Ladies and gentlemen, good day, and welcome to the Q2 FY 2024 earnings conference call of Coromandel International Limited, 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, Mr. Cirumalla.
Thank you, Michelle. Good afternoon all. On behalf of IIFL Securities, I welcome you all to Coromandel International's Q2 FY24 earnings call. Today, we have with us Mrs. Jayashree Satagopan, President Corporate and CFO, Mr. Sankarasubramanian S, Executive Director, Nutrient Business, and Mr., Dr. Raghuram Devarakonda, Executive Director, CPC Bio and Retail Business. I will now invite Mrs. Jayashree Satagopan to share opening remarks and details on financial performance, post which we will have a Q&A session. Thank you, and over to you, ma'am.
Hi, good afternoon, everyone, and thank you, Ranjit, for organizing this conference call. Let me first give an overview of the business environment experienced during the quarter, followed by the company's performance, and then we can have a Q&A session. As far as the global economy is concerned, it continues to recover slowly, and as per IMF's latest projection, global growth is expected to be approximately 3% in 2023, versus 3.5% in the previous year. Energy and fertilizer prices have started moving up from September onwards due to demand and supply mismatch. India continues to show resilience, supported by robust domestic demand, strong public infrastructure investment, and a strengthening financial sector. IMF has revised India's GDP growth upwards by 0.2% to 6.3% in 2023.
During this quarter, tax collections remained buoyant, and retail inflation eased to a three-month low in September at around 5%. On the agriculture side, India experienced a below normal southwest monsoon, with the country receiving 6% lower rainfall compared to the long period average. There was significant variability across regions and time periods within India, receiving record low rainfall in August, followed by surplus in September. The overall crop sowing area remained around last year's level, with acreage increase in paddy, coarse cereals, and sugarcane, and a decrease in pulses and cotton. Among other key operating markets, crop sowing in Andhra got impacted, while Telangana, Karnataka, Maharashtra, and Bengal were close to normal levels. The all India reservoir levels stand at 92% of long period average, with the southern region at around 64%.
IMD has forecasted a normal northeast monsoon, which is likely to improve the irrigation prospects for the southern markets. On the policy update, the government has recently announced the NBS rates for the second half of FY 2024. With a decline in raw material prices over the last six months, a revision in the seed production and the nutrient rates have been undertaken. The MSP for upcoming Rabi season has been declared with a 3%-7% increase taken across the commodities. The government has maintained the criteria of fixing the MSPs at least 1.5x the all-India weighted average cost of production. There have been strong impetus from the government for drone adoption, and industry players have been encouraged for promoting drone-based spraying applications for agriculture through women self-help groups.
On the fertilizer industry performance, the fertilizer raw material prices remained soft to stable during the first half of the year, but have started moving up from August onwards due to supply side issues. For the current season, phosphate industry has performed well, improving its primary sales by around 11%. The overall industry phosphate consumption has also moved up by around 24%. For this quarter, DAP plus complex fertilizer industry's primary sales volume was up by 19%, 77.2 lakh metric tons in the current year, vis-à-vis 64.6 lakh metric tons in the previous year. So DAP and complex fertilizer industry's consumption, indicated by phosphate volume, in the current year is 90.2 lakh metric tons, vis-à-vis 67.2 lakh metric tons in the previous year.
On a year-to-date basis, DAP and complex fertilizer industry's primary sales volume was at 132.1 lakh metric tons, vis-à-vis 119.1 lakh metric tons last year. The consumption, which is indicated by the phosphate volume, 128.2 lakh metric tons current year, vis-à-vis 103.7 lakh metric tons in the previous year. Let me come to Coromandel's performance. Coromandel displayed a resilient performance in a challenging business environment, sustaining its profitability and improving its working capital position during the quarter. The company's key operating markets were impacted by subnormal monsoon, affecting the agri inputs offtake. Company's nutrient segment performance. The nutrient and allied businesses focused on the nutrient consumption during the quarter. Lower primary sales of about 7% has been mainly due to fall in subsidy rates, which has resulted in decline in the segment revenue.
However, stable RM prices, coupled with backward integration benefits, resulted in margins remaining comparable with last year levels. On the sales front, the business registered a sales volume of about 11.6 lakh metric tons during the quarter, compared to last year's of 12.4 lakh metric tons. On a year-to-date basis, sales volume is about 20.2 lakh metric tons, vis-à-vis 19.7 lakh metric tons in the previous year. Company's market share in Q2 is about 15%, and for half year is 15.2%. Last year comparable was 19.2% in Q2 and 16.5% for the half year. SSP Q2 sales was at 2.1 lakh metric ton, versus 2.4 lakh metric tons last year, and half year sales is about 3.9 lakh metric tons, versus 4 lakh metric tons last year.
