Deepak Fertilizers and Petrochemicals Corporation Limited (DEEPAKFERT) Q4 FY23 Earnings Concall Transcript

Deepak Fertilizers and Petrochemicals Corporation Limited (NSE:DEEPAKFERT) Q4 FY23 Earnings Concall dated May. 19, 2023.

Corporate Participants:

Sailesh Chimanlal Mehta — Chairman and Managing Director

Amitabh Bhargava — President and Chief Financial Officer

Tarun Sinha — President, Technical Ammonium Nitrate

Analysts:

Harmish Desai — PhillipCapital India Private Limited — Analyst

Vishal Prasad — VP Capital Limited — Analyst

Vidit Shah — IIFL Securities — Analyst

Chirag Shah — White Pine — Analyst

Deepak Poddar — Sapphire Capital — Analyst

Vignesh Iyer — Sequent Investments — Analyst

Ranjit — IIFL — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Deepak Fertilisers and Petrochemicals Limited Q4 FY23 Earnings Conference Call hosted by PhillipCapital India Private Limited. As a reminder, all participant lines will be in the listen-only mode. And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Harmish Desai from PhillipCapital India Private Limited. Thank you and over to you, sir.

Harmish Desai — PhillipCapital India Private Limited — Analyst

Thank you, Lizan. Good afternoon and welcome to the fourth quarter and full year FY ’23 earnings call of Deepak Fertilisers and Petrochemicals Limited, hosted by PhilipCapital. From the management we have Mr. SC Mehta, Chairman and Managing Director; Mr. Amitabh Bhargava, President and Chief Financial Officer; Mr. Tarun Sinha, President, Technical Ammonium Nitrate; Mr. Suparas Jain, Vice President, Corporate Finance; and Mr. Deepak Balwani, Head, Investor Relations.

I would like to thank the management for giving us the opportunity to host this call. We will begin the call with opening remarks from Mr. SC Mehta followed by Mr. Amitabh Bhargava for details on financial performance post which we will have a Q&A session. Thank you and over to you, sir.

Sailesh Chimanlal Mehta — Chairman and Managing Director

Thank you, Harmish. So a very good afternoon to all of you and welcome to the Q4 FY23 earnings conference call. I hope you had a chance to look at the financial statement, press release and earnings presentation that were uploaded on the exchanges and our website. But let me take you through some of my thoughts and insights as I look at the larger pictures.

At the outset, let me share the joy of the performance of FY ’23 as a whole for the 12-month period that where our revenue jumped by 47% and it crossed a landmark of INR11,000 crores, INR11,300 to be precise. Even more, I would say, joyful was that profits jumped by 77% and again crossed a landmark of over INR1000 crores, to be precise, INR1,221 crores. And looking at this performance last week in our board meeting, the board was also enthused to recommend a 100% dividend for the coming year for the shareholders to consider. And all of these are indeed landmarks and this is something that is a joy to see. Of course, almost over 85% of these results are emerging out of the chemical business. And that is something that in one sense brings this misnomer also to light that we have the fertilizer, but 85% is from the chemical business.

Now, I was looking at in terms of what could be the undercurrent takeaway from the 12-month results. And one aspect that I thought I should share with you, what I was seeing was that despite the fact that we saw an unprecedented hike in raw material prices in the last year, almost 60% to 80% and as a result we also saw an unprecedented hike in finished product pricing because we had to pass on. But the newsworthy aspect or something that was something that we saw as a very positive aspect was that there was no demand destruction despite these unprecedented finished good pricing. And what that gave us very clearly as a message was that it validated the excellent alignment all of our three businesses have with the India growth story the fertilizer business, the industrial chemicals or pharma chemical business and the mining chemicals business. All of the three indeed have a very good alignment with the India growth story and which is why we did not see any demand destruction.

Now, having said that, we were seeing also Q4 and — whereas Q4, while the revenue jumped up by 38%, 39% in terms of profits, there has been a depression [Phonetic] around 9% and as we analyze that we saw that mainly it is emerging from the TAN business, the mining chemical business or technical ammonium nitrate business. And there we saw two or three things that has emerged in this quarter. Number one is what we have been seeing in general also in specific to this quarter, that now the raw material prices are gradually coming down to the normal levels which were there during the pre-COVID period. And so also there is a similar correction in the finished good prices and they’re going almost in tandem. But we are seeing that in some of the quarters one precedes the other, or the other precedes the first, which is where for that particular quarter there could be a little bit of an impact emerging as the raw material prices and finished good prices in tendon move to the lower level. So there as I see it, while it has impacted the quarter, it is something that should even out in the balanced part of the year.

But in case of TAN, there are three other things that uniquely happened. Number one is that the government had put a ban on exports of ammonium nitrate and this is something which we were wanting to actually push, especially the low density porous drill which is our top grid quality product. But because of the worries that the government had in terms of availability of TAN for the larger targets that they had for coal mining that they were worried that it could not be available. It’s a misplaced worry. But as we speak there is a ban on exports and of course we have talked to the various levels in the government and now they see the illogic in that aspect and we are hoping that some corrective action will come in soon.

