Deepak Nitrite Limited (DEEPAKNTR) Q4 FY23 Earnings Concall Transcript

Deepak Nitrite Limited (NSE:DEEPAKNTR) Q4 FY23 Earnings Concall dated May. 12, 2023.

Corporate Participants:

Maulik Mehta — Chief Executive Officer

Sanjay Upadhyay — Director – Finance & Group CFO

Analysts:

Akul Broachwala — Analyst

Nirav Jimudia — Anvil Research — Analyst

Vivek Rajamani — Morgan Stanley — Analyst

Rohit Nagraj — Centrum Broking — Analyst

Chetan Thacker — ASK Investment Managers — Analyst

Abhijit Akella — Kotak Securities — Analyst

Rohan Gupta — Nuvama Wealth Management — Analyst

Naushad Chaudhary — Aditya Birla Sun Life AMC — Analyst

Krishan Parwani — JM Financial — Analyst

Nitin Tiwari — Yes Securities — Analyst

Janakiraman Rengaraju — Franklin Mutual Fund — Analyst

Meet Vora — Axis Capital — Analyst

Anika Mittal — Nvest Research — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q4 FY23 earnings conference call of Deepak Nitrite Limited, hosted by IIFL Securities Limited. At the outset, I would like to clarify that certain statements made or discussed on the conference call today may be forward-looking in nature. And disclaimer to this effect has been included in the results presentation shared with you earlier.

As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Akul Broachwala from IIFL Securities Limited. Thank you, and over to you, sir.

Akul Broachwala — Analyst

Thank you, Michelle. Good afternoon, everyone, and thank you for joining us on Deepak Nitrite’s Q4 and FY23 earnings conference call. Apologies for the delay. Today, we have with us Mr. Maulik Mehta, Executive Director and CEO; Mr. Sanjay Upadhyay, Director, Finance and Group CFO; and Mr. Somsekhar Nanda, CFO.

To begin with, Mr. Maulik Mehta will share views on operating performance and the growth plans of the Company, followed by Mr. Sanjay Upadhyay who shall take us through the financial and segmental performance.

I now invite Mr. Mehta to share his opening comments. Thank you, and over to you sir.

Maulik Mehta — Chief Executive Officer

Good day, everyone, and a warm welcome to Deepak Nitrite’s Q4 and FY24 earnings conference call. I hope you’ve had an opportunity to go through our results documents that were shared earlier.

We entered 2023 with a very challenging business landscapes, characterized by diverse internal and external factors. Russia-Ukraine war has served to fracture to global supply chain for crude, fertilizer, petrochemical derivatives and specialty chemicals. [Technical Issues] led to large rises in input prices across the board, resulting in a secular inflationary pressure unlike anything witnessed in the recent past.

The cascading effects of central banks across the globe, raising interest rates rapidly, leading to a higher cost per capital even as ForEx volatility rose and risk spreads expanded. Internally, we were faced with a shutdown of our Nandesari plant for more than 40 days due to a fire in June.

There were challenges and constraints to logistics couple the rise in utility cost. Amidst this volatility in spot prices, both customers and suppliers were seeking to capitalize on short-term opportunities, even as they sought assured supply and purchase agreements.

Notwithstanding these adversities, we were able to navigate our schedules and fulfill all our supply obligations while maintaining wallet shares with all customers, hence guaranteeing a dependable and stable supply of products to all our clients.

In this backdrop, I will give you a brief rundown of our performance for the fourth quarter and the financial year ended March 31, 2023 and the plans and strategic approach for the upcoming financial year. Mr. Upadhyay will then provide you with granular insight on our financial performance and position.

We are pleased to share that Deepak Nitrite has displayed agility in achieving growth while maintaining the high quality and adhering to the safety standards that are expected of us. Diversification across products and user segments, customers, geographies has been the bedrock of our strategy. This allowed us to be nimble and seek out more remunerative pockets of opportunity amidst operational and macroeconomic challenges. This has allowed us to maintain a strong and resilient business model.

Leveraging off a solid foundation, incremental investments are tactically utilized to increase capacity and sustain demand from end-user industries. This has enabled us to drive a healthy topline growth of 17% year-on year and set a new benchmark of exceeding INR8,000 crores in annual revenue, which is the first for our Group.

Despite recent cooling off in input prices, they continue to remain at elevated levels and more than that at volatile levels compared to the previous year. While profitability for the year is lower than that of the prior year, EBITDA and PBT in quarter four have grown in double digits compared to quarter three, indicating that operations are progressing in the right direction as we enter the new year.

Coming to the performance of strategic business units, the Advanced Intermediates unit delivered an impressive revenue growth on the back of resilient demand from end-user industries and we actively pursued opportunities with both domestic and international customers during the period. We expect this segment to continue performing well, given the shift in global supply chains towards Asia and positive demand trends. However, it is worth noting that challenges around logistics and high raw material costs due to internal product transfers at market prices with a time lag before prices that are passed on. Future performance will be driven by several new multi-year contracts, successful pilots and new product introductions in our basket.

Deepak Phenolics witnessed a healthy topline performance, with some contribution from pricing, but largely driven by the continued increase in plant efficiencies. Our phenol plant recorded an average utilization of more than 120% for the quarter and achieved the highest-ever quarterly domestic sales in Q4, along with the highest daily phenol production.

We’ve seen sequentially Phenolics has improved in volume and profitability significantly. This was due to healthy demand and improved product acceptance, resulting in a significant increase in revenue realization for both phenol and acetone compared to the previous year — sorry, compared to the previous quarter.

Profitability in the business was lower than last year due to normalized realizations this year compared with the previous period unusually high realizations. The Phenolics business has been using more of acetone in its downstream products and it is going to increase further upon the commissioning of projects under implementation such as MIBC and MIBK which are solvent. And we’re optimistic about the prospects for the business in the future.

FY23 has also been a year in which a lot of our future growth initiatives have started to take concrete shape. In a key development, debottlenecking is a crucial development for Phenolics as it enables the Company to increase its production, and this is expected to come on-stream within this quarter itself.

Additionally, the Company has approved the implementation of advanced process controls, which is expected to be operational from the second quarter. That project is expected to further enhance the operational efficiency of Phenolics and improve the quality of its products. These developments are expected to strengthen DPL’s position in the market and enhance its competitiveness.

Operator

I’m sorry to interrupt, sir, we’re not able to hear you. Ladies and gentlemen, the line of the management has been disconnected. Kindly stay connected while we try to reconnect them. [Technical Issues] Ladies and gentlemen, thank you for patiently holding. The line for the management has been connected. Over to you, sir.

Maulik Mehta — Chief Executive Officer

Sorry for this interruption. I guess this is now part of new business processes. I will repeat the previous paragraphs. FY24 — FY23 has also been a year in which a lot of our growth initiatives have taken concrete shape. In a key development, debottlenecking is a crucial development for Deepak Phenolics, as it enables the Company to increase its production. This is expected to come on-stream in this quarter itself.

Additionally, the Company has approved the implementation of an advanced process control project, which is expected to be operational from the next quarter. This project is expected to enhance the operational efficiency of DPL and improve the quality of its products. These developments are expected to further strengthen DPL’s position in the market and enhance its competitiveness.

In addition to our current projects, we’re making strides towards expanding our business through several other ongoing initiatives. We’ve successfully commissioned installation of our SAP unit, which significantly improves our sustainability in Nandesari. And we are planning to commission the photochlorination and chlorination projects in the third quarter followed by the asset project in the fourth quarter, which will take care of current and future needs.

In the first quarter of FY25, we’re scheduled to commission our MIBK and MIBC plants, both of which, as I mentioned, are derivatives of acetone. Additionally, our hydrogenation and multipurpose distillation facility has been approved, marking further progress in our expansion plans.

During the period under review, we’ve achieved significant derisking of the business through an assured supply of critical raw materials and paying down debt to strengthen the balance sheet. Additionally, with the Nandesari back to full operations and other plants running at high utilization, we are working with good momentum.

