Bodal Chemicals Limited (524370) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Bodal Chemicals Limited Q4 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. 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. 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 Mr. Mayur Padhya will walk you through the operational and financial performance for the Q4 FY '24 and FY '24 full year. Industry highlights. Since last couple of months, we have been experiencing stability in the demand for our industry products. It seems destocking position has come to an end and gradual recovery, but at low speed is there. There is still uncertainty for end of war between Russia and Ukraine, but the industry has started living with the circumstances. The 2 major markets, the United States and Europe, has been still slow 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. As per the company's overview, we are India's largest integrated manufacturer of dyestuffs 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 have been able to hold on the leadership position. Coming straight to the operational performance. Overall business performance for FY '24 has been weak as the company's total revenue stood at INR 1,419 crores, a degrowth of 11%, though the company has achieved better production volume compared to previous year. The company has posted degrowth in revenue and margin due to the lower margin and lower realization across the chemical industry. In Q4 FY '24, during the Q4 FY '24 revenue as well as margin remain almost constant on a year-on-year basis. Company achieved INR 399 crores turnover during the Q4 FY '24, which is a 16% increase on a quarter-on-quarter basis. Average revenue from last 3 quarters was INR 340 crores. So Q4 FY '24 represents 17% improvement over average of last first 3 quarters of this year. This gives clear sign of recovery for the company. Management expects to sustain the recovery. Coming to the Dye Intermediates. At present, Dye Intermediates like H acid, vinyl sulphone pricing has been stable, giving a chance for recovery. For Q4 FY '24, total revenue from Dye Intermediates stood at INR 452 crores. H acid and vinyl sulphone prices were near INR 432 and INR 224 per kilogram in Q4. Being an integrated dyestuff manufacturer, we produced major dye intermediates products, and over 40% of these intermediates capacity is capitally consumed, resulting in a cost advantage for our dyestuff products. The balance capacity of dye intermediates is served in both domestic as well as global markets. Many intermediates manufacturers in India are still under pressure due to slow demand. However, Q4 FY '24 sale revenue from Dye Intermediates was 45% and 15% improvement on a year-on-year basis, which you can expect to improve in coming dates. Coming to our Dyestuffs. End application industries like textile, leather, paper, 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. Revenue for the dyestuff for FY '24 stood at INR 471 crores. Coming to Basic Chemicals. About 50% of our basic chemical is captively used for dye intermediates. Our overall Basic Chemicals contributed around INR 121 crores in FY' 24, which has declined by 30% due to lower raw material price of sulfur and price of finished goods like sulfuric acid and its derivatives. Coming to the Chlor Alkali business. Chlor Alkali business has reported degrowth in revenue as well as steep declining margins due to adverse market conditions of caustic chlorine industry. In FY '24, post upgradation in CapEx despite the growth in volume by 17% due to substantial price reduction, Chlor Alkali revenue stood at INR 268 crores, a degrowth of 18%. Coming to the Benzene Derivatives. Our Saykha Greenfield project has commenced its commercial operation of Benzene Downstream products on 29 December 2023 by starting production of MCB. The company has started production of other products like PNCB C and ONCB on 16 March 2024. These being specialty products will require about 1/4 to stabilize. Sen-er Boya, our Turkish company, is located at Turkey. And Turkey as a country is experiencing hyper inflation. During the quarter Q4 FY '24, on implementation of AS29, there is a INR 16 crore loss and the sale is already part of declared results. Chinese and Indonesian subsidiary and performance is satisfactory. Further, the Board of Directors have decided to permanently stop production activities at the manufacturing facilities of Unit 1, Unit 3, Unit 4, located at Vatva GIDC, Ahmedabad, Gujarat. The company has manufacturing facilities of dye intermediates and dyestuffs at Unit 1, dye intermediates at Unit 3 and dyestuffs at Unit 4. There are small and very old plants constructed between 1989 to 1993. Due to technical changes, these plants are no longer economical viable. Operating capacity has been very low at these plants and for the last several years. Further, the company has already increased capacity by doing debottlenecking for dye intermediates in Unit 6 and Unit 7, hence, it will not result in any major production loss for the company. Overall, efficiency will improve due to the reduction of the fixed overheads. Furthermore, company will dismantle and safe manufacturing facilities, and it will lead to a reduction of less than 3% in the total tonnage production capacity of the company. We have been moving up the value chain and working relentlessly towards diversifying the business from our core dyestuffs and dye intermediates business to other specialty chemical products like benzene derivatives. Manufacturers and exporters in India are having a challenging time managing the overhead cost. Over the years, chemical industry has seen a transformation. Long-term story of India remains intact, and the chemical industry is poised to grow from here on. However, we expect overall demand to remain grim for 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 Q4 FY '24 is as follows: total revenue for Q4 FY '24 stood at INR 397 crores. EBITDA stood at INR 39 crores in Q4 FY '24. Net profit for quarter stood at INR 4.9 crores. Our stand-alone performance for FY '24 is as follows: total revenue for FY '24 stood at INR 1,402 crores; EBITDA stood at INR 123 crores in FY '24; net profit for the year stood at INR 8 crores. Our consolidated performance for Q4 FY '24 is as follows: total revenue stood at INR 399 crores for Q4 FY '24; EBIDTA stood at INR 31 crores for Q4 FY '24 with a margin of 7.7%; net profit for the quarter stood at INR 2 crores for Q4 FY '24. Our consolidated performance for FY '24 are as follows: total revenue stood at INR 1,419 crores, this includes export of 72% and domestic sales of 28%; EBITDA stood at INR 119 crores, a degrowth of 18%; net profit for the year stood at INR 6 crores against INR 38 crores of FY '23. FY '24 performance for key subsidiaries are as follows: Sen-er Boya, our Turkey subsidiary, has underperformed due to post effect of Turkey-Syria earthquake. The country is experiencing hyperinflation. And on implementation of hyperinflation accounting standard 29, there is a loss of INR 16 crores due to that. Chinese and Indonesian subsidiary outperformed satisfactory. Segment-wise performance on a consolidated basis for FY '24 are as follows: Dyestuffs revenue stood at INR 471 crores; Dye Intermediates revenue stood at INR 452 crores; Basic Chemicals revenue stood at INR 121 crores; Chlor Alkali revenue stood at INR 268 crores. Total production volume on a stand-alone basis for FY '24 are as follows: Dyestuffs reported 14,209 metric tonnes; dye intermediates reported 22,426 metric tonnes; Basic Chemical stood at 2 lakh 12,526 metric tonnes; Chlor Alkali stood at 79,027 metric tonnes. With this, I conclude the presentation and open the floor for further discussion.

