Bodal Chemicals Limited (524370) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Bodal Chemicals Limited Q3 and 9 month of FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ankit S. Patel. Thank you, and over to you, Mr. Patel.

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. I hope everyone had an opportunity to go through the financial results and investor presentation, which has 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. As per the 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. Certainly for end of -- uncertainty about the end of the war between Russia and Ukraine further deaccelerated the demand scenario of chemical industry. The 2 major markets, the United States and the Europe have been slowed due to multiple headwinds from rising inflation to uncertain geopolitical scenarios. Slowdown in China impacting the domestic demand in China, resulting in excess volumes originating from China. Most aggressive interest rate in U.S. causing financial conditions to tighten and recessionary trends continue impacting the demand. Industry expects gradual but slow recovery from here. As per the company overview, 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 dyestuff and dye intermediates and hold a meaningful market share in the world. Coming to the operational performance. During the Q3 FY '24, revenue grew by 6% due to overall quantity gain, but margin remained constant. Though there was about 1 month annual shutdown of sulfur products division during the quarter for boiler inspection, et cetera, the company has achieved 3% growth on a quarter-on-quarter basis. In revenue from operation is due to marginal improvement in demand for the quarter. This gives confidence that worst is over. During 9-month FY '24, turnover is lower due to lower prices of raw material as well as finished goods. Total revenue of 9-month FY '24 stood at INR 1,020 crores, a degrowth of 14% on a year-on-year basis. Coming to the Dye Intermediate business. On positive side, in 9 month FY '24, total revenue from dye intermediates stood at INR 307 crores, has reported growth of 19% on a yearly basis, mainly on account of improved volume. H acid and vinyl sulfone prices were near INR 435 for H acid and INR 224 for vinyl sulfone in Q3 FY '24. Volume has improved. However, margins 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 dyestuffs. 10% improvement in quantity produced in dyestuff on a quarter-on-quarter basis is due to some improvement in the demand. Revenue contribution from dyestuff stood at INR 352 crores for the 9-month FY '24. It is a degrowth of 20% on year-on-year basis. End application industries like textiles, leather, paper, other dyestuff consuming industries have not performed well during the last few quarters. Coming to our Basic Chemicals division. About 50% of our basic chemicals are captively used for dye intermediates. In this division, there was about 1 month annual shutdown of sulfur products division during the quarter for boiler inspection, et cetera. The company has achieved volume growth by 9% on a year-on-year basis and revenue stood at INR 87 crores. Coming to chlor alkali business. Post upgradation CapEx, the chlor alkali business has performed reasonably well in terms of production, achieved 25% growth in volume in 9-month of FY '24 compared to the previous year. However, due to adverse market condition of caustic-chlorine industry, revenues stood at INR 201 crores and has reported a degrowth of 18% for the 9 months. This is due to a substantial reduction in price, both domestic and in international markets. Coming to the benzene derivatives. As highlighted in the earlier call, our main goal is to replace imports and capture business in the pharma and agrochemical markets. Currently, it is a bit slow in those spaces, where PNCB and ONCB are consumed. Recently on 29 December 2023, the company has successfully commenced the production of benzene downstream products at Saykha, Gujarat. This plant will generate further growth in revenue from diversified products portfolio with its installed capacity of 63,000 tonnes per annum. These being specialty chemicals will take time to stabilize, hence, we do not expect meaningful contribution from it in the current year. The company from next year onwards expecting optimum capacity utilization and anticipating additional revenue of around INR 320 crores on a gradual basis. In spite of global headwinds in the chemical industry, all foreign subsidiaries have contributed, say, some profit during the quarter. In a medium- to long-term view, these subsidiaries will bring meaningful business. However, in the 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 intermediate business to other specialty chemical products like benzene derivatives. We foresee demand for caustic soda to remain healthy from FMCG, textile and paper industries. Since very few players have a presence in North India, we 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, cost, integration and cost cutting that will help 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 Q3 FY '24 is as follows: Total revenue for Q3 FY '24 stood at INR 342 crores, EBITDA stood at INR 28 crores in Q3 FY '24. Net profit for the quarter stood at INR 72 lakhs. Our stand-alone performance for 9-month FY '24 is as follows: Total revenue for 9-month FY '24 stood at INR 1,005 crores. EBITDA stood at INR 84 crores. Net profit for the quarter stood at INR 3 crores. Our consolidated performance for Q3 FY '24 is as follows: Total revenue stood at INR 343 crores. EBITDA stood at INR 29 crores with a margin of INR 8.3 crores. Net profit for the quarter stood at INR 98 lakhs for Q3 FY '24. Our consolidated performance for 9-month FY '24 are as follows: Total revenue stood at INR 1,020 crores for 9-month FY '24, against INR 1,192 crores for FY '23 -- 9-month FY '23. This includes export of 29% and domestic sale of 71%. EBITDA stood at INR 89 crores in 9-month FY '24, a degrowth of 22%. Net profit for 9-month FY '24 stood at INR 4.4 crores against INR 35 crores for 9 months FY '23. Division-wise performance on a consolidated basis for the 9-month FY '24 are as follows: Dyestuff revenue stood at INR 353 crores. Dye intermediate revenue stood at INR 307 crores. Basic chemical revenue stood at INR 87 crores. Chlor alkali revenue stood at INR 201 crores. Total production volume on a stand-alone basis for 9-month FY '24 are as follows: Dyestuff reported 10,545 metric tonnes. Dye intermediate reported 16,009 metric tonnes. Basic Chemical stood at 1,53,295 metric tonnes. Chlor alkali stood at 58,910 metric tonnes. With this, I conclude the presentation and open the floor for further discussion as well as question-and-answer.

