Coromandel International Ltd
NSE:COROMANDEL
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Coromandel International Ltd
Earnings Call Analysis
Q2-2024 Analysis
Coromandel International Ltd
Coromandel International's journey through the quarter mirrors the trends in the global and Indian economies. The IMF reduced the global growth forecast to about 3% in 2023. India, however, remains a silver lining with an upward GDP revision to 6.3% amid global slowdown. A resilient agriculture sector, despite a 6% lower monsoon rainfall than average, and the government's solid infrastructure investment, paint a picture of robust domestic demand.
Navigating through a challenging year for the fertilizer industry, with 11% improved phosphatic industry sales and a 34% increase in overall industry consumption, Coromandel's unique performance stands out. Despite a 7% fall in nutrient segment primary sales due to lower subsidy rates, the company's market share experienced fluctuations, with second-quarter sales volume slightly decreasing. Yet, Coromandel improved its SSP market share and maintained its nutrient and allied businesses' stronghold. The commissioning of a new sulfuric acid plant exemplifies its commitment to self-reliance and marks a significant stride toward production efficiency.
Coromandel is not resting on its laurels. Progress is tangible in its patented Nano DAP fertilizer and the recent introduction of drone-based agri input applications, reflecting its drive to innovate and expand. An equity investment in the AI-based startup XMachines signifies a futuristic step into agricultural technology, hinting at the company's ambition to blend tradition with technology.
The Crop Protection business charted healthy volume growth, driven by a 29% increase in exports, particularly South America and Africa. Despite global headwinds leading to a decline in realizations, operational efficiency and strategic investments in new projects paint a picture of financial prudence and growth potential.
The company witnessed a drop in consolidated total income to INR 7,033 crores for the quarter, primarily due to a decrease in subsidy rates. However, Coromandel maintained a stable EBITDA at INR 1,059 crores and increased total net profit after tax compared to the last year. This performance, coupled with a significant decrease in subsidy outstanding, is reflective of an efficient subsidy management amidst reforms. Their strong balance sheet, affirmed by top credit ratings, reaffirms the company's sound financial position.
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Ladies and gentlemen, good day, and welcome to the Q2 FY'24 Earnings Conference Call of Coromandel International Limited, hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ranjit Cirumalla from IIFL Securities Limited. Thank you, and over to you, Mr. Cirumalla.
Thank you, [ Michelle ]. Good afternoon, all. On behalf of IIFL Securities, I welcome you all to Coromandel International's Q2 FY'24 earnings call. Today, we have with us Mrs. Jayashree Satagopan, President, Corporate and CFO; Mr. Sankarasubramanian, Executive Director Nutrient Business; and Dr. Raghuram Devarakonda, Executive Director, CPC, Bio and Retail Business. I will now invite Mrs. Jayashree Satagopan to share opening remarks and details on financial performance, post which we will have a Q&A session. Thank you, and over to you, ma'am.
Hi. Good afternoon, everyone, and thank you, Ranjit, for organizing this conference call. Let me first give an overview of the business environment experienced during the quarter, followed by the company's performance, and then we can have the Q&A session. As far as the global economy is concerned, it continues to recover slowly. And as per IMF's latest projections, global growth is expected to be approximately 3% in 2023 versus 3.5% in the previous year. Energy and fertilizer prices have started moving up from September onwards due to the demand and supply mismatch. India continues to show resilience, supported by robust domestic demand, strong public infrastructure investment and the strengthening financial sector. IMF has revised India's GDP growth upwards by 0.2% to 6.3% in 2023.
During this quarter, tax collections remained buoyant and retail inflation eased to a 3-month low in September at around 5%. On the agriculture side, India experienced a below normal southwest monsoon, with the country receiving 6% lower rainfall compared to the long period average. There was significant variability across regions and time periods within India, receiving record low rainfall in August, followed by surplus in September.
The overall crop sowing area remained around last year's level, with acreage increase in paddy, core serials and sugarcane and a decrease in pulses and cotton. Among other key operating markets, crop sowing in Anhdra got impacted, while Telangana, Karnataka, Maharashtra and Bengal were close to normal levels. The all-India reservoir levels stand at 92% of long period average with the southern region at around 64 percentage.
IMD has forecasted a normal northeast monsoon, which is likely to improve the irrigation prospects for the southern markets. On the policy update, the government has recently announced the NBS rates for the second half of FY'24. With the decline in raw material prices over the last 6 months, the steel production in the nutrient rates have been undertaken. The MSP for upcoming rabi season has been declared with a 3% to 7% increase taken across the commodities. The government has maintained the criteria of fixing the MSPs at least 1.5x the all-India weighted average cost of production.
