Ladies and gentlemen, good day, welcome to the Coromandel International Limited Q1 FY 2024 earnings conference call, hosted by Elara Securities Private Limited. As a reminder, all participant lines will be in the listen-only mode, there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Prashant Biyani from Elara Securities Private Limited. Thank you, over to you, sir.
Good afternoon, and thank you everyone for joining Q1 FY 2024 earnings con call of Coromandel International, hosted by Elara Securities. I would like to thank the management for giving us the opportunity to host the call. From the management side, we have Mrs. Jayashree Satagopan, President, Corporate and CFO, Mr. Sankarasubramanian S, Executive Director, Nutrient Business, and Dr. Raghuram Devarakonda, Executive Director, CPC, Bio and Retail Business. I would request the management to give their opening remarks on the results, post which we will start with the Q&A session. Thank you, over to the management.
Good afternoon, everyone, and thank you, Prashant, for organizing the 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 the Q&A session. On the global economy, there's been a muted recovery in the global growth as inflationary pressure, overall slowdown in the demand, and geopolitical issues continue to persist. The commodity prices like energy, fertilizer, and metals have dropped from 2022 peak levels following the buildup of gas inventories in Europe and lower than expected recovery in China, although the food prices remain stable. As far as the Indian economy is concerned, it is progressing well and is projected to be the fastest growing large economy. IMF, in their latest economic outlook, has revised India's GDP growth upwards by 0.2% to 6.1% in 2023.
This reflects the momentum from the stronger than expected growth in Q4 as a result of stronger domestic investments. During the quarter, tax collections remained buoyant. However, the inflationary concerns still persist. Indian agriculture. After a slow start to the Kharif season, the southwest monsoon has picked up in the last 1 month. As on date, the country has received 7% higher rainfall compared to the long period average. This has resulted in improved crop sowing by 1%, with major increase coming under paddy and maize. Amongst the key markets, there's been good recovery in monsoons, with the exception of east. The catchment regions of Krishna and Godavari basins received a good rainfall in July. The utility and reservoir levels have been continuously improving. As on 28th-- 27th of July, all India reservoir lev- levels stand at 111% of the long period average.
This bodes well for the agri input consumption, and we expect the agri scenario to be favorable in the upcoming months. Policy updates. During Q1, the government approved the NBS rates for the first half of the year. These are in line with the moderation in raw material prices of key commodities. To encourage balanced use of fertilizers in conjunction with bio and organic fertilizers, the government has recently announced PM-PRANAM, Program for Activation, Awareness, Nourishment, and Amelioration of Mother Earth scheme. It aims to promote balanced fertilizer usage and incentivizes states to adopt alternate fertilizers. Towards this, government continues to provide support to the industry towards promoting Nano DAP and Nano Urea fertilizers, along with focus on drone-based application deliveries. Fertilizer industry performance. Global availability of key commodities remained at comfortable levels, and the industry witnessed softening of prices of major raw materials.
Domestically, the fertilizer consumption in Q1 was impacted by delay in the onset of monsoons. This resulted in buildup of channel inventory. However, with the revival of monsoons in July, the consumption is fast improving. For the quarter, DAP and complex fertilizer industry's primary sales volume was marginally up by 1% current year, at 54.9 lakh metric ton, vis-a-vis a 54.5 lakh metric ton in the previous year, with higher imported DAP sales. DAP and complex fertilizer industry's consumption, indicated by the cross-sale volume, was up by 4% in the current year, to 38 lakh metric ton, vis-a-vis 36.4 lakh metric ton the last year. Coromandel's performance. Coromandel posted a steady performance in Q1, registering a volume growth in phosphate fertilizer and sustaining its profitability.
Despite the challenging business environment, a delayed monsoon impacted crop grow, sowing, and agri input application. Nutrient and Allied business performance was led by robust in-segment sales volume growth in phosphate fertilizers. The crop protection segment performance during the quarter was affected by industry headset and subnormal rainfall in its key markets. Coromandel ensured that agri-inputs were made available to the farmers in its key operating markets and promoted the use of balanced nutrition and integrated waste management to help rejuvenate the soil and farm productivity. Company's nutrient segment performance: The nutrient and allied business segment revenue increased 38%. Company's fertilizer products registered a growth during the year, both in terms of turnover and profitability.
On the sales front, the business registered a sales volume of 8.6 lakh metric ton during the quarter, 2% higher than the last year at 7.3 lakh metric ton. Manufactured DAP and complex volumes of over 10% lakh metric ton, higher by 10% over last year. Company's market share, including NPK and DAP, grew during the quarter to 15.6%, viz-a-viz 18.3% in the last year. In SSP, the quarter one sales was at 1.8 lakh metric ton, registering a growth of 13% over previous year. Market share for the quarter went to 16.7% from 11.9% in the last year. During the quarter, our DAP and complex fertilizer plants operated at near full capacity and produced 9.4 lakh ton.
