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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '23 Earnings Conference Call of Chambal Fertilisers and Chemicals Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Rishab Barar from CDR India. Thank you, and over to you, sir.
Thank you. Good day, everyone. Thank you for joining us on the Chambal Fertilisers and Chemicals Q2 and H1 FY '23 earnings call. We have with us today Mr. Gaurav Mathur, Managing Director; Mr. Abhay Baijal, CFO; Mr. Rajveer Singh, Vice President, Legal and Company Secretary; Mr. Ashish Srivastava, Vice President, Sales and Marketing; Mr. Anand Agrawal, Vice President, Finance; and Mr. Anuj Jain, Assistant Vice President, Finance.
Before we get started, I would like to point out that some statements made or discussed in the conference call today may be forward-looking in nature and must be viewed in conjunction with the risks the company faces. Chambal Fertilisers and Chemicals does not undertake to update them. The statement in this regard is available for reference in the presentation. We will begin the call with opening remarks from Mr. Mathur.
I would now like to invite Mr. Mathur to share his views. Over to you, sir.
Thank you, Rishab. Good day to everybody, and a warm welcome to all of you participating in this call. I'm sure all of you have had a chance to go through our presentation on the financial results. We had a challenging first half of the current financial year, which faced a lot of volatility in product prices with a rapid increase in interest rates and depreciation of Indian rupee against the U.S. dollar. All these factors have adversely impacted the financial performance of the company during the quarter and half year ended September 30, '22.
On the positive side, we have operated our urea plants well and have achieved good efficiency improvements as well as significantly increased our crop protection chemicals and specialty nutrients business. We have substantially increased volumes of bulk fertilisers, especially NPK Fertilisers, which has added to the revenue of the company. As mentioned in the presentation, we have to take a onetime hit in the P&K business on account of substantial increase in prices of imported fertiliser as well as movement in USD-INR exchange rate and unanticipated losses on account of lower subsidy and DAP stock carried forward from last year.
If we set this aside, the profit for the quarter ended September 30 is comparable with the corresponding quarter of the previous year. The elevated prices of P&K Fertilisers have dampened demand in the international market, which has had a softening effect on the prices of these fertilisers. And as of now, the prices remains stable. The import price of DAP has declined by more than 20% from the peak levels during the second quarter of the current financial year. And there was a declining trend in the prices of NPK Fertilisers also.
As regard subsidy payments are delayed, resulting in higher working capital borrowings, which is one of the key reasons for increasing finance costs apart from the higher interest rates. However, there is an improvement in the subsidy payments after there was an additional amount of more than INR 80,000 crores of additional subsidy by the Government of India, and we are hopeful that the substantial portion of subsidy outstanding will be released by the government.
We are very happy with the progress of our seed to harvest program. It has significantly enhanced our connect with the farmers across our core markets and helped us in achieving better performance in crop protection chemicals and specialty nutrients apart from increased volumes of non-urea fertilisers.
Our endeavor to enter new geographies is also showing good results, having a few very encouraging responses. The Board has approved the revised capacity and capital costs of our technical ammonium nitrate project. The increased cost is partly attributed to increase in capacity and partly to increase in capital expenditure due to factors such as the geopolitical situation, depreciation of rupee and elevated interest rates.
The robust demand and high prices of the product give us a lot of confidence about the benefits of this project to the company, and we remain very positive about this investment, which we plan to complete over the next 24 months or so. So overall, we believe that the worst is behind us, and that is the key message I would like to give.
And with that, we would be happy to take your questions. Thank you.
[Operator Instructions] The first question is from the line of Prashant Biyani from Elara Capital.
Sir, apart from this cost escalation in CapEx, there also -- there has also been around a year's delay in commercialization of the plant. What would be the reason for that, sir?
Well, if you're talking about the ammonium nitrate plant, the delay is not exactly a year. It is more in the range of 6 months. And the reason is that when we started the project, thereafter we had entire Russian conflict situation emerged. So the vendor whom we are working with also had to take that into account, that's one.
Second is, we were also examining whether we could further increase the capacity based on increased availability of raw materials. And looking at both of those things, we felt that it is better to approach the project with a revised number than necessarily go with what we had done earlier.
