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

Ladies and gentlemen, good day, and welcome to the Shree Pushkar Chemicals & Fertilisers Limited Q4 and FY '20 Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Punit Makharia, Chairman and Managing Director, Shree Pushkar Chemicals & Fertilisers Limited. Thank you, and over to you, sir.

Hello, friends. Good evening, and welcome to the quarter 4 and FY '20 earnings call of our company. I hope all of you and your family are keeping safe and sound. Joining me on this call is Mr. Sengupta, our Associate Director; and Mr. Deepak Beriwala, our CFO; and Pareto Capital team, our Investor Relations adviser. Friends, the financial year '20 was a very challenging year for all of us on various fronts. As I communicated to earlier to my -- this call, there was a demand slowdown in starting from second quarter and spanning throughout the year. This led to compression in the price realization, mainly in the dyes and dyes intermediates. Further, as you all know, in the last quarter of the year, the COVID pandemic hit the world. In the initial months, we had a demand shortage as the country started imposing restrictions and the export/import activities were also slow down. Our operations soon after we -- affected with the nationwide lockdown imposed in March end. All our manufacturing units were shut down from 24th of March 2020, though we partially started our fertilizer activities on 20th of April 2020 and operations slow -- were slow and only a limited pickup was there as it was faced mainly because of the demand shortage, labor shortage as well as the other issues relating to the supply chain management issues. Thus, overall performance was impacted during the year. In FY '20, revenue stood at INR 346 crores compared to INR 450 crores in FY '19. I would like to maintain here that the decline has mainly been due to the planned revamp of our manufacturing Unit 1 there was impact, our revenue was about INR 65 crores during this year. As communicated to you all before, the revamp was undertaken this year to improve efficiency and the system of our company. Now I'm happy to report that this unit revamp has been completed, and we will begin to see the fruits of this investment over the current financial year FY '21. If we keep a -- if we keep aside this nonoperating unit, the revenue from the operations were mainly impacted by 14% for FY '20 compared to FY '19. Friends, however, our fertilizer segment performed well during the year. Overall fertilizer production in India has increased during FY '20 after muted growth in the last fiscal year. There was improvement in the fertilizer demand due to good southwest monsoon and which resulted in higher sowing and added to increase in production. The Make in India mission and Self Reliant Initiative will further boost fertilizer demand as production increased and import reliance on the fertilizer is reduced. We saw a jump in our fertilizer business during the financial year. Fertilizer revenue, including revenue of Kisan Phosphate was up by 25% on the year FY '20. Now moving on to the updates on our planned CapEx of INR 110 crores. INR 5 crores Unit 1 revamp CapEx has been completed. We expect it to be contributing to our numbers this financial year, depending on the global demand because of the COVID situation. On the dye intermediate expansion, with a planned outlay of INR 75 crores, we have already incurred INR 52 crores of the total investments in FY '20 out of our internal accruals. We are in the advanced stage of obtaining EIA that is involvement impact assessment and MPCB clearances. The CapEx has commenced with the acquisition of a plot of land, the said expansion is completed to be commenced in the production in Q3 to Q4 in FY '21. This has been pushed a little further due to the prevailing lockdown situation because of the COVID-19. Now friends, on the Madhya Bharat Phosphates Pvt. Ltd front, I'm glad to report that we have completed the acquisition and are on track with initial production from Q1 FY '21. I'm happy to inform that we have started commercial production from 5th of June 2020. We have completed the entire process from acquisition to refurbishment of starting of the production in record time of 45 days despite the prevailing lockdown situation. In this quarter, we have sold 3,500 tonnes of SSP in Madhya Pradesh as of now. I'm proud of the process that are in place and that have enabled us to achieve this. Now let us talk about something about the COVID situation in the world. Friends, India is gaining major importance in world stage as people and companies moving away from China, this is an opportunity for India to emerge as a leading global chemical manufacturers, and Shree Pushkar is well poised to tap this opportunity. We are uniquely positioned as one of the few market players who are equipped in both forward and backward integration. Our process has strong quality controls, and we are proudly a zero-waste company. The strong quality control of our products in terms of accreditation of Blue Sign as a system partner, ZDHC contributor and GOTS that is a global organization textile standards help our company to enjoy and trust globally. We are working to strengthen our brand, both in the dyes as well as in the fertilizer segment. We are focusing on rationalization of our cost, improving our efficiencies and capture the growing opportunity. This is all from my side, friends. Now I would like to hand over the call to Mr. Sengupta for financial highlights of the company. Thank you. Over to Mr. Sengupta.

