EIDPARRY — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

MUTHIAH · MURUGAPPAN

MURUGAPPAN –

WHOLE · TIME

TIME DIRECTOR & CEO - EID PARRY MR. SURESH KANNAN – WHOLE TIME DIRECTOR – PARRY SUGARS REFINERY INDIA PRIVATE LIMITED MR. A.

SRIDHAR – CHIEF FINANCIAL OFFICER - EID

PARRY · MR. BISWA MOHAN RATH - COMPANY SECRETARY -

MR. BISWA MOHAN RATH - COMPANY SECRETARY -

EID PARRY · Management

Eid Parry Limited August 10, 2022

Moderator · Conference Operator

Good day, Ladies and gentlemen, and a very warm welcome to the EID Parry Q1 FY2023

Questions and answers

murugappa · Research Analyst

“EID Parry

Moderator · Conference Operator

Thank you very much.

Ladies and gentlemen, we will now begin the question-and-answer session.

First question is from the line of Pratiksha Daftari from Aequitas.

Please go ahead.

Pratiksha Daftari

My question is relating to distributor segment.

If you could just explain the key reason for profitability being impacted and what was the transfer prices for molasses this time versus last time.

MUTHIAH · MURUGAPPAN

Thanks for your question we are just getting you the transfer price.

Well, the profitability was down on account of capacity utilization.

We had some maintenance related downtime across some of the distilleries.

We will catch up on the volumes during the rest of the year. we have completed our maintenance related activity and for the rest of the quarters, we should be back at full clip which will enable us to run our operations profitable.

We are just getting you the transfer price.

Did you have a follow-on question madam.

Pratiksha Daftari

No.

MUTHIAH · MURUGAPPAN

The team is just pulling this data out so maybe we could move to the next question, and I will clarify that through the course of this call.

Pratiksha Daftari

Sure, thank you.

Moderator · Conference Operator

Thank you.

The next question is from the line of Akshay from Nirzar Securities.

Please go ahead.

Akshay

Thank you for taking my question, Sir.

Just a small clarification, we have one off expense of stamp duty to the extent of 10 Crores.

So, in which segment would we classify that expense and relating to this our other expenses have also shot up from Rs.

70 Crores to Rs.

127 Crores and let us take Rs.

10 Crores as one-off expense then also 70 Crores has become 127 Crores Y-o-Y.

So could you explain the major components of why these expenses have increased so much, and my question will be on performance of Cogen also because in Cogen also the volumes and the pricings were very good as you have explained in the opening remarks but the profitability is not as much.

So, if you can explain if that will be sustainable going forward and give us some more clarity on that.

Thank you so much.

Eid Parry Limited August 10, 2022

A.Sridhar

I would like to clarify your first question with reference to the increase in other expenses.

The stamp duty charges of Rs.

10.50 Crs ss a part of the other expenses and this is basically pertaining to the merger and the demerger activities which were carried out between 2011 to 2017.

These stamp duty charges were linked to the market determined price on the assets transferred.

So, the court had determined the valuation in the month of June 2022 and accordingly we have made a provision for the same to the extent of about Rs.

10.5 Crores during this quarter.

The cash outflow towards the same will be in September / October 2022.

Akshay

Sir in which segment will we classify this 10.5 Crores.

S. Suresh

This will be unallocated income.

Akshay

There is also increase in other expenses from 70 Crores to 117 Crores.

A. Sridhar

Let me explain the same.

We are working towards improving our safety norms in each of our factories and there are spends on account of those.

Also, you would have noticed that the sales volumes have moved substantially high between the current quarter and last year same period.

This increase in sales volume have a variable component of expenditure such as packing and freight cost which is around Rs.

10 Crs.

Another reason why the costs are higher compared to previous year is our Bagalkot factory and Haliyal factory commenced commercial production from July 1st 2021, and January 1st 2022 respectively.

Hence the operating costs of the expanded capacity was a part of current Q1 cost.

In addition to that, we also have power and fuel cost which has moved up substantially during this quarter.

