PARADEEPNSEQ2 FY23November 14, 2022

Paradeep Phosphates Limited

10,686words
227turns
13analyst exchanges
4executives
Management on call
Suresh Krishnan
MANAGING DIRECTOR -
Sabaleel Nandy
PRESIDENT AND CHIEF
Alok Saxena
GENERAL MANAGER AND HEAD
Aniruddha Joshi
ICICI SECURITIES
Key numbers — 40 extracted
3 million
ufacturing, trading, distribution and sales of primary complex fertilizers. We have a capacity of 3 million metric tonnes of fertilizer through two plants located at Paradeep and Goa respectively. We cater
28,637 million
an integrated phosphating manufacturing setup. During the quarter, PPL registered a revenue of 28,637 million growing 48% on year-on-year and 18% on sequential basis. The revenue growth is primarily driven b
48%
ating manufacturing setup. During the quarter, PPL registered a revenue of 28,637 million growing 48% on year-on-year and 18% on sequential basis. The revenue growth is primarily driven by the higher
18%
p. During the quarter, PPL registered a revenue of 28,637 million growing 48% on year-on-year and 18% on sequential basis. The revenue growth is primarily driven by the higher volumes of fertilizer p
Rs.2300 million
and wider distribution network of channel partners. For the quarter PPL saw an adjusted EBITDA of Rs.2300 million and a profit of Rs.511 million. For one time expense the delay in commissioning of the NPK trains
Rs.511 million
f channel partners. For the quarter PPL saw an adjusted EBITDA of Rs.2300 million and a profit of Rs.511 million. For one time expense the delay in commissioning of the NPK trains at the Goa plant resulted in h
Rs.5179
ficient manufacturing process has ensured cost competitiveness, resulting in EBITDA per tonne for Rs.5179 for Q2, FY2023. We hope to see better financial performance in the coming quarters owing to seamle
0.8 million
June 2022 as you’re all aware, we acquired the Goa facility. The plant has an annual capacity of 0.8 million tonnes of phosphate and 0.4 million tonnes of urea respectively. Post the acquisition, our annual
0.4 million
cquired the Goa facility. The plant has an annual capacity of 0.8 million tonnes of phosphate and 0.4 million tonnes of urea respectively. Post the acquisition, our annual capacity has now risen to 3 million
37%
a total fertilizer production of 506194 metric tonne during the quarter, which is an increase of 37% on year-on-year basis. During the quarter, we manufactured a higher amount of N20 over other NPKs
35 million
Suresh Krishnan: Just for your understanding the Indian urea industry is close to about 35 million tonnes, it kind of swings between 30 to 35 million tonnes annually. Out of this seven to eight mi
5%
arket, which could finally become a nano urea market, which could be beginning from I would say a 5% to a best of 10%. And these are early days, so will be difficult to kind of put a number to it. B
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Guidance — 20 items
Coming to the market size
opening
“We hope to see better financial performance in the coming quarters owing to seamless integration and improved capacity utilization of Goa plant and stability in our raw material prices.”
Coming to the market size
opening
“We will be able to capitalize on the sales and distribution, network of Goa plant.”
Deepak
qa
“Sir do we get more subsidy, sir, because it’s any formula from the government for the subsidies for increasing raw material, increased subsidy will be coming in?”
Suresh Krishnan
qa
“Yes, it will, they will be a part of the urea market, which could finally become a nano urea market, which could be beginning from I would say a 5% to a best of 10%.”
Suresh Krishnan
qa
“And these are early days, so will be difficult to kind of put a number to it.”
Suresh Krishnan
qa
“This is a product which is being developed as a as a good substitute for urea, which will be kind of in the long term basis.”
Suresh Krishnan
qa
“So, in effect if you’re seeing about a 20% drop in the raw material prices, the impact of that in the books will be roughly about 15%.”
Suresh Krishnan
qa
“So, we would see that from last quarter to this quarter, the raw material prices coming down to 15% is something is what we expect to see as a benefit for the company.”
Suresh Krishnan
qa
“This is what is going to be the norm going forward, which is at a company level EBITDA.”
Alok Saxena
qa
“Our numbers give a different picture, we have done much better than our own guidance in terms of EBITDA per tonne and better than many of the competition, I don’t know who specifically you’re referring to but again, most of the peers we have done better this quarter actually.”
