G S F C — Q3 FY25 earnings call

Call held 11 Feb 2025

Management summary

GSFC reported strong Q3 FY25 performance with consolidated top-line growth of 40% and PBT/PAT increases of 16% and 13% respectively, driven by higher production and strategic product mix. However, 9-month consolidated profits saw a slight decline. The company faced cost pressures from rising raw material prices and INR depreciation, alongside low margins on imported DAP and reduced capro-benzene spreads. Management highlighted upcoming project commissioning (Urea-II Revamping, Sulphuric Acid V) and efforts to secure raw materials like rock phosphate.

Highlights

  • Consolidated Q3 top line growth of 40% YoY, driven by improved efficiency and strategic product mix optimization.

  • PBT increased by 16% YoY and PAT by 13% YoY in Q3, demonstrating strong revenue growth.

  • Fertilizer output increased by 23% YoY in Q3 (77,000 metric tons) and sales volume by 25% (1.254 lakh metric tons).

  • HX plant stabilized at 30 metric tons/day, with production sometimes exceeding 100% capacity, contributing positively.

  • Reduction in natural gas prices (10% YoY in Q3) provided some relief against rising raw material costs.

Concerns

  • Consolidated 9-month PBT was lower by 1% YoY and PAT by 4% YoY.

  • Imported DAP (1.27 lakh metric ton, ₹758 crores) did not provide any margin to the company.

  • Challenging cost environment due to rising prices of sulphur, sulphuric acid, and P2O5 (P2O5 up from $948 to $1,060/metric ton in Q3).

  • Significant depreciation of INR impacted production and imported costs.

  • Capro-benzene spread declined from $674/metric ton to $588/metric ton in Q3, reducing profitability in that segment.

Key financials

  1. Consolidated Top Line Growth Q3 40% +40%YoY
  2. Consolidated PBT Growth Q3 16% +16%YoY
  3. Consolidated PAT Growth Q3 13% +13%YoY
  4. Fertilizer Output Growth Q3 23% +23%YoY
  5. Fertilizer Sales Volume Growth Q3 25% +25%YoY
  6. Annualized 9-month EPS ₹17.22

What they filed

Q1 FY27: revenue up 64.1%, net profit up 14.4% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue2,635 2,814 1,922 2,184 3,187 +21%2,941 +5%2,633 +37%3,583 +64%
EBITDA284 158 80 193 337 +19%178 +13%83 +4%233 +21%
Net profit298 134 72 139 324 +9%158 +18%52 −28%159 +14%
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.

Capital allocation

high confidence
  • Capex Capex disclosed
    • Sulphuric Acid V project (Vadodara) ₹250 Cr
    • Urea-II Revamping project ₹450 Cr
    • GIPCL 75-megawatt solar power plant (equity participation) ₹50 Cr
    • Sikka phosphoric acid/sulphuric acid plant (detailed engineering stage) ₹1,500 Cr
    We have the robust expansion plan, as you know, that 2, 3 plants we are going to capitalize within the next 6 months. So there is a lot of -- INR500 crores amount is required to be paid to the suppliers. So this is one of the main reason when considering the dividend payment or any other bonus or any other measures what you are expecting from the company.
  • Debt Debt disclosed
    As you are aware, we are debt-free organization with a strong balance sheet and robust liquidity position.
  • Liquidity Cash ₹2,500 Cr Robust liquidity position, sufficient for planned capex and operations.
    As you are aware, we are debt-free organization with a strong balance sheet and robust liquidity position. This financial strength is supported significantly by the government's proactive approach in ensuring the timely disbursement of subsidies. We have received subsidies for imported P&K fertilizers up to December '24, while the subsidy for Indigenous P&K and urea have been received up to the second and third week of January '25, respectively.

Guidance & targets

Volume

  • Fertilizer Sales Volume Volume · Q4 FY25 · High confidence 3 lakh metric ton to 3.25 lakh metric ton
    we have a target to book sales in the range of 3 lakh metric ton to 3.25 lakh metric ton in quarter 4.

