Ganesh Benzoplast Limited (500153) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Ganesh Benzoplast Investor Call to discuss recent corporate developments. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. [ Karan Palwal ] from [ Denapital]. Thank you, and over to you, [ Karen].

Yes. Thanks, [ Dan ]. Good afternoon, everyone. On behalf of [ DAM Capital Advisors ], I'd like to thank the management of Ganesh Benzoplast for the opportunity, and I welcome you all to the call. From the management, we have with us Mr. Rishi Pilani, Chairman and Managing Director. We will begin the call with the opening remarks from the management, post which we will open the floor for Q&A. Thank you, and over to you, sir.

Thank you so much, [ Karen ]. Good afternoon, everybody, and welcome again to the investor call for the recent corporate development. This is Rishi Pilani here. I want to start off by evacuating all the shareholders development in the company, which has led to what we believe is unlocking of the valuation of the hard work and the support of each and every one of you over the past so many years. To begin with, I would like to just run through a few numbers so that there is clarity on the deal and what exactly is the management planning to do. Number one, as everybody must be already knowing that this deal results in the divestment of the liquid time farm business at [indiscernible] Goa and Cochin, along with the [ J-Link ] rail business connecting [ Don]. With this, the company will get INR 1,154 crores as a compensation or a valuation for the businesses for these 3 businesses. And apart from this, there is a consideration that the company shall receive based on the exit valuation of the investors. The breakup of the INR 1,154 crores is expected as follows. We expect before January of 2027, we should receive approximately INR 500 crores. Before March of 2027, we should receive approximately INR 300 crores and which makes it approximately INR 800 crores, and the balance INR 354 crores will receive in various tranches over the next 18, 12 to 18 months. Out of the INR 500 crores that the company will get in and about January of 2027, we will be paying taxes and whatever the limits we have currently with the banks will be closed. That allocation will be approximately INR 190 crores to INR 200 crores. Apart from this, the company will do a share buyback and a special dividend, the combined allocation towards which as of now planned is approximately INR 200 crores. So out of the INR 500 crores, almost 80% will be utilized in this manner. The balance INR 100 crores will be used to expand its existing chemical business and to increase the EPC book. The same logic will be used for all the further installments that whenever we get those installments, while we have a fully laid out plan on how to increase the company's profitability and utilization of funds, which I'll be detailing now. So all the further installments that we receive out of this money will be used for either the company expansion or giving back to shareholders as we see and the Board feels is deemed fit. Now coming to the future plans of the company to utilize these funds. So as you know that the chemical business of the company has been on a massive uptick. This -- we have increased the profitability by almost 1,000% over the last 2 years. And currently, what we are planning to do is expand the existing plants to increase our production capabilities. We have renewed -- be pleased to know we have recently achieved certification for our key products, which is [ benzoic acid], sodium [ benzoic ] in United Kingdom and Euro book. This is a significant milestone because as you know, this certifies that the company is very, very well running in terms of its production systems, quality controls. And this is demonstrated by the fact that we have already received orders of over 600 tonnes for export to these regions, and this is expected to grow to almost 2,000 tonnes for yield. In addition, we