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

Ladies and gentlemen, good day, and welcome to the Q4 and FY '25 Earnings Conference Call of Gujarat State Fertilizers & Chemicals Limited. This call is hosted by Anurag Services LLP on behalf of Gujarat State Fertilizers & Chemicals Limited. From the management, we have Mr. S.K. Bajpai, Senior Vice President, Finance and Legal and Chief Financial Officer; Mr. S.V. Varma, Executive Director, AB and HRS, and other senior members from the management. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. S. K. Bajpai, Senior Vice President, Finance and Legal and Chief Financial Officer from Gujarat State Fertilizers & Chemicals Limited. Thank you. And over to you, Mr. Bajpai.

Yes. Thank you, madam, and good afternoon, everyone, and thank you for joining the earnings call of GSFC Limited for annual financial results of financial year 2025. It's always great to connect with all of you and share the key updates that we have experienced during the period. I hope you had a chance to review the financial results, media release and investor presentation available on the stock exchanges that have also been posted on our company's website. We are pleased to report a robust financial and operational performance for the financial year 2025. If we see consolidated financial results Y-o-Y basis financial year '25 versus financial year '24, revenue from operations stood at INR 9,534 crores, marking a 4% Y-o-Y growth over INR 9,155 crores in the previous year. PBT grew by 7% Y-o-Y to INR 756 crores, while PAT improved by 5% Y-o-Y to INR 591 crores. If we see stand-alone financial results financial year 2025 versus financial year 2024, during the current year, our standalone revenue from operation grew by 6% Y-o-Y to INR 9,429 crores compared to INR 8,932 crores in the last financial year. Profit before tax rose by 11% Y-o-Y to INR 740 crores, while profit after tax, PAT, increased by 9% Y-o-Y to INR 573 crores. If we see quarterly performance, quarter 4 Y-o-Y, consolidated revenue for quarter 4 declined by 2% only Y-o-Y to INR 1,922 crores. Nevertheless, PBT surged by 239% Y-o-Y to INR 89 crores and PAT grew by 194% Y-o-Y to INR 72 crores. In quarter 4 financial year '25, standalone revenue was INR 1,907 crores, marginally lower by 2% Y-o-Y. Our standalone PBT rose sharply by 251% Y-o-Y to INR 77 crores and PAT by 177% Y-o-Y to INR 58 crores. If we see quarter-over-quarter, means quarter 4 versus quarter 3 of the current financial year, consolidated picture is like this. Revenue from operation declined 32% quarter-over-quarter, with PBT and PAT down by 47% and 46%, respectively, primarily reflecting the seasonal nature of the fertilizer business as Q4 traditionally marks the off-season period. If we see standalone, revenue from operations fell 31% quarter-over-quarter, PBT by 49% and PAT by 51% on similar lines. The improvement in operational metrics was underpinned by increased production and sales in the fertilizer business. Fertilizer output rose by 15% from 14.29 lakh metric ton to 16.46 lakh metric ton. Sales volume increased from 19.09 lakh metric ton to 19.88 lakh metric ton on Y-o-Y basis, driven by growth in manufactured APS sales, which overcame lower DAP and urea trading volumes. In quarter 4, Y-o-Y fertilizer output rose from 3.31 lakh metric ton to 3.47 lakh metric ton, and sales volume grew from 3.62 lakh metric ton to 3.65 lakh metric ton. In financial year 2025, the company operated in a challenging cost environment, marked by elevated prices of key raw materials, including sulfur, sulfuric acid and P2O5, along with the steep depreciation of the Indian rupee, which collectively exerted pressure on the production and import costs. The caprolactam-benzene spread narrowed significantly from $693 per metric ton in financial year '24 to $578 per metric ton in financial year 2025, impacting segmental profitability. Additionally, subsidy rates for P&K fertilizers was lower on a Y-o-Y basis, that is AS means ammonium sulfate by 28%, DAP by 17% and APS by 19%, further tightening margin conditions. Despite these headwinds, the company responded statically by optimizing its product mix towards higher-margin fertilizers and industrial products and improving capacity utilization across key manufacturing units. The softening of natural gas and ammonia prices in H2 financial year 2025 also provided partial cost relief, helping to mitigate the overall impact on earnings. Looking forward, GSFC Limited enters quarter 1 financial year '25, '26 with an optimistic outlook for its fertilizer segment, supported by a favorable monsoon forecast and timely policy interventions by the Department of Fertilizers. The early announcement of revised nutrition-based subsidy NBS rates with approximately 17% to 26% increase in support for DAP and NPK fertilizers reflects the government commitment to ensure adequate availability and stable pricing ahead of the Kharif season. While the industry continues to face headwinds from elevated raw material costs and constrained global supply of DAP and phosphoric acid, GSFC is actively aligning its production and import strategies to maintain market continuity. With coordinated efforts to augment availability, the company is targeting sales of approximately 4.5 lakh metric ton in quarter 1 of financial year '25-'26. GSFC remains fully aligned with the national objectives and is working closely with the DOF to meet the distribution target set for the upcoming season. The caprolactam-benzene spread is expected to remain under pressure in quarter 1 also, with international caprolactam prices falling below USD 1,200 per metric ton and benzene prices remaining volatile. On a positive note, increased HX Crystal output following the commissioning of the HX Crystal II plant, along with higher ammonia trading volumes is expected to continue boosting IP segment performance. Melamine demand from key sectors, laminates, MDF and plywood remains stable in both domestic and export markets. While passing headwinds from Chinese import persist, overall demand and turnover for the Industrial Products segment are expected to remain stable in quarter 1 next financial year. Turning to the company's balance sheet. We continue to maintain a robust financial position, characterized by the high net worth to total asset ratio and a long-term debt free capital structure. This strong foundation enhances our ability to fund plant CapEx and absorb external shocks with resilience. Our liquidity position has also been supported by the timely disbursement of the government subsidies, reflecting a proactive fiscal approach by the authorities. As of date, the company has received subsidy payments of urea and P&K fertilizers roughly up to the second week of April 2025. The company continues to advance its CapEx plans, aligned with the strategic growth road map. First is the 15-megawatt solar power project at Charanka, Patan, has been recently commissioned. Urea-II Revamping Project is currently running at full capacity, with a guaranteed test run on the verge of completion, and it will be commissioned up to the end of this month. Phase 1 of GIPCL 75 megawatt solar power project, that is 25 megawatt has already been commissioned and Phase 2 is expected to go live on 31 May, 2025. Once fully operational, GIPCL project is projected to deliver annual saving of approximately INR 30 crores by replacing higher cost grid power with economical captive supply. The Sulfuric Acid V project and PSA project remain on schedule with the commissioning of SA-V targeted for completion in its first half of financial year 2026. I would like to express my gratitude for your patience in listening to my overviews. Yes, we will now commence the question-answer session.

