BCL Industries Limited (524332) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to BCL Industries Q3 FY '24 Conference Call hosted by InCred Equities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Awasthi from InCred Equities. Thank you, and over to you, sir.

Thank you, Ria. We thank the management of BCL Industries for giving us the opportunity to host their call today. From the management, we have Mr. Kushal Mittal, the joint MD of the company. And along with them, you also have their IR team, Go India Advisors represented by Priya Sen on the call. With that, I'll hand it over to Kushalji. Over to you, Kushalji.

Thank you Mr. Nitin Awasthi. Good afternoon, everyone. I extend a warm welcome to all participants joining the Q3 and 9 months FY '24 Earnings Call Conference. Our investor presentation and results have been made available on the exchange, and I trust you've had the chance to review them. I extend my gratitude to our host, InCred Equities for facilitating today's call. At the outset, I want to highlight that all figures discussed in the presentation and my commentary are on a consolidated basis, including contributions from Svaksha Distillery, which is a 200 KLPD plant in Kharagpur, Bengal, where BCL holds a 75% stake. Before we discuss financials, I would like to discuss the strategic and industry updates. The company's performance in the edible oil sector remain steady for the quarter, attributed to its diligent monitoring of the international market and its conservative approach within the sector to mitigate potential losses from global volatility. The recent government initiated to offer an incentive of INR 5.79 per liter from maize [indiscernible] ethanol is a testament to India's commission of energy self-sufficiency. This new [ reassignment ] aligning our expertise in grain processing and our assets to strengthen our ENA and [indiscernible]. The company is now solely relying on needs for all of its ethanol production. This quarter, it chased a slight dip in margins due to rising raw material costs. However, we anticipate the margin improvement in the coming quarters with the adjustment of the maize ethanol prices coming in January of 2024 and the forthcoming maize harvest in Bihar, which is set to be a very [indiscernible] across. Additionally, BCL has applied for clearances to establish 100 KLPD Biodiesel plant at Bathinda Unit. This plant will utilize maize oil extracted during ethanol production from maize, facilitating both forward and backward integration in our current ethanol process. This is moved in to streamline process, boost efficiency and further add value to the company maize ethanol manufacturing. The recent launch of a power plant utilizing paddy straw at Bathinda unit is expected to yield significant cost savings in power and stream, further bolstering the operational efficiency of the company. Expansion initiatives for 100 KLPD ethanol-only facility at Svaksha Distillery are possessing securely with all necessary clearances assured and most of the work being done on site. Additionally, we are actively working toward increasing our Distillery capacity to 850 KLPDs from the current 600 KLPDs. Furthermore, the company is experiencing a surge in demand for its country liquor brands in Punjab, projecting sales to exceed 1 million cases in the current financial year, which is more than double year-on-year. In the Real Estate segment, no sales were recorded in the quarter. That said, further revenues from Real Estate assets will be directed towards debt repayment. BCL is focused significantly on reducing debt and manage under the interest of the [indiscernible] to maintain a robust balance sheet and creating enhanced value for our shareholders. I'm delighted to announce impressive results across all key financial parameters for Q3 and 9 months. During the 9 months FY '24, total revenue of INR 15,093 crores (sic) [ 1,593 crores ], reflecting a 16% increase year-on-year. EBITDA for the period stood at INR 147 crores, up a staggering 79% year-on-year. During the 9 months FY '24, the company reported a net profit of INR 72 crores, margin of 80% year-on-year increase. PAT margin grew by 152 basis points reaching 4.5%. In 9 months FY '24, the ENA and Distillery segment grew by 44%, reaching a revenue of INR 197 crores. Our revenue from ethanol grew 3x to INR 575 crores. This [indiscernible] can be primarily attributed to the new permission case capacity of the company and the fast increases in the maize ethanol prices that were given from the government. During 9 months FY '24, BCL approximately sold over 9.5 lakhs boxes of Indian liquor. Volume of ENA increased 35% year-on-year to 30,578 KLs, while ethanol volumes were 90,895 KLs. In the third quarter for the financial year, the revenue stood at INR 646 crores, up 20.6% year-on-year. EBITDA for the quarter was INR 57 crores. Margin up 35% year-on-year with a strong EBITDA margin of 9%. The company reported a net profit of INR 33 crores with a PAT margin of 5.1%. For Q3 FY '24, revenue from the ENA and Distillery segment grew by 43% between INR 68 crores, whereas the revenue from ethanol was INR 254 crores. Given the strong government support and our risk expertise, we maintain a strong outlook for the company, and we expect our margins to improve going forward with the increase in maize ethanol price coming into effect and also with a new crop coming in Bihar, which is an estimate that it would be [ 55 lakh ] metric ton for us. Now I would like to open the floor for questions.

[Operator Instructions] First question is from the line of Dhruv Mukesh Bajaj from Smart Sync Investment Advisory Services.

Sir, firstly, congratulations on a decent [ center-fitted ] result. I wanted to know that whether the benefits of higher grain-based ethanol spender price that the government has hiked INR 271 will flow in the coming quarters or the rise in maize prices have already factored in that effect, and therefore, margin expansion is not likely?

No. The price -- the increase in the price for ethanol INR 271.82 will be reflected in the Q4 numbers, not in the Q3.

Okay, sir. Okay. And sir, I'm really pleased to see that company has applied for permits to establish a 100 KLPD biodiesel plant. Sir, can you please give us an overview of this opportunity in terms of, a, how complex is the production in the raw material procurement process? Who will be the target clientele for this? The margin profile of this business versus ethanol and the potential CapEx and funding mix that we are planning?

See -- so thank you for asking this question. Just to give you an overview. Similar to 20% blending [ mandate ] in ethanol, there is a 5% blending mandate for biodiesel in diesel in our country. As of today, the recent report, the blending percentage is at 0.1% in the country. Buyers are the same, same ONGC, HPCL, IOCL and BPCL with Reliance as well. The current prices for biodiesel are at INR 82 a liter. And this is also done through a tender system just like ethanol and since the capacity is nowhere close to demand, so we expect all tender quantity to be allotted and the price of INR 82 is [ side ] good. Again, talking about the raw material, as I mentioned, about 40% of our total raw material diesel requirement for this 100 KLPD units would be derived from maize oil that is being extracted in our current. I would like here again mention that I believe we're the only company that we know of that is currently extracting maize oil while producing ethanol. So that raw material is -- the value for that raw material is significantly low. The biodiesel process is being done in many Southeast Asian countries and with us a long precedence in the refinery business, we're very confident that we will be able to succeed in this industry without any major issues as we already know the major refinery supplier in the country, and we've already had very long technical discussions with them regarding the process. The 40% of the raw material is available to us. The rest would be bought from the market, which would be in terms of fatty acids and [indiscernible] oil. And we believe that enough is available in areas around Bathinda. So that will help us run the unit. And talking about the margins, we expect the margins to be higher than the Distillery business, mainly because 40% of the raw material is available to work without any added cost.

Okay. Sir, have you thought about the potential CapEx, the timelines for the CapEx and the funding mix or that is too early to ask?

So the project cost would be around INR 160 crores, of which the company has already applied for a loan of close to INR 90 crores to our current bankers PNB and Canara Bank and we hope to move forward quickly in that event as well, because we have a good relationship with our bankers. And similarly, we've applied for all the environmental clearance that are required to set up this unit, and we hope to move fast on that front as well. So we're hoping all the clearances and the financing closure to be done in a quarter's time, in 3 months' time from today.

Got it. So that is very helpful, sir. And sir, I had a fundamental questions, like since you are seeing influx of so many players in the ethanol space, even in grain-based ethanol space in the recent times, and the government's guidance of 20% will be met in the coming 1 to 2 years. So what will be the growth drivers in the ethanol space? And can there be a case going forward that the government may introduce a reverse auction instead of current style of [ conduct ] where prices are pretty fixed by the government?

