Incorporated in the early 1970s, by Mr. C.K. Mehta, Deepak Nitrite Ltd is currently led by his son Mr. Deepak Mehta( Serving as Chairman & MD). The company has gradually moved up the value chain and now categorize its products into 3 lines:
1. Basic Chemicals
2. Fine & Specialty Chemicals
3. Performance products
The company derives 65% of sales from Domestic market and 35% from exports as of FY18. EU contribute the maximum in terms of the export market.
The company has made three acquisitions in the past—Sayadri Dyestuffs and Chemicals Ltd bought from the Mafatlal group in 1984, Aryan Pesticides Ltd in 1999 and the color ingredients business of Vasant Chemicals Ltd in 2007.
Deepak Nitrite Ltd- Segment & Sector Split
Deepak Nitrite Ltd- Plants & Clients
Nandesari, Gujarat: Basic chemicals, eg Para Nitro Toluene(PNT), Nitrotoluene
Taloja, Maharashtra: Hydrogenation & noble metal catalysis specialty
Dahej, Gujarat: Phenol-Acetone, OBA
Roha, Maharashtra: Fine & Specialty chemicals
Hyderabad, Telangana: Manufactures Optical Brightening (OBA) Intermediates (DASDA)
Few of the 700+ customers of Deepak Nitrite Ltd
Deepak Nitrite Ltd: Basic Chemicals
Deepak Nitrite Ltd: Basic Chemicals
Deepak Nitrite Ltd: Fine and Specialty Chemicals
Deepak Nitrite Ltd: Fine and Speciality Chemicals
Deepak Nitrite Ltd: Performance Products
OBA Manufacturing process
Deepak Nitrite Ltd: Performance Products
Deepak Nitrite Ltd- OBA Customers
Deepak Nitrite Ltd- Financials
Deepak Nitrite Ltd- Financials
Deepak Phenolics- 100% Subsidiary of Deepak Nitrite
The company has come up with a mega Phenol Acetone plant at its Dahej facilities. I will be covering the details on this plant in a different article. The plant is meant for import substitution.
65% of company’s product is consumed domestically whereas 35% is exported. With Deepak Phenolics coming on stream, which is targeted totally at the domestic market, the export component is set to decline.
The management in the conference call have indicated that No major capex in the near future. Only some would be towards bringing operational efficiency.
Risks/Negatives
Deepak Nitrite is a petrochemical company. Dependent on crude oil price. Hence faces forex risks as well has to deal with crude oil price volatility.
Petrochem derived products, hence prices derived internationally.
The company is focused on growth and they don’t mind a high level of debt to fund that growth. As of Q3FY19, the consolidated debt stands at ₹1275 cr and Debt to Equity ratio at 1.35.
Frequent equity dilution to fund the growth.
Key Positives
1. Management strives to add 1% every year to EBITDA margin.
2. Very humble & honest management with a top-notch board.
3. Promoters have been increasing their share by buying from open market
4. Spends roughly around ₹8 to 9 cr towards R&D every year located at Nandesari Gujarat.
5. Despite having high debt, Deepak Nitrite Ltd has not pledged any of their shares, implying creditors having comfort in the debt servicing capability of the company as well as excellent negotiation capability.
6.Reasonable salary of management
7. Good cash flow management
8. Because of continuous efforts of the management, Performance Product which has been a laggard for the last 4 years witnessed a turnaround
Related Party Transactions
The company has a related listed company called as “Deepak Fertilizers and Petrochemicals Ltd”. Given the size of the company ₹6000+cr and low-profit margin of 2.7%, Negative cash flow from operations, it will be prudent to spend some time on related party transactions.
There are very small related transactions between these 2 companies, so nothing to worry on this part.
Overall looks like a very good company led by capable management always striving to get better at what they are doing.
Further reading:
By,
Shekhar Yadav