Company Profile: Deepak Nitrite Limited

Excerpt: Deepak Nitrite Ltd. is a producer of organic, inorganic and fine chemicals with specialization in Hydrogenation, Nitration, customized products as per client specifications

Deepak Nitrite Ltd. (DNL) is a producer of organic, inorganic and fine chemicals with specialization in Hydrogenation, Nitration, customized products as per client specifications and Toluene derivatives amongst others.

DNL develops and manufactures products in India and market it in more than 30 countries across globally. The company specialises in various processes such as hydrogenation, nitration, alkylation, sulphonation, oxidation and nox based chemistry. DNL products find application across a number of industries, such as pharmaceuticals, dyes and pigments, agrochemicals, textiles, paper, fuel additives etc. which reduces the adverse impact of sectoral business cycles.

DNL business sections are categorised into bulk chemicals and commodities, fine and speciality chemicals and fluorescent whitening agents.

Bulk chemicals and commodities

DNL commenced our business operations as a bulk chemical and commodities manufacturer. The bulk chemicals and commodities is a high volume segment comprising of commodity chemicals that are manufactured to standard specifications. Such chemicals comprises of nitro toluenes, fuel additives, sodium nitrite and sodium nitrate.

Nitro toluene is used in the manufacture of colorants, speciality chemicals, rubber, pharmaceuticals, explosives, dyes and agrochemicals. Fuel additives are used by refineries. Sodium nitrite is used in the manufacture of pigments, pharmaceutical intermediaries, food colours, electroplating and colorants. In the domestic market, sodium nitrite’s predominant application is in the colorant segment. Sodium nitrate find its application in industrial explosives, glass industry and heat treatment chemicals.

Fine and speciality chemicals

DNL diversified its business over the years from being a bulk chemical manufacturer exclusively to manufacturing fine and speciality chemicals, which allows relatively higher margins. Fine and speciality chemicals include niche products that are customised as per customer specifications. The segment comprises of products such as xylidine, cumidine, methoxy methyl di-phenyl amine, nitro oxyline, etc. These products find application in the manufacture of agrochemicals, pharmaceuticals, pigments, paper, hair colour, etc.

Fluorescent whitening agents

Fluorescent whitening agents operate on the phenomena of fluorescence, which is a form of luminescence. DNL is a fully integrated manufacturer of fluorescent whitening agents. Fluorescent whitening agents increases the apparent reflectance of a product and consequently, appears brighter. DNL manufactures fluorescent whitening agents based on stilbane derivatives. Its products in this segment can be customised into liquid or powdered form, as per the customer’s requirements.

Fluorescent whitening agents find application in detergents, paper manufacture and textiles. Brighteners are added to laundry detergents to make clothes appear whiter. For the manufacture of paper, florescent whitening agents are used in currency notes. In the manufacture of textiles, such agents are used in bleaching of cloth and for anti – crease finishes of garments.

Manufacturing Facilities

DNL has five manufacturing facilities in India, located at (1) Nandesari, Gujarat (2) Dahej, Gujarat (3) Taloja, Maharashtra, (4) Roha, Maharashtra and (5) Hyderabad, Telengana.

  1. Nandesari plant – Here bulk and commodity products are manufactured with on-site nitration and speciality agrochemicals.

  2. Dahej plant – produces full spectrum stilbenic optical brightening agents.

  3. Taloja plant – Specialises in hydrogenation and noble metal catalysis

  4. Roha plant – Multi-speciality manufacturing facility specialising in pilot plants and nitration and speciality agrochemicals

  5. Hyderabad plant – Manufactures toluene derivatives for captive use and for commercial sales

New Project

The proposed phenol and acetone plant at Dahej, Gujarat

DNL proposes to establish a manufacturing unit at Dahej, Gujarat for the manufacture of phenol and acetone. The cost of the Project is Rs. 1,20,000 lacs, which is based on management estimates. The Project is proposed to be capitalised through Rs. 72,000 lacs of debt, the financial closure for which has been achieved. The remaining is proposed to be financed through equity and contribution by DNL Promoters. The Project is proposed to be completed by Fiscal 2018.

Phenol is used in the manufacturing of various commercial products and finds applications in laminates, paints, automobile lining while acetone finds applications in pharmaceuticals, paints, adhesives and thinners.

