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

Ladies and gentlemen, good day, and welcome to the Shree Pushkar Chemicals & Fertilisers Limited Q3 FY '23 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.

Thank you, and welcome to the Q3 and 9M 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, and 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. A very good afternoon to all the dear friends and everyone, and welcome to the Q3 and 9 months FY '23 earning call of our company. Friends, in the previous quarter, we have witnessed a huge decline in the export of chemicals from our country as the geopolitical situation across the globe and financial conditions and pressures over -- over this currency pressure and the energy prices were not viable for the manufacturing hubs across the globe. Owing to this, we are yet to expect the kind of realization that we had anticipated for the current financial year. Going forward, we would expect to see much better utilization and realization for the same. We can expect an increase in demand of dyes, especially from Bangladesh and Turkey and the industry expects demand will continue to rise. Friends, the unpresented boom in the cotton prices has affected demand for dyes from the textile industry. And on the other hand, basic chemical and intermediates pricing rose as the dyes manufacturers are forced to reduce their production drastically. However, now there is a sign of recovery, and we expect production to improve gradually, demand for dyes is increasing again, and now the cotton has started arriving at the market yards. We believe demand will be good for next few months. Globally too, demand from textile sector is also expected to recover. Now friends, coming to the Fertilizer division of the company. With respect to the Fertilizer division, we are almost at similar levels when compared to 9 months FY '22 volume numbers. Though the realization has increased by 33.3% per metric tonne on the consolidated basis. With respect to Madhya Bharat Phosphates Pvt. Ltd, we have achieved revenue of INR 96 crores for 9 months FY '23 versus INR 69.1 crores for 9 month FY '22, an increase of 38.6%. For Kisan Phosphates, the revenue generated for 9 months FY '23 was INR 107.5 crores versus INR 89.23 crores in 9 months FY '22, an increase of 20% with this onset of Kharif season. We're expecting higher volume growth in SSP division of our business. Further, as an initiative towards Atma Bharat Abhiyan, and government is putting much more focus on increasing the consumption of SSP, which is an indigenous fertilizers. For the previous quarter, our strategy has been to maintain volumes, not get stuck with high inventory costs and also on a steady healthy cash flow maintenance. As you all are aware that we have been able to do so in tough scenario of geopolitical tensions, macroeconomies downturn and high inflationary conditions. With our steadfast growth attitude, we are expecting to increase profitability and revenue growth in the quarters to come. Now update on the capital expenditure plan. Unit 5 has partly been started as commercial production with respect to acid complex and Intermediate division. Further, an amount of INR 85 crores has been capitalized up to 31 December, 2022. The last phase of commencement of Unit 5 will be completed by January 2023, and trial runs will commence from February 2023. Further delighted to report that, company is having a very strong balance sheet, and we have non-lien deposits of INR 74.9 crores on the consolidated basis. We are confident that the strong cash position of the company is highly beneficial for the long-term stability and sustainability business model of our company. Further, after lots of ups and downs, we have finally acquired the access road of our Deewanganj plant of Madhya Bharat Phosphates Ltd, and we have initiated commencement of Deewanganj plant, which is expected to commence by January 2023. Fortunately, with a favorable change in the geopolitical situation predicted the end of the Ukraine war and tensions, and favorable changes -- changing into the energy crisis in Europe with a winter making its exit, the demand is expected to rise in the upcoming quarters, and we are optimistic about seizing the forthcoming opportunities. With this, friends, I would like to hand over the call to Mr. Deepak Beriwala, who is our CFO, and now who will take you through the financial, operational highlights of Q3 FY '23. Over to you, Deepak.

Thank you, sir. Good afternoon, and a very warm welcome to everyone. Our revenue for Q3 FY '23 was INR 153.7 crores, an increase of 12% on a year-on-year basis. For 9 months FY '23, the company has reported turnover of INR 503 crores versus INR 391.9 crores for 9 month FY '22, an increase of 29%. EBITDA for Q3 FY '23 stood at INR 13.1 crores with an EBITDA margin of 9%. PBT for Q3 FY '23 stood at INR 10.20 crores, with a PBT margin of 7%. With this, we can now open the floor for discussion. Thank you so much.

[Operator Instructions] The first question is from the line of Forum Makim from Equitree Capital.

I just have a couple of questions. Sir, what is the contribution from Unit 5 in this quarter?

Unit 5 contribution, I think, would be around INR 7 crores to INR 8 crores or so in this quarter, because we have started the Unit 5 in the month of September. It took us bit of the time in establishing the quality and the production. But looking at the market conditions, the demand is bit slow. So I personally believe it is around INR 7 crores to INR 8 crores for this quarter. For the exact figure, we will update you through our IR.

Okay, sir. So sir, we have seen a jump in the chemical volumes of 30%, so where is that coming from?

It is mainly coming from the Unit 5 contribution, major point into that. And -- but exact number has to be worked out. But I think this is mainly because of Unit 5 in which the acid is also there, which is of a low-value product, but a high-volume product, as far as the intermediates is also there.

Okay. But sir, we are excluding acid volumes from the numbers that we are posting, right?

No, I think in the chemical sector, acid volume is also reported into the same.

Sir, it says excluding acid, so just wanted to clarify.

[Foreign Language].

Total turnover acid...

[Foreign Language]. Right? But value it is included.

Yes.

Yes.

So sir, acid is used for captive consumption, right?

Is used for captive consumption as well as selling into the other open market also. And acid is a low-value product, so if you just take in to that, by the terms of the value and volume, which is -- you will find 2 different scenarios with that.

Sir, would it be possible to share the volume numbers from Unit 5?

Yes. Surely, we'll share with you the numbers through our IR team.

Sure, sir. Sir, so what has been the capacity utilization for both of our segments?

Honestly speaking, capacity utilization is not much. But if you take on a consol basis, chemical, like in the last quarter on -- year on -- year-to-year basis, we did 1,829 tonnes, whereas in this quarter, we did 2,371 tonnes. So there is approximately increase of around 500 tonnes. So if you say this is just an 25% increase, but -- which is not a major increase, wherein fertilizer sector, you will see that there is a dip of around 15% from 48,000 tonnes to 42,000 tonnes of the fertilizer on the consolidated basis.

Right, sir. So sir, what is the reason for the lower capacity utilization? Is there not enough demand in the market currently?

Yes. We think we should understand the basic concept that whatever the dyestuffs are produced in India, out of the total production of the dyestuffs almost 90%, 92% of the dyestuffs is being exported. Now if you talk about the intermediates also, intermediates are the basic raw metal for the dyestuffs. So basically, there is a pressure into the demand of the dyestuffs for the European market, for the Bangladesh and Turkey market because of the various reasons to these particular reasons in terms of energy crisis, currency crisis, all this kind of inflation and recession. Mainly because of that reason, there is a pressure on the demand, as well as there is a fluctuations of the raw material prices also. Earlier the raw material prices were bit higher, now it is slowly and gradually coming down. And if we will see that now, at least what personally I'm looking in this quarter 4 is that the things are coming to a stabilizing phase slowly and gradually. Like, if you talk about the energy crisis matter, energy crisis has also been diluted to a very large extent as it was there 2 months or 3 months before. Now in terms of the raw material pricing also, now the raw material pricing is also coming down and looking somewhere a space for its stabilization. And as far as the demand is concerned, now there is a good inquires, which have been generating from December end onwards. And now recently in January, we have got good business as far as the dyes is concerned. So I personally see that in quarter 4 of this financial year, things would be bit more in pressure, and it will -- this whole quarter 4 would go for a kind of a stabilizing phase. And from quarter 1 of the next year, I see good opportunities in this particular sector.

Right, sir. And sir, on the fertilizer side, you've seen a drop in the volumes also on capacity utilization.

And see, I would like to add one more outlook from my side in support of your question. See, let us understand basically on what outlook we are going for. The basic idea what we have given to our team is that knowing the -- this global situation, knowing -- because knowing all kind of situations, things are not -- bit this dicey. So what we are thinking is that not keeping a high inventory with us, maintaining the values and volumes, at the same time protecting our cash flows and retaining our customers. We have intentionally selected that let us just collect the cash, let us maintain our cash flows, at the same time, keep on moving the products. As far as the profitability is concerned, if it is few percentage up and down, it doesn't matter. We are going through, particularly this phase, on a very cautious this outlook. We do not want to take any such kind of a decision where as we regret at a later on time. So we are going this bit conservatively, particularly in last this Q3 and Q4 quarters.

And sir, what about the fertilizer segment, like we were expecting good demand, and it was also doing good. But this quarter, there's a drop in volume, so...

Basically, this is not a season quarter. Now the season is going to start, and it has already been started. And I believe fertilizer sector is doing good overall. And if you see that the company has done this better performance in terms of the year-on-year basis for the last 3 quarters also. So I don't think there is any issue in the fertilizer business. Only a pricing and this currency valuation is a big pressure -- is a bit pressure. But otherwise, I don't think that fertilizer has got any issues. And rather, we are starting our Deewanganj unit also. The matter of that Deewanganj unit has already been sorted out, which we were not able to do so for last couple of months, but now that has been also sorted.

Right, sir. So sir, what was your guidance for FY '23 and '24?

See, overall, if you see 9 months FY '22 company did some INR 300-and-odd crores. FY -- this current year in the 9 months company has done some INR 500-something-odd crores. So overall, there is an improvement. And I believe that by the year-end of this financial year, we should be touching somewhere close to INR 700 crores. In our earlier con calls we have been always stating that around INR 750 crores or so the top line will be maintained. But now we'll be -- I think, we should be somewhere around INR 700 crores or so. Now there will be issue only on the -- bit on the pressure on the profitability, maintaining the cost of the raw materials and the energy that we are trying to do our best into it. Now as far as '23-'24 is concerned, we are bit excited about that particular year, because that by that time, since the Unit 5 is also in operation, Deewanganj unit would be also in operation, and our balance CapEx of Unit 5, which is almost on this completion stage. And we also see the market is stabilized. We also see the industry to stabilize. Winter is also about to over, raw material price are also coming to its realistic price levels. So I personally see that '23-'24 would be a good phase for us.

[Operator Instructions] Our next question is from the line of Kaustav Bubna from BMSPL Capital.

Yes, I have 2 questions. So the first one is, how has the China zero-COVID policy affected the dye intermediary and dye industry for a player like you. And any relief on the zero-COVID policy, do you see it improving the industry and hence your performance?

See, Mr. Bubna, as far as China COVID policy is concerned, it has not affected largely on us on a negative side, but some of the other it has affected us positively in our business. But it is not visible mainly because of the -- the demand is subdued this globally. Because if we see overall as a industry pattern that China is having its own production of dyestuffs and having its own huge consumption also of the dyestuffs. Whereas to other parts of the world, it is Pakistan, Bangladesh and Turkey, which is a global supplier. Now because of this China issue, and again this energy crisis, specifically in Bangladesh and currency crisis in Pakistan and bit currency pressure on Turkey also, the demand is a bit less. But now we don't think that China is anymore kind of in competition as far as the dyestuffs and intermediates are concerned. If you look at the old data and just compare those data with current data, you will see that import of intermediates from China is continuously on a declining -- this trend.

Okay. The next question, could you tell me the current price of Vinyl Sulphone and H-acid per kg?

H-acid, as of now, is in a range of around INR 430 plus/minus INR 4, INR 5 depend on the company-to-company and customer-to-customer. And similarly, the Para Base Vinyl Sulphone is in a range of around INR 235 to -- or so.

Okay. What was in the last decade, what is the highest level Vinyl Sulphone went to? I mean where is that compared to its peaks and lows? I'm trying to understand where the price is now compared to its decadal peaks and lows.

It depends on the raw material sector as well as demand also. If I just give you like that, that we have sold even H-acid at INR 2,000 somewhere in 2015, and we have sold Vinyl Sulphone, if I'm not mistaking, around some INR 400 or so also. But see, that is not the question, [Foreign Language]. It depends [Foreign Language] what kind of the value addition, what kind of EBITDA margin we are getting into that particular product. As of now, pricing is extremely depressed. Honestly, if you ask me, to [Foreign Language], which I have already explained in -- before also. And we are only maintaining one formula with us is that [Foreign Language] let us not keep the inventories, let us do the full volume productions.

But what are the reasons? The reason you said was the energy cost going up because of the war and high cotton prices.

[Foreign Language] is also very important factor. You know [Foreign Language] We don't have the gas in our particular industrial estate. We are running all our plants on the coal. So [Foreign Language]

Of course, of course, understood.

[Foreign Language] I think let us -- [Foreign Language] Let the things get settled, which is almost on the way of getting it settling down, coming to the realistic price of the raw materials and the energy. [Foreign Language]. Secondly, [Foreign Language]. So let us sail through with this tough period, because we -- basically [Foreign Language] India economy strong [Foreign Language] India home consumption [Foreign Language]. And there is [Foreign Language] India consumption [Foreign Language]. But any such products which are on export base are under pressure [Foreign Language]. Let us not do any such kind of thing in [Foreign Language]. Let's work slow. It is a bit tougher time. Let's be cautious, let's behave conservatively. I have already given -- I've always given a message to my team [Foreign Language]. Maintain cash, don't maintain inventories.

Yes. But what would have to happen for these price points, something like for these prices to go back towards upper end of the band, what would have to happen? Like what is your outlook?

Volatility [Foreign Language]. And again, [Foreign Language]. Let us not expect that those prices are going to…

Sir, so what are good stable prices according to you for Vinyl Sulphone and H-acid is my question.

It keeps on changing. If I give any kind of a number, it doesn't help in any way, right? It keeps on changing depending on various factors. [Foreign Language]. So I think if it gets improved by slight around 5% to 10%, then it should be normalized. Okay?

[Operator Instructions] Our next question is from the line of [ Varishtha Seth ] from V.K. International.

Sir, my question is -- can you hear me?

Yes, yes, sure. Please go ahead.