Consistency is an invaluable resource in unpredictable economic environment. Our ability to foresee shifts and respond to them with agility ensures our consistency and distinguishes us as a great organisation Shri Deepak C Mehta Chairman and Managing Director Dear Stakeholders, We are pleased to share our Fiftieth Annual Report for Fiscal Year (FY) 2020-21. On the back of marked success and excellence, we have achieved a milestone of 50 years supporting the Indian chemical industry. Our journey has been transformational from a small company in Vadodara with a handful of products and employees into an emerging conglomerate with over 4,700 employees and a comprehensive product portfolio catering to multiple industries globally. Having said that, our focus on import substitution throughout this period remains unaltered and we are proud to serve the nation. This in true sense is the fulfilment of ‘Atmanirbhar Bharat’. I am glad we are on the right course with the support and guidance of all our stakeholders, investors, and employees. This Golden Jubilee Year could not have been better as it provided us a platform to demonstrate our capabilities and buoyancy amidst unprecedented challenges. We lived to our reputation and converted it into a landmark year, delivering strong operating efficiency which resulted in increased productivity and profitability. Alongside, we undertook calibrated expansion initiatives to set the foundation for future growth. OUTLOOK ON THE WORLDWIDE ECONOMY FY 2020-21 was largely dominated by the pandemic that hit economies globally. However, the vaccine rollout along with a reduced case load has spurred optimism of the pandemic’s end and a rebound in global economy. Accommodative policies by major economies further improve the outlook. The International Monetary Fund (IMF) forecasts the global economy to expand at 5.5% in CY2021 and 4.2% in CY2022,despite the high level of uncertainty. Among the advanced economies, the US and Japan are expected to restore to end-CY2019 activity levels by the second half of CY2021, while Eurozone and the UK are expected to stay below end-CY2019 levels into CY2022. Among the Emerging economies, China has indicated a rapid rebound towards pre-pandemic levels of growth and economic activity. Its output is expected to grow 8.1% supported by effective containment policies with vigorous public investment response and liquidity measures from the central bank. Several countries, particularly low-income developed economies, entered the crisis with high debt levels, that are projected to accelerate even further during the pandemic. The international community will need to keep working together to ensure that these countries have enough access to international liquidity. For the Indian Economy, the growth projections for FY 2021-22, have been revised upwards to 11.5%, representing a 2.7 percentage point increase from the previous estimates, indicating a carryover from a stronger-than-expected rebound in FY 2020-21. As a result, India is the only major economy predicted to grow in double digits amidst the COVID-19 pandemic. While the overall outlook remains positive, recurrence of pandemic waves through new variants, especially in India which is facing a severe second wave may pose fresh challenges and impact recovery. While the overall outlook remains positive, one cannot rule out recurrence of the pandemic through mutated variants, as we witnessed in India in April and May. This causes us to be cautiously optimistic on the prospects for a sharp rebound in economic growth and activity. INDIA – A LUCRATIVE MARkET FOR ThE ChEMICAL INDUSTRY Despite the challenges, India is poised to become a hub for global chemical industry. Contributing 3% to global chemical industry, the country ranks 6th Over the years, we have significantly diversified our portfolio, while enhancing processes, strengthening relationships, and introducing sustainability strategies to create shared value for all stakeholders. globally in terms of chemical sales, 14th in exports and 8th in imports. And this is excluding pharmaceutical products. Over 2 million people are employed in the Indian chemical industry and that serves as a key enabler, to achieve the estimated market size of US$ 300 billion in Chemicals & Petrochemicals in India by 2025. The industry valued at US$ 178 billion in 2019, is projected to grow at a compounded 9.3% to US$ 304 billion by 2025. Factors like growing disposable income, urbanisation and rural consumer penetration and demand are likely to drive this growth. Higher demand for Chemicals and Petrochemicals is mainly driven by shift in global supply chains towards Asia as well as increased domestic demand. It is estimated that chemical products worth US$ 111 billion could be produced by 2023 for domestic requirements. For India, a thriving R&D ecosystem, advantage of being a one-stop investment and an alternative chemical destination, production-linked incentive (PLI) scheme, and focus on sustainable chemistry and circular economy remain the key pillarsof its chemical industry roadmap. The Government is also keen on enhancing the industry’s competitiveness and its share in manufacturing. Its 2034 vision for the chemicals and petrochemicals sector focuses on exploring ways to increase domestic production, reduce imports and attract investments. It has also revamped the Petroleum, Chemicals and Petrochemicals Investment Region (PCPIR) policy to attract investments of Rs. 20 trillion by 2035. EMBRACING LEGACY OF 50 YEARS – EXCELLENCE, ExPERTISE AND VALUE CREATION Deepak is a well-known Indian multinational in the chemical industry due to its technical expertise, understanding of complex chemistries, efficient handling of technical processes, and a long-term commitment of building deep relationships with external stakeholders. We have been one of the first adopters of the ‘Make in India’ ideology. Over the years, we have significantly diversified our portfolio, while enhancing processes, strengthening relationships, and introducing sustainability strategies to create shared value for all stakeholders. We have prudently invested funds to improve growth prospects and steadily strengthen financial position while remaining committed to the core value and objectives of people, planet, and profit. With our robust manufacturing platform and capabilities, we look ahead with excitement towards the numerous opportunities that have emerged because of increased global attention on India’s potential. Furthermore, through planned introductions of newer products and ventures, we are laying the foundations for future development. We continue to experience [...]
