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

Good evening, ladies and gentlemen. Welcome to the Q3 and 9 Months FY '21 Earnings Conference Call of Shree Pushkar Chemicals & Fertilisers Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Punit Makharia, Chairman and Managing Director of Shree Pushkar Chemicals & Fertilisers Limited. Thank you, and over to you, sir.

Hello, friends. And a very good evening to everyone. First and foremost, I hope all you have been keeping safe and healthy. Today on call, I'm joined by Mr. Deepak Beriwala, CFO; and Mr. Nitesh Pangle, Company Secretary and Compliance Officer of our company, Shree Pushkar Chemicals & Fertilisers Limited. Friends, we have uploaded our investor release and financial results on the stock exchange as well as on the company website. I hope everybody had an opportunity to go through the same. Hence, now I'll walk you through the industry updates, followed by financial and operational performance for Q3 9 months FY '21. Post opening of the economy and ease out in the lockdown restrictions across the country in phased-wise manner, we have witnessed good traction in all our business on a sequential basis. Q3 FY '21, the business was back to normal and to the pre-COVID levels, and we are also anticipating growth in the coming quarter. We have been witnessing month-on-month increased demand for our products across all our segments. Our fertilisers segment performed strong, as always, and has shown a growth of 33% on the revenue on a sequential basis. Revenue from the fertilisers stood at INR 37.3 crores as compared to INR 28 crores in Q2 FY '21. Dyes intermediates and dyestuffs has also shown recovery on quarter-on-quarter basis and have been witnessing increased traction in the coming months. Friends, post the Aatm Nirbhar initiative and Make in India movement picking up momentum and government's clear intention of becoming self-reliant in multiple sectors, India is emerging as a global player across industry and for the chemical manufacturing as well. We believe this will be one of the most significant opportunities ever seen in the industry up till now. Thus, long-term prospects are positive. During this temporary period of slowdown, in H1 FY '21, we have been focusing internally to improve efficiency and to be ready with our new capacities so that we can capture the opportunities once the demand revives. Now since we are ready with all the capacities and all the planned CapEx are on track, we believe we are ready for the next big leap for growth going forward. Friends, now we update on Madhya Bharat Phosphates Pvt. Ltd. We acquired the entity Madhya Bharat Phosphates Pvt. Ltd. has been successfully integrated in our system and processes, and we have begun commercial production in our Jhabua plant that is in district Meghnagar from July 2020 onwards. We completed the acquisition of this entity in March or April 2020. And despite pandemic and nationwide lockdown during this period, we have been able to start our operations quickly and smoothly in July 2020. We have been ramping up our capacities on a month-on-month basis and have seen increased utilization and revenue in this plant. Revenues from Jhabua plant in Q3 FY '21 stood at INR 11.37 crores as compared to INR 5.11 crores in Q2, a growth of 120%. Our revamp and repair work for our Deewanganj plant, which is another site of Madhya Bharat Phosphates Limited (sic) [Madhya Bharat Phosphates Pvt. Ltd.] is also on track, and we are expecting to begin commercial production by April 2021. By thus, doing so, we will be having 2 operation plants into Madhya Bharat Phosphates Limited, one is at Jhabua and another is at Deewanganj. Friends, we have received all the necessary approvals from the Pollution Control Board as well as from other government statutory approvals, and we are confident of starting these operations in the mentioned time frame. Now an update on our planned CapEx. Friends, our planned CapEx at Unit 5 for INR 75 crores for expanding Dyes & Dye Intermediates capacity to 22,000 tonnes per annum is on track, and we already incurred INR 66 crores in the capital working progress till now. Friends, let me tell you that this all has been done from the internal accruals, and your company has not taken any kind of a debt or the equity dilution for this expansion. And all has been funded internally. This shows the strength of the company and its business and its cash generation abilities. We expect the commercial production of this by Q1 FY '22. Company is also setting up a solar project under the Open Access Scheme, for which we have planned a CapEx of INR 10 crores, and we will be also funding the same by our internal accruals. After commissioning of the solar project, we believe that there will be a significant saving in the power cost, leading to operational efficiencies and enhanced margin. Friends, we are completely a zero waste company and a zero debt company. All our new product capacities of the above CapEx coming on stream with a strong brand presence, we believe it will further contribute to our long-term sustainable growth plans. Now I hand over the call to Mr. Deepak Beriwala, our CFO, for the financial updates on the company. Over to Mr. Deepak Beriwala.

