BCL Industries Limited (524332) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the BCL Industries Limited Q1 FY '23 Earnings Conference Call, hosted by Quantum Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Prashant Sharma from Quantum Securities Private Limited. Thank you, and over to you, sir.

Yes. Thank you, Renju. On behalf of Quantum Securities, we welcome you all to quarter 1 FY '23 results conference call of BCL Industries Limited. We thank the management for giving us the opportunity to host this call. The management is represented: by Mr. Kushal Mittal, Joint MD. I now hand over the call to Mr. Kushal Mittal. Over to you, sir.

Good afternoon, everyone, and thank you, Mr. Sharma, for the introduction. I would like to extend a warm welcome to everyone attending the earnings call to discuss the first quarter of the fiscal year '22-'23. I hope you and your family are all safe and healthy. Let me start off by taking you through the key financial highlights for the first quarter. The total income for the quarter was at INR 378 crores, which declined about 16% year-on-year. EBITDA for the quarter was at INR 32 crores which was 14% increase year-on-year. EBITDA margin for the quarter was at 8.36%, 221 basis increase year on year. Net profit was at INR 18 crores, an increase of about 5% year-on-year, and PAT margins were reported at 4.68% which is increased about 95 bps year-in-year. Coming on to the operational highlights for the first quarter of the financial year. I would like to start with the Distillery segment. The revenues from the Distillery segment for quarter 1 stood at approximately INR 96 crores, which was slightly lower by 2% against the same period previous year. This is primarily because a routine 10-day maintenance shutdown that the plant took. BCL Industries continues to experience very good demand for both ENA and ethanol, thanks to the company's experience in the grain [indiscernible] for over 3 decades. We are able to stabilize our EBITDA margins in the sector despite overall raw material increase, that's been faced by all. The company has used its vast experience in the trade well against the global grain prices as well. The company further utilized its in-house made and procured paddy extended to supply [indiscernible] rice for its distillery sector. On the expansion front, the company has obtained all necessary permissions for the commencement of Svaksha Distillery, and was able to commence production from July 1st at 50% capacity. But due to the initial issues at the power plant, the company has had to take a shutdown for about 15 to 20 days, and is hoping to come into full production starting September '22. While the production stabilized at Svaksha, the company has successfully obtained the orders to supply ethanol to OMCs and also to Reliance. We've also received the FCI allocation of rice against supply, and we've already started to supply DDGS from this unit. The supply of ethanol will start in the second half of August, as we have some stock ready for us, and the orders are now pending. The only thing that is pending is some special permits that are issued from the Bengal government. Meanwhile, the work for the expansion of 200 KLPD at Bhatinda is under full swing. The company has availed over INR 60 crores from Canara Bank in this project, and this loan is applicable under the subvention scheme. To hedge against rising fuel costs, this company is setting up a boiler fired on paddy straw in this unit. This will help the company in diversifying its fuel needs as paddy straw is one of the toughest biomarkers to utilize, and hence, very few buyers are there in the market. The boiler qualifies for state government scheme in which GST on the CapEx of the boiler will be refunded to the company. The CapEx on this boiler should -- is around INR 40 crores. With regards to the Edible Oil segment, the revenues of the Edible Oil segment for quarter 1 were approximately at INR 260 crores. And the company has been focusing on the procurement of mustard seeds for the production of mustard oil due to a good mustard crop, which increased the overall segment production utilization. This is also evident in the increased EBITDA margin of this sector. The company has also seen a slight dip in the demand because of high volatility of edible oil prices globally, and the government curbing on nation. So, in this situation, there is a low demand when productivity is very high. So the company expects this to settle in the coming quarters. Lastly, in the Real Estate segment, the company recorded a revenue of INR 1.4 crores. In an intent to reduce the financial burden, we will continue to utilize our real estate to liquid debt, which is visible in year-on-year results. Thank you. I would now like to open the floor for questions.

