Paradeep Phosphates Limited (PARADEEP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Paradeep Phosphates Q1 FY '25 Conference Call hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar from Antique Stock Broking. And thank you, and over to you, sir.

Thank you, Aditya. On behalf of Antique Stock, I would like to welcome all the participants on the 1Q FY '25 Earnings Call of Paradeep Phosphates. Today, we have Mr. Suresh Krishnan, MD and CEO; Mr. Rajesh Nambiar (sic) [ Rajeev Nambiar ], COO; Mr. Bijoy Biswal; deal, CFO; Mr. Alok Saxena, Head Corporate Finance and IR; Mr. Susnato Lahiri, DGM Strategy, IR and ESG on the call. Without any delay, I would like to hand over the call to Mr. Krishnan for opening remarks, post which we will open the floor for Q&A. Take care. Over to you Mr. Krishnan.

Thank you, and good morning, everyone. And once again, welcome to our Q1 FY' 25 earnings conference call. We appreciate your time and participation today. I trust you have been -- you have seen our earnings presentation and press release, which have been circulated and are also available on our website and stock exchanges. To begin with, I will provide an overview of our business trends and financial performance for the quarter, followed by a Q&A session. While the fertilizer industry has shown steady growth supported by moderated global raw material prices and beneficial domestic climatic conditions in Q1 FY 2025. Improved rainfall in key agricultural regions is expected to enhance oil conditions, most probably will increase fertilizer demand. Government initiatives such as increased crop MSPs, the promotion of nano fertilizers and efficient fertilizer use, along with multiple budget allocation to agriculture and fertilizer sectors continue to provide good support. Coming to our quarterly performance, although we aim for better capacity utilization, a brief shutdown at our Paradeep unit in April 2024 impacted overall production volumes. This quarter, we produced 539,194 metric tons of finished fertilizer, reflecting a 15% decrease from the same quarter last year. However, our introduction of specific NPP grades like N19, N15, and N14 have all been well received by the farmers. Our phosphoric acid quarterly production also increased by about 60% year-on-year. Further, we launched biogenic Nano DAP and Nano Urea products under the Jai Kisaan Navratna Nano Shakti brand name. Our Nano Urea contains 8% nitrogen, whereas Nano DAP contains 6% nitrogen and 16% P2O5. We also introduced a new grade of Triple Super Phosphate containing 46% phosphorus, which is essential for root development and 4% resistant plants. These new products will enable farmers tailor their fertilization with strategies more effectively, especially in India's nitrogen-heavy soils. Total sales volume of finished fertilizer reached 554,571 metric tons, marking an 11% year-on-year decline. Despite this, sales volume exceeded production demonstrating our ability to sell beyond the production capacity. Notably, N20 volume increased at 21% year-on-year and other NTT sales grow by 28% year-on-year. In our new product range, we sold 27,000 tons of TSP and approximately 30,000 and 26,000 bottles of Nano DAP and Nano Urea, respectively. These results reflects our successful farmers and channel connect program throughout Q1. For the financial update, I mean, it's important to note that the company reported a revenue of INR 23,774 million and an EBITDA of INR 1,063 million with a margin of 6.9%. Stand-alone, the profit after tax was INR 63 million despite the impact of Paradeep unit, brief shutdown on top line, overall profitability in this quarter has improved year-over-year. We are focused on recovering the lost volumes throughout the remainder of FY 2025. As we enter the Kharif season with robust monsoons, healthy reservoir levels and favorable inventory levels, our core competency in sourcing raw materials, manufacturing diverse fertilizer grades under extensive market reach across 15 states positions us well. We will continue to focus on innovative NPK grades and increasing the capacities of our Nano portfolio. Our commitment to delivering the best product mix for the upcoming seasons remains steadfast. Thank you for your attention, and I would now like to open the floor for questions. Over to you.

[Operator Instructions] Our first question is from the line of Prashant from Elara Securities.

Mr. Krishnan, how has been the demand in Q2 till date?

