Q1FY22 Results concall summary -
Management comments -
Very good performance considering RM price hikes (Amonia 102% price hike, Phos acid 49%, RGP - 50%, MOP 7%). It was better capacity utilization, cost optimization and production effeciencies. Price hikes to be taken. It take 1 to 2 qrt time to reflect price hike effect in PnL.
Dahej Palnt - 18 days shutdown in Q1 which was preponed. It will help in coming quarters.
IPA demand will continue to grow.
Mining - 54% growth with LDAN top product contribution. Cement sector yet to have demand growth.
Crop Nutrition - very good quarterly perfromace. 67% growth. 7th straight qrt of profit growth for division. Highest ever production
Capex - Amonia and TAN plant are in good control and running as per schedule. It will be strong foundation for future growth.
4 pronge startegy -
1. Size right - fertilizer growing good, Capcity addition, TAN etc. is bearing fruits
2. Backbone systems and technologies. Helping on cost optimization and positioning in market
3. Backward integration - Amonia facility coming up
4. Comodity to speciality - Industrial Chemicals, Mining and fertilizers. Customer to consumer transition
Government also helping with increased subsidy to fertilizer companies.
Reduced net debt by 240+ cr. in Q1. Finance cost reduced by 22% YoY.
Industrial Chemicals and Mining - volume growth of 11% YoY.
Fertilizer -
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Crop Nutrition - volume up 25% YoY. Differentited NPK (Smartchem) - 39% volume up.
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RM Price hike passing to customer - passage in short time is difficult. Contracts has provisions to pass on prices after month period.
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subsidy - went up in Q1. Recieved approvals for NPK based subsidy.
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Per tonne realization improves.
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some debottlenecking can help to improve capacity. Market share gain of 6% in Maharashtra. Crop specific products like grapes, tomato etc are doing good. Joint GTM and marketin intiatives helping.
TAN - Capacity expansion is going on for 3.76 lakh tonne on east coast. Construction to start soon. Debottlenecking at Taloja plant is also being evaluated on technical basis
IPA - no plan for capacity addition.
Acid - No plans for capacity addition. Good demand for nitric acids and shift from China to India is also helping.
Margin normalization - YoY basis margins will remain in same range due to seasonality nature of business. by Q3 and Q4 price hike pass through will complete. Need to watch RM price movements during this period.
Capex - 1350 to 1400 Cr each in 2 years for Amonia plant. Amonia - Q4FY23, TAN - H2 of FY24 completion target. TAN - 1800 to 2000 Cr overall over next 3 years.
Risks - Mansoon for fertilizers, Nature of RM (Phos acid and MOP) - oligopoly supplies and demand fluctuations, Project timelines and costs (Amonia - contruction is only activity pending. Procurement is in place. Contractor has done 70% of global plants contruction).
My take away -
- Good Management taking right steps for growth with better profitability.
- Vision can be seen from Amonia expansion prioritization (make Vs buy)
a. Current high prices of Amonia
b. Being used as carrier for Hydrogen cells, prices expected to remain stiff in future
c. Transaportation advantage as Amonia is 80 to 90 USD per tonne to Gas at 3 to 4 USD per tonne
d. Cherry on top is state government (Maharashtra) incentive to cover Amonia plant cost over 8 to 10 years period through SGST waive off which will bring down transportation benefit further to equivalent of setting up plant in Gulf at source of gas. - Quite diverse nature of business makes it complex to analyse with too many moving parts. But overall I feel it provides safety in one way due to large diversification across sectors within one company currently available at fair price due to this complexity. Listing sepearte businesses may help for value unlocking if management considers that in future
- Margins improvements over larger period (short time hiccups can be expected) and debt levels are key monitorables.
- I expect stock price rise with both further PE re-rating and revenue growth
Disclosure: Invested from lower levels of @165 with 10% PF allocation.