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Coromandel International Ltd
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Thank you, [ Shamla ]. Hi, all. On behalf of the Emkay Securities, I welcome all the participants for 2Q FY '19 Earnings Conference Call of Coromandel International. We thank the management for giving us the opportunity to host this call today. We have with us Mr. Sameer Goel, Managing Director; and Mrs. Jayashree Satagopan, the Chief Financial Officer of Coromandel International. I request the management to take us through the performance, post which we can begin the Q&A session. Over to you, sir.
Yes. Good afternoon, everyone, and thanks, Emkay, for managing the conference call. I will first give an overview of the business environment that we experienced during the quarter, followed by the company's performance and Jayashree will take you through the financials and then we can have the Q&A. So as you know, India received some normal southwest monsoons during the year, down by 9% over the average level. Our key southern peninsula markets of Telangana, Coastal AP and South Interior Karnataka received normal rains. However, Rayalaseema and North Interior Karnataka were deficient. Northeast monsoons, which account for 30% of the annual rainfall in the south market is likely to arrive during this week. As for IMD prediction, they are expected to be normal. All India crop sowing were down by 2% to 105 million hectares with major drops coming under coarse cereals, minus 6; pulses, minus 4; paddy, minus 2; and cotton, minus 2%. All season sugar cane planting has increased during this period. In our key markets of AP, Telangana, their acreage has moved up by 3% compared to last year, mainly in paddy as timely rainfall supported higher sowing.Minimum spot prices, as they were down for tariff, have been announced for Rabi crop also and the increase are in line with the government announcement mechanism of fixing it at least 1.5x the cost of production. Government has approved the Prime Minister's AASHA scheme aimed at ensuring the remunerative prices to the farmers for their produce as amongst in the union budget for 2018. One of the sub schemes that has worked are participation of private sector in procurement of operations and will be piloted in a few districts. The scheme will improve the scalability of procurement of MSP, therefore creating a better price realization to the farmers. We expect the impact to be useful in the coming years as IT infrastructure and other modalities are yet to be firmed up. In our market of Telangana, government has distributed investment support for INR 4,000 per acres for Rabi season under the Rythu Bandhu scheme. There's been a positive feedback of the scheme from the stakeholders and that most of the part of the funds are being utilized for agri input purchases. Also the state government has launched Rythu Bandhu scheme providing life insurance coverage for the farmers. The farmers in the age group of 18 to 59 will get an insurance cover of INR 5 lakh each and the payment per head has been pegged at INR 2,271. On the GST side, with the reduction of the GST rates on first rate asset from 12% to 5%, the key raw material for making phosphatic fertilizer, their inverted duties structure, and subsequent GST credit accumulation has come down for the industry. Direct benefit also scheme in fertilizer has been stabilized. Industry has started receiving the payments from the department on a fortnightly basis. Now coming to sector performance, on the fertilizer industrial performance. For the quarter, phosphoric fertilizer sales has seen a growth of 22% growth, moving from 50 lakh tons to 61 lakh tons, mainly driven by the northern markets 49% growth; east, 37% growth; and south market, [ 50%.] The complex fertilizer sales has grown by 26%, while the GST has grown by 19%. Raw material prices remains firm during the quarter as plant closures in China, tight supplies and higher global demands impacted the availability. Phosphoric acid price for Q3 has reached USD 7.68 per tonne, up from USD 7.58 during quarter 2. For H1, overall the industry has grown by 18% to 98 lakh tons, from 83 lakh tons last year. DAP has grown by 12% while complex is up by 25%. Industrial maximized availability of phosphoric acid usage by shifting its production from DAP to complex grades, while DAP demand is being catered mainly through imports. For H1, DAP imports were up by 41% to 41 lakh tons from 29 lakh tons last year. Since January, industry has resulted to multiple price increases to counter the raw material and the change rate impacts. On average, the DAP prices have moved up by 30% to 35%. Coromandel Q2 and H1 performance. Coromandel had a strong performance in Q2 driven by its improved customer leads and marketing capability, differential product offerings, smart sorting and efficient manufacturing. This was despite low number of monsoons, rising raw material prices, sharp rupee depreciation and high financing costs in compared during the quarter. Fertilizer business of the company has improved its market share and adjusted 28% year to year growth in sales volume during Q2. Crop Protection business registered a year-to-year revenue growth of 14% during the quarter. Business has introduced 4 new products during H1, including 2 in-house patented combination molecules. We have also received very encouraging response in the markets. Further, the integration of biopesticides business has supported its expansion into complemented product segments and geographies. Our focus on R&D and technology has led to introduce 4 differentiated product offerings and water-solvent fertilizers and value-added Single Super Phosphates.So coming now to sector-wide performance, Coromandel fertilizer performance for Q2. On the sales side, our phosphatic volumes were up by 28% to 12.4 lakh tons. Major shareholders growth has come from unique grades, which has grown by 35%. It shared an overall sale stance at 43% compared to 40% during quarter 2 last year. The sales number of 12.4 lakh tons comprises of 11.1 lakh tons of manufactured products and 1.3 lakh tons of DAP, which was mainly imported. On the graded products, multi-sales were lower as business utilize the available products to maximize its fertilizer production. Unit sales were up by 69% to 4 lakh tons versus 2.4 lakh tons last year. During the quarter, our phosphatic fertilizer plants operated at 96% at utilization, recording our production of 8.3 lakh tons. [ Captive asset ] production for Vizag, Ennore went up by 3%. Our phosphatic acid capacity enhancement project at Visak is on track and will come up by second quarter of 2020.
