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

So very, very good morning to all of you. Once again, it gives me immense pleasure to welcome you to the 44th Annual General Meeting of Deepak Fertilisers and Petrochemicals Corporation Limited. And on behalf of the Board, I thank all of you for making it convenient to participate in this virtual meeting. So before sharing the specific operational details and accomplishments of your company, allow me to briefly touch upon the overall major geopolitical situation, economic and industrial scenarios. So as you are well aware, despite huge volatility in the global economic environment, we had wars and we had various kinds of happenings. However, the Indian economy remained resilient and continued on its trajectory as one of the fastest-growing economies in the world. The growth has been supported by strong domestic demand, moderate inflation and stable interest rates. Those are very good fundamentals that are supporting the growth. During this period, the Indian economy is advanced by a remarkable rate of 7.5% in FY '24 versus, we know many countries in the world are experiencing minimal or no growth. The key positive trend include a robust manufacturing sector, growth in infrastructure and construction sector and even a revitalized rural economy besides record tax collections. So India is set to reach $4 trillion this year, nearly doubling in size over the last decade and is well on track to become a $5 trillion economy in the coming years. This growth is fueled by substantial infrastructure development that we can see all around and a focus on Make in India initiatives, which is giving a very strong push for domestic growth. In the recent union budget, the government has allocated an impressive capital expenditure budget of over INR 10 lakh crores to support the infrastructure development. Now all of this overall positive scenario in India gives very, very strong and favorable tailwinds to all our 3 businesses. However, at the micro level, Deepak Fertilisers had a challenging year last year and where all our diverse 3 businesses was tested for resilience and that to all come in at the same time based on the geopolitical situations. However, we navigated these tough times and leveraging on our 4 decades of industry experience and deep market understanding, we could effectively deal with the situation. So we faced erratic monsoons. We faced geopolitical tensions because of war, short-term aberrations that came in with imports of fertilizer-grade ammonium nitrate from Russia because they were not finding other countries taking the product. So India became a good dumping round, even cheap imports of our nitric acid downstream, the aromatics came in very heavily from China. Now despite all these adversities, our robust strategies and our strong knowledge of the market over the last 4 decades and our focus on moving from volume to value that steadfast focus really helped us. So while the financial performance of FY '24 was per se below '23, but if you look at in the context of the strong headwinds we face in all the 3 businesses during the year, your company reported resilient financial performance, reaffirming its fundamental strengths. So in FY '24, our consolidated top line stood at INR 8,676 crores in with an operating EBITDA margin of 15%. Now if we were to exclude the impact of a onetime subsidy impact that came in and the cost of revamping the new ammonia plant which initially every plant goes through this kind of a bit of an issue in the beginning. If we keep those 2 aside, actually, the operating EBITDA margin otherwise would have been around which is in line with the earlier year's EBITDA margins despite all the headwinds from the geopolitical situation, which goes to validate the solid foundation strength that the company enjoys. During FY '24, we achieved over 90% design throughput for our newly commissioned Ultra Mega Ammonia project, which will now, in a full year, deliver almost 5 lakh tonnes of ammonia for the downstream. Now after studying all these and considering our robust and consistent financial health and the fundamentals, I'm happy to share that ICRA reaffirmed our long-term rating of AA- with stable outlook. And reaffirm the short-term rating at the best possible that is A1+. Also, Crisal has assigned a Crisal A1+ rating to the commercial papers issued by DFPCL and MAL. So based on the FY '24 performance and the continued confidence in our fundamentals, the Board has recommended a dividend of 8.5% per equity of 10 each, which represents 85% our dividend rate. Now as far as the key CapEx initiatives that we had taken up, I'm happy to share that the greenfield ammonia plant established through our step-down subsidiary, PCL, Performance Chemiserve Limited, began commercial production in August '23 and has gradually stabilized at its rated capacity. Now this very successful backward integration will provide a long-term risk mitigation for all our 3 businesses within the group because all the 3 businesses, the key raw material is ammonia. The plant has state-of-the-art technology with lowest energy consumption, low NOx emissions. And so with this reduced dependence on imported ammonia, not only it's going to help us improve our operational efficiencies all through the