There has been strong impetus from the government for drone adoption and the industry players have been encouraged for promoting drone-based spraying applications for agriculture through women self-help groups. On the fertilizer industry performance. The fertilizer raw material prices remained soft to stable during the first half of the year, but had started moving up from August onwards due to supply side issues.
For the current season, phosphatic industry has performed well, improving its primary sales by around 11%. The overall industry cost consumption has all moved up by around 34%. For the quarter, DAP plus complex fertilizer industry's primary sales volume was up by 19%. 77.2 lakh metric ton in the current year vis-a-vis 64.6 lakh metric ton in the previous year. So DAP and complex fertilizer industry's consumption indicated by poor sales volume, in the current year is 90.2 lakh metric ton vis-a-vis 67.2 lakh metric tons in the previous year.
On a year-to-date basis, DAP and complex fertilizer industry's primary sales volume was at 132.1 lakh metric tons vis-a-vis 119.1 lakh metric tons last year. On the consumption, which is indicated by the poor sales volume, 128.8 lakh metric tons current year vis-a-vis 103.7 in the previous year.
Let me come to Coromandel's performance. Coromandel displayed a resilient performance in a challenging business environment, sustaining its profitability and improving its working capital position during the quarter. The company's key operating markets were impacted by subnormal monsoons, affecting the agri inputs offtake. Company's nutrient segment performance. The Nutrient and Allied businesses focused on the nutrient consumption during the quarter, lower primary sales of about 7% has been mainly due to fall in subsidy rate, which has resulted in decline in the segment revenue.
However, stable RM prices, coupled with backward integration benefits resulted in margins remaining comparable with last year levels. On the sales front, the business registered a sales volume of about 11.6 lakh metric tons during the quarter compared to last year's of 12.4 lakh metric tons.
On a year-to-date basis, sales volume is about 20.2 lakh metric tons vis-a-vis 19.7 lakh metric tons in the previous year. Company's market share in Q2 is about 15%, and for half year is 15.2%. Last year comparables was 19.2% in Q2 and 16.5% for the half year. SSP Q2 sales was at 2.1 lakh metric tons versus 2.4 lakh metric tons last year and half year sales of about 3.9 lakh metric tons versus 4 lakh metric tons last year. Market share for the quarter went up to 17.1 percentage from 15.5% last year. On a year-to-date basis, the market share has gone up to 15.3% from 14.3% in the previous year.
During the quarter, our DAP and complex fertilizer plants operated at about 86% of the capacity. Phos acid production during the quarter was similar to last year levels. During the quarter, the business commissioned with the state-of-the-art sulfuric acid plant at Visakhapatnam, with a capacity of about 1,650 tonnes per day with an investment of approximately INR 400 crores to improve its backward integration capabilities. With this, Coromandel's sulfuric acid capacity will increase to 11 lakh tonnes per annum from 6 lakh tonnes per annum, supporting its requirements towards downstream processes involving phosphoric acid and phosphatic fertilizer production. The plant is designed to meet one of the lowest emission standards globally. And the steam generated from the plant will be used for captive power consumption.
The production from the newly commissioned plant has been stabilized, and we have started operating at the desired capacity. As part of our sustainability initiatives, Coromandel has set up a 6 million-liter per day desalination plant at Vizag. With this, close to 1/3 of the plant's water requirement will be met through seawater. During the quarter, the business has introduced Nano DAP, a patented nanotechnology-based fertilizer and the initial customer feedback has been encouraging.
On the Crop Protection side, the Crop Protection business of the company has had a healthy volume growth, improving its performance in exports and domestic formulation segments. However, global industry headwinds, namely higher channel inventory and decline in commodity prices has had its impact on price realization. The export segment of the business grew by 29% with major increase coming from South America and Africa markets. The manufacturing units operated at a higher capacity, 65% versus 59% last year and focused on improving operational efficiencies.
The business has initiated regulatory and infrastructure activities at the new Dahej site and is in the process of finalizing the multiproduct plant project. On the specialty chemicals front, the business has initiated marketing some of the products to the customers. The company is strengthening its research and technology processes and has identified key products to be developed in the future.
On the CDMO front, the business is closely engaging with customers and has organized few customer visits to its facilities. The interactions have been quite positive so far. The bioproducts business of the company improved its [indiscernible] procurement during the year. Business has engaged in multiple process improvement initiatives focusing on improved cost efficiencies and yield. It has introduced neem oil-based pesticides Azamax during the first half and plans to introduce azadirachtin products in the second half of the year.
Despite the dry spell in some of the South Karnataka and Rayalaseema markets, our retail stores adopted crop-specific approach and operated well during the quarter, focused on providing all-round agri solutions, including products from advisory and mechanization services. Overall, 93% of stores remained profitable. On the technology front, our company's recent investment in Daksha, a differentiated done startup is progressing well, and Coromandel is providing adequate support to the Daksha team. It has bagged orders for its medium-altitude, high weight -- lightweight and heavy weight logistics drones from the Indian Army and as order for its agricultural drones. The company has also received the fourth type certificate for its battery drones.
As part of its drone spraying services, Coromandel has introduced grow more drive initiative. Under this, the company has started offering drone-based agri input applications through its trained pilots. During the quarter, company acquired a 16.5% equity in XMachines, an AI-based robotic startup, focusing on a variety of agricultural operations such as planting, weed control and pest control.
Coromandel is driving company-wide digital initiatives, including automated dashboards analytical use cases for improving productivity and cost efficiencies, and is in the process of implementation of sales force and new dealer portal.
With that, let me take you through the company's financial performance. Turnover. The company recorded a consolidated total income of INR 7,033 crores during the quarter and INR 12,771 crores for the half year versus corresponding period of INR 10,145 crores and half year INR 15,927 crores. The decrease in revenue is mainly on account of drop in subsidy rates in the fertilizer business compared to the last year. Nutrients and Allied businesses contributed to 90% share and the remaining 10% is from the Crop Protection business for the quarter as well as for the half year. Subsidy businesses share in revenue stands at 84% during the quarter and 85% for the half year. In the previous year, it was 89% for the quarter and 87% for half year.
Profitability. Consolidated EBITDA for the quarter was INR 1,059 crores vis-a-vis INR 1,057 crores last year. And for the half year, it was INR 1,768 crores, vis-a-vis INR 1,742 crores during the last year.
Subsidy businesses share in EBITDA stands at 81% during the quarter and 82% for half year. In the previous year, it was 78% for both the quarter and first half. Net profit after tax for the quarter was at INR 755 crores in comparison to INR 741 crores for the corresponding quarter last year and INR 1,249 crores for the half year against INR 1,240 crores in the previous year. As regards subsidy, there has been a significant improvement on the sales side with the company claiming and receiving INR 4,243 crores in Q2.
For the half year index subsidy received is about INR 6,312 crores. Overall, subsidy outstanding on 30th September 2023 was about INR 1,497 crores vis-a-vis INR 4,176 crores in the previous year. During the quarter, company earned a net interest income, excluding the Ind AS adjustment of INR 5 crores vis-à-vis the net interest expense of INR 13 crores previous year. For the half year, company earned a net interest income of INR 16 crores versus INR 8 crores in the previous year.
Company maintained its surplus funds and Board-approved securities, and these are earmarked for specific growth-related investments. The company ended the quarter with a net surplus of about INR 3,380 crores. Company's balance sheet continues to be strong. The long-term credit rating by CRISIL is at CRISIL AAA stable and short term at CRISIL A1+. During the quarter, the long-term credit rating as IND AAA stable was reaffirmed by India Ratings and Research with the Fitch Group company and the short-term debt rating at IND A1+. As far as ForEx is concerned, during the quarter, the rupee was trading in a broad range from INR 81.81 to INR 83.30. Coromandel continues to follow a very conservative approach of hedging the ForEx exposure, and this has vehemently helped in limiting the impact of currency depreciation. With the forecast of a normal northeast monsoon, we expect the demand cycle to be conducive in the coming months. Coromandel with its presence across the farming value chain will continue to drive sustainable agricultural practices and improve farm prosperity. Thank you for your interest in Coromandel and joining the call today. We look forward to your interactions.
Ma'am shall we begin the Q&A session now?
Yes, please.
[Operator Instructions] We'll take the first question from the line of Noel Vaz from Union Asset Management.
Can I be heard?
Yes, sir.
Yes. I just had one question regarding the sulfuric acid plant. So the CapEx is about INR 400-odd crores. What is the extent of cost savings that we are looking at the payback period? If you could add some details on that front.
Thank you, Noel. The CapEx you rightly mentioned is about INR 400 crores for the plant. The purpose of setting up the sulfuric acid plant was mainly for securing our supplies, and we have deliberated this in the past as well. However, given the way the commodity prices move, the value gap between procuring sulfuric acid in the market and converting sulfur into sulfuric acid could give us a benefit. And with the current prices that are prevailing, we think in about 2 to 3 years, we should get a payback on this project. But again, the main purpose of setting up the sulfur burner is for securing our own sulfuric acid.
Second thing would be actually, some clarity on the -- regarding the new subsidy changes. Are we expected to see any kind of provisions related to it in the second half?
Your question was not very clear.
Sorry about that. So just regarding the new -- there have been some revisions to the NBS format, right? So NBS subsidy. So I just wanted to know if there's any kind of provision that we are expecting in the second half of the financial year.
