Creating The Right Chemistry

Dalal Street Investment Journal|May 11, 2020

Creating The Right Chemistry
With the Indian chemical industry considered an important component of the Indian economy since it accounts for approximately 2 per cent of the country's GDP and 15 per cent of India's manufacturing GDP, Deepak Nitrite, with its successful portfolio of chemicals, finds itself soundly established in this sector
Deepak Nitrite

Deepak Nitrite is acknowledged as a major manufacturer of chemical intermediates. The company has a diversified portfolio of intermediates that cater to the dyes and pigments, agrochemical, pharmaceuticals, plastics, textiles, paper, and home and personal care segments in India and overseas as well. Deepak Nitrite’s growing portfolio, which contains more than 100 products, consists of 42 per cent basic chemicals and 29 per cent each of fine and specialty chemicals and performance products. The company’s manufacturing units are located at Nandesari and Dahej in Gujarat, Roha and Taloja in Maharashtra and Hyderabad in Telangana while its research and development facility is located at Nandesari. The company gains around 35 per cent of its revenue from exports.

Industry Overview

The Indian chemical industry is considered as an important component of the Indian economy since it accounts for approximately 2 per cent of the country's GDP and 15 per cent of India's manufacturing GDP. One of the fastest growing industries in the world, currently it is ranked the fourth-largest in Asia and sixth in the world in terms of output after USA, China, Germany, Japan and Korea. The chemical sector in India is broadly classified into bulk chemicals, specialty chemicals, agrochemicals, petrochemicals, polymers and fertilisers. One of the shifts in this industry is that the Chinese government has been focusing on environment protection since 2016 and has deepened its regulatory investigations to enhance production safety and moderate environment pollution.

As against such stringent environmental norms imposed in China, the Indian specialty chemicals sector has witnessed a strong performance on the back of a continued increase in demand from end-user industries and tightened global supply from China. For FY 2019, the Indian chemicals sector was around USD 160 billion with specialty chemicals contributing up to 20 per cent. Thus, it is expected that the specialty chemicals sector will grow at 10 per cent annually to almost double the market size by FY 2025.

The chemical industry is expected to be a key contributor and catalyst in achieving India’s target of USD 1 trillion manufacturing economy by 2028 from the current USD 380 billion. Currently, Indian chemical companies are enhancing capabilities and investing greater amounts in research and development to elevate their offerings, which will further help the industry to achieve the desired growth trajectory.

Business Segments

Basic Chemicals: As part of basic chemicals, the company manufactures nitrites, nitro toluidines and fuel additives. As these chemicals are high-margin, high-volume products with proportionately higher price sensitivity, cost leadership is considered a competitive advantage required for growth and profitability. For Q3FY20 the segment reported revenues of ₹253 crore compared to ₹219 crore in the corresponding quarter of the previous fiscal year, thus clocking a growth of 16 per cent. Owing to the company’s cost leadership position in the market as well as efforts towards widening its customer base, volumes for the segment increased by 23 per cent YoY for Q3FY20. For FY 2019, basic chemicals reported sales of ₹893 crore – an increase of 17 per cent YoY.

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May 11, 2020