Ladies and gentlemen, good day and welcome to the Deepak Fertilisers and Petrochemicals Corporation Limited Q3 and 9M FY23 conference call hosted by Dolat Capital.
As a reminder, all participant lines will be in the listen only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded.
I now hand the conference over to Mr. Tejas Sonawane from Dolat Capital. Thank you. Over to you, sir.
Thank you, Seema. Good afternoon, everyone.
On behalf of Dolat Capital, I would like to thank the management of Deepak Fertilisers And Petrochemicals Corporation Limited for giving us the opportunity to host their Q3 FY23 earnings call. From the management team we have with us today Mr. S.C. Mehta, Chairman and Managing Director, Mr. Amitabh Bhargav , President and Chief Financial Officer, Mr. Tarun Sinha, President Technical Ammonium Nitrate, Mr. Suparas Jain, Vice President Corporate Finance.
Without further ado, I would like to hand over the call to the management for their opening remarks, post which we will open the forum for a Q&A session. Thank you and over to you, sir.
Thank you. Tejas.
A very good afternoon to everyone.
I am pleased to welcome you to the Q3 FY23 earnings call of DFPCL. I hope you have had the opportunity to review the financial statements, press release and earnings presentation available on the exchange and our website. At the outset, let me share that I'm once again very happy to share that in Q3 again our top line grew by 40% over last year, and the bottom line also grew by 40% over last year. On the 9-month front, we have seen a top line growth of around 50%, but the bottom line growth has been 138%. Now, this has been in the face of headwinds coming from raw material, I would say jumps.
Ammonia, we saw 84%, caustic acid 80%, gas around 96%, potash 103%. I mean, virtually every raw material we saw massive hike. this is something that we have been able to pass through and more.
At the undercurrent level, what we saw that has been validated and validated quite strongly, that all our three product lines, meaning the industrial chemicals, mining chemicals and fertilizer, now it is beyond doubt that they are very strongly aligned with the India growth story. Which is why despite the finished product pricing also going up to accommodate for the raw material price hike, we have not seen any demand reduction and in fact to the contrary.
That is one aspect that at different level very strongly, this has been established. The second of course has been internally our operations, supply chain, management, competency, all of that.
I'm good.
Hello. You can hear me right?
Yes, sir. Please go on.
Yeah. Okay. All of that also has been very strongly validated and that has helped to in some way ride through some of these headwinds. The third and the most important thing is that we are finding increasingly a very positive traction in our journey from commodity to specialty. If I might just share that, for example, let us say our Technical Ammonium Nitrate business, that this journey from moving from product to holistic services what we call as TCOD, total cost of operations.
Also moving from just selling a product to our customer, the military explosives companies, to our consumers, which is mines. That is something that more and more we are finding a very strong, I would say, positive validation that that is the right strategy.
Similarly, is in the fertilizer business, the shift from again commodity NPKs to crop specific NPKs. Also our very strong focus from just focusing on the channel, that is our customer, to a very strong focus on our farmers, the consumers.
In the industrial chemicals group also in terms of moving from commodity IPA to a focus on somewhere the Pharma Grade IPA and segmenting the market, delivering to those segments what is specifically required for them, including Solar Grade Nitric Acid or the like. From a strategy perspective, if I look at the common underlining strategic shifts that we are bringing in the all the three businesses, are somewhere bearing fruit.
Which is number 1, moving from commodity to specialty, which is a combination of products and technical services. Which of course in the long run will create also a very good brand. The second is this very tough but very strong drive on moving from customer to consumer. Finally, of course, moving from competition pricing to value pricing.
These are things which are, I would say, transformative shifts, which are bearing fruit in terms of also the financial results. It is also something which will provide a long-term, I would say, strong foundation and trust for us going forward. As far as the project goes, the ammonia project, as last time also I mentioned, it continues to be on a real fast track, and we are almost 92.5% progress.
We are now in the peak of decommissioning activities. We do expect it to commission the plant by the Q1 of FY 2024. I would want to also share that we have succeeded in tying up almost 40% of our debt requirements. These are basically a blank link so that in case tomorrow as the crude changes, we also get the positive benefits out of it. Of course, it's at a very attractive discount over the current spot.
Going forward, we are looking forward to now, there will be the large Reliance auction, and it's going to come in, I would say two or three slots, where is fair degree of a domestic assets going to emerge, Reliance and ONGC.
We are in a very close touch with other global LNG giants and with good intense discussions happening. Very shortly we should be able to look at a long-term tie-up on our gas needs. The other at a larger dimension that you may be aware of that we have taken up the demerger exercise for value creation. Since we saw now all the three businesses from a top line, bottom line and capital allocation in terms of assets, reaching a size where it would be something where on their own steam, each one of them could be something that could be placed in different corporate entities.
That end-to-end, right from board members to the lowest level, the focus remains on that specific business.
That would bring a much stronger alignment of strategy and people to the business requirements. We have kickstarted that, where Deepak Fertilisers continues to have the industrial chemicals business. A 100% subsidiary of Deepak Fertilisers was STL, where we had housed the fertilizer business and the Technical Ammonium Nitrate business.
