Deepak Nitrite Limited (DEEPAKNTR) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Deepak Nitride Q1FI27 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions when the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touchstone phone. Please note that this conference is being recorded. At the outset, I would like to clarify that certain statements made or discussed on the conference call today may be forward-looking in nature, and a disclaimer to this effect has been included in the investor presentation shared with you earlier. I now hand the conference over to Mr. Akash Maji. Thank you, and over to you, sir.

Good afternoon, everyone. Thank you for joining us on Deepak Naitre at Q1FA27 Earnings Conference Call. Today we have with us Mr. Malik Mehta, Deputy Managing Director, Mr. Sanchi Upadir, Director, Finance and Group CFO. Mr. Sankshar Nanda, CFO of Deepak Naitre Limited. We will begin the call with opening remarks from the management team, followed by an interactive Q1 session. To begin, Mr. Malik Mehta will share his view on the operating performance and the growth plans of the company, Followed by Mr. Sancher Upadhyay, who shall take us through the financial and segmental performance. The results document has been shared with you earlier and has also been posted on the company's website. I now invite Mr. Mehta to share his opening comments. Thank you, and over to you, sir.

Hi. Good afternoon, everybody. Thank you for joining us. We appreciate your continued interest in Deepak Nitrate. Our investor presentation and financial statements have already been shared, and I trust you've had an opportunity to go through them. I'll begin by sharing our perspective on the quarter, the evolving industry landscape, and the strategic progress we've made before Mr. Ubadai takes you through the financial performance in greater detail. The first quarter of FY27 marks further steps toward Deepak's agility to successfully weather global challenges, while the chemical industry at large continues to navigate price volatility, evolving geopolitical dynamics, and an uneven demand recovery. We believe the operating environment is gradually becoming more favorable for manufacturers with integrated and diversified platforms. Increasingly, customers are seeking partners who can offer not just consistency of supply, but also superior quality, technical collaboration, and the ability to scale reliably across geographies. This structural shift aligns well with our strategy of building integrated value chains, strengthening domestic manufacturing, and reducing supply risk. Over the last six decades, Deepak Nitrite has been in a leading position in India's chemical industry, serving customers across more than 50 countries through seven manufacturing facilities across five strategic locations. Our diversified portfolio, integrated manufacturing platform, and continuous investment in specialty chemicals, R&D, digitalization, and advanced manufacturing position us well to capture long-term growth opportunities. The investments we have made over the past several years are now beginning to translate into stronger operating leverage and improved earnings quality. We have to report that Q1 demonstrated an improving trajectory for the company, with record revenues, EBITDA, profit before tax, and profit after tax. The strong performance reflects the benefits of our manufacturing model. Molecules recently added to the product basket and are being passed across for customer approval processes. Newer molecules are also being added for the projects commissioned in recent past and projects being commissioned in the current quarter and ramping thereafter. Consolidated revenue from operations stood at 2,592 crores, registering a 35% improvement year-on-year and a 22% growth sequentially. EBITDA reached an all-time high of 554 crores, growing 159% year-on-year and 45% sequentially, while EBITDA margins expanded to 21%, compared with 11% last year and 18% sequentially increased 202% year-on-year and 55% quarter-on-quarter, While BAT reached 345 crores, registering a 207% YUI and 57% sequencing, not just from improved market conditions, but also from enhanced customer engagement. Stronger manufacturing efficiencies integrated benefits from recently commissioned assets, innovative procurement, and continuous cost optimization initiatives. We believe these structural improvements position their business well for sustainable growth in the ensuing periods. Phenolics delivered its highest ever quarterly performance of our manufacturing platform and operational IOI and 24% sequential growth, while EBIT 118 crores, innovative procurement, customers in different applications. Despite continued volatility in global feedstock markets, initiatives taken at procurement, operations, and engagement, as well as a strong domestic market position, enabled us to maintain reliable customer deliveries, cost competitiveness, and healthy profitability. The advanced intermediates business also delivered a strong quarter, with revenues rising to 804 crores, representing a 33% YUI and a 14% sequential growth. EBIT was 67 crores, recording an 89% improvement YUI and sequentially with a 100% improvement. Performance was driven by improving domestic demand, a better product mix, and increasing synergies from our recent backward integration and growing contributions from other commissioned manufacturing assets. During the quarter, we also expanded our engagement in specialty chemical applications and strengthened our presence across high-value customer segments. Within AI, pressure of high-cost raw materials remain for certain products. However, customer engagement improves, demands strengthened across select export markets, and new products continue to gain traction. Our strategy of diversifying products, customers, and geographies continues to reduce dependence on any single market or end application while strengthening the resilience of our business. Importantly, growth within AI is now being supported by two complementary drivers, the recovery in demand across our products, that earlier experienced softer conditions, and capacity-led expansion in established product lines that have continued to witness healthy customer demand. This provides us with greater confidence in the medium-term outlook for the business. Strategic and significant developments over the last few quarters has been the successful completion and stabilization of our ammonia-to-mines integration chain. This gives me the opportunity to say that we're no longer a nitration company that buys nitric acid. We're now a nitrogen company that nitrates. This commissioning, along with the expansion of our nitration and reduction capacity, has materially strengthened our footprint, and these investments not only enhance supply security, but are also expected to improve structural cost competitiveness, increase value addition, and create new downstream opportunities over the coming years. These projects represent a significant shift from capacity creation towards platform creation, enabling us to leverage common manufacturing infrastructure across multiple downstream products and improve capital efficiency over time. The Multipurpose Agrochemical Intermediate Facility, along with MIBK and MIBC projects, remain on track. MIBK as well as MIBC will be commissioned along with acetophenone in August itself, and the rest of them will be commissioned within Q2. These projects will strengthen downstream integration, broaden our basket, and support future margin expansion. Coming to the establishment of India's first integrated polycarbonate project, this project continues to progress in line with our execution roadmap, and we remain focused on disciplined implementation while building a fully integrated, advanced material platform for India. Further, we have also made major inroads into seed marketing of our polycarbonate compounds, having qualified with marquee customers in diverse end applications. Alongside these investments, we continue to advance digitization, process automation, and sustainability initiatives to improve productivity, energy efficiency, and manufacturing reliability. Our R&D platform has a robust pipeline that continues to gain momentum. Several products across fluorination, amination, nitration, and speciality chemistries are progressing through customer qualifications and commercialization. While each product addresses a specific market opportunity, collectively, they broaden our speciality portfolio, deepen customer engagement, and create a more diversified and resilient earnings base with best-in-class product carbon footprint scores. Our transition towards renewable energy continues to gather momentum and is expected to progressively improve both the sustainability as well as the cost competitiveness of our manufacturing operations. Looking ahead, we believe the business is evolving into the next stage of its growth journey. Improving demand, visibility across several product categories, recently commissioned capacities, expanding downstream product offerings, and continued customer qualification across spec chem provide multiple opportunity drivers for the quarters ahead. While geopolitical development and pricing volatility may continue to influence the operating environment, BIPOC today is significantly stronger, significantly more integrated, and significantly more diversified. We remain very confident in our ability to deliver growth profitably while continuing to invest in the future. With that, I would now request Mr. Sanjay Upadhyay to take you to the financial performance.

