Gujarat State Fertilizers & Chemicals Ltd

BSE:500690

Earnings Call Analysis

Significant Q1 Financial Improvement Amid Subsidy and Production Changes

In the first quarter of FY 2024-25, GSFC saw a substantial profit-before-tax increase from INR 23 crore to INR 118 crore. The company achieved its second highest sales in 15 years at INR 2,144 crore. Margins rose by 7% year-over-year, despite pressure, thanks to effective cost management and robust demand. A key factor was receiving timely government subsidies, although the reduction in subsidy rates affected cash flows. The optimization of product-mix, including DAP and NPK fertilizers, alongside strategic measures, should enhance future profitability. The company anticipates further improvement due to better seasonal prospects and ongoing government support.

A Promising Turnaround

In the first quarter of the fiscal year 2024-25, Gujarat State Fertilizers & Chemicals Limited (GSFC) showcased significant improvement, bouncing back from a previous downturn. The company reported a commendable Profit Before Tax (PBT) surge from INR 23 crores to INR 118 crores. This recovery is reflected in a notable increase in sales, achieving INR 2,144 crores—the second highest first quarter sales in the last 15 years. This growth was supported by optimized product cost economics and solid demand for fertilizer products.

Key Performance Indicators and Sales Dynamics

Sales volumes rose dramatically by 20% year-over-year (YoY), which, alongside a 7% increase in sales margins, indicates effective operational strategies in place despite pressures on margins. The company capitalized on favorable seasonal factors, which should bolster demand further in the upcoming quarters. The reduced subsidy rates, down by approximately 13% in government support this fiscal year, could impact pricing strategies moving forward.

Challenges in Raw Material Pricing

Despite overall positive trends, GSFC faces challenges with raw material costs, particularly in ammonia, where pricing pressures remain significant. Though ammonia prices have shown some decrease, other raw material prices, particularly for basic inputs, have continued to rise. The company expects to navigate these challenges through a strategic production mix aimed at balancing their product offerings, optimizing costs, and maximizing overall savings.

Future Guidance and Margin Expectations

Looking ahead, management indicated that while margins for keys segments like urea may remain under pressure due to high energy costs, projected increases in capacity—from a current 800 tons to an expected 1,123 tons daily—will likely yield further profitability. For instance, anticipated energy efficiency improvements are expected to reduce costs per metric ton from around 6.5 to below 6, enhancing margins substantially once implemented.

Sector-Specific Insights and Strategic Decisions

In specific segments, such as the fertilizer line, average margins currently stand between INR 2,000 to 2,500 per metric ton, though under recovery in various areas is also affecting profitability. The shifts in market dynamics, especially concerning DAP subsidies and demand, necessitate careful monitoring by management to capitalize on potential price adjustments expected this year. The fertilizer business's profitability will largely depend on effective product mix management and operational efficiencies.

The Industrial Chemicals Segment

The industrial chemicals segment faced slower momentum, particularly with the Capro-Benzene spread declining significantly YoY, affecting overall profitability in this sector. Deflationary pressures from competitive imports, especially from China, resulted in decreased margins. Management is taking proactive steps to streamline this segment, focusing on innovative production strategies to improve cost structures and overall profitability.

Capital Expenditure and Future Projects

GSFC has committed to capital projects with projected expenditures of around INR 100 crores, aimed at enhancing production capacities and operational efficiencies. The management's plans emphasize investments that will assist in mitigating raw material dependency through increased local production capabilities, which are expected to come to fruition over the next few years.

Conclusion: Optimism Amidst Challenges

Overall, as GSFC navigates a complex landscape of regulatory changes and market dynamics, the company's current performance indicates a resilient and adaptive operational approach. Looking ahead, effective management of internal challenges like raw material costs and increased production capacity will be crucial in maintaining growth momentum. Investor focus in the upcoming quarters should remain on margin improvements and strategic decisions related to capital allocation and resource management.

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Gujarat State Fertilizers & Chemicals Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anurag Halakhandi from Anurag Services. Thank you, and over to you, sir.

