Coromandel International Ltd
NSE:COROMANDEL
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1 039.5
1 806.45
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Coromandel International Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to the Coromandel International Limited Q1 FY '20 Earnings Conference Call, hosted by Elara Securities Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Pratik Tholiya from Elara Securities. Thank you, and over to you.
Yes, thanks, Steven. Good afternoon, everyone. On behalf of Elara Securities, I would like to welcome all the participants who logged into this first quarter results call of Coromandel International. From the management team, we have Mr. Sameer Geol, the Managing Director; and Ms. Jayashree Satagopan, CFO of the company. Thank you management for giving us the opportunity to host this call. I would like to request Sameer sir to first begin with his opening comments, and followed by which, Jayashree ma'am can walk us through the quarterly numbers, post which we'll have the Q&A. Thank you, and over to you.
Yes. Good afternoon everyone. Thanks, Pratik, for this. I'll first give the overview of the business environment experienced during the year followed by the company's performance and then we'll wait for the Q&A.Overall, as you know, the Kharif season started with a [ dry spell ] and consequently lower crop sowing which actually has got postponed impacting the agriculture input consumption in our key markets. However, as we speak, we are witnessing a recovery from July onwards and sowing gap has been reduced from 15% to 7% as of 19th of July. As of July 21, the all India rainfall is down by 18% on the long period average levels. This number has improved from a deficit of 32% which was witnessed by June end. In our key southern market, fresh monsoon spell is expected over the next 2 weeks, which will augur well with the agriculture input consumption. In fact, the forecast from the agencies has been that South will actually receive more than excess rainfall in the months of August and September. We have to wait and see how that spans out. On the reform front, the direct income support scheme PM-Kisan has been extended to all the farmers. In our key markets like Telangana the benefits under Rythu Bandhu scheme has also been increased to INR 10,000 acres per year from earlier INR 8,000 acres per year. Government has announced the minimum spot price for Kharif '19/'20 season. This has been a moderate increase in [ amnesty ], ranging from 2% to 9%. On the subsidy side, government has increased the allocation from INR 70,087 crores to INR 79,996 crores in the year FY '19/'20, an increase of 14%. And the nutrition rates under NBS are provisionally maintained at the same level as that of '18/'19, formal notification is awaited. Government has launched what they call DBT 2, which is the Phase II of direct benefit transfers of fertilizer subsidy. Under DBT 2, government aims to utilize the data for real-time for balanced nutrition application. Basically, 5.4 crores soil health cards have been loaded by the government, and there's a recommendation now on the type of balanced nutrition which the farmer can get when he visits a retail outlet. And for that government has linked the farmers' soil health cards with the farmers' bazaar to provide customized nutrient application recommended for the growers. This will augur well for the company which is basically into NPK fertilizer. There's also a chance that the government will explore the feasibility of direct cash transfers to the farmers' account.On the fertilizer industry performance, phosphatic fertilizer industry grew by 2% during the quarter. This is mainly in primary sales, the sales which is through the POS has been different. The major part of this increase has come from North, which is 27%, and East, which is 25%, while South had a deficit of minus 7%, West a deficit of minus 4% and Central, a deficit of minus 2%. DAP segment has grown by 9% while the NPK has contracted by 3%. Raw material prices have shown a softening trend. Phos acid prices for quarter 2 has been finalized at $655 per metric ton compared to quarter 1 prices of USD 728 per metric ton. In the last 3-4 months, industry has passed on the benefit of stable currency and softer raw material prices to the consumer and overall MRP has been brought down by 8% to 10%. So if you can see for DAP, the fertilizer MRP was INR 29,500 and this has -- per metric ton, this in May was INR 28,600 and in July it is 27 -- INR 27,000.Coming to Coromandel's nutrition segment performance. Fertilizer business has shown a reasonable performance during quarter 1. Sales were impacted during the quarter due to delayed monsoons and lower sowings in the addressable markets. The company has integrated its NPK fertilizer and the Single Super Phosphate business to generate operation efficiencies and strengthen its position in the complementary markets of north and west of India. Business has introduced a fortified fertilizer product during the quarter, which has been well received by the farming community. On the sales side, our phosphatic volumes were down by 21% to 4.7 lakh tons as there was an overall slowdown in the fertilizer offtake owing to a weak seasonal condition in South India. The sale number of 4.7 lakh tons compared to 4.4 lakh tons of manufactured products and 0.3 lakh tons of imported DAP. The share of unique grade stands at 23%, last year it was 30%. During the quarter, our phosphatic fertilizer plants operated at 70% capacity utilization, recording a production of 6.1 lakh tons. Last year it was 6.8 lakh tons with a 79% capacity utilization. The production was moderated as per the demands of the market. The plant safely completed the turnaround during the quarter. The phosphatic acid project at Vizag has been progressing as per plan and is expected to be commissioned as per the original target of October, 2019. Our Single Super Phosphate business has done well improving its sales volume by 14% to 1.2 lakh tons, mainly driven by north and central India markets. We continue to be the market leaders in Single Super Phosphate and our market share has improved to 12% in quarter 1 versus 10% last year. SSB production went up by 13% to 1.3 lakh tons.On the Crop Protection side, Crop Protection segment had a tough quarter mainly impacted by low production at the Sarigam plant. As communicated during our last call, an unfortunate fire incident occurred at Coromandel Sarigam plant in the warehouse section due to an electric short circuit. The operation at Sarigam resumed in June 2019 post the revocation from the State Pollution Control Board and production has since been normalized. We continue to focus and invest in strengthening our safety processes. As a result of curtailed operations, sales in quarter 1 dropped by 34% to INR 273 crores. The business is actively working towards new product development and is on plan to introduce technical and formulation products during the year. New plant for pymetrozine is being commissioned, and pyrazosulfuron and Mancozeb WDG facility will be functioning in the next couple of months. During the quarter, the business entered into collaboration with global suppliers for sourcing, manufacturing and technology partnerships. Focusing on future growth opportunity, the business has strengthened the organization in the area of technology transfer and business development. In the international markets, the business has reorganized itself to improve its customer-connect initiatives. The Bio business which we acquired last year has had a decent quarter improving its [ traction efficiencies ] and sourcing capability. Our retail business had a soft quarter impacted by the weak south west monsoons in its operating markets. The non-fertilizer segment has done well though, especially in the traded products like seed, veterinary and insurance. The business is carrying out field technology intervention in crop diagnostics and applications services space. The specialty nutrition business continued to adopt differentiate focus product approach and has a very good performance in quarter 1. The crop-specific, water-soluble products launched in the last few years are doing well. We plan to introduce 2 or 3 new products during the year, including few captive products. The business has collaborated well with multiple agriculture players across the value chain to improve the customer-connect composite category, making it the market leader in that segment.Overall it has been a cautious start for Coromandel in Q1. With the positive monsoon forecast in Southern Peninsula region in the coming months, the crop sowing and agricultural consumptions are likely to improve. Further reforms like DBT 2 focusing on soil health and balanced nutritional income support schemes, improved crop prices, irrigation projects in Coromandel's key markets will help the agriculture prospects. Coromandel will continue to focus on R&D and innovation, agri technology intervention, improving cost efficiency and furthering its farm-level initiatives to improve its customer value proposition. As a leading agriculture solution provider, Coromandel will continue to drive farm productivity and support farmers' prosperity.I'll now request Jayashree to talk about the financials.
Good afternoon all, and thanks for joining us in the call. Turnover for the first quarter financial year '19/'20, we recorded a consolidated turnover of INR 2,141 crores, which is a 15% reduction compared to last year. Nutrient and allied business contributed to 87% share and the remaining 13% came from Crop Protection business. Q1 last year, nutrients was 84% and CPC 16%. In terms of subsidy/non-subsidy breakup, Q1 revenue share is around 80%-20%, prior year it was 77%-23%. In terms of profitability, overall EBITDA for the quarter was INR 195 crores against INR 212 crores last year. EBITDA margin improved to 9.2% from 8.4% previous year. The margins were supported by favorable exchange rates and operational efficiencies. Due to closure of plant at Sarigam, profit share of non-subsidy business was lower. Subsidy share of profit was at 85%. On the subsidy front, total subsidy outstanding as on 30th June is INR 1,777 crores, vis-à-vis last year's outstanding of INR 2,388 crores. The subsidy value of INR 1,777 crores includes INR 700 crores of claims that have been made and pending with the Department of Fertilizers. During the quarter subsidy payouts from the government was INR 920 crores. Last year Q1, we received INR 220 crores. Subsidy payment were received delayed during the quarter due to elections. We have filed DBT claims up to June end and pursuing on submitting the old claims. As far as the foreign exchange management is concerned, you would see that the rupee remained stable and range bound between 68.39 and 70.54 during the quarter. Coromandel continued to follow the Board-approved hedging strategy and is dynamically covering its exposures and managing the portfolio. Interest cost, the net finance cost of the quarter was at INR 70 crores up from INR 56 crores last year. This increase is attributed to increased borrowings due to high inventory and reclassification of lease obligations under Accounting Standard 116.Thanks, once again, for joining us on the call, and we shall open the session for question and answers.
[Operator Instructions] The first question is from the line of Nisarg Vakharia from Lucky Investment Managers.
I had a slightly broader question not specific to this quarter. You know when I look at your company's performance from 2011 to 2019, our revenue has more or less doubled, and we had a significantly higher margin in -- at about 14% in 2011, and the quality of earnings that we report today are substantially better than what we reported, let's say, 5, 6 years ago. Were those margins a complete one-off or do you think that with the raw material pricing scenario easing, the EBITDA margins can structurally improve over the next 2, 3 years? I'm not talking about 2, 3 quarters.