The second aspect is that there were floodgates open up of imports because the anti-dumping duty went through a sunset clause, five-years getting over and while the government and the other measures that are there to reevaluate that logic of it, this window was clearly there that imports were really allowed. And the most important aspect that we saw was that because of the various sanctions on Russia from other countries, India has become a nice dumping ground and that aspect of it also impacted. Now a lot of these things are gradually shifting, moving into a better space. But from a strategic perspective, if I might share that some of the volatility is something that we are seeing as a part of our lives. And in order to combat the volatility we are looking at three-pronged approach. The number one is that we are continuing our aggressive drive in all the three businesses to move from the commodity orientation to the specialty orientation. And I think specialty it is more in terms of holistic solution for the end consumer and in the fertilizer business instead of the commodity NPKS, more and more now we are looking at crop-specific nutrient baskets and instead of focusing on the dealers, we are focusing on the farmers as I shared last time also. And similarly for the TAN business there’s very strong focus on technology based holistic offering TCO as they say for various infrastructure projects.

So first aspect that we are seeing as a strategic imperative to deal with the volatility is a continued strong drive to move from commodity to specialty. The second aspect that we are also seeing in order to combat the volatility is again what we have put into effect which is backward integration in to a raw material which is ammonia which can become a very great risk mitigator so that the volatility of the ammonia prices stays within the groove.

So there again, as what we have committed before the end of Q1, we are looking at declining commercial production and as we speak we are in the last — very last legs of commissioning activities that are going on at site. But that is going to be — the ammonia is going to be also a good risk mitigator in the longer run so that we have a good, I would say, combat for the volatility that otherwise would have impacted us in the ammonia pricing. And the third is we are moving more and more in a lot of our products for a natural hedge where the finished good prices are somewhere interlinked with raw material and forex so that some of those become a pass through.

Now as I look at the balance part of the year in terms of the major undercurrents, what I see is number one as far as the TAN mining chemicals sector goes, the coal mining upswing that we are seeing and so also in case of cement infrastructure, those both very positively in terms of at least the demand and needs that are there and there, like I said, we will continue our drive for holistic product offering in terms of product plus solution rather than just products.

In case of the assets business the China Plus One aspect is something which is continuing to give a good demand, continued good demand for the assets. And in fact, it is leading us to very seriously look at additional capacities, looking at the growing market, and even in case of assets, we have got some very good breakthroughs for specialty degree assets for the steel sector or for the solar industry. And that is something that we are pushing. Once we have a good proof of concept I believe that even the export markets could open up for these specialty grades.

In case of IPA, where we had struggled with the dumping from China, now, thankfully, the safeguard duty has kicked in and that is something that is going to give us a certain kind of insulation. And additionally, of course, our drive to move the commodity IPA into pharma grade IPA also continues. On the CNB, the crop nutrition space we will continue for the balance year or years ahead to focus more and more in terms of the crop-specific NPKs and working more and more closer to the farmers so that the move is from pure price based, commodity based selling to more value based and value pricing kind of approaches and thoughts.

Like I said, the ammonia available from our own plant will become a good risk mitigator and — whereas we have tied up almost 68% of our gas requirements for the next three years, we are just about on the corner to tie up the balance that is there. And lastly, our demerger activities are in the right direction. It’s a matter of, I would say, a little time. The NCLT process is on and we should be in a position to look at, I would say, effectively implementing the demerger. And what it will do is, as you’re all aware, it will get a very strong focus on each business segment now being housed in an independent corporate entity right from the board to the lowest level of management will be very strongly focused on that specific sector. And obviously this would open up also various kinds of further property restructuring ideas and thoughts. So that is also something which is in the right direction.

So with these, I would say, initial thoughts let me hand you over to Amitabh who can take you through all the details of the figures and how the year and the quarter went by. Amitabh?

Amitabh Bhargava — President and Chief Financial Officer

Yeah. Thank you, Mr. Mehta. Good afternoon, ladies and gentlemen and thank you for joining the Fertiliser and Petrochemicals conference call. We are presenting our Q4 FY ’23 results.

I think Chairman did cover at length a number of aspects. So I’ll just keep my statement very, very brief. Just to quote the numbers. DFPCL has successfully concluded FY ’23 with record-breaking financial achievements of our highest ever revenue and PAT figures. For ’23 we reported a substantial growth in our total operating revenue which amounted to about INR11,301 crores, representing an impressive YoY increase of 47.5%. Our operating EBITDA was INR2,165 crores, a growth of 60% on a YoY basis and profit after tax of INR1,221 crores, growth of 77.6%. These remarkable growth figures are the results of our various strategic initiatives undertaken during the year as Chairman also explained in his statements.

As of 31st March ’23 the company has net debt of INR2,518 crores with net debt to equity of 0.48 times. We have already tied up entire debt of INR1,541 crores with door-to-door tenure or14 years for our Gopalpur — TAN Gopalpur project. And we don’t have any large loan repayments due in the next three years.

So I’ll just keep my statement brief and I open the floor for question answers.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin with the question-and-answer session. [Operator Instructions] The first question is from the line of Vishal Prasad from VP Capital. Please go ahead.

Vishal Prasad — VP Capital Limited — Analyst

Hi. Good afternoon. So, Amitabh, I think sometime in 2021 I had asked about our capex and you had explained in detail why we are doing ammonia backward integration and the benefits we would have. But a lot has happened during last 21 months. So what we know today in terms of gas and ammonia price behavior, if today we have to take a decision on the capex, would you come to the same conclusion? And you will choose to do the capex or will you be a lot more circumspect?

