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Investee Name - Deepak Nitrite Ltd.
Asset Type - Equity Country of Listing - India
BSE Code - 506401 NSE Symbol - DEEPAKNTR
Sector - Chemicals Industry - Chemicals

Note: Deepak Nitrite Ltd. may herewith As of Aug 21st, 2021

be quoted as ‘DN’ or ‘DNL’ or ‘Company’.

BUSINESS DESCRIPTION
Deepak Nitrite got incorporated in 1970, and the company produces chemicals such as sodium nitrite and other allied chemicals, dyes,
hexamethylenetetramine, and dyes intermediates. DNL's IPO was launched in 1971 and got oversubscribed by 20 times.

Leading segments of business, latest growth, and margins:

Basic chemicals: Basic chemicals reported revenue of Rs. 249 Crores in Q1 FY2022 up by 63% from Rs. 153 Crores in Q1 FY2021. The
Company has capitalized on pricing opportunities to maintain performance even as some end-user industries continue to be impacted
by pandemic-led drop-in activity.

Fine and specialty chemicals: Growth: 48% to Rs. 207 Crores in Q1 FY2022 from Rs. 140 Crores in Q1 FY2021. Disruption to export-
import bound logistics has impacted volumes this quarter.

Performance Products: Revenue of Rs. 93 Crores during the quarter. Overall volumes in the PP segment improved by 54%. With DASDA
prices also inching back to normalcy, the PP segment has delivered an improved performance this quarter.

Phenolics: Revenue expanding by 202% to Rs. 999 Crores in Q1 FY2022. While EBITDA soared by 263% Y-o-Y from Rs. 86Cr in Q1 FY21
to Rs. 313Cr in Q1 FY22, the EBITDA margin stood at 31% in Q1 FY22 as compared to 26% in Q1 FY21.
WHAT MAKES DNL A
COMPELLING INVESTMENT?
High market share: DN is the market leader in sodium nitrite with 80% market share, fuel additives market share 75%, nitrotoluene – 50%
and 75% market share in the PP segment, 60% global market share DASDA.

Capex and forward integration: Deepak Nitrite is investing almost 400 cr. In CAPEX, to develop additional production capacity, and is
vertically expanding with forwarding integration. A power plant that is expected to get commissioned will also reduce power costs and
improve margins. DNL is also undertaking a new cleantech subsidiary.

Diversification and many uses: Deepak nitrite manufactures a variety of chemicals, and in addition to that, these chemicals have an even
greater variety of services. As a result, the demand of the chemical industry is comparatively safe, and a significant dip in the market is
not possible. So overall performance will remain stable.

China plus one policy: China plus one approach has helped DN increase its sales in recent years, which has propelled the share price.
With the other trend of companies diversifying their suppliers, DN gets set to gain from it.

Robust customer base: DN's customer base has big name brands like RIL, Nirma, BASF (International giant in chemicals), Emami, and
Loreal, giving DN regular revenues and stability.
Ability to pass on the cost: Whenever raw material prices increase; cost increases get passed to the customers. As a result, OPM, GPM,
and net profit margins are not declining even in increased raw material costs.

Sustainability: This company is one of the only 40 companies from the Indian markets awarded 'Responsible care' status. DN has made
Investments to get sustainable energy

Robust Financials': The company has an almost clean balance sheet.

WHAT ARE THE SPECIFIC RISKS
ASSOCIATED WITH DNL?
Specific risks mean risks that are particularly associated with the business of the investee. Market and economic risks are excluded here.
Please read our investment philosophy to understand the systemic risk management policy of Savart.

Regulatory risk: DNL is in the chemical sector known to cause pollution; thus, government regulation is high in this sector.
Changing raw material prices: DNL is dependent on raw materials such as crude oil, which got heavily impacted by international markets.
High international competition: China’s ability to cut costs.

The industry is prone to regulation with increasing environmental consciousness.

Foreign exchange risk: DNL faces forex risk because payments of the company many times arrive in dollars, and the current exchange
rate fluctuation can impact the revenue.
Business Developments amid Covid-19 2.0
Phenolic segment business continues to expand its margin. It
Latest Quarterly Highlights recorded margin expansion by 30 basis points in the latest
quarter sequential basis on account of continued demand
Deepak Nitrate has recorded strong growth and and better operational efficiency. The overall EBIT margin
reflected strong resilience during Q1FY22. Revenues
reflects stronger numbers compared to last year due to
posted 126% growth YOY in Q1FY22 aided by lower
improved business conditions and sequentially overall EBIT
base & 4.3% on quarterly basis reflecting strong
margin remains stable with a fall of 10 basis points 26.5%.
resilience amid the deadlier resurgence of Covid 19.
The revenue trajectory entered a new orbit post the
expansion of phenolic business through
Business Outlook
commissioning of additional plants and strong High margin segments are expected to gain traction
demand from global players. with the normalization of logistical issues in the
background of moderation in Covid-19 and that would
Phenolic segment has recorded more than 200% further enable the company to grow in a stable manner
growth compared to last year June quarter aided by as high margin products are export bound. On the
favorable base and stable demand. Sequential basis other hand, upcoming completion of underlying capex
this segment revenue recorded a growth in excess of plans would expand the future earnings. So, the
5%. Fine & Specialty segment (high margin segment) business outlook for long term remains stable and
recorded some pressure due to shipment issues growth oriented.
during Q1 FY22. Basic segment margins went up
quite significantly aided by the premium pricing
preferred by customers due to logistical volatility.
However, once the logistical issues become stable,
margins would tend to normalize.
INDUSTRY LEADERSHIP ASSESSMENT
The firm does not have direct listed competitors in the chemicals that it manufactures. However, we can compare DN to the chemical
sector.

Deepak Nitrate v/s Industry 2021

Ratio Analysis

Margin Ratios Performance Ratios

128,51

29,31

26,76 26,46

21,83
21,15
19,32 19,61

14,52

27,32
21,27
16,82 15,03
12,47 0,86 0,86 2,00 1,70 3,65 6,09

ROA(%) ROE(%) ROCE(%) ASSET TURNOVER(X) SALES/FIXED ASSET(X) WORKING

CORE EBITDA MARGIN(%) EBIT MARGIN(%) PRE TAX MARGIN(%) PAT MARGIN (%) CAPITAL/SALES(X)

Deepak Nitrate Ltd Industry Deepak Nitrate Ltd Industry

Deepak Nitrate Financials Ratios - Consolidated
 DNL is one of the leading companies in the Indian chemical
CONCLUSION sector and the global chemical sector. The monopolies it
has established keep it in a dominant position in the
market. Their CAPEX and forward integration efforts are
also good signs for improving margins and profitability.
Increasing EPS, margins, and healthy promotor holding are
also positives. While we do not believe that this investment
would yield an immediate stellar return, this is our firm bet
on a consistent wealth compounder over the longer term.