Coromandel International Ltd
NSE:COROMANDEL
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Coromandel International Ltd
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Ladies and gentlemen, good day, and welcome to the Coromandel International Limited Q2 FY '23 Results Conference Call hosted by Axis Capital Limited. [Operator Instructions] I now hand the conference over to Ankur Periwal from Axis Capital. Thank you, and over to you, sir.
Yes. Thank you, Katy. Good evening, friends, and welcome to Coromandel International Limited Q2 FY '23 Post Results Earnings Call. The call, as usual, will be initiated with a brief management discussion on Q2 and H1 performance followed by an interactive Q&A session. Management team will be represented by Mr. Sameer Goel, Managing Director; Mr. Jayashree Satagopan, Chief Financial Officer; and Mr. Mayur Gangwal, GM Finance. Over to you, Sameer, sir, for the initial remarks.
Good afternoon, everyone, and thanks, Ankur, for organizing the conference call. I'm audible, Ankur?
Yes, sir, you are.
Right. So just to start off, global economy, the global economy is set to slow down from 6% in 2021 to 3.2% in 2022 to 2.7% in 2023. It is facing several challenges, inflation higher than witnessed in several decades, tightening financial conditions in most regions and resulting calibration of monetary policies.
I think the main issue is the strengthening of the dollar against major currencies and the Russian-Ukraine war, all going heavily on the global economy, future help. A bit positive news on the agriculture side, food price index has declined to 136.3% in September of 2022, sharply lower than the record high of 159.7% in March. The main reason is that some exports are happening out of main agriculture market, Ukraine.
Also, the commodity prices, which were high globally has been softening. Coming to Indian economy, most of you would know Indian economy is progressing better through the growth rates, which -- though the growth rates have been revised downwards and India is likely to remain the fastest-growing large economy in the world. The tax collections have been going reflecting all-round performance of the economy.
The headwinds are rupee depreciation, high inflation and of course, energy prices will need to be watched. The good news is the Indian agriculture continues to be obliged for. India received the fourth consecutive year of good monsoon. Southern monsoon was 106% of the long-term averages. South and Central part of India where we operate received excess rainfall. While not was a regular but got educate is to had a huge deficit.
The crop acreage in Kharif was at INR 1,103 lakh hectares, 1% down prior to the previous year. We are -- also cotton has done better. But obviously, there is a deficit in [indiscernible], mainly as a result of the less acreage, which happened in the Eastern part and UP part. The Northeast monsoon is expected to be normal. And with good reservoir levels currently of 108% of last year.
We do expect the Rabi season to be good. Coming to the fertilizer industrial performance. The global supply of key commodities improved during the quarter, and the industry has witnessed softening trends for major raw materials. The only place where we expect some earnings to happen in ammonia, a lot will depend upon how the winters are there in Europe. Domestically, the fertilizer demand has remained strong, supported by good monsoons and favorable policies by the government.
Coming to the quarter, DAP and complex industry timely sales volume was up by 11%. Currently about 64.6 lakh metric tons while last year, it was 58.5 lakh metric tons and mainly as a result of higher imports of DAP. BAT and complex fertilizer cost sales, which are actual consumption went up by 6%. Currently was 6.7 -- 67.2 lakh metric tons versus 63.6 lakh metric ton last year. As I mentioned before, major raw material prices witnessed a downward trend against the all-time high.
The NBS rate for Rabi for the full year '22, '23 has been approved by the cabinet. Subsidy for Rabi season will be the tune of INR 51,875 crores. For year-to-date, DAP and complex fertilizer industry primary sales volume were up by 15%. Current year was 119.1 lakh metric tons vis-a-vis 103.4 lakh metric tons last year. DAP and complex fertilizer industry cost sales, which is consumption sales was marginally down by 1%.
Current year was 103.67 lakh metric tons versus 104.3 lakh metric tons previous year. Coming now to Coromandel's performance. Like you have seen, Coromandel delivered a robust performance during the quarter, registering strong growth in turnover and profitability with the agricultural environment remaining favorable in most of its key operating markets. Normal crop sowing coupled by favorable policies from the gov helped. Coromandel registered a revenue growth of 65% during the quarter and 62% for H1, which was largely led by higher subsidies and MRP in the Nutritional business.
Other both businesses did well even on volumes. Coromandel ensures that Agri inputs are made available to the farmers in its key operating markets and promoted the use of balanced accretion, including organic fertilizer to help regenerate soil and farm productivity. Specifically on the Coromandel Nutritional segment performance, the Nutritional and Allied business, which includes our specialty nutrition and organic, revenue increased by 73% during the quarter and 70% during the half year.
Company specialized nutrition and organic products registered a very good growth, both in terms of turnover and profitability. We now introduced in the liquid fertilizer segment, which is the first in the Indian market and economics calcium during the quarter. On the sales front, in quarter 2, BAP complex volume was at 12.4 lakh ton, 11% higher than last year at 11.2 lakh metric tons. For YTD, DAP and complex volume was at 19.7 lakh metric tons versus 19 lakh metric tons last year. Manufactured DAP and complex volume was higher by 19% during the quarter and 6% during the half year of last year. Imported products was lower by 30% during the quarter and down by 14% during half year of last year.
Company market share in quarter 2 was 19.2% and half year was 16.5%. Last year, it was the same for quarter 2 at 19.2% and 18.4% for half year. In the complex segment, market share for quarter 2 was 28.8%. Last year was 26.6% and H1 was 28.4% versus 26.3% against last year. This is on the [indiscernible] sales. SSP quarter 2 sales was 2.43 lakh metric tons with a growth of 8% over last year.
And for the half year, it was at 4 lakh metric tons. Market share for the half year was at 14.3%, which was down from 16.1% last year, maybe first half, quarter 1. Our commercial team have been oppressed with the latest development in the global market and has ensured timely availability of raw material to ensure continuous production at the manufacturing plant.
During the quarter, our DAP and complex plans operated at 107% capacity and at 99% during the half year and produced [indiscernible] lakh metric tons of fertilizer during the quarter and 17.16 lakh metric tons during the half year. Phosphoric acid production during the quarter was again at all-time high of 1.2 lakh tons and H1 was 2.3 lakh metric tons. Progress on our key CapEx are as per plan, the work on sulfuric acid project is progressing well and will be commissioned as per schedule.
We have initiated a desalination plant at our Vizag plant, which will help to improve our operational flexibility going forward. To further enhance SSP facilities, the company is increasing the granulation facility. A new facility has come up at a plant in [indiscernible], which was added to this value. We have also revised [indiscernible] plant, Hospet plant and also we are manufacturing in our [ Qatari ] plant.
Progress by our technology team on new products working like [indiscernible] customized fertilizers as for our internal plans. With these initiatives, we will continue to promote balanced nutrition approach and support the farming communities. In fact, we have successfully done grown trials with our specialized and liquid fertilizer in the market, and they have been well expected by the farmers. Turning to Crop Protection.
Crop Protection business registered a growth of 1% in revenue for the quarter and 3% for the year. Increase in key raw material costs and price challenges due to high production of Mancozeb impacted domestic formulation business to business and its core business. Domestic formulation witnessed a very good growth with positive traction from the new product launches, which we have made this year. And in a single year, we have exceeded our full year target.
The business has received a total of 5 patents during this year. These are unique product combinations which has been developed by our own R&D team and this will argue well for our crop protection business as we come.
The business is building a rich product pipeline backed by strong R&D capabilities and is partnering with global investors to further strengthen its product offering. On the manufacturing side, CPC plants operated at a capacity utilization of 53% in quarter 2. Last year was 77% and 56% during the half year, last year was 78%. The main reason for this was we had to slow down our production on 9% due to the stocks that we had.
However, this has not picked up with the softening of from [indiscernible]. The [indiscernible] plant has had a very high capacity utilization, and we are expanding the capacity. Work has set up on a new multi-plant for the manufacture of [indiscernible], which has been publishing them and is expected to be commissioned during the year. As I mentioned for speciality nutrition, we have successfully [indiscernible] spring trials in the farm field in crop protection also. The business will be scaling up usage of [ drones ] during the remaining part of the year.
Our retail centers cooperated very well during the quarter, focusing on providing all-round agri solutions, including products from advisory and [indiscernible] service. Business has improved its operational efficiency and leverage technology to read out the performance. In quarter 2, which has a record 94% of our stores have been profitable and retail has operated with negative working caps. As part of our digital transformation journey, Coromandel has strengthened its digital data center initiatives, which includes creating unified data platform on cloud developing automatic cash flows and building advanced use cases for the business.
It is also created enough data for our manufacturing center. The company has taken significant steps in the last one year in the adoption of business intelligent dashboards. Sales force productivity tools and robotic automation has improved by process efficiency. With the expectations of normal northeast monsoon and higher reservoir levels, Indian and agriculture would be a bright spot. With the strength of a key operating markets, Coromandel will continue to ensure time the availability of agri input to the farming through our dealers and our retail outlets. Coromandel's diversified presence across the value chain will continue to provide balanced recreation and integrated [indiscernible] management solution to maximize farm productivity. I'd now like to hand over to Jayashree for the company's financials.
Thank you, Sameer, and good afternoon all. I will now provide updates on the company financials. In terms of turnover, the company recorded a consolidated total income of INR 10,145 crores during this quarter and INR 15,927 crores during the first half. The number for the corresponding period last year is INR 6,166 crores for quarter 2 and INR 9,852 crores for the first half. The company has registered a growth of 65% during the quarter and 62% during the half year.
The increase in revenue has been mainly on account of higher subsidy and MRP realizations in the fertilizer business, driven by high RM costs. Nutrient and allied businesses contributed to 93% share and the remaining 7% coming from crop protection business in the quarter. And for the half year, it is 91% and 9%, respectively. Subsidy norms of the share of business stands at 89% and 11% during the quarter and 87% and 13% during the half year.
