CHAMBLFERTNSEQ4 FY22May 24, 2022

Chambal Fertilizers & Chemicals Limited

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125turns

16analyst exchanges

2executives

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Management on call

Gaurav Mathur

Managing Director, Mr. Abhay Baijal,

Rajveer Singh

Vice President - Legal & Company Secretary and Mr. Anuj

Key numbers — 40 extracted

Rs. 10,434 crore

as been very supportive and the total subsidy for the full year ended March 31, 2022, amounted to Rs. 10,434 crore. The Board of Directors of the Company declared a final dividend of Rs. 3, that is 30%, per equ

Rs. 3,

amounted to Rs. 10,434 crore. The Board of Directors of the Company declared a final dividend of Rs. 3, that is 30%, per equity share of Rs. 10 each of the Company. For the full year, this then transl

30%

10,434 crore. The Board of Directors of the Company declared a final dividend of Rs. 3, that is 30%, per equity share of Rs. 10 each of the Company. For the full year, this then translates into Rs.

Rs. 10

of Directors of the Company declared a final dividend of Rs. 3, that is 30%, per equity share of Rs. 10 each of the Company. For the full year, this then translates into Rs. 7.5 per share which is same

Rs. 7.5

30%, per equity share of Rs. 10 each of the Company. For the full year, this then translates into Rs. 7.5 per share which is same as last year and in line with our dividend policy of around 25%. Our Cro

25%

into Rs. 7.5 per share which is same as last year and in line with our dividend policy of around 25%. Our Crop Protection Chemicals and Specialty Nutrients businesses continue to grow strongly. We

Rs. 1,

2,20,000 metric tons of Technical Ammonium Nitrate per annum and estimated cost is approximately Rs. 1, 170 crore. The project, which will also include a plant to manufacture approximately 1,80,000 metr

170 crore

metric tons of Technical Ammonium Nitrate per annum and estimated cost is approximately Rs. 1, 170 crore. The project, which will also include a plant to manufacture approximately 1,80,000 metric tons p

40%

has positive light. As per India Metrological Department, the probability for a normal monsoon is 40% and we expect that the normal monsoon will then help the agriculture activity. The Government h

328 million

culture activity. The Government has also announced a food grain output target of approximately 328 million metric tons for '22-23 from last year's 316 million metric tons. All this translates to increased

316 million

d a food grain output target of approximately 328 million metric tons for '22-23 from last year's 316 million metric tons. All this translates to increased demand and consumption for Fertilizers, Crop Protec

rs,

r's 316 million metric tons. All this translates to increased demand and consumption for Fertilizers, Crop Protection Chemicals and Agri Inputs. High cotton prices have also resulted in increasing a

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Guidance — 20 items

Gaurav Mathur

opening

“We have also introduced and piloted 'Drones' in our area of operation to help the farmers see the benefits of automation and equitable distribution of Crop Protection Chemicals and Specialty Nutrients and we hope to take this forward in the coming year.”

Gaurav Mathur

opening

“The project, which will also include a plant to manufacture approximately 1,80,000 metric tons per annum of weak nitric acid, is expected to be completed during the financial year '24-25.”

Gaurav Mathur

opening

“As per India Metrological Department, the probability for a normal monsoon is 40% and we expect that the normal monsoon will then help the agriculture activity.”

Gaurav Mathur

opening

“The Government has also announced a food grain output target of approximately 328 million metric tons for '22-23 from last year's 316 million metric tons.”

Gaurav Mathur

opening

“We are very excited about the opportunities going forward and believe we possess the understanding, capability and reach to create significant value for the farmer, the country and thereby for Chambal.”

Abhay Baijal

“Going forward, we know that the product prices are controlled globally.”

Gaurav Mathur

“Overall, we are positive about what is happening in the new regions and markets that we have entered and we expect to see better numbers going forward, given the demand-supply situation and the overall scenario.”

Surya Patra

“How different these initiatives will be for you and do you think that with this, you can penetrate better even in the non core areas?”

S. Ramesh

“86 crore increase in EBITDA, so if you can explain that will be useful?”

S. Ramesh

“How do you see that going forward given the high cost of imports because you are dependent on trading?”

Risks & concerns — 9 flagged

For the Non-Urea portfolio, availability of phosphatic fertilizer has improved in this quarter, though prices remained elevated as a consequence of the volatile macro environment impacted by the Russia-Ukraine conflict in this quarter.

— Gaurav Mathur

The project, which will also include a plant to manufacture approximately 1,80,000 metric tons per annum of weak nitric acid, is expected to be completed during the financial year '24-25.

