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Ladies and gentlemen, good day, and welcome to the Gujarat State Fertilizers & Chemicals Limited Conference Call to discuss the Q3 FY'22-'23 Financial Performance Earnings. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Nitesh Vaghela from Anurag Services, LLP. Thank you. And over to you.
Thank you and good afternoon. Welcome to the third quarter earnings conference call of Gujarat State Fertilizers & Chemicals Limited, hosted by Anurag Services, LLP.From the management, we have Mr. V.D. Nanavaty, Executive Director, Finance and CFO; and Mr. Vishvesh Vachhrajani, Company Secretary and Senior Vice President, Legal and Investor Relations; and other senior dignitaries from the management.I would like to thank the management for giving us the opportunity to host this call. We will begin the call with opening remarks from the management, post which we will have a question-and-answer session. Thank you. And over to you, sir.
Yeah. Thank you. Welcome to the Q3 post results con call of Gujarat State Fertilizers & Chemicals. Hope you have seen the results. And as per the demand of the few of the stock analysts, we also uploaded the analyst presentation and other media release, as well as the production and sales volume data on our website and one of them on the stock exchange -- filing with stock exchange also. And we hope you have seen it, or you can see it now also.So the -- as far as the revenue is concerned for the 9-month period, we have almost reached the last year's revenue. And as far as the net profit is concerned, we have exceeded the net profit that was actually for the whole of last year in these 9 months. So this is a commendable achievement with good management guidance. As you are all knowing, government has declared its intention of protecting the farmers from the vagaries of price rise. So what we saw post Russia-Ukraine war, whatever rise in input cost and subsequent in finished goods, faster production or import, the government has absorbed the subsidy and kept the MRP of various fertilizers at almost the same levels.So, we have seen the ballooning subsidy for FY '23. And definitely, with an efficient player like GSFC, we have been part of that good spending by Government of India. We have our own share of subsidy receipts, which is reflected in this good result also. Apart from that, the things were normal and subsidy receipts were also normal.For urea, we have received subsidy up to second week of January and for P&K it is up to November end. And as you all know, in the last 1 or 2 months, governments don't have budgetary funds. So for February or March, we may experience some cash flow from subsidy receipts that will be tied over by the short-term working capital borrowing. However, from 1st April when the new budget is available, government can really immediately clear the past dues.So as far as cash flow is concerned, there is not much of a problem. Stocks were also at the earlier lead level and we have seen that we sell whatever we procure or produce at the earliest. To save on marketing costs, we have tried to maximize our sales in Gujarat region. And for ammonium sulfate where we sell large quantity, we also sold it in the southern pockets of Southern India, so that has helped to contain our marketing costs.As far as industrial products are concerned, we experienced a huge decline in price of industrial products and particularly in the melamine, which gave us very good realization last year. Suddenly, its prices were substantially down, mainly because of lower demand as well as oversupply from the China. But we reached over to more exports and now our exports are very regular that help us to improve the top line and bottom line of IP products to some extent.For caprolactam, if it does not improve the demand in short term, we will also be resorting to add export of caprolactam just like melamine. Off late from industrial product marketing, we are getting signals that there will be improvement in the sentiments in the market and we look forward to improved prices of industrial products that has remained subdued for at least 2 quarters. So hopefully, next year it will be a kind of a normalized situation.Other details we've already given in the investor presentation and media release about CapEx plans, its timeline and some input-related data and of course, share price and all these things. So, there is nothing much to be added from my side.Thank you. And now all are welcome to ask questions.
[Operator Instructions] We have our first question from the line of Vikram Kotak from Ace Lansdowne Investments.
I am audible?
Yes.
Hello?
Yes, yes. Please go ahead.
Sorry, sir. Now we are not able to hear you. Mr. Kotak, no, your voice is breaking.
Hello?
Yes, sir.
Sir, my 2 questions. One question is, how do you see the capro-benzene spread now in the current quarter in the event of China opening? And what's your view over a period of next 1 year? That's question number one.And number 2. Sir, where are you planning to start the new melamine capacity of 40k, which you are under evaluation. So what's the plan there? That's 2 questions from my side.
So, capro-benzene spread for at least quarter -- I mean, Q4 will still be under stress. It will not dramatically or -- I mean improve in a big way. So, that is the signal. But as I said, it is improving. So next year, it will be definitely more than what is so subdued. Right now for Q4, we have -- I mean, for FY '24, our company's budget is still under preparation. So maybe next time we will be able to give more clarity on FY '24 different numbers.
