Deepak Nitrite - Initiation Report

Institutional Equities
Recommendation
BUY
CMP as of 30th
December 2016 (Rs)
92
Target Price (Rs)
158
Potential Return
72%
Stock Details
Sector
Chemicals
Bloomberg Code
DN IN
Reuters Code
DPNT BO
52 week high/low
134/56
No of shares (O/S) mn
116.3
Market Cap (Rs mn)
10,699
Daily Average Volume

(BSE+NSE) - 1 year
189,290
Sensex/Nifty
26,626/8,186
Shareholding Pattern (%)

Sep-16
Jun-16
Mar-16
52.0
52.0
51.8
MFs
6.4
6.4
5.6
FPIs
2.9
2.8
0.0
Promoters
FIs/Banks
Others
0.6
0.6
0.0
38.3
38.3
42.7
Source: BSE
Price Chart
200
150
100
50
Dec-15
Mar-16
Stock
Deepak Nitrite Ltd
Earnings to sail in a new orbit after phenol expansion!
30th December 2016
Initiating Coverage
Jun-16
Sensex
Sep-16
Ni y
Source: ACE Equity

Rebased to a scale of 100
Analyst:
Jinesh Joshi, CFA
E: instresearch@acm.co.in
D : (022) 2858 3739
B : (022) 2858 3333
Dec-16
Entry into the phenol market, expected turnaround in the performance

products (PP) division, and inherent scalability potential of pharma and
personal care intermediates (a high margin business) is likely to make Deepak
Nitrite Ltd (DNL) a potential earnings compounder. We expect the phenol venture
to be the biggest earnings contributor. Our calculations reveal (see exhibit 7) that
at 80% utilization levels, the phenol project can add Rs 15.8 bn to the topline
and Rs 565 mn to the bottomline of DNL. Turnaround in the PP division, which
has been into losses since the past seven quarters would further boost earnings
and return ratios. EBITDA breakeven is expected to be achieved by Q4FY17 while
the PBT is expected to turn into black by Q3 or Q4 of FY18. As seen in exhibit
20, on a steady state basis, the PP division has the potential to generate RoCE of
18.8% (at peak utilization levels). Even on a conservative basis, the PP division can
generate RoCE of ~10.6%. Launch of pharma and personal care intermediates is
expected to be another earnings kicker. Revenue from pharma and personal care
intermediates (part of the fine and specialty chemical segment) was Rs 300 mn in
FY16 and management exuded confidence to reach Rs 3,000-3,500 mn (revenue
multiplier of 10-12x) in 3-4 years. Being a high margin (average 20.4% EBIT margin
over last 3 years) business, this would not only boost growth, but also uplift DNLs
earnings profile.
We believe that on account of the above mentioned factors, sales and profits are
expected to grow at a CAGR of 32.1% and 36.4% respectively over FY16-19E. We
believe DNL is a classic earnings expansion story with a blend of turnaround
possibility and RoC improvement. Hence, despite being a commodity play, which
seldom has any competitive advantage, we assign a P/E multiple of 13x. We
initiate coverage with a BUY rating and TP of Rs 158 (72% upside) on a diluted EPS
of Rs 12.2 for FY19E.
Import substitution to drive phenol sales: As seen in exhibit 3, there is a huge
demand supply gap (production is significantly lower than consumption) in the
phenol and acetone market, which is met by imports (see exhibit 4). To
exploit domestic production deficiency, DNL decided to set up a plant with a
capacity of 200,000 metric tons per annum (MTPA) for phenol and 120,000 MTPA for
acetone. Once the new plant becomes operational, DNL will become a virtual
monopoly (largest player) since imports would get substituted. Better inventory
management (transit time on import is saved) and logistics savings owing to buying
from a domestic supplier vis-a-vis an importer would induce customers to buy from
DNL.
Turnaround in the PP division to boost RoC profile: The PP division majorly
consists of two products viz; optical brightening agent (OBA) and Di-amino
Stilbene Di-sulphuric acid (DASDA). Although OBA has generated strong sales with
increasing volumes over the last 2 years, it is yet to breakeven. The losses are
attributable to lower utilization and long customer validation cycles. We expect a
turnaround soon since DNL is adding new customers, scaling the existing ones, and
focusing on export markets. This is expected to boost RoC profile as OBA can easily
generate a steady state EBITDA margin of 12-13%.
Fine and specialty chemical (FSC) would aid topline growth: FSC segment includes
niche products that require high value addition. The products are tailored to suit
customer requirements. This is a low volume, high margin business. Although
the pharma intermediates business is expected to be a revenue multiplier, even
the core FSC business ex-pharma is expected to grow at a healthy pace since the
de-bottlenecking exercise is being undertaken and some additional capex is being
incurred to boost sales.
Deepak Nitrite Ltd - Initiating Coverage ACMIIL IE
Initiating Coverage
Deepak Nitrite Ltd
Spread management would be the key in the basic chemicals (BC) business:
This is a high volume, low margin business and is significantly influenced by crude
volatility (30-35% of the segment is crude linked). Hence, spread management is
critical to ensure margins remain intact when crude prices fluctuate. In the last two
years, although revenue growth has been muted due to decline in crude prices,
margin has expanded indicating superior spread management skills. Going ahead,
maintaining/improving spreads will be the key to deliver margin growth.
Exhibit: 1
Key Financials
Particulars (Rs mn)
Sales
EBITDA
EBITDA Margin
PAT
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
10,194
12,696
13,272
13,357
12,785
13,463
30,773
722
1,140
1,397
1,683
1,595
1,777
4,400
7.1%
9.0%
10.5%
12.6%
12.5%
13.2%
14.3%
378
383
534
651
1,209
741
1,655
3.7%
3.0%
4.0%
4.9%
9.5%
5.5%
5.4%
EPS(Rs)
3.6
3.7
5.1
6.1
10.4
5.4
12.2
DPS(Rs)
0.8
1.0
1.0
1.2
1.3
1.4
1.5
D/E(x)
1.2
1.7
1.6
1.0
1.4
1.5
1.5
PAT Margin
7.3
11.7
13.4
11.2
8.2
15.6
7.0
RoE
P/E(x)
13.5%
12.5%
15.4%
13.7%
20.8%
8.9%
16.9%
RoCE
8.6%
10.3%
11.6%
13.3%
8.3%
6.1%
14.3%
Data Source: ACMIIL Institutional Research, Company
Deepak Nitrite Ltd- Initiating Coverage ACMIIL IE
Initiating Coverage
Deepak Nitrite Ltd
Investment thesis
Entry into the phenol market would drive growth via import substitution:
Phenol and acetone are organic compounds derived from benzene and propylene
(crude derivatives). Both compounds are quite versatile in nature and are used as
intermediates for diverse applications. Phenol is primarily used in
manufacturing various commercial products and finds application in laminates,
paints, automotive lining, rubber adhesives, pesticides, moldings among others.
Acetone finds application in healthcare, paints, thinners, inks, acrylic sheets etc. The
market for phenol and acetone is expected to grow at a CAGR of 5.9% and 9.6%
over CY15-CY20E respectively on strong demand emanating from end user
industries.
Exhibit: 2
Market size of phenol in India
Market size of acetone In India
Market size of acetone In India
Market size of phenol in India
30
25
22
21
27
25
23
28
15
Rs bn
Rs bn
20
15
19
20
17
12
15
13
14
CY16E
CY17E
10
10
0
CY15
CY16E
CY17E
CY18E
CY19E
CY15
CY20E
CY18E
CY19E
CY20E
Data Source: ICIS, International conference Indian petroleum, EY
Over FY08-FY15 the consumption (in volume terms) of phenol and acetone in
India has grown at a CAGR of 4.6% and 4.2% respectively. However, during the same
period, production of phenol and acetone declined at a CAGR of 7.9% and 8.2%
respectively. Thus, a large part of the domestic demand was met through imports.
Despite consumption being steady, a secular declining production trend indicated
issues with domestic manufacturers.
Exhibit: 3
Phenol & acetone production trend in India
300
000' MT
250
200
150
100
176
112
165
113
202
172
124
126
212
142
232
130
258
145
240
150
100
80
000' MT
Phenol & acetone consumption trend in India
60
76
75
47
80
72
47
66
51
44
60
43
40
37
46
42
29
26
FY14
FY15
20
50
0
0
FY08
FY09
FY10
FY11
Phenol
FY12
Acetone
FY13
FY14
FY15
FY08
FY09
FY10
FY11
Phenol
FY12
FY13
Acetone
Data Source: GoI (Chemicals and petrochemicals statistics 2015). FY16 data is not published as yet. MT = Metric tons
As seen in exhibit 3, there is a huge demand supply gap (production is

