Chambal Fertilisers and Chemicals Limited (CHAMBLFERT) Earnings Call Transcript & Summary

Thank you. Good afternoon, and thank you for joining us on Chambal Fertilisers and Chemicals Limited Quarter 4 FY '20 Earnings Conference Call. Today, we have with us the senior management represented by Mr. Anil Kapoor, Managing Director; Mr. Gaurav Mathur, Joint Managing Director; Mr. Abhay Baijal, Chief Financial Officer; Mr. V. K. Gupta, Vice President, Marketing; Mr. Rajveer Singh, Vice President, Legal and Company Secretary; Mr. Anuj Jain, Assistant Vice President, Finance. Before we begin, I would like to add that some of the statements to be made in today's discussion may be forward-looking in nature. We'll begin the call with opening remarks from the management, after which we will have the forum open for interactive Q&A session. I would now request Mr. Kapoor to make his opening remarks. Over to you, sir.

Thank you. Good afternoon, ladies and gentlemen. Welcome to our earnings call post declaration of results for financial year '19/'20. I'm happy to inform you that the company performance for the financial year 2019/'20 has been very good, and it has been best ever in the history of the company. We sold 3.16 million tonnes of urea as against 2.54 million tonnes sold during the previous financial year. The company registered 125% increase in profit after tax, which is INR 1,224 crores as against INR 545 crore achieved during the previous year. Without considering the onetime deferred tax credit, the net operational profit after tax increased by 61% to INR 880 crores as compared to INR 545 crores during the previous year. Our total income increased to INR 12,385 crores as compared to INR 10,236 crores for the corresponding period last year. The increase in revenue and profitability is mainly attributed to the production and sales of urea manufactured from our new plant and good performance of our marketed products. Towards the end of the last quarter, the company faced the challenge of COVID-19 pandemic. The company's first priority was towards safety, health and well-being of its workforce. The next priority was to continue operation of all the 3 urea plants. Since we took many proactive steps before and after the lockdown to keep -- excuse me, to keep all critical employees with enough [ supervision ] we were able to keep the plants running. I'm also happy to inform that till date, all our operations are normal. I will now request all the participants to ask questions, which they may have with regards to the result. Thank you.

[Operator Instructions] The first question is from the line of Tarang Agrawal from Old Bridge Capital.

Sir, I have a couple of questions. Sir, ex G-III, I noticed that for the year, the G-I and G-II utilizations together have dropped from maybe 1.3% in FY '19 to almost [ 1.5% ]. So just wanted to understand why did do you see this drop? And what are the levers that we are looking at looking in FY '21 for G-I and G-II?

G-I and G-II, Abhay, do you have the production number for G-I and G-II for last year?

Yes, G-I and G-II in '18/'19 was 21.2 lakh tonnes whereas for this year was 19.96.

[indiscernible] I'll just share with you, in the first quarter of last year, we had a problem with one of our reactors in Gadepan-I. That was the reason why this problem -- this shortfall occurred. We do not anticipate any shortfall in production this year. We should be back to the old times.

[ So first one when I -- ] Yes. Please go ahead, sir.

So I was saying that in the last quarter, if you see, and even the running quarter, there is no difference. It's 5.34 versus 5.47. So run rate is the same. So it was only, as Mr. Kapoor said, first quarter issue.

Okay. So because the [ MS/MS ] data that had picked up, so I was just wondering, we -- one had a hunch that G-III will go for a shutdown in Q4, but we thought that, that would be made up by G-I and G-II. So I was just wondering how should we look at it. So my sense is that maybe perhaps going forward, we should look at G-I, G-II operating at similar levels to FY '19, correct?

G-I, G-II, you should look at what we have produced in the last quarter. And G-III, as you all are aware, our 100% capacity at 12.70 lakh tonnes. And that is what we are allowed to produce.

12.7 or 13.7, sir?

12.7. We are trying for some additional production, like what we get for G-I, G-II, we are waiting for government approval. The moment that approval comes, we will come back and let you know.

Okay, sir. Sir, just wanted to understand what were forward gas pricing for Q4? And what is the current pricing [ for DFA ]?

Rajveer, would you take that question?

Yes. So you only want the quarterly price?

Yes, sir.

The fuel price for March was 11.94 mmbtu per dollar -- per mmbtu per dollar per mmbtu on an [ NCA ] basis. And you know there is a declining trend now. So it should go down -- yes. In April, it was 9.7, the latest one, pool price I'm telling you.

Okay. Sir, the last portion...

[indiscernible] per mmbtu on NCA basis I'm telling you.

Okay. Sir, last question from my side was on the cash flows. So if I look at H1 FY '20, you had almost INR 1,000 crores of cash flow from operations, whereas the full year [indiscernible] was and your receivables also seemed to have moved up. So just wanted to understand what has happened. Have you not received the subsidy or are trade receivables, other than government subsidy, have gone up drastically?

Abhay, would you like to take that question?

Sir, as I just explained, you are right that in the first half, we had a much higher proportion of flow as compared to the second half and especially in the urea sector because the urea sector is paid at the moment only from November, whereas the P&K sector has been cleared up to March as we speak but that was done only in April. Up to March, we were cleared up to December, January as far as P&K was there. But in the half year, first half, there was much better inflow than it was in the second half. As far as the market datas are concerned, they are completely under control. There is no problem as far as market data is concerned. And we continue to maintain a very low receivable position in any overdue bucket beyond 15 to 20 days. They are in the low single digits or double digits, maximum.

