deepak fertilizers petrochemicals corp ltd Management discussions

ECONOMIC OVERVIEW Global

In 2023, with continuity of geopolitical tension, world growth is expected to remain subdued at 2.8% as against 3.4% in 2022, whereas growth in advanced economies is likely to decelerate to 1.3% in 2023 from 2.7% in 2022. Growth in emerging market and developing economies (EMDEs) is expected to maintain pace at 3.9% in 2023 versus 4% in 2022. The unexpected failures of two specialised regional banks in the US in early 2023 and the collapse of confidence in Credit Suisse, delivered a significant blow to the confidence of bank depositors and investors. Global headline inflation has been declining since mid-2022, led by fall in fuel and energy commodity prices in most economies, and the monetary tightening by various central banks.

In 2024, global economic growth is expected at 3% with advanced economies growing at 1.4% and EMDEs expected to continue to grow at 4.2%. The expected pickup in 2024 in both advanced economies and EMDEs lies on the expectations of a gradual recovery from the effects of the war and subsiding inflation. Global inflation is also expected to fall to 4.3% with full impact of strict monetary policies coming into effect.

(Source: World Economic Outlook – IMF, April 2023)

India

Indian economy witnessed sustainable growth in FY23 despite the tailwind of the pandemic and the headwind of the geopolitical conflicts. Macroeconomic environment has witnessed stability on various fronts including improved current account deficit and easing inflation pressure. The easing of international commodity prices, prompt government action, and RBIs monetary tightening measures have helped to rein in domestic inflation. The National Statistics Office (NSO) has estimated the Indian GDP growth in FY23 at 7% versus 9.1% in FY22, still higher than the growth of most of the other major economies. According to IMF, India is expected to be the fastest-growing economy in FY24. The Economic Survey 2022-23 and RBI have projected Indian economic growth at 6.5% in FY24 despite high global uncertainties.

Moderation in inflationary pressures and increased public capital expenditure are expected to boost domestic economic growth.

In the Union Budget 2023-24, the allocation to the health sector was increased by Rs. 2,954 crore, to Rs. 89,155 crore with plans to establish additional 157 medical colleges, and end sickle cell anaemia in India by 2047. The goal of India is to become the pharmacy of the World. Towards this, increased importance was assigned to R&D, new product development and to enhance the capacity of ICMR. While PLI schemes have been introduced to promote bulk drug parks, with a budget of Rs. 1,663 crore, the Government is also considering launching a PLI scheme in the chemical sector to boost domestic manufacturing and exports. A 2034 vision for the chemicals and petrochemicals sector has been set up to explore opportunities to improve domestic production, reduce imports and attract investments in the sector.

The finance ministry has significantly enhanced capital expenditure (Capex) outlay by 33% to Rs. 10 lakh crore. Various budget provisions were built on the National Infrastructure Pipeline (NIP) combined with other initiatives such as "Make in India" and the "production-linked incentives (PLI) scheme" to augment the growth of the sector. Various schemes were continued like PM Awas Yojana, extended CLSS, sanitising real estate investments, smart cities mission etc. to further boost the real estate sector. Further, a budget of Rs. 1.24 lakh crore has been allocated to agriculture and farmers welfare. Some major announcements were made with regards to Minimum Support Price (MSP) for farmers, boosting domestic production of oilseeds, endorsement of natural farming, support for agritech, push for food processing industry and increased allocation for Rashtriya Krishi Vikas Yojana, PM-KISAN, Kisan Credit Card, and Crop Loan Interest Subsidy, etc.

INDIA, KNOWN AS THE PHARMACY OF THE WORLD, IS ONE OF THE BIGGEST SUPPLIERS OF LOW COST VACCINES GLOBALLY WITH ~60% SHARE OF GLOBAL VACCINE PRODUCTION

INDUSTRY OVERVIEW Chemical industry

In the last decade, the Indian chemical industry outperformed globally, led by robust domestic demand, favourable demography, growing preferences for biofriendly products, and major shift in global supply chains. Domestic consumption is expected to rise from US$ 170-180 billion in 2021 to US$ 850-1,000 billion by 2040. India is one of the biggest beneficiaries of rising demand for biofriendly products globally, being one of the leading producers of chemicals used in such products. The evolving geopolitical situation coupled with the trend to diversify from existing core manufacturing markets, is leading to increased shift in demand to Indian chemical industry. Indias share in the global chemicals sector is expected to triple to 10-12% by 2040. Certain challenges faced by the industry include feedstock availability, low access to building blocks and key minerals, inadequate R&D talent and challenges in timely EC & land approvals. However, being more cost competitive due to low capital and operating expenses such as labour, utility and overhead expenses etc., India is expected to emerge as a preferred destination for the global chemical industry.

(Source: India: The next chemicals manufacturing hub, McKinsey & Company)

Pharmaceutical industry

India, known as the pharmacy of the world, is one of the biggest suppliers of low-cost vaccines globally with ~60% share of global vaccine production. India is the largest provider of generic medicines, with 20% share in global supplies. India has the highest number of US-FDA compliant plants outside of USA. India boasts of 3,000+ pharma companies with a strong network of over 10,500 manufacturing facilities with highly skilled talent pool. Active Pharmaceutical Ingredient (API) is a crucial segment of the pharma industry, contributing to ~35% of the market. There are 500 API manufacturers contributing ~8% in the

Limited

global API Industry. Being the third largest producer of APIs globally, India contributes ~57% of APIs to prequalified list of the WHO. India manufactures ~60,000 different generic brands across 60 therapeutic categories. Indian medicines find huge global preference owing to affordable pricing with high quality.

The Indian pharmaceutical market is expected to reach US$ 65 billion by 2024 and US$ 130 billion in 2030 led by deeper focus on quality manufacturing, affordability of drugs and rapid adoption of innovation and technology. Various government schemes play a crucial role in promotion of API (bulk drug) through clusters and PLI programme which helps and supports the ‘Make in India initiative for domestic manufacturers.

