Q3 24/25

Feb 11, 2025

Summary

Q3 revenue growth and higher fertilizer volumes lifted consolidated profit, despite input-cost, subsidy and industrial-spread pressures. Q4 fertilizer sales target is 3–3.25 lakh metric tons; major efficiency and energy projects are nearing completion.

Ladies and gentlemen, good day and welcome to the Gujarat State Fertilizers & Chemicals investors' conference call hosted to discuss Q3 FY 2025 financial performance. This call is hosted by Anurag Services LLP on behalf of GSFC. From the management, we have Mr. S. K. Bajpai, Senior Vice President of Finance and Legal and CFO, Mr. S. V. Varma, Executive Director, AB & HRS, and other senior management members from the management. 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. I now hand the conference over to Mr. S. K. Bajpai, Senior Vice President of Finance and Legal and CFO from GSFC. Thank you and over to you, sir. Okay. Thank you. We are pleased to welcome you to the earnings conference call of GSFC. We appreciate your participation in the GSFC Quarter 3 post result conference call. I trust that you have reviewed our findings and other presentations that have been posted on our website as well as to the stock exchanges. The company demonstrated strong revenue growth, improved efficiency, higher production and strategic product mix optimization, reinforcing its competitive position in fertilizer and industrial segments in Quarter 3 and nine months for financial year 2024-2025. If you see consolidated figures for Quarter 3 and nine months, top line growth of 40% year-over-year in Q3 and 6% in nine months. PBT increased by 16% and PAT increased by 13% year-over-year in Q3. Consolidated nine-month year-over-year PBT was lower by 1% and PAT by 4%, but from a standalone point of view, nine months year-over-year PBT was up by 3% and PAT by 2%. If you see production and sales of fertilizers. Fertilizers output rose by 23% year-over-year in Q3 of 77,000 metric ton and 18% year-over-year in nine months, that is 198,000 metric ton. Sales volume also increased by 25% in Q3, 125,400 metric ton and 5% in nine months, that is 75,000 metric ton. Basically, due to negative economics of DAP production, company imported 127,000 metric ton of DAP, around INR 758 crores of DAP to satisfy Indian DAP requirement. Our imported DAP did not provide any margin to the company. The company also faced challenging cost environment due to rising prices of essential raw materials such as sulfur, sulphuric acid, and P2O5. The P2O5 prices in Q3 had risen from $948 per metric ton to $1,060 per metric ton. Additionally, the significant depreciation of INR that has also impacted production and imported cost. Capro-benzene spread declined from $674 per metric ton in Quarter 3 last year to $588 per metric ton in the current quarter, reducing profitability in this segment. However, the company effectively mitigated these cost pressures by optimizing its product mix towards more profitable fertilizers and industrial products and increasing capacity utilization. Further, reduction in natural gas prices 10% in Quarter 3 year-over-year and 1% in nine months year-over-year provided some relief, helping to offset the rising cost of other raw material. Subsidy rates for P&K fertilizers were lower on 9 months year-over-year basis, but the company successfully navigated the situation by boosting production and sales volume, ensuring operational efficiency and strategically positioning its product in key markets. India's coming Q4 2024-2025 with turbulent conditions reported for rabi crops across major states. The country is poised for another strong harvest season. However, the fertilizer industry faces challenges due to price constraints, global supply conditions and subsidy pressures impacting production and imports. The company's focus will be on optimizing sales opportunity and ensuring strategic stock placement for the upcoming kharif season. Considering the market dynamics and planned annual shutdown of key fertilizer plants such as ammonium sulfate, ammonia and energy revamp exercise in case of urea. We have a target to book sales in the range of 3 lakh to 3.25 lakh metric ton in Q4. In the industrial product segment, the demand of our major industrial product from various application sectors is likely to remain stable to firm during the next quarter. However, pricing for major industrial product is likely to be affected by cheap Chinese imports. Overall, the company expects a stable demand and turnover in the industrial product segment in the coming quarter. As you are aware, we are a debt-free organization with a strong balance sheet and robust liquidity position. This financial strength is supported significantly by the government's proactive approach in ensuring the timely disbursement of subsidies. We have received subsidies for imported P&K fertilizers up to December 2024, while the subsidy for indigenous P&K and urea has been received up to the second and third week of January 2025 respectively. The organization is adhering to its strategic objectives with regard to capital expenditure. It is anticipated that Sulphuric Acid V project and Urea-II Revamping project will be operational at the end of current fiscal year. I would like to express my gratitude for your presence in listening to my overview. We will now commence the question and answer session. Thank you. Thank you, sir. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets when asking for a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Nirav Jimudia from Anvil Wealth. Please go ahead. Yeah. Good afternoon, team. Sir, I have a few questions to ask. Based on your opening remarks, on the fertilizer side, we have clocked close to around 23% manufacturing volumes, and if we include trading, I think it is around close to 25% volume growth. Sir, is it possible to, A, break down the PBIT, what we have clocked on the fertilizer segment in Q3 between how much we have done on the manufacturing side and how much on the trading side, A. Also, if you can share with now Urea-II Revamping project getting close to commissioning. Was urea profitable in Q3 of FY 2025? With this commissioning of the urea plant, what sort of improvement we could see in per ton margins for urea? Fertilizer output rose by 23% year-over-year. Yeah. In the quarter 3, there was lesser output in comparison to quarter 2 because of the availability of urea from the government side. But APS at Sikka unit and ammonium sulfate at Baroda unit, we have increased the capacity and fertilizer production was higher. As far as profitability is concerned, we generally do not share the profitability product-wise because of some other subsidy issues and all. Whatever we have presented is our publication and the investor site that is available. Correct. But sir, on the urea side, if you can share whether it was profitable in Q3 and with this revamp project getting close to commissioning, what sort of improvement we could see on the EBITDA per metric ton? Because if I am not wrong, our Gcal per metric ton could see 0.70, 0.75 Gcal per metric ton sales. I think currently we are close to around 6.5 and with this revamp we could go close to around 5.8, 5.85. What sort of benefits could accrue to us with this urea plant getting revamped? Yeah, urea, there is a little margin available. There is no problem as such. The plant is slated to be commissioned in the coming quarter, and then after we will come to know how much energy reduction will be there. But we are sure that whatever amount is set up by the government, we will be achieving this. Correct. Sir, generally if we see last Q4 also in terms of the fertilizer demand, specifically for our AS and APS, if I am not wrong, last year you mentioned that we have to offer some sort of discounts also in order to place our volumes. I think what we have reported in terms of PBIT for this quarter is close to around INR 2,500 a ton in the fertilizer segment, combining everything, all the volumes. If you can share that, how is the situation in Q4, whether still we have to provide some sort of discounts in Q4 to place our volumes or the intensity of discounts would be lesser, and we could report a better profitability because last year in Q4, fertilizer segment has a loss. If you can share your views here. Actually, profitability in the quarter 2 was basically due to the additional dividend received around INR 100 crore that has boosted the profitability of the company in quarter 2, which is not available in quarter 3. No, sir. I am talking about Q4 to Q4 of last year. Like the upcoming quarter of Q4 where because of the seasonality issue, last year Q4, you mentioned that we have to offer some sort of discounts in order to place our volumes. How would be the intensity of discounts in this Q4? Because last Q4, because of these discounts and everything, we had to suffer the losses on the fertilizer side. If you can just help out with this. No, in Q4, I don't foresee any discounts will be there. We have the limited stock, and that has been strategically placed in the market, and we have taken the shutdown during the lean season of the fertilizer sector as a whole, Q4. We have taken shutdown of various fertilizer plants like urea, APS, ammonium sulfate. Whatever fertilizer we are having in stock and little production during Q4, we are strategically placing. Our marketing department does not foresee any increase in the discount. Profitability will be remaining same as in Q3. If we correctly remember, Q4 last year was not a very good quarter. INR 125 crore of profit was reported in Q4 last year. This year we can expect better performance in Q4. Got it. Sir, second question is on the HX plant, which we recently commissioned in October. If you can share your views on the same, like how much the production and sales in Q3, and possibly if you can share the