Coromandel International Ltd Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: S. Ramesh - Nirmal Bang Equities - Analyst : So if you look at the nutrient business, what is the understanding you have in terms of potential increase in the NBS rates in the second half or when the industry have to go for an increase in retail prices, given the recent increase in the input cost and the subsidies being frozen at April. What is your current thought process there? S. Sankarasubramanian - Coromandel International Ltd - Executive Director - Nutrient Business, Whole-time Director Currently, the current subsidy, which has been announced for Kharif, they operate upto September. And through notice, there has been a compression in margin in the Kharif, basically because of increase in the commodity prices, whether the subsidy just notified that in February-March, factoring the raw material prices, which is prevailing previously. So there's always a little bit of a lag between the subsidy rate and the actual raw material price rate. So we need to wait and watch that, based on the current raw material price trend, which has been varying now, there is a possibility that subsidy will factor in the increase the input cost. So it's a function of commodity prices, importantly, that will be taken care of in Rabi season and NBS costs. So hopefully, we should see that various long term price increase gets absorbed in the NBS rates for Rabi.

Question: S. Ramesh - Nirmal Bang Equities - Analyst : Is it possible to quantify what is the reduction in the realization in the export market?

Question: S. Ramesh - Nirmal Bang Equities - Analyst : Yes. And just one last thought. In terms of your plan for increasing the profitability of BMCC. What is the timeline you have to see that JV turning EBITDA positive and eventually cash positive based on the investments you're making?

Question: S. Ramesh - Nirmal Bang Equities - Analyst : I'm asking about BMCC, the Senegal JV. Right now, in the share of JV, there is a law. So in terms of your initiatives to investment in capacity and increase the productivity there, what is the timeline -- what are the investment required? And how long do you think it will take before you are able to generate positive EBITDA and then eventually positive profit after tax? S. Sankarasubramanian - Coromandel International Ltd - Executive Director - Nutrient Business, Whole-time Director See, as far as technical operation is concerned, last year was the first year, and then we could stabilize the production and we started using that technical product stabilizing in the retail operations. So to that extent, there has been a positive move in the last year. And we have also taken a decision to move away from the setup what we had last year, it was work is progressing in the plant and the plant commissioning is underway. Hopefully, we should be able to complete the trial then by end of September. And this is an off-season period for many operations and probably in the second half, we should be able to stabilize the production, and we'll get the steady material coming into the Vizag operation. So second half, we can see a positive traction on the BMCC operations. And overall for the year, we should be able to reach what we indicated

Question: Vipulkumar Shah - Sumangal Investment - Analyst : So my question is what is our annual sulfuric acid requirements for manufacturing the 3.5 million tonne of NPK fertilizers. Our capacity right now is 0.5 million tonne and same for sulfuric acid also. S. Sankarasubramanian - Coromandel International Ltd - Executive Director - Nutrient Business, Whole-time Director See, as well as the process, requirement is a function of the product mix, what we have, if we use a high process, it's consuming products like DAP, then the requirement goes up. But looking at the mix, what we generally follow, we optimize the product and depending on the commodity prices, it can be even in the range of 5.5 lakh tonnes to 6 lakh tonnes. And this is more and above the captive production, what we have at Vizag. And partially, some of these requirements are made strong, has been coming from Vizag to Kakinada, predominantly the import asset only for Kakinada operations. So, we can say a net-positive requirement will be in the range of 4 lakh tonnes to 4.5 lakh tonnes, sometimes it goes down to 3 lakh tonnes, sometimes it goes up to 5.5 lakh tonnes. In the case of sulfuric acid, as you all aware, that we have commissioned the plant last year and going good and imported sulfuric acid which used to be in the range of 1 million tonnes has come down by almost 5 lakhs tonnes, annual basis it can potentially come down. In the first quarter, we have ramped up the production of sulfuric acid, and we have done more than 100% of rated capacity. So full year basis, still, we will continue to import sulfuric acid close to 6 lakh tonnes to 8 lakh tonnes. Again, it depends on the product mix. Some grades of NPK require more sulfuric acid. So we can say, our import requirement of sulfuric acid has come down by 30% to 40%.

Question: Darshita Shah - Antique Stock Broking - Analyst : Firstly, congratulations to Sankar for the elevation. My first question was with respect to the sector growth INR3,500 special, that subsidy that the government has recently announced. Given that nothing has been announced on the NPK side. Do we expect or are we looking at taking some price hikes in the NPK products? S. Sankarasubramanian - Coromandel International Ltd - Executive Director - Nutrient Business, Whole-time Director See, our pricing comes with a function of input costs and government discount. We did not go in for the MRP increased pricing, but we remain quite moderating the trade response which have passed out during the off-season period. So that would be sufficient at this point of time. And with the revised price contracts happened for sulfuric acid and potash, at this point of time, we did not look at correcting the MRP for the NPK. But the main salable product, that is DAP, and we predominantly import and we don't manufacture. We still continue to operate at the current MRP, and we are also looking forward to support from government towards additional compensation for the increase across what we're incurring. And hopefully, if it comes to, that will also helps us to bring down the negative pricing we have on the NPK.

