Chambal Fertilizes Y 2013 Earnings Call 2 May’13 Operator Good afternoon, everyone, and thank you for joining the Chambal Fertilizers and Chemicals Q4 and annual FY 13 earnings conference call. Today we have with us Mr. Anil Kapoor, Managing Director; Mr. Abhay Baijal, VP Finance; Mr. V.K Gupta, VP Marketing; and Mr. M.S Rathore, VP Legal, Company Secretary and Corporate Communications. I now hand over the floor to Mr. Anil Kapoor for his opening remarks. Over to you, sir. Anil Kapoor, Managing Director Thanks. Good morning, ladies and gentlemen. Welcome to our earnings call post declaration of annual results for financial year 2012, '13. I would like to share with you some of the highlights of the year. 2012, '13 has been a reasonable year for Chambal. We produced 2.09 million tons of urea and sold approximately 2.03 million tons during the year. Our revenue has increased to INR7,341 crores against 6,462 crores and the PAT has increased to 306 crores from 247 crores as compared to last year. Our continued focus on traded goods over the last two years has got us good results. Shipping and software business continued to be at drag. However, there is some good news. First quarter of '12, '13 or first quarter of 2013 has shown some stability in our software business. We have started to make profits on an EBITDA basis month‐to‐month in the last 12 months. 2013, '14 continues to a drag for the shipping industry and this is a major cause of concern to us. Hopefully, International business scenario starts improving this year, which will then see better results for shipping business. You will recall, I had shared our Q3 earnings call ‐‐ I had shared during our Q3 earnings call that our Board had approved setting up of Brownfield Gadepan‐III project at existing site. You will be happy to know that we have signed a letter of intent with Toyo Japan and Toyo India for this purpose. We should be awarding the contract after the agreements are signed with them. The new plant will add 1.3 million tons of urea annually to our existing capacity of 2.1 million tons. In addition, we have assigned an MoU with ONGC for setting up a gas‐based fertilizer plant in Tripura. We are now setting up a committee comprising of two persons from Chambal and two from ONGC who will prepare a feasibility report and then take it to the respective Boards for necessary approvals of project financing. Thank you. Any questions? Questions And Answers Operator Thank you, sir. (Operator Instructions) We have the first question from the line of Prakash Goel from ICICI Securities. Please go ahead. Prakash Goel, Analyst Good afternoon, sir. Thanks for taking my call. Anil Kapoor, Managing Director Thanks, Prakash. Prakash Goel, Analyst Sir, in light of the press release yesterday, cabinet has ‐‐ little has come out from the cabinet. How do you see things panning out for the trading business because they are talking about the cost data to be collected on a regular basis and ensuring that the farm gate prices are aligned to the International prices. How would it impact our trading business? Anil Kapoor, Managing Director I think it's too early to call. Let us see how things materialize. We have anyway been sharing all the cost data with Government of India. There is nothing which is confidential in nature. Whatever purchases we make and our selling price is loaded on a platform monitored by Government of India. So, let's wait and see as to what data the government would be seeking from us. So you are saying that in the P&K segment even now there is a system of sharing the actual cost on a regular basis? Anil Kapoor, Managing Director Yes. Prakash Goel, Analyst Okay. And there has not been any direction from the Government of India in terms of the profitability or the pricing so far before this particular situation where they are talking about 1,500 reduction in the farm gate prices. This is the first time after the decontrol they are talking about influencing the farmer gate price. Anil Kapoor, Managing Director You are absolutely right, Prakash. Prakash Goel, Analyst Okay. Anil Kapoor, Managing Director We will be reducing our price by that amount of 1,500 as international prices have come down. But in case the international prices happen to rise at a later date, the industry will have no option but to increase their market. Prakash Goel, Analyst That is understandable, sir. And how have you gone about the ‐‐ like in terms of the provisioning for the write‐offs from the debtor side because you'll have materials sold at a higher price, now there is a likelihood right now, Government will compensate you to the extent of inventory that you hold in your own book, what you have sold last year may not be compensated, right? Anil Kapoor, Managing Director That's not as per the policy. But nevertheless, we have taken some provisions for the stock which we were carrying. Prakash Goel, Analyst Can you allow ‐‐ can you let us ‐‐ can you share that number with us? Anil Kapoor, Managing Director Prakash, the provisions are in so many different formats that I'll have to then share a lot of data and some of it is confidential in nature. Prakash Goel, Analyst Sir, just ‐‐ because we wanted to understand the impact of it on the ‐‐ even if you say the ballpark number on an overall basis that should be good enough for us to understand. Anil Kapoor, Managing Director Because the provisioning is in ‐‐ some of it would be in the discounting form for the material which we have sold to institutions, some of it would be in some other form. Hence it's a confidential nature, Prakash. But for us to share that would be a difficult call. Prakash Goel, Analyst Okay, sir. I appreciate that. My second question would pertain to the software business. For last three, four years, sir, we're seeing at the end of the year we get negative surprise in terms of total losses. How do you see things panning out in the next two, three year, particularly with the backdrop wherein you're planning significant CapEx, particularly in the urea expansion on both ‐‐ with ONGC and without ONGC? And in that background, how would you go ‐‐ going forward can like allocate more and more capital to the software business, we're seeing like software allocation happening every now and then in terms of the cash being transferred. Even this quarter, I guess INR20 crore has been invested in the software business again. Anil Kapoor, Managing Director You're right, Prakash. But as I said in my opening remarks, for the first time software business has given us an EBITDA positive number for the last four months and it's month‐to‐month every month. And we expect the year at a decent EBITDA number. Our margins have been increased considerably. I'd also mentioned in lot of my previous calls, we have a new CEO in place, gentleman name Ritesh Idnani, he was the Head of BPO Business for Infosys on its international