Mangalore Chem. — Q3 FY24 earnings call

Call held 3 Feb 2024

Management summary

Mangalore Chemicals & Fertilizers reported a challenging Q3 FY24 with significant declines in sales volume, revenue, and profitability due to a urea plant shutdown for maintenance and adverse weather conditions. However, the nine-month performance showed robust growth across all key financial metrics, driven by increased sales volumes and improved operational efficiency. The company highlighted its market leadership in Karnataka and ongoing efforts in backward integration and energy efficiency.

Highlights

  • Q3 FY24 Sales volume decreased by 30% YoY to 1.36 lakh metric tonnes, primarily due to urea plant shutdown.

  • 9M FY24 Sales volume grew significantly by 74% YoY to 6.77 lakh metric tonnes.

  • Q3 FY24 Revenue declined by 45% YoY to ₹641 crores, impacted by reduced volumes.

  • 9M FY24 Revenue increased by 21% YoY to ₹3009 crores.

  • Q3 FY24 PBT stood at ₹51 crores, a 47% reduction YoY, while 9M FY24 PBT surged by 177% YoY to ₹233 crores.

  • Q3 FY24 PAT was ₹33 crores, down 57% YoY, but 9M FY24 PAT grew 124% YoY to ₹150 crores.

  • Net worth appreciated by ₹199 crores to ₹935 crores as of December 2023.

  • Urea production capacity increased to 4.7 lakh metric tons annually post-Ammonia Energy Improvement Project.

Concerns

  • Adverse weather conditions (monsoon deficit, drought)

  • Government policy on subsidies and profit margins

Key financials

  1. Sales Volume 1.36 lakh metric tonnes -30%YoY
  2. Revenue ₹641 Cr -45%YoY
  3. EBITDA ₹92 Cr -38%YoY
  4. PBT ₹51 Cr -47%YoY
  5. PAT ₹33 Cr -57%YoY
  6. EPS ₹2.78 -57%YoY

What they filed

Q1 FY26: revenue up 5.9%, net profit up 40.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY24Q3 FY24Q4 FY24Q1 FY25Q2 FY25Q3 FY25Q4 FY25Q1 FY26
Revenue1,410 641 786 814 776 −45%968 +51%774 −2%862 +6%
EBITDA141 82 36 106 76 −46%103 +26%38 +6%111 +5%
Net profit68 33 5 44 26 −62%57 +73%16 +220%62 +41%
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 Revenue Q3 FY24
₹641 Cr Total
  • Urea Business ₹356 Cr 55.5%
  • Non-Urea Business ₹285 Cr 44.5%

Guidance & targets

Profitability

  • Urea EBITDA per tonne Profitability · long term · Medium confidence 5000+
    Currently we are making about 5000+ depending upon the ... 5000+ EBITDA we are making, that will be the fair figure to assumein the long term at least, ... maybe short term or medium term, so we will be able to assume this to be realized and it is a pretty good EBITDA to operate.

    — Mr. T.M. Muralidharan, Chief Financial Officer

  • Urea EBITDA per tonne increase from Sulphuric Acid project Profitability · post project implementation · Low confidence 250-300 Rs
    Ya, maybe. Again not 1000rs. May 250-300rs.

    — Mr. T.M. Muralidharan, Chief Financial Officer

  • Overall benefit from NPK backward integration Profitability · post project implementation · Medium confidence ₹1000-1500
    Aditya, we'll get about ₹1000-1500, okay. That's the overall benefit, we'll get, okay.

    — Mr. T. M. Muralidharan, Chief Financial Officer

  • EBITDA range Profitability · next 2-3 years · Medium confidence 300 plus crores
    EBITDA what we have in the range of 300 plus. I would say the exact numbers, I wouldn't speculate. So, 300 plus is the levels we are targeting to achieve in the next 2-3 years

    — Mr. T. M. Muralidharan, Chief Financial Officer

Operational Efficiency

  • Urea energy consumption reduction Operational Efficiency · going forward · Medium confidence 0.2 to 0.25 GCal/MT
    going forward, there may be an opportunity that it may come down by about 0.2 to 0.25 GCal/MT which is definitely going to improve our EBITDA margins further.

