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

Good Quarterly Result from BCL Industries.

Note - Invested and may be biased

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Today’s big move could be due to this news -

Note - Invested

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Its positive news for the company, even there might be some dip on revenue but we can get stable margins from the distillery business. Bottom line contribution from edible oil business is very low, if they discontinue this biz then working capital cycle also will improve, less depreciation, interest and better margins can lead to some re rating in the valuations.
In Q3 concall we can expect a clear way forward on this

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Agree.

Also i was wondering how come BCL Industries is moving up, despite bad news on Ethanol production circular (Sugar Cycles: 7-8 years of losses followed by 2-3 years of super gains! - #1513 by nithin_Shenoy). BCL make ethanol from Grain, whereas sugar stocks are getting impacted due to sugarcane restrictions on Ethanol.

Seems everything going good for BCL at this time.

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Q3&Q4 numbers will stable with all 600 KLPD capacity on stream, I am expecting distillery revenues ~400 cr from the existing 320Cr quarterly run rate.
FY24 EPS could be ~5/- and FY25 could be ~8/-. Price still at ~10 PE of FY25 Earnings.

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I think the revised rates are applicable to the earlier issued orders also.

This price hike will improve the margins further in addition to the softening of RM price, This could improve PAT by 70-80 Cr annually.

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After recent price hikes, Management seems more confident about the sustenance of the Ethanol/Bio-fuel business and taking following steps:

  1. Going ahead with the 150KLPD expansion of Bhatinda refinery. During the one before last investor conf call Management had said that they had put the expansion plan on slow lane as they await for clarity from Govt, after the FCI rice ruling
  2. Planning to venture into Bio-Deisel business. This is a related expansion as the feed will be maize. This Biz also has Govt backing, just like Ethanol.
  3. Sales of their PMIL (Punjab made Indian Liquor) has 3x since last year. Buoyed by this they are contemplating entering into IMFL (India made Foreign liquor) biz, if things continue to look up.

They are planning to invest around 700 crs in the next 3 years in the Bio energy biz.

Source:
https://x.com/ETNowSwadesh/status/1744266267203383312?s=20
https://x.com/ETNOWlive/status/1744311070234423718?s=20

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They were talking about Green field expansion in MP also in addition to the batinda 150KLPD, as long as they are investing in the business no issue in holding.

Results:
Significant margin drop is observed in Q3FY24 in the distillery segment (14% → 11%) irrespective of the uptick in revenues at Batinda as well WB plant.
Need to check with management whether the hike in the ethanol price from Jan can get the EBIT margins back to 15% level or not.
There is some inventory gain in this Quarter either in Oil or distillery segment, if i exclude that then results are not so good due to margin pressure.

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BCL Ind Quarterly Investor call notes:

  1. Recent increase in price by Govt for Ethanol produced from maize to add to the margins from this (Q4) quarter
  2. Svaksha Distillery capacity expansion to 300 KLPD likely to be over this quarter
  3. Expect the approvals for 150 KLPD expansion in Bhatinda distillery to come in next few months. It will take around 12 months for the plant to be ready from the approval date. This will take total Distillery capacity (Bhatinda + Svaksha) to 850 KLPD
  4. Applied for permission to set-up 100 KLPD Biodiesel plant in Bhatinda. Expect the approvals to come in around 3 months time (approx). It will take around 12 months for the plant to be ready from the approval date.
  5. Around 40% of the raw-material required to produce Biodiesel is already available in-house.
  6. Biodiesel price is around Rs 82/litre. It is more margin accretive than Ethanol, specially because of the inhouse availability of around 40% of raw material.
  7. They will be shutting down the Edible oil factory which is within Bhatinda city limits by year (calendar) end. Management waiting to see Govt policy on Edible oil before they decide what part of Edible oil business to retain. They will move the related machinery to the existing distillery plant. This will save overhead costs as existing utilities will be shared.
  8. Strong demand for their Country Liquor. Awaiting Punjab govt excise policy to decide on <forgot, will update once they publish the transcript>
  9. Company has competitive advantage over other Ethanol producers because it is already maize ready while many others are struggling since govt stopped selling FCI rice for ethanol.
  10. Even after considering the planned capacity expansion by other players, Management thinks that it will be a tall task to produce enough Ethanol to meet Govts 20% blending target within the deadline. Hence they see no danger with regards to lack of demand for Ethanol. This is specially considering that Govt is encouraging Ethanol produced by maize over Rice and Sugarcane.

Todays call was short one as the Management had to cut short the call due to disturbances at their end.

I like that

  1. BCL is diversifying in a related area (biodiesel) which is futuristic (green economy) where their decades of experience in raw material sourcing and contacts will come in handy as much of the raw material is common between biodiesel and their existing products. Also their products Ethanol and Biodiesel have the tailwinds interms of regulatory support, which will be in-place for years to come because of Indias pledge at COP26 to reduce carbon emission
  2. BCL has the next generation of Management in place. Mr. Kushal Mittal seems well spoken and he knows the business well. Also, he refrains from tall claims and clearly articulates the uncertainities in the business on investor calls.
  3. Over the years their Investor communications have become very professional. Look at the latest quarterly presentation, it will help you understand their business and future plans very well.

Disc: Invested.

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Thanks for your quick summary on con call, i have missed the call today.

As per presentation avg realization of ethanol is 66/-, if we consider new price of ~71.86/- then its almost add 20 Cr revenue in Q4. if we assume that RM cost is stable in Q4 then we may see decent jump in profits of Q4.

Agree. I also am of the opinion that most if not all of the price hike will flow into the bottomline. According to Mgmt, the RM prices should remain stable if not cool a bit because of the bumper Maize harvest in Bihar. Also, the ongoing farmer agitation is more for rice/wheat rather than Maize, so it wont have any adverse impact on the company. As mentioned in the presentation, avg. market price of Maize is already higher than MSP.

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