Deepak Nitrite Ltd:Annual Report 2023-24 Analysis

Deepak Nitrite Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

Deepak Nitrite Ltd. was established in 1970. The company was founded by Mr. C.K. Mehta, with an initial focus on manufacturing sodium nitrite and sodium nitrate.

Headquarters Location and Global Presence #

The company’s headquarters are located in Pune, Maharashtra, India. Deepak Nitrite has a growing global presence, exporting its products to various countries across Asia, Europe, North America, and South America.

Company Vision and Mission #

While a specific publicly stated mission statement is difficult to definitively confirm, Deepak Nitrite appears to be focused on sustainable growth through innovation and delivering value to stakeholders. Their vision is to be a leading global chemical company known for its reliability, quality, and commitment to environmental responsibility.

Key Milestones in their Growth Journey #

• Early Years (1970s-1980s): Establishment and focus on basic nitrite and nitrate products.
• Expansion (1990s-2000s): Diversification into new chemical products like Xylidines, Fuel Additives and expansion of manufacturing capacities.
• Forward Integration: Significant investments into downstream products like Phenol, Acetone.
• Recent Years: Increased focus on specialty chemicals, R&D, and sustainable practices.
• 2022: Commissioning of new manufacturing facilities in Dahej.

Stock Exchange Listing Details and Market Capitalization #

Deepak Nitrite is listed on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). As of October 26, 2023, their market capitalization is approximately ₹30,885 Crore.

Recent Financial Performance Highlights #

For FY23, Deepak Nitrite reported a revenue of ₹8063 Crore and PAT of ₹873 Crore. While the company has seen growth over the past few years, recent quarters have shown some challenges due to global economic headwinds and fluctuating raw material prices.

Management Team and Leadership Structure #

• Chairman & Managing Director: Deepak C. Mehta
• Chief Financial Officer: Sanjay Upadhyay

Notable Awards or Recognitions #

Deepak Nitrite has received awards and recognition for its performance in areas such as:

• Safety and Environmental Performance
• Energy Conservation
• Corporate Governance

Their Products #

Complete Product Portfolio with Categories #

Deepak Nitrite’s product portfolio is broadly categorized into the following:

• Basic Chemicals: Sodium Nitrite, Sodium Nitrate, Ammonium Nitrate.
• Fine & Specialty Chemicals: Xylidines, Cumidines, Oximes, Fuel Additives, Antioxidants.
• Performance Products: Optical Brightening Agents (OBAs).
• Phenolics: Phenol, Acetone.

Flagship or Signature Product Lines #

• Sodium Nitrite & Sodium Nitrate: Historically core products and still significant.
• Xylidines: Widely used in various industries, including dyes and pigments.
• Phenol & Acetone: Important industrial chemicals with broad applications.

Key Technological Innovations or Patents #

Deepak Nitrite has focused on improving manufacturing processes and developing new applications for its existing product lines. However, specific details regarding significant patents are not readily available in public sources.

Manufacturing Facilities and Production Capacity #

Deepak Nitrite has manufacturing facilities located in:

• Nandesari (Gujarat)
• Dahej (Gujarat)
• Taloja (Maharashtra)
• Roha (Maharashtra)

The company has continuously invested in expanding its production capacities across its various product segments. Specific production capacity figures are difficult to obtain, however the Dahej facility is one of their largest and most modern.

Quality Certifications and Standards #

Deepak Nitrite adheres to international quality standards and holds certifications such as:

• ISO 9001 (Quality Management System)
• ISO 14001 (Environmental Management System)
• ISO 45001 (Occupational Health and Safety Management System)

Primary Customers #

Target Industries and Sectors #

Deepak Nitrite serves a wide range of industries including:

• Dyes and Pigments: Xylidines and other specialty chemicals.
• Pharmaceuticals: Certain chemical intermediates.
• Agrochemicals: Nitrites and nitrates.
• Rubber: Antioxidants.
• Explosives: Ammonium Nitrate.
• Paints and Coatings: Acetone and other solvents.
• Automotive: Fuel Additives.

Geographic Markets (Domestic vs. International) #

Deepak Nitrite serves both domestic and international markets. A significant portion of their revenue comes from exports to Asia, Europe, and the Americas.

