On the nitric acid, can you just help us understand in this quarter, what was the utilization? Did we achieve the margin profile we were looking at? Are we on track to get that INR90 crore, INR100 crore of EBITDA addition for the nitric acid, which we planned earlier?
In Q4, while we did start the plant, we were unable to run it on a consistent basis because of some technical issues that took place during the quarter under review. We're working along with the technology supplier and the equipment supplier to address these. Once the plant is under stable operations, we do anticipate the kind of target that we're looking at. But during this quarter under review, we were roughly at about 45% of utilization. And hence, for the balance, we had to secure nitric acid from the market in order to ensure that our products continue to be manufactured and sold.
On the Phenolics side, regarding raw material availability that is propylene, how much of our capacity right now are we running? What's the scenario on the propylene availability? Some listed players highlighted significant difference in price of Phenolics products in China and Indian market. Should it sustain for a few more quarters before we converge?
In Q1, in the first part of April, when there was a concern about feedstock availability, we also preponed the annual maintenance. So both of those were kind of addressed within that same period of time, I think it was about 10, 11 days. And what we have done in any case, in the meanwhile is, we have enough of the intermediate product so that we were able to continue to supply to the market. So our plant efficiencies, which are a factor of feedstock as well as operational capabilities continued relatively unhindered. We expect that Q1, our productivity and our efficiencies will continue to be in the same improving trend. Q4 to Q1 will also have some marginal benefit. Our profitability will continue to remain healthy, will continue to be on an improving trend as compared to Q4.
In terms of the Phenolics business, is it because our IPA business should do well in Q1 given the kind of the competitor who produces IPA through propylene route and we through an acetone route? Can you share the production numbers for phenol for FY26?
I appreciate the questions, but I continue with my position of not going into details on production numbers. What I can say is that whatever is the Indian requirement for IPA, Isopropyl, Deepak Nitrite and Deepak Phenolics in that continues to remain the largest capacity, which is able to service the market for all the specifications, including pharmacological grade. From the perspective of our ability to supply, that remains unconstrained. From the perspective of saying what are the margins, frankly, we look at it only on the perspective of an integrated margin approach because our assets are cost competitive. We will also be looking in the next couple of months at producing MIBK and MIBC.
On Phenol spreads — when we are seeing this preferred differential spread between China and India, this could be either because of local players in China stocking and restocking or because Phenol is not in a position to be transported. Could this put Phenol in the path of cyclical recovery?
It's not possible for me to comment on the spreads of other companies and other countries. What I can say is that Deepak continues to operate with a high degree of productivity efficiency and is able to ensure that it is able to create the margin that you are seeing. And I've also already qualified that we anticipate Q1 will be somewhat better than Q4, and also be better than last year's Q1. There's a lot of factors at play. Even though we're seeing that plant capacities all over the world are being constrained because of their own operating costs. We are also seeing volatility in currency, in freight times, freight costs and material movement from port to customers' plant.
On the status of where we are in terms of nitration and the second hydrogenation plant — is the plant ramping up well? And on your answer to the nitric acid utilization of 45%, is this the average or the exit utilization?
On nitration and hydrogenation, those plants are already commissioned and they are operating with the right productivity and efficiency as expected. With regards to nitric acid, what we had as a situation is when we were operating, we were operating at full utilization. But as I mentioned, we did encounter technical challenges due to which the plant has been under repair and maintenance in line with our technology there and equipment present. So, this is primarily our CNA plant, our concentrated nitric acid plant is operating normally.
On nitration and hydrogenation, any way you can quantify where we are in terms of utilization?
No, those plants are fully operational. They've been commissioned, I think, at the end of Q2 or early Q3. So those are okay. There is a positive contribution and if there is a constraint, it has been with regards to the availability of nitric acid where the prices have been substantially higher, where we've been constrained to buy from the market because of technical challenges, other than that all our plants are in line and operational.
One of the players in India providing intermediate to the global plant, they said that in the agrochemicals, the volumes are increasing, but the prices are not in favor. Do you see the same happening in your agrochemical part of the business?
