Bodal Chemicals Limited (524370) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Bodal Chemicals Limited Q4 FY'21 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ankit Patel, Executive Director of Bodal Chemicals Limited. Thank you, and over to you, sir.

Thank you very much. Good afternoon, everybody. On behalf of Bodal Chemicals Limited, I extend a very warm welcome to everyone for joining us on our call today. I hope you and your loved ones are safe, vaccinated and doing well. On this call, we are joined by our CFO, Mr. Mayur Padhya; and SGA, our Investor relationship advisers. I hope everyone has got an opportunity to go through the financial results and investor presentation, which has been uploaded on the stock exchange as well as on our website. We will give you a quick snapshot of our company, and then Mr. Padhya will walk through the financial performances. Bodal is a 3 decade-old organization and integrated Dyestuff chemical player. We are 1 of the largest manufacturers and exporters of chemical products in Dyestuffs, Dye Intermediates, Basic Chemicals and its variants. Currently, we produce more than 200-plus chemical products under this business vertical and serve more than 600 customers across 45 countries. We have 10 manufacturing facilities with production capacity of 316,000 metric tonnes per annum across products. We have 10 exclusive distribution warehouses also known as depots, 7 in India and one each in China, Turkey and Bangladesh. Over the last few years, we have been moving up the value chain and working towards diversifying the business from our core Dyestuff and Dye Intermediates business to other specialty chemical products like benzene derivatives and chlor alkali products. We have been moving forward with our focused mindset and adding additional capacity of 524,000 tonnes per annum across multiple products in the next 2 years. We will touch base each business verticals and their recent developments. The product profile of Bodal Chemicals is -- one is Dyestuffs, where we are producing more than 175 variants of Dyestuff, which are principally used as raw materials in textile, leathers, paper and other Dyestuff-consuming industries. This business has been moderate in FY '21 as demand has been soft due to pandemic. This industry phenomenon in -- this is a industrial phenomenon, and we expect demand scenario will be improved gradually due to the vaccination drive across the nation. Dyestuff segment contributes across around 35% to our total revenue. In terms of production, we are among the top 3 in India and are in good position to recover once demand revives. We are happy to announce that our liquid Dyestuff has contributed well during the FY'21. Dye Intermediates is the second vertical. We have capacity of manufacturing up to 25 Dye Intermediates products. More than 40% of Dye Intermediates capacity is captively consumed for various Dyestuff, which gave us a cost-competitive advantage. During Q4 FY'21, the average price of Vinyl Sulphone and [ HSA ] was around INR 208 per kg for Vinyl Sulphone and INR 395 for Vinyl -- for [ HSA ]. We have done debottlenecking of our Dye Intermediates, due to which the utilization levels can now reach up to 95%. Dye Intermediate segment contributes around 40% to our total revenue. In terms of production, we are the leading player in this space in India, additional Vinyl Sulphone capacity of 6,000 tonnes per annum is expected to commercialize in Q2 FY'22 from our SPS subsidiary, which can add up INR 100 crores to INR 120 crores of annual revenue. And Basic Chemicals is our third division. We manufacture other Basic Chemicals like Sulphuric Acid, Chloro Sulphonic Acid, Oleums, beta napthol [indiscernible], et cetera. These chemicals are used as key raw materials for production of Dye Intermediates, which is highly beneficial in terms of improving profitability of the company. 48% of the basic chemical capacity are captively consumed for Dye Intermediate production. We have taken some unique unit specific shutdown in February 2020 month for annual maintenance. And therefore, our production numbers are lower on a year-on-year basis. Our overall Basic Chemical segment contributes around 10% of our total revenue. Chlor alkali business, we have recently acquired field chemical compress located at Rajpura, Punjab. Which are -- which makes us now in chlor alkali industry as well. This plant is developed around 124 acres of land, out of which around 60 acres of land is available. The key product under chlor alkali business is caustic soda, where we have capacity of 82,500 tonnes per annum, of which 70% would be operational in FY'22, as unit will be going under upgradation to inching up capacity up to 99,000 tonnes per annum. The plant also has strong internal and adjoining consumption of chlorine for around 75% to 80% in stable bleaching powder, hypochlorite assay, sodium hypochlorite and through pipeline sales to adjacent units to which seal has been supplying since many years. Rest of the chlorine gets sold in cylinders to third-party consumers. This unit already has a very strong client base and has been supplying to leading companies like HUL, Nestlé, IOC, HPCL, [indiscernible] and Trident et cetera. We expect this unit to generate additional revenues of around INR 300 crores at optimum levels with EBITDA margin in the range of 20% to 22%. And the fifth segment, which we are under process to develop right now, is benzene derivative and sulfuric acid. At our Saykha greenfield project, which is close to Dahej GIDC in Gujarat, we are in -- it is in a good progress, and we are committed to bring it on stream by Q3 FY'23. Under benzene downstream products, we will be manufacturing MCB; PNCB; and ONCB; MNCB; PNCB; PNA; 2,4 DNCB; and MPDSA, which are used in pharma and agrochemicals and Dyestuff industry. The capacity of sulfuric acid and derivatives will be 340,000 tonnes per annum, which will include sulfuric acid, Oleum 23, Oleum 65, Liquid SO3, Chloro Sulphonic Acid and some other derivatives. We will set up integrated product chains, which will lead into cost efficiency, better productivity and higher margins for the company. We expect this project to generate additional revenues of around INR 550 crores at optimum levels, with the EBITDA margins of 15% to 18%. Total cost of Saykha project, including onetime infrastructure cost, will be INR 400 crores. Out of that cost of benzene downstream products will be INR 220 crores, the cost of sulfuric acid and derivatives will be INR 125 crores. On the other hand, the total cost of acquisition and modernization of Siel Chemical Complex will be around INR 270 crores. Out of that, INR 148 crores are used for the slump sale and around 38 -- INR 3.8 crores for the stamp duty and balance INR 11 crores will be -- sorry, INR 110 crores will be used for the upgradation of the plant. So total CapEx of Saykha greenfield project and Siel Chemical Complex will be INR 670 crores, out of which INR 20 crores will be -- INR 200 crores will be used internal -- from internal [indiscernible] and balance will be the debt. So to sum it up, our new chemistry vertical will add on the additional revenues of around INR 800 crores with a better margin as compared to our existing business vertical. Additionally, this business are less volatile and will bring more stable and sustainable growth to our company. With new product vertical, client base as well as end user application will be diversified, which is in line with the long-term derisked strategy of our company. And some of the other developments within Bodal. Our Trion Chemicals has now been amalgamated to Bodal Chemicals. And production of PCFC has been stabilized and has become profitable. We have multiple trading and marketing subsidiaries to penetrate the new geographical clients. All our subsidiaries are expected to perform well and helping overall profitability of Bodal in coming years. We have recently incorporated a new subsidiary in Indonesia, SPT Bodal Chemicals, Indonesia. Our Turkey subsidiary, Sen-er Boya, did dispatch of around 720 tonnes in Q4 FY'21. However, foreign exchange loss has impacted the profitability due to depreciation of lira against U.S. dollars. On business front, we expect monthly dispenses to improve further going ahead at Sen-er Boya. This Turkish entity will strengthen our presence in Turkey and nearby countries, which are the key manufacturing belts of Europe in textile market. Long-term relationship with esteemed clients, superior product quality and backward integration have been our edge to sell-through challenges -- challenging times in FY'21. We are working on new chemistry, new clients, new geography, investing in backwards and forward and horizontal integration to create long-term sustainable growth. Over the years, we have ingrained lots of efforts to build technical expertise to handle these chemistries, and will continue to do so for newer ones. Thank you. And now I will hand over the call to Mr. Mayur Padhya to walk you through the financial performance.