See that is a possibility. I can't deny that as being a possibility sitting today. Yes, the ethanol sector is growing. But as for our forecast, 20% lending would still be hard to achieve in the next 1 or 2 years, because a lot of the investments that was coming in this field, has -- from new investors, they have shied away after the FCI's rice were stopped and a lot of various players in this industry have had to face many issues, shifting from rice to maize, securing maize and having the plants run on maize. So investment in the sector has slowed down and that's I believe would benefit a company like us who was ready for the shift. We were forecasting this shift. We're advocating for the shift to maize. And we don't see -- we see ourselves the very strong in this industry, regardless of the competition and also this maize oil extraction will also benefit us. And I'm very pleased to say our company has many forward contracts for grain that will secure us up to May in terms of our maize requirement, and that is being done because we have a very good relationship with our suppliers, and they trust us and that's really helping us as of now.

Got it, sir. And sir, if I can squeeze in just another question. Sir, do we have any plan -- okay, I will join back in queue.

Next question is from the line of Narendra from RoboCapital.

Congratulations on a good set of numbers. am I audible?

Yes.

Yes. So you said that it will come into effect this quarter further maize-based ethanol. So can we expect those 15%, 16% kind of margin this quarter?

Yes, I would not like to put a number on it as of yet. But yes, we expect the margins to increase in the future.

Okay. Okay. Got it. Got it. And regarding the closure of our oil business, so when can we expect that to happen? And what's the time line on that? And how much of the business will still remain after everything is done?

See, we have set a time line of December of this year to shut down most of our business from our edible oil units, because it falls right in the middle of the city. And there was an increased focus from the government of India even our honorable Prime Minister in the parliament has recently said that in the next 5 years, they wish to make India self-reliant on edible oils again. So we don't seeing how the policies take shape in the next year or so. I don't want to comment whether we completely exit out of this business or not as of yet. But yes, we're shutting down our unit in the city and moving it to our [indiscernible] units where a lot of the utilities will be common and a lot of our overhead cost will be decreased to help us be more efficient.

Got it. Got it. And I believe there's another 150 KLPD of CapEx coming. So would you like to throw any light on that as to when that will be completed? And what would be the cost and some light on that part?

Yes. Thank you for asking that question. So we are awaiting the environmental clearance for that 150 KLPD. And all the formalities for the same have been done. So we are hoping to have the same in hand very soon. And once we have that, the CapEx will be around INR 150 crores for that 150 KL expansion. And we will begin work soon after, which will take us about 12 months' time at least to bring that unit into collection.

Okay. And just one clarification regarding that. So that's in Bathinda, right?

That's in Bathinda. Yes.

And one last question regarding the biodiesel brand. So say, we get a clearance in the next quarter. So how much time will it take to complete that post clearance? And since you said that there's already enough demand. So can you expect like we do in ethanol that after we finish that, we are able to utilize 100% within a short span of time? So would that also be [indiscernible] with biodiesel?

Once permissions are in hand, it will take us about 12 months to build the unit into production. And I'll be a little safe in this sector and not say that we reach 100% capacity utilization from day 1 because, yes, it's a new industry for the company. Raw material as per the forecast shouldn't be a problem, but it's an ever-changing cycle. And we have 40% of raw materials in-house. So rest, we still need to approach the market for. So I'll be a little safe and not assured that we'll go up to 100% for capacity utilization right as we commence production. But yes, of course, that is the target for the company.

Okay. Okay. Got it. And just one last question. So is that the INR 82 price that you said, so is that also fixed by the government like it is in ethanol?

Correct.

Next question is from the line of Sanika from Sapphire Capital.

Can you hear me?

Yes.

Yes. So I just wanted to know what is the revenue contribution in margin from Svaksha plant for quarter 3 and also the revenue split for ENA and ethanol for this plant and the Sangat plant?

See, for the revenue from Svaksha Distillery, it was close to INR 150 crores for the quarter with an EBITDA margin of around 11.10%. For the division between ENA and ethanol, I'm sorry I don't have the exact [indiscernible] as of now. Priya, who is on the line from our hire team will note this down, and she will get back to you with an answer. And I believe this should also be in our investor presentation.

Okay. And if you can also provide me with the working capital breakdown for Bathinda and Svaksha Distillery?

The working capital for Svaksha is around INR 45 crores. And working capital for the Bathinda edible oil and distillery is around INR 200 crores.

INR 200 crores?

Yes.

Okay. And just one last question. What is the current status for inventory in the Real Estate business?

See, most of the inventory is sold as I speak. Whatever is left is some plots and I'd say, 4 apartments of them that are left and they'll sell at their own pace because by the end, you have these plots and apartments left that are not facing or ot [indiscernible] perfect condition. So we expect them to sell slowly in the coming quarters.

Next question is from the line of [ Darshan Pandya from Pintrest Capital ].

Am I audible, sir?

Yes.

Sir, could you provide some key data points, such as, net debt as on 9 months and working capital requirements for 9 months FY '24?

I'm sorry, can you repeat the question, please?

Could you please provide some key data points such as net debt level as on 9-month FY '24 and working capital requirements for 9 months '24?

Working capital, I had just mentioned about INR 200 crores at Bathinda, both edible oil and distillery and about INR 45 crores at Svaksha Distillery and for the debt, the long-term debt, there is a INR 120 crore loan on the new expansion at Bathinda and there is a INR 50 crore loan at Svaksha for the prior unit and another INR 70 crores for the new expansion. And I'd like to clarify here that the INR 120 crores at Bathinda Distillery and INR 70 crores at Svaksha expansion would both fall under the interest of [indiscernible] field, where the applicable interest rate is currently around 4.5%.

And sir, what was the fuel and power cost for this quarter?

Unfortunately, I wouldn't have the exact number for as of now, but Priya can provide you with the exact numbers very shortly.

Okay. And sir, other question was, is there any consideration for entering the IMFL business in the future?

See, we're not actually towards it as of now. We'll await new price policy that Punjab launches and then make a decision.

Got it. And sir, who are the major customers for our ENA business?

ENA, we have a very good relationship with Pernod. ABD is also significant buyer, then we have local bottlers. We also have Amrut, that's a good buyer and Mohan Meakin. So bottlers, I think, from a wide range of bottlers.

And any -- if you have any realization per liter number for ENA and ethanol? And any -- if you see any changes in the future?

See, for last quarter, it was quite volatile because the raw material prices were increasing. So I wouldn't be able to give you an exact number, I think, but in the coming quarters, we expect our margins to improve with the raw material coming in from Bihar and also increase in ethanol prices. And so that should improve in the future.

Okay. So just one last question, if I can ask. Sir, we procure our needs from one is Punjab and the other one you're trying to say is we have been procure from Bihar. There are 2 states that we're procuring, sir.

No. Maize has been secured throughout India. Wherever there is availability, we have a very, very wide network of dealers, brokers, and our team also we have 4 or 5 people, who are on and 2 or most of the time. So maize has been procured from MP, from Rajasthan, from UP, from Punjab, from Bihar, from Jharkhand. So wherever there is maize, we are there.

And if you any realization, what is the procurement price that we paid for this quarter as the margins have been -- we have got a hit on the margins?

For the last quarter, I'd say an average procurement price would be INR 24.30.

So earlier, it was around INR 21, INR 22, if I'm not wrong?

Yes. Correct.

So we expect these numbers to get back in the real levels?

Yes.

Next question is from the line of Dipesh Sancheti from Manya Finance.

Am I audible?

Yes, sir.

Yes.

Kushalji, congratulations on fantastic set of numbers, and it really reinstate the confidence of short first line investors in your company. A couple of questions from my side. Do you think in the election season, there will be a huge demand for country like, do we anticipate it? And are we looking at supply to other states also?

Thank you, Dipeshji. No. We will stick to working in Punjab and demand has been good throughout actually. So we expect steady increase, not a significant increase over the elections.

Okay. And if you can bifurcate -- sorry.

