Kotyark Industries - Only Listed pure Biodiesel Player

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What is Biodiesel ?

Biodiesel is a liquid fuel, technically known as a mono-alkyl ester, made from oils and alcohols. Biodiesel is a renewable fuel that can be produced in any climate using already developed agricultural practices. Biodiesel is made from renewable resources such as vegetable oils, or other types of biomass. B100 is 100% biodiesel. Biodiesel is widely available in both its neat form (B100) and in blends with petroleum diesel (for example B2, B5, B20)

About Kotyark

Kotyark Industries Limited (Kotyark) is revolutionising the fuel industry by providing sustainable alternatives to fossil fuels. Incorporated in 2016, Kotyark is the only listed Indian Company that exclusively manufactures biodiesel and its by-products. The Company focuses on green energy and sustainable development of renewable resources (biofuel) through the adoption of environment-friendly technology, which is ultimately aimed at facilitating a net reduction of greenhouse gas emissions.

With its manufacturing unit at Swaroopgunj, District Sirohi, RICCO, Rajasthan, Kotyark is one of the key players in the state of Rajasthan in India. Its manufactured products find application in any and all industries that use diesel, primarily commercial vehicles and diesel generators. At present, the Company is capable of producing 500KL of biodiesel per day from multi feedstock.

Total Annual Production - 182500 KL
Capacity Utilisation in :
2019 - 3%
2020 - 5%
2021 - 12%

Raw Materials

  • Non edible vegetable oil (which are all procured from Rajasthan & Gujarat) & Used cooking oil & kitchen waste
  • Alcohol : Such as Ethanol, Methanol, Isopropyl or Butanol
  • Catalysts : To initiate reaction Sodium Hydroxide and Potassium Hydroxide are used

End Products

  • Biodiesel : Any vehicle that has a diesel engine can be powered by biodiesel easily, without any modifications. It is just like petroleum diesel, which can be used to fuel compression-ignition engines. Apart from transportation, it can also be used to power diesel-run generators.
  • Crude Glycerin : For every 100 litres of biodiesel produced, approximately 14 litres of crude glycerin is produced as a by-product on average. Kotyark’s crude glycerol is sold to large refineries that upgrade and supply the refined rendition to other end-use sectors

Kotyark Industries has added 8 more mobile retail outlets (MRO) of biodiesel under its brand ‘Green N Green’, which puts the total to 25 such operational MRO’s. Further, in line with its strategy of expanding Retail Outlets’ revenue stream, the Company plans to apply for 50 more licenses.

At present, the Company is envisaging a potential ~4 lakh units of carbon credit, given its current scale of operations

Financial Highlights for the year ended March 31st, 2022 :

• Revenue from Operations stood at ₹ 15,604.59 Lakhs in FY22 compared to ₹ 6,520.61 Lakhs in FY21, an increase of 139% YoY
• EBITDA (excluding Other Income) stood at ₹ 1,272.32 Lakhs in FY22, an increase of 338% YoY
• EBITDA margins stood at 8.2% in FY22, an increase of 370 bps YoY
• PAT stood at ₹ 864.04 Lakhs in FY22 compared to ₹ 104.44 Lakhs in FY21, an increase of 727% YoY

Recent Updates

  • Amalgamation / Merger of Yamuna Bio Energy
  • Kotyark Industries & Yamuna Bio Energy win tender to supply Biodiesel worth ~₹25 Cr from IOCL
    (this order-win is part of a joint tender of 3 OMCs in which both Companies participated, and so far, we have heard back from only one of the OMCs, i.e., Indian Oil Corporation Limited. More news on the same will be shared as we receive updates from other two OMCs.)

The future of biodiesel in India

  • India’s Biodiesel Production is growing @8.6% CAGR till FY30
  • The Indian government has proposed a target of 20% blending of ethanol in petrol and 5% blending of biodiesel in diesel by 2030

Risk

  • Inherent Risk being a SME
  • No Entry barrier to competitors in Biofuel (But opportunity & sectoral tailwind looks huge)
  • Execution capability of Promotor
  • Already a huge move in stock price from IPO

→ Anyone who has done scuttlebutt of the plant or personally met the promotors can share their experience (vision of promotor, their order book etc.) as its a SME very less information available.

