Mangalore Chemicals & Fertilizers Ltd (MANGCHEFER) Q3 FY23 Earnings Concall Transcript

Mangalore Chemicals & Fertilizers Ltd (NSE:MANGCHEFER) Q3 FY23 Earnings Concall dated Jan. 31, 2023.

Corporate Participants:

Nitin Kantak — Whole Time Director

T.M. Muralidharan — Chief Financial Officer

Analysts:

Navin B. Agrawal — Analyst

Krishnakumar S. — — Analyst

Riddhesh Gandhi — Discovery Capital — Analyst

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

Vineet Agarwal — SKP Securities Ltd. — Analyst

Akul Broachwala — IIFL Securities, Ltd. — Analyst

Darshita Shah — Antique Stock Broking Limited — Analyst

Kapil — — Analyst

Presentation:

Navin B. Agrawal — Analyst

Good morning, ladies and gentlemen. On behalf of Mangalore Chemicals & Fertilizers Ltd. and SKP Securities, it’s my pleasure to welcome you to MCFL’s Q3 FY ’23 Earnings Webinar. We have with us Mr. Nitin Kantak, Whole Time Director, a 39 years veteran in the fertilizers business at the Adventz Group. Along with him we have Mr. Muralidharan, Chief Financial Officer, whom most of you have already met in the past webinars. All participant lines have been muted and this webinar is being recorded for compliance reasons. We’ll have the opening remarks and presentation from Mr. Kantak and Mr. Muralidharan followed by a Q&A session.

Thank you, and over to you, Mr. Kantak.

Nitin Kantak — Whole Time Director

Thanks, Navin, for this conference call and very good morning to all of you. Warm welcome for attending this call. I would like to start with giving you an overview of the fertilizer scene. Overall, the fertilizer sector performed well during this quarter. The global supplies of key fertilizer inputs further improved during this quarter. Also softening trend of raw material prices continued. All India urea primary sales for the quarter increased by 13.3% over Q3 ’22 from 96 lakh tons to 108.8 lakh metric tons. Cumulative urea sales for the year increased by 7.5% compared to previous year from 261.7 lakh [Phonetic] metric tons to 281.4 lakh metric tons.

All India DAP sales for the quarter increased by 7.8% over Q3 ’22 from 37.8 lakh metric ton to 40.7 lakh metric ton. And cumulative for the year, the DAP sales were up 16.1% from 79.5 lakh metric ton to 92.3 lakh metric ton. NPK [Phonetic] sales for the quarter increased by 18.4% over Q3 ’22 from 26.4 lakh metric ton to [Technical Issues] 18.7% from 95.4 lakh metric ton to 80.3 lakh metric ton.

Coming to MCFL marketing area. Karnataka — there is Karnataka, Tamil Nadu, Andhra Pradesh, Telangana, Kerala, and Maharashtra, the industry urea sales for the quarter increased by 18% over Q3 ’22 from 16.88 lakh metric ton to 19.85 lakh metric ton, whereas the MCFL sales increased by 9% from 1.13 lakh metric return to 1.22 lakh metric ton. Industry DAP sales increased by 103% from 3.12 lakh metric ton to 6.32 lakh metric ton, whereas MCFL were down by 61% from 15,000 metric ton to 6,000 metric ton. We had taken a conscious decision to limit DAP manufacturing [Technical Issues] during this quarter due to low [Technical Issues] and utilized the manufacturing capacity for other NP grade that is 20:20:00:13, which had much higher [Technical Issues] to 65,000 metric tons.

Coming to MCFL financial performance, you may recall during the investor call of Q2 ’23, I had informed you that we will come back with much improved performance. I am delighted to come to you with a robust performance for this quarter. In fact, this is the best ever quarterly performance in the history of MCFL. We have started reaping the benefits of implementation of Ammonia Energy Improvement Project. I’m proud [Technical Issues] that MCFL ammonia urea plants are the most efficient amongst the vintage ammonia urea plants converted from naphtha to natural gas. Also, we are amongst the top 10 most efficient [Technical Issues] urea plants in the country.

During the quarter, we operated our ammonia and urea [Technical Issues]. Similarly softening of phosphoric acid and ammonia prices has helped us [Technical Issues] very good contributions on our phosphatic fertilizer product mix. MCFL has registered a revenue growth of INR1,180 crores for the quarter, growing 54% year on year and 306% over the previous quarter. Higher revenue growth was due to continuous run of ammonia and urea plants as I said at higher loads and also due to the better contributions on NP/DAP. Also, after this subsidy was declared by the Department of Fertilizers, it was more profitable to operate the plants at high loads.

Cumulative for the year revenue growth is INR2478 crores, which is 14% higher than ’21-’22. For the quarter, MCFL posted an EBITDA of INR148 crores compared to INR71 crores for Q3 ’22 and negative EBITDA of INR16 crores in Q2 ’23. Profit before tax is INR97 crores for the quarter against INR47 crores for Q3 ’22 and loss of INR49.5 crores in the previous quarter. Profit after tax is INR76 crores compared to INR76 crores compared to INR31 crores in Q3 ’22 and loss of INR32 crores in previous quarter. We have thus wiped out the loss of INR9.4 crores of H2 ’23 and our cumulative profit after tax for the year ending December 31, 2022 [Phonetic] is INR67 crores. We are hopeful of continuing this positive trend for the next quarter.

I would like to highlight an important development which has taken place during this quarter. As you may be aware, Government of India had initiated One Nation One Fertilizer wherein all fertilizer companies should sell all types of fertilizers under Bharat brand. So we have started dispatches of our product under Bharat brand as per the bag design provided by Department of Fertilizers. Government has also initiated another scheme called Pradhan Mantri Krishi Samruddhi Kendra program wherein all the retailer fertilizer shops in the country have to be converted as PM Krishi Samruddhi Kendra. Thus, during this quarter MCFL has converted 86 retailer shops at district headquarters into PMKSK as per the DoF allotment.

