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

Ladies and gentlemen, good day, and welcome to the Gujarat State Fertilizers & Chemicals Limited Quarter 1 FY 2025-'26 Earnings Conference Call. This call is hosted by Anurag Services LLP on behalf of GSFC. From the management, we have Mr. S.K. Bajpai, Senior Vice President, Finance and Legal and CFO; Mr. S.V. Varma, Executive Director, Agribusiness, HRS and IR; and other senior members from the management. [Operator Instructions] I now hand the conference over to Mr. S.K. Bajpai. Thank you, and over to you, sir.

Okay. Good afternoon, everyone, and thank you for joining us for quarter 1, 2025-'26 earning call of Gujarat State Fertilizers & Chemicals Limited. It's always a great pleasure to connect with all of you and share the key updates that we experienced during the quarter. I hope that you had a chance to review the financial results, media release and investor presentation available on the stock exchanges and also uploaded on our company's website. As we see the consolidated financial performance for Y-o-Y basis, revenue from operations grew marginally by 1% Y-o-Y from INR 2,163 crores to INR 2,184 crores. PBT rose by 63% Y-o-Y, INR 184 crores from INR 113 crores. And PAT by 59%, Y-o-Y INR 139 crores versus INR 87 crores. If you see quarter-over-quarter, then revenue from operation grew by 14%, INR 2,184 crores from INR 1,922 crores. PBT jumped by 108% quarter-over-quarter, INR 184 crores from INR 89 crores and PAT by 93%, INR 139 crores from INR 72 crores. Quarter 1 marked as a resilient start to financial year '25-'26 with stable revenues and improved profitability. In volume terms, fertilizer production reduced by 40,787 metric tons, that is approximately 10% in quarter 1 Y-o-Y. However this includes a one-time transfer of 40,435 metric ton of urea towards the revamping project. Taking this into consideration, the production is limited to 3,352 metric tons, that is only 1% Y-o-Y due to lesser urea and DAP production. IP production remains stable year-on-year basis. Reported fertilizer sales grew marginally in volume, 2% and estimated stable in volume terms around 4.51 lakh metric tons in quarter 1 Y-o-Y basis. However, this includes a one-time transfer of INR 149 crores of urea towards the revamping project. Taking this into consideration, fertilizer sales would have grown by 11% in value terms and 10% in volume terms in quarter 1. On the cost side, raw material trends were mixed, prices of natural gas and ammonia soften, offering some relief, while cost of phosphoric acid and sulfuric acid saw a sharp increase impacting P&K cost economics. Our Fertilizer segment delivered a strong EBIT of INR 137 crores, up from INR 86 crores in the corresponding quarter last year, reflecting a stronger operating leverage, favorable product mix, and better cost absorption. This was supported by robust trading volumes, especially in NPK, higher manufactured APS and AS sales and improved realization in P&K fertilizers. Urea volumes, however, declined due to stabilization challenges and exclusion of project-related trial sales about INR 149 crores in quarter 1. The Industrial Products segment turned profitable with INR 25 crores EBIT added by improved realization in ammonia and HX crystal, even as the spreads and core volume remained subdued. We continue to maintain a strong balance sheet with no long-term debt, healthy network, and adequate liquidity. Our liquidity position has also been supported by the timely disbursement of government subsidies, reflecting a proactive fiscal approach by the government. As of date, the company has received subsidy dues for P&K fertilizers and urea claims raised up to the first and second week of July, respectively. This provides the foundation for advancing our CapEx road map. I am happy to report that three major projects were commissioned during the quarter. First one is 15-megawatt Solar Power Project at Charanka; Urea-II Energy Revamp facilities; and our participation in GIPCL’s 75-megawatt Solar Power Project with our share of 50%, that is 37.5 megawatt. These will enhance cost efficiency and sustainability over the long term. Looking ahead, the progress of the Southwest monsoon has been healthy so far, supporting Kharif sowing and agri input demand. However, rising input costs, especially for phosphoric acid and DAP, pose challenges for the fertilizer sector. We may see some upward pressure on MRP in the coming months. Policy actions from the Department of Fertilizers will be critical in this context. We intend to pursue a balance production import strategy, particularly in DAP and non-DAP grades to protect margins and optimize realizations. In the Industrial segment, Caprolactam-Benzene spreads are likely to remain under pressure due to oversupply and continued Chinese dumping. That said, demand for melamine and other key products is expected to remain stable, and we anticipate much better performance in the segment for quarter 2. With that, I now hand over the call for question-and-answer. Thank you.

[Operator Instructions] The first question comes from the line of Nirav with Anvil Wealth Management.

Sir, I have a few questions. So, sir, just to understand like when we produce AS and A&P fertilizers, how are the profitability is fixed? So, just like as a percentage of realization, which is a mix of MRP and subsidy, we get a certain percentage of this as an operating profit or at the PBT level. So how this mechanism work? Let's say, if we take for AS grade, which is like MRP plus subsidy is close to around INR 29,000, INR 30,000 a ton. So how the profitability is ensured by the government, something as a percentage of this? Or is there any other mechanism which is fixed?

So actually, the profitability in case of ammonium sulfate and ammonium phosphate sulfate is dependent on the cost of the nutrient what we are using in the production of AS and APS. Actually, phosphorus, this P205, rates are very high and it is presently around $1,258 per metric ton. So there is no fixed norm that what is the percentage of profit we are earning. It all depends upon what -- at what cost we get this raw material from the international market. And as far as ammonium sulfate is concerned, we produce here in Vadodara. So sulfuric acid, as you see, sulfur and sulfuric acid prices are very high, approximately 150% has been risen if you compare with the last quarter or last on Y-o-Y basis. So really, the margins in the case of ammonium sulfate has squeezed a lot. And in APS, due to the phosphoric acid prices going high, there also we are getting hit in the margin terms.

Got it. So sir, last year, you mentioned that on an average, we made close to around INR 3,000, INR 3,500 a metric ton for both these fertilizers put together. How was the scenario in Q1? And how do you see panning out for FY '26?

As I told you, because of the cost inflation, it is around INR 2,000 to INR 2,500 in case of ammonium sulfate, we are getting per metric ton.

Okay. And how do we see for the rest of the year?

As I told you in the opening remarks, the subsidy is due to be fixed based on the input cost by the Government of India with effect from 1st of October. So we are quite hopeful that there must be some revision, because sulfuric acid price and phosphoric acid price, both have been risen a lot, and that is the reason the DAP is not economically viable for us to produce. And there's a lot of shortage of DAP in the market also. So that we hope that government will do certain things with certain criteria for fixing the subsidy with effect from 1st of October.

Right. Sir, two clarifications here. So one, let's say, for both these fertilizer grades, we produce close to around 317,000 tons of volumes. And based on the conversions, I think ammonia requirement is close to around 85,000 tons, and sulfuric acid is close to around 190,000 tons for this quarter. So have both these inputs produced captively? Or do we need to source something from outside market also?

As far as sulfuric acid is concerned, we have the four sulfuric acid plants. But still, the demand is -- demand of the sulfuric acid in our complex due to the ammonium sulfate IV, new plant capitalized years ago is high. So that the company has already in the process of establishing Sulfuric Acid V plant, which is due to be commissioned in 2 months from now. So till now, we are getting the long-term arrangement with the companies who are supplying the sulfuric acid at the Vadodara complex and as well as Sikka complex for ammonium sulfate phosphate. But after commissioning of the Sulfuric Acid V plant, we will be having the sufficient -- the required quantity of sulfuric acid for production of ammonium sulfate.

Plus we would have something surplus also to be sold in the...

Yes, surplus also. A little bit. It will be transferred to the Sikka Unit for APS production.

Correct. What could be the surplus which we could sell in the market, sir, out of this 198,000 tons after...

Sorry to interrupt there. Sir, we're not able to hear you. Can you speak a bit louder?

Yes. So just wanted to understand from you, sir, out of this 198,000 tons, how much would be available for sale in the market after using for captive?

I don't think so. If the APS requirement in the Sikka, so around 200 or 250 metric tons additional quantity we will be having at Vadodara complex. So we will be transferring the sulfuric acid to Sikka Unit. But looking at the price, if the sulfuric acid price comes down and there is an opportunity that we're getting sulfuric acid at Sikka at a lower price, then we can think of going into the market for sale.

Got it. And sir, any volume guidance, you can tell for both these fertilizer grades put together and for the company as a whole for FY '26?

FY '26, the whole year, we are expecting fertilizers in the range of INR 23 lakhs to INR 24 lakhs. And the APS and this both combined around INR 10 lakhs.

And this also includes -- this INR 23 lakhs also includes the trading volumes or they are separate out of this?

