Bodal Chemicals Limited (524370) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Bodal Chemicals Limited Q2 and H1 FY '24 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 from 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 today on the call today. On this call, we are joined by our CFO, Mr. Mayur Padhya. I hope everyone had an opportunity to go through the financial results and investor presentation which have been uploaded on the stock exchanges 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. And for industry highlights. Inflation in major economies continues to be higher level than the normal, leading to lower purchasing power with mass, which results in lower consumption at end user industries and lower demand for our industry. Uncertainty for end of -- uncertainty of end of war between Russia and Ukraine further decelerated demand scenario of the chemical industry. Slow exports for textile, leather and paper, leading to subdued performance of dyestuff over the last few quarters. European market has been slow for more than 5 quarters now, owing to multiple headwinds from rising inflation to uncertain geopolitical scenarios. U.S. experiencing most aggressive interest rate hike causing financial conditions to tighten and recent trends continue impacting the demand. Industry expects this weakness may continue for short term, but gradual recovery is also expected. In today's environment where 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 dyestuffs 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 '24 has been weak, as the company's total revenue stood at INR 677 crores, a degrowth of 22% due to decline in prices of raw materials as well as [indiscernible] and margin is on account of decline in overall demand. Coming to Dye Intermediates. H acid and vinyl sulfone prices were stable at lower levels. On positive side, in first half FY '24, total revenue from dye intermediate chemicals stood at INR 205 crores, has reported growth of 16% on year-on-year basis. And it is due to the improved volume. In Q2 FY '24, H acid and vinyl sulfone prices were near of INR 420 for H acid and INR 215 for vinyl sulfone. Volume has improved. However, margin are still under pressure due to lower realization. More than 40% of our intermediate products are used for the captive purpose to manufacture various ranges of dyestuff. Over the next few years, revenue pie from this vertical will eventually go down. And business from dyestuff will increase in favor of steady business growth. Coming to our dyestuff. End application industries like textiles, 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 of dyestuff products. The dyestuff business for first half stood at INR 227 crores. For Basic Chemicals division, about 50% of our basic chemical is captively used for dye intermediates. Though volume is optimum, however, due to the decline in raw material and finished good prices, the revenue for the first half stood at INR 63 crores, a revenue degrowth of 42% compared to the first half of FY '23 [ for it ]. Coming to the chlor alkali business. Post upgradation CapEx, the chlor alkali business has performed reasonably well; in terms of production, achieved 16% growth in volume in first half FY '24 year-on-year basis. However, due to adverse market conditions of caustic, chlorine industry, revenue stood at INR 129 crores and has reported a degrowth of 26%. Coming to the new project, benzene derivatives. As highlighted in the earlier call, our main goal is to replace imports and capture business in the pharma and agrochemical markets where PNCB and ONCB are used. We will be installing the capacity of 63,000 tons -- metric tons per annum of benzene derivatives. The Saykha greenfield project is progressing well and is expected to start by Q3 FY '24. Sen-er Boya, our Turkish company, has performed well, though there is global headwinds in the chemical industries and severe earthquake in the -- Turkey in the recent past. Whereas the other industries have incurred nominal losses, in a medium- to long-run view, the subsidiaries will bring meaningful business. However, in short term, we are expecting a modest performance. We have been moving up the value chain and 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 for our product portfolio and new 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, textiles and paper industries. Since very few players have a presence in North India, we will have a competitive edge to a certain extent. Manufacturers and exporters in India are having a challenging time managing the overhead cost. Over the years, chemical industry has seen a transformation. Management is taking measures in terms of scale, costs, integration that will help to sail through this tough time. 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 Q2 FY '24 is as follows. Total revenue for Q2 FY '24 stood at INR 334 crore. EBITDA stood at INR 28 crore in Q2 FY '24 with a margin of 8.5%. Net profit for the quarter stood at INR 1.03 crore. Our stand-alone performance for H1 FY '24 is as follows. Total revenue for H1 FY '24 stood at INR 663 crore. EBITDA stood at INR 56 crore. Net profit for the half year stood at INR 2.1 crore. Our consolidated performance for Q2 FY '24 is as follows. Total revenue stood at INR 336 crore for Q2 FY '24. EBITDA stood at INR 29 crore for Q2 FY '24 with a margin of 8.8%. Net profit for the quarter stood at INR 1.24 crore for Q2 FY '24. Our consolidated performance for H1 FY '24 are as follows. Total revenue stood at INR 677 crore, against INR 8.69 crore for H1 FY '23. This includes export of 27 crore (sic) [ 27% ] and domestic sales of 73%. EBITDA stood at INR 60 crore in H2 (sic) [ H1 ] FY '24 and degrowth of 31%. Net profit for the half year stood at INR 3.45 crore, against INR 32.79 crore of H1 FY '23. H1 FY '24 performance of the key subsidiaries was subdued, except for Sen-er Boya. Segment-wise performance on a consolidated basis for the H1 FY '24 are as follows. Dyestuff revenue stood at INR 227 crore, dye intermediate revenue at INR 205 crore, basic chemical revenue at INR 63 crore. And chlor alkali revenue stood at INR 129 crore. Total production volume on a stand-alone basis for the H1 FY '24 are as follows. Dyestuff reported 6,834 metric ton. Dye intermediate reported 10,492 metric ton. Basic Chemicals reported 1,12,034 metric ton. Chlor alkali stood at 38,094 metric ton. Our net debt, at about 800 crore for -- at the end of H1 FY '24 on a consolidated basis. With this, I conclude the presentation and open the floor for question and answer and further discussion.