(Source: Pharma industry in India: Invest in Indian Pharma Sector (investindia.gov.in); Harnessing Indias API Potential (investindia.gov.in))

Mining & infrastructure

Indias total coal production stood at 892 million metric tonnes (MMT) in FY23, 15% up from 777 MMT in FY22. Despite spike in local production, coal imports increased sharply by 18% to 237 MMT in FY23. Out of this, non-coking or thermal coal imports were ~70% growing by 23% due to higher demand from power producers and governments mandate to meet peak power demand. The government continues its thrust on developing the mining & infrastructure sector, a key constituent of the core industries of the economy. The government has introduced several policy & regulatory reforms to open up the mining sector, which made the process of allocation of mineral concessions completely transparent. National Mineral Policy 2019 aims to double the production of important minerals in next 5 years thereby attaining self-sufficiency in major minerals and reducing import dependency. Ministry of Coal has also taken numerous steps towards augmenting the production & efficiency in coal mining. Coal production is being ramped up to ensure energy security and to reduce non-essential coal imports. The government is targeting 1 billion MT of coal production by FY24 and specifically Coal India Limited (CIL) has been tasked to target 1 billion MT of coal production in FY26. These initiatives are bearing fruit reflecting coal production growth of 15% in FY23. With the rise in energy demand, the demand for key minerals such as rock/stone aggregates, cement, steel and coal also increased significantly resulting in increased demand for TAN, the primary raw material for manufacturing commercial explosives which are then used to blast the over-burden and expose the underlying mineral for extraction & processing. Other key minerals such as cement and steel, posted 10% and 7% growth respectively.

The continued emphasis on infrastructure development indicated by sharp step-up in infrastructure allocation in Union Budget 2023-24, is a positive indicator for growth in demand of Technical Ammonium Nitrate.

India Coal Production (Million MT)

Agriculture sector

The Indian agriculture sector, with second-largest agricultural land in the world is the backbone of the economy. The sector is projected to grow by 3.5% in FY23. The sector met domestic requirements, and also rapidly emerged as the net exporter of agricultural products in recent years. Agriculture exports touched US$ 50 billion in FY23. The total kharif foodgrain production in the country is estimated at 150 MMT higher than the average of the previous five years. Although, the area sown under paddy was about 20 lakh hectares less than compared to 2021.

The growth in the agriculture sector is likely to remain buoyant, supported by healthy progress in Rabi sowing, with the area sown being higher than the previous year. As per the third Advance Estimates of production of major crops for FY23, total foodgrain production in the country is estimated at a record 330 MMT, 15 MMT higher than in 2021-22. This will become the highest ever foodgrain production in India. Wheat harvest was at a record 113 MMT up from 108 MMT in 2021-22. This has led to a recovery in the rural economy. The governments Central Sector Scheme of financing facility under the Agriculture Infrastructure Fund of Rs. 1 lakh crore supports farmers, PACS, FPOs and agri-entrepreneurs, among others in building community farming assets and post-harvest agriculture infrastructure. Kisan drones are also being promoted, with subsidies being given to various sections, including farmers, SC-ST category, women farmers and crop-specific SOP has also been issued for application of pesticides with drones. Nearly

Rs. 6,121 crore has been provided to states over FY15 to FY23 for various activities like training, testing, setting up of CHCs, hi-tech hubs and Farm Machinery Banks under the Sub-Mission on Agricultural Mechanisation. Besides, 15.24 lakh farm machinery and equipment have been provided at subsidised rates through state governments, including tractors, power tillers and automated machinery.

E-National Agriculture Market, which digitally integrates wholesale markets, trade turnover grew 32% to

Rs. 74,656 crore in FY23 with growing use by farmers, traders and farmers producers organisations (FPOs). The turnover on the platform is expected to cross Rs. 1 trillion in FY24.

There is demand shift towards low price fertiliser like urea and DAP. India plans to phase out urea imports by 2025 as it expands its domestic production capacity through the activation of new plants.

The Indian fertiliser market size was Rs.899 billion in 2022 and is expected to grow at 4.9% CAGR to reach Rs. 1,188 billion by 2028.

Source: Press Information Bureau (pib.gov.in); Agri trade on e-platform up a third to Rs. 75k cr in FY23 : The Financial Express; Need to improve crop productivity to meet demand of the world: Tomar (business-standard.com) Rs.

BUSINESS OVERVIEW

Established over 4 decades ago, Deepak Fertilisers And Petrochemicals Corporation Limited (DFPCL or the Company), has its business operations spread across four business verticals, namely:

Deepak Fertilisers And Petrochemicals Corporation Limited

The Company has state-of-the-art manufacturing facilities at Taloja (Maharashtra), Dahej (Gujarat), Srikakulam (Andhra Pradesh) and Panipat (Haryana), with a total manufacturing capacity of over 32,00,000 MT per annum. New manufacturing facility for production of 5,00,000 MTPA Ammonia is nearing completion with targeted commissioning during Q2 FY24 at Taloja (Maharashtra). Also, a new world scale TAN manufacturing project of 3,76,000 MTPA is progressing well at Gopalpur (Odisha) with target commissioning by FY26.

Industrial Chemicals (IC)

DFPCL holds leadership position in manufacturing of Industrial Chemicals such as Nitric Acid (DNA, CNA, SNA, Solar grade, Steel grade), Iso Propyl Alcohol (IPA - pharma grade, food grade, cosmetic grade, standard grade etc.), Ammonia, Liquid Carbon Dioxide. The Company also imports and supplies other chemicals within India to meet industrial requirements.

Strategically, DFPCL aims at enriching value to all the stakeholders with IC business continuously strengthening its focus from commodity-play to specialty-play to ensure greater value proposition. Also, better cost management, operational efficiency and prompt customer services helps IC business to promote value-based pricing for its products. This ensures a stable earning opportunity, repeat orders, long-term association with the customers, stronger brand value leading to long-term value creation to the Company and its shareholders.

