Deepak Fertilizers and Petrochemicals Corporation Limited Q4 FY23 Earnings Conference Call Insights

Key highlights from Deepak Fertilizers and Petrochemicals Corporation Limited (DEEPAKFERT) Q4 FY23 Earnings Concall

Management Update:

• [00:11:01] DEEPAKFERT said it is optimistic about the balance of the year, as it sees strong demand for its products in the coal mining, cement, and infrastructure sectors.

• [00:13:33] The company is also moving forward with its demerger plans, which will allow each business segment to focus more effectively on its specific sector.

Q&A Highlights:

• [00:17:15] Vishal Prasad from VP Capital asked that given the recent changes in gas and ammonia prices, would the company still recommend the ammonia backward integration capex. Amitabh Bhargava CFO said DEEPAKFERT believes that investing in ammonia backward integration is still beneficial despite recent changes in gas and ammonia prices. These changes are cyclical and the long-term benefits outweigh the short-term costs.

• [00:21:20] Vishal Prasad from VP Capital also asked how confident is the company that it will be able to get the GST refund promised by the government without much hassle. Amitabh Bhargava CFO replied that DEEPAKFERT believes that the state policies and implementation of policies in Gujarat and Maharashtra are not significantly different.

• [00:26:51] Vidit Shah at IIFL queried about the cost of the near-term procurement for the new ammonia plant, and the expected profit at current ammonia and gas rates. Sailesh Mehta MD said the company has secured 68% of its gas requirements for the new ammonia plant and is finalizing contracts for the remaining 32%. The estimated production cost is $450-$460 per tonne and the current market price is $300 per tonne, suggesting profitability.

• [00:31:57] Vidit Shah at IIFL enquired about the status of the TAN expansion plan and the Gopalpur project. Sailesh Mehta MD answered that the company has debottlenecked its ammonia plant in Taloja by 45,000 tonnes, and plans to debottleneck it by another 45,000 tonnes by September-October 2023. The Gopalpur project is expected to be completed in 2H26, and will add an additional 376,000 tonnes of capacity.

• [00:35:15] Chirag Shah at White Pine asked if the ammonia contracts are take-or-pay arrangements, or DEEPAKFERT have the option to not pick up the offtake. Sailesh Mehta MD said the company has tied up 68%. And the balance DEEPAKFERT is in the advanced stage of tying it up.

• [00:42:22] Chirag Shah at White Pine asked what percentage of the revenue or of the business is the solutions model. Sailesh Mehta MD replied that the company has started a new business model of holistic solutions, which is gaining traction and is expected to pick up momentum in the future.

• [00:42:23] Chirag Shah at White Pine also asked what sort of differential margins is the company making out of the solutions model. Sailesh Mehta MD replied that the margin levels for this model are much better than the product only model. However, the company cannot disclose the exact margin or the delta between the two models due to commercial sensitivity.

• [00:49:11] Vignesh Iyer from Sequent Investments enquired about the spread of natural gas to ammonia in 4Q23. Sailesh Mehta MD said that in 4Q23 gas prices were high, driven by the JKM component. Margins were around $150 per tonne.

• [00:50:47] Vignesh Iyer from Sequent Investments asked about an update on the new ammonia facility, the timeline for its start-up and how it will impact sales in FY24. Sailesh Mehta MD replied that the new ammonia facility is expected to commence operations in 1Q24 and will operate at an average capacity utilization of 75-80% in FY24.

• [00:54:30] Chirag Shah at White Pine asked that with fertilizer business seeing strong numbers in recent quarters, how sustainable are these numbers. Amitabh Bhargava CFO clarified that the company is optimistic about the future of its fertilizer business, as lower raw material prices will lead to higher margins and increased volumes.

• [00:59:47] Ranjeet from IIFL asked how will the influx of imports and the backward integration into ammonia affect the profitability of the TAN business over the next 1-2 years. Amitabh Bhargava CFO said the company expects to see increased demand for TAN in the coming year, but margins may be pressured by increased imports. The company is also considering selling excess ammonia production in the domestic market.