Paradeep Phosphates Limited (PARADEEP) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to 3Q and 9 Months FY '26 Earnings Con Call of Paradeep Phosphates Limited, hosted by Antique Stockbroking Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar from Antique Stockbroking Limited. Thank you, and over to you, sir.

Yes. Thank you. Good morning, everyone. I am pleased to host today's earnings call of Paradeep Phosphates. We have leadership team represented by Mr. Rajeev Nambiar, COO; Mr. Harshdeep Singh, Chief Commercial Officer; Mr. Bijoy Biswal, CFO; and Mr. Alok Saxena, Head, Corporate Finance and IR on the call. Without further ado, I would like to hand over the call to Mr. Nambiar for opening comments, post which we'll open the floor for Q&A. Thank you, and over to you, Rajeev sir.

Thank you, Manish, and good morning, everyone, and a warm welcome to Paradeep Phosphates earnings call for the quarter ended December and the 9 months of 2023. I appreciate your time and interest in our company. I trust you have seen our earnings presentation and press release, which have been circulated and are available in our website and stock exchanges. Let me give you an overview of Q3 and the 9 months completed FY '25-'26. We have been quite consistent and robust for PPL, reflecting the strength of our operations and our resilience to navigate the global volatility. Happy to report that the production rose 13% year-over-year in Q3 to 1 million tonnes. And this is a successively the second quarter we are doing 1 million tonnes production. Growth was led by the value-added NPK grade and NPK category, which has grown by 30% on YTD. For the last 9 months, production and sales reached 2.86 million and 3.37 million tonnes, up by 15% and 17%, respectively. For the year-to-date, revenue grew by 34%, EBITDA by 45% and PAT by 71% year-on-year, a true reflection of both volume growth and the quality of earnings. Let me also update you on some of the strategic progress. We have completed our fifth evaporator at Paradeep facility and which is in operation now. This is after the completion of the 1,500 tonnes of sulfuric acid plant, which is stable and reached the rated production capacity. And this evaporator is also going to help us in terms of strong phosphoric acid, which was actually a little bottleneck for us. Now we have come back to the original state. And urea capacity, MCF has also been expanded by around 30,000 tonnes per year on an annualized basis in Q3 after the shutdown. Sulfuric acid plant at Mangalore, which is on 300 tonnes capacity will be commissioned in the end of the quarter 4 of '25-'26. And energy improvement project at Goa is also likely to be completed by the last quarter of this year. The [ phos ] acid expansion from 0.5 million to 0.7 million is underway and the increase in phos acid will enable the company to meet substantial requirement of phos acid at both Goa as well as Mangalore through the excess phos acid at Paradeep. Thus, directionally, we endeavor to make all our sites 100% backward integrated phosphoric acid units. This will significantly improve the quality of earnings per tonne at company level. Also, we are looking debottleneck opportunity at Paradeep to increase the granulation capacity from 1.8 million to 2 million tonnes. The benefits of these projects, as enumerated earlier, will likely to give us incremental EBITDA for 2027. Our long-term and short-term credit rating has been upgraded to A- and A1+, respectively, reflecting our strong fundamentals and improved credit rating, which will help us to optimize our cost of capital for the CapEx. We continue with our endeavor of offering farmers with innovative products and helping to achieve balanced fertilization and optimizing the last mile delivery through digital interventions. Through our expanded distribution and digital outreach, we now engage with over 12 million farmers across 18 states, supported by more than 1 lakh retailers and 6,800 dealers and a strong on-ground advisory network. Looking ahead, we remain optimistic about the fertilizer demand, continued government thrust on soil health and the rising shift towards balanced and specialized nutrient applications. However, we believe that the global uncertainty will remain and the volatility in key raw material prices and the currency volatility will put pricing pressure in the short term. We continue to invest in our expansion plan as per the schedule and we believe the expansion will enable us to increase our economies of scale and deepen our market presence. We continue to invest in achieving manufacturing excellence and AI-led manufacturing intervention for agility and sustainability being one of the core ethos of our operations. In summary, PPL remains focused to deliver consistent and operational resilience and continued endeavor for strategic growth and expansion. Thanking all of you, I now open the floor for questions.