Distribution Network and Sales Channels #

Deepak Nitrite utilizes a combination of direct sales and a network of distributors to reach its customers. They also participate in industry trade shows and exhibitions to promote their products.

Major Competitors #

Direct Competitors in India and Globally #

Key competitors include:

• India: Gujarat Narmada Valley Fertilizers & Chemicals Limited (GNFC), Aarti Industries
• Global: Major multinational chemical companies producing similar products.

Competitive Advantages and Disadvantages #

• Advantages: Strong presence in the Indian market, established relationships with customers, diverse product portfolio, continuous capacity expansion.
• Disadvantages: Vulnerability to fluctuations in raw material prices, dependence on specific industries, competition from global players.

How they Differentiate from Competitors #

Deepak Nitrite differentiates itself through:

• Product Quality: Focus on consistently delivering high-quality products.
• Customer Service: Building strong relationships with customers and providing technical support.
• Supply Chain Management: Optimizing supply chain processes for efficiency and reliability.
• Focus on Sustainability: Increasingly integrating sustainable practices into their operations.

Future Outlook #

Expansion Plans or Growth Strategy #

Deepak Nitrite’s growth strategy includes:

• Capacity Expansion: Continuing to invest in expanding manufacturing capacities for key products.
• Product Diversification: Developing new products and entering new markets.
• Backward Integration: Securing raw material supply chains to mitigate price volatility.
• Strategic Acquisitions: Exploring opportunities to acquire companies that complement their existing business.

Sustainability Initiatives or ESG Commitments #

Deepak Nitrite is increasingly focused on sustainability and has implemented various initiatives such as:

• Reducing Energy Consumption: Implementing energy-efficient technologies.
• Waste Management: Minimizing waste generation and promoting recycling.
• Water Conservation: Reducing water usage and treating wastewater.
• Renewable Energy: Investing in renewable energy sources.

Industry Trends Affecting Their Business #

• Increasing Demand for Chemicals: Driven by economic growth and industrialization.
• Stringent Environmental Regulations: Requiring companies to adopt cleaner technologies and practices.
• Volatility in Raw Material Prices: Impacting profitability and requiring effective risk management.
• Shift Towards Specialty Chemicals: Offering higher margins and growth opportunities.

Long-Term Vision and Strategic Goals #

Deepak Nitrite aims to be a leading global chemical company known for its innovation, sustainability, and commitment to creating value for its stakeholders.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Revenue: Consolidated revenue decreased from ₹8,020 Crores in FY2022-23 to ₹7,758 Crores in FY2023-24.
• EBITDA: Consolidated EBITDA decreased from ₹1,337 Crores in FY 2022-23 to ₹1,199 Crores in FY2023-24.
• Profit After Tax (PAT): Consolidated PAT decreased from ₹852 Crores in FY 2022-23 to ₹811 Crores in FY2023-24.
• Earnings Per Share (EPS): Consolidated diluted EPS decreased from ₹62.46 in FY 2022-23 to ₹59.45 in FY2023-24.
• Return on Equity (ROE): Standalone ROE decreased from 17.88% to 14.67% from 2023 to 2024.
• Debt to Equity: Debt to Equity has been maintained Zero debt status during the period.
• Net Worth: Consolidated Net Worth increased from ₹4,090 Crores in FY 2022-23 to ₹4,797 Crores in FY2023-24.

Business Segment Performance #

• Advanced Intermediates: FY2023-24 revenue was ₹2,724 Crores, with an EBIT of ₹446 Crores. Volumes increased by 16%, driven by new market acquisition and customer additions.
• Phenolics: FY2023-24 revenue was over ₹5,000 Crores, with EBIT of ₹644 Crores. Performance was driven by optimal plant utilization and operational efficiencies, with Phenol production exceeding 300,000 tonnes.

