Bodal Chemicals Limited (524370) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Bodal Chemicals Limited Q4 FY '20 Earnings Conference Call. We have with us today Mr. Ankit Patel, Executive Director; and Mr. Mayur Padhya, Chief Financial Officer. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ankit Patel, Executive Director at Bodal Chemicals Limited. Thank you. And over to you, sir.

Thank you very much. Good evening, everyone. Thank you for joining Q4 FY '20 Conference Call of Bodal Chemicals Limited. On today's call, I have our CFO, Mr. Mayur, with me as well. I hope all of you have got an opportunity to see our financial results and presentation filed with the stock exchange and are also uploaded on our website. First, I will highlight current industry scenario and our business strategy, and detailed financial performance will be taken up by Mr. Mayur later on. The lockdown in the country for around 40 days from March ending due to COVID-19 led to significant disruption in our business in Q1 FY '21. We started our partial operations from May beginning, but there were issues with respect to labor transportation and lower demand across the globe. The prices of our raw materials as well as finished goods came down in Q1 FY '20. However, the business scenario has started improving gradually from mid of June 2020 in terms of better demand, higher utilization of plants and more dispatches. We believe demand scenario should further improve, and we are targeting to reach to pre pandemic plant utilization levels in Q2 FY '21 for Basic Chemicals and Dye Intermediates division. On the business strategy front, as you are aware, we have opened several warehouses and marketing offices in India and overseas as well, which we will be adding further in future as per requirements. In addition to that, we acquired 80% stake in Sener Boya in Turkey and opened a subsidiary in Bangladesh, mainly for marketing of our dyestuff. We will be increasing the share of B2C in overall dyestuff business going ahead. All these efforts will increase dyestuff share in total revenues, further integrate our business leading to stable margins and increase in profitability in the coming years. During Q4 FY '20, as you all know, there was a lockdown in Wuhan City of China, which led to improvement in prices of our finished products in Q4 FY '20 [Technical Difficulty] INR 210 per kg and H-Acid was around INR 390 per kg in Q4 FY '20. Apart from that, prices of all other intermediates as well as dyestuff were on the higher side in Q4 FY '20. This led to 9% rise in our total income quarter-on-quarter and 2% year-on-year in Q4 FY '20. Our profit after tax was higher by 58% quarter-on-quarter and 2% year-on-year. Our total production for Q4 FY '20 improved by 9% year-on-year to 65,341 metric tons. Our Dye Intermediates production grew by 8% year-on-year, mainly due to increase in demand, while Basic Chemicals production grew by 9% year-on-year, mainly due to higher utilization and addition of Thionyl Chloride. Production of dyestuff [Technical Difficulty] was around 76%. Total production for FY '20 grew by 5% year-on-year. We acquired 100% stake in Trion Chemicals during Q3 FY '20. And the Board has approved its amalgamation with Bodal Chemicals Limited in May 2020. We are in the process of doing certain modification in the plant, which were delayed due to 1 equipment, was to come from China, which got delayed due to COVID-19. We are also making efforts to expand the marketing network in the U.S. We are confident to start and run operations smoothly from September 2020 at Trion. Under the current uncertain business environment, our strong integrated business model and presence across value chain will provide significant cushion to the company. We believe business scenario to gradually improve from Q2 FY '20 due to unlock in the country. Thank you. And I would now request Mr. Mayur to take up the financial performance in detail.

Thank you, Ankit bhai. Good evening to all. On the quarterly financial front, our standalone total income improved by 2% year-on-year and increased by 9% quarter-on-quarter to INR 3,359 million. Our standalone EBITDA, including other income stood at INR 462 million in Q4 FY '20, which was higher by 47% quarter-on-quarter. Standalone EBITDA margin, including other income, stood at 14% for this quarter. Our finance costs have increased year-on-year to INR 30 million, mainly due to higher utilization of working capital limit. The profit before tax declined by 70% -- 17% year-on-year and grew by 65% quarter-on-quarter to INR 369 million. The net profit for quarter stood at INR 301 million, which grew by 2% year-on-year and 58% quarter-on-quarter. Our export stood at INR 965 million and its share in total revenues was at 29% in Q4 FY '20. On the subsidiaries front, SPS posted revenues of INR 249 million with EBITDA of INR 11 million in Q4 FY '20. Trion posted loss of INR 28 million in Q4 FY '20. We are committed to minimize the losses at Trion going ahead. Thank you. And now I open the floor for question-and-answer session.