With multiple plants underway to be commissioned in the coming quarters, we’re poised to deliver growth and create value to all our shareholders. Recognizing this, the Board of Directors has announced a final dividend of INR7.5 per equity share, which is 375%, a face value of INR2 each for FY22-FY23 in view of the Company’s steady performance.

Before I conclude, I would also like to make a point that DNL’s Dahej facility received an unprecedented score of hundred-upon-hundred in the Together for Sustainability audit. I just want to point out that TFS is very similar, it is the European counterpart to responsible care, which is an American institution. TFS is also recognized and highly valued by every single large European company and many large Japanese and American companies. This is the first time ever in the history of TFS that a Company has received a perfect score in its first try. We are confident that this achievement is also going to be capitalizing many more such.

I would now like to hand the call over to our Director, Finance, Mr. Sanjay Upadhyay, to address this forum and take you through the financial performance during the period. Thank you.

Sanjay Upadhyay — Director – Finance & Group CFO

Thank you, Maulik. Good afternoon, everyone, and thank you for joining this call today. I’ll walk you through the highlights of the financial results for the period ended March 2023. During the period under review, Deepak achieved positive topline performance despite facing macroeconomic challenges.

In FY23, revenue stood at INR8,020 crores, which is significant as compared to INR6,845 crores in FY22, higher by 17%. This growth was attributable to stable demand and high plant efficiencies, while EBITDA stood at INR1,337 crores against last year’s — it is lower by 19% year-on year basis, because last year’s base was very high. PAT stood at INR852 crores in FY23 versus INR1,067 crores last year.

The results have been impacted due to war and resultant high input prices and resultant inflationary pressures. There is an also an impact on the several external-internal factors such as — summarized by Maulik in his comments.

Both business segments showed solid improvements, contributing a strong revenue growth on a consolidated basis. The increase in demand and realization to — for key products drove the growth. Despite the challenging environment, DNL remains focused on driving growth and expanding its operations to capture new opportunities.

Further, it’s worth noting, DNL’s subsidiary DCTL has been actively expanding its team by hiring key personnel at various departments such as project management, procurement and support functions. DNL helped invest INR400 crores in DCTL towards part funding of the Group’s ongoing capital projects.

On the operating front, our domestic business revenue stood at INR1,512 crores and INR6,410 crores in Q4 and FY23, higher by 22% year-on year respectively. Export revenues were INR49 crores in Q4 FY23 and INR1,562 in FY23.

On a consolidated basis, domestic to mix — domestic to our revenue and the mix is 77.23 for Q4 FY23. In the quarter on a consolidated basis, revenues grew by 5% at INR1,974 crores as compared to INR1,876 crores in Q4 FY22. The impressive topline performance was fueled by high production volumes in several key products. EBITDA came at INR361 crores compared to INR404 crores in Q4 FY22.

In Q4 FY23, PAT stood at INR234 crores versus INR267 crores of last year. Profitability is lower on a year-on year basis due to high base in the previous year. But the Company has significantly improved profitability quarter-on-quarter, in line with the operational performance.

Moving to our segmental performance, in our Advanced Intermediates segment revenue grew by 7% to INR810 crores in Q4 FY23 versus INR759 crores in Q4 FY22. The growth is going to sustain healthy demand from key customers while EBIT came at INR137 crores with the margin at 17%. As Maulik mentioned, growth in EBIT has not kept with the pace of the revenue growth due to significant increase in input cost compared to the previous year. In FY23, revenue grew by 21% to INR3,074 crores and EBIT came at INR555 crores, translating to a margin of 18%, despite the current environment and challenging circumstances.

Deepak Phenolics delivered an encouraging performance with a revenue growth of 3% to INR1,173 crores in Q4 FY23 versus INR1,131 crores last year. The Company has operated all plants except for Nandesari unit at high utilization rate. The phenol plant has clocked an average utilization of more than 120%, even higher for the quarter, and achieved highest-ever quarterly domestic sales and highest production per day of phenol.

EBIT stood at INR177 crores and EBIT margin came at 15% in the quarter. In FY23, revenue stood at INR4,986 crores and EBIT came at INR584 crores, translating into a margin of 12%. While DNL has no debt, DPL has prepaid the term-loan for an — of an amount of INR61 crores in the fourth quarter.

For the full-year FY23, the prepayment of term loan by DPL was INR161 crores, leading to a saving in interest cost. This has reduced net debt to equity ratio to almost zero — that is 0.03 as compared to last year’s 0.20.

On a consolidated basis, the surplus of funds for DNL remains debt-free on a net-debt basis, with a net worth of INR4,090 crores and INR2,625 [Phonetic] crores of balance sheet is — our balance sheet is — it has adequate headroom to raise growth capital for future expansions. In the input on cash flows for the — cash flow for the — cash flow remains robust and we have reported operating cash flow of INR650 crores in FY23 when evaluated EBITDA of OCF and EBITDA ratio at 0.49.

We are entering into FY 24 with a derisked business model, a very robust balance sheet and pipeline of projects lined up for commissioning. We are highly excited of our growth prospects and look forward to building a performance momentum.

Before I conclude, I would like to provide an update on the fire incident at Nandesari facility that occurred on 2nd June, 2022. Against our insurance claim, we have — for lots of material damage, we have received an interim payment of INR11 crores for the — in March 2023 and further INR14 crores in April 2023 as the interim payment. Balance is — will be — we hope to receive the balance in the coming quarter.

Thank you for taking the time to join our earnings call. Now though, this is open for question-and-answer session.

Questions and Answers:

Operator

Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Nirav Jimudia from Anvil Research. Please go ahead.

Nirav Jimudia — Anvil Research — Analyst

Yeah, good afternoon, team, and congratulations on very good set of numbers. Sir, I have two questions. So one is, so when we see our performance in FY20 vis-a vis what we have delivered in FY23 for the standalone business, I think our gross margins remained at similar levels like at around close to INR1,370 crores, but this has come with close to 32% higher turnover when we compare FY23 with FY20. So, this could be a combination of volume growth plus some raw material cost inflation, which you just alluded in your opening remarks.

So my question is, with the brownfield expansions and the debottlenecking what we are undertaking in the standalone business, how much of the volume growth can we expect for FY24? And though some of the raw material prices have corrected, predominantly the ammonia prices which have corrected close to two-third of the prices what they were in the month of December, how much of our current turnover of INR3,000 crores in the standalone business has a scope for margin expansion on a per kg basis? So if you can just answer to this, I can add upon one more question to this.

Maulik Mehta — Chief Executive Officer

Okay. So, first of all, you’re right that there has been a lot of volatility, including in ammonia. However, India continues to remain the most expensive buyer of ammonia in the world if I look at the indexes. Nonetheless, it has certainly come down from its peak last year.

Now, what has happened over a period of time also is that the SG [Phonetic] prices will automatically correct as they adjust. Nonetheless, we have been able to maintain a reasonably healthy margin on a per kilo basis. And as we expanded in FY21, we had a plant which was about 15% less in terms of its capacity than we have now. So, on a stable year, you can expand — I mean, you can expect sodium nitrite and its associated nitrate volumes to increase by about 15% to 18%.

And how this results with regards to topline growth is difficult to say, because the market continues to be volatile. We continue to maintain reasonably healthy margins, which have been as they were when ammonia prices were low as well as, as they were when ammonia prices were high.

Nirav Jimudia — Anvil Research — Analyst

So — because you rightly said that turnover is difficult to predict because all depends upon the selling prices of the products, but if we see FY20, we were close to INR800 crores of operating profit when ammonia prices were lower, as last year also we were at around INR680 crores, though there — so this year would have seen some cost inflation on the operating cost side also because the plant was not running full and several other factors.

So, what could be the fair assumption based on the volume growth you just alluded upon? What could be the figure we should look upon, because there could be some benefits coming to us in terms of some pockets of the raw material prices as well as reduction in the operating costs?

Maulik Mehta — Chief Executive Officer

So, Nirav, I would expect that FY24 and FY21, one reason why they should not be compared is because one of the key raw materials which we used to get as a large Volume formula-linked which was linked to ammonia prices, now we are forced to buy it in the spot market at far higher prices and we have to see how we can derisk our supply chain itself.

