DEEPAKFERTNSEQ1 FY 20234 August 2022

Deepak Fertilizers and Petrochemicals Corporation Limited

7,546words
93turns
15analyst exchanges
6executives
Management on call
Sailesh Mehta
Chairman & Managing Director
Amitabh Bhargava
President and Chief Financial Officer
Mahesh Girdhar
President, Crop Nutrition Business
Tarun Sinha
President, Technical Ammonium Nitrite
Deepak Balwani
Head, Investor Relations
S.C Mehta
- Chairman and Managing Director,
Key numbers — 40 extracted
Rs. 3,000 crore
et me share my joy in bringing to your attention that we have seen in Q1, the revenue is crossing Rs. 3,000 crores and an almost 59% jump over last year, same quarter. But beyond that the profits have crossed Rs
59%
to your attention that we have seen in Q1, the revenue is crossing Rs. 3,000 crores and an almost 59% jump over last year, same quarter. But beyond that the profits have crossed Rs. 436 crores, a jum
Rs. 436 crore
res and an almost 59% jump over last year, same quarter. But beyond that the profits have crossed Rs. 436 crores, a jump of 233% over last year. And we saw almost over 87% of our segment profits were contribut
233%
over last year, same quarter. But beyond that the profits have crossed Rs. 436 crores, a jump of 233% over last year. And we saw almost over 87% of our segment profits were contributed by the chemica
87%
at the profits have crossed Rs. 436 crores, a jump of 233% over last year. And we saw almost over 87% of our segment profits were contributed by the chemical segment. And all of this, despite a huge
rs,
t also customizing, customer orientation that is going to keep unfolding over the next many quarters, to bring in better positioning. And lastly, on a continual basis, our management strategy change w
Rs. 25,000 crore
by 1st Quarter, FY'24. I must share that the ammonia project will be giving us somewhere close to Rs. 25,000 crores of “Atmanirbhar” or “Import Substitution” over the next 10 years, plus a large reduction in the
Rs. 3,031 crore
d in fact, Q1 was our best ever quarterly performance. We reported a total operating revenue of Rs. 3,031 crores an increase of 59% YoY compared to same period last year. Our operating EBITDA augmented to Rs.
Rs. 740 crore
rores an increase of 59% YoY compared to same period last year. Our operating EBITDA augmented to Rs. 740 crores compared to Rs. 290 crores in Q1 FY'22. Operating EBITDA margins expanded significantly to 24.3%
Rs. 290 crore
Y compared to same period last year. Our operating EBITDA augmented to Rs. 740 crores compared to Rs. 290 crores in Q1 FY'22. Operating EBITDA margins expanded significantly to 24.3% from 15.2% during Q1 FY'22
24.3%
crores compared to Rs. 290 crores in Q1 FY'22. Operating EBITDA margins expanded significantly to 24.3% from 15.2% during Q1 FY'22. Our net profit for the quarter recorded a growth of over 233% YoY, to
15.2%
ared to Rs. 290 crores in Q1 FY'22. Operating EBITDA margins expanded significantly to 24.3% from 15.2% during Q1 FY'22. Our net profit for the quarter recorded a growth of over 233% YoY, to Rs. 436 cr
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Guidance — 20 items
S C. Mehta
opening
“So, one aspect that we see is that we do expect this kind of a heated situation on pricing to mellow down.”
S C. Mehta
opening
“We expect lowering of both finished goods pricing, as well as the raw material pricing.”
S C. Mehta
opening
“We do also expect the normal standard bit dampening in the chemical mining sector during monsoons, but that is also a typical phenomenon every year.”
S C. Mehta
opening
“Now, as far as projects goes, the ammonia project continues to be on a fast-track execution no holds bar.”
S C. Mehta
opening
“And we continue to expect it to be commissioned by 1st Quarter, FY'24.”
S C. Mehta
opening
“I must share that the ammonia project will be giving us somewhere close to Rs.”
S C. Mehta
opening
“Similarly, our TAN project work has begun at site.”
S C. Mehta
opening
“And there again we target to complete by second half of 2024.”
S C. Mehta
opening
“So, with this now, fertilizers we have invested, triple our capacity, acids, we have invested, and you know, we are probably Asia’s largest; with the TAN coming in, we will be among the world's Top 3 and then ammonia coming in to feed all the three businesses.”
S C. Mehta
opening
“So, what will follow will be our strong forward integration drive, moving from Commodity to Solution, Specialty.”
Risks & concerns — 8 flagged
Mehta was also mentioning, that there is always, tend to be a lag or lead in terms of passing on of some of these raw material prices or you know, so to that extent, it's very difficult to say what could be the EBITDA margins going forward.
