Gujarat Narmada Valley Fertilizers and Chemicals Ltd. (GNFC) Q4 FY22 Earnings Concall Transcript

Gujarat Narmada Valley Fertilizers and Chemicals Ltd. (NSE: GNFC) Q4 FY22 Earnings Concall dated May. 12, 2022

Corporate Participants:

Ankulbrachwala —

Unidentified Speaker —

D. V. Parikh — Chief Financial Officer

Jiten Desai — Chief Marketing Manager

Manish Upadhyay — Sr. Marketing Manager

Ryan Patel — Head of Operations

Yogesh Patel — Project Manager

Shri Jiten Ishverlal Desai — Head of Industrial Chemicals Division

dipali — Jr.Marketing Asst

Van Patel — Chief Manager, R&D

Jiten Desari — Senior Manager Marketing

Ashwin Shar — Director

Analysts:

Nirav Jimudia — Annual Research — Analyst

Ashish Agarwal — individual investor — Analyst

Mitesh Dut — Prabhudas Liladher — Analyst

Brachet — Quest Investment Advisors — Analyst

Nishith Shah — Equitas Investments — Analyst

Marshall Lewis — individual investor — Analyst

Yogansh Jeswani — Metal Analytics — Analyst

Naitik Mota — Sequent Investment — Analyst

Saket Kapoor — Kapoor and Company — Analyst

Bharat Sheth — Quest Investment Advisors — Analyst 

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q4 FY ’20 Earnings Conference Call of Gujarat Narmada Valley Fertilizers and Chemicals Limited, hosted by IIFL Securities Limited. As a reminder, all participant lines will be in listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference you touch tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ankulbrachwala [Phonetic] from IIFL Securities. Thank you, and over to you, sir.

Ankulbrachwala —

Thank you, Stephen. Ladies and gentlemen, good afternoon, and thank you for joining us on the 4Q FY ’22 Earnings Conference Call of Gujarat Narmada Valley Fertilizers and Chemicals Limited. It’s my pleasure to introduce the company’s senior management who are here with us to discuss the results.

We have with us Mr. D.V. Parikh, CFO; Mr. Rian [Phonetic] Patel, GM Operations; Mr. Girish Shah, Company Secretary; Mr. M.I. Patel, Marketing Head, Fertilizer Division; and Mr. Jiten [Phonetic] DDs, Head of Industrial Chemicals Division. We’ll begin the call with opening remarks by the management team. And thereafter, we’ll open the call for a Q&A session. I would now like to hand over the call to the management and take proceedings forward. Thank you, and over to you, gentlemen.

Unidentified Speaker —

[Technical Issues] Are we audible now? Okay. Thank you very much to the organizer. Now just as a word of caution, since everybody is identifying themselves, we would like to identify ourselves before the responses begin to each question. This year ’21, ’22 actually started with a severe impact of pandemic, which subsided around second quarter of the financial year.

So after the first half when it’s subsided, the inflationary effect started showing up and which was exacerbated by Russia, Ukraine war somewhere around late February ’22. Thereafter, the input prices, which were already on the high rise have been on the oil, especially that of gas and oil. As of now, the run-up in the oil still continues, but the gas is tapering down. Gas prices are dependent now for the future on the decision of Europe on the Russian gas supplies. So this is the enrollment under which most countries and businesses operated.

This has very severe impact on the country’s finances, especially those which were not having natural resources with them. This has affected businesses also in different ways, although our business was protected one from the input cost rises, although it was witnessed. But finally, a delta is maintained in terms of margin. And margin could also be announced because of the competitive position and pricing opportunities, which were there.

Now talking about the industry in which we are operating, touching upon the fertilizer first. The country show around 10% decrease in the consumption in the overall different types of fertilizer like — which comprise of urea, DAP, NPK, MOP and SSP. The total demand of 60 million metric ton has been there during ’21, ’22.

As far as domestic production is concerned, except the NPKs, the domestic production of most, that is DAPA statement, but urea and SSP has increased, whereas the imports have across the board decreased. This is mainly because of the high prices of fertilizer.

On the subsidy front, the subsidy of Government of India, which was budgeted at around INR80,000 crores has increased to INR150,000 crores. The budget for ’23, ’24 is INR105,000 crores. It all depends upon how the prices really move going forward. Now in terms of the subsidiaries, government has revised the subsidiary last year, effective 20th May for the MBS, which was again kept at the same rates effective 1st of October. So there was a tremendous government support as far as NBA subsidy rates were concerned.

As far as subsidy payout is concerned, there is a substantial payout happening month-on-month and it has not tapped even in the last quarter of the calendar and until March subsidy has been released. The total release of subsidy has helped the company also. And our outstanding has just a stock by around INR200 crores, mainly because of the higher gas prices. Otherwise, all the subsidy demands or the claims have been met by the government. On industrial chemical front, across the board, imports have increased, except to minor changing weak nitric acid, most of the chemical imports have increased. And in spite of that, the volumes sold have been higher by around 9%. This shows the company’s competitively positioned in terms of pricing and reach. So this is the background.

Now touching up on the financials. As you know, the total revenue from operations has gone up by around 69% and PBT has gone up by 142%. In terms of balance sheet, there is a healthy balance sheet with a reserve of INR7,900 crores to INR7,900 crores and company has a cash just of around INR3,500 crores with it. Cash flows have been very healthy. Cash flow has been over in around INR1,700 crores plus during the FY ’21, ’22. This is mainly on account of the time release of subsidy as well as internal approvals. So by and large, these are the financial. On the capex front, we already covered certain parts in the media release.

