Ladies and gentlemen, good day and welcome to the Deepak Fertilisers and Petrochemicals Corporation Limited Q1 FY 2023 earnings conference call hosted by IIFL Securities Limited. As a reminder, all participant lines will be in the listen only mode, and 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. Ranjit Cirumalla from IIFL Securities Limited. Thank you, and over to you, sir.
Thank you, Renju. Good evening, everyone. Thanks for joining us for Deepak Fertilisers Q1 FY 2023 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 Nitrate, Mr. Amitabh Bhargava, President and Chief Financial Officer, and 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.
Thank you. Very good afternoon to all of you. I take indeed pleasure in welcoming you all for the Q1 FY 2023 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. At the outset, let me share my joy in bringing to your attention that, you know, we've seen in Q1 the revenues crossing INR 3,000 crore and an almost 59% jump over last year same quarter. Beyond that, the profits have crossed INR 436 crore, a jump of 233% over last year. We saw almost over 87% of our segment profits were contributed by the chemical segment.
All of this, despite a huge jump in all the raw material costs that we saw. Obviously two aspects that could emerge in anyone's mind, and I thought I'll share some of those insights. Then, of course, draw Amitabh, our CFO, to take you through the details. If I were to look at any undercurrents, besides, you know, the price increases and, the broad turmoil that all of us are seeing because of, the Ukraine war and other things. If one were to look at a fundamental level, there are three undercurrent that I saw. One is at the macroeconomic level, we continue to see an excellent alignment with the India growth story that all our businesses are having, and particularly the chemical segment.
Be it mining, infrastructure or China plus one shift, all of it, you know, bringing in a good positive undercurrent, which is gonna be ongoing. Despite such price hikes even in our finished products, one aspect that was evident was that there was no demand destruction, and actually it was to the contrary. The other aspect that we noticed was there is a resilience in the downstream industry to absorb some of those prices. Those were, I would say, deeper insights. The second insight that we saw was that whatever investments that we have made in strengthening our operational efficiencies, our systems and processes, our supply chain management, all of it got tested. All of it, you know, despite the COVID, despite the geopolitical situations, it, you know, stood the test of time.
That was the other undercurrent that we saw very clearly. The third, of course, has been our continued drive to move from commodity to specialty and giving now more customized solutions. That also we are seeing that it is beginning to bear fruits. If one were to look at what next, what is likely to be the situation as we look at Q2, Q3, Q4, and the rest of the year and maybe years ahead. One aspect that we see is that we do expect you know, this kind of a heated situation on pricing to mellow down. We expect lowering of both finished goods pricing as well as the raw material pricing.
Now, as is normal that there could be a gap of a month or two between the two, and if the finished goods pricing drop faster than the raw material, it may impact the delta temporarily. If it's the other way around, it'll continue to ensure robust delta. It is a matter of a temporary adjustment of a couple of months. We do also expect the normal spend, a bit dampening in the chemical mining sector during monsoons, but that is also a typical phenomenon every year.
Having said that, there are again three aspects that I see which will provide a positive thrust for the balance year. Number one that I see is the additional capacities emerging out of our operational efficiencies and debottlenecking will come in handy, which will kick in in the balance part of the year. That is gonna be a positive plus. The second is at an operational level our continued drive on strong digitization applied R&D thrust to achieve not only operational efficiency but also customizing customer orientation. That is going to you know keep unfolding over the next many quarters to bring in you know a better positioning.
Lastly, on a continual basis, our management strategy change, where for each of our businesses, this move that we are bringing in from commodity to customized specialization, that is going to continue to give us better brand creation and premiums. That, if you would have seen in the quarter that went by and of course, the quarters that are gonna follow, in the Crop Nutrition Business, we are bringing in crop specific grades more and more. We are branding it as Croptek. It is not just NPK, but NPK plus micronutrients and, you know, plus a package of practices which are going to be focused on specific crops. Even on the acid business, we are now looking at repositioning some of our products, customizing it to the Solar Grade Nitric Acid or Steel Grade Nitric Acid.