So for this year, I would say that one can expect a performance which is in Deepak Nitrite similar to what it was last year if we had not faced the impact of the fire and I think between 40 days to 60 days of loss production.

Nirav Jimudia — Anvil Research — Analyst

Correct. So, we could be closer to FY22 performance in terms of our absolute EBITDA numbers, right?

Sanjay Upadhyay — Director – Finance & Group CFO

Nirav, let’s just interrupt here. You are comparing this since 2019-2020, am I right?

Nirav Jimudia — Anvil Research — Analyst

Correct, sir, correct. In 2019-2020, we were at INR800 crores.

Sanjay Upadhyay — Director – Finance & Group CFO

Yeah, but you are just seeing the absolute number. 2019-2020 has had a very abnormal year for DAVDA [Phonetic]. We have been — if you see the con-calls and stuff, we have always maintained that DAVDA will be abnormally high and that’s why the percentage is high. So you there — so you cannot just pick up one period and then compare with that.

Nirav Jimudia — Anvil Research — Analyst

No, sir, even FY22 also I think we were close to INR680 crores. So I think — I just wanted —

Sanjay Upadhyay — Director – Finance & Group CFO

So, point is it’s not going down. It was one single product whereas what you are seeing now is overall across all the products in spite of — and despite of rather the several challenges which we and the industry is facing outside. I mean it’s very difficult to compare — 2019-2020 period was completely different and what we are facing — the world is now is completely different. So it will not be — you see, numbers [Foreign Speech], but point is, you must see the outside environment also when we are comparing this.

Nirav Jimudia — Anvil Research — Analyst

Sir, second question is on, like one of our competitors of is also expanding on the anti side. So, how we are placed in terms of our existing utilization here because I think one of the monomers of anti is doing well because of — the downstream agrochemicals is doing well. So, if you can just help us explain our exposure of sales to the agrochemicals out of our standalone business, and our sales more prone towards the generic — niche generic or the patented agrochemical products where we supply those intermediates.

Maulik Mehta — Chief Executive Officer

Okay, so first of all, one thing I can correct here is, I do not believe that there are any patented in — Agrochemical Intermediates. The other thing that I can say is that we are running our plant at full utilization. We will also be looking at expanding that. We will also be, in our own manner, significantly improving the resilience of the value chain.

And we are already also going downstream. We have piloted several downstream products which come out of this chain. Those have been accepted by the customer with regards to quality. And now it’s an advanced stage of discussions for volumes and long-term contracts.

Nirav Jimudia — Anvil Research — Analyst

Got it, sir. Thank you so much, sir. I have few more questions but I’ll join back in the queue.

Maulik Mehta — Chief Executive Officer

Thanks, Nirav.

Operator

Thank you. The next question is from the line of Vivek Rajamani from Morgan Stanley. Please go ahead.

Vivek Rajamani — Morgan Stanley — Analyst

Hi, sir, thank you so much for the presentation. Two questions from my side. Could you give some color on the demand trends that you’ve been witnessing for your key segments in the month of April and May? If I believe in the last quarter, you did say you started to see some green shoots. So, it would be great to get an update on that by segment, if it’s possible.

And the second question was, you’ve been mentioning that the share of exports has been rising in your portfolio over the last 2 quarters. Just wanted to understand, what is the margin profile for these export markets vis-a-vis the domestic markets. And if there is a difference, what could be the differential? Thank you so much.

Maulik Mehta — Chief Executive Officer

Okay. So first of all, thanks for the question and interesting that you should mentioned color and green. But one thing that I can tell you is that our products which are intermediates are spread over multiple end applications. You can have the same product, which goes into different end applications. However, right now, dyes and pigments is seeing a nadir in that sense with regards to demand and with regards to inventory levels even at customers and consumer end.

The segments which are doing better comparatively are oil and gas, explosives, personal care, food, rubber, infrastructure, and segments which are relatively neutral are pharma and agro. Now when I say neutral, I’m talking about it with regards to volume. Prices may go up or down, but in most cases we are protected by volume contracts with pass-through clauses. So, when I spoke earlier about exporting more, that is because in Q2 and Q3, the Indian demand for textiles, when it comes to dyes and other intermediates, was very, very poor whereas the export need was higher, because Europe had curtailed available supply.

And finally, when oil prices were nearer or $120, there was a flurry of activity coming with — into oil and gas exploration. And as we are intermediates, we were able to pivot away from supplying to a low demand domestic market, which prioritizes textiles towards a high-demand export market which prioritize things like water treatment and oil chemicals. Now, this is where we are able to remain nimble.

In India, many of these segments have started showing a certain improvement and hence we have been pivoting back towards India to an extent. Our export market continue to remain served by us. The margin profiles on a net-back basis, I would say, are relatively similar for two reasons. One is that the freight rates have normalized compared to the highs of last year; and B, that there is a duty on our product when it is supplied to the US, so I am talking about net-back rates which also addresses the duty element.

So, our rates were not lower or higher compared to our domestic rate. And hence, in both cases we are okay. We have adequate opportunities to grow in this segment and we have the ability to pivot depending on end segment demand. And as we will have — this year we will have higher productivity and higher production. We are hopeful that we will be able to cater to the growing demand without needing to lose wallet share from one end segment to another. I hope that answered your question.

Vivek Rajamani — Morgan Stanley — Analyst

Sure, sir. Thank you so much. I’ll rejoin the queue. All the very best.

Maulik Mehta — Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Rohit Nagraj from Centrum Broking. Please go ahead.

Rohit Nagraj — Centrum Broking — Analyst

Yeah, thanks for the opportunity and congratulations on a perfect score through TFS audit. My first question is on phenol capacity. So, when we talk about one 120%, what is the base we are taking? Is it 200 or 250? And we have again mentioned that we will be debottlenecking further by 10%, so what will be the final capacity that will be on-stream in Q1? Thank you.

Sanjay Upadhyay — Director – Finance & Group CFO

So, base is 2 lakh tons, 200 KT. And when you say — we have said, it is above 120, so it is higher than that and with debottlenecking in this we are expanding 50% increase in the capacity.

Maulik Mehta — Chief Executive Officer

From 2 lakh tons.

Sanjay Upadhyay — Director – Finance & Group CFO

From the base.

Rohit Nagraj — Centrum Broking — Analyst

Right. Got it, thanks for that clarification. Sir, second question is in terms of domestic demand, so exports demand has been very dynamic. What is our understanding in terms of domestic demand for the products, which are further being exported by the converters or the downstream players? Thank you.

Maulik Mehta — Chief Executive Officer

For which segment are talking? Are you talking about phenol and acetone?

Rohit Nagraj — Centrum Broking — Analyst

No, for the standalone segment.

Maulik Mehta — Chief Executive Officer

No, it doesn’t matter, whether you are exporting it or you are giving it to a domestic converter who is exporting it because the domestic has a contractual agreement with an international client, it’s essentially the same thing. And it depends on product-to-product, because in the dye segment there is not much of this. However, this is much more prevalent when it comes through agrochemicals.

And as I mentioned earlier, we — in most of our cases, if not all of our cases, in agrochemicals, we have medium and long-term contracts. Some are annual and some are multi-year contracts. So, the volumes are relatively protected. As and when we are able to debottleneck and make a little additional volume, we do have customers who were able to supply that on a spot basis at a spot price.

Rohit Nagraj — Centrum Broking — Analyst

Sure, got it. So sir, just one last clarification. In our press release or presentation, we had mentioned that there are INR2,500 crores projects currently which are undergoing. So, what is the completion timeline and capex for FY24 and FY25?

Maulik Mehta — Chief Executive Officer

What I’d mentioned earlier is that the fluorination and photochlorination project will commission in Q3. The phenol debottlenecking will finish to a certain extent in Q1. And with the advanced process control, which will further improve on our already standard — global standard quality, will start to get realized by Q2. And our upstream project will be commissioned in Q4 and downstream derivative of acetone, which is also a solvent, will be commissioned in Q1 of next year.

