Shree Pushkar Chemicals & Fertilisers Limited (SHREEPUSHK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day. And welcome to Shree Pushkar Chemicals & Fertilisers Limited Q3 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. This conference call may contain certain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. With that, I now hand the conference over to Mr. Punit Makharia, Chairman and Managing Director. Thank you, and over to you, sir.

Thank you very much. Good afternoon, everyone, and a very warm welcome to everyone present on the call. Along with me, I have Mr. Sengupta, our Associate Director; and Mr. Deepak Beriwala, our CFO and SGA, our Investor Relation Advisor. I hope you have received our investor presentation by now. For those who haven't, you can view the same on the stock exchange and our website. First of all, I will give a brief on the account business trends and Mr. Sengupta will take you through the financials thereafter. Friends, to start with, in order to reward all the shareholders of the company, our company has announced an interim dividend of 5% on the face value. Now coming to company's performance, first half of the fiscal year 2020 has been challenging for most of us due to prolonged slowdown in the economy. The actual growth across all the industries have been way below the expectation and Indian economy posted a weaker numbers. Coming to our industry of dyes intermediates and dyestuffs, which had been in limelight in the past couple of years due to environment clamp down situation in China saw its performance impacted for the first 9 months for the fiscal year 2020 on the back of the global slowdown in the textile industry. In these challenging times, our focus was twofolds: a, gain volumes, market share from our customers; b, cost optimization. Our volume-focus strategy led to growth of 8% compared to the last quarter on consolidated basis, whereas on a stand-alone basis, it grew by 13%. Dyes volume grew by 23%, showcasing our Dyecol brands strengthening its presence, both in export as well as well as domestic market. Dyes intermediates volume were flat, largely on account of enhanced captive consumption. This is in line of our strategy to captively consume dyes intermediates and focus on dyes business, making our Dyecol brand stronger and increase its revenue contribution from value-added products. Acid complex and others saw highest volume growth of 150%. Only our fertilizer division saw a volume impact of 6%. Our cost optimization initiatives helped us to increase our EBITDA, which grew by 9% on quarter-on-quarter basis, with marginal improvement by 70 bps. We continue to see our suppression in our price realization as the economic situation is yet to unwind itself and beyond growth trajectory. However, we believe it's a short-term phenomenon and the long-term prospects for the industry are quite promising. Now friends, quickly on the China current situation. As we all aware that China has been over this year one of the largest supplier for many of our chemicals. In the recent past, when the Chinese chemical industry has been severely impacted due to environmental issues, leading to shutdowns and slowdowns of various chemical manufacturing facilities in China. With the current outbreak of a big epidemic of coronavirus in China, we foresee there might be further disruption in the supply chain going ahead. For our dyes business, Chinese supply had to be more than 50% globally. We believe now Indian chemical companies may benefit from fall in China imports on a back of the current problem. The initial benefit of these of the Indian dyes intermediates and dyestuff industry player is expected to start coming from March 2020 onwards. As we have seen most of our products, the prices have started showing upward trends, but we believe majority of the benefit will come in the next fiscal year 2021. On our CapEx plan. Just wanted to say, despite the hiccups of the past, the future looks positive for our sector. And being a significant player in the space, we have announced the CapEx of INR 120 crores starts to capitalize on this growth. The planned CapEx will be entirely funded through internal accruals. CapEx of INR 75 crores in dyes intermediates segment is in advanced stage of obtaining EIA and MPCB clearance. The CapEx has commenced with the acquisition of a plot of a land. The sale expansion is expected to commence in FY '21. Till Q3 FY '20, company has already spent INR 41.13 crores out of its internal accruals. Within the final stage of acquiring Madhya Bharat Phosphates Pvt. Ltd, through NCLT with a total cost of INR 28 crores, including refurbishment of the plant, we are awaiting of the final order from NCLT, which is into very advanced stage. Company has also planned CapEx of INR 11 crores towards implementation of solar power plant at Tuljapur district, Osmanabad under "Open Access Scheme" of the government-based on the continued load of Unit 1 at MIDC, Lotte Purshuram. All the above project is progressing well. Now before handing over the call to Mr. Sengupta, just to sum up, amidst many changes, we feel our sector has ample great opportunity with the expected shift of demand of dyes and dyes intermediates from China to India, as now the companies are just relying on China. But opting for substational -- but opting for sustainable alternate options, and we are being one of the large player would benefit out of it. Our business concept is built on responsibility and long-term view considering both financial stability and reducing the environmental impact. An important point of our business has been fully backward integrated and 0 discharge player. Our commitment to our core company values and business philosophy inspire us to take on the challenges head on. Now I hand over the call to Mr. Sengupta for his financial highlights.

Thank you, Mr. Punit. Good afternoon, ladies and gentlemen. The consolidated results include financials of Kisan Phosphates as well. The consolidated performance, I will take first. Our total revenue for Q3 for the financial year '20, stood at about INR 85.6 crores, of which Kisan Phosphates revenue stood at INR 13.8 crores. Revenue contribution from export markets stood at INR 23.3 crores, whereas revenue from domestic market contributed to about INR 60.3 crores. EBITDA stood at about INR 14.9 crores with a margin of 17.4%. Profit after tax stood at INR 10 crores with a margin of 11.7%. Our segment-wise revenue breakup for Q3 in percentage terms says, dyestuff contributed 26%, dye intermediates 36%, fertilizers 29% and acid complex and others is 8%. Nine months performance that I talked about is the revenue for the 9 months stood at about INR 259.7 crores. This is on a consolidated basis, of which Kisan Phosphates revenue stood at INR 43.11 crores. Revenue contributed from exports stood at INR 59.66 crores, whereas revenue from domestic market contributed to INR 200.04 crores. The EBITDA stood at INR 39.5 crores for the 9 months of '20, with a margin of about 15.2%. Profit after tax stood at INR 24.5 crores in the 9 months with a margin of 9.4%. Our segment-wise revenue breakup for 9 months, the dyestuff contributed 23%, dyes intermediates 39%, fertilizers 31%, acid complex and other is 7%. With that, I would now open the floor for the question-and-answer session.

[Operator Instructions] The first question is from the line of Ayush B from Aequitas Investments.

Sir, I would like to firstly start with the impact of the China situation. So are we importing any raw materials from China currently?

Ayush, yes, we are importing certain raw materials from China, if I talk about, but that is mainly for our dyes business, because -- and now what you say about the China impact, yes, it's a very serious impact on the whole industry. And whole has become a very big epidemic. And we see, yes, it is going to make a big impact. If this issue is not resolved in China, at least, in the next couple of few weeks, then there's going to be a big impact. And obviously, there would be an impact on the business also on the dyes business also. If you ask me, we see on a very positive outlook. Because for producing the H Acid and Para Base, there is no requirement of any raw materials from China. All the raw materials are available indigenously or from other parts of the world.

Okay. But sir, what are the raw material that we are currently importing? And how much do they contribute to our overall raw material cost?

See, we are mainly importing from China is: a, that is beta naphthol. But again, beta naphthol is available in India also, in required -- this quantity. Apart from our dyes business, yes, we import cyanuric chloride, this J Acid, J Acid urea, orthanilic acid. These certain products in small quantities, we do import from China. And these kind of products are basically used for producing dyestuffs. And not all dyestuffs, certain particular dyestuffs, like reds and yellows. These kind of -- the products when we -- this produce in dyes business, then we require this kind of a certain raw material. These raw materials are mainly imported only from China. Our company is having a stocks of around 2 months -- 2 months as of now with us. Yes. So almost till April, we do have the stocks of these raw materials. Yes, we need to see what happens after that.

Okay. But do we import anything to produce Vinyl Sulphone?

No, no, no. See, for producing Vinyl Sulphone, it is aniline oil. It definitely comes from China, but it comes from other part of the world, and it is produced in-house in India also. So I don't think that aniline oil would have a much impact. And let me tell you, we are having aniline oil till May-mid. We already imported this aniline oil somewhere in the early period of January. Our company has already stocks till May-mid for aniline oil.

Okay. So -- but I just wanted to understand. So overall, the imports of raw materials from China, are they significant to our overall raw material cost, like, what percentage would it be?

See, as far as dyes intermediates, if you talk about, it is very nominal cost. We have other alternates also.

And for dyes, sir?

And as far as the dyes business is concerned and there are some -- these products, which are only -- whose raw materials are only imported from China that is also in colors, not in blacks.

On -- in another colors. But -- so are those significant for dyestuff?

Those are not dye significant, used for dyestuff, but yes, it is required also. Because only black doesn't makes the business. Along with blacks, we have to have the other combination of products also.

Correct. So now we have seen that both Vinyl Sulphone and H Acid prices have shot up significantly in the past few weeks. So -- and so have the dyes prices also increased? Or how is the situation in that stuff -- the dyestuff prices?

