G N F C Q1 FY27 earnings call

GNFC reported Q1 FY27 profits as significantly higher, marking the second-highest Q1 in the company's history after Q1 FY22. This performance was primarily driven by better realizations, despite a substantial decline in sales volumes compared to production volumes. The overall business environment was characterized by escalation and de-escalation of war, leading to viability issues and increased input costs.

A positive development for the fertilizer segment was the revision of energy norms for urea from 6.20 Gcal per metric ton to 6.37 Gcal per metric ton, effective for three years from FY25-26. During July, most plants that were non-operational due to cost economics, including ethyl acetate, acetic acid, and TDI-I, resumed operations. The TDI-II plant is also about to start, with methanol being the only exception.

Out of four ongoing projects, the Dahej project has commenced production, with the steam portion now operational. This is expected to provide substantial cost relief to the TDI-II plant by replacing costly gas with coal, leading to savings of INR30,000 to INR40,000 per metric ton of TDI. The power portion of the Dahej project is anticipated to be operational within 45 days. Most other projects, including AMUGL and AN Melt, are on schedule, though the weak nitric acid plant has a minor 3-month delay that is being actively monitored.

GNFC has proposed a Memorandum of Understanding with GMDC for underground coal gasification, leveraging GMDC's mining expertise and GNFC's downstream business. The company is also working with A.T. Kearney on various initiatives for margin improvement and cost savings, with initial estimates suggesting potential savings of INR250-300 crores, though quantification is still under evaluation. Initiatives include fuel oil negotiation, coal grade optimization, boiler overhauls, and power mix optimization.

The company incurred INR300 crores in capex in Q1 FY27, primarily in Capital Work-in-Progress (CWIP). The targeted capex for the full FY27 is between INR1,200 crores and INR1,500 crores. Total ongoing projects amount to INR2,800 crores, with an additional INR1,500 crores planned over the next two years. These projects are expected to generate an incremental revenue of INR1,200 crores to INR1,500 crores and improve contribution by INR500 crores to INR600 crores upon completion, mostly by mid-2027. The company maintains a healthy cash balance of approximately INR4,000 crores.

In Q1 FY27, Ammonia production was 173,000 tonnes, with 54% from oil and 49% from gas. TDI production reached 12,800 tonnes, split between Dahej (66%) and Bharuch (34%). WNA production was 113,000 tonnes, with sales of 20,800, while CNA production was 37,500 tonnes, with sales of 16,400. TGU production was 74,800 tonnes, and Formic Acid was 8,200 tonnes. Management expects TGU production to remain at similar levels to last fiscal year.