Last year, the same number was 7.9 lakh metric ton of fertilizer. Phosphoric acid production during the quarter was at 1.1 lakh metric ton, same as previous year. Major capital expenditure projects, like the sulphuric acid plant and the desalination plant at Vizag are progressing well and are expected to be commissioned in August 2023. During the quarter, the company conducted first launch of Nano DAP, a cutting-edge nanotechnology-based fertilizer developed at its R&D center. The product is expected to be introduced in the second half of the year and can provide integrated sustainable farming practices by providing site-specific nutrition and improving nutrient use efficiency. As part of the Pradhan Mantri Kisan Samriddhi Kendra, PMKSK initiative, the company is progressing well and has established approximately 8,800 stores till date. These stores complement our retail monobrand stores in ensuring availability of quality agri-inputs.
Crop protection side, the business had a tough quarter, especially in domestic markets, as high channel inventories, rising pressure, and delayed monsoon arrival impacted the operations. The export business has performed well and has grown by 17% during the quarter, with major increases coming from the Latin American markets. The business continued to work towards improving its manufacturing efficiency. The business is expanding its product portfolio and plans to launch novel combination and technical products during the year. It has also started the preparatory work for establishing a large-scale multipurpose plant and has acquired 50 acres of land at Dahej. As part of its expansion into specialty chemical segment, the company has identified two potential ventures and plans to introduce products in the second quarter by leveraging its technical capabilities and existing plant infrastructure.
The special products business of the company is expanding its non-Azadirachtin portfolio and is focusing on organic plant extract-based products. Pilot tests have been successful, and the business is expected to commercialize the product during the year. Our retail stores operated well during the quarter, focusing on providing all-round agri solutions, including products, farm advisory, and digitization services. Business is also exploring to scale up its financial services offering. As part of the strategy to identify new growth opportunities in adjacent and key areas, Coromandel acquired majority shareholding in Dhaksha Unmanned Systems Private Limited, Dhaksha, an AI-based differentiated drone startup. Dhaksha is a leading player in drone space in India, providing complete range of unmanned aerial systems, technology solutions across agriculture, defense, surveillance, and enterprise applications. With that, let me now take you through the company's financial performance.
Turnover. Coromandel recorded a consolidated total income of INR 5,758 crore during the quarter, vis-à-vis INR 4,783 crore for the quarter in the prior year. This registers a degrowth of 1%. The decrease in revenue is mainly on account of the falling raw material prices and subsequently a lower subsidy, subsidy rate in the fertilizer business compared to the previous year. Nutrient and Allied business contributed a 90% share, and the remaining 10% comes from the Crop Protection business for the quarter. Subsidy versus non-subsidy share of business stands at 86% and 14% during the quarter. Previous year, it was 83% and 17%. Profitability. Consolidated EBITDA for the quarter was INR 709 crore against INR 685 crore during the last year.
Subsidy business share in EBITDA stands at 84% during the year. Previous year, it was 87%. Net profit after tax for the quarter on a consolidated basis was INR 494 crores, in comparison to INR 499 crores for the corresponding quarter last year. Subsidy. During the quarter, company received INR 2,069 crores towards subsidy. The figure last year was INR 136 crores. Subsidy outstanding as on June 30, 2023, was at INR 2,816 crores, reduced from INR 2,731 crores in the previous year. Interest. During the quarter, company earned a net interest income, including the interest, of INR 11 crores, vis-à-vis the interest income of INR 22 crores in the same quarter in the last year.
Company maintained its surplus fund in board of trade securities. These are earmarked for specific growth-related investments. Credit rating. The company's balance sheet continues to be strong, and the long-term rating of CRISIL continues to be at CRISIL AAA stable and the short-term rating at CRISIL A One Class. The company's long-term credit rating by India Ratings and Research, a Fitch Group company, continued to be at IND AAA stable and short-term rating at IND A One Class. Forex, during the 1st quarter, rupee traded in a relatively narrow range of INR 81.62 to INR 82.93. Coromandel continued to follow its conservative approach in terms of hedging the forex exposure, which has immensely helped in limiting the impact of currency fluctuations.
With the improved coverage of Southwest Monsoon across India, we expect the agri input consumption to pick up well in the second quarter. We are committed to driving integrated farm management practices and introducing novel technologies that can enhance the efficiency of agricultural solutions and improve the sustainability of Indian farms. Thank you very much for your interest in Coromandel International and joining us on the call today. We look forward to your interactions. We can open the session for question and answers now.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the 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 a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to one or two per participant. Should you have a follow-up question, we would request you to rejoin the queue. Thank you. Our first question is from the line of Sumant Kumar from Motilal Oswal. Please go ahead.