    — Mr. Nitin Kantak, Whole Time Director

Capacity

  • Annual Urea production capacity Capacity · next few years · High confidence 4.7 lakh metric tons

    Previously 3.8 lakh metric tons → 4.7 lakh metric tons

    now we are going to go up to about 4.7 lakh metric tons, which is going to give us a higher revenue in the next few years.

    — Mr. Nitin Kantak, Whole Time Director

Debt

  • Long Term Loans reduction Debt · into the future · Medium confidence 10% or 20%
    Long Term Loans we have is 400 crores and with a clear repayment schedule we have in place you'll see us going forward there will be a reduction of at least 10% or 20% as we progress into the future.

    — Mr. T. M. Muralidharan, Chief Financial Officer

  • Interest cost reduction Debt · year-on-year · Medium confidence 10%

    Previously 100 crores yearly → 10%

    No-no, I said 10% year-on-year you could see that, okay.

    — Mr. T. M. Muralidharan, Chief Financial Officer

Capex

  • New Capex Capex · next 3-4 years · High confidence None
    So, right now we are not looking at any other Capex. It may happen after about 3-4 years.

    — Mr. Nitin Kantak, Whole Time Director

Risks & concerns

  • Adverse weather conditions (monsoon deficit, drought)

    high

    Deficient south-west monsoon in Karnataka (18% deficit) and complete absence of north-east monsoon in South Peninsular/Western India led to low reservoir levels (29% of gross capacity) and reduced Rabi crop acreage (72% of normal).

    Management acknowledged

  • Government policy on subsidies and profit margins

    high

    Significant decreases in nutrient-based subsidy (NBS) and recent guidelines capping profit margins in the NBS/Non-Urea space present considerable obstacles and impact margins. Management is studying the operative aspects and will represent to the Department of Fertilizer.

    Management acknowledged

  • Shipping disruptions and increased freight costs

    medium

    Red Sea disruptions by Houthi rebels compelled vessels to reroute, consequently raising freight costs for imported raw materials and products.

    Management acknowledged

  • Commodity price volatility and competition

    medium

    Rising input costs and challenging market conditions, compounded by increased competition, particularly impacted phosphatic fertilizer margins. DAP manufacturing is not economical at current prices/subsidy levels.

    Management acknowledged

Areas of evasion (2)

  • Specific EBITDA figures for NPK products (due to cyclicality)
  • Speculation about potential mergers within the Adventz Group

Q&A highlights

2 direct
Urea profitability and impact of Sulphuric Acid project Direct
Currently we are making about 5000+ depending upon the ... 5000+ EBITDA we are making, that will be the fair figure to assumein the long term at least... going forward, there may be an opportunity that it may come down by about 0.2 to 0.25 GCal/MT which is definitely going to improve our EBITDA margins further. ... May 250-300rs.

Reveals current urea EBITDA per tonne and the expected incremental benefit from the new Sulphuric Acid project on energy consumption and margins.

Asked by Aditya Jhavar

Strategy for NPK/DAP products and backward integration Direct
our focus is on non-DAP because the margins on DAP are much lower... However, to meet the requirement of DAP of the market we resort to imports... we imported quite a substantial quantity of DAP; almost 70,000 tons and got good margins on that because that time the conditions were favorable. ... the major benefit out of Sulfuric Acid project is the steam which is going to be generated. ... we'll get about ₹1000-1500, okay. That's the overall benefit, we'll get, okay.

Clarifies the company's strategy of focusing on non-DAP NPK products for better margins, importing DAP when favorable, and the expected financial benefits from the Sulphuric Acid backward integration project.

