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

Once again, a very good morning to all of you, and a very warm welcome to the 43rd AGM. And on behalf of the Board of Directors, I would like to share my gratitude to all of you for finding the time and joining us in the AGM. I hope you have had a chance to look through the annual report, which has been circulated in the soft version. To broadly share, basically, we -- as you are all aware the Indian economy demonstrated a great deal of resilience against some of the most unprecedented massive global challenges that we saw in this year that went by. And thanks to the government [ CapEx ], the private sector consumption that we continue to be on the fastest-growing economies in the world. From a macro perspective, Deepak Fertilisers also faced some unprecedented, I would say, price hikes in all its raw materials and even from 60% to 90%. But leveraging on our industry knowledge, our relationship with our customers, we would navigate all of these uncertainties and absorb these price shocks and take us through this difficult period. And despite these kind of unprecedented challenges, what we saw for a few weeks from an [ outside-in ] perspective and [ inside-out ] perspective; from the [ outside-in ] perspective, we saw that we have very few beautiful alignment in all our 3 businesses that India [ grows ] to be, whether it is fertilizers, mining chemicals or industrial chemicals. And this got validated even during this kind of -- during the volatile period, where we also had to enhance our prices substantially in order to pass through the [ obstacles ]. But despite those kinds of price hikes, there was no demand [ destruction ]. And that was a very strong validation that our alignment of all the 3 businesses, India -- with India growth story, is a very strong foundation that the company has. From the [ inside-out ] perspective, we saw that all the [indiscernible] total in terms of setting up good systems, SOPs, bringing in competent people, all of that stood the test of time. And despite all these [indiscernible] and volatilities, we could sail through with manufacturing, marketing, driving through all these strategies. With this, I'm very pleased to share with all the shareholders our remarkable financial accomplishments in the year that went by. In FY '23, we actually achieved historical milestones and the best of our performance in the last 44 years. Our consolidated revenues top line from operations surged by 47%, and we crossed INR 11,000 crore mark. Our net profit recorded an impressive growth of [ 78% ], reaching INR 1,221 crores. Operating EBITDA also saw a significant rise of 60% and touched INR 2,165 crores. Our gross debt to equity stood at approximately 0.71x. So a very, very healthy, very robust financial performance. And all the 3 business segments, the Crop Nutrition, Industrial Chemicals and Mining Chemicals, demonstrated healthy performance. And the Chemicals segment [indiscernible] Mining Chemicals and Industrial chemicals contributed 85% to the profits and also achieved a substantial 40% increase in the total revenueand the fertilizer business reported an impressive [ 59% ] rise in the total revenues. So given the exceptional and record-breaking performance, I'm delighted to share that the Board has recommended a dividend of 100% on a face value of INR 10 per share. Our FY '23 also was a year of a lot of critical strategic initiatives that got results. And they are taking as [indiscernible] to a different level of performance and growth. [indiscernible] share that we were in a position to commission our world-scale ammonia plant based on the world's best technologies and with the capacity of 0.5 million tonnes, 5 lakh tonnes per annum, the most latest energy-efficient and low-emission technology. Ammonia, as you are all aware, somewhere contributes to almost 85% of our raw materials for all our 3 businesses. And so it's a very critical material. And while bringing it in the [ group fold ], we've been able to now contain a variety of potential volatilities that otherwise were emerging when we were looking at, [ basing ] all our downstream on imported ammonia. Besides risk mitigating as far as the supply goals, we are also in a position to bring a very strong impact on reducing the carbon footprint by removing the [ ocean ] movement of the imported ammonia. But much more, we would have had to bring in around 25,000, 30,000 road tankers from JNPT to Taloja. And all that pollution is now going to be removed, which would otherwise [ have an impact on ] human consumption level. In addition, this initiative is very were aligned with the government's AatmaNirbhar, self-sufficiency, import substitution strategy. And over a turn of 10-year period, we would be [indiscernible] almost INR 20,000 crores by the way of AatmaNirbhar import substitution by this ammonia plant. Further building on to the strengths that we have in the Mining Chemicals, Technical Ammonium Nitrate space, we have now taken up a project, which will add to the capacities of our Technical Ammonium Nitrate with an additional capacity of 8.5 lakh tonnes at an investment of around INR 2,200 crores. Now, with the addition of this, we will almost touch 1 million tonnes of Technical Ammonium Nitrate for the mining sector. And we will start being apart of the global top 3 as far as the ammonium nitrate for the mining sector goes. The project is in -- it starts moving project execution stage, and we hope to commission it by second half of FY '26. Additionally, you would have also read that very recently [ unveiled ] our brownfield expansion of our nitric acid complex at Dahej. And this expansion includes weak