Categories Consumer, Latest Earnings Call Transcripts

EID Parry (India) Ltd (EIDPARRY) Q2 FY23 Earnings Concall Transcript

EIDPARRY Earnings Concall - Final Transcript

EID Parry (India) Ltd (NSE:EIDPARRY) Q2 FY23 Earnings Concall dated Nov. 14, 2022

Corporate Participants:

Mr. Nitin AgarwalManaging Director & Head Institutional Equity Research, Lead Analyst

Mr. Suresh KannanFull Time Director

Mr. A. SridharCFO

Analysts:

Rajesh MajumdarB&K Securities — Analyst

Devang ShahInvest Savvy. — Analyst

Ritwik ShethOne-Up Financial — Analyst

Anushree GandhiAlpha Invesco Research Services Limited — Analyst

Nitin AwasthiInCred Equities — Analyst

Gautam DedhiaNalanda Securities — Analyst

Rajkumar VaidyanathanIndividual investor — Analyst

Presentation:

Operator

Ladies and, gentlemen. Good day and. Welcome to the EID Parry Q2 FY 23 Earnings Conference Call hosted by DAM Capital Advisors Limited. [Operator instructions.]

I now hand the conference over to Mr. Nitin Agarwal from DAM Capital Advisors Limited. Thank you. And, over to you, sir.

Mr. Nitin AgarwalManaging Director & Head Institutional Equity Research, Lead Analyst

Thank you. Hi. Good afternoon, everyone. And a very warm welcome to EID Parry’s Q2 FY ’23 Earnings Call, hosted by DAM Capital Advisors Limited. We thank the EID Parry management for giving us the opportunity to host this call. On the call today. We have, representing EID Party management, Mr. Suresh, Managing Director, Mr. Muthiah Murugappan, Full Time Director and CEO, Mr. Suresh Kannan and Full Time Director, Parry Sugars Refinery India Private Limited, Mr. A. Sridhar, Chief Financial Officer and Mr. Biswa Mohan Rath, Company Secretary.

I’ll hand over the call to the EID Parry management to make opening comments and then, we’ll open the floor for Q&A session. Please go-ahead, sir.

Mr. Suresh KannanFull Time Director

Yeah, thank you. Good afternoon all. I am Suresh from EID Parry. It gives me great pleasure to be part of this analyst call to share an update on the global and Indian scenario and explain the Q2 performance of the company.

On the global scenario, higher crop, especially in Brazil and India is expected to result in a global surplus for the sugar year ’22 – ’23. Surplus and Global Med was in the form of sound [Indecipherable], which is bearish for the commodity, picking the sugar prices [indecipherable]. However, trade flows, especially in [Indecipherable] are tight in near time, necessitating Indian sugar to flow to global markets. Therefore, raw sugar prices have to move-up in the near-term to facilitate the scene. Change in Brazilian fuel tax policy in medium-term also can increase the floor price.

Coming to the Indian scenario, for the sugar year ’22 – ’23, the sugar production in India is expected to be around 36.5 million tons, after the diversion of 4.5 million tons taken out. While the FRP has been increased to rupees 3050 or 10.25% recovery for sugar year ’22 – ’23, there has not been any increase in the domestic. The government has recently announced the export policy for sugar year ’22 – ’23 for 6 million to be exported by May 2023. It is encouraging to note that the ethanol prices have been increased for the ethanol year ’22 – ’23.

Coming to the standalone performance for the quarter and the half that ended September 2022. The operating performance of the company during the quarter on a standalone basis was significantly better than the corresponding quarter of the previous year, on account of better volumes and realization in sugar power and distillery. The Company crushed around 8.38lakh metric tons in the current quarter as against the 6.6 lakh metric tons in the corresponding quarter of the previous year. Higher-power tariff rates helped in better profitability of the power segments. Distillery profitability has been lower due to higher fuel cost. The standalone revenue from operations for the quarter ended 30th September 2022 was Rs 646 crores, registering a growth of 47% as against Rs 438 crores in the corresponding quarter of previous year. Earnings before depreciation, interest and taxes EBITDA for the quarter ended was Rs 125 crores as against Rs115 crores in the corresponding quarter of previous year.

Standalone profit-after-tax for the quarter was Rs 85 crores as against Rs73 crores in the corresponding quarter of previous year. The standalone revenue from operations for the half year ended 30th September, 2022 was Rs 1,368 crores, registering a growth of 54% as against rupees 888 crores in the corresponding period of the previous year. Earnings before depreciation, interest and taxes EBITDA before exceptional items for the half year ended was Rs 136 crores against Rs 111 crores in the corresponding period of the previous year. Stand-alone profit after tax for the half year ended was Rs98 crores as against rupees Rs40 crores in the corresponding period of the previous year.

The Sankili unit 120 KLPD multitude distillery unit project is progressing as per schedule and should commence production as per the plan. During the quarter, the Board has approved setting up of 120 KLPD distillery in Haliyal, with a capital outlay of Rs 181 crores.

Now coming to the consolidated performance for the quarter and half year ending 30th September. The consolidated revenue from operations for the quarter ended 30th September Rs 11,328 crore, registering an increase of 62% as against rupees Rs 6,978 crores in the corresponding quarter of the previous year. Earnings before depreciation, interest and taxes for the quarter ended 30th September 2022 was Rs 978 crores, registering an increase of 27% as against Rs 772 crores in the corresponding quarter of the previous year. Consolidated profit-after-tax and non-controlling interest was reduced Rs 241 crores compared to rupees to Rs 244 crores in corresponding quarter of previous year. The consolidated revenue from operations for the half year ended 30th September 2022 was Rs18,474 crores, registering an increase of 63% against Rs11,333 crores in corresponding period of previous year.