[Anurag Halakhandi]

Good afternoon, everyone, and welcome to the first quarter earnings conference call for Gujarat State Fertilizers & Chemicals Limited. The call is hosted by Anurag Services LLP. Present from the management team are Mr. S.K. Bajpai, Senior Vice President, Finance and CFO; and Mr. S.V. Varma, Executive Director, Executive Agribusiness and HR, along with other senior dignitaries. We appreciate the management for getting us the opportunity to host this call.

Let's begin with the management's opening remarks followed by a question-and-answer session. Thank you, and over to you, sir.

[Unknown Executive]

Okay. So good afternoon to all, and welcome to the earnings conference call of GSFC for quarter 1 2024-'25. I hope that you have reviewed our results and the results presentations are uploaded on our website and the stock exchanges.

As you know, the company experienced a significant rebound -- subdued results for previous quarter, hosting increase in PBT from INR 23 crores to INR 118 crores and taking -- from INR 21 crore to INR 93 crore in the first quarter. This increased activity to a lowest -- volume of 4.4 lakh -- 46 lakh metric tons in current quarter and the optimization of product -- cost economics of raw material prices and subsidiary rates.

During the quarter, we passed -- from DEP to EPS and NTT production at about [ 65 ]. In current quarter, we have achieved the second highest sales in last 15 years, first quarter, that is INR 2,144 crore. Our margins increased by 7% in value terms on y-o-y basis and for -- sales volume business, growth of 20%, though the margins were under pressure. We anticipate that this standard -- in future outcome.

The -- addition of -- contribution has been facilitated by -- and form that is being experienced this year. Improved seasonal prospects are expected to maintain the robust demand for -- during forthcoming quarters.

You may be aware that the government reduced the -- so for -- approximately 13% in the current year budget against the previous fiscal. Our government has been very prompt in leading the subsidy for -- as well as urea, we have received -- to the [ 1st of July ]. If there is reflected in our cash flow, as you know that we are -- company with a strong balance sheet and liquidity.

Subsidiary for -- are significantly reduced during October 2023. It then has persisted for DAP and -- while EPS and -- experienced a modest increase. Contrary to this, the prices of basic materials have not reduced in the same proposal. While ammonia prices have decreased -- prices remain up at [ 850 ]-- for all bring prices have actually increased on Y-O-Y and quarter-over-quarter basis.

The company plans to follow production with mix DAP and DAP products -- to optimize first and maximize savings. Although capital -- was subjected to -- quarter 1 current financial year, investor product -- consistent.

In -- segment, domestic prices remained subdued due to dumping of key Chinese caprolactam, melamine and basic nylon kit.

Capro-Benzene spread on y-o-y basis reduced from [ $720 ] per metric ton to $782 per metric ton. Nevertheless, we anticipate that overall industrial products come over is likely to go as compared to the current quarter.

Project details are also uploaded on our website. All projects are progressing well and -- success -- delay, asset -- and user -- projects. However, we will be committing this asset still considered it and new year inventory project up to the end of this financial year. Full year impact on turnover margins will be seen in the next financial year.

So with these opening remarks, we can now start the question-and-answer session, please.

[Operator]

[Operator Instructions] The first question is from the line of Nirav from Anvil Research.

[Nirav Jimudia, analyst]

I have a few questions. So first is, in the last interaction in the last con call, you have mentioned that for the ammonium sulphate -- we have to offer some discounts. And therefore because of the -- season. And on the top of it, from -- government has also increased the subsidies. So if can help us explain whether those discounts of INR 2,000 per ton, which we offered last quarter was withdrawn and there was a normalized pricing and over and above that, that INR 15 increase in the subsidy would have helped us in terms of the improved performance?

And along with it if you can also have a question that was the improved performance because of some benefits coming to us in terms of the raw materials in -- for converting to ammonia?

[Unknown Executive]

Yes. So as far as the ammonia sulphate is concerned, the increasing subsidies -- is very minimal. I mean this is on the -- I think there is no increase in -- in the NPK and APS -- increasing subsidy in the space. So there is no increase in the ammonia sulphate.

