Paradeep Phosphates Ltd (PARADEEP) Q4 FY23 Earnings Concall Transcript

Paradeep Phosphates Ltd (NSE:PARADEEP) Q4 FY23 Earnings Concall dated May. 19, 2023.

Corporate Participants:

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Analysts:

Aniruddha Joshi — ICICI Securities — Analyst

Aditya Sen — RoboCapital — Analyst

Deepak — RM Shares & Stocks — Analyst

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Rohan Gupta — Nuvama — Analyst

Shikha Mehta — Equitree Capital — Analyst

Tanmay Mehta — Mirae Asset — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Paradeep Phosphates Q4 FY ’23 conference call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Aniruddha Joshi from ICICI Securities. Thank you, and over to you, sir.

Aniruddha Joshi — ICICI Securities — Analyst

Thanks, Darwin. On behalf of ICICI Securities, we welcome you all to Q4 FY ’23 results conference call of Paradeep Phosphates. We have with us senior management represented by Mr. Suresh Krishnan, Managing Director; Mr. Alok Saxena, General Manager and Head of Corporate Finance; and Mr. Susnato Lahiri, DGM Strategy, Investor Relations and ESG.

Now I hand over the call to the management for the initial comments on the quarterly as well as FY ’23 performance, and then we will open the floor for a question-and-answer session. Thanks, and over to you, sir.

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Thank you. Good afternoon, everyone. Thank you for joining us for the Q4 and FY ’23 results conference call of Paradeep Phosphates. We have uploaded our earnings presentation and press release on our website and on stock exchanges. Hope you had the chance to go through them. We will begin this call with a brief discussion on our performance and financial results of Q4 and full year FY ’23, and we would be happy to take any questions post that.

Well, fiscal year 2023 has been a landmark year in the history of Paradeep Phosphates. We made a successful debut on the stock exchange in May 2022 and now we are closing our first fiscal year with a new set of operational benchmarks and accomplishments. Well, friends, just to remind you, May 19, 2022, last year was the day when our issue closed, and we were listed on May 27, 2022.

Coming to the performance highlights, during the quarter, the company has delivered a quarterly revenue of INR37,136 million, registering a year-on-year growth of 93% led by growth in volumes. Our EBITDA for the quarter stood at INR1,603 million, registering a year-on-year growth of 26%. Profit after tax for the quarter was INR100 million. The profitability was softened due to the reduction in the overall subsidy and a one-time expense of INR422 million towards our Goa site, which was paid towards registration of land and certain lease rentals during the quarter.

Total fertilizer production during the quarter was 6,20,884 metric ton, registering a strong year-on-year growth of 124%. We have now fully integrated both our sites at Paradeep and Goa, and we have been able to operate both sites at optimal utilization in Q4 just as in Q3. In Q4, our Goa site produced 2,49,000 tons of finished fertilizers, including 1,21,691 tons of urea, and varied grades of NPKs. Our Paradeep site has produced a record 3,71,441 tons of finished fertilizers, an increase of 34% compared to the same quarter in the previous year.

On an annual basis, the company has delivered a strong topline performance, notwithstanding challenging geopolitical and macroeconomic environment and pressure on key net raw material prices. In FY ’23, the company has maintained a strong track record of financial performance, delivering highest ever annual sale of INR133,407 million, registering a year-on-year growth of 70%, EBITDA grew by 26% to INR8,921 million, with a profit after tax of INR3,046 million. The Board of Directors has recommended a dividend of INR5 per equity share or INR10 per share for FY ’23, representing a payout of 5% on the face value, and 13% on the EPS of FY ’23.

Coming to our business update. Well, the total production in FY ’23 was 2.032 million metric tons, registering a year-on-year growth of 63%. Total sales in FY ’23 was 2.029 million metric tons, registering a 64% year-on-year growth. As you will see that the quantity that we’ve manufactured by us, we have managed to convert them into sold products. During the year, we have strengthened our capacity by 150% to reach a run rate of 3 million tons of finished fertilizers effective December 2022. This includes 1.8 million tons per annum at the Paradeep plant and 1.2 million ton at Goa plant. The remainder of the ongoing capex projects of both — of captive phosphoric acid, along with enhancing the capacity to 5 lakh tons at Paradeep site and the installation of the fourth evaporator on track and they’re expected to be completed by the end of Q1 FY ’24. These projects will further lead our backward integration and capability leading to higher profitability.

Throughout the year, we have successfully produced a wide variety of complex fertilizer grades across both our Paradeep and Goa sites, thereby improving our farmers’ choices in their application of soil and crop-specific nutrition. In fact, our Goa site has produced a total of eight varieties of value-added NPKs during FY ’23. Well, during the year, we also embarked upon a sustainability journey by publishing our maiden Sustainability Report mapped to global framework, and we encourage you to read the report to gain a deeper understanding of our progress and commitment towards promoting sustainable solutions.

