DEEPAKFERT — earnings call
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Prepared remarks
Hosted by Systematix · Management
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Moderator · Conference Operator
Thank you very much.
We will now begin the question answer session.
The first question is from the line of Naresh Vaswani from Sameeksha Capital.
Naresh Vaswani
My first question is on the raw material absolute cost which you have accounted in this quarter.
So, if I compare that with last quarter there is hardly any increase of 17 to 20 crores while you have mentioned in your presentation and also in opening remarks that the material costs have gone up substantially, all the materials and also the volume if I club all the volumes, it is flat or slightly negative.
Even after that the absolute cost should have gone up substantially given what you have mentioned.
What explains this because the end products prices have already increased which is reflected in your realization in TAN and nitric acid.
So, what explains this flat number for raw material cost?
Amitabh Bhargava
What you are referring to is quarter-on-quarter, I suppose.
While quarter-on-quarter the raw material prices continue to go up between Q2 and Q3, some of the increase that we were mentioning in terms of the percentage whether it is ammonia.
Phos Acid, MOP, coal, and others the substantial jump was YOY while quarter-on-quarter also there was a jump but in quarter-on-quarter what also happened is the volumes particularly in the NP-NPK segment were lower.
That was primarily because of as Mr. Mehta was also mentioning that we also faced challenges of availability of raw material in this period.
As a result, from a consol standpoint since the volumes in NP-NPK segments reduced, it had an impact in terms of keeping the overall, if you're looking at the overall cost of materials consumed, from that perspective they were quarter-on-quarter, that number may not have gone up as it has gone up from YOY.
So, I think that's the reason.
I'm not sure if there is more to the question that you asked.
But it's the quarter-on-quarter and also certain volumes on the NP-NPK segment which were on the lower side.
Naresh Vaswani
It's not that we had some old inventory which was low cost and which why you benefitted and then in Q4 that would have some impact, so that is not the case.
You're saying the increase from material has already been accounted except that volumes have declined that is okay.
But the increase which was utilized in this particular quarter, those prices have already been reflected.
Is that right?
Amitabh Bhargava
Yes.
Naresh Vaswani
This increase in margins in TAN, the proportion of increase in realization is much larger that is what explains the increase in margin in TAN.
So, what is happening structurally because the realization in TAN has gone up almost like 70%-80% if we compare with like it was around 24-25 on a stabilized basis, now it has almost reached 47%.
What explains this and how much sustainable this trend is in coming quarters?
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Moderator · Conference Operator
The next question is from the line of Kumar Saumya from Ambit Capital.
Kumar Saumya
My question is on the IPA side, like we were cracking the IPA refinery, then propylene to IPA, so how is this process different from someone, like Deepak Nitrite who is going through the whole phenol acetone route, if you could help some understanding this process?
Amitabh Bhargava
The raw material used for production of IPA is different.
In our case our raw material is propylene, refinery-based propylene while in case of Deepak Nitrite it is acetone.
So, fundamentally two different raw materials to produce the same IPA.
I'm not sure if there is anything more that you wanted to ask as such but fundamentally two different processes.
Kumar Saumya
How it is if someone is using from acetone to IPA, their yield would be better from propylene to IPA?
So, for Deepak the trade between acetone and IPA is guiding the margin but for us it would be propylene and IPA, so that I want to understand that how this process is delivering if it is delivering better margin and better profit?
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Moderator · Conference Operator
The next question is from the line of Niraj Pahlajani from Reliance Industries.
Niraj Pahlajani
I have only one question regarding TAN business.
Basically, this is being used in explosives in the mines for coal extraction and all.
It is majorly used for coal extraction only or for other minerals also like nickel and cobalt or any other minerals.
So, where all exactly it is being used apart from coal extraction?
Amitabh Bhargava
This is going for both coal and non-coal segment.
In non-coal practically all the minerals, all the metals wherever there is a requirement of removal of overburden, TAN or TAN based explosives are the cheapest form of chemical energy that can be used to remove the overburden.