Even in case of IPA, instead of a commodity IPA, we are looking at focusing on specifically on the pharmaceutical sector and also introducing the medical wipes and the sanitizing system for hospitals. Even for the mining sector in case of Technical Ammonium Nitrate, instead of just focusing on the product, we are now moving towards TCO, that is total cost of operations for specific mines and bringing in composite holistic solutions as we go forward. These are aspects which are going to continue to give, I would say, positive tailwind as we see the balance here. Now, as far as projects goes, the ammonia project continues to be on a fast track execution, no holds barred.
We are looking at with that coming in, it will bring a solid foundation for all our three businesses to contain the raw material volatility and also of course bring in attractive IRRs by itself. We continue to expect it to be commissioned by first quarter FY 2024. I must share that the ammonia project will be giving us somewhere close to INR 25,000 crore of Atmanirbhar or import substitution over the next 10 years, plus a large reduction in the carbon footprint. We are very happy to contribute to the larger interests of India in that fashion. Similarly, our TAN project work has begun at site, and there again we target to complete by second half of 2024.
That you are aware that it is based on solid demand from the coal, limestone, cement, infrastructure sectors. With the above two projects, we will in that sense complete our strategic CapEx drive based on if you recall, we had, you know, two drivers, strategic drivers there. One was to get our size right. 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 three. Ammonia coming in to feed all the three businesses. Both these aspects, getting our size right and capturing the value in our complete chain, that will get completed with this CapEx, you know, getting implemented.
What will follow will be our strong forward integration drive, moving from commodity to solution, specialty. That will of course unfold quarter- on- quarter as we work harder to customize each of our products to the specific needs of each of the end segments. With this overview, let me hand you over to Amitabh Bhargava, our CFO, President, Finance, to now take you through the nitty-gritty details of how the quarter went by. Amitabh?
Yes. Thank you, Mr. Mehta. Good afternoon, ladies and gentlemen, and thank you for joining the Deepak Fertilisers and Petrochemicals conference call to discuss Q1 FY 2023 results. We maintained our growth momentum while concentrating on transformation initiatives. In fact, Q1 was our best ever quarterly performance. We reported a total operating revenue of INR 3,031 crores, an increase of 59% YoY compared to same period last year. Our operating EBITDA augmented to INR 740 crores compared to INR 290 crores in Q1 FY 2022. Operating EBITDA margins expanded significantly to 24.3% from 15.2% during Q1 FY 2022.
Our net profit for the quarter recorded a growth of over 233% YoY to INR 436 crore with margins of 14%. Chemical segment, as Mehta was also mentioning earlier, contributed to about 87% of total segment profits. Going into a little bit of details in chemical segment. During the quarter, our manufactured specialty chemicals business recorded a revenue of INR 1,771 crore, an increase of 95% compared to Q1 FY 2022. Segment margins expanded from 19% Q1 FY 2022 to 41% in Q1 FY 2023. Manufactured acids for the quarter recorded a revenue of INR 424 crore, an increase of 156% versus last year. Manufactured IPA recorded revenues of INR 98 crore.
Mining chemical business recorded a revenue of INR 1,078 crore, an increase of 177% YoY during the quarter. Mining chemical business volumes were supported by continued demand from coal, as reflected in Coal India and SCCL's overburden performance. AN melt, ammonium nitrate melt volumes grew by 39% YoY, High Density Ammonium Nitrate by 15% YoY, and low density volumes declined by 16% YoY. During the quarter, our IPA plant operated at capacity utilizations of 58%, and both acids and TAN operated at 91% and 111% respectively. As far as the fertilizer segment is concerned, the revenues grew by 26% YoY, although segment margins were largely impacted on account of sharp increase in raw material prices.