Looking forward into FY ’24, we remain focused on our growth of 1 million ton incremental capacity totaling to 3 million tons on innovation-led superior manufacturing capabilities, on strong supply-side linkages and a Pan India market reach across 15 plus states in India. We are optimistic and we look forward towards transformation next year.

Thank you very much. And now I will like to open the floor for Q&A.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Aditya Sen from RoboCapital. Please go ahead.

Aditya Sen — RoboCapital — Analyst

Yes. Hi. So just, I am quite new to this industry. I would like to understand the seasonality impact of the diammonia phosphate, and also SSP if you can give that?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Well, Aditya, as far as the Indian farm sector is concerned, we primarily have two seasons, and which is basically the Kharif and Rabi season. Kharif season is the crop that commences during the summertime and which gets over by technically in the month of August. And the winter season commences in the month of October and goes on till — well into the January, February of the next year. When it comes to seasonality of DAP that you’re asking, DAP is a crop, which is very, very strong when it comes to Rabi time, which is in Northern India. And in Northern and Central India, we see a large uptake of DAP during this phase. As far as the Kharif is concerned, DAP certainly gets consumed in the central part of India, and also in the western parts of the country, including Maharashtra and Karnataka. So this is the main trend as far as DAP is concerned.

As far as SSP is concerned, it is again a product, which is very P specific and it has a market, which is reasonably round the clock but — round the year, but you will obviously see those five, six months of consumption period, which is there in the main fertilizer where you would see an uptake on the farmer side.

Aditya Sen — RoboCapital — Analyst

Which are those five, six months for SSP, from August to December?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Well, the — exactly. I think when we look at the overall time, the peak consumption in India, the window is actually July to December. I mean if you look at that as the construction period right across all fertilizer grades, you will see good uptake happening in the non-urea space.

Aditya Sen — RoboCapital — Analyst

Okay. Yes. Understood, sir. Thanks a lot.

Operator

Thank you. [Operator Instructions] The next question is from the line of Deepak from RM Shares & Stocks [Phonetic]. Please go ahead.

Deepak — RM Shares & Stocks — Analyst

Good evening, sir. Sir, recently, there has been a reduction of subsidy. So is there going to be any impact of this on the bottom line for our company? And the second question is, when can we see shareholders’ value increase than the bottom line?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Well, the first point is, as far as the industry is concerned, looking forward today. I think there has been a reasonably good correction in the raw material prices, which is leading to expansion in margins. So we believe that this margin expansion will come and play out in a positive way. And as you know that these current subsidy announcements which have been made, they are valid till September 30, 2023. And we are expecting that in the event of any major changes in the raw material prices, that is if it goes upwards or otherwise, it could well be a further support from the government coming in or a withdrawal, which could also happen. At the same time, there is also a clear indication that there is also a possibility in the second season, which is the Rabi season, you could even see the price increase happens in the global market. We could also see a price increase in India.

So when it comes to margin expansion, I think this is a year where we’re seeing stability. I think for the benefit of everyone, it’s very important for us to understand two very clear parameters. One is, when you have a cycle where all prices are going up, obviously, that volatility affects the overall performance of the sector in general. What we are seeing now as a trend over the last six, seven months, a reduction in the prices.

Over the last year, if you look at it, the marker, which is DAP, which is $1,000, has already come below $600. Whereas the ideal situation that we all look at from the industry perspective is DAP coming down to a level around $450. So there is still a $150 correction, which is there in the sector, which one expects they could — one would get to see during the next six to nine months time. And once that kind of a scenario builds in, then you have a phase of stability, and the stability both in terms of prices and also profitability.

At this juncture, I would like to just highlight that Government of India has ensured that there is no farm-level inflation, which means that the farmers have been getting the price — the same price for a much longer period and they have taken quite a bit of the increases to their own books. And that has been the trend so far. So with the decrease, which is happening, we believe that there will be correction from the government of subsidy as and when there is a steep correction in the prices, but the stability will be there and the profitability will certainly be there in the industry. So you can see that this year looks positive and interesting. Yes.

Deepak — RM Shares & Stocks — Analyst

Thank you, sir. But what about the bottom line? Sir, bottom line, this year, we can see a better bottom line?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Well, the trends are, as per the industry is concerned, given that the raw material prices going down, there is a positive trend, which is emerging and this trend is going to get consolidated from the month of June onwards. Because you always have a lag between the global prices and by the time, you buy the raw material at those prices. So you’re going to be seeing that going forward from — certainly from some part of the Q1, but good, better Q2 onwards.

