BCL Industries Limited (524332) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the 1Q FY '22 Earnings Conference Call of BCL Industries Limited, hosted by PhillipCapital India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vikram Suryavanshi from PhillipCapital India Private Limited. Thank you, and over to you, sir.

Thank you, Rutuja. 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. Kushal Mittal, Joint Managing Director; and Mr. Pankaj Jhunjhunwala, a Director of Svaksha Distillery. Before we start with question-and-answer session, we'll have some opening comments from the management. Over to you, sir.

Good afternoon, everyone, and thank you for the introduction, Mr. Suryavanshi. We would like to welcome everyone to the earnings con call for the first quarter of the financial year 2021-'22. So -- 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 industry verticals, namely edible oil and vanaspati, distillery and real estate. The company started off in 1976 with a solvent extraction plant of 40 tonnes per day extracting oil from rice bran. Over the years, the company has grown to become one of the largest edible 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 100 KLPD in the year 2011, along with a bottling plant in Bhatinda, Punjab, and later doubled the capacity to 200 KLPD as the business grew. In order to grow in the distillation business, the company is now installing a new state-of-the-art distillery of 200 KLPD with 10-megawatt co-generation power plant in Kharagpur, West Bengal, which is expected to commission in December 2021. Now talking about the key financial highlights for the first quarter. The total income for the quarter was at INR 452 crores, which is an increase of around 63% year-on-year and 4.8% quarter-on-quarter. EBITDA for the quarter was at INR 28 crores, which is an increase by around 53% year-on-year and 2.2% quarter-on-quarter. EBITDA margins were at [ 6.15% ]. Net profit was at INR 17 crores, which is an increase of 141% year-on-year and 27% quarter-on-quarter, and PAT margins for the company were reported at 3.74%. The improvement in profitability was part on account of significant reduction in finance cost on a quarter-on-quarter and year-on-year basis. This was due to the higher cash flow generation from the company and better utilization of inventory from operations, resulting in lower working capital requirements. Coming on the operational highlights for the first quarter of financial year 2021-'22, I would like to start with the Distillery segment. The revenues from the Distillery segment for quarter 1 stood at INR 136.5 crores. BCL Industries continues to be one of the largest suppliers of grain-based ethanol in the nation with a tender to supply 4.5 crore liters of ethanol in the sugar year 2020 to '21. The company is experiencing great demand for both ENA and ethanol for both industrial and portable purposes. With the advancement in the target date of 20% bending in petrol, the company is working towards expanding its ethanol capacity in both West Bengal and Punjab. The company is also experiencing higher realizations from its balanced capacity of ENA and from ethanol supply, which are visible in the quarterly results. In terms of sales revenue, we registered a hike of about 29% in sales compared to the previous quarter. The work of Svaksha Distillery in full swing and all machinery suppliers along with BCL team are working tirelessly to ensure that commissioning of the unit can be achieved by December 2021. The company has also gotten approval of -- to add another additional 100 KLPD of ethanol plant in Kharagpur, West Bengal by the DFPD, and -- which will make the -- and the work to add another 100 KLPD will begin soon after the 200 -- the first 200 KLPD of the Kharagpur plant is commissioned. With regards to the Edible Oil segment, the revenue of the Edible Oil segment for quarter 1 financial year '22 were at INR 312 crores. Due to an increase in the edible oil prices globally farmers in India were able to get a granulated price for their oilseeds cultivation, which has led to an increase in availability of oilseeds for processing, which depend company's expertise. Leading to an increase in revenues and profitability, the -- and with the government focus to Make in India for the edible oil sector. The company expects to increase its revenue and capacity utilization from the edible oil [ area ] in the coming quarters and years. Lastly, in the Real Estate segment, the company recorded a revenue of INR 4 crores for the quarter. The company went to a temporarily slow down for the period of lockdown in terms of real estate, but the company expects the sales to pick up in the coming quarters. Thank you. I would now like to open the floor for questions.