Earnings before depreciation, interest and tax loss and before exceptional items for the half year ended 30th September was Rs1732 crores as against Rs1,266 crores in the corresponding period of the previous year. Consolidated profit after tax and non-controlling interest was Rs518 crores compared to Rs376 crores in the corresponding previous year. And the sugar division, the consolidated sugar operations, including refinery business, reported a loss before interest and tax of Rs 155 crores for the quarter. Corresponding quarter of the previous year, loss was around Rs 28 crores. Refinery business had a setback during Q2, as there were two accidents at the factory, which resulted in the stoppage of the factory, though the site had an excellent work safety record. We have to perform several audits to restore the factory to normal operations [Indecipherable] running from October. And this accident has resulted in some demurrage.

Coming to farm inputs division, the consolidated farm input operations reported a profit before interest and tax of Rs1,061 crores for the quarter. Corresponding quarter of previous year, the profit was INR732 crores. Nutraceutical division. For the quarter, consolidated nutraceutical division registered a loss before interest and tax of rupees Rs3 crores. The corresponding quarter the previous year had a loss of Rs 8 crores.

I’m glad to announce that the Board of Directors have recent held held on 11th November 2022, have approved an i nterim dividend of Rs 05.50 per each of the shares, i.e. 550% on a facevalue of Rupee 1 each. Now I request Mr. Sridhar, our CFO, to explain you on the segment-wise financial performance. Over to you, Mr. Sridhar.

Mr. A. SridharCFO

Thank you, Suresh and good afternoon to all participants. It’s a great pleasure to be part of this earnings call and to share with you information on the operating and financial performance of the company. I would like to share a few operating parameters of each of our segments. On the sugar operations, the crushing at Nellikuppam and Pugalur units were carried out for 77 days and 89 days respectively during this quarter. I would like to share the quantitative details as under.

As far as the crushing is concerned, we crushed about 8.38 lakh metric tons when compared to the previous year same quarter, where it was at 6,60,000 metric tons. On the recovery for quarter two, we were at 8.86% compared to last year, the corresponding quarter of previous year, which was at 8.71% up. The production was around 0.65 lakh metric tons against corresponding quarter of previous year, which was at 0.57 lakh metric tons. The gain cost for the quarter two, the procurement cost was at rupees Rs 3,062 per metric ton and last year same-period it was Rs 2,971 per metric ton.

For the quarter two, we achieved a sales volume of around 1.17 lakh metric tons, of which domestic was 0.90 lakh metric tons and export was 0.27 lakh metric tons, and the previous year, we were at 0.84 lakh metric tons, of which domestic was 0.77 lakh metric tons and export was 0.07 lakh metric tons.

With reference to the selling price for quarter two, we were at Rs 35.99 per kilo against the previous year price of Rs34.76. The closing stock was at 0.85 lakh metric tons as of end September 2022. Revenue from sugar was at Rs 466 crores in quarter two as against the previous year, which was at Rs 313 crores. And that this is an increase of about 49% over the pervious year. No cane dues as of today, all FRP is paid on-time.

Getting into Cogent segment, the power generation during quarter two was at around 716 lakh units against previous year, which was at 570 lakh units; of which, we have exported around 380 lakh against previous year, which was at 287 lakh units. The. Average rate for the quarter was Rs4.46 per unit as against the previous year, which was our Rs3.3 per unit.

Revenue for the quarter was Rs 28 crores against previous year, which was Rs18 crores. As far as distillery operations are concerned, we sold around 231 lakh liters in the second-quarter as against the previous number of under 165 lakh liters. Of which EMA was 61 lakh liters for the current year and in the second-quarter and last year second-quarter was 62 lakh liters, And the ethanol was 170 lakh liters and the previous year number was 103 lakh liters. On the price realization, we’ve fetched Rs58.38 per liter as against the previous year realization of rupees Rs54.55 per liter.

On the revenue front. we were at Rs140 crores compared to previous year which was at 92 crores. On the neutra segment for, quarter two the turnover from Indian operations were at about Rs 22 crores as against the previous year number of Rs 21 crores.

In the consolidated — at the consolidated level, the neutra business turnover was at Rs73 crores against the corresponding previous year which was Rs62 crores. With reference to the refinery operations. The operating revenue — operation revenue for the quarter two was at Rs 582 crores and the last year, we were at 350 crores and the PBT for the quarter was a loss of, about 148 crores versus a loss of 15.5 crores in the, previous year. The refined sugar production for the quarter two was at 0.97 lakh metric tons and the previous year number was 0.33 lakh metric tons.

Referring to the sales for quarter two was 1.48 lakh metric tons and the previous year number was 1.24 lakh metric tons. The long-term loan continues to be at Rs200 crores and as far as the short-term borrowings is concerned, it is currently at 327 crores as against Q2 of last year, which was at Rs648 crores. And now, moving the floor open for any questions that management could answer thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator instructions] Ladies and gentlemen, we will wait for a moment while the question queue assembles.

Mr. A. SridharCFO

Yeah. Can you hear us please?

