EID Parry (India) Ltd (EIDPARRY) Q4 FY23 Earnings Concall Transcript

EID Parry (India) Ltd (NSE:EIDPARRY) Q4 FY23 Earnings Concall dated May. 31, 2023

Corporate Participants:

Muthiah Murugappan — Whole time Director and Chief Executive Officer

S. Suresh — Managing Director

A. Sridhar — Chief Financial Officer

Analysts:

Karan Mehta — Nirzar Securities — Analyst

Neha Mehta — DAM Capital Advisors Limited — Analyst

Ritwik Sheth — One Up Financial — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the EDI Parry Q4 FY ’23 Earnings Conference Call hosted by DAM Capital Advisors Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Ms. Neha Mehta from DAM Capital. Thank you and over to you ma’am.

Neha Mehta — DAM Capital Advisors Limited — Analyst

Hi, a very good afternoon to all of you. We thank the E.I.D. – Parry management for giving us the opportunity to host this call. On the call today we have with us Mr. Suresh, who is the Managing Director, Mr. Muthiah Murugappan, who is the whole time Director and CEO; Mr. Suresh Kannan, whole time Director, Parry Sugars Refinery India Private Limited; Mr. A. Sridhar, Chief Financial Officer; and Mr. Biswan Mohan Rath, Company Secretary.

I would now like to hand over the call to E.I.D. – Parry management for the opening comments, followed by which we will continue with the question-and-answer session. Thank you and over to you.

S. Suresh — Managing Director

Yeah, good afternoon everyone. I’m Suresh here. It gives me great pleasure to be part of this analyst call to share and update the global and Indian scenario and to first hand explain the quarter four performance of the company as well as the full-year.

On the global scenario, the global supply-and-demand has been virtually balanced as per the latest estimates released in April 2023, amidst supply concerns in both India and Brazil. Global sugar production for the current sugar year is slated to be lower than earlier estimates by 3 million metric tons at 177.4 million metric tons of course due to the concerns in Brazil and India, whereas the global demand is slated to increase by 0.23 million metric tons reaching 176.5 million metric tons.

On Brazil, while crop condition is expected to be good, increase in gasoline taxes is incentivizing more diversion to ethanol and hence the sugar production is slated to be lower [Phonetic]. Risk of [Indecipherable] Q3 of 2023 impacting [Indecipherable] and Asian countries results in huge variability in 2023/’24 sugar balance projections. Having breached the [Indecipherable] $0.27 per pound in April 2023, the raw sugar futures are currently trading around $0.24 to $0.26 per pound.

In India, because of the lower yield in key producing areas that is Maharashtra, the total production for the current year is slated to be lower than the previous year by almost 9%. Since erratic weather affecting yield in Maharashtra [Indecipherable] converged the estimates of sugar production during FY ’22/’23 to 328 lakh metric ton, down from previous estimates of 340 lakh metric ton. While international price is favorable for sugar exports, the government is unlikely to allow additional export quota given the supply restrictions in domestic market.

Sugar diversion to ethanol in the current sugar year is slated to be 4 million metric tons, down from the earlier estimates of 4.5 million metric tons. It is encouraging to note that Tamil Nadu government as unveiled ethanol building policy 2023 covering grain-based and molasses based distilleries. New feed stock including [Indecipherable] sugar syrup has been included in the policy. The new policy is slated to attract investment up to around INR5000 crores to the state.

Regarding Q4 performance. The standalone revenue for the quarter ended 31st March, 2023 was INR807 crores in comparison to the corresponding quarter of the previous year of INR921 crores. Earnings before interest — before depreciation, interest, taxes, and exceptional items, EBITDA, for the quarter ended were INR327 crores in comparison to the corresponding quarter of previous year of INR309 crores. Standalone profit after tax for the quarter was INR83 crores as against corresponding quarter of previous year of INR225 crores. The profit after tax for quarter ended 31st March, 2023 includes loss INR155 crores representing provision for impairment of investments in subsidiaries and joint ventures.

The standalone revenue from operations for the year ended 31st March, 2023 was INR2,895 crores against previous year of INR2,489 crores. And the earnings before depreciation, interest, taxes, and exceptional items, EBITDA, for the year ended was INR527 crores against previous year of INR492 crores. Standalone profit after tax was INR197 crores as against INR284 crores in the previous year. The profit after tax for the year ended 31st March 2023 includes loss of INR155 crores representing provision for impairment of investment in subsidiaries and joint ventures.

The performance of the standalone sugar division was better than the previous year on account of better sales realization and increased domestic sales volume. There was cost pressure on account of higher energy prices, which was partially offset by increased realization from power export. Overall, [Indecipherable] marginally increased during the year at — to 51.8 lakh metric tons from the earlier year number of [Indecipherable] in the previous year.

Overall sugar sales also increased from 4.95 lakh metric ton to 5.19 lakh metric ton. The company continues to deliver on its focus areas of sweating assets and expansion in core risk areas. The company had completed sales process of Pettavaithalai plant and commenced 120 KLPD ethanol facility in Sankili from sugar syrup. Also 165 KLPD expansion in Haliyal and Nellikuppam is in progress. And the strategic benefits of all these expansions will flow from next financial year.

Despite increase in interest rates are efficient cash management and cash — and cash generated from operations resulted in reduced finance cost of INR36 crores from the previous year number of INR46 crores. Standalone [Indecipherable] division registered a marginal increase in profitability, though there was a 13% reduction in revenue on account of better realization and revenues input costs.

I would now request our CFO Mr. Sridhar to explain you on the segment wise financial performance. Over to Mr. Sridhar.

A. Sridhar — Chief Financial Officer

Thank you Suresh. And good afternoon to all. And for the benefit of the investors, we have uploaded the presentation in the website portal. And I would like to take you through on the operational and financial performance of the company.

And to start with on the sugar segment. The crushing operations were carried out in all sugar mills during this quarter. And I would like to share the quantitative details as under. In quarter four, we crushed around 22.95 lakh metric tons when compared to corresponding quarter of previous year, which was at 25.98 lakh metric tons. On a year-to-date basis, we crushed around 51.81 lakh metric tons when compared to corresponding period of previous year, which was at 50.21 lakh metric tons. The early closure of Karnataka crushing season resulted in drop in Q4 volumes.

On the recovery front, in quarter four the recovery from all of our plants at 11.51% compared to previous year which was at 11.32%. On a year-to-date basis, the recovery from all our clients were at 10.62% when compared to corresponding period of previous year, which was at 10.63%. On the production, in quarter four, we produced around 2.35 lakh metric tons of sugar against corresponding quarter of previous year, which was at 2.68 lakh metric tons. On a year-to-date basis, we produced around 4.92 lakh metric tons when compared to corresponding period of previous year, which was at 4.83 lakh metric tons.

Cane landed cost was at INR3,278 per metric ton against the corresponding quarter of previous year, which was INR3,276 per metric ton. On a year-to-date basis, our cane landed cost was INR3,268 per metric ton when compared to corresponding period of previous year, which was at INR3,255 per metric ton. Sugar volumes for the quarter four, we achieved sales volume of around 1.20 lakh metric tons, of which domestic was 88,000 metric tons and exports were at 32,000 metric tons. And the previous year sales volume were at 1.83 lakh metric tons, of which domestic was 96,000 metric tons and exports were at 87,000 metric tons. On a year-to-date basis, we achieved sales volume of around 5.19 lakh metric tons of which domestic was 3.67 lakh metric tons and exports were at 1.52 lakh metric tons. And the previous year sales volumes were at 4.95 lakh metric tons of which domestic was 3.26 lakh metric tons and exports were at 1.69 lakh metric tons.

The average selling price of sugar for the quarter was about INR36.52 per kg compared to previous year selling price of INR34.06. On a year-to-date basis, our selling price was at INR35.98 per kilo compared to previous year price of INR34.48. The closing stock as of March 2023 was at 2.45 lakh metric tons and at — at the end of March 2023, which is valued at around INR33 per kilo.