[Operator Instructions] The first question comes from the line of Abhishek Maheshwari from SkyRidge Wealth Management.

Congratulations on the good margins, but the revenue depreciation that we saw this quarter, I think Q-on-Q consecutively 33% decline, can you explain -- in edible oil -- Can you explain how much of this was margin effect and...?

Yes. Firstly, I've always -- in our industry, we never tend to compare quarter on quarter results because this is a cyclical industry, and it's always more accurate to compare year-on-year results. And we've said this previously and have continued to say this again. So -- and whereabout the –- see, in the edible oil industry what has happened is, the government has started curbing on inflation, and edible oil sector is one they're targeting in -- to bring the prices down. And there has been a very high volatility globally in terms of the edible oil prices. And when there's such high volatility, and the people are expecting that the prices might reduce a bit, then there is no distributor or retailer who would want to stock anything. So that's why there is a lower demand which was evident in our commentary previously also, that we were saying that we expect this quarter. And secondly, the summer months always there is low demand. So there have been 2 factors. And we don't want to sell our product at a loss. So that's why naturally, there was a decrease in the revenue from the sector. And we have surpassed our EBITDA margin what we were saying in the past. We surpassed that, and that is only because now there is more edible oil seed available in the market for us to crush and process. And as explained, because we are fully vertically integrated, it is always more profitable for us to buy an indigenous edible oil seeds and then process them in the oil mill or Solvent refinery instead of importing more and more oil and just refining it and selling it.

Sir, we are very happy with the margins. I'm not disputing that, but, even a year-on-year basis, there was a considerable decline in both Distillery and edible oil revenues. Together...

Distillery, I think the decline is very minimal, and there's a couple of reasons. As I explained, there was a 10-day shutdown, which is a maintenance shutdown which won't -- Overall, throughout the year, our capacity utilization will still be 100%, and we won't see any hindrance there. And also in Distillery there was another thing, was, this quarter, we saw DDGS prices being very low. So in that -- in those days, the company tends to stock up on DDGS for selling it because it's -- the price is cyclical, and we prefer to sell it once the price increases, which is -- it is starting to. So that was another factor. So, Distillery, I wouldn't really consider it because throughout the year will achieve 100% capacity utilization. But in the edible oil sector, there has been a lower demand in the market in general. And then it's not just with us, that's with, I think every company you look at in the sector, they have the same story. So we expect that demand to increase.

Has it picked up in this -- over the last month of this current Q2?

The next question comes from the line of Nitin Awasthi from InCred Equities.

Could you please specify the ENA rates during the quarter, [indiscernible] rates, ENA rates, and DDGS rates and broken rice rates?

ENA and DDGS rates during the quarter?

Yes.

So, ENA rates during that quarter were around INR 57 to INR 58. And broken rice rates were around INR 18 to INR 19. And DDGS is a little different than what the market sells. So ours was around INR 24. So, in that scenario, we decided not to sell anything.

So, in the notes, one of the -- in the presentation, one of the notes you mentioned was that you have sold ethanol to Reliance. So how is your pricing with Reliance when it comes to ethanol? How is that decided?

So the pricing with Reliance has been done, which is the same as the OMC. And there are just 2 differences that we've done with them. So the OMCs have passed on a relief amount which we have to build in quarterly now. So that is a relief amount of INR 2.337 per liter. But with Reliance, we'll build them at the time of dispatch. And the payment terms with OMCs is a 21-day credit, with Reliance it's a 15-day credit, but otherwise, the rest of the commercials are the same.

Sir, lastly, what was the power issue in the Bengal plant because of which there is a delay?

There has been a power plant issue with the steam line designing, which will add some difficulties with, which is causing vibration in the turbine. So, we are working on fixing it, and we expect the production to commence in September.

[Operator Instructions]

Just to clarify on the last question, Nitin ji, the average rate of ENA for quarter 1 was exactly at INR 58.8, so closer to INR 59.