Deepak — RM Shares & Stocks — Analyst

All the expenses have been met out, sir, for the — this one-time expense you were telling about in the earlier time?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Yes. As far as our acquisition-related BTA is concerned, we’ve completely closed out. We now have all the approvals and the last quarter that what the one-time expenditure that we saw was primarily the final payment of stamp duty for various fixed assets and both movable and immovable assets that we’d acquired, and which had to be paid to the government. This was post valuation done by the government of — by the local government in Goa.

Deepak — RM Shares & Stocks — Analyst

Thank you, sir.

Operator

[Operator Instructions] The next question is from the line of Dhruv Muchhal from HDFC Mutual Fund. Please go ahead.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Yes, sir. Thank you so much. A few related to numbers. The other income seems very high this quarter. If you can explain, please, sir.

N. Suresh Krishnan — Managing Director & Chief Executive Officer

See, the other income was only certain provisions that we are keeping, which has been taken back, which we’ve been building over the year itself. That’s all. So it’s just in the provision that we had in our books that we had to get back. Yes.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Got it. So the provisions related to the previous year or for the current year?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

No, current year.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Okay. So part of that amount is in the expenses, and there is a reversal in the other income?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Yes, yes. Absolutely, yes.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Okay. Got it. And sir, the overall EBITDA, I mean, looking at this quarter, I’m not including the other income because probably part of that other income is related to the earlier years — earlier quarters. The EBITDA seems a bit low. I believe you have taken the provision for the subsidy cut for the Jan to March period. Is it possible to share what that number is? And also, does it account for the actual subsidy announcement that the government has done or there could be further some amount to this or some —

Aniruddha Joshi — ICICI Securities — Analyst

Yes. Dhruv, to be frank, you’ve already seen a reduction in EBITDA, which has happened and which is because of the fact that we have provided for it and I would say that we’ve made an adequate provision as far as the subsidy amounts are concerned.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Okay. So the reduction primarily adjusting for that INR40 crores, INR44 crores of Goa, it’s all to do with the Q-o-Q reduction in EBITDA despite probably almost similar volumes?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Yes, yes. On top of that, what happens is under the accounting standards, whenever you buy movable and immovable assets under the business transfer agreement, you will have — you can’t capitalize those expenses. Normally, when you create an asset as an ongoing project, you can capitalize. But through BTA under the accounting standard, you have to write it off. So we had — during this year, we had to do provisioning of over INR80-odd crores. INR50-odd crores in the case of — INR59 crores is the exact amount when it comes to the stamp duties and other related payments.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Sure, sir. Sir, the other thing is, you’ve given this adjusted EBITDA of about INR3,300 crores — INR3,300 per ton. Now I believe this is adjusted for the subsidy revisions, which the government has done for Jan to March period and also for the subsequent periods. So I’m not trying to extrapolate from this quarter levels, but the volumes are reasonable, you are running at full utilization. So how do you look at sustainable EBITDA per ton now going ahead?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Well, if you look at the future for us, the first and foremost thing that’s happening to us is that we today clearly have 1 million ton of additional volumes available. This is an incremental volume, which is available. So that’s going to directly play out and support towards increasing our EBITDA. That’s the first one.

The second important thing for us is the value-added NPKs beyond DAP, that is going to be made by us. And this is also going to happen in our Goa site. In fact, the Goa project — the Goa site, for us, today from a traditional perspective what they used to produce and what we’re going to be producing right now, the products teams are very good. We have a number of — and with the potash side, which is the other major thing that we’re getting to see this year. Last year, we could not make a lot of potash-based waste. So that is also bad. That is going to make a difference. And the biggest thing is that fixed cost is not increasing. So given that we are going to be ramping up our capacities to the fullest extent, there’s going to be more than a 33% per ton reduction in the fixed cost. So all this is going to look at getting us back into sustainable numbers. And I’ve always felt this is a cyclical industry where you really get to see margins going up and down based on raw material prices. I know that’s true for anything. But a good guidance here is about I’ll maintain at INR5,000 as far as in weighted average for the portfolio that we have. You could certainly have certain products, which are much higher than that, but this is the kind of weighted average that we have. This year has been an aberration today because the way some of the changes have taken place by the government.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Sure. And the phos acid plant probably is commissioning, you mentioned in 1Q FY ’24.