Thank you, Mr. Punit. Good evening, ladies and gentlemen. I will now take you through the consolidated performance of our company for the year ended 31st March 2020. Financial year '20 revenue stood at about INR 346 crores, which is down from INR 452 crores in the year -- in the preceding year, financial year '19. This, of course, includes that INR 65 crores revenue shortfall, which we had already anticipated and had declared right in the beginning for our Unit 1. So if I adjust this nonoperational unit, our revenue was lower by about 9%. This was mainly due to the compression in price realization through the year and the COVID impact during the last quarter. Our consolidated segment-wise revenue for FY '20 has been 39% from dye intermediates, 22% from dyestuffs, 36% from fertilizers including Kisan Phosphates as well, and acid complex and the remaining part was about 3%. The EBITDA for the year stood at about INR 53.57 crores, which is margin -- with a margin of about 14.5%. Profit after tax for financial year '20 was INR 36 crores and profit margin increased to 10.3% from 9% in the preceding year. So that's all from my side. I would like to open the floor for questions and answers, please. Thank you.

[Operator Instructions] The first question is from the line of [ Pratik Bora ], an investor.

Sir, first of all, my question is on the fertilizer business. In one of the slides of the presentation...

Can you be a bit loud, please?

Hello.

Yes, please be loud Pratik.

Yes, yes. So my first question is on the fertilizer business. On one of the slides, you did mention that the segment revenue expected for FY '21 is around INR 200 crores. For FY '21, which was INR 129 crore in FY '20?

Say again, Pratik, the question. I couldn't follow. Can you -- have you understood what's the first one? Patrik, you have to be a bit louder, my friend.

Hello?

Yes. Pratik, you have to be a bit louder. Your voice is a bit depressing.

My question is on Slide #19 of your presentation. The fertilizer business, it is mentioned that the segment revenue for fertilizer business was at INR 129 crore for FY '20, which is expected to spike up to INR 200 crores for this year, FY '21?

That's right.

So this is primarily because of closure of that acquisition of Madhya -- MBPL?

That's right.

Okay. And this is factoring in that -- the lockdown, the current situation. So like the run-rate has been on the INR 200 crore track for the first quarter...

See you have to add in 2 more issues into this point, Pratik. A, yes, you rightly said that it is the addition of the Madhya Bharat also because Madhya Bharat is the largest plant in our company for producing fertilizer. So a, it is because of the Madhya Bharat addition also. And b, if you see our FY '20 results compared to the FY '19 results, we have achieved a better growth in terms of the fertilizer also. To give you certain data, like in the year '18/'19, we have sold around 90,000 tonnes of fertilizers of only SSP in the financial year '18/'19 and in the year '19/'20, if you will see, we have sold around 120,000 tonnes of SSP. Now the addition would be of Madhya Bharat also. So that is why we have combined it together for -- going the turnover of INR 129 crores to INR 200 crores by FY '21.

And what could be the estimated margins?

If you see as a stand-alone basis, the Kisan has been doing an EBITDA of around -- just a second. Let me take out the figure.

Kisan EBITDA margin has been about 15.11%.

Yes. So we expect a similar kind of a margin would also continue in our fertilizer business, including Madhya Bharat also.

Thank you. One more thing I would like to add here is that the Madhya Bharat, the capacity of the plant is 1.5x of our existing 2 plants. Here, we have 1 lakh tonnes at our Lote Parshuram plant. We have 1 lakh tonnes at Kisan Phosphates. Madhya Bharat is 1.5 lakh tonnes.

[Operator Instructions] The next question is from the line of Ritika Gupta (sic) [ Ritika Garg ] from Aequitas Investments.

Sir, I wanted to know currently what is the demand outlook for the dyes and dye intermediates? What would be our volume number for all our products for FY '20 and raw material price trends?

