Bodal Chemicals Limited (524370) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Bodal Chemicals Limited Q2 FY '23 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, everybody. On behalf of Bodal Chemicals Limited, I extend a very warm welcome to everyone for joining us on the call today. On this call, we are joined by our CFO, Mr. Mayur Padhya, and our Investor Relations advisers. I hope everyone had an opportunity to go through the financial results and investor presentation, which has been uploaded on the stock exchange and our company's website. We will give you a quick overview of the recent developments in the chemical industry and on our company. And then Mr. Padhya will walk you through the financial performance for the quarter. Our industry highlights are the global MNCs are increasing the raw materials sourcing from India with the risk of [ inflation ]. [ Bodal ] Specialty Chemicals are becoming a permanent part of the requirement and most Indian chemical companies are comprehensively investing in the expansion. At present, power crisis in Europe gives an immense opportunity for Indian chemical companies to grow their wallet share in the European market. Coming to China, their zero COVID policy has slowed their economic growth for a certain period. The growth momentum in China has been sluggish and has impacted the global prices of key commodities with excess supply. Due to the confluence of these several factors, the global demand of bulk chemicals is currently met by a handful of suppliers. For Bodal, in today's environment, the Indian suppliers are emerging as preferred partners globally. We have been able to leverage our leadership position. We are the India's largest integrated manufacturer of Dyestuff and Dye Intermediates and hold a meaningful market share in the world. Coming straight to the operational performance, overall business performance for first half FY '23 has been moderate. And the company's total revenue stood at INR 860 crores, a marginal de-growth primarily due to the subdued performance of Dye Intermediate. Coming to Dye Intermediate, [indiscernible] pricing have remained at lower levels, putting strain on the industry players. For first half FY '23, total revenue from Dye Intermediate stood at INR 176 crores, the lukewarm demand by user and industry, especially textile manufacturers have increased their chemicals. H Acid and Vinyl Sulphone prices were INR 437 or INR 255 per kg in second quarter FY '23. Since more than 40%, 45% of our implemented production values for the captive preference to manufacture various [indiscernible]. Over the next few revenue [ buys ], this vertical will eventually go down and some Dyestuff will increase in favor of a steady [indiscernible] growth. Coming to our Dyestuff. End application industries from Dyestuff like textile, leather and paper have seen some moderation during the period. The Dyestuff business from first half FY '23 stood at INR 313 crores led by the better realization. Our Basic Chemical division also reported healthy performance led by higher prices. Close to half of the Basic Chemical capacity is capitally consumed for Dye Intermediate production. Our overall Basic Chemical segment contributed INR 92 crores (sic) [INR 109 crores] for the first half FY '23. Coming to the Chlor Alkali business. The Chlor Alkali business has been rock solid through the first half of the year with revenue at INR 166 crores driven by healthy volume and higher realization of caustic soda. The demand for caustic soda has been strong in FMCG, textile and paper industries, especially in North India, where there are only a handful, of suppliers. We have decided to inform you that the company has successfully completed the technology upgradation of the Rajpura chlor alkali unit. Our total capacity of caustic soda is [ 99,000 tons ] per annum at present. The price is nearly INR 58 per kg. Now with increased caustic soda demand and current rising costs going to see technology increase. This will establish the company's next growth phase, extend the [indiscernible] the market position. Coming to the benzene derivatives and sulfuric acid greenfield project. Part of the construction activity has been delayed due to the prolonged monsoon and labor shortage in the previous 2 quarters. Our Saykha GIDC project is expected to start trial run of benzene derivatives in Q2 FY '24. Once this site is stabilized, we will start the trial on sulfuric assets by Q4 FY '24. As a part of the project review, products like MPDSA, PNA, 2, 4, DNCB are kept on hold. Our main goal is to replace imports and capture business in the pharma and agrochemical markets which seems to be [indiscernible] are used. We will set up integrated product change, which will lead to the cost efficiency, better productivity and higher margins for the company. We have established various trading and marketing subsidiaries to create a stock point and [indiscernible] geographies and times. Most of our subsidiaries are reported mutual performance led by [indiscernible] long subsidiaries will penetrate their respective regions and will bring meaning to [ the company ]. Our top 3 strategic objectives will to ramp up existing capacity, expand the export business and complete the Saykha project by Q4 FY '24. We have been moving up the value chain, and what we do is diversifying the business from Dyestuff and Dye Intermediate business who are the specialty chemical products benzene derivatives. The world is recognizing India as the second manufacturing hub, and it is evident that all the manufacturing businesses, particularly capital industries will gain from this. Qualified manufacturers like us are poised to grow into the increasing preference for sustainable partners. Thank you. And now I hand over the call to Mr. Mayur Padhya to walk you through the financial performance.