business. And he's driving the business now. And we expect that by the fourth quarter of this year, we should be coming to sort of a breakeven scenario on our PAT basis. Prakash Goel, Analyst Sir, like for the full‐year number, like know how much at the EBIT level you'd report as profit or the loss per hour because when we do numbers, the EBITDA positive will translate to what kind of reported EBIT loss, if you can say that number with us that would be great. And that is my last question. Anil Kapoor, Managing Director I'll let Abhay answer that. Abhay Baijal, Vice President, Finance So, if we touch about 7.8 or 9 in EBITDA, then this part is getting covered up and we hope this year with the run rate which we have so far shown and the increasing trend that we're seeing, what Mr. Kapoor is fully is justified, at the end of the fourth quarter we'll definitely see breakeven or even break above the negative numbers that we've been seeing so far. Prakash Goel, Analyst Okay, sir. That's it from my side. Anil Kapoor, Managing Director Thank you, Prakash. Operator Thank you. (Operator Instructions) Thank you. We have the next question from the line of Neeraj Mehta from Franklin Templeton. Please go ahead. Neeraj Mehta, Analyst Yeah, hi. This is Neeraj here. Anil Kapoor, Managing Director Hi, Neeraj. Neeraj Mehta, Analyst Hi, just a couple of question sir. One, if you look at the step that government took yesterday, do ‐‐ Anil Kapoor, Managing Director Neeraj, if you can speak little louder? Neeraj Mehta, Analyst Yeah, sir. If you look at the press release the government published yesterday in terms of controlling the MRP and in terms of controlling the profitability for an independent entity, do you see this as a bit retroactive [ph] step for the industry as such? Abhay Baijal, Vice President, Finance Neeraj Mehta, Analyst Sure. Abhay Baijal, Vice President, Finance If we go back to the cost plus regime, it's going to be definitely negative for the industry. But if it's ‐‐ and it'll be negative for the entire P&K industry. Neeraj Mehta, Analyst Sure, sure. Abhay Baijal, Vice President, Finance But if it is going to be a slight modification of the existing NBS and it is for a short‐term because this also will be election year, so we ‐‐ time will tell. We will really ‐‐ we have to wait it out and see what government has in mind. We don't know anything at this moment. Neeraj Mehta, Analyst Sure, sure, sure. I completely understand. I mean ‐‐ and second thing, sir, if we look at the imports for this year for P&K fertilizers and if you look at all the international players, the commentary suggests that all of them expect a huge decline from last year ‐‐ I mean this year corresponding to last year, especially complex excluding the MOP. Would that be correct? And what is your sense on the same for the entire industry as such? Anil Kapoor, Managing Director For the entire industry ‐‐ last month, for example, the imports are considerably down. There is sufficient stock in the pipeline to feed the kharif crop. Neeraj Mehta, Analyst Sure, sure. Anil Kapoor, Managing Director And if the rainfall is good, you can expect the industry to start importing again somewhere in June, July, August for the rabi season. Neeraj Mehta, Analyst So ‐ Anil Kapoor, Managing Director But if the rainfall is not so good, then it will be an interesting scenario. Neeraj Mehta, Analyst Okay. So just one last question; so, A, if the rainfall, as you said, is good, so what will be the current inventory, around 6 million ton? Anil Kapoor, Managing Director You're right. Neeraj Mehta, Analyst 6 or 6.5 million tons? Anil Kapoor, Managing Director Approximately there; see, inventory is something which is so ‐‐ Neeraj Mehta, Analyst Yeah, yeah. I am just saying ballpark figure. Anil Kapoor, Managing Director Yeah, ballpark you're right. Neeraj Mehta, Analyst So going forward, where do you see it coming down if you see much lesser import this year? And where do you see the profitability going for trading guys as well as manufacturing guys? Anil Kapoor, Managing Director I can only tell about Chambal Fertilizers because for are me to tell about other people will be very difficult. As far as Chambal is concerned, we will try and achieve the same number of ‐‐ same results of ‐‐ trading for which we achieved last year. Neeraj Mehta, Analyst Okay. We will be in the market with smart purchases. Neeraj Mehta, Analyst Okay. Anil Kapoor, Managing Director Restrict our interest cost. Neeraj Mehta, Analyst Sure, sure. Anil Kapoor, Managing Director And so, you know, buy material just in time ‐‐ Neeraj Mehta, Analyst Sure, sure. Anil Kapoor, Managing Director ‐‐ and we'll have to be a little smarter player than what we have been so far. Neeraj Mehta, Analyst And sir, till ‐‐ how much time does it take for you to get the shipment? And second, how much subsidy have you got in April in the sense has there been reasonable amount of money that has been given out by the government post the New Year? Anil Kapoor, Managing Director I'll let Abhay answer. Abhay, you can tell the subsidy which you've received in end March and also April. Abhay Baijal, Vice President, Finance We got the special banking arrangement of about 330 crores in March itself. Neeraj Mehta, Analyst Okay. It can be treated as a receipt in April. Then there was a 280‐odd crores just at the last day, that is ‐‐ makes it about 610 crores. (inaudible) itself we've got about 186 crores till date ‐‐ 181 crores till date. So, that makes it a total of ‐‐ Anil Kapoor, Managing Director Approximately 800 crores. Abhay Baijal, Vice President, Finance 800 crores. Neeraj Mehta, Analyst But this would be both for urea as well as P&K, sir? Abhay Baijal, Vice President, Finance Yes, it is both for urea ‐‐ most ‐‐ urea and P&K. The first one that we got was mostly for P&K. But anyways those ‐the fact is that we got 800 crores. Neeraj Mehta, Analyst I get your point, but ‐‐ I mean what we understand is that subsidies, especially for P&K, were almost stopped post July or August last year. So, at what time frame ‐‐ till what time frame would we have got the subsidy in that respect now ‐as of now where we are standing? Abhay Baijal, Vice President, Finance We have got up to October. Neeraj Mehta, Analyst Up to October? Both for P&K and urea? Abhay Baijal, Vice President, Finance No, urea ‐‐ urea, yes; both for urea and ‐‐ Anil Kapoor, Managing Director October partial Neeraj Mehta, Analyst Anil Kapoor, Managing Director And balance all will be covered ‐‐ cleared this month. Neeraj Mehta, Analyst Balance all will be covered in May only. Anil Kapoor, Managing Director Yeah, yeah. Bulk of it will be cleared in May. Neeraj Mehta, Analyst Okay. So the working capital will be like really helpful for all ‐‐ entire industry as such? Anil Kapoor, Managing Director Absolutely. But this year itself will be a challenge through the