Yeah, hi. Can you talk about EBITDA margin % for manufacturing NPK and DAP, DAP fertilizer, since it has gone up YOY, so what is the reason for that?
Suman, as I have been mentioning in the past, we should be looking at the EBITDA % on an annual basis. There will be seasonalities on a quarter-to-quarter basis, depending on the volumes, the raw material prices, the subsidy rate trend, and so forth. When you look at it on an annualized basis, I think we will be in the range of INR 5,500-INR 6,000, as we had indicated earlier.
This INR 5,500-6,000 is for manufacturing NPK and DAP EBITDA margin?
Yeah, this is the manufacturing product EBITDA%.
That's of SSP, correct?
Yeah, yeah. This is not SSP, this is only NPK and DAP.
Okay. So my question is, the ammonia price has declined significantly. Is that a PD also a reason for margin expansion, or we have already cut the price of NPK or DAP manufacture fertilizer?
With the raw material prices came down, not just on ammonia, but across all the key commodities. We have also seen a large moderation that has happened in the subsidy rates since first of April 2023. The MRPs are more or less at the same level. However, there has been a reduction in the subsidy rates.
Okay.
That takes care of the reduction in the raw material prices to a large extent. What you also see is the plants running at near full capacity, phosphate production also at its full capacity, which along with the other operational improvements happening at the plant, is helping to sustain the margin levels.
Why I'm asking ammonia, because ammonia is 1/3 of the price, and phosphorus price is 50% price. That is why I'm asking, are we getting any benefit of higher decline in raw material prices?
Yeah, we are seeing that in the first quarter, right? There is a benefit that definitely flow from the lower raw material prices. The ammonia prices have come down even during the quarter. What it was in the beginning of the quarter to and what it has actually closed in the end of the quarter, there is a difference. The benefit of raw material prices is flowing into the margin.
Okay.
To some extent, we also get offset because of the correction that has happened in the international rate.
Thank you so much.
Thank you, Sumant.
Thank you. Our next question is from the line of Nirav Jimudia from Anvil Research. Please go ahead.
Thanks for the opportunity, ma'am. I just wanted to understand on the SSP side of our business, because we have seen last year our volumes going up by 19%. Even in first quarter, we have registered 13%, 14% of volume growth. What we could understand is that government is now providing the freight subsidies for sending SSP to the regional regions, which earlier was not the case. If I go through your annual report, we have revived our old Pali plant capacity, which has helped us to improve the production rates, improve the production of phosphorus pentasulfide. All these measures, coupled with the fact that government is now incentivizing SSP.
If you can share your qualitative thoughts on this, and if it's possible to share, how much is the contribution in terms of EBITDA from the SSP business in FY 23 or probably in Q1 of FY 24, that would be helpful.
Okay. There, there has been good traction with the government in terms of incentivizing the production of SSP units. Not just the Pali unit, the last year, year and a half, we have also started operations at Ennore. There are 2 units, which in addition to what we traditionally used to operate through SSP plant, that has actually helped us in increasing the tonnage of production. Having said that, the freight subsidy that was previously was only for a certain point in time. The industry is continuing to work with the government to ensure that there is freight subsidy that is given. SSP, unlike NPK, there are units which are closer to the market. The intent is to see how SSP production can meet with the demand closer to the respective areas. That's the overall plus.
Unlike in NPK, the major raw material for SSP is rock and to some extent, sulfuric acid. While the sulfuric acid prices have trended down, the rock prices are holding at closer to last year's level. Even when the sulph acid prices had increased, there was a lag in the rock prices, as you would all have observed. Now, when the first prices have come down, the rock prices will follow the trend, but it will have a lag effect. Therefore, to some extent, this will impact the margins in the SSP business. Normally, in SSP business, the SSP products have a margin of about INR 2,000-INR 2,500. In some cases where we have value-added SSP, it can go up to INR 3,000 per metric ton. That's a broad range one has to look into.
Okay. Ma'am, one more statement in the annual report where we mentioned that through our R&D initiatives, we have identified a suitable substitute raw material. This would probably help... This was about the Kakinada plant, where we were able to increase the production of one of the trains by 31%. With this now, we have, have an assured supply of that raw material, which earlier was not the case. If you can just help us understand what actually we have breakthrough into, and could this be a substantial savings in terms of our fertilizer business, where our EBITDA could be improved or could provide some sort of uplift to the absolute EBITDA or even supply and margins, if you can share your views?
Yeah. Again, a good question, Niraj. What we continuously do is to look out for different sources of raw material and different types of raw, the possibility to operate with different RM in terms of grades, whether it is rock, whether it is sulfuric acid, so on and so forth. This is one such initiative that was taken up last year. When we do such R&D initiatives and get it into production, there could be 2 things that can happen. Depending on the RM prices which we are facing, there could be a savings that can happen to the company. The second thing, it can help in improving the throughput. Last year, we had a good improvement that has happened in the throughput by getting into alternate materials.
Depending on the price situation, we will take a call whether we want to go with our traditional method or do a combination of both with the raw materials. That's something that the company continuously does. Thanks to our manufacturing teams, they have developed immense flexibility in terms of processing multiple types and grades of the material, which is what is giving the flexibility to the fertilizer business in terms of quickly docking and increasing the throughput.
Thank you. Sorry to interrupt, Mr. Nirav, maybe could you return to the question queue for follow-up questions, as there are several participants waiting for their turn. Thank you. In the interest of time and fairness to all participants, may we request all the participants to limit these questions to one or two per participant. Should you have a follow-up question, we would request you to rejoin the queue. Thank you. Our next question is from the line of Tarang Agrawal from Old Bridge Capital. Please go ahead.
Hello, ma'am. Good afternoon. two questions and one clarification from me. for the clarification, the subsidy EBITDA for the base quarter was 87% or 78%?
I, I didn't understand the question.
The, the subsidy share of EBITDA in the base quarter, in the Q1 of FY 23, was it 78% or 87%?
One second. You, you're asking of the subsidy versus non-subsidy business, right?
Correct. Correct.
I read. For the first quarter, the non-subsidy business is at 15%, subsidy business is at 86% this year.
The last year?
Last year, non-subsidy was 70
Share of EBITDA, not subsidy.
we don't give you... Yeah, just one second. It was 84% during this year, and in the last year, subsidy business share was 77%.
Perfect. Thanks, ma'am. two questions, ma'am. One, ma'am, if you see the volumes, there has been a significant uptick in your trade business as well as your DAP business. If you could give us a sense on how the operating dynamics for this market were in, in this quarter versus the base period. That's one. The second question is, you know, was there any provision that you took in Q4 2023 as a matter of prudence and consonance with lighting up of raw materials? If so, could you qualify the amount?
Yeah. Tarang, I'm going to just pass on this question to Shankar, who is in the call, and he can get back to you on the financials. Shankar, over to you.
Good afternoon. On the volume front, we have taken up DAP trading this quarter. We've been able to utilize our capacity for our NPK production and with focus on DAP imports, since we have seen the uptick in DAP volumes. Also, we have imported NPK as well during this quarter. This has helped us to balance the volumes between our own manufacturing as well as imports, and that has also increased the volume increase.
Was there a change in the operating dynamics of the market in this quarter versus the previous quarter for such a sharp, you know, delta that you've seen in both DAP as well as steering?
No, not really. This quarter is not a consuming month. It's more of a positioning which happens. Consumption happens only when the season starts in July. Since we have a different volume, enhanced production, if you look at our production number for the last year first quarter, and this quarter there's been a significant volume increase in our production, which has carried out the annual turnaround in the last month of the previous year. All our plants and flats out in the first quarter that has helped us position the material closer to the market space, and that's why you're seeing the significant volume jump in this quarter.
Okay. Yes, ma'am, on the revision question in Q4 2023?
We have made necessary adjustment in the books as a conservation principle based on the subsidy reduction that was supposed to come in. This has also been disclosed in the notes to the accounts. As the new NBS rates have come in, we didn't see any material change that is warrant in accounting or a disclosure. All of this has been considered in the previous quarter.
Okay. Okay, ma'am. Thank you. Thank you.
Thank you. Our next question is from the line of Vishal B. from Bandhan Mutual Fund. Please go ahead.
Hi. Just one question. When we look at the prices of our materials, rock has been pretty steady, and whereas, acid has come down substantially. Can this lead to compression of spreads for our manufactured portion of DAP and NPK in the coming quarters?
As I was mentioning, Vishal, when the raw material prices had gone up deeply, rock was following. It did not happen simultaneously. Similarly, when you're seeing correction in the prices, the rock prices are trending down, but not at the same pace. You are right, when the acid prices are lower and the rock prices are slightly higher, the value structure could be lower than otherwise. You should also look at that Fonterra has both integrated manufacturing as well as granulation plants. When the core acid prices come down, along with all other raw material prices, the granulation plants margin also go up. This is a very nice balancing that we have. We have both backward integrated as well as granulation plants. It sort of complements each other.
Okay. When you say for the full year, INR 5,500 per ton-INR 6,000 per ton for manufactured, this assumes that the rock should fall, consequently, right? In case that doesn't happen, then this number could be at risk, in case of that scenario only.
This is considering a balance of multiple factors, right? There is raw material prices, not only of rock, there is sulfuric acid, there's ammonia, urea. Then there is also the government subsidy related, and then there is a factor of MRP price increase or decrease. Taking into consideration all these factors, we believe that about INR 5,500 million-INR 6,000 million achievable business for the year.