Amitabh Bhargava — President and Chief Financial Officer

Okay. So look, any of the long-term decisions which — where you are building an asset for 25, 30 years or even longer, you don’t take those decisions based on what happened in last quarter or this quarter or the next quarter. You need to look at last 10 years, 15 years, average numbers.

Now, what has happened and you are right in that the gas prices have gone up and we know the reason why gas prices have gone up. One of the factors has also been what has happened in terms of geopolitical changes that have happened in Russia, Ukraine, war and therefore suddenly Europe cramming for more gas. Now, those are the kind of events no one would be able to anticipate. But that said, that still doesn’t change the fact that in a matter of time the gas prices will become and they have already corrected significantly from what we saw in terms of peak, we are looking at today, let’s say a JKM of around $10 or a little less than $10. So we are seeing gas prices coming down. We also equally are at a stage where barring our next two to three years, which we have tied up. Beyond those three years, next 15 years of gas that we are looking to tie up, 10 to 15 years is at significantly competitive rate because there are more capacities coming up globally of LNG.

Equally on the ammonia side, the fundamentals haven’t changed that there are no significant investments that happened on standalone ammonia plants globally, which is what typically would decide the prices of traded ammonia or the price at which we would end up buying ammonia. Today, yes, even today given ammonia — what is happening to nitrogen fertilizer and their demand, ammonia seems to be in excess, it’s overbought and we would have to wait for this commodity cycle or let’s say low cycle of ammonia to kind of get through that. And then — because we are not building this asset for one year, two year or a few quarters. It’s a 20-year, 30-year or even longer asset. So I think our decision certainly one does get influenced by here and now but certainly in this kind of assets you have to take a 10-year, 15-year view and you can’t get bogged down by a high price of commodity or a low price of commodity. Those cycles would — we always knew that those cycles would come in ammonia and gas.

So my answer would be that we would still by and large we would come to the same decision because for us it’s a 15, 20-year view, not a quarter view.

Vishal Prasad — VP Capital Limited — Analyst

Sure. So I was having a conversation with the company based out of Punjab and not in our sector, but it’s another sector and they had similar benefits as we have got for our capex where they will get a GST refund. However, over many years they haven’t got a single penny from the government in spite of them putting a lot of effort and having all the paperwork ready. So I know we are not putting it up in Punjab, but in your experience how confident are we that we will be able to get what has been promised without much hassle?

Sailesh Chimanlal Mehta — Chairman and Managing Director

You’re talking about the state policy. We have made investment in Gujarat and we have started getting those incentives. In fact, we have collected significant part of our incentives that we have claimed and we don’t see that any different. I mean, in fact, Maharashtra and Gujarat, given the industrialization, given the kind of investment that these states have attracted, I think their policies as well as the way they would implement their policies is not going to be any different from each other.

Vishal Prasad — VP Capital Limited — Analyst

Okay. So Tarun, as we work with Coal India and other miners where we sell our explosive solutions and we also supply to solar industry. So what is the difference between what we supply to the miners directly and what we supply to solar industries?

Sailesh Chimanlal Mehta — Chairman and Managing Director

My colleague Tarun is there. Tarun, would you like to take that question?

Tarun Sinha — President, Technical Ammonium Nitrate

Yeah, absolutely. Am I audible, Amitabh?

Amitabh Bhargava — President and Chief Financial Officer

Yes.

Tarun Sinha — President, Technical Ammonium Nitrate

Okay. Yeah. Thanks for the question. So first thing is the product that we supply to solar industries that is technical ammonium nitrate which is actually used as a raw material by solar industries to produce commercial explosives and then that commercial explosives is supplied to Coal India and all other mining companies across the country as a finished product. So that’s what we do with solar Industries.

Now, what we are doing slightly differently as well, which is what Chairman mentioned in his opening address which is a shift from selling just product and technical ammonium nitrate is just product to selling products but also getting closer to the end consumers in the form of holistic solutions. So who are the end consumers for us in this context? They are again the mining companies, infrastructure projects and so on and so forth. So what do we do in that business model? It is about again a term which was used by Chairman in the opening address, a term called technical cost of owner — sorry, total cost of ownership, TCO in short is what we call that, which basically means we work very closely with the end consumers, again the mining companies and the infrastructure projects to first baseline and benchmark their operating cost which is cost of extracting mineral, cost of extracting rock.

And then we put in technology together with some specialized differentiated explosives products which is not technical ammonium nitrate and that’s the difference fundamentally. And then we commit ourselves to certain improvements in the cost of mineral extraction which is basically in simple terms productivity improvement in the mines and infrastructure projects. And that’s the solution we provide. So parallel we are running two business models. One is product as product which is the first example I gave and the second one is complete holistic solutions for mine productivity improvement which is where we go direct to the end users which was being talked earlier.

Vishal Prasad — VP Capital Limited — Analyst

Sir, do we compete directly with the solar industry because this is what they do.

Operator

Sorry to interrupt Mr. Vishal.

Vishal Prasad — VP Capital Limited — Analyst

Just one follow up, ma’am. Just one follow-up please. Do we directly compete with solar because they provide the same thing to Coal India and other miners as well?

