BCL Industries Limited (524332) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the BCL Industries Limited Fourth Quarter and FY '23 Results Conference Call hosted by PhillipCapital (India) Pvt. Ltd. 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 guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vikram Suryavanshi from PhillipCapital (India) Pvt. Ltd. Thank you, and over to you, sir.

Thank you, Nico. Good morning, and very warm welcome to everyone. Thank you for being on the call of BCL Industries Limited. We are happy to have management of BCL with us here today for question-and-answer session with the investment community. Management is represented by 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, Kushal.

Thanks for the introduction. And also, thank you to PhillipCapital for hosting our earnings call. Good morning, everyone. We would like to extend a warm welcome to the earnings call for the fourth quarter and financial year ended 2023. Let me start by giving you the key financial highlights for the fourth quarter. Total income for the quarter was around INR 458 crores, including Svaksha, which is a decline of 10% on a year-on-year basis. EBITDA for the first quarter was INR 48 crores, which increased by 16% year-on-year basis. EBITDA margin stood at 10.47%. The net profit was around INR 25 crores, which is an increase of 7.4% year-on-year basis. PAT margin stood at 5.37%. It is important to note that the revenue contribution from Svaksha for the quarter was at INR 74 crores, and EBITDA was at INR 9 crores, which is an improvement from the previous quarters. For the financial year ended '23, the total income stood at INR 1,827 crores, which is a decline of 8.7% year-on-year. EBITDA stood at INR 140 crores, a decline of 10.6% year-on-year, and margins were at 7.13%. PAT was about INR 64 crores while PAT margins were at 3.5%. For Svaksha Distillery, the total income for the financial year was at INR 187 crores with an EBITDA of INR 11 crores. Coming to the operational highlights. I would like to start with the Distillery segment. BCL distillery unit at Bhatinda continues to operate at 100% capacity utilization with good demand for both ENA and ethanol. And the company also hopes to commission the 200 KLPD expansion of ethanol by the end of June 2023. This should have a positive impact on the company's financials moving forward. To combat inflation and fuel prices, the company has commissioned its paddy straw-based 11-megawatt power plant in Bhatinda in the second half of May 2023. The company expects this power plant to bring down the fuel cost for the Distillery segment significantly moving forward. For ENA market, March and April month are considered to be lean months as the new excise policy is renewed during this period. This has led to a lower demand for ENA in West Bengal, and the company expects its sales from West Bengal plant under its subsidiary, Svaksha Distillery unit, to be good moving forward. The expansion plans for the additional 100 KLPD are ongoing. The company expects to commission this plant by December 2023, with a project cost of around INR 90 crores. There has been a significant increase in EBITDA margin for the financial year 2022/'23 in the Distillery segment. And this has happened due to very good demand for ENA and the company's strong inventory management during the period of fuel price inflation. In the Edible Oil segment, there was a dip in revenue for the quarter, which was due to the drop in global edible oil prices globally. Despite this dip in revenues, the company was able to get 4.5% in EBITDA margin from this sector due to strong inventory management. Global edible oil prices have decreased at about 30% to 40% when compared to the previous year, while the company's revenue from edible oils had only decreased by 26.5%. This indicates that the company has not decreased its volume being processed from this sector. The edible oil prices continue to be in decline as I speak, and we are waiting to see how this market stabilizes. Lastly, in the Real Estate segment, in its attempt to reduce the financial burden of the company, BCL has continued to utilize revenue from the real estate to liquidate its debt, which is visible in the year-on-year results. With that said, I would now like to open the floor up for any questions.

[Operator Instructions] Our first question is from the line of Mayur Liman from Profitmart Securities.

I just want to ask right now, how much distillery do we have? And how much capital utilization for distillery for the Q4 and the full year? If you provide the number in distillery, it would be very helpful, sir.

In Bhatinda, we currently have 200 KLPD of ENA and ethanol, and for the entire year, last year, the capacity utilization was at 100%. And in Kharagpur we have -- in Bengal, we have 200 KLPD in ethanol and ENA again. And this plant was commissioned in July of 2022, but there were some problems that we ran into. So I think since then, the capacity utilization has been at around 70% for that unit. But now moving forward, we hope for that capacity utilization to be 100%. And in next month, we expect to commission another 200 KLPD of ethanol only at Bhatinda. And once the plant is fully commissioned, we expect the capacity utilization to remain at 100% for that expansion as well. And another 100 KLPD of ethanol is to be added at Svaksha before the calendar year ends.

Okay. Sir, my last question, how do you see the financial year 2024? What is your expectation from the next year and the outlook for the next year? If you provide the guidance on the segment-wise, it would be helpful for me.