Estimate on a conservative basis, because DAP prices are volatile, and we are handing urea for Government of India at Rozi Port, but we could not get much allocation last year. So we have taken a conservative. This is the minimum, which we think. If the trading improves, it will be further increased.

Got it. Sir, second question is on the urea part. So we had a revamp undertaken in first quarter. So what was the impact on the sales and profitability in first quarter of FY '26? Because of the last quarter.

Actually, during the quarter, we have commissioned this project on 2nd June. So commercial product has started only after that. So only 28 days, we could get the commercial production. Otherwise, whatever the production was there during the trial run, so we have transferred to the capital side of the balance sheet. So during the trial, there is a lot of wastage of the import and all this. So we are not in a position to say, what is the profitability. And as such in the urea, there is no big margin available. So it is only, I think, if I remember, INR 3 crores only we shifted to the -- and adjusted in the capital cost.

And sir, like currently, we have Gcal per metric ton consumption or the group norm of 6.5. I think after this revamp, you were seeing earlier that our consumption could go down to 5.75 Gcal per metric ton with this revamp. So let's say, given the current gas prices, what could be the savings which could accrue to us on a per ton basis, A, or if you can say that, what sort of incremental EBITDA could come to us with this urea revamp?

So actually, after this revamp, we could get less than 6 Gcal consumption -- energy consumption per metric ton of urea. So whatever being the targeted energy norm by the government of India, it has been achieved. And the less consumption of this energy norm, that will provide temporary relief. But I don't know what is the Government of India, they will fix the energy norms and the subsidy for the GSFC. It is under the proposal of DoF Ministry. So until unless they notify the energy consumption by GSFC and fix this subsidy accordingly, then after we will be only having some margin.

Got it. So sir, two things here. One, are we allowed to recover the revamp cost, which like, we have spent close to around INR 500 crores for this revamp. So are we allowed to recover through a higher energy consumption norms, a? And b, also, there is a proposal to have an increase in the fixed cost compensation by the government. So your thoughts here?

Yes. Actually, as you rightly said, this energy consumption norm has been achieved. Now we have requested Government of India, that they have not reimbursed any capital cost for revamp. And actually, it is not INR 500 crores. It is below INR 400 crores. So we have completed our revamping below INR 400 crores. So if we fix the subsidy based on the old energy norms, then we will generate something like INR 50 crores, INR 60 crores per annum. So that will payback, period will be 6 to 7 years.

Correct. Sir, next question is on the Chemicals. So like we have on close to around INR 25 crores this quarter, despite of challenging capro-benzene spreads. So last quarter, I think we were at INR 94 crores, and you mentioned that we had done some ammonia trading last quarter, because of which the numbers were higher. So what was the situation for this quarter? Like is this INR 25 crores entirely from chemicals and this could be a steady run rate which we should assume or work with given the current spreads of melamine and capro? Or does it also include some proportion of trading from ammonia?

No, no. Actually, as you rightly said, this capro-benzene spread has been reduced to $540. If you see, the same quarter last year, it was $582. But it has improved from $521 in the last quarter. So if you see the quarter-over-quarter basis, it has improved from $521 to $540. So that is a good sign of improvement. And we have also taken up with the Government of India for anti-dumping duty, because a lot of caprolactam and melamine is dumped from the Chinese material in India. So for protection of our industry, local industry, we accept that Government of India will do something very soon as the tariff bar is already going on geopolitical. So for saving the industry, we are only the producer of melamine in the country. And as far as caprolactam, we are only and FACT produces the caprolactum. But FACT plant, I don't know whether it is continued. Most of the time they are, because of this price war, they are closed. So we are only the producer of caprolactam, melamine and we patient fully waiting for the -- any positive outcome from the Government of India. And as far as information, we are having -- they are certainly doing something for the antidumping duty.

Correct. So sir, just my question is, whether this INR 25 crores is the steady-state run rate, which one should work with, going forward given the current spread?

That is not only the ammonia trading. Ammonia trading is the basic factor, and we continue the ammonia trading if we get the ammonia at a good price. So we import ammonia and trade. And there is a good demand of ammonia also. We have the contract in our hands, and we will continue to do so in the next quarter or coming quarters also. But also in the caprolactam side, now we have developed a new product, HX Crystal. So while the caprolactam is not giving any positive contribution, so we have shifted some of the intermediate products like SAS for manufacturing of HX Crystal. So during the last quarter, it has also given a very good margin. So the IP sector has come into positive side and it will continue to do so. Because these are the permanent plants, HX Crystal and other things, like ammonia. So I think now we will have some more improvement in the coming quarters.

