Deepak Fertilizers and Petrochemicals Corporation Limited analyst Q&A

Thank you very much. We will now begin the question -and-answer session. (Operator Instructions) The first question is from the line of Tarang Agrawal from Old Bridge. Mr. Tarang your line has been unmuted, please go ahead with your question. Since there is no response, the next question is from the line of Jainam Ghelani from Svan Investments. Please go ahead.

Hi, sir. Thanks for this opportunity. So, my first question is, what is the current ammonia pricing and what was your annual savings in FY ‘25 from the ammonia plant? Subhash Anand: Okay. In fact, the current price of ammonia is around $300. Yes, the last quarter, I will say the average price is around $330. That’s what the average number what we have seen. I will not say saving in terms of ammonia, we need to see separately because now we have an integrated supply chain. As we continue to maintain, our EBITDA breakeven is around $310, $320, at that price, the PCL remain EBITDA breakeven.

Okay. And sir, what would be our EBITDA from our Industrial Chemicals business and the Fertilizers business, if you could specify? Subhash Anand: So, we don’t give segment-wise EBITDA margin, this thing. But overall EBITDA, if you see, yes, at consol level, we have delivered 19% EBITDA. All 3 business has a different level of EBITDA. That’s definitely we all understand and each one of you aware of. In terms of Mining business, that’s a highly profitable business. Fertilizers business, as such, the industry compared to all 3 businesses comes at a lower level, Industrial Chemicals at the mid-level.

Okay. That would be helpful, sir. And my last question is that what would be our peak debt levels over the next 2 years, because we have this huge CAPEX upcoming? Subhash Anand: No, that’s, in fact, a standard question, I call it every time this come up and right so also. Good thing is our current CAPEX cycle is reaching towards fag end. The cycle, we have started with PCL capitalization or PCL operations. Now with Gopalpur and Dahej coming to a fag end , and we are expecting to commencing of production some time in H2 of this year. So the debt level currently, we are at around INR 3,300 crores. So, we expect to be around INR 5,000 crores when the peak touches.

So, can we expect that by end of FY ‘26, INR 5,000 crores could be our peak debt and then we can expect deleveraging from next year? Subhash Anand: Yes, that’s the right assumption because the 2 new facilities, which are coming up , will start contributing sizably to our bottom line as well as to cash flow. So the deleveraging will start after that.

Okay, sir. That’s it from my side. Thank you sir, all the best.

Thank you. The next question is from the line of S. Ramesh from Nirmal Bang Equities. Please go ahead.

Congratulations on the results. So in terms of the 2 housekeeping questions I have, one is your other expenses have gone up, both on a Y-o-Y and quarter-on-quarter basis in the consolidated results. And secondly, in the segment results, your Chemical business segment earnings is down, both again on Y -o-Y and quarter-on-quarter basis. Is that because of the IPA shutdown or any other reason for that? Subhash Anand: You’re talking quarter, right?

For the 4th Quarter, yes. Subhash Anand: Yes. In fact, Industrial Chemicals, yes, we have an IPA shutdown and that has an impact on our profitability.

And in terms of the increase in other expenses? Subhash Anand: In fact, since the majority of the growth has come from CNB business, and that has a very high freight output, so that’s the impact what you see in our other expenses.

Is that seasonal? Or is it something, which will continue depending on the growth in your Fertilizer business? Subhash Anand: It’s a business specific. CNB growing will always see freight expenses going up , higher compared to other 2 business.

Okay. So now on the projects and the long -term growth in your cash flows and returns. So if you look at your expansion in nitric acid and the integration into downstream TAN, what is the incremental ROC you will get on the additional CAPEX once you reach peak utilization? And what is the peak utilization you expect by, say, FY ‘27? Subhash Anand: No. In fact, both the new projects, what we have embarked on, we are looking at a healthy ROCE somewhere in the range of, I will say, 18% to 20%, and we will prefer to maintain that level for these 2 projects.

And what is the utilization level required for this sort of ROCE? Subhash Anand: This is a standard what we see, I call it. First year, we expect 70%, which is the normal ramp - up. The moment we go to an 80%, 85%, we start seeing this kind of ROCE.