Iso Propyl Alcohol (IPA)

DFPCL, one of the largest manufacturers of IPA in India, the mostly used solvent in pharma industry, is capable of supplying any pharmacopeial grade IPA (IP, BP, EP, USP, JP, CP and multi compendial) to support the requirement of high-grade solvents in formulation and API stage of pharma industry.

In FY23, DFPCL introduced other pharmacopeial grade solvents (methanol, acetone and MDC) apart from IPA which are being used in pharma industry. DFPCLs increased focus on pharma grade IPA shows its long-term commitment to end users wellbeing and health safety. The Companys solvent products meet international quality standards for use in coatings and inks, speciality chemicals and cosmetics. Apart from all the pharmacopeia standards, solvents are compliant to other standards like OHSAS, FDA, CFDA, HALAL & KOSHER with acceptance across markets of USA, EU, Africa, Middle East and far East.

In FY24, IC Business will be launching PUROSOLV brand for providing all its pharmacopeia certified solvents under one umbrella. Starting with IPA and other 3 non-IPA solvents (methanol, acetone and MDC), the brand plans to put more pharma grade solvents under its umbrella in future. PUROSOLV focusses on three-pronged strategy

SOLAR GRADE NITRIC ACID HAS BEEN COMMERCIALISED IN FY23 AND REGULAR SUPPLIES HAVE STARTED TO SOLAR PV CELL MANUFACTURERS. THE PRODUCT HAS RECEIVED GOOD FEEDBACK FROM THE END USERS. FURTHER A NEW GRADE OF NITRIC ACID IS ALSO BEING DEVELOPED FOR STEEL SECTOR APPLICATIONS

of technology, quality and service. Use of technology like QR code for authenticity, on demand online authentication check, hologram seals etc. sets apart PUROSOLV from other players in India and abroad. Newly introduced solvents are supplied from FDA-compliant and GMP-approved plants. Highest quality is delivered with world-class service from a dedicated team which ensures ultimate customer satisfaction, quick TAT etc. DFPCL is working towards other IPA-based speciality products targeting both traditional and sunrise industries along with newer pharmacopeia certified solvents under its PUROSOLV brand.

IC Business launched several new products under Cororid brand to cater to the hospital and disinfection industry. In FY23, Cororid focussed more on growing its business in B2B sectors including hospitals, corporates, and government agencies. Cororid has successfully grown outside Maharashtra with a footprint of 150+ hospital association across India. IC Business is planning to offer other related products to the same customer segment under Cororid in coming years.

In India, IPA demand is set to grow in coming years from all sectors including pharmaceutical, chemical, coating and ink. In FY23, the Indian IPA market clocked at 230 KTPA and is forecasted to reach 410 KTPA by FY33 growing at 6% CAGR backed by demand increase in disinfection sector due to post pandemic lifestyle changes and focus on personal hygiene along with Indias focus on becoming a global leader in drug manufacturing. Stronger demand is expected from chemical industry, electronic industry, solar industry, automotive, flavour and fragrances, cosmetics etc. IPA will be mostly used in these industries as a speciality product and open up new areas of stable demand.

Nitric Acid

DFPCL holds a dominant position in the Indian nitric acid business with more than 45% market share. It is one of the major chemicals with different grades available in the market such as dilute nitric acid (DNA), concentrated nitric acid (CNA), and strong nitric acid (SNA) used in different applications in multiple industries. The major demand for nitric acid is derived from the fertiliser industry to produce nitrate-based fertilisers. Nitric acid is also used to produce nitroaromatics such as nitro benzene, nitro toluene, etc. Demand for nitric acid application has recently improved in the electronic and steel industries. With government initiatives such as "Make in India" and reducing the import of explosives, the domestic end-user such as ordnance factories and some private players are focussing on enhancing their production output, which is anticipated to fuel the demand for nitric acid in the coming years.

DFPCLs total nitric acid production capacity stands at 1,120 KTPA. Apart from IC business, TAN and Ammonium Nitro Phosphate (ANP) consumes a significant portion of the captive nitric acid manufacturing, with the surplus nitric acid being supplied to market in different grades. Based on customer commitments and market scenario, DFPCL also imports DNA and converts it to CNA.

As a part of strategic transformation journey, IC Business is aiming for converting commodity play to speciality play. In FY23, IC Business has successfully launched solar grade nitric acid, a premium specialty product, which received favourable response from solar cell manufacturers with multiple repeat orders.

IN FY23, DFPCL SIGNED A

LONG TERM SUPPLY AGREEMENT OF CNA WITH AARTI INDUSTRIES LIMITED AIL . THIS ALLIANCE INDICATES STRONG GROWTH CURRENTS EMERGING FROM THE ‘CHINA PLUS ONE TREND FOR THE SPECIALTY CHEMICAL SECTOR IN INDIA

IC Business aims to expand the supply capacity for solar grade nitric acid in the near term at Taloja. The business will also aim to cater to the needs of other traditional and high growth industries with innovative speciality products such as steel grade nitric acid. The efforts are at different phases of development and expected to be commercially launched soon.

DFPCL IS AMONG THE LEADING PRODUCERS OF TAN IN THE WORLD WITH CURRENT CAPACITY OF 537 KTPA, PRODUCING HDAN, LDAN, AN MELT AND MEDICAL GRADE AN

The overall rising application of nitric acid in the steel, pharmaceuticals, aromatics, and explosives industry, is anticipated to boost the demand for nitric acid with an expected growth of 6-8% over next decade.

Liquid Carbon Dioxide and Methanol

With 72,000 MTPA installed capacity at Taloja plant, DFPCL is among the leading suppliers of Liquid Carbon Dioxide manufactured as a by-product of (LCO2) in India. LCO2 the ammonia production is of very high quality and is finds its application in dry ice, food grade certified. LCO2 beverages, and engineering industries as a shield gas for gas thus gets converted to value-added welding. The CO2 products by respective end users, thereby helping minimise the greenhouse gas emissions.