profitability or the EBITDA contribution from this particular product, would be very helpful. Yeah, I said sulfate plant is now stabilized after initial phasing troubles, and now it is stabilized at the rated capacity of something metric ton per day. Earlier we are having the one plant, the HX1 crystal plant that is having the capacity of 10 metric ton per day. Totally, we are getting 30 metric ton per day capacity. There is no problem as such now, and we are regularly getting this capacity, even sometimes surpassing the 100% capacity also. As far as profitability of this product is concerned, we are quite comfortable. I cannot show the exact number because it is just the initial stage and we are searching the market and getting the export substitution to penetrate in the market. But we are quite comfortable in the contribution side also, because as you know, in the caprolactam, the capro-benzene spread is reduced like anything and there is hardly any contribution. We are visiting the production of caprolactam to asset sulfate plant. Correct. Given the kind of the spreads and the prices you have mentioned in the presentation for caprolactam, with the current level of benzene prices of close to $950-$1,000 a ton, hypothetically, are prices above $1,700 would help us to start making profits on the caprolactam side, or is the break-even price for us slightly higher than that? No, break-even is just from $1,600. If we get $1,600 caprolactam, Yeah we will break even. So little improvement in the caprolactam pricing will suffice us to break even in the caprolactam. Got it. Last question on the sulphuric acid side. If we just do some math in terms of our production of AS and the other products in this quarter, I think our quarterly requirement of sulphuric acid comes to close to around 175,000-180,000 tons. So given the kind of price increases we have seen on the sulfur side and sulphuric acid prices also, and being used in the ammonium sulfate fertilizers, do we have some leeway in terms of passing on these cost increases in the market or we have to absorb this cost and we can't pass on these cost increases to consumers? Largely, sulphuric acid, since we are producing in the Baroda unit where we manufacture the ammonium sulfate. The requirement of sulphuric acid in Baroda unit is met by our own production, which is quite competitive. Sometimes we are having the requirements, it is fulfilled by the long-term arrangement with the parties. Whatever the increase in the sulphuric acid prices there in the market, our production of ammonium sulfate or Ammonium Phosphate Sulphate is not impacted. Additionally, we are going to capitalize Sulphuric Acid V plant. Yes. After that, we will be having the additional capacity, what is the capacity we require to produce ammonium sulfate. We can go in the market and sell our product after getting the production from Sulphuric Acid V plant. Sir, last question from my side. Given the kind of profitability what we have seen on the industrial product side, are there any cost measures being initiated at the company level, given the kind of current prices of capro, melamine, and other products? Or let's say, are we introducing any other new products, which in a way could help us to again, come into the profits from the losses, what we have been reporting on the industrial product side? Yeah, we are taking two-three steps. One step, we are importing anone, because anone is imported component cheaper than our own cost of production in the anone one plant, which is a very old plant. We are replacing anone from the anone one plant by the imported anone. It is quite cheaper, so that it provides a little cushion in the caprolactam production cost. Okay. Second alternate is we are reducing the caprolactam production and diverting this asset to ammonium sulfate plant. Therefore, caprolactam lesser is available for the market. So, two, three measures we are taking, but otherwise it is mainly dependent upon the international pricing of benzene and the caprolactam, and we cannot do much. Till the time we have the positive contribution, we will continue the production. Got it, sir. Thank you so much, and wish you all the best. Thank you. Thank you. The next question comes from the line of Vaibhav Seth, an individual investor. Please go ahead. Yeah, good afternoon, sir. My name is Vaibhav Seth. I am a returning individual investor. My question is regarding. There are two questions. One is for EPS. As per the result, it is reported that EPS on December 31, 2024 is INR 13.03, right? Can we expect for the Q4 result EPS around INR 16? Second question is, sir, as to the Gujarat government circular issued in 2023 regarding various corporate actions, when shall we expect that kind of corporate action apart from the dividend, which you are giving 30% of the net profit? Thank you. Please answer. The EPS is reported analyzed nine months is INR 17.22. Which is surpassing your