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

Ladies and gentlemen, good day, and welcome to the Deepak Fertilisers and Petrochemicals Corporation Limited Q2 FY '26 Conference Call, hosted by Emkay Global Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Meet Vora from Emkay Global Financial Services Limited. Thank you, and over to you, sir.

Thank you, Sonali. Good afternoon, and thank you for joining us on Deepak Fertilisers and Petrochemicals Corporation Limited Q2 and H1 FY '26 Earnings Conference Call. From the company, we have with us Mr. S.C. Mehta – Chairman and Managing Director, Mr. Subhash Anand – President and Chief Financial Officer, Mr. Tarun Sinha – President (Technical Ammonium Nitrate), and Mr. Suparas Jain – Executive Vice President (Corporate Finance). We would like to begin the call with a brief opening remarks from the management, following which we will have the forum open for a Q&A session. I would now like to invite Mr. S.C. Mehta, Chairman and Managing Director, to make the initial remarks. Thank you, and over to you, sir.

Thank you. A very warm welcome to everyone for the Q2 FY '26 Earnings Conference Call of Deepak Fertilisers. Our earnings presentation and press release are available on our website and the stock exchanges, and I do hope you have had an opportunity to review them. Now prima facie Q2 results, in a sense, indicate a bit of tough going, looking at the operating EBITDA margins dropping from 18% to 15%, but it is essential to go a little deeper and granular to understand the true picture and the resilience the businesses have shown in the context of the global geopolitical headwinds. So now as we consider the granular details, we do need to keep in mind the strong headwinds from Trump's tariffs that triggered sudden and chaotic repercussions in many markets and in many countries as the world slowly came to terms with the sudden changes. Some places, the extended monsoons have also had multiple impacts, positive and negative, on the different sectors of India as well as Deepak Fertilisers businesses. So now keeping the above in view, I'm happy to share the positive resilience shown by our TAN business with almost a 29% volume growth and our Crop Nutrition business growing at 54%, resulting into an overall top line growth of 9%. Our journey from commodity to specialty or holistic solutions stayed steadfast and now contributes to almost 22% share in our H1 revenues with Crop Nutrition leading with crop-specific NPK grades. So taking a little larger perspective, the H1 top line grew by 13% with PAT growing by 11%. Now for the quarter, what hit us were only IPA and Ammonia. Rest of the sectors, I think, have shown very positive growth. And both IPA and Ammonia, some readjustment in the global trade winds is something that we are awaiting. So on the IPA front, as we await the realignments, our focus on specialty pharma-grade and also other cost optimizations will continue to help us. On the Ammonia front, too, we have already begun seeing a market price correction, while our efforts to unlock some capacity and efficiency gains are underway. Also, our attractive LNG gas contract with Equinor will kick in by middle of next year to bring further positivity. The other development that happened was that we completed a full acquisition of Platinum Blasting Services (PBS), our Australian subsidiary at an attractive EBITDA multiple. Now this is strategic in nature because it strengthens our footprint in the high potential Australian market and will also reinforce our forward integration strategy, learnings from the best practices in Australia to be brought to India. So now DMSL is very well positioned to lead mining solutions across India to Australia. As regards to our growth projects, they are progressing steadily well despite all the challenges. The TAN project at Gopalpur is almost 87% complete and the Nitric Acid project at Dahej has reached almost 70% completion. And both these projects are not only central to our growth and long-term value creation. But as you are aware, they are built on our 40 years of proven capabilities right from raw material, safety, health, environment, market, customer reach in comparison to anyone else. So as we see the rest of the year pan out, the above normal monsoon will provide a very good foundation for the Rabi demand for our Croptek, the Crop Nutrition business. And the mining activities also, which will then support the TAN market will also be something that we will see an upswing post the monsoons for the coal and infrastructure activities. The key aspect I was wanting to leave behind was that our transformation journey is definitely something that is on a clear strong path and is continuing on a strong manner. And that is somewhere where the focus on value-added products and services to our end consumers in each of our sectors is yielding better and better results. So that is something that we will see pan out in a stronger way as the second half and the next year emerges. So with these broad thoughts, let me hand you over to Subhash Anand, our CFO, who will take you through all the detailed financial performance for the quarter and H1. Subhash?