The Company has an installed capacity of 1,00,000 MT of Methanol at Taloja, Maharashtra. Methanol finds its application in formaldehyde, tert-amyl methyl ether (TAME) and methyl derivatives. It is also used as a solvent in the pharmaceutical and paint industries. However, based on unfavourable market conditions and cost economics, there was no methanol production during FY23. Emerging applications, like, dimethyl ether and M15 fuel blending etc. may drive the demand in future Nevertheless, the Company is geared up for the methanol production as and when market conditions become favourable.

Traded Chemicals

Based on customer commitment and market dynamics, the Company continues to trade in select products like ammonia, nitric acid and non-IPA specialty grade solvents such as Methanol, MDC and Acetone.

Technical Ammonium Nitrate (TAN)

DFPCL is among the leading producers of TAN in the world with capacity of 537 KTPA, producing High Density Ammonium Nitrate (HDAN), Low Density Ammonium Nitrate (LDAN), Ammonium Nitrate Melt (AN Melt) and Medical Grade AN. The Company is the only producer of explosives grade TAN solids in India and also manufactures Medical Grade Ammonium Nitrate which is widely used in the production of medical grade nitrous oxide for use as an aesthetic/analgesic.

In FY23, the business delivered strong financial performance achieving second highest sales volume. Post successful completion of TAN debottlenecking by 50 KTPA at Taloja under phase 1 during FY23, work is in progress for additional 50 KTPA debottlenecking, under phase 2 which is expected to be completed by FY24. These capacity additions are in line with the governments "Aatmanirbhar Bharat" agenda, a step towards making India self-reliant for its TAN needs to support the growth of mining and infrastructure sectors.

TAN Business aims to be a partner for delivering value by improving mine and quarry productivity through last-mile execution excellence, using specialty products and customised solutions, in a safe and consistent manner. The business has been making significant inroads in line with its vision and is transforming itself from a "product supplier to a solutions provider".

TAN demand is expected to continue its upward momentum, driven by growth in mining and infrastructure development in India. TAN business unit is looking at tapping this opportunity and working closely with its end-consumers for executing value delivery projects to improve their productivity. In FY23, the business has successfully executed 5 number of TCO (Total Cost of Ownership) projects towards productivity improvement across infrastructure, non-coal mining (limestone and metals) and coal mining segments. TAN business secured its first solutions-based productivity improvement contract in a prestigious infrastructure project of national repute. TAN business also secured its first long-term "down-the-hole" (DTH) ANFO supply contract with a private sector coal mining company, through a value-based approach.

The TAN business unit is making significant investments in hardware such as BMDs (Bulk-Mix-Delivery Trucks for delivering ANFO down-the-hole on mine bench at mine sites), and advanced software technology such as drones and AI-based blast modelling. The business unit is actively collaborating and partnering with leading third-party technical and research-oriented institutions to deliver improved efficiencies and productivity to the mining and infrastructure sectors.

As a leading TAN producer in India, TAN business has been consistently complying to the prescribed AN Rules. The business has deployed an advanced version of Global Positioning Tracking System (GPS) across its manufacturing and distribution network, which is helping the business to continuously track and trace all its product movement in line with the AN Rules and provide alerts in case of deviation for the business to take prompt corrective actions.

While the Company has more than 40% market share in the domestic TAN business, its exports were significantly impacted due to regulatory ban on exports in FY23 by GOI. With improved AN inventories in India, the export ban, which was due to short supplies, is expected to be lifted soon. The Company had good market presence in Middle East, Africa, and South East Asian countries for TAN products and will resume exports once the ban is lifted.

Gopalpur TAN Project

It is a green field project for manufacture of Technical Ammonium Nitrate located at ‘Tata Steel Industrial Park in Gopalpur, Odisha with an installed capacity of 376 KTPA, entailing an investment of Rs. 2,200 crore. Post its commissioning, it will help enhance our total capacity to 963 KTPA, making us capable to cater to about 60% of Indias AN demand. It is strategically located near the major mining hubs to capture domestic demands, and its proximity to Gopalpur port will also help tapping the export opportunities. The environmental clearance and CRZ clearance have been obtained and the CTE for cross-country pipeline is also in place. The engineering and construction work is in full swing and actions have been initiated for ordering critical long lead items / packages. The project is moving as per plan with targeted commissioning by H2 FY26.

Crop Nutrition Business (CNB)

Crop Nutrition Business is a leading innovative crop nutrient solution provider in the country with a range of enhanced efficiency NPK fertilisers (Smartek), crop-specific balance nutrient fertilisers (Croptek), crop and stage specific water soluble fertiliser, bentonite sulphur and other specialty fertilisers. CNB is serving its farmers for more than 3 decades with its flagship brand ‘Mahadhan. The business has a strong presence in Maharashtra, Karnataka and Gujarat. DFPCL has been further expanding its reach to southern and northern states over last few years.

As a part of its transformation journey, CNB has completely moved its product portfolio from commodity to differentiated, with crop-specific nutrient solution focus. With the successful launch of Croptek Onion, Croptek Sugarcane and Croptek Maize in FY22, CNB further added 2 more grades namely; Croptek Cotton and Croptek Groundnut to its portfolio during FY23. Since launch, CNB has successfully sold around 1.46 lakh MT Croptek and 1.4 million MT of Smartek NPK fertilisers. Our crop-specific grades ‘Solutek is helping farmers to produce exportable farm produce in crops like Grapes and Pomegranate. This differentiation strategy has helped DFPCL enhance its farmer connect through value proposition and delivery of customised nutrient solutions. The Company aims to closely work with farmers and increase operational and technical excellence, while pruning cost. R&D will continue to play a vital role in improving competitiveness through innovations. The team also conducted an innovative social media campaign to educate farmers about benefit of Croptek through gamification. Major aim is to engage farmers through a hyperlocal and interest-based campaign, increase Croptek awareness, communicate the Croptek success story in market, and encourage farmers for trial purchase. Through gamification-based social media campaign, 5.6 million farmers were engaged for Croptek Cotton & Croptek Onion educating them about Croptek solution and to generate curiosity. Seeing is believing in market development approach. CNB team conducted 21,000+ demos of product across operating geographies in FY23 with the multiple market development activities team connecting with ~6 lakh farmers.