significantly lower than consumption) in the phenol and acetone market. In order to
exploit this untapped potential, DNL decided to set up a plant domestically with a
capacity of 200,000 MTPA for phenol and 120,000 MTPA for acetone. Once the new
plant becomes operational, DNL will become a virtual monopoly (largest player)
as imports will get substituted. While there will be no pricing differential or quality
advantage by buying locally rather than importing, customers will save on
logistics cost by buying from DNL. Their inventory management will also be better
and working capital cycle shall improve as transit time on imports will be saved.
Initiating Coverage
Deepak Nitrite Ltd
Exhibit: 4
Phenol & acetone import trend in India
Import proportion trend of phenol & acetone
250
214
000' MT
200
150
100
50
0
147
93
103
65
68
123
80
78
103
173
101
96
117
200
127
100%
85%
81%
74% 83%
83%
71%
65%
62% 69%
60%
58%
74%
60%
60%
61%
56%
59%
40%
80%
20%
0%
FY08
FY09
FY10
FY11
Phenol
FY12
FY13
FY14
FY15
FY08
FY09
FY10
Acetone
FY11
Phenol
FY12
FY13
FY14
FY15
Acetone
Data source: GoI (Chemicals and petrochemicals statistics 2015). FY16 data is not yet published. MT = Metric tons
In the past 3-4 years, 70-80% of Indias phenol and acetone requirement
was met by imports. This was precisely the period when production fell and
consumption increased (see exhibit 3) leading to a jump in imports. Korea, Taiwan,
and Thailand are the leading countries which benefited out of the rising phenol and
acetone demand from India.
Exhibit: 5
Top 5 import destinations
Ranking*
Phenol
Import Qty (MT)
Acetone
Import Qty (MT)
Korea
45,373 Taiwan
70,607
Thailand
33,136 Korea
26,885
10,241
Taiwan
20,177 Singapore
Singapore
19,166 Belgium
7,202
South Africa
18,778 Saudi Arabia
6,588
Data source: GoI (Ministry of chemicals & petrochemicals)