I will now hand over to our CFO, Mr. T. Muralidharan, to give the presentation and give you more details about our financial performance for this quarter. Thank you.

Navin B. Agrawal — Analyst

Thank you, Mr. Kantak. Murali, please take over. You can share your presentation now.

T.M. Muralidharan — Chief Financial Officer

Yeah. Thank you. Good morning. Is my presentation is visible to all of you?

Nitin Kantak — Whole Time Director

Yes, Murali, it’s visible.

T.M. Muralidharan — Chief Financial Officer

Thank you, Mr. Kantak. You made my job more easier by giving some financial numbers. Nevertheless, we will take you through the presentation. As alerted by Mr. Nitin Kantak, we have posted the best performance on a quarterly basis. This is the first quarter we have posted results, okay.

Nitin Kantak — Whole Time Director

Can you put it on the full screen?

Navin B. Agrawal — Analyst

Murali, at the bottom left-hand corner of your screen, you’ll be able to make it in presentation, so that the — yes, thank you.

T.M. Muralidharan — Chief Financial Officer

We’ll cover the presentation in two parts. One is the highlights for the quarter and nine months ended 31st December 2022 and past annual performance as well.

Okay. As regards the key highlights for the quarter, Ammonia Energy Improvement Project was commissioned in September 2022 and urea production has ramped up as explained by Mr. Nitin Kantak. In respect of DAP and NPK, we optimized the operations by suitable product mix in view of the viability and availability of critical raw materials. This was our strategy to ensure that the economic viability is the basis for our operations.

Now I move on to some statistics and data on the operations. MCFL had an increase in revenue of 54% during the quarter on account of higher sales volume and commodity prices, and 14% increase during the nine months period despite reduction in sales volume on account of higher commodity prices.

Coming to EBITDA has increased by 109% for the quarter and reduced by 1% for the nine months compared to the previous year. Coming to PBT and PAT, we have registered an increase of 105% and 145%, respectively, during the quarter, and reduction of 35% and 20%, respectively, during the nine months ended compared to last year, primarily on account of shutdown of urea plant for commissioning of Ammonia Energy Improvement Project during second quarter of FY ’23.

Now we shall present the details of production, sales, and revenue. The production and sale of urea is 1.24 lakh tons and 1.22 lakh tons, respectively, in Q3 FY ’23 compared to production of 1.1 lakh tons and sale of 1.13 lakh tons in the corresponding quarter of FY ’22. The production and sale of urea is 2.08 lakh tons and 2.07 lakh tons, respectively, in nine months period ending FY ’23 compared to a production of 3.35 lakh tons and sale of 3.38 lakh tons in the corresponding period of FY ’22.

As regards the complex fertilizers, we have sold 0.71 lakh tons in current quarter compared to 0.57 lakh metric tons in FY ’22 Q3. Also, we have sold 1.83 lakh tons in nine months of current financial FY ’23 compared to 2.3 lakh tons in nine months FY ’22.

Coming to revenue. Revenue from operations. Revenue from urea is INR720 crores for FY ’23 Q3 as against INR448 crores in Q3 of FY ’22. Urea for nine months FY ’23 is INR1,209 crores as against INR1,169 crores in nine months period for FY ’22. Coming to the revenue from non-urea business, we registered revenue of INR453 crores in Q3 FY ’23 as against INR313 crores in FY ’22 Q3, whereas we registered a growth in revenue of non-urea business at INR1,269 crores in nine months period for FY ’23 as against INR1,008 crores in nine months FY ’22 in spite of reduction in volume due to increased subsidy rates on account of higher commodity prices.

Now we shall look at the financial position. Accretion to network is INR53 crores, and it is INR736 crores in December ’22 as again INR63 crores in March ’22. Coming to debt, as far as long-term debt, there is an increase of INR91 crores in December ’22 over March 2022. This is primarily an account of the loan availed for the Ammonia Energy Improvement Project which is commissioned in current financial year after factoring the repayment of some of the existing long-term loans.

Coming to a long-term debt, which is working capital – which is INR1,143 crores in December ’22 as against INR1,124 crores on March ’22, almost they have been very stable. Short-term surplus was INR403 crores at end of Q3 FY ’23 as against INR557 crores at end of FY ’22. This is primarily on account of subsidy disbursement in the last week of March ’22 leading to short-term surplus as at end of FY ’22.

Now we shall present the position of receivables. As all of, there are two types of receivables in bulk fertilizer industry: one is market debtors which we receive from the dealers; other one is subsidy dues from the Government of India. As regards the dealer debt, it is INR129 crores at the end of Q3 FY ’23 as against INR88 crores end of FY ’22. This clearly demonstrates the liquidity in the market is very high.

Coming to subsidy receivables. It is INR645 crores at the end of Q3 FY ’23 as against INR577 crores at end of FY ’22. Subsequently, we have received INR247 crores in January ’23. So also escalation for gas price for Q2 FY ’23 was notified on 24 January ’23. Escalation amount of INR142 crores is expected to be received shortly.

Now we move on to look at some annual past performance quickly. The revenue for operations has been at INR3000 crores levels in FY ’21 — sorry, FY ’19, and similar levels are seen in FY ’22, which the trend will continue for FY ’23 as well.

