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 & Petrochemicals Limited Q2

Thank you very much.

We will now begin the question and answer session.

The first question is from the line of Nishit Shah from Aequitas Investments.

Please go ahead.

Nishit Shah

Good afternoon Sir.

I wanted to understand how are the imports in technical ammonium nitrates now in terms of volume and pricing?

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Moderator · Conference Operator

Thank you.

The next question is from the line of Sanjay Shah from KSA Shares & Securities.

Please go ahead.

Sanjay Shah

Good afternoon gentlemen.

Thanks for opportunity.

Congrats on good set of numbers.

Sir my question was on the fertilizer side, a new government ruled out new fertilizer policy, one nation one fertilizer, so can you highlight upon how that can impact us as a company on our margin side and can you even help us to know the modalities of this policy?

Amitabh Bhargava

My colleague Mahesh, he is also on line, I will request him to take this question.

Mahesh Girdhar

Good afternoon.

One nation one fertiliser circular have been received, we are also trying to understand how finally it will be implemented.

In terms of policy provision it says that there is some part of the fertiliser that would help to contain certain government communication which is related to subsidy and certain part of that can be used by the company to bring about their grant so this policy was announced recently and certain products have been started with that and we are trying to understand implications in other products at the moment.

Sanjay Shah

Is that we are coming under control of government for the pricing of this?

Mahesh Girdhar

The prices of phosphatic fertilizers are governed by NBS scheme, so as you may know that there is a nutrient based scheme by the government whereby the government announces nutrient subsidy price for NPK and various micronutrients and sulfur on annual basis and in the last few years this has been twice for kharif and rabi separately and depending on the movement of the price we can fix the price, basically the nutrient based policy whereby nutrient subsidy is fixed that is the policy, policy per urea is different whereby it is a process based and the government decides one price for that.

Sanjay Shah

Really helpful Sir.

My second question was regarding ammonia plant, Deepak Sir can you highlight upon the project as you said it is on schedule, so how about the cost, is there any over run in the cost and to next year we will be able to start the production of the same?

Deepak Balwani

I think now consistently for the last couple of quarters we have been giving the details even in our investor presentation on the total project cost and how much has been spent during the quarter.

At the end of September, so while total project cost has remained the same in terms of what we have been sort of announcing for the last couple of quarters that is Rs.4,350 Crores, by end of September we have already incurred Rs.3,163 Crores and balance Rs.1,576 Crores is to be incurred.

We are expecting the commercial operation somewhere in Q1 of FY2024.

Sanjay Shah

That is great.

So, what about TAN, how is the capacity ramping up and how is the demand right now?

Deepak Balwani

So, capacity is you are talking about the new Gopalpur capacity that we have, we are now implementing that would add additional 3,76,000 tons and it is expected to be completed by Q2 of FY2025. That project is nearly about Rs.2,200 Crores capex project and we have already incurred Rs.420 odd Crores by the end of H1 this year.

Overall, I think demand my colleague Tarun just mentioned a little while back that this year we are seeing increase in demand because the overall year-on-year coal production and 7 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited

Moderator · Conference Operator

Thank you.

Next question is from the line of Chetan Thacker from ASK Investment Managers.

Please go ahead.

Chetan Thacker

Good evening Sir. the question is on the TAN business from a more medium to long term perspective how should we view the profitability per tonne for TAN business?

Deepak Balwani

As I was mentioning that as far as Q2 is concerned it is a lean period in not just in India because of monsoon effects but even in other large geography which consumes TAN and as you know TAN or the substitute of TAN which is fertilizer grade ammonium nitrate is essentially a fertilizer and therefore it is relative I would say consumption vis-à-vis other nitrogenous fertilizer it is kind of besides the prices of fertilizer grade ammonium nitrate and therefore the import substitute that we see in TAN in India also in a sense gets governed by that price at least partially.

There is also obviously the other domestic producers who also depend on demand supply, which is the domestic demand supply they kind of sets their prices, so a combination of all of this will decide the prices going forward, but I think one larger aspect in TAN which I was just mentioning that there is also a level of impact that we are likely to see from what happens in Russia-Ukraine situation because the prices of gas whereby the prices of overall cost of production of TAN as well as shutdown of some of these TAN plants in Europe because of these high raw material prices will also have bearing on TAN prices.

