Ladies and gentlemen, good day, and welcome to the Deepak Fertilisers and Petrochemicals Limited Q4 FY2023 earnings conference call hosted by PhillipCapital India Private Limited. 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 star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Harnish Desai from PhillipCapital India Private Limited. Thank you, and over to you, sir. Thank you, Lizanne. Welcome to the Q4 and full year FY 2023 earnings call of Deepak Fertilisers and Petrochemicals Corporation Limited, hosted by PhillipCapital. From the management, we have Mr. S.C. Mehta, Chairman and Managing Director, Mr. Amitabh Bhargava, President and Chief Financial Officer, Mr. Tarun Sinha, President, Technical Ammonium Nitrate, Mr. Suparas Jain, Vice President, Corporate Finance, and Mr. Deepak Balwani, Head, Investor Relations. 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. S.C. Mehta, followed by Mr. Amitabh Bhargava for details on financial performance. Post which we will have a Q&A session. Thank you, over to you, sir. Yes. Thank you, Harnish. A very good afternoon to all of you, and welcome to the Q4 FY 2023 earnings conference call. I hope you have had a chance to look at the financial statements, press release, and earnings presentation that were uploaded on the exchanges and our website. Let me take you through some of my thoughts and insights as I look at, you know, the larger picture. At the outset, let me share the joy of the performance of FY 2023 as a whole for the 12-month period, that where our revenue jumped by 47% and it crossed the landmark of INR 11,300 crore to be precise. Even more, I would say joyful was that profits jumped by 77% and again crossed the landmark of over INR 1,000 crore. To be precise, INR 1,221 crores. You know, looking at this performance, last week in our board meeting, the board was also enthused to recommend a 100% dividend for the coming year for the shareholders to consider. All of these are indeed, you know, landmarks. This is something that, you know, is a joy to see. Of course, almost over 85% of these results are emerging out of the chemical business. That is something that in one sense brings this misnomer also to light that we are Deepak Fertilisers, but 85% is from the chemical business. I was looking at in terms of what could be the undercurrent takeaway from the 12-month results. One aspect that I thought I should share with you what I was seeing was that, despite the fact that we saw an unprecedented hike in raw material prices in the last year, almost 60%-80%, and as a result, we also saw an unprecedented hike in finished product pricing because we had to pass on. The newsworthy aspect or something that we saw as a very positive aspect, was that there was no demand destruction despite these unprecedented, finished goods pricing. What it, you know, gave us very clearly as a message was that it validated the excellent alignment all of our three businesses have with the India growth story. The fertilizer business, the industrial chemicals or pharma chemical business, and the mining chemicals business. All of the three indeed have a very good alignment with the India growth story, which is why we did not see any demand destruction. Now, having said that, we were seeing also Q4. Whereas, Q4, while the revenue jumped up by 38%-39%, in terms of profits, there has been a dip of around 9%. As we analyzed that, we saw that, you know, mainly, it is emerging from the TAN business, the mining chemical business or Technical Ammonium Nitrate business. There we saw two things or three things that has emerged in this quarter. Number one is what we have been seeing in general also and specific to this quarter that now the raw material prices are gradually coming down to the normal levels which were there during the pre-COVID period. Also there is a similar correction in the finished goods prices, and they're going almost in tandem. We are seeing that in some other quarters, one precedes the other or the other precedes the first, which is where, you know, for that particular quarter, there could be a little bit of an impact emerging. As the raw material prices and finished good prices in tandem move to the lower level. There, as I see it, while it has impacted the quarter, it is something that should even out in the balanced part of the year. In case of TAN, there are three other things that uniquely happened. number one is that, you know, the government had put an ban on exports of ammonium nitrate. You know, this is something which we were wanting to actually push specialty Low Density Porous grade, which is our top grade quality product. Because also the worries that the government had in terms of availability of TAN for the larger targets that they had for coal mining, that they were worried that, you know, it would not be available. It's a misplaced worry. As we speak, you know, there is a ban on exports. Of course, we have talked to the various levels in the government, and now they see the illogic in that aspect, and we are hoping that some corrective action will come in soon. The second aspect is that there were floodgates opened up of imports because the anti-dumping duty went through a sunset clause, five years getting over. While the government, you know, and the other measures that are there to reevaluate that, the logic of it, this window was clearly there that, you know, imports were freely allowed. The most important aspect that we saw was that because of the various sanctions on Russia, from other countries, India has become a nice dumping ground, and that aspect of it also impacted. A lot of these things are gradually shifting, moving into a better space. From a strategic perspective, if I might share that, some of this volatility is something that we are seeing as a part of our life. In order to combat the volatility, we are looking at three strong approach. Number one is that we are continuing our aggressive drive in all the three businesses to move from the commodity orientation to a specialty orientation. When