Agarwal Industrial Corporation Limited (AGARIND.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Agarwal Industries Corporation Limited Q4 FY '22 and FY '22 Conference Call hosted by Hem Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Astha Jain, thank you, and over to you, ma'am.

Thank you. Good afternoon, ladies and gentlemen. Thank you for joining the Agarwal Industry Corporation Limited Q4 FY '22 and FY '22 Earnings Conference Call. Joining us on the call today are the management team; and Mr. Vipin Agarwal, Chief Financial Officer, is there from the management team. We will commence the call with the opening thoughts from the management team post which we will open the forum for Q&A session where the management will be glad to respond to any queries that you may have. At this point, I would like to add that some of the statements made or discussed in the conference call may be forward-looking in nature. The actual results may vary from these forward-looking statements. I would now like to hand over the call to Mr. Vipin Agarwal to commence by sharing his thoughts on the performance and strategic progress made by the company. Thank you, and over to you, sir.

Thank you very much. Good afternoon, and a very welcome to everyone who has joined us today. I take the pleasure of welcoming you all to the Q4 FY '22 and FY '22 earnings conference call of Agarwal Industrial Corporation Limited. Let me start by giving you a brief overview of the company's business and will then take you through the financials. We'll then be happy to take questions you have, if any. Agarwal Industrial Corporation is an integrated ancillary infra company focused on a wide range of innovative bitumen products backed by our world-class logistics infrastructure, which comprises of 5 large marine vessels having a total capacity of 29,500 metric tons. However, the company has recently added one more vessel. And with this addition, we own 3 of 6 large vessels having a total capacity of 38,000 metric tons, which will be used in importing raw material from oil-producing countries. The company has a fleet size of more than 650 LPG tankers and bitumen tankers, 7 bulk storage terminal facilities with a total capacity of 30,000 metric tons, having direct access to the shipping networks located at Hazira port, Mumbai port, Dighi port, Haldia port, Mangalore port, Karwar port and Vadodara and we have recently started Chennai as well. We, along with our subsidiaries, have 6 manufacturing facilities located at Vadodara, Taloja, Belgaum, Hyderabad, Guwahati and Kochi. Kochi is a subsidiary of Agarwal Industrial Corporation Limited. Moving on to the results reported starting with consolidated quarter highlights of Q4 FY '22. The company has seen a growth in revenue of 44% in Q4 FY '22 at INR 652.91 crores compared to INR 453.61 crores in Q4 FY '21. Company reported EBITDA of INR 37.5 crores in Q4 FY '22, a growth of 6% versus INR 35.47 crores in Q4 FY '21. Company reported a PAT of INR [ 23.7 ] crores in Q4 FY '22 versus INR 23.7 crores in Q4 FY '21. Consolidated financial highlights for the full year, the company reported a 77% rise in the total revenue of INR 1601.99 crores in FY '22 as compared to INR 905.50 crores in FY '21. The company has reported an EBITDA of INR 109.51 crores in FY '22 versus INR 72.91 crores in FY '21, which has grown by 50%. On a year-on-year basis, the company's FY '22 PAT surged by 57% from INR 40.53 crores in FY '22 to INR 63.68 crores in FY '22. Further, I would like to add that the demand trend continues to be favorable across the infrastructure industries, which is quite exciting for us as the government has been focusing tremendously on the infrastructure activities. Our customer understands and appreciates the company's execution abilities, which constantly result in financial growth and market share. We continue to demonstrate profitable performance in long term to a relentless focus on leveraging our 2 decades of experience in bitumen and logistics. That concludes my opening remarks, and I will now request the moderator to open the forum for questions from the participants. Thank you so much.

[Operator Instructions] The first question is from the line of Pavan Kumar from RatnaTraya Capital.

Sir, can you give us the figure of volumes for the year or for this particular quarter?

Yes, you want to get the volumes of the particular quarter or the entire year, please?

The quarter?

In the fourth quarter, we have -- last year, we had done about 136,500 metric tons. And this year, we have done close to 155,000 metric tons in the Q4.

And can you give us an idea of what are the comparable FY '22 and FY '21 volumes?

