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

Ladies and gentlemen, welcome to Shree Pushkar Chemicals & Fertilisers Limited Q2 and H1 FY '24 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. Before we begin, I would like to remind all participants that some of the statements or comments made on today's call may be forward-looking in nature. This may include, but are not necessarily limited to, financial projections or other statements of the company's plan, objectives, expectations or intentions. The company disclaims an obligation to update these forward-looking statements to reflect future events or development. Kindly refer to Slide #17 of the earnings presentation for a detailed disclaimer. 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.

Good evening, everyone, and we welcome all the participants of Shree Pushkar Chemicals & Fertilisers Limited for Q2 and H1 FY 2024 earnings call. Joining us today from the management side, we have Mr. Punit Makharia, Chairman and Managing Director; Mr. Deepak Beriwala, Chief Financial Officer. Now, I hand over the call to Mr. Punit Makharia for his opening remarks. Over to you, sir.

Thank you, Nitesh. Good evening, and warm welcome to everyone for Q2 and H1 FY '24 earnings call of Shree Pushkar Chemicals & Fertilisers Limited. Friends, I hope you all have got an opportunity to go through the financial results and investor presentation, which we have uploaded on the stock exchange as well as on the company's website. Friends, now, I take you through the financial and operational performance of our company for Q2 and H1 FY '24. In the fiscal year 2024, our prime object remains the efficient operation of our manufacturing plants with a strong emphasis on maintaining healthy cash flow through our business cycle. Our commitment is to avoid accumulating costly inventories and managing our cash flows that could have impacted us negatively on our financial health. All while retaining our valued customers rather than pursuing rapid top line growth without a long-term perspective, we have adopted a measured approach, prioritizing stability over short-term gains. We have also been vigilant about monitoring commodities, pricing and the market trends to avoid unfavorable situations. Friends, these strategic decisions allow us to navigate the challenges for the first half of the year and maintain our financial stability. I'm pleased to share significant development in our operations, particularly in Ratnagiri region of Maharashtra. Our efforts have resulted in noteworthy increases in total sales, and we are undertaking site development for our Unit 6. This is a strategic initiative on Ratnagiri, not only emphasize our capacity within the fertilizer segment, but also contributes to the overall growth of our organization. Furthermore, we take pride in ongoing projects to establish 3.8 megawatt DC solar plant in Ahmednagar district, Maharashtra. On commissioned, this facility, along with existing solar plants, will generate an impressive 9-megawatt DC on clean energy. This project complements our previous strategic investment of 5.2 megawatt DC solar power plant in the same region, reaffirming our commitments to sustainable energy solutions and broader environment goals. In Dyes and Dyes Intermediates segment, we have experienced moderate growth this quarter, while the global demand has softened due to economic challenges and energy crisis. Our efforts and initiatives have enabled us to maintain stability. Despite various challenges such as floods, heavy rains, droughts at some part in Maharashtra and geopolitical tensions, there are signs of recovery, and we expect production and demand for dyes to increase gradually. Lastly, I'm delighted to report that your company boasts a robust balance sheet and non-lien deposits of INR 113 crores. This provides a strong cash flow position for long-term stability and sustainability. Despite the challenging circumstances of geopolitical tensions, demand pressures, global supply chain disruptions, economic downturns and high [ inflationary ] pressures, we have achieved moderate growth. Our unwavering commitments to sustainable growth in the face of adversity had been the key to our success. Looking ahead, we're optimistic about our future and anticipate significant improvements in both profitability and revenue growth in coming quarters. We remain dedicated to our goals and confident that our hard work and strategic planning will continue to pay off. We are excited to face the challenges lies ahead, building on the success we have achieved so far. With this, I would like to pass on the baton to Mr. Deepak, our CFO, who will provide you the operational and financial highlights for Q2 and H1 FY '24. To Mr. Deepak.

Thank you, sir. Good evening, ladies and gentlemen. I would like to provide an overview of our operational and financial performance for the Q2 and H1 of the FY '24. In Q2 FY '24, our consolidated volume in the chemical sector show a 15% increase, reaching 16,400 metric tons, up from 14,363 metric tons in Q2 FY '23. For the first half of FY '24, the chemical sector volume increased by 26% to 30,000 metric tons in H1 FY '24, up from 23,800 metric tons in H1 FY '23, on a consol basis. Moving on to our financial results. In Q2 FY '24, our consolidated revenue amount to INR 185.2 crores, showing a 2% growth compared to INR 181.3 crores in Q2 FY '23. Our consolidated EBITDA for Q2 FY '24 was INR 14 crores, a slight 2% increase from INR 13.7 crores in Q2 FY '23, with a margin of 7.5% in Q2. The PAT for Q2 FY '24 stood at INR 8.5 crores, which represents a significant 74% growth from the INR 4.9 crores in Q2 FY '23, with the PAT margin of 4.6%. For the first half of FY '24, our consolidated revenue was INR 361 crores, showing a 3% growth compared to INR 350 crores in H1 FY '23. However, our consolidated EBITDA for H1 FY '24 of INR 28 crores. The EBITDA margin for H1 '24 was 7.8%, and the PAT margin was 4.5%. The PAT for H1 FY '24 was at INR 16.3 crores. With this, I would like to open the floor for any question or discussion. Thank you.

[Operator Instructions] First question is from the line of Dhruv Mukesh Bajaj from Smart Sync Investment Adviser Service.

Congratulations, sir, on a good set of results in this challenging times. First question was after the completion of the chemicals and the SSP fertilizer CapEx, what is the revenue potential of the two separate segments? And like what are the margin profiles, working capital intensity and the asset turnover of the respective segments? Since I couldn't find PAT numbers for the two different segments, that will be very helpful.

Looking to your question, if we see that we have completed the CapEx at Unit 5 in March 2023. And if I talk about a normal scenario and a normal business environment, where in a stability and sustainability as far as the recent crisis what we are looking around us, including geopolitical situations, I believe that the chemical sector and fertilizer sector on a consolidated basis should give us a total revenue of approximately INR 900 crores approximately or so on a consolidated basis. And if I take it separately, it should be around INR 350 crores to INR 400 crores in terms of the fertilizer and balance on the chemicals. As far as the profitability is concerned, if you look at our previous results, we will always somewhere we're around 9% to 10%, 10% to 11% of the PAT level. But for the last 1, 1.5 years or so, we are trying to maintain our cash flows. We are trying to maintain our customers. We are trying to behave very conservatively in this tight situation market, where the demand is on a very high pressure and the pricing volatility is very high. We are just trying to play very safe and extremely conservative. We personally believe that right now, accumulation of cash and not living with a costly and heavy inventories in our books, we are trying to behave very cautiously. So right now, the profitability we have taken a hit, but we don't want to compromise on the long-term standing.

So that is very helpful. So my other question was going to be that since we have seen a drastic moderation in the margins in the recent years, so as you have mentioned that due to market conditions being a bit tough, so it this primarily due to that or there is some change in product mix itself, which is also contributing to this change in...

Mukesh, I'm not able to understand, your voice is not clear. Can you please pick up the handset and just repeat your question, please?

Sir, am I audible now?

Yes, yes, you're audible, but please speak slowly so that I can understand it because your voice is cracking.

No issue, sir. Sir, I was trying to understand that since our margins have dropped from 15% in FY '20 to 10% in FY '23, now partially, you have mentioned that because the market conditions have been poor as such, but is there some change in product mix that is happening or that is primarily due to the market conditions and once they rebound...

No change in the product mix. Products are the same. It is only due to the market conditions and the majority of the market conditions are beyond our control.

Next question is from the line of [ Aditya Rathi ] from [ Equitas Investments ].

Sir, I see 25% degrowth in the fertilizer segment. Is there any specific reason why there is a degrowth of 25% in the segment?

Yes, basically, there are 2, 3 issues which we have encountered, particularly Kharif season, Mr. Rathi. Here, if you remember and if you think about it, but specifically, in Kisan, we had taken a degrowth in terms of fertilizers. If I give you a specific number, in Kisan, the total revenue in this quarter compared to the last year quarter has gone down from INR 48 crores to INR 31 crores. So there is a dip of around 30%, 35% in terms of the Kisan Phosphates. You see in FY '22/'23 in this quarter 2, we have sold -- the total revenue was INR 48 crores. And if you talk about the revenue in this particular financial year for quarter 2, is only INR 32 crores. So this is 16% -- INR 16 crores dip. In terms of the percentage, I think it is close to 35%. Mainly if you'll see, this is mainly because of the flood situation in Haryana and Punjab, which is our prominent area. Somewhere in April, May, June -- sorry, not April, May, June, July, these 3 months was completely under the water in terms of the Haryana and Punjab. If you talk about Maharashtra, Maharashtra is still considering to be declared as a drought in certain areas. So because of these issues, which are all this climatic conditions, which are not in our control also, so there we have taken hit into the fertilizer. Overall, if you see, chemical -- in the chemical sector, we have done fairly well looking at the today's condition and our peer competitors. But yes, fertilizer section has taken a hit, due to these kind of climatic conditions and the pricing conditions and some subsidy, which has been recently reduced by the Government of India and looking at that also that since the subsidy is going to reduce in October 1, 2024. So we were thinking since the subsidy is going to increase, then the prices are going to -- when the subsidy is going to decrease, then the price is going to increase. So all these things, mixture of everything, there is a hit on the demand and this revenue in terms of fertilizer business.

So sir, when do we expect the recovery of Fertilizer segment? Because Chemical segment, I can clearly see there has been a growth of 20%, which is magnificent.

In Fertilizer, Mr. Rathi, I think somewhere in quarter 4, there could be a good sign of the recovery. By that time, the entire pricing and the demand would have been stabilized. As of now, looking at the current raw material prices of the -- also of the DAP and rock phosphate are a bit on this unstabilized phase. But I personally believe and this October, November, December, generally, it's a lean period for the fertilizer business. And somewhere in quarter 4, I think we should come back on our original level.

Perfect, sir. Sir, as I said, I can see 20% growth in the chemical sector. Sir, do we expect a similar kind of outlook for quarter 3 and quarter 4 also?

Mr. Rathi, in my opinion, this growth would have been much better, right? But looking at the scenario, as I explained before, that we prefer to sell less, but not to be at a risky zone. So there are quite potential. If we achieve 100% or a decent amount of this capacity utilization, I'm sure the total revenue in the existing capacity has got a potential of giving us this total sales of around INR 1,000 crores on this consolidated basis.

This year, guiding for FY '24?

'24 is not possible to achieve INR 1,000 crores. But I believe somewhere in next year, there is -- wherein I believe this complete stability, we should be able to achieve somewhere in next year.

Right, sir. Sir, like you said, you mentioned about the utilization. What would be the utilization now for the chemical sector?

In chemicals, it would be around 67% or so, rather it should be 65% to 66%.

Perfect. My last question coming to you. Sir, when do we expect the remaining CapEx to get operational and phase out?

We have already started CapEx on in terms of the solar, right? And we believe that the new solar of 3.8 megawatts would be commissioned before March 2024. And as far as now Unit 6, we have taken up, we already started site development at Unit 6, that would take probably somewhere financial year '24/'25.

Okay. And sir, Unit 5 for Chemical vertical?

That Unit 5 is completely operational, Mr. Rathi. And we are just waiting for the right opportunity and right market conditions to come. Unit 5 is totally completed from our side. Nothing is pending. We have already started this expansion work of dyes also, which we announced in our last Board meeting. That one, we already started Unit 6, we have already started 3.8-megawatt expansion power plant, solar plant, we've already started. In terms of Madhya Bharat, we have already started the modernization and capacity expansion at our Deewanganj side. So all these things we've already started, Mr. Mukesh (sic) [ Mr. Rathi ].

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

I just have two questions. One, if you could provide me with the revenue breakup for H1 between Chemicals and Fertilizers, that would be really helpful.

Okay. Do we have right now, Deepak, on consol basis on the Fertilizers and Chemicals. Just a second, Parth. Parth, just a second. Mr. Deepak is calculating and giving you in next few minutes. By that time, you can go ahead for the second question.

Sir, second question is regarding the capacity. You mentioned that work for Unit 6 will probably start. What would be our total capacity post this CapEx is implemented?

For fertilizers?

Yes, sir.

Parth, in Unit 6, definitely we are going into fertilizer sector, but those are the completely different products what we have as of now. We are going into this complex NPKs.

Okay. Okay. Perfect. Perfect. That would be...

For fertilizer segment, but there is a difference of the products. Like we manufacture existingly single super phosphate. We make the granulated NPK. Then we make water-soluble SOP also. Like the same way, this is a different segment in fertilizer business. It's complex NPKs.

Okay. Okay. And I can see in the investor presentation that we are planning a CapEx of INR 89 crores, as mentioned. What would be the revenue potential once the plant is up and running?

See, in that total CapEx, including Madhya Bharat, Kisan and Pushkar, total CapEx, which has been planned is around INR 215 crores. And out of INR 215 crores CapEx, I tell you around INR 80 crores of the CapEx is for the backward integration. That may not generate any top line revenue growth, but definitely, that will improve on the bottom line sector. And for the other, it will be this enhancement of the capacity in terms of the complex fertilizers, in terms of the dye stuffs and in terms of the SSP. So though I have not calculated, Mr. Parth, but I believe we should be able to touch somewhere around INR 1,400 crores or so in a normal market scenario. This I'm telling you without any calculation. I'm just giving you out of my [indiscernible] intelligence in the last few seconds.

That helps, sir. That helps. That is absolutely fine.

And secondly, the thing which you wanted, Fertilizer business is INR 89.27 crores on a consolidated basis and Chemical business is INR 97.30 crores.

Next question is from the line of Harshil Solanki from Equitree Capital.

Sir, on the working capital front, we have been maintaining that we want to avoid excess inventory and bad debt. But in H1, our investors -- inventory and debtors have increased. So can you explain the reason behind this?

There are two main reasons, Mr. Solanki. A, we have started the Unit 5 also. And looking at the slow market conditions, we have started our Unit 5 also. And what I can see is that -- these are the receivables, Deepak? Can you -- I think better you address this question, Deepak. Just hold on, Mr. Solanki. Mr. Deepak is addressing this question.

In March '23, total receivable is INR 128 crores. And in September '23, is INR 141 crores. It's because due to means the start of our Unit 5 project and also the Deewanganj plant. And hardly 5% to 7% increase in total receivables.

And inventory has also increased. So both on account of Unit 5 and Deewanganj?

Yes, Deewanganj plant.

Okay. And sir, if you can give your perspective on the realizations. The volumes we are seeing that they are increasing. But any trend on the realization, how are you seeing the realizations?

Realizations, if you ask me, honestly, I personally believe that as of now, realizations would be in a similar kind of a level as of now where we are. I personally do not see the -- though we are fighting against the wind, we are working against the wind, but then so also we are trying our level best to achieve and perform at the most ethical manner and the best way. But you are well aware how the situations are around us. And I think that at least the next 2 quarters also, the performance of the company in terms of the PAT levels would be in a similar line. This is my personal opinion, rest the time would tell, that we would be achieving the same set of numbers as what we did in Q1 and Q2.

Okay. And we are fairly confident that we can keep on increasing the volume based on the increased capacity. There is no...

[Foreign Language], and I believe in one particular concept that one wrong decision in the business may keep you out of the business forever. So -- but right now, the situation what I see around me is that it is very important to work very cautiously and conservatively. And sometimes, working conservatively is beneficial. So I'm not focusing more on the profitability, I'm more focusing on sustainability and stability. And then, we have plenty of time. We have got a good capacity. We have got a good customer network. We have got a good business model, we are interest-free company. We are debt-free company. In the time of recession also, we are further putting us ourselves on this new expansion mode. There's a huge opportunity lying us, but let us wait for the right global scenario to come.

[Operator Instructions] Next question is from the line of Sanjeev Kumar Damani from SKD Consulting.

