Ladies and gentlemen, good day, and welcome to Paradip Phosphates' Q2 FY24 result conference call, hosted by ICICI Securities. As a reminder, all the 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. Nilesh Patil from ICICI Securities. Thank you, and over to you, sir.
Thanks, Sagar. On behalf of ICICI Securities, we welcome you all to Q2 FY24 result conference call of Paradip Phosphates Limited. We have with us Mr. Suresh Krishnan, Managing Director, Mr. Alok Saxena, General Manager and Head of Corporate Finance, Mr. Bijoy Biswal, Chief Financial Officer, and Mr. Susanto Lahiri, DGM, Strategy, IR, and ESG. Now, I hand over the call to the management team for their initial comments on quarterly performance, and then we will open the floor for question and answer session. Thanks, and over to you, sir.
Thank you and good afternoon, everyone. Welcome to our Q2 and H1 FY 2024 results conference call. I would like to thank you all for joining us here today. I hope you and your families are staying safe and healthy. We have uploaded the press release and earnings presentation on the website and the stock exchange, and I hope you have had the chance to see it. To start with, we will give you an overview of the business trend and financial performance for first quarter and H1 FY 2024, and we would be happy to take questions afterwards. Let me begin by acknowledging the dynamic economic environment in which we find ourselves in the beginning of FY 2024. The last quarter, Q2 FY 2024, has been a journey of uncertainty and resilience.
The global economy continues to recover, and we have faced our share of challenges along the way. However, I am pleased to report that Paradip Phosphates has maintained its commitment to growth, sustainability, and excellence, and has achieved a good set of numbers in Q2 of FY 2024. Throughout the quarter, our production volumes witnessed a growth of 29% in comparison to the preceding year, while our sales volume displayed a notable uptick of 78%. This significant growth in sales volume was made possible through continuous farmer and channel-based initiatives by our teams. Despite witnessing a less than adequate rainfall conditions in contrast to the previous year, our team has demonstrated exceptional performance, both operationally and financially.
I would like to highlight that our captive phosphoric acid capacity at Paradip site recently expanded from 3 lakh tons to 5 lakh tons per annum, and is currently stabilized and operating at its optimal capacity. We're also in the process of expanding our sulfuric acid capacity by approximately 6 lakh tons in the next 2 years. We remain focused to doing our best in the forthcoming Rabi season by leveraging our competitive advantage, operational excellence, our pan-India retail presence, and backward integration capabilities that we have already demonstrated. Now let me get you the numbers for Q2 and H1 FY 2024. I'm happy to share that Paradip Phosphates Limited has reported strong financial numbers for Q2 FY 2024.
During this quarter, the company achieved a quarterly revenue of INR 36,940 million, demonstrating a significant year-on-year growth of 28.72%. The EBITDA for the quarter amounted to INR 2,670 million, reflecting a year-on-year growth of 42.4%. And furthermore, the profit after tax for the same period reached INR 888.94 million, indicating a growth of 76% year on year. Moving on to the performance for the first half of the year, the company achieved a revenue of INR 67,374 million, reflecting a year-on-year growth of 27.2%. The EBITDA in H1 stood at INR 2,476 million.
As we move forward in the second half of FY 2024, I'm confident that our company is well positioned to navigate the challenges and seize the opportunities that lie ahead. Thank you very much, and I'd like to open the floor for Q&A.
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 their touchtone phone. If you wish to remove yourself from the question queue, please press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Prashant Biyani from Elara Securities. Please go ahead.
Yeah, thank you for the opportunity. So first, some data-related question. How much subsidy have we received this quarter, and how much is outstanding?
Okay. Anything else? Third question.
Sir, I wanted the volume breakup of DAP between Paradip site and Goa, and the same for NPK as well.
Okay. Okay. Well, when it comes to subsidy, let me tell you, it has been pretty robust collection for us. And as far as the NP, NPK business is concerned, till the third week of September, our subsidies have been received. So that has been a good collection there. And subsidy collection on the whole was INR 3,278 crore.
3278.
INR 3,278 crores versus INR 1,588 crores the previous year.
Sir, outstanding?
Outstanding is only for about a week. A total outstanding of all subsidy put together is INR 1,865 crore.
Sir, can we get volume breakup for DAP between Paradip site and Goa?
Yeah, yeah, that should, that should not be a problem. Well, if you look at the overall, H1 performance for us, I will just give you the numbers. We, on the whole, did, in terms of production, 1,293,000 tonnes was total production between the two sites, Goa and Paradip. When it comes to DAP, the DAP volume of production at Paradip was 365,000 tonnes in Paradip, and in Goa we did a DAP of 65,000 tonnes.
Sir, I'm sorry, but I wanted sales volume.
You want, you want the sales, not the production. Okay, I'll just give you the sales. Just a minute. Well, if you see this year, for as far as sales is concerned, for, I will directly give you H1. Total sales for H1 was 14.29 lakh tonnes, as far as the company is concerned, which the breakup was that DAP was 537,000 tonnes and NPK is at 646,000 tonnes.
Okay, uh-
Prashant, you will get the numbers, you'll get the numbers actually, on the presentation that has been uploaded on the website. So pretty much, that's the for Paradip, about 1,52,000 tons, and in Goa we produced about 27,000 tons. Put together, put together, we kind of produced about 1,78,432 tons in Q2 alone. On the sales numbers, the total sales for DAP has been 2,52,000 tons across both the sites. Includes 152,000 odd at Paradip, and for Goa, it's about 23,000. And we do have a bit of trading as well of DAP that we've done on top of the manufacturing sales.