It doesn't really differentiate in terms of what the mineral is, so long as there is an overburden removal requirement the TAN would typically be used for blasting solution.
Also, in the limestone mines which essentially then goes into cement, likewise various stone quarries which there are practically thousands of stone quarries.
It's a sector which is highly localized and disintegrated, so all the stone quarries which essentially remove the stone chip for any construction activity, particularly the infrastructural segment, there also TAN is used as the explosive or basically TAN based explosives are used for blasting solutions.
So, its infrastructure, cement, steel, other minerals, coal, it's across all of these mining segments.
Niraj Pahlajani
Just one follow-up question on this.
What percentage approximately would be used on a coal versus non-coal extraction, any ballpark idea, or numbers on that?
Amitabh Bhargava
It’s very difficult because we also sell, we TAN to the dealer segment and in turn dealer segment would be catering to both coal and non-coal.
It's always difficult to trade every molecule of TAN to really assess where exactly it's going.
Ballpark I think 55% to 60% would go into coal and rest in non- coal.
Moderator · Conference Operator
The next question is from the line of Abhijit Akela from IIFL Securities.
Abhijit Akela
First of all, just wanted to get the current gross and net debt numbers if you have them handy with you and also what the cash from operations has been YTD?
Amitabh Bhargava
We have reduced the debt by another roughly 240 -250 odd crores compared to March ‘21, so there is that much of reduction.
Abhijit Akela
One last thing and I'll come back in the queue.
Just wanted to get your outlook for the Fertiliser and the IPA business.
Margins going forward, should we expect those to remain under pressure for at least the foreseeable future and then conversely in TAN, I know right now the market situation is very tight but if we take a slightly more medium-term view, what kind of spread should we work with, margin should we work with and a normalized margin I mean and by when do you think it would return to that sort of normalcy?
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Moderator · Conference Operator
The next question is from the line of Parin Gala from SageOne Investments.
Parin Gala
One is that one of the competitors have just announced a new TAN capacity of 2,20,000 a couple of days back.
So, just wanted to understand, now in FY25 rather with our capacities coming plus are we looking at the scenario of bit of a oversupply going forward?
Amitabh Bhargava
One is, if you look at overall demand supply situation in Indian context, given the kind of, we are seeing the growth as far as overburden removal requirement in coal sector is concerned or for that matter the likely growth in cement, steel, and infrastructure.
We believe that TAN demand will remain strong.
Now if you see almost every 3 year or so roughly about 2 to 2.5 lakh tons of additional TAN demand gets created.
Basically, if you look at every 4 to 5 years, there is one additional TAN, world- class TAN capacity needs to be created in the country.
As such I have no understanding of when the capacity that was announced by the competition that as you were mentioning, what is the timeframe 9 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited
Moderator · Conference Operator
The next question is from the line of Kenil Mehta from Omkara Capital.
Kenil Mehta
My question is, was the TAN demand increasing due to the increase in production by Coal India due to shortage of coal inventory at power plants across the country which would have led to a power shortage across the country?
Amitabh Bhargava
I didn’t get your question.
Was that a statement or you were asking the question?
I didn't really catch your question.
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Moderator · Conference Operator
The next question is from the line of Manish from Hansraj Virendra Capital.
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The next question is from the line of Mayur from Profitmart Securities.
Mayur
I just want to ask what are the short-term and the long-term goals for company and are we planning anything for the next quarter and year which will help in business for more growth?
Amitabh Bhargava
I think Chairman did mention, Mr. Mehta did mention a few aspects which he said are in effect, those are the initiatives that we have been working on and we would continue to work.
And some of the numbers that you are seeing are part of or as a result of some of those initiatives.
One aspect that we have been discussing with investors and in our earning calls as well as otherwise is overall on one hand there is a backward integration through ammonia project; the second is the expansion of our TAN capacity.
