BCL Industries Limited (524332) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '21 Earnings Conference Call of BCL Industries Limited hosted by PhillipCapital India Private Limited. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] I now hand the conference over to Mr. Vikram Suryavanshi from PhillipCapital (India) Private Limited. Thank you, and over to you.

Thank you, Rupriya. 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 question-and-answer session with the investment community. The 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, Joint Managing Director. Before we start with the question-and-answer session, we'll have opening comments from the management. Over to you, sir.

Thank you for the introduction, Vikram Ji. Good afternoon, everyone, and we would like to welcome you to the earnings call for the third quarter of financial year 2020-21. 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 house in manufacturing and development with business interests spread across a variety of industry verticals, namely edible oil and vanaspati, distillery and real estate. The company started off in 1976, with a small 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 manufacturers in North India, having a total 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 100 KLPD along with the bottling plant in Bhatinda. The capacity of distillery was later double to 200 KLPD as the business grew. In order to grow our distillation business, the company is now installing a state-of-the-art distillery of 200 KLPD with 8-megawatt cogeneration power plant in Kharagpur, West Bengal. The company expects to start to commission the plant by quarter 3 '21-'22. Currently, as you all know, of the escalating COVID-19 situation, we are in compliance with all government directions and top priority is safety and well-being of our workers. Now let me give you key financial highlights for the first 9 months. The consolidated revenue for the first 9 months were at INR 1,004 crores, which was increased by 44% year-on-year. EBITDA for the quarter was at INR 59 crores -- for the 9 months was at INR 59 crores, which is a 20% increase year-on-year. EBITDA margins were at 5.9%. Net profit was at around INR 29 crores, which is a 29% increase year-on-year. And PAT margins for the company were at 2.88%. So now specifically about the quarter, the consolidated revenue for the third quarter was at INR 401 crores, which is a 50% increase year-on-year. EBITDA for the quarter was at INR 22 crores, which is around a 38% increase, and EBITDA margins were at 5.45%. Net profit for the quarter was around INR 10 crores, which is a 20% increase year-on-year, and PAT margins were at 2.52%. Coming on to the operational highlights. For the third quarter, I would like to start off with the Distillery segment. BCL Industries continues to be one of the largest supplier of grain-based ethanol in the nation with a tender to supply 4.5 crore liters of ethanol in the sugar year 2021. The distillery unit had a decrease in capacity utilization and sales due to mechanical issues. The company has filed for insurance claim for the loss of profit and hopes to receive the same. We're expecting great demand in both ENA and ethanol and hope to capitalize on it as we have resumed full capacity utilization of our distillery unit. With the prices of ethanol also being revised to INR 51.55 for the sugar year 2020-'21. The company forecast greater quantity of ethanol being tendered by all distilleries, resulting in better margins for ENA. With regards to the Edible Oil segment, the company has experienced a significant increase in the demand for its own brands, Murli and Homecook. Due to the government's focus on the promotion of indigenous edible oils, the company hopes to use this momentum, increasing market share and sales in the coming quarters. The revenue of the Edible Oil segment for 9 months were at INR 657 crores with an EBITDA of INR 17 crores. Lastly, the Real Estate segment went through a temporary slowdown for the period of lockdown, but the company expects sales to pick up in the coming quarters. The company recorded a revenue of around INR 16 crores with an EBITDA of 5.18% for the first 9 months. And in trying to reduce the financial burden of the company, the company continues to utilize its revenues from real estate to liquidate the debts. Thank you. I will now open the floor for questions.

[Operator Instructions] The first question is from the line of [ Dipesh Sancheti ] from Manya Finance.

Congratulations for having such great results. Now the first question was actually that why the Distillery business has underperformed in quarter-on-quarter as well as year-on-year? And I think you just answered about having some mechanical issues. I just wanted to know how much is the insurance claim, which we have filed for?

Yes. So the shutdown, there was a partial shutdown in the Distillery for a month due to breakage in one of the machines, one of very essential machines. So the loss of profit that we have filed for is around INR 2 crs, and we've also filed for another insurance claim for the machinery, which is at INR 50 lakhs. So we hope to receive both of them soon.

Okay. And what is the current situation? Are we -- is the machine repaired? Or are we getting production?

Yes. We're at full capacity since 1st of January.

Since 1st of January. And when did this happen? What period did this happen?

