BCL Industries Limited (524332) Earnings Call Transcript & Summary

Thank you, Santo. Good afternoon, and very warm welcome to everyone. Thank you for being on the call of BCL Industries Limited. We're happy to have the management of BCL with us here today for question-and-answer session with the investment community. The management is represented by Mr. Kushal Mittal, Managing Director; and Mr. Pankaj Jhunjhunwala, Director, Svaksha Distillery, which is a subsidiary of BCL. Before we start with question-and-answer session, we'll have some opening remarks on the management. Over to you, Mr. Kushal.

Good afternoon, and thank you for the introduction, Mr. Vikram. We would like to welcome you to the earnings con call for the first half and second quarter for the financial year 20 -- 2021. 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 interest spread across a variety of industry verticals, namely Edible Oils, Distillery and Real Estate. The company started off in 1976 with a sold extraction plant of 40 tonnes per day, extracting oils from rice bran. Going forward, the company has grown to become one of the largest editable oil manufacturers in North India, having a capacity of 1,020 tonnes per day. Furthermore, we forayed into the business of distillation by setting up our own grain-based distillery of extra neutral alcohol of capacity of 100 KLPD, along with the bottling plant in Bhatinda, Punjab. Due to the success of the business, we later doubled the capacity to 200 KLPD. In order to grow the distillation business, the company is now installing a state-of-the-art distillery plant of 200 KLPD with 8-megawatt co-generation power plant in Kharagpur, West Bengal. Currently, as we all know of the escalating COVID-19 situation and in compliance with the government direction, our top priority at this moment is the safety and well-being of our employees, customers, vendors and all stakeholders. We have implemented various preventive measures in line with guidelines issued by the government's health care department. As a responsible company, we have taken all precautionary measures in line with the best market practices, and have been following stringent hygiene protocols in all our facilities to ensure that our products and our staff stay safe and afford the highest standard of preparedness and hygiene. Now talking about the quarter, let me give you key financial highlights for the first half. The consolidated revenue for the first half of -- was of INR 603 crores, which increased by around 40% year-on-year. EBITDA for the quarter was INR 38 crores, which increased by 5% year-on-year, and EBITDA margins were at 6.23%. Net profit was of around INR 19 crores, which has increased 35% year-on-year, and PAT margin for the company were reported at 3.12%. Now talking specifically about this past quarter. The consolidated revenue for the second quarter was around INR 327 crores, which increased by around 53% year-on-year. EBITDA for the quarter was INR 20 crores, which is a 15% increase [ year-on-year ], and EBITDA margins were at 6.25%. The net profit was around INR 12 crores, which is a 57% increase year-on-year, and the PAT margins were reported at 3.61%. Going on to the operational highlights for the first half of the financial year, I would like to start by the Distillery segment. The demand for ethanol from the OMCs has reached its prelockdown level, and we, at BCL, have continued to supply our tendered quantity without any hindrance. With the lifting of the lockdown, the company also experienced an increase in demand for ENA from various bottlers, resulting in greater margins for the quarter. With the price of ethanol being revised to -- upwards to INR 51, 55 paisa for the sugar year, 2021, the company forecasts greater quantity of ethanol being tendered by all scales across the nation, resulting in greater margins for ENA moving forward. The [ saleables ] for our new distillery, West Bengal is ongoing, but due to the COVID-19 pandemic, the project is experiencing some delay. The revenues for the Distillery segment for our first half of 2021 were at INR 266 crores with an EBITDA of INR 25 crores. With regards to the Edible Oil segment, the company has experienced an exponential increase in revenue from Edible Oil due to an increase in demand for the company's own brands and the global edible oil market price also increasing. The company has received very positive feedback from our distributors for our homogeneous brands, and we expect to build on this momentum in this coming quarter -- in the coming quarters. The revenue for the Edible Oil segment for the first half was at INR 352 crores with an EBITDA of INR 9 crore. Lastly, the Real Estate segment went through a temporary slowdown for the period of lockdown, but the company is expecting the sales to pick up in the coming quarters. We have recorded a revenue of INR 3.5 crores with an EBITDA of INR 1.6 crore. In its attempt to reduce the financial burden, we continue to utilize our revenues from Real Estate to liquidate our debt, which is visible in the year-on-year results. Thank you. I would like to now open the floor for questions.