Coming to EBITDA, you can see from the levels of INR200 crores for FY ’19, we are able to grow to levels of INR235 crores in FY ’22, which will further grow in current financial year FY ’23. As far as PBT is concerned, from the levels of INR50 crores, we’ve improved to the levels of INR135 crores in FY ’22, primarily on account of reduction in finance cost. As regards PAT, we have been able to improve from INR33 crores in FY ’19 to INR88 crores in FY ’22. As regards cash profit, it has improved from INR70 crores in FY ’19 to INR140 crores in FY ’22.

Earnings per share also improved from INR3 per share in FY ’19 to INR7 per share in FY ’22. Regarding receivables, it could be seen that total receivables have come down from the levels of INR1,564 crores in FY ’19 to the levels of INR665 crores in FY ’22. As this — on account of improved liquidity in the market and significant reduction in subsidy. Receivables on account of the fiscal stimulus given in FY ’22 during COVID-19 to clear the subsidy arrears and continued credit support is given by Government of India in FY ’22 as well. We expect this trend to continue in FY’23 as well.

Now we shall see the details of production and sales. We are able to consistently produce to the levels of 3.8 lakh tons which is our reassessed capacity, and we are able to produce additional 50,000 tons in FY ’22. Current year we may be able to — we will be short of 50,000 tons on account of loss of production during the implementation of Ammonia Energy Improvement Project.

Coming to P&K Fertilisers, it has been standard [Phonetic] in the past four years. This is overview of MC operations as regards the location of the plant, products manufacture, the capacities, marketing territories, and the brand. We continue this slide for maybe few first-time participants. The plant is situated at Mangalore, West Coast, opposite Mangalore port and the present capacity is 3.8 lakh tons of urea, which is otherwise called reassessed capacity, whereas capacity of DAP and complex fertilizers is 2.8 lakh tons. We also do trading in MOP and DAP based on market opportunity, availability of product, and commercial viability. We operate predominantly in the states of Karnataka, Kerala, Tamil Nadu, Andhra Pradesh, Telangana, Maharashtra. We sell about 70% of our sales in Karnataka, 4% in Kerala, 10% in Tamil Nadu, 8% Andhra, remaining in Telangana and Maharashtra. We sell under the brand called Jai Kissan Mangala.

Thank you for your time.

Questions and Answers:

Navin B. Agrawal — Analyst

Thank you, Murali. That was very helpful. Friends, we’ll now start with the Q&A session. We’ll wait for a couple of minutes. Let some questions line up, and we can get started. Anyone who wishes to ask a question, request you to raise your hand, we’ll unmute you and take your question. Okay, let’s start. We have a question from Krishnakumar, better known as K.K., ex-CIO at Sundaram Mutual. K.K, please go ahead.

Krishnakumar S. — — Analyst

Hi. Good morning, sir. And congratulations on completing the projects. So could you give us some color in terms of further new projects that you may take up post current phase? Any color that you would be able to give us in terms of expansion plans, debottlenecking in the next 24 months?

Nitin Kantak — Whole Time Director

I’ll take this. Yeah, Mr. Krishnakumar, thank you for your question. Yes, we do have plans for building [Phonetic] our first sulfuric acid plant. So we are taking to the board next board meeting, and we are going to go with the expansion of our sulfuric acid plant. Right now, we have a small capacity sulfuric acid plant, 100 tons per day, and we import sulfuric acid; of course, indigenously or from abroad. So we want to put up a new plant of about 300 tons capacity, which will suffice our requirement as well as we will be able to sell whatever surplus sulfuric acid available.

So this we are going to immediately take up in the next year as we have started generating income after completion of our energy saving project. And going for maybe over the next three or four years, we are also looking at putting up a new DAP plant. So as our financial position strengthens over the next few years, we will take that call.

Krishnakumar S. — — Analyst

And sir, in terms of the budget [Phonetic], is there any proposals that the industry has put forward, sir, incrementally to the Finance Minister ahead of the budget? Can you give some color if anything is expected?

Nitin Kantak — Whole Time Director

Right now in this budget, we don’t expect any major changes in this. But we believe the subsidy is likely to be revised soon after the budget. These are the indications which have come to us. This is on NPK fertilizers, so NBS subsidy, whatever was declared in October, that is likely to be revised. As of now, it is still not notified, but it is likely to be notified after the budget session. And it is because [Phonetic] the commodity prices are going down, it is going to be revised downwards.

Krishnakumar S. — — Analyst

Thank you, sir.

Navin B. Agrawal — Analyst

Thanks K.K. The next question is from Riddhesh Gandhi. Riddhesh, please go ahead.

Riddhesh Gandhi — Discovery Capital — Analyst

Hi, sir, just wanted to understand, so how much of our actually incremental profitability is driven by the cost saving on the [Indecipherable] power that we have implemented in September?

Nitin Kantak — Whole Time Director

Murali, you can give those details, please.

T.M. Muralidharan — Chief Financial Officer

Yeah. Mr. Gandhi, the project was commissioned in September ’22, as you know that. So our targeted additional EBITDA is INR100 crores per annum, and INR30 crores will go towards servicing the loans borrowed for Commissioning the project and INR20 crores go towards depreciation, so we’re able to generate INR50 crores of PBT out of this project on an annual basis. So on a quarterly basis, you could see that we are able to generate close to about INR14 crores, INR15 crores.

Riddhesh Gandhi — Discovery Capital — Analyst

And then just to understand, obviously, we’ve seen a large increase in the profitability, effectively, right? And I guess the revenue is also a factor of the gas prices, etc. But how should we then look at the sustainability and how should we look at the run rate of the business going forward?