Yes. In the year-on-year -- the entire year, we had done in the year 2021, about 325,000 metric tons. Against this, which we have done about 355,000 tons in the year FY '22. That's a growth of about 20% -- 20% that we usually target. We have targeted a growth over 20%, 25%. But this year, the volume that we increased was about 20%.

So on the gross margin side, we have seen a rapid fall from around 24% to 14%. So how do -- how does the price -- profitability margin get determined dividend. I'm just trying to understand how should we try to actually -- I mean, how do we try to price our products? And is it the gross margin that we look at preserving? Or is it the absolute margin?

No, we look at both the margins. But as you were talking about the margins, if you see my stand-alone financials for the current year, the full year FY '22, there has been an increase in the PAT, if you see. It was about 22.6% last year, [indiscernible] it's about 2.7%. And yes, on a consol basis, which you are, I think, referring to, it is due to the increase in the bunker prices. You are aware of the crude prices that has been very volatile since the war has started and the entire last year. Due to this increase in the crude prices, which ultimately contributes in a higher fuel prices, the bunker prices have increased, you can see almost 2.5x to 3.3x from -- on the year we had started. Still we are able to manage with the good margins only affecting about 10%, 12% of the margins. And since we are doing a larger volume and we are an integrated player, we have good volumes available to be transported in India. So we are able to manage all these things properly in that manner. Since we are an integrated player wherein we have vessels to transport our products in India.

Okay. And I was just looking at your number past year versus this year, there is a trend in terms of your margins of Q2 and Q3 being higher than generally Q1 and Q4. Is it the right understanding?

Q4 is the highest. If you understand, Q1 would be followed by Q4.

I'm talking in terms of gross margin per tonne or EBITDA per tonne, if you wanted to take it that way.

Can you repeat the question once again please?

In Q2 and Q3, generally, are the margins per tonne higher on a gross and EBITDA level?

You mean to say Q4, Q1 or Q2, Q3, you are saying?

Q,2, Q3.

Q2, Q3 is the low margins. Because in the -- if you're comparing the gross margin in these 2 quarters, since the volumes are limited because of the monsoons arriving into India, the volumes are just able to cater to the margin that we usually try to get. And when you increase the fixed cost, all the cost of running the company remains same in Q2, Q3, Q4, Q1, but Q2, Q3, the volumes are low. So your fixed expenses are being met properly. Whereas when you increase the volumes, the other -- whatever margins we incur in the other quarters, it all contributes to the bottom line.

Okay. So basically, what you are saying is in Q2 and Q3 because the volumes are low, you try to take care of your fixed costs.

Yes, especially fixed cost has to be taken care because if you don't take care of fixed cost, then ultimately, that quarter you will incur in losses.

And generally, after meeting the fixed costs, what are the kind of margins you try to make?

That's exactly what you see in the Q4.

I got the point.

Yes, to put it other way, when the volumes are increasing, my rentals in the Q2, Q4 -- Q2, Q3, they remain the same, irrespective of what volumes we do. In Q4 and Q1, if we are doing, say, instead of 10,000 tonnes, we are doing 40,000 tonnes. So only the additional cost of throughput charges, say about -- it's very hardly a negligible amount. Other cost is taken same in the Q1, Q2, Q3, it's all fixed cost, which is being incurred in all the quarters.

And any guidance for next year volume, sir?

We have always targeted internally to keep our volumes minimum about 20% to 25%. If we are able to do the volumes that we target the top line will automatically grow as well as our PAT. And I think if you've seen the last few years, we are able to maintain close to 20% -- 22% of growth in terms of volume. We don't run after the top line because these sizes of commodities are always volatile. It can be up, it can go down. But if you are able to increase your volumes, ultimately your top line should be always on the higher side. There will be an increase in the top line also.

And one last technical question. Since OMCs are choosing to make -- my understanding is going to the pet coke [growth] instead of producing more bitumen. But in case the pet coke prices drop, is it the right understanding that maybe they might come back into the market to supply some extra bitumen into the market instead of that being imported?

So the PSUs, no, no, no. PSUs cannot produce more than 5 million -- 5.4 million tonnes in a year, even if they are not producing coke. If they produce coke, this production will go down anyways. So the maximum production capacity that Indian refineries having about 5 -- between 5 million tonnes to 5.5 million tonnes only. So any increase or additional requirement of bitumen that will be purely imported bitumen only. In fact, we are supplying to HPCL, BPCL.