In the meanwhile, as I had also alluded to hydrogenation, multipurpose distillation and a certain amount of difficult — challenging nitrogen, this will all be commissioned over end of the second half of the year, all the way till the first — end of the first quarter of the next year.

Rohit Nagraj — Centrum Broking — Analyst

Sure, thank you so much [Speech Overlap].

Maulik Mehta — Chief Executive Officer

The projects which we have announced — finally, one last one which I forgot to mention, the polycarbonate compounding facility will be commissioned over the next 18 months.

Rohit Nagraj — Centrum Broking — Analyst

Sure, sir, that’s helpful. Thanks a lot and best of luck, sir.

Maulik Mehta — Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Chetan Thacker from ASK Investment Managers Limited. Please go ahead.

Chetan Thacker — ASK Investment Managers — Analyst

Good afternoon, sir.

Maulik Mehta — Chief Executive Officer

Good afternoon.

Chetan Thacker — ASK Investment Managers — Analyst

Sir, just two questions; one was, if you can throw some light on the domestic demand for MIBK and MIBC? And what is the capacity that we are putting up and how do we see that ramping up?

And second was on the INR2,500 crore capex, if you can let us know how much it is into backward integration and what is the growth capex? And what kind of IRRs should we expect on the backward integration projects?

Maulik Mehta — Chief Executive Officer

Okay, so first of all, MIBK and MIBC, we are targeting for the entire volume of both products to be consumed in the domestic market. We will take the opportunity to export if we think that the realization is better, but the domestic market has significant scope for it. And when we’re talking about volumes, we’re talking about 40 KT for MIBK and about 8 KT for MIBC. Both of these projects will be commissioned pretty much together.

And with regards to upstream and downstream integration, I would not consider that to be a crucial question. The upstream integration will be able to significantly add to our bottom line, no doubt, but while we’re doing it we are also confidently expanding our consumption capacities, which will therefore add to the topline. And those expansions come at a fraction of the capex that the upstream projects require.

So net-net, I will look at even the upstream integration to be able to generate growth with minimum investment in debottlenecking of our existing products. [Speech Overlap] And as usual, we don’t get into a lot of detail about the capex involved when we’re talking about debottlenecking of products.

Chetan Thacker — ASK Investment Managers — Analyst

Got it. And sir, just to get a sense, the domestic total volume for MIBK and MIBC? So 40 and 8 is what we are setting up or 40 and 8 is the domestic consumption?

Maulik Mehta — Chief Executive Officer

It’s — both of these are the same. We are confident of being able to take 100% of the requirement. Let’s also keep in mind that the requirement is growing at a healthy CAGR. So, we hope to apply ourselves to seeing how we can debottleneck this in short order after commissioning. But we’re confident that we should be able to take — have close to a 100% of the consumption demand.

Sanjay Upadhyay — Director – Finance & Group CFO

Today, it is under 100% imported, which is in the same range. So, that’s what I mean we’ll be able to supply to the market, substitute the imports.

Chetan Thacker — ASK Investment Managers — Analyst

Got it. And on the INR2,500 crores, so the total capex that is there, is it fair to assume that since we are moving up the value chain, our payback time should be anywhere between 3 years to 4 years for these projects, which is essentially faster than what it would have otherwise been?

Maulik Mehta — Chief Executive Officer

Yes, you are right.

Sanjay Upadhyay — Director – Finance & Group CFO

This is the correct assumption.

Chetan Thacker — ASK Investment Managers — Analyst

Sure, okay, sir. Thank you so much. All the best.

Maulik Mehta — Chief Executive Officer

Thank you. Just I’ll highlight that when we count payback, we are only considering the incremental value that we get.

Chetan Thacker — ASK Investment Managers — Analyst

Got it, yes sir, sure. Thank you.

Maulik Mehta — Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Abhijit Akella from Kotak Securities. Please go ahead.

Abhijit Akella — Kotak Securities — Analyst

Yeah, good afternoon and thank you so much for taking my questions.

Maulik Mehta — Chief Executive Officer

Hi, Abhijit.

Abhijit Akella — Kotak Securities — Analyst

Hi. First of all, on this government incentive that’s mentioned in footnote three of the results, it was about INR39 crores for the year compared to only INR1 crore the previous year. So just wanted to check if — whether this is the usual export incentive or it’s something else? And is it a one-off item or do we expect it to continue in the future?

Sanjay Upadhyay — Director – Finance & Group CFO

Sir, I [Indecipherable] the question, please. One is incentive, what is that question?

Abhijit Akella — Kotak Securities — Analyst

Yeah, I was referring to footnote three of the results which is a table showing the government incentive income. It shows about INR59 crores for FY23.

Sanjay Upadhyay — Director – Finance & Group CFO

Yeah, INR59, right.

Abhijit Akella — Kotak Securities — Analyst

Compared to only INR1.6 crores in FY22, so [Speech Overlap] was just trying to understand what this item exactly is and is this a recurring item going forward.

Sanjay Upadhyay — Director – Finance & Group CFO

It is a recurring item going forward. This is incentive given by the government for setting up the project. And I believe this will continue for next 5 years to 6 years.

Abhijit Akella — Kotak Securities — Analyst

Okay. Is this at Deepak ChemTech or at Phenolics?

Sanjay Upadhyay — Director – Finance & Group CFO

It is Deepak Phenolics.

Abhijit Akella — Kotak Securities — Analyst

Okay. So, we should expect the same number to sort of continue for the next 5 years, 6 years [Speech Overlap]…

Sanjay Upadhyay — Director – Finance & Group CFO

Numbers may [Speech Overlap] very up and down depending on — see, these are — there are various [Indecipherable] from which, say, the incentive is given. But you can roughly take the same amount year-on-year, not an issue, can be a little higher also.

Abhijit Akella — Kotak Securities — Analyst

Sure, understood. Thank you. Second thing was just on the polycarbonate compounding capacity, it would be helpful if you could please guide us a little bit on what sort of value addition we should expect between the compounding the product versus the base polycarbonate that well eventually produce? In terms of maybe the price variance or the difference in margins, how much should roughly we expect on that?

Sanjay Upadhyay — Director – Finance & Group CFO

See, this is — rather than looking at this facility as EBITDA increase or something like that, more important is that we are setting base for polycarbonate. I mean, when you are going as the polycarbonate, if you go with just for polycarbonate without knowing the market, then it will be — it will not be right. In fact, we want to go further one-step beyond, not just polycarbonate but little polycarbonate derivatives also so that we have edge over the normal — there are various poly applications of polycarbonate, which application makes sense for us, where to go, where is — the strength lies and why is the demand growing, I mean these are all parameters well test by getting into ‘polycarbonate compounding first for which we have sanctioned INR250 crores and we are actively working on that.

Parallelly we’ll start work on polycarbonate, but this has to happen first. This is a precursor to the polycarbonate. It will certainly — certainly when you select the right application, your EBITDA is bound to go up than normal polycarbonate. I will refrain from giving any numbers now because we are ourselves studies, but it’s — the whole idea is to make your product more, I would say, not a commoditized product, but somewhere it is — we’re getting a color of value addition.

Maulik Mehta — Chief Executive Officer

I’ll just add one point here. This is what you would consider as seed marketing because customer approvals, especially for high-value compounds, it takes anywhere from like 6 months to a year and a half. So, our goal is to make sure that we put our foot in the door there. Now, of course, it is a cherry on the top that the financials do — they do look attractive in any way when we’re talking about the compounding facility. But the purpose of investing this few hundred crores is so that we can fast-track the approval and validation process with our customers. And in the meanwhile, we work to see how we can connect between our current product portfolio and the manufacturing over a period of time, so that we are end-to-end completely integrated. Thank you, that’s helpful. Next question I just had was on the contracting within the business. The presentation does mention that significant part of the business is contracted. So, if it’s possible to give us some sense of roughly, I mean, what percentage of the volumes might actually be contracted and what’s the pricing arrangement on vis-a-vis sort of giving 3-monthly pricing arrangements or is it longer than that, that would be helpful. Thank you.

Operator

Ladies and gentlemen, the management line has been disconnected. Kindly stay connected while we try to reconnect them. Thank you. [Technical Issues] Ladies and gentlemen, thank you for patiently holding. The management’s line has been connected. Over to you, sir.