But during last year and the April 1, there are two facilities which have been operated. One is the TDA debottlenecking, which will increase the volume by around 10,000 metric ton per annum. And second is the farming acid, which will increase the volume by around 6,800 metric tonnes per annum.

This year, there are two other projects which are going to be operational. One is the four-megawatt solar power plant, which is around third quarter of calendar year FY ’23 — ’22, ’23. And another is the C&I with a capacity of 50,000 metric tons, which is also likely to be operational around the same time.

Apart from that, there is a capital outlay of INR4,250 crores which is already identified, out of which capex was INR135 already on course. And capex worth INR2,900 crores are at an advanced stage of approval. Out of INR2,009 crores, around INR2,500 pertains to polycarbonate, and INR400 crores pertain to gain hydrogen. So this is, by and large, the outline of what the company has done and what company intends to do.

The last is on the outlook, although we don’t make forward-looking statements, but currently, the outlook is stable, more will be covered by my colleagues from marketing, both fertilizer as well as industrial product and our personal people from operations group who is entering the strategy part as well. So with this, I hand over the call back to the organizer for the Q&A session. Thank you very much.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Nirav Jimudia from Annual Research.

Nirav Jimudia — Annual Research — Analyst

Sir, I have two questions. So one is on our P&L. So if we see this quarterly result, I think our raw material cost was up INR160 crores, but sales was almost up INR400 crores. So how much it was contributed by the volume increase. So that is number one. And if you can just talk about our — some of the basic raw materials for our Chemical division, like natural gas or tolling. So what was the average cost of natural gas for this quarter? And how those contracts are generally with our suppliers of natural gas. So are those on long-term contract basis? Or do we buy some natural gas on the spot basis also, if you can just touch upon those aspects, sir.

Unidentified Speaker —

Okay. So first, the last question we take up first. The — as far as contractual arrangement of natural gas is concerned, the contractual arrangement normally exists for the urea gas partly. We have certain contracts where in part of the requirement is met through the long-term and midterm contracts. The rest of the natural gas as more or less on spot basis. The requirement is mainly for the non-urea.

The requirement is a little lower at Bridge complex and relatively higher at the hedge complex. The hedge complex, the operational maturity, we are yet to gain. So we are not having the take-or-pay agreement kind of long-term arrangement as of now. The — as far as the cost part is concerned, the hedge natural gas prices have gone up by 116%, whereas at Bharuch, it has gone up by around 31%. Bharuch, we use mainly for methanol and methanol is, as you know, we sell also as well as a captive for Acetic Ccid. So when cost economics don’t work out, we purchase from outside. As far as the increases in Toluene and other party is concerned, see, all raw materials have increased and they range from 10% to 100%. If you take oil, it has increased by 57%. If you take gas as such, the non-[Indecipherable] gas taken together, it is around 16%, and there are different ranges for different materials.

Nirav Jimudia — Annual Research — Analyst

Okay. But sir, this gas price increase, what you mentioned of 116%, that is on a Y-o-Y basis? Or this is what you are talking on…

D. V. Parikh — Chief Financial Officer

Y-o-Y basis. That’s a Y-o-Y basis — on a Y-o-Y Q4. The increase is around 20%.

Nirav Jimudia — Annual Research — Analyst

Okay. So if you can just quantify like how much it is in terms of rupees per SCM, the cost in Q4, what we have actually incurred?

D. V. Parikh — Chief Financial Officer

That is already part of the investor presentation. If you look at the spread, which we have given between methanol and gas price, it is mentioned at INR31, which is a Bharuch complex. And it is INR49 at Bharuch complex with a weighted average on a year-to-year basis.

Nirav Jimudia — Annual Research — Analyst

Okay, okay. And sir, if you can just quantify in terms of our MMSCMD requirement of natural gas, both for the chemical division as well as for the fertilizer business?

D. V. Parikh — Chief Financial Officer

Okay. See, there are two complexes, which we operate. One is the [Indecipherable] one is Bharuch. [Indecipherable] we require roughly in the range of 200,000 to 225,000 FCM per day when the plant is in full operation. At Bharuch, the requirement is mainly for urea and non-urea. The urea requirement is around 1.25 million SCM per day. And the non-urea requirement depends upon whether the cost economics work out or not. But given the full swing of operation, it ranges between 0.5 million, 2.6 million at the mix.

Nirav Jimudia — Annual Research — Analyst

Okay. Sir, second question is on our expansion of concentrated nitric acid. So would there be — so this concentrated metric as it some portion would be used for our TDI expansion. So rest would be sold in the outside market? Is it the right assumption, sir?

D. V. Parikh — Chief Financial Officer

Yes, you are right. It’s the right assumption.

Nirav Jimudia — Annual Research — Analyst

Okay. But sir, then we would also require weak metric acid for the concentrated metric asset. So do we have the sufficient capacity with us or the commissioning of CNA would be along with the WNA capacity, which we have announced as a part of our expansion project.

D. V. Parikh — Chief Financial Officer

See, there are timing mismatches as of now between WNA and CNA. But meanwhile, our team is trying to tie up the weak nitric acid. And secondly, we have some product mix options available, whereby we can cater to the requirement of additional weak nitric acid. These are the three options as of now with us.

Nirav Jimudia — Annual Research — Analyst

Okay. Okay. And sir, one clarification on the sequential improvement of INR400 crores in the top line, what we have seen. So what were the major products which has contributed to this…

D. V. Parikh — Chief Financial Officer

AML weak nitric acid technical grade area. These are the three main products. And my colleague will cover more on the subject. Now I hand it over to Jiten Desai who is looking into the IP marketing side.