Disc : Invested

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I was reding Annual letter of the company for FY22 - I have few questions to better understand the company

  1. What is the actual production of pure form Biodiesel or blended with diesel? In Note 21: Cost of RAW materials and stores consumed “light Diesel oil” as a big component. Could you explain why we need such a big quantity of light Diesel Oil?

  2. What is capacity utilization out of 182500KL? (13% as par May FY22 Investor presentation)

  3. Note 15: the trad receivable increase is just a volume increase or specific to clientele say more business in FY22 from oil Marketing Companies?

  4. Note 18: Balance with Government Authorities - Could you explain what is this number and why this number is big in FY22

  5. To achieve 100 % capacity utilization we need Raw material procurement support it – the impact of availability and price of Raw materials.

  6. Any plan to diversify the source of Raw material?

Updated the question based on further reading.

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I liked the business, though, there seems to be some serious Issues. Looks like more on Governance side.

a) Company Secretary & Compliance Officer resigns on Jul 6, 2022—>

b) CFO resigns on Aug 12, 2022 (almost in 40 days time) —> https://archives.nseindia.com/corporate/KOTYARK_13082022142851_OutcomeofBMwithAnnexure.pdf

c) Then new Company Secretary & Compliance Officer resigns on Oct 29, 2022 —> https://archives.nseindia.com/corporate/KOTYARK_29102022192039_Reg30_ResignationofCSUrviShah_DSC.pdf

This is just under 5 months in to the Job.
I had been following this company for some time now & had in fact listened to the above SME star discussion right there at NSE.

Though, these issues seems to be serious in nature.
Disc - Interested, but not invested.

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Getting Big orders. 194 cr order for Q1 FY24.

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Another order win by the company. They seem to be on track to achieve double last year’s revenue in the first half of FY24 itself.

KOTYARK_07072023172506_KIL_PR.pdf (579.5 KB)

Only red flag I see is why two company secretaries resigned and CFO resigned within a space of 4 months.

Otherwise company seems to be doing extremely well.

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Revenue potential seems amazing. At ~180cr quarterly revenue from OMCs, the OMC segment alone can deliver ~700cr of revenue in FY24. The capacity utilisation would be 45%. Assuming 8-10% current capacity utilisation to continue, revenue would be close to ~800cr.

Taking an OPM of 10% and PAT of 5%, PAT should be around ~30-40cr. Current market cap is 500cr.

Further, they have also completed the glycerin plant with capacity of 70 MT/day and revenue potential (annualised) of ~200cr.

Seems to be too good to be true.

Key risks:

  • The use of light diesel oil in manufacturing biodiesel - had emailed the company but received no response

  • Margin of OMC supply - JAS’22 orders were at roughly 1.1L/KL. The price for this years orders is ~88k/KL

If anyone has any idea on these points, please do revert.

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Just to add… There are 400000 carbon credits sitting with them.

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Looks Interesting. Does anyone have clarity on the reason for the resignations?
Thnx

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Kotyark Industries & Yamuna Bio Energy has been awarded the tender for supply of Bio Diesel for the period of October 2023 to September 2024 having estimated order value of Rs. 569 Crores approx.

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Anyone has any clarity on the potential revenue from carbon credits ?

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The promoter in AGM said that the process is in final stages to get the carbon credits.
Nothing else. Considering the fall of Carbon credit prices, I think it won’t help them much.

In an investor meet in 2022, the promoter gave the number of Carbon credits they have applied for and considering the price of Carbon credits at the time of the meet, the total added up to somewhere around 15-18 crores. The prices are at least 70% down from that point.

