G N F C — Q2 FY26 earnings call

Call held 13 Nov 2025

Management summary

GNFC reported a quarter marked by significant capex approvals, including the Ammonium Nitrate Melt II project, contributing to a total capex pipeline of INR2,800 crores for ongoing projects. The company anticipates substantial cost savings from A.T. Kearney initiatives and benefits from an upward revision in fertilizer subsidy rates. However, challenges persist in the acetic acid and aniline segments due to raw material and pricing pressures, and TDI production faced technical issues in H1. Management also addressed a large contingent liability from a DOT demand notice, expressing confidence in their strong legal case.

Highlights

  • Board approved Ammonium Nitrate Melt II project, adding 163,000 tonnes capacity, contributing to a total capex pipeline of INR2,800 crores for ongoing projects.

  • Government revised fertilizer subsidy rates upward, benefiting the company by INR872 per metric tonne.

  • Antidumping duties extended for another 5 years (until 2030) on key origins, providing market stability.

  • Expected annualized cost savings of 'couple of hundred crores' from A.T. Kearney initiatives, with benefits anticipated from H2 FY27.

  • Smooth Q2 FY26 operations with improved TDI and CNA production volumes.

Concerns

  • Acetic acid and Aniline segments face challenges due to feedstock availability/cost and severe bidding, impacting volumes and margins.

  • TDI production experienced 'technical issues' in H1, leading to some deficit, though plants are now running well.

  • Cash and bank balances reduced significantly from INR2,300 crores to INR800 crores due to dividend payout and increased work-in-process.

  • Analyst raised concerns about the low yield of strategic investments in other Gujarat government companies relative to market cap.

Key financials

2 periods

Headline

  • Net Subsidy Outstanding
    ₹288 Cr
  • Dividend Payout per Share
    ₹18
  • Work in Process Increase
    ₹350 Cr
  • Bank Deposits Reduction
    ₹1,500 Cr

Q2

  • Capex Incurred
    ₹375 Cr

What they filed

Q1 FY27: revenue up 39.8%, net profit up 275.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,917 1,899 2,055 1,601 1,968 +3%1,996 +5%2,208 +7%2,238 +40%
EBITDA90 132 240 31 185 +106%181 +37%482 +101%393 +1168%
Net profit105 163 211 83 179 +70%150 −8%396 +88%312 +276%
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

Share of Volume
WNA Production (H1 FY26) 2,10,000 tonnes 26.3%
Ammonia Production (Q2 FY26) 1,55,000 tonnes 19.4%
WNA Production (Q2 FY26) 97,000 tonnes 12.1%
Acetic Acid Production (Q2 FY26) 73,000 tonnes 9.1%
Acetic Acid Production (H1 FY26) 73,000 tonnes 9.1%
CNA Production (H1 FY26) 70,000 tonnes 8.8%
CNA Production (Q2 FY26) 40,000 tonnes 5.0%
AN Melt Production (Q2 FY26) 36,000 tonnes 4.5%
TDI Production (H1 FY26) 30,000 tonnes 3.8%
TDI Production (Q2 FY26) 15,600 tonnes 2.0%

Capital allocation

high confidence
  • Capex ₹375 Cr this quarter · ₹2,800 Cr (ongoing) planned
    • Ammonium Nitrate Melt II project ₹450 Cr
    • Weak Nitric Acid project ₹1,420 Cr
    • Conversion of power and steam plant at Dahej ₹613 Cr
    • Expansion of ammonia loop ₹331 Cr
    • Bisphenol A and Polyol (ballpark, including upstream phenol plant) ₹7,000 Cr
    And the effort is to coincide the timing so that downstream products take care of the upstream production part of this. With this, the company has a pipeline of INR2,800 crores worth of the capex. Broadly, there are four capexes which are ongoing currently. One is the AN melt, which is roughly INR450 crores. Another is weak nitric acid which is INR1,420 crores. Third is the conversion of power and steam plant at Dahej, which is INR613 crores. And there is an expansion of ammonia loop, which is INR331 crores. So, all taken together, it comes to a little above INR2,800 crores of the investment. Aside from this, the company is actively considering to more investment that is bisphenol A and polyol... expected capex of both taken together might work out to the range of roughly INR7,000 crores to INR8,000 crores as of now, which is a ballpark figure. TFR will tell us more about depending upon the technology and other aspects involved as to where it can go. The second major payout is around close to INR375 crores of the capex, which is incurred during the quarter.
  • Dividend ₹18/share (interim)
    First part is the dividend distribution, which we did at the rate of INR18 per share.
  • Liquidity Cash ₹800 Cr Cash and bank balances reduced from INR2,300 crores to INR800 crores due to dividend payout and increased work-in-process. Funds are parked with GSFS for better rates.
    you may see some major change in cash and bank balances that is because of the dividend payout and the amount going into the work in process, which has increased by a factor of roughly INR350 crores or so. And third is the maturity of the bank deposits. So that has given reduction from a level of roughly INR2,300 crores to INR 800 crores or so in terms of the cash flow. See, okay, depending upon the available rates, as of now, we have parked with GSFS, where the rates are better than the other options.

Guidance & targets

Regulatory

  • Antidumping duty extension Regulatory · until 2030 · High confidence 5 years
    The update is in respect of a few origins where the government has recommended for extension of this antidumping duty by another 5 years. So hopefully, this -- from the date of announcement will be 5 years. So up to 2030, somewhere, we expect these duties to be operative.

    — D. V. Parikh

  • Benefit per metric tonne from revised fertilizer subsidy rates Regulatory · Ongoing · High confidence INR872
    This time, it is upward revision and company stands to benefit on a per metric tonne basis of roughly INR872.

    — D. V. Parikh

  • Fixed cost revision in urea Regulatory · By end of calendar year · Medium confidence Upward revision
    there is a possibility of fixed cost revision in urea by the end of this calendar year. So have the discussions with the government have further gone up in terms of those fixed cost revisions? And where are we in terms of getting a favorable outcome out of our discussions with the government? ... it is upward revision

    — D. V. Parikh

Capacity

  • Total AN Melt capacity after expansion Capacity · By July 2027 · High confidence 338,000 tonnes
    So 175,000 plus 163,000, just in the number we are looking at in terms of the total availability of AN Melt when it starts around July '27.

    — D. V. Parikh

Profitability

  • Annualized cost savings from A.T. Kearney Profitability · Over 12-month period, benefits in H2 FY27 · Medium confidence couple of hundred crores
    And there is a number which runs into a couple of hundred crores, which we expect on a per annum basis where both the teams, GNFC team and A.T. Kearney is working on. So -- and since the assignment started effective more or less sometime early October, so we are we will see the traction in time to come, a couple of quarters. They are appointed as of now for achieving this over 12-month period when we are talking about the annualized saving. So possibly second half of next year, we should start seeing most of the benefits coming through the P&L.

    — D. V. Parikh

Market Growth

  • Market growth rate for BPA and Polyol Market Growth · Ongoing · High confidence 7%
    So -- and the current projections are this market is growing at the rate of roughly 7% both. Some is at 7.2%, the other is at 7.6.

    — D. V. Parikh

Volume

  • TDI production recovery Volume · H2 FY26 · Medium confidence Cover deficit from H1
    The plant had some technical issues, which are sorted out. So we had a couple of breakdowns and now plant is running well back on stream. So to that extent, there would be some deficit, and we expect to cover it up in the H2 to the extent possible.

    — Nitin Patel

What to watch in Q3 FY26

Cost savings realization from A.T. Kearney initiatives

Next couple of quarters, benefits in H2 FY27
Current Initiatives started early October, 'couple of hundred crores' expected annually.
Target Traction in savings, initial benefits visible in P&L.

