Hello, welcome to the first blog of our Company Analysis category. Today, we will be delving into the operations of a company in India that has been in business for over 50 years. This company is renowned for its production of Sodium Nitrite, Phenol, and Acetone, and is recognized as one of the top three global players in the organic products market, specifically in the production of Xylidines, Cumidines, and Oximes.
The name of this esteemed company is Deepak Nitrite, and it boasts three main subsidiaries: Deepak Phenolics, Deepak Nitrite, and Nova Synthetic. So, let’s start the analysis.
Important Note: I have done this analysis mainly using the company's latest annual report and some other official sources which I have provided at the end of the blog.
The History Of Deepak Nitrite
This company was founded in 1970 by Shri Chimanlal K Mehta. He named the company after his son Deepak Mehta. With five years of experience in Chemical Trade and manufacturing, Chimanlal Mehta utilized his expertise to establish this company.
While most companies take years to become profitable, Chimanlal K Mehta's experience and strategic business direction allowed the company to report its first profit in just two years. Additionally, he aimed to establish the company as a brand before the public, which led to its listing on BSE in 1971.
Deepak Nitrite Product Overview
The company operates on 4 main types of products which have the highest impact on its revenue. The highest contribution is Phenolics at 61.94%, Basic Intermediates at 18.20%, Specialty Chemicals at 12.22% and Performance Products at 7.64%.
All these chemicals are mainly used in different types of businesses like Paper, Detergents, Textiles, Laminate & Plywood, Automotive, Construction, Pharmaceuticals, Adhesives, Sanitisers, Rubber, Chemicals, Paints, Agrochemicals, Colors & Pigments, Personal Care, Water Treatment and Glass Industries.
This diverse portfolio of Deepak nitrite can protect it from losses during any particular industry slowdown.
Deepak Nitrite Highlights:
- The company has around 75% market share in sodium nitrite, sodium nitrate, and NitroToluenes in India.
- Leading Producer of Phenol & Acetone and organic products like Xylidines, Cumidines and Oximes.
- The company has 6 manufacturing facilities and manufactures around 100+ products.
- The company's revenue has grown at about 13% CAGR in the last 10 years.
- The share of Deepak nitrite in the manufacturing of important inorganic compounds in India is about 70%.
- The company exports to over 30 countries, on 6 continents and has 35% of its revenue through exports.
- Work with top brands like reliance industries, P&G, Essar, RSPL, UPL, Indian Oil and more.
- Develop IOT Enabled, the lowest thermal footprint plant in the industry.
- Has automated hydrocarbon accounting integrated laboratory management systems for operator data reliability.
- Deepak nitrite reduced specific GHG (Greenhouse gases) emissions by 32%.
- 2.24% R&D Expenditure from profit. (Avg R&D expenditure in Indian chemical industry companies: 1.4%)
- Low accident incidents have been observed.
Company’s Fundamentals Analysis
Strengths:
- Deepak nitrite's focus is on creating products based on environmentally friendly technologies for which it has invested approx Rs. 300 Cr.
- The company leverages the latest technologies to increase profit margin and efficiency. Build the lowest thermal footprint plant, Automate hydrocarbon accounting integrated laboratory and move to Digitalisation.
- According to IBEF (India Brand Equity Foundation), the domestic chemical Industry market increased by CAGR 9.3%, which may prove to be an opportunity for the company.
- Debt To Equity Improved: from 1.2 to 0.09 in the past 10 years.
- Company Increases its Net Profit Margin: from 3% to 19% in the past 10 years.
- The company Increases its Operating Profit Margin: from 7% to 25% in the past 10 years.
- Also, Increase its year-on-year dividends per share.
- Compounded Sales Growth: Approx 15 to 20%.
- Compounded Profit Growth: Approx 30 to 40%.
- Strong Promoters Holding: 45.71%.
- Only 2 negative years in sales & profit in the past 10 years (1 reason is Covid-19).
Weaknesses:
- Due to the cost fluctuation of raw materials, the company's profit margin can be heavily impacted.
- Due to limited renewable energy resources and issues of power generation, there may be problems in the operations of the company and short-term profit may be impacted.
- The company may incur losses due to foreign exchange fluctuations.
- Deepak Nitrite's business model is common and can easily be copied by its competitors.
- The company’s competitive advantage is its low pricing. If its competitor improves their operating profit margin and brings a product to the market at a lower price, the company's dominance may be threatened.
- In the age of the internet, an e-commerce platform is a good option for the growth of any company. While deepak nitrite does not have its own platform where it can connect suppliers, vendors and end users together. Which can be a big obstacle to growing it in the future.
Deepak Nitrite’s Management Analysis
- The company achieves an efficient 31.72 days cash conversion cycle which proves its management efficiency.
- There have been no cases relating to unfair trade practices, irresponsible advertising and/or anti-competitive behavior against the Company or its management during the last five years.
- 75% of members of the company's management have 30 years or more experience in the industry.
- Deepak Mehta, Chairman & Managing Director of Deepak Nitrite, was featured as India's Best CEOs in Chemical Sector in 2020 by Business Today. This builds trust among people for the management of the company.
- The management of the company includes experts from diverse domains like Business, Finance, Law, IT, Public Administration and Chemical research. Which helps the company to get solutions to various problems.
Deepak Nitrite’s Key Performance Indicators (KPIs) To Focus:
- Average capacity utilization
- Cost optimization
- Operational efficiency
- Average operating margin
- Cost of goods sold
Company’s Future Plans:
- Product capacity expansion to add further volume growth in the coming future.
- Improve operational efficiency of manufacturing and logistics network.
- Focus on growing product segments to achieve better margins.
- Try to achieve 90+ Tfs (Together for Sustainability) score across all its plants to acquire a better ESG Rating.
- Focus on manufacturing new agrochemical and pharma intermediates.
- Focus on reducing chemical imports to improve profit margins. For this, the Petroleum, Chemicals and Petrochemicals Investment Region (PCPIR) policy and government production-linked incentive (PLI) Schemes can help.
Deepak Nitrite’s Employees Review:
According to data, employees of the company have given it an average rating of 4 to 3.5 out of 5.
Good Things: Highest job security, Good skill development, Good work-life balance.
Bad Things: No rewards, Company work culture is not so good, Politics, Poor salary hikes, Poor management.
