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“Sukhjit Starch & Chemicals LimitedQ3 Financial Year 2014 Earnings Conference Call”
January 29, 2014
MANAGEMENT: MR. BHAVDEEP SARDANA MR. PANKAJ SARDANAMR. AMAN SETIA
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Sukhjit Starch & Chemicals LimitedJanuary 29, 2014
Moderator: Ladies and gentlemen, good day and welcome to the Sukhjit Starch & Chemicals Q3 FY
2014 Earnings Conference Call. Joining us on this call today are Mr. Bhavdeep Sardana,
Senior Vice President & CEO Himachal Pradesh Unit, Mr. Pankaj Sardana, Vice President,
Nizamabad Unit and Mr. Aman Setia, Vice President, Finance. As a reminder all participant
lines will be in the listen-only mode and there will be an opportunity for you to ask
questions after the presentation concludes. Should you need assistance during the
conference call please signal an operator by pressing * and then 0 on your touchtone
telephone. Please note that this conference is being recorded. I now hand the conference
over to Mr. Aman Setia. Thank you and over to you Sir.
Aman Setia: Good morning everybody. At the outset I Aman Setia on behalf of Sukhjit Group welcome
you all for joining us for the conference call on our Q3 FY 2014 results. We appreciate your
time and patience for remaining invested with us for long. Most of you who are our long
term shareholders understand that hard work, trust and credibility have remained the three
most important things in Sukhjit. We have 38 years uninterrupted dividend track record
coupled with the periodic bonus issues most in the ratio of 1:1. Regarding our performance
in Q3, you will be pleased to note that our sales have increased by 12% to Rs. 133.58
Crores versus Rs. 118.94 Crores in Q2 of the current fiscal. Our EBITDA has also grown
by 26% to Rs. 13.34 Crores versus 10.60 Crores in Q2 with an improvement by 100 basis
points. Profit after tax has shown a healthy growth and stood at Rs. 5.11 Crores versus Rs.
3.43 Crores in Q2. This improved performance is attributable to the operationalization of
the enhanced capacities at our Malda unit in West Bengal. Regarding nine months
performance the sales of the company in nine months ending December 2013 have grown to
Rs. 371.59 Crores showing a rise of 23% versus the corresponding figure of the nine
months of the previous year. EBITDA for nine months has however declined by 11.4% to
Rs. 34.58 Crores. This is mainly due to the higher raw material cost and increase in power
tariff. The exports for nine months ended December 2013 have gone up by 33% if the figure
is compared with the corresponding figures of the previous year. On financial front our
interest cost has gone up owing to the higher utilization of working capital facilities to
finance the increased operations, however the long term debt has gone down to Rs. 67
Crores with a debt equity ratio of less than 0.4, ladies and gentlemen, now I hand over to
Mr. Bhavdeep Sardana our senior vice president operations who will enlighten you about
the operations of our company, over to you Bhavdeep Sir. Thank you very much.
Bhavdeep Sardana: Hello, I am Bhavdeep Sardana. Many thanks for joining us. We keep on getting a lot of
interest from potential investors, mutual funds and FII to start investor relations and give
clarity on company performance. While it has always been our endeavor to maximize
shareholder value we will present ourselves in future as the case may be to keep presenting
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a clear picture of the company and its operations so that all current and potential
shareholders stay abreast of all development. I would like to reiterate that we are a company
which is always working to maximize shareholder wealth through prudent financial and
operational measures. Transparency and ethical business practices have always been the
hallmark. As Aman well said that we have always tried to reward our shareholders. As a
third generation entrepreneur at Sukhjit we are committed to better the performance and
safeguard shareholder’s interest. In the last two years we have spent over Rs. 100 Crores in
capex resulting in enhanced capacity of our Malda unit to three times its original size with
an additional facility for key product dextrose monohydrate of 50 tonnes per day. The capex
has also gone in to doubling corn grind capacity of our Himachal Pradesh unit which is
likely to be commissioned by end of Q4 FY 2013-2014. The results of the Malda expansion
have to accrue and can be witnessed in our nine months topline. Expansion of Himachal
Pradesh unit will start delivering in the next fiscal. This will take our total corn grind from
700 tonnes per day to 1150 tonnes per day. After completing the ongoing expansion in Q4
we will consider the expansion of our other units located in Andhra Pradesh and Punjab.