Thank you, and thank you, Mr. Mehta. Good afternoon, ladies and gentlemen. Thank you for joining us today for Deepak Fertilisers and Petrochemicals Limited Petrochemical Corporation Limited Q2 FY '26 Earnings Call. We are pleased to share another quarter of resilient performance, underscoring the strength of our diversified business model and disciplined execution. Our strategic priorities focus on specialty product, customer engagement and operational agility are translating into tangible outcomes. Across segments, we continue to reinforce our balance sheet and maintain sharp operational control, laying a strong foundation for sustainable growth. Let me walk you through the key financials, and operational highlights. On operating revenue front, Q2 stood at INR 3,006 crores, reflecting a healthy 9% Y-o-Y growth. This was driven by a strong contribution from our specialty product portfolio in Crop Nutrition business, which now accounts for 28% of segment revenue, up from 22% previous year. The B2C segment of our TAN business also gained momentum, contributing 14% to total revenue. For H1 FY '26, operating revenue grew at 13% Y-o-Y to INR 5,665 crores. On EBITDA front, the quarter stood at INR 464 crores. On a half yearly basis, EBITDA grew 2% Y-o-Y to INR 977 crores. The Fertiliser segment continued its strong trajectory, delivering a robust 36% Y-o-Y growth. While TAN maintained its momentum, the Chemicals segment was impacted by subdued performance in IPA and Ammonia, resulting Chemical segment showing 21% Y-o-Y decline. On Net Profit front, Q2 remained stable at INR 214 crores, margin of 7.1%. For H1, net profit rose 11% Y-o-Y to INR 458 crores. On a growth project, as Mr. Mehta highlighted, the TAN project in Gopalpur has reached 87% completion, while Nitric Acid project in Dahej hit 70%. Both projects are on track for commissioning towards end of Q4 FY '26 with focused executions to ensure timely delivery. On cash flow and leverage front, in H1, we generated INR 782 crores cash from operations. Despite a CapEx outlay of INR 870 crores, net borrowing increased only marginal to INR 3,402 crores. Our net debt-to-EBITDA stands at healthy 1.74x, supported by improved operational performance and capital infusion through CCD. Net debt to equity was at 0.48x as of September 2025. I'm pleased to inform that we have completed the full acquisition of Platinum Blasting Services at an attractive valuation of 6.7x EBITDA and with an enterprise value of INR 537 crores. This strategic move strengthened our mining solutions footprint across Australia and India, enhancing forward integrations and long-term value creation. Let me now take you through the performance of our key business segments. In Crop Nutrition business, this segment delivered another strong quarter. The manufactured bulk Fertilisers sales stood at 1.85 LMT, down 31% Y-o-Y due to limited availability of key raw materials. However, this was well compensated by trading bulk volume what we were able to import and sell. Our flagship specialty product, Croptek recorded a remarkable 54% Y-o-Y growth, reflecting strong market acceptance and increasing farmer adoptions. On the outlook front, with a favorable monsoon, rising adoptions of Croptek and Solutek, also a focused marketing approach, we anticipate robust demand for Mahadhan products and strong Rabi 2025 season. In our mining chemical TAN business, the business sustained, continued to sustain its strong momentum. TAN sales volume grew 29% Y-o-Y to 137 KT with full capacity utilization. The export quota, which was enhanced in June 2025 to 50,000 metric ton a year now start showing into the results and our export now started reflecting increasing trend in terms of volume in export market. Elden volume stood at 18 KT, down 3% Y-o-Y due to monsoon-related disruptions in mining activity. Our B2C business grew 33% Y-o-Y, supported by deeper market penetration and product diversification. On outlook front, we expect a strong post-monsoon recovery in this demand, driven by increased mining and infrastructure activity. Our focus remains on expanding export, enhancing direct sales and delivering value through reliable supply, product flexibility and tailored solutions for the mining sector. In the Industrial Chemicals segment, Nitric Acid volume remained steady at 70 KT, supported by stable plant operations and consistent demand across key sectors. IPA volumes were flat Y-o-Y at 17 KT, but impacted by a sharp decline in acetone and IPA prices, the segment continued to face margin pressures due to global oversupply, a steep drop in acetone prices. Additionally, a surge in U.S. import falling antidumping duty on China has intensified competitive pressures in the domestic market. Our specialty product portfolio continued to gain traction. PICKBRITE is showing promising results in ongoing cash pickling trials with stainless steel customers, while Cororid has expanded its presence to over 250 hospitals across 16 states. On outlook front, while the near-term environment for IPA remains challenging, we are encouraged by early sign of price stabilization driven by global trade realignment and sanctions. We are actively pursuing opportunities in pharma-grade export and technical grade applications along with cost optimization activities to enhance competitiveness and margin recovery. Nitric Acid prices expected to remain stable, influenced by increased import. Our strategic focus on market segment and customer-centric innovation continue to support resilience in this segment. On Ammonia front, the segment experienced a challenging quarter, impacted by global price volatility and operational constraints. The FOB Middle East Ammonia prices averaged around $300 per metric ton, significantly lower below the last year level, resulting in a material revenue and EBITDA impact. Higher natural gas consumptions due to start-up and shut down cycle, lower incentive income due to GST rate cuts, along with elevated natural gas rates further weigh on the margin in this quarter. On the outlook front, Ammonia prices have rebounded above $400 already. A planned shutdown in Q4 is expected to enhance capacity, while the NGE saving from infrastructure upgrade, ongoing advocacy to strengthen incentive scheme and secure Equinor natural gas supply, we are well positioned for a robust turnaround in the coming quarters. In conclusion, our performance this quarter reflects the strength of our diversified portfolio, the disciplined execution of our strategic road map. Each business segment is aligned with India broader growth drivers, agriculture, infrastructure, mining and health care, positioning us to deliver both near-term results and long-term value. We remain committed to operational excellence, capital discipline and stakeholder value creation. Thank you once again for your continued support. Now I welcome your questions.

[Operator Instructions] The first question is from the line of Bhavesh Shah, an individual investor.

My first question is regarding the TAN business. In recent months, internal prices seem to have gone up by [20%]. So domestic prices moved up as well reason for spike in international prices? [Technical Difficulty]

Your second part of the question is not clear. Can you just repeat it?

So, I wanted to confirm that have domestic TAN spiked as well [Technical Difficulty], any specific reason for spike in internal prices?

We've had some challenges in understanding your question.

Mr. Bhavesh, can you please come closer to your handset and speak as your voice was not audible. I'm sorry, sir, your voice is not audible. I request you to rejoin the queue again. The next question is from the line of Shubham from [Indiscernible] Family Office.

So can you please elaborate more on the IP market.

We only hear first sentence on IP market, nothing more than that.

What is the situation right now for the IP? [Indiscernible]

Sorry to interrupt in between Mr. Shubham, can you please come closer to the handset and speak?

Actually, I am going to handset.

No, that's fine. We understood the question on IP market. Now a couple of things which is, I can say, in progress when it comes to IP market. One, there are sanctions has happened okay. There are a few sanctions which has happened that has resulted some firm up of prices of IP in the domestic market. Second thing, a lot of this IP disturbance is actually led by tariff, which U.S. Trump has announced and a lot of supply because of those tariffs and antidumping on China, the U.S. market has started supplying it back in India. That's where a lot of import of IP has started coming to India from U.S. Now with tariffs with China getting settled; U.S.-China and U.S. India getting settled, things will expect it to go back to normal level, and we expect again, back to normalcy. Now yes, it may take couple of months definitely. It will not happen immediately in this quarter. But now there are early sign of things going back to normalcy, and we expect IP to be back in business in coming quarters.

Okay. And sir, second question is CapEx that we do. So, we are expecting commissioning in Q4 FY '26. So how much capacity utilization are we expecting for FY '27 and FY '28 plan?

Yes. Normally, the way we expect FY '27, we expect around 70% capacity utilization. And FY '28 will be 80% plus. And after that, it will be a normal capacity utilization.

The next question is from the line of Viraj Mahadevia from MoneyGrow.

Congratulations to the management team for staying on course. A quick question is with the lower gas integration into the manufacturing next year, how much do we expect gross margins to expand by in FY '27?

Okay. Basically, with our new LNG contract, which will be effective from, or the supply will start from May '26 onwards. We expect the gas prices will come down. Now in terms of margin expansions, let's wait for some more time. We've still not gone and then communicated. But the cost saving is material in nature. It's not a small saving what we are expecting. If everything remains same where our gas prices are today, we expect significant reduction in our gas prices, basket gas prices to happen because of new contract. And that will bring down our breakeven EBITDA level for Ammonia much lower. So we expect this will be a significant impact in our turnaround of Ammonia business in the coming year, apart from increase in Ammonia prices for which early signs are already there.

Understood. And once this CapEx underway is completed, is there any other CapEx planned? Or will cash flows from FY '27 be used to delever the balance sheet?

At this point of time, we are reaching, in fact, the current stage of CapEx cycle, we started a few years back. Now we are reaching towards completion of that CapEx cycle. Immediate, if you ask me, do we have something sanctions in light? No, nothing immediately. So there will be some cooling period. That's what we expect in terms of next CapEx cycle to kick in. But we are open any good opportunity, if it makes business case, we look into that.

Understood. So the absence of incremental CapEx or any suitable acquisition, the cash flows will be used for debt paydown?

Yes. If there is nothing else, then definitely this will deleverage our balance sheet more and more.

The next question is from the line of Arman from Blue Sky Fintech.

First of all, congratulations on a decent set of numbers despite this volatility. My question is just on a broader perspective as we have been hearing that India and China are getting along with talks of importing Fertilisers. Also on a broader [Indiscernible] with Russia, we are talking with import of Fertilisers. How the overall broader scenario you are seeing for our company if the stocks go through, what kind of outlook you have or impact you could estimate of these meetings going through?

Okay. Now in fact, the way we operate, our entire focus is on value-add product when it comes to Fertilisers. We are not in need to Fertilisers in this market. whether it's our Croptek business, which is a crop-focused Fertilisers or water soluble business or even the Smartek, which is also not pure NPK, it's a nutrient-coated NPK Fertiliser. So we don't have Fertilisers, which is readily comparable in the market compared to other products which are available. So we are creating our own niche space and making our journey, which is slightly more, I'd say, customized or bespoke for our kind of a portfolio. And this journey started not last year a few, but we are on this track from last few years. It started now showing into the results and started reflecting into our bottom line. So what you're seeing in our Crop Nutrition business portfolio, actually the result of hard work or the product differentiation strategy, which we started as the Chairman says from commodity to specialty. This is a journey which we started a few years back, started resulting into results. And we'll continue with that strategy, bringing more and more value-added product for Indian market, for farmers and creating our own space.

Just a follow-up because a few years back, some years back, we had an issue with Ammonia, right, when Russia, during COVID, I guess, when Russia shutdown in India. So now what's the cost level, cost competitive level of producing what we are producing and what is being produced in Russia?

Okay. In fact, I'll just pass on to Tarun. This is basically what the competition from Russia is more on ammonium nitrate. That's a TAN business [Indiscernible], what we call it. That's what gets imported from Russia, which competes with our TAN business in India. Tarun, do you want to impact of Russia.

Yes, yes.

So largely as because in COVID time, we had a large impact, what is our seasonality now. Absolutely.

So as Subhash mentioned, the only business in our group, which does get impacted through material coming from Russia is the DMSL business, the Mining Solutions business because Russia exports ammonium nitrate into India. And that has been a little bit controlled over the last 6 months or so of this financial year. And hopefully, that will remain so because now government of India is slowly starting to realize that all the additional capacities of, domestic capacities of ammonium nitrate that are coming up in a very short span of time from now will actually make India self-reliant in terms of its ammonium nitrate needs over the years to come. And therefore, there is no need to import. So why to waste foreign exchange reserves on a product which is insufficiency in the country itself. So that good sense slowly, slowly is seeing in, in the minds of the various ministries. And hopefully, over a period of time, we will see further slowdown of ammonium nitrate imports in India.

Just to add to what Tarun says, last few quarters or few years, if we say, okay, there was a time when Russia-Ukraine war started and all of a sudden, there was a disturbance. But after that, things stabilizes. It's not the Russia import is 0, no. It's, we are still having an import from Russia. But the price war or a price disturbance is not happening. So things are normalized and business is going where everybody now is settled down in terms of the margin expectancy and the way things are happening.

The next question is from the line of Adarsh Jain, an individual investor.

My question is on Ammonia plant. I think some shutdown is planned in Q4. So how much capacity can be, I mean can be increased for this plant in Q4? Okay.

We are expecting around 10% increase in capacity in this shutdown.

Okay. And how long this shutdown would persist?