The coal prices went up much higher.

So those are the reasons where the costs have been higher.

Akshay

That was quite helpful Sir.

So would we expect that these one-off expenses safety related as you have mentioned these are all over or still there is some money which needs to be spend going forward.

A.Sridhar Safety is something we are working towards improving at all the factories over a period of next two to three years.

So, a lot of initiatives are being carried out both on the infrastructure side and on the behavioral aspects of the employees.

So, can we assume 10, 15 Crores for every quarter let us say a ballpark number will be there on these all-new initiatives and the safety related measures.

A. Sridhar

No as far as safety related is concerned it could be around Rs.1 Crore or so and not more than that.

Eid Parry Limited August 10, 2022

Akshay

So broadly this would be the range going forward 120 Crores, 115 Crores as compared to 70 Crores because there is a quite a shift from 70 Crores of expense to 120 Crores.

So that is what we are trying to understand.

A.Sridhar

There are one-time expenditures such as stamp duty charges to the extent of about 10.5 Crores and the coal price.

We expect the fuel prices to soften during the next few quarters.

The quarterly costs should range between Rs.

85 to 90 Crores.

Akshay

That was very helpful, and if you can quickly comment on the Cogen segment performance and sustenance because as we have seen that volumes and prices were quite good in this quarter.

So, if you could just comment on that.

S. Suresh

Cogen, the volume should grow based on the increase in the availability of cane during this crushing season.

As far as the realization is concerned, it all depends on how the energy exchange prices provide and we have taken advantage of the better prices during the Q1 maybe together we have to pray that the prices continue to remain at that level for us to perform better in Cogen.

Otherwise, the normal exchange rates will apply.

Akshay

So, have we sold through exchange also or we are directly sold at the spot price.

S. Suresh

See there are two, three things we do.

We export the energy thru exchange, GDAM, GTAM and export to third parties

Akshay

Okay I will get back in the queue for more questions Thank you so much.

A.Sridhar

The molasses price for the current year is about Rs.8750 as against the previous year same period which was at Rs.5550.

So there has been a substantial increase in the molasses price because of the market demand.

Moderator · Conference Operator

Thank you.

The next question is from the line of Anupam Goswami from B&K Securities.

Please go ahead.

Anupam Goswami

Good afternoon, Sir.

My first question is on the gross recovery that we have maintained in this quarter.

Now that the Pudukottai plant is also shifted to Haliyal, what is the now gross recovery and going forward what kind of margin can we expect in the sugar standalone business because despite expectation of a higher recovery, but on the other side even though gross margin has increased but on the EBITDA margin could not increase so much because of the higher other expenses.

So where do we see ourselves in the margin front going forward.

Eid Parry Limited August 10, 2022

S. Suresh

Q1 recoveries pertains to fag end of the season and as such the recoveries will not be a representative in nature.

So practically, there were no Karnataka operations.

Andhra operations also came to a grinding halt and the recoveries were low because of the summer setting in very early.

So Q1 may not be a representative number to be compared.

The season for Karnataka will start only in October.

So, the benefit of the asset transfer from Tamil Nadu to Karnataka will start flowing in from the third quarter onwards and the margin should be better.

Anupam Goswami

And where do you see the EBITDA margins going forward because of some safety.

A.Sridhar We should be doing better than the last year numbers.

S.Suresh

You should also keep in mind the recent FRP increase announced by the government reflects an increase in cane price from Rs.80 to Rs.100 per ton of cane.

So that needs to be kept in mind when we are looking at the EBITDA margin for the future.

Anupam Goswami

Do we also expect any hike in ethanol prices because of the higher FRP.

S. Suresh

Yes, the government has been consistently revisiting the ethanol prices whenever there has been an increase in the FRPs price.

Such increase should come from the alcohol year starting 1st of December and not before that.

We are hoping that the government will meet the industry expectations.

Anupam Goswami

And my last question is on the refinery even though the coal prices were high this quarter and we have still managed to post a small profit in refinery business.