The third thing that I was mentioning which very early we just picked up the news that Russia is given that the season is coming back demand season or consumption season is coming back Russia in general is looking at imposing certain export taxes on export of fertilizer where TAN or organic is also one of the products.

We will have to see the combined effect of all of that, but Q3, Q4 in general I would say from a demand perspective at least we are very clear that the domestic demand would again pickup after and we have given that dimension of the overall margin.

We should hopefully see better quarters in Q3 and Q4. 8 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited

Moderator · Conference Operator

Thank you.

The next participant is Amarjeet Gupta, Individual Investor.

Please go ahead.

Amarjeet Gupta

Good evening.

I wanted to know what is the total input of ammonia we do in the financial year?

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Moderator · Conference Operator

Amarjeet, do you have any followup questions?

Amarjeet Gupta

I was waiting for the capacity of import of ammonia?

Amitabh Bhargava

So roughly about 300,000 Kt and then of course we have our own old capacity.

Amarjeet Gupta

So, when there is some surplus ammonia for this plant?

Amitabh Bhargava

Like I said we have our own ammonia that we produce which has a capacity of 128,000 tons, so we produce some ammonia from our own plant and we have import which I did mention earlier, we also procure partly from other domestic players and as you know that our fertilizer capacity is on a ramp up, our capacity utilization and fertilizer are currently at about 67%, 68% as that would ramp up, basically the Taloja production would largely get consumed in our West Coast plants basically Taloja and Dahej, but as you know as part of the capacity surplus at any stage we are also in a position to sort of sell it domestically because India is a significant importer of ammonia and in the past we have sold surplus ammonia in the domestic market also.

Amarjeet Gupta

Thank you.

This was very helpful.

Moderator · Conference Operator

Thank you.

Next question is from the line of Hardik Shah.

Please go ahead.

Hardik Shah

Thanks for taking my question.

My first question was on the ammonia plant, when the plant had initially been planned and announced you were expecting about $230 or $240 per ton of benefits versus import costs back then on the plant, so just in terms of numbers and given that the plant is four to five months away from commissioning and given the current industry scenario are we still expecting similar benefits or these going to be significantly higher than before and if so then how much and my second question was on the solar grade nitric acid capacities how much of overall volumes would these constitute or even other specialty nitric acid constitute and what would be the margin acquisition move towards these products?

Amitabh Bhargava

As far as ammonia margins are concerned based on current prices of ammonia and the lightly gas prices that we are looking to tie up the margins are likely to be significantly better, but I think it will be fair to say that a much better estimate or more accurate estimate can be fixed in our end and we can inform to the stakeholders once you have clarity on our gas prices.

As we speak the gas prices are at current prices of ammonia to get let us say $230, $250 of delta we can afford significantly higher prices of gas, 10 | P a g e Deepak Fertilisers And Petrochemicals Corporation Limited

Moderator · Conference Operator

Thank you.

The next question is from the line of Prasant Pani from TCS.

Please go ahead.

Prasant Pani

Good evening Sir.

Thanks for the opportunity for me to ask the question.

Recently I heard some protest in the Odisha project which is near to Ganjam district, so still the protest is going on or the work is resumed and it is going to continue?

Amitabh Bhargava

We have also reported and we have given some photographs also as part of our investor presentation the piling work has started, with local traders there were certain issues which were more linked with the overall SEZ and earlier compensation issues which were there.

I think those government has sorted out, the protest that you would have picked up was not specific to our project but are to a larger SEZ there and as far as our project is concerned we are getting support from local administration and our work has commenced and we have already in fact shown some progress through photographs in our presentation.

Prasant Pani

Thank you Sir.

As I am from Odisha some focus was there okay.

Thank you sir.

That is it from my end.

Moderator · Conference Operator

Thank you very much.

As there are no further questions I now hand the conference over to Mr. Amitabh Bhargava for closing comments.

Amitabh Bhargava

Thank you everyone for your participation.

For any further queries or clarifications please do get in touch with our Investor Relationship Team.

Have a good day and thank you so much.

Moderator · Conference Operator

Thank you very much.

On behalf of IIFL Securities Limited that concludes this conference.

Thank you for joining us.

You may now disconnect your lines your lines.

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