Executive Director’s Message We have great conviction that serving our nation’s needs is the right path forward. With our Values to guide us, we intend to double down on our efforts and grow with the intention to serve. Shri Meghav D Mehta Executive Director - Deepak Phenolics Dear Wellwishers, FY 2020-21 has been an eye-opener for all that we have taken for granted. COVID-19 started of feeling like a distant threat but became all too real, too soon. FY 2020-21 has also reaffirmed the strength of the human spirit. As we, at Deepak, adopted Work from Home, the lines between professional and personal were blurred and it brought out the best in us. As difficult as things got, a greater sense of empathy towards each other was the dominant and de facto behaviour displayed by all. The “can do, will do” attitude surfaced, and all teams came through with brilliant performance Deepak Phenolics was conceived with humble, yet ambitious targets; to establish a stable, domestic supply of a key ingredient for an underdeveloped and import-dependent market. The challenges were not only to set up a facility to be able to produce a product. It was to set up a world-scale facility, with record breaking performance and live up to Deepak’s legacy as a dependable partner to the customers and a worthy investment to shareholders. Words do not convey the herculean effort put in by an energetic execution team with wise and experienced mentors, who, in FY 2018-19, delivered on that promise. We were producing on-spec material and fulfilling orders within mere months of start-up. Taking advantage of the momentum, we applied ourselves in optimising the plant. Steadily debottlenecking and achieving greater throughput, we increased technical confidence and production volumes. We took calculated decisions to continue expanding our value chain and entered the IPA market. We came into production just as news of the pandemic broke and supply networks around the world had to call force majeure. As awful as this pandemic has been, the timing of the IPA plant commissioning was a sign from destiny. We have great conviction that serving our nation’s needs is the right path forward. With our Values to guide us, we intend to double down on our efforts and grow with the intention to serve. On behalf of the Deepak Group, I wish to express my sincerest gratitude for the trust you have placed in us and look forward to surpassing expectations. Stay Safe! Meghav D Mehta Executive Director, Deepak Phenolics Ltd
CFO’s Communique During FY 2020-21, the Company undertook brownfield expansions to create headroom for growth. Further, Deepak commissioned its premium grade IPA plant with a capacity of 30,000 MTPA in April 2020 and delivered full utilisation within a month of launch. Shri Sanjay Upadhyay Director - Finance & Chief Financial Officer Dear Stakeholders, Over last five decades of the Company’s operations, we have witnessed, various facades of socio-economic rigmarole – socialistic pattern of society including public sector industries, regime of the licences, India being signatory to the WTO, commencement of economic liberalisation followed by social liberalisation, augmentation of a new era when the country gradually started embracing capitalism amidst various global opportunity and debacle; probably the most amazing discovery witnessed by the World, the Internet. In this series of phenomenon, the country’s socio- economic warp & weft yarns have witnessed transformational change. Today’s India is a new economic prowess in the World, has serious voice in global forums, at the backdrop where the Indian Corporations have been successful in their delivery helping the country’s economic abilities. And, we saw pandemic caused by COVID-19, stalling all sorts of normal activities across the globe, posing serious threat to our country as well – to its citizens, to its economy and society at large. At Deepak, the 50th year of operations has been memorable. The Company commenced the fiscal in the midst of the nationwide lockdown resulting in all plants being shut down, all employees working from home, finished goods and raw materials in transit and customers remaining uncertain about production schedules. We swiftly adapted to the new normal work environment and strictly imposed all necessary health and safety procedures in the face of a global pandemic. RESILIENCE IN ADVERSITY The Company prioritised its human capital to ensure safety first. The priority was employees and their families, suppliers and vendors as well as the millions of citizens who live around the plants and operations. It offered medical testing for employees and families, ensured prompt and timely payments, widened medical coverage