chain. But we will be better positioned to mitigate the impact of the huge global price volatility that we were seeing in the ammonia prices. The other projects the company is working on is a greenfield TAN project, looking at a huge growing demand for all the downstreams, coal, limestone cement, infrastructure. And this new project is coming up in Gopalpur, Odisha, strategically closely located to the mining areas in the port. And this is going to add the production capacity of roughly around 3.7 lakh tonnes per annum. And upon completion, our total overall time capacity would rise to around 10 lakh tons per annum, and this will be capable to meet almost 60% of India's needs. And this will somewhat place us among the world's top 3 as far as the tank capacity goes for the mining sector. This plant is expected to be commissioned by the second half of FY '26. The other that we have taken up is the construction of a brownfield nitric acid project. So we are adding around 3 lakh tonnes per annum of weak nitric acid and around 1.5 lakh tons of concentrated nitric acid. So this project work has also commenced. These world-scale clients will be, again, equipped with the state-of-the-art low emission technology. Here, we -- as you would have known our reach short while ago, we had entered into a 20-year long-term agreement with a specialty chemical company for supplying nitric acid. And so this contract itself will consume almost 60% of our new CNA capacity and will provide a solid base load for the new brownfield expansion project. Now both these projects are building upon our 4 decades of proven expertise, whether it is TAN or whether it is nitric acid, we have been in these businesses for the last 40 years. So it brings that solid knowledge about raw material, operational knowledge, safety health environment, marketing, customers. And once this fast-paced completion of both the projects come through, your company is poised to boost its revenues in the next 24 months, and that will certainly propel us into new levels of financial performance plus the support of our strategic exercise from volume to value. That will continue. So both put together is going to be something that we are looking forward to. There were also a lot of key strategic initiatives besides the CapEx initiatives that we had taken up in FY '24. And I'm happy to share some of these major ones. So our company entered into a 15-year LNG contract with the Norwegian giant Equinor at globally linked attractive terms that will commence from -- the LNG supply will commence from 2026. This risk mitigation strategy will solidify our foundation of the entire value chain, right, from now, LNG, ammonia, the building block chemical nitric acid and all the downstreams in terms of fertilizers mining chemicals, industrial chemicals. So the whole value chain will now be very strong on a very strong footing. Also, we recently entered into a 7-year strategic alliance with Israel's Haifa Group. We all know that it's a renowned multinational specializing in specialty crop nutrients, particularly water-soluble crop nutrients. The MAL, Haifa offerings will support agriculture practices by now specifically addressing water shortage scarcities and most important, enhancing the nutrient use efficiency, and nutrient uptake of the plant will be something that will be very strongly helping through these products. And this will align very well with our Prime minister's dream of more crop per drop. Then in June 2024, NCLT approved the demerger, which I had just talked about. And now, like I said, we are looking at each business housed in a separate corporate entity. And what it is going to do is to make sure that right from the Board to the Junior most Officer, they will all be focused on that specific business so that focus will bring a much stronger performance delivery aligned to that business need. The second is that for all the shareholders and investors the visibility will also further improve as they will see each business housed in a separate corporate entity. And the third most important is we are also finding a lot of interest emerging from global strategic investors to come into India. And now they are finding it well aligned with some of our unique focus businesses. So those aspects are [indiscernible] we will now build upon in the coming years. We continue our focus on ESG initiatives, including we have launched an online ESG profile platform. And in each of our projects, also, we are taking care of NOx abatement and wherever there could be possibilities of taking care of the environment and bringing more transparency in all these aspects that we are doing. For the society that we live in, we continue to work hard on our CSR initiatives. And basically, instead of just doling out money, we are helping to build self-reliance in some of the societies and wherever we have commercial operations. As we look forward, as we see the current year, while we face the headwinds in FY '24, which I just talked of, the current financial year started in a very promising way with Q1 of FY '25 delivering an impressive net profit of INR 200 crores, a 76% surge over last year. And our EBITDA margins also improved from 12% which was there in Q1 FY '24 to an impressive 20.4% in Q1 of FY '25. All 3 of our businesses are reaping the benefits of this backward integration that we now have established with the ammonia project, and it has helped to mitigate the supply chain risk as well as price volatility, which has remained within the group now. Also, the strategy of moving from commodity to specialty has been also effectively now beginning to deliver results. Overall, the demand outlook for all our 3 businesses, namely the Crop Nutrition business, Mining Chemicals business and the Industrial Chemicals business, remain beautifully aligned with the India growth story. We are also hearing very positive feedbacks from the Indian Meteorological Department, IMD, that they have forecasted an above average rainfall this year. So that will give us a very favorable Kharif as well as Rabi season, which will be a positive for the crop nutrition business. In the mining chemicals sector, we anticipate growth in FY '25 driven by strong expansion in the country's coal, power and infrastructure segments, again, driven by the budget allocations that were also announced. Year beyond the TAN product, our business has demonstrated its capacity to deliver now, holistic total cost of operation offering to the mining sector and the end users and now gradually, we are on the path to become a comprehensive mining solutions provider in India rather than just a product supply. So this is going to help us sustain margins and customer loyalty. In the Industrial Chemicals segment, we have now gradually been moving towards more and more of specialty chemicals with steel grade nitric acid and pharma grade isopropyl alcohol IPA. And they've been giving a very strong acceptance from the end consumer end so that is something that is going to be a positive emerging in our journey from commodity to specialty. I'm happy to share that recently, the Director General of Trade Remedies, DGTR, has sent a positive recommendation for an anti-dumping duty on IPA from China. While it's pending the approval of the finance ministry, this antidumping duty will support a level playing field and fire pricing for IPA for the next 5 years. So now with the national budget and the government's focus on the critical sectors, agriculture, power, mining and infrastructure, all of it will be supporting the company's businesses. Internally, we remain steadfast committed to bringing more and more of operational efficiencies based on newer and better technologies, AI and ML drives, plus from a strategic perspective, a very strong move from commodity to specialty or from volume to value. And this, we feel, will help us navigate not only the market challenges, but built a very strong brand in the years to come and continue adding long-term value to all our shareholders. So before I conclude, I would like to extend my warm heartful thanks to our valued customers, business associates, banks, financial institutions, government and above all each one of you, our dear shareholders. I would also like to express my sincere appreciation for the entire DFPCL team for their dedication and hard work right through these challenging times. And of course, a warm thanks to each of my colleagues on the board for their unwavering support, guidance at every juncture of our operations. So my best wishes to all of you and your families. Thank you. I can now request Mr. Deepak Rastogi, our CFO and President, Finance, to give a little more detailed presentation on the company's operations and financials.

Thank you, Chairman. Now I will make the presentation on business update. Go to the next slide, please. So here, I will talk briefly on the company overview, followed by the results and the project updates and the work which we are currently doing on the CR subside. Go to the next slide, please. So as you are aware that DFPCL actually is a leading chemical and fertilizer producer with 4 decades of approval expertise, handling the Mining Chemicals business, which is actually the TAM, industrial chemicals, which is the nitric acid well as the IP business, as well as in the crop nutrition business, which is the CMB business. We overall have 6 manufacturing plants located at Taloja, which is the major a site for us, then followed by the Dahej, which is on the west side of the country, then we have Srikakulam and we have Panipatoverall. There are new upcoming expansion programs, one, which is the brownfield, which is coming in the Dahej. The other would be the Gopalpur project, which is in Odisha. So overall, we have 2,300-plus employees currently with 1.6 billion market cap as of 30th August. Go to the next slide, please. So we have been actually delivering a lot of value to the customers. And overall, from mining chemicals, which is the TAN business for us, we are the only manufacturers for solid TAN, which is the HDAN as well as LDAN. We have also delivering or we are only producing the medical grade TAN which actually goes into the health care sector. And we serve the markets which are in mining as well as infrastructure and health care, as I talked about, We continue to be the largest producer in India and in this particular segment. Moving to the Industrial Chemicals, we are the largest producer of nitric acid with a capacity of close to 1.1 million tonnes, which is 111 lakh tonnes, which includes the DNA as well as CNA, and we also have around 70,000 metric tonnes for IPA. We have been the pioneer in IPA. We have got all the -- for IPA, we have pharma [indiscernible] grade certifications. And we continue to supply to the pharma as well as health care sector. For nitric acid, we are actually supplying to nitroaromatics, chemicals pero derivatives and explosive as well. On the crop nutrition side, we have -- we actually supply NP and NPK along with bentonite sulfate with overall capacity of around 1.1 million tonnes. And overall, we actually have brand these products under Mahadhan. We are actually the leading specialty producers and suppliers in the core markets under croptek, smartek and we have just launched Solutek as well. We offer these products to -- for cash crops, fruits and vegetables and other agricultural needs. Go to the next slide, please. So overall, as I said, we have been in the leading position in all the business segments where we are claiming. So currently, we have 40% of market share in the Mining Chemicals business, which is the TAM business, with an overall revenue size of around 34%. For Industrial Chemicals, we have 60% market share for which is concentrated in iced. Here, again, we are the largest producers of nitric acid. And this particular segment contributes to 21% of the revenue. For the Crop Nutrition business, the revenue size is close to 44%, and we are the leading player in the specialty and water soluble fertilizers in India. Next, now I want to actually spend some time here. So earlier on the left-hand side of the chart, you would see Mahadhan, which was erswhile STL which is Smartek -- Smartchem, sorry, which actually was housing the crop nutrition business as well as the Mining Chemicals business, which is the TAN business, and it had a subsidiary as PCL, which is the ammonia business for us and last platinum blasting business, which is an Australian subsidiary. Now in the new structure after the demerger, as NCLT has already passed the order. On the right-hand side, Mahadhan actually will house the crop nutrition business. DMSL, which is Deepak Mining would now house the mining capital business. And the PCL business, which is the ammonia business as well as the at Platinum Blasting business would actually as a subsidiary under DMSL. Purely from BPCL perspective, there is no change. It continues to house the industrial chemicals as well as the reality business for us. Now, what is the effect of this and why we wanted to do? Obviously, as you know, that each business has grown its own size, and they had obviously needed definitely their own technologies and strategic partnership. So in the journey of commodity to specialty, this demerger actually would tremendously help all the businesses. Next, so here, I would say that for all the businesses, we have been actually moving from just providing products to holistic solutions. And when I say holistic solutions, which means working very closely to the consumers, not just the customer, but the consumers directly. And providing what they actually need. So especially for the mining business, we have been actually providing the products. But on the top of it, we are actually looking to provide some technical services and blasting services in order to reduce the overall losses during blasting, when we do the blasing for the mines as well as for the infrastructure companies. What this does is that it actually reduces the overall cost of operations as well as improves the productivity. Similarly, for Industrial Chemicals business, we have actually launched industry-specific nitric acid, which is for solar as well as steel grade nitric acid under the brand name [indiscernible]. And similarly, for IPA, we have solvents under [indiscernible] wherein we serve specific pharma grade [indiscernible]. And we have also launched the semiconductors for semiconductors, electronic grade IPA. As Chairman just mentioned, we have got the ADD in favor of us and obviously, in the sense like they have already given the recommendation, DGTR has given the recommendation to [indiscernible]. So we see a huge value in this particular PMO products going forward. For Crop Nutrition, we have already launched crop-specific products. And here, we actually work very closely with the farmer, show them apply our products alongside with them in their own field, so that they are able to see the value which we bring on the table and the kind of productivity which we bring, which they can see it versus their own applications versus our applications by way of Croptek as well as Smartek, which we supply to them. So currently, we have actually sold close to 300,000 tonnes of Croptek since our launch. And we have launched for all the cash crops, which is sugarcane, onion, groundnut, cotton, soybean and maize. And we also got obviously a new arrangement with Haifa, and we will be expanding the specialty basket going forward. So the key highlights which happened during the '24, which is for the financial year. First of all, we actually launched. We commissioned 500,000 tonnes of capacity of ammonia as part of the backward integration. We have invested close to INR 4,500 crores here. And this particular project is actually eligible for the ultra mega benefits, which will bring back INR 4,000 crores over a period of 20 years. We also have a