Gujarat Narmada Valley Fertilizers and Chemicals Ltd Q3 FY22 Earnings Conference Call Insights

Key highlights from Gujarat Narmada Valley Fertilizers and Chemicals Ltd (GNFC) Q3 FY22 Earnings Concall

Management Update:

• The company said there have been significant developments internationally and domestically comparing 2Q22 to 3Q22. Internationally, energy prices are on the wild, be it gas, oil or coal. Though these prices should be firing up the economy but prices are firing up itself due to the geopolitical tensions.

• Domestically, GNFC got affected due to the budget in terms of two products, methanol and acetic acid where the duty was reduced by about 2.5%. However, there was a positive sign since duty on oil was reduced by 2.5%. On a net basis, GNFC expects effect to be either neutral or positive.

• GNFC recorded INR1,427 crore of PBT and INR1,060 crore of PAT, which is the highest ever, even considering the annualized performance of the company over the last 46 years.

• Capex lined up of around INR1,700 crore over a period of next three years.

Q&A Highlights:

• Nirav Jimudia of Anvil Research asked about how the company is placed in terms of ammonia requirement. D V Parikh CFO said that as far as ammonia is concerned both gas based and oil based capacities are utilized fully. GNFC does not import ammonia. And as of now the company is self-sufficient in ammonia production.

• Nirav Jimudia of Anvil Research also asked about the current situation of concentrated nitric acid and if GNFC will continue producing more CNA and stopping TDI sales. D V Parikh CFO answered that TDI production has been scheduled already effective Feb. 1. Therefore, barring certain hiccups in the plant TDI manufacturing has started and is getting sold in the market.

• Nirav Jimudia of Anvil Research enquired that how GNFC is handing the HCL byproduct with increased TDI production, if it’s being sold or any downstream product is planned for HCL. Y. N. Patel replied that the company as of now has no plans to sell HCL. The company is able to dispose of whatever is produced.

• Nirav Jimudia of Anvil Research asked about the performance of nitrobenzene, formic acid, and aniline in 3Q22 and for nine months. D V Parikh CFO said that on a nine monthly basis, aniline and methanol are the two products where the production has been lower than its capacity. Over the three month period, only methanol was not produced to its capacity. Nitrobenzene market is well served.

• Ravi Shah from KC Securities asked that with the pandemic on the decline if TDI demand would pickup more than it was for the past two quarter. Jiten Desai said that TDI is used for comfort products like mattresses in furniture. Once COVID hit comfort products demand declined and hence TDI demand was suppressed. Therefore, with COVID subsiding, the demand should increase.

• Ravi Shah from KC Securities asked that if international oil prices are going to touch 100 as forecasted, how much GNFC would be impacted if it touches that level. D V Parikh, CFO replied that oil price would definitely impact GNFC but the current space are having cushions and the company should be in a position to wither away any crisis due to any conflict that might happen.

• Deepak Chitroda with PhillipCapital asked that ammonia which GNFC uses for urea is a subsidized gas and if the same gas is used to produce chemical products. D V Parikh CFO answered that GNFC cannot do that as there is a government guideline through Department of Fertilizer that all subsidized gas has to be used for production of urea by default. For chemical, GNFC has to do it with oil, gas or coal at market price.

• Deepak Chitroda with PhillipCapital asked about the sustainable margin profile over the next two to three years. D V Parikh CFO said a definitive quantification cannot be possible on the level of margin. But the company expects it should be earnings what it has been earning so far over the past years and gradually adding to that. Also, turnover to profit ratio should improve over the period of time.

• Deepak Chitroda with PhillipCapital enquired regarding the fertilizer business, if in ANP the company produces only 20 20 grade or any other and any future plans to add other grades. D V Parikh CFO replied that GNFC only has 20 20 grade and has no plans to add other grades in fertilizer, except for fertilizer trading that’s planned.

• Nitesh Singh of Prabhudas Lilladher asked about the long term plan on the high value capex apart from the INR1700 crore already mentioned. D V Parikh, CFO said that as a long term plan, the company is planning for naptha based complex where main items will be ethylene and propylene that are always in short supply. Depending on the feasibility study that is underway, GNFC is planning for large capex in the range of INR12,000 to INR15,000 crore long term.

• Urvija Shah from Isha Securities enquired that post the capex of three years, what will be the revenue breakup between the chemical and fertilizer segment. D V Parikh CFO clarified that the entire capex will result into a revenue increase and profit increase in chemical segment, but nothing on the fertilizer side. Additionally, GNFC is also thinking about trading of fertilizer, which will ramp up the topline and bottom line for fertilizer segment.

• Ravi Shah from KC Securities asked if there is any possibility of GNFC splitting its two business, fertilizer and chemical, into two different segments each. D V Parikh CFO answered that from a structure point of view, conceptually it is right, but practically it’s not possible given the nature of the company’s operations. GNFC added that these are integrated operations and it cannot have different setups.

• Viraj Mahadevia asked what part of the company’s revenue increase in nine months of FY22 versus the previous year has come from volumes versus price. Jiten Desai said that GNFC has total 22 chemical products and for the top 10 products the sales volume has increased by 4.3%, while sales value has increase by 90%.

• Viraj Mahadevia also asked about the company’s thought process around capacity expansion, if it’s driven more by import substitution or creating a export opportunity with China Plus One enquiries. D V Parikh CFO answered that it’s more kind of an import substitution.