Now, I would like to hand over to Mr. Pankaj Sardana who will shed light on operations at
our newly expanded unit at Malda, West Bengal. Over to you Pankaj.
Pankaj Sardana: Good morning all I am Pankaj Sardana. As Bhavdeep mentioned we have operationalized
our Malda expansion. This has taken our corn grind from 150 tonnes per day to 450 tonnes
per day with dextrose monohydrate plant of 50 tonnes per day. In the past three quarters we
have only run the expanded capacity at around 50% utilization. This is due to local power
issues. These are expected to be resolved in the current quarter and we hope that we are able
to achieve a significant increase in the capacity utilization in the coming quarters.
Additionally, there is increased focus on exports through land route due to our strategic
location of the Malda unit close to Bangladesh and Nepal borders. I now hand over to
Bhavdeep again.
Bhavdeep Sardana: I hope the information that has been shared with you all will address any concerns and I
hereby hand over to Melissa to invite any specific questions. Over to you moderator.
Moderator: Ladies and gentlemen, we will now begin with the question and answer session. We have
the first question from the line of Sushanta Bhattacharya from Sharekhan Limited. Please
go ahead.
Sushanta B.: Thank you for taking my question. Good morning sir. I have two broad questions. One is
about your product mix. How much portion is coming from value added starch and how
much is from traditional starch and second what is your capex plan for this year FY 2015?
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Bhavdeep Sardana: Thank you for your question. I will answer the first part. Value added starch; there is a cap
on the limit on value added starch in India. It is 5% if it is blended in to food products, so
there is a limit there but starches which are sold in India primarily in food are native
starches. There are some special starches which we make which go in to the paper industry.
Going forward if the regulations of the government change the scope of value added
starches for the food business may increase and answering your second question if I recall
correctly you had asked what is your capex, we are completing our expansion at our
Himachal unit and the company will review all expansion plans post the operationalization
of that expansion in the month of March and we will review expansion at our units in
Phagwara and Nizamabad.
Sushanta B.: Okay so that you are expecting 1150 tonnes per day your capacity to be by the end of this
year?
Bhavdeep Sardana: Yes that is correct.
Sushanta B.: Okay, post that you will take a call looking at the demand situation and your position.
Bhavdeep Sardana: Yes that is correct.
Moderator: Thank you. The next question is from the line of Gaurav Jalan from Avant Garde Wealth
Management, please go ahead.
Gaurav Jalan: Hi, I am new to the industry and the business, so excuse me for asking some simplistic
questions, but just in terms of your product mix, based on your annual report you have
various product categories like starch, dextrins and dextrose, sorbitol etc., so can you just
briefly describe what these different product types are and which one is higher value add,
higher margin and who are the customers for each of these products?
Bhavdeep Sardana: Gaurav, thank you for your question. It is a broad based question again. I will try to be as
specific as possible given the strategic nature of these but typically the bulk of the business
in India is native starches and starch derivatives comprising of glucose and polyols and
sorbitol and dextrose monohydrate. The industry use is very broad based to single out. All
the top food processing companies in India typically the Indian majors or the MNC majors
are buying starch or starch related products, similarly the paper and the textile and the
pharma do use these products for their product ranges. It will be very difficult for me to
quantify the margins as far as products are concerned because it is a very complex exercise
and there is a strategic nature in this which I will not be able to share on a public platform.
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Gaurav Jalan: So roughly if you were to classify the user industry what percentage of your products go in
to food processing, what percentage in to paper, pharma either a broad kind of percentages
that you can give us?
Bhavdeep Sardana: I think about 25 to 30% food, about 15 to 20% pharma and then again rest between paper
and textile.
Gaurav Jalan: So it is fairly broadly split, you are not very concentrated in only one industry and in terms
of the supply side how has this industry evolved over time, is it mostly a large number of
small players or what is the trend, is it a very fragmented industry, do you feel like it is very
consolidated or consolidating?
Bhavdeep Sardana: It is on a phase of consolidation but then again there have been in recent past small
capacities which have come up independently, so it is an ongoing exercise but the general
trend is of consolidation.
Gaurav Jalan: In terms of capital expenditure plans, in terms of rupees how much do you plan to spend in
fiscal 2014 and fiscal 2015?
Bhavdeep Sardana: Yes sure, I will tell you. Gaurav, we are under expansion of our Himachal plant and the
moment we have operationalized that plant we will then take a call on expanding our units
at Phagwara Punjab and Nizamabad Andhra Pradesh, so right now I can't put a number
going forward but I can put a timeframe that around April May we will be able to talk
numbers.
