Bodal Chemicals Limited (524370) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Bodal Chemicals Limited Q1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mayur Padhya, Chief Financial Officer, Bodal Chemicals Limited. Thank you, and over to you, sir.

Thank you very much, ma'am. Good evening, everybody. On behalf of Bodal Chemicals Limited, I extend a very warm welcome to everyone for joining us on today's call. I am Mayur Padhya, CFO of the company. 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 then we'll walk through the operational and financial performance for Q1 FY '24. Inflation in major economies continue to be higher level than the normal, leading to lower purchasing power with the mass which results in lower consumption at end user industry and lower demand for our industry, uncertainty for end of war between Russia and Ukraine further decelerated demand scenario for chemical industry. Inventory correction and slow export for textile, leather and paper leading to subdued performance of Dyestuff over the last few quarters. The 2 major markets, the United States and the European market have been slow for more than a year now going to multiple headwinds from rising inflation to uncertain geopolitical scenario. Slowdown in China impacting the domestic demand in China, resulting in excess volume originating from China. At the world level, most aggressive interest rates hike causing inflation condition to tighten and necessary trend continue impacting demand adversely. Industry expects this weakness to continue in the short run, and gradual recovery is expected from second half of FY '24. 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 partner globally, we have been able to hold our leadership position. Coming straight to operational performance. Overall, business performance for Q1 FY '24 has been weak as the company's total revenue stood at INR 341 crores, a degrowth of 26.9% due to decline in prices of raw material as well as finished goods and margin diminution is on account of decline in overall demand. The sluggish demand of end use industry which has impacted better volumes and selling prices, which is not allowing industry players to pass on the increasing input cost to end customers. Coming to Dye Intermediates. At present, Dye Intermediates like H-Acid and Vinyl Sulphone pricing has been at lower level, putting strain on industry players. For Q1 FY '24, total revenue from Dye Intermediates stood at INR 93 crores, H-Acid and Vinyl Sulphone prices were near INR 426 and INR 230 per kilogram in Q1 FY '24, respectively. Being an integrated Dyestuff manufacturer, we produce major Dye Intermediate products and over 40% of this intermediates capacity is captively consumed, resulting in a cost advantage for our Dyestuff products. The balanced capacity of Dye Intermediate is served in both domestic as well as global markets. Many Dye Intermediate manufacturers in India are still under pressure due to slow demand. Industry expects this weakness to continue in short term and gradual recovery may be expected from second half of Q4 '24. Coming to our Dyestuff, end application industries like textile, leather, paper and other Dyestuff consuming industries have not performed well during the last few quarters. All leading textile companies are facing global headwinds, which have curtailed the outlook for Dyestuff products. The Dyestuff business for Q1 FY '24 stood at INR 115 crores. Coming to Basic Chemicals, about 50% of our Basic Chemical is captively used for Dye Intermediates. Our overall Basic Chemicals contributed around INR 35 crores in Q1 FY '24. Coming to Chlor Alkali business, post upgradation CapEx in Q1 FY '24, the Chlor Alkali business has performed reasonably well in terms of production, achieved 90% growth in volume year-on-year basis. However, due to adverse market condition of Chlor Alkali industry revenue stood at INR 70 crores and reported de growth by 22% leading to a substantial reduction in price in both domestic and international market. Recessionary trend continue impacting demand. This factor continue to affect sentiments and therefore, prices also. Coming to Benzene Derivatives. As highlighted in earlier call also, our main goal is to replace, import and capture business in the pharma, chemical and agrochemical market where PNCB and ONCB are used. We are installing the capacity of 63,000 metric ton per annum for Benzene Derivatives. Saykha Greenfield project is progressing well and is expected to start a trial run from Q3 FY '24. We have been moving up the value chain and working relentlessly towards diversifying the business from our core Dyestuff and Dye Intermediate business to other specialty chemical products like Benzene Derivatives. Once we have decent visibility of demand for our product portfolio and the new business site is stabilized, we will restart the Sulfuric acid project. While the global growth and demand is impacted, growth momentum in India is strong. We will expect Chlor Alkali business will contribute meaningful business in the coming years on back of technology upgradation. We foresee demand for caustic soda to remain healthy from FMCG, textile and paper industry. Since very few players have a presence in North India, we will have a competitive age to a certain extent. Manufacturer and exporter in India are having a challenging time managing the overhead cost. Over the year, chemical industry has seen a transformation. Management is taking measures in terms of scale, cost and integration that will help to sale through in this tough time. The overall performance of the company has been subdued for the quarter gone by. Our stand-alone performance for Q1 FY '24 is as follows: Total revenue for Q1 FY '24 stood at INR 329.40 crores. EBITDA stood at INR 27.23 crores. Net profit for the quarter stood at INR 1.07 crores. Our consolidated performance for Q1 FY '24 is as follows: Total revenue stood at INR 341.27 crores for Q1 FY '24. EBITDA stood at INR 30.98 crores with a margin of INR 9.1 crores. Net profit for the quarter stood at INR 2.21 crores for Q1 FY '24. Performance of the key subsidiaries were subdued, except for Sener Boya. In recent current unfavorable scenario and even after a recent earthquake in Turkey, Sener Boya has performed well. It has reported a total income of INR 11 crores and reported a profit of INR 1.19 crores. Performance of other subsidiaries has been lower than expected due to soft demand. In a medium- to long-term view, the subsidiary will bring meaningful business. However, in short run, we are expecting a modest performance. Segment-wise performance on consolidated basis for Q1 FY '24 are as follows: Dyestuff revenue stood at INR 115 crores; Dye Intermediate at INR 93 crores; Basic Chemical, INR 35 crores; Chlor Alkali stood at INR 70 crores. Total production volume on a stand-alone basis for Q1 FY '24 are as follows: Dyestuff reported 3,473 metric tons of production; Dye Intermediates reported 4,802 metric tons; Basic Chemical stood at 56,650 metric tons; and Chlor Alkali, caustic soda production stood at 19,506 metric tons. With this, I conclude the presentation and open the floor for further discussion and question and answer.

[Operator Instructions] The first question is from the line of Aditya Khetan from [ AK ] Capital.

Sir, my first question was when you say that demand is remaining subdued. But sir, when we look at your quarter-on-quarter volumes, like Dyestuff sales have reported 25% jump on a quarter-on-quarter basis. Even Dye Intermediate volumes have been almost flattish. So despite subdued demand, your volumes are picking up. So I understand you are talking on to the price because China is aggressively dumping into India, so that could impact the price but your volumes are picking up. So how should one look at these numbers then?

Yes. See, whatever you have pointed out is correct. Particularly Q1 FY '23 and Q1 FY '24 when we compare in Q1 FY '23 we've had good orders on hand with good prices. So during the corresponding last year's quarter, industry has started performing weak but because of the good sales price, we have done better in that particular quarter. So when we compare the revenue figure from Q1 FY '23 to FY '24, the prices has been down, but volumes, as you have mentioned, has picked up. For production, the data what we have shared is of production data and not of a sales quantity. So during Q1 FY '23, there was a better sales number as well as sales price that's why when we compare it with Q1 FY '24, it looks like that revenue is down. And volume-wise, there is a somewhat better we have done as far as production is concerned.

When I say the 25% jump in your Dyestuff volumes, but your Dye Intermediate volumes have not gone up. So what we understand that Dye Intermediate is used to make Dyestuff. So when your raw material is remaining flattish, how come your finished product like volumes have been jumped at a higher pace?

It is very much possible. So it's not that whatever we produce that much is only utilized. There is an older stock as well as some portion we are required to get from outside. So it is very much possible that we have used our inventory more in a captive consumption than what we have sold to outsiders. So this is a production number. The major portion has been used for captive consumption and sales numbers are lower.

Okay. And sir, on to the Vinyl Sulphone and H-Acid, so China is the largest player into this segments, and they are aggressively dumping into India. So now prices are at -- again, they are at 2 to 3 year low. So how do you see these things to -- this can improve materially from here on? Or you see this to remain at these levels only for a couple of quarters and also, sir, if you can share the import figures if you have of H-Acid and Vinyl Sulphone. Any ballpark number if you can give on that?