On the revenue, from sugar operations, in quarter four the revenue from sugar segment was INR498 crores against corresponding period of previous year, which was at INR693 crores. This drop was mainly on account of lower export sales volume, during the current year the exports were on the basis of quota released by the government. On a year-to-date basis, the revenue from sugar segment was INR2025 crores against corresponding period of previous year, which was at INR1,833 crores, an increase of 10.47% over previous year. I would like to place on record that there are no dues as far as fee cane is concerned. All FRP paid on-time.

On the cogen operations, in quarter four, we generated a power of around 2034 lakh units against previous year which was at 2022 lakh units. On a year-to-date basis, we generated power of around 4,960 lakh units as against the corresponding period of previous year, which was at 4,110 lakh units. In quarter four, we exported power around 1,060 lakh units as against previous year, which was 1,032 lakh units. On a year-to-date basis, the power exports were at 2,700 lakh units as against corresponding period of previous year, which was at 2,141 lakh units. The average power tariff for quarter four was INR5.11 per unit as against the previous year, which was at INR4.56 per unit. On a year-to-date basis, the average power tariff was INR5.26 per unit as against the previous year which was at INR4.35 per unit. The revenue from cogen operations in quarter four was INR104 crores against previous year, which was INR86 crores. On a year-to-date basis, the revenue from cogen operations were INR253 crores against the previous year, which was at INR163 crores.

On the distillery segment, we sold around 376 lakh liters during quarter four compared to the previous year sales volume of 278 lakh liters of which, ENA was 156 lakh liters and the previous year numbers were 91 lakh liters and ethanol was 220 lakh liters and the previous numbers were at 187 lakh liters. On a year-to-date basis, we sold around 1,044 lakh liters compared to the previous year sales volume of 847 lakh liters. Of which ENA was 399 lakh liters. The previous year ENA sales were at 376 lakh liters and the ethanol was 646 lakh liters against previous year which was at 471 lakh liters.

On the price realizations from distillery operations, we realized INR62.56 per liter as against the previous year realization of INR58.96 per liter. This is more to do with the mix of products and also the price increase that we got during the year from the — announced by the government. On a year-to-date basis, our price realizations from distillery operations was INR60.39 per liter against previous year realization of INR57.10. The revenue from distillery operations was INR238 crores compared to INR167 crores during previous periods. On a year-to-date basis, our revenue from distillery operations were INR644 crores against the previous year which was at INR491 crores.

I’m now moving into the Nutra segment. In quarter four, the turnover from Indian operations were around INR5 crores, as against INR9 crores in the previous year. On a year-to-date basis, the turnover was INR55 crores against the previous year turnover of INR64 crores. The division registered a marginal increase in profitability though there was 13% reduction in revenue on account of better realization and reduced input costs. The Nutra segment on a consolidated level in quarter four, did a turnover of INR59 crores against the corresponding previous year, which was INR73 crores. On a year-to-date basis, the turnover was INR259 crores against the previous year of INR277 crores.

I’d like to talk about the employee-related expenses. The employee benefit expenses. for quarter four where at INR35.56 crores as against INR33.17 crores and on a year-to-date basis, the expenses were at INR157.93 crores as against INR134.82 crores. The increase in costs on account of annual salary increases, headcount increase due to the expansion what we have been carrying out in the distillery operations and the strengthening of the team to better manage the safety related areas.

On the other expenses, for quarter four, we increased by about INR16 crores, INR140 crores to — in the current year versus the previous year which was at INR132 crores. The incremental cost is on account of the increase in production, consumption of power and fuel, repairs and maintenance, increase in advertisement expenditure on retail sales and corresponding increase in packaging, dispatching, and freight cost increased due to higher exports and retail sales, increase in selling and administration expenses.

On the finance cost, INR10.37 crores compared to the previous year for the same period, which was at INR10.15 crores. On a year-to-date basis, our finance cost has been INR36.03 crores as against the previous year cost of INR46.09 crores. This reduction in finance cost was possible despite the increase in interest rates during the financial year, because of the better working capital management.

