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    Mangalore Chem.

    MANGCHEFERGood
    Chemicals·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

    8
    • 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

    2
    • Adverse weather conditions (monsoon deficit, drought)

    • Government policy on subsidies and profit margins

    What Changed1

    vs Q2 FY25

    Guidance items6 → 9 (+3)

    Key financials

    Single quarter

    06 metrics
    1. 01Sales Volume1.36 lakh metric tonnes-30%YoY
    2. 02Revenue₹641 Cr-45%YoY
    3. 03EBITDA₹92 Cr-38%YoY
    4. 04PBT₹51 Cr-47%YoY
    5. 05PAT₹33 Cr-57.0%YoY

    Segment breakdown

    • Urea Business₹356 Cr55.5%
    • Non-Urea Business₹285 Cr44.5%
    Donut· Share of Revenue Q3 FY24

    Guidance & targets

    9
    CategoryTargetPriority
    Profitability
    Urea EBITDA per tonne
    5000+
    Medium
    Profitability
    Urea EBITDA per tonne increase from Sulphuric Acid project
    250-300 Rs
    Low
    Profitability
    Overall benefit from NPK backward integration
    ₹1000-1500
    Medium
    Profitability
    EBITDA range
    300 plus crores
    Medium
    Operational Efficiency
    Urea energy consumption reduction
    0.2 to 0.25 GCal/MT
    Medium
    Capacity
    Annual Urea production capacity
    4.7 lakh metric tons
    High
    Debt
    Long Term Loans reduction
    10% or 20%
    Medium
    Debt
    Interest cost reduction
    10%
    Medium
    Capex
    New Capex
    None
    High

    Risks & concerns

    6
    RiskSeverity

    Adverse weather conditions (monsoon deficit, drought)

    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

    high

    Shipping disruptions and increased freight costs

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

    medium

    Government policy on subsidies and profit margins

    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

    high

    Commodity price volatility and competition

    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

    medium

    Areas of Evasion(2)

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

    Q&A highlights

    3

    “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

    3 min read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.