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

Ladies and gentlemen, good day, and welcome to the Shree Pushkar Chemicals & Fertilisers Limited Q1 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Punit Makharia, Chairman and Managing Director, Shree Pushkar Chemicals & Fertilisers Limited. Thank you, and over to you, sir. Over to you, Mr. Makharia. Mr. Punit Makharia, you may please go ahead.

Shall I start?

Yes, please.

Good evening, friends, and welcome to quarter first FY '21 earnings call of our company. I hope all of you and your families are keeping safe. Joining me on this call is Mr. Sengupta, our Associate Director; Mr. Deepak Beriwala, our CFO; and Pareto Capital team, our Investor Relations adviser. This quarter has seen a major impact of COVID-19 pandemic as our operations were halted due to the lockdown measures imposed by the government. All our manufacturing units were closed for a considerable period during this quarter. The entire manufacturing activities were shut down since 20th of March 2020. The fertilizer units were opened by mid-May. However, due to lack of contract workers and production activities could not be started at the full capacity. The Dyes & Dyes Intermediates division commenced operation at a low scale only in June 2020. However, I'm glad to report that situation has improved since then, and we are witnessing a better second quarter. We're expecting to reach pre-COVID levels and return operations to normalcy by Q3, Q4 of this year, if it all goes well. Friends, at this point, I would like to mention that our presence in the fertilizer business is helping to tide over the uncertainties. Our fertilizer segment performed well during the quarter. The performance of the Kisan Phosphates, our subsidiary company, has been commendable even during these transaction times and continue to grow. The revenue in Kisan Phosphates stood at INR 19.2 crores from INR 11.4 crores in quarter 1 of last year, up by 69%. EBITDA stood at INR 2.1 crore with EBITDA margin of 11%. Overall, fertilizer production in India continues to grow. We have seen volumes improvement in these months. Driven by the healthy demand, primarily on account of an early start of the sowing, along with the timely arrival of monsoon, the fertilizer industry has witnessed a spurt in sales volume across phosphatic and nonphosphatic fertilizers. Further, the Make In India mission and self-reliant initiative will continue to boost fertilizer demand as production is increased and production reliance on the fertilizer is reduced. Friends, moving on to our updates on our CapEx plans of INR 110 crores. Further to our last con call, the Unit 1 revamp was completely last quarter. We expect it to contribute our numbers and see operational efficiencies in this fiscal year depending on global demands. On the dye intermediates expansion, we have planned a capital expansion of INR 75 crores. We have already invested -- incurred INR 52 crores of the total out of this in the last fiscal year. The said expansion is expected to be commissioned starting from Q4 till end of Q1 FY '22. On the Madhya Bharat front, we have completed the acquisition in the last quarter, and we have commenced production of this company from the quarter in limited capacity due to lockdown and supply chain restrictions. We are expecting this division to start contributing to our fertilizer sales in the coming quarters. Finally, let's discuss the post-COVID outlook. India is going -- India is gaining major importance in the world stage as people and companies continue to move away from China. This is an opportunity for India to emerge as a leading global chemical manufacturer and Shree Pushkar is well positioned to tap this opportunity. We are uniquely placed 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 the accreditation of Blue Sign as a system partner, ZDHC contributor, and GOTS, the Global Organization Textile Standards, help our company enjoy the trust globally. We are working towards the strengthening of our brands, both in dyes as well as fertilizer segment. We are focusing on rationalization of our cost, improving our efficiencies and capture the growing opportunities. Friends, this is all from my side. Now I hand over the call to Mr. Sengupta for the financial highlights of the company. Thank you. Over to Mr. Sengupta.

Thank you, Mr. Punit. A very good evening to you all, ladies and gentlemen. I will now take you through the consolidated performance of our company for the quarter ended June 30, 2020. The Q1 FY '21 consolidated revenue stood at INR 63.8 crores, lower by 31% as compared to the corresponding period of last year. Though the operational days were limited, the performance of the fertilizer division, mainly of the SSP has been unprecedented. The dyes and intermediates division brought in lower revenue on account of various factors such as fall in demand, compression in the prices, limited supply chain facilities and the impact due to migrant workers. Our consolidated segment wise revenue breakup for Q1 FY '21 is as follows: dyes and intermediates was 20%; dyestuff has been about 14%; fertilizers, including Kisan, were about 61%; acid complex, cattle feed and others took about balance 5%. The EBITDA stood at INR 3.1 crores with a margin of 4.9% for Q1 FY '21. Profit after tax for the Q1 was at INR 1 crore. Profit margin was about 1.6%. This is all from my side. Now we'll open the floor for questions and answers. Thank you.

[Operator Instructions] We take the first question from the line of [ Suraj Shrivastav ], individual investor.

Hello, sir? Am I audible?

Yes, [ Mr. Suraj ].

Sir, what is the current availability of labor workforce? And...

[ Suraj ], presently, we are fighting with this major issue. As of now, the labor is a very major problem right now. I hope most of the industries would be facing as we are also facing. Because the labors what -- who have been working at the plant has been already -- the migrant labors have already gone back to their native towns. But slowly and gradually, they are returning back. Only the logistic issues are there because the train availability and the frequency of the trains for this coming back is too less. And since there is a quarantine period in Maharashtra because Maharashtra is the highest impact state across the country. So yes, we are facing a lot of problems. We have been facing a lot of problems. And we hope that by September 2020 we should be back on to the track. Most of the problem in terms of the labor has been already resolved by us by -- a very tough time it was because of the labor. But yes, now we are coming back on to the track. And by end of September 2020, we believe that this problem would have been resolved totally.

All right, sir. Okay. If I had to give a percentage number, what would be the labor workforce percentage right now before going to the peak over in September. Right now, what would be the labor workforce?

You're asking the workforce number?

Like say around 80% to -- 60% to 70%, 80% to 90%. What percentage are you guys working with?

Efficiency you're asking?

Yes, efficiency.

Okay. See, right now, fertilizer plants are doing just quite well. We even achieved 85% production capacity in the fertilizers also. What we did is that, most of the plants, whereas we faced shortage of the labor, so we put the -- we have given our focus to mainly because of the fertilizer because fertilizer was declared as an essential commodity. All the government restrictions were lifted into the fertilizer in terms of the logistics, labor and other day-to-day issues also. So what we did, [ Suraj ], was that the labors from the other plants we diverted to fertilizer. And other plants were hardly running at a capacity of -- on an average, if I talk about quarter 1, it was hardly 15% of the capacity. Now we are back on almost 60% of the capacity in terms of the other operations as far as the labor is concerned.

All right. Sir. Okay. Next question would be, what is the CapEx for this year going to be? And how is it going to be funded?

What would be the CapEx?

Yes, sir. I think, I missed on the first half when you were explaining it.

Okay. In the last year, we had already invested INR 52 crores of the CapEx in Unit 5, as we mentioned on our -- this opening remark. And in quarter 1, we have spent almost close to INR 2.5 crores to INR 3 crores further onto this CapEx against Unit 5. So total, it would be around INR 55 crores to INR 56 crores of total investment in terms of Unit 5. As far as the Madhya Bharat is concerned, the honorable court announced the judgment on 5th of March, and that judgment was delivered to us on 16th of April because of the lockdown immediately on 20th of March. And thereafter from 17th of April to 6th of June, we made the entire payment to the COC of Madhya Bharat, and we acquired the asset. And we arranged all the raw materials, logistic part of the manpower and this restoration of new connection of electricity. And finally, after all these issues during the lockdown period, within 45 to 50 days or so, we started the plant in commercial terms. And there, the company has so far invested up till now close to INR 25 crores to INR 26 crores. Am I right? Yes, INR 26 crores. So all put together, out of INR 110 crores of CapEx, almost INR 55 crores, INR 56 crores CapEx we have done to Unit 5 and around INR 26 crores of CapEx we have done towards Madhya Bharat. So this makes around INR 82 crores, INR 83 crores of the total CapEx company has already been made.

All right. Okay. Sir, I'd also like to know what is the routine CapEx requirement for a year.

See, that's not a routine. That's a day-to-day maintenance things we do, [ Mr. Shrivastav ]. That's a separate issue. And that amount, what we spend on a regular maintenance of the plant, is never calculated into the CapEx. CapEx is different.

All right. Okay. Sir -- and what has been the price of VS and H-Acid in Q1 FY '21? And what are you expecting go ahead? Can you give a rough estimate?

Q1 FY '21?

Right.

