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 Petrochemicals

We have a next question from the line of Deepak Poddar from Sapphire Capital 8 | P a g e Deepak Fertilisers and Petrochemicals Corporation Limited

Thank you, sir.

We have our next question from the line of Aditya Sen from Robo Capital.

Please go ahead.

Aditya Sen

With the capacity addition in TAN and given that we will start exporting in the coming quarter, how much volume addition do we aspire in the coming year that is FY25?

Deepak Rastogi

We basically are currently at 486,000 metric tons and are looking for 100,000 tons worth of capacity expansion going forward in next year which will take us to around 587,000 metric tons with Gopalpur coming in sometimes in FY26-27 that would actually add up additionally 376 tons.

So, give or take in a couple of years we would be close to a million metric tons of capacity.

Aditya Sen

And this 100,000 tons in next year is expected to come by which quarter, ?

Deepak Rastogi

The 50,000 tons is already in place 50,000 tons is under obviously planning mode.

So, it will come early next year financial year.

Aditya Sen

My question basically is because Ammonia CAPEX, which is sort of a backward integration CAPEX ultimately, we believe that the objective is to cut down the volatility on the Ammonia prices.

So, do we expect any increase in gross margins or any EBITDA with the addition of such CAPEX?

Deepak Rastogi

Yes, the answer is yes otherwise there will be no ROI.

So, effectively there will be an increase, but it also depends upon how the Ammonia prices in the global markets are doing it effectively, but just to give you an answer, overall we have been looking at a payback period of around 6 -7 years for the project and hence accordingly the numbers and we think we would be able to basically be delivering those numbers over there.

Moderator · Conference Operator

We have a next question from the line of Ranjit from IIFL Securities.

Please go ahead.

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We have our next question from the line of Mr. Ankit from Kotak.

Please go ahead.

Ankit

Sir, can you please let us know the net debt number for December 23?

Deepak Rastogi

It will be closer to around Rs.

4,000 closers to that number.

Ankit

This is net debt, right?

Deepak Rastogi

Yes, that is correct.

It’s an annualized number, that’s the way we are looking at this.

Ankit

Sir annualized as in annualized for FY24?

Deepak Rastogi

Yes, that is correct.

Ankit

And what is the status on Gopalpur project?

Deepak Rastogi

So, currently just to answer you currently we are at around Rs.

3,400 crores as a net debt effectively just to give you a sense.

Ankit

On my second question what is the status on Gopalpur project?

Deepak Rastogi

So, that progress the project is progressing well now, and the timelines are for second half of 26.

Moderator · Conference Operator

We will have our next question from the line of Sharan Nandikoren from Individual Investor.

Please go ahead.

Sharan Nandikoren

I would like to know the demerger status and by when both the entities will be listing separately on the stock exchange.

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Moderator · Conference Operator

We have our next question from the line of Neeraj, Individual Investor.

Please go ahead.

Neeraj

Just wanted to what is the status on putting anti-dumping duty again and last concall I gathered that the matter is sub judice.

So, any update on that front is specific to TAN business?

Tarun Sinha

So, the answer is still the same as in India when the matter is sub-judice we would be lucky to have a decision in a quarter which is the time gap between two consecutive con-calls like this.

So, the matter is still sub-judice.

That said it appears that now the Ministry of Finance which earlier had been rejecting unilaterally without assigning any reasons to a number of ADD recommendations from the DGTR which is the Directorate General of Trade Remedies under Ministry of Commerce and Industry, and this is not just for Ammonium Nitrate, for many products in different industries.

Now I think the message they're getting is that the stand of Ministry of Finance is changing slowly.

So, we'll just see what happens and as I said it's hard to put a date or timeline to a matter which is in court.

Neeraj

So, is that stand is changing, are we expecting that something positive can happen in terms of again putting this anti-dumping duty?

Any such feedback or feelers you have from the Government side?

Tarun Sinha

At this stage no, it is just a very recent information we received that now probably things are looking for better not sure whether it is for Ammonium Nitrate or it is for which product, but certainly there is a bit of a change what we feel.

Now, if we are talking of the pending matter, which is the matter pending in the court now that probably will continue to be in court and we will have to wait till the decision comes out.

If it comes to a stage that there's a case for putting in a new ADD request then it will follow the entire process as it does which is starting from Directorate General of Trades and Remedies, and then if they feel there's enough justification for a fresh anti-dumping duty, then they may develop a case, put up the case to make your finance again and then we will have to see what happens there.

Neeraj

So, we are expecting any such development?

Tarun Sinha

If there is a case we will.

So, I think our chairman mentioned in the initial part of this call that we have sensitized the different Government bodies in terms of the need to create a level playing field for the Indian producers and then there are ways to do that through tariff barriers, through non-tariff barriers.

So, all those measures are being looked at and we will towards the line depending on how the Government and the various ministries and guide us on this process.

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Moderator · Conference Operator

We will move on to the next question from the line of Kushal Shah, an Individual Investor.

Please go ahead.