So, what changed in this quarter and going forward what is the outlook.

Suresh Kannan

I think you have rightly pointed out the cost escalation that is coming in the form of coal but as we discussed in the earlier calls also our confirmation had been basically with in terms of higher spreads that have been available during the periods and, we are in a position to source raw sugar from India vis-à-vis Brazil.

So, this coupled with our ability to execute the volumes as per the last quarter bridges the gap on account of coal price inflation.

So, in the second part of your question going forward with oil softening to $90 today and possible U.S., Iran, nuclear deal we are hopeful that the energy prices will moderate, but we are keeping a watch on the coal prices as well.

Anupam Goswami

Thank you.

If I can squeeze in and relate it to this.

What is our sourcing of sugar refinery, what kind of prices and what is the spread.

Eid Parry Limited August 10, 2022

Suresh Kannan

The Indian sugar is also sold at international price basis.

So, it is a question of landed cost parity difference between Brazil and India which changes from time-to-time depending on the market condition.

The spreads for the first quarter had been around $50 per ton.

Anupam Goswami

So, it has improved from earlier spreads of 40 and 45.

Suresh Kannan

Yes, in line with this, the freight cost has also to be seen.

Anupam Goswami

Okay thank you I will get back in the queue.

Moderator · Conference Operator

Thank you.

The next question is from the line of Hitesh Doshi.

Please go ahead.

Hitesh Doshi

Good afternoon.

How is traction for Flomentum in USA and how much do we budget for sales, marketing, and doctor engagement expenses on an annual basis and what was this number before the Flomentum launch.

Why is revenue performance in Nutra been subdued and quarter only the sales in standalone back to pre-COVID level.

MUTHIAH · MURUGAPPAN

So, the Nutra performance is down because of the Standalone Nutra we had some issues regarding weather and also some administrative issues on exports.

This shortfall will be made up in the Q2 on a standalone basis.

So, from a Consolidated basis, our top line for the core business Valensa is in line with our expectations.

Flomentum is gaining steady traction and I think it is too early to give you a full overview of the entire program in terms of sales and in terms of expenses.

I think we are in the initial phase now and it is funded from the profits and the cash flows of the core Business of Valensa.

There is no additional capital infusion from the parent company.

But we will at the right time update you on the workings of that program.

We do have a steady sales traction and it is picking up and there is a growth in sales over the previous year as described in earlier calls.

It is a direct consumer business based on a medical equity model so the reach out will take time.

It is a disruptive new business model, and we have a new team to go out and implement.

Hitesh Doshi

Just one repeat question.

What are factors driving loss in distillery segment despite having Rs.125 Crores top line instead of Rs.

81 Crores why are we still losing money.

MUTHIAH · MURUGAPPAN

I think I had answered that to the speaker earlier.

In some of our distillery operations, we did take a down time because of maintenance related issues and a lot of those have been resolved and we will catch up in the subsequent three quarters.

We are not concerned about the same and we will close the rest of the year in line with our objectives that we have taken.

You will also note that there has been a substantial increase in the fuel cost and hopefully it is softening a little bit.

We are internally working to see how the losses can be made up and are confident in making better margins.

Eid Parry Limited August 10, 2022

Hitesh Doshi

Okay, thank you so much and wish you all the best.

Moderator · Conference Operator

Thank you.

The next question is from the line of Karan Mehta an individual investor.

Please go ahead.

Karan Mehta

Thank you for the opportunity.

I just have one question.

So, assuming the current cost structure what is the volume needed to breakeven in sugar segment on quarterly basis.

A.Sridhar See the sugar segment production happens between November to March and until then we use a 12 month moving weighted average for costing purposes and it is difficult to really arrive at a breakeven on a quarterly basis.

During crushing season, the cost gets optimized, and it is only in the Q3 and Q4 where we normally make profits.

Okay thanks a lot.

Moderator · Conference Operator

Thank you.

The next question is from the line of Bharat Sheth from Quest Investment Advisors.

