Paradeep Phosphates Limited earnings call

Ladies and gentlemen, good day an d welcome to Paradeep Phosphate s’ Q1 FY25 Earnings Conference Call hosted by Antique Stock Broking. As a reminder, all participant lines will be in the listen -only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing the “*” then “0” on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar from Antique Stock Broking. Thank you and over to you sir.

On behalf of Antique Stock Broking, I would like to welcome all the participants on the Q1 FY25 Earnings Call of Paradeep Phosphates. Today, we have Mr. Suresh Krishnan – MD and CEO; Mr. Rajeev Nambiar – COO; Mr. Bij ay Biswal – CFO; Mr. Alok Saxena – Head of Corporate Finance & IR ; and Mr. Susnato Lahiri – DGM Strategy, IR and E SG on the call. Without any delay, I would like to hand over the call to Mr. Krishnan for opening remarks. Post which, we will open the floor for Q&A. Thank you and over to you, Mr. Krishnan.

Thank you , Manish . Good morning and welcome everyone to our Q1 F Y2025 Earnings Conference Call. We appreciate your time and participation today. I trust you have seen our Earnings Presentation and Press Release, which have been circulated and are also available on our website and stock exchanges. To begin with, I will provide an overview of our Business Trends and Financial Performance for the quarter, followed by a Q&A session. Well, the fertilizer industry has shown steady growth supported by moderated global raw material prices and beneficial domestic climatic conditions in Q1 FY2025. Improved rainfall in key agriculture regions is expected to enhance soil conditions, boo st crop yield, and increase fertilizer demand. Government initiatives such as increased crop, MSPs, the promotion of nano fertilizers and efficient fertilizer use along with notable budget allocations to agriculture and fertilizer sectors continue to provide good support.

Coming to our quarterly performance

Although we aim for better capacity utilization, a brief shutdown at our Paradeep unit in April 2024 impacted overall production volumes. This quarter we produced 539,194 metric tons of finished fe rtilizer, reflecting a 1 6% decrease from the same quarter last year. However, our introduction of specific NPK grades like N19, N15, and N14 have all been well received by the farmers. Our phosphoric acid quarterly production also increased by about 60% y ear-on-year. Further, we launched biogenic Nano DAP and Nano Urea products under the Jai Kisaan Navratna Nano Shakti brand name. Our Nano Urea contains 8% nitrogen, where as Nano DAP entails 6% nitrogen and 16% P 2O5. We also introduced a new grade of Triple Super phosphate containing 46% phosphorus, which is essential for root development and 4% resistant plants. These new products will enable farmers tailor their fertilization strategies more effectively, especially in India's nitrogen-heavy soils. Total sales volume of finished fertilizers reached 554,571 metric tons, marking an 11% year-on- year decline. Despite this, sales volume exceeded production, demonstrating our ability to sell beyond the production capacity. Notably, N20 volumes increased by 21% year -on-year, and other NPK sales rose by 28% year-on-year. In our new product range, we sold 27,000 tons of TSP and approximately 30,000 and 26,000 bottles of Nano DAP and Nano Urea, respectively. These results reflect our successful farmer and channel connect program throughout Q1. For a financial update, it is important to note that the company reported a revenue of Rs. 23,774 million and EBITDA of Rs. 1,663 million with a margin of 6.9%. Standalone, the profit after tax of Rs. 63 million. Despite the impact of Paradeep unit's brief shutdown on top line, overall profitability in this quarter has improved year -over- year. We are focused on recovering the lost volumes throughout the remainder of FY2025. As we enter the kharif season with robust monsoons, healthy reservoir levels and favorable inventory levels, our core competency in sourcing raw materials, manufacturing diverse fertilizer grades and the extensive market reach across 15 states position us well. We will co ntinue to focus on innovative NP K grades and in creasing the capacities of our N ano portfolio. Our commitment to delivering the best product mix for the upcoming season remains steadfast. Thank you for your attention and I would now like to open the floor for questions. Over to you.

Thank you very much. We will now begin the question and answer session. Our first question is from the line of Prashant from Elara Securities. Please go ahead.

Mr. Krishnan, how has been the demand in Q2 FY25 till date?

Prashant, I think the Q2 demand is quite robust and we are seeing good offtake both at the retailer level and also at the farmer level. So , we are quite intrigued at this point of time. Even the shortfall in quantity that we had for Q1, we are more than better up during the Q2, in th e first month of the Q2 itself.

Then sir, we should be able to beat the Q2 last year sales of 8 lakh tons?

We are working on that and I am sure the way the quarter is progressing right across all our markets, we are quite encouraged to see that we will have a good volume in the coming months for sure.

What would be your outlook on the international raw material price?

Well, it's very important to note that, whereas we have seen nitrogen holding on at a particular price level, phosphates have been in short supply right across markets because of very strong demand coming from other geographies. We have seen that the phosphate availability, both DAP and phosphoric acid to the markets in India, have been quite stressed. So, given these, I would think that the phosphate market prices will go up. We are expecting the DAP prices to be going up in the coming quarter and we are also expecting that the phosphoric acid, which is $950 per metric ton right now for this quarter, might also see some revision based on the prices that we will see of DAP in the coming months. As you know, the DAP has alre ady reached $590 per metric ton for Indian market as against about $550 that we had. That is something that is creating some amount of stress and also the ammonia prices, which are also opening closer to $400. All this clearly indicates that the phosphatic industry in India, the predominant phosphates being DAP and some larger rates of N10 and N12, all this will need a price change in the coming months. Not only to maintain margins and also to improve margins to levels that we are used to.

Can we get the POS sales for Q1 FY25 for us?

I will give you before the end of this call.

Thank you. Our next question is from the line of Darshita from Antique Broking. Please go ahead.

My first question was regarding any MRP hikes that have taken in the first quarter after the elections in DAP or NPK?

Yes, just to confirm both DAP and NPK, there have not been any price change in Q1 FY25.

And are we expecting any support from the government coming in for the first quarter especially, given that DAP availability has also been an issue and importers are also most likely making a loss at the current levels. So, are we expecting any support to come in from the government?

Well, the way DAP is positioned today, whether you're importing acid and converting to DAP or importing rock and converting to DAP today, you would certainly need a price correction going forward. And in my view, as we get on to the next season, we should get to see some price correction either in way of support from the government or from the industry making a suitable change.

Okay, and in case, if you could make us understand, it would be retrospective in nature or would it be applicable from this Rabi onward?

We don't have anything in writing from the government as we see. So, we will not be able to comment on that. But I certainly believe that a price correction or a support from the government to the farmer in some format is certainly expected.

Well, Goa has two sets of NPKs that we make there. There are some NPK grades which are more specific to our unit, and I would call them a specialty, like N19 and N28. And the N19, which has got a 19% , the price decrease has certainly benefited us quite seriously. So, that has been a positive for us and I expect that to continu e going forward. But as far as N 10 and N12 are being concerned, they have been reasonably unviable at the current price level which has been there. The correction in K prices has only helped to mitigate the unviable position that we were in. And we believe that these rates will be better off wit h some price correction going forward.

And if we could get the volume breakup between Paradeep and Goa sites for DAP and NPK?

Yes. We don't make any DAP in Goa at all. So, we make all the DAP in Paradeep itself. As far as Goa is concerned, our production volumes are primarily to do with the NPKs that we make. And the total NPK production for Goa was 2,74,784, including Urea. So, Urea was 1,20,000 in this, and balance 1,54,000 was the NPKs.

Right. Could you help me out with the sales volume over there at the Goa plant?

Goa Urea sales were 108,000 metric tons. And as far as the phosphate is concerned, this was 192,000 metric tons.

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

So, if you look at your performance this quarter based on the revised nutrient-based subsidies, how do we read the EBITDA per ton for the phosphatic business and how do we see that moving forward given the reduction in the prices YoY. What is the outlook for the EBITDA per ton?

Well, I've taken up this subject even in my past calls, and I've always maintained that for us, a blended EBITDA per ton is in the range of Rs. 4,500 to Rs. 5,000 per metric ton. And we should be in a position to be in that zone, given the fact that we are now well backward in tegrated. As far as the quarter one is concerned, we had a bit of a pushback on two counts. One is the month of April, we had to take a mandatory shutdown for regulatory reasons. Here we lost out on our own phosphoric acid production and certain amount of fertilizer also. That depressed our EBITDA, number one. Number two is D AP in general, if you look at it, ammo nia prices have been going up. DAP price levels are not at the right level currently, 30, 50 per metric ton. I don't think it kind of gives the kind of margin that one expects to do. This is something that needs to be improved. So, I believe that if you look at it over the next balance period, this financial year, things should correct itself. That's our expectation today. And I'm sure we should follow this through quarter-on-quarter because the third quarter is where the main Rabi season will start. And I'm sure by which time we will have price discovery for raw material from the global markets and also local price discovery for the finished goods will also evolve very clearly.

So, in terms of the backward integration, how much is the actual production? Actually, you have given the number. Phosphoric acid production is 92,000. So, how much of that is going into TSP?