Rajesh MajumdarB&K Securities — Analyst

Yes, sir. Hello?

Operator

Yes we can hear you, sir.

This is the operator. Sir, you are audible.

We’ll take the. First question from the line of Devang Shah.

Rajesh MajumdarB&K Securities — Analyst

Hello?

Operator

Yes you’re audible. Ladies and gentlemen, please stay connected while we reconnect the management line. Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. We’ll take the first question from the line of Devang Shah from Invest Savvy. Please go ahead.

Devang ShahInvest Savvy. — Analyst

Yeah, good afternoon, gentlemen. I had a question regarding the utilization levels, now the presentation said that utilization for distilleries is around 90% to 95%. And the capacity was given as 417 KLPD, including 120 KLPD coming in December ’22. So I wanted to know that is the current capacity 90% to 95% of the 297 KLPD which is currently there or it is 90% to 95% taking 417 itself?

Mr. A. SridharCFO

No, the capacities what we are referring to as 90% 92.% is on 295 lakh KLPD, will come into operation from quarter-four of this financial this financial year.

Devang ShahInvest Savvy. — Analyst

Okay, so while it’s said December ’22, you are saying production will start by when, why — when would you expect production to start there?

Mr. A. SridharCFO

Quarter-four, beginning of quarter-four, we should be able to have our commercial production commenced.

Devang ShahInvest Savvy. — Analyst

Okay and when it starts is there a lead-time like as in, initially, the capacity is lower and then it build up, or how?

Mr. A. SridharCFO

Yes, we have taken about — around 15 to 20 days for the initial startup.

Devang ShahInvest Savvy. — Analyst

So, in Q4, what percentage of this capacity would you be able to utilize on an average?

Mr. A. SridharCFO

See, three months capacity we should be able to, see 120 KLPD, we should, be able to run a syrup based ethanol for the entire quarter.

Devang ShahInvest Savvy. — Analyst

Okay so the full benefit should come in Q4. Great. Now the other thing is that, the sugar revenues have been dipping even though the sugar prices aren’t down that much, so last two quarters we’ve seen a sharp fall in the revenues in the sugar and the co-generation segments, now what is the reason for that?

Mr. A. SridharCFO

I didn’t understand your question. Are you saying the revenues have come down?

Devang ShahInvest Savvy. — Analyst

Yeah.

Mr. A. SridharCFO

I mean, the revenues are actually higher compared to what it was in the previous year.

Devang ShahInvest Savvy. — Analyst

Yeah no I’m saying quarter-on-quarter, quarter-on-quarter, we’ve seen a dip from seven — Rs695 crores to around Rs525 crores or something now.

Mr. A. SridharCFO

Yeah, see the sugar sale depends on the government release order. Based on the quantities [Indecipherable], we sell our volumes. So what happens is, in a sugar year is between April to September when we look at, the inventory levels will come down and gradually keep increasing from October. So the release order also is dependent on the closing stock of the industry. So naturally between the March closing and the June closing, the inventory levels come down and also the release order mechanism reduces for the quarter. So if you want to compare between quarter one and quarter two, there will always be a reduction in volume in quarter two, because the inventories would have got reduced, based on which the DFPD will squeeze the release quota, allots the release quota, I’m sorry. Yeah.

Devang ShahInvest Savvy. — Analyst

So you expect revenues to go up in this quarter?

Mr. A. SridharCFO

Yes. When the production commences, the release mechanism also increases.

Devang ShahInvest Savvy. — Analyst

Okay and what do you see as — last question, what do you see as the EBITDA for Q3 what guidance would have for Q3 and Q4?

Mr. Suresh KannanFull Time Director

So we don’t we don’t give forward guidance. I think we’re encouraged by what we see on-ground. But we don’t give forward guidance. I think our whole program of expansion of sugarcane crush running more efficient operations, more cost effective operations is giving encouraging signs. Also the distillery segment coming in more strongly is giving encouraging signs, we don’t give forward guidance. So I’ll have to pass that question.

Devang ShahInvest Savvy. — Analyst

Sure, thanks a lot.

Operator

Thank you. The next question is from the line of Rajesh Majumdar from B&K Securities. Please go ahead.

Rajesh MajumdarB&K Securities — Analyst

Hi. Good afternoon, sir and thanks for taking the question. So my first question, sir, is normally for the quarter, when we see the cash flows go up a lot because of the inventory unwinding. But in this case, I’m seeing the standalone cash-flow from operations has fallen significantly from Rs305 crores to Rs88 crores. Could you cite the reason why this has happened? Because normally, 1-H, the cash-flows go up a lot and then we build-up the inventories over 3Q and 4Q, and the cash-flow start coming off. So that was the first question.

Mr. A. SridharCFO

Yeah, may I answer that? Yeah, as far as the cash-flow is concerned for the quarter two, there are few factors which is influenced. One is our September sales volumes were higher because of which the receivables at the end of September has been higher and we are also closed — paid out some of our agri financing loans during the quarter. So that is one reason where you will find the current liability is also come down substantially during the this quarter, so that is one region where the operating cash-flow has been lower, and it will get corrected itself in the subsequent quarter.

Rajesh MajumdarB&K Securities — Analyst

But why have the receivable gone up so much, sir, in the quarter, any reason for that?

Mr. A. SridharCFO

I didn’t get you.

Rajesh MajumdarB&K Securities — Analyst

Why has the receivables have gone up by so much in this quarter, is it because of higher volumes?

