Bodal Chemicals Limited (524370) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Bodal Chemicals Limited Q3 and 9 Months FY 2023 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 at 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 SGA, 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 development in the chemical industry. And then Mr. Mayur Padhya will walk you through the operational and financial performance for the Q3 and 9 Months FY '23. Global inflation is weighing heavily on the end market like textiles, paper, pharma, plastic, agrochem, water treatment, et cetera. Consumption of end-user industries has been sluggish due to the overall slowdown in the global market. Uncertainty about the European market has further accelerated the demand scenario for the chemical industry. The 2 major markets, the U.S. and European market have been slow for more than 6 months going to multiple headwinds from rising inflation towards certain geopolitical scenarios. When it comes to China, their policy of Zero COVID has slowed the economic growth for a while. While China's growth has been slow, which has affected the prices of key commodities around the world, including Dyestuff and Dye Intermediates. We are India's largest integrated manufacturer of Dyestuff and Dye Intermediates and hold a meaningful market share in the world. In today's environment where Indian suppliers are emerging as preferred partners globally, we've been able to hold our leadership position. Coming straight to the operational performance, overall business performance for 9 months FY '23 has been weak as the company's total revenue stood at INR 1,178 crores, a degrowth of 20% due to the subdued performance of Dye Intermediates and Dyestuff chemicals. The price volatility of key raw materials has affected many textile players in India, resulting in suboptimal capacity utilization, inventory destocking and slow exports. Coming to Dye Intermediates. At present intermediates like H Acid and Vinyl Sulphone, pricing has been volatile, putting strain on the industry player. For 9 months FY '23, total revenue from Dye Intermediates Chemicals stood at INR 258 crores. H Acid and Vinyl Sulphone prices were near INR 422 and INR 263 per kg in the Q3 FY '23. Being an integrated Dyestuff manufacturer, we produce 25 Dye Intermediates products and over 40% of these intermediate capacity is capitally consumed resulting in a cost advantage for our Dyestuff products. The balance capacity of Dye Intermediates is starved in both domestic as well as global markets. Many intermediate manufacturers in India are still under pressure due to slow demand. Going forward, we can expect nominal improvement in the Dye Intermediates business. Coming to our Dyestuff business, and application industries like textile, leather, paper and other stuff -- consuming industries have not been performing well during the last few quarters. All leading textile companies are facing global headwinds, which have curtailed outflow for the Dyestuff products. The Dyestuff business for 9 months FY '23 stood at INR 442 crores. Coming to Basic Chemicals, more than 50% of our Basic Chemical capital is used for our Dyestuff Intermediate. Our overall Basic Chemical has contributed around INR 134 crores. Coming to the Chlor Alkali business, the Chlor Alkali business continues to perform reasonably well with a revenue of INR 229 crores for the 9-month FY '23, driven by healthy volume uptick. During the quarter, the realization of caustic soda has been normalized, production were halted for 3 to 4 weeks due to the implementation of technology upgradation. Our Chlor Alkali business will contribute meaningful business in the coming period on back of our technology upgradation. We foresee demand for caustic soda to remain healthy from FMCG, textile and paper industries. Since very few players ever present in North India, we will have a competitive edge to a certain extent. Coming to benzene derivatives and sulfuric acid projects. As I highlighted in the earlier call, our main goal is to replace imports and capture business in the pharma and agrochemical spaces where PNCB and ONCB are used. We will be installing the capacity of 63,000 tonnes per annum of benzene derivatives. The Saykha Greenfield Project is progressing well and is expected to start in September 2023. Subsidiaries have reported a weak performance due to a soft demand, whereas Sener Boya in Turkey has reported a decent performance of INR 56 crores of top line in 9 months. In a medium- to long-term view, the subsidiaries have been making good business. However, in short term, we are expecting a modest performance. Our priority would be to endure these headwinds and focus on starting the Saykha project by September 2023. We have been moving up the value chain and the working relentlessly towards diversifying the business from our core Dyestuff and Dye Intermediates business to other specialty chemical products like benzene derivatives. Once we have decent visibility of demand of our product portfolio and new site is stabilized, we will restart the sulfuric acid project. Manufacturers and exporters in India are having a challenging time managing the overhead cost. Over the years, chemical industry has been -- has seen a transformation. Long-term story of India remains intact and chemical industry is poised to grow from here on. However, we expect overall demand to remain grim for the short period. 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 stand-alone performance for Q3 FY '23 is as ahead. Total revenue for Q3 FY '23 stood at INR 307 crores. EBITDA stood at INR 25 crores in Q3 FY '23. Net profit for the quarter stood at INR 2 crores. Our stand-alone performance for 9 months FY '23 is as ahead. Total revenue for 9 months FY '23 stood at INR 1,156 crores. EBITDA stood at INR 100 crores in Q3 FY '23 -- sorry, 9-month FY '23. Net profit for the quarter stood at INR 29 crores. It's a 9 months, ended in INR 29 crores. Our consolidated performance for Q3 FY '23 is as ahead. Total revenue stood at INR 318 crore for Q3 FY '23. EBITDA stood at INR 27 crores for Q3 FY '23 with a margin of 8.4%. Net profit for the quarter stood at INR 2 crores for Q3 FY '23. Our consolidated performance for 9 months FY '23 is as follows: Total revenue stood at INR 1,178 crores for 9 month FY '23. This include export of 33% and domestic of 67%. EBITDA stood at INR 114 crores in 9 months FY '23, a degrowth of 37%. Net profit for the 9 months stood at INR 35 crore against INR 70 crores of 9-month FY '22. 9 months FY '23 performance of the key subsidiary was subdued, except for Sener Boya. Sener Boya has reported a total income of INR 56 crores and has reported not worthy profitability. Performance of other subsidiaries has been lower than expected due to soft demand. Segment-wise performance on a consolidated basis for Nine-month FY '23 is as ahead. Dyestuff revenue stood at INR 442 crores. Dye Intermediates revenue stood at INR 258 crores. Basic Chemical revenue stood at INR 134 crores. Chlor Alkali revenue stood at INR 229 crores. TCCA revenue stood at INR 17 crores for 9-month FY '23. Total production volume on a stand-alone basis for the 9 months FY '23 is as ahead. Dyestuff reported 10,877 metric tonnes. Dye Intermediates reported 9,892 metric tonnes. Basic Chemicals stood at 1,16,870 metric tonnes. Chlor Alkali stood at 59,314 metric tonnes and TCCA 726 metric tonnes. With this, I conclude the presentation and open the floor for further questions and answer.

