BCL Industries Limited (524332) Earnings Call Transcript & Summary

[Audio Gap] 2019/'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 over a variety of industries, namely edible oils, rice, vanaspati, distillery, real-estate, and also the manufacturing of ethanol from the damaged food grain not fit for human consumption. The company started off in 1976 with a solvent extraction plant of 40 tonnes per day, extracting oil from rice bran. Going forward, the company has grown to become one of the largest edible oil integrated manufacturing units in the north India, having a capacity of 1,020 tonnes per day. Furthermore, we have ventured into the business of distillation by setting up a grain-based distillery for 100 KLPD along with the bottling plant in Bhatinda. Later on the capacity was doubled to 2,000 KLPDs as the business grew in 2016. In order to grow the distillation business, the company is now starting a new state-of-art distillery of 200 KLPD with 8 point -- 8-megawatt cogeneration plant in Kharagpur, West Bengal. Currently, as we know, the escalating COVID-19 situation, and in the compliance with the government direction, our top priority at this moment is the safety and well-being of our employees, customers, vendors and all our stakeholders. We have implemented various preventive measures in line with the guidelines issued by the government healthcare department. As a responsible company, we have taken all the precautionary measures in line with the best market practices and had been following stringent hygiene protocols at all of our facilities to ensure that our products stay safe for consumption and that our workforce uphold the highest standards of preparedness and hygiene. During the initial days of the lockdown the company was facing labor-related challenges, hence had to shut down operation at both the facilities. We are happy to announce that we had resolved all these labor issues in a certain extent and have restarted production April 2, 2020 itself, in both the plants. Furthermore, we would also like to inform that the company has received the required permission from the Commissioner of Food and Drug Administration Punjab to produce and supply hand sanitizer from our distillery within any region in India. The hand sanitizers are the major component for the prevention of COVID-19 and supply for this is in the interest of the humanity. As you are aware, the company distillery capacity is 200 KLPD which is to produce hand sanitizer, hence we have dedicated certain capacity for that sanitizer, and the manufacturing sanitizer raw material as well. The company has also restarted production in the sale of edible oil section in the same month from April 2, as the same was falling under essential commodity, in line with the orders of the central and state government. The company is taking all possible efforts to ensure uninterrupted supply of edible oils to our customers across channels, general trade and modern trade. The company is slowly mitigating the labor challenges and hope to ramp up the production in the coming days. Now, let me give you the key financial highlights for the quarter. The consolidated revenue for the fourth quarter is INR 225 crores, which decreased by around 9% year-to-year. EBITDA for the quarter was INR 13.75 crores -- INR 13.7 crores and EBITDA margins was 6.07%, net profit was INR 3.53 crores and PAT margins for the company was reported at 1.55%. Now, the consolidated revenue for the full financial year 2020 was INR 925 crores with an increase by around 2% year-to-year basis, EBITDA stood at INR 63.2 crores, EBITDA margins were 6.83%. Net profit was INR 25.8 crores. PAT margins for the period were reported at 2.79%. Coming on to the operational highlights for the fourth quarter of the financial year 2019/'20, I would like to start that the distillery segment, the company successfully diversified into manufacturing hand sanitizers with the rise of demand and as well as the basic raw materials, E&A for the hand sanitizers. It was started as a CSR initiative, soon became a new growth avenue for the company. Due to the lockdown and increase in the demand for hand sanitizers, the company saw good demand for ethyl alcohol coming in from the pharmaceutical companies which partially made up the loss in the demand and potable industry during the lockdown. The company successfully launched its hand sanitizer brand which was well received in the market and will cater to entirely new market for the company in the coming quarters. Due to the maintenance shutdown for the month of March and then forced government lockdown, the company was not able to achieve the desired utilization, and that affected the realization and the profitability. The revenue for the quarter 4 2019/'20 was INR 91 crores and EBITDA is INR 7.1 crores. That civil work as regarded moot product in the state of West Bengal, the civil work for state-of-art 200 KLPD plant in Kharagpur, West Bengal, the subsidy Svaksha Distillery is going on. The turnkey contract of the project has been awarded to Praj Industries Ltd. With regards to the edible oil segment, the sharp downfall of the prices of global vegetable oils, as these vegetable oils follow the price range of the crude, it is governed to some extent, the price of crude because large part of the soybean oil and the palm oil is converted into biodiesel. Post the competitive book, significant losses on its outstanding contract. The price has recovered since then, and will be reflected in the coming quarters. Around 70% of the company's demand comes from the citizens and the buyers who are suffering from an economic slowdown, and were affected further due to COVID-19. This resulted in lower demand for the company's bulk packing. Due to increase in the home demand for mustard seed oil, the company restarted operation of its oil mill and oil extraction of mustard seed oil, and now focusing more on the retail segment or small packs. We continue to promote our own brand and the revenue for the quarter stands at INR 133.5 crores, and EBITDA was INR 5 crores for the quarter for 2019/'20. Lastly, the real estate segment continues to be a steady contributor of the cash flow for the company, recording revenue of INR 5 crores and EBITDA of INR 1.7 crores for the quarter under review. And in an attempt to reduce the financial burden of the company, this year has continued to utilize revenue from its real estate sales to liquidate the debt which is visible in year-to-year results. Thank you. I would like to open the floor for questions now.