Sure. And sir, how is the demand side position in Melamine and Capro? What's the view here? Is demand enough, or do you see a Europe slowdown impacting us as well?
No, demand is enough. Only thing that -- but we should also get good price. So if we get good price, then we'll export more because in Europe, lot of plants are closed, melamine as well as caprolactam. And no spread, nobody can operate. Only China can operate on this line.
Last question about, what's the cash balance as on 31st December in books? What's the net cash including our liquid investments?
That is around INR700 crores to INR800 crores.
Can you repeat, sir? Sorry, I missed that. Yes.
Yes. INR700 crores to INR800 crores, that is cash and liquid deposit.
We have our next question from the line of [ Ankur Sanwal ], an Individual Investor.
Hello?
Yes.
Sir, there were news about disinvestment by Gujarat Government of various businesses it holds. Is there anything we have received information from government also?
No, these are all -- such reports have been submitted in past also many times, but nothing has moved in such direction.
[Operator Instructions] We have our next question from the line of [ Govindlal Gilada ] from [ GG Securities ].
Sir, I've got only one question in your press release.
I'm sorry, sir. There is an echo coming from your line. Can you use your handset, please?
Yes. I'm using headset only madam. Is it clear now?
Yes. Please go ahead.
Sir, in press release regarding CapEx, it has been mentioned that you have already lined up INR4,000 crores for CapEx and future -- further growth plans are there for another INR4,000 crores. So, you're talking about INR8,000 crores CapEx and just now you told that you've have got cash in hand is only INR700 crores, INR800 crores. Sir, I want to understand, sir, how you are serious about this CapEx and how we are planning cash flow -- such big cash flow of INR8,000 crores?
No, our reserves are around INR11,000 crores. Cash on hand is just because February, March government subsidy don't come in time. So whatever deposits we have that we use it to pay our vendors because we pay everybody in time. We don't say that I don't have money, so I will not pay you. We pay everything in time as per the contractual terms, whether we have money or we have to borrow the money. So, we don't give excuses of this or that.So as we said, the government don't have the money, so subsidies really is taking some time. So cash will again -- [ CapEx ] will again be full, maybe say by April or May. But the financial institutions, they value at debt equity considering equity as your net worth. So, our net worth is around INR11,000 crores. So, you can very well calculate that for INR11,000 crores equity, how much debt I can contract.It is a much, much more amount that we can borrow for our CapEx. So, INR8,000 crores is not a big amount, plus these things will take time. So just, as you saw the results, we are earning like INR1,000 crores, INR1,500 crores if we add up depreciation and major non-cash items. So by the time, I do the direct projects, again, at the speed of INR1,000 crores per year, I will have INR4,000 crores out of my profit only. I don't have to borrow anything. So, we are in a -- right now we are a zero-debt company. So from that perspective, we will not have any strain on our cash resources.
Okay, sir. Sorry, regarding this INR11,000 crores you told, but most of the -- what you have told, our reserves power, investment in our associates, all that major investment in others is almost INR6,000 crores, that I don't think you will unlock. We are planning to unlock the investment in GNFC and all that. But they are the major ones. If you [indiscernible], then there's subsidy of INR2,000 crores as for our last quarter balance is submitted. And cash, all that not much, sir. They are all put together INR1,000 crores in cash and subsidy around INR2,000 crores, but major is investments in associates all that others. So, are you planning to [indiscernible] this year CapEx in pipeline? Any plans of unlocking these investments, sir, in our other Gujarat companies?
No, no, disinvestments -- there is no question of offloading our investment, but we can borrow whenever it is required. We can borrow with a very competitive rate.
Yeah, that is in clarity. It is there, because we are taking INR11,000 crores including all investments, that is the major portion, INR5,000 crores, INR6,000 crores. I followed, sir. So, one more thing, sir. So this kind of CapEx already, concrete how much CapEx out of INR8,000 crores is in pipeline, sir?
Around INR4,000 crores is under various stages of implementation, and INR4,000 crores Dahej is still at a very preliminary stage.
So, this INR4,000 crores, when it will be -- let us say in 3 years, 4 years, we'll be executing all this INR4,000 crores, sir?
No, we have already given the details in the Investor Presentation on our website. So, you can see the timelines are mentioned there when these projects are going to be commissioned. So, you can see that in our website at Slide #9.
Okay. Then last question, sir. What kind of asset turnover or [indiscernible] we are expecting of these investments, sir?