T.M. Muralidharan — Chief Financial Officer

The top line growth is driven current quarter is to some extent on account of higher sales volume, about 15%. Remaining is driven by commodity prices as outlined by you. And the gas prices is one of the driving factors which gets automatically recognized by the Government of India as per the urea pricing scheme. It’s reflected in the top line. And going forward, the prices are, as explained by Mr. Kantak, the prices of commodity prices are cooling and Government of India is trying to reduce — what we call, negotiate with the various geographies to bring the commodities at a affordable price. And the trend is there will be correction happening going forward from Q4 onwards.

Riddhesh Gandhi — Discovery Capital — Analyst

Got it. But if we were to look at it, I understand that at the end of the day the prices will go up and down based on where the gas prices are, but our returns are sort of regulated, right? So effectively as we look at the profitability, it should be in similar lines? I guess the revenue should go down, but then the profit margin will go up or how should we be looking at the business going ahead?

T.M. Muralidharan — Chief Financial Officer

See, these prices will go up and down as you correctly recall — presented by you. The margins also will move in tandem with the prices. Margins cannot be sustainable despite the prices going up or coming down. So there is a link between the commodity prices and margins in this infrastructure industry, which are differently poised. So the current levels of, what we call, the probability cannot be sustained when, what you call, the prices are — the tender [Phonetic] pricing is downturn.

Riddhesh Gandhi — Discovery Capital — Analyst

So overall, if we were to — so is there a right way to look at it as EBITDA per ton is a way in which we should be looking at it? Or should we be looking at it as a particular ROE based on the business or how should we be looking at it?

T.M. Muralidharan — Chief Financial Officer

Yeah, I think currently you understood, Mr. Gandhi. This industry operates more on EBITDA per ton. And, again, EBITDA per ton sometimes due to, what we call, the timing difference, few quarters we’ll be able to realize higher EBITDA, subsequent quarters if it get corrected. So any comparison on a quarterly basis is very difficult to draw in a long-term view. You should look at a long-term, what you call, long-term period. Maybe an year will be much more better way of looking at things.

Riddhesh Gandhi — Discovery Capital — Analyst

Yeah, yeah. So let’s say then looking into FY ’24, how should we be looking at FY ’24 from let’s say an EBITDA perspective?

T.M. Muralidharan — Chief Financial Officer

Yeah. A good question, Mr. Gandhi. So EBITDA level — current levels as you see in my representations, we have posted INR235 crores in the last financial year FY ’22. So we will be able to improve in FY ’24 EBITDA levels of INR350 crores. This is primarily driven by this INR100 crores of EBITDA, what we are able to realize post the project commissioning and also few other efficiencies we’ll be able to rope in. So from INR235 crores levels is what we posted in FY ’22, leaving this year as an year of implementation and releasing the benefits and full year FY ’24, you could see the EBITDA growing to the levels of INR350 crores.

Riddhesh Gandhi — Discovery Capital — Analyst

This INR350 crores of EBITDA on the existing capacities?

T.M. Muralidharan — Chief Financial Officer

Exactly, exactly.

Riddhesh Gandhi — Discovery Capital — Analyst

Understood. Sir, I’ll join back the queue in case others are there. I have a few more.

T.M. Muralidharan — Chief Financial Officer

Yeah. No problem. Welcome.

Navin B. Agrawal — Analyst

Thanks, Riddhesh. The next question is from Nirav Jimudia. Nirav, please go ahead.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

Good afternoon, sir. In fact, good morning, sir. So, sir, I have two set of questions. So my voice is audible?

T.M. Muralidharan — Chief Financial Officer

Yeah.

Nitin Kantak — Whole Time Director

Yes, Nirav, you are loud and clear.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

Yeah. Sir, just wanted to understand your perspective on nano urea, because we have been reading two set of information, one which is coming from the government side where it alluded the fact that one bottle per nano urea could replace one bag of traditional or conventional urea, which is almost like 20 million tons of urea could easily be replaced by the nano urea, which government is claiming and for which they are in the process of setting up the plants. Sir, what I was also reading is urea spraying is required in two phases. So, one on the leaves and one before you start putting up the seed. So nano urea is effectively used in the second phase and not in the first phase, so traditional urea is here. But sir, when we go on the field and ask and inquire to the farmers, they are still reluctant to use nano urea. So just wanted to understand your perspective. Because let’s say, if nano urea is available at a price at which your traditional urea is being getting sold, virtually those subsidies would be going away and we will be at 20 million tons of urea getting produced just through nano urea. If you can just explain your thought process on the same that would be helpful.

Nitin Kantak — Whole Time Director

Yeah, Murali, I’ll take this one.

T.M. Muralidharan — Chief Financial Officer

Yeah.

Nitin Kantak — Whole Time Director

Thank you, Mr. Nirav, for this very good question. Mr. Nirav, you may be knowing that currently despite of urea capacity is going up, new capacity is coming up in the country, still our imports of urea are quite high. And actually, basically the government wants to promote this nano urea to replace imported urea. So our existing consumption of whatever indigenous manufactured urea is there that will continue. That is not going to reduce but whatever imports are happening today, which are very, very significant imports, so that is going to come down by this replacement with nano urea. And you rightly said the nano urea, as of now, is still not taken off well by the farmers, because nano urea has just been introduced and it will take time for this to go into the farmers’ mind to change the things how they are currently operating. So over the years, definitely nano urea is going to be produced and it is [Technical Issues]. And the manufactured urea, whatever is there, that will continue.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

So, sir, just to continue with your answer. So, let’s say, hypothetically after two, three years when this product would be accepted, and we’ve also been reading in the newspapers that some more plants which are shutdown, government is in the process of reviving two, three plants, so one at Sindri, one at Talcher. So, government is in the process of reviving those closed urea plants also. So if we take into account that and the nano urea, does it mean that probably the players currently what levels they are producing at, they have to reduce the production of the traditional urea, or correct me if I’m wrong, the traditional urea is only used to produce the nano area? So if you can just explain the difference between two, that would be helpful, sir.

