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

Ladies and gentlemen, good day, and welcome to the Chambal Fertilisers and Chemicals Q4 and FY '23 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Rishab Barar from CDR India. Thank you, and over to you, sir.

Good day, everyone. Thank you for joining us on the Chambal Fertilisers and Chemicals Q4 and FY '23 Earnings Call. We have with us today: Mr. Gaurav Mathur, Managing Director; Mr. Anand Agarwal, CFO; Mr. Anuj Jain, Assistant Vice President, Finance and Company Secretary; and Mr. Ashish Srivastava, Vice President, Sales and Marketing. Before we get started, I would like to point out that some statements made or discussed in 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 this 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, everybody, and a warm welcome to all of you participating in this call. We will share our performance over the just concluded quarter and financial year 2023. Since we have already shared the presentation and financial performance with you, I will not restate the numbers in my opening remarks. While operating performance in Q4 was in line with earlier years, there was an impact of approximately INR 197 crores at PBT level on account of subsidy reduction in P&K Fertilisers. This was for the period 1st -- from Jan to March '23 as well as the further reduction from 1st of April '23. These reduction impact both the company as well as the channel stock. Our urea business continues to do well. We achieved highest ever production of urea at almost 33.5 lakh metric tonnes, this was at the best energy per tonne of urea, leading to good gains on energy efficiency for the year. We continue to evaluate and implement further energy efficiency projects. We understood the biannual shutdown for Gadepan-III as per plan in March, which resulted in further improvement of its performance for the future. We sustained our share in Phosphatic fertilisers aligned with the need to meet farmer requirements in a very challenging year. In the new geographies, in spite of the overall challenging situation, we continue to make inroads to both expand our network as well as increase our sales. We continued our thrust on expanding the Crop protection and Speciality Nutrients business where we see significant potential. This segment has grown over 50% year-on-year, albeit on a relatively low base, and we have more than doubled both our top line and margin in the last 2 years. During the year, we launched 10 new products majorly for wheat, paddy, maize, soyabean, sugarcane and mustard crops. Our Seed to Harvest Program for the farmers is focused on this business and continues to progress well there. To give you some numbers in FY '23, through this, Chambal undertook programs across approximately 1,163 villages, reaching out to close to 1 lakh farmers, did about 2,800 farmer-training programs and over 30,000 soil samples. This has had very significant traction with the farmers, and we look to significantly scale this up in the coming years. Subsidy payments have also been timely since November '22 onwards. The budgetary allocation for the current fiscal year, i.e., FY '23-'24 offers comfort that this should continue and that there is adequate subsidy coverage. Additionally, the fall in gas as well as P&K Fertiliser prices should also help impact subsidies positively. Our Technical Ammonium Nitrate Project is on track. The project has been awarded to Larsen & Toubro on a Lump Sum Turnkey basis, and the technology licensor is CASALE, which has many decades of experience in the Weak Nitric Acid and Ammonium Nitrate plant. The project is slated to be complete by quarter 3 of FY '25-'26. With that, we will now take your questions. Thank you.

[Operator Instructions]. Our first question comes from Falguni Dutta with Jet Age Securities.

Yes, am I audible?

Yes, you are. Go ahead, please.

Sir, just one question from my side. What was the impact of this reduction in subsidy. I missed in case you had mentioned in your opening remarks.

That is INR 197 crores, Falguni.

And where has it got reflected? Under which head, I mean?

It has been taken into the quarter 4 financials and the full year financials.

No, I mean...

It's been reflecting in the gross margins as such.

This is a part of raw materials or? I mean, where is this impact?

That is part of raw materials?

Okay. Sir, that's all from my side.

[Operator Instructions]. Our next question comes from Vidit with IIFL Securities.

Just to take the previous question forward, this INR 197 crores, what would be the impact on the inventory loss because of the subsidy write-down from 1st April onwards? And what would be the split between Jan to March, would that be possible to provide?

So Jan to March is INR 30 crores, and the balance is for the quarter end for the next semi-annual, from April to September.

Okay. Understood. And you spoke about energy efficiency improvements that have been happening at Chambal and the projects that you've undertaken, so if you could shed some light on how much we've improved versus 2 years back or 3 years back and what metric are we currently operating at? And what's the target that the company has to -- going forward?

Yes. So Vidit sir, we have achieved this year approximately 5.15 Gcal per metric tonne of urea, right? And last year, I think, we were at 5.23. So over the last 4, 5 years, if I go back, we were more around the 5.3 mark, and now we've come down to 5.15. We have further projects, which we will implement in Gadepan-I and Gadepan-II, which should help to bring this down further.

Okay. Understood. So maybe like 5 would be an appropriate target? Or could this go even lower than that?

No. To be realistic, 5 at this point of time, we don't see that because we also need to take into account the appropriate payback on the project that we implement. So we would expect that we might be able to get to 5.1 in the next few years.

Okay. Cool. Just one last question on...

The industry average is around 5.8, overall industry average is around 5.8. So we are, as of now, significantly better than the industry.

Understood. Just one question on this, on the increase in investments that we've seen in short-term investments, I think, we've seen them increase by about INR 1,800-odd crores. What are these investments being parked in currently?

These are majorly the mutual funds.

Okay. Equity or debt or both?

No, no. These are very, very short-term, these are liquid funds and overnight funds.

Okay. Fine.

These are short-term surpluses and therefore, it can only be debt securities.

Got it. Okay. Cool. I'll come back in queue for more questions.

Our next question comes from line of Tarang with Old Bridge.

Congratulations for strong cash flows. I believe the business is net cash ex-subsidy now, so that's good to see. Just a couple of things. One, if you could give us what the power and fuel expenses were for Q4 FY '23?

Anuj, can you please provide the power and fuel expenses? While we take that out, what's your other question?

Power and fuel expense for the quarter is INR 968 crores, and for the year is INR 4,838 crores.

Okay. Second, on the INR 197-odd crores inventory loss that you've recorded in Q4, how much of it is relating to the nitrogen business and how much of it is to the trading business?

So this has nothing to do with the nitrogen business because the nitrogen business, the gas cost, there are 2 parts of the subsidy. One is the gas cost, which is essentially a pass-through, but there is escalation in it, which the government takes care from time-to-time. And the second part is the fixed component of the nitrogen business, which is a fixed number. It doesn't really change, if anything. So in substance, there is nothing to do with the nitrogen business, it is primarily to do with the P&K business and within that DAP.

I would reckon, I mean, your allocation is about 3 million tonnes, right? So any incremental fertilizer that you are selling over and above the reassessed capacity is on the basis of import parity prices and the fact that import parity prices have crashed significantly, especially in Q4, that would have had some impact. Did it?

Not really. You see what happened is that we did our full production, and there was no impact on production beyond reassessed capacity. As regards to import price parity, that is calculated on an annualized basis. So it is not a monthly or a quarterly number, it is actually calculated on an annualized basis. And the annual price of imported urea was significantly higher than the cost of indigenous production. So there was no impact on reassessed capacity production at all.

Okay. Just a final one on the phosphatics, sorry for harping on this. But effectively, I mean, how are you seeing this going forward in FY '24 in terms of some checks and balances that you might have perhaps incorporated in the overall system because, I mean, FY '23 particularly, has been a difficult year in so far as the trading business is concerned, right from what we saw in September and now what we are seeing in Q4?

Yes. FY '23 is a very, very unique year, which my colleagues in the industry say has never been seen in the history of the industry. So what we are obviously looking at going forward is to make sure that most of our stock is placed in the market as early as possible and move out to those point of sale. I would also just like to add that while we have had this impact in quarter 4, but our stock as a percentage of the industry was far lower than our market share. So as a company, we were quite focused on it and we were able to keep our stock at quite a low level compared to the industry overall.

Our next question comes from Harmish Desai with PhillipCapital.

Sir, my first question is on the crop production segment. So can you tell me what kind of margins have we made in this segment in FY '23? And what are we targeting -- what kind of margins are we targeting in the year FY '24?

We don't share our margin percentages as such. What I can say to you is that our margins overall are well comparable or better than the industry average. So even with -- we have a unique business model, and with that unique business model, we are able to have -- we are very happy that we are able to have a very high growth numbers. So we have more than doubled our top line -- over the last 2 years, though we started from a low base. But yes, we have more than doubled our top line and our margins have also moved along consistently. We are very keen and particular, that we don't compromise on our percentage margins as we continue to grow strongly.

Okay. That is helpful. And sir, what kind of CapEx are we targeting in this segment in FY '24?

I'll ask Ashish, our Head of Sales and Marketing, to respond to that on the segments that we are targeting in FY '24.