[Operator Instructions] The first question is from the line of Jason Soans from Monarch Networth Capital.

My question relates to basically your Dye Intermediates and your dyestuff business. I just wanted to know in terms of demand in post COVID? And how do you look at the demand for both these Dye Intermediates and dyestuff? And also, if you can give some color about Trion and the demand in the end user industries as well with respect to Textiles, Leather, et cetera. How do you see the demand? You did mention that June has seen a pickup, but just give some more color on it.

Yes. So the demand, obviously, since June has been, I would say, picking up on a weekly basis. I think the overall cycle has really strengthened up since beginning of June, I'm talking about the payment cycles also, where we are able to get the payments from our buyers and the entire cycle has been improving. With the global particular demand in all different departments has been a bit different because of the COVID, wherever it is happening, it's been changing. Earlier, there was a demand issue from Italy and Turkey when it was very high in the European area. Nowadays there's a demand issue from South America. So these days, Brazil is very active, and some of the other countries. So demand has been moving around as far as all the different countries go. But I think for the -- especially for the leather market now, Italy is now much better as far as the effects of COVID is there. So in the leather, particularly, the scenario has been improving very quickly. Overall, textile is also definitely improving domestically and internationally. So that's also a normal routine good sign. Other than that, if I talk about the local Indian industries or a particular trade, then I would say the industry is definitely running at around 50% to 60%. Our company, particularly, is about 65% to 70%, and we are definitely trying to take it to around 80%, 85%, I think which we should be able to achieve by, if not August then definitely by September. And those should be very comfortable levels for the company to operate smoothly. On the other hand, the prices of a couple of the -- our finished goods, which contribute a lot to our top line, they have also been correcting. So for example, Vinyl Sulphone and H-Acid, both the prices had really decreased since the lockdown started. I think Vinyl Sulphone price reached around 140 levels, which is now back to 170 levels. Same thing with H-Acid, reached around 320 -- 330 levels, now it is 370 levels. So that is definitely happening due to the growing demand that is happening in last about 30 to 40 days. So that's the scenario. Textile, definitely, there's still some slowing kind of development that is happening there, but there's definitely some positiveness that happens every week. So what I feel is there is definitely a growing demand that's coming continuously from textile also. And other than that, obviously, just like as an economy or India as a country, all the businesses are trying to get back on their own feet. So everybody is trying. So I think overall cycle, if we are able to generate a revenue of around 65%, 70% in, let's say, in June, then I think that's a very good sign. So within a very short time, things are turning around and recovering.

[Operator Instructions] The next question is from the line of [ Hitesh Mehta from SBICAP Securities ].

A couple of questions. First about, I think, intermediate price, you just announced it, but I missed it. If you can help us, what was the average for H-Acid, VS in Q4? Second question is about working capital cycle. It seems our working capital cycle has elongated substantially in Q4 and even FY '20 full year perspective. If you can help us understand, partly, it is because of COVID and partly because of the business which we are seeing more revenue coming from dyestuff. So if you can help us understand how one should look this working capital cycle playing out for us in next couple of years? And the last question is about the fixed cost. What will be the fixed cost, which we are incurring because Q1 is likely to be largely washout for us. So what would be the per month fixed cost which we might be incurring? So if you can provide some perspective. And last is about CapEx, if you can provide how much now we considering COVID and overall weak demand, what would be the CapEx which we envisage for current year?

