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

[Audio Gap] On behalf of Antique Stock Broking, I would like to welcome all the participants on the call of Deepak Fertilisers and Petrochemicals Corporation. From the management we have Mr. S. C. Mehta, Chairman and Managing Director; Mr. Amitabh Bhargava, President and CFO; and Mr. Mahesh Girdhar, President Crop Nutrition Business; and Mr. Deepak Balwani, Head, Investor Relations, on the call. Without further ado, I would like to hand over the call to Mr. Mehta for opening remarks, post which we will open the floor for Q&A. Thank you, and over to Mr. Mehta.

Yes. Thank you, Manish. Is my voice, okay?

Yes, sir, you're audible.

Okay. So at the outset, my very warm and a bit belated best wishes for Diwali and the New Year to all of you. And I hope you and all your family members are staying safe and healthy. So I take pleasure in welcoming you all for the Q2 FY '22 Earnings Call of Deepak Fertilisers. I hope you all had a chance to look at the financial statements and earnings presentation that have been uploaded so that we can have a meaningful conversation today. At the outset, very happy to share that, since we met last, we have successfully raised INR 510 crores to our QIP. And what is more, it is the new set of investors are marquee long-term investors. And that is a clear testing of me of the confidence that the long-term global investors have had on our operations and our growth strategy. As far as this quarter goes, despite a massive hike in many of our raw materials, our quarter has withstood fairly well. And we have recorded a revenue growth of almost 28% over last year. And our EBITDA and net profit grew by about 10% and 16% compared to Q2 FY '21. Now as you know, we are performing in 3 different sectors. And if I might share from the sector perspective that the first is where we [ spotted ] the pharma specialty chemicals sector, and that has shown a growth of 46% year-on-year in Q2 FY '22. So in the nitric acid business, which is a part of the specialty chemical sector, we are seeing that, because of certain, I would say, cogs in production by the Chinese government, the demand for nitric acid has further strengthened for us. And we're expecting prices also to remain pretty firm in Q3 onwards. Within the same pharma chemicals sector, we have IPA, where we saw capacity utilization to be more than 100%, supported by good demand. But realizations were somewhat depressed due to the plunge in the alternate feedstock acetone. However, looking at all these aspects, the DGTR has recently recommended safeguard measure that is the quantitative restriction on IPA imports. We're also looking at focusing on having a special pharma-grade IPA as we go along. And further in our specialty drive in the IPA business, we are also seeing a good response from our hand sanitizer, the CORORID and the other disinfection products. And more recently, we also had a very good tender that we won from the Odisha government. And we have also received our first export order for supply of IPA USP grade from South Africa. Within the same Chemicals segment, we also saw the mining sector and revenues from mining chemicals almost doubled compared to Q2 FY '21. Here, we are leveraging on a lot of specialty products, advanced technologies like drone and AI-based blast modeling to improve the productivity in the mines and infrastructure products -- projects. As you're also aware, the country is facing significant coal shortages, and with improving economic recovery, the demand for power and therefore coal is also poised to increase. And all of this bodes very strongly positively for our Mining Chemicals business. On the fertilizer side, we continue to find that our strategy of differentiation and crop-specific approach continues to give us good positive results. And our Smartek sales notched up to 2.28 lakh metric tonne during the first half. The industry witnessed a shortage of potash, unprecedented increases in prices on all the raw materials like ammonia for [ septic, ] et cetera. But with somewhat broad support of the government, the sector has performed well. We continue to adopt digital needs of working and connected with around 4.5 lakh farmers through 12,000 farmer connect activities such as demo sites, meetings, crop seminars, and others. So that connect to the farmers is getting stronger, and that is building a good brand for us. Going forward, the Southwest monsoon in the country recorded a normal rainfall during Q2 with which we are looking at full reservoirs of -- for water. And with that, we are looking at an even better rabi as we go along. On the CapEx side, our ammonia plant construction activity at Taloja is in full swing, and we are looking at the progress as for the schedule and are expecting to commission that plant by Q1 FY '24. So from a broader perspective, going forward, we continue to single-mindedly focus on, number one, capturing value in our chain, which is where the ammonia project will give us a good positive traction. Second is, we continue to very strongly focus on the drive from commodity to specialty or focus on the end consumer. And that is something that is going to give us certainly improved margins and also certain strong brand creation. And in the near term, we're looking at better efficiencies and debottlenecking to help us enhance capacity and expect maximum value in the near term. So with this, I would say, broad overview, let me hand over to Mr. Amitabh Bhargava, our CFO and President Finance, who can then give you a detailed financial overview. And then, of course, they will be available for further clarifications and answers to your questions. Amitabh?

Yes. Thank you, Mr. Mehta. Good afternoon, ladies and gentlemen, and thank you for joining the Deepak Fertilisers and Petrochemicals conference call to discuss the Q2 FY '22 results. Our financial performance during the quarter remained positive, as Mr. Mehta was mentioning, supported by our diversified product offerings and value-focused business model. During Q2 FY '22, we reported a total operating revenue of INR 1,793 crores, an increase of nearly 28% compared to same period last year. Our operating EBITDA increased by 9.8% Y-o-Y to INR 212 crores in Q2 FY '21. At FY '22 with margins of 11.8% during the quarter, there has been sharp increase in key raw material prices Y-o-Y in Q2. Ammonia was up by approximately 158%. Phos acid was up 70%. RGP, that is propylene, up by 53%. Despite these adverse movements of key raw material prices are better utilization levels during the quarter and for-sales volumes resulted in improved financial performance. Our net profit grew by 15.9% Y-o-Y to INR 93 crores in Q2. Finance costs were also reduced by 11.7% Y-o-Y during the quarter, driven by better working capital management and conversion of IFC FCCB tranche 1. We've generated approximately INR 648 crores of cash from operations and working capital management during first half of FY '22. Net debt was further reduced by approximately INR 205 crores during H1. There's been significant improvement in leverage ratios with net debt to equity improved from 0.9x or 0.91x in H1 FY '21 to 0.53x in H1 FY '22. DFPCL successfully raised as Mr. Mehta was also mentioning, INR 510 crores to a qualified institutional placement of equity shares in October '21. Leading domestic as well as foreign institutional investors participated in the issue, which included SmallCap World Fund, Government Pension Fund Global, Axis Mutual Fund, Fidelity, Avendus, and Societe Generale, among others. During the quarter, our manufactured Pharma/Speciality Chemicals business recorded a revenue of INR 374 crores, an increase of 46% compared to Q2 FY '21. Manufactured acids for the quarter recorded a revenue of INR 208 crores, an increase of 94% compared to Q2 last year, and manufactured IPA recorded revenue of INR 167 crores, an increase of 12% Y-o-Y. Due to the decreasing availability of various downstreams of nitric acids from China and the resulting higher pricing, nitric acid demand and prices are expected to stay strong in Q3. In the short term, demand for hand sanitizers and disinfectant products are also expected to rise. Manufactured mining business recorded a revenue of INR 373 crores, an increase of about 100% during the quarter. We recorded highest-ever second quarter sales of ammonium nitrate melt with 74% Y-o-Y growth. High-density ammonium manufactured sales volume grew by 51% as supported by a combination of fixed-price short-term agreements and increasing prices of imported ammonium nitrate due to the availability concerns from exporting countries. With improving economic recovery, the demand for power and, therefore, coal is expected to increase. In addition, with an increase in infrastructure activity, demand for cement and rock aggregates are likely to increase. All these factors should result in increased explosives demand in mining in Industrial Chemicals segment and in turn on our mining chemical products. Our value-based business model in Crop Nutrition business resulted in revenue growth of 15.8% to INR 802 crores in Q2. NP and NPK recorded a revenue growth of 30.9% to INR 687 crores, and Bensulf sales increased by 37% to INR 21 crores in Q2 FY '22. Despite year-over-year increase in major raw material prices, our strategically oriented initiatives, which range from crop-specific products to pharma-focused marketing should help us grow our market share and profitability. During the quarter, our IPA plant operated at capacity utilization of 101%, and both acids and TAN operated at 83% and 88%, respectively. As you might recall, in earlier quarters, I made this point that, last year, we got affected by COVID, particularly our operational maintenance. And the operating leverage that we were sitting on at the beginning of the year, it's evident that we have sort of taken advantage of that in this quarter and in the first half of this year. In the Crop Nutrition segment, NP/NPK plants operated with utilization levels of 77% and Bensulf plant operated at 66% utilization level. The available capacity across our plant provides us headroom for future growth potential. We still have a good margin left as far as capacity utilizations are concerned. We remain confident of continuing our growth trajectory while extending full support to our customers, suppliers and other value stakeholders. It's all the 3 sectors that is our investing chemical, mining chemicals and fertilizers are strongly aligned to overall economic growth in India and with Indian economy is expected to perform better in the coming quarters, our segments are expected to be benefited from same in the coming quarters. With this, we would be happy to take your questions. Thank you.

