Gujarat State Fertilizers & Chemicals Limited (GSFC) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Gujarat State Fertilizers and Chemicals Ltd. Q1FY27 earnings conference call. This call is being hosted by Underark Services, LNC, on behalf of GSFC Ltd. Representing the management, we have Mr. S.K. Fajpay, Senior VP and CFO alongside other senior executors. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation continues. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this call is being recorded. I now hand the conference over to Mr. S.K. Bachwai, Senior VP and CFO, GSF3 Ltd. Thank you and over to you, sir.

Thank you, Suthi. Good afternoon, everyone, and thank you for joining us today. On behalf of Gujarat State Fertilizers and Chemicals Limited, I welcome you to discuss our performance in Q1, financial year 26-27. I hope you had a chance to review the financial results, media release, and investor presentation available on the stock exchanges and also on our company's website. EBC consolidated financial performance. Sales has been increased by 64% from 2,184 crores to 3,583 crores. PVT is also increased by 11% to 205 crores and PAT is increased by 14% to 159 crores. In case of quarter-over-quarter, the sales has been increased by 36% to 3583 crores. PVT is increased by 214% to 205 crores and PAT is increased by 204% to 159 crores. Q1 26-27 has been a strong quarter for GSFC, marked by several important mileage costs. We achieved our highest ever Q1 revenue of Rs. 3,581 crore, driven by the called Q1 fertilizer sales of Rs. 2,947 crore, representing bio-wide growth of 65% and 82% respectively. Thank you. The frequent sales of Rs.635 crore and EBIT of Rs.116 crore were the second highest for any one to date. Profit after tax increased by 15% by-oh-by to Rs.161 crore, reflecting the company's ability to deliver profitable growth despite a challenging operating environment. Our performance was supported by effective crisis management. Agile operational planning, optimization of product mix, and proactive pricing excellence, enabling uninterrupted operations and supply continuity amid heightened global uncertainty. Now we discuss about the fertilizer segment performance. The fertilizer segment registered a robust operating performance with sales volume increasing 17% by-oh-by to 5.26 lakh metric tons supported by higher manufactured and traded DAP sales and government's DAP special package which helped offset international price variations. However, the quarter was also characterized by unprecedented inflation. In key raw material prices arising from evolving geopolitical development, sulfur prices increased by 231%, ammonia by 144%, natural gas by 38%, and P2O5 by 30% on bio-bibases, resulting in compression of fertilizers, habit margin from 8.49% to 4.09%. Industry product segment performance, it has delivered an excellent performance with 15% growth in sales and more than 4-fold increase in EBIT, supported by higher capital income sales and significant improvement in capital engine spread. Despite volatile global market and supply chain disruptions, the company maintained operational resilience through disciplined execution and timely business decisions. Financial position and capex plans. We continue to maintain a strong balance sheet with no long-term debt, healthy net worth, and adequate liquidity. Jio, Government of India's outstanding support on release of fertilizer subsidy, has kept the working capital levels at optimum levels. As of date, the company has received subsidy dues up to 3rd week of July, 26. This provides the foundation for the company to execute our growth roadmap through strategic capex initiatives, including the APS Capacity Enhancement Project and the Phosphoric Acid and Sulfuric Acid Projects at SIPCA, which will further strengthen our integrated operations and support sustainable long-term value creation. We talk about outlook for quarter 2, 26-27. Looking ahead, the revival of monsoon during July has improved the demand outlook. for the agri-input sector ahead of the review season. At the same time, geopolitical developments, including the Russia-Ukraine conflict and tensions in the Middle East, continue to create uncertainty around the availability and pricing of critical raw materials and finished purchases. Evaluated input costs, particularly for sulfur and phosphoric acid, are expected to influence industry product mix, with demand likely to remain skewed towards DAP. After the drop, ESFC remains focused on optimizing its product portfolio. Near term, amid continued volatility in crude oil prices and geopolitical uncertainties in the Middle East. On the demand from Vela mine is expected to witness an improvement in both domestic and export markets, export demand for HX pistols. Economic demand is likely to remain stable. Demand across other industrial products is also expected to remain steady, providing stability to the overall segment outlook. I now turn over the call for questions and answers.

Yeah, so shall we start with the question and answer?

Yeah, yeah, please.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, may press star and 1 on their touch screen 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 Saakit Kapoor from Kapoor & Company. Please proceed.

Yeah. Namaskar Bajpayee Ji. Hope I'm audible.