[Operator Instructions] The first question is from the line of Anshul Verdia from Edelweiss Wealth Research.

Congratulations on the good set of numbers. I have a couple of queries on the Distillery segment. So first one is, the Distillery segment reported a flat sales and the volumes, but the margin has expanded by 450 bps, so could you just elaborate what were the drivers of the margin expansion? Was it the raw material or some cost benefits which will sustain for the upcoming quarters?

See -- thank you, first of all, for the question. I think the margins, when we look at quarter-on-quarter for the -- when compared to the last year, they're about the same with a slight increase which I think this time, the prices of Soya B&C worldwide are quite high, as I'm sure many of you are aware, who are tracking the commodity industry, which has led to an increase in the prices for DDGS as well, since they are both used as protein in animal feeds. And we're seeing the prices at an all-time high, which has contributed to the margins.

Just one follow-up. Like we have been hearing from your other competitors that ENA prices are increasing because there has been a diversion of capacity from ENA to ethanol. So I see your numbers this quarter, the ENA realization has been down 8% year-on-year. So is there any specific reason? Is it the fixed price contract you guys have or weigh the lag in the pricing. Could you please help me with this?

I think the ENA prices have stabilized for the past year, and they haven't been increasing a lot. So I don't know where you got that data from, but for us, the ENA prices have been quite stable for the past year.

[Operator Instructions] The next question is from the line of [indiscernible] Chetan Shah from IIFL Wealth Management.

Hello? Am I audible. Sir, a couple of questions. First was on distillery. So for next 2, 3 years down the line, just wanted to understand what are our plans here. And in our presentation, you had written that the new capacity should be commissioned by December of this year. So sir, just wanted to understand next 2, 3 years, what is the game plan?

Yes. So for now, by December 2021, it is our target to commission the 200 KLPD ENA and ethanol plant in Kharagpur, West Bengal. The plant is designed to produce either full ENA or go up to 60% in terms of manufacturing ethanol. More than -- around 80% of the machinery has already reached on site, and all our vendors are currently placed on site and we're working to ensure that the time line is net. As we all know, the monsoons in Bengal are quite difficult to work in, so we're working day and night to ensure that the plant is commissioned in December 2021, but could be 1 or 2 weeks before or after, depending on how kind the weather is towards us. So that is 200 KLPD of additional capacity coming within this calendar year. And also, at the same time, we're working towards adding another 200 KLPD of ethanol only capacity in our Bhatinda unit. So our current capacity in the Bhatinda unit is 200 KLPD of ENA and ethanol and wish to add another 200 KL. The interest subvention file for the same has been approved. The file is moving very well in terms of the environmental clearance, and we expect that to come in hand very soon and most of the machinery orders are -- we continue talks to the machinery suppliers and while the orders are being finalized within this month's time. And we expect that plant to commission before the end of next calendar year. Our target for now are next October or November. And we can think with the speed that it's moving, we aim to do it before that. And also, as I mentioned in my speech, we were able to get our file approved to add another 100 KL of just ethanol plant in the Svaksha Distillery. So just to mention has now been approved for 300 KL. And once the 200 KL of ethanol -- ENA and ethanol is commissioned in Svaksha, we will start work to add another 100 KL, who has already worked -- started working towards our file in [ VMO ] for the EC for another 100 KLPD and also the machinery suppliers to start work there. So before the end of next year also, is our target to bring that plant to 300 KL. So in the next 2 to 3 years, we expect that our total capacity would be around 700 KL one plus distillation.

Okay. So from 200 KLPD our plan is to reach to 700 KLPD?

Yes.

Yes. And sir, incrementally, how much CapEx will be incurring for it?

See, around 140 is being done for the 200 KL, an additional INR 70 crores to INR 80 crores would be done to add another 100 KL at Kharagpur and about INR 180 crores would be done at the Bhatinda plant.

Got it. INR 180 crores for that, so 300, 400. Around INR 480 crores, INR 500 crores of total shipments?