and also distributed medicines and food where required. The focus on Health, Safety and Environmental parameters was prioritised since any oversight in process, storage or logistics of materials could have catastrophic consequences. The Company was rewarded by its employees and business partners who remained committed to the operations and ensured a seamless recovery upon relaxation of the restrictions. Most importantly, project and technical teams were able to commission the IPA facility in the midst of the lockdown in April 2020. This helped the Company to offer an essential product in a time of immense need thereby serving the Nation. Despite the pandemic’s lingering effect on certain end-user segments, all teams have been proactive and agile thereby driving a steady revival in operational performance leading to return to pre- COVID levels of growth trajectory. This has enabled the Company to deliver a resilient performance during FY 2020-21, possibly the most disruptive year in living memory. OPERATIONAL EXCELLENCE In the face of multiple challenges including shutdown of plants for 35 days during the first quarter, increased volatility in prices of raw material, sustained forex volatility, the Company maintained high standards of operational excellence. The Standalone business has witnessed initial demand shocks in end-user industries and sharp fall in realisations of some key products. This was taken in its stride as the Company overcame the odds of first half of the year with a strong performance in the second half to post year-on-year growth in revenues and profitability. In fact, the Company has steadily increased PBT in each successive quarter this fiscal. On the other hand, phenol business delivered stellar performance showing excellent plant efficiencies, registering capacity utilisation level at around 115% which resulted in higher revenue and EBITDA margins. By leveraging its integrated manufacturing model and displaying high tactical awareness, the Company has capitalised on opportunities across various end-user industries and geographies that it serves. The performance of the Company has been indicative of inherent expertise and strength across key product categories. We were able to seize opportunities arising from the sharp rebound in India’s overall economic activity following several months of lockdown - thanks to excellent teamwork, global-scale operations and robust marketing and distribution network. UNWAVERING FOCUS ON GROWTh During FY 2020-21, the Company undertook brownfield expansions to create headroom for growth. Further, Deepak Phenolics Ltd. commissioned its premium grade IPA plant with a capacity of 30,000 MTPA in April 2020 and delivered full utilisation within a month of launch. Efforts are underway to rapidly commission the second phase of IPA manufacturing which will double the capacity to 60,000 MTPA. IPA is the first of a basket of downstream derivatives of phenol and acetone that will drive forward integration in the product portfolio of DPL. This will result in increased captive consumption of these commodity products and enable us to deliver value- added products to our customers. The Company has commenced land development operations at the newly procured site in Dahej, and it is nearing completion on the 55-acre site, out of total 127 acres. With effect from October 9, 2020, the Company had also established a wholly-owned subsidiary ‘Deepak Clean Tech Limited’ (“DCTL”), to produce chemical and pharma intermediate products, interwoven with our existing products and process chemistry knowledge, also towards creating new platforms like fluorination and photochlorination. EFFICIENT CAPITAL ALLOCATION Deepak Nitrite apportions profits earned and cash generated during the year into three primary uses – reinvesting for growth, reduction of debt and returns to shareholders. As has been shared earlier, the Company is undertaking expansion across multiple business lines to reinvest for growth. Due to its increased scale, it is able to self-finance its calibrated growth plans. The Company enjoys a stable position on the balance sheet front. It has steadily reduced debt in recent quarters and has emerged stronger through the pandemic on the back of the improved financial position over the last 12 months. Your Company achieved debt-free status, on a standalone basis, during this fiscal. Deepak Phenolics [...]
Those changes can be depicted as a pebble splashing into a body of calm water, it slowly spreads out into the financial system then into the real world. A financial safety net is meant to protect you and your family, at least in part, from losing your financial security or derailing your long-term financial goals.