[Operator Instructions] The first question is from the line of [ Vishal Pratap ] from [ VP Capital ].

I have one question on technical ammonium nitrate. So I understand we supply ammonium nitrate to solar industries as well as TAN to coal mines? And then I also understand that solar industries supplying their products to coal mines. So could you help me understand what is the difference between what we provide and what solar industry provides.

So we have 3 different products in technical ammonium nitrate. One is ammonium nitrate melt, which is the liquid ammonium nitrate. The second one is high-density ammonium nitrate. High-density ammonium nitrate essentially is more -- is in solid form, and therefore, it has transported for a longer distance. But for shorter distance, to the extent that the customer end also has the storage facility, we supply the TAN in melt form. So in a way, AN Melt and etch then are a substitute of each other. One is in solid and then the other is a liquid form. Both these products go in the emulsion-based explosives, which our customers like solar and other. They essentially convert these 2 products into emulsion-based explosives, which in turn are used in for mining activity. While the low-density ammonium nitrate is -- can be directly put down the hole, and you can add the -- right there, add the fuel oil on top of it, and you can -- with the help of detonators, you can detonate. So in a way -- and that can be directly used in mines. It also is then converted into certain explosives, which are different from emulsion-based explosive. So essentially, in summary, etch then and AN Melt is used by our supply to our customers to be in turn converted into an emulsion-based explosive, while low-density ammonium nitrate can directly be used as explosives in the mine, you can directly use it as with the addition of fuel oil, you can directly blast in the mine, so it doesn't have to go through the intermediary customers. And then it can also be converted into certain explosives, which we call ANFO, ammonium nitrate fuel oil. So those explosives are different from emulsion-based explosives that our customers like solar...

Yes, right. So if I'm Coal India, and I'm trying to buy an explosive, so when will we buy from our company, Deepak? And when will I buy from a solar? And what's the difference?

So Coal India, depending on their requirement, can either tender for emulsion-based explosives, or in certain limited quantity, could even directly tender for LDAN, low-density ammonium nitrate. Essentially, in India, LDAN is very partly used in coal mining, particularly Coal India has just started using it on commercial scale only in Q4. Before that, they did not have the experience of blasting through LDAN. And to that extent, prior to that, 100% of their requirement was met through emulsion-based explosive. Now from Q4 onwards after they have tested it on our commercial scheme, depending on their requirement, they would -- they can tender for LDAN-based explosive. But India, given the manufacturing capacity of emulsion-based explosives and explosives in general, which are largely emulsion-based, particularly in the coal mine, and public sector coal mine would continue to remain sort of largely be serviced by emulsion-based explosives. But like I said, Q4 onwards and the Coal India subsidiaries have tested on commercial scale the LDAN-based explosives or blasting, there, depending on their requirements, can tender separately for LDAN-based explosives.

So if I try to compare emulsion-based explosives and LDAN, so which is more efficient, if efficiency measured in terms of money spent?

So fundamentally, while LDAN per tonne basis, it can be priced or maybe priced more per tonne based at a high level at 10 or even less, though that also keeps changing depending on the demand/supply situation. But when it comes to -- for the same blasting requirement. Generally speaking, LDAN-based explosives turn off more efficient in terms of the quantity that is used and the general efficiency that you get in blasting because blasting also depending on -- so when you blast, the overburden comes out in uniform, let's say, shape -- the whole processing of removal of overburden is additional cost that is incurred by mine. And so therefore, mines tend to look at their overall cost, not just the explosive cost but end-to-end costs. And those costs can turn out to be more expensive because LDAN-based exposures or blasting is more measured. It has certain efficiency in terms of the outcome of overburden. So that's how it works. And generally, it can work more efficient.

Okay. And last question, sir, from my side. So I mean, the technical ammonium nitrate we supply to the end users or we supply to exclusive manufacturers like Solar?

So like I said LDAN and AN Melt, which are out of the total portfolio are a substantial part of our product basket. They are supplied to intermediaries, the merchant-based health explosive manufacture while LDAN can be directly supplied to the mine.

