With the IMD forecasting an above-normal monsoon this year, the fertiliser sector has been abuzz with activity of late. Monsoon has already hit the southern peninsula and is moving north. Speaking to Bloomberg TV India , Madras Fertilizers Chairman and Managing Director AB Khare says the company expects its inventory to come down to 4,000-5,000 tonnes during the peak season, from the present 77,000 tonnes, and that will boost profit margins to 25-30 per cent. However, delay in subsidy payments by the government remains the main challenge for the cash-starved company. While Madras Fertilizers is investing in capex to switch from naphtha to gas, the company also has plans to invest ₹500-600 crore in energy-saving projects, he said.
How will the normal monsoon expectation boost your company’s sales?
It will increase our sales. Our stocks will go down and we will be carrying low inventory of the products, that will give more cash to the company.
Currently, we have an inventory of around 58,000 tonnes in the field and around 19,000 tonnes in our plants. So, the total inventory is around 77,000 tonnes of urea. We expect it to go down to a bare minimum of 4,000-5,000 tonnes during the peak season.
If you were to translate that decline in inventory into sales numbers, what kind of uptake do you expect in sales going forward?
We get only ₹5,310 for every tonne of urea from farmers. The balance ₹20,000 per tonne, or 80 per cent, comes from subsidy. We can claim the subsidy only after it is removed from the plant. Actual sales happen only when we sell it to the farmers or dealers. Subsidy payments are delayed. It is based on the removal from the plant. So we can claim only ₹19,000 per tonne or whatever we have in the plant, which is 80 per cent of the sales.
What is your outlook on the margins of FY17?
I am unable to give you any numbers, but it will definitely improve. It will increase by 25-30 per cent.
With better monsoon, the demand for fertilisers is likely to increase. What is your capacity utilisation right now? Do you see any improvement going forward?
We are planning around 100-per cent capacity utilisation. On a daily basis, we are running around on 108 per cent. It is slight lower only in summer days. Otherwise, in normal days, we are able to cross 100 per cent and we are near about 108 per cent. But in long term, on a yearly basis, we will be crossing 100 per cent.
What immediate challenges are you confronting?
Madras Fertilizers is dependent on the subsidy payments from the government. The cash is not there. We are depending on the subsidy to come as fast as possible. That is our main challenge.
What’s your outlook on pricing for the year ahead considering the demand uptick? If you plan to operate with full capacity, are there any capex plans for the year ahead?
Currently, we are converting our operations from naphtha to gas. So capex for that can come in this year. We have further plans, but they will not materialise this year. We are planning energy-saving projects and they are getting formulated.
We can tell you the capex size after the formulation. It will be in the range of ₹500-600 crore.