COROMANDEL — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

INTERNATIONAL LIMITED · DR. RAGHURAM DEVARAKONDA – EXECUTIVE

DR. RAGHURAM DEVARAKONDA – EXECUTIVE DIRECTOR - CPC, BIO AND RETAIL BUSINESS – COROMANDEL INTERNATIONAL LIMITED

Moderator · Conference Operator

MR. PRASHANT BIYANI – ELARA SECURITIES PRIVATE

LIMITED · Management

Coromandel International Limited July 28, 2023

Moderator · Conference Operator

Ladies and gentlemen, good day, and welcome to the Coromandel International Limited Q1 FY

Questions and answers

Moderator · Conference Operator

Thank you very much.

Our first question is from the line of Sumant Kumar from Motilal Oswal.

Please go ahead.

Sumant Kumar

Sir, can you talk about EBITDA margin per ton for manufacturing in NPK and DAP fertilizer.

It seems it has gone up Y-o-Y.

So what is the reason for that?

Jayashree Satagopan

Hi Sumant, as I have been mentioning in the past, we should be looking at the EBITDA per ton 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, so on and so forth.

So when you look at it on Coromandel International Limited July 28, 2023 an annualized basis, I think we will be in the range of INR5,500 to INR6,000 as we had indicated earlier.

Sumant Kumar

So this INR5,500 to INR6,000, you're talking about manufacturing NPK and DAP EBITDA per ton?

Jayashree Satagopan

Yes, this is a manufacturing product EBITDA per ton.

Sumant Kumar

Ex of SSP, correct?

Jayashree Satagopan

Yes, This is not SSP.

This is only NPK and DAP.

Sumant Kumar

Okay.

So my question is the ammonia price has declined significantly.

So is that also a reason for margin expansion, or we have already cut the price of NPK or DAP manufacture fertilizer?

Jayashree Satagopan

With the raw material prices coming 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 effective 1st of April 2023.

So MRPs are more or less at the same level.

However, there has been a reduction in the subsidy rates.

So that takes care of the reduction in the raw material prices to a large extent.

What you also see is the plant running at near full capacity, Phos Acid production also at its full capacity, along with the other operational improvements happening at the plant, which is helping to sustain the margin level.

Sumant Kumar

Why I'm asking ammonia because ammonia is one-third of the peak price.

And phosphorus is 50% of the peak price.

That is why I'm asking, are we getting any benefit of higher decline in raw material prices?

Jayashree Satagopan

Yes, we have seen that in the first quarter.There is a benefit that definitely flows from the low raw material prices and ammonia prices have come down even during the quarter.

What it was in the beginning of the quarter and what it has actually closed in the end of the quarter, there is a difference.

So the benefit of raw material prices do flow into the margin.

But to some extent, it also gets offset because of the correction that has happened in the NBS rates.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Nirav Jimudia from Anvil Research.

Please go ahead.

Nirav Jimudia

So 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 good 13%, 14% of volume growth.

And what we could understand is that government is now providing the freight subsidies for sending SSP to the distant regions, which earlier was not the case.

Plus, if I go through your annual report, we have revived our old Pali plant capacity which has helped us to improve the production rates.

So 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?

Coromandel International Limited July 28, 2023

Jayashree Satagopan

Okay.

So there has been good traction from the government in terms of incentivizing the production of SSP units.

Apart from the Pali unit, we have also started operations at Ennore.

These are two units in addition to what we traditionally used to operate for SSP plant.

That has actually helped us in improving the tonnage of production.

Having said that, the freight subsidy that was for SSP was only for a certain point in time.

So 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.

So the intent is to see how SSP production can meet with the demand of the markets closer to the respective areas.

That's been the overall philosophy.

And 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 phos acid prices had increased, there was a lag in the rock prices as you all have observed.

Now when the phos prices have come down, the rock prices will follow the trend, but it will have a lag effect.

And 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 INR2,000 to INR2,500 in some cases where we have value-added SSP, it can go up to INR3,000 per metric ton.

That's a broad range one has to look into.

