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

Ladies and gentlemen, good day, and welcome to the Shree Pushkar Chemicals & Fertilisers Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Faraz Ahmed. Thank you, and over to you, Faraz.

Thank you. Hello, everyone, and welcome to the Q2 and H1 FY '23 Earnings 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 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 the 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 our Q2 FY '23 earnings call of our company. Today on this call, I am joined with Mr. Deepak Beriwala, our CFO; and Mr. Nitesh Pangle, our Company Secretary and Compliance Officer; and Orient Capital, our Investor Relations partner. Friends, I hope you all have got an opportunity to go through our financial results and investor presentations, 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 company for Q2 and H1 FY '23. Due to macroeconomic challenges and geopolitical disruptions, coupled with extreme inflationary scenario, we have delivered subdued profits for this quarter. The demand for Dyes & Dyes Intermediates and chemicals has seen a drop in the quarter, and the situation seems to be grim over the next few coming months for the same as the major textile manufacturing country -- countries are facing demand pressure due to their energy and currency prices from the customer's end. Domestically, we have witnessed the capacity utilization of textile mills running sub-50% due to high cotton prices and due to high energy cost. During the quarter gone by, our Chemical business has reported a drop of 14.6% in terms of the volume on a stand-alone and consolidated basis. Friends, we are pleased to inform our investors that the company has delivered good growth in terms of the Fertilizer business division. There, Shree Pushkar Petro has reported stand-alone growth of 64.5% on year-on basis and on consolidated level our Fertilizer division has reported Y-o-Y growth of 20.9%. We are hopeful for further improvements in this segment as we have sustainable demand domestically and globally. In H1 FY '23, Kisan Phosphates has reported a revenue of INR 82.5 crores, and Madhya Bharat has a revenue of INR 66 crores for the same period. This has been a remarkable improvement as we have done INR 125 crores and INR 101 crores for Kisan Phosphates and Madhya Bharat, respectively, for the entire year in FY '22. We are confident of reporting improved revenues for our Fertilizer business in quarters to come. I would like to remind everyone that G20 Summit is going on in Bali and has a prime focus on food and fertilizers, and we would be able to put ourselves in the forefront of supporting our country for the global needs and our fertilizer capacity utilization in coming quarters. I'm hopeful that demand strategy for our Chemical division that has added to a profitability achieves an improved margin. Friends, now an update on the capital expenditure made by your company. Unit 5 has partially started its commercial production with respect to acid complex and dye intermediates. Further, an amount of INR 85 crores has been capitalized up to 30th September, 2022. The balance, last phase of commencement of Unit 5 will be completed by January '23. We are delighted to report that company is having a strong financial balance sheet, and we have non-lien deposits of INR 109.9 crores, which has increased from INR 62.3 crores from the June quarter. We are confident that our strong cash position and no debt strategy will be highly beneficial in coming quarters. With this friends, I would like to hand over this call to Mr. Deepak Beriwala, our CFO, who will take you through the financial and operational highlights of Q2 FY '23. Over to you, Deepak.

Thank you so much, sir. Good afternoon, everyone, and a very warm welcome to everyone. Our total volume for Q2 FY '23 on consolidated level increased by 19.6% on year-on-year basis with the total volume being 67,420 metric tons in comparison to 56,352 metric tons in Q2 FY '22. Volume in Chemicals sector dropped by 14.6% to 1,665 metric tons in Q2 FY '23 versus INR 1,950 metric tons in Q2 FY '22 on a consolidated basis. Fertilizers volume for Q2 FY '23 increased by 20.9% to 65,755 metric tons in comparison to 54,402 metric tons in Q2 FY '22. Our revenue for Q2 FY '23 stood at INR 181.3 crores as compared to INR 136.1 crores in Q2 FY '22, a growth of 33% on year-on-year basis. Our consolidated EBITDA was INR 34.8 crores for H1 FY '22 as compared to INR 40.8 crores in H1 FY '22, a drop of 15% on year-on-year basis. EBITDA margin for HY FY '23 stood at 10% and PAT margin for FY '23 stood at 5.5%. PAT for H1 FY '23 was at INR 19.3 crores versus INR 29.1 crores for H1 FY '22, a drop of almost 34% on year-on-year basis. With this, we can now open the floor for discussion. Thank you so much.

[Operator Instructions] The first question is from the line of Shubham Agarwal from Aequitas Investments.

Sir, firstly, my question was related to the Chemical division. Sir, I wanted to know what was the revenue and EBITDA contribution in this quarter?

Particularly Chemical division, Shubham?

Yes, stand-alone level.

Shubham, if you'll see on a stand-alone basis, in the last quarter Pushkar on stand-alone basis did INR 90 crores in consolidation, including chemicals and fertilizers. In this quarter, it has gone down to almost INR 90 crores. From INR 110 crores, the total revenue has gone down to INR 90 crores, which includes Chemical as well as Fertilizer divisions. Approximately, I can give you the Chemical business is totally around...

INR 52 crores.

INR 52 crores, INR 53 crores in the Chemical business, Shubham, out of the INR 90 crores business. And if I give you the total breakup, the total Chemical business is INR 53 crores, to be very precise. Fertilizer business is INR 27 crores in this Q2 quarter on a stand-alone basis. And assays and other chemical business is the remaining part of it, which is around INR 12 crores to INR 13 crores [indiscernible] or so.

Right. And what would be our EBITDA contribution from Chemical division?

The calculations, we do not have on individual Chemical division, Shubham, because it's a consolidated unit altogether. And we do not have a separate expenses for the Chemical as well as on the Fertilizer business. So generally, we don't calculate that. And -- but I think EBITDA level should be in that regard a bit in a single digit, though that figure I'm not carrying with me right now, Shubham, but we can provide to you after the calculation of it.

So basically, what I'm trying to figure out is in the Fertilizer division, if we see the numbers reported were very good, but in the Chemical division, if we remove the stand-alone Fertilizer, I wanted to know what was the probably loss that we reported in this segment?

No, first of all, Shubham, a, we have not reported the loss. The loss what you -- see, basically, if you talk about PBT, right? PBT is in a positive mode. But yes, it is subdued in comparison with the last quarter. And because of this provision for capital, because we have done a capitalization of INR 85 crores in September for Unit 5, because of that, this capitalization deferred tax has gone up by around -- quite an amount of money. Because of that, the impact on the PAT is INR 5.6 crores.

Got it. So basically, you're saying the EBITDA at INR 6 crores, the Chemical division has also contributed in this?

First of all, let us understand a few things. There is no loss, there is no this thing. Yes, but there is a dip in the EBITDA margins in terms of the Chemical also. [ On ] #2, approximately, EBITDA margin on a stand-alone basis is 6.8%, which includes Fertilizer business also as well as the Chemical business also, right? If I [indiscernible] 5 years, right? It should be somewhere in -- Fertilizers business should be around 12%, 13% EBITDA and the Chemical business would have lower than that. And on consolidated basis, it is around [ 6.8% ]. This is just 5 year [ trend ] which I've given to you, Shubham. And I'll tell you one thing basically, Shubham, we need to understand, right now, the scenario what the whole industry is facing is extremely subdued. It's not only the chemical. I personally feel that this geopolitical situation globally, the currency pressure, energy pressure, demand pressure, globally what we see is extremely depressed. And I believe that in this atmosphere, the most important is that, let's not leave our volumes, let's build -- let's not leave our customers, let's build business. At the same time, let's conserve our cash, let us not do any such kind of a decision where we depend on our decision. [Foreign Language] And if you see that overall our this cash position has improved, we have maintained volumes. We have seen -- we have -- on this total overall basis, we have given a volume growth. We have given a revenue growth, but at the same time, there is a depression in terms of the PAT. [Foreign Language], which you would also agree and everybody would agree because see, you would be tracking many other companies. At the current global situation, there is a pressure on demand from the European countries, from the Americas. And looking at the gas situation and currency situation, especially in Pakistan and Bangladesh, in which the Bangladesh is a major textile producing country for the whole globe [Foreign Language]. So the very important part for us was to keep our business safe and intact, to keep our customers with us. We don't mind sacrificing something on our profitability, but at the same time, we want to cash [Foreign Language]. And I would say, let me tell you one thing very clearly, without asking you let me tell you, as far as the kind of sector we are into it, our team has done reasonably well. [indiscernible]

No, sir, fair enough. I totally understand the current scenario. And I'm sure you are putting all the efforts to get through this. Sir -- and basis your experience and your understanding, how do you see this evolving? We understand that there is also some dumping from China into India, especially in DI segment. So how do you see this evolving and how this will impact our Unit 5 ramping-up strategy?

[Foreign Language] I have been into this industry for this quite 25, 30 years. And we -- I personally look into this market scenario very closely. And out of my market intelligence, what I touched with all the global customers and suppliers also, what I believe is that it is not the question of the dumping, it is a question of the demand. It is a question of the demand, Shubham. And because of the depressed demand, see, [Foreign Language] because you have been invested in some other sectors, some other companies also. So you look at it widely. We personally believe that, particularly in global situation there is suppression into the demand. People are shy to spending money on the non-essential products. And we've also been in some of the non-essential commodities out of our total business vertically. [Foreign Language] at least 30% business fertilizer [Foreign Language] around INR 30 crores, 30%. [Foreign Language] out of INR 180 crores [Foreign Language] So you can yourself visualize what kind of demand we have. Then too also we have maintained good pressure -- this good revenues on a total overall basis. [Foreign Language] Let's not take any such decisions in present circumstances. And I believe that one wrong decision taken by you making [ pea ] out of the business. Let us be very cautious on our decision as current situation, it is fighting against the odds. Let us be cautious. [Foreign Language] Because they don't have dollars. [Foreign Language] And in business every time it not only one phase that is growth, growth, growth. [Foreign Language] Let us see to it that we don't make any wrong decisions. We go right and straight.

Got it, sir. No, fair. Completely with you on that point, 100%.

[Foreign Language]

I totally understand your point, and I think Fertilizer divisions grown that we had a vision for ourselves that is playing out currently for us. And I'm sure H2 will be much better in Fertilizer division because we can see the demand.

See, we are working on a long-term scenario and strategy. We are not working on this any kind of a short term. And my job is to do by work diligently and work hard and maintain transparency. [Foreign Language].

No, sir, 100%. And I would like to say best of luck to your team to go through the current situation.

Definitely. And we are having a very close watch on the current situation.

The next question is from the line of Forum Makim from Equitree Capital.

Sir, if I calculate your numbers for your subsidiary, like consol minus stand-alone [Foreign Language]. So sir, Q2, is there degrowth in revenues for these 2 subsidiaries?

Not at all. [Foreign Language] Q2 last year was INR 33 crores. Q2 this current financial year is INR 48 crores [Foreign Language] Q2 last year was INR 29 crores, and Q2 this year is INR 41 crores.

Yes, sir.

[Foreign Language] overall, last year [indiscernible] INR 66 crores. [Foreign Language] INR 82 crores, INR 83 crores. So there is a growth of almost 20%, 25% in Madhya Bharat and Kisan.

Okay. Okay. So sir, Unit 5 [Foreign Language]

Unit 5 [Foreign Language] nil contribution, [Foreign Language]

Sir, 100% [Foreign Language].

Unit 5 [Foreign Language] would be in January 2023 [Foreign Language] September, October end [Foreign Language] third week, fourth week September [Foreign Language] We have already come to a level in dye intermediates to the achievement of 55%, 60%. And acid complex, we have come to almost 80%. In this Q3, you will see the impact of Unit 5 also.

Okay. [Foreign Language]

January [Foreign Language] almost 40%, 50% captive use [Foreign Language]

[Foreign Language] INR 200 crores, INR 250 crores [Foreign Language]

[Foreign Language]

Right. Right. [Foreign Language]

Pardon? Sorry, please come again.

Can you repeat your question?

What is the guidance for the full year for FY '23?

Full year '23? Full year '23, I strongly believe that we should be touching somewhere close to INR 725 crores to INR 750 crores on a consolidated basis as we have already crossed INR 350 crores in this H1. If you will see, there is a growth of around 37% in comparison with H1 FY '22 to H1 FY '23. [Foreign Language]

[Foreign Language] PAT [Foreign Language]

PAT [Foreign Language] because the Fertilizer business is doing good overall. And I personally see that Chemicals segment, because of the global demand pressure, [Foreign Language] grim [Foreign Language]. But I'm sure we'll be maintaining this good result -- better results in comparison with the present global scenario.