[Operator Instructions] The first question is from the line of [ Abishek Kapur ], an individual investor.

Yes. Congratulation on a good set of numbers. I've got basically 2 questions. One is the margin on the oil segment, is there something -- is there any way we can think of increasing the margins? The second question is this quarter, half, we have seen the negative working capital. Basically, we have [indiscernible] vendor, but we have not received that kind of money. So that shows that negative working capital. How are we going to tackle it? Is there any way to reduce the time of receivables?

Yes. So firstly, I'd like to answer the Edible Oil questions. So I would like -- over here, I would like to mention that, see, the decline in the margins is actually due to our other income. So what we were doing previously was we had included our other income, which is the rents we receive from future retails, [indiscernible] and office building in Gurgaon, which is under the company. So the rent we were receiving for these 3 properties was actually going in our edible oil segment. So with the lockdown, we've seen a significant decline in the rents that we received. So that decline is actually -- in rupee value, for the quarter, it's INR 1.4 crores as opposed to the last quarter. So if we move past that amount, I think our margins have increased and our Edible Oil margins, if we compare it to our peers, I'd say we're doing fairly well in that aspect as well. And also, currently, as we mentioned in our previous con call also, that currently, the company is experiencing an increase in demand for our own products. So due to the lockdown, we kept a steady supply of our product and what we experienced that -- was that a product entered home that is hadn't before and people like the product. So we are keeping our prices very competitive for now so that we build our own brand and maybe moving forward, we'll hope to improve on the guidance a little more. But I think compared to our peers, we're doing well. And secondly, you said the receivables. So that is due to a significant increase in our ethanol supply. So initially, we were selling more of ENA, less of ethanol, and we have transitioned to sell more of ethanol and less of ENA with time. And the payment condition for ethanol is 21 days from supplier. So that might be causing what you're seeing, but we're not worried because the supplies to OMCs and the payment is usually delivered on time.

The next question is from the line of [ Niraj Jen ], an individual investor.

My question is about the demand that you are experiencing for your private labels in the Edible Oil segment. So is that sustainable? Or it is just because of the lockdown, and your competitors are not able to supply. So you are filling the gap temporarily or it is sustainable? And the second question is -- okay, sir, I'll let you answer that.

No, you can ask. You can ask.

Okay. And the next question is, I think that this -- in this quarter, the margins for the Distillery segment was pretty good. So is that sustainable?

Okay. So firstly, talking about whether the increase in demand for our Edible Oil segment is sustainable or not. So I will say that I -- we personally -- we think that it's very well sustainable because the lockdown effect was very temporary. I mean, all the plants were functioning within the first month of the lockdown. So right now, we don't have a plant -- any of our competitors with a plant that is not functioning. But still, our product is selling very well, and there are a few reasons for it. So one being that our product was available during the lockdown and people liked it, that obviously is one. And the second reason for it is, so there has been an exponential increase in the edible oil prices in the global market. So our problem being in Punjab was that it was a little hard for us to compete with the port-based refineries who used to import the crude palm oil and refine it and sell olein at a cheaper rate. Now we're seeing that the imported oils are as expensive as the homogeneous oils like rice bran and cotton seed. So -- and the consumer actually prefer these oils to olein or vanaspati made out of CPO. So with these trends continuing, we'll actually see an increase in demand because where we make -- we have made a name within homogenous oil [indiscernible] price plan and potency and we expect them to do very well in the coming quarters. And also with the government passing these new farm bills and supporting crop diversification towards oilseeds, we see the coming years as, for the Edible Oil segment, very well in the Indian market. And secondly, the improved margins in the Distillery segment. See, it is always hard to predict way forward down the line. But for the coming 2, 3 quarters, due to the raw material prices being very soft, we expect to see the margins stay the same, if not only improve.

Okay. So because of these [ farmers ] and the MSP, will there be any adverse impact on the margins?

No, no. Because the -- that will actually be better. If the MSP for oilseeds is increased, that will motivate more farmers to cultivate more royalties. So that will actually be better for us.

Okay. And about the new distillery coming up in West Bengal also, I understand that it is delayed because of the lockdown. But now lockdown is being lifted gradually, so like how is the progress? Any tentative completion date you can see? Or it is still very uncertain at the moment?

It's still quite uncertain because a lot of our suppliers, it takes them a while to mobilize their teams and to get started. So we want to move fast in this aspect, but we are holding off for a little while longer, seeing how this plays out with the cases going up again. We don't want to get stuff by paying advances and not receiving any one site. And it's also a little hard to mobilize labor. But right now, the stable work is on progress. It's not that any -- all the work has stopped, but the work is not moving up to 100% speed as we wanted earlier.

The next question is from line of Vishal Biraia from Aviva Insurance.

So first question on the ethanol segment. So why have you moved to selling more of ethanol than ENA? Could you explain the economics there?

See, ENA, we've moved to selling more ethanol is because we believe it's a longer-term policy. It is an easier business. And currently, the ethanol prices are also better than the ENA prices in the market. So that's why we have made the shift.

So when you say it's now easier to say it just because of the quantum that the OMCs are buying? That is the only reason? Or...

There is an assured buyer in the market. And also, we don't have to do all the excise formalities that are required in selling ENA. So that is bypassed, which makes it a lot easier.

Okay. How is the profitability difference between ethanol and ENA?

At the moment, they're quite similar.

Okay. But generally, isn't that the case that ENA's profitability is generally better than ethanol?

Yes, that's generally the case, but yes, not at the moment.

Okay. So -- and you used to sell a lot of ENA to pharmaceutical companies. So does that continue? Or that is also constrained at this space?

See, that is continuing, but we're not seeing the demand from them that we used to. So the demand from the pharmaceutical companies have gone down significantly. But we have gotten a new client. So that is a plus. And based -- so we expect them to keep buying, but obviously, they won't be buying what they were during the lockdown or the quarter afterwards.

Okay. Okay. So for the first half, could you split your sales for -- so what are the sales for ENA? What are the sales for ethanol? And within ENA, what was to alcohol companies and what was to pharmaceutical companies? That would be helpful to give us better perspective.

Yes, sure. So I would say ENA, ethanol would be at 55%, ENA at 45%, the ballpark figure. And out of the ENA that we're selling, currently, I would say, around 15% to 20% -- no, actually 25%, I'd say, 1/4 is going to pharmaceutical, the rest to bottling companies, or we're using it to manufacture our own Punjab Country Liquor.

Yes. Yes. Okay. So 25% is to pharmacies and companies and 75% to -- ENA for bottling, either yours or...

Yes.

Okay. And how big is your Country Liquor brand?

Our consumption is quite low as a brand. So I would say around 80 KL a month.

And how much would have sold outside?

The rest. So that is about, in a month, let's say around at 2,700 KL.

Okay. Okay. Okay. And a lot of the sales to external ENA for bottling would be for IMFL kind of stuff or for Country Liquor?

Both. It's tough to say what they're using it for, but I believe they're using it for both.

Okay. Okay. So -- okay. Now -- sorry, the last question, and I'll come back in the queue is, I mean, where do you see your own Country Liquor brands in a few years? Is there a focus to grow it? Or is it just also run since it was there for a long time?

See, at the moment, we're not focusing on growing our Country Liquor brands. So I don't think there will be significant growth in the coming years as well.

[Operator Instructions] The next question is from the line of [ Kiran Naik from Mody Fincap ].

So how much is our land bank, total, acres?

Our land bank?

Yes.

Around 110 acres, if you take out the real estate.

Okay. And in really should, are we any -- what's our plan? Can you explain?

See, the plan is to sell off the inventory that we have and no further plan.

Okay. Okay. So by March, can be possible? Or it will be next financial year?

Next financial year. But we are seeing the demand grow, and we're hopeful in the next financial year that we might be able to liquidate all our inventories.

[Operator Instructions] The next question is from the line of [ Sasha D'Souza, ] an individual investor.

