FY 2018-19 was a turbulent year for the global economy, characterised by geopolitical uncertainties and trade wars. Softening of commodity prices, demand deflation and the effect of escalating trade tensions moderately impacted the pace of global growth. While the US witnessed a moderate increase in GDP growth, this was more than offset by other large economies such as China, Euro area economies and some of the Latin American nations. This had a spiralling impact on interconnected economies, and in turn, on global growth.
Amidst all these, India continues to be one of the fastest-growing major economies in the world backed by healthy domestic consumption. Successful implementation of the Government’s structural initiatives towards improving the ease of doing business such as enhancing transparency, speeding up approvals, resolving policy issues and fostering more significant levels of value addition also played a crucial role in sustaining performance.
India’s chemical industry – Rising Opportunities
The global chemical industry has been a healthy contributor to the world GDP. It contributed USD 5.7 trillion or 7% to the world’s GDP. Due to uncertainty on interest rates, trade tensions and slowing economic growth, global M&As in the chemical industry slowed down. However, transactions undertaken are being consolidated and absorbed, and these are likely to pursue vast opportunities in the global chemicals market.
Within this backdrop, we believe the opportunities for the Indian chemical industry are immense. Moreover, we remain confident that efficient producers that prioritise R&D and innovation with a focus on scaling via sustainable operations will succeed in the long run. An essential reminder to this approach served as the recent crackdown on polluting industries in China, which resulted in supply disruption of necessary chemicals manufactured and exported from there. Due to this unforeseen development, most large customers are on the path to de-risk their China exposure and have been increasingly seeking alternative channels, including India. It has provided a tailwind to growth and enhanced opportunities to chemical producers in India.
We made promises. We delivered them.
We are on a journey of planned transformation. Our transformational expansion, in terms of product portfolio and geographical presence, is already taking shape and showing early signs of bearing fruit. Today, we are a robust and diversified institution, with a strong position in India’s chemical industry.
In an uncertain business environment, your Company delivered a resilient performance in FY 2018-19. We delivered on our promises made on the existing lines of business as well as the recently commissioned Phenol and Acetone project. On the back of a robust business model, diverse product portfolio and geographies and a competitive operating profile, we created a superior position in the global chemicals market. Our strategic and focus initiatives - such as reorienting of geographical focus, strengthening product portfolio and brownfield expansion - positively impacted our verticals and enabled us to deliver improved performance. Our consistent performance, focus on profitable growth and a calibrated strategy towards expansion serves in the best long-term interest of our shareholders as it leads to better valuation. Our relentless focus on faster execution and operational excellence has been one of the Company’s key strengths. It helps improve margins as well as sustain and gain free cash flows to create new investments.
Our legacy gives us pride
Today, Deepak Nitrite Limited is proud to state that it has been carrying the legacy of responsible chemistry for about 50 years. We have built our corporate strength by unshackling opportunities with enormous patience, determination, and perseverance.
Despite having started as a bulk commodity manufacturer, your Company has transformed its operations over the years. It has expanded its offerings to include high-value fine and speciality chemicals, based on our core expertise and the lateral and vertical integration of the existing products. Our robust R&D capabilities have been stepped up across the value chain, in-line with the expansion in product categories. Additionally, our healthy client relationships have enabled us to create deeper inroads into the existing markets, widen our product portfolio and enter newer markets. At the foundation of our transformational journey is our firm commitment to being completely and squarely aligned with reinforcing India’s positioning as a superpower and doing good for society.
Our triple bottomline approach: People
Our employees have been our most significant assets. We believe that none of our achievements would have been possible without the passion and commitment of our employees. Today, a dedicated team of professionals, nurtured over the years, have been driving the growth of your Company. Among the several steps we are taking to grow sustainably, we are recruiting and nurturing quality talent and create a work culture that ensures a high level of performance and a conducive work environment. During the year under review, the Global Employer Branding Institute and World HRD Congress conferred Deepak Nitrite Limited with the “National Best Employer Brands 2018”.
Our people-aligned Business strategy as catapulted in organisation-wide success. We will continue to create platforms to hire and nurture our talent pool with a transformational vision for our employees. There is also a deep focus on giving back to society and to the communities in which we operate. Through Deepak Foundation, the Company is executing various healthcare, skill development and education related CSR programmes for the families of workers and local communities residing around our manufacturing facilities and other remote areas, including tribal areas. Over the years, the Foundation has progressed into a leading non-profit civil society in Gujarat and has been executing several such initiatives to enhance lives of the people.
As a responsible corporate citizen, your Company strongly believes in sustainable practices. Your Company is already a member of the coveted accredited bodies such as ‘Responsible Care,’ ‘Nicer Globe,’ and ‘Together for Sustainability’ which makes it a “Preferred Supplier” for several chemical multinationals. Additionally, your Company has steadily worked towards a reduced carbon footprint. It has a key focus on reduction in resource intensity in energy and water and greater emphasis on products that are a part of the sustainable supply chains. Your Company’s Phenol plant has been set up with the latest technologies. It is also one of the most efficient units globally at this scale, in terms of water and energy efficiency, further underscoring our commitment to the planet.