Yeah. Namaskar. I'm audible. Please.

Yes, sir. Sir, although it is in the format that we compare year-on-year inflationary trends and profitability, but if you could give us some sense of how we exited March quarter in terms of the price trends of RM and then the consequent quarter of June. So, the key, how are they have shaped up? I think so, they are not that significant in that aspect than what it is compared on an year-on-year basis. And currently, how are things start shaping up, especially for the RM basket?

Yeah, thank you, Saket. Actually, quarter four, if you see, it was not a normal season for the fertilizer segment. So, quarter four was, last year was dull, and there is a lot improvement in the sales as well as PBT and PET. It is more than triple the figures, if you see the figures of the PBT and PET, it is three times higher than the last quarter. But at the same time, raw material prices are continued to inflate, and this is a disturbing trend as far as fertilizer segment is concerned. Sulfur prices has been now more than $1000 a metric ton in the international prices market. And P205, $1700, it is again a jump of around $350 or $340 per metric ton. Ammonia also, it is a little bit slowdown in the ammonia pricing. But other than that, natural gas is again increased in the quarter one. Actually, in quarter four, there was a, this Harmoosh closure impact, and the, there was a panic type situation. So whatever inventory we were having, that was utilized in the quarter four, but the raw material passing impact actually came in the first quarter of the quarter four. But anyhow, we have dealt it very nicely, and whatever product we can produce, which are economically viable, that we have seized over from the basket where there is negative contribution or negative margin.

So, the exit of Q1 RM prices, you mentioned about SELFER is now up to $2,000. So, what was the average for our June quarter?

It is around 900, 800 to 900 dollars, because if you see in the rupee term, it is around 82,000 rupees per metric ton, on an average in the quarter one, because we purchased from the Reliance and Naira or wherever we are getting these alpers, but today it is ranging around more than 1,515,000 rupees per metric ton. So, it is continuously increasing. That is a very dangerous standard. So, we are... Approaching the international market also for the sulphur, if we get one or two cement at the appropriate pricing level, we are trying for that.

Okay. And that, if you could just give us some impact of the... The increase in the iron prices on, say, June exit and today, how are those going to affect the margin profile for both the segments? Means, I think so, we had done 4% effect on the fertilizer. That is a low number and we can understand the factors that have led to it. And I think that the performance from the IT was better because of the better capital spread. So, testing the current inflation trend and RM prices, and also in condition to the finished one, our margins likely...

As you know that in the case of Urea and DAP, the government has provided the full subsidy. So there is no danger of any price rise. Even if the natural gas prices increase, we get the subsidy in the Urea. As far as DAP is concerned, you know a special package is announced by the government. In which whatever the import cost is there, we are getting 4% margin over the imported price. So in case of DAP and Turia, we are fully covered. Other than that, whatever fertilizers are there, that is a danger because where the succilic acid is used, pathoric acid is used, that gives us a real uncomfort. So, we are switching from product to product, and we are also managing some ammonium sulphate type product, which is not viable in India to produce. So, we are getting it imported from the other countries, which has a reasonably good price. So, that is the way we are managing.

Right, sir. Just a concluding part, so with respect to the market linked fertilizer, so exactly there is a demand risk to it or what are the, definitely RM increase at hoc or evoke prices is a demand destruction, but when we say that it is alarming, it is alarming in respect of cost of production and the selling price or for the demand aspect also, and we are unable to pass on We are adding in Greece to our finish class. Thank you.

Yes, this is a difficult question, but as far as my oversight goes, there is no demand problem. It is only the cost factor which is not comfortable for, not for GSFC only, all the fertilizer companies were producing NPKs and ammonium sulfate and APS type product, and mainly due to the sulfur pricing. So if the sulfur pricing is, can be curtailed now, that will be the solution. But demand, there is no demand problem as such in the market. And my marketing head is sitting here. He will tell further what is the demand in case of phosphorus prices.

Thank you, sir. The demand destruction to some extent is definitely there. That we have seen in the All India picture of fertilizers. Going forward, we... I assume that the sulfur prices will be more or less at the same level or there is a slight tightening also considered, considering the upcoming seasons and other sulfur requirements. The main thing what we impacted was the monsoon thing. The pessimistic forecast what we have seen in both IMD and SkyMet. But this situation has improved a little bit in July. And now the deficit is much more reduced. So we are seeing a little bit of positivity there. That's all from my side.

And, sir, now with respect to, I think, so the CapEx part, we have mentioned about the commissioning of that train modification for APS at SICCA unit. So, what is the current update on the team, and how are we going to benefit, I think, so, I think it will then give us more flexibility for the product profile, depending upon the market, not raw.

Yes, actually there is commissioning of drain, DAP drain to be converted for fungible production of APS or DAP is on schedule more or less, and within a month or two we will be commissioning that line. It is a temporary phase that the sulfur pricing is high. As soon as we get the source of sulfur at a reasonable level. I think APS and again the, all the NPK grade of fertilizer will be produced at our Sikka unit. So we will be commissioning our line and we are simultaneously arranging and finding out the way how we can produce ammonium phosphate sulfate. And DAP as such is imported, so there is no scarcity of DAP and urea. But we are finding out the way how we can produce the other phosphatic fertilizers at our Sikka unit. So, and in the long run, we are also proposing to put a phosphoric at a sulfuric, that's a project at Sikka. So, the tender has already been received by us, and we will be opening the tender and finalizing it in a small time. Other than that, there are so many other projects going on. Yesterday, in the board meeting, we got the approval also. So, but we will disclose only after the finalization of technology tie-up and the financial model. So, you have to wait for three months. In the next quarter, I think I will be in a position to disclose much more products which are taken up by the GSFC.

That is, in the fertilizer segment only or the industrial chemical oil?

It is both mixed, because in the hedge, we have acquired the as big land as in the Fertragenagar Baroda unit. So, we will be, it will be having an integrated complex like thing. It will be having some fertilizer and also the industrial product.

So that will be a big impetus for growth and profitability going in?

Yes, yes, yes, yes.

Okay, lastly, sir, when we do the peer comparison in the space, if we eliminate the urea and the DAP part of the story where we have the blessing of the government in terms of profit margins, in other NPK and the APS, which are the private players wherein we are competing. Do Shreep Pushkar Chemikas also have the similar product profile, and if the marketing team person can advise me on the same, and we compete with them on the same product profile, or they are different than our line of business?

Well, basically, in the NPK segment, we are producing ammonium phosphate sulfate 2020-030 and the ammonium sulfate at the Patelajager complex. Other than that, there is one NPK grade 09-24-24 we are producing and 10 and 12 that we are importing and making it available for the farmers. But what other companies are doing and what our competition is with the other companies, I don't think that there is any demand of our product in the market because as such the demand has gone down drastically because of the pricing impact on the NPK growth of fertilizers. So I don't foresee any demand threat as far as fertilizer is concerned. And actually in Ravis region, I personally feel that we have to be ready for the, as much as fertilizer production or fertilizer import can be done by the company, so that there should not be any scarcity in the field in the Ravis region.

Sir, I missed your comment. You are talking about lower demand or higher demand or how the demand plays, Maneh, when you are saying that for the competition. But I was just trying to make sense. In our NPK, Nithya, who are our key competitors in the same region? So I missed your point completely, sir.

Okay, so my marketing head will reply. Hello. Please, I'm sorry.

Particularly, you will understand that in these current two months, there is availability constraint of various fertilizers, because most of the fertilizer companies are operating at not a hundred percent level. So, that is now, I think, there is a... The scarcity of the product is going on. Even we are having some products limited to exchange because farmers are asking that product and they are not available in plenty. So, even the phosphoric acid, the raw materials, what we are foreseeing, they are also not easily available. So, the demand is definitely going to be strong in the current quarter, and we are also coming new season, the rugby season is really strong in the northern states. So, that will definitely gearing up for the higher sales. But the constraint is the availability. Government support for that. Because the viability is a question.

So, all our NPK and the APS partners also are not market driven. There are caps to the selling also or are those market driven, the selling?

No, no. Most of the NPK get of partages, the MRP is more or less controlled by the producers, but... It is not profitable because we cannot increase the prices as for the same rate what the increase in the raw material prices. So that is the main reason because the farmer should also afford to purchase at the level where they can afford. And some other companies, they might be having some other profits. So they are selling at a cheaper rate or that is also one problem. But NPK grade of fertilizers, the market pricing is open, but only the subsidy part, the government fixed the subsidy pattern, so that we are getting from the government.

Okay, sir. We will wait for Q2 and then the update on the new project, the timeline, and all other details as alluded. And all the best to the team, sir. Thank you.

Thank you, sir. Thank you.

Thank you, sir. Thank you. Before we take the next question, we would like to remind participants that you may press star and want to ask a question. Participants who wish to ask a question, please press star and run now. The next question is from the line of Nira, and well, please proceed.

