DEEPAKFERTNSEQ3 FY 2025January 30, 2025

Deepak Fertilizers and Petrochemicals Corporation Limited

8,222words

140turns

10analyst exchanges

5executives

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Management on call

Sailesh C. Mehta

CHAIRMAN AND MANAGING

Subhash Anand

PRESIDENT AND CHIEF

Suparas Jain

VICE PRESIDENT – CORPORATE

Pallavi Bhalla

HEAD OF INVESTOR

Pratyush Kamal

INCRED CAPITAL WEALTH PORTFOLIO MANAGERS PRIVATE LIMITED

Key numbers — 40 extracted

39%

e share that it's a happy situation for us to share that our consolidated revenues have surged by 39% and we have crossed INR2,500 crores for the quarter. EBITDA saw a very good smart 72% increase br

INR2,500 crore

y situation for us to share that our consolidated revenues have surged by 39% and we have crossed INR2,500 crores for the quarter. EBITDA saw a very good smart 72% increase bringing our EBITDA to almost INR486

72%

e surged by 39% and we have crossed INR2,500 crores for the quarter. EBITDA saw a very good smart 72% increase bringing our EBITDA to almost INR486 crores. I guess this is the highest in the last 5 y

INR486 crore

0 crores for the quarter. EBITDA saw a very good smart 72% increase bringing our EBITDA to almost INR486 crores. I guess this is the highest in the last 5 years same quarters. EBITDA margins also have improve

15%

last 5 years same quarters. EBITDA margins also have improved significantly. They climbed up from 15% to 19% and net profit surged by 318%, reaching almost INR250 crores plus. So one common denominat

19%

years same quarters. EBITDA margins also have improved significantly. They climbed up from 15% to 19% and net profit surged by 318%, reaching almost INR250 crores plus. So one common denominator and

318%

argins also have improved significantly. They climbed up from 15% to 19% and net profit surged by 318%, reaching almost INR250 crores plus. So one common denominator and obvious underplay has been the

INR250 crore

d significantly. They climbed up from 15% to 19% and net profit surged by 318%, reaching almost INR250 crores plus. So one common denominator and obvious underplay has been the volumes growth in each of the

85%

gnment and the demand drivers that are emerging from the economy. So we have seen anywhere from 85% to 105% capacity utilizations and a concerted effort that we had put by way of cross-functional t

105%

and the demand drivers that are emerging from the economy. So we have seen anywhere from 85% to 105% capacity utilizations and a concerted effort that we had put by way of cross-functional teams to

rs,

fruits by way of very good acceptance in the marketplace that these, I would say, unique fertilizers, performance fertilizers, if I might put it that way are giving very clear improvements in yield an

INR2,579 crore

Starting with our financial highlights for quarter 3 FY '25. Operating revenue stood at INR2,579 crores, marking a strong 39% Y-o-Y growth from INR1,853 crores of Q3 FY '24. Over the first 9 months, r

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Guidance — 20 items

Sailesh Mehta

opening

“But what has gone behind this and what we feel we will be giving a very strong foundation for sustainability is something that I would want to share with all of you.”

Subhash Anand

opening

“We expect increased demand coming from coal, cement, steel sectors, which recorded roughly 6% to 8% Y-o-Y growth in quarter 3 FY '25.”

Subhash Anand

opening

“On a project capex front, as we communicated earlier, the current capacity utilization is almost at a very high level or a peak level.”

Subhash Anand

opening

“Both projects in next 12 months or I'll say, H2 of coming year, we do expect both projects to go live and start adding to our capacities.”

Subhash Anand

opening

“Project execution is currently in line with plan and expected to start production, as we spoke earlier, somewhere sometime during H2 of next year.”

Nirav Jimudia

“So just wanted to understand from you, let's say, for the Gopalpur project, how we are placed in terms of our ammonia requirement?”

Nirav Jimudia

“And going forward, let's say, over the next 2, 3 years, how this share would look like?”

Subhash Anand

“Going forward, IPA getting into electronic-grade semiconductor is the opportunity or what we call it high-purity chemical is an opportunity for us in this space.”

Subhash Anand

“But yes, all remain in our considerations to discuss and see what opportunity we can encash going forward from these.”

Nirav Jimudia

“And how much we intend to take it to, let's say, over the next 2, 3 years?”

Risks & concerns — 5 flagged

And lastly, but in a major way if we see this quarter, seeing the positive impact of our drive to move the crop nutrition business from commodity NPKs to crop-specific NPKs and that is really bearing good fruits by way of very good acceptance in the marketplace that these, I would say, unique fertilizers, performance fertilizers, if I might put it that way are giving very clear improvements in yield and improvements in quality for our farmers.

— Sailesh Mehta

Nitric acid sales volume rose 4% Y-o-Y in quarter 3, though there was a 3% decline over a 9-month period due to increased import of low-cost nitroaromatics impacting downstream acid customer.

— Subhash Anand

Meanwhile, IPA margin, which has seen some pricing pressure likely to improve gradually, aided by anti-dumping duty on IPA and narrowing Phenol-Benzene spread, which should enhance profitability in the coming quarters.

