Gujarat Narmada Valley Fertilizers and Chemicals Limited (NSE: GNFC) Q2 2025 Earnings Call dated Nov. 14, 2024
Corporate Participants:
Shri D V Parikh — Chief Financial Officer
Shri Y N Patel — Head of Department (Operations and Maintenance)
Mr. Manish Upadhyay — Additional General Manager
Ms. Chetna Dharajiya — Company Secretary & Chief Manager (Legal)
Analysts:
Nirav Jimudia — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Gujarat Narmada Valley Fertilizers and Chemicals Limited Q2 FY ’25 Earnings Conference Call. This call is being hosted by Anurag Services LLP. From the management, we have Mr. D. V. Parikh, Executive Director and CFO; Mr. Y. N. Patel, HOD, O&M; Ms. Chetna Dharajiya, Company Secretary and Chief Manager, Legal. [Operator Instructions] There will be an opportunity for you to ask question after the presentation concludes. [Operator Instructions]
I now hand the conference over to Mr. D.V. Parikh. Thank you, and over to you, sir.
Shri D V Parikh — Chief Financial Officer
Thank you, ma’am. Good afternoon, everybody. I have with me one more colleague who is from marketing, Mr. Manish Upadhyay too. So from operations side, we have Mr. Y. N. Patel, from marketing side, Mr. Manish Upadhyay and me and Chetna are there. She is representing the secretary side, I am the finance side.
Now I’ll touch base with first the business update and thereafter the financials of Q2. In terms of the business update, there are three ongoing capital expenditure projects, which are going on. The total of this capex — estimated capex is around INR2,200 crores. Out of this, one is that of weak nitric acid, which is around INR1,400 crores. Other is ammonia makeup loop, which is INR227 crores. And third is the — we call it CCPP coal-based power plant — power and steam plant, which cost around INR613 crores.
In addition to that, we have something on a tendering stage, which is for the ammonium nitrate melt for which update was given in the — during the Q1 that it has been approved for the tendering stage. So we are expecting this capex decision sometime in January. In addition to that, there is an announcement which was made during the Q1 that there is a strategic management consultant, which is appointed, who is Kearney. And they are working on basically two parts. One is charting out the future direction in terms of where to invest and how to invest. And second is transformation on the existing business side, which is expected to improve the bottom line, mainly the effectiveness and efficiency part of it will be taken care.
In terms of the policy changes at the fertilizer level, currently, there are no developments, but there are two things which are going on actively. One is on the revision in energy norms, which is expected to be effective 1st of April 2025. And second is on the cost part, the fixed cost of urea for which exercise is on and units are invited to their cost sections.
Subsidies are coming regularly. In terms of the volume pickup, fertilizer is going good in terms of volume, both complex, as well as state fertilizer, which is urea. And with Dahej plant now fully operational at 100% capacity, chemical volumes are also going up, including the consumption of stream products like CNA, etc.
Coming to the financial part, there are two differences on an H1 basis. Like last year, there was a shutdown, annual turnaround at Bharuch complex. And this year, in the late quarter one as well as whole of quarter two, there is a turnaround of Dahej complex. This has impacted to some extent, the volume of chemicals.
Actually, the volume of chemicals are impacted because of three primary reasons. One is the availability of TDI as a product from Dahej. Second is the impact on the AN melt because of the monsoon season. And third is there are competitive pressures which are being witnessed in case of Aniline. All this has brought down substantially the realization as well as the contribution part of the Chemical segment.
Whereas fertilizer did well, especially the complex fertilizer did quite well in quarter two. And therefore, on a net basis, there is a change in realization overall of close to around INR100 crores.
In terms of the operating cost, there are three important things. Other income this time is higher mainly because of the dividend. In terms of the cost elements, the personnel costs are somewhat relatively down because of certain write-back of the excess provisions.
Other costs are down mainly because of the catalyst consumption, which has not happened at TDI Dahej. And there is a finance cost, which is down by around INR15 crores because last quarter, we booked the charges on account of interest of EPCG. So this is broadly on the profit and loss side.
