About seven-eight years ago, Deepak C. Mehta, Chairman and Managing Director of 50-year-old Deepak Nitrite was planning an aggressive expansion in Europe, backed by acquisitions. During one his meetings in the country, a veteran European industrialist told him, "Deepak, you are here to buy us, while we are looking at your country as one of our most potential markets."
"It was an eye opener," says Mehta. The chemical industry in Europe was stagnating at 1-2 per cent, while India was growing at over 7-8 per cent. Mehta changed plans and decided to focus on producing more from India. "In a way, I was among the first to promote Atma Nirbhar Bharat, even before our government started promoting it," says Mehta with a huge grin.
Deepak Nitrite's income grew at a three-year compounded annual growth rate (CAGR) of 21.63 per cent to Rs 2,237.2 crore, while net profit grew 70.05 per cent to Rs 544.04 crore. "We choose our products that have the potential to be among the top three in the world," says Mehta.
The company makes over 100 basic, fine and specialty chemicals and performance products from six manufacturing locations across India. About 35 per cent of its Rs 4,265-crore revenue in FY20 came from exports to over 700-plus clients across the globe. "Its revenue has grown at a CAGR of about 13 per cent over 10 years and the stock price has increased by about 275 per cent during the same period. With extensive research & development (R&D) and rapid expansion of manufacturing facilities, the company has a strong position in the export market, with around 70 per cent share of the Indian inorganic compound market," according to analyst Pulkit Baid of Vista Capital Research.
Targeting the world
Deepak Nitrite is already among the top three global players for xylidines, cumidines and oximes, widely used in agrochemicals and pigment industries. It is the leading producer of sodium nitrate in India since 1972. Deepak Phenolics, the company's 100 per cent subsidiary, is a new platform for products based on phenol, acetone and isopropyl alcohol (IPA). Phenols are used for making glue, household products and as intermediates for industrial synthesis. Acetone is a solvent used in manufacturing of pharma products, plastics, cosmetics and personal care products. IPA is also a key component in the manufacture of cleaning, disinfectants, inks, agro-chem formulations, resins, acrylic emulsions and pharmaceutical products. Hindustan Organic Chemicals, a government company and SI Group India (SIGIL) were the major manufacturers with 30,000-tonne capacity each, while the Indian demand alone was over 2 lakh tonnes.
Deepak Phenolics invested more than Rs 1,400 crore over 25 months, one of the largest investments in India's chemical sector in recent years, to create a manufacturing capacity of 2 lakh tonnes of phenol per annum and 1.2 lakh tonnes of its co-product acetone, and supported by a captive capacity for 26 lakh tonnes of chemical compound cumene. The plant, with advanced digital IoT systems, process technologies and zero emission, is eight times bigger than all existing facilities in India. It was commissioned in November 2018. "It will help in saving half a billion dollars in imports for the country," says Mehta. Deepak Phenolics already contributes 47 per cent to the group's business.
The new capacity has come in handy during Covid-19. Deepak C. Mehta's younger brother Sailesh C. Mehta-owned Deepak Fertilisers and Petrochemicals Corporation Ltd (DFPCL) was the only manufacturer of IPA in India with an installed capacity of 70,000 tonnes per annum (TPA). The country's total demand for IPA is around 200,000 TPA since it is the most commonly used disinfectant for sanitisers. Global demand of IPA is expected to reach 522,000 TPA during 2020-2024. Since May, Deepak Phenolics has commenced production of IPA from acetone at its manufacturing facility at Dahej, which has an installed capacity of 30,000 TPA. "Now we are doubling the capacity and this will go on stream by April-May 2021," says Mehta.
Taking on China
The Indian chemical industry is currently Asias third-largest and the seventh largest by output in the world after China, Germany, the US, Japan, France and Italy. It is poised to become fourth or fifth by 2025, says Mehta, past President of the Indian Chemicals Council (ICC), and Chairman, FICCI Gujarat State Council. With nearly $15 trillion of Chinese exports in chemicals and plastics subject to US tariffs, India is set to gain market share estimated to be around $4.7 trillion, according to a research report on Deepak Nitrite by Equentis, which predicts a revenue CAGR of 16 per cent and PAT CAGR of 27 per cent for the company over FY19-24. A long operating history and established track record in the global chemical intermediates industry, diversified product profile mitigating the risk associated with cyclicality in different product segments, multi-purpose manufacturing facilities with significant backward and forward integration linkages and improvement in financial profile driven by increasing scale of operations and cash accruals are the main strengths of Deepak Nitrite, according to the report. The company will benefit with the India chemical industry is growing at 8-10 per cent annually, the report says.
A research driven company, Deepak Nitrite is readying a pipeline of fine and speciality chemicals products and has purchased 125 acres of land at Dahej to set up manufacturing facilities. "The world is looking at options to China, the world's largest chemical manufacturer, and India can supply cost-competitively. That is where companies like Deepak Nitrite can play a role," says Mehta.
There has been a decline in exports from China due to shutdown of multiple plants. India also stands to gain from the current trade war between the US and China. Planned capacity expansions product extensions are expected to aid Deepak Nitrite's growth, according to industry experts.
Mehta says India can compete with China provided the right incentives and policy initiatives such as big common infrastructure and tie-ups with West Asian upstream companies are in place.
Deepak Nitrate is already on the path to become a global leader in the chemical industry.