— Amitabh Bhargava
We are not in a position to guide any, see few of you would appreciate that the whole geopolitical environment is so uncertain that at this case for us to predict sitting here what would happen in the balanced three quarters is very difficult.
— Amitabh Bhargava
So, I think that aspect of it is honestly, we are seeing pretty much every two, three weeks, there is new news, new developments, very difficult to predict.
— Amitabh Bhargava
But it's very like I said, it is every, pretty much every month is a new development, very difficult to predict what might happen.
— Amitabh Bhargava
Of course, it's very difficult to predict it will also depend on what happens to raw material prices and its consequent impact on the finished goods prices.
— Amitabh Bhargava
See if you see, today even from a gross debt, net debt perspective, we have sort of cash balance practically, but given that we are in a CAPEX mode both on ammonia and TAN we are obviously till we complete the CAPEX, we would be cautious in repaying our debt ahead of the schedule.
— Amitabh Bhargava
The second aspect on your question on the gas availability, see gas availability per se, is not a challenge even today, because India has enough LNG terminals and therefore import capacity.
— Amitabh Bhargava
So, IPA had some production challenges because of raw water, but other than that, IPA, margins were under pressure.
— Amitabh Bhargava
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Q&A — 15 exchanges
Q
My first question is regarding EBITDA margin of 24%, will it be maintained in near term and future term? And will the margin be maintained where the two new plants get started in FY'24? And second question is regarding in ‘Investor’ presentation, in one of the heading renowned investor, one investor name is Dolly Khanna is mentioned, but in investor, means I am not able to show in our holdings the name of Dolly Khanna.
Amitabh Bhargava
To your first question, I think Mr. Metha just, I think he did touch upon this aspect that while this quarter we saw a significant increase in both raw material prices and finished goods prices, the 5 | P a g e Earnings Conference Call Q1 FY2023 • www.dfpcl.com Deepak Fertilisers And Petrochemicals Corporation Limited Earnings Conference Call Q1 FY2023 encouraging part was that there was no demand destruction in each of our products. By and large, the demand remained strong. So, I think that is one aspect that we believe, and we are confident that is going to be the case in coming quarters. Wh
Q
Just one main point to seek your clarifications on. It's regarding the debt position at this point in time, as of June 30th, if you could please just help us with the gross and debt number. And also how much CAPEX has already been executed on the ammonia project and how much is pending to be spent? 6 | P a g e Earnings Conference Call Q1 FY2023 • www.dfpcl.com Deepak Fertilisers And Petrochemicals Corporation Limited Earnings Conference Call Q1 FY2023
Amitabh Bhargava
Yes, so, as far as ammonia is concerned, let me first answer your first question that is our gross debt is about Rs. 2,900 crores odd. And net debt is about Rs. 1,930 crores odd. So, those are the numbers as end of June. As far as ammonia CAPEX is concerned, out of Rs. 4,350 that we had estimated, we have already spent the CAPEX of about Rs. 2,850 crores odd. And therefore the balance Rs. 4,350 minus Rs. 2,850, is yet to be incurred, which largely will get incurred in completing the project, as we mentioned that it’s likely to be commissioned in Quarter 1 of FY'24. So, not sure if you are in a
Q
Can you help us with the volume trends in TAN and nitric acid segment and also the expected realizations, a broader picture, for the next two quarters?
Amitabh Bhargava
See the only point that I can confirm or guide at this stage is that Q2, as is the case every year is a quarter where demand for both TAN and nitric acid, typically is on the lower side, because in nitric acid, again, the inorganic nitration segment is also linked with what happens on the explosive side. And to that extent, the Q2 is likely to be a weaker quarter compared to what we saw in Q1. But beyond Q3, Q4, I would go back to the point that Mr. Mehta also mentioned, and we have been saying that we are seeing good demand both on the explosive side as well as on nitric acid side. Explosive
Q
So, I have a couple of questions. I am not going to ask about TAN realizations. But so a majority of our nitric acid is consumed in-house, right. So, if I continuing to look at let's say solar grade nitric acid, does this fall in the concentrated nitric acid segment, and how much higher realizations do you expect for solar grade nitric acid compared to current end use?
Amitabh Bhargava
So, we are right now in the process of developing some of these products based on the requirements we are seeing in these segments. And therefore, it is till we establish the volume as well as what value add that we need to do, meaning that what is the additional cost to be incurred and what realizations can we make, it’s right now, we are not in a position to guide you on the margin. But needless to say the whole idea of getting into specific segments and catering to specific requirements of the end user is to basically look at value-based pricing. And therefore, we expect that therefore, the
Q
How do we see the TAN prices compared to last quarter, Jan to March and from April to June? So, have the prices have gone up or it is just that the volume ramp up and helped you clock more sales, profits?