Why it matters

Directly impacts profitability and margin expansion, crucial for overall financial performance.

so we are we will see the traction in time to come, a couple of quarters. They are appointed as of now for achieving this over 12-month period when we are talking about the annualized saving.

Risks & concerns

  • Acetic Acid & Aniline Market Pressures

    medium

    Acetic acid impacted by methanol feedstock availability/cost; Aniline by severe bidding affecting volumes and margins.

    Management acknowledged

  • Methanol Sourcing & Pricing Volatility

    medium

    Asymmetry between acetic acid and methanol prices, high gas prices make captive production unviable, and Iran sanctions impact vendor availability.

    Management acknowledged

  • Technology Sourcing for New Projects (Polycarbonate)

    medium

    Sourcing technology for polycarbonate is a significant challenge for new projects.

    Management acknowledged

  • Capital Allocation Efficiency (Investments in other PSUs)

    medium

    Analyst questioned low yield of investments in other Gujarat government companies compared to market cap.

    Analyst deflected, defended as strategic

  • TDI Production Issues in H1 FY26

    low

    Technical issues in H1 led to some deficit, but plants are now running well.

    Management acknowledged, resolved

  • DOT Demand Notice (Contingent Liability)

    low

    INR21,370 crores demand from 2021, matter at TDSAT; management views it as remote and unreasonable.

    Analyst downplayed, confident in strong case

Q&A highlights

6 direct, 1 evasive
AN Melt capacity and product type (LDN) Direct
This is pure melt form, and there is no hard form prilled kind of AN Melt, which is on the horizon. We examined this with respect to what additional premium we are getting in the market with respect to the additional capex and it did not make sense.

Clarifies that the new AN Melt capacity will be pure melt form, not prilled, and explains the rationale for this decision based on economic viability.

Asked by Nirav Jimudia

Ammonia sourcing for chemical business after expansions Direct
Once the plants are up and running, these two expansions, even after considering the ammonia expansion of 50,000 metric tonnes, we will be short of roughly 35,000 tonnes of ammonia, which we'll have to manage through the bought-out ammonia.

Indicates a future shortfall in ammonia for the chemical business despite capacity expansions, necessitating external sourcing.

Asked by Nirav Jimudia

Cost savings realization from A.T. Kearney initiatives Direct
And there is a number which runs into a couple of hundred crores, which we expect on a per annum basis... so we are we will see the traction in time to come, a couple of quarters. They are appointed as of now for achieving this over 12-month period when we are talking about the annualized saving. So possibly second half of next year, we should start seeing most of the benefits coming through the P&L.

Provides quantification ('couple of hundred crores' annually) and timeline (benefits from H2 FY27) for expected cost savings, indicating future margin improvement.

Asked by Nirav Jimudia

Evaluation of Bisphenol A (BPA) and Polyols projects Direct
primarily 2 options look very attractive, which are import substitute, which is BPA and polyol. The building block for this is propylene and ethylene aside from feedstock of benzene. Phenol, we will have an upstream production line of phenol as well.

Details the strategic rationale and raw material integration for potential new high-value projects, targeting import substitution.

Asked by Nirav Jimudia

DOT demand notice of INR20,000 crores Direct
The demand, which you have mentioned is INR21,370 crores in the notes to accounts. And that too pertains to a year of 2021. And we company feels we have a strong case. And the as of now, the matter is at the TDSAT, the appellate tribunal level... But the point is it's a very, very remote and unreasonable view to take that this INR20,000-plus crore would materialize because the facts of the case are not supporting the ground realities.

Addresses a significant contingent liability, with management expressing strong confidence in their legal case and downplaying the likelihood of the demand materializing.

Asked by Vivek Jalal

Restarting methanol production for acetic acid Direct
See, in case of methanol, there are realities like there is asymmetry between acetic acid and methanol prices. Acetic acid is highly under pressure for pricing in spite of methanol being its feedstock... gas prices currently prevailing are still higher, and that is not making it amenable to captive production as of now.