See, generally, we have been saying that the impact doesn't come immediately. But if you ask me, my opinion is that, maybe there may not be much impact in the month of February. Because whenever the prices goes very high, as we all know that as of now H Acid and Vinyl Sulphone prices have gone almost 40% to 50% high as it was in comparison with -- in January 2019. Dyes impact is expected any movement, probably somewhere in -- by the first week of March. Because, generally, it always takes a months' time to get the impact. Each and every dyes company dealer, distributor, everybody has generally a stock of almost 30 to 45 days. Now what is happening is that, that people are a bit reluctant to buy these intermediates at these kind of high prices. This will -- led into a big vacuum somewhere in March. Because what is going to happen -- see, you need to understand the whole business model. China was a very large supplier for dyestuffs to the globe. Now what was happening is that, the countries like Bangladesh, Pakistan, Vietnam, Turkey, all these companies were importing dyestuffs in a huge quantity from the country like China. Certain products in India also like disperse dyes, indigo dyes, this -- China was the only source of supply even to India also. Now there is almost a cut-off supply from the China somewhere in the month of January onwards. People are yet in a situation of evaluating that how it is going to react. And I personally feel that the -- few of the people are a bit confused, few of the people are a bit clear. The guys who are clear, they are importing. The guys who are a bit confused, they are just waiting hold-on and just watching the situation. If this situation continues for next 15 days, somewhere in March, such kind of a situation is going to come that, whereas it would be a big vacuum in terms of the stocks and inventories of dyestuffs. And that vacuum will impact heavily onto the prices because people have not sourced their requirement in January and February. So this is my opinion, Ayush, let's see how it behaves in -- after 15 days. We are keeping a very -- this very close watch on this Chinese epidemic.

Correct. So do we get an opportunity to export dyestuffs to other countries where China is not able to now, if this situation continues?

That opportunity is already in existing, but we are not encashing that opportunity as of now. Because in those opportunities, we are not getting an increased price in the dyestuffs. We are expecting a bit lower pricing. So we are just waiting and watching and we are ready for making the use of this kind of opportunity.

Correct. Okay. And sir, on Madhya Bharat and so, we were -- the final hearing was supposed to be in December, right? So why is it delayed now?

On 2nd of January, there was a hearing in Madhya Bharat case. And on 2nd of January, the verbal announcement by the NCLT judge was that the plan has been passed and order is awaited and is reserved. We are still awaiting the order in writing with us.

Oh. So it is -- the judgment is over, right, like, their approver, chief judge passed the order?

Yes, yes, yes. We are just awaiting now the written order from NCLT.

Okay. Okay. And sir, on Kisan Phosphates size, so this quarter has been a little muted compared to what we had expected. So what was the reason for that?

In Kisan -- hold on Ayush. In Q3 and this is -- Q2 in Kisan, there was a revenue of around INR 14.82 crores.

Right. So one thing, in the first 2 quarters, we have driven by more than 20%.

Sorry to interrupt, Mr. Ayush, maybe please request you to return to the queue for your follow-up questions, as we have several participants waiting in the queue for the turn?

Okay. Can I just complete this one question? Yes. So my question is, so in the first 2 quarters, we grew by more than 20%. But in this quarter, we have grown by 9%. So -- and overall, we had expected 20% growth for the year. So just wanted to understand the reason why it was -- there was a slowdown in this quarter?

Q1, if at all you take, it's about INR 14.49 crores was our sales, Q2 was INR 14.83 crores, and Q3 is INR 13.79 crores. It has lowered. So this is also because of various factors that -- you have this sales totally is from SSPs main, yes, there is a little bit of DCP, and there is also a little bit from the acid part of it. But that's not significant. What is significant is that there has been a slight dip

Very marginal one.

In October, there is no season also.

Season [ Indiscernible ]

And season comes post Diwali. Yes.

Ayush, season comes from post Diwali.

Okay, okay, okay. I'll get back in queue for more questions.

The next question is from the line of Chirag Dagli from HDFC Asset Management.

Sir, can I have the dye intermediate volumes for the third quarter?

Yes. Just a minute, I'll give it to you. Q3 dye intermediates, we have sold 1,195 tonnes.

And Q2, sir?

Q2...

'20?

I have the figures for half -- H1 was about 23.41 (sic) [2,341] tonnes that was H1, totally.

2-3-4-1 tonnes?

2-3-4-1 tonne was H1, that is, first quarter and second quarter together.

Fair point.

Now this contributes this time, it comes to about 53% of the capacity utilization. Now this also has a certain amount of captive consumption, which we have roughly about 498 tonnes, to be very precise, which is taking the total production to about 1,693 tonnes, which is roughly about 75%...

[indiscernible] per unit.

1,693...

Essentially, the 1,195 is what you sold outside, right sir?

Yes. 1,195, we sold outside. 498, we have consumed for the dye manufacturing. Then plus one major factor is there is that, our Unit 1 is under revamp. So there, we have lost significantly, roughly about 20% -- 20%, 25% of the overall situation. So that is also one fact, which has to be considered.

I understand. Sir, on -- if I look at last year, our average realization in intermediates was about INR 350. In the first quarter also, it was slightly lower than that. But the last 2 quarters, it has come down a lot. What exactly is happening? And while you've said that because of this Chinese condition, things will improve.

This is a fact. Basically, what is happening is that because of the overall subdued economic situation all the -- prices of all the goods have -- had a little bit of beating. So you will find that even dye intermediates as well as dyes, there has been a certain amount of depression in the prices.

Chirag bhai, plus also, I would like to add one more point into this, that when we talk about dyes intermediate average price realization, there are basically 3, 4 major products into that. And those products are ranging from INR 170 earlier, earlier, not in this quarter, earlier, INR 170 to almost INR 350 or -- over and above that.

INR 400.

Yes. Around the INR 400, because in the Q1 or Q2, I think, H Acid was somewhere close to INR 400. So that is why the average is around INR 350. Now those prices of H Acid and Para Base were extremely low in quarter 3. H Acid were itself almost around INR 350 and Para Base Vinyl Sulphone was in the range of INR 170-or-so. So [Foreign Language] then obviously, weighted average per kg is going to be below of the total intermediates.

Okay. Fair point, sir. And sir, similarly, can I have the numbers for volumes of dyestuffs as well?

Dyestuffs, we had a production of about 831 tonnes in Q3. And Q2, we had 673.

673? Okay. So here as well, on a Y-o-Y basis, prices have come down in dyestuffs?

Yes, yes, yes.

So basically, what Mr. Punit was saying is that, you'd have to consider that what is the product mix within the dye intermediates segment as a whole. Now there are -- if at all you talk in terms of where the prices are low, if at all you talk in terms of gamma acid or K Acid, they are quite high. So now once the volume suppose up -- real goes up, then obviously, the overall price realization will come down.

I understand, sir.

So this is one factor which has to be taken into consideration.

Fair point, sir. And sir, did you -- in your opening comments, you mentioned that of the INR 75 crore CapEx that you are undertaking, INR 41 crores has already been incurred?

Yes, yes.

Yes. INR 41.13 crores. See, basically, Chirag, with land has been acquired, construction is into the full swing. And majorly, all the machineries have been already ordered, paid advances. And part of the machinery have started coming in, the delivery. TOR is already [indiscernible]. And we are working fastly on that. We propose to start by trial production, somewhere maybe this Q2 of next year.

Q2 of next year. And what sort of asset turn should we expect, sir? When will the facility is fully up and running?

First year, if at all you take a pro rata basis, it should be around, say, at least about, say, 50% capacity utilization, which will be roughly about 1.2x to 1.5x the asset turnover.

And then thereafter, sir?

Thereafter, once the entire thing stabilizes, our market also start lifting up. Then we should be having an overall turnover of about 2.5x to about 3x the asset base.

Annually, we should add approximately INR 200 crores to the company, on the full utilization, once it is started.

And in terms of the ability to sell this incremental volume, Punit Ji, is there -- how are we thinking about the market demand?

Chirag bhai [Foreign Language] plus, let me tell you, [Foreign Language] then we see a good opportunity lying down the years. Because what we understand is that, this is a extremely big setback for the China. And this is going to create a big havoc. And we need to see the level of opportunities for our industry. As for selling of the products, the additional capacity is not at all a rocket science, Chirag bhai.

Fair point. And just the last bit, sir, this INR 11 crores solar power plant is not included in the INR 75 crores that we did?

No, no, no.

It is over that amount?

INR 120's crores total is INR 75 crores for Unit 1, INR 28 crores for -- sorry, INR 75 crores for Unit 5 and INR 28 crores for Madhya Bharat, and INR 11 for...

Solar. And INR 5 crores for revamp.

And INR 5 crores for revamp. This is a total of INR 120 crores.

And all of these should get consumed at all or all of these should be done by the first half of next year?

Yes.

Yes, yes, yes. But rather, if you talk about one by one, let us go for Madhya Bharat, first of all. Madhya Bharat, we are just expecting that order any moment, any moment. And we believe that the moment we get a order of Madhya Bharat, within 15 days, we should be able to start the commercial production of Madhya Bharat. I repeat within 15 days, we should be able to start the production of Madhya Bharat. We target to take opportunity from April 2020 onward for taking business of Madhya Bharat. Secondly, as far as Unit 5 is concerned, where there is a INR 75 crores CapEx, INR 41 crores has been already spent. See, about revamp of Unit 1 that is in advanced of completion. Fourth, it is about solar, that land, we have already identified. We have ordered it this contract to Sterling and Wilson. So I think what we say is that by Q2 of next financial year, we should be able to complete all these CapEx.

Next question is from the line of Dhavan Shah from ICICI Securities.

So I have a question on the dye intermediates capacity. You mentioned somewhere around 8,986 metric tonne of capacity. So that includes Unit 1 number as well, right?