Q1 24/25

Aug 6, 2024

Summary

Q1 PBT rose to INR 118 crore and PAT to INR 93 crore as fertilizer volumes climbed 30% YoY, though margins remained pressured. Industrial Products reported a INR 4 crore loss amid weak chemical spreads and Chinese imports.

Ladies and gentlemen, good day and welcome to Gujarat State Fertilizers & Chemicals Limited earnings conference call. 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 the star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Halakhandi from Anurag Services. Thank you, and over to you, sir. Good afternoon, everyone, and welcome to the first quarter earnings conference call for Gujarat State Fertilizers & Chemicals Limited. The call is hosted by Anurag Services LLP. Present from the management team are Mr. S. K. Bajpai, Senior Vice President, Finance and CFO, and Mr. S. V. Varma, Executive Director, Executive Agri Business and HR, along with other senior dignitaries. We appreciate the management for granting us the opportunity to host this call. Let's begin with the management's opening remarks, followed by a question and answer session. Thank you, and over to you, sir. Okay. Good afternoon to all, and welcome to the earnings conference call of GSFC for quarter one, 2024-2025. I hope that you have reviewed our results and the other presentations uploaded on our website and the stock exchanges. As you know, the company experienced a significant rebound from the subdued results of previous quarter, posting increase in PBT from INR 23 crore to INR 118 crore and taking PAT from INR 21 crore to INR 93 crore in the current quarter. This increase is attributed to a robust fertilizer volume of 4.46 lakh metric ton in current quarter and the optimization of product mix at Sikka unit in accordance with cost of economics of raw material prices and subsidy rates. During the quarter, we partially switched from DAP to APS and NPK production at our Sikka unit. In current quarter, we have achieved the second highest sales in last 15 years first quarter that is INR 2,144 crore. Fertilizer sales increased by 7% in value terms on YoY basis, and fertilizer sales volume witnessed growth of 30%, though the margins were under pressure. We anticipate that this trend will persist in future also. The acceleration of kharif cultivation has been facilitated by the favorable rainfall that is being experienced this year. Improved seasonal prospects are expected to maintain the robust demand for fertilizers during forthcoming quarters. You may be aware that the government reduced the subsidy outlay for fertilizers approximately 13% in the current year budget against the previous fiscal. Our government has been very prompt in releasing the subsidy. For P&K fertilizers as well as urea, we have received subsidy up to the first week of July. The same is reflected in our cash flow. As you know that we are a debt-free company with a strong balance sheet and healthy liquidity. Subsidy rates for P&K fertilizers are significantly reduced during October 2023. The trend has persisted for DAP and AS, while APS and NPK have experienced a modest increase. Contrary to this, the prices of basic materials have not reduced in the same proportion. While ammonia prices have decreased, PA prices remain steady at $850 per metric ton. Spot benzene and MD prices have actually increased on a YoY and quarter-over-quarter basis. The company plans to follow production with mixed DAP and non-DAP products at Sikka unit to optimize cost and maximize sales. Although Caprolactam and nylon chips were subjected to annual shutdown in quarter 1 current financial year, industrial product output remained consistent. In IP segment, domestic prices remained subdued due to dumping of cheap Chinese Caprolactam, Melamine, and basic nylon chips. Caprolactam spread on a YoY basis reduced from $730 per metric ton to $582 per metric ton. Nevertheless, we anticipate that overall industrial product turnover is likely to grow as compared to the current quarter. Project details are also posted on our website. All projects are progressing well as per the schedule, except few of delayed HX Crystal project and urea revamping project. However, we will be commencing this HX Crystal sulfuric acid 5 and urea revamping project up to the end of this financial year. Full year impact on turnover margins will be seen in the next financial year. With this opening remark, we can now start the question and answer session. Please. Thank you very much. We will now begin 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 handset 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 Neeraj from Anvil Research. Please go ahead. Yes, sir. Good afternoon, and thanks for the opportunity. Sir, I have a few questions. First is, sir, in the last interaction in the last con call, we have mentioned that for the Ammonium Sulphate fertilizer, we have to offer some discounts. That was because of the leaner season. On the top of it, from April