Generally, we don't invest in risky or low-return investment. We only go for commercial evaluation of all the projects. So anything -- of course, so far rate of interest was low. So, our expectation of minimum ROI or all those payback period and all that are on lower side. But now with the rate of interest going up, naturally, our expectation of minimum return is also high. So, we generally don't take a project giving less than 13% to 15% IRR.
13% to 15% with a 6 years to 7 years payback period?
Yes. And all these plants or whatever plants we have set up, they're already 50 years old. So, our plants lasts for a very long period. So 5 years to 6 years is not a bad payback.
We have our next question from the line of [ Kalpesh Shah ], an Individual Investor.
Hello?
Yes, yes.
Yes, sir. Is there are any plan to demerge our investment company into separate companies, whatever investments we have in our subsidiaries?
No. There is no demerger, no. There is no such proposal.
Okay. Yes. And our chemical division and our fertilizer, new divisions to be separated?
No, no. They will work in one umbrella only.
Okay. And sir, right now what is the rate of caprolactam is going on in this quarter and last 3 quarters, sir?
So, those details are given in our website, but still I'm repeating it. And just one moment.
Yes.
The caprolactam price was around $2,000.
Current quarter?
Current quarter.
Last three quarters, sir, average?
Last three quarters, it was more. Now recently it has come down. It was $1,800 and around $2,000 earlier.
Okay. We can see approximately $2,500 in first quarter of '24?
No, no. It will not jump so much. It steadily increases, maybe [ $2,100 ].
So, there it will be viable to get a good profit, sir?
Yes, yes. Profit will improve definitely. Yes. Definitely.
And sir, is there any turnover idea for fertilizer division in Q4?
Yes, it will be around INR2,000 crores.
Okay, sir.
This year, we expect INR11,000 crores turnover for FY '23.
For fertilizer?
For company as a whole. For this full-year '22-'23, our turnover is expected to be INR11,000 crores.
Okay. And right now we have anti-dumping duty on caprolactam or not, sir?
No. There is no anti-dumping duty on any products.
No products at all?
No products at all.
[Operator Instructions] We have our next question from the line of Ankur Sanwal, an Individual Investor.
Sir, during this budget, Government of India has emphasis a lot on Nano Urea, which we are not making. So any idea of impact in future 2 years, 3 years -- 2 years, 3 years with the quantum of Nano Urea on our products?
No. There is still farmer acceptability issue for Nano Urea. So it is not going to make any impact on our present fertilizers. Nano Urea is only spray on the foliar. So basal dose and all these things is done same time with normal plain urea. So once there is some flowering, then only they spray it on the foliars. So, these are all new things government is popularizing it in a big way, but farmers have been not traditionally doing farming for so many years with certain kind of fertilizer. So, they will not reach the things immediately.
Okay, sir. Sir, secondly you told about good prospect of our industrial division section in the coming next year. Can you elaborate on that?
Yes. So, mainly China factor plays everywhere around the world. So, China was almost closed because of zero-COVID policy and recently their New Year was going on. So now they are out of this COVID policy, as well as their New Year festivities are also over. Their market is opening up. And when there is a good demand, actually the prices also increase. So, that is how we see that improvement in the caprolactam price in the Q4, as well as next year.
You also supply to China?
No. China is a major puller or pusher for anything in the world. So if China demand open up, what happens if they don't have demand, they export to everything -- I mean, everywhere in the world. So that lower down the prices. But when they consume their caprolactam in their own country for garments and nylon products, they don't export so much. So then export market prices also improve. And India also, we are all doing business on IPP basis, industrial, I mean, international price parity. So whatever is the price in international market, that translates into Indian price. So when there is a good international market price, so we also get better realization in India. So, that is how it is all linked.
We have a next question from the line of [ Saket Kapoor ] from Kapoor and Company.
[Foreign Language]
[Foreign Language]
Yes, sir.
[Foreign Language]
Right. I will come back to my observation on that. But thank you, sir, firstly to taking a note of our request and implementing the same. Sir, you mentioned, firstly, that for fertilizers segment, we are looking for a revenue of INR2,000 crores for the fourth quarter. So could you explain, elaborate more work from -- I mean, how are we coming with that figure? What kind of volumes are we expecting? Because I think in the December quarter, we did around INR2,880 crores.
Our Marketing Fertilizer Officer, Mr. [Technical Difficulty].
