Chambal Fertilizers & Chemicals Limited (CHAMBLFERT) Q3 FY23 Earnings Concall Transcript

Chambal Fertilizers & Chemicals Limited (NSE:CHAMBLFERT) Q3 FY23 Earnings Concall dated Feb. 08, 2023.

Corporate Participants:

Rishabh Barar — Investor Relations

Gaurav Mathur — Managing Director

Anand Agarwal — Chief Financial Officer

Ashish K Srivastava — Vice President – Sales and Marketing

Analysts:

Tarang Agrawal — Old Bridge Capital — Analyst

Vidit Shah — IIFL Securities — Analyst

Akshat Mehta — Sameeksha Capital — Analyst

Harmish Desai — Philip Capital — Analyst

Prashant Biyani — Elara Capital — Analyst

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Resham Jain — DSP Investment Managers — Analyst

Falguni Datta — Jet Age Securities — Analyst

Shreya Shah — ICICI Prudential Asset Management — Analyst

Aman Madrecha — Augmenta Research — Analyst

Himanshu Binani — Prabhudas Lilladher — Analyst

Ranjeet Singh — IIFL Securities — Analyst

Deepak Chitroda — APG — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Chambal Fertilisers and Chemicals Q3 and Nine Months FY23 Earnings Conference Call of. [Operator Instructions]

I now hand the conference over to Mr. Rishabh Barar from CDR India. Thank you and over to you, sir.

Rishabh Barar — Investor Relations

Thank you. Good day everyone. Thank you for joining us on the Chambal Fertilisers and Chemicals Q3 and Nine Months FY23 earnings call. We have with us today, Mr. Gaurav Mathur, Managing Director; Mr. Rajveer Singh, Vice President- Legal & Company Secretary; Mr. Anand Agarwal, CFO; Mr. Ashish Srivastava, Vice President- Sales & Marketing; and Mr. Anuj Jain, Assistant Vice President- Finance. Before we get started, I would like to point out that some statements made or discussed in the conference call today may be forward-looking in nature and must be viewed in conjunctions with the risks the company faces. Chambal Fertilisers and Chemicals does not undertake to update them. The statement in this regard is available for reference in the presentation. We will begin the call with opening remarks from Mr. Mathur.

I would now like to invite Mr. Mathur to share his views. Over to you, sir.

Gaurav Mathur — Managing Director

Thank you, Rishabh. Good day, and a warm welcome to all of you participating in this call. We have already shared the presentation on financial performance of the company, which I hope you would have gone through. Overall, we are happy with the performance of our urea plants, where we have achieved better efficiency in operations. The Crop Protection Chemicals and Specialty Nutrients business continues to do well. And we have a lot of confidence to continue the journey of growth as we go ahead. We have substantially increased the sales volumes of DAP and NPK fertilizers with encouraging performance in the new geographies. However, the high prices of DAP and NPK fertilizers had impacted the profitability. As we look ahead, there is a declining trend in commodity prices, including prices of DAP, NPK and MOP fertilizers and also natural gas. This augurs well for the company as it will not only give stability to our P&K fertilizer segment, but will also help in substantial reduction of working capital requirement of the company. Moreover, the timely release of subsidy by the government of India is another positive factor, and we hope that this trend will continue as we have seen for the past few years.

We are also happy with the execution of our Seed to Harvest Program, which continues to provide desired momentum to our growth plans, especially in crop Protection Chemicals and Specialty Nutrients and we are — where we are directly engaged with a large number of farmers and we are continuously increasing this program as we progress. I would also like to share that, corporate social responsibility, which has always been a high priority for the company. We have made focused interventions in different areas to make a perceptible positive change in the lives of the community at large, and especially the community around our site in Gadepan. The highlights of our efforts on this front are also provided in the presentation. Our intervention in the area of education has received accolades over the years from the government and non-government organizations. Further health, safety and environment is another non-financial indicator, which remained a focus area for the company. We continue to benchmark ourselves with best industry standards and strive to achieve better performance on a continuous basis.

With that, I would be happy to take your suggestions along with my team. Thank you.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Tarang Agrawal from Old Bridge Capital. Please go ahead.

Tarang Agrawal — Old Bridge Capital — Analyst

Hello, good afternoon sir. Three questions from my side. On the CPC business, if I look at your nine-month FY ’23 performance, it’s noteworthy. Just wanted to check, are we EBITDA positive in this business or not?

Gaurav Mathur — Managing Director

Absolutely. We have a very reasonable good EBITDA in this business. As a company, we are very clear that we will — as we grow, we will have profitable growth. And we would not like to just grow the top line, but we would like to have profitable growth.

Tarang Agrawal — Old Bridge Capital — Analyst

Got it, got it. The second is The INR237 crore write-off that was taken as a prudent measure in Q2. Any update on that?

Anand Agarwal — Chief Financial Officer

No update.

Gaurav Mathur — Managing Director

No, there is no update on that as yet. We continue to work with the industry association, FAI with the government. But as of now, there is no specific update.

Tarang Agrawal — Old Bridge Capital — Analyst

Got it. And the third question is, what’s happening in IMS [Phonetic]? I mean the contribution has been considerably low for nine months. I understand that asset prices have come off significantly. So just an update on IMS?

Gaurav Mathur — Managing Director

I’ll ask Anand to go on through that, our CFO.