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

Sir, first question was on to the Dye Intermediates side. Sir, like from the -- like, sir, from second quarter of FY '23, where we had reported the weakest volume for dye intermediate of 2,200 tonne, from there, sir, we have witnessed a very swift improvement in volumes to around like 5,000 metric tons for Dye Intermediates. So sir, this improvement in volumes of Dye Intermediates on quarter-on-quarter basis and Y-o-Y basis, sir, despite the Chinese competition, so which are the major players into this business, have we not witnessed any sort of headwinds like increasing imports from China which is like impacting volumes? But despite that, your numbers continue to remain good, owing to the volume front in Dye Intermediates. If you can share, sir, some idea as to what has led to this improvement.

So if you look at a year-on-year basis, then last year, FY '23, the same quarter, it was the lowest quarter in terms of dye intermediate manufacturing for us. In recent few years, that was the worst time that we had experienced in the dye intermediate business. And that is why the volumes had really gone down in that quarter last year, but this year, the volumes -- because we are looking at it on a year-over-year basis, that's why the increase is 100%. And the volumes look really solid, but if you look at quarter-on-quarter basis, then compared to June quarter, the volumes -- the increase is not that much. So that is the reason why you see a big increase. I feel that the volumes are quite normal, where now due to the raw material cycles getting in a comfortable zone, we are now able to at least go for our manufacturing volumes. So that has been happening in last couple of quarters...

Sir, on quarter-on-quarter basis also, there is a almost 18% jump into the dye intermediate volumes, so what is the like major reason for this jump? Is it because of the good demand or lower imports from China or like higher export of dye intermediate? I believed -- so this is a domestic product, so what is that fundamental factor which is like leading to this improvement in volumes?

So basically the improvement is all because of the stability that we have experienced, yes. So in June -- September quarter was definitely a little better in terms of overall demand. And more importantly, the basic chemicals cycle, the coal prices cycle, they were more comfortable. So that's why the September quarter actually had a more favorable scenario in terms of dye intermediates production and business.

Okay. And sir, on to the pricing side. So have we not like witnessed any increase in imports from China? Because still the demand in China continues to remain weak, and they were the largest exporter of dye intermediates like vinyl sulfone and H acid. And pricing almost remained stable on quarter-on-quarter basis, so have we not experienced any imports -- increasing imports or any sort of such...

Routine imports happened, but there was not any -- though you are right about the local Chinese demand, what we hear about is a little weak and uncertain right now, but as far as intermediates go, there are no extra imports that is coming, in even currently, I would say. So that's why this intermediate demand is quite stable right now here, local demand. And there is no extra pressure of any Chinese import product.