Thanks, Mr. Vakharia, for your participation and the question. Yes, you are right, our revenue has increased over a period in time. And the quality of our earnings, both in terms of nutrient business as well as Crop Protection has also improved over the years. For the nutrient business, some of the key factors that have helped us improve the quality of earnings includes focusing on our unique grades. Secondly, improving our integration -- backward integration at the facilities, increasing the capacity utilization, investing on marketing, brand promotion, more importantly, the agronomists were able to work closely with the farmers and increase the awareness and the use of nutrients for the soil. And also a smart sourcing strategy tying up with our strategic partners globally to source raw material at the right prices, at the right time. So these are fundamental changes that happened over a period in time and we continue to focus on these areas.
Ma'am, it doesn't answer my question. My question was that when we reported 14% EBITDA margins in 2011, were they a one-off? Or do you think that as our business and because of the amazing initiatives that our organization has put, do you think that our margins can structurally ever go to those levels again? Or do you think they are not possible?
That was the NBS period. Okay.
There was one issue which happened in that time. We had one-offs because there was a new NBS policy which was...
Introduced.
Introduced in 2000. And because of that there was a one-time gain in that and then the prices actually went up. It was on the fertilizer side. But having said that, our objective is always to keep improving our fertilizer margins, and that is what Jayashree outlined, and also not only that, to improve our business in the other nutritional segments like water -- which are not under subsidy like water soluble fertilizers, organic and also our retail is doing well. And then is to increase what is called our non-subsidy business, particularly on Crop Protection, where the margins are a lot higher including Bio. So structurally, we are aiming to increase this business and not depend on one-offs. So structurally that's the [ sort of ship ] we are taking.
So our -- whether we can achieve or not achieve is, of course, dependent on many various external factors, but internally, our organization is...
More than external factors, it's more the internal factors which we are working towards. That's part of our long-term strategy, yes.
Okay. Okay. So over the longer term, our EBITDA margin structurally can improve from where they are, depending on a few things going in our favor. Sir, also raw material prices were exorbitantly high over the last 2, 3 years because of this entire bull run in chemicals and all that. Has that substantially reduced? Do you see a trend reversing in those raw material pricing?
So I think we can have a separate discussion, some information is not right. We -- the prices had gone up last -- in last year. Before that, they were soft. And now we find that the raw material prices are again going soft. What we can have is we can have a separate discussion.
[Operator Instructions] The next question is from the line of [ Bivi Bajaj ] from [ Bajaj Shares. ]
I have two questions. One is regarding Crop Protection revenue. As per that -- compared to Q-on-Q, the revenue loss is almost 25% because of a fire incident at Sarigam plant. But if we go to the margin, margins have fallen by almost 90%. So what is the reason? Though our revenue segment on Crop Protection is just 25% down, margins have gone by 90%, that is one question. Second one is, in that note item file, that exceptional item, I just recollect, so the damages to the customer is around INR 20 crores and we are claiming the insurance of that. But my question is, is it the supply problem to the customer or the application of our product to the customer? And if it is so, then what are the steps we are taking for the deficiency of our product? Please.
Well, as you would have heard from us, the main impact for the CPC business has been on 2 counts, 1 is in terms of the Sarigam operations, which was shut down for most part of the quarter and only in the last couple of weeks of June, we commenced operations. Certain products like Mancozeb, Propineb, [ asyphate ] Mono, that are being produced out of this plant. And we were not able to capture the sale because the production did not happen. Secondly, overall for Mancozeb, globally also, we have seen some pressures in terms of pricing. So when one of our plant has now been fully operational, the fixed cost relating to running the plant was being incurred plus we had also invested additionally in terms of certain infrastructure improvements during this period. The plants at Ankleshwar and Dahej had also gone for their annual turnaround. So the fixed cost for CPC during Q1 had been relatively higher compared to last year. That explains some of the reduction in terms of the margin percentage.In terms of the exceptional item that we have reported, which is relating to INR 20 crores, this is relating to a product liability claim which we had incurred last year. We have taken this matter up with the insurance company, and they have admitted the claim. We are looking for the on account payment and final settlement. Given that it is relating to our product liability, it might take a couple of quarters to get it settled. At the same time, we have also taken enough caution both internally at our facility and also at our job workers to ensure that the quality of the product that comes out is properly tested before it is shipped out to our customers. So those measures have been put in place as soon as we got this claim, which was around November of 2018 -- November of 2017.
The next question is from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund.
My question first one is on the outlook specifically on the global market, especially on the heels of BASF and the other companies, which have kind of guided for a muted year going forward. I mean, what I'm trying to understand is leaving this quarter behind, going forward, number one is, on the demand side, do we see any risk? And number two is, do we see any further risk in terms of prices on Mancozeb and other products?
Thanks, Sudarshan, for the question. For Mancozeb, as far as we understand, we do not foresee a big risk in terms of the demand. In fact, our WDG facility will be up and running at Dahej in the next couple of months. For some of the markets where we cater to, the requirement is more in terms of WDG foundations so that will actually help us to address some of the latent demand which till date Coromandel was not able to cater to. The pricing side, of course, we are seeing price pressures continuously in the market, which was also witnessed in Q1. So that, again, depends upon how the raw material prices are, and how well we are able to procure and convert those for a final production. This is as far as Mancozeb is concerned. On the other hand, we are also seeing demand for some of our other products, which has gone up and we are also looking into selective B2C in some of the countries, which will help us to, sort of, augment the margin in the coming quarters.
Bio business continues to do well, and there's a huge demand for those products and like Jayashree said, some of our products are in markets -- primarily in what is called the emerging markets where we find the demand to continue and to grow.
And to address these raw material issues, do you think that we would evaluate at some point of time doing more backward integration program like we did it on the fertilizers side on the phos acid side? Do you think that there should be a fairly big overhaul on the backward integration on the CPC as well?
So we are having strategic tie-ups now with the manufacturer -- some of the raw material suppliers and you'll see more of it coming.
Just to add to what Sameer mentioned, we have got into some type of collaboration agreements with some of the Chinese manufacturers, who are also supporting us not only in terms of sourcing, but also to a certain extent, technology transfers and we are looking at limited backward integration. Today, China has the scale and capacity, and they also have some of the manufacturing finesse for the active intermediates. So from a strategic standpoint, Coromandel has taken a call that we will work closely with some of those Chinese manufacturers who will support us not only on the sourcing front but also on the technology front. And that has been explored with couple of Chinese players successfully.
And one final question from my side is on the phos acid, I mean, is the progress in terms of starting of the facility on track? And second is also some color on what is your outlook on phos acid prices, which has basically been coming down in the last 1 or 2 quarters or so?
Yes. So there are two things here. Firstly, like I mentioned in my call, currently we are on plan, on target to start commissioning the project, which is -- the commissioning date is October. So we are on track on that, which will help our Vizag unit becomes self-sufficient. And obviously, there's a greater conversion, which happens when you convert rock into acid and we are seeing that more and more happening with the type of and availability of the rock as compared to acid. As far as the phos acid prices are concerned, currently there is excess of supply than demand. A lot depends on how the international market shapes up, particularly with Brazil and with China shaping up, but currently there is an excess of -- we do find softening happening. We'll have to wait and watch this. The good news is also that some of our joint ventures like TIFERT, and we have put our own people there to do the operation [ on par ] with GSFC has started giving us good output, and that has been one increasing trend.
The next question is from the line of [ H.R. Gala ] from [ Finvest Advisers. ]
Just on the quantitative side, can we just revisit those numbers? We said that 0.3 is DAP imported, last year it was 0.4, if I'm not mistaken. And complexes is 4.4 versus 5.61. Just getting these numbers proper.
So DAP complex last year was 4.2 and this year, it's 3.5.
No. Just now I think you said 0.3 and 4.4 manufactured.
That is the imported DAP.
Yes. DAP imported is 0.3 and manufactured is 4.4, so total is 4.7.
That is right.
That's right.
Correct? Yes. And Q1 FY '19, it was 0.4 plus 5.6, am I right? This is what was stated in the Q1 con call.
Correct. This information is also uploaded in our website. Your numbers are right.
Okay. Okay. As compared to the last year numbers also?
Correct.
Okay. Okay. Now my second question is what are the main near terms concerns that we have, like now this phos acid price is coming down and we say that we are passing on these benefits to the farmers. So have we -- are we taking any inventory loss also, because we must be having the high-price phos acid?
So you -- as you'll see every time when a quarter change, when the prices either go up or down, there will be some amount of inventory impact. Having said that, it is not only the phos acid prices, you would have seen in the last quarter the prices for ammonia, sulfuric acid, most of the raw materials have come down. We are going to take benefit of some of the falling raw material prices in other RM apart from phos acid also. So as a combination, our raw material cost continued to be at a level that we can optimize and pass on the benefits to the farmers.
Okay. Now just last question, the Sarigam plant which was closed for most part of the year -- I mean most part of the quarter, how much sales have we lost?
This is close to about INR 70 crores, INR 80 crores.
Okay. And do we have any loss of profit claim on that kind of thing when this accident happen?
Yes, we do have a policy for loss of claim. We have lost claims for the fire accident, we confirmed it only after the production starts resuming. So we are working with the insurance company for the loss of profits as well.
Okay, so how much claim have we made for fire accident?
We made close to about INR 20 crores.
INR 20 crores. And you said there will be a loss of profit also?
Yes.
The next question is from the line of Ankur Periwal from Axis Capital.
One question, the first one on the medium to longer term. You did mention the DBT 2 wherein the soil health cards will be linked to the farmers. By when, and secondly on the irrigation project, which is ongoing in Andarah as well as Sarigam. By when do you see the benefit of these both initiatives flowing down in terms of actual demand supply?