The entire -- see, the product portfolio caters to the entire crop range and the entire insecticides, weedicide and the fungicides segment, so the entire crop in the territory is covered, so the credit portfolio is complete in all respects.

Okay. And sir, I don't know if I have missed it. Can you share the urea production breakup between G1, G2 and G3?

Anuj, can you please provide that?

It's there in the investor presentation though, just a second. Yes. So we have Gadepan-I and Gadepan-II, 20.61 lakh for the year '23. And for Gadepan-III, we have 12.86 lakh, so total to 33.47 lakhs.

Okay. And sir, my last question is about IMACID. And so, as you said rightly, that this entire year has been some kind of an anomaly, for IMACID as well as for all other segments. So what is your expectation from IMACID in FY '24?

So we expect that IMACID should continue to perform as per its standard past year performance in FY '24. In FY '21-'22, there was a huge upsurge because of the overall international situation, and that got largely normalized in FY '22-'23, and in fact, it went down in EBIT. Now we expect that in the current financial year, it should come back to its standard sort of performance, which it used to have in the past years.

Our next question comes from Prashant Biyani with Elara Securities.

Sir, how do you see the trading volume trajectory for H1? And how much of the targeted H1 sales materials have we already bought?

So we have all been set certain targets by the Department of fertilisers both the traders as well as the manufacturers. Based on that, we have procured our material. Now we are also conscious of the stocks that the country carried at opening -- as opening stocks, there were reasonably substantial opening stocks that the country had as a whole, though we managed to keep our stocks relatively low as of 1st of April. So we would say that we would look at best similar volumes, but the more important thing would be that we would try to make sure that we do the volumes which are appropriate in the sort of -- on the margin side because the uncertainty on the subsidy in the future from 1st October will also remain. So we are mindful of that, and planning our volumes accordingly.

And sir, whatever we are targeting to sell, have we bought all those materials? Or for some we are yet to purchase?

No, no, it is -- we haven't -- we bought about 50% to 60%. And for Q1, we are covered. But for beyond that, we are being very watchful because there is a downward price trend. So we also want to be careful of when we buy.

Right. And sir, can't we as an industry, give representation to the government to restore annual division of subsidy as was the case earlier, because the uncertainty on the availability globally has also ebbed now. So what would be the industry or your view or have we thought on these lines?

That's a very good point, Prashant, and we continue to work through the Fertiliser Association of India with the department and the government, and it has been our representation through FAI that the subsidy should now be declared for the full year. However, as we know, the government has again declared it for a 6-month period from 1st April to 30th September.

Yes. But I mean, sir, just extending this point, nothing seems to work with the government, especially the Department of Fertiliser arm, whereas for other ministries, we are seeing that they are at least cognizant of industry concerns, whereas here we are seeing retrospective revisions. So I mean, is it that they are just on their own? Or -- and the representation from this industry is just only being heard or they are actually considerate to it?

Well, I can't answer on behalf of the government or the department. And I guess the Fertiliser Association would be best placed to answer this question. But what I can assure you is that we as well as the FAI keep apprising the government quite regularly on the challenges and seeking a positive intervention.

A few data-related questions. What would be the ammonia production and sales volume for the year?

So the total ammonia that we sold in last year was of the order of 90,000 tonnes may not be precisely 590,000, give or take a few thousand tonnes here and there. And the production -- total production of ammonia would be close to 1.9 million tonnes or thereabouts, right?

Okay. And sir, just this breakup of freight and packing expenses also like we used to share till last quarter?

Freight and packing expenses? Yes, I think, Anuj can give them to you.

Freight and Forwarding Charges for the quarter is INR 135 crores, and for the year it is INR 778 crores.

And Packing?

Packing is INR 30,000 (sic) [ 30 crores ] for the quarter, and for the year it is INR 135 crores.

[ INR 30 crores ] for the quarter?

Yes. [ INR 30 crores ].

Yes. And sir, is it possible to give G3 energy consumption level separately?

Yes. In G3, our energy for the year was -- because we took a shutdown in March, so that actually adds a certain shutdown and start-up energy. So including that, it was about 4.88 Gcal per metric tonne roughly.

Okay. And if we exclude the maintenance shutdown part then?

Then it would have been more around 4.8 -- 4.7, around 4.7.

Okay. And, sir for...

Around 4.75, yes. So I am -- we are very happy with that Gadepan-III energy probably continues to be the best in the world.