Nirav Jimudia

Okay.

And 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 helped and this was about the Kakinada plant where we were able to increase the production of one of the trains by close to 21%.

And with this now, we have an assured supply of that raw material, which earlier was not the case.

So if you can just help us understand what is -- 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 fillip to the absolute EBITDA or even the per ton margins, if you can share your views?

Jayashree Satagopan

Yes.

Now again, a good question, Nirav.

What we continuously do is to look out for different sources of raw materials and different types of raw materials.

Our plants have the flexibility to operate with different RM in terms of grades, whether it is sulfuric acid so on and so forth.

And this is one such initiative that was taken up last year.

And when we do such R&D initiatives and get it into production, there could be two things that can happen.

Depending on the RM prices, which we are sourcing, there could be savings that can accrue to the company.

The second thing, it can help in improving the throughput.

So last year, we had a good improvement that has happened in the throughput while getting into alternate materials.

And depending on the price situation, we will take a call whether we have to go with our traditional method or do a combination of those with the newer materials.

So that's something that the company continuously does.

And thanks to our manufacturing team, they have delivered immense flexibility in terms of processing multiple types and grades of raw material, which is what is giving the flexibility to the fertilizer business in terms of quickly adopting and increasing the throughput.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Tarang Agrawal from Old Bridge Capital.

Please go ahead.

Coromandel International Limited July 28, 2023

Tarang Agrawal

Two questions and one clarification from me.

For the clarification, the subsidy EBITDA for the base quarter was 87% or 78%?

Jayashree Satagopan

I didn't understand your question.

Tarang Agrawal

The subsidy share of EBITDA in the base quarter, that is Q1 of FY '23, was it 78% or 87%?

Jayashree Satagopan

One second.

You're asking the subsidy versus non-subsidy business right?

Tarang Agrawal

Correct.

Jayashree Satagopan

So for the first quarter, the non-subsidy business is at 14%, subsidy business is at 86% this year.

Tarang Agrawal

And last year?

Jayashree Satagopan

Last year, the non-subsidy...

Tarang Agrawal

I'm talking about the share of EBITDA, not the revenue.

Jayashree Satagopan

It was 84% during this year.

And in the last year, subsidy business share was 77%.

Tarang Agrawal

Perfect.

That's helpful.

Two questions, ma'am.

One, ma'am, if we see the volumes, there has been a significant uptick in your trading business as well as your DAP business.

If you could give us a sense on how the operating dynamics for this market were in this quarter versus the base period.

So that's one.

The second question is, was there any provision that you took in Q4 '23 as a matter of prudence and consonance with lightening up of raw materials?

If so, could you quantify the amount?

Jayashree Satagopan

Yes.

Tarang, I'm going to just pass on this question to Sankar who's in the call, and I can come back to you on the financials.

Sankar, over to you.

S. Sankarasubramanian

Good afternoon.

On the volume front, we have taken up DAP trading this quarter, basically we want to utilize our capacity for our NPK production, and we focused on DAP imports.

Hence, we have seen the uptick in our DAP volumes.

And also we have imported NPK fertilizer during this quarter.

So this has helped us to balance the volumes between our own manufacturing as well as imports, and that has also increased the volumes for this quarter.

Tarang Agrawal

Sir, but was there a change in the operating dynamics of the market in this quarter versus the previous quarter for such a sharp delta that we've seen in both DAP as well as trading?

S. Sankarasubramanian

Well, not really, of course it's not a consuming month.

It's more of a positioning which happens.

So consumption happens only when the season starts in July.

So we had adequate volumes through enhanced production.

If you look at our production numbers for the last year first quarter and this quarter, there's a significant volume increase in our production because we carried out our annual turnaround in the last month of the previous year.

So all of our plants ran flat out in the first quarter that has helped us to position the material closer to the marketplace.

And that's why you're seeing the significant volume jump in this quarter.

Coromandel International Limited July 28, 2023

Tarang Agrawal

Yes, ma'am.

On the provision question in Q4 '23?