Good afternoon, everyone. Company has suffered a significant loss of business in the Q1 FY'21 due to countrywide lockdown. Despite pandemic-hit quarter in H1, we were able to recover and registered a healthy business for the full financial year. Q4 FY'2021 performance has been a good quarter for us, which has negated our subdued performance in Q1 FY'21. Q4 FY'21 performance on stand-alone basis are like this. Total revenue stood at INR 4,085 million, a growth of 21.9% on year-on-year basis. Total production volume for the Q4 is as follows: Dyestuff reported 5,133 metric ton; Dye Intermediates 7,061 metric tons; Basic Chemical 40,020 metric ton. Segment-wise revenue: Dyestuff stood at INR 1,390 million. Dye Intermediate at INR 1,623 million, Basic Chemical at INR 396 million. EBITDA grew by 18.9% to INR 509 million in Q4 FY'21 on a year-on-year basis. Net profit for the Q4 FY'21 stood at INR 303.9 million, a growth of 12% on year-on-year basis. Company has written off bad debt of INR 130.75 million in Q4 FY'21 and INR 174.57 million for FY'21. This is one-off case in the history of company. And the same has impacted our performance. For full year FY'21, our stand-alone performance is as ahead: total revenue stood at INR 11,477 million, a de-growth of 7%. Domestic market contributed around 67%, whereas export market contributed 33%. Total production volume for the full year: Dyestuff 14,756 metric tons. Dye Intermediate 21,811 metric tons; Basic Chemical 174,780 metric tons. Segment-wise revenue: Dyestuff is INR 3,993 million; Dye Intermediates INR 4,590 million; Basic Chemicals INR 1,269 million. EBITDA stood at INR 1,008.7 million in FY'21. Net profit for FY'21 stood at INR 483.2 million, a degrowth of 46% on a year-on-year basis. For FY'21, our consolidated performance is as ahead: Total revenue stood at INR 12,424 million. EBITDA stood at and INR 1,025 million in FY '21. Net profit for FY'21 stood at INR 397.7 million. In Q4'21, depreciation of Turkish lira versus U.S. dollar has impacted our profitability at Sen-er Boya. And we need to book M2M Forex loss of INR 50.14 million. Impact of the same has already been incorporated in consolidated financial. On the subsidiary front, SPS posted revenue of INR 993 million. Our BCTPL subsidiary reported revenue of INR 142 million. Performance of our Turkish subsidiary, which is Sen-er Boya was impressive during FY'21, which posted total income of INR 792 million. Total income for subsidiary in China was INR 161 million. Our ROC and ROE stood at 12.7% and 8.2%, respectively. Our debt-to-equity ratio stood at 0.45. The Board of Directors has recommended final dividend at the rate of INR 0.80 per equity share that comes to 40% on the face value of INR 2 per share for the financial year 2020/'21. With this, I conclude the presentation and open the floor for the further discussion and question-and-answer.

[Operator Instructions] The first question is from the line of Aditya Khetan from East India. Mr. Khetan, sir, there's a disturbance coming from your line.

Hello. Now is it okay?

Yes, sir. You may go ahead.

Sir, my first question, sir, in the condensation slide Page 20. So for the greenfield Saykha project of benzene derivative and sulphur, we have taken INR 65 crores as onetime additional cost. If you can highlight what is this cost your are talking about?

It's a infrastructure cost we are talking about. So this is a greenfield expansion. So to develop the infrastructure roads, water and all other infrastructure things that we have covered.

So we had separately allotted for the benzene derivates and for the sulphuric acid expansion, so the INR 65 crores is again related to the infrastructure?

Yes. See, there are some infrastructure costs, which is common for both the projects. So that's why we have separated that. If we take a single project, then whatever we do expenses for that project that we consider for that project. And whatever common facility, road, et cetera, office, et cetera, which is common, that we consider in infrastructure.

Okay, okay. Sir, second question is in the production numbers for all the 3 segments you have -- what you have mentioned, so does it include the captive or is it excluding the captive consumption?

No, it includes even captive. It is total production for the company.

Okay. total, including captive?

Yes.

Sir, for the SPS also, so we are developing -- we have capacity of 6,000 tonnes. In the presentation you mentioned that -- so there's an additional revenue of INR 120 crores, but considering the current realization, could it be well more than INR 150 crores to INR 160 crores?