Jiten Desai — Chief Marketing Manager

Good afternoon. As CFO Parikh has told, these are the three products which has contributed increase in contribution or increase in income of these products is significant, and other products also have contributed. Those are — Aniline also has observed the growth concentrated matrices, Formic Acid, Ethyl Acetate, Acetic Acid also have observed the growth.

Nirav Jimudia — Annual Research — Analyst

Okay. And sir, Mr. Jiten, sir, if you can share your outlook on Aniline as well as CNA, that would be helpful, sir. This is my last question.

Jiten Desai — Chief Marketing Manager

Yes. CNA is not an importable commodity and downstream units ops concentrated in Nitrate Acid, the growth rate is very significant and consumers are required more and more concentrate Nitrate Acid. So for CNA, it is going forward also, it will remain strong. And as far as Aniline is concerned, my colleague, Manish Upadhyay

Will response.

Manish Upadhyay — Sr. Marketing Manager

Annual growth is also expected to be high because there are a couple of big companies could be consumer like no sea level as we are expanding with the capacity. So the consumption will be on a higher side. And we expect good demand also in coming — particularly, this year also.

Nirav Jimudia — Annual Research — Analyst

I’ll join back in the queue, if any.

Operator

The next question is from the line of Ashish Agarwal, an individual investor.

Ashish Agarwal — individual investor — Analyst

Hello. Am I audible?

D. V. Parikh — Chief Financial Officer

Please go ahead.

Ashish Agarwal — individual investor — Analyst

First of all, congratulations on a good set of numbers. And as I’ve seen, the MD also gave an expectation that in the coming quarter, we will maintain margin. My question was more specific to the polycarbonate and the green hydrogen. Can you elaborate more as to — did we analyze this? And when will this come like — as to when will the cash flow happen? When will the CWI happen and when these facilities will come like? And what would be the typical revenue out of it?

D. V. Parikh — Chief Financial Officer

Well, our colleague, Mr. Ryan Patel, Head of Operations will respond to you.

Ryan Patel — Head of Operations

Green hydrogen, as of now, we have taken approval from our board for inviting the exploration of interest from various parties. As of now, mostly green hydrogen plant are based on electrolytes, technology is already developed, but this is an age-old technology. There is nothing new in this technology. But since COP26, there are so many players coming out with various alternatives. And as of today, nobody has concrete proven technology. But anyway, we are going ahead with this project with 2.12 metric ton of hydrogen, green hydrogen. And along with this, we will be needing 25 megawatt solar power plant. That is renewable energy. So we’ll be going for 25 megawatt solar power plant. And regarding the polycarbonate, we have already very recently received market survey, which is very promising. So we are going ahead with investment of INR2,500. It will be in the range of INR2,500, INR2,900. And that will be at the head location. And this capacity will be around one lakh metric ton per annum. And as of to date, there is no producer of fully carbonate in this country. And looking to the history, we have had the various organizations have attempted for this project. But because of involvement of forging, mostly people have dropped this project. Since we have expediting, handling [Indecipherable] in our TDI-1 as well as TDI-II, we are moving ahead with this project.

Ashish Agarwal — individual investor — Analyst

And how much would be the typical demand in India for this polycarbonate?

Ryan Patel — Head of Operations

Polycarbonate demand as per our perception of marketing, it is growing at the rate of 9% CAGR.

Ashish Agarwal — individual investor — Analyst

And today, how much it would be?

Ryan Patel — Head of Operations

Pardon?

Ashish Agarwal — individual investor — Analyst

Today, how much it would be?

Ryan Patel — Head of Operations

Today, 1.8 lakh metric ton is imported in the country. And as of now, there is no producer of polycarbonate in the country.

D. V. Parikh — Chief Financial Officer

We are basically the import substitutes. As far as your question on green hydrogen is concerned, it is more to meet with the regulatory framework. And there are certain obligations which central government has come up with that those who are producing from fossil fuel will have to meet certain percentage out of green hydrogen. These are not formally announced, but then we are doing the preparatory work, and we are going ahead with 25 megawatt of solar back of facility for that.

Ashish Agarwal — individual investor — Analyst

Okay, sir. And typically, when will the groundwork start for the polycarbonate and the green hydrogen project, will it start in the coming year? Will we see some cash flow getting into these projects in the coming year?

D. V. Parikh — Chief Financial Officer

Right now, the gap…

Ashish Agarwal — individual investor — Analyst

Hello?

Yogesh Patel — Project Manager

I’m Yogesh Patel, Answering your question regarding polycarbonate. We already have encouraging market server report from third party, which is supporting perception of our IP marketing group. We will be conducting this TFR, which will take three to four months. Based on that, we will move ahead with management approval and will then take up the project. Normally, this type of project takes at least 36 months for implementation.

Ashish Agarwal — individual investor — Analyst

Okay. Okay. Okay. Okay. Thank you. That was my question. That’s it. Thank you.

Operator

Thank you. The next question is from the line of Mitesh Dut from Prabhudas Liladher. Please go ahead.

Mitesh Dut — Prabhudas Liladher — Analyst

Thanks for the opportunity. So my first question is on the cash flow statement, which indicates that our corporate deposit of INR2,000 crores has been made. So if you could just share which corporate is this where you made the deposit?

D. V. Parikh — Chief Financial Officer

We have Gujarat Government’s Financial Service Corporation called GFS. We have made a deposit with them of INR2,400 crores. Gujarat State Financial Services is the name, which is a government of Gujarat control loan.

Mitesh Dut — Prabhudas Liladher — Analyst

Sure. My next question is with the prices of said TDI, etc, undergoing some correction, even as the oil, gas and ethanol or we and all the other input prices rising or order of home. So would it be impacting spreads for the company? And if so, would it be fair to say that Q1 of FY ’23, that is the current ongoing quarter could be a slightly weaker quarter as compared to the quarter gone by in Q4?