expectation of INR 16, if I correctly heard from your question. There is no problem with giving that EPS what you are expecting from the company. I could not understand the second question. Can you please repeat? As per the circular from the Gujarat government in 2023 for announcing various kind of corporate actions regarding bonus, buyback and all that kind of corporate actions. Yeah, Gujarat government circular is there, and at appropriate time, our board is taking the appropriate decision. Like you have seen already. We are hearing same answers since two years. When can we expect, sir? This is what I can tell you, and this is beyond my authority. It is ultimately the board and the Gujarat Government chief secretary is our chairman, so they will take the appropriate action. Lastly, when I talked to Ranadi sir, he has also answered the same way. Within 12 months, they will decide it. But now it has been nearly two years, no action has been taken regarding bonus and buyback. Dividend you are giving 30% as per the circular. That is okay. We have the lowest expenses. Now, as you know, that two, three plants we are going to capitalize within the next six months. So there is a lot of INR 500 crores amount is required to be paid to the suppliers. This is one detail when considering the dividend payment or any other bonus or any other measures what you are expecting from the company. But after this, after the year ends, I think the capitalization will be over, and then at the time of making the dividend payment, the board will take the suitable decision. Year means 31st March 2025 or 2026? 26. 2026. Hello? Yeah. 26. 26. Yeah. So after that, there will be no expansion in pipeline, right? Yeah, there are expansion pipeline. So one, two projects we will be capitalizing in this 2025, and one, two projects we will be capitalizing in the second half of 2025. So I think that afterwards, we will look our cash position and board will decide suitably. Okay. Thank you. Thank you. A reminder to all participants, you may press star and one to ask a question. The next question comes from the line of Love Gupta from Counter Cyclical Investments. Please go ahead. Hi. So my question was also regarding this Gujarat government issue order, and by when can we expect a statement or an indication of buyback or bonus share based on the order? That I already replied that because of our CapEx plan, robust CapEx plan, we require some money to be expended for the growth of the company. After 1 year or so when all our expenses for current plan are executed, then after board will decide suitable action in the 26th. Okay, got it. Thank you. Thank you. The next question comes from the line of Vivek, an individual investor. Please go ahead. Good afternoon, sir. Good afternoon. My question was also regarding the buyback, regarding the Gujarat government's notification. You are our voice, and I think you should take our voice to the board also, that many investors are asking the same questions regarding the April 23 notification of the Gujarat government regarding buyback. Sir, with regard to this, I will further add, you have told that INR 500 crores needs to be paid. There are certain CapEx, but I will bring your notice to the fact that we have investments of around INR 7,000 crores and further cash and bank balance of INR 2,500 crores. So that is a hefty amount, sir. As per your voice, only INR 500 crores need to be paid to the expansion portion. Again, I request that we investors should be rewarded by the Gujarat government's notification issued in April 23, sir. I think you should take our voice to the board also. Yeah. Certainly, I take note of your suggestion, and I will personally assure you to take your voice to our top management and the board suitably. Do not worry. Yeah, sir. We believe that the investment amount is very heavy. We are a manufacturing industry. Yes. Whatever. We are incurring this is also for the growth of the company, and you will reap the benefit for future days to come. It is not for anybody else. Whatever expenditure is, it will provide quite a large efficiency booster to the company, and the profitability will be increased by that. Right, sir. I am talking about the investment portion, not the expenditure on that specific portion. Yeah. Investment portion is also very heavy, sir, so please take our voice to the board. Okay, sir? Sure. Thank you. Participants, you may press star and 1 to ask a question. The next question comes from the line of Saket Kapoor from Kapoor & Company. Please go ahead. Namaskar, sir, and thank you for the opportunity. Firstly, as you outlined to the fact that the current CapEx working progress is to the tune of INR 500 crores. If you could just elaborate, as we see in our investor presentation, page number 8, it has been mentioned that the solar plant and the Urea-II revamping projects will be capitalized by March, and I think so the Sulphuric Acid V would be