Coromandel International Ltd
NSE:COROMANDEL
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Coromandel International Ltd
Earnings Call Analysis
Q1-2025 Analysis
Coromandel International Ltd
Coromandel International recently saw a transition in leadership with Mr. S. Sankarasubramanian being elevated to the role of MD and CEO. The company faced a challenging start to the season with the Indian agriculture sector initially experiencing a slow season. However, there was a significant recovery in the Southwest monsoons from July onwards, with India receiving 106% of its long period average rainfall. The improved reservoir status, particularly up by 52% in Southern regions, is expected to positively impact agricultural activities and subsequent fertilizer demand.
Coromandel International reported a consolidated total income of INR 4,783 crores for Q1 FY 2025, a decrease from INR 5,738 crores in the previous year. This decline in revenue was primarily due to lower subsidy rates. The company's EBITDA also saw a decline, recording INR 506 crores in Q1 FY 2025 compared to INR 709 crores in the previous year. The reduction in EBITDA was attributed to lower Nutrient-Based Subsidy (NBS) rates and increased raw material costs. Despite these challenges, the company improved its non-subsidy EBITDA mix to 25%, up from 16% the previous year.
The company received INR 987 crores in subsidy claims during the quarter, a significant reduction from INR 2,069 crores received in the same period last year. The outstanding subsidy as of June 30, 2024, stood at INR 1,970 crores, down from INR 2,816 crores the previous year. On the raw material front, there was some hardening in ammonia and urea prices, but the prices for sulfuric acid and potash remained relatively stable. The company has maintained good visibility on input costs and expects continued stability moving forward.
The Nutrient segment showed a stable performance with primary sales volumes for NPK and DAP remaining close to last year's level at 8.4 lakh tonnes. Notably, the share of unique product sales increased to 51%. On the Crop Protection side, there was strong domestic demand and improved global market conditions. The company introduced 10 new products, including four patented ones, during the quarter. Additionally, Coromandel expanded its retail footprint by opening 22 new stores and bolstered its bioproducts portfolio by introducing three new products.
Coromandel increased its stake in Dhaksha, a drone manufacturing company, to 58% through an investment of INR 150 crores. This investment is expected to enhance Dhaksha's R&D capabilities. Additionally, the company invested INR 24 crores in Ecozen, raising its stake to 5.54%, supporting Ecozen's delivery of strong results. The company also reported the commissioning of its nano fertilizer facility in Kakinada and expects improved traction for its nano products as the year progresses.
Looking ahead, Coromandel expects a better performance in the upcoming quarters due to strong monsoons and improved reservoir levels. The company's focus on backward integration is expected to yield cost savings and enhance competitive positioning. Additionally, Coromandel plans to expand its manufacturing capacities, particularly in phosphoric and sulfuric acids, to support future growth. The company also highlighted its commitment to increasing its EBITDA margin by focusing on non-subsidy businesses like Crop Protection and Specialty Chemicals.
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Ladies and gentlemen, good day, and welcome to the Coromandel International Limited Q1 FY '25 Earnings Conference Call hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Prashant Biyani from Elara Securities Private Limited. Thank you, and over to you, sir.
Good afternoon, everyone. Thank you for joining our Q1 FY '25 earnings con call of Coromandel International. From the management side, we have Mr. S. Sankarasubramanian, MD and CEO; Ms. Jayashree Satagopan, President Corporate and CFO; and Dr. Raghuram Devarakonda, Executive Director, CPC, Bio and Retail business. First of all, many congratulations to Mr. Sankarasubramanian on being elevated to the role of MD and CEO for the company. I would request the management to give their opening remarks on the results, post which we'll start with Q&A session. Thank you, and over to the management team.
Good afternoon, everyone, and thank you, Prashant, for organizing this call today. Let me give a brief on the business environment experienced during the quarter, following which we can go through the Q&A session.
Indian agriculture, after a slow start to the season, the Southwest monsoons have been seen a swift recovery from July onwards. As of 4th August, India has received 106% of the long period average rainfall with the exception of [ Elisha, ] Coromandel key operating markets have received above normal rains. Reservoir status, especially in Southern regions, have increased considerably, up by 52% compared to last year.
Cross-selling have also picked up. As on August 2, it is up by 3%, 90 million hectares, which is approximately 83% of the country's normal sowing area. There has been a good support with the government on the farm income side, through higher MSP announced for credit 2024 and direct income transfers teams like PM-Kisan, Rythu Bandhu, et cetera.
Industry performance, phosphatic consumption for the industry increased by 11% in the quarter. This was led by improved NPK consumption, which went up by 42%, indicating a positive shift towards balanced nutrition. Detailed volume breakup for the industry and companies available in the investor presentation placed on the company's website. With active monsoon, there has been a good fertilizer uptake and there is likelihood of channel inventory getting normalized by end of Kharif. Given these higher reservoir levels, we expect a good Rabi season as well.
