Gujarat Narmada Valley Fertilizers and Chemicals Ltd. (GNFC) Q1 FY23 Earnings Concall Transcript

Gujarat Narmada Valley Fertilizers and Chemicals Ltd. (NSE:GNFC) Q1 FY23 Earnings Concall dated Aug. 10, 2022

Corporate Participants:

A. C. Shah — General Manager and Company Secretary

D. V. Parikh — Executive Director and Chief Financial Officer

J. I. Desai — Head of Industrial Chemical Sales

A.C. Shah — Company Secretary & General Manager

Y. N. Patel — Head of Operation and Maintenance

Analysts:

Nitesh Vaghela — Anurag Services LLP — Analyst

Yash Dantewadia — Dante Equity Capital — Analyst

Nishit Shah — Equirus Investments — Analyst

Sagar Shroff — Financial Research — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to GNFC conference call to discuss the Q1, FY ’22 – ’23 financial performance. 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. Nitesh Vaghela from Anurag Services LLP. Thank you. And over to you. Mr. Vaghela.

Nitesh Vaghela — Anurag Services LLP — Analyst

Thank you, and good afternoon. Welcome to the First Quarter Earning Conference Call of Gujarat Narmada Valley Fertilizers & Chemicals Limited, hosted by Anurag Services LLP. From the management we have Mr. D. V. Parikh, Executive Director, and CFO; Mr. Y. N. Patel, Head of Operation and Maintenance; and Mr. A. C. Shah, General Manager and Company Secretary.

I would like to thank the management for…

A. C. Shah — General Manager and Company Secretary

Mr. Vaghela. Yeah.

Nitesh Vaghela — Anurag Services LLP — Analyst

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 the management, post which, we will have a question-and-answer session. Thank you, and over to you, sir.

A. C. Shah — General Manager and Company Secretary

Yeah. Before we start this briefing on the financials, I would introduce my other colleague on the — from the Company Management side. We have Mr. J. I. Desai, who is heading the Industrial Chemical Sales. We have Mr. Manish Upadhyay, who heads the Industrial Products, part of the industrial products chemicals. And we have Mr. Manish Billore, who is heading the Fertilizer Marketing department.

Please, I would request now Shri. D. V. Parikh, our Executive Director and Chief Financial Officer to take up for financial analysis part. Please.

D. V. Parikh — Executive Director and Chief Financial Officer

Thank you very much for organizing this meeting to — for the — to the organizers. And very good afternoon to all the participants who have joined this conference. First we will start with the pervasive aspects which are three covering the various periods over last year to this year. Allover, there is inflationary effect for various reasons. These inflationary effects are mainly driven by the energy crisis across the globe, and these are all pervasive in nature.

The second is the geopolitical situation not only for Russia and Ukraine which is going on since last six months, now issues between China — direct conflict between China and America is also cropping up because of dominance over Taiwan. China has already taken over the de facto management of Hong Kong. Apart from that there are leadership crisis and governance issues across many countries in different continents, mainly Africa, South America and in Asia as well. In Asia, the recent stat which has come up is that of Sri Lanka, Pakistan, North Korea and Philippines.

One of the period which is there also is covering the diseases part of it which is pandemic the corresponding Q1 of last year was severely affected because of the pandemic. And at our company, there was annual shutdown also coupled with that. So, figures on a Y-o-Y basis are not relatively comparable whereas on sequential quarter basis it is comparable.

When we talk about geopolitical, one of the biggest factor is going to be the stand of Germany. They already cleared the stand on Nord 2, but for Nord 1 that testing will be done sometime around winter. And it will have far reaching consequences not only in Germany, but on the other parts of the world in terms of chemical supplies. So, we will have to see how it pans out when it comes to second or third quarter down the line now.

The next part is on the Indian scenario. India also has witnessed inflationary effects by and large. Apart from that, it has seen its exchange plummeting to touching almost INR80 a dollar. Reserve Bank of India has made its stance clear by increasing the rates and thereby inflation has become the order of the day, although it is still contained as compared to other countries. Now all this will have a cumulative effect on the industry in terms of higher interest rates and higher burden of imports apart from the government exchequer.