Major Strategic Initiatives and Their Progress #

• Fluorination Plant (Dahej): Commissioned in March 2024, enhancing backward integration for agrochemical intermediates.
• Research & Development (R&D) Centre (Savli, Vadodara): Completion expected by March 2025, focusing on sustainable chemical research.
• Nitric Acid Unit Project: Manufacturing operations are expected to commence in FY 2024-25.
• New projects for Speciality Chemicals: Under progress.
• Memorandum of Understanding (MoU): Deepak Chem Tech Limited (DCTL) signed MoUs with the Gujarat Government for a total investment of ~₹14,000 Crores for manufacturing Polycarbonate Resins & Compounds, MMA/PMMA & Aniline, specialty chemicals, Phenol, Acetone, and Bisphenol.
• Strategic Partnerships: Binding Term Sheet with Petronet LNG for the supply of raw materials to mitigate long-term project risks.

Risk Landscape Changes #

• Global Geopolitics and Monetary Risk: The Company is actively monitoring major price trends, optimizing costs, and enhancing customer engagement.
• Supply Chain Disruption/Business Interruption Risks: Initiatives include enhancing safety stocks, diversifying procurement geographically, and maintaining ample inventory levels.
• Emerging Competition: Multi-year contractual engagements and positioning as a preferred supplier are being used to address increased competition.
• Information security and Confidentiality: New IT Tools and training programs are being employed.

ESG Initiatives and Metrics #

Environmental #

• Water reused and recycled: 4,36,526 KL in FY2023-24.
• Reduction in GHG emission: 12.49% in FY2023-24.
• Energy savings: 1,80,299 kWh through renewable sources.
• Scored 100% for ‘Together for Sustainability’ by Dahej Facility.

Social #

• CSR spend: ₹27.87 Crores in FY2023-24, impacting over 850,000 lives across 5 states.
• Training hours: 64,777 hours of employee training.
• LTIFR: 0.20.

Governance #

• Zero instances of a breach of the code of conduct in FY2023-24.
• Board diversity: 12 Directors, with an optimum mix of Executive and Non-Executive Directors.
• Independent Directors are Six out of 12 Directors.

Management Outlook #

• The Company is focusing on operational excellence, by-product valorization, and strategic investments in downstream segments.
• Ongoing forward and backward integration projects are central to strengthening DNL’s position across the product value chain.
• The Company anticipates a blend of opportunities to enhance topline and bolster resilience through improved competitiveness and value addition.

Detailed Analysis #

Financial Position Analysis #

3-Year Comparative Analysis (Consolidated) #

Assets, Liabilities, and Equity (₹ in Crores)

Segment-wise Assets (₹ in Crores)

Segment-wise Liabilities (₹ in Crores)

Significant Changes in Major Line Items (>10% YoY) #

• Non-Current Assets: Increased by 36.21% YoY, primarily due to increases in Property, Plant & Equipment and Capital Work-in-Progress and Finacial Assets
• Investments (Non-Current) Decreased from 687.96 cr in 2023 to 2.69 because the company increased equity stake in Deepak Oman Industries, making it subsidiary.
• Non-Current Liabilities: Increased by 99.37% YoY, mainly due to an increase in Borrowings.
• Other Equity: Increased by 17.40% YoY, driven by retained earnings.

Working Capital Trends #

Debt Structure and Maturity Profile #

Maturity Profile

Secured Term Loans are repayable on a quarterly basis starting from June 2026.

Off-Balance Sheet Items #

The Group provided information of Contingent Liabilities that were not acknowledged as debts, which include:

• Matters related to sales Tax/VAT: 0.53 cr.
• Bank Guarantees (Financial): 50.74 Crores
• Bank Guarantees (Performance): 15.91 Crores
• Disputed Labour Matters: Amount not ascertainable.

Cash Management Analysis #

Cash Flow and Liquidity Analysis #

Detailed OCF, ICF, FCF Components (Consolidated) #

• OCF (Operating Cash Flow): Increased to ₹878.06 Crores in FY 2023-24 from ₹649.92 Crores in FY 2022-23.
• ICF (Investing Cash Flow): Outflow of ₹(721.84) Crores in FY 2023-24, compared to an outflow of ₹(276.05) Crores in FY 2022-23.
  • Purchase of Property, Plant and Equipment, including Capital Work-in-Progress, Capital Advances & Payable for Capital Expenditure: outflow of ₹(742.39) crores.
  • Proceeds/Payment from sales/redemption of current Investments: ₹288.70 crore.
• FCF (Financing Cash Flow): Inflow of ₹43.53 Crores in FY 2023-24, compared with outflow of ₹(359.08) Crores in FY 2022-23.
  • Proceeds from Non-current borrowings of ₹ 216.95 Cr, Repayment of Non-Current Borrowings of ₹(49.02)Cr.
  • Dividend paid on Equity shares: outflow ₹(102.29) Crores.