Yes. Mr. [ Hitesh ], Q4 FY '20 average price for H-Acid was about INR 390, and Vinyl Sulphone was about INR 210. But here, we need to understand that prices of raw material for both these products have also come drastically down during lockdown. And currently, that has remained at the same level. So this is one area. Secondly, as far as working capital cycle, yes, you are correct. That has a bit strengthened in March '20 but that is mainly because of higher turnover, which was the highest turnover for the quarter in FY '20. So that has led to higher debtors but as far as inventory is concerned that has remained more or less at the same level, which was prevailing in March '19 or of September '19. Presently, working capital cycle has improved a lot. There is roughly about INR 190 crores to INR 200 crores of collection we have received since April 1, 2020. And sales is a bit low. So at the same time, production has not that happened during the first 50 -- 40, 50 days, but sales is continuously happening. So debtors as well as inventory, both has come down. And as far as coming quarter, this will also a bit improved level when we compare to March '20. For the coming years or quarters, inventory as well as debtors will remain maybe at March '20 level because we are focusing more on dyestuff business. And in dyestuff business, we are required to keep higher inventory because number of colors are more, at the same time, we are focusing more on export. So for that, also, we need to keep higher inventory. At the same time, credit period expected by customer in dyestuff is a bit higher compared to Dye Intermediates and Basic Chemical business. So whatever level we were at March '20 that should be -- remain for the coming times. As far as fixed cost, what you have mentioned is -- there is hardly about INR 5 crore of fixed cost per month company has, about INR 4 crore of salary and about INR 1 crore of interest. Other than that, there is no significant area where a company is required to do expense as a fixed cost. As far as CapEx, what we have mentioned, in CapEx, what plan we have declared last year that CapEx plan, we have dropped. So we have scrapped that plan, and we are reviewing once again separately. So once the things are stabilized, business gets stabilized, at that time, we'll come up with some CapEx plan but the total outflow for the CapEx will be drastically low compared to what we have declared last year. I hope I've answered all your questions.

Yes. Just one follow-up. If I look your net working capital cycle, it is around 86 days at the end of March. So broadly, we should look around 85 to 90 days is more sustainable? Or do you expect it to further increase or decrease?

See, for coming times, for 1 or 2 quarters, it may reduce to 70, 75. But for a longer period, yes, 80, 85 should be the level where it can stay.

[Operator Instructions] Next question is from the line of [ Ajay Kulkarni ], an individual Investor.

So sir, I just wanted to understand the China angle. Recently now, it appears that the export incentives which were earlier not given by China, they have started to give that export incentives in the form of VAT refunds. So -- and they have also -- the Chinese players have started to, again, do oversupply in the dyes market. So just wanted to understand some color. Second question would be around, sir, I understand that ADD has been imposed to aniline. So where do we source majority of our raw materials and aniline as well? And what would be the impact of that on our margins going forward?

Yes. So about the export incentive, that point you brought up, I think there has not been any major change in what is happening in China in last 4 to 5 years. There has not been any big jump in terms of the percentage of incentives that the chemical industry gets. So I think there is not much change. There was a talk when the economy was -- their economy was facing a challenge to grow continuously at the 7%, 8% level. There was a talk that they will start those incentives again to boost the exports and to boost the economy, but that's not the picture. That has not happened. And so currently, as per my knowledge, the Indian and the Chinese export incentive levels remain around same. Earlier, there used to be a big difference, earlier, I would say, about 10 years ago, 15 years ago there used to be -- Chinese incentive percentage number used to be much higher. So that used to be one benefit, they clearly had, which in last about 4 to 5 years, things have changed, and they don't get those higher percentage anymore. So that's the scenario there. And what is your second question?

Sir, my second question was about aniline. So aniline is one of the raw materials, and India has imposed ADD on aniline, right antidumping duty.

Yes.

Right. So just wanted to understand where does our company source aniline from and the other raw materials as well? And does -- do we source any major raw materials from China? And what would be the impact on gross margins going forward?

So particularly, our trade does import many intermediates from China. But it is not like agrochemicals and pharmaceuticals where China is probably the only producer in 80%, 90% of the products. The good thing about dyes intermediate segment is that I would say about 95% of the products are available indigenously here also. Most of the players in dye sector, they import the raw materials from China. And they also have the local option. So that has been the history and the trend. But in last about 4 to 5 years, the growth that has not really happened in Chinese capacities of intermediates, so that has given a good opportunity for the local intermediate players. And I think that is why there is an improvement in the margins of intermediate players in India. So us being the top player in terms of capacity, we obviously do not depend on China much. There's only a couple of intermediates, which we produce, and those are also very small in number and value. Those are the only ones which we import from China. So otherwise, some competitors, their dependency on Chinese material is definitely much more than our company's is. So our company's dependency because we produce, because we are the largest player of intermediates, our dependency is very, very less. But I would say some of the competitors do depend on the Chinese players. As far as the aniline goes, we do buy aniline from GNFC. GNFC is the only manufacture in India. There is a duty -- this is antidumping duty, I think about 40% is a talk that's going on. So if that takes place, obviously, the aniline may become a little bit more expensive in India, but that's only, again, a small part of our total purchase.

Okay. Sir, that was very helpful. Sir, one more question. Just wanted to understand your view on H-Acid and Vinyl Sulphone prices going forward. How do you see like with increasing demand, you expect the prices to rise and hence -- so just wanted to get an estimate of your FY '21 revenue and EBITDA broadly?

That is very difficult for me to say right now. But the good thing and the positive thing is, in June, we had about 65% of our sales numbers on an average. So -- and July will definitely be better. So what we are targeting right now is to reach about 80% level by August end. So I think when we reach 80% levels, those are good levels where our expenses can be taken care of. So that's our first target. Second is the prices of some of our important finished goods, they are gradually improving. So that's another good sign. And the third good sign right now is that the -- because of no demand for almost 2 months, most of the chemical prices have come down. And because of that, we do buy some petrochemical related products and some of the natural resources related products. So all these prices, almost all of them have come down. And again, they have also not corrected to their original levels. So they've also only improved about 5% or 10% or 15%. So I think that there's still a decent margin that's there even at a price of INR 170 of Vinyl Sulphone or INR 370 of H-Acid. So that's a good sign. So -- but going forward, I think globally, the whatever threat we had about COVID, let's say, 1 or 2 months back, things have definitely changed and improved and the -- and people and governments attitude towards the scenario has changed. So I think there is no choice but for people and governments in countries and companies but to operate. So I think -- I don't think the manufacturing will stop at all. So I think it will only grow from here. With all that, I think I also see consumptions becoming normal maybe 2, 3 months from today. And once the consumptions of -- across the globe starts becoming normal, I think the overall cycles should become normal. And that should really push the demands to go up. So I think we are probably around 3, 4 months away from a normal scenario. So that only puts us -- that only gives us about 6 -- around 5 to 6 months of the year. So this year it's very difficult to forecast anything about the top line or the EBITDA levels right now. But obviously, this year will be more of a survival, which -- where we already see good positive signs. So I think we should be okay this year. But obviously, we'll not be able to produce a lot of margins, a lot of bottom line.

And sir, last question on the labor front. So sir, have we -- has our manufacturing plant seen 100% of the labor that was present pre COVID? Or how much of the labor force has returned. And are we planning any automation? Or I mean, how do we plan to work with that situation of labor crisis going forward?

Yes, us being an intermediates industry, particularly, there's a lot of requirement of labor because of the nature of our batch type processes. And us being a leader in that space since many years, obviously, some of the top contractors also work with our company. So yes, there are some challenges for the contractors. But as far as our company goes, I don't see any challenges. So we are able to tackle the labor supply scenario. And I think because probably we are the largest accounts for most of these contractors, we are probably on their top priority list, preference list. So we have not been facing much issues as far as the labor goes since we started the operations.