Vinyl Sulphone is traded at about INR 225. And if we consider 85% capacity utilization, then it comes to about 5,100 metric tonne production. And we consider that production with this sale price, it comes to about INR 114 crores of revenue. That's why we are considering this price. And in chemical, you know very well that prices are fluctuating. So 3 months before BASF reached even 300. So at that price, yes, it can reach to even INR 150 crores plus.

Okay. Sir, is there any main reason, sir, why are -- so 2 subsidiaries consistently they are in losses. So one is the Sen-er and second is the SPS Processors. Why these two subsidiaries are continuously in losses despite production, I think, it has ramped up to around peak utilization in SPS Processors. But still, looking at the current revenue figure, that has been quite strong. But still the -- at the bottom line, the subsidiaries are still in losses? What are the main reasons for that?

Yes. For SPS Processors, we acquired this company from earlier management, 70% stake. The earlier management were originally in textile. So when the -- sorry, H-Acid prices were at very high level, say, INR 1,500 per kg in 2014, at that time, they planned this company and building up this capacity. And they were not originally in chemical business. So they were not aware that stand-alone H-Acid plant is not that viable. To make it viable, one should have along with H-Acid, Vinyl Sulphone plant. So that affluent of both products can be used by each other product. And by doing that, you can save significantly as far as affluent treatment cost is concerned. So at the time of taking 70% stake, we were clear to start Vinyl Sulphone plant in that company. But because of several reasons, there has been a delay continuously. One of the reason was that one of the raw material for Vinyl Sulphone is ethyl oxide, and it's a highly inflammable product. So we -- in Gujarat, we are using this product since 25 years and several other units are also using this product. And this ethyl oxide is only produced by Reliance, in Gujarat, rather in India. So this product was not being used in North India earlier. So to get the explosive department permission, to get the transportation permission, et cetera, took much of the time for us. And now everything is ready and some final touching is required to be done at the plant. That's why we are confident to start that plant in next quarter. And once Vinyl Sulphone plant start production, then this company will definitely turn into profitable continuous basis. So this is -- as far as SPS is concerned, as far as Sen-er Boya is concerned, we acquired 80% stake in this company. And this is basically our distribution arm in Turkey as well as nearby countries. But see, after acquisition, after 6 months, COVID has started worldwide. And because of that, we couldn't perform the way we have actually planned at the time of acquisition. So once COVID is -- effect is lower, then we'll definitely perform better. As far as volume is concerned, the earlier management was doing about 100, 125 metric tonne per month, which we have reached to almost 250 metric ton per month. So double the volume we have already reached, but there is no stable environment worldwide. That's why it's doing losses. And last quarter's loss was mainly due to ForEx fluctuation. Fluctuation of lira against dollar was hectic, and that leads to loss for us. So soon, within a quarter or so, if the things stabilize world over, then that will also start making profit.

Okay, sir, okay. That explains well. Sir, so for the upgradation of the caustic soda plant from 82,500 to 99,000, we are incurring a CapEx of INR 110 crores. We had acquired [indiscernible] plant to the tune of around INR 148 crores. And you are expanding by INR 110 crores for 16,500 tonne caustic soda plant? Isn't the CapEx too high or -- so what am I making? So apart from increasing the caustic soda capacity import, what else are we updating here?

So chlor alkali basically has electrolysis as the main process where the feed of salt solution is required, and then it is processed into manufacturing caustic, chlorine and hydrogen. So this is where the heart of the entire plant is, which is called electrolysis process. So basically, that plant had 20 years old electrolyzers, which are very high, very expensive as far as the economy of the production is. So immediately, what needs to be done is we need to upgrade the technology. So we -- the main expense, I mean, investment is going towards that. This is one of the reasons why we got the -- this entire plant and this entire asset for such an attractive price because this needed this upgradation immediately. Because after this upgradation, there will be a saving of at least INR 30 crores annually. So the amount that we are spending INR 110 crores, that is going to be used not only for the expansion of the capacity, that is also there. It will be expanded by 15,000 to 18,000 tonnes per annum more. But the main expense investment that we are doing is towards the upgradation of the technology. So the older technology was by INEOS, which is a British company. And now we have gone ahead with a Japanese technology supplier who works regularly in Indian market.