    — S.K. Bajpai

Profitability

  • Industrial Products Segment Demand and Turnover Profitability · coming quarter · Medium confidence Stable
    Overall, the company expect a stable demand and turnover in the Industrial Products segment in the coming quarter.

    — S.K. Bajpai

Capex

  • Sulphuric Acid V project operationalization Capex · end of current fiscal year · High confidence Operational
    it is anticipated that Sulphuric Acid V project and Urea-II Revamping project will be operational at the end of current fiscal year.

    — S.K. Bajpai

  • Urea-II Revamping project operationalization Capex · end of current fiscal year · High confidence Operational

    — S.K. Bajpai

  • GIPCL 75-megawatt solar power plant operationalization Capex · H1 next financial year · High confidence Operational
    And that is also expected in the first half of the next financial year.

    — S.K. Bajpai

  • Expenditure for current projects Capex · by March '25 · High confidence INR200 crores
    It is around INR200 crores we will be required to release the fund in the 2 months.

    — S.K. Bajpai

  • Expenditure for current projects Capex · next financial year · High confidence INR300 crores
    Correct. So the INR500 crores capex what you mentioned, which needs to be spent, of that INR200 crores will be by March and INR300 crores will be spent in next financial year, right?

    — S.K. Bajpai

Cost Reduction

  • Urea-II Revamping project cost reduction Cost Reduction · annually · Medium confidence INR30-35 crores
    But roughly what I remember is it will be impacting INR30 crores to INR35 crores of the cost reduction in the urea plant.

    — S.K. Bajpai

What to watch in Q4 FY25

Urea-II Revamping project commissioning and energy reduction benefits

next quarter
Current Expected operational by end of current fiscal year
Target Commercial operation, realization of INR30-35 crores annual cost reduction

Why it matters

This project is expected to significantly reduce energy costs and improve profitability for the urea segment.

it is anticipated that Sulphuric Acid V project and Urea-II Revamping project will be operational at the end of current fiscal year. ... But roughly what I remember is it will be impacting INR30 crores to INR35 crores of the cost reduction in the urea plant.

Risks & concerns

  • Decline in Capro-benzene spread

    high

    Spread declined from $674/metric ton to $588/metric ton, reducing profitability in the caprolactam segment, leading to production diversion.

    Management acknowledged

  • Challenging cost environment for raw materials

    medium

    Rising prices of sulphur, sulphuric acid, and P2O5 (P2O5 up from $948 to $1,060/metric ton in Q3) impacted profitability.

    Management acknowledged

  • INR depreciation impact

    medium

    Significant depreciation of INR impacted production costs and imported raw material costs.

    Management acknowledged

  • Low margins on imported DAP

    medium

    Imported 1.27 lakh metric ton of DAP (₹758 crores) did not provide any margin to the company.

    Management acknowledged

  • Impact of cheap Chinese imports on industrial products

    medium

    Passing on costs for major industrial products is likely to be affected by cheap Chinese imports.

    Management acknowledged

  • Fertilizer industry challenges

    medium

    Price constraints, global supply conditions, and subsidy structures impacting production and imports.

    Management acknowledged

Q&A highlights

5 direct
Corporate actions (bonus/buyback) based on Gujarat government circular Partial
We have the robust expansion plan, as you know, that 2, 3 plants we are going to capitalize within the next 6 months. So there is a lot of -- INR500 crores amount is required to be paid to the suppliers. So this is one of the main reason when considering the dividend payment or any other bonus or any other measures what you are expecting from the company. But after this the -- after year-end, I think the capitalization will be over and then at the time of making the dividend payment, the Board will take the suitable decision.

Analysts repeatedly questioned the delay in corporate actions despite a government circular, highlighting investor frustration and management's prioritization of capex over immediate shareholder returns beyond dividends.

Asked by Vaibhav Seth

Profitability of fertilizer segment (manufacturing vs trading) and Q4 discounts Partial
As far as profitability is concerned, we generally do not share the profitability product-wise because of this some other subsidy issues and all. So whatever we have presented in our publication and the investor site, that is available. ... No, in the quarter 4, I don't foresee any discounts will be there. So we have the limited stock and that has been strategically placed in the market and we have taken the shutdown during the lean season of the fertilizer sector as a whole, the quarter 4, we have taken shutdown of various fertilizer plants like urea, APS, ammonium sulphate. So whatever fertilizers we are having in the stock and little production during the quarter 4, we are specifically placing.