Please go ahead.

Bharat Sheth

Hi!

Good afternoon and thanks for the opportunity, I mean, see without going in this quarterly number on nutraceutical business we had a very high hope to grow to reach a revenue of around Rs.

500 Crores.

So where do we expect that kind of a number and in what time frame and at that point of time what will our EBIT margin be.

If you can give some color on that, that will be really helpful.

MUTHIAH · MURUGAPPAN

If you look at in this segment, they work with EBIT margins of about 15% maybe slightly north of 15%.

I think it is our aspiration also to move the business in that direction.

I agree it has been a slow increase in bottom line in this segment.

We have been in this segment for a while, but it is quite different from the other business models or the businesses that we operate as a company and as a group.

So, I think this journey has taken more time and we have invested in several growth initiatives.

I think in individual investor meetings as well we have said that we are taking efforts to reflect on our strategy for this segment.

It will take us a little bit more time to bring clarity to that and I think once we do that, we will bolt on to our current growth initiatives and strategy as well.

So, I think we respect the fact that it has taken more time than envisaged but that is the reality.

We will have to do it the right way and not do anything impulsively and end up wrong.

We are playing a patient game on this.

Bharat Sheth

I appreciate that Muthu.

But if you can give some color that what kind of annual growth rate that in the current, I mean, even despite taking pose do we expect, or it will stagnate for Eid Parry Limited August 10, 2022 couple of you at this level when you are saying that you have taken a pose on those initiatives.

MUTHIAH · MURUGAPPAN

See the current business moves are on and we will provide an update at the right juncture.

Bharat Sheth

In next three year where do we see this business in your aspiration?

MUTHIAH · MURUGAPPAN

See I think aspirations are always much higher and besides it would be wrong on my part to leave number here and I think it is not the right approach.

We are more focused on building the business model.

Bharat Sheth

Now coming to this distillery business again without going in quarterly detailing.

See, last year we had a revenue of around Rs.

500 Crores, but still our EBIDTA margin is lower than the single digit.

If you can give some color that whereas in our distillery of sugar mill operating in North India, they have EBIT margin in the range of say 20% to 40% so why this difference and how do we really try to bridge that gap.

MUTHIAH · MURUGAPPAN

There is difference in the internal transfer price for molasses between sugar and distillery.

If the investor community can bring a uniformity in that then it is easier to track everyone.

Currently everyone is accounting as per the accounting standards adopted by them for the transfer pricing.

S. Suresh

You should also keep in mind one thing ie., the size of the distillery capacity.

We have got 248 KLPD distilleries and 165 KLPD and another one is at 75 KLPD and Bagalkot alone is 125 KLPD, Sankili is going to be 120 KLPD.

So we have to keep the size of the distillery units also in mind especially with reference to fixed cost absorption and optimization etc. As pointed out by Muthu, our transfer price of molasses plays a key part in the entire margin analysis.

Bharat Sheth

But in that case sugar profit also should reflect higher because it is a transfer price from sugar to distillery then the sugar profit should go up higher correct.

S. Suresh

Absolutely what you are saying is right you should also keep in mind then once again take a comparison to the north.

The north can be 1% higher in recovery compared to the recovery we get from the geographies where we operate.

So that means that 1% will give so much of rupees in terms of profitability and that is what Muthu was talking about the regional differences.

MUTHIAH · MURUGAPPAN

And I think you will have to look at the EID Parry business as an amalgamated player between three states when you look at the EBITDA per ton with different recoveries of Eid Parry Limited August 10, 2022 sugar from Andhra, Tamil Nadu, and Karnataka.

Independently these states look different from an EBITDA per ton perspective.

Obviously, when they amalgamate you would arrive at a certain number it is perhaps only likely that this number would differ from a direct apple to apple comparison with say a state like UP where uniformly the recoveries are much higher.

Bharat Sheth

And the last question on the sugar business.

See there are a lot of initiatives and talks are happening on to improve this sugary recovery and yield from the sugarcane so a new microbiology kind of a seeds and all of that and I believe that EID is always a front fund.