DAP prices, after reaching the low, have started to move up due to the supply sales curtailment mainly from China. On the crop protection side, there has been strong domestic market demand. Global [indiscernible] market situation is also improving.
We have seen that the inventory is getting normalized. On the company's performance, the Nutrient segment, the NPK and DAP primary sales volumes for Coromandel was close to last year's level at 8.4 lakhs tonnes in quarter 1. Between the NPK and DAP sales, the company has increased the NPK exchange share to 87%. Unique product sales stand at 51%.
The share of the manufacturing sales was also including the overall mix. Company has increased the cost sales for the quarter by 32% to 4.8 lakhs tonnes. Within the company's POS market share stands at 11.7% compared to 9.7% a year ago. Plants operated close to 96% capacity, focusing on a prudent product mix. Company renewed plant is awaiting final clearance from the [ authority ] to start its intermediate production.
It has carried out the annual turnaround has received clearances from the technical suppliers like [indiscernible]. The new sulphuric acid plant commissioned at Vizag in 2023 is operating close to full capacity and has improved backward-integration capabilities in addition to generating [ capital power from the Waste Heat Recovery.]
Further the company has received all the statutory clearances for its proposed phosphoric acid and sulphuric acid plant in Kakinada and they commenced activities during the quarter and major orders have been released.
To include the operating efficiency improvement at its specific mine, at BMCC Senegal, the company is setting up a fixed processing plant, which is expected to be commissioned in the second quarter of the year.
Senegal Rock is currently being blended and used in its Vizag operations. During the quarter, the business introduced Urea Super Phosphate and Paramfos Plus, which offers balance utilization through availability of multiple nutrients.
On the Nano front, during the quarter, the nano facility in Kakinada has been commissioned. The business is giving required impetus to promote the product by strengthening the marketing structure and have been continuously engaging with the farmers to pushing the product as an alternate to conventional DAP.
On the Crop Protection side of the business, the volumes have improved by 5%, driven by growth in both technicals and formulations. During the quarter, the export volumes have seen an increase. However, the prices continue to be soft. Companies focused at specialties in new products that performed well. The business continues to adopt cross-solutions approach to capture the market demand.
The business introduced 10 new products during the first quarter, including four patented products, its in licensed insecticide formulation section, as we see the encouraging response in the market and the business plans to introduce such novel formulations in the coming periods by partnering with the global innovators.
The share of the new product sales have improved over the quarters. And in the first quarter of FY '25, it was at 22%. This has also resulted in margin accretion for the business. The business has also finalized plans of setting up multiproduct plants for Herbicides and Fungicides manufacturing activities in the same [indiscernible] during the year.
On the retail side, the business continues to perform well despite late monsoon arrival in the [ catchment ] region, it is strengthening the digital footprint at farm level outreach. During the quarter, business has opened 22 new stores. On the Bioproducts side, the business focused on expanding its product portfolio to diversify space. During the quarter, it has ventured into microbial space. In addition to [ foraying ] into Home & Garden segment. Three new products, Mycorrhizal, NPK [indiscernible] have been introduced.
On the technology front, Coromandel increased the shareholding in Dhaksha. This is a drone manufacturing company, where Coromandel have invested earlier. The overall stake has moved up to 58% through fresh issue of shares with an investment of INR 150 crores. The profit from this fund rate will help Dhaksha in strengthening its research and development effort. Cater to servicing large orders and also meet our processed working capital requirements. Further, Coromandel invested INR 24 crores in Ecozen, to increase its stake to 5.54%.
With increased consumer acceptance and demand for sustainable solutions, Ecozen has been delivering strong results.
With that, let me take you through the company's financial performance.
Turnover. The company recorded a consolidated total income of INR 4,783 crores during the quarter, vis-a-vis, INR 5,738 crores in Q1 of last year. The decrease in revenue has been mainly on account of lower subsidy rates. Subsidy, non-subsidy share of business stands at 81% and 19% during the quarter. In the previous year, it was 86% and 14% in Q1.
Profitability. The consolidated EBITDA for the quarter was INR 506 crores against INR 709 crores in the corresponding period last year. The decrease in EBITDA is mainly due to the lower NBS rate and increased raw material prices in fertilizer that we witnessed during the quarter. The company has improved its non-subsidy EBITDA mix during the quarter, which stands at 25% versus 16% in the previous year.
Subsidy. During the quarter, company received INR 987 crores towards subsidy claims compared to the first, last year was INR 2,069 crores. Government has been prompt in clearing the subsidy used. As of today, we have received a subsidy claims during the first 3 calls, July.
Subsidy outstanding as of June 30, 2024, was INR 1,970 crores versus last year, it was INR 2,816 crores. On the ForEx front, we have seen the rupee trading in a relatively narrow range and the company continued to hedge it's exposures on a conservative basis.
