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

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of Deepak Fertilisers And Petrochemicals Corporation Limited, hosted by Systematix Institutional Equities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pratik Tholiya from Systematix Institutional Equities. Thank you, and over to you, sir.

Yes. Thanks a lot. Good afternoon, everyone. On behalf of Systematix Institutional Equity, I would like to welcome all the participants in this call of Deepak Fertilisers and Petrochemicals to discuss the third quarter and 9 months ending FY '22 results. From the management team today, we are joined with Mr. Sailesh Mehta, Chairman and Managing Director; Mr. Amitabh Bhargava, President and Chief Financial Officer; Mr. Mahesh Girdhar, President Crop Nutrition Business; Mr. Suparas Jain, Vice President, Corporate Finance; Mr. Debasish Kedia, General Manager, Corporate Finance; Mr. Deepak Balwani, Head Investor Relations. As the outlook, we'd like to thank the management for giving us this opportunity to host this conference call. I would like to invite Mr. Mehta for his opening remarks, after which I would like Mr. Bhargava to take us through the financial performance, post which we'll open the call for Q&A. Thank you, and over to you Mr. Mehta.

Thank you, Pratik. A very good afternoon to all of you. I hope all of you are taking the omni -- now variant in your stride. And hopefully, all of us will have this behind us as we get completely immunized. I take the pleasure of welcoming you all for the Q3 FY '22 earnings conference call of Deepak Fertilizers. I hope you have had a chance to look at the financial statements and earnings presentation, that were uploaded on the exchanges and on our website. So I'm very happy to share that in the Q3, we delivered a 35% jump in the top line, a 62% improvement in the EBITDA and a handsome doubling of our net profit. This Q3 performance was despite a tsunami-like virtually every single of our raw material price hike. Ammonia jumped up by 115%, phos acid by 78%, RGP by some 76%, potash, coal, you name it. Some areas besides the price hikes, we were also faced with availability bottlenecks. Now despite the challenges, the good Q3 results indicate the following 5 fundamentals. Number one is while some products did have some struggle, from an overall basis, our end customer industry has shown the resilience of our raw material pass-through and more. This is indeed somewhere we see as a good risk mitigation, I would say, available piece for us. It, once again, reaffirms the strong positive linkages all the 3 sectors that we are in, meaning agriculture, specialty chemicals and mining chemicals, all the 3 sectors have a beautiful alignment with the India growth story. This is the second aspect that gets reaffirmed through the Q3 results. The third aspect that we see is our strategy to move up the value chain into more specialty customer segment-based products in all the 3 sectors is indeed in the right direction, be it IPA for the pharma, Croptek fertilizer for crop-specific segments in the fertilizers sector and the like. So this strategy to move from commodity to specialty, also bearing this good fruit is, once again, reaffirmed. The fourth aspect that you see is our drive to bring technology and digital based tools is also bearing strong fruits. As we connected with almost 17 million farmers digitally or we're doing drones and technology-based products in our mining chemical sector, all of it brings a reaffirmation that, that is also a right strategic drive. And lastly, as we see our new CapEx's of our global scale ammonia plant and a TAN plant, are all going to deliver much greater and stronger fundamentals. So from this broad kind of an overview in terms of what the Q3 signifies, I now hand you over to Amitabh, our CFO, President Finance, who can take you through sector-wise financial details. Amitabh?

Thank you, Mr. Mehta, and good afternoon, ladies and gentlemen, and thank you for joining the Deepak Fertilisers and Petrochemicals Conference Call To discuss the Q3 FY '22 reasons. Our financial performance during the quarter remained strong. During Q3 FY '22, we reported a total operating revenue of INR 1,956 crores, an increase of 35% compared to same period last year. Our operating EBITDA increase to INR 352 crores compared to INR 217 crores in Q3 FY '21. Operating EBITDA margin grew to 18%, an increase of almost 300 basis points. Our net profit doubled to INR 181 crores, with a margin of about 9.2%. Finance costs reduced considerably by 15% Y-o-Y during Q3 FY '22, driven by amortization of operating term loans, better working capital management and reduction in interest rates. Depreciation increased Y-o-Y due to onetime accelerated depreciation taken in some equipment, anticipating reduced useful life of these assets. In quarter 3 FY '22, revenue increased by 49% to INR 1,182 crores in chemical segment comprising mining chemicals and pharma and specialty chemicals. Segment profit increased from INR 173 crores in Q3 FY '21 to INR 319 crores in Q2 FY '22, an increase of 84% Y-o-Y. Chemical segment contributed about 93% of total segment profit. During the quarter, our manufacturing Specialty Chemicals business recorded a revenue of INR 381 crores, an increase of 36% compared to quarter 3 FY '21. Despite significant increase in ammonia prices, nitric acid demonstrated improvement in margin, supported by both volumes, that's about 6%, and the net sales which is about 56% grew Y-o-Y. Shift of global supply chain trend towards India is resulting in improved demand from Nitroaromatics segment, which are used where -- which are used as intermediate in pharma and agro industry. Manufactured mining chemicals business delivered an outstanding quarter with revenues of INR 660 crores, an increase of 122% Y-o-Y during the quarter. The volume growth was about 43% Y-o-Y. And there were also better margins. So the company continues to take advantage of flexibility in its product mix to maximize the margins. HDAN volume grew by 32% Y-o-Y basis. The low density that is, LDAN, sales volume in domestic market improved by 9% on Y-o-Y basis. Our value-based business model in Crop Nutrition Business resulted in quarter 3 FY '22 revenues growth of 19.1% to INR 759 crores. Fertilizer segment profitability was impacted due to unfavorable movement of key raw material prices. NP/NPK recorded a sales of INR 515 crores. And Bensulf sales increased by 37% to INR 22 crores in quarter 3 FY '22. During the quarter, our TAN plants operated at 110% capacity utilization. Both acids and IPA operated at 86% and 88% respectively. In the Crop Nutrition segment, are NP/NPK plants, they operated with utilization levels of 47% and Bensulf plant operated at 36% utilization level. So the available capacity across our plants provides us headroom for future growth potential. We retain confident in continuing our growth trajectory on the back of our businesses, which is strongly aligned with overall India's economic growth. With this, we will be happy to take your questions. Thank you.

[Operator Instructions] The first question is from the line of Naresh Vaswani from Sameeksha Capital.

Yes. My first question is on the raw material at costs which you have accounted in this quarter. So if I compare that with last quarter, there is hardly an increase of INR 17 crores to INR 20 crores. While you've mentioned in the presentation and also in the opening remarks that the material costs have gone up substantially in all the materials. And also the volume, if I [ club ] all the volumes, it is flat or slightly negative 1%. But even after that the absolute cost should would have gone up substantially, given our [ clear intentions ]. So what explains this? Because the end product prices have already increased, which is reflected in your realization in TAN and nitric acid. So what explains this flat number for raw material costs?

Yes. What you are referring to is quarter-on-quarter I suppose. And while quarter-on-quarter, -- as you know, the -- while the raw material prices continue to go up between Q2 and Q3. Some of the increase that we were mentioning in terms of the percentage, whether it's ammonia, phos acid, MOP, coal and others. This jump of substantial jump was Y-o-Y, while quarter-on-quarter also there was a jump. But in quarter-on-quarter, what to happen is the volume, particularly in the NP/NPK segment were lower, and that was primarily because of, as Mr. Mehta was also mentioning that we also face challenges of availability of raw material in this period. As a result, I think from a consolidated standpoint, since the volumes in NP/NPK segment reduced, it had an impact in terms of keeping the overall, if you're sort of looking at the overall cost of material consumed from that perspective, they were quarter-on-quarter. That number may not have gone up as it has gone up from Y-o-Y. So I think that's the reason I'm not sure if there is more to the question that you asked but it's quarter-on-quarter and also certain volumes on NP/NPK segment which were on the lower side that -- yes.

Right. So it's not that we had some old inventory, which was low cost and which is why we benefited. And then in Q4, that would have some impact. So that is not the case. You're saying the increased material has already been accounted except that the volume level decline, that is okay. But the increase which was, looking in this particular quarter, those prices have already been reflected. Is that right?

Yes.

Okay. Okay. And this increase in margin in TAN, I mean, the proportion of increase in realization is much larger that is what explains the increase in margin in TAN, right? So what is happening structurally because the realization in TAN have gone up almost like 70%, 80% if we compare it with like -- it was around 24%, 25% on a stabilized basis. Now it has almost reached 47%. So what experience is and how -- I mean how much sustainable this trend is in coming quarters.