So, what exactly we are doing to improve the yield and recovery from the sugarcane and what kind of initiative have we taken and when do we expect that kind of result from.

S. Sruesh

See Karnataka as we look at it is already in a high recovery belt ie., like UP and Maharashtra.

The places like Andhra and Tamil Nadu we are doing a variety of improvement program where we only promote high sugar varieties across.

The benefit is seen in the recovery in places like Nellikuppam, Pugalur as well as in Sankili over the last two to three years.

So, this will help farmers and be encouraged to plant more of high recovery varieties.

These varieties should also be of a high yielding variety because the recoveries are on the range of 9.5%.

So, farmers will be more benefited only when the yields are also more.

So, it is a complex issue for the company where the yield also must be more, recovery has to be more for the former real has to be significantly higher because he is not going to get much in terms of recovery from the FRP.

So, taking this into account and the local soil conditions and local other climatic conditions, we are recommending the high recovery varieties to the farmers and accordingly the recoveries in Tamil Nadu and AP has started growing over a period.

Bharat Sheth

And last question if I may squeeze with this commissioning of this two-distillery dual feed so what is the kind of ethanol that we expect to generate in volume if we can give some color from next year onward.

MUTHIAH · MURUGAPPAN

Our total capacity will be around 400 KLPD with a capacity to produce 12 Cr liters.

Bharat Sheth

How much sorry.

MUTHIAH · MURUGAPPAN

In all we must be making ethanol of around 12 Crores liters.

Bharat Sheth

And one of these two refineries are dual feed which can generate for the 12 months so factoring you also this also.

MUTHIAH · MURUGAPPAN

Can you come again Sir.

Eid Parry Limited August 10, 2022

Bharat Sheth

See this new refinery that we are installing which is on the dual feedstock.

So how that will be the different from the other distillery.

MUTHIAH · MURUGAPPAN

The other distilleries are molasses basis and those will run only based on the molasses availability from the respective sugar mills.

Sankili is in Andhra where the grains is available in plenty.

In the event of shortage during the season it will run on the cane based molasses then the accumulated molasses also the plant will run for maybe another 2-3 months the balance two to three months of the year we will run on grain stock so that we can extend the distillery running to the fullest season notwithstanding the challenges related to cane availability. whereas in molasses-based distilleries if the cane availability drops then the distillery capacity utilization will drop.

The multi feed is a de-risking strategy as far as the Sankili is concerned.

Bharat Sheth

Okay and thank you very much and all the best.

Moderator · Conference Operator

Thank you.

The next question is from the line of Ritwik Sheth from DFC.

Please go ahead.

Ritwik Sheth

Thank you for the opportunity, Sir.

My question is on the refinery business what the refinery debt is as of June 2022.

Suresh Kannan

In terms of the refinery, we have a long-term debt of 200 Crores and a short-term debt of 138 Crores.

So, totaling to Rs.

338 Crores as of quarter closing.

Ritwik Sheth

So short-term debt has reduced significantly during the quarter.

Suresh Kannan

Yes, you are right.

Ritwik Sheth

And was the refinery business EBITDA positive in the quarter.

Suresh Kannan

Yes of course.

Ritwik Sheth

Can you quantify that please.

Suresh Kannan

EBITDA for the quarter will be around 16 Crores for the refinery.

Ritwik Sheth

And then this is expected to be in this range for the coming quarters and what is the outlook on the refinery business if you can throw some color.

Suresh Kannan

In terms of the major drivers, we expect continuity refined sugar market is very tightly balanced and we expect that therefore the spreads also to continue to remain at these levels.

Eid Parry Limited August 10, 2022 Of course, the question is with respect to the energy cost which I think has been discussed earlier as well.

If other things remain same and we do not have any major macro events, we should be able to maintain the momentum.

Ritwik Sheth

One follow-up on the earlier in the call you mentioned that PBT of refinery was a negative 6 Crores did I hear that figure right.

