Deepak Fertilisers And Petrochemicals : DFPCL Q2 FY 2022 Earnings Call Transcript

https://youtu.be/Ldl8-l9R1lU

November 23, 2021
The Secretary	Listing Department
BSE Limited	National Stock Exchange of India Ltd.
Phiroze Jeejeebhoy Towers,	Exchange Plaza,
Dalal Street, Fort,	Bandra - Kurla Complex, Bandra (E)
Mumbai - 400 001	Mumbai - 400 051
BSE Code: 500645	NSE Code: DEEPAKFERT

Subject: Management Transcript of Q2 FY 2022 Earnings Conference Call

Dear Sir / Madam,

We would like to provide the Management Transcript of Q2 FY 2022 Earnings Conference Call, which was held on November 15, 2021.

The transcript of the Q2 FY 2022 Earnings Conference Call is also available on below mentioned Youtube video link:

We request you to take the same on your record.

Thanking you,

Yours faithfully,

For Deepak Fertilisers

And Petrochemicals Corporation Limited

Ritesh Chaudhry

Company Secretary

Encl: as above

Deepak Fertilisers And Petrochemicals Corporation Limited

Earnings Conference Call

Q2 FY2022

Earnings Conference Call

Q2 FY2022

November 15, 2021

Management:

Mr. Sailesh Mehta - Chairman & Managing Director

Mr. Amitabh Bhargava - President and Chief Financial Officer

Mr. Mahesh Girdhar - President, Crop Nutrition Business

Mr. Deepak Balwani -Associate Vice President, Investor Relations

Hosted by Antique Stock Broking Limited

1 | P a g e

Earnings Conference Call Q2 FY2022 • www.dfpcl.com

Deepak Fertilisers And Petrochemicals Corporation Limited

Earnings Conference Call

Q2 FY2022

Moderator:Ladies and gentlemen, good day and welcome to Deepak Fertilisers and Petrochemicals Corporation Limited Q2 FY2022 post results conference call hosted by Antique Stock Broking. 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 concludes. Should you need assistance during the conference call, please signal an operator by pressing "*" then "0" on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar from Antique Stock Broking Limited. Thank you and over to you Sir!

Manish Mahawar: Thank you Kathy. On behalf of Antique Stock Broking, I would like to welcome all the participants on the call of Deepak Fertilisers & Petrochemicals Corporation. From the management, we have with us Mr. Sailesh Mehta, Chairman and Managing Director, Mr. Amitabh Bhargava, President & CFO, Mr. Mahesh Girdhar, President, Crop Nutrition Business and Mr. Deepak Balwani, Head of Investor Relations on the call. Without further ado, I would like to handover the call to Mr. Mehta for opening remarks. Post which, we will open the floor for Q&A. Thank you and over to you Mr. Mehta.

Sailesh C Mehta: Thank you Manish. At the outset, my very warm and bit belated best wishes for Diwali and the New Year to all of you and I hope you and all your family members are staying safe and healthy. I take pleasure in welcoming you all for the Q2 FY2022 earnings call of Deepak Fertilisers. I hope you have all had a chance to look at the financial statements and earnings presentation that had been uploaded so that we can have a meaningful conversation today. At the outset, I am very happy to share that since we met last we have successfully raised Rs. 510 Crores to our QIP and what is more is the new set of investors are marquee long- term investors and that is clear testimony of the confidence that the long-term global investors have had on our operations and our growth strategy. As far as this quarter goes despite massive hike seen in many of our raw materials, our quarter has withstood fairly well and we have recorded a revenue growth of almost 28% over the last year and our EBITDA and net profit grew by about 10% and 16% compared to Q2 FY2021. As you know we are performing in three different sectors and if I might share from the sector perspective then the first is where we as always pharma-specialty chemical sector and that has shown a growth of 46% year-on-year in Q2 FY2022. So, in the nitric acid business which is a part of the specialty chemical sector we have seen because of certain I would say curb in production by the Chinese government the demand for nitric acid has further strengthened for us and we are expecting prices also to remain pretty firm in Q3 onwards. Within the same pharma chemical sector we have IPA where we did see capacity utilization to be more than 100% supported by good demand, but realization were somewhat depressed due to the plunge in the alternate feedstock acetone, however looking all these aspects the DGTR has recently recommended safeguard measures that is quantitative restriction on IPA import. We are also looking at focusing on having a special pharma grade IPA as you go along and further in our specialty drive in the IPA business we are also seeing a good

2 | P a g e

Earnings Conference Call Q2 FY2022 • www.dfpcl.com

Deepak Fertilisers And Petrochemicals Corporation Limited

Earnings Conference Call

Q2 FY2022

response on our hand sanitizer, the Cororid, and the other disinfection products and more recently we also had very good tender that we won from the Odisha government and we have also received our first export order to supply IPA USP grade from South Africa. Within the same chemical segment, we also have the mining sector and revenue from mining chemicals almost doubled compared to Q2 FY2021. Here we are leveraging on a lot of specialty products advanced technologies like drone and AI base, blast modeling to improve the productivity in the mines and infrastructure projects. As you are also aware the country is facing significant coal shortages and with improving economic recovery the demand for power and therefore coal is also poised to increase and all of these boost strongly positively for our mining chemical business.