Yeah, good afternoon, sir. I have two questions. So, sir, first is on the fertilizer side, like you mentioned that the MRPs are generally fixed by us and they can't be increased in tandem with the increase in the raw material cost. So, just want to understand from you that like the cost in terms of fossil fuel, sulfur and everything have gone up. Are you getting any sense from the government in terms of increasing the subsidy portion for NPK for the upcoming Rabi season so that at least we can cover up the cost increases part? If you can just update on the same.

Yeah, Nido, you are absolutely correct. Because every six months, government changes the subsidy for the next six months. So the declared subsidy will expire in September, and with the fact from 1st October, new subsidy rates will be announced by the government. So we are hoping that considering the rameter price increase, there must be some increase in the subsidy. So, that will solve a lot of problems of the NPK grades manufacturers.

And sir, when we see our volumes, what we have clocked in Q1, any guidance you would like to give in terms of the overall volumes, what we can do for FY27?

As for budget, we have, I think, more than 22 lakhs metric ton, we have budgeted, and we will be, now, there is a good rain started in July, and I think we will clog more than 22 lakhs fertilizer sales at the end of the year.

Correct, and this includes the trading portion also, right?

Yeah, yeah.

Sir, also on the fertilizer side, like our sulfuric acid plant started in January 26th, and on every month basis, we have seen an increase in the sulfur prices, but the sulfuric acid prices are increased on a spot basis. So, has that benefit of increasing the sulfuric acid prices when we sell some portion of the sulfuric acid in the market has benefited us this quarter? And if yes, if you can just help us understand that.

Yeah, you are right, because we have four sulfuric acid plants in GSFC, and because of the sulfur price very high, it was difficult, but still we are operating all the four plants, and because this production of sulfuric acid, we get the steam. which is required in the process for production of fertilizers and industrial products. So, otherwise we have to use natural gas from the boiler and that steam is very costly. So, we are curing in the middle of producing all the sulfuric acid and selling at market even if there is no much contribution gain in the sulfuric acid side. But it is the requirement of the company to generate the generation of steam and to be utilized in the process.

The second question is on the chemical side of our business. So, I think from last two, three quarters, we have seen a stability in our profitability from the chemicals business. Just wanted to understand from you how much of this number is sustainable given the fact that the prices of most of the products, what we manufacture, are on an elevated level, and apart from us, there is virtually no producer of those products into India. So if you can help us understand the chemical portion much in detail, that would be helpful, and also our melamine production and sales was... Virtually nil this quarter, so what was the reason for that and how we are looking for the balance part of FY27?

Yes, actually, due to this crisis in the Middle East and Russia-Ukraine, there is a lot of volatility in the market, not only in the raw material side, but also in the chemical sector, like capital, melamine and other products, and China, some of the products China has banned the export, so as soon as the flow of the material is stocked by the China, the prices move up. As far as caprolactam is concerned, if you see the benzene caprol spread, it is ranging more than 800 dollars presently. So that is a comfortable level for the caprolactam. However, benzene prices also increase by 38 percent, but still there is a contribution and we are producing the caprolactam. As far as melamine is concerned, due to the higher NG rate, 38% increase in the NG rate also, so that molten urea is used in the melamine production, and that melamine production cost is not met, because a lot of Chinese cheap imports are available in India, so we have approached government of India for anti-dumping UTOs and minimum support price. Let us see how government comes out with that.

Sir, last question from my side. Any update on the measures being suggested by BCG? Last time we have updated that they are working for various initiatives which could be helpful in the short term and the medium term. So, if you can help us understand some list of suggestions if they have suggested to us and what could be the annual benefit coming out of these measures? Also, If you can share what is the cash on books as on June 26th. Thank you.

Actually, BCG assignment is concerned. It is on continuous basis for a longer period. So, whatever projects we are investaging in Sikka or Dahej or some process improvement in Borodha complex polymer unit and fiber unit, all the places they are making the study and they are coming with the suggestion and after the discussion. We will put the proposal to the board for approval because it requires a lot of investment. So, BCG study is going on. However, we can say that, yes, during the quarter, we have gained some 20 to 25 crores rupees by BCG suggestions, and we have implemented those schemes in one of the complex. Correct.

Predominantly on the chemical side, this is?

No, this is an overall basis. There are so many things which might not be seen by us. So they come and because they have the wider knowledge across the globe, so their expert comes to our plant and they see how to improve the consumption norms and all this. So due to that, small, small scheme we are implementing and we are gaining out of it.