Market share for the quarter went up to 17.1% from 16.5% last year. On year-to-date basis, the market share has gone up to 15.3% from 13.3% in the previous year. During the quarter, our DAP and complex fertilizer plants operated at about 86% of the capacity. Phosphoric production during the quarter was similar to last year levels. During the quarter, the business commissioned a state-of-the-art sulfuric acid plant at Visakhapatnam, with a capacity of about 1,650 tons per day, with an investment of approximately INR 400 crore to improve its backward integration capabilities. With this, Coromandel sulfuric acid capacity will increase to 1,100,000 tons per annum from 600,000 tons per annum, supporting its requirements towards downstream processes involving phosphoric acid and phosphatic fertilizer production.
The plant is designed to meet one of the lowest emission standards globally, and the steam generated from the plant will be used for captive power consumption. The production from the newly commissioned plant has been stabilized, and we have started operating at the desired capacity. As part of our sustainability initiatives, Coromandel set up a 6 million liter per day desalination plant at Vizag. With this, close to 1/3 of the plant's water requirement will be met through seawater. During the quarter, the business has introduced Nano DAP, a patented nanotechnology-based fertilizer, and the initial customer feedback has been encouraging. On the crop protection side, the crop protection business of the company has had a healthy volume growth, improving its performance in exports and domestic formulation segments.
However, global industry headwinds, mainly higher channel inventory and decline in commodity prices, has had its impact on price realization. The export segment of the business grew by 29%, with major increase coming from South America and Africa markets. The manufacturing units operated at a higher capacity, 65% versus 51% last year, and focused on improving operational efficiencies. The business has initiated regulatory and infrastructure activities at the new Dahej site and is in the process of finalizing the multi-product plant project. On the specialty chemicals front, the business has initiated marketing some of the products to the customers. The company is strengthening its research and technology processes and has identified key products to be developed in the future. On the CDMO front, the business is closely engaging with customers and has organized few customer visits to its facilities.
The interactions have been quite positive so far. The bioproduct business of the company improved its neem seed procurement during the year. Business was engaged in multiple process improvement initiatives, focusing on improved cost efficiencies and yield. It has introduced neem oil-based pesticide Azamax during the first half and plans to introduce non-Azadirachtin products in the second half of the year. Despite the dry spell in some of the South Karnataka and Rayalaseema markets, our retail stores adopted crop-specific approach and operated well during the quarter, focused on providing all-round agri solutions, including products, farm advisory, and mechanization services. Overall, 93% of stores remained profitable. On the technology front, our company's recent investment in Dhaksha, a differentiated drone startup, is progressing well, and Coromandel is providing adequate support to the Dhaksha team.
It has bagged orders for its medium altitude, light weight, lightweight and heavyweight logistic drones from the Indian Army, and has order for its agriculture drones. Company has also received the fourth type certificate for its battery drones. As part of its drone spraying services, Coromandel has introduced Gromor Drive initiative. Under this, the company started offering drone-based agri-input applications through its trained pilots. During the quarter, company acquired a 16.53% equity in X Machines, an AI-based robotic startup focusing on a variety of agricultural operations, such as planting, weed control, and pest control. Coromandel is driving company-wide digital initiatives, including automated dashboards, analytical use cases for improving productivity and cost efficiency, and is in the process of implementation of Salesforce and new dealer portal. With that, let me take you through the company's financial performance.
Turnover: The company recorded a consolidated total income of INR 7,033 crore during the quarter, and received INR 12,771 crore for the half year, with the corresponding period of INR 10,145 crore and half year, INR 15,927 crore. The decrease in revenue is mainly on account of drop in subsidy rates in the fertilizer business compared to the last year. Nutrients and allied businesses contributed to 90% share, and the remaining 10% is from the crop protection business for the quarter, as well as for the half year. Subsidy business share in revenue stands at 84% during the quarter and 85% for the half year. In the previous year, it was 89% for the quarter and 87% for half year. Profitability.
Consolidated EBITDA for the quarter was INR 1,059 crore, vis-a-vis INR 1,057 crore last year, and for the half year, it was INR 1,768 crore, vis-a-vis INR 1,742 crore during the last year. Subsidy businesses share in EBITDA stands at 81% during the quarter and 82% for half year. In the previous year, it was 78% for both the quarter and first half. Net profit after tax for the quarter was at INR 755 crore, in comparison to INR 741 crore for the corresponding quarter last year, and INR 1,249 crore for the half year, against INR 1,240 crore in the previous year. As regards subsidy, there has been a significant improvement on the subsidy side, with the company claiming and receiving INR 4,243 crore in Q2.