And as you know, the DAP and other NPK -- fertilizer is not having that -- margin and contribution. So most of the -- are for the ammonia sulphate. Only in India, we have 42 producers here -- but they are certainly import the advisers companies are meeting and they are selling it in the open market.

So as far this one is concerned, our marketing has been focused -- see the market of ammonia from last what we indicated a discount of INR 2,000 per metric ton has been softer because we have one further change in -- also of the product based on the cost of production. So comps have got reduced to certain extent based on that demand. However, again, this first quarter is the lean season. It may -- end of June or July for pushing of the sales to placement, we have to offer discounts as -- booking with us of ammonia sulphate -- slight increase in service of APS but reduction subset DAP.

So market has diverted towards NPK fertilizers like APS -- And this time -- part of the CSO -- was the highest because at -- we could produce APS NPK capacity levels due to reliability of raw material, economics and demand also in the market. But in case of DAP, it was a lesser capacity because of economic different -- raw material, which importer oxalic acid for DAP. So it is a constant many times because we are 100% funded on the import.

[Nirav Jimudia, analyst]

Correct. Correct. So is that like if we consider in terms of the ammonia, what we produce to the nature the imported ammonia where the government uses that benchmark for the subsidy calculation, has our cost of production of ammonia fallen this quarter? Or if you can get us explain what was our average cost of natural gas for Q1? And what was it for Q4?

[Unknown Executive]

See, just one thing for Mr. -- in case of -- we have NPS rate 20 for -- So part ammonia 1 year, a really impact on the NPK fertilizers may like TAP, APS and other fertilizers.

In case of Sika, we are importing ammonia. So this question doesn't come. It comes only in case of capacity of NPK production compared to Sika.

So as you see, the natural gas prices are increased 6% on y-o-y basis. And in case of urea, the whole natural gas prices are passed through. So there is hardly any impact on the margins of the company. Very little ongoing goes to the -- of melamine through urea and in the caprolactam. So that much increase of that, but the impact of the increase in -- is not seen in total profitability.

[Nirav Jimudia, analyst]

Is it possible to give the exact amount of our natural gas cost per MMBtu this quarter?

[Unknown Executive]

I think it is INR 45 per MMBtu in the current quarter.

[Nirav Jimudia, analyst]

Okay, okay. Sir, if we see our entire basket of [ 40 ] let's say, sulfate and on sort phosphate DAP, NPK and the urea, what the broad range of per ton margins we should work with, let's say, for ammonium sulfate and ammonia sulfate phosphate as a basket NPK and DAP put their end, let's say, for the urea? Let's say if we segregate between the three divisions or three subsegments, what sort of portend margins we should work with? Or what the current level of margins what we are earning from this subsegments?

[Unknown Executive]

We're talking about the average margins. It is nearly INR 2,000 to INR 2,500 per metric ton. However, as to the -- that is margin -- contribution is in -- margin, we are running INR 2,000 to INR 2,500 per metric.

[Nirav Jimudia, analyst]

Okay. So similar for the case for urea also there because of the under recovery of fixed cost, the margins are lesser. .

[Unknown Executive]

Yes, in the urea, the margins are lesser because of the high energy consumption by the GSFC and there is some penalty also attest to it. So -- margins are lesser than this.

[Nirav Jimudia, analyst]

Got it. Got it. And sir, when we will ramp up our -- production along with the sulfuric acid plant where our dependency on imports would start reducing. Would be safe to assume that 3, 4 years when the margins are good, we used to produce around 7 lakh tons of DAP and NPK put together. So once this plant is -- plant will be commissioned on, the margins which are currently, let's say, 0 to negative for DAP, would start giving us the positive margins and along with it, we will also see the volumes of DAP and NPK also things that you take on the same? .

[Unknown Executive]

We do see -- we have two manufacturing factory, one at Baroda and one at -- In case of Baroda, we have our own -- plant -- one for -- which is running at capacity, and we are able to produce required for -- plants. In case of Sika, we are still dependent on imports. We are working on the project, but it's not imitating. It will be a short-term basis, 2 to 3 years' time.

