The key concern for the past few months have been constantly increasing raw material cost. The company has been exhibiting cyclical characterstics with operating margins falling from as high as 26 % in June’21 to 14 % in June’22. Many has raised concerns about company’s ability to maintain margins at what they guided for in previous quarters. But as @manoopatil has mentioned we are seeing a rare inflationary trend that I don’t think the management could have foreseen it.
As per Q1 concall fuel cost are up around 30 % QoQ, packing cost by 12 % and grain cost by 6 %.
As per BCL industries concall broken rices prices were around 18-19 which has moved further to Rs.21-22 in Q2.
As there are no price revision up for any items in Q2 other than for ENA which is market to market, the Q2 margins will be worser than Q1 as the company indicated in the concall. About 45 % of raw material requirement is met from FCI purchases at fixed price of Rs.20 per kg where there is a higher realisation on ethanol.( Rs.3 incremental benefit as per concall).
India has banned export of broken rice as of September 9.This may provide some respite to the increasing broken rice prices which may stabilise by Q3.
The fuel costs and packing prices are still unpredictable. Company has started production at its Jharkhand Unit which is expected to further increase revenue.
Any improvement in margin can be expected only in Q3 when the ethanol prices will come up for revision, with the industry in very low ROCE the govt may be forced to increase prices so that ethanol blending program goes as planned. Any value segment price revision will come only after 31 March23.
With manufacturing now contributing to 61 % of revenue, revision of ethanol prices will be significant and Q4 may provide us with more idea of how margins will play out. Also another thing to watch will be how Bihar facility will function during monsoon. The facility was flooded in last 2 years when the facility was closed for some days. They mentioned that they have done some flood control activity at Bihar.
Company has sold 3.94 mn cases vs 3.73 cases QoQ in value segment
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