[Operator Instructions] The first question is from the line of Nirav from Anvil Wealth.

Sir, a few questions to ask. Sir, first is on the manufacturing volumes of 1.6 million tons, which we have clocked in FY '25 and a growth of around 15% on a Y-o-Y basis. So, how one should look in terms of overall volumes for FY '26?

Volume will remain same or it will improve because now we are utilizing Sikka Unit capacity to around 60% to 70%. And further, it will be going to improve because of the availability of phosphoric acid in stock what we are having and we are also having the commitments from the foreign suppliers to get the phosphoric acid at a competitive price. And overall, the government has also promised us that the company should continue the production of DAP. And if there is any loss, then government will compensate the losses. So, I don't think we are -- we have started the DAP production at Sikka Unit at full swing, and it will be continued. However, the government notification is still awaited, but this is the best of the information what I got.

Got it. And sir, in FY '25, we had a negligible production of DAP vis-a-vis the capacity what we have. And even the subsidy portion was very volatile in terms of the prices of phos acid and the rising prices of DAP in the international market. Would it be right to assume that DAP would have a loss of around INR 1,000 to INR 1,500 a tonne in our P&L for FY '25 or the figure is slightly higher?

As I told you that this already, they have increased the subsidy of 20% around in the DAP with effect from 1st of April. So partly, it is compensated. But over and above if there is any loss, then we expect from the government to compensate it. And they are also providing this 4% return on cost of sales along with the GST reimbursement and other things. So, I don't think that there are any loss to be booked in the books of the company.

No, sir, I was specifically mentioning for last year.

