Financial Year (FY) 2016-17 has been a highly eventful year for your Company. Despitemany headwinds significant progress was made in execution of strategy and achievement ofits mission thus underlining your Company's business strength and resilience.
The change at the helm in India in May 2014 was supplemented by expectations of boldreforms in economic and industrial policies. After an initial period of consolidation thereforms agenda has gathered momentum and the economy has been restored on a path of highgrowth. The Indian chemical industry stands to gain from this growth and the policychanges have positively impacted the sector. In order to boost manufacturing in thecountry the Government launched the Make in India' campaign and alongside theme ofEase-of-Business announced by the Government received encouraging response with severalglobal leading companies coming forward to commit investments in setting-up world-classmanufacturing units in the country. Several large commitments in the chemical sector willundoubtedly increase the output and contribution of the sector in the years ahead. We arewitnessing a shift globally and Asia being the epicentre of growth and enjoying abundantskilled resources is emerging as the world's chemical manufacturing hub. Within thatIndia enjoys low-cost manufacturing capabilities by virtue of relatively lower-costlabour highly competent leadership and geographic proximity with the Middle East one ofthe world's key raw material sources. Recent developments contributing to a stronger andstable currency positive governance environment and improvement in skills andcapabilities is serving to enhance the competitive advantage. With the benefits of severaltailwinds and the Government's focus on eliminating the infrastructure gaps in the countrythrough investments in solar power coal-based power plants availability of power anddecreasing trend of power tariff large-scale improvement in surface and watertransportation system India is elevating its position as a critical manufacturing hub forthe global speciality chemicals industry. On the environment front Government has beenstrict in norms which shall continue helping entities like Deepak Nitrite to operate forlong- term growth opportunities.
FY 2016-17 also witnessed some key developments both in India and across the globewhich have the potential to reshape the global business dynamics. A sharper degree ofresistance to globalisation has resulted in regime changes in the US and a vote for theBREXIT' in the UK. The enhanced focus on job creation in the home country is forcinggovernments to be more focussed towards protecting manufacturing. Simultaneously inIndia the ongoing progress towards the GST regime combined with steps to transform Indiainto a less-cash' society will strengthen the fabric of organised industry. Drive ofdemonetisation created initial hiccups before swiftly moving towards a normal situationwhich fructifies Government efforts towards a transparent economy. Further multipleinitiatives to boost the rural economy announced in the Union Budget 2017 combined withimproved monsoon trends are expected to favourably impact demand for end-user productsfrom those markets in the medium to long-term thereby benefiting the overall chemicalindustry. In light of this it is favourable that your Company is poised to significantlyelevate the degree of focus on the domestic market in the coming years.
During the year under review your Company witnessed a slew of unforeseen events. Itencountered headwind in the form of temporary closure of one of its three units atHyderabad facility due to excessive flooding and hence issues related to pollution.However all necessary steps were taken to address the compliance conditions and yourCompany received a permanent revocation order from regulators which served to reinforcethe strength and quality of operations. In addition to this unexpected development a firebroke out at one of the distillation columns of Company's manufacturing facility at RohaIndustrial Estate in Maharashtra. It was an unfortunate event however the Company'strained rapid response team could avoid larger disaster. The damaged facilities have beenreconstructed within a reasonably brief period which gives me satisfaction. Your Companyis adequately covered under insurance for replacement value of the damaged facilities andloss of profits due to business interruptions. While both these unforeseen incidents wereswiftly brought under control our performance in the third quarter was impacted.
FY 2016-17 also saw some setbacks in terms of reduced requirements for fuel additivesdue to change in dynamics of the oil supply market as well as volatile crude oil priceswhich led to re-pricing of products linked to global prices of crude and relatedpetrochemical intermediates. However by leveraging its plants and as a part of itslong-term strategy and sustainability focus your Company was able to diversify itsproducts markets and end-user industries in a manner that downturn in a particularend-user segment is mitigated by capitalising on opportunities in other end-user segmentsthereby providing a natural hedge.
Your Company reported resilient performance during the year even in the face ofone-time developments that occurred in the third quarter. The turnaround of performanceeffected in the fourth quarter to recover from the impact of developments in theimmediately preceding quarter was particularly heartening.
Your Company raised Rs 150 crores through Qualified Institutional Placement (QIP) inMarch 2017 at a price of Rs 104 per Equity Share (including premium of Rs 102 per Share).The proceeds which will be deployed towards funding the Greenfield Project for themanufacture of Phenol and Acetone saw strong response from high quality domesticinstitutional investors resulting in subscription of over 2.2 times the issue sizeexceeding
Rs 340 crores. It may be worth mentioning here that in January 2016 the Companyraised Rs 83 crores through Qualified Institutional Placement at a price of Rs 70.90 perEquity Share to part fund ongoing Phenol project. I thank all investors participating inQIP reposing confidence in the Phenol project of the Company which is set to escalatethe Company into a new high rung.
