BCL Industries – Ethanol Pick (Capacity 3.5x in Next 2 Yrs)

Note from Concal held on 14th Aug

1. The high margin (15-18% EBITDA) Distillery segment generated more Revenue than lower margin (4-4.5%) Edible Oil segment. (My thoughts: This trend may continue as an additional Ethanol capacity of 200 KLPD came online at the start of Q2)

2. FY 2024 Revenue Guidance: 1000-1200 cr each from Edible Oil and Distillery segment. So 2000-2400 cr total (My thoughts: Mgmt is under promising as Q1 Distillery rev is ~250 cr (1000 annualized). Additional 200KLPD which came online will add at least 300 cr rev(in 3 Qtrs). Also, now Ethanol produced from maize will bring in Rs 62/ltr, earlier they were getting Rs 58 for Ethanol produced by FCI rice. Edible oil prices also recovering well)

3. FY 2024 EBIDTA Guidance: 15-18% for Distillery and 4-4.5% for Edible Oil. (My calc:cThat would translate to 190-270 crs based on above Revenue guidance. A 1100 cr MC company generating atleast 190 EBITDA and fair amount of cash)

4. FCI Rice issue:

• Totally unexpected. Huge shock to the system. Their operations were impacted for around a month.
• BCL factories are well equipped to handle Maize as a feedstock. Lower price of Ethanol produced from maize was the only issue. With the Rs 6/ltr increase in price by Govt, those concerns have abated
• The situation related to maize is fluid. Traders have started hoarding Maize resulting in price hike of the feed since the FCI action. If FCI decides to re-start supply, maize prices will come down. Even a rumour of that happening results in daily price fluctuations
• The company doesn’t foresee any shortage of maize
• The company is hopeful of maintaining the margins (15-18%) but has stated that the ground situation changes almost on a daily basis

5. Relative positioning

• While other companies in Edible Oil sector (Adani Wilmar, Patanjali etc) made operating losses in their Edible oil segment, BCL because of its better inventory management was able to eek out some profit
• BCL has been maintaining since early that getting feedstock from FCI at subsidized rates is a short term benefit given by Govt (though even they didnt forecast such an abrupt stop), so that had enabled their factories to be able to process maize as feed. Other grain-based players will find the switch tougher according to the management

6. Bhatinda Distellery

• 200KLPD additional capacity (total 400KLPD) is online now. The new plant is working at around 70% utilization. Was impacted by the FCI issue. Hopefully will be fully utilized in a month’s time
• The boiler unit for power generating is now running at 100%, and is supplying power to around 240KLPD capacity out of 400. This will lead to cost savings of around Rs 2 per liter.
• The old plan (200KLPD) will be shut down for around a month (tentative timeline: Oct) for revamp. After this the capacity of Bhatinda will be 200KLPD ENA and Ethanol each, from current 100 ENA 300 Ethanol. (My calc: The shutdown will result in about Rs 50 cr revenue loss. Calculated based on Rs 150 cr/quarter run rate of this plant)
• The company seeing huge demand for its Alchohol brand. It is pricing it aggressively to gain market share, hence the slight dip in Bhatinda margins this quarter

6. Svaksha (West Bengal) Distellery

• Exice policy of WB government impacting ENA demand. Hence revenue was impacted. Management hoping that things will improve around the onset of winter when Alchohol demand is higher
• Currently, producing around 75% Ethanol and 25% ENA.
• Expansion plan (100KLPD) on track. Hope to finish by Dec (My thoughts: Mgmt considers it as an aggressive timeline and hasn’t included any contribution from this in Q4 when they mentioned Rev estimates of 1000-1200 cr, which as explained earlier, seem to be understated)
• After the expansion project is complete, the entire capacity of 300KLPD will be completely fungible between Ethanol and ENA. Depending on the demand they can dedicate 100% capacity to either ENA or Ethanol, when required, which they cannot do now (max around 75% Ethanol they can produce now)
• Runs on Maize as feedstock which has lower ENA/Ethanol output per tonne but better DDGS (a lucrative byproduct) throughput.

7. Further Expansion plans

• Application submitted for 150 KLPD expansion in Bhatinda, BUT management not trying to fast-track the approval, as it wants to wait and watch and let the current fluid situation (related to feedstock availability and govt support) play out.
• IF they don’t go ahead with the above expansion then they have a couple of other plans on the drawing board that the Management hasn’t shared much details about this time. Couple of quarters back they had vaguely mentioned that either they will go for capacity expansion from 700 to 1200 KLPD or some Green energy initiative.

Disclaimer: Invested. The above notes are from memory and also based on my interpretations of some forward-looking statements from the Management. Please discount for that.