subsidy which has been provided for. Neeraj Mehta, Analyst Sure, sure, no, no. Anil Kapoor, Managing Director ‐‐ which (inaudible) run out. Neeraj Mehta, Analyst So yeah ‐‐ I mean the episode will repeat I think. Sure. Abhay Baijal, Vice President, Finance It will be worked off. Neeraj Mehta, Analyst Okay, thanks a lot sir. Thanks a lot for taking my questions. Anil Kapoor, Managing Director Thank you. Operator Thank you. The next question is from the line of Trilok Agarwal from Birla Sunlife Insurance. Please go ahead. Trilok Agarwal, Analyst Yeah, good afternoon sir. Anil Kapoor, Managing Director Good afternoon, Trilok. Trilok Agarwal, Analyst I have a (inaudible) one on the urea business. I guess Q4 we saw relatively less sales in urea business. Could you just highlight the key reasons of spending less I guess? Is that because of the subsidy? Anil Kapoor, Managing Director Good question, Trilok. Trilok, You will appreciate that there was substantial outstanding in the marketplace. And generally, sales in the month of March are credit sales. Money for that sales normally comes in the month of May. That's the only time we give credit in urea. With so much outstanding in the marketplace, we restricted the sales. We've produced it and we've stocked the material. We've now sold ‐‐ we're now selling it and have sold substantially in the month of April and May. That is the reason. It was deliberately done to ‐‐ not to increase the credit in the marketplace. Trilok Agarwal, Analyst Okay. So is it fair to assume that even the cut‐off ‐‐ beyond cut‐off linked quantity we have not received IBB [ph] benefit for the quarter. Anil Kapoor, Managing Director No, we get the benefit because the benefit comes on production and dispatch. But whatever certain amount of profits which come with sales has got come in. Trilok Agarwal, Analyst So if ‐‐ is it possible for you to quantify the quantum that is shifted to next quarter? Anil Kapoor, Managing Director Again, it will all depend on the sales, 60, 70,000 tons at something like INR1800 a ton. Trilok Agarwal, Analyst Okay. Coming to your software business, you've mentioned in the opening remarks that last 3, 4 months have been positive for the business. But if I recollect appropriately, even last fiscal I guess 2, 3 months were kind of positive in the business and then actually again the reversal trend began. So what gives you the confidence this year that this year you'll probably end up being a pat neutral, which actually also last April we had guided on the call that probably FY '13 would ‐‐ you will not make losses and as the year progressed I guess the thing get ‐‐got bad to worse. Anil Kapoor, Managing Director Yeah, I think you have really studied ‐‐ done your homework well. You are absolutely right. What ‐‐ the basic change which has taken place that in some of our businesses where we were operating, especially mortgage processing, where our gross margin was literally in a single digit if not zero in some businesses, we have now gone up a on a sustained basis in the last four months to over 25%. Trilok Agarwal, Analyst Okay. Anil Kapoor, Managing Director So there has been a ‐‐ and that segment of the business constitute about 25% of our overall business. There has been a substantive change in the way we've started working. Do you get ‐‐ if I got gross margin changing month to month in the last four months, I'm showing an increasing trend. Trilok Agarwal, Analyst But sir, what is the main driver of the gross margin improvement that ‐‐ if you could highlight something on that, so probably we can ‐‐ it will be better for us to understand whether it's structural or more (inaudible) in nature. Anil Kapoor, Managing Director It is structural because we have changed the contracts. Trilok Agarwal, Analyst Contract with your customers? Anil Kapoor, Managing Director Contract with banks for whom we were working. Trilok Agarwal, Analyst And why weren't we able to do it for so long? Anil Kapoor, Managing Director Trilok Agarwal, Analyst No, I'm ‐‐ I mean I'm just trying to understand whether the market has, you know, kind of accepted the new norms or whether the overall mortgage ‐‐ Anil Kapoor, Managing Director We went back to the banks to ‐‐ and showed them our numbers that we cannot work or that ‐‐ we'll come out this business because there was no point continuing in a business where we were bleeding. They realized our position and have given adequate return, otherwise you would have walked out of the business. Trilok Agarwal, Analyst Okay. And finally, if you could, what's your medium‐term plan on the software business, because ‐‐ I mean you would appreciate that's not your core forte and obviously going forward that you're putting a Brownfield plant [ph] in urea, I guess the CapEx requirement there would be much higher. So what's your plan in terms of hiving off or selling off this unit? And if possible at what other valuation are you looking at in terms of hiving off? Anil Kapoor, Managing Director See, we have a short‐term plan and the short‐term plan is to first make this company profitable. And we been losing ‐and you are absolutely right, in the last year also first quarter we were EBITDA marginally positive, we are better ‐‐ we are slightly ahead of the game this year. By the end of the year, we were substantially negative. We want to first make this company positive, grow month‐to‐month organically. Trilok Agarwal, Analyst Okay. Anil Kapoor, Managing Director And then take a call afterwards. Trilok Agarwal, Analyst The last one, if you could define the short‐term horizon, what is your horizon in terms of ‐‐ when you mean short term? Anil Kapoor, Managing Director Short time is just year. Trilok Agarwal, Analyst Okay, thanks. That's really helpful. I'll come back if I have further questions. Anil Kapoor, Managing Director Thank you. Operator Thank you. We have the next question from the line of Puneet Gulati from HSBC. Please go ahead. Mr. Puneet Gulati from HSBC, you may go ahead with your question. Mr. Puneet Gulati? Sir, there is no response from this participant. Shall we proceed with the next question? Anil Kapoor, Managing Director Please go ahead. Operator We have the next question from the line of Amit Murarka from Deutsche Bank. Please go ahead. Amit Murarka, Analyst Hi, good afternoon sir. Just a few questions; first of all on ‐‐ I joined the call 5 minutes late, so what is the status on the urea capacity expansions and secondly on (inaudible) gas supplies, I mean how much are we receiving right now and is there any intimation from the company on risk of reduction in supplies? Thank you. Anil Kapoor, Managing Director In the opening call I had mentioned that we have signed an LOI with Toyo Japan and Toyo India for our Gadepan‐III project. We expect to complete the formalities for signing the detailed contract in next 2 to 3 months. Post that we will start ‐‐ we will commence activities for a new plants. As for gas availability concerned, we are getting adequate gas to run our existing plants. Amit Murarka, Analyst Okay. How much would be the quantity of KCD6 [ph] be right now? Anil Kapoor, Managing Director We get approximately 1.1 million standard cubic meter of KG gas and there has been no reduction so far. Amit Murarka, Analyst Okay, fine. Thank you. Anil Kapoor, Managing Director Operator Thank you. The next question is from the line of Kedar Wagle from Akshayam capital. Please go ahead. Kedar Wagle, Analysts Thank you. I have two questions. On the subsidy outstanding from the government, how much is the outstanding amount after you received that 800 crores, so basically how much is the amount you expect to receive in May, that's one? And second, if you could share your thoughts on any changes in the urea policy in the coming 6 to 9 months going forward. Anil Kapoor, Managing Director Kedar, I just take you ‐‐ answer the question on the thought process and then let Abhay mention the subsidy numbers. At this moment, government is not looking at any changes on urea policy. Kedar Wagle, Analysts Okay. Anil Kapoor, Managing Director Okay. Abhay? Abhay Baijal, Vice President, Finance As far as the March 30 numbers were concerned, the subsidy letters were something like 2,600 crores and that included the effect of course of what happened in March. And thereafter, we've received about 180 crores. So, we are down to about 2,420 crores as of date. And in May, we expect to receive almost 700 crores. So, let's say that on the best case it should be around ‐‐ down to 1,700 crores of power subsidy. Of course for the New Year, subsidy we'll start building up again as we produce. Kedar Wagle, Analysts Fair enough. Okay, okay. Thanks a lot. Operator Thank you. We have the next question again from the line of Puneet Gulati from HSBC. Please go ahead. Puneet Gulati, Analyst Hi, thanks for taking my question. Just want to understand, is the short‐term borrowing essentially only because of the subsidy due? Anil Kapoor, Managing Director You're absolutely right. Puneet Gulati, Analyst Second, you seem to making some investments in software business every quarter. What is the nature of this investment? Anil Kapoor, Managing Director Basically funding the losses. Puneet Gulati, Analyst Okay, okay. And then on the trading side have you contracted out any new imports for the coming quarter? Anil Kapoor, Managing Director For the coming quarter, we got some quantity in the month of March which would be adequate for us to take us through this quarter. Puneet Gulati, Analyst Okay. And you could maintain the same run rate which you maintained in the same quarter previous year? Anil Kapoor, Managing Director It will all depend on how the rainfall comes. If the rainfall goes as per prediction then we will maintain the run rate. But in case the rainfall was to be substantially lower, we would have to review our operations. Puneet Gulati, Analyst Okay. And are you seeing any signs of government discouraging imports? Anil Kapoor, Managing Director No. Puneet Gulati, Analyst Or trades? No, no signs of that. Puneet Gulati, Analyst No signs? Anil Kapoor, Managing Director No Puneet Gulati, Analyst Okay, great. That's all from my side. Thank you. Anil Kapoor, Managing Director Thank you. Operator Thank you. The next question is from the line of Satish Mishra from HDFC Securities. Please go ahead. Satish Mishra, Analyst Yeah, good afternoon sir. Anil Kapoor, Managing Director Good afternoon, Satish. Satish Mishra, Analyst Sir, just first question; do we account subsidy receivables under trade receivables or it's a part of our short‐term loan advances? Anil Kapoor, Managing Director No, it is not part of short‐term loan and advances; it's part of our receivables. Satish Mishra, Analyst Trade receivables, okay, okay. So sir, just to get an idea, what will be our total complex inventory into the channel ‐our ‐‐ in receivables and inventory? Can you repeat what you said? Abhay Baijal, Vice President, Finance ‐‐ fertilizer receivables. Satish Mishra, Analyst Yes. Anil Kapoor, Managing Director Complex receivables. Satish Mishra, Analyst Complex receivables. Anil Kapoor, Managing Director Complex receivables as on March 13 were 868 crores. Satish Mishra, Analyst Okay. Anil Kapoor, Managing Director Yeah. Satish Mishra, Analyst Okay. And what would be the breakup of our inventory? Will it be mostly complex fertilizers or urea, as you mentioned, some ‐‐ are inventory? Anil Kapoor, Managing Director In fertilizer, there is both urea as well as DAP, mostly. Satish Mishra, Analyst okay. Have you tied up for any DAP till now for this year ‐‐ for FY '14? As I just mentioned, we have got some amount of material in the month of March, which was for this quarter. Satish Mishra, Analyst Okay. At what price, sir? Anil Kapoor, Managing Director It is confidential in nature. I would not like to disclose that. Satish Mishra, Analyst Okay, fine sir. Sir, next question is related ‐‐ our phosphoric acid business, what's the outlook over there? Like from FY '12 to FY '13 there is a sharp decline in profitability, so how you see the situation shaping in FY '14? Anil Kapoor, Managing Director We have just taken a cold shutdown. It was necessitated because of market condition and we took advantage of the fact that the plant was shutting down because of lack of demand, and we took our annual cold shutdown during this month. We have just started the plant as there has been an agreement on the phos acid price in India. It will all depend on the market condition, difficult to predict. It's going to be a tough year for the entire P&K sector. Satish Mishra, Analyst Okay. Okay, thanks sir. Anil Kapoor, Managing Director Thank you. Operator Thank you. The next question is from the line of Bhavin Chheda from ENAM Holdings. Please go ahead. Bhavin Chheda, Analyst Good afternoon, sir. Sir, few question on the industry; if you can update us for FY '13 how much was the urea, DAP and complex imports into the country and what was the demand number like. Anil Kapoor, Managing Director I'll give the ‐‐ let the Vice President, Marketing answer that question. V. K. Gupta, Vice President, Marketing See, as regards DAP, total sales were about 9.3 million tons ‐‐ Bhavin Chheda, Analyst Yeah. V. K. Gupta, Vice President, Marketing ‐‐ against the previous year of about 11 million tons. Bhavin Chheda, Analyst Okay. V. K. Gupta, Vice President, Marketing For the drop in the sales, imports were down by about 1 million ton, production was in line with the previous year's production, so ‐‐ I mean this is how the year has panned out as far as DAP is concerned. Bhavin Chheda, Analyst So DAP imports were down by 1 million ton to what figure? V. K. Gupta, Vice President, Marketing This was about 5.8 million ‐‐ Bhavin Chheda, Analyst 