In relation to the Project, the Company entered into a Phenol License Agreement on December 30, 2013 with Kellogg Brown & Root International Inc. (“KBR”). Pursuant to the License Agreement, KBR has granted a perpetual and non-exclusive license to the Company to use its technology, patents and know- how relating to the production of phenol and acetone from cumene feedstock at the Project.

The Company has also entered into a Phenol Engineering Agreement dated December 30, 2013 with KBR, under the terms of which KBR has agreed to furnish the basic engineering design for the Project as technical documentation in the form of a licensor engineering package and such other services as are stipulated in the Engineering Agreement. The Company has been granted the right and license to, inter alia: (a) use the technical information provided by KBR in the design, engineering, and construction and operations of the Project; (b) modify, improve, adapt, and prepare derivative works from the technical information in the Project; (c) produce from the Project up to 2,00,000 metric tons of phenol product in 8000 operating hours in any single calendar year, subject to any increased production licensed; and (d) sell the phenol and acetone products, and other by-products, produced at the Project, worldwide.

The Project to have a capacity of 2,00,000 MTPA for the manufacture of phenol and 1,20,000 MTPA for the manufacture of acetone. The project shall be owned by our wholly owned subsidiary, Deepak Phenolics Limited.

Raw Materials and Supply Chain

DNL does not have long term agreements with a majority of customers or suppliers and the success of DNL business is significantly dependent on maintaining good relationships with its customers and suppliers. Most of sales of products are through purchase orders and the pricing of our products comprises of fixed and variable components. The fixed price component remains constant till completion of the order. The variable price is linked to an index as agreed in the purchase order.

Orders and forecasts are collected on rolling basis for three months at a time. Based on such forecasts and confirmed orders, a production plan is released every month in order to ensure maximum capacity utilization. Sales orders are generated daily, taking into account the requirements of the customer.

Research and Development

DNL’s research and development facility is situated at Nandesari, Gujarat and as of September 30, 2015, DNL research and development team comprises of 40 employees. DNL research and development facility has been recognised by the Department of Science and Technology, Government of India.

Quality Control

Quality control is essential for the success of a business and we ensure that our products are subject to quality control tests before they are dispatched for delivery to our customers. DNL has established quality control departments at each of its manufacturing units. Each batch of the manufactured products is subject to quality control tests. The quality control department ensures quality of raw materials, in-process samples and the finished products. The quality control department ensures compliance with the specifications required by its customers.

In order to ensure quality control, regular quality audits are undertaken by our in-house quality control team, third party sources as well as by its customers. DNL products adhere to global quality standards, under the European REACH legislation. Our Company is ISO 9001:2008, ISO 14001: 2004 and OHSAS 18001:2007 certified by Intertech India Private Ltd., Mumbai, for our Quality, Environment, Safety and Health Management systems.

Sales and Marketing

DNL business is predominantly conducted on a B2B basis and our focus is on maintaining constant contact with customers and to ensure timely delivery. Sales and marketing initiatives is undertaken by the product managers, the business development team and the sales team. The product managers are responsible for ensuring timely supplies, taking new orders, quoting rates and aids in understanding the requirements of the customers. The business development team seek out new geographies and identifies new products, which assists in corporate expansion. The sales teams are segregated by geography and are responsible for the sales of products at the ground level.

Financial Performance in 2016-17

The Financial Year ("FY") 2016-17 was a challenging year on multiple fronts for DNL and company has delivered a resilient performance indicating robustness of the business model. The emphasis on quality and sustainability of operations, widening of portfolio of products, active customer engagement, focus on profitable products and a healthy mix of end-user industries and markets served has enabled it to emerge stronger and better positioned to capture the opportunities ahead.

The performance in FY 2016-17 should be viewed in light of the several challenges faced. The wave of regional protectionism has spread across the developed world and has increased the pitch for supporting local production to preserve jobs and has thus impacted growth in export markets. These were coupled with BREXIT and instability in EU region. The lingering effects of the depressed crude oil prices and resultant impact on petrochemical intermediates also continued to exert pressure on growth. Furthermore, re-entry of Iran as a global crude supplier improved the availability of higher grades of crudes thereby impacting demand for fuel additive products. At the same time, prices of commodities were on the wane though they were thought to be reversing.

Apart from these developments, company encountered multiple headwinds in the form of temporary closure of one of the three units at its Hyderabad facility due to excessive flooding and the resulting issues related to pollution. The performance was further impacted by an accidental fire that broke out at one of the distillation columns of company’s manufacturing facility for Fine and Specialty Chemicals intermediates at Roha Industrial Estate in Maharashtra. Both these events impacted the volume off take of key products in the Fine & Specialty Chemicals as well as the Performance Products segments. Apart from these major events, demonetization also impacted performance of some of company’s end user industries, which impacted company’s operations temporarily though it recovered swiftly.