D. V. Parikh — Chief Financial Officer

Gentlemen, your voice is not pretty audible. If you can come up again, and also to make your question very short and crisp as far as possible, please.

Mitesh Dut — Prabhudas Liladher — Analyst

Am I audible now, Sir?

D. V. Parikh — Chief Financial Officer

Yes, it is.

Mitesh Dut — Prabhudas Liladher — Analyst

Okay. So what I asked is with most of the — I mean, with some of the product, the final product prices correcting, particularly acetic acid, TDI, etc. And whereas your input prices being firm or rising, so would it be impacting spreads for the company? And would it be fair to say that the current — I mean, the ongoing quarter Q1 could be slightly weaker as compared to Q4?

Unidentified Speaker —

Hello. Yes. I’m Jian. Good afternoon Prices for any commodity and particularly the chemicals are cycle actually. And TDI prices is on downward trend, but still persisting at a reasonably high level. TDI also has observed the correction because the normal price rent is around $500 to $600, which has gone up to $1,100. So I would say that it is not reducing but it is normalizing. Prices are normalizing actually.

Mitesh Dut — Prabhudas Liladher — Analyst

Hello? Sure. And on the margins, on the spreads, I mean, are we seeing a compression on the margin?

Unidentified Speaker —

Margin and input cost increases. Okay, it is actually month-on-month scenario. Like I said in my initial statement, the oil is still on the run, whereas gas price is tapering down. There will be a mix of many factors apart from oil and gas, which will decide about the margin.

Mitesh Dut — Prabhudas Liladher — Analyst

Sure. Okay. Okay. Sir, one final question, if I may. I mean, when can we expect the weak nitric acid and the volume nitrate plant plans to come in by which year?

Unidentified Speaker —

Ran Padalkar answering your question. New weak nitric acid and Anmilwill be on stream by year 2026.

Mitesh Dut — Prabhudas Liladher — Analyst

2026. Okay. Okay. That’s all. Thank you so much.

Operator

The next question is from the line of Brachet from Quest Investment Advisors.

Brachet — Quest Investment Advisors — Analyst

Hi Sir, thanks for the opportunity. We started the commission, I mean two brownfield facility in current year. So on account of that, how much additional turnover can we expect to…

Unidentified Speaker —

Management.

D. V. Parikh — Chief Financial Officer

See, we have started a farming asset in this year and around fourth quarter of calendar year last year, TDI debottlenecking has happened. So on GDI, our colleague defense will respond. And on forming as our colleague money will respond.

Brachet — Quest Investment Advisors — Analyst

Hello. Good afternoon, [Indecipherable]. With the enhancement of CNA capacity by 50,000 metric on per year, that turnover is likely to be increased by around INR300 crores.

D. V. Parikh — Chief Financial Officer

And we expect around 6,000 tonnes access production in forming access this financial year. And roughly, it will be around INR four crores, INR five crores.

Brachet — Quest Investment Advisors — Analyst

Okay, okay. And Sir, this [Indecipherable] 50,000 additional capacity that we are…

D. V. Parikh — Chief Financial Officer

INR45 crores.

Brachet — Quest Investment Advisors — Analyst

Okay, okay. And Sir, how do overall– because what gave the confidence to us that in Q1, we’ll be able to sustain this spread. So some of the product, it may be going down, but some of the product, it may be strengthening also could be. So what gave us the confident that we’ll be able to protect this our spread in this Q1.

D. V. Parikh — Chief Financial Officer

We are hopeful of maintaining because of the product mix. Like you said, there are certain products which are going up, setting down there are input price mixes and all. But on the whole, we are hopeful of maintaining margins.

Brachet — Quest Investment Advisors — Analyst

So which are going up and which are just — I mean if you can give a few products…

D. V. Parikh — Chief Financial Officer

Stepping down. Bile is still on the run Okay? Month-on-month, petrochemical, other petrochemical like tolling, etc, varies depending upon the international situation. Now, if you talk about the output prices, the weak nitric acid mill are improving. CNA is also improving, whereas products like STC is going down, TDI is going down, but it’s a mix on the whole based on which we are hopeful of maintaining the margin.

Brachet — Quest Investment Advisors — Analyst

Okay. And last question, Sir. In some of the facility, like any line and the etcher China is the largest manufacturer and is locked down, they were not, I mean, in the market. So once they come into the market, how do we see impact on our company?

D. V. Parikh — Chief Financial Officer

Okay. Okay. There are two sides to earlier also, there have been like dumping or China supply issues were there. And even if it is there, like aniline, we have Nitrobegin as well as CNA available. And this year, we made a very good sales of Nitrobegin as well, around INR74 crores is at a basic value. And CNA also has a good demand. So supposing there are any headwinds. In case of any NIM, these are the two products we can say and optimize the overall contribution.

Brachet — Quest Investment Advisors — Analyst

Okay. Thank you very much and all the best.

Operator

Thank you. The next question is from the line of Nishith Shah from Equitas Investments. Please go ahead.

Nishith Shah — Equitas Investments — Analyst

Thank you, Sir. Good evening. Thanks for the opportunity. Sir, I would like to understand what is our cost of making ammonia?

D. V. Parikh — Chief Financial Officer

Will you please come up again?

Unidentified Speaker —

Cost of ammonia.

Nishith Shah — Equitas Investments — Analyst

Sir, what is our cost of making ammonia?

Unidentified Speaker —

Making ammonia?

Nishith Shah — Equitas Investments — Analyst

Okay. Cost of making ammonia is ammonia, as you know, we have two sources. One is NGE, second is oil. So it depends upon the input prices. But last year, if you see, it ranges between 40,000 to 50,000. And gas-based ammonia also, we have a mix of gas, both domestic as well as RLNG. So on the whole, the cost is lower than based on the RLNG because of the domestic gas.

Unidentified Speaker —

Okay.

Nishith Shah — Equitas Investments — Analyst

It varies from month to month.

Unidentified Speaker —

Okay.

Nishith Shah — Equitas Investments — Analyst

Sir, what I understand the spot ammonia prices would be approx $1,200. So for our cost of manufacturing, ammonia through oil and gas, both will be significantly lower, right? So, in that terms, how much it would be in dollar terms? Or how much it could be — for Q4 in dollar terms, what would be our cost?

D. V. Parikh — Chief Financial Officer

Q4 dollar terms. So, we have in rupee terms like oil price has been around 50,000 — and from oil to ammonia, there is a specific ratio and certainly made up cost. But more or less, you can say the ammonia cost in Q4 is around 50,000.

Nishith Shah — Equitas Investments — Analyst

Okay. And sir, oil base will be used more for the chemicals. Is that right understanding?

D. V. Parikh — Chief Financial Officer

It is mainly for chemicals. We do use that ammonia in fertilizer called [Indecipherable] — it is not end-based ammonia, which we use. [Indecipherable] is exclusively used for name coated urea.

Nishith Shah — Equitas Investments — Analyst

Okay. Okay. And sir, how do we see the native price in natural gas prices going forward in 2023?

D. V. Parikh — Chief Financial Officer

See, like we said in the beginning, it all depends upon Europe’s decision of sourcing Russian gas because that’s a disruptor. — mainly the demand has increased towards that side because of certain decisions of not to source the Russian gas.

Nishith Shah — Equitas Investments — Analyst

Okay. Sir, so wouldn’t we have any long-term contract even midterm like one year or such contracts?

D. V. Parikh — Chief Financial Officer

Like we already covered this response in one of the earlier questions. as to what kind of contractual arrangement we have for the natural gas.

Nishith Shah — Equitas Investments — Analyst

Okay. Sorry, sir, I got dropped in it. So if you can go through the transitions. Thank you.

Operator

Thank you. A reminder to the participants anyone who wishes to ask a question may press star and one at this time. The next question is from the line of Marshall Lewis, an individual investor. Please go ahead.

Marshall Lewis — individual investor — Analyst

Good Afternoon, my first question is regarding the KDI. So, can you please advise that what was the average price of KDI during the Q4? And what is the average price you can say, from 1st of April to 30th of April or 1st of April to 10th of May whatever data you have? And number two, what was the turnover of KDI stand-alone in the Q4?

Shri Jiten Ishverlal Desai — Head of Industrial Chemicals Division

I’m Jiten Desai, replying to your question.

Welcome the first in the Q4, the price, our price, which I will tell you in the dollar terms that CF our price is largely depending on the import parity price. And the dollar price remained at an average of $2,850 CI of India during Q4. And in the month of April, it has increased. The price has increased to $3,250.

Marshall Lewis — individual investor — Analyst

But sir, just now you said that like that the price is tapping down

Shri Jiten Ishverlal Desai — Head of Industrial Chemicals Division

It is stepping down in the month of May.

Marshall Lewis — individual investor — Analyst

Okay, okay. So sir what is current approximately?

Shri Jiten Ishverlal Desai — Head of Industrial Chemicals Division

Today, it is quoted around $3,000.

Marshall Lewis — individual investor — Analyst

So, it’s still high in Q4.

Shri Jiten Ishverlal Desai — Head of Industrial Chemicals Division

Yes. Q4, it was higher compared to–

Marshall Lewis — individual investor — Analyst

What I’m saying, the current price of $3,000, is it still higher than the Q4 $2850?

Shri Jiten Ishverlal Desai — Head of Industrial Chemicals Division

Yes, exactly. Yes.

Marshall Lewis — individual investor — Analyst

Yes, sir. Very good. Second thing, sir, what was the approximate turnover of contributed by the TDI in Q4?

Shri Jiten Ishverlal Desai — Head of Industrial Chemicals Division

KDI? INR280 crores.

Marshall Lewis — individual investor — Analyst

A small amount, okay. And the second thing that regarding this — with respect to Gas and like Europe struggling for not buying Russian gas. So are you planning to import some Russian gas or is it feasible or not?

D. V. Parikh — Chief Financial Officer

In fact, we source our — I’m D.V. Parikh, we source our gas from domestic suppliers, not international suppliers. And in turn, they may source from Russia or anywhere, we are not much aware about their supply sources, okay?

Marshall Lewis — individual investor — Analyst

Okay. So sir, like a crude price is still like going up or like is holding around 105 108 or 110 and gets a little bit tapering down. So how it’s going to — how these two things is going to impact the margin in the Q1 ’22-’23?

D. V. Parikh — Chief Financial Officer

We — we responded on this margin question just a couple of minutes back.

Marshall Lewis — individual investor — Analyst

No, no, like I heard that like let me say that like you will be able to maintain margins because you’re something going or something goes down. But I’m just asking with respect to the impact like driven by the crude, crude is going up and as it’s going to come a little bit down. So how much impact will be coming from these two aspects?

D. V. Parikh — Chief Financial Officer

Okay. See, the normal ratio of gas and oil, which we use is one is to 2.5. So that is 2.5x gas we use as compared to oil. Okay? For example, if we use around INR700 crore worth of oil, then gas is around 2.5x of that, normally. So, when gas prices go down, the biggest breaker we get is in TDI production cost.

Marshall Lewis — individual investor — Analyst

TDI? TDI?

