Bodal Chemicals Limited (524370) Earnings Call Transcript & Summary

So the current scenario overall is quite stable. Since the second wave slowed down or concluded, things have been getting back on track. So I would say overall situation in the dyestuff demand and the production levels are quite normal at the moment.

And the second part, how is the current market of vinyl sulphone and H-acid? And what kind of current prices trend are there currently? Do you see any demand-supply gap from this?

So as I said, vinyl sulphone are the main key raw materials to produce the dyestuff. And as I said, the dyestuff demand is quite normal. So acetanilide is directly linked to the dyestuff demand in the market. So I would say that the demand for the HA and VS is also quite normal. I do not see much of a gap currently between demand and supply of H-acid and vinyl sulphone. And the current price of H-acid is around INR 370 to INR 375 per kg, and vinyl sulphone is INR 225 to INR 230 per kg.

Okay. And how is the textile market shaping up for us? And are we receiving any inquiries pre-COVID level for our dyestuff and dye Intermediate products?

In dyestuff particularly, we are, I would say, at around 75%, 80% back to the pre-COVID levels. We have reached about 65% of utilization in the Dyestuff business earlier. But now in this recent quarter, we were at around 55%. So there's definitely room. And the dyestuff industry overall is showing good signs only. I think the good volumes are definitely back because of overall disturbance across the globe has minimized. So I think in coming time, I think COVID also at the moment doesn't look like a big threat anymore, at least production-wise or economy-wise. So I think in coming quarters, things should be back to pretty much normal.

Okay, sir, that was helpful. And that is from our side.

The next question is from the line of [ Santina Rathi ] from S.K. Securities.

So I had a couple of questions. So could you just throw some light on the benzene derivatives with respect to the client profile?

Can you repeat the question, please?

Yes. Sir, could you just throw some light on the benzene derivative segment on the basis of client profile?

Yes. So for client profile, okay. What we are doing in benzene derivatives is we are going in with a 4-step integration from Phase 1 only. We are not going to produce 1 or 2 key products, we are going to produce 6 products and which will be 4-step integration. Also, we are setting up a sulfuric acid complex in that same complex where the waste heat, which is going to generate power and steam, will be completely utilized by all the benzene products. So this integration is very important, which will have a value of more than INR 20 crores, INR 30 crores per annum. Plus, there are -- there's a hazardous byproduct, which is generated in benzene -- one of the benzene plants, which will be completely used by ourselves or the sulfuric acid derivatives. Also, there is some integration between sulfuric acid products and benzene products that we are doing. So there are multiple synergies and integration between both the projects and within the benzene derivatives also. So in benzene, as I said, we are doing 4 step. We are going to produce MCB, from which we are going to produce PNCB and ONCB. PNCB has a main application into dyestuff, dye intermediates mainly into pharmaceutical. Main area is paracetamol. And ONCB has a good application again into dyestuff and agrochemicals. So that's -- those are the 2 products which we'll be using captively because we use PNCB captively and we are going to produce something. We are going to produce OA, which is produced from ONCB. which, again, we use captively in our Dyestuff, Dye Intermediates business. From PNCB, we are going to produce PNA and 2,4-DNCB. So currently, we consume a lot of PNA. So again, that will be linked to our Dye Intermediates business. From PNCB, we are going to produce 2,4-DNCB which is, again, one of the key raw materials which are 2 limited users and a couple of other large companies use. So that will go into a specialized Dyestuff segment called sulfur black. Also, we are going to produce MPDSA from 2,4-DNCB. So MPDSA is one of the key raw materials which we don't produce at the moment. It is a dye intermediate. So we are basically integrating sulfuric acid complex and benzene and derivatives within the complex. Also, we are integrating all the products produced in the benzene derivatives to our Dyestuff and Dye Intermediates business model. So there are a lot of synergies that are going to happen internally in Saykha and also with our existing Dyestuff business.

Okay. Okay. That was quite extensive, sir. So could you just highlight if we are in touch with a few clients for all these products and segmentations? And so how big is the market size in India? And how much of it is done through importers, sir?