Kushal Shah

My questions are on the lines of the mining solutions business that we have, and my first question is about the nature of contracts that we have with our customer.

What are the inputs we provide to our customers as in we do we make some kind of promise that we will produce x tons of the material and what kind of return do we get like do we get the percentage of amount we will save for them?

The second question is since we have no experience in downstream like we do have experience for using TAN, but we do not have experience in Mining.

So, what kind of prototyping have we done in this area and what kind of customer reviews we have got till now?

Tarun Sinha

So, that's a great question because it is aligned to again one of the comments our chairman made right in the beginning of the call which is our transformation strategy for all our businesses from just selling products to solutions and in the Technical Ammonium Nitrate which is now going to become a Mining solutions Company anyway going forward through the corporate restructuring.

This is the buzzword.

So, what we do I'll try to keep it simple.

The details can be quite lengthy.

What we do with the Mining companies and the Mine operators is that see effectively there are 5 value streams in a typical mine and they are starting from drilling which is drilling holes in the rock then blasting which is putting the right type of explosives in the right quantities in those holes in the rock.

So, that's blasting after the rock is blasted the third value stream is lifting that rock excavating that broken rock so excavation and then that excavated rock is moved from where it was blasted to the place of processing or further treatment so that's transportation the fourth one.

And the fifth one is crushing, if applicable.

So, drilling, blasting, excavation, transport and crushing if we combine these 5 operations in a typical mine or an infrastructure project then this is what we call as the total cost of ownership of the mine operator or the quarry operator of the project operator.

So, what we do in the form of mining solutions business is we reach out to the mines and these infrastructure projects try to do a base lining work in terms of mapping the baseline cost for each of these 5 value streams that I talked about that is that is drilling to crushing.

Figure out where are the scope of improvements in terms of the delta through introduction of the right products and the right technologies which we are in the process of developing and that's the part of downstream the term that you used in your question and then we deploy a team of people which is another area where we are building capability and then we actually offer put an offer on the table for the mine operator saying look this is what we feel it is in terms of the current cost structure and these are the let's say 2 out of the 5 value streams or 4 of the 5 value streams depending on the case where we think we can bring delta improvement.

And as a result of we are being able to bring that delta improvement and if we are able to bring that delta improvement, we would like to share some of the benefits with you.

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Moderator · Conference Operator

Thank you, sir.

Ladies and gentlemen, that was last question for today and I now hand the conference over to Mr. Deepak Rastogi sir for closing comments.

Deepak Rastogi

Thank you everyone for your participation.

For any further queries or clarifications please do get in touch with our Investor Relations team.

Thank you.

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.

CA.

Deepak Balwani Associate Vice President – Investor Relations [identifier removed] +91 20 6645 8733 Anvita Raghuram Churchgate Partners [identifier removed] +91 22 6169 5988

Questions and answers

System · Call Header

Earnings Conference Call Q3 FY2024 • www.dfpcl.com With available capacity across our plants, we are well positioned to navigate through challenges and capitalize on the growth opportunities.

With this I would like to open the floor for questions and answers.

Over to you, Moderator.

Thank you.

Moderator · Conference Operator

Thank you very much.

We will now begin the question-and-answer session.

We have our first question from the line of Jenam Gilani from Swan Investment.

Please go ahead.

Jenam Gilani

So, we had a few questions.

Sir, I wanted to know what is the current spread for imported Ammonia versus our production and when do we expect it to run at full utilization?

Deepak Rastogi

Maybe I am not clear on your first question are you asking that what is the Ammonia pricing FOB Middle East U.S dollars which is closer to Around 400 and it ranges which one, but last quarter it was closer to almost $475, $480 on an average.

As far as your second question is concerned, we are actually running the plant at full capacity.

Jenam Gilani

How much sequential improvement can we expect in this quarter or the upcoming quarters?

Deepak Rastogi

I'm not clear about the question are you asking that is that on the margin side?

Jenam Gilani

In terms of the spreads for us for the Ammonia spread, how do we expect it to like what would be the spread for us in the upcoming quarters, do we expect it to improve, or should it be stable?

Deepak Rastogi

So, effectively what we are expecting is that it should be more or less stable or maybe slightly coming down because it depends upon how the ammonia prices globally actually are going to behave.

So, we expect the Ammonia prices would at least be either stable or coming down a little bit is what our understanding is, but we will have to really see how it will actually happen.

So, for the time being you can think it will be stable to a slightly marginally.

Jenam Gilani

And sir in the fertilizer the Department of Fertilizer Policy that has been given by the Governmentt.

Sir, where will we be standing, will we be considered a manufacturer or integrated player?

Deepak Rastogi

We would be actually considered as manufacturer.

Jenam Gilani

So, I guess the CAP for us would be 10% PBT margins?

Deepak Rastogi

That is correct.

Jenam Gilani

And how would that impact our profitability?

Deepak Rastogi

I don't think that it is going to impact our profitability because it is within our overall limits that we can actually improve our profitability until that happens 10%.

So, the profitability can go up.

So, we have room to be able to actually improve our profitability going forward.

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