No, as far as the 92,360 metric ton is concerned, the product mix that we have at Paradeep is a 50-50 mix between DAP and the N20. So, that is a mix that kind of worked out. So, if you want to break down, in the last quarter, 1,0 2,918 was the production of D AP, which used our own assets. And we made N20 of close to about 1,55,000 metric tons, where also we used our own assets. So, that's the kind of split on which we worked.

So, post this integration, since you've started Triple Super phosphate, what will be the shortage of phosphoric acid and sulphuric acid, which you have to buy from outside?

So, Triple Super phosphate is a traded product for us, not a manufactured product. So, we are bringing this as a finished good, so we don't need any phosphoric acid for this. Just for your information, the site at Paradeep today does not require any phosphoric acid. We are able to produce phosphoric acid that is required for the site today. As far as Goa site is concerned, we typically need about 200,000 tons of P 2O5 to be imported and that's what comes with imported for us right now.

So, over the year if you look at last year base, w ould you be able to deliver numbers at par or some improvement on that if the N BS rates for second half is reset according to the curre nt inflation in the input cost?

I think so. I'm sure. If you look at it, ph osphoric acid capacity for us has really improved by about 45% from what it was last year. So, that benefit of that will start kicking in for us from Q2 onwards as we are the manufacturer. And also, any price hike that we might take or any further support to the farmer which the government might provide will directly act to our margins today.

So, one last thought, Krishnanji, in the context of the NBS rates and government talking about a reasonable profit, if you're going to make additional benefits from captive assets, is there a risk that some of that will be clawed back under this 12% PBT formula they are following?

I personally believe as for the PPL, which has got a mix of both production from own asset and from imported assets, we should not have in this financial year any possibility of increasing or having to give back. But let me be clear to all of you because in case we make profits about 12% as the policy obviously people have to surrender the same and that should be good for everyone. That if you reach the 12% margin and beyond.

Sir, my first question is, you said your current phosphoric acid, prevailing phosphoric acid prices are USD $950 per metric ton. So, sir, what is the in -house manufacturing cost of phosphoric acid?

I think this has been coming up even in the earlier calls. Whenever we make phosphoric acid, we have a benefit of over Rs. 10,000 per metric ton for domestic manufacturing. So, that benefit continues to be there. But this benefit will accrue to the profitability line fully well when you're not having any under recovery on the product pricing. And the concern that we've be en having is even though the fact our manufacturing facilities are running very efficiently today, we do not have enough margins in certain products, like DAP, which I believe wi ll get corrected going forward.

And sir, another question is, it is told that around 500 ml Nano Urea can replace 50 kg of Urea. So, considering this statement, do you see any change in the conventional Urea or conventional DAP manufacturing going forward like I'm saying from the requirement point of view. Will Nano Urea replace conventional DAP or conventional Urea going forward?

Look at it today that India imports close to last year maybe about 6 to 7 million tons of Urea. We imported about similar quantity 6 million plus of DAP. So, there is a substantial qu antity that we import. And as far as nano products are concerned, they are interesting products. We should believe our potential to stay on with the existing mineral products that we have today and could replace maybe about 10% of the overall demand which is there for all this. So, this will result in lesser import going forward and everything works well. And you will have to see a farmer experience on this over the next few seasons. It is only the first year that we are getting to see a nano DA P being avai lable in the market right across from multiple players. So, the experience of the farmer, the output that you will get from here, will determine in terms of the scope and the growth that you will see. In our view, at this point of time, a 10% replacement of imports is well possible using nano products.

Got it sir. Sir, what I was saying, I understand like if everything goes fine, if the response from the farmers and other factors you have referred, like if everything is positive, so in that case, like will this nano version can replace conventional products, DAP or India, whatever?

I don't think there's going to be a replacement because there are various types of applications that we do. There's a basal application that we do, there's a top dressing. So, largely these liquid products are being seen in going into the top dressing, which could be about 25% of the overall market that is there. Not so much in the basal as we speak.

Thank you. Our next question is from the line of Prashant from Elara Securities. Please go ahead.

Yes, the subsidy that we received in Q1 was Rs. 937 crores during Q1 that we received. Outstanding was about Rs. 2,100 crores. And we had about one third of that coming in the month of July.

Right. And what would be the current gross and net debt?

If you look at it today as of June 2024, the net debt position for us is Rs. 4,152 crores. The gross debt was Rs. 4,352 crores

So, just feedback. Last quarter, you had shared the raw material slide in PPT, which was quite informative, which has been stopped. Just a request if you can continue with it next quarter onwards, it clears some ambiguity on the raw material prices. Just feedback I wanted to share.