Gaurav Jalan: In 2014 how much will you spend?
Bhavdeep Sardana: This year around 30 Crores.
Gaurav Jalan: How should we think about the volumes of your company because after 2011 you don’t
disclose the volume numbers in your annual report anymore as with all companies but if I
add up the numbers till 2011 for example the total volume sold comes to around 166,000
tonnes for the year, so how has that number, is that right and is that the right way to think
about your volumes and total amount sold?
Bhavdeep Sardana: I think we are giving a broad-based starches and glucose as per the requirement, we are
disclosing those figures and what is not required as per law we are refraining because these
are strategic in nature.
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Gaurav Jalan: Can you at least disclose what your total volumes are not break up of the product but what
were your total volumes in 2012 and 2013 for all products put together?
Bhavdeep Sardana: Gaurav I will not be able to disclose that because it is not communicated to the stock
exchange what we have done so on a public platform I will not be able to share that with
you. I apologize for that.
Gaurav Jalan: Your total revenue growth for that first nine months have been about 23%, how much of
that is growth in volumes versus value, if you can give that indication, this in percentage
terms not in number but 23% revenue growth so how much of that is growth?
Bhavdeep Sardana: You could say between 12 to 15% in volume, the 23% sale 5% in value and about 12 to
15% in volume, maybe 18% in volume, you can say.
Moderator: The next question is from the line of Dixit Doshi from Whitestone Financial Advisors,
please go ahead.
Dixit Doshi: Good afternoon sir, you said your exports grew by 33% in the nine months period, can you
give the number how much was the export?
Bhavdeep Sardana: It is a miniscule number; it is around 7.5 Crores which is significant increase from last year.
We have not been focusing on exports in the past but now we have the capacity and the
products to cater to those markets.
Dixit Doshi: Can you throw some light on your margins, some of your peers have margin above 15%
also, so in the future can we expect some margin expansion from 11% level?
Bhavdeep Sardana: We are striving Mr. Doshi. We are really trying hard to increase the margins, the effort, we
got hit in our margin due to high cost of maize as mentioned by our MD and especially in
the first six months our northern units paid a hefty price for Maize crop. Going forward
there is a lot of maize which we are hoping will be made available to us locally for our
northern units and the other input which hit our margins was higher power tariffs, we are
kind of absorbing them and trying to take them into our stride, so going forward yes our
efforts are to improve on our performance.
Dixit Doshi: So can we expect some rationalization in the power cost as a percentage of sales because I
think our Andhra unit is using much extensive power?
Bhavdeep Sardana: You are absolutely correct, the southern grid has been very badly hit with the shortage of
power there and the unification of the grid in the local level between the western and the
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southern grid has not been happening, but yes the government in those states and CERC
have given some guidelines and things should fall in line and there should be stability and
also when we start utilizing our expanded capacities.
Dixit Doshi: Can you just give a brief on corn prices, how do you see the future and what are the current
prices?
Bhavdeep Sardana: The general trend is always upwards you have minor blips as we sit today historically in the
last one year the prices are down 10% but if you take over a macro period the general trend
is upwards 5 to 7% increase 3 to 5% increase every year is the broad trend, going forward
yes I expect the prices to increase. At the farm gate the prices are between 11 to 12 rupees
for the states which are producing corn for now and the consuming states away from the
producing areas again depends on the freight, so it could be as high as 14 rupees a kg to
13.5 a kg depending on where the requirement is but as of now states like Maharashtra,
Karnataka and Andhra are producing the price is varying between Rs. 11 to Rs. 12 per kg.
Moderator: The next question is from the line of Gaurav Dua from Sharekhan, please go ahead.
Gaurav Dua: Hi sir, just wanted to understand more about the industry, which of the user industry is
seeing higher demand than the others and in which of the user industry that you believe that
there is more scope for value addition?
Bhavdeep Sardana: Again, it is a very interesting question and the one related to our GDP growth. What has
happened with the food inflation our perception is that the packaging industry took a hit but
the way the growth is rebounding we are seeing that the packaging industry, the more and
more people go and buy pizzas and fast foods and consumption driven story of India as it
gets restored the effect it will have is on vertical such as paper, corrugation, it will have
effect on condiment manufacturer, it will have an effect on food manufacturers. We stand to
benefit from all those. As far as our product range is concerned and we are seeing that India
is being seen as a viable hub for medicines worldwide and the pharma usage of our products
is on the rise and it should continue to grow, so these are some segments which are
definitely growing, textiles took a hit because of various issues with the cotton crop and
infrastructure in south India but we are seeing a new leaner meaner textile industry and once
it is on its feet the textile industry will also grow.