Thank you, Malik. Good afternoon, everyone, and thank you for joining us today on our company's Q1 FY27 Arne's Conference School. I will briefly take you through the financial performance of the quarter ended June 30th, followed by performance of our business segments and update on our strategic growth initiatives. We are pleased to report an excellent start to FY27 with the company delivering its highest ever quarterly performance across revenue, EBITDA, and PBT. This performance reflects improving demand across key and user industries, the strength of our integrated manufacturing platform, discipline, execution, and increasing contributions from our recently commissioned assets. Revenue from operations increased to 2,592 crores, registering a 35% year-on-year and 22% sequential growth. The performance was driven by healthy volume growth across businesses and improving product mix and stronger customer demand also helped in improving the profits and margins. Our domestic business remains resilient with an 85-15% domestic to export revenue mix. At the same time, exports recorded healthy growth reflecting our expanding global presence Thank you. Thank you. Beyond the reported growth, we are particularly encouraged by the continued improvement in earning quality, higher asset utilization, greater integration benefits, improved manufacturing efficiencies, and disciplined working capital management collectively strengthen cash generation during the quarter. On segment performance, Phenolix business delivered its highest ever quarterly performance with revenue increasing to 1,775 crores up by 36% year-on-year and 24% sequentially. EBIT rose to record 418 crores, registering a 254% year-on-year and 46% quarter-on-quarter growth, with EBIT margin expanding to 24%. The business benefited from stronger product realizations, sustained demand across product applications, and stable plant operations with consistently high utilization levels. Our fully integrated family's value chain continues to provide a structural competitive advantage through superior cost efficiencies, deeper product integration, and enhanced value addition. The AI segment also delivered a strong quarter with revenue increasing to 804 crores, representing 33% growth year-on-year and 14% sequential growth. Ebit of 67 crores recorded 89% by year-on-year and 100% quarter-on-order growth, resulting in an EBIT margin of 8%. The improvement was driven by better product relation, higher operating rates, and modified product mix. In addition, I hope that investors will recognize the performance delivered this quarter reflects not only an improvement in market conditions, but also the community impact of strategic investments, integration initiatives, and capability building undertaken over the past several years. Closure of debt funding for our new pro-integration project, which I highlighted in the last AGM. As you are aware, mentioned by Molly, to ongoing properly in the Polycarbonate project of 11,500 crores is being funded by debt and equity ratio of 60-40. The entire debt has been tied up at a very competitive rate and term as mentioned yesterday during the proceedings of AGM. This marks an important milestone in our growth journey and reinforcing our ability to execute large-scale investments through a balanced financing network. On balance sheet and capital allocation, our balance sheet remains a key strategic strength, providing a solid foundation for our next phase of growth. Consolated net worth increased to 6,214 crores, while our debt-to-equity ratio remained comfortable at 0.27x, reflecting a prudent capital structure. We continue to deploy capital in discipline when we are prioritizing projects that deepen integration, expand value-added offerings, strengthen our competitive positioning. Investments during the quarter continued across our integrated polycarbonate project, downstream specialty chemical platforms, and other strategic manufacturing initiatives. Working capital efficiency also improved through tighter inventory management discipline, receivable collections, and supply chain optimization, resulting in healthy operating cash generation. Our balance sheet continues to provide us significant financial flexibility, thereby allowing us to simultaneously exhibit our growth projects while maintaining prudent leverage and preserving capacity for our future opportunities. Looking ahead, we remain optimistic about the medium and long-term outlook for our business. As the benefit of our strategic innovation continues to unfold over the coming quarter, we believe Deepak Nitra is increasingly well-positioned to deliver superior earning quality, stronger cash generation, and sustainable long-term value creation. With that, I would now request the moderator to open the floor for question and answer session, please.

Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchstone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Nirav Jumudia from Annual Wealth. Please go ahead.

Yes, sir. Good afternoon, and thanks for the opportunity. So, a few questions to ask. So, first, on yesterday in the AGM, you touched upon the fact that, like, our phenol plant has now reached a capacity of close to around 4 lakh tons. So, if you can share that, whether we have actually touched a quarter degenerate of 1 lakh tons of phenol production this quarter, or the capability is now being built to run the plant at that rated capacity. In the subsequent quarters. Also, on the propylene availability side, how are we covered to support this high level of phenol production? And last bit on, what would be our game plan in terms of the current market environment with respect to acetone, IPA, and MIBK mix?

Hi, Nirav. So, as you know, Q1 had a lot of raw material volatility, and the team did an excellent job in securing propylene as it was required. In the meanwhile, they also made sure that they were able to purchase competitively priced intermediates. So when we're talking about our capacity, there were significant periods during the quarter where we came to that number on a run rate basis. There were periods where we did not because of raw material sourcing and if they take a short term, shut down for tenants, which we normally do on an annualized basis anyways. So, moving forward, I think we are more than capable of doing this. Of course, all of this is in line with regards to the demand market for both acetone, IPA, as well as for phenol. Now, you're asking about capacity. Earlier, we used to have a situation where summer months would have a lower capacity and winter would have higher. We've seen how we can reduce the delta between summer and winter. So, we're at, I would say, a run rate of close to what you're saying on an annualized basis. We are looking at opportunities to de-bottleneck further, and hopefully we should in the short to medium term be able to achieve the big four number, and I think you can wish us best of luck for that. With regards to the market dynamics between acetone, EPA, MIBK, this is one of those things where the integrated model allows us a degree of flexibility to focus on running our assets as hard as possible. And then it doesn't matter whether we are consuming our acetone, we are converting it into IPA, converting that into MIBK, converting that into MIBC. That degree of flexibility remains with us. But on all cases, it is safe to say that we are world scale in terms of our cost as well as our capacities. So, MIBK as well as MIBC in their pre-commissioning runs have already demonstrated meeting the stringent consumption norms that we had designed for. So, in a couple of, for example, in MIBC, we have already been able to exceed the originally designed capacity, and we will stabilize the run rate and the commissioning in line with engagement with technology partners.

The second question is on, like in the annual report, we have mentioned that in the medium term, the focus would be more towards the value-added products rather than the commodity ones. And this would support the higher profit growth for us. And you touched upon a few of the products like the fluorination part, BTF, as well as the acetophenon project, which is getting commissioned short while. So if you can just help us understand in terms of with the projects already being commissioned, like the nitric acid part, which we already have commissioned, And the projects which are going to be commissioned in the near future, how this will help us to sustain the earnings momentum which we have achieved in Q1 of FY27 from the advanced intermediate side?

I think we should feel confident of being able to look at Q1 as a strong start to a strong year, and I can also say with a degree of confidence that all of these assets which we are targeting, in fact, two of these plants, the alkylation plant as well as the multipurpose plant, were slated for commissioning a couple of months earlier, But Q1 also had a disruption where contractual manpower was not available. There was a natural gas shortage across the country. And so some of those pre-commissioning activities, which would have been finished earlier, are currently in process. And so, basically, in any case, we had anticipated a ramp-up over a few months so that we can have regular operations in line with customer allocations in CY. So, that begins from January, and that is something where we are working hard to see that we remain on track with giving the commercial volumes. These will have, you know, definitely a better margin profile than even the existing platform that Deepak has already served in Advanced Intermediates.

All right. And, sir, like last bit from my side, so is it possible to quantify in terms of what sort of incremental contribution in terms of, let's say, the top line as well as some flavor on the margin side, if you can share, based on the products what we have introduced and going to be commissioned in subsequent quarters. So some understanding on the top line as well as the EBITDA margins would be very helpful. Thank you so much.

Thanks. I'll refrain from answering that question. I'll just say that the margin profile is either inline or better than the average margin profile that advanced-intermediate has. And many of them have the advantage of integrated asset fungibility, which allows us to see that we are able to gain more, not only from those products, but from the site at large.

Thank you so much, and wish you all the best. Thank you very much.

Thank you. The next question is from the line of Sir Janesh Jain from ICICI Securities. Please go ahead.

Hi, this is Sanjesh Jain here. Thanks for the opportunity. First on the phenolic side, Malik, what was the average spread we did in this quarter, and how is the spread looking like in Q2 and Q3? Will this kind of profitability sustainable, or we are looking at some moderation here?

Okay.

Hi, Sanjesh.

As you would know from previous investor calls, I refrain from commenting on spreads. What I can say is that Deepak does have an operational excellence leverage that it places on what is considered as publicly available data on RM as well as SGE prices. So, I would not comment on what the market sees as feedstock and phenol-acetone prices. I would just say that Deepak is able to ensure that it is able to secure its feedstock at competitive rates, and it is able to get prices which are, I would say, better than what seems to be reflected on an international index. Very clear. Very clear. Thanks.

The second on MIBIC and MIBC, now we are very close to commissioning. Has the product been approved by the customer? Where are they in the approval cycle and how much time will it take to fully ramp up the plant?

Yeah, so product quality has been approved, has been appreciated. In fact, our product quality is best in class by a margin on both of these. We've already been able to achieve our target raw material as well as utility norms in our pre-commissioning runs, and we're coordinating well with technology providers. We are confident that as demand comes in, we should be able to ramp up to beyond 100% very quickly. And by the way, as we do, this will substantially help the entire site integration because asset OSDLs are common, and that will have material uplift in terms of profit.

That's great. One question, and last question on the phenolic. Maliki, earlier you thought or we thought that $3,500,000 was like reaching a maturity for the asset, and probably we have crossed even the best of that, and we are talking about further de-bottlenecking in the same facility. What has changed since then to now?

I think the only thing that has changed is confidence. Okay.

Have you made any technological changes or bought additional site? Any tangible thing you can share or just purely process improvement that's leading to all this?

No, no. We've invested in advanced process controls, which allow us significantly tighter process management across the propylene and benzene to phenol and acetone.

And one thing that our customers all appreciate is that more product does not

mean more lower quality product. So, the quality of our product has remained best in class. We continue to see how we can expand capacity in line with also improving constantly the product quality. And by and large, I don't think there is a single customer anywhere that we have supplied to where there has been a concern about quality. So, the advanced process control has been a fundamental lever for us. And I think along this journey from about 2 lakh tons to, as we keep on reaching higher and higher, the investment

in the asset would have been somewhere along the lines of about 80 to 100 crores. And this demonstrates an excellent return on capital employee, if I say. That's fantastic, actually. One last question on the advance intermediate.

I'll just mention that we are going to make, I think, about some 70-odd crores investment further in re-bottlenecking the assets to be able to touch about 4 lakh tons. Meanwhile, as I mentioned earlier, we are also in the process of commissioning acetophenol in an integrated model from the same asset.

When we talk about this 4 lakh metric ton, it also includes acetophenol, or this is just phenol plus...

This is just phenol. All of these other things, I don't add, you know, all of them to each other. That number would be very large. But they should be considered, you know, as one product increases, the co-product also increases. Our IP capacity has also been de-bottlenecked in the interim, and our acetophenone will not be this kind of world scale, but it will be an international scale. It will probably have the lowest product innovative way.