5.8 for '13? V. K. Gupta, Vice President, Marketing Yeah, '13. Bhavin Chheda, Analyst Okay, okay. V. K. Gupta, Vice President, Marketing Yeah. And for other complex fertilizers? V. K. Gupta, Vice President, Marketing See, NPK segments we are not there, we are in DAP basically. Unidentified Participant Okay, basically DAP. And in case of urea if you can update us the numbers. Anil Kapoor, Managing Director Urea there was no demand because ‐‐ because south was not faring well, but the total still is about 30 million tons. Bhavin Chheda, Analyst Total sale is 30 million. Anil Kapoor, Managing Director It was at par with the last (inaudible). Bhavin Chheda, Analyst And how would be imports in that, sir? V. K. Gupta, Vice President, Marketing Approximately 8 million. Anil Kapoor, Managing Director 8 million tons. Bhavin Chheda, Analyst And this was flat on YoY? V. K. Gupta, Vice President, Marketing Yes. Okays. Sir, second question; you're particularly in DAP and contracted few quantities also. Just wanted to understand after this global price decline also and government announcing that, that would be INR1,500 job, is the trading margin still intact at 6 to 7% which you make in last two years or you think there is a pressure on trading margins also going forward. Anil Kapoor, Managing Director Firstly, trading margins we were never making 6 to 7%. Those are high number. There'll be some quarters where we may have made ‐‐ Bhavin Chheda, Analyst Right. Anil Kapoor, Managing Director And if you see the interest which we lost last year because of money not coming from government and from the market, our margins were substantially lower. Bhavin Chheda, Analyst Sir, I was talking of the net (inaudible) margins, before interest the trading margin which is there in the segment‐wise performance, you see? Anil Kapoor, Managing Director Correct. So when you come into the ‐‐ the actually trading margins were substantially lower. Bhavin Chheda, Analyst Sir, but just to take it on ‐‐ Anil Kapoor, Managing Director And we will maintain that. Bhavin Chheda, Analyst Okay. You think you will still maintain ‐‐ Anil Kapoor, Managing Director Yeah, on a net basis we will be able to maintain. Okay, okay. Thanks a lot, sir. Anil Kapoor, Managing Director Thanks. Operator Thank you. The Next question is from the line of Rohan Gupta from Emkay Global. Please go ahead. Rohan Gupta, Analyst Hi sir, good afternoon. Anil Kapoor, Managing Director Yeah, good afternoon, Rohan. Rohan Gupta, Analyst Sir, just one ‐‐ first question is on the segmental numbers which you reported. If you look at the un‐allocable expenditures for the quarter where it is reported roughly INR38 crore of un‐allocable expenditure, which I think compared to last year was INR56 crores income. Sir, can you just I mean inform us that what it is the expenditure about? Anil Kapoor, Managing Director (inaudible) last year the un‐allocable ‐‐ the basic change that we can see is about 93 crores, 38 to 55. Rohan Gupta, Analyst Right. Anil Kapoor, Managing Director So that is more or less on account of the dividend that we received from IMACID. You know that last year we got a 100‐crore dividend from IMACID that accounts for most of this change, 93 crores change. Rohan Gupta, Analyst Okay. So it was on account of that only. Sir, if you can just share the urea sales volume for the quarter and inventory which we are having right now of urea. I can tell you the urea sales results of the quarter is just ‐‐ Unidentified Speaker The inventory which we're carrying is about 200,000 tons. Rohan Gupta, Analyst Of urea only? Anil Kapoor, Managing Director Yeah. Rohan Gupta, Analyst Okay, sir. On complex fertilizer ‐‐ Anil Kapoor, Managing Director The urea inventory is all getting liquidated, it's all gone. Rohan Gupta, Analyst Okay, so the impact we we'll be seeing in Q1? Anil Kapoor, Managing Director Yes. Rohan Gupta, Analyst Okay. Sir, second question is on this global DAP and the trading revenues which you guided that you were likely to maintain it of the last year, sir, we have see that last year in lot of trading ‐‐ almost two‐third of the trading was done in the first half while the second half was relatively weak. You're already saying, sir, there is enough inventory in the system as well as DAP and complex is concerned. So sir, how we are planning to go ahead with a similar sort of trading in this year also if you can just, sir, discuss the strategy or the thought process behind it? Anil Kapoor, Managing Director You have read the industry correctly. Last year there was a substantial sale ‐‐ purchase took place in the month of May, June, July. This year is going to be a wait‐and‐watch policy. Industry would be looking at the rainfall first. If the rainfall is as predicted and the off‐take from the market starts and the inventory starts to come down, purchases will start. Rohan Gupta, Analyst Okay. Anil Kapoor, Managing Director There will be only a few limited purchases which will take place now, opportunistic purchases basically. So, I think the industry is in a wait‐and‐watch mode. Rohan Gupta, Analyst Sir, next question in a similar line is that we are seeing close to 6 million ton inventory of DAP and complex in the system. Now government has already announced new subsidy rates. Sir, considering the current global DAP prices which are much lower and if one starts importing it right now then we can have at least 4,000 to INR5,000 difference in cost. Sir, what if stop a trader or a company like you who can probably import DAP right now and can push in the system, which you can offer to the farmer at a lower price and can benefit also irrespective of whatever the inventory is there in the system which is high‐cost inventory? Anil Kapoor, Managing Director Firstly, the differential is not 4,000 to INR5,000. INR1,500 is the drop in MRP and INR2,000 has been the reduction in subsidy. So again to that individual even selling at 22,500 would not be ‐‐ to the tune of INR4,000 which you are mentioning, that is number one. Number two, if anybody contracts the material now it will only come into the market by June middle or June end. It will not happen before that. By then, we would be coming to an end of application season for the kharif. Kharif season comes to an end by July middle. We expect substantial diminishing of inventory in kharif season. So it's very difficult for somebody to bring in material right off and serious players like Chambal will respect the marketplace, will not like to destroy the market operations. Rohan Gupta, Analyst So that answer our first question, sir, that probably trading is going to be very challenging as well as this year is concerned because there is a inventory in the system or whatever inventory will be sold or will be bought probably may be in the second half that will be for preparation of rabi crop. So if we have done close to INR3,000 