These are two CAPEXs that we are immediately working on and completing these projects within the time and cost that we have set for ourselves is one of the key objectives that we are currently working on.
The second aspect that Chairman also mentioned is that we are gradually going down the route of differentiating our products more and more from an end-user segment perspective as well as moving from product-to-product plus solution.
That's the journey also that is on in each of these product segments.
In Fertiliser for example the launching of Croptek, in Technical Ammonium Nitrate where we are looking at providing blasting solutions to our consumers directly.
And in case of IPA for example moving to more and more high margin end-user segments.
So, this 12 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited
Moderator · Conference Operator
The next question is from the line of Aditya Chheda from InCred Asset Management.
Aditya Chheda
Two questions from my end, one what has changed in the working capital where we have significantly improved on the working capital days?
Second, I would like to understand the TAN business better as to what are the raw materials which are used like in percentages if you can desscribe and what is the cycle of sourcing and subsequently selling the finished goods products?
Amitabh Bhargava
One is fundamentally in each of our product segments or across, first of all given that a lot of our operations are integrated; the raw material sourcing is common and from a working capital standpoint, getting better credit from our supplier is one initiative that we have worked on.
The second is in the marketplace as far as finished goods are concerned, we are (a) more and more moving towards I would say reducing the credit as much as in some of the raw material there are challenges today in terms of supply side, we are also requesting our end- consumers to reduce the overall credit cycle.
So, there in terms of increasing our overall cash sales, increasing the sale that is based on LCs from our customers, these are some of the aspects where overall we are on one hand trying to improve our overall credit that we get from our supply, at the same time improve the overall working capital cycle in each of these products that we supply to the market.
What was your second question related to raw material?
Aditya Chheda
On the TAN, I just wanted a breakdown of the raw material in percentages?
And for example, how is the sourcing strategy and subsequently for example when we source and whatever price we have; how do we pass it on, the timeline of sourcing to finished goods?
And the percentages of bifurcation of raw materials used for TAN?
Amitabh Bhargava
No, one is typically in TAN today, our cash conversion cycle would be somewhere in the region of 15 days.
So, overall again like I said the raw material sourcing is common.
The ammonia that we consume or source gets utilized for nitric acid, for TAN and for Fertiliser.
To that extent there is common sourcing of raw material and any credit terms that we get in a way apply to all the sectors but in all of these sectors the cash conversion cycle or the credit period extended to our customer is different, depending on whether it's a B2C kind of market or B2B market.
Moderator · Conference Operator
The next question is from the line of Resham Jain from DSP Investment Managers.
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The next question is from the line of Sharan, an individual investor.
Sharan
I would like to know what's our current capacity utilization of TAN and till the new CAPEX which is inaugurated recently that gets completed?
Is Deepak in a good shape to accommodate the growth in that sector?
Amitabh Bhargava
The capacity utilization in TAN, in this year, nine-months has been overall I think 100% and Q3 it was 110% odd if you divide the capacity proportionately for the quarter but on a full-year basis 100% capacity utilization.
We do have some capacity or headroom sitting in the existing capacity itself.
We have also indicated in our earlier discussions that we are currently also working on debottlenecking 14 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited
Moderator · Conference Operator
Thank you.
Ladies and gentlemen, this was the last question for today.
I would now like to hand the conference.
Mr. Pratik, please go ahead.
Pratik Tholiya
Thanks.
On behalf of Systematix, I would like to thank the management for this call and also to all the investors who had logged in.
I would like to hand it over back to Mr. Bhargava for his closing comments.
Amitabh Bhargava
Thank you everyone for your participation.
For any further queries or clarification, we are available.
Please do get in touch with our Investor Relationship team.
Wish all of you a safe and healthy times going ahead.
Thank you so much for the participation.
Thank you.
Moderator · Conference Operator
Thank you.
On behalf of Systematix Institutional Equities, that concludes this conference.
Thank you for joining us and you may now disconnect your lines. -------------------------------------------------------------------------------------------------------------------------------------------- 15 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited