Bodal Chemicals Limited (524370) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Q2 H1 FY '25 Results Conference Call of Bodal Chemicals Limited. [Operator Instructions]. Please note that this conference has been recorded. I now hand the conference over to Mr. Ankit Patel, Executive Director from Bodal Chemicals Limited. Thank you, and over to you, sir.

Thank you very much. Good evening, everybody. On behalf of Bodal Chemicals Limited, I extend a warm welcome to everyone for joining us on the call today. On this call, we are joined by our CEO, Mr. Mayur Padhya. I hope everyone had an opportunity to go through the financial results and investor presentation, which have been uploaded on the stock exchange and our company's website. We will give you a quick overview of the recent developments in the chemical industry, and then Mr. Mayur Padhya will walk you through the operational and financial performance for the quarter. There are several geopolitical issues involved in Russia, Ukraine, Israel and nearby countries, unrest at Bangladesh, Red Sea issue, et cetera, slowdown China, country-specific economic crisis and inflation are several other factors that are impacting global trade. But since last couple of quarters, industry has started living with the circumstances. We have been experiencing stability in demand for our industry products as well as stability in raw material prices. All this gives us confidence that going forward further recovery is there, though at a slow pace. Steps to be taken by new President at U.S. will further decide the fate of the global economy and chemical industry considering the relationship with China. We are India's largest integrated manufacturer of dyestuff, Dye Intermediates and hold a meaningful market share in the world. We also have basic chemicals, caustic soda and recently new product group added benzene downstream products. In today's environment, where Indian suppliers are emerging as preferred partners globally, we have been able to hold our leadership position. Coming straight to the operational performance. During the first half FY '25, company achieved total revenue of INR 858 crores, growth of 27% year-on-year basis. This growth is led by improvement in volumes of all products, but majorly by Dye Intermediates. The absolute EBITDA stood at INR 75 crores, a 25% growth on a year-on-year basis. This growth mainly led by volume and better realization in our Dye Intermediates. Interest, depreciation and other overheads have increased at company level on capitalization of Saykha benzene downstream project. On the other hand, there were negligible contribution by this project at top line level. Hence, the increased overhead offset partially -- profitability of other divisions. For the first half FY '25, our stand-alone profit after tax stood at INR 1.73 crores and consolidated loss after tax stood at INR 1.42 crores. Coming to the Dye Intermediates. During the quarter, Dye Intermediates division has performed better in volume and improved in the realization. For first half of this year, total revenue from the Dye Intermediates business stood at INR 327 crores. Revenue from Dye Intermediates grew by 48% year-on-year basis. In quarter 2 FY '25, revenue from Dye Intermediate business stood at INR 172 crores, grew by 10% on a quarter-on-quarter basis. In Q2, H Acid and vinyl sulfone prices were near INR 444 for H Acid and INR 228 per kg for vinyl sulfone. Being an integrated Dyestuff manufacturer, we produce major dye intermediate products and about 40% of these intermediate capacity is captively consumed, resulting in a cost advantage for our Dyestuff products. The balanced capacity of Dye Intermediates is served in both domestic as well as export markets. Considering the improvement in volume, we are hopeful this division will deliver the better performance in coming days. Coming to our Dyestuff division. End application industries like textiles, leather, paper and other Dyestuff consuming industries have not recovered yet as expected. Revenue from dyestuff stood at INR 259 crores, growth of 14% year-on-year during the first half. In Q2, revenue from dyestuff stood at INR 124 crores, a degrowth by 8% on a quarter-on-quarter basis. During the quarter, Dyestuff industry, major supplier to textile has been impacted by Bangladesh political disturbance. Coming to the Basic Chemicals division, about 40% of our basic chemicals are captively used for Dye Intermediates. Though volume is optimum, however, due to declined raw material and finished good prices, the revenue for first half FY '25 stood at INR 44 crores and has reported a degrowth of 7%. In Q2 FY '25, revenue from Basic Chemicals stood at INR 23 crores, a growth of 13% on a quarter-on-quarter basis. Coming to the Chlor Alkali business. During the first half FY '25, Chlor Alkali business has reported a revenue of INR 155 crores, a growth of 20% on a year-on-year basis, led by the volume growth of 17% year-on-year basis. The revenue and volume remained flat on a quarter-on-quarter basis. The company is expecting further volume growth in coming days with anticipation of better chlorine consumption by surrounding CPW units, including a new player. The prices are improving and looking forward better performance for this division, considering the positive demand in the end-use industry in the medium term. Coming to the benzene derivatives, our Saykha greenfield project, the benzene downstream products has achieved the required quality norms, but due to negligible scale of production, this unit has not contributed to the revenue in the Q2 FY '25. We are now required to achieve and obtain certain certifications to enable us to cater to the pharma industry, which is the major target industry for us. We expect this unit will start contributing to top and bottom line to some extent in Q4 FY '25, and major increase in volume will happen thereafter. SENER BOYA in Turkey is experiencing hyperinflation. During the quarter Q2 FY '25, due to AS 29, there is a INR 1.85 crore loss, and the same is already a part of declared result. Chinese and Indonesian subsidiaries have performed satisfactorily. We have been moving up the value chain and working relentlessly towards diversifying the business from our core dyestuff and Dye Intermediate business to other specialty chemical products like benzene derivatives. Manufacturers and exporters in India are having a challenging time managing the overhead cost. Over the years, chemical industry has seen a transformation. Long-term story of India remains intact and the chemical industry is poised to grow from here on. Thank you. And now I hand over the call to Mr. Mayur Padhya to walk you through the financial performance.

