Deepak Fertilisers and Petrochemicals Corp Ltd
NSE:DEEPAKFERT
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Deepak Fertilisers and Petrochemicals Corp Ltd
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Ladies and gentlemen, good day, and welcome to the Deepak Fertilisers and Petrochemicals Corporation Limited Q1 FY '23 Earnings Conference Call hosted by IIFL Securities Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [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, sir.
Thank you, Ranjit. Good evening, everyone. Thanks for joining us for Deepak Fertilisers Q1 FY '23 Earnings Conference Call. Today, we have with us from the management, Mr. S. C. Mehta, Chairman and Managing Director; Mr. Mahesh Girdhar, President, Crop Nutrition Business; Mr. Tarun Sinha, President, Technical Ammonium Nitrate; Mr. Amitabh Bhargava, President and Chief Financial Officer; and Mr. Deepak Balwani, Head Investor Relations. I would like to invite Mr. S. C. Mehta to begin the call with his opening remarks. Thank you, and over to you, sir.
Thank you. Very good afternoon to all of you. I take indeed pleasure in welcoming you all for the Q1 FY '23 earnings conference call of Deepak Fertilisers. I hope you all have had a chance to look at the financial statements and earnings presentation uploaded on the exchanges and our website. So at the outset, let me share my joy in bringing to your attention that we've seen in Q1, the revenue is crossing INR 3,000 crores and an almost 59% jump over last year same quarter.
But beyond that, the profits have crossed INR 436 crores, a jump of 233% over last year. And we saw almost over 87% of our segment profits were contributed by the Chemical segment. And all of this despite a huge jump in all the raw material costs that we saw. So obviously, 2 aspects that could emerge in anyone's mind, and I thought I'll share some of those insights and then, of course, draw Amitabh, our CFO, to take you through the details.
So if I were to look at, I mean, the undercurrent, besides the price increases and the broad turmoil that all of us are seeing because of the Ukraine war and other things. But if one were to look at a fundamental level, we have 3 undercurrents that I saw. So one is at the macroeconomic level, we continue to see an excellent alignment with the India growth story that all our businesses are having and particularly the Chemical segment, so be it mining, infrastructure or China plus one shift, all of it bringing in a good positive undercurrent, which is going to be ongoing.
And despite such price hikes even in our finished products, one aspect that was evident was that there was no demand destruction and actually, it was to the contrary. The other aspect that is noticed was there is resilience in the downstream industry to absorb some of those prices. So those were, I would say, deeper insights.
The second insight that we saw was that whatever investments that we have made in strengthening our operational efficiencies, our systems and processes, our supply chain management, all of it got tested and all of it despite the Covid, despite the geopolitical situations, it stood the test of time. So that was the other and the current that we saw very clearly.
And the third, of course, has been our continued drive to move from commodity to specialty and giving now more customized solutions. That also we are seeing that it is beginning to bear fruits. So if one were to look at what next -- what is likely to be the situation as we look at Q2, Q3, Q4, and the rest of the year and maybe years ahead, so one aspect that we see is that we do expect this kind of a heated situation on pricing to mallow down. We expect a lowering of both finished goods pricing as well as the raw material pricing. Now as we normal that there could be a gap of one month or 2 between the 2? And if the finished goods pricing drops faster than the raw material, it may impact the delta temporarily. And if it's the other way around, it will continue to ensure a robust filter. But it is a matter of a temporary adjustment of a couple of months. We do also expect the normal standard a bit dampening in the chemical mining sector during monsoons, but that is also a typical phenomenon every year. Having said that, there are, again, 3 aspects that I see, which will provide a positive thrust for the balance year.
So number one that I see is the additional capacities emerging out of our operational efficiencies and debottlenecking will come in handy, which will kick in the balance part of the year. So that is going to be a positive for us. The second is at an operational level, our continued drive on strong digitization applied R&D thrust to achieve not only operational efficiency but also customizing customer orientation, that is going to keep unfolding over the next many quarters to bring in better positioning.
