Coromandel International Limited (COROMANDEL) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Coromandel International Limited Q2 and H1FI27 Earnings Conference Call, hosted by Systematics Shares and Stocks Limited. As a reminder, all participant clients will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal for an operator by pressing star, then zero on a touch-tone phone. I now hand the conference over to Mr. Harmish Desai. Thank you, and over to you, sir.

Thank you, Shwarya. Good morning, and welcome to the Q2 and H1 FY27 Earnings Call of Scoramander International Ltd. hosted by Systematic Inter-Institutional Desk. From the management, we have Mr. Sankara Subramaniam, Managing Director and CEO, Mr. Deepak Natarajan, Chief Financial Officer. I would like to thank the management for giving us the opportunity to host this call. We will begin the call with opening remarks from Mr. Sankara Subramaniam, followed by Mr. Deepak Natarajan for update on financial performance, post which we will have a Q&A session. Thank you, and over to Vishal.

Thank you. Thank you, Hermit, for organizing the call. Good morning, everyone. I hope you had a wonderful Diwali. My belated wishes to you and to your family. I will begin with an overview of brief business environment experience during the quarter and also provide an update on operational performance. Then I will request Deepak to take us through the financial performance. As you all know, Q2 was an unprecedentedly challenging quota for the industry. It had multiple headwinds coming together at the same time. Deficit rainfall in key markers, rupee depreciation, elevated raw material prices, lower NBS rates, and weak consumption impacted the operating environment. In fact, rainfall deficit was around 20 to 30 percent in our key markers, such as Andhra Pradesh, Chalingana, Karnataka, Maharashtra, and this has impacted the agricultural activity as well as input consumption. Also, the weight-leaning price differential between DAP and complex footlesses influenced the farmer buying behavior and impacted the off-take of NPKs. All these factors resulted in soft industry-wide decline in footlesser volume with production and consumption of NPKs has fallen considerably by 40% during this quarter. Happy to note that government yesterday announced the NPS rate for AB 26-27 season. This is a very timely and positive intervention. Particularly given the fact that there has been significant volatility in international fertilizer and raw material markets. This improved subsidy support should help improving the viability of domestic manufacturing and restore better pricing balance between the AP and complex fertilizer, thereby supporting the adoption of balanced nutrition. We are still awaiting detailed notification. The revised rates appear to align with NBS mechanism. The government has also announced a special support to address the exceptional increase in sulfur and sulfuric acid prices, which has significantly impacted the cost of hospitable fertilizers. During the year, the government launched the Framework to Fertilizer Sales System on a pilot basis across select districts. These initiatives are very positive from the perspective of improving transparency. And promoting efficient fertilizer usage. And the initial implementation has also highlighted certain practical challenges, including longer purchase process for farmers, access to digital infrastructure, and accommodating farmer's choice and brand preferences. Industry has shared its feedback with the Department of Fertilizers, and we are hopeful that these operational aspects will be suitably addressed before the framework becomes a reality. In action, we continue to see regulatory tightening, including restriction around certain molecules like carbosulfone and paraquite. However, coromandel is expected to impact is not much. With respect to non-subsidive businesses, restriction has been imposed by certain states on the sale of non-subsidive fertilizers by fertilizer marketers. The industry has been engaging with the authorities in the state of UP, Bihar, and Maharashtra, and we are hopeful that an appropriate framework can be evolved that protects farmer interests while continuing to encourage balanced nutrition and innovations. During the quarter, Andhra Pradesh has announced a major program to develop Royal Seam as a global horticulture and food processing hub, and significant expansion is planned in horticulture acreage. Giving our strong presence in the region, our expected new granulation plant coming on stream in the near future, this augurs very well for Coromandel. And we see this as a positive long-term opportunity across our various segments, nutrients, crop protection, specialty nutrients, especially through our retail platform. Coming specifically to Q2 performance, as I mentioned, it was a very challenging quarter. We sharpened our focus on differentiated offerings. We launched 10 new products across nutrients and crop protection segments. We reasonably managed the working capital well. Revenue grew by 6% to 10,348. However, EBITDA declined 18%, mainly due to compression in NPK fertilizer margins during this quarter. And also due to deficit in key markets and rainfall. And the higher input prices, not adequately compensated by NBS rates, our performance across the value chain has got impacted. In the fertilizer business, volume uptake was impacted due to monsoon price differences. However, we tried to increase our market share from 17% to 19%. And our primary sale for the quarter was down significantly by 30% to 10 lakh tens, and consumption also declined 33%. It's a conscious call taken by the company to moderate the primary sale and production and manage the working capital well, and tracking the consumption, the production, and supplies were moderated. As the government announcing the new NPS rates for the reputation, we do expect that part of the benefits will be passed on. In correcting the MRPs, which can revive consumption during the Ravi season. The production got moderated by 15% in Q2 to some points on lactans due to softer demand. A newly commissioned phosphoric