Asked by Aditya Jhavar, Sandeep Mukherjee

Sustainability of EBITDA and merger speculation Partial
EBITDA what we have in the range of 300 plus. I would say the exact numbers, I wouldn't speculate. So, 300 plus is the levels we are targeting to achieve in the next 2-3 years... See, these kinds of reports, Darshita, are speculative in nature. We are not privy to any such discussions.

Provides a medium-term EBITDA target but with a caveat on exact numbers due to market regulation and seasonality. Management explicitly deflects questions regarding potential mergers within the Adventz Group.

Asked by Aditya Jhavar, Darshita Shah

3 min read 6 chapters

Detailed narrative

Q3 FY24 Performance Impacted by Maintenance and Weather

Mangalore Chemicals & Fertilizers reported a challenging Q3 FY24, with sales volume decreasing by 30% year-on-year to 1.36 lakh metric tonnes. This reduction was primarily attributed to a planned shutdown of the urea plant in October for annual maintenance. Consequently, revenue for the quarter declined by 45% YoY to ₹641 crores, and PAT fell by 57% YoY to ₹33 crores. Despite these quarterly headwinds, the nine-month performance for FY24 showed strong growth, with sales volume up 74% to 6.77 lakh metric tonnes and PAT increasing by 124% to ₹150 crores.

Operational Efficiency and Capacity Expansion

The company successfully completed its annual turnaround for the ammonia urea plant, including the replacement of 24-year-old primary reformer tubes, and the ammonia plant is now operating at over 100% load. The specific energy consumption for urea production is maintained at an efficient 5.4 to 5.45 giga calorie per tonne, surpassing the target of 5.5 giga calories. Post-Ammonia Energy Improvement Project, the daily urea capacity has increased to 1350 tons per day, translating to an annual capacity of 4.7 lakh metric tons, up from the previous 3.8 lakh MT reassessed capacity, which is expected to drive higher revenue in the coming years.

Market Dynamics and Sales Strategy

Adverse weather conditions, including a deficient monsoon in Karnataka (18% deficit) and low reservoir levels (29% of gross capacity), significantly impacted the agricultural scenario and crop acreage. Despite this, the company maintained its market leadership in Karnataka, holding a 31% market share for N20 product and 16% for total fertilizer sales. The strategy for phosphatic fertilizers focuses on non-DAP products due to better margins, with DAP requirements met through imports when market conditions are favorable, as demonstrated by 70,000 tons imported in Q3 FY24.

Financial Position and Liquidity Management

The company's net worth increased by ₹199 crores to ₹935 crores by December 2023, nearing the ₹1000 crore mark. Short-term debt (working capital) saw a significant reduction of approximately 50% to ₹584 crores from ₹1143 crores in December 2022, attributed to improved liquidity. Subsidy receivables from the Government of India also decreased to ₹359 crores from ₹645 crores, with ₹165 crores received in January 2024, indicating timely disbursements and improved cash flow.

Future Outlook and Capex Plans

Management projects a sustainable urea EBITDA of 5000+ per tonne in the short to medium term. The ongoing Sulphuric Acid project (300 tonnes per day) is expected to further reduce urea energy consumption by 0.2 to 0.25 GCal/MT, potentially increasing urea EBITDA by ₹250-300 per tonne, and provide an overall benefit of ₹1000-1500 from NPK backward integration. The company is not planning any new major Capex for the next 3-4 years, focusing on servicing existing loans and improving the balance sheet. A medium-term EBITDA target of '300 plus crores' is anticipated for the next 2-3 years.

Regulatory Environment and Subsidy Outlook

The fertilizer industry operates within a highly regulated market, influencing profitability and pricing. Recent government guidelines capping profit margins in the Nutrient Based Subsidy (NBS) and Non-Urea space are being studied by the industry. While the government reduced MRPs in Q3 FY24 due to market competition, the company expects no change in the subsidy declared in October for the current quarter. Management expressed confidence that the government would provide additional subsidy support if commodity prices harden, given the importance of fertilizers to the economy.

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