Yes, sure, Prashant, we will do that actually. The thought was to cover the raw material kind of range, price range over a larger period, typically over a on e-year period, that probably makes sense from a flow perspective. But we can always do that on a quarterly basis.

Thank you. The next question is from the line of Shubro, an individual investor, please go ahead.

So, my question is, sir, the biogenic Nano Urea and N ano DAP which you have launched, will it be eligible to receive the Rs. 1500 MDA which the government is giving towards organic farming?

No. That is primarily for certain organic products, fermented organic manure and those related products only. Not for nano. Nano has no subsidy. And to be fair, I think we are also not looking forward for any subsidy for nano products. They are good products, they hav e their own value proposition, and we would like to place it in that manner.

And just from a big picture point of view, because you are involved in the FAI as well, wanted to understand your view on recent days, there has been a lot of buzz in the agriculture ministry and the Ministry of Fertilizers. They are putting a lot of focus on organic farming, some complete overhaul of the agricultural systems. So, just if you could share some thoughts or insights which you might have?

Well, you look at it today, we have roughly about give and take about 12 crore farmers in India. And today what the government is coming out with is working with about one crore farmers on natural farming. I think this is a very prudent measure because natural farming is something that you have to experience in terms of what are the organic m anure that you will need for it, what are the practices that you will do, and what kind of output that you can get in terms of a natural farming versus more intensive farming using inorganic nutrients. So, there is a program which has been launched for a small subset, which is about one crore farmer which is there. I think they will be learning that it will come from there and which will help. But you must realize that while all this is being done, the biggest challenge we as a country today face is the soil condition, the soil health, the organic carbon in the soil. This is something that needs to be worked on well. So, all these experiments that we will do, all these efforts that we are doing will clearly establish the formula that will be there. And as we see in the industry, there has to be a good mix of inorganic and organic matter which is required to get effective agriculture output. And that is the effort which is being launched. So, this is positive, and I think industry will be working and supporting this totally.

And sir, just last question from my side, a large part of our country is deficient in zinc in the soil. So, is there some part of our portfolio which addresses that, the zinc deficiency in the soil?

There is a government program to encourage zinc as a micronutrient which can be added to products. And that is left to individual players to look at it because India has looked at zinc sulfur as, sulfur is being one minor nutrient which is required, which is not coming through various products. Zinc again, I mean there are zincated products which are coming in the case of SSP, people have launched DAP. We also do a zinc product which is not subsidized, which we do for the farmer, which is along with gypsum. So, zinc is an important element that everybody is addressing very clearly.

Our next question is from the line of Darshita from Antique Broking. Please go ahead.

If you could just give us an internal target that you have with respect to how much volumes you plan on selling in FY25, traded and manufactured both?

As far as Nano is concerned, if you ask me during the current se ason, which is from month of August onwards, we will initially look at about 2 lakh bottles per month. This will be largely on a DAP is what we are going to look at.

No, I was not asking from Nano perspective. I was asking the granular fertilizer perspective.

Granular fertilizer, if you look at it today, we did about 2.5 billion tons of fertilizer for the full financial year last year. And we certainly were looking at a situation where we would certainly be exceeding that quantity in the coming financial year. And we are pretty sure that will be there.

And for FY25 considering the current raw material and the MRP levels, what kind of EBITDA per ton are we targeting? I understand 4500 to 5000 is a longer-term target, but for FY25 ?

I personally believe that there will have to be corrections during this financial year for us to reach those levels.

As far as DAP is concerned, essentially manufactured products. We did not import any DAP quantity in the first quarter. So, if you look at the sales volume, it is 1,02,918 metric tons, which is DAP manufactured.

And the 72,000 tons that we have sold. That's largely MOP?

We have sold 27,000 tons of TSP and 40,000 tons of MOP.

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

So, what is the thought process on this trading of TSP? Is the trading margin attractive or do you see long term potential in terms of volume growth? And the second thought is in terms of your P&L, what is the kind of volume growth one can expect, say FY26 from what you are likely to achieve in 25 and will that help you achieve similar growth in your EB ITDA and profitability for next year?

Well, first coming to TSP, it's a new product that we are launching today. And it's a P -heavy product, you know. It's 46% P2O5 is what we have in that. And I think our initial estimate was during the first year we should do about 125,000 tons of TSP. And based on the farmer response, we would be increasing this. It's a good category. And we believe that between this should be about close to about 10% to 15% of the P could get replaced with the TSP as a category going forward. So, which is what we are looking at today. But as far as the volume growth that we are looking at, we have a capacity based on the kind of grades that we make of NPKs of about 2.6 million tons. And the Urea has been 400,000 tons. Urea, there will not be any further increase in quantities. As far as 2.6 is concerned, based on the best available margins and the requirement of the farmer, I mean, keeping both together , we like to optimize to come to those 2.6. I think we are currently at about 2.1 to 2.2 billion tons, as the volume that we are seeing. Our idea would be to get an effective product mix to take it more towards the 2.5 to 2.6 levels, which is what we are working on. And I think given that we have our own P2O5 today and our sulphuric acid capacity will also get com missioned by the beginning of FY 26, we should like to peak these whole quantities next year and to be closer to 2.5 in the next financial year.

