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 the Deepak Fertilisers and Petrochemical Limited

to you, Sir. · S C. Mehta:

Mr. S.C Mehta -- Chairman and Managing Director, Mr. Mahesh Girdhar – President, Crop Nutrition Business, Mr. Tarun Sinha – President, Technical Ammonium Nitrite, Mr. Amitabh Bhargava – President and Chief Financial Officer, Mr. Deepak Balwani – Head, Investor Relations.

I would like to invite Mr. S.

C.

Mehta to begin the call with his opening remarks.

Thank you.

And over

S C. Mehta

Very good afternoon to all of you.

I take indeed pleasure in welcoming you all, for the Q1 FY'23

Moderator · Conference Operator

Thank you.

Next question is from the line of Abhijit Akella from Kotak Securities.

Please go ahead.

Abhijit Akella

Just one main point to seek your clarifications on.

It's regarding the debt position at this point in time, as of June 30th, if you could please just help us with the gross and debt number.

And also how much CAPEX has already been executed on the ammonia project and how much is pending to be spent?

7 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited

Moderator · Conference Operator

Thank you.

Next question is from the line of Vidhi Dadia from Raedan Securities.

Please go ahead.

Vidhi Dadia

Can you help us with the volume trends in TAN and nitric acid segment and also the expected realizations, a broader picture, for the next two quarters?

Amitabh Bhargava

See the only point that I can confirm or guide at this stage is that Q2, as is the case every year is a quarter where demand for both TAN and nitric acid, typically is on the lower side, because in nitric acid, again, the inorganic nitration segment is also linked with what happens on the explosive side.

And to that extent, the Q2 is likely to be a weaker quarter compared to what we saw in Q1. But beyond Q3, Q4, I would go back to the point that Mr. Mehta also mentioned, and we have been saying that we are seeing good demand both on the explosive side as well as on nitric acid side.

Explosive driven by coal as well as infra and cement segment, and nitric acid, largely by nitration segment, which is again, is somewhere we have seen that China Plus One shift and a lot of our downstream customers are seeing very strong demand of their products and their order book.

So, with that directionally I think Q3, Q4 we expect the demand to continue to remain robust.

I think that's pretty much what I would be in a position to say at this stage.

Moderator · Conference Operator

Thank you.

Next question is from the line of Chinmaya Bhargava from Chetan Phalak Capital.

Please go ahead.

Chinmaya Bhargava

So, I have a couple of questions.

I am not going to ask about TAN realizations.

But so a majority of our nitric acid is consumed in-house, right.

So, if I continuing to look at let's say solar grade nitric acid, does this fall in the concentrated nitric acid segment, and how much higher realizations do you expect for solar grade nitric acid compared to current end use?

Amitabh Bhargava

So, we are right now in the process of developing some of these products based on the requirements we are seeing in these segments.

And therefore, it is till we establish the volume as well as what value add that we need to do, meaning that what is the additional cost to be incurred and what realizations can we make, it’s right now, we are not in a position to guide you on the margin.

But needless to say the whole idea of getting into specific segments and catering to specific requirements of the end user is to basically look at value-based pricing.

And therefore, we expect that therefore, the margins are likely to be better than the plain vanilla grade nitric acid.

Chinmaya Bhargava

And do we, are we thinking about expanding our capacities in concentrated nitric acid after the TAN capacities or is it too early to think about that right now?

Amitabh Bhargava

It's too early, Board hasn’t taken any decisions.

So, I won't be able to guide you anything on that.

Chinmaya Bhargava

Next question is I have been hearing of the coal industry looking at a PLI scheme for TAN.

Could you share if there is talks of that happening?

Amitabh Bhargava

We have been obviously, because of the way the PLI scheme was proposed by the government.

We were also exploring whether that would be available for TAN, but as of now, we don't have any firm 9 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited

Moderator · Conference Operator

Thank you.

Next question is from the line of Tejas Shah from Lazer Securities.

Please go ahead.

Tejas Shah

How do we see the TAN prices compared to last quarter, Jan to March and from April to June?

So, have the prices have gone up or it is just that the volume ramp up and helped you clock more sales, profits?

Amitabh Bhargava

See quarter-on-quarter, we have in fact reported in our presentation the revenues from TAN.

Quarter-on-quarter the increase in volume as far as TAN is concerned is about 12%.

Of course, you can then maybe do a back calculation to see how much of the increase in revenue is because of volume and how much is because of price.

Tejas Shah

And price will be what?

How much increase will be the effective price if you can share, rough?

10 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited

Moderator · Conference Operator

Thank you.

Next question is from the line of Darshan Jhaveri from Crown Capital.

Please go ahead.

Darshan Jhaveri

I just wanted to ask after our project completion, what kind of revenue can we foresee for the next year or something could be available to be guided or, if not the revenue then the benefit of the new ammonia plant?

Amitabh Bhargava

As I said that ammonia was largely for our own consumption.