Correct. Correct. Thank you. Thank you very much.
Thank you.
Thank you. Our next question is from the line of Bharat Sheth from Quest Investment Advisors. Please go ahead.
Hi. Congratulations, JC and Shankar, on the excellent number on in challenging environment. First, can you please throw some light on these economics of Nano DAP and the raw material of the availability, whether it's again, imported or available domestically, and how do we see this economics to play out? Second, any color on this, our investment in this drone business. Is it generating revenue or not? What is the potential and when it will start, I mean, contributing to bottom line of the company?
Thank you. Thank you, Bharat Sheth. What I'll do is, on Nano DAP, Shankar has been working on it, chairing the initiatives of the company. I'm going to leave this question to him, and let me come back on the drone. Shankar?
Yeah. Nano DAP, in terms of raw material availability, they are all indigenously available, and we have established the sources for them, so we don't anticipate any challenge. The factory is coming up in Karnataka, and hopefully we should be able to commercialize the plant in October. With regard to the prospects, we have been carrying out extensive field trials in the market state, and they could see potential. Close to 50% of current use of DAP can be replaced with Nano DAP. It takes time. Crops like, with a high vegetation like tomato, chili, you know, give good traction on Nano DAP. These are very early stages. Once the product is commercially available from October onwards, we'll be extensively promoting this product in those states where imported DAP are used in abundance.
We'll be targeting these products, Nano DAP, in the northern markets, especially states like MP, UP, Punjab, Haryana, where there is extensive overuse of DAP. That's our approach.
Okay. On the drones, you had a question. As you know, this is a sector where we had earlier invested about 18% or 19% and we are now getting it up to 51%. The transaction is yet to get completed. It will hopefully by end of July. This drone company is looking into offerings in multiple segments. They have recently received an order of 100 drones from IFFCO for the agricultural front, and they are working with defense on an emergency procurement area for logistics-related drones. Now, there are applications on the enterprise side, which they have been working with some of the oil majors. Obviously there is also a play on the defense which can happen at a later point in time.
When we look into the technology itself, we know this is very future-oriented, and drones are going to play a major role in each of these areas. All the more in agriculture, where we are seeing that labor availability is posing a challenge. When we use drones, especially for our, liquid fertilizers, specialty nutrients, or Crop Protection Chemicals, the drones help in ensuring, the spray is uneven. The efficacy seems to be better. There is a very good future for the use case of drones. The question is, is it happening today? It has started. They're being solidified in the multiple settings, with governmental coming in, we will be able to provide the management bandwidth, the guidance, and help them actually reach new scales. That's what is going to be the initial one, two years.
As they go along, multiple orders will come, and we expect to also have a steady stream of income and EBITDA. Obviously, being a 51% company, it will also flow through the company financials, and we'll be able to share with you more in detail as we go along.
Mr., last question, ma'am, can we take? Hello.
Yeah. Yeah.
Could you give some color on the now Q2 for sales price and trend of the other input and simultaneously price of the final product?
As you know, the raw material prices have all been coming down, right? We expect that trend to continue. As far as quarter is concerned, the price for Q2 is fixed at $850 per metric ton. The MRP, as I was mentioning earlier, is factor of multiple things. One is the raw material prices, the second one is the subsidies that the government is giving. More importantly, we also need to see what is going to be the affordability of the farmers. Considering all of these, the MRP gets moderated during the year. At this point in time, the MRP prevailing for July is more or less similar to the MRP in the last quarter.
Thank you.
We request Mr. Bharat to join the question queue for all our questions. Our next question is from the line of Arjun Khanna from Kotak Mutual Funds. Please go ahead.
Thank you for taking my question. two questions. The first is, in terms of the specialty chemical CDMO piece, we've talked about in the annual, and as part of the press release, comment by executive, VC, he talked about the company identifying new complementary chemistries and plan to introduce these products in Q2. Could you help us with what are these chemistries we are looking at entering into? Would the CDMO discussions with innovators start off only post the STP in the heat, or is something that could start now?
Very good set of questions. Thank you for bringing this up. I have Raghu with us on the line, and I'm going to request him to respond to both the specialty chemicals as well as the CDMO, as we have seen a good amount of progress in both these fronts in the last quarter. Yahu, over to you.
Yeah, good afternoon. On the specialty chemicals front, the idea is to use the existing assets to make products that are targeted towards this segment. We have identified those molecules that we can potentially manufacture using the existing setup. The other bit is, this is in the first phase. The other bit is, we already have some of these actions that we are manufacturing. We find that some of those action molecules are relevant for specialty chemical end use, we are exploring those as well. This is in the first phase as far as the specialty chemicals story is concerned, we should be able to see some action in this area in the current quarter. Moving to CDMO.