Okay. So from FY'22 from the chlor alkali, what sort of revenue assumptions are we factoring in?

So we are already -- we already started the project activity, the technology and the supply of electrolyzers has been confirmed to the Japanese supplier. And we are targeting to complete the upgradation and the expansion process by next 12 months. So post that, we are targeting INR 300 crores of revenues at around 20% to 25% of EBITDA.

Okay. So you're talking from FY'23, we are expecting INR 300 crores. So 70% of the existing 82,500 tonne, that would be achieved by FY'22. So from that, any sort of revenue assumptions?

At the current rate, the revenue should be in the range of from INR 150 crores to INR 170 crores.

INR 150 crores to INR 170 crores. Sir, just one last question from my sir, is it possible to share the volume figure for [ TPA ] and liquid Dyestuff for FY'21?

Let me check if we have that handy. Liquid Dyestuff production for the quarter was 1,292 metric tons for the quarter.

Okay. Sir, for the whole year?

For the whole year, it's about 4,000. I don't have the exact number, but it's around 4,000.

Okay. And a similar number could be given for the whole year for [indiscernible] FY'21 volume?

Yes. That we are producing around 250 metric ton per month level since September 2020.

[Operator Instructions] The next question is from the line of [ Saurabh Jain ] from Edelweiss. There is no response from the line of the current participant. [Operator Instructions] The next question is from the line of [ Esha Savla ] from [ Arya Securities ].

Congratulations for good set of numbers. Sir, I have a couple of questions. The first will be, how is the textile market shaping up for us? And are we giving inquiries like the pre-COVID level for our Dyestuff and Dye Intermediates products?

So the numbers were definitely better in the Q4. Overall scenario was better. But then again, the second view that India had to go through, that definitely disturbed the momentum. But now we are done with -- again, so we had a disturbance of around 45 days. But so volumes have definitely been affected. But now, overall, I think feeling is very positive. And I think we are back to the pre-COVID numbers, almost there.

Okay. So good to know that. And sir, my next question is, can you throw some light on the benzene derivatives? And how much backward or forward we are planning to integrate in that and how big is the market size in India? And how much of it done through import?

So we are setting up a number of products in the benzene -- in derivatives. We are definitely integrating it with our existing business as well as the new manufacturing model that we are going to set up at Saykha. That itself is going to be very much integrated as a complex. So we are starting with a product called MCB where there are only 3 players producing MCB in India. And so out of which we are going to be captively using MCB 100%, and we are going to be producing PNCB and ONCB from that, where PNCB, again, will be captively used around 50% to produce PNA and 2,4 DNCB. And ONCB, again, will be used to produce. There's a product called OA, which we have not covered in the presentation, but we are planning for that also. So ONCB, again, will be about 30% to 40% will be used captively to produce OA. So we are basically going into a 3-step integration within the benzene business model. And we are also integrating it with our sulfuric acid model, where the byproduct of HCL, which is generated in large volumes from the first step MCB, that is going to be completely consumed by one of the products in the sulfuric acid complex. And also, all these products are also using sulfuric acid and derivatives. So that will also be used within the same complex into the benzene derivatives. And then we are also producing part of the benzene series, we are going to produce PNCB, which we captive to already use in our Dyestuff model, PNA, we already use in our Dyestuff model and also MPDSA, which we already use in our Dyestuff model and one more product OA that also we already use in our Dyestuff model. So we are basically integrating the new site within each other. And also all the products being produced there is going to be connected with our existing business also.

Okay, sir. That was helpful. Sir, I have one last question. Can you throw some light on the chlor alkali business? Client profile mentioned as like HUL, Nestlé, et cetera. So can you share more details about key 3, 4 products and end-user application of it?