Yes. Sir, I had 2 questions. The first one being, I wanted to know what has been the volume for ENA and ethanol produced in Q2 FY '21? So that will be my first question. Would you want to address that first, and then I'll go about with the second one?

Sure. So the total volume for both ENA and ethanol for Q2 would be around 18,000 KL for ENA and ethanol, combined. And out of that, let's say, 55% is ethanol and 45%, ENA.

Okay. Okay. Sure. Got that. Also my second question is that the OMCs have rolled out a 5-year tender for ethanol procurement. So what is the quantity demanded? And at what price will this ethanol be supplied?

See, yes, they have taken out a 5-year tender. But that tender is sort of -- it's a participation thing. So it is to tell the industry that this is a long-term project, that they will be buying ethanol in the years. And so, also -- it is also that we don't have to register every year. So the price, they haven't disclosed what they will be buying every year. They'll disclose the price every year. So they haven't disclosed that. And the quantity -- exact quantity also, they're not disclosing it for every year.

So by when can we expect this disclosure? Is there anything out there?

So the prices are declared every year for the coming year. So for the next sugar year, the price for ethanol from damaged grain is at INR 51, 55 paisa, and they've also rolled out a new policy where distillers -- grain-based distillers can buy value from FCI, and there's a separate price for that, that I think is around INR 54.87. And for the coming years, we'll get to know next year.

The next question is from the line of [ Aditi Agarwal ], an individual investor.

Congratulations on your results. I have got 2 questions. So first one is, which was the highest produced oil in Q2 FY '21 since the imports were lesser during the lockdown? And secondly, what has been the utilization level of the Edible Oil unit?

Okay. So the highest produced oil for Q2, I would still say was soybean oil, although it is imported, but that -- and mustard would be the highest producing indigenous oil. But overall, it is still soybean. There is a huge demand for the product. And secondly, the capacity utilization for the entire unit would still not be more than 40%. So that's due to a lot of the plant is based on seasonal industry. So the rice mill or working because it wasn't the right season. It is working now. The oil mill wasn't working because there wasn't enough mustard seed in the market. So the only -- the refinery and the solvent was working, so it was around 40%.

The next question is from the line of Vishal Biraia from Aviva Insurance.

So the Kharagpur plant, what will be the capacity as and when it comes up?

So that will also be a 200 KLPD plant.

Okay. And the CapEx, at INR 140 crores is what we have in this [ house ]. So is there a revision to the CapEx or it's [ spans out of this ]?

No, there is no revision to it.

Okay. And how much have the spent cumulatively on it?

Around north of INR 60 crores.

Okay. Okay. So we were planning to commission by March '21. So now, is there a 6 month delay, 1 year delay, something of that, sir?

No, not a 1-year delay. Less than 1-year delay. We -- it's hard to...

Okay, fair enough.

Put a rate on it, but it won't be a year delay, maybe 6 to 9 months day.

Okay. Okay. Fair enough. So this whole plant would be focused on grain-based ENA, right? This would be largely for bottling companies?

Initially, that was the thought. But now, since we're seeing the incentives that the central government is giving for the ethanol, we are thinking to keep a provision to keep it at 50% ethanol and 50% ENA. And there's no increase in the CapEx with the change in the plan. Even if there is an increase, it will be very little, and we will have the flexibility to manufacture either.

Okay. Okay. And then just one basic question. Could you explain so what is the difference in production costs for molasses-based ENA and grain-based ENA?

Yes, I don't know the production cost for molasses-based ENA since I'm not part of the industry. So I cannot really comment on that.

Okay. And for the grain-based ENA, what would be the cost of production at the operating level?

Cost of production as in separate from the raw material cost or...

Yes. Basically -- I mean, if you exclude the raw material cost, then if you look at the overhead costs and then what would that be?

Yes, see the overhead financing in everything. I think it's around INR 20 a liter.

Okay. And if you add, what is the -- I mean, some rules for raw material as to how do you calculate that? Any positions there?

How do I calculate the recovery from a raw material?