onwards, government has also increased the subsidies. If you can help us explain whether those discounts of INR 2,000 per ton, which we have offered last quarter, was withdrawn and there was a normalized pricing. Over and above that INR 15 increase in the subsidy would have helped us in terms of the improved performance. Along with it, if you can also help us explain that was the improved performance because of some benefits coming to us in terms of the raw materials, especially the natural gas for converting to ammonia? Yeah. So as far as Ammonium Sulphate is concerned, the increase in subsidy with effect on first quarter is very minimal. I think there is no increase in it. No, same. Only in the NPK and APS, there is an increase in subsidy in effect. So there is no increase in the Ammonium Sulphate. Okay. As you know that DAP and other NPK grades of fertilizer is not having that favorable margin and contribution. Correct. Most of the fertilizer companies are now scouting for the Ammonium Sulphate. In India, we have only two producers, GSFC and FACT. But there are certain imports these fertilizer companies are making, and they are selling it in the open market. As far as discount is concerned, Mr. Varma, our marketing head will focus in. Neeraj here. See, the market of Ammonium Sulphate last time, what we indicated a discount of INR 2,000 per metric ton, has been softened a little bit because we have gone through the change in MRP also of the product based on the per cost of production. So some have got reduced to certain extent base of that thing. However, again, this first quarter is the lean season. It mainly starts in end of June or July for pushing of the sales. So placement, we have to offer discounts. As Mr. Bajpai has clearly said, there is no change in the subsidy of Ammonium Sulphate, but a slight increase in subsidy of APS and reduction in subsidy of DAP. So market has diverted towards NPK fertilizers like APS mostly. This time as we pointed out, our sales of APS was the highest because at Sikka we could produce APS and NPK at capacity levels due to availability of raw material economics and demand also in the market. But in case of DAP, it was at lesser capacity because of economics of the thing and raw material availability. Because you need higher phosphoric acid for DAP, so it is a constraint many times because we are 100% dependent on the import. Correct. So, sir, if we consider in terms of the ammonia, what we produce through the natural gas vis-à-vis the imported ammonia where the government uses that benchmark for the subsidy calculation, has our cost of production of ammonia fallen this quarter? Or if you can, let us explain what was our average cost of natural gas for Q1, and what was it for Q4? See, just one thing before Mr. Bajpai answers. In case of phosphate, we have NBS rate. In case of urea, it is not NBS rate. Cost of ammonia really impacts on the NPK fertilizers mainly like DAP, APS and other fertilizers. In case of Sikka, we are importing ammonia. This question does not come. It comes only in case of our Baroda unit, where we have a very small capacity of NPK production compared to Sikka. Correct. As you see, the natural gas prices are increased 6% on YoY basis. In case of urea, the whole natural gas prices are passed through. There is hardly any impact on the margins of the company. Very little ammonia goes in the production of melamine through urea and in the caprolactam. That much increase or that much impact of the increase in natural gas is not seen in our total profitability. Is it possible to give us the exact amount of our natural gas cost per MMBtu this quarter? Just a minute. It is 45. 45%. I think it is INR 45 per SCM cube in the current quarter. Okay. Sir, if we see our entire basket of fertilizer, let's say Ammonium Sulphate and Ammonium Phosphate Sulphate, DAP, NPK, and the urea, what broad range of per ton margins we should work with, let's say, for Ammonium Sulphate and Ammonium Phosphate Sulphate as a basket, NPK and DAP put together and let's say for the urea. So let's say if we segregate between these three divisions or three sub-segments, what sort of per ton margins we should work with or what are the current level of margins what we are earning from these three sub-segments? When we talk about the average margins, it is nearly INR 2,000-INR 2,500 per metric ton. However, as I told that in the DAP, there is no margins available. Even the contribution is in negative. So in other fertilizers, the average margin we are earning is INR 2,000-INR 2,500 per metric ton. Okay. Similar is the case for urea also, or there because of the under recovery of fixed cost, the margins are lesser? Yeah, in the urea, the margins are really lesser because of the higher energy consumption by the GSFC, and there is some penalty also attached to it. So in urea, the margins are lesser than this. Correct. When we will ramp up our phosphoric production along with the