Deepak Fertilisers And Petrochemicals Corporation Limited (500645) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q4 FY '20 Earnings Conference Call of Deepak Fertilisers And Petrochemicals Corporation Limited, hosted by Emkay Global Financial Services Limited. We have with us today, Mr. Sailesh C. Mehta, Chairman and Managing Director; Mr. Amitabh Bhargava, President and Chief Financial Officer; Mr. Mahesh Girdhar, President, Corporate and Nutrition Business; Mr. Sanjay Gupta, Executive Vice President, Corporate Strategy; Mr. Deepak Balwani, Head, Investor Relations. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Shah from Emkay Global. Thank you, and over to you, sir.

Thank you, Nirav. Good evening, everyone. I would like to welcome the management and thank them for giving us this opportunity. I now hand over the call to Mr. Sailesh Mehta, Chairman and Managing Director, for his opening remarks. Over to you, sir.

Yes. A very good afternoon to all of you. Nirav, you can hear my voice clearly?

Yes, sir.

Oh, great. So during this challenging COVID times, I hope all of you and your families are in good health. And I do hope that you're all maintaining the safety norms that have been recommended by the government for the safety of all of us. I also believe you would have received the Q4 results -- FY '20 results which have been uploaded. While our CFO, Mr. Amitabh Bhargava, will be taking you through the detailed financials as usual, I thought I could share with you, from a larger business perspective, how do I see year that has gone by and how do we see the year that is now emerging and share some of the strategic, I would say, undercurrents that I have seen. Now let me first share what could be the biggest concern, query, anxiety that all of us would be having that, how it has been like during COVID? So if I might share that basically, all our products, which is like IPA, Technical Ammonium Nitrate, and also fertilizers, all of our products were allowed under essential commodities tag because fertilizer is required for the farmers, IPA as you know, is required for the hand sanitizer requirements and so also Technical Ammonium Nitrate for the coal mining. So all of them were essential. So we were back in stream, probably in that first week itself. And then on -- we have been hovering around 65% to 75% in terms of operations. Having said that, like all others, we have been struggling on getting maintenance gangs, truck drivers. So the supply chain had been on and off giving us some challenges. And I think what brought in a certain degree of I would say, impacts on operations. At the plant, since we were allowed these operations, we have made, I would say, very strong control mechanisms to make sure that the health and safety of our people are as best as possible controlled. So we have institutionalized temperature controls, masks, certain critical areas, the PPE suits, social distancing, of course. And we also had a disinfectant spray tunnel, and we have been testing the oxygen levels and all that. And yet, there have been some cases, but a lot of them are asymptomatic. And this is, I think, a gradual aspect that we all will have to accept until, I guess, the vaccine comes out or till we are all under herd immunity, buildup an immunity. As far as our contribution goes, we -- as we have requested, we have donated ambulances, a large number of face masks, a large number of PPE suits to hospitals. We also provided our IPA and hand sanitizer to state government authorities as they requested. We donated food packs to some of the migratory workers. We were also helping the Taloja Manufacturers Association with various safety norms and SOPs. And of course, all of us then gave a 1-day salary, which we donated to the CM's Fund. Of course, this is in our small way whatever best that we could help the society. So as far as COVID goes the key takeaway is that, indeed, the COVID has not impacted our operations that much. And looking at the kind of alignment with the country's requirements, we are in a decent shape. Coming to the various businesses, I'll give some insights in terms of how we saw last year and a little perspective of how we see the current year coming up. So as far as the chemical business goes, let's say, if one were to take the acid segment. Last year, we saw Dahej stabilizing, the new investments that were made in the new acid complex at Dahej, and we could reach almost up to 65-odd percentage of capacity utilization. But more than that also in a lot of areas, the key efficiency norms were something that we could achieve. And so in the current year, we will see now the full-scale, I would say, positive impact of the Dahej operations. In the Q1, during the COVID period, while CNA has been doing reasonably well as far as the weak nitric acid goes, that has indeed been impacted because of the downstream users of WNA, have been impacted by COVID. So there, we are seeing a gradual kind of pickup as the lockdown and other things are removed. And in the chemical business, as we look at IPA, isopropyl alcohol, as you all will recall, last year, probably was the worst year where we were severely impacted with the Chinese dumping. And it had a massive impact in terms of the overall chemical business, of course, for the IPA sector. And so also for Deepak Fertilisers as a whole. As we see Q1, there is a very smart and complete, I would say, turnaround because the worldwide requirement of IPA into the hand sanitizers, and of course, even for the pharma sector has had a positive upliftment. Additionally, we have also begun some baby steps in climbing up the value chain where we are ourselves looking at entering the hand sanitizer market and other B2C products. And though these are small baby steps, we have a very short presentation today also in terms of how do we see that market. The second is mining chemicals, technical ammonium nitrate. So last year, we did have an impact emerging out of, one was the flooding that happened because of the heavy rains that you may recall. And also, we saw that some of the infrastructure projects were impacted because of a paucity of government funds for those infrastructure projects. Some bit of the sluggishness continues in Q1, where we find that some of the large infrastructure projects somehow the government funds are still not reaching. But going forward, we see that since the government is looking at reviving the whole economy, they would be looking at a much more stronger flow of funds to these infra project to revive not only the projects, but to revive the economy. And that, in turn, will have a positive impact on the TAN sales. Similarly, while in Q1 because of COVID, cement sector and its impact through limestone for us was impacted. But since, I would say, now a few weeks, we are seeing that there also, there is a -- I mean, revival coming back to normal. The third and the most important, I would say, segment where we are seeing a good change has been the fertilizer or our crop nutrition business, CNB business. Now as you recall, even last time, what I shared, I'm happy to share that Q3 and then, of course, Q4, we could establish our new strategic business model. There are 3 pillars on which the new model stands. One is moving from the commodity fertilizers to crop-specific specialties. Second pillar is transition the move from customers to consumers. Meaning that instead of just focusing on the channel, the dealer segment, that we have a much more stronger interaction at the farmer level, the consumer end. And the third, I would say, key principle that we brought in as a part of the strategy was to move from competitive pricing to value pricing. And that value pricing linked to what kind of an improvement in yield and quality that we can bring specific to that crop and whether we can start pricing on that basis. So this aspect of it is a sea change from a bulk commodity orientation and with a lot of gusto and with a lot of drive, we have been pushing this. And I am very happy to share that we now see its positive reflection, right from invoicing, liquidation, collection and above all, the premium pricing in comparison to somewhat similar products of competition. This actual impact in Q3, Q4 that we saw, to me, is a fundamental shift, and it's a basic brand building that we are establishing. And that is something which we are seeing sustaining. Now for the current year, while we see the rains which are normal, and of course, last year also, the rains were very good, so the water levels have been good. So that has someway resulted into brisk sales. And again, I'm happy to share that the premium pricing that we had established from Q3, Q4, now we are seeing actual evidence that it is sustaining. So those are the aspects about the 3 businesses. As far as the manufacturing operation goes, again, we have been pushing for very strong TQM based approach so that there is a far greater degree of focused ownership right up to the lowest level, and it's decided improvements in terms of maintenance, maintenance practices in other areas. Plus, we have also driven a lot of cost optimization, efficiency drive, which have all contributed finally to the bottom line, and we see its sustenance in the current year also. Finally, as far as the projects goes, we did have an impact from COVID because of certain delays in the government bodies to clear some aspects. And somewhere along nonavailability of people impacting, however, what we see positive is that the fall in the gas prices has also shown a very positive impact in terms of the potential project IRRs and returns. And the other is, we are seeing a further continued good trend in terms of the mining needs, which we see a long-term good, strong prospect. So broadly, this is what I would like to share from a larger strategic perspective. I will now hand you over to Mr. Amitabh Bhargava, our CFO, who can take you through the more specific figures. And then, of course, your questions are most welcome. And like I said, we will then end up with a small presentation on the hand sanitizer market and the B2C market move that we see. And like I said, while they are baby steps, we thought it's something interesting, so we have drawn in Mr. Sanjay Gupta to share those thoughts with you. So once again, be safe and be in good health. Thank you. Amitabh?

Yes. Thank you, Mr. Mehta. Good afternoon, ladies and gentlemen, and thank you for joining Deepak Fertilisers conference call to discuss the Q4 and full year FY '20 results. During the fourth quarter of FY '20, we reported total revenue of INR 1,293 crores and at a consolidated level, with operating EBITDA of INR 120 crores. Operating margins increased to 9.2% in Q4 FY '20 as compared to 6.8% in Q4 FY '19. This was primarily driven by improved fertilizer business performance, as Chairman also mentioned, and cost optimization initiatives. Net profit increased from INR 5 crores in Q4 FY '19 to INR 23 crores in Q4 FY '20. For the full year, total revenues for FY '20 was INR 4,685 crores compared to INR 6,742 crores in FY '19. The reduction in the revenue was mainly on account of strategic reduction in trading of chemicals and fertilizers, which we've been keeping everyone abreast of in our various calls. The company cautiously consolidated trading portfolio with a focus on the high-margin products. So the chemical trading consciously reduced by almost INR 1,400 crores Y-o-Y and fertilizer trading also reduced to INR 419-odd crores Y-o-Y. Operating margins increased to 9.9% in FY '20 as compared to 6.8% in FY '19. As on March 31, 2020, total debt of the company marginally declined to INR 2,927 crores from INR 2,994 crores at the end of September 2019. Short-term debt level declined to INR 719 crores to INR 1,064 crores -- from INR 1,064 crores. Strategic reduction in trading business, as mentioned earlier, and also better working capital management in fertilizer segment, primarily helped in reduction of short-term debt. Long-term debt at the end of March 2020 increased to INR 2,054 crores from INR 1,845 crore at the end of September 2019. Overall, net debt-to-equity improved to 1.25x in March 2020 from 1.34x in September 2019. And our external ratings have been recently reaffirmed by ICRA, long-term bank facilities rating is A+ stable and short-term bank facilities rating is A1. During FY 2020, it's been -- you're aware that it's been extremely volatile on the foreign exchange side due to various global issues. And we've seen rupee depreciating by 9.36%, more particularly in Q4, when it was a steep 5.92% as COVID-19 outbreak rattled the financial markets globally. We review our hedging policy regularly, and the same is followed to hedge our foreign exchange exposure to minimize the fluctuation from the impact. In the Fertilisers business, the delayed monsoon and the lower rabi crop impacted the investment pattern of farmers due to the slower demand in the first half of the year. However, a strong receiving monsoon and higher water reservoir level led to a demand recovery in the second half of the year. Even if the market remains subdued, the company remains focused on demand generation. It embarked on crop-specific market development campaign, including promotional activities, crop seminars, farmer meetings and product demonstration in farmer fields. Manufactured fertilizer reported a revenue of INR 421 crores in Q4 FY '20, sales volume of nitrophosphate ANP increased by approximately 19% Y-o-Y in Q4 FY '20, although NPK volumes decreased by about 9% Y-o-Y. Despite this decrease, overall margins improved significantly due to highest market in our product mix, which is a premium product. Fertilizer segment margins improved from 7.4% in Q4 FY '19 to 9.5% Y-o-Y in Q4 FY '20. Segment margin expansion also achieved on a full year basis. So good rabi sentiment in core command area and good price realization in key cash crops, such as onion has helped with the company with better margins during the quarter. Increased ground water levels in the core command area also supported the profit margin. COVID-19 impacted production of NPK at Taloja for a few days during March 2020. And in line with our strategy during the quarter, the company has successfully moved its entire sales to differentiated products that is Smartek, almost 90% of total CNB Bulk sales was Smartek in Q4. Trading revenues of Fertilizer business for FY '20 declined to INR 325 crores from INR 744 crores for FY '19. This reduction is in line with the strategic decision to move towards differentiated NPK grade. In the chemicals business, manufactured chemical business has reported revenues of INR 583 crores in Q4 FY '20 as compared to INR 629 crores in Q4 FY '19. Chemical trading business was about INR 482 crores in FY '20 compared to INR 1,886 crores in FY '19. This, of course, like I mentioned earlier, is due to consolidation of trading portfolio. For the full year 2020, despite subdued domestic demand owing to extended monsoon affecting the coal industry, lower production and offtake in infrastructure consumption, the company maintained its contribution margins of its TAN business vertical by servicing alternative markets, value addition, stronger price responsiveness to market reality and decline in the raw material cycle. Although our TAN business has reported muted performance during the quarter, total TAN revenues decreased by 22% Y-o-Y to INR 274 crores. TAN solid volumes declined by 18% and AN Melt volumes were lower by 25% on a Y-o-Y basis, resulting in lower revenue. LDAN volume in Q4 FY '20 were lower by almost 40% Y-o-Y, mainly due to liquidity issues and stalled large-scale infrastructure projects, restrictions on movement and lockdown situations in the month of March due to COVID-19 pandemic has also impacted the domestic TAN business as well as TAN exports. Asset revenue decreased by 4% Y-o-Y to INR 103 crores in Q4 FY '20. COVID-19 has impacted production of nitric acid as well. Our nitric acid plant at Dahej has completed its first full year of operations and achieved overall capacity utilization of approximately 65%. All WNA and CNA plants at Dahej have stabilized and proved running at beyond 100% rated capacity. During Q4 FY '20, IPA production was at 18.8 thousand tonnes, and our IPA facility operated at 100% capacity. IPA revenues increased by 30% Y-o-Y to INR 141 crores in Q4 FY '20. During the quarter, both NSP and cost adversely impacted IPA margins, though we started seeing some bit of reprieve in terms of Chinese imports in the beginning of the quarter. But overall, due to unfavorable market dynamics, we saw the overall margins in IPA have been subdued, although the outlook for IPA has improved significantly towards the end of the quarter. Now Chemical trading business was at INR 172 crores in Q4 FY '20, up by 17.4% Y-o-Y, strong demand for IPAs resulted into higher trading volumes in Q4. However, unlike Q4 FY '20, chemicals trading business declined to INR 482 crores in FY '20 compared to INR 1,886 crores in FY '19. Continuing on positive momentum, which we have gained during the last quarter, we are confident of attaining our business goals and maximizing shareholders wealth in the coming quarters. As an effort to support government to combat COVID-19 pandemic, DFPCL has recently forayed into alcohol-based sanitizers and disinfectant space. Here, I would request my colleague, Mr. Sanjay Gupta to share more insights on our new sanitizer business. Thank you very much, right now, from my side, and I'll -- we'll be open to questions after Sanjay briefly takes us through our initiatives on sanitizer and disinfectant space.

Yes. Good afternoon, everybody. I'm Sanjay Gupta here. So as Mr. Bhargava mentioned, we have started manufacturing of IPA-based hand sanitizers and all the necessary permissions from the FDA and the state authorities have been taken. We will be producing in the various pack sizes right from 50 ml to tanker loads, which we can offer in various segments like B2C, B2B and even to small sanitizer repackers. We are right now working on developing the distribution network for these various segments. Historically, sanitizer has been a very small category. And right now, it is in a state of a chaos because there is a huge pull for the product, and there is also mushrooming of lot of small manufacturers in the segment. We have also registered our brand, which is under the registration process, it's in the name of CORORID. And going forward, we will definitely be looking at complementing this product range with other product range in disinfectant categories. We have put a panel of experts from various industries like hospital and marketing to work on this project. And of course, we will be looking at developing some contract manufacturers who could help us ramp up this business. That's all from my side. Thank you. Over to you, Deepak.

We can open now for Q&A session.

[Operator Instructions] First question is from the line of [ Ritika Gupta ] from Aequitas Investments.

I wanted to know regarding the IPA business. What would be the industry size? How much would be the imports from China? Currently, we're not the sole manufacturers anymore of IPA? So like how are we seeing the prices over there? And how much of our IPA is going into the sanitizer business?