— Gaurav Mathur

On the IMACID contribution this quarter, that is a first question, what has led to a kind of sequential sharp decline without seeing any kind of major change in the overall product prices and what outlook that one should have relating to that?

— Surya Patra

However, the Russia-Ukraine conflict, that started, put pressure on that again.

— Gaurav Mathur

Vivek Ramakrishnan: The second question is on the inventories and there is no price risk on inventory, right?

— Gaurav Mathur

There are number of factors, it's difficult to say and obviously the decision lies with OCP.

— Gaurav Mathur

Last year, while there was increase of price, there was a significant availability challenge also because there was very huge demand growth coming in from Brazil and USA.

— Gaurav Mathur

Jt is very difficult for anybody and as an industry and along with the Government, we are all working together to try and minimize the impact of the prices for the country and at the same time get adequate fertilizers so that the kharif and rabi requirements are met.

— Gaurav Mathur

If they see that they can get value for their crop, they use more fertilizer, the demand goes up and then it becomes a challenge.

— Gaurav Mathur

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Q&A — 16 exchanges

Abhay Baijal

See, IMACID is the run rate that you see and actually at the year end they make certain adjustments for rock which is supplied on overall global basis. When the supplies have been made, the year-end adjustments have been done, they've fallen in the first quarter of their financial year. So, that is a certain adjustment on the rock which has been made which is part of the global strategy of the company and the parent's which is OCP and so on. So, it is, I believe part of that. The prices that they must have sold is USO 1530 per MT which is global but the input prices of Sulphur also went up as

If you look at your fourth quarter performance, can you shed some light on how have you achieved this growth in EBITDA versus primarily on the Urea business or is there a contribution from your phosphatic trading business as well because there is Rs. 86 crore increase in EBITDA, so if you can explain that will be useful?

Abhay Baijal

Actually, there are two moving parts to the EBITDA increase. One is a small part coming from Gadepan-111 production as compared to last year, that is one. The second part is that we had some amount of excess ammonia to sell because of technical reasons. That also gave us some uplift in the margins given the high international prices that were available. So, these were two issues. Secondly because we did not go in for a shutdown of Gadepan-111, there was a sort of reduction in our maintenance expenses. All of these three things contributed largely. On the phosphatic business, how are you doing

Firstly, on the subsidy front, we have slightly higher subsidy outstanding this quarter as of March. So, this is largely attributable to higher natural gas prices or there has been some delay from the Government side because we were under the impression that Government payments were happening pretty much on time. If you could just explain on that.

Anuj Jain

Yes. It is majorly on account of increased gas prices. So, normally Government takes some time in clearing the escalation bill. So, that is the main reason. In last 45 days how has this shaped up as in we have been starting to receive the pending dues or it is still stuck-up? The pending dues movement in the last 45 days I think he is asking. In April, they paid till third week of April. So, largely DBT bills are being paid in time as far as Urea is concerned. In P&K, because of the new rates still to be uploaded in the system, they are pending in April but Urea other than escalation it is in

I had my first question on the CAPEX plan, Rs. 1,170 crore ofTAN investment. What is the time horizon across so it is going to be made, what CAPEX shall I assume for FY23 and '24 for Chambal?

Gaurav Mathur

Vidit that's right. Like we've mentioned, we are in the technical bid stage right now and we would expect certain cash flows to start happening within this financial year. A large part of it would be in the financial year FY '23-24. Any other CAPEX other than this which has been planned for FY23 and '24? As of now, other than the standard CAPEX which we have in the plants which is on an ongoing basis in the range of Rs. 100 crore - Rs. 150 crore, other than that and this TAN project, there is nothing else that we currently have firm plans for. Just one clarification on the cost of natural gas

Yes, that's largely right. Typically, Vivek as you know what happens is that when we place the contracts then you usually have 20% to 30% advance. So, that's largely what we expect. My sense is we would have maybe about 30% to 40% cash flow in this financial year and may be 50% of the total in the next financial year and then FY '24-25 will be the balance which is the last 10% to 20%. Vivek Ramakrishnan: Overall CAPEX comes up to around Rs. 500 crore this year including your routine Rs. 200 crore which you spend every year anyway, that is right ballpark number?

Gaurav Mathur

It would be slightly less than that. I would say it would be more in the Rs. 400 crore range. Vivek Ramakrishnan: The second question is on the inventories and there is no price risk on inventory, right? So, if everything is in coordination with the government and everything is passed on to the end user, correct? Yes, there is no issue on the price and there is no impairment or anything on the inventory on the stock that we carried.