* Based on the latest data available as of FY15. MT = Metric tons
We believe DNL is favorably placed to capture the demand arising from import
substitution since competitive risks are low. Hindustan Organics Ltd (capacity of
11,500 and 7,100 MTPA odd for phenol and acetone respectively) and SI Group
(capacity of 39,500 and 24,000 MTPA odd for phenol and acetone respectively) are
the only two players that manufacture phenol and acetone domestically. In terms
of scale, they are no match to DNL.
Even if a new player decides to enter the market sensing the opportunity, DNL
will have a first mover advantage as it is already seeding clients and building
relationships. Getting environmental clearance is also cumbersome, which gives
DNL sufficient lead time to tackle late entrants.
Earnings to explode after Dahej expansion: To capitalize on the deficiency in
domestic market, DNL is planning to set up a new plant to manufacture phenol and
co-product acetone at Dahej. Total capital outlay is expected to be around Rs 12 bn.
As of 2QFY17, Rs 2 bn has been invested in the project and additional Rs 4 bn will
be invested by the end of FY17. Following is a detailed snapshot of the project:-
Initiating Coverage
Deepak Nitrite Ltd
Exhibit: 6
Project Details
Date of commissioning
4QFY18
First full year of operations
FY19
Total phenol capacity (tons)
200,000
Total acetone capacity (tons)
120,000
Total capital outlay (Rs mn)
12,000
D/E mix
60-40
Debt (Rs mn)
7,200
Equity (Rs mn)
4,800
Data source: Company
The debt component is tied up with Axis bank having a moratorium period of 4.5
years and an interest rate of 10.75%. Approximately Rs 300-400 mn of debt has
already been drawn till date. In order to fund the equity contribution, DNL concluded
a QIP (raised Rs 833 mn) in FY16 and sold an idle land parcel in Pune for Rs 793 mn.
About Rs 1,200 mn is expected to be raised via internal accruals over a period of 3
years leaving a gap of ~ Rs 1,974 mn. Board approval for QIP to fund the shortfall is
already taken and DNL may raise the money at an opportune time.
To analyze the financial implications of the phenol venture we hypothesize three
scenarios viz; bull, base and bear. In each scenario, we change our assumption to get
a better understanding of growth and profitability from undertaking the venture. A
brief financial snapshot is presented below:-
Initiating Coverage
Deepak Nitrite Ltd
Exhibit: 7
Income Statement (Rs mn) Bear case Base case Bull case
Particulars
Capacity utilization
Phenol volume (tons)
Acetone volume (tons)
FY19E
FY19E
FY19E Comments
70%
80%
140,000
160,000
180,000
84,000
96,000
108,000
Since demand already exists, the plant is expected to achieve utilization of 60-70%
90% in the first year of operations. Seed marketing has already begun and DNL is in talks
with prospective clients.
69,881
We use average phenol price of US$ 1,043 per ton prevailing over the last 1 year
(US benchmark) and exchange rate of Rs 67 to arrive at the cost of phenol for
73,375 the base case scenario. For bull & bear cases we increase/decrease the one year
average price by 5%. However, we do not make any changes in our exchange rate
assumption.
45,892
48,307
We use average acetone price of US$ 721 per ton prevailing over the last 1 year
(US benchmark) and exchange rate of Rs 67 to arrive at the cost of acetone for
50,722 the base case scenario. For bull & bear cases we increase/decrease the one year
average price by 5%. However, we do not make any changes in our exchange rate
assumption.
Phenol sales
9,294
11,181
13,208
Acteone sales
3,855
4,637
5,478
13,149
15,818
The project has a fixed asset turn of 2-2.5x. Thus, sales of Rs 24-30 bn could be
18,686 easily realized on the investment. However, as crude prices increase/decrease,
product realizations will follow course and the math can change.
Price of Phenol (Rs per ton)
Price of Acetone (Rs per

ton)
Total sales
66,387
Indicative EBITDA margin
13.0%
14.0%
Margins are dependent on crude prices. If crude prices hover between US$
50-100, margins could range between 12-18%. However, important metric to
track here is crack. It is the difference between price of phenol & acetone (final
output) and benzene & propylene (raw materials). Tracking crack is important
15.0%
because each product has its own demand & supply dynamics. Hence, every time
realizations may not move in tandem with crude. Current crack is about US$
600-660 per ton. Higher the crack better the margins irrespective of the movement
in crude prices.
Absolute EBITDA
1,709
2,215
2,803
504
504
Absolute EBIT
1,205
1,711
2,299
EBIT margin
9.2%
10.8%
12.3%
774
774
77
93
PBT
354
844
Tax
117
279
467 We assume tax rate of 33%
PAT
237
565
948
PAT margin
1.8%
3.6%
5.1%
Project RoE
4.9%
11.8%
19.8% Equity base of Rs 4,800 mn
Project RoCE
8.8%
12.3%
16.1%
Depreciation
504 We apply 5 year average depreciation rate of 4.2% on Rs 12,000 mn
Interest:1) On term loan

2) On working capital
774 10.75% on Rs 7,200 mn

Working capital cycle for the project is expected to be 45 days. Based on the
109 number of days we deduce the working capital requirement and assume 50% of it
will be funded via debt at a rate of 9.5%.
1415
Fixed asset of Rs 12,000 mn plus working capital needs based on cycle projection
of 45 days.
Data source: ACMIIL Institutional research, Bloomberg, Company
Initiating Coverage
Deepak Nitrite Ltd
As seen in exhibit 7, PAT for the base case scenario from the phenol venture could
be in the region of Rs 565 mn in FY19. DNLs FY16 PAT from the core business was Rs
651.5 mn. Thus, even if we assume FY16s PAT remains stagnant on a conservative
basis, profit could easily double by FY19. A bull case scenario could result in PAT of
Rs 948 mn, indicating that the profitability is expected to explode once the Dahej
project comes on stream by FY19.
Exhibit: 8
Acetone price movement
2000
2000
1500
1500
1000
1000
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
500
500
0
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
US$ per MT
US$ per MT
Phenol price movement
Data source: Bloomberg

Note: For phenol we use the US benchmark. Since acetone is a co-product and not actively traded, we use the Chinese benchmark
Prices of phenol and acetone corrected towards the end of CY14, post which they
have maintained a similar trajectory. We have used the past one year average
price for our financial projections to capture the prevailing situation in the market
accurately. By FY19, prices could be significantly different transpiring into a different
profitability number.
Gross margin for the phenol project to be better than the core business: Phenol
and co-product acetone is derived from cumene, which is derived from benzene and
propylene.
Exhibit: 9
Raw material value chain
Input
Units Output
Units Comments
Benzene
0.87 Cumene
1.31 0.87 unit of benzene and 0.47 unit of propylene gives 1.31 units of cumene
Propylene
0.47
Input
Units Output
Cumene
1.31 Phenol
Acetone
Units
1 1.31 units of cumene gives 1 unit of phenol and 0.61 unit of acetone
0.61
Data source:Company
Initiating Coverage
Deepak Nitrite Ltd
A detailed gross margin analysis for the phenol venture is presented below:Exhibit: 10
Gross profit analysis for
Bear case
the phenol project
Base case
Bull case
Particulars
FY19E
FY19E
FY19E
Comments
Cumene requirement (tons)
183,400
209,600
235,800
Based on input-output ratio of 1.31:1 for cumene: phenol
Benzene requirement (tons)
121,800
139,200
156,600
Based on input-output ratio of 0.87:1.31 for benzene:

cumene
Propylene requirement (tons)
65,800
75,200
84,600
Based on input-output ratio of 0.47:1.31 for propylene:

cumene
45,094
We use average benzene price of US$ 641 per ton

prevailing over the last 1 year (US benchmark) and exchange
rate of Rs 67 to arrive at the cost of benzene for the base
case scenario. For bull & bear cases we increase/decrease
the one year average price by 5%. However, we do not make
any changes in our exchange rate assumption.
We use average propylene price of US$ 752 per ton
prevailing over the last 1 year (US benchmark) and exchange
rate of Rs 67 to arrive at the cost of propylene for the base
case scenario. For bull & bear cases we increase/decrease
the one year average price by 5%. However, we do not make
any changes in our exchange rate assumption.
Price of benzene (Rs per ton)
40,800
42,947
Price of propylene (Rs per ton)
47,865
50,384
52,903
Total cost of benzene (Rs mn)
4,969
5,978
7,062
Total cost of propylene (Rs

mn)
3,150
3,789
4,476
Total raw material cost (Rs

mn)
8,119
9,767
11,537
Total cost of benzene and propylene
Net sales (Rs mn)
13,149
15,818
18,686
See Exhibit 7
Gross profit (Rs mn)
5,030
6,051
7,148
Gross margin
38.3%
38.3%
38.3%
We have assumed that the price of phenol and acetone