We will see that the subsidy realization in the second half is going to be lower because of the lower NBS rate. Having said that, we've also made some reasonable estimates and have factored it in our Q2 financials. So we may not see a onetime hit coming in the third quarter, but the overall realization is likely to be lower. And this is a normal trend. When the NBS rate goes up, the realization will be higher, when the rates come down, the realization will be lower. The company has been following a consistent policy in terms of looking at what could be the rate and appropriately making the necessary adjustments in the books.
We will take the next question from the line of Tarang Agrawal from Old Bridge Asset Management.
A couple of questions from my side. Ma'am, specifically on the subsidy. The sense that I could gather was there has been a sharp reduction in the NBS rate. And while in the first half, the rate reduction was not as significant as the reduction in the global commodity prices. That, I think, seems to have been made up in the current subsidy. While you've been prudent in terms of providing for it, but purely on a per tonne margin basis, how do you see H2 for you versus what we've seen in H1 and the previous year as well?
Okay. So you are right, Tarang. The government has been adjusting the subsidy rates, the NBS rates in line with the raw material prices. We have seen in the first half a very sharp correction in raw material prices compared to what was prevailing in the previous year. And government normally looks into the last 6 months prices and they do an adjustment, and that's what has happened currently, when the new NBS rates for rabi have been announced. And when we look into the EBITDA per tonne, we normally look at it on a full year basis, right? We don't look at it on a quarter-to-quarter or just first half to second half.
The raw material prices currently are in a slightly upward trend. So if at all the government is going to look at it like last year, where we made a correction in the NBS effective Jan 1, we believe that could also be in consideration, but we do not know for certain at this point in time. With that background and the backward integration that Coromandel has done both in sulfuric and phosphoric acid plant, we believe on a full year basis, it should not majorly impact the margin per tonne. Having said that, with the current visibility that we have, I think it should be in the range of INR 5,000 per tonne for the full year.
Okay. That's helpful. The second question, ma'am, when we came into FY'24, we were anticipating about anywhere between 6% to 10% volume growth in the [ crop ] business. So far in H1, things have been largely flat on the manufacturing side. So how are you looking at H2? And the third one, if you could give us a split of the INR 580 crores CapEx in H1 FY'24.
See, after almost 3, 4 years, we have seen that we have got subnormal monsoon this year. And kharif is a big season, right? So you've seen that August rainfall has been very, very low past several decades. September was very high rainfall. With so much of uncertainty, I think it is only prudent not to go and dump the material in the market and to say that we are showing volume growth. Therefore, we've been taking a very conservative as well as a strategic approach in terms of both manufacturing and placing our fertilizers in the market.
It is not about placing it to the dealers. We also need to ensure that farmers are able to take and consume it in their fields. So from that standpoint, we feel comfortable in terms of what has been done in the first half, given the extreme uncertainties in the monsoon and the reservoir levels. Having said that, with the expectation of a near normal monsoon in the second half for the rabi season, we expect that the consumption should go up.
On your question relating to the CapEx, as we have also indicated that it is about the sulfuric acid plant. We have a desalination plant that just got commissioned in Vizag. There is a Nano DAP plant that's coming up in Kakinada and there is work that is very initiated in the crop protection chemicals for the multipurpose plants and also their regular CapEx. Apart from it, we are looking into increasing the granulation facilities in SSP. All of this put together should add up to say about INR 500-odd crores of CapEx during the year.
The next question is from the line of Prashant Biyani from Elara Securities.
Ma'am, just continuing on the NBS policy for H2. While I'm not looking for any quarterly guidance, but for Q3 whether there will be a significant dip for the industry in profitability, or there will be no profit at all on major grades of fertilizer that we are selling as an industry? If you can give some color on that, not specifically from Coro's perspective but for any backward integrated player.
I think I'll give you a very general outline, Prashant. For companies who are backward integrated, the impact could be much lower compared to companies who are buying and manufacturing, okay? So that's number one. The second thing is on -- there could also be some MRP increases that could happen given the way that subsidy correction has happened in the -- for the rabi season. So one needs to keep in mind both these factors. And accordingly, when you look at it, definitely, there is going to be an impact on margins, no doubt at all. More so for SSP than NPK. And in NPK, when companies are working on the unique grade, the possibility of pricing is better in such grades vis-a-vis the generic grade. Integrated players will do better than non-integrated players. Traders may get even more impacted.
Right. Ma'am, how are we placed on the raw material inventory, especially for ammonia and phosphate for Q3? Have we had enough opportunity to buy it at lower cost?
So I think we have a very agile procurement team here. And based on the input on price movements and the capacity that we have for storage of these raw materials, the team has been taking very prudent calls. And you could see that one of the main reasons for Coromandel's profitability in the last few years is the procurement team have sensed in terms of how the raw material prices could move and accordingly, the purchase decisions are taken. And it also is a [indiscernible] in terms of how much storage capacity we have for each, right? so long and short, to the extent that we can store material has been procured, secure. And wherever we have to use our double integrated facilities, they intent is to maximize production from our PA as well as [ agri ] plants.
Right. And lastly, how much are we backward integrated in phos acid manufacturing and how much in sulfuric acid?
So I would say for phos acid, slightly above 50% and sulfuric acid could be 60% also, Shankar? Yes, it could be around 60%.
We'll take the next question from the line of Akshat Mehta from Sameeksha Capital.
Hello. Am I audible?
Yes, sir.
So one of the questions I had is going forward -- not going forward but in this quarter have we included some kind of...
Mr. Mehta, the voice is muffled. May we request you to please use your handset?
It should be better now.
Yes, sir.
So one of the questions I had in this quarter, have you included any kind of provision for the change in subsidy rate that has come in October?
Sorry, I couldn't follow your question.
My question was that in quarter 2, have we taken some kind of provision for the reduction in subsidy rates that has come in recently?
Yes, we have.
If you could quantify that.
No, I wouldn't be in a position to quantify it now, but we have considered some impact on account of the NBS rate that has been announced.
Okay. My next question was, given the rabi season demand you see that there will be a normal northeast monsoon and there will be good demand. But will there be any impact of the reservoir levels in southern region being quite low after kharif season on the demand in rabi?
Yes. The reservoir levels are very low in southern markets. That would have an impact on the soil moisture conditions. We do see that as a constraint. But at the same time, if the rainfall is going to be good, to a great extent, it could compensate.
Okay. My next question is on the line of Nano DAP. So when are we kind of commercializing the Nano DAP plant?
So actually, the Nano DAP plant is set to be commissioned in Q3 of this year at Kakinada. We are waiting for some regulatory approvals to start the operations there. Pending the commissioning of the new Nano DAP plant at Kakinada, we have started producing Nano DAP at our pilot plant in Vizag. And in September, we have also started commercial production and sale although in limited quantities. And we are seeing that the response from the farmers has been pretty good.
Okay. My last question is that, can you -- if you could throw some light on what has been the progress of specialty chemical during the quarter? And going forward, when you will be able to kind of give some numbers or CapEx requirements on specialty chemicals?
Okay. As I was mentioning in the past, right, the intent of getting into specialty chemicals is primarily to use our existing assets, some of the molecules where the applications are beyond agrochemicals. So we have started in a very small way during the last quarter. Token involving and shipments have happened to some of the specialty chemicals customers already. It's not substantial, we are not talking about the absolute numbers at this point in time. But the good news is the traction has begun.
Now the business has also worked out certain specific areas where they would like to invest further in terms of building up our own capabilities in infrastructure as we go into medium term. And that's where the current focus is on the specialty chemicals business. We'll continue to use our existing assets in the near term and get the customer connects, start shipping the products to broad base of our customers and applications. And in the medium term, invest further and deeper into specialty chemicals.
[Operator Instructions] We'll take the next question from the line of Vishal Biraia from Bandhan AMC.
Madam, for this Nano DAP plant that is coming up, could you tell us as to what is the extent of capacity? And what is the kind of revenue that you would look forward?
Okay. The capacity that we are looking at is 1 crore bottles per year, which is 1-liter bottles, okay? And the pricing for these bottles is -- MRP is about INR 600. So that's the capacity that we are building now. Depending upon how the response of the market is because it's called for a lot of customer awareness and education, right? If the farmers do not know how it has to be used then it could actually boomerang. We have seen mixed response from the farmers in the case of Nano Urea. And therefore, from Coromandel standpoint, there is a lot of ground level activity going on in terms of the agronomists reaching out to the farmers, helping them to understand the product better, how to apply so on and so forth. We have also initiated what is called as a grow more drive, which is using the drones for some of these foliar applications. So combining both of this, we are in for a slow and a steady start. With farmers understanding, there is opportunity for us to sell more. And these are all modular facilities. So in a quick period of about 8 to 10 months, we should be in a position to add further plant capacity. That's the game plan as far as Nano is concerned.
Okay. And just to understand something on the technical side as to your utilization of phos acid here will be how different than the utilization of phos acid for the solid-state complex grades or DAP.
Here, we don't directly use phos acid.
Okay. Can you help me understand as to what would be the substitute for phos acid here?
This is a patented technology, right? And I may not be able to reveal what are the contents and how this -- what percentage of what is being used in getting the manufacture of Nano DAP at this point in time? But I should tell you the phos acid, sulfuric acid, the quantum that we use is all going to be for granulation. There's no comparison at all.
Okay. And on a steady-state basis, once this business stabilizes, okay, what would be the kind of operating margins that you would target?
On Nano DAP?
Yes.
So, Nano products must have a very decent margin here. I think it should be pretty healthy.
Say 20%, 22%? 20% to 25%?
