Tarun Sinha, President – TAN, DFPCL
Speaking to Pravin Prashant, Editor, Indian Chemical News, Tarun Sinha, President – Technical Ammonium Nitrate, Deepak Fertilisers and Petrochemicals Corporation Limited (DFPCL) talks about demand drivers in mining chemicals, TAN market share, greenfield ammonia and TAN project, Capex plan, managing supply chain disruptions, diversifying fertilizer business, and company's outlook.
What is driving demand in mining chemicals? How did the company manage to improve its margins despite the adverse impact of increasing ammonia and commodity costs?
India depends on coal as the primary source of power generation. For Infrastructure development, minerals such as limestone (for cement), iron, copper, zinc, and many others are required. Demand for all such minerals is increasingly driven by rising economic activity and investments in infrastructure development projects. For example, Coal India Limited (CIL) which is the largest coal mining company in India has set an ambitious target to produce 1 billion MT of coal in FY25. Moreover, the Government of India has opened coal mining for the private sector through ‘Commercial Coal Mining’ auctions, many of the coal mining blocks will soon come into operation. In the infrastructure sector, in the Union Budget, the Government of India has set an ambitious target with 35.4% increase in capital expenditure, infrastructure development projects such as national highway expansion by 25,000 km, PM Gati Shakti etc. All of the above will lead to increased demand for minerals and therefore for Technical Ammonium Nitrate. In view of the rising demand, the company is currently executing capacity enhancement through debottlenecking as well and also announced a new greenfield capacity expansion in Odisha. All of these investments are aligned with the Government of India's vision of atmanirbhar Bharat.
How much is the company's TAN business share in India across different verticals like: Pharmaceuticals, mining, power, construction, and steel industries? How are you performing internationally?
The main consumption points of TAN are: Coal mining, non-coal mining (various types of minerals) and infrastructure projects. Our overall market share (above 3 end-use segments combined) has been in excess of 40% in the last 5 years. Currently, majority of TAN capacity is utilized to service domestic demand of India in order to make India atmanirbhar for its TAN needs. Historically, TAN exports have been made to South Asia, South-East Asia, Middle East, and Africa.
What is your objective behind the plan to forward integrate TAN business into high energy cartridge explosives as compared to the conventional ones?
TAN business transformation aims at partners for delivering value by improving mine and quarry productivity, through last mile execution excellence, using specialty products and customized solutions, in a safe and consistent manner. TAN business has made significant in-roads in its transformation journey from ‘product to solutions’. One such initiative is forward integration into high energy cartridge explosives. Through forward integration, we have developed superior explosives which coupled with our best-in-class technical services capability, we are able to demonstrate and deliver productivity benefits to the end-consumers.
What is the current status of DFPCL's 520,000 tonnes/year greenfield ammonia project and 377,000 tonnes/year project at Taloja in Maharashtra? What is the overall Capex for these projects? How will it add value for DFPCL in the long run?
The greenfield ammonia project is under fast track construction stage and is currently planned to be commissioned in Q1 FY24. The greenfield ammonia project will enable backward integration as ammonia is a key raw material for many of our company’s products. Backward integration will enable cost efficiencies for the DFPCL group, economy of scale benefit, and opportunity to provide feedstock for both Dahej and Gopalpur locations. Overall, the expected Capex is about Rs. 4,350 crore for the greenfield ammonia project.
The laying of the foundation stone of the Technical Ammonium Nitrate greenfield project at Gopalpur, Odisha was done at the hands of the Chief Minister of Odisha, Naveen Patnaik, in December 2021. Greenfield TAN project at Gopalpur, Odisha is also moving as per plan and is currently scheduled to commission in Q2 FY25. This project which is at the heart of the key mining belt of India will help meet the domestic demand, enable import substitution, and also support potential export opportunities in the future. Overall, expected Capex is about Rs. 2,200 crore for greenfield TAN project.
Please elaborate on several Total Cost of Ownership (TCO) and downstream productivity improvement projects with consumers in the mining (coal & non-coal) and infrastructure sectors?
In order to demonstrate value to the end-consumer, we are undertaking TCO and downstream productivity improvement projects with mining and infrastructure companies. TAN business executed its first TCO project at a prestigious infrastructure project of India. It partnered with a leading mining educational institution as a ‘scientific partner’ for execution of this project. The project report identified significant cost benefits as well as potential downstream benefits to the infrastructure project. The business has planned more such TCO projects in FY23 through investments in advanced tools such as: Sensor system for capturing excavator productivity; bore-tracking system for hole deviation measurement; and online fragmentation measurement system etc. Such projects are being executed through collaboration and partnership with leading 3rd party institutions such as CIMFR (Central Institute of Mining and Fuel research), IIT (ISM) Dhanbad, NIT Rourkela etc. in order to deliver improved efficiencies and productivity improvements to the mining and infrastructure sectors in India.
What is the progress on the 377,000 tonnes/year TAN line in Odisha? Capex spent by the company and the expected date of commissioning? What are your long-term expectations from this plant?