For Edible Oil segment, we are hopeful of a stable year, but I can't speak with too much certainty in this sector as of now because the market is at a free fall, as we speak. And what we're experiencing now, it wasn't expected. So we hope to get about INR 1,000 crores in revenue from this sector in the next financial year as well, but let's see how and where the market stabilizes and when the market stabilizes because that is not easy for me to predict as I said right now. From the distillery sector, we hope and expect to get a revenue of around INR 1,500 crores in the next financial year.

Next question is from the line of Nirav Seksaria from Living Root Capital.

Sir, I wanted to ask a similar question on the distillery segment. So sir, going forward how much is the margin that we expect out of from this segment?

See, I think, right now, as we speak, margins from the Bhatinda unit, we expect them to be good moving forward. And the big reason for that is the paddy straw-based boiler, which will significantly decrease our fuel costs. So we expect these margins to remain around 18%, if not more. For the West Bengal unit, due to some changes in the excise policy, there is a decrease in demand in Bengal for unit as compared to the past. So we expect those EBITDA margins to be around 15%.

Okay. And sir, one more question on the Distillery segment, again. Sir, have we tied up with any major brands for bottling up with enough facility?

No, we haven't. We don't have any bottling tie-ups with any major brands as of now. We just supply ENA to the brands, and that includes the major brands of India, but no bottling there.

Sir, any plan of entering into the bottling for these brands?

For the Bengal unit, we are looking, and I think conversations are taking place. But none for Bhatinda, and Bhatinda were bottling under our own brand, Punjab Medium Liquor, and the sales are increasing monthly. So we hope to get over 1 million cases done in this year. And I think if we can build on that moving forward, then we won't need a bottling tie-up in Bhatinda.

Okay. And sir, just one more question. Sir, any level of operational blend, are we -- the level of operation blend we see from the Distillery segment going forward in the FY '24 and FY '25?

I'm sorry, I couldn't understand the question.

Sir, going forward, how much revenue can we expect out of from the Distillery segment?

Yes. So this current financial year, we're aiming for the Distillery sector to give us around INR 1,500 crores in revenue.

Our next question is from the line of Balamuralikrishna Jonnalagadda from Oman Investment Advisors.

So I have a few questions regarding the Distillery segment. So earlier, we used to achieve around 17,000, until 20,000 kiloliter per quarter. So now even West Bengal, I think it's not up to 100% utilization. So in this quarter, we can expect around 35,000 kiloliter on overall consolidated basis?

See, Bhatinda is continuing to be at 100% capacity utilization for the current quarter that we are in right now. I think for the Bengal unit, we'll be able to get 90% capacity utilization. As I mentioned in my speech, since excise policy is renewed every year in March end, so in March and April and even May, a lot of times, are considered to be very lean months in terms of ENA sales because even the bottling units are changing as per the excise policy and all that. So for this current quarter, we are expecting around 90% and hoping to get 100% moving forward.

And just a follow-up on that one only. If we have good demand in Bhatinda for ENA, so if Bhatinda 200 KLPD commissioned, then we can go for 100% ENA from the old 200 KLPD capacity or it can be...

That is the long-term plan, but before we do that, the current plant needs the revamp. Some works to be done that, which will take about a month. The order for that work has been placed in advance, so that you the towers -- the distillation towers are ready in time. And we'll be taking a shutdown in, I think, September or October for a month to revamp the prior plant so that the current 200 KLPD can only be used on ENA and the expansion on ethanol.

Okay. And going forward, what will be the volumes of distillery, expect maybe in Q3 or Q4 after this Bhatinda's commission? So I have done some math. Earlier, we used to achieve around INR 100 crores from Bhatinda 200 KLPD. So if I do some math...

INR 100 crores?

Yes, per quarter.

In terms of revenue.

No, in distillery only, yes.

In terms of revenue, I am asking in terms of revenue?

Revenue, yes. So going forward, if I do some math with the upcoming capacity, so the revenue would be around INR 1,200 crores. Is it fair to assume the same figure?

Yes, INR 1,200 crores before the Svaksha capacity kicks in. And post that, I think we can aim for INR 1,500 crores once the 700 KLPD capacity is installed and commissioned. See, INR 100 crores used to be a ballpark figure, yes, per quarter. But what we've seen in the past is that the ENA prices have increased and so have ethanol and ENA prices. So now we will achieve about INR 125 crores quarterly in revenue from a 200 KLPD plant average.

Okay. And lastly, on further expansion plans, you have told that you have plans to expand further to 500 KLPD or some green energy deposits, so any update on that, could you please share.

See, on Bhatinda, we have moved the file for 150 KLPD expansion post 400 KLPD. The environment clearance file is ongoing, and it will only move forward once the new plant has been commissioned. And see, firstly, we want to properly commission the 700 KLPD and be confident and it's working and then look at expansion plans. Yes, we want to expand post the 700 KLPD, but I will be only able to speak with full certainty once this is commissioned.

And lastly, if I can ask, whatever the power plant boiler we have commissioned, out of which, how much we can save through fuel cost from Bhatinda?

See, out of 400 KLPD commissioning that will be done, 60% of my fuel and my power and steam can come from the new power plant. And this will give us significant savings. If I were to speak on per liter basis, then I'd say INR 2, INR 3 a liter can be saved from this new power plant easily.

Our next question is from the line of Shlok Dave from CAO Capital.

Sir, just a clarification to the previous statement that you made. 60% of the power from the 11 megawatt new power plant. But is that from the expanded 400 KLPD or existing 200 KLPD?

See, that will be for the 60% of my few -- of my steam and power will be from the paddy straw boiler for 400 KLPD.

For 400 KLPD, okay.

So that will be up 240 of my -- so I'll require about 100 tonnes of steam and this should give me 60 tonnes. So about 240 KL would be from the new power plant.

You will require 100 tonnes of steam for 400 KLPD.

Yes.

Okay. Great. And sir, just a clarification on some of the calculations. So what is a good assumption to take for effective number of days if you're operating at 100% utilization. This 200 KLPD or 400 KLPD, that needs to be multiplied with 365 because I know for the fact that there are routine maintenance shutdowns that every company has to take, so...

330 would be a good ballpark figure.

330? And that is every year, right? It's not like every other year, you will do maintenance. You will do maintenance shutdowns every year.

Maintenance shutdowns are quarterly more -- quarterly, to speak, because the plant does require cleaning every once a quarter. So on an average, you can do a 330.

Right. So again, if I get my volume math, if I understand the things correctly, you'll have probably close to 3/4 of the year for the new 200 KLPD Bhatinda plant. Is that a reasonable assumption?

By June end, we expect to have that plant commissioned, yes. But as I mentioned, we will be taking the shutdown in our current 200 KLPD plant in this year as well for a month, at least, to have that plant revamped. So once you're calculating, you'll also have to include that in your calculation.

Right. No, that's okay. That's, again, a transient thing, temporarily thing that doesn't really -- so what made me curious is how do you reach your INR 1,500 crore number? Did you mean exit run rate Q4 INR 1,500 crores annualized? Is that what you meant by INR 1,500 crores coming from distillery?

INR 1,500 crores, I'm hoping that we'll get at least 1/4 of our 100 KLPD expansion in Svaksha also.

That part I understand. What I don't understand is this INR 1,500 crore is an actual guidance for the entire year or is it an exit number for Q4 next year, exit run rate number? Divide it by 4, so you get INR 375 crores. So will Q4 of next year, only that part will show INR 375 crores or you will actually do INR 1,500 throughout the year? Because then my math doesn't quite add up. I don't reach INR 1,500 crores, given the 1-month shutdown, given only 3 quarters of the expansion at Bhatinda and then better utilization in West Bengal, but the 100 KLPD expansion coming quite new...

You are asking about INR 1,500 crores. I think we might be -- I think that would be a better way to put it was that in quarter 4, we expect about INR 375 crores to INR 400 crores from the Distillery segment . And I think with this 1 month shutdown, we might -- because it's not could -- I can't predict exactly what the number would be because there will be an ethanol price increase, which is expected. Along with that, ENA prices are also to increase. So we could stick with INR 1,500 crores figure, that's the target depending on how much the prices of ethanol and ENA increase and price of DDS increases because as you -- if you track the company, we were used to get up to INR 100 crores from 200 KLPD in terms of revenue and this year we did INR 130 crores.

Yes, right. INR 125 crores, INR 130 crores.

INR 125 crores to INR 130 crores for the quarter. So that all depends. Yes, I'd say we -- I think you raised a very good point. And I think it would be safer to say INR 1,250 crores to INR 1,500, anything in that range.

Yes, better have toned down expectations for the market because INR 1,500 crores, then there is always -- sir, I would like to understand your Edible Oil business slightly in a better way. This is something that I don't understand about the company. So as you said, the market is in free fall as of now, right? So when your margins get compressed, are we talking about a completely commoditized product where bulk of the compression in margin actually is because of inventory losses, and the spreads, they're basically maintained. And once the fall in the underlying commodity stops, the margins immediately rebound, or is it something else, which is that the spread itself is getting compressed because I don't have enough data to actually understand what exactly is the ramification of this fall in the underlying commodity on your revenues and on your margins. So can you explain that bit in a more clarity? What generally happens? How does this commodity behave?