Thank you, sir. Good evening, and a very warm welcome to everyone. Our revenue for Q3 FY '21 stood at INR 96 crores as compared to INR 77 crores in Q2 FY '21, a growth of 24% on Q-o-Q basis. Revenue growth on year-on-year basis is 12% from INR 86 crores in Q3 financial year '20 to INR 96 crores in Q3 FY '21. Revenue for 9 months financial year '21 was down by 7% at INR 241 crores as compared to INR 260 crore in 9 months financial year '19-'20. This was due to the loss of revenue during H1 FY '21 due to all India lockdown and restrictions across the country. Revenue growth has been seeing momentum on month-on-month basis, and we expect growth in quarters to come in. On segmental front, our fertilisers business stood strong and demonstrated a growth of 33% from INR 37.3 crores in Q3 FY '21 compared to INR 28 crores in Q2 FY '21. Dye intermediates segment also grew by 17% sequentially to INR 30.4 crores in Q3 FY '21 as compared to INR 25.9 crores in Q2 FY '21. Dyestuff has been picking traction and is now back to pre-COVID levels. Dyestuff revenue stood at INR 20.6 crores for Q3 FY '21. Our EBITDA per quarter stood at INR 13.5 crore as compared to INR 11.5 crores in Q2 FY '21, a growth of 18% on Q-o-Q basis. EBITDA margin for Q3 FY 2021 stood at 14.1%. EBITDA for 9 months FY '21 stood at INR 29 crores with an EBITDA margin of 12.1%. PAT for the quarter grew by 23% to INR 9 crores as compared to INR 7.3 crores in Q2 FY '21. PAT margin stood at 9.4% for Q3 FY '21. PAT for 9 months financial year '21 stood at INR 18 crores with a PAT margin of 7.5%. This has been an increase on a sequential basis with the revenues coming back on track. With this, I open the floor for discussion. Thank you.

[Operator Instructions] The first question is from the line of Shubham Agarwal from Aequitas.

This is Ritika. Sir, I wanted to know in Madhya Bharat, what is the kind of capacity utilization we expect for FY '22?

See, Ritika, if I talk about Madhya Bharat of the current -- first of all, let me take you with the current situation of Madhya Bharat. As we mentioned that we have started this plant in July 2020, and the kind of a period July 2020 was that we have almost missed the Kharif period, right, where the majority of the sales in Madhya Pradesh takes place. And now we have got the season of Rabi in Madhya Bharat in -- especially in Madhya Pradesh and Chhattisgarh. And till this period, company has sold almost 20,000 tonnes of the SSP in this quarter, third and fourth. Altogether, we are almost on a capacity of -- utilization of -- if you take about this, is around [Foreign Language] -- okay. See in this quarter of 3, out of -- we have achieved almost 60% of the utilization in Madhya Bharat. Now for the next year, we see that we'll be getting a full year in Madhya Bharat. Along with the Jhabua unit, we'll be also getting a complete period for the Deewanganj plant. In total, I think both these capacities -- the total capacity of both the plants would be 200,000 tonnes a year. We have targeted for sales of around 125,000 tonnes out of these 200,000 tonnes from both the sites.

Got it. And what kind of EBITDA margins can we expect in Madhya Bharat? I do understand that till now it's not contributed because we are ramping up, but what kind of EBITDA margins do we expect in Madhya Bharat?