Good evening, everyone. The overall performance of the company has been muted for the quarter gone by. Our standalone performance for Q2 FY '23 is as follows. Total revenue for Q2 FY '23 stood at INR 400 crores. EBITDA stood at [ INR 32 crores ] in Q2 FY '23. End-to-end ForEx loss was INR 2.8 crores for the quarter. Net profit for the quarter stood at INR 10 crores. Our standalone performance for H1 FY '23 is as follows. Total revenue for H1 FY '23 to add [ INR 849 crores ]. EBITDA stood at [ INR 71 crores]. Net profit for the quarter stood at [ INR 28 crores ]. Our consolidated performance for Q2 FY '23 is as follows. Total revenue stood at INR 397 crores for Q2 FY '23. EBITDA stood at INR 34 crores with a margin of INR 8.5 crores, 5%. Net profit for the quarter stood at INR 10 crores. Our consolidated performance for H1 FY '23 is as follows. [indiscernible]. This includes export of 32% and balance of 16% commercial. EBITDA stood at INR 87 crores in H1 FY '23 [indiscernible] INR 33 crores against INR 50 crores for H1 FY '22. H1 FY '23 performance for the key subsidiaries were subdued, except for Sener Boya. SPS unit has been amalgamated and is no longer our subsidiary. SPS posted a revenue of INR 29 crores for H1 FY '23. The loss before tax was INR 14.3 crores. The same has already been [ exasperated ] in the similar results for the company. Sener Boya has reported a total income of INR 39 crores and has reported upwards the profitability. Performance of other subsidiaries has been lower than expected faced by uncertainty in their respective region. Segment-wise, performance on consolidated segments for H1 FY '23 are as follows. Dyestuff revenue stood at INR 314 crores. Dye Intermediates revenue stood at INR 176 crores. Basic Chemicals revenue stood at INR [ 179 ] crores. Chlor Alkali revenue stood at INR 166 crores. TCCA revenue stood at INR 17 crores for H1 FY '23. Total production revenues on a standalone basis for H1 FY '23 are as follows: Dyestuff reported 7,826 metric tons. Dye Intermediates reported INR 1,677 metric tons. Basic Chemicals stood at 99,986 metric tons. Chlor Alkali and TCCA stood at 38,535 metric tons and 592 metric tons, respectively. Our net base stood at INR [ 767 ] crores, of which INR 361 crores is term loans at the end of H1 FY '23 on a consolidated basis. With this, I'll conclude the presentation and open the floor for further discussion, question and answer.

[Operator Instructions] The first question comes from the line of Aditya Khetan from SMIFS Institutional.

Sir, first question, sir, in the presentation, you had mentioned that the 0 COVID policy in China has decayed the overall consumption and this has led to lower prices and excess supply across the globe. So I believe, sir, we are exporting some Dyestuff to China or and Dyestuff we are importing. Is this understanding correct?

So we do not export Dyestuff to China. We do it, but that is not our regular business, and it is very, very small quantity. But Dye Intermediates are regularly imported from China to India. So we don't -- because we are the largest market of Dye Intermediates in-house, we only depend on Chinese imports for only a couple of products. But majority of the Dyestuff players in India, they have an option of importing from China. And because of the local problems in China, I think the overall demand is affected within China. They have a lot of spare materials to -- that is available to be exported to India. That has been happening since the last 3, 4 months.

Okay. And on to this COVID policy, so have we seen some of the capacities taking a shutdown or capacities. So they are continuously running and only so the demand has impacted?

The problem is most of the industries are not around or within the large cities in China. And COVID spread whatever is happening there is mostly happening in the larger cities. So the industry is not really affected. And the manufacturing is on in [indiscernible] in China.