And for NPK, sales number?
You'll get the numbers on the slides that we have uploaded on the earnings deck, Prashant, so I would insist you go and have a look at this.
The total NPK sales is 646,000 tons for both sides put together.
So, sir, on the subsidy reduction part that government has done, post that, sir, if you look at Q3 last year, we had a very healthy quarter. Sir, how would we be planning to defend our profitability? If you can highlight the mix of products that we would plan to sell, to at least defend the profitability of last year.
Well, Prashant, it's like this. When it comes to the profitability and EBITDA per tonne, even for the H1, we were kind of targeting about INR 5,500 per metric tonne as EBITDA, after making certain provisions which we expected to do on September thirtieth, by way of subsidy reduction. But unfortunately, as you know, the subsidy reduction has been far, far steeper than what one anticipated. And so we had to actually make a provision of an incremental amount of INR 300 crores for subsidy correction for the H1. So given the current scenario that we have and the fact that the raw material prices are quite volatile, and when you look at key raw materials like ammonia and even to some extent, I would say even sulfur.
So we—the way I look at this is that we will have, when we go through the H2, our target would be to continue with our volume growth as far as sales is concerned. And when it comes to the overall, EBITDA that we're looking at and profitability that we're looking at, we would, we would be, guiding around INR 3,500 per metric tonne to INR 4,000 per metric tonne for this period. But, having said that, it's important to realize that, the, the raw material price trends might also result in the overall subsidy plus MRP having to get corrected during the next, next six months. So whether it will happen now or immediately now or it'll happen by Q4 is something that, we will have to review.
But the good thing that I'm getting to see here is, besides just the quarterly numbers, I think what we will need to focus is the subsidy is corrected in a significant manner, and that's, that to me is a positive for the business in general. We are no longer in a situation where the subsidy component is larger than the MRP. Even if you look at DAP today, the MRP takes you to something like INR 27,000 per metric tonne, against a subsidy of about INR 22,000 per metric tonne. So this is a very good trend that we are reaching here, and I personally believe that the major swings will is not likely to really happen beyond maybe one more correction that you could get to see in the next few quarters. So which is positive.
And second thing is, we also believe that the market, which has been, which is, which has done well as far as the agriculture side is concerned, there is a good ability at the marketplace to absorb some price hike if need be. So which is again, a positive for us, and I believe that in FY 24, 25, we would see all these corrections adding up to, the industry really coming out with good numbers, and I can say that for sure for Paradip Phosphates.
... Thank you, sir. Just lastly, on the RM, raw material side, while the prices have started to increase of late, how are we stocked up on raw material for Q3, which we might have bought at low cost?
Well, Q3, whatever we'll see, typically, you have raw material, whichever way the price swings, you have raw material for about 40 days of production. So we always had that 40 days production available, and for the balance period, you would obviously be buying at the current market prices. Yeah.
Thank you, sir. Thank you. That's it from my side.
Yeah.
Thank you so much. Participants who wish to ask question and join the question queue, please press star and one. The next question is from the line of Deepak Gupta from Nayan Stockbrokers. Please go ahead.
Good evening.
Yeah.
Good evening.
Yeah.
Yeah. Okay. Sir, regarding the, even I was also concerned about EBITDA after the reduction of subsidy. So you're giving a guidance of around INR 4,000 per ton, sir?
What I said is that, you know, we normally have a guidance of INR 4,500-INR 5,000 for EBITDA. But given the volatility which is there, I was expecting this to be in the range of INR 3,500 if things work out well in terms of price correction or an MRP correction, you could even go up, go above INR 4,000, yeah.
Okay. Sir, and second, sir, the El Niño effect has been felt. What do you foresee in the future also, sir? How is the... How are you taking efforts to insulate this, sir? Any insulation, any plans or anything? Any mixed product mix?
Well, there are two things for us when it comes to a demand uncertainty in the marketplace. The first is that we are present in more than 15 states in India, so that particular reach itself helped us in a big way, and we are able to move across markets because we are one company between the two sides. So that is the first one, which is there. And second thing, when it comes to the product mix, we are between the two, since granulation trains, our ability to work around products is quite significant. And so we will certainly look at looking at the overall viability at on one end and the requirement of the farm. I think we must remember that everything is not just about numbers alone, it's also about what the farm requires.
So based on this, we will take a call in terms of which is the right product that we need to manufacture.
Okay. Thank you, sir.
Yeah.
Thank you so much. The next question is from the line of Resham Jain, from DSP Asset Managers. Please go ahead.
Yeah. Hi, good evening, team. I have three questions. First one is, with respect to the phosphoric acid plant, which you have commissioned recently. What kind of benefit one can expect from this new plant? And, what was the total CapEx incurred for this?
Okay. And you said you have three questions. What are the other two?
Yeah. So the other one is, you mentioned about INR 300 crore provision, which you have taken in quarter one, but you might have taken the inventory provisioning for the subsidy, which has been announced recently in that context.
Yeah.
What was that amount?
Yeah.
The third one is, with respect to the overall inventory situation in the marketplace, because I think, three months back, the overall, kind of, DAP, kind of, inventory in the market was slightly on the higher side. So if you can just share your thoughts around that.