During the previous year, it was 83% and 17% during the quarter and 80% and 20% during the half year. As far as the profitability is concerned, the consolidated EBITDA for the quarter was INR 1,058 crores as against INR 744 crores last year. And for the first half, it was INR 1,744 crores as against INR 1,229 crores last year. In terms of the breakup between subsidy and nonsubsidy business, it's 78% and 22% during the quarter and same for the first half.
During the previous year, it was 71% and 29% for the quarter and 72% and 28% for the first half. Net profit after tax for the quarter was INR 741 crores in comparison to INR 519 crores for the corresponding quarter last year and INR 1,240 crores for the half year against INR 857 crores last year. On the subsidy front, here in the quarter, the company received INR 3,866 crores. Comparative figure last year was INR 1,671 crores. For the half year, the total subsidy received is INR 4,002 crores and the previous year, it was [indiscernible]. Subsidy outstanding as of [indiscernible] was INR 4,176 crores vis-a-vis INR 1,698 crores during the previous year.
On the interest front, during the quarter, company incurred a net interest expense, excluding IndAS interest of INR 13 crores vis-a-vis interest income of INR 8 crores in the same quarter last year. For the half year, company earned a net interest income of INR 8 crores versus INR 20 crores interest income in the previous year. Company maintained a surplus fund of almost INR 2,324 crores in Board-approved securities and these have been earmarked for specific CapEx and growth-related investments.
Short-term borrowings of INR 1,279 crores were taken to bridge the higher working capital requirement. Our company's balance sheet continues to be strong. During the quarter, the company received AAA stable rating by India Ratings and Research of each group company and a short term rating at [indiscernible]. Company's long-term credit rating by Crizal continue to be Crizal AA+ postages and the short-term rating at Crizal A1+.
During Q2, rupee was extremely volatile and traded in a very broad range of INR 78.50 to INR 81.95. Coromandel followed a prudent considerate approach of regime before its exposure, thereby limiting the impact of currency depreciation. We thank you for your interest in Coromandel and joining us in the con call today. We shall open the session for question and answer.
[Operator Instructions] The first question is from the line of Tarang Agrawal from Old Bridge Capital.
Congratulations for an extremely strong set of numbers. I have a couple of questions. One, on the manufacturing of your phosphatics and manufacturing of SSP. As we go forward, can we expect you to probably cross your phosphatics manufacturing volumes north of 3 million tons and SSP volumes north of 7.5 million tons? Considering the capacity constraints or the debottleneckings that you might have. So that's number one.
Number two, if you could give us some trend on how phos acid prices have moved for you in the past? And what was the price for the upcoming period?
So thank you Tarang for questions. As regards the capacity for manufacturing of NPKs and SSP. The question was whether we would exceed the 3 million tons and 7.5 lakh tons of capacity that we have, definitely, with the debottlenecking that has happened and the use of different [indiscernible] of raw material, we believe that both these are possible.
As far as the PA price trend is concerned, we have seen the prices shooting up from last July onwards, July '21 onwards, we've seen an uptick. Last quarter, for instance, the PA prices was almost $1,715 per metric ton. The current quarter, it is $1,175 per metric ton. So after a continuous increase in the prices, we are seeing the raw material prices are cooling down, and we expect this trend to continue.
The next question is from the line of -- sorry, the next question is from the line of Himanshu Binani from PL India that is Prabhudas Lilladher India.
Congratulations on a good set of numbers. So I have 2 questions. Number one is on the margin side. So despite we are seeing a lower contribution of the units...
This is the operator, Mr. Binani, can you speak a little closer to the phone, we're unable to hear you?
Is that audible?
It's audible.
Yes. So sir, despite the same lower contribution of unit grades to the overall volumes, while the increased volumes in the trading side of the business. And what I understand is that some of the competitors have actually posted the numbers citing taking some inventory loss from the carryover inventory from the last year also.
And due to the volatility into the RM prices from 2Q to 3Q, so there might be some component of inventory loss also in that. But despite that, we have like posted this sort of EBITDA per ton in the manufactured volumes. So just wanted to have a sense on how the margin profile are and how should one actually look into the EBITDA numbers going forward?
And the second question was on the CapEx side. So sir, any sense or color on the capacity enhancement into the complex fertilizer side, I think we are like we have just alluded that we are already working at optimum utilization. So going forward, is there any plans for enhanced capacities into the complex fertilizer side?
So just [indiscernible] you talked about the margins. Obviously, when we look at how we do our planning, we look at whichever grades are giving us good return depending on the raw material and the conversion cost and the market as per the crop demand, we go for that. So that is how we balance off how we look at things.
That's one part of it. And the good thing about Coromandel is we have a lot of grades to choose from, and we can promote [indiscernible]. You said we did more trading volume, we did not do more traded volumes as far as NPK is concerned, I have actually highlighted that we have done less given the high raw material -- given the higher prices, which had happened. But at the same time, we did manufacture some of them fertilizer, which we did more. And that's why we enhance our manufactured fertilizer.
