Black Rose Industries Limited (514183) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and thank you for attending this virtual meeting. It's my pleasure to welcome you on behalf of Black Rose Industries and SKP Securities to this Q1 FY '25 financial results webinar. We have with us Mr. Ambarish Daga, Director, Joint CFO and IR Officer; and Mr. Bhavesh Shah, General Manager of Sales. This webinar is being recorded for compliance reasons. And during the discussion, there may be certain forward-looking statements. These must be viewed in conjunction with the risks that the company faces. We'll have the opening remarks and a presentation by Mr. Daga, followed by a Q&A session. Thank you, and over to you, Ambarish.

Thank you, Navinji, and a very warm welcome to one and all who has taken out time to attend our webinar. Can I request Navinji to open the presentation, please? While the presentation gets loaded, just a word of caution that there might be certain forward-looking statements in the presentation, and they must be viewed in conjunction with the risk which the company faces.

Ambarish, can you see this -- see the presentation?

Yes. Can you please take it forward? Yes. So we start off with the business presence of Black Rose. Black Rose started off as a chemical distribution company, partnering with international chemical manufacturers from across the globe, especially from Japan. Our company deals directly with these Japanese chemical manufacturing companies who are our principals. And we have other principals based in Germany, Thailand and so on. From the relationships that we grew during our chemical distribution phase, we migrated into chemical manufacturing when we started our acrylamide liquid plant in 2013 in technical collaboration with Mitsui Chemicals of Japan. The plant, which was initially set up at a capacity of 10,000 metric tons per annum, is currently having an installed capacity of 32,000 metric tons, out of which 20,000 metric tons per annum is earmarked for merchant sales and the balance is for our captive requirement. We also added downstream products for the acrylamide chemistry in our manufacturing unit, the first one being polyacrylamide liquid, which caters to the Morbi tile market in terms of binder. It has a capacity of 40,000 metric tons per annum as of now. Further, acrylamide solid, which we started 2 years back, made us the only global producer of the product outside of China. The installed capacity for this product right now is 3,600 metric tons per annum. We also added the n-methylol acrylamide, which has a capacity of 2,000 metric tons per annum. And work is currently ongoing for the polyacrylamide solid plant in terms of its R&D. The company has 100% subsidiary based in Japan, which is engaged in the local distribution and export of chemicals, and the other legacy businesses add about 1% to the company's revenues. Moving on to the next slide. We present a snapshot of the financials in terms of the numbers. Here, we see that the company has increased its total revenue from operations on the back of a very good contribution from the distribution segment with an overall increase in revenues by about 8% compared to the corresponding quarter of the previous financial year. The profitability also has increased substantially, and it is 17% growth in absolute terms for the EBITDA. The company's PAT margins and the earnings per share also has grown in line with the business progression during the year. Moving on to the snapshot of the balance sheet. This shows the sources and the application of funds. We have been able to rationalize our inventories. And also, based on the high profitability, the company is 100% long-term debt-free as well as we have sufficient reserves in the company to take care of future requirements. Moving on quickly to the stand-alone financials. This particular slide represents the segment-wise distribution of our revenue and EBITDA. As we see, the chemical distribution business has outperformed the manufacturing division for this quarter, clocking in revenue of close to INR 558 million. The EBITDA also shows a healthy growth for this on the back of higher sales volume and better realizations for our distribution products. The sales for the manufacturing segment also were quite steady in the current quarter in the local market. However, the strategic decision of -- however, the -- overcoming the logistics issues has been a big challenge. The company, with its stock-and-sale model, was able to manage this very efficiently in the distribution business, but the export business in the acrylamide liquid witnessed some rollovers of the orders because of the logistics problems. This will be explained in more detail in the subsequent slides. Now moving on to the distribution between the geographical locations. The company's distribution business, if you see, has contributed 3/4 of the revenue. This is mainly due to the expansion in the distribution business, even though the manufacturing business also stood up in the challenging times for exports. Overall, we see the export business contributed about 21% compared to 45% in the corresponding quarter. The reasons for this will also be explained subsequently. Now I hand over to Mr. Bhavesh to take us through the financials for distribution segment.

Hello, welcome, everybody, for the meet. Regarding our financials for the distribution sector, the volume and realization have gone up from -- compared to the last quarter of the corresponding period, mainly because some of our distribution products like resorcinol, isophthalic acid and meta cresol, we achieved better volumes along with better realizations, which helped us in ramping up our margins also. The demand from oil -- from U.S. oil and gas sector remained stable. The demand from U.S. oil and gas sector remained stable. We expect current also -- current quarter also for the same. There was a demand improvement in the first quarter in the distribution segment, but there were also logistic issues. But however, we have a strong stock-and-sale model, along with good support from our principals, which ensured that we had enough stocks to cater to our end users, due to which we were able to supply to our regular end users and also capture new clients because of our stock-and-sale policy. Our strong support from the principals also helped us in getting our allocations and shipments on time. Our top 5 products regularly contribute to a major share in the revenue. The next slide, about our financials for manufacturing sector. Our company remains the only acrylamide powder manufacturer in the world outside China. During this period, we have been able to increase our acrylamide powder sales in the local market, along with the addition of new customers. Our NMA business also is picking up, and we have been able to capture a major part of the sales -- a major part of the demand from our key customers. However, the only -- however, the export of acrylamide liquid, we could see there was a decline in sales, which was due to the rollover and also due to the shipping issues, which led to high freight costs, impacting sales to certain markets. The Morbi market, which is our primary market for ceramic binders, it remains subdued. That was mainly 2 reasons: because, first of all, there was an increase in the price -- in the gas prices during the quarter; and because of the shipping issues, there was an increase in freight rates, which hampered the exports of the tile manufacturers using our ceramic binder. However, we have been able to achieve our usual sales for ceramic binder during the quarter. I now hand over again to Mr. Ambarish to continue forward the presentation.

Thank you, Bhavesh. Now we look at the key raw material price trend and the realization for our acrylamide. We see that the price trend has been rather stable, and the raw material has been confined in a tight range between $1,200 and $1,300 during this quarter. However, with our good market reach and our marketing efforts, we have been able to improve our net realization for acrylamide, which is also reflected in the good performance. Moving on next to the outlook for this current quarter. We start off with the chemical Distribution business. So as Mr. Bhavesh also pointed out, we are having very strong support and good allocation from our principals, which is helping us in catering to the higher demand in the domestic market. It is also expected to bring additional sales volume and increased our profitability and margins substantially during this ongoing quarter. Regarding the export business, we are having steady business from the U.S. oil and gas sector, which is helping us with the export volumes. And we are further trying to expand our product portfolio in both the export and domestic markets and at the same time adding new customers, which will be reflecting in the better performance during the ongoing quarter. Moving on to the manufacturing side. First, we start off with the acrylamide liquid and solid. Here, we see the trend for the raw material -- sorry, could you move on to the previous slide, please? Yes. So the raw material price has weakened during the current quarter, which will help us in maintaining good margins and profitability during the quarter. At the same time, we expect to increase our market share both in the local market and in exports. The international logistics situation is improving slightly in terms of vessel availability, which will help us in achieving a much higher export volume for our acrylamide liquid business in the ongoing quarter. Now moving on to the polyacrylamide liquid. Here, the demand for the binders overall remains subdued due to the higher gas prices and dip in export volumes. However, we are now ready to introduce our newer, more robust versions of the binder during the course of this quarter, which will help us in achieving better acceptance and higher volumes by increasing our customer base. The polyacrylate-based dispersant is also undergoing trials at various plants, which will further augment our sales for this segment. Regarding the n-methylol acrylamide, as Mr. Bhavesh also mentioned, we are now having majority share of the business from the key customer and principal users of these products in India, and the efforts are also on to increase our export volume. We overall expect a substantial growth in the sales during this quarter for this product. Now on to the last slide, where we talk about our upcoming and ongoing projects. So like we have been updating previously, the R&D team has been fully focused on developing the polyacrylamide solid, and we are making good progress in this, and we fully expect the R&D process to be completed by the end of this fiscal. And subsequently, we expect the plant set-up to start. As we have already updated earlier, the plant building is already ready, so that will be a good advantage for us in this project. Regarding the new R&D facility, it is currently under -- it is already finalized. We are also enhancing our R&D team in order to focus on the new product development. The EC application for our new chemicals project in collaboration with the Japanese principal is also moving forward smoothly. And we have already identified a new 20-acre land, which is going to be earmarked for future projects, which are yet to be finalized. So this is a land bank, which we are creating for future possibilities. That is all for the presentation. Thank you very much for your patient hearing, and now we are ready to take questions.

Thank you, Ambarish. [Operator Instructions] We have a question from [ Pradeep Rawat ].

So I have a basic question. So how much of acrylamide liquid is used to making 1 ton of polyacrylamide. Hello?

Hello? Yes, Pradeep. Yes.

Do you hear my question?

Your voice is cracking. Could you kindly repeat the question, please?

