Thanks for this Nilesh. Would love to know where are you tracking this? I believe the spike is also because of raw material cost of Ammonia in 2022.
Atrishabh, i use
Office of Economic Adviser and screener for tracking commodity prices, would love to know if there is any other way!
1 Like
What is the record date for demerger. I read somewhere that 1.1.22 was the record date. Would it mean , whoever is buying now won’t get the demerged share
As per my understanding the demerger is within the Co. Meaning that there won’t be any seperate listing of the companies at the moment. The management says that they’d like to on board institutional investors to these individuals cos first and then list seperately at a later time.
There’s no specific time line for this but the management’s intent is to do this as soon as they can.
Personally, I think it’ll be done in FY26
1 Like
Yeah, and even the demerger within the co hasn’t happened yet. Next date for NCLT hearing is 1st November (6 hearings in last 6 months have been skipped as NCLT didn’t have the time to hear the matter - pathetic).
Results are on 2nd November. Re-listing on public markets will take time (FY25-26). But I do believe strategic investor entries should start spiking PE post demerger.
Disclosure - Invested, biased, not offering any investment advice.
2 Likes
This is a great point that I missed earlier. This would rerate stock albeit slightly before listing seperately
This is an old video: https://youtu.be/LgJ4QroWqVs
1 Like
Gas prices are moving up wildly
Results are extremely bad, don’t know what happened. Waiting for investors presentation and earnings call.
2 Likes
Revenue is not down, wonder why there is such a massive drop in profits. Also a lot of FIIs exited - probably why.
- Depreciation up from 60cr to 80cr and interest cost up from 80cr to 107cr on a QoQ basis
My take on the result
Please note this is my view and way of seeing I might be wrong happy if anybody can correct me.
TAN segment has done extremely good on the volume side but the realization has come down significantly to 38lakh per ton, Now this realization is equal to Q2FY22. In Q2 FY22 on a standalone basis they did a PAT of 28cr and in this quatre a PAT of 65cr. If somebody could educate me which all segment comes under their standalone business because on same TAN realization PAT has doubled. Posting the table for reference which I have posted earlier.
Also to add dumping is happening from russia and we have export BAN on TAN by the government and If I am understanding the second point correctly this is the value added services they have talked about in TAN so once this picks they get to charge a premium here as well
- They have taken huge one of kind of loss on fertilizer segment and on stabilization of ammonia plant.
If we adjust for the losses then H1 they would been almost 425cr at a PAT level taking 30% as TAX, now I dont know if this is the right way to see taking the entire thing as PBT but if true they have done a brilliant job, this is too good with such huge headwinds.
On top of this their debt has increased and intrest rates are on a rise + ammonia prices have just hit all time low, In my view this is the worst period the business is in as expected and at lest in my eyes they are doing a good job.
Some positives
I am not remembering the first point will get back and correct myself if I am wrong, this was like deepak fert is eligible for the GST wavier 9% SGST until they recover 75% of the project cost so now it has been changed to 100% that means 1000cr more wavier which is huge(How this wavier will be calculated I have discussed on my previous detailed post)
- The company is expecting the ammonia prices to improve in the near future
Just to let everybody know the biggest good news I think now they would profit from ammonia plant the price is 468$
4.Expansion plan in WNA and TAN is also there, just a reminder this quatre TAN utilization was 118%
Overall take
- This quatre they have done as expected I would say some what better than what I expected
- I would not want to talk about future triggers because anything which happnes now only be a positive trigger
This company has decently reduced the commodity portion(cannot be quantified but it has reduced), Like I am just remembering that in a chor company if the choriness reduces they deserve to be valued better similar if comodityness reduces, they are taking the right steps in each segment, the ammonia capex was a 4000cr + capex for a 8000cr company, it is going to benefit them big time, I think the right time to buy a cyclical company is at it worst phase the only thing we have to evaluate is they dont go bankrupt because of the debt, I think deepak would now start saving the cash on ammonia and that should help them reducing their debt going forward.
Just to address one last question their gas prices have been contracted taking various index as benchmark with different suppliers, spot market volatility does not apply to them
Looking forward to concall will add the notes
Disc- I am a young kid who can go horribly wrong so please do you own evaluation, I have taken a position and would be looking to increase it
21 Likes
Amazing analysis, thanks for taking this time and condensing this for us. Hats off!
I agree with you almost everywhere. I am just worried about the ammonia price stability going forward and impacts on NBS subsidy like we have seen before. Ammonia prices were higher post mid-August and September because a major manufacturer in Saudi Arabia Maden was facing production issues. It recently got back into the market and you could see a corelation in the slump in the ammonia price here
Also the interest rate point is bang on, the interest rates will remain high in short term atleast based on the recent FED commentary. NBS subsidy was again cut recently in October and the announcement came towards end of month (subsidy applies from 1st of October). This would ideally suggest again an impact on inventory for the month of October.
These headwinds will need to be compensated with other chemical products for this company to succeed.
3 Likes
The main concern is that profits are falling and debt is increasing. Gross Debt is around Rs 4077 Cr as on 30.09.2023 and the Company has further onboarded on CAPEX of around Rs 3000 Cr for TAN and Nitric Acid which would further add debt of around Rs 2000 Cr in next 1-2 years. Company seems to be moving aggresively with leverage…
Disclosure : Tracking position
3 Likes
Hi thankyou for your kind words,
I am not aware of the saudi thing If you could please share some link, overall ammonia historically has traded between 400$ to 450$ this is where the equilibrium has been there. I think one big negative which the company did is contracting gas at very high price which resulted into higher breakeven.
Most of the things are still unknown, like I dont know what might be the real savings, that we would only know after stabilization and it can surprise on either sides plus it is not just the money part they explained in earlier concalls as well like now you have the raw material just beside you instead of waiting for it as to when it gets shipped.
The second lever which I am playing is on TAN realization I think this is also like at all time low, just think about this way the government to keep the supply in the country has restricted exporting and then from the other side there is continuous dumping and still their capacity utilization is 118% so the realization is artificially being kept low.
Also plz share the link on NBS subsidy cut,
There are a lot of headwinds hence I would not buy it lumpsum, I would gradually increase as I see some improvement.
The better way to look it would be from a ratio perspective, if you see the longterm has come down and short term has gone up in debt, on a gross debt to equity they are at 0.75 and on a net debt to equity they are at 0.5, this is defiantly a risk but I think for a ratio perspective it should not increase much but rather decrease + interest rates are at peak ( All this is story telling so can be horribly wrong)
my view- They company has build some really good capability and is in a very strong position but everything looks to be unfavorable now so I am taking a 1% to 2% position at PF level and as and when things start getting better I would be adding more to it, the biggest risk is that they dont blow up as long as we understand that then every fall is an opportunity, IMO they have hit the lowest in terms of PAT from here it should be increasing
waiting eagerly for concall
2 Likes
Ammonia production cost as per May concall is around 460+30$=490$.
Benefit is around 110$.
Based on capacity per quarter if we take it is coming to 80crs profit on Ammonia but the interest cost is higher than this.
Ammonia price should go further high to become breakeven.
2 Likes
Link to the Saudi Arabia article, refer to the Ammonia section. Have been tracking them regularly, have been really insightful in terms of fertiliser market.
Link to the NBS subsidy rate cut article.
Some interesting insights from the Concall:
-
Subsidy impact even of october has been balanced, so no impact expected in future (unless government comes with any further changes)
-
Export on TAN has been lifted. Had highlighted this earlier as a major opportunity. But this is limited to 20K tonnes for this financial year as compared to the ~500K tonne TAN capacity they have. Also they need the license transfer to new entity name to be done. Hoping this ceiling goes higher in FY24-25, that should bring them decent revenues.
-
The TCO (total cost ownership) business on mining forefront is really interesting. I didn’t get a chance to ask about any current POCs but if they are able to do this at similar scale it’s going to unlock very high value. Just to put things in context Solar Industries just manufactures explosives in India and enjoys a PE of 60 (as of now). With demerger and relisting of this business, the outcome could be explosive.
-
Demerger update: Another hearing in November. Hopefully it works out and they get the approval. I would look at a timeline of max 2-years in relisting of those businesses.
This stock is quite a time buy. If someone has a 5-year view on this stock, it seems like a decent buy unless the debt bites them back. I have temporarily exited my position as I was heavy on it. Would buy at dips below 600. At the moment considering some already ripe opportunities.
Disclosure - The statements I make here are for discussion purposes only and not to be taken as any financial advice. I just love understanding businesses and brainstorming about them (investing just makes it fun as you have skin in the game 
).
6 Likes
The Company is supplier for raw material of Explosives and does not makes explosives like Solar. Company will have to eventually buy explosives from players like solar. Further, Solar valuation is not due to explosives but due to its defense play.
5 Likes
Interesting perspective. The first point I think they will be making their own explosives. Otherwise how do they control the TCO guarantee they are offering. The second one yeah maybe.
Explosive manufacturing is a regulated market with lot of entry barriers …its not easy to overnight build up capacity for explosives…Further, Company has fully stretched itself due to latest commissioned Ammonia CAPEX and forthcoming TAN & Nitric Acid CAPEX… We may see some traction probably in 2026.
2 Likes
If the order for the 155mm artillery for at least 1200 guns comes through, then there will be substantial orders for shells; the Ukr war for Russia consumes about 2millon shells/year and this is before ramp up. GOI will plan based on the burn rate there for a 2 front war, EIL, Solar and other current players dont have capacity now.
there is room for other players.
Note: please dont discuss the war or something about 2 front war. Just stick to the logistics of production of shells and explosives