Fiscal year '20.
Fiscal year '20, yes. For H1, our phosphatic volumes are up by 20% to 18.5 lakh tons with unique grades growing by 33%. Its share in overall sale stands at 39% compared to 35% during H1 last year. Overall, market share has gone up marginally from 18.7% to 18.9%, with an increase coming across almost all the operating states. The liquidation has improved, with sales now almost getting [Audio Gap] cycle. The sales number of 18.5 lakh tons comprises of 16.5 lakh tons of manufactured product and 1.7 lakh tons of DAP. On graded products, MOP sales were down to 0.5 lakh tons. Unit sales were up by 14% to 4.8 lakhs. During H1, our phosphatic fertilizer plants operated at 88% capacity utilization, marginally up from last year, recording a production of 15.1 lakh tons. Captive asset production from Visak and Ennore went up by 7%. On the crop protection side. Crop protection business has had a very good quarter as turnover improved by 14% to average INR 571 crores, up from INR 501 crores last year, with those coming across all the segments, exports, formulation domestic, B2B and bio. Business has seen a good improvement in the PBIT margin in the last 3 quarters. Smart sorting coupled by selected price increases has resulted in this improvement. Export segment has done with major increases coming from South America and African region. Domestic formulation growth was supported by new product launches. Business introduced 2 new products during the quarter. With this, we have launched 4 products during H1, which includes 2 in-house patented combination molecules. We have received very promising feedback on these products. We have a good product pipeline and we'll continue to focus on new products introduction into the coming quarters as well. Bio business has progressed very well and with synergies, which Coromandel has improved its market in at first in domestic and international markets. On the manufacturing side, Mancozeb capacity expansion impact is on track is likely to get commissioned in Q4. We are also investing in capacity increases for new product development that is expected to come up by March 2019. The retail business had a soft quarter due to severe drought conditions experienced in the key operating markets of Rayalaseema and North Interior Karnataka. On top of that, the cotton plant in Telangana also did not do well. Turnover growth in Q2 was mainly on account of the group fertilizer sales. Overall, sales shared from non-transact 37%, last year it was 42%. Business has been testing out agri technology to improve product delivery and services with IMD predicting normal northeast monsoon during the [ year ]. We expect the sales momentum to pick up in the second half of the year. Specialty nutrition business has performed well. Focused product approach, crop-specific product launches, smart sorting and integrated nutrition management team have contributed to the overall growth of the business. We have received good support from our JV partners, SQM, in terms of product introduction, [ product expertise through SQM scientists ] and product availability. Organic fertilizer volumes has improved over last year on account of good growth in the variant product category. In the City Compost segment, we continue to be market leaders with the market share of 18%. Single super phosphate business has had a very good performance, wherein the sales volume has grown by 25% in quarter 2 and 26% in H1. Overall, the market share in H1 has increased to 13%, up from 12%, making us the market leader. The business has improved its product mix towards differentiated products, 2 new products introduced during the year as well. Overall, it has been a very good quarter for the company. With improved reservoirs levels in certain markets and prediction of normal northeast monsoon we expect favorable agriculture environment during the second half of the year. Further stabilization of direct benefit transfer to -- in fertilizer and reduction in GST rates on phosphoric acid, working capital situation is likely to improve going forward. Coromandel will continue to invest towards infrastructure augmentation and capability development to offer differentiated solution to farming community. We have been focusing on leveraging agriculture technology to improve our farm value proposition and increase customer connectivity. The company is well-positioned to support the farmers and enhance their prosperity by offering sustainable agriculture solutions. I will now hand over to Jayashree to give you the financial update.