This is, again, very nuanced, and it depends on the chemicals, it depends on the feedstock availability, it depends on the margin profiles. So generally, what we are witnessing is that the benefit will be unevenly distributed between integrated players and non-integrated players. So players who have occupied a larger number of positions on the supply chain will be able to benefit from this improvement in the volumes and with a general degree of de-risking in the margin portfolio.
We have said that we have certain low-cost raw material. Have we passed on the entire pricing increase which has been witnessed in the market? Given that final product prices for Advanced Intermediates and Phenolics have increased, have we witnessed any demand side contraction in the domestic or exports market?
We were able to secure feedstocks on dips, which we did very judiciously. So going into the end of Q4 and into Q1, we are in a good position. In terms of passing on the same price increases equivalent to the market conditions, that is an ongoing exercise. What we do is we balance out that as well as market participation and wallet share. So what we are seeing is that, by and large, that has been a good work done by the business teams, keeping on constant engagement with customers as well as ensuring that plant productivity is at a high degree.
On Phenolics, knowing that there's a lot of fluidity, the dynamics are evolving in the global trade. Have we assessed a scenario wherein some of the European capacities or maybe Taiwanese or South Korean capacities are overshooting their cost curve in a scenario where energy costs are rising? Should we see a position where some of these capacities might be ousted from the system?
Phenol, it's like an ocean. So water just flows wherever it can. So while there is a disruption, you will have some capacities going offline, some capacities being idled temporarily, some capacities being taken down for maintenance, sometimes in Europe, sometimes in the Far East, some places like China, you will have commissioning of some capacities. One thing is fact that India, in all of this, remains a positive dynamic in terms of growth, in terms of consumption. Whether they import it and deal with the kind of volatility that they would face, what we are focused on seeing right now is our ear to the ground and focusing on optimal plant utilization efficiencies there.
Any comment on MIBK/MIBC commissioning? When can we expect that?
Basically, we're finishing with the mechanical completion of the plant and we will soon be getting into the pre-commissioning cycle as it may be. And at some point, maybe perhaps at the tail end of Q1 or the early part of Q2 is when we will be looking at commissioning of the asset because the asset is commissioned along with a couple of other plant assets as well. So we kind of remain on track with that.
On the standalone business, given the kind of capexes announced — fluorinated molecule of INR220 crore plus 6, 7 new products — how do we see FY27 specifically from the standalone business point of view? And how have we secured raw materials like ortho-xylene, ammonia, sulfuric acid, AHF?
The 6, 7 new products as well as the fluorinated molecules, we've already started the manufacturing for the commercial scale validation batches. And those are already either supplied to customers, and we've received positive feedback or in the process of being transported to customers. We anticipate commercial production on a regularized basis from Q3 onwards because this will reach our export customers towards the end of Q3 in time for their CY 2026 requirements. In the beginning of Q4, I was tracking what was taking place in the Middle East. In the end of January, early February, we noticed multiple U.S. aircraft carriers converging on a location in a pincer movement. From that perspective, we took the very unusual call of securing raw material. We chose to buy it at every dip. We actually entered the end of Feb and Q1 with a much higher stock of critical feedstock. We ended up with a much larger inventory than we would traditionally have had in Q4. The Company has a reasonable inventory of feedstock at enviable prices until we see a stabilizing, perhaps at the end, maybe Q2 or maybe halfway through Q2.
Can we assume that with this kind of raw materials, what we have secured in Q4, some benefit would have come in Q4, but most of this should come in Q1 impacting positively our standalone numbers?
I can say that our Q1 looks on track for numbers, which are better than Q4, whether it is on standalone or on a consolidated basis. So we anticipate Q1 to be better than Q4, which was, of course, better than Q3.
On products in the domestic market like DASDA, sodium nitrate, anti-chain — apart from these, is there any green shoots in any of the products where we can see improved performance also coming in FY27?
There are some green shoots. China will administer significant constraints on certain key chemistries, including production, storage and transportation. So there, we find that there will be some uptick in the demand as well as the profitability for nitration products. Some of the products that you've mentioned are linked to the nitration chain, where Deepak continues to have a significant global market share. So we anticipate that these will have a bit of a tailwind. Meanwhile, there is also some degree of a headwind, but it is a global headwind, not limited to India or Deepak, which is in the sulfur downstream. So whether it is the availability of sulfur, the cost and the price of sulfuric acid, SO2, Oleum, etc., those are places where there will be a heightened cost.
