Encashing the Right Chemistry

PRODUCT MIX IS CRUCIAL IN CHEMISTRY AS WELL AS IN BUSINESS. CHEMICAL COMPANY DEEPAK NITRITE RELIED ON THIS MANTRA TO CREATE A SUCCESS STORY

WE FOCUSED ON DOUBLING OUR REVENUE AND TRIPLING OUR PROFIT IN THE PAST FIVE YEARS. OUR KEY STRATEGY FOR THIS WAS TO MAKE GREENFIELD AND BROWNFIELD INVESTMENTS WHERE RETURNS WERE HIGH”

Maulik D. Mehta, CEO & Executive Director, Deepak Nitrite

Launching new products, diversifying the business, getting the perfect product mix and growth in exports. Few companies get all of these right and that too over a long period. Those that do, such as Gujarat-based chemicals company Deepak Nitrite, create huge wealth for their investors.

“We focused on doubling our revenue and tripling our profit in the past five years. Our key strategy was to make greenfield and brownfield investments where returns were high and garnering largest market share,” says Maulik D. Mehta, CEO and Executive Director. “We invested ` 1,700 core in a plant for phenol where our market share is around 65 per cent,” he says. The plant, the country's largest phenol-acetone (used in bath, hair and skin care products to kill microorganisms, reduce body odour and cleanse the skin) unit at Dahej PCPIR, Gujarat, with a capacity of about 2,00,000 tonnes phenol per annum and 1,20,000 tonnes of co-product acetone, is expected to reduce the country’s import dependence. It started commercial production in 2019 and has provided the company an income of around ` 2,000 crore so far.

Increase in Wealth

With six plants, 30 products and 1,000 customers in 30 countries, Deepak Nitrite bet on opportunities such as US- China trade tensions, which further opened up export markets for its products, and environmental issues in China that led to closure of capacities there.

“We invested in high-margin products in pharmaceutical and agro sectors and kept capacity utilisation high at 80-100 per cent on an average. Apart from this, reducing input costs, financial prudence and hedging helped us,” says Mehta. The depreciation of the Indian currency also helped the company increase its profits from abroad in rupee terms.

Impact of Lockdown

The rapid spread of the pandemic and resultant lockdowns have sharply derailed industries across the country. The lockdown has affected capital project timelines of the company. There have been disruptions on the supply chain front as well. That said, the company launched Iso Propyl Alcohol ( IPA) during Covid-19. It is used as a solvent in the pharmaceuticals industry and an input for sanitisers. “Our facilities are operating at sub- optimal levels (some plants are functioning at full capacity while a few are functioning at 50- 70 per cent capacity) after the lockdown,” says Mehta.

With global customers seeking alternative supply

chains to de-risk their business operations, Deepak is now emerging as an alternative to Chinese suppliers. It has been getting a lot of enquiries from across the globe for its products and services. “We have witnessed a surge in demand for diamino stilbene disulphonic acid,” says Mehta. The acid is used in synthesis of dyes and optical brighteners or fluorescent whitening agents.

Gross revenue of the company shot up from ` 804 crore five years back (FY16) to ` 2,230 crore in FY20, a CAGR of more than 29 per cent. Operating profit grew from ` 168 to ` 1,320 crore and profit after tax from ` 65 crore to ` 544 crore during the period. The company is number one in the medium category in our list of India’s biggest wealth generators.

Way Ahead

While high volatility in input prices and reverse globalisation are still challenges for Deepak, the future looks bright as the industry slowly recovers and explores opportunities arising out of disruption of raw material supply from China.

Backed by the government’s support and policy changes and focus on reducing import dependence, the Indian Chemical Council is aiming to double the turnover of the industry to $300 billion by 2025. “These economic changes will offer a plethora of opportunities, forcing Indian companies towards Atmanirbhar Bharat, both in terms of forward as well backward integration of the chemicals sector,” says Mehta. “Our core philosophy is to have import substitution and self-reliance. Thus, we will increase our IPA capacity from 30,000 to 60,000 tonnes per annum and invest in brownfield projects for agro intermediates in the next one year,” says Mehta. The company is also planning to set up a new R& D centre and a captive power plant to reduce costs. “We will also explore newer downstream products related to phenol and acetone business,” says Mehta.

The company is going all out for fast growth it seems.