Intermediate. We have now commissioned the hydrogenation and nitration facility. What are exactly plans for these blocks, and how are we looking at utilizing this over the next one and a half year?

So, we have actually already commissioned our nitration and reduction last year, I think Q3, if I'm not mistaken, and we have already started operating these assets with a relatively high utilization, anticipating that we need to place our products in the market. Once our nitric acid plant is also commissioned, it will allow us to be aligned from end to end. And as we've already been in the market, those assets have already been operating. Our backward integration just allows us to capture a larger share of the... So concurrently, right now, we are able to manufacture eight products simultaneously I

just wanted to understand how does doing nitric acid in-house enhances our downstream capability? Is it just that we will become more cost competitive or there is more to it?

There is more to it. But cost-competitive is certainly a powerful lever. There is more to it. It allows us to practice the kinds of chemistries which would be challenging otherwise. Let me just leave it at that.

Great, great. Thanks, Malik. Thanks for answering all those questions. Thank you. Thank you.

Thank you. The next question is from the line of Archit Joshi from Nuwama Wealth. Please go ahead.

Hi. Good evening, sir. Thanks a lot for the opportunity, and I must acknowledge that the annual report has come out really well in terms of disclosures, so congrats to the team for a good set of numbers. First question, just extending the scope of the final capacity discussion from the previous participant. You did mention that we are in the phase of debottlenecking capacities to about 400 KTPA and I think we were also should be on track to get another 300 KTPA in Deepak Chemtech. And given the disclosures from the annual report, we are already operating at about 170 odd percent utilization, which is phenomenal. So, from a terminal basis, this looks like we'll easily clock, you know, something like a thousand ktpm, possibly the four-figure number that you were alluding to earlier. I was just wondering, how could we see it from an integration perspective when we hit that number, let's say, three, four years down the line or as early as possible? How much would be merchant sales from that, and how much should we have it for bisphenol and polycarbonate once those plants are up and running?

Thank you, Arshad, for that question. Just to clarify, when I said the four-figure number, I meant in terms of $4,40,000 for the existing asset, which is in Deepak Phenol Lake.

Oh, sure.

No problem. Sorry, I may have miscommunicated. What I want to also clarify is that the new asset in Chemtech will largely serve as an integration platform for our downstream. We've recently announced BPA, and that kind of stitches propylene all the way to polycarbonate. And for all of these products, whether it is BPA, whether it is polycarbonate, and that will go into compounding, all of these will allow us to also participate in the merchant market as the downstream capacities get ramped up and the customer acquisition is in line. So we appreciate that, you know, very often there is a situation where you might have an intermediate that has a better case because the downstream is still in a process of validation in some application or another. So this will allow us to participate in every part of the value chain. Similar to the way it is done in the existing assets, we can participate in acetone, IPA, MIBC, as well as downstreams. This is a similar model that you can anticipate in the propylene-2-polycarbonate and compounding chain.

Sure, thanks for that clarification. So, it will be safe to assume that the production that is happening in the phenolics business will be predominantly merchant sales and very opportunistic merchant sales in the Chemtech subsidiary. And just to add on to that, if you can also help us with the timelines of commissioning of all these three, if there is any B-ray or treatment of the phenol plant, the bisphenol A recently announced, and the polycarbonate one. That would be really helpful.

So I'll just say that we are working to ensure that our phenol capacity happens in line with the commissioning of the propylene supply that comes from PDH, indipropane dehydrogenation investment. So that is being engineered to be aligned with the feedstock supply. The polycarbonate asset is, in that sense, disengaged, and it is coming in line with very different goalposts where our technology supplier, as well as the equipment supplier, will also be our anchor customer. So, we are working to see how we can commission this quickly so that, you know, we are up and running at the same time as their inventory stockpile. So, there, I mean, there we have to work fast. We don't have the luxury of working in line with the propylene pipeline being established. However, we don't want to, you know, let go of any market share when it comes to CINOL. So we will try to see how we can optimize. But strategically and financially, we've kept both of these projects going concurrently. I would anticipate that we would target H2 for our polycarbonate commissioning. And we would target BPA, which would be commissioned maybe a couple of months after that. We've just made the announcement, but the investments that we have already accounted for, assume generous storage facilities that allow us to delink as required strategically.

So when you say H2, it's H2, FI 28, right? The next time is here.

28, 29.

So FI 28, 29.

Got it. I've just one final one on the industry. I mean, we've seen a given the volatility and multiple shocks in terms of capacities being pulled out of the system. I'm sure that the market is also shaken up. Uh, any, anything that we are hearing on, uh, uh, uh, in all capacities and withdrawn in the system, uh, while I understand that the spreads will be too volatile, but if I have to take a directional sense of, uh, any supply demand mismatch that we foresee, uh, given the fluidity in the situation, would you have any, uh, thoughts to share on that? And because the margins that we have reported, I'm sure we have done phenomenally well from a spread perspective. And maybe a tad lower than the green run that we had during COVID. So I was just trying to gauge where this could settle in the interim. That would be my last one. Thank you.

No new capacities are coming up. New capacities have come up in last couple of years in China, but that is now all done. And China is largely self-sufficient. So, no new capacity. So, today, if you see the demand is more or less balanced, then we are having enough market in India. In fact, whatever you are saying, there is a lot of demand in India, which is, supplies are actually limited. So, we have a great opportunity today. So, to answer your question, there is no worry as such. There is no oversupply in the market, and demands are almost balanced, but actually there is a short supply today, if I can tell you.

Archan, I'll just add a little bit of color to what Mr. Bajai said. Deepak Phenolics does not really have a significant participation in the global phenol market, because our focus remains predominantly India and the domestic customers. And we were also, you know, through Q1, you would have noticed that for a large part of the quarter, I think the entirety of the quarter, the government had actually removed the import duty on phenol. So, this was a period of time where imports, as they came, came in duty-free, and we're happy to note that the government has reimposed this import duty on Phinogu moving forward, Because they also believe that by and large, the demand improvement and the ability for Deepak and other Indian producers like HOC is enough to be able to supply that requirement.