I don't know if we covered this in some part over the previous call, which I'll repeat. We do have inquiries that come up from some of the Japanese innovators as well as European ones. As you can appreciate, the discussion period for such transactions do take time. For the moment, the status is that some of them have come and some have due diligence, and they are comfortable with what we have in these plants in Gujarat. It's progressing in the right direction for tapping into the CDMO opportunity.
Sure. Just to follow up on this, in terms of, say, announcements of contract signing, would this require the NPK plant to be ready at Dahej or existing facilities itself is something that they could process these contracts when they come?
We have opportunities that do both. We need to see how it concludes. Once they conclude, we'll definitely come forward and announce them.
Sure. In terms of timeframe, we expect this, this CDMO aligned business to happen in the next, 12 months, 18 months, 2 years, or longer? Is there some timeframe that can be provided?
I think, 18 months is a fair estimate as things stand right now.
Sure. The second question I had was in terms of the Nano DAP, since we are launching in October, I just wanted a sense what kind of capacity are we coming with, in terms of how do you see the size of the end market at this point in time? Given that it's not under subsidy, in terms of pricing and specter efficacy, for the pharma, how do we go about the pricing? Is it sold through those terminals, or is it free pricing in the market? Thank you.
The Nano DAP, the initial capacity creation from Coromandel is about 4 million per annum. This plant will be coming up with our partner capacity. Since this is going to be a product that is not subsidized, the market, the pricing would be based on market conditions. Obviously, given the fact that the company has always been in the ring and working on keeping the farmer with the first in mind, the pricing will also be on those lines. As we are closer to the time for launching the product, we will be sharing more particulars with you.
Sure. Looking forward. Thank you and wishing you all the best.
Thank you. Our next question is from the line of Naushad Chaudhary from Aditya Birla. Please go ahead.
Thanks for the opportunity, and congrats on the second quarter. Firstly, just to follow up on the previous question, as we discussed in the last quarter as well, in terms of the cash deployment beyond FY 2024, any incremental development, you would like to share with us? How are we planning to deploy in 25, 36?
There are two, three things that we explained in the past, Naushad. We just want to reiterate the same. One is there is a good amount of investment that will happen in our core businesses, which is fertilizer and crop protection, because we are looking at expanding our dominant position in fertilizer. At the same time, we are also looking into getting into new technology areas like Nano DAP and other nano products. On the growth projection, we have earlier guided that we are looking into setting up new multi-product plants in Asia and the Middle East and a new target average. Apart from this, there are adjacencies that have been identified, like specialty chemicals as well as CDMO, which will call for further investment.
The third area that we are looking into is the out option, which is not part of the core, but could provide a good runway for Coromandel in the future years to come. You would have seen in the last year, we have moved into mining, which is adjacent, but going forward integrated. This year we are looking into an investment in Dhaksha, which is again, a future-oriented technology. In some adjacencies have been identified, it also has applications across various other segments. We have been looking into similar growth areas, considering the macro indicators and the trends, looking into areas where it can complement our business. There is opportunities for both organic and inorganic growth. The company would seriously evaluate and invest. The intent is to see how as Coromandel, we can continue to add value to all our stakeholders.
That's how the cash accumulated by the company will be utilized. You would have also noticed the past several years, the company has been using its cash reserves to funding all its capital investments. The current security capital plan, for example, which is coming up at Vizag, the desalination system, or the INR 1,000 crore of investment that has been announced for PTC, is all going to be funded out of internal FPO. I'm sure over a period in time, there will be enough projects that will come our way, which will help in the growth journey and purposeful deployment of cash.
Okay. I am trying to understand in terms of the deployment within fertilizer and non-fertilizer. Broadly, if you have to give us the %, what % of would go to fertilizer business in next 2-3 years, and, what % would be non-fertilizer investment?
You know, the way these days we look into investments is not fertilizer or non-fertilizer. Fertilizer is a dominant business for us. We continue to be a leading character player in this area, and we'll continue to invest in that business. It all depends upon the business case. Similarly, there are interesting new areas which are coming, like a CDMO or a specialty chemical. Each of the projects will get their due share based on the merits of the case. We are not doing a segregation of saying, "I want to invest only so much in our group business." It is attractive, and it makes value in the longer term, there will definitely be investment allocated to that.
Thank you. Mr. Naushad, may we request you to rejoin the question queue? Thank you. Our next question is from the line of S. Ramesh from Nirmal Bang Equities. Please go ahead.
Good evening, Sri Sundar. Thanks a lot for the call. Continuing on the discussion on the plans in CDMO and MPP. If you can help us understand your thought process in CDMO, are you going to be just doing manufacturing contracts, or will you be involved in the entire innovation process? You know, prolab, dulab, testing, filing those years and taking it through the commercial launch. What is the thought process in CDMO, and are you looking at only actual details or will you also do pharma?