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Yes.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

And then you — if you could… Sir, any update on the sulfuric acid plant? I believe you were looking for a sulfuric…?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Well, Dhruv, it’s like this. We have 1.3 million tons of equity capacity already. We are ramping that up by adding capacity for 0.45 million tons and this 0.45 million tons is like an incremental support to the new phosphoric acid plant that we are commissioning. So this phosphoric acid plant will get commissioned now and we are — some of the engineering and the key equipments have already been ordered and this is financially closed out. And in the financial year 2000 — we will not be commissioned by the year FY ’24, it’ll be done in the year after that, FY ’25. Yes.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Okay. And sir, if you can also please guide for — I have two questions, ’24 and ’25’s capex, if you can guide for, please?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Well, as far as ’24, ’25 capex is concerned, it’s purely the completion of the phosphoric acid plant and the converter, which is going to — which is only about INR150 crores of expenditure, which is pending, and which has already tied up, the loans are tied up for this. And the only other expenditure that we’re doing and we’re quite excited about this is finally the completion of energy improvement project in Goa where the overall expenditure is around INR73 crores and there is a balance of about INR50-odd crores is going to be spent during this year. These are the main capex, which we have, which will directly start also adding profitability to the company.

With regard to the capex that we’re doing on sulfuric acid plant, our estimate is that during the year, we will end up spending about INR80 crores. So if you look at on the whole, we are looking at about INR280 crores of long-term capex, which are going to be incurred during this financial year.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Sure, sir. Got it. And sir, one last thing is we have seen the subsidy amount increase again. Is there a change in how the government is thinking about the subsidy disbursals or it’s just the last — probably last month thing, and you get sort of…

N. Suresh Krishnan — Managing Director & Chief Executive Officer

It was a last month thing. To be frank, the March 31 payment, we are all fully paid out in the month of April. So they do not really — they do not come back and reduce any or held back any subsidy. But in general, if — what has happened for us is that per ton subsidies increase. So, given that the per ton subsidies increase, you would always see that the gross amount is going to be larger. That’s number one. And number two is our volumes are increasing. So that is again adding up to the entire thing.

So I think normalization of subsidy, it’s — is basically, in our view, one year away. I think we will see that Government of India would not like the prices to go down any further if at all any. I think I would think that the prices could only go up and the subsidy elements will come down. And I’m just — I mean in case somebody has this question in mind, the most important thing for our industry is the pricing hierarchy. When you look at the phosphatic industry, you need to have higher the grade, the higher the price. Unfortunately, the way the prices have panned out over the last couple of years, we are seeing a trend wherein the DAP prices are lower, which is INR1,350 a bag, whereas you’ve got phosphatic prices, other NPKs, certainly higher than what this is, and potash being the highest. This has to be reversed. And I think that reversal is very important to ensure that the farmers’ behavior at the marketplace is intact and the soil nutrient management gets to be done in a proper way. So we are expecting that during the course of this year, this correction should happen. And that is finally going to aid us in terms of the industry doing much, much better.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Got it, sir. That’s helpful. Sir, just to clarify again, the subsidy amount is largely cleared, the outstanding as of March is largely cleared in April?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Yes.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Okay. Perfect, sir. Thank you and all the best, sir. Thanks.

Operator

Thank you. [Operator Instructions] The next question is from the line of Rohan Gupta from Nuvama. Please go ahead.

Rohan Gupta — Nuvama — Analyst

Yes. Hi, sir. Good afternoon and congratulations on a good set of numbers. Sir, one just clarification that though the government has reduced the subsidy effective from 1st of March — 1st of January to March, sir, what is the effective DAP subsidy now, if you can just give that number?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

The DAP subsidy is close to about INR33,000 per metric ton.

Rohan Gupta — Nuvama — Analyst

And it was INR42,000 per ton earlier, sir?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Yes, it was previously about INR48,000, which we have reduced one time for the Rabi season to INR40,000 and for the next — the coming period, which is the April onwards, they’ve reduced it to INR32,641.

Rohan Gupta — Nuvama — Analyst

So right now, is it INR38,000 then will further go down from next month, I mean already from April, INR32,000?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Yes. From INR40,000 will go down to INR32,641. Yes.

Rohan Gupta — Nuvama — Analyst

So sir, the provisioning amount, which you have made, can you quantify that how much provision we have made —

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Well, let’s be very clear. I think in our view, the provisioning on the adequate, we did this even before the circular issued by the Government of India. So we’ve taken care of a good part of this.

Rohan Gupta — Nuvama — Analyst

Okay. Sir. What is our DAP prices for us in the market right now?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Market price is pretty uniform right across the country at INR1,350 per bag, which is about INR27,000 per metric ton.

