Paradeep Phosphates Limited (PARADEEP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Paradeep Phosphates Q3 FY '24 Results Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nilesh Patil. Thank you, and over to you, sir.

Thanks, Tushar. On behalf of ICICI Securities, we welcome you all to Q3 and 9 months FY '24 results conference call of Paradeep Phosphates Limited. We have with us Mr. Suresh Krishnan, Managing Director and Chief Executive Officer; Mr. Rajeev Nambiar, Chief Operating Officer; Mr. Bijoy Biswal, Chief Financial Officer; and Mr. Alok Saxena, General Manager and Head, Investor Relations and Corporate Finance. Now I hand over the call to management for their initial comments on quarterly performance, and then we will open the floor for question-and-answer sessions. Thanks, and over to you, sir.

Thank you. Good morning, and welcome, everyone, to the Q3 FY 2024 Earnings Conference Call of Paradeep Phosphates Limited. I would like to thank you all for joining us here today. We have circulated our earnings presentation and press release and uploaded the same on our website and stock exchanges. I hope you have had the chance to review the same. To start with, we will give you an overview on the business strength and financial performance of the quarter, and we would be happy to take questions thereafter. Well friends, despite continued headwinds on account of lower than average rainfall less-than-normal reservoir levels right across our key markets and unseasonal rain during the quarter, our company has driven to deliver a stable performance and navigate through this challenging environment. The total fertilizer production volumes during this quarter for us was 541,871 metric tons. In that NPK 20 production volumes during the quarter was 270,427 metric tons, registering a year-on-year growth of 82%. While our overall NPK market grew by 26%. The overall production volumes during the quarter were lesser year-on-year owing to high base effect of Q3 FY '23 and the planned 2-month energy improvement initiative undertaken in the urea plant at our Goa site. The total sales volume during the quarter was 591,162 metric tons. Total sales volumes clearly surpassed the total production volume for the quarter. Coming to our financial updates. During this quarter, the company reported a quarterly income from operations of INR 25,950 million, and EBITDA of INR 2,911 million with a margin of 11.2%. The profit after tax for the quarter was INR 1,089 million with a margin of 4.2%, registering a growth of 21.8% on a sequential basis. Despite the challenging macroeconomic trends during the quarter, we have improved our profit margin on both sequential and year-on-year basis. This improvement is primarily attributed to fully functional backward integration of phosphoric acid capacity and softening of raw material prices, coupled with our capability to store raw materials at our plant sites. With an overall improvement in raw material prices, our reliance on working capital needs have also come down, leading to an improved debt equity ratios. We have strengthened our financial position with a decrease in short-term leverage by 12% compared to the same period last year. I'm also delighted to share with you our update and commitment to ESG and sustainability. We recently published our second sustainability report, which comprehensively details our nonfinancial and ESG performance for the fiscal year 2022, '23. The latest report aligns with the global frameworks of GRI, SASB and UN SDGs and discusses many new elements like ESG governance and policies, emerging risk, water stress and biodiversity assessment and responsibly -- responsible supply chain program, among other initiatives implemented in the organization. I will now come to the announcement of merger of PPL and MCFL. The Board of Directors of PPL and MCFL in their Board meeting held yesterday approved a composite scheme of arrangement, marking a strategic move of consolidation for both companies. PPL and MCFL have consistently delivered robust financial performance and by combining the forces they aim to amplify shareholder values. The proposed combined entity has become the largest integrated private sector company in India with a total capacity of around 3.6 million tonnes per annum. This proposed merger will bestow upon PPL, a highly efficient ammonia urea asset, access to newer southern markets and esteemed Mangala brand and would additionally give us ample room to backward integrate and expand any available land parcel that we'll get. I'm confident that by leveraging the synergies between the 2 entities we will unlock value and drive sustainable growth for our shareholders, employees and partners. I thank you all for your continued support. Looking ahead, while short-term headwinds versus the long-term outlook for Indian fertilizers remain strong. growing demand for food security, healthy soil, higher farm productivity and balanced fertilization creates a positive environment for our industry. We shall continue to remain focused on our existing strategies around product mix, farmer and channel initiatives, lower working capital and faster receivable cycles to attain the best in this fiscal. Thank you very much now. And now I would like to open the floor for Q&A. Over to you.

[Operator Instructions] The first question is from the line of Harsh Shah from HSBC Asset Management.

First question is on the scheme of arrangement itself. Last quarter, when we had a conversation when I had asked this question, it was there in the news. It was very clearly set by the management that they are not going to look into anything and they are just focusing on what they have in hand right now, which is continuous optimization of the Goa plant. What changed in one quarter?

Yes. Is that the only question? Or do you have any follow-up on this?

Right. So another follow-up is since now you are anyways amalgamating the company into Paradeep just like you did a lot of -- you took a lot of initiatives to turn around the plant of Goa. What are the plans that you will have to do in case of MCFL for it to get a better yield? Those were the two questions on the scheme of arrangement. And just one question on the company's reported earnings is in your gross margin, how much of that incremental gross margin that you have made on a quarter-on-quarter or a Y-o-Y basis is because of the backward integration? And how much of that is because of -- let's say, you were having some low-cost inventory in your books and that has led to incremental margin? Basically, what I'm trying to understand is what is the steady state gross margin that you envisage going forward?

You had three. The first point is about scheme of arrangement and what we discussed in the last earnings call. I clearly recollect that in the last earnings call, we were very clear that we're not allocating any more of financing from our side for further growth or using up capital to really buy our shares. However, we also were very clear that we will look at those opportunities as we complete our backward integration plans and efficiency plans that we have at both the sites. Just to reiterate here, that as Paradeep is concerned, our backward integration of the phosphoric acid capacity has been completed. And during the month of December, we also completed the energy efficiency initiative that we are in Goa, wherein the ammonia urea plant efficiency has been increased as proposed. And under these 2 circumstances, we were also looking at what is the further growth, which is possible. And as you know, opportunities do come suddenly. And so this was something that has shaped up for us. And in this particular transaction, which is subject to various regulatory approvals, including the competition commission approval. All I'd like to say here is, we are not, at this juncture, planning any leverage at the PPL. It is purely going to be a share swap arrangement that we're doing, wherein the MCFL shareholders will get into the PPL shareholdings. Now the other question that really comes out is why is it that we're looking at this transaction at this point of time? Please understand that the phosphate industry and the fertilizer industry in general is in for a significant amount of regulatory changes that is taking place. When I say regulatory change, as we know that there has been a lot of clarity, which is emerging in terms of how the NBF policy and how the NPK industry is going to play out. And we're also very clear that the urea policy going forward from '25, '26 onwards, will have a new regime by itself. So having efficient assets is always -- is attractive. And in this transaction, what we want to see was Mangalore Chemicals during the last couple of months, has completed their entire revamp of their ammonia urea capacity. So we do not need to do any further CapEx out there to get the benefit. So it's running efficient assets that we are going to take into. And after that NPK plant is concerned, that has always been a good asset running well and efficiently with it's own product mix. So this was a good clean opportunity that we will get because this is one asset which needed, which has a potential for growth as far as future is concerned, so we decided to secure ourselves this particular asset. So your second question was about the third quarter performance and obviously help -- what helps us in terms of our backward integration and our storage capacity. Just to tell you, in volatile market conditions as you've all seen, when prices fall, obviously, having the higher cost inventory will come and hit us in the bottom line or when prices are kind of going up, the inventory helps you in a way. We have a robust facility at Paradeep, where we are in a position to store more than 100,000 tonnes of phosphate rock. So which has been a useful thing for us in the first place. Second case is that we -- the new capacity which came, we managed to produce over 40,000 tonnes of production, which we did. And these incremental profit which we got for over INR 15,000 to INR 16,000 on the overall thing made a difference to us. So this has been -- there has been roughly about INR 60 crores benefit that we got in the last quarter on account of the fact that we had additional capacity and we sourced raw material wells. That is something that I'd like to confirm. That has been one of the key things for us. And going forward, we should keep this in mind that we are in a -- at a time of the year when -- this is not market time for us, it is not season time for us and then also the key markets of ours, which is Maharashtra and the other neighboring states have been through a very difficult monsoon time. They've been very -- the water stress in terms of availability is being quite challenging for them. So we would expect -- we can't really expect any major change in the marketplace right now till the next season commence , which is going to be the '24-'25 Rabi and we all expect that a good shower and a good monsoon, which any case predicted will be required and will turn corners for us.

Understood. Just to reiterate, since Mangalore is already doing a major part of CapEx post amalgamation no major CapEx is envisaged from PPL at least in the short term, correct?

Mangalore -- in the short-term Mangalore has completed with CapEx.

Yes, correct. So for at least next 1 or 2 years, there is no incremental CapEx needed to be done in Mangalore facility by PPL?

Yes. Mangalore PPL is not required to do any capital allocation or any capital expenditure out there.

[Operator Instructions] The next question is from the line of S. Ramesh from Nirmal Bang Equities.

So on the proposed merger, there is an item which says you need to transfer an aggregate consideration of INR 564.57 crores as consideration for such share transfer. What is this exactly is there a cash outflow? And what is this for?

No. There is no cash outflow from Paradeep Phosphates Limited. The gross consideration, which is being indicated there is a transfer of share, which is happening between Zuari Agro Chemicals and Zuari Maroc Phosphates which is our holding company to ensure that Zuari Maroc Phosphates continues to be the single largest and the controlling shareholder of the company. There is no financing which is being done from Paradeep Phosphates. This is the shareholders who are financing it out there of Zuari Maroc Phosphates.

Okay. In terms of the growth plans in MCF and Paradeep is it remains more or less unchanged based on your current product mix and the investments you've made, and the efficiency gain projects you have done. Is there any indirect tax savings or other tax savings, which will help you improve the post-tax earnings post-merger?