And this number ideally should go up every quarter as those measures are getting implemented, right?

Yeah, I expect so.

Perfect. The last thing, cash on books, as on June 26, including the investments, what we have in liquid funds and other government companies.

Actually, due to the import of fertilizers and the lean season, quarter one, so a lot of cash crunch was there across the industry because, as you know, the DAP subsidy will be under the specific special scheme of the government that will come after six months. So, a lot of cash is stuck there. And we have also procured some certain material because as per one expectation, the raw material price is still increasing. So we carry the inventory so that there should not be any scarcity of the fertilizer in the raw season. So as a strategic planning, we have deployed our funds in procurement of raw materials and finished goods. So, yes, you can say there is no cash surplus in the June. So, there was a 500 crore rupees.

If you can share the outstanding subsidy portion, that also would be helpful, just to understand how much it is currently blocked in terms of the subsidy portion.

Yeah, it is around 500 odd crores rupees outstanding. So, we are getting subsidy regularly from the government. That is a good time and we are taking up, as a fertilizer industry, we are taking up with the government about this cash crunch and government is kind enough to release the subsidy timely. So, because of the raw material price increase, there is a heavy subsidy burden on the government. So, we can understand, but we are getting the subsidy timely.

Perfect, sir. Perfect. Thank you so much, sir, and wish you all the best.

Thank you. Before we take the next question, we would like to remind participants that you may press star and want to ask a question. The next question is from the Rainer Sakez Kapoor from Kapoor & Company. Please proceed.

Just one modification, sir. My brother, who is also a shareholder, Swayaz Kapoor would like to speak on the same line. Kindly permit him, sir. The next voice is Mr. Swayaz Kapoor.

Thank you for giving me this opportunity. See, sir, I wanted to know about this. Is there any buyback policy? Because our book value, keeping into account, book value is approximately near about 310 to 320 rupees. Keeping into account the asset. Building exercise which has been done for the prolonged, say, 10 years or 15 years, the company is continuously building this asset. But as far as market capitation is concerned, an enterprise value of the company is concerned, the enterprise value, I suppose, will be in the range of 5,900 crores. Whereas the book value of the company will be taking into account the asset of 16,000 crores, which the company has paid about 13,000 crores, correct me if I'm wrong. So if you can share your views, what is your buyback policy? And when will it be the option time to go for a buyback certificate and I need to share your views?

No, presently, we have no such scheme in the buyback. We are focusing on the project execution and whatever the development will be.

And in the future years, Second question, sir, if you can be kind enough to answer regarding ammonium nitrate and use of that in mining industry, because one of your peers, that is, I'm referring Deepak Fertilizer, it is also a listed company. They run from TAM, the Thai Ammonium Nitrate. So if you can share your view with the company spanning in this regard of developing this type of explosive products, so that it can be used in mining, like companies like NMDC can also have a tie-up in that regard, if you can share your views. Just like Gujarat Alkali is having a tire with Nalko. So if you can please share your views.

Yeah, actually, for generally, we are not just 10 in our product line. Good morning, everyone. This one of such products. So, we are not competing with the Indian company. We are going ahead with the product producer.

Sir, last, if you can please accommodate my last question. Regarding, I appreciate the effort taken by GFFC and the team of Gujarat Alkali also by investing in GIPC and utilizing green energy or renewable energy to reduce the cost of production. Now the government is focusing on this Govardhan that to utilize CBG biogas. So is the company planning with regard to reduce its cost further? If you can kind of answer that question, please.

Yeah, in that scheme, earlier we had executed somewhere in Banaras with the NDDB or somebody, but presently I do not know what is the viability of that particular project, but presently there is no such scheme with us for undergo version production.

Okay, sir.

Now my brother will act for here. Yes, sir. Thank you. Thank you for all the answers, sir. And I'm done with the questions. And that's it, sir. Thank you.

Thank you. Participants who wishes to ask a question, please press start in one now. To ask a question, please press start in one. As there are no further questions from the participants, I now have the conference over to Mr. S.K. Bajpayee from GSFC Ltd. for closing comments. Over to you, sir.

Yeah, yeah, thank you very much for the delightful questions, which I hope that we have answered to the satisfaction of the ministers. And again, I thank you for joining this call.

Thank you. On behalf of GSFC Limited, that concludes this conference. Thank you for joining us, and you may not disconnect your lines.