Deepak Nitrite Ltd

NSE:DEEPAKNTR

Earnings Call Analysis

Strong Revenue with 0 Debt Position

The company reported a quarter-over-quarter increase in revenue to INR 2,233 crores from INR 1,795 crores. EBITDA remained nearly unchanged at INR 318 crores, with a steady margin of 16%, even amidst higher raw materials costs. Net profit marginally decreased to INR 202 crores from INR 205 crores. Over nine months, revenue dipped by 7% to INR 5,613 crores year over year, with a reduced net profit of INR 557 crores from INR 618 crores. Despite the downturn, the company maintains a zero-debt position with robust net worth and liquidity, indicating a strong balance sheet ready for future expansion. Notably, a significant investment is planned, around INR 2,000 crores, aimed at commissioning new capacity and achieving backward integration to stoke growth.

Company's Growth Amidst Market Pressures

The company reported a strong growth in revenue, clocking INR 2,233 crores in Q3 FY '24, a significant increase from INR 1,795 crores in Q2 FY '24. Despite the challenges posed by higher raw material costs and uncertainties in the market, the EBITDA remained stable at INR 318 crores, almost flat compared to Q2, and a consistent EBITDA margin of 16% was maintained. Net profit saw a slight dip to INR 202 crores from INR 205 crores in Q2. A year-over-year comparison of the first nine months of FY '24 to FY '23 showed a revenue decline by 7% from INR 6,046 crores to INR 5,613 crores and a decline in EBITDA from INR 976 crores to INR 879 crores, with net profit also falling to INR 557 crores from INR 618 crores.

Segment-Wise and Geographical Performance

In terms of segmental performance, the Advanced Intermediates segment remained flat with Q3 revenues at INR 675 crores. However, the division maintained a 19% margin during this quarter, exemplifying resilience in difficult market conditions. The company's geographical distribution of revenues demonstrates a heavier reliance on domestic markets, which brought in INR 1,572 crores in Q3 and contributed to a larger chunk of the consolidated revenue at a ratio of 78:22 (domestic to export). Deepak Phenolics, another business segment, showed a considerable revenue increase of 20% in Q3, amounting to INR 1,355 crores.

Financial Stability and Investments

The company strengthened its balance sheet by maintaining a zero-debt position and a robust net worth—INR 4,543 crores on a consolidated basis and INR 2,839 crores on a stand-alone basis. The company continued its commitment to growth by investing INR 656 crores in Deepak Nitrite Limited (DNL) and Deepak Chem Tech Limited, its wholly-owned subsidiary, during Q3 FY '24. Moreover, DNL invested INR 17 crores in Deepak Oman Industries to acquire a 32% stake, and the group reported treasury gains of INR 5.7 crores for the quarter and INR 22 crores for the nine months of FY '24. These strategic investments align with the company's expansion and diversification plans.

Operational Excellence and Technological Advancements

The company is focusing on enhancing operational efficiencies through process optimizations, yield improvements, and cost reductions in power and fuel consumption. Digitalization initiatives have been implemented, including the integration of customer relationship management and logistics tools. Their project pipeline remains strong, with an expected investment of around INR 2,000 crores set to come online by January 2024 to increase capacity and enable backward integration.

Volume Growth and Capacity Utilization

During the nine months of FY '24, the company experienced a volume growth of 17-20%. The current capacity utilization stands at 80-85%, with flexibility to debottleneck and scale up production as demand rises. Debottlenecking exercises have improved both in hardware and software, ensuring that capacity exceeds current volumes. For future growth, the company has plans for large-scale capital expenditures, including greenfield projects like the Oman plant.

Future Prospects and Revenue Trajectory

Although cautious about providing exact future earnings, executives hinted at the positive impact of debottlenecking and backward integration projects. These strategic moves, together with increased volume growth, are expected to compound and propel the company towards a higher EBITDA, potentially returning to the INR 150 crores range seen in previous years. The company's phased commissioning of new plants each quarter lends confidence to this optimistic outlook.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Deepak Nitrite Limited Q3 FY '24 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions]. 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 communications shared with you earlier.

I now hand the conference over to Mr. Ranjit from IIFL Securities Limited. Please go ahead. Thank you.

[Ranjit Cirumalla, analyst]

Thank you, Manav. Good afternoon, everyone, and thank you for joining us on Deepak Nitrite's Q3 9 Months FY '24 Earnings Conference Call. Today, we have with us Mr. Maulik Mehta, Executive Director and CEO; Mr. Sanjay Upadhyay, Director, Finance and Group CFO; and Mr. Somsekhar Nanda, CFO of Deepak Nitrite Limited. We'll begin the call with opening remarks from the management team followed by an interactive Q&A session. To begin, Mr. Maulik Mehta will share our views on the operating performance and the growth plans of the company, followed by Mr. Sanjay Upadhyay, who shall take us through the financial and segmental performance.

I now invite Mr. Mehta to share his opening comments. Thank you, and over to you, sir.

[Maulik Mehta, executive]

Good afternoon, everybody. Thank you for taking the time out to join our earnings call. Results documents were shared with you earlier, and I hope you've had the opportunity to glance through them. I will now walk you through the operational highlights and strategic actions during the third quarter and 9 months of financial year '23/'24. Mr. Upadhyay will then present you with the financial overview during the period under review. Following that, we will open up the forum for a Q&A session.

Global chemical industry continues to witness adverse conditions also in the third quarter. The combination of uneven economic growth, sustained inflationary pressures and present interest rate regimes have caused figures of recessionary conditions in leading developed economies. Geopolitical tensions have added to the cost of doing business, including stretched cash conversion cycles, accompanied by the cost optimization focus in many sectors. The results, global consumption trends has been adversely impacted so far. And the flow-through impact to chemical sector has meant that there was persistent softness in demand from certain regions as well as certain segments. Our customers are responding to these challenges by reevaluating their requirements, tightening their inventory levels and negotiating for best possible prices.

In a [indiscernible] , we have witnessed Chinese suppliers continue to undertake aggressive steps to tease up the inventory of intermediates that have been building up. We responded to this perfect storm. Firstly, we focused on optimizing our assets and driving efficiencies in order to enhance competitiveness. Various plants have been debottled. Moving forward, greenfield capacities will supplement with morbid growth where brownfield expansion falls short. Secondly, we have leveraged our brand equity and market position to prioritize wallet share and reliable supplier to our key strategic relationships. The improved production volumes need to be placed with customers, and we have reported increased volume net growth this quarter. Thirdly, we continue to evaluate areas for process efficiency and cost optimization. These initiatives have provided savings in areas such as yield enhancement, reduction in power and fuel costs, as well as a reduction in CO2 emission.