Now what we are looking at is putting both also into separate corporate entities as we go forward. We are in the peak of the NCLT process, and we are looking forward to that unwinding to then have focused businesses into focus corporate entities, and that will bring in a lot of value creation.
With these thoughts, I now hand you over to Amitabh, our CFO and President Finance, to take you through the detailed financial overview and the operational performance highlights. Of course, he and the team are there to provide any further clarifications that you may need. Thank you. Amitabh?
Yeah. Thank you, Mr. Mehta. Good afternoon, ladies and gentlemen, thank you for joining the Deepak Fertilisers and Petrochemicals conference call to discuss the Q3 FY23 results.
During the Q3 FY23, we reported a total operating revenue of INR 2,755 crores, an increase of 40.9% YOY compared to the same period last year. Our operating EBITDA increased to INR 461 crore compared to INR 352 crores in Q3 FY22. Operating EBITDA margins were at 16.7% during Q3 FY23. Net profit for the quarter recorded a growth of over 39.7% YOY to INR 252 crores with margins of 9.1%.
During the quarter, our chemical business recorded a revenue of INR 1,616 crore, an increase of 37% compared to Q3 FY22, with segment margins of 28%. Manufactured pharma chemicals recorded sales of INR 454 crore, an increase of 19% YOY. Manufactured mining chemicals business recorded a sale of INR 994 crore, an increase of 16.4% YOY during the quarter. Coal India overburden removal overall production grew by 21% YOY and by 53% quarter-on-quarter. Its coal production grew by 10% YOY and 29% quarter-on-quarter.
In sales volume, volumes declined by approximately 10% year-on-year in TAN segment, mainly because of the delayed demand, as far as the infra segment is concerned or non-coal segment also. Also there were a resumption of imports from Russia. Project funding for TAN greenfield was secured with a total debt of INR 1,541 crores with a 14-year door-to-door tenor. Q3 fertilizers segment revenue grew by 47% YOY to INR 1,134 crores, with segment margins of 5%. Reserve oil levels in key operating geographies are well above the normal level, and we are expecting good Rabi sowing.
We received sanction of Industrial Promotion Subsidy claim for FY 20, FY 21 and FY 22 of approximately INR 25 crores from our Directorate of Industries, Government of Maharashtra. ADB blue loans first tranche of $15 million was disbursed in November 2022. In the quarter, our IPA plant operated at 62% capacity utilization, while acids and TAN plants operated at 88% and 117% respectively. In crop nutrition, NP and NPK plants operated at 63% utilization, and the Blendsell plant operated at 50% utilization.
This sums up this quarter's operating and financial performance. With this, we would be happy to take your questions. Thank you.
Thank you very much. We will now begin with the question and answer session.
Anyone who wishes to ask a question may press star then 1 on their customer telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question.
Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take our first question from the line of Mr. Ranjit from IIFL Securities. Please go ahead, sir.
Yeah, hi sir. Thanks for this opportunity.
A couple of questions from my side. First, on the volume front, just wanted to get a bit more granularity on the specific reasons from the 10% decline when we have seen, at least from the coal production side, the volumes have increased. For us, the TAN volumes have seen a 10% decline. We have also alluded another reason on the Russian imports coming through. Incrementally we could see that the news flows only suggest that these things are only going to increase-
I'm sorry to interrupt, Mr. Ranjit. We are unable to hear you, sir. If you're on a speakerphone, I would request you to please switch off.
Yes, I hope this is better.
Yes, please go ahead.
Yeah. Is this better?
Yes sir. Please go ahead.
Thanks. The question was mainly on the TAN volumes front. We have seen a 10% kind of a decline on a YOY basis. One of the reason that we have given is the rising imports from Russia. The news flow suggests that this is only going to get higher during the calendar year 2023, given that there were very few imports in CY 2022. How are we gearing up to address this? Would the market share be at risk or would the profitability that we have seen be at risk? That's my first question.
Second, on the gas front, even though we have said that it is linked to the Brent and get a significant discount, but it would be really helpful if you could some more granularity as to what slope of is what being looked at, since this is for three years and how that would change over the period of next 3 years. Repeating the benefit that we have been suggesting at least from the ammonia gas plant front, how that would change with the new gas pricing that we have entered into.
Thank you.
Yeah. So to your first question, the TAN volumes were down 10% YOY, for not just for the Russian import. As I also mentioned that there was a delayed pickup of infra and non-coal demand. Also, typically what happens is that the demand also picks up in Q3, driven by Coal India subsidiaries tender process where explosive manufacturers also we supply them through two separate routes.
One is through ENS, and there is a part that we supply to these mines directly. Some of those tenders also got delayed. It's more of a, we believe that overall from full year's standpoint, the target that Coal India has for overburden removal or for coal production, that will remain.
To that extent, we'll see that improvements coming in Q4, and particularly once those tenders are out, which normally happen in Q3 this time, it got shifted to Q4. I think, while Russian import has happened, but fundamentally the import volume remains within a narrow range which bridges the gap. That is, that is there, in terms of our demand, our country's demand of TAN and our local supply.
