BLACK ROSE INDUSTRIES LTD (NSE:BLACKROSE) Q4 FY23 Earnings Concall dated May. 30, 2023
Call participants:
Anup Jatia — Executive Director
Ambarish Daga — Joint Chief Financial Officer and Investor Relations Officer
Vineet — — Analyst
Ankit Babel — — Analyst
Operator
Good morning, ladies and gentlemen, and thank you for attending this virtual meeting. It’s my pleasure to welcome you on behalf of Black Rose Industries Limited and SKP Securities to this Q4 FY23 and FY23 Financial Results Webinar. We have with us Mr. Anup Jatia, Executive Director, along with Mr. Ambarish Daga, Joint CFO and Investor Relations Officer.
This webinar is being recorded for compliance reasons. And during the discussion, there may be certain forward-looking statements, which must be viewed in conjunction with the risks that the company faces. We will have the opening remarks from Mr. Jatia, followed by presentation. We then open the floor for a Q&A session. Thank you, and over to you, Anup Ji.
Anup Jatia — Executive Director
Thank you, Naveen ji, and thank you everybody for joining today on our webinar to review the annual performance of the company. I hope everybody is doing well and still in good health. Of course, the weather has been very hot recently. But please stay safe and take care of yourselves.
I’d like to now start with the presentation and I’ll hand over to Ambarish.
Ambarish Daga — Joint Chief Financial Officer and Investor Relations Officer
Thank you, Anup Ji. Well, the presentation begins, let me just share a note of caution that this presentation may contain some forward-looking statements, which carry their risk. I hope everyone can see the screen.
Anup Jatia — Executive Director
Yes, Ambarish.
Ambarish Daga — Joint Chief Financial Officer and Investor Relations Officer
Just a second. So talking about the presence of Black Rose, Black Rose started as a chemical distribution company and we have very strong relationships with leading chemical manufacturing companies, who are our our principals, based out of Japan, Germany and Thailand. The distribution business caters to end user customers spread throughout India and also worldwide. From distribution in 2013, we moved to the chemical manufacturing when we set up South Asia’s first acrylamide liquid plant with an initial capacity of 10,000 metric tons. Currently, the capacity for acrylamide liquid at our plant in Jhagadia is 32,000 metric tons per annum, out of which 20,000 is for merchant sales and the balance 12,000 for our captive requirement.
Next, in the same chemistry, we started out with the polyacrylamide liquids, which has an installed capacity of 40,000 metric tons per annum and it caters mainly to the ceramic tile industry based in Morbi. The company also started manufacturing N-Methylolacrylamide with a capacity of 2000 metric ton towards the end of the last financial year. Then, we set up the acrylamide solid plant, with a capacity of 3,600 metric tons in May 2022. And that is helping us to boost our sales, both domestically, as well as internationally.
The polyacrylamide solid is a project that our R&D team is currently focused on and we plan to set up a plant of 10,000 metric tons per annum once the R&D is completed. BR Chemicals company is the 100% subsidiary based in Japan and is engaged in the local distribution and export of chemicals. The other legacy businesses of the company contribute to less than 1% of the total turnover.
Moving on to the snapshot of the financials for the financial year ’22-’23, we see that due to the global headwinds, there was a dip in the revenue as the year gone by saw a steep fall in the chemical prices and at the same time, lower demand which resulted in a dip in the total revenue from operations by 18% on standalone basis. This was, however, supported with a stronger performance in the second-half of the year. As a result of the fall in prices and the high cost inventory at the beginning of the year, the overall EBITDA also led to about $139 million for the year ended, resulting in a lower PAT and lower margins. The overall EPS for the year stood at 1.29 per share.
A snapshot of the balance sheet at the end of the year shows us that the company is in a very strong financial position with zero long-term debts and having a good cash-flow. Cash-flow from operations during the year stood at $225 million, which also resulted in the company being get up to cater to the customer-base during the course of the coming years. The inventories, which were quire high at the beginning of the year have dropped substantially as the company has been able to liquidate the high cost inventory. At the same time, the debtors turnover has also gone up significantly. The company’s total debt-equity ratio stood at a meager 0.02, which shows the strong position that the companies in.