Tarun Sinha — President, Technical Ammonium Nitrate

As I said, our business model is very different because most of the explosives manufacturers in India and explosives vendors of Coal India, they just supply products which are explosives and get paid for that which is through the rate contract that we have let’s say with Coal Unda or other mining companies. Whereas we do not sell explosives as explosives only. We basically provide a holistic solution which I was talking about earlier, which is a mine productivity improvement program and then we invoice to those end users based on the solutions that we are providing instead of the products, explosive products or something else that we are providing.

In some cases we have gone to the extent of structuring our contracts which we call as outcome based contracts. What it means is we also get paid on the basis of the outcome that we generate as a result of the solutions that we provide, which is very different compared to getting paid on the basis of input that is supplied to a mining company, which is explosives. So it’s a very different business model compared to what other explosives manufacturers are currently working on in India.

Vishal Prasad — VP Capital Limited — Analyst

Sure. Thank you.

Operator

Thank you. The next question is from the line of Vidit from IIFL Securities. Please go ahead.

Vidit Shah — IIFL Securities — Analyst

Hi. Thanks for taking my question. My first question was again coming back to the new ammonia plant. So we’ve tied up around two thirds of our procurement for the next two to three years at least, our near term procurement. Can you guide how much this is and what cost we’d be paying for at least in the near term? And also, if you could give us an update on the current dynamics of the plant in terms of how much we’ll be making at prevalent rates of ammonia and gas?

Sailesh Chimanlal Mehta — Chairman and Managing Director

Your first question is in terms of the quantity of gas. So we require roughly about 1.3 million cubic meters of gas per day and we have tied up about 68% of that. That said, the balance, 32%, is also at an advanced stage in terms of finalizing the commercial terms and signing the gas supply agreement. These gas contracts have different underlying price benchmarks, mainly brand. Part of the gas is linked with Brent prices. There are part of the contract is also linked with JKM prices. But at the same time, because it is coming from KG Basin, it is also governed by the price cap that government comes up and revises every six months. It is [Indecipherable] but cap that the PTAC price ceiling that government determines.

The contract that we are looking to tie up from, again, from a diversification point of view, could also be linked with Henry Hub prices. We are trying to create a portfolio where it is linked with different benchmarks and to that extent diversification so that we are not dependent on or expose ourselves to volatility of one of the — only one, say, underlying commodity, namely oil or spot prices of LNG or Henry Hub for that matter. Now, at the current prices of ammonia, I think we discussed this at length in terms of typically what is our economy. We require roughly about 33 million-odd GPU of energy in form of gas for per tonne production of ammonia. And therefore, depending on what happens to these underlying price benchmarks and to our prices of gas, we would typically — you can take that if it is, let’s say, today my guess would be that — but I’ve not looked at the Brent and all of these benchmarks as on date, but my guess is that we would — our portfolio would be somewhere around $14-odd.

And as JKM prices go down, we would get the impact of that. So at about $14 you can calculate based on 33, it’s roughly about $450 to $460 of gas cost. And then we have about $25, $30 of other costs involved. So that’s the cost of production. And if you look at prices of ammonia today, we are seeing the contract prices of [Indecipherable] around $300 or plus-minus whatever movement happens on a weekly basis. And if we add, say, about $80 to $90-odd on transportation, customs, and other charges that we pay to bring the ammonia to our dose, and then we add about, let’s say, 9% of that as the duty or the benefit — GST benefit that we are getting and roughly about $10 to $15-odd of production of steam that we would replace in our existing operations. That would give you a sense on where the economics of our percent of ammonia lies.

Vidit Shah — IIFL Securities — Analyst

Okay, understood. Thanks for that detailed explanation. The second question I had was on the TAN expansion plan, we were going to debottleneck around 75,000-odd tonnes of capacities over the next year. What is the status of that? And on the other mega project at Gopalpur, I see that’s been pushed to FY ’26 now. So what’s happening out there?

Sailesh Chimanlal Mehta — Chairman and Managing Director

So we are debottlenecking our ammonia. We’ve already done debottlenecking of 45,000 tons in Taloja and the second step of another 45,000 would be done by September, October of this year. So that increases our current capacity. Gopalpur is somewhere in H2 of FY ’26 we would complete, and that’s about 376,000 tonnes. So as of now, you see, last year we’ve done about 500500-odd tonnes. So that means that this year we still have — and that is on the basis of four 486,000 of nameplate capacity. So we do have therefore enough headroom in terms of enhancement of our production this year and until Gopalpur comes in we do have that additional capacity. And Gopalpur would then get added by second half of FY ’26.

Vidit Shah — IIFL Securities — Analyst

Fine. So does that mean that the nitric acid that we sell externally, that those volumes come off as we expand volumes of ammonia?

Sailesh Chimanlal Mehta — Chairman and Managing Director

So we have also taken up a program in terms of debottlenecking our nitric acid capacity, also making them more reliable because lately, in last two or three years, I would say particularly post COVID and during COVID there were challenges in terms of regular maintenance of these nitric acid plants. And we did see a drop in capacity utilization, which you would notice that even this year we have improved it compared to last year. But we are still not even touched what the capacity utilization that we saw pre COVID. Plus, like I said, we are also doing some deep bottlenecking and improving the reliability. We are confident that as far as enhanced capacity of TAN is concerned, we should be able to extract it out of our existing nitrogen items.