Jayashree Satagopan

So we have made the necessary adjustment in the books as a conservative principle based on the likely subsidy reduction that is 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 warrants any accounting related disclosure.

So all of those have been considered in the previous quarter.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Vishal B from Bandhan Mutual Fund.

Please go ahead.

Vishal B

Just one question.

When we look at the prices of raw materials, rock has been pretty steady and whereas acid has come down substantially.

So can this lead to compression of spreads for our manufactured portion of DAP and NPK in the coming two quarters?

Jayashree Satagopan

As I was mentioning, Vishal, when the raw material prices have gone up steeply, rock was following.

It did not happen simultaneously.

Similarly, when we're seeing correction in the phosphorus acid prices, the rock prices are trending down, but not at that same pace.

So you are right, when the acid prices are lower and the rock prices are slightly higher, the value that capture could be lower than otherwise.

But you should also look at it.

Coromandel has both integrated manufacturing as well as granulation plants.

So when Phos acid prices come down along with all other raw material prices, the granulation plants margin also go up.

So this is a very nice balance that we have.

We have both backward integrated as well as the granulation plant, it sort of complement each other.

Vishal B

Okay.

So when you say for the full year, INR5,500, INR6,000 per for manufactured, this assumes that the rock should fall subsequently, right?

I mean, in case that doesn't happen, then this number could be at risk in case of that scenario only.

Jayashree Satagopan

This is considering a balance of multiple factors.

There is raw material prices, not only of rock, there is phos acid, there is sulfuric acid, there is ammonia, urea.

And then there is also the government subsidy related.

I mean there is a factor of MRP price increase or decrease.

We will be taking into consideration all these factors, we believe that about INR5,500 to INR6,000 is an achievable margin for the year.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Bharat Sheth from Quest Investment.

Please go ahead.

Bharat Sheth

Congratulations, Jayashree and Sankar, on excellent number in a challenging environment.

First, can you give -- throw some light on the economics of Nano DAP and raw material of the availability, whether it's again imported or available domestically?

And how do we see these dynamics to play out?

And second, and any color on this our investment in this drone business?

So is it generating revenue or not?

What is the potential?

And when it will start, I mean, contributing to bottom line of the company?

Coromandel International Limited July 28, 2023

Jayashree Satagopan

Thank you, Bharat.

I’m going to leave this question on Nano DAP to Shankar.

And let me come back on the drones.

S. Sankarasubramanian

On Nano DAP in terms of raw material availability, they are all indigenously available and we have established sources for that.

So we don’t anticipate any challenge.

And capacity is coming up in Kakinada, and hopefully, we should be able to commercialize the plant in October.

About the prospects, we have been carrying out extensive field tie-ups in the marketplace, and we could see potential close to 50% of current use of DAP can be replaced with Nano DAP.

But these are very early stages.

Once the product is commercially available from October onwards, we’ll be essentially promoting these products in those states where imported DAP use is in abundance.

So we’ll be targeting these products, Nano DAP, in the northern markets, especially states like MP, UP, Punjab, Haryana where there is extensive longer use of DAP.

So that’s our approach.

Jayashree Satagopan

Okay.

On the drones, you had a question.

As you know this is a start-up where we had earlier invested about 18.5% and are taking it up to 51%.

The transaction is yet to get completed.

It will hopefully be done by end of July.

And the drone company is looking into offerings in multiple segments.

They have recently received an order of 400 drones from IFFCO on the agricultural front.

And they are working on defence and emergency procurement area for logistics-related drones.

Now there are applications on the enterprise side.

They have been working with some of the oil majors.

And 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 agriculture, where we are seeing that labor availability is posing a challenge.

And when we use drones especially for our liquid fertilizer, specialty nutrients or crop protection chemicals, the drones help in ensuring the sprays are even, the efficacy seems to be better.

So it is a very good future for the use case for drones.

The question is, is it happening today?

Yes, it is a start-up.

They have qualified in the multiple categories.

And with Coromandel coming in, we will be able to provide the management, bandwidth, the guidance and help them actually reach new scale.

So that's what is going to be the initial one to two years.