are looking at tie-ups. We are already in advanced discussion with various technology and license providers to develop certain niche agro and other product derivatives for which we will be setting up our manufacturing capabilities where the potential is to go from current -- to double the current turnover of the chemical plants and also double the current profitability of the plant. So over the next 4 to 5 years, this is the plan to take the current profitability of the chemical division, which is this year was INR 18 crores to approximately INR 60 crores to INR 70 crores. So increase it by 5x. Now coming to EPC. As you are already aware, that this is a great endorsement for your company that fund of the pedigree of KKR has awarded EPC of almost INR 300 crores to your company, which again demonstrates that the technical capability, the project execution capabilities of your company are no longer in doubt. Apart from this, we have already established ourselves as a massive EPC provider in terms of doing projects for companies like an [ Reliance, Jindal, Gujarat Alkalies and Chemicals]. I'll just highlight a few of the projects for [indiscernible], which is [ Gujat, Elkeles and Chemicals ] and [ Nalco ] JV, we have laid a 22-kilometer stainless steel pipeline in the hedge. For [ Ana Olo], which is a part of AAA, one of the biggest solvent extractors of the world, we've set up their entire plant tank farm, which consisted of almost 62x. For [ Alana], which is also a very big agro group, we made their entire terminal, including dock lines, their firefighting systems. And the first time we built 30-meter high tanks for them. For [indiscernible], you know that Mumbai has a new airport. Again, the shareholders will be very happy to know that the fuel tanks for that airport has been constructed by your company. We are doing very specialized products for tank products for a in their [ Mundra Petrochemicals Limited ] site, where we are -- we have built gas holders for [ VCM]. These are very, very specialized tanks, where the tanks actually rise up and down. They are not stationary, with the gas flowing in and out. Apart from probably 40 or 50 other tanks we are doing. And based on that project, they have also awarded us to build 2 largest of its kind asset gas holders for them in NPL. Apart from this, from [ Jindal], we have the contract to build their entire chemical tank farm. We are doing the pipeline and structural work for [ Reliance ] in their first of its kind carbon black fiber plant coming up in [ Hazira]. So the company has demonstrated and executed its capabilities in EPC very well and based on which strength we have obtained the INR 300 crore EPC order from KKR. Now if you look at it, so this year, our EPC book will be close to about with the KKR order close to INR 500 crores. In the coming years, the total expected EPC works only in the petroleum-related sector, I'm not even -- though we can do in all sectors, I'm limiting myself to the petroleum tankage, pipeline, greenfield, brownfield projects. Over the next 5 years, we are expecting that EPC works, what is projected is INR 70,000 crores. Let us assume that what we are targeting is that even though our targets are bigger on a conservative side, even if we manage to obtain only 5% of this and 95% somebody else takes, we get a PAT of almost INR 150 crores. So combined with the chemical PAT of about INR 60 crores and the EPC PAT about INR 150 crores, you are looking at your company going in the next 3 to 4, 5 years to about INR 210 crores of PAT, which is currently at 70%. So the plan is to give back to the shareholders and also make sure that the company expands, grows exponentially. So this is what the management plan -- so this -- with this, I have explained what and also what we plan to do, and I thank you again for so much support that you have given to the company and all its good and bad times. And now I would like to open the forum for any questions that anyone would like to have.