Sir, if you look at your capitaliz ation of assets and movement in finance cost and depreciation, will it stabilize at what you report for FY25 and FY26 or will there be any increase i n depreciation in finance cost?

No, I think the FY25 is what you are seeing in higher depr eciation that we are getting to see is the capitalization that we have done of phosphoric acid, our concentrators, and other things that we've done. So, in fact, there have been few major capitalization, phosphoric acid, our evaporator, we had upgraded our ship handling facility for larger raw material that we take, and also certain major equipment in the urea plant that we had. So, this is done now, the only other plant which needs to be capitalized is our new sulphuric acid capacity. As you know that we are putting about 1,500 tons per day new sulphuric acid capacity, which will take our production level from 1.3 million tons closer to about 1.9 million tons. This should happen in the early part of FY26. And that's the last of the major CAPEX that we are doing today.

So, just to put the numbers in perspective, what is the amount you have capitalized as of date in phos acid and other expenditure? And what is the amount pending once the sulphuric acid plant is commissioned?

During Q1, we have capitalized Rs. 580 crores.

And what is the cost of the sulphuric acid plant?

Sulphuric acid plant is roughly about Rs. 2 40 crores and which w ill come up for capitalization next year.

Thank you. The next question is from the line of Anik from Finnomic. Please go ahead.

Sir, my question is related to your merger with Mangalore Chemical. Sir, what kind of investment you are planning for this merger? This is my first question. And related to that, I also would like to know there are around Rs. 1,000 crores of debt in the books of Mangalore Chemical, Rs. 300 crores of long-term debt and Rs. 720 crores of short-term debt in their book. So, how will it impact your balance sheet? And like what kind of investment you are doing, like will it be internal accrual or what else?

Well, as far as the Mangalore Chemicals acquisition is concerned, this is a plain vanilla merger. So, there is no cash outflow from Paradeep Phosphate. But there will obviously be fresh shares issued at Paradeep Phosphate, which will go to the shareholders of Mangalore Chemicals. So, that's how it wil l happen. So, there is not going to be any fresh debt that is being taken in our books for MCFL. The MCFL balance sheet will get absorbed by us.

Any investment amount required for this merger or?

No, nothing is required.

Sir, if you can throw some light s on the kind of synergy which is likely to play out with this merger?

Yes, I think we are looking at synergies both from the market side as well as from the supply chain side and there is also a po tential expansion of MCFL that could underway, but we are in the regulatory process of going through NCL T and also we'll come back with the fina l prints you know only after NCLT is approved.

Right now, we are just completing our Sulphuric Acid plant and anything else will be announced separately. We don't have any pending CAPEX to be announced yet.

Thank you. Our next question is from the line of Resham Jain from DSP Asset Managers. Please go ahead.

Sir, what is your EBITDA per ton for Urea and for Complex put together in this quarter?

We have a blended EBITDA per ton which is Rs. 3000 per metric ton. That's how we have been reporting.

But the complex should be obviously significantly lower this quarter?

Yes.

Understood. And given the current prices, sir, how do you think if nothing comes up from government side, Q2 would also be similar, or you think we have some scope to improve this number because both prices as well as raw material prices both are known to us right now?

Resham, if there is no further support being made available by government to the farmer in the coming months, I'm sure there will be a price revision that will happen.

Okay, but till now, till July, no price revisions have happened.

Till end of July, we have not done any price revisions. And now that we've been through the main season, as far as the kharif is concerned, we wanted to keep a consistency on this, and our requests are pending with the government. But going forward for the Rabi season, if there's no further support is available to the farmer, then we will have to correct the prices.

Thank you. As there are no further questions from the past participants, I now hand the conference over to the management for closing comments.

Thank you for all your participation. And I can assure you that as management, we are quite focused in terms of ensuring that we have a peak utilization of capacity. And also at the sam e time, we will be clearly focused on the long term to ensure that our pricing to the farmer is in such a manner that it's been meant for both the manufacturer and the consumer. And this will be ensured in the coming months. Thank you.

Thank you. On behalf of Antique Stock Broking that concludes this conference. Thank you for joining us and you may now disconnect your lines.