Just for the sake of understanding a bit more, while the quarter would have presented us with opportunities of the short supply as Upadhyay ji mentioned, but over a period of time when, let's say, the dust settles, I'm sure that there'll be an import parity-wise pricing in the commodities that we manufacture. So for that, a global supply demand mismatch or equilibrium or an oversupply or undersupply situation will be the guiding force towards that. If that is my correct understanding and that's why the question that I asked previously, if you have seen any capacities, you know, getting pulled out or any new additions to it, which I think Upadhyayji mentioned gave his thoughts. So anything that you can add to that, sir?

Yeah, you're right, and what Mr. Badai has also mentioned is, as we see the world, I just want to highlight that, you know, the price of phenol or acetone anywhere else in the world does not necessarily mean that that is the price at which it lands in India. You will have seen escalating trade rates, insurance rates, depreciating currency, as well as the kind of customer profile and the application profile of phenol consumers in India. This is essentially not what you would see as a customer mix anywhere else in the world, where largely phenol goes into the production of polycarbonates all over the world. In India, it is a much, much more diversified application, which includes small, medium-scale, as well as large companies in chemicals, in specialty chemicals, agrochemicals, pharmaceuticals, construction and laminates. So, this kind of customer profile actually lends itself very well to a domestic supplier who can ensure that their books, their inventory levels, their focus is on a just-in-time. Our goal is to make sure that they have absolute peace of mind with regards to the supply of these chemicals. And again, I feel like the tagline of commodity chemicals keeps getting attached one way or the other. I'll just rephrase that to say that any chemical eventually over a period of time can become a commodity, can become a speciality. It is essentially linked to the kind of control you have over the marketplace, about whether your product is preferred compared to somebody else's product. You are able to place it there at a high value to yourself and to your customer. And since we don't really participate so much in the international market, we find that India offers us a unique advantage and we offer In turn, our customers have a unique advantage. This is also what Mr. Mehta alluded to yesterday in the AGA, that a world-scale investment in something creates world-scale investment opportunities for downstream consumers. We've seen this happen, and we've seen this happen not just in all consumption, but in many, many other products. So, what is happening there? India continues to remain a salient destination for downstream investment.

Thanks a lot, Malik. That's very elaborate, and wishing you all the best for the coming quarters. Thank you.

Thank you, Arshad.

Thank you. The next question is from the line of Sajal Kapoor from Antifragile Thinking. Please go ahead.

Yeah, thanks for the opportunity. Hi, Malik. My understanding is that Deepak's R&D philosophy has historically been to take chemistry, you understand, engineer it better, scale it safely, manufacture it competitively as far as possible, and then progressively move downstream, whether it's advanced intermediaries or otherwise. I have two related questions. First is, you say the R&D pipeline is robust. After years of sustained R&D investments, why has that not translated into structurally higher gross margins? Where exactly is the bottleneck? Okay.

Thanks, Sajal. First of all, big fan. And also, I want to share, so the R&D that we've been working on, the chemistry platforms that we seek to exploit to their fullest, whether it is in atom efficiency or whether it is in process optimization or new molecules, What has happened over the last few years is the chemistries that we are in, whether it is nitration, diazotization, oxymation, reduction, a lot of competition has been there world over. And generally what you will see is that when competition intensity increases, before consolidation You will see a lot of push towards trying to eke out, you know, and red ocean the environment. And there is a period of time where just because someone comes in with a better understanding, new molecules that use the same chemistry platforms, they are faced with this red ocean because you have existing players. Trying to be kind of the last man standing. Now, eventually, over a period of time, that becomes more and more challenging to sustain. Because many of these companies are using profits borrowed from other parts of their platforms to maintain their market share. This is obviously not something which is sustainable, but you would expect any company to try its best to let go of market share last. For Deepak, that also means that over the last couple of years, we have faced the brunt of this as we come in with new molecules in the same space. Over a period of time, we believe that the degree of red ocean here is improving. We're finding that there is a slackness in terms of the competitive intensity. China, which had actually allowed rampant capacity expansion of these chemistries, which are inherently dangerous, not only in their process, but in their effluent treatment and their intermediate storages. New laws have come into place which prohibit casual investment of new capacities, more consolidated focus on ensuring not just process but effluent treatment as well. So these are things that Deepak was looking at from a long time ago, but the value was being eroded because if you have a competitor landscape that may not look at this with as much attention to detail, Today, we, I think, are evolving to an environment where the world recognizes that these are chemistries when performed at scale. They need to have concurrent air flow and concurrent by-product management, concurrent process management, and done responsibly. So, as we've been able to integrate, we should We will be able to see that these new molecules that are coming out are coming out with margin profiles which are better than they were in the past simply because of the competition intensity. The number of new molecules that we have released along with the expansion of our existing molecules, we have also been able to introduce our products into new applications which have better margins by making changes to their purity profiles. So, we've entered new applications which we were not in, say, for example, a year ago. The margin profile for many of these products will continue to evolve, but today we are seeing that the chemistries that we are in, with the addition of things like photochemical reactions as well as fluorination, gives us by far the broadest basket of chemistry platforms in the country. So, I'm kind of answering your question. I'm kind of giving you a clarity about where our R&D efforts have been. They've been focused on small volume, large volume, process optimization. And finally, a lot of the products that we have recently introduced go through a customer validation cycle as well. And these can typically range from a couple of months to up to even about 12 months. If you recall, when we got into optical dryness, at that time we had customer validation cycles which spanned more than 24 months when we were selling to detergent majors. So even though our product quality was good, the customer was not willing to pick it up until the entire validation was done. Today, we are the largest by a margin player outside of China, and this is the result of having gone through this entire validation cycle, engaging with customers and building that kind of relationship and trust. So, these will happen. They're already in the process of happening, and you will see the results of these over the next few years.