Moving on to financials on standalone basis, the total revenue saw a decline from the previous year as would be EBITDA due to the global and headwinds. The expected turnaround of China after the COVID induced lockdowns did not materialize during the course of the year, which put additional pressure and created an oversupply position in the global chemical market. This impacted our revenue and EBITDA as well. Our new product addition to cater to the U.S. oil and gas industry during the year helped in bringing in additional revenue and profits to our distribution portfolio and provided impetus to our revenue, as well as profits.
At the same time, towards the second-half of the year, the international shipping and freight cost-reduced significantly, which lent support to our exports so much so that, in the previous quarter, our exports actually outstripped our domestic sales. The latter part of the year saw improved revenues, as well as improved profit, as the high cost inventories were consumed in the previous quarters. Overall, we see the chemical distribution turnovers stood at $196 million for the year compared to the manufacturing, which clocked in at $81 million.
Moving on to the revenue and geographical mix, we see that there is no significant change in the distribution between manufacturing and distribution. The previous year saw 68% share of the distribution business while the current year ended at 70%. As we move forward in the coming quarters, we anticipate the manufacturing revenue to pick up and this balance being turning more towards the — being equal.
On the geographical distribution, we see that the exports have become 30% of the total revenue for the current year, which is a three-fold increase in the percentage. This has been brought about by good demand in both the distribution, as well as manufacturing divisions and new product additions. At the same time, due to reduced freight costs.
Moving to the financials related to the distribution segment. we see the overall revenue in the distribution segment was down by 16% from the previous year. This was mainly due to the falling prices of chemicals, which led to lower realization, as well as subdued demand in the domestic markets. This was somewhat made up by the good demand we received from the U.S. oil and gas sector, which helped us in increasing our overall revenue. The limited availability of certain key products also impacted our sales and products such as ethanolamines and Meta-cresol. Overall, you see that the top-five products catered to about 79% of the revenue and about four fifths of the total profit for the year.
Moving to the manufacturing division, overall, the revenue in the manufacturing division reduced by about 24%,. This was mainly due to the price realization being lower as we saw the key raw-material prices fall by about a similar percentage in the — during the year. The same will be highlighted in the upcoming slides. The company obtained the EU REACH registration, which has opened up the market for exports, especially in Europe. And we saw significant volumes in the latter half of the year in terms of exports. The dumping by the Chinese suppliers continued unabated as there was an oversupply situation in China, which resulted in a negative impact on the acrylamide harbor sales in the domestic market during the course of this year.
The higher cost raw-material that the company carried during the first three quarters of the year led to reduced margins. However, the margins doubled during the final quarter of the year, as the company was able to dispense the high cost inventory in the previous quarters. The overall slowdown in the Morbi tile market due to the high gas prices as an impact of the war in Europe, as well as the higher raw-material cost in the earlier part of the year. So the sales value of polyacrylamide liquids being impacted during the course of the year.
Next we come to the correlation between the fee raw-material, acrylonitrile and the acrylamide prices during the course of this year. Where the acrylonitrile started at around $1900 per metric ton during the during April, it ended the year at about 25% lower at $1,400 per metric ton. And there was a significant drop in prices, which also led to lower realization for our finished product as is visible in the figures.
Now we move on to the outlook for the current quarter and I will request Anup Ji to take it forward from here.
Anup Jatia — Executive Director
Thank you, Ambarish. The chemical distribution business is well-positioned to grow during this quarter and during this year based on the good support that we’re getting from the suppliers. Supplies are also expecting as to their higher optics, which we are supporting them with. And with this support from the suppliers, we are also able to provide the necessary competitive pricing to our customer [Indecipherable].