Analyst sought granular profitability data for fertilizer segments and clarity on Q4 pricing strategy, which management partially addressed by stating no discounts are foreseen due to limited stock and strategic placement.

Asked by Nirav Jimudia

HX plant production, sales, and profitability contribution Partial
Yes, the HX plant is now stabilized after initial trouble and now it is stabilized at the rated capacity of 20 metric ton per day. So earlier we are having the one plant, HX-1 Crystal plant that is having the capacity of 10 metric ton per day. So totalling, we are getting 30 metric ton per day capacity. So there is no problem as such now and we are regularly getting this capacity, even some times surpassing the 100% capacity also. As far as profitability of this product is concerned, we are quite comfortable. I cannot show the exact number because it is just the initial stage and we are searching the market and getting the export substitution to penetrate in the market, but we are quite comfortable in the contribution side also because as you know in the caprolactam, the capro-benzene spread is reduced like anything and there is hardly any contribution. So we are switching the contribution -- production of caprolactam to HX Sulphate plant.

Analyst inquired about the newly commissioned HX plant's performance and profitability. Management confirmed stabilization and positive contribution, but did not provide specific numbers, citing early stage and market search.

Asked by Nirav Jimudia

Impact of rising sulphuric acid costs and ability to pass them on Direct
Largely sulphuric acid is produced at Vadodara Unit where we use in ammonium sulphate. So the requirement of sulphuric acid in Vadodara Unit is met by our own production, which is quite competitive. And sometimes we are having the requirements, which is fulfilled by the long-term arrangement with the parties. So whatever the increase in the sulphuric acid prices there in the market, our production of ammonium sulphate or ammonium phosphate sulphate is not impacted.

Analyst probed the company's ability to manage rising sulphuric acid costs. Management clarified that captive production and long-term contracts insulate them from market price volatility, ensuring no impact on key products.

Asked by Nirav Jimudia

Cost measures and new products for the industrial segment given profitability challenges Direct
Yes, we are taking 2, 3 steps. One is that we are importing Anone, because imported Anone is cheaper than our own cost of production in the Anone-1 plant, which is very old plant. So we are replacing Anone from the Anone-1 plant by the imported Anone. It is quite cheaper so that it provides a little cushion in the caprolactam production cost. Second alternate that we are reducing the caprolactam production and diverting this HX to HX Sulphate plant.

Analyst asked about strategic responses to industrial segment challenges. Management detailed specific actions like importing cheaper Anone and diverting caprolactam production to HX Sulphate, demonstrating proactive cost management.

Asked by Nirav Jimudia

Breakdown of INR500 crores capital work in progress and project timelines Direct
Sir, firstly, as you outlined to the fact that the current capital work in progress is to the tune of INR500 crores. So if you could just elaborate? As we have as you see in our investor presentation, Page Number 8, it has been mentioned that the solar plant and the Urea-II Revamping project will be capitalized by March. And I think so the Sulphuric Acid I will be done by the first half. This is all that we envisage towards the INR500 crores to be capitalized, sir? ... Yes. One more project is there, that is GIPCL 75-megawatt solar power plant. So there is an investment of INR50 crores equity participation and we will be getting 37.5 megawatt of cheaper power. And that is also expected in the first half of the next financial year.

Analyst sought clarification on the INR500 crore capex, and management provided a detailed breakdown of projects (solar, Urea-II, Sulphuric Acid I, GIPCL solar) and their expected capitalization timelines.

