Gujarat State Fertilizers & Chemicals Limited (500690) Earnings Call Transcript & Summary

Okay. And if you could give us the EBIT margin for caprolactam and melamine?

Pardon?

If you could give us the EBIT margin for caprolactam and melamine?

No. We don't specifically go for the product-wise EBITs or anything like that. That is a little confidential. But they're all above 15%, I would say, in general.

Sir, this is EBITDA or EBIT?

This is EBITDA because now, of course, interest cost, some extent is there. Otherwise, almost now interest cost has substantially reduced. So hardly makes any difference.

Okay. And in the Fertilizer division, what kind of margin outlook do we expect? Like, what kind of EBITDA per tonne do we expect going forward considering there's a rise in raw material cost?

So far, it has been around INR 2,000 per manufacture for Fertilizer. So we expect some downstair -- downward impact of this Q4 pricing. So between, say, INR 1,500 to INR 2,000, it should remain. So around between 4% to 5%, we can say, in terms of percentages.

Okay. And what are the CapEx plans for FY '22?

CapEx, as I said, that we have only started work on revamping urea. They involve 50-year-old plants, so around INR 300 crore. And then we will start CapEx on sulfuric acid plant -- new sulfuric acid plant and new ammonium sulfate plant. They all take 2, 2.5 years to commission. So some part of it will go to the next year. So in all, it's around INR 500 crore to INR 600 crore.

Okay. And in methanol, could you give us the revenue that we generated in Q3?

Methanol is trailing around INR 20 in Q3. So -- and yes, it was some INR 100 crore.

Okay. And is this also operating at 100% capacity utilization?

Yes, initially because we started after 6 years. So initially, it operated at little lower capacity. But it's almost 95%, 96% capacity it is operating. Since it's an old plant, we don't go up to 100% because of safety reasons.

Okay. And if you could give us how are benzene prices currently?

They are linked to crude. So since crude is also firm, so that remains. So in absolutely dollar-rupee term, it is around INR 50,000 per tonne. And if we talk in terms of dollar, it is around $680 kind of thing.

[Operator Instructions] The next question is from the line of Jaideep Merchant from Janak Merchant Securities.

Mr. Nanavaty, can you -- like the central government has been encouraging the public sector companies to buy back the shares, I hope you give dividends more frequently, trying to focus on the shareholder value generation other than operationally doing well. So does the GSFC have any plans? Because now we'll be debt-free, we'll have some cash on the books. The market cap is very low. It is quoting at a very significant discount to its book value. Is there any plan to do any buyback?

As of now, no.

No, but is there a thought because -- I mean, share trades at almost half the book -- more than half the book value. Since you are saying that...

These have -- these decisions have to be taken, I mean, comprehensively with a lot of debate and deliberations on that. So as of now, I think we will only say that we don't have plan for to do this. If there will be anything, of course, it has to come through proper channels and all, complying with regulatory requirements, et cetera.

Yes. But this is now a policy of the DIPAM, and DIPAM Chairman is on -- in press very regularly nowadays and encouraging the public sector companies to do these kind of...

See, yes, let me make it clear. GSFC is not a PSU. Hence you can't -- the holding part of GSFC is filed with the stock exchange. We have not become a PSU.

We are a company promoted by Government of India. So any statement made in this regard by any PSU, PSU chairman or any person of that nature, probably would not include GSFC at least as of now. Yes, if at all, GSFC thinks of doing stock buyback, then it will be own independent decision. It won't get swayed or get -- [ if we're buying ], but it is statement made in the present. This is what, I mean, we would like to say today.

Okay. Let me ask in a different way, sir. Is there a deliberation that there should be a deliberation?

See, there are certain issues we are bound by the insider trading board. So we will not be able to reply to you on this very well. But I will only say no to what you say, what you asked for.

[Operator Instructions] The next question is from the line of Deepak Kolhe.

Sir, if you look at fertilizer prices, like also started going up. Sir, do you see that you will pass it on to the consumer?

Yes, because there is no way we can absorb we have so far because processing price has been increasing every quarter from last April onwards. So -- but still there has not been any price rise so far. But now this quarter 4, raw material prices are very, very steep, right? So there has to be some pass-on. Maybe partly government increases the subsidy, and partly, we increase the MRP. Or if the government is not willing, then everything will come in form of a higher MRP. So now there is no choice left.

Okay. And sir, also, sir, in the industrial chemicals (sic) [ Industrial Products ] segment, sir, there is a sharp jump in the other. So the revenue from this other grew from [ 500 million to 1,500 million ]. So what are the reasons for that, sir?

So as I said, we have been selling any intermediates when the -- towards better margin, so those kind of things. And now variety is increasing in the basket, so you may be seeing some jump in the -- when the numbers are clogged.

