DEEPAKFERT — 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
Moderator · Conference Operator
Ladies and gentlemen, good day and welcome to Deepak Fertilisers and Petrochemical Corporation
The next question is from the line of Deepak Poddar from Sapphire Capital Partners LLP.
Please go ahead.
Deepak Poddar
Thank you very much.
Sir you spoke about the momentum in the growth trajectory as well as the future fundamental and all, in terms of outlook that you want to share for the next year?
Amitabh Bhargava
I did not get your question, is it specific to a product that you are asking or you are saying in general outlook?
Deepak Poddar
In general?
Amitabh Bhargava
See first of all you would appreciate that some of our sectors are cyclical in nature and raw material does play an important role in terms of margin so to that extent, giving a prognosis or an estimation on numbers is something that we would want to stay out.
Chairman also mentioned earlier, which is the macro and micro factors, so you need to and we need to concentrate on some of those aspects and there I would say if you look at product by product in nitric acid, we are seeing significant demand coming from downstream sectors while this year so far.
I would say our capacity utilization because of Q1 and Q2 issues that we faced on the production size overall capacity utilization have been in the range of 60%-65%, so we have I would say significant sort of operating leverage sitting there.
It is just a question of having the production streamline and that itself would give us the volumes because the demand is not an issue.
Likewise in IPA again, we are as a country are a net importer and despite capacity coming from some of the other players, we continue to import so demand is not an issue.
We will have to see what the prices how IPA and RGP prices behave and this is again a typical sector where it is very difficult to predict.
Fundamentally, if you look at TAN business, this year the capacity utilization because of what we faced in Q1 and Q2 have been more in the range of 80%.
There is TAN demand and is not a question mark at all.
We are again a net importer in fact with certain restrictions on imports.
We have seen the demand supply situation again more in favor of the supply side so we have got good realization and given that capacity utilization can be further improve, we have nowhere close to what we achieved in FY2019. For example, we see that there is good headroom left there in terms of further sort of getting the volumes and the margins in TAN business.
Fertilizer is where we have clearly, despite all the 7 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited
Moderator · Conference Operator
The next question is from the line of Nishit Shah from Aequitas Investment Consultancy Private Limited.
Please go ahead.
Nishit Shah
Congratulation on great numbers Sir I wanted to understand on subsidy front how much is outstanding?
Amitabh Bhargava
There is by December end Rs.460 Crores, but what I can confirm to you that in January month, we have received roughly about Rs.210 Crores so this number would have come down, but December end number is Rs.460 Crores.
Nishit Shah
Okay, and with the higher budget reallocation, do you feel that the pending subsidies so basically, there would be no pending subsidies for this year end?
Amitabh Bhargava
That is our estimation as well.
But let us see.
Nishit Shah
Okay, Sir and this phos acid and ammonia prices have been on a rising trend.
So, can you give me the current prices and also I wanted to understand will be able to pass on this prices to the consumers?
Amitabh Bhargava
Phos acid prices have gone up by about $100 and while ammonia prices today we are looking at about $270 - $280 CFR prices.
Now again it is very difficult to answer that question.
We will have to see how other players in the market react to prices increase.
In last several quarters, the demonstration that we 8 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited
Moderator · Conference Operator
Thank you.
The next question is from the line of Sachin Kasera from Svan Investments Managers Private Limited.
Please go ahead.
Sachin Kasera
Good afternoon Sir.
Congrats for a good set of numbers.
I had two to three questions one was a follow- up on this debt part so you mentioned in the current debt is around Rs.2000 Crores of which 800 Crores is for ammonia so how do we see the overall debt number maybe in the next one to two years you think it will remain at this level or you think we can bring it down that could be one way of looking at it or are we looking it more as a debt to EBIT or debt to equity if you just give us your thoughts on how you are looking at the overall debt?
Amitabh Bhargava
If you look at consolidated debt again that did not completed the year so it is difficult to compare debt to EBITDA if one were to just apply a proportionate increase.
We are on a nine-month basis, we are nearly at debt to EBITDA of may be 2.1 to 2.2 thereabouts.
As far as capex is concerned to the extent, we are going ahead with our ammonia projects.
It would add the debt incommensurate with the progress that project would be.
As far as other operating debt is concerned, like I said on the short term we have quite large achieved all the efficiency so I do not expect that the short-term debt would go significantly down.
On the long end of the debt, we are sort of there would be a normal amortization so that debt will come down.
What is also reflecting in debt is some of the optionally convertible bonds and compulsorily convertible debentures in our book.