— Subhash Anand

So what we see, we don't see challenge in terms of overall debt level because we see this is a temporary phenomenon for us.

— Subhash Anand

That is a result of -- as I spoke during my commentary, there is an import of nitroaromatics, and that has a pressure on overall end customers' pricing resulting to this business pressure on what you call it, pressure on pricing side.

— Subhash Anand

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Q&A — 10 exchanges

So, I have a few questions to ask. So first is when we see our current run rate of TAN and WNA production, our ammonia requirement comes to close to around 4, 25,000 tons. And once our expansion of TAN and WNA goes through, I think this requirement will go up to 6,20,000 tons. So just wanted to understand from you, let's say, for the Gopalpur project, how we are placed in terms of our ammonia requirement? So, the ammonia would be transported out of our Taloja plant to the Gopalpur plant. This is how the system would work like? And also, if you can share in terms of how both our plants are curr

Subhash Anand

Okay. Just to share our ammonia plant capacity is 5 lakhs plus. The new plant of PCL, which we have set up is 500,000-plus capacity and the old one is around 129,000. , The new plant takes care of our current requirement what we have. So, the old plant is -- we are keeping it or we are not running at this point of time. Coming to the new plant, once Gopalpur and Dahej comes up, yes, our demand goes up. Current Taloja will not be able to cater to entire capacities. And we have planned to import the ammonia and feed to our newer capacity what we have. In fact, the capacity, which is coming up in

Sir, just carry on with the Nirav's question in terms of our new project, which is coming in Gopalpur, the TAN. So, assuming that we will be importing an ammonia, so what will be the IRR that we are expecting on both the new projects that we are commencing in the second half?

Subhash Anand

Okay. IRR will not be very different because even the way we do run our business currently also, the TAN business and the transfer of or, I say the intercompany sales happens at a market value or at international price value. So, the profitability which TAN has, even if they start importing, it will continue to be at a similar level. Sir, it means it will be in the high teens or early 20? I mean can you give a qualitative thing on that front? It will be high teens. Okay. So your IRR is in the high teens. And on the current utilization, I mean, the current capacity that we are having in Taloja

This year, we have added approximately 50,000 tons capacity. So, sir, I wanted to understand, is there any leeway for debottlenecking within the Taloja facility?

Sailesh Mehta

In fact, as a part of our ongoing operational efficiency, we keep looking opportunity for debottlenecking. It's not like the first time we did, and this won't be the last time which we will be doing it. So, we have a program which we call it CFTs and one of their objective is to keep looking at opportunities how we can debottleneck. So, there are plans to debottleneck and add lines in the existing Taloja facility itself, not immediate in short term, but since each of these debottlenecking do take time. So over a period of time, some debottlenecking is expected. Got it. That's helpful. And what

Sir, I have a couple of questions. First on the fertilizers bit. We've been seeing encouraging numbers from the crop nutrition business. Just wanted to get a sense of what would be our sustainable EBIT margin from this piece of business? We've been clocking about 9% for the current quarter, 8%. Is this the sustainable level or is there further room for improvement?

Subhash Anand

Okay. Normally, we don't talk about business-specific EBITDA numbers. But this business, if you see, yes, it's a single-digit margin business. And we do see with our focus what we have on specialty, the way we are moving our business and going towards specialty, our intent is to move this margin up. We are seeing every quarter or quarter-on-quarter this shift is helping us to expand margin, and this journey will continue. Perfect, sir. That's very encouraging. A lot of my other questions have been answered. One another piece and probably a little too early to talk about the strategic demerger.

This is Viraj here. Sorry, a quick question. How much of the performance is being driven by geopolitical events, particularly with Russia reducing dumping of TAN into India? And is this sustainable in terms of our current TAN production? Is it on par with Russian landed TAN costs?

Subhash Anand

Okay. In fact, if you see this year, we haven't seen much impact on TAN because of geopolitical, whatever incident what we have. Last year has much bigger impact on the business. This year, it's normalized, I call it. So whatever performance you see on TAN business is a sustainable normal business performance. Okay. Excellent. And in terms of the landed cost of Russian TAN in India versus our production cost, is there a big difference, sir? No, we are competitive in the market. Our strategy is very clear being a player and being, I'll say, a sustainable player in India, we will charge premium

I saw this time there is a mention about cartridge-based explosives in the presentation. Is it a new product? And what's the potential and market share of this cartridge-based explosives? Are you able to hear me?

Subhash Anand

This is basically TAN business, downstream business, what we are talking since we are saying we are going to move into the entire value chain of TAN business currently with the mine owner discussion. So as a part of that, we are doing, I call it, some of the concept testing, and we would have gone and done some part of, I'd say, that product. But currently, that's not sizable in our overall portfolio, what we have. Okay. And where it is used? Is it only in the mining or it is used in defense as well? No, we are not in defense at this point of time. Okay, sir. And sir, like since you mentioned

Sir, my first question is on Equinor gas supply. Once the gas supply starts, that is from Q1 FY '27, which you mentioned earlier in the call. What will be the changes in our cost structure with regards to gas once the supply starts?