Sanjay Upadhyay — Director – Finance & Group CFO

Yeah, Abhijit.

Abhijit Akella — Kotak Securities — Analyst

Yeah, sorry, I’m not sure if you heard my question, sir. I’ll just repeat it. It was basically with regard to the — let’s say, the volume of contracted arrangements in the business. The presentation mentions that there is contracted supply of products from both the segments, which provides high-visibility for continued growth. So, just sort of wondering if you could share what percentage of the business might be contracted in both the businesses. And what sort of pricing agreements to we normally have? Is it on a quarterly basis for these contracts or is it longer-term?

Sanjay Upadhyay — Director – Finance & Group CFO

I will ask some of the — answer on the pricing first because pricing is not — it’s always formula-based. In today’s world, nobody gives you a fixed price unless it is only a couple of months or maximum for a quarter. So, there is no fixed pricing arrangement in most of the cases.

In fine and specialty segment, yes, there will be a few contracts where it is fixed pricing, but where margins are certainly in our control and that way. In DNL, this volume should be in the range of — around 25% to 30% whereas DPL is in the range of 20% to 25%, the contracted business, okay. But if you know, by and large, we have same kind of suppliers in DNL and also in DPL also, I mean, and they are with us for years, synergies.

I mean, DPL also we are supplying to the — most of the large consumers and they are continuing with us. In today’s market, there — nobody enters into a long-term contract, which you also know.

Abhijit Akella — Kotak Securities — Analyst

Sure, thank you so much. That’s very helpful. Just one last quick clarification and I’ll get back in the queue. On slide seven, we have shared some volumes, so for example, sales of inorganic intermediates of 7,600 tons and hydrogenation volumes. Just wanted to clarify, are these for the quarter or for the full year?

Sanjay Upadhyay — Director – Finance & Group CFO

For the quarter.

Maulik Mehta — Chief Executive Officer

We’ll come back to you with this answer, sorry about that.

Abhijit Akella — Kotak Securities — Analyst

Sure sir, no problem. Thanks a lot, and wish you all the best.

Operator

Thank you. We have the next question from the line of Rohan Gupta from Nuvama Wealth Management. Please go ahead.

Rohan Gupta — Nuvama Wealth Management — Analyst

Yeah, hi sir, good evening and thanks for the opportunity. Sir, firstly just clarification on the [Indecipherable] availability of ammonia, where you had said that you used to have a lower cost availability but that things have changed now. In terms of the…

Operator

I’m sorry, sir, Mr. Gupta, your voice is muffled. May I request you to use your handset please to ask a question.

Rohan Gupta — Nuvama Wealth Management — Analyst

Yeah, just a second. Yeah, hi sir, hope it is better now.

Operator

Yes sir, please continue.

Rohan Gupta — Nuvama Wealth Management — Analyst

Yes, sir, I was asking on this ammonia forking [Phonetic] and for our Phenolics production, sir. So, how do you see that — you had mentioned that the changes has been there already in place for the positive picture what we’re [Indecipherable] as we are going — ourselves going forward now. So with falling gas prices globally and also in India, how we see that our gas cost and ammonia cost of production will come — so ammonia price will come down and how the Phenolics spread in you view is going to move in near future, if you can just give some sense on that.

Maulik Mehta — Chief Executive Officer

So, both of these are challenging questions to answer with this volatility. One thing that I can say is that right now, while the gas prices are temporarily subdued, especially in the summer season in Europe, what we will end up having is, compared to last year, an increase in the production of ammonia.

In the meanwhile most places have large inventory stockpiles of urea. So, there will, I believe, be more ammonia available for chemical companies such as Deepak. There will also be an increase in the new capacities that come in with regards to ammonia production, which I hope will give at least some level of consistency with regards to price and availability.

Now beyond that, with regards to the spread between phenol, acetone and our upstreams, these are linked in some — to some extent to crude. But one thing that has happened over the last 2 years is that, that very easy linkage where you are able to derive some sort of a regression analysis, that has broken because even the consumption has been affected.

Styrene monomer, which is benzene downstream, is doing reasonably okay compared to before, but polyurethanes in fact are not at the current time. In the meanwhile, paraxylene is not doing well. Therefore, there is lower production of benzene. Some refineries are down because they do not want to manufacture at a volatile crude price. So, this has currently affected that easy predictability.

What I can definitely say is that benzene currently is exhibiting some level of resilience. Propylene is getting softer. We’ll see how this goes as more plants either tone down their production or increase it depending on availability of crude. So, very difficult question to answer, given the current circumstances.

But one thing is for sure, I think everybody, whether it’s a manufacturer or whether it is a consumer, everyone expected that even this year would be business a -usual. And I don’t understand why, because a large — taken largest player in the chemical space, which is China, came back with a bang in — from January onwards with huge stockpiles of manufactured products, which they had not earlier moved out of the country for reasons of labor unavailability and some such. So of course, you’re going to have short-term situation where there is a glut in the market of certain products simply because they need to exhaust their inventory levels as well. The situation will normalize.

What that means is difficult to answer, but you must look at the last quarter and the current quarter, keeping this brand new dark cost [Phonetic] also in mind. The largest player coming back disrupts the entire supply chain.

Rohan Gupta — Nuvama Wealth Management — Analyst

So sir, it means that with the China situation and that you said that the way the Chinese production is coming in the market and since they’d just started coming in the market there may be high supplies of phenol in the market, where you see that going forward or in the near-term, phenol prices can further come down?

Maulik Mehta — Chief Executive Officer

No, absolutely, this is not what I am saying. Let me reiterate. First of all, we do not — we have not in the past and we do not in the present or in the near-term, in the future, next year or whatever it is, expect to have competition coming from Chinese phenol. We have had phenol coming from other countries, but not China. And at least, I can assure you that when it comes to phenol, acetone and IPA, your company remains resilient with regards to its wallet share and most of it or if not all of it is dedicated to domestic consumption, which is also on an improving trend. So, you don’t need to be worried about China coming in into India with value destructive prices in phenol and acetone.

Rohan Gupta — Nuvama Wealth Management — Analyst

But sir, it’s still — a large part of domestic market is fed from the phenol import. As what I understand the phenol business, we may have a control on domestic consumption [Speech Overlap] the volume we are not worried about, but pricing, sir, will be determined by the global prices.

Maulik Mehta — Chief Executive Officer

China is a large producer as well as a very large consumer of phenol. So China, generally speaking, is a producer and the consumer, and it will focus on increasing and maintaining its consumption activities within China itself. China has never in the past been a global player when it comes to the export of phenol. It is self-sufficient, just like it is in, say, the chloro alkali industry. It is the largest producer of caustic chlorine, but it does not affect the global trade flows in anyway.

Rohan Gupta — Nuvama Wealth Management — Analyst

Thank you. Just last bit from my side, and I’ll come back in queue. On our further phenol expansion, sir, have you any further future plan or is it in the near-term any further plan on expansion of the ethanol plant,

Maulik Mehta — Chief Executive Officer

Yes, there is…

Sanjay Upadhyay — Director – Finance & Group CFO

Rohan, this — your — this question is again linked to your earlier question also. Frankly, China, North China, India today imports around 2 lakh tons of phenol. Demand is growing significantly, okay, and having — is not surprised you people giving higher correction, higher numbers than what you would have expected. I mean, it’s not only the price, China comes [Foreign Speech]. There are other things also, like in first commentary, we said that we are digitalizing our systems and processes, which is going to improve our efficiency. That you do not know what the impact is quite large, those — by doing those things, operational efficiency.

On top of it, you have — we have other products which are also equally doing well, like AMAS and acetone is APA, so I mean, let’s not get too much — read too much into China remarks and these remarks. We are very confident that this year also well give you a good results’, don’t worry on that. There is a room for one more player. I must tell you, what you are — because India is growing significantly in phenol, and yes, at an appropriate time we may also come to the market. But then, you’ll have to wait for that.

Rohan Gupta — Nuvama Wealth Management — Analyst

Thank you, sir, thanks for answering my questions.

