Gujarat Narmada Valley Fertilizers & Chemicals Limited (GNFC) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Gujarat Narmada Valley Fertilizers & Chemicals Limited Quarter 1 Financial Year 2025/'26 earnings conference call. This call is hosted by Anurag Services LLP on behalf of GNFC. From the management, we have Mr. D.V. Parikh, Executive Director and Chief Financial Officer; Mr. Nitin Patel, Executive Director; Mr. M. I. Shamsi, Executive Director; Mr. Rajesh Pillai, Company Secretary and other senior members from the management. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. D.V. Parikh. Thank you, and over to you, sir.

Thank you. Good afternoon, and thank you again to Anurag Services, and good afternoon to all the participants on this Q1 FY 2025/26 earnings conference call. As you know, the company has published the results yesterday and also uploaded the investor presentation. So most of you must have gone through the details of presentation as well as results. For the Q1 -- apart from investor presentation, there is a press release also, which is given. So for the Q1, basically, the numbers are not comparable for the two periods, which is a sequential quarter as well as Y-o-Y quarter. Although in all the 3 quarters, there have been some outages and shut down. So the longest shutdown was in the period of Q1 FY 2025/26.If you compare it with the previous quarter, which is 4Q quarter, it was Q4 FY 2024/25. There was some outage, not the shutdown as such, but some outage due to the electric blackout. And on a Y-o-Y basis, Q1 2024/25, there was not at Bharuch complex, but at Dahej complex. So TPI-2 production was down last year. So therefore, although these numbers are not comparable, there is a quantification done in this regard as to what are the impacts on the revenue and the EBIT side. The revenue side, if we consider for the last quarter Q1 is impacted by a figure of around INR 375 crores on the top line basis and around INR 148 crore on a bottom line basis. Similar numbers for the sequential quarter with Q4 2024/25, it is around INR 40 crore and INR 20 crore respectively. And same is the case as compared to the Q1 last year. Going from P&L to the segment results, the results have not much changed in the Chemicals segment, although the turnover has changed, mainly because of the TDI reason last year. And this year, there have been impact of various chemical in terms of the volume, but still the profitability on a Y-o-Y basis is maintained because last year, it was more subdued than this year. As far as the balance sheet part is concerned, the -- Okay. I will first touch the fertilizer segment also. The losses in fertilizer segment have increased to around INR 100 crore. This is again mainly because of the under recovery of energy because as of now, the energy norms are still not revised. The effect of that is around INR 13 crore. Aside from that, there are 2 other factors. The volume of urea has been lower by a factor of around 40,000 tonnes and the higher repairs and maintenance cost, which is contributing cumulatively to the impact on the fertilizer segment. Going from P&L to other comprehensive income, the main reason of other comprehensive income improvement is because of the fair value improvement in the investment which we are carrying both in the quoted and unquoted shares. As far as balance sheet is concerned, the position -- there is no significant change, except some capitalization, which is part of work in process in respect of the ongoing projects and the value attributable is around INR 225 crore during the quarter. So this is what is the broad overview in terms of P&L and balance sheet. Coming to the business side, there are 2 important aspects to be covered. On the fertilizer side, both energy as well as fixed cost revision are in the offing. They are expected -- we expect it to be out by Q3 of this financial year. As far as Chemical is concerned, in terms of the plant operations, we have 2 plants, which is methanol and aniline. Methanol is stranded because of the cost economics. And aniline, we are operating based on the need for prioritization based on the production planning we do on a regular basis. Aside from this, there is an update on the antidumping duty in respect of aniline, which was valid up to 2027 is -- mid of 2027, which is now extended up to mid of 2030. So these are the broad updates on both fertilizer and chemical. As far as projects are concerned, our colleagues will tell more specifically about the projects, but by and large, they are on schedule barring some changes in case of -- especially in case of the coal-fired power and steam generation plant. The rest are all on schedule. So with this, I now leave the floor open for the question and answer. Thank you very much.

[Operator Instructions] The first question is from the line of Nirav Jimudia from Anvil Wealth.

I have a few questions. Sir, last time you guided that despite of a shutdown in the month of April, possibly we could be near to the peak production in TDI close to around 67,000 tonnes. So just wanted to understand like how much we have achieved in Q1 put together both the plants. And just to add here, like we have seen the strengthening of TDI prices globally, but similar price adjustment have yet not happened in India. So though there is some price increases. So I just wanted to understand here like do we sell our TDI entirely on spot basis? Or there is some element of contractual volumes also?

The total today production taken for both the plants together is around 16,000 metric tons for quarter 1. And the second question on these prices. See, we have increased the prices recently. But globally, if you see the report of ICIS, it is not matching exactly with those prices. As far as the arrangement of contract is concerned, it's a mix of both spot and contract we do. And in fact, our discount scheme is like that, that if people pick up certain volume for a quarter, for a year, then there are certain incentives. So accordingly, people enter into a contract, mainly on a spot basis, but they also do indicate on a quarterly basis. This is what is the understanding on the TDI offtake.

Correct. And sir, do we still stick to the plans of closer to 67,000 tonnes of volumes for TDI in FY '26?

Going forward, we expect a smooth running of both TDI plants unless some unforeseen breakdown occurs and if you see Q1, we have closed around 16,000. So the answer is yes.

Right. Sir, given the kind of tolling prices, I think you also mentioned in the presentation that there is some moderation in the input cost also and that have slightly further gone down in terms of tolling prices. Given the kind of tolling prices and C&F prices currently, what should be the breakeven price for our TDI sales in rupees per kg, if you can throw some understanding here?

Breakeven price in terms of what?

Like at the EBITDA level, what is the breakeven price at which our EBITDA is neutral, sir?

I think that's not the way to look at like that because all are moving parts from time to time, whether you take TDI price, you take tolling price or you take C&A price.

I'm talking about the current situation, like given the kind of current prices what we have for both input.

See, there is a positive contribution in both TDI-1 and TDI-2. At TDI-2, the fixed cost is not fully recovered. That is the situation. And that has been the situation since quite some time because TDI prices have not gone up substantially over the last few years. Yes, from 2016 and what has happened after 2020 to the prices of -- output prices have come down, but the corresponding impact we have not witnessed in case of other petrochemical products. So that is the situation. And therefore, we -- at TDI-2, there is no full recovery of the fixed overheads.

Got it. Sir, second question is on the fertilizer. You rightly explained that there were 2 effects loss of and the energy recovery was slightly on the -- or the energy consumption was slightly on the higher side, which impacted close to around INR 13 crores. So just wanted to understand like if you see last year, our fertilizer losses were close to INR 180 crores. This quarter was INR 100 crores due to the loss in both the sectors, what you mentioned. So how do we see the Fertilizer segment performing for rest of this financial year, A; and B, as against the energy consumption, what is being granted by the government, like close to around 6.2%, if I'm not wrong. Where are we in terms of the energy consumption? And once this is revised for the, which you mentioned by Q3 of FY '26, whether we will be able to come closer to that norms? Or what would be the situation? If you can just explain your thoughts here.

You are right, the prescribed energy norm as prevalent as of date is 6.20%. It is under revision. And given our energy mix, which includes coal, we expect this energy norm to be reasonably higher, which is expected to come. Now as far as the losses of energy are concerned, we hope that we should be in a comfortable position once these are announced. We have been in dialogue earlier, and there have been certain indications, but it is yet to get formalized in terms of announcement of energy norms. So on energy front, we expect that there should not be any recovery on the contrary, we should be gaining something. The energy levels have become higher mainly because of the shutdown, unproductive energies and lower base of production, et cetera, are the main contributors. As far as fixed cost is concerned, there is no guess as of now as to what will be the level at which it will be revised. So it is difficult to say. But both are expected to coincide in this financial year. So these losses must reduce, which you said as compared to INR 180 crore full loan last year, INR 100 crores is in Q1 itself. Secondly, what happens in fertilizer also, there is some product optimization we do when it comes to the complex fertilizer we are manufacturing. So it all depends upon what kind of opportunity is there on the other side, which is the AN Melt side. So the dynamic is like that. Apparently, there are losses. But then because of the product optimization, at times we try to see that these losses are minimized at an overall company level.

Got it. So is it possible to quantify like what would be the unproductive fixed costs, repairs and maintenance sitting in the INR 100 crores PBIT what we have reported. Just wanted to understand like what could be the steady state run rate in terms of the numbers going forward. So what could be the number out of the INR 100 crores, which could be considered as a one-off?

Okay. One-offs -- see, this INR 100 crore is like we said, because of 3 prominent reasons. One is the volume of around 40,000 metric tons of urea, which is lower as compared to 48,000, as compared to the corresponding period. The second is INR 13 crore of energy loss, and there is some element of total repairs and maintenance costs this time is around INR 45 crore incrementally we have incurred. Now in terms of product level breakup and urea, specifically as of now, it is not with that -- how much is the repairs and maintenance attributable to urea plant, but that can be given on a separate communication through company secretary.

Got it. Got it, sir. Sir, third question is because we had a shutdown this quarter, was our ammonia production through boil was affected because we normally after consuming internally for WNA and AN melt, we sell close to around 20,000 tonnes of ammonia in the outside market on a quarterly basis. So what was the situation this quarter if you can share your thoughts?