Yes, sir. Our expected volumes will be around 4.50 lakh tonnes. Basically, we got 1 lakh tonnes imported urea in this quarter. So, that has helped us to increase the [ availability ]. And our Sikka unit is also operating well for last 2 months. So, we have the inventories of phosphatic fertilizer also. So, almost volumes will remain at par with the Q4 of last year, and the value will go up because of higher subsidy and the MRP of fertilizer.
But the margin per tonne will remain constant, sir, that is INR1,500 only?
Saket, margin, because government also has to reduce subsidy burden. So since the input prices are coming down, they may decrease the subsidy from 1 January, '23 effective. So if that is the case, then margin may come down little bit.
What was the margin per tonne, sir, for the third quarter in the fertilizer segment, the manufacturing one and the trading part?
Trading part, as you know, urea, we address [indiscernible] and DAP [indiscernible] are maybe at INR500 to INR1,000 per ton. And other manufactured fertilizers, we've not really come out with what is the thought on margin now. So much volatility is there that per tonne margins can settle forever.
Okay. So sir, can you give some more color how, for this quarter, the raw material basket has shaped up? And going ahead, what are the trends for the raw material basket and then towards the power and fuel part?
So, we have furnished our presentation about key input cost movement. So if you see the December phos acid price in rupee terms, it is showing INR1,17,000 per tonne. So that is almost equal to $1,175 per tonne -- on the USD terms, but P205 price has reduced by -- reduced to $1,050 per tonne from 1/1/23. So, I think $125, $150 reduction [Foreign Language]. Energy prices are also down. We have shown it at INR60 per [ smq ]. Now it is around -- except urea, urea is a pass-through, so we don't get affected. Except urea, it is around INR50 to INR55 per smq. And benzene, it keeps moving along with the crude.So, there is nothing specific about benzene, but September '22 it was INR96,000 per tonne. It has gone to INR75,000 in December quarter. But now it is steady around that figure, INR75,000 per tonne. And ammonia prices are going down along with the natural prices. So it was around $800, $900 per tonne in Q3. Now it is around $700 to $800 per tonne. But it is showing -- all the inputs are showing reducing trends. So going forward also, they will keep on coming down. So that is what government is thinking that why subsidies may be reduced. But let us see what they will do.
Sir, in that case, then there will be -- there will be a reversal of this -- currently what we are telling, how will that invoicing will then come into play if it happened on a retrospective basis?
No, reversing is on MRP only. MRP is not changed. Only when we raise claim bill for subsidy, [indiscernible] INR48,000 per DAP per tonne, it maybe INR45,000 or maybe INR43,000, whatever the rate is decided. It's not that they are going to do it. But these are all the -- some [ pretty large ] companies.
And on the power and fuel aspect, sir, how are the gas prices and other power and fuel components trending?
Which we are buying and doing the procurement, it is coming down with the gas, but the power that we buy from that utility, there's no costs. It is now getting down. So it is rather sticky or maybe sometimes it increases also. But overall, there'll be some reduction in Q4 in power and fuel costs.
And sir, regarding this raw phosphate prices, what would be the price trends here? I think that is not mentioned in the presentation.
Yes. Because we don't think much of the crop. That is why there is no standard available. So, we buy rock from the RSMML, that is Rajasthan Mines and Minerals only. So, they decide the price in their own way. It is also a state PSU. So, they have certain rules to be followed. So little bit here and there. But rock is also new to phos acid price. So phos acid price is coming down, rock price also should come down and also sulfur prices are also coming down.
So, sir, just to get an outlook on how the coming quarter is shaping -- has shaped up, we are almost 40 days, 45 days -- 40 days into the quarter, the fertilizer is going to remain stable. And for the industrial products, there would be improvement, there would be positive increment in the industrial product segment, this is how things can be summed up as of now?
It will not be so bad as Q3.
Correct, sir. Sir, for the phosphoric acid part, lastly, sir, what are the price trends there, sir? I think, sir, that we are importing, that we are importing.
Yes. So that I said, $1,175 was October, December price in dollar terms. It has gone down to $1,050 from January. So then also $125 reduction has taken place.
Correct. Sir, that translates into the end product prices also or the end product prices margins have remained intact?
No, directly it transfers into end product cost, because the MRP, as I said, we are not reducing MRP. If government does not reduce subsidy, then this whole advantage comes in our pocket.
Right, sir. Sir, in our expansion plan, we have mentioned about this green hydrogen project also?
Correct.
So what are we envisaging here, sir? I think so -- and maintenance, it will come up in '25, '26, sir, that is...