Nitin Kantak — Whole Time Director

No, as I said, this current capacities have already come up because some of the units are already commissioned and they have already started producing. In spite of that, there is imported urea. So, going forward, nano urea will definitely increase and the plan is to have zero imports going forward, that is the objective of the government.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

Correct. Sir, my second question is on the energy consumption. Because, sir, you explained that we have revamped our plant where we have converted the plant from the naphtha based to gas based. So government would allow you to recover this money over period of some time to some higher end [Technical Issues]. So if you can explain that. And what is our current energy consumption in Gcal per metric ton, and what calorific value gas we are currently using? So it’s a mix of LNG and our domestic gas, because LNG has some higher calorific value, domestic gas, ONGC has some other calorific value, Reliance gas is having some other calorific value. So what is our blended calorific value and what is our current energy consumption in Gcal per metric ton?

Nitin Kantak — Whole Time Director

Yeah. Currently, after implementation of the Energy Improvement Project, we have already come down to a level of around 5.6 gigacalorie per ton of urea, although our target is around 5.5. So we are in the process of further optimizing. We already optimized over the last two, three months, and there are some minor teething issues. And once they are addressed, we will be at 5.5 gigacalorie per ton of area.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

Okay. And this capital expenditure, the government would have allowed us to recover over a period of five years, if I’m correct?

Nitin Kantak — Whole Time Director

Yeah. In fact, from the time we have changed over from naphtha to gas, so whatever investment was done on this conversion, government has given normally as per the policy five years to recover it. So this started somewhere in 2020. Murali can give you the right time when it was done, I think November 2020 or so. So from that time, that investment whatever was done, we will take about five years to recover that. That is what is allowed by the government.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

So this extra INR100 crores what you mentioned, what we will earn in FY ’24, includes the portion of the amount being allowed by the government to — in form of higher energy consumption to you. So that won’t come after five years once we recover that amount and then entirely would depend upon our energy consumption, if I’m right in the assumption, sir.

Nitin Kantak — Whole Time Director

Yes, I think you what you are saying is correct. Murali, you can put some more light on this.

T.M. Muralidharan — Chief Financial Officer

Yeah. I am able to provide to Nirav. See, as explained by Mr. Kantak, the cost we incurred for conversion of the naphtha to gas-based operations, we got the gas in November 2020, and we have five-year period to recover the investment made for that particular investment. And we are currently getting subsidy at our preset energy norm of 7.356 decal per ton.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

Okay.

T.M. Muralidharan — Chief Financial Officer

And this sunset of the existing preset norms will be in December 2025. By the time we would have recovered major amount towards the project which we commissioned in September ’22 and the energy norm will come down to 6.5 Gcal per tonne from January 2026, and will continue for a period of another five years. But this is the understanding and this is the commitment given by the Government of India. So besides MCFL, many other companies are also investing similar monies for current energy consumptions. So government has promised support for all the players in the industry to recover the investment.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

Correct. So, sir, last question before I again join back in the queue. So how much we have invested for this conversion, one? And we are already at 5.5 Gcal per metric ton. So that’s a good amount of savings which we are currently doing on. So even for, let’s say, Jan 26 till, let’s say, Jan 31, we’ll be still having a lower consumption of energy reserve is what the governments would be providing to you. So am I correct in assuming that, sir?

T.M. Muralidharan — Chief Financial Officer

You’re not very audible. Can you just quickly run through this question again?

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

Yeah. Sir, I’ll just repeat my question again. So, sir, how much amount we have invested for this conversion, A? And B, sir, we are already at 5.6 Gcal per metric ton. What you mentioned that currently government is compensating us at a rate of 7.356 Gcal per metric ton and later on for next five years, it would be 6.5 Gcal per metric ton from Jan ’26. So we are still below what the government would be compensating us even from 2026 also. So is my assumption correct, sir?

T.M. Muralidharan — Chief Financial Officer

Yeah. To answer your two questions. Question one, the amount whatever will be incurred for completing the project is about INR440 crores, and the government will reimburse subsidy at the rate of 7.356 Gcal per metric ton till December ’25, and thereafter, we’ll get 6.5 Gcal per tonne post January ’26. Your understanding is correct.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

Got it, sir. Thanks a lot for answering the questions in detail and all the best.

T.M. Muralidharan — Chief Financial Officer

Thank you.

Navin B. Agrawal — Analyst

Thank you, Nirav. We have a question from Vineet Agarwal. Vineet, please go ahead.

Vineet Agarwal — SKP Securities Ltd. — Analyst

Good morning, sir. And congratulations for the good set of numbers. Sir, I have one query on your volume bifurcation in terms of in-house manufacturing and trading for quarter three if you can provide.

T.M. Muralidharan — Chief Financial Officer

We have not done any trading during the current quarter FY ’23. All our sales what we disclosed to you in the presentation they’re all only manufactured complex.

Vineet Agarwal — SKP Securities Ltd. — Analyst

Sir, during this quarter, January, have we started trading or we are still manufacturing only?

Nitin Kantak — Whole Time Director

Yeah. Murali, I’ll take it. Actually the contributions on DAP have improved over the quarter three actually. And based on that, we took a decision of importing DAP. We have imported around 11,000 tonnes of DAP during this quarter, and this was received just end of December. And as of now, we have already sold that quantity. So that much quantity of trading will be there in Q4.

Vineet Agarwal — SKP Securities Ltd. — Analyst

Okay, sir. And sir, is it possible to provide us the breakup of EBITDA INR140 crores between urea and NPK or maybe in terms of EBITDA per ton between urea and NPK?

Nitin Kantak — Whole Time Director

Murali, you can take it.

