Deepak Fertilizers and Petrochemicals Corporation Limited — Q3 FY25 earnings call

Call held 30 Jan 2025

Management summary

Deepak Fertilisers reported a strong Q3 FY25, driven by robust volume growth across all segments and improved operational efficiencies. The company's strategic focus on backward integration, specialty products, and manufacturing excellence contributed to significant revenue and profit growth, with EBITDA margins expanding notably. Capacity expansion projects are progressing as planned, and future cost reductions from new gas supply are anticipated.

Highlights

  • Consolidated revenues surged 39% YoY to INR2,579 crores, crossing the INR2,500 crore mark.

  • Operating EBITDA increased by 72% YoY to INR486 crores.

  • EBITDA margins expanded by 362 basis points to 19%.

  • Net profit grew by an impressive 318% YoY to INR253 crores.

  • Mining Chemicals (TAN) sales volume increased 19% YoY to 129 KMT.

  • IPA sales volume grew 36% YoY to 17.48 KMT.

  • Manufactured bulk fertilizers volume grew 64% YoY to 231 KMT.

Key financials

  1. Operating Revenue ₹2,579 Cr +39%YoY
  2. Operating EBITDA ₹486 Cr +72%YoY
  3. EBITDA Margin 19%
  4. Net Profit ₹253 Cr +318%YoY
  5. Net Margin 10%

What they filed

Q1 FY27: revenue up 22.5%, net profit up 100.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue2,747 2,579 2,667 2,659 3,006 +9%2,830 +10%3,011 +13%3,256 +22%
EBITDA494 486 480 513 464 −6%353 −27%354 −26%845 +65%
Net profit214 253 278 244 214 +0%141 −44%139 −50%490 +101%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Mining Chemicals
    129 KMT TAN Sales Volume10% LDAN Sales Volume Growth
  • Industrial Chemicals
    4% Nitric Acid Sales Volume Growth17.48 KMT IPA Sales Volume
  • Crop Nutrition Business
    231 KMT Manufactured Bulk Fertilizers Volume186% Smartek Volume Growth56% Croptek Volume Growth8% Specialty Fertilizers Volume Growth

Capital allocation

high confidence
  • Capex ₹4,500 Cr
    • Capacity expansion for Technical Ammonium Nitrate (Gopalpur)
    • Capacity expansion for Nitric Acid (Dahej)
    The total capex which, in fact, if I recollect, we spoke about total capex on these plants are expected to be around INR4,500 crores. Spend till now is around INR1,300 crores.
  • Debt Net ₹3,250 Cr
    Our current net debt is around INR3,250 crores kind of a thing. Since we are in a capacity expansion mode and next year when our peak debt will be sometime towards H2 of next year when our both projects gets completed, we will be in a range of -- I'll say we'll be around INR5,500 crores kind of a net debt, and that will be the peak that what we expect to touch.

Guidance & targets

Capacity

  • Capacity Utilization Capacity · ongoing · High confidence 85% to 105%
    So we have seen anywhere from 85% to 105% capacity utilizations and a concerted effort that we had put by way of cross-functional teams to look at every single reason for a downtime in the last 3 years and then attacking that by way of proper thrust on repair, maintenance, condition monitoring, preventive maintenance, those all have been bearing fruit.

    — Sailesh Mehta

Capex

  • Gopalpur and Dahej Project Commissioning Capex · H2 FY26 · High confidence Go live
    Both projects in next 12 months or I'll say, H2 of coming year, we do expect both projects to go live and start adding to our capacities.

    — Subhash Anand

Debt

  • Peak Net Debt Debt · H2 FY26 · High confidence INR5,500 crores
    our both projects gets completed, we will be in a range of -- I'll say we'll be around INR5,500 crores kind of a net debt, and that will be the peak that what we expect to touch.

    — Subhash Anand

Cost

  • Equinor Gas Supply Start Cost · Q1 FY27 · High confidence Starts
    The supply starts from next year first quarter. And yes, no, I'm talking financial year. So, FY '27 first quarter of next year, the supply from Equinor will start.

    — Subhash Anand

  • Gas Cost Reduction from Equinor Supply Cost · post Q1 FY27 · High confidence 20% plus
    It will be 20% plus.