So chlor alkali, again, is one of the very basic chemicals that is -- that has an application into agrochemicals, textiles, chemicals, pharmaceuticals, et cetera, and alumina is the main consumer. But alumina presence is not there across the country. So not since this plant is in Punjab, so it caters to the North Indian market. Where there are many textile players and other detergent and chemical industries. So some of our main customers because we not only produce caustic soda, but we also produce chlorine. We also produce hydrochloric acid. We also produce SBP. So there's a list of 6 products that we produce in that complex. So all these -- for example, HCL, hydrochloric acid, we have a food-grade product. So we supply stuff like that to Nestlé. Again, caustic soda, we supply to IOCL, which has a plant in Mathura and Panipat, Haryana. Again, players like Triden and Vardhman who are the textile giants. They regularly use chlorine and caustic from us. So we have a very diversified buyers now that are there across from Jammu and Kashmir to UP and Northern Rajasthan belt.

The next question is from the line of Sameer Dalal from Natverlal & Sons Stockbrokers.

I actually had 2 questions. I'm not sure if you answered the first one, the greenfield expansion that you're doing at the moment. When does that get commissioned?

It will be Q3 FY'23. So around next September to November, next year. By November, we are targeting.

Okay. Now the second question is, have you ever borrowed anything -- have you taken any debt already against any of these expansions, the INR 400 crores that you are looking to take in the form of debt. You said INR 200 crores is going to be internal accruals and INR 400 crores is going to be debt. Have you raised any of that debt already?

Yes, we have already raised INR 106 crores as of term date, which is there in the last year's balance sheet.

Okay. So now you have another INR 300 crores to raise, correct?

Yes, roughly.

So now that will take your debt-to-equity up closer to about 0.7, 0.8. Secondly, your working capital cycle seems a bit stretched with the working capital cycles, reaching almost 150-odd days. So with the new products coming on stream -- new production coming on stream with the debt you're raising, my question is, where do you see debt peaking out? And two, what is the plan to reduce this debt because your working capital cycle is very high. You need to somehow shrink the working capital cycle.

Working capital cycle is a bit higher compared to earlier years because of our business model where we are expanding. We have increased almost to the double level our Dyestuff capacity. And our focus is to actively consume more and more intermediate and do more production of Dyestuff. And because of this strategic strategy, we feel that our blockage of fund in working capital will remain to some extent at higher side. But fortunately, our new acquisition of chlor alkali business, over there, requirement of working capital is very low. Over there, raw material is only salt. And presently, we are doing sales with not that much longer period credit base. So we -- our business will improve definitely, but our working capital blockage should not improve further in near terms. Once Saykha project will start, at that time, yes, some blockage will improve.

No, but I mean, I just want to understand, when you say you have -- you cannot improve. You have about 145 days. I'm just trying to understand this. You have 145 days of working capital. So can you run us through what is the production capacity to...

I need to check. We can reduce it up to 80 days. See sometimes because of this COVID scenario, there has been some delay in payment from debtors. Also, there are some instances where our working capital remain blocked as far as when inventory is concerned. We have done the production, but because of low demand, we couldn't save it. But going ahead, we can consider 80 to 90 days. That is something a stable days for working capital blockage.

Fair enough. So at least that part of the debt you feel will start reducing, the short-term debt, right?

Yes.

Okay. And what is the interest rate that you're going to be borrowing all of your capital at, if you can give us some indication?

Sorry to interrupt, sir. Mr. Dalal, there's a disturbance coming from your line. I request you to mute your line while the management answers your questions.

Yes, hello?

Yes. Term date what rate we have received presently is 6.75%. And for working capital, we are using rupee loan as well as foreign currency loan. So as far as foreign currency loan is concerned, the rate what we are paying at present is LIBOR, rather 6-month LIBOR plus 1%, up to 1%. So that comes to 1.25% per annum. And for rupee, for working capital, we are using mainly WCDL. And presently, WCDL rate, what we are getting is 4.65%.

Sorry, what is 4.65%?

4.65% per annum for WCDL in rupee currency.

Okay. And what percent you said at overseas?

Sorry, I couldn't follow you.

What percentage of your borrowing is from the overseas market, you said?

Dollar denomination borrowing for PCFC pre-shipment and post-shipment is around INR 150 crores.

And any hedging strategies that you're following? Or it's all open?

No. We strictly follow hedging policy, and we do not keep any foreign currency exposure open. So whatever import or export, we book, we immediately hedge it. We do not keep anything open.