Amitabh Bhargava
See quarter-on-quarter, we have in fact reported in our presentation the revenues from TAN. Quarter-on-quarter the increase in volume as far as TAN is concerned is about 12%. Of course, you can then maybe do a back calculation to see how much of the increase in revenue is because of volume and how much is because of price. And price will be what? How much increase will be the effective price if you can share, rough? 9 | P a g e Earnings Conference Call Q1 FY2023 • www.dfpcl.com Deepak Fertilisers And Petrochemicals Corporation Limited Earnings Conference Call Q1 FY2023 Thats what, I said that
Q
I just wanted to ask after our project completion, what kind of revenue can we foresee for the next year or something could be available to be guided or, if not the revenue then the benefit of the new ammonia plant?
Amitabh Bhargava
As I said that ammonia was largely for our own consumption. So, on a consolidated level it would not lead to increase in revenue. But it would, depending on the margins that we make in ammonia project, which is typically ammonia gas delta on which earlier I had answered that question that is the likely improvement as far as the margins or bottom-line is concerned. But from a revenue perspective, consol level it will not as such result in, because it's all for entirely for our own captive consumption. And we have seen very good growth in this Quarter 1. So, how much of it would be sustainable g
Q
So, my first question is, for the remaining CAPEX, you mentioned that 50% will be the equity whether it will be QIP once again, or any other mode of the funding.
Amitabh Bhargava
It will be largely through internal generation and the existing cash balance that we have. 10 | P a g e Earnings Conference Call Q1 FY2023 • www.dfpcl.com Deepak Fertilisers And Petrochemicals Corporation Limited Earnings Conference Call Q1 FY2023 And another question is, in the previous two quarters, there was a point raised on the non-core sector, commercial property sale, whether that's going to happen in next one or two quarters or not on discussion. I think our reply to that remains the same, that one is we are trying to remove all the regulatory I would say blocks that are there to make
Q
So, my question is that you have non-core assets of Rs. 700 crores that has been giving the losses since last quarter. Why don't you exit from that non-core asset and reduce the debt?
Amitabh Bhargava
I just answered that question. And we will take your sentiments back to the Management. And the second question is when my Company is going to be debt free? What time span you are taking that Deepak Fertilizer would be debt free. See if you see, today even from a gross debt, net debt perspective, we have sort of cash balance practically, but given that we are in a CAPEX mode both on ammonia and TAN we are obviously till we complete the CAPEX, we would be cautious in repaying our debt ahead of the schedule. But as these CAPEXs are over, depending on the cash generation, we would certainly look
Q
I have two questions, in the opening comments the Chairman mentioned regarding the pricing of the chemicals wherein there would be sometimes a lag, wherein the raw material prices may rise, but the finished product prices might not rise and the other way around. What I would like to know is that in this quarter have we had the benefit of the raw material prices going down and the finished product prices not coming down or vice versa? And my second question is, you made us understand regarding the price of gas and ammonia, what I just want to know is the company are assured of gas supply when t
Amitabh Bhargava
So, to you first question, as I said that if you look at the volumes in chemical segment both TAN and acid, you can also look at what the margins had been compared to the volume growth, what has been the overall sales growth and to that extent, yes, I think yes the margins have expanded. And so it's obvious that the finished goods prices have obviously, compared to raw material prices finished goods prices have seen higher expansion. The second aspect on your question on the gas availability, see gas availability per se, is not a challenge even today, because India has enough LNG terminals and
Q
My question was basically could you help me understand the CAPEX that we have for FY23 and FY24 given the projects that are ongoing with ammonia and TAN please.
Amitabh Bhargava
So, in ammonia which we are targeting to complete by Q1 let's say somewhere in May 23 We are yet to incur from here on we have another 1500 crore of CAPEX in ammonia project. As far as TAN is concerned, this year, this financial year, you would incur somewhere like Rs. 550 to Rs. 600 odd crores in this year for TAN. So, that's 2,100 and then any other maintenance or any other small CAPEX for the existing lines and something like that. So, we could get the number for the full year. So, there is normal maintenance CAPEX. And there is also, we have completed one round of debottlenecking in TAN, t
Q
Can you share the segment wise margins for TAN and nitric acid both?
Amitabh Bhargava
We don't report segment wise; I mean we report chemical segment and fertilizer segment. And that is we have already shown that in our earning presentation.
Q
So, in Q1 we highlighted in our presentation that there were some issues which impacted our capacity utilization. So, in Q2 are we facing any issues?
Amitabh Bhargava
No so in Q1 one effect was of raw material, rather raw water shortage, which was because of MIDC had taken some maintenance shutdown of their pipeline. And now that is over as such that is unlikely to affect. The other aspects of we had MOP shortage in Quarter 1 and that is now better compared to Q1.
Q
So, I can clearly see that if I compare to FY21, the chemical segment has been contributing quite significantly to your bottom line specifically. So, just wanted to understand do you have any plans for doing any CAPEX for the fertilizer segment, or probably entering into some niche fertilizer segments, which are maybe not NPK based, maybe something like potassium based fertilizers or just wanted to know your outlook on that?
Amitabh Bhargava
No such plan or decision taken by the Board. And secondly, just wanted to ask that there's been a sharp drop in IPA, capacity utilization, if I compare it with Q4 I think it has dropped from 88% to 58% so what's the reason for that? Are you already experiencing the muted demand which you were foreseeing in Q2 are you already experiencing those headwinds right now. 13 | P a g e Earnings Conference Call Q1 FY2023 • www.dfpcl.com Deepak Fertilisers And Petrochemicals Corporation Limited Earnings Conference Call Q1 FY2023 So, IPA had some production challenges because of raw water, but other than
Q
So, my question is related to our fertilizer business vertical. So, we can see quite subdued performance from this vertical this quarter. So, how do you see the fertilizer business shaping up in the coming quarters?
Mahesh Girdhar
Yes so if you see the fertilizer consumption takes place during kharif and Ravi. And in the 1st Quarter we had a bit of a delayed rainfall start of the rainfall in the month of June was more lower than the previous year that got shifted to July. From July onwards, the proper rainfall and we are seeing that in western part of India where we operate, rainfall even more and we have a better reservoir fill. So, from that perspective, we don't see any challenges from agriculture perspective, as well as the commodity prices are good. And if you see as well as your question related to the fertilizer
Q
Well ladies and gentlemen, thank you so much for your participation. And for any further queries or clarification, please do get in touch with our Investor Relationship team. Thank you once again. Thank you.
Management
Speaking time
Amitabh Bhargava
35
Moderator
17
Chinmaya Bhargava
6
Jenish Gada
5
Madhav Marda
4
Abhijit Akella
3
Sharan Nandikur
3
Priyan Purohit
3
Deepak Balwani
2
Tejas Shah
2
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Opening remarks
Ranjit Cirumalla
Good evening, everyone. Thanks for joining us for Deepak Fertilizer’s Q1FY23 Earnings Conference Call. Today we have with us from the Management: Mr. S.C Mehta -- Chairman and Managing Director, Mr. Mahesh Girdhar – President, Crop Nutrition Business, Mr. Tarun Sinha – President, Technical Ammonium Nitrite, Mr. Amitabh Bhargava – President and Chief Financial Officer, Mr. Deepak Balwani – Head, Investor Relations. I would like to invite Mr. S. C. Mehta to begin the call with his opening remarks. Thank you. And over to you, Sir.
S C. Mehta
Very good afternoon to all of you. I take indeed pleasure in welcoming you all, for the Q1 FY'23 Earnings Conference Call of Deepak Fertilisers. I hope you all have had a chance to look at the “Financial Statements” and “Earnings Presentation” uploaded on the exchanges and our website. So, at the outset, let me share my joy in bringing to your attention that we have seen in Q1, the revenue is crossing Rs. 3,000 crores and an almost 59% jump over last year, same quarter. But beyond that the profits have crossed Rs. 436 crores, a jump of 233% over last year. And we saw almost over 87% of our segment profits were contributed by the chemical segment. And all of this, despite a huge jump in all the raw material costs that we saw. So, obviously, two aspects that could emerge in anyone's mind, and I thought I will share some of those insights. And then of course, draw Amitabh, our CFO to take you through the details. So, if I were to look at three undercurrents, besides the price increases an
Amitabh Bhargava
Good afternoon, ladies and gentlemen, and thank you for joining the Deepak Fertilisers and Petrochemical’s conference call to discuss Q1FY23 Results. We maintained our growth momentum while concentrating on transformation initiatives. And in fact, Q1 was our best ever quarterly performance. We reported a total operating revenue of Rs. 3,031 crores an increase of 59% YoY compared to same period last year. Our operating EBITDA augmented to Rs. 740 crores compared to Rs. 290 crores in Q1 FY'22. Operating EBITDA margins expanded significantly to 24.3% from 15.2% during Q1 FY'22. Our net profit for the quarter recorded a growth of over 233% YoY, to Rs. 436 crores with margins of 14%. 4 | P a g e Earnings Conference Call Q1 FY2023 • www.dfpcl.com Deepak Fertilisers And Petrochemicals Corporation Limited Earnings Conference Call Q1 FY2023 Chemical segment as Mr. Mehta was also mentioning earlier, contributed to about 87% of total segment profit. Going into a little bit of a detail in chemical
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