Sir, this point on geopolitical situation, most of the tech providers are either from Germany, Italy or U.S. So how could this geopolitical situation delay the commercialization?
Well, they need to take into account various aspects like their cost of production, availability of their raw materials for making the equipment, et cetera. For example, steel, gas cost and availability, power. So there were currency fluctuations that are happening. So there are a number of factors, which anybody who is a supplier of equipment is going to carry out a project will need to consider.
Sure. And sir, for now that we are expanding into 2,40,000, we would be needing around 1,06,000 tonnes of ammonia. So how much ammonia are we currently generating as surplus? And it's -- it is not to the extent of 1,05,000, then by when are we going to achieve the 1,05,000, 1,06,000 number?
So currently, we are generating about 85% to 90% of the ammonia required, and we have very clear plans in place to generate the balance quantity also through improvement initiatives, which would not only generate this extra ammonia, but also improve the efficiency of our ammonia plant.
Sir, any time lines by when we can achieve this 1,06,000 number, that may also benefit us by way of surplus sale. So if any time line is there, it will be helpful if you can share it.
This would happen well within the time line for the project, and I would expect approximately within 24 months.
Till then we should have between 95,000 tonnes of surplus ammonia?
Yes. I mean, just bear in mind that the surplus ammonia generation also depends on a number of other factors like the quality of gas and so on and so forth. But yes, on an average, we should have somewhere in the range of 90,000 tonnes of ammonia per annum.
Sir, we had -- we would have also budgeted certain IRR while deciding on this INR 1,200 crore of investment earlier that we had finalized. With this additional 40% increase in investment, won't our returns on investment can be impacted?
Actually, that's a very interesting thing on the one hand while we've had an increase in our capital cost, but there are positive factors, which have also contributed, which have essentially kept our IRR in the same range as it was earlier, which is a healthy double-digit number. And some of these factors are that we obviously increased the capacity of the plant.
The other aspect is that, as we look ahead, we see that gas prices will also remain -- well, not as high as they are right now possibly, but they will certainly not go back to the $10, $11, which existed earlier. So we expect gas prices to remain probably $15 or higher, which also then contributes to the profitability.
So there are a number of positive factors also that have come into play. I would also add that we are the most efficient manufacturer of ammonia as of entire complex in the country. So -- and as we are implementing further energy efficiency projects, the efficiency of our ammonia production and cost is becoming better. We would also have possibly a competitive advantage against other players, who may still need to import ammonia.
Mr. Biyani, may we request that you return to the question queue for follow-up questions. [Operator Instructions] The next question is from the line of Shalini Vasanta from DSP Mutual Fund.
This is Vivek Ramakrishnan. My question is on the subsidy debtors. Even if you take into account the INR 1,800 crores that you've got, it's still double -- almost a double year-on-year. So is there any rethink in terms of the government payments because they were very prone for the last couple of years? And do you see any such delays going forward?
So what has happened is that the government had provided an initial budgetary estimate of the subsidy. But if you see what has been taken in by the Honorable Finance Minister or the Honorable Minister of Chemicals and Fertilisers over the last 3, 4 months that the total outlay that they were talking of for the full year was more in the range of INR 2,25,000 crores, INR 2,50,000 crores. And this is the number I'm saying, which was quoted by the honorable ministers.
Now what has happened is that because of the rapid escalation of gas prices and prices of imported fertiliser, the original subsidy allocation got consumed rather quickly. And there was a very small gap that came up for about 4 to 6 weeks before the department managed to get another more than INR 80,000 crores of subsidy allocated and the disbursement of which has started rapidly. So looking at that, our view is that the government appears to be very sort of positive in that sense to make an appropriate subsidy allocation to cover the entire requirement of the industry.
Sir, then would it be fair to say that with the current allocation by the government by March, everything will get regulated if the prices have been where they are?
See, like I said, the government is talking of a total subsidy outlay of INR 2,25,000 crores or INR 2,50,000 crores. So right now, they've got an immediate INR 80,000 crores, but we expect that in the winter session of the budget, they may probably take approval for the entire amount required for this financial year, as they have been doing over the last 2 years.
Okay, sir. That was very useful. Good luck.
The next question is from the line of Pratik Tholiya from Systematix.
My first question is basically for this INR 230-odd crores of onetime hit that you have taken. Against that, what is the volumes that were -- the opening volumes that you've sold for which you have taken this hit?
Pratik, your line is not very clear. You're asking about the volumes which were -- which we had at opening in April or...
Yes. exactly. So whatever -- what is the volume that you had sold against which this INR 230-odd crores of hit we have taken?
See, we had -- on the 1st of April, we had an opening stock of DAP of about 3.1 lakh metric tonnes, which the government paid a lower subsidy on, if that is your question.
Okay. So sir, is this understanding correct that for the 3 lakh tonnes of inventories that you were holding, you've booked a subsidy at INR 50,000 per tonne in Q1. But since you did not get that and you've got -- you must have got somewhere around 32,000, 33,000 tonnes subsidy. So that is why you -- really was entering in this quarter?
Yes. So what the government had done is they applied the INR 33,000 like you likely say on this 3.1, but then they had added INR 8,000 for that period for the entire 5 lakh tonnes of the October to March period. So it was an involved calculation, which was carried out, which what the net result was the loss that we mentioned.
Okay. Understood. And sir, just one smaller question on the current gas prices, what is the current prices for us?
Current gas prices, the fuel price is approximately $26...
Around $28 on an MCV.
So it's $28 on an MCV basis.
Per annum BTU.
Per annum BTU.
Mr. Tholiya may we request that you return to the question queue for your follow-up questions. We'll take the next question from the line of Sanjay Agarwal from [indiscernible] Bank Equities.
Sir, how do you see the volume growth in fertiliser and crop protection chemicals in rabi in third quarter and fourth quarter?
In terms of bulk fertilisers, the overall demand of the country right now is relatively stable. So we will end up with a share of the total which has been in the past for our bulk fertiliser business. As regards to the crop protection business, obviously, as you see from the results, we have seen very strong growth. And we hope to continue with that.
However, you must bear in mind that the quantity of crop protection chemicals consumed in the second half of the year is not similar to what is in the first half of the year. So the numbers are not necessarily extrapolated.
Okay. And sir, my second question would be was the loss on imported fertiliser will be stocking up at March prices as per the government directive? Or was it because like sales of DAP and NPK demand pick up as we expected?
Are you talking about building stock for March '23?
Yes, sir.
So well...
I'm talking about the losses that we have incurred on like importing fertilisers.
I'm sorry, I'm not very clear with the question. The line has a bit...
Hello? Can you hear me now?
Yes. Yes, that is much better.
Were the loss on imported fertilisers due to stocking up at -- was it due to stocking up at March price as per the government directive? or was it because like because of the volumes and sales drop in DAP and NPK?
So like we mentioned in my opening remarks as well as in the investor presentation also, it was a combination of the opening stock on which a lower subsidy was paid. And thereafter, while the full subsidy was paid, there was -- the procurement price was high. The dollar has appreciated versus the rupee, and we were not able to pass on that price increase to the market because of the overall MRP pricing situation that existed.
Next question is from the line of Tarang Agrawal from Old Bridge Capital.
Just a quick question on crop protection, right? I think the business has done phenomenally, even though it's on a low base, but nonetheless, INR 500 crores of revenue odd in H1. If you could just throw some light in terms of what's happening here? And do you anticipate this kind of traction even going forward?
And if so, would it be on account of you being underpenetrated right -- I mean, I'm just -- I'm curious in terms of understanding what's driving this business in the -- at the speed at which it is?
Okay. Thank you. Thank you, Tarang. I'll request Ashish, our Head of Sales and Marketing, to maybe provide you with some insights.
Okay. Thank you. Good afternoon, Tarang. It is Ashish here. You -- yes, you rightly said that the growth numbers look higher because of the lower base. But as we have mentioned earlier also, this year that -- as Gaurav also mentioned in his opening remarks, the seed to harvest project, which we carried out in some selected geographies. And there was a concentrated approach upon building up a proper product portfolio, so that both these 2 things put together are giving good results. So the crop protection portfolio in the existing geographies takes care of every single crop and every single test lead and framework. So that is helping us in growing in that segment.