For the half year in this, subsidy received is about INR 6,312 crore. Overall, subsidy outstanding on 30th September 2023 was about INR 1,497 crore, vis-a-vis INR 4,176 crore in the previous year. During the quarter, company earned a net interest income, excluding the In d AS adjustment of INR 5 crore, vis-a-vis the net interest expense of INR 13 crore previous year. For the half year, company earned a net interest income of INR 16 crore, vis-a-vis INR 8 crore in the previous year. Company maintained its surplus funds in board-approved securities, and these are earmarked for specific growth-related investments. The company ended the quarter with a net surplus of about INR 3,380 crore. Company's balance sheet continues to be strong.
The long-term credit rating by CRISIL is at CRISIL AAA stable and short-term at CRISIL A1+. During the quarter, the long-term credit rating, as in the AAA stable, was reaffirmed by India Ratings and Research, the Fitch Group company, and the short-term debt rating at IND A1+. As far as Forex is concerned, during the quarter, the rupee was trading in a broad range from 81.81 to 83.30. Coromandel continues to follow a very conservative approach of hedging the Forex exposure, and this has immensely helped in limiting the impact of currency depreciation. With the forecast of a normal Northeast monsoon, we expect the demand cycle to be conducive in the coming months. Coromandel, with its presence across the farming value chain, will continue to drive sustainable agricultural practices and improve farm prosperity.
Thank you for your interest in Coromandel and joining the call today. We look forward to your interaction.
Thank you very much, ma'am. Ma'am, shall we begin the Q&A session now?
Yeah, please.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may please press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking your questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We'll take the first question from the line of Noel Vaz from Union Asset Management. Please go ahead.
Hello, can I be heard?
Yes, sir.
Yes, thank you for the opportunity. I just had one, one question regarding the sulfuric acid plant. So the CapEx is about INR 400 crore. What is the extent of cost savings that we are looking at the payback period? If you could have some details on that front. Thank you.
Thank you, Noel. The CapEx, we already mentioned, is about INR 400 crore for the plant. The purpose of setting up the sulfuric acid plant was mainly for securing our supplies, and we have deliberated this in the past as well. However, given the way the commodity prices move, the value gap between procuring sulfuric acid in the market and converting sulfur into sulfuric acid could give us a benefit. And with the current prices that are prevailing, we think in about 2-3 years, we should get a payback on this project. But again, the main purpose of setting up the sulfur burner is for securing our own sulfuric acid.
Yes. Thank you for that. Second thing would be, actually some clarity on the, regarding the, new subsidy changes. Are we expected to see any kind of provisions related to it in the second half? Yeah, that is all. Thank you.
Your question was not very clear.
Oh, sorry about that. So I just, regarding the new, there have been some revisions to the NBS format, right? So, NBS subsidy. So, I just want to know if there's any kind of, provision that we are expecting in the second half of the financial year. Yeah, that is all.
We will see that the subsidy realization in the second half is going to be lower because of the lower NBS rates. Having said that, we've also made some reasonable estimates and have factored it in our Q2 financials. So we may not see a one-time hit coming in the third quarter, but the overall realization is likely to be lower. This is a normal trend. When the NBS rates goes up, the realization will be higher. When the rates come down, the realization will be lower. The company has been following a consistent policy in terms of looking at what could be the rate and appropriately making the necessary adjustments will be quick.
Okay, thank you. That's all from my side.
Thank you. We'll take the next question from the line of Tarang, Tarang Agrawal from Old Bridge Asset Management. Please go ahead.
Hi, ma'am. Good afternoon. A couple of questions from my side. Ma'am, specifically on the subsidy, the sense that I could gather was there's been a sharp reduction in the NBS rates. And while in the first half, the rate reduction was not as significant as the reduction in the global commodity prices, that I think seems to have been made up in the current subsidy. While you've been prudent in terms of providing for it, but purely on a per ton margin basis, how do you see H2 period versus what you've seen in H1 and the previous year as well?
Okay. So you are right, Tarang. The government has been adjusting the subsidy rates, the NBS rates, in line with the raw material prices. We have seen in the first half a very sharp correction in raw material prices compared to what was prevailing in the previous year. Government normally looks into the last six months prices, and they do an adjustment, and that's what has happened currently. So the new NBS rates for Rabi has been announced. When we look into the EBITDA per ton, we normally look at it on a full year basis, right? We don't look at it on a quarter to quarter or just first half to second half. The raw material prices currently are in a slightly upward trend.
So if at all the government is going to look at it like last year, where they made a correction in the NBS in January, effective January 1, we believe that could also be in consideration, but we do not know for certain at this point in time. With that background, and the backward integration that Coromandel has done, both in sulfuric and phosphoric acid plants, we believe on a full year basis, it should not majorly impact the margin per ton. Having said that, with the current visibility that we have, I think it should be in the range of INR 5,000 per ton for the full year.
Okay, that's helpful. The second question, ma'am, you know, when we came into FY 2024, we were anticipating about anywhere between 6%-10% volume growth in the crop business. So far in H1, things have been largely flat on the manufacturing side. So how are we looking at H2? And the third one, if you could give us a split of the INR 580 crore CapEx in H1 FY 2024. Thank you.