Against this backdrop, DNL has recorded revenues at Rs, 1,221.56 crores in FY 2016-17 compared to Rs, 1,335.73 crores in FY 2015-16 and volumes declined by 4% due to one-time events which impacted the production as well as sales. That said, favorable product mix and aggressive marketing helped DNL to increase volumes towards the end of the year, especially in the established business segments partly offsetting this impact and enabling DNL to effect a turnaround from the impact of one-time events in October and November, 2016.

Further, DNL leveraged its strength to switch to enhance the volumes of value added products to mitigate impact from down-cycle of existing product categories.

Export markets contributed 39% to the total revenues, while contribution from domestic market came in at 61%. Export Revenue stood at Rs, 470.84 crores in FY 2016-17 lower by 10.6% compared to Rs, 525.75 crores last year a result of the multiple headwinds faced by company. Active efforts have been made by DNL to deepen its connect with customers in key export markets of Europe, USA and China.

Once the Phenol project is commissioned, the proportion of exports in overall revenue mix in the consolidated performance will reduce since Phenol and Acetone are meant for domestic consumption, being import substitution products.

Profit Before Tax excluding Exceptional Items stood at Rs, 75.90 crores as compared to Rs, 91.33 crores in FY 2015 16. Apart from the revenue impact due to onetime events, DNL has incurred certain one-time expenses as well as higher depreciation due to increase in asset base. Profit After Tax excluding Exceptional Items stood at Rs, 53.33 crores in FY 2016-17 compared to Rs, 65.15 crores in FY 2015-16. Earnings Per Share (excluding Exceptional Items) for FY 201617 stood at '' 4.55 per share (of face value of '' 2 each) on an enlarged capital base compared to '' 6.07 per share in FY 2015-16.

The road ahead appears encouraging as your Company foresees several opportunities in the Indian chemicals space.

SWOT Analysis


Diversified Product Portfolio and Leading market position in most of them

DNL manufactures a range of intermediates for use in several industries, including Colourants, Petrochemicals, Agrochemicals, Rubber, Pharmaceuticals, Paper, Textile, Detergents, Fine & Speciality Chemicals, etc. Company has also developed expertise in multiple chemical processes, including Nitration, Alkylation, Nitrogen Oxides Absorption, Hydrogenation/ Reduction, Sulphonation, Condensation, Diazotisation and Oxidation.

The company is a preferred supplier to some of the leading global chemical companies like BASF, CIBA, Monsanto, Bayer Crop Science etc. DNL has fostered long term relationships across a wide range of industries and is a preferred supplier to some of the leading companies both in India and Internationally.

Over the years company have built enduring relationships with leading global companies and have made presence in over 30 countries including USA, the European and East European nations, South Korea, South America and the ASEAN countries.

Fine and Speciality Chemical Segment holds strong potential

The Fine and Speciality Chemicals segment comprises of niche products that require more value addition. Under Fine and Speciality Chemicals segment, the Company manufactures Xylidines (useful for Pigment, Fuel, Agrochemicals, Pharma), Oximes and Cumidines (both useful for Agro Chemicals).

These products bring much better margin for the company compared to others.

For further growth in this segment, DNL is now focusing on increasing product basket for pharma and personal care where the company sees large potential and strong domestic as well as international demand. Revenues from Fine and Speciality Chemicals stood at Rs 359.3 Cr for FYI 7 compared to Rs 393.4 Cr for FY16. This segment contributed 30% to the total revenues during the year.

Mega Expansion story

DNL has implemented a Greenfield project to manufacture Phenol and Acetone at Dahej in the State of Gujarat. This project is being implemented through Deepak Phenolics Limited (DPL), a wholly owned subsidiary of the Company. The capacity of the Phenol Plant will be 200,000 MTPA and that of co-product Acetone will be 220,000 MTPA. DPL would also be manufacturing 260,000 MTPA of Cumene, which is one of the raw material in manufacturing Phenol and Acetone. This project is expected to be commissioned in the second half of FY1 7-18.