Yes.

Got it. Okay. And sir, just to understand in terms of margins in our Distillery segment. So we are giving a breakup of 3 segments. Ethanol, ENA, and the last one is the DDGS, which you are saying about it. So sir, just wanted to enlist on this, what would be an rough EBITDA margin here as of now? And how are you seeing those trending out going ahead?

Our EBITDA margins are currently around, I think, around 12% to 13% in the Distillery segment. And this will fluctuate a little in -- but we're very confident that they will stay around the same level for the next foreseeable future. We don't expect a significant increase or decrease in the margin in this segment.

But sir, we have 3 segments. So ENA will also be having similar margins or that would be having higher margins than ENA, ethanol and DDGS. What was the rough estimates on...

No, ENA and ethanol are now usually similarly priced in the market. So the margins are about the same. There's a higher production cost in terms of manufacturing ethanol and the price for the ethanol in the market is compensates us for the high cost in production. For Punjab, ENA prices are around the same price. But for Bengal, we expect ENA to give us slightly better margins as Bengal is better state when it comes to ENA. And over there, we might see a higher margin from ENA when compared to ethanol.

Okay. Because, sir, when I see a few of our competitors who are in the similar space, their margins are inching upwards from 18-odd to 23%, 24-odd-percent, and we are also in the similar space, we are doing 13.5%, 14%. So why this difference is there?

I think it might account for bottling as we are not much into bottling?

Okay. So bottling is our own brand, you are saying?

Yes.

In IMIL?

In both, in Indian Made Foreign Liquor and Indian Made Indian Liquor.

Okay. Okay. So there, the margins will be much higher?

Yes.

Okay. Got it. And sir, last, in terms of raw material, sir, what is the current prices? And how do you think that will pan out in next year -- for the next 6, 8 months.

See, the prices for raw materials actually depending on the raw material itself, but for broken right currently, the raw material price is around INR 17 to INR 18 kg. And we expect this to continue with not merchant fees for the coming quarters.

Okay. And what was this price sir 3, 4 months before?

I'm sorry.

What was the broken rice price 3, 4 months before?

It was similar.

It was . So it has not increased as such.

Yes.

The next question is from the line of Mehul from Quant Mutual Funds.

Yes. My first question is regarding the capacity utilization that we have right now in terms of ethanol? And what is a kind of capacity utilization looking from the Kolkata plant or in the West Bengal plant going forward in [indiscernible].

Yes. So our distillery sector is currently working at 100% capacity utilization, and we expect the same from our Kolkata plant once it comes to full operation.

Okay. Sir, [indiscernible].

I'm sorry?

What kind of payback period is expected from the West Bengal plant?

I think Pankajji can better answer this.

Sorry to interrupt. Sir, I hope Mr. Pankaj got disconnected, please stay connected, while I reconnect him.

Okay. So I can answer this. Payback period, we expect around 4 to 5 years.

And going forward, like you see distillery business as compared to your edible oil business? Like what's the split of revenue that you're looking for?

Your voice is cutting a little, can you please repeat?

Am I audible now?

Yes, better.

Yes. So I was asking that what is the share of revenue are you expecting from the distillery business business maybe, say like to full year your edible oil business, but what revenues high are you looking there?

You are -- your voice is a little trouble. So are you asking my share -- what I -- share I expect from the distillery business?

Yes. The share of revenue that your [indiscernible]

So in terms of revenue, I expect my Distillery segment to give me around INR 1,700 crores in terms of revenue in the next 2 to 3 years and around 1,500 we are aiming from our Edible Oil segment. So about same, but with the Distillery segment taking over a little more.

Perfect. Okay. I hope [indiscernible] again you could expect in ?

In margins, in which sector?

Edible, overall [indiscernible]...

Sorry to interrupt you, Mr. Mehul, that we cannot hear you. Your voice is breaking, sir. Can you please check?