Thank you, Sameer, and good afternoon, everyone. Financial updates for the second quarter. In terms of turnover, in Q2 fiscal year '18/'19, Coromandel recorded a consolidated turnover of INR 5,800 crores, growing by 36% with nutrients and allied businesses contributing to 89% share, and the remaining 11% coming from crop protection business. Corresponding numbers for the Q2 [Audio Gap] was 88%; CPC, 12%. In terms of subsidy/nonsubsidy breakup; Q2 revenue shares is around 82 to 18. Last year, it was 79 to 21. Profitability. Overall, EBITDA for the quarter is INR 666 crores against INR 575 crores last year, registering a 16% growth. The improved profitability in Q2 can be attributed to higher sales across the businesses and focus on unique and differentiated product offerings. Smart purchases and efficient manufacturing have supported the overall growth. Businesses have also taken selective price increases. This has partially offset the impact of increased raw material costs and sharp rupee depreciation experienced during the quarter. In terms of subsidy/nonsubsidy breakup, Q2 EBITDA share was 76-24. Last year, it was 72-28. Consolidated PBIT for the quarter ended 30th of September 2018, is INR 640 crores as against INR 549 crores last year. PBIT shares before unallocable expenses from nutrients and allied business was 84%, while the share of crop protection segment was 16%. Q2 last year, nutrient was 82 and CPC, 18. Consolidated net profit after tax for the quarter is INR 366 crores as against INR 349 crores in Q2 fiscal year '18. For first half 2018/'19, the turnover recorded by the company, consolidated turnover of INR 7,537 crores, growing by 26%, with nutrients and allied businesses contributing to 88% share and remaining 12% coming from crop protection business. Last year, H1 numbers. Nutrients was 86% and CPC, 14%. In terms of subsidy/nonsubsidy breakout, H1 revenue shares is around 80-20. Last year, it was 78-22. Overall profitability, EBITDA for H1 is INR 880 crores against INR 744 crores last year, registering 18% growth. In terms of subsidy/nonsubsidy breakup. H1 EBITDA share was 73-27, last year corresponding ratio was 70-30. Consolidated EBIT for H1 is INR 828 crores, as against INR 694 crores last year. PBIT share before unallocable expenses from nutrients and allied businesses was 82% while share of crop protection segment was 18%. First half last year, nutrients was 18% and CPC, 20%. Consolidated net profit after tax for H1, INR 456 crores as against INR 421 crores in H1 of last year. So a very outstanding end of September with INR 2,626 crores. Last year, this number was INR 2,011 crores. Subsidy numbers seems higher partially due to higher volumes done in H1 and increase the subsidy rates. During the quarter, company has received INR 1,800 crores subsidy. Last year, Q2 numbers were INR 652 crores. Further, in October, the company received another INR 640 crores mainly towards DBT. DBT process has been fairly stabilized now, and government is settling the claims within 2 to 3 weeks. As on date, we have submitted DBT claims of -- to mid-October 2018. During the quarter, the industry has made [ sector ] the presentation to the GST Council towards reduction in the rate of phos acid from 12% to 5%. Further, we have received clarifications from the department regarding MOP and urea, use of captive consumption for manufacture of other fertilizer to attract IGST of 5% instead of 18%. Coromandel has received INR 362 crores GST refund from the department during the quarter. Our overall financing costs has moved up in H1 compared to the year before, mainly on account of higher working capital and interest rates. Increased RM prices, higher inventory levels to meet the seasonal demand and migration to the DBT regime had an impact on our working capital. With the DBT stabilization and GST rate reduction, we expect the working capital situation to ease in the coming quarters. Thanks once again for joining the call. With this, I would like to hand the call for question-and-answer.
[Operator Instructions] We have the first question coming from [ Bamik Atya ] from Birla Life Insurance.
This is Trilok Agarwal. There a number of questions, one is in the opening remarks that both the purchases and obviously volume growth has led to these kind of margins. I wanted to check, what are the sourcing of the phos acid for the current quarter, the forthcoming quarters? And second is, with respect to your crop protection business, this exports primarily in which markets have done well for the quarter? And what is the outlook on the same?
Yes. Thanks, Trilok, for the congratulations. If I understood your question right, the first question was, what is the phos acid sourcing?
That's correct, yes. And it comes in context of the sharp rupee depreciation. We have learned that the company -- the industry has already taken a series of price hikes. So what are -- how are we -- how is the demand panning out in that scenario? If you can also add on that.
So 3 questions. So firstly, on phos acid sourcing, we have 2 ways of getting phos acid. One is from captive, and that we continue to see an increase in production, which actually helps us because obviously, we do better additional margin by converting rock into acid. And the second thing is we have a diverse source of acids. We have both long-term and spot contract, and that helps us to tie up on our phos acid situation. As far as your exports to overseas on crop protection is concerned, we do exports. Our main growth in exports are coming from South America, Central America and Africa. We are the second largest exporter in Africa. And now with the bio business, we are also looking at actually having a footprint now in America and in Europe. So that is something which we are looking for in terms of expanding our portfolio, right? And I think your third question was more in terms of what we are doing in the industry as a whole, has taken price increases based on all raw material prices and also on exchange rate. We have been able to pass on most of the price increases to the trade. What definitely is happening in the industry is, with the farmers, they are going for more lower fee products than high products like DAP, so we are going to be content. Therefore, we are seeing an increased demand for some of our unique grades and also for single super phosphate.
And one last, if I may squeeze in. What is the percentage of uniques grades as opposed to volumes for U.S. now?
We have mentioned that in our presentation. So in H1 now it's...
39%.
H1 is 39%.
The next question coming from Mr. Sumant Kumar from MOSL.
So my -- so you mentioned that drought-like situation in Rayalaseema and North Karnataka and also from our challenges with Aura and Marathwada is also facing a drought-like situation. So what will be the impact on sales in Rabi season? So till date, we have seen a very good growth in the Kharif season, but the Rabi season are likely to be impacted. Your view, please.
So one good thing, which has happened is while there was a drought-like condition in this area, the reservoir levels are a lot better, thanks to the rainfall which has happened in the western parts. So the dams have been much more fulfilled as compared to last year also compared to the long-term averages. Now the prediction is that the northeast monsoons, which accounts for 30% of the southern market sales will be normal. If that happens, we are [Audio Gap] an uplift in the Rabi sales at least in our markets.
Okay. And if you could add, your RV increasing market share also and we are focusing in Gujarat?
So in Gujarat, we don't do our fertilizer business, but are we having a single super phosphate, which is increasing. And we have the crop protection business, which again is increasing in sales. And [shorter] specialized increasing, although Gujarat, again Saurashtra had a bad area, but our sales are mainly in the southern [indiscernible].