As and when this convert because these have long five to six and a half years of investment period, which is the investment done by IFC, to the extent these debt or today what is appearing and debt in the book from accounting purpose as and when we convert it to equity or they exercise the option of converting them into equity that would also result in better debt to EBITDA or debt to equity ratio.
In summary, I think the capex debt will go up at least on ammonia because that is the project we are clearly going ahead.
TAN I had mentioned earlier that the timing depends on us getting all the approvals and the operating debt would get amortized because some of it is for capex that we have already done and we are now generating healthy EBITDA from those capacities.
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Moderator · Conference Operator
Thank you.
The next question is from the line of Rohit Nagraj from Sunidhi Securities and Finance Ltd. Please go ahead.
Rohit Nagraj
Thanks for the opportunity and congratulations.
So, the first question is not exactly question, but the slide on the sales volume this time is looking instead of that.
We have provided volume growth on Y-o- Y basis for nine months and Q3 so if you could provide the sales volume, I think that would be better really in the next quarter so just a suggestion on that part?
Secondly question is in terms of dilution so what would be the dilution which will happen post our IFC conversion and the bonds, which are currently under conversion.
Amitabh Bhargava
We reported earlier to stock exchange as well is that IFC and FCCB have a conversion option at Rs.195 per share.
The option at what stage do they exercise because it is difficult for me to say what kind of price, they will look for more than 195 level before they exercise that option, but as such the conversion is at Rs.195 levels per share and they have $30 million of shares that FCCB have invested so rest is you can do the maths.
Rohit Nagraj
That is the only thing which is there in terms of conversion or dilution if you have right.
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Moderator · Conference Operator
Thank you.
The next question is from Hardik from Prospero Tree Financial Service LLP.
Please go ahead.
Hardik
Thank you for taking my question.
I just wanted to know what is the dividend distribution policy of the company?
Amitabh Bhargava
The Board has to decide the dividend based on profit and the internal requirements to some extent, board does want to maintain certain level of track record as far as dividends are concerned but it is entirely board decision which I would not want to comment on.
Hardik
Another thing why is the employee cost significantly up during this quarter?
Amitabh Bhargava
Couple of things one is there is given the performance that we are seeing in the business and we wanted to wait for the third quarter based on that some of the incentive variable pay, the management remuneration all of that may have to be as far the company policy may have to be on the higher end and therefore when we trued it up for in this quarter.
We have not provided for them in first and second quarter as numbers that we are looking at we were not anticipating at that stage and to that extent it 12 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited
Moderator · Conference Operator
Thank you.
The next question is from the line of Abhilasha Satale from Dalal & Broacha Stock Broking Private Limited.
Please go ahead.
Abhilasha Satale
Thank you for taking my question.
I just wanted to know if you could take us through how IPA realization has moved on quarter-on-quarter basis and how has been the profitability because as you said even the raw material prices have also gone up so I am not asking for the exact numbers, but if you could just whether there is line with raw material whether there is increase or decrease in profitability?
Amitabh Bhargava
Broadly and I do not share margins that making in each of products but what I can mention is that immediately after the lockdown in April 2020 IPA prices shot up from let us say about 900-odd level $1,250-odd level went all the way up to $1,490 or nearly $1500.
This is IPA CFR for India prices so on an average Q1 if you could get all three months, the average price of about $1,575 US dollars per tonne and came down to nearly let say $1,100 per tonne in Q2 and was again marginally up to about $1,130 - 1,140 but month on month again there has been fluctuations, so we started two to three quarter with somewhere around $990 ended the quarter with $1,280, odd so again significant sort of change within the quarter itself.
In January we are looking at something like $1,100 to $1,150 kind of number CFR.
As far as RGP is concerned this is dependent on crude prices so as such you have seen upsurge in crude prices so the prices that we had in Q1 so definitely those prices have moved up on the RGP front.
A part of our volume we have even some bit of hedging on those prices, it is done only to the extent of part of our raw material price so that would also cause final impact in terms of profitability but like I said, prices are down from $1,375 down to about $1,100 while the crude prices have gone up as such that company would be aware in terms of what happen to Brent prices.
Abhilasha Satale
Sir could you just tell me what was the IPA realization in Q3 FY2020?
Amitabh Bhargava
You are talking about total?
Abhilasha Satale
Year-on-year basis if you could just tell me what was the IPA pricing Q3 FY2020 last year during the same quarter?
Amitabh Bhargava
You can see MFTs website we report MFT on our product.