Okay. The first, first is, you know, phosphoric acid is a raw material for us. By, by the increase in capacity that we have achieved, we would be self-sufficient for phosphoric acid as far as the Paradip site is concerned. So we have over 500,000 tons of phosphoric acid available there. So for the kind of product mix that we have for our 1.8 billion tons of granulation capacity, we would be, we would be over 90% self-sufficient. So... And depending upon product mix, we could well be 100% sufficient in terms of P2O5. So that is a big benefit that we get. And along with that, we also obviously get a value addition for converting rock to acid, which, which, which will be continued and which will be for a larger volume, which is there.
But in terms of the overall, Phosphoric Acid project is concerned, we had about INR 285 crore of investment that we did for this particular train, which is primarily a Brownfield expansion, because we had other infrastructure which is available. So that's the first one. When it comes to the second one, in terms of what is the overall provisioning, the recent circular of the Government of India, which is there, is fully provisioned in our books, and the overall impact of that was closer to about INR 505 crore. And the third question that you, the third question that you had was about inventory.
I must tell you that our primary sales have been very robust, and we've been able to, strictly speaking, sell most of the production that we did, including the opening stock that we carried on first of April. As we close the quarter on September, our stocks are minimal. We just about had, I would say, about 12 days of production with us in terms of inventory. And so we're quite comfortable in terms of both primary sales taking place in our marketing area.
Sir, just two follow-ups. So in the first one, INR 285 crore CapEx, what is the payback period you are looking at in terms of the project for phosphoric acid?
This is a very strong project, so we should be less than 2 years, yeah.
Okay, understood. And the second follow-up is, you have lower inventory, but from the marketplace perspective, how is the inventory situation? Because, in the market, there are other players also. You must be selling in your core markets.
... Well, I, and let me tell you, as far as the primary sale is concerned, has been robust, and our collection against our receivables have been also, very encouraging. I think we've done quite well. But when it comes to the pipeline inventory, which is sitting for the current Rabi season, the only market which is quite—which is looking not as good as what one would like it to be is Maharashtra. Maharashtra is one. We sold well in the first half, but I think the growth in the Rabi in Maharashtra could be muted if there is not much of the kind of water levels that we see in Maharashtra reservoirs. So that's the only market where I believe is in a bit of a concern.
in terms of similar water requirement, I think Karnataka is also not done all that well. But our rabi markets, which are largely the northern markets that we have, we do not see any constraint in terms of demand on account of water shortages.
Okay. Thank you, sir. All the best.
Thank you.
Thank you so much. Ladies and gentlemen, at this time, if you would like to ask a question, please press star and then one on your touchtone phone. The next question is from the line of Dhruv Muchhal from HDFC Asset Management Company. Please go ahead.
Yes, sir. Thank you so much. Sir, some of your peers and probably some channel checks are suggesting that there could be a possibility of price hikes in NPKs, given the sharp subsidy cuts. So how do you see that, sir? What's your view?
No, can you come again? What did you say? N- price hikes in NPKs. Well, I personally believe that, the way the, the raw material pricing are today, price correction in NPK will be required to maintain, profitability. That's for sure. And the price correction as to when that will happen, is something that, I don't think we be of clarity, but going forward, I think you will see price correction.
Okay. And is there a possibility that the government thinks of a, you know, subsidy revision in Q4, mid of generally six months, I believe, but now we'll do a quarterly revision? Is that a possibility given how the prices are moving?
Well, if you look at it today, there have been steep correction as far as September thirtieth is concerned, and all our raw materials are only moving to at a higher level today. So any correction at this point of time downward is in our view, quite unlikely. And so that's the first point.
Subsidy increase, probably.
Subsidy increase, I mean, I think based on the availability and the uptake that will happen in the months of November and December, and if the channel stocks are going to be very low, it is possible that to encourage better buildup of stock for the next Kharif, there could be some correction, positive correction, which could happen. Or else you will get to see a positive correction in terms of any price changes that could happen for various grades of NPKs.
Mm-hmm. All right. So the other thing was, can you quantify the amount of stock, the quantum of stock you had, both primary and secondary, for the DAP plus NPK?
The total stock which is there, where we have not completed the POS, as on thirteenth of September, was close to 470,000 tons.
Oh, yeah.
which is roughly about a 1 and 1 to 1 and a half months of our total manufacturing.
Mm-hmm.
I must just tell you that we have, we had one of the best POS record for the first half. We did more than 10 lakh tons of POS in terms of sales that we did to the farmers.
So you say it's about 1.5 month, your overall production is about 0.6 million tons, 0.665, versus your stock is about-
No, we typically, if you look at it, we do about 150 + 120 to about 270,000 tons, which is our capacity on which we run during peak months. So if you add these two things about, we come to about 400,000 tons. And we had some imports that we had taken during the year, which was available with us.
And so the last thing is, this time your, your share of NPK production is, much higher versus what you typically have been doing for the last few months, or the last few quarters. So is this more sustainable or how should we think of this?
Well, our NPK production has increased for sure, and our NPK mix is also-
Yeah.
Our NPK mix is also looking good, and this is 100% sustainable, and we would have, we will be in this trend only, yeah.
So this, I mean, the channel is accepting, you are able to, you know, offload the product in the market, the increase, and that's, that's working well?
Absolutely. Because if you look at it, what we have done, which is positive from our side, is out of the overall NPK market or the NPK market, N-20 is a big chunk, close to about 50% of what NPK sell. And today, with our revamps that we've done over the last few quarters now, between our both sides, Paradip and Goa, we are in a position to make N-20 all our granulation trends. So which has been a very big positive and which has been well accepted. So we managed to move that across all our markets. So that's the big positive, and we've also established a few other grades which are looking very exciting.
