Best CEOs: How Deepak C. Mehta charted Deepak Nitrite's phenomenal growth

“The excitement of trying something new always drives me, and therefore stress doesn’t feel like stress,” says 66-year-old Deepak C. Mehta, with childlike glee. The Chairman and MD of Deepak Nitrite has been associated with the company, founded by his father Chimanlal K. Mehta in 1970, for the past 45 years. During this time, the company’s products portfolio has expanded significantly, whereas its market capitalisation has also grown manifold. Sample this: from the 24th spot a decade ago, Deepak Nitrite has now become the fifth-largest listed chemicals player in terms of market capitalisation, at Rs 25,208 crore on April 19, 2023. Plus, its clients are now spread across more than 45 countries.

And a major chunk of the credit for this growth goes to Mehta, whose ability to spot trends before they become mainstream has come in handy. Backed by this ability, the company has reported revenue growth at a CAGR of 36 per cent between FY17 and FY22. Its net profit has also grown at a CAGR of 62 per cent in that period, with the stock markets, too, rewarding it for its consistency. The company’s share price jumped over 15 times between FY17 and FY22, with the return on capital employed standing at 44 per cent in FY22. “We started looking at being more India-centric in 2017 due to the faster growth rate of the country. We also restricted our selection to only high-demand items in India,” says Mehta, the winner in the Chemicals category of the BT-PwC India’s Best CEOs ranking this year. The company, a leading chemicals manufacturer, boasts of a client base that includes marquee names such as Reliance Industries, Unilever, Bayer CropScience, UPL, Lupin, Sun Pharma, Aurobindo Pharma, Goodyear and Indian Oil, among others.

“Innovation, agility, atmanirbharta (self-reliance), capacity expansion and an incessant focus to capture the domestic markets, has helped us to stay ahead of the game,” explains Mehta, adding that the company started working on AtmaNirbhar Bharat before it became a buzzword. For instance, one of its subsidiaries, Deepak Phenolics, had invested Rs 1,400 crore till 2018 to put up a phenol and acetone production facility with annual capacities of 200,000 and 120,000 tonnes, respectively. The investment has borne fruit, as Deepak Nitrite’s revenues from operations jumped to Rs 6,802 crore in FY22, from Rs 1,360 crore in 2017, with phenolics contributing 62 per cent.

Then there are other growth engines on the anvil. Like the company’s recently approved capex of Rs 1,000 crore (in addition to the existing Rs 1,500 crore planned) to enter the polycarbonate compounding market, as well as for a sodium nitrite project in Oman—with backward integration in hydrogenation and distillation capacity—that provides growth visibility beyond FY25. “This will help the company’s growth plans and the new brownfield projects will benefit our future performance. We continue to reduce our leverage and strengthen our balance sheet, increasing the headroom for growth capex,” says Mehta. Incidentally, in FY22, the company had managed to reduce its debt-to-equity ratio to 0.09, from 1.01 in FY17.

Ashwini Sonawane, Research Analyst at Way2Wealth, wrote in a report, “Over the years, the company has successfully diversified into different business segments, newer geographies and new clients, thus providing a competitive edge over peers.”

No wonder then that Mehta is bullish about the domestic chemicals industry, which made up 79 per cent of the company’s revenues in Q3FY23. “The Indian chemicals market will cross $300 billion in the next three to four years and $600 billion in seven years, from about $180 billion at present,” he says, adding that India—currently the sixth-largest chemicals player in the world with 3-4 per cent market share—will rise to the third or fourth place over the next five years. The leader of the pack, China, has cornered a 40 per cent share.

Mehta expects India to close the gap with China, thanks to the initiatives launched by the government for the sector. For instance, the Sagarmala project will provide much-needed connectivity, he says, adding that the states need to be united and work with the central government for the industry to grow. “We must be consistent and grow at the centre and state levels to close the gap with China,” he says.

Analysts are bullish on Deepak Nitrite. Rohan Gupta, Analyst at Nuvama Institutional Equities, expects the ongoing capex to fuel growth in the near term. In fact, the announcement of an additional Rs 1,000-crore capex creates “growth visibility” for it. “The company’s aim is to become the largest player in solvents through investing in value-added downstream derivatives of phenol and acetone. Adding new chemistry platforms of photo chlorination and fluorination and backward integration of key inputs will enhance its margins,” he writes in a report.

Deepak Nitrite’s consolidated Ebitda margin stood at 24.24 per cent in FY22, compared to 10.23 per cent in FY17. Mehta says the growth story of the chemicals sector is just unfolding. And, with Mehta at the helm, Deepak Nitrite is set to ride the crests of this journey.

@iamrahuloberoi