Okay. Okay. And sir, on to the benzene derivatives. So what is the rationale for keeping this benzene derivatives product like MPDSA, PNA on hold? Like earlier, we were targeting to foray into the downstream derivatives of benzene. But now we will be manufacturing only PNCB, ONCB, which are the first derivatives on the benzene. So does it make sense to invest so much into the benzene derivative when just manufacture the first step derivative?

No. So when you talk about benzene derivative, the main products are a PNCB and ONCB. The first-line product is actually MCB. And then from there, we make PNCB and ONCB. They have to make deluxe [ going to ] products [indiscernible] . The idea behind setting up MCB is [indiscernible] that we have some integration possibilities within our Dye Intermediate and Dyestuff business. So that was the reason, plus they are comparatively small products in terms of global volumes or Indian volumes. So the main products are definitely PNCB and ONCB. And because of the overall CapEx cycle and the increase in the steel prices in the last about 12 months, it is -- we don't want to over leverage ourselves or we don't want to end up a situation [indiscernible] from it is naturally the [indiscernible] -- we have not invested anything in this project so far because, competitively, we have very small projects. The investment is also small and the price is also small. So that is why [indiscernible] there's an option to just keep on hold and go back to the decision every couple of months and decide when to start.

Okay. So now what would be the revised CapEx figures into the benzene derivatives, what we had said earlier and what is now?

As far as the figure is concerned, there are some changes. The 3 projects, small project, which we are putting on hold, they are of a very small CapEx, hardly about INR 40 crores. And so there is a reduction of this INR 40 crore and this project going on, we have gone for some better technology for PNCB, ONCB [indiscernible] . So this is some imported technology and which we will cost us almost to the same figure of INR 40 crores, INR 45 crores. So in a way, that will compensate each other. So as far as profitability is also concerned, we will have a better operating expense cycle. So rather, our operating expense will be lower because of this newer technology. And whatever loss will help by dropping or rather putting on hold these projects, that will be covered by this project. So a bit better technology. But at the same time, see, when we have started this project work, at that time, still and shipment prices and during this period of project construction, there is a huge rise as far as steel is concerned. And because of that, we are expecting there can be 100 plus tons of [indiscernible] as far as total project is concerned. So [indiscernible], we have declared about INR 400 crores, but we are not sure of what can be the revised figure but it can be INR 500-plus crores budget cost but that also depends upon how in future steel and cement prices behave.

Sir, better technology you mentioned. So that is linked to better yields. So like you put a better technology, so that will give you a better yield. Is that -- is this correct too?

No, it doesn't give us a better yield, but there are benefits like energy costs come down, the consumption of the [ steel ] comes down. Also, the high-yield [ possible ] quality is possible to achieve. And also, it takes up less civil work and all. So there are multiple benefits. So there are a lot of operational benefits.

Okay. Okay. Okay. Sir, so considering now -- so last 3 years record of Bodal Chemicals, so we are not witnessing any sort of operating leverage benefit into any of the businesses, which is like leading to sort of margin improvement. I believe, sir, even for the last 2 years, during the COVID times. So wherein you can say so most of the commoditized chemical companies have also reported some 20%, 25% margins considering what the prices have went up. But Bodal is the only company which has not been able to make margins even beyond 12% for the last 2 years. And I believe, sir, in FY '17, '18, we had made margin of around 18%, 20%. So what is the reason? Like why are we stick to that band of 8% to 12% margin in terms we cannot go back beyond like 15% to 20% range? So what we can do in sort of efficiencies and new projects, which can take this up like if you can give a color on this?