acid and sulfuric acid plant at Cataneda has come at a right time to ensure availability of these key raw materials, even though we operated the plant at a lower capacity, until we got the sulfur subsidy notification sometime in August. With Sulphur subsidy coming in, this new project is back on track and started operating at full capacity, and this will support the value creation in a highly volatile operating environment in thanks to the timely government intervention. Our granulation plant project is progressing well in Katynada, and we hope to commission this by February of this year, and this capacity should be available for the next year. For all, we can see a moderation in the global raw material prices. While urea has come off sometime back, we have seen softening approach in sulfur as well. Sulfur is now likely to go below $900 due to stiff resistance. From metal segment as well as in the fertilizer segment. I do expect sulfur used to be a disposal problem, and this can become an opportunity to bring it down below $500 as well, if we sustain our approach in terms of smart purchases. DAP continued to remain more or less at the same level in the last two months. Precious prices have been rolled over at $1,700 as sulfur prices remain high during this period. SSP volumes again got moderated by 13% to 1.9, but our focus on differentiated rates in terms of Grow Plus and URI SSP has been quite helpful and helpless to improve the contribution and margins. Moving on to crop protection segment. Crop protection demand remains soft during the quarter. The impact of rainfall has had a cascading effect on the agrochemicals as well. In exports, demand recovery has been gradual as farm economics was impacted due to high fertilizer costs and relatively to the dairy prices. Encouragingly, we are seeing improvement in the prices of certain agricultural commodities globally and that should improve the offtake of dairy ingredients as well. Crop protection assistance delivered 22% revenue growth during the quarter, supported by strong performance in export markets. Our diversified global presence continue to provide opportunities to deepen our presence across key geographies. Domestic market, we continue to invest in portfolio development and differentiated offerings, with new products contributing 36% during the year. During the quarter, we introduced six new products across agrochemicals and biologicals. There has been some impact on margin for few molecules, but it broadly remains at a comfortable level. Given the variability in crude-linked intermediates experience in H1, customers have deferred the purchases and decided bearing on the production of product of cake as well. We are expanding the capacity of one of our key molecules that will come on stream by this month end. We are also planning to establish the Floral Launch Plant at Ankleishwa, as we strongly believe Florination Chemistry is going to be the next major intervention in an agrochemicals value chain, and after successful trial and launch plant, hopefully it should pave the way for the ultimate commercial project for the specialty chemicals, which we envisaged two years before. So, on the subsidiary NETL, we would have seen the numbers, revenues are at... 3.74 crores, down 18% in EBITDA at 12 crores, significantly lower than the corresponding quarter of the last year. It is a one-off aberration the company witnessed due to significant margin pressure after carryover high-cost inventory, and the corresponding pass-on could not happen due to market compression, and prices of certain key molecules came down. And the company has to take a significant impact on the margins. A lot of initiatives are taken up to have a synergistic approach between crop protection business of Coromandel and NACL in terms of portfolio, in terms of sourcing strategies, optimizing the production capacities, leveraging on the product portfolio capabilities. A lot of initiatives are underway and hope to see a robust comeback of NACL performance in the coming quarters. Our retail business had a very strong quota, supported by continued focus on farmer engagement and cross-specific campaigns across markets. We are seeing good traction on our proprietary product portfolio. Some of our retail white-label brands are scaling up well and expected to cross 100 pros in annual sales this year. We also continue to expand our physical reach, adding 80 stores during Q2 and taking the overall network to 1,300 stores across Andhra Pradesh, Tevindana, Karnataka, Tamil Nadu, and Maharashtra. Retail is an untold story. It's been playing out very well for us. The team has done an external job in terms of stressful monsoon situation. They provided alternate products, organic fertilizers, specialty nutrients, which helps them to achieve the bottom line. And some of the new stores have reached the break-even much faster than what we initially expected. The new stores have started contributing meaningfully, reinforcing our confidence in scalability of the models. And we are on our journey. We enhance the network to 2,000 stores for the next two years. As specialty nutrients, organic and biological business also performed well. In this stressful situation, the adoption of water solubles and the specialties are gaining traction, and the government is rightfully positioned in terms of making these product offerings differentiated solutions to the farmers. And it is more relevant during these water stress conditions and the growing emphasis on sustainable agriculture. So, overall, I think with a better policy support through the revised NBS rates, improved farm economics, moderating the input costs in the seasonal pickup and rabbi activity, I do expect operating environment is going to be much better H2 with improved bounce back on the production sales consumption. Of course, I am cautiously optimistic at this point of time. And I'm sure if L.E.N.O. predictions are coming true, by year end, L.E.N.O. could move to the neutral position, which provides very optimism for the forthcoming career season as well. I would request Deepak to talk about the financial performance.