Well, Prashantji, Q2 demand is quite robust, and we are seeing a good uptick, both at the retailer level and also at the farmer level. And so we're quite agreed at this point of time. Even the shortfall in quantities that we had for Q1, we are more than later up during the Q2 in the first month of the Q2 itself.

Then, sir, we should be able to beat the last quarter, I mean, Q2 last year sales of 8 lakh tons?

Yes, we are working on that and I'm sure the way the quarter is focusing right across all our markets, we are quite encouraged to see that we will have a good volumes in the coming months, for sure.

Sir, what would be your outlook on the international raw material price?

Well, it's very important to note that whereas we have seen nitrogen holding on at a particular price level, phosphates have been in short supply right across markets because of very strong demand coming from other geographies. We are seeing that the phosphate availability, both DAP and the phosphoric acid to the markets in India have been quite stressed. So given these, I would think that the phosphate market prices will go up. We are expecting the DAP prices to be going up in the coming quarter. And we're also expecting that the phosphoric acid, which is $950 per metric ton right now for this quarter might also see some revision based on the prices that you will see of DAP in the coming months. As you know, the DAP has already reached $590 per metric ton for Indian market as against about $550-odd that we had. So that is something that is creating some amount of stress and also the ammonia prices which are also opening closer to $400. This -- all this clearly indicates that the phosphatic industry in India, the predominant phosphorus being DAP and the other -- some larger base of N10 and N12, all this will need a price change in the coming months not only to maintain margins and also to improve margins to levels that we are used to.

Right. Sir, can we get the breakup of -- or not break up, but rather POS sales for Q1 for us?

I will give you before the end of this call, we'll give you that, yes.

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

My first question was regarding any MRP height that have taken in the first quarter after the election in DAP or NPK?

Yes. Just to confirm both DAP and NPK, there has not been any price change in Q1.

Okay. And are expecting any support from the government coming in for the first quarter, especially given that DAP availability has also been an issue and the voters are also slightly meeting a loss at the current levels. So are we expecting any support to commence from the government?

Well, the way DAP is positioned today, whether you're importing accidents and converting to DAP or importing rocks and converting to DAP today, you would certainly need a price correction going forward. And we -- in my view, as we get on to the next season, we should get to see some price correction either in way of a support from the government or from the industry making a suitable change.

Okay. And in case, If you could make us understand it would be retrospective in nature. Or would it be applicable from just Rabi onwards?

We don't have anything in writing for the government as we speak. So we'll not be able to comment on that. But I certainly believe that a price correction or a support from the government to the farmer in some format is certainly expected.

Got it. And on the Goa NPK grade, we have seen that MOB prices have started to come down at least it was hovering at higher levels, it has started to come down. So has that been benefiting for the Goa NPK grades in any way?

Well, Goa is 2 sets of NPKs that we make there. There are some NPK grades, which are more specific to our unit, and I would call them a specialty like N19 and N28. And N19, which has got a 19% K, the price decrease has certainly benefited us quite seriously. And so that has been a positive for us. And I expect that to continue going forward. But as far as N10 and N12 are being concerned, they have been reasonably unviable at the current price levels have been here. The correction in K prices have only helped to mitigate the unviable to position that we were in. And we believe that these grades will be better off with some price correction going forward.

Okay. And if we could get the volume breakup between those sites, Paradeep Goa sites for DAP and NPK?

We are not making any DAP at Goa. So all the DAP that we are manufacturing, our production volume was 141,665 for the quarter, which is entirely made in...

I wanted the sales volume.

Yes. We don't make any DAP in Goa plant. So we make all the DAP in Paradeep itself. As far as Goa is concerned, our production volumes are primarily to do with the NPK that we made and the total NPK production for Goa was 274,784 including urea. So urea was 120,000 in this and balance 154,000 was NPK.

Right. So could you help me out with the sales volumes over there at Goa plant?

Goa sales urea was -- yes, yes, I think, that the Goa urea sales 108,000 metric tons. And as far as the phosphatic is concerned, this was 192,000 metric tons.

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

So if you look at your performance this quarter based on the revised butane-based subsidies, how do we read the EBITDA per ton for the phosphatic business and how do we see that moving forward given the reduction in the prices Y-o-Y, what is the outlook for the EBITDA per ton?

Well, I mean I have taken up this subject even in the past calls, and I've always maintained that for as a blended EBITDA per ton is in the range of INR 4,500 to INR 5,000 per metric ton. And we are pretty much -- we should be in a position to be in the zone given the fact that we are now well backward indicated. As for the quarter 1 is concerned, we had a bit of a pushback on 2 counts. One is the month of April, we had to take a mandatory shutdown for regulatory reasons. Here, we locked out on our own phosphoric acid production and certain amount of fertilizer also, that depressed our EBITDA, number one. Number two is, DAP in general. If you look at it, ammonia prices have been going up. DAP price levels are not at the right level right now, 1,350 per metric ton, I don't think it kind of gives us kind of margin that one expects to do. This is something that needs to be improved. So I believe that if you look at it over the next balance period of this financial year, things should correct itself. That's our expectation today. And I'm sure we should follow this through quarter-on-quarter because the third quarter is where the main Rabi season will start. And I'm sure by which time, we will have price discovery for raw material from the global markets and also local price discovery for the finished goods will also evolve very clearly.

So in terms of the backward integration, how much is the actual production? Sir, you've given the number of phosphoric acid production is 92,000. So how much of that is going into BSP?

Now, as far as the INR 92,360 metric ton is concerned, we very much -- the product mix that we have with Paradeep a 50/50 mix between DAP and N20. So that is a mix that kind of works out. So if you want to break down in the last quarter, 12,918 was the production of DAP, which use our own assets and we made N20 close to about 155,000 metric ton where also we use our own assets. So that's the kind of split on which we work.

So post this integration since we have started triple super phosphate, what will be the shortage of phosphoric acid and sulphuric acid, which you have to buy from outside?

The triple super phosphate is a traded product for us, not a manufactured product. So we are bringing this as a finished good, so we don't need any phosphoric acid for this. Just for your information, the site at Paradeep today does not require any phos acid. We are able to produce phos acid that is required for the site today. As far as Goa site is concerned, we typically need about 200,000 tons of P2O5 to be imported, and that's what comes is important for us right now.

So over the year, if you look at last year's base, would you be able to deliver numbers at par or slight? Is there some improvement on that if the NBS rates for second half is reset according to the current inflation in the input cost?

I think so. I'm sure if you look at it, phosphoric acid capacity for us has really improved there by about 45% from what it was last year. So that is -- that benefit of that will start kicking in for us from Q2 onwards as we manufacture. And also, any price hike that we might take or any further support to the farmer, which the government might provide will directly add to our margins today.

So one last thought, Narayananji, on the context of the NBF rates and government talking about a reasonable profit, if you were going to make additional benefits from captive assets, is there a risk that some of that will be brought back and that this 12% PBT formula they are following?

I personally believe, as was CPL, which is got a mix of both production from own asset and from imported assets, we should not have, in this financial year, any possibility of increasing or having to give that. But let me be clear to all of you because in case we make this profits about 12% as a policy, obviously, people have to surrender the same. And that should be good for everyone that if you reach the 12% margin and beyond.

Our next question is from the line of Anik from Finnomics.

Am I audible?

Yes, sir.

Sir, my first question is, you said your -- like current phosphoric acid prices are, you will say 950 per metric ton. So sir, what is the in-house manufacturing cost of phosphoric acid?

I think this has been coming up even in earlier calls. Whenever we make phosphoric acid, we have a benefit of over INR 10,000 per metric ton for domestic manufacturing. So that benefit continues to be there. But this benefit will accrue to the profitability line fully well and we are not having any under recovery on the product pricing. And the concern that we've been having is, even though the fact our manufacturing facilities are running very efficiently today, we do not have enough margins in certain products like DAP, which I believe will get connected going forward.

Okay. And sir, another question is, it is told that around 500 ml Nano Urea can replace 50 kg of urea. So considering this statement, do you see any change in your conventional urea or conventional debt manufacturing going forward, like requirement -- I am saying from the requirement point of view? Will Nano Urea replace conventional DAP or conventional urea going forward?

Look at it today that India imposed close to about -- last year, maybe about 6 million to 7 million tons of urea. We imported about similar quantity, $6 million plus of DAP. So there's a substantial quantity that we import. And as far as Nano products are concerned, these are very interesting products, which we believe our potential to stay on with the existing mineral products that we have today and could replace, maybe about 10% of the overall demand, which is there for all this. So this will result in lesser imports going forward and everything works well. And you will have to see a farmer experience over the next few seasons. It is only in the first year that we are getting to see a Nano DAP being available in the market right across from multiple players. So the experience of the farmer, the output that you will get from here will determine in terms of the scope and growth that you'll see. In our view, at this point of time, a 10% replacement of imports is well possible using Nano products.

Got it, sir. Sir, what I was saying, I understand like if everything goes fine, if the response from the farmers and other factors you have referred, like if everything is positive. So in that case, like this manors replace conventional product DAP or India, whatever?

I don't think there's going to be a replacement because there are various types of applications that we do. There's a basal application that we do at the top they're saying. So lastly, these liquid products are being seen in going in the top dressing, which would be about 25% of the overall market that is there, not so much in the basal as we speak.

[Operator Instructions] Our next question is from the line of Prashant from Elara Securities.

Sir, what is the subsidy that we have received this quarter and how much is the pending at the end of Q1?

Can I respond that quickly? The subsidy that we received in Q1 was INR 937 crores during Q1 that we received. Outstanding was about INR 2,100 crores and we had about 1/3 of that coming in the first month -- in the month of July.

Right. And sir, what would be the current growth in net debt?

If you look at it today as of June 2024, the net debt position for us is INR 4,152 crores. And the gross was INR 4,352 crores.

Okay. Sir, just of feedback last year -- last quarter, you had shared the raw material slide in PPT, which was quite informative, which has been stopped. Just a request, if you can continue with it next quarter onwards, it clears some ambiguity on the raw material prices. Just feedback I wanted to share.

Yes, sure, Prashant. We'll do that actually. The thought was to cover the raw material kind of range -- price range over a larger period typically over a 1-year period, that probably makes sense from a flow perspective, but we can always do that on a quarterly basis.

[Operator Instructions] Our next question is from the line of Shubro, an Individual Investor.

So my question is, sir, the biogenic Nano Urea and Nano DAP, which you have launched, will it be eligible to receive the INR 1,500 NDA, which the government has given towards the organic farming?

No. That is primarily for certain organic products, fermented organic manure and those related products only, not for Nano. Nano has no subsidy. And to be fair, I think we are also not looking forward to any subsidized -- subsidy for Nano products. They have good products. They have their own value proposition, and we would like to place it in that manner.

And just from a big picture point of view, sir, because you are involved in the FAI as well, I wanted to understand your view on recent phase, there has been a lot of buzz in the Agriculture Ministry and the Ministry of Fertilizers. They are putting a lot of focus on organic farming, some complete overhaul of the agricultural systems. So just if you could share some thoughts or insights which you might have.

Well, you look at it today, we are roughly about give and take about 12 crores farmers in India. And today, while the government is coming out with this, working with about 1 core farmers on natural farming. I think which is a very prudent measure because natural farming is something that we have experience in terms of what are the organic manure that you will need for it. What are the practices that we will do and what kind of output that you can get in terms of a natural farming versus a more intensive farming using inorganic nutrients? So there is a program which has been launched for a small subset. It's just about 1 crore farmer which is there. I think they will be learnings that will come from there, which will help. But you must realize that while all this is being done. The biggest challenge we as a country today face is the soil condition, the soil health, the organic carbon in the soil. This is something that needs to be worked on well. So all these experiments that we will do, all these efforts that we're doing, we clearly established the formula that will be there. And as we see in the industry, there has to be a good mix of inorganic and organic matter, which is required to get effective agriculture output. And that is the effort which has been launched. So this is positive, and I think industry will be working and supporting this totally.

And sir, just last question from my side. A large part of our country is deficient in zinc in the soil. So is there some part of our portfolio which addresses that, the zinc efficiency in the soil?

There is a government program to increase zinc as a micronutrient, which can be added to products. So -- and that is less the individual place to look at it. Because India has looked at zinc sulfur as to, sulphur has been one major nutrient -- minor nutrient, which is required, which is not coming through various products. Zinc again, I mean, there are zincated products, which are coming in the case of SSP, people have launched DAP. We also do a zinc product, which is not subsidized, which you do for the farmer, which is along with gypsum. So zinc is an important element that everybody is addressing very clearly.

Next question is from the line of Darshita from Antique Broking.

If you could just give us internal target that you have with respect to how much volumes you plan on selling in FY '25, traded and manufactured port?

As far as Nano is concerned, if you ask me during the current season, which is from month of August onwards, we would like to be -- we will initially look at about 2 lakh bottles per month. I mean this will be largely on a DAP is what we're going to look at here.

No, no. I was not asking from Nano perspective, I was asking the granular fertilizer perspective.

Granular fertilizer, if you look at it today, we did about 2.5 million tons of fertilizer for the full financial year last year. And we certainly are looking at a situation where we would be -- we would certainly be exceeding that quantity in the coming financial year. And we are pretty sure that, that will be there.

Okay. And for FY '25, considering the current raw material and the MRP level, what kind of EBITDA per ton are we targeting? I understand 4,500 to 5,000 is a longer-term target, but for FY '25 do we...

I personally believe that they will have to be corrections during this financial year for us to reach those levels.

Got it. Okay. And just one bookkeeping question, if you could give us the split of that sales between manufactured and traded?

As far as DAP is concerned, essentially manufactured products. We did not import any DAP quantity in the first quarter. So if you look at the sales volume, it's 12,918 metric tons, which is DAP manufactured.

Okay. And that was -- and the 72,000 tons that we have sold, that's largely MOP?

MOP, we sold 27,000 tons of TSP and 40,000 tons of MOP, yes.

Sorry, could you repeat the TSP number 40,000 of MOP?

TSP was 27,000 and the MOP was 40,000.

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

So what is the thought process on this trading of TSP is the trading margin attractive? Or do you see long-term potential in terms of volume growth? And the second part is in terms of your P&L, what is the kind of volume growth one can expect the FY '26 from what you are likely to achieve a '25? And will that help you achieve similar growth in your EBITDA and profitability for next year?

Well, first, coming to TSP. It's a new product that we're launching today. And it's a P-heavy product. It's 46% P2O5 is what we have in that. And I think our initial estimate was during the first year, we should do about 125,000 tons of TSP. And based on the farmer response, we would be increasing this. It's a good category. And we believe that between -- this should be about close to about 10% to 15% of what P could get replaced with the TSP as a category going forward. So which is what we are looking at today. But as far as the volume growth that we are looking at, we are -- we have capacity based on the kind of grades that we'll make of NPKs about 2.6 million tons and the urea have been 400,000 tons. The urea, there will not be any further increase in quantities. As far as 2.6 is concerned based on the best available margins and the requirement of the farmer, I mean keeping both together, we would like to optimize to come to those 2.6. I think we are currently at about 2.2, 2.1 million to 2.2 million tons of the volume that we've seen. Our idea would be to get an effective on mix to take it more towards the 2.5 to 2.6 level. That is what we're working on. And I think given that we have our own P2O5 today and our sulphuric acid capacity will also get commissioned by the -- by beginning of FY '26, we should be -- we should like to peak these whole quantities next year and to be closer to 2.5 in the next financial year.

So if you look at your capitalization of assets and movement in finance cost and depreciation will stabilize at what you would report for FY '25 and '26? Or will there be an increase in depreciation and finance costs?

No. I think the FY '25 is what you're seeing in higher depreciation that we're getting to see is the capitalization that we've done of phosphoric acid, our concentrators and there are other things that we've done. So in fact, there have been a few major capitalization phosphoric acid, our evaporator, we had upgraded our ship handling facility for larger raw material that we take and also certain major equipments in the urea plant that we have. So this is done now. The only other plant which is -- which needs to be capitalized in our new sulphuric acid capacity. As you know, we're putting about 1,500 tons per day new sulphuric acid capacity, which will take our production levels from 1.3 million tons closer to about 1.9 million tons. This should happen in the early part of FY '26. And that's the last of the major CapEx that we're doing today.

So just to put the numbers in perspective, what is the amount of your capitalized as of date in phos acid and other expenditure? And what is the amount pending once the sulphuric acid plant is commissioned?

During Q1, we have capitalized INR 580 crores.

And what is the cost of the sulphuric acid plant?

Sulphuric acid plant is roughly about INR 440 crores and which will come up for capitalization next year.

[Operator Instructions] Our next question is from the line of Anik from Finnomics.

Sir, my question is related to your merger with Mangalore Chemical. Sir, what kind of investment you are planning for this market? This is my first question and related to that, I also would like to know, there were around INR 1,000 crores of debt in the books of Mangalore Chemicals, INR 300 crore, INR 300-odd crores of long-term debt and INR 720 crores of short-term debt in their book. So will it impact -- like how will it impact your balance sheet? And like what kind of investment you were doing, like, will it be internal accrual or what else?

Well, as far as Mangalore Chemicals acquisition is concerned, this is a plain vanilla merger. So there is no cash outflow from Paradeep Phosphates, but there will obviously be fresh shares issued at Paradeep Phosphates, which will go to the shareholders of Mangalore Chemicals. So that's how it will happen. So there is not going to be any fresh debt that is being taken in our books for MCFL. The MCFL balance sheet will get absorbed by us certainly.

Okay. And sir, any investment amount required for this merger or?

No, nothing is required No, nothing is required.

Okay. Okay. I got it. And sir, if you can throw a little light on the kind of synergy, which can play out?

I did not follow your question. Can you repeat, please?

Sir, I was asking if you can throw some light on the synergy -- kind of synergy, which is likely to play out with this merger.

Alok, you can take this here.

Yes. I think we are looking at synergies both on the market side as well as from the supply chain side. And there's also a potential expansion of MCFL that could underway. But we are in the regulatory process of going through NCLT and all. So we'll come back with the final prints only after NCLT is approved.

Okay. Fair enough. Just last one. Sir, please give me your CapEx plan, that's it.

Right now, we're just completing our sulphuric acid plan, and anything else will be announced separately. We don't have any pending CapEx to be announced yet.

Our next question is from the line of Reshma Jain (sic) [ Resham Jain ] from DSP Asset Management.

Yes, Resham Jain here from DSP. Sir, what is your EBITDA per ton for urea and for complex put together in this quarter like EBITDA per ton for urea and for complex?

See, we have a blended EBITDA per ton, which is 3,000 basis per metric ton. That's how we've been reporting recently.

Okay. But complex would be obviously significantly lower this quarter.

Yes. Yes.

Okay. Understood. And given current prices, sir, how do you think if nothing comes up from government side, 2Q would also be similar? Or do you think we have some scope to improve this number because both prices as well as raw material prices, both are known to us right now?

Resham, I think there is -- if we -- if there's no further support being made available by government to the farmer in the coming months, I'm sure there will be a price revision that will happen.

Okay. But till now, till July, no price revision has happened.

Till end of July, we have not done any price revisions. And now that we've been to the main season as far the Kharif is concerned, we wanted to keep a consistency on this and our requests are pending with the government. But going forward, for the rabi season, if there's no further support is available to the farmer, then we will have to correct the prices.

As there are no further questions from the participants, I'll now hand the conference over to the management for closing comments.

Yes. Thank you for all your participation. And I mean, I can assure you that as management, we are quite focused in terms of ensuring that we have a peak utilization of capacity. And also at the same time, we will be clearly focused in the long term to ensure that our pricing to the farmer is in such a manner that is win-win for both the manufacturer and the consumer. And this will be ensured in the coming months. Thank you.

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