Okay. So, one last thought on the ammonium nitrate prices, which you may have missed for your estimate. So, these numbers require any further increase in prices or at current prices, you will be able to achieve? Because the reason why I am asking that is there are 2 competitors who are setting up, Chambal and GNFC. So, is there a challenge in terms of the placement of the additional volume in the next 1, 2 years before the actual long -term growth in the downstream end-use sectors is able to absorb the incremental capacity? What is your thought on that? Subhash Anand: In fact, although Mr. Mehta touched upon our plant USP and uniqueness, but let me give you a few data points. Currently, the demand of TAN is around 1.4 million , and the present capacity in Indian market is around 1 million. So, this industry is net -net short. So, there is enough headroom for new player to come in and substitute import. And second thing, this industry, the TAN demand itself is growing 6% to 7% Y-o-Y. That itself is, if we say roughly around 1 lakh ton is getting added in the demand every year. So if you just put these 2 numbers in place and the new capacity, which is coming up, the ramp -up doesn’t happen on day 1. Everybody will have its own ramp -up time. By the time, this capacity is actually available in the market, net-net, we will again start seeing import higher than the supply available. So, we don’t see a challenge in the TAN demand. Second, you would have seen our specialty and downstream efforts reaching from customer to consumer. So, that ’s another thing which will help us to create our space and our uniqueness , because we are a strong player in this market, first mover, 40 years downstream, and then we are uniquely placed on both the coasts, West or North. All these same factors will make us a very different player or a different league player. We don’t see a challenge placing our capacity in the market.

Thank you The next question is from the line of Nikhil Gada from Abakkus AMC. Please go ahead.

Yes. Hi thanks for the opportunity and congrats on a good set of numbers. Sir, just a continuation on this overall TAN growth. Just for the 4th Quarter as well as for the last 3 years, if we see the growth in our TAN volumes, it has been sort of suboptimal. It ’s been around 1% to 2% range. And while we are talking about a capacity of close to 6 lakhs, we have still not been able to achieve, at least closer to those kind of levels. So is it because of there being a demand being slower? Or is it something where we are capacity constrained in terms of our nitric acid, which you have mentioned, that is having an impact on this overall business? Subhash Anand: No, Nikhil, you are right. There’s no demand constraint actually. We do have a demand, and we are at this point of time constrained by supply side. We have a nitric acid capacity constraint, and that’s a limiting factor for us to grow our TAN substantially. And that ’s one of the main reasons for us to get into capacity and expansions and then cater to the demand, which we already know we have in front of us. Second thing, if you see what is immediate, we have done some debottleneck of TAN business, TAN capacity and nitric acid capacity last year towards end of H1 or beginning H2. So, that will also help us to do some additional volume this year. And second thing, if you ask me in TAN business especially, our focus is more moving from more and more specialty downstream from customer to consumer. And that gives us not only additional stickiness of the business, but also incremental margins. So the fo cus is more till the time we have capacity, we will continue to go more towards value add and expand our margin. And when the capacity available, we are good to go in a full flow. I hope I answered your question.

Yes, sir. So then do we sort of say that even for FY ‘26, I understand that you are focusing on more value addition. But in terms of volume growth, do we see FY ‘26 also to do like a 2%, 3% volume growth? Or we see better volume growth in FY ‘26 since your capacity is going to come, most of it will start in FY ‘27, yes? Subhash Anand: No, it will be slightly more than the number what you are saying. We do expect with some bottlenecking, we will be able to do slightly better or better than. But yes, if you are looking leapfrog jump, then that will happen once Gopalpur comes in place.

Fair enough, sir. Got it. Sir, in terms of the ammonia business, you have sort of mentioned that $310, $320 levels. Because we have factored in it at $400, $410, and based on that, our working has been made in this business. Are we always dependent on the pricing for ammonia on a global level? Or is there a better way to get an understanding of the spreads? Because since quarterly, we are not getting all the subsidiary data as well. It’s becoming a bit of a challenge to understand exactly the spread levels. Subhash Anand: Two things basically. Okay, ammonia pricing is internationally available. I won ’t say there ’s any challenges. This is a published number as everyday numbers available.

I understand. But then because you sell at a premium as well, so definitely, the price, yes. Sorry. Subhash Anand: Okay. Broadly, if you ask me, we do publish quarterly how is the ammonia price going on. So this is a number. And there is a standard formula from FOB Middle East to the landed, how the number comes in. We can have that discussion and we can discuss around that. Finally, any change in ammonia price, we are an integrated business. So it ’s a shift from one business to another. And net-net, if you see, still the margin remain within business because we are an integrated player. So even if we see a softness here, but we do see a margin expansion for our other business.

So sir, if I want to ask it in a different way, the 4th Quarter margins, which were at 23%, it has nothing to do with the TAN ammonia spread. It ’s largely because of the Industrial Chemical business, IPA business not doing well. Subhash Anand: No, which 4th Quarter, 23%, I didn’t get your number. We have an 18% margin.

I was talking about the Chemical business EBIT margins, which were at 23% for the 4th Quarter vis-a-vis 27%, 28%, 31% for the last 3 quarters. Subhash Anand: No. Okay. When you are looking at Chemical business , overall, if you see ammonia price between this last year, broadly, it remained at a similar level, barring 1 quarter when it ’s significantly gone up. But otherwise, it remains broadly at the same level. Last quarter, specifically, the dip in industrial chemical or dip in Chemical business segment is IPA is one thing, which has impacted , because there is a pressure of IPA prices globally, and that has impacted marginal Industrial Chemical business. The last year, overall ammonia prices was broadly stable barring quarter 3 when it has seen a substantial increase, I call it.

Understood. Got it, sir. So then just to complete this...

Sorry to interrupt, Mr. Nikhil. Can we return to the question queue for a follow-up?

Sure. I will do that.

The next question is from the line of Bharat Shah from ASK Investment Managers Limited. Please go ahead.

Yes. I hope Sailesh bhai is on the call because in his initial remarks, he made a comment that there was a certain valuation assigned to the Mining Chemical business, which represented the bulk of the value of the firm. And he was expressing wonderment as to why that is the case. So, I hope Sailesh bhai is on the call. Subhash Anand: No. Bharat bhai, keep asking, I should be able to answer your questions.

Okay. Because he raised the question, I thought he ’ll be there to discuss that question that he had raised. But be it as it may, I will reach out to him separately. Subhash ji, if we continue to play coy, and not give proper details of each business in terms of underlying moving parts, its profitability, when the change of the traction over a period of time, how do you expect really speaking for people to be able to analyze the business, which has 3 main activities? And each activity has many moving parts. And therefore, whole aggregate performance is so much harder to analyze unless and until details are shared. Now, of course, the crop business is put into Mahadhan and the Mining business has gone into DMSL. So, picture would start getting more clear. But I wonder why that has not been the case so far? Subhash Anand: No, Bharat bhai, very rightly so. And definitely, we started far more insight into our segmental businesses, what we used to talk earlier. And it’s only a matter of time when you start seeing us coming out with far more detail. Input well taken. We will work on this.

Subhash ji, the entity which is, DMSL now , received INR 800 crores of the convertible debenture, right? Subhash Anand: Yes.

And effectively, I assume it will dilute equity capital of that business by about 6% to 7%. Subhash Anand: Yes, on a valuation of around INR 13,000 crores, INR 800 crores will be around that, 6%.

That will get converted in by what timeframe? Subhash Anand: No. In fact, CCD is for 48 months, but there is an option after 30 months , w e can convert anything after 30 months.

Okay. Till then it will carry the interest rate? Subhash Anand: Yes. Till that time it has a coupon rate.

So therefore, about 94% equity will belong to the holding Deepak Fertilisers? Subhash Anand: That’s right.

And on Mahadhan, what is the equity dilution of INR 400 crores that has happened? How much is the equity dilution? Subhash Anand: That is internal, not to external public. Basically, there was an OCD, which Deepak has, that ’s got converted into equity. So, that’s 100% remains, 100%. Nothing changes.

So then INR 400 crores, which has been injected there, where does it reside? Subhash Anand: Yes. Basically, there was an OCD which there was an equity infusion from Deepak Fertilisers to Mahadhan. So the 100% still remain 100%. Nothing changes further.

It’s just the left and right pockets. Subhash Anand: Yes, yes, that’s what I am saying. So there is no external.

Okay. So that’s a very confusing... Subhash Anand: No, it ’s basically to strengthen Mahadhan balance sheet so the Deepak Fertilisers has put in money.

Okay. And the INR 800 crores received in DMSL, I suppose, will remain in DMSL, except whenever dividends are paid out, that Deepak Fertilisers will get? Subhash Anand: No. In fact, INR 800 crores in DMSL has come in for strengthening DMSL balance sheet, including their capital expansion, which is planned. Gopalpur is part of DMSL. So it’s part and parcel of DMSL, strengthening balance sheet for capital expansion.