tie up with Equinor, especially on the gas side. So we already have a tie-up currently until May '26. And from May '26 onwards for the next 15 years, we would have a continuous supply of natural gas, which will actually make sure that we are able to take care of the variability of the supplies. We got the reaffirmation from Mitra as well as CRISIL for the long-term as well as short-term ratings. CRISIL is only short term, and we have got the highest ratings. However, ICRA has reaffirmed the ratings. There are no promoters pledge right now as on 31st of March. So there are no encumbrances of any kind on the holding, [indiscernible] promotor holding. And the Board has actually recommended a dividend of around 8.5% -- INR 8.5 per equity, which is 85%. Next. So coming back to what has happened during the year, we had challenges together for all the businesses wherein we had an erected cranes for crop nutrition business, a very low water table. And for the TAN as well as for industrial chemicals, we had actually a huge amount of imports coming in from China as well as Russia. This impacted at least 2 quarters, but the things are basically was an aberration -- short-term aberrations, and we are seeing obviously a stabilization there. We also took a onetime charge for subsidy as well as ramping cost totaling to around INR 355 crores. Next, so here, this is a chart which actually shows the evaluation of -- on the left-hand side on the revenue on the right-hand side, it is operating EBITDA. And you rightly see that on the left-hand side, we delivered INR 8,700 crores worth of revenues. '23 looks to be higher because the commodity prices were quite high even though the quantity was very similar this year as well. But on the right-hand side, if we were to actually take the impact of onetime then we have delivered 15% of EBITDA. But without that, we have actually delivered 18%, which is actually in line or better than any of the earlier years. Our '22, '23 had been a positive aberration and we are thinking that those years would be very -- we may not be able to sustain that kind of performance on every year basis, but obviously, there could be a few years like that. Next. So this actually gives us the proper chart in terms of revenue as well as operating EBITDA. But I wanted to share 2 things. One is that as far as the EPS is concerned, you would see it's around INR 35 this year. But this is into -- taking into account the onetime charges. If we were to back that out, the EPS delivered actually is going to be INR 64, which is higher than any other years. Net debt versus equity is slightly up because of the new projects which we are currently investing on. So the message is that we have been doing in spite of the challenges this year has been quite a good year for us. And if we can sustain this kind of performance, we can definitely better when there are lesser challenges for us as a business. Next, so this year has been very, very good. For Q1 performance have been very robust, and we delivered INR 200 crores worth of EBITDA, which was around 76% up. Similarly, the margins were up from [indiscernible] from earlier 12% quarter-on-quarter. Next, please. So we have been undertaking these 2 projects. One is the Brownfield project in Dahej, which is the nitric acid plant wherein the COD would start sometimes in [ X2 ] of financial year '26 with a capacity of 450,000 per annum, including the WNA as well as CNA. And we have Greenfield Gopalpur plant for our mining business. which would -- wherein the COD would again be on the next financial year, H2 of next financial year. And we would -- obviously, it will be closer to the east side. So hence, we would have larger customers to serve from there at a cost competitive basis. Next, so this is how the capitalization on the left top most left of the chart. The overall market cap has been continuously improving for us. And for the last 5 years, the market cap has actually grown by almost 94%. We see huge interest from DIIs and FIIs, and we can see an increase in those numbers in terms of overall shareholding pattern. Next, please. So in summary, the key takeaway is that we continue to frontend our expenditure as far as the CapEx is concerned. We continue to have a leadership position in all the businesses, which we -- where we operate. We continue to have our focus on accelerating our commodity to specialty and the demerger would only accelerate these things. And we would continue to have transparency and sustainability within ESG. With huge strides, which we are taking on digitization, we are getting the organization future ready. Next, so these are the -- some of the awards which the company has actually received during the last 1 year across all the operational excellence and CSR [indiscernible]. Next, please. And with the community -- inclusive community and the society where we are in to serve them better, we have continued our focus on through Ishanya foundation, on skill development, employability, entrepreneurship and improving health with various projects, which we currently operate at the locations where we are actually present from a manufacturing prespective. So thank you so much. And I hand over to the Chairman for further proceedings.

Thank you, Deepak. So as the notice has already been circulated...