Yes. I have a basic question. So how much of acrylamide liquid is used to make 1 ton of polyacrylamide?

Okay. Thank you for the question. So Mr. [ Pradeep ], the actual percentage of acrylamide depends on the application for polyacrylamide. I hope you're talking about the polyacrylamide liquids in this case.

Yes.

Okay. So it is not a very high concentration. I would not like to give you the exact conversion. But it depends from application to application. So there would be a different composition and a product mix for the binders, which we are currently making. And as the application changes, then the product mix obviously changes and the percentage varies accordingly.

If you can provide a range?

So maybe from about 10% to 15% going up to 25%.

And our debtor days have been increased like towards 60 days. So why this has happened? And is it sustainable?

So going about debtors, see, these figures which you see are basically the figures at the end of our period, so on a particular date. Having said that, typically, the debtors days we consider as 60 days as the target. And it depends from product to product and market to market. There is a variation. But overall, 60 days is what we target, and it is more or less in line with that as of now.

Okay. And another basic question, so how much of acrylonitrile is used to manufacture 1 ton of acrylamide?

Yes. So typically, if you look at on 100% basis, then about 80% of it is acrylonitrile.

[Operator Instructions] We have a question from [ Sandeep Mukherjee ].

Hello?

Yes, [ Sandeep ], please go ahead.

Am I audible?

Yes, you are.

Hello? Am I audible?

Yes, [ Sandeep ], we can hear you. I guess there's some problem with his line. [ Sandeep ], can you hear us?

Sir, with the rising yen, it has moved sharply around 12% in last 2, 3 weeks. So what can be the impact on our business?

Thank you, Mr. [ Sandeep ], for this question. So basically, most of our transactions are, one, already hedged, and also, most of our transactions happen in the U.S. dollar terms, so the rising yen does not have so much of a direct impact on us. Of course, it will have an impact on our principals and their working. So -- but in general, we have a hedging policy in place for our foreign exchange, and accordingly, we'll take informed decisions on these movements of currency.

[ Sandeep ]? [Technical Difficulty] [Operator Instructions] [ Pradeep ], do you have a follow-up question?

Yes. So our raw material -- where do we source our raw material from?

Okay. So our key raw material, if you're talking about just acrylonitrile, that is our key raw material for the acrylamide plant. So currently, we are sourcing most of our raw materials from -- within Asia because that is where all the material is coming in. Until recently, no one was producing the raw material in India. However, from June onwards, Reliance has also started production of acrylonitrile in its earlier unit, which it had shut down in 2015, but that is a very small capacity. So [Audio Gap] source for our raw materials booking.

Okay. And beside our polyacrylamide solid CapEx, do we have another -- other CapEx?

Yes. So in terms of CapEx, we have another project like we had mentioned even during our presentation, which currently is the EC application has been filed, and it is under process. So that project also will have some CapEx and also the land which we are looking to acquire. So these are the 2 other CapEx, which are already identified. Apart from this, I would just like to add that we have very strong relationships with so many different principals. And we are always on the lookout for new opportunities to set up manufacturing units as and when possible. So as and when such opportunities arrive, then we will have certain CapEx which can be allocated to that.

And can you expand on this specialty chemical CapEx that we are doing, how much the potential is and which type of chemicals are we going to manufacture in this facility?

So all I can say right now is that it's a specialty chemical plant that we are setting up. Because of secrecy agreements, we cannot divulge too many details on the product classification, et cetera, at this point of time. The expected CapEx for this will be between INR 20 crores to INR 30 crores, as we can see right now. And it will have a product mix, so the revenue and other things will depend on finally what kind of product mix we set up.

[Operator Instructions] No more questions. Ambarish, any closing remarks?

Yes. So I would just like to little bit brief apart from whatever we've said in the presentation. As a company, we are looking to expand further and accelerate our growth during the course of this year. And we are also focusing more and more on strengthening our team within the organization. We are putting a lot of effort in acquiring and having a good talent pool because that, we believe, is one of the most important resources for an organization. We have been working on R&D. The focus is there to improve our current products and to add new products to the portfolio. In terms of distribution as well, the company is gaining market share and building on stronger relationships with our existing clients. We are constantly on the lookout to add new products and to enter into new markets and -- yes, that is about it. So thank you, everyone, for attending this webinar, and we hope -- see you in the next one as well.

On behalf of SKP Securities, thank you very much, Mr. Daga and Mr. Shah for taking time out to interact with the investors, and we look forward to hosting you again for the next quarterly results. Thank you very much, and have a wonderful evening.

Thank you.

Thank you.