Zuari Agro Chemicals Limited Investors Presentation- Dec’17
Table of Contents 1. Company overview 2. Industry overview 3. Key investment highlights 4. Growth strategies 5. Financial and operational performance 6. Appendix 2
Zuari: Overview One of India’s Major Player One of India’s largest in Water Soluble Fertilizers Phosphatic Fertilizer Company One Stop Solution for Agri Inputs with Retail Stores Strategically located plant to cater all India demands New /proposed States 3 Source: Company, ICRA
Evolution of the Company Demerger of the Merger Commissioning Acquired Acquired stake Fertiliser undertaking approved for of the Urea Plant Paradeep in phosphate of Zuari Industries into three 100% at Goa Phosphates Ltd. mine in Peru Zuari Holdings Limited subsidiaries 1967 1973 1994 1995 2002 2007 2011 2012 2014 2015 2017 MCFL becomes subsidiary of Commencement Promoted Set-up Zuari First Plant of Set up Zuari ZFCL of Agri-Sciences & Zuari Agro Rotem Specialty Chambal Fertilizers Seeds Ltd. Retail Business Chemicals Fertilizer Limited commissioned Open offer for MCFL; ZACL is a part of promoter Pre-Demerger Period group Post-Demerger Period 4
Corporate Structure Zuari Agro Chemicals Limited (ZACL) Zuari Maroc 50% 50% Phosphates OCP Group Limited (ZMPL) Paradeep 80.45% Phosphates Limited (PPL) 53.03% 30% 70% MCA Phosphates MCFL Mitsubishi Corp. Pte Limited 30% equity stake in Fosfatos del Pacifico (Fospac), for developing a rock phosphate mine in Peru 5 5
Table of Contents 1. Company overview 2. Industry overview 3. Key investment highlights 4. Growth strategies 5. Financial and operational performance 6. Appendix 6
India Agri Overview India is one of the fastest growing economies in the world 7.5% 7.2% 6.8% 6.7% 6.5% 6.3% 2.1% 2.2% 1.8% 1.6% 0.3% Brazil China India United States 2016 2017E 2018E -3.6% India has a leading position in most agri products Agriculture account for 15% of GVA Agriculture 15% Crop India’s Position 2 nd largest producer ; largest exporter in 2014 Rice 2 nd largest producer Wheat 2 nd largest producer Cotton 2 nd largest producer Fruits Services 54% Pulses Largest producer and importer of pulses 2 nd largest producer Vegetables Industry Spices World's largest producer and exporter 31% Agri has a significant share in Indian economy; India is a global producer in a large number of agri products 7 Source: ICRA
Indian Agri Industry Suffers From Low Productivity Low consumption of fertilizers, coupled with low mechanization leads to low crop yields 500 Yield (Kg) per 421 Paddy Wheat Maize hectare 400 300 India 3,622 3,030 2,752 162 200 144 139 China 6,749 5,048 5,998 100 Brazil 5,201 2,209 5,176 0 India China Brazil USA USA 8,487 2,944 10,733 India China Brazil USA Pressure to improve crop yields, as share of rural population decreases, along with availability of per capita arable land 0.4 Population Split Per capita arable land (ha) 100% 0.34 75% 72% 80% 68% 67% 0.3 60% 0.2 33% 0.15 32% 40% 28% 25% 0.1 20% 0% 0.0 1999 2001 2011 2014 1995 2001 Urban Rural Significant market opportunity, as productivity gap narrows over time 8 Source: ICRA; Note: *Fertiliser Consumption/ hectare of arable land & land under permanent crops (Kg)
Multiple Reforms and Policies Which Provide Impetus to Agri Sector GoI targeting to double farmer income by Direct Benefit Transfer 2022 Would lead to reduced working capital, increase in digitization ,and better customer targeting Higher rural incomes would be positive for agri-inputs Financial Inclusion (Pradhan Mantri Jan Dhan Soil Health Card Yojna) Balanced use of fertilizers Farmers entering mainstream economy Irrigation Coverage Digitization Reduces monsoon related risk More informed farmers, Innovation in farming Pricing Decontrol / Nutrient Based subsidy Market linked pricing for NPK fertilizers 9 Source: ICRA
GoI Targeting to double farmer Income by 2022 Technology to improve Integrated water use area cover under Biotechnology (seeds) Improving productivity policy irrigation Improvement in 3 crops in a year Higher crop intensity irrigation facilities GoI Targeting to double HVC’s provide for farmers to grow their farm incomes farmer High value crops Significant differential in productivity for staple crops and HVCs Income by 2022 Promotion of balanced use of fertilisers Improving resource • Soil Health Cards use efficiency • DBT Price discovery for Integration of mandis across states to one electronic platform i.e. National farmers Agricultural Market (e-NAM) network, via revision of the APMC Act 10 Source: ICRA