Thank you, Shankar. Good morning, all. Diwali greetings and peace of greetings to all. The company recorded a consolidated total income of 10,348 crores during the quarter, compared to 9,771 crores in Q2 of last year, registering a growth of 6%. The revenue increase has been mainly on account of higher subsidy rates versus last year and growth across the various businesses. It is pertinent to note that last year's Q2 results include NACL numbers effective 8 August 2025 onwards. Overall, the subsidy share of the business stands at 81% during the quarter, which compares with 83% in the last year. As far as profitability is concerned, the company reported a consolidated EBITDA for the quarter of 944 crores as against 1147 crores last year, registering a degrowth The decrease in EBITDA is mainly due to higher input prices. On account of the ongoing Middle East crisis and not commensurate with some of the revisions in the NBS rates and the retail prices, MRB. The profitability share of subsidy business stands at 58% compared to 72% last year. Net profit after tax for the quarter was 523 crores in comparison to 793 crores last year. Moving on to the financial performance of the first half of the year, the company recorded a consolidated total income of 18,563 crores during H1 versus 16,897 crores in H1 of last year, registering a growth of 10%. The subsidy share of the business stands at 79% compared to 83% last year. With regard to profitability in H1, the consolidated EBITDA was reported at 1,705 crores against 1,929 crores last year, registering a degrowth of 12%. The profitability share of the subsidy business stands at 53% compared to 70% last year. The net profit after tax for H1 was 905 crores compared to 1295 crores in the previous year. As far as subsidy is concerned, during the quarter, company received 3,086 crores towards subsidy claims. Government has been prompt in clearing all the subsidy dues. As of today, we have received subsidy claims till the September 4th week. In October, the company further received subsidy of about 1,200 crores. During H1, the company has received 4,478 crores towards subsidy claims. The subsidy outstanding as of September was 3,535 crores, compared to 3,199 crores in the previous year. With regard to Forex, during the Q2, Rupee traded in a range of about 94.5 to 96.6. Coromandel continues to hedge its exposure on a conservative basis. Thank you. With that, I hand it over to the Hermes.

Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use answers while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Prashant Biani from Elara Securities, Private Limited. Please go ahead.

Yeah, thank you for the opportunity, and Diwali, greetings to the management. So, what kind of MRP reduction is expected, maybe gradually or at once, after the subsidy increase?

It's very difficult to put the number. We need to get the notification and then we'll respond. But at least I feel NP grades like 2020, which has seen a very sharp increase from 1350 per brag to 2100, there we expect moderation to happen. It can be minimum 10 to 15% of moderation is possible in... Thank you. It's not sustainable to continue to have wider gap with DAP.

Sir, how much of Sulphur subsidy have we considered in our Q2 results?

You know the notification clearly says that the subsidy is applicable with a floor price of $800. So when Sulphur went up, we decided to curtail our purchases. So, whatever shipments we have got, beyond this price threshold level, they are only eligible for the subsidy. It's not very significant, but it has been quite helpful, especially for August and September. It will be difficult for me to put the number, but it came handy, especially for our company and our new plant. Our production was moderated, and after the subsidy announcement, we could get back on track.

Sure. And just lastly sir, along with the Rabi's subsidy notification, has this also been approved by cabinet or it is yet to be approved by them?

Yesterday is the cabinet approval. There is no further approval required. It's all finally approved and cleared. Even for Sulphur?

Right.

Thank you.

Thank you. The next question is from the line of Riju from Antics of Broking Private Limited. Please go ahead.

Hi, thanks for the opportunity. So, my first question is regarding the non-subsidy business EBITDA. So, if you look at the subsidy business EBITDA, that was very much lower compared to last year. But the non-subsidy business EBITDA has seen a sharp jump in the H1 as well as in the 2Q. So, what explained that if you could, you know, give some sense on this.

In the subsidy business, the major charge comes from crop protection business, where one of the molecules we had a challenge because of the carryover inventory, what I spoke about on NECL, sulfur-based derivatives, which influences the input cost, but globally there has been correction in the market price, where initially in the first quarter the prices all went up, but naturally the Global agriculture prices have remained short for major portion of Q2. Hence, the update for price increase was not there. So, there is a high cost, input cost, not particularly compensated, and the moderation prices have happened. Let us compress the margin. A lot of corrective actions have happened in terms of input price correction. We have moderated the inventory, and we are getting back on track. But the rest of the businesses, whether it is bioproducts or retail or specialty nutrients or SSP, they have all done well. Another major reason which is an aberration for this quarter, the ban on fertilizer companies doing sale of subsidized, non-subsidized product, especially in these key states of Maharashtra, Bihar and UP, has impacted the business. Hopefully, if that resolution comes back, we should come back on track. I think it's a temporary operation. It should get restored.

Understood, sir. And in the product business, if you could provide the number for the standalone CP business EBITDA margin, a broad indication.

And our fear is 17%.

Okay. In the popular business, if I should look at in terms of the H1 or the 2K performance of the industry, the DFT volume was slattish, while the NPK volume declined by 36-38% on a YY basis. So, is this explained mainly because of the via license NPKs, or was there any... Because of the crop, crop-wise shifts that we have seen in the Kharib season. So first this and second, looking at the subsidy, so there is a high probability that industrialized price car might happen. And with that also, we might be able to maintain our margin profile. So with that, can we expect the leftover inventory from Kharib? And then how do you see? Thank you very much. And how will be the impact overall for the DAP and NPK's inventory?

The NPK switch DAP has happened mainly because of artificially DAP prices pegged at 1350, whereas NP fertilizers like 2020, the price went up to 2100. And in a stressful situation, farmer never wanted to pay this sort of a price increase. Naturally, there has been a demand contraction. Informers were looking for cheaper alternative DAP, which is a high P product. This has been one of the major setbacks for the domestic manufacturers, and that is when government intervened and announced the sulfur subsidy, and then now they have corrected the rabbi rates to reflect the market reality. So, up to 1,500 rupees or 1,800 rupees per bag of 2020. The demand contraction was not happening. Once it was going beyond that, we could see demand contraction. With the announcement of NPS rates, I think NPK volumes will come back, and that will also reduce the import of DAP to a greater extent. I think what it used to be 60-40 between NPK and DAP turned out to be 30-70, 30 for NPKs and 70 for DAP. That is getting set right with the new NBS announcement. In terms of the channel stock, I would say it is not very high because industry has cut down the production, cut down the imports, anticipating demand contraction due to bad L&O season. And thanks to that, the channel mint buildup is not quite significant. There can be a marginal 5 to 7 percent higher levels compared to last year. But with the next two, three months, industry will continue to moderate these inventories. Consumption will pick up with correction in MRP. I think we should see reduced inventory levels as we close this year-end. I don't see major challenge, and the system can absorb these additional volumes which have been placed in Karib that should get consumed now. Because outlook of Rabi is also depending on northeast monsoon. We have seen two cyclones. And that has revived the prospects of chili crops in south, in Andhra market. And also in the north, it's a early stage of rabbi. Peet cropping is likely to be normal. There can be impact on oil, seeds, and pulses. But overall, eastern region potato crop has come up well. And we also expect central region to pick up on volumes in crop acreages. So, I think there won't be any major deviation on consumption in the Rabi season, and with a reasonable level of inventory and new NPS rates and moderation prices, I do expect consumption revival to happen, and we may end up with moderate inventory as we close this Rabi season by March.

Understood, sir. Thanks for the clarification. One last bookkeeping question. What is the inventory that we are holding as on September? Out of which, how much was at the dealer level and how much was at the factory level?

Well, get back to specifically, everyone put out these numbers. It is nothing extraordinary, I would say, at this point of time. It is more or less getting maintained to the last year level as far as channelment is concerned. As far as factory production is concerned, we have curtailed our production considerably, as I mentioned in my note. So, we don't carry much of inventory in our plants and warehouses.

Understood. Yeah.

Thank you. The next question is from the line of Darshita Shaw from DSP Asset Managers. Please go ahead.

Hi, thank you. Firstly, with the subsidy, with the sensor subsidy coming through, Shankar sir, how are you seeing the backward integration spreads? Are they better than last year? Are they the same, especially given that the proportion of backward integration versus last year has now moved up? So should we see backward integration spreads improving maybe for the second half of the year?

Absolutely. In fact, from August onwards, we are back on track. Still, sulfur prices are really high, and we were not operating PA plant at full capacity, never been the case for Coromander. And now we are back on track, and from October onwards, we should scale up our volumes, and the value gap also has improved considerably. I think this improved impact on the overall performance from the value gap should kick in in second half.

All right. Are the spreads similar to, would it be anywhere in the range of $300, $350? Is that a safe assumption to make, or could it be higher or lower than that?

I think it's a safe assumption to make.

Secondly, when we look at our crop protection event, that is down about 20-odd percent, but our non-subsidy piece has done significantly well. You mentioned that it is because of the specialty nutrient and the other businesses that we have. So, is this more of a proportion of the retail business being able to sell it better, or are we doing something differently to grow these brands, firstly? And secondly, is there any aberration because of lower NP sales or lower DAP availability that the demand for these organic fertilizers have gone up? I mean, how should we be thinking about it, especially the non-subsidy, non-CP part of the business?

No, you're absolutely right. It's a combination of factors what you've rightly alluded to. Retail has got its act right in terms of positioning the right product depending on the market situation. And that was quite helpful and also we improved our network in Andhra, Telangana. That has also aided in fact most of the retail stores have improved the performance in a very short period of time. And also when the NP-MPK prices went up, the farmer tendency is to look for an alternate shape of fertilizers and organic fertilizers volumes are also picked up. And also in the stressful condition, the natural tendency is to use more of water solubles and specialties. So combination of multiple things, our retail connect, additional reach and scaling up of organic fertilizers, bio-globally we are able to get the volume back. The ability to source neem at a competitive price, all this has been helpful in achieving non-CP, non-subsidive products. It's an increased network, improved the product, and new product offerings are also helpful. We launched two new products in organic fertilizer, which was received very well in the market. And some of the white-label products which retail was doing, we were able to source it internally from our own biobusiness division that has scaled up well. Some of these products are reaching the size and scale of 100 crore brand. That was quite helpful.

Sir, thirdly, on the Nano product, is it that we are seeing increased demand because of higher NPK prices? How should we be thinking about the overall contribution for the Nano piece on revenue as well as on EBITDA?