(output) and benzene and propylene (input) will increase/
decrease by 5% in bull and bear scenarios respectively. In
effect, we have assumed that the crack spread is constant.
Hence, margins are stagnant.
Data source: ACMIIL Institutional research, Bloomberg, Company
Indicative gross margin from the phenol venture is ~38%. Over the past 5 years,
DNLs average gross margin stood at 34.4%. Thus, entry into the phenol market is
expected to be margin accretive for DNL. Please note that our gross margin assumptions
for the phenol project are based on average US benchmark prices. Duties and taxes
generally tend to influence local market prices of these products leading to a potentially
different scenario.
Initiating Coverage
Deepak Nitrite Ltd
Exhibit: 11
Benzene price movement
Propylene price movement
2000
US$ per MT
2000
1000
0
1000
500
0
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
500
1500
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
US$ per MT
1500
Data source: Bloomberg. Note: For both benzene and propylene we use US benchmark
Fine specialty chemical business set to grow at robust pace: The fine specialty
chemical (FSC) segment includes niche products requiring high value addition. These
products are tailored to suit customer requirements. This is a low volume, high
margin business. Key products include specialty agrochemicals, xylidines, oximes,
and cumidines. These products are used as intermediates in the color, pigment, fuel
additive, agrochemicals, personal care, and healthcare sectors. This segment is less
affected by crude volatility, but is vulnerable to forex fluctuations as majority of the
sales come from exports.
Revenue from the FSC segment declined 9.7% YoY to Rs 3,262.0 mn in FY15 since
some products witnessed temporary slowdown due to disruption across geographies.
However, margin expanded by 160 bps to 19.0% during the year. The performance in
FY16 was noteworthy with sales increasing 20.6% YoY to Rs 3,933.7 mn led by volume
growth of 24% and improvement in product mix. The EBIT margin from the division
increased to 24.7% in FY16 due to a shift towards high margin products. During FY16,
DNL expanded its FSC portfolio by launching pharma and personal care intermediates.
Sales from the pharma and personal care intermediates stood at Rs 300 mn in FY16
(nil in FY15) and the management expects the same to increase to Rs 3,000-3,500
mn in 3-4 years. Since pharma intermediates are highly specialized in nature, strong
R&D expertise and personalized customer engagement is needed to understand their
requirements. Over the years, DNL has strengthened its R&D capability (new products
launched in the last few years have contributed significantly towards sales) and is
engaging with customers to deepen relationships. Moreover, quite a few products in
the pharma intermediates are witnessing capacity expansion which is an indication
the management is pretty much on track as far as expanding the share of pharma &
personal care intermediates is concerned.
Excluding the pharma intermediates, which contributed 7.6% to the FSCs topline in
FY16, the core FSC business is also on the growth track since additional capex is being
incurred. Despite healthy management guidance, we expect sales of the FSC segment
to increase at a CAGR of 9.4% over FY16-19E as we would prefer to adopt a wait and
watch approach and monitor performance from the pharma intermediates over the
next 2-3 quarters.
Exhibit: 12
FSC division sales trend
FSC division EBIT margin & RoCE trend
6,000
5,151
Rs Mn.
5,000
4,000
3,614
3,262
3,934
4,128
4,479
40%
32%
30%
20%
3,000
17%
29%
19%
33%
25%
10%
2,000
0%
1,000
FY14
FY15
FY16
FY17E
FY18E
FY19E
FY14
FY15
EBIT margin
RoCE
FY16
Data source: Company, ACMIIL Institutional research
Initiating Coverage
Deepak Nitrite Ltd
Performance products division is a chink in the armor: The performance products