Working Capital Management Efficiency #

• Inventory Turnover Ratio: Decreased to 4.17 in FY 2023-24 from 4.86 in FY 2022-23.
• Debtors Turnover Ratio: Decreased to 4.5 in FY 2023-24 from 5.29 in FY 2022-23.
• Trade Payables Turnover Ratio: 6

Capex Analysis by Segment (Consolidated) #

• Advanced Intermediates: ₹384.74 Crores in FY 2023-24.
• Phenolics: ₹50.27 Crores in FY 2023-24.
• Un-allocable: ₹36.81 Crores in FY 2023-24.

Dividend and Share Buyback Trends #

• Dividend: A final dividend of ₹7.50 per equity share (375%) was recommended for FY 2023-24.
• Dividend Payout: The dividend payout for FY 2023-24 amounted to ₹102.29 Crores.
• Share Buyback: No share buyback program was mentioned.

Debt Service Coverage #

• Debt Service Coverage Ratio: Reported as 19.08 for FY 2023-24.

Liquidity Position and Cash Conversion Cycle #

• Current Ratio: 4.99 for FY 2023-24
• Cash and Cash Equivalents: Increased to ₹237.97 Crores at the end of FY 2023-24 from ₹37.64 Crores at the end of FY 2022-23. Cash and cash equivalents consists of Cash on hand, balance with banks, deposit with banks with maturity less than 3 months.

Operational Metrics Analysis #

Profitability Ratios (3-Year Trends) #

ROE (Return on Equity) #

• FY 2023-24: 18%
• FY 2022-23: 19.23%
• FY 2021-22: 24.87%

ROE is decreasing.

ROIC (Return on Invested Capital) #

• FY 2023-24: 19% (Consolidated)
• FY 2022-23: 22.49%
• FY 2021-22: 26.28%

ROIC Decreasing.

Margins (Consolidated, Excluding Exceptional Items) #

EBITDA Margin: #

• FY 2023-24: 16%
• FY 2022-23: 19.5%

PBT Margin: #

• FY 2023-24: 16.8%
• FY 2022-23: 19.45%

Net Profit Margin: #

• FY 2023-24: 15.91%
• FY 2022-23: 15.47%

Margin ratios have a decreasing trend.

Liquidity Metrics #

Current Ratio (Consolidated): #

• FY 2023-24: 3.62
• FY 2022-23: 3.45

Liquidity ratios are Increasing.

Efficiency Ratios #

Inventory Turnover Ratio (Consolidated): #

• FY 2023-24: 6.86
• FY 2022-23: 7.70

Receivables Turnover Ratio (Consolidated): #

• FY 2023-24: 5.9
• FY 2022-23: 7.09

Inventory and receivables turnover ratios are decreasing.

Leverage Metrics #

Debt/Equity Ratio (Consolidated): #

• FY 2023-24: 0 (Zero net debt)
• FY 2022-23: 0 (Zero net debt)

Interest Coverage Ratio (Consolidated): #

• FY 2023-24: 115.11
• FY 2022-23: 56.08

The coverage ratio has increased. The Company has very low debt.

Working Capital Ratios #

Net Operating Working Capital Turnover Ratio #

• FY 2023-24: 2.28
• FY 2022-23: 3.28

The ratio is decreasing

Industry Comparison and Deviations: #

• Margins: The Company has demonstrated stability in margins, despite a challenging environment.
• Debt/Equity: The company has a zero net debt status, indicating a very strong financial position and significantly deviates from any industry average that includes debt.
• Turnover Ratios: A decreasing inventory turnover ratio suggests potential overstocking or slowing sales.