Gaurav Dua: Now you are talking about the short term outlook what I was talking about if you look at
slightly longer term let us say five years where do you think will be the major growth
drivers be in terms of if out of these four, five industry you want to focus on one or two
where you feel the growth will be higher what will be those and why, secondly you did not
answer my second part where I wanted to understand where can you add more value, where
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you supply a very low end products and where you have scope to supply more value added
products?
Bhavdeep Sardana: I will answer that, Gaurav I am sorry I did not understand your question at first. Over a five
year period we see the food industry growing substantially, the consumption of starch
products is very low in India as compared to China or the US, there is a difference of seven
times consumption with China and about 15 times with that of US, that is the per capita
population but discounting the food habits, etc., etc., there is still room to grow, there is still
significant room to grow, so on a much longer term perspective yes the industry stands to
grow to be at least three of four times its size and in not too long a timeframe. Coming back
to a five year window if the GDP is growing at 7% or 6% this industry has the potential to
grow two times at the rate of GDP and that has been the case, last five, six years we have
grown, higher than the GDP, maybe two times, maybe five times also and as far as value
added products is concerned I mentioned food as a sector which is going to be growing.
There are products in our pipeline which we have, which are being consumed. There is a
cap on use of modified starches for food right now that is a limiting factor for the industry,
maybe going forward if the government removes that cap so potential to have higher value
added starches for the food industry could bring in value addition for starch companies.
Gaurav Dua: Another thing coming back to profitability margins I think someone asked you some of the
other players in the industry have got very high margins than you, what is the reason, are
they doing more of value added products or product mix is not the same or there is
something else to it?
Bhavdeep Sardana: We have had lower profitability as compared to some of our peers because of higher maize
cost that has been a reason why we have shown lower profits. Another reason is even the
operationalization of the expansion took a little bit longer because of local infrastructure
issues, so you can well imagine, if I am running a plant at say 75% utilization my power
cost per unit per tonne of production is going to be lower than what I have experienced so
we are looking at an easement on the power tariff side, we are expecting a stability in the
maize prices in the short term. As far as our peers, their product mix and what they are
doing I don’t think I am very well qualified to comment on that.
Gaurav Dua: Okay, so in a steady state basis once your new expansion does ramp up and maize prices are
on an average not a wild swing up and down what could be your (indiscernible) 26.03
operating margins?
Bhavdeep Sardana: I think it would be fair to assume 12% but like I said there are lot of factors which are at
play and maybe we have a different story to tell and please our shareholders when we meet
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next time but we are keeping our fingers crossed, we are working hard on keeping stability,
trying to bring in stability in pricing and increase our operational efficiency to improve our
margins.
Moderator: The next question is a followup from the line of Gaurav Jalan from Avant Garde Wealth
Management, please go ahead.
Gaurav Jalan: Couple of follow ups please, one is your cash rate is lower than the full corporate tax rate of
33-34%, so what tax benefits do you avail of?
Aman Setia: We have deductions under sections 80 (I) (B) and 80 (I) (C) for our West Bengal and
Himachal Units. That is the reason our effective tax rate gets lower to the corporate tax rate.
Gaurav Jalan: So how long will these benefits last?
Aman Setia: Next four years to go.
Gaurav Jalan: What business do you have in your subsidiaries because I notice that there is a small loss in
your subsidiaries for the last two years, so what business do you conduct there?
Aman Setia: Basically we do not have any material subsidiary company, so we have small subsidiaries
and we are in the process of winding up those subsidiaries because we have main thrust in
our core business and we are expecting to grow in this business.
Gaurav Jalan: One other followup on the earlier caller, he was asking you about margins, so in this
business how do you think about profitability, is it percentage margins or is it the kind of
EBITDA per tonne or in terms of unit volume, what is the better way to think about
profitability?
Aman Setia: The valuation of stocks are on actual basis, it is not a percentage on sales or percentage like
that, there is nothing like that, it is on the actual valuation basis, it is on cost basis and actual
valuation basis, nothing like percentage.