So the DPT 2.0, the Aadhaar card and basically the soil health card, and this is only for only 5.4 crores farmers, that's quite a strong number, has already started getting linked. And there is a recommendation for NPK -- fertilizer in terms of that or the fertilizer which is there. Now what we are encouraging to do, at least in our retail outlets, is to encourage the farmers firstly to -- those who have not done, to upload their soil health cards, and so that they can get a recommendation. The thing would be definitely we do see a shift happening in terms of what is called concept selling and telling them and educating the farmers more. So we will see this shift happening over a period of time. But this is something which we had already indicated and told that NPK and balanced nutrition will be useful. And that is something which the farmers will themselves see. We have demo plots in our retail outlets where we show the farmers the use of balanced nutrition. So we do see that benefit to start happening. Coming now to the irrigation projects. Firstly, the 1 in Telangana has already got inaugurated. The plant is ready at least in the first phase. The question is with the monsoons and the Godavari getting filled up with the monsoon. Then the benefit will start flowing in, in Telangana. And same thing will apply with the AP project, with the Polavaram project. There the main canal is ready, which is basically taking to Krishna [ barrage ]. What they have to do is to start what is called the secondary irrigation system into [ Ransima ]. On both accounts, we are hopeful that the government will -- and with the monsoons coming in and the government will go full steam in terms of ensuring availability of water, which basically would make things much more predictable as far as the farming community is concerned, because of assurance of water and they have become less monsoon dependent. And it will also entail a change of cropping pattern. We're planning away from what is called [ old cedars ] or even pulses towards more agricultural input products like paddy and maize and all. So again, we expect that to happen in the near future.
If I may just add on to you Sameer, on the DBT 2.O, apart from linking to the soil health cards, the government is also contemplating to see how they can transfer the subsidy directly into the farmers' account. It will take a while though. Positive thinkers, we have seen those discussions happening, it's also getting reported in the press. While a certain amount of input is available with the government, possibly in the next 2, 3 years, if not earlier, we should see the shift happening in terms of subsidy directly getting credited to farmers' account, like today it's happening for LPG or other similar schemes. That will really be good for the fertilizer industry overall.
Sure. That's helpful. Just one bit, now because of this delay in monsoons, do you expect impact on the fertilizer volume sales, especially as now inventory would have built up across the competition as well and plus the raw material prices are going on? So either your comments on either the fertilizer volume sales overall or the possible impact on our margins?
See, the first thing to see is what's the cropping pattern going to be. And already we are seeing that the sowing has improved. So if the rainfall comes and in South it's an extended period because the main [ crop ] sowing season happens in July, August. So basically we are hoping that with the rains coming up, the [ crop ] sowing pattern will not show a dramatic decrease in term monsoon is what is going to be predicted. The only thing it means is that the consumption will be very rapid, and because of that we need to just ensure that the supply chain is properly fed. And the decrease in prices will also help. Primarily what we have seen is moving away from high-cost products like DAP into what is called a more balanced nutrition or the low key nutrition. So that is something which has happened.
Okay, but you don't expect any significant impact on the margins overall because of maybe oversupply across the competition?
One good thing which is there is because of the softening of prices, we are in fact maintaining our, if not exceeding our margin despite the volume changes.
The next question is from the line of Sumant Kumar from Motilal Oswal Securities Limited.
My question is regarding the fertilizer segment margin. So with the decline in unit grade sales volume and percentage, how the company has shown a margin expansion in the fertilizer segment? Any other reason for that?
See there are certain products, Sumant, which may not be in the unique product category, but they are still pretty good in terms of their contribution margins. So it's the mix of products that actually helps in augmenting. Apart from that, we also had some benefits coming in, in terms of the forex gains, with the rupee being fairly stable during the quarter.
Okay. So that -- can you disclose the number of forex gain, because we have seen a significant improvement in EBITDA per ton? When we calculate, say 85% of EBITDA from subsidy business, the significant improvement in EBITDA per ton in the fertilizer business.
There are key 3 factors that have actually helped us during this quarter in terms of contribution. One as I mentioned is forex, which could be about INR 30-odd crores. We also had a benefit of lower raw material prices. The third one as you know, our phos acid plant where we have the capability to use different mix of rocks and these rock prices vary. So a combination of low-grade versus high-grade rock had also given us a higher value gap in terms of the phos acid that has been produced at Dahej. So combination of all of these during the quarter has actually helped us with a better margin.
So when you talk about lower raw material prices, apart from rock phosphate what other raw material prices, you have benefited because of ammonia, we can say that?
Yes ammonia has been lower, sulfuric acid has been lower, sulfur prices have come down. So I think overall when you look at it, the raw material prices have come down so that has helped us.
So can we -- can you discuss about how the inventory placement like in this quarter of the older, old inventory and new inventory, the mix?
I'm not able to get your question.
So you have sold around 6 lakhs 80,000 what you are showing in the numbers. So can you disclose out of that how much or maybe NPK and DAP, how much is old inventory? How much is new inventory? Where you're getting benefit of ammonia and phos acid?
Okay. In order to get to the numbers you can call off-line, we can talk about it.
And apart from the fixed cost in the crop protection, what are the key reason for lower margin?
One as mentioned is the sales expense has been lower because of Sarigam shutdown.
That is the fixed cost you were talking about -- the other.
[ On the way so ] the contribution is not there, no? The fixed cost is there, the contribution still will not be there if you're not able to sell.
Any other OpEx is there you have capitalized in the expenses?