sulfuric acid plant, where our dependency on imports would start reducing, would we be safe to assume that before 3-4 years when the margins were good, we used to produce around 7 lakh tons of DAP plus NPK put together. Once this plant will be commissioned, the margins which are currently, let's say, zero to negative for DAP, would start giving us the positive margins, and along with it, we will also see the volumes of DAP, NPK also picking up. Your take on the same. Neeraj, see, there we have two manufacturing facility, one at Vadodara and one at Sikka. In case of Vadodara, we have our own phosphoric acid plant, our own sulfuric acid plant, which is running at capacity, and we are able to produce required phosphoric acid. It's a smaller plant. In case of Sikka, we are still dependent on imports. We are working on the project, but it's not immediate thing. It will be a short-term basis. It may 2-3 years' time. Yeah. Okay. So that plant which we have highlighted in the investor presentation also, in terms of our phosphoric capacity of 198,000 tons and sulfuric acid of 594,000 tons, that would take 2-3 years to get commission. Is it the way I should interpret on? Yeah. Correct. Okay, sir. Thanks for answering the questions in detail and join back in the queue. Thank you. Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. Ladies and gentlemen, if you wish to ask a question, you may press star and one. The next question is from the line of Saket Kapoor from Kapoor & Company. Please go ahead. Yeah. Namaskar, sir, and thank you for the opportunity. Sir, thank you for a very detailed opening remark also that answers many of the questions. Sir, when we read about this outlook part in your investor presentation, you have mentioned about market anticipation of increase in NBS subsidy, and thereby we are accumulating sufficient inventory of DAP for the forthcoming rabi season. If you could just explain to us how are the margins going to be affected by this strategy, and if I am not mistaken, you mentioned that we had negative margin for selling DAP for this quarter, sir? Yes. How will this work out for us, and what should be then the optimum number going ahead for DAP in terms of margin profile? Actually, there are three production lines in the Sikka unit. One is producing DAP, which we cannot change, and other two lines are interchangeably, where either we can produce NPK, APS, or DAP. Now presently, we are producing only in one line DAP, and in other two lines, APS and NPK. We have not stopped the production of DAP because of this little negative contribution because at any time there is a buzz going around that the DAP subsidy may increase a little bit. Also, in the interest of the market now, we cannot stop the DAP because DAP is a good demand, and there is a lot of pressure from the government side also to make DAP available to the farmers. GSFC, in our company, we never see only the profit motive. We produce and make available the required fertilizers to the farmers. We have never stopped the DAP or never stopped the DAP actually. Now the season has started, and we have cleared the material on the market. Now the rain has started, and the farmers will come to the source, and we will start selling the products wherever it is available. Mr. Kapoor, just to answer your specific question, how do you think about the NBS rate? If you see there on the papers, there was news about increasing the subsidy by INR 3,500 per metric ton for DAP from the government, but still notification is awaited. With this increase in the NBS rate, DAP will not be in negatives, it will be just break even. Whatever we have been done is right for the farmer community, and we are using a mixed approach for producing APS, NPK, and DAP of three at Sikka unit. Yeah. Sir, can you quantify the impact of the negative impact it has for the quarter that the DAP sales on the bottom line? Just a second. And then, sir, if you could give some color on the raw material basket, how are those shaping up going ahead? I think in the current quarter, if you see that there is a dent in the bottom lining amounting to INR 432 crore approx. Okay. So this will be negative for the next quarter. Yes. Negative. And sir, you mentioned about some energy efficiencies lost due to some lower energy efficiency. We have to pay some fine also for the urea unit. Can you quantify that amount also? No, sir. Amount is difficult to quantify because it is only provision of 35% penalty this year. They will impose, and we have already requested the government to reduce it up to the level what it was earlier, 30%. Let us see how the government reacts. We are already putting INR 450 crore for revamping of urea 2 plant. This will be commissioned in this end of the financial year only. We are representing to government that this is the last year, so don't penalize us for that. Anyway, we are putting this capital outlay of INR 450 crore for this purpose only. There is no