So 2,4-DNCB, there are 2 large players in both our existing buyers, Atul Ltd and there is another company. For PNCB, obviously, we are going to use it captively. Plus, around 50%, 60%, we are going to sell in the market, which is a net import product. So for PNCB, the paracetamol players are -- some of them are already our buyers, and we already know a majority of the buyers, the large buyers. So selling that is not going to be an issue. ONCB is now going through some of the agrochemicals which are already our clients from our Basic Chemicals segment. MCB, we are not going to sell anything in the market. MCB, we are going to captively use the entire production. MCB also is in dye intermediates. So us being the largest dye intermediate player, it should be -- it's all our same client based off dyestuff players across India for us. So it is going to be part of our same sales strategy for dye intermediates. And PNA, again, we'll be using captively. And PNA, again, goes into to dyestuff manufacturing, dye intermediates manufacturing. So we'll have those similar -- same buyers which we've been catering since many years. And sulfuric acid, we already have 500 tonnes per day plant in Baroda since more than 10 years. So it'll just be an extension of those same -- similar buyers and similar products.

All right, sir. Sir, like one more question I had, so when it comes to TCCA segment and thionyl chloride business, so how are these verticals performing? And like are these verticals profitable? Or could you just throw some color on it and the application and expected revenue on the annual basis?

So TCCA is -- has a main application into cleaning pools, swimming pools. And India does have a sizable market, but we sell it to the premium market, which is the U.S., and we've had a special permission -- certificate to sell the TCCA in the U.S., so -- which is, again, a premium market. In India, Indian market is normally catered by a lower-quality product, which is usually imported from China and et cetera countries. So TCCA has turned profitable for us since the previous quarter. And we are looking at increasing -- debottlenecking some of the things in the plant and maybe increase the capacity by 20%, 30% in coming 1 or 2 quarters. And for TC, thionyl chloride, that has main application into dye intermediates and agrochemicals. So it is a very -- one of the key raw materials for vinyl sulphone and also for the agrochemicals. So all the large players of agrochemicals are our buyers. And so TC also has been running profitable since -- almost since inception.

Okay. Sure. Sir, actually, we have already discussed something on the Chlor Alkali business' capacity utilization. So do you mind just like explaining a bit about the product apart from caustic soda and maybe the end users for an application for the [ falling ] products?

So there are -- other than caustic soda, there is chlorine that is going -- that is being produced at our chlor alkali plant in Punjab. We have 5 joining pipeline buyers which is very important for chlor alkali plant. And so about 50% of our chlorine is sold via pipelines to those buyers, and the other remaining 50% is sold via tunnels, cylinders to the North Indian territory, which, again, has an application into food processing and textiles and paper mills, et cetera. And there are many sizable large players in North India. So we don't have to sell even into Rajasthan. We are comfortably selling all our volumes from UP to Haryana to Himachal and Punjab and Jammu and Kashmir. So that -- those areas have a good market, and the market is also growing. There is another product called stable bleaching powder. So we are currently in the process of expanding that plant also. Since it is a brownfield expansion, it is going to cost us very less. And we are trying to become India's third largest player in that segment where Grasim Industries is the largest player. And we are going to -- we are planning to increase our capacity by around 60%, 70%. So that should also be operational in about 6 months' time. And other than this, hydrogen is being produced there. And again, we have a buyer which is adjoining the complex and which buys via pipeline. So that, again, is a strong point for that complex. And other than that, there are a couple of small products like sodium hypo and sulfuric acid. So those are very small in terms of volume and price.

All right. Sir, that was quite extensive. That's all from my side.

[Operator Instructions] The next question is from the line of Saket Kapoor from Kapoor & Co.

Sir, first point is regarding the employee cost, sir. Anything one-off, sir, for this quarter? Or why have we seen this? How will you explain this increase, sir, for this quarter?

See, the increase in this quarter is mainly because of induction of Chlor Alkali business in this. So Punjab complex was there -- was not there earlier. And in this quarter only, this has got inducted in the company's business. So increase is mainly because of the addition of these unit.

So now we can look for this as an annualized figure, this quarter number for employee cost?

Correct, this figure as well as some increment would be there. So -- and some project employee induction will be there. So there can be some improvement from this figure, some increase in this figure.

Okay. Sir, regarding the modernization of the caustic unit, sir, this technology are -- is there currently and where -- which one are we migrating to? And what is the amount that will we spend and the commercialization period?

So the existing technology is owned by INEOS, which is a British company, the largest chemical -- one of the largest chemical companies in the world. But being an older technology, it consumes a lot of power. So we have no choice but to upgrade so we can be competitive where it can bring savings of more than INR 30 crores, INR 40 crores annually. There are 2 technologies which are active in India. One is German, which is owned by thyssenkrupp, which is a Fortune 500 company. And the second is AKCC, Asahi Kasei Corporation (sic) [ Asahi Kasei Chemicals Corporation], that is based in Japan, which is, again, a multibillion dollar organization. So we have opted for AKCC, which is Japanese, which is installed at the companies like DCMs, Aditya, Meghmani and some of the Grasim and some of the other plants. So we have opted with Japanese. We confirm them. We've already paid them and it's in the process. We are targeting to complete the modernization by next September or October. And at the same time, so the cost of the -- just the technology part is around INR 45 crores to INR 50 crores. But at the same time, we are increasing the capacity of the plant also, and we are also upgrading a lot of the things in the plant which can help us utilize the capacity more. So overall, we are spending around INR 120 crores, which will -- the spending and the execution should be done by next October, which will bring in -- around revenues of around INR 300 crores. And we are targeting around 20%, 22% EBITDA.

But -- and the capacity will be enhanced to what level, sir? What is the current capacity? And what are we envisaging where...

Current capacity was 82,500 tonnes per annum. We are increasing it up to 99,000 tonnes per annum. And we are also increasing the capacity in our other plants for stable bleaching powder, where also we are increasing the capacity.

Okay, sir. And this is the membrane cell technology that is relevant now?

Yes, yes. So I think all the technologies across the board now is in membrane cell because the other were not environment friendly, and they have all been out of the market.

Sir, it seems that power is a very dominant cost in the caustic soda industry. So what steps are we taking to lower the cost of production in the form of power and fuel cost? Were there any investment in the renewable segment we are planning?

So we have explored the possibilities of solar power, because we do have a luxury of a lot of land in the Punjab complex. We are studying that market, what the cost is and what -- how the state government and the electricity board are offering. But since we are committed to this modernization and expansion project for now, we are not planning to do any further CapEx for Punjab. In states like Gujarat and Maharashtra, the power cost from the electricity board is more than INR 7 per unit. So that's why the plants here usually go for captive power plants. But in north, captive power plant concept is not very popular or not the best economically viable because the Punjab state is already offering us around INR 6.3 per unit. So we -- they are already offering us a subsidized rate. And also, to set up a thermal power plant, the majority of the good quality coal have to be supplied from Gujarat ports, which is imported coal. So it will definitely have a higher power production cost than Gujarat plants. So it's not the most economically viable. But we are still exploring some of the other options. There are some bio-based power plants in Punjab which are very common there. So we are exploring those options. But we are not planning to do anything about power plant or anything until we are done with the upgradation. So it can come into second phase next year.

And lastly, sir, in the caustic soda price trend, though, have you seen substantial improvement over what the March quarter was? And we exited the June quarter at higher ECU?

So caustic soda prices definitely increased a lot. March quarter price was probably around INR 22,000, INR 23,000 per tonne. In June quarter, definitely higher by INR 3, INR 4. Currently, the prices have even further gone up by INR 3, INR 4 more. So around INR 30 per kg is there. But again -- so chlorine and caustic have this combination. And chlorine prices, which are -- at a time were around INR 8, INR 7 per kg, has come down to now INR 2, INR 3 per kg. So -- but still the ECU realization compared to March quarter is definitely better. Compared to June quarter, the existing ECU is also slightly better. There are a couple of plants in the U.S., one plant has shut down, Olin Corporation, which is the largest chlor alkali player in North America. They are -- they have a plan to stop some of their old plants. So 1 product, 1 plant has already stopped. They -- I think they are planning to stop a couple of more plants in coming time. So I think that has affected the overall caustic international demand. And there is always -- so that is actually -- is good for Indian, especially Gujarat, players at the moment. And Gujarat players are exporting caustic already since last about a month in large quantities.