So, on a consolidated level it would not lead to increase in revenue.

But it would, depending on the margins that we make in ammonia project, which is typically ammonia gas delta on which earlier I had answered that question that is the likely improvement as far as the margins or bottom-line is concerned.

But from a revenue perspective, consol level it will not as such result in, because it's all for entirely for our own captive consumption.

Darshan Jhaveri

And we have seen very good growth in this Quarter 1.

So, how much of it would be sustainable going forward?

I imagine our demand is we don't see any problem with demand.

So, the revenue in Quarter 1 could be assumed as sustainable?

Amitabh Bhargava

Look revenue, I think two aspects that we mentioned and I would again draw your attention to those one is that if you look at the capacity utilization in some of our segments, there is still a good headroom available in terms of better capacity utilization.

So, if the demand with the exception of Q2 which has its own you know sort of demand reduction aspects in chemical segment, but with that exception, if the demand continues in which we are confident it would then the capacity utilization in these segments, there is a headroom.

Also we are and we have already done debottlenecking of TAN as well as NPK capacity.

And that also in terms would play a role in terms of improvement in our top-line.

But I think other than that price wise we just mentioned that price.

Of course, it's very difficult to predict it will also depend on what happens to raw material prices and its consequent impact on the finished goods prices.

So, I think you should maybe take guidance more from the demand side or volume numbers that are likely to pan out in next couple of quarters.

Moderator · Conference Operator

Thank you.

Next question is from the line of Sharan Nandikur an Individual Investor.

Please go ahead.

Sharan Nandikur

So, my first question is, for the remaining CAPEX, you mentioned that 50% will be the equity whether it will be QIP once again, or any other mode of the funding.

Amitabh Bhargava

It will be largely through internal generation and the existing cash balance that we have.

11 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited

Moderator · Conference Operator

Thank you.

Next question is from the line of Tarun Dhingra, an Individual Investor.

Please go ahead.

Tarun Dhingra

So, my question is that you have non-core assets of Rs.

700 crores that has been giving the losses since last quarter.

Why don't you exit from that non-core asset and reduce the debt?

Amitabh Bhargava

I just answered that question.

And we will take your sentiments back to the Management.

Tarun Dhingra

And the second question is when my Company is going to be debt free?

What time span you are taking that Deepak Fertilizer would be debt free.

Amitabh Bhargava

See if you see, today even from a gross debt, net debt perspective, we have sort of cash balance practically, but given that we are in a CAPEX mode both on ammonia and TAN we are obviously till we complete the CAPEX, we would be cautious in repaying our debt ahead of the schedule.

But as these CAPEXs are over, depending on the cash generation, we would certainly look at because, you know, that cash would either have to go for next round of growth or it is for repaying the debt, there is no reason for us to hold that cash in our books.

So, I think largely one would have to see how the CAPEX of these two projects pans out in next, let's say about 24 to 36 months, and also in terms of cash generation based on that we certainly would --

Moderator · Conference Operator

Thank you.

The next question is from the line of Mr. Karthik Nagri, an Individual Investor, please go ahead.

12 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited

Thank you.

Next question is from the line of Madhav Marda from Fidelity.

Please go ahead.

Madhav Marda

My question was basically could you help me understand the CAPEX that we have for FY23 and FY24 given the projects that are ongoing with ammonia and TAN please.

Amitabh Bhargava

So, in ammonia which we are targeting to complete by Q1 let's say somewhere in May 23 We are yet to incur from here on we have another 1500 crore of CAPEX in ammonia project.

As far as TAN is concerned, this year, this financial year, you would incur somewhere like Rs.

550 to Rs.

600 odd crores in this year for TAN.

Madhav Marda

So, that's 2,100 and then any other maintenance or any other small CAPEX for the existing lines and something like that.

So, we could get the number for the full year.

Amitabh Bhargava

So, there is normal maintenance CAPEX.

And there is also, we have completed one round of debottlenecking in TAN, the second phase of debottlenecking we are still awaiting the technical details and depending on that, though, the numbers are not going to be very big as far as debottlenecking is, but those would be the additional expenses beyond the TAN and ammonia CAPEX.

13 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited

Moderator · Conference Operator

Thank you.

Next question is from the line of Meet Vora from Axis Capital.

Please go ahead.

Meet Vora

Can you share the segment wise margins for TAN and nitric acid both?

Amitabh Bhargava

We don't report segment wise; I mean we report chemical segment and fertilizer segment.

And that is we have already shown that in our earning presentation.

Moderator · Conference Operator

Thank you.

Next question is on the line of Nishit Shah from Equitas Investment.

Please go ahead.

Nishit Shah

So, in Q1 we highlighted in our presentation that there were some issues which impacted our capacity utilization.

So, in Q2 are we facing any issues?

Amitabh Bhargava

No so in Q1 one effect was of raw material, rather raw water shortage, which was because of MIDC had taken some maintenance shutdown of their pipeline.

And now that is over as such that is unlikely to affect.