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We take the first question from the line of Aditya Khetan from SMIFS Institutional Equities.

Is my voice audible?

No, it's not clearly audible, Aditya. Could you switch to handset mode and talk, please. Aditya, are you still there?

Hello? Now is it audible?

Yes.

Sir, my first question is on the Dyestuff, then Dye Intermediates volumes. Sir, for the quarter, what we are witnessing that the Dyestuff volume has almost become half as compared to on Y-o-Y basis. Whereas the Dye Intermediates volumes, they are still down by roughly around, you can say, 40%, 50%. So what is the basic reason for decline in so much like volumes in Dyestuff and Dye Intermediates? And also just adding to this only. So the TCCA volumes also like from 351 metric tonnes last year, it has fallen to around 134 metric tonnes. I just want to understand how is the demand shaping up right now? And why there is so much decline into the production volume numbers?

Dye Intermediate and Dyestuff both are related business. Whenever Dyestuff demand is solid, at the same time Dye Intermediates demand will be there. So mostly, Dyestuff is exported to Europe, America and the major other user is China. And presently, we witnessed that the U.S. is a bit soft. Europe very much slow and China is also facing issue because of Zero COVID policy. So demand is very low compared to last year and this has affected the production also. So initially, we go on producing, but after 1 or 2 months, we found that takeup is not there from the market, and there is no reason to go on producing and block the funding inventory. So to the extent, we can sell to that extent we are producing now. So this is the main reason why Dye Intermediates and Dyestuff is lower compared to last year. And this is not the Bodal specific scenario. Across the industry, if you have seen the results of other companies, there is also degrowth as far as volume and profitability, both is concerned. As far as TCCA is concerned, over there, there is not much issue with demand in the U.S.A., but there is the issue as far as availability of container for export. And some of our customer has agreed and they have arranged container from U.S.A. And to that extent, we are producing and exporting that quantity. Another reason, see, earlier, particularly in summer season, there is a demand locally also available. But during the last quarter, here, we have a winter. So local consumption is almost at a negligible level. So local supply chain was not available and local demand was not there. So here also, presently plant is working, but there was an issue of container availability. And that's why we are not able to fully perform or fully utilize our capacity. Presently, there is an order and factory is working. But as we have witnessed, there is no continuous production is possible, now there is no issue as far as plant or setup of product is concerned, but the issue is just related to market. Hope I have covered everything, whatever you have asked.

And just want to know, so as now the demand is weak. So considering if the demand goes up and things become normalized. So can we expect the production volumes again to go back to that levels of quarterly run rate of 6,000, 7,000? And you also mentioned regarding the short-term pressures, and you also highlighted into the presentation that the short term could be weak. So you're referring for the next 2 quarters or for the next 1 quarter? Just wanted to know that one.

Presently for 1 quarter, after 1 quarter, what will be the scenario world over, that is difficult to predict. So when we refer to short term, that is 1 quarter.

It is 1 quarter. The next quarter also, we can expect a similar sort of production level and post that from Q1, we can expect an update.

Current quarter, there will be somewhat better production, particularly Chlor Alkali product and Basic Chemicals. Because in last quarter, there was some extraordinary effect in Chlor Alkali because of the technology upgradation and the capacity expansion implementation. So almost 70%, 80% of October get vested -- rather utilized in this technology upgradation and we couldn't manufacture for that month. So because of that, there was lower production. And in Basic Chemical, last quarter, November was the month wherein we took an annual shutdown for government agencies, boiler inspection and somewhat the maintenance. So that disturbance won't be there as far as current quarter is concerned. And there is a slight improvement in demand as far as Dye Intermediate and Dyestuff. It's not significant or considerably, but negligible or slight improvement is there. So we can witness somewhat better quantum in current quarter compared to last quarter.

But do you think, sir -- so this quantum of improvement in demand could again be offsetted because of the recent Turkey situation because it is said that Gujarat Dyes, peers, are much impacted because of this because the peers were exporting to Turkey. So that improvement in demand could be offsetted competition?

Maybe that time will say, but it is a really important issue for the whole industry because the maximum export from India of Dyestuff is happening to Turkey. And because of this earthquake, major consumer is being definitely affected. So there will be somewhat later demand. But out of the total export to world over from India, this can be about, say, 10% to 15%. So that will have somewhat negative effect.

So 10% to 15% of overall exports of Dyestuff is to Turkey. Sir what would be our contribution of exports to Turkey?

Our contribution is about say, 10% to 15% of the total export that is happening from India to -- it's rather 15% to 20% contribution of Bodal.

So [indiscernible] next quarter, so our export volumes would again be impacted by another 20% of Turkey?

We've lost the connection for Aditya. In the meanwhile, we'll move to our next question. That's from the line of Rohit Sinha from Sunidhi Securities.

So first thing, I would like to know that everyone right now is talking about reopening of China will benefit chemical sector, especially the commodity side. So how you are seeing this and how and when it is going to reflect in our numbers on standalone and also on the subsidiary side. Any take on that?

So the problem -- the COVID problem that was going on in China, that definitely impacted the Indian players. Because of some disturbance within China, the overall demand for many input chemicals, commodity chemicals business impacted. So there were some exports that were available easily for Indian market. So that -- once things go back to normal in China, I feel that those exports coming to India will be less, so that will have a less pressure on the Indian business.

Okay. Okay. So also we are -- I mean this dyes are very much linked with the textile industry. So can we get what kind of revenue exposure we have to the overall textile industry? And maybe what kind of feedback you are getting from your customer in this industry right now in terms of demand?

The Dyestuff being sold to the textile is around -- this year, it will be around INR 300 crores.