I think specialty, it is more in terms of holistic solutions for the end consumer. You know, in the fertilizer business, instead of the commodity NPKs, more and more now we are looking at crop specific nutrient baskets. Instead of focusing on the dealers, we are focusing on the farmers, as you know, I'd shared last time also. Similarly for the TAN business, that's very strong focus on technology based holistic offering, TCO, as they say, for various infrastructure projects. First aspect that we are seeing as a strategic imperative to deal with the volatility is a continued strong drive to move from commodity to specialty. The second aspect that we are also seeing in order to combat the volatility is again what we have put into effect, which is a backward integration into our raw material, which is ammonia, which can become a very great risk mitigator so that the volatility of the ammonia prices stays within the group. There again, you know, as what we had committed before the end of Q1, we are looking at, you know, declaring commercial production. As we speak, we are in the last, very last legs of commissioning activities that are going on at site. That is going to be, the ammonia is going to be also a good risk mitigator in the longer run, so that, you know, we have a good, I would say, combat for the volatility that otherwise would have impacted us in the ammonia pricing. The third is we are moving more and more in a lot of our products for a natural hedge, where the finished good prices are somewhere interlinked with raw material and forex, so that, you know, some of those become a pass through. Now, as I look at the balance part of the year in terms of the major undercurrent, what I see is, number one, as far as the TAN Mining Chemicals sector goes, the coal mining, you know, upswing that we are seeing and so also in case of cement infrastructure, those, you know, both were very positively in terms of at least the demand, the needs that are there. There, like I said, we will continue our drive for holistic product offering, in terms of product plus solution rather than just products. In case of the acids business, the China Plus One aspect is something which is, you know, continuing to give a good demand, continued good demand for the acids. In fact it is leading us to very seriously look at additional capacities, looking at the growing market. Even in case of acids, we have got some very good breakthrough for specialty grade acids for the semicon sector or for the solar industry. That is something that we are pushing. Once we have a good proof of concept, I believe that, you know, even the export markets could open up for these specialty grades. In case of IPA, where we have struggled with the dumping from China, now thankfully the safeguard duty has kicked in, and that is something that is going to give us a certain kind of a insulation. Additionally, of course, our drive to move the commodity IPA into pharma grade IPA also continues. On the CMB, the crop nutrition space, we will continue for the balance year or years ahead to focus more and more in terms of the crop specific, you know, NPKs and working more and more closer to the farmers, so that, you know, the move is from your price-based, commodity-based selling to more value-based and value pricing kind of approaches and thoughts. Like I said, the ammonia available from our own plant will become a good risk mitigator. Whereas we have tied up almost 68% of our gas requirements for the next three years, we are just about around the corner to tie up the balance that is there. Lastly, our demerger activities are, you know, in the right direction. It's a matter of, I would say, a little time. The NCLT process is on. We should be in a position to look at, I would say, effectively implementing the demerger. What it will do is, as you're all aware, it will get a very strong focus on each business segment now being housed in a, you know, independent corporate entity. Right from the board to the lowest level of management will be very strongly focused on that specific sector. You know, obviously, this would open up also various kinds of further corporate restructuring ideas and thoughts. That is also something which is in the right direction. With these, I would say initial thoughts, let me hand you over to Amitabh, who can take you through all the details of the figures and how the year and the quarter went by. Amitabh? Thank you, Mr. Mehta. Good afternoon, ladies and gentlemen, thank you for joining the Fertilisers and Petrochemicals conference call. We are presenting our Q4 FY 2023 results. I think Chairman did cover at length a number of aspects, I'll just keep my, you know, statement very, very, very brief. Just to quote the numbers, DFPCL has successfully concluded FY 2023 with a record-breaking financial achievements of our highest ever revenue and PAT figures. For 2023, we reported a substantial growth in our total operating revenue, which amounted to about INR 11,301 crores, representing an impressive YOY increase of 47.5%. Our operating EBITDA was INR 2,165 crores, a growth of 60% on a YOY basis, profit after tax of INR 1,221 crores, growth of 77.6%. These remarkable growth figures are the results of our various strategic initiatives undertaken during the year, as Chairman also explained in his statement. As of March 31, 2023, the company has net debt of INR 2,518 crores, with net debt to equity of 0.48x. We have already tied up entire debt of INR 1,541 crores with door-to-door tenure of 14 years for our TAN Gopalpur project. We don't have any large loan repayments due in the next three years. I'll just keep my statement brief, and I open the floor for question answers. Thank you. Ladies and gentlemen, For drafting the response only. ...moving to the question and answer session. Anyone wishing to ask a question, may please press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets 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 Vishal Prasad from VP Capital. Please go ahead. Hi. Good afternoon. Amitabh, I think sometime in 2021, I had asked about our CapEx, and you had explained in detail why we are doing ammonia backward integration and the benefits we would have. A lot has happened during last 21 months. What we know today in terms of gas and ammonia price behavior, if today we have to take a decision on the CapEx, would we come to the same conclusion and you will choose to do the CapEx or will you be a lot more circumspect? Okay. Look, any of the long-term decisions which where you are building an asset for 25 years, 30 years or even longer, you don't take those decisions based on what happened in last quarter or this quarter or the next quarter. You need to look at the last 10 years, 15 years average numbers. Now what has happened, and you are right in that the gas prices have gone up and we know the reason why gas prices have gone up. One of the factors has also been what has happened in terms of geopolitical changes that have happened in either Russia-Ukraine war and therefore, suddenly, you know, Europe clamoring for more gas. Those are the kind of events, you know, you would... no one would be able to anticipate. That said, that still doesn't change the fact that in a matter of time, the gas prices will become... They have already corrected significantly from what we saw in terms of peak to, you know, we are looking at today that they are JKM of around 10 or little less than 10. We are seeing gas prices coming down. We also equally are at a stage where barring our next two years- three years, which we have tied up, beyond those three years, next 15 years of gas that we are looking to tie up 10 years- 15 years is at significantly competitive rate because there are more capacities coming up globally of LNG. Equally on the ammonia side, you know, the fundamentals haven't changed that the there are no no significant investments have happened on standalone ammonia plants globally, which is what typically would decide the prices of traded ammonia or the price at which we would end up buying ammonia. Today, yes, you know, today, given ammonia, what is happening to nitrogenous fertilizer and their demand, ammonia seems to be in excess. It's overbought. And we would have to wait for this commodity cycle or, you know, this let's say low cycle of ammonia to to kind of get through that. Because we are not building this asset for one- year, two- year, or a few quarters. It's a 20-year, 30-year, or even longer asset. I think our decision, certainly one does get influenced by here and now, but certainly, you know, in this kind of long assets, you have to take a 10-year, 15-year view, and you can't get bogged down by a high price of commodity or a low price of commodity. You know, those cycles would. We always knew that those cycles would come in ammonia and gas. My answer would be that, you know, we would, we would still, by and large, we would come to the same decision because for us, it's a 15-year, 20-year view, not a quarter view. Sure. I was having a conversation with a company based out of Punjab and not in our sector, but another sector, and they have similar benefits as we have got for our CapEx, where they will get the SGST refund. However, over many years, they haven't got a single penny from the government, in spite of them putting a lot of effort and having all the paperwork ready. I know we are not putting it up in Punjab, but in your experience, how confident are we that we will be able to get what has been promised without much hassle? You're talking about the state policy and the incentive. Right. We are, you know, we have made investment in Gujarat, and we have started getting those incentives. In fact, we have collected significant part of our incentive that we have claimed. We don't see that any different. I mean, in fact, Maharashtra and Gujarat, given the industrialization, given the kind of, you know, investment that these states have attracted, I think their policies as well as their, the way they would implement their policies is not gonna be any different from each other. Okay. Tarun, we work with Coal India, where we... and other miners, where we sell our explosive solutions, and we also supply to Solar Industries. What is the difference between what we supply to the miners directly and what we supply to Solar Industries? My colleague Tarun is there. Tarun, would you like to take that question? Yeah, absolutely. Am I audible, Lizan? Yes, please. Oh, okay. Yeah, thanks for the question. First thing is, the product that we supply to Solar Industries, that is, Technical Ammonium Nitrate, which is actually used as a raw material by Solar Industries to produce commercial explosives. That commercial explosives is supplied to Coal India and all other mining companies across the country as a finished product. That's, that's what we do with Solar Industries. Now, what we are doing slightly differently as well, which is what Chairman, you know, mentioned in his opening address, which is a shift from selling just product, and Technical Ammonium Nitrate is just product, to selling products, but also getting closer to the end consumers in the form of holistic solutions. Who are the end consumers for us in this context? They are, again, the mining companies, the infrastructure projects, you know, and so on and so forth. What do we do in that business model? It is about, again, a term which was used by Chairman in the opening address, a term called, you know, total cost of ownership. TCO, in short, is what we call. Which basically means we work very closely with the end consumers, again, the mining companies and the infrastructure projects, to first baseline and benchmark, you know, their operating costs, which is cost of extracting mineral, cost of extracting rock. We put in technology together with some specialized differentiated explosives products, which is not Technical Ammonium Nitrate, and that's the difference fundamentally. We commit ourselves to certain improvements in the cost of mineral extraction, which is basically in simple terms, productivity improvement in the mines and infrastructure projects. That's the solution we provide. Parallelly, we are running two business models. One is product as product, which is the first example I gave, and the second one is, you know, complete holistic solutions for mine productivity improvement, which is where we go direct to the end users, which was being talked earlier. Do we compete directly with the solar industry because this is what they do? Prasad. Just one follow-up, ma'am. Just one follow-up, please. Tarun, do we directly compete with Solar because they provide the same thing to Coal India and other miners, right? As I said, our business model is very different because most of the explosives manufacturers in India and explosives vendors of Coal India, they just supply products which are explosives and get paid for that, which is through the rate contract that we have, let's say with Coal India or other mining companies. Whereas we do not sell explosives as explosives only. We basically provide a holistic solution, which I was talking about earlier, which is a mine productivity improvement program. Then we invoice to the those end users, based on the solutions that we are guiding, providing instead of the products, explosives products or something else that we are providing. In some cases, we have gone to the extent of structuring our contracts, which we call as outcome-based contracts. What it means is, we also get paid on the basis of the outcome that we generate as a result of the solutions that we provide, which is very different compared to getting paid on the basis of input that is supplied to a mining company, which is explosives. It's a very different business model compared to what other explosives manufacturers are currently working on in India. Sure. Thank you. Thank you. The next question is from the line of Vidit from IIFL Securities. Please go ahead. Hi. thanks for taking my question. my first question was again, coming back to the new ammonia plant. we've tied up around 2/3 of our procurement for the next two years- three years, at least our near-term procurement. Can you guide how much this is and what cost we'll be paying for at least in the near term? Also, if you could give us an update on the current dynamics of the plant in terms of how much we'll be making at prevalent, you know, rates of ammonia and gas? Your first question is in terms of the quantity of gas. We require roughly about 1.3 million cubic meters of gas per day, and we have tied up about 68% of that. That said, the balance 32% is also at an advanced stage in terms of finalizing the commercial terms and signing the gas supply agreement. These gas contracts have different underlying price benchmarks, namely, Brent. Some part of the gas is linked with Brent prices. There are a part of the contract is also linked with JKM prices. At the same time, because it is coming from, you know, KG Basin, it is also governed by the price cap that government comes up and revises every six months. It is JKM linked but capped at the PPAC price ceiling that government determines. The contracts that we are looking to tie up, from again, from a diversification point of view could also be linked with Henry Hub prices. We are trying to create a portfolio where it is linked with different benchmarks, and to that extent, a diversification so that we are not dependent on or expose ourselves to volatility of one of the only one, say, underlying commodity, namely oil or spot prices of LNG, or Henry Hub for that matter. At the current prices of ammonia, I think we've discussed this at length in terms of typically what is our economics. We require roughly about 33 million BTU of energy in form of gas for per ton production of ammonia. Therefore, depending on what happens to these underlying price benchmarks, and to our prices of gas, we would typically you can take that if it is, let's say, today, my guess would be that, well, I've not looked at the Brent and all of these benchmarks as on, as on date, but my guess is that our portfolio would be somewhere around $14 odd dollars. As JKM prices go down, we would get the impact of that. At about $14, you can calculate based on 33, it's roughly about $450-$460 odd dollars of gas costs. We have about $25-$30 odd dollars of, you know, other costs involved. That's the cost of production. If you look at prices of ammonia today, we are seeing the contract prices of FOB Yuzhny, around $300 odd or plus minus, whatever movement happens on a weekly basis. If we add, say about $80-$90 odd on transportation, customs, and other charges that we pay to bring the ammonia to our doorstep. Then we add about, let's say 9% of that as the duty that or the benefit, GST benefit that we are getting, and roughly about $10-$15 odd of production of steam that we would replace in our existing operation. That would give you a sense on where the economics of our, you know, per ton of ammonia lies. Okay. Understood. Thanks for that detailed explanation. The second question I had was on the, you know, the TAN expansion plan. We were, you know, going to debottleneck around 75,000 odd tons of capacities over the next, you know, year. What is the status of that? On the other mega project at Gopalpur, I see that's been pushed to FY 2026 now. What's happening out there? We are debottlenecking our ammonia. We've already done debottlenecking of 45,000 tons in Taloda. The second step of another 45,000 tons would be done by September, October of this year. That increases our current capacity. Gopalpur is somewhere in H2 of FY 2026 we would complete, and that's about 3 lakh 76,000 tons. As of now, you see last year we've done about 5 lakh 5,000 odd tons. That means that this year we still have. That is on the basis of 4 lakh 86,000 of nameplate capacity. We do have therefore enough headroom in terms of enhancement of our production this year. Until Gopalpur comes, we do have that additional capacity. Gopalpur would then get added by second half of FY 2026. Fine. Does that mean that the nitric acid that we sell externally, that those volumes come off as we expand volumes of ammonia? We have also taken up a program in terms of debottlenecking our nitric acid capacity. Also making them more reliable. Lately in last two years or three years, I would say, particularly post-COVID and during COVID, there were challenges in terms of regular maintenance of the nitric acid plant. We did see a drop in capacity utilization, which you would notice that even this year we have improved it compared to last year, but we have still not not even touched what the capacity utilization that we saw pre-COVID. Like I said, we are also doing some debottlenecking and improving the reliability. We are confident that as far as enhanced capacity of TAN is concerned, we should be able to extract it out of our existing nitric acid assets. Okay, thank you. I'll get back in queue for more questions. Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference, we request you to limit your questions to two per participant only. The next question is on the line with Chirag Shah from White Pine. Please go ahead. Mr. Chirag Shah, your line is on the talk mode. Please go ahead. Yeah, thanks for the opportunity. Sir, my first question is, again, coming to ammonia. are this take or pay arrangement, the three-year locking that you have done, contract that you have done, or you have an option of not picking up the offtake or something like that. What is the committed in this committed offtake that you have to take? one is we have tied up 68%, and I was mentioning that the balance we are in the advanced stage of tying that up. 60% you have to... It's a take or pay kind of a thing, right? It's even if the spreads turn negative. In terms of these plant, these the contracts that we have signed, there is somewhere between 80%-90% kind of take-or-pay obligation. That said, what we've also done in some of the contracts is that we need not even if we were to default for the reasons related to, let's say, plant initial hiccups in terms of capacity utilization. We have the option of settling the take-or-pay on net proceed basis. Meaning that the aggregator through whom we are buying it, if they sell it in the market, we can bear the balance or the difference cost also. We have, you know, all of those arrangement. There's also a make-up arrangement typically in these contracts, that if you don't take, a part of the capacity and you pay for it, you can then make up or you can take that in future quarters. It's a combination of all of these that works in these contracts. Sir, just to follow up on this. In your experience of past so many years, such kind of spreads, when I say spreads, generally, how long they last? It's a one to quarter phenomena or it can last longer also. What's your general experience have been, if you can indicate? Like I was mentioning, and I believe it was the first question that was asked of you know, our... If we had taken the same decision based on the current prices. We took our decision based on last 10 year and 15 year price trends. There, as I've mentioned earlier as well that on an average, in 10 years- 15 years, whatever horizon we take, the average cost of ammonia has been about $420-$430 of FOB Middle East, and about $80 of additional cost, whether it is ocean freight or customs or local transportation and port storage. We've seen this ammonia cycle, but an average of $500 of landed cost for us. To that $500 of landed cost, if you add the duty benefits, GST benefits, and the steam production that we do, our estimate was that we would have an average realization of $560-$570 odd dollars. Against that, on an average, even if one were to take. We had looked at about $8.5 of gas. Today's JKM is around $10 and maybe landed of $11-$11.5 for us. If you look at the gas cycle also, and the kind of price that we are seeing beyond three years, for next 10 years in terms of the contractual, some of the discussions that we are having. The average price of gas, even if you were to take it at $9-$10, let's say $10. You're still talking about $330 of gas and about $25-$30 odd dollars of other costs. That leaves almost $200 of, you know, per ton of margin. $180-$200 per ton of margin average is the basis on which we took this decision. You know that six months back the cycle despite high prices of European gas, you know, ammonia was at almost $1,011 and $1,100 FOB Middle East. The margins would have looked very, very different at that stage. I think we need to look at it more from an average standpoint over 10- year, 20- year time frame, because at the end of the day. We have not set this up for trading this capacity or selling it outside. It is for our own internal consumption. To the extent that our ammonia prices go down, we do have certain benefits in some of our products where our margins improve. Therefore on an integrated basis, you know, we will still find that this is an investment which would give us the desired return. We've also spoken about the aspect that we are, as we are increasing our total ammonia consumption, we are seeing challenges in on JNPT. The kind of disruptions we have seen in freight, we have seen it in ports at different locations. That questions the very sustainability of our downstream operations. That's a risk that we are, you know, we have now addressed through this backward integration. Sir- You can't put economic value to everything that you know, you sort of, from a risk perspective. That's another aspect of that needs to be kept in mind. The last question, if I can squeeze in. On the TAN, this solution-based offerings. One, how much percentage it contributes to our asset business, if you can indicate, and how the trend has been? Secondly, in terms of incremental economics, how much is the differential for us? If you can help us understand that also. Uh, I- Profitability differential or the margin differential. I couldn't get your question. Let me just ask my colleague if they did. Have you understood the question? I'll repeat the question. Yeah. Amitabh Bhargava here. Okay, go ahead. I've