Okay. And what is the current DAP prices for us? And also NPK, blended NPK price?
So DAP, the current MRP is INR 39,000.
Okay. So what was the Q1 price? INR 26,600, right?
Yes, it was around INR 26,600.
Okay. And what is the blended for NPK?
NPK, there are multiple grades.
Okay, so can you tell me what blended price for NPK?
Normal, we take DAP as a reference. Depending on each grade, you will have a different MRP.
Okay. So we have taken a similar price increase, whatever we have taken price increase from 2,600 -- INR 26,600 to INR 29,000. So can we assume a similar percentage increase in NPK?
It varies from grade to grade, but on average it is fine because again, we have to look at first the grade and what sort of cost increases have come through.
Okay. The percentage increase could be similar or some lower?
I mean, some are higher, some are lower. It depends on the grade and what the market segments will take, yes.
And what is the price increase in SSP?
SSP, what we've been able to do is while the industry has not taken a major price increase, we have been able to reduce any discount and therefore we are getting a better yield as far as SSP is concerned. And therefore we also restricted where we sell our products, too, and that has been the growth. So we are getting both the volume growth and the value growth on SSP, and therefore the margins are better.
The next question coming from Mr. Chetan Thacker from ASK Investments.
Just wanted to get the SSP volume for the current quarter?
Just give us a minute.
SSP volume for Q2 for this year is 1.72 lakh tons.
It's an increase of 25% compared to last year.
I wanted to understand more medium term, given that we are now operating at 96% utilization, so I just wanted to get a sense on the CapEx that will follow through and also what should be the medium-term assumption given we are seeing contributions from unique grades going up? So what will be a fair rupee per tonne to operate that over the medium term?
So we continue to look at an EBITDA of 2,500 per metric tonne in terms of margins. And as far as the volumes are concerned, it is going to be a mix of manufactured products as well as imported products. If you see this year, the industry has grown primarily in DAP, which has been mostly through to imports so we will be looking at an optimal mix of in-house production and imports as required.
So the operating actually H1, and the NPK capacity utilization was 88%, 96% was in Q2. So we are basically now looking at making our production in line with the demand in the market because Q2 is where the maximum consumption happens. So that is something, which has worked too. And as Jayashree said, we will look at taking a mix between our own manufactured versus DAP. A lot depends on the price on DAP, whether it makes sense to report or not.
And the other lines, these are broadly fungible, so if you want to increase the production of NPK compared to DAP, that is possible without any [ primary delay ]?
Totally fungible, this time we actually concentrated in making more and more of NPK on that. And therefore, even our technical teams do work really well. One of our business advantage is the flexibility which we have in our manufacturing operation in terms of producing different grades.
Just wanted to know what the next -- medium term in the next year or 2, how much would captive phos acid be for us then in terms of consumption?
So when we add the new, I think, with capacity, which is coming up in July, we will be adding another 1 lakh tons of phosphoric acid production, which will basically make our Vizag plant totally integrated. We don't have to depend on imported acid. So then we can make a call on using phos acid and rock as a mix, giving flexibility to the plant.
And so given the total consumption for the year, how much will this be in terms of captive then, eventually?
No, so I mean basically in terms of imports, volumes depending on what we produce and which grade we produce and because even the acid, depends on what grade you produce, if it's a higher P grade, then you need more. But roughly, you need around 5,000 -- 5 lakhs -- 5 lakhs 25,000 to around 6 lakhs of acid for -- to be imported. So that also we are looking at whether we can also expand, we have permission for that to expand our capacity further at Gujarat even to supply the Kartanaka plant.
[Operator Instructions] We have the next question coming from Mr. Girish Raj from Quest Investment.
So just wanted to understand if this October price increase, does it cover the increase in phos acid prices and the INR depreciation, broadly?
So just understand, Girish, what we have done is, and this is industry is looking at -- given the depreciation and the phos acid price increase, of course, we look at other things. The industry has taken a price increase effective from 1st November. So that is -- from the 1st of November, we have taken price increases.
Okay. So any quantum that you...
That covers the -- some of the impact.
And another macro question. Praj, in its call, indicated that renewable natural gas' by-product, which is a biofertilizer, has [ refute ] approval from NPOP. And given the large scale investment expected in renewal natural gas segment, do you see the big competition from overall fertilizer portfolio or at least bio-compost portfolio?
Firstly, the bio compost market is currently small and we are, thanks to even our reach with the farmers, we're able to commend the farmers to increase the consumption in that. And having said that, the way our soils had got degenerated, there's a huge room for everyone to at least look at soil regeneration. I'm not very clear on your renewable gas thing, we will just have to look at it. But I don't see that to be a competition.
No. Can it -- is there a threat from overall -- for NPK fertilizer perspective because that is more organic product? If at all, it is a large scale...
I'm not totally aware. Can we get back to you on this?
Sure. Okay, okay. Can I ask a final question on this? There is a lot of price increases in MSP. I don't know your view on MSP because the credit price of many of the producers are lower than MSP. How is the overall farmer sentiment given that there has been some price increases and another price increase than normal?
So I think, overall, from MSP support point, and this is what's always in the cereals, and the government, over the period, have been able to ensure that at least in the main markets, the farmer gets the prices. It is early days for MSP especially on the pulses and other price, so we'll have to wait and see how it happens. One thing which was alluded to in our presentation was that the government expects now even the private sector and we are not there to come and support these MSP efforts by going directly and also export opportunity available. But we'll have to wait and see if, I think, a number of players enter into the market, including private public partnership, I think that will help the farmers in the long term and get that support.
Okay. And subsidy claim in second quarter, sir?
We received almost 1,008 crores of subsidy in the second quarter.
No, no. What was the claim as in -- for the sale that we made during second quarter. For that, how much was the claim and how much we have -- because it is a consumption-based thing.
Yes, so there are 2 things here. One is we got 1,008 crores. And then in the month of October, we got another 648 crores. So a lot of the backlog is getting cleared. We still have -- and we have been able to submit our DBT claims, which will be the subsidy for the future until October 15 and what we have found is that the government is clearing it and in the next 2 to 3 weeks. And they have maneuvered them on that. The thing, which we have to -- with the government and that always coming is the whole 10% subsidy claims and some of the freight in India claims, which is what we are -- government is currently giving priority to clear the DBT claims so that is something which we are working with the government to give us.
What was the 10%, sir? Value?
The 10% value overall between what is claimed and to be claimed is about INR 650 crores.
It has come down. It used to be around INR 900 crores. The government has given us some money on that account. We are pressing them to give the balance and [ present payment ] to prioritize giving that.
The next question coming from Mr. [ Viraj ] from Securities Investment.
I just have 2 questions. Now if you look at our Crop Protection business for last 3 years, we've seen a significant growth in the export market and we've kind of grown or slightly better than the industry in the domestic market. Now if we look at the composition of bulk of the export was largely led by 1 or 2 molecules but it was given that advantage and a lot better -- superior growth. Now if I look at next 3 to 5 years for us Crop Protection, how are we looking at this particular business? I mean, what kind of number of launches and obviously -- or -- and exposure we are looking at? Which can probably give us similar kind of scale as we have managed to get from the current molecule? So I just want to understand the product, what -- how are we looking at this business. Will there still be a B2B on export? Or are we looking at B2C eventually?
Thanks. So you had number of questions on that. Firstly, the growth, which we are witnessing in Crop Protection is coming -- we have 15 technicals. So the growth is actually coming across a number of technicals, and we are looking at [Audio Gap] on that. So that is something which is there, and there's still an opportunity to continue to grow this across geographies and also the white spaces which we have, which we are actually fulfilling. The other thing which has happened here is, like we mentioned, that the bio registration and integration. We already have what we call now and what is called the Western developed markets of America and Europe, where they have a very strong presence. And at the same time, they would benefit from integrating with a Crop Protection business, which we already did in the emerging markets. What we are doing actually is, on the business cycle model, what we are doing is we are now extending our registration into a number of markets. We already got a registration in Nigeria so that we own the product and the registration, and that helps us to go to the market. Same thing we are looking at Mali for the composite, and we have people in Brazil and other places. So we'll continue to have the strategy of registering more and more offices under our own brand, which gives us much more mileage in terms of doing with the product. Also, what we are doing is putting up our own people instead of having a distributor in the market, and the main reason for putting people is to start building our brands in those markets and [under] the current portfolio. What we have done very successfully so far is investing a lot in not just R&D, but looking at the tech transfer. We have set up a pilot facility in our plants and looking at how we can fast track registration, which will help us to introduce at least 2 to 3 molecules every day. And these are the new job -- new molecules, which we add there. Apart from that, there's a phenomenal scope of introducing combination molecules, which our scientists are working on. And we are open to any opportunity which we find, especially with the gaps in our products, any -- whether it is in terms of a JV, in terms of acquisition, we are quite open to that.
Second -- so that was very helpful. Second question was on the Fertilizer division. Now if you look at this particular division in the past, also when we are seeing in times of increase in raw material prices or price depreciation, the profitability of the division has obviously been impacted, at least in the very near term. And this has always been more aggravated during times of overall monsoons or the operating in [indiscernible] factories. Now if you look at the product conditions, their similar in the first half, still we have kind of managed to maintain the EBITDA part on -- or your business has been able to successfully take more price that went through in the last cycle. So what is [ achieved ] -- I mean, what is that increased resiliency in terms of passing on the increased cost to the end farmer?
Yes. So there a number of things. So firstly, you're right, I think as a company, we are much more resilient and we have [ worked on ]. So a couple of things here. One is, of course, what we have done as of May 1, we have diversified our sourcing strategy so that we don't run out of any material, and we have very strong linkages with our suppliers. Manufacturing capabilities have got upgraded, and we are looking on with our scientists. We looked at manufacturing, what is called more and more of [indiscernible], and that number has gone up quite substantially. Currently, it is at 39% for H1. It was 43% for quarter 2. We want to take that to over 50% because that helps us to have more liberty in terms of how we manufacture our products. Again, what this [ means ] in terms of us introducing new molecules, which the farmer wants, and that is something which we are working towards, our centers are working towards. We have also strengthened our marketing team. So we have not only increased our presence in our -- what is called our operating markets. We do a full analysis in terms of our market share, not just by state, but by districts. And our retail team also starts to get to -- at the farmer level. We have augmented that in our markets, and we also have now a team of agronomists to help us to promote the new products and the unique grades to the farmers. And that is helping in terms of the adoption. So overall, there's a very strong marketing factors to ensure that Coromandel brands to stand out and farmers and those consumers ultimately love it.
Okay. Just if I can add one more question. Typically, if we look in the marketplace for fertilizers, especially complex fertilizer, there are a lot of mixers in the marketplace where people can -- the dealers and the distributors or even the smaller players, they kind of -- say, are in proportion of P and K and then offer a more customer offerings. So when we say we have unique grades based on these formulations, what is our value proposition, our communication to the farmer, which kind of help us increase our volume share and [ profitability ]?
Okay. So there are 2 things here you said, one is on the mixture operations, which actually is quite -- it' not really a manufacturing operation. A lot of them do -- it's a back of the yard, that is -- and government has taken cognizance of that. In fact, for a long time, they said they wanted subsidy onto the mixtures. Now with the change of way we are getting our subsidy, which is basically talking about at the end consumer when the farmer actually buys the product, one of the proposition which has been put to the government is to do away with this thing about fertilizer companies having to -- and some of them do this practice of selling to mixtures, especially with the -- they have the issue of selling their products. And what we have presented to the government is that it's better for us to -- and the industry to take the product back to the -- for any reason it's not being sold, to take it back to the plant, reprocess it because there's no subsidy involved. And for that, then you actually do a proper reprocessing, and therefore, the farmer gets quality. So that is something the government is looking forward to. So I do expect the mixture manufacturers as such, they've already come down. Especially given the GST regime, and they're to fill in the taxes and other returns, this phenomena will actually come down. One thing the industry has to do is to also understand where these people are selling, mainly it is in things like fruits and vegetables in the hills or the tribal area. And I think the industry now is advancing its cognizance of that, and we're also taking steps to ensure that we could provide smaller packs and things to those farmers and to target towards that and also use a [ few bodies ] to look at that.
[Operator Instructions] The next question coming from Mr. Nitin Gosar.
I just wanted to check the update on government subsidy receivable portion, which have been at 2,600 for a while now. Have we heard anything from the government? When are they planning to a review of this money?
The government has been [ clearing ] the DBT subsidies. It's been about 15 days to 30 days time after submission. We have briefed in an earlier comms that given that government [Audio Gap] AP and [indiscernible], there the pilot districts second affiliation of stock had to be carried out. All of those were completed, and there were also certain issues in terms of capitalization of this IT infrastructure from the government standpoint. Most of these goals sorted out by around end July, mid-August. Since then, Coromandel has been able to submit their DBT claims. Currently, we have, up to date, till October 15. So the government has been paying the subsidy claims, at most, every 15 days or within a month. As of September end, that quarter, we received INR 1,008 crores. Currently, in October, we have received about INR 650 crores. So as far as DBT is concerned, it is a priority for the DoF, and they are clearing all the claims that have been put through the pilot system. There are still some work that needs to be done in terms of the older claims, which primarily relates to the 10% balance claims, Urea and freight-related. We are working with the government to see how those can also be expedited. We also need to submit some of the claims where we are requested for original bills, which relate to the earlier years. So as far as we are concerned, we are seeing a good amount of progress in terms of government intent and actions in terms of claiming and clearing these subsidy bills that have been given to them.
When you look at this INR 2,600 crores, of that, INR 712 crores of subsidy which has to go through the dealer network, because now, unlike the past where you used to get the claims immediately once you dispatch the goods, this is what is the stock lying at the dealers network. And as the consumption happens, that claim will also get through the DBT system.
Okay, fair point. So this INR 2,600 crores, we may not have a complete picture or clarity till next March, keeping in mind the kind of...
No, we have a good clarity. I'm not sure what the issue is.
We have full clarity in terms of where the DBT numbers would be. We have our own internal estimate in terms of submission.
No, ma'am. I got on DBT. DBT, you clearly mentioned that things are getting...
Well, the old claims, we are working with the government on that. That will happen. And normally what the government does, like it's been doing in the past 2 years, is they run out -- currently, they have budgets. But if they run out of budgets also, they normally give us what is called a bank...
Special banking.
Special banking arrangement where the interest is very low. So the purpose -- our purpose would be to submit all the claims to the government and the government is doing pretty well on this. But -- so unlike the past, we are not worried about that. Obviously, the flow of cash happen like Jayashree said in the month of September and October now.
And currently, we have cleared the validation fees? I'm so sorry, using the word validation out there. But the older claims, which government wanted to reverify, are those verification processes over or we are still in the mix of that verification process?
When you look at the claims, we've already submitted to the government. They are just prioritizing the DBT claims, which are the largest chunk. So that's one. There are a few cases that they've asked for additional documents, which we are submitting to them.
[Operator Instructions] We have the next question coming from Mr. Kashyap Pujara from Axis Capital.
I had couple of questions. Just to extend the previous gentleman's question on the subsidy outstanding. And given that you mentioned that you do have some clarity how this is going to unfold, could you share with us what is your expectation of margin subsidy? Like if you -- when you close the year, what is your sense of subsidy outstanding that we'll close with?