Deepak Nitrite Limited: Segment Performance Analysis #

Advanced Intermediates #

Revenue and Profitability Metrics #

• FY 2023-24 Revenue: ₹2,724 Crores (relatively flat YoY)
• EBIT: ₹446 Crores
• EBIT Margin: 16%
• Volume Growth: 16% YoY

Market Share and Competitive Position #

• Market share maintained/increased (Sodium Nitrite, Fuel additives, Agro Intermediates)
• Positioned as preferred supplier.

Key Products/Services Performance #

• Volume growth in Sodium Nitrite, Fuel additives, Agro Intermediates.
• New product launch (paper coating - Europe)
• Diversification into new product formulations (laundry & detergent)

Geographic Distribution and Market Penetration #

• Domestic Revenue: ₹1,446 Crores
• Export Revenue: ₹1,278 Crores
• Export Share: Increased from 43% (FY 2022-23) to 47% (FY 2023-24)
• Expanded into new international markets; enlarged distributor networks.

Operational Efficiency Metrics #

• 100% Nitro Toluidine plant utilization
• Minimized breakdown hours
• Implemented Laboratory Information Management System (LIMS)
• RO Plant for Zero Liquid Discharge (ZLD) installed
• 40Kwp solar roof top system installed

Growth Initiatives and Challenges #

• Backward integration and brownfield capacity expansion initiatives
• DCTL commissioned BTF plant (March 2024, Dahej, Gujarat)
• Challenges: Subdued pricing (geopolitical reasons); demand uncertainty (agrochemicals - Europe)

Phenolics #

Revenue and Profitability Metrics #

• FY 2023-24 Revenue: Over ₹5,000 Crores
• EBIT: ₹644 Crores
• EBIT Margin: 13%
• Production Volume Growth: 13% YoY

Market Share and Competitive Position #

• Largest Phenol & Acetone producer in India (50%+ market share)
• Maintained stable margins due to integrated manufacturing infrastructure.

Key Products/Services Performance #

• Phenol plant utilization: Over 150%
• Highest-ever quarterly sales for Phenol
• Record Phenol production: 300,000+ tonnes

Geographic Distribution and Market Penetration #

• 95% revenue from India

Operational Efficiency Metrics #

• Implemented Advance Process Controls (APC) (increased production, reduced raw material/energy consumption)
• Debottlenecking initiatives contributed to volume ramp-up
• Zero Liquid Discharge (ZLD) system installed

Growth Initiatives and Challenges #

• Venturing into downstream, value-added derivatives of Phenol & Acetone.
• Challenges: Contracted Phenol spreads due to disproportionate imports.

Segment-Wise Financial Analysis #

Advanced Intermediates #

Strategic Risks #

• Severity: High.
• Likelihood: Medium.
• Trend: Increasing, due to aggressive price competition from China.
• Emerging competition: Ongoing projects for backward integration to produce own Nitric Acid and Benzo-tri-flouride aim at sustainable resilience.
• Mitigation Strategies: Backward integration and brownfield capacity expansion. Focus on end-user categories with improved demand. Product basket diversification.
• Control Effectiveness: Partially effective. Market share improved for the core portfolio.
• Potential Financial Impact: Revenue of ₹2,724 Crores was reported for FY 2023-24, impacted by subdued pricing. EBIT of ₹446 Crores.

Operational Risks #

• Severity: Medium.
• Likelihood: Low.
• Supply Chain Disruption/ Business Interruption Risks: shipping delays.
• Trend: Decreasing due to successful backward integration.
• Mitigation Strategies: Maintaining or increased wallet share on strategic relationships. Enhanced safety stocks. Procurement from diverse geographic locations.
• Control Effectiveness: High. Record production and cost savings achieved. Commissioned BTF plant operations.
• Potential Financial Impact: Higher volumes achieved through product diversification.

Financial Risks #

• Severity: Medium.
• Likelihood: Medium.
• Trend: Stable. Ongoing cost optimization efforts.
• Mitigation Strategies: Spot or contractual purchasing. Lead & Lag indicators monitoring.
• Control Effectiveness: Moderate. Cost optimization by spot or contractual purchasing achieved.
• Potential Financial Impact: EBIT margin maintained at 16%.