Yeah. See, after almost three, four years, we've seen that we have got a subnormal monsoon this year. And Kharif is a big season, right? So we've seen that August rainfall has been very, very low in past several decades. September was very high rainfall. With so much of uncertainty, I think it is only prudent not to go and dump the material in the market and to say that we are showing a volume growth.
Mm.
Therefore, we've been taking a very conservative as well as a strategic approach in terms of both manufacturing and placing of fertilizers in the market. It is not about placing it to the dealers, we also need to ensure that farmers are able to take and consume it in their fields. So from that standpoint, we feel comfortable in terms of what has been done in the first half, given the extreme uncertainties in the monsoons and the reservoir levels. Having said that, with the expectations of a near normal monsoon in the second half for the Rabi season, we expect that the consumption should go up. On your question relating to the CapEx, I have earlier also indicated that it is about the sulfuric acid plant. We have a desalination plant that has got commissioned in Vizag.
There is a Nano DAP plant that's coming up in Kakinada, and there is work that is getting initiated in the crop protection chemicals for the multipurpose plants and also their regular CapEx. Apart from it, we are looking into increasing the granulation facilities in SSP. All of this put together should add up to say about INR 500 crores of CapEx during the year.
Okay, thank you.
Thank you. The next question is from the line of Prashant Biyani from Elara Securities. Please go ahead.
Yeah, thanks for the opportunity. Ma'am, just continuing on the NBS policy for H2, while I'm not looking for any quarterly guidance, but for Q3, whether you know, there will be a significant dip for the industry in profitability, or there will be no profit at all on major grades of fertilizer that we are selling as an industry. If you can give some color on that, not specifically from Coro's perspective, but for any backward integrated player.
I think I'll give you a very general outline, Prashant. For companies who are backward integrated, the impact could be much lower compared to companies who are buying and manufacturing. Okay? So that's number one. The second thing is, there could also be some MRP increases that could happen given the way the fertilizer corrections have happened in the for the Rabi season. So one needs to keep in mind both these factors, and accordingly, when you look at it, definitely there is going to be an impact on margin, no doubt at all. More so for SSP than NPKs. And in NPKs, when companies are working on the unique grade, the possibility of pricing is better in such grades, these are the generic grades. Integrated players will do better than non-integrated players. Traders may get even more impacted.
Right. Ma'am, how are we placed on the raw material inventory, especially for ammonia and phosphate? For Q3, have we had enough opportunity to buy it at lower cost?
So I think we have this very agile procurement team here, and based on the inputs on the price movement and the capacity that we have for storage of these raw materials, the team has been taking very prudent calls. And you could see that's one of the main reasons for Coromandel's profitability in the last few years. So the procurement team have listened in terms of how the raw material prices could move, and accordingly, the purchase decisions are taken. And it also is a factor in terms of how much storage capacity we have for each, right? So long and short, to the extent that we can store, material has been procured, secured, and wherever we have to use our backward integrated facilities, the intent is to maximize production from our PA as well as SP plants.
Right. Ma'am, lastly, how much are we backward integrated in phosphoric acid manufacturing and how much in sulfuric acid?
So I would say for phos acid, slightly above 50%, and sulfuric acid could be within 60% or so , Sankar?
Yeah.
Yeah, it could be around 60%.
Okay, thank you, ma'am. That's it from my side.
Thank you.
Thank you. We'll take the next question from the line of Akshat Mehta from Samiksha Capital. Please go ahead.
Hello, am I audible?
Yeah.
Yes, sir.
Thank you for the opportunity. So, one of the questions that I had is... So going forward, not going forward, but in this quarter, have we included some kind of?
Mr. Mehta, your voice is muffled. May we request you to please use your handset?
Should be better now?
Yes, sir.
Okay. So, one of the questions I had is, in this quarter, have you included any kind of provision for the change in subsidy rates that has come in October?
Sorry, I couldn't follow your question.
My question was that, in quarter two, have we taken some kind of provision for the, you know, reduction in subsidy rate that has come in recently?
Yeah, we have.
If you would quantify that?
No, I wouldn't be in a position to quantify it now, but we have considered some impact on account of the NBS rate that has been announced.
Okay. My next question was, you know, given the Rabi season demand, you're seeing that there will be a normal northeast monsoon and there'll be good demand. But will there be any impact of, you know, the reservoir levels in southern region being quite low, after the kharif season on the demand in Rabi?
Yeah, the reservoir levels are very low in southern markets. That would have an impact on the soil moisture conditions. We do see that as a constraint, but at the same time, if the rainfall is going to be good, to a great extent it could compensate.
Okay. My next question is on the line of Nano DAP. So, when are we kind of, you know, commercializing the Nano DAP plant?