Vidit Shah — IIFL Securities — Analyst

Okay, thank you. I’ll get back in queue for more questions.

Operator

Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference, we request you to limit your questions to two per participant only. The next question is on the line of Chirag Shah from White Pine. Please go ahead.

Mr. Chirag Shah, your line is in the talk mode. Please go ahead.

Chirag Shah — White Pine — Analyst

Yeah, thanks for the opportunity. Sir, my first question is, again coming to ammonia, are this take or pay arrangements, the three-year lock-in that you have done, contract that you have done, or you have an option of not picking up the offtake or something like that. So what is the committed in this — committed offtake that you have to take?

Sailesh Chimanlal Mehta — Chairman and Managing Director

So one is we have tied up 68%. And I was mentioning that the balance we are in the advanced stage of tying that up.

Chirag Shah — White Pine — Analyst

68%, you have to — it’s a take or pay kind of a thing, right?

Sailesh Chimanlal Mehta — Chairman and Managing Director

Yeah. So in terms of the contracts that we have signed, there is somewhere between 80% to 90% kind of take or pay obligation. That said, what we’ve also done in some of the contracts is that we need not — even if we were to for the reasons related to, let’s say, plant initial pickups in terms of capacity utilization, we have the option of settling the take or pay on net proceeds basis. Meaning that the aggregators through whom we are buying it, if they sell it in the market, we can bear the balance of the difference cost also. So we have all of those arrangements. There’s also makeup arrangement typically in these contracts. If you don’t take a part of the capacity and you pay for it, you can then makeup or you can take that in future quarters. So it’s a combination of all of this that works in this quarter.

Chirag Shah — White Pine — Analyst

Sir, just to follow up on this. In your experience of so many years, such kind of spreads, when I say spread, generally how long they last, it’s a one, two quarter phenomena or it can last longer also? So what your general experience has been, if you can indicate?

Sailesh Chimanlal Mehta — Chairman and Managing Director

So, like I was mentioning, and I believe the first question that was asked of if we had taken the same decision based on the current prices we took our decision based on last 10 year and 15-year price trend. And there, as mentioned earlier as well, that on an average, in 10 to 15 years, whatever horizon we take, the average cost of ammonia has been about $420 to $430 of FOB and about $80 of additional cost, whether it is ocean trade or customs or local transportation and port storage. So we’ve seen this ammonia cycle, but an average of $500 of landed cost for us and to that $500 of landed cost if you add the UT benefits GST benefits and the steam production that we do our estimate was that we would have an average realization of $65, $70. As against said, on an average, even if one were to take — we had looked at about $8.5 of gas, today’s JKM is around $10 and maybe land at $11 and $11.5 for us.

But if you look at the gas cycle also, and the kind of price that we are seeing beyond three years for next 10 years, in terms of the contractual, some of the discussions that we are having, the average price of gas, even if you were to take it as $9 to $10, let’s say, $10, we’ve been talking about $330 of gas and about $25, $30 of other costs. That leaves almost $200 per tonne of margin. So $180 to $200 per ton of margin average is the basis on which we took this decision. You know that six months back, the cycle, despite high prices of European gas ammonia, was at almost $1,100 FOB. Now, the margins would have looked very, very different at that stage. So I think we need to look at it more from an average standpoint over 10 year, 20 year time frame. Because at the end of the day, we have not set this up for trading this capacity or selling it outside.

It is for our own internal consumption. And to the extent there are ammonia prices go down we do have certain benefits in some of our products where our margins improve. And therefore, on an integrated basis, we still find that this is an investment which would give us the desired return. And we’ve also spoken about the aspect that we are — as we are increasing our total ammonia consumption we have seen challenges on JMPT, the kind of disruptions we have seen in freight, we have seen it in ports at different locations that questions the very sustainability of our downstream operations. And that’s the risk that we have now addressed through this backward integration. You can’t put economic value to everything from a risk perspective. So that’s another aspect that needs to be kept in mind.

Chirag Shah — White Pine — Analyst

Sir, last question, if I can squeeze in on the TAN this solution-based offerings, one, how much percentage it contributes to our asset business, if you can indicate how the trend has been, and secondly, in terms of incremental economics, how much is differential for us, if you can help us understand that also [Indecipherable] margin differential.

Sailesh Chimanlal Mehta — Chairman and Managing Director

I couldn’t get your question. Let me just ask my colleagues if they did. Have you understood the question?

Chirag Shah — White Pine — Analyst

I will repeat the question.

Tarun Sinha — President, Technical Ammonium Nitrate

So, Amitabh, Tarun here.

Amitabh Bhargava — President and Chief Financial Officer

Okay, go ahead.

Tarun Sinha — President, Technical Ammonium Nitrate

I understood your question, but go ahead, please.

Amitabh Bhargava — President and Chief Financial Officer

Tarun, go ahead.

Tarun Sinha — President, Technical Ammonium Nitrate

Okay. Sure. So the first part of the question was what percentage of the revenue or of the business is the solutions model that was the first question. And the second question, as I understood, was what sort of margins or differential margins are we making out of the solutions model? Is that correct? Were these the two questions?

Chirag Shah — White Pine — Analyst

Yes.

