BCL Industries Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Distillery margins steady, edible oil hit: Distillery EBITDA held firm despite fuel inflation, while edible oil suffered a sales decline from a global price crash; normalization is expected in coming quarters.
• Svaksha bottleneck resolved: A faulty distillation column capped utilization at 60% since June; replaced in late January, the plant hit 100% from February, setting up a stronger Q4.
• Capacity expansion on track: Bhatinda's 200 KLPD ethanol plant begins trials in March, and Svaksha's 100 KLPD expansion is targeted for December 2023, taking total capacity past 600 KLPD in Q1 FY24.
• Fuel cost hedge in the works: A paddy straw boiler at Bhatinda, a move management says no competitor is making, will cover ~60% of total steam needs and qualify for a state SGST refund.
• What to watch next quarter: Whether Bhatinda's new-technology power plant stabilizes quickly for full Q1 utilization, the pace of edible oil recovery, and any concrete announcement on the next growth vector (greenfield ethanol or green energy).

Distillery Operations & Margins

• Steady margins despite inflation: Distillery margins were maintained by shifting some additional capacity toward ENA, even as power and fuel costs rose ~20% to ₹14–15 per liter, a level sustained for 6–9 months.
• Bhatinda shutdown impact: Q3 volumes declined slightly YoY because the Bhatinda plant underwent a ~15-day preventive maintenance shutdown during the quarter.
• Svaksha capacity constrained: Commissioned in late June, Svaksha could not exceed 60% utilization due to a faulty distillation column. The column was replaced in late January, and the plant reached 100% capacity utilization from February.
• Svaksha volume disclosure gap: The volume chart in the Q3 presentation excludes Svaksha numbers; management acknowledged this needs an asterisk to clarify.
• Margin ceiling set: Management sees a realistic path back to 17–18% EBITDA margins but does not expect to exceed the record 19%.
• Ideal EBIT per liter: ₹10 per liter is the target the company believes it should generate on the distillery front.

Kushal Mittal: "Yes, it is realistic that these can go up to 17%, 18% again. But I don't see it increasing more than the record 19% that we would have done."

Fuel & Raw Material Dynamics

• Coal-husk parity: Coal and husk are roughly equivalent on a GCV calculation basis currently, so there is no cost advantage in switching between them.
• Rice mill holding power: Husk and broken rice prices have not fallen despite a good harvest because rice mills, now profitable under new government policies, have the balance-sheet strength to hold inventory. Earlier they sold at whatever rate they could.
• Paddy straw boiler hedge: A paddy straw boiler being set up at Bhatinda will cater to ~60% of total steam requirements, not just the new capacity, and qualifies for a state government SGST refund scheme on the boiler's capex.
• Mustard crop tailwind: A strong incoming mustard crop is expected to help increase margins, and full-year paddy for the power plant has already been procured.

Kushal Mittal: "Now it has become a game of who will blink first. So we fully expect that the prices will decrease, but the decrease hasn't happened very fast because of this one reason."

Capacity Expansion & Project Timelines

• Bhatinda 200 KLPD ethanol plant: Under full swing; trials expected in March 2023. The new-technology power plant stabilization timeline is uncertain, but management is confident of stabilizing it quickly.
• Bhatinda capacity split post-startup: Initially 300 KLPD to ethanol and 100 KLPD to ENA. The old ENA plant will take a one-month shutdown in September for modernization; afterward, the split becomes 200 KLPD ethanol and 200 KLPD ENA.
• Svaksha 100 KLPD ethanol expansion: All major machinery orders placed, civil work ongoing; commissioning expected by December 2023. Funded via debt under the Interest Subvention Scheme at ~4.5% cost.
• Total capacity from Q1 FY24: 600+ KLPD operational, with Bhatinda's additional 200 KLPD active.
• Svaksha Q4 outlook: Two full months of production (February and March) expected in Q4 FY23; full working expected from Q1 FY24.

Edible Oil Segment

• Q3 sales decline: Aftershock from a sudden dip in global edible oil prices caused retailers and distributors to avoid holding excess stock, hitting sales.
• Normalization expected: The segment is expected to normalize in coming quarters; prices have now stabilized after the crash.
• Branded indigenous oils push: The company is increasing sales of cotton seed oil, rice bran oil, and mustard oil under Homecook and Murli brands, which management calls a much better business than imported oils. Packaging will change next month with more marketing investment.
• Price outlook contained: Indonesian export ban is not expected to significantly lift prices due to a big indigenous mustard crop, good paddy crop yielding more rice bran oil, and cheaper sunflower oil. The bigger variable is China demand as it reopens.
• FY24 EBITDA goal: ₹50–60 cr EBITDA from the edible oil segment would be a good goal for next year, per management.

Capital Allocation & Future Strategy

• Preferential issue pending: Approved by the Board and shareholders; awaiting in-principle approval from BSE and NSE. Post-allotment, the company will reduce working capital significantly and retain only cheaper debt (₹120 cr Bhatinda + ₹70 cr Svaksha).
• Next growth vector under evaluation: Two options being assessed: a greenfield ethanol plant in Madhya Pradesh, or a foray into green energy / a new sector. More clarity promised in coming months.
• Consumer business deprioritized: Management does not envision growing the IMFL or consumer business significantly, citing disinterest "for many reasons." Growth will be slow and won't materially impact the balance sheet. Focus remains on capacity expansion or green energy.
• No buyback, dividend to continue: The company has had a good dividend policy and will continue it. No share buyback plans because the company is growing and can utilize funds better by expanding.
• Rights issue feedback noted: Management acknowledged investor feedback that a rights issue would have allowed minority shareholder participation and said it will keep that in mind next time.

Kushal Mittal: "We are not interested in that business for many reasons. ... Instead, we want to grow in terms of capacity or foray further into green energy."

Competitive Position & Policy Risk

• Ethanol policy viewed as durable: Management argued the ethanol ecosystem (farmers, rice millers, distillers, OMCs, automakers) makes policy reversal hard. Cited Indonesia and Malaysia maintaining biodiesel mandates even when CPO prices skyrocketed as evidence that biofuel policy is long-term.
• Overcapacity hedge via flexibility: ~95% of new industry capacity will only produce ethanol. BCL's both units can switch between ENA and ethanol, providing a strategic buffer if ethanol economics weaken.
• Paddy straw boiler as differentiator: Management stated none of its competitors are setting up rice-straw-based boilers, calling it a game changer for margins with the added capacity.

Kushal Mittal: "If you look post-lockdown ... CPO prices skyrocketed. And even then, countries like Malaysia and Indonesia, instead of saying, we'll start exporting more CPO because it's beneficial for us, they were like, no, we will maintain our biodiesel requirements. ... That shows when there is a biofuel policy in a country, it is a long-term policy."

Guidance & Commitments

Key Metrics