Yes, basically, I mean, what is the quantum of raw material required? And what is the cost of raw material required for producing a liter of ENA? Some rules that you could say here?

That depends on the grain I'm using. So for rice, let's say, the industry standard -- so a ton of rice will give you around 450 liters of ENA.

Okay. 450 liters?

Yes.

Okay. And when you say the overhead cost is INR 20 per liter, this includes electricity costs and other factory overheads and everything in terms of the financing costs?

Yes. Yes.

Okay. And when you, I mean, go to a new factory -- I mean, the Kharagpur would be a modern plant. So how different would be the cost of production in Kharagpur versus the Punjab-based plants where, I mean, in terms of the [ E ] that you would get and also the overhead, would that be -- would there be a meaningful difference?

No, there wouldn't be. The plants that we have in Bhatinda is also a very good plant. And there hasn't been that much of an increase and that much of a betterment in the technology, let's say. So no, that will keep -- I think it will be the same.

Okay. Okay. So -- I mean, once real estate inventory is exhausted and you don't plan to go through that line of business for that, so eventually, you would become largely ethanol and edible oil company. That will be the key focus? Or you plan to diversify into any other business as well?

No. No, that will be our key focus.

That will be your key focus. Okay. Okay. And any plans to increase the -- I mean, take your own brand to -- in other states to increase the capacity, focus on marketing, anything? I mean, how do you see the -- where do you see the Edible Oil business in the coming 2 years? And what will drive it? Some new -- this is the last question.

See, the Edible Oil segment, it all really depends on -- there are quite a few variables, let's say, the policy -- the central policy and what is grown in the country. But how we're seeing it right now, we're very bullish on the segment. And yes, if the trend continues, we do want to spread our brand across other states as well. When India was not import-heavy in edible oils, our brand used to go in almost all northern states. Bihar was a big, big consumer, and it can continue to change again, then yes, we will grow our brand.

For the industry, as a whole, what would imports as a percentage be for the total edible oil consumption at what [indiscernible]...

70%.

70% is imported, of the edible oil that is consumed in India?

Yes. Yes. India used to be self-reliant on edible oil before 2002. So there has been a major shift in the market.

Okay. And do you think this -- the -- at some point in time, we are going back to that self-reliance?

Yes, yes, yes. We are.

[Operator Instructions] The next question is from the line of [ Nikhil Chaudhary from Crest Portfolio ].

Congratulations on a decent set of numbers. Just 2 questions. It was regarding -- understanding the business more properly. Sir, like I just wanted to understand, in respect of the bottling contracts, the ENA contracts that we get from the bottlers, what is the differentiation point, like is it the relations that get us the contract, is it price point? And how sticky are the bottlers, like moving on to the other competitors?

So yes, there is the price factor, there is the quality factor. And obviously, in every other business, just every other business, there is the relationship factor. And I think we're very competitive on all the 3 fronts. And the contracts in ENA are month-to-month based. So we regularly see that whatever these bottlers -- the quantity they contract for they [indiscernible]. So it is -- that's not an issue.

Okay. So is there any minimum offtake that we have an agreement, like if they don't take, at least you get the minimum -- price paid for the minimum quantity of take like something guaranteed on that we get every month, irrespective of the quantity they take?

No, there's no such thing. But we've seen that there has been a good demand for ENA in the past, and we expect it to stay the same. So that -- we don't insist upon any quantity assurance either.

Okay. And in respect of OMCs, the price revision would be 6 months, is my understanding correct, like price revision takes place every 6 months? Or is it the annualized, since the government...

It's an annual increase. Annual change.

Okay. And sir, would you be comfortable sharing the name of key bottlers that you work with?

Key bottlers that we work with, yes, of course. So let's say, Seagram, Pernod Ricard is one. There are a bunch of other small ones in the state of Punjab. Blue Ocean in Goa. There's quite a few.

And we have been sharing at least like relations with these guys for years, is my understanding correct, like...

Yes, yes.

[Operator Instructions] The next question is from the line of [ Suresh Agarwal ], an individual investor.

When you're talking about the inventory, the inventory includes that [indiscernible] and [indiscernible]?