[Operator Instructions] The first question is from the line of Sucrit D. Patil from Eyesight Fintrade Private Limited.

I have 2 questions. My first question is -- just give me a moment, please. Yes. My first question is -- thank you for the detailed commentary. I just wanted to take a step beyond what was covered in the opening remarks. Given the dependency on imported raw materials and the variability in demand across crop cycles, how does management think about balancing volume growth, product mix and margin stability as conditions evolve? Looking ahead, what changes in farmer demand, input availability or pricing dynamics would most influence a shift in this priority? That's my first question. I'll ask my second question after this.

It's an important question, actually. Even though the current condition is actually we are under a little pricing pressure, but a lot of optimization is going back in terms of the product profitability and the portfolio, along with the manufacturing excellence, actually, we are driving that. If you look at actually our basic volumes have been shifting from low profitability product to the higher profitable product, which has been very consistently followed for this year. We can see the flagship product, N20 has been actually moved quite faster and little pressure in terms of DAP profitability. So this is an ongoing thing actually to make sure that availability to the farmer is ensured. At the same time, our guided number, like we strongly believe actually the EBITDA guidance of minimum INR 4,500 crores to INR 5,000 crores is actually an achievable target for us, even though off late we are little pressure in terms of the international volatility, but we are gauged up in terms of optimizing our product mix as well as the pricing of the raw materials.

My second question to Mr. Bijoy is, I have a forward-looking, from a monitoring point of view. As raw material prices subsidiary flows and working capital cycles move through the year, what are the key internal indicators you track mostly closely to anticipate pressure or improvement in margins and cash flow before we show up on the balance sheet? I want to understand your point of view on this.

Good. In fact, this 31st December closing, we had a little bit due to high raw material prices, which has moved northward in terms of sulfur and ammonia. So the working capital, the borrowing has increased a little bit due to higher investment in inventory and debtors. But what we understand that this is going to -- this is a position what we have taken consciously where this will get liquidated and we will have this getting back into that type of converted to cash. So I don't see -- I don't foresee that it will be going largely to impact our profitability. And this is well within the control and we'll be able to sell through whatever stock we are having and the debtors we are having. I don't foresee any sort of challenge in meeting this requirement. And the company limits and all things is well managed and we have got enough limit to also see that we don't have any liquidity issue.

The next question is from the line of Prashant Biyani from Elara Securities.

Mr. Nambiar, what is your view on the next NBS subsidy revision? What should the trajectory be?

Prashant, if you see the NBS formulation as well as the current pricing, which has happened for the past 6 months, we expect actually NBS support to be crucial, and it is going to happen for coming. It will be difficult to tell a number, but I think it will be very positive. That's what our industry feel.

And Prashant, just to add, the government has put in a very robust process on the way they define NBS for the next season. And everything is being discussed with the industry as a stakeholder team. And finally, we have seen that the last 4 or 8 quarters, the subsidy has been quite positive and supportive to the government. So we are sure that government will continue in the same spirit and that will not be a challenge for the next fiscal year.

Yes. Prashant, to add to that, the budget allocation of subsidy is quite good in this last budget. So what was that -- what you see that there is an increase of around 5% to 7% in the budget allocation for the subsidy. And we would take care of this entire -- the subsidy requirement for this '26, '27. And generally, government support in case there is a need. So we are quite positive about that.

Sure. And sir, of the total CapEx of INR 3,600 crores that we are doing, if I have to bifurcate product-wise, how much would be the CapEx for 1 million tonnes granulation and for 0.25 phos acid and 0.75 million tonnes sulfuric acid at Paradeep...

Granulation will cost you around INR 800 crores. And the standalone phosphate of 300,000 will cost you another INR 800 crores to INR 900 crores.

Including sulfuric acid?

Phosphoric and sulfuric acid, what we are planning at Paradeep that 0.3 million of phos acid and 1 million of sulfuric acid will cost around INR 1,500 crores.

Okay. Out of INR 1,500 crores, INR 800 crores could be for phos and remaining for sulfuric acid?

Yes. Yes.

Right. And sir, at MCFL site, what is the quantum of sulfuric acid capacity expansion?

It is 300 tonnes per day, which is almost nearing completion now.

Currently, we have about 100 metric tons per day, which is going to 400 metric tons per day.

Right. And sir, regarding the energy efficiency project for the Goa site, sir, we, I think last year only initiated or completed energy-efficient program. In this round of energy efficiency, how much is the quantum of benefit in terms of Gcal per metric ton we are anticipating? And how much is the investment that we are planning?

Goa actually, we are going to complete this energy efficiency program by end of this quarter and which will reduce it by 0.3 Gcal actually. And that will release substantial amount. And we are expecting a supportive energy norms, new energy norms coming up, which is expected to get announced anytime during this quarter.

And this will take down the energy consumption to what level?

Currently, we are at 6.4. It will come down to 6.1.

And what is the investment?

It's around INR 220 crores.

Payback period?

Could be around...

Three to 4 years.

3 years to 4 years.

And lastly...

Sorry to interrupt, Mr. Biyani, please rejoin the queue for more questions. [Operator Instructions] The next question is from the line of [ Preet Nagarsheth ] from [ Welspun Research ]. [Operator Instructions] As there is no response from the current participant, we'll move on to our next participant. The next question is from the line of [ Shubro Tripathi ] from [ Krish Capital ].

Firstly, resilient performance considering the sulfur prices, which have moved up so sharply. What could be the Y-o-Y change of sulfur for PPL compared to last year?

Can you repeat the question?

What was the year-over-year change of sulfur price for PPL compared to last year?

Typically, sulfur used to hover around INR 150 to INR 200. Now it has reached INR 540 to INR 550 now.

Yes, yes. And all our sourcing is imported? Or is there some sourcing from IOC Paradeep as well?

We do have actually sourcing of molten sulfur from IOC for Paradeep as well as sourcing from MRPL for Mangalore Chemicals, Mangalore site.

And my second question is regarding the -- there was a recent news announcement regarding some agreement with SECI, Solar Energy for offtake of green ammonia at Paradeep site and Goa site. So there is no announcement or any detail shared in the presentation. Could you share some more light on how you plan to go about this?

This is a -- it's a preliminary stage and as and when it will unfold, we'll share the details.

Basically, this is an offtake agreement we have to get that with SECI. And we expect actually whenever SECI is ready, we will sign it. But as far as the manufacturing and supply is concerned, it is for a third party.

Any tentative time line for this, which financial year...

Agreement could be happening anytime soon. But in fact, the production and supply could be taking time.

So maybe in next 2 to 3 years only?

Yes, yes.

The next question is from the line of Saumil Shah from Paras Investments.

I would like to know what is our net debt as on 31st December?

So net debt is around INR 5,450 crores as of 31st December.

Okay. And what would be our subsidy receivable as on 31st December?

No, this net debt is both working capital as a long-term debt and subsidy receivable is around INR 3,780 crores.

Okay. Okay. So normally, in how much period we receive the subsidy? So I mean, can you quantify approx how much is due in the current quarter and how much is it in the next year?

No, this is out of that, generally, the subsidy based on the phos sales, the sales made to the farmer. So what we -- out of this INR 3,780 crores, whatever we are talking, this all based on this farmer sale, it will be receivable. Out of that, around INR 1,000 crores is what already sales has happened, which is going to come and balance quantity on whenever this farmer sale happen, that will be received.

Okay. So only INR 1,000 crores is already -- I mean, INR 1,000 crores subsidy is already about, I mean, sold. So that INR 1,000 crores is receivable. Other balance is not yet sold?

Yes. So typically, we'll have 2 to 3 weeks of subsidy outstanding at any given point of time.

Okay. Okay. Okay. Understood. And can we know what was the EBITDA burden for this quarter? And what is the reason for...

INR 4,700 per metric ton this quarter.

Sorry, I couldn't get that number.

INR 4,700 per metric ton.

Okay. Okay. And I think we were targeting about INR 5,000 per metric ton for this year?

If you look at it on a YTD basis, we are already INR 5,400 sort of. So yes, the INR 5,000 is quite achievable on a yearly basis.