Yes, because it depends on the government policy also. So right now the ammonia is made from the natural gas and natural gas -- most of the natural gas is imported into India. Now it is green hydrogen that natural -- I mean, the ammonia will be made from electrolysis of the water. So if you [Technical Difficulty] from gas, the ammonia will be made from water. So, water will be divided into 2; hydrogen and oxygen. Hydrogen is right now made from natural gas and is further processed for making ammonia. So now hydrogen will be taken from water and then that hydrogen will be further processed to make ammonia.So going forward, India's dependence on natural gas can substantially come down, if we are successful in this green hydrogen project. So, this is a small start. So, our plant also has the technical capability to absorb this green hydrogen immediately as soon as it has produced. So no need for a storage. And we have a lot of wind energy and solar energy as you've been may be knowing. So, this hydrogen is not green if you make from the coal-based power or any project from what power. But it is only called green if it is from renewable sources.So, we have renewable source of power. We have this electrolyzer and then by turning the water, we produce hydrogen and that hydrogen is used for nitrogen, I mean, that ammonia. That is how it is envisaged. So right now electrolyzers are costly. So it is expected that there will be this -- green hydrogen will be little costlier then this grey hydrogen. But over a period of time, just like we have seen in [ coal power ] and solar power with a large scale production and all the cost come down. So going forward, hydrogen will be much cheaper than grey hydrogen. So we are just maybe the first fertilizer company to start this in a 10 megawatt capacity.
What is the CapEx, sir, we have envisaged for this 10 megawatt?
That would be INR100 crores to INR120 crores.
Okay. And lastly, sir, on this phosphoric acid and sulfuric acid project at Sikka, that is having the largest -- longest gestation period. So where are we actually, sir, on this project? I think this would be around -- above INR2,000 crores that you envisaged?
Correct. We originally are focusing on large -- double the capacity of phos acid and sulfuric acid plant at Sikka. But we have now -- after COVID, we have scaled down to half. So now new drawings and everything is being made by the [indiscernible] with the suppliers and all those work is going on. So once we have the engineering drawings, then we will be coming out with the tender to invite participation from the vendors for setting up this plant.
Cost of project, sir, since we have lowered down this.
INR1,500 crores to INR2,000 crores.
Right, sir. And lastly, sir, on this tax expenses benefit part, if you could in brief explain to us exactly how was the calculation being made? And for 9 months, what had been the tax outgo on account of the profits of INR1,234 crores? What exactly have been the net cash outgo on account of tax expenses paid?
Whatever we pay now is only advance tax because.....
Right. Advance tax. Right.
So, this year's computation [Technical Difficulty] we have to file the income tax return that is in the November '23 or October '23. So what we have paid is only advance tax. But just like individuals have now 2 tax regimes, old one and new one. So for other than individuals also this option is given that you don't claim any reduction and then you give [indiscernible] for the new tax rates, which are low.So, we have gone for that from this financial year '22-'23. So whatever higher tax provision was made up to September, tax has been reversed. In our current quarter, we applied new tax rate. So this effect is INR109 crores. Reversal is deferred tax liability and INR10 crores in OCI. So look, our tax liability will be lower, and therefore, the tax payment will also be lower on going-forward basis.
Our tax rate would be 25%?
Yeah. Hardly anything will be allowed as a deduction. So certain adjustments are there income tax versus books of account. So, those will be made and balance, once taxable income is calculated, you have to pay that 25% straight away.
Thank you for all the elaborate answers, sir. And for the presentation part and press release and the volume that are, definitely, sir, they will add value. But what steps can be taken to increase shareholders value, that should be deliberated. The dividend payout ratio, we are now coming to the end quarter of this financial year, how the different payout works out? What steps are taken? So that the interest -- investor interest in such a big organization continues. It is there in the public domain, the type of language sentiment we have for GSFC stock price, even being cash -- having diversified set of chemicals in our portfolio and so many import substitute items, but still the awareness is -- still the understanding in the investing community is it's not promising, sir.So steps should be taken. We should hire the proper IR team to create the right awareness and deploy the agencies that can help us in building and giving the ideas that will create shareholder value. You can look at yourselves, sir. What have the investors gained in investing in GSFC over a period of last 4 years to 5 years and where the other players and the markets have moved. So press release will remain with the businesses, sir, but every company should have an intrinsic value also for which investors are [indiscernible] on the management. So hope these steps will also be deliberated. And all the best to you, sir, and Vishvesh, sir, for future endeavors.