Question: Ranjit Cirumalla - IIFL Securities - Analyst : The first one is on just a bit of a confirmation of the guidance for the fertilizer segment EBITDA per tonne still stays intact? Or are we going to relook at that?

Question: Ranjit Cirumalla - IIFL Securities - Analyst : Yes. And the second one is on the growth projects. So in addition to what we have announced, if you can also guide us about how to look at the company probably to the three years time. Fertilizer segments and the other adjacencies that we have been doing. So you have spoken about drones. But in addition to drones, we also have been speaking about a lot in the spectrum of the chemical side, even in some part of the bulk chemical side. If you can just highlight about these two or three avenues and how much should we be able to grow in these segments?

Question: Ranjit Cirumalla - IIFL Securities - Analyst : Yes. S. Sankarasubramanian - Coromandel International Ltd - Executive Director - Nutrient Business, Whole-time Director Just to add to that, see, the coal business on fertilizers, we have been working on debottlenecking our plants. And that project is underway. Because if you see notice, we have been operating at 95% capacity. And currently, we are embarking on plant, which is progressing well. So with a greater visibility on input raw materials, both phosphoric acid and sulfuric acid, and also like the stabilization of rock from Senegal, now it gives us much more integrity for us to expand capacities in our existing facilities. So as a company, we have been always prudent in capital investment, and we are looking for brownfield expansion. So we are happy to share that we have got approval during this quarter to expand our capacity at Kakinada by 100 million tonnes. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 09, 2024 / 9:30AM, CORF.NS - Q1 2025 Coromandel International Ltd Earnings Call So as and when the right opportunity comes, we will be looking to expand the capacities as well for granulation so that it will be in line with our intermediate capacity expansion and also will help to grow the top line. So besides looking at efficiencies, we'll also be looking to grow the core business what we are currently doing.

Question: Ranjit Cirumalla - IIFL Securities - Analyst : Right. So one bit on that. I believe the team would be in place. So probably the kind of a skill set that would be required for the CDMO kind of a business are slightly different at like with that? Raghuram Devarakonda - Coromandel International Ltd - Executive Director - Crop Protection, Bio Products and Retail Business, Whole-time Director Yes. So we have also identified where the infrastructure will come. We have got a dedicated team for both sales and operations, including R&D. Inside our R&D, we have a cargo for CDMO opportunities. And those reserves are all full time dedicated to this opportunity.

Question: Ranjit Cirumalla - IIFL Securities - Analyst : That's quite helpful. So everything put together, is it fair to assume that probably incremental 10% to 15% of the growth can accrue from these initiatives that we are taking? Or we're not in the near term next one, two years, but we're definitely in three to five years' timeframe? S. Sankarasubramanian - Coromandel International Ltd - Executive Director - Nutrient Business, Whole-time Director Yes.

Question: Falguni Dutta - Mansarovar Financials - Analyst : I just have one question, which is on nano fertilizers, the urea or DAP. Going by the acceptance that you see now, how much -- what percentage of our domestic demand, let's say, in 2 years from now can be taken over by the nano variety of be it of Urea or DAP?

Question: Falguni Dutta - Mansarovar Financials - Analyst : I missed you. You said over the next three to five years, about 25% of substitution can happen in as regards to DAP consumption, right?

Question: Falguni Dutta - Mansarovar Financials - Analyst : And the same would go for nano urea?

Question: Falguni Dutta - Mansarovar Financials - Analyst : And ma'am, one more question, which is on the MRP and subsidy for DAP. So going by where they are currently, should we, I mean, see the margins to be remain similar at Q1 levels? Or do we see anything there on going by the current subsidy and MRC for DAP and NPK? S. Sankarasubramanian - Coromandel International Ltd - Executive Director - Nutrient Business, Whole-time Director Shall I take that?

Question: Bharat Sheth - Quest Investments - Analyst : Just one question, which is, first of all, on the Nutrients business, you said that we have already taken approval for 1 million tonne additional capacity. So looking at overall business, we are generating very good case as well as. So if we want to go with this 1 million along with the backward integration or only purely of regulation part. If you can give any -- if we are going forward with backward integration, then how do we really see the way I mean, volatility, in past, you have seen again that kind of volatility acting our company? S. Sankarasubramanian - Coromandel International Ltd - Executive Director - Nutrient Business, Whole-time Director See, we are already doing that backward integration. As you're all aware, we are putting at the plant phosphoric acid, sulfuric acid integrated facility at Kakinada. So that will help in supporting the additional granulation thing as and when which you used to do. And also, the product mix makes a difference. The margins maybe a challenge for generic grade. But as a company, we strongly believe in making a unique product offering to the farming community. And we have a very batch of unique products along with micro influence. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 09, 2024 / 9:30AM, CORF.NS - Q1 2025 Coromandel International Ltd Earnings Call So our new facility, as and when we decide, we'll have certain unique grades, which will not have pricing pressure, which can be well received from those farmers, use efficiency would be better. So we do expect that the additional granulation facility will definitely be a win-win from both from farming community as well as from the company in terms of the payback. Of course, backward integration will be useful. But in any commodity business, it will not be advisable to do 100% backward integration. These commodity prices behave highly volatile. So we always would suffer to keep some portion of open input sources rather than creating our own investment. And we'll also be prudent on our capital investment in creating this new capacity.

