown of operations due to nationwide lockdown caused by the Pandemic. However, SBUs like FSC and Phenolics exhibited strong performance.

EBITDA grew strongly by 20% with a 400 basis points increase in margins. The growth was driven by strong performance exhibited by FSC and Phenolics segments.

PAT grew by 27% led by higher revenues, efficient operations and lower interest costs.

Free cash flows increased 24% supported by strong operating performance.

Net worth increased by 49%.

EPS increased 25% led by higher profits.

The Group has repaid its loan as per regular schedule and prepaid sizeable amount owing to strong cashflow. On top of it, consolidated cash invested amounts to ` 187 Crores.

Strong performance from FSC and Phenolics segments helped increase RoCE.

Strong performance from FSC and Phenolics segments helped increase RoE.

Segment revenue

Other Equity

Tax Expense

Consolidated statement of profit & loss

Cash Flow Statement

Financial Highlights of last 10 years

Board Structure

BOD Profiles

Shri Deepak C. Mehta - Chairman & Managing Director

Shri Deepak C. Mehta is a Science Graduate from the University of Mumbai and is at the helm of affair of Deepak Nitrite Limited for the last 49 years. His business acumen, leadership skills and dynamism have enabled the Company to take swift strides forward and achieve many milestones year-on-year. An active participant at industry forums, he is the Chairman of Gujarat State Council – The Federation of Indian Chambers of Commerce and Industry (‘FICCI’). He is also the Chairman of National Chemicals Committee at FICCI. He has been the past President of Indian Chemicals Council (‘ICC’) and was also the Chairman of various Committees including Trade & Business Development Committee of ICC. Shri Mehta adorned the position of member of ‘Task Force on Chemical Industry’ constituted by the Government of India with an objective to put forward a strategy for increasing competitiveness for the Indian Chemical Industry. He is also Trustee on Deepak Foundation, the CSR arm of the Group as well as BAIF Development Research Foundation, a voluntary organisation dedicated to Rural Development, and Vadodara Society for Prevention of Cruelty to Animals (VSPCA). He is a Member on the Board of GSFC University and the past Chairman of Society for Village Development in Petrochemicals Area (SVADES).

Shri Maulik D. Mehta - Executive Director & CEO

Shri Maulik D. Mehta is a Bachelor of Business Administration from the University of Liverpool, UK. He holds a Masters in Industrial and Organisational Psychology from Columbia University, USA. Further, he was a part of Harvard Business School’s prestigious Owner & President Management Program. Shri Maulik D. Mehta has held important positions in the Company and has been on the Board as Whole-time Director of the Company since May 9, 2016. He has around 13 years of experience in the areas of Business Development and has been responsible for the day-to-day business of all the verticals of the Company along with Group Strategy.

Shri Sanjay Upadhyay - Director-Finance & CFO

Shri Sanjay Upadhyay is an Associate Member of The Institute of Cost Accountants of India. He is also a Fellow Member of The Institute of Company Secretaries of India. He has completed an Advanced Management Programme from Wharton, USA. He has vast experience in the areas of Finance, Accounts, Commercial and Secretarial Functions. He is associated with the Company since 1994. During the span of his career, he has held important positions in the Company prior to his joining the Board, as Director Finance & CFO in the year 2017.

Remuneration of KMP

In the Financial Year 2020-21, there was an increase of 4.46% in the median remuneration of employees.
There were 1,532 permanent employees on the rolls of the Company as on March 31, 2021.
Average Percentile increase already made in the salaries of employees other than Managerial Personnel in the last Financial Year was 10 % and average percentile increase in remuneration of Managerial Personnel was 11.58%.
Shri Deepak C. Mehta, Chairman & Managing Director of the Company is also Chairman & Managing Director of Deepak Phenolics Limited (“DPL”) a Wholly Owned Subsidiary of the Company.
As per the term of his appointment, he is entitled to profit related commission from DPL. For the Financial Year 2020-21, the Commission to Shri Deepak C. Mehta is ₹ 12.00 Crores.
Average increase in remuneration of both, managerial and non-managerial personnel were determined based on the overall performance of the Company.
Key result areas of the managerial personnel are broadly to achieve Company’s growth and performance target, achieving the same against various adverse externalities globally, devising sustenance strategy to combat global forces like competition, exchange rate etc, which, in turn, enhance shareholders’ value. Remuneration of the managerial personnel is based on the Nomination and Remuneration Policy as recommended by the Nomination & Remuneration Committee and approved by the Board of Directors.
As against above, remuneration for non-managerial personnel is based on an internal evaluation of assigned target area which are broken into subsets of key result areas of the managerial personnel.
It is affirmed that the remuneration is as per the Nomination and Remuneration Policy of the Company

Shareholding

Statutory & Audit fees

Total fees for all services paid by the Company and its subsidiaries, on a consolidated basis, to Deloitte Haskins & Sells LLP, Statutory Auditors of the Company and all entities in the network firm/network entity of which the Statutory Auditor is a part is given below: