Deepak Nitrite’s Maulik Mehta On Long-Term Outlook And Business Prospects

Deepak Nitrite Ltd. sees demand across segments, mainly for dyes and intermediates, paper/detergent and textiles, recovering as economic activities gradually pick-up after the nation lifted lockdown restrictions.

“It’s natural to assume that Q4 will be better than Q3, and Q3 will be better than Q2,” Maulik Mehta, executive director and chief executive officer at the chemical maker, told BloombergQuint in an interview, as he issues a caveat that the performances will improve if all things remain constant, particularly on transportation and production. FY21 is not a washout year, he said, but the company is expected to get back on the growth trend in FY22.

Deepak Nitrite clocked in close to 50% sequential revenue growth in the quarter ended September, led by phenolics and specialty chemicals businesses. Sales in the phenolics segment jumped 65% over the preceding three months to Rs 545.85 crore, taking its contribution to more than 50% of the company’s revenue. Sales of the fine and specialty chemicals business jumped 50% sequentially to Rs 209.9 crore.

Besides, the company’s operating margin in the reported quarter was near its record high. Mehta is confident that the margin for the phenolics and basic chemicals businesses would sustain. In the fine and specialty chemicals segment, however, margin may come off a bit from the 48% clocked in the second quarter. The performance products segment, according to him, witnessed a subdued demand, hurting margin, but that will move up compared to the first half.

Here’s what Mehta said on the impact of China Plus One on Indian chemical companies, and how Deepak Nitrite could look completely different in the next five years.

China Plus One

The narrative of companies wanting to shift some production to India and to companies like Deepak Nitrite is correct, according to Mehta. India, he said, is at a pole position of benefitting from the ‘China Plus One’ strategy because global companies, while not wanting to break the relationships with China, would look to reduce the overdependence on it.

Strategic Tie-Ups

Deepak Nitrite was in conversation with strategic partners for mutually beneficial agreements, which, Mehta said, had to be put on the backburner in favour of tactical decisions to make the business thrive in the Covid-impacted quarters. He, however, said a lot of these conversations are now back on track, and investors can look out for announcements in the ensuing quarters.

Long-Term Outlook

Deepak Nitrite will look at augmenting capacity and going downstream in specialty chemicals when the opportunity presents itself, but not at the expense of the upstream business, Mehta said.

The company, he said, has set up a new subsidiary, which would be able to tap into newer opportunities. Mehta remains cautiously positive that the firm will look significantly different and better in 2025. The company will be able to take up multiple opportunities of the size and nature of what it took four years ago when it set up the largest phenol plant in the country, he said.

Shares of Deepak Nitrite are up for the sixth straight session, their longest winning streak since July. The stock gained as much as 5.1% in Thursday’s trade.

Watch the full interview here: