Deepak Fertilizers and Petrochemicals Corporation Limited analyst Q&A

Thank you very much. We will now begin the question-and-answer session. The first question is from the line of Rishabh Gang from Sancheti Family Office.

How do you see the trend of margins going forward, like we can expect 18% to be a steady state EBITDA margin?

So, just to clarify are you asking for the consolidated 18% is what you are saying, or it is a business specific number?

Consolidated.

I think that we have been actually delivering these numbers over the past few quarters and we think we have got that at sustainable level going forward. Obviously, there will always be some cyclicality involved going up and down within the ban d. But that should be the way to go forward.

Also, regarding the new proposed corporate structure , t he demerged entities , would they be separately listed?

So, the plan obviously is that each business would be separately listed at appropriate point in time.

Like 1 to 2 years down the line?

So, there is no timeline as such. But obviously we would provide the timelines as we take those decisions going forward.

Also, what's your roadmap on being net debt free, like how many years do you envision or like any plans for that and what's your take on the steady state ROCE of the business?

So, purely from a net debt perspective as you know that we already have two expansion plans which are continuing going forward , one is for Gopalpur and the other is for Dahej and hence given that the repayments only start post the CODs which is the commissioning happens and hence the deleverage of the balance the debt would happen after that. However , the normal repayments cycles for all the businesses continue the way it is and whenever we have an opportunity, like we had an opportunity thi s quarter , we are able to at least fast forward or expedite some of those repayments ahead of schedule.

By the year end how much net debt do you think you will be having?

So, from a gross perspective currently we have delivered around Rs.3,600 crores. So, I would say that additional drawdown of maybe around for the projects, so there will be no other drawdowns, but we are expecting around 300 to 400 crores worth of additional drawdowns for our new projects going forward. So, give or take a gross number would be closer to maybe around Rs.4,000 crores again around that number is what we are expecting right now.

By the year end , and also the ROCE front , like what do you think would be the steady state ROCE of the business?

So, we will have to really work that out because there are two new projects which are coming in and the EBITDA for those projects would only start obviously kicking in from effectively for on a yearly basis close up around ‘26-27. That's the financial year. And generally, the idea is that all the IRRs effectively of the new projects should be between 18% to 20%. So, if we continue to deliver this, the ROC will be far more obviously very high in terms of the deliveries. But till that happens because there is a CAPEX which is happening and there is no EBITDA to that obviously the ROC will be depressed for now.

The next question is from the line of Jayanam from Swan Investment.

My first question is what was our contribution from ammonia savings in this quarter?

So, what we have done is, but purely from overall contribution on EBITDA side , it is closer to around Rs.45 crores to Rs.50 crores. That's the number which we have, and these numbers would actually improve once the ammonia prices continue to go up which we have been actually seeing those indications now that. Mostly Q3 and Q4 when the winter kicks in obviously we have seen the ammonia prices actually which is FOB-ME hardens and it is closer to around $400/ MT to $450/MT. So, if that happens obviously the margins would further improve going forward.

At the current level of ammonia what will be the contribution that you will be making per ton at $430 which you indicated for the month of October?

We basically don’t obviously provide that data specifically, but I can tell you that and which we have been consistently telling that if the ammonia prices are closer to $300 FOB-ME per ton, we would be obviously contributing positive. If we are if the ammonia prices are (+$400) FOB- ME, we would be PBT positive and that will continue. So, obviously the other thing which obviously we have been reinforcing it and in fact Mr. Mehta also made the point, if the ammonia prices are slightly lower obviously the benefit flows into the other businesses. If the ammonia prices are actually higher , the benefit stays in the ammonia business and obviously it doesn't flow through the other business. But overall, from a cons olidated perspective it will not have much of a difference across the company and across the group as we will capture the benefit or expense both sides within the group. So , it would not have it. But obviously if you are looking independently this business yes, there will be some cyclicality involved based on ammonia prices how it actually moves.

Given the recent uptick in the ammonia prices which had gone down 300, now back to 430, how do you see a global demand supply playing out in terms of ammonia and in terms of the pricing, I mean the broader sense you can help us understand?

So, as far as the global economics is concerned, you can actually get through the history of how the prices have actually behaved. But most of the time the prices have ranged between $400 to $450 FOB-ME. Most of the time there are variabilities in between. We saw last quarter the prices were close to around $275 to $300. This quarter we are looking which is Q2 we saw inching up to around $350 . Going forward and all the time Q3 is definitely and Q3 and Q4 are from an ammonia pricing perspective are higher because of the harsh winters if it goes through then the demand goes up and hence the prices actually have an impact on the same.

Second question I mean just from the earlier participant in terms of the CAPEX, you indicated that there will be additional 300-400 crores of drawdown during this fiscal year. And since now both the projects Gopalpur and the nitric acid project is likely to come out soon in second half of FY26. So, what is the incremental C APEX that you will be spending in Financial Year ‘26 and post the completion of this CAPEX what will be our peak debt?

So, if I were to sum up what you are asking is that we are expecting the peak debt to hit sometimes in end of Financial Year ‘25-26 or early ‘26-27 to be closer to around 6 ,000 crores because we basically have to incur closer to almost 3 ,000 crores both put together and 30% of that would come from the equity and the balance would be raised through the debt.

6,000 crores will be a peak debt one can probably assume by end of next fiscal year. Now if you want to break up because if you look Mr. Me hta in his opening remark indicated regarding the sustainable growth driver and one of the sustainable growth drivers for the business was the demerger. So, can you help us understand the total 6 ,000 crores or current 4 ,000 crores of the debt, which is there in the book, how does it bifurcate between the various verticals that is going to get demerged?

Obviously we can send you the details separately, but it is based on the projects which business is. So , let's say for our Mining Chemicals business Gopalpur, obviously plant debt would actually be added there . As far as Dahej nitric acid is concerned, obviously it will come to the Industrial Chemicals business which is under DFPCL. But we can share that data separately. I do not have the data right away.

The next question is from the line of Parth Kotak from Plus91 Asset Management.

Most of my questions again have been answered. One question that I have is the impact of facility downtime. Taloja faced downtime for IPA and nitric acid production, can you share when this capacity utilization will return to normal and if repairs will have any impact on this quarter's EBITDA margins?

Just to give you a sense that Parth that irrespective of whether it is a planned or an unplanned downtime, we are actually looking to operate our plants between a capacity of around 92% to 98%. That is the kind of capacity utilization we have in all the actually plants currently, including ammonia, including nitric acid, including IPA and things like that. And hence wherever we will need to enhance the capacity, we had to actually enhance the capacities let’s say for our Mining Chemicals business, so we added that. There will be a needed downtime for those products. We have been continuously doing preventive maintenance for all the plants and we want to optimize it. But this year you would find that most of the facilities would actually be between 92% to 95% capacity utilized. Ammonia would be an exception. It can be even higher than 100%.

I think that sums up your views really well. Lastly, on the impact of ammonia on segment reporting. You mentioned earlier that ammonia profits are embedded in the chemicals business. Can we expect any changes to segment reporting post expansion to provide better visibility into ammonia performance or this is how we'd like to continue?

So, for now we will want to continue like this. But we will look into this to see whether we need to change our segmental reporting. Even though on the yearly side we provide the details for all the segments for our ammonia business. In any case we actually publish separate results and hence and the consolidated results. So , you will have most of the details. But as you have requested, we will look into this and see if it is appropriate for us to change the reporting.

The next question is from the line of Harsh Shah from Reera Holdings.

First question is on the technical grade ammonium nitrate part of the business , this quarter if I see the realization has been almost flattish on QOQ basis. So, just wanted to understand that have we not yet seen the benefits of higher ammonia prices flow through into our realization? That is one. And second is once we have our de -bottlenecking capacity operative, what kind of growth in terms of volume are we seeing? Because I remember last few quarters, we had seen a lot of imports coming from Russia. So, any update on that situation in terms of import supplies?

I will answer you in two parts. First of all, the monsoon season actually is a lean season for this business because of the waterlogging or flooding in the mine. The mining activities actually are reduced. So, in spite of that the volumes have slightly come down. But they are not nowhere actually too much down in overall. That is number one. The second point which you made for on the pricing side, generally the ammonia prices do not decide how the TAN prices actually work. There is a commodity which is called FGAN; Fertilizers Grade Ammonium Nitrate, that actually determines how the pricing and the premiums would be actually set in the marketplace. So, I can tell you that versus last year obviously the amount FGAN pricing globally has actually strengthened, and we have been obviously getting higher selling prices for our product versus last year. So , the third question which you asked was that ? So, from purely from an imports perspective generally arou nd 15% to 20% of the demand of India is catered through imports , this year obviously there are Russian imports but almost 40 %-50% imports are also from other countries apart from Russia. And hence we do not basically see much obviously challenge there but that is going to continue overall.

Another question was for the industrial chemical business , since we are expanding our nitric acid capacity, will this mostly be used for our captive consumption, or this will also be used for market sales?

So, for CNA actually it is predominantly for market sales, so we have tied up almost close to 65% of our capacities of our CNA with Aarti. The balance again will actually go on spot sales and things like that. As far as the diluted which is DNA or WNA, almost 50% to 60% actually is captive, the balance would be sold outside to the other.

And in terms of end user industry, will we see any change in sales mix in terms of more product getting sold for value added products or will the sales mix or the end consumer remain same that we have currently?

We have been actually improving our specialty grades sales over a period of time. So, obviously the customers, so as you know we have added steel grade nitric acid for an example. We have added Purosolv which caters to mostly hospitals or the pharmaceuticals and the disinfectant industry and things like that. Now we have also in a process to launch for semiconductors IPA grade those products. Now these are very much industry specific applications which we will continue to develop and hence we will always have the similar base of the customers which we will cater which we have been catering to. But we will continue to add with the specialty , we will continue to and new customers going forward.

And just the last question follow-up; would you be able to give any numbers in percentage terms as to how much would be commodity grade sales to fertilizer companies , speaking about nitric acid and how much would be value added and where would this percentage stand 2-3 years down the line?

We are currently at around 20% , 80%-20%. 80% is the normal grade and 20% are specialty grades and we are looking to at least double this number over a period of a couple of years.

The next question is from the line of Heet from Moneybee.

Most of my questions have been answered. I just wanted to know, do we have any progress with our mining services division, and have we secured any orders for that?

We have already executed more than 15 projects or programs so far. And as we speak, multiple projects are under progress at this point in time. So , that's a work in progress and that it is only going to increase and improve going forward.

What sort of margins do we look at when we take these mining services contracts?

So, generally what happens is that the product margin stays because we are selling the product and all but the services, there is an additional margin that is based on what are the project or the program details, how much is the benefits which gets accrued to the customer based on which we basically decide how much will be the premium we will charge for our services. So, it is not obviously a single number. But if I were to give you a ballpark number maybe 10% to 15% over and above what we do , obviously it will become a normal benchmark going forward as we actually improve and increase the kitty of the TCO programs going forward.

The next question is from the line of Kushal Shah, an individual investor.

I have two questions. My first question is that we have seen many changes recently in the top management. That is Mr. Amitabh Bhargava resigned last year and now Mr. Deepak Rastogi is going to resign. We have so much of CAPEX plan then how do we plan to stabilize the top management? And with Mr. Subhash Anand, who will be joining in the position of Deepak Rastogi continue for so many years. Like do the shareholders have that kind of assurance. And second question would be on the lines of Mining Chemicals. And it’s particularly how Deepak Fertilizers would have an edge over the existing experienced miner and how difficult or easy it is to replicate the total cost of ownership model that we have built?

On the first question obviously, the company has a very good pipeline in terms of succession planning. There will be management people or employees would actually join, new employees would join and some employees would actually leave. So, that's a normal process of an organization and the organization is well equipped to handle either the new expansions or the demergers and things like that. So, given that we have seen this over the past 40 years all the IP and the knowledge actually reside s in the processes and the compan y. So, I don't think so that that could be one of the concerns which we have. Obviously, we will as we speak, we continue to create more obviously experts and more people in the system so that we do not have a vacuum in terms of succession planning, which is well actually matured, and it is obviously discussed at the board level also. So, that is number one. On your question towards the TCO, I would hand it over to my colleague Mr. Tarun Sinha who will answer that whether it is easy for any other company to replicate the TCO model. I will over to you Tarun.

Let me reconfirm your question. What's your question on TCO if you can repeat?

My question is, why do Deepak Fertilizers, a Chemical Company would have an edge over the existing miners who have several years of experience in mining or let us say infrastructure? And second part of the question is some other player comes into the market then how easy or difficult it is to replicate the total cost of ownership model for them?

On the first part , we are not claiming in any form and shape that our knowledge base is much larger than the existing miners. What we do is as it happens in the normal course of business in any organization when there is a team of people working on the same thing over and over again, like it happens in a typical mine, then chances are high that area of opportunities are overlooked not because of any design but it's just that it's normal way of working. So , what we do in our total cost of ownership model is we send a team of people to the mines , so a baselining, benchmarking of their overall costs which encompasses drilling , blasting, excavation, hauling and crushing, wherever applicable these operations and spot opportunities for improvement. And then as we spoke earlier in one of the questions we try to enter into some projects and contracts to help the mining companies to improve that cost. So, that's the business model. On the second one, whether any other company is able to replicate this? I think I've answered this question in some of the other calls earlier in previous quarters. It is difficult. We don't know of any company which is working on this model. It is unique and why it is unique is not just because of how we approach it, but it is also about how we contract these kinds of projects, which is a combination of the inputs that we provide and at the same time the outputs that we generate. So, it is very much outcome-based approach rather than an input-based approach which is where most of the companies operate in this space. That's where we draw the difference in terms of our business model versus the others.

And one more question on how long will it take for TCO to mature and be a significant contributor in the revenue?

So, we started this concept a couple of years back and like it happens with any new concept , it matures over a period of time. We have come a long way already in terms of not only just building the capabilities but also as was mentioned by Mr. Deepak Rastogi earlier, by executing 15 odd projects in that direction. And these projects have been delivered in coal segment of the market, in the metal and limestone segment of the market and also in the infrastructure segment of the market. So , it's working quite nicely, it's maturing, and we are on the growth trajectory. We anticipate that as we go along this will start becoming a bigger pie in our chunk.

