Paradeep Phosphates Limited (PARADEEP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Paradeep Phosphates was Limited Q1 FY '27 Earnings Conference Call hosted by Antique Stock Broking Limited [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Manish Mahawar from Antique Stock Broking Limited. Thank you, and over to you, sir.

Yes. Thank you, Manav. I am pleased to host today's earnings call of Paradeep Phosphates. We have leadership team represented by Mr. Rajeev Nambiar, Joint MD and COO; Mr. Harshdeep Singh, President and Commercial Officer -- Chief Commercial Officer; Mr. Bijoy Biswal, CFO; and Mr. Alok Saxena, Head Corporate Finance and IR on the call. Without further ado, I would like to hand over the call to Mr. Nambiar for opening comments, post which we will open the floor for Q&A. Thank you, and over to you, Rajeev, sir.

Thank you, Manish, and good morning to everyone who has participated in this call, and we welcome to Paradeep Limited's earnings call for the quarter 1. I appreciate your time and interest in your company. I trust you have been -- you have seen our earnings presentation and press release, which have been circulated and are available on our website and stock exchange. Let me take an overview. I'm happy to report that PPL has once again delivered a very strong financial and operational performance and the best-in-class EBITDA per tonne. Many congratulations to all of you. Despite the prevailing global uncertainties led by Middle East crisis, which resulted in sharp escalation and volatility in raw material prices as well as availability. PPL delivered a very strong performance on the strength of its existing supply chain efficiency, sourcing diversification strategy for key raw materials and pan-India marketplace selling and distribution capabilities. With this performance, the company has been able to further strengthen its leadership position in the phosphatic fertilizer sector. In Q1, revenue from operation increased 36% Y-o-Y to INR 6,124 crores. EBITDA rose 25% to INR 742 crores. PBT increased by 24% to INR 526 crores and PAT stood at INR 393 crores. Sales volume grew by 4% to 9.85 lakh metric tonnes, just close to 1 million tonne sales. During the quarter, full benefit of expanded capabilities of sulfuric acid was available to us due to which the sulfuric acid production was higher by 32% on a year-over-year basis. Phosphoric acid production was higher by 7% on a Y-o-Y, reflecting the strength of our backward integration benefit in Phos Acid and sulfuric acid and helped us to improve our quality of earnings. Our key expansion project of Phos Acid expansion that is Phase 1 from 5 lakh metric tonne to 7 lakh metric tonne is on track. I'm happy to report that the Board of PPL in its Q1 meeting approved the investment proposal of INR 250 crores for setting up Aluminum Fluoride Plant at our Paradeep facility. The proposed investment aligns with the company's strategic objective to enter and diversify into related industrial chemical space and will build and strengthen company's non-subsidiary portfolio in due course. The proposed investment is a reinforcement of our manufacturing excellence capability by having a by-product converted into value added products. These investments in specialty and industrial chemical will further augment our endeavor to create long-term value for our shareholders. Looking ahead, we remain in the challenging time amidst the Middle East situation, and we have seen high volatility and availability challenge for key raw materials and particularly sulfur. As you are aware, 70% to 75% of global trade of sulfur and ammonia across the Strait of Hormuz. The supply disruptions for these commodities are expected to continue in short term. Despite these uncertainties, industry is making concerted efforts and empowered committee comprising of government and senior industrial officials working in close coordination to ensure fertilizer security for the nation and the farmers. PPL will remain committed to drive growth in its challenging times through focused operational discipline. Thank you once again. I now open the floor for questions.

[Operator Instructions] We have our first question from the line of Prashant Biyani from Elara Securities.

Congratulations on great numbers. Rajeev, sir, for Q2, how are we placed on sourcing of raw materials? And whether at these prices of sulfur, are we willing to continue to buy and manufacture acid? Or is it worthwhile now to just buy acid and use it for manufacturing of fertilizers?

Thank you, Prashant. As you're aware, the prices have definitely gone up in the current situation. And we are constantly looking these various opportunities where we are able to bring efficiency into the supply chain. With the Phos Acid then it's also going up, there is a strain in our overall working philosophy. But we are also scouting from various sources and some support extra coming out of the ammonia price reductions. So we are hopeful that actually with the production keeping today, to a large extent, we are able to operate around 70% of phosphoric capacity. But moving ahead, I'm sure actually there will be some sort of added support which we expect from the government.

Prashant, just to share with you, we are also augmenting through imported DAP and NPK. So we have a robust pipeline as far as the rabi season is concerned, where we're augmenting our products through imported product line.

Sure, sir. Sir, on the AIF or Aluminum Fluoride side, if you can share some details regarding when the plant can be operational? How much would be the per tonne realization and also EBITDA per tonne?

Prashant, what is the plant capacity is going to be around 15,000 tonnes per annum?

Yes.

Okay. We expect at least a top line of INR 180 crores to INR 200 crores coming out of this facility. We are currently looking quite optimistic about getting this plant commissioned within 22 to 24 months. The basic engineering work is currently in progress. And we are also getting ready for the sourcing strategy, what is the right sourcing strategy for Aluminum Fluoride. As on today, looking at the market, we don't see major challenge in terms of a B2B sale and expecting at least INR 50 crores of EBITDA, which is coming out of this.

Right. And sir, lastly, before I jump back to the queue. Sir, on the trading volume side, what was the traded DAP and NPK for this quarter?

Prashant, we will tell you the numbers.

We'll just get back to you, Prashant. Okay?

Sure.

We have a next question from the line of Riju from Antique Stock Broking.

[indiscernible]

Sorry to interrupt you, Riju. Your voice is breaking. Can you please move to a better reception area? No, we can't hear you, Riju. Riju maybe please request you to rejoin the queue and again. We have a next question from the line of Aman Kothari from Aequitas Investments.

Firstly, congratulations on the wonderful set of results. Sir, my first question would be around the mix that we saw this quarter. We saw a 55% growth in DAP volumes and NPK volume degrowth of 9%. So why was NPK degrowth for the first quarter? And is it a mix that's going to be maintained going ahead for the full part of the year?

I think 2, 3 important things. The way you look at -- yes, there is a significant growth of DAP, and that was more like a tactical shift because from a policy perspective, the profitability of DAP appears significantly better compared to the NPK. But as far as the market strategy is concerned, the focus on NPK continues. As far as pharma sales are concerned, we grew our NPK portfolio by 6%. So NPK pharma sales are up. But as a primary strategy in line with kind of optimizing profitability, we have focused more on the DAP in the Q1.

[indiscernible]

Sorry to interrupt you, Aman, we are unable to hear you properly.

Am I audible now?

Yes.

So my question was, sir, NPK, we saw volume degrowth of 9%, but still you said the portfolio grew by 6%. So is it because of some price hike that we took?

No, that is because of the farmer, the trade stocks, the cost sales grew by 6%. So that is one thing. So that growth as far as farmer is maintained. Of course, we have taken a significant price increase in the NPK portfolio in order to maintain our profitability. So just to give you an example of bag, the DAP today sells at INR 1,350 a bag, whereas the complexes range from INR 2,100 to INR 2,500 a bag. So there is a significant difference for a farmer because of the way the current policy is. So we have ensured that we pass on the increase partially to the customers. And we expect government also to address partially the cost increase, which is happening.

Got it. And sir, just last question before joining back in the queue is in terms of building our non-subsidized portfolio, Aluminum Fluoride is something that we are going up ahead with. But do you see that this Aluminum Fluoride would be catering to which industry? Like there's a clear demarcation between a lower grade and higher grade. So what is it that we are targeting?

Mainly, it is going to target the Orissa area where aluminum industry is there. And we have done our study properly, and we feel actually being a strategic player in Orissa, we should be in a position actually to -- without much greater difficulty, should be able to market it and [indiscernible] market is.

We have our next question from the line of Sucrit Patil from Eyesight Fintrade.

First of all, congratulations on a good set of quarter. My first question to Mr. Nambiar is, beyond the regular outlook, I just want to understand what are the top 2 to 3 execution priorities you are focusing on in the next few quarters? And alongside that, what do you see as the biggest risk in demand shift or competitive pressure? And how are you preparing to manage them while sustaining Paradeep's position in fertilizer and [indiscernible] [ fertilizer ]? That's my first question. I'll ask my second question after this.

If you look at it, one clear signal we have given in the quarter 1 is there's a tactical shift towards profitable product, which is coming. We have got a long-term view in terms of entry case, which is very strong and all the capacity augmentation, which is also going to happen has got a huge thrust coming out of NPK. But we know this is unprecedented time in our business, which is coming out of the conflict in both Ukraine side as well as in Hormuz side. So we can't be just sticking to what exactly we have done. So this is a small term tactical shift which is going to come. So we still explore actually whichever the products which we can manufacture and report -- happy to report that actually we are one of the company who has got maximum product portfolio capability to manufacture in our facilities. So that definitely, we will be leveraging it. And wherever the price advantage comes because of our supply chain logistics is quite strong in terms of the sourcing facility, we will be exploring various areas where we can optimize the supply chain. Coupled with our coming capacity expansion in both Phosphoric Acid as well as the big expansion, which is expected in '29, '30, these are 3 to 4 areas we'll be concentrating in the coming 3 quarters.

My second question to Mr. Singh is on the commercial side, what are the key priorities you are driving in terms of market expansion, pricing and customer engagement? And what risk do you see in the distribution or regulatory framework? And how are you preparing to mitigate that?

So there are 2, 3 priorities. One is from a future-looking priority of the market development, see, we are building up a portfolio of high nutrient use action products in the portfolio, so which is our nano category, and we're growing significantly into that category. As far as the market is concerned, apart from the -- like the current supply chain mix, there is also a challenge as far as the monsoon was concerned. But however, July has been a good month for the rainfall. So how we're trying to address the market requirement is the balancing between our NPK and DAP portfolio. DAP, the demand remains quite robust because of the price point which the government has kept per bag of DAP. And we are -- if you see our growth, both the farmer sales and the primary sales, we had a significant growth. And if you look at the pharma sales, I think the industry growth of phosphatic DAP and NPK has been around 1%. And we -- as a company, we have grown around 15%, 16%. So we maintain our leadership position as far as market is concerned. We also maintain our leadership position as far as product pricing is concerned. So we are very conscious that we are going to drive growth, which is profitable. So that's how our market share deals today.

We have a next question from the line of Riju from Antique Stock Broking.

I hope I'm audible now. So my question is regarding the sales volume data that you have reported. So in the PPT Slide 4, we have seen that the total fertilizer volume is 9.85 lakh tonnes, right? But if you calculate the product detail, that is DAP, NPK, urea, TSP and MOP, the count is coming at roughly around 10.03 lakh tonnes. So just wanted to understand the math here.

No, I think you would have counted the zypmite sales probably into it. So if you consider the DAP NPK MOP, that is around 9.85 lakh metric tonne. But if you also consider the zypmite, which is a soil conditioner, then you're right, it's 1 million tonne plus. So that's around 15,000 tonnes of zypmite sales. If you add both of them, it will be 1 million.

Understood. Understood. And sir, in terms of the sulfur -- like sulfuric acid capacity that we have right now, the excess capacity. So how are we selling that? I think we might be selling it to outside. So like how much additional EBITDA that we can make from that sulfuric acid by selling to the outside as of now?

Bijoy, you take it.

Right now, we are completely utilized the sulfuric acid capacity. No, we are not selling outside right now. The entire thing is consumed by our fertilizer facilities.

No, sir, my question is regarding like at the Paradeep facility, we have expanded the sulfuric acid capacity from 1.4, roughly around 2 million metric tons, right? And the phosphate capacity that will come in the 2Q of FY '27. So the excess sulfuric acid capacity, how you are utilizing that?

I will explain you. Basically, we don't have any excess capacity of sulfuric acid in Paradeep. Even if it happens, there could be some fluctuations on a short-term duration may be happening. But if you look at it, sulfuric acid, we are using not only for the Phosphoric Acid production, Also, N20 being sulfur-dominated product, a lot of amount of sulfur goes there also. So as of today, if you ask me, we don't have an excess kind of a capacity on a sustainable basis from Paradeep. But obviously, there's some smaller quantity here and there, we might be trading, but it's not a significant thing at all.

Understood, sir. And in terms of the power generation, the coal power generation from sulfur to sulfuric acid, are we selling any excess power to the grid as of now in this quarter or maybe in last quarter?

Last quarter, we have sold at the beginning, but then because of the fluctuations in terms of sulfur -- sulfuric availability, we have not done much. But the facility is available to us.

Understood. And sir, one last thing in terms of the urea. So the Goa urea facility, I think the GCal improvement happened in the last quarter. So how much EBITDA per tonne that we have been able to achieve this quarter? And also in terms of MCFL urea plant, so the EBITDA -- the benefit that we are getting as per the old policy that might have expired in last year. So how we should look at in terms of EBITDA per tonne for the MCFL plant as well for urea?

Yes. Regarding the urea policy, I think it has been notified -- the new urea policy has been notified yesterday. So we are evaluating that policy. But if you look at the policy and vis-a-vis the energy benchmark what we have right now in Goa, the impact will be around INR 1,500 per metric ton, positive. And there will be a reduction in Bangalore of around INR 700 to INR 800 per metric ton based on the new urea energy policy. And this energy improvement, what we are talking, we have invested and we have -- this has been completed and it has been capitalized and put -- it has started this -- getting the benefit from this year, this quarter. So energy has been reduced by 0.2 GCal on a urea production basis for this year.

So sir, actual benefit in terms of EBITDA for that?

[indiscernible] 0.2 [indiscernible] right now, this -- due to this energy impact will be INR 1,000 per metric ton.

Okay. So over a normalized basis, can we expect that it might have improved by roughly around INR 700 to INR 800 per tonne at the EBITDA level for Goa urea?

At the Q1, yes, you can assume.

Yes.

We have our next question from the line of [ Parth Soda ] from [ Tata Asset Managers ].

My question is like over the medium or long term, what percentage of EBITDA do you believe will come from non-subsidy business such as industrial chemicals?

Can you repeat the question?

We continue to focus on fertilizer, as we said earlier. And the sustainable EBITDA guidance that we give is INR 5,000 at the moment, which when we complete our backward integration, everything should be improved by 30% to 35%. As far as the non-subsidy portion is concerned, I think that will take some time to evolve. And over a period of time, the long-term vision is that at least 20% of the EBITDA should be supported through non-subsidiaries, but that's a long-term target that we have kept for ourselves.

We have a next question from the line of Madhur Rathi from Counter Cyclical Investments.

Sir, I wanted to understand currently how much of raw material for this Aluminum Fluoride, the FSA is currently produced in-house? And what are we doing to that? Are we selling it outside? Or are we incurring some affluent treatment charges for -- because if you could help us understand on that front?

Currently, we are producing around 9,000 to 10,000 tonnes per annum. And all these quantities are sold to outside parties. The whole context of our investment is actually how do we make sure that we get the value, much higher value from what we've been selling as a raw material to other parties.

Got it. And sir, if you could help us understand because it seems that this product is very critical to aluminum smelters. So how is the criticality of this product? And sir, have the validation started for this product? Or will there be a gestation period post the 24-month commissioning of this plant?

Good. This is basically -- we are just starting actually the Board has given a go ahead and we just started the engineering. So engineering, construction and commissioning should be 22 to 24 months. And we don't see any challenge in terms of the marketability or salability of this product.

[indiscernible] it is getting sold. And just to add to Mr. Nambiar, a lot of work has gone in background before we took it to the Board. So everything is established. We just need to complete the project in the next 24 months and get it rolling.

And also to your understanding, there's a lot of import happening in this particular product. So with this, we should be able to make sure that the Indian manufacturing setup is able to complement and reduce the import of Aluminum Fluoride.

Yes, sir. Sir, my question was similar -- on similar lines because of all these imports are of a different specification versus what it would be that Paradeep Phosphates would manufacture. So will it require some gestation period with the smelting customers for testing out our product and then where...

No, it won't be. It won't require any gestation period.

It is generally marketable.

Got it. And sir, how much capacity can we increase because we are manufacturing 10,000 metric tons of FSA. So how much can we extend this 15,000 metric ton of capacity to?

[indiscernible] We are currently designing 15,000. Why 15,000? Because the expanded capacity we are expecting within 2 years, we should be in a position actually to utilize entire -- sorry, Hydrofluorosilicic Acid to Aluminum Fluoride.

We have a next question from the line of Dhruv Muchhal from HDFC AMC.

Sir, a few questions. Firstly, on the traded, can you share the traded volumes this quarter ex of urea?

Yes. The traded volumes, which we have done, total 1.25 lakh metric tonnes, including the MOP, TSP, DAP. The major imports which are coming, the arrivals are happening in July, August and September. We have almost secured around 0.5 million tonnes of imports for the rabi season.

And sir, what we're seeing right now, for example, the shift in higher sales of DAP and relatively lower sales of NPK. I'm just trying to understand how does this work in the market? As a structural strategy, it is the market wants to shift towards NPK. I mean it seems largely push given the better profitability and also better farm economics, probably better for the farmer. But this raw material supply chain issues, the government policy actions and all those creates this disruption. So I'm just trying to understand, say, for example, the farmer shifting to DAP today, was an NPK buyer earlier. How soon does he come back to NPK if the prices normalize? I mean what kind of resistance does that happen? Because these kind of policy then otherwise, you have these disruptions and the movement towards NPK then probably becomes slow. So I'm just trying to understand how does this move and how do you see this?

So 2, 3 things. I think first is fundamental, see the entire market development effort and our farmer engagement effort is to create awareness of the balance fertilization, which is basically phosphates, potash, micronutrients and even organic carbon, which is very essential from the agriculture context. As far as the short-term context is concerned, see, farmer, we've done most of our awareness campaigns, shifting him from conventional straight, let's say, DAP fertilizer to NPK mix. Currently, the difference is quite stark between NPK prices and the DAP prices. And hence, the farmer shift, which is there. But a lot of farmers, especially in South India, where the awareness levels are much higher, they still continue using the NPK portfolio. And we see still NPK as a dominant category. But yes, as far as the current season is concerned and maybe rabi, as long as the urea and DAP prices are held at a special price for the farmers, you will see a shift happening as far as uptake of DAP is concerned. But I don't see that as a fundamental concern from our overall strategy perspective. Of course, farmers are aware about the use of the balance fertilization. And if you look at even a fertilizer like potash, where the government support is very minimal. And the prices are almost as high as INR 2,200 a bag. So very aware farmers for cash crop, they're still using potash, though the price is quite high.

Right. I was just wondering from the pace of shift towards NPK, does it slow it down or the movement can be back again quickly?

Yes, it will be back again quickly if the price equation is addressed. See, as long as the DAP, NPK are within the price range of INR 200 a bag, I think the shift can happen very quickly. Currently, it's quite stark, almost INR 1,000 a bag difference.

And sir, the other question was on the expansion plan, the phos acid and probably NPK granulation expansion. Any change in plans given what is happening or that remains on track? Because I believe last time when we spoke in the call, you mentioned the equipment ordering is pending. So I'm just trying to understand where are we there?

Okay, Dhruv, if you see none of the plants are getting changed because of the short-term turbulence what we're experiencing. That's a good news for all of us. And second thing is the Phos Acid expansion, what earlier we said is about 5 lakh to 6 lakhs will become the reality by this December. And the 6 to 7 is also going to happen mostly by August, September next year. So current -- related to the bigger expansion of the 3 lakh tonne of Phos Acid as well as sulfuric acid, that's also going on as per what we have planned. So almost we are in the final commercial discussion is going on. So all those expansion projects are going in a normal way, respective of what's happening around us.

We have our next question from the line of Saumil Shah from Paras Investments.

Sir, I wanted to ask last quarter, EBITDA per tonne was somewhere around INR 5,300. So what is the EBITDA per tonne in this quarter? And have we started seeing benefits of the backward integration?

This quarter, EBITDA is around INR 7,000 per metric tonne. And last quarter -- last year, in the same quarter, it was around INR 6,500. This increase is mainly on account of the stock what we have got at the beginning of this year. So that has really played out, and this has given this increase in the EBITDA margin.

Also, if you look at it, our backward integration of sulfuric acid, which has happened in both Bangalore as well as Paradeep. Both are actually running the full stream. So coupled with the inventory, which we had able to harness within our system in terms of raw material inventory, coupled with the backward integration started coming up.

Okay. And so can this INR 7,000 range sustain for the current quarter as well?

No. We feel actually a realistic EBITDA for the year would be around INR 5,000 crores -- to INR 5,000 crores. Once we complete our expansion projects, what I explained earlier, we should be in a position to have a sustainable INR 7,000 plus.

Okay. And that would be by when?

It could come in basis, actually. You can take it as 2 to 2.5 years.

And just one follow-up. You alluded to the previous participant that our Phos Acid plants incremental capacity from 5 lakh to 6 lakh tonnes will be by well?

By this December.

Okay. Okay. And what is the current capacity utilization for this plant?

This plant is 100%.

Okay. So we are confident of achieving 1 lakh additional by Q4 of this year?