See, prices were quite depressed. And honestly, apart from the prices, there's not much of a demand. And let me add one other thing here is that we were a bit conservative in doing any sales also because we were more pressing on the cash collection. You got my point? Because we believe that during this kind of a pandemic period the company must have cash reserve. We don't want that later on we run for the payment collection. So prices were definitely depressed because we were insisting on an immediate payment basis also because we never wanted to give the credits to our other customers also, which we have been doing regularly. But for your information, the prices during that period went down almost close to INR 150 for Vinyl Sulfone and almost close to INR 330 for H-Acid also, during that period. But at this time, the prices have improved a bit. And I can see that there is improvement of around 7% to 8% in terms of the pricing of H-Acid and Vinyl Sulfone, as of now, compared to the Q1 FY '21.

The next question is from the line of Shubham Agarwal from Aequitas.

Sir, this is Ritika. Sir, I wanted to know the other expenses in our consolidated haven't declined in line with our revenue decline. What is the reason for that?

Hold on, Ritika, let me -- you are contemplating it with the terms of the value of the sales?

Yes.

Ritika, honestly speaking, expenses would not go down that much because we have been paying almost the salary to our people, but yes, not the full salary. Our -- we have -- our team has taken some kind of a salary cut also. And I can see that the expenses have gone down by almost close to INR 2 crores against the sale which has gone down by almost INR 33 crores, correct? So it cannot be on a percentage basis because, ultimately, all the expenses were going on except a few variable expenses. Then too also, it's not that much because in electricity also, we have to pay the minimum charges. Whether we use the electricity or we don't use, we have to pay the almost the full manpower charges, whether it's work-at-home or sitting at home, then too also, we have been paying them the charges. Other expenses like company have been already going on to the same kind of a thing. So expenses to sales, that will not go in a same proportion as the sales have gone down.

Okay. Sir, regarding Madhya Bharat, sir, we started operations in June, right?

That's right.

So we plan to consolidate it from Q2 onwards?

See, in fact, in Q1, Madhya Bharat, we had sold goods around INR 50 lakh, right? And to be very precise, it was INR 53 lakh of the sales we recorded in Madhya Bharat. How much was that, Deepak?

INR 33 lakhs.

INR 33 lakhs? Okay. INR 33 lakh we have recorded as sale of Madhya Bharat. That is not reflecting into the financials of that. For that, we've already given a notes to the accounts in Point #5, Para 2, if you can see that.

Yes, yes, yes, I went through that.

We're yet to recast the balance sheet of Madhya Bharat. And since we took over Madhya Bharat in the lockdown period, and in -- the time gap was too short, so we could not provide the required financials of Madhya Bharat in Q1 results. But surely in Q2 results, when we come for that announcement, we will capture these results also.

Okay. And sir, regarding Kisan Phosphates, we saw quite a good increase in our sales realization, in our revenue. But sir, raw material costs also increased considerably. So the profitability didn't come in -- our EBITDA margins weren't maintained. They were pretty suppressed. So how do we see that going forward? And what was the reason for this increase in raw material price?

Yes, basically, if you'll see in Kisan Phosphates or in other verticals, all put together, as I mentioned just now, that our main focus was of not selling on credit, selling on cash. Therefore -- because we never wanted to go in such kind of a stream because in the beginning of this pandemic no one knew that how the situation is going to behave. We never wanted to give much of the credit. So we were selling mainly on cash. And I would be happy to inform that, as on date I'm talking to you, Kisan Phosphates is maintaining a credit balance into its accounts. Got my point? See, we could have sold on credit also. That's not a problem. But we preferred to sell on cash because that was a temporary change into the policy we did because of the COVID pandemic situation. And no one knew that how this situation is going to behave. So we became overconservative and we wanted to act very smoothly -- we wanted to very cautiously. That is the reason the EBITDA margin has gone down. And apart from that, we started and we sold this good during that time. And during that time, the transport was a very limited availability. Not much of the truck owners were there for taking the material out of the factory or getting the material into the factory. So the transportation cost went high. And the labor cost went high because if -- during this kind of a period, if we have to take any kind of services, we have to pay a premium, which we paid.

Right. And sir, how were raw material costs during this time? Because I can see the movement is from 55% to 70%, raw material consumed.

You got this figure from where?

INR 11 crores is your -- INR 13 crores is the raw material consumed. Your stock adjustment plus your raw material.

Hold on. [Foreign Language]. Ritika, I don't have that paper right now in front of me, so I cannot understand -- wait, hold on, hold on.

This time, it was about 70%.

Ritika, can you come back with your question, please? What is the question? Can you repeat the question?

Sir, my question is our raw materials consumed as a percentage of sales has gone up from 53% -- up from 55% in the corresponding quarter last year to 70% this year. So most fertilizer companies, what we noticed was that their raw material cost has declined. So I just wanted to understand why this anomaly.

Honestly, I do not -- I need to look into the datas, Ritika. I do not have the question -- answer to this question right now. Let me first understand what is it, then I can come back to you. We can come back to on this answer at a later on date...

Okay. Sir, currently now regarding dye intermediates, so how is demand picking up? Because I understand that the whole industry, I mean, your user industries were shut?

Yes, as far as the dye industry demand is concerned, we -- I personally do not see any problem. The entire Europe is opened, America is opened, Bangladesh is opened, the -- almost all the overseas customers are already opened. And as of now, if you see that we have orders of approximately 700-odd tonnes for the dyes business also. So if you see that we are almost booked till October end or so. Now the only question and only the fight for us is that to deliver those goods on time and -- so that these orders can be repeated. Business is, yes, pumping in. Inquiries are there, buyers are there. And let me tell you, in dyes also, India is not a major customer. What it produce, the majority of the products produced in India as far as the dyes is concerned is meant for exports. And the entire international market is open. The quantity which I gave you of 700-odd tonnes is mainly for the exports. In this, local business is hardly anything.

Okay. And so what about dyes intermediates, like the demand for that?

Dyes intermediates, right now, business is not a problem, orders are not a problem. The basic problem is logistic ground problem, which includes the labor as a very big problem, secondary as a day-to-day logistics. Let me give you an example, Ritika. Suppose, if for the want of some kind of a machine spare part, a particular vessel, particular reactor, particular machine comes under shutdown, how do we get the spare parts? From where do you get the spare parts? Mumbai is closed. Most of the stores and maintenance supply in Mumbai are shut. Their godowns are shut. People have no way of transport in Mumbai. Even for a small, small things of issue, we have to work -- we have to make a big plans of that. Secondly, secondly, if we get labor also, right, there is no proper means of transporting the labor for -- again, let me give you an example. Now certain labors are ready to come from Bihar. They do not get a train pass. They do not get a train ticket. So we have hired a bus. After they come to local also -- to our site also, they goes for this quarantine of 14 days. But ultimately, this all is building the cost on the company. We have to pay the wages for 14 days. And suppose -- right now, suppose -- again, coming back to my earlier submission that, let's say, a particular equipment, a machine is shut or closed because of some kind of spare parts, where do we get it? I hope you understand what I'm trying to tell you. The main problem is production. Sales is not a problem. Payment collection is not a problem. Pricing is okay, no problem. That will also come in times to improve. Slowly and gradually, we are putting more focus on the logistic issues, which we are hoping that by September or so, we should be able to overcome these problems also.

Okay. And sir, you mentioned in your opening remarks that you all are taking some cost cutting measures.

As far as the cost cutting measures is that only one step we have taken, Ritika, that our entire team of Pushkar has taken a salary cut in a certain phases. Those phases, we have started somewhere in April or May. Now slowly and gradually, we have restored and something is left that will be restored from September. Only the directors would be continuing to take a pay cut of 75%. Apart from this, we have not taken any major cut into the expenses.

Yes, because you were already quite lean in your operations, sir. And sir, what is the cash balance currently with the company?

It's holding around INR 44 crores.

INR 43 crores.

43 point [Foreign Language]?

INR 43.26 crores.

INR 43.26 crores, which is the no lien cash company is having.

Okay. And sir, the...

On that, Ritika, company is also maintaining credit balance in its CC accounts.

Okay, okay. And sir, I just wanted to know how is the industry supply situation currently? Like are the other companies also operating at 60% capacity? How is the industry operating?

I believe almost everybody, out of my personal market intelligence, would be operating in a similar kind of levels. Maybe somebody could be 5% higher, could be 5%, 10% lower. That depends on industry-to-industry, location-to-location, Ritika.