Risks & concerns — 15 flagged
We have seen newspaper, I don’t know we’ve seen a newspaper item but as per your concern the land acquisition over 262 acres is not under any such hassle.
— Suresh Krishnan
Out of this seven to eight million tonnes is the imported content of urea as far as the local market is concerned, what we see as nano urea is primarily in liquid urea, which is not subsidized by government of India, and it is believed that this particular urea can be part substitute for the urea which is being consumed in India and just for the information this is a non-subsidized product, there is no pressure on any private sector company to purchase this and retail the same.
— Suresh Krishnan
And these are early days, so will be difficult to kind of put a number to it.
— Suresh Krishnan
So, in effect if you’re seeing about a 20% drop in the raw material prices, the impact of that in the books will be roughly about 15%.
— Suresh Krishnan
No, you’ll have to look at the profitability here, we are very clear that we’re doing perfectly fine as per the EBITDA line is concern.
— Suresh Krishnan
Because we don’t have anything to compare with because EBITA itself is not there with us to evaluate itself will be a difficult task for us in a way.
— Resham Jain
Then sir is it that the Goa plant profitability could be better than your expectation if the raw material prices continue to decline?
— Prashant Biyani
It’s very important for you to realize that we are through a very volatile situation and as we have always maintained when it comes to our performance we would certainly be one of the better ones as far as the industry is concerned.
— Management
Krishnan said, it is very volatile and we also need to experience the high volume of a run rate of 3 million and stabilize our operations, there are a lot of improvement projects underway right now in Paradeep there is an energy improvement project underway the Goa, let all those projects get, we are like we don’t want to get into a situation where we are over promising.
— Management
The other question I had is that, earlier this year there was this talk or at least indication to the government about marketing and win some on the ground single branding from government’s point of view, because they are the ones who give me subsidy, what is the impact of that could you quantify that or could you indicate how have fertilizer companies like yourself dealt with this change?
— Jayesh Gandhi
The second thought is in terms of your capital allocation and the impact of the Goa acquisition on balance sheet, what is the overall aggregate cost of the Goa acquisition is there any accumulated loss which you still have to provide for, for the Goa acquisition?
— S Ramesh
And in terms of the planning for working capital, can we expect the working capital to decline and thereby what is the kind of reduction in gross and net debt you can expect say in the second half and for the next year?
— S Ramesh
As per the global ammonia capacities are concern, we’re not really seeing any incremental ammonia capacity coming in globally which is going to make a major difference to the current demand supply position.
— Management
So, we have that and as far as OCP is owned, reserved and ability to supply P is concern, they are quite okay to give 100% of our requirements for the next 500 years.
— Management
So, we do not foresee a challenge in terms of securing our raw materials on a consistent basis going forward for the increased requirement of PPL as an organization which is at 3 million metric tonnes per annum.
— Management
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Q&A — 13 exchanges
Q
Sir, I have two questions. One, is there any legal hurdles in the acquisition of Goa plant, the land acquisition?
Suresh Krishnan
We do not have any legal hurdles as far as the Goa acquisition is concerned. Even if the land is concerned, we have already executed the agreement and we are there for registering this soon. Because some newspapers are reporting that PMO has been involved in this, is it true sir, some Goa newspapers are saying this? We have seen newspaper, I don’t know we’ve seen a newspaper item but as per your concern the land acquisition over 262 acres is not under any such hassle. Okay, sir. And the second part is, you said the raw material cost has impacted the profitability. So, looking forward, how does
Q
This was a question on the industry per se. There is a lot of talk about nano urea going around and a lot of difficulty in getting the right data on it, so if you could shed some light on it. What I have understood till now is that the key thing is with the company FICO has it and they are passing it on to the public sector fertilizer unit, but does that mean the private will have to pay for that taking or will the private sector also get this and also is the same less energy intensive production process for nano urea, so, will we be able to consume lesser resources to make the same amount of
Suresh Krishnan
Just for your understanding the Indian urea industry is close to about 35 million tonnes, it kind of swings between 30 to 35 million tonnes annually. Out of this seven to eight million tonnes is the imported content of urea as far as the local market is concerned, what we see as nano urea is primarily in liquid urea, which is not subsidized by government of India, and it is believed that this particular urea can be part substitute for the urea which is being consumed in India and just for the information this is a non-subsidized product, there is no pressure on any private sector company to pu
Q
So, a few bookkeeping question and then few more. So, first is, what was the EBITDA of Paradeep in this quarter?