What happens is in a particular quarter, if there is a bunching, that may have an impact in a particular month or a particular quarter, but that doesn't change the equation, per se, as far as the full year is concerned.
We are quite confident that Q4, which is normally also the peak demand for TAN, we would have certain recovery of volumes. Like I said some of those demand drivers which will shift from Q3 to Q4, we should be in a position to service that demand in Q4. To your second question on gas.
Essentially, one is while we have tied up 40% of the gas, there is a balance 60% is we are still sort of working on two, three fronts, including the domestic auction, that is, I think there are two or three rounds that are expected to come in the next couple of months.
We believe that overall weighted average of our gas price is going to be quite competitive. As far as the gas that we've already tied up, while we are not in position to disclose the slope, but I would say that somewhere, given where the Brent is and we've seen Brent hovering within that narrow range, the prices of landed price of gas is somewhere going to be between $16 to 18.
Once we tie up the entire quantity, which we are expecting that a good part of that would also come from price, gas price, which is lower than this price point. Our weighted average landed cost of gas is going to be even more competitive than the price or Brent range that I just mentioned.
What that does to the economics, as ammonia, while ammonia has declined, compared to what we've seen in previous quarters, but it still holds firm at about $800 to 850 odd FOB Hadley. We've also, there is also a seasonality in a sense that, given the kind of mild winter that Europe saw, the prices of gas, TTF gas prices had come down, and to that extent, ammonia production in Europe started. So that had an impact.
Also, all along, China had been a net in recent past two, three quarters, actually have been a net exporter of ammonia. But as China comes back in terms of its demand, some of that trade flow would reverse. From that standpoint, ammonia is likely to remain firm.
To that extent, the ammonia gas delta or margins, of anywhere between $300 to 400 seems, pretty much, intact, as we see going forward. That said, I think we will, we'll watch for as much as ammonia has marginally come down, globally gas prices have also come down. Some of our new gas that we tie up with balanced gas would also, come at even more competitive price.
Thank you, sir. Just a couple of follow-ups. On the first question, though we are confident on maintaining the volumes, how do we see the profitability panning out amidst the rising Russian imports?
On the second one, do you foresee a surplus ammonia in the business dynamics, given that there is a significant correction in the natural gas price? Thank you.
TAN, like I said despite reduction in volume YOY, overall profitability of TAN business has been significantly better YOY. Prices, in fact, even between Q2 and Q3. Q3, the prices, TAN on an average were better than Q2.
The effect of imports typically comes on the price first. the like I said, the volumes per se don't normally cross the range which is the gap between demand and supply domestically. Q3 TAN suggest that, despite that we've done even better than Q2 in terms of TAN in TAN. Certainly overall profitability vis-a-vis YOY, despite 10% reduction in volume, have been significantly better.
To your second question on ammonia, I couldn't quite get what exactly was your question. Ammonia.
The question was that now since most of the ammonia capacity across the world witnessed a bit of challenge and they were under shutdown because of high natural gas prices. With the gas prices coming down, we see a bunch of that capacity is getting revived and soon restarting production. Would this lead to an excess ammonia supply, which would in turn would put further pressure on ammonia prices?
No, actually, on the contrary, if you look at the demand supply, from that holds true with many commodities like in ammonia, that structurally not much of new supply has come in the last few years while the demand has continued to grow with globally with say what? That 1%-1.5% per annum. What we saw of course, the aspect that largely the European ammonia capacities were shut. Like I mentioned, there was also a counterbalance that was there, which is China was not consuming ammonia at all. In fact, they were net exporter of ammonia. That had created some sort of a counterbalance, in to the capacities which were shut in Europe.
Now as the new capacities in Europe come up, we'll have to see where from a sustainability standpoint, where does the tts European gas prices settle post this winter as the new summer and the next winter procurement starts happening. There is also a counter that we are seeing that China is going to come back sooner or later. That other than China becoming a net exporter, it would then start consuming more ammonia. We are seeing certain counter forces.
To that extent, ammonia it can always, a commodity is very difficult to predict which way it would head, but we are not seeing a significant downside of ammonia from here, for the reasons I just mentioned. Structurally not too many new capacities have come up, for the merchant ammonia or that would cater to the ammonia trade globally. There may have been capacities, but those were integrated capacities linked with the downstream chemical or fertilizer capacities.
I'm sure, sir, this answers my question. Thank you.
Thank you. We'll take the next question from the line of Jatin Damania from Kotak Securities. Please go ahead, sir.
Thank you, sir, for an opportunity.
Okay, just a follow-up question from the earlier participants regarding the TAN volume. Since you already witnessed a 20% decline because of a delayed demand, what are the early signs that you are getting in month of February? Second follow-up on this thing, with the raw material prices which have corrected on the sequential basis compared to the last quarter, are we seeing any correction in the TAN realization in the months of January and February?
Overall, I think while we are talking about Q3 in terms of volume reduction, overall nine months standpoint, our overall TAN volumes, if I can just quickly what the numbers were.
INR 3,89,000.