Last year, we had curtailed the production of the DAP, and we have only produced the minimum quantity. So whatever is the loss, it is INR 1,500 per metric ton type of loss, what we have suffered, but it's not that which hinders the company's prospects.

And sir, with now you're mentioning about that this DAP would be fully compensated to us and you've been starting the DAP production in full swing, would it be right to assume that for FY '26, which is the current financial year, we should work with around INR 3,000 a metric ton of EBITDA per ton for entire of our fertilizer business?

Yes, yes. Because the NPK fertilizer is on profitability. But the DAP, if we can say that INR 3,000 per metric ton, then this is 4% that what government is promising to the company. So that would be there, I think.

Overall fertilizer.

Overall fertilizer INR 3,000 per metric ton will be EBITDA.

EBITDA per metric ton, right?

Yes.

Sir, you also mentioned that our sulfuric acid plant is going to get commissioned in first half of FY '26. I think initially, it was scheduled to start from March, which you have guided last quarter. So with now the availability of sulfuric acid would be far better for us, and we would have some surplus to be sold in the market. And with the sulfuric acid prices being very strong, how do you see the profitability accruing to us based on your calculations of the outside sales volume for sulfuric acid?

No, I'm afraid that we have mentioned anything that it would be commissioned in the March or something like that because it is scheduled -- completion date is only in the September, second half of the current financial year. Yes. So the progress of the plant is as per the schedule. There is no delay. However, there may be 1 month or so here and there. But there is no delay as far as sulfuric acid commissioning is concerned. However, having said that, whatever the sulfuric acid we require for the production of APS and ammonium sulfate, we have tied up with the suppliers and we have made a long-term contract for the full-year basis as you rightly said that the sulfur and sulfuric acid price is quite high in the market. But since it's a long-term agreement we have executed with the suppliers, so there will not be much impact when we are providing the caps on the pricing of the sulfuric acid.

Got it. But it is safe to assume that it would surely add to the profitability in FY '26 on whatever volumes we sell in the outside market?

Seem sulfuric acid is a very volatile commodity and assuming a price 6 months down the line is very difficult, yes. If the current trend prevails, it will surely add to the profitability.

Got it. Got it. Sir, last question from my side is on the Industrial Products. I think we have seen a sharp improvement in the profitability sequentially even on Y-o-Y basis. So with the prices of most of our products either similar or slightly lower on a Q-on-Q basis, if you can explain the reason for this improvement in profitability, that would be helpful.

Yes, that's correct because the caprolactam-benzene spread is very low, if you see. So, what we have done that HX crystal plant, we had commissioned last year, now it is running in the full swing. Both our HX crystal plant is running in full swing, producing around 30 metric tons per day. So, around 9,000 metric tons per annum, we will get in the supply of HX crystal. So, that will reduce the caprolactam availability in the market and this HX crystal plant is very remunerative and is quite supportive in contribution level and margins also pretty high. One factor is this. And second is that ammonia trading we are doing, So whatever ammonia we are importing and if there is any requirement from the current or present local requirement, then we supply the ammonia. So, that is also one factor which adds into the contribution of IP segment.

Got it. So is it possible to break it down between this improvement between how much would be contributed by this trading of ammonia, just to get an understanding about the steady-state run rate of the Industrial Product business?

It is difficult to tear it down, but what I explained to you the HX crystal is giving the good margin because it is a marketing strategy. I would not like to disclose the actual contribution what company is getting. And ammonia also, the ammonia pricing, internationally, if you see is very competitive, $330 or so. So, we are getting good margin in ammonia source and that's added to the profitability of the current quarter in the IP segment.

Okay, sir. Sir, last bit from my side. Is it possible to share any outlook on the PBIT margins for the Industrial Products for FY '26 because they have been very volatile in between the quarters and also on a yearly basis? So with now this HX crystal plant getting operational and working on full swing, is it possible to give some understanding on the profitability of the Industrial Products for FY '26 given the current scenario?

As you see that currently, the caprolactam-benzene spread is hovering around $578. And I don't know whether this will come down further because there is no scope now. So presently, caprolactam prices is also going ahead with the $1,200. So it will improve what I see. And as you rightly said, HX crystal, the full swing for the whole year and any trading of the ammonia and other products, we will be having a better margin in comparison to the current year, that I can say.

The next question is from the line of [ Vivek ] who is an Individual Investor.

Am I audible?