AGM link: video.wixstatic.com/video/e196d6_9ab69d82ca0e4032a8a24ec47bc8cc5e/1080p/mp4/file.mp4

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PFA a link on carbon credit pirces in EU.
Prices in India would be similar or it varies from market to market?
Would be great if someone can throw some light on this.

https://www.ft.com/content/6d7fe0a2-bfd4-4080-87e4-fc2323268e94

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The following snippet is from the introductory section of this paid report from early 2022. I don’t have the report but it gives some cues around capacity building of bio-diesel in the country.

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  1. Emami Group has a capacity of 350 tons of Biodiesel (B-100) per day = 12.5 Crore Litres annual

  2. HRPL (McDonald’s in West/South India) planned 7 Lakh tonnes (per Jan 2022) in a couple of years. This equates to 70 Crore Litres annually. Not sure how much of this is materialized.

For comparison, the capacity of Kotyark is 18 Crore Litres annually.

India needs 660 Crores for 5% blending by 2030. This gives ample headroom for companies like Kotyark, there are others who are equally active. Especially Food Business Operators (FBOs) are better placed to use the opportunity. Reason: UCO (used cooking oil) as a substitute for imported palm stearin oil

Check out this report.

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From All time high to 16% down.
Kotyark has a wild day.
Profit & Loss looks good but Cash flow doesn’t look good.

Sales in current Half is more than PY whole year.
Reg_30_outcome_of_BM_30_oct_30102023134804.pdf (nseindia.com)

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Capex is completed as per Balance Sheet.

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Working cycle is absolutely stretched and funded by ST borrowings resulting in the increased Finance Cost.

NP ratio is lower.
Net Profit Ratio:

H1 FY24 H2 FY23 H1 FY23
7.54% 11.17% 8.66%

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On Another Thought, the consolidation with Yamuna might be the reason.

Yamuna had high sales with very low margins.

I don’t know whether the related party approvals in AGM have already impacted the P&L in H1, but they shall definitely impact margins of H2.

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I do not think Yamuna is the reason. Company had announced two tender wins for Q1 and Q2. Even excluding Yamuna those tenders should have led to revenues of 270 crs (116 crs + 154 crs) for Kotyark standalone in H1. Against this expectation, the revenue was reported at Rs 124 crs. Goes to say that winning tenders doesn’t necessarily translate into revenues.

Also the CFO resignation is a dampener. In the last 15 months this is the fourth resignation of a KMP. Two company secretaries resigned within 3 months of each other (one in Jul 2022 and the other in Oct 2022). The earlier CFO resigned in Aug 2022. Goes on to say that the promoters might not be that easy to work with or there is something else behind the scenes.

Disc: exited my position today

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yamuna is not yet consolidated

Also execution is not linear when i spoke to few biodiesel players. It is as per OMC schedule.

Disc : hold no position yet, evaluating

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Press release from Kotyark Industries - https://nsearchives.nseindia.com/corporate/KOTYARK_30102023215129_Reg_30_Press_Release.pdf

Reason for less revenue realization.

Comment from CEO - “This sales momentum was despite certain external challenges. We experienced a delay in the receipt of Purchase Orders against our
allocation sheets from certain Oil Marketing Companies (OMCs), which has affected our top-line performance in H1. These delays began in
Q1 and have spilled into Q2 as well as Q3. We want to reassure that the allocation from recent tenders will be recorded in coming time, and
this is a temporary challenge that we are actively addressing.”

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They have current order book of 900 cr which has to be executed in this year.

89cr liter Biodiesel tender- including Kotyark & Yamuna Bio. They have placed the bids

New Tender has Period of Work(Days) as 280 days- means around 9 months- most likely till September/October 2024 Again if 500-600 cr order is allocated to them (yamuna + kotyark), The execution has to be happen within year! That case -1500Cr + has to be executed in an year ( In best case scenario-without any spill) :star_struck:

Currnt TTM Sales- 189 cr, What will happen to the script if they execute around 1500 cr in 1-1.5 year (Don’t Forget they have solid number of carbon credits also)

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