We have sold in total INR 3 lakh. INR 3 lakh?
INR 3.85 lakh.
INR 3,85,000, compared to last year 9 months.
INR 3,64,000.
INR 3 lakh 66,000. We are ahead of last year numbers. From a full year perspective, we are still quite confident in terms of doing better volumes. As far as Jan and Feb is concerned, I mean, it's little early. Jan, I don't have the numbers.
Our prices, at least in the first half of Jan, had remained firm. I mean, they were not more different from what we saw in the last month of Q, Q3. Like I said, overall contribution margins even in Q3, despite the import that had happened in from Russia, had remained better than even Q2. All the prices and ST had remained better than Q2.
We'll have to see now how the demand that was delayed in picking up in last quarter. If that demand picks up, we don't see a reason in terms of contraction in the contribution margins. More than import.
We are going to watch for the demand pickup from both coal and non-coal segment. So long as the demand comes back we don't see that much of a challenge both from a volume perspective and margin perspective.
If you look at the Coal India, I mean, you said that one of the major part is Coal India. If you look at the Coal India numbers in the month of Jan, that looks quite promising in terms of the production numbers. Our FPP gen numbers were also looking at a almost 15% growth. Looking at that, I mean, the biggest worry will be the known coal and the infrastructure segment. Since you have already taken the de-bottlenecking activity, if this volume doesn't pick up, don't you see that will be a pressure in the contribution margin compared to Q4 or the coming Q1 of the fiscal 2024?
Tarun here. Can I take these questions, please?
Yeah, please.
Sure. Thanks. Thanks for asking these questions. In fact, even the earlier question on TAN and now the ones we have. In addition to what Amitabh just.
Am I audible clearly?
Yes, you are. Yes.
Great. Thanks. Just to add to what Amitabh has mentioned so far, these will help. First is on a 9-month basis. That's April to December. Amitabh gave the numbers just now on TAN volumes. We are up by 4%, okay, compared to last year. That's one thing to keep in mind. We are better than the last year on volumes. If you look at how the demand has been in these nine months and what is likely to happen in Q4, which is another question, there's some pointers for us to understand. In the first six months, that's first half of this financial year. As we know, TAN is a key raw material for manufacturing commercial explosives.
The consumption point of commercial explosives, as many of you have rightly pointed out, are mining and infrastructure sectors of our economy.
If you look at the first half explosive demand, which drives the TAN demand in the country, it has seen a very modest growth of around 1% in India compared to the last year compared to H1 first half. This is on the basis of the date, the data available from PESO, which is Petroleum and Explosives Safety Organisation, the licensing body, which governs explosives and Ammonium Nitrate. So explosives production figures first half this year versus last year, that has grown only by 1%. If you look at the Q3, Q3, although we are still to get that data, but it is quite likely that the growth rate of explosives demand in Q3 of this year versus Q3 of last year is also going to be quite moderate. Why?
Which means first nine months overall explosives demand growth this year versus last year has been moderate. In that moderate situation, our TAN volumes have grown by 4% despite all the imports, everything else going on around it. Why the demand has been moderate in the first nine months? Coal has been doing very well, as all of you have big data.
Certainly there has been a sluggish growth in terms of infrastructure, which also drives the demand for cement and steel, which are also mined, as where explosives and tan consumption takes place. It's been a mis-mix back. Coal has grown, the non-coal has not grown. As a result of which the explosives demand and hence TAN demand in the first nine months has been impacted.
As Amitabh said in Q4, there is a strong likelihood that while coal will continue to perform strongly in order to meet the energy demands of our country, we will have to wait and see how the non-coal and the infrastructure sector performs. That will drive the, again, the explosives demand in Q4 as well as the TAN demand in Q4.
Having said that, I would like to underscore what Amitabh said earlier, that we are quite confident that on an annual basis, as we exit this financial year in March this year, our TAN volumes are likely to be higher than last year, despite a very, very modest growth in the demand in the country, as I explained. That's on the volume front from a consumption perspective as to what causing all this.
Coming to the margin part. It's while Amitabh again said that the imports from Russia or any other country for that matter, they do have a bearing on the pricing of TAN in our market and therefore a bearing on the margins of TAN. In addition to this our chairman, Mr. Mehta, mentioned right upfront during his address that TAN business has been working on what we call a Total Cost of Ownership initiatives.
In simple terms, layman's perspective, what that means is we have a team of mining engineers completely equipped with latest technology and softwares and tools and equipment, which we deploy at the mining sites and infrastructure sites, and we do a baselining of their existing cost of mining. Then we come out with solutions, .
Chairman also talked about journey from products to solutions, customers to consumers, which are the end consumers. In TAN context, the end consumers are mines and infrastructure projects.
As I was saying, our team undertakes these Total Cost of Ownership studies by way of first benchmarking the cost of mineral production in these mines, and come out with ideas and solutions to improve the productivity there by reducing the overall cost of mining. That then results to another term that our chairman used earlier on the call, which is value-based pricing. Because all this cost of reduction in mineral mining is a value to the end consumers, and we share a part of the value. As we deliver that value, naturally, we are entitled to sharing that value as well as consumers.