[Operator Instructions] We have our next question from the line of Vikram Kotak from Ace Lansdowne Investments.
[Technical Difficulty]
Mr. Kotak, we are not able to hear you, sir. We'll check his connection. Meanwhile, we'll move on to the next question from Mr. [ Aman K. ] from Aman Investments.
Am I audible, Vishvesh sir?
Yes.
Sir, first of all, congratulations on good set of numbers.
Mr. Aman, you're not very clear, though. Can you use your handset please?
Hello?
Yes, it is clear.
Yes, sure. First of all, congratulations, Vishvesh sir, for a good set of numbers. Yes, we have [ come to your call ]. So just had a couple of questions, sir. First of all, regarding the development of this. As mentioned by the previous annual report that you are developing certain chemicals and some fertilizer segments like Nano Urea, which will be more efficient than the traditional fertilizers bags, which you are providing to farmers and farmer community. So what is the update on that, sir? Are you seeing that potential in these items and also because these are low-cost items and also these will substantially reduce the subsidies which government has to give companies? And are they scalable at the same time? What's your view, sir?
Yes. Our Agri Officer will answer this.
Sir, basically, it is still in a -- we can say that it is still in infancy, this Nano Urea. It is yet to prove it throughout on the farmer field. So yes, government has come up with a big bang, but finally farmer accept -- it's acceptability at farmers' level is yet to be tested. So, we are quite cautious on this project. Right now, yes, we'll be initially trading Nano Urea, taking from IFFCO, which is a manufacturer through our own depots. And we'll have correct this marketing and then we can decide on this. But right now as a product under Indian conditions, it has no auto acceptance at farmers' level.
Okay, sir. And what's your opinion on the cost part of it? Like is it a 30%, 40% reduction in the cost burden for the farmers? Or is there a sustained cost, which [Technical Difficulty].
Basically, it is claimed by the government under the ideal condition. But as I say to you, it has yet to prove its efficiency at the farm level.
Okay. Sir, and also going forward, how we are as in CapEx projects and also we have a huge retained earnings, which have been accumulated over there. Are you planning to capitalize it? Or are we, going forward, taking -- like raising equity from the market? Or how are we seeing the debt structure going forward, sir?
Yes. So, of course, that will be decided by the Board of Directors. But as we said, for our CapEx, obviously we are short of fund [indiscernible] competitive rates. So that is not a question -- that does not help us to provide any CapEx plan. So as far as capitalization directly, indirectly is concerned, as I said, it is prerogative and they will decide at a suitable time.
Okay, sir. And what is our mix of power because our power and fuel creates the most -- yearly [INR1,000 crores] of revenue, which is going in [indiscernible]. So going forward, how will we do like converting into renewables because you have already setup the solar plant of 15 megawatts. Going forward, how are we reducing our dependence on Gujarat Coal? What is your [ thinking ] sir, on this?
So we are still -- there is another solar powered 15 megawatt capacity plant.
Sir, this 15 megawatts is how much -- what is the value of this CapEx, sir?
Yes, that is around INR85 crores.
Okay. INR85 crores project. Okay.
Yes. It reduces our dependence on the utility, stability power.
Sir, how much proportion of this revenues are dependent if this has been installed like 10%, 15% of the requirement? Or is it much more than that?
Our renewable power is 35% to 40% of the total consumption.
And this project has been directly in the CapEx, sir, or is it in the phase still now?
This 15 megawatt project is going on. We already have in tower of 153 megawatt and another 11 megawatt of solar tower is already there. So, we have 153 in solar and another 15 solar is going on.
Okay. Sir, and also in this quarter's financial statements, we have seen our finance costs also coming up. Are we -- I mean because, as mentioned, we have already -- and just a suggestion, if we use our retained earnings as well, but have you taken any -- what is the average cost of borrowing, sir, which you are handling?
It is around 5%.
Around 5%. Mostly government subsidized.
No. What we borrow is also because [indiscernible] we don't want to break our deposit for some payments. So, we also have borrowing and we also have deposits. So both things working another. [Indiscernible] income is much more than interest cost.
Understand. Sir, and 2 things here. Our inventory has also come up substantially. And second, our government subsidy reducing also has been accumulated? Is it in the same -- just to rephrase it, our government subsidiaries are also increasing, accumulating. What is your view about it, sir? Are the realizations -- when do we expect it to be realized?