So actually, the Nano DAP plant is said to be commissioned in Q3 of this year at Kakinada. We are waiting for some regulatory approvals to start the operations there. Pending the commissioning of the new Nano DAP plant at Kakinada, we have started producing Nano DAP at our pilot plant in Vizag. And in September, we have also started commercial production and sale, although at a, you know, limited quantities. And we are seeing that the response from the farmers is being very good.
Okay. My last question is that, can you, if you could, throw some light on what has been the, you know, progress of specialty chemical during the quarter? And, you know, going forward, when, when you'll be able to kind of give some, numbers or, you know, CapEx requirements on specialty chemicals?
Okay. As I was mentioning in the past, right, the intent of getting into specialty chemicals is primarily to use our existing assets, some of the molecules where the applications are beyond agrochemicals.
Mm.
We have started in a very small way during the last quarter, token invoicing and shipments are happening to some of the specialty chemicals customers already. It's not substantial, so I'm not talking about the absolute numbers at this point in time, but the good news is the traction has begun. Now, the business has also worked out certain specific areas where they would like to invest further in terms of building up our own capabilities, infrastructure, as we go into a medium term. That's where the current focus is on the specialty chemicals business. We'll continue to use our existing assets in the near term and get the customer connects, start shipping the products to broad base our customers and application. In the medium term, invest further and deeper into specialty chemicals.
Okay, ma'am. I just had a clarification, this 5,000?
Mr. Mehta, I would request you to kindly rejoin the queue for follow-up questions, please.
Okay. Okay.
Thank you, sir. Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, please rejoin the queue. Thank you. We'll take the next question from the line of Vishal Biraia from Bandhan AMC. Please go ahead.
Hello. Madam, for this Nano DAP plant that is coming up, could you tell us as to what is the extent of capacity and what is the kind of revenue that you would look forward to?
Okay. The capacity that we are looking at is 1 crore bottles per year, which is 1 liter bottle. Okay? And the pricing.
Mm.
For these bottles, the MRP is about INR 600.
Okay.
So that's the capacity that we are building now. Depending upon how the response of the market is.
Yeah.
Because it requires a lot of customer awareness and education.
Okay.
Right? If the farmers do not know how it has to be used, then it could actually boomerang. We have seen mixed response from the farmers.
Mm.
In the case of nano urea.
Mm.
And therefore, from Coromandel's standpoint, there is a lot of ground-level activity going on in terms of the agronomists reaching out to the farmers, helping them to understand the product better, how to apply so on and so forth.
Mm.
We have also initiated what is called as a Gromor Drive, which is using the drones for some of these foliar applications. So combining both of this, we are in for a slow and a steady start. With farmers understanding, there is opportunity for us to sell more, and these are all modular facilities. So in a quick period of about 8-10 months, we should be in a position to add further plant capacity. That's the game plan as far as nano is concerned.
Okay. And just to understand something on the technical side as to your utilization of phosphoric acid here, will be how different than the utilization of phosphoric acid for the solid state complex grades or DAP?
Here, we don't directly use phosphoric acid.
Okay. Could you help me understand as to what would be the substitute for phosphoric acid here?
This is a patented technology, right? And, I may not be able to reveal what are the contents and how this, what percentage of what is being used in, getting the manufacture of Nano DAP at this point in time.
Right.
But I should tell you, the phosphoric acid, sulfuric acid, the quantum that we use.
Yeah.
Is all going to be for granulation. So, no comparison at all.
Okay. On a steady state basis, once this business stabilizes, okay, what would be the kind of operating margins that you would target?
On Nano DAP?
Yeah.
So Nano product has a very decent margin there. I think it should be pretty healthy.
Is it 20%- 22%?
Yeah.
20%?
It should be in the range of 20-odd%.
20-odd%. Okay, okay. And final question, I think it's a continuation of what the earlier participant was asking. This, when you say INR 5,000 per ton for the full year for the fertilizer business, this includes SSP?
No, normally we don't include SSP. This is mainly for NPKs.
Okay. And then, madam, could you, could you give as to what would be this number for NPK for the second quarter? Like, for the September quarter, what would this number have been?
No, I normally encourage us to look at a full year number, because there are seasonalities. You see subsidy prices up and down, MRP consideration, raw material consideration. So for a seasonal business, given so much of external variations, it's always good to look at them on an annualized basis.
Okay. And just lastly, oh, to get to this 5,000 number, hypothetically, what would be the extent of increase in MRP would you require to get to this number for the balance half of the year? Looking at the way this. And assuming that the RM prices remain where they are and the subsidy is what it is, there is no upward revision there.
So there could be MRP increases in unique grades, right?
Right.
On the generic grade, we also need to look at how the industry is taking it up and what the view of the government is.
Mm-hmm. Okay. So if you look at the generic grades or e.g., or let's look at the specialty grade, what would be the extent that you would target to get to this number for the full year?