Deepak's broad product portfolio and versatile plant capability has allowed the company to focus on driving volume-led growth in certain pockets, which has enabled it to counterbalance subdued demand sentiment in other parts of the portfolio. As a result, this has led to a 13% quarter-on-quarter increase in topline with provisions made for further improvement as the operating environment improves. Robust growth in the Phenolics segment, driven both by volume gains and improved realization, has been a key driver for this accretive growth, supported by focused initiatives to enhance operating efficiency and debottlenecking via software and hardware.

In terms of segment performance, Advanced Intermediates has reflected subdued demand recovery in certain industries, such as agrochemicals, textiles, dyes and pigments, while other end applications, like construction, infrastructure and home care continue to show healthy demand.

Mix sentiment in end-user industries influenced by cautious buying behavior and resilient petrochemical linked raw material prices has let us to prioritize wallet share. Several key intermediates recorded the highest ever quarterly sales and production following the commissioning of OpEx initiatives. While prices of some key inputs have decreased, others, which our petrochemical-linked remain firm due to low operating rates in refineries plus war premiums on crude. We anticipate that the timing of backward integration and brownfield capacity expansion will align with the more secular demand improvement going forward. Now on Phenolics business, we delivered a solid performance on the back of improving plant efficiency and healthy sales volume. Additionally, the implementation of advanced process control and favorable weather conditions has facilitated record production figures for Phenol and Cumene this quarter elevating average utilization to a new benchmark.

Meanwhile, our ongoing projects such as photohalogenation, high pressure fluorination, acid units and others are progressing well and are expected to be commissioned as planned. The operation and commissioning team are actively involved in preparing for the system handover with high-pressure fluorination and photo chlorination commissioning being anticipated within this current quarter.

Regarding the asset unit, construction and equipment direction activities are at peak with most equipment deliveries completed. Other expansion projects such as MIBK, MIBC and hydrogenation, amongst others, are also taking shape and are on track for commissioning as per plan. The polycarbonate compounding project is steadily progressing as well. Customers have accepted and appreciated product quality as delivered by Deepak.

Notable developments, we signed a memorandum of understanding worth INR 9,000 crores on January 31, 2024. This adds to the previous MoU worth INR 5,000 crores on May 23, 2023 aggregating to almost INR 14,000 crores. Projects covered by this investment of about INR 9,000 crores will be completed by 2027. And the focused -- projects of all the investments that have been announced will be completed by 2027. The focus for this recent announcement will be on manufacturing 3 new products, polycarbonate resins, methyl methacrylate (MMA), poly methyl methacrylate, (PMMA), resins and compounds, as well as aniline. Additionally, we have signed a term sheet with Petronet LNG, which is based in Dahej, which derisks our growth trajectory by ensuring critical raw material availability via our pipeline.

We are set to offtake 250 KTPA of propylene and 11 KTPA of hydrogen over a 15-year period from the initial delivery. This long-term agreement provides Deepak with a sure access to crude feedstock for its production processes at a competitive cost. Further, considering the supply will be through pipeline, not only will it be safe and cost-effective, but it will have nil environmental impact as compared to road and rail transport. In conclusion, our steadfast focus on enhancing operational excellence, optimizing assets and solid project execution has allowed us to set new production benchmarks in several key intermediates.

India's robust economic growth presents opportunities for the chemical industry at a global space. And we are excited about not only our growth potential, but the opportunity for Deepak to be an anchor for tomorrow's India growth potential. Through strategic and substantial investments in new and brownfield projects, including those in the phenol acetone value chain, and aimed at upstream and downstream integration, our expanded capacities will enable us to serve not only the baseline growth as envisaged, but also a production migration from high-cost region. In fact, our long-term plan envisage is creating one of the most integrated chemical and petrochemical complexes globally, which is sure to unlock new frontiers for Deepak and India's burgeoning chemical industry. We believe our ability to capitalize on these opportunities, ensuring growth, value maximization and serving the nation sustainably will benefit all stakeholders.

I would now like to hand the call over to Mr. Sanjay Upadhyay, who will address this forum and take you through the financial performance and key updates during the period.

[Sanjay Upadhyay, executive]

Thank you, Maulik, and good afternoon, everyone. Thank you for joining us on this call today. I'll walk you through the highlights for the financial results for the quarter and 9 months ended December 31, 2023. Deepak Nitrite has shown stable and regulated performance this quarter in the face of challenging market conditions, mainly in the global chemical industry during the third quarter, in fact, throughout the year. We have been consistently communicating about the increased sale of volatility in the industry, warranting faster sales and sharper strategic initiative to capture key parts of the value chain.

We have demonstrated this during the quarter as the company successfully expands on its market share in all businesses and will save revenue across various business [ areas ]. By maintaining consistent and reliable supplies, Deepak Nitrite has [indiscernible] selling relationship with the customers, relatively increased volumes across key product categories and balanced mix of domestic and export sales.

Consequently, the company's operations have remained highly efficient in capital utilization, reflected in an announced return on capital employed of 26% in Q3 FY '24 continuing its streak of robust performance over the past 12 quarters. Now coming to the financial performance in Q3 FY '24. On a consolidated basis, revenue came in at INR 2,233 crores as compared to INR 1,795 crores in Q2 FY '24. On a quarter-over-quarter, EBITDA came in at INR 318 crores from INR 319 crores, almost flat in Q2. EBITDA margin was stable at 16% despite pressures of higher raw material costs and other utilities. [Net] stood at INR 202 crores from INR 205 crores in Q2. Profitability aligned with the operations [indiscernible] impacted due to lower realization and higher pricings of the raw material. In the unseen quarters, the circumstance is anticipated to improve.

In 9 months FY '24, on a consolidated value, revenues were lower by 7% to INR 5,613 crores as compared to INR 6,046 crores for 9 month 2023. EBITDA stood at INR 879 crores in 9 months FY '24 compared to INR 976 crores in 9 months FY '23.

Margins were stable at 16% in FY '24. Net came in at INR 557 crores against INR 618 crores. On the operating front, our domestic business revenue stood at INR 1,572 crores and INR 4,474 crores in Q3 and 9 months respectively. Export revenues were INR 451 crores in Q3 and INR 1,134 in 9 months. On a consolidated basis, domestic export mix stood at 78:22%. Now moving to the segmental performance. In the Advanced Intermediates segment, revenue was flat at INR 675 crores in Q3 FY '24 and INR 684 crores in Q2 FY '24, while EBITDA stood at INR [indiscernible] crores during the quarter under review. 9 months FY '24 unit revenue came in at INR 2,084 crores and EBITDA came in at INR 390 crores, translating into a margin of 19% despite the current environmental challenging circumstances.

Deepak Nitrite has also adjusted product pricing to offset the rising input growth presenting, maintaining margin performance compared to the previous period signaling [indiscernible] approach amidst market challenges.

Deepak Phenolics delivered an encouraging performance journey grew by 20% to INR 1,355 crores in Q3 FY '24 versus INR 1,124 crores in Q2. While EBITDA stood at INR 201 crores, EBITDA margin came in at 18% in the quarter. In the 9 months revenue degrew by 6% to INR 3,558 crores and EBITDA came in at INR 497 crores, translating into a margin of 14%. Lastly, [indiscernible] the company's financials will be significantly enhanced, and the company continues to maintain a 0 debt position with a net worth of INR 4,543 crores on a continued basis and INR 2,839 crores on a stand-alone, thereby strengthening its balance sheet for the future expansions. Additionally, DNL's has -- additionally, DNL [indiscernible] INR 656 crores and Deepak Chem Tech Limited, it's wholly own subsidiary with INR . crores invested in Q3 FY '24. DPL prepared its remaining balance term loan during Q3 to become debt-free following the footstep of DNL, which has been debt-free for several quarters now. The group as a whole enjoys liquid investment of INR 386 crores.

In the quarter, DNL has invested INR 17 crores in Deepak Oman Industries to acquire 32% stake. The treasury gain for the quarter stands at INR 5.7 crores in Q3 FY '24 and INR 22 crores in 9 months of FY '24. The Group has undertaken many digitalizing initiatives. One of the key initiatives that successfully [indiscernible] along with customer relationship management, Ariba and logistics tools from November '23. DPL has installed complete [indiscernible] and DNL are set to follow sequentially. Furthermore, the company has implemented measures to enhance operational efficiencies through process optimization, yield improvements and cost reductions in power and motor consumption. Our project pipeline remains robust and investment of around INR 2,000 crores are expected to be commissioned between January 2024 and this will steadily add to the capacity or to backward integration providing impetus to the growth.

With that, I would now request the moderator to open the floor for questions after session. Thank you.

[Operator]

[Operator Instructions]. We have our first question from the line of Nirav Jimudia from Anvil.

[Nirav Jimudia, analyst]

Sir, I have 2 questions. So one on the standalone and then on the Phenolics. Sir, if you can share like for Q3 and for 9 months of FY '24, what sort of volume growth we have witnessed in the stand-alone business? And along with it if you can just share your thoughts on how much of our current capacity, like including those debottleneck is currently utilized and has a scope for further utilization?

[Sanjay Upadhyay, executive]

Nirav, 9 months, I think our volume growth is in the range of, say, 17% to 20% in 9 months. Okay. And with regards to capacity, the capacity, I mean we are using around 80% to 85% capacity. Some plants are having less capacity. But then it's not very difficult for us to debottleneck and go ahead in case. So capacity is just a word. I mean, you must not get worked down by the [Foreign Language]. You can always -- in fact, this year, we have demonstrated that one of the plants, we have spent little amount and then produced additional product, which is never there in our budget or never in our pipeline. Suddenly, demand came and we could produce there. So that way, our plants are flexible, multiproduct plants and team is capable of delivery. But you can take around 80% to 85% capitalization for the total 9 months.

[Maulik Mehta, executive]

I'll just add one thing that, our debottlenecking exercises have been a mix of hardware as well as software, not only in Phenolics which we have also mentioned, also in Advanced Intermediates. This is also coming on the back of a lesson that we learned about 2 years ago when we realized that we were unable to grow our wallet share because in many places, our capacities have peaked. So with a judicious mix of OpEx as well as increased assets, we have ensured that our capacity is more than the current increased volume that we are pushing out into the market. So wherever possible, we have created headroom, as I mentioned in my initial remark. And where we feel like by and large, we will not be able to go much further here, we have also initiated plans for large-scale CapEx, which would be greenfield, for example, the Oman plant.

[Nirav Jimudia, analyst]

Got it. Sir, let's say, if we consider the backward integration projects what you mentioned, the nitric acid part and coupled with the headroom of the capacities available with us in terms of the debottleneck and some pockets where it is currently underutilized, what's the fair assessment in terms of our quarterly EBITDA again moving to those ranges of INR 150 crores which we used to do on a quarterly basis in FY '23? Because this quarter, if we see, we were at INR 112 crores. So if you can just help us like what would be the combination of volume growth as well as the benefits of backward integration facilities can help us to take that level of run rate in which of the quarters of FY '25?

[Maulik Mehta, executive]

So rather than getting into quarter number and taking ourselves to that, what I can share is that both of these will have their own compounding value that they can give. And all of this depends significantly in terms of improvement in the offtake for the products that we make. Over this period of time, we have, in that sense, gone through the [sizing] of fire and by increasing our wallet share at the expense of competition who -- when their wallet share reduces, their operating costs also increases. As our debottlenecking as well as backward integration commission, it will allow us to maximize on this position that we have most deligently to take. I won't give you an answer with the quarter, but I can tell you that one way or another, this is the direction that it will trend, whatever numbers you are giving, either add a quarter or subtract a quarter. But when these plants come online, this is the cumulative...

[Nirav Jimudia, analyst]

Sir, any expected time lines which you can share when the nitric acid plant would be commissioned?

[Maulik Mehta, executive]

I can just share that we have already announced by and large every quarter there will be some plant or another being commissioned. Some is upstream, some is downstream, some is in AI, some is in like -- rest assured, we will see good value over a period of time being increased to the top line and the bottom.

[Nirav Jimudia, analyst]

Got it, sir. And Maulik, by just one question to what you mentioned. Like agrochemicals, textiles, dyes and pigments have been showing the subdued growth. So if you can just help us know how much of our stand-alone business would be -- stand-alone revenue would be coming from these 4 broad segments currently?

[Maulik Mehta, executive]

It would be a considerable amount. But what I was sharing was largely the situation that was at play in Q3. Agrochemicals, especially the products that we give to multinational, they -- in some cases, they have had difficult year in 2023 CY. And as they close their books, they would also want to move forward with the minimum overhang in terms of inventory and working capital. So Q4 is going to be incrementally better than Q3 in terms of volume. Now in some products, there is continuing to be a softness in terms of demand. In some places, that is largely because of the specific customers where their balance sheet also may be stretched.

In other places, we are finding that there is a fragile improvement. Now for products where Deepak is into the dyes, the textile, intermediates, there also, we are seeing certainly that there is an improvement in demand if I compare Q4 and Q3. But all of these things, at the end of the day, are sequential in nature. So I'm comparing not to the last year, but to the previous quarter.

[Nirav Jimudia, analyst]

Got it. Sir, second question is on the Phenol business. Like based on the reported volumes what we have shown in the presentation, I think our OpEx comes closer to $185, $190 if we do some rough math. So does it include the benefit of the 29-megawatt captive power plant which is set up? And if yes, going forward, is there any further scope of reduction in our operating costs? Along with it, if you can just share some list of initiatives which you have taken in the Phenolics business over the last 1 or 2 years to bring down our operating cost and improve the efficiency levels?

[Sanjay Upadhyay, executive]

Nirav, several measures are taken. See, this performance will not come if you are just relying on the market volatility, right?

[Nirav Jimudia, analyst]

Absolutely.

[Sanjay Upadhyay, executive]

I mean, you must appreciate that by increasing the capacity itself, the overhead cost per ton goes down significantly. That's the major, major advantages people are missing and it includes the efficiency of the plant. On top of it, there are logistical improvements what we have done, increasing the size of containers which will reduce -- which will, of course, reduce the cost as well as [indiscernible] beneficial. We have taken care of every advanced versus control management system, which is also controlling our processes and then improving the yield and production and thereby yield. So -- and then valorization of products, that is also helping us in a big way.

So several -- and these efforts are owned. This doesn't stop at this. It continues. So various times, we have a very, very capable team of people handling these. So I don't worry on this. I think these people efficiencies and the production of methanol is absolutely, I would say, controlled well by the team and all improvements whatever possible, people are doing this on all the fronts.

[Maulik Mehta, executive]

Including sustainability. So we are continuing to reduce our carbon footprint on a production basis. And keep in mind that we also, in many cases, have to pick up the cost of logistics of getting the raw material as well as in some cases, giving the final product. So when we look at improvement, we look at net of...

[Nirav Jimudia, analyst]

Sir, just a small clarification here. So does the benefit of the 29-megawatt fully captured this quarter or some benefit is yet to be yielded here?

[Sanjay Upadhyay, executive]

The power plant benefit is fully captured.

[Nirav Jimudia, analyst]

Fully captured here.

[Sanjay Upadhyay, executive]

Yes.

[Operator]

We have a next question from the line of [Gagandeep] from Invest Analytics Advisors.

[Unknown Analyst]

Am I audible?

[Sanjay Upadhyay, executive]

Yes.

[Unknown Analyst]

Congrats for a resilient performance despite the global headwinds. So as you know, there has been a demand slowdown at a global level. Despite that, you people have sustained the performance in the terms of top line and bottom line. So 2 parts of question on this. Where is the inventory destocking by the time Chinese players is over? And can we expect the things getting normalizing in '25? And secondly, how do you see the chemical prices, specifically the Phenols and the Acetone shaping up in the near term followed in FY '25?

[Maulik Mehta, executive]

Okay. See, first of all, this concept about destocking, I emphasized it last time, I'll just reemphasize it again. Destocking essentially means that for whatever reason, a manufacturer believes that his cost of manufacturing tomorrow, for whatever reason, maybe a little bit either the same or more and hence is choosing to manufacture today, but is then trying to push it out so that we can tomorrow. Now at the same time, the headwind is the customer's ability to take and the customer's ability to take is linked to his ability to sell. So destocking is not a situation which is something that happens in a transient manner. It is a rate of destocking, which is the question.

And the rate of destocking obviously has to slow down because the inventory levels themselves get depleted as destocking is accelerated right now. So over a period of time, you will see a slowdown in the destocking where the demand and the supply, by and large, start to come to a parity. Generally, this will happen over the next quarter -- couple of quarters, depending on the [indiscernible] . And in places where there may be geopolitical uncertainties or economic uncertainties, interest rate uncertainty, those will all play some role or another in either convincing a customer to choose to buy more regardless of whether they need it or not or buy less in order to maintain a low balance sheet overhang. Now when it comes to products like Phenol and Acetone, these are manufactured as well as consumed in large volume.

And they are made by players all over the world, and there's a significant part of it which is also the freight component, a significant part of it which is also the ability to hold inventory. So moving forward, it's not going to be about whether Phenol price or Acetone prices go up or down. It's going to be about how they move in relation to their upstream and downstream price. So when we look at our performance, it is about whether we are able to manage the product pricing to continue to give a sustainable margin over material.

I don't care if benzene prices go up and propylene prices go up as long as I'm able to pass it on. What I care about is that I'm focused on volume improvement, quality improvement and my domestic consumption base is continuing to show robust growth in demand. And I am there cost competitively manufacturing and supplying them the quality they need. So I am reasonably satisfied as long as my plant is always able to ensure whatever is being required is being manufactured.

[Operator]

We have next question from the line of Abhijit Akella from Kotak Securities.

[Abhijit Akella, analyst]

First, just on the INR 9,000 crores MoU signed with the Gujarat government. There are 2 sets of new products mentioned within that, which is the MMA and the PMMA and aniline. So is it possible to share some further color around the breakdown of CapEx between these, the capacities that we plan to set up and your revenue and margin expectations for these that would be really helpful?

[Maulik Mehta, executive]

So Abhijit, I think -- I don't think we need to go into a breakup of the CapEx because there will be lots of scope for optimization in this in terms of one -- whether it is with regards to land or utilizing certain assets as allocations and things like that, like boilers and things like this. Now the reason that I feel conscious -- and by the way, these are not just 2 products, MMA and PMMA are made using feedstocks which we are already very comfortable using feedstocks such as acetone, ammonia, et cetera. And what is critical here to keep in mind, Abhijit, is that it will also involve [indiscernible] block of significant capacity. Now this will be at a world scale as usual when it comes to Deepak. And this will be significant fundamental assets which will then be available to the Indian ecosystem, obviously, for Deepak, specialty chemical needs and all that moving forward.

So cyanation today generally is not performed in India, maybe with some small capacity here or there. Similarly, when you're looking at polycarbonates, you're looking at -- you have particular process competencies, which will then be put here at a world scale. And it will allow those processes, whether it is [indiscernible] to be used for various different speciality chemical applications. So today, if I was to hypothetically say that I will have 100 tons requirement for cyanation, I will invest in 110 tons capacity -- 120 tons capacity.

This will allow me to get into niche specialty molecules as well as a large commodity play. And most of these, including the ones that we have announced, like polycarbonate, this is a resin, which will then go downstream into the compounding. So the margins of all of these will be either equal to or in an accretive manner, better than what you are currently seeing in Deepak Phenolics. So on a net basis, on a consolidated basis, you will see a blended EBITDA which sits comfortably between Deepak Nitrite, normalized situation where it has upstream and downstream integration as well as Deepak Phenolics EBITDA profile.

[Abhijit Akella, analyst]

Understood. And with regard to the financing of these projects, will it primarily be debt financed and if so, is there a sort of peak debt to EBITDA number that you have in mind going forward?

[Sanjay Upadhyay, executive]

Abhijit, we will come back to you on this when we crystalize our [indiscernible]. It's too premature to tell you today, I'm going to -- only there is one more so that we are having a guidance and zero debt company and INR 5,000 crores net worth price. So there is enough room for debt also and enough room for equity also, there is no issue as such on financing. Because financing also depends on requirement, how it comes, the cash flows, year-1, year-2, year-3. So we have time enough to run our teams in a most beneficial way to all.

[Abhijit Akella, analyst]

Sure, sure. And one last thing is just on the INR 2,000 crores of new investments that are being commissioned during CY '24. So this would include all the projects listed on Slide #10. So polycarbonate compounding, fluorination acid, MIBK, all of these basically getting commissioned during CY '24?

[Sanjay Upadhyay, executive]

Yes, yes. By December 2024, we are expecting...

[Maulik Mehta, executive]

So there will be one specialty chemical, which will reach that a little bit by 1 to 2 months. Of course, we're still trying to see how we can optimize that.

[Abhijit Akella, analyst]

Right. And FY '26, you would expect all of these projects to pay off optimally or it would be a -- it would be slightly greater kind of ramp-up for some of these?

[Maulik Mehta, executive]

They will all go into production ramp-up as we have normally our land for production ramp-up, which includes phase while it also includes optimizing as quickly as possible. Now asking us whether we will have a payback by 2020 -- is that what you're asking us?

[Abhijit Akella, analyst]

Just sort of asking about optimal utilization. Can we sort of expect -- most of these will be at optimal levels by Fiscal '26 itself or?

[Maulik Mehta, executive]

Yes, we have accelerated ramp-up plan. I mean, safety is a primary focus. So as long as safety is kept in place, the ramp-up plan in terms of customer requirements, they are paying faster better.

[Sanjay Upadhyay, executive]

Yes, yes. It will be optimal utilization, no issues on that.

[Operator]

We have our next question from the line of Vivek Rajamani from Morgan Stanley.

[Vivek Rajamani, analyst]

Am I audible?

[Maulik Mehta, executive]

Yes.

[Vivek Rajamani, analyst]

Two questions from me. Firstly, sir, on the Advanced Intermediates side. I think you mentioned in the earlier participants that Q4, you think it's going to be better from a volume perspective from Q3. My question was looking at the recovery from an FY '25 standpoint, do you think it's going to be more of the case of us seeing sequential recovery every quarter going into the next year? Or do you still think, given what you're seeing in the industry, it's still a situation where you see a recovery one quarter and then maybe a step back?

Just wanted to get your thoughts more in terms of the pace and trajectory of recovery going into F '25. That was the first question. And the second one was on Phenolics. Just given the debottlenecking and all the initiatives that you've done and the industry spreads. I would have thought that the sequential improvement would have been much higher on the Phenolics side. I just wanted to clarify if there was something different that was happening in this quarter?

[Maulik Mehta, executive]

Thanks, Vivek. I'll just answer your second question first. I would be interested in seeing the data that gave you an indication that the improvement should be significantly better. From every data point that we see, I think that Q3 has been a strong performance for Phenolics given the current macroeconomic client, given the fact that there is not a single plant pretty much in most of the world, which is into merchant sales of Phenol which is operating at anywhere close to 140%, 150% like Deepak is. I would be curious to understand the data, and it would help me also make better estimations in the future.

Nonetheless, what we can share is that the team, the team on the ground and the technical team continues to find further headroom for improvement, whether it is on capacity or an efficiency that continues and we encourage the team to be creative in looking for opportunity for improvement.

Now with regard to the first question, whether the recovery will be consistent and secular in nature, this is difficult to say. From where we are looking right now, it does seem like it, but it is a fragile recovery. Geopolitical economic shock seem to have become a norm over the last few years. And there is already a lot of stuff which is priced in, but escalation in any of these things remains to be seen as a possible black swan. We believe that more than anything else, India will continue to be a remarkably bright arc in the middle of all of this uncertainty. And hence, Indian consumers and Indian customers will be the most benefited by having domestic suppliers of key raw materials such as Deepak. So we see how the improvement on the global scale pans out. Rest assured that India will always be a couple of 100 bps head of the rest of the world in terms of rate of recovery.

[Vivek Rajamani, analyst]

Very clear. Just one bookkeeping question from my side. What would be the current Phenol nameplate capacity after all your debottleneckings that you've done so far?

[Maulik Mehta, executive]

We forgotten that. It used to be 200,000 tons when we recommissioned it in 2018. I don't think anyone has asked the details again.

[Operator]

We have our next question from the line of Rohit Nagraj from Centrum Broking.

[Rohit Nagraj, analyst]

Sir, my first question is on the Phenol front. So have we seen any new capacities coming in China and maybe Korea or other parts of the world? And how do we see the spreads going ahead? Will they continue to improve -- I mean, stabilize here or probably F '25 will start, whether they will be able to go off it?

[Maulik Mehta, executive]

There's lots of capacity that has been commissioned over the last year, especially in China and the Far East. And that was expected in any case. Now with regards to spread, again, difficult question to answer in the current situation. You see what has happened is that the Red Sea as well as what is happening currently with regards to the Panama Canal has almost split the world into two. So freight rates and extended cash conversion cycles are forcing customers to make very different kinds of buying decisions compared to what they would make if it was only linked to demand consumption.

Now keeping this in mind, keeping also in mind that Asia is the world's largest manufacturer of petrochemicals, spreads is a very difficult point to put in place because it is not just about the spread between phenol and benzene or propylene. But it is also about whether the product is in, what is called, contango and backwardation. So we buy our benzene in a manner which is an N minus 1, and we sell our phenol at current market rates.

This gives us this delta of about 1 month, 1.5 months, where we have that breathing room and it gives us the opportunity to optimize our pricing policies with regards to the feedstock availability. This visibility is key for us to make the right decision when it comes to margin over materials. Moving forward, the spread may increase or decrease based on whether it becomes easier to move material around the world like it was a year ago or a couple of years ago.

If there continue to remain such obstacles like what is happening right now around the Suez Canal or around the Panama Canal, then that will change both seller and buyer behavior. Right now, with the current situation, with crude prices as well as the geopolitical premium, there's a lot of refineries, which have gone into voluntary lower run rates or voluntary shutdown, but these will all come back in and that will allow significant improvement in the flow of feedstock such as benzene. Now how this translates into Phenol is also a matter of how it is consumed and how customers stock it. We will see not -- it's not a good time to crystal ball ways and give you a perspective of the next few quarters. But what we are ensuring we are doing is maintaining a broad purchasing scope. So we don't depend on 1 or 2 suppliers only.

We buy from as many suppliers as possible. we tighten our purchasing rates because they are very large consumers. And we are also exactly where we need to be in terms of supplying to our customers who don't want to be depending on a very long credit cycle in order to get there Phenol, Acetone or IPA. And moving forward over the next 6 to 8 months, we will also become significant consumers of our own product. We have to ensure that our debottleneck capacity is allowing us to maintain our wallet share despite an internal consumption story also.

[Rohit Nagraj, analyst]

Sure, sir. Got that, sir. Second question in terms of the total INR 14,000 crores of investment in Gujarat, just to get a perspective in terms of whether the projects will come all together or maybe some projects will come in '26 and the rest of them will come in '27?

[Maulik Mehta, executive]

So we've clarified that about INR 2,000 crores out of that is advanced process -- advanced phases of execution and will be commissioned over a period of time over the next few quarters. The remainder of that, we are working along with technology providers in order to optimize which comes first, which comes second. But it's clear what needs to happen by the end of 2027. So look at it from the perspective of -- knowing that for a company like Deepak, 2027 end is a very clear perspective. We have to make sure that we get our things right for which we have good internal strength, financial strength as well as technical strength.

So if you look backwards from 2027, you will see a very clear picture emerge. Well, it almost becomes irrelevant whether things are stuck together, bundled together or not. What will also add a lift to this is that once these capacities as we mentioned earlier, Phenol -- cyanation of various processes for making the polycarbonate and the compounding come into play, it gives us a wild constellation of applications for the petchem industry, for which we are also keeping some amount of powder on the side in terms of investment availability. So 2027, we'll see a marked phased increase for Deepak, both in the "commodity chemicals" which will be downstream with the current play as well as what one would qualify as specialty chemicals, which will be multistep synthesis, including these processes which are not exactly but almost for the first time in India.

[Rohit Nagraj, analyst]

Got that, sir. Just one last clarification, given that we have operated the Phenol plant at close to about 88,000 tons of capacity during this quarter, if I just calculate on an annual basis for 4 quarters, the capacity comes to about 350,000. Would that calculation be right?

[Sanjay Upadhyay, executive]

Yes, that calculation is right, but you can't multiply it because it's quarterly and it shows some changes in quarter. But I mean, what you are saying is right. It is around that only.

[Operator]

We have our next question from the line of Pavnish Kumar from Ashwani Cars.

[Pavnish Kumar, analyst]

Am I audible?

[Maulik Mehta, executive]

Yes.

[Pavnish Kumar, analyst]

So first question is that with the kind of projects that we have planned in upcoming 2, 3 years, what kind of operating margins are we looking at? Like in last quarter, we did around 15%, 15.5% operating margins. What kind of operating margins are we looking at with all the capacities up and running?

[Sanjay Upadhyay, executive]

See this -- let's understand one thing. Whatever announcements we have made, now as mentioned by our Chairman, Deepak will be the most integrated petrochemical plant, maybe products in the world. This will be -- this will add certainly to the whatever current margins you are seeing because ultimately, we are going downstream in the products. We are going upstreams also in the products. So combination of all these things, I mean it could pick up at a different horizon altogether. So when we talk of this 9,000 announcement and I would -- to answer you in financial numbers, the payback should be or would be in the range of, say, 5 years. But then, this depends on -- areas are uncertain in the market, but this is our conclusion and roughly one should expect 2%, 3% higher than what normal Phenol margin is in all these projects. So you can calculate accordingly.

[Pavnish Kumar, analyst]

Okay. Secondly, I wanted to know, sir, like in the last annual report, there was a mention of a QIP that was planned for Deepak Nitrite?

[Sanjay Upadhyay, executive]

We'll come back to you on these things. See, we will have to finance INR 14,000 crores. Now the INR 2000 crores is already done, but say, INR 10,000 crores capacity. So we will get that, we have to fit and work it out because we are having enough rooms of date, we have enough cash available, we are generating receipts what we talking on the 2027 end. So depending on the cash flow requirement every year and then as I mentioned in my earlier remark also, this is too early to answer your question how are we going to [Foreign Language]. We will certainly come back to you once we finalize our cash process. I don't want to jump unnecessarily saying something. It's very easy to say if you want me to say a date [Foreign Language] but let's work it out and then compare to rather than just giving out numbers of these.

[Maulik Mehta, executive]

I just wanted to use the opportunity to answer your earlier question here. You need to think about -- I would like you at least to think about Deepak as a balanced portfolios of equities and bonds. We'll have individual businesses that are countercyclical by their nature. The most significant question that you should be asking is whether you believe in the fundamentals of the company.

[Pavnish Kumar, analyst]

Agreed, sir. Agreed. Just last question, sir, like [Foreign Language] like INR 9,000 crores we have promised in the Gujarat, then INR 5,000 crores we also had promised in Gujarat. Then we have some projects coming up in Oman also. Just for the benefit of all the audiences, can you please summarize all the projects that we are planning in the next 4 or 5 years?

[Sanjay Upadhyay, executive]

Summarize you want me to name the products?

[Pavnish Kumar, analyst]

The CapEx that we are doing in the next 4, 5 years? Can you summarize all of them?

[Maulik Mehta, executive]

We've announced that we're getting into specialty chemicals, upstream integration, including hydrogenation, we are getting into an expansion -- a greenfield expansion of Phenol and Acetone. There will be Phenol A, which will be as a downstream of Phenol and Acetone as well as an upstream of polycarbonate resin. We will also be making MMA, which as you noticed, was a tongue-twister for me when I was discussing. That will then also go into making of poly MMA. We will also be manufacturing aniline which, by the way, will be what one would call, a specialty -- high-grade aniline. So just to be clear, it is not the average PU grade aniline, but it is, what you call, aramid grade aniline. You also will be looking at an investment in Oman, which we have announced and the colligate of Phase 1 announcement because this will be for sodium nitrite and sodium nitrate.

We will also be putting up an investment for world-class research and development center, which is also, by the way, progressing well and should see the light of day maybe by about 12 months from now. And over and above this, you have the infrastructure development, which will house all of these projects because they will need the utilities and other assets online as well. The reason that we've put up a separate project management company is to ensure a high degree of governance because we will be doing multiple projects at the same time in multiple geographies.

And for what it's worth, we do not make announcements about CapEx incurred for debottlenecking downfield expansion. And we also do not announce CapEx if they are involved in specialty chemical products which will be delivered in Deepak market as an additional to what we are currently developing. So those are not mentioned, not included and not discussed. These large-scale projects, which we have announced, by and large, these are all happening semi concurrently and by our internal team. Some of these will have external technology suppliers who have demonstrated globally plants of world scale capacity.

[Operator]

We have our next question from the line of [Mrunal] from [indiscernible] Investments.

[Unknown Analyst]

Hello, am I audible?

[Operator]

Yes, you are audible.

[Unknown Analyst]

So whatever the products that we are manufacturing, is there any anti-dumping duty on any of the products?

[Sanjay Upadhyay, executive]

No, no. Not today.

[Maulik Mehta, executive]

Currently, there is on aniline. Yes, they're not manufacturing. Okay. You're talking about existing products?

[Unknown Analyst]

Yes.

[Maulik Mehta, executive]

No.

[Unknown Analyst]

Okay. And the CapEx that you have announced around that?

[Operator]

Mr. Mrunal we are unable to hear you.

We have our next question from the line of Chirag Shah from White Pine Investments.

[Chirag Shah, analyst]

Most of the questions are answered. There are 2 questions and very basic ones. If I compare F '22 as a base and currently, if you can annualize 9 months if required or -- how is the volume growth that we have seen in Phenolics and other than Phenolics in a very simple way if I have to ask you? For our business, what has been the volume growth ballpark, if you can indicate?

[Maulik Mehta, executive]

Across Deepak Nitrite stand-alone and Phenolics, there has been volume growth. You can assume that it is somewhere between 15% to 17%.

[Sanjay Upadhyay, executive]

No, it's 17% to 20%.

[Chirag Shah, analyst]

17% to 20% per annum basis or from point to point?

[Maulik Mehta, executive]

You asked from a base number?

[Chirag Shah, analyst]

Yes. So point to point, right? Okay. And is it is similar for both or Phenolics would have a higher and other would have lower?

[Maulik Mehta, executive]

No, gross volume for Phenolics is always higher.

[Chirag Shah, analyst]

Okay. And the second question is, now you have partly answered, historically, you always used to maintain that EBITDA margin guidance broadly should be 16% to 20% based on business cycle, product mix, et cetera, et cetera. Given the value addition that we are looking to do and including downstream also in that, shouldn't this ballpark guidance actually show a significant uptick when the projects stabilize?

[Sanjay Upadhyay, executive]

So that's what I mentioned, that yes, the guidance is right, the 16% to 20% and with all this -- because this is going further downstreams and even somewhere it is upstreams also, so it should add to -- it may not add to the top line if it is captive, but it should add 2% to 3% over current EBITDA margin -- EBITDA profile.

[Chirag Shah, analyst]

So is it right to look at 12 months out the project stabilization? Say, if you start a project today, you should see those benefits 12 months out, that is the right way to look at it?

[Maulik Mehta, executive]

No, it depends. Project stabilization is different for different products. If you are using a hazardous chemistry, for example, you need to have a very slow scale-up so that you can measure the impact with regards to the internal equipments as well. If you're using assets which are generally a very robust manufacturing profile, you can scale-up fast. And in some cases, the scale-up is also contingent with regards to -- in line with the customers' buying requirements. So for example, there are a couple of specialty chemicals which we will be making, which should be high value, but the customer himself or herself requires about 6 months with regards to ensuring that the product is remaining stable with regards to shelf life. So these are depending on different products and different chemistries.

[Chirag Shah, analyst]

And last question is, you mentioned that for the new CapEx that you are doing, ballpark payback is 5 years. So if I do a very basic math, it is actually ROC dilutive compared to what current ROCs that we have. Any thought on that side? I'm just referring to the reported ROCs.

[Sanjay Upadhyay, executive]

CapEx versus today's ROC you are considering the depreciated assets. So there is a big difference between the two. If I'm comparing today's situation with the new CapEx, after 3, 4 years, even whatever investments we are making when we start generating profit, you will have same ROCs, you are in the initial phase.

[Chirag Shah, analyst]

No, I thought 5 years payback -- because I was wondering, 5-year payback -- generally, when you say a 5-year payback, the first 2-year payback with ROCs would be significantly lower and then it will scale up, right? So that's why I was trying to understand how you are looking at this 5-year payback number.

[Sanjay Upadhyay, executive]

I think I answered that. This is generally a ballpark number. Some projects will have premium, some of it will have 4 years. We are talking about INR 14,000 crores investment. So it cannot be...

[Chirag Shah, analyst]

Okay. And lastly, this INR 2,000 crores, the CapEx that we are doing now because there is an element of backward integration in this also, how should we look at the asset turnover here? If you can help us understand because there is a lot of projects coming up with a lot of different type of value addition happening. So on a INR 2,000 crores, once the project stabilizes, what kind of gross effect turn one should look at?

[Operator]

We have our next question from the line of [Dhara] from ValueQuest.

[Unknown Analyst]

I just want to understand what is happening around the...

[Operator]

Sorry to interrupt ma'am, we have the management's line disconnected. I will just connect the management line.

Ladies and gentlemen, we have the management back with us. Over to you sir.

[Sanjay Upadhyay, executive]

Yes. So I think I answered already. So I don't know whether any further questions are there.

[Operator]

Yes, Ms. Dhara, you can go ahead with your question.

[Unknown Analyst]

So one of the largest Phenol manufacturer in yours has shut its capacity. So are we seeing any benefits coming in terms of volumes and realization in our [indiscernible]? And when is the greenfield capacity for Phenol coming in and what is the kind of time line?

[Sanjay Upadhyay, executive]

So we are seeing that already here. We are able to sell such a volume that itself shows that, I mean...

[Maulik Mehta, executive]

If you are referring to the recent shutdown in Germany?

[Unknown Analyst]

Yes, yes, the recent one.

[Maulik Mehta, executive]

So that is a forced measure. It is not a shutdown like how you have heard about in other places in Europe, which is a permanent closure. This is a forced measure. Now there is -- it starts up with some level of sentimental by -- we don't comment on that. Sometimes it will be there, sometimes it will be more of a desperation in terms of volume, pricing, those are all parts of regular business. So I will not comment about the impact of the forced measure. And we'll see how long it stands out because they themselves are not, to the best of my knowledge, declared how much time it will take in line with the forced measure. We remain capable of supplying increased volume if there is a requirement. And meanwhile, we are focused on ensuring that...

[Unknown Analyst]

Okay. And if you can share the timeline for the greenfield Phenol expansion?

[Maulik Mehta, executive]

Before 2027, it should be commissioned. Before end of 2027 because that is when we will be consuming this increased amount of propylene.

[Unknown Analyst]

And what would be the size?

[Maulik Mehta, executive]

It can happen at that time only.

[Unknown Analyst]

Okay. And the capacity would be?

[Maulik Mehta, executive]

I think similar, by and large, maybe we'll be a little bit more adventurous with regards to the capacity. But I assume it will be something similar to what we have currently.

[Unknown Analyst]

Okay. And one book-keeping question. If you can share the Phenol volume numbers in the last 3 quarters that you've done?

[Maulik Mehta, executive]

Sale volume, production, what do you...

[Unknown Analyst]

Sales volume. Sales volume done in the last 3 quarters, if you can give that number?

[Sanjay Upadhyay, executive]

I don't think we should share anything on the numbers and all...

[Maulik Mehta, executive]

What is the relevance? Because these numbers are inclusive of Acetone, of IPA, of AMS, whatever else, I don't know.

[Unknown Analyst]

I just want to see on a stand-alone basis, how much of the growth is led by volume?

[Maulik Mehta, executive]

We've already mentioned that there has been 13% revenue growth and that has been volume-led growth.

[Sanjay Upadhyay, executive]

So total volume growth is around 17% to 20% in the cumulative 9 months. That's what we have said. Now, we don't want to give you details of each product and that will not be right for us to do.

[Operator]

We have our next question from the line [Garvit Goel] from Nvest Analytics Advisors.

[Unknown Analyst]

Just one question on the photohalogenation and chlorination part. So how is ramp-up going to happen? And what contribution do you expect in FY '25, sir?

[Maulik Mehta, executive]

So with regards to the ramp-up, it will -- the ramp-up will be in a structured manner. The requirement is on [repay]. Partially, it will be resumed internally and partially the production will be sold externally, but the same assets will also be used to manufacture the products. And that is why the assets have been, what we call, up-engineered. So photohalogenation products will also be sold out. the high-pressure chlorination will be a downstream from the halogenation. That will also have further downstreams going into both Deepak Nitrite's requirement as well as our customers' requirements. On a blended basis, I would qualify that in the medium term, the margin profile is in one way, similar to what you normally expect from Deepak.

[Unknown Analyst]

I was asking from the contribution to top line?

[Maulik Mehta, executive]

With regards to month or month, simply because there are always no challenges that you want to make sure that you're doing things safely first and then efficiently, second.

[Unknown Analyst]

Yes, sir, that I understand. Just can you share any number like what percentage of utilization do we expect in [indiscernible]?

[Maulik Mehta, executive]

By the end of the second quarter, I think we should have a very high utilization. I mean, frankly speaking, also just I want to be very honest here and say that when it comes to both of these processes, these are not easy, and these are also the first time that Deepak, as a company, is doing it. We're committed to doing it safely and responsibly. We also have the best talent in the country who is going to help us. So our confidence is based on the confidence that our teams have, but we are also humble enough to accept that this is a new chemistry. So whatever it is, we will hear on the side of caution, our people on the ground are our most valuable commodity.

[Unknown Analyst]

And sir, what is the peak revenue do we expect from Deepak Nitrite?

[Maulik Mehta, executive]

Difficult to answer because some of these are going to be, as I mentioned, products that Deepak itself will consume and sell, but some of these are also going to be used for co-development with our customers for -- chemicals . So those will depend -- the revenue coming in will depend on the kind of agreements that we have in place with our customers. Those are all covered by NDA. So even though these are just a handful of assets, it's difficult to give you an answer because it's a blended product portfolio.

[Unknown Analyst]

Understood, sir. All the best for the future.

[Maulik Mehta, executive]

Thank you so much.

[Operator]

Thank you. Ladies and gentlemen, due to time constrain, that was the last question for today. I now hand the conference over to the management for closing comments.

[Sanjay Upadhyay, executive]

Thank you all for joining this call. In case any further clarification is required, please get in touch with our IR team, led by mR. Somsekhar Nanda. Thank you once again.

[Maulik Mehta, executive]

Thank you, and stay healthy.

[Operator]

Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.