One last thing, Subhash ji. While over years, we have grown 8x. We have leapt ahead, then we have fallen behind. But we are still well below what we did in 2022 -’23 when the turnover exceeded INR 11,000 crores, and bottom line exceeded more than INR 2,000 crores. We are still well below those numbers. When do you think we will surpass the performance? Subhash Anand: Let’s hope we surpass very soon.

Son as in next quarter or it will be... Subhash Anand: No, I won’t put a number or immediate timeframe for that. But yes, as a Management, definitely, surpassing that should be soon.

Okay. Just one final thing. Current year outlook on the Mining Chemical business, how would you portray it? Subhash Anand: Okay. Current year, demand side, we don ’t see a challenge. Definitely, we do have capacity constraint, and some debottlenecking will help us to grow volume. We expect volume will grow in current year, although it will be single digit. But we do expect margin expansions will play a larger role than just volume growth. And that ’s what will be the story of DMSL. And then towards H2 when the new capacity come in, that will be a big, I will say, change, which will take the entire Mining business to the new level.

Right. So, year of ‘26-’27 should be a record year for Mining Chemicals? Subhash Anand: Yes. That’s where all the levers, whether it’s Gopalpur, whether it’s Dahej new plant or whether it’s a new gas contract, all will be fully operational at that time, and we will be in the new leap, I call it.

Okay. So, ‘26 will be better year than ‘25 for Mining Chemicals? Completing this question. Subhash Anand: Yes. We do expect ‘26, definitely, we will do an improvement. And you will see definitely a better result compared to FY ‘25, what we have.

Sure. Thank you Subash ji, and we will connect with Sailesh bhai also separately. Subhash Anand: Sure. Thank you.

Thank you. The next question is from the line of Pratyush Kamal from InCred Capital. Please go ahead.

Congratulations on good set of numbers, sir. I have few questions. First is regarding the Ammonia business, wherein you used to mention that about $380 per ton would be breakeven cost for you. But I suppose that you usually produce ammonia from natural gas, use about 33, 35 MMBtu of natural gas for that. And given the fact that the natural gas prices have fallen down significantly from Q3 to Q4 , because of Brent-linked and Henry Hub linked contract. So what is the current cost of gas that you are accumulating right now due to which you would have, again, shifted your breakeven cost from $380 to now $330, which you just mentioned? Subhash Anand: No. In fact, $380 I don ’t think so we ever talked $380 in dollars. We always maintain for EBITDA breakeven, our number is around $310 to $320. So, we broadly remain at that level for EBITDA breakeven. Second thing, you are talking about gas. Currently, our gas prices are more I will say since our long-term Equinor contract yet to get kicked in and that will get kicked in only next year, FY ‘26, and that’s where we will start seeing the real benefit of gas price reduction happening. Till that time, our contracts are linked to various baskets, not just one Brent or not just one thing. Movement of gas price is not immediately visible to us or not immediately getting passed on to us. So it has some lag when it comes to our ammonia pricing or the costing.

Okay. So what is the usual time lag, sir, from the reduction of the basket of the price and your accumulating of the benefits of that? Subhash Anand: It depends, but we buy from 3, 4 sources, not just one source. So, each has a different formula. I call it linkages. Yes.

Understood, sir. And second is regarding your Nitric Acid business. I wanted to ask that other than the IPA, did you also see some kind of dumping from China as far as nitroaromatics compound is concerned due to which it would have reduced or impacted your margins on nitric acid front? Subhash Anand: Okay. Nitric acid, when you are talking, yes, nitroaromatics do have challenges , because of imports coming in and that ’s seeing a competition. But other side of things, the TAN business across the country is seeing a good demand and nitric acid is one of the important component or a raw material input for that business. So, nitric acid as a total business, we have not seen a challenge placing our nitric acid. Actually, if you see, we are, net -net, short of nitric acid. If we have more nitric acid, we can sell much more than what we are selling. So, we don ’t see an immediate impact of one of the specific segments seeing a softness of nitric softness. Overall, we are comfortable when it comes to whatever capacity we have, we are able to place and place it comfortably at the right profit level.