So we don't have any other OpEx. Our repairs and maintenance, as I also mentioned, we are applying the annual turnaround with both Ankleshwar and Dahej. We normally do it at the beginning of the year. Since it is planned out earlier, we didn't want to stop it. So that's part of our normal operating expenditure. And there are some pricing pressures on Ankleshwar to a limited extent. So if you look at it broadly, it's mainly Sarigam. And then that's not a contribution. Then you have the fixed cost in terms of repairs and maintenance that are going on at Sarigam. Thirdly, a little bit of pricing pressure on Mancozeb.
Mancozeb, so what would be the repair and maintenance? Is it significant or very minimal?
I don't have the number. It is not too big a number here.
The next question is from the line of Girish Raj from Quest Investment.
Good show on the subsidy EBITDA. So my question was on CPC business, our FY '20 growth expectation on CPC business was double-digit. Given the weak performance in 1Q, are we revising the growth expectation on EBITDA margin outlook?
See in terms of growth expectation, we might see a bit of a moderation happening. While we do have strong orders with us, Sarigam has just started operations so it might be lower than what we had earlier estimated. Margins could be around 14% to 15% overall. That's what we are looking at.
The main thing we are looking at CPC is introduction of new products, which we hope to introduce. Even our products which we introduced last year are doing pretty well. So we are changing the outlook on how we do our business on crop protection.
So Sameer sir, you also alluded to some business reorganization in the international market. How will this help to achieve our medium to long term? You have presented good potential from CPC point of view. So how will the reorganization -- can you relate these 2 just for our...
So there are a couple of things which are there. One is like we acquired our bio business last year and that's doing very well. And it gives us access to developed markets, which because we already have our distribution and agents to U.S. and Canada and Europe. So that's a good thing. On that end anyway bio synergies will happen with our other emerging market business. The second thing which we are looking at is we want to have international markets will continue to grow. We are looking at like we have been doing this forming subsidies and looking at JVs in terms of some of the big potential markets. We'll have what is called a B2C team. Currently our business is mainly geared up to B2B. There we'll have a B2C teams and we're looking at potential partners in that and therefore we have split up the business into 2 verticals to continue to look at B2B and then to explore the all B2C. And we'll be putting our people in the market, which is our own manpower, own the registration and therefore, we'll have a much more stronger reach for the brand and the customers.
All right. So we have already started this or it's...
We have already -- we have announced the org structure. We have started the process of looking at potential customers.
Great. And on the exchange difference, madam, this INR 30 crores, this is actually income in terms of MTM or it is not there and the corresponding quarter last year there was a expense of INR 30 crores, how to understand this?
It's a combination of both, Girish. Last year, beginning of the year we started seeing rupee depreciating, right? Now rupee is appreciating. So the forward premium cost in absolute terms has also come down. And then there is a little bit of impact due to mark-to-market. So it's both.
The break up, can you provide? Or I'll take it later, whatever.
You could take it later.
And inventory levels of our manufactured fertilizer?
You want the quantitative, quarter-over-quarter?
Overall in quarter 1, we moderated our...
Production.
Our production to be in line with the line in sales. One of the things which we are now monitoring very closely is instead of looking at our primary sales we're actually monitoring what the offtake is going to be which comes out from the POS machines. And that is something which we are looking at much more because that's a much more better measure of consumption in terms of that.
And what is the impact?
And there we are in line with the industry.
In line with the industry would mean we...
Also there was a decline in our addressable market in the industry and we have been at the same level, so we moderated that.
The next question is from the line of Abhijit Akella from India Infoline.
Sorry if I've missed this point if you've already clarified this on the call, but I just wanted to check, have we sort of officially announced a reduction in fertilizer prices on the back of IFFCO's announcement a couple of days ago?
Yes, so new fertilizer prices have been announced. So DAP is INR 27,000.
Right, okay. So typically in the range of 8% to 10% cuts across all the products?
Yes. From the earlier prices, it would be about 8% to 10% lower.
Right. And would this be applicable on the existing inventory in the channel as well, ma'am?
To some extent, we have already provided for the discounts because we knew that the raw material prices have been coming down. And there is going to be MRP revision that will happen in this quarter. So that has been factored in already, Abhijit.
Understood. And in terms of the overall inventory situation in the channel for the industry overall, if you could just comment on how it stands right now? What the number is right now compared to what it was last year at this same time?
So the channel inventory continues to be higher this year, primarily because of the delayed monsoon. And there are certain markets where we see that the channel inventory is on a slightly higher end. If you look at Maharashtra, we've seen higher channel inventory across the industry, I'm not talking Coromandel in particular. Similarly if you look at West Bengal, there Rabi, there was a big drop. We are seeing that there was a higher level of channel inventory. There are others being drained, the channel inventory has gone down especially in the northern and the western -- northern and the eastern markets. Orissa is slower, but some markets, this continues to be a challenge still.
Any numbers you could put to it, ma'am? Might be all India industry level?
I'll come back to you on that. I think it is roughly about INR 5 million to INR 6 million. Exact numbers I'm not having it with me right away. But we can get you the details.