Next question is from the line of Abhijit Akella from IndiaInfoline.

Sir, just wanted to get your thoughts on 2 points. One is you mentioned about the growth plans. You already spoke about the urea project and sulfuric acid and the others. But you also mentioned the Atmanirbhar initiatives. So just sort of wanted to understand whether there are any specific product names that you could share or any CapEx kind of outlay plans, and what kind of turnover potential there could be from this thing.

Yes. So as I said, basically, we don't want to go out of our periphery. So we will be -- we are choosing those products with synergy with our existing product basket, either in chemical or in fertilizer. So we scan the data for -- particularly in view of this COVID and a lot of imports coming from one country. So those market research lend us with a variety of products, right, so which are not usually imported in India, or they may be exported with good export potential. So we thought that it is -- now this is the clarion call from Prime Minister, and we should respond to the way we can do something about this. So those are the -- after scanning many products, we have zeroed down to 11 products, which are -- if we want to take up manufacturing. So they are being -- the research and the technology is being generated by our own R&D department. So we don't have the cost of this licensing and all these things incurring on this line. So 1 or 2 products are the downstream products of the melamine, like melamine cyanurate or cyanuric acid kind of thing. So it will give further value addition in the melamine chain. And then there are some products in the pharma and biotech sector. And you -- we saw that a lot of API is imported from China. So we thought of venturing into those kind of things. So they're parma and biotech intermediates. Then we have some things like nylon 66, then [ nitric ] acid, then food-grade phosphoric acid because we are using processes already for manufacturing fertilizers and further refinement can lead to food-grade phosphoric acid, which is used in cola, coke and pharma applications. And there are nitrobenzene, aniline, acetic acid. These are all the various products which we are working upon and are at the different stage of development, market seeding, products -- pilot products and et cetera. So once they are there, we will announce if some progress is made. Same as the size of the plant will depend upon the market requirement. So the market seeding will give us the size of the market, upon which we will decide the size of the plant to be put up, which will ultimately convert into the revenue. So we're a little far from that statement, but these are the products which we are working upon. So overall basis, when everything is done, if everything is in place as per what we desire, it will give a sum of around of INR 3,000 crores with a CapEx of around INR 2,000 crores, broadly.

Okay. CapEx, INR 2,000 crores, and turnover, INR 3,000 crores?

Yes. So that includes the melamine 4 plant also because of the very good demand. We want to replicate the new melamine 3 with the same capacity in melamine 4. So it includes turnover, and CapEx includes that also.

But in terms of time line of commissioning, is it a bit too early to specify that, sir? Or would you expect it to be up and running, say, within the next 3 years or something like that?

I think next 3 years is a reasonable time line to everything goes as planned, I would say.

Got it. That's helpful, sir. And on the Fertilizer business itself, I know in the past, we had some plans about DAP expansion or phosphoric acid and something like that. Are those plans still there? Or those are not -- you're not going ahead with that?

Yes. So we are calibrating the capacities -- what capacities to put up. Otherwise, with this kind of $795 processes and [indiscernible] and DAP coming at much lower cost, it's a pure indication of requirement to have our own processing plant in India. Because the rock phosphate is not controlled like phosphate is. So there are a lot of countries are ready to provide the rock. But process here is tightly controlled by [indiscernible], and they increased the price the way that they like. So there's a clear case of putting up a processing plant. But we'll take a call on that.

Yes, sir. Got it. And one last thing from my side, sir. Regarding the outlook for the kharif season of the upcoming year, we -- in the Fertilizer business, we have a high base, I think, as an industry from last year because volume growth was very strong last year. Then now we are seeing some chance of MRP increases this year, which could maybe impact farmer demand a little bit, maybe. And also, apparently, the government has been making some moves to control or curb fertilizer purchases by individual farmers. They're limiting it to 50 bags per month or something like that. So would you expect sort of the industry volume growth to be a bit under pressure in the kharif season, overall?

No, no, no. I think it is going to increase. So farmers have not denied any genuine requirements. It's only some black marketing or out of kind of thing that they were buying. So it is like a gas cylinder rationing, that's up to 3 cylinders, you get subsidized and then you get a commercial price. So something like that model is being followed. So those who are buying in that quantity without corresponding plant size or crop size, so all those extra bags will be [ shared ]. So that will help in reduction in subsidy but -- and also to the government. But already, there is an estimate of normal monsoon in India, I think, this year. So -- and if you see the numbers of MSP that the government has spent compared to earlier time, it is, I mean, huge amount they are spending on buying various wheat and crops and pulses and cotton and everything at MSP from the country. So farmers have a good time. So I think we at least expect 3% to 5% growth next year.

[Operator Instructions] The next question is from the line of Sreemant Dudhoria from Unifi Capital.