With steep increase in raw material prices such as ammonia, phosphoric acid, and MOP, the production cost of fertilizer has been significantly higher compared to the same period last year. NPK, inclusive of our Croptek, recorded a sales growth of 36% YoY to INR 1,121 crores in Q1 FY 2023. Bensulf sales increased by 109% YoY to INR 52 crores in Q1 FY 2023. NPK plants operated with utilization levels of 75%, and Bensulf plant operated at 76% utilization level. The available capacity across our plants provides us headroom for future growth potential.
I think with this, I would, as such, stop the commentary, and we'd be happy to take your questions. Thank you.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Jenish Garda, an individual investor. Please go ahead.
Good afternoon, management. Congratulations for good sets of numbers. My first question is regarding EBITDA margin of 24%. Will it be maintained in near term and future term when the two new plants get started in FY 2024? Second question is regarding the investor presentation. In one of the headings, renowned investor, one investor name is Dolly Khanna mentioned, but in investor meets I am not able to see in holdings the name of Dolly Khanna.
Okay. To your first question, I think Mr. Mehta just, I think he did touch upon this aspect that, while you know, this quarter we saw a significant increase in both raw material prices and finished good prices.
Yeah.
The encouraging part was that there was no demand destruction in each of our products. By and large, the demand remained strong. I think-
Sure.
That is one aspect that we believe and we are confident that that is what is going to be the case in coming quarters. What happens to raw material prices and finished good prices, as Mr. Mehta was also mentioning, there is always a tendency to be a lag or lead in terms of passing on of some of these raw material prices or you know. To that extent, it's very difficult to say what could be the EBITDA margins going forward. Q2, as we mentioned, is generally a lean quarter for us.
Yeah.
Particularly in the chemical segment. To that extent, you know, there is obviously, you know, there's demand side because of monsoon. In both our chemical segment, nitric acid and TAN is likely to be weakened. I think that is pretty much what we would. We are in a position to comment at this stage.
Just, can you give the margins? If we are not able to maintain 24% margin, can you give the lower base margin in, as per management expectation?
We are not in a position to guide any. See, if you would appreciate that the whole geopolitical environment.
Okay.
Is so uncertain that at this stage for us to predict sitting here what would happen in the balance three quarters is very, very difficult. We would refrain-
Company has a long history, so it must have any prediction or it will. In the worst case scenario, our margin will be this much percent and all.
Like I said, you know, we would refrain from giving any guidance on margin given the, you know, kind of volatility we are seeing in both finished good and raw material side.
Okay. Regarding that investor, you know, investor presentation, Dolly Khanna name is mentioned, but in holdings I'm not able to see Dolly Khanna name.
Basically if you are looking at BSE provides investor details only above 1%. For the other details.
Yeah, sure.
You can write to us separately, and we can provide you with the top 200 shareholder register for your reference.
Okay. In where I have to write?
You can write to me and copy to company secretary. We'll provide you the necessary details.
Okay.
Our details are there at the end of the presentation.
Okay. Yeah. Thank you.
Thank you. Next question is from the line of Abhijit Akella from Kotak Securities. Please go ahead.
He's shown very good results. 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. Also how much CapEx has already been executed on the ammonia project and how much is pending to be spent?
Yeah. As far as ammonia is concerned, or let me just first answer your first question that is our gross debt is about INR 2,900 crores. Net debt is about INR 1,930 crores. Those are the numbers as of end of June. As far as ammonia CapEx is concerned, out of 4,350 that we had estimated, we have already spent CapEx of about INR 2,850 crores. And therefore, the balance, you know, INR 4,350 crores minus INR 2,850 crores is what 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 one of FY 2024.
Understood. I'm not sure if you are in a position to sort of look ahead until the end of the year. Would it be reasonable to conclude that net debt by the time of the project is commissioned, the ammonia project, will probably be less than INR 3,000 crore at the end of it?
Well, difficult to say. Ammonia, like I said, you know, we need to incur roughly about INR 1,500 crore additional. Out of this, roughly, I think half of it will come by way of debt and half of it will come by way of equity. As such on ammonia, yes, gross debt perspective, it'll add about INR 750 crore by the time project is complete. When it comes to net debt, I think it'll all depend on our internal cash generation and cash position. That I wouldn't be able to give you any guidance at all.