Yeah, because, besides N-20, other NPKs have also seemed to be done well.
Yes. Yeah. In fact, today, the only concern on the NPK front for the industry will be that the other two popular grades of N-10 and N-12 are not financially viable, given the price structure that we have. Otherwise, the rest of the NPKs are looking all right.
Sure, sir. Got it, sir. Sure. Thanks, and all the best. Thanks.
Thank you.
... Thank you so much. The next question is from the line of Lakshmi Narayanan from Tunga Investments. Please go ahead.
Yeah, thank you. From a sales point of view, what kind of volume growth you expect in NPK for this year and maybe next year?
Well, when you look at our total capacity, which is 26 lakh tons, and we are, we are actually coming very close to kind of reaching that particular level. Over the next few quarters, we will be reaching that full level. Within the 26 lakh ton capacity that we have, the DAP is going to be roughly 8 lakh tons, and the balance is 18 lakh tons will be the NPKs. So this is going to be more like, like a steady state that we'll have. Within the 18 lakhs capacity, obviously, we'll mix and match various products depending upon the market needs.
And in terms of your sales volume, like it's even what kind of volume growth you expect when compared to last year's NPK sales in volume terms?
Well, last year from 2-2.5 million tons, we are going to be there this time. Nearly 25% increase is going to be there because our urea capacity is stagnant.
Got it.
So all the growth that you're seeing today in our portfolio is largely coming out of our NPK and DAP sales.
Got it. And how much of your DAP is manufactured? Like, everything is manufactured in-house.
Essentially manufactured. We have, we had about 100,000 tons of imports. That was only to bridge the timing. Otherwise, we, we manufacture our DAP.
Got it. And in terms of market share gain in any of your key states, you want to call out?
No, we... I think our market share is significantly - we've regained our market share and established a position when it comes to Maharashtra, which has been positive for us. And, we are moving into the other southern markets, and in certain products like N-20, we have slowly started gaining market in Telangana and in other neighboring states, yeah.
So just to add there, in fact, you know, we have been traditionally very strong in Maharashtra, Karnataka. But, you know, if I just look at the H1 performance this year with the last year, in fact, we have made very good inroads in, you know, Andhra, Punjab, Telangana, UP, West Bengal. So it's been very positive for us, and that's kind of seen in the 78% growth rate in sales in Q2.
Mr. Biyani, do you have any more questions?
Hello?
Yeah.
Sir, I had two questions. One, sir, after the subsidy cut, would you think that domestic manufacturers are now better placed than importers, and hence, companies like us can have more market share gain in the coming quarters?
My reaction to this is, okay, on paper, yes, it looks like that, but I think, I think we shouldn't kind of react to these cuts on a quarter-to-quarter basis. I think we have to look at it on long term. And as far as India is concerned, we have a 20 million ton requirement of NP, NP and NPKs, and it's growing, it's growing at quite a healthy pace. So there will be space for everybody. It's just that, we're currently seeing that, maybe the imports are not as competitive as manufacturing. But on the whole, India will have to import to meet the requirement of the farm sector, and manufacturing will continue to grow.
The good combination would be that, the more difficult, more important NPK grades that the market needs will get manufactured in locally, and some of the generic products like DAP could well, take a larger share from imports. Yeah. And I think these corrections will happen. You may see for a 3-month period that, DAP imports may or may not be viable, but I'm sure on the whole, the entire product basket will get viable. It is just an inter se, something will be more viable than the other. But I think you will see healthy numbers coming back to this sector by 2024, 2025, because the subsidies have been now corrected quite significantly. And that is important because you are going to get your returns, not so much from the subsidy basket, but more from the MRP basket.
We are quite confident that the market is in a position to absorb an MRP hike.
Right. So you also alluded to the fact that N-10, 12 are not viable right now. Because, which grade would you be pushing for as of now?
Sorry to interrupt. Mr. Biyani, you are sounding a bit distant. Can you please come nearer to the speaker, please?
Am I fully audible now?
Perfect.
Yeah.
Sir, but you alluded to the point that N-10 and 12 are not viable as of now. So which grades would you be planning to sell more? Would it be 20:20:0:13 and likes?
No, we, let's, let's look at it. We have N-20, and along with N-20, we have also a straight and MOP available for the farmer to use. We also have urea, which the farmer can use and combine that. So we would be giving him a prescription which kind of works. So we will, in terms of what kind of products or, or, combination of product they should use in the field. I mean, that's the way we are looking at it. And N-20 obviously will be an core part of our product, product offering.
Okay, sir. Thank you.
Thank you so much. The next question is from the line of Vihang Subramanian from Alchemy Capital. Please go ahead.
Yeah, hi. Thank you for the opportunity and congratulations on the set of numbers in this time end.... So my first question is, just give a spike in RM prices recently. So, can you touch upon what is behind this latest spike and, what is our view on-
Sorry to interrupt, Mr. Subramanian. Even your line is sounding a bit distant. If you are using the speaker mode, can I request you to use the headset, please?
Is it better now?
Yes, sir.
Yeah. So the first question was, what is behind the latest spike that we have seen in RM prices? And, do we have any view or like a six-month view or a one-year view on, where RM prices will be?
Well, when it comes to RM prices in India, it is very much settled on a quarterly basis. And the reason why we are seeing certain spikes in RM prices is that we are seeing some demand coming back quite seriously, both in Brazil and in Europe. So that demand is kind of helping the North African players to move their material at a much better realization. So which is why you are getting to see P prices going up, and when P consumption goes up, you normally it is followed with higher demand for sulfur and ammonia, and those prices also get corrected accordingly. And when it comes to ammonia, yes, we had some plants which had taken shutdowns, and there were some interruptions in supplies which were there.