Okay. INR 300 crore is till 9 months?

No, no, for the annual number.

Okay. For FY '22, you are saying?

Yes.

Okay. And -- I mean, in terms of customer feedback, if you can highlight to what kind of scenario they are facing?

There are definitely volume pressures when it comes to textile industry. I think the main reason being Europe being the second biggest consumer globally is going to -- because of the war and all, is going through inflation and going through a lot of imbalancing. So the overall demand that is usually coming from Europe is not really happening. It has really impacted big time. So due to that, the overall textile consumption from a garmenting point of view or processing of the textile point of view has been impacted since last about 2, 3 quarters. Going ahead, it really depends on what happens with the war, how early it settles down and how early European countries are able to get back to normal. So I think as for the textile feedback from real buyers or players is definitely that the demand of overall textile products, I think, will be impacted for at least 2, 3 more quarters.

Okay. Okay. And when you are talking about export side, I mean I just wanted to clarify. In the presentation, the 9-month figure for domestic and export percentage, revenue has been more or less same, 67% domestic and 33% export, whereas there's been significant volume decline in different segments. So how to interpret this data? I mean, how we have maintained the revenue mix?

Here, our total volume has decreased -- total revenue has decreased. So export number has also decreased. But overall contribution to export and local has remained more or less same.

Okay. Okay.

33% is of the current quarter's number -- 33%.

Okay. Okay. And 1 last question. In terms of your -- just upgraded technology upgradation in Chlor Alkali. So what kind of volume increase we should be expecting? And how much margin benefit, if at all will be coming from there?

The volume earlier, we were producing about 185 metric tonnes per day and that has increased to about 235 metric tonnes per day. And going ahead down the line, we can reach to about 260, 270 metric tonnes per day. So earlier annual production was in the range of 55,000 to 60,000 metric tonnes which we can go up to 90,000 metric tonnes. That is the production number I'm talking about. So capacity is almost 1 lakh metric tonne. So almost a 50% jump in volume we will witness going ahead.

Okay. And it would be -- I mean, the utilization level would be how much, I mean you would take in a gradual phase or how we should see the utilization levels?

Yes. As I mentioned, in October, we have inaugurated the new plant. And by December, we have reached 235 metric tonnes. So going ahead within 2 months, we are expecting we'll reach to about 270 metric tonnes per day. So down the line 2, 3 months, we will reach to optimum capacity that is possible over there.

Okay. And for FY '24, we'll be operating at full capacity?

Yes, yes, 100%.

And how much investment was there in this process?

In acquisition, there is -- we spend about INR 150 crores as far as acquisition is concerned. And another about INR 160 crores, we spend for this modernization and capacity expansion as well as some normal replacement capacity. So total about INR 310 crores we have spent.

[Operator Instructions] The next question is from the line of Anand Venugopal BMSPL Capital.

Most of my questions answered earlier itself. So just I have 1 quick question. Like if you could explain how the market for Dyestuff and Dye Intermediaries improves from year on as such?

We expect the market to be in the similar range of demand, which was there in the Q3 of this year. At the moment, it is going quite flat compared to the Q3. Moving ahead also, we feel that at least for another few months, we don't see any major turnaround, but yes, hoping that after 3, 4 months a good demand phase should come.

Okay. Okay. So you have earlier mentioned that the Ukraine -- the slowdown in Europe, U.S. and China has affected the Dye Intermediates and Dyestuff markets. [indiscernible] high cotton prices affected these 2, Dye Intermediates and Dyestuff market?

So the volatility in the cotton prices also affect the textile segment where, again, after cotton is being used, the dyes are used to process the fabric. So the volatility and especially the higher prices of cotton, definitely affects the textile market because already, there are some volatile demand coming from [indiscernible] of the world. At the same time, the input, which is cotton, if it's very high in price, then it's not really affordable or viable. So that definitely has a real impact.

Our next question is from the line of Saket Kapoor from Kapoor & Company.