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

Sir, first question is on to the Sen-er Boya. So what is the business of Sen-er Boya, like it is into the vinyl sulphone, I believe? And this loss of INR 16 crores in this quarter, is this a recoverable loss? Or how this loss has been like with the implementation of some accounting rules as this -- so this one-off loss has been taken?

Yes. Sen-er Boya's business is to distribute dyestuffs, what we produce in India. We export dyestuff to Sen-er Boya, Turkey, and then they distribute it to nearby country as well as locally. As far as business is concerned, yes, it has suffered due to CBR earthquake. And the players are still recovering. So turnover was very low of about INR 9 crores for the quarter. And as country is experiencing hyperinflation since last about 2-plus years, local government has announced in November '23 that every company has to prepare their accounts implementing accounting standard 29, that is for hyperinflation. So by implementing that accounting standard, there is one item of loss of INR 16 crores. But there are some positives also of about INR 8 crores, INR 9 crores into deferred tax asset kind of things. So overall, Sen-er Boya has performed of around INR 4.5 crores loss for the quarter. And this loss is a book entry only in a way. So there is no question of recovery or something like that. Hope I have answered your question.

Okay. So this INR 16 crore loss is again offset by INR 29 crores, which has been booked into the effect?

Yes.

Okay. Okay. Sir, onto the benzene derivatives. Sir, is it possible to share the volume figures like what sort of volume figures? And what is the utilization of NCB, PNCB and ONCB?

So the current utilization levels are very low due to a couple of international technologies that are involved. Our first plant is completely ready to go and already been commercialized. We've also sold the material. And also in the second plant is also we were able to produce the finished goods. But because of the 2 international technologies plus multiple stage of displation, we are still synchronizing the whole complex. And due to that, we are operating at very low volumes at the moment. And we also have some capital consumption. So I think for another 1 to 2 months, we'll not be selling much in the market. So I think after 1.5, 2 months, we will be coming to the market full fledge with utilization of at least 60%, 70%. So in the current quarter, we will not get much effect on top and bottom line from this business.

Got it. Sir, on the commentary side into your initial opening remarks, you had mentioned that -- so management is now witnessing recovery. So can we believe like, sir, this -- so this fiscal, FY '24, most of the negatives might have been priced in? So whether it is your lowering of caustic soda prices and other like dyestuffs, dye intermediate production, which is like hovering at lower utilization level. So you feel that this recovery is sustainable and, consequently, we can expect some quarter-on-quarter good numbers from the company from here on?

So there has been a recovery since last 2 to 3 months, I would say. And I definitely feel that this recovery is sustainable. Your next point was whether we would see improved quarters on a quarter-on-quarter basis. It's difficult to tell right now. But I think maintaining how we did in the Q4 and also the current scenario, how it is going, how the raw materials are placed and how the demand scenario is happening for our finished goods, I think going ahead, we should be able to maintain what we did in Q4 and also what is going on at the moment. Immediate quick recovery or improvement of margins may not happen. But I think gradually, within a few quarters with the addition of new business and economical scenario should also recover at some point and get better. So I think going ahead, yes, we can definitely expect better numbers, but not really quickly.

Okay. Good. Sir, any -- for FY '25, we sort of a top line or EBITDA guidance growth, if you can share?

As far as top line is concerned, we have done about INR 400 crores in last quarter. So if we assume that run rate, then we can definitely cross 1,600, plus whatever this benzene downstream can give us. So nearly 1,600 to 1,800 can be a range where we will target to close our business. As far as EBITDA is concerned, there should be good recovery from this level. Reason behind, there are several things we are doing. We have closed down certain units, which will help us to reduce our fixed overhead. There are certain government incenting that we are eligible in Punjab that should be available to the company that are in the range of about INR 20 crores per annum. So because of election process that has deferred, so we are expecting within 2, 3 months that will be approved by the state government, and that will start accruing to our cash flow as well as revenue is concerned. At the same time, as Ankit bhai has mentioned, the things are becoming stable for the company. So what we have ended at 120 EBITDA level in last year, there should be at least improvement of INR 50 crores, INR 60 crores, considering all this level. Now it's difficult for us to give a clear sign what benzene downstream will perform, and that will be also clear within 3, 4 months how that performed. But overall, yes, we are expecting a good EBITDA number. If I give broader range, then it can be in the range of INR 160 crore to INR 200 crore or something like that.

And sir, this EBITDA figure, which you're mentioning, this is including the other income?

Yes, including other income.

Okay. Sir, my last question is on to the production loss. As you mentioned in your opening remarks that the old plants, which are not economically viable, so some -- so to the tune of 3% of production loss to overall sales volume can be incurred. So this will be done in FY '25 only?

Yes. In current year itself, so that has become effective, we can say. And as mentioned by Ankit bhai in his speech that these are very old plants and they were not contributing as such to the company's performance. So that will not have much impact as far as the production level or sales level of the company.

But we are not looking at refurbishment for that plant?

No. See, these plants are located in the Vatva industrial area and nearby residence has already been there. So as said, there was not a longer future for this chemical plant into -- within the city. So this step was otherwise also to be taken within a year or 2.

The next question is from the line of Pradeep Rawat from Yogya Capital.

So I have a couple of questions. First, regarding the domestic industry structure, so what is the total market demand for dye intermediates and dyestuff? And how much of it is imported?

These numbers vary because the imports are not regular. Last 10 years or so, it's been -- there's a lot of volatility that has been happening. And so annually, if I say intermediate, then annually, it's about more than 1 lakh tonnes is the domestic production and demand scenario. And there are about 30,000 to 40,000 tonnes of imports on an average basis, if you look at last 5- or 10-year's data that is the size of the dye intermediate business here in India.

And what about dyestuff?

Dyestuffs, the numbers are a little more. Dyestuff, I would say it's about double. I mean there are a few different categories of dyestuffs. There's dispersed dyes and then there is a textile dyes reactive as said, there are also liquid dyes for packaging. And also, I mean, put together, it can easily cross about 3 lakh to 4 lakh tonnes a year. Some of them are pioneered from India and some are not disbursed by which is used in a huge way in India, but majority of the production is taking place in China. Whereas reactive, which is the application is cotton textile, there India and China share equal markets. So it depends. But yes, the overall the market is around 4 lakh tonnes a year.

Okay. Okay. And with respect to our competition, who are our competitors? And are they expanding capacity? Or you have witnessed some capacity that -- in the industry that are shutting down?

Overall, Dye Intermediates and Dyestuffs business competes with China, but both have more of its own captive usage of the production, like we are very, very well less exports to China. Similarly, they don't have a exposed to India in a very big way. We only export some intermediates and that's also not in very huge volumes. So the competitors are -- domestically, there are companies like Colourtex. There are companies like Jai Chemicals, these are a couple of the largest players. There are a few players in Far East countries, Taiwan and South Korea. They are also of good sizable players and they also compete with Indian players when it comes to exporting to Bangladesh or exporting to Turkey or Italy. So India and China don't compete directly too much, only for some intermediates. Otherwise, for dyestuff, India has competition from Far East countries.

Yes. And with regard to capacity expansion and shutdown in domestic market?

Domestically, there has been -- I don't think there are any shutdowns other than some old capacities being stopped and may be replaced in the newer units, bigger units or integrated units. So what the trend in last 7, 8 years has been many companies, so we did have a backward and forward integration in mid 2000. And because of the Chinese environmental issues around 2013, '14, '15, there was a shortage of some intermediates because of which few Dyestuff players have also backward integrated themselves into setting up a couple of the mean dye intermediates. So that is the latest that has happened in the Indian industry. Dyestuffs, a couple of percent annual growth industry. There is not much a capacity addition from any major players. But in intermediates, there are some new plants that have come up in the last 2 years. And -- but also at the same time, Chinese imports have also been quite less. But yes, there are new players, integrated players.

Okay. My last question was regarding the capacity that we are adding into benzene downstream. So what would be the CapEx outlay for this expansion? And what would be the annual revenue from this CapEx?

So it is a new greenfield project that we recently started. Being a greenfield project, there were a lot of non-plant expenses like infrastructure expense, land, et cetera. So the total investment other than the land and everything, it's around -- it's less than INR 400 crores -- so it's around INR 390 crores that has been the investment. And the expected turnover at 85%, 90% utilization is around INR 400 crores.

Okay. So payback time for this expansion would be somewhere around?

For this business, these products traditionally have been 17% to 18% EBITDA levels. So we are expecting a payback of around 5 years. But at the same time, because this is a greenfield project, there are a lot of CapEx items which were extraordinary, which probably comes in only the first phase. So in going ahead in future, when we expand more into this benzene derivatives, add more capacities or add more integrated products, I think those will benefit from brownfield projects and those expenses will not be there in future.

The next question is from the line of Aditya Sen from RoboCapital.

Sir, volumes guidance we got, but do we see any recovery industry-wide in the realization of dyestuff and intermediates?

Recovery in the Dyestuff and Dye Intermediates like the best -- 2 positive things that have happened in the last 3 months. One is the stability of majority of the raw materials because there was a lot of volatility and most of the raw materials are now in the lower cycle or in a viable range. And second is our volume growing to about 80%. The demand has been a little better, that also saves some of the overhead costs, et cetera. So it adds a little bit to the margins. So it is definitely a positive scenario that we have experienced in the last 2 to 3 months. And even today, I think a similar scenario is going on. Going ahead, I think we don't see any -- a very challenging picture.

Okay. So you answered about volume, but what about realization? Will it trend upwards going forward in this year?

Realization increased a little bit 3 months before, 2 to 3 months before. Since then, it has been flat.

Okay. All right. And any guidance or any understanding on this one for this year?

So for this year, as per the last quarter of FY '24, we did almost INR 400 crores of top line. So we should do minimum of around INR 1,700 crores because the new business will also add on. So around INR 1,700 crores to INR 1,800 crores of top line, we should be able to do. And I think EBITDA level, we can be around 10% to 12%.

[Operator Instructions] The next questions is from the line of [indiscernible], an individual investor.

What about our company debt clearance and when our company will become debt-free, good dividend-paying company, sir? That's my first question. And my second question is from last 5 years, Bodal Chemicals shareholders got nothing but only loss. So are you planning for a buyback? And what about our assets are showing more than our market capitalization? These are my questions.

Company has a [ template ] and the balance sheet debt is about INR 538 crores. And we are going to pay every year INR 100 crores to INR 120 crores. So we should become debt-free within 5 years. And as far as dividend is concerned, once the company starts creating good revenue and profit, company has been paying continuously dividend since last 7, 8 years. So once again, it will start paying the dividend. See, company do not have any surplus fund because whatever surplus that is going to generate in the system, that will be utilized for the debt repayment. So there is no plan of buyback of share in the near future. Anything else?

It is showing like our assets are more than our market capital in state market. Because of that, the investors are not happy or investors are bearish with our company.