One is, fundamentally, the volumes went up Y-o-Y almost, if you look at overall TAN, there was an increase in volume by almost 24%. Within that, HDAN was up 32% Y-o-Y and even the melt was up 43%. So one effect was of the volume. The second, of course, is that while the raw material prices went up, we also saw increase in the finished good prices. Finished good prices, in fact, for us are typically the price points in TAN, which will keep ourselves aligned to typically. One is the import prices of fertilizer-grade ammonium nitrate. Also, the domestic -- other domestic players who are -- who sell TAN in melt form, they also increased their prices, they have increased their prices as the ammonia prices went up. So a combination of the finished good prices both internationally as well as domestic prices of TAN, they went up and they -- our ability to -- or another -- if you look at some overall margin perspective, despite increase in ammonia prices, the finished good prices saw even better improvement. Overall, I think the factor of demand growth in the quarter also reflected in the way Coal India's overall overburden productions, it recorded a growth of almost 8% Y-o-Y, 43% quarter-on-quarter. Secondary [ coalries ], for example, their overburden production grew by 49% quarter-on-quarter and 26% Y-o-Y. So the effect of the domestic demand, our volume growth and then prices, international prices of -- international as well as domestic prices from other TAN players there increase resulted in these kind of margin. Now to the point that on the sustainability, look, one other aspect that we've been working on. And as I think we mentioned in previous calls as well as somewhere in January earlier, we had also done a detailed sort of presentations to our investors, which was done by our TAN business head. The aspect that we are now also going downstream in terms of directly reaching our customers with -- or is that the consumers in a sense who are the end consumers of these explosives, namely mining companies, mining contractors, infrastructure companies, infrastructure contractors. So we've also commenced our journey to move from product to solution. And therefore, we hope to garner overall per ton of ammonia or per ton of TAN, we hope to garner better margins through our approach of not just product but product plus solution. And to that extent, while finished goods and raw material prices would go through their cycles, but our ability to get better margins progressively by going further downstream is what we believe is going to continue to have the effect of improved margins in [ TAN ].

The next question is from the line of Kumar Saumya from Ambit Capital.

Sir, my question is on the IPA side. Like we are tracking [ that the IPA depended on propylene to IPA ]. So how is this process different from someone that Deepak Nitrite was going through the old [ acetone ] group. If you could help us in understanding this process.

Well, the raw material used for production of IPA are different. In our case, our raw material is propylene, refinery grade propylene. While in case of Deepak Nitrite it is acetone. So fundamentally, 2 different raw materials to produce the same IPA. Yes. So, I'm not sure if there is anything more that you wanted to ask as such but fundamentally it's 2 different processes.

But how it is -- like if someone is using from to IPA, the yield would be better from propylene to IPA, their yield will be better? And like -- so for Deepak the [indiscernible] acetone and IPA is guiding the margin. But for us, it would be propylene and IPA. So that understanding I want to know -- understand how that this process delivering if it is delivering better margin, better profitability?

See, fundamentally, IPA and propylene as well as acetone, all 3 products have their own cycle -- price cycle, so to say. And that depends on the -- while IPA can be made either from propylene or from acetone. But the prices of propylene and acetone would depend on their own demand-supply equation. Acetone in turn goes into downstream products. So depending on the demand that comes from downstream sectors, the production of phenol and therefore, production of acetone could have a different sort of demand supply situation in the market, and that could mean that acetone prices and IPA prices delta in certain periods, it could be high or low. I mean, again, like I said, both these are products that would have their own demand-supply cycle and therefore pricing cycle. Likewise, for propylene, refinery grade propylene also the factors that decide propylene prices are -- one is, of course, the petrochemical cycle and the downstream usage of propylene, but propylene is also, from a refinery grade propylene perspective, it is used as a substitute or the alternate to that propylene is to mix it with LPG. And therefore, prices of LPG, propane and butane could decide the prices of refinery grade propylene. So given that each one of these products have their own demand-supply cycle and therefore, the pricing. The deltas between IPA and propylene and IPA and acetone could vary pretty much on a real-time basis. And therefore, it is -- one cannot say that the margins from one is better than the other. It all depends on a particular period. And in certain periods, you may have better margins through propylene route and other periods, we may have better margin through acetone route.

That was very helpful. Sir On the steady state, so what is the margin that we get from our process. Given the steady state, normal ballpark numbers, not particularly for this quarter or so.