So as before COVID, I would say that the market size was about 180,000 to 190,000-odd tonnes. We've seen, obviously, a huge spurt in demand because of disinfection requirements. So today, as we speak, we -- the demand is as high as to 220,000 to 230,000 tonnes because this would fluctuate and depending on how the situation emerges on COVID. But we believe that some of this increase in demand is here to stay because, in general, IPA as a preferred disinfection ingredient has got a lot of push even from the various medical agencies. So I would say, therefore, the demand would somewhere lie in between that 180,000, 190,000 to 200,000 and 230,000-odd levels. As such, we are -- I'll come back to you exactly in terms of what proportion or what exact number are we selling today to disinfection or to hand sanitizer category. But I would say it would be, I think, 70%, 80% of our product is still going to the pharma segment. Because overall, the hand sanitizer segment is still quite a small segment in terms of the overall IPA and usage. In terms of prices, while as such, what I would share with you with what has happened to prices in terms of CFR India. Because our prices with the domestic prices are, by and large, track CFR India. We -- before the COVID, we were looking at about $780 to $820-odd of CFR prices of IPA. We've seen during the quarter as high as $1,600 per tonne prices. And today, I think the CFR prices today is somewhere between $1,300 to $1,400 per tonne. So the prices of CFR India will not only track the demand in Indian context, but I think the global demand in Europe, U.S. and therefore, a lot of Asian product would also get diverted so long as they get healthy margins in Europe. And in fact, Europe prices have been even higher than the CFR India prices that we have seen during the quarter. So as such, I think we would by and large track these prices to pharma segment. As you know, out of whether you take 180,000 or 220,000 to 230,000, whatever you see the final range of demand, our own production is about 70,000 to 74,000 tonnes. And the new capacity that has come in domestic, we are also in the range of about 30,000-odd tonnes. So that still leaves a huge market for import. And so I think because the prices -- we don't see actually as such a competition or our prices getting affected because of domestic dynamics, it will be more driven by the international dynamics of IPA pricing, and therefore, CFR India IPA prices will, by and large, be the deciding factor for the prices that we see in the domestic market.

And sir, can you give us a color on the raw materials used for IPA and their prices as well?

So I think we've seen, obviously, the energy prices also came down during this quarter, crude prices were down, of course, they've recovered from the lows. But propane, butane, as you know, are the derivatives of crude. And to that extent, there's been a softing of even RGP that is Refinery Grade Propylene prices, which by and large track propane and butane -- a combination of propane and butane. So those prices have also been -- I would say, they've been by and large at a lower level than what we saw in pre-COVID environment.

But sir, how sustainable do you think that these prices for IPA are? And I mean, the spread between your RGP and IPA is?

So I think in short- to medium-term, or let's say, and it's very difficult for anyone today to guess and see how long will the pandemic situation will continue. I mean some of the statements from WHO seems to be worrying in a sense that they are saying that worse is yet to come. Now to that extent, it's very difficult to say how long and so long as the pandemic situation globally remains active, we would continue to see demand of IPA from hand sanitizer and disinfection segment. And until then, I think prices will remain high. Now it's very, very difficult. As you can imagine that pre COVID, we were at $800. Now we are at $1,300 to $1,400. So there is huge difference in what has happened. Now one thing that our business also has by and large they are also of view that some of this demand globally and also in India, will remain from the hand sanitizer segment. How much of it is a sustainable or a long-term demand is also something that is very, very difficult to guess. And RGP, on the other hand, I would say this is tracked by and large by crude prices. Now crude prices also it appears that there is a general softening in energy prices, be it gas or crude. But you know how crude prices also get affected not just by the demand supply, but a lot of geopolitical issues. So it's very difficult to predict. But what I would say is that we certainly believe that the pre COVID, the kind of down cycle that we were in, that is perhaps for a foreseeable future we would not see that kind of a squeeze in margins. Now how much do we really continue to get is, like I said, it's very, very difficult to get at this moment.

Sir, in the long term, what are sustainable margins for the IPA business? I understand that these are extraordinary times.

So we have, in the past, if you see before we addressed this cycle, in last 6 to 8 quarters we had seen on an average 15,000 to somewhere in the 18,000 to 19,000 contribution margins per tonne kind of thing that we have by and large we were at that level until the whole Chinese dumping also took place. Now one aspect that I think we briefed earlier also that -- is that we were in that kind of a situation for 6 to 8 quarters, we had filed an application for quantitative restriction and safeguard duty. Now today, of course, the environment is such that it does not -- obviously all the fundamentals have completely changed. But if again, there were to be a situation like earlier, then we believe that there is a genuine case for us to go back to government and request for making sure that there are quantitative restrictions duties to avoid any kind of dumping that is likely to hurt the domestic industry. So I think the price aspect and how is the demand supply, but even we would keep all the measures, all the options open if that situation that we saw in last 6 to 8 quarters were to repeat itself.

Next question is from the line of Anurag Patil from Roha Asset Managers.

Sir, can you throw some update about this ammonia project we are planning to go ahead with?

Yes. So like Chairman had mentioned briefly that we are seeing some delays in terms of government approvals. Also in today's situation, there is a huge uncertainty of labor, and the heavy logistics and transportation that is required for implementation of a project of this size and scale. So we are also at a stage where we are trying to assess what is the end impact of the whole COVID environment and how soon can contractors get comfortable in committing that labor and logistics is available for them to start the implementation part. So in that sense, there is a level of uncertainty that we are facing. That said, I think one aspect that is, which Chairman also briefly mentioned that you've seen a fairly good improvement in the gas prices because of not just the fact that there is more domestic gas that has auctioned, and we've seen some auction prices at which these KG basin gas has got sold, but even the imported LNG prices have got corrected severely. So that -- and we have, right now, discussions with 2 or 3 large gas suppliers and aggregators and with some of the initial terms that we've received from them gives us some indication that the gas prices that we had assumed when we had conceptualized the project, also the gas prices that you are likely to see in the next 5 to 8 years, there would be a substantial sort of saving on the raw material side. And to that extent, the viability of the project, if it all, has improved. It's not remained the way it was when we've conceptualized. But there is a level of uncertainty that we have today because of COVID situation.

Okay, sir. And one more question on fertilizers margin, so it has improved in this quarter. So in a next couple of years, what kind of improved margins you are targeting in this segment?

Look, this is a forward-looking kind of a statement. I don't think I can give you any sense on that number. But what we can mention is that some of the initiatives that we've taken in last 2 quarters, they are sustainable in a sense that there is a lot of work that has happened at the farmer level where the efficacy of our fertilizers or the Smartek product has got well established at the farmers -- at the field level. And that has given us a confidence that the premium that we have in the market today over a similar product is not just sustainable, but there is a scope for further improvement. So that's on the market side, the price and the kind of premium that we are getting gives us a level of confidence. Equally, we did some -- a bit of work at our plant side in the organization, the whole marketing and sales organization. And we've done some, what we believe are sustainable improvements on the cost side. So what you see today in Q4 numbers, particularly in the Fertilisers segment is a combination of these two. The other aspect which we've not yet fully utilized and which from a -- again, from a future perspective, is capacity utilization. Because last year out of the 3 trains that we have, we got only train 1. Given that we have chosen that we would not go with a plain vanilla NPK product, and we would only now incrementally produce Smartek products. As a result, the -- while the Smartek volumes have gone up, but not so much as to justify that we could run the second train. So that's an operating leverage that is sitting with us today. And we would, once this COVID situation normalizes, then we have a sense of evacuation and that is a sustainable level of evacuation, we believe that -- because the demand as such in the market business, is continuing to ask for more materials. If at all, today, we are -- because of COVID situation, we couldn't supply materials. So there is an operating leverage that is sitting in fertilizer business and that along with the work that we have done on both on the price side and the cost side should get us to do much better margins in coming quarters.

[Operator Instructions] Next question is from the line of Lokesh Manik from Vallum Capital Advisors.

My question is regarding, again, the Fertilizer segment. Last year also, in the same quarter, we had a good amount of sale of products under the Smartek brand. And despite that, there were issues at that time that we faced, the channel inventories were high, and we had to discount and improve our receivables. So just to get some clarification on sustainable -- sustainability of these margins. If in future, if we see the competitive intensity rise again, do we expect the margins to go back down?

I missed your last sentence, what did you say?