[Operator Instructions] The next question is from the line of [ Sharan ], an individual investor.

My first question is regarding the ammonia, ammonia-rich plant capacity is in progress, whether it's the green ammonia, or what is it exactly? Because government is going to make it mandatory that, for the fertilizer, green ammonia should be utilized, and green ammonia comes from the power used from the renewable sources.

Yes. So our ammonia is based on natural gas. And to that extent, there is CO2 emission. Now what we are trying to do is that we are talking to various CO2 users, including the upstream oil and gas investor. And to the extent the CO2 generated along with ammonia can be utilized for purposes where CO2 can be gainfully consumed rather than emitted in the environment reduced in the environment. To that extent, while it is not green ammonia, it could get the shade of blue ammonia or whatever the term's used. But as of now, our ammonia as much as the ammonia generally produced in the country, it's pretty much everywhere by all the players is based on natural gas and, therefore, is not part of green ammonia.

Okay. And in case in the future, if required, is Deepak ready to consume renewable energy and produce the green ammonia in the same plant?

See, as of now, it is -- green ammonia has 2 components to it. One is the power that we are consuming, but power -- renewable power consumed is then used for hydrolysis of water, and that's how we generate hydrogen. And then you take nitrogen from the air, and that's how you combine nitrogen in helping to make ammonia. So it has the element of not just using the power in renewable form, but it has -- that power should be then used through hydrolysis of water to convert to hydrogen. While in our place, the whole process -- Haber process through which we are producing ammonia or going to produce ammonia is through natural gas route. And therefore, there is a fundamental bookend. It's not just the power consumed, but it's the whole process end-to-end that makes it green ammonia.

Sure. And sir, second question is the ammonia capacity is going to be around 500-plus tonnes, right? I think that's a year, 500 tonne per year, right?

500,000 tonnes.

Yes, yes, 500. Okay. And 500, sorry, 500 tonnes. So basically, and there was a mention that there is going to be a savings of around $70 to $80 just from the logistics. So can I assume that $70 is like into the Indian rupee, whatever it comes, and then plus into the 500 tonnes. Roughly, it is going to be INR 200 crores to INR 300 crores per year straightforward savings from that strategy?

Yes. So we've sort of explained this earlier as well, and I'll just repeat that. So one is the logistics part of the savings, which your numbers are broadly correct, $70 to $80 and whatever [indiscernible] we save that much in the logistics, if you compare it with, let's say, could be [indiscernible]. There are 2 other advantage of producing this locally. One is that the whole process of ammonia generation also is exothermic, meaning that it produces additional heat. And that heat is something that we can use because it's right across our plant. So we can use that for... [Technical Difficulty]

Sir, we are unable to hear you.

I'm sorry, there is -- so what I was saying is that, therefore, there is additional savings that we have of fees that we can generate. And to that extent are huge consumption in our main downstream plant, there could be saving, and that saving could be anywhere between $10 to $15 per tonne worth of ammonia in terms of the heat production. The third one is where we are our manufacturing facility has been granted ultra-mega project status by government of Maharashtra. And there, 75% of our CapEx in ammonia would be -- we get reimbursement of basically state GST until we recover about 75% of our CapEx. And that's the additional savings that we make year-on-year. So there are these 3 elements of savings that would accrue to us once we produce it across the downstream.

Okay. I think -- that's the great information. So when roughly this will get completed, in the year of 2023?

So our mechanical completion is expected by March [indiscernible]. And I think in a matter of 4 to 6 weeks, we can start commercial production.

Okay. And roughly in the year when it starts producing the in-house ammonia, that year, roughly what will be the saving of ammonia like INR 500 crore or something?

So like -- I think I've talked about all 3 elements. So you can just do a back-of-the-envelope calculation.

Yes. Yes. And one last question, just would like to know the big customers from all the sectors, from agriculture and industrial chemical, if you would like to give some names on the customers and any recent addition in the customer, please?

In which sector are you asking this question?

Both, agri and the industrial chemical and pharma. Just would like to know any big customers you have and any recent addition to the customer list.