Gaurav Jalan: Sorry, I think you did not understand my question, what I am asking is, in terms of the
profitability of the business when you think about EBITDA margins for example, is it
longer term is it better to think about industry in terms of the percentage margins that you
can earn in a steady state or the amount of profit you can earn per unit of product sold, so
you know profit EBITDA per tonne or whatever that metric maybe, what is the better way
to think about profitability just as an example in cement, typically EBITDA per tonne is a
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better metric than the percentage margin, so in that sense I am just asking in this industry in
your business what is the better way to measure profitability?
Bhavdeep Sardana: EBITDA margins are the right way to profitability and to assess how the industry is
behaving because there is cyclicality and that correlates with the margins.
Gaurav Jalan: Okay so in that case then am I right to assume that a rising raw material price environment
is actually good for you because if you maintain your percentage margins and your raw
material cost goes up in absolute terms you are actually earning more profit, is that a fair
assumption?
Bhavdeep Sardana: It does not always behave that way because there will always be a time lag and the fear of
the next cycle starting because if my cost goes up today and if I am contracted to supply at
old rates I lose but yes the other factor of when my contracts come up for negotiations and
higher price I am able to protect the margin and carry it also, so it is a give and take.
Gaurav Jalan: How long are these contracts typically in this business, are these long term contracts or a
few months, how does it work with the customers?
Bhavdeep Sardana: It can go up to as much as six months, but three to six months.
Gaurav Jalan: Are these fixed price contracts typically?
Bhavdeep Sardana: These are contracts with larger consumers, there are spot pricing for the trade, so it is pretty
much order to order booking with a specified time frame.
Moderator: The next question is from the line of Kailash Gandhi from Walfort, please go ahead.
Kailash Gandhi: Good afternoon sir, I just wanted to understand the strength of our product, means you are
in existence for more than 70 years and now if ever these are more industrial and
commodity driven product, so you have a pricing power or does your particular product is
having strength in the market as a brand?
Bhavdeep Sardana: See, the only differentiator is product quality and delivery schedules basically reliability as
a producer which differentiates a good manufacturer from a bad manufacturer. We have
good customer base who have been loyal to the company only because we perform every
time and our multi locations give us the advantage to service our customer in case we have
any issue at any particular plant.
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Kailash Gandhi: So it means diversified location of manufacturing help to serve the client in a better way,
that is what you want to say, is it that or is it the quality also matters for the client?
Bhavdeep Sardana: Quality is taken for granted by any customer today living in a day and age where quality is
understood and our commitment to what has been agreed with our customers and the
assurance that this company is spread across various locations and is able to satisfy our
customers and there is an assurance in terms of food safety and food security and all other
concerns that gives us that extra edge.
Kailash Gandhi: My question regarding the major raw material here seems to be maize, is that correct?
Bhavdeep Sardana: That is correct.
Kailash Gandhi: So, what is your procurement policy of procuring maize for the entire year, do you have at
the company level to better your margins any particular policy?
Bhavdeep Sardana: See we are spread across four locations, it is natural that we will procure from the areas
which are close to those locations, so our purchase policy of raw material maize is
dependent, is factored in keeping in mind the local purchasing areas and we keep a tab on
area under sowing, we keep a tab on the various inputs we get from the government data
through private seed companies, just by making field visits, how the yields are going or
expected to be and we form our strategies on the ground.
Kailash Gandhi: Last question is more relating to the raw material itself, what is your outlook for 2014-2015
in terms of maize as you have already studied your raw material policy for this?
Bhavdeep Sardana: The crop is good. The crop going forward is expected to be good. There was a delayed
sowing of maize in Bihar due to late harvest of wheat. The second crop in Karnataka and
Maharashtra seems to be very good. Even Andhra is expected to be good. We are hoping
that the kharif and Rabi are when the government compiles the data. We are assuming that
figure will cross 21-22 million tonnes.
Moderator: The next question is from the line of Pali Gupta from Hedge Funds, please go ahead.
Pali Gupta: Hi, I am so sorry but I joined in late but I expect an answer from the management even
though that is a repetition. My first question would be according to you what are the
challenges and the possibilities in front of Sukhjit today and what is the exact mandate
given by both to you.
Bhavdeep Sardana: I am sorry, can you repeat, you were not very clear.
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Pali Gupta: I was asking according to you what are the challenges and opportunities that the company is
facing.