Thank you all for your continued interest in Coromandel and joining our call today. We look forward to the interaction.
[Operator Instructions] The first question is from the line of Nirav Jimudia from Anvil Research.
I have two questions. So one on the Crop Protection side. So as per the annual report, what we have written is it on the cost side, we have transited from, let's say, DMT to DMPAT. I'm guessing this is for the active side production, which we are undergoing. And you have also mentioned that we have undertaken a cost reduction initiatives, predominantly the War on Waste, to reduce the specific consumption of RM and utilities. So if you can just help us understand how both of this could help us in terms of cost savings on an annual basis from understanding on the same line?
Yes. Thanks, Nirav, for the question. If you look into both our businesses fertilizers and Crop Protection fertilizers, it has been highly backward integrated. Whereas, we are taking steps now to the extent possible, and it is feasible to do backward integration in the Crop Protection as well. As we know, when we do the backward integration, it helps us on two fronts. One is to help secure the raw materials at the right price.
The second one, it could also be a cost saving by what is made. So in the DMPAT, very recently because the business has approved. And it's a smaller capacity plant, which will come up in the next 6 to 8 months' time. This will help us be a little more competitive in the [ associate space. ] The War on Waste initiative, current year will be the third year, where the business has been successfully able to identify consequent opportunities across various functions. Manufacturing, [ closing, ] process engineering, looking into every aspect to optimize and reduce the waste.
This has actually helped the business during the last year when there were extreme pressures in terms of prices and the business was able to use these savings from War on Waste initiative to competitively bid and expand our customer base. So there is -- this is continuous focus areas. And there's a lot of efforts that have drawn successfully reduce the cost and the business will continue to focus on this.
So ma'am, based on the plant work we are going to commission over 6 to 8 months, how much of our requirement from the outside world would come down with the commissioning of this plant?
So for the impact, we are expecting about 20%, 25% of our requirements would be in-house. And depending on how this goes at a later point, we can look at additional capacity.
Got it. Ma'am, secondly on the -- in the annual report, like, last year, we have launched some close to seven products. If I see Q1 cumulatively, we have launched close to 10 products on the Crop Protection side. If you can just help us understand because in the annual report, we have written that our capacity across the plant is close to 90,000 tonnes for technical. So with these new products coming in, what could be the market size of such products in India? Does it qualify for the export opportunities also? And along with it, if you can also share the mix between the technical and the formulation sales in FY '24 and Q1 of FY '25? And lastly, how much we are backward integrated for our formulation sales through our technical plants?
Okay. So I have Dr. Raghu in the call. You want to request if he wants to take it. Otherwise, we can provide some [ initial ]
So, Jayashree, why don't you go ahead. And there are multiple questions here. Maybe we can split between the two also. Why don't you get start?
All right. So your first one was relating to the number of products that we have introduced last year, 7; this year, 10 there. If you look at the history of Coromandel, we have been a bit slow in terms of introduction of multiple new products. When we look into the entire product range, [ Grow, ] Croppers crop, then we are talking mainly on the formulation front. There were obvious gaps if we were to take any particular crop, like Rice or Cotton or specific fruits and vegetables.
So the team had identified all the jobs, so that when a farmer comes to Coromandel, we are able to give them all the solutions. We will not say we have only a few select products to cater to their requirements. So there is a change in the approach.
The second one was also to look into patented products where we work with the Global innovators and get those products in the portfolio, which will possibly have lesser assistance since they are new to the pests. So this was a revised approach.
And going by that, between the last couple of years, we have seen a large number of formulations that have got introduced, and this has been received pretty well.
As I was just mentioning a few minute back, we have seen that almost 22% of the sales in the domestic formation today is coming from new products. When I say new product, these are products that have been introduced in the last few years. So that's [indiscernible].
The second one we are talking about is in terms of the share of formulation in the overall business, which is around 30%. Yes.
Technical continues to be a large portion of the Crop Protection field. Formulation still has a long runway. We're [ tracking ] the right direction. Currently, it's about 30%. And when we look into the formulation, I would say by far several of these formulations. Wherever we are technical, we use the technical to formulate. But that is not a constraint. In some cases, where we have to buy technical, either from new or the others who are manufacturing it domestically or if we have to import, or we do that and then those formulations are sold in the market. Raghu, you may want to add anything to that.
Yes, sure. So as Jayashree mentioned, I think what we have gone through the test is about the formulation of new products. We also have plans to launch some new technicals for which the internal processes have been completed. So you should hear about it shortly once we have the execution underway.
So we have a few technicals also, which will be launched. I mean, these are new products for us. Obviously, none of these are new to the industry as well as technicals are concerned. But there are some of those, I mean, at least 4 of the 10 that we launched are patented. So these are absolutely doing the industry, addressing some of the pharma requirements.