We have seen some major corrections, which did not purely go based on market demand supply, but I think, based on some geographies. That's what it, that's what we get to see. And, so a lot of material moved towards the higher prices, so that, that seems to be the, the case. But, otherwise, if you want, if you see, based on fundamentals in terms of what it is, I think most of the fertilizer raw material prices have come to levels which look to be at a point where one could work around it, sustainable, without very major swings. I mean, you could see some corrections in ammonia, which could come, which should, which could get corrected downwards.
But when it comes to sulfur, the P2O5 and K, all of them are corrected quite well. So I'm not going to... One shouldn't expect a major volatile situation unless suddenly there is a geopolitical issue which turns unfavorable.
Understood. So you expect prices to broadly remain where they are with that?
Yes. I personally believe that the current levels that we're getting to see, corrections, either way, plus or minus, should not be, should not be major swings, you know? At least in the next, the coming quarter and the quarter thereafter.
Understood. And to touch upon your EBITDA per ton guidance of INR 3,500-4,000, just to understand, like you said, based on current RM prices, and if we see a move up in RM prices, then how do you think of EBITDA per ton?
Well, we are looking at current RM prices to kind of hold on to give us the margins that we're looking at, first part. Second thing is we are also looking that over the coming five months, you know, between the MRP and the subsidy, there could well be some positive corrections.
Understood. And just a thought, in my head, we have seen the subsidy component come down significantly now, and it's also been seen in your, balance sheet, on your net debt. How can one think about the net debt, probably materially lower from these levels as well now?
We are expecting that, you know, because the overall subsidy amount per ton has come down, market collections have been robust. So given this, we don't believe that we would need to kind of look at more borrowings. And there are two things for us, you know. First, first is our long-term debt is not really going to change very much because we have completed all our projects. There's only one project which is underway, so that's not going to be a major swing. And as far as the other debt is concerned, as you know, we have corrected in a way, in a positive way, and we'll try to keep this trend.
We are currently at a debt-to-equity ratio of about 1.13, as where the company is concerned, and I think that number is a good safe level to be in for us.
Understood. Okay. If our subsidy component has been revised every percentage, you know, quarter on quarter, do you think that the net debt could also come down from INR 35 billion to probably around INR 20 billion-INR 25 billion range?
Possible, because the debt that we have been taking today has largely to do with outstanding subsidy when it comes to the short-term borrowings that we end up doing, you know. So with short term. And we would be repaying the short-term borrowings over the month of November. And by the time December, January comes in, I think it should come to a reasonable level. But you must also understand that when you come to the year-end, we will be in off-season. So even though we may not, so we will have received finished goods inventory, which kind of moves up at that point of time.
Perhaps the last question now. I think given we are reaching optimum capacity utilization now, could you touch upon how do you think of volume growth over the medium term?
Well, well, we, as far as the capacity is concerned, we have pretty much reached the, the optimum numbers that we're looking at. And you know, we- the 30 lakh ton as a, as a target that we had, split of 26 + 4, is something that we're targeting. I think, I think we should be pretty close to it now. But, based on, based on monsoon conditions and demand supply, maybe a 100,000 ton swing could kind of happen. But otherwise, we are reaching a safe, levels in terms of our manufacturing capacity. Now, the key thing that really comes to us would be that, how do we enhance our market share? Given that, we still have, there's still a good component of imports in the overall consumption that happens in India.
So that will be a strategy for volume growth, at least in the short term.
Understood. That is some right side. Thank you.
Thank you so much. The next question is from the line of Vinayak Mohta from Stallion Asset . Please go ahead.
Hello.
Yeah.
Yeah, hi. So I just wanted to understand, you know, what are we doing so differently given the kind of volume growth you've seen? We saw another peer of yours report numbers a while back, and, you know, they had flattish kind of revenue volume growth, whereas you guys have grown very significantly within your NPK and DAP front. So what are we doing so differently versus them? Or is it just a base effect or market effect, you know, where you are present and they are not that strongly? So if you could show some light on that.
Well, it's a good question that you asked. And the response to this is that we made an acquisition of an asset, which is the Goa's manufacturing facility, along with the brand and the retail network. Jai Kisaan has been a very strong brand for a very long time, with very good reach in Maharashtra and various neighboring markets. And what is helping us is the Jai Kisaan reach. I think that is the difference that we're getting to see. Jai Kisaan had a dormant capability to reach much higher levels. Jai Kisaan, on his own, has done 1.72 million tons of sales as a single brand.
Today we are taking the Jai Kisaan brand for whatever expansion that we've done in Paradip, and that's where the difference is, that you're getting to see.
So, is it fair to assume that on an organic side, your growth was flattish as well? Or, you -- what kind of growth did you see, if I did-
No, I would say that, you know, we increased our production in Paradip. And when we increased our production in Paradip, the Paradip markets grew at a particular pace. We did a little better than that. But the substantial amount of volume that we've had, both at Paradip and restarting of the Goa facility that we did, we were in a position to absorb in our stronger markets, which are there in Maharashtra and Karnataka. And we further moved our material towards the central part of India, wherein we were present in the past, we've been able to reestablish ourselves.
Understood. Understood. So fair enough. And any update from you on, you know, the Nano DAP, Nano Urea is seeing a lot of traction. We, like, we've been doing some reading, and we could see that, you know, the kind of effect that it has, that it has on the crops and all, is very decent, and even the pay back rate is very strong. While it does need a lot of education part for the farmers to get up to speed with it so that the adoption can grow. But any progress there or anything that you are thinking, and how do you think about that market individually as well?
Well, we have done more than a year of field studies and field trials as far as Nano is concerned, and we are seeing good results as far as the product is, product is concerned. And so it's been quite stable and it's been doing well. We expect to launch this product pretty soon. I mean, I think our launch will be there in during this quarter, the end of this quarter itself. And thereafter, we will have a sustained volumes coming from Nano. But in our case, it will be both Nano Urea and Nano DAP.
Understood. Is this produced by us in-house, like, or have you got the patent for it, or have we taken a technology transfer or something like that?
Basically, the nanotechnology that is available is there with one of our group companies, and we have taken the exclusive rights on that to market.
Understood. Understood. And, do you see that over a sustainable longer period of time, the EBITDA per ton is something that, you know, will sustain over this INR 5,000-5,500 levels? Or do you how do you see the scale, over a longer period, sustained environment, removing the effect of, you know, how subsidies would move? So what would be your input out there?
Well, you look at it today, the government's regulatory framework is coming with a proposed structure for reasonable profit. The reasonable profit for integrated players, we are talking a level of about 12% of cost of sale. So even if you take our average product mix and you would get these kind of numbers, an INR 5,000 EBITDA-INR 5,500 EBITDA, a sustainable number within the reasonable profitability structure that the government is proposing. So that is the reason why we believe that these are numbers that one should be able to maintain. That's the first point.
The second point is that, for us also as a company to improve our EBITDA, it is not just going to be the, fertilizer, fertilizer products alone, which are controlled by the, by the government in terms of subsidy. So there is going to be, we will be offering products, Nano and beyond, which will finally help us to not only grow and get a better, better wallet share, but at the same time improve our overall margins.
Understood. One last question. You know, as the mix of NPK and other complex fertilizer increases and replaces the traditional urea and all ones, do you think there's a change and the government intervention on the pricing front is very low as of, or negligible as of today. But as this grows into volumes, two things on that front: Do you think that the market is ready to absorb that amount of incremental pricing of these products? And secondly, what risk do you see of the government intervention on the pricing front, which ultimately might end up impacting the, you know, growth in sales or the profitability?
... But you have to look at, you have to look at the agriculture sector in, in, as, as a whole. And when you look at it there, even for basic grains and basic oil seeds and everything else, government has been improving MSPs quite significantly. For agri input like fertilizer, as a percentage of the total cost for agriculture is not as significant. So given that the farmer is into a healthy run today, it is certainly possible that we should be able to maintain both the volumes and the price levels one is looking at. But more importantly, what is going to happen is that there's a lot of focus on soil health and soil health improvement.
When the soil health improves, the impact and the realization that you will get in terms of farm productivity from an input like fertilizer would be substantially higher than what you're getting to see today. So that will also encourage the farmer to consume. And you, in effect, you will get to see that the demand for N, P, and K is going to actually be far more than what we believe it's going to be, what we get to see today and what we believe the growth rates are.
Understood. Just one small last question. What is the thing that, you know, you would be the most excited about the next, you know, three to five years, one part of the business or any other initiative that you have taken within the business, which would you believe could have a substantial impact, you know, on the profitability? Because from my understanding, a lot of people are now starting to see the sector moving away from that government-focused, government-driven kind of profitability sector to a more sustainable profitability, one which is more linked to, you know, the economy, consumption side, of the market. So what would that thing, one thing be for you?
Okay. The way we look at this sector is that, you know, this sector is squarely provides the food security for the country. When it comes to food security, it is not just about the primary nutrients that we are able to supply, it is the reach that we have through our retail network. And our retail network that we have today not only provides fertilizer, provides all other kinds of inputs which the farm economy needs. So our excitement really comes from not just the ability to do what we're doing in terms of major nutrients, it is the various other products that we have in the pipeline, which we will be offering, which includes Nanovate at one end, other liquid fertilizers, the customized fertilizer.
These are products which are going to be growing in our portfolio in the years to come, and which will add to our profitability and the excitement that even our channel partners will have.
Got it. Got it. Great. Thank you so much.
Thank you. The next question is from the line of Deepak Gupta from Nayan Stockbrokers. Please go ahead.
Good evening, sir.
Yep. Good evening.
This is a continuation from my earlier question, which you have answered about INR 3,500-INR 4,000 EBITDA, because of the subsidy reduction. Is it possible, like, in an association of fertilizers or something represents the government to increase the subsidy or to have an MRP increase? Anything is possible so that you can have the same kind of INR 5,000-INR 5,500 tons of EBITDA. I'm just worried about the value of this one, profitability.
Well, my friend, I think, I should make one thing very clear that as fertilizer industry, we don't seek higher subsidy. We are purely a subsidy carrier as far as the farm economy is concerned. So we would believe that the structure of the agriculture segment in India should get corrected so that the farmer can directly be supported by the government as it deems fit, rather than using the fertilizer industry as a subsidy carrier. So we believe in efficiently running our plants, showing efficiencies that are best in class globally, and getting our returns. So I think our effort will always be to ensure that we've got the right product and the right product mix that is available from our end, and we are making that in the most efficient manner.