[Operator Instructions] The next question comes from the line of Dheeraj Jain, an individual investor.

Did I hear correctly that some approval is still pending from the Bengal government for the Distillery?

I'm sorry, I'll clarify that. All licenses are in place. But in Bengal, there is still an outdated system that once we receive the purchase orders from the OMCs, there's a small procedure where the purchase orders are also forwarded to the state excise and that goes through a chain of commands where they sign, now you can dispatch this, dispatch this. So they gave them a [ tanker ] wise purchase order. And the state government gives us NOC tanker wise to dispatches, which is regular in nature. But for the first time, we're learning the process also. But once first NOC comes, then it would all the regular. There's no clearances pending in terms of licenses, whether that is environmental, fire, boiler, excise. All that is clear. It's just a small procedure that has -- still happens in the state of Bengal.

Sir, if I understood correctly, you started the Bengal Distillery probably at 50% capacity utilization, and then after few days you encountered some issues, right? And then because of that, you had to kind of shut down and then work on rectifying the issue. So, right now, there is no production happening at that Distillery, and then it's going to start only in September?

As we speak, there is no production happening. We stopped the plant about a week ago, and we're still working on the issue. The issues are normal and in the initial stage. But yes, this has been an issue that has prolonged, and we are working on resolving it as soon as possible. But at the same time, we still -- we have some stock available of ethanol, which we should start dispatching this week.

Okay. And by when do you envisage that we would be able to take 100% capacity utilization for this plant?

We're trying within the next days -- within the next 10 days, but to be conservative, I'll -- I would say the first week of September.

Okay. It would be 100%, hopefully, right?

Because most of the plan will…

Okay. And like, what is the status of the Bhatinda plant? When do you intend to start? I believe it is on track, right?

That work is on track as we speak, and we're hoping by December of this year.

Next question comes from the line of Abhishek Maheshwari from Skyridge Wealth Management.

Just my question was actually answered by the previous participants, but I have a follow-up on that. So, when you bid for ethanol tenders, do you already have the economics of it in place? Or once you do get an order is when you place for the grain supply and everything? So, I just want to understand what is the predictability in performance of distilleries. Do we have that?

That's a good question. And to answer it, I would say the -- first to understand that there is 2 ethanols that I can supply -- 2 types of ethanols that I can apply as a grain-based supplier. One is ethanol that is derived from damaged food grains. So, for that, I'll put in a yearly tender. And there is no way right now that I can buy damaged rice in the early contract that is done on -- there are different contracts, some are 7 days, some are months, about 15 days, some are 2 days. So that is all calculated by -- we have a team that sits down and when we forecast the price of grains throughout the year. And that's how we're doing a discussion on how much ethanol to supply under the damaged food grain stage. And same with the fuel. Fuel also has done -- there are different contracts with different time periods. There is no -- although in Bengal we've done a yearly contract for husk, but since there has been exponential increase in prices, which were not expected by anyone, to be honest, we're seeing that the supplier also comes through troubles and he asking for a cost [indiscernible], which is justified. So we might have to revise that as well. But there is also another ethanol that is the -- ethanol that is from surplus food grains. So that has a fixed grade. So that you buy grain from FCI at INR 20 a kg, buy rice from FCI at INR 20 a kg. And there's a fixed amount for ethanol. The only big variable in that is the fuel price. But, see -- yes, that's the major difference. And this year, we've seen an unforeseen rise in the prices of food -- damaged food grains and husk, and other types of fuel as well. So, keeping that in mind, the government has given us a relief, which will be able to build them in every quarter. And also, they've allowed us to -- if we wish to change our supply from damaged food grains to surplus rice ethanol, they've allowed us to do so. For example, we've given more -- we've shifted some of our damaged food grains quantity from -- to surplus in Bhatinda, and 90% of our supply in Kharagpur will be again surplus food grains, against which we already have the necessary orders in place.

