Edited excerpts from an interview:
Your topline grew by 32% to Rs 7,663 crore last year. Can you provide a business outlook for the next 2-3 years?
DFPCL delivered robust consolidated financial performance in FY2021-22 on the back of the unique advantage of its integrated operations and diversified end user segments of core products. The company crossed milestone of $1 billion (i.e. Rs 7,663 crore) and PBT crossed Rs 1,000 crore.
Nitric acid demand and prices are expected to remain strong owing to the diminishing availability of down streams of nitric acid from China and resultant higher pricing. With the increase in coal, steel and cement production, demand for explosives in the mining & infrastructure segments of the Indian economy are expected to grow. Strategically directed efforts from crop specific products to farmer-focused marketing drives are also expected to benefit DFPCL.
Long term growth is expected from our continuous endeavour to transform from a commodity to specialty play in each of the product segments. Going forward, the available capacity across our plants provides us headroom for future growth potential. Furthermore, NPK and TAN plants are undergoing debottlenecking, which should also give us the opportunity to further increase our production capabilities at Taloja facility.
Capacity enhancements and backward integration initiatives should also help us with long-term growth. Although, the current geopolitical situation and uncertainties around raw material prices and its availability remain a cause of concern.
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Can you help us understand how you plan to take your journey from commodity to specialty in the next 2-to 3 years for the fertiliser business?
We are working towards transformation across our product offerings in the crop nutrition business. We have planned our journey in stages and we are progressing well as per our plan:
Success story of innovative technology based product:
In the year 2018, we launched a unique enhanced efficiency NPK product called ‘Smartek’. Smartek enhances bio nutrient availability, nutrient use efficiency and crop performance. Since its introduction, ‘Smartek’ has rapidly gained mass acceptance for its superior farm outcomes and has been positioned as a premium brand. We have sold over 1 Million MT of this product. It has been widely adopted and benefited nearly three million farmers.
Innovative Croptek based crop nutrition solution:
We have recently introduced ‘Mahadhan Croptek’ in the crop nutrition solution segment, which has been uniquely developed through a deeper understanding of the farmer’s need to address balance nutrition and use efficiency in the target crops. Each granule of Croptek provides all essential 7-8 nutrients including micronutrients in a balanced formulation. Croptek is powered by Nutrient Unlock Technology (NUT) which unlocks nutrients and enhances bio-availability thereby enhancing nutrient use efficiency.
By adopting these balanced nutrition solutions, farmers can minimize wastage and under-dosing of the required nutrients at different stages of the crop growth.
This innovative Croptek solution is expected to immensely help farmers in their complex decision-making process while selecting fertilizers and dosages to meet the Recommended Dose of Fertilizers (RDF) in different crops. Croptek solutions provide 10-15% yield gains and an increase in net income for the target crops we have launched.
We have currently launched Croptek grades for Onion, Sugarcane and Cotton and have solutions for 2-3 grades in the pipeline which will be launched soon.
Crop and Stage Specific Solutions:
Crop specific fertigation solutions launched under the brand ‘Solutek’, for Grapes and Tomato crops in 2019, were highly accepted by farmers for improving their yield, produce quality and helping them get higher price in market. These products were designed in-house after examining crop-specific requirements across different stages. We have built a strong pipeline of such crop-specific and stage specific products, which will hit the market in the next 1-2 years.
When do you expect the ongoing capex to be completed, and what capacity would be added?
We are expecting the ammonia plant to be commissioned by Q1 FY24 and the TAN plant by the second half of the calendar year 2024. New Ammonia plant at Taloja will add 510 KTPA to our existing 128 KTPA and TAN greenfield expansion at Gopalpur, Odisha (East Coast) will add 376 KTPA to our existing capacity of 486.9 KTPA.
The ammonia project at Taloja (Maharashtra), which is adjacent to its downstream customer, is making strong progress and is well on track. This is expected to provide greater margin stability for DFPCL group by mitigating the impact of volatile ammonia pricing, reduce dependency on third party suppliers, ensure stable margins and improve earnings visibility.
How important was the China factor in driving revenues last year for your industrial chemical business, and how are things looking now?
China’s effect on DFPCL has been mixed. For the nitric acid business, it has been positive due to temporary closure of the largest nitric acid derivative player in China which has resulted in the global supply chain of nitric acid derivatives seeing a significant shift to India. As a result, nitric acid demand in the domestic market has increased and pushed prices up. On the other hand, IPA business has been adversely affected due to the import surge of Acetone-based IPA and hence margins have been under pressure.
How big a challenge is the increase in raw material prices?
Due to increase in key raw material prices such as ammonia, phosphoric acid and muriate of potash, the cost of production of fertilisers has increased invariably high from Q4. War situation in Russia and Ukraine led to further shortage of RM like muriate of potash. GOI has taken the cognizance of extraordinary price increases in the global markets and enhanced subsidy for NPK Fertilisers to ensure affordable costs for the farmers. We continue to focus on value added crop specific portfolio and help farmers optimise their costs.
In nitric acid, raw material cost increases are passed on through formula-based contracts for the chunk of the business. In IPA, raw material cost increase pass through has been challenging since IPA prices are driven by Acetone whereas, DFPCL uses propylene as a raw material for which price dynamics are not in sync with Acetone. As far as TAN business is concerned, obviously as the raw material prices went up, so did the finished goods prices in FY2022, supported by strong demand environment and disturbance in imports from Russia.
We are expanding our raw material procurement bases and optimising our portfolio to ensure smooth functioning of our operations.
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