Tarun Sinha — President, Technical Ammonium Nitrate

Okay, fine. Okay. So, on the first part, we have started this business model of holistic solutions about a year and a half or so back from now. So it is in the nascent stage of its journey. It’s coming up quite nicely, and we are seeing some very positive responses across all the end user segments and the way we categorize the end user segments, because that also determines the profitability of the model. The way we categorize the end user segments in the solutions model is there are three end user segments. One is what we call as the coalmining segment, where we operate directly with the coal mine operators through that solution model. The second is the non-coal mining, which is all kinds of metals and limestone, but we are still mining. And the third end user segment for us, for the solution model is the infrastructure segment, where we operate in different kinds of infrastructure projects.

Now, because this solution model has been a journey which was started about a year and a half ago from now, as of now, it’s picking up. It’s a small portion of the overall business. But certainly as we move forward, because of the group strategy that Chairman was talking about again in his opening address, it’s about moving from just being a product supplier to a holistic solution provider also. So this will pick momentum in all the three segments. And we are already seeing a lot of pull because there are not too many companies in India which are operating on the solution model that I was describing to the earlier question, one of the earlier questions where I said that we are also building a business model whereby we are trying to get paid for the outcome that we generate instead of just the input being provided to the mining companies or the infrastructure. And that’s the fundamental difference. And these models take time to get matured because not too many companies are doing this in India. So that’s the answer to the first question.

And in terms of the margin is the second question, which is around the margin, obviously, because the solution model has got a lot of value for the end consumers because basically it means improving their cost of mineral extraction or improving their cost of rock extraction, if it is a quarry project, for that matter, naturally it comes along with products and services and solutions all bundled together instead of just a product being supplied as an input. So margin levels are much better compared to the product only model.

Now, again, in terms of what is the margin and what’s the delta between this model and the product only model, I would qualify these as commercially-sensitive information at this stage. So I won’t go any further on that.

Chirag Shah — White Pine — Analyst

Thank you. Thank you. I’ll come back.

Operator

Thank you. The next question is from the line of Deepak Poddar from Sapphire Capital. Please go ahead. Deepak, your line is on the talk mode. Please go ahead.

Deepak Poddar — Sapphire Capital — Analyst

Hello. Am I audible now?

Operator

Yes, sir. Please proceed.

Deepak Poddar — Sapphire Capital — Analyst

Okay, thank you very much for the opportunity. Sir, I wanted to dwell more on the ammonia mechanics that you mentioned. So what I understood is that if I have to buy ammonia from outside our landed cost would be close to about $700 per tonne, whereas from our plant we would be able to manufacture at $500 per tonne. So $200 is the spread that we get from this ammonia plant, is that right?

Amitabh Bhargava — President and Chief Financial Officer

I quoted last 10 or 15 years numbers, average numbers, and those numbers were more like$560 and $360, the gap of $200.

Deepak Poddar — Sapphire Capital — Analyst

No, as per current — I was just trying to understand.

Amitabh Bhargava — President and Chief Financial Officer

Current prices would be lower for ammonia because the $560 is based on $420-odd of Fob and the current Fob MiddleEast would be more like $280 to $300-odd. And gas prices are today on a higher side compared to the gas price that I mentioned from a last 10 or 15 years perspective. So today the margins are obviously more like I think we are at breaking even rather than having that $200-odd of margin. That is where the point I was making that one needs to look at it across the commodity cycle and not at a point in time in that commodity cycle.

Deepak Poddar — Sapphire Capital — Analyst

Okay, yeah, I got that point. So currently the spread is barely anything, right? I mean, that’s what you’re saying.

Amitabh Bhargava — President and Chief Financial Officer

Yes.

Deepak Poddar — Sapphire Capital — Analyst

Okay. And so from this plant, what will be the incremental depreciation and interest cost that will come in and we are going to capitalize it from first quarter onwards, right?

Amitabh Bhargava — President and Chief Financial Officer

We are expecting the commercial operation in the first quarter, given that we are already in May. So we would get the depreciation largely from second quarter onwards. So depending on when we commence commercial operations. The interest cost would be in the range of somewhere about of course, the current loans are at a higher interest rate because of the construction rate, and we need to refinance that. But on an average, somewhere in that around about INR200-odd cores would be the interest cost and depreciation would be INR276 cores to INR300-odd cores of — [Indecipherable]

Operator

Mr. Poddar are you done with your question?

Deepak Poddar — Sapphire Capital — Analyst

Yeah, this is per annum figure, right?

Amitabh Bhargava — President and Chief Financial Officer

Yeah, per annum figure. Yeah.

Deepak Poddar — Sapphire Capital — Analyst

Okay. Yeah, that’s it from my side. All the very best. Thank you.

Operator

Thank you. The next question is from the line of Vignesh Iyer from Sequent Investments. Please go ahead.

Vignesh Iyer — Sequent Investments — Analyst

Thank you for the opportunity. I just wanted to understand what was this spread of natural gas to ammonia in Q4? Just to get an idea, sir.

Amitabh Bhargava — President and Chief Financial Officer

Let me just correct one figure. Depreciation would be around INR110-odd core. Sorry, what was your question? I missed it.

