Expect Geopolitics-Related Volatility To Come Down, Says Deepak Nitrite CEO
The chemical industry faces challenges from conflicts in the Red Sea and Russia’s invasion of Ukraine, among other issues, he says.
Volatile feedstock prices affected Deepak Nitrite Ltd.’s margin in the quarter ended December, but the maker of industrial chemicals to intermediates expects the trend to temper in the months ahead.
The company’s net profit fell 3.34% year-on-year to Rs 202.05 crore in the three months through December, according to its exchange filing.
“I agree that Q3 has not been… a quarter of remarkable numbers for Deepak Nitrite—standalone or consolidated,” Chief Executive Officer Maulik Mehta told NDTV Profit in an interview. “But I truly believe that we have shown a remarkable ability to remain extremely relevant in the Indian chemical industry and its ability to supply to the world.”
The chemical industry faces challenges from conflicts in the Red Sea, which has led to higher freight costs, and Russia’s invasion of Ukraine—a key supplier of agro-chemicals, among others. Companies in India and around the world, as a result, are reworking their supply chains and strategies to deal with the new normal.
Optimistic Outlook
Mehta struck an optimistic note on the road ahead. “There is an improvement in volumes, and over a period of time,” he said. “This means that there is an improvement in margins, as customers and suppliers are willing to settle down into a predictable planning strategy.”
“Looking forward, what we can say (is) that our own markets, as well as the supply chain that we are linked to, we expect a demand resurgence to start from Indian consumption improvements and we are also seeing a general worldwide improvement in terms of customers’ confidence in its buying strategy over products," he said.
He said that as the company operates in multiple sectors, including pharmaceuticals, construction, pigments, etc., it won’t be badly affected. “Hence, we don't have the over-dependence on one segment,” Mehta said.
Capex Strategy
The company is adopting multiple plans for capital expenditure.
"Moving forward, we have certainly seen an increase in wallet share," Mehta said. "So, for the last 6-8 months, what we have been doing currently is also brownfield capex. If brownfield isn't good enough, we're going for greenfield capex to be able to maintain or increase wallet share."
The company remains bullish, according to Mehta. "...But over the next 12 months, there is a lot of semi-greenfield or significant brownfield expansion that is due to be commissioned."
On Geopolitics
Mehta sees 2024 as a busy year for geopolitics.
"I don't expect geopolitics to settle down. It's a year, when 90% of world's democracies are going for polls. I don't expect any sort of normal this year," he said.
"The settling down that I expect, is from the volatility. It's not the geopolitics settling down, but the volatility coming down. Once that happens, all parties resume a sense of confidence in their buying and selling strategies," Mehta said.
China is the largest chemical manufacturer in the world and they should never be ignored, he said on the recovery of chemical exports in China.