[Operator Instructions] Our first question comes from the line of [ Dipesh Sancheti ] with Mania Finance.

Yes. So first of all, congratulations on this deal. You are getting money, which is much more than a capital -- I mean your market cap as well as the debt. And you already cleared our intentions that approximately 40%, 45% going to give back to our shareholders. That is good. So just wanted to understand, although you mentioned about INR 800 crores, what about the time line for the next [indiscernible] around sales in growth because I think I missed that?

So I mentioned it. Is that your only question?

No. I have a couple of more questions. So I can ask them also.

Yes, please.

Yes. So also regarding -- you mentioned that you'll keep about INR 100 crores for business development in Chemicals and also will be similar things for the other tranches of money that is INR 300 crores again. Now when you're doing EPC work, is generally a lot of capital intensive also, right? We'll be needing a lot of loans. So I don't understand once you're saying that you're going to repay the debt. And then again for the EPC will require money. So where will that money come from? This is my second question. And if you can just elaborate right now as of today, what is going to be the profit which is -- I mean, according to FY '26, what is the profit which we are having right now after selling off the business? And in maybe FY '27 and FY '28, you already laid out this 3-year program. Just wanted to understand if you can break it according to FY '27 also. That's just -- I mean, for the next 2, 3 quarters.

Okay. So first question is about the time line. So as I explained, the next tranche of INR 354 crores is divided over the next 12 to 18 months with certain milestone payments, depending on we get the port approvals for the transfers and everything. So it is dependent on those and certain events like tanks and all getting commissioned. So that is spread over the next 12 to 18 months. Your second question was about the working capital -- so see, the [ TC ] requires. So when I said we are going to pay off the existing debt. So right now, also, we don't -- we have just bank-guaranteed in all these lines, which we use further EPC project, which will be replaced temporarily with the funds because you need the [ NOC ] from the banks for the transfer. And then again, we reinstate those lines. But as regards to working capital for the EPC, I believe that the company has sufficient money after as the tranches come in and as we grow the business, to service the working capital requirements. And on considering on the fact that we just need some banking lines for bank guarantees and everything that need to be given, which we can reinstate -- the third question is yours is that you would like a quarter takeup. So Mr. Amar Kabra will step here.

Yes. So early financial '26 [indiscernible] and June published and [indiscernible] there is really state of numbers for [indiscernible]. But one thing you have noted that chemical business has done some exceptional profit in June quarter and which, as Rishi explained, this will continue to show an upward trend on the -- so obviously, I can't release the future numbers for financial year '26, '27, but is this it will be in the line of the June quarter numbers only. So you can consider that.

How much -- yes. How much of the chemical business profitability and sales in June quarter?

The quarter in June quarter, chemical has done a turnover of almost INR 60 crores. And against that, there was a [indiscernible]. So at that rate, you can assume that it will continue. So in the existing capacity, we are going to cost INR 20 crores this year for chemicals and LST has the regular numbers.

Right. Just one more question, if I can add. Yes, we had done a JV with [ WC ] and confidence spectrum. Now then [indiscernible], it didn't work out. But that port itself will also be part of the sale or the -- I mean, that we'll be having that --

You mean the land?

The land, yes.

Yes, that will be part.

So that is also being sold, right?

Yes, it is part of one lease. So we don't own any land. It's all leased from the ports.

Right. So even -- so we are exiting the entire business as such, right?

[indiscernible].

So what are you retaining? Is there any other thing which I have [indiscernible]?

We have a small shareholding in a terminal in [ Kandla], which we continue to retain.

Okay. But will it be very significant? Or are we planning normal --

No, it will not be very significant.

Our next question comes from the line of [ Romil Savaliya ] with [ CJ Sha Family Office ].

Two questions on obviously on a chemical business. So could you just have some light on what is the changes happening right now why the growth has not been there in last 6 years, in terms of top line margin, et cetera, on a chemical business. A similar question on our [ EPC ] business as well that what is actually changing and new ideas something we have done in this business?

Thank you, [ Roman]. So number one, I'm not sure if I'm missing something, but did you say that there has been no change in the chemicals business in the last 6 years? Was that your first question?

So the way I -- there has been a slight top line growth and I think [indiscernible].

Actually, see, as you are aware, since last 2 years, there was a substantial change in the Chemical segment profitability. We are not looking after the top line because ultimately, with the top line of similar numbers, if you are getting a [indiscernible] INR 5 crores and the top line of [indiscernible] number, you're getting profit of INR 20 crores. So what is matter to me is the profitability, not the turnover. So just for -- if I was going to say just for a lesser margin and who is [ quantum ] of the turnover, so that doesn't make a different point. I [indiscernible] only up to the profitability. So in 2023, '24, you can see, there was a profit of this INR 5 crores. And from thereafter, it shows a profit of INR 15 crores, INR 16 crores this year in the first quarter is it shows a profit of INR 6 crores. So every year, from last 3 years, there was substantial change in the profitability of the chemicals even though turnover might be the similar or slightly lower or upper that is the case. So that is your first -- that is the first answer. The second question you had was about the growth in the EPC business, right? Is that -- am I correct?

Yes. Yes, sir.

So [ Roman ] till now, the way we were using the EPC business, and I have mentioned this in all my previous conference calls also, it was a very strategic sector to increase our customer confidence and the customer retainability in the [ LST ] business. But now we will take -- we have already taken a shift that we are going to now with the based on like the projects I listed out to you the experience now we have obtained in this, the confidence that we've obtained in of all the top houses in India and now internationally. We are going to focus on growing this as an independent division on its own, and we are seeing a massive potential in this. As I've already outlined, we are expecting that in the next 4 to 5 years, if all goes well, we should be able to derive a PAT of almost INR 150 crores from this division itself.