Anand Agarwal — Chief Financial Officer

Hi, Tarang. So there were two things, which happened in the current quarter. One was that the prices of the phosphate reduced substantially in Q3. And second was that our sales quantity has been very high in particularly in Q3. And third point was that the rock prices have not fallen commensurate with the finished good prices. So these were the three reasons. And one more point is there that they adjust the rock prices post the quarter, okay? So some adjustment for the previous quarters were also taken into account in this quarter.

Tarang Agrawal — Old Bridge Capital — Analyst

So when you say you adjusted rock prices post the quarter, do you mean that — I mean, if you could explain a little bit more?

Anand Agarwal — Chief Financial Officer

Not really. I think we should see going forward the difference will reduce, say, in the next few quarters.

Tarang Agrawal — Old Bridge Capital — Analyst

No. So for instance, of rock phosphate prices have gone down during the quarter, right. Would we see the impact of that at the end of the current quarter? And similarly, if rock phosphate prices were to go up, we would see the impact of that at the end of the quarter. So in a downward trend, we lose, but in an upward trend we benefited. Is that how it works?

Anand Agarwal — Chief Financial Officer

Yes, that is true. But we have to see how the market dynamic works on the raw material prices and the finished good prices going forward.

Tarang Agrawal — Old Bridge Capital — Analyst

Got it. And last question, what’s the working capital cost of debt right now for Chambal?

Anand Agarwal — Chief Financial Officer

So for the working capital, it will be at somewhere around 7.25% to 7.5%.

Tarang Agrawal — Old Bridge Capital — Analyst

Okay. Thank you. That’s it from me.

Operator

Thank you. [Operator Instructions] The next question is from the line of Akshat Mehta from Sameeksha Capital. Please go ahead.

Vidit Shah — IIFL Securities — Analyst

Hello?

Gaurav Mathur — Managing Director

Go ahead sir. You are audible.

Anand Agarwal — Chief Financial Officer

Yes, we can hear you, Akshat. Please go ahead.

Akshat Mehta — Sameeksha Capital — Analyst

So I just wanted to — a couple of questions. One is about the nano fertilizers or expected to be the main change for the industry. I just wanted to understand what, according to you, what is, what kind of an opportunity and sizable demand that you see for your parole and know how will that scale up over the next few years. If you can give any color on that?

Anand Agarwal — Chief Financial Officer

Yes. Thanks, Akshat. Yes, I — there’s been a lot of news on Nano. So, we are doing trials with nano fertilizers ourselves, as well as we are getting inputs from what’s happening in the market. What I would say is that, being the first sort of year, it’s very early days. And — so I think we will need to see the whole cycle across a few cropping seasons to come to a full conclusion as to the potential of Nano and the impact it would have on the conventional fertilizer. So it is still quite early days actually. So it would not be fair for me to comment on this.

Akshat Mehta — Sameeksha Capital — Analyst

Okay. So I think still testing on the story that one model of this nano fertilizers that we are currently selling nature will be getting some loans?

Anand Agarwal — Chief Financial Officer

Yes. So those are the trials that are ongoing in the market, and I’m sure that the companies who have brought forth this the nano would be in a better place. But like I said, we are doing trials, but we want to make sure that we gather a reasonable data. So we are doing trials over a few cropping seasons to make sure that we understand what is being promised.

Akshat Mehta — Sameeksha Capital — Analyst

Secondly, on your traded fertilizer, how do you determine what kind of — how do you determine the margin on the supplier. Is there a fixed margin basis the purchase cost that we do? Or is it only based on what would be our domestic market prices in the country and whatever you left out from a poster be the margin.

Anand Agarwal — Chief Financial Officer

Your voice is a bit muffled. You’re talking about margin or what?

Akshat Mehta — Sameeksha Capital — Analyst

Sir, I was talking about margins on traded fertilizers. So, I just wanted to understand, how does the — how do you determine the margin? Is there a fixed margin, which is charged on the purchase cost of those fertilizers? Or the margin is purely determined based on the purchase cost and the domestic price of the fertilizers that you sell at?

Anand Agarwal — Chief Financial Officer

No, there is no fixed margin. It is determined by the purchase price, the market realization, the subsidy and other costs incurred in the process, whether it’d be handling costs, interest costs and so on. So it’s not a fixed margin. It is a variable.

Akshat Mehta — Sameeksha Capital — Analyst

Is there a kind of a normalized situation number or a sustainable number that you can generally achieve 5%, 10% margin, I don’t know? Is there some kind of a number that you can share?

Anand Agarwal — Chief Financial Officer

No, we don’t share specific margin data as such, but the government has a cap. That’s all I can tell you, they have a cap of a 12% return on cost of goods sold, which they have a cap. It is unusual for companies to normally reach that cap. And of course, then will depend year-on-year. Right now, we are seeing two sort of second year of turbulence. Hopefully, in the next few years, things will stabilize.

Akshat Mehta — Sameeksha Capital — Analyst

Okay. Thank you, sir.

Anand Agarwal — Chief Financial Officer

Thank you.

Operator

[Operator instructions] The next question is from the line of Vidit Shah from IIFL Securities. Please go ahead.

Vidit Shah — IIFL Securities — Analyst

Hi. Good afternoon, and thanks for taking the question. Just wanted to understand a bit more on the finance cost line that we have. We’ve seen costs go up versus 2Q, but both working capital and subsidy levels are coming down. So, what’s the reason behind this sequential increase in finance costs?

Anand Agarwal — Chief Financial Officer

Yes. So, what has happened that the subsidy payment started post October, so — and still for the quarter, it was the highest compared to the earlier quarter. So the finance cost was higher on that account. And second, due to increase in the interest rates also there was some kind of hit. And we see that now in the last three months, we have received substantial subsidy, so that should start coming down.

Vidit Shah — IIFL Securities — Analyst

Okay. Understood. And we’ve seen a very healthy improvement in EBITDA levels Y-o-Y whereas urea volumes are, in fact, 2% down versus last year. So, is this growth in — while you don’t disclose margins, I understand, but is this growth driven by the DAP or the trading business, or is it driven by better efficiencies in the urea business?

Anand Agarwal — Chief Financial Officer

Well, it is largely driven by better efficiencies in the urea business. We have we had implemented energy efficiency projects in our plants and that are — that have shown the results this year. And that’s something that we will keep doing going forward to keep on improving the energy efficiency of our plants, which is good financially as well as good from an ESG perspective also.

Vidit Shah — IIFL Securities — Analyst

Okay. So, is there any capex that you have in mind for these energy efficiency and improvement initiatives going forward?

Anand Agarwal — Chief Financial Officer

Yeah. We keep investing on an ongoing basis Vidit. So normally, we are constantly on the lookout and we keep exploring energy efficiency projects. So we keep investing capital in the range of INR200 crores to INR400 crores almost every year on energy efficiency as well as other capital projects to replace old assets, health, safety and environment related and so on.

Vidit Shah — IIFL Securities — Analyst

Okay. And any further discussions or have discussions move forward in terms of other capex initiatives other than the technical volume metric [Phonetic].

Gaurav Mathur — Managing Director

Not as yet. Once we have something, we’ll definitely share it with all of you.

Vidit Shah — IIFL Securities — Analyst

Okay. Cool. And just one last question for me is on the tax expense. What’s — I mean, I think, what’s the time line in which do you expect to move to the new tax regime where tax rates could come down? How much old losses or MAT [Phonetic] credit do you have outstanding for which you move…

Gaurav Mathur — Managing Director

We hope to regain a couple of years.

Vidit Shah — IIFL Securities — Analyst

So like by FY 2026, do we assume you would have fully moved to the new tax regime?

Gaurav Mathur — Managing Director

Yes, somewhere around, I think, next to next year or year after that.

Vidit Shah — IIFL Securities — Analyst

Okay. Fine. Thank you so much for answering. Thanks.

Gaurav Mathur — Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Harmish [Phonetic] Desai from Philip Capital. Please go ahead.

Harmish Desai — Philip Capital — Analyst

Good afternoon and thank you for taking my question. Sir, in the second quarter, we had this onetime loss that the realization of DAP. So — and there was this mention that we could get this over turned. So is that something that has taken place? Or can we stop expecting that to happen?

Gaurav Mathur — Managing Director

Good afternoon, Harmish. Yes. As I mentioned earlier, we are working with the Fertilizer Association of India and the matter continues to be in discussion with the Department of Fertilizers. As of now, we don’t have any specific update on that, but we do continue to pursue it, not — us and selectively through FAI.

Harmish Desai — Philip Capital — Analyst

Okay. And sir, on this massive performance in the entire nine months that we have seen, you know, it has been impacted because of a lot of reasons. Even in Q1, there was this — so in Q1, Q2, Q3. So what are — what can we expect from the performance going into FY 2021? I understand there was issues with iron pricing and all that. But what can we expect from that massive — from FY 2024, you know, not considering the Q4 and FY 2024?

Gaurav Mathur — Managing Director

Yes. Look, let me answer this in two parts. One is that it’s given the volatile situation, which still sort of persists, right? It’s — the whole conflict situation is still there, etc. It’s difficult to predict anything right now on this area, one. Second is that overall, if you look at the massive performance, we have to bear in mind that last year was a bit of an exceptional year because of exceptional circumstances, right, the previous year. So we need to, sort of, see what is a normal situation. So we may be closer to normal now than in last year.

Harmish Desai — Philip Capital — Analyst

Okay. Understood. And sir, one thing. So in the non-urea segment, we know that in the crop reduction segment, we do not have any assets. But sir, what is our plan from this segment in FY 2024? Do you plan to have any kind of capex and introduction of new technicals in this particular segment?

Gaurav Mathur — Managing Director

Okay. You’re talking of a manufacturing facility in crop protection and etc.

Harmish Desai — Philip Capital — Analyst

Yes, sir.

Gaurav Mathur — Managing Director

You know, we continue to evaluate that, right? And obviously, if you look at CPC [Phonetic] assets, there is a technical manufacturer, there is formulation manufacturer and so on. We continue to evaluate it. And as of now, we don’t have any concrete plans to acquire or build any assets right now. We have a business model which seems to be working fine. And is giving us a strong top line growth profitably. So no specific plans right now.

Harmish Desai — Philip Capital — Analyst

But sir, do we have any plans in terms of targeting some amount of capex for registration off-patent molecules?

Gaurav Mathur — Managing Director

But for that, we need a manufacturing facility. We can’t register off-patent molecules without having a manufacturing facility, right? So that is there. But we keep exploring various options in this area as we are now growing in size, and there are opportunities in various forms.

Harmish Desai — Philip Capital — Analyst

Okay. And sir, my last question. We have a urea business, you have a non-urea business. Sir, what can be the margin profile in the nine months that you have seen the margin profile bifurcation between urea and non-urea, just an idea.

Gaurav Mathur — Managing Director

We don’t really normally share that.

Harmish Desai — Philip Capital — Analyst

Okay.

Gaurav Mathur — Managing Director

And also, these are very — very, very unusual year. So these are not also representative of a stable situation.

Harmish Desai — Philip Capital — Analyst

Understood. Understood, yes. So that’s it. Thank you, and good luck.

Gaurav Mathur — Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Prashant Biyani from Elara Capital. Please go ahead.

Prashant Biyani — Elara Capital — Analyst

Yes. Thanks for the opportunity. Sir, what would be the breakup of urea production from G1 and G2, G3 for quarter three?

Anand Agarwal — Chief Financial Officer

One second. Quarter three production from G1 was 5.35. G1 plus G2 was 5.35 lakh metric tons and from G3 was 3.46 lakh metric tons.

Prashant Biyani — Elara Capital — Analyst

Sir, would you — would we be taking any maintenance shutdown this quarter?

Anand Agarwal — Chief Financial Officer

Yes. In quarter four this year, we have completed two years operation of Gadepan-III, and we’ll be taking that shutdown in March. Hello?

Operator

Sir, the line for the participant dropped. We move on to the next participant. The next question is from the line of Dhruv Muchhal from HDFC Mutual Fund. Please go ahead.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Hi. Thank you so much. Sir, a question on the non-urea business. Now if I understand correctly. The government did not cut the subsidy amount significantly and the RM prices, the input prices are falling and your volumes have also increased. So based on my rough calculation, it seems we should have benefited recently for the non-urea business this quarter. But it seems that it’s not fully reflected. So is it because we had the higher cost inventory or probably my understanding is wrong if you can probably help?

Gaurav Mathur — Managing Director

Yes. So normally, if you see this quarter, this quarter is a key consumption quarter for Rabi and a reasonable amount of quantity arise say, by the end of September, early October, right, which has been contracted earlier. So what you said is right, when you look at the weighted average cost goods, it does result in some positive movement, but not an exceptional gain.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Okay. So it is because you had already contracted the sale price of the input prices in the earlier quarter at higher prices probably because of the situation and hence, the full benefit is or not getting reflected, is that fair to…?

Gaurav Mathur — Managing Director

Yes. There’s a lead time of 30 to 45 days, okay? So, therefore, if you have to supply material in the peak rabi season in October and November, you have to do the contracting in September, right, so — and August. So the prices were still a little bit on the high side, and then they started to fall. And these are also linked to what’s happening in the global situation in terms of Brazil and China and the US, etc.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Okay. Perfect. Again, two more questions, sir. Second is now that the global market is somewhat stabilizing and the prices have also started falling, I just wanted to understand, do you think the traded volumes will start increasing the ability is improving. And also wanted to get some sense on the domestic inventory or the supply situation. For the last two years, we were seeing the market was extremely tight. So do you think some relaxation can happen in the next two years from a market perspective? And how does that dynamic play out?

Gaurav Mathur — Managing Director

Sorry, what was the first part of your question?

Dhruv Muchhal — HDFC Mutual Fund — Analyst

So broadly, so the import prices have started to decline and there is some stability in the pricing, some stability effect and all that. So do you think the traded volumes for that can increase because our trading — there is more visibility to our trading now?

Gaurav Mathur — Managing Director

Look, if I go back a year, we had started to see the same sort of trend one year ago also, and then things again changed. So while we have seen a positive trend of decline of international prices, let us wait and see what happens over the next few months. That’s one. Second is that in terms of the overall volume for the country, the change would not be very significant because with — along with the Department of Fertilizers and all the companies put together, we ensure that adequate quantity of fertilizers was available. As regards Chambal, depending on what the international procurement prices, what the announcement of subsidy from the government is, we will then plan our volumes accordingly.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Got it. Sure, sir. And sir, the last question is on the — you mentioned there is a cap of about 12% and cost of goods sold for the non-urea fertilizers, if I’m not wrong. So tax cap for you, the cap then reflects the cost of purchase of basically the imported cost of these NPKs or DAP, is that fair?

Anand Agarwal — Chief Financial Officer

Yes. The 12% is based on the import price. There is a certain formula that the government uses. So the base at 12%, but it is essentially linked currently to the CFR price plus import duty.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Okay. So CFR…

Anand Agarwal — Chief Financial Officer

And other costs.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

And margin of 12% is maximum that you are now.

Anand Agarwal — Chief Financial Officer

That’s right. That’s the ceiling.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Got it. Perfect. And thanks so much and all the best.

Anand Agarwal — Chief Financial Officer

Thank you.

Operator

Thank you. The next follow-up question is from the line of Prashant Biyani from Elara Capital. Please go ahead.

Prashant Biyani — Elara Capital — Analyst

Sorry, my line got disconnected. Sir, this G3 maintenance shutdown will be there for a month.

Gaurav Mathur — Managing Director

Yes, it is close to a month. Yes.

Prashant Biyani — Elara Capital — Analyst

Sir, in that case, in February and March can we — in January and February, can we produce beyond 100%? Or what is the mandated limit by the government to compensate for the March production?

Gaurav Mathur — Managing Director

Actually, we run our plants at the full capacities. We don’t reduce the output from the plant.

Prashant Biyani — Elara Capital — Analyst

So this 12,70,000, which is the production limit, if I’m not wrong, then is that achievable in the 11 months was broadly what you wanted to ask?

Gaurav Mathur — Managing Director

Yes. Once we achieve that, we will take the shutdown only thereafter, and we hope to achieve that in the first week of March.

Prashant Biyani — Elara Capital — Analyst

Okay. And sir, what would be the closing inventory for urea for us during the — at the end of Q3?

Anand Agarwal — Chief Financial Officer

Around 24,000 tonnes.

Gaurav Mathur — Managing Director

Around 24,000 tonnes.

Prashant Biyani — Elara Capital — Analyst

And sir, what would be the oil gas price for Q3 and current gas prices?

Gaurav Mathur — Managing Director

So the

Anand Agarwal — Chief Financial Officer

It is $23.22 per MMBtu for quarter three NCV basis.

Prashant Biyani — Elara Capital — Analyst

23.22%?

Anand Agarwal — Chief Financial Officer

Yes.

Prashant Biyani — Elara Capital — Analyst

And current prices?

Anand Agarwal — Chief Financial Officer

December final price was $120.5 per MMBtu on NCV basis. So January is only provision side.

Prashant Biyani — Elara Capital — Analyst

Sure. And sir, how are the current ammonia realizations?

Gaurav Mathur — Managing Director

The utilization is continually reasonably good in the range of 15% to 20%. The margins are in the range of 15% to 20%.

Prashant Biyani — Elara Capital — Analyst

But currently, the prices would…

Operator

Can you just come back for a follow-up question?

Prashant Biyani — Elara Capital — Analyst

Sure.

Operator

Thank you so much. [Operator Instructions] The next question is from the line of Resham Jain from DSP Investment Managers. Please go ahead.

Resham Jain — DSP Investment Managers — Analyst

Hey. Hi. Good afternoon, sir. So just on the capital allocation part, which is asking every time. And I think you have announced one capex on TAM. But beyond that, how are you planning to allocate a large cash pool because it will take another two, three years’ time to whatever large projects you will commission. So it seems a lot of delay or I don’t know what is happening on that side. If you can just explain this because this has been a general investor concern on how are you planning to deploy substantial cash flows, which is — which you are going to generate?

Gaurav Mathur — Managing Director

Yes. Thank you, Resham. So yes, we are going ahead with the ammonium nitrate project, and we continue to explore further opportunities. As and when we come up with something, we will definitely let the investor community know. We just want to be mindful that what we do is aligned with the company’s goals and focus and we continue to work in that direction.

Resham Jain — DSP Investment Managers — Analyst

Okay. Okay. Fine. Thank you.

Operator

Thank you. The next question is from the line of Falguni Datta from Jet Age Securities. Please go ahead.

Falguni Datta — Jet Age Securities — Analyst

Yeah. Good afternoon, sir. Sir, it possible to say like the profits in NPK trading, would they be flat on an absolute basis Y-o-Y in Q3?

Gaurav Mathur — Managing Director

We don’t comment on that as such. And yes, the volumes and the situation were quite different last year compared to

Falguni Datta — Jet Age Securities — Analyst

I just wanted to note that given that we have done quite good volumes — so would it be fair to assume that they were flat, if not fallen?

Gaurav Mathur — Managing Director

The margins were under higher pressure this year because of the procurement prices going so high and the fact that as an industry, along with the BOF, you want to provide fertilizer to the farmers at a reasonable price. So the margins are under greater pressure compared to last year.

Falguni Datta — Jet Age Securities — Analyst

And sir, one question, I just missed your comment. So if we have to supply for the DAP and NPK for Rabi season, when do we import, when do we need to import, which month?

Gaurav Mathur — Managing Director

So we start to contract from August onwards for Rabi season, and then that continues still October or so. August, September, October would be the main months for contracting for the rabi season.

Falguni Datta — Jet Age Securities — Analyst

Okay

Gaurav Mathur — Managing Director

Product goes into the soil largely around the middle — till the middle of December — that’s the third week of December. So idea is to get bulk of the product by then. So it gets sold and it gets used by the farmers.

Falguni Datta — Jet Age Securities — Analyst

Okay. And sir, one final question. What would be the — how would be the inventory — fertilizer inventory situation in the country as of now?

Gaurav Mathur — Managing Director

Well, now as companies, we are not driving to the overall inventory data earlier the data was available, but I think the department has now stopped access of that. But our understanding and discussion with the department is that the inventory situation is quite reasonable.

Falguni Datta — Jet Age Securities — Analyst

Okay. Meaning it’s not too — it’s managed. It’s not — neither high nor low

Gaurav Mathur — Managing Director

Yes, it’s quite reasonable. That’s what our understanding is.

Falguni Datta — Jet Age Securities — Analyst

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

Gaurav Mathur — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Shreya Shah from ICICI Prudential Asset Management. Please go ahead.

Shreya Shah — ICICI Prudential Asset Management — Analyst

Hi, Thanks for the opportunity, sir. Sir my…

Gaurav Mathur — Managing Director

Sorry, to interrupt you, but your voice is not coming very clear. May I request you to speak through the handset.

Shreya Shah — ICICI Prudential Asset Management — Analyst

I’m using the handset. Is it audible now?

Gaurav Mathur — Managing Director

No, ma’am, your voice is coming very feeble.

Shreya Shah — ICICI Prudential Asset Management — Analyst

Hello.

Gaurav Mathur — Managing Director

Go ahead.

Shreya Shah — ICICI Prudential Asset Management — Analyst

Yes. So my question is regarding [Indecipherable] So how much further can we expect you to be efficient.

Gaurav Mathur — Managing Director

I — from what I could understand, I think you’re asking about energy efficiency, right?

Shreya Shah — ICICI Prudential Asset Management — Analyst

Yes.

Gaurav Mathur — Managing Director

Look, it’s — one is absolute energy efficiency and also the other is that if you’re investing, are you getting a payback — so as of now, we consider any project, which gives us a payback of around four years, then we would implement that energy efficiency project, right? Then this is also a function of the gas price and so on and so forth. So, while there is a number that a plant can reach, but it also depends on the kind of payback. So, we look at all of that and then decide to invest. What I can say to you is that overall, Chambal, if you take the overall industry average, Chambal is significantly better in energy efficiency than the overall industry average.

Shreya Shah — ICICI Prudential Asset Management — Analyst

Yes. So, that is what — how much further can we expect to go since we’re already in the center, so how much further can we expect?

Gaurav Mathur — Managing Director

That is difficult to answer that Shreya because it depends on a number of circumstances. There is an absolute level, but it depends on a whole host of other circumstances.

Shreya Shah — ICICI Prudential Asset Management — Analyst

Okay, got it. Thank you sir.

Gaurav Mathur — Managing Director

Thank you.

Operator

Thank you. Next question is from the line of Aman from Augmenta Research. Please go ahead.

Aman Madrecha — Augmenta Research — Analyst

Hi sir. Thanks for the opportunity. Sir, can you please highlight how the prices and the market of ammonia is behaving globally?

Gaurav Mathur — Managing Director

As of now, we are seeing a downward trend for the last one and a half, two months. As you might understand that ammonia is also linked to gas and gas has high usage in the winter in Europe for heating and so on and so forth. Also, obviously, ammonia goes as a raw material in a number of chemicals, a large part in fertilizers and so on. So, right now, we’re seeing a downward trend. Again, whether that will continue, how low that will reach will probably emerge in the next few weeks as the whole new sort of year evolves and will also depend on what happens in terms of the geopolitical situation across the world.

Aman Madrecha — Augmenta Research — Analyst

Okay. That’s all from my side.

Operator

Thank you. [Operator Instructions] The next question is from the line of Himanshu Binani from Prabhudas Lilladher. Please go ahead.

Himanshu Binani — Prabhudas Lilladher — Analyst

Sir, hi and thank you for taking my question. So, sir I have two questions. Number one, it is on the NBS rates. What we understand is that the way the RM prices are falling so it is very likely that the government would be revising downwards their NBS rates for FY 2024. So, the question now is, if at all, this happens on a retrospective from 1st January onwards, so how does one should actually look into the margin profile? So, maybe we can expect some sort of like one-off in the 1Q 2024 numbers sort of that. So, can you please help us with this?

Gaurav Mathur — Managing Director

Yes, you’re right that as the prices are falling, there will — the government had announced the NBS rates and normally, in any case, announced fresh rates from the 1st of April. What we understand is that they will start to do this calculation from the middle of March. They look at the prices for the last six months and then basis that they do the calculation and declare a rate for the next six months. As regards whether that will have an impact, etc., again, it will depend on — we are still in sort of early February — it will also depend on what kind of prices happen in February and March. We have seen a decline in prices, especially, let’s say, in January, but the decline was less till then. So, it again depends on how the prices move in February and March. And there is also a discussion happening with the government on, how to treat the existing stock which the industry has and whether the existing rate should apply on that or not. So there’s a lot of discussion that the fertilizer industry is having with the department to streamline the subsidy process.

Himanshu Binani — Prabhudas Lilladher — Analyst

So just to add on that basically, if I actually work out with the spot pricing in terms of the RM as well as on the subsidy and the MRPs. So the industry is actually making very decent sort of margins in the current juncture. So the question was largely that, will the government allow the industry to make up of like profits?

Gaurav Mathur — Managing Director

Yeah. But I understand that this is — this may be a situation at a point in time. But when you — the government looks at on full year’s data. So when they look at the reasonability, they look at the full annual data. And they calculate the return on cost of goods sold on an annualized basis.

Himanshu Binani — Prabhudas Lilladher — Analyst

Okay. And sir, the second question was largely on the bookkeeping side. So I just wanted to have an understanding on the excess ammonia, which we have been generating from the urea process. So how do we account that on our books basically?

Gaurav Mathur — Managing Director

So it’s not very complicated. We sell that. And that’s revenue. There is a formula that the government has a policy that the government has. What we have as excess ammonia is called technical excess ammonia which means, it is generated because of the inherent design of the plant. And when that happens, the government takes a certain percentage, 35% of the profit, the government takes the 65%, we in the company keeps. So it’s quite straightforward in that sense.

Himanshu Binani — Prabhudas Lilladher — Analyst

And that is accounted into the urea revenues only.

Gaurav Mathur — Managing Director

Yes.

Ranjeet Singh — IIFL Securities — Analyst

Great, got it. Thank you, sir.

Gaurav Mathur — Managing Director

Thank you.

Operator

The next question is from the line of Ranjeet from IIFL Securities. Please go ahead.