Yes, that's very helpful. Just to follow on, so I read annual reports, and as far as I could see, before SABLI, the new R&D center, recently commissioned, we had close 100 R&D professionals, and in that pool of 100, we had give or take about 20 PhDs. Now, 20 PhDs is a more attractive number for me, not just the 100 R&D professionals. So, the question really is now that we have the new R&D center up and running, where do we expect the human capital on the R&D side to go, especially on the PhD side?

So, Sajal, interesting question, but I have an interesting answer to that. With the way that we are introducing flow chemistry into our R&D to an industrial scale setup, suddenly we are finding that just a pure play organic chemist may appreciate and in some cases may not appreciate the kinetics and the flow dynamics that are there. These new kinds of technologies. Similarly, even a chemical engineer may not fully be able to appreciate the chemistry involved there. So what we're actually now focusing on is a hybrid between organic chemists, physical chemists, as well as chemical engineers addressing the problems together. So many cases, when we're introducing flow chemistry at a lab and then at an industrial scale, we're focusing on what we call CFTs, cross-functional teams, because we suddenly realized that the answer to the optimization question and the new product introduction question does not rest only within one educational discipline.

No, that is, and you mentioned flow chemistry, Malik, and I think, I mean, I'm not a chemist, but whatever, I've visited several flow chemistry, large industrial scale flow chemistry setups in India, primarily in Hyderabad and YZ, and what I've seen is that this is more of an engineering challenge rather than a chemistry challenge, Because, as you mentioned, the word kinetics there. And I think the challenge becomes significant even if you are doing a two-step or introducing a single-step flow chemistry in the mix of things. Is that a fair assessment on your side as well?

There is an engineering angle that comes in to what would traditionally be a chemistry domain.

Yes, and if you can maybe give us a number or two, I mean, in how many... Sorry to interrupt.

Sorry to interrupt. Mr. Sajal Kapoor, could you please rejoin the queue for any follow-up questions?

Sure. No problem. Thank you.

Thank you.

Thank you.

The next question is from the line of Vidisha from CR Kothari and Sons. Please go ahead.

Hello, sir.

So, how much KPEG is spending, which will you spend this year?

Please be a bit louder, Nidhi.

Hello, am I audible?

Yes, you are audible now.

Yes, sir. So, out of 11,500, we are APEX. So, how much is spending now? And what will be the paid debt for the thing?

Spending now, we have spent around 1200, I mentioned yesterday also. Further, this year, we will spend around another 1000 crore. Okay. So, 1000, 1500 this year further. So, total spend will be around in the range of 3200.

Yeah, could you hear me?

Ms. Vithi, does that answer your question? Ms. Vithi, we've lost Ms. Vithi's line. We will be moving on to the next participant. The investment

that is going to be spent this year is largely on site development activities, construction, And, you know, as we are getting the assets from outside of India, setting them up and putting them up. So, the long lead items are what the CapEx spend that Mr. Padhya indicated is stored.

All right. The next question is from the line of Rohit Nagaraj from 361 Capital. Please go ahead.

Yeah, thanks for the opportunity, and congrats on a strong set of numbers. So, first question is, you mentioned in your opening remarks that the team did a remarkable job in terms of sourcing the key raw materials during last quarter. How has been the situation during the current ongoing quarter, and are we placed to, you know, get all the materials comparatively for the quarter? Thank you.

Thanks, Rohit. First of all, I'll just highlight, we always procure raw materials competitively. The question is competitive to what? So in, for example, in April, we were able to procure raw materials at a price which is substantially higher than what we would have procured in Q4. So, largely, we were able to engage with suppliers to say, look, if you're able to supply this raw material to us, we will see that you get the margin that you would have gotten anyways by making something else. But that allowed us to operate our assets to an optimal utilization. And moving forward, as the availability of raw materials has also substantially improved, So, we continue to be able to ensure that our feedstock is procured at a price which I think is more competitive than anybody else in the country. And as and when the propylene comes in from the PDH side, at that time it will be even more competitive. So, all in all, whether it is ammonia, whether it is toluene, whether it is benzene or propylene or hydrogen, I think it would be a reasonable assumption to make that we would be absolutely competitive compared to anybody else in the country, and perhaps competitive enough compared to anybody else on a global basis.

Perfect, sir. That's helpful. The second question is in terms of the ongoing CAPEX. So as Mr. Upadha mentioned that we have done about three, I mean, we'll be doing about three and a half thousand crores of CAPEX during this year. For the rest of the CAPEX, what is the kind of funding arrangement that we are looking at? And just one more, if I can squeeze in, in terms of the exports market, How are we looking at the exports market over the last couple of months, given that there have been multiple disruptions which are happening in terms of supply chains? So, what is your understanding and view on the same? Thank you.

So, on CapEx front, let me answer. We have already spent around 1,200 crores. Further, this year, it will be around 1,500 to 1,600 crores. Now, this, as I mentioned yesterday in AGM, we have already tied up with the banks for debt funding. We were required to put in around 25% of the equity, which we have already done. So the next tranche comes from the bank. So funding is not a worry. So around 3,000 investment we would have done till now on the projects. Last year and this year combined up till now. Right. Plus further whatever we are going to spend is 2728 will be another 3,000 crores. So, that is the plan for the CapEx for this year and next year. As regards, what was your next question, export?

Yes, sir. In the exports market, how are we looking at the demand in the last couple of months, given that there have been supply chain disruptions and availability of vessels, availability of containers? So, just your perspective on the same.

I'll take this question. So, Rohit, there is disruption, there is an escalation in freight rates, insurance rates, etc. The way that we have approached this problem is with a degree of agility. Obviously, this kind of buttresses our domestic sales realization. But when we are exporting, I will give you one simple example. When we make sodium nitrite and we export sodium nitrite, it is considered as class 5. And one of our key customers happened to be in the Middle East, where anyways there was already a premium, a war premium in that sense, and escalating freight rates. So what we did is we engaged with the customer, we changed the composition of our product very simply by just adding water to it and supplying it to the customer, and that completely changed the haz class of the cargo. And this allowed us to give the customer the volumes that they required, which they also appreciated nobody else in the world would have considered doing exactly how DeepUp did. So the answer to how we are approaching it is we are recognizing that there are higher freight rates. In some cases, we are constantly engaging with customers to see whether there is a value in moving from a CIF model to an FOB model. In some cases, we're saying, okay, we will work to see how we can give you larger parcels so that there is a consolidation in the freight rate, moving from ISOs to bulk in many cases. So these are constant engagements that we are having with our customers. In a few examples, like for example, when we were talking about the US market, we may end up having an opportunity to club larger volumes rather than smaller volumes which would go in more expensive per kilo freaks. So, this will give them the benefit of having that inventory without worrying about changing lead times. It will give us the opportunity of running our assets at a more optimized capacity utilization, and it also improves our ability to serve markets which otherwise would have a much longer lead time to address.