Do you want to answer that?
Yeah. see, for starters, we are going to do agchem, because that's what is familiar to us. We also have people and connections and relationships with some of these innovators. it's going to be AgChem-oriented to begin with. what were the other questions? Sorry, I didn't catch the
Yeah. In terms of your overall business model, will you be just doing manufacturing, you know, as an extension of the manufacturer, the innovator, or will you start right from the early stage of, you know, initial R&D, product development, right through the, you know, filing of dossier and then taking it through the commercialization, which is one of the, one of the FM model.
Right. The eventual destination is what you just described, but, you'll appreciate, I mean, the customers would like us to graduate step by step. We're going to start with manufacturing and then graduate step by step. All the conversations that we are having right now is to manufacture their final actual ingredient. That is the nature of conversation we are having right now.
Okay. Just 2 related thoughts I have. One is, the promoter group company, TI, has also decided to enter the CDMO business, and they've already had a business model, and they have, you know, an alliance with another emerging CSO company. Is, is that going to be, you know, under specific agreement between Coromandel and the TI group? You will not cause each other's stuff or, yeah, what is the understanding between the group? Because this, this is part of the same group. That's why I'm asking the question from an investment.
Ramesh, each of the companies have their own growth journeys, and they've identified mega trends on which they're working. At this point in time, as Raghu was explaining, we are into agrochemicals, and in agrochemicals, there's a huge opportunity for CDMO, given the China +1 . That's why we are starting. There could be opportunities in specialty chemicals as we go along, and that probably is a couple of years down the line. At this point in time, we have not worked as much on the pharma side. The current thinking is around agrochemicals and some point in time getting into specialty.
Okay, if I just switch the last part on your, you know, subsidiaries and our companies, and the mining, investment.
Mm-hmm.
When do you expect these investments to turn profitable on a consolidated basis? Is there any cash flows we'll have to invest in the next six to eight quarters before it's non-profitable?
As far as BMCC is concerned, there are two steps before we get the rock out of the mine. Basic mining, where we remove the overburden, those processes have got stabilized. We knew as we got into the mining operation, there is lots that has to be done to get consistent output of the mine. We are in the process of getting the second part, which includes crushing, screening, and then getting the rock out in a consistent manner. We hope in the next two to three quarters, that process also will stabilize, and as shipments happen, that operation should get profitable. As far as Dhaksha is concerned, it is early startup. As I was mentioning, we have just started getting orders.
Coromandel's role will also be to help them become a player of scale by providing management guidance, input, support, so on and so forth. Dhaksha also will become a profit-making entity at a much sooner date, because we have just started getting the orders. They have-- We are going to be taking a new manufacturing location, where the drones will be manufactured, also tested, and then shipped to various customers. Both of them will go on the right traction, and there is enough oversight which is being given by Coromandel to ensure that our investments actually bear the fruits.
Thank you. Mr. Ramesh, may we request you to rejoin the question queue for follow-up questions? Thank you. The next question is from the line of Vishnu Kumar from Spark Capital. Please go ahead.
third time. In the chemical business, on the specialty chemical, is there any additional CapEx in thought as to how much we probably might consider to additionally invest in the next 2 years, if there is a broad thought on this?
Vishnu, currently what
Yeah.
Yeah. Currently, what we have considered, the INR 1,000 crores is mostly going into agrochemicals. There could be some portion of it which can go in for slight modification or tweaking, alteration of our existing plants, where the products can be meeting the specialty chemical segment. We are in the final stages of getting our overall business case for specialty chemicals, considering certain chemistries which are turning out to be very, very attractive. Once that gets completed in the next, three to four weeks time frame, the capital expenditure required for that will also be estimated. To your question, the answer is, currently we do not have anything majorly planned, but based on the business case, I do believe there will be some modest investment required for this segment as well.
Understood. Channel inventory, if we could talk about on the fertilizers. We understand channel inventory is slightly higher, and, this week in Telangana, the rains have been pretty excessive in certain districts and some parts of interior Maharashtra, Karnataka not doing that well. How do you see the Kharif season, rest of the Kharif season playing out in terms of volumes?
Shankar, if you're there, do you want to take this question or should I?
Yes.
There is a widespread coverage of rain in all our three agricultural markets. Even if you see Telangana, part of the rain is very... I think Maharashtra, Karnataka also had a good rainfall. In those markets where we are operating, there is a significant mileage in terms of brand connectivity. We don't anticipate any problem. Channel inventory is significantly higher compared to last year around the same time, but we don't see any challenge from our point of view.
Right. Final question on the MRP, you mentioned that we will consider. Is it likely at the end of Kharif? Because we are seeing a steep fall across even as you mentioned, Phosphorus has come down and other product, I mean, other RM also has come down. Should we expect a MRP cut in the next month itself, or we will wait for Rabi starting to go ahead and announce the cut?
