Bodal Chemicals Limited (524370) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Bodal Chemicals Limited Q2 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ankit Patel, Executive Director, Bodal Chemicals Limited. Thank you, and over to you, sir.

Thank you very much. Good evening, everyone. Thank you for joining Q2 FY '21 conference call of Bodal Chemicals Limited. I have our CFO, Mr. Mayur with me as well on the call. I hope all of you have got an opportunity to see our financial results and earnings press release, are also uploaded on our website. First, I will highlight our expansion and diversification plans and business performance for the quarter. Detailed financial performance will be taken up by Mr. Mayur later. We are glad to announce diversification into specialty benzene, our downstream product and expansion of sulfuric acid and derivatives of Saykha GIDC, Bharuch, Gujrat. These projects will open new growth areas for the company as we intend to further expand our specialty chemicals product portfolio in the future. The capacity of benzene downstream products will be 55,000 tonnes per annum, which will include products like MCB, PNCB, ONCB, MNCB, DNCB, PNA, 2,4 DNCB et cetera. The capacity of sulfuric acid and derivatives will be 3.4 lakh tonnes per annum. This will include sulphuric acid, Oleum 23%, Oleum 65%, liquid SO3 and chloro sulphonic acid. We will set up an integrated product chain, which should lead to cost efficiency, better productivity and higher margins for the company. The company intends to start the project by end of January 2021, and it is expected to get completed by end of September 2022. Total cost of the project, including one-time infrastructure cost will be around INR 345 crores, out of that cost of benzene downstream products will be around INR 165 crores, and cost of sulphuric acid and derivatives will be around INR 125 crores. At peak utilization, the company expects these 2 projects to generate revenues of around INR 400 crores with EBITDA margin at current rate should be in the range of 16% to 18%. Bodal intends to use internal accruals of INR 100 crores per year, the rest will be funded by term loans. The quarterly business scenario improved in Q2 FY '21 in terms of better demand, higher utilization of plants and more dispatches after the lockdown impact in Q1. We expect demand scenario for our products to improve further in coming months as a domestic as well as global economies have started opening. During Q2 FY '21, the average price of Vinyl Sulphone was around INR 159 per kg, and H-Acid was around INR 346 per kg. Our total production for Q2 stand-alone was 65,000 tonnes per annum, which was 2% higher year-on-year with the dye intermediates, dyestuff and basic chemicals, including Thionyl Chloride utilization at 82%, 44% and 97%, respectively. Production of our liquid dyes have improved recently, utilization of around 40% in Q2 due to the increased demand from paper and textile industry. We expect utilization levels of dyestuff powder segment to improve gradually in second half of FY '21 as demand scenario is improving. On the subsidiaries side, we have started the production at Trion plant from September month 2020 and utilization levels are improving gradually due to higher demand of the product in the U.S. At SPS, we are planning to start the VS plant very soon, it should add to profitability in this year. At Sener, in Turkey, dispatches have improved to around 200 tonnes per month in Q2, which was around 8,200 tonnes per month, a month earlier. We expect monthly dispatches to improve to around 300 tonnes per month at Sener. We are targeting all the subsidiaries to add to profitability from second half of FY '21 onwards. Also, we are confident that all the other facilities in which we have invested in the last few years are underutilized currently like dyestuff capacity, Trion Chemicals and upcoming VS plant at SPS. We'll have higher utilization gradually and add to profitability in coming years. Thank you. And now -- 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 stand-alone total income increased by 11% year-on-year to INR 2,898 million in Q2 FY '21. Stand-alone EBITDA, including other income, stood at INR 316 million, which improved by 13% year-on-year. Our finance costs in the Q2 FY '21 declined by 47% year-on-year to INR 18 million due to decrease in debt and declining rate of interest. The profit before tax increased by 26% year-on-year to INR 234 million. Profit after tax for Q2 FY '21 stood at INR 175 million. Our exports were INR 1,005 million. And its share in total revenue was at 36% in Q2 FY '21. On the subsidiary front, SPS posted revenue of INR 320 million with loss of INR 8 million in Q2 FY '21. Trion posted loss of INR 34 million in Q2 FY '21 and Sener posted loss of INR 9 million. As Ankit bhai said earlier, we are targeting the performance of all our subsidiaries to improve and add to profitability from H2 FY '21 onwards. During Q2 FY '21, inventories levels came down to INR 1,541 million from INR 1,855 million in Q4 FY '20 and trade receivables come down to INR 2,238 million from INR 2,942 million in Q4 FY '20, leading to improvement in working capital. Our short-term debt also came down to INR 951 million in Q2 FY '21 from the INR 1,612 million in Q4 FY '20. We are committed to maintain our leverage ratio 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 Aditya Khetan from East India Securities.