Rohan Gupta — Nuvama — Analyst

Got it, sir. Sir, the subsidy INR32,000, you see they have adequately taken all the cost reduction or there we see whether the ammonia prices are still falling and maybe sulfur prices may see further fall in phos price is still [Phonetic] weakening, do you see that there is room for reduction in DAP prices in the market or the benefit with any further fall in raw material prices will be kept by the company?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Rohan, my take is like this, as far as the subsidy is concerned. If you look at a normal period pre-COVID, which is pre-COVID and by the year 2019 April 1, the subsidy per ton of DAP was INR10,000. INR10,000 per ton subsidy has gone to INR48,000. Our view is that at some point of time in the near future, maybe in the next couple of years, we have to come down to those levels. And at that point of time, the price of DAP, the market has gone up to INR38,000. So I think this reversal between — of prices increasing and subsidy coming down is a mechanism that has to be efficiently managed to ensure that the farmers are not put to pain, the food security challenges are not aggravated. And this will happen, it’s a matter of time.

So that is when you can say that everything is in good shape. And at that point of time, we were seeing DAP prices just getting closer to about $400 a metric ton. We are coming somewhere there. So now the question is that how this whole thing will get moderated is something time will only say, but that’s the kind of conceptual idea that you all can keep.

Rohan Gupta — Nuvama — Analyst

That’s great, sir. Sir, if you look at back to history, almost three to four years back, the fertilizer margin for the industry used to be roughly INR2,500 to INR3,500 per ton. Definitely in last two years, a lot of topsy-turvy things have happened in the sector with the pricing going up to almost INR60,000, INR70,000 realization. So sure, it’s coming down. Do you see that once if the subsidies of DAP prices normalizes to the previous year level maybe INR35,000 realization, at that level also, the INR5,000 per ton margins are going to sustain. Because if that is so, around INR5,000 per ton margin or even INR35,000 realization, we are talking about almost 14% to 15% in terms of margin percentage and maybe ROCE profile will be much higher above 30%. So will the government allow a company with the longer-term sustainable margins of 30% or INR5,000 per ton?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Rohan, very good question. And I will just clarify this to you. When three, four years back, when the subsidy was about INR10,000 as I said, we have reached a price of about INR1,900 a bag. I mean even if you want to be a little conservative and say that it was about INR1,600 a bag, it was about INR32,000. INR32,000 plus INR10,000, the total realization was INR42,000.

What the government is very clearly signaling today is they want the industry to get 12% margin on a PBT basis. This is the guidance that government itself is giving. So which means that as things stabilize going forward, that kind of margin will be there. If a 12% margin on a PBT basis is to be there, you will certainly get to see a INR5,000 EBITDA margin for sure. So this is the guidance, which even our government in the press conference a few days back very clearly indicated, that we are looking at a 12% pre-tax return for the phosphatic industry under the NBF scheme.

Rohan Gupta — Nuvama — Analyst

So you are saying, sir, even if you get a realization of INR40,000, they’re allowing the industry to make 12%, that is roughly INR4,800 per ton PBT margin.

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Yes, that is what they believe we should finally be at. That is what in a normal situation of marketplace, for the industry, they believe that, that is a reasonable profit. Government is very clear that only if you’re able to make beyond that they will consider it as an unreasonable profit for them to tinker with the subsidy system. So, the industry has a lot of good numbers, which it can come by, but it’s a question of the global market stabilizing. And I think if anyone is taking a long-term view, I’m sure you will get to see it pretty soon.

Rohan Gupta — Nuvama — Analyst

So sir, if I add back to interest in depreciation on a PBT margin of 12%, it means that industry very well can make 16% to 17% margin or probably in per ton at INR40,000 realization. We are talking about almost INR6,000 per ton plus margin sustaining, that’s what even government is allowing. Is that understanding right?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Absolutely. Government is pretty clearly saying that on the total price, you should be able to make 12% return on a PBT basis. You’re absolutely right. So this could mean that your EBITDA margins could be INR5,000, even could be better than that.

Rohan Gupta — Nuvama — Analyst

Sir, 12% return or 12% PBT margin? Both are different.

N. Suresh Krishnan — Managing Director & Chief Executive Officer

On revenue. 12% return on revenue. 12% return on revenue and a PBT basis is what government considers as reasonable.

Rohan Gupta — Nuvama — Analyst

Sir, that means 12% return on revenue that — I mean that at least gives us almost 18% to 20% plus ROCE and for the efficient player like that phos acid, and all, probably…

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Yes, the potential is there, Rohan, for sure and that you will get to see when you get into a more normal situation where these — and this particular margin not — will not be earned from government of India, you will earn it from the marketplace, which means the subsidy per ton has come down, the market price for DAP and the pricing hierarchy for various phosphatic fertilizer, non-urea fertilizer gets corrected because government’s intent is very clear. The 2010 NBF policy, which was supposed to encourage investment in this sector, growth in this sector, chance is there. But last two, three years have been — you had a pandemic, you had a Ukraine war, you had a crisis in Europe in terms of various prices. So it was very difficult to kind of moderate what it is. But now, we are coming to a point where a lot of it is behind us and the prices are getting into some more normal levels. And I would think that if you look at a two-year scenario, I mean this year, the next financial year, you will get to — you’ll start getting to see these numbers.

Rohan Gupta — Nuvama — Analyst

That’s fantastic, sir. And I think that will definitely change the profile of the Indian fertilizer industry completely and will also lead to significant re-rating. That’s fantastic.

N. Suresh Krishnan — Managing Director & Chief Executive Officer

If you’re looking at investments, Rohan, coming into the industry and industry will have to make this kind of money to be able to reinvest.

Rohan Gupta — Nuvama — Analyst

Got it, sir. Sir, second question is on our capex. And you mentioned roughly INR280 crore to be spent in phos acid and sulfuric acid for the current year. I just want to understand a capex plan over next two to three years slightly in the medium-term, which are the areas we are going to spend the money? Can there be any inorganic growth or any unique acquisition potential is there? Or you are going to invest in increasing capacity in say two to three years guideline?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Rohan, it’s like this. I think we — the day we are able to complete this current phase of growth, which is not only the completion of the project and finally getting our market share of 30 lakh tons of fertilizer, we will be ready for the next phase of growth. So I’m very clear that there is nothing further, which is planned between ’23-’24. And ’24-’25 again will be a year, and I have been consistently saying this right through our phase of meeting investors during the IPO.

So we are actually following that pattern well. We have consolidated with capacity right now. We’re going to consolidate this year with actual sales and the profitability coming to us. When it comes to what will be our priorities, I personally believe that backward integration continues to be a strong priority for us. And I’ll continue to look at that. As far as the marketplace is concerned, for some time, at least for a medium term, if there is an opportunity, we will certainly look at getting more volumes in terms of trade for value-added products. That’s one thing which is there. And we have been open about expanding our portfolio beyond the bulk. So that is where the opportunity will be seen.

Rohan Gupta — Nuvama — Analyst

Sir, just last question and I’ll come back in queue. What is the current phos acid prices you are contracting?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

See, last quarter was $1,050. This quarter is looking — hovering between $970 to $980 per metric ton.

Rohan Gupta — Nuvama — Analyst

This quarter means April to June.

N. Suresh Krishnan — Managing Director & Chief Executive Officer

April onwards. Yes.

Rohan Gupta — Nuvama — Analyst

Okay. Fine, sir. Thank you so much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Shikha Mehta from Equitree Capital. Please go ahead.

Shikha Mehta — Equitree Capital — Analyst

Hello, sir, I just have a few questions. Sir, could you help me understand how the reduction in raw material pricing and the reduction in subsidy will help our working capital, or how our working capital will look like basically?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Any reduction in the raw material prices will certainly mean that your overall cost of production comes down. So to that extent, our working capital comes down quite seriously. If you look at it today, when you have a product, which is closer to about INR60,000 a metric ton and every INR10,000 per metric ton reduction that comes in directly adds to the reduction in working capital and we do about 2.6 million tons. So when you look at 2.6 million tons, and INR10,000, you’re looking at INR2,600 crore reduction that could happen. So every — the way to look at it is that every INR1,000 reduction in the overall raw material cost for us will add to INR260 crores of reduction in working capital.

Shikha Mehta — Equitree Capital — Analyst

Understood. Got it. Got it. And sir, can you also help me understand the percentage of reduction in the subsidy versus the reduction in costs within line or is there some gap?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Well, Shikha, when I explaining to — in the previous question, the way to look at this is that, how does your — we may be at a margin level of, say, 5% or 6% on a PBT level. The PBT level margins could go up to 12%. So one would expect that every time you have a reduction, which comes up in the raw material, not that everything is bobbed up equally to reduce your subsidy, some part is bobbed up and some are left behind for us to get a better margin because government itself is guiding that we should go up to 10% to 12% profitability, which the industry has not been there. So that’s the way to look at it. And this could come even by a further price increase because let us be very clear, the DAP prices are very attractive today and nobody wants it to be at that particular level. And globally, if you look at it, farmers across the world are still paying cash down at $500 and $550 for DAP whereas in India, we are still only paying about $350. So there is a good scope for us to kind of increase that also if need be in the coming months.

Shikha Mehta — Equitree Capital — Analyst

Okay. So currently, there is still gap, right, that’s the right way to look at it?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Yes.

Shikha Mehta — Equitree Capital — Analyst

And so, we’re almost midway through Q1, so, how is the demand looking?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Well, the demand actually picks up. Right now, this is still a placement time where you do get primary sales and the actual demand for the season comes only by the end of the year — I mean, end of the quarter. And we are expecting good monsoon. The good thing is as per the forecast, the monsoon that we have, we’re going to have 96% of the long-term average and the reservoir levels are looking good, and the moisture levels are looking good, and the field study that we have done through our sales team, the farmers are looking optimistic as of now. And given that there is good support coming from government in all ends. So I personally believe that the uptake is going to be strong.

