Shree Pushkar Chemicals & Fertilisers Limited (SHREEPUSHK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '23 Earnings Conference Call of Shree Pushkar Chemicals & Fertilisers Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Faraz Ahmed from Orient Capital, their Investor Relations partner. Thank you, and over to you, Mr. Ahmed.

Thank you, and welcome to the Q1 FY '23 Earnings Conference Call of Shree Pushkar Chemicals & Fertilisers Limited. Today on this call, we have Mr. Punit Makharia, Chairman and Managing Director; along with Mr. Deepak Beriwala, CFO; and Mr. Nitesh Pangle, Company Secretary. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions and expectations as of today. Actual results may differ materially. These statements are not the guarantees of future performance, and involve risks and uncertainties that are difficult to predict. A detailed safe harbor statement is given on Page 2 of the company's investor presentation, which has been uploaded on the stock exchange and company's website as well. With this, I hand over the call to Mr. Punit Makharia for his opening remarks. Over to you, sir.

Thank you, Faraz. Good afternoon, everyone, and welcome to Q1 FY '23 earnings call of our company. I hope all you have got an opportunity to go through our financial results and investor presentation, which has been uploaded on the stock exchange as well as on the company's website. Friends, I will take you through the financial and operational performance of our Q1 FY '23. Despite macroeconomic challenges, supply chain distributions and in difficult scenario, we're pleased to deliver steady financial performance for Q1 FY '23. Our focus has been to provide sustained and consistent volume deliveries to our customers. And we have ensured that we delivered that to the best of our possible ability. Exiting the global uncertainties, which has been in the previous few quarters, our chemical division has reported a volume growth of 13% in Q1 FY '23 versus Q1 FY '22. Owing to an increased demand for dyes in domestic as well as export segments, we're further optimistic on seeing better realization and volumes uptick to our entire chemical division. The volumes in the fertilizer division saw some dip due to significant impact. However, it has witnessed higher realization, which can be attributed to increase in the subsidy offer by the government. This has been a welcome move for the fertilizer segment as it was the need of the hour and we're sincerely grateful to the central government to address this issue. Despite the ongoing global challenges, the company is optimistic about overall growth and demand in the quarters to come, and improve capacity utilization and the higher efficiencies. Friends, our consolidated total sales volume for the quarter witnessed a drop of 9.3% on a year-on-year basis, which is including of 13% increase in the chemical volumes and 10% drop in our fertilizer volumes. Even after the drop in our total volumes, our revenue has grown by 42.4% on a year-on-year basis. Our EBITDA has increased by 14.7% in comparison to Q1 FY '22 and almost 10% in this comparison of the preceding quarter. Our PAT has increased by almost 8% as compared to the corresponding quarter of the previous financial year and 3% in comparison to Q4 FY'22. With the high capacity utilization in the months to come, we see a great scope of outperforming our past financial numbers. Now an update on the CapEx done by the company. Our Unit V of INR 119.5 crores approximately has been completed up to 30th of June 2022. The dyes intermediates plant is ready to start commercial production. The dry trial there has been completed successfully. We were waiting for the exclusive department permission to start over this dyes intermediates plant at Unit V, which has been received by the company on 8th August 2022 and the commercial production is likely to start very shortly. Sulphur Chemistry plant, the commercial production has already been commenced, except the e Thionyl chloride plant. Finally, we are one of the few market players with both forward and backward integration capabilities. Our company has 8 locations across India, put one more, which is a solar and totally 9 location and is progressing. We are highly regulated and we are proud to tell you that we are still a 0 waste company organization. With this, friends, I would like to hand over the call to Mr. Deepak Beriwala, who is our CFO, and who will take you through the financial and operational highlights of Q1 FY '23. Over to you, Deepak.

Thank you, sir. Good afternoon, everyone, and a very warm welcome to everyone. Our total volume for Q1 FY'23 dropped by 9.3% on year-on-year basis with the total volume gains 49,485 metric tons in comparison to 54,543 metric tons in Q1 FY '22. Volume in chemicals sector grew by 13% to 1,981 metric tons in Q1 FY '23 versus 1,753 metric tons in Q1 FY '22. Fertilizers volume for Q1 FY '23 dropped by 10% to INR 47,504 metric tons in comparison to 52,792 metric tons in Q1 FY '22. On revenue front, our revenue for Q1 FY '23 stood at INR 168.8 crores as compared to INR 118.5 crores in Q1 FY '22, a growth of 42.4% on a year-on-year basis. Our consolidated EBITDA for the quarter was INR 21.2 crores for Q1 FY '23 as compared to INR 18.4 crores in Q1 FY '22, a growth of 14.7% on a year-on-basis. EBITDA was also higher on Q-on-Q basis by 10% where the EBITDA for Q4 FY '22 was INR 19.3 crores. EBITDA margin for Q1 FY '23 stood at 12.5% and PAT margin for Q1 FY '23 stood at 8.60%. PAT for Q1 FY '23 was at INR 14.4 crores versus INR 13.4 crores for Q1 FY '22, a growth of almost 8% on year-on-year basis and a PAT margin of 8.60%. With this said, we can now open the floor for discussion. Thank you so much.

Sir, would you like to begin the Q&A session?

Yes, we can go ahead.

[Operator Instructions] We have the first question from the line of Subham Agarwal from Aequitas.

Sir, firstly, I'd like to congratulate the entire team because we have posted a great set of numbers in a tough environment. Sir, my first question was related to the fertilizer division. So last quarter, you mentioned that Deewanganj facility, we had faced some closure notice and we were working to get it lifted. So I wanted to know what is the current situation of that closure notice. And secondly, with regards to the expansion in Kisan Phosphate of 32,000 tonnes, we were supposed to get a report, post which we were supposed to start the plant. So again I wanted to know the current status of both these plants.

Thank you, Subham. First of all, let me take you through the Deewanganj plant. Deewanganj plant, there was a central policy control board notice, which was issued in the year 2016 prior to the CIRP process beginning with Madhya Bharat and that was not in our knowledge. But when we took over the company, when it came to our knowledge that the CPCB had already issued a closure notice. Now, finally, as on date the update is as follows. CPCB closure order has been revoked. That has been lifted. All those total approvals has been already received in pertaining to the Deewanganj plant. Now the biggest challenge was still we are facing is an access road entry to the Deewanganj site. As we have mentioned in our resolution plan that this particular factory plant is under a land locked area, which is owned by the earlier promoter. And though we have an order issued by NCLT that the same access is to be provided to us, we are in regular touch and very close followers with the local administration for providing with the access to the road. After almost a year of negotiations and follow-ups, finally the company has decided to purchase that access road from the earlier promoter. And that is the final stage of -- in the documentation. And we hope that in next 10 days or 15 days, because the August month has a lot of holidays because of the Krishna Janmashtami and Rakshabandhan and all these things, we believe that in next maximum 10 to 15 days or so, we would be closing the registration of that particular access land. Once we have done with that, Subham, then I don't think any hurdles will be there for us. And this plant is fully ready to start the production. It's in inspection and induction to NBS policy and pollution matter and other strategy approvals, all are well in place and received, except this access road, which we believe that should be completed in the next 10, 15 days. Immediately after that, we should be able to start with this plant though we have missed the big season in Deewanganj plant. But we are quite hopeful to catch up with the next season coming thereon. Secondly, coming to Kisan Phosphate expansion, that expansion is completed. We have already received the PDI approval for 132,000 tonnes of the capacity. Now this Kisan is 132,000 tonnes capacity plant. And this particular season, the sale of Kisan has dropped in comparison to the last year because of the pricing issue because of the awaitment of the subsidy realization. But now we are quite hopeful that in the coming season, we will be able to make up the lost business.

Got it. Sir, so with both the Deewanganj and Kisan Phosphate, is it safe to assume that the entire 590,000 tonnes that we have estimated, so this will be now available for entire H2?

See, 132 Kisan, 165 is Madhya Bharat, 132 is the Deewanganj and it is like 529,000 tonnes.

590,000?

And it's for Pushkar also. It is all 590,000, Subham.

So this entire will be available for entire H2 is what we can assume.

Yes, this should be entirely available.

Okay. And secondly, so our volume target of 370,000 to 400,000 tonnes, do you think this is now achievable because there is this delay in starting production for the current year?

I think, Subham, we should be able to achieve close to 300,000 tonnes of SSP because first season has already on the verge of getting over. So we now only have the second season with us. And we are quite hopeful achieving our targets in that.

And the realization would be around INR 15, INR 16 right now?

Realization would be around 16,000 or so.

So then it is safe to assume that for the current year, we can do close to INR 450 crores or INR 480 crores of revenue from the entire fertilizer division?

Yes, approximately INR 450 crores of the business we should get from the fertilizer business in this current period.

Perfect, got it. Now secondly, coming to the chemical division, sir. So we have witnessed that across the industry, chemical companies who are basically till DI, they are facing a problem with regards to the cost. And because they don't have dye stuff, they have toned down their DI production and some of them are facing a loss of profitability also. So I wanted to know in the current scenario, how we are basically seeing the market going ahead? And is there any dumping that we are witnessing in the chemical market currently?

See, what you said is right, Subham. As of now, there is definitely pressure on the volumes, pressure on the sales, and also pressure on the pricing and the cost of the product also. And if you seeing and -- but this pressure is going on practically for the last 8, 9 months or so. Few of our competitors are even facing closures also because of some other environment issues also. And those plants are also closed for quite 2 to 3 months or so. Definitely, selling pressure is there, cost pressure is there. What happened is that in the last 3, 4, 5 months, the raw material prices had gone too high because of some sentimental issues or maybe because of Ukraine and Russia war. For example, let me tell you a product called sulphur, which is our raw material. This is just an illustration I am giving you. Sulphur was prevailing around $450 almost a month back. Coming to surprise, it has come down to $100 now. So here, the local refineries have dropped their prices by almost 30% to 40% or so. So there is definitely pricing pressure in terms of the basic raw material. There is a pricing pressure in terms of the fuel, what we use like the coal in that. And because of that, the pricing pressure is there. I believe that in spite of the pressure also, we have maintained our volume growth. We are focused on 2, 3 main focuses: a) let us maintain the volumes, b) let us maintain our receivables, our better. Let us be a cash-rich company. We have collected cash and maintained our volumes in Q1. So we believe that in similar lines, we will continue our Q2 also because I personally see a pressure in Q2 also. From Q3 onwards, like from the Diwali onwards, I believe that the situation will come back to normalcy. Because right now, this is a very short time phase, which the industry is facing that we said the raw material pricing pressure is there. Because of that, the sales volume pressure is also there. And I think that this pressure should be released somewhere by the mid of Q2 or so. Any moment we are expecting release of this pressure. And in this pressure for normal, we are focusing on 2 issues. Let's not have the inventories at the factory. Let's build our volumes. Let's not lose our business volumes. At the same time, let's have the parity in the realization and our book tax.

Got it. So sir, it is very fair to assume that the Q1 was a bottom result. Hence forward, we see only improvement in chemical division, barring Q2 most likely?

Subham, I would be very honest to you because, see, I would see a similar pressure in Q2 also. What you said is 100% visible and expected in Q3 onwards. Because we are almost 1/3 of the Q2 has already been passed. And I see a similar kind of a pressure in Q2 also as we realized in Q1.

Sir, so for the current FY '23, let's say, we have done a INR 262 crores revenue last year for entire FY '22 in chemical division, dye intermediate.

You're saying in H1 '21-'22, we did INR 260 crores?

Total FY '22, we delivered INR 262 crores revenue last year.

No, no, it is more than that, INR 350 crores.

It is INR 350 crores on standalone in the whole last year. And on consol, it is INR 584 crores, something like that.

No, I'm talking specifically of chemical division.

Okay. Okay. That figure is not -- Subham, can you go ahead with your question?

Yes. So chemical division, last year, it was INR 262 crores. Now given the current circumstances and order visibility, how do you guide for FY '23?

See, I don't have right now individual vertical-wise figures. But I can give you overall insight what I feel for '22-'23. I think you can take entrance from my feelings as per your own this thing. I personally feel like if you see that in Q1 FY '22, we did INR 118 crores and Q1 FY '23 will be INR 168 crores. So there is a volume growth of 40% approximately. I believe that the similar growth being maintained in the whole financial year of FY '23. Plus Unit V intermediate plant is yet to commission. We have yet to start the commercial production. So that business would also be added into the total revenue. In all the probability, I personally believe that we should be able to minimum achieve INR 850 crores to INR 900 crores of business in this financial year, taking into a pressure of Q2 and starting Unit V in the immediate effect then for Q3 and Q4 also.

[Operator Instructions] We have the next question from the line of [ Sanjeev Damani from HKD Consulting ].

My best wishes for -- I mean congratulations for excellent results. And really, you have created a very fine enterprise and congratulation to the promoters and management of this company. I want to start with one thing that can you kindly explain me the subsidy mechanism as far as single superphosphates fertilizers are concerned and as far as urea, et cetera, is concerned because we understand that government is now doing direct payment to the buyer. So is it that way? And what are the quantum in single superphosphates? So can you kindly explain me for my understanding?

See, as far as SSP is concerned, Damaniji, there is an NBS policy which has been notified by the Government of India based upon which nutrients into the product, the government has allocated the amount of subsidy for nutrient basis. So on the basis of the total nutrients held into SSP, the subsidy figure is derived by the Government of India. On the base of that notification and base of that individual nutrient subsidy base, the total subsidy works out on the SSP is INR 7,513 a tonne. And the mechanism on the subsidy is that the subsidy is not given to the farmers directly, it is given to the manufacturers. Once we have to sell the product through the POS, that is a point-of-sale machine, on the basis of the POS and SMS and MMS and the FMS system, we have been feeding the data into the government portal. On the basis of that data feeding into the government portal, whenever the product is sold, the farmer has to put a thumb impression, which is linked to his Aadhaar card and his land data records. Then the subsidy is authorized on the POS. POS is a point-of-sale machine, which is linked to their thumb impression linked to their Aadhaar card and based upon -- the mission of this entire system is mechanized and completely digitized. But uses of the materials sold and the POS, we are eligible for the subsidy. Then we got 100% subsidy by Government of India on this basis. And urea you said is that urea is a completely different volume game altogether, so not with SSP. In urea, it's a canalized product. So nobody can impose for selling into the domestic market. It is allocated by the Government of India on the POS wise. Then it's a different business altogether. But the business of SSP and the business of urea is totally different.

Here, I would like to know how many days it takes to get our subsidy? Is it very prompt or delayed or how it works?

No, it has improved much than the last time and it is still improving, and it is completely digitalized. This is on the basis of first come first serve basis.

Okay. So the subsidiary part is what is government fixing. And do we have liberty to fix our selling prices independent of subsidy components?

No. But for that, we have to give the cost data to the department. On the basis of the cost data analysis, we can fix our own prices. But what government has -- they have not controlled it directly. But yes, they oversee the pricing pattern of the MRPLs.

It is regulated. And sir, in that sense, that is it being considered monthly basis or quarterly basis?

It is season basis, sir.

Season basis. So during the period of the season, if the raw material prices goes up, then we have to only be such expenses?

No, it is generally we always keep that much of a margin you can -- looking into the market fluctuations.

Okay. Sir, one more request, sir, regarding capacity utilization of our various products, I mean, if these data are somewhere available, I can access it or else if they can be published that we have X, Y, Z number of products and these are the capacity utilizations for this quarter. I mean if we can get just --?

See, our Investor Relation team would provide you. That is not a problem. You can share your contact details with Orient Capital. They will provide you that details.

We have the next question from the line of Forum Makim from Equitree Capital.

Congratulations on a great set of numbers in a challenging environment. Sir, my first question would be on the chemical side. As you mentioned, there's been a lot of pressure in the industry. And we are also seeing closure of some factories in Gujarat due to the pricing pressure and the demand pressures. So what have we done differently this quarter that we have been able to post a volume growth for the quarter?

Madam for that, the basic difference between ourselves and our market competitors is the business model. As we have been always mentioning that we are a 0-waste business model and we -- whatever the waste we generate from various plants is consumed by a different plant as it's in a form of a byproduct or it's raw material. And that is the beauty of the whole business model and that has given a completely stable and sustainable business model to our company. That has been a winning edge for us. And because of that, we are much better compliance stage than others. So that is the reason those plants might have been closed during the first quarter was maybe fully, maybe partially, I don't know. But we have been able to use our facilities on a whole quarter basis. So because of that, we could generate better volumes in terms of our sales as well as like the dealer network, what we have for our dye and intermediates, we had with good orders and we maintained the volume of that.

So what was your total volume growth in the chemicals segment? I think this quarter we have excluded the acid volume, if I'm not wrong?

Acid volume, I also believe that we have kept separately. Earlier, we used to put it like dyes, dyes intermediates and acid as a one chemical sector. Now this time to give a better visibility, we have shown every division in a separate manner instead of showing it in a single chemical sector. So I think we have divided into 3 phases, dyes intermediates, dyestuffs and acids. So it has done separately.

So the volume number given in the press release is of dyestuffs or dye intermediates?

The press release is dyes and dyes intermediates even we have shown you.

But sir, earlier we used to report a higher number.

What we have given in the press release is the chemical, which includes dyestuffs and intermediates. Acids I don't think we have given into the press release, but can be given to you separately, vertical-wise, the data of the production, what we did, what we sold. But for your information, acid, we have sold around 4,668 metric tons in this quarter in comparison with 2,780 metric tons anything -- in comparison to 1,777 tonnes of acid what we sold in the last quarter. So there is almost growth of 2.5x in the acid in comparison with Q1 '21-'22. We will share that sheet with you through our Investor Relations team which will have the unusual capacities of individual vertical-wise. That gives you more visible slide for you.

And sir, what has led to the improvement in margins Q-on-Q?

I think if you ask me, though we see an improvement margin in comparison with Q1 to Q1 in the last 2 -- in last financial year to this financial year. But then if you ask me personally, that INR 118 crores business, they grew INR 13 crores. INR 168 crores business gave you INR 14 crores. So after 40% improvement into the revenue, but hardly 1% improvement into the pack. In my personal view, it was much cost improvement, but only because of the pricing pressure we could not do so. We believe that Q3, Q4 will be much better.

We have the next question from the line of [ Chirag from Keynote Capital ].