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

Ladies and gentlemen, good day, and welcome to the Q1 FY '22 Earnings Conference Call of Chambal Fertilisers and Chemicals Limited. [Operator Instructions] I would now like to hand the over to Mr. Rishab Brar from CDR India.

Thank you. Good day, everyone, and thank you for joining us on Chambal Fertilisers & Chemicals Q1 FY '22 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, AVP, 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 conjunction with the risks the company 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 very warm welcome to all of you participating on this call. We are glad that the COVID scenario has eased a little and hopefully continues to improve. In the middle of all this, we sincerely hope that you and your families are all safe. During the first quarter, the country has faced the second wave of COVID resulting into lockdowns and disruption of normal activities. Despite all this, we were able to run our operations at normal levels. The commodity cycle worldwide has also moved in the upward trajectory during the first quarter as prices of all commodities rose substantially. Given the backdrop of these challenges, we are satisfied with our performance during the quarter. Quickly touching upon the consolidated results, we achieved a total turnover of INR 3,547 (sic) [3,540] crores during the quarter ended June 30, 2021, as against INR 3,226 (sic) [3,219] crores during the corresponding quarter of the previous year. The profit after tax stood at INR 381 crores against INR 298 crores of the same quarter last year. Moving on to product wise performance. Urea sales stood at just over 8 lakh metric tonnes for the quarter as against 8.9 metric tonnes during the corresponding quarter last year. DAP sales of 2.34 lakh metric tonnes, MOP of 0.09 lakh metric tonnes and NPK sales of 0.43 metric tonnes. We have achieved much better performance in the sales of crop protection products, especially nutrients and NPK fertilizers -- sorry, specialty nutrients and NPK fertilizers. The new marketing territories have also started yielding results. The monsoon was erratic initially, which has impacted demand to some extent. However, the recent rainfall has made up most of the initial deficit and the reservoir levels are higher than the last year level. Additionally, the trade and farmers last year chose to make advanced purchases on the back of pandemic-related anxieties. However, this trend was not visible this year. From an overall macro point of view, this year is very atypical. International prices of agri inputs and fertilizers have gone up substantially over the last 3 months to multiyear highs. We are seeing a significant drive world over in the price of corn, palm oil and soya. This is particularly so in North America, where farmers are striving to increase production and willing to pay higher prices for DAP and complex fertilizers to achieve this. And application levels of phosphatic and complex fertilizers in international markets are extremely high, and we believe it will continue to be so at least in the near term. In the backdrop of rising international prices of fertilizers, the industry is working closely with the government to identify the best course of action while keeping in mind the interest of all stakeholders. The Government of India has increased subsidy on P&K fertilizers to soften the impact of price rise ,but further measures may be required to enable a smoother Rabi season. There is much improvement in subsidy payments by the Government of India, and market collections also remained healthy enabling the company to maintain a strong liquidity position. Our overall focus continues to be on extending our product portfolio of agri imports, micro nutrients and crop protection chemicals besides expanding the contribution of non-urea fertilizers. With that, we would be happy to now take your questions. Thank you very much.

[Operator Instructions] The first question is from the line of Amit Doshi from Care PMS.

Sir, there is this news about IFFCO starting this production of nano urea and which is probably considered to be far better in terms of absorption, et cetera. So anything on that would you want to just throw some light on?

IFFCO has just launched this in the market, and we will look at the impact of nano over the next few years. On the whole, given the mass balance that is required and the nitrogen use efficiency, we expect that there might be some reduction in the use of urea. But also considering the fact that almost 25% or so of urea is imported into the country, I don't see any impact on Chambal with regard to urea production or sales.

Okay. So, does it -- that this IFFCO -- I mean, so it's like patented, it's only IFFCO can do it or it's like an open patent, I mean that's what the article indicated. So is it possible that even -- say, for example, I have 2 years and for 1 year and if the results or production are same or very good, that Chambal could also kind of produce this product?

Yes. My understanding, Amit, is that the packing for nano urea is on the process and not on the product, and therefore, any company, which is able to develop this, should be able to also market it.

Okay. Okay, fine. So that was one. Second, on the -- so of course, it's good to see that we are growing in more states, and we are becoming a more nationwide player. So as far as urea is concerned, since our production is limited, how do we plan to cater to this additional jurisdiction? So we'll be doing more of trading in that space like we do it in the non-urea space?

So as of now, we have no intention of trading in urea. And if you see a number of plants are coming up in the eastern part of India, and as and when they come up, it is likely that the Department of Fertilizers Movement Division, which allocates urea to states, will reduce our allocation to the eastern part and some of that we will be able to use in other states. Now having said that, there is also a distance, which is allowed for movement of urea. And therefore, we will stay within that given our plant location. The third part is that we believe that to succeed in some of the new territories, which is not essential that we have the urea and our brand and our market practices, et cetera, will enable us to make inroads into the NPK market in those areas even without urea.

Okay. Okay. And last one. So this -- what do you foresee a mix of sales in terms of NPK and urea going forward, say, 2 years down the line?

For Chambal specifically? So as I said, the urea production and sales is a sort of fixed number, and we intend to grow our NPK portfolio.

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

Sir, my first question is about, last -- in the last conference call, you talked about our expansion plan, whether it is organically or inorganically. So any thought process because last time you indicated about 6 months to 8 months, where, basically, our strategy team are working on it. So basically, we're thinking about in terms of non-urea side or non-DAP side. So any further progress on that side? If you can throw some light on that?

Work is in progress on that front. And like I've indicated previously, we have three areas that we are exploring. One is phosphatics. The other is at the crop protection domain. And the third is we have some, let's say, ammonia available at our facility in Gadepan and we use that to make something. So those are the areas that we are exploring. And as and when we have something concrete, we shall definitely inform.

So any time line to that, sir, maybe about again, 6 months or maybe 1 or 2 quarters, something we can finalize that thing?

Yes, let's say about 2 to 3 quarters. When we are doing -- obviously, as you can imagine, these are strategic issues. So we want to make sure that we do our homework well.

Sure, sure, sir. And sir, my second question, as you also highlighted something -- some part of it in your opening remarks about the non-urea business, as you highlighted, considering the kind of subsidy support, which government has already given. But with the current rise in the international prices, probably industry might require additional support so do you think that probably -- with the starting of the Rabi season, probably government might think about the additional subsidy support? Or if it is not there, then probably might also increase MRPs? .

Deepak, I think this discussion is happening through the Fertilizer Association of India with the government. And as and when the government decides on some course of action, I'm sure we will all hear about it.

I see. Okay. Okay. And my last question is, sir, about if you can give some sense in terms of numbers for non-urea business, whether -- how agrochemical growth we have seen for the quarter and what was -- what targets you have in mind in terms of the agrochemicals and the micronutrients which we have?

Yes. Like we said in the previous call also, we are focusing on this area, and I've mentioned in my opening statement. So I won't give you specific numbers. But as such, we have seen high double-digit growth in crop protection and micro and specialty nutrient areas. And we hope that we will be able to continue that for the rest of the year.

Okay. Okay. So I mean if I look at the presentation, we have highlighted about 6 products. So those are our trading products, or we have just launched any new branded products, which we have launched for the quarter?

Yes. So as we don't have any manufacturing of our own, essentially, our portfolio of crop protection and micro and specialty nutrients is traded. And we have various kinds of arrangements with companies on those products.

The next question is from the line of Pratik Tholiya from Elara Capital (sic) [Securities].

And congrats on decent set of numbers. Sir, firstly, just again on this agrochemical bit, you highlighted 6 new products. And so if you could just talk us about little --- about your product pipeline, and what more can we expect during this year and maybe over the next 2 years on the product side? And also what sort of margins are we looking at in the agrochemical business? Will it be in line with what we are doing already in urea, or it could be even higher than that?