Great. That's very helpful. One last thing was just, in terms of the, you know, situation on the ground in terms of gas prices and ammonia prices. What is your thought process in terms of, finalizing any gas contracts and how are you seeing the economics for the ammonia project at, you know, current market, levels? Thank you so much.
At current market level, as much as the gas prices are elevated, even ammonia prices are high, and I mentioned that in earlier calls also that at the current prices including the state incentives that we have where we get 9% SGST reimbursement till we recover 75% of our CapEx. Some of the energy related benefits that we have at the new project, the margins are currently at, you know, I would say significantly better than what we had when we had started the project. Almost in the range of $400-$500 per ton. As far as gas and ammonia prices are concerned, you would appreciate that gas is also getting driven by what's happening in Europe.
Particularly because of Russia-Ukraine war and the stand taken by Russia on supply of gas to Europe and therefore Europe also trying to bridge the gap through various LNG import from U.S. and other geographies. I think that aspect of it is honestly we are seeing pretty much every two, three weeks there is new development. Very difficult to predict. The second factor that may affect the gas prices also is how severe the winter is as we move into winter for Europe and U.S.
I think all of those aspects will play a kind of a significant effect on gas prices and to an extent ammonia prices, because ammonia prices are given the incremental cost of or marginal cost of production of ammonia is dependent on what's happening in European gas prices. There is a level that there seems like a strong linkage at this moment between these two commodities. It's very like I said, you know, it is every pretty much every month is a new development. Very difficult to predict what might happen.
Understood. Thank you so much, Amit. I wish you all the best.
Thank you. Next question is from the line of Vidhi Dagli from Vittam Securities. Please go ahead.
A broader picture. Hello? Hello? Hello?
Yeah, go ahead, please.
Hello. Are you able to hear me, sir?
Yes, we can hear you. Please go ahead with your question.
Okay. Sir, my question is, can you help us with the volume and realization trends in TAN and nitric acid for the next two quarters? A broader picture.
Sorry, what? Can you repeat your question?
Hello?
Can you repeat your question, please?
Sure, sir, can you help us with the volume trends in TAN and nitric acid segment and also the expected realizations? A broader picture, sir, for the next two quarters.
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. To that extent, the Q2 is likely to be a weaker quarter compared to what we saw in Q1. Beyond Q3, Q4, I would go back to the point that Mr. Mehta also mentioned, and we've been saying, that we are seeing good demand both on the explosive side as well as on nitric acid side. Explosive driven by coal as well as infra and cement segment.
Nitric acid, largely by nitration segment, which is again, is somewhere we've seen that China plus one shift and a lot of our customer, downstream customers are seeing very strong demand of their products and their their order book. I think that's with that directionally, I think Q3, Q4, we expect the demand to continue to remain robust. I think that's pretty much what I would be in a position to say at this stage.
Sure, sir. Thank you so much and congratulations on a good quarter and right direction. Thank you, sir.
Thank you. Before we take the next question, a reminder to all participants that you may press star and one to ask a question.
Well done, Vidhi.
Next question is from the line of Chinmay Palga from Chetan Parikh Capital.
Hi, all. Nice to meet you. I hope you can hear me.
We can hear you. Please go ahead.
Okay. Yeah. I have a couple of questions. I'm not gonna ask about TAN realization. A majority of our nitric acid is consumed in-house, right? If we're 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 our current end use?
We are right now in the process of developing some of these products based on the requirement we are seeing in these segments. 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. Needless to say, the whole idea of getting into specific segments and catering to specific requirement of the end user is to basically look at value-based pricing. We expect that therefore the margins are likely to be better than the plain vanilla grade nitric acid.
Are we thinking about expanding our capacities in concentrated nitric acid after the TAN capacities, or is it too early to think about that right now?