Okay. But why won't -- I mean, are they now producing coke or not?

They are producing. See, all these refineries have their own integral -- integrated, what you say, PAT systems and models where it supposed in a particular day or a particular fortnight, a product is giving them higher margins, they will produce that product. So there is nothing called a preplanned or fixed plan in infra production of any products in refineries. If suppose fuel oil today for them, fuel oil is a very highly marginal product today. So they are producing more of furnace oil or other oil products, if you say, base oil or all those lubricants and all these products. They are high margin products for them.

But in cross -- in the case that margins on those products drops down of this 5.5 million tonnes, how much do you think might actually come to the bitumen market?

Maximum 5.5 million tonnes that they can produce. That is the only -- that is the cap that they're having, whereas the demand is about, say, 9 million tonnes today.

The next question is from the line of [Abhishek Sharda], individual investor.

Congratulations for a good set of numbers. So my first question is that what is our current market share in private bitumen industry? Like last -- in last quarter, you mentioned that it was around 24% to 28% and previously, it was around 18% to 20%. So at the end of Q4 2022 what is the current market share?

The listed data that is available from Jan to December, they publish it from Jan to December. If you see those numbers, if we add 4 lakh tonnes, the next importer or the next company who imports, it is about 60% of our volumes. If we add 4 lakh tonnes, they are about 250,000 tonnes. So that is the gap between the first and second. That publication house publishes data only from Jan to December.

Okay. So basically, right now, we are at around 25% to 28%...

We are trying to maintain the 20 -- between, say, 22% to 25%, about 28%, 30%. Some months, we go up, some months, we can come down because of monsoon.

And sir, expecting strong growth in infrastructure. Are we looking into some expansion?

At this point, we only acquired the 6th vessel and that would contribute, say, additional 9,000 tonnage capacity. So even if we are doing 15 voyages from that vessel, so we can add about 140,000 tonnes in a year with our own integrated vessels that we will be having.

And sir, in this quarter, we have modified our segment -- the name of the segment in our filings.

It is not actually modified. You cannot say it is modified because we were always into this -- this sector was not available actually prior try to say a few years back or 2 years back. Now this is a model when it has been all these companies who are helping the infrastructure growth. So all these companies are coming under the umbrella of ancillary infra. That is only difference, so it's not a segment though everything remains the same, the segment, because of the volumes or because of the great, what you say, contribution in making India so much of infra development across the country, so it is actually coming under infrastructure actually because even logistics and bitumen supply that we make, it is all contributing to infrastructure.

So sir, what are the sustainable margins for this Infra Ancillary -- Ancillary Infra segment, which like basically contributes around 85% to 90% of your revenue. So what are sustainable operating margins for this segment over long term?

Sustainable margins if you have to say we have been sustaining on the margins that we have been giving across last -- almost 25 years now. So if our revenues and the margins that we have published 2.7%, which this year we have given or if you have to give a range between 2.4% to 2.8%, it is a sustainable margin if you are doing volumes and volumes are definitely going to grow because of the infrastructure development, so many new projects are already lined up. A few already executed, some are under execution and some already in pipeline to be executed. All these new projects will contribute to additional volumes apart from what is already required. This volume may go up from 9 million to an 12 million in say the next 2 years, 3 years. And nowadays, government allowing to do work even during the monsoon after the COVID period. People or the companies who have lost time due to COVID, they can take permission from the respective government bodies, and they can even do work when there is no monsoon. That is -- that will prevail in the coming years. And I think even in the monsoon off season, we can do more volumes.

The next question is from the line of Pavan Kumar from RatnaTraya Capital.

Sir, what would be the CapEx outlook next year?

Sorry, what is that?

Capital expenditure plan for next year FY '23.

So if we have to say, we have -- and as we have declared 6 vessel is just taken over in the current -- if you have to say -- it's in the current financial year. So already we have done about CapEx about INR 50 crores.

That is for the vessel?

Yes.

And do you plan to do any additional?