In terms of the price, we need to actually see some basic rock prices holding steady. Also, I think we have seen the bottom in terms of the global commodity prices. In fact, there is some slight uptick in the price of DAP, urea, in the recent past. We have to wait and see, and also the potential coming in the subsidy going forward as well. We will take a view after we have some visibility on all the input rates are going to be for the Rabi season and the overall operation.
Got it. As of now, next couple of months, we don't expect any clear MRP, that is, if I can-
No. No.
Got it, sir. Thank you.
Thank you. Our next question is from the line of Rohan Gupta from Nuvama. Please go ahead with your question.
Yeah. Hi, sir. Good evening, and thanks for the opportunity. Congratulations on good set of number. Sir, on complex fertilizer, I mean, overall, as last year, we produced roughly 35 lakh tons. I think that is the next, probably, increasing utilization. If you can see, with the DAP manufacturing hardly, 4 lakh tons. Almost 80, 85, 85% plus is a complex fertilizer production. Do you see that this year we have a further scope for any change in mix and further manufacturing of complex fertilizer while continuously going for trading and DAP, and how much utilization we can increase further?
Our preference always be to focus on NPK production, and given the opportunity on to import DAP at a price point, it makes sense for us to import DAP rather than producing and release the capacity for NPK. Also within NPK, we choose the grades which meets our requirement. We improve input raw materials, such as urea, ammonia, and phosphate. That's the flexibility. Raw materials are having a wide range of suppliers. We can endure any change in the production line for the purchases for any grade. That optimization makes we keep doing it to even the NPKs. Our utilization will be more or less the same as last year, because we also did well. Also we use different type of input raw materials, which can increase the throughput.
We also continuously focus on improving the uptime of chemistry through digital enablement of our ingredients, which has improved uptime and availability of machines. We do expect incremental volumes to come through, through production improvements, better raw material mix, as well as change in product mix. The production also goes through changes depending on the grade we produce. We keep deploying this depending on what we get, what raw materials we provide.
Sir, you know, Jeshima also mentioned that, you will completely invest in fertilizer business. However, growth in the fertilizer industry still will remain muted or maybe at 3%-4%. Is this something we are looking at, acquiring any assets, and that is what going to drive the efficiency and make the business more sustainable for us? Because if we keep on investing from the current base, markets may not be growing in that direction, right? How we plan to grow the fertilizer business?
With the increased demand for food grains and also the change in diet pattern, the fruit and vegetable sector, the segment is growing, and it requires nutrients. Industry continues to see the lowest consumption of nutrient as of now. Going by the trend and the change in available land, the need for yield is probably always there. We'll be definitely looking for enhancing our capacity and coming up with the products which can improve the yield. It may not be the same genetic traits of DAP and traditional NPKs. It can be coated fertilizers, fertile fertilizers, but fertilizers which can improve the fertilizer use efficiency. We have enough chase to operate in our key addressable markets right away. Definitely we look to grow the volume.
First we will evaluate our brownfield expansion, which means taking our capacity in our existing facilities, before we look at either, organic or greenfield. We feel, with a unique demand for product. We have position ourselves, there is enough scope of increase the volume and increase the capacity or add on capacity in our existing facilities.
sir, do you see in Hisar, roughly double-digit growth for fertilizer business in terms of volume sustaining for next 3-4 years? Is it possible?
It's very difficult to predict. There's got various factors in terms of monsoon and the spatial distribution of monsoon and the pricing of fertilizers. We don't want to give. Direction-wise, we would like to grow the volume, and we feel there is enough space for us to grow the volume.
Sir, just to follow up the booking question, what is the debt number right now, and what is the processing prices current contract right now?
$2-$3 is the processing price. What is the processing debt or cap? I'm not really... Debt, we'll respond.
Sir, debt number. What is the debt on the book right now?
We don't have debt on the books. We don't have any borrowings. There have been some very short-term working capital limits that we avail, which primarily is for managing the day-to-day operations. There are arrangements with the buyers, where we extend credit for our imported.
Even, even short-term, even short-term or working capital is not a right strategy?
No, there, we have some working capital facilities and debt. That will always be there, but there's nothing for the long term. Yeah.
Okay. That's it from my side. Thank you, ma'am.
Welcome.
Thank you. Due to time constraint, that is the last question for our question and answer session. I would now hand the conference over to the management for closing comments.
Thank you. Thank you very much for your interest and, very interesting questions. Due to time constraint, there is not much time to take, and I know there are three questions in the queue. Feel free to reach out either to me or to Anosh, and we'll be happy to engage with you. Thanks again.
Thank you. Ladies and gentlemen, for the questions that were not answered, you can contact the management offline. Thank you. On behalf of Elara Securities Private Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.