For the month of December.

For the month of December. So then we lost the entire sales of month of December?

Not entirely, partial sales. Our production wasn't at full capacity. The whole plant wasn't shut down.

Okay. So will that have any impact on the inventory positions for January? Or we have started full on -- full production, and there will be no impact of that machinery shutdown in Jan sales?

Since Jan, there will be no impact.

There will be no impact. That's great.

Yes.

Okay. And what is the guidance you have for the distillery as well as ethanol business as the price increases also? And what do you expect for future?

See we expect the future to be very good. With the government is promoting the ethanol business and ENA, there's also good demand for ENA in the market. And especially grain-based ENA is preferred over sugar. And so we expect this business to do very well, and that's precisely why we're expanding in Bengal. And we've also actually started the groundwork to double our Bhatinda capacity to 400 KLPD and keep the new plant as just an ethanol-only plant. So we see great future in this industry.

So right now, the capacity is 200 KLPD of Bhatinda, and you're increasing it to 400 KLPD. Is that right? I understand?

Yes, we've started the work.

Yes. And when is this work expected to complete? Be completed?

See, setting up a distillery is a long process. As we mentioned before, as it is a red category industry when it comes to environmental clearance. So we started our work for environmental clearance, and it will take up to 2 years for it to come into production.

And we are not taking any other property or anything, we are doing it in our own complex?

Yes, we have ample of land, and we actually do have excess power also in our current distillery. So we hope to utilize on that and keep the CapEx for the new plant as low as possible.

Okay. Since we have the Director of Svaksha Distillery also, can I know what is the situation there? And since you've said that the commencement of production will happen in Q3 FY '22. I mean, is there any chance of any partial production start or anything? Is there any possibility?

No.

Because the entire investor community is actually very upbeat on this plant because that will directly double your capacity and maybe double the profits also?

Right. Pankaj Ji can answer this better?

Yes, yes. I'm taking this question. So the plant is currently under full swing construction, all our vendors, including Praj Industries are already there. And as Kushal said, we're expecting the production to commence in the Q3, and we are absolutely optimistic about it that it should happen. Barring there could be a month or couple of months delay, which also we have kept in hand when we have said Q3 of financial year '21-'22 because of the monsoons in Bengal. But apart from that, we are absolutely firm that the commencement of production should happen in Q3 '21. And this will have an impact on the BCL sales revenue because, yes, it gets added to the parent company.

Okay. And we're already having a sales agreement with the OMCs for this plant also? Or we'll be having fresh negotiations?

So basically, the OMCs opened their expression of interest. And for that, BCL has already tied up, it is only for plants which are already under commencement and who are already producing. Since SDL has not started to commence on the production, we haven't filed with the OMCs, but we are -- it's a very, very simple procedure because the OMCs are in dire requirement of the ethanol right now. So once we commence production, we will immediately apply for it, and we should get the approval immediately. There won't be any hiccup because of BCL already set reputation over there.

And to this, I would also like to add that the ministry is so keen on excess production coming. They've already taken our data from plants that are from any expansion that we're planning on doing. And we have informed them about the SDL plant that is coming up in Bengal, and they're very excited about it, and there will be no issues at all in setting up with the OMCs once we start production.

Also, will there be any issues with the raw material supply? Because since it will be again a rice-based plant, right?

No, no, no, not absolutely. Bengal is paddy-rich state that is known to entire India. And besides, we are at Kharagpur, which is next to Orissa and Bihar, which are also like paddy-rich states. So we don't see any issue in raw materials at all.

Because this -- there in the Bhatinda plant, you have internal supplies. Here, you have already made arrangements of the supplies for the input?

Yes. In Bhatinda plant, existing vendors are absolutely willing to supply. I mean we are getting a knock like every second month that when we have to start to supply.

That's great. Very great. Just one last question. I think somebody wanted to add something.

Yes. Also, I would like to say the supply that we're getting from our own plant, the broken rice that we get from our own plant is quite marginal. So most of the raw material is still outsourced even in the Bhatinda plant. So raw material sourcing in Bengal won't be an issue.

Okay. Okay. I thought it was -- the maximum was coming from one of the group companies, which is what I had seen in the disclosures, one of the disclosures. So I just got confused that maybe you're getting maximum from a group companies.

Some of it, but still, most of it is outsourced.