Coming to the segment part of it, in terms of segment results, the turnover, the revenue from Fertilizer segment has improved driven by the complex fertilizer, whereas it is down in case of chemical because of the reasons we cited. And the same thing has an impact — corresponding impact on contribution of Chemical segment.
In addition to that, there are impacts related to the turnaround, which is mainly the unproductive cost and the turnaround-related costs, which has impacted the TDI Dahej operation. And therefore, there are certain losses which are widened in case of Dahej.
So coming to the segment assets and liabilities, there are no major changes except on a Y-o-Y basis. There are three changes if we compare 30th of September 2023 to September 2024, which is on the fertilizer segment, the asset side has gone up because the subsidy levels have gone up in terms of the areas.
The second is unallocable portion has come down because between last year to this year, there are two fundamental changes. There are three elements which are contributing to a reduction of around INR1,600 crores in the unallocable assets, mainly because of the buyback of around INR851 crores and the rest is dividend between the two periods.
In terms of unallocated liability, there is a change of around INR524 crores mainly because last time it was accrued, but paid after the 30th of September. This time, it is paid well before 30th September. The amount pertains to mainly the dividend part of it. So coming to balance sheet, there are no major changes except now in the cash flow.
The two major items in the cash flow, one is on the financing side and the second is on the investment side. The financing side represents the dividend outflow, which is to the tune of around INR230 crores, which is paid out. And on the investment side, there is an advance which is given of around INR190 crores because of the capital projects, mainly the Weak Nitric Acid. So this is what is on the cash flow.
Apart from that, we see H2 to be relatively better because of the high available volume and no downtime of the sort, which has happened in H1. And therefore, the H2 forecast we have is that of a regular realization and reasonable levels of contribution.
With this, I’m completing my opening remarks, and the floor is open for questions. Thank you.
Questions and Answers:
Operator
Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Nirav Jimudia from Anvil Corporation. Please go ahead.
Nirav Jimudia
Yes, sir. Thanks for the opportunity. I have a few questions. So first is, if you can help us understand what was the volume lost at Dahej TDI plant in Q2?
Shri D V Parikh
Okay. See, volume loss of Dahej actually has happened from June onwards. As far as Q2 is concerned, there is a 14,000 tons of volume which is affected. And if you see overall from June onwards, there is an impact of around 16,000 metric tons.
Nirav Jimudia
Okay. So what was the actual production or the sales between both the plants put together in Q2?
Shri D V Parikh
Okay. I will request Mr. Y. N. Patel to respond on this.
Shri Y N Patel
So production for Dahej complex so far is.
Shri D V Parikh
He is asking about Q2.
Shri Y N Patel
Q2. Okay.
Shri D V Parikh
For Q2, the total volume of TDI production is 5,000 metric ton.
Nirav Jimudia
Sorry, sir, I didn’t get you.
Shri D V Parikh
So you can take 5,000 metric ton of production…
Nirav Jimudia
Between both the plant?
Shri D V Parikh
Yes.
Shri Y N Patel
Yes, yes, For TDI 1, it was 4,680. TDI 2 it was zero. So total…
Nirav Jimudia
[Indecipherable]
Shri Y N Patel
Yeah around five.
Nirav Jimudia
Got it. And sir, what was the PBT loss for TDI in Q2? Because I think for the first quarter, you mentioned that it was around INR59 crores. So what was the loss in the Q2?
Shri D V Parikh
PBT of Dahej?
Nirav Jimudia
Yes, PBT loss of Dahej, sir.
Shri D V Parikh
See, okay, additional contribution, which we lost is around INR62 crores. See, what happens when the TDI is down, marketing effort is more directed towards the upstream, which is CAN
Nirav Jimudia
Correct.
Shri D V Parikh
As well as WNA2. So the net loss is quantified in terms of this effect. So we lost around — if we talk about only Q2, we lost about INR170 crores in terms of realization and around INR62 crores in terms of the contribution.
