Detailed Narrative
Q2 FY25 Performance Overview and Operational Challenges
MCFL reported a challenging Q2 FY25 with revenue decreasing by 45% to ₹776 crores and PAT declining by 62% to ₹26 crores, compared to Q2 FY24. This was primarily attributed to a urea plant shutdown in September for reformer catalyst replacement and reduced imports of traded fertilizers due to unviable prices. H1 FY25 sales volume also saw a 31% decline to 3.71 lakh metric tons. Despite these challenges, urea production for H1 FY25 reached 2.1 lakh metric tons, exceeding targets, and the company maintains a 21% market share in N20 sales in Karnataka.
Fertilizer Market Dynamics and Product Mix
The Indian fertilizer industry performed well in Q2, with all-India urea sales up 3.8% YoY to 12.7 million metric tons. However, DAP sales were significantly down by 56% to 2.6 million metric tons due to international availability challenges. MCFL compensated with higher NP/NPK sales, which were up 10% to 5.1 million metric tons for the quarter. The company noted that southern markets adapted by migrating from DAP to complex fertilizers due to DAP's non-availability.
Raw Material Outlook and Pricing Strategy
Phosphoric acid availability has improved, with good productions expected for the remainder of the quarter. The price for phosphoric acid, which was $950 last quarter, is expected to increase by about $100. The MRP of DAP, frozen at ₹1,300 a bag for the last three years, is likely to be allowed to increase from January onwards. For other NP/NPK products, MCFL plans to increase MRPs based on market conditions and rising phosphoric acid prices.
Sulphuric Acid Plant and Energy Costs
The sulphuric acid plant commercialization is on track for August 2025, with overall engineering 63% completed. The gas cost for the urea plant in Q2 FY25 was $15.2 per MMBTU on a GCV basis, remaining fairly static. The Gcal level also continued to be around 5.6. Management expects the urea EBITDA per ton to hold around ₹4,000, down from the current ₹5,000, once subsidy revisions related to gas prices are implemented.
Merger Update and Future Growth Plans
The proposed merger with PPL is awaiting regulatory approvals. SEBI has returned the scheme with certain observations, which the company is currently evaluating. Future capacity expansion plans, including almost 1 million tons of NPK capacity at Mangalore and potential backward integration with phosphoric acid capacity in Paradeep or Morocco, are contingent on the merger completion. The merger is expected to create synergies by leveraging PPL's presence in North, East, and Western markets and MCFL's strong presence in the South.
Financial Health and Tax Rate Improvement
Net worth grew by ₹89 crores between September 2023 and September 2024, reaching ₹992 crores. Long-term debt decreased by ₹67 crores, and short-term working capital debt reduced by ₹98 crores to ₹505 crores, improving liquidity. The company's effective tax rate of 35-36% is due to carrying MAT credit; from next year onwards, it expects to move to a new regime of 25% as MAT credit depreciation will be completed in FY25.