    — Subhash Anand

Profitability

  • Fertilizer EBIT Margin Profitability · ongoing · Medium confidence Improvement

    From single-digit today

    Normally, we don't talk about business-specific EBITDA numbers. But this business, if you see, yes, it's a single-digit margin business. And we do see with our focus what we have on specialty, the way we are moving our business and going towards specialty, our intent is to move this margin up.

    — Subhash Anand

Strategy

  • Specialty Share of Total Revenue Strategy · ongoing · Medium confidence Larger number

    From ~20% today

    Okay. what we sell out of the total, company-wide, we are almost at 20% share of specialty, in our overall revenue. On IC side, this is a place which is catching up. In the next few years, it will be much bigger. But currently, IC business contribute almost double digit to our overall total revenue what we have.

    — Subhash Anand

Operational

  • Asset Turnover for New Capex Operational · post commissioning · Medium confidence 0.7-0.8
    Typically, for this kind of a business and this size of a capex, asset turn anything around 0.7, 0.8 seems to be a good asset turn.

    — Subhash Anand

What to watch in Q4 FY25

Gopalpur & Dahej Project Commissioning

H2 FY26
Current Under construction
Target Commercial operations begin

Why it matters

These projects are crucial for significant capacity addition in TAN and Nitric Acid, driving future revenue and market share.

Both projects in next 12 months or I'll say, H2 of coming year, we do expect both projects to go live and start adding to our capacities.

Risks & concerns

  • Geopolitical Uncertainties and Market Volatility

    medium

    Geopolitical uncertainties and market volatility are factors that the company navigates using its backward integration strategy and competitive edge.

    Management acknowledged

  • Increased Import of Low-Cost Nitroaromatics

    medium

    Increased import of low-cost nitroaromatics is impacting downstream acid customers and putting pressure on nitric acid pricing.

    Management acknowledged

  • Commodity Price Volatility (Ammonia)

    medium

    Ammonia prices exhibit normal seasonality, being soft in Q4 and early Q1, then rising, which impacts the ammonia business.

    Management acknowledged

Q&A highlights

6 direct, 1 evasive
Ammonia requirement and sourcing for new TAN/Nitric Acid plants Direct
Coming to the new plant, once Gopalpur and Dahej comes up, yes, our demand goes up. Current Taloja will not be able to cater to entire capacities. And we have planned to import the ammonia and feed to our newer capacity what we have. In fact, the capacity, which is coming up in eastern coast, it's much beneficial if we import and utilize that ammonia rather than shipping from Taloja to those locations.

Clarifies the strategy for raw material sourcing for upcoming capacities, indicating a shift towards imports for new coastal plants for commercial viability.

Asked by Nirav Jimudia

Expansion into specialty IPA and future plans Direct
We are already moving in pharma-grade IPA that's already running or already in place. On top of that, we are also looking at chloride which is, I'll say, a value-added product for clinic or in pharmaceutical sector, I call it. So, we are even in that side. Going forward, IPA getting into electronic-grade semiconductor is the opportunity or what we call it high-purity chemical is an opportunity for us in this space.

Highlights the company's strategic move into higher-margin specialty IPA products beyond pharma, including electronic-grade for semiconductors, which is a significant growth area.

Asked by Nirav Jimudia

Monetization of non-core assets (Pune mall) Evasive
We haven't reached to a conclusion at this stage. It's still under discussion, and we'll see what the right strategy for us to move forward. We'll let the market know once we reach to any decision point.

Management provided a non-committal response regarding the monetization of non-core assets, indicating no immediate plans or decisions have been made.

Asked by Jainam Ghelani

Demerger status and structure Direct
The demerger, if you ask technically, demerger is over. All three entities are now independent entity, even operating independently. But they continue to be a subsidiary structure. The DFPCL is a main parent entity and both MAL and DMSL are subsidiary of DFPCL operating independently. So this is what the structure is.

Clarifies the post-demerger corporate structure, emphasizing independent operations of subsidiaries under DFPCL, which is expected to drive focused growth.

Asked by Jainam Ghelani

Peak debt level post-capex completion Direct
our both projects gets completed, we will be in a range of -- I'll say we'll be around INR5,500 crores kind of a net debt, and that will be the peak that what we expect to touch.

Provides a clear numerical target for peak net debt, offering insight into the company's leverage strategy during its expansion phase.

Asked by Jainam Ghelani

Sustainability of TAN business performance amidst geopolitical events Direct
whatever performance you see on TAN business is a sustainable normal business performance. ... No, we are competitive in the market. Our strategy is very clear being a player and being, I'll say, a sustainable player in India, we will charge premium to the imported price and that strategy will continue to play.

Addresses concerns about external factors like Russian dumping, with management asserting the sustainability and competitiveness of their TAN business model.

Asked by Viraj Mahadevia

Impact of Equinor gas supply on cost structure Direct
The cost structure will be far more efficient, I call it. Our overall cost of production will be sizably reduced, I call it. And the breakeven point will be at much lower or within the price range, what we are talking. ... It will be 20% plus.

Quantifies the expected cost savings from the new gas supply, highlighting a significant future improvement in profitability and competitive positioning.

Asked by Harmish Desai

Timeline for new plant commissioning and ramp-up Partial
The plan is to complete in towards H2 of FY '26. Definite time line, if you ask me, just wait maybe next call when we come and we'll be able to share with you more accurate or more better idea which quarter or which month those plants will become operational because most of the activity will be coming to a stage where time line will become far more crystal clear for us.

While confirming H2 FY26 completion, management deferred a more precise timeline, indicating some uncertainty or ongoing refinement in project schedules.

Asked by Harmish Desai

2 min read 7 chapters

Detailed narrative

Robust Q3 FY25 Financial Performance

Deepak Fertilisers delivered a strong financial performance in Q3 FY25, with consolidated revenues surging 39% year-on-year to INR2,579 crores. Operating EBITDA saw a significant 72% increase, reaching INR486 crores, and EBITDA margins expanded by 362 basis points to 19%. Net profit recorded an impressive 318% year-on-year growth, amounting to INR253 crores, reflecting enhanced operational efficiencies and strategic execution.

Strategic Alignment and Operational Excellence

The company's three businesses—Mining Chemicals, Crop Nutrition, and Industrial Chemicals—are strategically aligned with India's growth narrative, benefiting from infrastructure development, rising income levels, and the China+1 strategy. This alignment is complemented by strong operational excellence, with capacity utilization ranging from 85% to 105%. The implementation of IT-driven Sales & Operations Planning (S&OP) systems has further optimized raw material allocation and overall efficiency.

Capacity Expansion and Future Growth

Deepak Fertilisers is actively pursuing two major capacity expansion projects: a Technical Ammonium Nitrate (TAN) facility at Gopalpur and a Nitric Acid facility at Dahej. These projects, with an estimated total capex of INR4,500 crores, are on schedule to commence operations in H2 FY26. To date, INR1,300 crores has been spent on these expansions, which are expected to significantly boost the company's production capabilities and market reach.

Shift Towards Specialty Products and Margin Improvement

A core strategic pillar for the company is the pivot from commodity to specialty products across all segments. This shift is supported by robust R&D efforts and market segmentation, aiming to increase the specialty product share from the current ~20% of overall revenue. In the Industrial Chemicals segment, the focus is on high-purity chemicals like pharma-grade IPA and electronic-grade chemicals, which are expected to drive margin expansion and higher profitability.

Backward Integration and Demerger Benefits

The stabilization of the world-scale ammonia plant, a result of backward integration, provides a crucial competitive advantage by ensuring a stable supply of key raw material amidst geopolitical uncertainties. Furthermore, the recent corporate restructuring, which established independent subsidiary entities for each business, is fostering enhanced focus and agility, allowing each segment to pursue its specific growth strategies more effectively.

Cost Optimization through Equinor Gas Supply

The company anticipates significant cost reductions with the upcoming gas supply from Equinor, slated to begin in Q1 FY27. This new supply is projected to reduce gas costs by '20% plus,' leading to a 'far more efficient' cost structure. This initiative is expected to lower the breakeven point and substantially enhance overall profitability in the coming quarters.

Debt Management and Financial Outlook

Deepak Fertilisers' current net debt stands at INR3,250 crores. The company expects its net debt to peak at approximately INR5,500 crores by H2 FY26, coinciding with the completion of its major capex projects. Management views this as a temporary increase, confident that the new operational capacities will generate sufficient cash flow to reduce debt to a more comfortable level post-commissioning.

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