understood your question, but go ahead, please. So Okay. Sure. The first part of the question was, what percentage of the revenue or of the business is the solutions, you know, model? Yeah. That was the first question. The second question, as I understood, was what sort of margins or differential margins are we making out of the solutions model? Is that correct? Were these the two questions? Yes. Okay, fine. Okay. On the first part, we have started this business model of holistic solutions about a year and a half or so back from now. It is in the nascent stage of its journey. It's coming up quite nicely. We are seeing some very positive responses across all the end user segments. The way we categorize the end user segments, because that also determines the profitability, you know, of the model. The way we categorize the end user segments in the solutions model is there are three end user segments. One is what we call as the coal mining segment, where we operate directly with the coal mine operators through that solution model. The second is, you know, the non-coal mining, which is all kinds of metals and limestone. They are still mining. The third, you know, end user segment for us, for the solution model is the infrastructure segment, where we operate in different kinds of infrastructure projects. Now, because this solution model has been, you know, a journey which was started about a year and a half ago from now. As of now, you know, it's picking up. It's a small portion of the overall business. Certainly as we move forward, because of the group strategy that Chairman was talking about again in his opening address, it's about moving from just being a product supplier to a holistic solution provider also. This will pick momentum in all the three segments, We are already seeing a lot of pull because there are not too many companies in India which are operating on the solution model that I was describing to the earlier question. One of the earlier questions where I said that we are also building a business model whereby we are trying to get paid for the outcome that we generate, instead of just the input being provided to the mining company or the infrastructure provider. That's the fundamental difference. These models take time, you know, to get mature because not too many companies are doing this in India. That's the first, that's the answer to the first question. In terms of the margin is the second question, which is around the margin. Obviously, you know, because the solution model has got a lot of value for the end consumers, because basically it means improving their cost of mineral extraction or improving their cost of rock extraction, if it is a quarry project for that matter. Naturally it comes along with products and services and solutions all bundled together instead of just a product being supplied as an input. Margin levels are much better compared to the product only model. Now again, these, in terms of what is the margin and what's the delta, you know, between this model and the product only model, I would qualify these as commercially sensitive information at this stage, so I won't go any further on that. Okay. Thank you. Thank you. I'll come back for more questions. Thank you. The next question is from the line of Deepak Poddar from Sapphire Capital. Please go ahead. Deepak, your line is on the talk mode. Please go ahead. Hello, am I audible now? Yes, sir. Please proceed. Okay. Yeah. Thank you very much, sir, for the opportunity. I wanted to dwell more on the ammonia mechanics that you mentioned. What I understood is that your, if I have to buy ammonia from outside, our landed cost would be close to about $700 per ton. Whereas from our plant, we would be able to manufacture at $500 per ton. $200 is the spread that we get from this ammonia plant. Is that right? I quoted last 10 years or 15 years numbers, average numbers, and those numbers were more like $560 and $360. The gap of $200. no, as per current term, I mean, I was just trying to understand- Current prices would be lower for ammonia because the $560 is based on $420 odd dollars of FOB Middle East, the current FOB Middle East would be more like $280-$300 odd dollars. Gas prices are today on a higher side compared to the gas price that I mentioned from a last 10 years or 15 years perspective. Today, the margins are obviously, you know, more like, I think we are breaking even rather than having that $200 odd dollars of margin. That is where the point I was making is that one needs to look at it across the commodity cycle and not at a point in time in that commodity cycle. Okay. yeah, yeah. I got that point. Currently the spread is barely anything, right? I mean, that's what you're saying. Yeah. Okay. From this plant, what would be the incremental depreciation and interest cost that will come in and we are going to capitalize it from Q1 onwards, right? Yeah. We are expecting the commercial operation in the Q1. Mm-hmm. Given that we are already in May, we would get the depreciation largely from Q2 onwards. Depending on when we commence commercial operation. The interest cost would be in the range of somewhere about, you know, of course, the current loans are at a higher interest rate because of the construction bit, and we look to refinance that. On an average, somewhere in that around about INR 200 odd crores would be the interest cost. Depreciation would be. INR 276 crores-INR 300 crores. Per annum. Hello? Mr. Poddar, are you done with your question? Yeah. This is per annum figure, right? Yes, per annum figure. Okay. Yeah. That's it from my side. All the very best. Thank you. Thank you. The next question is from the line of Vignesh Iyer from Sequent Equity Research. Please go ahead. Thank you for the opportunity, sir. I just wanted to understand what was this spread of natural gas to ammonia in Q4, just to get an idea, you know, sir? Let me just correct one figure. Depreciation should be around INR 110 odd crores. Sorry, what was your question? I missed it. it's okay, sir. Yeah. From what I understand, now we are breaking even at today's level. Just to get an understanding, what was the spread, if you could quantify, in Q4? In future you're saying? No. Q4. Q4 FY 2023. Q4. If the prices, we take prices of Q4, then what would have been? Spread, yeah. Spread on ammonia? Yeah, ammonia. Ammonia-natural gas spread. What was it? Let me just check that to you. I'll answer your question. We can in the meantime go to the next one. Yeah. What is... I mean, how is it panning out, the new ammonia, I mean, facility? Like, if you could just give an idea from when it will start. I mean, are the timeline the earlier timeline, are we on time to, you know, with that timeline? By when... I mean, we have, basically this facility is to backward integrate, but our TAN facility will take some time to coming up, right? In meanwhile, what is the idea? I mean, we are selling it. What is the, you know... Just give us an idea, right, how it will pan out in FY 2024. we are, like I said, we are looking to commence operations in Q1 itself. and therefore roughly nine months of operation is likely to be completed in this financial year. we need to still see what kind of capacity utilizations, but ammonia plants, technically speaking, can ramp up to 100% capacity fairly quickly. but we'll have to see whether we touch that capacity soon enough. we are confident that this year we would run it at least average of 80% capacity utilization. and overall, I think 75%-80%, given that we are also losing three months, roughly three months in the new year. $670. For quarter four ammonia average price. Q4 FOB Middle East prices were on an average of $670. Sir, I just wanted to understand what the spread was. I mean, was it at $200 inQ4? I mean. Q4 gas prices would have been, given that, you know, these again were linked with Brent, Henry Hub, and JKM. The JKM component would have been on a higher side. On an average, very difficult, but I think somewhere the average, this, the margins would have been somewhere in that at least about $100, $150 odd dollars. Okay. Sir, there is one last question. I just want to understand, are we going to switch to a different tax rate? I mean, a lower tax rate at 20% probably, like many of the, you know, manufacturing entities have done. Or are we going to continue with the 33%, including the deferred tax component? Tax rate you're talking about. Yeah. For FCL, we have already moved to 25%. Okay. As far as SFL is concerned, it has right now two businesses, which is Technical Ammonium Nitrate and fertilizer business. And we have taken certain benefits, exemptions under, you know, earlier benefits that were available. So till the time SFL remains an integrated entity, it will be roughly about 34%. But once the demerger takes place, then we would have the choice of opting for lower tax rates in Deepak Mining Solutions, which is TAN business. While SPL, where the fertilizer business would be there, would continue to be at 34% because that is where we have taken certain exemptions earlier. And ammonia would be at again, 25% tax. Okay. Okay, fine. Thank you, sir. That's all from us. Thank you. The next question is from the line of Chirag Shah from White Pine. Please go ahead. Mr. Chirag Shah, your line is on the talk mode. Please go ahead. Yeah, hello. Thanks for the opportunity. Sir, on the fertilizer business, if you can just throw some light. Have seen very strong numbers. How much of this is kind of sustainable? That's the first part. Yeah. Is there specific. Yeah. What I was referring, specific to note about it could be a lumpy or a temporary event and some reversal could happen. Yeah. Fertilizers since last year are capacity utilization and fertilizer in the bulk fertilizer, which is where our ammonium nitrophosphate, ANP, and the NPK, both the Croptek and Smartek, capacities are. While ANP was roughly about the capacity utilization there was more like 70 odd percent, 65%-70%. The capacity utilization at NP Croptek and Smartek were on the lower side. Partly because of because our Croptek products are at premium in terms of pricing. Given the raw material prices was at a higher level last year, we saw some challenges in terms of the demand side or affordability of farmers. Even in that kind of an environment, our Croptek, we cropped total 1.01 lakh tons of Croptek we sold. In the previous year, in fact, it was about 40,000 tons. It's been almost 2.5x jump in our Croptek product. One is fundamentally a capacity utilization, and we do have a headroom available in increasing our capacity utilization in both NP and NPK. Given the raw material prices are going down, and therefore, in general, NSPs of these products, particularly the premium products, would also commensurately come down. We are quite hopeful that this year, our Croptek volumes would grow further and by a good margin. That's one commentary as far as the volume is concerned. On the overall margin front, given that last year we had made some changes to our portfolio, because some of the portfolio that we produce, were seeing sub-certain lower margins, so we did not produce some of those grades. This year, given where the raw material prices are and NBS, the recent NBS that has been announced by the government, we see all our, all grades making fairly good margins. Even the volumes in non-Croptek NPK, which is in the Smartek category, this year we should see better volumes. Overall, as far as your question of one-time kind of an impact, given that, you know, NBS has been announced very recently, and it's as both January- March and April- June, NBS has been changed, we may see certain provision in terms of the, you know, the subsidy which we had booked. Compared to that, the change in NBS on the inventory which was lying in the channel, we would see some effect of that in our coming quarter. That is more like a one-time impact that we would see. From a longer term perspective, lower raw material prices are in fact a better outcome for us from our overall volume and margin perspective. Sir, no specific call-out for Q4 