So normally, to meet the fiscal deficit, government provides only less of it than what is actually required. So there is less budget provided maybe in February, March. So they don't have budget. So they don't get the subsidy. But on 1st April, the new budget, funds are available. So immediately in the 1st week of April this year, there will be [ part relief]. So it is matter of some months when last subsidies are accumulated.
As and when the funds come, sir, this will be funded as well. Sir, one more thing. In sulfur, what is -- sulfur is also coming up as fertilizer. If I'm not wrong, sir, 10% to 15% of the sulfur -- fertilizer that -- sorry, fertilizer composed of sulfur and the major part is ammonium, which is there in fertilizers industry. So this sulfur is also picking up. Do you feel, sir, your proportion will be changing in future? Or the proportion will be remaining the same and the demand for sulfur is being attractive somewhere else apart from fertilizer segment?
So, which products you are saying?
This one which we produced, the fertilizer bank, what would be -- so if it's the two to three, the 2/3 grades of fertilizers, which we produced.
[Foreign Language] And we are not able to understand.
Sorry. If you are talking about what can be the scenario of fertilizers moving forward?
Yes. Mostly on the scenarios of fertilizers moving forward in terms of sulfur, sir?
Sulfur, yes. Sulfur is emerging as a fourth major nutrient in Indian soil. And fortunately, we are one of the largest producer of sulfur, this ingredient. So -- and Government of India is also pushing for more usage of sulfur. Mostly knowing that apart from nitrogen, phosphorus and potash, government is also giving subsidy for the sulfur. So yes, replenishment of sulfur deficiency has now become inevitable and that is definitely a benefit to us. It is benefitting to us.
Sir, are we net exporter of sulfur or net importer of sulfur, sir?
Sulfur as an element?
Yes, as an element.
We are consumer. Country as a whole, we are importer.
We are an importer.
Yes.
Okay. We have a dependence from sulfur. Sir, and also -- in the sulfur which is used, is used in a raw format or they have been converted in liquid format and then used in the fertilizers?
Yes. See, form, it is sulfuric acid.
Sulfuric acid.
Yes.
So it is used in [indiscernible]. Sir, finally one last question. As we have seen a [ rebel ], it has been a very -- what have you been expecting, sir? Because I think the cost pressures have reduced a bit and the government's trajectory for the subsidies has likely [indiscernible] out. It's slowly being [ rotating ]. So what do you feel, the cost pressures will even soon further, or we are expecting a reversal of costs to be coming in future?
If you are talking about...
The cost of ammonia, the cost of other elements, sir, which....
You must have seen that after September 22, there is a downward trend. Still, it has continued in Q4. So ammonia has gone down. It has touched almost $900. Now it is below $800. It is around $750. Phosphoric acid, it was $1,175. Now it is $1,050. Similarly, prices of sulfur are also going down. So all across, it is a downward trend for all the group of raw materials. And similar trend is also there on the finished fertilizers, which are being imported.
Okay. Sir, and just one final question. Our major supply goes to MSP side, or do we do private supplies also, sir?
Yes. MSP is applicable on 6 or 7 identified crops. And government is procuring at that rate all across the state. So it is -- yes, the rise, all the time, it is in the range of 6% to 8%, which definitely benefit to the farmer.
Okay. And what will our proportion be of sales, sir? Like what is government and private? Is there any private player [Technical Difficulty]? What is our proportion of sales, sir, to just government and then private? Is it just 40-50, 40-60 or is it sales proportion? Or majorly goes through government only?
Sorry, can you repeat?
Yes, sir. Sir, I'm asking of our total sales for the quarter or for the year as well, so is there any proportion of our sales, like certain 50% goes to government and then the government has a price limit on it? Or is it -- or we sell it to other players, we sell the large substance to other players and then the other players makes their own manufacturing of fertilizer and sell it across again to governments? Is it -- we do as an intermediary business also, or is it direct to consumer, direct to farmers or governments?
It is directly going to farmer. It is directly going to farmer because government is all checked. And this subsidy -- after DBT, the subsidy is made admissible to the company only when farmer buys on the cost machine. So, obviously, there is no drain in the facilities going to the farmer.
Okay. And sir, also, have you applied for more carbon credits? Or do we have -- because it's a very manufacturing expensive business to produce fertilizer and also we use other non-renewable energies also? Do we think the carbon credit plays, which government has brought [Foreign Language] which government has been bringing for past 3 years, does it have a more regulatory implication on our business? Or is it more relaxed or more ease of doing business going forward?