But year-on-year it could be up by a significant...
No, year-on-year it will definitely be higher.
There has been a good consumption in the northern markets now. So that's something which is happening.
And just to clarify, the price increase we announced is effective what date, ma'am?
Price increase, decrease?
Decrease.
So sorry my mistake, decrease.
Yes. That's effective I think today.
And one last thing was the just the subsidy backlog at the end of FY '19 for the industry overall, would it have been in the same range of INR 30,000-crores odd? And how do you expect that to end this year, given the increase in allocation?
The subsidy backlog we estimate it at about INR 39,000-odd crores end of fiscal year '18/'19. The government has to take a onetime allocation of this additional requirement for it to completely clear the backlog. They have taken about INR 10,000 crores more. Most of it is also going in for urea, not necessarily for NPK. Having said that, during the last 2 months towards the end of May and June, we've seen a higher subsidy payments from the government. This month also we are expecting close to INR 500 crores to be dispersed to us. So it will be a challenge, Abhijit. Until they get a onetime budget allocation to clear the backlog, they may get to getting dried up towards the end of the year.
But what will happen is they will give us a special banking arrangement. So the main thing for us is to ensure that we submit all the claims and then it will be linked to what is consumption has happened on the point of sales machine. So therefore, your production and your sales should be matched so that you can actually maximize your subsidies. And that's what we are looking at doing. So if companies have products which is lying in the trade channel at the dealer's end or the retailer ends, will actually suffer loss because now once this whole backlog of 10% and we've seen that come down. And also on the freight comes down, and the government gives all these claims, then it's only a question of what gets consumed at the retail end by the farmers. And we do expect because it is their scheme, we do expect special banking arrangement to come for companies which have actually got the phos and claims done.
The next question is from the line of Vishnu Kumar from Spark Capital.
The first question is on the crop protection sale. We've reported INR 270-odd crores. Ma'am mentioned that INR 70 crores or INR 80 crores will impact from Sarigam not operating during this quarter. We still see at about adjusting for this even, there's a 20% decline in crop protection. Is Mancozeb price reduction explained by this 20% or is there something else also? Because we were at INR 420 crores now INR 270 crores.
Yes, Vishnu. See, INR 70 crores to INR 80 crores is on account of Sarigam operations. We also had some of our local formulation sales getting impacted.
So it also due to ...
There has been some impact on account of Mancozeb prices.
And secondly, you mentioned that Mancozeb -- I mean the production of some of these products that have been started right now. Is there a possibility of, because the production is starting delayed for second half placement, will it become a challenge or we'll still be running full-time and get the second half sale should be okay?
We don't see an issue in terms of the sales, because for Mancozeb we have production capacity both at Sarigam as well as at Dahej. Dahej we have invested to increase the capacity per day from 40 to 70 DBT. That will get operational very soon. So that will sort of help in terms of balancing the Mancozeb capacity. Secondly, the Sarigam plant has already started production of acephate. Mono is primarily the first quarter sale. So to some extent mono cannot be caught up during the rest of the quarter. But rest of the products are in line. Similarly, if you look at the new products that we spoke about last time, be it pymetrozine, cipro or pyrozone. All the plants are getting ready. Pymetrozine plant is already ready. We're waiting for CIB approval so that we can get started with the production and the formulation. So the new plant is also up and running. So that's on the positive front.
Okay, got the point. And you mentioned some of the -- you're also looking at partnership with some Chinese for processors and when do we see any investments or any first seeds being laid for this year, next year? And what kind of CapEx are we looking towards this?
So already one is functional. The pymetrozine project is in collaboration with one of our Chinese strategic partners. So that plant is up and running now. Similarly for the other new products that we're planning, we spoke about couple of them but there is a good pipeline that our business has identified. So we are in discussions for some of those new products as well. And it will come up probably in the next 6 months to a year.
How much CapEx are we looking from this business side in the next, say, F '20 and '21?
This year we're talking close to about INR 80 crores to INR 100 crores. Next year it could be a similar INR 50 crores to INR 80 crores.
This is for overall or only for this business?
This is only for crop protection.
Crop protection. And if you could just give the overall CapEx also, ma'am?
The overall CapEx this year we estimate it close to about INR 450 crores to INR 500 crores. The main one is the phos acid plant which will get commissioned in October. And then we had about close to 100-odd crores for the crop protection. Then the balance is about the normal CapEx that we incur year-on-year.
And for FY '21?
FY '21 could be about INR 300 crores to INR 400 crores. We'll have to just look at it. The business has given their inputs, but normally we do the allocation by the first -- by the last quarter of the year when the budgets are getting trued up.
Okay. Got it, ma'am. And just coming back to the earlier participant's question on the inventory and the price reduction. Firstly, the price reduction that you have taken now, is it across all the NPK grades including our specialty grades also by anywhere about 8% to 10%? Or what would be the blended reduction?
We have taken price reduction across all grades because the raw material prices have come down and that would significantly impact the cost of production favorably. So to that extent it is only appropriate to pass this on to the customers. So that has been [ partied down ].