T.M. Muralidharan — Chief Financial Officer

Vineet, you are referring to the current quarter?

Vineet Agarwal — SKP Securities Ltd. — Analyst

Yes, sir.

T.M. Muralidharan — Chief Financial Officer

See, we made about INR7,000 per ton EBITDA for urea and INR4,000 on account of DAP, which we manufactured and sold. And about INR8,000 per ton in NPK [Phonetic].

Vineet Agarwal — SKP Securities Ltd. — Analyst

Okay, sir. And sir, as you said, this EBITDA per ton is not sustainable, so going forward, we may have lower than this. Am I correct — my understanding is correct?

T.M. Muralidharan — Chief Financial Officer

100% correct, Mr. Vineet Agarwal. We’ll give a perspective. The current levels of EBITDA we are able to, what we call, post in the current quarter it is an exceptional quarter where you are able to get additional EBITDA, both in terms of the urea as well as for DAP and N20. And Government of India has allowed us to make this additional EBITDA because of the subsidy rates were only devised in October, despite the prices of the commodities are going up in the H1 of current financial year FY ’23. For companies to realize some of the lost margins reduced to EBITDA, government has allowed this for the Q3 only. As explained by Mr. Kantak, the NBS rates is under revision, since the commodity prices further softened from Q3 FY ’23 to Q4 also. So Government of India is going to revise the subsidies downward since the prices of commodities have started the slide. So, therefore, we don’t expect this high EBITDAs to be produced every year, every quarter.

Vineet Agarwal — SKP Securities Ltd. — Analyst

So, sir, any color you can give what could be the sustainable EBITDA per ton going ahead for urea, DAP, and NPK?

T.M. Muralidharan — Chief Financial Officer

In the current geopolitical risk, it’s very difficult to predict pricing, and what type of disruption can happen in the market. And normally we don’t give any guidance because it’s purely beyond our reach to give any guidance on this.

Vineet Agarwal — SKP Securities Ltd. — Analyst

Okay. And sir, can you give us what is the pool gas price for Q3 FY ’23 and what is the current price?

T.M. Muralidharan — Chief Financial Officer

See, the pool gas price was peaking in September ’22 at $27 per MMBTU. It has already seen the slide during the Q3 FY ’23 to the levels of about $22. So this trend is what will emerge going forward also.

Vineet Agarwal — SKP Securities Ltd. — Analyst

Sir, $22 per MMBTU we can take average, right?

T.M. Muralidharan — Chief Financial Officer

See, this is the price what was expected for December ’22. See further you could see that there is a further correction happening in commodity prices. So Government of India, under the aegis of DoF, is constantly looking for negotiations to bring the cost of commodities to the very lower levels because it has got a very direct impact in terms of when the subsidy burden what they have to carry. So Government of India is getting involved directly with many geographies with manufacturers, be it is a source of supply of gas or the supply of phosphoric acid or it is supply of ammonia as well. So they are trying to engage directly with respect to countries to bring or to have a special pricing for India as well. So this is at the diplomatic levels it’s been done.

We are able to see positive benefits happening in the last close to about two years, ever since this, what we call, the commodity prices were in upswing, starting from April 2021. So we are able to see this happening, and the prices will see corrections and even globally also recession being talked about as a factor and some other geographies where the demand for the fertilizers could be less depending upon the climatic conditions, that could also have a bearing on the pricing going forward.

Vineet Agarwal — SKP Securities Ltd. — Analyst

Okay. Sir, my next question is on nano DAP, which IFFCO is expected to launch sometime in March. And they are claiming that one bottle of nano DAP will be equivalent to 1 KG of conventional DAP. So what would be the impact of the same since we are more focused on DAP, and we are planning another new plant for DAP in next two, three years. So how do you see this development?

Nitin Kantak — Whole Time Director

Yeah. So DAP also if you have seen, apart from whatever manufacturing capacity we have, there is lot of trading of DAP which happens. So again, any nano DP which comes into the market, it will only replace some of the portion of imported DAP. So it is not going to affect our manufactured DAP.

T.M. Muralidharan — Chief Financial Officer

To supplement Mr. Kantak, the capacity utilization of the non-urea, that is complex fertilizers, is only about 75% to 80%. So, government of — this what we call the large amount of trading is happening in the market existing. So this nano DAP cannot replace the manufacturing DAP.

Vineet Agarwal — SKP Securities Ltd. — Analyst

Okay. And sir, my next question is on the amendment made by the government on the procurement policy of gas. I’m asking for my understanding purpose, they have allowed the fertilizer industry to buy around one-fifth of their monthly needs through the domestic spot market. So their reason is to reduce the subsidy from urea. But what I want to understand is how it will impact our industry as well as MCFL in particular. So if you can throw some light on this.

Nitin Kantak — Whole Time Director

Murali, if you can…

T.M. Muralidharan — Chief Financial Officer

Yeah, I can answer. See, there is small volume of gas is available in the APM that is being, what you call, what are the tender for fertilizer companies and other companies — other buyers or other industry also to buy it on a competitive basis. That is the objective of the Government of India to put this APM gas for the fertilizer players.

Coming to the second question. The volume what — there will not be any impact for the MCFL because the fertilizer industry itself needs, what you call, high volumes of gas. Based on the past data, 55 MMSCFD is the requirement on a daily basis on the existing capacity of the urea plants. The allocation of APM gas is only to the levels of about 20 MMSCFD. The remaining 35 MMSCFD is being imported currently. So this whatever volume that’s coming in may not have any big bearing. If at all there is allocation of the APM gas to fertilizer industry, that could be very marginal and negligible, and it won’t have any impact on MCFL, per se, because all the companies in the country are governed by uniform gas full price.