Just two questions from my side. First ls on this CPC and SN, the crop protection business, this year we did revenues of around Rs. 472 odd crore. What type of targets are we building in for the next couple of years?

Gaurav Mathur

You have seen the previous year and this year sort of growth target, the growth that was achieved. You've seen in the investor presentation, the numbers and we remain aggressive on our growth targets. We expect to see along the similar lines, strong double-digit growth, let's put it that way. Second question is on this additional production in Gadepan-I11 which you have received approval from the government, what type of impact or additional production we can do over and above the capacity which we have? If you see, as per the policy, the 12.7 lakh tons was the limit and we have made 13.5 lakh

If you could give us a sense of your closing inventory on 31 st March 2022 for your trading business.

Gaurav Mathur

The inventory was around 3.1 odd lakh tonnes for OAP and may be a few tens of thousands tonnes for MOP and NPK. May be about 3.5 lakh tonnes Tarang. If you're looking at the exact numbers, we can give it to you later but it's around that 3.5 lakh mark. And what value would that be? It's coming in the last quarter purchase which is coming in the result that is Rs. 2,689 crore. So, it's about Rs. 2,700 crores roughly. The second question, is the crop protection business now at Rs. 300 crore, is it cashflow positive from your perspective? Absolutely. It is cashflow positive. The third question ju

Just want to check on the CAPEX part only. Obviously apart from the TAN project that you had announced couple of quarters ago, is there any meaningful project that we are envisaging at the advance stage of closing?

Gaurav Mathur

We continue to evaluate various possibilities Trilok, at any point in time like any company would do. Within that those various possibilities are both organic and inorganic opportunities as long as we are as I said focusing in staying within the broader agriculture domain. So, that's where it is. Like I said, if there is something that we reach a stage where we need to inform the market then we shall do it at that appropriate time. Obviously, the only context was because we will be having generating large cash and post what has happened last year also. There's significant strong balance sheet

I think I had a similar question like similar to the last two participants and as an investor all of us have the similar kind of questions because you're generating quite a large amount of cash. I think last year itself our debt came to a very comfortable position and now obviously current inventory position is higher which will normalize. I think the clarity on growth is still because whatever you will be deciding it will take another 2-3 years' time to commission it. So, directionally at least if you can help us with the growth direction like next 4-5 years how are you going directionally, I

Gaurav Mathur

I understand your point, Resham. I would like to put it in two ways. One is that the nature of our business, the way we operate is that the investments come over here in relatively large chunks. It's not a business where you continuously keep growing a little bit every year and investing, that's one. Second is what I mentioned earlier that we continue to look at not only organic but inorganic opportunities also. I would not be able to say anything more than that but that's where it is and hopefully over the next few years you would start to see the work that we are doing in the background come

I just wanted to know on consolidated basis, if you could give me a split of your EBITDA between your Urea business and your non-urea business, on percentage basis may be?

Gaurav Mathur

Anuj would you have that? The EBITDA split between urea and non-urea? I will just put it this way. Of the total EBITOA, I guess, I can say almost 70%-80% comes from Urea. One more thing I had in my mind is like this, if you could give me the utilization rate for the P&K fertilizer production capacity? What would be the utilization for the FY22? Actually, we don't produce P&K fertilizers. We only produce Urea. We import P&K fertilizers and sell it. Vignesh, just to give you a perspective in P&K fertilizers, you can split it into three broad categories. One is OAP, which is about, on an average,

Just to reconfirm, you said that Urea contributes 60% to 70% of EBITOA of our fertilizer business. Is that correct understanding?

Gaurav Mathur

Approximately 70%. Last year I mean in '21-22, our import declined substantially and now again the price is increasing. How do we see this trend playing out in the volume terms for this traded business? We believe that we should grow in volume in this year. Last year, while there was increase of price, there was a significant availability challenge also because there was very huge demand growth coming in from Brazil and USA. This year, as I mentioned in one of the earlier questions, we had already imported or contracted 3.5 lakh tons which showed up as part of our stock of OAP at the year end

In terms of your CPC business, I wanted to understand the strategy over next may be 2 to 3 years because in your opening comments you highlighted you are also filing for a registration for your products which means our intent towards imports and more of a manufacturing as well. What I understand I think more of right now, we are into the more of a co-marketing as a Company. Just you can highlight the strategy for the next 2 to 3 years window.

Gaurav Mathur

First of all, we have, as a conscious decision, stopped all co-marketing from this year onwards. We believe, the very strong Chambal Uttam brand that we carry has a significant connect with the farmers. In terms of the strategy, we have actually looked at it from each element. From a product portfolio element, we have thoroughly reviewed our product portfolio. As we mentioned in one of our previous calls, we have launched certain new products and even very recently we also launched a new product. Product crop portfolio, we have reviewed and we are very clear and we have a very comprehensive pr

Just one more question on the margin side for next year on the non-Urea side. How do you see our trading business will evolve in FY 23 in terms of margin?

Gaurav Mathur

Deepak, like 1 mentioned in response to a previous question, the Government stance has been that they want reasonable margins for the companies. So, we expect margins to be reasonable. Now, we also understand that given the very high input price, it would be probably a little bit unfair to expect the same kind of percentage margins but possibly at an absolute level we would expect the margins to be along similar lines. Now, that will depend also on when the Government takes action because we also have to be very careful about the signaling to the international markets and so on. What about the

That's a fair comment Prashant. The Urea plants are by and large operated at the full rates and the output that we get from them is dependent on the shutdowns that we have. That's fairly true. At the same time, on the urea front also, we constantly look at how do we improve our cost on the urea side which is related to our energy efficiency. Page16of18 About 85% of our cost of Urea manufacture is essentially gas, that means energy. We keep looking at that and we have just implemented energy saving project which will give us benefit in the coming years including this financial year so that's on

Gaurav Mathur

On the Non-Urea side, we are confident of strong growth whether it's going to be 20%-10%-15%, it also depends on a year-on-year basis. If all things had remained steady then it's a different matter but like we've seen in the last 1.5 years, there is so much that happened because of global trade flows and global demand and supply. I reckon, for any company in this industry to say that they can have a 20% growth in the non-urea sector, would be a very brave statement I would say. But, we are strongly focused, we have the strength, we have the brand, we have the financial capability, we have the

In your presentation, you have mentioned about experimenting with application of 'Drones' and some other new technology initiatives. I just wanted to know if you can elaborate on that what exactly we are doing and what is the potential that we see in this?

Gaurav Mathur

As you might be aware, from a broader perspective, there is a lot of focus on the usage of 'Drones' for a variety of purposes. Now, in the agriculture sector, broadly you can say 'Drones' can be used in two areas, one is for the spraying of Crop Protection Chemicals and Specialty Nutrients and the second is for mapping of farms to understand where there is a problem or even analyzing, using analysis for that. We have tried out both. The advantage that the 'Drones' offer in spraying of Crop Protection Chemicals and Specialty Nutrients is that it is obviously much faster, it is much more homogen

Thank you very much all of you who joined this conference and also all of you who asked us the questions and I hope that I wish you all very well and take special care in the scorching heat. All the best. Take care.

Management

Speaking time

Gaurav Mathur

Moderator

Surya Patra

Abhay Baijal

Anuj Jain

Bharat Sheth

Manish Mahawar

Nikhil Rungta

S. Ramesh

Pratik Tholia

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Opening remarks

Rishab Barar

Thank you. Good day everyone and thank you for joining us on the Chambal Fertilisers and Chemicals Q4 and FY22 Earnings Call. We have with us today Mr. Gaurav Mathur - Managing Director, Mr. Abhay Baijal, CFO, Mr. Rajveer Singh - Vice President - Legal & Company Secretary and Mr. Anuj Jain, Assistant Vice President - Finance. Before we get started, I would like to point out that some statements made or discussed on the conference call today may be forward-looking in nature and must be viewed in conjunction with the risks the Company faces. Chambal Fertilisers and Chemicals does not undertake to update them. The statement in this regard is available for reference in the presentation. We will begin the call with opening remarks from Mr. Mathur. I would now like to invite Mr. Mathur to share his views. Over to you sir.

Gaurav Mathur

Thank you Rishab. Good day to everybody and a warm welcome to all of you participating on this call. As we have shared the numbers and I'm sure all of you have had a chance to go through the presentation, I will not spend time on restating the numbers in my opening remarks. What I want to state is that given the overall macro environment, we are very encouraged by our performance and believe it is reflective of Chambal's scale, experience and capabilities across the agri sector. For our Urea business, we continue to operate at optimal levels and I'm happy to state that after receiving Government approval for extra production of Gadepan-111, we continued to operate Gadepan-III and given the very high prices of Urea in the international market, this was of considerable benefit to the country as such. For the Non-Urea portfolio, availability of phosphatic fertilizer has improved in this quarter, though prices remained elevated as a consequence of the volatile macro environment impacted by

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