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

Sir, just a couple of questions. Sir, although the caustic soda business -- so we had reported a decent volume growth on quarter-on-quarter basis. But sir, why is it that prices of caustic soda like -- so what is the price band like currently caustic soda? It is consolidated at the lower end. And why this growth in volumes, isn't translating into the bottom line growth?

So compared to last year or last few quarters, caustic soda prices are at almost 2-year bottom, I would say. And since last 8 months, the ECU realizations have been lower than the previous few quarters. So meanwhile, when the prices increased a couple of times in the last 2 years, the reasons where there were shortages in the international market, mainly due to gas cut to Europe from Russia and all. So there were some imbalance in the global trade of caustic soda and that resulted in some extraordinary demand and price increase in the caustic soda. But now since last 8 months, the markets have been quite flat and the realizations also have been quite flat. So we are operating at almost 80% utilization. We still have a room to improve to about 90% to 94% utilization. That should happen in the next 3 to 4 months. So going ahead, even at this basic normal prices, our margins can still be a little better. And it is a cyclical commodity. So whenever the prices are good, we are going to benefit in good numbers.

Okay. And sir, like we all know that like all the caustic soda units are generally situated in Gujarat only because of the availability of salt. So seeing that freight cost has also like, across the country, it is going up. So transporting salt from Gujarat to your place at Punjab, is that also like eating up the margin for caustic soda?

No. Actually speaking, our caustic soda business is doing better than even some of the competitors here in Gujarat. The reason is that it is a regional business. So no Gujarat supplier, manufacturer is selling to UP or NCR or Punjab or Haryana area, not a single kg. We have started this business, acquired this business now almost 3 years back, and there has not been a single kg that was supplied from Gujarat to that area to our customers. In that same way, we don't supply all the way down to Gujarat because the freight is very high. The product cost is around INR 30, INR 35 per kg, where the freight is around INR 5 per kg. So because it is a big cost, it is not viable. So traditionally, even in our observation in the last 3 years, yes, you are right that salt in Gujarat is around INR 1.5 to INR 1.75 per kg where the same salt we take it by rack, by -- in a train, so it is costing us around INR 3,000 -- INR 3. So it is higher. But again, the finished good prices of caustic soda is also higher by minimum INR 2 to INR 3 on an average. So it compensates for the -- because it is not only us, but it is also 3 more plants, in fact, 4 more plants. There's 1 plant in UP of Grasim Industries there's another plant in Punjab, another plant in Northern Rajasthan and another plant in Central Rajasthan. These all 5 plants cater to the North Indian market. So I would say that the margins are similar to the Gujarat players, I would say.

So sir, this caustic soda price, so like any trend like if you would like to share? So prices have bottomed out or there is a chance that it might go up or like for the next 6 months, again, we are witnessing stable prices only at these levels?

Going ahead, there are no signs of any great time to come, I feel, at least for next 2, 3 months. There are no signs of any extraordinary demand that can come globally, which can end in a higher demand of caustic soda overall. And because it's mostly catering to the domestic demand, all Indian players, 20% goes into textile, about 20% in alumina and then agrochemicals, pharmaceuticals, chemicals and some miscellaneous industries. So overall, it's not a -- there is also some imports. So in the Western region, especially in Mumbai, last 2, 3 months, we have been observing regular imports that is coming from the Middle East. So that is another problem. Whenever there is a little room to increase the prices in Gujarat area, up to INR 35, INR 37 levels, there is an import that comes in at around INR 33, INR 34 levels. So that has been happening again since 2, 3 months. So I think global slowdown is affecting and I think going ahead, it will remain flat.

Got it, sir. Got it. Sir, onto the dyestuff side. Sir, already the industry is not in a very good shape. Plus, sir, when we look at the competitors, like one of the competitor, so that is Shree Pushkar. So they are also expanding into the dyestuff side. Like they're setting up some new greenfield part for manufacturing some of the dyestuff. So like anyways the industry is not performing, plus competitive intensity is set to go up. So what is the strategy of Bodal? Like how will we counter this?

Shree Pushkar has been present in dyestuff since, I think, more than 5 years now, and they may be setting up more capacities. But if I talk about the dyestuff industry from India, there are many players. It's not very limited number of players. And we -- as most integrated, we definitely have the edge of the lowest cost. And us being present since now 20 years, we also have a great customer base, and all these subsidiaries are also supporting us, Turkey and China and Indonesia. So we do have a very strong model. We have a very strong product basket. Also, we are taking, within the organization, some measures where we can cut down on the cost. Originally, we have -- including our older units, we have many smaller units, which we have -- strategically, we have increased capacities in the bigger units, and we are planning to stop some of the older units, which is going to -- which is already bringing our cost down. So to tackle this slowdown in overall business, we are working on cost-cutting measures, and it is already yielding good results for us.

But sir, when we look at the performance, like -- so the performance like for the last 8 to 12 quarters is continuously that's going down. Even from the margin side, like some 10%, 11% margins for the last 2 years, now it is at 7%. And on to the bottom line so like the net profit, sir, we were earlier making at least around INR 20 crores to INR 30 crores of profit. Now so, sir, we are standing at only INR 1 crores to INR 2 crores, sir. Sir, being the largest integrated manufacturing company present into wide spectrum of end user industry, sir like the performance is deteriorating, sir, like on quarter-on-quarter basis. Any sense that you would like to give, how things will change from here on?

So last 6 quarters have definitely been affected in a major way. Yes, you are right, the margins have come down from 12% to 7-odd percent. Net profit margins have come down to around INR 1 crore or INR 2 crores or INR 3 crores quarterly, you're right. So like I said, the Ukraine war, even again the tensions in the Israel area, the post-COVID, destocking issue, there are many reasons that affected us. Also Chinese imports, a few months back, were very, very aggressive in the intermediate space. Caustic industry has been volatile. So there are many reasons why we have gone through this. But the encouraging sign for us is that our volumes are back. We feel that the destocking which especially matters in the international part of the business that we do, destocking has really been happening last 4 to 5 quarters. And now I think the international normal pipeline volumes are there in the international pipelines of supplies. And I think that should result in some improved volumes. That should result in some better demand than the last 6 quarters. We have already been observing this. I think our December and January numbers are definitely better than the previous 10 to 15 months. So it is definitely showing in the volumes part. Another reason that hit us badly was because of the Ukraine war, many of the basic chemicals -- petrochemical prices are increased a lot. So when that happened, many of the -- our -- most of our raw materials prices were increased, and we went through that phase for more than, I would say, 10, 12 months. So that also now most of the raw materials have been bottomed out. Most of the raw materials today are in the lower range. So that is also supporting us well. The volumes are supporting us well. Yes, the demand is not the best. We don't see the demand coming in a very aggressive way anytime soon, but it is at least better than the last few quarters. And also this new diversified benzene derivatives business that is starting for us, we are also hoping to add more top and bottom line from there as well.

Got it. Sir, just 1 last question, sir, on to that Punjab unit incentives, so when that will start to flow, from which quarter?

It is not certain, but we are expecting from the next quarter, it should be available to us. But since it's a government matter, we can't claim confidently. But yes, process has gone to reasonably conclusive level.

Okay. And sir, what would be that quantum, sir, per quarter?

Per quarter, it can be INR 5 crores to INR 6 crores. And earlier period -- rather from the period when we started the production, that is November '22 to till date, about INR 20 crores, INR 22 crores has already been accrued that we have not yet accounted for in our books. So that will also be available.

[Operator Instructions] Next question is from the line of [ Anupam Jain ], who is a professional investor.

Sir, what is your weighted average cost of debt you have?

Weighted average debt cost presently is about 8.5%.

And incrementally, whenever this renewal will happen, is it expected to be happened at this rate only or due to rating downgrade, is it likely to inch up?

It can jump by 0.5% because of the rating downgrade, but not more than that.

And when you are expecting a renewal of this almost?

See, renewal is at a different level for different banks. So over a period of, say, 6-month, it can increase to 9% to 9.5%.

Okay. So 50 to 100 basis points, almost, depending?

Yes. Yes.

This is like in the short-term and the long-term, both ways?

Both the ways. Yes.

And what is the gross debt and net debt that we have currently?

Currently, INR 550 crores is our term debt and about INR 325 crores is our short-term working capital debt.

Okay. INR 850-something crores? And that is net, inclusive of all the cash and everything that we have?

Net will be about INR 800 crores.

INR 800 crores? Okay. Are we looking for any noncore sale assets to reduce this debt currently?

Yes, we are reviewing, but looking to the present scenario, chemical industry, we are not certain by when we will able to realize that. So there are certain assets we have identified, but by when it will realize, it is difficult to say at present.

Okay. So can I get the details of the actual and the quantum of it?

See, we have certain assets in Vatva, Ahmedabad. Valuation can be around INR 100 crores. And as such, there is no longer future of this industry in this area because nearby residents has already come. So that is available for us to sell.

So it is a land with a factory in Ahmedabad?

Yes. Yes.