Vignesh Iyer — Sequent Investments — Analyst

Yeah, I just wanted to get an idea. From what I understand now, we are breaking even at today’s level. Just to get an understanding, what was the spread? If you could quantify in Q4.

Amitabh Bhargava — President and Chief Financial Officer

In future.

Vignesh Iyer — Sequent Investments — Analyst

No, Q4, Q4 FY23.

Amitabh Bhargava — President and Chief Financial Officer

Q4, if the prices — we take prices of Q4, then what would have been the spread of ammonia.

Vignesh Iyer — Sequent Investments — Analyst

Ammonia natural gas spread. What was it?

Amitabh Bhargava — President and Chief Financial Officer

Okay, let me just check that. I’ll answer your question, Vignesh. In the meantime go to the next question.

Vignesh Iyer — Sequent Investments — Analyst

How is it panning out the new ammonia facility? If you could just give an idea when it will start the timeline earlier. Are we on time with that timeline? And by when — so, I mean — we have basically this facility is to backward integrate, but our time facility will take some time to coming up. Right. So in meanwhile, what is the idea? I mean we are selling it. Just give us an idea how it will pan out in FY ’24.

Amitabh Bhargava — President and Chief Financial Officer

Like I said, we are looking to commence operations in Q1 itself and therefore roughly nine months of operation is likely to be completed in this financial year. We need to still see what kind of capacity utilization but ammonia plants technically speaking, can ramp up to 100% capacity fairly quickly. But we have to see whether we get that capacity soon enough. But we are confident that this year we would run it at least average of 80% capacity utilization. So overall I think 75% to 80%, given that we are also losing three months, roughly three months in the year.

So quarter four, FOB Middle East prices were on an average of $670.

Vignesh Iyer — Sequent Investments — Analyst

Sir, I just wanted to understand what the spread was. Was it at $200 in quarter four?

Amitabh Bhargava — President and Chief Financial Officer

Quarter four gas prices would have been given that these again were linked with Brent Henry Hub and JKM, JKM component would have been on a higher side. So on an average, very difficult. But I think somewhere the margins would have been somewhere in that at least about $150-odd.

Vignesh Iyer — Sequent Investments — Analyst

Okay, there’s one last question. I just want to understand are we going to switch to a different tax rate? I mean a lower tax rate at 30% probably like many of the manufacturing entities have done? Or are we going to continue with the 33% including the deferred tax component?

Amitabh Bhargava — President and Chief Financial Officer

Tax rate. We have already moved to 25%.

Vignesh Iyer — Sequent Investments — Analyst

Okay.

Amitabh Bhargava — President and Chief Financial Officer

As far as SPL is concerned, it has right now two businesses, which is technical ammonium nitrate and fertilized business. And we have taken benefits under earlier benefits that were available. So in the time SPM remains an integrated entity it will be roughly about 34%. But what the market takes place and we would have the choice of opting for lower tax rate in Deepak Mining Solutions, which is sand business, while SPL where the fertilizer business would be there would continue to be at 34% because that is where we can set certain exemptions earlier and ammonia would be at 25%.

Vignesh Iyer — Sequent Investments — Analyst

Okay, fine. Thank you, sir. That’s all.

Operator

Thank you. The next question is from the line of Chirag Shah from White Pine. Please go ahead. Mr. Chirag Shah, your line is in the talk mode. Please go ahead.

Chirag Shah — White Pine — Analyst

Yeah, hello. Thanks, sir. On the fertilizer, you can just throw some light. I’ve seen very strong numbers, so how much is kind of sustainable? That is the first part. Specific to note about it could be a lumpy or a temporary event and some reversal could happen.

Amitabh Bhargava — President and Chief Financial Officer

Yes, the fertilizers are capacity utilization and fertilizer in the bulk fertilizer. This is where our ammonium nitro phosphate, ANP and NPK, both crop tech and smart tech capacities are. They were — while ANP was roughly about the capacity utilization, there was more like 70%-odd, 65%, 70%. But the capacity utilization at NP, crop tech and smart tech were on the lower side, partly because of our crop tech products are at premium in terms of pricing. Given the raw material prices were at a higher level last year, we saw some challenges in terms of the demand side or affordability of farmers. But even in that kind of an environment, our crop tech we crop total 1.01 lakh tonnes of crop tech we sold. In the previous year in fact it was about 40,000 tonnes. So we’ve seen almost 2.5 halftimes jump in our crop tech product. One is fundamentally capacity utilization and we do have a headroom available in increasing our capacity utilization in both NP and NPK. And given the raw material prices are going down and therefore in general NFPs of these products, particularly the premium products, would also commensurately come down, we are quite hopeful that this year our crop tech volumes would grow further and by a good margin.

So that’s one commentary as far as the volume is concerned. On the overall margin front, given that last year we had made some changes to our portfolio because some of the portfolio that we produced were seeing certain lower margins, so we did not produce some of those grades. But this year, given where the raw material prices are and the recent NBS that has been announced by the government, we see all our grades making fairly good margins. So even the volumes in non-crop tech NPK, which is in the smart tech category this year, we should see better volumes. Overall as far as your question of one-time kind of impact, given that NBS has been announced very recently and it has both January to March and April to June NBS has been changed, we may see certain provision in terms of the subsidy which we had booked compared to that, the change in NBS on the inventory which was lying in the channel, we would see some effect of that in our coming quarter.