crore turnover from trading last year, maybe it is a tough thing to maintain those kind of number this year also. Anil Kapoor, Managing Director We may not achieve the revenue number but we will definitely endeavor to achieve the numbers on a net basis. Rohan Gupta, Analyst Volume number. Anil Kapoor, Managing Director Rohan Gupta, Analyst Okay. Sir, just one confusion which we still have. Like government has talked to reduce the MRP to the farmers by INR1,500. So this will take ‐‐ this take place immediately or it will happen subsequently later when all the high cost inventory from the system is moved away or ‐‐ I mean if they have to take the ‐‐ if they have reduce the prices immediately, then all these distributors who are holding this inventory, then have to take a hit by 1,000, INR1,500 ‐‐ or INR1,500 on the system. So how the system will work now? How the government will ensure this ‐‐ the prices are reduced to the farmers? Anil Kapoor, Managing Director Your are absolutely right. There is 6 million ton and if there's a INR15,000 hit we are talking of a 900‐crore head it the entire P&K industry. Rohan Gupta, Analyst Right. Anil Kapoor, Managing Director I don't think so that is the type of profit which the entire industry makes. So it's a wait‐and‐watch scene. Let's see what happens. It's the first time MRP is coming down for the industry. Whenever the MRP has gone up, the industry has not benefited with the stocks which were in the marketplace, but this is the first time the MRP is coming down; just like to wait and watch. Rohan Gupta, Analyst Sir, if that happens, I mean what is the government thought process or how the government is going to ensure that the prices are reduced to the farmer ‐‐ I mean how the government mechanism will work? Anil Kapoor, Managing Director New sales which will take place. I just read in that news papers today that IFCO has already announced that they will be selling at the new notified rates of Government of India and IFCO is definitely one of the leaders. Rohan Gupta, Analyst So it means that the rates in the market will be brought down immediately? Anil Kapoor, Managing Director Yeah, but if the material does not come immediately, how much will the ‐‐ there are hardly any imports which have taken place last month and most of the manufacturing units are also shut down. So when they ‐‐ they will start ‐‐ they probably have started now or they will be beginning to start. So by the time the material comes ‐‐ it's a slow process. Rohan Gupta, Analyst Sir, my concern is that we still have a 6 million ton inventory in the system and even if you start producing right now and you start offering it at a lower rate, then what is going to happen of the 6 million ton high cost inventory which is there in the system? Anil Kapoor, Managing Director It will ‐‐ the marketplace will determine what's going to happen. We are also watching as to what happens in the marketplace. Rohan Gupta, Analyst So, is that the concern which you have factored in, in terms of provisioning in your current quarter results? Anil Kapoor, Managing Director Yes, Rohan Gupta, Analyst But sir ‐‐ I mean, can you just little bit elaborate more that ‐‐ what was the basis behind it that we have taken some inventory write‐down in our system like per ton INR1000 additional discount given to the distributors or dealers; what was the basis of doing this right now? Anil Kapoor, Managing Director All of the ‐‐ some of the things which are confidential in nature ‐‐ Rohan Gupta, Analyst Okay. Anil Kapoor, Managing Director ‐‐ and we'll not be able to share. You will appreciate ‐‐ Rohan Gupta, Analyst Yeah, sir. Anil Kapoor, Managing Director Rohan Gupta, Analyst S, considering the uncertainty in the system right now, we may have some further this kind of write‐down in next quarter also? Anil Kapoor, Managing Director No, I don't foresee that. Rohan Gupta, Analyst Okay, thanks sir. I may have some question which ‐‐ I'd like to come back in queue. Thank you very much. Anil Kapoor, Managing Director Thank you Operator Thank you. Anil Kapoor, Managing Director Thank you. Operator Next question is from the line of Balwinder Singh from Prabhudas Lilladher. Please go ahead. Balwinder Singh Arora, Analyst Yeah, hi sir. Thanks for taking my question. Anil Kapoor, Managing Director Hi, Balwinder. Balwinder Singh Arora, Analyst I would like to understand, like we have done some trading revenues of almost 3,000 crores this year, fiscal '13. So how much of it is coming from fertilizer and how much of it is coming from non‐fertilizer, because what I like to like to understand is, how much of it is sustainable for fiscal '14 as such? I can only tell you one thing that the net margin is sustainable and out of the numbers of which we do approximately ‐‐I don't have the correct number but approximately 550 to 600 crores is non‐fertilizer and which is growing at the rate of 15 to 20% I guess. Balwinder Singh Arora, Analyst And what is the kind of margins that you make non‐fertilizer trading? Anil Kapoor, Managing Director You're asking confidential nature questions. Balwinder Singh Arora, Analyst Okay. So almost some 2,400 to 2,500 crore came from fertilizer trading this year? Anil Kapoor, Managing Director Because we've very low end margin gain. Balwinder Singh Arora, Analyst Right. Anil Kapoor, Managing Director And that ‐‐ in the first end of the business, we're in double digits; that much I can tell you. Balwinder Singh Arora, Analyst Sorry? Anil Kapoor, Managing Director In the 600 crores, we have the double‐digit margin business. Balwinder Singh Arora, Analyst Okay, great. And sir, on this ‐‐ what is our current weighted average gas cost and how much of LNG is ‐‐ spot LNG are we using? Anil Kapoor, Managing Director Balwinder Singh Arora, Analyst Sir, what is the proportion of the total gas usage ‐‐ I mean, what is the proportion of LNG in the total gas usage? Anil Kapoor, Managing Director LNG in total usage would be approximately 45%. Balwinder Singh Arora, Analyst 45. Okay and ‐‐ Operator Sorry to interrupt, Mr. Balwinder. Sir, if you have any further question, can you come back to the queue. Balwinder Singh Arora, Analyst I just have last ‐‐ one last question. Operator Okay. Balwinder Singh Arora, Analyst Yeah. Sir, on this software business what is the EBITDA that we have done on fiscal '13 basis? Anil Kapoor, Managing Director First quarter we have crossed $1.1 million. Balwinder Singh Arora, Analyst $1.1 million in Q1 of calendar '13? Anil Kapoor, Managing Director Yes. Sir, I was actually asking about the EBITDA that we have done in software in fiscal '13, because EBIT we have from this result but I wanted the EBITDA from ‐‐ on fiscal '13 basis. Anil Kapoor, Managing Director I'll get back to you. Balwinder Singh Arora, Analyst Okay. Anil Kapoor, Managing Director (inaudible). Balwinder Singh Arora, Analyst