done by the first half. Is this all that we invest towards the INR 500 crores to be capitalized, sir? One more project is there, that is, GIPCL 75 megawatts solar power plant. There is an investment of INR 50 crore equity participation, and we will be getting 37.5 megawatts of cheaper power, and that is also expected in the first half of the next financial year. Okay. Sir, if you could just elaborate, firstly, the efficiencies or the benefits on the cost front that the urea revamping and the solar power addition will add to, and also the volume and the bottom line getting positively impacted by the sulphuric acid project. Urea-II revamping project is for meeting the energy norms of the government. By reducing the energy norms by 0.5 kilocalories, the reduction of the cost will be there for the company also. I cannot just now in a position to give exact financial benefits, but roughly what I remember is it may be impacting INR 30 crore to INR 35 crore of the cost reduction in the urea plant. Another Sulphuric Acid V plant, 198,000 ton per annum. You know the sulphuric acid price in the market, it is very aggressive. Whatever the factory consumption we are using, the sulphuric acid, half of or one-third of the production of the sulphuric acid type, they are actually available in the market to sell and there is a good margin. As far as solar power and the solar power at Charanka is concerned, it is 15 megawatts, so its cost will be INR 3 to INR 4 from each unit. It will be in replacement of the costly power that we purchased from the GUVNL or electricity boards. That will be the cheaper power available to the company. Also, 75 megawatt GIPCL, our share is 37.5 megawatt. Due to solar power, this cost will be also around INR 4 to INR 5 per unit. Presently, the cost of power is INR 8 to INR 9 per unit. That will be the benefit company will be getting in the coming year. Just to put it in nutshell, there will be a INR 30 crore saving annually for the Urea-II revamp project, that we have a one-time benefit of INR 30 crore. No, this is the continuous because the energy reduction will be a permanent feature, so this will be a continuous feature. How much have we invested, sir, in this revamping project? Total investment. Around INR 450 crore. INR 450 crore. This investment has gone over a period of how long we have taken to deploy this INR 450 crore? Two years. Two years? Yeah. Okay. Sir, pertaining to the sulphuric acid part, what is our current quarterly requirement of sulphuric acid? With this plant being commissioned, how will our captive utilization and our selling into the open market be what percentage? Whatever the requirement presently we are having, we are purchasing 300 metric ton per day. 40% of this capacity of the new sulphuric acid plant will be available for sale. That is the mota-mota plan for new sulphuric acid plant. Okay. This is vertically integrated in terms of our requirement for sulphuric acid will be now met from our own in-house generation. In-house generation and the long-term purchase agreement with the other parties. That is also available at a very competitive rate, not as per the market prevailing rates. Okay. Sir, as all investors and the stakeholders have been pointing out towards every individual who is invested or has keen interest, believes for the right intrinsic value and the right enterprise value for our organization like Gujarat State Fertilizers, which itself is a goldmine in terms of the assets it holds, both the operational assets as well as the financial assets. We have always seen in the past also that governments generally hire agencies or the right set of people who can carve out or suggest the right medium by which value can be created for organizations as a manager. All organizations like ours, which have many legacies, cross-holdings, and other aspects which can be unlocked and value creation can be done in the most beneficial way for both the promoters and the non-promoter entities. Our suggestion to the board would be to set an agenda by which this value creation exercise can be done, where the optimum use of the assets, both the financial assets as well as the physical operational assets can be done to create the right value for the investing community. This should be the clear motto, sir. We as an organization have been for the country as a provider of the continuity for fertilizers. We have also played a key role in the Atmanirbhar Bharat part of the story. But here, investors have been lagging behind in terms of the value creation. There is some gap that needs to be addressed, and that we investors feel needs to be done by the right set of people. Not currently to undermine your importance, sir, but there are various things which are needed to be addressed by the right set of the team. We request your good self and the other board members to kindly address our issue to the board members and also to our chairman, since we are on a