You're talking about the last year, Ritika, or this current -- going year, you want to ask about this question?

I want to ask the demand outlook for the current year, like are we seeing any capacity going out of the system? Are we seeing demand picking up from exports? Or are we seeing subdued demand? How are we going to be impacted by the Indo-China export/import concerns?

Ritika, just out of a personal experience and I'm just sharing my personal opinion on this point. A, in this financial year, almost Q1 has completely gone out of the hand, due to the lockdown in the whole of the country. Over and above that, the labor have -- the labor issue has come to a very big impact onto the industries because almost at each and every plant, labor is not there. Apart from that, supply chain management is -- has been also impacted largely. This has been impacted to us also, to other companies also and even to our customers also as far as the India is concerned. If you talk about globally, as of now, this whole globe has also not opened for the business up till now. People have a bit -- this careful and bit scary in taking the further business also. And we all believe that this economy has impacted us to a very large extent, even to India, also and the other part of the world also. I personally see that at least this issue -- this depression issue in the business and in the economy may continue till at least quarter 2. So almost H1 is completely gone. And very honestly, it is difficult at this point of time to predict the special business of the dyes and dyes intermediate as of this now -- as of this point of time. Now coming to our company, being -- the Pushkar is a vertical company, Pushkar is a completely versatile company and into the backward forward integration also, fertilizer business has given a much better growth to the business as of now. And during the lockdown period also being an essential commodity, we have been permitted by the government. We have been permitted by the supply chain management and by the various RTOs also to continue our production, and we are able to retain our customers also. If you see in the lockdown period also from both the plants of Kisan Phosphate as well as from Pushkar also we have achieved a better sales, better production compared to the last year quarter 1 of '19 -- '20.

You're talking about fertilizers?

Overall, if you talk about the situation of Pushkar, like we did INR 347 crores of the business in last financial year. I personally believe that we should be -- and we will be able to maintain at least this figure, including the consolidation of Madhya Bharat. As far as the -- if your specific question is on the dyes intermediates and the dyestuffs, it is a bit difficult to comment at this early stage, Ritika. I believe that H1 is completely gone and further in addition to the same, because of this pandemic situation, there is a -- there's a huge vacuum into the supply also because most of the factories in China, now in India are practically closed from Jan 2020 till date because COVID was in China from Jan to almost till April. Now we see that China is back into the business to a very great extent. But now where in India we know it is, again, all the production activities are out of the business. And now looking at the China-India situation, it is a bit unpredictable. We are hearing many news, which are definitely through these unconfirmed sources. It is very difficult, but yes, there is a huge vacuum in supply also in this last 5, 6 months. So let us see how it behaves in the next few more months, then we will be able to have a much clear picture on this.

Okay. And could you give us the current prices of H Acid and Vinyl Sulfone?

See, H Acid is -- let me take you a bit before also, just giving the prices of -- as on this date. Somewhere in April or May, the prices of the H Acid was around INR 335, which has now traveled to INR 370 also as of now in the past 2 months. And as far as the Vinyl Sulfone is concerned, it was in the range of around INR 150 to INR 155 in April or May. Now it has come to a level of around INR 165 to INR 170 as of now. We see that there is a bit improvement into the prices. That is mainly because of the supply situation.

Okay. And any of our raw materials come from China?

As far as H Acid is concerned, nothing comes from China. And some products, yes, we import from China, but those products are available well in India also. Price could be an issue into that, but that's not a major challenge that has to be factored in coming times.

Okay. And what kind of demand do we see from the export market?

Again, coming to the same -- my reply would be the same Ritika, because still H1 in, I don't see any major -- this spike into the business. And once we are bit in a situation to open the lockdown, come on a business-as-usual situation then we see, but yes, Bangladesh has opened as well as our dye market is concerned, right? Some of the now Europe countries have also opened, but still we, India, are under lockdown as of now. So let's see, if this is not a -- this is not correct on my part to give any such figure, which I'm not yet confident as of now. I can share my views with you after almost a month or so on this subject.

Okay. And can you give us the volume numbers for FY '20?