See, Nano has got a promising future. At least our experience has been extremely bullish on Nano, not only in the domestic market but also in the global markets. Unfortunately, the ban on this non-fertilizer in certain states has dampened the volumes. Key markets like UP Maharashtra, we had a setback, and we didn't position these materials during this quarter. Ideally, this should have picked up, and government has been promoting alternative chemical fertilizers. These products should definitely be on the top. But unfortunately, this state ban has impacted the sale of nano. But I think that's a temporary challenge. We should come back on track on this. Adoption has been very good. Over as bought last season, we were able to supply them Nano this season as well. We have become a market leader on Nano DAP. In fact, a lot of new customers have come in. Globally also, we have started exporting certain consignments. We are in the process of registering this product in Latin American markets and Middle East and Southeast Asian countries. Hopefully, we should see traction on nano volumes as well. But it is very critical for us to remove this ban in these key states where the adoption can be higher, which we are working on. Otherwise, I think it's a promising product with a significant margin coming in. In terms of revenue, it won't make a big impact on the top line because of the sizable commodity business what we have. In terms of EBITDA margins, they are very healthy.

Got it. I have a few questions. I'll get back in the queue.

Thank you.

Thank you. Just a reminder to all the participants to please press start and 1 on the touchstone telephone for more questions. The next question is from the line of Somaya V from Aventus Park Private Limited. Please go ahead.

Hi, sir. Thanks for the opportunity, sir. So, my first question is on the industry sales. What's up, or what would be the past complex sales

decline, both NPKs and DAF put together?

Thank you.

And also, we have the split between DAP and NPK.

NPK is 60 lakh tens as against last year, 77, and DAP is lattice at 44 lakh tens, 44-44.

Sir, second question is on the, our grand relation facility, you had mentioned about supervery for staff. So, what is the expectation in the next career, or what level of utilization we can get up to, and also in terms of marketing, we have been already going into some of the, you know, northern markets and taking the product. So, what is our expectation in terms of next year of this point sometime in the term that we place in the market?

See, this year happened to be a very stressful season, and the volumes were contracted in the current year. And always, even with this capacity, last year we had done foam lane by importing 8,000,000 tons of DAPI and PTA fertilizers. I think the new capacity coming in, and hopefully the season won't be this bad like what we witnessed in the current year. And we do expect Teleno to turn neutral by year end. I don't see any challenge in operating the plant close to the full capacity. Because Coromandel, that has been one of our hallmark, ensuring that all our capex is commissioned on time and relates the value on time. And we are expanding our retail network. That will be our main channel to drive part of the volume. And also we will be... We have already started this seed marketing two, three years before in key other markets like UP, Rajasthan, and MP. We will try and improve our volumes going forward into next year as well. So I don't see any challenge in ensuring full utilization of the new facility next year. Having said that, we will also be focusing on Differentiated product offerings, not to repeat the same generic grades what we have been doing. The facility which is coming up has got capability to have multiple nutrients to be added to main NPK products like boron or zinc. During the current year, due to these sort of adult policy changes, we could not come up with alternate products. With the way the NBS policy has restored the original design principle of announcing the race based on the prevailing costs, that is giving us freedom to reasonably come up with innovation and new products and differentiated product offerings. So our aim would be to see how best we can leverage the new capacity to come up with new products which can add value to the farmers and improve the productivity. So that is what we will be focusing. To answer you in short, our target would be to operate the plant at full capacity for the next season.

Sir, on the phosphate front, we are about 70% backward integrated. So, there is still this 20-30% headroom. So, is this something that we are looking forward or is there any operational challenge, this is the maximum limit that we can get?

First, we want to realize the value of the investment what we have made in Kakinada, operate the plant at full capacity and get there. That has always been our approach. Having invested 2,000 crores in setting up the PISA plant last year, and it's important for us to ramp up the volume and generate the cash out of that investment. And obviously, we will look forward to additional capacities as and when required. I don't see any challenge in the infrastructure or anything. And we have our mining operations also being scaled up at Senegal. I don't see any challenge if we choose to increase the volume. But as a matter of prudence, we'll always keep some exposure for bottled asset. We'll not be going in for 100% captive.

Understood. Sir, again, so if you could just share the split between exports versus domestic, the mix, and also volume and price impact during the quarter.

In terms of exports, I think we have got significant growth this year. Almost 40% of the growth has come from exports. And almost 45% of our revenue has come from exports. This is a very significant number we have got. And thanks to some of our molecules gaining volume in the export market, that was quite helpful.

The mix and growth includes anything.

Sorry?

So this includes NACL, I think.

Sir, this is Coromandel CPC segment, and NACL had a setback on exports. I have to come back to you on the segmental growth of NACL across exports, because we are seeing it in a standalone basis. Coromandel crop protection business exports growth has been 44% and the revenue share has been more than 40%.

You were referring to the opening remark in terms of a product-led challenge at NAC, a high-cost inventory. So, is that being the write-offs, it's been kind of normalized now, going forward, and you expect that impact to kind of not be there?

Obviously, the high-cost inventories have come down, but the input raw material prices, we are renegotiating and also looking at some value chain. How do we make those intermediates also in-house? And we are trying to optimize the production capacities between the two companies operating plants. Sometime when you operate the plant at low capacity, your efficiency and the conversion cost also goes up. So those issues are being set tight and addressed. And we are also able to secure some of the raw materials at a competitive price in the current quarter. So hopefully that should play out now. See, these sort of challenges in agrochemicals will always be there in terms of sudden compression and margin expansion in the next quarter. These things are bound to happen, but the wider portfolio should get smoothened out. And we are also trying to see how do we cut down costs, how do we rationalize the field team. So, we are working on various initiatives to improve the operational debitter. And those things will play out in the coming quarters. We need to look at NACL in a little more broader sense rather than only studying the EBITDA. NACL is bringing in huge opportunity in terms of spare capacities of active ingredients. In fact, there may not be any need for Coromandel to invest in active ingredient capacity. We can leverage NACL capacity to a great extent. That is the first advantage. Second is the R&D strength of NACL and Coromandel on a combined basis provide necessary impetus for new-age chemistries like fluorination chemistry. We would not have got into fluorination, put up a launch plant in such a short period of time, but for the talent available in NACL in terms of the R&D team and capability, they have run the pilot plant and we are able to take it forward and get into this specialty zone, which otherwise would have taken another two years to go. So, access to the spare capacities, access to the chemistry, and the CDMO play in terms of ability to manufacture various intermediaries connecting with the global players would be helpful as both the companies work towards having a long-term contract in the CDMO space. I think these are all the things which play out at different point of time. Because in the current portfolio of NACL, there is a challenge in the margin and EBITDA. And the molecules are not the new age molecules. They are old generic molecules. We are quite aware of the fact when we looked at this target as well. It will take some time because anything to happen in crop protection, it will take two, three years to get the new product registration going. And we have inducted the right set of talents and we are also working on various new products introduction. I think you all have to give some time for things to play out. It may not be measured in terms of the quarterly beta performance in the near future.

Understood, sir. One last question from my side. Sir, this fluorination plant that you had mentioned in a clay shore. So, what is the roadmap there? What are the steps in terms of opportunity set, potential, next few years? What are we expecting the ramp up in the specialty site? If you could just touch upon that.

In this fluorination, what we are putting up is a launch plant. We have a pilot plant already in place. We are now putting up a launch plant. For any of these fluorination-based chemistries, there are global customers who are keen to tie up with this, but they need samples to be given at all stages of the production, whether it is the R&D stage or a pilot stage or a launch plant stage. So this is on a commercial scale, we need to give the samples and get tested. And most of these are highly captive-intensive projects, and we don't want to set up the facility unless we have a sign-up with the key customers. So we are in the process of identifying those key intermediaries which we can sign-up with the customers. And once the launch plant is ready with those products and products are cleared, this is a journey which we have embarked one year before and with NACL is getting accelerated now. Once we have a visibility on the product getting cleared with key players, we should be able to set up a commercial plant which may involve capex output of 250-300 crores, probably one-two years down the line, once we establish the feasibility and viability. That is what the roadmap we are having, and that can give a good amount of EBITDA margin, completely different from current portfolio. And fluorination-based intermediates are also used in our own captive AIS. So we are looking at both the opportunities for in-house usage as well as for the CDM update. I think this will open up the opportunity for us to enter into a specialty chemical space, which we have been discussing in the past as well. But we want to do slowly. We don't want to commit the CAPEX from front unless we are sure about what we are doing.

Thank you.

Thank you. The next question is from the line of Himani from ICICI Prudential Asset Management Limited. Please, go ahead. Hi, sir. Thank you for giving me the opportunity. On the biological side, while you have already highlighted that the growth has come from the biofaculizers being available at the competitive prices versus high-priced MPK, I just wanted to understand, should we look at this growth only from this year's phenomenon, or is this growth sustainable in future?

Absolutely, it is sustainable. Biologicals have got two, three verticals here. One is the neem-based biopesticides, another one is the plant extract, what we have been doing, microbials and plant extract, and third is the organic fertilizers, which are based on industrial waste like grassland as well as municipal waste. And also, we have come up with variants in organic fertilizers by adding other phosphates and nutrients. So, it's a complete boutique of products, and as a company, we strongly believe in integrated nutrient management, which means 20% of organic and 80% of nutrient chemical fertilizers. The challenge here is in terms of ensuring the quality products available at the doors of the farmers, and the logistics costs are quite high. And that is where when the retail center is coming up in all the remote centers, we are able to service the farming community closer to the place of consumption. And the adoption rates are quite high. And this is likely to sustain and it will grow. And there are a lot of smaller players with good researched products available. It need not be a global play. It can be a localized play with a lot of micronutrients, microbial additions. And we do our own in-house testing and clear these products. This is one of the areas which Perumandal will drive through retail outlets to save for environment, save for soil, and save for the farmers, affordable for the farmers as well. So we are completely bullish on this, and we will continue to grow on this space. In the biological bioproduct segment, we have made a beginning. We have a lot to catch up on this. In fact, last two quarters, we have been driving these bioverticals through the direct... Thank you. And the EBITDA margins are completely different. And we have seen the traction here, and we will continue to build on this. It is not a one-off game. It will sustain and it will build and grow on this.

Thank you. Thank you. The next question is from the line of Archid Joshi from Novama West Method. Please go ahead.