recorded line. This should be a good opportunity to carve out the right intrinsic value for investors at large. I hope the management will take care of what it owes to its investors, sir. We hope for the continuity of the call. I think some more work should be done in terms of better putting more input in the investor presentation. We should look at our comparative data input by other competitors in the market, and better definition of the same should be done. These are my basic understandings, sir, and I hope for better times ahead, sir. Thank you. Yeah, thank you. I noted your suggestion. Yes. Thank you. Participants, please press star and 1 to ask a question. The next question comes from the line of Nirav Jimudia from Anvil Wealth. Please go ahead. Yes, sir. Thanks for the opportunity again. Sir, 2, 3 questions. One, currently we are producing close to around 80,000 tons of caprolactam. For this HX plant of 10,000 metric ton, how much would be used for our captive use? That is it, Sulphuric. One to one? One to one. It is one to one actually. Okay. So 9,000, 10,000 metric ton per annum capacity of the Sulphuric plant. So that will be reduced from the caprolactam availability. Got it. Sir, also if you can share in terms of our total CapEx for this 198,000 tons of Sulphuric Acid V plant, which is getting commissioned this financial year. Also if you can share, like last time you mentioned that the new 198,000 tons of phos acid and Sulphuric plant will have a CapEx of around INR 1,500 crores. Of that INR 1,500 crores, how much we have spent till now, and the plant which we are going to commission by March 2025, how much is the total CapEx and how much we have spent till now? Actually, there are 2, 3 questions you have asked. This Sulphuric Acid V project that will be having around INR 250 odd crore rupees. That is in Baroda. We are putting the facility to meet the requirement for production of ammonium sulfate. Yes. Second question that you have asked, the Sikka phosphoric acid and Sulphuric plant of INR 1,500 crores, that is still in the detail engineering stage. There is no much expenditure till now, but till the time we receive the detail engineering done and the equipment is ordered, then only the expenditure will take place. Your third question was in the 31st March, what will be expenditure? It is around INR 200 crores we will be required to release the fund in the 2 months. Correct. So the INR 500 crores CapEx what you mentioned, which needs to be spent, of that INR 200 crores will be by March and INR 300 crores will be spent in next financial year, right? That will be in the next quarter or the first half of 2025. Correct. But that doesn't include that INR 1,500 crores of CapEx? No. That does not include. Correct. And sir, last question is if with the commissioning of this Sulphuric Acid V plant of 198,000 ton, our total capacity of Sulphuric acid will be now close to around 1 million ton? Hello? Hello. Sir, are you- Just give me a moment, sir. No, all four plants have sulphuric acid. 1, 2, 3, 4. With this one? Yes. Are they also? It will be around 0.9 million. Yeah. Right. And sir, given the kind of our quarterly production for the fertilizers, how much is our quarterly requirement of phos acid? See, phos acid requirement are there two places, Baroda and Sikka. The expansion we have planned at Sikka, where we require around 400,000 of solution to run the plant at capacity level. Okay. Baroda is lesser. It is around 180,000 tons of solution. Both capacity level, here we have our own plant of PA in Baroda. At Sikka we want to establish it, that is there. Correct. This 198,000 would further bring down our requirement of phosphoric acid once the detailed engineering and everything is complete, right? Right. Yeah. And sir, last question from my side is on the rock phosphate side for our phosphoric acid. Are we in the process of getting some long-term contracts or investing in some of the mines outside India whereby our requirement of rock phosphate gets addressed or something of that sort? Are we in any discussions with any of the suppliers whereby that requirement could be taken care of? Yeah, we are sourcing for this rock phosphate. We have made a visit, our executive team along with our MD, visited Dubai to source that, and Jordan rock phosphate and other suppliers, major suppliers we have been spoken to, and we are quite hopeful the rock phosphate availability is certain and there will not be any problem. However, at appropriate time, we will execute the agreement. Thank you so much, and wish you all the best. Thank you. Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for the closing comments. Okay, thank you for the patient listening. We hope that we have given the satisfactory replies to all the callers. Thank you once again for joining the call. Sir, ladies and gentlemen, on behalf of GSFC Limited, that concludes this conference. You may now disconnect your lines.