Mr. A. SridharCFO

There are two — I mean, one is volume increase in the month of — sales in September, and also there are certain payable — receivables, where it is receivable in the month of – in the 3rd quarter. We have supplies made on letter of credit and we will be getting the payments in the 3rd quarter.

Rajesh MajumdarB&K Securities — Analyst

Okay okay, got it, got it, got it. Yeah. So, thanks.

My second question was regarding the nutraceuticals business. The domestic nutra business has seen a sharp jump in the profitability and the segment results are showing five crores over 22 crores. Now that’s a significant improvement over last year over quarter-on-quarter, whatever you see it — so is this a sustainable trend, because the margin is pretty high or is there like — how do we read this number?

Mr. Suresh KannanFull Time Director

So. Rajesh, thanks for your question. I think reasons for this is, I think, some efficiency improvement exercises and some good demand in the U.S. and the European market wise. So if you look at our H1 numbers on nutraceuticals, where it’s a small-business, it’s only a Rs 60 crore, Rs70 crore business, but we’re up to about — PBIT levels of about north of 15%, I think it’s about 17% or 18% to-date, which is sort of standard for this industry for a well-run business in this industry. So this is on a lot of — a lot of operational improvement that we’ve been working on for some time and some reasonable demand.

We are — we remain hopeful for the rest of the year. One caveat though, there are some changes to the European regulation, which has sort of brought about some changes to the certifying bodies, and the manner of certifications, so there may be a bit of a lag based on that, we’re still trying to get into the detail and plan for that. So that may slow things down little bit in the H2. But otherwise, we are quite hopeful about nutraceuticals from a standalone perspective.

Rajesh MajumdarB&K Securities — Analyst

Yeah and the follow-up question was, the consol number is still losing some money. So do we see that also improving over the next few quarters or so?

Mr. Suresh KannanFull Time Director

So, on the consol, we will be in a burn mode for a while because we are funding the B2C program or the D2C program rather, out of the U.S. subsidiary, the U.S. wholly-owned subsidiary of Valensa, the Flomentum business, which is the consumerization of the prostrate health verticals, which is one of our — which is really our largest vertical at a consol level in neutra. So we will continue to be on a burn mode. I think what is encouraging there is that the palmetto berry crop, which sees harvesting in the — sort of August to October period has come out well this year our cost of berry — sort of overall cost have come in at sort of a good level, less than the overall COGS of the berries last year. So I think this should help from a margin perspective, as we go into Q4, we still have stock of last year’s berries. And that will run Q3 but from a Q4 and the back-end of the year perspective, a lot of the new stuff will start coming into the COGS which is encouraging, encouraging sign. But we will continue to be in a burn mode as we build that B2C business. We’ll talk to you more about Flomentum, it’s now at about an annual run-rate of a $1 million, just north of $1 million this year. So it is slowly picking-up and we are focused on the ramp-up there. That’s why there is a negative on the consol, it will be there for a while until we’re able to really break-out on the B2C side.

Rajesh MajumdarB&K Securities — Analyst

Right, sir. And what is the total amount of capital we expect to be employing in this nutraceutical business per annum?

Mr. Suresh KannanFull Time Director

I think see the current capital employed is about Rs275 crores. Yeah, so we’re not so, we’re not — I don’t see a drastic increase on the capital employed here, where the funding of the D2C scale-up is largely out of revenue, that’s why we we’re reporting we’re reporting a burn and it’s largely out of revenue expenditure. We will determine on the basis of how the Flomentum program goes, whether we need to capitalize the the subsidiary company there further to aid the growth but that’s not a decision we’re looking at in the near future, we need some more time to see how things pan-out.

Rajesh MajumdarB&K Securities — Analyst

And sir, my last question was, we have seen a very-high quarter of refining margins in Q2 for most companies and refined sugar margins have gone through the roof, literally, from September or even slightly earlier than that but we have not seen any such description in our subsidiary results so how do we read this, I mean even in the best quarter, this subsidiary jas failed to make any money.

Mr. Suresh KannanFull Time Director

Good afternoon, Suresh Kanan here, you’re right in your observation that the white premiums, which is the difference between the raw sugar and the refined sugar prices, went up, though they all went up very close to the futures contract expiry, so I think is not 100% realizable by the most operating refineries globally. That being said, our own margins in terms of spreads improved in the second quarter of the year compared to the previous year substantially. Unfortunately, we were set back on account of the plant operation closure, that has arisen out of accident, but on the sale and the margin side, yes, we also got benefited on that account.

Rajesh MajumdarB&K Securities — Analyst

So that’s a one-time expense report for the the accident which is there for the quarter right?

Mr. Suresh KannanFull Time Director

That’s, right.

Rajesh MajumdarB&K Securities — Analyst

And how are the margins prevailing now in the 3rd-quarter on a say, 45 day basis over last quarter?

Mr. Suresh KannanFull Time Director

Yeah, at the moment, the margins have softened a little bit from the peak that what we have seen but they still remain strong and the evolution of the developments, especially of how the Indian sugar flows out in the global market in terms of white and refined sugar, that will determine the forward white premium. So in a nutshell, yes, things have improved. However, the peak level that what we have seen in the second-quarter period that I think will be very difficult to expect it to come again.

Rajesh MajumdarB&K Securities — Analyst

And what is the utilization of the refinery right now?