The laying of the foundation stone of the Technical Ammonium Nitrate green field project at Gopalpur, Odisha was done at the hands of the Chief Minister of Odisha, Naveen Patnaik, in December 2021. Greenfield TAN project at Gopalpur Odisha is also moving as per plan and is currently scheduled to commission in Q2 FY25. This project which is at the heart of the key mining belt of India will help meet the domestic demand, enable import substitution, and also support potential export opportunities in the future. Overall, expected Capex is about Rs. 2,200 crore for greenfield TAN project and the company has spent about Rs. 394 crore till 30th June 2022.
The company has been catering to International markets such as the Middle East, Africa, and South-East Asia. Who are your clients and what are the primary growth drivers?
Our exports to nearby geographies have been to a wide cross section of customers - mining companies, quarry operators, and dealers. As the greenfield TAN plant in Gopalpur, Odisha becomes operational in Q2 FY25, the company will explore additional international markets for exports.
What has been the impact of ammonia shortage on the TAN production volume in Q4? How do you plan to recover from the same?
In Q4 FY 22 TAN production was not impacted and 100% utilization was achieved.
How has the company managed to cope up with steep increases in prices and supply chain disruptions?
We have taken several steps that have helped us to manage the vagaries in the raw material prices and supply chain disruptions. Some of the actions we have taken and continue to follow are: Closely tracking the demand in the domestic market to understand the needs of our customers & consumers in order to provide reliability and security of supplies; and demonstrating value to our end consumers through downstream productivity benefits through a combination of sales, technical services & operations excellence.
What are your supply chain digitization plans for FY 2022-23?
TAN business continuously strives to deepen the engagement with customers & consumers by leveraging digital platforms. The business has launched an online Portal ‘AN Care’ - a customer engagement portal, which provides basic functionalities of complaint management and its prompt resolution. Recently, the ‘AN Care’ portal has been significantly upgraded with additional features including: Feedback system; Purchase Documents Repository – to view and manage transactional invoices, account statements, credit/debit notes etc.; Technical Data Sheets & Material Safety Data Sheets. ‘AN Care’ is an important customer engagement tool in order to create exemplary customer experience. The business is working on further enhancements to the ‘AN Care’ portal with the ultimate aim to provide a one-stop-solution for all of the customer’s needs.
What strategies are you employing to diversify your fertilizers business?
We are looking at transforming product offerings in the crop nutrition business. We have planned our journey in a staged manner and are progressing well as per our plan. In 2018, we launched a unique enhanced efficiency NPK product called ‘Smartek. Smartek enhances bio nutrient availability, nutrient use efficiency and crop performance. We have sold over 1 Million MT of this product, which has benefited nearly three million farmers.
We have recently introduced ‘Mahadhan Croptek’ in the CNB segment, which is uniquely developed by a deeper understanding of farmers’ need to address balanced nutrition and usage efficiency in the target crops. Each granule of Croptek provides all essential 7-8 nutrients including micronutrients in a balanced formulation. Croptek is powered by Nutrient Unlock Technology (NUT) which unlocks nutrients and enhances bio-availability thereby enhancing nutrient use efficiency. We have launched Croptek grades for onion, sugarcane, and Cotton. Other 2-3 grades are in the pipeline to be launched soon.
Crop-specific fertigation solutions launched under brand ‘Solutek’, for grapes and tomato crops, were highly accepted by farmers for improving their yield and produce quality thereby helping them get higher realisations in the market. We have built a strong pipeline of crop-specific and stage-specific products which will be launched over the next 1-2 years.
How has DFCL performed in terms of revenue and profitability during FY 2021-22? What are your expectations from FY 2022-23?
DFPCL delivered a robust consolidated financial performance in FY22 on the back of its unique advantage of integrated operations and diversified end-user segments of core products. With a topline of Rs. 7,663 crore, the company has crossed the milestone of US $1 billion. PBT also crossed the Rs. 1,000 crore milestone. Chemicals segment contributed about 60% of total segment revenues and 80% of segment profits in FY21-22.
As of March 31st, 2022, overall net debt has reduced by Rs. 400 crore and Debt/Equity ratio improved from 0.93x (FY21) to 0.67x (FY22). This is indeed the best performance despite unprecedented challenges of COVID-19 and geo-political turbulence.
Long term growth is expected to be underpinned by change in product mix, head room availability of additional capacities emerging from better operational management and debottlenecking along with Greenfield expansions. Continuous endeavour to transform from a commodity to specialty in each of the products. Although, uncertainties around raw material prices and its availability remain a cause of concern considering the current geopolitical situation.
Outlook for the company's TAN business in the next one year?
TAN demand is likely to grow at a CAGR of 6-7% in the near foreseeable future driven by the increasing demand of coal, other minerals, and infrastructure projects. While this will create a strong demand for TAN, the company is accelerating its forward integration initiatives for downstream productivity improvements in mines, quarries & infrastructure projects which will enhance the revenue and margin streams going forward.
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