The challenge that really comes up here is not so much about government alone. It is, it is the fact that there's a lot of import dependence on the raw materials that we need for manufacturing fertilizer. Those raw material prices are highly volatile, not just because of the demand-supply position in India. They get affected by the global scenario of demand and supply. So there has to be a mechanism as to how the government will want to react and protect the Indian farmers or insulate the Indian farmers outside of taking it through the industry. I think that is... Our effort will be to put that structurally correct rather than trying to seek subsidy more or less.
Thank you.
Thank you so much. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. The next question is from the line of Tanmay from Mirae Asset. Please go ahead.
Yeah, hi. Thanks for the opportunity, sir. Just a couple of clarifications. First, EBITDA per ton that we are guiding, that is for the second half that we are seeing or for the full year?
That is for the second half that we are seeing, and this will also be the average for the year, because we are pretty close to the same number, yeah.
Sure. And, sir, what would have been the trading margin this quarter?
Trading was only about 100,000 tons that we did, and the trading contributions have been to the tune of about INR 3,000 per metric ton, yeah.
Okay, thank you. Bye.
Thank you so much. The next question is from the line of Resham Jain, from DSP Asset Managers. Please go ahead.
Thanks for taking my question again. So, just two things. One is on overall working capital,
... kind of improvement in case if you are expecting, and if you can just highlight are there any scopes and measures to improve working capital further from current level? And second is on interest cost. We had almost closer to INR 190 crores of interest payment during first half. How are you seeing that number, let's say, in second half? And you already mentioned that debt, there is a possibility of debt coming down, but how do you see that panning out during second half?
Well, well, it's important to note that as far as our working capital cycle is concerned, in H1, both the market receivables, we collected very well, and also the government receivables were collected exceedingly well. So that has been a very good cycle, and expecting government to improve the cycle beyond this is not likely, because they're already now pretty much paying within the stipulated 15-day period. So the only way the things could change would be some kind of better terms from the suppliers, you know. So that is one way of improving the overall working capital cycle that could happen. And the second thing is, in terms of interest rates today, despite all the volatility that we've seen, we've still been maintaining good average rates, and which are, you know, about 7.5%.
Which has been very, very good for us. So we believe that that should continue, and any improvement in the global interest rates over the next few quarters will finally kind of help us when it comes to our interest cost. But as far as local is concerned, I think we have been quite efficient on that, and we're doing well.
Okay. Sir, one more is on CapEx. We have INR 485-odd crore of CWIP, out of which I think phos acid got commissioned in Q3, so that INR 285 crore will get commercialized. So sulfuric acid plant, how much more is remaining in terms of CapEx to be spent, and when it will get commissioned, and again, payback period for that?
Well, sulfuric acid plant, we are expecting to commission by September 2025. And, out of the overall, we have so far spent about INR 150 crore in sulfuric acid project, and we have to be spending about INR 300 crore further. This is a 1,500 tons per day sulfuric acid plant that we will have to be doing. And further CWIP that you get to see is also to do with the energy efficiency project that we're doing in Goa. So we will be taking a shutdown over the sometime in the next few days, and our plant will the modernization of the ammonia plant partially will take place, and we will be back into production around the second half of December, December, this year.
That overall expenditure is to, you know, about INR 85-odd crore, which will also get capitalized when that is done by end of December.
Okay, understood. Sir, payback period for Sulfuric Acid?
Sulfuric Acid is healthy. Sulfuric Acid is a healthy, healthy project, so we get paid off in about 3, 3 or 3.5 years, yeah.
Okay. So, sir, all these three projects which are independent of, what, what volume you will do, phos acid, sulfuric acid, and Goa plant, put together is, close to INR 700-odd crore CapEx. And, I think, as you mentioned, three years payback for each of them. So is it?
Exactly about INR 200 crore of additional EBITDA should be getting generated from all this, you know.
All these three plants.
Yeah.
Okay. Great, sir. Thank you.
Thank you.
Thank you. The next question is from the line of Manish Mahawar from Antique Stock Broking. Please go ahead.
Yes, I just, in terms of subsidy cuts, you said a provision of INR 505 crore for this quarter and INR 300 crore for the last quarter, right, sir? Total first half is INR 800 crore.
Yes, yes, yes.
Okay. And, sir, in terms of EBITDA per ton, when you said around INR 3,500-INR 4,000 rupees per metric for this year and H2 as well, right? So are you considering price hikes and the price, RM price correction, or it is on a current price basis you are talking about?
Well, I am looking at a combination. I personally believe that in between November and March, we should either have a price correction or a subsidy correction, and or a combination of the two. I am not really looking too much into the correction of raw material prices. I think it could just be flat as we go forward for the next quarter.
Okay. But it is possible, like, a substantial price hikes, this into the MRP during the second half, because if RM price is not corrected, there isn't really substantial price hike has to be taken.
Well, if you look at it, it's also a question of what kind of a product mix that you'll do, and there are some rooms in some products.
Okay, understood.
Yes.
Sir, in terms of debt, your net debt at the end of this year, if I'm correct, how should we look at the number?
Well, right now we are at about INR 3,558 crore in terms of... We are, we are looking at a flat number from here on. See, if you look at it, the way government has been paying money, I think if they're going to continue to do the same, I don't think we should see any further increases that way in our overall debt position, yeah.
Okay. But it should come down, right? So because-
It should come down. Ideally, we will see how it goes, because everything will depend upon the kind of inventory that we will carry at the end of financial year. And that strategy, Manish, will be something that this time around, we will take a call as we close the quarter three, yeah.