That depends upon the market conditions, honestly.
Okay. Okay. Fair enough. Thank you. Thank you very much.
Thank you.
Thank you. The next question is from the line of Vishnu Kumar from Avendus Spark. Please go ahead.
Hi, thanks for your time. I'm Vishnu from Spark. And firstly, continuing the previous participant's question, compared to first half, most of the raw materials have currently spiked a lot, and there is at least an INR 10,000-INR 12,000 correction on an average on subsidy. So second half, I mean, given it's an election year and if the price hikes don't come, will the fertilizer EBITDA still be positive, or can it tend to be a bit negative?
I think, we can talk for Coromandel. Given the backward integration that we have, we expect the margins to be positive. Okay? And, we saw a steep correction in raw material prices, Vishnu, and there has been some increase in the last couple of months. We really do not know to what extent these increases will sustain or will it again come down, because what we saw a year before was unprecedented increases, right? So from our standpoint, we think we'll let it go with the market if the prices continue to be high, there could be some opportunities in terms of our backward integration and value capture. But if prices come down, then it is even better. We'll have to see how the government is going to respond on subsidy. We've seen in the past, they've been pretty considerate.
They have responded to the industry requirements. When there was price increases that are happening, they've increased the subsidy. When the raw material prices have corrected, they have just now reduced the subsidy. So I think, while there are considerations of election year, so on and so forth, we just need to work along with the government as an industry, and impress on them the rising raw material prices and see how we can help in getting a subsidy rate correction for the fourth quarter.
Understood, ma'am. Secondly, on the subsidy provisioning, firstly, for kharif they have provided some INR 38,000 crore plus another INR 22,000 crore they've mentioned, so that takes it to INR 60,000 crore. Whereas in the government budget for NPK, we understand only INR 45,000 crore is provided, so an additional INR 15,000 crore will have to come through a supplementary grant. Would this mean normally the total amount gets covered, but this time around the actual NPK is INR 60,000 crore, which is probably, probably INR 45,000 crore. Will there be the supplementary grant immediately or after elections only do you think that this will happen? Which means, I'm questioning from the possibility of a delay on subsidy release only in March.
Answer honestly, Vishnu, we don't know. Okay? The government has been considering and getting supplementary credits for disbursement of subsidy. So we hope they will be able to get it through. This year, especially, I also mentioned that the subsidy disbursements have been pretty good. We don't have any arrears in terms of DBT claims that have been made by the companies. So if they're able to get through these supplementaries, we should be able to get the subsidy realizations also fast. But in case there is a constraint and it will go to next year, we may be late. So we don't know the answer, but we honestly believe the government will be able to get it through.
Understood. And one final point, question. What will be the stock that, the stock of materials that we have sold, and it is still lying with the dealers and distributors? Any rough number, in million tons, 0.2, 0.3, or any rough number, if you could help us understand.
Can we come back on this?
Sure, ma'am. Thank you. Thanks a lot.
Thank you.
We'll take the next question from the line of Ankur Periwal from Axis Capital. Please go ahead.
Yeah, hi, ma'am. Thanks for the opportunity. First, on the crop protection side, you did mention, you know, we have, we have witnessed a good volume-led recovery in both, domestic and export market. If you can share some details there, how has been the growth in exports and, you know, especially given, the negative commentary from most of the global and other domestic players as well, how are we seeing the market there?
Okay. So a little bit in terms of how the global markets have been behaving. As you know, Brazil is our largest consumer of agrochemicals. And we have seen that there is a high level of channel inventory in Brazil. Having said that, we also note that the prices of agrochemicals from China has been very, very low. They've been trying to dump the chemical in the market, so this has a dual impact. Therefore, if we hear and we witness that exporters are having a tough time, it is very much resonating the realities in the market. For us, we have done specifically well on three counts. One, we have focused on selling a bundle of our products instead of just one or two of our technicals. Our export growth has grown by 29%.
We were successful in onboarding new customers. We got more than 20 new customers who are able to help us generate additional sales volumes. Apart from that, there were a lot of dormant registrations which have been activated. This has also helped in increasing the overall export sales. A combination of these two activities, plus our sales force becoming far more active in these markets, has helped in the export sales growth.
Sure, ma'am. That's helpful. And, so going ahead as well, we should see a continuation of, let's say, a decent growth here, given that, you know, the new customer addition as well as the geographic expansion that you highlighted?
Yeah, you're right. We also wish that we should be in a position to grow our export markets well. Equally important is to increase our range of products, which is what we are also trying to address, both in terms of technical and in terms of formulation. So that's our, that's part of our long-term strategy, to see that we add more technicals, which are recently off-patented, and also come up with certain formulations and a B2C light model in select countries, which can help growing our export business.