Good evening, everyone. The overall performance of the company has been satisfactory for the quarter gone by. Our stand-alone performance for Q2 FY '25 is as follows: Total revenue for Q2 FY '25 stood at INR 428 crores. EBITDA stood at INR 37 crores. Net profit for the quarter stood at INR 59 lakhs. Our stand-alone performance for H1 FY '25 is as follows. Total revenue for H1 FY '25 stood at INR 849 crores. EBITDA stood at INR 76 crores. Net profit stood at INR 1.73 crores. Our consolidated performance for Q2 FY '25 is as follows. Total revenue stood at INR 434 crores. EBITDA stood at INR 38 crores. Net loss for the quarter stood at INR 24 lakhs. Our consolidated performance for H1 FY '25 are as follows: total revenue stood at INR 858 crores for H1 FY '25 against INR 677 crores for H1 FY '24. EBITDA stood at INR 75 crores and there is a growth of 24%. Net loss for the half year stood at INR 1.48 crores against net profit of INR 3.45 crores in H1 FY '24. Division wise performance on a consolidated basis for the H1 FY '25 are as follows: Dyestuff revenue stood at INR 259 crores. Dye Intermediate revenue stood at INR 328 crore. Basic chemicals revenue stood at INR 44 crores, Chlor Alkali revenue stood at INR 155 crores. Total production volume on stand-alone basis for H1 FY '25 are as follows: Dyestuff reported 7,968 metric tons. Dye Intermediate reported INR 12,785 metric ton. Basic Chemicals reported 113,499 metric ton, Chlor Alkali reported 44,528 metric ton. With this, I conclude the presentation, and the floor is open for discussion as well as question-and-answer.

[Operator Instructions] The first question is from the line of Aditya Khetan from SMIFS Institutional Equities.

Yes, sir, I have a couple of questions. Sir, this one-off loss, which we have taken, I believe we have taken last quarter also. And earlier also, we have taken such losses. For how many quarters are we would be continuing taking these losses from this -- from the hyperinflationary environment and all?

It is difficult to predict because it depends upon the inflationary trend over there, but it is there since about 2 years. So at some level, it should cool down, but it is difficult to say specifically what can happen. But the figures are reducing. Last quarter, it was INR 2.44 crores. And the quarter for which we declared results, it is INR 1.85 crores. So let's hope that it will stabilize at some level, and there won't be further losses.

Okay. And sir, on to the benzene derivatives, sir, do we have the revenue figure for this quarter? Like how much volumes have we done or we are still into the sampling stage only as of now?

Yes, it's about INR 622 crores -- sorry, 622 metric tons is the production and it's about INR 1.4 crores of revenue for this quarter. So this figure will further improve in current quarter. And thereafter, good remarkable top line, bottom line contribution should be there from this division.

And sir for this product, like have we received approval from all the customers or we are still into that sampling stage only at some point in time.

So there are 3 main areas where this set of products are used, I mean, the majority is pharma industry where the PNCB, the main product is used. They are the larger players where we are in the process of getting the approvals. We should get them around the month of December. At the same time, Dye Intermediate players and agrochemicals is again, the 2 space where these products are used. So there, our sampling approvals certification, most of that has gone through. So we have started dispatches this month. We are expecting to reach about 30% utilization in the month of December. In January, we are planning to cross more than 50% utilization.

Okay. So by Jan, you said you are planning to cross 50% utilization?

Over the month of January, our target is to cross 50% utilization.

Okay. Okay. Sir, when we look at the performance of the overall company, so the caustic soda I believe now it has ramped up to the peak utilization level. So this Chlor Alkali business. But sir, it has not been able to provide any, you can say, uptick to the EBITDA margins of the company overall? Like earlier, we were completely dependent on textiles, dyes, paper, the caustic soda is more widely used into detergents and other end user industry. It has not been able to give some boost to EBITDA. Any color, sir, how things will move ahead? Or this is the new normal, like for us, we can -- we will be operating at 7 to 9% EBITDA margin range only?

So caustic soda after the modernization and the expansion last few quarters have definitely been better EBITDA performance in the Chlor Alkali business for us. The reason for the single-digit EBITDA since last few quarters, I think that was due to the lower volumes in dyestuff and Dye Intermediate segments. I think that is what hurt us for few quarters. Now going ahead, caustic remains to do strong EBITDAs as well as now Dye Intermediate is also in a better shape right now. Dyestuff is where we have some volume challenges, but it is still better than the Q1 numbers. I think the only division that needs to start ramping up and contribute to the top and bottom line is the benzene derivatives for us in terms of the large businesses that we have. So I think all other are in a good satisfactory levels. I think as soon as the benzene starts contributing more than 50%, 60%, 70%, I think we can see a good turnaround in terms of the EBITDA as and all.

Let me add here something. Last quarter, we have not seen the optimum benefit, which we should be able to see in current quarter. So current quarter will give us somewhat better result. And once the Saykha project gets stabilized, then there will be new normal. So that will definitely be more than 11%, 12%.

Okay. And sir, on to the Dyestuff and Dye Intermediates like you mentioned, there are some challenges, which prevail for the last 1 to 2 years. Sir, how do you see like -- so the structural things have changed now and the players who are into this business will operate at this levels only? Or do you see something improving here, considering some structural trend, which is changing like lower imports from China or anything like which is changing, which can improve the base of these businesses or which will continue to operate at this range only?

So like Mayur just mentioned, last 1.5 years were slow, not due to structural changes here in the industry in India or due to Chinese imports. It was due to the post COVID relaxation, the 6 quarters were very strong, where our company also performed very, very well. And post that, there was a slowdown in a few sectors, especially manufacturing sectors, because the global demand has slowed down and all these political problems happened across the world. So since then, we had about 6 quarters where things are very slow. But since last couple of quarters, it's on the recovery mode. And I do not believe that going ahead, Dye Intermediate business will be a single-digit EBITDA performance. I think looking at the average of next few years, it should definitely do more than 10%. And with the addition of Chlor Alkali, which does in the range of around 16% to 18% for us. And with the addition of benzene derivatives, I think in a few months, we should be at around 12% to 13%.

Okay. And sir, by when are we expecting these improvements like so in second half or by FY '26 only, we will see?

I think Q4 of this ongoing financial year, we'll definitely have a decent contribution from the benzene derivatives. Looking at current Dye Intermediates order book and the improvement in the Dyestuff volumes and Chlor Alkali going strong, I think Q4 should definitely be a good quarter for us. Going ahead also, there will be some ramp-up in the capacity, maybe reaching the maximum level of the benzene derivative business. So I think last -- Q4 of this year and Q1 of FY '26 will be the optimal year for us.