The complex was totally under shut down, including oil-based ammonia production. What we ensure that ammonia is not a constraint for the production of downstream consumers except urea, whether it is with nitric acid or AN melt. So accordingly, the stock built up or to arrange bought out ammonia to sustain these production levels because each plant has a different time zone of the shutdown periodically. Few plants are X days, few are for X plus Delta X and few are for X minus Delta X. So depending upon that, we see that the plants which are ready for shutdown does not suffer for the want of major raw material ammonia.

Okay. So safe to assume that this quarter, possibly we would have purchased some ammonia from the outside market, which has also led to some increased cost and which should not happen in the subsequent quarters?

See, ammonia requirement, there is always a slight shortfall in our total captive ammonia reformer. This is a comparison to what we can produce. So that cost is a dynamic thing. Sometimes it is equal. Sometimes it is marginally lower, sometimes it is marginally up.

To further add see, there are 2 things. One is -- to answer your question, how much is the lower production of ammonia. It is around 42,000 metric tons is the lower production as far as oil-based ammonia is concerned. On an overall basis, it is around 36,000 metric tons. As far as cost is concerned in Q1, both this time, which is this financial and last financial, we did not purchase anything. In Q2, we have started purchasing, but the costs are lower than our cost of production. So that's a benefit.

Got it. About it. Got it. Sir, next question is on -- any thoughts we can share on the benefits, which should accrue to GNFC because we have appointed the consultants, and I think they have submitted the report. So if you can help us understand like where are we currently in terms of implementation part for the suggestions being given by them, some short-term or medium-term benefits which could accrue to us and which will be the areas where these benefits could be coming on.

Okay. You are talking about the strategic management consultant, which is currently which we appointed.

Correct, yes. Correct, correct, sir.

They have worked predominantly on 2 things. There are other areas also, but predominantly, if you see, they have worked on 2 things. One is the pathway for the investment, next investment and second is transformation part, which is basically how do we reduce our cost. And they have identified various areas, both digital and otherwise. And we are at an advanced stage of discussion with them to formalize the implementation plan of that. Sometime in quarter 2, this exercise would be rolling in and then depending upon the schedule, this will start -- the benefits will start coming into the system. It is both. One is financial benefits, second is certain strategic aspects and third is which products to choose for the investment and the ticket size thereof. So these are the 3 things which have been covered and now they have been -- they are being appointed for the handholding and implementation.

Sir, any specific area which would be taken up first just to get a flavor of the kind of rolling out of these benefits or to get some idea over here? Like what could be the agenda of like could it be related to power or to some of the raw materials which we procure, where the benefits could be visible on?

See, they have given various areas, power fuel is 1 of them, feedstock is another. Okay. On marketing side, there are certain suggestions, on digital side, they have certain suggestions. So all taken together, they have quantified certain projected savings. And based on that, we are discussing with them.

The next question is from the line of [indiscernible] from ICICI Prudential Mutual Fund.

Sir, TDI, this price increase, which you were talking about, if you can just possibly quantify how much increase we have taken? And is there any further scope in the near term to increase prices further.

I am Tejas Shah from marketing side. On 1st August, we have increased TDI price by INR 12,000. We are looking after the market. And presently, just because of the rain, Indian demand is slightly weak, it is under improvement stage, and we will review price based on the market condition.

And sir, would export prices be better now versus domestic?

Yes. Yes. We have locked certain export orders where the price realization is better than domestic as of now.

Okay. And generally, we don't export, right? But current scenario, we can -- we are open to export business.

Since last about 2 years, the domestic market is enough, in fact. And our focus is also to serve the domestic industry rather than exporting. Because export the business happens mainly through intermediaries, number one. Number two, the cost of logistics is also high. And number three, feedstock advantage, which these people, other people have around is not working out so favorably for us as compared to the concentration on the domestic industry.

Okay. Got it. Got it, sir. And just on this Kearney part, which you were mentioning, one was cost benefit and other on the investment side, et cetera, apart from what you mentioned last quarter and in the PPT, any further updates that you would like to share with us?

Yes. See, this is what we covered. Basically, earlier, the engagement was for examination, okay, as to what can be done, what is doable given our indication to them about the investment size of it, which we have. And the second aspect is the areas of improvements in terms of bringing more efficiency, alternate sourcing and other possibilities. So now we are discussing with them about the handholding and implementation thereof, where they have projected a certain set of financial savings, which will get logged up over a period of time. So our engagement is under discussion about the periodicity and other terms. So very soon, maybe around this month itself, we should be finalizing those terms of reference as well as terms of engagement.