BCL Industries Limited (524332) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the BCL Industries Limited Q1 FY '21 Earnings Conference Call, hosted by PhillipCapital (India) Private Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vikram Suryavanshi from PhillipCapital (India) Private Limited. Thank you, and over to you, sir.

Thank you, Faizal, and to everyone, welcome to everyone. Thank you for being on the call of BCL Industries Limited. We are happy to have the management of BCL with us here today for question-and-answer session with the investment community. Management is represented by Mr. Rajinder Mittal, Managing Director; Mr. Pankaj Jhunjhunwala, Director, Svaksha Distillery, a subsidiary of BCL; and Mr. Kushal Mittal, Director. Before we get started with the question-and-answer session, we'll have opening comments from the management. Over to you, sir.

Good morning, everybody, and thank you for your introduction, Vikram. We'd like to welcome everyone to the earnings con call for the first quarter of the financial year 2021. For the ones who are participating for the first time, let me give you the brief background about the company. BCL Industries Limited is a diversified business house in manufacturing and development with business interests spread over a -- spread across a variety of industry verticals, namely edibles oils and vanaspati, distillery and real estate. The company started off in 1976 with a solvent extraction plant of 40 TPD, extracting oil from rice bran. Going forward, the company has grown to become one of the largest edible oil manufacturers in North India, having a capacity of 1,020 tonnes per day. Furthermore, we trade into the business of distillation by setting up own grain-based distillery for extra neutral alcohol of 100 KLPD, along with a bottling unit in Bhatinda, Punjab. The latter has doubled its capacity to 200 KLPD as the business grew. In order to grow in the distillation business, the company is now in the process of putting up another 200 KLPD plant with 8-megawatt cogeneration plant in Kharagpur, West Bengal. Currently, as we all know, the escalating COVID-19 situation and in compliance with the government directions, our top priority at this moment is the safety and well-being of our employees, customers, vendors and all stakeholders. We have implemented various preventive measures in line with the guidelines issued by the government, health care department. As a responsible company, we have taken all precautionary measures in line with the best market practices and have been following stringent hygiene protocols in all our facilities to ensure that our products stay safe for consumption and our workers uphold highest standard of preparedness and hygiene. During the initial days of lockdown, the company was facing labor-related challenges, hence had to shut down operations at both the facilities. We are happy to announce that we have resolved those labor issues to a certain extent and have restarted production with effect from April 2, 2020, at both the plants. Now let me give you the key financial highlights for the quarter. The consolidated revenue for the first quarter was INR 277 crores, which has increased about 27% year-to-year. EBITDA for the quarter was INR 17.1 crore, and EBITDA margins were INR 6.18 crores. Net profit was INR 7 crores, and PAT margins of the company were reported at 2.5%. Coming on to the operational highlights of first quarter of the financial year 2021, I would like to start with the distillery segment. The company distillery unit was able to resume full production within the first weeks of April, as the majority of the production was diverted as the raw material for hand sanitizers, which has opened up a new market for the company. With the company having adequate facility to house all its staff within the factory premises, the full production resumed quickly after the lockdown was announced. Due to the lockdown and the increase in the demand for hand sanitizers, the company saw good demand for ethyl alcohol coming from the pharmaceutical companies, who made up the loss in the demand for potable industries during the lockdown. The company continued to sell hand sanitizers under its own brand, which has become the good growth driver for the company. The revenue for the quarter 1 2021 are INR 138 crores and EBITDA is INR 10 crore. The civil work of the new distillery of 200 KLPD at Kharagpur is almost complete, but with the continuous lockdowns in the states West Bengal, Maharashtra, the project is expecting a delay. Moreover, the -- with the continuous lockdown and the workers not turning up at the sites -- new sites, so we are not putting up our money to a large extent and we are moving slowly and waiting for the things to normalize. With regards to the edible segment, the company experienced an increase in the sale of its own brands like Homecook and Murli during the lockdown as product supplies remained steady. The company was able to penetrate in the people's kitchen during the lockdown as the company kept its production running and supply remained steady. This has led to increase in the demand of BCL-owned brands in the market. Due to increase in the home demand for mustard oil, the company restarted operation of its oil mill and solvent extraction plant of mustard seeds and now focusing more on the retail segment for small packs. The revenue of the edible segment were at 145 -- INR 144 crores with an EBITDA of INR 5 crores. Lastly, the real estate segment went through a temporary shutdown -- slowdown for the period of lockdown, but the company expects the sales to pick up in the coming quarters. The company recorded a revenue of INR 3.5 crores with an EBITDA of INR 1.6 crores. In its attempt to reduce the financial burden of the company, BCL has continued to utilize revenue from its real estate sales to liquidate the debt, which is visible in the year-to-year results. This -- the -- there has been substantial fall in the revenue from the other income, which is about, say, INR 70 lakhs. So that has given the financial work of the -- the financial projections. Otherwise, the working profits -- working results of the company showed a tremendous growth of 41.30% approximately. So thank you. I would like to open the floor for the questions.