Sure, ma'am. That's helpful. Secondly, you know, on the crop protection margins again, this quarter we saw a dip. Probably, you know, because of the pricing-led competition or the commodity price decline that we are seeing from China. Any thoughts there? Because, what we had highlighted earlier was most of the new product launches, you know, through technicals or through collaboration, were margin accretive. So is this more a near-term phenomena and maybe FY 2025 should see a better growth there on margins front?
Yeah, we are seeing this price pressures coming in as a near... I do not know whether it will extend to a medium-term, because to several experts who we've spoken and companies who we have been in dialogue with, nobody is certain about when this China dumping is going to end. Okay? So that's one main factor. Some of the companies who are producing certain technical, as I understand, they have stopped because it becomes more economical to import from China. So that's, a, I would say, a short-term phenomenon. Hopefully, with if the Brazilian market picks up again this year and the demand goes up, we should see some quick hope in terms of the pricing as well as recovering the margins.
Sure, ma'am, that's helpful. And just one clarification, if I may. The INR 5,000 EBITDA per ton, you know, guidance which you gave, that is for the current financial year, given the subsidy rates. Any thoughts on FY 2025 and beyond? Given, you know, annually, government has been pretty supportive in terms of RM inflation being absorbed, by the, in terms of subsidies.
You know, I would wait a little bit on this, Ankur. We have to see how the raw material prices move and the election year, what the government is going to come up with. But as you rightly said, the government has been pretty supportive. At times, the raw material prices have gone up, they've helped the industry with higher subsidies. So I do expect that trend to continue. And if that continues, our margin should hold, and also we will try to see how to improve it.
Sure, ma'am. That's helpful. Thank you, and all the best.
Thank you.
Thank you.
A reminder to all the participants, may we request the participants to limit their questions to one per participant. Should you have a follow-up question, please rejoin the queue. Thank you. We'll take the next question from the line of S. Ramesh from Nirmal Bang Equities. Please go ahead.
Thank you very much. Following up on the questions on the crop protection business, can you give us some details on the volume growth in the crop protection business in domestic and export markets for the second quarter? And, even give us some sense in terms of when you expect to complete the INR 1,000 crore CapEx in crop protection, and what is the kind of impact you expect from that, say, from FY 2026?
Okay. Thanks, Ramesh. These are nice questions that you've come up with. In terms of volume growth, I'll say that the export market had the maximum volume growth, close to about 30-odd%. The domestic front, our domestic formulations had a volume growth, but we will see a contraction in the domestic B2B. Mainly because of the price pressures and the margin pressures, we had consciously limited our sales into the B2B market, but we focused on growing the formulation business as well as the exports. As far as the capital expenditure is concerned, INR 1,000 crore has been announced. There are three multipurpose or multiproduct projects that the business is working on. They have submitted the proposal for one large CapEx, and that is currently under the approval process.
Given the short-term scenario that we are currently in, with the prices showing steep fall, especially, the Chinese role that we are currently witnessing, we are looking into certain other factors as well to ensure that as we set up the MPP, we have the right level of backward integration, the right type of CapEx, so that the return on investment can be much faster. So we are currently in the evaluation stage. As I was mentioning earlier as well, the INR 1,000 crore investment is for three large plants, and it could take a period of about 24-36 months in all, for us to consume this entire capital. The good news, obviously, is we have completed procurement and due diligence for the new herbicide facility in Dahej, and, the business is setting up the basic infrastructure.
It's contemplating to set up formulation units, because those can be done on a fast-track basis, at the Dahej herbicide facility.
Okay, thank you very much.
Thank you.
Thank you. The next question is from the line of Naushad Chaudhary from Aditya Birla Sun Life AMC. Please go ahead.
Thanks for the opportunity. Two quick questions I have. Firstly, on the CapEx space, ma'am, we are entering in a historic high CapEx space. So, in terms of the management bandwidth, are we okay with the existing which we have, or is there any addition which we are doing to support the CapEx which we are running? If you can, you know, share something on that, please.
I quite didn't follow your question. Are you asking whether we have enough management bandwidth to execute these large CapEx?
Yes.
I believe so. We have added quite a few people to strengthen our project team in both our businesses, both nutrients as well as crop protection. As you see, the sulphuric acid plant and the desal plant that has been commissioned, it happened in a record period of 18 months. Such a large CapEx doesn't happen in 18 months time frame. A similar approach is also being planned for our multipurpose plant in Gujarat. So I think we have the in-house strength to manage the large CapEx projects.
Perfect. Thank you. Lastly, on the thought process of investing in, you know, drone business, what is your long-term vision here? How do you see this drone investment can help your core business?
We invested in the drone business as a tech company, right? That was more than a year back, with a small stake, and then we increased it. Over a period in time, we have found that the application of drones is not just limited to agriculture. It could be in various fronts. It could be for defense, it could be for logistics, it could be for enterprise, and we are also seeing the government opening up opportunities for exports in the non-defense sector. And there is also a huge opportunity in terms of training, because you need trained pilots to operate these drones. So there are multiple areas where the drone services can be deployed. So from that standpoint, we believe it is more of a technology deal with an adjacency in agriculture.