That adds up to the margin line as well. It's not now going forward, TAN margins are not just margins for the sake of TAN as a product, but there is a solutions margin we are working on as well. A combination of these three impacts overall TAN business margin. Hopefully that explains the kind of efforts and initiatives which we are undertaking to keep margins in, not just in check but also grow the margins as we go along through the solutions. We will keep an eye on the product, let's say. Thanks, Karun, for the detailed answer. Amitabh, just a follow-up on the ammonia.
I mean, in the opening remarks you said that given the current prices is expected to remain firm, margins will remain in the range of $300 to 400 per ton. Is it safe to assume that because earlier we were guiding in the range of $200 to 250? Is that any benefit that we are getting by revising our guidance upwards to $300 to 400 per ton?
Actually, you see at different points in time, we have spoken about these margins, A, in context of what was historically, the margins were. If you were to go back to, the project initial stage when we had conceptualized the project, we looked at what was our last 10 years, 15 years of average, cost of ammonia, landed cost of ammonia. That's where we were looking at about $400 to 420 odd of FOB Middle East kind of prices. Which on a landed basis was coming to about $500. At that stage, of course, the prices of gas that we were looking at were also. At that, the cost of production would have been somewhere in the range of $300 odd.
That is the gas and the conversion cost. We had also spoken about the 9% GST benefit, so that INR 500 of transfer pricing effectively would lead to INR 550 and therefore INR 550 minus INR 300 is INR 250, is what we had looked at when we had started the project. This is again from a history perspective. Also we have kind of spoken at different points in time whenever this question has come. We've also tried to give a perspective on here and now, depending on what the ammonia prices and gas prices are, what would that delta or margins would translate to. I guess when you say that we've earlier talked about $250, that would have been in context of the historical numbers.
If the history were to repeat, then that's the kind of margins, minimum margins that we had kind of estimated. As the gas price and ammonia prices have changed, and every quarter there is at least some change in the numbers, and particularly gas has been lot more volatile. The number that I just gave you is where today, the ammonia prices, are in terms of, FOB Middle East and the range that we are seeing. Also, now that we are very close to procuring our gas and based on at least 40% that we have procured, we have some better estimate of where based on today's ammonia prices, what those margins are going to be.
That said, I've also mentioned that both these are commodities which will undergo change as we see in coming quarters . This is again a project which is we are looking at it from a 20-year, 30-year perspective. Both ammonia and gas will go through its commodity cycle. When I said $350 or $300-$400, we are looking at, based on the current prices of ammonia and gas prices, and we have seen some of that remaining at least, medium-term, those are the numbers that are likely to sustain.
If anybody's gas, where gas prices, I mean, the way gas prices and ammonia have sharply corrected, and the kind of storage that this winter Europe would end up with. For all the gas prices, spot prices of gas may sharply correct. I'm not getting into that prognosis or. What I tried telling you is more in terms of where ammonia and gas deltas are looking based on what we can foresee.
Sure, Amitabh. Based on the numbers that you said, on the rated capacity, is it fair to assume that in FY 25 we will be doing somewhere about incremental EBITDA of INR 900-1,200 crores only from ammonia?
Well, again, if those are the numbers, they are doable. I don't want to give till we tie up 100% of our gas and we have a sense on what the underlying benchmarks to which our gas is tied up, I wouldn't try to give one figure or a narrow range. Yeah, these numbers, what you have just quoted does seem plausible.
The last question.
Sorry to interrupt, gentlemen. We request you to return to the question queue, sir, as we have several participants waiting for their turn.
Okay, thank you. I conclude with you.
Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please limit your question to two per participant. Should you have a follow-up question, we would request you to join the question queue. We take the next question from the line of Naushad Chaudhary from Aditya Birla Sun Life AMC. Please go ahead, sir.
Hi, thanks for the opportunity. Some clarifications, sir. firstly, just wanted to hear from you, what is the, what was the thought process behind setting up our ammonia project? If I understand this correctly, earlier we were importing ammonia. Now we are fighting from gas. It is not helping us to at least reduce the volatility in the business practices, creating slight more problem because gas would typically be more volatile. The seller of gas, the supplier will be much more stronger than the ammonia supplier. You have to sign a contract with the design, product, I believe is a spot business. It's bringing more volatility for the business. Can you explain that, sir?
See, one is I just mentioned when I just explained in terms of numbers, the economic rational, financial rational of going for an ammonia in-house as opposed to buying it from our Middle East sources. We looked at the historical numbers, and we have seen different cycles of both gas and ammonia. To that extent, it kind of from an economic rational, we could see that it makes sense, the kind of contribution margins that we make in ammonia. That was one. More importantly, ammonia, you see, when we are importing ammonia from largely from Middle East sources, we've been seeing significant challenges in the overall logistics.
As even as much as we've seen volatility in commodities, we also saw a lot of uncertainty around the freight aspect of any commodity that you import. Getting the ocean freight in terms of availability of ships and also the volatility we saw in the transportation costs. So it's not as though the import of ammonia was without any uncertainty, particularly on the logistics.