Sir, my first question is on the Dye Intermediates side. So Dye Intermediates prices are still at the level, which they were in Q1 FY '20. So what is the major reason where like -- why are the Dye Intermediates prices similar to the levels of the last quarter, has there been not much improvement in demand here?

The current prices of the main tools -- Dye Intermediates, H-Acid and Vinyl Sulphone, they have increased. So the price of H-Acid currently is around INR 390 to INR 400. And Vinyl Sulphone is around INR 190 to INR 195. So with that good demand that has developed in the last couple of months, the prices have already reached good levels. And raw material prices are still on the lower side.

[Operator Instructions] The next question is from the line of Avishek Datta from Prabhudas Lilladher.

Sir, I just wanted to check, how is the competitive scenario right now, especially from China, how are we faring? Like how the competitive intensity from China?

So currently -- in current period, you can compare it more to the quarter -- couple of quarters that were there before the lockdown. So I would say there is no -- any extra materials that is coming from China. Things have really normalized, where there are actually opportunity to export some materials to China as well. And in terms of competitiveness, I think Indian manufacturing costs has -- definitely now has edge over the Chinese cost.

And in terms of Chinese production then sir, has there been any more restrictions, environmental restrictions over there leading to more disruptions, which you have seen?

No. I don't think such kind of any large development has taken place in China in last, I think, 3 or 4 quarters, I think the focus was earlier in China, in our first or second quarter, the main focus was on COVID-19. And currently, also, I think we have recovered much better than the rest of the world. But still, I think central focus should be there on the reviving of the economy and this COVID-19 scenario. So I think things have really now normalized, balanced. And no large -- any events of that nature has happened in China that I know about.

And sir, you mentioned, what is the total CapEx you're spending for these projects which you mentioned?

The total CapEx that we are doing is INR 345 crores.

And that can lead to revenues of INR 400 crores when it is to be commissioned?

Yes, INR 400 crores. But many of the products will be used internally, so because of the integration and captive use, that's why the top line number, the turnover number is only INR 400 crores.

And all these projects will be commissioned by next September?

Yes, 2022 September.

Okay. And sir, lastly, sir, how do you see the downstream demand for your products right now?

I think demand is very stable right now. I would say it has really improved and reached 80% - 90% -- 85%, 90% level. It's a very comfortable time right now because the prices are at comfortable levels, raw material prices, most of the raw materials are also still at low levels, and demand is also picking up from all the areas. So not just domestically, but export also has opened up. And there are no orders or issues now to do the business.

[Operator Instructions] The next question is from the line of [ S. S. Nath ] as an individual investor.

Sir, I would like to inquire how Thionyl Chloride pictures in any of your forward or backward integration efforts? Do you use it in your products? And if so, what percentage?

So Thionyl Chloride, the largest product that is there in our portfolio is Vinyl Sulphone, which contributes largest in terms of top line. So Thionyl Chloride is one of the raw materials that is required to produce Vinyl Sulphone. And we are one of the largest consumers of Thionyl Chloride. So our plant is situated at Baroda, which is our integrated complex, where we have basic chemicals, intermediates, Dyestuff, everything, and we set up the plant more than a year ago. And the plant capacity is 3,000 tonnes per month. And captive, we use around 700 to 800 tonnes per month. So we have around 30% captive use. And now Thionyl Chloride business is also doing well, the capacity utilization has reached more than 85%, 90%.

That's very good, sir. I have a follow-up question, if that's allowed. I believe most of these chemicals are hazardous in nature and what -- I mean, being one of the largest producers around in India, I mean, could you just help me understand what kind of a precautions are covered -- our company has in case how anything goes south with respect to handling or because -- I'm asking this because you have been working on Thionyl Chloride facility and safety concerns, which is very commendable and that's -- a certain cost to the company. So I would like to -- it's a great thing, but I would like to understand that.

Sir, like you mentioned, it is very critical. The safety and the environment are 2 most critical things that we have to take care because of our manufacturing and because of all the chemicals that we use and produce. So obviously, after 32 years of our beginning, we have taken and we have treated these 2 areas very seriously. Fortunately, we have met with very, very few accidents in the last 10 years. And not just at employee levels, but we also have a director on board, who is specifically given this job to handle the entire safety area of the company.

The next question is from the line of Aditya Khetan from Easting Securities.

Sir, apologies, my line was disconnected earlier. Apologies for the similar question. Sir, on the Dye Intermediates prices I was asking, so they are at the similar level as in the last quarter. Any major reason for it, sir?

Dye Intermediates prices have already increased. So the current levels of the Dye Intermediates prices were 2 main Dye Intermediates prices -- such in Vinyl Sulphone, adjusted price per kg is INR 390 to INR 400 and the Vinyl Sulphone price is INR 190 to INR 195 per kg. So our Q2 average price was INR 159 for Vinyl Sulphone. And currently, it is INR 190 plus. And Q2 average price of H-Acid was INR 346, which is currently INR 390 plus.

Okay, okay. And sir, what was the similar Vinyl Sulphone prices in Q1, what I have -- it is around INR 160 per kilo. Is this number correct, sir?

Yes, Q1 price of Vinyl Sulphone was INR 167 and H-Acid was INR 350. That was the average. So we have already crossed the price -- the average prices of H-Acid without sulphone. Current prices are even more than Q2 FY '20. So last year, when things were normal, the current prices were even better than that.

Okay. And sir, in the presentation, you have mentioned that the Thionyl Chloride has seen an upturn in the demand scenario. If you can help us understand what is the reason for this demand uptick?

Thionyl Chloride has applications into Dye Intermediates and agrochemicals mainly and also some volumes in pharmaceutical. So I think mainly because of agrochemicals and Dye Intermediates, it's also now running smoothly. Overall, I think that is the reason. I think the main reason was agrochemicals because of a great demand that was there for last couple of quarters. Thionyl Chloride demand has been very good.

Okay. And I'm sorry for the similar question if I'm asking, sir, what is the rationale for putting up a capacity in benzene derivatives, which is apart from our current chemistry? Any rationale which you all are forcing, why to foray into a new chemistry?

I'm sorry, can you repeat that question?

[ Justification for the benzene derivatives]

So one of the main reason is China has been the dominating player in this particular benzene products. So that is one reason. So in the last few years, the growth that China was doing in such products for the last 20, 30 years, that is not there. So we really feel that the opportunity is there. Plus applications of the product is that we are doing is mainly to agrochemicals, Dye Intermediates, some other colorants and pharmaceuticals. So those also tend to grow in India, we feel. So I think the demand of Indian markets, which should be very good for next couple of decades. That is one of the other reasons. And the third reason is the product that we are doing, there are 3 products which we already use captively. So [ PLC ] we have been buying from the major suppliers. Similarly, PNA also we have been buying since many years. And there is one more product that we are targeting to set up, which is [ NPDS ] which will be actually 4-step integration for us. So we will produce MCB from benzene and chlorine from which we will be producing PNCB and from PNCB we'll be producing 2,4 DNCB. And then from 2,4 DNCB, we'll be producing [ NPDS ] which we use for our dyestuff. And also, we intend to -- from PNCB in the second phase, we are also planning to set up a paracetamol capacity. So for that, we need this PNCB setup right now.

Okay. So this paracetamol capacity addition is included in the capacity expansion plan, which you have outlined of INR 450 crores?

It is not part of that right now. We still have to gather clearance for that. And we also wish to first set up these product raw materials of paracetamol right now in this case. And then in the second phase, we want to do that, paracetamol.

Okay. And sir, just a follow-up on the MCB part. So even Aarti is expanding their MCB capacity. So just wanted to understand, will there be a situation like an excess supply scenario in the industry for the MCB side?

So MCB, we are planning to 100% captively use. I know that a couple of the companies are planning to expand and they're already in the -- Aarti is already in the process of expanding, but we feel that there's definitely -- there has been a good gap in demand and supply in the last few years because the Chinese customers stopped to growth. So we feel that the market demand is going to keep on growing, Indian companies, we'll -- it will be able to cater, Aarti has become one of the largest in the world for this. So I think there's definitely room. And I think what should really be the strong point for us is that we are going to captively use about 40% of all the products that we will produce. And we -- and that -- it also connects with our existing business model. So it will also support our existing business.