Hi, good morning, sir, and give our greetings to the entire team. So just one question. We had shared something on the battery grades for SACID in the last few interactions. Any developments there in terms of technology or any long-term partnerships, any economics that you can help us with on that account? Thank you.

Too much preoccupied with the nutrient. Our mind space was not there on this. They have taken a backseat. We are working on it. Technology is available. Here again, we need to ensure that we have a customer sickness. We need to work along with some of the few end consumers of this patigate asset. We will evaluate again back and there has been slowdown on this the last two, three quarters because of the challenges and the headwinds we faced in the main business. Hopefully, we should come back to it in the fourth quarter. I have nothing much to share at this point of time.

Sure, sir.

No problem. Thank you. Thanks a lot. That's it for me.

Thank you. The next question is from the line of Abhijai Pakila from Codex Securities, Private Limited. Please go ahead.

Yeah. Good morning, sir. Thank you so much for taking my questions. I'm in the first. Good morning. First one was just now that the Rabi subsidiaries are known for the second half, would we have sort of a fairer idea of where we could expect to build up a ton to settle at for Too early to count the chickens.

Let's wait for the quarter to close because things are so volatile. The last two quarters have completely destabilized in terms of margin success. I would prefer to wait. But things have improved significantly. Our value decision is restored now. So the challenge here is not the margin per se per metric, it's more of a volume. How do we revive the consumption? To what extent we need to set the market price? These things will play out in coming weeks. Probably one more quarter we should be able to give you precise, but structurally, directionally, we are there. Even in this stressful quarter, we have done a decent number in Q2 in terms of both manufactured margin and some opportunistic imports, which has helped us to have a decent margin on imports as NPKs as well. I think we should be able to come closer to what we have been talking about in the past from Q3 onwards. Until the consumption replies, I don't want to do any second guessing at this point of time, but things are looking positive.

Sure, understood. The second one was just on the subsidy announcement itself. In your reading, does it seem somewhat more favorable towards the NPK segment rather than towards DAP? That was one question. And the other one is that postnote 5 of the financial results you've disclosed says that the necessary consequential impact of this NBS announcement will be taken in the subsequent quarter. So, is there any adjustment required to be already declared free season results also or this will only be with prospective effect?

There can be some positive impact on the channel inventory what industry is carrying because these subsidies are paid out on POS basis consumption. So there will be a positive impact on the high cost carryover inventory. But it will neutralize the high cost. Otherwise, there will have been a loss for the industry. So rather than saying whether there is a positive impact, I think industry will not have negative impact going forward, I would say, because we have to be rightfully compensated for having purchased and produced and carrying the high cost inventory. That will be reasonably compensated. As we sell these fertilizers to the end consumers, farmers. So to the extent, there will be a positive impact in the coming quarter. And second, in terms of shift favoring NPK, ideally it will always should be that way only. NPK is a balanced nutrition and domestic sector is focused on NPK fertilizers. And we can make it available during these challenging times. D.A.P. Capping it at 1350 is an aberration. I think now we have come back to normalcy and this is the way to go. I do feel that NPK consumption should come back. And at some stage, even this capping of DAP may get released because government also cannot afford that sort of a higher subsidy. And let the farmer decide which fertilizer he has to use. And that's the right thing to do and that's what this industry also we have been advocating.

Okay, sir. And just last two quick ones from my side. One is the framework of fertilizer sale. Does that apply only to urea and DAP or also to NPKs? And if it's the latter, then is there some impact on possible volume growth in the NPK category also from here?

It is applicable for all, but I do not know there have been some areas where ideally some of the cash crop farmers need higher volumes of NPKs, which they are not currently able to do because of this restriction. Industry has already started engaging with the government and given this feedback to ensure that the farmer who needs the right dosage of NPKs should not be depraved on this. Package of practices developed by agricultural universities need to be updated and we have already written to the government. We will be engaging with them. It's very important that right dosages, latest new innovative products are factored in the package of practices before they put out this system. This is on a pilot scale. The feedbacks have been given. We will take it up further with the government to see that it doesn't adversely impact the availability of these fertilizers to farmers who are in need of them. It's a serious concern which we are trying to address.

Perfect. And the last one was on the fluorine chemical plant side. In the last two, three years, we've seen quite a lot of Chinese capacity coming up in the fluorine derivative space. And some of the larger Indian companies have also been undergoing some struggle in that space. So in that backdrop, how do we plan to differentiate whatever offerings we plan to put up over here?

One or two things. First, we are trying to establish the proof of concept and looking at fluorination chemistry based agrochemical intermediates and certain pharma intermediates. And right now, we are not creating complete downstream. But one unique advantage Coromandel has got is in terms of hydrofluoric silicic acid, which helps us to diversify into fluorination chemistry rather than using fulspar protein. So, while China is competing on the principal root, our ability to leverage another by-product, which is coming from our phosphoric acid, can be a good value addition. So, that can provide complete value chain in the fluorination chemistry space. So, our unique advantage of hormone captive raw material can give us complete advantage compared to others. But having said that, we need to establish the market and identify partners who will take the volumes. And these capacities will come up based on the market needs, then looking for the market after the capacity comes. So, we'll have a lock-in customers before we move ahead with the capers.