(PP) division majorly consists of two products viz; optical brightening agent (OBA)
and Di-amino Stilbene Di-sulphuric acid (DASDA). OBA is a brightener commonly
having application in industries like paper (65%), detergent (20%) and textiles (15%).
DNL is the only fully integrated manufacturer of OBA having vertical integration from
toluene to para nitro toluene (PNT) and further into DASDA and OBA.
Having complete backward integration makes DNL immune to the price vagaries
of intermediate raw materials like PNT and DASDA. It gives DNL an edge vis--vis
competition as it can customize the raw material at each stage to suit customer
requirements (liquid, solid or powdered state). DNL has 60-65% market share for
OBA in the domestic market and has more than 100-105 clients.
DNL ventured into the OBA business towards the end of FY14. OBA business
generated revenue of Rs 1.2 bn in FY15 and Rs 1.7 bn in FY16 with increasing
volumes, but is yet to breakeven. The losses are attributable to lower utilization and
long customer validation cycles. The current utilization is in the range of 35-40%.
Despite being in business for 2-3 years, utilization has been low since the
product requirement is custom specific and thus there is a long waiting period to
establish a supply agreement. However, the management exuded confidence that
OBA should generate sales in excess of Rs 2.25 bn in FY17 since they have been adding
customers (made in-roads in Southeast Asia). Further, we expect a gradual scale up
(initially the customer tenders order to the tune of 10-15% of his requirement) once
the client develops confidence in terms of performance and product quality. EBITDA
breakeven is expected to be achieved by Q4FY17 while the PBT is expected to turn
into black by Q3 or Q4 of FY18. At peak utilization, OBA has the potential to generate
sales of Rs 5.5-5.6 bn with a 12-13% EBITDA margin
Exhibit: 13
OBA sales trend
DASDA sales trend
3,000
Rs mn
1,827
2,039
1,500
Rs mn
1,700
2,000
1,500
2,000
2,436
2,500
1,200
1,000
1,462
1,037
1,000
783
680
609
FY18E
FY19E
500
500
0
FY15
FY16
FY17E
FY18E
FY19E
0
FY15
FY16
FY17E
Data Source: Company, ACMIIL Institutional research
DASDA is an intermediate used for manufacturing OBA. Since DNL has in house
capabilities to manufacture DASDA, it is not dependent on external suppliers to
procure the same. Entire requirement of DASDA to manufacture OBA is met
internally while the balance output is sold in the open market to other OBA
manufacturers. DASDA sales stood at Rs 1.4 bn and Rs 1.0 bn in FY15 and FY16
respectively. DNL plans DASDA output based on internal needs and external
demand. At peak utilization, DASDA has potential to generate sales of Rs 1.3-1.4 bn
with a steady state EBITDA margin of 8-9%.
We expect sales of the PP division to grow at a CAGR of 3.6% over FY16-19E.
Although the management is confident about a turnaround in OBA division by
2HFY18, we choose to be conservative owing to lengthy customer validation
cycle. Customers are highly receptive about the quality standards, which can result in
delayed off-take.
10
Initiating Coverage
Deepak Nitrite Ltd
Exhibit 14
PP division sales trend
PP division EBIT margin & RoCE trend
Rs Mn
4,000
2,662
3,000
2,000
2,737
2,610
2,719
3,046
0%
FY14
FY15
FY16
-3% -2%
1,759
-7%
-10%
1,000
-20%
0
FY14
FY15
FY16
FY17E
FY18E
-15%
EBIT margin
FY19E
RoCE
Crude volatility to dampen the basic chemicals business: The basic chemicals (BC)
business includes products like nitro toluenes, fuel additives and sodium nitrite/
nitrate. These chemicals find application in color, rubber chemicals, explosives, dyes,
pigments, food colors, pharma, petrol and diesel blending. This is a high volume,
low margin business and is significantly influenced by crude volatility (30-35% of the
segment is crude linked).
DNL is a market leader in sodium nitrite (contributed 16% to the topline in FY16),
sodium nitrate and nitro toluenes in India. Over the last 4-5 years volumes of sodium
nitrite have grown from 90 tons per day (tpd) to about 170 tpd. DNL has launched a
special grade sodium nitrite for the export market in FY16 and the response has been
good. Thus, volume growth is expected to be healthy.
Fuel additive is another key product in the segment. These additives help
refineries maximize fuel efficiency and reduce carbon emission which increases the
overall quality of the fuel. Over the past few years, fuel additive was a key growth
driver for DNL. However, the growth has been constrained in the last 2-3 years due
to volatility in crude prices and availability of good quality Iranian crude. This has
resulted in excess capacity in plants. DNL has three plants for fuel additives and the
capacity in one of the plant is now diverted into manufacturing another product.
DNL is looking to tap export markets for fuel additives and it has received orders
from US and Canada. Thus, the management has shifted focus on exports and new
products to utilize idle capacity, which is expected bear fruits by the end of FY17.
Topline from the BC segment was flat in FY15 but declined in FY16 and 1HFY17 due
to decline in crude oil prices. Despite a decline in topline, margin has expanded as
DNL was able to maintain spreads. We expect sales to grow at a CAGR of 0.6% over
FY16-19E.
Exhibit: 15
BC division sales trend
8,000
7,396
BC division EBIT margin & RoCE trend
7,496
6,746
6,136
6,351
6,859
20%
4,000
2,000
28%
12%
10%
FY14
FY15
FY16
FY17E
FY18E
38%
37%
30%
6,000
Rs Mn
40%
FY19E
0%
FY14
10%
12%
FY15
EBIT margin RoCE
FY16
11
Initiating Coverage
Deepak Nitrite Ltd
Company overview
Established in 1970, Deepak Nitrite Ltd (DNL) is a diversified chemical company with
expertise in numerous chemical processes such as nitration, hydration, alkylation,
oxidation and chlorination. The business is divided into three segments namely basic
chemicals (BC), fine and specialty chemicals (FSC) and performance products (PP).
DNL has five plants in Gujarat, Maharashtra and Telangana. Sodium nitrite (16%
of FY16 sales), 2 ethyl hexyl nitrate (17%) and OBA (13%) are key products of the
company.
Exhibit:16
Details on manufacturing facilities
Business segmentation
Region
Particulars
Particulars
Key products
Nandesari, Gujarat
Bulk commodity manufacturing, on site

nitration & specialty agrochemicals
Basic Chemicals
Sodium nitrite, sodium nitrate, nitro

toluenes and fuel additives
Dahej, Gujarat
OBA production
Taloja, Maharashtra
Hydrogenation
Roha, Maharashtra
Nitration and specialty agrochemicals
Hyderabad, Telangana
DASDA production
Data Source: Company
Fine & specilaty chemicals
Xylidines, oximes, cumidines, agro

intermediates, pharma & personal care
intermediates
Performance products
OBA and DASDA
Data Source: Company
The products manufactured by DNL cater to several industries like colorants,

petrochemicals, rubber, paper, textile, and detergents. DNLs products are exported
to over 30 countries across six continents. Europe (48% of export sales), USA (23%)
and (China 8%) are the biggest markets for DNL. BASF, Lubrizol, Reliance Industries,
Bayer Cropscience, Eastman chemicals, BPCL, IOC, and Monsanto are the DNLs key
customers with a marquee relationship.
Exhibit: 17
Application wise sales breakdown
100%
80%
60%
6%
1%
13%
26%
4%
2%
20%
23%
4%
1%
23%
21%
0%
2%
1%
21%
2%
1%
17%
100%
17%
22%
60%
80%
40%
40%
20%
Geographical sales breakdown
54%
51%
FY12
FY13
Color
Agro
51%
59%
FY14
FY15
Fuel
Pharma
Others
58%
FY16
58%
56%
56%
42%
44%
62%
61%
61%
44%
39%
38%
39%
20%
0%
FY11
FY12
FY13
Domes c
FY14
FY15
FY16
Exports
Data source: Company
12
Initiating Coverage
Deepak Nitrite Ltd
A list of important milestones in the history of DNL is presented below:-