The next question is from the line of Jay Jariwala, an individual investor.

I have two questions. My first question is based on like you mentioned in the PPT that we are going to launch a new IPA based on a semiconductor base. On according to which quarter, we can expect a revenue kicking in from this particular segment , it is in a very initial stage like I want to just know the progress on this?

We already have a product right now. Obviously, the scale is very small given that the industry in India has to pick up. And because a lot of manufacturing activities have just started for semiconductors in India. And hence we expect this business to grow multi fold. Till the time whatever activities which are there for domestic sales as well as for exports, we continue to look at those opportunities and see what the best way could be to actually improve obviously our revenues in that particular segment.

The second question is on technical ammonium nitrate. So, like we are seeing a couple of other companies like Coal India, and they are joint venture for this particular ammonium nitr ate. So, they are they have specified an ammonium nitr ate. I just want to know whether this technical ammonium nitrate is different from an ammonium nitrate, like is the both the products are same and the capacity which we are going to be live by Coal India in somewhere FY26?

What Coal India is trying to do is that they are doing much more from a coal gasification if that's what they are trying to do. And they have been working with BH EL to bring that kind of a technology and in the previous quarters I've actually mentioned that the technology as per them is not commercially viable. That's how they have actually reported in their annual report. So, we have to see when they will actually bring in. But the products are the same, technical ammonium nitrate is the product which is used for explosive purposes for the mine. And they are trying to basically obviously create some in -house capability with this joint venture going forward. But we have to see how it actually pans out.

The next question is from the line of Chintan Shah from JM Financial Family Office.

I have two questions. One is on the TAN segment, if we see there are two to three players who are adding capacities here and also as you mentioned earlier , significant contribution is from imports. So, now this is a slightly longer term. Once we commission our additional capacity by end FY26 and I believe probably other players are also adding somewhere in FY26 to ‘27, do we see a case that could put pressure on pricing and once we commission this capacity, we could see lower profitability? That is the first question. And second, it's slightly near term. So, right now, from FY26 perspective just wanted to understand since you are already operating at such high-capacity utilization levels, what sort of growth levers do we have? Is this only realization and profitability or is there a scope for volume expansion as well? Those are my two questions.

I will take the second question first and then go to the next question. We already have got capped in terms of the capacity and that is one of the reasons why we have actually added 50 KTP very recently wherein we took a plant shutdown to increase the capacity. Because today we do not have adequate capacities to actually service our own customers. That's number one and that is one of the reasons why we have actually gone for the expansion. Because if you really see the coal mining or mining activity, power activity or infrastructure activity , are slated to grow between 10% to 12% CAGR over a period of next at least 5 to 6 years if not more. What this will do, is that the current demand supply situation, the current demand of India is close to almost 1.5 million tons, at this point in time are 1.6 million tons. With the space of infrastructure growth and mining activity growth it would actually go to around 2.2 or 2.3 million tons per annum. The current capacities which are there on the ground is closer to around a million or 1.1 million tons. And hence when I was making a comment that a round 15% to 20% of the demand is actually fed by imports, which is the case all the time. So, going forward also the new capacities which are coming in by through Chambal or RCF, the capacities will move from including our own, the capacities will move from maybe 1.1 or 1 million to around 1.6 or 1.7 million tons. There would still be enough scope for the imports to continue. So, when we have actually and envisaged our project at Gopalpur, we have assumed that a similar import would continue, given the kind of the demand supply situation in India. Now these are normal scenarios, if the demand comes down because of some Blue Swan events or because there is a cyclicality. There could be few years which are more softer than others. But on a long-term basis we are very confident that the capacities which are there on the ground will continue to be capacity utilized to the brim and there will be hardly any case for us to say the capacities are not utilized. In fact, the way that we have been planning is that from day one we are thinking because of the ramping and all, the things would start between 60%-70% capacity utilized from day one. That's the way it is. It is going to improve over a period of time. So, that is how we are looking at this market.

And just one last question on our real estate venture, is there any update or what the plan here?

So, the plan is that the business have a parcel of land. There is a business which does not need to be, it's a neutral, it’s not materially from a value perspective, from a revenue or profit of these things. And hence we will continue to run that business and whenever we need to we will have an asset to liquidate if at all. We get obviously good pricing and things like that appropriately. But currently there is no need for us. There are no pressing reasons for us to take those actions.

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Deepak Rastogi for closing comment.

Thank you all of you for taking the time to participate in Deepak Fertilizers & Petrochemicals Limited conference call. I again wish everyone on the call a very Happy Diwali and a prosperous New Year to all of you. Thank you so much.

On behalf of PhillipCapital (India) Private Limited , that concludes the conference call. Thank you for joining us and you may now disconnect your lines.