One of the good thing was we were able to source all of the materials on time. And therefore, our manufacturing team was able to manufacture and Jayashree alluded in the previous discussion, we're also to improve our efficiencies much more. You want to answer the capacity?
Yes. The other thing, Himanshu, that we need to also look into is the backward integration that has been undertaken, which has been of tremendous help in terms of the value capture at our end, right? Now I will talk about the CapEx. The CapEx plan for the year was close to INR 800 crores to INR 900 crores. We are tracking well on it.
The projects are going well. Currently, in the plan, we were also debottlenecking CapEx but at the same time, depending on the market conditions, we are also exploring what could be the future capacity creation. For instance, we have set up a liquid fertilizer plant, and that is currently getting fully operational. We are also looking into setting up in the coming year possibly another liquid fertilizer plant, which could be used for, say, [indiscernible] for which we are currently going through the regulatory approval processes. So there is work that's going on in the businesses to look at capacity augmentation and future capacity creation.
Right. And ma'am, was there any sort of inventory loss component, which is into the reported numbers?
I think you're referring to the [indiscernible] comment.
Right. Right.
Yes. So as we do not be so much in DAC, we don't have any inventory-related loss. The way the government has set up the subsidy for DAP work, anything that is manufactured during the year either [indiscernible] of subsidy and anything which is in the carryforward inventory of prior year was about INR 33,000 of inventory. In the last quarter, on the carryforward inventory, we had recognized only INR 33,000 and therefore, there is nothing to come and impact to remind these books this year.
The next question is from the line of Manish Mahawar from Antique Stockbroking.
First question is in terms of NBS rate, what the government has announced a day before yesterday. So how do you see the rates and our action in terms of MRP in the marketplace? And how do you see the -- for the full year subsidy outlook for government as a whole and a payment to the companies?
Yes, Manish. The NBS rate that has been announced by the government is well close to what has been announced for the Kharif season. And the raw material prices have been coming down. So at an appropriate time, we believe that the government will be relooking into the NBS race and may come with a downward correction. Having said that, when the raw material prices come down and the subsidy at its current level, there is also a [indiscernible] companies to see how we work through the MRP. And those options are being contemplated by Coromandel as well.
Okay. But currently, what the government has announced the rate and for asset price, right, how much maybe possibly -- do you think MRP will be -- come down in this next 3 months, maybe the government will take time to reevaluate this number further?
That is being worked out, Manish. So possibly, we will get a clarity on it in the next 1 or 2 weeks. And accordingly, the actions will be taken in the market. As regards subsidy question was how is the government disclosing there is an additional outlook which has been approved by the cabinet and even in the month of October, we have received more close to INR 2,500 crores of subsidy from them.
And we hope during the next couple of months also, they should be in a position to process and pay the subsidy outstanding to the companies.
The comment has been very good at this.
Okay. So by March, maybe '23, do you think the situation will -- because the balance sheet as well as the subsidy outstanding has increased, right, in terms of -- because of a debt number so if normalized by March '23, [indiscernible] time?
I think so. As you're seeing that the government has paid out the subsidy money almost all through the year. This time also, they have taken approval from the cabinet. And I do not see a reason why subsidy is not get paid.
Okay, understood. And second question, in terms of production capacity, which the earlier question also asked about what type of -- because right now, what -- how much of a production we can do because you have done a lot of debottlenecking in NPK plant, what is the optimal production we can do in the existing capacities? In terms of NPK I'm talking about or DAP?
We can continue to do even more production. A lot also depends on how we take our annual turnaround. This depends on a number of factors, which includes the demand in the market, but more importantly, when you look at the safety of our plants and equipment. So that is something which we will take a call closer to the time, and it is a non season.
Okay. But any number you can say maybe 32 lakhs ton or maybe 35 lakhs ton, what type of number we can manufacture on an annual basis?
I think we should be able to do between 32 to 33 lakh tons. As Sameer mentioned, there are 2 factors that could come in. One is the mix that we adopt. There are going to be certain products where the throughput is going to be much higher. And if you're going to do too many products and we do a changeover that is going to impact. There are certain products where the throughput to inherently be lower. So one is the component of mix. The second one is the timing of the ATA, right? During an annual turnaround normally between 15 to 30, 35 days the plant could be shut down, depending whether it is a fully integrated plant or it is just a granulation plant.
And therefore, these also come and impact us to that piece. So long and short, between 32 to 33 lakhs if possible. But if you have to take a call, say, I want to do an ATA in March vis-a-vis April, then there could be a lower production. So that call normally, the manufacturing team takes about a couple of times before. That's a flow of looking into the manufacturing capacity.
Okay. And last one in this same question. In terms of granulation plant, right, maybe the brown filter expansion, how much time do you think we will maybe take or we are waiting for, again, raw mat sourcing for basically the final plant?
Yes. We have mentioned in the previous call that it is going to be important for us to tie up the [indiscernible] as we look into for the capacity expansion. So the business is looking into seeing how we can get RPA secured as we think about additional granulation capacities.