So in terms of further products, we maybe, Ashish, who is our Head of Sales, can add some thoughts over there. And as regards to margin, I don't think it would be fair of me to share that away on this call right now. But yes, we do work through products which have a reasonably good margin. So Ashish, would you like to comment on your pipeline of products and our approach on that?

Yes. So these 6 new products, which you have mentioned in the presentation, they are all the products, which are new-age chemistries, some of the products were launched in this -- in the country by MNCs. And these research molecules have come from Mitsui, from Nippon and they've been launched in India by a company like Bayer, by FMC, by Syngenta. So we have got the technical material from them to launch it in our brands. The total market size of these 6 products in India currently is around INR 650 crores. So -- and they are growing molecules and new-age chemistries. So we hope to gain some foothold in these new molecules going forward. And we look forward to launching it this year and making significant contributions from this.

Sure. And sir, what would be the product pipeline? I mean, how many products are we targeting over the next -- in this current financial year, any new products you are expecting? And even over the period of next 2 years, what is the sort of pipeline that we have?

Pratik that is something that we are now working on further. And -- but for sure, as we see the new chemistries come in, which are both more effective and have a much better sustainability footprint, we will continue to do so. But as of now, we don't have a specific number of products lined up for the next 2 to 3 years. But that will evolve, I suppose, as we work on our agrochemicals strategy that I've mentioned.

Sure. Sure. And so, sir, if -- over the period of next 2 years, what would be your sort of internal target in terms of the contribution of agrochemical towards overall sales for our company. It could be in the high teens or would still remain in some sort of single digit considering you would also grow in the subsidy business?

Yes. So we want to definitely -- like I said, we are growing at a significant double-digit this year, and we hope to replicate that every year. So on its own, we expect to, let's say, double our contribution. Now what percentage that turns out to be of our overall portfolio will also depend on how much growth you will do on others. So I think that is, in my view, a little less relevant. What is more important is also how fast we are able to grow our agrochemicals and nutrients business.

Sure. Sure. Lastly, if Abhay, sir, can you help me with the landed gas cost for the quarter?

I'll let Anuj take that number, but on a ballpark I can say going between 10.5 to 12. So an average Anuj can give you [indiscernible]. The last number that I have seen is 11.99. That is the latest.

11 point?

11.99.

11.99. Okay. Fair enough.

[indiscernible] price is around 10.3 or so for the quarter.

[indiscernible] about 11.4 or so as far as [indiscernible]

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

Yes. Good afternoon and congratulations on such a set of number in current quarter sir. Sir, couple of questions on my side. First on, sir, we have gained market share in DAPs, good industrial decline that we have been able to receive over market share. So just wanted to understand that it is basically coming from the other people's inability to secure more DAP or expanding market or going into more reasons that has help us gaining market share sir.

So at this point in time, it is more from a -- more -- the share is more because there is an overall challenge as you would know from public data, the overall DAP sales this year are lower compared to last year. So our market share is in that context that we have sustained and grown our market share in that context.

Okay. Sir, if you can just give some color on that because phos acid prices have gone up further and have been constantly rising, if you can sir, give some sense that how is the DAP prices and at what we are negotiating DAP in the current quarter? And how is the availability and how much rise has been in the DAP prices versus last quarter? Can you give some color on that?

So I don't want to comment on this quarter per se. But as such, as you know, the prices have risen, which I mentioned in my opening remarks also. And as these are all linked to global demand and supply, it becomes quite difficult to predict exactly what's going to happen. We are hopeful that in the coming months, we should see some downward trend. But, at the same time, if the demand from Brazil, America continues to be very strong, it may not. So as an industry, I think -- like I said in my opening remarks, it's a very, very atypical year, and therefore, making predictions is very hazardous in the current climate.

Okay. So Last time, I mean when the price has gone across [indiscernible] government said that we need to see the DAP prices before -- at the March level and [indiscernible] subsidies. And I think that our debt price in the market was closer to INR 1,200 [indiscernible] gone up now. Just wanted to understand some more clarity, what is the GAP pricing right now we have in the market for our customers? And second, is there any indication that we can get the higher subsidy from the government? And if not, then will we be in a position to raise the prices in the market? We are already right now [indiscernible] I think the current season is very typical and -- in the demand so it will bump up probably for demand in other states. This current season is the most important season so what will happen in the ground so can give some sense?

So the DAP prices, Rohan, currently are INR 24,000 a tonne, which is essentially -- that is the market price for all entire industry. And what was the second part of your question?

So sir, DAP at INR 1,200, this was visible , but cost has gone up further. So I mean to say, sir, will we be able to increase the prices further to the customer? Or government is going to intervene or going to compensate with a higher subsidy? What is the current scenario?

Yes, that's the discussion, Rohan, which is happening with the government through the Fertilizer Association of India. And I think maybe we will see some outcome of that in the next couple of weeks time.

But as of now, when we stand on 5th of August, we are still selling that at INR 1,200 per bag, while the cost has significantly gone up what it was in the month of April and May, right?

So Yes. As of now, the prices remain INR 24,000 a tonne or INR 1,200 a bag.

The next question is from the line of Amish Kanani from JM Financial.

Congratulations on a good set of numbers. Sir, 2 questions from my side. So we are expanding our regional offices, has been shown in slide #14. So if you can give us some sense of where we are in terms of adding, say, dealers and retailers in that context. So are we also simultaneously adding and the numbers that are being mentioned is the increased one? Or will be a phased expansion beyond that? And in that context, sir, increasing our market share in non-urea was also quite heartening and commendable. So we wanted to understand what kind of arrangements are we doing in terms of a long-term sourcing arrangement, which makes us comfortable that we will have this kind of market share. Because as what you said, there's a global shortage of all these materials. How do we ensure that we get the material, and we make a distribution margin in that context, sir?

Okay. So, Amish, thank you for your question. So for the first part, in terms of our network, I think we've had a quite sort of positive experience in the new territories. And the number of dealers that we had targeted to sign in the first year, we are well on track on that. As regards to the second part, in terms of sourcing, we are -- this is one of the key focus area for us, where we are working on a number of options, which is also part of our strategic outlook. And as and when we have something substantive, we will definitely come back. But on the plate are all possible options as we look to secure long-term sourcing on DAP and NPKs.

Okay, sir. Okay. And in that context, sir, 2 related questions. One, is it possible to give us some sense of how much of this quarter's gain was, say, sort of inventory stroke trading gain versus how much is distribution margin because you would understand that distribution margin will be much more sustainable. So if you can give us some color of some split or directionally some sense? And 2, sir, is the inorganic strategy part of planned strategy that you would consider in any of these areas where we want to expand?

So I'll answer the second. And the first one, Abhay can answer. The second is that as part of our overall growth plan, all options are on the table Abhay, over to you on the first part of the question.

There was definitely carry forward inventory [indiscernible] when we had a discussion last time, we had said that we had the low-cost inventory. So that gain definitely has entered through [indiscernible]. But I won't say sort of -- this is a normal plus or minus that is going on every quarter. So it won't be prudent to sort of reveal to extent of that. But I would suffice it to say that these are normal pluses and minuses that happened. They are not all that significant in the total context of the distribution margin, as you said because that is there. That is definitely also there because the prices also went up, the overall contribution went up so -- because of the increase in subsidy. I would say that it is there. I'm not saying that it's not there, but it is not all that relevant in the context of what we are talking.