[Operator Instructions] The first question is from the line of [ Dipesh Sancheti ] from [ Manya Finance ].

Congratulations on good results. And also, this is the first time that the company [indiscernible] investor presentation. So I just wanted to ask...

Sir, your audio is not clear from your line.

Your voice is not clear.

Hello. Is it clear now?

It's clear now.

Yes. Congratulations, sir, for the good results. Just wanted to have an idea that the trade -- the payable amount, which is there to the creditors, is quite high. It's about INR 159 crores and it's there for quite some time -- for quite some years. What is the reason for this?

I think we have got -- this is a basically seasonal industry and we have to accumulate the raw materials for a quite longer period. So that's the reason -- every time -- there is no major change in the pattern. Pattern remains the same. So that kind of inventory, because we've got a huge segment, starting from the paddy, then rice, then rice bran, oil seeds, vegetable oils, then the broken rice, then the damaged food grains. So there quite a large number of items, which are being procured by the company. So the -- I don't think there is any major change in the pattern of this debtors.

No, I just wanted to understand the pattern itself, that why such a high trade payables left.

You see that ours is a seasonal industry, and we have to have the stocks for the entire, you can say, full year. The paddy season is from November or October to March. So we have to have the full year stocks with us. So that's why, the market rates are prevalent. The rate of interest from the debtors is lower as compared to the banks. So we prefer the market [ end ].

That's nice. Okay. One more question is that due to the MSP, is there any MSP increase in the raw material product?

No, see, the MSP do affect us to the extent, but not to a very large extent because the proportionate price of the finished product also goes up. And I don't think that's major -- that's a major issue. But we are not using the head rice. We are using its tail thing, that's the rejected rice, that's the broken rice, all other things. We don't have much impact on that part of thing.

Great. Great. And...

That's one thing. This year, with the, you can say, tremendous growth in the agricultural sector, the -- all areas, edible oil seeds, whether you take the rice, whether you take the case of millets, all area under cultivation has gone up by at least 10% to 15%. So that kind of benefit will be arriving, that there will be no major escalation in the raw material costs, and we'll be able to have some kind of better results in our finished products. So we're hopeful that margins should go up.

That's great. Okay. Just -- one more question was that since we have come into hand sanitizers, going forward, what do you see that how much of the distillery division will be hand sanitizers and how much will it be IMFL? I mean what will be the percentage?

So you see that at present, we are more considering ourselves -- concentrate ourselves in the manufacturing of ethanol. So this year, we have divested 50% of our capacity to ethanol because there is a focus from the government side also to -- for the procurement. And even this 1-year tender, technical bids have been increased to 5 years. So now they've given us a 5-year clear-cut policy that they will be procuring the entire tendered quantity. So 50% is now this segment. About 10% of the raw material and the finished product is being used for the hand sanitizers business. 40% is the only potable alcohol, used to be 60% to 70%. And that was the reason that the company is going for expansion in the West Bengal for the manufacturing of this ENA. But unluckily, this -- the COVID situation, which started from, you can say, February 2020, is now escalating, and we don't have much labor at that, plus we don't want to put some extra money without focusing -- without seeing a near future. So that project will be delayed about 3, 4 months, and we shall be putting up -- because all the machines have been ordered and everything is ready, but we are not able to take the delivery of the machines due to this continuous lockdown, frequent lockdowns, people not able to travel, train service not resuming, air service not going up to that mark and the works in the various workshops being held up. All these factors we have now decided to go slow on those projects, and we wait for these things to normalize because we don't want to land ourselves -- put our capital into that and have capital starvation.

Right. And so -- what you said is very interesting, sir, that we are expanding in ethanol capacity. What is the current capacity? And how much do you see it going by end of 2021 when the plant actually resumes?

No, you see that the plant -- which plant you are talking about, the Kharagpur plant?