[Nirav Jimudia, analyst]

Okay. So that plant, which you have read in the investor presentation also, in terms of our -- capacity of 1 lakh, 98,000 tons in sulfuric acid -- 5 lakh, 94,000 tons. It would take 2 to 3 years to get commissioned. Is it where I should interpret it, sir?

[Unknown Executive]

Yes, yes, yes.

[Operator]

[Operator Instructions] The next question is from the line of Saket Kapoor from Kapoor & Co.

[Saket Kapoor, analyst]

Thank you for a very detailed opening remark also that answers many of the questions. Sir, when we read about this outlook part in your investor presentation, you have meant about market anticipation of increase in NBA subsidy. And thereby, we are accumulating sufficient inventory of DB for the forthcoming Rabi season. So if you could just explain to us on how are the margins going to be affected by this strategy? And if I'm not mistaken, you mentioned that we had negative mine for selling AP for this quarter, sir?

[Unknown Executive]

Yes.

[Saket Kapoor, analyst]

So how will this work out for us? And what should be then the optimum number going ahead for DAP in terms of margin profile?

[Unknown Executive]

Actually, there are three production line will be -- One is reducing the ACL, which we cannot change. And other two lines are -- we can produce NPK, ureas or DAP. So last presently, we are producing only one line -- and other two lines -- and NPK. So we have not stopped the production of DAP because of this little negative contribution because at any time, there is -- going around that the DAP subsidy may increase a little bit.

So -- and also in the interest of the market now, we are -- we cannot stop the GP because BHP demand, and there is a lot of pressure from the government side to make DAP available to the farmers. And the -- we never see only the profit mature we produce and make available required for -- to be farmers. So we have never discussed the DAP or never stand with DAP actually. Now the -- is started, and we are clearly material on the market.

Now as soon as we -- now the well has started and the farmers will come to -- and we will start selling the products where this is available.

[Unknown Executive]

Mr. Kapoor, just to answer your specific question, how do you think about the NPS rate. If you see there on the other payroll news about increasing the -- INR 3,500 per metric for DAP. And from the government still notification is awaited.

With this increase in the NBFC, DAP will not be negative. It will be just breakeven. So whatever we have been done in the right for the farmer community and we are using efforts for producing -- NPT and DAP -- units. Yes.

[Saket Kapoor, analyst]

Sir, can you quantify the impact -- of the negative impact it has for the quarter, the DAP sale on the bottom line? And then, sir, if you could give some color on the raw material basket, how are those shaping up going ahead?

[Unknown Executive]

I think in the current quarter, we see that there is a dent in the bottom -- amounting to INR 42 crore per ton.

[Saket Kapoor, analyst]

Okay. So which will be negative for the next quarter?

[Unknown Executive]

Yes.

[Saket Kapoor, analyst]

And sir, you mentioned about some energy -- loss due to some lower energy efficiency. We have to pay some fine also for -- unit. So can you quantify that amount also?

[Unknown Executive]

No, for about it is difficult to quantify because it is only provision the 35% -- this year they will impose and we have already requested the government to reduce -- but it was earlier [ 30% ]. But let us see how the government is. And we are -- putting INR 450 crores for revamping of -- 2 plants. So this will be commissioned in this end of the financial year only.

So we are representing the government that this is the last year so we don't finalize this further. And anyway, we are putting this capital outlay of INR 450 crore for -- only. So there is no reimbursement from the government from this investment. So I think they will consider our case.

[Saket Kapoor, analyst]

After -- provision -- so we have made the provision to the P&L -- only?

[Unknown Executive]

No, no, there is no provision mix. I have not wait any provision for this penalty. So it will -- when it will come, then we'll decide. But -- system that is already in with whatever the energy consumption is there. So -- energy needs to hire cost of production. So it is passed through by the disbursement.

[Saket Kapoor, analyst]

It will be?

[Unknown Executive]

Pass through by the government, I think.

[Saket Kapoor, analyst]

So we will be receiving that all the under price -- which what we have done for the entirety will be reached to us or there will be some dent on sales of our on account of this energy norms with specification not been matched?