[Operator Instructions] The first question is from the line of [ Nitin Ranjit ] from [ Cap Stock ].

My question is pertaining to a new accounts capacity which is coming up in West Bengal. So what's the estimate of the cost? And when is it expected to make commission?

You see, that capacity is 200 KLPD per day and the CapEx cost involved was INR 147 crores. So we have -- you can see a mandate from the Punjab National Bank regarding the sanction of the loan, but the present situation does not permit us to give advance to the supplier for the reason that they are not able to mobilize men and power at the erection site. So we'll have to wait until the things normalizes and I don't think that we will take much time after things normalizes. We should be completing the entire project within about 6 to 8 months because everything is in line. We have got funds in our hands, but since we do not want to part with the cash part with the company at present to give to the supplier, and maybe we will wait indefinitely for the execution of the project. So as a corporate decision we have taken, that we will be only releasing the advances -- further advances against the supply of machines when the things normalize. So in the past, normally, we have made an investment about more than INR 37 crores at the unit.

Okay. So you expect it to getting started within the next financial year? And one more thing...

No. You see that I am not sure, because the situation -- when the situation improves. Because now no traveling is there. The labor can't move. Trains are not moving. So we cannot take them to the site for their actual purposes. If by hook or crook we get the machines at site, they will not be installed, rather we'll be losing our warranty and other things, because the warranties from the 1 year from the date of dispatch. So all these things combined together, so we have taken a decision that we will not go with the project until -- unless the things normalizes. And once the things normalizes, we'll not take much of time in getting the plant elected and commissioned, because everything is in line.

Okay. And one more thing, my belief is that we have an ethanol capacity of -- currently you have an ethanol capacity of 200 KLPD. So given the demand situation, have you like bid for any of these ethanol blending problem of the government? Because I believe that they are giving a realization of about INR 47 later in case we are producing it from grains. Can you help me understand how it works?

Okay. Yes. Let me answer. You see that we at Bhatinda, we have a capacity of 120 KLPD for production of ethanol per day. So we had already bidded for about 4.33 crore liters for the supply of ethanol from damage food grains. And let me correct you, the present [indiscernible] earlier it was, at the round 1, it was INR 47.60, but later on it was enhanced. So we bidded for the enhanced rate, and up till date we have supplied about 1.53 crore liters of this ethanol to various locations to the oil marketing companies. And for the third-fourth quarter, the supplies are on. And third-fourth quarter I am happy to inform you that the sales -- the production and the sales is almost at the 100% capacity of the ethanol plant.

Okay. So the margins would remain around 8% mark, in case we are supplying to OMCs, the margin remains at 8%, right?

Margin depends on the price of raw materials. It varies on the fuel cost, it varies upon your labor cost, and presently are having some extra amount you can say being spent on the labor part. But you are right, at present the margins should be around those as anticipated by you.

And if I may ask you, what would be the repayment obligations long-term, repayment debt obligations over the next 2 years?

We have got a very little -- you can say, long-term debt. The long-term debt is only on account of the distillery. The new distillery, which has got debt around about INR 27 crores. So that we have not even taken the moratorium in that account. So our accounts are all regular in that season, and I think that loan should be over by 2022. But that is in, all in, you can say standard account, we don't have any extra liability to that extent.

Okay. And if I may ask one final question. So my question is, my final question, is regarding the unsold inventory which we hold in the real estate segment. So how much would that be worth? And do we have any plans for any of the projects?

You see that none of it -- we don't have any exposure to any of the real estate projects, except the 2 projects which we have already completed, logged back. And we are able to monetize the, you can say, inventory in a much faster way after this COVID-19. Because everybody does not want to buy grains, so ours is a ready project, ready to occupy, ready to move in. And we are having very good response, in fact the best response ever in the month of June and July to monetize these inventories, and we are quite hopeful that we should be able to mop up our INR 60 crores to INR 70 crores within 2 years to repay our entire debt.

Okay. So the finished unsold inventory also stands around the INR 80 crores mark, right?

So it is about INR 80 crores. The entire project is finished and ready to occupy. So whatever inventory we hold is in finished form, not in raw form.

The next question is from the line of [ Nikhil Chaudhary ] from [indiscernible].

Sir, I had a couple of questions. The first one is with respect to the ENA prices, sir. Actually, I just wanted to understand what usually drives the ENA prices? Is it that the demand-supply or there are some external factors like minimum support price? Because I understand ENA is based on greens, so I am just trying to figure out like what would be the outlook on the prices in short term to near term, considering the demand tends to be muted and you tend to supply to the FL manufacturers and some OMCs also?

You see, that the -- there is the reason that we converted our half of the plant capacity for the manufacturing of ethanol. And the supply commitment for that is on yearly basis. So we have already -- the entire full capacity occupied for the ethanol part of it up till November 30. So we don't have to worry. Regarding the potable, you are right that there is some you can say slackness or some dip in the demand for the potable alcohol portion. But as I mentioned in my opening speech, that we have another segment opened up that is the raw material for the hand sanitizers and the manufacturing of the hand sanitizers. So whatever there was a drop in the demand for the potable alcohol that has been compensated by this hand sanitizer section. So we are at present utilizing our 100% capacity for the past 3 months for this quarter, this April, May and June our 100% capacity has been utilized. And it will be utilized the same throughout the year.

Okay. And just to conclude, like to -- if my understanding is correct or not, so basically you are into now 3 segments, that is hand sanitizers, supplying to the OMCs and the IMFL manufacturers, right? Like the CMA...

Third segment is, we are supplying this as a base raw material to the other hand sanitizer manufacturers also.

Yes, I got your point. So these are fixed priced contracts or they tend to vary with the prices of the raw material, that is the grains?

No. You see that the OMC, the prices are fixed for the entire full year. So the amount you supply them at a fixed rate INR 50.36 per liter up to November 30. And ENA prices are fixed on monthly basis, every first week we fix the price according to the price of the grain market, demand and supply, that is also you can say almost the same as of ethanol prices, because now we have a leverage that we don't have much of quantity available for the potable and hand sanitizer segment. So a large chunk of these demand has been taken care by this ethanol products.

Okay. Okay. And sir, will hand sanitizers be a focused play from now on? Or is it just like, I am just trying to understand, will it be a strategic investment towards a [indiscernible] long-term segment for the company? Or is it like a demand type of situation where you're trying to utilize capacity -- like the capacity is with us? Like, will it be a strategic play going from now on?

Yes. Yes. We are supposed to take these things forward. And we will be promoting our hand sanitizers, because it is just putting a value addition, it is just like you're bottling your ENA, converting to a direct potable alcohol [indiscernible] share we'll be much happy. And we shall be putting on all effort to take this brand forward for hand [indiscernible] hand sanitizers.

Got it. Got it. And the last question, like, if I may, like I just wanted your sense on the alcohol demand going forward, like, understanding the path, like I know you are still a raw material supplier, but just to get a sense of [indiscernible] how the liquor demand or the IMFL demand will be going for the consent of our manufacturing set, government is considering all the income between...

Sorry, sorry, I am not able to get your question please.

So I just wanted a sense on the demand outlook, on the -- since you supply to the IMFL guys also that Indian-made foreign liquor, the raw materials are supplied to the IMFL manufacturers. So just wanted a sense on the IMFL demand. I understand since you are a raw material manufacturer, but if you may help in understanding the demand outlook good forward.

You see, the demand -- demand for this potable alcohol, IMFL, is not as bad as we are predicting or we are thinking. That demand is good, you can very well imagine from the fact that for the last 3 months that we had been operating more than 100% capacity. So we don't have any product to further offer in the market, whether we are selling through this ethanol, some part being sold to potable alcohol, some part being sold to the hand sanitizers, some part of the product is utilized in our own bottling distilled country liquor brand, and some part is used in the hand rub section. So we have got multiple, you can say, utilization for our product. So we don't foresee any fall in the demand or underutilizing our capacity.

Okay. Great. Great. Great. And last thing, there was one news article wherein talks was going on, the government is considering putting some representatives with respect to the loose edible oil, considering you are into -- you have your brands into this edible oil space will that be a significant like boost to your, like, brands going forward? Because considering the loose edible oils, we will start facing some stringent action by the government going forward?

Yes. Yes. Sure. We are hoping to gain, as I said, major chunk in this regard because we are already selling through. We've got a strong dealer network, about 250 dealers spread across in Punjab, Haryana, Himachal, Jammu and other parts. So we could be the first gainer out of this segment. If we lose sales our [indiscernible] should be the first gainer in the platform. And you will be happy to know that our retail sale, because the institutional sales of bulk sales to these hotels, restaurants and then otherwise has gotten a great beating. But even after this kind of a major chunk going out of the sales, we have been able to maintain steady sales through our dealer network for the reason that being a local company and during this lockdown and other things, transport was a big problem. And we were able to catch up and you can say penetrate into the other of the sales of the other brands. So we have a substantial increase in our sales in the first quarter, and hope to get the same kind of results in the [indiscernible] and full year. So we'll be benefited by this, you can say ban, if the ban is put on by the government for the loose sales.

Great. Great, sir. Great to hear that. We will watch out for the subsequent quarters, this and all the rest.

The next question is from the line of Nitin Awasthi from East India Securities.

Sir, just wanted to have some discussion on the upcoming Kolkata distillery. If you could, one, give me -- let me divide this into 2 parts. One, if you could give me some understanding of the Kolkata market situation? How it is going to be favorable for the company? Why is it favorable to set up a distillery in Kolkata? Because you have chosen Kolkata because of some strategic reason. So if you could point those out. And also, you also have a strong presence in country liquor. So are you looking to start a country liquor brand in Kolkata?

So I can answer this one. So firstly, yes, there is a very strategic reason to move into West Bengal, because West Bengal is quite a deficit when it comes to the production of ENA in the state. So -- and a lot of the ENA for West Bengal is imported from various states. So we do wish to cater to that market. And we do expect to earn a better profit per liter as freight and the import tax won't be an issue to set up a plant in West Bengal. So the decision to set up a distillery in West Bengal has been very strategic. And for the country liquor in the West Bengal market, we wish to continue but we don't have any plans to expand very aggressively in the segment in West Bengal as of yet.

So are you tying up with any bottlers? Are you putting up a bottling unit also in the distillery and looking for IMFL and IMIL bottling to be done at the plant for other brands?

There is great interest by various segments to set up a bottling unit with us in Bengal, but our initial aim is to first start production and we know there is great interest and we can finalize something as production starts.

Got it. And this will be mainly because of the demand in Bengal, this will mainly cater to the ENA segment and not to the OMC, right?

Correct. We expect that most of our production will go into ENA.

Okay. So hence your EBITDAs will be much higher because there the realizations are much higher than what you get in the -- with the oil marketing companies, correct?

See it's hard to predict that far down the line. But yes, we expect the EBITDA margins to be higher. But the EBITDA margins in this industry are only high because of the Ethanol demand. So that part of the business won't discontinue, but yes our ENA in West Bengal, we expect to get a higher EBITDA margin also.

The next question is from the line of Yogansh Jeswani from Mittal Analytics.

Sir, can you shed some light on what's the ENA price trend like currently?

So the site has been constant for the past few months at around INR 52.

INR 52?

Yes.

All right. And sir, on the ethanol order, you mentioned that we are booked until November, right?

Yes.

So are we facing any issues in terms of supply around Q1, Q2 onwards? Or...

No, actually our supply is at 100% of our tendered amount, and this will continue to be the same moving forward. And actually the reason this happened was because the blending targets that the OMCs have decided on, they did not have enough supply for it. So even during the lockdown, although there was a slight dip in the demand, they increased their blending targets. So we weren't affected that badly from the ethanol demand side.

That's fantastic to hear, sir. Secondly, regarding your CapEx plan, we see the CapEx as you're saying is a bit delayed because of the corona situation and all, but the debt approval is done from bank inside, right?

Yes.

Okay. Okay. So sir, just to understand a bit more on your preferential allotment, you have taken approval for the sizable preferential allotment of 50 lakhs shares at around INR 60. So what's the preferential -- what's the use of this preferential allotment money? What's our plan?

See, this money will be to infuse more capital in the company to fund our further CAPEX plans.

Right. But let's say when preferential allotment at such low valuation, I think half the book value is more value destructive for the overall company, and this comes across as a big negative. Because if the CapEx is delayed and we have a secured funding from banks and the cash flows also are good even in corona times. So what's the need for this preferential at low valuation?

Actually, your friend had asked me the same question on another call earlier and my answer to this day remains the same. This is the best way that the company thought to fund our further CapEx expenses and not increase our debt further by a lot and help the company in a troubled period. And this is what our Board decided on, and we thought the best. And I'll take no further questions on this.

Understood. Understood. Perfect, sir. And the CapEx moving forward is this INR 147 crores only, right? Nothing more than that?

Yes.

Next question is from the line of Giriraj Daga from KM Visaria Family Trust.

A couple of questions. Sir, what was our distillery volume in FY '20?

I'm sorry?

What was our distillery volume in FY '20? The [indiscernible] number?

We worked at 100% capacity utilization.

All right. So like our capacity would be like 240 KLPD?

I'm sorry -- 200 KLPD.

So 200 KLPD?

Yes.

So that's roughly about 6.5 crore volume?

Yes.

Okay. And what was the average realization during the year?

What realization?

Average realization during the year?

Average realization would be at an EBITDA of around 8%.

No. No. Average realization I am saying from the revenue side, like the INR 50.63 we started getting on the quarter 4 for the ethanol. So obviously first you are getting INR 47 last year until November, and we supply to ENA also. So what was the average blended realization for the year?

Distillery segment you are asking for?

Yes.