The West Bengal plant. Yes.

West Bengal plant. You see the West Bengal plant is of 200 KLPD capacity, which we, at present, propose to be 100% utilized for these potable alcohol purpose. And the Bhatinda plant, which we are using 60% at present for ethanol and 10% being used for the raw material for the hand sanitizer and the hand sanitizer business, and only about 40% is being [ used ] for potable purpose.

Okay. So all this ethanol is being supplied to the OMCs only, right, HP, BP...

Yes, to oil marketing companies. And this is now a 5-year technical bid, though the prices will be -- you can say, there will be escalation or declination in the prices year-to-year basis.

What is the average realization right now?

INR 50.36 per liter is the average rate, and the same is in the case of ENA.

The next question is from the line of [ Kashish Chopra ], individual investor.

Sir, I'll congratulate you for a good set of numbers. Sir, I just wanted to know what is the comfortable debt level that you are comfortable with. And how do you plan to reduce it? Would it be entirely from the real estate? And in this year, how much debt you are planning to reduce, sir?

You see that about the debt, if you see that -- from the results in hand, the finance cost is continuously coming down. So that is able -- possible with the help of this amount being received from the real estate, which is debt-free. We hope to, you can say, free the company from the long-term debt by year 2022-'23. So that's our target to make the company debt-free, long-term debt-free. We shall be only utilizing the working capital facility as and when required. But I think within 2 to 3 years, we should be definitely long-term debt-free.

Sir, one additional question regarding the employee strength. So did we do any lay-offs or salary deductions in the last quarter? And if we had onboarded any other staff? Has there been any increase in the people who are working for us? If you could throw some light on that.

We have the same work force with us. So -- because earlier also, we were operating on 100% capacity, now also, there is no capacity increase. The -- we are already operating on 100%. So the entire staff is intact with us and healthy, and they are in all good spirits and working good.

I would also like to mention that we did give the staff a temporary pay cut, but keeping the long-term vision and our staff in mind, the staff is back to 100% salary, and we compensated them for the pay cut in the past as well.

[Operator Instructions] The next question is from the line of [ Aniket Kulkarni ], individual investor.

Sir, my question is related to the real estate part. What is the inventory available with the company? And do you see pickup in sales post COVID?

Yes. The inventory realizable -- this market value for the inventory is around about INR 70 crores, INR 60 crores to INR 70 crores, and there is a substantial increase in the sales of the company in the -- after this COVID because we have got a ready-to-move inventory. And 80% of the total -- this -- both the projects are occupied. So only we have got in hand the 20% vacant, which we are realizing in a very good manner. And I think in about 2 to 3 years, we should be able to, you can say, monetize the entire part of it and reduce our debt to 0. This long-term debt, I think, will come to be 0.

Okay. Sir, my second question is related to the preferential issue of share that we did maybe last quarter. So how the funds are being utilized by the company?

You see that these funds have been utilized. Our sales have grown up by about 27% to 30%. So we did not take any extra working capital facility from the banks. This was just to strengthen the working capital facility and to reduce the debt part. So that was done by the -- money put in by the promotors and -- as well as some individual investors.

Okay. And sir, my another question is related to the Svaksha Distillery. So is there any funding constraint related to the project and tentatively by when it will start operating?

You see that the -- there was -- earlier, there was a funding concentrate -- concern. But now all these things have been resolved in March itself. And -- but we have been not able to, you can say, put on back the activity due to this COVID. Because that is a unit situation far away from Bhatinda and the traveling time -- because the manpower and other things, the people who are installing the machines had to travel from Pune to that -- this West Bengal. So the traveling activities are restricted. So we have decided to put hold on the plant, not to put the money and wait for these things to normalize. Because this is not a right to time -- right time to take the loan from the bank and then we find it difficult to serve the interest part without getting any income and without having any realistic time to comment upon when we'll be able to resume the production. Because everything is taking much more extra time as compared to the conditions pre-COVID. So we have thought of that. We should more concentrate on the present activity and not to increase the financial burden by way of interest on the company if we are not able to get the returns in the near future, certain returns. So that project, at present, is slow moving, and we'll be able to give the exact dates only when the things normalize. And we have also not taken any debt up till now for that project. Though the debt is already tied up and everything is -- book closure is there, but we have not availed any term loan at present.

Okay. Sir, one more part. You shared about the 5-year contract with OMC. So is there any price escalation that will be given by OMC?