Question: Bharat Sheth - Quest Investments - Analyst : Okay. And second on the Nano DAP, when we are talking of reaching, say, 25% of the requirement or demand in the next three years. So what kind of a CapEx that we meant to incur for the same? S. Sankarasubramanian - Coromandel International Ltd - Executive Director - Nutrient Business, Whole-time Director For Nano, it's not a major investment. We have already invested a set of our plant at Kakinada, which has been commissioned and we can improve the capacity in a batch mode. It will not be a significant investment. Here again, we have the existing infrastucture created and already in place. So we should be able to scale up the volumes in a shorter period of time, and it is not a very significant CapEx. So on the replacement part of it, we have to wait and see because as Coromandel, we are very responsible in terms of promoting this product and we have to see as the phosphatic industry, we are the largest importer of DAP. I refer to subsidy based DAP import through Nano. So our focus would be on those states that currently DAP is service to imports. And we have a feel at least 2 million tonnes would get replaced in at least two, three years' timeframe, and we have adequately not only from governmental, but from other players because many companies are also getting into this product. And we don't see any challenge in creating the capacities to meet such sort of a demand for integration to happen.

Question: Bharat Sheth - Quest Investments - Analyst : Okay. And profitability? S. Sankarasubramanian - Coromandel International Ltd - Executive Director - Nutrient Business, Whole-time Director Okay. Subsidy component. Here, there is no subsidy component. So to that extent you can say that 50,000 of the DAP MRP will be the value of nano DAP.

Question: Bharat Sheth - Quest Investments - Analyst : And profitability, I'm just. S. Sankarasubramanian - Coromandel International Ltd - Executive Director - Nutrient Business, Whole-time Director Profitability, it's too early to look into it. We have to see. Because this started being a concept selling. It requires a lot of spending on the field level in terms of field promotion engagement. And initially, we are not looking at the profitabilities, more to facilitate the farmers to go in for an environmental friendly product and make them affordable, improve the use efficiency. It can have a decent margin and it reduce the -- it's actually being not part of the sale price in the less working capital intense as well. Some more quarters to play out before we start talking about margin and nano DAP.

Question: Vishnu Kumar A.S. - Avendus Spark - Analyst : Sir, you spoke about the new 1 million tonne, I mean, we are talking about some approvals. What -- I mean, in terms of final investment decisions, what are the events that are contingent upon on for us from here to when we are going to announce this project? And once -- and what is the time line from there to get this on the ground? And what will be the backward integration as an overall company at that level? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 09, 2024 / 9:30AM, CORF.NS - Q1 2025 Coromandel International Ltd Earnings Call S. Sankarasubramanian - Coromandel International Ltd - Executive Director - Nutrient Business, Whole-time Director What is your last question? Can you please repeat the last part? I'll answer that.

Question: Vishnu Kumar A.S. - Avendus Spark - Analyst : The final decision this year or will have to wait for next year probably to hear more from you?

Question: Vishnu Kumar A.S. - Avendus Spark - Analyst : Got it, sir. And one final question, sir. As the new boss of the company, I mean, you're a fairly well-run company. So what will be the top two, three KRAs to probably take the company to the next level that you are probably going to embark on? S. Sankarasubramanian - Coromandel International Ltd - Executive Director - Nutrient Business, Whole-time Director It's not yet one-day old. So, I don't want to come to the decision, which are the areas we've worked on. As you've rightly said, it's a very well-managed company and long-term strategies are already in place. Our focus would be to issue that we sustain the value addition, what we do on core business and building the capacity and create a strong front end in the main business where we operate. Besides that, the non-subsidy businesses like Crop Protection and Specialty Chemicals, we have the focus going forward to make sure that our overall EBITDA margin improves. And also, we talked about in the call, about our step outs that we are planning, in the phosphate-based value-added products. So that will also be the area. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 09, 2024 / 9:30AM, CORF.NS - Q1 2025 Coromandel International Ltd Earnings Call We will be able to give more clarity probably after a quarter, but it will be the ongoing process of identifying the newer opportunity to ensure that we get better returns for all the stakeholders.