The total capex for the project is around Rs 1400 Cr which will be funded through combination of debt and equity. The project is expected to be commissioned by April 2018. Company has already tied up the entire debt portion of 840 Cr and remaining 560 Cr are raised partly by QIP, Sale of land and internal Accruals. DNL has guided that its debt repayments will start from June 2020.

Dahej Plant will be Import Substitute

Phenol: It is also referred to as Carbolic acid or monohydroxy benzene, is a versatile industrial organic chemical. It is used to produce a wide variety of chemical intermediates, including bisphenol-A, phenolic resins, cyclohexanone and aniline. It is consumed in laminates, automobile, foundry, paints, rubber, surfactants, pharma, agro-chemicals, etc.

Phenol consumption in India has increased at CAGR of about 7%, from nearly 200,000 MT in FY 2010-11 to 280,000 MT in FY 2015-16. While this consumption was largely driven by the phenolic resins industry, which accounts for 76% of Phenol consumed in India.

Indian phenol market is expected to reach Rs 28 bn in 2020 from Rs 17b n in 2012, expected to grow at 6.5%. Acetone: Acetone is predominantly used in the production of pharmaceuticals, paints, adhesives and thinners, etc. The consumption of acetone has increased at a CAGR of about 4% from around 125,500 MT in FY2010-11 to 152,425 MT in FY 2015-16.

Acetone: Acetone is a by-product of phenol manufacturing process, as a result, stronger demand for phenol has resulted in oversupply of acetone globally.

Indian acetone market is expected to reach Rs 19 bn in 2020 from Rs 9 bn in 2012, growing at 10%. Over the past many years the demand of the phenol and acetone was largely supported by Imports as there were no major producers in the domestic market. HOC and SI Group were the only players in the industry and they could meet domestic demand up to only 20%, so the rest has to be imported. This demand supply gap has been understood by Deepak Nitrite and they have established plant for the same at Dahej with huge capex. This will make DNL a market leader once this plant starts commissioning business. Management has guided that production is expected to start from FY18.

Focus on Innovation

Innovation is one of the key strengths of DNL The Company has an excellent Research & Development facility where existing products and processes are consistently evaluated to drive improvements in product quantity, process, efficiencies and cost savings. The development of new products has not only helped company to emerge as a market leader in several products, but also build a competitive edge over its peers.


Non-availability of Alternate Energy Sources The manufacture of chemicals requires consistently a high amount of energy in the production process. Your Company uses conventional fuels like coal, furnace oil, etc. for generation of power. Use of non-conventional energy like wind power, solar power becomes unfeasible as these alternate fuels have shortcomings like lack of reliability of continual supply, inability to generate energy in large quantity, sizeable capital expenditure, availability at higher costs, etc. However, being amongst one of the ‘Responsible Care’ certified companies, your Company continues to focus sharply on improving power efficiencies at its facilities along with widening its scope of green endeavours.

High Volatility in Raw Materials Prices

Raw material forms a major component in the chemical processes. Volatility in the raw material prices is one of the main challenges faced by the industry. Unpredictability in the global prices of raw materials is directly linked to the prices of end products. This leads to frequent re-pricing of products and hence volatility has to be managed well owing to the time lag between price hikes and cost revision. High volatility remains an inherent weakness in the industry in crude based bulk chemicals.


Going into FY 2017-18, DNL is positively placed to capture the growth opportunities arising in the end-user industries. After certain one-time events which impacted the performance in the year gone by, DNL has restarted all but one of the facilities and remains confident of getting back to normalcy. All company’s Strategic Business Units (SBUs) including Basic Chemicals, Fine and Speciality Chemicals, and Performance Products are expected to deliver accelerated growth in the forthcoming year owing to continued transformation in the product portfolio and steady recovery in demand.

Fine and Speciality Chemicals segment would lead the growth pack for DNL as a result of encouraging demand scenario in the global as well as domestic markets and higher contribution from recently launched personal care and pharma intermediates. This will be further supported by better off take in agrochemical intermediates due to increasing market share of agro-chemicals in the export markets as well as favourable agro-climatic conditions in the domestic market.

Performance Products segment which now includes a wide range of products is expected to demonstrate decent performance in the upcoming year led by several strategic initiatives undertaken by your Company in the past as well as better customer acceptance for Optical Brightening Agents (OBA). This will help improve the utilisation rates and profitability in the Performance Products segment. In addition to the above initiatives, DNLexpects the greenfield project of Phenol and Acetone to be commissioned in the last quarter of the current financial year thereby providing further stimulus for earnings expansion.

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