We do take care of the environmental issues in all our plants, and they are under the clearances of the environmental policy and control. We do not foresee anything concern in regard to the environmental issues.
Okay. And last final question, sir. Is there any arbitration award, which is yet to be received in our favor? Or if simply, if you can just quantify on it?
Arbitration, what?
Arbitration, any legal proceedings or cases against such which award has been issued, any arbitration cases?
No.
We have our last question from the line of S. Ramesh from Nirmal Bang Equities.
Congratulations on your good results. So, I have 3 broad questions. One is in terms of the segment numbers, can you share the EBITDA per tonne for phosphatic and the same number for urea in terms of EBITDA per tonne? The second question is, when do you see the chemicals business turning around because that's where I think you are not able to perform because fertilizer business is delivering growth.And third question is in terms of the hydrolyzers -- electrolyzer project. Is it the JV with GNFC? And what is the capital cost for the 5-megawatt electrolyzer you are planning to set up? And have you any indication in terms of, at what price you will be producing hydrogen? So if you can answer these 3 questions, that will be great.
Regarding the first question, that EBITDA, I'd say that, that's within the range of -- [ inclusive ], it's in the range of 10%. We are not calculating with respect to product wise. But on overall fertilizer segment, our segment is in the range of 10%.
10% margin on sales. Okay. But in urea, are you getting positive contribution because in GNFC, they have mentioned urea is a bit negative in third quarter? Is there any challenges in the urea margins?
Urea, yes, it's always been a challenge because what the subsidy that has been -- the concession prices has been given by the government is with respect to all the variable costs, which they released towards. With respect to fixed costs, they have maintained it from the very old rate about -- I think it was 2012. So that fixed cost part, which most of the company do not get recovered and many -- all the industrial players requested them to look into this part so that -- because they can also -- so something can be also taken care which is for the fixed cost part. So, there will be margin issues, but not that much.
So, we can move to the question on chemicals and the electrolyzer.
What's the chemical one?
So if you see this year, this quarter and this year, basically driven by the improved performance of fertilizers, whereas chemicals has been a bit of a drag. So when do you see the chemical business turning around in terms of adding to your profit growth and where is the challenge? And the next question was on the 5-megawatt electrolyzer. Because [ GNFC ] also talks about similar project. If you can give us an indication of what is the kind of cost per tonne of hydrogen you expect and what is the capital cost for that 5-megawatt electrolyzer?
With regard to your capital for the IT industrial products, still there's a -- in Q4, I'll say, there's an issue with respect to the realization price because it's already been suppressed a lot, but we see some improvement there from the next year onwards. Q4 will still be under pressure with respect to realization. And over and above this capital benefit, which is increasing, so that has an impact on profitability. That has an impact on the realization rate and the input costs. So Q4, yes, definitely, industrial products will be under little pressure. But we are looking from the perspective of how we can maintain and adjust it from the domestic to export market like we have done in Q3. So on the same basis, we'll try to do our product mix in such a fashion so that we get in our materialization, wherever we have our market in abroad.
Understood. And if you can give your thoughts on the electrolyzer?
Electrolyzer cost, it's in a very early stage to comment on what the cost will be.
Can you at least share the capital cost because that's an information which is totally lacking, because everybody's talked about electrolyzer, but there's no visibility on the capital cost?
It will be roughly around INR100 crores, I believe.
INR100 crores of 5 megawatts. That's useful. And lastly, if I can just squeeze in a question, the phosphoric acid and sulfuric acid expansion, what is the CapEx required? And to what extent, it is reducing requirement of outsourced sulfuric acid and phosphoric acid for your future growth?
Sir, it will be around INR1,500 crores to INR2,000 crores for PA and SA expansion. We have scaled down some of the requirements. So earlier, it was around INR3,000 crores. Now it is backed at around INR2,000 crores.
And to what extent, it has reduced your requirement of imported phos acid and sulfuric acid?
So it will be around 2 lakhs metric tonnes annum phos acid plant. So, we will have that in-house phos acid available. That can make 4 lakh tonnes of DAP.
As there are no further questions, I would now like to hand the conference over to Mr. Nanavaty for closing comments. Over to you, sir.
Yes. Thank you. So as we deliberated, the growth story is intact. Some segments performance here and there. It's a part of the life, so that will keep on happening. But the company will steadily grow both in terms of top line and bottom line. And we continue projects and all under the Atmanirbhar Bharat and generating employment, which is the dire need of the country. So thank you.
Thank you. On behalf of Gujarat State Fertilizers & Chemicals Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.