A question on our contingent liabilities. If we look at the annual contingent liability numbers on annual report and see the trend over the last 5 years, there has been a steep increase. FY '20 number stands at about, say, INR 1,021 crores. Could you help us understand, sir, what is this related to? And would this have an impact?

No. These are all -- because of the accounting standard and all these things, we are required to report, I mean, the slightest legal dispute on any subject. Otherwise, they are not really such that it will fortify to the real liabilities. Mainly, like the gas -- natural gas, market is new in India. And you see GSFC is using gas since 1966. So nobody knows what is the model, no, when you are the first mover kind of thing. So this applies to like all kind of legal claims on you, that you owe this and this, that and all this thing. So there is no support that you are the first user of the gas. They were flaring the gas, ONGC. And then we said, "No, why you are flaring. Give it to us and we'll make ammonia and fertilizer." So there is no appreciation of such a huge tech, but it should have that they find faults and come out with various kinds of things. So -- plus the as tax laws are getting complex day by day, those kind of excise and custom and VAT, these tools are there. But you will see that excise, we took the advantage of Vivad Se Vishwas scheme last year, and it has come down in this March '20 -- I mean, '19/'20 period. Income tax also, with more and more transparency coming in the picture, we hope that, that will also come down. And there also, this year, we should see some improvements. And others are various claims, including, as I said, gas claims from GAIL and all, which part of it we have settled in this year. So I think that should also bring down the figure. And as you know, our costs work very slowly. So this INR 678 crore of other includes legal cases, which have been there for more than 25, 30 years, and in no case we are getting any final judgment. So they keep on the books and they don't move. So over a period of so many years, it has piled up. But we don't see anything materializing in any short time. And one thing, I will make it clear, that we don't fight wrong claims. When -- if we feel that we are wrong, we pay the money and we don't fight. So unless we are genuinely correct, then only we go to the litigation. So for most of the claims, we don't see any liability coming on us. And something related, I will say that on the MSME front, even during COVID, we paid to everybody on their due date. We don't delay their MSME payment, and we pay by the due date originally contracted, and we don't give any excuse of any kind for delaying the payment. Nobody is allowed to delay any payment. So we pay to everybody on dot. So -- and that is a side point.

Thank you for the detailed clarification. So with the resolutions that you mentioned, where does the number stand as of today?

That will have to be compiled, no? There are hundreds of cases, as I said, from -- running from last 25 years. So what -- but as I said, one GAIL matter we sorted out. That was more than INR 100 crore from 2014. And that was a major thing. And last year, you can see the excise cases have gone down because Vivad Se Vishwas matter. And income tax, because of the safeness thing and transparency and they are also driving the department to complete assessments and other things in time, I think there is some improvement on those numbers. Maybe it's not passed. So maybe next quarter end, you will have that number.

Sure. Sir, just a clarification in response to the previous participant. You mentioned that we are looking for INR 2,000 crore CapEx over a 3-year period for the various new products related to Atmanirbhar and...

Correct, correct, correct.

Okay, okay. Fine. Got it. Sir, a question on our capacity number for the non-urea fertilizer segment, could you help us with the capacity for NPK, APS and ammonium sulfate?

Capacity, as said, everything is above 100%. So like for 9 months, if you see, urea plants were 106%; ammonium sulfate at 240%; ammonium phosphate sulfate at 100%; then NPK, it was 129%.

Okay. Got it. Got it. So across your product categories, both in the Fertilizer and the chemicals segment, both have scope for further increase in volume. Because if I understood right, in most of the products, you're already at a very high utilization numbers.

Correct, correct, correct. But capacities cannot been increased quickly. So the only thing is to do the trading as most of the fertilizer companies are doing. So -- but this year, we had been a low in trading. Last year, we had a good amount of trading. So maybe in future, we may take it up.

Okay. Got it. Sir, about -- sometime back, we had made investments in TIFERT for procurement of phosphoric acid. How has that investment panned out? And would that put a requirement of phosphoric acid?

Yes. So TIFERT is having a lot of social problem because the country got democracy from the autocracy kind of a thing. So it's a long process. When people get -- like India got freedom. We had a lot of expectations. So the Tunisian people have a lot of expectation from the industry. They demand jobs and pension and so many things. So those kind of social unrest keeps the plant off and on. So we received -- I mean, they work at 30% to 40% capacity. So we receive time to time various processes, consignments from them, but it is not up to the level -- that 100% capacity. Otherwise, they have 360,000 tonne capacity. So at 50% of that, we should have got 180,000 tonne processes from them. But those days are a little far. But right now they are working, but with this uncertainty kind of thing.