Nirav Jimudia
Got it. So the losses of INR59 crores in Q1 at the PBT level for Dahej one plant plus another INR62 crores. Is the right assumption, sir?
Shri D V Parikh
Roughly, yes.
Nirav Jimudia
Got it. Got it. Sir, secondly, on our CNA production of 149,000 tons in FY ’24. So I believe that to that extent, WNA sales in the outside market would have been lower. So if you can help us understand that out of 437,000 of WNA production in FY ’24, how much we would have sold in the outside market?
Mr. Manish Upadhyay
I’m Manish Upadhyay from marketing side. Last quarter, we have sold almost 21,000 WNA market.
Nirav Jimudia
You are talking about Q2, right?
Mr. Manish Upadhyay
Q2.
Nirav Jimudia
Okay. And what was the figure for Q1 and FY ’24, sir?
Mr. Manish Upadhyay
Q1 it was 42 — sorry, last year — this quarter it is 20,000 — 21,000. And last year also, it was 22,000 — 22,500 roughly.
Nirav Jimudia
Got it. And sir, what was the sales volume for last full year, FY ’24?
Mr. Manish Upadhyay
Last full year? Normally, it is around 60,000 to 70,000 — 72,000, I’ve to search.
Nirav Jimudia
No worries, sir. Sir, when can we expect our CNA plant to run at optimum level? I think our capacity is now 166,000 tonnes. So when can we see optimum utilization for our CNA plant?
Shri Y N Patel
Right now — I’m Yogesh Patel, answering your question. See, right now, it is operating at almost 80% to 90%. But in last quarter, because there was no captive consumption from our Dahej complex, it was operating at slightly lower capacity. But now we are expecting it to run at 90% to 100% capacity.
Mr. Manish Upadhyay
Got it. But sir, is it not safe to assume that, let’s say, if TDI is not operating and in absence of coal-based and steam-based power plant, which is going to commission very shortly in FY ’25, anyway, there were the losses on the TDI side. So, was it not feasible due to the TDI shutdown at Dahej to sell that extra CNA in the market and improve the utilization rate?
Shri Y N Patel
Yes, we can sell it, but we are more interested in selling weak nitric acid.
Mr. Manish Upadhyay
Actually, it is a product mix. So which product is giving better valuation that we are selling. So we are concentrating more in nitric acid, weak nitric acid.
Nirav Jimudia
Got it.
Mr. Manish Upadhyay
Last year — actually, I got the figure. Last year, we sold almost 88,000 tonnes on 100% basis, weak nitric acid.
Nirav Jimudia
Got it. Got it. Sir, third question is on the ammonia side. So like last year, we produced close to around 636,000 tonnes of ammonia. So if you can just bifurcate in between the production, which was mean for chemicals and production, which was mean for urea. And also, if you can share the similar production numbers for ammonia for H1 of FY ’25?
Shri Y N Patel
See, normally, ratio for fertilizer to chemical is normally 58 to 41, 42. So in that ratio, normally we moves.
Nirav Jimudia
Correct.
Shri Y N Patel
So exact figure we have to calculate based on this.
Nirav Jimudia
No worries. No worries. And what was the ammonia production in H1 of FY ’25? And have we sold any ammonia in the outside market? Or was it utilized for our WNA production?
Mr. Manish Upadhyay
No, no, we have not sold any ammonia so far. In fact, to some extent, we have procured ammonia for our internal requirements.
Nirav Jimudia
Got it. Got it. Sir, considering the ammonia production for our Chemical division, what would be the annual requirement of that specialized oil, which we are using to convert into the ammonia? Let’s say, last year, if we take the ratio of 58 to 42 in terms of fertilizer to chemicals, what could be the requirement of oil for that ammonia production?
Shri Y N Patel
Correct? The oil requirement ranges between 250,000 metric ton to 270,000 metric tons.