[Unknown Executive]

Our energy consumption, even after then taking into consideration the -- fee is lesser than that. So over -- if you look at in the context, we get from the government of -- margin also because if we say that after the penalty -- become 6.74. And if we are at 6.6, that's why also we get it. I'm just give you a hypothetical example. So we get a savings from the -- price sales. This -- so there is no impact with respect to [indiscernible].

[Saket Kapoor, analyst]

Okay. So sir, I just got confused. And if there is no reason for that affiliation, then why is it -- and why are we discussing about the fact that we were looking for bidding of NLT going ahead? Can you just explain once again, sir. I mixed it up.

[Unknown Executive]

It's not about waiving of the penalty. We are just requesting about because earlier the penalty percentage are lesser. So they have increased it. So we were just asking them to keep it at the same level what it was earlier. But once the -- there's a 2-point this year I think. The one is that even after considering the penalty government have pertained, we end up in the -- this comes up is lesser than what penalty that retail government would have -- that's the one point.

The second is which is coming of the new plant of the urea which is preventing and that will automatically reduce -- automatic interest after making this effort at to reduce our energy consumption, so that LP issues would go up. So these are the two different points which you are mixing.

[Saket Kapoor, analyst]

And sir, one suggestion. The presentation -- when Slide #5 and 6. So therein, we have given the Capro-Benzene trend also and the key input cost movement. So this is a very important data if we could provide it in a tabular manner, that would suffice much better than the graphical part because there's a color mingling and the one -- to get the numbers correctly, we have to get it on a -- form [ Tapcom ]. So if I request is the key input cost movement can be put on a developed basis on a comparative quarter-on-quarter basis.

[Unknown Executive]

Noted. Noted.

[Saket Kapoor, analyst]

And last point, sir, just to get an understanding, Mr. [ Nanavati ] is not present in the call. Any key reasons?

[Unknown Executive]

He's retired from the service of the company, and I have a time as taking over role as the CFO [indiscernible].

[Saket Kapoor, analyst]

Sir, may I ask some more questions about the investor -- segment and then join the queue?

[Unknown Executive]

Yes. Yes, please.

[Saket Kapoor, analyst]

So on performance for industrial chemicals that looks much different, and also with the Chinese import part of the slowly getting momentum. The story going ahead for us in the investor chemical leak only, sir, going ahead?

[Unknown Executive]

It is present if you see the whole -- industry internationally is sluggish and not very effective. So as you are seeing that in the past presentation also, the Capro-Benzene spread accounts down from INR 730 crores to [ INR 633 ] crores and INR 674 crores then INR 695 crores and presently, it is around INR 582 crores.

One good thing is there that in the July, it has improved a little and it has gone up to INR 638 crores, but very hardly any impact of this increase. And we are still having a contribution now. But we are seeing some new step for -- to cater the situation that we are putting on asset capital fund, as you might have seen about presentation.

Yes, it is manufactured from the -- And by this way, our old capital electron having capacity of 20,000 metric tons -- will not be noise, and we will be diverting it to -- plant. So there, the profitability and margins are quite good. So it will improve the IT segment.

The second thing what is thinking that we are importing the people -- and kind of has already been done and -- Just in the imported alone, in case of processing the higher -- cost from the benzene because benzene prices have been -- like anything, there is 30% -- 13% increase on Y-O-Y. So that to help -- presently, we are taking, and I hope that there will be some impact on the next quarter or up to half year also, remaining.

[Saket Kapoor, analyst]

And sir, what would be the CapEx we will be spending on the project, the [indiscernible]?

[Unknown Executive]

So [ NPE ] end this year, we will be -- the project from about [ INR 1,000 crores ]. Three plants are under the capitalization or in this particular financing year only. [indiscernible] plan. Then second is -- that is subject to plant of the -- at supply chain level, Third one is the urea -- and fourth one is [indiscernible] plant. So this tower solar power plant India -- it will increase efficiency or reduce the cost of the company because it is capital consumed. Our access capital project plan that will be produced at -- and it will be sold in the market. It will generate INR 100 crore -- revenue and a good amount of margin.