Okay. So whatever negative cash flows happened in operations in the second half is mainly an account of nonreceipt of urea subsidy, correct?

Absolutely. Yes.

Okay. And how are the trends looking now?

In the call, we anticipate the government to give us some -- more money going forward. And also with the fall in gas prices, that will help our working capital tremendously.

[Operator Instructions] The next question is from the line of Pratik Tholiya from Elara Capital.

Yes, sir, only on the G-III plant, you said that you are allowed to operate it to 100% and you said you're working it out with the government. So what exactly are we doing on that front? Because if we have to keep it shut for 1 month every year, that would actually hit our EBITDA quite significantly. So what is the plan that we have on [ warning the government on that ]? Would you share some light on that?

I will not be able to share much on that excepting that the government is concerned there. After all, the material which they get from -- due to additional production is literally at a lower price than that what they import. So approval should come through, but we will not be able to commit to you before that -- before the approval is in our hand.

Sir, we only [indiscernible] is government [ pays ] at the same [indiscernible]?

It will be -- No, no, no. It will be the policy, which is governed in Gadepan-I and II.

ITP. ITP plus something.

Yes. So I -- how the contribution is not much. The biggest advantage is that we don't then have to go through a shutdown of the plant. The plant continues to operate so shutdown and start-up losses are not there. Maintenance expenditure does not take place. So overall, there's quite a good gain for the company. And for the government, it's that urea which is cheaper than what they are importing.

Okay. Got it. Understood. And sir, last thing, in the COVID-19 call that you've done, you spoke about some imports are being delayed because of the transportation and logistics issue. If you could then highlight how the situation right now will be import [indiscernible] for us on the DAP MAT side.

On DAP, I can only share with you the situation as of yesterday. Chambal has sold 1.52 lakh tonnes of DAP till yesterday, day before yesterday, compared to an industry total of about 11.5. So it's a very good number. And we have enough stocks for. We have contracted enough quantities. So I don't think so that that's going to be a challenge at Chambal.

[indiscernible].

Pardon me?

Sir, the shipments will now become more frequent?

Yes, we have got quite a few of shipments coming as we speak. I think somebody is also trying to make a point from your side? Anybody was saying anything from the Board room?

I'm not saying that this data is publicly available on [ MS/MS ] website.

Yes, sir. I'm only quoting data which is there in [ MS/MS ], so I'm not giving you any new data. And sir, in the CapEx, the CapEx is slightly higher this time around at around INR 700, INR 600-odd crores I think you had mentioned there was some milestone payments which are due, which you've taken in detail. So as -- have all the milestone payments been completed or some of the [ milestone ] which will be coming at FY '21?

Abhay, would you like to take that?

Yes, there is some very minor balance payment due to one of the foreign vendors. That is not marginal, not very much, not of the order what you were talking about.

Okay. Otherwise, our annual CapEx would be how much for FY '21 and FY '22?

The annual CapEx runs at around INR 80 crores to INR 90 crores a year.

The next questions comes from the line of Deepak Chitroda from PhillipCapital.

Yes. So basically, a couple of questions, sir. First of all, on the Gadepan-III, as you mentioned, about 1.27 million tonne of cap in the capacity -- I mean the production side. So what kind of mechanism are we working on in the similar line as we have for G-I and G-II?

So for both properties and capacity?

Yes, yes, G-III I'm talking about.

That will be around -- that will be on the similar lines of G-I and G-II.

I see. Okay. Okay. But more or less, that has not been finalized yet or probably that is at the talking stages of now as [ I guess ]?

No, no, no. The papers and government have moved, and I think the approval should be coming soon. But until the approvals take place, we cannot commit.

Okay, okay. And sir, in terms of...

And also Deepak, what the way you should see for seller companies is to see on an annual performance basis especially for urea industry. Fourth quarter, normally for a company like Chambal Fertilisers, is a weak quarter. If you see historically, bulk of our sales take place in the first 3 quarters. And performances of fertilizer industry should be looked at an annual basis or in the first 3 quarters. The fourth quarter would be a weak quarter historically and going forward.

Yes. Yes. And in terms of future plan like, for example, what is -- we are basically aiming to do beyond now Gadepan-III in terms of expansion plans or future plan of action for Chambal as a whole, probably or, say, 2 or 3 years down the line?

At this moment, we have got a large debt on our books. We -- if you look at our debt equity, it is still very high. We have to bring down our debt equity. We are in a commodity business. After that, debt is to equity, it has come down to a comfortable level. If we look at either some expansion or we can even go for some acquisition from the market. But that would come after we are comfortable on our balance sheet.

So what's your target in terms of net debt to EBITDA level or total net debt level probably for FY '21 or '22.

Target is that we should come down to a debt equity of approximately 1, and that should happen in a couple of years' time. Am I right, Anuj Jain?

Yes, sir.

So that's the time frame where we look at expansion also.