And -- okay. And how much of our prices is depending on natural gas prices?

Sorry?

How much of our raw material price is depending on natural gas price because I think there is a huge...

No, it is not much because natural gas price determine the urea price, which is a pass-through.

Okay. So we are not much affected with the natural gas prices, right?

Yes. Yes.

Okay. And if I...

Sorry to interrupt, Mr. Shah. Please rejoin the queue for more questions. The next question is from the line of Varun Arora from Emkay Global.

Just to check one clarification I need on the EBITDA. So your guidance on EBITDA is what? Basically I missed that number. So can you just say it again?

So can you just repeat it a little louder?

But you said the number on EBITDA, I didn't get that number. Can you just repeat it? Just a clarification I need on those.

EBITDA number for this quarter is INR 4,700 and our guided number for the whole year basis is around INR 5,000 per metric ton.

YTD number is...

Yes, YTD number is INR 5,300 till December. And as a year, we said that it will be INR 5,000.

Okay. And what's your further guidance for FY '27, if you can say, sir?

I think FY '27, you see our endeavor is that we should have around INR 4,500 to INR 5,000. And it all depends on this [ NVS ] policy and this raw material prices and how much we are able to pass on to the consumers, this price. So we are in the process, it is not -- maybe, but our endeavor is that we should get around INR 5,000.

Okay, sir. And sir, on the debt side, so that's approximately INR 5,400 crores debt right now you're holding. So any -- going forward, any plan to reduce it or just -- or this is going to stagnant for some time? What's your plan for doing this?

It's an important thing for us to make sure that the debt is not crossed over. We are taking a lot of operational measures to see that the tighter control on the inventory management. At the same time, availability is also ensured. So this should actually in the coming quarters and subsequent quarters, it should actually soften down.

The next question is from the line of Sandeep Mukherjee from SKP Securities Limited.

Sir, my question is like what was the gas cost and EBITDA per tonne for urea?

We are not able to hear you. Can you speak a little bit loudly?

Is it okay now, sir? Am I audible?

Better, but be louder kindly.

Yes. So what was the gas cost and EBITDA per tonne for the urea?

The gas cost is around $12 but the EBITDA is around INR 3,000.

And what is the short-term debt on the books, sir, for the 9 months?

Short-term, if you talk of working capital, we have got around INR 4,200 crores. Long term is INR 1,235 crores.

Okay. Okay, sir. And sir, my last question is like what was the CapEx spend for the 9 months?

We have spent almost INR 450 crores in this 9 months period.

Okay. Sir, one more question, like, we -- currently, we are operating more or less at the same MRP levels which were in Q2?

So just to share with you, the MRPs have been improved for the NPK this year. Only product with the MRPs remain the same is urea and DAP, which -- where there is a kind of guidance. Otherwise, for NPK, we have been taking price changes from time to time.

[Operator Instructions] Ladies and gentlemen, thank you for being on hold. We have management connected now on the call. Over to you, sir.

Is there any more questions?

Yes. So we have next question from the line of Preet Nagarsheth from Welspun Research.

Sure. So I wanted to understand, sir, the product mix that you employ. The reason I ask is that the government is trying to improve the access of SSP and other products more and more. So what happens to the DAP that you make? And how do you see the product mix evolving for the next financial year?

See, how the product mix is evolving is directionally, our focus is on balanced nutrition. And we've been gradually going into a company which is more dominantly to a NPK portfolio. So if you look at the portfolio of products, some of the products that we are doing, the flagship product that we have is 20:20:0:13, which is what we call the Captain and that's what we run the current positioning. Then we have got 10:26:26, 12:32:16 and 19:19:19. So that's a complete range of NPK. And in the portfolio of volume, if you look at it, almost more than 45% to 50% is NPK mix. So that's the direction. And the other key direction that we're taking is promoting basically high nutrient use efficient products like Nano. So that's the other portfolio change that we're doing.

Okay. So -- but how do you see this panning out for DAP versus SSP? What is your view on that on the ground?