Got it. So, thank you so much and wish you all the best. Thank you.

Thank you. The next question is from the line of Bharat Chait from Quest Investment Managers, Private Limited. Please go ahead.

Hi, sir. Thanks for the opportunity. My question is, can you give a little more color on this non-subsidary and non-agrochemical business, the size of the business, and how to vary, we are talking about very bullish, so how difficult it is to scalable, I mean, and what are kind of entry barriers that people cannot enter into?

Agrochemicals are familiar. There is a complete landscape known to everyone. In terms of bioproducts, all the products are unique, specific to coromental, whether it is neem-based biopesticides or microbials. These are all in-house research products. And even these bioproducts, some of them are specifically listed and developed by us in-house. So I think to that extent, you know, it has a strong entry barrier, but scaling up of volumes would be a challenge because they are applied in low dosage and it consistently takes time to develop the market. So it's a combination of product uniqueness and the product branding and reach is important. And in the global markets, registration presence there is important where with our wider portfolio of crop protection, nano, bio, we are much better placed with agrochemical presence in 80 to 90 countries. It makes us easily accessible to these markets for cross-selling these products, whether it is nano or bio products. To that extent, we are rightfully positioned to scale up the volumes. On these specialties, of course, it's a larger play, a lot of competitors are there, a lot of global players are there, and we depend on imported raw materials. And here again, we are trying to invest on our own captive MAP. So, a lot of key raw materials are imported from China. We are trying to reduce the Chinese dependence, and we are putting up our own MAP plant, which will feed into our own WSF manufacturing. So, here again, our uniqueness of coming up with crop-based water-soluble grades. Bringing in differentiation from rest makes it important, and our significant market presence in key markets, articles of markets, and our presence over the last two, three decades in specialty nutrients puts us in a very strong pedestal compared to the rest of the players. We are having a sustainable volume growth of 20-25 percent. Even during this stressful period, we are able to manage this. Other advantage we have is our large the sourcing capability in fertilizer can have a positive rub-off effect in the These businesses, where the similar type of raw materials are being sourced, our sourcing efficiency, our infrastructure, our dispatch supply chain through our common rates of fertilizers, all these are something unique to government and may be difficult for us to the players to compete in the market space. And we don't compete on generic play, we focus on specialities. To an extent, you know, we have less competition intensity.

What is the current annual size of the business, and how do we look at, I mean, scaling up the growth over the next two, three years?

Which business?

Ah, yeah, this business, I mean, all bio and non-agri, non-subsidy and non-agro claim.

Probably it is not differentiated as a separate segment, so I'm not sure if there's a point of time whether you can pick out those... Numbers, so probably I'll get back to you, but they are gathering momentum. They are very significant, and they have reached the size and scale comparable to the individual listed entities as well, especially on specialty nutrients and bioproducts. A significant play.

And last question, sir, any update on the Daksha?

Waiting for good days. Next quarter, definitely I should be able to give you good news in the defense order. But a few good things have happened in the last quarter on Daksha. We have introduced two new variants on agri drones. We have scaled up our volumes of agri operations in Kuramander through Daksha drones, and we have done sizable volumes through retail outlets, and we have seen wherever we are using drone spraying, our volume of liquid fertilizers and liquid aqua chemicals have gone up significantly. So, now we are attaching Agri drones to each of the retail centers, and there are pilots attached to each of the retail centers, and they will be executing these Agri drone services. I am very reasonably confident that future Agri revolution in India will happen through drone spraying. Right now, it is confined to spraying, but it can move into precision agriculture at a later stage. This is as far as Agri vertical is concerned. On the defense side and surveillance drones and other... The fixed-wing drones we are already working on. We have come up with two, three new variants, and we are going in for registration with defense. And hopefully, once we get the order cleared for the earlier order, we should be able to make complete offerings. Some of the demonstrations we have given on these drones at the very high altitude in Cargill sector was very well received by the Army, and hopefully we should be able to This sector is growing at the annual CIGR of 25%. And not many established players are there. And we have created a large ecosystem with a facility for lakh and 30,000 square feet, trying to develop indigenous vendors. We are looking to partner with other institutions to get the access to data technologies. We have worked much on the product offerings, arrange everything. It will take some time. Once we are able to execute the order, We should be able to realize the value out of this lecture. I know it's completely different from other inputs, but being part of this and the defense side don't have been helpful. And the defense side, it opens up the new opportunity.

Thank you and all the best, sir.

Thank you.

Thank you. As there are no further questions from the participants, I now hand the conference over to Mr. S. Sankara Subramanian for closing comments.

I think, looking ahead, we are cautiously optimistic about the Rabi season, supported by improved fundamentals and nominal prices have started showing signs of moderation. The recent revision, NPS rates also should be more supportive for fertilizer sector. The demand side farm economics remain broadly supportive. Agree commodity prices of key crops are holding above MSP level, and that should support farm cash flows. Thank you for your insightful inputs and questions, and hope to see again next quarter. Thank you very much.

Thank you. On behalf of Systematics Shares and Stocks Limited, that concludes Wisconsin. Thank you for joining us and you may now disconnect your lines.