Nirav Jimudia
Okay. And sir, are we seeing any sort of cost reduction there, because in the presentation, I could make out that the prices are fairly stable in between the quarters also, like close to around INR53 a kg. So with the crude prices falling, have we seen similar amount of corrections in the oil prices or that is not the case?
Shri Y N Patel
For Q2, that is not the case, but it has not hit so much hard, as compared to the Q1. If you take the total H1, the oil prices have not moved so significantly downward, as compared to the output realizations. So there are actually two elements where the cost has not moved down, rather it has gone up. One is the oil for the oil-based ammonia and second is the benzene.
Nirav Jimudia
Correct.
Shri Y N Patel
On an H1 basis, therefore, there is a hit on account of margin pressure on account of these two products.
Nirav Jimudia
Correct. Sir, one more thing which I observed from the annual report that, like last year we produced close to around 1 lakh tonnes of methanol. So like earlier discussion, you were saying that the gas prices, has to be economical for us to produce methanol. So if you can share at what level of breakeven gas cost would be viable to produce methanol given the current realizations of INR26, INR27 for methanol.
Shri Y N Patel
No, it’s dynamism between the methanol realization as well as the gas price. So it is dynamic in nature. But we could source this year some gas for which methanol is produced. Our operations head will tell the production of methanol, which has happened from the procured gas in H1.
Shri D V Parikh
Methanol production so far is 66,000 metric tons. But now November onwards, we have to again explore the — what are the energy prices. And depending on that, we will decide whether to continue with methanol production or we have to procure from market.
As Mr. Parikh said, see, there are two aspects. One is price of LG as well as at what price methanol we are getting. So if we are getting at cheaper rate, we will continue to source from outside.
Nirav Jimudia
Got it. Got it, sir. And sir, last bit from my side is, you mentioned close to around INR2,200 crores of capex, between the three, line of items. So out of that, how much we have spent till now and how much balance would be spent in FY 2025 and FY 2026?
Shri Y N Patel
Okay. In respect of the capex, there are three capex. One is on the coal and gas steam and power plant, not the gas, coal-based power and steel plant. The capex size is INR613 crores. So far, we have expended around INR250 crores on that on account of that.
As far as ammonia makeup loop gas is concerned, there is no major outflow which has happened on account of this project. Third is on the, weak nitric acid. In terms of the cash outflow, we have given advance to the tune of around INR190 crores.
Nirav Jimudia
Correct. Correct. Just a bookkeeping question, sir, like cash on the books currently is close to around INR2,000 crores and the investments which is showing of around INR2,300 crores, that is also parked in the liquid investment. So plucked together, we have cash and cash equivalent of close to INR4,300 crores.
Shri D V Parikh
No, it is not like that. The investment represents two things. One is G-SEC, second is quoted and unquoted equity shares. The quoted and unquoted equity shares portion is around INR1,100 crore out of this and which is not — we don’t liquidate that and we have no intention to liquidate that because we have been holding for certain reasons that since beginning.
Nirav Jimudia
Correct. Sir, last, if you can share on the fertilizer part, like in the presentation and in your opening remarks also you have mentioned that the fixed cost subsidy is in discussion with the government. So I think our recovery in terms of the EBITDA level or the losses at the EBITDA level was close to around INR700 to INR800 rupees per metric ton. So if you can share, if anything comes up here in terms of the compensation for the government, would our fertilizer segment start earning positive contributions?
Shri D V Parikh
It all depends upon what they really covered in terms of fixed cost. So it is premature to comment on such kind of conjecture.
Nirav Jimudia
Got it, got it, sir. Thank you so much, sir, and wish the entire team all the best.
Shri D V Parikh
Thank you.
Shri Y N Patel
Thank you.
Operator
Thank you. [Operator Instructions] As there are no further questions, I would like to hand the conference over to the management for closing comments.
Ms. Chetna Dharajiya
Yeah, I’m Chetna here. I extend my sincere thanks to the participants for active participation. I also thank the moderator and Anurag Services, LLC. I also thank all the participants from management teams. Thank you, everyone.
Operator
[Operator Closing Remarks]