Exhibit: 18
Key milestones of DNL
2007- Acquisi on of
DASDA division from
Vasant Chemicals
2010 - Entry into fuel
addi ves business
1984-Acquisi on of
Sahayadri dyestuffs
1970-80
1981-90
1970Incorporated as
private company
1972- Sodium
nitrate plant
commissioned at
Nandesari
1991-2000
2001-2010
1992- Commissioned
nitro aroma c plant at
nandesari
1995- Commissioned
hydrogena on plant at
Taloja
2000- Acquired Aryan
pes cides
2010-Present
2013- Brownfield
expansion at
Nandesari for
inorganic salts
2014- Dahej facility
for OBA fully
commissioned
2014- Bonus &
stock split
Source:Company
DNL is undertaking a greenfield expansion plan at Dahej to manufacture phenol and

acetone. Once the project comes on stream by FY19 (first full year of operations)
DNL would become a virtual monopoly player in India. The business composition is
expected to witness a paradigm shift with entry into the phenol market.
Exhibit: 19
Segmental sales breakdown
100%
80%
60%
14%
28%
20%
20%
20%
25%
29%
32%
20%
33%
10%
40%
20%
0%
51%
58%
FY14
56%
FY15
BC
51%
48%
FY16
FY17E
FSC
47%
17%
22%
PP
FY18E
FY19E
Phenol
13
Initiating Coverage
Deepak Nitrite Ltd
Key risks
Execution risk in the phenol project: DNL has received environmental clearance
for the Dahej project and work at the site has already begun. Thus, execution risk
arising from bureaucratic delays is minimal. However, DNL will have to raise Rs~2 bn as
equity contribution towards the project in the next 3-5 quarters. While a QIP
approval has already been taken and DNL is in talks with prospective investors, if
negotiations take longer than expected execution delays could arise.
Delay in turnaround of PP division: The PP division has been into losses since the
past seven quarters. The management expects a breakeven at the EBITDA level in
Q4FY17 with a complete turnaround (PBT positive) by 2HFY18. However, since OBA
has long customer validation cycle, if the turnaround takes longer than expected
profitability would remain muted.
Volatility in raw material prices: Caustic soda, 2 ethyl hexanol, toluene, nitric acid,
benzene, cumene and ammonia are key raw materials for DNL. Prices of most raw
materials have declined over the past one year due to decline in crude prices.
However, DNL was able to maintain spreads, which uplifted the margin profile.
Inability to maintain spreads in case of excessive raw material volatility can hurt
margins.
14
Initiating Coverage
Deepak Nitrite Ltd
Outlook and valuation

The core business of DNL (except FSC) is commoditized in nature with no
competitive advantage. Raw materials are crude linked and thus increasing
efficiency and maintaining spreads is an important margin lever. We believe there
are three key triggers 1) turnaround in the PP division, 2) entry into phenol market
and 3) scalability potential of the FSC division that can uplift the EBITDA margin and
RoC profile for DNL.
Trigger 1) The PP division has been in losses over the past seven quarters. However,
a turnaround is expected by 2HFY18. This can materially boost RoCE since out of the
total capital employed of Rs 10,258.4 mn as of FY16, roughly Rs 3,708.4 mn (36%
of total) is employed in the PP division. Thus, ~1/3rd of the capital employed is not
generating any returns at this juncture, thereby depressing overall return ratios. We
believe the core business (excluding phenol) RoCE has potential to rise meaningfully
once the PP division turns back into the green.
As seen in exhibit 20, on a steady state basis, the PP division has potential to
generate RoCE of ~18.8% (at peak utilization levels). Even on a conservative basis,
the PP division can generate RoCE of ~10.6%.
Exhibit: 20
PP division steady state RoCE potential
Particulars
At peak utilization On a conservative basis Comments
Sales potential of OBA (Rs mn)
5,500-5,600
3,850 We assume a 30% discount on lower band of the peak

utilization figure
Sales potential of DASDA (Rs mn)
1,300-1,400
910 We assume a 30% discount on lower band of the peak

utilization figure
Steady state EBITDA margin for OBA

Steady state EBITDA margin for DASDA
Steady state EBIT margin for OBA
12-13%
10% We assume a 200 bps cut in steady state margin
8-9%
6% We assume a 200 bps cut in steady state margin
11%
9% We further assume 100 bps cut to account for

depreciation
Steady state EBIT margin for DASDA
7%
5% We further assume 100 bps cut to account for

depreciation
Steady state EBIT for OBA (Rs mn)
605
347
Steady state EBIT for DASDA (Rs mn)

Total EBIT (Rs mn)
91
46
696
392
Capital employed of PP division as of

FY16 (Rs mn)
3,708
3,708 Majority of the capex is done. Thus, any major increase

in capital employed is not foreseen
RoCE
18.8%
10.6%
Even if we assume that ~27% of the PP EBIT of Rs 392 mn (calculated on a

conservative basis) is wiped out due to intersegment adjustments (see exhibit 21)
based on last 3 years historical trend, incremental EBIT addition of Rs 286 mn (Rs
392 mn*0.73) can come in at the overall company level. This can potentially boost
the RoCE by 250-300 bps.
15
Initiating Coverage
Deepak Nitrite Ltd
Exhibit: 21
EBIT adjustment factor analysis
Particulars (Rs mn)
FY14
FY15
FY16 Comments
Total segment EBIT
1,282
1,361
1,681 Arrived after adding segmental EBIT of all 3 divisions
Reported company wide EBIT
844
1,037
1,289 As reported in income statement
Inter-segment EBIT adjustment
439
324
392
34.2%
23.8%
23.3%
EBIT adjustment factor

Trigger 2) As seen in exhibit 7, the phenol project has the potential to generate sales
of Rs 15.8 bn and profit of Rs 565 mn in FY19E (base case scenario). If our base
case scenario materializes, DNL is all set to compound revenue and profit by 32.1%
and 36.4% respectively over FY16-FY19E. Considering the volatility in crude prices
and lengthy customer validation cycle we have been extremely conservative in our
growth estimates (3.8% sales CAGR over FY16-19E) for the core business. Despite
our conservative stance, sales and profits are set to double by FY19E. Entry into the
phenol market would not only take DNL into a different growth orbit but also expand
the margin and return ratios.
The phenol project has the potential to generate RoE and RoCE of 11.8% and 12.3%
respectively (base case scenario). However, at peak utilization, the phenol project
can generate EBITDA of Rs 3,500-4,000 mn translating into RoCE of 21.5% to 25.1%
at the lower and higher bands respectively.
Exhibit: 22
RoCE potential of phenol project
Particulars (Rs mn)
EBITDA
Fixed asset
Working capital
Capital employed
Depreciation
At peak utilization Comments