D. V. Parikh — Chief Financial Officer

Yes. TDI, we have the steam and hydrogen and see our requirement, which is met through the natural gas.

Marshall Lewis — individual investor — Analyst

But sir, like recently, this government has increased the price of gas for Reliance about 50%. So is there a different gas than you are reading — because like it was 6.6% like unit dollar to within to 9.6% for something. So…

D. V. Parikh — Chief Financial Officer

There are three types of gas prices — what government controls are announced is every six months — the second is auction-based prices, which is a freedom given to companies like — can Reliance Okay? And third is what is available in the spot. The time of pricing is what is there on a formula midterm, long-term formula-based prices. To resource our gas, especially for TDI on a spot basis. In with government fixed trials on that.

Marshall Lewis — individual investor — Analyst

No, no, sir, what I’m saying, I like just to understand academically. So, when the government has announced the six-monthly price, which will be well September by almost 50%. So, should this increase, it will also not increase the spot price. This is my question.

D. V. Parikh — Chief Financial Officer

Okay. I forgot to introduce I’m D.V. Parikh. It has– The government price which is announced six monthly is meant for the domestic cases. And domestic gas by design is supposed to be using urea — so this gas price increase is a pass-through.

For example, we received the gas from ONGC, okay. So, gas price of ONGC has let say, gone up by the percentage you are referring. This is going to be passed through in the form of subsidy.

Marshall Lewis — individual investor — Analyst

Okay. So no. So you are saying that that gets — we are using only for urea or ammonia? Or are we not reading that case for TDI? This is my question.

D. V. Parikh — Chief Financial Officer

No, this is what I’m saying. We can’t use by regulation. This domestic gas into non-urea.

Marshall Lewis — individual investor — Analyst

Okay. Okay. Okay. So the whatever less–

D. V. Parikh — Chief Financial Officer

Unless it is an auction gas, which has started off late beginning with Reliance, followed by Ken.

Marshall Lewis — individual investor — Analyst

The spread will also be high. I only try to understand that this — when the general price in the market has been increased by 40% to 50%, will this not have a cascading impact on whatever gas you are buying from promotive sort is on liposome?

D. V. Parikh — Chief Financial Officer

No. We have not bought this kind of auction guests so far. Our urea gas is partly contracted partly on spot and TDI gas is totally on spot.

Marshall Lewis — individual investor — Analyst

So, the gauge, which is available in the sport is not having any peering from this price.

D. V. Parikh — Chief Financial Officer

No.

Marshall Lewis — individual investor — Analyst

Okay. Okay. Okay, fantastic. And sir, my other question that we back INR200, INR400 crores with CSF1, what is the rate of interest on that?

D. V. Parikh — Chief Financial Officer

5.25 Banks are putting around 5%. We are getting SFS, 5.25. — or the tenure, but for a normal tenure of a year, we are getting 5.25%…

Marshall Lewis — individual investor — Analyst

But like this other NBFC like, for example, the Bajaj Finance, LDFC they not give higher rates as for two years on like or maybe some or maybe some small, small person we can park for different periods because the entire amount, we may also not need after one year. So maybe half of the amount or what person we could have passed for a two-year teaching a high rate with a triple-edited company.

D. V. Parikh — Chief Financial Officer

These are company’s financial decisions, and we are comfortable with GFFS. There is an internal directive given by energy and petrochemical department to part the funds, excess funds with GFS.

Marshall Lewis — individual investor — Analyst

Okay. Okay, sir. Thank you

Operator

The next question is from the line of Yogansh Jeswani from Metal Analytics.

Yogansh Jeswani — Metal Analytics — Analyst

Am I audible?

D. V. Parikh — Chief Financial Officer

Yes, yes.

Yogansh Jeswani — Metal Analytics — Analyst

Sir, one follow-up on your investment in the G7. So the INR2,000 crores that we have to, you said 5.25%. So I just wanted to understand what is there any lock-in for this?

D. V. Parikh — Chief Financial Officer

No. It is withdrawable on notice, first notice.

Yogansh Jeswani — Metal Analytics — Analyst

There is no lock-in or any exit load kind of…

D. V. Parikh — Chief Financial Officer

No lock-in. The only thing which we — which might get affected is the rate of interest, if you shorten and do the encashment over the period of in case of requirement or liquidity issues.

Yogansh Jeswani — Metal Analytics — Analyst

Understood. So if we have to think about in the instead of parking the money here, mining we try and think of something like a buyback or share because I think our capex plans are still till 2026. So we have a couple of years. And by the time, there will be significant internal accruals. So why not a liberal dividend or even better of mirabecause bilats are more tax efficient. So why not something on those lines?

D. V. Parikh — Chief Financial Officer

Okay. See dividend increased by 25%, and there is a maintainability, which is requiring case of a dividend. So these are boards approval and decisions involved. Okay. Number two, vendor financing, we do negotiate with vendors in every proposal of high value about this. But then if they have a requirement, which is met with the internal approvals or other sources, then they don’t opt out of it. We are trying for keeping this kind of terms during negotiation high-value negotiations.

Yogansh Jeswani — Metal Analytics — Analyst

Okay. And sir, secondly, on your capex plan that we have mentioned for WNA and the other one. So I was just going through Ant and WNS I was just going through the investment. So we’ll be spending INR950 crores, INR30-odd crores on WNA,and we expect a turnover of INR200 crores from it. And similarly, for INR182 crores, AN2, we are expecting INR200 crores. Then for your polygon, again on an investment of INR2,500 crores, we are expecting a turnover of INR1,500 crores. So in all these 3, the asset turn is very, very low. Any specific reason here? Or is this high-margin product and that is why we’ll be able to make the required returns. If you continue to elaborate a bit more…

D. V. Parikh — Chief Financial Officer

Yes. My colleague will elaborate more. But see, there are two things when it comes to the weak nitric asset and AML. Milk is directly a salable product, whereas weak 90 cases two mics. One is the captive use within Ameland consolidated nitric acid and secondly, a commercial sale. Okay? So what happens is asset turnover apparently may be low. But if you look at the probable margin improvement, the possibilities are very high because it has a further embedded margin or value addition in AML and CNA. And the kinds of payback decisions which are taken are based on these lines. What kind of captive resale is there, supposing we don’t have weak nitric acid, what happens? We cannot manufacture so much of NL because that kind of weak metric cast is not at all available. The imported quantities are miniscule.

