BCL Industries Limited (524332) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the BCL Industries Limited Q3 FY '20 Earning Conference Call hosted by PhillipCapital India Private Limited. [Operator Instructions] I would now like to hand the conference over to Mr. Vikram Suryavanshi from PhillipCapital India Private Limited. Thank you. And over to you, sir.

Thank you, Janice. Good afternoon, and very warm 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 the Q&A -- question-and-answer session with the investment community. Management is represented by Mr. Rajinder Mittal, Managing Director; Mr. Pankaj Jhunjhunwala, Director, Svaksha Distillery, which is a subsidiary of BCL; and Mr. Kushal Mittal. Before we start with the Q&A session, we'll have some opening remarks from the management. Over to you, sir.

Good evening. And thank you for introducing, Vikram. We'd like to welcome everyone to the earning con call for the 9-month period and third quarter of the financial year '19/'20. For the ones who are participating for the first time, let me give you a brief background about the company. BCL Industries Limited is a diversified business house in manufacturing and development, with business interests spread across a variety of industrial -- industry verticals, namely edible oil, 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 be one of the largest edible oil manufacturer in North India, having a capacity of 120 TPD per day. Furthermore, we frayed into the business of distillation by setting up own grain-based distillery of extra neutral alcohol of 100 KLPD along with a bottling plant in Bhatinda, Punjab. And later, doubled it's capacity to 200 KLPD as the business grew. In order to grow the distillation business, the company is now installing a new state-of-art distillery of 200 KLPD, with 8-megawatt cogeneration plant in Kharagpur, West Bengal. Now let me give you the key financial highlights for the quarter. The consolidated revenue for the third quarter was around INR 268 crores, which increased by approximately 9%. EBITDA for the quarter was INR 15.9 crores and EBITDA margin for 5.93%. Net profit was INR 8.5 crores, and PAT margins for the company were reported at 3.13%. On the year, the data basis the consolidated revenue for the 9-month period for the financial year 2020 was approximately at INR 700 crores, which increased -- which has increase of 7% on a year-to-year basis. EBITDA stood at INR 49.5 crores, EBITDA margin for 7.70% (sic) [ 7.07% ]. Net profit was INR 22.4 crores. PAT margins were 3.2%. Coming on to the operational highlights for the third quarter of the financial year '19/'20. The company's performance has been boosted due to ethanol policy, and company has tendered approximately 3.7 crore liters of ethanol for the period starting from December 2019 to November 2020 (sic) [ December 2020 ]. The ethanol prices were initially revised upwards by nearly INR 0.50 per liter, resulting in low contracting by the ethanol suppliers of -- from the damaged food grains, which was apprised to the OMC looking into the fact that the MSP for various food grains has been revised on hefty basis. The OMC considered further upward revision of INR 2.75 per liter. This has resulted in the hike in the quantity of ethanol to be supplied, which will result in greater realization on -- in the forthcoming quarters. BCL is currently in talk with the Punjab Agricultural Department to diversify, procure maize from the local farmers with a serious emphasis on crop diversification by the State of Punjab. BCL plans to run entirely on maize and set up a maize germ oil plant from the internal cash accruals for greater value addition. The distillery segment recorded a top line of approximately INR 113 crores for the third quarter. The civil work of the new state-of-art distillery 200 KLPD plant, Kharagpur, West Bengal, is under its subsidy -- subsidiary is in full swing and expected to commence the production about 9 months from the financial closure. Now coming to the edible oil segment. Due to sharp increase in the prices of imported oils, BCL was able to process more local oils, resulting in a greater capacity utilization and increase in the revenue. Farmers also experienced greater remuneration for their seed crop, which will further boost crop diversification towards oilseed. Due to the festive season, BCL experienced an increase in the demand and sale of its edible oil products. BCL resumed it's solvent extraction plant and production of rice bran oil. With the national emphasis on the crop diversification and the increase in the cultivation of cotton and mustard, BCL is already experiencing greater realization from local oils, which is forecasted to increase even further in the quarters to come or years to come. The edible oil segment generated a revenue of INR 150 crores for the third quarter of financial year '20, which is an increase of about 16% on quarter-to-quarter basis. Lastly, the real estate segment continues to be a steady contributor of the cash flow for the company, recording revenue of INR 5.5 crores for the third quarter financial year '20 in its attempt to reduce the financial burden of the company. BCL will continue to utilize revenue from its real estate sales to repay the debt, which has been reflected in the annual results. Thank you. And now, I open the floor for the questions.

[Operator Instructions] We take the first question from the line of [ Ayush Agarwal ], individual investor.

Sir, can you hear me?

Yes. Yes. Continue please.

I would like to understand that why did we report segment profit drop in the distillery segment when our revenues increased? ENA prices were also up during the season?

I didn't understand your question. There is no drop in the -- you can still have profit of the distillery section as compared with the -- this -- from quarter to quarter because it's a seasonal industry. The prices of grains depends from that particular season. So we have to compare the quarter to quarter, not the corresponding quarters -- previous quarter. The corresponding quarter, we have to compare. I have the results in front of me. There's a increase of -- you can say, the profit from INR 22.04 crores to INR 25.10 crores.

But even if we look at...

There is 88% increase in the profits.

Right. But sir, in FY '19, in the distillery segment, we had around 11% margin. And for, 9-month FY '20, our margins are around 8%. So they have actually fallen by 3%...

Our margins depend upon the per liter we produce. It doesn't have the value consideration, you can say. Our margins are almost fixed on the per liter that we are able to produce. So because the value has gone up, the margins percentage-wise have come down. But otherwise per liter, it has gone up.

Right. Sir, how much ethanol did we sell in the last quarter?

Last quarter, you see that, as I mentioned in my -- this opening speech, you see that the supply period starts from 1st of December to 30th November. This year, the price of ethanol was from the damaged food grains we are talking about, in which segment we supply. See, it was increased by just INR 0.50 paisa per liter, whereas the input cost has increased and the prices of ENA were also really high. So representation from the -- all distilleries in this segment was made to the government, and government now has revised the rates. So that's why there was -- the supply was low in the first quarter. And we -- now we have again tendered on the increased rates because, if we'd have tendered for the entire year, we would not have that kind of a benefit of the increases. The company smartly only supplied a small quantity in the first 2 months, just to keep on the momentum -- keep on the supply line working. So now we'll be -- we have tendered about 3.5 crore liters on the enhanced price, which is starting from February through November 2020.

Right. But sir, I wanted to know the volume for the last quarter we sold ENA -- ethanol, sorry?

We are utilizing our capacity to the fullest. So whatever 100% capacity either on ENA, either on ethanol.

Right. And sir, what is our long-term debt as of 31st December?

Long-term debts, I think, is about -- the long-term debt would be for the plant and machinery just INR 26 crores, but there is a rent discounting of loan of about INR 45 crores, so which is self-service price in, you can say, rental properties of the company, 3 rental properties of the company, which are facing rent about -- just about INR 50 lakhs per month.

Right. And sir, how do you see ENA prices going away?

You see that this year, we hope to have a much, much better year because the sugar production in the State of Maharashtra is on the decline side. The availability of this spirit is on the lower side. And there is a quite large quantity of this spirit being diverted to -- for this ethanol manufacturing. So we hope to have a good season. And with this increased price to INR 2.75 per liter as compared to the last quarter, we hope to have much better results in the forthcoming quarter or the next financial year and the current -- this quarter, which is -- will end on 31st March.

Right, right. And sir, on the new CapEx, how are you on the track to commence it in Q1 FY '21?

You are talking about the Svaksha?

Sir, in the Kharagpur, we have [indiscernible]

So you see that everybody is well aware about the -- you can say the tough conditions being imposed by various bankers regarding providing of some collateral and other conditions, and mainly, this factor is being sensitive depending upon the -- you can say, state policies that are there. So the banking really has become a quite tough job. We hope to commence the production from the financial -- within 9 months from the date of financial closure. The financial closure has not happened. Though we have spent almost, you can say, almost our share of -- you can say, CapEx in the civil work and land. So we are hopeful that we should be able to catch the deadline, but we keep our fingers crossed because of the financial closure has not happened.

Right. And sir, what kind of capacity utilization are we expecting in that plant in the starting 2 years?

I think the -- after 6 months, we should be able to have 100% capacity. In this industry, here also, we are having our 100% capacity utilization for the last 3, 4 years.

Next question is from the line of [ Ankit Kulkarni ], individual investor.

Sir, have we received work order from the OMC for ethanol supply?

You see that for the first quarter, starting from December to February, that work -- that supply order is already with us, and the supplies are continuing. And we have already supplied about 50 lakh liters in this -- about 2 months and 10 days. So now the next -- this tender for the supplies is only the bidding of the station and the quantity. The rate is fixed for all the people. And against their, I would say, 250 crore liters requirement, everybody has bidded. And the last date was on 7th of this month. We hope to get the balance quantity supply order within this week or maybe 1 or 2 days plus/minus.

And at what rate will be the new tendered quantity be? At INR 50.75, if I am not wrong.

INR 50.75.

That will be INR 2.75 higher.

Yes. INR 2.75 higher from the previous rate. And from the previous year if you take, that's INR 3.25 per liter.

And what's the average rate of ENA as of today?

As of today, the average rate of ENA is about INR 50.50 per liter. It will be same as of ethanol.

Sir, and how much real estate inventory is left in our book?

You see that realizable inventory is about -- still about over INR 80 crores. And we are monetizing it on, you can say, very fast, and we should be able to monetize within 2 to 3 years the entire stock and put the money back into the industry.

And so, entire realization is going towards retiring the debt?

Yes. That's going towards the retiring of the debt. You must have seen the results. We are -- the finance cost has come down, and we are reducing our debt on the, you can say...

Sir, and what is the debt as of Q3?

As of Q3, you can say that -- just long-term debt is at INR 26 crores on the distillery side and about INR 45 crores on the lease renting discount.

And the short-term debt?

No. That's the short term, that's also the long term. That's also long term. But that is not -- that is being served by the properties which are owned by the company on rental basis -- lease rent discounting model.

And so does this debt include the new CapEx? Or is it going to add going forward?

No, no. This Svaksha debt is not to be taken into BCL Industries. You can say that, that will be in the books of Svaksha. There will be no further debt in the books of BCL Industries.

No. But in the consolidated books, it will be in BCL industry, if I'm not wrong?

Yes. It will be reflected in the BCL Industries balance also.

Yes. So what will be the debt once Svaksha is completed?

INR 90 crores.

INR 90 crores?

INR 90 crores additional.

INR 90 crores additional. And from our side -- the equity side has been done from our side?

Yes, yes. Done. That's complete. That's complete.

Okay. Sir, what revenue and margin guidance you can give for -- from Svaksha Distillery?

You see that Svaksha should be -- as far as the margins are concerned, should be much better place as compared to the BCL plant at Bhatinda. Because you see that the State of West Bengal is deficient as regards to the -- you can say, the suppliers threat. I think, I'll hand over to Pankaj. I think he will be able to better reply the, you can say, the benefits derived from the Svaksha Distillery as regards to the revenue and other things. Pankaj?

Right. So from the new unit, we are envisaging a revenue of almost about INR 450 crores to start with. And the EBITDA, we are expecting is at about 15%. The primary reason being because in the State of West Bengal, if you are importing ENA, there is a excise duty being levied on it by the state government. But since we'll be producing in the State of West Bengal itself, so we'll be getting that additional benefit out there. So if you see, in the case of BCL, if the EBITDA is about 10%, 9% to 10%, in the case of Svaksha, it will be enhanced by another 5%.

So you said INR 450 crores.

I don't say -- loan component part also, let me add to it that INR 90 crores is a debt which we are looking at in Svaksha Distillery Limited. But out of that, only because BCL is the 51% holding company, only about INR 45 crores odd will be reflected in BCL books of account, rest will remain in Svaksha itself.

So you just said INR 450 crores in revenues?

Yes, annually. Out of which, 51% will get into the CBS consolidated balance sheet of BCL Industries.

Okay. And sir, what about the edible oil vertical, what guidance can you give going forward?

You see that edible oil will be -- not be the part of subsidiary. We're not putting edible oil unit in West Bengal. However, at the BCL Industries, we hope to -- we are quite optimistic about the future because there's -- the government has now realized that we have to be much more self-sufficient as regards to the edible oil section. And with the increase in the duty and the increase in the MSP, the price of edible oil seeds have gone up. And the farmers have also enjoyed a better benefit and in comparison of the food grains. So we hope to have more diversified -- you can say crop diversification -- farmer taking the crop cultivation of edible oil seeds. And this year the -- this -- for the last 2 years, there's a gradual increase in the production of edible oil seeds. And that's why you must have observed that, if you take the past 3, 4 years difference, there has been continuous improvement in the edible oil section of the company. And that will continue.

Next question is from the line of [ Abhishek Jariwala ], individual investor.

My question is regarding edible oil segment. So BCL industry is importing approximately 40% of raw material based on 2019 of annual report of ours, which is probably crude palm oil. So now there is hike in import tax on crude palm oil up to 44%. So due to which, the spread of imported refined oil and crude palm oil had decreased. So will it affect our business at all?

You see that it will have a very, very positive impact on the working of the company, because you see that, we are situated far from the port. So this 40% imports, as rightly mentioned by you, is a compulsion type of -- to feed the market or to keep the things moving at the plant level. So with -- this increase in duty is because of the, you can say, our association with the Solvent Extractor Association of India, Soya Bean Processor Association of India and the various representations from the industry, which have a composed integrated complex. Our complex starts from the seed and ends from the final packing of the edible oil. So as and when the duty goes up, it will be positively affected. As I mentioned in my speech also, that with this increase in the duty, the local edible oilseed prices have gone up, resulting in better utilization by the farmers on this particular produce of the edible oilseed in comparison to the food grain. And that's what the government wants, to produce the import and give the remunerative price to the farmers, and they go for more cultivation of edible oil seeds. And this is happening for the last 2 years. So that's why we are benefited.

And what is the capacity utilization of edible oil segment in quarter 3?

Edible oil capacity utilization is anywhere for the full year would be round about 40%.

Next question is from the line of [ Ayush Agarwal ], individual investor.

Sir, from our last discussion, if I understood it correct, then you said that the absolute amount in our margin -- in our distillery profit hasn't dropped, right?

Sorry? Repeat again.

The absolute amount in our distillery profit didn't drop according to you in our last discussion, right?

Yes, if we calculate on the per-liter basis.

Per liter?

Yes. You see that, the 9 months -- if you take the 9-month profit of this December, our profit was INR 22.04 crores as against INR 25.10 crores in this current year. 9 months, I'm talking about. There's an increase of about INR 3.6 crores, which comes to about 13.88%.

Okay. Right. But sir, is the volume dropping because in March -- in the March quarter of FY '19, we had a profit of around INR 13 crores, and now it has dropped to around INR 7 crores. So what is happening? Are the maize prices changing so much? Or is the volume dropping because we started our ethanol plants to have some kind of stability, but we are not seeing that yet?

Yes. Well, you see that there's a complete stability. You see that it depends upon the demand, because sometimes, the -- you have -- this is a product of seasonal, you can say, the -- we go on producing, but we are not able to sell in some time. The stock depends -- I don't know in which particular quarter, what was the stock position at the end of the quarter. So -- but you see that, once you consolidate the things on a yearly basis, the demand and supplies within October, this being a festival time, there is a lot of liquor consumption is going on. And you see that ethanol supply also changes from time to time. It depends upon the petrol demand of the corporation. But at the end of the day, at the end of the financial year, you see that all is consolidated. So that's why I'm talking about the results on 9-month basis. So there has been improvement and further improvement should be there in this current account, and we should be able to have about 15% to 16% more profit as compared to the last financial year and this current financial year.

So sir, what is our target for the next year in terms of per liter of profit?

Per liter of profit, I cannot comment on it right now. But we only see that there has been an increase with the ethanol prices. There has been an improvement in the stability, the capacity utilization is certain almost 100%. You can say the kind of financial -- you can say, the revenue on account of this realization is stagnant, and it only depends upon the price of the grain in that particular season, the grain prices will come down, and in the off-season, the grain prices goes up. So these are the few things which you can say we are about to -- we cannot really, you can say, tally our -- you can say, the previous quarter and the current quarter. Every quarter has its own problems and all benefits and other things. So the thing is that at the end of the financial year, when we take the average of all the things, so that comes to say about -- it will come to round about INR 5 to INR 6 per liter.

Right. And sir, as you said that once our Kharagpur plant starts, we'll almost turn that optimum capacity in like 6 months. So since we are serving 30% of our revenues to West Bengal right now, so I'm assuming, that there'll be some headroom in our current capacity in Punjab. So do we already have inquiries because, then our capacity will be underutilized, otherwise, I mean, if we don't increase the feed there?

It's really an interesting question. You see that the present requirement of ethanol is about 100x as compared to the production. Last year also, I gave you the figures for this -- that there was a huge gap between the required quantity and the supplied quantity. So that kind of a situation will not arise in about 10 to 15 years. We will increase this ethanol supply as and when we are able to start our -- this ENA plan. So we'll be diverting about that point of quantity for ethanol manufacturing. So last year, you see that from all 3 sections, the total quantity LOI were issued, the total requirement of 329 crore liters, and the quantity tendered was 269 about and contracted was 250 -- 244, and supplied was 188. Against the requirement of 329, there was only supplies of 188. And this year, you will be surprised to know the total requirement of OMC is 529 crore liters. Against that, there are only -- you can say received the -- this consent to supply for just 150 crore liters. Not even 20 -- not even 30% of the total you can say the requirement. So there will be no question of underutilization at any point of time. We'll be utilizing our capacity 100%. We'll be diverting part of -- or moreover, you say that by the time that plant comes into the production, this demand and supply gap between the -- this portable alcohol and the supply will also increase.

And to add to this, what just Mr. Mittal said, in the State of West Bengal itself, the current demand is about 900 KLPD, whereas the supply is only 200 KLPD from the local units. So even after Svaksha operates, the deficit is still going to be there in the State of West Bengal itself.

Yes, exactly. That was my question when like -- when we divert our current capacity from our Bhatinda plant to the Kharagpur plant, we'll have a headroom of around 30% because that's what we mentioned in the presentation that 30% of our revenues come from West Bengal. So that was my question. And Mr. Mittal clarified it very rightly. And sir, my second question would be, in our large contract of 3.2 crore liters, which was floated last year, we had sales of around 23,300 kiloliter till September '19. That -- on deducting that, we were left with around 8,634 of kiloliter to be serviced under the large contract. So were we able to fulfill that contract?