Also, JNPT, we have seen with our experience, particularly as the volumes are growing, not just for us, but even for the other players, JNPT has seen significant congestion. And as a result, we've lost a number of days of volume of our products because of those disruptions, damages that we have paid because of delayed berthing, etc.
Also, the overall storage capacities in JNPT haven't enhanced. As we grow our volume, we needed more certainty around our raw material. The third aspect, which is also sustainability aspect, environmental aspect, is also that as we move tankers and literally hundreds of thousands of tankers from JNPT to Taloja by road. As the volumes were growing, there was also a risk of Last 40 years, we've not seen any mishap, but you can't take historical data for granted. As the volumes were growing, we were also road area is inhabited area.
We wanted to avoid any environmental mishap because from sustainability of plant perspective, a pipe ammonia just across the road is lot more sustainable from a 30, 40-year operation standpoint than lugging the tankers from JNPT to Taloja. That was another aspect and risk that we had identified. Overall, if you see, when we had in fact conceptualized, we had largely looked at LNG as the base source of gas. we are seeing domestic sources of gas and significant amount of gas coming up from domestic sources.
To that extent, in fact, if you call the availability of gas and even the risk related to gas has only come down as opposed to what we had seen when we had conceptualized the project. It's a combination of sustainability, combination of raw material security or raw material that practically drives 80% of our manufacturing, combined with the economics of this. also we need to understand that unlike maybe a manufacturing facility which is only a fertilizer capacity which requires ammonia, we have a good mix of chemicals and fertilizers. A chemical sector's ability to withstand volatility in raw material prices is lot better than compared to fertilizer.
And, and to that extent that it, it made sense to feed our chemical and fertilizer business with our in-house ammonia, as opposed to continuing to depend on larger and larger volumes on imported ammonia. And, and, and I think the point I had mentioned earlier as well in our earlier calls is that we've also received a very attractive Maharashtra government gave us a very attractive sort of scheme or concession in terms of SCLCSS reimbursement till we recover seventy-five percent of our CapEx. That added to the, the economic or the financial viability of, of the project.
Yeah. Got it. Makes sense. Secondly, on the TAN demand in domestic market. What is the domestic requirement of the product? What percentage of the requirement would be through import? What is the risk there is an, a meaning to import, what is the reason? Can there be a restriction because seems to be an exclusive product?
I think that overall demand is somewhere between 1.1 million-1.2 million tons, that is TAN's requirement. Roughly today, about 25% of this demand is meant to import. We've seen disruption in import for safety and security reasons. We have seen disruptions because of trade from certain regions, particularly the Black Sea region. We saw the disruptions in Black Sea trade. There's been many instances in last 2-3 years for different reasons, where there's been disruptions in import of TAN. That is anybody's guess whether given the geopolitical situation and also I think the whole trade situation hasn't normalized. Some of those disruptions may continue.
we import 25% is because of.
Sir, we have Abhimanyu Kasliwal request to join the question queue, sir.
Just a follow-up on the previous question.
It's the consumers who import the 25%. We as manufacturers
Yeah. Is it because of the price benefit or because you don't have capacity import?
No, we don't have capacity. There is a capacity gap of 25%.
All right. I'll come back in touch. Thanks.
Thank you, sir. We take the next question from the line of Darshita from Antique Brokers. Please go ahead.
Hi. Thank you for the opportunity. I wanted to understand what is driving the prices of Ammonium Nitrate. As you mentioned in your opening remarks, I think that you've seen an increase even on sequential basis. What is driving the Ammonium Nitrate prices today, especially when Ammonia prices have fallen significantly in recent times. Secondly, what is the kind of differential are we seeing with respect to the domestic and international prices? If you could probably give some idea on the Russian imports that came in during this quarter, what is the pricing differential over there, or was it largely the same as the price at which we are selling?
Arun, would you like to take that question?
I will answer the second question first about the pricing structure. Basically you need to understand that the Ammonium Nitrate which is imported in India is of a different quality, and that is called as Fertilizer Grade Ammonium Nitrate. Whereas what we make in RAK and technology is called as Technical Ammonium Nitrate, which is why it is called as TAN as an acronym. The fundamental difference between the two is the purity aspects. The technical grade is a much more pure form of Ammonium Nitrate, which means it adds to the efficiency in the downstream operations as that TAN is used, compared to when the Fertilizer Grade Ammonium Nitrate is used. There is an additional cost that the users have to bear and incur when they process the Fertilizer Grade Ammonium Nitrate, which is imported.
Secondly, for all of the reasons Amitabh mentioned earlier, there are disruptions of the ones that take place on the imported front, compared to that as a trusted manufacturer, we provide security of supply. Now with ammonia, our own ammonia plant coming up, which was discussed at length today, it will give us even more security of supply to our customers and consumers. In view of all of this, first quality, second security of supply, and then added to that, as I was mentioning earlier on the call, that we bring I'm sorry, Amitabh, to what extent was I heard?
You were talking about these two factors, that is the security aspect and the quality.
Quality.
The third one that you.