Yes, yes.

I was looking into the balance sheet portion. When I look into the shareholders' fund, equity you have mentioned it, in March '24, the equity was around INR 12,610 crores. Surprisingly, when we have earned a PAT, the PAT is positive, then how the equity has reduced, in fact? The shareholders' fund has been reduced. When there is a PAT, it should have increased. How it is reduced? Is there any accounting policy according to which it has reduced?

No, I think that you are telling this -- whatever the profitability is there, we are distributing dividend and other appropriation on the profits. And moreover, this investment revaluation at every year-end, so it is a drastic reduction in the investment.

Okay, sir. I understand. You mean to say that the investment in associates and investment in others, you have valued at the market price standing as on 31 March, '25?

Right, right. That is equivalent to the [ INR 973 ] crores. So, this is a very hefty reduction, but it is -- you know that it depends upon the market price of the investee companies.

My second question was that only, that how the investments -- you have sold some investments or the reduction is because of revaluation. So, I got my answer that also.

Because of only revaluation. We have not uploaded anything.

Got it. Sir, my second question is whether any news, last time also many investors, including me, have raised the point about the buyback of shares as per the notification of Government of Gujarat issued in April '23, in fact?

No, presently, we are in mid of the -- on the CapEx expenditure, we have been capitalizing the project. In the next 6 months, we will be spending around INR 600 crores by way of CapEx payments to the urea INR 453 crores and INR 300 crores SA-V. So, all these expenditures are available for the CapEx, does not permit the management, I think that any buyback or such thing can be done immediately. But certainly, it is a management problem. They will think when the position is -- we are comfortable.

The next question is from the line of [ Ankur Agarwal from ICP Group ].

Am I audible?

Yes, yes. Please go ahead.

Okay. Sir, in the investor presentation for the March '25 quarter, you mentioned that the natural gas price was INR 38 per SCM and the price of ammonia was around INR 38,000, INR 39,000 per metric ton, right? Just wanted to check, isn't producing -- importing ammonia cheaper compared to producing ammonia using natural gas? So, just wanted to understand how do you decide importing ammonia versus producing ammonia using natural gas? Because in current scenario, it seems that importing the entire amount of ammonia seems to be cheaper compared to producing it via natural gas. So, can you share your thoughts on that?

Actually, ammonia plants, we are having here in Fertilizernagar complex. So the all ammonia requirement is met from the -- our own production of the 1,350 metric ton per day, having this Ammonia IV plant. So, we are meeting all the ammonia requirement from the natural gas to be produced -- natural gas moat and ammonia we are producing is consumed in the Fertilizernagar complex because there are lot of ammonia requirement. However, in Sikka, there is no ammonia plant, so we have no option to produce our also. So, we import the ammonia and sulfuric acid for the manufacturing of this DAP and other LPG grade of fertilizers.

Sir, but producing ammonia from natural gas, isn't it becoming costlier at current natural gas prices compared to importing ammonia directly?

No, no, no, it is not. And the production is still cheaper than the imported ammonia.

The ammonia production also give carbon dioxide, which is required for urea production and other productions also. So on a standalone basis, you cannot consider that ammonia as this thing.

Okay. So in the process, carbon dioxide is also used when you are producing via natural gas?

Yes.

And sir, what are the -- from which countries are you sourcing ammonia? And are these long-term contracts? And how are they indexed? Is there any indexation as such for these contracts? If you can clarify or provide some light on that?

We have some long-term MOUs rather than we are not having the contracts. But we are floating the tender whenever the ammonia requirement is there and the suppliers are also informing us when there are any ammonia to be sold. And the pricing is as per the international pricing. So, there is no problem. We are getting the regular supply of ammonia. And our suppliers are meeting to us at the various forums and we are executing the MOUs.

Are these majorly from -- coming from Middle East? Is that understanding correct?

Yes. Yes.

[Operator Instructions] As there are no further questions from the participants, I would now like to hand the conference over to Mr. S. K. Bajpai for closing comments.

Yes. Thank you for the questions. And I hope that myself and my team has provided the satisfactory answers to them. However, if any query or something like that is there, then please contact on the e-mail. We will provide the -- whatever information is needed for having the confidence in the company and company's management. Thank you very much.

Thank you. On behalf of Anurag Services LLP, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.