So you think you'll be able to maintain the FY '22 PAT number for FY '23?

How much was that? Some 50, something, something?

55.

[Foreign Language] 9.51%, INR 55 crores, right? We have done how much until now in half year?

INR 19 crores.

[Foreign Language] it's a difficult question what you're asking me, right? But yes, we are trying to do the best what we can. And let us see that we believe that H1 result [indiscernible].

The next question is from the line of Ajinkya Jadhav from Kamakhya Wealth Management.

So my question is like we had this breakdown of machinery in Unit 1 in the last quarter. So like what's the impact? Like did it impact the production?

That unit is still in the final stage of coming back in the production. And scheduled, we have made is on 25th of November to start that plant again. So obviously, that plant is closed for the last 2, 2.5 months or so, right? And we are scheduled to restart from 25th of November. As soon as we start that plant, immediately, we'll be announcing on the stock exchange also, and keeping all the investors informed about it.

Okay. So were we able to ship that production that we lost in Unit 1 in the Unit 5 or like we did not do the production at all?

Sorry, please come again with your question?

Yes. Were we able to ship that production that will launch in Unit 1 in the Unit 5?

[Foreign Language]

Okay. I thought like the same products were being manufactured Unit 5. And since Unit 5 started this year only, so we were able to pick up the losses?

[Foreign Language]

Right Okay. Okay. Yes. Second question is, like if I look at the balance sheet, I can see a sharp drop in the inventory from INR 92 cr to INR 64 cr on consolidated basis. Like any reason for this?

Sir, do you appreciate this point or you don't appreciate this point? [Foreign Language] cash position improve [Foreign Language] demand pressure situation [Foreign Language]. I think it's a positive sign.

Okay. Okay. So like my thought of line was like our H2 is better than H1. So I thought you would be accumulating a lot of inventory to cater the...

[Foreign Language] You think about Europe, it's almost flat. You think about U.K., you must be reading everything into this public domain. [Foreign Language] How can you see? [Foreign Language] I have given a straight away instruction to my team, cash and carry [Foreign Language] This is not the only quarter which is going to decide the future of the company. We are working on a long-term stability and sustainable business model. You're not working for this July to September. No. We are looking at a long-term strategy. Now there is a big opportunity lying ahead in front of us. Unit 5 almost completely [Foreign Language] Fertilizer business is doing great. [Foreign Language] Let's walk cautiously on this tight rope. Let's not do any such decision which lands us into problems. No problems, [Foreign Language] that is the whole strategy we are going.

Okay. Okay. Yes. And the final question from my end is that our Fertilizer segment is doing good. So it has done, I can say, 1.14 lakh metric tons volume in the H1 and we have added around 3 lakh metric tons volume for the full FY '23. So like in that, there is no problem, like in achieving that? So 90,000 per quarter for Q3 and Q4, is that doable for the volume for the Fertilizer segment, right?

[Foreign Language] I believe Mr. [indiscernible] that we should be able to cross 250,000 tonnes of fertilizer in this full financial year. [Foreign Language] which we were expecting to resolve much earlier. Now last week, itself, we have resolved that issue of Deewanganj plant. We have purchased that land which was an access to that unit. And we have already started dispatches from Deewanganj unit, and we believe that fully operational, that unit will be somewhere by Q3. So we believe that 250,000-plus of fertilizer business we would be doing in the whole financial year.

Okay. And regarding the realization per tonne, the government has not increased the subsidy for cost for [ fertilizer ] in comparison to the urea. So can we see the pressure on the per tonne realization, like 16,000...

[Foreign Language] things are good. Demand is there in full in terms of fertilizer because of the Ukraine war and Russia war, fertilizer global situation [Foreign Language]. But overall, domestically, fertilizers has no problem. Sometimes the big commodity business is also helpful for you in sustaining your whole business cycle.

The next question is from the line of Pawan Kaul from Dynamic Capital.

Sir, question on realization for Chemicals. Has that also seen a -- volumes have been affected but realizations impact [Foreign Language]?