I hope I am audible, so I continue?

Yes, yes, Damaniji, you're perfectly audible. Please go ahead.

Sir, today, my first question is regarding the dyes that we manufacture. I want to understand whether these dyes which we manufacture are being used by all sort of fibers, that is cotton, polyester, viscose, woolen, et cetera. And similarly, yarns and fabric both. And then these dyes can also be used for some leather or other types of uses. So kindly give me some understanding about it.

We basically produce reactive dyes, Damaniji, and what you said that it's perfectly for this cotton fiber, polyester, right? And a few of the dyes what we produce is not good and not we recommend for the polyester also. But as far as the cotton is concerned, linen is concerned, we suggest and we sell to all these customers. For leather business, we don't make any dyes. For leathers, it's the acid dyes, which generally goes for the leather. And as far as the reactive is concerned, it doesn't goes for the leather, Damaniji. Second, again, I would like to add here is that the reason why we are into the reactive dyes is that because the raw materials of the reactive dyes are being manufactured by us, like dyes intermediates, like H-Acid, vinyl sulphone, K-Acid, gamma acid and few other intermediates. Plus whatever the intermediates we produce, then there also we have a backward integration of our own acid plant. And so whatever the acid we produce goes into our dyes intermediates, whatever dyes intermediates we produce, it goes into the dye stuffs. And we call ourselves a zero-waste company. The reason being is that whatever the waste acid, spent acid, mother liquor what we generate from the intermediate business, we use that waste acid in our other ancillary units for the cattle feed business and even for the fertilizer business. So what I want to emphasize here is that, we are a totally backward, forward, 6-stage backward, forward integrated company, which is producing dyes, having part of our own energy generation in terms of the solar and as well as our steam pressure turbines what we have. So sir, this is completely a zero-waste and self-sustainable 6-stage backward, forward, this integrated business model.

Right, sir. Thank you very much for the explanation and good understanding, and we really appreciate your vision and strategies that you design for the business, so that is highly appreciable. Sir, one more thing about the fact that can I get a figure of sales of cattle feed in last quarter or first half, if I can.

That we will post it to you, send it to you through our IR, Churchgate Partners. Right now, we are not having that particular figure with us.

No problem, sir. Sir, similarly, can we really think of producing some pigment or color for masterbatches? I mean is it likely to happen or something in your thinking? Or it is totally ruled out?

[Foreign Language] Like pigments and masterbatches for the plastic business, plastic industry, that's a different chemistry all together, Damaniji. [indiscernible] done in this plant, but that has a separate production facility, that requires a separate production facility and separate set of raw materials, which has got nothing to do with these dyes intermediates.

Sir, from your own conversation, I heard that INR 215 crore are still to be spent from today. Is it correct, sir?

Right.

And out of this, some amount will go towards solar energy generation, that is some INR 20 crores, INR 30 crores will, I think, go towards it. Rest of all will go towards creating chemical or fertilizer facility?

You are right, Damaniji.

And lastly, sir, INR 141 crore debtor, I think, includes our subsidies, if I need to be received from government or some other or subsidies are fully recovered?

No, no, sir. Subsidy is never recovered fully. It is always outstanding, and it's a continuous process. Our total book debt includes subsidies also.

Next question is from the line of [ Rajesh Jain ] from NB Investments.

Sir, my first question is this Unit 6, it is at Ratnagiri, is it meant only for the fertilizers?

Sir, we have got a huge land parcel for Unit 6. And initially, at this point of time, we are developing approximately half of the land parcel. And the kind of expansion what we are doing in Unit 6, that will be covered up in half of the existing land parcel. And the balance land parcel, let's see what we put up there. But the whole land parcel will not be going for this expansion.

Okay. But the existing whatever you're doing, the expansion at Unit 6 is exclusively for fertilizers?

Yes, as of now.

Okay. Sir, my second question is, you have mentioned that you are also doing expansion in Unit 5 for the chemicals vertical. In that, you have mentioned maybe more than 50% or whatever the ratio is for the backward integration and partly forward integration also.

You're right.