Suresh Krishnan
Just give us all your questions, and we’ll respond. So, that was the first one, second is did we take any inventory provisioning in this quarter given that the prices of raw material has corrected a lot so, is there an element of any inventory provisioning in this quarter and lastly, sir if we look at some of the other your peer players what we have seen is that in first half the Q1, Q2 both we have seen margins being better versus first half of last year, while in our case, the margins are on a lower side. So, how should one, what was the difference in our case is the third question. Thank yo
Q
Sir, how do you see the production levels for H2 for PPL and Goa plant. The production and sales volume from now normalized for both complex and urea?
Management
Hi, Prashant. So, in terms as we have said that we have been going through and plant by plant Paradeep and then Goa, so in Paradeep of the four production trains, we have had one train down for revamp all through the year. But as we speak now, that fourth and the last train is coming back. So, we have been running all through this fiscal year what three trains running in Paradeep. But now sometime in the next two, three days we are going to have the fourth train running so, the production standalone at Paradeep will go up. As far as Goa is concerned, Goa had already achieved its steady state o
Q
So, my first question was in lines with, so one of our competitors had faced some issue in terms of the subsidy that they received on the opening inventory that they had, so I wanted some idea on that did we have anything else, did we say something similar to that of our competitor?
Management
We have taken care of the provisioning of whatever is required in terms of opening stock of DAP is concerned. Okay. So, we do not face any such issue right in terms of. So, whatever was required under the government policy we have made those provisions and as far as the opening stock is concerned. We have also taken the hit these numbers are after that. So, could you quantify the amount of that hit? If you look at it, the debt net number for us is something that, I don’t have it right away, there is something that we can take it up later, but as far as we are concerned the opening stock that w
Q
Thank you for taking my question, this is a Himanshu this side from Prabhudas Lilladher. So, sir my question was pertaining to the phosphoric acid site. So, just wanted to have a sense is, how much of backward integration do we have, currently have into the phosphoric acid?
Management
So, the phosphoric acid backward integration, as we have mentioned we are undergoing an expansion in the part of the plant, post completion of the expansion we should be close to 90% to 93%, backward integrated. And currently how much you are? With an increase volume of 1.8, which we have already achieved. So, today we are less than that, but the project is underway. So, before we increase our granulation, we were around 70%. backward integrated. Now with the 50% increase in the granulation capacity going up from 1.2 million to 1.8 million our phosphoric acid in-house capacity is going up from
Q
Most of my questions are answered but I have few more. First of all, just to reiterate and confirm the 4,500 EBITDA per tonne guidance is for this year, right FY23?
Management
And next year as well. Okay, fair enough. You don’t think next year can be better or you want to revise it at the beginning of next year? No, as Mr. Krishnan said, it is very volatile and we also need to experience the high volume of a run rate of 3 million and stabilize our operations, there are a lot of improvement projects underway right now in Paradeep there is an energy improvement project underway the Goa, let all those projects get, we are like we don’t want to get into a situation where we are over promising. So, we would like to maintain 4500 as of now for next year as well. Fair enou
Q
First question on the overall volume front for this quarter, if you would probably break it up into traded and manufacturing?
Management
Ankur no trading everything is manufactured. So, the only volume traded is the MOP which is there in the presentation is that right? Yes, only MOP trade, its almost negligible. And same will be the case for Q1 on year-on-year basis? Q1 we did about 49, 50 only cargo that we imported our DAP was roughly about 49,000 tonnes which came in the month of April and which has been sold in the market. So, difference between Q1 and H1 is that, in Q1 it is only 29,000 tonnes of MOP, if you take H1 you can add another 50,000 tonnes of DAP to it that’s it. Okay, fair enough. Second, on the liquid nano whic
Q
Apologies if this is a bit repetitive, but I just wanted to reconfirm the sales numbers for 2Q it is 4,43,000 tonnes and no trading. For 1Q it was like 3,32,000 with 49,000 tonnes of trading, that’s right sir?
Management
Yes,4,43,447 is the right number and we have a small trading of MOP which 29,613. And 1Q, it was like 3,32,000 of which 49,000 was the DAP trading, plus the MOP some trading? Yes, we had a DAP trading which was there that is rightly said. And sir if you can give the same numbers for the last year quarters? In fact if you look at H1, FY22, I have H1 number, the MOP trading was about 25,584 and the DAP trade was about 53,000. Just for the understanding we normally plan only for two cargoes DAP as a trade one in each season so that’s what we kind of continue to do. Last year we had done a total s
Q
Sir I just highlighting that the phosphoric acid and the potash prices have come down. So, sir can you please quantify.