Ranjeet Singh — IIFL Securities — Analyst

Yeah. Hi sir. Thanks for this opportunity. So I have just one question. So during the quarter, there was a change in policy from the Government of India, rather encouraging the companies to get into a more long-term price contract for their gas sourcing. So just wanted your thoughts, how should one view this? Does this material enough? Or would it change the way we have been accounting or gas sourcing?

Gaurav Mathur — Managing Director

So currently, we have, for a large proportion of our gas, we have long-term contracts which expire in 2028. And much relatively small percentage is on a spot basis. Here, again, I think between the industry and the government, there has been close working to minimize the cost of spot gas. The government has also formed a small committee to look into the medium and long-term contracts for bridging the gap which exists currently between long-term contracts of the company and what is required currently in the short-term, right? So — and yes, I think overall the government wants gas to be purchased at the lowest possible cost. It is situation dependent, whether it should be, what proportion should be long-term, what proportion should be short-term. But in general, we want to be a significant proportion in long-term contracts.

Anand Agarwal — Chief Financial Officer

We also have midterm contracts Ranjeet.

Gaurav Mathur — Managing Director

And we also have some mid-term contracts which we find an advantageous situation; we’ve also taken the opportunity to enter into one-year and two-year contracts.

Ranjeet Singh — IIFL Securities — Analyst

But other action in that also kind of then highlighted was, liability was earlier with the government to pay the higher cost, which would now get transferred to the companies. So how should one view that?

Gaurav Mathur — Managing Director

Sorry, your voice was a little unclear. Can you repeat the question, please?

Ranjeet Singh — IIFL Securities — Analyst

So this long-term contract would be a take-or-pay and to that extent, it also brings a bit of liability, which was earlier borne by the government, which is now getting transferred to the companies.

Gaurav Mathur — Managing Director

Yes, yes. Take — the long-term contracts have take-or-pay, but that’s not really a issue, if that is your question.

Ranjeet Singh — IIFL Securities — Analyst

Okay, sir. Sure. Thank you.

Gaurav Mathur — Managing Director

Yes.

Operator

Thank you. I request all the participants, please restrict to two questions per participant. The next question is from the line of Tarang Agrawal from Old Bridge Capital. Please go ahead.

Tarang Agrawal — Old Bridge Capital — Analyst

Hi. Two questions. And thank you for the opportunity, again. The first one is on the trading business. We run any NRV risk should the government decide to push down the subsidy prices?

Anand Agarwal — Chief Financial Officer

Yes. If the subsidies revised downwards, whatever closing stock we do have, we have that NRV risk.

Tarang Agrawal — Old Bridge Capital — Analyst

Okay.

Gaurav Mathur — Managing Director

At the same time, like I mentioned, we are in discussion, the Fertilizer Association is in discussion with the government to apply the existing subsidy on the stock that is available with each company, which we carry in our books at the end of the quarter.

Tarang Agrawal — Old Bridge Capital — Analyst

Okay. And how much would that be by volume, approximately?

Anand Agarwal — Chief Financial Officer

It is difficult to state at this point in time, because the sale is still going on. So if it moves out and the farmer picks it up, then it is no longer in stock. So it’s a little difficult to state what would be the number.

Tarang Agrawal — Old Bridge Capital — Analyst

Any ballpark estimate?

Anand Agarwal — Chief Financial Officer

It’s quite difficult, because you see, it depends not only on us. It depends on the stock and movement other companies have and so on.

Tarang Agrawal — Old Bridge Capital — Analyst

Yes. Okay. No worries. Okay. The second question is on Crop Protection. I mean, just to get a sense on the business a bit better, how — I mean, how is the portfolio of things here? I mean, are we pervasive across all pesticides, I mean, fungicides, herbicides, insecticides, are we pervasive across cotton, corn, rice. Just some flavor on this would be helpful. Are there any specific registrations that we have, which are probably not yet in the market in terms of the other peers, and that’s why we’re getting traction on them?

Gaurav Mathur — Managing Director

That’s a really excellent question. I’ll ask Ashish, our Vice President, Sales and Marketing, to answer that?

Ashish K Srivastava — Vice President – Sales and Marketing

Yes. Tarang, as you rightly asked for, whatever crops are there in our operating geographies, each and every insect, pest, fungus and — we discover in our portfolio. In fact, we have some — in some cases, we have multiple solutions offering to the trade for some of the insecticides and fungicides. So it’s broadly — the portfolio is broadly covering the entire crop cycle of insect, pest and fungus.

Tarang Agrawal — Old Bridge Capital — Analyst

Okay. And I mean attraction in the December quarter has also been quite nice. So I mean, would it therefore be safe to presume that you have offerings for Kharif as well as Rabi?

Gaurav Mathur — Managing Director

Yes. I mean, I think what like Ashish mentioned, we have three comprehensive mapping of crop versus fungicide, pesticide and we decide, right? Very, very intimately map across both Kharif and Rabi. So it’s crop-wise math, actually. So therefore, it doesn’t matter whether it’s Kharif or Rabi cropped mapped. It’s a very comprehensive portfolio that we have.

Operator

Thank you. Request to all the participants, please restrict to two questions per participant. The next question is from the line of Prashant Biyani of Elara Capital. Please go ahead.