So that is more like a one-time impact that we would see. But from a longer-term perspective, lower raw material prices are in fact a better outcome for us from our aluminum market perspective.

Chirag Shah — White Pine — Analyst

Sir, no specific call out for Q4 also right? Because sequentially also Q4 fertilizer segmental performance is extremely strong. So no specific call out for Q4 also right? It’s normal. It’s business as normal kind of thing.

Amitabh Bhargava — President and Chief Financial Officer

Yeah, it was normal. In fact, Q4 overall margins were better despite lower volumes and that reflected in the numbers. And like I was mentioning that some effects of revised NBA would come in Q1 investment.

Chirag Shah — White Pine — Analyst

Okay. Thank you very much, sir. And all the best.

Operator

Thank you. The next question is from the line of Ranjit [Phonetic] from IIFL. Please go ahead.

Ranjit — IIFL — Analyst

Hi, sir. Thanks for giving me the opportunity. The first question is in the opening remarks, Mr. Chairman has alluded to some headwinds in the domestic TAN business with the influx of imports. Just wanted to get a sense, how do we see the profitability panning out over the next one year? And that also with our own backward integration into ammonia. So we always have this decision to make whether to buy or make. How would that play out for all of this TAN business over the next one to two years?

Amitabh Bhargava — President and Chief Financial Officer

So, TAN business as Chairman was also mentioning that there’s been increased import in Q4 and there’s been high opening inventory. To that extent, we are going to see some pressure on the prices. But fundamentally, as far as the demand sectors are concerned, whether it is coal or the infrastructure there, we are not seeing any weakness. In fact, if at all the kind of investment government has announced, we are likely to see better offtake on the infrastructure segment. So demand wise in fact volume wise, we are hopeful that this year with our increased capacity which last year we utilized partially but this year we have that available for the full year, our volumes should be better. Margins wise, if you see current prices and the current import situation is such that we may see some pressure on the margin side, but we have to see by the time the season again picks up post monsoon, we have to see what happens to the prices of both imported TAN and ammonia.

Your question on buy versus make, was it for ammonia? Because I heard you bring in the context of TAN. So buy versus make at this moment anyway, even earlier we were making roughly about 100,000 tonnes of our own ammonia from an old plant which was actually far less energy efficient. We are going to the extent of our own requirement, we would actually see a better economic in the operations of the new plant because it’s far more energy efficient. Assuming the same gas price, our cost of production from new plants would be better than what it was from the old plant. That’s one aspect.

The second aspect that in the event we produce more ammonia than what we consume, we are also seeing that the local traded ammonia or ammonia that is bought by players whose consumption is on a smaller level and where they don’t import directly, the prices of that are today almost, I think roughly about almost 50% to 60% premium over import parity prices. So the traded ammonia, local traded ammonia, which also has a significant volume, is actually trading at significant premium to import parity. And that’s because most of the players who are producing ammonia and trading it in the market, particularly the fertilizer players who produce excess ammonia, their cost of production is high given where the gas prices are.

Therefore, we are also seeing an opportunity of selling a part of our production in the domestic market, particularly when if you were to run both our old and new ammonia plants. So we’ll see a combination of that playing out in terms of our margins and once we start producing from our new plants in very odd situations that we would be importing but mostly we would be producing on our own and any excess ammonia we would also have an opportunity of trading in the domestic market.

Ranjit — IIFL — Analyst

Sure, sir. Are we allocating any portion of the new ammonia plant towards fertilizer?

Amitabh Bhargava — President and Chief Financial Officer

There is no such requirement. Ammonia would be consumed by all our three segments, TAN, fertilizer and acid. And the gas that we are buying, we are not buying from any priority sector allocation. So from that perspective we are free to allocate it to any of our product portfolio.

Ranjit — IIFL — Analyst

Sure, sir. Thank you. And one last thing, how do you see the peak debt panning out over the next one to two years now that we have kind of pushed the Gopalpur plant to what would be the peak debt levels over FY24 and ’25?

Amitabh Bhargava — President and Chief Financial Officer

So I think we have mentioned earlier, there are two capex that we have undertaken ammonia and TAN. Ammonia has if you look at cut off of March 31, ’23 has about INR700-odd crores of additional crops that needs to be installed. We may largely fund it by way of our internal approval. While we have tied up the bank debt, we may not draw more debt, at least for ammonia.

As far as TAN is concerned, over next three years we have roughly about INR1,500 crores of debt that we would draw down and we would also be typically paying INR250 crores to INR300 crore every year from our existing debt amortization of our existing debt. That’s the way the numbers are looking currently and I think we’ve made that point earlier as well, that our ammonia as well as Gopalpur TAN debt that we have tied up are — from amortization perspective are long-term debt anywhere between 10 to 14 year of repayment cycle.

Ranjit — IIFL — Analyst

Sure, sir. Thank you very much.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Amitabh Bhargava for his closing comments.

Amitabh Bhargava — President and Chief Financial Officer

Well, thank you, everyone, for your participation. There were interesting questions. And I think most analyst investors were focused on our ammonia plant, which is rightly. So because we are going to start our operations very soon. For any further queries or clarifications, please do get in touch with our investor relationship team and thank you once again for participation. Thank you.

Operator

[Operator Closing Remarks]