Pawan, if I give you overall what's seen on this point, a, yes, overall realization has impacted. B, it is due to mainly raw material fluctuations. C, it is also due to the currency fluctuations. [Foreign Language] raw material pricing and just idea, there is a product called sulfur, which we used to import. It was prevailing at $150. It went down -- it went up to $450, and it was quite stable at $450 and, again, came down to $110. Now it is again a $170, $180. So the kind of fluctuations you can see and realize and foresee what could be the impact on the raw material pricing. If you see overall, our raw material cost -- consumption has gone up by 5% in comparison with the Q1. Q1 [Foreign Language] raw material consumption around 60%. Q2 [Foreign Language] raw material consumption around 65%. [Foreign Language] caustic flakes, which went up to INR 70 -- INR 72 [Foreign Language].

I'm guessing commentary that it's not very easy to pass on this cost when you're trying to maintain volume share in the market?

[Foreign Language] So it is not practically possible to pass on every time because the kind of business model we work in dyestuffs and intermediates that we always have our order book for the next 2 months, next 3 months. So each and every time we cannot pass on. [Foreign Language] we have to work accordingly.

Understood. And most of our customers are domestic?

No, most of our customers in dyestuffs business are international.

Understood. And when you're speaking to them in terms of your conversation, what are they looking at in terms of outlook? I mean, that's what you said in your commentary that the outlook is pretty grim over the next 3 months or so. So is that the same feeling that you have, say, next 3 to 6 months or onwards or it's pretty uncertain right now, right?

Pawan, I personally give you my submission as follows. As far as the Fertilizer business is concerned, I'm quite positive and quite excited for the next 5 months, let's say, till March 2023. That business will surely grow. That business will surely support our other verticals. And as far as the Chemical business is concerned, Pawan, I'm honestly speaking, I'm not so hopeful for that. I believe that situation is going to little bit of grim. And it's very important for us that we maintain our volumes, we maintain our cash liquidity for next 5 months. But yes, post this, I see a huge opportunity as far as the kind of business we are in to.

Understood. And one last question. Sir, you have some cash lying in the balance sheet, you have mentioned earlier on using that to an acquisition or anything else. Is that a similar plan strategy? Or you want to be cautious on the balance sheet front also at this point in time?

Pawan, I would like to be cautious on that point. And though we have a 3-digit cash lying in our books, right, but we want to be a bit conservative, a bit cautious on any kind of acquisition, though we have taken small acquisitions, which are small expansions at our end, like Deewanganj unit we are starting shortly, right? That unit has been closed for 2 years or so. Like we are also announcing a few small balancing equipment expansions also. Like in Kisan Phosphates, we are expanding from 100,000 tonnes to 132,000 tonnes. In acid complex, we are expanding. Then we are also going in a different vertical in the same fertilizer business like soluble fertilizer plant. So we believe that, presently, let us do whatever we have in our hand, which doesn't cost much in terms of the CapEx. As far as the acquisition is concerned, we would like to go a bit slow at least for next 3 months. We would like to see how the situation goes, how the time goes, how the geopolitical situation is globally, then we'll take a call on that. But yes, we would like to conserve cash at this point of time.

The next question is from the line of Sanjeev Kumar Damani from SKD Consulting.

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[Foreign Language] customer retention [Foreign Language]

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Sir, I salute you for this. I've understood. I got my answer. Sir, [Foreign Language]

[Foreign Language] There are set of dealers with whom only we deal [Foreign Language]

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[Foreign Language] For us, protecting the business on a long-term scenario is more important.

Agree, sir. Fully agree, sir. I fully agree, sir. [Foreign Language] animal product [Foreign Language]

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[Foreign Language] We are maintaining this sort of volume?

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Okay. Yes, [Foreign Language]

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[Foreign Language] phosphoric acid through DAP [Foreign Language]

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[Foreign Language] We can also plan and put up a DAP...

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The next question is from the line of Dr. Varun Sharma from Sharmas.

Give It gives me immense pleasure to talk to the management. Sir, my first question is, last quarter [Foreign Language]

Can you please come again? What did you say?

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That was the last question for today. I now hand the conference over to management for closing comments.

Thank you, everybody. We think we are in a good position to take advantage of overall growth potential, and we are really excited about the same. I want to thank all for attending, and I hope that we've been able to address all of your concerns. If you need any further information, please get in touch with our Investor Relations partner, Orient Capital. Thank you very much.

Thank you. On behalf of Shree Pushkar Chemicals & Fertilisers Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.