GNFC Navigates Q2 FY26 with Strategic Expansions and Cost Optimisation

Gujarat Narmada Valley Fertilizers & Chemicals Limited (GNFC) has reported an encouraging performance for the second quarter of fiscal year 2026, demonstrating resilience and strategic foresight amidst a dynamic market environment. The company's management highlighted improved sales volumes and a notable reduction in input costs as key drivers for its enhanced profitability. Despite annual planned maintenance shutdowns at its Bharuch and Dahej plants during the first half of FY26, which impacted revenue, GNFC's operational efficiencies and strategic initiatives have positioned it for future growth.

For Q2 FY26, GNFC recorded an operating revenue of INR 1,968 crore, contributing to a total revenue of INR 2,095 crore. The company's Profit Before Tax (PBT) stood at INR 230 crore, with Profit After Tax (PAT) reaching INR 177 crore. These figures reflect a significant year-on-year improvement, underscoring the effectiveness of the company's operational strategies and cost management efforts. The change in other comprehensive income was primarily attributed to fair market value adjustments of investments and actuarial assumptions for employee benefit obligations.

Segmental Performance: Fertilizers and Chemicals Drive Growth

GNFC's performance was bolstered by robust contributions from both its Fertilizer and Chemical segments. The Fertilizer segment, while still experiencing a loss, saw a significant reduction in this loss. This improvement was primarily driven by a decrease in the fixed cost of Urea, lower input costs for complex fertilizers, and higher realization from complex fertilizers. Additionally, improved energy norms in Urea production and higher volumes of Neem Urea contributed positively. The government's announcement of revised rates under the Nutrient Based Subsidy for the Rabi season, increasing the subsidy by approximately INR 872 per metric tonne, is expected to further enhance the competitiveness and profitability of the fertilizer business.

The Chemical segment exhibited a stronger performance, with increased net chemical volumes, largely due to higher TDI Dahej volumes. The moderation in input costs during Q2 significantly improved profitability. The government's extension of anti-dumping duties on TDI from certain regions until March 2026 provides a stable regulatory environment for this key product. However, challenges persist in certain chemical products; acetic acid faced aberrations in methanol availability and cost, while aniline experienced volume and margin impacts due to severe bidding and imports.

Below is a summary of GNFC's financial performance for Q2 FY26:

Strategic Expansions and Future Outlook

GNFC is actively pursuing an ambitious expansion plan, with a pipeline of capital expenditure projects totaling approximately INR 2,800 crore. A significant development is the Board's approval for the brownfield expansion of Ammonium Nitrate Melt II, adding 163 KTPA capacity, which is expected to coincide with the commissioning of Weak Nitric Acid III. This project is slated to commence around July 2027. Other key projects under execution include the Coal Based Steam & Power Plant (CCPP) at Dahej, expected to commission by February 2026, which will reduce steam and TDI operating costs. The Ammonia Expansion at Bharuch and Weak Nitric Acid III at Bharuch are also progressing, aimed at enhancing reliability and market share.

Furthermore, GNFC is evaluating substantial investments in new products like BisPhenol-A (BPA) and Polyols at Dahej, with capacities of 150 KTPA and 100 KTPA, respectively. These projects, part of a potential INR 7,000-8,000 crore capex, are being considered as import substitutes and are undergoing detailed market surveys and feasibility studies. The company's proactive engagement with the government for revisions in energy and fixed costs for urea, expected by the calendar year-end, further highlights its commitment to optimizing operational parameters.

Cost Optimization and Risk Management

To further enhance efficiency, GNFC has engaged strategic management consultants (A.T. Kearney) for Phase II of their cost optimization initiatives. These efforts, which commenced in Q2, are expected to yield annualized savings in the range of hundreds of crores from procurement to operations, with benefits anticipated to flow into the P&L from the second half of the next fiscal year. This focus on cost rationalization is crucial for maintaining competitive margins in a volatile market.

Despite a significant contingent liability of INR 21,370 crore from a Department of Telecommunication demand notice from 2021, management expressed confidence in its strong legal position, noting that the matter is at the appellate tribunal level. The company's consistent efforts in managing working capital, supported by timely release of fertilizer subsidies from the Government of India, have also contributed to improved cash flow.

GNFC's Q2 FY26 performance reflects a company strategically investing in its future, optimizing existing operations, and proactively addressing market challenges. With a clear focus on capacity expansion, cost efficiency, and product diversification, GNFC is poised for sustained growth and aims to strengthen its market leadership in the Indian fertilizer and chemicals sector.