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

Sir, my question is around the new product launches that we had in the past quarter. So this is calcium nitrate and boronated calcium nitrate. So I guess we started with the 5,000 tonne annual capacity. So yes, it is around what is the response from the market regarding that? And are we planning to increase the capacity? And what are going to be the margins?

Yes. So response is very good. In fact, there is a huge shortage in the Himachal for this calcium nitrate, where we launched this product with good funfair. So there's a huge demand and there's a huge shortage prevailing. As you correctly said, we started with 5,000, but we hope to reach 8,000 tonnes by March. And subsequently, next year also, we'll keep increasing the -- I mean, the production capacity to meet the demand. And we have still to capture Jammu and Kashmir market. This is only -- right now, we are at Himachal. . So there is a huge scope in this product with good margin. And it is being sold at INR 40,000 per kg. So you can compare it with urea, which is sold at INR 6,000 per kg -- I mean, per tonne. So still farmers are ready to pay such a huge price difference between this 2 fertilizers. So the magic lies in real delivery in the apple and the other foods that it is applied. So we see a good picture in that. And as I said, the fast money products are also of similar in nature, hot cake in India. And when the revenue will come from the production and all, we will see a marked improvement in the bottom line.

The next question is from the line of [ Ahmed ] from Unifi Capital.

Sir, given the CapEx plans for us for the next 2 years, 3 years, could you help us understand how would be the funding of these CapEx and -- in context of our current cash on our books and debt?

Yes. So we generate cash of around INR 400 crores to INR 500 crores every year from the profit. So that will be readily available for putting up the CapEx. Thus, we have these huge reserves. So I mean, our borrowing capacity is huge compared to the reserves available. So we will see the best from our finance that is available. And we don't restrict ourselves to the Indian lenders. We tap the foreign lenders also with good hedging cost. If they are competitive, then we go for foreign funding. So we'll see as and when the time comes. But as you can see, the INR 500 crore in 2, 3 years, so INR 1,500 crore, can come from the current profit only. So then I don't have much appetite for other borrowings.

All right, sir. Okay, okay. A question on the Fertilizer segment. If you could help us understand regional revenue breakup for both urea and non-urea and our market share.

Urea, non-urea, that -- as I said, there is -- on our website, it is available for volume and value for the quarter. So you can have some indication from there. Basically, GSFC is a phosphatic fertilizer company. We are a very small player in urea, but we have this Rozi Port handling work with us. So while we manufacture around 370,000 tonnes of urea, this year, we got some 5.5 lakh tonnes of urea at Rozi Port. So that almost took us to be 9 lakh tonne of urea. That is almost half of what we sell annually.

Okay. Sir, I was referring to the sales-wise breakup of sales in the Fertilizer.

Sales, basically, our 40% sales is in Gujarat. And then we sell mainly in Maharashtra, Madhya Pradesh. That is a secondary market. Then we have presence in other states also, particularly Karnataka and Southern market for ammonium sulfate, and West Bengal and all these Eastern states for ammonium sulfate --phosphate sulfate and ammonium sulfate. So majority, 60% is these 3 states at joining, and balance, 40%, is this part or maybe 10, 12 states.

Sure, sir. Sir, a question on the urea CapEx, which you mentioned, INR 300 crore CapEx and mainly for the cause of modernization of the old plant. Would it lead to any meaningful savings financially for us post this CapEx?

Yes, because government is tightening the energy norms every few years. So right now, they have said 6.2 gigacalorie per tonne of urea. Beyond that, they don't provide subsidy. So right now, we are at 6.4 or 6.45. So if we don't meet, we will lose some INR 10 crores to INR 15 crores every year on lower subsidiary for that. So that -- after this conversion, it will be -- we will stop that loss, plus we will achieve better than 6.2. So there will be saving in the energy cost. And of course, the 50-year-old plant has to be standing from safety and regulatory aspect. So that will also happen side by side.

Thank you. Ladies and gentlemen, due to the time constraints, that will be the last question for today. I will now hand the conference over to the management for closing comments.

Yes. So thank you, everybody. And as I always used to say after every con call, that keep faith in GSFC, have the GSFC stories intact and it is a growth story. And as our original motto goes, we are basic to India's progress, so we'll keep looking for revenues where the country is lagging behind or others are not really to put up CapEx from those areas, we will enter. But as I said, it will not be a blind spot kind of thing. We are always mindful for the IRR and payback period. Generally, we don't go for any CapEx where more than 5 years IRR is coming. So that call will never be there of jumping into DAR or any FSR spending. So that assurance is always there. And given that -- and as I said, we will be restricting ourselves to the core competencies. So we will not jump in unknown products or categories. So that way, your investment is safe and is in good hands. And maybe in future, as one of the participants said, management may take a call of buyback or special dividend or any kind of testing if we find that we don't have good investable revenue available. Thank you.