G N F C — Q3 FY25 earnings call

Call held 20 Feb 2025

Management summary

GNFC reported a strong Q3 FY25 with PBT of INR 211 crores and PAT of INR 158 crores, driven by improved Chemical segment performance from higher volumes and write-backs, and reduced losses in Fertilizers due to lower input costs. While chemical realizations were subdued, the company is progressing on INR 2,300 crores of CAPEX projects. Concerns include the TDI plant's PBT-level loss and a 4-month delay in the coal-based power plant commissioning.

Highlights

  • PBT increased to INR 211 crores and PAT to INR 158 crores in Q3 FY25, an incremental increase of INR 76 crores QoQ.

  • Higher Chemical volumes, particularly in TDI, Technical Grade Urea, Acetic, and AN Melt, contributed to improved performance.

  • Fertilizer losses reduced due to lower input costs in the Complex Fertilizer segment.

  • Regular receipt of subsidy and pipeline inventories at their lowest point.

  • Operations remained stable at both Dahej and Bharuch plants during the quarter.

Concerns

  • Chemical realizations were subdued, though offset by higher volumes.

  • TDI plant incurred a PBT-level loss, estimated by an analyst at INR 150-200 crores, which management confirmed as 'close to the number' and impacted by an elongated shutdown.

  • Commissioning of the coal-based power plant is delayed by approximately 4 months, now expected by August 1, 2025.

  • Uncertainty regarding the revision of energy norms and fixed costs for urea units by the Central Government.

Key financials

  1. PBT ₹211 Cr
  2. PAT ₹158 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

  • Chemicals
    — Realizations
  • Fertilizers
    — Losses
  • TDI-II Production (9 months)
    20,507 tonnes Volume
  • TDI-II Production (Q3)
    9,000 metric tonnes Volume
  • TDI-I Production (9 months)
    14,699 tonnes Volume
  • TDI-I Production (Q3)
    5,000 metric tonnes Volume
  • AN Melt Production (9 months)
    1,27,000 tonnes Volume
  • WNA Open Market Sales (Annual)
    85,000 tonnes Volume
  • WNA Open Market Sales (Quarterly)
    20,000 tonnes Volume
  • CNA Available for Sale
    150 metric tonnes Volume

Capital allocation

high confidence
  • Capex ₹2,300 Cr
    • Coal-based conversion (CCPP) ₹613 Cr
    • WNA project ₹1,420 Cr
    • Ammonia makeup loop ₹225 Cr
    Okay. See, INR 2,300 crores comprises of 3 projects. One is the coal-based conversion, which we are talking, which is scheduled to commission by 1st of August. The CAPEX figure is INR 613 crores. The WNA has a CAPEX figure of INR 1,420 crores. And the ammonia makeup loop has a CAPEX figure of INR 225 crores. This how it totals up to around INR 2,300 crores.
  • Buyback ₹851 Cr
    Okay. See, buyback is already affected some time back around October, November '23 of INR 851 crores. So, and normally, as per the regulation, there is a cooling off period of 1 year.

Guidance & targets

Capex

  • Coal-based power plant commissioning Capex · FY26 · High confidence August 1, 2025
    The coal-based power plant is likely to schedule the commencement around 1st of August as per the current plan.

    — Dilip Parikh

  • Ammonia makeup loop commissioning Capex · FY27 · Medium confidence around 2027
    Ammonia makeup loop is somewhere coming by 2027.

    — Dilip Parikh

  • WNA project commissioning Capex · FY28 · Medium confidence around 2028
    And around 2028, WNA is coming.

    — Dilip Parikh

Profitability

  • TDI saving from coal-based power plant Profitability · post August 1, 2025 · High confidence INR 14,500 per metric tonne
    Upon being operational, the current budgeted figure is around INR 14,500 saving per metric tonne of TDI, because of the differential between coal and gas price.

    — Dilip Parikh

  • Weak nitric acid CAPEX IRR Profitability · long-term · High confidence 14% post tax
    And internally, we have a threshold of 14% post tax, and we have worked out the numbers considering this threshold.

    — Dilip Parikh

Dividend

  • Dividend payout policy Dividend · annual · High confidence 30% of PAT or 5% of net worth
    See the directive is 30% of the PAT or 5% of net worth, whichever is higher, number one.

