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Shares of Deepak Nitrite fell as much as 10 percent on Thursday after the company reported another weak quarterly performance, which was impacted due to high cost inventory, significantly high energy cost and partial operations in one of its main plants. However, the company is hopeful of a recovery as it is eyeing large outsourcing as well as market opportunities emerging in the Europe.

According to Maulik Mehta, CEO and ED of Deepak Nitrite, there is a trend to look at Europe+1 theme.

"One cannot underestimate the size of the European chemical industries. A lot of the European companies are looking at outsourcing part or all of their targeted production outside of Europe into countries such as India. Europe is also a large consumer of chemicals and there is also an opportunity," says Mehta.

Over the next six months, certainly there will be a lot more clarity as far as these opportunities are concerned, he added.

Explaining the quarter that was impacted, Mehta said that; "In terms of strength, by and large all the segments were strong in terms of volumes. However, price increase was largely on account of significant cost increases."

According to the company, India did witness slowdown in demand in the textile segment during the September quarter. However, the company was able to offset this to certain extend by exporting significant volumes where earlier Deepak Nitrite was used as a second supplier and Europe as a primary supplier.

“We were able to get a far larger volumes at about the same times as freight rates were normalising,” the CEO said.

Therefore, the company was able to protect its gross margins at the expense of its percentage, however, the management is bullish in the overall sense about demand for its standalone businesses.

During the 2nd quarter, the company's net profit declined over 30 percent as compared to the same period a year ago. Revenue increased 17 percent but the growth was capped due to the underperformance of the company's Phenolics business.

Revenue from the Phenolics business may have increased 12 percent year-on-year but its operating performance or EBIT more than halved, declining 53 percent from last year to Rs 102 crore. Even when compared to the June quarter, the Phenolics business EBIT was down 45 percent, the company said.

At present, more than half of Deepak Nitrite's revenue comes from the Phenolics business

For the overall business, the EBITDA also declined 30 percent in the September quarter while margin contracted over 900 basis points to 13.8 percent.

Mehta believes that the price of petrochemicals skyrocketed because of paucity of crude available for cracking and a drop in the demand for phenol because it became a distant second priority. “This is an abnormal situation. Normally you will find both of these moving maybe with a month’s lag but today because of the very high price of benzene,” he said.

While there is a global slowdown, India is a far more growth opportunity than the rest of the world. “Domestic consumption was there, though slower than normal or more cautious than normal, but it allowed us to manufacture at a rate exceeding 120-130 percent while Korea and China were operating at 30-40 percent,” he explained.

The stock was down 8.32 percent in the last one week and 4.64 percent in the past month.

For the full interview, watch the accompanying video

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First Published:Nov 11, 2022 5:16 PM IST