"This plant will add a capacity of 4.25 lakh tonne to our existing capacity of 32 lakh tonne of complex fertilisers. So, the capacity goes up about 15 percent," he added.
Meanwhile, Mehan expects fertiliser demand to improve this year. "The demand is likely to have come down from 22 million tonne in FY12 to about 15.5-16 billion tonne in FY13. So, demand will pickup from this year onwards hoping that there is a normal monsoon," he elaborated.
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Below is the verbatim transcript of his interview on CNBC-TV18
Q: First take us through your expansion plans; you have commissioned a complex fertiliser plant at Kakinada, what will it do to your revenues in the current year? What would it do to your profit and loss (P&L) in the next year?
A: We have commissioned our C-Train project as we call it in Kakinada on March 22 and that will add a capacity of 4.25 lakh tonne to our existing capacity of 32 lakh tonne of complex fertilizers. So, the capacity goes up about 15 percent.
It is a very versatile plant, which can produce any type of complex grade fertilizers. We are hopeful that from next year onwards, in FY14-15, we will be able to achieve full capacity utilisation of this plant. Incidentally this is a first plant, which has come up in this century because last plant, which came up was in 1999.
Q: We understand there is a problem of demand, therefore how much do you think you will be able to do in terms of volume sales in FY14?? What kind of revenue projections can you give?
A: As far as demand is concerned it has come down but the domestic capacity is still much lower than even the reduced demand. To give more perspective on this, the demand is likely to have come down from 22 million tonne in FY12 to about 15.5-16 billion tonne in FY13.
However, we believe demand is going to grow to around 18 billion tonne because the field inventories with the farmers, as well as the retailers, as well as the state institutions have come down and most of the inventories have travelled upwards to wholesalers and companies.
So, demand will pickup from this year onwards hoping that there is a normal monsoon whereas the total domestic capacity of the country is only about 12-12.5 million at 100 percent capacity utilisation. So, the backlog has to be met through imports and there room for imports to come in We believe that we will run our facilities over 80 percent capacity utilisation going forward.
Q: Do you get any subsidy payment from the government? If so, what might the problems be because of subsidy payment?
A: Yes, we do get subsidy payment under the nutrient based subsidy policy and the good news is that the subsidy has been coming down. It will further come down this year as well, even though the rates are not notified yet but international prices of phosphorus (P) and potassium (K) fertilisers (P&K) have come off their peaks and we believe that subsidy will be further reduced.
So, our dependence to that extent will further go down. The Budget provided for P&K segment and after clearing the last year's bills, for domestic industry it should be sufficient to take care for at least eight-nine months.
Q: The Budget is provided for 65,000 crore odd, the exact revised budget for the current year. So, are they factoring in a fall in the subsidy element?
A: No, they have not factored in because prices fell in the last few weeks.
Q: You do not expect any working capital issues because of delayed subsidy payment, did that bedevil this year?
A: This year as far subsidy payments are concerned they were better than the previous year as far as domestic manufacturers are concerned.
Q: Do you fear that if the gas price did go to USD 8 then people are speaking about there will be a genuine problem of passing on the price in the form of higher fertiliser prices?
A: As of now urea is under administered price mechanism and any sudden increase in price of gas will first go to the cost of production, which in any case is compensated by the government as they, pass-through.
I am sure government will look at it seriously as to how much of it to pass on to the farmers and how much to pass on in the subsidy. For subsidy, we believe the limits are already reached given that government is very serious about its fiscal target of containing fiscal deficit to 4.8 percent next year.
Q: Would a rise in the end product prices meet with demand resistance?
A: Our view is that a substantial increase of 40-50 percent will not lead to any demand destruction as far as urea is concerned. Even if there is demand destruction, there is a 7.5 to 8 million tonne, which is imported into India. So, it will not have any major impact on the demand.
Q: Will any rise in end product prices of complex fertilisers lead to demand destruction?
A: Prices rose very suddenly, so whatever demand destruction had to take place because of price rise has already happened.
Q: Therefore what is the income rise you are expecting next year?
A: We do not give any guidance but we are expecting that our fertiliser volumes will be substantially higher than last year. We have also made acquisition of Liberty Phosphate and we have also commissioned a new plant of super phosphate, which was under construction in Rae Bareli. That was commissioned on March 22. Therefore, we will have 132,000 tonnes of single super phosphate additionally available through Liberty Phosphate.
Q: That would mean an income rise of about 20-25 percent?
A: Yes, we should look at a number in that range.
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