It's too early. Board hasn't taken any decision, so I won't be able to guide you anything on that.
No, that's fine. Next question is, I've been hearing of the coal industry looking at a PLI scheme for TAN. Could you share if there's talks of that happening?
We don't have, you know, we've been obviously because of the way PLI scheme was proposed by the government, we were also exploring whether that would be available for TAN. As of now, we don't have any firm news on that. We've also, like yourself, we have also heard it in the press. I don't have anything firm to mention.
Okay. Fine. That's fair. Last question from my side is could you just tell us about the consequence of the income tax issue that we had for INR 500 crore? I know we said we're confident of defending it, but if you could give me some details on why we're confident and, yeah, where this stems from. Thank you.
Essentially, most of the demand is a consequence of disallowance of depreciation on goodwill and intangibles. That both on the judicial precedent and also the fact that in Finance Act 2021, government had prospectively disallowed depreciation on goodwill. That is the reason we believe that retrospectively, when we had claimed depreciation on goodwill and intangibles, is something that would be defendable. That is where I believe that this would not have any, I mean, fundamentally legally defendable claims.
Okay. There won't be any outlay until it's challenged in court and determined in court, right?
At this moment, we'll have to discuss with the department that whether before giving appealing at the next stage, would there be a requirement for any deposit of tax. In the worst case, that will not be more than the 20% of the demand made by the department.
Okay. At worst case, our balance sheet will look like it did last quarter because from the debt levels that you've mentioned, it looks like our net debt is still roughly the same as what it was last quarter, and we've got about INR 400 crore of cash.
I don't know what is the link between the two, but what I can confirm is that given that the demand made by the department is for INR 569 crores, the maximum that we may be required to deposit is 20% of this, roughly say INR 100-odd crores.
Yeah.
Even that depends on if we would make an appeal for, given that the amount is large, we'd see how what dispensation department is willing to give us. To that extent, that's the maximum outgo at this stage till we-
Okay.
Go into next stage of appealing.
No, I understand. Thank you so much for taking my question.
Thank you. Next question is from the line of Tejas Shah from Laxmi Securities. Please go ahead, sir.
How do we see the TAN prices compared to last quarter?
Compared to last quarter?
Means there is a January to March and from April to June. If the prices have gone up or it is just that the volume ramp-up has helped you clock more sales or profits?
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%. You can then maybe do some back calculation to see how much of the increase in revenue is because of volume and how much is because of price.
Price will be what? How much increase will be done in terms of price, if you can share?
Now that's what I said that the volume have gone up by 12%.
Mm-hmm.
We have reported the revenues from 10 segments, last year, last quarter, as well as this quarter.
Okay.
To that extent, you could just do a back calculation to see what the per ton or rather NSP would have gone up by both quarter-on-quarter and YoY.
Okay. Thank you.
All right.
Thank you. Next question is from the line of Darshil Jhaveri from Crown Capital. Please go ahead.
Hello sir, am I audible?
Yes, please.
Yeah. Congratulations on a good set of numbers, sir. I just wanted to ask, after our project completion, what kind of revenue can we foresee for the next year or something could, like, be available to be guided? Or how? What would be the benefit or if not the revenue then the benefit of the new ammonia plant?
As I said that ammonia was largely it for our own consumption. 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 I've just you know earlier I had answered that question. That is the likely improvement as far as the margins or bottom line is concerned. From a revenue perspective, it is at consolidated level it will not as such result in because it's all entirely for our own captive consumption.
Okay. Sir, thank you for that answer, sir. Sir, we've seen very good growth in this quarter one, sir. How much of it would be sustainable going forward? I imagine our demand is we don't see any problem in demand, so the revenue in quarter one could be assumed as sustainable.
Look, revenue, I think two aspects that we mentioned, and you—I would again draw your attention to those. One is that, if you look at the capacity utilizations in some of our segments, there is still a good headroom available, in terms of better capacity utilization. If the demand, with the exception of Q2, which has its own, you know, sort of demand reduction aspects in chemical segment. With that exception, if the demand continues, and which we are confident it would, then the capacity utilization in these segments, there is a headroom. Also, we've already done debottlenecking of TAN as well as NPK capacity.