The team has initiated Saarrthie farmer (influencer network) programmes and has enrolled more than 15,000 Saarrthie farmers on its platform during FY23. As part of "one nation one fertiliser" drive by the GOI, the Company has migrated its bagging of its subsidised NP / NPK products to the present design / norms during FY23.

SINCE LAUNCH, CNB HAS SUCCESSFULLY SOLD AROUND 1.46 LAKH MT CROPTEK AND 1.4 MILLION MT OF SMARTEK NPK FERTILISERS. THIS DIFFERENTIATION STRATEGY HAS HELPED DFPCL ENHANCE ITS FARMER CONNECT THROUGH VALUE PROPOSITION AND DELIVERY OF CUSTOMISED NUTRIENT SOLUTIONS

In FY 2022-23, Asian Development Bank (ADB) granted US$30 million as Debt Assistance and US$ 0.5 million as Technical Grant for Farm Efficiency initiatives of STL, a wholly-owned subsidiary of DFPCL for a tenor of 5 years. The fund will finance the capital expenditure, as well as be used to drive the farm efficiency improvement initiatives in partnership with farmers.

Value Added Real Estate

DFPCLs VARE business is mainly focussed on the

Companys lifestyle retail centre, ‘Creaticity (earlier known

Creaticity, Indias arguably largest Home & Interior Destination in Pune

as Ishanya) located in Pune, Maharashtra. Conceptualised as Indias first and arguably the largest destination for home and interiors, Creaticity houses nearly 100 brands in the furniture, and home d?cor categories. There is also a choice of curated cuisines and restaurants in addition to Punes largest and most attractive trampoline park.

CREATICITY HOUSES NEARLY 100 BRANDS IN THE FURNITURE, AND HOME D?COR CATEGORIES

During the year, several new brands/retailers became part of Creaticity such as Home Town, Nirmitee Furniture, Tangent Furniture, Shirkes Kitchen and Stosa Kitchen. Qarpentri by Design Caf? and HDFC Bank are also likely to commence their occupancy during Q1 of FY24. Total occupancy of Creaticity continues to remain upwards of 80% with 61% increase in footfalls observed during FY23. "Creaticity Branded Interiors" as single source of solutions is slated to be launched by end of Q1 FY24, combining the strength of wide choice, physical destination and digital experience, and services ranging from space planning and interior design to product selection support and last-mile execution. With this objective in mind, there is significant thrust on various brand partner arrangements, both national and international to create a meaningful differentiation for customers. This includes offering the right products from a variety of national / internationally reputed brands of finished furniture and home d?cor along with expert advisory for design options to suit customers aesthetic & budget requirements. Introduction of technology and processes through the entire customer journey is expected to help reinforce reliability and transparency among its customers.

FINANCIAL REVIEW

The Company clocked the highest ever profits and revenue in FY23 with robust volume growth over FY22. Despite the enormous finished product spikes that resulted from raw material spikes, the Company managed to maintain healthy sales and cash flows across the three business segments. In FY23, operating revenue increased a massive 47% to Rs.11,301 crore from Rs.7,663 crore in FY22. The Chemical Business contributed 57% to total revenue while the Fertilisers Business contributed 43%.

Revenue of Chemicals Business grew by 40% YoY and that of Fertilisers Business grew 59% YoY.

Operating EBITDA and Net Profit grew by 60% and 78%, respectively, over FY22. Operating margin expanded 147bps to 19% led by 600bps margin expansion in the Chemicals Business at 31%. Margin of the Fertiliser Business came in at 7%. Net profit margin expanded 180bps to 11%.

The Companys net debt stood at Rs.2,518 crore as on 31^st March, 2023. Total Debt / Equity ratio was sustained at 0.71x in FY23 as compared to 0.67x in FY22.

KEY FINANCIAL RATIOS

Consolidated Performance	FY22-23	FY21-22
Chemical Revenue (Rs. Crore)	6,411	4,575
Fertiliser Revenue (Rs. Crore)	4,868	3,071
Chemical Segment Result* (Rs. Crore)	1,992	1,165
Fertiliser Segment Result* (Rs. Crore)	359	290

*Segment Result as per financials; represents segment Profit Before Tax (before finance costs and unallocable expenditure)

Parameters	FY22-23	FY21-22
Debtor turnover (x)	9.78	9.93
Inventory turnover (x)	9.81	9.11
Interest coverage ratio (x)*	11.55	9.04
Current ratio (x)	1.72	1.51
D/E ratio (total Debt Equity Ratio) (x)	0.71	0.67
Operating Margin (%)	17.05	14.66
Net Margin (%)	10.80	8.97
Return on net worth (%)*	27.28	20.87

*Change from FY21-22 to FY22-23 is more than 25% on account of increase in profits. Other details are provided in Financial Review which forms part of this report.

KEY PERFORMANCE METRICS

Consolidated Performance	FY22-23	FY21-22
Operating Total Revenue (Rs. Crore)	11,301	7,663
Operating EBITDA (Rs. Crore)	2,165	1,356
PBT (Rs. Crore)	1,816	1,013
PAT (Rs. Crore)	1,221	687
Earnings per share (Rs.)	97.70	60.44

REVENUE MIX FOR KEY PRODUCTS

Product	FY23	FY22
TAN (incl. PBS)	37.79%	34.54%
ANP, NPK, Bensulf, WSF	34.39%	32.80%
Nitric Acid	13.29%	12.05%
IPA and Propane	4.64%	9.28%
Outsourced Bulk Fertilisers	4.41%	6.26%
Outsourced Agro Speciality	4.37%	1.08%
Bulk Chemical Trading	0.73%	2.75%
Others	0.38%	1.24%

