In this article, we’re going to understand what the chemicals and explosives industry in India is like, what their major growth drivers and KPIs are, and talk about two companies: Deepak Nitrite, and Solar Industries, both of which operate in these sectors.
We will attempt to understand their recent financial disclosures and explore what the companies do and how.
Industry Overview
India’s chemicals and explosives industry are not exactly the same, but they are somewhat similar. They are both vital cogs in the country’s economic engine with a production value estimated at over ₹6.5 lakh crore (US$86 billion) as of 2023. This sector plays a major role as an input manufacturer for major industries like pharmaceuticals, textiles, agriculture, and construction.
CTA: Infrastructure industry in India
Chemicals
The Indian chemical industry is a diverse landscape, encompassing basic, intermediate, and specialty chemicals. Basic chemicals like inorganic chemicals (chlorine, soda ash) and organic chemicals (alcohols, acids) form the foundation of this production, with a production value exceeding ₹3.8 lakh crore (US$50 billion) as of 2023.
Intermediate chemicals, used for further processing, are another significant segment, with a projected market size of ₹2.3 lakh crore (US$30 billion) by 2025. Specialty chemicals, catering to specific applications like paints and dyes, are witnessing rapid growth due to rising demand from various sectors, mostly construction.
Explosives
The explosives segment plays a critical role in India’s infrastructure development. Solar Industries Ltd., with a manufacturing capacity exceeding 1.1 million tonnes per annum, is a major player.
Explosives are used in mining, construction, and demolition activities, and the demand is expected to rise with the government’s focus on infrastructure projects in the near future.
Key Performance
Deepak Nitrite: Company overview
Founded in 1970, Deepak Nitrite is an intermediates company in the chemicals industry, which means it takes basic raw materials to manufacture chemicals that are then used as inputs in other industries. They currently serve 56 applications, and have a portfolio of 100+ chemicals that are also used for export.
Deepak Nitrite is a leading producer of sodium nitrite in India, and the largest producer of phenol and acetone in India for the last 6+ years. They are amongst the top 3 players in the world for products like xylidines, cumidines, and oximes, and operate 6 manufacturing facilities currently. They are also involved in IPA production for the pharmaceutical industry, with specific applications in the manufacture of sanitisers.
The company exports to 45+ countries in 6 continents, and has been in active operations for 50+ years. Their client portfolio includes major names like: Bsyer, Unilever, Indian Oil. Rallis India, L’oreal, Lubrizol, Reliance Industries, Nirma, and others.
Financial overview
All numbers in INR cr:
| Mar-22 | Mar-23 | Mar-24 | |
| Total Income | 6,802 | 7,972 | 7,682 |
| Operating Profit | 1,607 | 1,292 | 1,123 |
| Operating Profit Margin % | 24% | 16% | 15% |
| Net Income | 1,067 | 852 | 811 |
While Deepak Nitrite’s revenues are largely growing except for the last year, they have not been able to grow their net income line. In fact, net incomes have decreased by 20% from Mar-22 to Mar-23. While the company has managed to decrease their interest payments and debt burden over time from FY20 to FY24, their EBITDA margins are also going down, which suggest operational inefficiencies or rising input costs per unit product.
CTA: What is EBITDA?
Solar Industries
Founded in 1995, Solar Industries started off with a single manufacturing site for industrial explosives, and grew to become one of the largest players in the segment today.
The company is largely involved in industrial blasting solutions and explosive initiating devices, including packaged emulsion explosives, bulk explosives, and detonation systems. They also cater to the defence sector by manufacturing ammunition for military applications.
The company operates 39 production facilities around the world in countries like Zambia, Nigeria, Turkey, Tanzania, and South Africa. Currently, management is planning to expand to Australia and Ghana as well.
In 2022, the company achieved a milestone by crossing a market cap of INR 25,000cr and supplied a PSOM-XL motor to ISRO.
Financial Overview
| Mar-22 | Mar-23 | Mar-24 | |
| Total Income | 3,948 | 6,923 | 6,070 |
| Operating Profit | 748 | 1,289 | 1,369 |
| Operating Profit Margin % | 19% | 19% | 23% |
| Net Income | 455 | 811 | 875 |
The company seems to be faring well with growing revenue numbers year on year (except last FY), and is able to convert those extra sales into bottom line margins. Operating profit margins are inching higher, and bottom line numbers also seem to be reflecting similar growth. Interest expenses have gone up 100% from FY22 to FY24.
The company is employing more and more capital till FY23, from 1,430cr in FY19 to 3,234cr in FY23. The return on this capital dipped during COVID-affected years, but has grown a tad bit from 32% in FY19 to 47% in FY23.
CTA: Risk-adjusted return on capital
Conclusion
While the chemicals and explosives industries aren’t exactly comparable, both of them tell the story of how India can leverage its own manufacturing facilities and human resources to cut costs, drive down unemployment, and become more self-reliant.