Mr. Suresh KannanFull Time Director

Barring the outage on account of accident, the refinery has been running flat-out to the extent of 90% of its capacity.

Rajesh MajumdarB&K Securities — Analyst

Thank you. Thank you so much. Thank you. [Operator instructions] The next question is from the line of Ritwik Sheth from One-up Financial. Please go ahead.

Ritwik ShethOne-Up Financial — Analyst

Yeah. Hi, good afternoon and thank you for the opportunity, sir. Sir, I have few questions. Sir, firstly what is the landed cost of cane for us?

Mr. A. SridharCFO

I mentioned that, right. The landed cost of cane is Rs3,062 for the quarter.

Ritwik ShethOne-Up Financial — Analyst

Okay, okay. That is landed cost.

Mr. A. SridharCFO

It will change subsequently in the quarter three and quarter four, when the crushing season starts. As of the quarter it is Rs3,062 per metric ton.

Ritwik ShethOne-Up Financial — Analyst

Okay, sir. Sure. And sir, with current 297 KLPD, we are almost running flat-out. So we’re at about Rs 9 crore of ethanol in from that — from the current capacity, what is our expectation from the next two plants,120 KLPD at Sangli, and another 120 KLPD that we have just announced? Would it be higher in terms of volume or if you can throw — what would we the peak ethanol say that we can do both these capacities are commissioned?

Mr. Suresh KannanFull Time Director

So Ritwik, each 120 KLPD plant should add about 3 crore to 3.25 crore liters of alcohol. So you will go up close to seven 6.5 crore to 7 crore liters, 6.5 crore rather.

Ritwik ShethOne-Up Financial — Analyst

So it will be close to 15 crore, 16 crore liter by FY ’24 end?

Mr. Suresh KannanFull Time Director

No, so you will. You will be, yeah, you will be closer to 17 crore or 18 crore liters.

Ritwik ShethOne-Up Financial — Analyst

17 crore or 18 crore liters, sure. And sir, with our existing crushing capacity is there any scope for further increasing the capacity beyond FY ’24? I know it’s a bit out but just with our existing 40,000 tons per day capacity, are we reaching near the peak with this 537 KLPD once both these plants are commissioned or what can be the peak distillery capacity that you can envisage?

Mr. Suresh KannanFull Time Director

So, Ritwik, we are getting close to the peak. We have two standalone sugar mills. One is a lease model and one is sort of a conventional model. We haven’t determined yet whether we need to add capacity there. With existing distilleries, you might see small augmentation. So I think you will — answer to your question is, with the new capacity expansion that’s announced, you will be largely, it will be largely spoken for in terms of the feedstock to the distillery capacity, desired sort of balance that we want to have. Perhaps we will determine at a future date whether anything further need to be done.

Parallelly, we will also look at small augmentations in existing units based on what market realities are.

Ritwik ShethOne-Up Financial — Analyst

Okay. Sure, sure. And sir my final question is on the refinery bid. In the presentation we have mentioned that the spreads are about $45 per ton, so the conversion cost has gone up to $50 per ton plus, so that’s a negative EBITDA margin for us. So how do we look at this refinery business, because on a consistent basis, I believe we have been unable to get some positive traction on this, just wanted your thoughts on this.

Mr. Suresh KannanFull Time Director

Yes sure. I think what we are seeing in the refining margins is basically a lag effect what you have identified from the charts, whilst the energy prices have gone up and have started softening if there was the reaction in terms of the white premium rate in the market was a bit out, it took time. The second one is of course the refinery has additional revenue streams over and above the spread what you see in that chart because we don’t — we upsell our sugar as Parry brand sugar as a result of it we also get some cash premium, which is over and above the spread that’s available on the exchange as it is. As we speak, both the base level of spreads as well as the cash that’s available over and above the spreads have improved for the refinery operation and therefore, we are in a position to cover the cost of refining and I think the picture what you’ve seen for last year is basically indication of lag.

Ritwik ShethOne-Up Financial — Analyst

Okay, okay.

Mr. Suresh KannanFull Time Director

Just to answer your the second-half of the question. There has been improvement as far as refinery bottom-line is concerned and in fact the last three consecutive quarters, we have been operating on a cash-positive and cash-positive plus basis. We were on the same momentum in the second-quarter also but for the special events, we could have continued that journey.

Ritwik ShethOne-Up Financial — Analyst

Okay and sir, you mentioned that there some one-time expense, can you quantify that among in Q2?

Mr. Suresh KannanFull Time Director

So out of this one-time, we have this couple of cluster of these expenses. One is relating to the vessel waiting because in sugar, sugar is sold, delivered on a vessel, so vessel waiting charges, which we call as demurrage, what we are likely to incur that has been taken in and of course there is also a mark-to-market element as part of that number that we have reported which is purely based on the Forex movement and I think, as foreign-exchange keeps changing, this gets reflected in our financial report. But we are a U.S. dollar-based company, and we hedge our exposures to that extent, it is not a settled loss.

Ritwik ShethOne-Up Financial — Analyst

Okay, okay. That’s it from my side and all the best and thank you.

Mr. Suresh KannanFull Time Director

Thank you.

Operator

Thank you. The next question is from the line of Anushree from Alpha Invesco. Please go ahead.

Anushree GandhiAlpha Invesco Research Services Limited — Analyst

Hello, am I audible?

Mr. A. SridharCFO

Yeah.