SALES VOLUME IN MT

Products	FY23	FY22
Technical Ammonium Nitrate	501,575	488,219
NPK Fertiliser	376,056	363,594
Nitro Phosphate Fertiliser	192,559	163,887
Concentrated Nitric Acid	167,181	163,713
Bulk Fertilisers Traded	126,012	126,802
Dilute Nitric Acid	83,478	63,369
Liquid Carbon Dioxide	57,512	51,937
Iso Propyl Alcohol	43,932	64,923
Bentonite Sulphur	33,354	32,038
Strong Nitric Acid	26,451	23,917
Traded Chemical	9,460	28,129
Propane	8,826	11,779
Methanol	-	23,038
Windmill Power (‘000 kWh)	NA	11,491

BUSINESS OUTLOOK

IC: The demand outlook is stable to strong across the major customer segments like Pharma, Agro, Food, Specialty Chemicals etc. This also reflects in the investments done by the Companys customers in expanding capacities, entering newer markets and launching newer products. In FY24, some of the Companys long-term contracts will start kicking in, bringing stability in future outlook. Pricing of one of the key raw materials, Propylene, is expected to remain stable, after a volatile period during FY23 driven by the pandemic and other factors. Ammonia prices are also cooling off, post the steep rise seen in FY23, driven by gas shortage in Europe due to Russia-Ukraine conflict. These key raw materials are expected to follow typical inherent demand-supply factors rather than other issues. Margins are expected to be stable with robust demand prospects and stability in key raw material pricing. Additionally, several actions undertaken to grow the specialty chemical portfolio, will enable the Company to launch a few new products in the coming year, further aiding in margin stabilisation.

TAN: Business recorded robust growth in FY23 and the trend is expected to continue in FY24. The demand for power is expected to be strong which in turn will drive coal mining demand. Driven by Governments spending on infrastructure projects, the demand for cement, steel and rock aggregates is also expected to improve. All this will result in increased explosives demand in the mining and infrastructure segments, which will have a positive effect on the demand of all TAN products.

The Company has full range of locally manufactured Technical Ammonium Nitrate and combining it with Technical Services & Technology, the Company is confident of contributing positively to Indias growth story, by delivering value through productivity improvement projects to the end consumers in mining and infrastructure industries.

CNB: IMD has predicted normal southwest monsoon with minor impact of El Ni?o post June. In FY23, normal monsoon resulted in better groundwater status which will lead to good season in coming years. Prices of key raw materials such as ammonia, phosphoric acid and MOP are reducing, which will aid in margin improvement. Leveraging last three season response to Croptek and Solutek, the team is focussing on research-based approach to align itself with the needs of the agriculture sector. The Companys focus is on innovation and development of products like Croptek, Solutek etc. which enhance efficiency, promote balance crop nutrition management, improve soil health, increase crop productivity and achieve improvement in nutritional quality of crop produce. The Company will continue to increase focus on

AS A PART OF ORGANIC GROWTH, THE COMPANY IS COMMITTED TOWARDS LOW COST DEBOTTLENECKING AND SUSTAINED RAMP UP OF PRODUCTION CAPACITIES. FEW DEBOTTLENECKING PROJECTS ARE IN PROGRESS FOR TAN, WNA AND NPK PLANTS

crop-specific nutrient solution to capitalise on various farmer reach initiatives in the last 5 years.

VARE: Creaticity is expected to consolidate its occupancy at 80-85% level during FY24 with addition of few reputed brands/organisations in its premises. Short-term outlook is to protect centre sales and grow steadily. The longer-term approach is to establish solution selling as a value proposition through Creaticity branded interiors manifested through a curated house of design-oriented brands and complete home & interior solutions serving the home makers, architects, designers and builder community. Improved customer satisfaction and occupant satisfaction index will improve the overall perception of the brand.

MANUFACTURING

The Company has undertaken various initiatives to ensure optimum plant utilisation levels, thereby improving availability and efficiency. As a part of organic growth, the Company is committed towards low-cost debottlenecking and sustained ramp-up of production capacities. Few debottlenecking projects are in progress for TAN, WNA and NPK plants.

Operational Excellence & Ways-of-Working

Total Productive Maintenance (TPM) and Process Safety Management (PSM) are critical components of operations for DFPCL. In FY23, the Company continued to implement TPM & PSM practices across all the manufacturing facilities through training employees on TPM and PSM principles. In FY24, the Company aims to further strengthen and streamline its practices, processes and policies in Preventive Maintenance, Quality Management, EHS Management, Production Planning, Procurement & Supply Chain Management, Project Management. This will result in significant improvement in equipment uptime and utilisation, efficiencies, safety, and optimisation of inventory and costs.

EHS & Sustainability

The Company gives due importance to Environmental, Health, and Safety (EHS) & Sustainability in day-to-day operations. In FY23, EHS initiatives and sustainability programmes were aimed at minimising impact on the environment while ensuring the health and safety of employees and the communities near the area of operations. The Company ensures highest standards of health and safety are maintained across all plants. The Company has implemented several initiatives to improve safety culture, including training programmes, safety audits, and hazard identification programmes. The Company is committed to further enhancing EHS & Sustainability initiatives, including use of technologies, to improve environmental monitoring, recognising the threat of climate change, and need to curb greenhouse emissions. The Company proactively has undertaken measures beyond regulatory obligations to invest in abatement technologies in one of its nitric acid plant. Aligning to the UN Sustainable Development Goals, the Company is working to implement energy-efficient technologies, renewable energy, water conservation & waste reduction initiatives. As a part of Extended Producer Responsibility (EPR), the Company is focussing on responsible plastic waste management across the value chain. To foster a strong safety culture and ensure the health and well-being of all employees, the Company will invest in employee training. EHS and Sustainability are of prime importance to the Company and it is continuously striving for excellence in this area.

Smart Factory

The Company is committed towards digital transformation, for which certain initiatives and pilot projects were undertaken in FY23. Based on the visioning exercise, the Company will chalk out the roadmap for its digital journey. This will include implementation of IoT-enabled sensors and control systems, automation, digitalisation, digital twins, predictive analytics, data historians and dashboarding, enhancement of manufacturing and administrative processes and reporting, and improvement in production efficiency, plant availability, and enhanced quality control. The Company is looking to leverage use of advanced technologies such as artificial intelligence and machine learning to further optimise its manufacturing processes.