Okay, thanks. Operator Thank you. Before we take the next question, a kind request to all participants again, participants please limit up to two questions at a time. For further questions, kindly come back to the queue again. Next question is from the line of Jasdeep Walia from Kotak. Please go ahead. Jasdeep Walia, Analyst Good afternoon, sir. Anil Kapoor, Managing Director Yeah, Jasdeep. Jasdeep Walia, Analyst Sir, last year companies would have made very little money in the trading business across the industry because there was a large interest cost component of our working capital on account of subsidy dues from the government and next year as per your ‐‐ as per what you communicated it looks to be a similar situation is fiscal year '14 also. In spite of that, you said that you will maintain your trading volumes in FY '14. So have you managed to negotiate higher trading margins with your suppliers or you're willing to trade at similar margins that was there last year. Anil Kapoor, Managing Director Jasdeep Walia, Analyst Okay. Anil Kapoor, Managing Director We have got two segments of business, one is fertilizer and the other is non‐fertilizer. In the non‐fertilizer, we continue to grow at the rate of 20%. Jasdeep Walia, Analyst Okay. Anil Kapoor, Managing Director And emphasis is also being given to margins and that's a decontrolled sector where there is no control of Government of India. Jasdeep Walia, Analyst Right. Anil Kapoor, Managing Director That business of Chambal continues to do well and we'll perform very well ‐‐ very good in that. Jasdeep Walia, Analyst And what about the ‐‐ Anil Kapoor, Managing Director And as far as fertilizer business is concerned, we will try and maintain the net margin what we achieved last year. Jasdeep Walia, Analyst So what would it mean in terms of volumes? Anil Kapoor, Managing Director Difficult to predict right now. But given the working capital situation which prevailed for most of last year, are your suppliers willing to give you higher trading margins to compensate for higher working capital cost? Anil Kapoor, Managing Director Yeah, difficult to tell right now. Price are yet to be negotiated in India. Jasdeep Walia, Analyst Okay, fine. Thank a lot, sir. That's all from my end. Operator Thank you. The next question is from the line of Atul Rastogi from CIMB India. Please go ahead. Atul Rastogi, Analyst Yeah, good afternoon sir. Anil Kapoor, Managing Director Good afternoon, Atul. Atul Rastogi, Analyst My question was on the new project; one is have you tied up the debt funding for that and if you could give any details Anil Kapoor, Managing Director Yeah, we have tied up the debt funding. Atul Rastogi, Analyst Okay. Anil Kapoor, Managing Director On the ECB position we have tied. Atul Rastogi, Analyst Okay. We are in the market ‐‐ we are right now negotiating the ECA portion. Atul Rastogi, Analyst Okay. And sir, just your thoughts on I mean you ‐‐ obviously you will be expecting some change or reform in the urea policy, given that ‐‐ and if the current situation continues of high receivables, the promised ROE would probably not be achievable. So I mean how do you kind of take that into ‐‐ Anil Kapoor, Managing Director No, the policy is quite clear, our ROEs protected as per the policy. Atul Rastogi, Analyst No, but if you have four‐month, five‐month delays in considering that you will have probably a INR20,000 ‐‐ Anil Kapoor, Managing Director We have taken adequate care when we prepared our ROE. Atul Rastogi, Analyst Okay. Anil Kapoor, Managing Director We have foreseen this the scenario. Atul Rastogi, Analyst Okay. So, you're saying that maybe the ‐‐ Anil Kapoor, Managing Director Working capital interest has been provided for in the project. Atul Rastogi, Analyst Okay. And any progress on the gas contract, have you signed that? Anil Kapoor, Managing Director We are in the market right now. It's too fluid with shale gas coming in. Okay. Anil Kapoor, Managing Director New players of shale gas are in the market. It would be prudent for Chambal to be careful in selecting its long‐term contracts. We are talking to various people right now. Atul Rastogi, Analyst So by when do you think you will be able to finalize the gas contract? Anil Kapoor, Managing Director See, if we want to sign the gas contract I can sign it today. Atul Rastogi, Analyst Okay. Anil Kapoor, Managing Director We have firm offers, but we will like to wait for some more time. Let clarity emerge on shale gas. Atul Rastogi, Analyst Okay. Just one last thing; if you can give some indication what are the price ranges for the long‐term contracts that offers are coming to you? Anil Kapoor, Managing Director No, too early to tell. Atul Rastogi, Analyst Okay, thanks a lot. Operator Thank you. The next question is from the line of Rakesh Vyas from HDFC Mutual Fund. Please go ahead. Rakesh Vyas, Analyst Yeah, hi good morning sir. Good morning, Rakesh. Unidentified Participant Sir, a few question from my side. First, was there any restriction on the dispatch orders from government on imported fertilizer and has situation changed? Anil Kapoor, Managing Director There were some restriction on some of the small quantities which were lying at the port in the month of February. And ‐‐ however, those all have been lifted. We can now take the material out and dispatch it. Rakesh Vyas, Analyst Okay, got your point sir. So, currently there is no dispatch restriction per say on your team? Anil Kapoor, Managing Director There is no restriction. Rakesh Vyas, Analyst Sure. Secondly sir, on the current raw material prices and the imported material that is available on Finnish court [ph], what is more competitive? I'm trying to understand this because for next two, three, four months there might be inventory liquidation in the system but is there a structural change at all in the industry in terms of how competitive both these segments are? Anil Kapoor, Managing Director You should discuss that with the domestic manufacturers. Rakesh Vyas, Analyst I got your point. But I'm also trying to understand you being one of the more prudent trader in the segment, so do you think that the kind of risk that is associated with many manufacturers, are they getting enough compensation or are margins for both these segments not very different? Anil Kapoor, Managing Director See, put it this way, I'll give you sort of a ‐‐ I'll not talk about what's happening currently but I'll give you sort of a general thing ‐‐ general principles on which industry works. Rakesh Vyas, Analyst Anil Kapoor, Managing Director P&K industry has got two types of investments, one where you invest in a phos acid plant and a DAP plant. Rakesh Vyas, Analyst Yeah. Anil Kapoor, Managing Director So, there is a complete chain of product which takes place. There the margins come from the rock pricing ‐‐ Rakesh Vyas, Analyst Yeah Anil Kapoor, Managing Director ‐‐ and at what effective rock pricing you have been able to achieve, your profitability will be determined. For DAP manufacturer in India who just granulates the material, he is dependent on the phos acid price which is contracted on a quarterly basis. Rakesh Vyas, Analyst Yeah. Anil Kapoor, Managing Director Now, phos acid is basically sold from South Africa, Tunisia, Jordan and Morocco, Senegal, four or five countries where Moroccans take the lead. In that segment of the business, it's going to be a very interesting play. I don't know what will happen. There's going to be an interesting play going forward because the importers basically compete with that segment of the business. Rakesh Vyas, Analyst Sure, (inaudible). Anil Kapoor, Managing Director So, it's going to be interesting. I really don't know whose margin will be what. It's not fair for me to predict that. But it will be ‐‐ it's interesting because I can put up a phos acid plant overseas and do the granulation in India or I can put up a phos acid and a granulation plant overseas depending on the economies. Sure. And sir, is there reason to believe that incrementally players will now have to move more towards backward integration or that is not something that you envisage overall industry to do going forward? Anil Kapoor, Managing Director In the long run, industry will have to move to backward integration. Rakesh Vyas, Analyst Okay, got your point. Anil Kapoor, Managing Director Yeah, because you ‐‐ ultimately the person who controls the mine will always succeed. Rakesh Vyas, Analyst Sure. And sir in terms of ‐‐ Operator Sorry to interrupt, Mr. Rakesh, because we have couple of more participants so ‐‐ Thank you. Rakesh Vyas, Analyst Sure. I just wanted to understand, this IFCO price reduction is effective now even for the material that is in the system or is it only for the incremental volume, sir? Anil Kapoor, Managing Director I think it's too early to call and I will not be able to tell what IFCO is planning. Rakesh Vyas, Analyst Okay, thank you sir. Anil Kapoor, Managing Director Thank you. Operator Thank you. The next question is from the line of Gurvinder Wasan from Principal Mutual Fund. Please go ahead. Yeah, sir you said that your entire short‐term borrowing is because of subsidy only ‐‐ subsidy receivable. So what is the quantum of the short‐term borrowing and how much is the receivables? Anil Kapoor, Managing Director Could you repeat? I couldn't get ‐‐ you wanted the quantum of short‐term borrowings? Gurvinder Singh Wasan, Analyst Yes. Anil Kapoor, Managing Director See, quantum of short‐term borrowings you can see from the ‐‐ Gurvinder Singh Wasan, Analyst Right, so that's around 3,800 crores and what is the subsidy due to be received? Anil Kapoor, Managing Director That I just repeat ‐‐ I will just repeat for the benefit ‐‐ see, as of March 2013 it was 2,600 crores. Gurvinder Singh Wasan, Analyst Okay. So on a steady‐state basis if units [ph] are pretty on time then your business doesn't need much short‐term borrowing, maybe less than 1,000 crores or so? Anil Kapoor, Managing Director Even less than that. Gurvinder Singh Wasan, Analyst Even less than ‐‐ and so major portion of your debt is ‐‐ Anil Kapoor, Managing Director ‐‐ right now. Gurvinder Singh Wasan, Analyst Okay. And so, on an ongoing basis the entire debt is the long‐term debt which is around 1,100 crores? That is related mostly to the shipping regions, as I have said many times in the past, that the fertilizer division is debt free. Gurvinder Singh Wasan, Analyst And repayment due of this debt this year, the long term portion. Abhay Baijal, Vice President, Finance That has to be repaid ‐‐ the long‐term side is almost 100 crores per year for the shipping division. Gurvinder Singh Wasan, Analyst Okay Abhay Baijal, Vice President, Finance Textile division is something of the order of 15 to 20 crores. And as far as the short term is concerned, then the entire is repayable in the next. Gurvinder Singh Wasan, Analyst Correct. And incrementally, for your new CapEx plan you might borrow something which at (inaudible) also. Abhay Baijal, Vice President, Finance Obviously because that ‐‐ we have to support long‐term assets, they have to be supported by long‐term borrowings. So we are going in for whatever necessary tenure [ph] , et cetera, that we'll discuss ‐‐ early to talk. (inaudible) ECA package , et cetera, we're fixing up. Gurvinder Singh Wasan, Analyst Okay. So at a given point of time, you're comfortable having long‐term debt more than your net worth or it may not be the case, you will actually restrict it to 1:1? Abhay Baijal, Vice President, Finance We ‐‐ Anil Kapoor, Managing Director I think it's too early to call. Let us form up our numbers on ECB, ECA. Okay. Maybe I'll get in touch with you over the period. Anil Kapoor, Managing Director I would ‐‐ that would be a good idea. Gurvinder Singh Wasan, Analyst Yeah, thanks. Operator Thank you. Next question is from the line of Gauri Anand from PhillipCapital. Please go ahead. Gauri Anand, Analyst Yeah, thanks for taking my question sir. Anil Kapoor, Managing Director Last question. Gauri Anand, Analyst Sir, this profitably ‐‐ the quantities beyond cut‐off limit, could you please comment on how could have been the profitability this year versus last? That's my first question. The second question is, sir, if you could just summarize the growth drivers; as I have understood you're saying that in the non‐subsidized business we're growing at about 20% and software we may perhaps breakeven this year. Is there any other material growth driver that we've missed on? And third do you want to do this CapEx entirely on your books or are there any other capital raising plans that you can comment? Anil Kapoor, Managing Director I'll answer ‐‐ you've asked too many questions, Gauri. Firstly, our IPP is ‐‐ import‐parity pricing is down substantially from last year. And because of that you have seen erosion in profits taking place due to that account. As for growth is concerned, substantial growth will only takes place after we've put in Gadepan‐III, which we should be able to commission in three years' time. In the intervening period, there's going to be marginal play, somewhat in trading, SSP, nothing exciting. Gauri Anand, Analyst Okay, and sir, this ‐Yeah, please carry on Gauri. Gauri Anand, Analyst Yeah. And this expansion do you want to do it on your books solely or how is it? Anil Kapoor, Managing Director Yeah, we'll do completely on our books. Gauri Anand, Analyst Okay, sir. Thanks. Anil Kapoor, Managing Director Thank you, Gauri. Gauri Anand, Analyst Thank you, sir. Operator Participants, that was the last question. On behalf of Chambal Fertilizers & Chemicals Ltd., that concludes this conference call. Thank you for joining us. You may now disconnect your lines. Thank you. Anil Kapoor, Managing Director Thank you.