Suresh Kannan

Yes.

Ritwik Sheth

So, what is driving the difference between is it the entry because that debt has significantly come down during the quarter, I am unable to understand.

Suresh Kannan

Sorry can you please repeat we could not follow your question.

Ritwik Sheth

So, EBITDA you mentioned is 16 Crores positive and PBT is 6 Crores negative, and debt has significantly reduced during the quarter so what is the gap between is there any exceptional item.

A.Sridhar

There is a mark to market on the forex cover and the loss on account of the same is notional.

Ritwik Sheth

Okay so this would ideally be non-cash right.

A.Sridhar

Absolutely.

Ritwik Sheth

So, this is negative 6 Crores PBT is on cash okay.

Okay Sir thank you and all the best.

Moderator · Conference Operator

Thank you.

The next question is from the line of Devang Shah from Invest Savvy Portfolio Management.

Please go ahead.

Devang Shah

Hi!

Good afternoon, Sir, I have a question regards to your standalone performance we are seeing sequential basis revenue is down somewhere close to around 22%.

So I just would like to know what is the reason and what is the outlook going forward and second regards to your profitability also due to rise in the expenses in this particular quarter the profitability turn out to be a negative so I want to know that you know what are the main expenses driver it is on a raw material side or it is something power and fuel and the other expenses and what is your outlook going forward also on the expenses front on a standalone basis.

Thank you.

MUTHIAH · MURUGAPPAN

Your question is Q4 versus Q1 of this current financial year Q4 of last financial year.

Eid Parry Limited August 10, 2022

Devang Shah

No, I am asking about sequential basis quarter-on-quarter.

Quarter-on-quarter important standalone performance on revenue and profitability.

MUTHIAH · MURUGAPPAN

Quarter-on-quarter there is an impact on export volumes which impacts the performance on revenue and profitability.

Devang Shah

And what about, what regards to your expenses also that is also on a higher side so what do you say about in current quarter also and going forward outlook about your expenses and which constitute of the expenses are there in this quarter that is putting a pressure.

A.Sridhar

Yes, the performance and expense can be compared between previous year same quarter Vs the current year same quarter as this is a seasonal industry.

Devang Shah

And last question what you see about the outlook going forward.

MUTHIAH · MURUGAPPAN

Outlook going forward for…

Devang Shah

For the standalone performance of the company.

MUTHIAH · MURUGAPPAN

The company has been improving its standalone performance over the years you must have seen that we will continue to do better than the previous years and, in the years, to come and there is no doubt on that.

Devang Shah

Okay thank you Sir.

Moderator · Conference Operator

Thank you.

The next question is from the line of Anupam Goswami from B&K Securities.

Please go ahead.

Anupam Goswami

Sir, we understand that the distillery segment margin will came a little lower than the low- capacity utilization but if the maintenance cost did not happen what kind of margin we could have made.

MUTHIAH · MURUGAPPAN

I mean if the maintenance did not happen, we could not have run the distillery.

So, the maintenance activities are needed to run the plant in a smooth manner.

In any case, we could not have deferred it.

Anupam Goswami

Going forward there is no other reason right and we can easily put post project profits and distillery segment growth.

Eid Parry Limited August 10, 2022

MUTHIAH · MURUGAPPAN

Yes, we will make up these losses in the next three quarters.

So, you will see that in Q2, Q3 and Q4 we make more consistent distillery output.

In Q4 we are looking forward to have the new distillery at Sankili running as well.

Anupam Goswami

Okay, thank you.

Moderator · Conference Operator

Thank you.

As there are no further questions, I now have the conference over to the management for their closing comments.

S. Suresh

Thank you all for your questions and we wish you all good health and we look forward to meeting you again in the subsequent quarters with hopefully a strong set of results.

Thank you and good day.

Moderator · Conference Operator

Thank you.

Ladies and gentlemen on behalf of DAM Capital Advisors that concludes this conference call for today.

Thank you for joining us and you may now disconnect your lines.