So backward is, I understood that if you are going to manufacture the products that required to make these dye intermediates or dyes, which currently you are buying from outside?

You're right.

But forward integration, would you be able to share us what products we will be making?

We'll be going into the dyes production, sir.

But you would be making some more different dyes?

We are expanding all our capacities for the dyes.

Oh, we are expanding the capacity of the dyes.

That's right.

Okay. Fair enough. Sir, now you said all this INR 1,400 crores types of turnover -- let us take, INR 1,300 crores only, no issues. So that I know that demand is yet to pick up, and it is becoming very difficult to predict. So my question was, in spite of that, you have taken a decision to plan and again expand. What gives you confidence to do this?

It's a good question. And let me share my personal opinion, my personal view with you since I've been into this industry at the age of my 18 years, now I'm 53 years, it has been 25 years. I've been looking at this industry as a very close out.

Sir, it is not 25. You have been in the business for 35 now. If you say 18 years, then it is 53 means 35 years, sir.

Anyway, what I personally believe is that we are a very stable and backward-integrated, forward-integrated sustainable business model, point number one. Point number two, we had to -- we believe in our business what we do, right? And we look at it at a different angle, and I personally believe that it has got a huge potential still which has not been explored up till now. Point number three, the major countries which are into this sector was China and now India. Entire globe focus is on India. China in the last few years has become completely unviable. I remember when I used to do these investor con calls 3, 4, 5 years back, at that time, the plenty of questions were about the China and the competition from the China. Now nobody asked anything about China. Everybody knows that China is on an exit mode. So now in the world, none of you, neither me, neither you have left wearing colorful clothes. And to the whole world, India is the only supplier. As of now, looking at the current situation, there is a bit this conservativeness amongst a common man for its purchasing. I also believe in this concept that as of now, the kind of uncertainty, we are looking around us for the last one year, first, about Ukraine and Russia and now about Israel and Hamas [Foreign Language]. Though it may not impact us directly, our business, but definitely, this impacts the sentiments of the business. [Foreign Language] probably it will go for next 1 or 2 quarters more, but sir, there is a substantial potential in the business, and we have to believe in it. I look forward [Foreign Language] there is a great potential into this. [Foreign Language] then we are into selling into the book. Now we have got good amount of money lying in our non-lien deposits. We will keep on generating at least in this financial year also. We are not going to spend in CapEx investment immediately. This is also phased out for the next 12 to 18 months and generate our own money. We are not taking any kind of a bank funding or something like that for the CapEx. We are getting ourselves ready and prepared for the next opportunity to come.

That is very helpful. [Foreign Language].

[Foreign Language] that is specifically dye stuffs and dyes intermediates, there China has got no presence. If you look at the import data for the last 3 years and today's also, right, in India from China, you will see that China's exposure [Foreign Language] practically single-digit [Foreign Language]. I'm not talking about any other products. And specifically, I'm not talking any other products like API intermediates or API pharma, [Foreign Language]. I'm talking about the sectors what we deal into. In that, China has got practically hardly any impact on our business.

[Foreign Language] you feel that then we will be on the growth path. Is that a correct assessment?

100%.

So there is no Chinese competition in our products?

[Foreign Language]

[Foreign Language]

Existingly, we have got installed capacity of 6,000 tonnes a year, which we are achieving around 65% basis.

[Foreign Language]

Almost, we'll be doubling it.

You're doubling it. We have so much space in Unit 5?

Yes, yes, yes.

Okay. Sir, after this CapEx, the land parcel at Unit 5 would get exhausted, [Foreign Language].

Yes, sir.

[Foreign Language] so that would -- you would have enough land bank [Foreign Language], that is, what, some 10 acres [Foreign Language].

[Foreign Language].

Wish all the Pushkar team very happy Diwali.

Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Mr. Punit Makharia for closing comments.

Thank you, everyone, for joining us on Q2 and H1 FY '24 earnings call. If you have any further questions, please feel free to contact our Investor Relation adviser, Churchgate Partners, and we'll be happy to address all your queries. Thank you very much, and wish you all a happy Diwali and happy Dhanteras. Thank you.

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