This is not about taxation. This is primarily about the fact that as you are aware that Paradeep is well represented in most of the major markets in India. So we are already close to about 14 to 15 states. And our representation is not as previously there in the deep south markets. And so first and foremost for us is that we expand our market to reach the deep south market into a larger context. That's number one. The second thing is about the -- about the brand that we will get in the brand build which is there for various products that we have. There are -- and in the NPK space, we have a number of interesting products that are available which MCFL doesn't have. MCFL uses a market peak and then very efficient ammonia and urea assets. So this is where they will -- we will be able to grow those markets and MCFL has a capability to house a new project it need be in the medium to long term. So as we get our market share to the right levels, we could always look at it at a later date.

So is there any synergy benefits you get in terms of your overall manufacturing or distribution cost and thereby make that additional reach count in terms of bottom line growth?

Yes, synergies will obviously be there. And you want to -- I think I Alok will want to say.

This transaction is subject to all the regulatory approvals. So we will get the exact synergy benefits out only after the transaction is approved by the regulatory bodies. But yes, as the management feels that there are potential synergies that can be leveraged integrated entity a much stronger force.

So in terms of Paradeep's energy efficiency projects for ammonia, urea, what is the additional growth in EBITDA per tonne or profit you can expect from that? Because MCFL has already got the benefit as you see year-to-date numbers. So what is the kind of benefit Paradeep can get from your Goa energy efficiency projects?

You see, when you look at MCFL it has already completed its project and you're right that we are already getting the benefit of that. As the benefit any case moves into the company, there are further improvements which are possible in terms of product sourcing that we'll end up do and the reach that we will get, which will also improve the overall EBITDA margin for the market itself. So that is where the entire lease will come. And I'm sure once the regulatory approvals are in phase, we will be in a position to discuss some of these things in detail.

So finally, in terms of your 9-month net debt and your CapEx plans for the merged entities over the next 2 years, can you give us some insight?

For the 9-month debt position for Paradeep Phosphates we can certainly share and if you look at it today, Paradeep's total debt in the company is INR 3,944 crores. And this was -- as compared to the previous years, ending 9 months FY '23 was INR 4,298 crores. So we are 8% down from the previous time. And if you look at it here, the long-term debt is at INR 774 crores for us and the short-term debt is about INR 3,170 crores. And there is a substantial reduction in the short-term debt that's about 12%, which was INR 3,585 crores earlier it is actually INR 3,170 crores.

Okay. So in MCF, they have mentioned that they were also going from a backward integration of sulfuric acid that was I think sometime in the first quarter or second quarter cost. So when do you think that will be completed? Because you said their CapEx is over?

That project is -- it's not a very large project, and typically it takes about less than 24 months to complete that, and that is primarily for their requirement of NPK production. So it's a small project. But the important thing is sulfuric acid is somewhere -- we are one of the largest manufacturer of sulfuric acid in the country with 1.2 million tonnes, and Paradeep itself will be moving towards 1.9 million tonnes over the next 2 years. And sulfur sourcing is an important area where we will certainly get to see synergies flowing in.

Okay. So finally, can you share us the CapEx estimate for the next 2 years?

See as far as Paradeep Phosphates is concerned, the only capital that you're working on is closing on our own sulfuric acid plant, which the total expenditure plant is INR 425 crores against it, we have already spent INR 153 crores. So the balance amount, which is about INR 270 crores is what we will be spending in Paradeep as a major capital expenditure. And we got some infrastructure-oriented CapEx which is there, which is about INR 40 crores. That is the total plan that we have. As far the MCFL is concerned, we are only doing the backward integration for the sulfuric acid plant. And that is the only investment that we're committed right now.

And just to clarify, till we get all the regulatory approvals, MCFL will continue to do their business as usual. So as a PPL management, our plan will only start after we get all the regulatory approvals and [indiscernible].

And the next question is from the line of Prashant Biyani from Elara Securities.

Sir, my question is a bit longer term and, in some sense, hypothetical also. I believe there is some surplus land at MCFL. Is that right?

Prashant, that's right. Yes.

Sir, is it possible that on the Western side now, we have 1.1 million tonne of complex capacity, which is without backward integration. So sometime down the line, can we set up a phosphoric acid plant at Mangalore and then ship Goa's phosphoric acid requirement from there. And hence, the assets on the Western side will also be backward integrated?

Prashant the possibilities are absolutely live. I think as Alok has been mentioning earlier, since we are into our regulatory process, we certainly like to come to it at a stage where we are through with it. But these possibilities are certainly there. Yes.

I won't -- I'm not asking for numbers, but directionally, is it something you would be interested in some time down the line?

Yes.

And sir, technically, in that case, will Goa side be considered as backward integrated in the light of the recent government norms of capping PBT margins at 8%, 12% and 10%?

The -- just to confirm this to you. The current circular, yes, has various conditions that one needs to fulfill to be filly integrated, obviously, if we are able to meet our requirement of phosphoric acid as a backward integration, it will get considered. So other than these projects are complete and documented, there is certainly a possibility that we can achieve this.

Okay. Sir, on the current phosphoric acid prices, I think they are around $970, which is more or less same as the last quarter. Can you give some sense on your blended rock phosphate cost on a quarter-on-quarter basis, how much change have you seen either on the upside or downside for the fourth quarter?