Yogansh Jeswani — Metal Analytics — Analyst

So from the capacity that we are adding, typically, how much will we internally utilize actively out of this two lakh?

D. V. Parikh — Chief Financial Officer

Okay. My colleague will answer that.

Yogesh Patel — Project Manager

See, capacity, an milk, mainly will be going for sell totally. So there is no internal consumption as such. WNS, we will be consuming partly in AML. To the extent our consumption, it will be around 0.6% in the range of 0.6%, 0.6% — this balance will be either which will be sold or we can utilize in other products also through CN.

Yogansh Jeswani — Metal Analytics — Analyst

Okay. And sir, if I lost wrong, I think I don’t have the FY ’22 numbers, but with the FY ’21 numbers and the historical numbers, we typically produce around four lakh tons of WNA, right? So out of that, how much are you selling outside? And how much are we actively using now?

Yogesh Patel — Project Manager

Okay. Generally, last year, if you want our colleagues digital as I will tell. But by and a, if you see the balance, 100,000 to 125,000 is one may expect in terms of commercial sales, the rest is captive. But if you want an exact number for FY ’21, ’22, I hand it over to [Indecipherable]

Unidentified Speaker —

Hello, im In FY ’21, ’22, we sold 115,000 metric ton of WNA in the market.

Yogansh Jeswani — Metal Analytics — Analyst

Okay. So sir, if you are setting up a two lakh capacity, and you’re selling out one lakh capacity, so we do have excess capacity then, right, in the building system. So couldn’t have we reduced the size of this capex and probably increase capex on some other downstream products where the asset terms and the ratios would have been higher?

D. V. Parikh — Chief Financial Officer

Park, there is already a material balance. If you look at AML and the kind of specific consumption, which you explained, that will consume around 80,000 to 90,000 tonnes of weak nitric acid. For the CMF, which is going to be operational, will consume another 50,000. Now we are left with only 50,000 to 60,000 tons of weak nitric acid for a commercial sale at the most.

Yogansh Jeswani — Metal Analytics — Analyst

Understood. That’s really helpful. Sir, last question from my end. So over the years, if you look at your key products, for example, — so TDI as a product has seen a lot of volatility in terms of its realization. And now again, like you mentioned in the opening commentary that the prices are a bit softer. So — and with the ADD also, again, the dynamics might have changed. So in your opinion, what is the kind of pricing that you think is the sustainable pricing? Or is this a kind of a commodity or chemicals? In this, there is — there cannot be a sustainable way. It will be volatile, and that’s the nature of it. So in terms of your key products, say, India and one or two other products that you can help us explain, is there a sustainable relate with the company can maintain? Or are these products very, very scil[Phonetic]?

D. V. Parikh — Chief Financial Officer

Okay. Our IP marketing people will respond on this…

Unidentified Speaker —

I’m entering your question. This for chemical products, we are manufacture of basic chemicals and most of our products are import substitute. So we have no choice but to follow the import parity pricing. And as far as the range is concerned, whatever we have observed in ’21, ’22, FY ’20 to ’22, those are the phenomenally high price actually for most of our products. And it remained quite higher, about 30% to about 80% higher ranging for different products, different range. But there will be a new normal, of course.

We — as per our opinion, it will be all the products transwill find the new normal. And whatever it has remained before iovera, that will be slightly about 20% on an average basis will be higher a new normal levels. As far as TDI is concerned, if you see that about 10 years average is $2,550. — the current price is around $3,000. So the new normal we — in our opinion, should be anywhere between INR2,700 to 2,900…

Yogansh Jeswani — Metal Analytics — Analyst

Okay. That’s sir. So if I have to summarize basically what you are saying is given that most of our capacities are now running at optimum capacity and in some cases, above 100% utilization as well. So with the value is now normalizing, then growth will be only dependent on sites prices move up further from here? Or it can actually go down by 20%, 30% if the prices, say, reward to what the long-term trends are

Jiten Desai — Chief Marketing Manager

And Dipali[Phonetic] it is not like that. There are three products like we explained. One is TDI volume increased possibility certainly is forming acid and third is concentrated nitric acid. Okay? These are the three things which will be contributing to volume going forward. Secondly, in last financial year, we have seen increased production of certain products like ethyl acetate and AN melt. That is another possibility of maintaining it in terms of volume. So volume wise, these are the five products where there is a possible increase or maintainability possible of 21, 22 level.

dipali — Jr.Marketing Asst

Okay, sir. That’s it from my side, sir. I’ll get back to.

Operator

The next question is from the line of Naitik Mota from Sequent Investment.

Naitik Mota — Sequent Investment — Analyst

Yes. And first of all, congratulations on the great set of numbers. So just to add on to what you answered to the previous participant regarding the TDI turnover for Q4, which was somewhere around INR280 crores. So out of the INR2,020 crores that we have — that we have posted for Chemical division. The remaining INR1,740 crores, could you throw some light on which products have accumulated what kind of turnover for us?