Explains why methanol production is not being restarted despite feedstock issues, citing unfavorable economics due to price asymmetry and high gas costs.

Asked by Nirav Jimudia

Investment in other Gujarat government companies and overall investment strategy Evasive
See, the investment in other Government of Gujarat companies is a matter of decision which is taken by Board from time to time, okay? And these are strategic in nature... If you look at the cost of investment versus the fair value, which is there on the balance sheet, it is substantially higher.

Analyst challenges the low yield of these investments compared to the company's market cap, raising questions about capital allocation efficiency, which management defends as strategic and value-accretive through capital appreciation.

Asked by Vineet Rathi

3 min read 6 chapters

Detailed narrative

New Capex Projects & Strategic Expansions

GNFC's Board has approved the Ammonium Nitrate Melt II project, adding 163,000 tonnes of capacity, which is a downstream project complementing prior upstream approvals. This project is part of a larger capex pipeline totaling INR2,800 crores, encompassing four ongoing initiatives: AN Melt (INR450 crores), Weak Nitric Acid (INR1,420 crores), Dahej Power & Steam Plant (INR613 crores), and Ammonia Loop Expansion (INR331 crores). Additionally, the company is evaluating new investments in Bisphenol A and Polyol, with a ballpark capex of INR7,000-8,000 crores, including an upstream phenol plant, targeting import substitution and addressing market growth rates of approximately 7%.

Operational Performance & Product Challenges

Q2 FY26 saw smooth operations, with improved production volumes for TDI and CNA. Key Q2 production figures include 97,000 tonnes of WNA, 40,000 tonnes of CNA, 36,000 tonnes of AN Melt, 15,600 tonnes of TDI, and 73,000 tonnes of Acetic Acid. However, the acetic acid segment faces challenges due to methanol feedstock availability and cost aberrations, while aniline is impacted by severe bidding, affecting both volumes and margins. TDI production experienced 'technical issues' in H1, leading to some deficit, though plants are now running well and expected to cover the shortfall in H2 FY26.

Regulatory Environment & Subsidy Benefits

The government has recommended a 5-year extension of antidumping duties on products from the EU, Saudi Arabia, Middle East, and Taiwan, expected to be operative until 2030, providing market stability. Furthermore, an upward revision in fertilizer subsidy rates will benefit the company by INR872 per metric tonne, aiding in absorbing raw material price increases. Discussions are ongoing for a favorable upward revision of urea fixed costs and energy rates, with internal approval for energy revision already received, which is expected to significantly reduce losses in the fertilizer segment.

Cost Optimization & Efficiency Initiatives

GNFC has engaged A.T. Kearney for cost savings initiatives, with Phase 2 now in progress. These initiatives, covering procurement, operations (steam power), and digital deployment, are projected to generate 'a couple of hundred crores' in annualized savings over a 12-month period. The company anticipates these benefits to start flowing into the P&L from the second half of next year (FY27), contributing to improved profitability.

Liquidity Management & Investment Strategy

The company's cash and bank balances decreased from INR2,300 crores to INR800 crores, primarily due to a dividend payout of INR18 per share and an increase of approximately INR350 crores in work-in-process. The remaining funds are strategically parked with GSFS for better rates. Management defends its investments in other Gujarat government companies as strategic, citing capital appreciation and long-term value, despite analyst concerns regarding the low yield of these assets relative to the company's market capitalization.

Contingent Liability: DOT Demand Notice

GNFC is facing a demand notice of INR21,370 crores from the Department of Telecommunication, dating back to 2021. The matter is currently under litigation at the TDSAT (appellate tribunal level). Management expresses strong confidence in their legal position, asserting that the demand is 'very remote and unreasonable' given the company's minimal involvement in the telecom business, and does not expect it to materialize.

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