Prashant Biyani — Elara Capital — Analyst

Yeah. Thanks for the opportunity again. Sir, during the implementation of One Nation One Fertilizer, the Fertilizer Secretary had told on television that eventually, they would want to restrict the movement of fertilizers implying that, if we have a plant in Rajasthan, then rather than selling fertilizers to as far as UP we should rather first exhaust the demand in Rajasthan or the nearby states. So have we seen any change in supply plan from the government for the entire industry, whereby the supply to the — to our hinterland markets are increasing. And to the far off markets are reducing. Have we seen any sort of indication or change in supply plan?

Gaurav Mathur — Managing Director

Look, I think, first of all, it’s very positive that the government is doing, because it reduces overall logistics costs for the country, right, which was not benefiting anybody. So they are — they have developed an optimized model for movement of fertilizers, which they are in the process of implementing. As regards movement, obviously, the consumption of one state is not way less than our production. So we will continue to get supply plans, and we continue to get supply plans for multiple states, right? And also, I’m sure that, there is also a realization that, if you make it too restrictive then in case there are shutdowns and so on and so forth, then there will be a challenge on availability. So an optimized approach is being taken. That’s one. And as Chambal, while, of course, urea is a key product, but over the years, we have built a very, very strong brand, which is not just restricted to urea or other non-media bulk fertilizers, but also crop protection and specialty nutrients the Uttam brand. And therefore, we are pretty comfortable with whatever optimized movement plans that the government gives.

Prashant Biyani — Elara Capital — Analyst

So sir, there have been changes in the supply plan to that effect or at least the start has been made to that effect?

Gaurav Mathur — Managing Director

As of now, it is almost negligible.

Prashant Biyani — Elara Capital — Analyst

Sir, if that happens, then I mean, our other products apart from ex-soft urea, they have been mostly tagged along with urea. So if our sale is concentrated in the hinterland geographies only then would it have some sort of a question mark on growth of other business segments?

Gaurav Mathur — Managing Director

So Prashant, first of all, we do not tag any products with urea at all. So let me be very explicitly clear on that, right? That’s one. Second, as I said in the first part of my answer, we have built a very, very strong Uttam brand, which is not restricted to urea at all. So if you see, we have expanded into five states down south and east, Maharashtra, West Bengal, Gujarat, Andhra Pradesh and Telangana. And we are selling non-urea bulk fertilizers; we are selling crop protection chemicals, specialty nutrients to those states. We don’t have any urea there. So our recognition by the farmer of Chambal as a company of our brand Uttam are practices in the market in terms of the support that we provide, all of those also stand for themselves. So it’s not — we are not at all bothered about any changes in movement plans.

Prashant Biyani — Elara Capital — Analyst

Sure. And lastly, sir, on the crop protection side, many companies have told that there is surplus channel inventory because of the adverse monsoon and delayed season. Sir, how has been our receivables bearing in that context? And do you see that it would be prudent to slow the rate of growth in CP in the light of the industry already having higher channel inventory?

Gaurav Mathur — Managing Director

So first of all, our receivables are absolutely very, very good, very strong, no issues. We do a large proportion of our business in CPC on cash terms, right? One. Second, we don’t take any returns back from the market. And third, we absolutely have no intention of slowing down. We believe we provide a lot of value through the products and the service and programs like Seed to Harvest to the farmer. And we have intentions to keep speeding along as we are.

Operator

The next question is from the line of Deepak Chitroda from APG. Please go ahead.

Deepak Chitroda — APG — Analyst

Hello sir. Thanks for taking my question. Sir, I just have one question on the National Hydrogen Mission policy, which has been announced by the government. So what’s your thought in terms of how it is going to have impact on the port industry, especially in case of urea, because as I understand, I think some target has been set by the government, about 5% to 20% from next year onwards. So how basically it is being translated into the costing part of it? Will it basically improves the margin for the industry going forward? And I mean, basically, what’s your thought process when you talk to interact with the government and various other organizations? Thank you.

Gaurav Mathur — Managing Director

Okay. So, first of all, to be very, very clear, there is no target set for any part of the fertilizer industry on use of green hydrogen in ammonia. That’s one. Second is for production of urea, you not only need hydrogen, which is then converted to ammonia, but you also need carbon dioxide. So I think not only the Department of Fertilizer, but this has also been explained to the Ministry of Energy and the Renewable Energy Department, that to produce urea, you need both carbon dioxide and ammonia, which comes from hydrogen. Therefore, just producing green hydrogen is not going to suffice to produce urea. Okay. Now as regards to the broader question on green hydrogen policy, we are looking at it. That’s not necessarily our core area. We are examining it as of now out of if we see any opportunities in it going forward. But it’s very, very early days on that.

Deepak Chitroda — APG — Analyst

Okay. So basically, it’s very early days to talk about it, and Ministry is also basically not clear in terms of the what is the future towards the urea industry, particularly if you talk about in the costing terms?

Gaurav Mathur — Managing Director

No, no. The future is very clear for the urea industry. The urea industry needs carbon dioxide also to make urea. Therefore, the use of green hydrogen and green ammonia in the urea industry is not foreseen in the future that I can think of.

Deepak Chitroda — APG — Analyst

Okay. Okay. Sure, sir. Thanks.

Operator

Thank you. I now hand the conference over to the management for closing comments.

Gaurav Mathur — Managing Director

So thank you very much all of you for your very insightful questions. Always good to have the questions and provide clarity to our investors. Thank you. Have a good day.

Operator

[Operator Closing Remarks]