Okay. Okay, sir. Just a small thing. This -- is there any balance CapEx which we're about to incur on a [ JNPT ] for like [ KKR ] will incur or --

No, we will incur any balance CapEx now.

Okay. Okay. In this milestone just payment you mentioned this INR 350 crores, so one, you mentioned that whenever the fourth license will get transferred and all the stuff, is there any other milestone is already listed in the deal or something?

Yes. Yes. So there are a couple of milestones. There are milestones is divided into 2 parts. Obviously, when you get the port licenses to transfer, of course. And also, there is a commissioning of tanks that's going on. So we have the EPC for that. So there is a linkage to that also.

Our next question comes from the line of [ Nishita ] with [ Sapphire ] Capital.

Yes. Good. So I just wanted to understand the rationale we had this divestment because from what I have seen, the LSG business was a higher profitability business for us, and it was also growing only, and we were doing quite a lot of CapEx also in it. So why are we doing this divestment now and just the rationale behind it?

So [ Nishit], thank you for your question. Basic rationale is that, like I explained, that you have a business that is going to give you some profitability. And also there is a potential for growth and profitability. I agree with you. But there is also what we look at is 2, 3 factors. One -- number 1 is, what are the cost increments in this business that are projected over the next 2, 3 years. What is the market movement in this business over the next 2, 3 years? And ultimately, that what is the value that the whoever is coming forward with is willing to give for your business. And if you -- if as management and board, we feel that the value that is coming out of the deal is a good value that adds not only to the company, but to all the shareholders, then it becomes a [ fiduciary ] duty to at least bring that deal in front of the shareholders and present it to them and take their opinion on it.

Okay. Okay. Understood. And my next question is on -- so in the chemical business, what is the current capacity? And like you said that in the next 4, 5 years will reach around INR 70 crores of PAT. So to reach that PAT, are we going to invent capacity expansion if you have that brand can like lay out the plan?

So for the current capacity that we have for the current products, Already, we are going to incur CapEx to double that capacity. So like I explained now, we have new markets opened up to the [ REACH ] certification and also we are -- and already we've got more than 600 tonnes of orders from these customers. So we need to service these orders. So number one is for the existing capacity, we are already looking at doubling it. And we are also, as I explained in my speech, that there are certain agro products that we are in advanced talks with the license providers and the technology providers to and these products are derivatives of downstream products of the products that we are already making. So it makes sense that if we have good visibility on the customer base. We are also discussing some back-to-back buyback arrangements with the customers for these products. So if all that falls in line, then yes, that's the CapEx we'll do, but those will be new manufacturing facilities.

Okay. So like what is the capacity that we have in terms business?

The current capacity is approximately for each plant is approximately 1,000 tonnes a month.

And how many --

We have 2 plants, approximately 1,000 tonnes a month.

Okay. And not [indiscernible] double [ 204,000 ] tonnes, right? So the capacity will be [ 4,000 ].

So right now, the doubling is happening only in one of the plants where we've taken the REIT certification.

Okay. So when will that be commissioned, the capacity --

That is expected to complete in July of 2027.

Okay. Okay. And what is the current utilization in our plants?

Close to about 70% to 80%.

Okay. Understood. And my next question is on margin. So like in some past we've been doing around 11%, 12% of EBITDA margins in chemicals business is somewhat wrong. So are we going to sustain these margins? Is there any chance of improvement in this?

See, we are always working to improve our margins. And I think last 2 years is a very good demonstration of that fact as Amar Kabra just explained. So while, again, I would not like to speculate on future numbers. But definitely, our attempt would be to not only sustain these margins, but to also improve on them.

Okay. Okay. Understood. And I just wanted to clarify one thing. So you mentioned that we did INR 6 crores of PAT in Q1 and that like at the end of FY '27, we can reach to around INR 20 crores PAT in the chemical and EPC business together. Is that right?

Yes. So this is for chemicals. So INR 6 crores at is for chemicals for this year. And yes, for this quarter, June quarter, and obviously, our attempt is to make sure that we continue on this run rate at least for this year.

Right. So INR 60 crores [indiscernible] is just in chemical. It's not like [indiscernible]?

No, no.

So what --

PCC project, they have like a cyclic run I will get you the exact breakdown for this quarter. If you can contact us maybe after this call, for exact number for this quarter, I can give you that.

Our next question comes from the line of [ Ravish Patel ] with Patel Investments.

Are you sharing the strategic vision as well as well as the decision to share 40% to 45% of initial money with shareholders. I do want to understand in terms of special dividend and share buyback [indiscernible] do for the next tranche of INR 200 crores, which is expected before March 2027 as well or just the initial INR [indiscernible] crore?

This is for the initial. But for the other tranches, what is going to happen is the company is not only going to receive this 350, but also company is still generating its own path, right? That money also sits with the company. It doesn't go out. So once we have a more visibility on how much capital deployment we need in our expansion, how fast they happen then we will definitely sit with the Board and take a decision as to what we can do up. I mean if we have seen any opportunity to reward the shareholders back, we will take it.

Now with that 5-year target can you also specifically highlight for FY '28 because by that time, I think the port business will be out and we'll have top line and PAT coming from chemical [indiscernible], what's your view in terms of especially FY '28? Are we going to be closer to the current or a part of the current PAT levels?

See, [ Bhavesh], again, I do not want to go into future numbers. But what I can tell you is what we expect to achieve what we expect to achieve is at least 15% to 20% growth year-over-year. That is what we are targeting. So if today, we are at [ 70], our hope will be and our attempt would be that at least we grow this number by 15% to 20% by FY '28.

Perfect. And can you expect of the working capital requirement as well as likely debt equity ratio that you see?

So like I said that the company will have, as of now, what our calculations show that as of now, we will not require any per se debt from the banks but we will require limits because if you have to give a bank guiding or something, you need limits, right? So you need limits against it, margins are given and all. But as of now, what we are hoping to do is to keep any debt if required to bear minimum. And the first attempt is to use the money that we are getting from the deal to do all these expansions and EPC projects increments. This would be our first attempt. So to answer your question that I would not expect your company to take massive debts in the future.

Our next question comes from the line of [ Sara ] with [ Mangala].

Yes. So all my questions have been answered. So just one question on like we are pivoting from an LSP business to now a chemical and an EPC company. So any plans of getting into -- again into LST in future, do you see value there? Or there is some noncompete clause with KKR that you won't now enter into [indiscernible]?

So number one, your question. Yes, we have a noncompete, which is a very, very standard clause in deals like these. So though the [ Kamla ] small equity that we have, which is insignificant, but that is a [indiscernible]. But yes, we have a noncompete intent. As of now, our plan is to be in the EPC, chemical and those related industries. And as of now, there is no plan to come back to LSTs in the near future.

Okay. And in the right, all the companies are set testing because of the oil prices. So do you see oil stays at $100, then is it possible that your margins will go down from here if in case the crude stays high?

So sort of while you are absolutely right that we are petroleum-based raw materials. So crude fluctuations do affect us, but we try to pass on our fluctuations to our customers as much as possible and as you must have seen that in June quarter, your company has performed quite well, whether all these fluctuations have happened through that quarter. But I cannot commit, I cannot speculate that no margins will ever be hit on how crude behaves suddenly. But we have, I believe, enough systems in place to sustain any reasonable fluctuations.

Okay. Okay. And one last question. [indiscernible] will come in January '27? So that's what we are expecting. So buyback would be announced somewhere close to January. If in case you get person, which is how we could --

Yes. So obviously, the first tranche and all other tranches depend on regulatory rates port approval, only one port approval and obviously, shareholder approval. But the moment we get that money then we have the definite visibility of that money, we should announce the buyback.

Our next question comes from the line of [ Pratik Kothari ] with [indiscernible].

Sir, firstly, congratulations on the transaction. Sir, actually, I joined the call a little late. What I understand is roughly 40% to 45% of the overall transaction value, we are going to return back to the shareholders. Is that a correct understanding?

So [ Pratik], I'll reiterate. So in the first tranche, we are expecting about INR 500 crores.

200 is it?