EID Parry India Limited analyst Q&A

Good morning, everyone. Thanks for a detailed presentation. So, I had a few questions. Sir, first question was on the Consumer Product Group, the sweetener category. So how do we read into the volumes of the consumer part of this business - as in the entire sale is quota driven? So, if we are not able to grow our sugar volumes over the next few years, will the consumer part as a proportion of the sweetener category be theoretically 100% or what percent or do you have to sell some raw sugar as well? How do we read this? That was my first question.

Yes. So, Rajesh, hello, good morning. Yes, it is quota driven. So, we'll have to do a couple of things on the sweetener side, of course, focus on sales of value-added products from the sweetener segment, launch new products, expand the product portfolio. That is on the anvil as well. We will also make tactical calls to take in more quota. We also have to now feed an institutional market wherein we have to sort of balance overall pricing as well. So, we'll take some of those tactical calls going forward. So those are opportunities for sales to grow in the sweetener part of the CPG segment. The last point I would like to make here is you could also have traded volumes wherein which you would obviously, based on the right quality control, have other mills pack for you. That's something which will also be explored. It needs to be done at the right economics. So, there are opportunities to take this up. We will be tactical about it.

So theoretically, can it move up to whatever percentage of the overall quota depends on the part of the business?

Yes, it can move up. It's about the tactical choices that we make. I mean one theme of Q1 is to - obviously, we've got distribution, which we're expanding, and within our current quota, we wanted to take the attractive business and we've actually jettisoned some of that very low-value business wherein discounting factors are high, so on and so forth. So, we made some conscious calls in Q1.

Yes. My second question, sir, was on the Refinery segment. While we have seen we have closed down some step-down subsidiary in the UAE, which was into exports, we are also committing more capital in terms of the business. So, what's really going on here in terms of the refinery business, I would like to know?

So yes, I can comment on this. Rajesh, so I think, as you know, the refinery business, there is a lot of debt, and this capital has really gone in for debt reduction in order to strengthen the operations of the refinery. And I think that's why we've had these infusions.

What about the closure or the step-down, sir, which was into exports? What is it indicating?

We didn't find that of any strategic significance to the refinery operations. I think we are happy with the standalone operations here in Kakinada, and we'd like to remain focused on that.

Okay. And sir, we've seen a sharp increase in the short-term debt in a quarter where normally in the first and second quarter, we see the short-term debt coming down and then probably it goes up when the sugar crushing starts in third and fourth quarter. But in the first quarter, we've seen a sharp increase in short-term debt. So that is a bit alarming. I mean, any reason why that has happened? And how should we read that going forward?

Rajesh, if you look at the short-term debt, this is not only related to the crushing but also, we sourcing of the molasses from the other states keeping in view of the increased distillery capacities in the last year. So, we need molasses over and above what we crush. So those are the molasses, where we have done a forward contract and in some places we have already sourced the molasses. That is one of the reasons. Second reason, you have to look at our CPG business as going well, and our receivables also are slightly going up in line with the turnover and the industry standards. Therefore, our working capital requirement is going up. So thereby, correspondingly, your short-term debt is going up.

That means the overall short-term debt for the end of the year will be even higher when the actual crushing happens?

More or less it will be at the same levels, Rajesh, because if you look at it today, you are looking at about INR 1,100 crores or something. Even at the year-end, we'll be looking at the same. Because if you look at it, most of the crushing will get closed by February. So, the advances for H&T payments are already given, so that will be offset against the advances what we have given.

Sir, if I could sneak in a last question. This is for Muthu, sir. We have 50% stake in Coromandel, and the Coromandel stock is now 52 weeks high. So, can we contemplate some stake still because technically it can come down to 51% and still retain a majority holding to reduce our debt?

So, Rajesh, I think we're really focused on the standalone business here. I think these are broader conversations which are more sort of board and group level. And I think we should stay focused on the standalone operations here.

The next question is from the line of Vaishnavi Gurung from Craving Alpha Wealth Fund.

Just one question from my side.

Ms. Vaishnavi, can you speak a little louder?

Hello? Is it better?

Yes, much better.

Yes. So, my question was regarding the revenue from nutrient and allied business. The revenue is significantly up compared to last June quarter. So just wanted to know any specific reason for that?

No. The Nutra business revenue is actually lower.

Okay.

Yes, sir.

Yes, we consolidate Coromandel International. We can't comment on their results. I think their Board and earnings call have already concluded. They've had a good first quarter, but you may want to look up publicly available data to go over their results.

So, my second question was, are there any capacity expansion plans we have?

Not at present. We've just finished up last year our ethanol capex. So, capex cycle is largely concluded. It is a phase of consolidation right now.

The next question is from the line of Sanjay Manyal from DAM Capital.

I have just a few questions specifically regarding good monsoon and what kind of a crushing is expected in Karnataka and some of the southern states? And what is our plan sort of over here to increase the crushing in the next season? What is the expectation on that side?

Monsoon has been good in the states of Karnataka and Maharashtra. So overall, the industry is looking for a good crop this year. Our internal data also is showing robust situation. So, we would expect marginally positive upside in Karnataka crushing this year as compared to last year. Tamil Nadu (TN) will be largely neutral. There's a lot of action we are doing in terms of reviving TN, but ours being an agri crop, it might take one or two cycles. But overall, we have a positive outlook on crushing for the year.

Sir, and on our peak utilization of our distillery capacity, what kind of ethanol or ethanol/ENA we can sell? I mean, what would be the optimum revenue from our Distillery segment?