Van Patel — Chief Manager, R&D

Okay. Normally, we don’t provide a product-wise breakup. But for information, the lines in that of urea and TDI okay, followed by acetic acid, weak nitric acid and melt and likes of that. But if you want a specific figure for each of the product as a company, normally, we don’t part with the product-wise number, both for revenue as well as profits.

Naitik Mota — Sequent Investment — Analyst

Yes, I understand that, sir. But the thing is earlier TDI used to be one of the key products, and that has fledged only a smaller part of our revenue in Q4. So I was just trying to get a picture which kind of products have — which particular products have increased our share in revenue?

Van Patel — Chief Manager, R&D

This — [Indecipherable] covered by our colleague, I will repeat. The AML technical grade urea, weak nitric acid are the products which have contributed to the revenue as well as margin.

Naitik Mota — Sequent Investment — Analyst

All right. Okay. That’s it from my side.

Operator

The next question is from the line of Saket Kapoor from Kapoor and Company.

Saket Kapoor — Kapoor and Company — Analyst

Sir, earlier also, you have I think ended the fact that a new normal is being set in all the industrial chemicals. So sir, if you could give us some more brief, what factors have now led to believe that this is going to be a new normal? Because what we have seen is that this logistic cost, the trade disturbances have been one of the major reasons for the increase in the selling prices. So, once they get restored in the near vicinity, are things going to come down? Or has there been a capacity that has been completely modal especially in terms of TDI and all — so if you could give some more color on that side?

Jiten Desari — Senior Manager Marketing

I’m Jiten Desari [Phonetic]. As I have told, replied while answering the earlier question that our — most of the products are import substitute. And currently, there are very few projects for our key products, TKD coming up in the world because of the Corona effect. And natural growth has also restored actually after the Corona, the recovery has started and that the natural growth, which we have observed a precure [Phonetic] period is again restored. So to compensate growth rate, there will always be demand supply situation in the favor of supplier for the key products.

Saket Kapoor — Kapoor and Company — Analyst

Right. And you did mention that softness in the TDI prices, I missed the earlier commentary. So for the sake of repetition, also, if you could give some more color how — are there any slackening in the price trend for TDI for this last two months?

Jiten Desari — Senior Manager Marketing

Yes, last two months is because of the demand weakening actually. The supply is steady and the demand because of the geopolitical situation and the costs have increased, the cost of life normal life has increased in Europe and other countries. That is why the demand has gone down. And that is the effect on TDI price, actually.

Saket Kapoor — Kapoor and Company — Analyst

Continue sir. Yes, what has been the decline side in percentage? Can you give some more color?

Jiten Desari — Senior Manager Marketing

Yes. As far as numbers are concerned, I have already informed while replying earlier question that it has gone down in the month of May only. In April, it was prevailed at a little higher range than what it was traveling in Q4.

Saket Kapoor — Kapoor and Company — Analyst

Okay, sir. I’ll come in the queue, sir, for the follow.

Operator

The next question is from the line of Bharat Sheth from Quest Investment Advisors.

Bharat Sheth — Quest Investment Advisors — Analyst

Sir, on this polycarbonate, have we tied up for some technology or we have our own technology, if you can give some color? And same thing earlier in earlier call, we had said that in some of the four, five products, we are the only sole manufacturer in India, and that cannot be — the technology is not easily available. So are we planning any brownfield expansion for the same product?

Van Patel — Chief Manager, R&D

Patel answering your question. See, the technology sourcing mainly is a problem in Stasi, but there also, we are trying with some of the technology supplier — regarding to carbon, we are already in touch with some of the technology suppliers, and we don’t face any issue regarding fully carbonate. Regarding other products, wherever we feel there is a scope will be moving ahead. But mostly, we will be needing our technology support. Generally, we don’t have our own technology, which is no project is developed on our own or arrange basis. So we will be in terms of technology supplier and wherever it is available, we’ll move.

Bharat Sheth — Quest Investment Advisors — Analyst

And do we think that some of the products where we are sole manufacturer or some other producer can also source the technology and set up?

Van Patel — Chief Manager, R&D

See, this is always an open market, but mostly, over a period of time, we have acquired some expertise in handling some of the products. And because of integrated nature of our complex, we don’t see any threat from any competitor in near future.

Bharat Sheth — Quest Investment Advisors — Analyst

Okay. And sir, last question on the H as well as Baruch side. So do we have sufficient land for future expansion?

Van Patel — Chief Manager, R&D

Yes. See, as far as Baruch complex mostly it is full. But some of the products, which we are already manufacturing, we have certain room for expanding the capacity — existing capacity. But any new project, brownfield projects, we are planning at the site, and we have ample land at the haste.

Bharat Sheth — Quest Investment Advisors — Analyst

Can you spell out, sir, how much land do we have in the power side, the scenario?

Van Patel — Chief Manager, R&D

See, around INR1,800 crore land is available at the head side. Power, we can always source from JETCO. Power is not a constraint for anybody satin Gujarat.

Bharat Sheth — Quest Investment Advisors — Analyst

INR1,800 crores or INR1,800 acres…

Van Patel — Chief Manager, R&D

1,800 acres, sorry.

Operator

Thank you. Ladies and gentlemen, due to time constraint, we take that as the last question. I now hand the conference over to the management for the closing comments. Over to you, sir.

Ashwin Shar — Directors

Yes. Thank you very much. On behalf of – I’m Ashwin Shar, on behalf of GNFC management, we extend our sincere thanks for the support extended by the organizing sum, [Indecipherable] and our management team as well as the valued investors for their unstinted interest and support in the capital of the company in making investment in this GNFC. So with this positive results and positive remarks from the investors, we declare this con-call as closed.

Operator

[Operator Closing Remarks]