That also in terms of would play a role in terms of improvement in our top line. I think other than that, price-wise, we just mentioned that price, of course it's very difficult to predict. It'll also depend on what happens to raw material prices and its consequent impact on the finished good prices. I think you should maybe take guidance more from the demand side or volume numbers that are likely to pan out in next couple of quarters.
Okay. Thank you. Thank you so much. That answers all my questions, sir. All the best for the next quarter. Thank you.
Thank you. Before we take the next question, a reminder to all the participants that you may press star and one to ask a question. Next question is from the line of Sharon Nadikur, an individual investor. Please go ahead.
Hello. Yeah. Thank you for the opportunity and, congratulations for a good set of numbers. 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, you know, the funding?
No, it is through, largely through internal generation.
Sorry?
It will be largely through internal generation and the existing cash balance that we have.
Okay. Thank you. Another question is, in the previous two quarters, there was a point raised on the non-core sector commercial property sale, whether that's like going to happen in next one or two quarters or still not on the discussion?
No, I think our reply to that remains the same. That one is we are trying to, you know, remove all the regulatory blocks that are there to make sure that any potential monetization of that is done at the full potential. The second is, given that we, you know, currently, as such from a balance sheet perspective, we are fairly comfortable. We will see the right timing of that as we go in the process of completing our CapEx and the funding requirement.
Okay. Sure. My last question is customized offerings to the solar and steel sector, the chemical. I think someone asked the question and you responded saying that it's still in the development process. My question is like, once let's say considering the huge growth potential in solar and steel in the next few years in India, do you have existing plans to scale up the chemical, like once your invention is done, or like you need to even plan the CapEx for that sector as well, for the specialty chemical for those two sectors?
Those two sectors, we are looking at product development, both, you know, largely in nitric acid segment. As such volume perspective, it would go out of the existing volume or some of the capacity utilization that we are targeting. Beyond this, as I was mentioning, there is no decision as of now to increase the capacity or any CapEx in nitric acid. As and when that happens, we will be informing the stock exchange and investors.
Yeah. Thank you, sir. Thanks for the time. All the best for the future.
Thank you. Next question is from the line of Tarun Dhingra, an individual investor. Please go ahead.
Good evening to all participants. My question is that you have a non-core asset of around INR 700 crores. That has been giving you losses since the last four quarter. Why don't you exit from that non-core asset and reduce the debt?
I just answered that question. We will take your sentiments back to the management.
The second question is that, sir, when my company is going to be debt free?
Sorry, can you repeat that question?
When my company is going to be debt free? I mean, what time span you are taking that Deepak Fertilisers would be debt free?
See, if you see, today even from a gross debt, net debt perspective, we have the numbers. We have sort of cash balance, practically. 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. As these CapExes are over, depending on the cash generation, we would certainly look at because, you know that cash would either have to go for next round of growth or it is for repaying the debt. There is no reason for us to hold that cash in our books.
I think largely one would have to see how the CapEx of these two projects stands out in next, let's say it's about 24-36 months and also internal cash generation. Based on that, we are sort of.
Okay. Thank you so much, sir.
Thank you. The next question is from the line of Madhav Marda from Fidelity. Please go ahead. Mr. Madhav, please go ahead with your question. Since there is no reply from the line of Mr. Madhav, we'll go ahead with the next question. The next question is from the line of Mr. Karthik Nagar, an individual investor. Please go ahead.
Yes. Good afternoon. Am I audible? Hello?
Yes.
Yes. Good afternoon. Firstly, I would like to congratulate you for a very good set of numbers. 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? My second question is, you made us understand regarding the price of gas and ammonia. What I just want to know is the company assured of gas supply to when the ammonia project starts?