reimbursement from the government for this investment. I think they will consider our case. Nimi sir, you said that you have made a provision. We have made the provision through the P&L route only. No, there is no provision made. I have not made any provision for this penalty. When it will come, then we will decide. Okay. But in our system, there is already inbuilt whatever the energy consumption is there. So higher energy consumption means the higher cost of production. So it is passed through by the government. It will be? Passed through by the government, I think. Okay. So we will be receiving back all the under priced pricing with what we have done for the entire subsidy will be released to us, or there will be some dent on sales of urea on account of this energy norms, the specification not been met. Our energy consumption, even after taking into consideration the penalty, is lesser than that. If we look at in the contrast, we get from the government the saving margin also. Because if we say that after this penalty, the norms become 6.74, and if we are at 6.6, so that 0.1 also we get in. I am just giving a hypothetical example. So we get a saving from the FICC also. There is no impact. So there is no impact with respect to this penalty. Okay. So Nimi sir, I just got confused. If there is no reason for that escalation, then why are we discussing about the fact that we were looking for waiving of the penalty going ahead? If you could just explain once again, sir. I mixed it up. It is not about waiving of the penalty. We are just requesting about because earlier, the penalty percentage was lesser, so they have increased it. So we were just asking them to keep it at the same level what it was earlier. There are two points which we are referring to. The one is that even after considering the penalty which the government have put in, the Gcal which comes up is lesser than what after penalty the Gcal government puts up for that. That is the one point. The second is with respect to coming of the new plant of the urea with this revamping, and that will automatically reduce. Automatically in the sense, after making this effort, it will reduce our energy consumption, so that penalty issues will go off. So these are the two different points which you are mixing up. Okay. And sir, one suggestion. In the presentation, when slide number, rather 5 and 6. Sir, therein we have given the Caprolactam trend also and the key input cost movement. So this is very important data, sir. If we could provide it in a tabular manner, that would suffice much better than the graphical part because there the color mingling and the one. To get the numbers correctly, we have to get it on a tabular form. So if my request, if the key input cost movement can be put on a tabular basis on a comparative quarter-on-quarter basis, that would- Okay, sir. Noted. Current trend. Last point, sir, just to get an understanding. Mr. Nanavati is not present in the call. Any key reasons? Sir, he has retired from the service of the company, and I am S.K. Bajpai. I have taken over his role as a CFO of this company. Okay, sir. All the best to you, sir. Thank you. Thank you for answering the call. I will join the queue, sir. Sir, may I ask some more question about the industrial chemical segment and then join the queue? Yeah. Please. Okay. Sir, on the performance for industrial chemical, that looks much depressed and also with this Chinese import part of the story getting momentum. The story going ahead for us in the industrial chemical looks bleak only, sir? Going ahead. It is presently sluggish. If you see the whole chemical industry internationally, it is sluggish and not very effective. As you are seeing that in our presentation also, the Caprolactam spread calmed down from 730 to 673, then 674, then 695, and presently it is around 582. One good thing is there that in the July it is improved a little and it has gone up to 638. But there is hardly any impact of this increase, and we are still having a contribution loss. But we are taking some new steps to tackle the situation, that we are putting one acid crystal plant, as you might have seen in our presentation. Yes, which is manufactured from the derivatives of the Caprolactam. By this way, our old Caprolactam having capacity of 30,000 metric ton, the costly amount will not be now produced there and we will be diverting it to HX Crystal plant. So there, the profitability and margins are quite good, so it will improve the IP segment. The second thing, what we are thinking, that we are importing the cheaper Anone and trials have already been done, and it is imported Anone in place of producing the higher Anone cost from the benzene, because benzene prices has been rising like anything, there is 30%, 13% increase on bio-oil basis. So that two steps presently we are taking, and I hope that there will be some impact on the next quarter or up to half year also, remaining period. Sir, what would be