I think, the report, we don't report product margin separately. And to that extent, what you would see is, like, for example, last year, our IPA margins were significantly better.This year, more or less in 9 months that we have seen, IPA prices have remained subdued by the RGP prices have gone up. So therefore, margins are under pressure. What we are doing, though, again from moving away from this specific question, which is there the margins are not steady. And to that they could vary from quarter-to-quarter or year-to-year. What we are doing is progressively, we are using our IPA in end user segments where the margins are better, mainly for pharma for pharmacopeia or certain products which meet the pharmacopeia requirement. And therefore, there is a premium in the IPA that goes into certain segments of pharma. Likewise, we are -- we have our own sort of disinfectant product by the brand name of CORORID. So a part of the IPA is going into CORORID and CORORID in turn is also being used or being -- we are finding markets where there is -- there are better margins available because the efficacy of the disinfect made through our IPA or through the IPA route is getting better prices compared to the ethanol-based disinfectant, particularly given the application of these into hospital segments or the segments where the disinfection or efficacy is important. So from that perspective, our -- the idea of -- while we would always have competition with the imported IPA and even with the local IPA, the end-user application of our IPA, given the certain characteristics of IPA that gets produced from our plant, which is through propylene booth, we are trying to find -- and we are working on various applications where the margins of IPA are better than the margins that we get in the commodity IPA.

Sir just last question. Do you plan to add capacities in the IPA because the input is still going very strong.

So in IPA, we are evaluating the option of acetone-based IPA, but there is nothing that right now has reached a stage where we have approved any CapEx.

[Operator Instructions] The next question is from the line of [ Neeraj Pahlajani ] from Reliance Industries.

Congratulation on great set of numbers. I have only 1 question regarding TAN business. So basically, this is being used in [ extraction ] in the mines for coal extraction and all. So it is majorly used for coal extraction only or for other minerals also, like nickel and cobalt or any other minerals? So where all exactly it is being used apart from coal extraction?

So this is going for both coal and noncoal segments. In noncoal, practically all the minerals, all the metals, wherever there is a requirement of renewal of overburden. TAN or TAN-based explosives are the cheapest form of chemical energy that can be used to remove the overburden. So it doesn't really differentiate in terms of what the mineral is, so long as there is an overburden removal requirement, with -- TAN would typically be used for blasting solution. Also, in the limestone sort of mines, which essentially then goes into cement. Likewise, various stone quarries, which are -- actually, there are, practically, thousands of stone quarries, it's a sector which is highly localized and disintegrated. So all the stone quarries, which essentially removed the stone chip for any construction activity, particularly the infrastructure segment. There also TAN is used the explosive or basically TAN-based explosives are used for blasting solutions. So it's infrastructure, cement, steel, other minerals, coal. It's across all of these mining segments.

Okay. Okay. Just 1 follow-up question on this. Sir, what percentage approximately would be reduced on a coal versus noncoal extraction? Any ballpark idea or numbers on that?

Well, roughly, so it's very difficult because we also sell -- we can do the dealer segment and in turn dealer segment would be catering to both coal and noncoal. So it's always difficult to trace every molecule of TAN just to really assess where exactly it's going. But ballpark, I think 55% to 60% would go into coal and rest in noncoal.

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

First of all, just wanted to get the current gross and net debt numbers if you have them handy with you? And also what the cash from operations has been YTD?

So that's something -- Deepak, if you have the numbers, what I am -- the number that is there in my head is we have reduced the net debt by another roughly INR 240-odd crores compared to I think March '21. So there is that much of reduction. But gross debt, and Suparas, if you have the gross debt and net debt numbers, if you can indicate. I think around about INR 2,200 crores of gross debt. And I think net debt now is more or less -- I think exact number I wouldn't know because this is not the quarter where we draw the balance sheet. But we -- like I said, we have reduced net debt is down by about INR 240 crores compared to March...

So net debt is around about INR 1,500 crores.

Okay. That's helpful. And just one last...

Yes, it was roughly at INR 1,826 crores, [indiscernible] in March, and it has come down to INR 1,571 crore. So that's, as Amitabh mentioned, this time we aren't reporting balance sheet, that's not the [ provided ] number.

Got it. One last thing, and I'll come back in the queue. Just wanted to get your outlook for the fertilizer and the IPA business margins going forward? Should we expect those to remain under pressure for at least the foreseeable future? And then conversely in TAN, I know right now the market situation is very tight. But if we take a slightly more medium-term view, what kind of spreads should we work with? Or margins should we work with, and a normalized margin, I mean? And by when do you think it will return to that sort of normalcy?