If you look at it, the phosphoric acid price has been varying right from $290 to $249. And right now, it's come down to about $220 the rock price.

$210?

$220 on an average, yes.

For 4Q, versus how much in Q3?

No, the Q3 is around $220 and on a major average. And so we would look at some kind of a similar number flowing right now because the overall phosphate markets nothing much has really changed for Q4. The acid price, DAP prices, and all of them are pretty much holding. Any benefit of the sulfur price is what will get to us now.

Okay. Sir, can I get the sales breakup for Paradeep site and Goa site?

The sales breakup? Okay. After the call. Prashant we will share this with you, the specific sales breakup between Goa and our site.

Sir, how much is the subsidy that we have received in Q3 and how much is outstanding right now?

In Q3, we received INR 728 crores of subsidy.

And outstanding?

Our outstanding for this current is INR 2,346 crores. Because we did -- as an industry, there is no payment which was made in December, but we've got a substantial subsidy payout in the month of January.

And sir, lastly, after your completion of urea efficiency at Goa, how much will be the EBITDA per tonne for Goa going forward -- in urea?

So you look at it here that whenever you look at EBITDA per tonne for the urea business, that depends upon the CCC, the capital costs and the recoveries that government allows as part of the policy because the energy savings that you end up doing here. So this kind of energy improvement plan that we do, we normally add about INR 800 per tonne as an incremental energy savings that we get. So if you look at it, the overall contributions which the government allows you, we would -- we assume that the gas prices continue at the current levels, which are there, we should go to about INR 3,700 to INR 3,800 in the range as an overall contribution that we'll end up getting on the urea business.

INR 3,800 per tonne?

Yes, yes.

Okay. So previously, it would have been INR 3,000 per tonne?

Yes, INR 3,000 that's previous. And then further, obviously, since you are going to be buying less gas your working capital numbers and all that will also reduce by accordingly.

[Operator Instructions] The next question is from the line of Mithun Aswath from Kivah Advisors.

Just wanted to understand this quarter, there was some shut down for maintenance that you had. Just wanted to understand that impact in terms of your volumes for this quarter. Or did you see some flatness in the demand as well?

Well, the urea plant was closed during this quarter and the capacity that we lost was about 80,000 tonnes of urea in terms of manufacturing capacity. And this is nothing to do with demand supply. This was a planned intervention we did that is on the supplies that we're getting of equipment on the and the technician being scheduled for the same from the technology suppliers.

Right. And now it is up and running, right, for this quarter?

Yes. This plant is up and running from 15th of January.

Right. My next question was in terms of the merger synergies that you see. Could you just explain certain easy items that you will see maybe trickle in, in FY '25 itself and maybe further in FY '26? If you could just kind of elaborate the same?

So overall, we feel that new synergies can be derived from the various functions such as supply chain in terms of sourcing capabilities, our marketing reach and product mix optimization. We also have an opportunity to centralize our technical teams and all those things. But the details will be brought out after getting requisite internal approvals.

But one thing we can tell you here is that our sourcing ability will be put into place to work out efficiency at MCFL and we should be able to get overall supply chain advantages out there. At the first and -- first major thing that we will get. And second thing is also our ability to redistribute some of the products the way we move from the various locations that we have. And the third important thing is some of the retail network where we should be able to introduce some of the products that we don't have at this point of time.

Right And one last question on your overall debt that you have, what will your net debt be at Paradeep and at Mangalore Chemicals as of now?

If you look at -- INR 3,900 crores is our net debt, it will be there, INR 3,929 crores to be precise.

Okay. Right. And that's on the Paradeep side, right?

Yes.

Yes. And you mean -- and on the Mangalore Chemical side, as of now?

That was in the public domain. So I don't think we would take that question right now. But we hardly have any debt in terms of the regular working capital, and they have some -- they have a debt of close to about INR 400 crores which they did for the long-term energy CapEx, energy efficiency which they are paying out.

All right. No. My question also was because a large portion of your debt is short term, and you've been mentioning that there are going to be improvements on the working capital side. So just wanted to understand how over the next couple of years, how do we see that trend?

So if you look at it from -- I'll just explain to you from the 2 business lines. When it comes to urea, I mean, urea is 80 -- over 80% of your supply chain is paid out by the government based on the sale that happens. So urea [indiscernible] what we have seen of late in the last couple of years of performance, even in our cases, urea is not so much working capital heavy because government payouts on that is quite strong. And when it comes to the phosphatic side, the big numbers are only on 2 fronts, which is the phosphoric acid and the ammonia. And the good thing for a site like MCFL is good amount of ammonia is made by them as surplus ammonia in their own ammonia urea complex. They today make something between 150 to 175 tonnes as an excess ammonia available with them. So their overall purchase of ammonia is limited for them. As far as phosphoric acid is concerned, they will get the benefit that typically flows into Paradeep in terms of credit terms and all that, so that will end up improving for them.

And the next question is from the line of S. Ramesh from Nirmal Bang Equities.

So if you look at the growth in FY '25, will you get the full benefit of the backward integration? And secondly, what will be the growth drivers in terms of volumes on your phosphatic fertilizer and the urea facility in Goa?

Jamesh, I just -- Ramesh, as far as the '24, '25 is concerned, I am not really strictly giving this as a guidance, but we must realize that the benefits of the completion of both phosphoric acid plant and energy efficiency in Goa will obviously flow into our books. So there we will be fully commissioned, as far as the technical and physical capability is concerned. Now coming to improvements that we will see for the next year: This, it's very important for us to realize that, over the last 3 years, right, since 2021 onwards, we've been through a rather very difficult external environment. Whether it was the pandemic or the Ukraine crisis that we have seen and the recent disruption in the Red Sea area, we've had surprises coming to us every quarter from some way or the other. This has delayed availability of raw material in some times or increase in the freight costs, but despite all that, we've been able to manage things well. But the most important thing that we're looking forward to in '24, '25 is our ability to use our capacities to fullest extent at Paradeep. And obviously we should be even looking at the other location also. And when I say using the full capacity, I mean that the markets of Maharashtra gets opened up completely. I think markets -- Maharashtra is a very large agriculture market. It has had a sustained -- challenges in terms of availability of water and monsoon in general. And the stress to the farm level has been quite serious, so if that opens up, obviously it makes things very different for us. That's the first thing. And second thing is I also believe that all this -- while the pricing of the phosphatic fertilizer has also kind of gone around in a very different format, the pricing hierarchy, I've always maintained, is not in the right order. We need to have a pricing order wherein key fertilizers', like DAPs, price has the right point. And the rest of NPKs and -- follow the same. And also MOP comes somewhere in the lower orders in the overall pricing hierarchy. This direction is something that I certainly expect should take place in the next financial year. And that will benefit not only the -- from the profitability perspective. First and foremost, it will correct the consumption pattern in the Indian farm sector, which is going to be good for everyone. I think this is the most important thing that we need [ to arrive ]. And I believe, the market changes and all these, we should get to see from the month of July '24. I mean we -- I think this is currently we are into an off-season phase. There will not be very many changes. And we'll have to respect the fact that there is a national election going on and so all major changes will only happen thereafter. So I think that's the way we will look at it. And I'm expecting that, second half of next year, onwards, the fortune for the industry should really change in a positive way.

Okay, that's useful. So if you -- can you quantify, what is the upside in EBITDA per tonne we'll get from your backward integration? Any ballpark numbers you can share?

[ Really ] when it comes to the backward -- see. Look at it. We've always guided that an ideal situation on EBITDA should be about INR 5,000 a metric ton for the products, product mix that we have. And if you're going to be looking at the perfectly backward integrated, with the pricing norms the way it should be in the marketplace -- we have also discussed it in the past that the INR 5,000 can actually go further up to maybe INR 5,500 to a INR 6,000 range. Then things go right.

So under the new pricing scheme in terms of the integrated producers getting 12% on PBT, would your backward integration savings allow you to get that? Because there is a provision in the new guideline that whatever savings you get in terms of lower cost of production is going to be taken out. So even with that, will you be able to achieve kind of upside in EBITDA per tonne?

Well, you look at the headroom that we really have. If you look at our entire capacity that we have and what we can produce -- and let's go by the guideline which is -- which gives you a return on your percentage of cost of manufacturing. The headroom that's available is quite significant. A company like us could well -- in a good year, could be looking at 1,000 crores of PBT. I mean on a pure mathematical number. It could be somewhere there. So there is a good amount of headroom which is left behind. And we believe that, by the products mix that we will have, by the ability that we will be able to reach out to various markets and also the flexibility between the 2 units, we should be striving [ for that ]. So there is headroom for growth for us from here. I believe that the current guideline which the government has issued is a positive step and for 2 very basic reasons, the first being that it clarifies a lot of things. There are still a few minor tweaks and clarification that industry has sought, which I'm sure will come pretty soon. That's the first point. Second point is the number of shocks that we've got over the last 4, 5 quarters in terms of changes in subsidy. I believe that a mechanism like this can ensure that there is no need for us to really keep changing the subsidy time and again. So this, time will only tell whether that's going to work that way or not, but it's a clear indication that, by putting a framework and putting the onus on the industry to report on this basis, we are going to see a much more stable environment for the NPK sector.

And the next question is from the line of Darshita from Antique Broking.

Sir, my first question is regarding the regulatory approval. Or approximately, according to your guess, how long will it take to receive the approval for the merger?

So since we have to apply to 2 different NCLTs, we believe that 12 months is the time that we should get all the regulatory approvals. And this process will involve getting approval from Competition Commission of India, stock exchanges, NCLT, shareholder and creditors. So overall time line that we'll give [ you ], the 12 months, is the good time to estimate [ this ].

Until such time, we will be working as independent companies.

Yes.

Okay. How much subsidy did we receive in the month of Jan?

Can you -- come again. I didn't hear you.

How much subsidy did we receive in the month of Jan?

760 crores.

[indiscernible], okay. My third question is regarding the -- what's your expectation with respect to the RM prices going in FY '25? I mean we have seen reduction in DAP prices, as you highlighted, that we have seen reduction in DAP prices. Phos acid have largely remained at the same level. What is your expectation for FY '25 with respect to the RM prices?

Well, there are basically 3 RMs that we really -- we have to follow. One is obviously the rock phosphate, which is determined out of both phosphoric acid and the rock itself. Phosphoric -- but at this point of time, it will not be fair to really look at what the future is likely to be because the Red Sea crisis is having an impact for the entire rock phosphate and the phosphoric acid supply to India because we are seeing much longer routes. The ships are taking 14 to 15 days more. And obviously the netback for the North African players is far better in nearby markets, as comparing -- as compared to coming in here. So there is an -- I will say that, till the next 2, 3 months till we get to see an -- some kind of an -- stability in the sea routes, we would get to see the similar rates that we're getting today. The only correction that we are seeing is ammonia, but let me tell you ammonia, if you all followed -- if you have followed this over the last 12 months, has been highly volatile. It just swung in a very big way. And obviously we have large capacity, so every time this thing happens, we get -- if it is a positive thing, we get the benefit, with a lag. And so that's how it is, so I believe that ammonia will be a -- range bound, shouldn't cross that $450 range for some time now given the way the demand-supply is positioned. Then rock phosphates, I would not want to -- I believe that the stable regime will continue the way here today. And sulfur is something that has corrected, and it's running at a level which it looks like a stable level for some time.

Okay. Could you just help me out with the phos acid contracted prices for 4Q and if -- any negotiations happening for 1Q?

So we have the phosphoric acid price only for the current quarter. And there has been a small reduction which is coming from the earlier levels that we had. And the current level of phosphoric acid, which is $985, has come down to about $968 per metric ton.

Yes.

Okay, okay. And just my last question was regarding to, earlier, you just mentioned that with the revised framework taking place, the -- whatever the government has done, with respect to the PBT margin, you mentioned that we will not have to change the subsidy or the NBS rates multiple times, throughout the year, that was seen over the past 2 years. Could you explain how that would happen? I do not quite understand that. I mean, if the raw material prices continue to be volatile, we would have to change the NBS rates more frequently, right?

No, primarily because the government has clarified in terms of what is the reasonable profit level for a manufacturer or a trader in India. So given that you have a limit which is being prescribed, you have to voluntarily surrender, in case you're going to make, profits beyond that. So the government [ is not at a risk ] to say that, if you do not change the subsidy, they will have any -- the industry will get away with some runaway profit. That's the only thing. So there is a clear guideline in terms of what is the maximum profit the industry can make. And so that gives a stability for both the regulator and also for the industry players to take on things in a more positive way. In case we make more money, we have to give it back to the government; and that is well articulated down.

Right. And just -- sorry. Just one last question. You mentioned that, from the energy saving at the Goa plant, we are expecting an EBITDA per tonne of INR 3,700 to INR 3,800. Is this -- are we expecting this kind of EBITDA per tonne from the one that we have done in December, like the energy savings scheme that we've done in December...

[ So the December ] work that we've done, we will get an energy saving of roughly about INR 800 per metric ton. So we have a 4 lakh capacity, so that's going to give us about 30 crores to 32 crores annually in terms of incremental returns in an overall -- on an overall basis.

So Darshita, earlier, we were making close to INR 3,000. Now with this additional INR 800, we'll get around INR 3,800.

Right, yes, so that's what I was confirming. It is with -- I think we have reduced [indiscernible] [ 0.3 ], if I'm not wrong, so from this [ 0.3 ] reduction, our Goa plant -- or the urea plant EBITDA per tonne would increase to INR 3,800.

Yes. That's right.

And the next question is from the line of Resham Jain from DSP Asset Managers.

So I have a couple of questions. First is, within the Zuari group now, other than MCFL, is there any other agri business which the group does?

Resham, as far as Zuari group is concerned, they just have one SSP plant, which is there in Mahad, as a fertilizer business. They also have an agri retail business, which is called Zuari FarmHUB, where they distribute -- it's a multi-brand retail business, yes.

Okay. And any plans to merge that as well? Or you don't see any synergies over there.

The Zuari FarmHUB business has a large retail reach, a last-mile connectivity to the farmer. And we currently do not envisage looking at working on that particular asset at all. I think -- we have completed our backward integration. And we have well integrated our ammonia urea complex and the [ phosphatic ] complex of Goa. I think we are -- certainly look forward to integrating operations with Mangalore which have straightforward synergies for us, and that will be our focus over the next couple of years.

And sir, just on nano DAP, how are we in terms of -- positioned in terms of our manufacturing and our R&D over there? If you can just explain. Because there is a lot of talk about that being marketed much heavily than what it has done over the last few years. And your thoughts also over there how -- what is the efficacy level of nano DAP?

Yes. I will ask my colleague Rajeev to give you details on this.

Yes. So just want to share that at Paradeep Phosphates we're very well positioned to take on this opportunity as we're looking at more nutrient-use efficient products. So we would be shortly launching nano products in the next financial year. So that's our plan. The objective is basically to move towards more nutrient-use efficient fertilizers. And we will be doing both nano DAP and nano urea.

We are currently doing some test marketing of the products. And we've done some extensive work with the farmers on these 2 products in both Karnataka and Maharashtra. And so the commercial launch is something that we're planning from April 1, 2024. And so that's going to be an important one for us. And we have our products which are biological in nature which is very -- which is different from what the other products are today. And we also have the highest nitrogen content in urea, which is 8%, in the nano product that we have. Also the overall -- the nutrient in our DAP is also 22%, 6% of N and 16% of P2O5. So these are all -- some of the USPs that the nano product of ours have. And we've seen the results to be positive and we expect to see growth on this. You asked a question about manufacturing. We currently are taking it through a third-party manufacturing, which is happening, but we plan to set up -- these are not capital-intensive projects. We plan to set up our own facility in the coming year in -- near Bangalore.

But the product is developed by Paradeep itself, this nano...

The product has not been -- the products has been -- is developed by...

TERI.

TERI, The Energy and Resources Institute. It is based on the technology which has been there, and they have worked with the retail team of Zuari FarmHUB. And we have taken over the exclusive marketing rights for this, so the entire product is available to us on an exclusive basis to handle. And we'll also be allowed to make a set of manufacturing capacity for this to get the full benefits in.

Understood, sir. And sir, lastly, on -- the earlier participant did ask about this. So INR 5,000 to INR 5,500 is kind of in normal circumstances. This is the kind of EBITDA per tonne one should expect from Paradeep at a consolidated level.

Resham, you're correct. Resham, this has been an -- as you know, this has been a year that we had too many changes. And I personally believe the fourth quarter is an -- is a very difficult quarter for the industry in general, the way things are positioned, but I personally believe, going forward from July of 2024, '25, fundamental corrections should take place and the industry should see better days, yes; and more stable performance from the industry.

And sir, just one more bookkeeping question, in terms of provisioning. Any raw material provisioning you expect in Q4? Or more or less, everything is a part of Q3 results.

No, no. We have taken care of -- we don't have to make any provisions in Q4, [ yes ]. I mean we are going as per normal accounting requirement, so we -- I don't think there's going to be any inventory gain or loss as we go forward in Q4.

Okay, so Q4 is expected to be normal in all because already...

Q4 it's going to be -- let me -- Resham, let me be very clear to all the participants. Q4 has been a challenging year for us because -- is going to be a challenging quarter for us given the way the prices of raw materials, both -- the brunt of the increase of prices that have happened has actually gone more towards Q4 rather than on Q3 for us because we did manage to get, source raw material fully well. And we also got one big positive development in the new capacity that we created, but Q4 will be a [ new ] quarter when you go forward. But we don't have any -- we don't expect any onetime kind of hits coming up in Q4.

[Operator Instructions] The next question is from the line of Manish Mahawar from Antique Stock Broking.

Sir, in terms of MCFL merger, right, what could be the synergy? Basically the -- I'm talking about the merged entity, whatever fixed-cost saving you can see as entity whole.

Well, Manish, when it comes to MCFL, I think we've been a little -- we have said that we're still waiting for all the formal approvals to come through before we kind of talk about things in details, but I can certainly say that, right across supply chain and fixed costs both, we will have synergy benefits coming in at this merger. That is for sure. And the larger benefits will flow through the supply chain and the product mix.

Okay, understood. And what would be the -- sir, in terms of MCFL -- because, last year, they did almost 310 crores of EBITDA, right? And this year, they have done a [ 9-month good EBITDA ] this company has done. What could be steady-state or stable EBITDA this company can make on annual basis?

Well -- so they have been good. And if you look at the way they're working right now, they're looking good for about 450 crores to 500 crores of EBITDA, as a range, which we are working on today. And I'm sure we'll work towards maintaining and improving that, yes. And today, as the -- all the CapEx and everything is concerned, the EBITDA margin is significantly better than what we get to see, so that will also help us to get a weighted average EBITDA returns better than what we have today.

And the good part is, Manish, that they have completed their CapEx program [indiscernible]. So that, I think, will give -- that will give us sustainable cash flows for the merged entity.

And that -- I think that has flown to the number in the 9 months, right, in -- and because there is substantial improvement [ in terms of EBITDA ], so it is right to understand basically the 350 crores to 400 crores EBITDA this company on annual basis consistently...

Manish, you must realize that, MCFL, the 9 months results they announced, even though the entire capital expenditure was completed, they did not have full production in these 9 months because they did a shutdown to complete the last phase of their CapEx during the last quarter. So the full benefit of that will start flowing in, but as you know, in the fertilizer industry we have got what is called an reassessed capacity from the government. So they will be reaching this soon and they will be producing on the -- above the reassessed capacity. And there the margins are, is determined by the government, most of the time with a lag, so we don't really -- the numbers may not be as attractive, but from 1st of April 2024, '25, you will see them getting the full benefit of the CapEx they've done.

Understood. And second question, sir, in terms of a quarterly -- this quarter, Q3, margins of Paradeep as entity. You said, the phos acid backward integration which we have done, backward integration, around 60 crores of basically incremental EBITDA, but it is -- what I understand, is also a benefit in terms of your lower rock phosphate prices also, right, which we carry in the inventory, the 60 crores...

So you're right that we -- yes. We have been very transparent on this because we did get the benefit of the fact that, when the prices were going up, we just -- we had enough of stock available. And so that's the benefit that we got. And as you know very clearly, that -- the industry at this point of time ideally needs a price increase or increase in subsidy, one of these two. I mean our preference will be a price increase, and -- but given that it's an -- given the overall situation of what I'd call as an off-season time today, a price increase is not warranted at this point of time. And also, given that it's an election year, changes in subsidy is something that we expect to have a good clarity maybe a little later, but at the same time, as an industry and an industry body, we are taking this up. And we believe that this uniformly affects most of the players and which is -- and we are hoping that we will get some clarity on this going forward.

Okay. And just a clarification, sir: In this quarter, we have not reversed any provisions what we have made in the first half, right, in the Q3.

No, we haven't. They were regular provisions...

[indiscernible]

Okay. It's a pure operational business [indiscernible] this quarter.

Yes, absolutely.

Okay, understood. And last one from my side, sir: In terms of as a combined entity, MCFL plus PPL, [ from both ], what could be -- I think, sir, EBITDA per tonne. I think you already indicated INR 5,000-plus, maybe room to improve further, right? Combined entity, we are able to make that [ level of ] EBITDA because MCFL has a good EBITDA per tonne.

Yes. I mean, if you look at '24, '25, I'm sure that we should be looking at something -- PPL should certainly get into that point. And that will be -- that will improve with the MCFL coming into approval...

Okay. And sir, can you highlight the market share perspective as a combined entity? What could be our market share in the PPL once the ramp-up will happen? And post MCFL, what could be the market share? And especially, southern market, what is -- what will be the number maybe after the ramp-up of this overall capacity?

Manish, if you look at it, we -- Paradeep Phosphates is a major player when it comes to the NPK and DAP business, the total market size of which is about 20 million tonnes. On the 20 million tonnes, we currently have about [ 2.6 million tonnes. About ] 12% to 13% market share is what we have on all-India basis. When we look at MCFL, in the same space, they [ place ] about 300,000 to 400,000 tonnes. 300,000 tonnes are manufactured, and maybe about 100,000 tonnes of traded products. So that is what the difference is going to be. So our 13% which is there, 12%, 13%, it can go to 14% in terms of an overall market share improvement, but the game doesn't end here. The game actually is that this 20 million tonne market has close to about 7 million tonnes of imports which [ can get into there ], so this is where the combined can scope, I mean, both in terms of market reach and the product availability that we can bring in. And that will also kick in the incremental profitability that can come. So there is a much larger play which is available, if you look at the larger market share. And that will be primarily because we get newer market. At the same time, they get newer product for the newer markets, so this is the combination which in our view will work.

And the next question is from the line of Prashant Biyani from Elara Securities.

Sir, what would be the exclusive market where MCFL operates but we are not operating, either in terms of states or number of districts?

Well, if you look at Tamil Nadu, we don't operate in Tamil Nadu at all. If you look at Kerala, we don't operate in Kerala at all. And if we look at their own captive market which is within the 300 kilometers of MCFL, we don't have any serious presence out there. And so there are certain pockets of Southern Karnataka where we don't have a serious presence where they are majorly present, so these are important markets [ which is there ]. And with their urea, they pretty much reach the entire State of Karnataka. And they even go to places like Telangana and others where they have a market reach, so these are -- so those networks will also be available to us to consolidate.

So even from the Goa plant, we are not present in Southern Karnataka.

Goa products don't go that side. Goa is largely into pockets of Hooghly. And Hooghly is a major market for us, whereas Hooghly is not a major market, as far as MCFL is concerned. So there's never been an [ interface ] between these 2 markets in a serious way, so the 2 markets will be complementary to each other.

Right. And sir, when we acquired Goa plant, it was a struggling asset, but that is not the case with MCFL, so except more markets and a few grades of NPK, are we also getting something else which I may be missing?

See. When you get a scale is when you can look at the efficient backward integration. I mean that's what we are getting here.

Correct...

We're getting a scale of operation which is available. We're getting a site which is exciting. And so here the values both for the marketplace and the site has to be looked at seriously. And just for your information: Mangalore is located inside the port itself, right in the port of...

Mangalore.

Mangalore, so -- and then they have exclusive corridor, which is less than a kilometer, wherein all the [ pipelines ] transfer the raw material from the port to the plant, which is not the case that we have in Goa today.

And Mangalore as a site will get benefit from the sourcing capabilities of OCP.

But sir, that, we would already be getting at PPL. Or as a group, also MCFL would be enjoying that benefit.

Well, not necessarily, because phosphoric acid is a scarce commodity; and which, if you look at today, with the supplies are only coming to the direct group companies. And where PPL is a group company, MCFL is not.

Thank you. That was the last question. I would now like to hand the conference over to the management for closing [indiscernible].

Thank you, everyone, for participating in the earnings conference call. We tried to address all your questions. If you have any further inquiries, please connect with our investor relations team. We'll be happy to address the same. Thank you, and have a good day.

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