Yes. As you are aware that Madhya Bharat is also completely debt-free company in terms of the long-term loans. And the total acquisition of Madhya Bharat has been internally funded by Shree Pushkar Chemicals & Fertilisers Limited. Based upon our past experience, including Kisan Phosphates as on the fertilisers business of Shree Pushkar Chemicals, we believe that we should be able to achieve close to 8% to 10% of the PAT margins. And EBITDA margin should stood around 14% to 16%.

Okay. And the INR 5 crores that was sold prior to Q3 FY '21, where has that been recorded?

That was not recorded because we got the final balance sheet from the Resolution Professional in the month of October itself.

In 9 months financial, it's included in Q2 results of INR 5.11 crores in consol.

Okay. Got it. Also, we have some land parcels there that we plan to sell, right? What is the update on that?

Yes, yes. We have additional land parcel. There's a place called Mendori near Bhopal, which is a noncore asset and which came along with this company through NCLT, and we have plans of selling this land and using the funds in the working capital cycle of the company.

Okay. So how much of that do you like? Like, how much of the sale of land do you like?

It is difficult for us to comment about the pricing, but I think it's not a big amount. I think it should get somewhere around INR 50 lakhs to INR 75 lakhs or maybe 5%, 10%, up or down. I don't know. We haven't checked up until now the price of the land because right now, we are busy in other issues like starting support to Deewanganj, revamping of the capacities of Jhabua as well as the marketing setup. Now we have set up a marketing team also in Madhya Pradesh. Company has hired an office in Indore for its regional marketing, and we are building up our entire sales team across Madhya Pradesh as well as Chhattisgarh. So post we complete all these issues, then we will be also looking into selling of Mendori land. But as far as the value is concerned, I think it should be close to INR 50 lakhs or maybe INR 75 lakhs. Honestly speaking, I'm not sure what could be the exact value. Once you go into the market, then only we'll come to know what could be the proper price.

Right. And we can expect 15% and 10% EBITDA and PAT, respectively, from FY '22 onwards?

I'm a bit conservative, Ritika. I believe let's do it and let's calculate ourselves close to 8% to 10% of the PAT margins and 14% to 16% of the EBITDA margins. This is what we have been doing in the past, even in the Kisan also.

All right. Regarding Dyes & Dye Intermediates, I mean there's been a ramp-up from Q2 to Q3. And we do expect plant 5 to start commissioning -- to start commercial operations in April. So we'll get the full year of FY '22. What kind of revenues can we expect from Unit 5?

See, in fact, we had -- we were targeting to start Unit 5 in this financial year. Because of other issues, which were not in our control, we have never thought that there would be COVID and labor issues and blah, blah, blah. But I think now we'll be able to comfortably start that trial production of this unit in early Q1 FY '22. And I think by first quarter of next financial year, we should be able to complete this commercial production also for Unit 5. Based upon the 3 quarters, we'll be getting a full year of the operation. I think on this basis, we should be able to achieve, on a very conservative mode, around INR 125 crores to INR 150 crores of the total sales.

Okay. And what about Unit 1 revamp?

That has been already started now, Ritika. In fact, that is -- that was ready for a very long time, and we were beginning to start in the last quarter of the last financial year. But suddenly, because of this COVID, everything was kept on hold. Now we have started this unit just in the month of December.

Okay. So in FY '22, how much will Unit 1 contribute?

I think we should be back to our previous levels. I think we should generate almost about INR 325 crores to INR 350 crores of this top line in Pushkar on a stand-alone basis, easily.

Okay. This is excluding Unit 5?

Yes.

Okay. And if you could tell us about the realizations -- current realizations of Vinyl Sulphone, H Acid as well as how our raw material prices trending?

Raw materials prices have all gone up. If I talk about beta naphthol, if I talk about aniline oil, if I talk about nitric acid, naphthalene, sulphur, which are the basic raw materials for these products, all have gone out -- gone up. Simultaneously, the prices have also gone up fantastically. If I say the Vinyl Sulphone is prevailing somewhere around INR 240 plus minus INR 5, INR 7 or maybe INR 10, H Acid is in the range of INR 450 to INR 425.

Right. And how were they in Q3?

How was?

How were these prices in Q3?

Q3 was in the range of, if we say about Vinyl Sulphone around INR 210 to INR 215 or so. And H Acid was in the range of INR 390 to INR 400. This is an average realization what we would have got in Q3. See, overall, there is around 5% of betterment in the price of H Acid and around 10% betterment in the price of Vinyl Sulphone.

Got it. Sir, as you see these prices going up, do we see our gross margins improving?

Ritika, it's a very vast reply. It's difficult for me to say because we need to really see that how the global logistics scenario is going on. We have been seeing that global prices of the freight rate has increased tremendously and availability from the China for the chemicals has become very scarce. And -- definitely, we'll be improving some margins on that, but what kind of percentage it could be, it is difficult to comment on that.

All right. And other expenses in the fertilisers, like in subsidiaries, was pretty high. Was it because of starting of Madhya Bharat? Or was it some one-off?

What was your question? Please come again.

Other expenses in the subsidiaries was pretty high. I can tell you the amount.

Are you talking about Kisan?

No, Kisan plus Madhya Bharat combined, INR 8 crores.

See, basically let me tell you, these other expenses are difficult to figure out individually. But in case, if you need them, we can also pull out the figures from the system and give it to you. But let me give you an overall view on the subject. See, what has happened is that due to COVID levels, mainly these expenses have gone high in terms of the transportation costs and in terms of the labor cost. Because transport has become extremely problematic issue due to the high rise of the fuel and labor. Like if I give you an example, [Foreign Language], then the labor goes into the COVID period, this quarantine period. But we have to pay the salary of those laborers. Then -- this is just an example I'm giving you. [Foreign Language] then the entire labor rushes away. [Foreign Language] then we have to pay high prices. Because see, we are operating in a state where nobody local people prefers to work. Because of these issues, the overhead cost has gone tremendously high. But let me assure you and let me also comment that this is not a permanent phenomenon. This has just a temporary phenomenon. As we went on the unit for revamping, restarting, getting labor, getting a transportation because if you see that in this quarter we have started all our operations. And before this quarter, a few of the plants were closed also. Now we have to again start those plants, like for an example [Foreign Language]. So these are the onetime expenses. And these plants run 24/7, 365 days. But suppose [Foreign Language]. These are the unexpected charges, which has gone high. This is not going to be a permanent phenomenon. In coming quarters, we don't see that these kind of high expenses would be there.

[Operator Instructions] The next question is from the line of [ Siddhant Shah ] from KBS.

Just following up actually on the previous participants question. I guess what we're sort of trying to piece together is that other expenses as a percent of sales is pretty high. So when you look at it on a percentage basis, it's 22% versus 13% year-over-year. And if you look at it on an absolute number basis, it's almost INR 9 crore increase. So would it be possible maybe to share the larger buckets of this increase in other expenses?

[ Siddhant ], where this INR 9 crores difference you arrived?

So your other expenses are INR 20.75 crores versus INR 11.24 crores on a consolidated basis.

Hold on. Hold on. Hold on. You are talking about 9 months to 9 months, right?

No, I'm talking to December '20 to December '19.

You are talking about December '20 to December...

So Q3 of this quarter -- so Q3 of this year versus Q3 of last year.

On consol basis?

Yes, sir, on a consol basis.

Yes. Yes. I think, [ Siddhant ], I'm not handy with the reply of your question as of now. I'm sorry for that. And -- but I'm -- I'm sure that I will pull out the exact details and give you a satisfactory reply on the same. But I can give you overall reply on the subject, the sort of a feel that these expenses have gone high. Yes, we do agree. These expenses have gone high. Exactly, I need to do -- we need to look into details the nature of these expenses. But as overall, what we're seeing, it is mainly on account of plant restarting what we did in this quarter because of the COVID. Like salaries we paid in first 2 quarters in spite of our plants were closed, right? Like some restarting expenses, what we incurred in this financial year, which is not a regular phenomenon, like transportation cost we paid. That was tremendously high in this period because in this first quarter and quarter 2, I can see that there were no labors available. There was no transportation available, then too also our fertilisers unit keep on operating. And obviously, it comes with extra cost. It was not a normal pricing. That's an overall feel I'm giving it to you. But yes, I can sense and I can realize these expenses are too high. I need to look into the details about it. I can get back to you on this.

Right. Okay. Fair enough. So maybe I can follow up offline to get a sense on the actual breakup of the -- on the other expenses.

Yes.

So my other question was, forgive me for my ignorance, but -- so the price of H Acid and Vinyl Sulphone has major sensitivities to your top line and EBITDA margin, correct?

No, it's not like that, [ Siddhant ]. Basically, we are a multi-product company. We are completely backward forward integrated company. It is not only H Acid or Vinyl Sulphone. There are a couple of intermediates, couple of dyestuff and fertilisers, cattle feed. It's a multiple basket of feed products. It's not only H and VS. Please go ahead, [ Siddhant ].

Sorry, sir. No, the reason why I ask is, I think in the past con calls, I don't remember which one, but I think there was a comment made saying that H Acid and Vinyl Sulphone is around 70% of the current DI capacity. So I just wanted to refigure or...

No, [ Siddhant ], it is like this, that out of the total revenue, around 70% of the revenue is met through the chemical business, in which it is dyes intermediates as well as dyestuff. And balance 28% or so comes from the fertilisers, acid business and the cattle feed business. It is like this. So 70%, 72% is a composite business of intermediates as well as dyestuffs. And H Acid and Vinyl Sulphone comprises of intermediate 2 products, whereas we make 5, 6 different products of intermediates. I hope I'm clear, [ Siddhant ]?

No. Got it. That makes sense. No, last one...

Let me -- I think -- No, no, no. Wait, wait, wait. Hold on. I think it's not still clear to you. Let me again reiterate what I said. The total 72% business [Foreign Language] that comes from dyes intermediates as well as dyestuffs, right? [Foreign Language] dyes intermediates, in that particular vertical, we make 6 different products. And not even 6, rather 10 different products. Out of 10 different products, 4 products we again internally consume. Out of those products, which is saleable and which is further consumed by us in our dyes business as a forward integration [Foreign Language].

Got it, sir. [Foreign Language] So basically, I'm trying to -- what I'm trying to understand is, suppose if H Acid, if we have -- I'm not saying we will, but if we have a major run-up in the price of H Acid and Vinyl Sulphone, like we did in 2013, '14, would we see a big spike in margins? Or is that not the exact dynamic?

No, no. Obviously, when the prices goes higher of H Acid and Vinyl Sulphone, yes, we -- the majority of the revenue of DI, out of 70%, comes from H and VS. But if the prices goes high, obviously, the company is going to be benefited.

Got it, sir. So in 2014, '15, when the prices had increased, why did not we see a spike in EBITDA margins?

You're talking about 2014 and '15?

Yes.

I'm not carrying those data with me, my friend, of '14 and '15. And let me tell you, 2014 and '15 was some kind of a peculiar year where we have seen the prices of H Acid going up to INR 2,000. In the history of the whole industry, I have never seen in my career going the price of INR 2,000. And let me tell you, it's a completely -- that was completely unsustainable price. So let's not work upon INR 2,000 price category. And that was almost 5, 6 years back story, [ Siddhant ]. I don't think that, that story is going to be repeated again.

No, I agree. Sorry, I did not mean to say that it was going to go to INR 2,000, but I just thought that because of the sensitivity -- if there was sensitivity to the model, then we would have maybe seen it somewhere in those years in the margins. And I was just trying to understand why it was not reflected in the margins at that particular time.