To your first question, as I said that, you know, if you look at the volumes in chemical segment, both TAN and acid, you can also look at what the margins have been or, you know, compared to the volume growth, what has been the overall sales growth. To that extent, yes, I think that the margins have expanded. It's obvious that the finished good prices have compared to raw material prices, chemical prices have seen higher expansion. The second aspect on your question on the gas price, gas availability. See, gas availability per se is not a challenge, even today, because India has enough LNG terminals and therefore import capacity.
Also both ONGC Reliance what we understand based on the progressive auctions that have happened from their side. They also have the plans to increase their production profile. To that extent, a combination of both domestic and imported gas, there is enough availability. It is more about at what price is this gas available, and which is where I earlier mentioned that today, even at the current prices of gas, so we also keep buying spot gas every quarter, incremental quantity based on our production profile or our internal utility consumption. We are buying gas even at this price, current price in our overall portfolio.
To that extent, it's the price and what effect does it have or what kind of margins can one make with the current prices of ammonia is the aspect that one has to track, but availability is not an issue.
Okay. Thank you. Thank you very much.
Thank you. Next question is on the line of Madhav Marda from Fidelity. Please go ahead. Mr. Madhav, please go ahead with your question. Mr. Madhav, if you have muted yourself from your phone, please unmute yourself and go ahead with your question.
Hello? Hello?
Yes, please. We can hear you.
Hello?
Yeah, we can hear you.
Sorry, there's some issue with my line. No, my question was that, basically could you help me understand the CapEx that we have for FY 2023 and 2024, given the projects that are ongoing at, with ammonia and TAN-based?
In ammonia, which we are targeting to complete by Q1, let's say somewhere in May 2023, we are yet to incur from here on. We have another INR 1,500 crore of CapEx in ammonia project.
Yep.
As far as TAN is concerned, this year, this financial year, we would incur somewhere like INR 550 odd crores-INR 600 odd crores in this year for TAN.
That's INR 2,100 crore. 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.
There is normal maintenance CapEx. There is also. We've completed one round of debottlenecking in TAN. The second phase of debottlenecking, we are still awaiting the technical details and depending on that, though the CapEx numbers are not going to be very, very big as far as debottlenecking expenses, but those would be the additional expenses beyond the TAN and ammonia CapEx.
Would it be fair to say that the CapEx for FY 2023 should be within INR 2,500 crores, including the debottlenecking and the maintenance?
Yes. Yes.
Okay. FY 2024, what does that look like? Ammonia should be largely complete, and then you would have TAN, the balance CapEx.
Ammonia would be largely complete. By that time, assuming that we would have incurred, let us say, INR 600-odd crores in TAN from here on, we would have completed almost INR 1,000 crores in TAN. After that, over next 18- 20 months, we would incur the balance INR 1,200 crores.
Okay. Understood. All right. Great. Thank you so much for your time. Thank you.
Thank you. Next question is on the line of Meet Vora from Axis Capital. Please go ahead.
We can't hear you. Can you speak a bit loud?
Hello? Hello?
Yeah, go ahead. We were not able to hear you earlier. Can you just?
Yeah.
Not very clear.
Mr. Meet.
Yeah.
You are inaudible. Can you speak a little louder?
Yeah.
Sir, can you share the segment-wise margins for TAN and nitric acid both?
We don't report segment-wise. As in, we report chemical segment and fertilizer segment, and that is, we've already shown that in our earnings presentation.
Thank you. Next question is from the line of Nishit Shah from Aequitas Investments. Please go ahead.
Sir, I'd like to congratulate on this great set of numbers. Sir, I have only one question. In Q1 you highlighted we faced some issues which impacted our capacity utilization. In Q2, are you facing any issues?
Sorry, what? Can you repeat that question, please?
Yeah.
Q1-
In Q1, we highlighted in our presentation that there were some issues which impacted our capacity utilization. In Q2, are we facing any issues?