[Saket Kapoor, analyst]

For this project -- system project, what are the CapEx next year? And how much -- INR 1,000 crores?

[Unknown Executive]

Yes, INR 100 crores. We are spending INR 100 crores.

[Saket Kapoor, analyst]

And the turnover will be also onetime?

[Unknown Executive]

Yes, yes.

[Saket Kapoor, analyst]

And this is a downstream product for capital -- product?

[Unknown Executive]

Value-added product it is formal integration of the Capro-Benzene [indiscernible].

[Saket Kapoor, analyst]

Okay. And other than that, about the melamine part and other chemicals, industrial chemical basket, there also the same trend continues? I mean, I think the lion's share is from caprolactam revenue profile for -- If you could give us some understanding of the various products [indiscernible]?

[Unknown Executive]

[indiscernible] product over is melamine, but melamine is also not doing great. And there is a lot of set materials coming from the -- China. So we are not getting much of the margin in the melamine and we have -- lot of discount to meet the -- base price of the melamine. So the overall, IP product or the IP segment this year if you see -- we have reported for [indiscernible] in the IP segment. So there is hardly any margin available in the product. And that's why we are taking such an innovative step to cut down the cost and make the IP segment profitable.

[Saket Kapoor, analyst]

Right. And lastly, sir, for this -- part also.

[Unknown Executive]

I don't think there are two compounding lines and we are doing the production. However, the imported analysis, as I told from the China is deeper than the over position the -- and then the basic kit. So we are also importing the -- and mixing it with our kit and making the various -- in the compelling line. So that will again reduce the cost for this kit and it will provide a better margin and the contribution.

[Saket Kapoor, analyst]

Sir, although in the volume we are providing volume performance, by the site, we can also foresee the turnover also, that will give an understanding how the realizations have been for the quarter and the comparative number?

[Unknown Executive]

We have provided collective sales and sales value and the quantum of sales also. If you see our Slide #4, you will see production and drop sales. So this is the digital quantum of the product, the quantum of the quantity produce and sales. And in total, we are getting the drop here.

[Saket Kapoor, analyst]

Right, sir. But I'm looking at the realization part also, sir. You are providing volume metric part. But on the realization front, if you look at the capital at term sales of -- closer to INR 14,000 crore, how much has been our realization and the comparative number, that would give us an indication of what are the current realization.

[Unknown Executive]

This is some price on a get the management is thinking that, that would not be fair because it is required then it will go to the computers also. So that's why we are not giving the -- pricing.

[Saket Kapoor, analyst]

Sir, last point is taking into account how we have fared for the first quarter and the factor of the variables that you are -- working with, what should be -- model in for the remaining part of the business? Because I think it's a very volatile environment for IP, but the corrective measures, which you are already taking into place and the one-off item, which will not be there. So taking that into account, what kind of margin profile can we do for the Fertilizer business? And I think the IP would be a difficult one.

[Unknown Executive]

Fertilizer business, the margins are more or less same. Until and unless there is any subsidiary division, I don't foresee any changes in the raw material prices presently. As you see the DAP prices has crossed $600. So I don't think this for -- will be a -- in [indiscernible]. So there is hardly any margin. Only these volumes will create a total margin. How much quantum of sale by the better product mix we can make in the margin, as I told in the opening remarks, that will generate the margin for the Fertilizer sector.

As far as IP segment is concerned, I've told that we are taking a step and it will show some -- it should show some positive results in the next quarter or next, next quarter.

[Saket Kapoor, analyst]

Okay. When we interact the next time for the second quarter -- can have a better understanding, sir, how.

[Unknown Executive]

Yes, yes. Sure.

[Saket Kapoor, analyst]

But this should be a term like -- also things you've not done was compare because [indiscernible].

[Unknown Executive]

We are taking all these steps and as I told that all these things are in the very forward-looking and is -- completed. So we are importing like alone or we are stabilizing this -- we are having one plant of the is -- so we know how it operates and who are the -- our buyers. So all in all, there is a very positivity we are looking at, and we are very hopeful to get better get in the Q2 and Q3.