DBT – Overview and Key Benefits DBT – Overview Dept of Purchase info Subsidy disbursement Fertilizers Triggered to manufacturer Manufacturer Retailer PoS Transaction Farmer DBT – Key Benefits • Subsidy to manufacturer would be paid on a weekly basis • More informed farmers is expected to result in improve nutrient usage and will promote balanced application of fertilizers • Promotes digitization • Working capital of manufacturers to reduce in phase 2 of DBT (subsidy directly to farmer) 11 Source: ICRA,Company
Other Reforms and Policies • Balanced use of fertilizers Soil Health Card o GOI has issued ~98 mn soil health cards till Nov 2017 Financial • Farmers entering mainstream economy Inclusion • Key initiatives/target of the policy includes (Pradhan o Bank Account for each household Mantri Jan o Crop Insurance & Access to credit Dhan Yojna) • Reduces monsoon related risk • GOI has set up long term Irrigation Fund (LITF) Irrigation o As per GOI estimates Rs 29,000 Cr may be required through LTIF Coverage o GOI has already approved raising Extra Budgetary Resources of ~Rs 9,000 cr during FY18 • Digitization leads to higher information amongst farmers, which is expected to lead to higher Digitization efficiencies in the agri sector & Innovation in Farming 12 Source: ICRA, GoI , Company
Subsidy Reform in NPK/DAP Fertilizers Share of subsidy in realization has declined over the last 5 years on account of decontrol in NPK/DAP in ZACL 29% 32% 34% 34% 38% 50% 71% 68% 66% 66% 62% 50% FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 % share of Avg. MRP of Mfg Complex Fertilizers % of Avg. Subsidy of Mfg. Complex Fertilizers • We believe shift towards Nutrient based subsidy in NPK/DAP has led to: o Reduction in working capital as the quantum of subsidy receivables has declined o Producers have higher flexibility to fix farm gate prices o Shift from subsidy based pricing to market driven pricing 13
Declining Imports in Fertilizers (Mn Tons) 22.4 18.4 17.1 15.9 15.4 14.2 11.8 Phosphate 12.2 9.6 9.8 12.2 11.3 10.5 6.5 10.6 6.1 6.2 4.9 4.1 3.7 3.1 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 H1 FY18 Imports Production (Mn Tons) 31.3 33.0 30.6 29.8 29.8 29.7 24.5 22.6 22.6 22.0 14.7 22.7 24.2 Urea 11.5 8.7 8.5 7.8 8.0 7.1 5.5 3.2 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 H1 FY18 Imports Production Fertilizer imports have been declining in both Urea and NPK 14 Source: ICRA
Table of Contents 1. Company overview 2. Industry overview 3. Key investment highlights 4. Growth strategies 5. Financial and operational performance 6. Appendix 15
Key Investment Highlights 1 • Diversified product portfolio with focus on DAP/NPK Complex fertilizers o Zuari product portfolio consists of diverse nutrients o Higher pricing flexibility in DAP/NPK compared to Urea 2 • Strategically located manufacturing facilities, with long standing tie-ups for raw material sourcing o Strategically located manufacturing facilities o OCP is a strategic partner in PPL o Tie-ups for key raw materials from likes of OCP, Arab Potash Company, Muntajat and Canpotex 3 • Strong marketing & distribution network o Pan-India distribution network of ~8,000 dealers and ~75,000 sub-dealers with access to ~23 mn farmers o Well established brand (Jai Kisaan) o Over 110 stores already operational under the Jai Kisaan Junction format 4 • Zuari to benefit from structural reforms like DBT, Soil Cards, Gas Pooling 5 • Strong parentage coupled with a highly experienced leadership team 16
Diversified Product Portfolio With a Focus on DAP/NPK Complex 1 Fertilizers Key capacities (ktpa) Water 1 Particulars DAP/NPK Urea SSP SNF ABC Zypmite Total Solubles ZACL 860 399 200 24 1,483 Paradeep 1,300 60 1,360 MCFL 260 380 21 12 18 691 Total 2,420 779 200 21 36 18 60 3,534 Sales volume by products (FY17) Plant Others Nutrition 1% • The group has a diversified product portfolio which Products includes Urea, DAP/NPK, Plant Nutrition, Zypmite and 2% other products • Urea Zuari focuses on Complexes (DAP/NPK) compared to 24% Urea, as there is higher pricing flexibility in DAP/NPK DAP/NPK 73% compared to Urea • As a strategy, we supplement our production by trading, which account for ~25% of total sales Zuari product portfolio consists of diverse nutrients 17 Source: Company; Note: 1 Ammonium Bi-Carbonate
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