So having said that, in terms of backward integration and leveraging our capabilities in the technical side of things, as we have said, we are waiting for these new technicals to come on stream in the next 6 to 9 months, we hope to complete the projects that will further strengthen our formulations -- competitiveness in the market. And while we continue to leverage our existing molecules that we manufacture. And the longevity of existing molecules we are extending by developing new products, which are 2-way combinations, 3-way combinations other than just keeping them as solo.
As you may be aware, the solo molecules have [ tendency ] to develop resistance, while combination formulations extend the life of these molecules, because of their multiple modes of attack on the pest. Because pest can develop resistance that easily, because there are multiple things that are acting on the pest, maybe in the digestive system or the nervous system and so on. So solo will be -- and I think this is one of those mechanisms. So I hope between the two of us, we have addressed the question.
Absolutely, sir. Just a small clarification, this 90,000 tonne capacity is purely the technical side of the business, right?
That's right.
[Operator Instructions] The next question will be from the line of from S. Ramesh from Nirmal Bang Equities.
So if you look at the nutrient business, what is the understanding you have in terms of potential increase in the NBS rates in the second half or when the industry have to go for an increase in retail prices, given the recent increase in the input cost and the subsidies being frozen at April. What is your current thought process there?
Currently, the current subsidy, which has been announced for Kharif, they operate upto September. And through notice, there has been a compression in margin in the Kharif, basically because of increase in the commodity prices, whether the subsidy just notified that in February-March, factoring the raw material prices, which is prevailing previously. So there's always a little bit of a lag between the subsidy rate and the actual raw material price rate.
So we need to wait and watch that, based on the current raw material price trend, which has been varying now, there is a possibility that subsidy will factor in the increase the input cost. So it's a function of commodity prices, importantly, that will be taken care of in Rabi season and NBS costs. So hopefully, we should see that various long term price increase gets absorbed in the NBS rates [ for Rabi. ]
Okay. So if you look at your Crop Protection business, when you say that the domestic market is looking up and the international business also stabilizing, do you see the decline in prices getting arrested? What was the decline in prices in the overall equation between volume and prices for your Crop Protection revenue performance?
So Ramesh, this needs to be looked into two aspects. On the formulation business, as I was mentioning earlier, this is mainly for the demand in India. We are seeing that the prices are very stabilized. The new product introductions have helped the company, so the margins have seen an accretion.
Whereas in the technical front, especially in our export, we have seen that while there has been a volume increase, there is still price pressure that continue. We expect this to be raised another quarter or 2 quarters, because China continues to be dumping and the prices of the AIs are still much lower.
Is it possible to quantify what is the reduction in the realization in the export market?
I can come back to you, Ramesh.
Yes. And just one last thought. In terms of your plan for increasing the profitability of BMCC. What is the timeline you have to see that JV turning EBITDA positive and eventually cash positive based on the investments you're making?
Which one you're asking, sorry?
I'm asking about BMCC, the Senegal JV. Right now, in the share of JV, there is a law. So in terms of your initiatives to investment in capacity and increase the productivity there, what is the timeline -- what are the investment required? And how long do you think it will take before you are able to generate positive EBITDA and then eventually positive profit after tax?
See, as far as technical operation is concerned, last year was the first year, and then we could stabilize the production and we started using that technical product stabilizing in the retail operations. So to that extent, there has been a positive move in the last year. And we have also taken a decision to move away from the setup what we had last year, it was work is progressing in the plant and the plant commissioning is underway. Hopefully, we should be able to complete the trial then by end of September.
And this is an off-season period for many operations and probably in the second half, we should be able to stabilize the production, and we'll get the steady material coming into the Vizag operation. So second half, we can see a positive traction on the BMCC operations. And overall for the year, we should be able to reach what we indicated [indiscernible]
Ramesh, on your question relating to the volumes and price. The volume uptick in Q1 on export has been close to about 12%, and the price pressure has been more or less in the same range.
[Operator Instructions] The next question will be from the line of Vipulkumar Shah from Sumangal Investment.
So my question is what is our annual sulfuric acid requirements for manufacturing the 3.5 million tonne of NPK fertilizers. Our capacity right now is 0.5 million tonne and same for sulfuric acid also.
See, as well as the process, requirement is a function of the product mix, what we have, if we use a high process, it's consuming products like DAP, then the requirement goes up. But looking at the mix, what we generally follow, we optimize the product and depending on the commodity prices, it can be even in the range of 5.5 lakh tonnes to 6 lakh tonnes.
And this is more and above the captive production, what we have at Vizag. And partially, some of these requirements are made strong, has been coming from Vizag to Kakinada, predominantly the import asset only for Kakinada operations. So we can say a net-positive requirement will be in the range of 4 lakh tonnes to 4.5 lakh tonnes, sometimes it goes down to 3 lakh tonnes, sometimes it goes up to 5.5 lakh tonnes.