3,500-4,000 As per management
12,000 Project cost
1,950 Deduced based on working capital
cycle projection of 45 days
13,950
504 See exhibit 7
EBIT at lower end
2,996
EBIT at higher end
3,496
RoCE at lower band
21.5%
RoCE at higher band
25.1%
Trigger 3) The FSC segment offers huge scalable opportunity with an entry into
pharma and personal care intermediates. Revenue from pharma and personal care
intermediates was Rs 300 mn in FY16 and the management has guided for a target
of Rs 3,000-3,500 mn in 3-4 years time. Even on a conservative basis, if we assume
that 50% of the guidance is achieved in three years and sales from the non-pharma
and personal care segment remains stagnant, FSC division could report a topline in
excess of Rs 5.3 bn. As this is a high margin business, it could significantly boost the
bottomline of DNL.
Considering these factors we assign DNL a P/E multiple of 13x. We value DNL on
FY19E basis to capture the upside from phenol venture accurately. We factor in
dilution that would emanate from raising further equity while calculating the EPS for
FY19E. We believe this is critical as not accounting for dilution would inflate EPS and
return ratios from the phenol venture presenting an inaccurate picture. For analytical
purposes, we have assumed that the QIP would happen at Rs 100. This can result in
17% dilution.
16
Initiating Coverage
Deepak Nitrite Ltd
Exhibit: 23
Dilution analysis
Total equity required (Rs mn)
4,800
QIP done (11.75 mn shares @ 70.90) (Rs mn)
833.1
Land sale at Pune (Rs mn)
792.6
Internal accruals over 3 years (Rs mn)
1,200.0
Balance (To be raised via QIP)(Rs mn)
1,974.3
Additional shares to be issued if dilution happens at Rs 100 (mn)
19.7
Existing shares (mn)
116.3
Extent of dilution
17.0%
No of shares post dilution (mn)
136.0
Based on the expanded equity base of 136 mn shares our FY19E diluted EPS stands
at Rs 12.2. Applying this to our target multiple gives a target price of Rs 158 (upside
of 72% from current levels and CAGR of 27% over the time period). We initiate with
a BUY.
17
Initiating Coverage
Deepak Nitrite Ltd
Financials (Standalone)
Income Statement
Particulars (Rs mn)
Net Sales
YoY Growth
EBITDA
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
10,194
12,696
13,272
13,357
12,785
13,463
30,773
29.1%
24.5%
4.5%
0.6%
-4.3%
5.3%
128.6%
722
1,140
1,397
1,683
1,595
1,777
4,400
7.1%
9.0%
10.5%
12.6%
12.5%
13.2%
14.3%
Depreciation
189
296
360
395
428
485
954
EBIT
532
844
1,037
1,289
1,167
1,292
3,447
Interest
114
280
380
391
249
269
1,169
Other income
107
18
21
15
49
13
37
708
EBITDA Margin
Exceptional items
PBT
526
582
677
913
968
1,037
2,314
Tax
148
198
143
262
466
295
660
28.1%
34.1%
21.1%
28.7%
27.8%
28.5%
28.5%
Tax Rate
PAT
378
383
534
651
1,209
741
1,655
3.7%
3.0%
4.0%
4.9%
9.5%
5.5%
5.4%
3.6
3.7
5.1
6.1
10.4
5.4
12.2
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
105
105
209
233
233
272
272
Reserves & Surplus
2,701
2,971
3,259
4,526
5,585
8,070
9,521
Net worth
2,806
3,075
3,468
4,759
5,817
8,342
9,793
Long term debt
2,393
2,713
2,386
1,589
4,309
8,389
8,389
Short term debt
707
1,907
2,310
2,349
2,699
2,849
4,799
Total Debt
3,101
4,620
4,696
3,938
7,008
11,238
13,189
Current liabilities & Provisions
2,689
2,457
2,529
3,247
3,319
3,354
7,420
291
414
543
642
719
721
1,610
Total Liabilities
8,887
10,566
11,236
12,587
16,864
23,656
32,012
Net Block
4,430
5,324
5,867
6,074
10,046
15,961
15,931
PAT Margin
EPS (Rs)
Balance Sheet
Particulars (Rs mn)
Share capital
Others
Non- current investments
13
31
172
654
1,562
1,562
1,562
Cash
95
64
27
39
19
574
2,197
Inventories
1,044
1,300
1,050
1,209
1,261
1,328
2,867
Debtors
2,423
2,922
3,110
2,963
2,872
3,061
6,998
Other current assets

Short term loans & advances
28
13
76
32
26
27
62
634
660
520
535
511
539
1,231
675
119
119
119
4,223
4,959
4,784
5,453
4,808
5,647
13,473
Current investments
Current assets
Others
Total Assets
221
251
413
405
447
485
1,046
8,887
10,566
11,236
12,587
16,864
23,656
32,012
18
Initiating Coverage
Deepak Nitrite Ltd
Cash Flow
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
PAT
Particulars (Rs mn)
378
383
534
651
1,209
741
1,655
Depreciation
189
296
360
395
428
485
954
(364)
(1,205)
(214)
379
59
(304)
(2,968)
39
383
372
475
72
14
805
243
(142)
1,052
1,900
1,769
936
446
(1,578)
(965)
(832)
(512)
(4,400)
(6,400)
(923)
Inc/Dec in working capital

Others
CF from Operating activity
Inc/Dec in Fixed assets & CWIP
Inc/Dec in investments
(675)
556
22
(6)
(34)
(423)
(908)
(1,556)
(971)
(866)
(1,610)
(4,751)
(6,400)
(923)
Others
CF from Investment activity
807
39
Inc/Dec in debt
Inc/Dec in share capital
647
1,432
274
(590)
3,070
4,230
1,950
Dividends paid
(63)
(83)
(104)
(104)
(151)
(190)
(204)
(112)
(267)
(393)
(392)
44
1,940
355
Others
CF from Financing activity
473
1,082
(223)
(279)
2,963
6,019
2,101
(840)
(31)
(37)
11
(20)
555
1,623
Opening balance
935
95
64
27
39
19
574
Closing balance
95
64
27
39
19
574
2,197
FY16
FY17E
FY18E
FY19E
Inc/Dec in cash

