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

Ladies and gentlemen, good day and welcome to Chambal Fertilisers and Chemicals Limited Q4 and FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Rishab Brar, from CDR India. Thank you and over to you, sir.

Good day, everyone and thank you for joining us on Chambal Fertilisers and Chemicals, Q4 and FY '21 earnings call. We have with us today Mr. Gaurav Mathur, Managing Director; Mr. Abhay Baijal, Chief Financial Officer; Mr. Rajveer Singh, Vice President, Legal and Company Secretary; Mr. Anuj Jain, Assistant Vice President, Finance; and Mr. Ashish Srivastava, Assistant Vice President, Marketing. Before we get started, I would like to point out that some statements made or discussed, on the conference call today may be forward looking in nature. And must be viewed in conjunctions with the risks the company's faces. Chambal Fertilisers and Chemicals does not undertake to update them. The statement in this regard is available for reference in the presentation. We will begin the call with opening remarks from Mr. Mathur. I would now like to invite Mr. Mathur to share his views. Over to you, sir.

Thank you, Rishab. Good day and a warm welcome to all of you participating on this call. As we are in a very difficult situation regarding COVID-19 in India, we sincerely hope that you and your families are safe and healthy and taking all precautions to prevent it from coming to you. I will begin with the performance of the company during the last quarter, and then for the full year, on a stand-alone basis. Overall, we are happy with our performance in Q4 financial year '21. This is a lean quarter when 2 of our plants were under maintenance for some period. Having said that, our total income for the quarter stood at INR 1,607 crores, as against INR 1,998 crores in the corresponding [Technical Difficulty]. The decrease is mainly attributed to lower sale volumes of marketed fertilizer and reduction in price of natural gas. EBITDA before exceptional items stood at rupees [Technical Difficulty] INR 46 crores in the corresponding quarter of previous year. Profit after tax without considering onetime deferred tax credit stood at INR 126 crores as against INR 109 crores in the corresponding period last year. In FY '21, total income stood at rupees INR 12,779 crores compared to rupees INR 12,385 crores in the previous year registering a marginal increase. EBITDA before exceptional items stood at rupees INR 3,526 crores in comparison to rupees INR 2,082 crores in financial year '20. Profit after tax without considering onetime deferred tax credit was at rupees INR 1,286 crores as against rupees INR 880 crores in the previous year. In line with our dividend distribution policy, the Board of Directors recommended a final dividend of the rupees 4.5 per equity share. After adding the interim dividend of rupees 3 per equity share said earlier in the year. The total dividend payout, it will be 7.5 per equity share which work out to the rupees INR 312 crores. I will now delve into our product wise performance, there was marginal increase in urea sales, we have registered strong growth in DAP, MOP and NPK fertilizers. We have crossed an important milestone of 5 million tons of fertilizer sales on anti-aggregate basis. As mentioned in the presentation, we have already started operations in 5 new states, that is Maharashtra, Gujarat, West Bengal, Telangana and Andhra Pradesh. Our performance in NPK have been good last year, and we expect to do better in this product segment with the addition of these new territories. We are encouraged by the measures taken by the government towards reducing the subsidy broking on fertilizer companies. Our subsidy outstanding was substantially lower as on March 31-2021, in comparison to last year, with no short-term borrowings and much better cash position. There is an exceptional item in the consolidated accounts and I'd like to mention about that. CFCL and 2 other investor namely NEA in the US and NEA FTI has invested in preference share capital of CFCL Ventures Limited in different series at different point of time. Whereas CFCL has also invested in ordinary shares of CVL and other minority investors, majority of the funds are invested through preference share capital, and ordinary shares are very small. Preference shares are redeemable at the option of holders voting and maturity. As the terms of redemption references, preference shares will be redeemed at issue price of fair market value, whichever is higher at the time of redemption. Further, these shares are also convertible into equity shares of predefined conversion ratio. As the holder of the instruments have right to ask a redemption as per the agreement, it is treated as liability under Ind AS and accordingly shown as long-term borrowings in the books of CVL. When CFCL does consolidation of CVL accounts and CFCL accounts, CFCL investment in preference shares is eliminated against the long-term borrowings shown in the CVL books and remaining part of preference shares invested by NEA Indo-U.S. and NEA FDI recorded as long-term borrowings into CFCL consolidated books. In the present case, as one of the preference shareholder has announced his claim towards preference shares, resulting into write-back of liability in CVL books, it has resulted in reduction of debt liability in serial books and corresponding increase in profit. The same impact is there in the CSCL consolidated accounts and the debt liability has reduced due to write-back of liability in the books of CVL. However, there is no impact on CFCL's stand-alone books. CFCL has already value-based investment in CVL based on its fair value of CVL as there is no cash flow movement by enunciation of it right by our shareholder. There is no increase in fair value of its assets and no change in CFCL standalone book. Coming back to our existing business, I just want to mention that there are headwinds in the market on account of higher procurement price of phosphatic fertilizers and the ability of the market we absorb these. On the positive side, the monsoon is expected to be normal. Hence, our outlook remains positive on the consumption front. We are actively looking to leverage our well-established presence in the fertilizer segment and improving financial metrics to expand our product portfolio to comprise a wider range of agri inputs, micro nutrients and crop protection chemicals. With that I would be happy and we would be happy to now take your questions. Thank you very much.

[Operator Instructions] The first question is from the line of Baidik Sarkar from Unifi Capital.

Congrats on a good quarter. I hope you and yours, are doing well. Couple of questions. This seems to have been some slowdown in the sale of complex fertilizers in April. Given the conclusion around pricing and our increased efforts cost, how do you see this progressing towards closure and is there a risk of stock out at the field level affecting the core credit season?

Thank you, Baidik. Yes, there was a slowdown in April because of challenges on the price and availability. We don't expect reduction in consumption in the field. As such, as I mentioned earlier, the monsoon is expected to be good. And DAP is a fertilizer, which now the farmers are very sure about. So as such, we don't at this point of time expect any reduction however, as we progress into the actual usage season which commences, in June we will get a better idea.

No, because, unless, I'm looking at the wrong set of numbers, but that's not all, April did see material regrowth. So what you're suggesting Mr. Mathur is by the time we closed June it's possible to theoretically claw back the volume. Right?

Yes, I mean it will accept as low. There was overall, there was stock and the assessment that we have seen, shows that we picked up as we've progressed from May and June.

Yes. So you know events like these will be a fair occurrence. Given the sensitivity to food inflation and stuff like that. So how do we derisk our growth aspirations given these and what is your growth aspiration in the non-regulated part of the business. Mainly pesticide, biosites and all materials.

So as we've mentioned in our previous calls over the last 3 years are a huge focus was on setting up and ensuring others tree plants which is established now. Simultaneously there was a lot of focus on DAP and traded products. Now we have clearly increased our attention on micro nutrients and agrochemicals. We have grown pretty substantially in the last year that has gone by and have plans to grow at similar or even higher levels in the coming year. We have actually put in place a business manager, who focus on agrochemicals and micro nutrients segment with this objective.

Sure. That's helpful. And the Mr. Baijal I know a question receivable period. In the current dispatch cycle of urea is the government going back to the old multi-month cycle. Or do you see a compression in the receivable cycle as I think stand today?

No, I really don't see, would be most of our payments are made up to March second week, as far as the previous deal is concerned. Now the current year, there are one of the challenges of their medical challenges inside the Ministry in the sense that some people have fallen sick and so on, otherwise there is no shortage of funds, and I'm sure the moment the situation is becomes okay, whatever is there in the previous machines, which had been registered as phase 2 farmers. And we have been raising those continuously by the way; so, and they are being raised and so on. But the question of payment comes there are sometimes difficulties in the sense that there are medical emergencies inside the US itself. Well, I think that will get cleared up, there is no issue in terms of accumulation of subsidy.

Sure. That's helpful. And I'm assuming the drastic fall in power and fuel cost that we experienced in Q4. Have to do with the partial shutdown we've taken, right? So starting Q1, we should be assuming your range of other expenditure to come down. I mean, to be in sync with what is experienced in the past few quarters?

Yes. You are right. The power and fuel expenditure are directly related to the gas consumption. And Mr. Mathur had mentioned that in the month of March we are in terms of 2 shutdowns, got it on 3 anyways, and that is on 2. So both of them contributed to lower off take of gas, correspondingly the purchase of raw materials that side also comes down and as well as in the power and fuel sector in the other expenses that will help.

Sure and lastly there given your growth aspirations in the non-regulated part of the business. Would it be possible to call out the extent of EBIT in '21 that's accrued from agro-chem micro nutrients and other non-related businesses? I mean just a broad range?

Mathur can answer that.

Baidik, as you know, we sort of look at the overall results and we do not put out a result segment. So I would leave it at that.

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

Congratulations on overall strong year, and the significant transformation in the balance sheet that we've seen. I had actually 3 book-keeping questions. One, if you could give us the closing inventory of traded goods on 31st March, '21? Second, the INR 120 crore [ CFCL ] that we see on the balance sheet, what's that about. And the third, if you could give us the pooled gas prices for financial year '21 versus financial year '20?

Thank you, Tarang. I'll request Abhay to take these questions.

I'll take the second question first. That is the INR 120 crores [ CFCL ] is kind of ongoing projects replacement, maintenance CapEx and so on, so forth. So that is the future given the fact, if some of our plants are now having older vintage, so that will keep on going on. And so while the stock and other things are concerned in terms of tonnage. I'll revert back to you or if Anuj, do you have the numbers you can tell us what exactly is the stock position on urea as well as DAP, NPK.

Urea, it is around 1.3 lakh tons, DAP, I mean DAP, OP and NPK put together it is about 1.5 lakh tons.

Does that answer your question, Tarang?

I wanted, the values as well.

No value I think there is some kind of feedback. So in terms of value if you see the total carried value of the inventory. How much is that Anuj in the book?

INR 789 crores as of March 31, 2021.

And if you did the Urea inventory, I would say that 1,20,000 tons would have been close to about INR 170 crores. The balance has to be DAP, NPK balance few other items of micro nutrients and all that. So that's roughly the range.

Okay. And pool gas prices for FY '20 versus FY '21.

Anuj, can you.

I think for last year average was $8.79 per MMBTU and in the current year. It is growing in the range of around $11 per MMBTU.

No, no, I'm talking about the year that.

'19 -'20, '20-'21 that's what he is asking.

'19-'20, I have to find out, 2021 it is $8.79 million per MMBTU.

If I recall, it was I think $1 higher that something, but we'll have to check and then get back to you.

Sure, sure.

On the inventory traded goods inventory [ INR 447 crores ].

The next question is from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund.

Yes. My question is if you look at the cash position, the amount of debt that we have been able to reduce because of operational as well as the subsidy. It's been significantly higher than what one would expect. Does it change your capital allocation strategy in the sense what is the kind of CapEx that we will be looking part and even among the say non-urea space or not regulated space. How would this allocation be between in our micro nutrient and no other if you can give some color on these?

Thanks, Sudarshan, for your question. So the debt has reduced significantly and made our balance sheet much more healthier. We have initiated our strategy process and over the next 6 to 9 months, we expect to come out that where we would go for further investments.

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

Yes. So I hope basically 2 question, first of all I think partially answered it in terms of the future plans. So as we I think discuss and past 1 or 2 quarters. So what's your sense now in terms of organic plus the inorganic growth plans. Since we have like kind of a much stronger balance sheet now. So initially we talk about sort of the non-urea plant in Morocco or some of the other initiatives, we talked about. So what's the state of as of now on that site?

Sudarshan (sic) [ Deepak ], like we mentioned in the past, we are apart from our expansion into new geographies, etcetera, we have initiated the strategy process and we are looking at various options to start with, we are looking at options that are close to what we do. So we are started to explore and it's very early days, like I mentioned, we have started to explore areas related to agrochemicals, other products that we can make from the excess ammonia but we have gadepam [ site ]. And of course we continue to look at possibilities on the phosphatics and NPK side. As I mentioned, these are all things that as you know, has started to happen once the whole subsidy situation changed. So it will take us, you know like 6 to 9 months to really evaluate these and come out with something which is the right thing to do going forward.

Okay. And my related question is about, what is your sense in terms of the outlook for coming quarters, especially as mentioned in that, the prices of, MRPs [ have ] up, definitely, it is going to help Chambal to some extent considering, we have a larger presence in the urea side. But do you think that, especially considering the higher MRPs, do we see some sort of a volume linked growth, also in terms of the revenue side, it won't be having a much impact. But what's the sense in terms of the volume growth?

So Sudarshan (sic) [ Deepak ], it is a little bit early to exactly say, like I said in my opening statement, it is a bit early to say what exactly will happen once the farmers actually start using DAP. What we do know is that, DAP is a very essential fertilizer that the farmers are very, very sort of clear about and they use it at the time of harvest etcetera. So the kharif usage will really start from June. We also know that the monsoon prediction is again a normal monsoon, everything is good. The procurement by the government is going on fine. The headwinds really on the procurement price off the phosphatic fertilizers, which prices are really, really gone up tremendously. So we just have to now see how this pans out. I don't think at this point of time it is possible for everyone to exactly predict, but all we can say is that, the DAP usage should be reasonable and there was a lot depletion of stocks in the channel also last year. So considering that the good monsoon, we expected the DAP usage to be quite reasonable. And we will then wait to see what the government does on the subsidy front, they should have an impact going forward.

Okay. So I just squeeze one more question to Mr. Baijal, sir. Sir, last time you talked about the policy for Gadepan III as we know that it is going to expire within 8 year, so only by FY '27 or so. So is there any development on that side, what kind of for the environment and we can see after '27?

So Deepak, it is too far into the future. And the government is at the moment focused on getting the balance plant together, they put 3 HURL, one of [ Raniguntam ]. At the moment, the focus is completely on getting them off the ground. Moreover, there also announced a special policy of cultured coal-based plan. So the understanding that I have is that they are looking at boosting indigenous production because they think that the growth part of urea is going to be high, with more irrigation and more forward-looking agricultural policies, which will act as draw for more production and export of material. So the sense that I get sometimes talking to them is like say this is too far in the future and they are not looking at it that risk. Secondly, they are clearly concerned that we have don't want from dependent on imports for urea production. And we feel that there is going to be a quantum growth in the conjunction of nutrient as it is because of the policies of food processing and agriculture, is think is one of the growth engines of the economy. So I can't say what exactly shape of all that will take, is just too far in this. Whatever I see today is more or less, that it is helpful that we look at boosting this sector.

The next question is from the line of Pratik Tholiya from Elara Capital.

Yes. Congratulations on a very good set of numbers on the operational front as well as on the balance sheet side. Sir, actually first request is that if Mr. Mathur can just repeat what you said on the preference shares because that time the line had got muted, so we could not hear anything. Many of us were unable to understand. So if you can just repeat what you had said on the preference shares side, sir?

Thank you, Pratik. Maybe I can ask Abhay to explain that to you.

Pratik, it is like this that we had a subsidiary focus software, which is all the businesses of software gathered into that were tubular subsidiary, which was in the Cayman Islands. Below which, there were 2 operating companies, 1 in US and 1 in India. Now the investment which was funnel to be used to companies, operating companies came through this holding company, where we were participants along with 2 other private equity, which was NEA of California and one NEA Indo-US which is headed by [ Vinod Dam ] at that point of time. Now these people had jointly invested along with us into that particular farm and these were in the farm, primarily of preference shares in various cities B, C, D, E, F, stretching up to I think J or K. Now in these shares the rights was in the sense. It was a claimable right, I mean they could ask for redemption. When you ask for redemption and instrument has the right for redemption then in under Indian Accounting, in the [ AS ] laws, they were to treat it as a debt. Therefore, in the balance sheet when we were consolidating, we were always shown this as debt. And when after all these things that happened in the software division, we had losses, we wrote it down and then ultimately sometime in 1920, we sold off that business. And only a relative remained in terms of these 3 companies; one, the top company in the CVL, which is Chambal Ventures, below that were these 2 operating income. So basically it was an asset sale both in India and US. So those businesses stopped operating. On or about December 2020. Any Indo-US came and wrote to us that, they are no longer interested in claiming back these particular redemption, redeemable preference share and they give up their right all title to right and right to dividend and all that from these particular share. Technically, it became a case in which the company had a remission of liability. I'm talking of the company, the Chambal CVL which is in [ Kemakh ]. Now, when you have a remission of liability that means you are writing off that portion of the debt of the company. You will have to substitute it with equity. You have this substitute equity, otherwise the balance sheet will go out of balance. When you do that, you routed it entry by way of the profit and loss account and you therefore took an exceptional income of INR 337 in the CVL books. And as a result of consolidation they came into the consolidated books. As far as we are concerned in standalone, we have already taken the impact of that by writing down the value therefore, there was no impact in the standalone because we have not changed the valuation as far as the books of cereal are concerned there was a kind of a profit through the exceptional item and there was a readjustment between the network and the loan side or what I would say the debt side in the books of CVL. So this is basically what has happened, prescient to their enunciation of right on this particular instrument. I hope..

Yes. Very helpful, sir. Secondly, sir, on the demand side just continuing from the previous, obviously. So you also got into some of the newer geographies. So my question is basically you've already done close to 1.7 million tons of non-urea in FY '21. So how much can we grow from here on the back of our existing geographies and how much can come from the new geographies and because you know already the incumbents are there and some of them are really big. So what is your view in terms of growth from the newer geographies that you've now opened offices into which is based in Gujarat, Maharashtra, AP, Telangana.

That's a very good question, Pratik. So we have just started to make the foray into the new geographies. Now, when we talk of the new geographies and bear in mind that we were earlier present in Maharashtra, West Bengal and to some extent in Gujarat also. So we do have some experience there. And like you say there are very strong big players also currently operating over there. So at the same time, Chambal brings its strength of the brand that we carry, the quality that we bring to the market as well as the transparency and the way that we deal in the market. So we have set ourselves some nice target. I think it's a little bit premature, but we would think that over the period of time, we look to capture from 5% to 10% share in those markets. How soon that will happen, etcetera that we will learn as we go along. So that's I think what I can say at this point in time once we start to experience market over the next on year we will have probably a better view on that.

Sure, sir. That's really helpful. Just lastly as INR 1,100 crores of subsidy that is outstanding that is purely like budgets are mentioned it's line with BOS or there is some POS customers that is also pending.

Are you talking about the year-end subsidy of INR 1,100 crores?

Yes, sir.

It is comprising of 3 parts. One part is the material which is lying in that peer which is unbilled so technically it not pending with the government. We do an accounting that we do that in the first point when you sell the material, you raise it as market let us or subsidy does it, as the case maybe. Now, since the process of having been sold through POS has not happened that part once it goes through the POS then the base will be actually raised then the money will be realized, that is one part. The second part is, freight and other certain non-DBT item which does matter, of course and the third part is adjustments to the value of the subsidy due to fluctuations in foreign exchange and gas prices. It is called escalation and deescalation that is a quite part which gets, these are the 3 parts which comprised of the INR 1,100 crores that you're saying, but I can say a major part of this is that part, which is still to go through the year's machine and actually get paid. Does that clarify?

Yes, sir. Yes.

The next question is from the line of Viraj Kacharia from Securities Investment Management.

Yes. So my questions have been answered. I just had 2, one is on the demand part. I just want to understand because of the COVID second wave which we're hearing about impacting even in rural hinterland, are we seeing any change in demand cycle or the placement back on then, typically we have seen in the normal season and second I think in terms of the CapEx plans or the growth plans which we have. So you said that next 6 to 9 months, we will be evaluating investment probably long urea sectors, how much of the incremental order total capital we will be looking to kind of spend towards say urea verses non-urea indicative exact.

Thank you, Viraj. With regard to the demand, I think your question was if I understood correctly focused on the impact of COVID on the demand side, is that right?

Yes. I'm just trying to understand that is there any impact on demand or any change in another placement cycling then either in double fertilizers or seed we because that's the only -- we need only part of the value chain?

Right. So we had seen the COVID situation first time around last year and the company as well as with strong support from the government in Central plus all the states, it was virtually no impact on the fertilizer and agriculture effective as you can see from the outcome where India has had a record production last year. Similarly till now, in spite of all the COVID related challenges, we don't see any major impact on the fertilizer or agriculture sector, we might have a few measures here and there in terms of some minor delays in offshore in the rates being handled etcetera. But as such, it is not of any significant. In terms of the growth, your question was CapEx towards urea and non-urea. I think again all these questions will be sort of looked at as we progress. As of now, we don't see any opportunity on the urea investments [indiscernible]. And I think as I mentioned earlier that we have 2 older plants, so there we will stick to CapEx that is required either for sustenance or for improving our energy efficiency, but I don't see any major investment in that area as of now. And the other segment, as I said we will develop over the next months and as and when we have something concrete to communicate. We will definitely come back to you.

Just a follow-up on this. The government also kind of indicative that you will be looking at divestments of certain stage for fertilizer companies. So would you be kind of an interested in inorganic route towards building a presence either outside a poor areas when it comes to urea. I'm asking this because traditionally our approach of the new organic and our key strength as well having one of the best energy efficiency in the industry and this also one of the reasons why we have such a lean operating cost structure. So any thoughts on that and second on just related question to that is, when you're looking at non-urea, say crop production chemicals and related. Internally, what factors, we will be looking at before deciding any big CapEx on pushing any inorganic opportunity because that is an area, which we don't have a strong position yet or we don't have a major expertise that so, just trying to understand.

Okay. So as regards the divestment plans of the Government of India on public sector units, what we've seen is for example NFL, where the government has put out an offer for sale for 20% and any single player can bid for up to 25% of that, so which means 5% each player. Beyond that, we do not have any further information and the government is, I think in the process of appointing and going ahead with that process. So as and when something comes out in a formal document, we will then consider that and take an appropriate call, on that basis. As such, it's difficult to say at this point in time, how the government will exactly proceed in this. As of right now they just offer this 20% OFS. On the second question of investment on Crop Care and so on, again, I go back to what I said, this is, these are all considerations that we will, look at as we progress on our strategy development and rest assured that if it is felt that these are sectors where we do want to do something substantial, then we will look to build our capability. I think that's something else, you mentioned. We do have, we do sell a pretty reasonable quantity of Crop Protection products. even currently. So we do have some in-out knowledge. And as I mentioned earlier, we've just appointed a business manager whom we've hired from a reputed agrochemical company to lead our and to improve our focus and lead our growth in the agrochemicals and micronutrients sector.

The next question is from the line of Trilok Agarwal from Birla Sun Life.

Congratulations for good set of numbers. Again to harp on the question that we are focusing on export opportunity. So in the previous call, you had stated that you guys are also considering expansion in [ urea ].

Trilok, thank you. I think I mentioned just previously that the government has NFL, National Fertilizer Limited has an offer for sale if the government wants to proceed as and when something substantive comes out in terms of our documents and so on and so forth, then we will examine it.

Is it fair to understand that Chambal Fertilizers is open to acquiring these assets and run it efficiently going forward?

Trilok, I don't think I'm in a position to make any comment.

The reason I'm harping on this because as a company known for building on plants than actually acquiring and so that's the whole context I'm trying to understand, but I think I've got my answer.

Okay. Thank you, Trilok.

The next question is from the line of [ Ashish Thakkar ] from [ Motilal Oswal AMC. ]

Yes. I think in your opening comments, you did mention about rising prices and the inability of the farmers to absorb them. In this context, how long can you think your competitors or you also can continue to sell at current MRPs and if possible, do you feel that there is a possibility of the government letting you to pass the prices?

Ashish, thank you. First of all, the MRP have risen. If you go back to early quarter 4 of the last financial year, the MRPs were around in the range of INR 24,000 per metric ton. Currently, the MRP INR 38,000 per metric ton. So the MRPs have gone up substantially, because the entire industry is in the same boat. As regards to the question on subsidy, I cannot predict what will the government will take. All I could say is that the government will have to consider, probably, at what price point they feel comfortable [ that ] DAP should be supplied to the farmers and accordingly they may work something out, but other than that, it's difficult for me to second-guess what the government will come out with.

This is fair enough. One question on the next level of DBT, there has been a lot of media articles talking about INR 42,000 crores being directly transferred to the farmer's accounts and also the fact that some of the farm laws the government make totally buried down. So would you like to give some color on the possibility of a next level of DBT role out?

Well, I think this discussion on next level of DBT rollout has been nothing going on for some time and to my knowledge, the government is grasping with some fundamental questions. For example, how do you define a farmer? Who should get that direct benefit transfer with regard to urea, for example? How do you consider the acreages of each farmer? Because there are various concepts over there. There is still a lot of work I guess which is going on in that direction. Again, it's difficult for me to say at this point in time, what exactly the government will do and what kind of timeframe. What we do know is if that the start happens and it is obviously overall good for a high efficiency producer and a strong player in the market like Chambal.

Fair enough. Just one last question from my side on the contract manufacturing side. Since you said on the AgChem side, you probably try to put your hands on. So would it be like normal domestic product or you feel there is also some thought going on as far as this contract benefiting services part of the business is concerned?

Too early for me to answer that question, Ashish. These are all things that will come up as we start to debate the strategy and what we need to do.

Yes. One last question, if I just to put it out. Is it possible for you guys to provide a sensitivity as to with a 10% rise in the prices of the debt is, what kind of impact does it have on your margins?

It's generally positive. We have 3 plants. We have a separate policy per plant sensitive to gas prices also. All of them are sensitive to gas prices. But on the flip side, there is also increase in the cost of interest because of the rise in subsidiary that could entail in urea. It's a balance. Currently, because of low subsidiary receivable, this year at least we are positive.

The next question is from the line of Bharat Sheth from Quest Investment.

Sir, on this DAP import side, just want to get some sense about couple of years back, I mean DAP price went up and a lot of people were imported DAP and all of sudden, after 2, 3 quarters, prices dipped and people were sitting on the inventory or already booked inventory in the pipeline transship had to bear a large amount of loss. Now, again these DAP prices in last 3 to 4 months as shot up. How do we want to really view and what is our risk mitigation strategies in place?

Thank you, Bharat, for that question. So we have a very strong internal mechanism of tracking what's happening in the global market where DAP is being consumed. We keep a very close eye on what's happening on the big suppliers, what's happening on the demand, for example, in the US and Brazil and other parts of the world, which are consuming DAP. We are also very careful about not booking material too much in advance and really looking at only a couple of months ahead, so that we don't buy material at a higher price in a market, which could start to go down. It's a balance that has been achieved over a number of years of experience and strong internal processes, which is why at any point of time, even currently, we are not sitting on any high levels of stock. At the same time, we're getting enough supply to meet our sales and volume targets that we have, but we are very careful about building up stock in this kind of a situation. Does that answer your question?

Yes. Sir, so how do you view these DAP prices over next 1 year? If you have been studying all these different markets consuming and all the sudden, Brazil, US everyone has increased the consumption. How does one really view from 1 year and medium-term perspective?

If I knew the answer to that question, Bharat, then I would become a very, very rich man.

Trend, if you can give?

Look, I said that on a lighter note, but the general view was that we might expect some stabilization or reduction towards end of quarter to this year. However, again, recently there has been some pickup of demand in the US again. So these things are very dynamic. Overall, there is a very thin demand and supply balance on DAP and therefore, if the demand goes up substantially for short periods of time, then that creates a supply challenge.

Okay.

At the same time, what I do want to mention is that we have suppliers with whom we have MOUs and contracts, so we don't expect availability for us to be an issue.

[Operator Instructions] The next question is from the line of [ Ashish Shah ] from [ Emkay Global. ]

Congratulations on a great set of numbers as well as on the balance sheet. My question is on the crop protection side, I just wanted to know whether we are primarily focusing on the B2C element in the segment or B2B as well? That's my first question and I have a follow-up on that.

So thank you, Ashish. Right now, we are selling to really more of B2C. As we look to develop our strategy, we will look at all of those aspects, but as of now, the current state of the company is essentially B2C through the channel that we have.

Sure. My follow-up question is that if you see the B2C, there are lot of these companies have taken years to just hit the revenue mark and margins, but it is still maybe on less than 15% of overall EBITDA. Actually, primary growth engine has to come from non-urea fertilizer, because it might grow on its own very fast. But I do believe a growth at which you are, I think you still have to focus more on the non-urea fertilizer, is that understanding correct from moving the needle perspective?

Our focus on non-urea fertilizer has no link, per se, to what we want to do in the crop protection. There, we will continue to grow. This is public information. For example, DAP, last year, we had about 18% market share by volume and we would like to grow that. There is no doubt about it. We are expanding into new geographies. We do want to become a pan-India company and like I mentioned earlier, achieve market share in those geographies. As far as the crop protection segment is concerned, yes, we will see how to go about there. If that is an area that we find strategy process that we want to put substantial amount of effort and investment into, but those are the questions, again, I'd say that's come up as part of the strategy development.

Sure, and one last one. As you are entering the new geographies, particularly in the non-urea fertilizer space, what has been 1 or 2 key learnings and which [indiscernible].

We've just entered. It's too early. Maybe we will have some learnings in a few months' time.

The next question is from the line of Sachin Kasera from Svan Investment.

Yes sir. In one of the previous calls, you mentioned that you are not getting re-specific breakup between urea and non-urea, but could you give us some sense as to is the non-urea now contributing some reasonable way to the profitability or while there are a good mix in terms of revenue because it's mainly traded the contribution to profitability is very less? It is first. Second part of that question is that over the next 3 to 5 years, how do you want to see the urea versus non-area profitability mix? As a management, would you like to reduce the dependency significantly on urea?

Simply to answer, we do have a substantial contribution in our profit from the non-urea section. As to the second question, yes, the urea segment is in a way is fixed. I think probably most of you would understand that we sell as much urea as we can produce and there is a government formula on the contribution, etcetera. That in a way is fixed. On the other hand, our traded portfolio is something that we really want to continue to expand and increase our market share in and so by that simple logic, we would expect the proportion of our non-urea fertilizer portfolio to increase over the next 3, 5 years.

Sure. Sir, would you be in a position to share us to today the non-urea is big substantial part for capital import or it's a very asset-light model as of now for you?

There is no fixed asset. It's essentially the working capital that is employed in the non-urea.

Any sense you could give, sir, what type, like a 150-day cycle, 130-day cycle on an average?

Abhay, would you?

Yes, it is between 130 to 140 days, longer in terms of MOP. DAP is fairly tight. On an average, you can say that in the DAP, MOP, etcetera, into account. MPK is too young for us, not too much volume there. Between DAP and MOP, we will say it's about 140 plus.