Okay. The third one is also, which I mentioned earlier on this call, which is we bringing the Total Cost of ownership initiative as a value to consumers. If you add these three factors together, quality, security of supply, and value addition to the mining operations, that then drives the pricing power of our own TAN compared to the imported TAN. Therefore, as more and more of this is being perceived by the consumers, consumer end customers our premium, which is the delta at the position between imported and our own keeps going up. That's how we look at it, and that's how our customers are looking at it and willing to pay a premium.
I was not sure about the first question because of the line problem at my end. Could you repeat the first question for me?
Yeah. I.
The second part.
Yeah. That largely answers to that. I just one small clarification. The kind of TAN that, the kind of Ammonium Nitrate or TAN, as you mentioned that you use, that is not imported in India at all?
That's correct. That's correct.
Okay.
We make technical grade Ammonium Nitrate, whereas the imported one is Fertilizer Grade Ammonium Nitrate.
Right. Right. Okay. Also the second question was on outlook of TAN prices. If you could provide some outlook for for Q and FY 2024.
For Q four. Is that what?
For Q4. one on Q and FY24, and also
FY 2024. Yeah.
FY 2024. Secondly, what end of discounts is usually there between our TAN versus the imported TAN?
Okay. In terms of the outlook, again, we look at the macros first because that drives the explosive demand, and then that in turn drives the TAN demand. When it comes to the macro environment, again, the two sectors that our TAN business caters to are mining and infrastructure sectors. In mining, coal is a big chunk, so we have already talked about it.
Coal is poised to grow in order to meet our energy demands. That's a good sign for our business going forward in Q4 of this financial year as well as in FY 2024. As far as the infrastructure sector is concerned, again, the new budget has been announced. Government has committed a lot of funds to drive the infrastructure projects in our country.
Fundamentally, as the infrastructure grows there are three things which drive the TAN demand very quickly.
Okay.
One is whenever there's an infrastructure project which involves some sort of construction work also, it needs the cement. For the more of infrastructure project, more is the cement demand, and cement comes from limestone, right? Again, cement demand drives the demand for limestone mining that in turn requires explosives, and that in turn requires TAN.
That's one form in which infrastructure drives the TAN demand. Second form in which infrastructure growth drives the TAN demand is in the form of steel. Again, a lot of construction work requires steel, and steel comes from iron ore mining. Again, iron ore mining requires iron ore to be blasted off using explosives, and that in turn drives the TAN demand. Even otherwise, steel is used in other applications as well which is in addition to the infrastructure.
More of steel demand in India would mean more of iron ore mining, then more of explosives and TAN. The third aspect of infrastructure is the rock aggregates. Wherever construction takes place, there are stone aggregates which are used. Where do they come from? They come from what we call as quarrying operations. Stone quarries, which are in thousands of numbers on a Pan India basis. More of construction works, infrastructure demand means more of rock aggregate requirement.
Those rock aggregates come from stone quarries, and that's where rock has to be blasted off using explosives, which in turn requires TAN. These are the macros of mining and infrastructure. As I said earlier, on both these fronts we are anticipating a reasonable growth going forward. If you look at.
If you want to look at a certain number as a direction, broadly we anticipate that over the next years, two years, three years, four years kind of a horizon, the growth should be in the range of what we are expecting on a CAGR basis. Okay. Some years grow, some years more.
For the pricing or overall? Sorry.
Overall. This is the demand part. Pricing I've already explained. it is a function of a lot of things, and that continues to basically drive the pricing on our product.
Right. Yeah, just.
I want to
It was just, I'm just repeating the question I've already asked. The difference between the domestic and international prices, and secondly, why is the multinational prices demand such a elevated status despite ammonia falling down in the region? That's all.
Again, differential between international and domestic, I've talked about 3 factors: quality, security of supply, and value-based pricing. That determines the delta between international and domestic.
I'm just trying to understand the pricing potential. As in if you can mention how much the delta there is.
We can't. Unfortunately, we can't give that number because commercially sensitive information is required. That's something which can't be shared here. At least I have given you the drivers.
Right.
Which determine the delta and the extent of the delta. Your other question with whatever happens to ammonia and then how is that linked to the TAN pricing. Again, I will go back to the same thing which I mentioned earlier. That while there is a complete pass on of the ammonia cost to our customers and consumers by way of TAN pricing, but that's not where we stop in terms of TAN pricing. TAN pricing is done on the basis of quality, security of supply and the value-based pricing.
Right. Got that. Okay, thank you so much for the opportunity and giving such a detailed answer.
Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please limit your question to one per participant. Ladies and gentlemen, please limit your question to one per participant. We'll take the next question from the line of Krishnachandra Parwani from JM Financial.
Thank you.
Good afternoon, sir. Thank you for giving me the opportunity. In October last year, Government had come up with this policy called One Nation One Fertilizer policy. I just wanted to understand what is the impact on that in this quarter.
In this quarter, you mean Q3, what is the impact, sir?