nitric acid with around 3 lakh tonnes capacity and 2 concentrated nitric acid plants with a combined capacity of 1.5 lakh tonnes. This strategic move is to address the growing demand/supply gap and of course, leveraging over the last 3 decades, 4 decades of experience in this field. And this also aligns very well with our goal to become Asia's largest in nitric acid post this expansion. I must share that this growth in the nitric acid business comes on the back of a 20-year supply alliance agreement that we have signed with [ RP Industries ] for the nitric acid. And this arrangement itself is [ given ] around INR 8,000 crores of revenue over the 20-year period. Now what we were saying was that as each of our businesses now has attained a size, which is a very respectable size, in order to unleash further in terms of -- and make further inroads in terms of the various business they are [ into ], the Board has taken a call to have a strategic reorganization, restructure it into now distinct corporate entities, where each corporate entity would house a specific business. So for that matter, the Chemicals business will be retained in Deepak Fertilisers with listed company. And Smartchem, which had 2 businesses, will now get demerged into Mahadhan Agritech Limited, which will house our Crop Nutrition business and fertilizer business; and Deepak Mining Solutions, which will house our Technical Ammonium Nitrate and ammonia business. With this, what we will be seeing is a strong top to bottom, all right from the Board level to the lowest officer, all of them will be focused on a specific business need and align the strategies, the working philosophies, the work culture, all to suit at specific sector and industry. We are just going to -- again, their focus is going to give a lot of trust and [indiscernible] in terms of the actions that are required in those sectors. With that said, we are also seeing that from an [ outside-in ] perspective, it will bring in business-specific investors and strategic investors who are more tuned into whichever specific sector. And from that perspective also, it will help unwind and unleash the potential of each of these businesses. The process of the demerger is expected to be concluded by the end of Q3 this year. From an [ outside-in ] perspective, we have also this year brought an online ESG profile platform, where we are sharing a lot of things that we are doing on the ESG front. And this will also be our first year where we are sharing the business responsibility and sustainability report, which comprehensively covers very critical aspects beyond the pure financial dimensions. And I'm also happy to share that our shareholder base, has now -- is almost, I think, 2 lakhs. We are very happy with the growing family. And almost 20% of our [ holding ] is from institutional shareholders. So that adds a very robust kind of a profile. Looking forward, I would like to share that we have taken up a strategic path, a truly transformationally path, for all 3 of our business, where we are looking at now moving from commodity orientation to somewhere specialty orientation or somewhere bringing in -- shifting the focus from pure product orientation to somewhere complete, holistic solutions. So for instance, in the fertilizer business from a commodity NPK, the thrust is now going to be on crop-specific nutrient [ baskets ], meaning rather than the NPKs, we will be making nutrient specifically for the sugarcane sector, specifically for cotton [indiscernible], specifically for fruits and vegetables. In the mining sector, instead of selling Technical Ammonium Nitrate, now we will be bringing in the world's best blasting technologies and helping actually mines to raise the mine productivity levels as a part of our holistic offering. Even in the case of Industrial Chemicals, instead of making commodity nitric acid, we are now making specialty nitric acid for the solar industry or for the steel [ grade ] industry and moving ourselves from commodity to specialty chemicals. Internally, we are also now putting a lot of emphasis on IT- and AI-enabled driving push and improvement in management, whether it comes to understanding and predicting customer needs or utilizing the algorithms for demand planning or somewhere complete GPS track, supply chain management or completely IT-driven sales and operation planning, which is bringing a huge robustness in our systems, plus a complete move towards management controls based on IT dashboards. And I see a lot of initiatives in terms of the smart factory to bringing in more refined controls to make sure that efficiency levels are then moved towards [ world-scale ] benchmarks. So we always put together in terms of the CapEx plans, the strategy -- growth strategies and the thrust in terms of improvement in management. We are looking forward to taking your company to the next levels of performance and of course, continue to provide attractive yields for all our shareholders. Before I conclude, I would like to thank our valuable customers, business associates, banks and financial institutions, central and state government and above all, you, our shareholders, for being with us all through the journey. I would also like to express my sincere gratitude to the entire Deepak Fertilisers' management team for helping us deliver these exemplary results despite all the challenges. And last but not the least, I would like to thank all my colleagues on the Board for their ever-available, unstinted support. My very best wishes to all of you and your families. Thank you. So I would now like to request Mr. Deepak Rastogi, our CFO of the company, to share more regular final details of the operations and growth.

Yes. Thank you so much. This is my privilege and honor to speak to you at 43rd Annual General Meeting of Deepak Fertilisers. On behalf of the Board, I would like to thank all the shareholders for attending the AGM. Now I will actually move towards updates -- providing updates and accomplishments of the company for the last fiscal. Next slide, please. Deepak Fertilisers is a listed company, and it operates as in 4 states, has 4 manufacturing plants: Taloja, which is in Maharashtra; Dahej, which is in Gujarat; Srikakulam, which is in Andhra Pradesh; and Panipat, which is in Haryana. You can see that we basically have a very strong position in Technical Ammonium Nitrate, which is the mining of our business. We basically operate in Industrial Chemicals as well as Crop Nutrition business, which is our fertilizer business. And the company supports critical sectors of the economy, which is fully hooked up with infrastructure, chemicals, pharmaceuticals and agriculture sector. Next slide, please. Well, last fiscal was a remarkable year. We actually had the highest of our profits as well as revenue. You can see the revenues have actually grown by 47% versus last year to INR 11,301 crores. PAT also increased by [ 78% ] to INR 1,221 crores versus last year. And this is at the backdrop of the unprecedented volatility, which actually the raw material prices have seen, which actually also pulls up the [indiscernible] prices. But we actually saw no change in the demand obviously. And that was the reason why we were able to deliver this. Now to give you some slightly more granular details. The revenue, we have the Chemicals business, which basically accounts for almost 57% of revenues. And fertilizers business accounts for 43%. From a profitability perspective, the profits of Chemicals business actually accounts for 85%, and the fertilizers business accounts for 15% of profitability. We are in a very healthy situation in terms of net debt. We ended our net debt at INR 2,500 crores and with the net debt equity ratio of 0.28x versus mostly [ 0.35x ] of previous year. Next slide, please. So as we [indiscernible] of the company, we have been transitioning from -- moving from commodity space to specialty. We have also been taking steps to become a service -- overall solution provider as just opposed to a product supplier. The other thing which we have also [ delved consciously ], we are actually moving closer to the customer. So I take an example for Crop Nutrition business. There, we have actually [ launched ] and implemented very high-efficiency, differentiated fertilizers, which are [ integrated ] under the brand of Smartek. We have also launched crop nutrients solutions, which are regionally crop specific. So this year, we actually launched cotton as [indiscernible] under Croptek and obviously, enhancing the experience of farmers in [ onion ], sugarcane and maize. As far as Smartek is concerned, we have [ crop ] close to 1.4 million metric tonnes of sales so far since its inception. When I come to TAN business, which is Technical Ammonium Nitrate business, we have been working closely with the customers, providing them the customized [ technologies ], solutions and bringing them the overall holistic solutions to them, where we have actually delivered multiple total [ cost ] of ownership, productivity improvement projects for our mining as well as non-mining customers. We have also [ backed ] a large [ down ] to home, which is of value-increase approach for our customers. And this will be the first in its kind, and we are going to do the [ ANFO ] supply contract, and this is through a private sector for mining companies. As far as the Industrial Chemicals business is concerned, we are actually going very, very specific to the industry. We are supplying nitric acid, which are specific to the solar grade. We are also trying to commercialize the steel grade as well as the electronic suite. As we speak, we just launched [indiscernible] for our IPA, which is pharmaceutical grade. And we have also differentiated [indiscernible] differentiating IPA for other usages. We have also completed commercial production, commercial trials for pharma-grade [indiscernible]. Next, slide please. So Deepak Fertilisers have more than 40 years of experience and is one of leading manufacturing -- manufacturer of industrial chemicals as well fertilizers. As far as Chemicals segment is concerned, we basically had -- we have a market share of 40% in TAN business, which basically improves high-density ammonium nitrate, low-density ammonium nitrate and [Indiscernible]. We are the only manufacturer of prilled and medical-grade ammonium nitrate. We are also the highest manufacturers of nitric acid in Southeast Asia, and we continue to have a leading share in IPA. As far as fertilizers segment is concerned, we have a leadership position in ANP and NPK in Maharashtra, which is around 12%. And we basically are one of the supplier which supply very much crop-specific and innovative products to the customer under the brand name of Croptek as well as -- Croptek and Smartek. Next slide, please. So as we go through the journey of transformation, we have basically taken certain actions during the year since last AGM. And I won't talk about each of them of that. Like we discussed about corporate restructuring, which is nothing but we are trying to demerge our [ TAN ] business from the fertilizer business. And what it does is that it actually helps us unlocking the true potential of each of the businesses. And it also brings a focused strategy we will be able to deliver -- each business would be able to deliver the true potential. The other thing it will do is that it will also bring independent business opportunities and attract the investors as well as technical partners, which will be helpful. And we think that it would actually add overall value to our shareholders. As far as the commercial production of ammonia is concerned, as you know that it is predominantly for our -- because it's a key ingredient for all of our businesses and we basically wanted to get away from the volatility and the supply chain [ irregularities ], and hence, we have invested. As we basically -- as we commence our commercial production, the plant has one of the best