BCL Industries Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Distillery drives the quarter, edible oil drags: ENA revenue rose 45.6% and ethanol revenue 204% YoY, while edible oil profitability suffered from volatile global prices and a zero-import-duty policy.
• New ethanol plant not yet at full throttle: The 200 KLPD Bhatinda plant commissioned in July, but its innovative paddy-straw boiler faced initial issues that prevented full-capacity operation during the quarter.
• Maize is now the dominant feedstock, and prices will stay high: The company has run 100% on maize since June, with prices at ₹21–22/kg (vs ₹12–14 last year); management expects only a ₹1–2 decline because government policy explicitly incentivizes maize-based ethanol.
• Distillery margin target set at 15%: Management called 15% EBITDA sustainable for the distillery sector, while declining to commit to a higher figure given raw material and DDGS price volatility.
• What to watch next quarter: Whether the paddy-straw boiler reaches stable operation and starts delivering the promised cost savings, the pace of the Svaksha 100 KLPD expansion toward its Q4 FY24 target, and any stabilization in edible oil duty policy.

Distillery: Growth, Capacity & the Boiler Bottleneck

• ENA and ethanol surge: Revenue from ENA grew 45.6% and ethanol 204%, driven by heightened demand and newly commissioned capacities.
• Bhatinda plant commissioned but constrained: The 200 KLPD dedicated ethanol plant came online in July 2023 at a total cost of ~₹205 cr, but the power plant using innovative paddy-straw technology encountered initial issues that prevented full-capacity operation during the quarter.
• Boiler fix in progress: A week-long shutdown resolved major problems; a couple more items need a 1–2 day shutdown, waiting on specialized bought-out items expected to arrive in about a month. Management is currently quite happy with results.
• Cost savings still to come: Once operational, the paddy-straw boiler will meet ~60% of steam requirements for the entire plant, yielding significant cost savings that are not yet reflected in margins because the boiler was not working well in Q2.
• Raw material flexibility paying dividends: The company can easily shift between maize, rice, millet and jowar depending on prices, and has been operating at 100% maize since June.
• Maize prices structurally higher: Maize costs have risen from ₹12–14/kg last year to ₹21–22/kg now. Management does not expect a significant decrease because the government wants to promote crop diversification and the petroleum ministry has made it clear they want to incentivize maize-based ethanol. A ₹1–2 decline is possible but not more.
• New rice crop timing: The new rice crop has arrived in Punjab but milling has not started; it will take about another 20 days for milling to begin, which may offer some price relief.
• Procurement network being professionalized: With the FCI policy stopped, the company is focused on improving its commodity procurement network pan-India and recruiting more professional staff, as it needs to procure about 1,500 metric tonnes of grain per day efficiently.
• Paddy straw supply chain built from scratch: Significant time and energy has been spent on forward contracts with farmers to ensure they do not burn paddy straw and that the company gets the straw.

Mittal: "I would say 15% is a sustainable margin. But of course, there will be volatility here and there. It might be more, it might be less. So -- but otherwise, it could be sustainable."

Capacity Expansion Roadmap

• Immediate target: 700 KLPD by FY24-end: The company aims to enhance distillery production to 700 KLPD by the end of FY24, with an ambitious plan to reach 850 KLPD by end of FY26.
• Svaksha expansion on track: The 100 KLPD expansion at Svaksha Distillery has received necessary approvals, work is ongoing on site, and the plant is expected to come into production by Q4 FY24.
• Bhatinda 150 KLPD expansion progressing: Permissions are moving and 80% of environmental clearance work is completed; once received, the company will move at a faster pace.
• Old 200 KLPD unit upgrade deferred: An order has been placed and machinery is ready for a 2–3 month shutdown to upgrade the old 200 KLPD unit, but the work is currently deferred due to strong ENA demand and will likely happen in summer when demand drops.
• Next greenfield distillery being scouted: Early next year, the company will start looking at another greenfield distillery for ethanol production, though it is not yet committed. Two states, Rajasthan and Madhya Pradesh, have been shortlisted; a decision will come once 700 KLPD is commissioned.
• Revenue guidance anchored to capacity: Once full capacity is operational, management expects ~₹1,700–₹1,800 cr revenue from the distillery sector for the next financial year and the year after. At 100% capacity utilization for a full year, the Svaksha unit alone is expected to generate ~₹500–₹525 cr.
• Boiler upgrade under consideration: Management might look to upgrade one of the old boilers (about 12 years old) for efficiency, but no further capacity is needed for the current 550 KLPD.

Edible Oil: Volatility, Policy Risk & Strategic Relocation

• Global price volatility hit sales and profitability: Highly volatile global edible oil prices led to lower sales and profitability during the quarter.
• Zero import duty disrupted the domestic market: The government reduced import duty to zero due to elections, causing a national price drop and disincentivizing farmers from growing indigenous oilseeds.
• Margin target now uncertain: The 2.26% EBITDA margin is not considered strong. Management had earlier guided that 4%+ was achievable if the country shifted to indigenous oils, but inconsistent duty policy makes that uncertain.
• Conservative strategy in volatile times: Management's interest is not in increasing revenue just for the sake of it but in not booking any losses during volatile times.
• Relocation to distillery complex planned: A strategic decision has been made to relocate a portion of edible oil production from the Bhatinda facility to the Bhatinda Distillery complex to improve the working capital cycle and margins. The timeline will be decided in coming quarters.
• No demerger: The company will not demerge the edible oil and distillery segments; instead, moving the edible oil unit to distillery units will reduce overhead significantly and make the sector more efficient.
• Long-term outlook unforecastable: Management cannot give a long-term projection for edible oil because the market is too volatile and policies are not clear; the sector is described as a "work in progress."

Mittal: "My interest is not increasing my revenue from this sector just for the sake of it. My interest is, during these volatile times, not to book any losses."

Financial Health: Cash Flow, Debt & Subsidies

• Cash flow lagged profit: Cash flow from operations trailed profit due to higher receivables, attributed to more ethanol supplied on a credit basis, and loans and advances of ₹38 cr.
• Nature of ₹38 cr advances unexplained: When asked about the nature of the ₹38 cr in loans and advances and why they were not classified under financing activities, management said they would confirm with the CFO and get back, leaving the question unanswered on the call.
• Debt reduction a stated priority: Management is dedicated to significantly reducing debt and managing it under the interest subvention scheme.
• Interest subvention received post-quarter: The interest subvention amount was received in the following quarter and will be reflected in coming quarters.
• State subsidy application pending: An application for state subsidy (SGST refund on the boiler) is with Invest Punjab, awaiting approval.
• Real estate to fund debt reduction: The company has limited remaining real estate inventory and no significant new investments planned; it will gradually sell remaining inventory and use the proceeds to reduce debt.
• Cash flow sufficiency asserted: Management stated that cash flows will be more than sufficient for debt repayment and current capex plans.

Management's Stance on Disclosure

• Quarterly revenue breakdown withheld: When asked about expected revenue from Bhatinda for the quarter (~₹250 cr per an analyst's math), management declined to comment.
• Future margin guidance deflected: When asked whether 17% distillery margin is achievable with the boiler at 100%, management cited many variables (raw material prices increasing, DDGS prices fluctuating) and said it is "hard to comment today what my future EBITDA margins will be."
• Proprietary process details kept confidential: When asked how the company differentiates in maize processing for ethanol, management declined to disclose everything they are doing.
• Power and fuel cost split not shared: When asked for power and fuel cost for the distillery business separately, management declined to share company-specific figures but offered to share industry metrics instead.
• ENA realization not quantified: When asked about average realization for ENA last quarter, management said it had reduced a little but DDGS appreciated, and could not give an exact figure.

Mittal: "I don't wish to disclose everything we are doing currently."

Guidance & Commitments

Key Metrics