So in our mining chemicals, we have customers like Solar Industries, Special Blasts, IDEAL Industries, Indian Oil Corporation, Singareni Collieries. These are some of our large customers as far as we stand or mining chemical is concerned. As far as the asset is concerned, we have Aarti Industries, Deepak Nitrite, Panoli Intermediates. These are some of the customers. In case of IPA, pretty much the entire gamut of pharma companies, Aurobindo Pharma, Dr. Reddy's. These are all -- Sun Pharma. These are all our customers in our view.

The next question is from the line of Rajan Thakur from Ruchi Oyster Mushroom.

My question was with regards to the fertilizer business with increased raw material prices, which should be an increase in our fertilizer cost as well. So will farmers be able to purchase the same quantity of fertilizers as before and how we can manage this?

Your voice was not clear. Can you repeat the last line? I got your point that there is an increase in raw material prices. So what's exactly your question?

Yes. So my question was, we know there's an increase in the raw material prices. And subsequently, our fertilizer costs will also -- the fertilizer product costs will also increase. So are we expecting the farmers to first -- like will the farmers be able to purchase the same quantity of fertilizers as before? And how are we managing this?

So essentially, as you know, the increase in raw material prices, typically, there are government also depending on the raw material prices and looks at the NPK nutrient-based subsidy. The government takes one increase in May of this year based on some of the increase that has happened compared to the previous year raw material prices. Whatever other than the government nutrient-based subsidy, rest of the prices are essentially, we -- depending on the market, depending on the competition and the way industry increases or passes on those prices, we also increase our prices of our products. Overall, a combination of the 2 is what government as well as industry tries to create through a balance. And to that extent, for a brief period, till the prices are passed on to the farmer, there could be some absorption that the industry has to do. But eventually, the longer the prices are sustainable at a higher level, these prices do get passed on to the farmer. But as you know, the NPK, I mean, nitrogen is also used in other fertilizer. And to that extent, the prices of other fertilizers -- competing fertilizers also tend to go up. So in that sense of clarity between other fertilizers and complex fertilizers is maintained. My colleague, Mahesh is also there. Mahesh, do you want to add anything to this?

So, I think you already followed that. I think there are 2. One is that there is a -- in the May, government announced nearly INR 13,000 crores additional subsidy, and by virtue of NBS, neutral-based subsidy. Again, there was the second infusion done in October, which will impact next quarters. So both the NPAT cost cover through subsidy as well as partial pass-through in the market has been able to support. The consumption hasn't declined. As we talk about H1, consumption has been nearly as at the previous year level. Also, we also get into nonsubsidized fertilizers, which is about 15% of our total portfolio. And in the nonsubsidized part of the fertilizers, we have been able to pass through the increased cost. These are efficient fertilizers used by -- used through the drip irrigation there anyway lower use. So the use rate per acre for water-soluble fertilizer is much, much lower than the bulk fertilizers. So there -- and high-value cash crops are using this, where we also know that India has not approved some vegetable requirements where farmers have been able to absorb the cost as the cost has increased for the amount of safe fertilizers.

The next question is from the line of Abhijit Akella from IIFL Securities.

I had one on the Chemicals business first. So in the context of your commentary about the robust demand outlook for Mining Chemicals as well as the pharma segment and Specialty Chemicals. So in that context, would it be fair to assume that we can more than pass on the increases in ammonia costs in the second half of this year as the demand seasonally picks up? And if you could just give us some help in understanding, I mean, how realizations in that -- in those businesses are trending and how we should expect margins to trend in the next couple of quarters?

So Abhijit, one fundamental aspect about these sharp changes that have happened in raw material prices, and I'm sure you would also be observing that, is that a lot of this has been very sharp in a very short time frame. And therefore, the first assumption of people, anyone can comment on H2 is to even -- one has to come to us and choose on whether the price is, though they have gone up already so much, would they remain at this level, or would they go further up? And that itself is something that, today, it's very difficult to predict how far -- further up these raw material prices can grow. And so that is very fundamental to any progresses that one can or an estimate sometimes can lead to the margin. That said, I think, in general, what we are seeing is that if you look at our product by product, as said, has certain contractual provisions where the raw material prices are passed through in our long-term contract. In short term, we are also seeing because of general shortage and the China factor, the asset demand has also gone up. And to that extent, in the spot market, the price realizations has improved. And that would -- hopefully, that would mean that the increase in ammonia prices would -- our ability to pass that on in our acids, partly through contractual structure and partly through good realizations in spot market would be better. So that's as far as acid is concerned. As far as TAN is concerned, there, again, we're seeing that we're going to be -- again, the fertilizer-grade ammonium nitrate that comes into the country and competes with the local production has also seen increase again Black Sea prices have gone up. Now whether they are -- they keep in sync with the sharp increase that we're seeing month-on-month on ammonia, or would they have certain level of lag, would really decide whether the past pass-through is proportionate or more than proportionate. Very, very difficult to predict at this stage how quickly each of these -- not just the raw material, but the response in the finished good products, prices will reflect. But generally speaking, I think H1 -- though, in H1 itself, our prices have -- raw material prices have gone up. You've seen that Mining Chemical business or TAN has withstood those prices -- raw material prices and the end -- finished [indiscernible] prices seem to have reflected that increase. IPA is the other, I think, product where we are seeing, obviously, compared to last year and even quarter-on-quarter, there's been pressure on the margins because, on one hand, propylene prices are going up. The less is on base, more of a strong base IP is coming into the country. And to that extent, there is a pressure on IPA margins. And this is what we had anticipated as well. In the beginning of the year, also, we said that we don't expect the margins to sustain at last year's level, though DGTR's quantitative restriction that DGTR has recommended, I think that should help to an extent in getting better realizations because a lot of the acetone-based IP that was coming into the country, if the quantitative restrictions come on, on that IPA -- on most of the IPAs and coupling with prices, it would improve the realizations for IPA. And in general, the ability to pass on the totally would want to do prices there will take better. So that's only the commentary on how we create bubble. I hope I have answered your question.

Yes, that's helpful. So I mean in a nutshell, we are not too concerned on the margin front. We do believe that the demand trends are healthy enough to permit us to pass on any input cost increase in general.

Demand trends are certainly very, very encouraging. But the point I just said is that the increases in raw material prices month-on-month and sometimes week-on-week have been sharp. And to that extent, it's very, very difficult to predict for the entire quarter of second half. We'll see how it shapes up.

Understood. And the second one is on the fertilizer business. Given this volume pressure because of rising prices, et cetera, does that sort of delay your plans of achieving full capacity utilization in that business? I believe you had plans to do that in the next 2 years or so. So does that push that back? Or do you think it's still achievable? And in terms of the margin targets that you had for yourself, how do you see that shaping up in the context of this industry scenario?

I think the answer again is, I would say, how far this raw material cycle would continue. Is there a part of the answer would like, but we don't expect that, that is going to fundamentally change the capacity utilization plan because, if the prices of these raw material prices are sustainable, either government would enter even in terms of increasing the subsidy or the industry -- entire industry would have to look at changing the market prices. And to that extent, we don't expect that, fundamentally, there is any demand disruption that will happen in complex fertilizers.

Just to add to that, if you allow. So that's the industry view. And please note that our CMD and CFO quarter-after-quarter, we are explaining that we are moving away. We've completely moved away from commodity business. In fertilizer, we have moved into value-added differentiated products. And these differentiated products are more efficient. We have introduced technology -- manufacturing technology, which enhances nutrient uptake, which is called [ Nutrient Unlock ] Technology. So we are able to differentiate ourselves and add value to the farmers increasing their yield of the same product. So we are actually creating higher preference for our brand used by our consumer farmer, and as well as we are introducing complete crop-specific, let's say, more balanced product in our portfolio, which will be much more efficient for the farmers from a value perspective. So those 2 things, coupled with the industry overall scenario. As you know, the subsidized fertilizer also takes care of certain NBS rates. So both put together would help us grow sustainably.

Got it. No, that's helpful. One last thing, and I'll come back with anything more. The CapEx in the first half has been about INR 309 crores. Is there any rough number we have in mind for the second half, how much we expect to spend on all the projects put together?

So we have given guidance for next, I think, about 6, 7 quarters. I wouldn't have the -- so if you look at -- I mean, what we are saying is that between Q3 of FY '22 to Q1 of FY '24, one is we would complete the ammonia, which means there is balance about INR 2,500-odd crores of CapEx for ammonia that will take place in these 7 quarters. Also, roughly about anywhere between INR 700 crore to INR 900 crore of CapEx on the TAN capacity at TAN new plant would also be there in these 7 quarters, right? One quarter number is a little difficult 1 or 2 quarters because our -- and consumption has not yet started. We are sort of in the far end of getting all our approvals in place and the financial closure. So to that extent, but we have more talking about ammonia. TAN we'll know I think by December or January, we would know what kind of balance CapEx is expected till March in TAN, I mean. So we expect to have given guidance over the next 6 to 7 quarters as opposed to further out level.

[Operator Instructions] We move the next question from the line of Bhavya Shah from Girik Capital.

In Q2 press release, we have mentioned that we had a lower-than-planned production of fertilizer due to MOP shortage. So just if you can throw some light on are we facing the same issues in Q3? And are we facing shortage in any raw material other than MOP in fertilizer?

No. I think by now, the almost sort of nonavailability of MOP for a long period that the phase is over. So as such, raw material is -- our raw material availability is not really hampering anything. The prices of each of these raw materials and therefore production cost and overall market pricing is a factor that we need basically will be even or rate would be tracking month-on-month. So that's still one area that we need to watch out for. But as for raw material availability is not -- no longer an issue.

And my second question was that quantitative restriction in IPA is already in place, or is there any final order left to be published and get checked or anything like that?

The implementation of that as to how that would be implemented is something -- is a work in process because it has to be certain -- so specific restriction for specific restrictions in all of those -- the difficulty of implementation is something that is being worked out.

The next question is from the line of [ Vishal Pratap ] from [ VP Capital ].

2 questions again. If I look at the history of Deepak Fertiliser, in last 32 years, except '91/'92, when we had unfortunate incidence of fire alone where we struggled a few years, we have been prudent capital allocators. And we avoid taking undue risk. But if I look at what we are doing now in that 4,300 CapEx for ammonia, and then we are talking about TAN, where we'll have a lot of CapEx. So do you not think that INR 5,000 crores of debt on our balance sheet will be a risky proposition.

I'm not sure where the INR 5,000 crore number comes from. But yes, the question, I think if I get the essence of the question, is that these 2 large CapEx is being done together, whether that's a risk or not. See, essentially, if you look at ammonia impact, I would split the point, and I would say that if we don't have our own ammonia, given the large ammonia requirement because the fundamental nature of our business of fundamental raw material that is required in our business because we are in nitric acid, NP and NPK fertilizer and TAN, all of them require ammonium, the scale is going to a level where relying on logistics, particularly price from Middle East to [ NTT ]. NTT whole infrastructure, the transportation of that through road to our plant and all the -- not just the logistics uncertainty and issues in terms of damages and certain [indiscernible] disruption, but also the whole environmental footprint of this logistics is something which, for a long time, we've been -- we have debated internally, and we have come to a conclusion that that's not a sustainable operation, so the size of the operation that we have. And therefore, ammonia, while the CapEx involved is large, no doubt about that, but without having our own ammonia, we would have been running a far more risk in terms of sustainability of our operations [indiscernible] operation. As far as ammonia now, if you look at the current -- and I think we've gone through -- in last 2 years, we've gone through certain delays in land acquisition. But as we stand today, we are -- we have all the statutory approvals. The progress on the ground is only now the physical construction of is just the construction part because it's nearly 95% of the equipment is with us. The land is with us. All the approvals are with us. So it's only a civil and mechanical construction that needs to happen on the ground. So as such, if you look at it, just the implementation risk is now substantially behind us. That said, yes, it would mean that there's a large CapEx and, therefore, proportionate debt. But debt also since we are actually, even today, as we have almost about INR 1,800 crores of implementation that we have done, we have grown less than 50% of that by way of debt, and we have used our internal accruals or internal cash to fund the balance. And therefore, while in the base case, yes, we are planning to fund this project with, say, 60/40 debt equity and end with 70/30 debt equity, we may, depending on the cash accruals and the cash function we have, we may improve on this debt equity, number one. Number two, if you see the profile of this -- I mean a new project or any expansion, one huge risk that is there in any new project is the demand part of it, whether you'll be able to place that product in the market or not and what would be your capacity utilization. And that's where 100% of this is for captive consumption. And I've already spoken about the reasons why I do believe that, without having our own ammonia, we would have run a much, much higher risk on the sustainability. We don't believe that there is much risk that's to be addressed in ammonia. We've gone through that phase, I think, the last 2 years. As far as time is concerned, again, it's largely an import substitution. We have the land in place. Most of the statutory approvals are going to be with us. And to that extent, again, this is a product where we have -- quarter-on-quarter, we have done well. There is a huge gap that is emerging in terms of import. And this product, again, is going to be used as import substitution. And this business has been market leaders. We know end-to-end. We've done this business. We've been there for more than 3 decades. So I think the risk is it's not some unrelated diversification. It's not something that we -- for which we have to create market. But it's like with every market, we have to substitute the import. And to that extent, I think the risk, while the CapEx' no doubt are large, but the risk, if you talk about the risk, we believe that the risk is manageable.