Vineet Agarwal — SKP Securities Ltd. — Analyst

Actually, I just wanted to understand this spot buying this gas price will also be total pass through. Am I correct?

T.M. Muralidharan — Chief Financial Officer

Yes. Always the gas prices have been full passed through. The Government of India is trying to reduce the subsidy burden by trying to get these, what you call, getting whatever sources of gas at the best price possible. That is the endeavor of Government of India. In that process APM gas auctioning is also another step in that.

Vineet Agarwal — SKP Securities Ltd. — Analyst

Okay, sir. Thank you, sir. That’s all from my side.

Nitin Kantak — Whole Time Director

Thank you.

Navin B. Agrawal — Analyst

Thank you, Vineet. A request to participants, please restrict yourself to a couple of questions only. The next question is from Akul Broachwala. Akul, please go ahead.

Akul Broachwala — IIFL Securities, Ltd. — Analyst

Hi, am I audible?

Navin B. Agrawal — Analyst

Yes, Akul, loud and clear. Please go ahead.

Akul Broachwala — IIFL Securities, Ltd. — Analyst

Yeah. Thanks for this opportunity and congrats to the management for good set of results. One is, of course, government’s impetus has been to make phos acid available in an adequate manner and that’s the reason why many of the private companies are tying up — arranging contracts with Morocco, specifically for rock phosphate. So overall, does the management believe that phos acid availability will improve going forward and will that also improve our manufacturing mix if suppose the phos acid availability and prices continue to go south?

Nitin Kantak — Whole Time Director

Yeah, I will take this, Murali. Regarding phosphoric acid, you are aware that MCFL belongs to the Adventz Group, and we have a long-term relationship with the OCP Group of Morocco. And in fact, our other sister company, Chambal Fertilizers, is having a joint venture with OCP, and we are able to get OCP acid — we have long-term contracts for getting OCP acid. And also, we consume acid from other sources like Vietnam, Philippines, and Indonesia, which helps us meet our phosphoric acid targets.

So now, yes, as you have said, just last week, [Technical Issues] Morocco for long-term tie up of DAP as well as phosphoric acid. So going forward, definitely there will be more [Indecipherable] relationship with OCP, and they will definitely help India with the acid supplies.

Akul Broachwala — IIFL Securities, Ltd. — Analyst

Got it. And in this context, what would be our capacity utilization for phosphatic fertilizers at this point for 3Q?

Nitin Kantak — Whole Time Director

So 3Q, yes, we had some shutdown during this period because this acid price was not declared and also the subsidy was not declared by the government. So around October, end of October, we had some stock out of phosphoric acid because procurement action could not be taken. But since November 10th, we have been continuously operating till today, so as of now, there is no challenge of getting phosphoric acid supplies and there will be a continuous operation of the plant.

Akul Broachwala — IIFL Securities, Ltd. — Analyst

Understood. So given overall pricing scenario softening, so do we believe that at least for upcoming quarters, the overall production for phosphatics from our end will continue to improve?

Nitin Kantak — Whole Time Director

Can you please come again?

Akul Broachwala — IIFL Securities, Ltd. — Analyst

Yeah. So my question was do we expect manufacturing of phosphatic fertilizers to improve from our end, rather than trading, can we expect that overall utilization continues to go up in the upcoming quarters for phosphatic fertilizer?

Nitin Kantak — Whole Time Director

Actually, we have a limited capacity of our DAP plant, which is about 2,70,000 tons per annum. This year, of course, we have not been able to fully utilize our capacity because of imports. Imported acid we could not get. There was a stock out of phosphoric acid on some of the occasions, even in Q1 and Q2. But going forward, we will be able to utilize our capacity fully.

Akul Broachwala — IIFL Securities, Ltd. — Analyst

Understood. And second question was around capex, as you mentioned sulfuric acid is something which we are looking at. So overall, is there any guidance for next year in terms of capex outlay?

Nitin Kantak — Whole Time Director

Murali, you can do this.

T.M. Muralidharan — Chief Financial Officer

See, as explained by Mr. Kantak, we are looking at few other capex plans like one sulfuric acid plant about 300 tons per day capacity. Few other plants still at the drawing stage, and we will get back to you when we take a final decision on that.

Akul Broachwala — IIFL Securities, Ltd. — Analyst

Sure. And my final question is on overall how are we looking at debt repayment and what would be the timeline to deleverage?

T.M. Muralidharan — Chief Financial Officer

See, we have a term debt — there are two components we have. One is the amount of — amount we borrowed for purpose of working capital term loan in the past, in 2018-’19 times. So those things almost have been fully repaid. And by FY ’24, it will be fully repaid. So that leaves only the amount of capex loans we borrowed about INR280 crores for this capex project on Ammonia Energy Improvement Project. That is set off seven years for repayment. We structured this repayment period in alignment with the generation of cash flows post commissioning this project.

And this also will start — repayment will start from Q1 of FY ’24, so that is a period of seven years. You’ll see that as the opportunities are there to prepay also the loans, based on the, what you call, the cash flow generations post the commission of project. If we’re able to generate additional cash flows, we have opportunity to prepay the loans also.

So MCFL has been very, very conscious about the high burden on account of term loans, and we have been very systematic in, what you call, putting our internal generations into the business, as part of our commitment so that we’re able to reduce the cost of borrowing, and are able to report a better value for shareholders.

Akul Broachwala — IIFL Securities, Ltd. — Analyst

Got it, sir. Thank you so much.

Navin B. Agrawal — Analyst

Thank you, Akul. Our next question is from Kapil A. [Phonetic]. Kapil, please go ahead and ask your questions. Kapil, please unmute yourself and go ahead. I think Kapil has some connectivity issue. Let’s take the question from Darshita Shah. Darshita, please go ahead.