Subhash Anand

The cost structure will be far more efficient, I call it. Our overall cost of production will be sizably reduced, I call it. And the breakeven point will be at much lower or within the price range, what we are talking. Sir, any percentage reduction in cost, which you mentioned, sizable percentage number, right? It will be 20% plus. 20% reduction in gas cost, correct? 20% reduction in gas cost. Got it. And sir, what is our gas -- what has been our gas cost for the third quarter? It's around $13. Okay. And sir, now we are almost less than a year with our plants commissioning. So have you set a d

Some of my questions have already been answered, sir. So, sir, just regards to our currently margins, so our EBITDA on a console level basis will be sustainable, right, sir?

Subhash Anand

Yes. Okay. Fair enough, sir. Yes, we can hear you. Yes. And sir, with the capex, so what kind of asset turnover are we looking at, sir, like with the capex is coming online next year? Okay. Typically, for this kind of a business and this size of a capex, asset turn anything around 0.7, 0.8 seems to be a good asset turn. Okay. Fair enough, sir. That is helpful, sir. And sir, so once we get the capacity online, what would be the timeline we see for getting them to optimum utilization levels? Good thing for our capacity, what we have put in, these are the same product or same plant which we are r

So, a few questions from my side. First, from the crop nutrition business side of it, I know it wouldn't be correct to compare it on a quarter-on-quarter basis. But just to get an understanding, on a Y-o-Y basis, we have done an exceptional improvement when it comes to volume. And still we have managed to keep our profitability in line with what it was in Q2, whereas Q2 is a very -- probably the best quarter for us. So just wanted to understand on which area that we have managed to make our mark in this quarter? And if you could give us an idea of the product that we targeted and managed to se

Subhash Anand

So, a few things which help actually if you see CNB or crop nutrition business, our focus on specialty definitely helping us to maintain our margins. Our focus on Croptek and Smartek is something where our growth was phenomenal in the overall growth, what you see in a CNB business. And these being value-added product, so it helps us to not only grow -- revenue grow more in proportionate to volume and help us to maintain profitability. Second thing, which is important, the kind of a business mix which we have, CNB, TAN and IC, there is a natural hedge between these businesses, where one busines

Thanks, everyone for taking out time and participating in our call. I wish all of you best of luck and good time coming ahead and look forward seeing you again or talking to you again next quarter. Thank you.

Management

Speaking time

Subhash Anand

Moderator

Jainam Ghelani

Nirav Jimudia

Harmish Desai

Darshil Jhaveri

Vignesh Iyer

Sharan Mandikar

Viraj Mahadevia

Sailesh Mehta

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Opening remarks

Pratyush Kamal

Thank you. Good evening, and welcome to the Third Quarter FY '25 Earnings Call of Deepak Fertilisers and Petrochemicals Limited hosted by InCred Equities. From the management, we have Mr. Sailesh C. Mehta, Chairman and Managing Director; Mr. Subhash Anand, President and Chief Financial Officer; Mr. Suparas Jain, Vice President, Corporate Finance and Ms. Pallavi Bhalla, Head of Investor Relations. I would like to thank the management for giving us the opportunity to host this call. We will begin the call with opening remarks from Mr. Mehta, followed by Mr. Subhash Anand for update on financial performance, post which we'll have a Q&A session. Thank you, and over to you, sir.

Sailesh Mehta

Okay. So good afternoon, ladies and gentlemen. I would once again warmly welcome each of you for the Q3 FY 2025 Earnings Conference Call of Deepak Fertilisers. As usual, I hope you have had a chance to explore the detailed earnings presentation and looked at some of those numbers. But just at the outset, let me share that it's a happy situation for us to share that our consolidated revenues have surged by 39% and we have crossed INR2,500 crores for the quarter. EBITDA saw a very good smart 72% increase bringing our EBITDA to almost INR486 crores. I guess this is the highest in the last 5 years same quarters. EBITDA margins also have improved significantly. They climbed up from 15% to 19% and net profit surged by 318%, reaching almost INR250 crores plus. So one common denominator and obvious underplay has been the volumes growth in each of the products. But what has gone behind this and what we feel we will be giving a very strong foundation for sustainability is something that I would

Subhash Anand

Thanks, Mr. Mehta and good evening, everyone. Thanks for joining us today. I am pleased to share that our Q3 FY '25 results reflect the strength, resilience, effectiveness of our strategic initiative over the past few years. These efforts have enabled us to achieve robust growth across key business segments, reinforcing our commitment to delivering sustainable value. Starting with our financial highlights for quarter 3 FY '25. Operating revenue stood at INR2,579 crores, marking a strong 39% Y-o-Y growth from INR1,853 crores of Q3 FY '24. Over the first 9 months, revenue grew 15% Y-o-Y to INR7,607 crores compared to INR6,590 crores in 9 months FY '24. Operating EBITDA surged 72% Y-o-Y to INR486 crores, up from INR282 crores in Q3 FY '24. Our EBITDA margin expanded by 362 basis points from 15% to 19% this quarter, driven by optimized business mix, pricing strategies, cost effectiveness and the other initiative that Mr. Mehta just explained. Over the 9-month period, EBITDA grew 70% to INR

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