Yeah. Q3. Yes
Actually, my colleague is not with me who is heading the fertilizer business. So I am not very sure from which date that policy has kicked in. But just to give you a sense that while initially I think there was a lack of clarity on what exactly it would entail in terms of the bag design, etc. But what we know and what we have what we have implemented is that besides a part or one side of the bag where there is a prescribed space where it has to reflect government's Pradhan Mantri Bhartiya Jan Urvarak Pariyojana kind of detail. There is roughly, if I am not wrong, about one-third, a little more than one-third of the space is where
The product specifications, the name of the company and our logo and brand is also printed on that bag. To that extent, it's in fact, while there is a all bags carry one uniform kind of, I would say the write-up, which is government has prescribed. There is also a space where the companies are free to kind of display their brand logo and the product details. To that extent, it hasn't really. I mean, we haven't seen any significant impact. If at all, I think we've the given that most.
For us, a lot of the work that we have done at the trial level is to really generate the awareness about our product and the sort of additional benefit that our product or our Croptek and Smartek products has, in terms of yield, in terms of shape, size, color, that it has shown in various trials. To that extent we have focused mostly working on the farm trials, also working with turnkey farmers, group of farmers. That our marketing and sales strategy hasn't changed. What has changed is just the display part of the bag.
There also, as I said, we have, government has allowed us to display our brand and logo.
Okay . Understood. Basically it's not impacting our margins much, between reporting and escape.
Yeah. Yeah.
Thank you so much.
Yeah.
Thank you, sir. We take the next question from the line of Mr. Prateek from Systematix. Please go ahead, sir.
Hi, sir. Madan?
Yes.
Yes, sir. Please go ahead.
Yeah. Madan, because you had stated that, you have to change the margin as a function of, your product as well as solution. If a solution part will have a higher margin with respect to the product, can I assume that?
I can take that question, Amitabh, if you want.
Yeah, please.
Please.
Okay.
This, as our chairman has been mentioned right at the beginning of the call, that as a group, we have embarked upon this transformation journey of product to solutions. This has been a journey just in TAN business, which we started over a year or 18 months back. We are in the early stages of that. We are basically helping our consumers to understand that this is another way. This is one of the ways we can help them reduce their cost of mining from under production. In the initial stages, in the seeding stages of any new initiative technology the margins are low.
certainly as we go along, the solutions margin are likely to become much higher, and not just on a % basis, but also in the overall margin guide for TAN business.
Okay. Just a follow-up on this. Do you have some acquisition with how much solution you have provided, like?
No. In terms of reporting our numbers, we are not reporting any separate numbers.
Okay.
Thank you, sir. We take the next question from the line of Mr. Abhimanyu Kasliwal from Choice Broking. Please go ahead, sir.
Thank you so much for taking my question, sir. Am I audible?
Yes, please.
Wonderful. Sir, my question regarding the incremental EBITDA has been more or less satisfied. I do understand that next year, next to next year, we can expect a good amount or maybe INR 500 to INR 4 crore EBITDA. My question, sir, is regarding Deepak Mining and Smartchem, the internal division that you have. Could this be like a preceding step or perhaps a demerger going forward which can lead to substantial value unlocking? What will you tell us, sir?
I think our chairman also spoke about the fundamental rationale for the demerger that we have proposed. Of course, it is going to go through the NCLT process, is to right from the board, down to the every e-employee who's facing the customer. Now that these, both these businesses have attained critical mass, we would want the board as well as the entire org structure, the incentive structure, everything has to be aligned such that this entire workforce can focus on, management can focus on that particular business. That's the whole rationale that once CNB and TAN become separate and it has its independent board. And today they are all part of one single company, so therefore even the various incentive structure for employees is in a way gets commingled.
Once you have two separate businesses with their own org structure and their own business levers, if the entire board, right from board to the employees, the sales force can focus on the deliverables required for that particular business. I think that's really the fundamental rationale. That obviously, logically speaking, should lead to better outcome. As far as value unlocking is concerned, what it also allows us to do is to raise capital for growth in these entities independently. Because some of these strategic or financial investors, who may be interested in one business may not necessarily be interested in the other. To that extent, separation of these two allow us to get both strategic and financial partners on board, which would accelerate the growth.
At some instances of it is, yes, it certainly will unlock a value or a better profitability, a better focus, better or increased sources of capital for growth. Beyond that, I think what would we do with each of these entities in terms of they remaining unlisted or going listed, it's too early for us to comment on that.
Fair enough. Fair enough. This is definitely could be on the cards when they demerge the 2 entities. You'll probably list the 2 entities while give a 1-to-1 for the existing shareholders. That is a possibility I am presuming in the next year or 2 maybe, or you would not like to.
I wouldn't comment anything.
Uh.
on that.
Okay. Well, I took try, sir. Thank you so much. Thank you so much.
Thank you, sir. Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to Mr. Amitabh Bhargava for closing comments. Thank you, and over to you, sir.
Well, thank you everyone, for those insightful questions, and for your participation. For any further queries or clarifications, please do get in touch with our investor relationship team. Thank you so much. Have a good day.
Thank you very much. Ladies and gentlemen, on behalf of Dolat Capital, that concludes this conference. Thank you for joining us and you may now disconnect your lines.