Sorry to interrupt, but due to the elections, we saw that there was a huge increase of from the Rajasthan state government and company won a tender of around 35 lakh liters at a very good price of ENA. That will give us pretty good realization of close to INR 73 a liter moving forward.

So we won an ENA order of INR 73, right?

Yes.

Fantastic. So during the election season, we would, I mean, concentrate more on ENA. Is that what is going forward?

I think our production will stay in fact of what it was before.

Sir, how much Bathinda is ENA and how much is ethanol?

So Bathinda, currently, I'd say, out of 400, 170 KL is ENA.

Okay. And we won't be increasing just for this election season?

No, because this was an old plant, the 200 KLPD. So this would require significant changes to the plant so that we can produce very good quality of 200 KLPD. As I had mentioned, an order of machinery was placed for the sale and the machinery is with us, but it requires a 2- to 3-month shutdown for us to make those changes. And with the current demand of ENA and ethanol, we're just delaying that shutdown for as long as possible. So we need to upgrade our machinery to be able to produce very good quality of 200 KLPD ENA, which the market requires now.

Right, but the demand is there?

Demand is good.

Okay. And a question on what do you think is the likelihood that the government will be resuming FCI rice supply in the next 1 or 2 years, maybe after elections? And how do you see that impacting maize based to rice based?

I'm not the right person to answer that question. I -- any prediction I make is worthless, because the decision is not in my hand, and I don't have a proper information to guide you. But I would like to clarify that our company will advocating that maize is the primary raw material for ethanol production, and we were ready for it. And now we see what has happened now with the current price of ethanol from maize, it is viable for a company to secure maize on MSP and produce ethanol from the sales. So this is beneficial for the farmer, for the government that they don't have get involved in the procurement process of grain. The farmer is getting MSP. The industry has a requirement for it. And government does not need to get involved in it. So this is a very long-term policy in our opinion, and we're focused towards this.

Okay. And we do not see any issues with the farmers protest for a higher MSP?

That is not linked to. I think that has more to do with [ paddy ] and wheat, the farmers protest, and not also the maize. If a farmer is to get -- so the current maize size is INR 20.90, the MSP price and for farmer, in India, to yield about 250 quantiles to 300 quantiles per acre. The global standard is above 400 and in wheat and paddy, India has reached the global standard. So the maize, since it is not a very popular crop, India has yet to innovate and reach the global standard. But even with the current yields, the farmer makes about 25% to 30% more per acre as opposed to paddy if they were to get an MSP from maize. The problem was earlier they were not getting in the MSP for maize. So they weren't -- the calculation of maize wasn't going up. And now with the farmer getting the MSP from maize, their realization per acre has increased, and we believe that the Indian farmer and our research institute and our agriculture institutes will now work towards bringing India to the global standard in maize yields, and that is the next target. So this will overall increase the farmer's income. This is a very good crop for the farmer as well.

Okay. Great. And just one last question. 100 KLPD biodiesel project, which we are planning to do, that will be Bathinda and what will be the cost of production of biodiesel. Will it be same as ethanol? I mean, I just want to know whether there will be an incremental INR 10, which will be coming to our books?

See, that will be at Bathinda. See, cost of production, we expect the processing cost to be around INR 15 to INR 16 per liter for biodiesel and the rest will be in raw material costs. But as I mentioned, 40% of the raw material is freely available to us. So we expect some very good margins from this business.

And the power advantage, which you are getting from our -- from [indiscernible] that will be the same, right, for even for biodiesel?

That would be the same. And for this, biodiesel 150 KLPD expansion in our environmental clearance, we've already for an approval to add another paddy straw-based power plant.

Okay, good. Just one more question from my side, if you allow me. The debt which we are planning to take for this biodiesel and for the 150 KLPD, are they also in the interest subvention scheme? And if that, what is the interest?

Maybe in the industrial...

Sorry, I couldn't get that.

They will not fall under the interest subvention schemes.

Thank you. Ladies and gentlemen, due to time constraint, that was the last question of the day. On behalf of InCred Equities, that concludes the conference of BCL Industries. Thank you for joining us, and you may now disconnect your lines.