Okay. What is the percentage of outsourcing? Can you just -- if you can give me a rough estimate. I mean, it's okay.

I'd say 60%.

60% is outsourced. Okay. Okay. And what is the best situation? This is the last question. What is the best situation right now as of today? And how are we working towards making the company debt free?

So I mean, all our real estate sales are going towards the company being reducing the company's debt. And I would also like to add, you see our revenue has grown by 40%. And still, we haven't taken any further debt to finance the increase in the business operations. So I think that in itself is quite a positive that we've been able to achieve that without raising any more debt.

Absolutely. But what is the current situation? Current debt situation, how much fixed debts and working capital debts you're having?

So our working capital is around INR 120 cr and another fixed debt around, I think, INR 70 cr of today.

Okay. So is there any time line that the company is working towards? How much debt have we repaired during this quarter?

In this quarter, I don't know exact number in front of me, but we hope to be debt -- long-term debt free in the next 2 years.

In the next 2 years? Wow. That's really, really great.

Long-term debt free, I'd like to clarify.

Yes, yes. I understand. The INR 70 crore you're talking about?

Yes, yes.

Yes, yes. But that will still add a lot to the investor community. And do you then intend to give higher dividends? Just a question from the investor community again.

Yes. Something to look forward to in the future. As of now, I cannot comment on it too well because the company is busy in expanding and using the funds internally to set up a plant in Bengal and then trying to double our Bhatinda capacity. So maybe, yes.

Okay. And is there any chance of promoter increasing because you have taken a preferential issue at 65. Is there any chance that the promoters will be -- I mean, seeing that the company will be debt-free and looking at the Kharagpur plant also coming in online, is there any chance that promoters will also buy any shares from the open market? Because that will again add to the confidence of investors.

No plans as of yet.

No plans as of yet. Great.

The next question is from the line of [ Shyam Bhupedi ], an individual investor.

So just to an extension on the debt levels. So are we completely relying on real estate assets to pay off debt? Or are we using any of the profits we got from the other streams?

Both.

So what's the total real estate assets we have as of today?

So the realizable value of the total real estate assets as of today are around INR 40 cr.

Okay. And you're trying to clear long-term debt, which is INR 70 cr?

Yes. Yes.

Okay. And are you planning to raise any more debt because of this new commission of distillery? Or is it all internal accruals?

No, we will have to use funds from outside, but we're trying to reduce the debt we take for this project, and we're still working out. So right now, all of the money that's being used is internally. And we intend to increase our internal accrual for the Svaksha project.

Okay. So basically, if we look from a long-term perspective of the company, we are only looking at distillery and vegetable -- I mean vanaspati oil. So we are completely planning to get rid off real estate. Is that right? Is that the vision of the company?

Right. So real estate, both our projects have already been built. There is -- we're not constructing any further. And we intend to just grow in the Edible Oil and Distillery segment.

Okay. So basically, we are looking at only these 2 segments in the long term, right?

Right, right.

And how is the ethanol looking like? I mean, like I'm hearing the story from last 1 year that ethanol is the one which is very -- even government is very much focused on that. But is anything happening in the ground level? Like is it really turning into an attractive sector?

Yes. The ethanol sector is very attractive at the moment, and we expect it to stay the same for the next 5 years because you see there's still a huge gap in what the government needs to achieve their target of 20%, their vending target of 20% and what the current supply is at. So the government is holding conferences with us on a weekly-by-weekly basis where they're seeking our recommendation on how do we increase the capacity of ethanol in the nation. And we are giving them various ways in which how -- in how that can be done. Very positive news coming out of the state of Punjab was that just a few months ago, we had written to the office of CM, asking him to have a separate license made for plants that are only ethanol plants. So currently, if you want to set up an ethanol plant in any state, you have to obtain a D2 license from the state. And we have recommended that they have a separate license made for biofuel plants. And we're very glad to say that our advise was listened to. And in the recent excise policy from the state of Punjab, they set up a new license called E2, which is for people who are interested in setting up ethanol-only plants. And that is a big positive as the license fee for the E2 license is lower than D2 and so they are listening, and there's still a huge demand for ethanol in the market. So we're very optimistic about it.

And we are also planning to commission a power transmission, something like that. Is that only for the company usage? Or are you planning to export as well?

No, no, just for the company.

Okay. So just to get rid of those power bills you are having at internal. Is that right?