Senguptaji, I believe you have the volume numbers in front of you.

Yes. Yes. In dye intermediates, totally, we sold about 4,545 tonnes, giving a year of INR 135.20 crores. Whereas dyes, we have sold 2,863 tonnes at a total price of INR 76.32 crores. Now here, I would like to say that there has been, to a certain extent, a compressor on the rates. Even though we compare the rates, whatever was there last year, that in '18, '19, the average rate for intermediates was roughly around 3.53 lakhs per tonne. Whereas in this year, it is about nearly 3 lakhs, 2.97 lakhs to be precise. Now of course, this depends upon the product mix also because you have K Acid, which is being sold at a much higher price. The H Acid is also higher price. VS is at a lower price. So if at all the product mix changes towards the cheaper end product, then probably the price will reduce. But on an average, there has been a reduction. Similarly, in your dyes also. But last year, we had got roughly about 2.97 lakhs per tonne as against this year, we have got about 2.67 lakhs per tonne. Now this has been mainly because of the economic situation, which prevails throughout the year. If at all, you remember, if at all you take into consideration what happened in Q1, we started with a very good note. But then question is that as soon as Q1 is over, then we found out that well, things were not all that pretty. And slowly, the prices have been coming down, the demand has been coming down. And that was -- the whole problem started from there. So in Q1, we had roughly a sale of about INR 77 crores, which is normally very high if at all you take on an average, we have about 18% of the sales of the year in this Q1. And slowly, it builds up. But -- and it builds up to the extent of about 31% to 32% in the fourth quarter. But in this year, there has been a depression, which is roughly around, say, we have done only about INR 67 crores -- INR 68 crores to be precise. So that is how the whole thing is. So there has been a delay. But then question is that the last quarter, of course, there were several factors. COVID was one of the factors because we lost nearly about 20 days or so. Because on an average if at all you see normally the Q4, we have a lot of larger sales. And then you have the dispatches being made during the last year. So suddenly, this was -- the lockdown came in, and we lost about 20 days. Otherwise, we would have probably done another about say INR 15 crores to INR 16 crores more. That is how the situation is.

Okay. And I have just one more question. Do we see any supply going out of the system?

Do we see any supply going out of the system?

Supply -- I didn't get you, please.

Any company is shutting down any of -- like the smaller players or anything shutting down, do we see that?

See Ritika, in this period, which is going on right now, it is difficult to say at this point of a time, but I believe that because of this heavy meltdown going on in the industry, any such companies, which is highly leveraged may have tough time. We can foresee -- and we can see that there would be few companies in terms of the dyestuffs also and in intermediates also and in fertilizer also, which could have some issues and struggling period for them. We might see that there could be some exits also. But to give any number, any specific details on this point of -- on this point is a bit difficult at this time.

Okay. And in SSP, who would be your competitor now?

SSP, the competitors, what we have as of now is Coromandel is an active player into the business. Then Rama is active player into the business, then other main big corporates who are getting and sold SSP through the small -- the supporting manufacturers on a toll manufacturing basis are also there. After acquisition of Madhya Bharat, we would be somewhere in the fourth -- the fourth position in India for the production of SSP.

[Operator Instructions] The next question is from the line of [ Sumit Parekh ] from [ Pinakin Advisors ].

First on this CapEx part. Are we looking to delay any part of our CapEx out of this INR 110 crores?

See, Sumit, out of INR 110 crores, around INR 28 crores is for Madhya Bharat, that has been already done and paid off from the internal accruals of the company. As I said in my speech, that we have already acquired and acquisition process has been completed, and the production has been also started into Madhya Bharat. So as the balance, INR 75 crores CapEx is concerned of the Unit 5, there we have already invested sum of around INR 52 crores from the internal accruals of the company. So spending of the balance amount and starting of the production of Unit 5. Though we had earlier said, and we had earlier planned that we would be starting the production of Unit 5 somewhere near Diwali. But now intentionally, we have delayed it from Q3 to Q4. The reason being is that we are looking forward to get this pandemic situation a bit relaxed and see how the global demand comes. I personally of a opinion that probably this year could be a bit meltdown period, right? But we should keep our guns ready and everything should be ready so that at least we can just enjoy the fruits of the next financial year. I see that the next financial year is going to be a bull run into the industry because after this recession and depression, ultimately, we have to believe into the business and look for a bright time.

Sir, the remaining part of the CapEx will be funded through inter-accruals, right?

100%. We are not taking any loans or any kind of equity dilution for this CapEx. Total, we are doing INR 110 crores of CapEx. Yes, we were earlier planning for solar also. But as of now, we have kept solar in a second stage. As of now, we are not thinking and not doing anything into the solar. But yes, out of INR 110 crores, almost INR 52 crores plus INR 28 crores. So that is around INR 80 crore of the funding has been already done in FY '20 this financial year. And balance also, we'd be doing from more internal accruals.

That's great to hear. Sir, second question on the Self Reliant Mission or this Aatm Nirbhar Bharat. So want your sense on how will this have the positive impact on our fertilizer and chemical business?

See, if you see, if there is sudden kind of imposement or some restriction from certain countries in terms of the imports into the India, which we have been hearing for the -- this for the past few days, then obviously, the demand into the domestic industry is going to be meet out from the Indian -- this industry, which is on Make in India concept. And as far as the SSP is concerned, if you see in the data also of Department of Fertilizer and Ministry of Agriculture also that the consumption of the fertilizer in India has gone up because the sowing -- because what was happening earlier is that farmers were not doing the sowing on the entire land. So most of their land was remaining uncultivated. Now the situation has come to like that, now that the farmers are cultivating most of their lands. So because of that, the consumption of the fertilizer has really gone up. And as far as the Single Super Phosphate is concerned, which is a phosphatic fertilizer is -- as of now is into huge demand.

Okay. So sir, can we expect if like international players who want to move or want to reduce the dependence on China for the raw material, so that can have a positive effect on our company?

We expect so Sumit, but it depends on other many factors also, which are not in our control, like the government policies and how the -- fast government announces their -- the packages for the foreign companies to come in into India. But let me tell you, India is a very great opportunity for those guys, subject to our government announces some kind of packages for inviting them to India. I believe that the companies who are -- is completely compliant in terms of the environment issues would have a great opportunity.

One more point I would like to add here is that even if anybody wants to start-up -- set up a manufacturing unit here, the licenses, getting clearances from the EIA, the MPCB and all that, that takes a very long time. Normally, you will see that for these licenses, and specifically the environmental clearance, which is there, that takes more than a year. So even if now with this situation, if anybody wants to do anything, then probably this production would come somewhere around 1.5- to 2-years vacant. So by that time, not only that our expansion would be over, but then we will be also having a plan for going in for our second phase of expansion.

Okay, and we will be in a position to take that -- any increase in the demand, right?

Yes, yes, yes. Very much.

Sir, and want your sense on the agri business outlook. On ground field for agri business for the last 3 months, sir, how it is?

The agriculture business, basically, what is that the government has announced this as a priority sector prior to industry. And therefore, even if all the other units are closed down, our fertilizer division and the cattle feed division also, that will be supplementing. They are doing very well. So this add another factor, which is there. Last year, there was a very erratic rainfall because these -- agriculture depends on -- quite a lot on the monsoon. So if the monsoon are proper. Now they have predicted that this would be about 102% of the long-term average. If that is so, then we should be getting very good production for the fertilizers.

The next question is from the line of Giriraj Daga from KM Visaria Family Trust.

Yes. Just a question, like, what was the VS and H Acid realization in quarter 4 and FY '20 average?

Can you say, please, again?

What was the realization of H Acid and Vinyl Sulfone in quarter 4 and FY '20?

See, quarter 4 realization was improved and better in comparison with the other quarters, Mr. Daga. The reason being is that during that time, China was under COVID. So most of the consumers in India, they were not able to get any kind of shipments from China. Due to that, there was a big sentimental and that issue, that the prices were much better in Q4 in comparison with the other quarters for the last financial year.

Okay. If you can give the number?

If you want me to ask -- number, I think the H Acid -- we have sold H Acid at about INR 500 also during that period. And before that, we have sold around INR 350 to INR 360 also.

So the average was INR 500 or it's more like a 1 or 2 shipment...

No, you asked about quarter 4. So I gave you above INR 500 was for the quarter 4.

Average, full quarter, right?

Sorry, not average. Certain transaction were at 5 -- were above INR 500 also. But average of quarter 4 -- we have with us as of now? Is it handy with us? Is it not handy -- this is not handy Mr. Daga, right now with us, but I think it should be somewhere in the range of around approximately INR 400 or so. Approximately.

Okay. And for the full year, it was about the INR 350.

Around INR 370, INR 380. This is just an approximate figure I'm giving it to you.

Okay. And what about Vinyl Sulfone?

Vinyl Sulfone was also in average around almost INR 220 or so in quarter 4.

Okay. And full year would be about INR 170, INR 180?

Almost like that, something like that. Or maybe a bit better than that, INR 185 to INR 190 or so.

INR 185 to INR 190, okay. In terms of our like target of INR 500 crores of dye revenue like what kind of prices we actually have kept in mind here for that calculation?

Please repeat, yes, this question, Mr. Daga.

So we have 5 -- given in PPT INR 500 crores of revenue target for dyes and dye intermediates.

Correct.

By FY '23. So my question is what kind of prices realization have you kept in the calculation there?

We are assuming the prices would be the same in a range of around INR 350 to INR 360, INR 365 for H Acid and also Vinyl Sulfone in a similar kind of range as of present level, which I've already said in my earlier -- this answer also. Secondly, we are coming out with a CapEx at Unit 5 also, there would be another CapEx. This is an another CapEx in terms of dyestuffs and intermediates. Those are products would be different, not only the H Acid or VS, there would be other -- some sulfur-based derivative chemistry also we are doing in Unit 5 CapEx plus some other intermediates also. So it will be -- this will not be only depending on the H Acid and Vinyl Sulfone. The calculation, what we are doing of INR 500 crores is a mix calculation for all the dyes and chemicals sector of our total company as if -- as a whole, which has almost 25, 30 products. And H and VS is one of the product out of that.

Okay. Last question, like we have mentioned about INR 75 crore of CapEx to expand capacity. This is for FY '21, I believe, right? Will we need to incur additional CapEx in FY '22 for this kind of targets? Or this will be suffice?

See as of now, we are totally focusing on the CapEx, which we are already -- we have taken into our hand, right? Out of that, Madhya Bharat, we've already completed, Unit 5, which will be completing in quarter 3 or maybe quarter 4. Post this, first of all, we would like to get some kind of a stability in the financial year '21, '22, where we achieve the total results, and we consolidate our business. Thereafter, though we have a additional plot of land as -- if you remember, we have declared in our earlier con-calls also about the Phase II. But that Phase II decision we'll be taking somewhere in next financial year, not at this point of time.

So like FY '22, we must be only going for the maintenance CapEx?

Can't say on this also very strongly, but let us see how the opportunities we get. But yes, we are fully ready for the growth.

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

Yes. So I wanted to ask on the working capital front, like what kind of challenges are you facing, while collecting like receivables from the customers. And like I have looked into the March cash balance is around INR 1 crores in the consolidated level. And I wanted to know like what is the current level of cash?

I think this point, Mr. Mehul, you should appreciate that in this pandemic situation also company is able to maintain its cash balance and rather not utilizing the bank working capital limits. What we have done Mehul is that we are -- we have become a bit strict on our cash flows, right? We have adopted some kind of a strategy, some kind of a planning, whereas in the collection of our receivables, we have become very strict. We have segregated our customers in tier a, tier b, tier c, that kind of a policy and strategy we have adapted. We believe that in this pandemic situation, we have to be very particular and very strict as far as our cash flows are -- is concerned. And I'm happy to say that in this pandemic situation also, company is -- as far as working capital is concerned, rather, it has reduced its working capital utilization in Q1 this financial year. We are still maintaining cash balances in our accounts. So we are a bit strong on our cash recoveries and payment receivables.

The next question is from the line of [ Forum Makin ] from Equitree Capital.

I have a few questions, and I'm sorry, if I'm repeating some of them. So sir, what's the current capacity utilization on dyes and intermediaries?