In the case of sulfuric acid, as you all aware, that we have commissioned the plant last year and going good and imported sulfuric acid which used to be in the range of 1 million tonnes has come down by almost 5 lakhs tonnes, annual basis it can potentially come down. In the first quarter, we have ramped up the production of sulfuric acid, and we have done more than 100% of rated capacity.
So full year basis, still, we will continue to import sulfuric acid close to 6 lakh tonnes to 8 lakh tonnes. Again, it depends on the product mix. Some grades of NPK require more sulfuric acid. So we can say, our import requirement of sulfuric acid has come down by 30% to 40%.
So once this expansion of -- once this new capacity of sulfuric acid comes online, still we'll be importing sulfuric acid?
Yes, it will be less. It will be in the range of 2 lakh tonnes to 3 lakh tonnes, when it will continue to import, and we have dedicated this for the long-term contracts. So there are some challenges.
[Operator Instructions] The next question will be from the line of Prashant Biyani from Elara Securities.
Ma'am, subsidy for Q2 will also be lower on a Y-o-Y basis. So what efforts are we taking to reduce the pressure on profitability in Q2?
See, as I said, it's a function of our raw material price and the product mix and also the commodity price, how we are procuring. So always we have ensured the procurement compared to the competition in the industry.
If we look at -- and also, we have improved our captive production, both on [ company gas and process exchange. ] And that is really helping us in the way the commodity prices are beginning at this point of time, now that all the raw materials are going up and we have good, long-term contract. So we hope to see improvement in margins, coupled with our efficiency improvement, blending of our own loss, which is coming from Senegal. So all this will help us to have an improved margin in the Q2. So going forward, we have to see in terms of the subsidy rates for Rabi, how the commodity prices behave. But definitely, it will be much better than what we witnessed in Q1.
Just to add to Sankar, the whole industry came out of a bad Rabi season. The soil moisture conditions were not good, and there is also a high challenge to us. So Q1 across the industry is also seeing some level of discounting with the rainfalls coming and reservoir levels becoming much better, I think there is normalization that's happening there. And Prashant, that also needs to be factoring when you look at the margin for the [second quarter].
Sure. Ma'am, how much was the revenue from Dhaksha in Q1? And if you can provide some updates about the new product development and demand and inquiries from various industries?
Yes. So Dhaksha, one is to look at into two, three different ways. They had INR 280-odd crores of different order book. And there were some agriculture-related orders that we were executing during the quarter. What has happened for Dhaksha is, all the -- every drone that has been that produced and distributed, whereas on the different plants, 106 drones have been manufactured. We are waiting for the [PBI ] to happen, post which the shipments of these drones to logistics requirements will be taken up.
In the meantime, there are reports which are ongoing. As you know, Coromandel had invested about INR 150 crores of equity into Dhaksha. This is mainly for multiple R&D projects they are working on. And this is a technology play where we expect a lot more R&D work to happen, to be on the forefront and also ensure there are new applications that are getting developed. So that's what is happening on with Dhaksha. To your specific point in terms of the turnover, the turnover for the quarter was INR 17 crores.
Right. And ma'am, what would be the outlook on raw material for fertilizers? And how much was nano fertilizer volume in Q1?
Sankar, this answer, do you want to take that?
Yes. Raw material prices behave in different ways. At this point of time, there has been some hardening in terms of prices of ammonia and [urea ] But we have to take it quarter-by-quarter. And we could contract or visit price at a competitive rate for Q2, which is sadly much better positioned for the company make us focusing on domestic manufacturing.
And also the visibility on potash price, which is compared to last year, has come down to negative [$283 from $319. ] So those are the key ingredients of sulfuric acid and potash, the prices are relatively stable and much better than the rates, which have presented in earlier quarters.
And for the other raw materials, BMCC [indiscernible] those quarters. I would say that, there's a reasonable visibility in terms of the input cost as we move to the Q2. In terms of the Nano, it resolve yearly basis, as you know, the nano application happens after 20, 40 days of crop sowing. But in spite of that, we have positioned the material in the channel.
So right now, the Coromandel have crossed 10 lakhs liters of Nano, which is a very significant volume, and we do it in a very systematic way in terms of using the farmers and giving education across the country. And hopefully, we will see improved traction on our nano volumes as we move into Q2 when the consumption starts some time in mid-August. But the inside response has been pretty good.
The next question is from the line of Darshita from Antique Stock Broking.
Firstly, congratulations to Sankar for the elevation. My first question was with respect to the sector growth INR 3,500 special, that subsidy that the government has recently announced. Given that nothing has been announced on the NPK side. Do we expect or are we looking at taking some price hikes in the NPK products?