See, there are 2 types of edible oil businesses that we're involved in. One which is our specialty and the sort of business that we want to be involved in moving forward is the indigenous edible oil. So that is your cotton seed, mustard, rice bran. That was always our company specialty. And while the global edible oil prices start to fall, these oils don't give us as much losses in terms of inventory losses because first, the holding period is much shorter when compared to imported oil. And secondly, we have seen that the prices of indigenous oil tend to be more stable as opposed to imported oil. There has been -- the imported oil market has been extremely volatile for the past 9 months. And a lot of times, a lot of these contracts are forward contracts, forward shipments that we book in advance, and that is your CPO, crude palm oil and your soya bean oil. So once these prices start to fall, then there is an inventory loss that needs to be booked. The spread doesn't change. We still work on some margin as opposed to. But the problem is, then we'll have to consider the current buying price of the raw materials.

Can you provide some understanding as to what this spread is, this constant spread? So there are 2 components, right? One is the inventory expansion and compression. The expansion and compression in spread is because of inventory losses and gains. The second one is that fixed amount, right? That's fixed spread, which doesn't change that much.

That too depends on what edible oil am I using because see, we have a fully integrated unit that includes the oil mills, solvents, refinery, manufacturing unit and also rice mill. So one, when I'm processing, for example, a mustard crop, then my entire plant is getting utilized. My oil mill is crushing the mustard seed. My solvent is extracting the oil from the cake. And further, my refinery is being used for that mustard oil as well. So that is the oil that has value addition on each and every step. For example, even rice bran, we consider it to be a good alternate because my solvent is being used for the rice bran and the cake usually sells at a very good price. So these tend to have a higher margin as opposed to imported oil, where I am importing the oil, just refining it and [Technical Difficulty]

Ladies and gentlemen, please stay connected. The line for the management has dropped. We'll reconnect them quickly.

Yes, sorry. So as I was saying, there is no set formula to give you what is commodity-wise my margin. But as opposed to the same quarter of last year, where we did 4.56 in this quarter and 2.97 last quarter. So once we have more indigenous oils to process, we expect better margin. And overall, I don't expect the margins to -- I think this -- what we did this quarter is [Foreign Language].

In any one year, when the prices are steady, everything is normal, right, [Foreign Language]. But in any one particular year when everything is stable and steady, how much ROE can this business generate?

See, we expect this business to give us around 3.5% to 4% of EBITDA margin in a stable year. And...

At what turnover?

At a turnover, see, that's also another very hard question to answer because the prices have fallen by about 40%, 45% now. So we expect, say, to be safe INR 1,000 crores of turnover to INR 1,500 crores.

Okay. One final question, which is coming back to the distillery business. What kind of price escalations are you expecting? What is the industry expecting? Because the last round, which happened, everyone was left -- it was good but not that great. Everyone wanted a bit more. So what is your sense.

We as a company are expecting that the maize prices of ethanol will be significantly increased because the government needs to move in that direction now. They can't rely on...

Which prices, sir? I didn't understand.

The price for ethanol made from maize, corn.

Maize prices, okay.

Yes. Because the government can't simply rely on FCI rice as being the raw material for the grain-based ethanol industry. See what we have seen this year, and there was a conference held in New Delhi, in which all of this was discussed. What we've seen this year that for the government to promote an Atmanirbhar Bharat and support its agriculture sector, they need to ensure that a farmer is not selling his crop below MSP or below a price where the farmer has to book a loss. Last year, we saw this with mustard and maize and every crop that the farmer grew. They made a very -- that crop gave them a very good return. And that will only help the agriculture sector, and that will only help India in crop diversification, which is a very urgent need as of now. What we've seen this year is that maize is selling below MSP and even mustard is selling below MSP. And this is in the government's notice, and they don't want this to happen. See, for a farmer who grew maize this year and they didn't get the remuneration for it, they'll go back to paddy next year. And they'll expect the government to buy it at MSP, and the government does not want that burden on themselves. So as per our reading of the market and the policy, we expect that the government will increase the maize price of ethanol. So that maize, that is currently surplus in the market will be bought by distilleries, converted into ethanol and sold to the OMCs. And this is the most successful...

[Foreign Language]

I'm sorry?

You guys can use maize, right?

Yes. We can use maize, and we prefer to use maize. It is the most sustainable method for the industry as maize is not as water guzzling as paddy. Grain based -- if you look at the grain-based ethanol market globally, it's all dependent on maize. India is an outlier, which makes it from rice. So we expect those prices to increase significantly. Let's see what the government does, but I think we should expect those. For the prices from surplus side, I think we don't expect much increase from them.

Okay. Okay. Has West Bengal finally stabilized after the excise policy changes?