Sure, sure. So in terms of trading business now, if I talk about, sir. As I understand, there has not been much change in terms of MRP, but I think in the industry, most of the players have reduced the discounts, which they were offering on MRPs. So do you still believe that, obviously, there is a couple of reasons behind that because of the rupee dollar reason? So do you think in FY '21, the margins will be much better compared to last year?

So FY '21, we should, on this front, do better than last year, both in quantity and margin.

I see. Okay. So in that additionally, sir, so have we started getting any benefit of the cross-selling of the credit volumes basically because of Gadepan-III?

Absolutely. Our volumes this year was 9.5 lakh tonnes compared to approximately, V. K. Gupta, you may like to [ portend]. We had sold last year 8 lakh tonnes last [ to ] last year.

8 lakh tonnes last year, yes.

And this year, last year, we did 8.52. And going forward, we should definitely do higher than that. If you see in the first -- last year, in the first 4 months, we sold 2.25 lakh tonnes. So far up to 2024, we have already sold 1.52. So our growth rate is much higher than last year. I can only mention to you what has gone on in the past.

Sure, sir. Sure, sure. And my last question is regarding the Gadepan-III, the long-term loan, which we have taken. So if I understand it correctly, every year, we have to have a payment schedule of around INR 600 crores or so. Am I correct in that understanding, sir?

Mr. Baijal?

Yes. This is about that amount, a little higher, about INR 700 crores.

I see. Okay. Okay. Sure. So and basically, so if I look at our net borrowing position as on FY '20. So I think the major spike, which we have seen, that is only due to the short-term borrowings, which we have done mainly due to, I think, the higher volumes which we have got from Gadepan-III, I guess?

See, our [ retail ] short-term borrowing is because of receivables from government of India. Yes, that's all.

Yes, yes. So at least, I mean, because we have a large volume because of Gadepan-III, right, that is why our short term borrowing has increased, right?

Yes.

We'll move on to the next question. That is from the line of Madhav Marda from Fidelity Investment.

Sir, I just wanted to understand that the [indiscernible] industry partners, which we have spoken about. Would it be fair to say that this is anything close to INR [ 11,500 ] crores of free cash flow every year [ in the year to next year ] more or less?

I can just discuss last year. We generated operating profit of INR 880 crores. There was depreciation of approximately, Anuj, 280?

Yes. 250 -- 280 [ per period ].

[ 295 ]. And there would be a tax because this data [indiscernible] calculate booked tax [ whether ] here or [indiscernible].

Yes, about [ 194 ].

So total cash profit, Anuj, can you just mention that, what's the total cash profit?

Yes, just...

And can you also mention the free cash?

973 is the cash profit after tax.

And that just...

Hold on, sir. Anuj, [ 880 ]. The depreciation of [ 286 ].

Yes, sir.

Plus there's a tax -- the plus there's a benefit because of tax. So the total works of how much?

Okay. One minute. Sorry, I'm sorry. It's about INR 1,400 crores.

Around INR 1,400 crores. And from that will remove the dividend, and we remove the CapEx. So the free cash would be approximately INR 1,100 crores to INR 1,150 crores.

And going into this floor FY '21 and FY '22, I think our [indiscernible] hasn't come down, [indiscernible] terms of how much we could [indiscernible] variable.

Please, can you please -- I actually -- I'm at home. My team is in the office. Could you please ask the question again and slowly?

Yes, the savings from the lower LIBOR, there should be some [ signal on the ] interest cost for us this year, right? If you could help us with that number, how much could you be saving on that?

Madhav, we should definitely have savings this year but however, if you look at in the first quarter, the taxation of LIBOR was at 1.45. The benefit really should accrue going forward because now the LIBOR come down to 0.38.

0.38. Right.

Yes. So now we should get the benefit in the next 9 months and there will be definitely a lower interest cost this year.

And firstly, maybe the [indiscernible] LIBOR for us last year in FY '20, how is [indiscernible] FY '20?

Anuj, would you be able to share what was the average LIBOR last year?

Yes. I mean the year started with about 2.3. And in between, it was about 1.8. So average can be 1.8, around 1.8, 1.9

The next question is from the line of Resham Jain from DSP Investment.

Sir, on the overall cash generation which you mentioned, what has happened this year? Is that the past from the CapEx whatever amount needs to be paid the balancing amount? And the increase in working capital has led to that amount being almost actually slightly higher than what we have seen last year. Going into next year now, and you mentioned that the goal is to repay debt over the next 2 years, and if we just look at the cash generation, is it fair to assume that you will be able to retail like a INR 2,500-odd crores over the next 2 years?

The subsidy remains as was last year, then in the ballpark, we should be able to save INR 1,800 crores to INR 2,000 crores.

Okay, okay. And on, sir, the trading business, other than the P&K business, I think 2, 3 years back, we were looking agrochemical to be a very promising business. Any thoughts on the same?

Now as we continue to do agrochemicals, we -- that's not a growth area for Chambal right now. Our growth area for Chambal is in DAP and MOP. I will continue to maintain what we were doing earlier, but that's not our growth area as of right now.

Okay. Understood. And sir, just final question. The recent just locust attack which has been [ immune], you feel any significant impact of the same on the [ job graph ] because we have a larger part in Rajasthan and a bit of [ UP ] in those areas, are you seeing any impact of the same being visible?

I'm aware of this locust attack. It has just come a few days back, but I'll let my marketing head take that question. V. K., would you like to take that?

Sure. See, this locust attack has [ helped you to see things ]. What is that [indiscernible] 2, 3 days back. [ At this time ], [indiscernible] at this moment, there is no [indiscernible], and that business are very high. So to that extent, India would be same, to the extent that [ low profitability ] will happen that they may [indiscernible] [ 2 crores ]. But this is not a [indiscernible] when [ that credit factor is very ] part of India. Therefore the [indiscernible] part of [indiscernible] dry part [indiscernible] account to [indiscernible] and government agencies are taking care. They are -- they operate. So not much government help taking place [indiscernible]. I think it happened that [ they cater around our plants ] more September due to heavy deliveries. So there's growth on heavy industries.

So sir, do you feel that in the next 2 months, with the temperature and then the rain, this should be settled in the sense that it should not be a major cause of worry for us in the next 2 months?

At this moment, the breeze more [ attack through north ] not come from [indiscernible]. So government agencies are all alert and they are taking the actions against that [indiscernible] are taking place. So they have been contained. We can say [indiscernible] causing downside, I mean, it's not coming up north. This wind was south, southeast.

The next question is from the line of Rohan Gupta from Edelweiss.

Sir, a couple of questions. First, you mentioned that definitely, after 2 years, then you will be more comfortable with debt equity ratio. Cash flows still remain very solid and is strong, and that can give you an opportunity for some acquisition sort of opportunity. Do you see that in fertilizer business that right now also, there are some opportunity? And if that so, then rather than just looking at the balance sheet side, as of now, you will be okay even acquiring some assets available at a cheaper rate, even in the current scenario, I mean, before 2 years also? Are you [ value ] speaking about the balance sheet being leveraged as of now?

If something is very attractive, we will definitely look into it because that could -- that will have a -- which we'll definitely look then what will happen to our balance sheet, what will be the synergistic effect and how much cash we can generate from the new business. If something is attractive, and we can turn it around, then we would not like to leave that opportunity.

[indiscernible] I think that right now that almost there are 2 to 3 companies definitely facing a lot of stress, including your own group company. So what's the thought process there, I mean, and I believe is the current-ish capital. A couple of companies are only able to do the business, but many of the -- I mean, big companies are going to lose the business. So do you see that there are opportunities and are these earlier than what we are projecting and is there any barrier [ to entry ]?

Opportunity comes, we will not be found to be wanting. And those will not be very expensive proposition. In the marketplace, whatever companies they come or they are likely to come in the near future, they are not very intensive.

So when you say acquisition, I believe that you are looking plants, right?

You can [ develop ] plant as I said, you never know. Government will has also announced that they would like to go through various investment scheme. So that also we should keep ourselves free for that also.

Yes. So this investment, once again, if you bring any of the NFL and RC and [ if at all], they will be only for the plant assets, right? Nothing now for the marketing or nothing because you already have a fantastic brand and global -- I mean a Pan-India distribution. So if anything you are looking, [ if you just fly upon ]...

I will not talk specific about companies because this is not the right forum. But each company that has with their own brand and all geographies. For example, if you just mentioned -- not that RCF has come to picture and we are looking at RCF. So and I think there's an up-front disclaimer on that issue. But brand is quite strong in, say, a Maharashtra or [ Kamakhya ]. So whereas Chambal brand is not so strong in Maharashtra and [ Kamakhya ]. So anybody who acquired say an RCF, not necessary Chambal, would like to have that brand also. It's not necessarily an asset sale. It could be a company purchase.

And sir, you just mentioned that going forward, you are focused on those areas that can include DAP and MOP. And sir, I believe that your company has always been in favor of trading of DAP and MOP because that's where you believe that the margin lies, and that is leveraging your distribution network. So when you say that growth area DAP and MOP, once again, I mean, you're looking for manufacturing assets and creating or buying in DAP and MOP or is just on the trading you are highlighting?

To put it this way, if you look at the consumer today, consumer product companies in India, big ones without taking names, we don't manufacture the product. They get the product manufactured from somebody else. Am I right?

Right.

And that's a support -- so if I can get the product manufactured by some other company, maybe an Indian company, that would be a good opportunity for Chambal to grow without investing in assets.

Absolutely. Sir, that was a very asset-light business model that even nobody is talking you in to do right now also. So I'm just saying that you were thinking that later on investing in your developed growth are. So I just want to understand that where the potential cash flows of the company are going to be invested even after 2 years. That's what I was thinking.

After 2 -- after 2 years, as I mentioned, there will be definitely some opportunity which will come in our acquisition space within the 2 years.

Okay. Fair enough. Sir, just a last question from my side. So sir, this current scenario, and in terms of DAP trading, so I just want to understand that what are the DAP trading -- I mean, your procurement of DAP prices, what it is? And how is the market situation? And meaning, in terms of logistics issues are you facing because the season is just kicking in now?

You had asked a number of questions. Let me just tell you slowly. We definitely plan to do volumes higher than last year. Our plan is definitely to do better, okay? We also definitely plan to do better margins than last year. Now there will be problems in the logistics. But for a company like Chambal, our motive is, is it -- there's a -- if there are problems in the marketplace, it's an opportunity for good, well-run companies. And well-run companies will always take advantage of that. For example, it was a logistic issue. Some companies will get the business right, who will deliver it to the farmer on time and grab higher -- better market share.

Right. So this is the time for the strong company to actually gain market share. However, industry volume may remain flat or may come down. You don't want to comment on that?

I cannot comment on industry, but I can only comment on Chambal per se.

The next question is from the line of [ Nadesh Bondih ] from [ Discovery Capital ].

Congratulations on your numbers. Just a couple of quick questions on your calculation on free cash flow. You've added a depreciation to operations free cash flow. But wouldn't operation free cash flow already have adjusted for depreciation and, therefore, there's a calculation mistake in terms of what are the free cash flows?

I was going by this year, last year, example, we generated operational profit of INR 880 crores.

Yes.

That is at PAT level.

Which already adjusts for the [ depreciation ].

Then you add back depreciation to that. Then you add back depreciation and add back the tax benefit we had on that.

But I'm thinking depreciation has already been added back to reach operating free cash flow, right? So the INR 500 crores [ that benefits ] the number.

No. I'll let Abhay take that question and [ explain a lot ] from my end.

I think, [ Nadesh ], what we are going through is we have said that our operational cash flow was INR 880 crores. We are taking away the effect of that INR 322 crore of the tax -- deferred tax recycle. Now you add back to that about INR 280 crores of depreciation, that makes it INR 1160 crores. And then you'll see that 50% of the tax is actually cash-based and 50% is basically deferred tax adjustment which is noncash. So 50% of the tax itself is about INR 200-odd crores. That is how the INR 1,300 crores which Mr. Kapoor mentioned...

INR 1,300 crores, yes.

I understand the taxation aspect of it. But I mean depreciation has already been added back while kind of reaching operation free cash flow, if you look at your cash flow statement.

No, no. Our profit after tax...

We were talking about free cash. We were not talking about anything else. And this number will come back to the same.

This year we can also calculate some profit before tax if we start from profit before tax, add back the depreciation and reduce the current tax.

I'll take it off-line. I'll take it off-line. The other question was that despite extremely healthy EBITDA numbers in the profit numbers, our overall actually -- net debt has actually increased. So how should we think of -- and I guess, a component of it was some of legacy CapEx, which we paid for this year. So how should we be thinking about this going ahead?

Abhay?

See, please understand that the legacy CapEx itself for the period shown is about INR 640-odd crores, okay? And that will fall off. We -- and when we have seen that there was -- as far as the cash generation is concerned, it will be remaining at more or less the same level. The only lever that remains -- the only lever that remains is something like what's the tick-up in the working capital.

Sir, but what I'm saying is that...

[indiscernible] one is that gas prices are...

Despite of the free cash flow, effectively speaking, even if you add back this INR 600 crores of like legacy effectively in the CapEx which we have grown this year. Yet, there's not been a reasonable amount of [indiscernible] deleveraging. In fact, debt has increased by, what, almost INR 600 crores, in fact.

Please also factor in that we have repaid debt also at INR 600-odd crores is what we repaid and [ 400 ] has gone. There was a drawdown, and there was -- so net-net, we have actually weeded out for the long-term cash, we paid almost INR 440 crores of long-term loans. We also paid some medium-term loans off. So that's it -- we have also the utilization of cash [ happen ]. And what we are seeing is, if you see the numbers of debt equity, it comes down to 2.13.

Which is -- I'm just -- if you look at your -- at the slide, you have 13 slides, which is your last slide. And whether you look at like net of borrowing, which has increased by actually INR 600 crores or whether you look at borrowing at book of financials which has increased by INR 1,100 crores, right. But I'm saying that even if you -- even if we then, let's say, adjust for the INR 600 crores of CapEx, which we bought this year, we still after paying down our overall net debt, despite having an excellent year, has not really reduced.

That is the reason being working capital has increased also because of Gadepan-III, our subsidy outstanding has increased. That should stabilize going forward.

Okay. Okay. So can we safely -- so how much is a safe assumption for the net debt to reduce as of FY '20?

The free cash which we had made -- if assuming the subsidy remains the same, then the free cash which we generate, to that extent, that should reduce...

But -- so look, I think the concern is that do you expect this subsidy to -- outstanding to remain actually flat in which case free cash is over...

This is a COVID year. We want to see whatever the government plans -- and we are quite confident that they will maintain the subsidy which they have provided for in the budget. If they do that, then the working capital is also coming down because of the gas prices coming down. So subsidy from the Government of India will reduce.

Sir, the reason for the overall increase in the net debt is a combination of your historical actually extremely [ fluid ] CapEx being included in the statement this year which is all INR 800 crores. And because your new plant has become operational, your actually working capital has increased. But it's not going to materially increase from here. In fact, it would stay flat or maybe slightly go down. Therefore, the amount of, I mean, deleveraging which we can do in the current year and the next year going forward could be materially higher. Is that a right assumption?

With the -- theoretically, what you're saying is correct.

Okay. And practically?

Practically, I would like to -- I don't want to count my chickens before they hatched.

Perfect. But let's say, if it asked you for continued -- to pay or you...

No, I personally believe that we should -- that budget should reduce this year.

We'll move on to the next question. That is from the line of [ Ravi Sundaram ] from [ Khoury ] Investment.

First of all, I hope you're all doing safe. I think a couple of my questions were already covered. More similar to what the previous parts been asked, this being a COVID year, some of us -- the key question was on the subsidy receivables for this financial year, which is FY '21, from the government. Do you have any view on that as of now?

As of late, I think government will stand by the commitment which it has made in the budget. I have no reason to doubt because in the first quarter, they have met the budgeted number.

Okay. My second question was on the recent drop in gas prices. I understand this equation for G-III, but how does it work for G-I, G-II? Any color on that?

Similar. In fact, to that extent, the G-I, G-II on the working capital side will benefit more because they are slightly inefficient plant compared to III. So there'll be a -- more benefit on working capital in I and II.

Okay. So the $9 per MMBtu that you mentioned, is it for average for all 3 plants, or is it...

It's the full price. That's the full price for the entire industry.

All the very best for FY '21 when you come back.

Thank you.

The next question is from the line of [ Sharah Dovasti ] from [ Park ] Securities.

Sir, regarding the numbers, like in the current quarter, what is the kind of on-the-road thing -- on the road movement of fertilizers that you are seeing? Because most companies that we have spoken to seem to have logistic issues.

So I will share with you how much urea we have sold. We have already sold [ 5 ] barring what is in transit and whatever we had at opening stock in this quarter. We don't foresee any problems.

And regarding the new pricing scheme, so are we entitled to get that [ 500 ] per tonne in the urea plant, from the urea production that we do?

We have [ 350 ] for G-I and approximately [ 250 ] for G-II.

[ 350 and 250 ]. So we are not yet including this in our prices, right?

No, this is already fully accounted for in the last year level.

[ Fully ] accounted in the year right now?

Yes.

The next question comes from the line of [ Ashil Patel ] from [ Financial Research ].

Can you just enlighten a bit about your debt reduction plans? I just wanted to get a little clarity on that, sir.

I'm a technical guy. So I leave the expert answer to other experts. Abhay, would you like to answer that?

Yes, debt reduction plans. One is to -- one is driven by the actually agreed repayment of amortization. So when I mentioned sometime back, somebody had asked, I said INR 700 crores will be paid this year. So that is part of that debt reduction anyways. The other part of the debt reduction will come [indiscernible] if the government pays on time, and we are able to not -- are not required to borrow in terms of our short-term debt borrowing. So these are the only 2 levers. The first has to happen because we have to repay our debts on time. The other part, we have just, as Mr. Kapoor said, we'll count our chickens once they come home. And if things improve after June, I'm sure we will be able to add/reduce plus the gas prices, which are going down. That definitely have a salutary effect on the short-term borrowings that we have. So that's how the debt reduction will happen.

So should we assume around INR 1,000 crores of debt repayment and as far as '21 and another INR 1,000 crores at FY '22, is that the target, sir?

Let me put it this way. INR 700 crores is done and dusted, anyways, that we have to pay. That is nothing that -- that's not a choice, that we have to pay. Now the [ 300, 400 ] that you are talking is definitely possible. If the government maintains or slightly improves the payment of subsidy, we feel that with the reduction that we are talking about, at least $1, $1.5, that has a benefit in terms of the reduction in subsidies [ which the government has to take then ]. So it will stretch a little further. Whatever budget they have, they will stretch a little further.

Two things will happen. I'd like to just intervene. One, our working capital will definitely come down because of gas prices having come down. And two, compared to last year, the DAP prices are also lower. That will also have an impact on our working capital. MOP prices have substantially reduced compared to last year. So all these 3 things will have -- will definitely have an impact on our working capital.

Our next question is from the line of [ Avita Amprishant ] from [ DSP ] Mutual Fund.

Sir, congratulations on good performance. My question is more on the strategy front. I mean you have to draw the fine line between growing via acquisitions and maintaining the ratings which are currently quite strong at AA by CRISIL. So in terms of, I want to say, any acquisition that you plan, how important is it to maintain a certain credit rating? That's the only question that I have, sir.

In terms of the target given to Mr. Baijal is that he has to take it to AA+. So I hope that answers the question.

Okay, sir, but [ on any acquisition actually debt ] is going to put pressure on the rating that's why I wanted to know the [ side ] or...

We would not like to compromise our rating. This was very, very difficult. We have gone into AA. We would like to further improve our rating, in fact. Yes, but the commodity business. This year, we are fortunate that with COVID, we have been able to manage our operation. But in every company in the world, good commodity companies, they keep -- they run a very efficient operation as far as the debt equity is concerned, if I look at the balance sheet.

The next question is from the line of [ Samit Doshi ] from [ KTMF ].

You mentioned that the gas prices are down at the 85...

Doshi, I cannot hear you. I think you're on the speakerphone. So your voice is coming a little blurred.

So you mentioned that the gas prices are down and the DAP prices are down, so you expect working capital also to reduce. So can you just broadly give in terms of percentage terms how much down is the DAP and the gas? You mentioned 9 point something as the pool price, but in percentage terms, if you can give us some idea.

See gas price, for the average for the year, the crude remains at [ these ] levels, we should see a gas price reduction between 20% and 30%. And DAP, what -- V. K., I'm asking our market head, what was the -- V. K., can you just share with us what was the average DAP price purchased last year?