Operator

Thank you. The next question is from the line of Naushad Chaudhary from Aditya Birla Sun Life AMC. Please go ahead.

Naushad Chaudhary — Aditya Birla Sun Life AMC — Analyst

Yeah, hi, thanks. Just one clarification, sir; if I remember it correctly, earlier we had indicated the project in Phenolics, resins, I think it was butylated phenol you were talking about. Can you — what is the status currently of this project? What kind of investment we are planning and by when should it be commercialized?

Maulik Mehta — Chief Executive Officer

This was a conjecture. We are not looking at butylated phenols.

Sanjay Upadhyay — Director – Finance & Group CFO

Where we have announced it? I don’t think we have made any announcement on that.

Naushad Chaudhary — Aditya Birla Sun Life AMC — Analyst

Okay. And secondly, sir, on the investment pipeline of INR2,500 crore, as of FY23 closing, on a base of INR1,300 crore of EBITA, with this investment of INR2,500 crore, where we should — how much EBITDA it could contribute on [Speech Overlap]?

Maulik Mehta — Chief Executive Officer

Let me just give some light here. Over the next 4 years — 4 years to 5 years, we are planning as a group to be doubling the revenue that we have had in FY23. And products that we are getting into are a mix between downstreams of Deepak Nitrite and downstreams of Phenolics. The margin mix will be [Technical Issues]. So, this is what we are putting into motion over next 4 years.

Naushad Chaudhary — Aditya Birla Sun Life AMC — Analyst

And doubling of revenue and doubling of gross profit and EBITDA, should we take it the same way, because revenue would be…

Maulik Mehta — Chief Executive Officer

As I mentioned, the margin profile is similar. I hope you are not asking about the percentage margin.

Naushad Chaudhary — Aditya Birla Sun Life AMC — Analyst

Understood. So, INR1,300 crores of EBITDA and INR2,600 crores of gross profit should be doubling ideally with the kind of investments we are doing…

Maulik Mehta — Chief Executive Officer

I’m just reiterating, margin profile is similar to the current margin profile in a normalized year. FY23 was slightly suboptimal in that sense. If it was a normalized year, we would be talking about doubling of the revenue and a similar margin profile over the next 4 years.

Naushad Chaudhary — Aditya Birla Sun Life AMC — Analyst

Understood, got it. Thank you and all the best, sir.

Maulik Mehta — Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Krishan Parwani from JM Financial. Please go ahead.

Krishan Parwani — JM Financial — Analyst

Yeah, hi, Maulik bhai. Thank you for taking my question. Yeah, two or three clarifications, so one is on the photochlorination. So just wanted to understand, is it for side-chain reaction of toluene or xylene as well? And is fluorination being done for reducing the import dependency?

Maulik Mehta — Chief Executive Officer

So photochlorination, what we have put up as an asset, is an up-engineered asset. And you are right that it can do toluene, but it can also do others like xylene. The asset itself will start-off with our base chemical and then we will be looking at utilizing part of the asset, which is actually broken down into multiple plants. So, we’re talking about photochlorination but it’s done in multiple trains. So, we will be able to dedicate individual trains to different products as we require them. The balancing equipment is all that will be required, which is minor and which can be executed very quickly.

And with regards to the fluorination, this is in a similar fashion up-engineered when it comes to the MOC [Phonetic], the pressure, the temperature that it can handle. So, while it may make one product to start-off with, which will reduce our volatility and increase our ability to deliver higher-value intermediates, it is also designed with the intention of manufacturing products, which are using this platform but are not directly connected to any existing value chain.

Krishan Parwani — JM Financial — Analyst

Understood. Thanks for this.

Maulik Mehta — Chief Executive Officer

And also be able to operate individually in individual trains.

Krishan Parwani — JM Financial — Analyst

Understood. The second is on — so on the Phenolics side, can we also think of adding, let’s say, diacetone alcohol or hexane glycol because they also are imported into India and there is a high demand. So just wondering about that.

Maulik Mehta — Chief Executive Officer

These are all very good ideas. Certainly, we can talk about them later because they are being worked on, whether they should be worked on with a higher priority or a low priority, again the question is what is going to get us to, as I mentioned earlier, doubling of our revenue in the next 4 years. Is it going to be a better substitute to something else that we may be working on? It’s worth considering.

Krishan Parwani — JM Financial — Analyst

Understood. And just a last bit, on the capex front, so I know — I think you mentioned about the commercialization schedule, etc., but I’m sorry if I missed out, so can you just give a quick capex breakup of 2024 and 2025 and the commercial schedule once again? Sorry. Thank you.

Maulik Mehta — Chief Executive Officer

The capex breakup I won’t give you because these are all in process, because the capex breakup might include capexes which we have not yet announced, so that we can achieve our target, 4-year target, 5-year target. The commercialization…

Krishan Parwani — JM Financial — Analyst

He’s talking about INR2,500 crores only.

Maulik Mehta — Chief Executive Officer

Okay, if you’re only talking about the INR2,500 crores, which we have already announced, very quickly, we have the phenol debottlenecking happening in Q1, the ACP, the Advanced — APC happening in Q2. We have photochlorination and fluorination happening in Q3. We have the upstream integration happening in Q4. And we have the acetone derivatives happening in Q1 of next year. And between Q4 to Q1, we will also be commissioning our expanded hydrogenation, multipurpose distillation and multipurpose nitration. Understood, that’s very helpful.

Sanjay Upadhyay — Director – Finance & Group CFO

So, lot of things are happening in next…

Operator

I’m sorry to interrupt, sir, your audio is not coming on the management’s line. I would request you to kindly unmute yourself. Ladies and gentlemen, kindly stay connected while we try to reconnect the management. Thank you. [Technical Issues] Ladies and gentlemen, thank you for patiently holding. The management’s line has been connected. Over to you, sir.

Sanjay Upadhyay — Director – Finance & Group CFO

Yeah, so the — whatever we announced, our INR2,500 crores, each quarter from next quarter onwards you will find one or other project getting materialized and the numbers will itself speak about — on that. So, as Maulik project-wise details, you can consider all this coming up in next 2 years, INR2,500 crores, and the revenue — doubling of revenue with 4 years, there are different plans.

Krishan Parwani — JM Financial — Analyst

Understood. So just INR2,500 crores is for FY24 and FY25 combined for whatever you’ve announced? FY25 could be higher depending on whether you announce a project or not correct, right?

Sanjay Upadhyay — Director – Finance & Group CFO

Right, you are right.

Maulik Mehta — Chief Executive Officer

Sorry, last one that I forgot to mention is the compounding facility, which will be commissioned over the next 18 months.

Krishan Parwani — JM Financial — Analyst

Understood. And sorry, I think I missed one point, just last point on the reason for higher Phenolics spread this quarter, I mean, if you have — on a gross level, that is before power, fuel and other expenses. So that’s my — that’s the last one from me.

Maulik Mehta — Chief Executive Officer

In Q4, actually compare to sequentially — in Q3, we had a rather unfortunate incident out of our control when the largest supplier of one of the feedstocks had an extended shutdown longer than was originally announced. And hence, we were forced to buy the intermediate cumin [Phonetic] from the global market at prices which would be much higher than what we would have manufacture that ourselves. And this has impacted our Q3 numbers. Of course, in Q4 we did not need to do that and our supply of raw materials was steady, as was our phenol and acetone to customers.

Krishan Parwani — JM Financial — Analyst

Perfect, thank you for patiently answering my questions. Wish you languished.

Maulik Mehta — Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Nitin Tiwari from Yes Securities. Please go ahead.

Nitin Tiwari — Yes Securities — Analyst

Good evening, sir. Thank you for the opportunity. I’m sorry if you already answered this question [Indecipherable], but just wanted to know, what is the purchase of finished goods in — reported in this quarter, of about INR122 crores?

Sanjay Upadhyay — Director – Finance & Group CFO

That’s — I think that is cumin.

Nitin Tiwari — Yes Securities — Analyst

So as Mr. Mehta was just mentioning, this cumin is purchased for the quarter, it was for the last quarter? I mean I didn’t quite get that.