Understood, sir. So was there a possibility in terms of getting the nitric acid from some other manufacturers and manufacturing ammonium nitrate from that, if you were seeing a good demand coming off for ammonium nitrate and you were filling short of the n itric acid, so was there a possibility? Or what do you think on that, sir? Subhash Anand: We continue to explore and keep looking for those opportunities. It ’s not that we don’t do that. Whenever right opportunity, we continue to keep looking and keep doing it.

Understood, sir. Just a final question regarding the expansion.

Sorry to interrupt. Mr. Pratyush, can I request you to return to the question queue for a follow - up question?

Sure. Sure.

Thank you. (Operator Instructions) The next question is from the line of Tarang Agrawal from Old Bridge. Please go ahead.

Just a couple of questions, rather bookkeeping. You said for TAN, is the license capacity 587 Kt or 630 Kt? Subhash Anand: It’s 587. TAN capacity you are taking.

Right. Okay. Got it. Second, how big is LDAN for you? And what is the significance of the B2C metric that you laid out in the presentation? Subhash Anand: Okay. No, in fact, the LDAN is basically a product, which gets used as an explosive in the mines or in infrastructure. So, we used to sell most of our product as a B2B segment of late. As a part of our TCO, we started working with end consumers, which is various mines and infra and started working with them to supply LDAN directly to them. And that ’s how our downstream business or a B2C journey in TAN is expanding. And now we have reached to a level where our 18% of the share comes from our sale to B2C segments.

So just to understand correctly, if Coal India was your customer, was there an intermediary involved in between and now you are selling it to Coal India directly? Is that what you are trying to say? Subhash Anand: I will not say the name of the customer, XYZ.

No, just an example, just an example. Subhash Anand: But your understanding is right. Earlier, we were going through intermediary , who were converting. Now, we are able to reach out directly and make our product available to them directly.

Okay. And how are the metrics different for that business versus your overall business? Do you get higher pricing or your volume visibility is better, or your ability to protect your market share is better? Any insight would be helpful. Subhash Anand: All 3 actually, not just one. It gives me value -based pricing because the way our TCO model work, as we have explained earlier, we are moving towards productivity solutions to the end consumer. We are not just selling products. We are working as a partnership to them and showing we can improve their mines’ productivity or infra productivity. The moment we reach out to solutions, so it ’s value pricing that help us to expand margin, that help us to improve stickiness, because then we become actually a true partner. And third thing, definitely, I call it once you have a stickiness in this, your market share improves.

So, 18% is for FY ‘25, Q4? Subhash Anand: It’s Q4.

Okay. A couple more on CAPEX.

Sorry to interrupt, Mr. Tarang, can we return to the question queue for a follow-up question?

These are just objective one liner questions that I am asking. Just give me a couple more and then I will get back on the line. So sir, on CAPEX, if you could give us your overall CAPEX for FY ‘26 and ‘27, the maintenance CAPEX within that? And last, for Gopalpur and Dahej, what has been the CAPEX outlay till March ‘26 for ‘25? And what is the likely outlay in ‘26 and ‘27? Thanks, that’s it from me. Subhash Anand: Okay. In fact, the total CAPEX this year, which we talked about FY ‘26, the 2 new projects, total CAPEX is expected to be around INR 4,500 crores, total I am talking. Out of that, our capitalization is around INR 1,400 crores. That ’s what we already completed. So, balance is expected in the current year.

So, INR 3,100 crores in FY ‘26, all of it? Subhash Anand: Because we have to complete the project. So, this is the CAPEX of this year expected.

And for your footprint, what is the maintenance CAPEX that you run with? Subhash Anand: That’s roughly around, I would say INR 300 crores to INR 400 crores. That ’s the normal maintenance CAPEX, which will continue as a normal business.

Sure. Thank you, I will join the queue.

Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to the Management for closing comments. Subhash Anand: Thanks. Thank you once again for your time and interest in Deepak Fertilisers and Petrochemicals Corporation Limited. We appreciate your continued support , and look forward to engaging with you in the next quarter. Thank you.

Thank you. On behalf of PhillipCapital (India) Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. For further information, please contact: Debasish Kedia

Sr. GM - Finance

debasish.kedia@dfpcl.com +91 20 6645 8797 Subhash Anand President and CFO subhash.anand@dfpcl.com +91 20 6645 8797

This transcript has been edited to improve readability

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