The capex program continues to be kept very tight and on year-to-date basis, we have spent around INR189 crores. This includes the spend incurred at Sankili — on Sankili 120 KLPD project cost where we incurred around INR104 crores till date. All the capex we are currently investing are towards value addition, safety, environment and the productivity improvement related areas.

The standalone loan was at INR155 crores, INR14 crores decrease over previous quarter and short term borrowings were at INR353 crores, INR300 crores increase over previous quarter. This increase in short term borrowings are on account of working capital requirement.

I am now moving into the refinery business. As far as the refinery sugar production for quarter four, we were at 2.29 lakh metric tons as against previous year production of 2.22 lakh metric tons. The year-to-date sugar production volumes were at 7.78 lakh metric tons as against previous year production of 6.11 lakh metric tons. Refined sugar sales volume for quarter four was 1.31 lakh metric tons as against previous year number of sales volume of 1.98 lakh metric tons. The year-to-date sugar sales volume was 7.18 lakh metric tons as against the previous year sale of 6.23 lakh metric tons.

PBT for quarter four was a loss of INR45.32 crores as against the previous year quarter four which was at 27 — a profit of INR27.41 crores. The year-to-date PBT was a loss of INR253 crores, as against the previous year loss of INR13.27 crores. [Indecipherable] as far as refinery business was concerned, the long term borrowings as of March 31st, 2023 were at INR200 crores. And last year same period was also at the same levels. The short-term borrowings as of March 2023 was at INR620.04 crores. The borrowing as of March 31st 2022 was at INR641 crores, sorry, INR648.41 crores.

I have explained to you about the various parameters and the financial position of the company. We are now open to take questions. And thank you.

Questions and Answers:

Operator

Thank you very much sir. We will now begin with the question-and-answer session. [Operator Instructions] We’ll take the first question from the line of Mr. Karan Mehta from Nirzar Securities [Phonetic]. Please go ahead sir.

Karan Mehta — Nirzar Securities — Analyst

Hello? Am I audible?

Operator

Yes sir, please go ahead.

Karan Mehta — Nirzar Securities — Analyst

Thank you for the opportunity. So my first question is we have booked an expenses due to loss on impairment of investments in subsidiary and JV to the tune of INR155 crores in Q4, so I just wanted to know for what subsidiaries and JVs, does this expense pertain to and also the breakup of expense for each subsidiary and JV? And is there a possibility of these expenses to get reversed?

S. Suresh — Managing Director

Yeah. The impairment is on specific of reference to three companies. One is the Parry Sugar Refinery India Private Limited. I mean we have taken an impairment to the extent of about INR160 crores. This is based on the future projections of cash flow, were an independent valuer has carried out the valuation. And based on the valuation analysis there was an impairment that was required to be carried out. And number two is with reference to the joint-venture between EID Parry and Synthite, which is Algavista [Phonetic] on account of this joint-venture, we have taken an impairment to the extent of INR23 crores. This was on account of — this is again based on the cash flow projections, which has been carried out based on the future projections. Number three is with reference to the investment made in Alimtec, a Chilean company where we have taken an impairment to the extent of about INR26 crores. It was not economical for us to run this operations. So the management has taken a call, but as of March that we will not be able to run this operations and accordingly there is an impairment taken to the extent of INR26 crores.

And these three put together is where the impairment is to the extent of INR155 crores. And there are projections, which have been made for the future based on which the impairment analysis has been carried out and we have recognized the same in the books of accounts. So we actually now would like — we would like to see that the operations generate the cash what is projected in the numbers and we’ll have to see how things shape up based on the projections what we have carried out.

You asked about the question of whether there will be an reversion to the impairment. We have considered various projections in our financials based on the current estimates. We will have to — we are based on the estimates, were the impairment has been carried out. And at this moment, we would not be in a position to say whether there will be a reversal to the impairment, because there was a requirement of an impairment to be done is where we have considered that as of March. We will work towards to see how this impairment can be reversed, at least in the case of the refinery business and Algavista.

