Deepak Mehta Thrives On Import Substitution

DEEPAK NITRITE chairman and managing director Deepak C. Mehta knows when to make moves in business. Since 1972, the company has been the leading producer of sodium nitrite, used in industrial applications, food additives, dyes, pigments and pharmaceuticals. It is among the world’s top three makers of fine speciality chemical products like xylidines, cumidines and oximes that are widely used in agrochemicals and pigments. However, until 2018, revenues were flat in the ₹2,500-3,500 crore range. Markets also had little interest in its shares.

Things changed in 2016 when Mehta floated a subsidiary, Deepak Phenolics, to diversify into phenol (used in plywood, laminates, foundry resins, paints, rubber, surfactants, pharmaceuticals and agro-chemicals), solvents acetone and isopropyl alcohol, used in pharmaceutical, paint, adhesive, rubber and chemical industries. Before Deepak started making phenol and acetone, India had only 20,000-30,000 tonnes per annum capacity and much of the two lakh tonne demand was met through imports.

‘’We decided that whatever we do has to be of global size, with the world’s best technology,’’ says Mehta. Deepak Phenolics acquired technology from two leading U.S. companies and set up a two lakh tonne plant in 2018. “It was a risk, but we were determined to see that we are there with the product,” says Mehta. The capacity was utilised within a few years. The company had to add another one lakh tonne capacity. Still, Deepak Phenolics had to debottleneck its plants to meet demand last year. Mehta says phenol capacity will be expanded to about seven lakh tonnes a year in next four-five years. ‘’By putting up the phenol plant, Deepak has saved more than $3 billion foreign exchange,’’ he says.

Despite a sluggish global market, Deepak Phenolics became a major revenue earner for Deepak Nitrite and turned around its fortunes. Gross sales rose around three times from FY19 to FY24 (₹7,682 crore). Deepak Phenolics contributed ₹5,003 crore to total income in FY24. Profit after tax jumped five times from ₹174 crore in FY19 to ₹811 crore in FY24. Markets noticed the transformation. Deepak Nitrite market cap soared from ₹3,739 crore in FY19 to ₹28,938 crore at the end of FY24.

However, issues faced by the global chemical industry such as Chinese dumping, recessionary trends in Europe and general weakness due to uncertain future caused by geopolitical tensions impacted Deepak’s FY24 performance. Total income fell 3%. Now, global demand is back, de-stocking by Chinese companies is over and so Deepak Nitrite will be back to its growth trajectory, says Deepak Mehta.

Mehta is now making his next move, eyeing another wave of import substitution, mainly relying on India growth story and global chemical industry’s ‘China Plus One’ strategy. Deepak Nitrite has floated a new arm, Deepak Chem-Tech (DCTL), which is going to invest about ₹14,000 crore over next four-five years, mainly in Dahej, Gujarat, to diversify into petrochemical value chains to make polycarbonate, methyl methacrylate, poly methyl methacrylate resins and compounds. “Sectors such as electronics and semiconductors, housing, infrastructure, EVs, batteries, automobiles, etc, are going to see huge demand for material science derived engineering polymers, which we call polycarbonates,’’ says Mehta. The country is importing about two lakh tonnes of polycarbonate resin; there is no Indian manufacturer. These engineering plastic products are used mainly in infrastructure and goods such as LED lamps. Polycarbonate demand is also expected from makers of automobile products like headlamps and EV battery casings as it can withstand high temperatures. Polymethyl methacrylate, which is like acrylic, is used to make medical equipment, paints and coatings. Deepak has firmed up supply of propylene, the main raw material, by signing a term sheet with Petronet LNG for 2.5 lakh tonnes propylene and 11,000 tonnes hydrogen for 15 years. “That will help us get into several hydrogenation-based products,” says Deepak Mehta. He adds the company is working on several value-added chemical products that are going to be green. In this fast expansion and diversification spree, Deepak Mehta is supported by his two sons. Elder son Maulik D. Mehta has over a decade of experience with the company and is now CEO & executive director. His brother Meghav D. Mehta, an engineer with specialisation in material science technology and alternative energy, heads Deepak Phenolics as executive director. Meghav is also the executive director and CEO of DCTL. With new projects, Deepak Nitrite is aiming for leadership in many more speciality chemical intermediates and polymers.