And I mean, how do you -- what's your outlook for this business? I mean, without getting into specific numbers, do you believe -- I mean, in terms of -- purely in terms of completeness of coverage, is there scope for you to increase coverage? Or there isn't any scope, you practically maybe covered the anticipated area and from your own, you'll probably see growth on -- I mean, same stores or same distributors, same channel growth? Or there is a scope to expand your channel further?
Yes, actually, there is -- we absolutely see scope to expand our width and depth of the channel in our core geographies as well as the large part of these results do not include some of the new geographies, which had come in because those were -- by the time we got our registrations, et cetera, we've not had a very significant sale over there. But we expect that to start picking up as we progress. So for sure, there is a lot more that we have to go ahead with -- both with -- both in our existing core earlier geographies more in the North as well as in the South and Western states.
Okay. And just a question on the interest cost. So there are 3 elements to it, right? Quantum of debt, cost of debt and the duration for which the working capital that must have been taken. I think you've explained the duration piece in your earlier comments. So just wanted to understand, I mean, the bump on a year-on-year basis has been significant. So between these 3 elements, where would you probably attribute the majority of the bump?
I'll ask Anuj Jain, our Assistant Vice President, Finance, to respond to you.
So I think majorly because of the average -- I think majorly because of the average higher borrowings, though the rate of interest have also increased, but that is not having a major effect. The major effect is because of the higher borrowings by about INR 3,000 crores.
Okay. And as the allocation situation improves, we should probably see this relaxing as we move forward?
Yes, that is the -- that is what we foresee.
Mr. Agrawal, may we request that you return to the question queue for follow-up questions. We'll take the next question from the line of Arjun Khanna from Kotak Mahindra Asset Management. .
My first one is in terms of the subsidy for P&K. Just wanted to understand because we were of the understanding that the subsidy is payable on the point of sale on the POS machine. You seem to be indicating in terms of the onetime loss that government is actually looking at in terms of imports and stock holding. If you could help us understand this?
Yes, you're absolutely right. The NBS policy is applicable and the subsidies you have paid on the basis of materials going out of the point of sale. However, last year, the government had -- in order to obtain material, DAP especially, for the country, the government had said that even though the subsidy was less, please go ahead and produce material for the manufacturers and to the importers to import material, and we will make sure that there is no profit, no loss.
Unfortunately, for -- what has happened is when the calculations have been done, it has resulted in a loss for almost -- for us, and I think quite a lot of the industry. So yes, it was a move away from the NBS policy where we believe that a special approval was taken from the cabinet to carry out -- carry this out. Abhay wants to add something.
See, jocularly, I'll just say, sometimes the rope to hell is paved with good intention. The intentions were good, but the way the calculations were done, they were not to be desired. So this is a discussion, which is ongoing with the government. I don't know how soon or quickly we'll have a resolution, but it is not a dead matter as yet.
So we continue to pursue this because the commitment that was given to us was that it will be on a no-loss basis, so we continue to progress -- so we continue to pursue this with the department.
Sure. That well explained it. Sir, the first part of the onetime loss, you talked about a substantial increase in import -- imported fertilisers and adverse movement. Obviously, the MRP is what it is in the market, given that there are a number of players.
Given that we are in a declining phos acid environment, I just wanted your view, how do we look at this -- that trading business given that incrementally prices are falling and potentially, we could again take a hit in the future if stocks aren't liquidated as soon as they come in, given that the trajectory of that globally is on the way down?
So based on the declining trend of the prices and the contracts that we've made, we do not expect to make losses in the balance of the financial year as it stands today. However, of course, it is all subject to the subsidies that the government declared from the 1st of October. Based on the discussions of the industry with the government, we -- the industry does not anticipate any significant reduction in the subsidy. So we expect it to remain around the mark where it is today, maybe slight reduction or not, we don't know for sure.
So -- and then, of course, on the pricing part, there is an informal price cap that remains is to make sure that fertiliser is available to the farmers at an affordable price. And especially given what's happened on the monsoon front, et cetera, there is a lot of optimism on the rabi crop going forward.