Sure. This is Helfan, and all the best. We expect to hear you from on the 4 lakh times capacity utilization in the near term. Thank you.

Thanks, Rohit.

Thank you. The next question is from the line of Rohit Sinha from Sunidhi Securities. Please go ahead.

Yeah, thank you for taking my question, sir. One question is on the export side. In the AI division, what would be the export domestic mix for us, and you could help us how this is spread across the geography-wise?

So generally, it is about, it would be anywhere between 40 to 50%, but look, Rohit, I would not treat this as a gospel for two reasons. One being that, you know, we're talking about value. Volume is different, value is different. And the second thing is that quarter on quarter, this changes. What is important is that Deepak, the AI business, it has a roughly 50-50 mix. The phenolics business has a mix which is almost entirely domestic. So on a consolidated basis, you would see something which is close to about an 80% domestic and 20% export. This is hiding one crucial point, which is that as we're looking forward, a lot of our export customers are also working with us, with other Indian companies to see how they can have our product consumed in India. So we negotiate with the key innovator who may be sitting in Japan or in Europe or wherever, and there is an agreement to see how to supply to diversified geographies, including in India. So it is done in engagement with the export customers. But they are also seeing that these kind of free trades are better addressed by having multiple partnerships across the value chain, with a large part of that value chain also being geographically co-inhabiting each other.

Okay.

Okay. Okay. Got it. And second, on the initial remark, as you mentioned that inventory management has been disciplined in this quarter, so just wanted to know whether we had some additional inventory benefits in this quarter or it was largely in line with what we were having. Yeah, sir, as I was asking that in your initial remark, you have mentioned about the inventory management discipline which we have maintained in Q1. So, I just wanted to understand whether we had some incremental benefit out of inventory or it was largely in line with what we were having.

Actually, I don't think there was any place where we were able to... I wish there was a place that we were able to benefit from inventory. Unfortunately, there was not. We did work hard to see how we were able to secure key raw materials for continuous operations.

Okay, okay.

And we remain well-placed for all our raw material supplies in this quarter and the next. So, the teams have done a remarkably good job given the kind of volatility in being able to see competitive raw material rates. And we're seeing an uptick in terms of volume demand across all of our verticals in all of our businesses. So, we're happy to be able to ensure that our feedstock is not the rate-limiting factor.

Okay. Okay.

That's it from my side, sir. Thank you, and best of luck. Thank you, Rohit.

Thank you. The next question is from the line of Sajal Kapoor, a follow-up question from Antifragile Thinking. Please go ahead.

Thank you for taking my question again. Malik, just a quick clarification on that flow chemistry and fluoridation examples. I mean, can you give us one or two examples where, you know, these chemistries, i.e. fluoridation or flow has moved from R&D to commercial scale and what economic advantage it is creating today or maybe next year or the year after? Thank you.

Okay, Sajal. So, these are two separate things. There's fluorination, which is separate. There is flow chemistry, which is separate. So, the flow chemistry platform that we are exploiting is within our familiar neighborhood of NOx chemistry, I would call it. So, you know, minor changes, for example, if you change the ratio of NOx gases, it allows you to do nitration. You change the ratio, it allows you to do diazotization. So the slow chemistry platforms are, in that case, multi-stage. So you have the, you know, you have the nitration and then the downstream separation and all that, and you also have the other option of doing the diazotization and then the decomposition of hydrolysis. So, here we're able to optimize and make world-scale capacities with very, very small footprints, significant atom efficiency, and I'll give you one example, one product that we're making currently in a batch or in a semi-batch. It takes us about 16 to 18 hours from feedstock to finished product. This gets completed in roughly between

45 to 51, 52 seconds.

So it gives you a very nice example of not just how rapid the reaction is, but how much that actually changes the amount of quote-unquote hazardous intermediate which is in the system at one time. It also gives you an example of how quickly we're able to serve multiple large volume or low volume products at the same time with rapid changeover campaigns from one to the other. So we're also reducing the kind of vectors that we're having in the plant. The acids are highly engineered, exotic MOC, and very, very efficient. They allow us to exploit the chemistry rather than going broad on batch reactors where you can perform 20 different kinds of chemistries. Today we're focusing on a couple of chemistries where you can make 20 different kinds of products. This is what you will see coming into play in the next financial year. Not the financial year, but right now we've been focused on gaining market traction with our seed samples.

Amazing. Amazing. That's all I wanted to double check. Thank you. Thank you so much, Malik. All the very best. Thank you, Fajal.

Thank you. The next question is from the line of Tushar from Omega Portfolio Advisors. Please go ahead.

Thank you for the opportunity. Most of the questions are answered. I wanted to know in the polycarbonate compounds, where are we in terms of validation with customer for the sunrise sector? And like Covestro has many blends. Is there anything in pipeline for technical collaboration with other companies going forward? That would be my first question, sir.

So, I mean, when we're talking about compounds, all of the compounds that we are referring to are, in fact, blends. So, it's a formulation, right? So, polycarbonate resin forms the spinal cord, but the actual performance depends on the formulation and the blend. Sometimes it provides a physical property, sometimes it provides a chemical property. We are approved with what one would call sunrise sectors, but just to be clear, these are sunrise sectors in India. When you have electric mobility, whether you have electronics, these may not be sunrise in China or in Japan, but in the target market, we're looking at working with, if I have to give you names of companies, I can give you names of companies, like Mahindra, Panasonic, Gold Medallion, Tata Autocomps. These are examples of names. Now, these names will drastically expand as we give you more color into the kind of strategic collaborations we're having or we're working towards developing. I think we will be able to make announcements regarding this soon enough, but exactly what you were referring to, we are in engagement with strategic partners, focusing more on supplying compounds to different end applications, whether it is medical or auto or whatever, in the South Asian market.