[Saket Kapoor, analyst]

And on the gas pricing side, I missed your comment. At what types are we securing the gasses?

[Unknown Executive]

Gas is already -- as far as India is concerned. So whatever the domestic prices are there and is allotted pass-through, so there is hardly any impact. And our -- prices are stable now INR 45 per -- So I don't foresee any much division in the [indiscernible].

[Operator]

The next question is from the line of Nirav from Anvil Research.

[Nirav Jimudia, analyst]

Sir, one thing when we will undertake the energy conservation measures for our urea plant, I think our current consumption is close to 6.5, 6.6. And once that is implemented, it will fall below [ 6 ] per metric ton. What sort of total improvement in the profitability starts accruing to our urea business, not that energy conservation measures were placed into?

[Unknown Executive]

No, actually, whatever the curtailment in the energy now [ 6 retail ]. So it will be within the targeted -- by the government of India that is the purpose for the venting of urea plant. And the development is focusing that it could be around 5.9 or something. So after 0.6 -- it will be -- we will be meeting the nonpublic since the very government one.

And second, that India this plant is very old of -- 60-year-old plant. So there is also a lot of efficiency in the system and production process. So while inventory we will be increasing the capacity of the plant from 800 to [ 1,123 ] metric ton per day. So that is the advantage we will be having additional production of around 323 metric ton. So that will be coming by way of additional margin and profit, whatever you can [indiscernible].

[Nirav Jimudia, analyst]

But, sir, based on some rough understanding with this increase in the production and currently, whatever losses we are making off because of the higher energy usage. What sort of ballpark numbers we should work with in terms of improvement in our potent margins for urea?

[Unknown Executive]

Again, we are not just calculated from -- margin. But when we approved our project, obviously, you are inventing. I remember that around INR 20-odd crores will -- in -- the urea reinventing project.

[Nirav Jimudia, analyst]

Okay. And sir, I missed on the increased capacity what you mentioned on capacity is going to increase from how much to how much? .

[Unknown Executive]

800 to [ 1,123 ].

[Nirav Jimudia, analyst]

TDD or it is 1,000 tons.

[Unknown Executive]

Yes.

[Nirav Jimudia, analyst]

Okay. Okay. Sir, second question is on you mentioned on the Capro-Benzene spread is being lower, and we are even losing money at the contribution level. At what level of spreads we could break even in terms of the Capro-Benzene level as well as for, let's say, melamine? If you can give some understanding that would be very helpful.

[Unknown Executive]

It will be difficult to project, but I think it is $700-odd figure, $725 or so for -- that will make the breakeven from the caprolactam. And we are generating the positive contribution. However, there is a margin loss. So there is no problem as far as the melamine production is concerned -- meeting the contribution, and that's why we are continuing the plants.

[Nirav Jimudia, analyst]

All right. So $725 would cover our variable cost? Or it will also cover our fixed cost?

[Unknown Executive]

No, only variable cost.

[Nirav Jimudia, analyst]

Okay. And what levels of fixed cost we should work with for the capro plant as well as for the melamine plant?

[Unknown Executive]

[indiscernible] is already fixed. So we do not calculate like this. Whatever the fix cost is there. So we are generating the losses whatever melamine is generating the profit, it is compare negative margins of the caprolactam. So that's why the IP segment is getting only INR 4 crores loss. So that is the idea we can get that whatever the fixed cost is unrated, it is break even at this level.

[Nirav Jimudia, analyst]

Correct. So let's say, put together capro, melamine, is it safe to believe that our fixed cost won't be higher than $100 a ton? Is it a safe understanding to make it? Or probably it could be some much higher than the $100?

[Unknown Executive]

It must be higher than the $100.

[Operator]

As there are no further questions from the participants, I would like to hand the conference over to the management for their closing comments.

[Unknown Executive]

Okay. So thank you for the patient listening. And I hope that we could have given you the satisfactory -- up to our best possible manner. And I -- thank you to all the participants, and we will see you in the next quarter. Thank you.

[Operator]

On behalf of Anurag Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.