    — Dilip Parikh

What to watch in Q4 FY25

Coal-based power plant commissioning

Next quarter / Q1 FY26
Current Delayed, expected August 1, 2025
Target Commercial operations commenced

Why it matters

Timely commissioning is crucial for realizing significant cost savings in TDI production.

The coal-based power plant is likely to schedule the commencement around 1st of August as per the current plan. There is some delay of around 4 months in that, after which we don't foresee any further time overrun.

Risks & concerns

  • TDI plant PBT-level loss

    high

    TDI plant is making a PBT-level loss, estimated at INR 150-200 crores, exacerbated by an elongated shutdown.

    Analyst acknowledged

  • Subdued chemical realizations

    medium

    Realizations in the Chemical segment have been a little subdued, though offset by higher volumes.

    Management acknowledged

  • Delay in coal-based power plant commissioning

    medium

    The coal-based power plant commissioning is delayed by approximately 4 months, now expected by August 1, 2025.

    Management acknowledged

  • Uncertainty in urea energy norm and fixed cost revision

    medium

    Government exercise to revise energy norms and fixed costs for urea units is ongoing, but the outcome and timing are uncertain.

    Management acknowledged

  • Downturn in Chemical cycle

    medium

    The downturn in the Chemical cycle has lasted longer than expected, making margin predictability difficult.

    Management acknowledged

Q&A highlights

6 direct
TDI plant losses and potential savings from coal-based power plant Direct
No, you are close to the number. Why because this time, as you know, there was an elongated shutdown at Dahej plant. As the volumes reduce, the fixed cost goes up on a per metric tonne basis. So, roughly, we have a fixed cost of around INR 250 crore per annum at the Dahej plant, okay?

Analyst challenged management on the TDI plant's PBT-level loss, which management confirmed as significant and impacted by a shutdown, providing context on fixed cost absorption.

Asked by Neerav Jimodia

Revision of energy norms and fixed costs for urea units Partial
It is very clear when it comes to the revision in fixed cost, it is going to happen upward side only. But whether it will recoup the kind of under recoveries it has, is very relative. So, very difficult to make a guess, not only for any unit, how much government will revise, what kind of position, although they exercise it at a very advanced level.

Analyst sought clarity on the impact of potential urea policy changes on the company's under-recoveries, highlighting the uncertainty and the government's role in pricing.

Asked by Neerav Jimodia

TGU demand, production, import, and pricing dynamics Direct
Indian demand is around 5 lakh tonne and around 2 lakh tonne is being produced by GNFC and 3 lakh tonne will be imported. And our price is more or less in line with the import, international prices.

Provided a clear picture of the domestic TGU market, GNFC's share, import dependency, and pricing strategy relative to international benchmarks.

Asked by Neerav Jimodia

Outlook for AN Melt and production volumes Direct
Demand is definitely on higher side in Quarter 3 and quarter 4 also. It will be reduced since Quarter 2 normally when monsoon is there. And actually, production of Deepak Fertilisers and RCF is increasing, and we are also producing more. So, there's less import compared to the previous year.

Analyst inquired about the AN Melt market given reduced imports and CAPEX activities, and management provided insights into demand trends and competitive landscape.

Asked by Neerav Jimodia

Headroom for volume growth in AN Melt and Technical Grade Urea Direct
As far as AN melt is concerned, see, there is an integration interplay. On a stand-alone basis, we get roughly 500 or 550 metric tonne per annum basis. But in case Complex Fertilizer is not remunerative, we can add up to some more volume into the AN Melt, which goes at times up to 650 to 700 metric tonne per day.

Analyst probed for specific volume growth potential in key chemical products, and management detailed the flexibility in AN Melt production based on Complex Fertilizer profitability.

Asked by S. Ramesh

Sustainability of Chemical segment margins and future growth levers Partial
See, in case of controlled businesses, it is difficult because we are not expanding into the fertilizer. And the only leverage in a control business is, by and large, volume and fixed cost. So, we don't see Fertilizer segment dramatically improving from loss to profit. Our bread winner is going to be Chemicals, which continues to be the in case as of date also.

Analyst questioned the long-term margin outlook for the Chemical segment and the drivers for growth, with management emphasizing Chemicals as the primary profit driver and limited leverage in the controlled Fertilizer business.

Asked by S. Ramesh

Dividend payout policy and its relation to buybacks Direct
See the directive is 30% of the PAT or 5% of net worth, whichever is higher, number one. Your question is whether this 30% is after considering the buyback or not. 30% has nothing to do with the buyback as such, because it has a reference point of PAT.

Analyst sought clarification on the company's dividend policy and whether buybacks impact the 30% PAT payout, which management clarified as separate decisions.

Asked by Govindlal Gilada

Raw material sourcing strategy (long-term vs spot, indexing) Direct
See, if you talk about our key inputs, gas, oil, coal, rock phosphate, benzene and toluene, these are the key inputs for the company. Now whether there is a long-term contract or not, we have a long-term contract for the gases of urea. We don't have the long-term contract for the Chemical part of it. We do have short-term contract and the spot purchases of gas.

Analyst inquired about the company's raw material procurement strategy, which is critical for cost management, and management provided a detailed breakdown of contract types and benchmarks for different inputs.

Asked by Ankur

3 min read 6 chapters

Detailed narrative

Q3 FY25 Financial Performance Overview

GNFC reported a PBT of INR 211 crores and PAT of INR 158 crores for Q3 FY25, marking an incremental increase of INR 76 crores on a sequential quarter basis. This positive change was primarily attributed to operational improvements driven by higher Chemical volumes and certain write-backs during the quarter. The company noted that both PBT and PAT have shown improvement on a sequential quarter as well as year-on-year basis.

Fertilizer Business Developments and Regulatory Landscape

The Fertilizer segment saw reduced losses, mainly due to a decrease in input costs for Complex Fertilizer. Management highlighted three positive developments: regular receipt of subsidy payments, pipeline inventories being at their lowest, and ongoing government efforts to revise energy norms (expiring March 31, 2025) and fixed costs for different urea units. However, there is uncertainty regarding the outcome and timeline of these revisions, particularly for energy norms, which could impact future profitability.

Chemical Business Performance and Product Specifics

The Chemical business improved, driven by higher volumes, especially in TDI and Technical Grade Urea on a sequential quarter basis, and Acetic and AN Melt on a year-on-year basis. While realizations were somewhat subdued, the increased volumes compensated for this. The TDI plant, however, continued to incur a PBT-level loss, estimated by an analyst at INR 150-200 crores, which management confirmed was 'close to the number' and impacted by an elongated shutdown. Current TDI prices are around INR 2,10,000, slightly up from the previous quarter.

Capital Expenditure Projects and Timelines

GNFC has approved projects worth INR 2,300 crores, which are in various stages of implementation. This includes INR 613 crores for coal-based conversion (CCPP), INR 1,420 crores for the WNA project, and INR 225 crores for the ammonia makeup loop. The coal-based power plant, crucial for TDI cost savings, is now expected to commission around August 1, 2025, after a 4-month delay. The ammonia makeup loop is anticipated by 2027, and the WNA project by 2028. Approximately 60% of the CCPP CAPEX (INR 525 crores) is already committed on an LSTK basis, and INR 187 crores advance has been given for WNA.

Raw Material Sourcing Strategy

The company's key inputs include gas, oil, coal, rock phosphate, benzene, and toluene. GNFC has long-term contracts for urea gases but relies on short-term contracts and spot purchases for Chemical segment inputs like gas. Oil contracts are mid-to-long term, based on global benchmarks like Fujairah. Coal is typically bought on a spot basis a couple of times a year, using an Indonesian benchmark. Benzene and toluene sourcing is a mix of spot and formula-based buying, often linked to Platts. Rock phosphate procurement involves direct negotiation without a fixed reference point.

Dividend Policy and Shareholder Returns

GNFC's dividend policy is guided by a directive to pay 30% of PAT or 5% of net worth, whichever is higher. Management clarified that buybacks are a separate decision and do not impact the calculation of the dividend payout based on PAT. The company had previously executed a buyback of INR 851 crores around October-November 2023, which is subject to a one-year cooling-off period.

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