But anyways, once you set up a plant, right, it will take around 18 to 24 months' time to come on stream, right, in the plant?
Definitely.
Thank you. The next question is from the line of Bharat Sheth from Quest Investment Advisors.
So coming on this crop protection, despite, I mean, we have been introducing new and we have been taking on earlier old product moving out, this time, also our growth is not I mean, compared to industry is very low. So where do we see a sustainable growth? And what are the factors that has affected the growth?
So firstly, our domestic growth has been very good. We have -- when we compare across the companies, our domestic growth in corporate has been very good. This is despite the fact that, that we had what is called excessive rains [base] and therefore, it stopped some of the, what is called application to happen during the quarter because of excessive rains.
And like we said, we are obviously concentrating on our high margins and new products and therefore, we have also done downsizing of some of the other products where the margins have been an issue, but this requires investments. So domestically, things have been well. There has been pressure like we mentioned in our call on Mancozeb which is has had added capacity plus also across both in the export and the domestic market, primarily also got to do with the high prices which [indiscernible] in what we could do and that has impacted some of the things.
Good thing is raw material prices and Mancozeb is also coming down. And we are putting up the thing. And therefore, again, from September onwards, we are seeing quite a good uptick. Jayashree, if you want to add anything?
Yes. Sameer said, the prime reason for the [indiscernible] sales is our exports and B2B markets, mostly driven by Mancozeb. That is also because of the high RM costs. And the decision from a business was not to produce more [indiscernible] at a much lower cost. Having said that, in the last month or so, the raw material prices have eased and therefore, it gives an opportunity for additional Mancozeb sales during the coming quarter.
On the domestic front, we had a most on the formulation business. We had almost a 29% growth year-on-year and the new projects that have got introduced has been doing extremely well, which is also held in sort of balancing the margins overall. As far as PTC is concerned, there are 2, 3 things which going forward should help the business.
One, the new multipurpose plant that is being constructed at Ankleshwar should be ready for commissioning in January of the coming year. This will be manufacturing through 3 technical Azoxy, Picoxy and Cyproconazole. This should complement and also help produce a heavy dependence on Mancozeb. Apart from this, the business is looking into further new technicals which have become [indiscernible] in the last three years.
We've identified in the first list. In other 10 AI, out of which the R&D team has come out with the DoD for 6 of them. So the business is looking at a new proposal for setting up multipurpose plant. And the proposal should hopefully come in and get clear in the next 2 to 3 months time. All these actions in terms of cruising up the AI portfolio will help in the B2B business, which is both export and domestic.
On the formulation front, the business is continuing to look at the introduction of new molecules. This year, already 4 have been introduced, one more in the pipeline for the coming quarter. And the business has also got taken for 5 combination molecules which also is for the first time. Apart from this, about 23-odd registrations have been successfully obtained for the global market which also includes some combination-related registrations.
While the current quarter has been soft, we think some of the actions that have been taken up should help get a much better portfolio mix for crop protection and also address some of the concerns on the overdependence of Mancozeb. Apart -- also looking into deeper penetration in select Southeast Asian market to go on an aggressive B2B and also possibly on a B2C.
Jayashree, currently, Mancozeb contribute how much to the total revenue? And second question related, this 5 new patent which we got it. So have we already launched the product? Or when are we -- if not then, when we will be seeing those product launching?
Okay. Good question. Mancozeb currently is about 45 percentage of total revenue. It used to be 60%, 65%. It has come down to some extent, but still export is heavily dependent on Mancozeb. As far as the 5 newly patented molecule, we patent at 15 receipt. So we will be working on the formulation, and we should see the product launches in the coming year.
So in Rabi season, do we expect or it will be again next year only?
This will be next year. In Rabi season, we will be coming up with another [indiscernible] product for launch.
And how much are these specialty nutrient and organic is contributing? And what -- if you can give roughly around the size of that business? And how do we see the prospect of that?
Yes. Specialty nutrients and organic as the business has been growing quite well. We have seen the business growing in almost 25, 30 percentage on a year-on-year and currently, on a year-to-date basis, there will be about INR 250-odd crores in terms of revenue.
Fair. And on the SSP side, any color I would like to give? Or how is the profitability vis-a-vis which was earlier with now new granulation facility coming up?
Sorry, can you repeat the question, please?
On SSP, output is...
SSP is impressively doing quite well. One of the issues which we had was to increase our capacity which we have done by revising, we had -- like we have told, we had now [indiscernible] a couple of plants, which we have revived. We are also taking some additional consulting from [ Kathavi ] and we are [indiscernible] the granulation facility. The granulation facility not only helps to improve the use of SSP, but also helps in terms of launching our new products like Gro Plus, which is now doing extremely well and has a better margin profile.
One good thing which we should have mentioned is, which is happening from the government is on subsidy on trade. Now this will help us to supply almost pan India, especially the big markets on the East where currently we are not tapping so that our supplying regularly. So we will be doing that also. So SSP, we continue to see it grow. Even the government is promoting SSP against the imported DAP, especially in the markets of North and West as a better substitute because from a farmer's point of view, it not only gets for phosphate, but also gives other required mineral which is very useful for the side..
Sir, you're done with your questions.
Yes. I think 2 questions are [indiscernible]
So we move to the next question, which is from the line of Ranjit from ISS Securities.
My question is on the profitability of the fertilizer segment. We have been out forcing our guidance for quite some time now. So whether there are any thoughts of the EBITDA per tonne guidance revising upwards. And the second question is that we have also seen a bit of hardening in the prices of the ROC phosphate.
I do believe that we have been having the super efficiencies and probably part of that, at least on the ROC phosphate front, do we see adeno prices might lead to a bit of pressure on the conversion or the benefits that we have been getting due to the backward integration?
Thanks Ranjit for your question. On the profitability front, we had early guided on our EBITDA per tonne of about 4000 tonne, 4500 ton for 3 years. Given the weight, I think margins have turned out to the first half. I think it would be reasonable to expect the margins will be better during this year somewhere between INR 5,500 per metric tonne or something which I think could be feasible.
On the ROC phosphate pricing that you were mentioning, which was a note that the prices across the commodities, et cetera, ammonia has been [indiscernible] and we are seeing a similar trend in ROC phosphate. So I don't see a reason why the prices for phosphate would go up. DAP prices are down, crop [indiscernible] prices are down, we are seeing softening in the ROC phosphate as well.
Would we be able to -- the guidance is for this year or even for the next year? Do we see a fair bit of comfort?
I think the guidance is for this year, as we work out the business plan we should be in a question to guide for the coming year.
The next question is from the line of Rohan Gupta from Nuvama.
And thanks for the opportunity and congratulations on such a strong set of numbers in the current quarter. Sir, 2 to 3 questions from my side. So first, we start with on just the current phos-acid prices, what are the contractual prices for phos-acid and though Jayashree mentioned that government may look at further reducing the prices or the subsidy, but I think that the subsidy rate which has been announced so far are already fixed for the entire baby season.
And if the market prices are remaining or hold on to the farmers or the current level, do you see that the margins that currently with in DAP and NPK fertilizer will be much better than what we have already seen in first half?
Yes, Rohan. The phos-acid prices, as I mentioned, for this quarter is about [indiscernible] and it has come down from $1,716 in the last quarter. So as I was mentioning, while the cabinet has gone through the NDS rate, and we have the circular which [indiscernible] for the Rabi season.
And there is going to be seed reduction in the prices. We believe the government may look into the NDS rate and could come with a deficient during even the Rabi season, but we have to wait and watch. Second, as we further the prices have got finalized for the quarter and the raw material prices are coming down.
The company has also been having inventory for continued production. So there is going to be some level of high cost inventory which has to get liquidated. And to that extent, that will also sort of compensate for the margin. The third one, as I was mentioning a while ago, that [indiscernible] prices coming down. There is also responsibilities for companies to look into how some of the [indiscernible] passed on to the powers who are end consumers.
So that is being worked out and probably in the next couple of weeks as we go through the cost proposals should be coming up system in [indiscernible] related actions.
Ma'am, can you quantify or some numbers a little bit at high cost inventory, which we have on the raw material, what can the impact on profitability. And I think that all will be visible in Q3?
Yes, mostly all this should come into Q3. And this varies, right, across various raw materials. We could be farm on the first crisis. We have some drops, which are being put which are for a longer term. And then there is also a certain quantum of sulfuric so we've seen the prices in all these commodities coming down. So it is a mix between various raw materials.
And I'm hoping that most of it should get exhausted in the coming quarters in the current quarter.
But in respect to the high-cost inventory, if I look at closely the -- as you also mentioned that the government reduction in subsidiary is on DAP is hardly INR 1,500 per ton. And if we maintain the prices to the farmers at the same day, it means that even the previous raw material, which we are carrying is enough to maintain our old margins.
However, now the fast asset which we are procuring right now is going to have a significant improvement in margins. So I didn't get that will the inventory losses, which we're talking about can be anything significant because the subsidy has not come down sharply and the pharma prices will remain the same.
I don't see a significant reduction in the margins segment. However, having said that, this is also the value gap that is captured and the phos-acid prices are very high, right? Because when you do your own backward integration, you do manufacturing of phos-acid, there is a value capture that happens between you're buying the [indiscernible] and converting into acid, we [indiscernible] buying acid. And the acid price has come down. It's good in a way, but at the same time, we value capture in terms of getting the rock and processing will also come down. And the amount is [indiscernible]
That is the reason why I am saying. And the NRP correction that could be possible. And you know that we are not mostly into [indiscernible] we are into NPP, and there are different grades of [indiscernible] So when you look into a combination of all of these factors, and think that, that could sort of some extent moderate the margin compared to what we have seen in Q2. Overall in the year wise, I think we'll still be better than last year.
Second, in terms of the margin guidance which you gave as we have already seen a first half solid number. So definitely at INR 5,500 EBITDA per ton may not only hold on when we may exceed that number as well that what looks like. For next year, any sense that do you see that these are the sustainable margins which one should be looking at going forward even at the process it coming down and the backward integration, which we have now. So do you see that these are the sustainable margin pertain related?
I think so over the years, we have seen that the margins per se have been getting better with a lot of efficiencies that are being built in, in the plant and the plant operating at a higher capacity and the dewatering making efforts are also helping to spread the fixed costs better. Margins should be definitely in the range of 5,000, 5,500 like more. I think those are good numbers for us to look into.
Like Jayashree, we'll go through the planning process, and we'll be able to tell you that for the next year.
Fine enough. Sir, on our agrochemicals part of the business, we have been highlighting that we are open for growth, and it will also have been very aggressively looking for inorganic growth opportunities also in that segment and even in other businesses as well related to Agri.
Do you see that we are having enough options and we are getting such opportunities, which you may like to pursue and we may see some inorganic growth opportunities as well in the agrochemicals part of the business or in terms of you want to build the business towards the contract manufacturing and the intermediate manufacturing or grams model, we would like to increase significantly in the agrochemical part of the business over the next couple of years.
How do you see that business panning out?
So we have had a detailed listing with [indiscernible], which is a long-term strategy. And we look at -- we are looking at each of the news which we have talked about, right? And this is not therefore crop protection, but we'll also look for any other age businesses, which are there, but it needs to make business sense to us. So that is something which we have done.
We've already seen that our [indiscernible] has invested very well in 3 startups, including we have taken up a grown company manufacturing we've taken share there and part of the deepens so that we can then leverage them for our own operations for the benefit for the farmer, which is both for the crop protection and the mutations about these. So we'll continue to look for the opportunity.
[Operator Instructions] We move to the next question from the line of Abhijit Akella from Sumikapital.
Yes. So congrats, the opportunity. I have a couple of questions. The first one is that what kind of a sustainable benefit that we can get in our EBITDA per tonne on account of the recent phosphate acid expansion that we've done as well as the new sulfuric acid and first backward integration that we're going to complete in next year and in the next 2 years as well. So what kind of a benefit that we get in EBITDA per tonne because of that?
So the benefits of PAs already been factored in and as far as that will get commissioned next year, I had indicated earlier, this is more to do with securing our raw material. So that we can avoid a high fluctuation in the procurement price. There will be benefits in terms of our team that gets generated, so on and so forth.
The primary intent of putting up a separate plan to ensure that our imports are coming down, and we are not subject to huge volatility. So I think can help with some improvement to help us with our negotiating power. That's the way one should look into the capacity that you're getting on a.
Under the normalized environment, I know the primary reason is raw material security, but you also -- you also have some kind of an arbitrage in pricing even if do raw material prices in an large environment are not elevated as they have been in the past.
So there must be some kind of a quantifiable benefit that you would have received on account of just putting up the [indiscernible] facility.
There could be some, which I said normally, this comes from the forward looking...
Can you quantify that?
I don't have the number right at me Ashar. Probably, we can take it offline, you can give us a call, and I'll have the number for these.
Okay. And my second question is on nano DAP. As you said that it is still in the approval process. What kind of -- what kind of margins and what kind of growth are we seeing in nano DAP and the application of nano DAP and the fertilizer industry. And as you know, your competitor already has a patent, which he has taken 3 months back from nano DAP. So how will that create a threat to our something in terms of the nano DAP that we are going to release.
I think there are a couple of companies who have applied for approval for nano DAP. So each one will be following a different process. And once we get all the approvals then the manufacturing distribution will start. We have done the trial in the [indiscernible] And we find that the results are quite encouraging.
Normally, these are emitted from and therefore, it is a full year application. We'll have to see to what extent is we sort of substitute the granulated DAP. But our estimate is that it could be anywhere around 15%, 20%. Over a long period in time.
Initially, the adoption could be lower and over a period in time based on the input that comes from the field relating the intravasation because these are very, very early stages of these new products that are being introduced.
Ma'am, I assume that there will be the nano DAP you guys have been testing and has been given for the approval process...
Sorry Asher, we can't hear you.
Am I audible now?
Yes.
So ma'am my question was that the nano DAP that you are testing and has been given for the approval process, will that be of a different grade than your competitors are using?
Nobody else today, who has come with nano DAP. There is nano Urea that has been manufacturers and distributed by IFCO.
But ma'am, IFCO has already achieved, IFCO has granted a patent for nano DAP 3 months back.
What you are trying to say is the processes are different entirely different, so there is no issue.
The next question is from the line of [ Krishan Bre ] from Elara Capital.
Ma'am, while you have quantified that the high-cost inventory would be exhausted in Q3. But specifically at the start of Q3 or during the start of Q3, how much of phos-acid and rock high-cost inventory will be there for how many days, if you can quantify in terms of number of days?
I don't have those numbers right away, Mr. Krishan. Typically, phos-acid could be for 20 to 30 days, right? It also depends upon the mix that we are using. And ROC could be for a slightly longer period. Because we don't know how the phos-acid prices are going to be within our predicted ROC prices.
The -- typically ROC you hold [indiscernible] because we've not been efficient to import. That's been a normal case, when the material prices are going up. Sensing that there should be some moderation in the prices as we went through August and September, we have consciously been to and sort of [indiscernible] and reduced the inventory for ROC, which typically is for a longer period.
So the inventory that we are holding are not at the same level that one used to hold when the raw material prices are going up. It is lower. While it is lower since the prices are coming down, you will definitely see some impact.
And ma'am, would the strategy be to reduce the MRP after we liquidate the high-cost inventory?
I think that's what we have been looking at. I don't have an answer. We look at after all liquidation of high cost inventory or it could be like then on an average, we will be able to achieve a certain cost proposal position. And therefore, is it better to part on the benefit to the farmers. So that's something that is being considered by the management.
Sure. And I'm just a bit on a longer horizon with the kind of initiatives that we are taking on crop protection, organic and specialty nutrient. Do you think that the incremental growth from these 3 segments will be able to give us a decent incremental growth maybe next year or FY '25 onwards, so that we don't feel the impact of lower volume growth in the core complex fertilizer business.
Krishan, the way we are looking into each of the SBUs it will have your own growth path and credit team. There is opportunities across all the [indiscernible]. Obviously, B2C or SME and organic have several [indiscernible] opportunities as well. For instance, in B2C, we can look at the Indian market, we can look into global market, both for B2B and B2C. There are opportunities to look into product or contract manufacturing.
On SMB, more of liquid fertilizers coming with [indiscernible] what is shortage is that could impact. There is a much more opportunity out there. Organic, again, is a very, very sought-after product. And we are seeing as well as revenue during the year. So these will have their own aggressive growth plan. At the same time, there is opportunity for the fertilizer business that will also have a strong growth. For instance, between last year to this year, the SSP growth has been very good. Relative, the SSP is much lower in terms of cost compared to NPK, given the high prices that happened to [indiscernible] a good uptake for SSP. And even in SSP, we are looking into converting most of the powder into granulation. There is value-added SSP that we are looking into. So each of our businesses are looking into how they can plan, how they can grow and grow profitability -- in profitably in each of the areas.
So that focus will continue. And Sameer mentioned earlier, apart from the existing SBU trying to grow, there are going to be focus areas in terms of how we even use technology to aid the farmers in improving the productivity. We have been in the last year or so, investing into acid companies, we [indiscernible] investment so far. All of them are very promising, primarily the drone investment that we have done in [indiscernible] in the last quarter.
We think it's going to be very [indiscernible] with the labor costs going up, more of liquid applications coming in, whether it is in crop protection, specialty nutrients. The usage has grown is going to be hurting the farmers in terms of getting the better efficacy as well as reducing the cost of input labor. So we want be exploring multiple opportunities across the existing businesses and adjacencies to enable consistent growth within [indiscernible]
Sure. And lastly ma'am, for the Nano fertilizers or organic or specialty nutrients, how many seasons or years of demand generation is required at the farmer end? And we have been trying to do this since then?
So what we did was for our specialty businesses and organic, we already got the agronomic team set up. which is basically an export market theme which works with the farmers. And they work on specific crop types, obviously, it is a concept selling. But now the farm works and including the fact that we can ease them with digital media, are adopting this very fast.
So we do see a very fast adoption. In fact, our strategy here is to move more away from trading more into manufacturing so that we can also do the value capture and at the same time, upgrade our offering to the farmers. For example, in sulphur, we used to sell [indiscernible] pioneers and enrichment sulphur but now we have moved to a much more better product for the farmers for sulphur [indiscernible].
We also have [indiscernible]. So we have limited our sales of winter in sulphur which has become general. So we keep doing this to ensure that adoption is very fast, and I believe that our agronomic aided with the [indiscernible] which we have in the key markets. Coromandel is very much on our retail outlook, we are very much geared up for a very fast in production.
Thank you. That's it from my side.
Thank you. Ladies and gentlemen, this was the last question for today. I now hand the conference over to the management for their closing comments. Over to you, sir.
Yes. Thank you very much. Thanks for taking your time on a Friday evening. But it's been a very interesting and challenging year, last 6 months, especially given the international crisis, which is there, especially with the [indiscernible].
But I think your company with what we have done in the past and with our diversified portfolio, and our direct contacts with the farmers, both through retail outlets and with [indiscernible] has done very well with the storm, which is there, which is impacting across the industry and have been able to deliver. I think given our farmers focus and the new products which are in [indiscernible] application plus advent into AdTech and you have seen reality there.
It's no longer just a dream. We will continue to support the farmers in key markets for improving the productivity. And then the company will continue to do well. So thank you very much.
Thank you, members of the management. Ladies and gentlemen, on behalf of Axis Capital, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.