Yes, it should be in the range of 20-odd percentage.
20-odd percent. Okay. And final question, I think it's a continuation of what the earlier participant was asking is when you say INR 5,000 per tonne for the full year for the fertilizer business, this includes SSP?
No. Normally, we don't include SSP. This is mainly for NPK.
Okay. And then madam, could you give us to what the number for NPK for the second quarter, like for the September quarter, what would this number have been?
No. I normally encourage us to look at a full year number because there are seasonalities, you see subsidy prices up and down, MRP consideration, raw material consideration. So for a seasonal business, given so much of external variations, it's always good to look at it on an annualized basis.
Okay. And just lastly, to get to this INR 5,000 crore number, hypothetically, what would be the extent of increase in MRP would you require to get to this number for the balance half of the year? Looking at the way the -- assuming that the RM prices remain where they are and the subsidy what it is, there is no upward revision.
So there could be MRP increases in unique grades, right? On the generic grades, we also need to look at how the industry is taking it up and what's the view of the government.
Okay. So if you look at the generic grades -- or let's look at the specialty grades, what is the extent that you would target to get to this number for the full year?
That depends upon the market conditions, honestly.
The next question is from the line of Vishnu Kumar from Avendus Spark.
I am Vishnu from Spark. Ma'am, firstly, continuing with previous participant's question, compared to first half, most of the raw materials have currently spiked a lot and there is at least a INR 10,000 to INR 12,000 correction on an average on subsidy. So second half, I mean, given it's an election year, and if the price hikes don't come, will the fertilizer EBITDA still be positive? Or can it tend to be a bit negative?
I think we can talk for Coromandel. Given the backward integration that we have, we expect the margins to be positive, okay? And we saw a steep correction in raw material prices, Vishnu, and there has been some increase in the last couple of months. We really do not know to what extent these increases will sustain or will it again come down? Because what we saw is here before was unprecedented increases, right? So from that standpoint, we think we'll need to go with the market if the prices continue to be high. There could be some opportunities in terms of our backward integration and value capture.
But if prices come down, then it is even better. We'll have to see how the government is going to respond on subsidy. We've seen in the past, they have been pretty considerate and they have responded to the industry requirements when there was price increases that have happened, they increased the subsidy. When the raw material prices were corrected, they have just now reduced the subsidy. So I think while there are considerations of election year, so on and so forth, we just need to work along with the government as an industry and impress on them the rising raw material prices and see how we can help in getting a subsidy rate correction for the fourth quarter.
Understood, ma'am. And secondly, on the subsidy provisioning, firstly, for kharif they provided some INR 38,000 crores plus another INR 22,000 crores they have mentioned. So that takes to INR 60,000 crores. So -- but whereas in the government budget for NPK, we understand only INR 45,000 crores is provided. So additional INR 15,000 crores will have to come through a supplementary grant and would this mean -- normally, the total amount gets covered, but this time around the actual NPK is INR 60 crores versus we have heard only INR 45,000 crores. So will there be a supplementary grant immediately or after elections only do you think that this will happen? Which means I'm questioning from the possibility of 1 billion subsidy release in March.
Answer, honestly, Vishnu, is we don't know, okay? The government has been considering and getting supplementary credits for disbursing of subsidy. So we hope they will be able to get it through. This year, especially, I also mentioned that the subsidy disbursements have been pretty good. We don't have any arrears in terms of DBT claims that have been made by the companies. So if they're able to get through these supplementary, we should be able to get the subsidy realizations also fast. But in case there is a constraint, and it still go over to next year, we will have to wait. So we don't know the answer, but we honestly believe the government will be able to get it through.
Understood. And one final point -- question. What will be the stock that -- stock of materials that we have sold and that is still lying with the dealers and distributors, any rough number, in million tonnes, 0.2, 0.3, or any rough number if you could help us with?
Can we come back on this?
Sure, ma'am.
We'll take the next question from the line of Ankur Periwal from Axis Capital.
First, on the Crop Protection side, you did mention we have -- we witnessed a good volume-led recovery in both domestic and export market. If you can share some details there, how has been the growth in export and especially given the negative commentary from most of the global and other domestic players as well, how are we seeing the market there?
Okay. So a little bit in terms of how the global markets have been leading. As you know, Brazil is our largest consumption consumer of agrochemicals. And we are seeing that there is a high level of channel inventory in Brazil. Having said that, we also note that the prices of agrochemicals from China have been very, very low. They have been trying to dump the items in the market. So this has a dual impact. Therefore, if we hear and we witness that exporters are having a tough time, it is very much resonating the realities of the market.