Sales & Operation Planning (S&OP)

In FY 2021-22, the Company had successfully implemented state-of-the-art Sales & Operation Planning Solution under Project Galaxy 1.0 to improve the Planning process integrating the key elements of Demand, Manufacturing, Procurement and Despatches.

ALIGNING TO THE UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS, THE COMPANY IS WORKING TO IMPLEMENT ENERGY EFFICIENT TECHNOLOGIES, RENEWABLE ENERGY, WATER CONSERVATION & WASTE REDUCTION INITIATIVES

The current environment presents a unique opportunity to transform and digitise operations across value chain and capitalise on headroom for growth. To fuel the Companys digital transformation journey and to realise our vision of connected planning via a single platform, the Company is now undertaking Project GALAXY 2.0. The project will enable us to traverse beyond planning efficiencies and improve agility across functions and leverage cross-functional synergies to achieve planned targets. GALAXY 2.0 will take us closer to our vision of providing differentiated experience across all aspects of customer interactions and will enable us to serve best-in-class capabilities like Available to Promise. It will help us get more agile in planning, better anticipate customer needs, and provide better visibility to internal and external stakeholders across the value chain.

RAW MATERIAL

The world witnessed historic price levels across all major chemicals/petrochemicals/fertiliser inputs due to sudden demand surge post-Covid followed by geopolitical tensions (impact on gas, ammonia, potash), sanctions (Belarus: impact on potash) and quota restrictions posed by major exporters (China: impact on all fertilisers). Industry, governments and customers across geographies have chosen to ensure continuous availability as the sole objective despite spiralling prices.

As every challenge opens up new opportunities, the Company impetus has shifted towards sustainable long-term strategic arrangements for securing all the key raw materials with trade across new territories, with new partners ensuring uninterrupted supply of all key inputs. While the Company has already invested in world scale ammonia plant to secure this key raw material, the focus now is on strategic alliances for securitisation of Phosphoric Acid, MOP, AS, etc., while continuing to explore green chemistry to help achieve decarbonisation goal set up by the Government of India.

DFPCL leveraged the evolving situation and has been successful in ensuring availability of key raw materials at industry benchmarks to cater to its wide customer base through quickly roping in multiple suppliers for each raw material, more importantly from different origins.

RISK MANAGEMENT

The Companys well-structured Risk Management Policy framework is adept to tackle changes in regulatory environment, development in technology and disruptions in financial markets. The Companys robust model absorbs market volatility. The Risk Management Policy and framework is reviewed by the Risk Management Committee periodically to ensure its robustness and effectiveness to deal with unforeseen risks. Business level committee comprising of key business and functional heads periodically review the effectiveness of existing controls and implementation of risk mitigation plans.

Strategic business planning activities and the risk management process are well integrated to deal with new and emerging as well as existing risks. Identification and evaluation of underlying critical assumptions for key internal and external risks, associated with different business vertical strategies is carried out periodically. A detailed review of the risk management practices is carried out by the Risk Management Committee. It also evaluates the implementation status as reported by the Internal Committee. Quantitative, semi-quantitative and qualitative assessment of the entity level key risks enable to take timely action for risk mitigation. The Risk Management Committee apprises the Board on the effectiveness of the Risk Management Framework. Any new entity level risks identified, along with the appropriate risk response mechanism are brought to the notice of the Board.

STRENGTHS, OPPORTUNITIES, THREATS, RISKS AND CONCERNS

Strengths	Opportunities	Threats
• Strong fundamentals backed by robust knowledge and rich extensive experience in manufacturing and financial prudence	• Growth in Indian economy presents significant opportunities for DFPCL since it caters to the critical sectors of the country	• Trade tension led by ongoing Russia-Ukraine war and geopolitical issues
• Strong management team with n-depth i industry experience	• Transition from commodity to value-added and differentiated products and services	• Abrupt regulatory interventions/ policy change impacting our business
• Well established and trusted brand among its end users across business segments	• Manufacturing shift of chemical intermediates to India becoming more and more evident with time	• Abnormal volatility in prices of key raw material such as ‘Ammonia, Phosphoric Acid, Propylene and Natural Gas along with forex fluctuation impacting raw material pricing
• Robust dealer network and loyal customer base across market segments in India	• Governments initiatives to improve agricultural productivity by improving soil nutrient balance, encouraging NPK sector	• Potential threat of new entrants which could adversely impact our market share
• Diversified product portfolio, servicing consumers across diversified sectors	• Governments Aatmanirbhar Bharat and Pharma Vision 2023 to strengthen domestic industries and encourage "Make in India"	• Delay in regulatory clearances for new ongoing projects capex
• Integrated Plant operation along with world-class technologies	• Strengthening of market position via diversification and expansion projects	Risks and Concerns
• Expertise in handling Ammonium Nitrate (production, storage and logistics) under strict compliance with ‘AN Rules		• Dependence on imported raw materials like Phosphoric Acid, Potash and Ammonium Sulphate
• Location advantage due to proximity to key customers	• Forward integration to develop comprehensive product portfolio	• Working capital intensive business with dependence on Government subsidy
• Well established supply chain logistic junction	• Enhanced focus on digital to better connect with end consumers via social media and mobile applications	• Lag effect of passing the increaseinrawmaterialpricetoend customers
• Strong systems and process backed with IT systems/tools	• Growing area under micro irrigation and demand for nutrient-based fertilisers	• Wider pricing gap between natural gas and imported ammonia, if any
• Backward integration to produce Ammonia, a key raw material for DFPCL group

HUMAN RESOURCES

The Company continued its efforts to further strengthen culture change, capability development, organisation design and people process digitisation with the aim of building an agile and efficient system, ready to deliver business performance.

Culture Change: DFPCL rolled out a well-structured intervention for enhancing managerial capability for the leadership team and to develop a culture of coaching, which can then cascade down to the team to instil solution-orientation and innovation among other aspects. Additionally, the Company leveraged 360-degree feedback mechanism to further reinforce the culture of giving and receiving feedback, to improve team effectiveness thereby enabling the achievement of business objectives.