Compliance/Regulatory Risks #

• Severity: Low.
• Likelihood: Low.
• Trend: Stable.
• Mitigation Strategies: Compliance with workplace safety protocols and Process Safety elements.
• Control Effectiveness: High.
• Potential Financial Impact: Not quantified in provided data.

Emerging Risks #

• Severity: Medium
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies: Diligently monitor major price trends.
• Control Effectiveness: Moderate.
• Potential Financial Impact: Not quantified in provided data.

Phenolics #

Strategic Risks #

• Severity: Medium.
• Likelihood: Low.
• Trend: Stable, integrated manufacturing infrastructure with high utilization.
• Mitigation Strategies: Maintaining stable margins. Focus on operational excellence.
• Control Effectiveness: High. Average utilization rate of over 150% for the Phenol plant.
• Potential Financial Impact: Revenue over ₹5,000 Crores, EBIT of ₹644 Crores.

Operational Risks #

• Severity: Low.
• Likelihood: Low.
• Trend: Decreasing due to Advanced Process Controls (APC).
• Technology Obsolescence: Continuous assessment of technologies and make investments, upgrading Machinery.
• Mitigation Strategies: Implementation of Advance Process Controls (APC). Debottlenecking initiatives.
• Control Effectiveness: High. 13% higher production volumes, 300,000+ tonnes of Phenol production.
• Potential Financial Impact: Reduction in raw material and energy consumption.

Financial Risks #

• Severity: Low.
• Likelihood: Low.
• Trend: Stable.
• Forex Volatility: Use of Forwards, Options and Range Forwards.
• Contractual Risk: Dedicated team of seasoned professional.
• Mitigation Strategies: Integrated manufacturing infrastructure.
• Control Effectiveness: High.
• Potential Financial Impact: Stable margins maintained.

Compliance/Regulatory Risks #

• Severity: Low.
• Likelihood: Low.
• Trend: Stable.
• Mitigation Strategies: Implementation of Advance Process Controls (APC) for safe operations.
• Control Effectiveness: High.
• Plant Safety Compliances: Impart safety training to all employees.
• Environmental Norms Compliances: Disposal of Hazardous wastes & spent acid in accordance with PCB norms.
• Potential Financial Impact: Not quantified in provided data.

Emerging Risks #

• Severity: Low
• Likelihood: Low
• Trend: Decreasing.
• Mitigation Strategies: Real-Time Response against deviations.
• Control Effectiveness: High.
• Potential Financial Impact: Not quantified in provided data.

Advanced Intermediates Segment #

Management Guidance and Assumptions #

• Management has guided for improved performance trajectory in line with expected improvements in demand.
• Backward integration and brownfield capacity expansion initiatives are expected to elevate performance.
• BTF plant operations at Dahej were commissioned which is helpful to the operations.
• Management’s product basket diversification and active customer engagement maintained its market position.

Market Growth Forecasts #

• The Company expects improved demand from end-user categories, and is placed to leverage that.

Planned Strategic Initiatives #

• Focus on end-user categories with improved demand.
• Backward integration initiatives.
• Brownfield capacity expansion.

Capital Expenditure Plans #

• DCTL commissioned BTF plant at Dahej.
• Ongoing brownfield projects for key products are in progress.
• Projects that are a part of Capex of DCTL included Hydrogenation and NT expansion.

Efficiency Improvement Targets #

• Focus on improving asset utilization.
• The Company has invested and continues to invest into newer technologies for achieving efficiencies.

Potential Challenges and Opportunities #

• Challenges: Subdued pricing trajectory, geopolitical reasons, demand uncertainty from Europe in agrochemicals and volatile global economic environment impacted segment revenue.
• Opportunities: Product basket diversification, focus on end-user categories with improved demand, improved market share for core portfolio and active customer engagement.

Phenolics Segment #

Management Guidance and Assumptions #

• Management expects to maintain stable margins due to integrated manufacturing infrastructure.
• Consistently high utilization levels are anticipated.
• Management Guidance is for sustained volume expansion, post debottlenecking.

Market Growth Forecasts #

• Growth in Phenol is expected.

Planned Strategic Initiatives #

• Maintain integrated manufacturing infrastructure.
• Focus on operational efficiencies.
• Advance Process Controls (APC) were successfully implemented.