See, our pricing [comes with a function of ] input costs and [ government discount. ] We did not go in for the MRP increased pricing, but we remain quite moderating the trade response which have passed out during the off-season period. So that would be sufficient at this point of time. And with the revised price contracts happened for sulfuric acid and potash, at this point of time, we did not look at correcting the MRP for the NPK. But the main salable product, that is DAP, and we predominantly import and we don't manufacture.
We still continue to operate at the current MRP, and we are also looking forward to support from government towards additional compensation for the increase across what we're incurring. And hopefully, if it comes to, that will also helps us to bring down the negative pricing we have on the NPK.
Right. Right. Got it. And if you could -- I don't know if you gave that number or not, but I missed that probably. What is the payer price contract we are looking at?
We have finalized the payer price at $950 for Q2. This price will prevail up to September, as the marginality of $2 over the previous quarter price is there.
The next question will be from the line of Ranjit from IIFL Securities.
The first one is on just a bit of a confirmation of the guidance for the fertilizer segment EBITDA per tonne still stays intact? Or are we going to relook at that?
That is intact. We spoke about INR 4,500 to INR 5,000 to manufacture the rocks. I think that's pretty much intact.
Yes. And the second one is on the growth projects. So in addition to what we have announced, if you can also guide us about how to look at the company probably to the 3 years time. Fertilizer segments and the other adjacencies that we have been doing. So you have spoken about drones. But in addition to drones, we also have been speaking about a lot in the spectrum of the chemical side, even in some part of the bulk chemical side. If you can just highlight about these two or three avenues and how much should we be able to grow in these segments?
So first of all, on -- before we get on to the adjacencies, whether [indiscernible] we can stay and focus on [indiscernible]. On the annual, this will be the first year and we are expecting a good uptick to happen. Let's see how the consumption picks up in August, September, while the trials have been -- the results during the trials have been encouraging. We need to continue to work with the farmers. So that's #1 focus area.
The second one is to see how we can improve our share in sales and formulation, which the team has done a very good job in the first quarter, and we expect it to pick up during the rest of the year. So this is in terms of the core.
When we look into adjacencies, as it was mentioned in last call, we had set up a small facility at Nimrani, which is mainly for sodium silico fluorides. And we started commercial production and sale of those. Similarly, lot of opportunities having identified internally, which could be using the existing assets.
As we have seen that the prices of the AIs have come down during the last 1.5 years is not only for agrochemicals. We are seeing a similar trend in overall clinical space. Therefore, while we have identified select molecules both in Crop Protection and in Specialty Chemicals, using newer chemistries, we are just seeing how to get the business case more attractive. So that's what is happening in the efficiency space, especially on the Specialty Chemicals.
The smaller efforts, testing the water, getting the products out, establishing the customer base is going on well. And we see [indiscernible] with three innovators that have been good dialogue that has happening, that really is progressing well. It's 2, 3 years journey. So we can only say at this point in time, it's progressing in the right direction.
Just to add to what Jayashree said on the -- am I audible?
Yes.
Just to add to that, see, the coal business on fertilizers, we have been working on debottlenecking our plants. And that project is underway. Because if you see notice, we have been operating at 95% capacity. And currently, we are embarking on [indiscernible] plant, which is progressing well. So with a greater visibility on input raw materials, both phosphoric acid and sulfuric acid, and also like the stabilization of rock from Senegal, now it gives us much more integrity for us to expand capacities in our existing facilities.
So as a company, we have been always prudent in capital investment, and we are looking for brownfield expansion. So we are happy to share that we have got approval during this quarter to expand our capacity at Kakinada by 100 million tonnes. So as and when the right opportunity comes, we will be looking to expand the capacities as well for granulation so that it will be in line with our intermediate capacity expansion and also will help to grow the top line. So besides looking at efficiencies, we'll also be looking to grow the core business what we are currently doing.
Raghu, would you like to comment a little more on the CDMO side, please?
I think that's the most comprehensive answer we can give at the moment other than getting into details like where are we with the samples, where are we with the tech stats and CapEx development. So those I don't think would be necessary to share at the moment. So the progress is happening as planned. And these prospective customers are continuing to engage with us. And both the teams are working a lot more closely. So it's going in the right direction. So we have more than one lead, and they are maturing. We're not taking the different stages that one has to go through. So [it's southering ] well.
Right. So one bit on that. I believe the team would be in place. So probably the kind of a skill set that would be required for the CDMO kind of a business are slightly different at [indiscernible] like with that?
Yes. So we have also identified where the infrastructure will come. We have got a dedicated team for both sales and operations, including R&D. Inside our R&D, we have a cargo for CDMO opportunities. And those reserves are all full time dedicated to this opportunity.
Right. One question for Sankar sir. We have kind of a high capability in the phosphoric chemistry, and there is a lot of talk on the phosphoric chemistry for the new edge businesses. So are we, kind of, exploring those opportunities? Or it is still early to talk about those?
You're absolutely right. In fact, that will be the focus area for us. Currently, we leverage phosphoric acid for fertilizers production. But as part of the diversification, we will definitely require fossil based other derivatives. We have some game plans in terms of using them for purified sulfuric acid, which has got wider applications besides purchases, into food sector as well as the battery trade assets.
And also, it provides opportunity to produce specialty fertilizers like NAP, as well as purified DAP, which is required for nano production as well. So I think that will be the area sort of a, I would say, step out for the Nutrient business, besides what Raghu and Jayashree talked about on Specialty Chemicals.
In the case of Nutrient, that will be the step out beyond the core fertilizer business. And we are in the initial stages. We'll be able to share more as we move to the [Rabi season indiscernible]. But definitely, we are looking at it.
That's quite helpful. So everything put together, is it fair to assume that probably incremental 10% to 15% of the growth can accrue from these initiatives that we are taking? Or we're not in the near term next 1, 2 years, but we're definitely in 3 to 5 years' timeframe?
Yes.
[Operator Instructions] The next question will be from the line of Falguni Dutta from Mansarovar Financials.
I just have one question, which is on nano fertilizers, the urea or DAP. Going by the acceptance that you see now, how much -- what percentage of our domestic demand, let's say, in 2 years from now can be taken over by the nano variety of be it of Urea or DAP?
There has been good amount of traction in the last couple of years in the nano space. And nano DAP, for us, basically, the first year of operations. Based on various inputs that we keep hearing, over the next 3 to 5 years, the expectation is about 20%, 25%. It could be a substitution [ that one could expect. ]
I missed you. You said over the next 3 to 5 years, about 25% of substitution can happen in as regards to DAP consumption, right?
Yes.
And the same would go for nano urea?
If possible. But nano urea, we haven't seen as much of results. The last 2 years, this core has been marketing nano urea, isn't it. We haven't seen that level of traction, the DAP looks a little more promising. We have introduced the nano urea, this is what going on our R&D center...
And ma'am, one more question, which is on the MRP and subsidy for DAP. So going by where they are currently, should we, I mean, see the margins to be remain similar at Q1 levels? Or do we see anything there on going by the current subsidy and MRC for DAP and NPK?
Shall I take that?
Yes, you can go ahead.
See, as far as DAP is concerned, we are trying to meet the market demand, especially wherever NPK supplies cannot be mixed. Ideally, we feel as an industry, we should go for more balanced decision, which is good for the farming community. So our focus is more on NPKs. And we can see that improved traction in the first quarter. If you see the consumption as well as the sale of NPKs, have gone up significantly, whereas DAP has come down is more due to the function of availability.
So our agenda will be to convert DAP into NPK. Having said that, the government is also seriously considering compensating the industry, whatever the switchover may take time from DAP to NPK. And that we need to meet the immediate requirement of farmers. We will pay and meet the requirement, but the government is also looking to compensate additional cost, whatever we incur. So that should come in any time now. So if that happens, that improves the viability of either DAP imports or DAP manufacturing, either this.
The next question is from the line of Bharat Sheth from Quest Investments.
Just one question, which is, first of all, on the Nutrients business, you said that we have already taken approval for 1 million tonne additional capacity. So looking at overall business, we are generating very good case as well as. So if we want to go with this 1 million along with the backward integration or only purely of regulation part. If you can give any -- if we are going forward with backward integration, then how do we really see the way I mean, volatility, in past, you have seen again that kind of volatility acting our company?
See, we are already doing that backward integration. As you're all aware, we are putting at the plant phosphoric acid, sulfuric acid integrated facility at Kakinada. So that will help in supporting the additional granulation thing as and when which you used to do. And also, the product mix makes a difference. The margins maybe a challenge for generic grade. But as a company, we strongly believe in making a unique product offering to the farming community. And we have a very batch of unique products along with micro influence.
So our new facility, as and when we decide, we'll have certain unique grades, which will not have pricing pressure, which can be well received from those farmers, use efficiency would be better. So we do expect that the additional granulation facility will definitely be a win-win from both from farming community as well as from the company in terms of the payback.
Of course, backward integration will be useful. But in any commodity business, it will not be advisable to do 100% backward integration. These commodity prices behave highly volatile. So we always would suffer to keep some portion of open input sources rather than creating our own investment. And we'll also be prudent on our capital investment in creating this new capacity.
Can you give some ballpark figure of that CapEx that we may plan to incur for [indiscernible]?
Maybe too early to comment on, but I can definitely tell you, it will be far lower than the typical greenfield project. Since it's going to be a brownfield, which means a common infrastructure, packages, as related infrastructure will not be required and will be more focused on operating asset training to produce the product. So it will be far lower than that. And we have always be capital light on these investments.
Okay. And second on the Nano DAP, when we are talking of reaching, say, 25% of the requirement or demand in the next 3 years. So what kind of a CapEx that we meant to incur for the same?
For Nano, it's not a major investment. We have already invested a set of our plant at Kakinada, which has been commissioned and we can improve the capacity in a batch mode. It will not be a significant investment. Here again, we have the existing infrastucture created and already in place. So we should be able to scale up the volumes in a shorter period of time, and it is not a very significant CapEx.
So on the replacement part of it, we have to wait and see because as Coromandel, we are very responsible in terms of promoting this product and we have to see as the phosphatic industry, we are the largest importer of DAP. I refer to [indiscernible] subsidy based DAP import through Nano. So our focus would be on those states that currently DAP is service to imports.
And we have a feel at least 2 million tonnes would get replaced in at least 2, 3 years' timeframe, and we have adequately not only from governmental, but from other players because many companies are also getting into this product. And we don't see any challenge in creating the capacities to meet such sort of a demand for integration to happen.
Okay. Great. And sir, when we reach, I mean, 25% kind of our business meeting from this Nano DAP, what kind of approximately that in rupee term turnover into the sales that you expect?
This replacement, what we are talking about is at the industry level, not at the company level. Currently, if you look at the Nano product or [indiscernible] it's 50% of the DAP price. If DAP is getting sold at INR 350, nano DAP is sold at INR 650. So we can roughly say that turnover will be 50% of the turnover of DAP.
Okay. And profitability?
Okay. Subsidy component. Here, there is no subsidy component. So to that extent you can say that 50,000 of the DAP MRP will be the value of nano DAP.
And approximately, if you can give some ballpark, I mean, profitability because here it will be in the percentage term?
Yes, you can give the math, 2 million tonne into [indiscernible] you can do the math on that [indiscernible] also. Roughly it should be in the range INR 1,000 crores, INR 1,500 crores at the end of '27. But for that, I need to get back to you on the right number.
And profitability, I'm just...
Profitability, it's too early to look into it. We have to see. Because this started being a concept selling. It requires a lot of spending on the field level in terms of field promotion engagement. And initially, we are not looking at the profitabilities, more to facilitate the farmers to go in for an environmental friendly product and make them affordable, improve the use efficiency. It can have a decent margin and it reduce the -- it's actually being not part of the sale price in the less working capital intense as well.
Some more quarters to play out before we start talking about margin and nano DAP.
The next question will be from the line of Vishnu Kumar A.S. from Avendus Spark.
Sir, you spoke about the new 1 million tonne, I mean, we are talking about some approvals. What -- I mean, in terms of final investment decisions, what are the events that are contingent upon on for us from here to when we are going to announce this project? And once -- and what is the time line from there to get this on the ground? And what will be the backward integration as an overall company at that level?
What is your last question? Can you please repeat the last part? I'll answer that.
After everything put together, let's say, whenever we get this 1 million tonne on the ground. At that level, what will be the phosphoric acid integration and sulfuric acid integration on that complete level, whenever we do?
See, in terms of the investment division, we are just currently -- our internal project team is investing on phosphoric acid and sulfuric acid. So currently, a place of both. So once we reach some certain level of project execution in the intermediate capacity, which we are getting in Kakinada, we may take investment decision at that time. And after we take final decision and take all approvals, it may take 18 months to create this new capacity. So that's the timeline we have.
And in terms of the intermediate requirement, it's a function of the product is what we are going in for in the main plant. As I mentioned in my earlier communications, we are booking at value-added products. And we can fairly say 60%, 70% of the expanded volumes we should be able to meet a turnaround source. And the new capacity what we create also always will have some provision to increase the production beyond related capacity. So we are waiting. It's too early to do it. But fairly, 60%, 70% of backward integration will be there.
The final decision this year or will have to wait for next year probably to hear more from you?
We don't want to point. What I can say is we have this regulatory approvals in place. We will go through the process before we commonly communicate.
Got it, sir. And one final question, sir. As the new boss of the company, I mean, you're a fairly well-run company. So what will be the top 2, 3 KRAs to probably take the company to the next level that you are probably going to embark on?
It's not yet 1-day old. So I don't want to come to the decision, which are the areas we've worked on. As you've rightly said, it's a very well-managed company and long-term strategies are already in place. Our focus would be to issue that we sustain the value addition, what we do on core business and building the capacity and create a strong front end in the main business where we operate.
Besides that, the non-subsidy businesses like Crop Protection and Specialty Chemicals, we have the focus going forward to make sure that our overall EBITDA margin improves. And also, we talked about in the call, about our step outs that we are planning, in the phosphate-based value-added products. So that will also be the area.
We will be able to give more clarity probably after a quarter, but it will be the ongoing process of identifying the newer opportunity to ensure that we get better returns for all the stakeholders.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
So thank you all for joining us and appreciate your interest and questions. In case you have any further clarifications, feel free to reach out to us. We will be happy to take that. Thank you.
On behalf of Elara Securities Private Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.