The other aspects of we had MOP shortage in Quarter 1 and that is now better compared to Q1.

Moderator · Conference Operator

Thank you.

Next question is from the line of Priyan Purohit from Kamayakya Wealth Management.

Please go ahead.

Priyan Purohit

So, I can clearly see that if I compare to FY21, the chemical segment has been contributing quite significantly to your bottom line specifically.

So, just wanted to understand do you have any plans for doing any CAPEX for the fertilizer segment, or probably entering into some niche fertilizer segments, which are maybe not NPK based, maybe something like potassium based fertilizers or just wanted to know your outlook on that?

Amitabh Bhargava

No such plan or decision taken by the Board.

Priyan Purohit

And secondly, just wanted to ask that there's been a sharp drop in IPA, capacity utilization, if I compare it with Q4 I think it has dropped from 88% to 58% so what's the reason for that?

Are you already experiencing the muted demand which you were foreseeing in Q2 are you already experiencing those headwinds right now.

14 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited

Moderator · Conference Operator

Thank you.

Next question is on the line of Shubham Thorat from Perpetual Investment Advisors.

Please go ahead.

Shubham Thorat

So, my question is related to our fertilizer business vertical.

So, we can see quite subdued performance from this vertical this quarter.

So, how do you see the fertilizer business shaping up in the coming quarters?

Mahesh Girdhar

Yes so if you see the fertilizer consumption takes place during kharif and Ravi.

And in the 1st Quarter we had a bit of a delayed rainfall start of the rainfall in the month of June was more lower than the previous year that got shifted to July.

From July onwards, the proper rainfall and we are seeing that in western part of India where we operate, rainfall even more and we have a better reservoir fill.

So, from that perspective, we don't see any challenges from agriculture perspective, as well as the commodity prices are good.

And if you see as well as your question related to the fertilizer performance, we have been in the range of 10% year-to-year performance.

From last quarter, we nearly doubled our net income as we reported.

Industry wise, there was a little bit of reduction in the volume in the first half.

But we have maintained our market share.

As well as you may have noticed that we already launched next level of innovation category, which is crop tech products, which are unique product with eight nutrients along with nutrient unlock technology, as well as we continue to launch in water soluble fertilizer business, also new products.

So, we are moving up on our innovation curve and continue to launch better products every quarter and scale them up.

Shubham Thorat

And just a small clarification, so you said that Greenfield ammonia project is going to be commissioned by Q1FY24 and TAN plant is to be commissioned by second part in FY24, is that right?

Amitabh Bhargava

Yes so the ammonia project it will be in Quarter 1 FY24. But TAN project would be in the second half of calendar year 24.

15 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited

Moderator · Conference Operator

Thank you.

Due to time constraint, we have reached the end of question and answer session.

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

Amitabh Bhargava

Well ladies and gentlemen, thank you so much for your participation.

And for any further queries or clarification, please do get in touch with our Investor Relationship team.

Thank you once again.

Thank you.

Moderator · Conference Operator

Thank you.

On behalf of IIFL Securities Limited that concludes this conference.

Thank you for joining us, you may now disconnect your lines.

For further information, please contact:

Note

This transcript has been edited to improve readability

Reg. and Corp. Office

Sai Hira, Survey No.: 93, Mundhwa, Pune - 411 036, India

Web

www.dfpcl.com

CIN

L24121MH1979PLC021360

Cautionary Statement

This release contains statements that contain “forward looking statements” including, but without limitation, statements relating to the implementation of strategic initiatives, and other statements relating to DFPCL’s future business developments and economic performance.

While these forward-looking statements indicate our assessment and future expectations concerning the development of our business, a number of risks, uncertainties and other unknown factors could cause actual developments and results to differ materially from our expectations.

These factors include, but are not limited to, general market, macro-economic, governmental and regulatory trends, movements in currency exchange and interest rates, competitive pressures, technological developments, changes in the financial conditions of third parties dealing with us, legislative developments, and other key factors that could affect our business and financial performance.

DFPCL undertakes no obligation to publicly revise any forward-looking statements to reflect future / likely events or circumstances.

Deepak Balwani Associate Vice President – Investor Relations [identifier removed] +91 20 6645 8733 Ashok Negi/Bijay Sharma Churchgate Partners [identifier removed] +91 22 6169 5988

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 Jenish Gada, an Individual Investor.

Please go ahead.

Jenish Gada

My first question is regarding EBITDA margin of 24%, will it be maintained in near term and future term?

And will the margin be maintained where the two new plants get started in FY'24?

And second question is regarding in ‘Investor’ presentation, in one of the heading renowned investor, one investor name is Dolly Khanna is mentioned, but in investor, means I am not able to show in our holdings the name of Dolly Khanna.

Amitabh Bhargava

To your first question, I think Mr. Metha just, I think he did touch upon this aspect that while this quarter we saw a significant increase in both raw material prices and finished goods prices, the 6 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited