Gujarat Narmada Valley Fertilizers & Chemicals Limited (GNFC) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Gujarat Narmada Valley Fertilizers & Chemicals Limited Q1 FY '27 Earnings Conference Call hosted by Anurag Services LLP on behalf of GNFC Limited. From the management, we have with us Mr. D.V. Parikh, Executive Director and Chief Financial Officer; Mr. Nitin Patel, Executive Director; Mr. P.K. Purohit, Executive Director; Mr. Rajesh Pillai, Company Secretary and Compliance Officer; and other senior management members. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. D.V. Parikh, Executive Director and CFO, GNFC Limited. Thank you, and over to you, sir.

Thank you to moderator as well as the organizer for holding this call on Q1 FY '26, '27. Apart from the names which are given, we have other members also from procurement and marketing. So investors may direct the query accordingly. Maybe number of participants. And we welcome all the investors to the call as well. We'll first start with the business update as to what is happening to the business. Overall, during the quarter 1, it has been the situation of escalation and deescalation as far as war is concerned. And that has a ripple effect on the business as well, in terms of, at times, viability issues, at times, realizations, which have gone up. Similarly, the input costs have also gone up because of the war situation. During this quarter gone by, there are plants which we could not run for cost economics reason, like acetic acid, ethyl acetate and to some extent, TDI as well. Although in the investor presentation, the spreads seem to be better, but the offtake has not been so good, which resulted into some issue in the inventory. But overall, the profits for Q1 in our view, has been significantly higher -- and it is the second highest in the history of the company after the Q1 of '22. This typically happens in a war-like situation, it can go either side. On the fertilizer front, there is one good news that energy norms have been revised in case of company. It was 6.20 Gcal per metric ton of urea, which is revised to 6.37 Gcal now. This has been revised for a period from FY '25, '26, so -- and valid for 3 years period. So this is positive. The other positive for the company is now during July, most of the plants, which were not operational because of the cost economics reason have resumed the operation. Whether it is ethyl acetate, acetic acid, TDI-II is about to start, TDI-I has started. So except for the methanol, most of the plants are running now. Coming to the projects, the -- out of the 4 ongoing projects, the overdue project of Dahej has started providing now. Out of the steam and power, the steam portion has started coming, which is giving substantial relief in terms of the battery cost position to TDI-II plant. This is expected to save materially because the gas prices are significantly higher, although relatively coal prices are also higher, but then the delta is more, which is causing this differential saving. So the costly gas will be replaced with the coal. Is actually already replaced as far as steam is concerned. And power, we are expecting to come in a month's time or so or around 45 days' time. So apart from that, most of the projects are on stream. There is a slight time change in case of a weak nitric acid plant, but that is being monitored actively. So about 3 months delay is there, which is going to be recouped. In case of AMUGL and AN Melt, it is absolutely online. AN Melt is on positive side. So this is what is the update on the project side. Coming to now the other part, which is already there as part of announcement, GNFC has proposed the memorandum of understanding with GMDC. This is for the underground coal gasification. GMDC is already into the mining business, and we are already in the downstream business. So this will augur well. There are certain studies which are ongoing. So very sooner, there will be announcement. The similar announcement has gone in the public domain from GMDC as well. Coming to financials, the operating part has remained better, more or less mainly because of the better realization, although volumes have gone down. Volumes of sales have gone down substantially than the volumes of production has been the situation. There is some change in the overhead part and certain other income, which is on a lower side. But on the operational side, it is basically the good realization, which has augured well for the company. And most of the stock, which was built up by Q1 is getting gradually liquidated in July and now in August as well. As far as segment results are concerned, the results in case of fertilizer has further iterated by around INR 60 crore or so from around INR 24 crore to INR 85 crore. And the majority of that is coming from urea, around INR 48 crore, and INR 12 crore is coming from the ANP side. The rest of the predominant profit is coming from chemical for which we discussed the reason. Now with this initial comments, I leave the floor open for question and answer. Thank you very much.

[Operator Instructions] First question from the line of Nirav form Anvil Wealth.

Congratulations on a very good set of numbers. Sir, 2, 3 questions from my side. So first on the oil prices, like when we see the investor presentation, the prices have gone up from close to around INR 43, INR 44 to around INR 73. And I believe that predominantly, this is a raw material for our ammonia production. So how has been the situation currently? Like have the prices further gone up from this average prices of Q1? And also, if you can help us understand on the gas side also, how has been the current situation in terms of gas availability as well as the gas prices?

Sorry to interrupt you, sir. May you please speak a little louder and repeat your question?

Yes. Am I audible now?

No, we have got the question. I don't think -- there was some disturbance, but we got the question. So we'll request our MM Head, Shri Nirmesh Vaidesai to respond on this.

Yes. You have indicated that during this Q1, the oil prices have gone up as compared to Q4 of last financial year. Mainly it is due to the Middle East crisis. And slowly and slowly in the month of July and August, it has started coming down. Only point is that still the Middle East crisis has not resolved. So going forward, the prices may come down if everything goes well. Otherwise, it is difficult to predict anything. Similarly, on front of the gas, the prices remains volatile and availability of the volume is always a concern, but our operations are not affected with -- on account of availability of the gas.

Sir, second question is on -- if you can share the production numbers for ammonia, both through the oil and gas route in first quarter. And along with it, if you can share the production numbers for WNA, ENA, TDI, TGU and AN Melt that would be very useful.

Ammonia -- I'm Nitin Patel. Ammonia production was approximately 173,000 and 54% out of that was from oil and 49% was from gas. So TDI total production was 12,800 a breakup of 66% from Dahej unit and 34% from Bharuch unit. Next was WNA, right?

Yes.

WNA total is 113,000 production with a share of 2 plant, 70% and 30%. Next was?

ENA.

ENA total production was 37,500.

Okay. AN Melt?

AN Melt was 55,600.

Okay. TGU and -- so for the TGU, how was the production? And last was formic acid, sir?

TGU was 74,800 and formic acid was 8,200.

[Operator Instructions] We have our next question from the line of Aatur from ICICI Prudential Life Insurance.

Just wanted to check, we've been reading about rotational maintenance shutdown by Covestro, Wanhua et cetera. So if you can just help, is that helping in terms of pricing or those are very temporary in nature and you don't see that sustaining beyond.

Mr. Tejash, are you online?

Yes, Nitin bai.

Yes. Please go ahead and reply.

As far as the Covestro and Wanhua shutdown is concerned, they are basically making TDI, right? But there are so many other players are there. Overall globally TDI production is quite high against the demand. So 1 month shutdown of Covestro and Wanhua will not affect the overall pricing of the TDI. Yes, there is a shortage in the Indian market of TDI that will definitely affect the pricing.

[Operator Instructions] Next question is from the line Falguni Dutta of from Mansarovar Financials.

Sir, I wanted to know the inventory that we are liquidating now. So the margins that we are making there are less than what you made in Q1?

I am Dilip Parikh, I'll answer your question. The inventory, which was built up up to 30 of June is liquidated to xextent of around 15% by the end of July. There is a mixed bag as far as realization is concerned, okay? Initially, the realizations were lower. Off late, the prices have gone up. So realizations have gone up. So it's a mixed bag. There is no specific realization number for it because it is a mixed one.

Okay. And sir, lately in last quarter, you had given a rough guidance about directionally how the Q1 would be versus Q4. Can you give me a similar guidance for the chemical sector, how would the Q2 be versus Q1 directionally?

We do not recall gentlemen, having given any guidance of such nature.

Like you had generally mentioned that the realization in Q1 are somewhat lower than in Q4. This is what you had said. So similarly, can you give a realization guidance, let's say, for Q2 versus Q1?

This is Rajesh here, the Company Secretary. I think we have never given any guidance as such. And I think we should not also get into that guidance part because that will also lead to a certain misinterpretation. So it is better we avoid those situation.

So let me put it this way, like current realization, how are they versus the Q1 average for the chemical part, broadly?

The current results are not yet...

No, not current results, sir. Current realization.

Our marketing head will respond on this.

Ma'am, we are talking about the Q1, so it is difficult to predict about the Q2 because the market is very volatile at present.

[Operator Instructions] Next question is from the line of Jigar Shroff from Financial Research.

I have 2 questions. One is, sir, what is the savings that is anticipated on the coal-based steam and power plant start at Dahej? That is one. And secondly, sir, any update on A.T. Kearney that we have signed with them for this advisory in terms of savings, management consultant. These 2 are my questions.

Okay. I'm Dilip Parikh. I'll answer your first question. For the next, there are certain initiatives from operations. So I'll request my colleague to answer that. The first question is on the likely saving of the steam and power project. See, this saving is actually fluctuating in nature depending upon the delta between gas and coal. But currently, we are likely to save around INR 30,000 to INR 40,000 per metric ton of TDI because of the current prices of gas and coal. This -- the dynamic will keep changing depending upon the price dynamics of these 2 variables.

So it's difficult to estimate, sir?

No. See, as far as current position is concerned, we conveyed the current position. It could be higher, it could be somewhat lower depending upon the element-wise change in the prices of gas and coal, okay? And in current times, it is very difficult to gauge any movement, whether it's coal or gas. They are at an elevated level, but how more elevated it can become is anybody's guess or it will taper down with some resolution coming. So it's not so clear as far as future is concerned.

So coal prices go down, it will be more beneficial to us.

Of course. It's a coal-based plant.

The second question.

Looking to second question, I'm Nitin Patel, Executive Director. Kearney is handholding us for various initiatives in various verticals for margin improvement and cost saving. Some of the initiatives which are completed, I will just outline. One was about fuel oil, our main raw material negotiation with the supplier for structural reduction in pricing. Second was coal grade change, mix optimization for reducing the input cost. Third one was major overhauling of boilers. We have 3 BHEL-make boiler. One of the boiler was overhauled in Q1, and that has resulted into efficiency improvement and that is a direct cost saving. We are also into RE short-term power purchase agreement for Bharuch and Dahej. Then we are also exploring alternate supply of fuel oil from another suppliers. Then as a part of project execution, coal conveyor was to be replaced. And while doing that, natural gas was to be used as an alternate fuel. But with in-house innovation by project team of GNFC and contractor and operation team, we could complete that job without using NG and continue to use coal, thereby there is a saving in the gas costlier fuel usage. Then load optimization of our power mix. We have steam turbine, we have gas turbine. We have grid connectivity through state electricity company. So power mix was optimized in order to keep the weighted average cost lowest possible. Then there was a focus on inventory management of Indian and different other brands of the coal and inventory control is defined and being executed. And there was a focus on inventory management of spare parts. There are a couple of more initiatives which are going on like purchase of methanol, import methanol, importing acetic acid, then we are also trying to make more focus on export, then auction-based price discovery is also being explored. And in Dahej also, we have taken several improvements for reliability and consistent operations, better O&M practices and CCPP commissioning, which my colleague, Mr. Parikh has already outlined.

So can you quantify, in terms of how much could be the savings that you...

See, quantification we have not yet signed off with the Kearney. It is under different stage of evaluation. And maybe by next quarter end, we may have a better picture flowing into P&L.