No. In Q1, one effect was of a raw material or rather raw water shortage, which was because MIDC had taken some maintenance shutdown of their pipeline. Now that is over. As such that is unlikely to affect. The other aspect, we had MOP shortage in quarter one. That is now better compared to Q1.
Okay. That's it, sir. Thank you.
Thank you. Next question is from the line of Priyan Purohit from KamayaKya Wealth Management. Please go ahead.
Hi. Hi sir. Thank you so much for taking my question. I can clearly see that, you know, since if I compare to FY 2021, the chemical segment has been contributing quite significantly to your bottom line specifically. I just wanted to understand if you have any plans for doing any CapEx for the fertilizer segment or probably entering into some niche fertilizer segments which are, you know, maybe not NPK based, maybe something like potassium based fertilizers or just wanted to know your outlook on that segment. Thank you.
No such plan or decision taken by the board.
Okay. All right. Thanks a lot, sir. 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%. What's the reason for that, sir? Are you already experiencing the muted demand that you are seeing, which you are foreseeing in Q2? Are you already experiencing those headwinds right now?
IPA had some production challenges because of raw water, but other than that, IPA margins were under pressure. We had taken certain sort of shutdowns or, you know, plant maintenance in advance rather than waiting for the scheduled one.
All right. All right, sir. Do you see the utilization levels going up in the coming quarters now, considering that these shutdowns would have been a one-off event?
Yeah, we'd like to see the margins. There are two things that are playing out right now. One is because of the crude prices. The refinery grade propylene prices have gone up while the IPA prices seem to have come down or have remained and haven't reflected the increase in prices of crude and propylene because IPA is made through the other route as well. The second aspect is that we are currently also looking at expansion of our you know product profile into pharma grade IPA and couple of other you know special applications. To the extent there our margins are better than the plain vanilla standard grade IPA.
Depending on how we are able to ramp up the volumes in the specialty grade and what happens to the margins, our capacity utilization would be calibrated accordingly in quarter two.
All right, sir. Got it. Thank you. Thank you so much.
Thank you. Next question is on the line of Shubham Thorat from Perpetual Investment Advisors. Please go ahead.
Good afternoon, everyone, and congratulations on very good set of numbers this quarter. My question is related to our fertilizer business vertical. We can see a quite subdued performance from this vertical this quarter. How do you see this fertilizer business shaping up in the coming quarters?
I think Mahesh is here. He would.
If you see the agri fertilizer consumption takes place during Kharif and Rabi, and in the first quarter, we had a bit of a delayed rainfall. Start of the rainfall in the month of June was low, lower than the previous years. That then got shifted to July. From July onwards, there's proper rainfall, and we are seeing that in western parts of India where we operate, rainfall is even more and we have a better reservoir fill. From that perspective, we don't see any challenges from agriculture perspective as well as the commodity prices are good. If you see as well as your question related to the fertilizer performance, we are within a range of 10% of year-to-year performance.
From last quarter, we have nearly doubled our net income as we reported. Industry-wise, there was a little bit of reduction in the volume in the first half, but we have maintained our overall market share. As well as if you may have noticed that, we already launched next level of category innovation category, which is Croptek products, which are unique product with eight nutrients along with Nutrient Unlock Technology. As well as we continue to launch in water-soluble fertilizer business also new products. We are moving up on our innovation curve and continue to launch better products every quarter and scale them up.
Yes, sir. Just a small clarification. Did you say that the greenfield ammonia project is going to be commissioned by Q1 FY 2024 and the TAN plant is going to be commissioned by the second half in FY 2024? Is that right?
The ammonia project, yes, it will be in quarter 1 FY 2024, but TAN project would be in the calendar year, second half of calendar year 2024.
Okay. Thank you, sir. Thank you so much, and wish you all the best.
Thank you. Due to time constraint, we have reached the end of question and answer session. I would now like to hand the conference over to the management for closing comments.
Well, ladies and gentlemen, thank you so much for your participation. For any further queries or clarifications, please do get in touch with our investor relations team. Thank you once again. Thank you.
Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.