Additional about INR 10 crores, INR 15 crores we keep on doing a CapEx depending upon the opportunities that we get. If there's opportunity, yes, INR 10 crores, INR 15 crores is always on paper to be put for CapEx if there is an opportunity, good opportunity arises.

And incrementally, sir, our -- so what is the business segment we would like to focus on most? Is this the shipping logistics part? Or is it the bitumen part? How should we...

Both are correlated and both are competing each other. And both are complementing each other, in fact, because if you have vessels, you will never drive in terms of availability of the product. If there is a problem in shipping business from some companies, suppose you are dependent on the third party and he is under stress or if there is some problem in his company, then you may not get the product on time. But whereas as a player like us integrated, who is having their own marine vessels to do the transportation of that product from the origin of the manufacturing to our Indian -- different Indian ports, then you can never fall dry. We always have 10 to 15 days inventory and with these vessels, we always have something in transit your volumes will never go right.

I got that.

It's a very important part. Both are very, very important part because you cannot sell unless you have the product or you cannot have the product without having the backup of selling the product.

And you're talking about sustainable margins of 2.4% to 2.8%. What is that sir, exactly? Is it PBT, PAT or EBITDA? What are we talking about there?

PAT.

PAT margins of 2.4 % to 2.8%?

Yes, because this is -- if you see the year-on-year record. I think this was approximately in this range.

This is on a consolidated basis, is it or...

I'm talking about the individual. I'm only -- I only have informed on an individual basis. But yes, if tomorrow, this war between Russia and Ukraine again comes down and the crude prices again fall to about [USD 60-70], then our shipping margins will again go up because the ultimate effect will come into the bunker price.

So if the prices fall, you are saying the margins will go up?

Yes. If the war is put off, yes, because ultimately, the crude will come down. The crude prices -- prices of crude will come down, which has a direct effect for bunkering, especially. Not the bitumen, but yes, bunkering, yes.

You are talking about the logistics cost part of it?

Logistics, shipping and chartering business, yes.

There you are saying the margins will go up?

Yes, definitely. Because if we are able to sustain good margins in the current year where it is at almost all-time higher bunker prices. And if we're able to give good margins during the current year, going forward, it cannot go above this unless there is a more severe war or something like of situation happens.

But even your chartering rates will go down then, right. Sir?

No, no, no. We have -- see, in our business, the chartering rates are more or less stable. Yes, if you're talking about containers, their prices have gone up. But in this bulk transportation logistics, the prices have remained almost in a particular range. It has not gone beyond. The entire bunkering cost aspiration has not been incorporated in the freight prices. Because if you incorporate the entire cost of bunkering, then it may not be feasible for us to import the product in India and sell.

But are you saying the chartering -- chartering prices will not go down? Is it because of the demand and supply of the vessel.

Yes, definitely. It has remained the same even after the increase in the bunker prices. So there is no question of going it down here, yes, a range, if you say a $2, $3 against a drop of about, say, USD 500 to USD 700 per metric ton in terms of bunkering, it is hardly contributing anything.

I got that.

The next question is from the line of Navdeep Singh as an investor.

So I really congratulate you for a good set of numbers.

Your voice is very slow. Can you be a little louder, sir, please?

Congratulate on good set of numbers. So the only question I was having is from the -- 2 questions I have. One is from the margin front. I suppose these core prices are going higher, okay? So can't we pass it on to the customers because we are the largest supplier of bitumen. So there should be a mechanism where we should be able to pass certain costs to that.

Okay. Any other point? Or should I answer this question first?

Yes, please.

See, all the bitumen -- all the product that we supply in India, it is all -- the prices are all determined by the PSUs. If any fortnight, the PSUs change their prices, so it cannot -- you have to have a particular difference between the local prices and products that we usually import or manufacture from different factories of ours. If there is no difference between the product that we produce and the refineries, then you cannot be selling that much of volumes.

I got your point. So here, we are just depending upon the volumes. We suppose we are going to increase the volumes. And so finally, [indiscernible] the bottom line...

I'm not able to hear the last sentence, please?

Okay. So it is volume like we -- so are we confident with this kind of growth, we would be able to sustain future as well.

Yes. The volumes because our basic understanding of the aim is to increase the volumes and seeing the government focus on that further if there is no question or there's no doubt in our mind that the volumes will not go up.

And the second thing is like in the other expenses also increased, correct? So can you please elaborate on that?

Other expenses for volume growth, I don't think so because all the rentals, the terminal lease rentals that we have. They will remain the same even if you're doing 2 lakh tonnes or 10 lakh tonnes. There is only a small component throughput charges that would be incurred, which is very -- which is compared to only 20% on a comparable basis of the rental charges that we pay. All the other fixed costs will remain the same.

So what is this -- what comprises of these other expenses?

Sorry?

The other -- okay, if I compare it from last quarter, it's fine.

I think -- I think you'll have to refer to the balance sheet because if I put any numbers, it may be -- it may go wrong somewhere.

No, that's fine.

I think you can refer to the balance sheet -- about fixed expenses, rentals, we are having about close to INR 1.2 crores. So that is the rentals.

The next question is from the line of [Dr. Vijay Mishra from Omkara Capital.]

Sir, first of all, congratulations for a very stronger number. My first question is that in your balance sheet, your share capital [indiscernible].

Can you repeat again, please, sir?

In your balance sheet, your equity capital has increased from 10 to 13. So exactly what -- how this happened and when it happened?

There were a few preference shares that we had allotted last year, which were about 1,752,000 shares are fully converted this year.

Due to that, that is in the [indiscernible].

The 25%, another tranche that was being -- the first tranche of 25% against another preference share of 1,749,000 shares.

That is issued in which period, sir?

This is in last FY '22.

FY '22, particular month sir?

The issue -- the preference share was issued in the month of April.

Last year, sir.

FY April '21.

Second question is you -- I think -- I believe that you have plans to increase your capacity up to the [indiscernible].

See, it is not increasing the capacity because we already have capacity to do that much of tonnage. There is additional few maybe 10% additional requirements in the terms of storage facilities that we already have. But with the same set of facilities that we have today, we can reach 10 lakh tonnes.

You have plan for that, sir?

Yes, yes. But of course, we have already close to 1 of the Mumbai refineries production capacity in FY '22. So we are already close to what they're producing 1 of their refineries in Mumbai. Hopefully, we may overtake the production capacity that one of the PSUs have in Mumbai.

Okay, sir. Third one, sir, I believe that you get bitumen from 2 services, 1 from Middle East and other from the PSUs, sir?

Can you just repeat that again, please, sir?

You get bitumen from 2 sources, one you import and other you get form PSUs.

PSU volumes are very low. the major volumes are contributed by importing the product for our different manufacturing plants.

Sir, so in future, PSUs will be totally converting that bitumen into the coke, sir....

They have already done most of the modifications, but as I have informed a few minutes back, it is all margins that they get on a particular product on which they take a call of producing a particular product. If the margin is high, they will produce coke. If the margin is high on fuel oil, they will produce fuel oil or other products that they have under their umbrella. Bitumen, I think is the last that they produce because that is the least marginal product for them.

And in our factory where that bitumen get upgraded or you, sir?

Yes. We manufacture different products of bitumen, emulsion, CRMB.

The next question is from the line of Mohit Savaliya, Individual Investor.

Thank you for giving the opportunity. Now I have to ask 1 question on CapEx front. How you are planning for this CapEx? Is it by way of internal accrual or you are planning to take any debt?

The current vessel that we have acquired, it has all been done from the internal accruals that were there with the overseas company.

And second question is that I just would like to understand the business front, like higher crude -- sorry, lower crude oil prices is helpful for the logistics business, but it is adversely affect to the B2B business. Is it, sir?

It's not -- you're going to say low crude price, but any volatile prices of any product. That is not beneficial in a long-term business. Even if you say today, our daily user product that we use with oil and all those products. So any major volatile in terms of their prices is not good for any major economy of any business. Yes, if range of crude remains 50,55, 60, 70, which was the case in the last 2 years before this war. It was range between 50 to 70. So that range and volatility is understandable, and you can do good business because there is no dilemma of any product prices crashing or going up significantly. Any volatile prices is bad for any economy or for any company or for any sector. Today, we saw in share market. It is going down, down, down. It has gone up. Now it's going down, down, down. It's very volatile. You know how much has it been evaluated from the investors.

Understood, sir. Sir, the last question. Like you are planning to add one vessel. So I believe that, that will help to save the cost?

Yes, we only added, sir.

Okay. And up to what level I can expect operating profit margin to go up?

It's difficult, because...

Any range, sir?

Maybe about 4% from now, if you have to say, because the bunker prices. I'm only if you have to say with this additional vessel, we may be able to increase our margins, another 10%, 12%.

Addition of 10%, 12% from the current level..

Yes.

The next question is from the line of Mudit Jain, Individual Investor.

Sir, what are the current debt levels? And are we expecting to become debt free in near future?

See, the company is not having any major term loans in its balance sheet. Whatever we have is the working capital. And going forward, we can go debt-free by, say '24.

And then my second question is, can you give the update...

One more addition to the sentence. If we don't do major CapEx or any further expansion, so we can definitely go debt free.

Sir, my second question is, can you please provide the updates regarding capacity expansion at Guwahati and Taloja plant?

Taloja, we had already informed earlier also. We have already installed and successfully started the Taloja additional facility that about 4,000 tonnes that we had added that is already operational from the last quarter. Guwahati is also ready when we have started -- starting doing some small sales from Guwahati.

And sir, can you have given the volume guidance for FY '23. Sir, can you also provide the revenue guidance for FY '23?

Volumes all depends on the top -- figures will all depend upon how the volatile product prices of the product is. But if you -- volumes, definitely, we are always trying to maintain between 20% to 25%, which going forward, we will -- our aim is to increase the volume by 20%, 25%. Even at the current prices, we had 20%, 25%, the revenues will definitely grow.

And sir, my last question is, can you please provide the average capacity utilization in FY '22?

I think we have done close to 100% capital utilization of the storage capacity that we have.

[Operator Instructions] The next question is from the line of Pavan Kumar from RatnaTraya Capital.

Sir, did I hear it right that after this deployment of this new vessel, we will see a bump up in margins by 10%.

So in the chartering side, yes, chartering.

Only in the chartering?

Here, the margins will remain same because the volumes or the margins are more or less in a particular range.

And secondly, you were saying that the prices of bitumen, at which you have to -- I mean, sell it to the customers depends on the level at which PSUs price them, is it?

All the discounts or pricing that we offer to any customer, the benchmark is the PSU prices and that is every fortnight.

And any idea, sir, how PSUs actually benchmark those prices according to? I mean, is there any particular....

In this industry, we are aware, but if I have to answer that question, it's very difficult to answer that question because it's all the internal policies of the PSUs. So we are in this industry for so long, we know how the formula works, but we cannot be saying it because it's an integral part of their policy, the PSUs policy.

The next question is from the line of [Rinkle Vira] from Mehta Equities.

When I see we are the largest private player in retail and manufacturing and transportation and other few storage and LPG transportation and renewable energy. So when you provide me the revenue bifurcation from all of this like how much percentage from when we manufacture and how much percentage of comes from transporting the bitumen.

If you see my -- the segment results that we have published, it's already there in that numbers already published in those in the results that we declared. I guess you can refer to the results. Do you want me to give the bifurcation?

Yes, I'll refer it.

Yes, segment-wise, revenue is ancillary, infra, bitumen like products. Here, the total full year, it was about -- I'm just rounding up to the nearest 0, INR 1,344 crores. Shipping and operating contributing to about INR 130 crores, and other petroleum products, INR 58.50 crores, logistics INR 67 crores, windmill INR 1.25 crores, another revenues about INR 8.5 crores.

Thank you. Ladies and gentlemen, due to time limitation, that was the last question for today. I now hand the conference over to Ms. Astha Jain for closing comments.

Thank you. On behalf of Hem Securities Limited, I thank Agarwal Industrial Corporation Limited team for giving the time we spend on this call and responding all the queries in the detailed way. I would also like to thank all the participants for joining this call. I would like to hand over the call to the moderator.

Thank you. Ladies and gentlemen, on behalf of Hem Securities, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.

Thank you so much for all the people who have raised their questions, and I hope we have successfully answered all the queries. Thank you.

Thank you.