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

Ladies and gentlemen, good day, and welcome to Shree Pushkar Chemicals & Fertilisers Limited Q1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nitesh Pangle, Company Secretary and Compliance Officer of Shree Pushkar Chemicals & Fertilisers Limited. Thank you, and over to you, sir.

Hello. Thank you. and welcome to the Q1 FY '24 Earnings Conference Call of Shree Pushkar Chemicals & Fertilisers Limited. Today on this call, we have Punit Makharia, Chairman and Managing Director along with Mr. Deepak Beriwala, CFO. This conference may contain forward-looking statements about the company, which is based on belief, opinion and expectations as of today. The actual results may differ materially. These statements are not the guarantees of future performance and involve risks and uncertainties and are difficult to predict. A detailed safe harbor statement has given on Page #2 of the company's investor presentation, which has been uploaded on the stock exchange and company website as well. With this, I hand over the call to Mr. Punit Makharia sir for his opening remarks. Over to you, sir.

Thank you, Nitesh. A very good evening to all my friends, and a very warm welcome to everyone for Q1 FY '24 earnings call of our company. Friends, today on this call, I'm joined with Mr. Deepak Beriwala, our CFO and Mr. Nitesh Pangle, our Company Secretary and Compliance Officer. I hope you all have got an opportunity to go through the financial results and investor presentation, which has been uploaded on the stock exchange as well as on the company's website. Friends, now I'll take you through the financial and operational performance of our company for Q1 FY '24. In the difficult year 2023, our main goal was to ensure the efficient operation of our manufacturing plants, while also focusing on maintaining a strong cash flow conversion cycle. Friends, we are very careful not to accumulate any kind of a costly inventory or any kind of a bad debt that could have been a negative impact on our financial health and retaining our existing customers. Rather than pursuing rapid top line growth without considering the long-term applications, we took a measured approach and prioritize stability over short-term mindset. Additionally, we made sure to stay away of the commodity pricing and market trends so that we could avoid any unfavorable situations. By taking these precautions and thus making strategic decisions, we are able to successfully navigate the challenges of the year and maintain our financial stability. The company is able to maintain its operating cash flow without mounting any incremental working capital debt in spite of increase in the total sales, successful completion of expansion for INR 175 crores. Regardless of the CapEx same, the company still maintains cash flow in form of investments for INR 60 crores on consolidated basis, which are determining investments. In the Dyes and Dyes Intermediates segment, we experienced a moderate growth rate in this quarter. While the demand in both the domestic and export market has softened due to the weak demand depression and energy crisis globally. Cautiously discretionary spending and ultimately affected capacity utilization in textile and garment making units. Despite these market conditions, our efforts and initiatives allowed us to maintain stable revenue figures. The basic chemical intermediate pricing rose as the dyes intermediate prices are focused to reduce their production drastically. During the past recent period, there had been a circumstance with the floods and heavy rain situation in Haryana and Punjab, specifically, unstable raw material pricing, the system [rupees] impact of Ukraine and Russia war, which were having the ultimate drifting effects on the demand. Further, presently on the bright side, and comforting prospects, last 15 days, we see the pricing has arrived at almost stable phases, and demand is also picking a comeback. Furthermore, now we are running our plants on full capacity. However, now there is a sign of recovery, and we expect production to improve gradually, demand for the dye is increasing against [indiscernible]. Friends, these represent significant milestone in company, and we anticipate experiencing higher growth volumes in terms of our SSP division as a result of expansion. Additionally, we are proud to be supporting the Aatm Bharat Nirbhar Abhiyan initiative by promoting the use of indigenous fertilizer like SSP. The government is also actively increasing the consumption of SSP, which we believe will further drive the demand toward products and positively impact our business. Lastly, I am delighted to report that the company has a robust balance sheet and non-lien deposit of INR 60 crores, the strong cash position has a significant asset for the long-term stability and sustainability of the business model. Friends, as you are aware that we have managed to achieve moderate growth despite the challenging circumstances of the geopolitical tensions, economic downstreams and highly inflammatory pressures. We have attributed this success to our unwavering commitment to sustainable growth even in the face of adversity. Looking ahead, we are optimistic about the future and expect to see significant improvements in both our profitability and revenue growth in the next few quarters. We remain steadfast in our dedication to achieve our goals, and we are confident that our hard work and strategic planning will continue to pay off in the months and years to come despite the challenges that lie ahead. We are excited to tackle them head on head built on success that we have achieved so far. Friends, now a quick update on the expansions of the company. We are pleased to announce that despite several obstacles, we have successfully commissioned our Dewanganj plant of Madhya Bharat Phosphate Private Limited, which is a 100% owned subsidiary of Shree Pushkar Chemicals, with a production capacity of 132,000 metric tons of Single Super Phosphate, the quality, administration, sales operation are at a stabilizing phase. Also, we have completed setting up additional capacity of 32,000 metric tons of SSP in Kisan Phosphates Private Limited. After all necessary approvals, dry trial runs, trial runs, quality parameters are set up and manpower arrangements at Unit 5 that is at D-10, MidC Lote Parshuram, has already started with commercial production entirely for all of the products of its plants. The production, quality and sales are at a stabilizing phase. With this, I would like to hand over the call to Mr. Deepak, who is CFO of our company, and now who will take you through the financial operational highlights of Q1 FY '24.

Thank you, sir. Good afternoon, and a very warm welcome to everyone. Our revenue for Q1 FY '24 was INR 175.53 crores, an increase of 4% on year-on-year basis. EBITDA for Q1 FY '24 reported INR 14.02 crores with an EBITDA margin of 8%, therefore Q1 stood at INR 7.90 crores with a PAT margin of 4.50%. On the volume side, on consolidated basis, our total volume for Q1 FY '21 (sic) [ FY '24 ] in chemical sector increased by 43.50% on year-on-year basis, and in fertilizer sector, volume increased by 18.81% on a year-on-year basis. With this, we can now open the floor for questions and answer. Thank you so much.

[Operator Instructions] The first question is from the line of Harshil Solanki from Equity Capital.

Sir, I have multiple questions. Firstly, in the opening remarks, you said the demand scenario is improving. So any idea on the realizations that will also improve once the demand improves?

Personally, in my personal view, this has got 2 phases. A, first of all, demand should be there. Then in the second phase, the improvement into the price level is also there. I'm sure once now the demand is coming back, and out of my experience, what I'm looking at for the last 15, 20 days is there, yes, there is quite a good movement in terms of the volumes of the products what we produce. And slowly and gradually, there is a good inquiry -- good business inquiry. And out of the most of the business inquiry we have concluded them into the business also. In the second phase, we see that, yes, there would be price improvement. Now we are looking out of our experience is that most of the pricing of the raw material has also come to a stabilizing phase as well as the prices of the finished products has also improved -- I would not substantially say, but it has started improving. Like in terms of dyes intermediates, if I say, yes, the prices have improved in a range of around 3% to 5% in some of the products. And we see in spite of the price improvements also, there's demand stability also because there has been always over a year gap in terms of this depression into the demand. Now because of this depression into the demand for the last 12 months or so, the entire pipeline is also dry. There is not much of the these stocks are available in the industry, since there was a depression, because of that, we see, yes, this business inquiry and volumes have started picking up.

Okay. So the current strategy of focusing on volume than...

And let me add one more point here is that once the volumes are picked up, then I think the second phase will be the price improvements.

Okay. So our strategy of focusing on volumes and compromising little bit on margins will change going forward once the situation is at the normal, sir?

Yes, yes, yes, because I think this goes in a phase-like manner. First of all, the demand was extremely lean earlier. Now demand is there. Now the second comes the pricing improvement. That will also follow the same.

Okay. Got it. And on the raw materials, sir, have you seen any correction? And are you holding any high cost inventory in this quarter or...

Honestly speaking, high-cost inventories are always there, it's a circle, Mr. Solanki and you can't say that we are not having any high-cost inventory. Yes, we are having some kind of high-cost inventory also that has been also taken into factoring during our financials, what we had given in the Q1, and that it has been also already taken into that. But now the pricing has almost touched the bottom and started coming on a stabilized form of different products also of all the raw materials. But it's a -- being it's a circle, we always keep inventories in our factory. We always have working capital cycle like work in progress, finished products, raw material, incoming raw material of imports. So it's a cycle. We cannot avoid this time cycle in this phase manner. Yes, we do have some new inventories, but which are not one of the very major issue, we believe so, but that has been already accounted in Q1 results.

So in Q2, the impact may not be material. And...

We may be benefited in Q2 because a lot of prices have started improving.

Got it. Got it. And sir, sir, last question, sir, we have utilized INR 35 crores of non-lien deposits. It was INR 95 crores in Q4 and it is INR 61 crore in Q1. So where have we deployed money, can you please share?

If you're asking exactly deployment of INR 35 crores is not right now ready with me. But as a whole, I can tell you that the same money has been utilized for the business purposes as we completed our expansion also -- total expansion of INR 175 crores has been completed. That has been done from the internal accruals as well as for the additional working capital requirement since the volume and the total revenue of the company has gone by almost INR 100 crores in comparison with FY '22 to FY '23. So that additional working capital load has been also funded from the company's sources itself.

And sir, any guidance for the full year, if you can share?

It's my personal belief that a good time is ahead of it. And I see in coming few months, there will be a good period. And as of now, looking at the chemical sector, it's a bit a lean season going on. But yes, the business model is stable. It has never failed so. And being a company which is a completely zero waste company and zero debt company also, which is a A-plus rating company healthy. And this all kind of compliances, we are trying to be fully complied for, I see good time for us.

[Operator Instructions] Next question is from the line of Ankur Agarwal from RC Wealth Solutions.

[Foreign Language]

[Foreign Language] He is asking how much is chemical business, how much is the fertilizer business? Deepak is giving it to you.

[Foreign Language]

[Foreign Language] Because it's a consolidated business and it is a completely integrated business. So to dig out the margin usually vertically-wise is difficult and that will not be a correct picture. So we don't want to give any kind of a wrong figures. We take it out always on a consolidated basis. And as far as the figures is concerned, INR 85 crores is the chemical business and INR 90 crores is the fertilizer business. To be very precise, it is INR 85.30 crores in chemical business and INR 90.23 crores is fertilizer business.

Now chemical division is improving, as you say, [Foreign Language].

[Foreign Language]

[Operator Instructions] Next question is from the line of Parth Kotak from Alpha Plus Capital.

Sir, if you can guide me towards the utilization that we've achieved for both, would my assumption be correct we'd still be at 40% utilization in the fertilizer space?

[Foreign Language] Total fertilizer sale is around 56,000 of tons in this quarter. And let's say, [Foreign Language] what you say is almost 45% to 50%. Yes, you are not wrong.

Okay. Okay. Perfect. Sir, second, I think on other calls, especially regarding the fertilizer business, a lot of other companies are saying that there is a problem of inventory pile up on the distribution side. Are we foreseeing a similar problem?

Sir, [Foreign Language] and in this particular season, which we are passing through, yes, there is an inventory pile up at the level of the dealers and the distributors. That is mainly because of [Foreign Language] DAP which went down almost at $426 now has again started at $550-plus. [Foreign Language], plus the subsidy policy was declared bit late by the Government of India. [Foreign Language] It's a just routine business issue which keeps on coming every year, every half year in some of the other different manners. We are habitual of these kind of issues, which are not a major issue. [Foreign Language] I don't consider that.