My question was mainly on the aerospace front, like for the fighter jets, the canopy, for the planes, various sheets of polycarbonate. On that front, sir, where are we?

Okay, specifically on that application, I will decline to comment.

Okay, fair enough.

So, if you want to take my no comment as a comment, then I'll leave it at that.

It's up to you. And secondly, in terms of the big project of polycarbonate, considering the final prize of the benzene, polygobylene and polycarbonate, Is my understanding correct that we are somewhere heading towards 60% gross margin kind of a business in polycarbonate going forward? And so my last question would be, what would the peak date, you know, oppose this commercialization of the mega project by FY29 or so?

Okay, so I would let Mr. Pajai answer about the peak debt, but just to clarify, I will not comment on the integrated margin. Suffice to say that it has a formidable IRR as we're looking at it. I believe, I think we've been convincing enough to the banks, so that should Be confident. Inspiring.

So, today, at this 11,500, what we are having, against that, we are borrowing around 6,800, plus working capital, whatever is required, okay, in the business at the peak. So, that would be somewhere around 8,000, 8,500 crores. But debt-to-equity ratio will be very, very comfortable if it will not cross even one. So, that's what I can say now, as of now.

Just last question, for this polycarbonate, do we see the working capital shift considering the frequency of octet in the polycarbonate segment for the specialized sector?

The working capital shift in the specialized sector, what it has to do with that?

No, I'm considering the, like in terms of defense and all, do you see any shift in inventories or anything on the payables or anything on that front, polycarbonate things coming into picture? No, not really.

It will be a normal, since we are in a chain, it won't be that much. It's a normal cycle, not that it will increase significantly.

Absolutely. See, as of yet, we have not made the kind of announcements you are looking for with regards to our polycarbonate compounding strategic tie-ups. But suffice to say that that will be a core anchor for our own polycarbonate resin production. And similarly, also, I have already alluded that the technology supplier, equipment supplier will also be an anchor customer. And over and above that, India continues to be entirely import dependent. I would not want to comment on certain sectors which you have mentioned. These are conversations which are under strong NDAs as they should be.

Thank you, sir. That answered my question. Thank you.

Thank you.

Thank you. The next question is from the line of meat from JM Financial. Please go ahead.

Hi, sir. Thanks for taking my question. So, when we say that we have achieved integration across ammonia to nitration for amines value chain, I wanted to understand what exactly are we doing on the amines front. Is it specific to products like MAHCR or MMPDA, or are we planning to do more products on the amines front?

Okay, thanks, Neet. First of all, ironically, the two products that you mentioned are not amines. One of them is what you would call an oxyne, and the other one has no amination at all, but I appreciate the question. We are looking at, see, amination is reduction. We are introducing hydrogen and replacing the oxygen that would be there in a nitro group. This is a critical feedstock for us when we are looking at doing diazotization. And we will be the only company in the world, I believe, that will be doing diazotization with liquid, with solid, as well as with gas. And as we enter the Schiemann platform diacetization, this means that the amine also reacts with fluoride and becomes a fluorocompound. So this will be one example of downstream integration of an amine. Another example of downstream integration with an amine will be when we have multiple amines in the same ring. So, I won't go too much into that, but we are comfortable now with our ability to do high-pressure reduction, mobile metal catalysts, dissolving natural catalysts, other things like ranny nickel and all of those. So we have a very broad base of different catalysts. All of these are indigenously developed catalysts. They have very, very good results. Even something as simple as MIBK is also a hydrogenation. And interestingly, when you look at IPA, MIBK, MIBC, they marry competencies

that AI has with feedstocks that phenolics provide.

So, the opportunity for us to find a way to interlink competencies is tremendous. And as we look forward, we are continuing to see how to expand this portfolio. So, the assets that are there in place are already in their commissioning phase. And we are already quite well placed with regards to our assets, which we are now going to be utilizing with higher margin accrual.

Understood, sir. Thank you so much for that elaborate answer. The second question is on volumes of phenol in Q1. You did mention that we have achieved close to 1 lakh tons of volume. So I think that would be on a run rate basis in May or June, right? Because we had taken a planned shutdown in April, and there were issues in propylene availability during April particularly. So, how should one understand the overall volumes in Q1?

There were parts of the quarter where our run rate was based on the intermediate that we had stockpiled, and part of it was on the basis of bought-out, hopefully, and then we...

And just one last question was on, so if I understand correctly, there has to be a ratio of around 1.6 between pricing of MIBK and acetone for it to be viable for a commercial production and be profitable. Is that understanding correct? And if that is true, are we seeing that ratio currently or it is still under pressure?

I can't really comment on this 1.6. I don't know where this comes from. I would be happy to engage on this in a little bit more detail because this is the first time I'm hearing about this number of 1.6.

There is acetone.

There are a couple of other raw materials, For example, hydrogen. Now, this is a process which is essentially a condensation followed by a reduction. We have, over and above that, implemented divided wall columns which allow us literally the most aggressive degree of efficiency of any producer in the world. So, it would be hard for me to align at this moment with you on this number of 1.6.

Just one last question. Sir, if you can call out the acetophenon capacity that we are putting up.

Meet, I think we should be able to give you that answer. I would love to give you that answer before the next conference call. If that opportunity arises, otherwise the next conference call, we are going to commission it this month. So, hopefully you will be able to get it from enough market sources in just a few weeks from now.

Thank you. That's all from my side, and best of luck for coming quarters.

Thank you, Meen.

Thank you very much. That was the last question for today. I now hand the conference over to the management for closing remarks. Over to you.

Thank you so much for joining this call. In case of further clarifications or any questions, you can ask Mr. Gopal Thakkar or Mr. Somnanda. Thank you once again.

On behalf of Deepak Nitrite, this concludes this conference. Thank you for joining, and you may now disconnect your lines.