Sanjay Upadhyay — Director – Finance & Group CFO

It’ll be Q3 largely.

Nitin Tiwari — Yes Securities — Analyst

But Q3 also had a small figure of about INR16 crores and in Q4, we are still looking at a figure on INR122 crores, so there is a large purchase in Q4 as well of cumin?

Maulik Mehta — Chief Executive Officer

Yes. So, we had — so we did have the regular shutdowns that we have, which is for catalyst replacement and maintenance activities along with minor activities that were done for some expansion, resulted in a period where we did purchase a little bit.

Nitin Tiwari — Yes Securities — Analyst

Understood. And on the phenol expansion, I mean, I just wanted to get some clarifications. Also, right now we are operating capacity at 250,000 tons per annum or on the nameplate it’s still 200,000 tons per annum?

Maulik Mehta — Chief Executive Officer

No nameplate is nameplate, forget about the nameplate. What I can tell you is that, normally with most chemical manufacturing plants, especially ones which are continuous in nature, which require cooling and chilling. The plant throughput is higher in winter because of cooler environment and lower in the summer. And hence, we have actually touched much higher numbers in winter. The debottlenecking activities will allow us to manufacture at a much higher rate through the entire year, maybe possibly try to squeeze out a couple of more tons in winter, if possible. [Speech Overlap] our throughput even in summer months.

Nitin Tiwari — Yes Securities — Analyst

So when we say 120% utilization, that’s 120% of 200,000 tons or as you had alluded in June last year that we have no official capacity to work at 250,000 tons, so is it 120% of 250,000 tons or 200,000 tons, is what I’m trying understand.

Sanjay Upadhyay — Director – Finance & Group CFO

Nitin, what we have said is above 120%. We’ve not given you exact 120%, it is more than that.

Nitin Tiwari — Yes Securities — Analyst

But 120% of what?

Maulik Mehta — Chief Executive Officer

You’re right.

Sanjay Upadhyay — Director – Finance & Group CFO

So, it is more than 120% and with this, debottlenecking in this, we are definitely going to [Indecipherable], so I think let’s — let’s not do too much of 120% [Foreign Speech] 240% [Foreign Speech] 260%, because that will keep on varying. So this is what our capacity will touch, 50% higher than 200,000 tons, that’s the base.

Nitin Tiwari — Yes Securities — Analyst

So — alright, so we will be — roughly we had 300 after the debottlenecking?

Sanjay Upadhyay — Director – Finance & Group CFO

Yes.

Nitin Tiwari — Yes Securities — Analyst

Understood. And sir, lastly — my last question, sir, if I may. So sir, how do we look at the Phenolics piping? Sir, as you mentioned that 30% roughly is contrasted. So my — is this understanding correct that rest 70% business in phenol is market-related. So, is that right understanding? That is one.

And secondly, if that’s the case, then how do we see the pricing for us because like if we look at the March quarter, as far as Asian prices are concerned, we did see some weakness in phenol and acetone prices and so how do we like basically foresee our traction pricing in the backdrop of our usual prices be, so if you can just throw some light on that.

Sanjay Upadhyay — Director – Finance & Group CFO

With these contracted, then you have not heard my second this thing because I said, it is always a short-term contract and a formula-based price. We are not contracting anything on a long-term basis because neither the customer would want that nor we will want that. [Speech Overlap] prices keep on fluctuating. In Deepak Nitrite, you will help fine and specialty business at a price for maybe for 6 months, 9 months, but not in phenol. There are no fixed price contracts in phenol.

Nitin Tiwari — Yes Securities — Analyst

So, are the pricing contracts short term and — or either spot is what you’re saying?

Sanjay Upadhyay — Director – Finance & Group CFO

Yes, but volumes are tied up.

Nitin Tiwari — Yes Securities — Analyst

Volumes are tied up. And, sir, on the pricing front, how do we try and like understand the pricing that we have vis-a-vis the Asian pricing, you can just help us understand that a little bit, because there is a contrasted in the way Asian prices have behaved in the quarter and the way our margins have been.

Sanjay Upadhyay — Director – Finance & Group CFO

But you are linking the prices with margin. You do not consider our other things, which I repeat, there are efficiencies, there are other products. I mean it must be — you answer very honestly, whether it was better than what you expected or no?

Nitin Tiwari — Yes Securities — Analyst

Sir, 100% better than what I was expecting and that’s why I was curious to know like [Technical Issues] how do you see it going forward?

Sanjay Upadhyay — Director – Finance & Group CFO

Every quarter, I have been — we have been surprising you. Every quarter you ask me, [Foreign Speech] you question.

Nitin Tiwari — Yes Securities — Analyst

[Foreign Speech]

Sanjay Upadhyay — Director – Finance & Group CFO

[Foreign Speech]

Nitin Tiwari — Yes Securities — Analyst

Alright, understood, fair. And congratulations and all the best for the future as well.

Sanjay Upadhyay — Director – Finance & Group CFO

[Speech Overlap] I must tell you again and again, we are doing really well. The — I mean there are several steps we are taking. There is a product called AMS which was earlier going to China, there our realization was very low. Now, we are going to Europe with that. That is also adding to the phenol margins. These things are never ever considered by you people. Okay, so those things are definitely — like Maulik was mentioning cumin and there is definitely an impact of that.

So, when you consider with that vis-a-vis — then this year we are going through better as against last year also. So, there are several improvements which we keep on doing because we cannot [Foreign Speech], if it seems like this, we’ll not be able to run our business. But we are taking so much of steps, so many steps like to strengthen our business and make our business so sound, which skews the numbers. And this is what we — precisely we are doing, doubling the capacity, these are all there. Of course, it will be the — but then first you make your business solid. That’s what we try to do.

Like Abhijit [Foreign Speech], that was the export for the quarter, we have done — export was really well for this quarter — this year. So, these are all things which we continue to do and which — I mean strengthens our bottom line and business.

Operator

Thank you, sir. The next question is from the line of Janakiraman from Franklin Mutual Fund. Please go ahead.

Janakiraman Rengaraju — Franklin Mutual Fund — Analyst

Thank you. Good evening, Mr. Mehta and congrats to you and [Speech Overlap].

Sanjay Upadhyay — Director – Finance & Group CFO

Good evening, Janaki.

Janakiraman Rengaraju — Franklin Mutual Fund — Analyst

Yeah, good evening, Mr. Upadhyay. Congrats to you and your team for a very creditable performance.

Sanjay Upadhyay — Director – Finance & Group CFO

Thank you.

Janakiraman Rengaraju — Franklin Mutual Fund — Analyst

So, Mr. Mehta mentioned that China’s return to the chemical industry is a big given for this year. And in that context, while Deepak’s phenol business may be immune to that development, will be other operating segments, will they be impacted by that, either on the raw materials side or on the finished goods, either positive or adverse impacts?

Maulik Mehta — Chief Executive Officer

China currently operates as a wild card. What we believe influences our performance in DNL standalone more is the volatility in the consumer buying behaviour. We maintain very, very high wallet shares with our customers. And our customers have been gracious enough to always give us a premium over whatever the prices in China are.

Let me also reiterate that in 2020 and in 2021, China was operating at full [Technical Issues]. In 2022, did it go — into partial or total shutdown. So, while the rest of the world did have a COVID induced lockdown and scare, in 2021, 2022, in 2020 and 2021, we were competing head-on with China in every one of our products and we were able to maintain strong performance.

So, while China is there, customers continue to prefer to buy from Deepak. Regardless of whatever happens, we are always confident that our operational efficiencies are as good as China, if not better, in every one of our products. In most of the products, we actually have to compete in European markets with giants like BASF and LangSF [Phonetic] as well where while they are not Chinese companies, they have a home market advantage which we have to be able to match. So when we have global scale, we have the capability and the experience to match that.

So, I will only say that what I am cautious about is inflation and consumer buying behaviour. While they continue to buy the same volumes from us, they remain more focused on what will happen over the next 3 months and 6 months. Nonetheless, every one of our customers who have annual or a multi-year contract with us has reiterated multiple times in the last couple of months that the entirety of the contract is, to be honoured, both by Deepak as well as by them.