Even in agriculture, given that labor constitutes almost 30%-40%, in terms of the cost of inputs that go in, drone spraying could be a very good opportunity, given the shortage of manpower and the cost. So that's the way one should look into this investment in drones.
Sure. Thank you so much, and all the best. I'll come back in.
Thank you. We'll take the next question from the line of Gaurav Nigam from Tunga Investments. Please go ahead.
Yeah. Thank you, ma'am, for taking my question. Just have one question on this, government subsidy receivable. In the last few years, I've seen that it has considerably reduced. Just wanted to understand, how should we think about the sustainability of reduction in this government subsidy days, and, what's the reason behind this reduction?
As I was mentioning earlier, we have been submitting the claims the same day the portal opens. That's number one. Second, there's a lot of activity in the field to ensure there is consumption happening on the ground. The farmers are actually buying and using it. The third, obviously, the government machinery is also pretty fast in terms of processing. And, they've been supportive in terms of timely disbursement. All the three have favorably, favorably contributed to receiving record subsidies and maintaining the outstanding at a low level. We'll continue to do two activities from our end, and I think government has been fairly supportive. And if this trend continues, we should not see a huge buildup in terms of receivables.
Got it. Just a follow-up on that, has this receivable days come down for everyone in the industry, or we have some added advantage because of which it has come down more for Coromandel?
I honestly don't know. I've been monitoring our receivables, and we've been pushing our teams, working very closely with our marketing teams and the government . So I can tell you as far as Coromandel is concerned, but generally, the government has also been disbursing subsidy timely.
Got it. Got it. Thank you. Thank you, ma'am.
Thank you.
Thank you.
We'll take the next question from the line of Noel Vaz from Union Asset Management. Please go ahead.
Yes. I just wanted to get some clarity about the INR 165 crore drone order that was announced earlier. Has there been some execution on that? And do we have any idea as to what kind of growth prospects that we are looking for or margins on the same? Yeah, thank you. That is all.
Yeah, we are in the process of executing these orders. Raw materials have been procured. A new manufacturing site is also getting commissioned, which will be ready by December of this year. The existing facility is also being leveraged so that we can do a certain quantum of manufacturing from the existing site.
Margins, any idea if we can? What could be the margins now or in the future?
We have to wait to see the overall margin profile. Currently, there is a good amount of spend that is also happening on the technology front, R&D, so on and so forth, right? So, and we do not want to restrict investment in R&D, especially in an area where it is a sunrise industry. It's a startup, and we have to scale up. We have to invest in manufacturing. We have to continue investment in R&D. Those are all happening. I, I honestly believe this will be a good margin business, as we go along, not just in terms of manufacture and sale, but also in terms of services and training.
Okay, thank you. That is all from my side.
Thank you. Ladies and gentlemen, this will be the last question for today, which is from the line of Vipul Kumar Shah from Sumangal Investments. Please go ahead.
Hi, thanks for the opportunity, ma'am. So what is our annual requirement of phosphoric acid, and how much we produce capacity in-house, and the same for sulfuric acid?
So we require close to about 10 lakh tons of phosphoric acid, and depending upon the product mix, we may require about 4.5-5 lakh tons of imported acid. I was mentioning earlier, about 50% plus of our capacity is through our in-house production. On the sulfuric acid front, we would have close to about 60% of our capacity in-house, and we will have to import for the balance.
So, any plan to expand further in for phosphoric acid manufacturing, ma'am?
The business has been thinking about further investments in fertilizers, especially in backward integration. At this point in time, these are all at discussion stage. Once we are certain about it, we'll definitely come back and have the announcements made.
And lastly, regarding this investment in this drone company, so, are we involved in the management also, or we are just the financial investors?
No, we are involved in the management. We are helping them in setting up the operation, scaling up the operation, putting together the systems, processes, everything. So, it's and integral part of Coromandel.
Okay. And we are one of their biggest customers, right?
We are not their biggest customer.
Sorry, ma'am.
They have got orders from Army, primarily for the logistics drones. We've also got a good order from IFFCO for agriculture drones. We have picked up drones, and we are doing a Gromor Drive. So there are multiple customers for Dhaksha.
Okay, ma'am. Thank you so much, and wish you all the best.
Sure. Thank you, Vipul.
Thank you. As that was the last question for today, I would now like to hand the conference over to the management for closing comments. Over to you.
Thank you. Thank you very much, for all of you who have, joined the call today and actively participated. In case you have any further questions, please feel free to reach out to us. Thanks again.
Thank you, members of the management. Ladies and gentlemen, on behalf of IIFL Securities Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.