Okay, sir. And what is the capacity that has come under shutdown, sir? And the total market which is catered at the U.S. unit, sir?

I'm not sure about the exact number, but I think it was a very old plant, so it could be in the range of around 50,000 to 80,000 tonnes per annum. So it was a small plant. But they are planning a couple of more shutdowns. So like 3 years back when there were a 15-, 16-plant shutdown in Europe and in Houston, there were some issues. So I think there are also some plans shut down for a few months. So because of that, the caustic prices went from INR 25, INR 27 levels to INR 50 levels. So it does -- those American and European plants definitely have an effect if they shut down temporarily or long term.

Okay. And my last question is, sir, what is the import number, sir, for caustic soda for the last -- from the first quarter of this fiscal year for the country? Any understanding, sir, if it's on a competitive basis? But March versus June, what was the import?

No, it is usually negligible. So Gujarat, there are hardly any imports, only some -- usually, there's some Middle East material that comes in, but it is not a regular trend because Gujarat itself having all these production capacities now. And Gujarat definitely has a lot of pressure because few new expansions have come up, and there are a couple of still large plants due to start this year. So I think scenario in Gujarat is going to be a little pressurized. And there are some imports that take place in Maharashtra regularly because there are hardly any plants in Maharashtra. But Gujarat, there are no regular imports. So us being a buyer in Gujarat, we buy large quantities of caustic, but we hardly buy. So there is hardly any material available here in Gujarat.

But sir, integrally, how does this caustic soda -- based in our supply -- and I was talking about country as a whole, since, sir, I think for the requirement of the country, there is still substantial import of caustic soda that happens annually. I was looking for the entire country number. If you could give -- and how does this caustic soda part play in our story, sir? Or is it a complete diversification to our set of chemicals?

So it does have a slight integration. Our H-acid plant in the subsidiaries, SPS Processors, so that uses caustic soda. Also, we are about to start our vinyl sulphone plan there in 1 or 2 months' time. So that also, again, uses a lot of caustic soda. So it is around 300 kilometers from our Punjab plant to that intermediate plant in UP. So that is the one integration that's going to take place. It definitely was a diversification plan for us because the unit was available at a very attractive price. It needed a lot of effort to turn around and a large investment also. So we were prepared for everything. We are already seeing the turnaround effort other than the investment to upgrade the technology. So we are very confident that other than the technology, we will be able to turn around the overall low production of the plant and some of the old machineries and technology. And so we should be able to -- we are also making a lot of changes in the commercial front in purchase and sales also. So it was -- plus it comes in with 60, 70 acres of spare land. We can definitely integrate this unit further. It's already integrated into 2, 3 products. We want to -- we may -- we can -- we have an option to increase the capacity, which is always a good idea for chlor alkali to bring down the overhead cost. Or we can definitely -- there are a lot of products which are integrated within the chlor alkali space, are supplied from Gujarat to North India on a regular basis. So we can also consider to set up those projects in North India. So we do have a lot of options. But currently, as I said, we are committed to this upgradation and expansion. So once we are done and whenever it is the best time financially for us, we do have the land and all the required permissions from the environment front also are available there. So in the long term, what I can say is we can have one area -- one growth area which can come from Punjab, which has a lot of spare land and a good chemical manufacturing environment over there, and also a steady increase in the demand. So it could be maybe INR 600 crores to INR 800 crores of turnover block for us that can come from Punjab. And again, we are already working on Saykha, which can bring -- which is going to bring in INR 500 crores of revenue. Again, we are not utilizing the total land there. So we can -- we are planning to further integrate and bring in more products in Saykha also. So we also have a 10-year plan there. So again, that can become, again, INR 1,000 crore-plus block for us. And our existing business also has some brownfield possibilities. So overall, we are putting together 3 different sites. One is greenfield, Saykha; one is our existing Dyestuff business; and third will be Punjab.

The next question is from the line of [ Chinten Shah ], an individual investor. We see no response, so we'll move to the next question, which is from the line of Aditya Khetan from Stewart & Mackertich.

Sir, you had said to an earlier participant regarding the stable bleaching powder capacity augmentation by 60%, 70%. So is that plan included in the current presentation, what we have shared, of 270 crore caustic soda? So is that plan in there on -- in the presentation of augmentation of this -- of stable bleaching powder?

Yes. Yes, it is definitely included. It is not a large investment because all the infrastructure is available there. We don't have to construct anything new. We just have to order some of the machineries. And it is a batch-type process. So we have already placed orders. And since it is a brownfield, not a big investment. So we should be able to do it in 6 months' time. The current capacity is around 80 tonnes per day, where we are operating at around 75%. We are trying to take the capacity up to 120 tonnes per day. And because it is a batch type, the 80% utilization is a good number.

Got it. Got it. And sir, just 1 more question on this 2 expansion of benzene derivatives and this chlor alkali. Sir, when we look at the ROCE calculations for both these projects, like I have done my own calculations, I found that the return on capital employed on both the projects, so post-tax ROCEs, are not more than 12% in each of the projects. Is this calculation correct? And secondly -- and what is the management assumptions here? And where we can think -- like if these projects are not adding value to the capital, what is the use? And just if you can shed some light on this.

So we are definitely targeting better ROCEs than that. But just as a future possibilities, we are just trying to be conservative. That's the only approach that we are going ahead with right now because there are a lot of volatilities in the market. There's still a lot of time to go. So basically, we are just being a little conservative. But overall, we feel that sulfuric acid and derivatives, with all this growth coming in from agrochemicals, pharmaceutical and mainly chemicals in the PCPIR, where we are setting up the plant, so I definitely see a very solid growth, very solid demand for all those derivatives and sulfuric acid. So that's one. And in benzene space, we are definitely replacing -- half of our products are definitely imported in big, big volumes. So we are planning to replace this indigenous production with exports. And also, all the benzene products are linked with our Dye Intermediates business, which will definitely add some more margins for us. So not to include it all, since we are doing a lot of things at the same time, right now the focus is all on the execution on time and to produce the quality product. I think marketing-wise, we have no issues at all as about 70%, 80% market, we already have -- we already are related to. So the numbers should definitely be better. It's just that we are being conservative.

Got it. Got it. Sir, just one last question, one last question. Sir, in the benzene derivatives chain, majorly we are making MPDSA as a final product because others, MCB and PNCB, so they are mostly 100% captive only. So in this total capacity of 79,000 tonnes, how much would be the MPDSA finished product capacity figure? Would the -- any ballpark figure you can give, sir, for this MPDSA final product capacity?

So MPDSA is not the final product. It is the last product being produced. But -- so MCB is the only product we are going to use captively 100% in ONCB in PNCB. In ONCB, we are only using around 30% to 40% captively. So it will be sold about 60%, 70% in market. In PNCB, we are going to use about 40% -- again, 40%, 50% captively. So again, that will be sold in the market 50% to 60%. Same thing with PNA. We are going to use only about 20%. So about 80% will be sold in the market. And again, PNCB, we are going to make 2,4-DNCB. And 2,4-DNCB, again, we are only going to use about 20%. So the remaining will be -- 80% will be sold in the market. So there are all -- except for MCB, there is revenue coming from all the products. For the DNCB, it will be, again, MPDSA will be used for our Dye Intermediates business. And there again, we are only going to use about 20% -- 22% to 30%. So our MPDSA is also, again, clearly selling in the market.

[indiscernible] in the presentation is 90% captive consumption. So only 10% we are selling, right, for 2,4-DNCB?

No, I think -- I don't know which number you have seen. I'll have to check again, but I -- there is no 90% captive consumption. Only -- MCB is the only product where we are going to consume all of it. Everywhere else in any of the products, I don't have more than 40%, 50% utilization anywhere.

Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to Ms. Ankit Patel for closing comments.

So thank you very much, Mr. Mayur Padhya, and our advisers. And if you have any other questions which have remained unanswered, you can contact us directly, to Mayur Padhya or myself, Ankit Patel. Thank you very much. Have a good evening.

Thank you. On behalf of Bodal Chemicals Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.