Sure. Very helpful, sir. If I could just add -- ask one last question, in terms of the ammonium nitrate project, given that there is a project cost escalation, could you help us in terms of how do you all look at the payback period, the breakeven period given that the output increase is not in terms of tonnage is not commensurate with increase in the costing? So how do you all look at it in terms of breakeven and payback periods?
Yes. So like I mentioned earlier, our IRR breakeven, payback, return on capital employed, all those numbers are very much comparable. Maybe in some cases, better than our when we had looked at the original project. And I don't want to obviously get into the specifics of that.
And as I mentioned those are driven not just by the increase in capacity, but what is happening on the gas price. And that -- if the gas price goes higher, there's opportunity for better absolute margins, that's one.
The second thing which we have not as we have factored in into our numbers, but which is a very positive development, which has happened only in the third week of October is that Rajasthan has come out with the Rajasthan investment policy, which provides a substantial capital subsidy payable over 10 years on the total cost of the project without the duties and taxes, of course. So that in itself will further boost the financials of the project as we go ahead.
Mr. Khanna, may we request that you return to the question queue for follow-up questions. The next question is from the line of Vidit Shah from IIFL Securities.
Just to take the point on the falling prices forward, what would be -- like you said you do not expect a meaningful reduction in subsidies in rabi. But let's say, if that were to happen and as subsidies go down with phos acid prices to the extent of 15% to 20% from here, what would be the impact would the current inventories that you have been -- still fetch the INR 50,000 of DAP subsidy that is set last year similar to what the government policy was in kharif? Or then would we be facing some inventory losses in the second quarter?
Vidit, I mean, that's a very hypothetical question, I'm afraid, because we don't know what number the government will come out with from the 1st of October. So there's no way I can give any number or any sense on that, honestly. Once the subsidy is announced, then we will probably have an idea.
But should there be a reduction in subsidy? Would there be inventory losses? Or that -- would the losses not be very meaningful?
There would be losses if there is a reduction in subsidy. It will depend on what is the extent of the reduction. And on the other hand, because what we will sell now -- from now onwards was procured at a lower price and the market has started to -- the prices have started to come down, there is a positive side to that.
Got it. Also in terms of the P&K Fertilisers, we've seen a healthy shift towards more NPKs being sold this quarter versus what we've seen in the past. So is there like a change in strategy where we are moving more towards NPK versus DAP? Or it was just a one-off season?
This is very much part of our strategy. So when we have expanded into the 5 states early part of this year, late last year, Maharashtra, West Bengal, Andhra Pradesh, Telangana and Gujarat, those states sell a lot of NPK also. If you look at how the DAP and NPK market is split, the DAP market is predominantly in the Northern states. When you talk of Punjab, Haryana, MP, Rajasthan, UP, these are the predominant markets of DAP, which would account for 60% to 70% of the total DAP in the country.
The NPK market is a little bit of a reverse. The Southern states, Andhra, Telangana, Maharashtra, they use a lot of -- a lot more of NPK. So as part of our strategy, we are getting a lot more into NPK. We're looking the possibility to introduce NPK in our existing territories.
Okay. So in the Northern states as well.
Yes, please go ahead.
Sorry, I was asking our -- the margins that we make on trading NPK is significantly different than the DAP margins?
Well, the margins, the DAP and NPK prices because quite a few of the raw materials and inputs are common. So in a sense, the differentials on the prices, et cetera, move in a similar manner. Now of course, there was the informal price gap, which deferred between DAP and the NPK, which then impacts the margin.
And we are at a stage where we are also looking at making sure that we penetrate these markets, right? So as an entry strategy, while, of course, we want to make good margins, but we are also okay if we make reasonable margins.
Mr. Shah, may we request that you return to the question queue for follow-up questions. The next question is from the line of Rohan Gupta from Nuvama.
Sir, a couple of questions, sir. First is on some clarifications on this unexpected losses, which you have beared on the complex fertilisers. Sir, time to time, we have seen that in a trading businesses, we have occurred this kind of losses because of the change in government policies or probably not the right calculation of the subsidy. So I think that has been quite disturbing historically as well.