For us, we have done specifically well on 3 counts. One, we have focused on selling a bundle of our products instead of just 1 or 2 of our technicals. Our export growth has grown by 29%. We were successful in onboarding new customers. We've got more than 20 new customers who are able to help us generate additional sales volumes. Apart from that, there were a lot of dormant registrations, which have been activated, which has also helped in increasing the overall export sales. A combination of these two activities plus our sales force becoming far more active in these markets have helped in the export sales growth.
Sure, ma'am. That's helpful. And so going ahead as well, we should see a continuation of, let's say, a decent growth here given that the new customer addition as well as the geographic expansion that you highlighted?
Yes, you're right. We also wish that we should be in a position to grow our export markets well. Equally important is to increase our range of products, which is what we are also trying to address, both in terms of technical and in terms of formulation. So that's our -- that's part of our long-term strategy to see that we add more technicals, which are recently off-patented and also come up with certain formulations and a B2C light model in select countries, which can help growing our export business.
Sure, ma'am. That's helpful. Secondly, on the Crop Protection margins, again, this quarter, we saw a dip probably because of the pricing-led competition or the commodity price decline that we are seeing from China. Any thoughts there because what we had highlighted earlier was most of the new product launches to technicals or through collaboration were margin accretive. So is this more a near-term phenomenon and maybe FY'25 should see a better growth there on margins front?
Yes. We are seeing this price pressure coming in as a near. I do not know whether it will extend to medium term because to several experts who we have spoken and companies who we have been in dialogue with, nobody is certain about when this China dumping is going to end, okay? So that's one main factor. Some of the companies who are producing certain technicals as I understand you haven't stopped because it becomes more economical to import from China. So that's, I would say, a short-term phenomenon. Hopefully, with the -- if the Brazilian market picks up again this year, and the demand goes up, we should see some quick hope in terms of the pricing as well as recovery in the margin.
Sure, ma'am. That's helpful. And just one clarification, if I may. The INR 5,000 EBITDA per tonne guidance which you gave that is for the current financial year, given the subsidy rates. Any thoughts on FY'25 and beyond, given annually government has been pretty supportive in terms of RM inflation being absorbed in terms of subsidy.
I would wait a little bit on this, Ankur. We have to see how the raw material prices move and the election year what the government is going to come up with. But as you rightly said, the government has been pretty supportive. At times when raw material prices have gone up, they've helped the industry with higher subsidies. So I do expect that trend to continue. And if that continues, our margin should hold and also we will start to see how to improve it.
[Operator Instructions] We take the next question from the line of S. Ramesh from Nirmal Bang Equities.
Following up on the questions on the Crop Protection business. Can you give us some details on the volume growth in the Crop Protection business in the domestic and export market for the second quarter? And if you can give us some sense in terms of when you expect to complete the INR 1,000 crores CapEx in Crop Protection? And what is the kind of impact you expect from that, say, from FY'26?
Okay. Thanks, Ramesh. These are nice questions that you've come up with. In terms of volume growth, I would say that the export market has the maximum volume growth close to about 30-odd percentage. The domestic front -- or domestic formulation had a volume growth, but we did see a contraction in the domestic B2B. Mainly because of the price pressure and the margin pressure, we had consciously limited our sales into the B2B market. But we focus on growing the formulation business as well as the exports.
As far as the capital expenditure is concerned, INR 1,000 crores that has been announced, there are 3 multi-purpose -- multiproduct projects that the business is working on. They have submitted the proposal for one large CapEx, and that is currently under the approval process. Given the short-term scenario that we are currently in with the prices showing such a steep fall, especially the China syndrome that we are currently witnessing, we are looking into certain other factors as well to ensure that as we set up the LPP, we have the right level of backward integration, the right type of CapEx so that the return on investment can be much faster.
So we are currently in the evaluation stage. As I was mentioning earlier as well, the INR 1,000 crore investment is for three large plants, and it could take a period of about 24 to 36 months in all for us to consume this entire capital. The good news, obviously, is we have completed procurement and bhoomi pooja for a new herbicide facility in Dahej and the business is setting up the basic infrastructure and is contemplating to set up formulation unit because those can be done on a fast-track basis at the Dahej herbicide facility.
The next question is from the line of Naushad Chaudhary from Aditya Birla Sun Life AMC.
Two quick questions I have. Firstly, on the CapEx phase. Ma'am, we are entering in a historic high CapEx phase. So in terms of the management bandwidth, are we okay with the existing which we have? Or is there any addition which we are doing to support the CapEx, which we are running? If you can share something on that piece.
I quite didn't follow your question. Are you asking whether we have enough management bandwidth to execute these large CapEx?
Yes.
I believe so -- we have added quite a few figures to strengthen our project team in both our businesses, both Nutrient as well as Crop Protection. As you see, the sulfuric acid plant and the desal plant that has been commissioned this happened in a record period of 18 months. Such a large CapEx doesn't happen in 18 months' time frame. A similar approach is also being planned for our multipurpose plant in Gujarat. So I think we have the in-house strength to manage these large CapEx projects.