So Kashyap, our intent is to see how we can get all the balance, 10% freight as well as Urea-related claims, clarifications submitted to the government. There are still [ at least to] work with DoF to see how those can get realized before end of March or possibly early next year. So from our standpoint, what we are looking at is, we should already be having only the sales that have not been acknowledged by the [Audio Gap] import acknowledgment. That should be the only item that should be remaining as subsidy outstanding because we should not be in a position to claim it, plus the last months because there's always a lag when you submit a claim. March quarter was acknowledged, and whatever is remaining in the fees as pending acknowledgment in the [ import submission ] should be the only subsidy that is outstanding from the government. That's the internal target we are working on.
Okay, okay. And would you like to put a number to it?
It should be around INR 1,000 crores, INR 1,500 crores.
It depends on -- a lot on how the consumption goes in Rabi.
Sure. No, absolutely. I'm not holding you to it. But that gives some idea to us in terms of -- it's a bookkeeping question but also directionally, it gives us which sense of which -- where we are headed. Secondly, the second question was mainly related to the operating environment. Like normally, in an environment where raw material costs are going up and you see rupee depreciation also panning out at the same time, reduce -- we generally have seen margins getting squeezed. And obviously, you did mention all the initiatives that Coromandel has done in terms of linkages and suppliers to augmenting marketing, which actually enabled us to pass on cost. But importantly, the market also grew. So the demand was intact for us to basically pass incremental cost at -- now my only question is that in the Rabi season, how do you see the demand panning out? Because do you see a risk of industry actually discounting the prices, which have already been raised to push material in the channel? So if the demand of Rabi is weak, then we might have a situation where people might end up giving discounts. So what is your view on the next season?
So just like I was mentioning before, we've seen a lot -- firstly, like I said, the dams in the south are where they are actually -- they are relieving both of our irrigation. We are hoping with the IMD forecast, that the northeast monsoon, which accounts for 30% of the sales -- 30% of the rainfall for certain markets will be normal. And if that happens, there will be actually a better demand in our markets as compared to what it was last year on that comps, and therefore, we have [ presented up to ] that. Now coming to your issue on pricing, I think like you mentioned, we're already seeing that farmers are searching to what is called lower feed grades than high feed grades, and that is something, as of now, we are absorbing. And we are not -- we are pushing our unique grades and sales much more, and that is actually helping us. So we don't -- we are not too worried about it. There could be a certain amount of discounting as far as the AP is concerned. But basically, this will be in other markets and we are well-positioned with our unique grades.
Sure. And our last question before I go to the queue, and that is my debt -- our debt has reduced by close to INR 700 crores in the -- from March till date, but financing costs obviously have been pretty sticky. So what is your sense here in terms of -- it's more like a bookkeeping question, but it would be helpful if you could throw some light on this one.
Sure, Kashyap. The numbers that you're seeing reflects the loan balance end of the period. Whereas during the quarter and during the half year, we are seeing that the subsidy rupees have not been much higher. We received INR 1,000 crores in September, and we have now received another INR 650 crores. Similarly, there is also feed in our higher inventory holding during the quarter to meet the seasonal demand that is coming. So interest cost is a factor of the working capital on a daily basis as well as an increased rate at which we are able to source our financing. You have seen that during the year, the interest rates have from the -- both in LIBOR as well as the rupee, so that also increased the overall interest cost. But the primary factor has been higher working capital that we had during the quarter, plus the subsidy income coming in -- the receipts coming into us end of the quarter.
The next question coming from Abhijit Akella from India Infoline.
Just one clarification. First, on the footnote space there's some INR 19.7 crores of a charge taken to a settlement of some customer claim. Which business? Is this the Crop Protection business? And if it was possible to get a little bit more detail on that?
Sure. This relates to Crop Protection business. So we had a claim, and the settlement relates to a lower marketable yield on certain varieties of apples in the current crop. This is consequent to presence of another fungicide, [indiscernible] said WDG exported to one of our customers. The contamination had happened in formulating the product by an outsourced third-party tool manufacturer. We've identified the root cause and fixed it subsequently. As you know, Coromandel is also investing in its own WDG facility at Dahej, which will get operational from April 2019. This will definitely help growing our WDG business in Brazil, expecting the registration to come in end of Q4. At this point in time, the company's adequately covered through insurance. And we have lodged the claim with the insurance company, and we have are [ closing second lines ] with them.
Okay, got it. That's probably helpful, ma'am. Second, just on the Crop Protection business, we've seen obviously a significant quarter-on-quarter improvement in margins. What is your sense of the input cost pressure situation? Do you see it normalizing? And what's the outlook for the segment margins in [ phos ]?
We are seeing the input cost stabilizing, added towards the -- the team has been doing a pretty good job leveraging our China [ deck] and getting into strategic types of procurement of the intermediates. So that is definitely helping. The third factor is we've also been able to do, selectively, price increases in the products as well as the key markets. So that's also helping increasing the margins. We continue to look into opportunities for margin enhancements in CPC business, and our guidance for the whole year remain around 15% to 16% EBITDA for the CPC this year.
Okay, got it. Just one last quick thing, and I'll get back in the queue. The volumes -- the sales volumes this quarter for the manufactured fertilizers, you mentioned it was 11.1 lakhs [ down this space ]. So this is DAP plus NPK all manufacturing? Is that correct?
Yes. Our manufactured products is 11.1 lakhs [ volume]. That's right.