And lastly, on a continual basis, our management strategy change, where for each of our businesses, this move that we are bringing in from commodity to customized specialization -- that is going to continue to give us better brand creation and premiums. And that if you would have seen in the quarter that went by and, of course, the quarters that are going to follow, in the Crop Nutrition business, we are bringing in crop-specific grades more and more.
We are branding it as Croptech. And it is not just NPK plus micro nutrients and plus a package of practices, which are going to be focused on specific crops. Even on the asset business, we are now looking at repositioning some of our products, customizing it to the solar grade nitric acid or steel grade nitric acid.
Even in case of IPA, instead of a commodity IPA, we are looking at focusing on specifically on the pharmaceutical sector and also introducing the medical wipes and the sanitizing system for hospitals. Even for the mining sector in case of technical ammonium nitrate, instead of just focusing on the product, we are now moving towards TCO, that is total cost of operations for specific mines, and bringing in composite holistic solutions as we go forward. So these are the aspects, which are going to continue to give, I would say, a positive tailwind as we see the balance here.
Now as far as project goes, the ammonia project continues to be on a fast track execution, everyone knows about. And we are looking at -- with that coming in, it will bring a solid foundation for all our 3 businesses to contain the raw material volatility and also, of course, bring in attractive IRRs by itself, and we continue to expect it to be commissioned by first quarter FY '24.
I must share that the ammonia project will be giving us somewhere close to INR 25,000 crores of Aatmanirbhar or import substitution over the next 10 years, plus a large reduction in the carbon footprint. So we are very happy to contribute to the larger interest of India in that fashion.
Similarly, our TAN project work has begun at site. And there, again, we target to complete by second half -- and that you are aware that it is based on solid demand from the coal, limestone cement, and infrastructure sectors.
So with the above 2 projects, we will, in that sense, complete our strategic CapEx drive based on -- if you recall, we had 2 drivers -- strategic drivers there. One was to get our site right. So with this now fertilizers, we have invested triple our capacity, assets we are invested, and we are probably Asia's largest with the time coming in, we will be among the world's top 3 and then ammonia coming in to feed all the 3 businesses.
So both these are still getting a size right and capturing the value in our complete chain. That will get completed with this CapEx getting implemented. So what will follow will be our strong forward integration drive moving from commodity to solution specialty. And that will, of course, unfold quarter-on-quarter, quarter-on-quarter as we work harder to customize each of our products to the specific needs of each of the end segments. So with this overview, let me hand you over to Amitabh Bhargava, our CFO, President, Finance, to now take you through the nitty-gritty details of how the quarter went by. Amitabh?
Yes. Thank you, Mr. Mehta. Good afternoon, ladies and gentlemen, and thank you for joining the Deepak Fertilisers and Petrochemicals conference call to discuss Q1 FY '21 results. We maintained our growth momentum while concentrating on transformation initiatives. And in fact, Q1 was our best ever quarterly performance. We reported total operating revenue of INR 3,031 crores, an increase of 59% Y-o-Y compared to same period last year. Our operating EBITDA augmented to INR 740 crores compared to INR 290 crores in Q1 FY '22. Operating EBITDA margins expanded significantly to 24.3% from 15.2% during Q1 FY '22. Our net profit for the quarter recorded a growth of over 233% Y-o-Y to INR 436 crores with margins of 14%. Chemicals segment, as Mr. Mehta was also mentioning earlier, contributed to about 87% of total segment profit.
Going into a little bit of details in Chemicals segment. During the quarter, our manufactured Speciality Chemicals business recorded a revenue of INR 1,771 crores, an increase of 95% compared to Q1 FY '22. Segment margins expanded from 19% Q1 FY '22 to 41% in Q1 FY '23. Manufactured assets for the quarter recorded a revenue of INR 424 crores, an increase of 156% versus last year and manufactured IPA recorded revenues of INR 98 crores. Manufactured mining business -- mining chemical business recorded a revenue of INR 1,078 crores, an increase of 177% Y-o-Y during the quarter. Mining Chemicals business volumes were supported by continued demand from coal as reflected in Coal India and SCCL's overburden performance. AN Melt, ammonium nitrate melt volumes grew by 39% Y-o-Y, high-density ammonium nitrate by 15% Y-o-Y and low-density volumes declined by 15% Y-o-Y. During the quarter, our IT plant operated at capacity utilization of 58% and both assets and PAN operated at 91% and 111%, respectively.
As far as the fertilizer segment is concerned, the revenues grew by 26% Y-o-Y. Although segment margins were largely impacted on account of sharp increase in raw material prices. The steep increase in raw material prices, such as ammonia, phos acid, and MOP, the production cost of fertilizer has been significantly higher compared to the same period last year. NP and NPK inclusive of our Crop Tech recorded a sales growth of 36% Y-o-Y to INR 1,121 crores in quarter one FY '23, and Bensulf sales increased by 109% Y-o-Y to INR 52 crores in quarter 1 compared to quarter 1 --- increased by INR 52 crores -- or increased to INR 52 crores, I'm sorry, in Q1 FY '23. NP and NPK plants operated with utilization levels of 75% and Bensulf operated at 76% utilization level. The available capacity across our plants provides headroom for future growth potential. I think with this, I would as such drop the commentary, and we'll be happy to take your questions. Thank you.
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Jinesh Gada, an individual investor.
Congratulations for good set of number. My first question is regarding EBITDA margin of 24%. Will it be maintained in near term and future terms -- and when will the margin will be maintained while the 2 new plants get started in FY '24? And second question is regarding in investor presentation in one of the headings, renowned investor, one investor name is Dolly Khanna is mentioned, but in investors, I'm not able to show in holding the name of Dolly Khanna.
Okay. To your first question, I think Mr. Mehta just, I think he did touch upon this aspect that while this quarter, we saw a significant increase in both raw material prices and finished good prices. The encouraging part was that there was no demand exception and each of our products, by and large, the demand remained strong. So I think that is one aspect that we believe and we are confident that we -- and that is what is going to be the case in coming quarters. What happens to raw material prices and finished good prices as Mr. Mehta has also mentioned.
So there is always tend to be a lag or lead in terms of passing on of some of these raw material prices or -- so to that extent, it's very difficult to say what could be the EBITDA margin going forward. Q2, as we mentioned, is generally a lean quarter for us, particularly in the Chemicals segment. And to that extent, there is obviously the demand side because of monsoon in both our Chemical segment, nitric acid, and TAN is likely to be weakened. So I think that is pretty much what we would -- we are in a position to comment at this stage.
Just can you give the margins if we are not able to maintain 24% margin, can you give the lower base margin -- as per management expectation?
We are not in a position to guide any -- see if you would appreciate that the whole geopolitical environment is so uncertain that at this stage for us to predict sitting here what would happen in the balance 3 quarters, it's very, very difficult. So we would give refrain from giving any…
Company has a long history, so it can -- it must have any prediction that it will -- in the worst case, in our margin will be this much percentage and all.
Like I said, we would refrain from giving any guidance on margin, given the kind of volatility we are seeing in both finished good and raw materials right now.
Okay. And regarding that investor presentation, investor Dolly Khanna name is mentioned, but in holdings, I'm not able to see Dolly Khanna name.
So basically, if you are looking at BSE, BSE provides the investor details only above 1%. For the other details you can write to us separately, and we can provide you with the top 200 shareholders register for your reference.
Okay, sir. So where I have to write?
You can write to me and copy it to company secretary. We will provide you the necessary details. And our details are there at the end of the presentation.
Next question is from the line of Abhijit Akella from Kotak Securities.
Congratulations on very good results. Just one main point to seek your clarifications on. It's regarding the debt position at this point in time as of June 30th. If you could please just help us with the gross and debt number? And also how much CapEx has already been executed on the ammonia project? And how much is pending to be spent?
Yes. So as far as ammonia is concerned, let me first answer your first question, that is our gross debt is about INR 2,900 odd crores and net debt is about INR 1,930 odd crores. Those are the numbers at end of June. As far as ammonia CapEx is concerned, out of INR 4,350 that we had estimated, we have already spent a CapEx of about INR 2,850 odd crores. And therefore, the balance INR 4,350 minus is what is yet to be incurred, which largely will get incurred in completing the project. As we mentioned that it's likely to be commissioned in quarter one of FY '24.
Understood. So I'm not sure if you are in a position to sort of look ahead until the end of the year, but would it be reasonable to conclude that net debt by the time of the project is commissioned, the ammonia project, will probably be less than INR 3,000 crores at the end of it?
Well, difficult to say, but ammonia, like I said, we need to incur roughly about INR 1,500 crores additional. And out of this, roughly, I think half of it will come by way of debt and half of it will come by way of equity. So as such on ammonia, yes, gross debt perspective, it will add about INR 750-odd crores by the time the project is complete. But when it comes to net debt, I think it will all depend on our internal cash generation and cash position so that, I wouldn't be able to give you any guidance on that. Great. That's very helpful.
And one last thing was just in terms of the situation on the ground in terms of gas prices and ammonia prices. So what is your thought process in terms of finalizing any gas contracts? And how are you seeing the economics for the ammonia project at current market levels?
So at current market levels, as much as the gas prices are elevated, even ammonia prices are high, and I mentioned that in earlier calls also that at the current prices, including the state incentives that we have, where we get a 9% SDIC reimbursement until we recover 75% of our CapEx and some of the energy-related benefits that we have at the new project, the margins are currently at, I would say, significantly better than what we had when we had started the project almost in the range of $400 to $500 per tonne.
As far as gas and ammonia prices are concerned, you would appreciate that gas is also getting driven by what's happening in Europe, particularly because of Russia and Ukraine war and the stand taken by Russia on supply of gas to Europe. And therefore, Europe also trying to bridge the gap through various LNG imports from the U.S. and other geographies. So I think that aspect of it is, honestly, we are seeing pretty much every 2, 3 weeks, there is new development. Very difficult to predict.
The second factor that may affect the gas prices also is how severe the winter is as we move into winter for Europe and U.S. I think all of those aspects will play kind of a significant effect on gas prices. And to an extent, ammonia prices, because ammonia prices are given the incremental cost of -- marginal cost of production of ammonia, is dependent on what's happening in European gas prices. There is a level that there seems like a strong linkage at this moment between these 2 commodities. But it's very like I said, pretty much every month is a new development. It's very difficult to predict what might happen.
The next question is from the line of Vidhi Dadia from Raedan Securities. Yes, we can hear you. Please go ahead with your question.
Okay. Sir, my first question is, can you help us with the volume and realization trends in TAN and nitric acid for the next 2-quarters, a broader picture?
Sorry, what -- can you repeat your question, please?
Sure, Sir, can you help us with the volume trends in TAN and nitric acid segment and also the expected realization, the broader picture, sir, for the next 2 quarters?
The only point that I can confirm or guide at this stage that Q2, as is the case every year is a quarter where demand for both TAN and nitric acid typically is on the lower side because in nitric acid, again, the inorganic titration segment is also linked with what happens on the explosive side. And to that extent, the Q2 is likely to be a weaker quarter compared to what we saw in Q1, but beyond Q3, Q4, I would go back to the point that Mr. Mehta also mentioned, and we've been saying that we are seeing good demand both on the explosive side as well as on the nitric acid side, explosives driven by coal as well as infra and cement segment and nitric acid largely by nitration segment, which is again is somewhere we think that China plus one shift and a lot of our customer downstream customers are seeing very strong demand of their products in their order book. So I think that with that directionally, I think Q3, Q4, we expect the demand to continue to remain ruble. I think that's pretty much what I would be in a position to prepare the stage.
[Operator Instructions] Next question is from the line of Chinmaya Bhargava from Chetan Capital.
Nice to me, too. So I have a couple of questions. I'm not going to ask about TAN realization. But a majority of our nitric acid is consumed in-house, right? So if I'm continuing to look at, let's say, solar grade nitric acid, does this fall in the concentrated nitric acid segment? And how much higher realizations do you expect for solar grade nitric acid compared to our current end use?
So we are right now in the process of developing some of these products based on the requirement we are seeing in these segments. And therefore, it is until we establish the volume as well as what value add that we need to do, meaning that what is the additional cost to be incurred and what realizations can be that we make. It's -- right now, we are not in a position to guide you on the margin. But it leads us to say the whole idea of getting into specific segments and catering to specific requirement of the end user is to basically look at value-based pricing. And that's what we expect that, therefore, the margins are likely to be better than the plain vanilla grade nitric acid.
Okay. And do we -- are we thinking about expanding our capacities in concentrated nitric acid after the TAN capacities? Or is it too early to think about that right now?
It's too early. Board hasn't taken any decision, so I won't be able to guide you anything on that.
No, that's fine. Next question is I've been hearing of the coal industry looking at a PLI scheme for TAN. Could you share if there's talks of that happening?
We don't have -- we've been obviously because of the way PLI scheme was proposed by the government. We were also exploring whether that would be available for TAN. But as of now, we don't have any firm news on that. We've also, like yourself, we have also heard it in press. So I don't have anything firm to mention.
Okay. That's fair. The last question from my side is, could you just tell us about the consequence of the income tax issue that we had for INR 500 crores? I know we said we're confident of descending it. But if you could give me some details on why we're confident and where this stems from?
So essentially, the -- most of the demand is a consequence of disallowance of goodwill and intangible, depreciation on goodwill and intangible. And that both on the judicial precedent and also the fact that in Finance Act 2021, government had prospectively disallowed depreciation on goodwill, -- that is the reason we believe that retrospectively, when we had claimed depreciation on goodwill and intangible is something that would be dependable. And that is where our belief that this would not have any -- I mean fundamentally, it's a legally defendable claim.
Okay. And there won't be any outlay until it's challenged in courts -- certain in court, right?
At this moment, we'll have to discuss with the department that -- whether before giving -- appealing at the next stage, would there be a requirement for any deposit of tax. But in the worst case, that will not be more than the 20% of the demand made by the department.
Okay. So worst case, our balance sheet will look like it did last quarter because from the debt levels that you've mentioned, it looks like our net debt is still roughly the same as what it was last quarter, and we've got about INR 400 crores of cash.
Yes. So I don't know what is the link between the 2. But what I can confirm is that given that as the demand made by the department is for INR 569 crores, the maximum that we may be required to deposit is 20% of this roughly say INR 300-odd crores. But even that depends on if we would make an appeal for -- given that the amount is large, we'll see how what differentiation department is going to give. And to that extent, that is the maximum outflow at this stage till we go into the next stage of appealing.
The next question is from the line of Tajas Shah from Blaze Securities.
Sir, how do we see the TAN prices compared to last quarter? I mean, January to March and from April to June. So if the prices have gone up? Or is it just that the volume ramp-up has helped you clock more sales or profits?
See, quarter-on-quarter, we have, in fact, reported in our presentation the revenues from TAN. Quarter-on-quarter, the increase in volume as far as TAN is concerned is about 12%. So you can say maybe just do the back calculation to see how much of the increase in revenue is because of volume and how much is because of price.
And the price will be what? How much increase will be done with respect to price, if you can share?
That's what I said that the volume has gone up by 12%. We have reported the revenues from TAN segment last year -- last quarter as well as this quarter. And to that extent, you could just do a back calculation to see what the per ton or any other steel would have gone up by both quarter-on-quarter and Y-o-Y.
The next question is from the line of Darshan Jhaveri from Crown Capital.
Sir, congratulations on a good set of numbers. I just wanted to ask after our project completion, what kind of revenue can we foresee for the next year or something [ could ] be available to be guided? Or how -- what would be the benefit or if not the revenues and the benefit of the new ammonia plant?
As I said that ammonia was largely for our own consumption. So on a consolidated level, it would not lead to increase in revenue, but it would -- depending on the margins that we make in ammonia project, which is typically the ammonia gas delta on which assets -- earlier, I was -- I had answered that question. That is the likely improvement as far as the margins were bottom line and concerned. But from a revenue perspective, it is -- at [ consolidated ] level, it will not as such result because it's all entirely for our own capital consumption.
Okay. And we've seen very good growth in this quarter one. So how much of it would be sustainable going forward? -- Our demand is -- we don't see any problem in demand. So the revenue in quarter one could be assumed as sustainable?
Look, the revenue, I think 2 aspects that we mentioned and you -- I would again draw your attention to those. One is that if you look at the capacity utilization in some of our segments, there is still good headroom available in terms of better capacity utilization. So if the demand with the exception of Q2, which has its own sort of demand reduction aspects in Chemicals segment. But with that exception, if the demand continues and which we are confident it would, then the capacity utilization in these segments, there is headroom. Also, we are -- and we've already done debottlenecking of TAN as well as NPK capacity, and that also in terms of -- would play a role in terms of improvement in our top line. But I think other than that, price-wise, we just mentioned that [ right ], of course, it's very difficult to predict. It will also depend on what happens to raw material prices and its consequent impact on the finished good prices. So I think you should maybe take guidance more from the demand side or volume numbers that are likely to pan out in next couple of quarters.
[Operator Instructions] The next question is from the line of Sharan Nadikur, an individual investor.
Congratulations on a good set of numbers. So my first question is, for the remaining CapEx, you mentioned that 50% will be the equity, whether it will be QIP once again or any other mode of funding?
So it will be largely through internal generation. It will be largely through internal generation and the existing cash balance that we have.
Okay. And another question is in the previous 2 quarters, there was a point raised on the non-core sector, commercial property sale, whether that's like going to happen in the next one or 2 quarters or still not on the discussion?
I think our reply to that remains the same that one is we are trying to remove all the regulatory, I would say, blocks that are there to make sure that any potential -- monetization of that is done at the full potential. And the second is given that currently, as such from a balance sheet perspective, we are very fairly comfortable. We are -- we will see the right timing of that as we go in the process of completing our CapEx and the funding requirements.
Okay, sure. And my last question is customized offerings to the solar and the steel sector, the chemical. So I think here someone asked the question and you responded by saying that it's still in the development process. So my question is like, one, let's say, considering the huge growth potential in solar and steel in the next few years in India, do you have existing plans to scale up the chemical like once you are [ invention ] is done or like you need to even plan the CapEx for that sector as well for the specialty chemicals for those 2 sectors?
So those 2 sectors, we are looking at product development, both largely in nitric acid segment. So as such volume perspective, it would go out of the existing volume or some of the better capacity utilization that we are targeting. But beyond this, as I was mentioning that there is no decision as of now to increase the capacity or any CapEx in nitric acid, as and when that happens, we would be informing the stock exchange and investors.
The next question is from the line of Tarun Dhingra, an individual investor.
Good evening to all participants. Sir, my question is that you have a non core asset of around INR 700 crores. That has been giving losses since the last 4 quarters. Why don't you exit from that non core and reduce the debt?
I just answered that question, and we will take your sentiment back to the management.
And the second question is that, sir, when my company is going to get debt free?
Sorry, can you repeat that question?
When my company is going to be debt free? I mean what time span you are thinking that Deepak Fertilisers would be debt free?
If you see today, even from a gross debt, net debt perspective, we have the numbers, we are -- we have sort of cash balance practically. But given that we are in a CapEx mode both on ammonia and TAN, we are, obviously, till we complete the CapEx, we would be cautious in repaying our debt ahead of the schedule. But as these CapExes are over, depending on the cash generation, we would certainly look at because that cash would either have to go for next round of growth or it is for repaying the debt. There is no reason for us to hold that cash in our books. So I think largely, one would have to see how the CapEx of these 2 projects turns out in the next let's say, about 24 to 36 months and also internal cash generation. Based on that, we will certainly [ go ahead ].
The next question is from the line of Madhav Marda from Fidelity. Since there is no reply from the line Mr. Marda, we'll go ahead with the next question. The next question is from the line of Mr. Karthik Nakuli, an Individual Investor.
Firstly, I'd like to congratulate you for a very good set of numbers. I have 2 questions. In the opening comments, the Chairman mentioned regarding the pricing of the chemicals, wherein there would be sometimes a lag wherein the raw material prices may rise, but the finished product prices might not rise and the other way around. What I would like to know is that in this quarter, have we had the benefit of the raw material prices going down and the finished product prices not coming down or vice versa? And my second question is, you made us understand regarding the price of gas and ammonia. What I just want to know is the company is assured of gas supply when the ammonia project starts?
So to your first question, as I said that you look at the volumes [ and ] Chemicals segment both and assets. You can also look at what the margins have been or compared to the volume growth, what has been the overall sales growth. And to that extent, yes, I think that the margins have expanded. And so it's obvious that the finished good prices have obviously compared to raw material prices, the finished goods prices have seen higher expansion -- but the second aspect on your question on the gas availability, so gas availability per say is not a challenge even today because India has enough LNG terminals and therefore, import capacity.
Also, both ONGC, Reliance, what we understand based on the progressive auctions that have happened from their fields, they also have the plans to increase their production profile. And to that extent, a combination of both domestic and imported gas, there is enough availability -- it is more about at what price is this gas available and which is where I earlier mentioned that today, even at the current prices of gas, we also keep buying spot gas every quarter incremental quantity based on our production profile or our internal utility consumption, and we are buying gas even at this price, current price in our overall portfolio. And to that extent, it's the price and what effect does it have or what kind of margins can one make with the current prices of ammonia is the aspect that one has to track, but availability is not an issue.
The next question is from the line of Madhav Marda from Fidelity. Mr. Madhav, please go ahead with your question. Mr. Madhav, if you have muted yourself from your phone, please unmute yourself and go ahead with your question.
No, my question was that, basically, could you help us -- help me understand the CapEx that we have for FY '23 and '24, given the projects that are ongoing at with ammonia and TAN based?
So in ammonia, which we are targeting to complete by Q1, let's say, somewhere in May '23, we are yet to incur, from here on, we have another INR 1,500 crores of CapEx in ammonia project. As far as TAN is concerned, this year, this financial year, we would incur somewhere like INR 550 crores to INR 600-odd crores in this year for TAN.
So that's INR 2,100 and then any other maintenance or any other small CapEx for the existing lines and something like that. So we could get the number for the full year?
So there is normal maintenance CapEx, and there is also -- we have -- we completed one round of debottlenecking in TAN. The second phase of debottlenecking, we are still awaiting the technical details, and depending on that though the numbers are not going to be very, very big as far as debottlenecking expenses, but those would be the additional expenses beyond the TAN and ammonia CapEx.
So would it be fair to say the CapEx for FY '23 should be within INR 2,500 crores, including the debottlecking and the maintenance?
Yes, yes, yes. Okay.
And then FY '24, what does that look like? So ammonia should be largely complete and then you would have TAN -- the balance CapEx...
Ammonia would be largely complete. And by that time, assuming that we would have incurred let us take say, INR 600-odd crores in TAN from here on we would have completed almost INR 1,000 crores in TAN. After that, over next 18 to 20 months, we would incur the balance of INR 1,200 crores. Okay. Understood. Great.
The next question is from the line of Meet Vora from Axis Capital.
Yes. Sir, can you share the segment-wise margins for TAN and nitric acid both?
We don't report segment-wise, as in we report Chemical segment and Fertilizer segment. And that is -- we've already shown that in our earnings presentation.
The next question is from the line of Nishith Shah from Aequitas Investment.
Sir, I'd like to congratulate on this great set of numbers. Sir, I have only one question. So in Q1, you highlighted we faced some issues which impacted our capacity utilization. So in Q2, are you facing any issues?
Sorry, what -- can you repeat that question? Even though in Q1, we highlighted in our presentation that there were some issues which impacted our capacity utilization. So in Q2, are we facing any issues? So in Q1 one effect was of a raw material or rather raw water shortage, which was because of MIDC had taken some maintenance shutdown of their pipeline. Now that is over, I said that it's unlikely to affect. The other aspect of -- we had MOP shortage in quarter one. And that is now better compared to Q2 -- compared to Q1.
The next question is from the line of Priyan Purohit from KamayaKya Wealth Management.
So I can clearly see that since -- if I compare to FY '21, the Chemical segment has been contributing quite significantly to your bottom line specifically. So just wanted to understand if do you have any plans for doing any CapEx for the fertilizer segment or probably entering into some niche fertilizer segments, which are maybe not NPK-based, maybe something like potassium-based fertilizers? Or I just wanted to know your outlook on that segment on that.
No such plan or decision taken by the Board.
Okay. Okay. All right. And secondly, just wanted to ask that there has been a sharp drop in IPA capacity utilization, if I compare it with Q4. I think it has dropped from 88% to 58%. So what's the reason for that, sir? Are you already experiencing the muted demand that you are seeing, which you are foreseeing in Q2? Are you already experiencing those headwinds right now?
So IPA had some production challenges because of raw water. But other than that, IPA margins were under pressure. So we had taken certain product shutdowns or plant maintenance in advance rather than waiting for the scheduled work.
All right. All right, sir. So do you see the utilization levels going up in the coming quarters now, considering that these shutdowns would have been a one-off event?
Yes. We'd like to see the margins -- there are 2 things that are playing out right now. One is because of the crude prices, the refinery-grade propylene prices have gone up while the [ IP ] prices seem to be -- has come down or has remained or hasn't reflected the increase in prices of crude and propylene because the IPAs made through the other route as well. The second aspect is that we are currently also looking expansion of our product profile into pharma grade IPA and a couple of other special applications. And to the extent there, our margins are better than the plain vanilla standard grade IT. So depending on how we are able to ramp up the volumes in the specialty grade and what happens to the margins, our capacity utilization would be [ designated ] accordingly in quarter 2.
Next question is from the line of Shubham Tuath from Perpetual Investment Advisors.
Good afternoon, everyone, and congratulations on a very good set of numbers this quarter. So sir, my question is related to our fertilizer business vertical. So we can see a quite subdued performance from this vertical this quarter. So how do you see this fertilizer business shaping up in the coming quarters?
I think Mahesh is here, so he would…
So if you see the average fertilizer consumption takes place during Kharif and Rabi -- and in the first quarter, we had a bit of a delayed rainfall. Start of the rainfall in the month of June was more lower than the previous year. That has got shifted to July. From July onward, there's proper rainfall, and we are seeing that in Western part of India where we operate, rainfall is even more, and we have a better reservoir fill. So from that perspective, we don't see any challenges from agriculture perspective, as well as the commodity prices, are good.
And if you see as your question related to the fertilizer performance, we are in a range of 10% year-to-year performance. From last quarter, we nearly doubled our net income as we reported. Industry-wise, there was a little bit of reduction in the gain in the first half, but we have maintained our market share. as well as you may have noticed that we already launched a next level of category innovation category, which is PropTech products, which are unique products with 8 nutrients along with nutrient unlock technology as well as we continue to launch in water-soluble fertilizer business also new products. So we are moving up on our innovation curve and continue to launch better products as a every quarter and scale them up.
Okay, great sir. And just a more clarification. So did you say that green field ammonia project is going to be commissioned by Q1 FY '24? And plant is going to be commissioned by a second part in FY '24. Is that right?
Yes. So the pneumonia project, yes, it will be in quarter 1 FY '24, but TAN project would be in the calendar year -- second half of calendar year '24.
Due to time constraints, we have reached the end of the question-and-answer session. I would now like to hand the conference over to the management for closing comments.
Ladies and gentlemen, thank you so much for your participation. And for any further queries or clarifications, please do get in touch with our investor relations team. Thank you once again.
On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.