Ratios
Particulars
FY13
FY14
FY15
Profitability Ratios
RoE
13.5%
12.5%
15.4%
13.7%
20.8%
8.9%
16.9%
RoCE
8.6%
10.3%
11.6%
13.3%
8.3%
6.1%
14.3%
RoA
4.3%
3.6%
4.8%
5.2%
7.2%
3.1%
5.2%
Valuation Ratios
P/E
7.3
11.7
13.4
11.2
8.2
15.6
7.0
P/BV
1.0
1.5
2.1
1.7
1.7
1.4
1.2
EV/EBITDA
8.3
8.1
8.9
7.1
11.3
12.4
5.0
EV/Sales
0.6
0.8
1.0
0.9
1.4
1.6
0.7
EPS (Rs)
3.6
3.7
5.1
6.1
10.4
5.4
12.2
DPS (Rs)
0.8
1.0
1.0
1.2
1.3
1.4
1.5
26.8
29.4
33.2
40.9
50.0
61.3
72.0
D/E (x)
1.2
1.7
1.6
1.0
1.4
1.5
1.5
Current ratio (x)
1.6
2.0
1.9
1.7
1.4
1.7
1.8
Quick ratio (x)
1.2
1.5
1.5
1.3
1.1
1.3
1.4
2.3
2.4
2.3
2.2
1.3
0.8
1.9
Per share
Book value (Rs)

Capital structure ratios
Turnover ratios
Fixed asset turnover (x)
Debtor days
87
84
86
81
82
83
83
Inventory days
37
37
29
33
36
36
34
Payable days
79
45
34
41
42
42
40
Data Source: ACMIIL Institutional Research, Company, Bloomberg
19
Initiating Coverage
Note:
Institutional Equities:
Rajat Vohra
Head-Institutional Equities
D: +91 22 2858 3734
B: +91 22 2858 3333
E: rajat.vohra@acm.co.in
Research Analyst Registration

Number: INH000002483
Dealing
E: instdealing@acm.co.in
Follow us on:
Deepak Nitrite Ltd
Our Rating Scale

Buy: Expected return greater than 20% within the next 12-18 months.
Accumulate: Expected return greater than 10% but less than 20% within the next 12-18 months.
Hold: Expected return of upto 10% within the next 12-18 months.
Reduce: Expected return of upto (-) 10% within the next 12-18 months.
Sell: Expected return of over (-) 10% within the next 12-18 months.
Information pertaining to Asit C. Mehta Investment Interrmediates Limited (ACMIIL):
ACMIIL is a SEBI registered Stock Broker, Merchant Banker and Depository Participant. It is also a AMFI registered Mutual Fund
Distributor. It does not have any disciplinary history. Its associate/group companies are Asit C. Mehta Commodity Services Limited, Asit C. Mehta Realty Services Pvt. Ltd, Asit C. Mehta Forex Pvt. Ltd, Nucleus IT Enabled Services , Asit C. Mehta Financial
Services Limited (all providing services other than stock broking and merchant banking).
Disclosures
ACMIIL/its associates and its Research analysts have no financial interest in the companies covered on the report. ACMIIL/its
associates and Research analysts did not have actual/beneficial ownership of one per cent or more in the companies being covered at the end of month immediately preceding the date of publication of the research report. ACMIIL/its associates or Research
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20

Deepak Nitrite - Initiation Report

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Institutional Equities

Target Price (Rs)

Market Cap (Rs mn)

Daily Average Volume

Shareholding Pattern (%)

Deepak Nitrite Ltd

Earnings to sail in a new orbit after phenol expansion!

30th December 2016

Source: ACE Equity

Entry into the phenol market, expected turnaround in the performance

Deepak Nitrite Ltd - Initiating Coverage ACMIIL IE

Data Source: ACMIIL Institutional Research, Company

Deepak Nitrite Ltd- Initiating Coverage ACMIIL IE

Deepak Nitrite Ltd

Market size of acetone In India

Market size of acetone In India

Market size of phenol in India

Data Source: ICIS, International conference Indian petroleum, EY

Phenol & acetone consumption trend in India

As seen in exhibit 3, there is a huge demand supply gap (production is

Import proportion trend of phenol & acetone

Import Qty (MT)

Import Qty (MT)

18,778 Saudi Arabia

Data source: GoI (Ministry of chemicals & petrochemicals)

Deepak Nitrite Ltd- Initiating Coverage ACMIIL IE

First full year of operations

Total phenol capacity (tons)

Total acetone capacity (tons)

Total capital outlay (Rs mn)

Debt (Rs mn)

Equity (Rs mn)

Data source: Company

Deepak Nitrite Ltd - Initiating Coverage ACMIIL IE

Price of Phenol (Rs per ton)

Price of Acetone (Rs per

Indicative EBITDA margin

467 We assume tax rate of 33%

19.8% Equity base of Rs 4,800 mn

504 We apply 5 year average depreciation rate of 4.2% on Rs 12,000 mn

Interest:1) On term loan

774 10.75% on Rs 7,200 mn

Data source: ACMIIL Institutional research, Bloomberg, Company

Deepak Nitrite Ltd- Initiating Coverage ACMIIL IE

Phenol price movement

Data source: Bloomberg

Deepak Nitrite Ltd - Initiating Coverage ACMIIL IE

Cumene requirement (tons)

Based on input-output ratio of 1.31:1 for cumene: phenol

Benzene requirement (tons)

Based on input-output ratio of 0.87:1.31 for benzene:

Propylene requirement (tons)

Based on input-output ratio of 0.47:1.31 for propylene:

We use average benzene price of US$ 641 per ton

Price of benzene (Rs per ton)

Price of propylene (Rs per ton)

Total cost of benzene (Rs mn)

Total cost of propylene (Rs

Total raw material cost (Rs

Total cost of benzene and propylene

Net sales (Rs mn)

Gross profit (Rs mn)

We have assumed that the price of phenol and acetone