Right, Amitabh. So sir, I mean, I think you have been very clear about this in the past calls, so I really appreciate that. My question was more from doing parallel CapEx in ammonia as well as TAN rather than doing back-to-back where once we have done that ammonia, and then we do TAN. And that is where my question was. If you could share your thoughts on that, that would be great.

So ammonia, if you look at it, we are in -- sitting in November, we would complete ammonia in another 15 to 16 months, say, March/April of 2023. TAN, yet to start the construction, while we have the land and basic all the statutory approvals. And that, let's say, a 28 to 32 months of [indiscernible] roughly the implementation or completion of this is 3 quarters apart from each other. So overlap, if you'd see, would be, I would say, 4, 5 quarters, maybe. And to that extent, they are -- it's not they're completely overlapping with each other or coinciding. There is anyway a gap that is there, while we have another 15, 16 months left for ammonia. Then after we start the construction, it would be another 32 more months. So even from a cash flow perspective, as we would be implementing TAN, our ammonia, the advantage of having our captive ammonia would start accruing to us from quarter 1 of FY '24. So I think that is -- there is that -- I mean, it's not a complete overlap. There is a gap for being completion of these 2. And to that extent, we think we have a fairly good pace to manage this.

Okay. And we have taken some land on [ JNPT ] recently. So is that for our storing LNG?

JNPT, not.

Right. There is -- I mean, press release from the NPP, and our name came up that we have taken land there for storage or something.

I'm not -- we had, at some point in time, we had wait for some addition for our storage capacity, but we have not followed through in terms of going ahead with return construction, et cetera, because we had -- I'm not aware what -- which...

Okay. That's fine. Last question, sir, if I look at [ Golden Rule ], are they backward integrated into phosphorous because I think there's a lot of raw material risk there as well. So I think -- is it important to have, at some point in time in future, to have backward integration in phosphorous? Or that's not very important for us.

No. It does create optionality. There -- today, we are entirely dependent on phosphoric acid. If you have the backward integration, you have the optionality of using rock phosphate, convert that into phosphoric acid, and then use it in your entity. So it does make sense to have the optionality. But today, given that ammonia goes into 3 of our products and not just the fertilizer, ammonia made better sense for us today for the scale of operation. And ammonia, we've also got certain advantages, as I was mentioning, both on the energy side and also the outcome of the status that we got from government Maharashtra. So from that perspective, ammonia made sense for us. But phos acid, I think backward integration in phos acid would certainly create an optionality.

The next question is from the line of [ Samir Joshi ], an individual investor.

What is the percentage of fixed-price contract as compared to variable price contract across various business? And whether -- and what is the tenure of this fixed price contract? And is there any charge that because of the increase in raw material prices or decrease, we can pass on the increase too in case of fixed-price contracts?

So what is fundamentally, these numbers are not fixed. They depend on the commissions that our customers want and commitment at any stage we are committing to our customers. But typically, in, let's say, today, we would be roughly about 50%, 60% as far as the contract and spot is concerned in the TAN segment. And in the acid segment, this number -- fixed number in the P&L has varied from 60% to 70% and balanced 20% to 30% of [indiscernible] can be in the spot segment. But like I said, these are not the numbers that one needs to take it on. These 2 could be numbers which are done in.

Okay. Because I was estimating that by which quarter, the increase in raw material prices will be taken care in pricing of final products.

So spot also tend to what is typically, in general, are at premium over fixed prices at which we have committed to our long-term customers. So if we do pass on or if fixed-price contractors have the ability to pass on raw material prices, the same, given that poses a premium over long term, it also has the ability to pass on raw material prices.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Amitabh Bhargava for his closing comments. Over to you, sir.

Well, thank you so much for your participation and all the insight-ed questions. For any further queries or clarification, please do get in touch with our investor relationship team. Thank you so much again, and have a good day. Thank you.

Thank you. Thank you very much, sir. Ladies and gentlemen, on behalf of Antique Stock Broking Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.