Darshita Shah — Antique Stock Broking Limited — Analyst

Hi. Thank you for the opportunity. I just had one question regarding the phos acid contract for the quarter. Are the negotiations done or are we still under the negotiation to decide the phos acid contract for 4Q?

Nitin Kantak — Whole Time Director

As of now, the phosphoric acid Q4 price is still not declared. The negotiations are still on between OCP and Indian partners. So as of now it’s still not finalized.

Darshita Shah — Antique Stock Broking Limited — Analyst

Okay. Any approximate date as to when — or any tentative date if you can provide.

Nitin Kantak — Whole Time Director

No, we will not be able to give that date, please.

Darshita Shah — Antique Stock Broking Limited — Analyst

All right. Sir, and I had one more question regarding the EBITDA per ton. Our EBITDA [Technical Issues] quite an elevated levels. Is there any inventory benefit here or is it largely due to higher realization and lower subsidy reduction that the government did in October as compared to the reduction in raw material prices?

T.M. Muralidharan — Chief Financial Officer

See, the elevated levels of the EBITDA for urea is not a factor of NBS rates because it is governed by different set of policies on urea. That is purely based on efficient operations and the price in which we procure gas. That is first answer. Second portion of our EBITDA per ton for DAP and N20, that is factored basically on account of the commodity prices coming down in Q3 from the levels of $1,750 per ton of phosphoric acid, it has come down to $1,175 per ton. So that is one factor. And subsidy has not been revised post this correction. So that is the reasons for elevated levels of EBITDA during DAP and N20.

Darshita Shah — Antique Stock Broking Limited — Analyst

Right. I was just trying to understand if there was any inventory benefit, but seems like there was not. It was largely due to reduction in raw material prices. Okay. Thank you so much for the opportunity.

T.M. Muralidharan — Chief Financial Officer

Okay. There’s no benefit on inventory because as explained by Mr. Kantak, so we were running out of acid during Q3, so we have no benefit to be carried forward because we are hand to mouth in operating the plant on the inventory.

Darshita Shah — Antique Stock Broking Limited — Analyst

Right. Got it. Thank you.

Navin B. Agrawal — Analyst

Thank you, Darshita. Friends, we’ve run out of time, and I see there are some follow-up questions. Mr. Kantak, do we have another 5 minutes or should we ask them to send us the questions by mail?

Nitin Kantak — Whole Time Director

We can take one more.

Navin B. Agrawal — Analyst

Okay. Riddhesh, please go and ask your question, but please limit it to just one question. Riddhesh?

Riddhesh Gandhi — Discovery Capital — Analyst

Sir, I’ve already asked the question. It’s fine. I’ll go back.

Navin B. Agrawal — Analyst

Okay, thanks. Kapil, if you’d like, please go ahead and ask your question.

Kapil — — Analyst

Hello.

Nitin Kantak — Whole Time Director

Yes, Kapil.

Kapil — — Analyst

Yeah, I just want to know is there any debt reduction plan for the company?

Nitin Kantak — Whole Time Director

Yeah, Murali, you can take.

T.M. Muralidharan — Chief Financial Officer

Yeah. The current debt we have borrowed for working capital purposes is getting repaid by March ’24. That leaves the loan borrowed for the current project which we executed in September ’22 that is Ammonia Energy Improvement Project. So this is called a set of seven years repayment schedule starting from Q1 of FY ’24.

Based on the cash flows we generate going forward, and we’ll be able to decide whether — any program to prepay the loans ahead of the schedule of repayment. That is based purely on the ability of the company to generate additional cash flows. At this point of time, very period difficult to — we don’t have a plan to reduce unless we are able to generate the cash based on the current levels of the commodity price and the stance of the Government of India on subsidy.

Kapil — — Analyst

Okay, sir. Sir, and the next question is in the next quarter, since the commodity prices are declining, so is there volume growth will be sufficient enough to maintain this runback in EBITDA?

Nitin Kantak — Whole Time Director

Can you come again? I’m not able to follow a few last few words.

Kapil — — Analyst

Sir, since the commodity prices are declining, so is there that volume growth or is there any trigger that will maintain this run rate in EBITDA?

T.M. Muralidharan — Chief Financial Officer

Okay. There’ll not be any impact in the volume growth. We continue to do the volumes what we did in Q3, maybe even better that in Q4. Coming to the EBITDA levels as the commodity prices are softening, there will be impact on account of EBITDA — on account of this, in EBITDA, there will be corruption in EBITDA going forward.

Darshita Shah — Antique Stock Broking Limited — Analyst

Okay, sir. Thank you.

Navin B. Agrawal — Analyst

Thank you, Kapil. Friends, we’ve completely run out of time. Thank you for your questions. If there are any unanswered or follow up questions, I’ve shared my e-mail ID. Request you to send your questions to me, and we’ll take it up with the management, and we’ll get back to you once we get our [Indecipherable]. I’d like to now hand over the webinar to Mr. Kantak for his closing remarks. Over to you, sir?

Nitin Kantak — Whole Time Director

Thanks, Navin. Thanks, everyone, for participating in this session and putting up very insightful questions. As I informed to you in my opening remarks, this caught us [Indecipherable] is the best ever in almost 50 years operating history of MCFL. I assure you that MCFL team is committed, and we’ll put up our best efforts to continue performing well and create value for our shareholders. Thank you.

Navin B. Agrawal — Analyst

Thank you very much. On behalf of all of us at SKP Securities, I’d like to thank Mr. Kantak and Mr. Mulligan for their time. And we look forward to hosting you for all future webinars and investor interactions. Thank you, and have a nice day.