And sir, one question regarding edible oil. So, I can see that there has been a considerable price deterioration in edible oil, but are the volumes intact? You have said that the demand is a little less, but what can we do to keep the volumes intact at least, and track that EPS based on margin improvement?

[Foreign Language]

I get it. But regarding volume, sir?

Volume, see, yes, it is improving as we speak, but it's not what we saw in quarter 3 or quarter 4 of last year, I'll be frank about it. And -- but as -- during monsoon and as it gets colder, the volume increases naturally, and there's nothing I can do that's out the way to increase my volume. This is -- the demand factor is there, and that's being experienced by everyone, not just me. So it's nothing that I'm doing wrong [Foreign Language]

Next question comes from the line of Karthi Keyan from Suyash Advisors.

One on your new boiler that you're proposing to set up at a cost of INR 40 crores. I just wanted to understand what is the supply arrangement you have in place for the rice straw? And in what form it will be consumed?

Okay. For paddy straw, we have about 15 days in which I have to procure the entire paddy straw for the entire year, because when there's harvesting, a farmer now have a choice between either burning it and causing pollution or hiring [ bailers ] and making [ bales ] of it and selling it to people like us. So, there is a 15-day period in which I have to secure for the entire year. And I will need about -- my forecast are that I will need about 120,000 tonnes of paddy straw for the coming year, out of which about 70,000 tonnes I have already done the contract with a supplier who will supply me 70,000 tonnes. And the rest, we have a team in place who will start procuring once the harvest season is there.

And what capacity are these boilers? Would it be 30-tonnes?

Mine is a 60-tonne boiler.

And if I may ask you, what would be per ton... 60-tonne, 1.2 lakh, okay, 60 tonnes. Yes.

The fuel consumption?

Yes.

So fuel consumption for this would be around 350 tonnes per day.

And this would be consumed in repeated format?

Yes, it will be in bails. So the bails are of different sizes. They are of 25 kgs, 100, 200 kgs. And these bails will be cut, and then it will be fed into the boiler.

Directly, right? It goes right into the boiler?

Yes, directly in the boiler.

Second thing is on clear security for your ENAs for ethanol [indiscernible]. So going ahead, what should be the mix between Britain grain and FCI or other sources to you -- that the grains [ spoke ] FCI to you?

See, currently in Bhatinda, we're about 50-50 at surplus and damage. And looking at the current market trends, I think next year, we'll be aiming for about 80% from surplus grains, because so much food grain has been exported out of India, and lot of our broken rice has been exported to China and Bangladesh. So there is a short supply in the market when it comes to damaged food grains. And keeping that in mind, we'll shift more of our quantity towards surplus rice.

And you are not seeing any sign of stress in terms of pricing for the surplus grains part?

See, the grain price is increasing as I speak, and we are working on how to battle it. So I won't say it's a very easy situation, but we're managing it well.

Next question comes from the line of [ Utkarsh Somaiya ], an individual investor.

You had earlier guided for a INR 1,000 crore revenue for the current year for the Edible Oil segment, and -- sorry, for the distillery segment, and a INR 1,500 crore top line for the Edible Oil segment. Do you still maintain that margin?

See, in my distillery segment, I think that might reduce a little because Svaksha has been delayed by a couple of months due to these initial issues, which we were not expecting since the plant has been signed in a way that we were not expecting these issues. But if Bhatinda unit is to start in December, then I think we should reach around INR 800 crores, INR 900 crores from distillery, and we're aiming for that still. For edible oil, that just depends on how much further the prices were to decrease, or where they will stabilize, and that's tough for me to say at the moment. But I think around -- still we should aim for more than INR 1,200 at least.

Okay. And your margins were around 4.3% last year, your PAT margins, and you've seen that improve this year. So how would you think the year will end in terms of PAT margin?

That's tough for me to say because our markets in both edible oil and damaged food grain or fuel is extremely volatile. We've not seen anything like this in the past. So it's really tough for me to say. But I think what I can say right now is, as more and more edible oil seeds are available for us, we expect good EBITDA margins from our edible oil sector.

So far, Q1 has been pretty good. So don't we expect similar or better margins throughout the 3 quarters given that even the power costs have come down?

I don't know who's saying power costs are coming down, I would love to contact. Power costs are still increasing throughout the nation. But I think we should try to sustain these margins.

And what is your current gross debt and net debt standard? And what would it be at the end of the year?

Our debt situation as of today is about INR 180 crores in working capital in BCL, and now we've availed INR 70 crores in Svaksha, which is both working capital and term loan, and about INR 60 crores in Bhatinda, we have got INR 310 crores, and we expect by the year -- so this should be around INR 350 crores.

And out of this, how much is term loan of the 3?

INR 170 crores.

So do we expect any of the working capital loan to reduce by the year end or thereafter? Or it will be -- it will remain at the...

Not for this year.

Next question comes from the line of Dipesh Sancheti from Manya Finance.

Sorry, I joined in late, but –- so, apologize if there's any repeat questions.

That's okay.

Firstly, is there any increase in grain prices -- broken grain prices?

Yes. Broken grain prices have increased and are increasing. They're in the increasing trend.

How much -- if you can just quantify by percentage?

Yes. I mean, at the start of last quarter, quarter 1, I would say I was buying grain at INR 17 to INR 18, and today, I'm buying that grain from INR 21 to INR 22.

So, we plan to make the additional grain which we get that -- from that only we'll be doing, right? As you mentioned in the previous question, that 80% and 20%?

See, that is for the new sugar -- that is for the new ethanol year that I would be aiming for my -- 80% of my ethanols to be supplied against the surplus food grain scheme. That's where the new sugar is. But even we have our own rice mills. So, we bought about 300,000 tonnes of paddy in a tender in the state of MP and just going -- so that we can keep supplying rice to our distillaries at a reasonable rate, because even the paddy is old and not many millers will pick it up because the quality isn't good. But we, as a distiller, don't care about the quality of the rice as much. So we do things like that to mitigate the risk. And for that reason, going off the last question, I don't foresee my working capital coming down this year. Because to participate in a tender like this I've to pay cash for 30,000 tonnes of paddy, which is a decent amount over INR 30 crores. And -- but it helps our margins. So we have to participate in -- no competitor of ours does work like this. So, we keep finding opportunities to help reduce our raw material costs. But the rice and the raw material cost is an issue.

And so, regarding that paddy straw question, the total cost of purchasing this is INR 30 crores?

Total cost of?

Purchasing the paddy straw from farmer would be INR 30 crores? That is what you're saying?

No, I never said that. We...

You just mentioned a INR 30 crores figure, that's why.

See, I said INR 40 crores is the CapEx for the power plant.

Okay.

And I just gave a fiscal value to the purchase of...

According to you, how much of that would be paddy, if you [indiscernible] for the entire year?

For the entire year, I mean, I think it should be around INR 27 crores.

And that will be accounted for this quarter -- I mean, in this quarter itself, in the coming quarter, since we'll be buying right now?

No. This will be in the month of October, November.

Now has the Svaksha Distillery started? Or is it still under shutdown?

No, we were able to start plant at 50% capacity utilization, and we were able to produce ethanol and DDGS from it. But there have been some issues in the power plant. So we've had to take a shutdown and we are working on resolving these issues, and we're hoping and working towards coming into full capacity utilization by the start of September.

As of today, it's still under shutdown? Because you said the 15 to 20 days shutdown from 1st of July. So we are in August, we're sitting in August. So that's why I wanted to ask.

No. It has been shut down now. It -- that worked through most of July.

It worked through most of July. So only in August we're having the shutdown for maintenance of this power plant?

I wouldn't say maintenance, there have been some other issues. So, we're working on them.

You think this resolution will be found by September?

Yes, the resolution has been found, it's just implementing it on ground, which is taking a bit of time.