Anushree GandhiAlpha Invesco Research Services Limited — Analyst

Hello, sir. Good afternoon. I just, wanted to know your outlook on the refinery business and what other steps that we are looking looking at and what spreads we expect going-forward? And also, sir, just correct me if I’m wrong but my understanding of spread is that it’s the difference between London white sugar and New York raw sugar prices, which was around $135 per ton as of November ’22. So it would be really helpful if you can explain the difference between our reported spend and these numbers. And also what other numbers are taken into consideration for calculating these spread? Like the shipping cost, logistics, energy and how much are these numbers on a per ton basis? So I just wanted to get an idea how do we arrive at the said spread?

Mr. A. SridharCFO

Thank you. The numbers that what you have quoted in terms of in the raw sugar and refined sugar prices is what we call as a white premium. This is basically, it’s based on the exchange, these are FOB and two FOB terms there is a cost of originating the sugar that needs to be netted off from and that varies depending upon the sourcing, whether we source from Brazil or from India, so these are origination cost, which is in terms of freight and other expenses, it can be in the region of $50 to $60, depending on the market. And that’s how the spread is calculated, starting from the difference.

The other one, of course, the elevated values that you see are more synthetic they are not directly transferable to a physical businesses because this is a difference between two exchanges in what we see as a derivative and typically this flares up at some market event necessarily due to the. Fundamental market conditions.

Anushree GandhiAlpha Invesco Research Services Limited — Analyst

Okay. And what is what is — what do you expect for the refinery business like how can it — so what spreads are we looking for as we’re going-in the next quarter and for the full-year?

Mr. A. SridharCFO

Typically we are still seeing a tightness as far as the trade flow of the refined sugar is concerned. So as long as this buoyancy in demand post COVID opening and the tightness in supply continues, I think the white premiums will remain. It may not reach the elevated or higher levels than what we have seen earlier but we will be able to see this spreads maintaining probably at the region of $45 to $50 per ton level. And beyond the quarter, it will depend on basically the how the Indian exports pans out and so, that can have a positive or a negative impact on this spreads and margins.

Anushree GandhiAlpha Invesco Research Services Limited — Analyst

And so at what spreads can we breakeven?

Mr. Suresh KannanFull Time Director

I think if all other factors are in place. I think our breakeven would be in the region of around $40 to $45 of spread.

Anushree GandhiAlpha Invesco Research Services Limited — Analyst

Sorry, I didn’t get it. What was the current spread this quarter?

Mr. Suresh KannanFull Time Director

This quarter we leased around $50.

Anushree GandhiAlpha Invesco Research Services Limited — Analyst

Okay. Okay. Thank you. That’s it from my side. Thank you.

Operator

Thank you. The next question is from the line of Nitin Awasthi from InCred Equities. Please go ahead.

Nitin AwasthiInCred Equities — Analyst

Thank you for the opportunity. So. I would like to understand what’s happening on the Pharma education plant in Karnataka. So we’re hearing that is is demand for revision of the [Indecipherable] and they’re demanding a [Indecipherable] of Rs 3,500 if I’m not wrong? And there’s also some committing being set-up for sharing of the profit or byproducts of sugar, like ethanol et-cetera. So could you just shed some light on this?

Mr. Suresh KannanFull Time Director

So Nitin thanks for your question. Yes we have seen a lot of farmer hesitations around Karnataka. Two of our mills that started on-time, in Ramdurg and in Bagalkot. In the Haliyal mill we had a bit of a delayed start because there was agitations and I think agitations across the state have been on account of obviously farmers wanting a better — a better price. We only pay FRP. we don’t deviate from that sum. Our mill in Haliyal is now running, and I think agitations have sort of been diffused. Our mill is running. There are these murmurs in terms of what you had said. But nothing is officially been notified to us by the government authorities. So. I think we continue to push forward. This is the existing pricing direction that we have. Thus far, we have not heard anything from Karnataka Government with regard to an SAP. And so we will — we will sort of respond to these realities once they’re officially notified to the company, that’s the current situation. Agitations across the state, some have been diffused, some continue to remain. In different geographies of the state. But our mills are now functioning for the season. And we are sort of focused on delivering our sort of agreement in terms of numbers.

Nitin AwasthiInCred Equities — Analyst

Got it, sir. And you’re saying there has been no communication where you have been called by the state government on the profit-sharing mechanism?

Mr. Suresh KannanFull Time Director

As I said, there has been no official notification. I mean we’re hearing similar murmurs like you saw. We always keep our eyes peeled and our ears to the ground. But we can only respond once that are official notifications.

Nitin AwasthiInCred Equities — Analyst

Okay, sir. Thank you. That’s all from my side.

Operator

Thank you. The next question is from the line of Gautam Dedhia from Nalanda Securities. Please go ahead.

Gautam DedhiaNalanda Securities — Analyst

Hello. Can you hear me?

Operator

Yes, sir. Please go ahead.

Gautam DedhiaNalanda Securities — Analyst

I just wanted to know like, these one-time expenses that we’ve recorded in the refinery, do we have any insurance cover anything that we can benefit from?

Mr. Suresh KannanFull Time Director

We have insurance covering certain portion of these losses. So we are working with the agencies in terms the claim process. Early-stage for us to comment fully.

Gautam DedhiaNalanda Securities — Analyst

Okay and just one of your presentation slides mentioned that you want to reduce the cost of production for your cost of conversion. So what is the goal by FY ’25? So it’s at 50 right now.

Mr. Suresh KannanFull Time Director

Yeah our goal is basically to go back to our earlier level. See, for us it’s more than the absolute number, what matters is being at the lowest-cost bracket of refining because the rest of it we expect the market to take care of in terms of large changes in the cost inputs. Our basic aim is to go back to the levels that what we have achieved in the past.

Gautam DedhiaNalanda Securities — Analyst

Okay and sir one last question is in the last six months, what — how many refineries have shut-down. have there been any major refineries that have shut-down because of these energy prices?

Mr. Suresh KannanFull Time Director

Well not that we hear of in this part of the world but there has been acute fuel shortages for fuel price increases there have been some outages that we hearing in Europe and some part of Mediterranean. There are also export bans that have been put on some refineries because of the local government consideration of food security and other related development.

Gautam DedhiaNalanda Securities — Analyst

Okay, thank you, sir.

Operator

Thank you. The next question is from the line of Rajkumar Vaidyanathan, an Individual Investor. Please go ahead.

Rajkumar VaidyanathanIndividual investor — Analyst

Yeah, good afternoon thanks for the opportunity. Sir, I have three questions if you permit me, I’ll ask all the questions that one-go and then you can answer. The first question is given the good rains in Tamil Nadu for the current year and the past year, just wanted to know what would we expect our units in Pugalur, Nellikuppam and Sivaganga to have a record production in the days to come? And also it would be helpful if you could give some numbers Y-o-Y in terms of how better it would be? And just to, and extending the same point, I just want to know, are we looking at any organic and inorganic opportunities in Tamil Nadu given that the state is coming out of a very long, lean season from a sugar standpoint?

And then the second question is are there any dues from the Tamilnadu Electricity Board, because I believe there were some settlement done, so just wanted to know what-if there is any amount and if there is any other income booked due to that?

And lastly, the third question is with the revival in the global carbon credit market, just wanted to know, would that be any meaningful impact to our bottom-line in the short-term and mid-term?

Mr. Suresh KannanFull Time Director

So Rajkumar thanks for your question. I’m going to answer three of them and sort of defer one to Sridhar. In terms of TN rain, and we’ve had good monsoon last year, the current year as well, been a good monsoon there are increased cane areas in Tamil Nadu, both mills, Nellikuppam and Pugalur will see better volumes of cane crushed. I think we talked about that as an encouraging sign earlier in this call in the previous quarter as well, where we see as a company volumes of cane crush going up across all our areas. Karnataka we have a new mill, the Pudukottai mill, which was transferred to the Karnataka unit. So we will see a higher-volume of cane crush. Cane availability in Karnataka of course is not any issue. In TN as well we do expect to see improved cane crush numbers on the back of a larger cane area which has been planted over the last two years. So that’s on the TNP.

In terms of inorganic opportunities in Tamil Nadu. No, we are not looking at inorganic opportunities in Tamil Nadu. We’ve looked at, we obviously study our history deeply and we also study perhaps opportunities which are available. To us at this point in time, on an EBITDA per ton basis, we don’t believe these will be accretive. Even though they may be a distressed asset. I think ultimately you need a very sort of good — well-performing sugar and distillery business and we don’t believe that the assets which are available will be EBITDA per ton accretive to where we are. You will — I guess expect that we’re already in an amalgamated EBITDA per ton player because of our interest across three states, where EBITDA per ton are different. So again, we’re not looking at inorganic in Tamil Nadu.

From a carbon credit perspective, we’re doing some initial work to see what’s possible, it’s too early to comment beyond that. I think as part of the larger BSE compliance and being more ESG centric or ESG-centricity as a company, I think we’re sort of starting that in a more broader sense and carbon credits also find a place in that, but it’s too early to comment. I think when we have data point, we can share with all of you.

I will defer to see that on the P&L.

Rajkumar VaidyanathanIndividual investor — Analyst

Sir, I just on the same point. So, I know that, you’re not looking at inorganic opportunities, so how about is there a chance to expand the capacities in Pugalur and Nellikuppam or do you think do you want to wait for some more time to be –?

Mr. Suresh KannanFull Time Director

I think the mills in both locations can still — I mean in Nellikuppam, we have crushed 17 lakh tons of cane at some point. At some point in the last 10 years we have done that when we had good cane availability. So I think both the mills can still do much better so. We will focus on strengthening our operations in both these mills.

Rajkumar VaidyanathanIndividual investor — Analyst

You think you can sweat these assets some more that’s what you’re saying?

Mr. Suresh KannanFull Time Director

Yes.

Rajkumar VaidyanathanIndividual investor — Analyst

Okay. Thank you, sir.

Mr. A. SridharCFO

This Sridhar here and with reference to your specific question on if there is any outstanding from TamilNadu Electricity Board? I would like to state that has no dues from Tamil Nadu Electricity. Those disputes are more pertaining to the PPA arrangements which was there with many of the sugar companies with Tamil Nadu Electricity Board and we do not have any such PPA arrangement.

Rajkumar VaidyanathanIndividual investor — Analyst

Okay, sir. Thanks a lot, sir. Thanks for the opportunity.

Operator

Thank you. The next question is from the line of Rajesh Majumdar from B&K Securities. Please go ahead.

Rajesh MajumdarB&K Securities — Analyst

Yes, sir, just a follow-up question. So our alcohol sales was about 8.5 crore liters in FY ’22 and as per our current expansion going on, excluding the one we’ve announced now, we will go up to about 14 crores liters, is the first question, is that the right assumption?

Mr. Suresh KannanFull Time Director

Reasonably fair. Maybe slightly less than that.

Rajesh MajumdarB&K Securities — Analyst

And the new one will add another 3.5 crore liters to 4 crore liters is that also correct?

Mr. Suresh KannanFull Time Director

Yeah, the new one will add about 3.25 crore liters, 3 crore liters to 3.25 crore liters.

Rajesh MajumdarB&K Securities — Analyst

So we are coming to a total of about 17.5 crore liters at the end-of-the all the expansions, that’s a fair assumption, sir?

Mr. Suresh KannanFull Time Director

Fair assumption, yeah.

Rajesh MajumdarB&K Securities — Analyst

And so my next question is to achieve this kind of alcohol volume, say by FY ’25 whenever, to maintain our sugar output at 0.5 million tons or slightly more than that what is the kind of cane crushed volume that we should look at?

Mr. Suresh KannanFull Time Director

So. I mean. We look at the current year right, so you’re already, I think we expect volumes to be slightly north of where they are last year. And to the Rajkumar’s question earlier on, we will try in all our units to work more efficiently, to take up that throughput and take-up the cane crush volume to some extent. We don’t — we don’t foresee adding any milling capacity. I think increased cane crushed volumes will really be brought about by focusing on more efficient operations and more efficient energy management. So yeah you’re right. I think while we lose more sugar to ethanol, we will sort of make-good that loss by running our plants better so that we stay with the the same levels of output in terms of sugar.

Also from sugar perspective, you have seen our Investor presentation of the end of FY ’22. A substantial amount goes towards institutional sugar as well as retailer sugar. So the focus will largely be on that and you know we need to lose trade volumes and that’s the balance that we will determine basis market realities.

Rajesh MajumdarB&K Securities — Analyst

But sir, in Karnataka merchant cane is available right? So can we not take the volume from say 500 crores to 600 crore kg or is that too much of an assumption?

Mr. Suresh KannanFull Time Director

Sorry, I didn’t get that.

Rajesh MajumdarB&K Securities — Analyst

I think that in Karnataka we do get merchant right, there is no issue of adding to cane volumes, provided we are crushing capacity. So can we not take the volume which is currently at 274 crore kg to about a 300 plus crore kg in Karnataka?

Mr. Suresh KannanFull Time Director

I think we will determine that based on-market realities right. I think when like for instance, if there is a global surplus in sugar and sugar price come down then yo u know you didn’t want to be want to be selling more sugar you’d rather be selling sugar in retail or an institution and all pricing and also then perhaps you’ll be better-off sweating our current debt better. Rather than actually adding more milling capacity. So that’s that’s the balance thing which we will we will determine.

Rajesh MajumdarB&K Securities — Analyst

So, sir actually my problem was to balance this alcohol volume, if I don’t take a substantial increase in the cane volume after to come down sugar production rate, is that what I should do?

Mr. Suresh KannanFull Time Director

No. I think the way we, Suresh here, the way the distillery has been planned, it is in such a way that the available current came volumes were matching with the current capacity. You should be able to continue with the distilleries they have to trade-up within in sugar and they have come out. is, which one is giving us better profitability that they should be able to have. I don’t think we need to increase the volumes at the current level to manage the distillery inputs.

Rajesh MajumdarB&K Securities — Analyst

Okay, got it, got it. Thank you.

Operator

Mr. Majumdar, does that answer your question?

Rajesh MajumdarB&K Securities — Analyst

Yes, thank you.

Operator

Thank you. [Operator instructions] As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Mr. Suresh KannanFull Time Director

So they share thank you everyone for joining this call. We’ll see you in the quarter three earnings call. Thank you.

Operator

Ladies and gentlemen on behalf of DAM Capital Advisors Limited, that concludes this conference call. thank you for joining us and you may now disconnect your lines.

Disclaimer

This transcript is produced by AlphaStreet, Inc. While we strive to produce the best transcripts, it may contain misspellings and other inaccuracies. This transcript is provided as is without express or implied warranties of any kind. As with all our articles, AlphaStreet, Inc. does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Neither the information nor any opinion expressed in this transcript constitutes a solicitation of the purchase or sale of securities or commodities. Any opinion expressed in the transcript does not necessarily reflect the views of AlphaStreet, Inc.

© COPYRIGHT 2021, AlphaStreet, Inc. All rights reserved. Any reproduction, redistribution or retransmission is expressly prohibited.

Most Popular

Cochin Shipyard Ltd (COCHINSHIP) Q4 FY22 Earnings Concall Transcript

Cochin Shipyard Limited (NSE:COCHINSHIP) Q4 FY22 Earnings Concall dated May. 26, 2022 Corporate Participants: Madhu S Nair -- Chairman & Managing Director Jose V J -- Director Finance Analysts: Vastupal Shah

All you need to know about Antony Waste Handling Cell in one article

Can you guess the name of the company that was listed during the IPO frenzy in 2020 and is the second largest player in the Indian municipal waste management industry?

Demystifying the Leading Non-Ferrous Recycling Company of India

“Hey, how is the market doing today?” “Oh!, its falling tremendously since morning” I am sure news like these might be a common topic of discussion for you nowadays. Interestingly,

Top