On the fertilizer side, we continue to find that our strategy of differentiation and crop specific approach continues to give us good positive result and our Smartek sales achieved of 2.28 lakhs metric tons during the first half. The industry witnessed a shortage of potash unprecedented increases in prices on all the raw materials like ammonia, Phos acid etc., but with somewhere broad support of the government the sector has performed well. We continue to adopt digital means of working and connected with around 4.5 lakhs farmers through 12,000 farmer connect activities such as demo site meetings, crop seminars and others. So that connect to the farmers is getting stronger and that is building a good brand for us.

Going forward, the south-west monsoon in the country recorded a normal rainfall during Q2 leading to full reservoirs of water and with that we are looking at even better Rabi season as we go along. On the capex side, our ammonia plant construction activity at Taloja has been in full swing and we are looking at the progress as per the schedule and expecting to commission the plant by Q1 FY2024.

From a broader perspective going forward, we continue to single mindedly focus on number one capturing value chain which is where the ammonia project will give us a good positive traction. Secondly, we continue to focus on the drive very strongly from commodity to specialty or focus on end consumer and that is something that is going to give us certain improved margins and also certain strong brand finishing and in the near term we are looking at better efficiencies and debottlenecking to help us enhance capacity and expect maximum value in the near term. With this I would say broad overview, let me hand over to Mr. Amitabh Bhargava, our CFO and President Finance who can then give you a detailed financial overview and then of course we will be available for further clarifications and answers to your questions.

Amitabh Bhargava: Thank you Mr. Mehta. Good afternoon ladies and gentlemen and thank you for joining the Deepak Fertilisers & Petrochemicals conference call to discuss the Q2 FY2022 results. Our financial performance during the quarter remains positive as Mr. Mehta was mentioning

3 | P a g e

Earnings Conference Call Q2 FY2022 • www.dfpcl.com

Deepak Fertilisers And Petrochemicals Corporation Limited

Earnings Conference Call

Q2 FY2022

supported by our diversified product range and value focused business model during Q2 FY2022 we reported a total operating revenue of Rs. 1,793 Crores an increase of nearly 28% compared to same period last year. Our operating EBITDA increased by 9.8% y-o-y to Rs. 212 Crores in Q2 FY2022 with margins of 11.8 during the quarter. There has been sharp increase in key raw material prices y-o-y in Q2. Ammonia was up by approximately 158%, Phos acid was up 70%, RGP that is propylene was up by 53%. Despite these adverse movements of key raw material prices our better utilization levels during the quarter and sales volumes resulted in improved financial performance. Our net profit grew by 15.9% y- o-y to Rs. 93 Crores in Q2. Finance cost were also reduced by 11.7% y-o-y during the quarter driven by a better working capital management and conversion of IFC, FCCB Tranche one. This generated approximately 648 Crores of cash from operations and working capital management during first half of FY2022. Net debt was further reduced by approximately 205 Crores during H1. There has been significant improvement in leverage ratio with net debt to equity improved from 0.91x in H1 FY2021 to 0.53x in H1 FY2022.

DFPCL successfully raised, as Mr. Mehta was also mentioning, Rs. 510 Crores to a qualified institutional placement of equity shares in October 21. Leading domestic as well as foreign institutional investors participated in the issue which included Smallcap World Fund, Government Pension Fund Global, Axis Mutual Fund, Fidelity, Avendus and Societe Generale among others.. During this quarter, our manufactured pharma specialty chemical business recorded revenue of Rs. 374 Crores, an increase of 46% compared to Q2 FY2021, manufactured assets for quarter recorded revenue of Rs. 208 Crores an increase of 94% compared to Q2 last year and manufactured IPA recorded revenue of Rs. 167 Crores an increase of 12% y-o-y due to the decrease in availability of various down streams of nitric acid from China and the resulting higher pricing. Nitric acid demand and prices are expected to stay strong in Q3 in the short-term demand for hand sanitizers and disinfectant products are also expected to rise. Manufactured mining business recorded revenue of Rs. 373 Crores an increase of about 100% during the quarter. We recorded highest ever second quarter sales of ammonium nitrate melt with 74% y-o-y growth, high density ammonium nitrate sales volume grew by 51% as supported by combination of fixed price short-term agreement and increasing sizes of imported ammonium nitrate due to the availability concerns from exporting country. With improving economic recovery the demand for power and therefore coal is expected to increase in addition with an increase in infrastructure activity demand for cement and rock aggregates are likely to increase all these factors should result in increase explosive demands in mining and infrastructure segment and inturn on our mining chemical products. Our value based business model and crop nutrition business has resulted in revenue growth of 15.8% to Rs. 802 Crores in Q2. NP and NPK recorded a revenue growth of 30.9% to Rs. 687 Crores and bensulf sales increased by 37% to Rs. 21 Crores in Q2 FY2022.

4 | P a g e

Earnings Conference Call Q2 FY2022 • www.dfpcl.com