Karan Mehta — Nirzar Securities — Analyst

Okay, okay. And sir my second question is we have mentioned that in our note that the parent company is willing to finance activities for subsidiary, Parry International DMCC. So how much more capital are we planning to infuse in this and in any other subsidiaries or JV?

S. Suresh — Managing Director

Good afternoon, this is regarding Parry International DMCC. Parry International DMCC is basically trading company that is located in Dubai to serve the Middle-Eastern and the nearby markets. So this does not require much of a capital infusion, because it does trading on a back-to-back basis. Regarding other subsidiaries, Sridhar?

A. Sridhar — Chief Financial Officer

As far as the other subsidiaries is concerned I mean, there is no capital infusion that has been projected as of now.

Karan Mehta — Nirzar Securities — Analyst

Okay. And sir my last question pertains to our business segment, so the performance of our refining — refinery subsidiary has worsened in this quarter also we have seen an operating loss on the Nutra segment and in the distillery segment, we have seen above topline growth, but the margins have been declining very sharply. So what are the reasons for these and what’s the outlook for all these segments and in FY ’24?

A. Sridhar — Chief Financial Officer

As far as the refinery is concerned, your question is pertaining to the fourth quarter operation. With respect to fourth quarter, our sales volumes were lower compared to our normal levels of the previous year fourth quarter level, that was one of the contributor and we expect this to be made-up in the current year in terms of the sales volume is concerned. Second is, we had to take some mark-to-market entries, as well as some forex losses on account of variation of the Indian rupee versus US dollar. We don’t expect this situation to continue, because these are related to the movement between the two currency pairs during the previous financial year and the outlook in the sense of refinery, which is basically based on three main pillars, one is with respect to availability of adequate spreads in the market. Second is, with respect to the cost of refining, which is largely driven by the fuel cost and third is with respect to cost of money which is the finance cost what we incur. So in the external sense the high premiums are strengthening, we look — look-forward to an improved spread atmosphere because of the tightness in supply and a positive monsoon impact on the Indian sugar production thereby curtailing the export of Indian sugar in the current year. Energy prices are coming off and we are seeing the effect of that flowing through into the coming financial year. Yes, interest rates, we have peaked at this point of time, in our opinion. So going forward we should be in a position to also control our finance and interest cost to a larger extent. So that’s the prognosis as a refinery business segment is concerned. This is Sridhar here. And on the distillery segment, while the topline has grown there has been pressure on the bottom line. There are two factors which are influencing as far as the distillery profitability is concerned. One is the fuel prices have moved up substantially during the year compared to the previous year. The coal prices have gone up. And number two is we actually do a transfer of molasses based on the market price from sugar segment to be distillery segment and there has been an increase in the molasses transfer price and because of which we will see the profits being better in sugar segment and it is lower in the distillery segment. This is again to do with the market price of molasses which is what we adopt four the transfer pricing between the sugar segment and the distillery segment. I hope I have answered your question.

Karan Mehta — Nirzar Securities — Analyst

Okay, so moving forward we expect better margins in the distillery segment?

A. Sridhar — Chief Financial Officer

The fuel prices are getting normalized and we definitely see there is good margins to pick-up in the subsequent periods. And lot of efficiency improvements are also being without out. So we will definitely see a good progress as far as the distillery bottom-line is concerned. And I would request Muthu Murugappan to respond with reference to the Nutraceutical segment.

Muthiah Murugappan — Whole time Director and Chief Executive Officer

Yes, thanks Sridhar. So you know in response from the Nutra perspective, we had two reasons for the consolidated loss. But because the expenses on [Indecipherable], which is the D2C business at Valensa So that is still in a burn mode. So there is obviously a large expense booked over that. We also had some product — product loss on account of higher accident in a warehouse. This is a third-party warehousing in Florida. So there is insurance claim, which we are expecting to receive, but then that has been expensed as a loss in this quarter. We are optimistic of receiving that insurance claim in subsequent quarter.

Karan Mehta — Nirzar Securities — Analyst

Okay, okay. Thank you sir for all the clarifications that was very helpful. Thank you.

Operator

Thank you sir. [Operator Instructions] We take the next question from the line of Mr. Ritwik Sheth from One Up Financial. Please go ahead, sir.

Ritwik Sheth — One Up Financial — Analyst

Hi, good afternoon sir. Sir, just couple of questions, firstly on the refinery, in the presentation we have mentioned that the refinery spread is about 43, $44 per ton and our conversion costs have spiked up because of higher fuel prices. So reducing fuel prices. This can we expect this negative spread to be at least breakeven in FY ’24?

A. Sridhar — Chief Financial Officer

Thank you for the question. There are couple of areas of determent that you will in the coming years. As you rightly mentioned, the fuel down and that should flow-through the operating cost of the refinery going-forward. Second is with respect to the spread, which we are also seeing at a higher-level than what had been there in the previous years. This is primarily due to tightening up of demand/supply in the sugar market and it is expected to remain tighter as per the projections as what our MD also explained in his opening note. As a result of which we should be in a better situation going-forward. That would be our summary on the refining segment.

Ritwik Sheth — One Up Financial — Analyst

Okay, so we can at least breakeven in FY ’24 at least we can assume that.

A. Sridhar — Chief Financial Officer

Yes, that’s what we’re working towards so.

Ritwik Sheth — One Up Financial — Analyst

Okay. And sir on this refinery, you mentioned in your opening remarks that we have taken a INR106 crore impairment charge for PSR IPL. So anything else which can come in the future or this is more or less done with any of the impairment? And specifically, what is this related to, if you can throw some light on that also, please.

S. Suresh — Managing Director

Yeah, as far as the impairment with respect to the refinery investment is concerned, we have taken a good look at the forward possibilities of the refinery and this has been factored in, in terms of the workings that have been made to arrive at the current impairment value.

Ritwik Sheth — One Up Financial — Analyst

Okay. Okay and sir the total debt including the loan given from EID Parry to the refining subsidiary would be close to INR800 crores. Is that assumption, right?

A. Sridhar — Chief Financial Officer

You are asking about the loan position?

Ritwik Sheth — One Up Financial — Analyst

Right, in refinery?

A. Sridhar — Chief Financial Officer

In the refinery business the loan position from long-term borrowings is about INR200 crores. And on the short-term borrowings it is INR620 crores.

Ritwik Sheth — One Up Financial — Analyst

Okay, sure. And sir one final question from my end. We have exceptionally turnaround the standalone EID Parry business in the last three to four years. And we are generating cash flow from the standalone excluding the other income, the dividend income that we received from Coromandel. So what are our thoughts in terms of dividend payout from EID Parry, especially after FY ’24 since most of the capex in the distillery side would be completed. So if you can give us some color on that, it would be very helpful.

Muthiah Murugappan — Whole time Director and Chief Executive Officer

So, Muthu here, let me — let me answer that question. So I think the intent is to, as you said, run a very robust business on the core business, which is a standalone business. And ensure that that business is cash-generating, which will then enable us to you know better imagine the future and better implement and execute on our future plan using the sort of power and strength of the standalone business. So I think that’s the intent with which we are taking things forward. So I wouldn’t like to comment on the dividends. I think that the aspiration of course will be to pass the dividend to, but I think I would like to sort of stay with the standalone business and sort of reiterate, the focus on strengthening the standalone business and then growing it further using the sort of power of the standalone DNN [Phonetic] and balance sheet.

Ritwik Sheth — One Up Financial — Analyst

Okay, okay. Sure sir, thank you and all the best.

Operator

Thank you sir. [Operator Instructions] Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to the management for closing comments.

S. Suresh — Managing Director

Yeah, thank you everyone for taking the time out for this investor call. And hope to see you in the next call. Thank you.

Operator

[Operator Closing Remarks]