Shikha Mehta — Equitree Capital — Analyst

Okay. Great, sir. Thanks and I’ll come back in the queue.

Operator

Thank you. [Operator Instructions] The next question is from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.

Aniruddha Joshi — ICICI Securities — Analyst

Yes. Sir, what you just clarified about the monsoon [Technical Issues]. We see very differing views on the monsoon basis. So just going a bit more granular, which are the states do you see that there can be issues in terms of monsoon, and which are the states which are expected to be relatively immune or safer? And secondly, what are the steps that we have done, additional steps to [Technical Issues] it may happen? Also last [Technical Issues], do you also see any [Technical Issues] in working capital, stock trade margins or has it been seen [Technical Issues] after the trade takes advantage of very difficult macro conditions to —

Operator

Sorry to interrupt, but there seems to be a disturbance from your line.

Aniruddha Joshi — ICICI Securities — Analyst

That’s my question. Yes. Thanks.

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Yes. I think there is a disturbance which is coming in. Aniruddha, if you want to put yourself on mute, I can respond. Yes. Okay. Thank you. I think Aniruddha, from what I’m understanding that your concern is that which are the states you believe could be safe and which is the state, which will not be safe. Let’s be very clear that there are states where agriculture is done based on irrigated water. There are states where agriculture is done based on the rains coming in in time. That’s the first point.

So when it comes to larger states like when you look at Karnataka, Telangana, Andhra Pradesh, even good parts of Maharashtra, you have reservoir levels, which are looking good. You — technically, whenever you see a stream in rains, there are regions like Marathwada — sorry, Marathwada would do okay, but when it comes to the Vidarbha region of Maharashtra, you sometimes get to see a stress. And I personally believe at this point of time, given what kind of reservoir levels are there, I think farmers are going to be — farmers looks — are looking to be quite optimistic. That is the first point. And we are present in 15-plus states. We have a Pan India presence. So we have an ability to reach out to certain other states where the water conditions could be far better.

So I’m not really — So for us, on an overall basis, we’re looking okay. And the crop prices have been good, higher than MSP in most of these states. And this is also giving a lot of support to the farmers in terms of what they need to do. So this is a good year and there were some interesting situations when it comes to cash crops. And I think most of the states where the cash crops are there, where they are irrigated, I think they will take their — they will go ahead and look at consuming fertilizer. And over the year, we’ve also noticed that the monsoon gets delayed, but it also gets spread over the year and you finally end up getting a good amount of rainfall in the country. So it is important to realize that sometimes the season do get extended. It may be that what we look at between June, July, August could well get into end of August or early September. But that is — that kind of an adjustment is something that we are seeing that farmers are adapting them so quite well.

Aniruddha Joshi — ICICI Securities — Analyst

Okay. Understood, sir. Very helpful. Thank you.

Operator

[Operator Instructions] The next question is from the line of Tanmay from Mirae Asset. Please go ahead.

Tanmay Mehta — Mirae Asset — Analyst

Yes. Hi. Thanks for the opportunity. Sir, just one question on the EBITDA that we have reported. If I add back the one-off provision we have reported almost INR140 crores EBITDA in Q4. So the difference on Q-o-Q basis, would it be fair to assume that the entire thing relates to the provision that we might have as per the subsidy?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Yes. I think there is a large amount of impact that’s basically coming from the fact that there have been provisions which have been made. Yes.

Tanmay Mehta — Mirae Asset — Analyst

So sir, roughly INR200-odd crores would be the provision, if I calculate it that way. And based on — I’m not sure of the blended amount of reduction on the subsidy that has happened. But as you indicated that around INR8,000 have been cut on DAP. If I just calculate that, around 3 lakh tons of inventory in the channel on which we would have taken a provision. So, is that correct sort of working that we can —

N. Suresh Krishnan — Managing Director & Chief Executive Officer

[Speech Overlap] the channel was about 2.5 lakh ton, you’re right. I mean, we have done that, yes.

Tanmay Mehta — Mirae Asset — Analyst

So that is a normalized level of inventory that we maintain or do you think that is…

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Well, Tanmay, the normalized level for Paradeep Phosphates will get established as we go forward because we have stepped up from a 15 lakh player to a 30 lakh player. So when it comes to that, I mean, we will look at an off-season where about two, 2.5 months of subsidies of material will be there with us. So the question that really comes up with what kind of material, what product mix and all that. But during the coming year, in the next four quarters, you will get to see that we will be establishing for ourselves a new levels of inventory that we will have to carry given our capacities that are having done. But at the same time, I’m happy to report that we’ve done all our primary sales of what we produced, and which has been a good thing for us.