It will be a few weeks shutdown. So definitely, Q4, we have planned for that. With that, it will bring capacity expansion and some efficiency or some of the efficiency things which actions which we kept pending will get completed during that shutdown. So we'll have a far more efficient plant after that.

Okay. So 10% more or less we are actually expecting capacity to be increased.

Correct. Yes.

Another question is TAN export quota. How much we have exported till now on the quota, which was 50 metric tons?

So Tarun again here. Thanks for the question. The export quota was removed only in the month of June. which means Q1 was a washout from an export point of view. So we started to, and this was after a long gap of a couple of years. So as one would imagine, if any company or any business is out of the international market for a number of years, certainly to get back to the market, international market, it takes time. But we have made some good progress in Q3, and we have exported reasonable quantities as we used to do in the past. And, sorry, in Q2, I should say, July, August, September quarter. And we are very hopeful that in Q3, it will be a higher volume compared to Q2 as well as far as export goes.

So we will be able to, I mean, exhaust the quota by Q3 or it will take Q4 also?

See, if it was only to meet the volumes to satisfy the quota requirements, that is not a problem. But as a responsible company, what we have to keep in mind is that as long as it makes financial sense to export compared to what we can generate in the domestic market, then so be it. So it's always that balanced decision we make, how much to export and how much not to export. Also keeping in mind is one of the answers I gave earlier, we have given commitment to Government of India that we are going to make India self-reliant for its ammonium nitrate demand. So obviously, domestic market is the first priority for us. So only if there is surplus left and if it can be sent out in a reasonable, at a reasonable financial number, then we take those decisions as we go by. So it's hard to say how much number, how many numbers of tonnes we will export at this.

No. Thanks, Tarun. I'll just add into that. Currently, we are in short supply of TAN. In fact, whatever we produce, everything is getting sold in domestic market. We don't have excess capacity available to supply anywhere else. Export, quota and export market is important for us for the newer capacity, which is getting added. And that's where a lot of market development activity is happening currently to ensure we have that market available by the time we add up to the new capacities.

And as was mentioned in one of the questions, in Q2, we operated at 100% of...

Correct. Correct. TAN is operating at 100% capacity. So we don't have anything left for any market.

So we are doing, I remember, we used to, actually, we used to run the plant at 110% or 108% capacity, I think.

That's not always possible to run at 110%, 105%, I call it that might of time. And even in monsoon time, and that's the time when TAN business is not its peak. TAN always business slows down during monsoon always. And even in that period, we're running 100% naturally, you can see the demand in domestic market.

Okay. So do we get any additional margin if we export TAN or the margin same?

That's what we continue to explore. It's a margin maximization decisions, which we dynamically keep taking wherever we find better opportunity, we'll take that market in our priority.

Okay. And last question is about the joint venture -- the collaboration which we had done with Haifa from Israel. What are the updates on that front.

No, that's an ongoing, in fact, collaboration with them. We continue to see what are the products which we can bring from their portfolio and introduce into India. And we take the help on some of the product development activity in India. So it's a long-term collaboration which we have entered with them, and we are looking at market development in collaboration with them.

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

So my first question is regarding the TAN business. In recent months, international TAN prices seem to have moved up by 20%. So have domestic TAN prices moved up as well? And any specific reason for spike in international TAN prices?

Thank you for the question. So I was looking at in front of me actually, it is Fertecon data, and as I mentioned in one of the answers earlier that most of the ammonium nitrate coming into India is from Russia, which means the index, Fertecon index that applies to, in our case, is the Baltic Afghan index. And if one were to look at the index rise, I'm looking at it now as we speak. So when we started Q2 in the month of July, the average Fertecon index for Baltic FOB was USD 313 in July. Come September, end of the quarter, it became 275. So it's gone down. It's not gone up. That's the first thing. Come October, because we are now sitting in November, it has gone down further to 246, so therefore, it's the contrary to what probably you have as an information. In other words, the international prices that apply to the Indian situation have gone down consistently. And yet, we have been able to maintain our margins.

Okay. Understood. Okay. My second question is regarding the upcoming TAN and Nitric Acid CapEx. We estimate to spend around INR 4,650 crores in CapEx put together. But however, our CWIP till now has been around INR 2,200 crores. Both the CapEx being around 6 months away from commissioning maximum, like why is there a gap between CWIP and the total CapEx? Can you explain this gap?