The Board of Directors recommended a Dividend of Rs 1.20 per Share of a Face Value ofRs 2 each. Your Company has been consistent in paying the Dividend for past many years.The Dividend rate has been maintained despite the expanded capital base as well as theone-time adverse events.
Export revenues stood at Rs 470.84 crores while domestic revenues came in at Rs 734.67crores. Export and domestic market contributed 61% and 39% of total revenues for the yearrespectively. USA Europe and Asia continue to contribute to the bulk of the exportrevenues with contribution of 19% 54% and 22% respectively.
In order to reinforce its strategic objectives in recognition of continuedtransformation of the portfolio your Company has during the year renamed its BulkChemicals and Commodities segment as Basic Chemicals' and the Fluorescent WhiteningAgents segment as Performance Products' segment. The Performance Products segmentincludes an expanding range of products. Details of each Strategic Business Unit (SBU) areunderlined below:
BASIC CHEMICALS (BC)
Basic Chemicals segment reported steady performance during the year. While demand forfuel additives went down your Company moved production to other products giving bettercontribution though topline was impacted. This segment will witness healthy momentumgoing forward due to enhanced product mix as well as addition of new category of productsand also good demand from end user industries.
FINE & SPECIALITY CHEMICALS (FSC)
Fine & Speciality Chemicals include agro pharma and personal care intermediates.This segment reported de-growth in revenues as well as volumes due to the unfortunate fireincident at Roha. Going forward FSC segment is expected to exhibit strong growth asprocessing capabilities for pharma and personal care intermediates have been enhanced tocapitalise on healthy demand. Visibility of improved traction in agro intermediates isalso expected to provide a fillip to the growth of the segment.
PERFORMANCE PRODUCTS (PP)
Performance Products segment includes direct sales of Diamino Stilbene Disulfonic Acid(DASDA) from the Hyderabad facility as well as Optical Brightening Agents (OBA) revenuesfrom Dahej. The shutdown of the Hyderabad facility due to floods impacted the volumes andprofitability of PP segment. New investments are being made in the PP segment whoseimpact will be seen in the upcoming years. As you would be aware we are the only fullyintegrated OBA player in the industry and this gives your Company a competitive edge overother players. Your Company has diversified its focus on export markets and end-userindustries to accelerate growth.
In FY 2016-17 your Company through its wholly-owned subsidiary Deepak PhenolicsLimited made significant progress in its project at Dahej to manufacture 200000 MTPA ofPhenol and 120000 MTPA of its co-product Acetone. This will be supported by manufacturing260000 MT of Cumene which is a feedstock for manufacturing Phenol and Acetone. Thisgreenfield project is expected to be commissioned in the second half of the currentfinancial year. For this the overall capital outlay will be approximately
Rs 1400 crores. I am glad to underline that your Company has tied up the long-termdebt to finance this project and also made further progress in raising Equity funds neededto the tune of
Rs 150 crores through the second round of Qualified Institutional Placement (QIP) whichwas concluded in March 2017. Success of this round of QIP signifies awareness of investorsin great potential of Phenol / Acetone project. We believe in being with the investors andtake them along with us in creating a new big petrochemical venture. This is in additionto Equity funds already raised in Phase I of the QIP in FY 2015-16 and sale of land atPune concluded in early FY 2016-17. The project team has shown excellent team efforts inexecuting the project.
Your Company will address the opportunity offered by the supply deficit in the domesticmarket which is currently met by imports. In addition to competitiveness on cost due tosupplying the domestic markets from a plant located in India your Company will leveragethe latest manufacturing technologies in its state-of-the-art plant which will reducewastage and is more efficient in utilisation of inputs and energy.
With the objective of developing working relationships with major clients across Indiaand accelerating its market presence your Company has already started seeding of Phenolin the domestic market to establish strong marketing and distribution channels ahead ofthe commencement of manufacturing at its plant. Further the supply of benzene a key rawmaterial has become significantly easier in the domestic market thereby enhancing theprospects for the mega phenol project further.
Overall your Company remains confident and continue to see several opportunities inthe speciality chemicals space for widening its portfolio of value-added products ascustomer demand and acceptance remains robust. Your Company is confident of growth fromeach one of its segments on the back of improving market conditions and a buoyant pipelineof products. While your Company will bounce back from the setbacks in FY 2016-17 themanagement has also put in place steps to enhance operating efficiencies which will allowyour Company to scale new heights in performance. Lastly the contribution of the Phenolproject scheduled to be commissioned in the second half of FY 2017-18 is expected to betransformational.
On behalf of the Board of Directors I would like to take this opportunity toacknowledge the entire team of your Company for their contribution and commitment. LastlyI would like to extend my sincere gratitude to all our business partners and associatesfor their confidence through the years and count on their support going forward.
Deepak C. Mehta
Chairman & Managing Director