As Ambarish mentioned also Meta-cresol and ethanolamines, which were basically in reduced supply during the last year, we find this year that the supplies are going to be coming back. Meta-cresol supplies have already started coming back. ethanolamines is also expected to come back probably in Q2. This will again add to our revenues, as well as our profits. On the negative side, we feel that the U.S. oil and gas industry, where a lot of our exports are going from our distribution business may slowdown in the coming months due to the discretionary sentiment, which is going around and because of the dip in the oil prices. This is one of the areas that we are seeing there may be some slowdown now in the U.S.
In terms of the acrylamide liquid and solid business, the prices of acrylamide liquid fell again during Q1 FY24. This was largely due to the reducing raw-material prices, but the prices of the product may stabilize in the coming months and maybe eventually start to go up maybe in the latter half of the year, depending on how acrylonitrile, which is a raw-material — acrylonitrile demand changes in the coming months. The prices in the export market are actually currently more remunerative than the domestic market. And, due to this, we have been exporting more volumes. In the last month. I would say, our exports were larger than the domestic seats. In fact, also in the, I’m not sure if that was the case in the last quarter, but yes, it has been in the last month, for sure.
And the Chinese dumping of acrylamide powder continues, which does affect the sales of acrylamide powder for us in the domestic market. The — one of the things where we are seeing a lot of changes is the EUV transition, which we took. And thanks to this Investment we made last year. We are seeing a lot of new business opportunities coming out of Europe, Europe has been now looking at Europe plus one policy, which means customers who are dependent solely on European supplies for the raw materials are looking for non-European sources of the same raw materials and this is where we are getting additional volumes coming in right n ow from Europe.
We also plan to improve our productivities in the quarter — next quarter, with some new machinery and some equipment, which is being installed. This would actually help us reduce costs as well. So, we’ve seen that in Q2, we could see a lot of changes happening in terms of the profitability, as well as the sales. On the current liquid side, the of current liquid, especially the — basically the ceramic binder that we sell at Morbi has been quite stable even during Q1 and we have chosen to basically prioritize on our quality and our service rather than chasing after the — following prices in the market.
And we intend to maintain our market share and gradually increase the market-share with improved product. On the NMA side, the N-Methylolacrylamide, we have been receiving repeat orders from our regular customers. Some of these are multinationals and now our product is undergoing approval — still further approvals at domestic end users, as well as overseas and U.S.. So we are expecting in the next quarter we should see a fourfold increase in the sales of this product.
The ongoing and upcoming projects. So currently, as we all know, we have been working on the research and development work on ceramics binders, as well as the acrylic dispersants, which is the [Indecipherable] and polyacrylamide solids. We are also conducting currently a feasibility study for a specialty chemical project in collaboration with a Japanese company. This was discussed also in our last webinar briefly. And we are currently also now discussing two potential [Indecipherable] manufacturing projects, with U.S.and European companies. This will again further add to our revenues and to our manufacturing growth.
The next slide, the manufacturing business capex slide. This is pretty much the same slide, we have been sharing in the past quarters. This basically tells you the availability of further expansion in each of these products. So when you see acrylamide liquid, current capacity is 20,000 plus 12,000, 32,000 tons. We have further space available to expand to another 60,000 tons. This is what basically this means.
So this chart is telling you and it also tells you how much of capex has already been incurred overall at the Black, which is INR58 crores, which is more or less unchanged, I believe from the last quarters results numbers. Yeah. Okay, thank you very much. Over to you, Naveen ji.
Questions and Answers:
Operator
Thank you. Thank you, Anup Ji, Thanks for that comprehensive presentation. Friends, we now open the for Q&A. [Operator Instructions]. The presentation has been quite comprehensive enough.
Anup Jatia — Executive Director
Yeah, that’s was I was just going to say that I think our presentation has been quire comprehensive. We’ve been learning from every webinar we do. We try to incorporate the questions which we normally get.
Operator
Yeah, yeah, there’s a big difference between what it was when we started about ten quarters back.
Anup Jatia — Executive Director
Yes.
Operator
Okay, we have a question from Vineet Agrawal. Vineet, please unmute yourself and go ahead.
Vineet — — Analyst
Good morning sir and thank you for the opportunity. Sir. I have a few questions. I know you don’t provide the volume numbers. Can you please discuss qualitatively whether our FY23 volumes were lower — higher or lower than FY22 comparatively. And also, quarter four of corresponding years.
Ambarish Daga — Joint Chief Financial Officer and Investor Relations Officer
You were talking about for acrylamide?
Vineet — — Analyst
Yes, sir, Acrylamide and PAM both.
Ambarish Daga — Joint Chief Financial Officer and Investor Relations Officer
Okay. I don’t have the numbers in front of me, but the — I believe the — quantitatively, the volume in 2023 — FY2023 were slightly lower than what we had in FY22 on the Acrylamide side. However in Q4, the volume was greater than the all the other products. So we saw an increase in Q4 whereas we start dips in Q1, Q2, Q3, but especially in Q2 is when we saw the major dip in volumes. [Technical Issues] but in Q4, [Technical Issues]. And for volumes. And for — just for a second, yeah, sorry about that. Yeah, on the PAM liquid, due to the slowdown in the Morbi market and the shutdown which happened during FY23, the. Volumes of FY22 were lower I believe than FY22. However our profitability has actually increased, even despite the lower volumes due to the lower raw-material costs that we had during FY23 as compared to FY22.
So in terms of margin, we have an improvement. In terms of volumes, we have a reduction.
Vineet — — Analyst
At this is for full-year? Hello.
Ambarish Daga — Joint Chief Financial Officer and Investor Relations Officer
Yes.
Vineet — — Analyst
Okay, and sir, can you also provide if possible, average realization for Q4, as well as for full-year FY23 for acrylamide and PAM liquid?
Ambarish Daga — Joint Chief Financial Officer and Investor Relations Officer
We’ve already shared the chart with the realizations going on the same for accurate numbers. Yes, and for PAM liquid. like I mentioned in the last webinar, we have reduced the prices by INR2 rupees per kilo during this quarter. We’ve reduced the prices by INR2 during the last part.
Vineet — — Analyst
So sir, any further correction expecting in FY24. Yeah, theies prices will keep changing based on the raw materials.
Ambarish Daga — Joint Chief Financial Officer and Investor Relations Officer
So prices will constantly change depending on how the raw-material prices move. That’s what the chart is trying to show, that with the changes in raw-material, how the utilizations have changed. But what we are doing, as I said, is we are focusing more and more export volumes were the realizations are higher. So you may see — you may see realization in the domestic market coming down, but getting balanced out by the higher realization which you get into the export. [Speech Overlap] In other case, the realizations are still profitable and there are no issues with — even if the prices fall, we are well profitable of those business.
Vineet — — Analyst
So coming to acrylonitrile, it was mentioned that in April 2022, it was 1,900, which has fallen to 1,400 at March 2023/ So can you provide the average price for full-year?
Ambarish Daga — Joint Chief Financial Officer and Investor Relations Officer
What do you mean by average price — our average buying price?
Vineet — — Analyst
Yes, sir.
Ambarish Daga — Joint Chief Financial Officer and Investor Relations Officer
We do not share that information.
Vineet — — Analyst
Okay and sir, in March, it has gone down to 1,400. So, any market indications? How do you see going-forward?
Ambarish Daga — Joint Chief Financial Officer and Investor Relations Officer
Going-forward, acrylonitrile is still reducing. It is currently at around $1,200 levels. So prices have continued to fall. But fortunately, now we do not carry high stocks of raw-material. So since we are now working on a very lean stock position, we are able to take advantage of the falling prices immediately.
Vineet — — Analyst
Okay, sir, thank you, sir, best of.
Ambarish Daga — Joint Chief Financial Officer and Investor Relations Officer
This will help improve our margins in the coming quarters and in this quarter.
Vineet — — Analyst
And the margin improvement will be gradual. Am I correct?
Ambarish Daga — Joint Chief Financial Officer and Investor Relations Officer
The margin improvements have already taken place like [Technical Issues]. we have doubled our margin on acrylamide in the last quarter and we will continue to have.
Vineet — — Analyst
Sir, I was talking about our peak margins which we have around 11%, 12%. That may some gradually will up or you expect it in FY24 itself.
Ambarish Daga — Joint Chief Financial Officer and Investor Relations Officer
I’m sorry. Are you talking about acrylamide or are you talking about the whole company?
Vineet — — Analyst
Overall, overall.
Ambarish Daga — Joint Chief Financial Officer and Investor Relations Officer
Overall margins on distribution, also the margins have improved now. If you see our — if you see, our Q4 margins have improved over Q3. So, this margin improvement is gradually taking place as the prices start to stabilize, as our stocks start to become better managed in terms of not having too much stocks at high inventory costs. So as those stocks will reduce and as we are able to run more on a just in time basis, we are able to take advantage of the lower raw-material costs coming in. The margins are expected to improve.
Vineet — — Analyst
And that’s all from my side.
Operator
Thank you, Vineet. [Operator Instructions]. Anup ji, we have a couple of questions on the Q&A board. Will we take them?
Anup Jatia — Executive Director
Yeah, please do.
Operator
This question is Anup Bagadia, Can you share details about the toll manufacturing plant’s size and capex and [Technical Issues].
Anup Jatia — Executive Director
Anup, currently we cannot share any of those information. It is all under secrecy for you guys.
Operator
Thank you for that. There is participant calls himself anonymous attendee, can you quantify the possible revenue growth for FY24.
Anup Jatia — Executive Director
I’m not sure if I would be answering questions from anonymous attendees. I think they should be ready to disclose their name when they’re asking the question.
Operator
I completely agree that. Fried if you can please change your screen login name or login name. Maybe it will be easier for us to take the question to the management. We have a question from Ankit Babel,. Ankit, please go ahead.
Ankit Babel — — Analyst
Yeah, am I audible?
Operator
Yes, Ankit please go ahead.
Ankit Babel — — Analyst
Yeah, so, I’ll ask the same question. So. the point was that in FY22, your revenue was around INR343 with the EBITDA of around 13%. Now the expectations are very-high from FY23 numbers, you know, like a 15%, 20% growth, and 15% margins. But I understand there were a lot of macro headwinds and the results were not to that extent. So now, considering the fact that, you know, most of the things have normalized now, either the freight rates or the raw-material prices have stabilized. Even the macro-environment is stable. Demand is coming back. So, what is your outlook in terms of numbers for FY24 at the standalone level in terms of your revenue and EBITDA margins, including both distribution and manufacturing taking.
Ambarish Daga — Joint Chief Financial Officer and Investor Relations Officer
Okay, yes you’re right that a lot of things have rated to stabilize, but one of the things that we’ve learned from the previous quarters and the previous year especially, is that uncertainty is still always very-high. Things can change very rapidly and that’s what we saw last year in FY — between FY22 and FY23. things very early changed. So I would not like to give numbers for very — to tell you something which you expect for the entire FY24, I prefer to speak more on a quarter-to-quarter basis, which is when I have some — where I still have the visibility to some extent. So, I do understand your question, but just in order to avoid having misleading information, I would like to stick to giving my outlooks which I do — which have done today also, mainly on Q1 and Q2.
So coming to those — those — to that range of time, what I can see is that we do see that there is some developed stabilization in the market. But that said, prices are still falling. Whether they are the distribution products or whether they are the acrylamide raw materials, prices have not stopped falling. They are, still falling. The difference that has happened is, especially in our case, is that, earlier we carried heavy inventories of raw materials, as well as distribution stocks in anticipation of increasing demand, which didn’t happen during FY23. And that took us a few quarters to basically get outdoor and that’s why you see a lot of the numbers of FY23 as you do.
If at that time we did not guide those levels of stocks, those levels of inventories in anticipation of the increasing demand, our realization — our profitability and margins would not have been got the way they were getting. So what we done — we are playing cautious. We are now — our focus is now on maintaining inventories at reasonable levels, but closer to minimum levels, not minimum, but closer to minimum levels so that we are able to take — so that we’re able to follow our sales along with the raw-material price falls because customers expect prices to be corrected the moment they know raw materials have come down and this is what we have to plan our [Technical Issues]. So. a lot of the margin improvement that you will see in this coming quarters, is going to be from better procurement planning. The demand still locally is not as strong as it used to be back in — excuse me, back in FY 22. Demand of course, it depends on the product and depends on the area. But for example in the Morbi, the PAM liquid side for example, the demand is not back to what it wasn’t FY22 still.
On Acrylamide as well, a lot of Acrylamide actually goes into that same market. So again, the demand in that sector is not as strong as it used to be. On exports, demand on the export side from Europe, if you see the overall demand of the region, it is not increasing. But our demand or our sales in those regions is increasing because customers are now having the necessity or the need or the desire to spread out their raw-material sources. So this is where we are seeing our advantages, and this is where we are seeing openings for our company. And that is why our exports are increasing more and more, right now. So, this is really the direction that the company is taking. I would like to say that we should be able to grow our revenues by 10%, 20%, 30% in this year. But again these are — these are statements which we will have to gradually — gradually make. I cannot — I cannot tell you that’s the way. We will discuss this quarter-to-quarter on these webinars and then we’ll be able to update you better information.
Ankit Babel — — Analyst
Sure, but sir, is it fair to assume that in the first-half, that’s a near-term outlook, you can do at least a double-digit kind of margins, because as you said that our inventory levels are low, we are cognizant of this fact that and we are keeping inventories low. So in the near-term, can the margins be double-digit?
Anup Jatia — Executive Director
Our gross margins even today are double-digit, on most of the products I would say.
Ankit Babel — — Analyst
No. I am talking about the EBITDA margins.
Anup Jatia — Executive Director
Even the EBITDA margins on our, for example, on our manufacturing site, they are in double-digits even today.
Ankit Babel — — Analyst
Okay, so my second question is on the PAM solid project. I mean, it’s in that R&D since last one year now. So when do you expect the construction to start and why it’s taking so long time.
Ambarish Daga — Joint Chief Financial Officer and Investor Relations Officer
So like I said last-time, the project requires a lot of very detailed research. India is not — does not have this technology available. It’s not like I can hire somebody who knows this research in and out, and we just simply start a plant. This technologies require time to be developed. And we like we want to basically develop this technology in house so that we are able to have freedom in sales of our product. That being said, there is a lot of work happening right now there and I can’t disclose too much right now, but whenever there are changes which — we will disclose to you. We will come to you. But there are some developments ongoing, which hopefully we’ll be able to share with you soon.
Ankit Babel — — Analyst
Thank you so much sir. Thank you, Ankit.
Operator
[Operator Instructions]. Presentation ad opening remarks I think they have answered the questions. [Operator Instructions]. Anup Ji, over to you for your closing remarks.
Anup Jatia — Executive Director
Yeah, okay, so thank you everyone for joining the webinar today. I would just like to leave you with the feel and the sense that we have currently within our organization. But the the mood is relatively good. The mood is of improvement. The mood is of better results, better opportunities and a lot of new developments which are going on. So it’s difficult to share that on a webinar. But you know, whenever we are able to again add for example our AGM and other things in physical more. I think that’s something that I would like to share with all of you. But yes,, things are looking good. I would like to say things are looking better, and we hope that in the next webinar, we can share more information with you. And any of these new developments that we’re working on, whenever something is — comes up, we would like to share with you as soon as we can as well. So thank you and all of you have a great day. Thank you very much.
Operator
Tank you, Anup Ji, Thank you, Ambarish. On behalf of SKP Securities, thank you for — thank you to everyone for participating in this webinar. In case you have any follow-up questions or remaining is remaining unanswered, please feel free to write to me. My email address is there on the invite and we’ll take it up with you. Thank you once again, Anup Ji and Ambarishc Ji. and have a wonderful day.
Anup Jatia — Executive Director
Thank you.
Ambarish Daga — Joint Chief Financial Officer and Investor Relations Officer
Thanks.