the CapEx we will be spending on the project, the crystal? Currently, in this year, we will be supplying the project amounting to thousands crores. About three plants are under the capitalization in this particular financial year only. One is HX Crystal plant, then second is sulfuric acid. That is substitute plant of the sulfuric acid we are putting at supply chain level. Third one is the urea revamping, and fourth one is solar power plant at Charanka. So, this solar power plant, urea and sulfuric acid, it will increase efficiency or reduce the cost of the company because it is externally consumed. Our HX Crystal project plant, that will produce HX Crystal, and it will be sold in the market. It will generate INR 100 crore revenue and a good amount of margin. Sir, for this HX Crystal project, what are the CapEx that we have earned? How much out of the INR 1,000 crore It is INR 100 crore. We are spending INR 100 crore? Yeah. The turnover will be also one time. Yeah. Okay. This is a downstream product for Caprolactam. Value added product. This is forward integration of the Caprolactam chain. Okay. Other than that, sir, about the Melamine part and other industrial chemical basket, there also, the same trend continues? I think the lion share is from Caprolactam. Yeah. If we divide the revenue profile for IP, if you could give us some understanding of that various product into Caprolactam. The second product is melamine, but melamine is also not doing great. There is a lot of cheap material coming from China. We are not getting much of the margins in the melamine, and we have to offer a lot of discount to meet the IPP-based price of the melamine. Overall, IP segment, this year, if you see our segmental result, we have reported four crore INR loss in the IP segment. There is hardly any margin available in the product. That is why we are taking such innovative steps to cut down the cost and make the IP segment profitable. Right. Lastly, sir, for this nylon 6 part also. Nylon 6, we have two compounding lines and we are doing the production. However, the imported nylon 6, as I told from the China, is cheaper than our cost of production from the lactam and then the basic chips. We are also importing the nylon 6 basic chips and mixing it with our chips and making the various grades in the compounding line. That will again reduce the cost of the chips, and it will provide a better margin and the contribution. Sir, although we are providing volume performance, by the side, we can also put the turnover also that would give an understanding how the realizations have been for the quarter and the comparative number. We have provided actually sales value and the quantum of sales also. If you see our slide 4, you will see production and gross sales. This will provide the quantum of the product. Yes, sir. The quantum of the quantity produced and sales. In total, we are getting the gross sales. Sir, right, but I am looking at the realization part also, sir. You are providing the volumetric part, but on the realization front, if we look at the caprolactam sales of, say, closer to 14,000, how much have been our realization and the comparative number, that would give us an indication of what have the current realization been. This is some price-sensitive information. As presently, the management is thinking that that should not be shared because it is frequently changed, and it will go to our competitors also. That is why we are not giving product-wise pricing. Sir, last point is, taking into account how we have fared for the first quarter and the factors or the variables that you people are working with, what should we investors should model in for the remaining part of the business? Because I think it is a very volatile environment for IP, but the corrective measures which you are already taking into place and the one-off item which should not be there. So taking that into account, what kind of margin profile can we look for the fertilizer business? And I think the IP would be a difficult one. As fertilizer business, the margins are more or less same until and unless there is any subsidy revision. I do not foresee any changes in the raw material prices presently. As you see, the DAP prices has crossed $600, so I do not think the phosphoric acid will be available any cheaper. So there is hardly any margin. Only the volumes will create a total margin. How much quantum of sales by the better product mix we can make in the margin, as I told in the opening remarks, that will generate the margin for the fertilizer sector. As far as IP segment is concerned, I have told that we are taking a step, and it should show some positive results in the next quarter or next to next quarter. Okay. When we interact the next time for the second quarter- Yeah then we can have a better understanding that how. Yeah, sure. But this should be a bottom-like situation also. Things should not turn worse from here, because we have Yeah, definitely. improved