No, no. There is no price escalation for the -- price will be fixed by the OMCs year-to-year basis. And this year, the government is focusing on greater -- you can say, with the higher food grain production and there's a, you can say, problem of plenty in the food grains. So that's why we hope to have good results in this sector, and we had several meetings with the ministry regarding the exact price. So government is concerned about increasing the capacity. Last year -- I can just refer you. The -- last year, the demand for the -- requirement for the -- from the oil marketing companies was 525 crore liters and -- whereas actual supplies, actual... [Technical Difficulty]

This is the operator. Sir, we are not able to hear you. Please check.

Sorry. It is not just the half. You can say, I was just referring that last year, the requirement of the oil marketing companies was to the extent of 525 crore liters, but their actual supply is less than 240 crore liters, not even 50% demand. So government is focusing by increasing the price, by making the raw material available with regards to these damaged food grains and the allowing of millets and other things. So we hope to get a better price. And the price fixation will be every year accordingly to the food grain prices.

Okay. Sir, one last question related to the edible oil segment. Do you see any capacity utilization with increase or maybe with the good rains? Are you getting more raw material, which was initially the constraint with capacity utilization?

Yes. Sure. Sure. This is -- I think this is one of the questions which I'd like to answer the most. You see that with this area of crop under edible oil seeds going up every year, the capacity utilization -- already, there is a substantial improvement in the capacity utilization. From the results, you'll see that this year, corresponding quarter, there's an increase in the sales of about 18.63%. So the capacity utilization with the current year is also expected to be in the same line and maybe even better. Edible oil sector, we are quite optimistic and bullish about the thing that the capacity utilization as well as the revenue from this will go up without spending even a single paisa on the CapEx part of it.

Sir, what is the capacity utilization as of now?

At present, the capacity utilization is about 60%. And last year, it was less than 50%.

So do you see rising in the next financial year maybe to the 80% or 100%?

We are hopeful that our capacity utilization, we should be able to achieve. We have got the target to achieve 70% capacity utilization this year.

[Operator Instructions] The next question is from the line of [ Niraj Jain ], individual investor.

Can you hear me?

Yes, I can hear you.

Yes. My question is related to the EBITDA margin.

Sorry to interrupt you Mr. Jain, please use the handset as there is a slight echo.

Related to EBITDA margin?

Okay. One second. Is it better now?

Yes. Go ahead.

Okay. Yes. So it is related to EBITDA margin. So as you mentioned earlier that now you have been able to utilize better the capacity that we have on the edible oil front and like you are able to resume the vegetable oil unit production. And also the hand sanitizer front, like, the margins are better, you had mentioned in the previous con call. So -- and we have also been able to increase the sales by 27%. But then why there is a drop in EBITDA margin? Because considering all these factors, we should have seen a better EBITDA margin compared to the Q1 of last year, right, but we see a downward movement, sir.

You see that this is a presentation point. The EBITDA margin practically has gone up, but you see that there are 2 reasons for the decline in EBITDA margins. One is due to the other income. Other income is the part of the rental income the company is having. There are about 3, 4 properties which are on rent [indiscernible] -- during the COVID period or you can say this period, we have not been able to realize the rent part of it, that is, bringing the other incomes down. If we take the other incomes to -- that's not a working profit. Working profit of the company has gone up by 37.59%, approximately 38%. The -- but the realization from the other income part, which is in the way of rent, has gone down considerably. So that has been the factor. Other part is that in the consolidated statement, there has been some expenditure from the Svaksha Distillery. So that has been taken into account by way of interest to the parent company and the -- to other company because whatever unsecured loans we have raised, so we are paying interest to them, but we have no loan from any financial institutions. So that has also been taken in together. If we see the stand-alone results of the distillery part and the edible oil part, there is a substantial improvement in the margins. The profit for the [ liquor ] section does dilute, that there has been increase of 40.81% in the profit before tax in the distillery segment, and there has been an increase of 17.62% in the edible oil section. And there has been an increase of 10.20% in the real estate segment. So profit after tax and profit before tax, PAT, has gone up by 28.90%. But if we exclude the other income part, the rent part, it has gone up by 37.59%.

Okay. And a couple of questions regarding the distillery investment. Also, we understand that because of the present COVID situation, there's lots of ambiguity. But in normal circumstances, like, how many months do we require to start the construction and then come to a point where we can start the commercialization under normal circumstances?