No, I want the percentage. How much would have done it? Or across-the-board it would be 8% to 10% range?
It would be that range, yes, 8% to 10% range.
Okay, got it. But based on some of the fertilizer...
Premium set might [ hard ]. The current premium that we may be having in terms of our finished products will continue as we even reduce the prices. So we maintain that premium between the products, but overall you should look into a 8 to 10 percentage in terms of price reduction.
Okay, got it ma'am. If we look at the fertilizer, the MFS data looks like about 0.5 million tons of NPK grades there. So the 8% impact seems to be a triple digit number if we were to look at it. So the price reduction from the closing June end stock to now. So how should we see the impact of on our financials in the second quarter -- in the ensuing quarter?
Prior to the price reduction, there was a high level of discounting that was anyway going on. While the MRP had not come down, there were discounts that were being passed on to the dealers to liquidate the inventory. As the prices come down, the discounts will get moderated. So one has to look into it from this context.
Should we also expect a lot of credit notes being passed in 2Q if -- for some of the sales that has already done in 1Q, the stock with regard to the distributors now that we have taken the price reduction, we will have to pass on some of those as well?
So some of these have been provided in the first quarter itself. Normally in Coromandel, we have this principle of assessing what could be the impact in the coming quarters, and we apply a conservative principle.
And how much would that impact be?
It will be close to about INR 40 crores to INR 45 crores here.
Got it. And finally, the other income number that you mentioned, it is adjusted against other expenses or is it part of other income, ma'am? The FX gain which I mentioned of INR 30 crores, it is adjusted against other expenses or is it part of other income?
It is always against other expenses.
The next question is from the line of Resham Jain from DSP Mutual Fund.
Just I had 2 questions. So one is on the Crop Protection business. If you can quantify the onetime kind of impact which must have happened this quarter because of the plant shutdown? Can you just quantify that number if possible?
Yes, about INR 40 crores, INR 45 crores will be the impact.
On the EBITDA, right?
Yes.
Okay. And secondly, the MRP correction which you've mentioned. If you can just guide on the overall -- has there been any change in your full-year number, which you typically [ expel ] on the manufactured NPK? EBITDA per ton?
We think that it will about INR 3,000 to INR 3,500 per metric ton for manufactured NPK.
Given the current environment, do you feel that this is doable?
We think this is doable.
The next question is from the line of Bhavin Chheda from ENAM Holdings.
You mentioned that the crop protection margins would be around 14%, 15%. That was the EBIT margins or the EBITDA margins you're guiding for the rest of the year?
This is EBITDA margin.
EBITDA margins. So this is for the rest of the period or you're guiding it for the entire FY '20?
This is for FY '20.
Entire FY '20. The second question if I missed on the number, what is the subsidy outstanding receivable as on June 30?
INR 1,777 crores.
INR 1,700 -- sorry, 1? 770 crores?
INR 1,777 crores.
And what was the gross borrowing in cash as on June 30?
Borrowing was about INR 4,000 odd crores. I have to come back to you because I don't have the balance sheet with me. I think it was close to INR 4,000 crores.
The gross borrowing?
Yes. If you take it off-line I can give you the right number.
Okay, no problem. And since the Sarigam plant is now already operational, what kind of growth we expect in the Crop Protection business for the balance part of the year? Because you said Q1 also there was some hidden domestic formulation sales. So is this back to normal, or do you think that, because the crop protection otherwise has been growing around 14%, 15%, so knocking off Q1 impact, is that growth back on track, or it will take time?
See the rest of the quarter will grow as per our plan. To the extent that we had a hit in the first quarter might impact it for the full year, I think 8% to 12% on a year-on-year basis.
Double-digit.
It will be lower number.
And on the fertilizer -- complex fertilizer production, do you anticipate this kind of capacity utilization or you think that things have picked up in, sowing has picked up in July so this capacity utilization will improve going forward?
This is going to be a dynamic situation. Just now monsoons have started in APDG. So still the forecast is that it should pick up and southern provinces should receive adequate rainfall during August and September. As sowing picks up, we will modulate our production. And if it picks up, obviously, the production capacity will get increased.
Normally what we are doing is because we have acid, we are not looking at imports of DAP. We're looking at our own production, which obviously has a better value for the customer.
Ladies and gentlemen, due to time constraint, that was the last question. I would now like to hand the conference over to Mr. Pratik Tholiya from Elara Securities for closing comments.
I would like to thank all the participants who joined this call. I request the management to make their closing comments.
I think like we said, quarter 1 was a bit of an aberration for us, frankly led by the fact that the sowing has not been as [ putting ]. But there are very good indications on how the entire monsoons are coming up and it accompanies pipelines on new products. And the focus which we are getting including the fact that the government is -- the claims that you are getting out of subsidy and all our marketing efforts, we are quite confident that we will continue to have a good very good performance as we have done in the last 3 years.
Thank you. Ladies and gentlemen, on behalf of Elara Securities that concludes this conference it. Thank you for joining us, and you may now disconnect your lines.