from here. We are taking all these steps, and as I told that all these things are in the very forward-looking and it is transform are completed. We are importing the ammonia, or we are supplying this. Already we are having one plant of the HX Crystal. We know how it operates and who are our buyers. All in all, there is a very positivity we are looking at, and we are very hopeful to get a better result in the Q2 and Q3. Okay, sir. On the gas pricing, sir, I missed your comment. At what prices are we procuring the gases? The gas is already fixed as far as urea is concerned, so whatever logistic prices are there, it is allotted, it is passed through, so there is hardly any impact. Apparently, prices are stable now INR 45 per SCM. I don't foresee any much deviation in the natural gas price presently. Okay. I will join the queue, sir. Thank you. Go ahead. Thank you. The next question is from the line of Nirav from Anvil Research. Please go ahead. Nirav, thanks for the opportunity again. Sir, one thing, when we will undertake the energy conservation measures for our urea plant, I think our current consumption is close to 6.5, 6.6. Once that is implemented, it will fall below 6 Gcal per metric ton. What sort of per ton improvement in the profitability starts accruing to our urea business once that energy conservation measures are placed into? No, actually, whatever the curtailment will be energy now by 0.6 Gcal. It will be within the targeted norm by the Government of India. That is the purpose for revamping of this urea plant. The government is focusing that it should be around 5.9 or something. After 0.6 deduction in detail, we will be meeting the norms prescribed by the government, one. Second, that urea, this plant is very old, a 60-year-old plant. There is also a lot of efficiency in the system and production process. By revamping this, we will be increasing the capacity of the plant from 800 to 1,123 metric ton per day. That is the advantage we will be having, additional production of around 323 metric ton. That will be coming as by way of additional margin and profits, whatever urea can generate. But sir, based on some rough understanding with this increase in the production and currently whatever losses we are making because of the higher energy usage, what sort of ballpark numbers we should work with in terms of the improvement in our per ton margins for urea? I think we have not just calculated per ton margin, but when we approved our project of this urea revamping, I remember that around 30 odd crore will generate per annum, the urea revamping project. Okay. And sir, I missed on the increased capacity, what you mentioned on. The capacity is going to increase from how much to how much? Eight hundred to eleven twenty three. TPD. Or it is thousand tons? Yeah. Okay. Sir, second question is on, you mentioned on the Caprolactam spreads being lower, and we are even losing money at the contribution level. At what level of spreads we could break even in terms of the Caprolactam as well as for, let's say, Melamine? If you can give some understanding, that would be very helpful. It will be difficult to predict, but I think it is 700 odd figure, 725 or so dollar per metric ton that will break even for the Caprolactam. Okay. In case of Melamine, we are generating the positive contribution. However, there is a margin loss. There is no problem as far as the Melamine production is concerned. Okay. We are generating the contribution, and that's why we are continuing the plant. Correct. At 725 it would cover our variable cost or it will also cover our fixed cost? No, only variable cost. Okay. What levels of fixed cost we should work with for the Capro plant as well as for the Melamine plant? Fixed cost is already fixed, so generally we do not calculate like this. Whatever the fixed cost is there, so we are generating the losses. Whatever Melamine is generating the profit, it is compared, meaning of, negated by the margins of the Caprolactam. That is why the IP segment is generating only INR 4 crore loss. That is the idea we can get, that whatever the fixed cost is generated, it is break even at this level. Correct. Let us say, put together Capro and Melamine. Is it safe to believe that our fixed cost will not be higher than $100 a ton? Is it a safe understanding to make it, or probably it could be some much higher than the $100? It must be higher than the $100. Got it, sir. Thank you so much, sir, and wish you all the best. Thank you. Thank you. As there are no further questions from the participants, I would like to hand the conference over to the management for their closing comments. Okay. Thank you for the patient listening, and I hope that we could have given you the satisfactory replies up to our best possible manner. I once again thank you to all the participants, and we will see you in the next quarter. Thank you. On behalf of Anurag Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.