Sir, in this case, I mean, is it surprising to see that the government has announced a subsidy rate in the month of April itself and DAP and NPK are still open in terms of the no price control from the government, and we can take the sufficient price increase if we are seeing that the currency depreciation is impacting our imported cost? Just wanted to understand that why the industry not have reacted and sold the DAP, it's still under the old price rate at INR 1,200 may be per bag, while seeing the depreciation -- currency depreciation will impact the imported costs? So just wanted to understand what the thought process of the industry while the markets are open to increase the prices in the market?
So I think the key focus of the government and to an extent supported by the industry is to ensure that fertiliser is available to the farmers at an affordable price, as you could understand if the fertiliser price to farm gate price of fertiliser goes up very high, that lead to increase in its production cost and then MSP and food inflation, many things come into play. So that's one aspect of it.
The second is that there was and continues to be an informal cap on the MRP in the market. In fact, the government had and -- has in the past said to the entire industry that they will take into account the cost on the prices and give the industry a reasonable return through the subsidy.
So that is what the industry is taking up with the government that please look at a reasonable return as we kept -- we supplied the material, there is an informal cap on MRP. And there was a delta, therefore, on the cost flow through the MRP and the realization. So that is what we are as an industry pursuing with the government.
Okay. Sir, second question is on our TAN plant. Sir, I understand that we had a surplus ammonia and that's why the decision was taking to put a TAN plant to have a better utilization of ammonia. We had, I think, some 80,000 to 90,000 tonnes of surplus ammonia and we decided to 2.2 lakh tonne of TAN plant. So there's some increase in capacity of proposed TAN plant, are we also going to retrofit our ammonia plants and will have a surplus ammonia availability? That is number one.
And second, sir, TAN has been a commodity and with realizations of almost INR 20,000 to INR 25,000 per tonne, with the margin is in -- at not more than INR 7,000 to INR 8,000 on a sustainable margin on an average basis. Are we looking at this project? And in the current realization and -- which may be much higher than what the average realization would have been of TAN historically? And that were -- I mean, though I understand and respect that you're not willing to share the IR calculations and the numbers there. But are we chasing the current market prices of TAN, which may impact significantly when the market normalizes as ammonia prices normalizes globally and the realization will fall into the trajectory of again, INR 20,000 to INR 25,000 per tonne, margins INR 5,000 per tonne that can prolong our investment in TAN because you already increased the CapEx from INR 53,000 per tonne to INR 68,500 per tonne of TAN capacity? There's a quite significant increase in capital cost also and may not be remunerative if the TAN realizations fall in average. So just your thought process on that, sir.
Thank you for the very elaborate analysis, Rohan. Two questions you asked. One is on ammonia. So yes, we will be able to increase, like I mentioned earlier, our ammonia production. Now this is a consequence of energy improvement projects that we will do on a grade of key equipment that we will do, which are actually on a stand-alone basis justifiable on their own with a reasonably good payback. And in addition, we produce extra ammonia, which has led to the increasing capacity. So there's a double benefit to us on how we get this extra ammonia, one.
Second, as regards your question on calculation of margins and prices, well, we can assure you that we don't look at just the current numbers. When we do the projections over a 10-year period, we take into consideration future price of gas, future price of ammonia, demand/supply, all those parameters, which are essential and then of certain margin we build on potential aspects like when we enter this market, we may have -- we may not be necessarily able to operate our plants at full capacity in the first year. So we do then look at how do we build a reasonable assumption and then lead the projects on that basis, as you can well imagine. And I think Abhay wants to add something.
Rohan, If you do a comparable cost analysis for competitors, we are not very far away from them. I will not name the company where they are putting up for 3,76,000 tonnes, they are putting up for INR 2,200 crores. So they are not very far out, number one.
Number two, we will appreciate that we have a combined plant for urea and ammonia and many overheads and costs that share to our cost is definitely better.