So my view is, see, overall, I mean, the government also is trying to encourage balanced nutrition and there is a shift happening towards the NPK. So this year, if you look at the farmer consumption sales, there has been a kind of a reduction in the DAP sales. But the farmer still keeps demanding DAP. So there is a need for a greater awareness. So as a category leader, that's what we're trying to do that communicate to the farmers the benefits of the balanced use of nutrition and the shift happening towards the NPK category. If you look at the market also today, the NPK segment is today bigger than the DAP segment. But yes, there is a segment almost 40%, 45% of the market, which is still on DAP. And the other pioneering leadership step that we have done as PPL is that we are also encouraging the use of alternate to DAP, which is CSP, which has got 46% phosphorus, but you don't at least overuse nitrogen there. So that's the shift that we are trying to also lead in the market.

Sir, for this when the availability of rock phosphate becomes important. So how are you ensuring security for that?

So how we are ensuring security is if you look at the value chain partnership that we have, we have partnership with OCP in terms of securing our rock value chain, which is the most important source as far as P2O5 is concerned. And for fresh products also for TSP and DAP, we have a strategic partnership with OCP Nutricrops. So that's how we're trying to ensure. And as far as our own manufacturing is concerned, which is very robust and we are one of the few companies which has a very, very robust portfolio of NPK products in the country. So that's what we are trying to do to ensure there is availability. And as you've seen our footprint, we operate in 18 states today in the country and with a wide reach, almost covering 1 lakh retailers.

Understood. So if you add all this up, what kind of volume or top line guidance do you think can come into play for FY '27?

Yes. So volume, see, if you look at it last year, we achieved 3 million tonnes. And this year, the guidance is 4 million tonnes plus. So that's what we are basically gearing up for it. We have already done 3.38 million tonnes.

Okay. You mean for FY '26, right? I was suggesting FY '27, if you have any sense on that.

Yes. So we normally don't give a guidance for the next year, but we would be planning a robust growth for the next year. However, the overall objective would be to optimize basically our -- and strengthen our NPK portfolio mix. So that's what we are gearing up. And we will have a robust growth in the next year also.

The next question is from the line of Dhruv Muchhal from HDFC AMC.

Sir, can you give the sulfuric acid and phos acid production for the quarter? You typically give that in the presentation. I think this time it was missing.

Sulfuric acid, we have produced 4.5 lakh metric tons for this quarter and phos acid around 1.45 lakh metric ton.

Got it. Sir, the other question was on the inventory. Now typically, what we see is -- this is I'm looking at the change in inventory that you report in the P&L. Typically, we see a buildup in 1Q as the seasonal norms and then a drawdown in the next 2 quarters. This time, the drawdown seems to have not happened as much. So any -- what is -- I mean, just trying to understand what's leading to this?

No. See, out of this increase in the inventory, mainly the increase in raw material. So that is -- that's a conscious decision that we have a price volatility as well as the rupee depreciation. Keeping all this in mind, this -- there is an increase in the raw material stock, which is definitely going to be utilized in this quarter, upcoming quarter. And finished goods and traded goods, yes, that is well within control. Generally, this December, a little bit inventory buildup happens, which get liquidated in starting from April onwards.

Got it. Sir, if it is possible, if you can suggest how much is the -- in quantity terms, how much is the fertilizer inventory at the company level, finished goods inventory at the company level this year and -- I mean, December end of last year...

We'll share with you that data separately.

Sure. Okay. And sir, the other question was on the expansion, the P acid and the sulfuric acid expansion that we are ongoing. Sir, what -- I mean, I think you announced last quarter. So now what stage are we? Have we done the equipment ordering? I think EC and FC -- EC clearances already we have. Any progress that you can highlight in terms of equipment ordering, other stuff that you might have prepared?

Dhruv, both the unit -- the acid plant, the EC is available for Paradeep. And for Mangalore actually, we applied for the EC. And for the granulation unit actually, the EC application is already on and we are expected to go for the public hearing coming 1 or 2 months. And by August, September, we will get the EC clearance for the granulation expansion Paradeep also. As far as the status is concerned, actually, all the key equipment manufacturers already roped in and the technical discussions are in the final stage. And once the parameters is frozen actually by end of March, April, we should be able to get the commercials finalized and get ordered.