As we go along, multiple orders will come, and we expect this 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.

Bharat Sheth

Can you give some color on the Q2 phos acid price and trend of the other input and simultaneously price of the final product?

Jayashree Satagopan

So, as you know, the raw material prices have all been coming down.

So we expect that trend to continue.

As far as phos acid is concerned, the price for Q2 is fixed at $850 per metric ton.

And the MRP, as I was mentioning earlier, is a factor of multiple things.

One is the raw material prices.

The second one is the subsidies that the government is giving.

And more importantly, we also need to see what is going to be the affordability of the farmers.

So considering all of this, Coromandel International Limited July 28, 2023 the MRP gets moderated during the year.

So at this point in time, the MRP prevailing for July is more or less similar to the MRP of the last quarter.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Arjun Khanna from Kotak Mutual Funds.

Please go ahead.

Arjun Khanna

Two questions.

The first is in terms of the specialty chemicals CDMO piece.

So we've talked about it in the annual report and as part of the press release comment by Executive VC.

He talks about the company identifying new complementary chemistries and plan to introduce these products in Q2. Could you help us with what are these chemistries you are looking at entering into?

And would the CDMO discussions with innovator start off only post the MPP in Dahej?

Or it's something that could start before?

Jayashree Satagopan

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 CDMO as we have seen some good amount of progress in both these fronts in the last quarter.

Raghu over to you.

Raghuram Devarakonda

Good afternoon.

So on the Specialty Chemicals front, the idea is to use the existing assets to make products that are targeted towards this segment.

So we have identified those molecules that we can potentially manufacture using the existing setup.

This is in the first phase.

The other bit is we already have some of these ag-chem that we are manufacturing.

We find that some of those ag-chem molecules are relevant for specialty chemical end use.

So we are exploring those as well.

So this is in the first phase as far as the specialty chemicals story is concerned.

So 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, but I will repeat.

So we do have inquiries that have come up from some of the Japanese innovators as well as European ones.

And as you can appreciate, the gestation period for such transactions do take time.

But for the moment, the status is that they are -- some of them have come and done their due diligence.

And they are comfortable with what we have in these plants in Gujarat.

So it's progressing in the right direction for tapping into the CDMO opportunity.

Arjun Khanna

Sure.

Just a follow-up on this.

In terms of, say, announcements of contract signing, is this -- would this require the MPP plant to be ready at Dahej or existing facilities itself is something that we could process these contracts on when they come?

Raghuram Devarakonda

We have opportunities to do both.

So we need to see how it concludes.

And once they conclude, we'll definitely come forward and update.

Arjun Khanna

Sure.

And in terms of timeframe, we expect this -- the CDMO line business to happen in the next 12 months, 18 months, two years or longer?

Is there some timeframe that could be provided?

Raghuram Devarakonda

I think 18 months is a fair estimate as things stand right now.

Coromandel International Limited July 28, 2023

Arjun Khanna

Sure.

Sir, 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 we see the size of the end market at this point in time and given that it's not under subsidy.

So in terms of pricing, etc.. efficacy for the farmer, how do we go about the pricing?

And is it sold through those terminals?

Or is it a free pricing in the market?

Thank you.

Jayashree Satagopan

For the Nano DAP, the initial capacity creation from Coromandel is about 2 crores bottles per annum.

This plant will be coming up at our Kakinada facility.

And since, this is going to be a product which is not subsidized, the pricing will be based on market conditions.

Obviously, given the fact that the company has always been endeavoring and working on keeping the farmers' interest first in line, the pricing will also be on those lines.

So as we are closer to the time for launching the product, we will be sharing more particulars with you.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Naushad Chaudhary from Aditya Birla.

Please go ahead.

Naushad Chaudhary

Congrats on a decent set of numbers.

Firstly, just a follow-up on the previous question.

As we discussed in the last quarter as well, in terms of your cash deployment beyond FY '24.

Any incremental development you would like to share with us?

How are we planning to deploy in '25, '26?

Jayashree Satagopan

So there are two, three things that we have explained in the past, Naushad, and 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 strengthening our dominant position in fertilizer.

At the same time, we're also looking into getting into new technology areas like Nano DAP and other Nano products.

Similarly, on the crop protection, we had earlier guided that we are looking into setting up new multiproduct plant in Ankaleshwar a and a new site at Dahej.

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're looking into is the step 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 backward integrated.

This year, we are looking into investment in Dhaksha, which is again for future-oriented technology, having some adjacencies on the agri space, but also has applications across various other segments.

We have been looking into similar growth areas, considering the macro indicators and the trend looking into areas where it can complement our business.

When there are opportunities for both organic and inorganic growth, the company will seriously evaluate and invest.

The intent is to see how as Coromandel, we can continue to add-value to all our stakeholders.

So that's how the cash accumulated by the company will be utilized.

You would have also noticed in the past several years, the company has been using its cash reserves for funding all its capital investments.

Coromandel International Limited July 28, 2023 The current sulfuric acid plant for example, which is coming up at Vizag, desalination system, or the INR1,000 crores of investment that has been announced for CPC and Speciality chemicals, this is all going to be funded with internal accruals.

So I'm sure over the period in time, there will be enough projects that will come our way, which will help in the growth journey and help in purposeful deployment of cash.

Naushad Chaudhary

See, I'm trying to understand in terms of the deployment within fertilizer and non-fertilizer.

So broadly, if you have to give us the percentage what percentage would go to fertilizer business in next two to three years?

And what percentage would be non-fertilizer investment?

Jayashree Satagopan

The way these days, we look into investment is not fertilizer or non-fertilizer.

Fertilizer is a dominant business for us.

We continue to be a leading private sector 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 that are coming like CDMO or specialty chemicals.

So each of the projects will get their due share based on the merits of the case.

We are not doing a segregation of same amount to invest only so much in a certain type of business.

If it is attractive and it makes value in a longer term, there will definitely be investment allocated for that.

Moderator · Conference Operator

Thank you.

Our next question is from the line of S.

Ramesh from Nirmal Bang Equities.

Please go ahead.

S. Ramesh

So continuing on the discussion on the plans in CDMO and MPP.

So if you can help us understand your thought process on CDMO, are you going to be just doing manufacturing contracts?

Or will you be involved in the entire innovator process, starting with Microlab, Kilolab testing, filing dossiers and taking it through the commercial launch.

What is the thought process in CDMO?

And are you looking at only agrochemicals?

Or will you also look at pharma?

Jayashree Satagopan

Raghu, do you want to take it or should I?

Raghuram Devarakonda

Yes.

See, for starters, we're going to do ag-chem because that's what is familiar to us.

And we also have people and connections and relationships with some of these innovators.

So it's going to be an ag-chem oriented to begin with.

And what were the other questions?

Sorry, I didn't catch..

S. Ramesh

The second part is in terms of your overall business model, will you be just doing manufacturing as an extension of the manufacturing of the innovator?

Or will you start right from the early stage of initial R&D, product development right through the filing of dossier and then taking it through the commercialization?

Raghuram Devarakonda

That's right.

So the eventual destination is what you have described, but you'll appreciate, I mean, the customers would like us to graduate step-by-step.

So we're going to start with manufacturing and then graduate step-by-step.

So all the conversations that we're having right now is to manufacture their final active ingredient.

That's the nature of conversation we are having right now.

S. Ramesh

Okay.

So just two related thoughts there.

One is the promoter group company, TI, has also decided to enter the CDMO business and they have identified a business model and they have Coromandel International Limited July 28, 2023 got an alliance with Anupam to sign, another emerging CSM company.

So is that going to be under a specific agreement between Coromandel and the TI Group that you will not cross each other's stuff?

Or what is the understanding within the group?

Because it's part of the same group, that's why I'm asking the question from an investor's perspective.

Jayashree Satagopan

Ramesh, each of the companies have their own growth journeys and they have identified mega trends on which they are working.

At this point in time, as Raghu was explaining, we are into agrochemicals.