Thirdly, our ammonia itself is also a very cheaper -- I mean it is because of a more efficient process. So definitely, our cost per tonne of ammonia itself is lower than many others, as Mr. Mathur said that it is one of the most efficient complexes for ammonia production in the country today. So if you take all of that into account, we have a significant advantage in the margin.
And number three, I think Mr. Mathur mentioned in passing that there is some substantial relief through the Rajasthan investment promotion scheme, which will reduce the overall costs. So all taken together, I think it becomes a very fine project to do.
Mr. Gupta, may we request that you return to the question queue for follow-up questions. The next question is from the line of Ranjit from IIFL Securities.
On this policy front, the experience that we had in the first half, whether it is likely to impact our strategy for the next year, at least on the trading of DAP front? Or it's like [indiscernible], sir?
Are you talking about the NBS policy impact ?
Right.
So look, I think it is very early to say anything because there is so much of uncertainty in the global situation and what is happening on the policy front, there is a very regular interaction that we and the industry have with the government. So I don't think anyone, including me, can sort of give any direction as to what will happen next year.
No sir. My question was largely on the approach that we had taken so far that we have been doing the trading in DAP and NPK. At the start of the year, we would have been assured that there would be a subsidy on -- there has been a bit of a shortfall on that front. Such kind of an approach, whether it is likely to change the way we do operating business or we will take this as a one-off and will continue?
Yes. So we will obviously now look for a lot more things on paper and then take our decisions accordingly. So the portfolio -- yes. So the -- so portfolio diversification is also one of the things that we are looking at in terms of if you see the NPK business. And -- but broadly speaking, in terms of the strategy on trading, we will very closely look at what the government is doing and putting out and writing it with regard to their policies and then move on it accordingly.
And these are things, which have been happening in the past also to an extent that you have to wait till the new NBS policy comes out to make a decision on how much of opening stock we want to carry into the next year and so on and so forth, which will continue to happen. These -- last year and this year have been exceptionally volatile. So we can't take them as representative of what's going to happen in the future.
We have to keep that in mind that these are years where nobody in the entire industry, even those who spend decades in the industry, could actually predict what's going to happen, not only in India, but globally.
Yes. Could you share the volume split between the Gadepan-III and I and II, if that's possible?
Sorry, I couldn't -- we couldn't hear your question.
Volume split between the Gadepan-III plant and the I and II combine?
You're not audible at all. Line is not audible.
Yes. Can you hear me now? Hello?
No. We cannot hear you.
Mr. Ranjit, may we request that you return to the question queue for follow-up questions.
Actually I think we are not able to hear you also. There is some problem with the line.
Sir, we'll reconnect you line, sir.
Please do reconnect because we can hardly hear you.
Sure, sir. Ladies and gentlemen, request you all to please stay connected while we reconnect the management line. Thank you.
Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. We'll take the next question from the line of Vidit Shah from IIFL Securities.
Just wanted the split of the volume breakdown between Gadepan-III and I and II?
For the quarter, Gadepan-I and II is 5.4 lakh tonnes production and Gadepan-III is 3.43 lakh tonnes. Total 8.82 lakh tonnes production for the quarter.
Okay. Thank you. And I think the -- there's like a news that the government has decreased DAP subsidies roughly INR 2,000 for the rabi season, and NPK, not much has changed. So any comment that you would like to make for this sort of revision?
Actually, we haven't seen the -- because we are in the call, we haven't seen the subsidy numbers. So I think we're only able to comment once we see the numbers.
The next question is from the line of Resham Jain from DSP Investment Managers.
So my question is on the DAP, NPK business. And I think I had asked this question in the past also. Given so much of uncertainty related to this business, and we have issues in the past also, there are good cases also which we have seen. But generally, over a cycle, this business seems to be quite unpredictable. And I think in FY '20, you lost market share as well.
So from the thought process perspective, how would you take this business going forward? Will it remain like a trading business only because then a lot of levers, which other manufacturing companies have, you don't have that kind of levers. So how should you be thinking about this business?
So I'm not sure. I agree with you that this business is uncertain. Actually, the uncertainty, if you looked at barring last year and this year, which was a very, very different situation in the world, starting off with the demand/supply becoming unbalanced last year to the Russian conflict this year. If you take out this 1.5-year period that has elapsed, it's been a pretty steady business. So we have no doubt about that at all. It's not -- and the volatility is only just because of what's happening now.