Right, right.

The next question is from the line of [ Nikita Sehgal ], an individual investor.

Sir, I wanted to know that the government has approved the usage of old grain for production of ethanol. So how will this benefit our company?

That was allowed previously also. So you could only make ethanol from damaged grains. So in the recent, I think what you're trying to say is they've allowed the use of maize, that's the only change they've done.

Okay, sir. So how will this exactly benefit us, sir?

See, it gives us the option of an added raw materials and that will benefit us. And also, I think you might be mentioning they've allowed the surplus grains that were lying with FCI for the use of ethanol?

Yes.

Yes. So that is a separate policy. It's a very positive policy. So what they've done is they set up price for the FCI rice and they set a price -- a different price for the ethanol that is made from FCI rice. And that is a great policy going forward since FCI is sitting on a huge inventory of rice, and they don't know what to do with it. And the ethanol industry can use it very well. So that is a very positive news in the future that gives us the option for another raw material.

Okay, sir. And sir, what would -- what have been the per liter realization of ENA and hand sanitizer in Q3?

So in Q3, we didn't make any hand sanitizer since there's been a steep decrease in the demand. And we did not make any.

For ENA?

For ENA, I don't know exactly because of the shutdown, I think it was around...

Okay. And in Q2, sir, what were the prices of per liter realization of ENA and hand sanitizer then?

In Q2, also, we made very little hand sanitizers as far as I can remember. So hand sanitizer demand has gone down from Q1 quite drastically. And the price for ENA then -- the average price for ENA then was at around INR 50.50 and the ethanol for that Q2 was at INR 50.63.

[Operator Instructions] The next question is from the line of [ Aasta ] from Dolat Capital.

Congratulations on the good set of numbers. Just a couple of questions. One is that why -- what was the reason for improvement in margin in the Distillery segment in the last 2 quarters?

What was -- I'm sorry, can you repeat the question?

There was an improvement in the margin in the Distillery segment. So could you please share the reason for that in the last 2 quarters?

Yes. So the increase in the margin for the last, I'd say, 3 quarters, maybe would be because raw material prices have decreased, and that has helped the industry quite a bit.

All right. All right. So could you read some number specifications for that?

So number specifications would be, let's say, pre-COVID levels, the price for broken rice was hovering around INR 20 to INR 21 a kg, which has now come down to around INR 16 a kg.

All right. And one more question is that you told that the Distillery segment revenue is down because of some mechanical issues, due to it the factory was shut for a month or so. But I believe your claims is from the insurance is approximately INR 2 crores. So that would add up to approximately INR 95 crores to INR 96 crores of revenue, the total revenue for the Distillery would be INR 96 crores?

No. The entire plant was not shut down for the entire quarter. So there was a partial shutdown in the plant for about 1 month. So that -- so the loss of profit for that is around INR 2 crores, what we've filed for. So I'd say it's around INR 80 crores.

Okay. Okay. All right. All right. So the revenue loss would be approximately INR 80 crores?

Right.

All right.

Yes.

Okay. And lastly, the -- what would be the debt figure for last quarter versus this quarter?

They'd be the same. And there won't be much of a difference.

Okay. And what was the reason for spike in the debt figures compared to last year-end?

So we've taken the COVID loan that was offered by the government.

Okay. All right. All right.

Yes.

Okay. So approximately, the figure of COVID loan would be?

It's around INR 15 cr.

The next question is from the line of Hansal Thacker from Lalkar Securities.

Congratulations on a decent set of numbers. Sir, I just wanted to get some idea as to what is our cost of debt as it stands today?

Cost of debt is at 10%.

At 10%. Okay. Sir, while we're quite thrilled that you are talking about reducing debt. But given the current interest rate scenario, would it kind of low-cost debt be more of an enabler for growth?

Yes. It would be. But at the same time, we believe in organic growth, and we would like to use our company approvals as much as possible before taking any further debt. The cycle that the country has been through in the past is warning for entrepreneurs in the future. So we want to stay disciplined.

Okay. Great. That's wonderful to hear. Sir, and just if you can give directionally what is likely to -- I mean, over the next 3 to 5 years, let's assume that all capacities go back online and I mean everything is hunky-dory then. What are we looking at as far as the Distillery business, like kind of maybe a rate of growth or some sort of a capacity or something like that?