Perfect. And lastly on the thought process of investing in drone business, what is your long-term vision here? How do you see this drone investment can help your core business?
We invested in the drone business as an ag tech company, right, that almost a year back with a small stake and then we increased it. Over a period in time, we have found that the application of drones is not just limited to agriculture, it could be in various lines. It could be for defense. It could be for logistics, it could be for enterprise, and we are also seeing that the government opening up opportunities for exports in the nondefense sector. And there is also a huge opportunity in terms of training because you need trained pilots to operate these drones.
So there are multiple areas where the drone services can be deployed. So from that standpoint, we believe it is more of a technology game with an adjacency in agriculture. Even in agriculture, given that labor constitutes almost 35% to 40%, in terms of cost of inputs [indiscernible] drone spraying could be a very good opportunity given the shortage of manpower and the costs. So that's the way one should look into this investment in drones.
We'll take the next question from the line of Gaurav Nigam from Tunga Investments.
One question on this government subsidy receivable. In the last few years, we have seen that it has considerably reduced. Just wanted to understand how should we think about the sustainability of reduction in this government subsidy days? And what's the reason behind this reduction?
As I was mentioning earlier, we have been submitting the claims the same day the portal opens, that's number one. Second, there's a lot of activity in the field to ensure there is consumption happening on the ground. The farmers are actually buying and using it. The third, obviously, the government machinery is also pretty fast in terms of processing. And they've been supportive in terms of timely disbursement. All the 3 have favorably contributed to receiving record subsidies and maintaining the outstanding at a low level. We'll continue to do two activities from our end. And I think government has been fairly supportive. And if this trend continues, we should not see a huge buildup in terms of receivables.
Got it. Just a follow-up on that. Is this receivable day cutdown for everyone in the industry? Or we have an added advantage because of which it has come down more for Coromandel?
I honestly don't know. I've been monitoring our receivables and we've been pushing our teams working very closely with our market -- marketing team's agronomists. So I can tell you as far as Coromandel is concerned. But generally, the government has also been disbursing subsidy timely.
We'll take the next question from the line of Noel Vaz from Union Asset Management.
Yes. I just wanted to get some clarity about the INR 165 crores drone order that was announced earlier. Has there been some execution on that? And do we have any idea as to what kind of growth prospects that we are looking for or margins on the same?
Yes, we are in the process of executing these orders. Raw materials have been procured, a new manufacturing site is also getting commissioned, it should be ready by December of this year. The existing facility is also being leveraged so that we can do a certain quantum of manufacturing from the existing site.
And margins? Any idea if we can -- what could be the margins now or in the future?
We'll have to wait to see the overall margin profile. Currently, there is a good amount of spend that is also happening on the technology front, R&D, so on and so forth, right? So -- and we do not want to restrict investment in R&D, especially in an area where it is a sunrise industry. It's a start-up. And if we have to scale up, we have to invest in manufacturing. We will continue investment in R&D. Those are all happening. I honestly believe this will be a good margin business as we go along, not just in terms of manufacture and sale, but also in terms of services and training.
Ladies and gentlemen, this will be the last question for today, which is from the line of [ Vipul Kumar Shah ] from Sumangal Investment.
So what is our annual requirement of phos acid? And how much we produce captively in-house and the same for sulfuric acid?
So we require close to about 10 lakh tonnage of phos acid and depending on the product mix, we may require about 4.5 lakh to 5 lakh tonnes of imported acid. I was mentioning earlier about 50% plus of our capacity is through our in-house production. On the sulfuric acid front, we would have close to about 60% of our capacity in-house, and we will have to import for the balance.
So any plan to expand further in phos acid manufacturing, ma'am?
The business has been thinking about further investment in fertilizers, especially in backward integration. At this point in time, these are all at discussion stage. Once we are certain about it, we will definitely come back and have the announcement made.
And lastly, regarding this investment in the drone company. So are we involved in the management also or we are just the financial investors?
No, we are involved in the management. We are helping them in setting up the operations, scaling up the operations, putting together the [indiscernible]. So it's integral part of Coromandel.
Okay. And we are one of their biggest customers, right?
We are not their biggest customer. They have got orders from Army, primarily the logistics drones. We have also got a good order from IFFCO for agriculture drones. We have picked up drones and we are doing our grow more drive. So there are multiple customers for Daksha.
As that was the last question for today, I would now like to hand the conference over to the management for closing comments. Over to you.
Thank you. Thank you very much for all of you who have joined the call today and actively participated. In case there are any further questions, please feel free to reach out to us. Thanks again.
Thank you, members of the management. Ladies and gentlemen, on behalf of IIFL Securities Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.