Okay, understood. And, sir, just one quick clarificatio . In terms of subsidy outstanding, right, INR 1,865 crore, what you said, this is due amount, or this is just a total overall outstanding? Because I-
It's a total outstanding, because we had. See, the subsidy becomes due only when the POS happens.
Yeah.
So since the POS hasn't happened, this amount is outstanding. So as the POS happens, we'll start getting this money, and good bit of this money should come during this quarter itself.
Okay, but what is the outstanding due, basically, the total due actually from the government out of this INR 1,865?
That's only INR 400 crore.
Okay, so basically, the rest is outstanding on-
Based on for stock, yes, and inventory.
Understood. Sir, just last clarification, when you always say 12%, government gives some margins of 12% return on sales, right? Which is the PBT margins, right, on a, on a-
Yes.
-right?
Yes.
It is on all the products or only with DAP?
No, no, this is for DAP and NPK put together.
Put together, okay. Because I'm saying, because if you look at the DAP, right, so your realization used to be around 24-27 thousand subsidies, right, now 18,000, right? If you look at the realization, it's around 40-45. And if you take INR 12,000 to be INR 5,000, INR 5,400 of PBT, what we are talking about, right? And NPK, it used to be always been lower, right, realization, as compared to DAP. So your margins will be lower on a NPK as compared to the DAP.
No, what government has been stating is the policy they're giving you 12% on, on cost of sales for both. So if the cost of sale is going to be lower for NPK, to that extent, the margin per ton will be lower.
Okay, but they look at our-
The important thing here is that, that is the policy, that's an intended policy today. But, given the way the market has behaved, both in terms of subsidy being made available and the MRP, in quite a number of products, we don't reach there. But that is the scope which is clearly available under the regulatory framework, and price corrections will happen to realize that particular profit which we can realize.
Okay, understood. Next year, sir, when you move for the FY 2025, so right, in terms of EBITDA per ton, what we have guided for earlier, right, INR 5,000 to maybe INR 500+ type of number on a company as a whole, will it sustain for the next year, right? Because this year also there will be the fluctuation because of-
No, I think we should, we should consider that the numbers will be back to those levels because there is a, because we, we are back into our production levels are good, our, our projects are getting been completed. So I personally believe that with corrections and prices that will take place, those numbers one should be in a position to achieve them.
And this will be with the lower interest cost also-
Yes.
For the next year, that will be much better, right?
Yes.
In terms of the company.
Yes, yes. Yes.
Okay, understood. Sure, sir, thanks, thanks for this message. All the best, sir.
Thank you.
Thank you so much. The next question is from the line of Lakshmi Narayanan from Tunga Investments. Please go ahead.
Yeah. I think you, you spoke about, the reasonable profit, which, the government has actually mentioned, and you said 10%, 12% cost of sales or something, right? So just want to understand how, what is, what defines reasonableness, because people like you are backward integrated, and some of them are not backward integrated. So how do you normalize it, and what does that reasonableness mean?
Well, government is trying to come with a higher profit for people who are backward integrated in terms of percentage and a lower percentage of people who are not backward integrated.
Okay.
So that's the definition that they are kind of looking at. And whenever I talk about the reasonable profit, what I state is that this is a sector which is opened up. This is an... where the market, market is, we are free to put the market price. So we would be in a position to work around the market price, which will give us this kind of profits here. So which is a potential which is there in the industry, and I'm sure going forward in 2024, 2025, we should be in a position to realize the numbers, yeah.
So what is, I mean, you mentioned what, 12% return on sales is something which is a baseline which companies like you should work on?
Yes. Yes, yes.
Okay. Okay. Okay. Thank you.
Thank you.
Thank you. The last question is from the line of S. Ramesh from Nirmal Bang Equities. Please go ahead.
Hello, can you hear me?
Yeah, I can.
Thank you very much for the presentation. I joined a bit late. So just to put the new, recent, NBS rates in perspective, how do you think you'll be able to navigate that reduction in the context of the recent increase in input prices? And, will there be a similar impact in terms of additional subsidies required in third and fourth quarter, like you had to do in the first quarter? What is your reading on that?
Well, as far as the government reduction of subsidy is concerned, for all the stocks that we had, unsold stock and also POS stock, we have made a full provision on that. So it's only a question of new material that we are looking at today. And obviously, we'll have to work on a product mix, which is able to navigate this and which is what we are working on, yeah.
Okay. And so if you're looking at the volume growth for FY 2025, 2026, what is the kind of percentage volume growth? So that is probably the best metric we can look, right?
But when it-
Yeah.
When it comes to volume growth for the next year, from a manufacturer side, it may be only 7%-8%, because we would pretty, pretty much be getting to a peak level of manufactured sales. But depends upon the overall monsoon conditions and the demand forecast that one would look at, we could obviously, we can certainly get a volume growth based on taking part of the imported market share, which is there for the Indian market, yeah.
Okay, so one last note. In terms of say, backward integration for both sulfuric and phosphoric acid, what's the kind of percent benefit you can expect here once you do that from next year?
Well, typically, when you have a Phosphoric Acid backward integration, you get a benefit of about INR 10,000 per metric ton of the acid that is produced.
So, what is the tonnage of phosphoric acid you'll add based on this additional capacity?
We have added close to about 180,000 tons of additional Phosphoric Acid.
Okay, thank you very much, and wish you all the best.
Thank you.
Thank you so much. As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Thank you. Thank you, everyone, for participating in the earnings conference call. We have certainly tried to answer and address all your questions. If you have any further inquiries, please connect with our investor relations team, and we'll be happy to address the same. Thank you.
On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.