Coming to the operating side of the company now. The operating performance in terms of production and sales, the production has been better as compared to Q4 that is sequential quarter basis in the fertilizer. However, chemical is affected because of various operating and marketing reasons. Similar is the case — in case of sales. The sales of fertilizers is better whereas the sales of chemical is affected because of the subdued market. In spite of all this there is highest-ever Q1 being reported by the company.

We have also given in our investor presentation the comparison of the last decade as to how normally the revenue and profits move around in quarter 1. So, if we look at even not only average, but all across Q1 of last decade, this is the highest-ever. And if we compare between the earlier highest-ever, the revenue of INR2,696 crores is up by around 68% as compared to Q1 of ’18 – ’19. And the PBT of INR761 crores is 108% up than that of the last year, which was the year of highest performance of GNFC.

So, apart from that there are no major effects in terms of overhead increases. The comprehensive income is affected because of the change in investments mainly the quoted investments because of the downward prices quoted on the exchanges mainly our investment in GSFC, GACL and Gujarat Gas reflect this downward trend. The total effect is around INR100 crore on account of this.

Coming to the cash flow part. Cash balance more or less has remained steady in spite of the profit because most of the cash is getting locked up as of now between subsidy and inventories. On a consolidated basis, the company is consolidating only one company which is Gujarat Green Revolution and it’s a profitable operation. As far as capex is concerned, we already touched upon the various capex in the pipeline in the investor presentations, and the balance sheet is having a size of around close to INR8,000 in terms of net worth.

So, with this, now I hand over the call back to the organizer. Thank you.

A. C. Shah — General Manager and Company Secretary

I would like to supplement that we have already uploaded the financial analysis PPT of the company from company side on our website for the information of all the investors. Thank you.

So, on the date of results apart from the results per se which are going in print media, detailed results which are going on exchanges are also coupled with the press release on the same day. And on the next day, that is yesterday, we have given the Investor presentation which is loaded on the website as well as sent to the exchange that may please be referred. Thank you.

Questions and Answers:

 

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Yash D. from Dante Equity Capital. Please go ahead.

Yash Dantewadia — Dante Equity Capital — Analyst

Hi. Congratulations on the performance. My question is mainly regarding what kind of trend are you seeing in TDI prices going forward and also nitric acid going forward as far as demand is concerned?

J. I. Desai — Head of Industrial Chemical Sales

Going forward?

A.C. Shah — Company Secretary & General Manager

Going forward. TDI and nitric [Indecipherable].

J. I. Desai — Head of Industrial Chemical Sales

Good afternoon.

Yash Dantewadia — Dante Equity Capital — Analyst

Yes, good afternoon.

J. I. Desai — Head of Industrial Chemical Sales

Yeah. I’m J. I. Desai. The going forward, the TDI prices as this largely depends on various — as our CFO has mentioned on various factors which are going on right now, particularly geopolitical situation and outcome of that. So, it is very difficult to predict actually the TDI price or the nitric acid prices going forward.

Yash Dantewadia — Dante Equity Capital — Analyst

Okay. Would you be able to comment on when the nitric acid expansion will be complete?

Y. N. Patel — Head of Operation and Maintenance

I’m Y. N. Patel. I’ll be responding. It is likely to be completed from January to March next year.

Yash Dantewadia — Dante Equity Capital — Analyst

And what kind of revenue will be — will that be adding to your top line? What is your estimate?

Y. N. Patel — Head of Operation and Maintenance

Take nitric acid. You are asking about concentrated nitric acid, right?

Yash Dantewadia — Dante Equity Capital — Analyst

Yes. Yes, sir. Any ballpark around — any ballpark figure is okay.

Y. N. Patel — Head of Operation and Maintenance

INR110 crore roughly.

Yash Dantewadia — Dante Equity Capital — Analyst

INR110 crores every year, right?

Y. N. Patel — Head of Operation and Maintenance

Yeah.