Then the million-dollar question is, when do we expect the raw material prices? And what happened to -- for that matter, even the gas prices in Europe, spot prices in Europe to normalize. I think these are some of the factors that would continue to keep as we keep on guessing in terms of what happens to raw material prices and therefore, consequently to even to really finish with the price of goods, which are impacted by these raw materials like gas and ammonia. That said, I think fundamentally, as far as the fertilizer is concerned, look, we had, as you know, barring the last quarter. Before that, almost 6 to 8 quarters, we were -- are actually numbers at EBIT level, segment level in fertilizers continue to show improvement. But in the last quarter, there are 2 impacts that happen, that is the availability of raw material itself and also then because there was sharp increases in the raw material prices, the ability to pass them on in the product, end product, is also limited. And therefore, that can only happen with certain lag. So to that extent, we believe that once we -- this kind of aberrations are over in the raw material prices in the sharp tactically week-to-week increase in raw material prices, we are going to get back to our earlier trajectory in terms of our EBIT numbers. In fact, there, some of the initiatives that we've taken in last quarter, and we are further sort of working on those initiatives in this quarter, would from a medium- to long-term perspective, would improve our margins because now we have -- last quarter, we've launched Croptek, which is crop-specific nutrient in the last quarter. We are further launching variants of those Croptek, [ adjacent ] crops in the coming quarter -- in this quarter as well as the quarters which are in the next year. So to that extent, we are moving more and more in terms of value-added products, differentiated products. There, in general, the idea is also as much as these products will provide additional sort of benefits to the farmers in terms of the yield and produce quality, we are hopeful that we would also be able to get better margins in these products. So the journey in terms of differentiation has continued and the few steps that we've taken last quarter and this quarter, would go and further strengthen that strategic drive. But the raw material price aberrations that we saw last quarter, hopefully, on those aberrations are over, we are back to our EBIT trajectory that we had shown in previous 6 to 8 quarters. And mind it that volume-wise we, this year, again, in a way, 9 months, I think the numbers are by and large similar to last year. But we had the capacity which we could not utilize because of not having enough access to raw material due to those disruptions. So the raw material -- or the capacity utilization aspect of margin, that journey will continue as we also parallelly move our product portfolio to more and more differentiated product portfolio.

The next question is from the line of Parin Gala from SageOne Investment.

Sir, 2 questions. One is that one of the competitors have just announced a new TAN capacity accrual at 20, a couple of days back. Sir, just wanted to understand now in FY '25 rather with our capacities coming close. Are we looking at a scenario of a little bit of oversupply going forward?

See, one is, if you look at overall demand supply in Indian context, given the kind of -- we are seeing the growth as far as overburden removal requirement in coal sector is concerned. Or for that matter, the likely growth in cement, steel and infrastructure. We believe that TAN demand will remain strong. Now if you see almost every 3 years or so, roughly about 2 to 2.5 that additional TAN demand gets created. So basically for -- if you look at every 4 to 5 years, there is -- and one additional TAN world-class TAN capacity needs to be created in the country. So as such, I have no understanding of when the capacity that was announced by the competition that as you have mentioned, what is the time frame for that. But as far as our capacity expansion is concerned, we are on track to bridge the demand. By which time, like I said, given the growth that we are seeing in each of these end-user segments, there would be the gap that would start getting created again. So I in enforceable future, I don't see a situation where a country would completely stop importing TAN. And to that extent, I don't anticipate that there would be an excess supply kind of situation. Even if it does, we have in the past and we continue to export TAN to neighboring countries and therefore, given we are a coastal plant as far as Gopalpur is concerned and municipality is concerned. Our ability to export to the neighboring market or any temporary access that is there in the country continues to be strong. And particularly when we have established our product in the international market from the point of view of the marketing network, the logistics team and even the quality of that product. So it's very basic [ contingence ] of what timeline the other players have for their capacity. I'm not able to -- beyond this, I'm not able to give any commentary.

Sir, how is the import right now of TAN in the country?

Typically, it varies from 200,000 tonnes to 250,000 tonnes, it can, depending on the demand supply or a particular -- year-to-year, it can be in that range.

Okay. Sir last question on my side. One of your end-user industries, the exclusives, one of India's largest [ guys ] had call in the morning, and they guided a volume growth of 15% for FY '23. I mean that was very hearting to hear. So sir, are you getting that kind of a sense for the year from your clients and end user industries? And could these volumes that we are talking about, could exceed actually the expectations?

So when we are -- we also track the end user segment. And like I was earlier mentioning that we've seen in the last quarter the overburden removal requirement coming from CIL and its subsidiary has been quite encouraging. As of now, the effect of -- and again, this is from the point of view of TAN, the effect of infrastructure growth or investment that the country is talking about, it has not yet started reflecting in the infrastructure segment of our end user segment. And that is one gap in a way which we believe in a matter of time, that gap would get breached, and therefore, we would start seeing the effect of that coming into the overall demand. Cement, steel, again, would require both the sectors would also require blasting solutions. So with -- other than in infrastructure today, we are right now seeing the effect of this demand coming from all other end segments and in turn also infrastructure starts showing that upturn. There is certainly a possibility of strong demand coming from end user segment. I mean, we are already -- we are seeing that, and we saw that even in this last quarter. And that good trajectory could continue.

The next question is from the line of Agam Shah, Individual Investor.

My question just got answered, I just had a question on the competitor itself. So all the best.

The next question is from the line of Kenil Mehta from Omkara Capital.

Am I audible?

I'm sorry, sir can you please speak slightly little louder?

Am I audible?

Yes, please go ahead.

Sir, my question is, was the TAN demand increasing due to the increase in production by Coal India due to shortage of coal inventory and power plants across the country, which we believe led to a power shortage across the country?

I can't get your question. You it was -- was that a statement or you were asking the question. I didn't really get your question.

I was asking the question, was it due to the increase in decreasing inventory of coal at power plants, which led to increase in production for Coal India. So it could be a one-off event for us also in TAN capacity utilization levels.

See, one is, fundamentally, if you have been and been sort of watching Government of India's health reliance initiatives, even government is encouraging a higher coal production and reduce dependence on the imported coal in general. Now that would mean that Coal India and its subsidiaries will continue to have higher targets as far as the coal production is concerned. The second aspect that is driving the demand of TAN within coal is also the overburden removal requirement. So even for the sales per ton of coal production, the overburden removal requirement would continue to grow because you are now getting into deeper and deeper mines. And to that extent, even if the coal production grows with X percent, the requirement for TAN and blasting solution is likely to grow with X plus percent in the segment because the overburden removal requirement is growing. So that is one aspect. The second aspect that I'm sure you must also be keeping track of is that even government is now looking at mining, coal mining in the private sector, where private sector has been now allowed to mine coals for commercial purposes, meaning that beyond one-to-one captive purpose, it is now also being allowed for commercial properties. So that is going to see increased requirements of blasting solutions from private sector in the mining segment. So as such, that is, of course, the -- I'm only talking about the whole aspect of it, but the other segments, which I just -- I also mentioned earlier that it caters to all minerals, cement as well as the infrastructure segment. So it is not just coal, but the noncoal is as much as 40% or 40%-plus in the TAN demand. And to that extent, TAN demand, we continue to be bullish about the demand of TAN.

But do you think this 110% utilization level has been maintaining quarter 4 and upcoming few quarters? Because over last few years, we have never maintained 100% above -- 100%more than one time.

So see, last 2 years have also been -- there's been -- so first of all, within the year, second quarter is a lean quarter. And to that extent, because the mining activities are subdued, we see Q3 and Q4 are the quarters when the TAN demand increase. The second aspect is that in -- as far as FY '19 and FY '20 are concerned or for that matter '20 and '21. In '20, we saw significant flooding in Coal India mines. And therefore, the production which normally starts by October started only by mid-December or end December. So we saw some demand getting lost in the coal segment in FY '20. And FY '21 saw the effect of COVID and therefore, in the first quarter, particularly from infrastructure and cement segment, the activities were very, very low. So these 2 years has exceptional situations. But if you go back to years before that, that is FY '19, we did almost -- I don't recollect the number, but somewhere around 510,000-odd, 506,000-odd tonnes of production. So it is -- if there are no force majeure or exceptional situation, more than 100% capacity utilization for TAN is pretty much would be the norm.

Also, the major margin there for this quarter will be TAN, because of operating leverage?

In this quarter, you are saying?

Yes, in this quarter.

Yes. In this quarter, plan has contributed significantly to overall margins.

The next question is from the line of [ Manish ] from Hansraj Virendra Capital.

Congratulations for good set of numbers. I would like to know more about the environment-friendly initiatives if you are taking any? Like a water treatment system in your plants or a waste management system?

Yes. So one is the new CapEx that is coming up in Taloja, this is ammonia. We are going with 0 liquid discharge, Therefore, practically, there would not be any liquid discharge that would be going out of the plant. Also, as far as our Taloja existing plant is concerned, while we do kind of link our discharge with the centralized effluent treatment plant. We -- the outlet of our plant actually is well within the norms or below norms. And therefore, the discharge that we tended to central effluent treatment plant goes to, in a way, dilute overall discharge that goes on the downstream of CEPT. So in a way, as far as our current operations or even the future operations that are going to come, liquid discharge is pretty much something that we are perhaps we follow the norms which are better than the norms that are strategically applicable to us. As far as the air emission norms are concerned, we have taken certain initiatives in terms of -- though the regulation doesn't mandate, we are taking certain CapEx initiatives to reduce the NOx emission from our asset plants. And that process is on. We would start with one plant and then gradually move to the other plant. That's the second aspect. I think other than that, like I said, we are even over a period of time, our water requirement, per ton of production of our Taloja manufacturing facility, our water requirements, we have gradually improved, whether it is the leakages, whether it is 0 liquid discharge or any of those measures. So we are not just -- as a manufacturing facility, not just remaining within the statutory norm, but we are going beyond statutory norms. As you know, IFC is also one of our investors in our company. And IFCs, you might be aware that they typically also look at the emission norms or the environment norms way beyond what is there as per the local regulation. So in some sense, we are -- the fact that we have been -- the IFC, we've sort of gone through the detailed due diligence on environmental issues, it only puts another stamp of approval that our norms or our sort of standards are almost sort of global standards from the point of view of emission norms.

The next question is from the line of [ Mayur ] from Profitmart Securities.

Congratulations for the good digits. I just want to ask what are the short-term and the long-term goals through our company? And are we planning anything for the next quarter and year, which will help in business for more growth?

So I think, our Chairman, did mention, Mr. Mehta did mention a few aspects, which we said are in effect, those are the initiatives that we've been working on, and we would continue to work. And some of the numbers that you are seeing are part of -- or as a result of some of those initiatives. One aspect that we've been sort of been discussing with investors and in our earnings calls as well as -- otherwise, is overall, on one hand, there is a backward integration through ammonia project. The second is the expansion of our plant capacity. So these are 2 CapEx's that we are immediately working on and completing these projects within the time and cost that we expect for ourselves is one of the key objectives that we are currently working on. The second aspect that Chairman also mentioned is that we are gradually going down the route of differentiating our products more and more from an end user segment perspective as well as sort of moving from product to product plus solution. So that's a journey also that is on in each of these product segments. In Fertilizer, for example, the launching of Croptek in technical ammonium nitrate, where we are looking at providing blasting solutions to our consumers directly. And in case of IPA, for example, moving to more and more high margin end user segment. So this whole movement or transition from commodity to specialty or from product to product plus solution is another strategic objective that we are working on. And the third one that Chairman also mentioned is that we are trying to bring in more and more technology into our operations. Being it artificial intelligence or drone-based work that we are doing with our consumers in the mining segment or for that matter, various new products that we are coming up with which are very, very crop-specific it's inclusion of micronutrients, catering to specific crops. So these are the other initiatives, which -- where we are -- our interaction with our customers are becoming more and more digital. And then, of course, there are 3 digital initiatives within the organization, where we are doing some business process reengineering to improve all our various functions, whether it is finance or the sales and marketing or smart factory. So these are various digital initiatives that we've taken internally also to improve our efficiency.

The next question is from the line of Aditya Chheda from InCred Asset Management.

Two questions from my end. One, what has changed in the working capital where we have significantly improved on the working capital days? And second, I would like to understand the TAN business better as to what are the raw materials which are used like in percentages, if you can ascribe? And what is the -- basically the cycle of sourcing and subsequently selling the finished goods product?

So 1 is fundamentally in each of our product segment across -- first of all, given that our -- a lot of our operations are integrated, the raw material sourcing is common. And to that extent, from a working capital standpoint, getting better credit from our suppliers is one initiative that we have worked on. The second is in the marketplace, as far as finished goods are concerned, we are more and more moving towards, I would say, reducing the credit as much as in some of the raw materials, there are challenges today in terms of supply side to -- we are also requesting our end consumers to reduce the overall credit cycle. So there in terms of increasing our overall cash sales increasing the sale that is based on LCs from our customers. These are some of the aspects where overall, we are, on one hand, trying to improve our overall credit debt that we get from our suppliers at the same time, improve the overall working capital cycle in each of these products that we supply to the market. What was your second question related to raw material?

On the TAN, basically, I just wanted the breakdown of the raw material in percentages. And basically, for example, how is the sourcing strategy? And subsequently, for example, when we source and whatever price we have, how do we pass it on basically the time line of sourcing to finished goods? And the percentage is of basically bifurcation of raw material used for TAN?

So, one is typically in TAN today, our conversion cycles, cash conversion cycle would be somewhere in the region of 15 days. So overall, while -- again, like I said, the raw material sourcing is common, the ammonia that we source it gets utilized for nitric acid, for TAN and for fertilizer. So to that extent, there is common sourcing of raw material and [indiscernible] any credit TANs that we get, in a way, apply to all the sectors. But in all of these sectors, the cash conversion cycle or the credit period extended to our customers is different depending on whether it's a B2C kind of market or B2B market.