also, right? Sequentially also, Q4 fertilizer segmental performance is extremely strong. No specific call-out for Q4 also, right? It's, it's normal. It's business as normal kind of thing. Yeah, it was normal. In Q4, in fact, Q4 overall margins were better, despite lower volumes, and that reflected in the numbers. We'll have, like I was mentioning, that some effects of revised NBS would come in Q1 this time. Okay. Thank you very much. All the best. Thank you. The next question is from the line of Ranjit from IIFL. Please go ahead. Yeah. Hi, sir. Thanks for giving me the opportunity. The first question is, in the opening remarks, Mr. Chairman has alluded to some headwinds in the domestic TAN business, with the influx of imports. Just wanted to get a sense, how do we see the profitability panning out over the next one year? That also with our own backward integration into ammonia also. We always have this decision to make, whether to buy or make. How would that play out for our base TAN business over the next one year- two years? TAN business, as Chairman was also mentioning, that there's been increased import in Q4, and there's been high opening inventory. To that extent, we are going to see some pressure on the prices. Fundamentally, as far as the demand sectors are concerned, whether it is coal or the infrastructure. There we have not seen any weakness. In fact, if at all, the kind of investment government has announced, we are likely to see better off-take on the infrastructure segment. Demand-wise, in fact, volume-wise, we are hopeful that this year with our increased capacity, which last year we utilized partially, but this year we have that available for the full year, our volumes should be better. Margins-wise, if you see current prices and the current import situation is such that, we may see some pressure on the margin side. We'll have to see by the time the season again picks up post-monsoon. We'll have to see what happens to the prices of both imported, TAN and ammonia. Your question on by-products make is was it for ammonia? because I heard you. Yes. mentioning it in context of TAN. By-products make at this moment, see, we were anyway even earlier, we were making roughly about 100,000 tons of our own ammonia from an old plant, which was actually far less energy efficient. We are going to the extent of our own requirement, we would actually see a better economics in the operations of the new plant because it's far more energy efficient. Assuming the same gas price, our cost of production from new plant would be better than what it was from the old plant. That's one aspect. The second aspect that in the event we produce more ammonia than what we consume, we are also seeing that the local traded ammonia or ammonia that is bought by players who consumption is on a smaller level and they don't import directly. The prices of that are today almost I think roughly about almost 50%-60% premium over import parity prices. The traded ammonia, local traded ammonia, which also has a significant volume, is actually trading at significant premium to import parity. That's because most of the players who are producing ammonia and trading it in the market, particularly the fertilizer players who produce excess ammonia, their cost of production is high given where the, you know, the gas prices are. Therefore, we are also seeing an opportunity of selling a part of our production in the domestic market, particularly when if we were to run both our old and new ammonia plants. We'll see a combination of that playing out in terms of our margins and our, you know, we don't... Once we start producing from our new plant, in very odd situations that we would be importing. But mostly we would be producing on our own and any excess ammonia, we would also have an opportunity of trading in the domestic market. Sure, sir. Are we allocating any portion of the new ammonia plant towards fertilizers? No, there is no such requirement. Ammonia would be consumed by all our three segments: TAN, fertilizer and acid. The gas that we are buying, we are not buying from any priority sector allocation. From that perspective, we are free to allocate it to any of our product portfolio. Sure, sir. Thank you. One last thing, how do you see the peak debt panning out over the next one year-two years now that we have kind of, pushed the Gopalpur plant, to what would be the peak debt levels over FY 2024 and 2025? I think we've mentioned earlier, there are two CapEx that we have undertaken, ammonia and TAN. Ammonia has, if you look at cutoff of March 31st, 2023, about INR 700 odd crore of additional cost that needs to be incurred. We may largely funded by way of our internal approval. We may not while we have tied up the bank debt, we may not draw more debt, at least for ammonia. As far as TAN is concerned, over the next three years, we have roughly about INR 1,500 odd crore of debt that we would draw down. We would also be typically paying INR 250-INR 300 crore every year from our existing debt, amortization of our existing debt. That's the way we the numbers are looking currently. We've also, I think we've made that point earlier as well that our ammonia as well as Gopalpur TAN debt that we have tied up are from amortization perspective are long-term debts anywhere between 10 year-14 year of repayment cycle. Sure, sir. Thank you very much. Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Amitabh Bhargava for his closing comments. Well, thank you everyone for your participation. They were interesting questions. I think most analyst investors were focused on our ammonia plant, which is rightly so because we are going to start our operations very soon. For any further queries or clarifications, please do get in touch with our investor relationship team. Thank you once again for participation. Thank you. Thank you, members of the management team. Ladies and gentlemen, on behalf of PhillipCapital (India) Private Limited, that concludes this conference call. We thank you for joining us. You may now disconnect your lines. Thank you.