The next question is from the line of [ Sanjay Kumar Agarwal ], an individual investor.

Yes. Actually, I want to know whether in April or May were we able to do sales from our inventory or it was a complete black out?

See, April was -- sales was only from the inventory. But from May 11, we could start our operation as far as Basic Chemical and Dyestuff is concerned. And in Basic Chemical, to reach 70%, 80% is not an issue, and we are doing at that level since then. Dyestuff, yes, we are gradually increasing our production, but that is also picking up. And Intermediate, as mentioned, that is also gradually picking up. So presently, we are producing at all 3 divisions. And from May, sales is not only from the inventory, it is from the production also.

So if you were to put a number, since you put in June, we have achieved 65% of the capacity, so what you -- what would be the capacity utilization for April and May together?

April and May, hardly 30%, 40%, cumulatively, if we consider both the months.

Okay. Okay. And how the margins going forward, looking -- you have told the prices of product has also gone down. In the meantime, raw material prices has also come down. So you are confident of achieving 10% to 15% of margin?

So I think at current levels, yes, at EBITDA levels, I think we can at around 10% to 15% of those levels. Also, there are a couple of major manufacturers here domestically. There are some disturbances in couple of the major plants. So I don't have any clearer information right now, but I think one of them got a closure already. That's probably second largest unit of H-Acid and Vinyl Sulphone. And another unit, which is yet to start post the lockdown also. So that is -- I think that will create some progress with this -- on the supply front. So that can also play some role in the immediate future.

The next question is from the line of Rohit Nagraj from Sunidhi Securities.

Sir, my question is related to just you said about one of the manufacturers, there is a closure, the second largest. So have we seen any small manufacturers probably going out of the space or deciding to go out of the space because of the current issues that all the industries have been facing?

No, there's definitely no news of any small or large player leaving the business or going out of business.

Okay. And another question is on the dyestuff pricing. So how has the pricing behaved during the ante entire FY '20, maybe from the start of FY '20 or to end? And how those prices are currently placed?

So the current prices are obviously less than the average prices of FY '20 because FY '20, obviously, was a good year as far as the intermediate pricing goes. So because of the higher intermediate pricing, the dyestuff pricing was also higher. And now right at the beginning of this year, we started with the lockdown. So currently, obviously, it's just -- it's a limited business that has been going around. So obviously, like intermediate pricing, the dyestuff prices also fell. But as of now, there are still pending orders that has been happening. So it's an extraordinary scenario where people are trying to finish the older orders. So overall, as an average, it may be higher, the current dispatches may be higher than the current price. But I think it's all going to dilute maybe in the next 30, 60 days and then the normal scenario should start.

Okay. And how has been the performance on the exports front, which is we hear that there have been some issues at the port in terms of exports and probably at the receiving end also in respective countries. So how has been that performance over the last 3 months or so from April to June?

So in April and May, there was a lot of issues. I think for first about 20, 30 days, there were talks that the ports did not stop, but there was actually -- there was no operation. So if you wanted to send something out, it was not really possible because there was some -- everything was not clear from the government's front, there were issues with the unions of the transporters, et cetera. So first 20, 30 days, I don't think there was much movement. But post that around May first or second week, things started becoming smooth. And I think June was very much smooth. As far as the export goes, I think June, there was no issue at all.

All right. And just one last question. Are we in Indigo Blue manufacturing?

No, we are not.

Okay. Any idea how have been the prices, if you know, from the industry point of view?

Of Indigo Blue?

Yes.

No, I don't know because that space is dominated by Chinese. There are some manufacturers here, but they are very small and we don't relate with them. So I don't keep track.

So any idea -- I mean any plans of probably going into that space because that space probably has still potential opportunities as far as India is concerned. And since it is only manufactured in China, and given that the new initiative Make in India and Atmanirbhar, this could be an opportunity for Indian space. So are there any plans?