Sir, the last question, if you allow. So on the power side, I think we have been investing a lot on renewables, which is also visible in the presentation, what we have shared. So if you can share like for both the complex put together, what is our current requirement of power at both the locations? And currently, how much it is coming from renewables?

So whatever the requirement of the power is there, more than 50% is coming from the -- as a green power. Put together, this wind mills, what we are having and solar projects we are having at Charanka and Delbon from the GIPCL. So that power 37.5 megawatts we are getting from GIPCL, our sister concern. So it is very good and keep source of power. And because of that, we have stopped our -- any power requirement or steam requirement from the gases, by generating the power from the gas turbine or steam turbine. And we have also reduced our power requirement from the electricity board. So they all combined together has given a lot of cost efficiency as far as power is concerned.

And it is visible in our numbers also, because our power cost has not gone up despite of the increase in the production numbers. So -- correct, sir. Thank you so much, sir, and wish you all the best.

The next question comes from the line of Yash with Unifi Capital Private Limited.

So in the presentation, you have put that, there was an increase in P&K fertilizer trading. And I saw the volume also has increased by around 4x. So can you just give us the breakup of trading and manufacturing revenue-wise, what's the breakup? It will be helpful.

Actually, whatever trading we have done in the last quarter for the NPK-10 and NPK-12 grade of fertilizers. So that is the trading portion. And the manufacturing side, we have not produced much DAP, only a small quantity of DAP we produced in the Sikka. But all our plants at the Vadodara Fertilizer Nagar Complex, it is running more than 100% capacity as usual, other than the urea, because the revamped project was just commissioned. Percentage-wise, if you see that trading is 10% of the total fertilizers.

It's in revenue one, right, sir?

Yes, Yes.

Yes. Okay. And last year, it was comparatively lower, right?

Yes, yes, because there was no NPK trade. So now DAP is not available. So we are exploring the APS and other NPK grade of fertilizers. And it is required for the balanced nutrition to our crops now. So government is also pushing us to provide the balanced fertilizer or complex fertilizer to the -- as per the requirement of the crops.

And another question sir, regarding the past participant just asked. So can you just quantify what will be the power reduction savings by the two new plants which we have just commissioned or annual run rate, what will be the cost savings?

Urea?

Not urea, sir. For the solar power plant, two plants we have commissioned this quarter, right? So what will be the annual power cost savings?

Actually, urea -- this solar plant has been commissioned just now in the last quarter only. So full impact will be coming in the next quarter. But roughly, we can say that INR 20 crores odd figures, we will be receiving by way of reduction in the power cost.

Okay. And just last one. I think this quarter, you also had a reduction in your employee benefit expense. So, can just like quantify what was the specific one-off? Either it is a one-off reason or anything specifically related to that?

Actually last year in the same quarter due to the revision of 4 years revision, we have paid all the -- somebody to the LIC and for this gratuity and pension funds. So that was the major factor. Now it is not coming. This will come only after 4 months -- 4 years. So at the time of revision, certainly the liability accrues. So we had to pay the deficit in the funds setup with the LICs for the pension as well as gratuity.

Okay, sir. Understood. And just one last thing. Do we intend to increase the production of DAP. Like 3, 4 years back, we used to produce basically DAP more. So considering the import restrictions from China, basically has put export restriction and there is a shortage of DAP. So do we intend to increase the production in coming quarters?

No. Actually, the DAP production is not cost economical. So we have tied up four segment of DAP from the international suppliers. And actually, one has already arrived and three are in the queue. So enough DAP will be available to the farmers during the season. And in place of DAP, we are manufacturing this APS and one idle strain of this DAP production at Sikka Unit now, we are proposing to convert into for the fungible production, whether it would be required to produce the DAP or APS or other NPK fertilizers. So we are carrying out the modification very soon. We are approaching the board for the approval. And as soon as we get this approval, we will start the work and within short period, we will be converting this facility also for production of APS or DAP. So in that case, APS production will be doubled whatever we are achieving presently at Sikka Unit.

[Operator Instructions] The next question is from the line of Saket Kapoor with Kapoor & Company.

Sir, keeping in mind our quarter 1 performance, especially in the Fertilizer segment and then with the higher raw material prices, especially phosphoric and sulfuric acid -- phosphorous and sulfuric acid, what should be testing in, in terms of margins per ton going ahead? I think so you gave the volume number of -- production number and sales for 2.3 million metric ton for fertilizer.

Yes. This is the yearly, what Varma ji, is saying that 2.3 million metric ton of fertilizers, we will be producing and selling at the -- for the full year. But what I'm saying that during the quarter, as you rightly said, the phosphoric acid and sulfuric acid price were very high. So it face -- it creates some problem in production of DAP. And we are also facing the reduction in the margins in case of ammonium sulfate and ammonium phosphate sulfate, because the sulfuric acid prices are also very high, as you rightly said. But slowly, I will say that these are in the peak levels now. So if there is any reduction, it will additionally benefit in our production margins of the phosphatic and sulfuric acid fertilizers. As far as the subsidy is concerned, because of the prevailing prices of the phosphoric acid and sulfuric acid, they fix the subsidy. So which is due with the effect from 1st of October. So I presume that Government of India will take a note of this high prices of the phosphoric and sulfuric acid. And they will fix some higher subsidy for the phosphatic and sulfur-based fertilizers.

Right. And sir, quarter 2, generally, sir, how -- what is the kind of volume uptake we experienced for industry? And what are we anticipating for this quarter in terms of volume for the Fertilizer segment?

Prices are around INR 5.8 to INR 6 lakhs.

Okay. This is for the entire for the company?

Yes, as a company, Q2.

Okay. Sir, when we look at these RM prices, which are, I think, so all are as per the import parity prices and that are very dynamically changing, why our companies like us, which are government entities not referring or suggesting a model by which with the variations in the prices, the subsidy mechanism could be created in a formula base, so that these adhoc pain that goes through the companies like us can be reverted into that sense. Since prices, everything is available in public domain, only an automated formula principal can be created, a platform can be created or suggested by which these vagaries can be removed and prices or subsidies are reset by themselves and not waiting for the government authorities to take note of the same.

Saket, you are right. But if you see the side of the government, they cannot give the subsidiary, whatever the prices internationally coming and they are raising the price as per their mercy, because the subsidy is given by the Indian government. So there will not be any end to it. Because if they give this subsidy, whatever the price of phosphoric acid -- phosphoric acid prevails in the international market or there are a few countries which are having the vast phosphate deposits, and they are producing the sulfuric acid in big quantity. So then, there will not be any end. So that is the limitation with the government also, because the subsidy budget is limited. And they cannot fix like the unlimited disbursal of the subsidy. So for just checking the things now, they are keeping this twice in a year. They see what is the price. And then, they provide subsidy, I think it is a fair working.

For Q1, our total sales for manufacturing was 3.64 lakhs. And on this, we are expecting a tonnage of 5.82. That is what we have -- you have just answered in the previous question.

Yes, yes. But total our trade, if you see the -- including trading, it is 4.51 million tons. 4 lakhs -- 4.51 lakhs. So what Varma is saying, it is if including trading, that he is saying that 6 lakh metric tons, we will be selling in the market, but that is including the trading.

Yes. Total turnover.

Okay. Okay. And what should be the likely then the breakup? I was just trying to understand the type of profitability which we have done for this quarter in the Fertilizer segment. And with the increase in raw material prices, is there any threat to the profit margins in the ensuing quarter or we can maintain these numbers?

No. No, we will maintain, irrespective of the whatever the -- because we have a lot of -- got the material in hand, at least for this quarter, there is no problem. We have got this phosphoric acid, P205, in our stocks. So whatever the price increase, it will be reflected only in the third quarter of the company. So we are quite sure that there will not be any hit in the margin. And after the September, as I said that, I'm pretty sure that Government of India will certainly revise the subsidy rates.

Okay. Sir, you mentioned for the Industrial Product that includes some ammonia trading. So can you quantify for us what was the contribution from ammonia trading in terms of revenue and profitability?

Sir, this is around INR 20 crores across margin, we have got from this ammonia trading. So we are also trading from the Sikka. When the urea plant was in the revamp, we also have the excess ammonia production. So that we also marketed a little bit here in Fertilizer Nagar Complex.

But is INR 20 crores is the revenue contribution?

Yes, yes. No, not revenue. Margin.

Profitability?