Management
Sorry, to correct you not potash only Phos acid go ahead now. And sir on the phosphoric acid didn’t we quantify like what was the price in Q2 FY23 versus Q1 and what is the price currently? 1750 and 1175. And what about the prices currently? 1175 Q1, Q2 was an average price of 1715 the same price right through and Q3 is 1175.
Q
Sir, I have just one question I have missed out on manufactured DAP sales volume can you please provide it to us?
Management
The DAP manufactured volume sale is 38,000 for the quarter and 215 for the H1. Sir this is you are talking blended for both the plants? No. So, this is actually not sorry, this includes the trading as well. So, you have to remove 49,000 from there. So, 250 minus 49 is the manufacture sales.
Q
So, just to take you through some of the operational aspects and long term strategy, can you explain what will be the difference in terms of your business between Kharif and Rabi in terms of the volume you can place?
Management
It’s actually in India is very interesting, it’s almost equal volume consumption between Kharif and Rabi. So, if we sell it around 10 million tonnes of DAP and 10 million tonnes of NPK. It’s even keel between them. Only thing that we can add is that recently, for the last few recent years we have been finding that there is a higher degree of NPK consumption during Kharif. And slightly higher DAP consumption in Rabi. But it is also a factor of prevailing prices of DAP and NPKs that determines the farmers choice. So, in your company’s operations you don’t see much of a difference between first h
Q
Thank you everyone for joining our H1 FY2023 earnings call. We look forward to having more such interactions going forward. For any further questions, please feel free to connect with our Investor Relations team. Thank you.
Management
Speaking time
Management
91
Suresh Krishnan
21
Prashant Biyani
21
Moderator
15
S Ramesh
11
Dhruv Muchhal
10
Ankur Periwal
9
Resham Jain
8
Darshita
8
Jayesh Gandhi
8
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Opening remarks
Aniruddha Joshi
On behalf of ICICI Securities, we welcome you all to Q2 FY23 Results Conference Call of Paradeep Phosphates Limited. We have with us senior management represented by Mr. Suresh Krishnan, Managing Director; Mr. Sabaleel Nandy – President, COO and Mr. Alok Saxena, General Manager and Head of Corporate Finance. Now, I hand over the call to the management for initial comments, and then we will open the floor for question-and-answer session. Thanks and over to you sir.
Suresh Krishnan
Thank you Aniruddha, good afternoon everyone and welcome once again to our earnings call Q2 FY23. Our Earnings Presentation is available on our website, as well as stock exchange websites, and a copy of which was circulated to you all. Hope you all had the opportunity to go through the same. We’ll be happy to take any questions at the end of this presentation. This is our second interaction on the quarterly earnings call and there might be few participants who have joined us for the first time.
Coming to the company overview
Paradeep Phosphates is one of the leading private phosphate fertilizer producers in the country and is engaged in manufacturing, trading, distribution and sales of primary complex fertilizers. We have a capacity of 3 million metric tonnes of fertilizer through two plants located at Paradeep and Goa respectively. We cater to a large number of farmers while across all 16 states in India through our flagship brands Jai Kisaan and Navratna. Overall, on an industry level the H1 FY23 was a challenging period. The geopolitical instability arising out of the conflict between Russia and Ukraine has significantly affected supply chain of key commodities of our sector. The supply chain distortions have led to the deficit in the supply of essential commodities, and this has resulted in a sharp increase in raw material prices.
Coming to the market size
India is the second largest consumer market for fertilizers in the world, next only to China, rising population, limited land availability and screed input usage are key growth drivers for the growth of Indian fertilizer market. Good monsoons, various government initiatives, the subsidy schemes, easy credit availability, investment improvement, creating better market facilities, promoting infrastructure development, et cetera help to increase the sector’s productivity, As you’re all aware that in the sector, Indian government initiatives along with the various steps taken by the manufacturing companies and trading companies have ensured that Indian farmers have not been affected by the global uncertainties and also the volatility in prices and the inflation for the farmer over the last 12 months have been reasonably, there all prices have been reasonably the same levels. Just to give you the financial highlights for the half year ended September 2022: As you’re all already aware, PPL i
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