Bodal Chemicals Limited (524370) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Bodal Chemicals Limited Q3 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 from Bodal Chemicals Limited. Thank you, and over to you, sir.

Thank you very much. Good evening, everyone. Thank you for joining Q3 and 9-month FY '21 conference call of Bodal Chemicals Limited. I have our CFO, Mr. Mayur Padhya, with me as well on the call. I hope you and your near ones are safe and healthy in this uncertain COVID period. I trust all of you have got an opportunity to see our financial results and investor presentation filed with the stock exchanges, and are also uploaded on our website. First, I will highlight our acquisition and diversification plans along with business performance for the quarter. Detailed financial performance will be taken up by Mr. Padhya later. We are happy to announce acquisition of Siel Chemical Complex located at Rajpura, Punjab. Siel is in the business of chlor alkali, and one of the largest players in North India. The plant is developed on the land of around 124 acres, out of which around 60 acres is surplus. Current capacity of caustic soda plant is 250 tonnes per day, which is 82,500 tonnes per annum. The plant also has strong internal and adjoining consumption of chlorine, for around 80% in stable bleaching powder, hydrochloric acid, sodium hypochlorite and through pipeline sales to adjacent units to which Siel has been supplying since many years. Rest chlorine gets sold in cylinders to third-party consumers. Siel has very strong client base and has been supplying to leading companies like HUL, Nestlé, Indian Oil Corporation, HPCL, Vardhman and Trident, et cetera. The plant is very well maintained with strong internal processes and very good condition of the fixed assets. We will be upgrading the technology of the assets after acquisition, which will result in substantial reduction in the power cost, annual repair and maintenance cost, and increase in production capacity for caustic soda plant from 82,500 metric tonnes per annum to 99,000 metric tonnes per annum. During the upgradation process, plant will be under operations with about 70% utilization of the existing capacity. We will acquire Siel Chemical unit at total cost of around INR 137 crores on slump sale basis, plus stamp duty of around INR 6 crores. We expect Siel to generate additional revenues of around INR 300 crores after the upgradation of the plant at optimum utilization levels, with EBITDA margins in the range of 20% to 22% at current price levels. Apart from the acquisition, in the last quarter, we announced diversification into specialty benzene downstream products and expansion of sulfuric acid and derivatives at Saykha GIDC in Bharuch, Gujarat. We are glad to announce increase in the capacity for benzene downstream products to 78,960 metric tonnes per annum from 55,000 metric tonnes per annum announced in the last quarter. We have added the MPDSA plant and increased the capacities of other products. Under benzene downstream products, we will be manufacturing MCB, PNCB, ONCB, MNCB, DNCB, PNA, 2,4 DNCB and MPDSA. The capacity of sulfuric acid and derivatives will be 3,40,000 metric tonnes per annum as announced in the last quarter, which will include sulfuric acid, Oleum 23% and 65%, Liquid SO3 and Chloro Sulphonic Acid. We will set up integrated product chains, which will lead to cost efficiency, better productivity and higher margins for the company. We have already started the work at the site, which is expected to get completed by the end of Q3 FY '23. Total cost of the project, including onetime infrastructure cost will be INR 400 crores. Out of that, cost of benzene downstream products will be INR 220 crores and cost of sulfuric acid and derivatives will be INR 125 crores. We expect this project to generate additional revenues of around INR 550 crores at optimum utilized levels with EBITDA margins are -- in the range of 15% to 18%. All the projects including acquisitions and diversifications will be funded by mix of long-term debt and internal accruals. We expect to generate internal accruals of around INR 100 crores per year, and rest will be funded by debt. The quarterly business scenario improved in Q3 FY '21 in terms of better demand, higher utilization of plants, and more dispatches after the lockdown impact in the first half of FY '21. We expect demand scenario for our products to improve further in coming months as the domestic as well as global economics have started opening. During Q3 FY '21, the average price of Vinyl Sulphone was around INR 171 per kg, and H Acid was around INR 359 per kg. Our total production for Q3 FY '21 stand-alone was 68,400 metric tonnes per annum, which was 31% higher year-on-year, with Dye Intermediates, dyestuff and basic chemicals including thionyl chloride utilization at 96%, 51% and 100%, respectively. Production numbers are on higher side, mainly due to 2 reasons. One is, we did not take annual shutdown of Basic Chemicals plant in Q3 FY '21, which we take every year during Diwali. We will be taking that shutdown in February 2021. Second is, we have done debottlenecking of our Dye Intermediates plants due to which its utilization levels can now reach around 95%. We expect utilization of Dyestuff segment to improve further going ahead as demand scenario is improving gradually from textiles and leather sectors. We have started the production at Trion plant from September 2020, and production reached to around 230 metric tonnes per month and achieved near to breakeven levels. We expect Trion plant to turn to profits from Q4 FY '21 onwards. On the subsidiary side at SPS, we are planning to start VS plant from Q1 FY '22 after changes with respect to technologies, which will add to profitability from next financial year. At Sen-er Boya in Turkey, dispatches have improved to around 300 metric tonnes per month in Q3 FY '21, which was around 150 tonnes -- 150 to 200 tonnes per month, a month earlier. We expect monthly dispatches to improve further going ahead at Sen-er Boya. All our subsidiaries have returned to profits from this quarter, and we expect them to rise from the current levels and add to overall profitability of Bodal in coming years. With the improvement in the demand scenario for chemical sector globally, we believe Bodal is on strong growth path with strong stand-alone business model, improvement in performance of all subsidiaries and addition of new capacities by expansion, diversification and acquisition. Thank you. And I would now request Mr. Mayur to take up the financial performance in detail.

Thank you, Ankit bhai. Good evening, everyone. On the quarterly consolidated basis, our total income was at INR 3,732 million, increased by 13% year-on-year in Q3 FY '21. EBITDA, including other income, was INR 556 million, which was higher by 64% year-on-year in Q3 FY '21 with EBITDA margin at around 12%. Consolidated profit after tax for Q3 FY '21 was INR 258 million, which was higher by 119% year-on-year basis. On the stand-alone performance side, our total income increased by 9% year-on-year to INR 3,354 million in Q3 FY '21. Stand-alone EBITDA, including other income, stood at INR 385 million, which improved by 38% year-on-year. Stand-alone financial cost in Q3 FY '21 declined by 65% year-on-year and 17% quarter-on-quarter to INR 15 million due to decrease in date and declining rate of interest. The profit before tax increased by 75% year-on-year to INR 299 million. Profit after tax for Q3 FY '21 was INR 231 million, which increased 52% year-on-year and 32% quarter-on-quarter. Trion Chemicals posted revenue of INR 3 million, with PAT of negative INR 5 million. On the subsidiary front, SPS posted revenue of INR 339 million with PAT of INR 2 million in Q3 FY '21. Performance of our Turkey unit, which is Sen-er, was impressive during Q3 FY '21, which posted total income of INR 236 million with PAT of INR 30 million. Total income for subsidiary in China was INR 73 million with PAT of INR 9 million in Q3 FY '21. Let me correct, Trion posted revenue of INR 31 million and not INR 3 million. Thank you. And now I open the floor for question and answer session.

[Operator Instructions] Our first question is from the line of Aditya Khetan from East India Securities.

Sir, my first question, I would like to ask, so -- sir, in last quarter, we had said that we are foraying into benzene derivatives. And now in this quarter, we are now entering into the chlor alkali business. Sir, just one thought, wanted to know, so apart from our existing chemistry of Dyestuffs and Dye Intermediate, so does that -- sir, my question is I wanted to understand, so is there not much demand growth available into that business because of which we are foraying into this businesses. Or what is the rationale behind foraying into these 2 separate businesses apart from our core business right now?