Yash Dantewadia — Dante Equity Capital — Analyst

Okay. Thank you. Thank you so much for taking my questions.

Operator

[Operator Instructions] The next question is from the line of Nishit Shah from Equirus Investments. Please go ahead.

Nishit Shah — Equirus Investments — Analyst

Good afternoon, sir, and thank you for this opportunity. Sir, I would like to understand how do you see the trend in raw material now.

D. V. Parikh — Executive Director and Chief Financial Officer

Raw material trends, like we have witnessed over last three, four months, it is disproportionately high in terms of their increases. Recently, there is a filler that these are going down, but given the situation which is narrated of winter coming in basically we keep fixed stock and fuel how they will move is anybody’s guess as of now.

Nishit Shah — Equirus Investments — Analyst

Okay. And did we see — did we experience any non-availability of natural gas or any raw material during the quarter?

D. V. Parikh — Executive Director and Chief Financial Officer

No, we have so far not witnessed the situation of not having the natural gas. But, of course, it is available at a price.

Nishit Shah — Equirus Investments — Analyst

Sir, what is the pricing currently of natural gas? Can you indicate that?

D. V. Parikh — Executive Director and Chief Financial Officer

Currently around INR105 per standard cubic meter.

Nishit Shah — Equirus Investments — Analyst

Okay. And sir during the — so for last one month in July, August, so have the prices of nitric acid and TDI trended upwards and they are stable?

J. I. Desai — Head of Industrial Chemical Sales

I’m J. I. Desai. As far as TDI is concerned, the demand is traditionally remain weak during the monsoon season. But with the festival season coming up, it is always and every year we observe that it is improved by 15th August to 1st — latest by 1st September. So now onwards the demand of TDI should improve.

As far as price is concerned, price is normal actually. At this point of time, the price around $2,600 to $2,700 is very much normal and it is in line with the average of longer period of 10-15 years like that.

Nishit Shah — Equirus Investments — Analyst

Okay. And sir, nitric acid?

J. I. Desai — Head of Industrial Chemical Sales

Nitric acid is — depends on ammonia price actually. And ammonia price is still prevailing at a higher level and so as the nitric acid prices are also prevailing at higher than the normal price.

Nishit Shah — Equirus Investments — Analyst

And the demand for nitric acid is good for the quarter?

J. I. Desai — Head of Industrial Chemical Sales

Yeah, yeah. Nitric acid is not really importable commodity. So, domestic demand and domestic supply are in balance and the demand persists. There is a little bit traditional due to monsoon. Some of the industries like potassium nitrate or calcium nitrate, these [Indecipherable] sectors the demand remains lower, but this has a very wide end use segments being a basic chemical.

Nishit Shah — Equirus Investments — Analyst

Okay. That’s all, sir. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Sagar Shroff from Financial Research. Please go ahead.

Sagar Shroff — Financial Research — Analyst

Yeah. Thank you for taking my questions. I have two questions. One is operating EBITDA was about 28% in this quarter vis-a-vis 32% in Q4. I mean, can we say, I mean this is the bottom that we have reached? That is the first question.

And secondly, I wanted your view, sir, on centers, the centers policy on methanol as an alternate fuel which they are examining the feasibility just like ethanol blending, if you could offer us some comments? Thank you.

D. V. Parikh — Executive Director and Chief Financial Officer

I’m D. V. Parikh. I will answer your first question on the EBITDA part, right? EBITDA on a sequential quarter basis has gone down from 32% to 28%. This is mainly on account of the volume loss predominantly of the chemical which has happened.

Sagar Shroff — Financial Research — Analyst

No, I wanted your view on the outlook, sir. Is this is the bottom will you say 28%?

D. V. Parikh — Executive Director and Chief Financial Officer

It is bottom or up, it is difficult to say because this chemical pricing is normally seasonal in nature. So we normally do not comment on the outlook for in terms of what will be the price, because prognosis on price of chemical is really anybody’s guess. It is not possible to comprehend the price of future.

[Call Ends Abruptly]