Our overall capacity is about 18 crore litres across all our facilities. The choice of the product mix varies depending on the margins we make. So, we actively look at the product portfolio and keep changing it as the situation develops depending on the pricing in the market. Obviously, ethanol pricing is relatively stable given the government’s decisions. The ENA is an option we keep evaluating. It's a revenue mix management approach. But the full capacity is about 18 crore litres, which is what we'll be able to do in a year. And the capacity utilization will be about 90% to 95% steady ship provided there are no outliers that hit us from a policy perspective.

And given the fact that now there is a lot of talk about increasing the ethanol blending from 20% to 25% or 27%. That's what we have in a lot of discussion from the government side. So, is there any plan again to sort of further increase our capacity over here? And what are the discussions with the government happening on this ethanol blending part? Is there any road map for that which they have decided?

Obviously, if they have decided, it will be in the public domain. But we would presume the government is ceased of the situation, given the news that we read. The direction the government has been taking on the EBP is highly appreciable. They seem to be steering the industry and the usage of ethanol in the right direction. So, we remain positive about the government's approach on the issue. I may not be able to comment on what the internal discussions that the government is currently doing because we do not have visibility on that.

Sanjay, just to add to Ashiq's point on capacity expansion, we don't have any plans for expansion. I think we'll have to wait to see how policy pans out. If at all, there's something we might consider, we have one dual feed distillery. We might consider repurposing one or two of our other distilleries to operate on both grain as well as molasses-based feedstock. This is perhaps something we might consider. But this is again subject to obtaining policy clarity and subject to further internal evaluation.

Right. So, sir, just on this part, how are our margins in the separate grain part as well as in molasses, which is better feedstock as of now? And also, there has not been any increase on ethanol prices from the last 2 years. Is there any clarity on that, at least on the sugarcane-based feedstocks if there is a possibility of any ethanol price hike?

On margins, obviously, we would not want to comment between the feedstocks. But right now, both maize and molasses are profitable. What was your second question, I'm sorry?

So about ethanol, price hike has not taken place in last 2 years. So, is there again any discussion on that or any possibility of that?

Yes. There is a lot of representation we've been doing to the government on ethanol pricing. We would actually look forward to some action on that front. Yes, it's concerning for us that the last 3 years, we have not had a price increase. The FRP of cane, which is our feedstock, keeps increasing year-on-year. That should take care of the farmers and rightly so. So, we would look forward to some positive news on the ethanol pricing, but that rests with the government.

The next question is from the line of Ritwik Sheth from One up Financial.

Sir, just one question from my end on the Consumer Products division. If you can, throw some light on our strategy for the Consumer Products division going forward. We have built a decent base in the last four to six quarters. How to look at the sweetener category you mentioned earlier and the staples category in the next 3 years? If you can just throw some strategy on that?

Yes. This is Balaji. I head the Consumer Products business. So, in terms of the non-sweetener part of the business, we will continue to stay focused on driving distribution and increasing our brand equity through brand expansion. In terms of sweetener, the focus is largely on the value- added browns category where we are seeing a potential opportunity to grow. And most of the expansion and growth will come in largely on the browns category for the sweetener. For the non-sweetener, it will be the continued focus on distribution and brand building for the next few quarters. There is some work happening on the development of new products, which will come into the food spaces. But as of now, those are all rudimentary and developmental in nature and we will come back to you as and when we are ready.

Mr. Ritwik, can you be a little louder? We can't hear you.

Yes. Is it better?

Yes, much better.

Yes, much better.

Yes. Sir, and on the distribution part, I believe we are around 2 lakh currently. In the next 3 years, what kind of distribution are we targeting? And are we looking to add more SKUs in the non-sweeteners category?

Yes. So as part of the growth strategy, we would be growing and expanding the distribution. We cannot put a number to it at this point in time, but we will definitely be focusing on numerical distribution growing and expanding for us. In terms of SKUs, all growth will come in with addition of new SKUs when we are launching new products and in existing products. We will be coming up with SKUs more from a consumer perspective as and when there is a need which arises. The plans are to grow in this business.

And safe to assume that sweetener category will be quota driven going forward and will be -- you mentioned we'll be focusing on the higher value added, which is the browns category, right?

So yes, I think Mr. Muthiah Murugappan answered this question earlier. The quota is going to be a limiting factor on the sweetener sales, but we have our ways and means of moving around on this. One is by focusing on the browns category, which is not driven by the quotas so much. The second is that there is always an opportunity to buy and brand sugar, which is something that we will consider as we go forward when we feel that the quotas are restricting us in terms of our growth.

And over a 3-year period, sir, would you like to give any aspirations? We are currently around INR 800 crores, INR 900 crores on an annual basis and staples category combined, what would be a reasonable growth assumption for the next years? Would you have anything on this?

We won't have a number at this point in time, but I think we will be growing pretty aggressively in this category. And our expansion plans will include consolidating ourselves largely in modern trade, e-commerce, and the general trade channel.

The next question is from the line of Vaishnavi Gurung from Craving Alpha Wealth Fund.

My question is on the future outlook. How do we see our position for 2030? Do we plan to be more inclined towards agri or energy sector?

So, Vaishnavi, thanks for your question. I think the focus on biofuels and bioenergy space will continue. Of course, it's ethanol and it's a consolidation phase right now. We'll have to see how policy pans out. There's also seemingly an opportunity in sustainable aviation fuel, which is being spoken about, but it's very, very early days. And it's an opportunity which is being spoken about using this ecosystem. But we'll have to really wait and watch as to how the policy framework pans out. So one area of focus will be this space. The other area of focus, of course, is the Consumer Product Group, which we've spoken about just in today's discussions as well. And that is a business which will really take a separate path to the biofuel and bioenergy business. So, I think these are the two areas of focus of the company, going forward.

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

Thank you all for logging into our Q1 earnings call today. We wish you the best and hope to see you at next quarter’s earnings call. Thank you and all the best.

On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.