So we are already the largest player in Dye Intermediates space in India, and in Dyestuff also we are one of the largest, in top 2, top 3 in terms of volumes. Growth in Dyestuff is still to be continued at our Baroda complex. But to avoid the volatility that the dyestuff sector has, and also to have a long-term vision, we have been planning to open new areas in chemical sector only. So the benzene-based products -- downstream products has a lot of domination from Chinese players; the top players are in China. And what we feel is that, I think, the growth is not going to come much from China, from the leading players, and it presents a good opportunity because looking at next 10, 15 years how the chemical -- agrochemicals, pharmaceutical space is going to grow in India, I think it is a good opportunity. Plus out of the first phase products that we are planning, there are couple of products already which we use captively in our existing dyestuff model. So we do have an integration there. Also, we are going to have some integration between the sulfuric acid complex and the benzene-based downstream products at the new site. So we are not going into 2 different particular chemical chains, but we are actually going to have an integrated business model with the complex theory where sulfuric acid's waste heat will be converted into steam, which has a value of multiple crores annually. And that entire steam will be used for benzene-based downstream products. Similarly, sulfuric acid complex is going to produce about 5, 6 megawatts of excess power. That is also going to be used for the entire complex. So we are targeting not to buy any power from the state electricity board. And also for the steam, it's going to come from the sulfuric acid complex. So it's going to be very, very integrated and synergized complex. Also, some of the sulfuric acid products will be used in the benzene-based downstream products. And also a couple of the byproducts, which are there in the benzene-based downstream products which are actually difficult to handle or to sell in the market, we will be captively using them in the sulfuric acid complex. So there's a lot of integration that we are doing, just like our Baroda complex, where it starts from Basic Chemicals to Intermediates to Dyestuff with common utilities and lot of byproducts being used internally. It gives a lot of cost advantage against the competitors. So we are planning to execute the similar business model at the new site also. And benzene, like I said, China being the top player in the world, I think India has a great opportunity to grow in that space. And the application of such products are very wide. They go into agrochemicals, dyestuff, pharmaceuticals, et cetera. So I -- we really see those products also growing big time. And also, some of these downstream products that we are planning, they are imported on a regular basis. So we don't have to grab market from the existing players, but I think there is definitely market available, so -- where we can achieve the utilization -- higher utilization immediately after we start. And sulfuric acid, similarly, also, it's more of a regional business, about 200, 300, 400 kilometer radius business. So it also has wide applications. It's the most common chemical in the world, and it's applied at almost in every single category. So with the growth that is going to come up in India, I think there's going to be a regular increase in demand of sulfuric acid and derivatives. And the location really helps us because it is situated in the heart of PCPIR, where Dahej is almost all developed. And then the new GIDC now -- Saykha is now being developed and Vilayat GIDC also 5 -- only 5 kilometers away. So I think the entire PCP region, which is a few thousand hectares, I think it's going to -- there's only 1 plant there of sulfuric acid. So I think we can be in a very dominant position to have the advantage -- early advantage to enter into that area with the sulfuric acid and derivatives. And for acquisition, it's a new line of business for us, but we have been buying caustic and chlorine for many years. We are a very big consumer of caustic and now chlorine also. So it's nothing new for us. It also has integration possibility for us in North India because our SPS processors where we have H Acid plant, we are also starting the Vinyl Sulphone plant. And those 2 combined is going to be large capacities. And so there we use a lot of caustic soda. So I think -- and it is not very far from the Siel Chemical Complex. So I think that integration possibility is definitely there. And North India itself has some other opportunities and Siel Chemical Complex has a very -- a good advantage of situated in the right location as far as North India goes. With the spare land available, we also plan to have some more growth plans there. But obviously, not in the first phase. But I think that it presents us not just a 250 tonnes or a 300 TPD chlor alkali business, but it gives us this integration and also some future growth prospects.

Okay. Sir, you have said, so we are big consumers of caustic and chlorine. So particularly, in which businesses are we currently using caustic and chlorine?

Caustic, we use in Intermediates. So the intermediates, like I said, we are the largest in India. So since -- traditionally, I mean, since 30 years, we've been using caustic in the Intermediates space, where more than 95% of it is used. And chlorine, we use at Trion Chemicals and also thionyl chloride. At these 2 locations, we have been using now chlorine for more than a year.

Okay. And my second question, in this quarter, we have seen that the dyestuff's volume had been degrown by 1%, whereas the Dye Intermediate volume growth is around 43%. Now we know that Dye Intermediate is a raw material used to make dyestuff. So why is there a growth in the Dye Intermediate of 40% and a degrowth of 1% in dyestuff. And secondly, also, can you help me with the annual demand of dyestuffs in India currently?

So for Intermediates, I think I mentioned it my speech about the debottlenecking part that we have executed with a very, very small expense without any new CapEx. We were -- we converted the existing setup into a better capacities. That is the main reason why we were able to produce more in the same plant. So going ahead also that should be the -- scenario should continue. And in dyestuff, I think because we are dependent more on exports in dyestuff, I think the problem remains the COVID situation is the main problem, mainly because of Europe. Europe is still going through this COVID situation. It's still not cooling down there. So I think that was one of the main reasons because we supply to Italy, to Turkey. So that's one of the main reasons. And I think, like I said, because of our dependency on exports more than the domestic sales in dyestuff, I think we had some issues there. In Intermediates, we were able to sell higher volumes because there our export ratio is very small. So there we just sell to the local consumers, a few hundred here in India.

Okay. And what would be the annual demand of dyestuffs in India?

Yes. I don't have an exact number because there are so many different categories of dyestuff. There are -- there is reactive dyes, which -- where India is in dominant position. There is the stuff dyes, which is -- where China has dominant position, where China produces more than 90% of the world. There are other direct dyes, acid dyes, wet dyes. So it's very difficult to tell. But the number that we -- the reactive dyes where most of the industries from India are active, like us, we are active in acid dyes also which goes into leather and nylon and all. We are also pretty big in direct dyes, which goes into paper. So I'm not sure which exact market you're referring to. But I would say that on an average, about 20,000, 30,000 tonnes would be the monthly consumption of all the dyestuff that we deal into in India.

Okay. Okay. And sir, my third question, on the caustic plants, so the acquisition cost is around INR 137 crores. And also, we are upgrading the caustic soda plant from 82,500 to 99,000. So this cost, INR 137 crores, also includes the upgradation part or -- so -- or there would be some separate CapEx aligned for this?

No. So it does not include that cost. And one of the main reasons why we got this plant at this attractive price is that because the technology there is 20 years old. It needs to be upgraded to be competitive in the market and to earn good margins. So we will have to do it separately. The cost for that, we have already prepared everything for that and we are just ready to place the orders immediately when we get the possession. The cost will be around INR 100 crores. So total, we are looking at spending around INR 230 crores, INR 240 crores there, which will give us 300 TPD plant, 99,000 tonnes per annum plant, and that will be ready about 5 to 6 quarters from now.

Okay. So that means, sir, so we are talking on a 2-year forward basis, we are talking of a INR 640 crore CapEx. And on that, INR 200 crores would be from the internal approvals and remaining around INR 450 crores would be from the debt. Is that assumption correct, sir?

Yes.

Okay. So just want to know, so taking around INR 450 crores of debt, our existing debt is around INR 165 crores. How confident are you that you -- like for the existing expansion would help the company to pare off the debt because then our balance sheet would become highly leveraged.

Currently, that INR 160-odd crores debt you say, that is a short-term debt. We have -- we are a 0 long-term debt company. Let me give it to Mayur bhai to explain this better.

Yes. See, presently, the current debt is around INR 130 crores. And that INR 130 crores is having an interest rate of average 3% or so. Additionally, there can be some more utilization of working capital, but that will be in the range of about 3% to 4% rate of interest. What additional long-term debt we are going to raise is, you mentioned it correctly, about INR 450 crores. And presently, rate of interest has gone down drastically. And the quote what we are getting from the bankers is in the range of 6.5% to 7.5%. So overall interest burden is not going to be there. And the additional revenue as well as EBITDA, what we are going to generate is much more than what we are going to spend as an interest. So even if we exclude the earnings from the new project and the acquisition, even existing structure of the company itself is sufficient to serve this interest as well as the installment part of the company. So we are very much confident, and there is no issue at all as far as debt service is concerned.

Okay. Sir, just one last question from my side. Sir, on the benzene derivatives...

[Operator Instructions] We'll take our next question from the line of Raj Nahar from Mili Consultants.

I -- just one simple question. How is the current market of Vinyl Sulphone and H Acid? And what kind of current price trend is there currently?

The current market for H Acid and Vinyl Sulphone has actually been good in last 15 to 25 days and the prices have gradually increased also. H Acid price per kg is about INR 415 and Vinyl Sulphone per kg price is INR 235. Some of the raw materials have also shot up. But I think these finished good prices levels are good for us.

Okay. So this Uttar Pradesh unit will be now running full? Because the...

Which unit?

UP unit.

UP unit, for H Acid, it is running at optimum capacity, yes. But Vinyl Sulphone unit is not ready. We are targeting to start that in few months. So then that will also be running at optimum level.

We'll take our next question from the line of Rohit Nagraj from Sunidhi Securities.

Yes. And good to see the numbers are improving. So a few questions on the downstream expansion. So in Siel Complex, we have indicated that the -- at optimum utilization level, the EBITDA margin shall be in the range of 20%, 22%. But if we look at generally in the chlor alkali business, the margins are upwards of 30%, 35% in normal course of prices, which is currently depressed quite a bit. So present that we are looking at 20%, 22% based on the current pricing scenario or the normalized price?

Yes. So current prices, definitely, like you said, have been depressed for the last few months. But now I think since last 1 month, the prices have slightly been going up. And yes, definitely at the 20%, 22% that we said they are definitely on a conservative side and also at the current price levels. Like you said, 30% to 35% EBITDA, which is the traditional number in the chlor alkali sector, you are very right. So that -- I think there, the prices of caustic has to be around INR 20, INR 27, INR 30, which is probably the 10-year average. And that's where I think the 30% EBITDA level is. So I think that level should also come back because there was a slowdown in the demand, particularly mainly from the textile sector. That's why the chlor alkali was suffering a bit. But I think now they are gradually coming back to the normal levels.

Sure. The second question is on the specialty benzene derivatives segment. So what has changed in 1 quarter that we have gone in for an upgrade in terms of the capacity and the entire downstream part of the project? Is there something which is already in the pipeline that we see that there is an opportunity and probably it could be an import substitute or something else which has made us think to go ahead with incremental investment and increased capacity?

Out of the 5 products in the benzene downstream, the very first 2 products are MCB and then PNCB, ONCB plant. So in those 2 plants only we have decided to increase the capacity. The reason was very simple, while we were getting into more and more details technically at only -- of investment of around INR 40 crores more, we were -- we are going to put 1.5x the capacity of the original capacity that we had planned, which was announced last quarter. So at INR 40 crore, basically, we are able to increase the capacity. Plus, I think the scenario that has changed in the last 3, 4 months, about how the benzene-based products are behaving and how the import scenario is happening. I think we have also got some confidence -- some more confidence about how the Indian market demand is going to run in the next few years. So main reason is that with a very small investment, we are going to have 50% more capacity.