Abhilasha Satale
Thank you.
Moderator · Conference Operator
Thank you.
The next question is from the line of Lokesh Manik from Vallum Capital Advisors.
Please go ahead.
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Thank you.
The next question is from the line of Sachin Kasera from Svan Investments Managers Private Limited.
Please go ahead.
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Thank you.
The next question is from the line of D N Parekh from Individual Investor.
Please go ahead.
D N Parekh
Good afternoon.
Thank you very much for giving such a wonderful result where PAT is almost 3x.
Sir my concern is related with your plan for our pledged share.
What are the future plan the same?
Sir almost 75% of promoter share is already pledged.
Have you any plans for that?
Amitabh Bhargava
I think we have clarified this time and again on our website as well as stock exchange notices that we have given.
That’s a wrong interpretation, what we have is non-disposal undertaking so which is basically we have committed to our banks and to some of the investors like IFC that we would not dispose of our shares and somehow the way it works in the format in which we have to fill up that information that seems to be reflecting or that reflects by default as pledged but that is not the case so it is more of nondisclosure.
There is a very small portion of share which is, I would say, very, very small portion of promoters out of overall 54% odd stake as they have is pledged but that is in a way reflects that new shares that they have acquired through right issue and through earlier preferential allotment but erstwhile shareholding which is roughly for 50% or more is only there is non-disposal, there is no pledged share.
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Moderator · Conference Operator
Thank you.
The next question is from the line of Nitin Kumar, Individual Investor.
Please go ahead.
Nitin Kumar
There is one question on the press release which was released on the company recently on the data center side which is that the data center that the company is operating general database has it undergone an upgradation.
My question to the management is there cost arbitrage we manage own data centers versus the cloud if there is cost arbitrage can the management exploit for most of the plants in the near future?
Amitabh Bhargava
I just not got your question, what data center are you talking about?
Nitin Kumar
There is this press release wherein one of the President Mr. Deepak Keni went to the press and said that new data centers in which the company is operating and has undergone an upgradation to manage the data.
Amitabh Bhargava
I think, that must be in reference to our ERP software that we are in the process of implementing a good part of that is already got implemented and that is the aspect Chairman was also we are referring to that we have done a number of transformation initiatives whether it is a SAP implementation of the new edge SAP or certain other tools which will bring efficiency in terms of demand estimation and then correspondingly planning our production all of those whether it is delegation of authority whether it is standard operating procedures so all of that is a transformative initiatives that we have been taking for the last six to eight quarters and I think Deepak Keni actually perhaps mentioned that but the larger aspect is that many of those have improved our efficiency significantly and that is the point the Chairman was mentioning has started reflecting in our numbers by way of better efficiency, by way of certain cost reduction and so on and so forth.
Nitin Kumar
My second question is on realty business.
As I understand that Ishanya as a mall is for the lifestyle products, but there was also press report which stated that 91 Springwood has had some space in the mall, so is it like realty business is also undergoing some form of transformation?
Amitabh Bhargava
Our Creaticity mall has three segment, there is, an F&B segment, there is a segment which caters to essentially to architects as well as the homemakers in terms of furnishing furniture, and the third one is entertainment.
Within these three segments, you would find there could be a report of additional sort of lease taken by one of the players in one of the three segments.
Moderator · Conference Operator
The next question is from the line of Sameer Joshi, Individual Investor.
Please go ahead.
Sameer Joshi
Thanks for giving me opportunity.
Can I know what is the percentage of capacity utilization only in Q3 across chemical business and what is the average cost of borrowing for the year?
Amitabh Bhargava
I think I mentioned all of these numbers but just to repeat in Acid segment, we have YTD the capacity utilization has been more around 69%, in TAN 81%, fertilizer segment in the bulk 74% and CNB in the specialty segment, which is there or themselves and water-soluble fertiliser is about 51%.
Sameer Joshi
Okay but for Q3?
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Moderator · Conference Operator
The next question is from the line of Chirag Seth, an Individual Investor.
Please go ahead.
Chirag Seth
This is more to do with your capex actually so I think the company will undergo a huge capex for next three or four years.
So what is the outer limit of the capex that you are looking at and the normal capex for the next three or four years considering, you have some non-core assets which will be sold at an appropriate time considering cyclical nature of the business however we are confident that you will increase the utilization levels and hence cash flow can remain stable for the next three four years.
So is there further dilution lightly in the company or the priority will be internal accrual, debt, non-core assets and dilution and could you just give the figure for outer limit, the worst case scenario capex for the next three to four years including normal capex?
