India Glycols : Transcript of Results Conference Call for Q4 and FY22

India Glycols Limited

May 30, 2022

If you look at the results for the continued business, you'll see a gross turnover of INR6,601 crore, up 22%, net turnover of INR2,868 crore, up 24%, EBITDA down 2% at INR277 crore, EBITDA margins of 9.6%, so which is more reflective of the business we have right now where we've seen healthy growth in all these segments in a rather challenging environment, which is all these segments include BSPC, Potable Spirit and a smaller one, which is Ennature Biopharma. And there has been a combined effect of increase in feed stock and energy cost, which has put pressure operating margins and has also started to impact our ability to get more sales. And that is also somewhat seen.

And if you look at a quarterly performance for the continued business gross turnover of INR149 crore road down 7%, net turnover, INR642 crore, down 15%, EBITDA of INR84 crore, down 13% and EBITDA margin of 13%. In the fourth quarter in particular, we have seen poor growth, which has been an impact of COVID. While India has significantly recovered, but the COVID impact for the world still stays, particularly as you would've heard of shutdowns in China, which means our inability to sell in China, issues with trade and supply chain, et cetera. The sharp increase in feed stock prices product has continued, and I will talk about it a little later. And remember that when we look at this, we are looking at a business where the EOD business has moved on to the joint venture.

Very quickly, taking you through the highlight other than the numbers for the year. As you know, we formed the joint venture with Clariant for the Bio- based EOD business effective 30th of June. The transition has been completed as planned, and we believe that the JV is functioning quite well.

One thing that I'm happy to inform you about is the Global ICIS Award for Sustainability, which we've got together with our partners Unilever and Lanzatech. This is the work that we've been doing on the Carbon Smart products front. These are completely unique and new technologies, which are coming up and we are happy that IGL was a part of this.

I already spoke about the escalation in cost. As we know, we had also raised capexes for grain based bio ethanol plants in Gorakhpur and Kashipur. Both the plants are nearing completion and they will be commissioned, we expect, in Q2, and we'll keep you updated on the same.

We've also been working on new value added chemicals. So we have worked with a new product development and innovation group working very closely for the last eight to nine months to look at new value added chemicals that we will be working on. So we've already identified the phase one, and capex for that has already been approved. Significant part of what was our R&D setup actually went to the joint venture. So the -- we have then taken on ourselves to set up another R&D center, which has already got DSIR recognized. And we are sending R&D over there.

In the Ennature Biopharma business, we doubled our nicotine capacity from 60 to 100 tons per month. And we also got our first certificate for EU Pharmacopeia for Thiocolchicoside, which will allow us to sell -- provide better access, particularly to the European markets. And in terms of broad sectors that we cater to, the biggest one of course is Bio-based Specialties at Performance Chemical. I will just take you to the segment wise highlight.

We believe we've got -- we saw an excellent bounce back in sales, as well as margins in Bio-based Specialties and Performance Chemicals. Bio-MEG business for us is getting more diversified from primarily being led by one customer. We've managed to get several or nearing now, well above 10 to 15 customers in -- at developed economy for Bio-MEG. So despite one of our major customers off-take ditto, we've been able to maintain our volumes and margins or increase actually in the export business. We've seen excellent growth in specialty Green Solvent and Bio-Polymers this year. And as I mentioned, it is for the Bio-based Specialties Business, that we've also approved an investment proposal, what we call as NSU Phase 1, which is new specialty unit phase one.

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India Glycols Limited

May 30, 2022

I must mention here that when I say new specialty unit, it implies that these are value added products other than what have already been transferred to the joint venture. So there's a clear segregation and these products are not that we are competing with the joint venture, these are new, these are different, and they will be done solely by IGL. And as I mentioned, the Grain based and Bio Fuel Ethanol projects are in progress, which we expect going forward will help us improve the competitiveness of our Specialties and Pharma chemicals as well.

In Potable Spirits, we saw overall healthy sales growth for the year. However, margins have been significantly impacted due to the sharp escalation in ethanol costs. And as it is a rather tedious process to get price in phases in the liquor business, which are significantly controlled by the government. It's a long process. However, we manage to get some price in phases, and we will also be far more competitive once we start using our grain based ethanol manufactured in house. We've maintained our leadership position in the branded country liquor segments in UP and Uttarakhand. There has been a change in policy in Delhi, the excise policy, and we believe that it is something that we should look at, and we are looking at as a growth opportunity for our Potable Spirit business.

We have also launched two brands in IMFL, making our small but steady steps in the IMFL space with the launch of Amazing Vodka and Single Reserva Whiskey. And Tejas Gold sweet mango flavor in branded country liquor space, and we are the first of its kind.

In Ennature Biopharma, we've see moderate growth and margins -- however, margins have been under pressure, particularly because of some of the policy changes in some of the countries that we were exporting to. The business continues to focus on diversification to reduce the dependence on Thiocolchicoside, which has been achieved to some extent this year, while maintaining market share for Thiocolchicoside. The nicotine capacity, which is nicotine which goes for therapeutic uses has been doubled. And I already talked about the CEP certificate.

Whilst you may have heard about it from many other people, but it's very important to understand the impact of the operating environment that we are in. So there has been, as a high degree of uncertainty in the macroeconomic environment. The COVID impact continuous in global and domestic markets, off late the shutting down of China, et cetera, et cetera. Then there is this Russia-Ukraine war, which does impact us in many ways, it impacts us because it impacts the energy cost, it impacts us because Ukraine is also a big producer of food grains, and when it impacts food grains, it impacts other Bio-based substrates and therefore molasses or grain based ethanol and as you probably know there has been very sharp escalation in the imported ethanol cost for us.

And which comes to my next point, which is about unprecedented increase in input costs faced by the industry, faced by our suppliers, faced by our customers. I mentioned ethanol, there has been a drastic increase in energy costs in coal. So coal, which was something like INR5,500 a ton, it is now averaging out to more than INR12,000 a tone, mainly because we have -- having procure coal from the private players and because they're not getting the allocated coal from the government. And of course, unprecedented increase in freight costs sharply, has impacted as competitiveness for the export business be it in the area of bio polymers or green solvents and so on.

However, having talked about the challenge of this environment, it'll not be fair if I don't touch upon some of the positives. And there is obviously, you are aware of COP26 and you're aware of what the government of India has been doing. A significant trust on sustainability by the government, as an industry, those we believe provide significant -- definitely medium to long term opportunity for our business for Bio-based product, for green product and for bio fuels as well. Demand for our product, we believe as far as the Indian market is concerned, the Indian growth story

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