And in agrochemicals itself, there is a huge opportunity for CDMO given the China plus One.

And that's why we have started.

There could be opportunity 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 thought as much on the pharma side.

The current thinking is around agrochemicals, and at some point in time, getting into specialty chemicals.

S. Ramesh

Okay.

If I can squeeze in the last thought on your subsidiaries and associated companies, in Dhaksha and the mining investment, when do you expect these investments to turn profitable on a consolidated basis?

And is there any cash loss you'll have to incur in the next four to eight quarters before they turn profitable?

Jayashree Satagopan

No. As far as the BMCC is concerned, there are two steps before we get the rock out of the mine.

The basic mining where we remove the over burden, those processes have got stabilized.

And we knew as we got into the mining operation, there is a lot that have to be done to get consistent output out of that.

So we are in the process of getting the second part, which includes crushing, screening, and then getting the rock out in a consistent manner.

And we hope in the next two to three quarters, that process will also stabilize and as shipment happen, that operation should get profitable.

As far as Dhaksha is concerned, it is early start-up, as I was mentioning, they just started getting orders.

Coromandel's goal will also be to help them become a player of scale by providing management guidance, inputs, support, so on and so forth.

So Dhaksha also will become a profit- making entity because they just started getting the orders.

So they are going to be taking a new manufacturing location where the drones will be manufactured, tested and then shipped to various customers.

So both of them will go on the right traction and there is enough focus that is being driven by Coromandel to ensure that our investments actually bear the fruits.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Vishnu Kumar from Spark Capital.

Please go ahead..

Vishnu Kumar

On the Chemical business, on the Specialty Chemicals, is there any additional capex in thought as to how much we probably might consider to additionally invest in the next couple of years?

If there is a broad thought on that?

Jayashree Satagopan

So Vishnu currently -- yes.

Currently, what we have considered, the INR1,000 crores is mostly going in for 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 an overall business case for speciality chemicals, considering certain chemistries which are turning out to be very, very Coromandel International Limited July 28, 2023 attractive.

Once that gets completed in the next three to four weeks' time frame, the capital expenditure required for that will also be estimated.

So to your question, the answer is, currently we do not have anything major planned.

But based on the business case, I do believe there will be some good amount of investment required for this segment as well.

Vishnu Kumar

Understood.

And also the channel inventory, if you could talk about on the fertilizer.

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 are not doing that well.

So how do you see the Kharif season -- rest of the Kharif season playing out in terms of volumes?

S. Sankarasubramanian

See, there is a widespread coverage of rain in all our key addressable markets.

Even if you see Telangana got rains recently.

Maharashtra and Karnataka also received good rainfall.

So in those marketswe are operating very significant mileage in terms of brand connect and . 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.

Vishnu Kumar

And final question on 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 phos acid has come down and other products -- I mean other RM also has come down.

Should we expect MRP cut in the next month itself?

Or we will wait for Rabi starting to go ahead and announce the cut?

S. Sankarasubramanian

In terms of the price, Jayashree gave numbers, where she said rock prices are holding steady.

And also, I think we are seeing 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 there can be a potential correction in the subsidy going forward as well.

So we will take a view after we have some visibility on how the NBS rates are going to be for the Rabi season and then take a call after that.

Vishnu Kumar

Got it.

So as of now, next couple of months, we don't anticipate either a subsidiary or MRP, that is if I can...

S. Sankarasubramanian

No.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Rohan Gupta from Nuvama.

Please go ahead with your question.

Rohan Gupta

Congratulations on good set of numbers.

Sir, on complex fertilizers, I mean overall, I think last year, we produced a 35 lakh tons.

I think that is the next -- probably best utilization we can see.

With the DAP manufacturing hardly 4 lakh tons.

So almost 80%, 85%-plus is a complex fertilizer production.

So do you see that this year, we have further scope for any change in mix and further manufacturing of complex fertilizer while consciously going for trading on DAP?

And how much utilization we can increase further?

Coromandel International Limited July 28, 2023

S. Sankarasubramanian

See, our preference always need to focus on NPK production.