My second question is regarding the return on capital employed. We have seen a significant and continuous improvement in the last 2 years. So are we now more or less at the peak ROC and ROE being current business model can deliver or do you think that over next 2 to 3 years over the type of initiative that we're taking, probably you see or you plan to maybe at least improve it further from here?

Well, Sachin, that will depend on our growth strategy. I think it's a little difficult to specifically answer that question right now. There are many, many variables in that question as of now.

Let me rephrase this, sir. As a management, are you now happy with where you are or sort of aspiration would at least be to try and improve further from here?

I think it would be fair for me to say that no management should be happy with where they are.

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

Congratulations for a very good set of numbers. Mr. Mathur, I also congratulate you for taking over as MD of company and wish you luck in future.

Thank you, Rohan.

Sir, a couple of questions from my side. The first is on DAP's license, so now we are very close to the conjunction season, half of them is already over and I think that we need to put inventory in the market and we need to thoroughly procure the material now and I think that the government has to explain clearance that how they want to go ahead with the pricing of DAP in the market. I think most of the companies are in the discussions with the government. So what is our strategy in the current scenario, whether we are building up inventory? I believe that the government is allowing increased prices of DAP or how the DAP issues is going to be settled in the market?

So in terms of our availability of DAP, as I mentioned, to an answer to another question, we do not see any issues in availability of DAP product. We have contracts with very, very big reputed manufacturers. We do not see any issue on that ourselves. As regards to the pricing, DAP pricing is not controlled by the government. At the same time, the pricing is really led by IFFCO, but on players whether they are local players who manufacture, whether they are players who manufacture DAP or they're players who import DAP are by and large in the same position. Those who manufacture DAP from asset would be exactly almost in the same position as importers and those who manufacture from [indiscernible] which is the maybe 20% or thereabouts of the overall DAP consumption, they may have some advantage. But overall, there is a very significant chunk which is either imported or made from soft asset. So 60% plus of DAP is imported. Why I'm mentioning all this, the price in the market is something that will be similar for the industry. The government has to take a call as to what kind of price they want the farmer to get the DAP at, basis which they probably can decide on whatever subsidy they want to have. Does that answer your question, Rohan?

Yes, but slightly. I understand the DAP pricing is [indiscernible] in the market, but my issue was more. Almost a month back the entire industry saw rising input cost of DAP. So that was my issue was.

That's not the case. The MRPs are now already at INR 38,000 a ton.

Okay, so you are saying our DAP pricing in the market -- we are selling in the market?

Sorry, I couldn't hear your question?

Sir, I was -- sir, you were saying that DAP -- the realization or the printed price is already at INR 38,000 per ton to the farmer.

Yes, we are selling DAP at INR 38,000 a metric ton.

Okay. And sir, if you can get some -- give some sense that what is the DAP import prices right now in dollars and what are the contractual prices now, sir?

Currently, the price is around what has been published and what is known is around the $560 a metric ton.

The next question is from the line of Rakesh Vyas from HDFC Mutual Fund.

Congratulations for good set of numbers. I have actually a couple of questions. First one is on domestic [indiscernible] essentially given the sharp increase in the prices. If you can just talk about how you see the outlook there? The cash generation from that particular plant, how you plan to utilize it?

Rakesh, as you know, we have a 1/3 stake in the IMACID, 1/3 is in TATA Chemicals and 1/4 with OCP. I presume, I cannot speak on the behalf of the IMACID. That's a separately run company. I presume that with rising prices there should be some upward trend in the margin and hopefully, we will see some positive impact in our dividend. At the same time, IMACID Board will look at where it wants to invest it's money, does it want to invest, does it want to give dividends. So ultimately it's up to the Board of IMACID.

Yes, that helpful. Mr. Baijal, have we accounted for any dividends from IMACID in last fiscal, how much was it?

No, I think the total dividend that we will take in the previous year was of the order of INR 25 crores. That was received, I think in the second quarter. Correct me if I'm wrong, Anuj? That is about it. As far as the current year's dividend is concerned, I think there is a general assembly, what we call AGM, that is due to be held very soon. The Board has [indiscernible]

That's helpful. My second and very quick question is on the plant maintenance for fiscal 2022. I believe we still haven't got the approval for producing beyond capacity so that definitely will go for another plan maintenance probably for the month of March in this quarter?

Things will probably go under shutdown with over the policy and we have planned for our shut down for Gadepan-I, which should happen, sometimes in March '22.

March '22. So both of them are in March, potentially both plants in March '22 as we have this time [indiscernible].

That's right.

The next question is from the line of Praful Kumar from Dymon Asia.

Many congratulations for the newer role. So just one broad question over a 3-year period to a 5-year period in terms of strategy, you did mention that [ non-India ] Micro-nutrients and agrochemicals, given you a very strong pedigree and background in [ chemicals ] earlier in terms of vision for the company for next 3, 5 years. Can you just draw a broader outlook at least. We know how big these opportunities can be? What do you intend to do on the ROC basis increase, where do you want to take the mix and ROC for the company?