So will this business remain like a trading business only? Or will you ever think about doing some backward integration to at least have kind of some security in terms of margin levers at least on the backward integration side?
So look, we keep examining it. But at the end of the day, if you have to have any backward integration, i.e., manufacturing, et cetera, then we need to be able to have a business case for it. So for example, if the government comes out with the PLI scheme, then we would be very much interested. But as of now, it looks unlikely that we could get acceptable returns on an investment in manufacturing in this area.
And just to give you a sense, 55% to 60% of DAP is imported. And that is not going to change anytime soon because none of the manufacturers have the capacity to increase that substantially. And if they increase that, then NPK will reduce. So it will continue a substantial part of DAP, 55%, 60% will continue to be imported and traded.
Okay. And just a request, if it is possible, if as an investor, if you want to evaluate how the trading business has done over the last, let's say, 5, 7 years, any number if you can give in terms of return on investment, given a good amount of working capital also is going into this? So that would be helpful for us just to evaluate how this business returns are over a cycle -- over a period of time?
I don't think I have any number. If Abhay, you want to add?
I would just slight -- and total evidence from 2014, '15 to about 2019, '20, we set up the Gadepan-III plant to the equity generated by this trade. So you can understand what it has generated for us.
That's only anecdotal.
The next question is from the line of Marshall, an Individual Investor.
Yes, first of all my...
Mr. Marshall, your audio is not clear from your line. Mr. Marshall, we are not able to hear you. Mr. Marshall, please unmute your audio from your side if muted.
As there is no response from the current participant, we'll move on to the next question from the line of Rohan Gupta from Nuvama.
Sir, question is on [indiscernible] there has been pressure on the profitability also in the current quarter while we see get the positive pricing still much lucrative on -- compared to last -- I mean, historical average. There should have been decent profitability in market well. Can you just explain that the contractual arrangement which you have from the for the rock phosphate and how the value is derived? And what kind of margins it allow to make?
Rohan, that's an [indiscernible] question. I'm not really authorized to comment too much on that, but I can tell you only that their plant was shut twice once, of course, for ATR turnaround, which took some extra days. And then secondly, because of contractual nonassurance, let us say on the optic side due to the price differentials and so on. That has been since corrected.
And I think this last quarter of theirs, which is our third quarter and their fourth quarter, they are going to do reasonable volumes. Now how much that will result in terms of the profitability, I can't really make any comments. But I would say that they are more or less on even key on this issue.
As far as the margins and other things are concerned, it would rather involve question of the rock price and sulfur price and so on, we can only comment once they're published, and we are not to day-to-day working into [indiscernible] because it's a separate company.
Okay. And sir, second question is on the once again coming on the DAP. And how do you see that the rabi pricing will be, as you said, that government definitely has an indicated pricing and -- of DAP in the market and then industry chose to this to stick with that, though it may be on the cost of losses to the industry. I don't know why, but somehow industry stick to that.
What will be the thought process of you or the company and also where you see that the industry is heading in a second half in rabi crop -- in rabi season, when the DAP price is probably subsidy rate, somebody was mentioning is already down by INR 2,000 per tonne. So if the subsidy rates remain there and with the rising currency -- with recent currency depreciation, do you see that you will be allowed or you will be taking price increases in the market in DAP to compensate any kind of losses if the subsidy rates are not sufficient enough to meet the minimum profitability?
Or as a moral responsibility, the industry will continue to provide the fertilisers at the same price, maybe even on the cost of the profitability to the industry?
So Rohan, like I said, there is an informal cap on the MRP in the market, and we as an industry see that being lifted in the rabi season, number one. Number two, with a reduction in procurement price of DAP and if the subsidy remains around the earlier level, we expect a positive contribution in the rabi season.
Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
Thank you all of you very much for your very insightful questions. And I hope all of you have a good day and wish you very well for the rest of the [indiscernible] and winter season. Thank you.
Thank you. Ladies and gentlemen, on behalf of Chambal Fertilisers and Chemicals Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.