Thanks a lot.
Amitabh Bhargava
One is yes, I think the priority would be to fund this capex through internal generation through debt, bank debt and through monetization of our non-core assets.
That said, we have been seeing interest from certain strategic investor in participating in our capex plan.
It is too early to make any comment or any sort of announcement on that.
But if we do find some of these proposals from strategic investors effective then what you would also see is in our capex plan, we would see certain participation from strategic investors.
So idea is to make sure that while banks in any case would be prudent in terms of debt to equity ratio and debt to EBITDA ratios and therefore debt would have its own limitations and we ourselves would want to ensure that the leverage ratios particularly the debt to EBITDA ratios are not beyond prudent now.
We have to that extent build in that in recent last two or three quarters you see the debt reduction and that we are trying to and the idea is also to create headroom as the new capex that is taken the ratios remain within the prudent limit.
So I think that the overall commentary I can give on that.
Like I said priority would be internal generation and certain non-core assets that we have we can monetize and fund on the strength of it.
Chirag Seth
Outer limit of the capex for the next three to four years including normal capex, any figure that you would like to give.
Amitabh Bhargava
Normal capex is specifically about Rs.80 Crores to Rs.100 Crores on a yearly basis.
As far as capex is concerned, on the outer capex the timing of that I am not able to therefore comment it depends on whether TAN projects at what stage we start the TAN project, equally like we said that we put IPA project on hold.
We are watching the IPA prices and so what I can tell you that this ammonia project is certainty, and we are going ahead with that project having got all the approvals and clearance while other projects it would depend on getting statutory approvals and financial closure approvals.
It is 18 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited
Moderator · Conference Operator
Thank you very much.
Ladies and gentlemen that was the last question for today.
I will now hand the conference over to Mr. Amitabh Bhargava for closing comments.
Amitabh Bhargava
Thank you everyone for participating.
I am glad that there were very high quality questions that we received from all of you.
For any further queries or clarifications please do get in touch with our Investor Relations team.
Wish all of you a safe and healthy times going ahead.
Moderator · Conference Operator
Thank you.
On behalf of Dolat Capital Market Private Limited that concludes this conference.
Thank you for joining us and you may now disconnect your lines.
Thank you.
Note
This transcript has been edited to improve readability 19 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited
Questions and answers
Moderator · Conference Operator
Thank you.
We will now begin the question-and-answer session.
The first question is from the line of Lokesh Manik from Vallum Capital Advisors.
Please go ahead.
Lokesh Manik
Thank you for the opportunity.
Couple of questions from my end, one is on the nitric acid side.
Realization has shot up by about 20% Q-o-Q and Y-o-Y from about 20,000 metric tonnes of 25000.
Is this temporary in nature or due to demand supply mismatch, or do you view expected to continue going forward?
Amitabh Bhargava
One is, definitely, there is a strong demand we are seeing and to the extent that we sell a part of our products in the spot market that has helped realize better prices but on the long-term end, some of the contracts that had come up for a revision.
We also have negotiated price increase in those contracts.
So, a part of it I would say is sustainable and for remaining, it depends on the spot market but we are seeing a very strong demand in nitric acid sector so we are hopeful that these margins will sustain.
Lokesh Manik
The second question was on the Project's the capex so in your earlier presentation that you mentioned about expansion of IPA and TAN.
So is that back on the table.
I understand put on hold for so that is back on the table and if you can share what would be a timeline tentatively by when you can commission it and second was the ammonia project if you can provide a status update on that?
Amitabh Bhargava
As far as TAN project is concerned.
I do not think at any stage we said that it is on hold.
With TAN project, we have been in the process of getting all the required approvals, environmental approvals and other regulatory approvals.
There are certain development activity that is required before you start investing on the ground.
That process is on and therefore the timing of that, let’s say, the capex construction and the rest of procurement would depend on that.
We are hopeful that in next two quarters should be in a position to get most of the approvals but like I said, it depends the capex would depend on all the regulatory approvals that we get.
As far as IPA is concerned again, we are watching the environment and the situation in terms significant volatility of IPA prices.
The raw material prices whether it is RGP or acetone have also seen volatility.
So for us, we are closely watching the situation before we make up our mind on whether we go ahead or not.
We want to sort of wait and wait for the equilibrium to establish in some sense because there are too many factors right now sort of moving and shaking.
So, from that perspective IPA for the time being, we are waiting, waiting and watching.
Ammonia project 6 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited