Deepak Fertilisers and Petrochemicals Corp Ltd
NSE:DEEPAKFERT
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Deepak Fertilisers and Petrochemicals Corp Ltd
Earnings Call Analysis
Q2-2024 Analysis
Deepak Fertilisers and Petrochemicals Corp Ltd
The company reported an exciting financial year, with Q2 showcasing one of the best quarterly performances in terms of EBITDA. This success comes despite facing a volatile raw material market, geopolitical tensions, and various other external hurdles. In particular, the TAN manufactured business saw a revenue increase to INR 516 crores, up 9% compared to the same quarter last year, marking the highest ever Q2 sales volume of AN Melt.
The Pharma/Specialty Chemicals segment experienced a significant rise in demand, with the revenue for this quarter recorded at INR 409 crores. Notably, IPA volume grew by 62% year-on-year, while nitric acid volumes rose by nearly 12%. The fertilizer business brought in approximately INR 708 crores in manufactured revenue, although sales were slightly affected by erratic monsoon patterns.
Gross debt as of September 30 stood at approximately INR 4,000 crores, with a gross debt to equity ratio of 0.76x. Notably, the net debt was INR 2,700 crores, reflecting the company's solid financial standing and its capacity to manage liabilities efficiently.
Ammonia prices have seen a favorable spread, ranging from $75 to $100, with potential to reach approximately $150 to $160 in Q3 due to government subsidies and benefits. Production capacity has reached its design limits, and the company anticipates operating between 90% to 100% of that capacity in the second half of the year.
With the TAN export ban recently lifted, the company can now pursue growth CapEx initiatives in facilities like Nitric Acid Dahej and TAN Gopalpur. This strategic move will enable the transition from commodity-based to specialty products, ensuring long-term stability and opening up new avenues for export and growth.
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Ladies and gentlemen, good day, and welcome to Deepak Fertilisers and Petrochemicals Limited Q2 FY '24 Earnings Conference Call hosted by IIFL Securities Limited. And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that the conference is being recorded. I now hand the conference over to Mr. Ranjit Cirumalla from IIFL Securities.
Thank you, Akshay. Good afternoon, all. On behalf of IIFL Securities, we welcome everyone to Deepak Fertilisers And Petrochemicals Corporation Limited Q2 FY '24 Earnings Call. Today, we have with us Mr. S.C. Mehta, Chairman and Managing Director; Mr. Deepak Rastogi, President and Chief Financial Officer; Mr. Tarun SinhaPresident, Technical Ammonium Nitride; Mr. Suparas Jain, Vice President, Corporate Finance; and Mr. Deepak Balwani, Head, Investor Relations. I would now hand over the floor to Mr. S.C. Mehta to begin the proceedings. Thank you, and over to you, sir.
Yes. Thank you, Ranjit. My voice is clear?
Yes, sir. It's loud and clear.
Okay. Thank you. So a very good afternoon to all of you. I extend a very warm welcome to each one of you for the Q2 FY '24 earnings call of Deepak Fertilisers. I trust that you have had the opportunity to review the financial statements, press release and earnings presentation already made available on the stock exchange and our website.
Now on the face of it, as we look at the figures, I'm sure we all would feel that it seems to be quite dismal. However, let me share some insights for your better appreciating and understanding the numbers. Firstly, when we look at the last year Q2, the last year Q2 was indeed some bit of an abnormally high base. So if you were to compare with Q2 FY '22, Q2 of FY '21, Q2 of FY '20, Q2 of FY '19, the performance of current Q2, Q2 FY '24, is indeed better, and this is decidedly better in lieu of the challenges that we faced. So despite the challenges, we are seeing this kind of a performance, and let me share some of those challenges.
So on the fertilizer front, let me just explain that the government policy on subsidy is a little backward looking. That is the prices of the previous 6 months form the basis of the new subsidy, 6-month penalty. So now -- and the subsidy is given on the tonnages actually bought by the farmers. So there is a POS machine. And on that basis, the subsidies are given.
So what happened is that the inventories, which have been sold to the channel or dealers, but not sold to the farmers, that gets impacted. And in a situation where the global prices are falling, the industry gains on this channel inventory, while it loses on the channel inventory, when the global prices of raw material are going up.
Now in view of this, basically, we took a hit in the Q2 of almost INR 106 crores on this discount. On the other hand, the performance of the quarter in terms of sales and liquidation was the highest ever that we have ever done. And what is more is that our crop-specific grids, the move that we had from commodity to specialty or the crop specialty grid, is gaining very good ground and very good acceptance.
The second aspect that I might share is that we also took a hit of around INR 87 crores in this quarter itself, emanating from our new ammonia plant. Now firstly, any new global scale plant takes a quarter or so to stabilize. And during the stabilization phase, there are some plant trips and restarts, which always add to the cost.
So post our COD, some of those costs are contributed by the stabilization phase, and this is quite normal and expected. What is peculiar was that the ammonia prices during the Q2, when we started the plant, were unusually low, almost down to USD 330 Middle East.
Now as we speak, the plant has now stabilized, and it is both in terms of capacity, efficiency and sustained running, it's now reached to the design capacities. And what is more the global owner prices have also climbed up to USD 550 levels, aligning to the long-term average, which was what was expected.
The other thing that happened was that the other major impact came from the Russia-Ukraine war ramification. So what actually happened was Russia found an embargo on its various products in various countries because of the -- in towards the cycle towards the Ukraine. In this situation, India became a good dumping ground for the Russian products. And this brought in large quantities of cheap fertilizer-grade ammonium nitrate, and that impacted our technical amount united business.
There, again, however, because of a strong market grip, we have insured in Q2 also despite all these headwinds, a very strong volume growth. And going forward, all the mining activities that you are seeing are on an upswing, whether it is coal mining, limestone or cement, or the infrastructure based on the government budget outlay, they're all having a very positive current.
And the key that is there is that we have started making this concrete shift from commodity product-oriented business to mining solutions business based on success fee. And this is in a good wicket and is moving into a scale-up phase.
On the Industrial Chemicals space, the nitric as business Besides the typical monsoon lull, did have some impact emerging out of our downstream customers, the agrochemicals and pharma customers because they were getting impacted by the Chinese dumping. In that space, of course, on the other hand, the IPA had a very positive current. And here again, as we see it, as we move to the specialty space, steel grade nitric acid or solar grid nitric acid, or pharma-grade IPA, we will be gradually scaling up into those specialty areas, and that should create a good insulation for us from the larger global out vagaries.
So in summary, all in all, if you compare the previous 4 years Q2 other than last year, it validates our strength and resilience to take in the headwinds of the geopolitical environment. And at the formation level, I remain completely convinced that our strategic transformation journey from commodity to specialty or holistic solution in each of our business lines, that is Mining Chemicals, Industrial Chemicals and also the Crop Nutrition business, in all the 3, I feel very deeply that they are in the right direction. And over the next few years, quarter-on-quarter, as we consolidate our, this part of the journey from commodity to specialty, and as we solidify the premiums and the brand, I feel that we will bring Deepak into a complete different light.
I also feel that now that the ammonia plant is with us in the group and running fine, it will bring a huge risk mitigation for the group's downstream from all the global vagaries. The other is, of course, overall, in terms of the financial controls also, we see the gross debt to equity now at 0.76x, so which is also a healthy kind of state.
And in terms of our growth strategies, all of it would be, since they are all in areas where we continue to have the support of our last 40 years of strength, that, that is only going to be something that will once again through the resilience against any kind of geopolitical situations.
For more granular details, I will now hand over to Mr. Deepak Rastogi, our new CFO. And I also take this occasion to share my warm wishes to you and your families a little in advance for the Diwali festival. Thank you. Deepak?
Thank you, Mr. Mehta. I hope that I'm loud and clear to everybody.
Yes, sir.
Good afternoon, ladies and gentlemen. I thank you for joining the Deepak Fertilisers And Petrochemicals Corporation Limited conference call to discuss our Q2 financial year '24 results.
In Q2, we achieved a total operating revenue of INR 2,444 crores with an operating EBITDA of INR 286 crores, which translates to 11.8% margins. This Q2 EBITDA of INR 286 crores, as what Mr. Mehta was mentioning, we have basically taken around INR 87 crores EBITDA loss or a charge due to ammonia plant stabilization, and INR 106 crores charge on account of fertilizer inventory based on the new notification subsidy motivation, which actually got recently notified. Therefore, our net profit for the period was INR 63 crores with a margin of 2.6%.
Last year, for the same quarter, the base was INR [ 485 ] million, which was a positive aberration, but we all knew that this is -- the margins are very high, and we may not be able to sustain for a long term.
By Q2 financial '23, Q2 '24, which is financial this year, EBITDA is one of the best quarterly performance for BPCL. PCL is on an exciting dearly despite raw material volatility, geopolitical concerns and other external challenges impacting the business. Our lifting of export ban of in growth CapEx towards our Nitric Acid Dahej and TAN Gopalpur, which basically helps us in transitioning our from commodity to specialty products and also to giving holistic solutions, capturing the overall backward integration. And on the top of it, the Ultra Mega benefits will act as catalyst and is main strong foundation for long term [indiscernible].
Manufactured TAN business had a revenue of INR 516 crores on in Q2 of this year with a strong sales volume up over 9% on a year-on-year basis. The company achieved its highest ever Q2 sales volume of AN Melt. The margins were impacted on account of jumping of cheap Russian again in Indian market.
During the quarter, our manufactured Pharma/Specialty Chemicals business recorded a revenue of INR 409 crores. IPA registered a volume growth of 62% on a year-on-year basis, supported by strong demand and implementation of SEQ1, while nitric acid volumes growth was almost 12% Y-o-Y.
Regarding fertilizer business, it recorded manufactured revenue of around INR 708 crores. During the quarter, sales volume of manufactured, LP and NPK, including Croptek was 1.47 lakhs metric tonnes as compared to 1.55 lakhs metric tonnes in the previous quarter. This was slightly impacted on the erratic monsoon, which actually continued during this quarter even though we had obviously record sales year after that.
In Q2, IPA plant operated at capacity utilization while both assets and TAM operated at 93% and 118%, respectively. In the Crop Nutrition segment, NP/NPK plants had a utilization level of 51%, while Bensulf plant operated at 52% utilization. This capacity had to available across our businesses. We are well positioned to capitalize on future of those prospects.
Gross debt as on September 30 was approximately INR 4,000 crores with gross debt to equities 0.76x. Net debt was INR 2,700 crores. A similar number for March 31, which is net debt was around INR 2,500 crores as on March 31, 2023.
With this, we would be happy to take our questions. Thank you.
We'll now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Jana Gillani from Swan Investments.
Sir, I want to check on the ammonia facility. Now you said that the last quarter, we had an impact on the sterilization of the plant to the tune of INR 87 crores that we have already taken a hit. Now with the gradual ramp-up of the facility, can you give us the update in terms of how the spreads are looking currently, given the gas prices contract that we have already entered?
Your question is that how the spreads are right now based on the current one effectively. So the way the ammonia prices are currently, and they are in the range of around -- So around 550, the spread is closer to give or take around $100, $75 to $100 is a the spread right now.
But the $75 to $100 is including the benefit that we're getting from the government in terms of subsidy and the steam benefit?
Yes, it would be over and above that, yes. .
So that means equal to almost $150 to $160 of this that we could get in Q3?
Yes, yes, closer to that, yes.
So what is the current utilizing that we are operating it because we have regulated [indiscernible] moved to 30% -- 25%, 30% or how in terms of the overall capacity [indiscernible] for FY '24?
Sorry, I cannot hear your question at all.
Can you please come closer to the handset.
So in terms of the capacity utilization, how someone look for the second half in terms of the ammonia plant?
we are already reached capacity, 100% of our design capacity. So we think we would be around 90% to 100% capacity utilized during the H2.
Sure, sir. And sir, second question is on the TAN business. Now since that you have already indicated that our volume is growing in the TAN because of strong domestic demand, but there is a huge dumping by the Russian on the gen. So I just wanted to understand whether we are getting any measures or the protection from the government? And how shall one look in terms of the margin of the TAN business when the imports are continuing at such a high level?
So obviously, the margins are impacted to some extent. But generally, again prices move in tender with the prices of ammonia. Currently, they are not moving in tandem. We expect the things would basically move in tandem, and we expect that things may get better from where it is. But we will have to wait and watch how the actual year pans out. .
To assume that at least one of the couple of quarters because the [indiscernible] are not moving in the line with the TAN prices, there could be a pressure in the overall chemical business margin for the second half?
So we basically expect some pressures, but we'll have to really wait and watch to see. But overall, we think over a period of kind of things will only improve. But we'll have to really go through how the geopolitical scenario looks like and then take a call accordingly.
And the other question is on your fertilizer. Now we have almost taken INR 267 crores of the impact of the reduction in the subsidy. Now in the last quarter, which we did of almost INR 106 crores, that includes the revised subsidy rate, right?
Yes, that is correct.
Sir, if we take it forward, assuming that there is no further reduction in the subsidy from the government and the fertilizer price remains steady at current level, is it fair to assume that our fertilizer business can generate near about INR 400 crores to INR 500 crores of the EBITDA on the quarterly basis?
I'll have to just check on that, but I will have to check and maybe come back to you on this.
And sir, with the expansion that we are doing it in terms of TAN and WAN, what will be our peak debt? And when could we see that number reaching in by '24, '25?
So it depends upon what kind of growth projects we encounter. Predominantly, the only way I could answer is that we will be in comfortable position overall from a gross debt-to-equity perspective. As we -- as I said that we are comfortable right now, and we expect that we will be continuing to [indiscernible] comfortable going forward.
[Operator Instructions] The next question is from the line of Jane Duda from Equitas Investment. .
This is [indiscernible] from Equitas Investment. Sir, I wanted to understand now since the TAN export ban is lifted, by when do we see the exports to start?
Yes. So I'll just asked Tarun, who can take this question, please?
Yes. Thanks, Deepak. Deepak, am I audible?
Yes, you are.
Okay, thanks. Yes. So you're right, the export ban for money metric finally got listed a month or 2 ago from now, which is a great news. And currently, I think you must have picked it up for the information available on the public domain that our company is going through some corporate restructuring. And one of them has been the name change of our previous company, Smartchem, which used to house technical ammonium nitric business and fertilizer business to another company, [indiscernible] Limited, which continues to house the same 2 businesses as we speak today.
So as a result of this name change, the TAN business, which is a highly regulated business from a licensing perspective, is currently undergoing through some license transfers in terms of the main change from the previous company to the new company. And we are expecting the final steps to be completed in that direction, hopefully, in this month. Once the license thing is transferred from old company to new company, all types of licenses of technical ammonium nitrate business, then we should be able to start exporting again.
Okay. And sir, my second question is that in this current quarter, the production of IPA was only 76%. So any particular reason for the lower production? And how do we see that going forward?
So we have -- actually, our capacity utilization for IPA is around -- so around 76%, yes. So we would actually expect to have the demand continues. We would expect that it should improve.
The next question is from the line of Arvin from Value Quest Investment Advisor Private Limited.
Wonderful. Happy Diwali to everyone. And a few questions from my side, some of them have already come up. Now when we talk about the fertilizer subsidy going forward, what is -- I mean, this is obviously a backward-looking policy. So is there a possibility that any more could be hitting us around this coming in the election time?
And the second thing, the one thing that asked that I would like to ask is, in some areas, we are talking about 118% capacity utilization. Some light on this, what does this mean? And whether can a plant operate like this for a long time, or then how would it reflect on the operations of the plant as well?
So your first question was on the subsidy part. .
Yes, sir.
Difficult for us to predict anything, but we do not expect that any changes that we sell because this subsidy notification is applicable until March 2024. And hence, we are not expecting any impact which will come in between. The other question is on account of our [indiscernible] and capacity utilization, which is predominantly at 118%. And obviously, we basically, we are taking steps to improve the capacity going forward till March and things like that.
And we are -- because we are debottlenecking and hence, this position is going to improve going forward.
[Operator Instructions] The next question is from the line of Deepak Poddar from Sapphire Capital.
So first, I just wanted to have a few clarification. Now the subsidy impact of the last 2 quarters that has come and the subsidy rate remains seem there's no further impact, right? All the channel inventories impact has already been factored, right, in our P&L? .
The answer is yes.
The answer is yes?
Yes, that is correct.
Okay. Understood. Fair enough. And you did mention that including the government benefit at current price of $550, that is FOB Middle East price rate?
That is correct.
So landed price would be additional $100, that would be $650?
That is correct.
Okay. So we are getting about a spread of $150 to $160, the spread we are getting, including the government benefit, right?
That is correct.
And so I just wanted to understand because that effectively means they're utilizing fully. So INR 150 crores of benefit that we might get assuming $150 on a quarterly basis from this plant?
That is your estimation, obviously. And we will have to go through the utilization over a period of time when we see how it actually pans out.
Utilization is $90 to $100, I'm assuming. I mean...
Yes, I understand that, but that is just a calculation.
Fair enough. I understood. So I mean, this quarter, we had a lot of one-offs, right? If I adjust that one-off, our EBITDA would have been more than INR 500 crores. And if I take the advantage of our ammonia plant, so just wanted to understand at the current prices, ammonia prices, what should be our steady-state EBITDA margin? I mean -- would it be in the -- more in the range of 20%, 22%? Because ideally, your EBITDA would have been more than INR 550 crores if this one-off would not have come, right?
So we are unable to give any forward-looking statements. So I will not be able to comment on this.
No, this is not regarding forward-looking statement. I'm just trying to understand at current ammonia prices, if this one-off would not have been there. So our steady-state EBITDA margin would have been in the range of 20% plus, right? I'm just trying to understand that point.
You can add INR 87 crores, and I don't know whether you are adding subsidy. If you can add that number, it will be -- those are to around 436-odd number. Yes, [indiscernible].
And INR 87 crores, the impact will not come right now because it was in stabilization ammonia plant?
Yes, looks like that, yes.
So that also we need to add, right?
Yes. So 106%.
Fair enough. I got it. And when we say this benefit of ammonia plant spread, we have factored in the recent change of UMPP benefit to 100% from 75% of this greenfield project ammonia? Hello?
Yes, the answer is yes. You know that will be [indiscernible].
[Operator Instructions] The next question is from the line of Sean, an individual Investor.
So my first question is like historically, how has been the price of ammonia fluctuating? And when do you see the benefit from the new plant with respect to price getting increased?
So I can give a range.
Sorry to interrupt, sir. Can you please come closer to the speaker, sir?
Yes.
Deepakj, sir, please continue.
Yes. Can you hear me now?
Yes, I can.
Okay. The question I understand was that what is the kind of price of ammonia historically and how it has fluctuated. So the ammonia prices, FOB Middle East, has been ranging from $150 to almost close to $1,100, and these are in U.S. dollars, FOB ammonia price, Middle East price.
And like what factors, does this price fluctuation impact and from when do you see getting benefited and from what price onwards deep will start getting benefit of it? And when do you see it happening?
So effectively, it also depends upon how the gas prices are moving up and down. So it is not a straight answer. But as I said, currently, we have a spread of close to positive of around based on the current FOB Middle East, and that will change over a period of time based on how the global prices are moving up.
Okay. So other question is the new specialty chemicals for solar and the semiconductors. From when do you see those getting into production? And also what do you see from like from next 1 or 2 years the revenue and the benefit from that deposit?
So for solar, as we have communicated in our press release also that will be starting production from October of this year. As far as semiconductors are concerned, obviously, the market is still growing in India. And it will take some time for us to get to a full-scale revenue levels. And from a solar perspective, since obviously, it's a forward-look statement, we will not be able to comment how much and to the extent of the revenue specifically for this particular country.
The other question on the same is like basically, are there any other producer who is producing a similar kind of chemical in India? And what's the total market size for that chemical? And what is going to be your share in that?
So currently, to our understanding, there is nobody else who is actually doing this at this point in time.
Okay. And what's the market size for Deepak in that segment overall?
So we have just started that. We are talking solar grade. So we have just started that. And we are obviously land casing because the solar markets itself is obviously in a nascent state and growing. So we basically are doing our own market studies to figure out how much that market would be and how much we will play into that.
Okay. And on the last question about the real estate sale or real estate sale, just to like noncore asset sale or a bit on that?
So as we have mentioned that we basically are -- would be looking for, which are continual pricing for us and take action both on the Board approvals.
Deepak, there's lots of background noises coming from your call, sir. Deepak, sir?
Yes.
Lots of background noise is coming from your line. Can you please come closer to the handset?
Is this okay now?
Yes. The next question is from the line of Niraj, an Individual Investor. As the current participant is not answering, we'll now move to the next question, which is from the line of Mirad, an individual investor.
Yes. Deepak, I just wanted to know what is the status on demerger, which was announced long back. So what is the current status of NCLT approval? And by when we can expect lifting of these 2 businesses? That is one.
And second, what is the status of Gopalpur project. Can you please share a tentative investment amount, which has already been done in this project till now?
So your first question on the NCLT approval. We basically have got a hearing coming up for this order, which is treated on November 10. And if the order is passed, then we will load the outcome.
The other question which had on the TAN Gopalpur right now. So we have currently spent close to around INR 525 crores worth of CapEx, which we will see WIP. And that would be up and running sometimes in the second half of '26, so financial year '25, '26. So that is the currently COD dates which we are looking.
So Deepak, you let suppose if we get the demerger approval in November, by when we can expect the listing of these 2 businesses? Is there any plan currently?
So whenever we firm up those plans, we will come back to the part of our statements. Currently, there is no approvals which we have right now to go for a listing.
Okay. Any plans of any strategic investors participate in mining business?
So we continue to obviously have those discussions. And whenever there is a right time get the Board approvals and all, we will come back and communicate accordingly to all of you.
Okay. One last question. Recently, the government has lifted the ban on the TAN export. So you were sharing some information on that. It will take maybe a couple of months before we start exporting it. So can you just give me the tentative numbers, what would be the revenue breakup of TAN in terms of export and then domestic?
So I will request my colleague, Tarun, to take that question, please.
Sure. So look, right now, the ban, which has been lifted, it comes with a quantity. So it's a bit of a cap. Because usually, when government of India imposes ban on certain commodities or products and when it strives to lift it, then it is not an abrupt complete lifting. It is state-by-state lifting, which then determines what quantities can start moving out in the form of exports.
So for this financial year, the quantity which has been allowed for export is 20,000, and that's the sort of ceiling. And then subject to how things pan out in the next financial year, in terms of the overall demand supply of ammonium nitrate in the country, which is required for the mining and infrastructure sectors growth, then again, government may review this and decide to revise the quantity. So that's the kind of guidance I can give at this stage.
Okay. Tarun, any understanding on Russia dumping? Anything in foresight we can understand that this can stop by so and so time? Or any implementation of antidumping duty by Indian government? Any update on these lines?
Sure. So when can things stop or start again as far as the Russian or the cheap Russian fertilizer-grade ammonium market is concerned will largely be driven by, again, geopolitical situation, as our Chairman, Mr. Mehta, stated in his opening remarks. Because Russia is going through a lot of sanctions, as we know, with the Western world. They have limited markets to put their products in.
And India, of course, is one of them. So timeline is anybody's guess, so we would not speculate. Coming to your next question in terms of any measures, remedies, things like that. So I think you people might be aware that the government of India had rightly imposed antidumping duty on a number of countries, and Russia was one of them for import of ammonium nitrate in India, and that was way back in 2017. It was a 5-year tenure for that antidumping duty, which expired some time in August, September 2022.
After that, [indiscernible] Commerce and Industry, one of its arms, which is DGTR, Director General of Trade Remedies, they were looking at what to do with this -- for the continuation of antidumping duty. They recommended that the antidumping duty should be extended for a few countries and certain rates were also prescribed.
However, it is interesting to note that 1 arm of our government, which is [indiscernible] Commerce and Industry, in the form of DGTR's recommendation was rejected by another arm of the government, which is Ministry of Finance. And this didn't happen -- this didn't just happen for ammonium nitrate, but a lot of similar recommendations in the form of remedies, which were proposed by DGTR, were actually rejected by Industry of Finance and that to without assigning any reasons.
So because so many industries were getting impacted as a result of this, I think the matter went to court. And the matter is still subdued as we speak.
One last question from my side, Tarun. What would be the revenue contribution in terms of domestic business for TAN. Earlier when we used to export, what was the contribution then?
When you say contribution, you mean export as a percentage of total revenue. Is that your other question as well?
Absolutely.
That's why I gave you a guidance that there is a ceiling this year for the export ban, which is at 20,000 tonnes in this financial year. And TAN capacities you are aware of. You can see the level at which we are operating, which is Mr. Deepak just talked about. You could do your sums based on those numbers.
The next question is from the line of Pasha V., an individual investor.
Should the party to the entire team of Deepak Fertilisers. Very happy to speak with you, and I have 2 questions. First thing is what is your current TAN capacity?
So we have close to 525 lakh metric tonnes.
So if I understand correctly from that, only 20,000 tonnes will be exported. The remaining will be used for domestic sales, and you're operating on 100% TAN capacity. Am I correct?
So currently, we have around 487. We are going to add 50,000 metric tonnes additionally by March of '24.
Okay. Second question is coming to the ammonia launch. I wanted to understand the math. How is our gas pricing contracts being done and the FOB normal current UAE charges? And what are we saving after putting this particular plant? Like you said it's approximately INR 550 crores, but there's a lot of math between the gas and the FOB process from UAE and the government subsidy. If you could help me understand that, would be very helpful.
So we have FOB ammonia pricing, gas pricing, which is based on the rent [indiscernible] or exchange link and things like that.
So are we doing it on blending or the exchange link to understand? .
Predominantly combination of exchange, brent and JKM.
That will be how much percent of the brent, sir?
It depends on contract to contract basis.
I'm sure there would be an average number that you would have in mind that this is our normal pricing policy with an average percentage.
For your calculation sake, you can say to equal of all those.
I mean equal of all those, would that mean 22% of brent? Would that be 50% of brent? How should I consider that? Like if you can help me with an average number would be very helpful.
We will not be able to -- 1/3, 1/3, that's what I was telling you. You can say that in average, which is 1/3, 1/3, 1/3. Because we will not be able to obviously provide that information.
The next question is from the line of Dhaval Sangvi, an individual investor.
Actually, based on shares coming side, where we are moving from commodity to specialized solutions, I just wanted to understand from a broader perspective, like from a 3-year perspective FY '27, where do we see ourselves as an organization, as a company? What addition we want to know? What kind of revenues on an average we should be expecting?
So this moving from commodity to service providers is predominantly, we are doing in 2 businesses. Actually, all the businesses are predominantly intent. So I would request Tarun to just give some glimpse on how he will impact the business. So over to you, Tarun.
Yes. Thanks, Deepak again. So see, the way we are moving into the solutions business model, as far as our group's Mining Chemicals business is concerned, is we have come out with a concept, which we call as Total Cost of Ownership, TCO as an acronym, in short.
In simple terms, layman perspective, what that means is when a mine operates, it is basically operating to extract some minerals or to extract some rock, whether it is a mine or an infrastructure project where blasting takes place. So total cost of ownership is a concept, which basically aims at cost of mineral extraction or cost of rock extraction.
So what we are developing as of a solutions business model is that we try to improve the total cost of ownership, i.e. the cost of rock or mineral extraction in a mine or in an infrastructure project. So that's the theme.
Now how do we do that? Essentially, in any mine or any infrastructure project or a party where blasting takes place and rock and minerals are being extracted, there are 5 value streams where improvements can be brought about in order to improve the total cost of ownership. What are those 5 value streams, it starts with drilling in the rock or the mineral to be extracted, followed by blasting. So that's the second one. The third one is excavation of that blasted rock from EMC to where it has to go for further processing and handling. So that's excavation.
And then for transport from the place it's blasted to take it to another place. And the fifth is crushing. So drilling, blasting, excavation, transport and crushing. Now we have developed tools, software, people capability, different kinds of products, and we are continuing to do that to attack each of these 5 value streams in an operating mine or an nitrated infrastructure project. So that the collective outcome of all these imports sales that the cost of mental destruction or rock extraction is improved. So that's the overall model in our Money chemicals business, which we also start calling at Mining Solutions business because now we are migrating towards a mining solutions company.
And this has just started about 1.5 years ago, and it's a complex process because it requires working every day in the month. and then showing all these improvements. And then eventually, it starts to translate into a sustainable business, which was your question. So therefore, putting a figure is a difficult 1 at this stage. The entire Indian market is the canvas that we are looking at this huge opportunity.
Every single mine, every single infrastructure project operating in India has potential to improve its total cost of operations. And that's how we see the overall size of the price from our point of view. And that's why we are investing heavily in that direction to be able to impact in that sense.
This is really helpful. But what I was mainly looking at...
Sorry for the interruption, sir? Can you get back in the queue for the follow-up question.
It is an extension I've not got the whole answer of. Okay. So what I was actually looking is, yes, I understand how the solution is going to. What I was looking mainly from the perspective of 3-year time horizon is at an organization level, year-on-year or I mean, what's the guidance that the company is looking? Like for example, in FY '23, we did somewhere around INR 11,000 crores, right? This year, we will be somewhere around INR 10,000 crores. So I'm looking from that perspective, what would be -- what is our focus? I mean how the growth would be 3 years down the line in terms of sales growth, in terms of ROE? So that's what I was looking mainly from the first quarter.
Yes. No, I guess I tried to answer it by saying in a number to any of these new solution initiatives is not possible in the early stages. And another way I reply to that question is entire mining industry and infrastructure industry in India is the opportunity for us from a longer-term perspective. So it's a huge opportunity for us as we go along.
[Operator Instructions] The next question is from the line of Rishab Agnihotri, an individual investor.
I just want to understand that because of the new subsidy rate cut in NPK, the DAP premium has gone down for imported margin -- imported subsidy rate. I think that has created like a $100 margin for DAP as compared to local peers. Now I think considering you have another $100 of advantage, do you see that the market opening up? Because I think the import was around 2, 2.5 lakh tonnes of DAP this year. I mean that will be a very interesting opportunity. I would like to know your perspective on that.
Yes, you're audible. But I could not actually get your question clearly, what exactly you are looking at.
Like because of the DAP subsidiary rate cut, there's like a margin shortfall of around USD 100 per tonne on imported DAP, right? And the import 2.95 -- import is like 2.95 lakh tonne in September 2023. I think people produces that. So do you see that as an opportunity going forward in the fertilizer market?
I can only say that we do not manufacture DAP for ourselves. We generally have trading volumes there. And based on the opportunities and the market, the good thing, we continue to take those calls on a quarter-to-quarter basis.
The second question is on the line of TCO. So I think you have exceeded to some projects. Can you give us some guidance on like, I mean, like the solar industries as a competing segment and exposures, and then they cater to the same mining industry. How do you sort of -- like how does your TCO solution complete with solutions like them? .
So I will request Tarun to take this question, please.
Yes. Sure, Deepak. Thanks again. So again, great question. Thank you for that. So one way to look at this is what Deepak is trying to do as a solutions model is completely different from any explosives manufacturers in India. And I'll try to explain it in simple terms.
All the explosive manufacturers in India, they supply explosives to the mining industry and the infrastructure industry. They invoice the client for the puts in the form of explosives, in this case, and they get paid on the basis of the inputs that they have provided. What we are developing as a business model is in order to impact all this drilling, blasting, excavation, transport and crushing value streams in a particular mine.
We are definitely putting in inputs there in the form of products, services, technology, solutions, people on the ground. So that's the input, which definitely we also invoice for. But in addition to this, and here comes the difference. In addition to these inputs, we guarantee certain outcomes as a result of the inputs that we provide to the mines and infrastructure projects.
So in others, we agreed to a set of KPIs as outcomes from coming out of the inputs that we are porting. So in other words, we are putting our skin in the game. And in doing so, we also request the beneficiary, which is the mining company or the mine operator to share a part of that benefit, which they get through the inputs that we provide and through the outcomes that we guarantee and produce for them, we share before. So we also get paid for this output and the outcomes that we generate. That's the fundamental difference between us and process manufacturing companies. Input only in one case versus input and guaranteed outcome and getting paid also on the basis of the guaranteed outcome. So that's where I will try to. That's how I will try to summarize it at a high level.
The next question is from the line of Deepak Poddar from Sapphire Capital.
Just wanted to check just 1 question I have. The ammonia plant got commissioned, I think, in the first week of August somewhere, right? So ideally 2 months of incremental depreciation and interest would have got factored in this current quarter? .
That is correct, yes.
That's incremental. I mean I think on a quarterly basis, we were of the view that INR 50 crores of depreciation and INR 50 crores of incremental interest costs will come through, right?
Yes, it's close to that, yes.
Close to. But in this quarter, as I can see only INR 22 crores, around INR 25 crores of incremental depreciation and interest has come. So I mean balance INR 25 crores for each, depreciation interest is likely to come in the third quarter. Would that be a fair thing to assume?
So effectively, we are -- we take -- we have capitalized close to INR 1,400 crores. So maybe around -- yes, I think INR 25 crores, INR 30 crores approximately should be the depreciation. I don't have to know the numbers by heart, but probably that number sounds to be right.
The incremental that may come in third quarter, right?, I mean, '25?
Yes, could be. Yes, cudbe in that.
The next question is from the line of Jason Son from IDBI Capital.
At your results and the notes, [indiscernible] mentioned that you have...
Can you please repeat your question?
Yes, sure. Sure. Am I audible now?
Yes, sir. Please go ahead.
Yes. Okay. Okay. So would I -- I just required a certain clarification. So when you look at the results and the notes to file, you mentioned -- as I mentioned that there is a loss of INR 148 crores imagine out of the initial stabilization period for the ammonia plant. Now -- but when you look at the presentation, this amount reduces to INR 87 crores.
So I just wanted to reconcile what is the right number for this stabilization?
So INR 148 crores actually is the PBT number. INR 87 crores is the operative EBITDA number. So that is the difference. Both numbers are correct.
Okay, sir, sir, INR 148 crores is the PBT number, you're saying?
That is right.
And INR 87 crores is the? .
EBITDA number.
EBITDA number. Okay. Okay. Okay. Okay. And sir, just 1 question. I just wanted to know, I understand that you have announced the demerger of the TAN in the fertilizer business and have seen the structure of it. But just wondered if you could just throw some color on what do you want to achieve through it, what is exactly your game plan to this restructuring, if that would be really helpful.
So are you asking the question like what is the game plan of restructuring [indiscernible]?
What's the objective of it? Because I understand that you would want to move. You've already highlighted that you would want to move from a commoditized business to a more specialized one, and you're moving -- you're taking steps towards it. Now just in terms of the corporate structure, it was a little hazy to me. So just wanted to know what exactly is your objective behind this corporate structure. The new one which you have, I can see it in your presentation. So I just wanted to some color on it.
So currently, earlier, the structure was that Deepak Fertilisers, which is a holding company, was actually holding, obviously, I say continues to hold the Industrial Chemicals business as well as the reality business. Underneath, there was a company called STL, which has now has been renamed as MEL. With this restructuring, we are actually taking away and MEL had the Crop Nutrition business as well as the TAM business. So with this demerger, we are actually separating the AM business from Servisand the PAM business will be now called and deep of mining. The purpose for restructuring is predominantly because each businesses are quite bit right now. And hence, the leader very specific strategies to obviously go through it. And that is one of the reasons why we want to do it. So there is a specific focus in each of the business.
Okay. Sure. Sure, sir. So sir, there will be 2 separate entities. One will...
Can you please get back in the queue? .
Yes, sure.
The next question is from the line of Sunil Giri from Centrum PMS.
Just regarding the Mining segment, the Mining business. You mentioned that you'll be doing yield enhancement, will be doing yield -- you will be reducing the cost of ownership for the mine owners. So will this be coming from yield enhancements or changing the type of mix that is being used to complete the process? What would that be? That's one question.
So I will hand you over this question to Tarun to take this.
Yes. So as I was mentioning earlier, and this is just a recap in case you may not have captured it at that point in time. There are 5 value streams in an operating mine, usually, which are namely drilling, blasting, excavation, transport and crushing. This is all -- this is how the rock is expected. And there are products in the form of different types of explosives that we are using. There are different kinds of services, which is on bench last mile execution services. Then there are different kinds of blasting technologies in the form of software, tools, tools also include artificial intelligence using drone, doing predictive blasting models so that next blast gets better than the previous one, so on and so forth. It's a combination of products, services and technologies, which we depute and deploy and supported by people, of course, because this needs really high skilled people, which is a hard thing for any company to make overnight because its first thing is to recruit the right side sort of people who understand the consumers' language, and then to train them up and then to hand them over all those tools that I was talking about, supported by products and services. And then this team was to go and deliver all of this mine. So it's a combination of all of this, which actually helps our consumers in terms of improving their performance.
Okay. But wouldn't the cost of ownership increase using this enhanced services over a period of time then because then you would have to offset that with certain improvements in their outcomes right now and our outcomes right now how much you can expect from a rock or from any mine for that matter. How would that cost of ownership get? How would they be able to compensate that with your enhanced services?
Okay. So the way it works is, we first do a baseline. So as we step into a mine, let's say, we do a baselining of their existing cost of extraction of mineral, which has got some mark levels of cost of raw material, everything included. And then through -- we take up some pilot blasts through our own design software, all of that, that I was talking about, in some cases, changing products and different kinds of services.
And we analyze through the pilot, plus which of the 5 values between drilling and crushing we can actually impact, and then we convert that in the form of a proposal to the mining companies. So that's how we don't go about doing it, take the process, which works like that.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Deepak Rastogi for closing comments.
Thank you, everyone, for your participation. For any further queries or clarifications, please do get in touch with our Investor Relations team. Thank you so much, and happy Diwali to all of you.
On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.