Is it -- it's all right now?

No, sir. It is breaking in between.

Just 1 second. Hello? Is it okay now?

Yes, better.

Yes, sir. So I'm asking what kind of margins are you seeing for the company [indiscernible]?

So the margins, as I already mentioned, in the -- margins won't increase significantly. There will be -- we are expecting margins to improve overall as our Distillery segment takes more of our revenue share. It is a higher-margin business when compared to edible oils. And also, we expect slightly higher margins from our Kolkata unit as the state is deficit in terms of ENA, and we expect ENA to sell at a higher value. So we expect that the consolidated margins to improve with the Distillery segment giving us more in terms of revenue. And we expect the distillery margins to also improve slightly with -- like the Bengal unit coming into commissioning. And edible oil margins, now just we expect to stay around the same or improve slightly, but it will be -- it will -- it won't improve significantly.

Okay. So -- and what about your borrowing plans, sir? Do you expect to borrow in future for any kind of CapEx or would it be completed from the internal approval?

No. As such -- such expansion, of course, we will need to borrow. So for our Kharagpur plant, we're borrowing around INR 45 crores for an entire investment of close to INR 150 crores. For our Bhatinda expansion, we're looking to borrow INR 120 crores, so around that.

[Operator Instructions] The next question is from the line of Karan Agarwal from Tusk Investments.

So my question is around your sourcing of raw material. So where are you currently sourcing your broken rice from? Is it through FCI or through Mandi?

No. So FCI does not sell any -- neither actually. Neither that we -- do we get any broken ric from the Mandi's or FCI. FCI does not have any broken rice. We get surplus rice, which is under a different policy from FCI. And so broken rice is a byproduct from the rice mills. So either we get our broken from rice various rice mills that are close to us or we have a trading network throughout the nation that collects broken rice from various rice mills and consolidate it and sell it to us.

Okay. Also considering that we are taking our capacity from 200 KLPD to 700 KLPD in the next 2 to 3 years. So will there be any issues with regard to the availability of broken rice near our distillery?

No, We don't expect there to be any shortage as the land under cultivation when it comes to food grins is increasing every year in India and already we're sitting on a food grain glut that is quite high. I mean, FCI has come up with a good quality in terms of surplus rice conversion to us now. And FCI has helped secured close to 2 lakh metric tons of grains a day, which is a very high amount. And also, we noticed that the broken rice or the shorter rices that were available for the labor to reach before and for the poor population. Now even they moved down to a better quality of rice because of the grain glut in the country and the prices of rice and other grains are decreasing. And that has resulted in a higher availability of raw materials for the cities like us. So we don't expect any shortage of raw material with the capacity expansion. And also in the road map for the ethanol industry that was created by [ EVIO ], they have forecasted -- they've actually forecasted a requirement of close to 466 crore liters of ethanol from food grains compared to close to 40 crore liters right now. So there's a tenfold increase. And they have looked at the raw material availability as well. And with the increase and with the current stock, there is no issues in terms of food grain availability for distilleries.

And so going forward, we can expect the prices to be around INR 17, INR 18 per kg?

That is very hard to predict long term...

Got it. Got it, sir. So another question. Since you earlier mentioned that the price at which you selling ethanol and ENA per liter is similar, right?

Yes.

And what is your -- how should I put it? So since you are selling ENA and ethanol at the same price, how are you seeing this as in who is purchasing ENA from us?

See, ENA is being purchased by the portable industries, which were the original buyers. And now we've also seen an increase, very high increase in the demand coming from the pharmaceutical and the industrial companies. So for example, all of the pharmaceutic companies and for a [indiscernible] companies has carried by an ENA from us. And there have also been other industry like India Glycols has become a buyer, a big buyer in the recent times. So the ENA is -- the demand from ENA is coming from both the alcohol, the portable alcohol industry and for various industrial users as well.

And for ethanol, you've already tied up with the government, it was flat for tenders. So from that segment we are covered, right?