And sir, one last question is about the dividend that we have received from our subsidiary. So anything on that? I understand that you perceived a good dividend this quarter, which we had received last year also, but this year, it's good. So any pattern there? I understand their Board will decide what kind of distribution they will give. But if you can give us some underlying profitability, which gives us some sense of whether the dividend is onetime or it's slightly more sustainable?

So I guess you can see from the consolidated results how the subsidiary has performed. And with the phos acid prices high, you can make your own conclusions. Amish?

Ok sir. Yes.

I'll just add that you know what the phos acid prices are, right? Because -- so that you can make a reasonable conclusion of what's going to happen in the...

The next question is from the line of Vidit Shah from IIFL Capital (sic) [Research].

Sir, my first question is just a continuation of the previous participant's question on the profitability at IMACID. Just wanted to understand your all personal views on whether you see this bull run of phos acid continuing and for how long do you expect these prices to connect in the near and medium term?

So Vidit, let me give you a perspective. We have a joint venture with IMACID, and we are 1/3 partner, OCP of Morocco and TATA Chemicals are the 2 other partners. So there are 3 partners. We do not have any say in the marketing or sale of phos acid right? And that is entirely dependent on OCP. So therefore, from an overall industry perspective, what I can say is that demand for phosphates continues to be high across the world on the back of high commodity demand and prices, like I mentioned in my opening statement. Beyond that, how the commercial aspects of phos acid pan out is OCP's decision and is not where Chambal has a saying.

Okay. Understood. Secondly, just wanted an overall picture on -- sir we've seen EBITDA grow pretty significantly this quarter -- sorry, revenue grew pretty significantly this quarter. So what would you say the biggest drivers of this -- of the growth? I mean is it just -- is it just high subsidies that have been announced? Or is there any bit of ammonia sales, which those prices are through the roof as well?

Abhay, maybe you can explain, please?

I just say that you will see -- in the presentation, you will see that generally sales are a little down, most of it is price inflation. As somebody clearly asked and understand [indiscernible] reflect back into the revenue. As also the sales that we have made on DAP and MPT and even ammonia as you rightly said. Then, also the prices are risen so quite a bit of it is [indiscernible].

Okay. Understood. And just 1 clarification, there was -- these new revised subsidies for phosphatics that were announced by the government. Are they applicable only from like the end of March -- end of May when they were announced, or are they applicable for the entire quarter?

So the subsidy revision was announced on the 19th and is applicable from 20th of May till the 30th of -- 30th or 31st whatever is the last date of October. That is the current announcement of the government. The Fertilizer Association is in discussion with the government on the way forward.

The next question is from the line of Resham Jain from DSP Investment Managers. Mr. Resham Jain, your line is muted, please unmute the line from your side and proceed.

Yes. Am I audible now?

Yes, yes.

Sorry. So I have a couple of questions. So the first one is on the price increase in DAP, which has happened post the announcement in May. And I presume that you might already [indiscernible] some more months. So by what time do you think the government needs to come out with the revised subsidy amount beyond which industry may start making losses? Generally, I'm saying without -- because different companies will have different inventory time lines, is something you can you share your thoughts on that?

So, Resham, thanks. First of all, I cannot say that what action the government will take, whether they will come up with higher subsidy or prices will increase, I cannot say that. So -- but what I can say is that I think the government is appraised of the situation to take some decisions on it very, very soon. I would say in the next 1 week, 2 weeks maximum.

Okay. And on the current inventory, which we are holding, and with the current prices, is it fair to assume that we might be making decent ROEs on that, decent in the sense, at least more than cost of capital?

So I think we also have to look at averaging and so on and so forth. So I mean we will be making margins. Now exactly that has to be -- that will pan out as we see how we -- what action the government takes further.

Okay. Got it, sir. And lastly, on the chemical business, which you have talked about, ammonia plus kind of chemicals, which you are looking at. Generally, I was just thinking when you are going to put up this new CapEx announced? What will be the key financial metrics you will look at? And what kind of attributes you will look for an investment? What are the things you'll be looking for?