Perfect, sir. Perfect. I think [Foreign Language] since we have completed that 3 items that's not a big problem.

[Foreign Language] Life is not simple. Then business is also not simple. There are always issues at each and every stage whether it is a business or it's a personal life or whatever it is. So these are the normal issues we have to handle them carefully, and which we are doing so. Only the thing we need to see is that these kind of issues doesn't impact our operations, doesn't impact our financial health. So for that also, we are quite comfortable. It's not a big deal.

Sir, last question. I think on last call also, you alluded that Q1 probably would be the worst -- Q4 would probably would be the worst or then we would see improvement. And it's okay. I mean, I understand the market is bad and everybody is facing the problem, it's not just you. But since the end of Q1, do you think that the on-ground situation has actually improved or probably it might take another quarter or 2 for things to become better?

Sir, we are into a cycle which is -- which in many sectors are impacting it. And since we are into the products which have got a good -- which impacts -- the whole global situation impacts our business also from outside also. Like raw material [Foreign Language] rough phosphate majorly be import, sulphur be majorly import, and most of all [indiscernible] we export also. So the whole globe impacts us in a great manner. And I think you guys are well aware of the global situation than what we guys are because we are only focused on our business, but I believe that you guys are focused on overall other political situations and other business situations also globally. [Foreign Language] we all are sailing into the boat. And I believe the [Foreign Language] depression kind of phase here, that is almost -- we are coming out of the dark tunnel. And I see at least our believe is that Q2 [Foreign Language]. I think by the end of the Q2, we should be completely out of the tunnel and the whole business should be back somewhere in Q3.

[Operator Instructions] Next question is from the line of Saket Kapoor from Kapoor & Company.

[Foreign Language] new facility at 66,000 ton for sulphur chemistry derivatives and for the dyes intermediate [Foreign Language] what are the incremental profit we will be making? [Foreign Language] facility is completely integrated, and discuss revenue or profitability, when will it be at optimum level as contribution [Foreign Language]?

[Foreign Language] Unit 5 itself should generate you almost around INR 200 crores of the additional revenue, what we have -- what should the company have. [Foreign Language] normal situation [Foreign Language] the last 3, 4 quarters, Otherwise, the profitability of the company has been always in the range of 9% to 11% on a PAT level. I believe the same phase should come also again in the industry, maybe by Q3 of this financial year.

[Foreign Language] the INR 175 crores CapEx [Foreign Language] total money [Foreign Language]?

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]. We have everything in detail. But that we cannot discuss on this con call with you. [Foreign Language] And we'll get back to you on that subject, that's not a problem.

I was only looking at the price trend in general as a percentage of sales.

[Foreign Language] approximately, it has already touched to the bottom and again started coming back to the stabilization phase. [Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language] Q2 would be the time perform where things would turn around. In Q3, Q4 onwards, it would be normal number where volumes in the margins would be similar what historically true.

Definitely.

[Operator Instructions] Next follow-up question is from the line of Ankur Agarwal from RC Wealth Solutions.

[Foreign Language]

[Foreign Language]

[Foreign Language]

You're asking utilization?

Capacity utilization last quarter 1 [Foreign Language]

[Foreign Language] Quarter 1 FY '24?

Yes.

[Foreign Language] INR 13,539 crores.

[Foreign Language]

[Foreign Language] Let me check and come back to you, Mr. Ankur.

[Foreign Language]

[Foreign Language] Pricing difference [Foreign Language] volume I think we are almost around 75% to 80% of the capacity utilization in terms of the chemical business.

[Operator Instructions] As there are no further questions, I now hand the conference over to Mr. Punit Makharia for closing comments.

Thank you, sir. And all my friends, we think we're in a good position to take advantage of the overall growth potential and we are really excited about them. I want to thank everyone for attending and hope we have been able to address all your opinions. If you need any more information, please get in touch to Mr. Nitesh Pangle, our Company Secretary and Compliance Officer. Thank you very much.

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