And given our opportunity on the imported DAP at a price point, it makes sense for us to import DAP better than producing and release that capacity for NPK.

And also within NPK, we choose the grades which meets our requirements.

These include input raw material prices, whether it's urea, ammonia and phosphate.

So that's a flexibility Coromandel enjoys having a wide range of products.

We can send over any train, which is the production line for a fertilizer for any grade.

So that optimization mix, we keep doing it even within NPKs.

So our utilization will be more or less the same as last year because we also did well.

And also we use different types of input raw materials, which can increase the throughput.

And we also continuously work on improving the up time of machinery through digital enablement of our maintenance at factory, this has improved uptime and availability of machine.

So we do expect incremental volumes to come through, through productivity measures, better raw material mix as well as change in product mix.

So production throughput changes depending on the grades we produce.

So we keep deploying depending on what subsidy we get and what raw material input prices are.

Rohan Gupta

Sir, Jayashree ma'am also mentioned that you will completely invest in fertilizer business.

However, the growth in the fertilizer industry still will remain muted or maybe at best 3% to 4%.

So is this something we are looking at acquiring any assets and that is what's going to drive the efficiency and make the business more sustainable for us?

Because if we keep on investing from the current base, the markets may not be growing in that direction, right?

So how do we plan to grow in the fertilizer business?

S. Sankarasubramanian

With the increased demand for food grains and also the change in dietary patterns, the foods and vegetable segment, horticulture segment is growing and this requires nutrient.

And India still continues to be the lowest consumption of nutrient across the globe.

So going by the trend and the increase in arable land, the need for real improvement is always there.

So we'll be definitely looking for enhancing our capacity and coming up with products which can improve the yield.

So it may not be the same generic grades of DAP and traditional NPK, it can be coated fertilizer, slow release fertilizers and fertilizers which can improve the fertilizer yield efficiency.

And we have enough space to operate in our key addressable markets where we are currently in and definitely we will look to grow the volume.

But first, we will evaluate our brownfield expansions, which means increasing our capacity within our existing facilities before we look out any other organic Greenfield.

So we feel with the increased demand for the fertilisers there is enough scope for us to increase the volume and increase the capacity utilization or add-on capacities in our existing facilities.

Rohan Gupta

Sir, do you still envisage roughly double-digit growth for fertilizer business in terms of volumes sustaining for next three to four years, is it possible?

S. Sankarasubramanian

It's very difficult to predict.

They've got various factors in terms of monsoon and the spatial distribution of monsoon and the pricing of fertilizer.

So we don't want to give any estimates-- but direction-wise, we would like to grow the volume.

And we feel there is enough space for us to grow the volumes.

Coromandel International Limited July 28, 2023

Rohan Gupta

Sir, just a couple of bookkeeping question.

What is the debt number right now?

And what is the phos acid prices contract right now?

S. Sankarasubramanian

$850 is the pros acid price.

And what is the first question, is it debt or DAP?

Rohan Gupta

Sure, debt number.

Yes.

What is the debt on the book right now?

Jayashree Satagopan

So we don't have debt on the books.

We don't have any borrowings.

There could be some very short-term working capital limits that, which primarily is for managing the day-to-day operations.

There are arrangements with the buyers where they extend credit for our imported products

Rohan Gupta

So even short-term working capital, no debt right now on the balance sheet?

Jayashree Satagopan

No. We have from working capital facilities in debt.

That will always be there.

But nothing for the long term, yes.

Moderator · Conference Operator

Thank you.

Due to time constraint, that was the last question for our question-and-answer session.

I would now hand the conference over to the management for closing comments.

Jayashree Satagopan

Thank you.

Thank you very much for the interest and very interesting set of questions.

Due to time constraints, there is as much that we could take.

And I know there are still a few questions in the queue.

Feel free to reach out either to me or to Anuj, and we'll be happy to engage with you.

Thank you again.

Moderator · Conference Operator

Thank you.

Ladies and gentlemen, for the questions that were not answered, you can contact the management off-line.

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.