Thank you. Praful, I think what we want to first focus on as to explore are a different fee, right. It's very important for companies to remain focused and not necessarily venture into areas which may look attractive from far but where the company may might have any growth competency. So our first focus is to explore our adjacency. So which I mentioned in areas like crop protection, etcetera and then if we see that there are any very big opportunities that may come as a second thing, if at all, but for now, we want to really focus on business segments there which are linked to what we currently do and where we can leverage our core competencies.

Sure. So maybe it would be useful sir, whenever you have a broad outlook maybe next 3 months, 6 months, please share with us in terms of direction the opportunity size or some granular details that will be very helpful, sir.

Absolutely. And like I mentioned, the development of strategy in a considered manner, looking at opportunities, looking at our competency will take some time. So and we do want to get it right so and we will surely share it with all of you as and when we have something substantive.

The next question is from the line of [indiscernible] Resources.

Just a follow-up question on the crop protection, do you have an internal bench mark as to what proportion of the total revenue should come in from crop protection over 5 years' time; that's one. Second is, have you invested in our own formulation plant or would you be trading in all the crop protection products, because quality is paramount importance and at some stage it should help the business if you have your formulation plan, and also the business being very capital or cash flow intensive, what are the current number of debtors', number of days that is there in the business currently.

So [ Hariharan ], first of all no, we are as of now not set ourselves any target as to the proportion of business from crop protection that is part of the strategy work that we have undertaken. Second, whether we would buy or build formulation units, again that will evolve as we work on the strategy. In terms of debtor days, I don't know the answer to that question, whether Abhay or Anuj will, I am not too sure about that.

I will just bottom here, see the debtor days have come down drastically, if you see the results for previous year balance sheet and this year balance sheet, we can figure out and most of that has happened before.

Sorry, sorry to interrupt. I was specific to the crop protection business.

For the crop protection business, I don't think we have a cycle more than 90 days in any sense when we are selling, because we sell mostly through our fertilizer channel, and I would say, more than 95% of our sales grew through our fertilizer channel, and that is a far more disciplined channel and we normally managed to recover the maximum that as in terms of credit which has been extended by us around 90 to 120 days. We operate between 60 to 90 days most of the time.

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

Good afternoon, sir. So currently as on March end, we had debt as well as cash of around INR 900-odd crores, and we have a scheduled repayment of Gadepan III plant, I think that is the only loan which is outstanding, right now. How should one look at the cash accumulation whether we will prepay the loan or we will keep this loan as it is and keep building the cash for the next leg of CapEx which we are planning for.

Resham, very broadly put. Any option to prepay the loan has to be looked at looked versus how, what we can get out of that cash if we don't prepay the loan and that's a call that we will take from time to time and act accordingly. I don't think we can have a standard answer for that. So yes, that's what we will continue to examine. And if you feel that we can utilize the cash best paying the loan and we shall do so at the same time now with the reduction in our cost of long-term capital that we have Gadepan III is very, very low. So it may not necessarily make sense for us to prepay the loan.

So in that case, actually our cash generation is anywhere between INR 1,700 crores and INR 1,800-odd crores per year and you're already getting a INR 900 crore cash, so you're cash will keep depleting your ROC is in a way. So just the context in that, are there because last few quarters also, you highlighted about the plans on investing your areas and I understand there is a large CapEx need to be evaluated carefully but any timelines, which you have said. How are you going to utilize the cash balance if let's say, no large CapEx is not being finalized because it will lead to sub-optimal return ratio.

Well, I'll just handle that. I'll just tell you some part of our business is pretty [ seasonal ]. As I understand that for the past so many years there was always accumulation of [indiscernible] towards the end of March. This way the reversal happened, we have a few accumulation and precisely in March. When you go into the cycle of building up stock so naturally, we will draw on working capital, some of this cash will be used at some points of time during the course of the next 6 to 8 month to shut off the borrowing itself with may be possible due to the buildup of working capital that is one part but assuming that the government is giving us subsidy on the adequacy of that. We will now start seeing a much better balance sheet at the end of the year. Because if we are going to get very little subsidy the debtors this position will keep repeating again and again as part of our cash accumulation or di-accumulation that leads us to make very clearly said that depends on what is the relative cost of the debt of the cash, earning opportunity that arises out of that. Only the company will be building up some cash reserves for the possible extensions that will happened all what are they are talking about in terms of your CapEx. It is now more like, given that we are going to go for some, kind of expansion or whatever but it's only question what we will be doing and when we would do with this cash will come in handy and we also have a dividend policy is that not so much of the profit will be given away. So cash will have these 3 name the users create to even out the fluctuations in working capital will be to build up for any other projects that may come up and participating.

The next question is from the line of that Siddarth Mohta from Principal India.

Yes. So I have got one question. So are we also open for any overseas strategic investment. The one that we have done for Amazon and if the answer is yes, we are open, so then what are those areas.

Siddarth, it's too early to say anything. Answers to all these questions come out of this strategy work that we will do. So at this point of time I can either say [indiscernible].

Ladies and gentlemen, that was the last question. I would now like to hand the conference back to the management for closing comments.

Thank you, everybody, for participating in this call and for your very, very good and incisive questions. I do hope that all of you are safe and under these difficult conditions and I wish you all the best. Thank you very much.

Thank you. On behalf of Chambal Fertilisers and Chemicals Limited, that concludes this conference. Thank you all for joining. You may now disconnect your lines.