Capital Expenditure Plans #

• Debottlenecking of the phenol facility.
• Ongoing projects related to Acetone derivatives (MIBK and MIBC).
• Further capex plan is there for expanding capacity in Acetone and Phenol.

Efficiency Improvement Targets #

• The Phenol plant operated at an average utilization rate of over 150% during the year.
• Further improvements in production, raw material and energy consumption, and safe operations.

Potential Challenges and Opportunities #

• Challenges: General market fluctuations.
• Opportunities: Volume ramp-up post debottlenecking, higher volumes of production, record Phenol production, implementation of Advance Process Controls (APC).
• Opportunity for value addition by manufacturing downstream products.

Scenario Analysis and Sensitivity (Cross-Segment) #

• Geopolitical Risks: Sensitivity analysis centers on potential disruptions from geopolitical tensions (Russia-Ukraine, Red Sea Crisis) which creates logistical challenges and affect raw material costs and product realization.
• Chinese Market Dynamics: Scenario analysis includes the potential easing of destocking in China, which could positively impact demand. Dumping by Chinese manufacturers is considered a factor.
• Raw Material Price Volatility: Volatility in raw material costs, dependent on Crude oil pricing. Strategic raw material procurement and “Make in India” initiatives aim to build resilience against these market risks.
• Interest Rate Fluctuations: Interest rate policy are expected to enhance capital flow to India.
• Demand Fluctuations: Subdued demand recovery, specially in agrochemicals, textile, dyes and pigments sector, has potential to create impact on the financial performance.

Audit and Regulatory Analysis #

Auditor’s Opinion and Qualifications #

• The Auditors, Deloitte Haskins & Sells LLP, have issued an unmodified opinion on the standalone and consolidated financial statements, indicating a true and fair view in conformity with Ind AS.
• The Audit Report identified No fraud reported by Auditors.
• The audit trail feature was unavailable for privileged users after the software migration.

Key Accounting Policies and Changes #

• The financial statements comply with Indian Accounting Standards (Ind AS) notified under Section 133 of the Companies Act, 2013.
• Accounting policies are consistent with the previous year, except for amendments to Ind AS, which had no material impact. These amendments include definitions for accounting estimates and policies.
• Key policies cover revenue recognition, foreign currency translations, financial instruments, and employee benefits.

Internal Control Effectiveness #

• The Company maintains an adequate internal financial controls system with reference to financial statements, as per management.
• An internal audit system exists, and the Audit Committee reviews findings and recommendations.
• The Audit Report contains separate section with the Audit Report confirming adequate internal financial controls in place.

Regulatory Compliance Status #

• The Company has complied with the provisions of Sections 185 and 186 of the Companies Act, 2013.
• The Company is in compliance with the Secretarial Standards.
• The Company and its subsidiaries are compliant with applicable environmental laws/regulations/guidelines.
• The Company has complied with requirements stipulated under Regulation 17 to 27, Schedule V and Sub-Regulation (2) of Regulation 46 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Legal Proceedings and Potential Impact #

• Pending litigations are disclosed in Note 34 of the standalone financial statements and Note 37 of the consolidated financial statements, with amounts acknowledged.
• Management does not expect a material adverse future cash outflow from these litigations.

Related Party Transactions #

• All related party transactions during FY 2023-24 were on an arm’s length basis and in the ordinary course of business.
• Prior approval of the Audit Committee was obtained for these transactions.
• Detailed disclosures of transactions with related parties are provided in the financial statements, including specific transactions with subsidiaries and key management personnel.

Subsequent Events #

• The Board of Directors has recommended a final dividend of ₹ 7.50 per equity share for FY 2023-24, subject to shareholder approval.

Analysis of Accounting Quality #

• Adoption of accounting policies that comply with Ind AS.
• Consistent application of accounting policies.
• Use of estimates with underlying assumptions that are reviewed regularly.
• The presence of an Audit Committee for overseeing financial reporting.

Regulatory Risk Assessment #

• Moderate risk indicated by reliance on other auditors’ reports for subsidiaries.
• Low regulatory risk overall, with disclosures on compliance, internal controls, and related-party transactions.
• Accounting software audit trail issue in one subsidiary for some users after software migration.