I think that the cost of combining a couple of -- 3 of our subsidiaries, one subsidiary, which is acquired , [indiscernible] which is our case processes. And there also, we are not able to make any solid margins. So that now has been amalgamated, but we are trying to convert it into at least a 10% EBITDA business. Also, our Trion Chemicals, which was also a subsidiary, which was limited recently. They also had problems of -- technology problems, some accidental problem due to which the plant had to shut down. So because of that also, we had -- earlier it was with JV and eventually impacts, we ended up buying all the -- take up that company. So there also, for 3 years, you are not able to make consistent production or you're not able to make consistent margins. So I think our core business, I think all this time were definitely doing 13%, 14%, I would say last 2 years also. But then at a consolidated level, there are always some losses in the last 2 years last 8 to 12 quarters. That's what dragged down our overall profitability. Also in Sener Boya, which is our [indiscernible] of marketing subsidiary, which is based in Turkey. There also, we had financial losses as well because of the dollar and lira problem. So there have been 2 different cases. Obviously, we are working on that. I think we are confident about our existing main business model. I think the addition of Chlor Alkali is also helping us in a large way. There, also we are integrating it well. We are going into forward integrated products there also. And now the expanded capacity should help work over at chlor alkali and overall some of these numbers. In benzene derivatives and sulfuric acid are traditional higher-margin businesses. There is about 18% to 25% EBITDA businesses. So that is what we are trying to do. Also Chlor Alkali is traditionally a high margin business. So what we -- our strategy is 2, 3 years back was that we wanted to bring in businesses and we had good kind of numbers. So the idea was to get about INR 1,000 crores of top line on this [indiscernible] and do the [ digital projects ], which can be around 18%, 20% business, so at a blended level with existing around 10%, 12% and this -- 18%, 20%. We can have over 25 of revenues at around 14%, 15% EBITDA margin, which is strong. So that is -- that was the idea. That was the business plan. And I think we are on track because Chlor Alkali is doing good, and also benzene and sulfuric are strong, and agribusiness are flat.

But sir, considering Chlor Alkali is also cycle only because caustic soda sometimes, it is better. Sometimes the cycle is also depressed. But in considering sir, our existing businesses also, they are backward integrated. Still we're not getting that -- so what is like impacting the margins to a greater extent. Okay. But sir, I just want to know, so can we cross this band of 8% to 12%? Or can we consider like 8% to 12% margin should be there for the next 3, 4 years?

I don't -- going ahead into next year, we will definitely be doing at least 12% to 13%. Once our greenfield projects come in and about 70%, 80% utilization, which should happen about 1.5 years from now, I think then we should be around 13% to 15% easily.

Okay. So the 70% to 80% utilization onto the caustic soda businesses?

No, no, caustic soda, we are already at the new installed capacity. Grade 1 is we are already at about 70%. By January, we are targeting about 90% utilization. I'm talking about addition of the Saykha, benzene derivative and sulfuric acid business. And that also starts within a few quarters. And when that reaches around 70%, 80% utilization, I think that is the right time where about INR 400 crores plus turnover should come from Chlor Alkali and about INR 500 crores from our greenfield benzene and sulfuric acid. And those 3 businesses should bring in better numbers, better margins.

Just one last question, sir, on to the Saykha benzene derivative project, sir. So now since we are not putting up the MPDSA, PNA plant, -- are you sure this business is now 15% to 20% range, considering now we are not entering into the downstream delivery because I believe, sir? The NPD asset prices are roughly around INR 450 to INR 500 per kilo versus the PNCB, ONCB prices are around INR 50 to INR 100 per kilo. So definitely, there will be more margin zeroed out into downstream only, but now we are keeping it on hold. Are you sure this 15% to 20% margin range is intact? And then...

I think they will be intact because PNCB ONCB are not commodity or basic chemicals. They're going to agrochemicals and pharmaceutics, you also have some capital consumption. And setting up NPD [indiscernible] plan, it's comparatively an easy job for us. It can be done very quickly also. So I don't feel that we are missing out anything much that they were integrating with our [indiscernible] business. So we wanted to get into [indiscernible] also. But being a greenfield site, there is so much activity. There is so much of work going on. And at the same time, we also did the chlorate expansion and upgradation of the technology. So there is so much -- so many projects going on. I think we have to slow down a little bit because we also entered into a very high price of steel cycle. So it is just on hold. I think you are right, that maybe when we have those projects also, it should help to increase the margins also even more in the benzene business. But I think even with this first couple of -- first [indiscernible] products that we will produce, I think also the margins are not bad. So there are already other companies which [ may only ] PNCB and ONCB, they do good. So I'm very confident about that.

[Operator Instructions] Next question comes from the line of [ Pitki Kodari ] from Kodari Securities.

Sir, my first question was that, can you highlight for Basic Chemicals, PCB and Chlor Alkali business outlook? And what would be the optimum revenue which we can expect and by when?

Yes. So PCB and Chlor Alkali and sulfuric acid business is what we already do [indiscernible] In last 4 years and sulfuric acid since about last 14 years. And TCCA is -- was a JV with another group of people, which we started a few years ago. And eventually, we ended up buying all the equity. So TCCA is the [indiscernible] plant in India. And there are some technical challenges, and there was some transition of changes in the ownership and all. So we have not been traditionally able to achieve a very high utilization rate, but we are targeting to achieve 50%, 60%-plus in the coming few quarters. I think we should be able to reach there. We are also optimizing some of the high cost that we have there. We want to improve and bring down our cost. So that is the outlook for TCCA business. Chlor Alkali, we have been operating at more than 90% very comfortably. And there, we have about 30% of the Chlor Alkali captive used due to the ingredients. The rest are in [indiscernible] we sell in the market is consumption macro chemicals and pharmaceuticals. So we sell this in India a lot, and we also sell to all these major players of clinicals and agrochemicals in Gujarat and the western part of India. And about sulfuric acid, we have 500 tons per day, 50% [indiscernible] plant in Baroda since 2010. And other than that, we are setting up a new plant in Saykha next to our benzene derivatives plant, where the entire waste heat, [indiscernible] steam and power which is going to be used by the benzene derivatives. So there is a good solid integrated model where a majority of the steam and power will be stabilized from the waste heat generation of sulfuric acid plant. And also sulfur acid is a regional business. So Dahej and Saykha and Jhagadia and [indiscernible] they're all industrial hubs and all this upcoming growth is also coming in that region. So we wanted to be part of -- so these all the content dates going to making any -- a lot of agrochemicals and all kinds of different chemicals. So we wanted to be in the right area where all this growth is coming up. So that was the idea behind it. And so there, the revenue is going to be up 3 crores plus in the sulfuric acid business, the new one that is coming up in [indiscernible].

Okay, sir. That was helpful. And sir, when do you expect our subsidiaries to pick up in their respective seasons and increase receiving good inquiries from global MNCs?

So in the subsidiary, Trion has been [indiscernible] recently as [indiscernible] process has also been emerging very recently. The only subsidiaries left now are all marketing subsidiaries, so one that is in China, I think the purpose is to just do some trading there because we source some contracts from there sometimes there is some demand of intermediates [indiscernible] that comes from China. So that is why the subsidiary is there. We have a very small team there who just looks after that small business. And our trading -- Trading Limited, that is again a subsidiary. That was established to just some trading activities, to source [indiscernible] some of our goods. So that is also not a very active company where we do a lot of business. It's a certain arm where we -- if we need, we just use it. And -- but that is not a long-term thing. I mean we have always been saying directly in sourcing it. And the only sizable subsidiary that we have and that really we have some of the business plans is at Sener Boya, which is in Turkey. There, the sale or acquisition in 2019, we've always had a growth -- there were some ForEx losses in last year. There, also we have fixed all those problems, and we've gone for the local loans, et cetera, which eliminates some risk for us. So now it's going quite smooth in this quarter also and then for the first year. First half of this year also Sener is doing good. So there, Sener Boya a huge market in Turkey. So India is out of all the -- exports from India of dyestuff, the highest material goes to Turkey. So it is the largest [ mining ] country from India. And so there, our presence needed to be to supply to the local players. And so there is a good size market in the surrounding countries from Turkey. So it's basically [ a hub ] where a lot of this price is consumed. So there also we see a good growth potential, which has already been proven within the organization. And going ahead of us, I think we should be able to double our volumes in the next 2, 3 years.

[Operator Instructions] Our next question comes from the line of [indiscernible], an individual investor.

Sir, my question is consolidated turnover is INR 395 crores. Very standalone at INR 395 crores, [indiscernible] INR 399 crores, [indiscernible] very possible? That consolidated turnover is less than [indiscernible] Is this correct?

Correct. Your obligation if it -- it is there. I need to look into the reasons why it is there. So you can connect me later on from this.

Okay. Second question. What is the latest status of SPS for your product?