Sir, firstly, sir, if you could explain that historically, when have the Dyestuff industry been in this kind of scenario? And how have the cycle returned? What are the factors that will give signals to the investing community that the Dyestuff market has -- the correction is dealt with? And earlier, sir, was it the rally, which we saw in -- the demand, which was there 2, 3 quarters ago, was it a supply type issue because of COVID, that was addressed by the Indian players and especially by you, the numbers which we have done for last year? If you could explain that -- If you could explain the thesis there, what happened 2, 3 quarters back and what is the situation today? And how will we understand when the reversal will start happening?

So a similar time, I would say was, I think, between 2008 and 2012. That is when I think the numbers of Dye Intermediates and Dyestuff companies were impacted. I think there was a lot of volatility and margins are really low. The reasons were different. During those times, China had come up with big capacities, that was about 15th, 20th year for them into this industry of [indiscernible]. And so that there was a lot of pressure coming from China and especially all the incentives that were offered to them are also very different. So there our business model of producing in Dye Intermediates, especially was very favorable for them. There were incentives in double digits. Electricity was used to be very cheap. The labor used to be cheap. At the same time, they had expanded very, very huge. So -- and we are also -- few players have expanded. So that was a period when there was an extra capacity that generated in the global market. So that created a lot of pressure on the margins, especially. But by around 2012, '13, the environmental issues which were neglected in China came on the surfaces and that is why the capacities had to be restricted [indiscernible]. So then that kind of balanced out the capacities globally. Since then Dye Intermediates and Dyestuff businesses are doing quite consistent until this particular couple of quarters. Last year, what I feel is that it was a time when overall global scenario had come back to a normal post-COVID and COVID kind of was very minimized and it did not have any global impact in a large manner. So overall demand coming from entire world was very strong. And the feeling was everything was kind of coming back to normal. So I think overall demand for -- I think almost everything on this planet was very strong. So that was the reason why, I think, 2 quarters went really well. But since then, especially the war that has happened in Europe, which again, Europe is its second biggest consumer after U.S. So these products mean the textiles and paper and leather all these are consumer products. And -- so textile, especially has been going through volatile times and volatile demands. So that has really given the pressure. And another pressure is that China because of this COVID increase internally in the country, there was a lot of products -- some areas were disturbed, and due to that, many products were not being consumed locally. So again, there was extra product available in many chemicals, which was to be exported and India again being second, third largest consumers in all these products. It was -- many, many quantities are available here. So that also kind of created a little pressure. So a little extra supply in some chemicals and the overall demand coming down, especially from textiles, that has impacted the current scenario.

So sir, China, this problem has generated as the imports from China. This is what the understanding is that the opening up of the Chinese economy has resulted in substantial amount of import of Dyestuff and Intermediates globally. So this is the correct understanding as for the reason why our capacities are lying low or utilizing levels are low? And also the demand disruption, both factors are there.

Demand is affecting -- demand is affecting and creating all these effects. Because Chinese products -- like no producer wants to slow down their plants or shut their plant until they reach a very low point. So -- and to reach that low point or to realize that low point, it takes months. And by the time that low win comes where there is too much of excess supply available or already being produced by that time markets really go down. So that has happened right now where there was a lot of product available from India and China, where the overall demand has really slowed down. There were piles of inventories that were being kind of created in China and India, which ultimately, the overall consumption was very low and demand was low. So that is the -- so I think once a better demand or a normalized demand will come and all these piles of inventories will dry down, then I think we can go back to the routine time, routing margins.

Two small points. Firstly, on the ADD front, does these circumstances requires the need of an ADD imposition? Or are we in any process of going through it or the period is too short to go? And how -- what have been the import from China to the country, sir? Any competitive number you can give?

Antidumping is a little difficult in this case because it is not a consistent import. If you look at last 6, 8, 10 years data, then it's been -- there have been times when product has been actually imported from India to China. So antidumping -- to try for an antidumping is a little difficult in this case because it doesn't really make sense when the product is also exported back to China at times. And -- yes.

Correct. And important number, can you help sir? Do you have how much quantity has been imported in last 2 quarters vis-a-vis the competitive number just to gauge the impact of the same?

Just about additional 10%, 20%, 30% product that comes in from China, obviously, it comes -- because it's offered at a very cheap price, because we have stocked, because the demand is low. So they just try to continue that their financial cycles, they even sell it at loss -- so some times can come. And I would say about H Acid, Vinyl Sulphone monthly numbers would be around 1,000, 1,500 tonnes. Those are the kind of numbers that's probably imported from China to India.

So if I come to 2-point about -- 1 is about the caustic soda and then for Dyestuff industry, sir, we are also a consumer of soda ash. Just to manufacture that Dyestuff, if soda ash also act as a raw material?

No. So we do not produce soda ash. We consume soda ash.

Yes. Yes. That is what my question.

Yes. So we don't produce it, but we buy soda ash in large quantities, we buy from a local market.

So what is our annual requirement of soda ash currently and how much it has gone down over this last ensuing period?

Soda ash approximately -- approximate consumption is around 12,000 to 15,000 tonnes a year for us. So monthly about 1,000 to 1,500 tonnes.

Okay. And that has also gone...

The prices were impacted again last year because of the overall demand of almost everything, soda ash prices have really shot up. And also, at the same time, coal prices and a lot of input prices have gone up and the freight prices and everything. That's why the prices of soda ash has really increased. But it has stopped going up, and it is kind of soften up around 36, 37, 38 levels.

Okay. So our consumption has also fallen in percentage to be...

Yes, yes. Our consumption has definitely fallen because we are -- our utilization is not a routine, which is around 70%, 80% in the intermediate space.

Okay. And what is the current utilization level for us, sir? For the Dyestuff space domestically?

Yes. For the last quarter, utilization was very low. And Dye Intermediates, utilization was almost 43%. For Dyestuff, it was 35%. And for Basic Chemicals, it was about 70%.

Any color you can give for the month of January, sir? How have been these 3 numbers? Any ballpark number for Dyestuff, Intermediates and Caustic?

See, Dye Intermediate and Dyestuff, there is a slight improvement. And as far as Basic Chemical, there is some improvement.

That is debottlenecking due to which you explained earlier?

[indiscernible] for Caustic.

For Caustic, you explained that there's some changes you did?

Yes. Caustic, there will be good improvement. Yes. Because the last quarter, last quarter 1 month was wasted because of the implementation of the new technology. So such disturbance won't be there in current quarter.

And for Dyestuff, you were telling something, sir, I interrupted you. Please complete the Dyestuff part.

Yes. Dyestuff and Dye Intermediates, there will be slight improvement we are expecting, but not in a major way.

Okay. Any number you can give us, some ballpark number, whether in the 40s or lower than what we have exited in December?

So maybe about 5% utilization can get improved from the last quarter's level. Not much.

And for the Chlorine part, sir, I think we have basically located in the state of Punjab wherein you explained that we had an advantage other than the western part of the country where there is a huge influx because of extra chlorine production. So how has Chlorine played a part in our ECU, sir?

Chlorine, especially for us, is not something that creates any challenges. Usually, in Gujarat, chlorine is a bottleneck when it comes to Chlor Alkali business. But we have 4 pipeline buyers. We also have 1 more new plant coming up adjoining to our complex. So chlorine, in fact, we have more demand for chlorine than actually our production there is going to be. So chlorine -- and there are many turnout buyers also. Turnout, meaning we sell by cylinders also. So there is enough market and also a little bit growing market. So chlorine is not an issue for us. So what I mean to say is it realizes -- it has a better realization than in Gujarat. To give you an example, a couple of months ago, the chlorine market here was under a lot of pressure because caustic was very high. So chlorine market went down to minus INR 12,000, minus INR 13,000 to the consumer per tonne. At the same time, in North, in Punjab, especially, the prices only went down to minus INR 6,000. So that was a big dent.

And currently, what is the situation, sir?

Currently, chlorine is around 0. It has been corrected to around 0 level in both Western -- Gujarat and also in North.

Gujarat, also sir, things have changed. Because I think the lower caustic production is there also. So utilization levels have gone down..

Yes. So chlorine prices here in Gujarat around 0.