Is it also, sir, because they are operating at lower utilization levels? And if suppose there is an improvement in demand in China and in other countries, they can further like increase the production and increase exports. Can this be a thing which we should watch out?

No, I don't think so. I -- if the demand improves in China, then obviously they will cater to that market rather than exporting all the way to India. And they are -- I think their production levels are also not very weak. I think they are also doing quite -- in terms of numbers, I think all the big plants are operational. They are doing quite normal volumes at the moment.

Okay, okay. And sir -- so sir, into your chlor alkali business, caustic soda. So prices, like last quarter only, they had witnessed so -- record low level. And this quarter also, pricing continues to remain subdued, so what is that factor? Like you had mentioned that improvement in demand from FMCG could be like the leading driver wherein the chlor alkali business could improve. So currently, like for this quarter, that has remained subdued and that is the reason why prices have not gone up. And it is anticipated that price might go up going ahead.

So going ahead, in longer run, we are linking it with the Indian's GDP growth; and the overall India's agrochemicals, pharma, specialty chemicals or the chemical space, even textiles, even alumina. These are all the consumptions where we are witnessing a growth cycle. There are a lot of investments coming up in this space, so -- and with the Indian GDP growing, overall country growing, overall incomes of the citizens growing, I think we see more spending and because this has wide application, so in a long term, what we believe is that we are going to witness good demand. And in North, there are very few plants, so -- where in western part of India, there are many capacities. And it gets crowded sometimes, but in North, there are limited capacities, so the opportunity is also good.

Okay, okay, okay. And sir, just -- sir, last quarter -- so Mayur, sir, has highlighted the fact that we would be getting some benefits on to the incentives front, so from which quarter this would start...

It is not yet certain. We have already applied, but it's government, so how much time they will take, it's uncertain, but we are expecting, by March, the approval should be there.

And sir, what would be the run rate of incremental EBITDA per quarter?

This will be -- this will accrue from [ November 22 ]. And what we are expecting, about 20 crore per annum, a rough estimate, as far as incentive, both electricity and the GST benefit for the Punjab division.

Okay, okay. And just one last question, on to the demand of [indiscernible] so pretty confident on to the dyestuff [indiscernible] so how is the current demand of dyestuff and [indiscernible] product [indiscernible] currently. And how we see [indiscernible] increase our exports of dyestuff, sir...

I think, for a short-term comment, dyestuff is still witnessing a little weaker demand mainly because of the European -- war in the Europe and U.S. inflation problem, so we don't see any immediate major increase in the demand coming in for dyestuff, but we are doing decent volumes. But at the same time, the overall basic chemicals and other [ input ] cycles have stabled a little bit, which is giving us a little comfortable working, manufacturing. So dyestuff, I think, will still take some time to increase in good double-digit growth.

Okay. So sir, for FY '24 and for FY '25, that could be flattish or a high single-digit growth, right, sir?

Yes, yes. FY '24, so going ahead to the second half, it can be flattish [ here ], but FY '25, I mean, it depends, really depends on how geopolitical -- what all happens in the world. It really depends on that, but I think, in 2 or 3 quarters, we should see some good improvement.

[Operator Instructions] The next question is from the line of [ Rahul Jain ], an individual investor.

Sir, can you shed some light on the PNCB, ONCB market in India versus the proportion of imports that you use in factory versus domestically manufactured?

So there is a good size of imports that happen in India. There are 3 other companies that produce PNCB, and their volumes are about 1.75 lakh tonnes per year. At the same time, there is also [ 50,000-plus ] imports that happen across India, so our -- at the same time -- I am only commenting about PNCB right now. Our total capacity is 60,000 tonnes-plus, but that includes other 4 products also. But the main product will be PNCB. So with the main product, our target is to penetrate into our existing customers. We also have a very solid customer base into pharma, into agrochemicals; and also replace some of the imports. So looking at our existing customer base, we have -- more than 85% of our volume is already -- I would say, is going to be sold in our existing customers. And we also have about 15% of captive consumption that will also play a key role. And plus then, there is a good export to -- replace exports is also a good opportunity.

The next question is from the line of Aditya Khetan from SMIFS Institutional.