DAP price purchased last year. [indiscernible] last year around $400 [indiscernible] the year, and which came down [ anywhere ] to $290 [ effectively ].

What was the average? The average was what, $340, $350?

Average is around $340.

So last year average, Doshi, was $340, $350. This year, we are at -- now at around $315, $320. About 6%, -- 7% to 8%.

10%.

10%, 10%.

10% down, yes.

Okay, okay, okay. So approximately, we can expect if this situation remains, then probably INR 800 crores to INR 1,000 crores of savings on working capital could happen if this situation remains.

I'll have to do my calculations.

Okay, fine. No problem. On the G-I and G-II, you mentioned initially that -- sorry G-III, you are planning to -- additional approval for the quantity to be produced from 12.7 to higher. So what is the percentage? Because you mentioned same as G-I and G-II, but can you...

I'll tell you what we get in case of G-I, G-II. G-I and G-II, we are reimbursed approximately INR 2,000 a tonne. Okay, gross margin. That's what we should aim to get in the [ refund ].

Okay. No, I was talking in terms of the higher production. So what would we, in terms of percentage, like current capacity is 12.7 is what you were allowed to produce and which you actually have produced despite that [ maintenance ] shutdown.

Approximately 9% to 10%.

Okay, approximately 9% to 10%. So in that case, we don't need to get -- go for maintenance shutdown, et cetera.

More importantly is that we don't go through that shutdown because the start-up cost is -- we say and no, that's quite substantial.

Okay, okay, okay. Sir, one question, of course, our margins have significantly improved, and that is the biggest contribution should we -- of G-III plant. Would you want to say that what are the other parameters which also improved our margin apart from contribution from G-III?

G-III and marketing products?

Okay. You mentioned that share of branded -- sorry, branded agri which have done very well.

Yes.

So what would be our share of branded agri inputs?

Our share in the marketplace, see, is around 10% in DAP. But in our territory, if you see, and India sells approximately 10 million tonne of DAP. We have sold 9 million, 9.5 million tonne -- 9.5 lakh tonnes. So it's 9% to 10% is what we sell. But we are predominantly a western and a northern company. We don't sell much in south. So in our territory, we have a market share of approximately 14% to 15%.

Okay. Okay. Okay. Okay, fine. And sir, this recent this fertilizer policy which proposed to [ make ] around 27 types of chemicals. Anything that we sell? And if at all, what could be percentage or any impact do you believe in?

I don't think so that will have any significant impact on Chambal Fertilisers because if you look at from our gross EBITDA to the margins which we make because of agri products like the 27 chemicals which you have just mentioned, it will be very, very minuscule, for example, nothing substantial.

Okay. Okay. And sir, you mentioned that last one, you mentioned that the -- we believe that 2021 will have a better volume and margin. So one is, of course, whatever that lost production of G-I, G-II of Q1 '19 issue. Another could be this additional approval, if at all, from government comes in, that would be the second reason. So what could be -- apart from that, what could be other triggers for increase in volume apart from these two?

Volume will be marketed products we have mentioned. We should be better than last year.

And like 10% higher or something.

It's not fair to tell you on the call. It's not -- I like to keep my competition also [ idle ] at this time.

The next question is from the line of Tarang Agrawal from Old Bridge Capital.

Just a couple of follow-ups, sir. Once the approval for operating G-III beyond 100% comes through, my sense is there won't be any impediments in pushing these volumes, right?

I agree with you.

Okay. The second, sir, you spoke about substantial shutdown and start-up costs that the plant has to undertake when it was not operating. Could you give a color in terms of what amount could that be, a ballpark?

INR 10 crores to INR 20 crores.

Okay. And sir, so I just wanted to confirm in terms of CapEx breakup for FY '21, what is the breakup between milestone and maintenance?

The bulk of it -- there are major CapEx which takes place in Gadepan-I and II. Gadepan-III is a very, very -- it's a new plant. So we are not going to -- any CapEx. Gadepan-I and II is what the -- and this is all basically routine capital maintenance. It's an old plant, '94 vintage and '99 vintage. So basically, it's a replacement of assets.

So the INR 100 crore figure, that's...

INR 80 crores to INR 100 crores, yes.

That is mostly for G-I and G-II on a per annum...

Mostly for G-I and G-II.

The next question is from the line of Deepak Chitroda from PhillipCapital.

Yes, sir. A couple of follow-ups, if I can. So about this fixed cost of -- which we -- industry has got a reimbursement of INR 350. So the entire amount we have factored in for last year and there will be no further provisioning on that, right?

We have already accounted for last year. We'll continue to account for this year.

Okay. Okay, sure. And the write-off which we have taken, around INR 62 crores, about SSP, plant and machinery and on. So if I understand it correctly, as of now, we don't have anything -- any further write-off in that side because I think we are not going to...

We have completely cleaned up our books.

Okay. Okay. Sure. And same goes with the software business which we had, right?

Yes.

Okay. Okay. And lastly, on the new product which has come especially from the competitors like, for example, IFFCO, [ CIDCO ], about the importing of urea. Of course, I understand it is very early stage to comment on that.

Importing of urea, we are also doing it. The entire industry is doing...

I'm sorry, the nano fertilizers, sorry, my mistake.