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

Congratulations on good set of numbers. Sir, just one question on the raw material, which is used for TAN. I actually use both ammonia as well as our LNG. And the competition is planning to put a plant might be using the [ coal ] gas. So if you can explain in terms of competitiveness, how are you in terms of like material, how are you placed versus the new [ share ]?

So I have -- like I said, I do not have the visibility on the project that has been announced by the other players. And to that extent, it's not fair for me to comment on what is the basis of what are the raw material and sourcing. What I can comment on is that as far as we are concerned, we produced part of our ammonia ourselves. We have about 130,000-odd tonnes of capacity in-house. We are -- once our ammonia project comes up, we would have the capacity of 0.5 million tonnes per annum. And to that extent, we have Taloja facility, and our requirement of ammonia in Taloja and Dahej would be completely produced in-house. Today, other than our own production to the in-house ammonia plant, we also import ammonia. And to that extent, our ammonia as a raw material is a combination of our own production and import. And our own production is based on our LNG that we buy from gas aggregators. In TAN, and therefore, whatever ammonia that goes at the point in time is a weighted average of the function of both domestic -- of our own in-house production cost and imported landed cost of ammonia.Now like I said, I have absolutely no idea what is the basis of the raw material sourcing strategy that the competition would have for the capacity that we [ had ].

Sir, just one question. For this quarter, the -- what is your gas cost for manufacturing this 130,000? The gas cost for this?

[ 30 ].

[Foreign Language].

Suparas, would you have the number?

Broadly.

So what happens is -- I mean just to answer your question, I can come to that specific. But we have our gas contracts are a combination of spot gas as well as some long-term contracts, and this long-term contract could be linked with Brent prices as well as -- and you have the U.S. gas price benchmark. So as such, it could be a combination of these 3. And these 3 -- all 3 prices can move slightly different from each other. But if I look at, let's say, December quarter, the prices of gas is roughly about INR 34 per standard cubic meter.

INR 34 rupees or USD 34?

Standard cubic meter.

No. USD 34 is it?

No, no. Rupees per standard cubic meter. US dollars would have...

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

So I would like to know like what's the current capacity utilization of TAN? And do you know the new CapEx, which is inaugurated recently, that gets completed is in a good shape to accommodate the growth in that sector?

So the capacity utilization in TAN in this year, 9 months, has been overall, I think, 100%. In Q3, it was 110-odd percent. If you see proportionate, if you divide the capacity proportionately for the quarter. But on a full year basis, 100% capacity utilization. So we do have some capacity or headroom sitting in the existing capacity space. We have also indicated in our earlier discussion that we are currently also working on debottlenecking of our TAN plant. And that should free up additional capacity. So until the Gopalpur capacity comes up, you would see certain freeing up of capacity, a debottlenecking of capacity from our Taloja plant.

Sure. That's great. And in the last con call or in the media, I think Mr. Sailesh mentioned that you have a noncore asset in the Pune worth of, if I'm not wrong, INR 700 crores, and there is a plan to liquidate that. So is that plan still on? And any process on that.

No, I think I have answered this question earlier. As of now, since the last discussions there is no further progress. But that is pretty much something that as a noncore, it's -- and I said that we, at the right time, would like to bring that capital back into the core business.

Sure. And last question on the agricultural sector. It looks like the Deepak Fertilisers is pretty much very famous in the Maharashtra region and others -- I'm not sure exactly in other states. What are the plans to extend your products to other states where your product is not so much familiar. So are there any efforts going on in that direction?

So see Maharashtra is definitely our core state, but our core command area the way we define ourselves is Maharashtra, Karnataka, Gujarat. So we are -- we have strong presence in these 3 states. We are also now present in other states like Andhra, Telangana, MP and even in the northern states. The thing is in fertilizer, as you know, the overall transport economics play a significant role as far as the net margins are concerned. So to that extent, if you are able to sell your volume closer to your production facility, you have better transportation economics. And therefore, as we increase our capacity utilization, since we already have now presence in states other than these 3 states of Maharashtra, Karnataka, Gujarat into AP, Telangana, MP and other states. We would, obviously, more and more products will really find its route to these states as well.

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Pratik, please go ahead.

On behalf of Systematix, I would like to thank the management for this call and also to all the investors who logged in. I'd like to hand it over back to Mr. Bhargava for his closing comments.

Well, thank you, everyone, for your participation for any further queries or clarifications we are available. You can get in touch with our investor relationship team. I wish all of you a safe and healthy time go ahead -- going ahead. Thank you so much for your participation. Thank you.

On behalf of Systematix Institutional Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.