Capability Development: DFPCL embarked on role specific competency mapping exercise to identify role based developmental opportunities pertaining to specific technical/functional, and behavioural competencies and to design targeted interventions as opposed to generic training programmes. Periodic learning interventions across sectors and functions were conducted to ensure that individuals are well equipped with required contemporary skills and are business ready. The Company filled several leadership level positions in-house through these targeted development efforts, in-line with the practice of capability development & providing opportunity to internal talent first.

Organisation Design and Effectiveness: With growth in size and scale, DFPCLs business strategy has also evolved. Consequently, organisational structure needed to change to remain agile and function efficiently. The Company made it a point to periodically relook at the organisational structure and make the necessary changes pertinent to the business needs. In addition, decision-making with empowerment at different levels resulting from the changes in structures and associated processes is being revisited as need arises. While driving above changes, focus has been on building a culture of innovation as an enabler to help drive business growth.

Digitisation: The Company is committed to investing in technology to build value for the stakeholders by building efficiency in the system and automating routine activities, thereby releasing the bandwidth of stakeholders to be utilised in relevant productive activities. In critical areas of people processes, the Company has consciously switched from manual operations to digital platforms and solutions to have access to real-time data to enable accurate decision-making and to connect with employees at various stages of organisation processes to improve engagement thereby resulting in enhanced business operations.

TO FUEL THE COMPANYS DIGITAL TRANSFORMATION JOURNEY AND TO REALIZE OUR VISION OF CONNECTED PLANNING VIA A SINGLE PLATFORM, WE ARE NOW UNDERTAKING PROJECT GALAXY 2.0. THE PROJECT WILL ENABLE US TO TRAVERSE BEYOND PLANNING EFFICIENCIES AND IMPROVE AGILITY ACROSS FUNCTIONS AND LEVERAGE CROSS FUNCTIONAL SYNERGIES TO ACHIEVE PLANNED TARGETS

While the Company has already implemented numerous solutions and are in the process of implementing a few others, it is a constant endeavour to continue exploring opportunities where it can be value accretive for the business.

In FY24, DFPCL would be looking forward to leveraging the investments in human capital, digital solutions, and agile workforce to deliver superior business performance through a competent and engaged workforce.

INFORMATION TECHNOLOGY & AUTOMATION

Over the period of last four to five years, with focussed interventions around digitisation, the organisation has reached certain level of maturity in creating robust digital backbone to support business operations effectively. During FY23, the focus around digitation was more towards taking the efficiencies to the next level by leveraging digital, which includes planning, forecasting, and optimisation of the key business levers. Consumer insights are also one of key focus areas.

In order to traverse the next leg of digitisation journey, organisation is working on creating a long-term digital roadmap across businesses and manufacturing operations. This would enable DFPCLs growth journey in the coming years.

Manufacturing operations efficiency in terms of throughput and cost efficiency is one of the key themes emerging out of the interventions planned. Adoption of holistic framework of Industry 4.0, connected planning, logistics execution and supplier collaboration are the areas where digital is being leveraged by the organisation.

The foundational digital framework that has been established in the last few years, is now helping the Company to create single source of truth. The decision support framework is being further strengthened. This has also helped to start the journey towards using data and leveraging new edge solutions like AI/ML to provide predictive insights to the business teams and be more resilient and customer-focussed.

The continuous evolvement of the cyber security threat landscape, continuous efforts and interventions are taken up to mature organisations management and response capabilities of handling such threats. The cyber security framework implemented by the organisation is recognised by various certifying bodies.

INTERNAL CONTROL SYSTEMS

DFPCL has laid down well defined scope of internal controls and audit process. There is significant emphasis given to ensure that the key management personnel adhere to the best practices. The Company has adequate internal controls commensurate with the nature of the Companys business and size of its operations, to effectively provide for the safety of the assets, reliability of financial transactions with adequate checks and balances, compliance with prevalent statutes, regulations, management authorisation, policies & procedures, and to ensure optimum use of the available resources.

The Audit Committee of the Board is responsible for establishing, maintaining, and reviewing the Companys system of internal controls and directing the Internal Audit function. The Audit Committee approves the overall internal audit plan, including risk assessment, scope, methodology and frequency of audits.

The Company has appointed Ernst & Young LLP, India to execute internal audit reviews as per the approved Internal Audit Plan. Further, the Audit Committee periodically reviews significant audit observations along with recommendations, implementation status, adequacy of internal controls and keeps the Board informed of its observations, if any, from time to time. The internal audit department follows up to ensure corrective measures are implemented in the respective business functions as per the report generated post the audit, to strengthen the overall framework. The objective of the internal control framework is to align the strategic goals with operations.

The Company has budgetary control system to monitor revenue and expenditure against approved budget on an ongoing basis. Further, the Company has SAP S/4 HANA system to help improve operational efficiencies and business decision-making capabilities across financial reporting, organisational structure and various business processes which are reviewed and validated by external experts. The Company has also adopted Internal Financial Control framework in line with section 134(5)(e) of the Companies Act, 2013 to authenticate implementation of the Company policies across businesses, protect intellectual property, prevent and detect frauds and errors and ensure transparency of accounting records. Based on its evaluation (as defined in section 177 of the Companies Act, 2013 and Clause 18 of SEBI Regulations 2015), the Audit Committee has concluded that, as of 31^st March, 2023, DFPCLs internal financial controls were adequate and operating effectively.

CAUTIONARY STATEMENT

The document contains statements about expected future events, financial and operating results of Deepak Fertilisers and Petrochemicals Corporation Limited, which are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that the assumptions, predictions and other forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause assumptions, actual future results and events to differ materially from those expressed in the forward-looking statements. Accordingly, this document is subject to the disclaimer and qualified in its entirety by the assumptions, qualifications and risk factors referred to in the managements discussion and analysis of Deepak Fertilisers And Petrochemicals Corporation Limiteds Annual Report, FY23.