Let's not talk of competition on nano. I would not like to discuss nano. We are an open forum.

No, but my point is, what is your view in that nano.

I would not like to discuss on nano, Deepak.

The next question is from the line of Madhav Marda from Fidelity Investments.

Had a quick follow-up. So when we look at doing any sort of M&A in the fertilizer space, could you just give us a sense of what is -- I mean, what's the synergy, what's the value-add that we bring on the table? Is it the ability to run this plant much more efficiently versus the existing people? What are -- what can we do to revise the plant and make it profitable versus what it is right now?

Two, three things which Chambal has demonstrated over the years. One is we do capital investment in a most efficient manner than anybody else in the industry. We did this project in flat 32 months, 31 to 32 months. And for us to do such a large project and to run it in the first year of operation at 100% capacity, it's no mean achievement. I'm very proud to say that our quality of urea is best-in-class. You can -- in the marketplace, you can check with any of the farmer. I think so that -- I think that Chambal urea is a best-in-class product. So with -- -- plus we know how to manage products. On that, that is a core strength of Chambal Fertilisers. So what else do I look for in a new acquisition? What new markets will it give me. In North India, we have got a fair dominance of urea. We are increasing our market share as far as DAP and MOP is concerned. So our next strategy should be to improve our market share in new domains in India where we are absent today. That's what we should look at going forward.

Is there also anything on the efficiency metrics? Because our -- I think Gadepan-III is one of the most efficient urea plants, if not globally, at least in India.

No, it is -- today, Gadepan-III according to KBR, who is our licenser, Kellogg Brown & Root, Gadepan-III today the most efficient plant in the world.

Exactly, sir, which is why I thought that can we also add the efficiency metrics to these plants that we buy out or -- but because the legacy assets, it will all be that easy.

I agree. We should -- we know -- see, we should always make investment if there's a payback. There is no point making investment for energy saving and there is no payback.

Got it. No, makes sense, okay.

It should make financial sense. You will appreciate that.

The next question is from the line of [ Sivas Mopha ] from Principal India.

Sir, my question is on IMACID. If I have to see the IMACID performance in FY '20, it has sharply gone down as compared to FY '19. Do I understand that FY '19 was a 15-month of year -- considered 15-month in that year? So how we should look at our performance in FY '21? Or rather, what are the steps that we are taking to make it more profitable?

I think IMACID now will have a slightly better performance than last year. You will appreciate IMACID sells that asset mainly into India and some of the Indian companies have got approval. But however, this year should be best performing asset. And we are also looking at some minor tweaking by debottlenecking and increasing our capacities in IMACID. And but you'll appreciate that IMACID, Chambal has 33% share. So it's only 1/3 of the profit which come into our books.

All right. And my second question is on our Gadepan plant III. Sir, so at what [ GTL ] level that particular plant was operating in FY '20? And is -- and if there is any further scope of efficiency in FY '21?

We operated that plant approximately at around 4.98, 4.99. Am I right, Abhay?

Yes.

What was the -- and we should still operate better than that this year. It all depends on -- I -- we'd like to note, we do not get some unexpected shutdowns. Every shutdown impacts us by about 0.03, 0.04 [indiscernible].

Okay. So assuming that the plant continues to operate at 100%, so this 4.98 or 4.99, we can [indiscernible].

We should do better. We should do -- should be lower. Definitely, we can do better.

Okay, okay. So sir, it can be a bit difficult question for you. But if you can just put a range, is there any scope to reduce by like 10% to 15% in capacity [indiscernible]?

No, 10% is too much.

Sorry, 0.1. Sorry, sir. 0.1.

0.1 is definitely possible.

Okay. Okay. Okay. So that is there. Yes, sir. And sir, any change in our IPP number or -- for the capacity beyond 100% for G-I and G-II or government is still sticking with the same formula?

See, the government reimburses us a fixed amount. And I do not anticipate that we will not get that amount this year. Whatever the -- the way the IPP is ruling, the first -- the shipments which have come in this quarter are at around $250 a tonne. And with gas prices dropping, we should be able to get the margin, which the government allows us to make.

I hear the next question is from the line [ Ravi Sundaram ] from [ Khoury ] Investments.

I just have one clarification. You had mentioned that there is a restriction -- not a restriction, a guideline not to produce beyond 12.7 MT for [ OP3 ]. But we are a net urea importing country. Just a general question, not target on your business, what is the rationale or, just for us to understand, to limit...

The limit has been set because that's sort of a reimbursement to the company for the CapEx which we go through. So that's why the margins are very high. That's not very high. The margins are reasonably high for that so that we can make money and repay our loans. And government has then set up the number, 100% at 12.70. That was the logic for setting up the number.

Sir, if you can operate a little more, you'll actually be able to repay a little faster, right, by...

Government will allow us -- the government will allow us most probably. Let's wait for the policy. But not at the same level of margins what they would allow up to 100%.

Okay. Okay. So margins, if at all...

100%, government is more or less committed to give us this -- the margin. Beyond 100%, the margin will definitely come down.

[Foreign Language] Thank you. Sir, that was the last question. Thank you. Ladies and gentlemen, on behalf of Chambal Fertilisers and Chemicals Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your line. Thank you.

Thank you. Thank you.