Asked by Saket Kapoor

Total sulphuric acid capacity after commissioning of new plant and phosphoric acid requirement Direct
Correct. And sir, last question is like if -- with the commissioning of this Sulphuric Acid V plant of 1,98,000 tons, our total capacity of sulphuric acid will be now close to around 1 million ton? ... It'll be around 0.8 million -- 0.9 million. Yes. ... See, phos acid, requirement are there 2 places, Vadodara and Sikka, right? We have a plant at Sikka, where we require around 4,00,000 tons of solution to run the plant at capacity level. And Vadodara is lesser. It is around 1,80,000 tons of solution. So both capacity -- here we have our own plant of PA in Vadodara. At Sikka, we want to establish it that is there. ... Correct, correct. So this 1,98,000 tons would further bring down our requirement of phosphoric acid once the detailed engineering and everything is complete, right? Yes.

Analyst clarified the company's future sulphuric acid capacity and its impact on phosphoric acid requirements, confirming backward integration benefits.

Asked by Nirav Jimudia

Strategy for sourcing rock phosphate for phosphoric acid production Direct
Yes, yes, we are scouting for this rock phosphate, and we have made a visit, our executive team along with our MD, visited Dubai to source that and Jordan Rock Phosphate and other suppliers, the major suppliers we have spoken to. And we are quite hopeful rock phosphate availability is certain and there will not be any problem. However, at appropriate time, we will execute the agreement.

Analyst inquired about long-term rock phosphate sourcing, a critical raw material. Management confirmed active efforts, including international visits and discussions with major suppliers, indicating a proactive approach to supply chain security.

Asked by Nirav Jimudia

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Detailed narrative

Strong Q3 Performance Despite Headwinds

GSFC delivered a robust Q3 FY25 with consolidated top-line growth of 40% YoY, PBT increasing by 16% YoY, and PAT by 13% YoY. This performance was attributed to improved efficiency, higher production, and strategic product mix optimization. Fertilizer output rose significantly by 23% YoY to 77,000 metric tons, and sales volume increased by 25% to 1.254 lakh metric tons, demonstrating strong operational execution.

Raw Material Cost Pressures and Mitigation Strategies

The company faced a challenging cost environment with rising prices of essential raw materials like sulphur, sulphuric acid, and P2O5, with P2O5 prices increasing from $948 to $1,060 per metric ton in Q3. Additionally, INR depreciation impacted costs. To mitigate, GSFC optimized its product mix towards more profitable fertilizers and industrial products, increased capacity utilization, and benefited from a 10% YoY reduction in natural gas prices in Q3.

Industrial Segment Challenges and Strategic Shifts

The industrial segment experienced reduced profitability due to a significant decline in the Capro-benzene spread, from $674 to $588 per metric ton. In response, GSFC is importing cheaper Anone to replace its own production and diverting caprolactam production to the more profitable HX Sulphate plant, which is now stabilized at 30 metric tons per day capacity. The company expects stable demand but acknowledges the threat from cheap Chinese imports in the coming quarter.

Significant Capex Pipeline and Project Timelines

GSFC has a robust capex plan, with approximately INR500 crores in capital work in progress. Key projects like the Sulphuric Acid V plant (₹250 crores) and Urea-II Revamping project (₹450 crores over 3 years) are expected to be operational by the end of the current fiscal year. The GIPCL 75-megawatt solar power plant, with a ₹50 crore equity participation, is anticipated to be operational in H1 next financial year, providing 37.5 MW of cheaper power. The larger Sikka phosphoric acid/sulphuric acid plant (₹1,500 crores) is still in the detailed engineering stage.

Shareholder Value Creation and Corporate Actions

The company maintains a debt-free status with a strong balance sheet and robust liquidity, including INR2,500 crores in cash and bank balances. While a 30% dividend payout is maintained, management indicated that decisions on further corporate actions like bonus issues or buybacks, as per the Gujarat government circular, would be taken by the Board after FY26, following the completion of current expansion plans requiring significant capital outlay (INR500 crores for suppliers).

Raw Material Security and Backward Integration

To ensure raw material security, especially for phosphoric acid production, GSFC is actively scouting for long-term contracts for rock phosphate. The executive team, including the MD, has visited Dubai and engaged with major suppliers like Jordan Rock Phosphate. The commissioning of the 1,98,000 tons Sulphuric Acid V plant will increase the total sulphuric acid capacity to 0.8-0.9 million tons, further reducing reliance on external sourcing for phosphoric acid.

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