Okay. So this is only DAP percent figure and more SSP [ figures ].
SSP is not included here. This is NPK and DAP.
Got it now. And the INR 29,000 price that we talked about for DAP, is that before the November 1 price increase? Or have you counted that also in this?
That is the current price.
Okay. And November 1 effective, it will go up by approximately?
November 1, we are probably looking at all the other NPK grades.
[Operator Instructions] We have the next question coming from Amar Mourya from Emkay Global.
So this is Amar here. So my first question is what is your thought on the import competition? And can you help us what is the landed price versus the manufactured price today for the DAP and NPK? And secondly, sir, if you can help us, what is the EBITDA per ton for the unique grades, which we have sold this particular quarter and first half? And then second, also help us, what would be the percentage of technical sales in the overall Crop Protection?
Yes. So -- Amar, thanks. Just on that per se, see between -- you talk about the competition from imported products. The competition is definitely in DAP, and it's not there in NPK. NPK, the volumes are very small frankly on import. So in DAP, actually, when you look at it, the -- it's not competition from importers. Actually, a lot of the domestic manufacturers have increased the, actually, buying of the imported fertilizer. And that's mainly foreigners, mainly to use domestic phos acid for NPK production. So that's limited. And we do -- we basically -- it's more of a question of looking at availability and the demand for phos acid and the conversion of our plants so that we can maximize the NPK fertilizer. So that's how we look at it and not in terms of competition per se. Our -- this thing is to continue to sell more of NPK and, within that, more of our unique grades. DAP is used more as a filler for us. That's the way it is. We do not give any margin guidance on unique grades as such. But obviously, the margins are a lot better than DAP as such, which is more of a commodity, right? And your last question was on the technical side. Jayashree?
Yes. So you had a question on what is the percentage sales on technical. So that's around close to about 60% of our overall sales. I would say INR 45 and INR 50 crores for the first half. That includes both export as well as domestic B2B operations.
Last question for the day comes from Resham Jain from DSP Mutual Funds.
I have just one question on the retail, the growth. So what are -- -- what we have observed while doing certain retail stores which is in [indiscernible] and other is that a lot of farmers are not buying from our retail stores just because the credit is not available versus a lot of dealers which you can credit until the harvesting. So do we any strategy going forward where we can leverage our retail distribution and have the kind of customers where our credit facility is not available, maybe through some strategic type of personal financing companies also? Just to have your thoughts on the -- it.
Right. So firstly, thanks for this thing and thanks for complimenting. But firstly, retail, we already have a strategic tie-up with CHOLA finance. But we are very selective in where we give credit to in terms of -- and that is basically linked with a certain amount of stores and farmers. One issue which we have seen and given credit, the whole retail value proposition is that when farmers come in, they get better quality of products. They are not going to get all the range available, which include competitive products, but also have -- got what is called advisory services. And therefore -- and that's the reason our retail business has been growing year by year. This year, there has been some issues as far as CHOLA is concerned on credit, particularly linked with Rayalaseema, areas where there was a seasonal failure. And therefore, farmers have not given them -- we are not involved directly because it is through our CHOLA's finance staff, where they're involved in taking credit. So I think, overall, we need to be very, very careful in terms of how and where we give credit. While it is a good growth story to have, the question would be in terms of getting back the money from the farmers. And that is something which any company has to be careful about, including the fact that a lot of times, and it may not apply to NV, non-value financial insurance, but during election years, government do waive our farmer loans. So that is something we wanted to be careful about.
And generally, we should also appreciate that our retail model is cash and carry model. That's how the retail business model has been structured and has been operated over the last many years.
And the credit risk was taken by a different channel, which is not paid channel. So those 2 channels complement each other.
But other than CHOLA, multiple bank client, for example, and [in auto industry is ] doing, auto dealership, they have multiple financing companies presenting the -- in the dealers' network. So we can't have such model whereby multiple banks already...
We are detecting -- we are looking at various ways. But also, it is also to ensure that our partners, even if the risk is on their side, do not suffer. So there are various mechanisms we are looking at how to ensure. One of the things, which we are pressing the government for is to lower -- one is when the demonetization happened, like we had said, a lot of the farmers had bank accounts and we were able to then insure our [ PDS ] status on that account. One of the things which we are pressing for the government and they're looking at it is how to reduce -- firstly, increase the use of this ATM and other instruments and how to reduce the charges to the farmers. Because when that happens, then what is called cashless transaction in the rural area will be a lot better, which is to the benefit not just for the companies but also for the economy in general. And that is something which we are looking at, and it will definitely help our retail business.
That will be the last question for the day. Now I hand over the floor to Mr. Sameer Goel for closing comments. Over to you, sir.
Thank you, and thanks for all the questions and I really appreciate that. I think, overall, the company has done well in a very, very tight economic conditions, which are there. We hope to continue with this good work, given that in the next season, with the prediction of normal monsoon, at least in what is called our own markets, and with the [indiscernible] input and we also do expect better output coming through. And the company has made various things including strengthening our marketing, strengthening our product mix to the farmers and the fact that our Crop Protection business is now introducing new products, which is doing well in the market, including our other businesses. And we'll continue to use things like agri tech and other things to give much more and better solution to farmers. So thank you with that.
Thank you, sir. Ladies and gentlemen...