Yes. I'm just trying to understand if the competitive intensity revives again, I'm assuming that the competitive intensity was low this quarter given the good offtake and the good monsoon and water reservoir levels. The -- I'm assuming the competitive intensity was low this time. So I'm just trying to understand that when the competitive intensity increases, do we need to resort to discounting again to match the -- or close the gap -- pricing gap to make sure that we generate enough sale.

So one is, I think we are operating in Smartek and to that extent, the prices that competition accepts that will become a benchmark. You can't completely ignore that. So what has happened and -- what we have at least proved to ourselves that in Q3 and Q4 that to the extent the -- let's say, raw material prices went down and there was a reduction that is, let's say, was expected in the MRP, we could claim that in certain markets where while we may not have faced competition across our markets, but in certain segments we did face the competition, and we could still keep our assets at that level purely because the demand or the pull from the farmers after they've seen the marginal cost benefit ratios to them have been -- given us that confidence that even if there were to be a competition then there -- there have been instances where markets -- the competition gives discount for collection, we did not. And we still managed to collect a good amount because there was -- dealers wanted that material, and they were happy to pay us for our past deals and make sure so that the credit lines open up for them for us to sell more product to them. So there is definitely a confidence in the team that these margins are sustainable and even if competition were to intensify or the raw material prices were to take a reverse trend, we will still be in a position to -- and our business, and I think the team still believes that we haven't yet fully priced the product, and there is a possibility of doing better on some of them. And of course, there are certain cost aspects, which we are still working on, both on the plant and on the logistics, which should also start yielding the result.

Right. And the products that are converted to Smartek, are they out of the government regulation in terms of pricing, either under the NDA scheme or...

No. They're not. No. They are not.

They are not. Okay. Okay. So just one last clarification. In the consol P&L statement, there's an entry of purchase of goods or stock in trade, which is showing negative INR 108 crores. So if you can just clarify what is that exactly? I mean has it been mixed up with change in inventory or something of that sort? Because purchase of goods is...

No. No. I think what has happened in 9-month numbers is that -- and this is specifically...

Sir, this is Q4. This is Q4.

Yes. No, I'll come to that point. I was just trying to tell you the background that as far as intracompany, intragroup company between SCM and Deepak Fertilisers, we have splitting of some finished products because these are those products manufactured in one unit but gets sold out of the other unit. There was a sort of an entry error in terms of what goes into raw material and what goes into cost of traded goods. So there was an excess entry that had gone earlier in cost of traded goods, which has been corrected now. So 9 months has been corrected in full year. So that's how that's appearing as negative.

Okay. So Q3 is the one which would have been -- if I'm not wrong, then Q3 would have been the one?

Yes. So it was -- because Q1 to Q3, in all quarters, there was this entry which should have got parked in cost of traded goods, it got parked in raw material. And to that extent between raw material and cost of traded goods, the number remains the same, same number for EBITDA and everything else is...

Yes. Okay. I thought I'll just clarify because it usually comes under change in stock. So I just thought there may be a typing error or something of that sort.

That's the change in inventories of finished goods and that's a separate entry.

Yes, I understand that. But usually, the negative number appears there, and the number is always positive for...

Yes. Yes. So your question is absolutely perfect. There is -- obviously, there should not have been -- in normal course, there is never a negative entry in cost of traded goods.

Next question is from the line of [ Abhijeet Akela ] from India Infoline.

Just on the IPA business, I just wanted to understand, this 15,000 to 19,000 contribution margin you spoke about, at what level of average prices would that have been in the past?

Average prices, we've seen about $900 to $1,000 of CFR prices, which went down to as low as $650 in this period when there was a lot of Chinese IPA coming. So basically, I would say this was anywhere between $900 to $1,100 CFR prices of IPA, then we would have seen these kind of margins. Of course, margin is a function of both on the IPA prices and the raw material propylene prices. And propylene prices have also got fluctuated because of the crude, how crude prices have gone up and down. So -- but on an average, before these 6 to 8 quarters of margin squeeze that we saw, we were, depending on what's happening to IPA and the RGP prices, we saw that range that we saw in the contribution margins in this product.