Do we see domestic buyers, especially in the Phenol market, back to ordering at the regular intervals or they are still resorting to the need-based buying?
Answer to this question, to be honest, Arun, is mixed. In a lot of cases, it has kind of resorted back to a normalized buying pattern. In some cases, they have not, and by and large, this is because of other factors such as availability of products or availability of gas and other inputs. So it is not just about the demand supply of their own products, but it is their manufacturing environment.
On polycarbonate. We have mentioned that the commissioning target of 2028, this is only pertaining to PC resin or to the entire Phenol and BPA production blocks as well?
What I've mentioned is that the answer is at this moment, the same for the integrated. However, we've clarified that the PC resin plant will happen independently. It may happen alongside. It may happen with a mismatch of a few months. And the Phenol expansion will happen in line with the commissioning of the propylene supply. So our capex includes the ability to have this in a slightly disjointed manner. So what we are anticipating is that perhaps they will all happen on track. Perhaps there will be maybe a quarter or so of mismatch, but all of the assets that we put in place as they are operationalized, they should be able to run at a high degree of plant productivity.
The receivable days has increased. Just wanted to know a specific reason to that. Secondly, in the Advanced Intermediate business, do you see a major growth in that for FY27 going forward because the business seems to be very underutilized compared to the historical numbers?
What you are seeing as underutilized is actually the realization which has gone down, not that the capacity had gone down. Capacity, we are running full, but it was the realization which was lower as compared to earlier years. With regards to the outstanding number of days, in some cases, we have changed the model, because today we are passing through a very volatile situation, and we do not want to risk our outstanding. So, instead we have gone into a dealership and CSA model. That is helping us in at least securing our outstanding.
Due to the anti-involution stand of China, do you see any realization improvement in standalone businesses?
Like I said whether it is because of the anti-involution stand or critical hazardous chemistries, etc., or the global demand improvement, whatever you want to call it, we do anticipate an improvement in the margins as well as the gross numbers as we progress into FY27. That is on the base of existing product portfolio as well as new products.
On the Phenolics part of the business, after the maintenance over the last one month or so, are we operating at optimal utilization of the plant?
Just to clarify, the maintenance was only in the beginning of April, maybe for about 10 days or so, not for the month of April. And we are operating at this moment, at high efficiencies. So we do not anticipate a constraint from plant or from feedstock availability.
On the proposed overhauls in China on these nitration plants — I believe it was supposed to get triggered on 1st of April or 1st of May. Are we referring to that when you made this comment about certain tailwinds that we might foresee in the nitration portfolio?
To clarify, my comment was not linked to one or the other province because this is a general CCP guideline with regards to the chemistries as well as the safe material movement as well as the transport, which includes, of course, also product at port and transport over oceans. So it is an all-encompassing audit, and it is an all-encompassing compulsion, which is not also limited to only things like DCS. This is something which can be considered as a tailwind, not specifically linked to A product or B product like DASDA. And again, it is not just nitration, but nitration has been a problem child in China again and again because a lot of plants operate without safety standards, whether it is at storage or production. Given that this is a structural tailwind for companies like Deepak who do it in a responsible manner.
Have we started seeing these developments on ground in China, irrespective of which province?
It has already started happening.
Regarding the Polycarbonate project, by when do we expect to commission this? And how will this be funded?
We've clarified earlier, and we are, by and large, remaining kind of in line with that, and we are expecting it to be commissioned by June 2028.
What will be the funding source for this INR5,000 crore or something?
The total project, what we have announced is around INR11,000 crore. The funding is for all the projects together. We have tied up with the banks for debt. It will be in the ratio of 60-40. We have already started putting in equities here. Bank funding is already in line. And once we put in 25% of equity as per the bank condition of 40%, we'll start drawing from the debt. So funding is not an issue. We are generating enough cash and bank loans are also tied up.