Profit & performance
Your Company ended FY 2018-19 on an exuberant note with double-digit growth in Revenues, EBITDA and Profit Before Tax. It also managed to report higher volumes and realisations across critical products, amidst rising prices of crude oil and related petrochemical intermediates. On consolidated basis, total revenues for the year stood at ₹2,715 crore, while EBITDA came in at ₹429 crore. Both PBT and PAT recorded accelerated growth during the year at ₹268 crore and ₹174 crore, respectively. During the year, we continued our “bottom line accretive” investments in solidifying our capital structure and fortifying the product portfolio. We are focussed on strengthening our infrastructure, systems, and processes to drive greater efficiencies.
We are “Future-Ready”
To sustain a growing business in size and complexity, we are strategically transforming our organisation and becoming “future-ready”. We are making continuous investments in our productive assets, and our expansion strategies are also devised keeping in mind our in-depth risk-mitigated approach towards incurring capital expansion.
We take immense pride in stating that during the year we over-delivered on our promises of creating a global-scale manufacturing plant within the envisaged cost and scheduled time. This was made possible through our qualities of meticulous planning and precise execution. These attributes gave us the confidence to leverage our key strengths and capabilities and create massive value for all our stakeholders. We also believe that our investments in cutting-edge research & development is not only altering our competitive capabilities, but also sustaining and bettering our performance in the future years.
In light of a spirited performance reported by your Company, the Board of Directors have recommended a dividend of ₹2 per equity share (100%) on a face value of ₹2 each on an expanded capital base. This is compared to a dividend of ₹1.30 per equity share (65%) declared in the previous financial year.
Making India self-reliant in chemical imports
FY 2018-19 has been a milestone year for the Company, as we commissioned our mega Greenfield project for manufacturing of Phenol and Acetone at Dahej in Gujarat in November 2018. More importantly, we successfully ramped up its capacity utilisation above 80% within first few months of commissioning, which in itself is a positive achievement. I congratulate the entire team at Deepak Phenolics Limited for their tireless efforts in achieving the above. I am also happy to highlight that our dedicated logistics team has been successful in despatching approximately 75% of the average capacity utilisation in the first quarter of commissioning.
We delivered on our promise of executing the plant and getting it commissioned in record time – and with no cost or time over-runs. This not only demonstrates our preparedness, it also indicates our elevated manufacturing and marketing capabilities. Our robust execution has been a result of the seed marketing efforts undertaken during the pre-commissioning phase. With this, we have enabled the country to become self-reliant in the production of Phenol and Acetone and resulting in import savings. The plant is well capacitated to address India’s demand for Phenol and Acetone and reduce its import dependence on these chemical intermediates, based on its cutting-edge technology as well as resource and energy efficiency. Our philosophy of import substitution has been converted into further action as we succeeded in replacing the bulk of imports of Phenol and Acetone in the domestic market.
This project has undoubtedly added another feather in our cap. We are of the firm belief that this will enable a quantum leap in your Company’s revenues and profits, and subsequently open new avenues of growth from forward-integration into value-added derivatives.
Your Company’s strategic focus on the performance of People, Planet and Profit have built a formidable foundation
that will serve multiple growth levers in the years ahead. We are traversing the journey forward with an unwavering faith in our conviction, as we continue to innovate with vigour and passion for taking your Company to a higher horizon of excellence. We remain focussed on executing our clear-cut strategies on cost optimisation, adding new products, tapping new markets and expanding our capacities.
Today, we are in a position to take advantage of market dynamics through our diversified portfolio and credibility among the customers and confident of continuing our growth momentum. Being on a steep growth path, we are confident about our growth prospects and building market share gains. We are ready for a promising future with the multiple business drivers that will enable us to achieve our goals. We also believe our growth will be sustainable as it is predicated on the strengths of our organisation. Some of these are – an able and competent leadership, deep customer relationships, ability to innovate and develop new products, expertise in complex chemistry, ability to cope up with change, globally competitive manufacturing capabilities, and an efficient supply chain and distribution infrastructure.
Vote of thanks
On behalf of the Board, I thank the entire team at Deepak Nitrite Limited and Deepak Phenolics Limited and our valued shareholders for their continued support and encouragement. We thank you for having your continued faith in our strength and capabilities and our employees for their tireless efforts towards achieving our goals.
We are on an exciting journey towards becoming a diversified chemical powerhouse. We are proud to have been associated with you as we continue on our voyage of responsible growth and value creation.
DEEPAK C. MEHTA
Chairman and Managing Director