technology, which is the state-of-art technology. It also consumes the most -- almost 15% less energy versus -- and obviously, it also reduces NOx. As far as the nitric acid is concerned, it is a brownfield expansion. We have just announced that we will be investing close to INR 1,900 crores. So this is predominantly at a backdrop of the growth and bridging the gap for our captive consumption as well as overall Indian economy will be growing. So in the next slide, please, I will just explain, obviously, much more of detail. So as I said, ammonium plant, it is 500,000 metric tonnes capacity. It is obviously help us to save ForEx, and it aligns very well with the India AatmaNirbhar story so that we are able to generate employment as well as, obviously, it will be for captive consumption. We have also -- obviously -- and this growth comes from the backward integration because we have going to be -- we will be -- most of the -- currently, we have around 80% of the imports, which were bought out ammonia, which was coming before the plant. And going forward, we will have 100% of captive consumption, plus there will be some surplus, which we will be able to share with and sell it outside. So we would serve majority of capital needs and mitigating price volatility and global supply [ irregularities ] after this plant coming in. Next slide, please. So we have invested -- for nitric acid, we have invested close to INR 1,950 crores. Obviously, this is our -- out of the demand/supply gap for DFPCL for WNA. Currently, we see a demand/supply gap of around 140 kg per metric tonnes, which will actually increase to almost 330 kg metric tonnes by 2030. Similarly for CNA, we basically have -- India has a supply gap of close to 85 metric -- kg per annum, which will actually increase to 300 kg per annum. So the company would like to leverage its leadership position in CNA segment. The expansion is well aligned with evolving landscape, demands from downstream sectors and committed long-term offtakes driven by China Plus One trend for specialty sector. So overall, ammonia [ prominent ] subsidiary because we will be able to provide sustainable supply of raw material irregularities and obviously [indiscernible] situation for both the projects as well as the ammonia subsidiary, which we basically have to improve. The [indiscernible] is actually in sometimes in October '25. Next slide, please. So from restructuring perspective, what we are doing is that, currently, the Industrial Chemicals business, the Mining Chemicals business and CNA business, which is the fertilizers business and [indiscernible] then what we did was we've bought a subsidiary, which is parts of Smartchem. And now that new name and we've this partner renaming, which is Mahadhan Agritech. And this Mahadhan Agritech will have -- Mining business will get demerged into a new company, which is Deepak Mining Solutions. As we speak, we are already expecting this transaction of NCLT approval to come in Q3 of this year, which is like somewhat we are expecting to close this transaction. We expect that this will be beneficial -- obviously, beneficial for our all the existing shareholders because it will benefit the continued participation of our growth-oriented businesses operations, and we retain our renewed focus on growing each business vertically uniquely and strategically. Next slide, please. So as when we are going through our strategy of transformation journey, the critical part of deliver our sustainable results is we are focusing a lot in terms of digitization. We have actually tried to eradicate most of the manual efforts, which will take on a day-to-day basis. So S4 HANA effectively has integrated all the core business processes. And effectively, we have created a single source of [ goods ] for the company. We are also in the process of adopting industry for [indiscernible], which is also called as smart factory, which will help us harvest manufacturing value chain as well as creating operational excellence at our manufacturing plant, which means that we are all collecting the data from the manufacturing plant, doing preventive maintenance, conditioning monitoring and obviously all the analysis which goes by. We are also implementing a lot of algorithms to deliver and obviously, take estimations for our demand planning, supply chain requirements. And it also helps us to understand what are the needs of the customer so that we can plan, manage that in advance, and we are ready for the product to supply. We also have a dashboard-based management control system so that the manager does not have to go through the details. He or she would be able to get those details at the click of the button, which comes to him or her on a regular basis. Next slide, please. So our focus is on investor relationships to help foster strong relations with the shareholders. We have also strengthened our relationship and nourish the [indiscernible] to wonderful investors, we take plant visits and international roadshows. Over the past years, we have seen significant growth in our shareholders base as well as institutional ownerships. The company basically have announced a dividend of INR 10, which is, obviously, a significant growth versus previous years. And we have also improved our [indiscernible] heading to 401 as we speak now. The market cap [ parity ] of the company is closer to 7,500, closer to almost $1 billion [indiscernible]. And we have also got the ESG online platform on the company website, which aims to provide accessible and streamline energy information to all the stakeholders. Next slide, please. So to sum up, we strongly believe that these strategic investments, which are including greenfield ammonia, TAN and government announcements, we generate not only sustainable shareholder [ system ] in the long run, but also benefit the Indian economy by reducing import dependence and creating local employment. For any unaddressed queries, I will request that you may contact investor relationship. Thank you so much.

Thank you, Deepak. Now as you noticed, was well in advance circulated, somewhere around 10th of August, I take notice convening the meeting as read. Now I advice the Company Secretary to read the numbers on the resolutions proposed in the notice of this 43rd AGM.