Operator

Thank you. [Operator Instructions] The next question is from the line of Rohan Gupta from Nuvama. Please go ahead.

Rohan Gupta — Nuvama — Analyst

Hi, sir. Thank you for the follow-up. Sir, there is a lot of buzz about the nano DAP and all. You also mentioned that you may have planned in non-bulk fertilizer. Just wanted to understand, do we have any thought process on this nano DAP or what non-bulk fertilizer you are referring to?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Well, Rohan, as far as nano is concerned, please keep an eye on our website. I’m sure you will see some announcements soon.

Rohan Gupta — Nuvama — Analyst

Apart from some nano DAP, do you see that there are opportunities in other non-fertilizer businesses for us to grow investment opportunities?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

We believe that both nano DAP, nano urea and few other products which are non-subsidized are likely to be offered by us going forward.

Rohan Gupta — Nuvama — Analyst

Sir, if you can just give some more light on nano, it’s a slightly new product and we have understood from the market that there is a high acceptance from the farmers, but different markets, different feedback. Where do you see that this market will be growing and what can be the opportunity? We understand it cannot completely replace the chemical fertilizer, but can be used as — cannot be used as a substitute, but also will be used along with the chemical fertilizers. So not only for the company perspective, but for the country level, where do you see that the market size can be created 4%, 5% of the chemical fertilizer right now, if you can, sir, share some number on there?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Well, Rohan, when it comes to nano fertilizer, the product that we are looking at is slightly different from the product which have come up in the market so far. So I think as and when we are ready to launch and we will certainly share all the details. And all that I would like to say is that our fieldwork has been completed and reviews with the government is also complete. So we are expecting that we will be in a position to come out with it in the near future. Normally, government takes a few months to clear these kind of proposals. But the basic thing that we as a company of focus, I mean it’s — we believe very seriously that soil is something which is very, very important and central to our entire strategy. I mean soil — we even believe the soil is our customer. And when it comes to soil, the basic thing that we need to look at is the nutrient use efficiency. I think that is where the entire focus should be, and I think some of these products which are organic or nano, all this goes a long way to kind of support the nutrient use efficiency when it comes to the soil itself.

And the important — so that’s the way we would like to look at it. When it comes to replacement, I can give you only a global average. Specialties consist of about 10% of the bulk. So if you put all these categories as specialties then you could well imagine that the specialty categories would kind of be replace 10% of the bulk. So if you want to look at urea as a product, urea should be about a 38 million to 40 million tons of sales in India on the whole. So there is the potential of a nano could be 4 million, 5 million tons and the way government has been also looking at this is that if you have a manufacturing capacity of 30 million and we are importing, about 8 million tons of urea, it is good to reduce the imported component by shifting that into nano. So nano’s potential in India, if you want to define, it’s an 8 million [Phonetic] ton potential of replacement of a traditional product.

Rohan Gupta — Nuvama — Analyst

That’s very helpful, sir. Thank you once again.

Operator

[Operator Instructions] The next question is from the line of Aditya Sen from RoboCapital. Please go ahead.

Aditya Sen — RoboCapital — Analyst

Sir, this is just a confirmation. The 12% margins that we were earlier talking about, which the government has suggested, is this only specific to phospharic acid or for DAP and SSP also?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

This is not for SSP for sure. This is basically looking at all non-urea grade NPKs.

Aditya Sen — RoboCapital — Analyst

Non-urea. Any idea on SSP?

N. Suresh Krishnan — Managing Director & Chief Executive Officer

No. See, I think SSP also kind of, it’s an evolving situation I believe. I wouldn’t want to comment on it because I don’t have the capacity on that to really comment on that.

Aditya Sen — RoboCapital — Analyst

Okay, okay. Thank you.

Operator

Thank you. [Operator Instructions] As there are no further questions, I would now like to hand the conference over to the management for closing comments. Over to you, sir.

N. Suresh Krishnan — Managing Director & Chief Executive Officer

Thank you everyone for participating in the earnings conference call. I’m sure we’ll try to answer all your questions. And if you have any further queries, please connect with our Investor Relations team and we will be happy to address the same. I would only like to summarize our position looking forward, and as I had mentioned in the call, we are very optimistic about the way things are shaping up in future, primarily given the fact that the fertilizer raw material prices are being correcting. And we also believe that our incremental volume that we have in hand, once they’re — once they convert into our market share, we as Paradeep will be very interesting company from the perspective of all stakeholders. We look forward to continuing to be engaged with you all. Thank you.

Operator

[Operator Closing Remarks]