They recognize that volatilities are there. They are there in the short-term, but they are expecting us to honour those commitments just as much as we are expecting them. Those relationships continue to grow and we are looking at expanding the amount of business, even in new products, that we have with the same customers, even when these are products which are new extensions to our existing product basket and value chain.

Janakiraman Rengaraju — Franklin Mutual Fund — Analyst

Got it. And again, from a broader perspective, the last 3 years, 4 years, the kind of ROCE that Deepak has generated is fairly impressive. In light of this and the fact that you’ll be committing a large amount of capex over the next 2 years, can we sustain these levels of mid-20s ROC?

Maulik Mehta — Chief Executive Officer

Mid-20s is easier to sustain. Right now, we have been operating at the high-30s in the low-40s. So mid-20 sounds doable.

Janakiraman Rengaraju — Franklin Mutual Fund — Analyst

Right, excellent, thanks Mr. Mehta. All the best.

Maulik Mehta — Chief Executive Officer

Thank you very much.

Operator

Thank you. The next question is from the line of Meet Vora from Axis Capital. Please go ahead.

Meet Vora — Axis Capital — Analyst

Yeah, hi sir. Thanks for taking my question. Sir, I just wanted to understand the dynamics for a phenol-acetone plant. So for example, we have set up a plant with a nameplate capacity of 2 lakh tones. Now we are debottlenecking it by 150% [Phonetic] and taking it to 3 lakh tons. For example, if our requirement of phenol increases going further, how much we can debottleneck further till the time where there is a need for setting up another capacity?

Sanjay Upadhyay — Director – Finance & Group CFO

There is a need for setting up another capacity. Beyond 3 lakh tons, I mean, this is something that we will have to be — I mean, we’re actively working on that because the amount of easy headroom is limited after 3 lakhs. It is still possible, but it takes more effort and maybe after that it will start coming with certain possible downsides. When we are making 150%, we are confident of being able to do it without any impact whatsoever with regards to the reliability and the maintenance of the plant. Anything beyond that and we start having to take compromises we’re not willing to. So, we do need to actively work to see how we can maintain and grow our wallet share.

But here also, I’ll rather add to what Maulik is saying. Our technical team, they have always surprised us. We used to believe that we cannot cross 2.5 lakh tons, we’ve crossed 2.5 lakh tons, then 2.75 lakh tons, now 3 lakh tons. So, people are giving us surprise. They are saying there is no [Phonetic] capacity. It is more to do with the competency. And I will not be surprised you take and they give me 5,000, 10,000 more beyond 3 lakhs also. So — I mean, let’s keep our fingers crossed. But then there is a need for one more plant now. That is for sure.

Meet Vora — Axis Capital — Analyst

Sure, sir. And also, if you can highlight the capex that we need to do, for example, we said — we did a capex of around INR1,400 crores for our original 2 lakh tons. Now, how much capex would we have spent on this additional 1 lakh tons debottlenecking that we did over and above the 2 lakh tons capacity?

Maulik Mehta — Chief Executive Officer

[Speech Overlap] less than INR100 crores.

Sanjay Upadhyay — Director – Finance & Group CFO

Where — have you seen anything in the balance sheet? Showing higher capex, you people, you must appreciate this.

Meet Vora — Axis Capital — Analyst

I’m sure, sir. So, we have done hardly any capex on the additional one…

Maulik Mehta — Chief Executive Officer

Yeah, actually the only capexes that we did were on IPA and the power plant.

Meet Vora — Axis Capital — Analyst

Okay, that’s great sir. And sir, second question regarding — sir, if you can share any update on the sodium nitrate project in Oman that we have — we had announced the last quarter.

Maulik Mehta — Chief Executive Officer

Yeah, so that is going along on track. So, you have to remember, it’s a different country which has its own challenges, but we are targeting between 24 months to 30 months for commissioning. As I mentioned earlier, this is in line with that.

Meet Vora — Axis Capital — Analyst

Sure, sir, thanks. That’s all from my side.

Operator

Thank you. The next question is from the line of Anika Mittal from Nvest Research. Please go ahead.

Anika Mittal — Nvest Research — Analyst

Hello? Am I audible?

Maulik Mehta — Chief Executive Officer

Yes.

Anika Mittal — Nvest Research — Analyst

Hello?

Maulik Mehta — Chief Executive Officer

Yes, you are audible.

Sanjay Upadhyay — Director – Finance & Group CFO

Yes, we can hear you.

Anika Mittal — Nvest Research — Analyst

Yeah, I have only two questions. Sir, my first question is, why is there delay in the commissioning of the project? Which factors have contributed to this business in commissioning and how does the impact [Indecipherable]?

Maulik Mehta — Chief Executive Officer

Which delay?

Sanjay Upadhyay — Director – Finance & Group CFO

Which project delay?

Anika Mittal — Nvest Research — Analyst

Sir, in the [Indecipherable] presentation, all the projects — they were delayed by one quarter. I will tell you, MIBK and MIBC plant. In quarter two presentation it was written they will be commissioned by quarter four 2024 financial year. But in this presentation — in this quarter’s distinction it is written it will be commissioned in quarter one financial 2025.

Maulik Mehta — Chief Executive Officer

Yeah, there was a — there were certain challenges when it came to the technology supplier in some part of the engineering. This is partially also owing to some challenges that they’d faced from their own subcontractors in Europe. These are actually very large and complicated assets, especially the columns. And they have a significant amount of engineering required.

Nonetheless, I do believe — I hope that, that problem is behind us. So, we should have a better chance of sticking to the schedule that we have announced. We see what best we can do to try to bring it forward, but what we are telling you is something that it seems — it’s something that we are willing to commit to.

Anika Mittal — Nvest Research — Analyst

Alright. Sir, my second question is, we are expanding the businesses in downstream and upstream products which are more profitable and value-added than our current offerings. We have more than doubled our revenue from INR2,700 crores in 2020 — 2019 to INR6,800 crores in 2022. However, margins have been affected by the fluctuations in commodity prices, which makes us look like a driven commodity driven company rather than a value-added one. We are not saying that we can avoid the volatility of the industry, which we believe that our margins can improve with our new products. So my question is, when you think we can be recognized as a value-added company rather than a pure-play commodity one?

Maulik Mehta — Chief Executive Officer

We are neither a pure-play commodity company nor are we a CDMO company. We’re a diversified chemical manufacturing company which has significant operational excellence and a wide basket of operational platforms that we can put into play. Now, when you see things like margin pressures and all, at the same time you have also seen a rather — if you look at, say, Deepak Nitrite, we had a fire incident, I accept that, and that has resulted in an impact with regards to our percentages. But over the last 3 years, you would — every quarter, you will see a remarkably stable margin profile for the Company as a whole and that’s because of the length and the breadth of our value chain.

Now, when it comes to Phenolics, yes, of course, there is a nature commodity, margins creeping in. And that is one of the reasons why there are certain projects which are more focused on downstream rather than upstream in Phenolics. DNL has invest in — investments both in upstream as well as downstream. Phenolics has only investment in downstream and those investments will have margin profiles which are similar to Deepak Nitrite standalone and else — between them will help to elevate the margin profile of what you would consider the Phenolics business to something which is somewhere between its current profile and Deepak Nitrite.

So, please do not make the mistake of treating us as a pure-play commodity. Again, let me highlight, we are a diversified chemical manufacturing company. We prioritize on intermediates because this is where we believe we can play a great role with regards to operational capabilities. Our ROCE, please find me companies in commodity space or in what you would call the CDM or the specialty space, which have consistently over 14 quarters been able to deliver higher than 35% ROCE while also making new investments for growth.

Anika Mittal — Nvest Research — Analyst

Alright, thank you.

Maulik Mehta — Chief Executive Officer

Right.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Sanjay Upadhyay — Director – Finance & Group CFO

Thank you all for joining this call. In case you have any further questions, you can write to us or get in touch with Mr. Somsekhar Nanda or Mr. Gopal Thakkar. Thank you all. Thank you once again.

Operator

[Operator Closing Remarks]