Bhavdeep Sardana: The challenge which we face is getting raw material coverage in time. Raw material is
largely dependent on vagaries of nature but we do a fair job in getting adequate coverage,
there is sometimes a trade off against pricing but going forward we see we have addressed
this challenge we see the maize crop our raw material being abundantly available and as far
as opportunities are concerned we had a discussion with previous question that various
segments which we service we see a tremendous growth in them going forward and we
want to encash those opportunities by placing ourselves as close to our customer expansion
and also take advantage of their growths.
Pali Gupta: What is the current debt level of Sukhjit?
Aman Setia: The long term of debt level of the company at this point in time is around 67 Crores with
debt equity of even less than 0.4.
Pali Gupta: What is the capex plan for the next year?
Bhavdeep Sardana: The current capex this year is around 30 Crores but we are waiting to operationalized our
expansion and this will finish by March 31, 2014, hopefully by March 31, 2014 and the
company is then going to take a call on expansion at Phagwara plant and our Nizamabad
plant in Andhra Pradesh. No figures as of yet going forward but yes we are looking to
expand and we are waiting to operationalized our current expansions which are ongoing.
Pali Gupta: Do you expect the corn prices to go up from the current level and what kind of impact do
you see of this increase in corn prices on your sales?
Bhavdeep Sardana: The corn prices are down 10% over the last year. We see a certain stability coming in. We
expect the crop to be good. There is certain stability in raw material purchase price and we
hope to offer that kind of sustainability to our customers as well.
Moderator: The next question is from Gaurav Jalan from Avant Garde Wealth Management, please go
ahead.
Gaurav Jalan: Hi, sorry one or two more followups, with this Malda expansion what is your total capacity
at the end of this year?
Bhavdeep Sardana: Malda has already expanded; it is operationalized at 450 tonnes per day of corn grind.
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Gaurav Jalan: The total from all your plant put together what is your total capacity now?
Bhavdeep Sardana: 1150 tonnes per day after Himachal expansion is complete in the next few months.
Gaurav Jalan: So we just multiply this by 365 to get the total annual capacity?
Bhavdeep Sardana: You can take 330 to be more accurate.
Gaurav Jalan: Do you have captive power plants or do you buy all your parts from the grid?
Bhavdeep Sardana: We buy power from the grid and through tie up with the state governments.
Gaurav Jalan: Okay and the 50 Crores capex number that you gave for fiscal 2014 is that the cash
expenditure or total capitalization that you expect in this year?
Bhavdeep Sardana: Total capitalization and the finance were 30. I think I did not come through.
Moderator: The next question is from the line of Kailash Gandhi from Walfort, please go ahead.
Kailash Gandhi: Sir my question is regarding the presentation. I have seen the net profit for the last five
years, in 2011 you have very good margins, so just wanted to know what was the reason for
this and can it not be repeat in the time to come?
Bhavdeep Sardana: Mr. Gandhi we all hope that we repeat such years, that was in a lighter note. It was a very
unique where the entire industry benefited but this year shows the cyclicality in our
business and now it looks like to us and we are hoping it is true that we are getting out of
the cycle again and with stability and pricing again with better efficiencies in our plants we
should improve our margins.
Kailash Gandhi: What was the reason for those margins? Was it raw material pricing procurement or was it
your end product pricing, what made margins to that level?
Bhavdeep Sardana: It was basically we covered maize at lower prices and we were able to expand on our selling
prices.
Moderator: The next question is from the line of Monica Chaudhury from Pacific Research, please go
ahead.
Monica Chaudhury: Congratulations for the good set of numbers and my question is in the domestic market who
are your major customers, do you see to retail or wholesale? How is it?
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Bhavdeep Sardana: We sell only to corporates, to all the food majors and large paper industry in India, so I will
not superficially name customers but I would say that we are well represented withal major
food companies diversifies groups in India.
Monica Chaudhury: Who are your competitors in the domestic market?
Bhavdeep Sardana: We have some very good competitors’ right from Riddhi Siddhi, i don’t know what they
call themselves now since the takeover and there is Gujarat Ambuja export, Anil Starch
Maize Products, these are some of the competitors.
Monica Chaudhury: What is your current market share?
Bhavdeep Sardana: I would assume around 10%.
Monica Chaudhury: Is there any change as compared to last year in your market share?
Bhavdeep Sardana: Ms. Chaudhury the data is not available for our competition. We are one of the few public
limited companies which report our results, so I can't really comment on where it has grown
and the number which I have given you 10% estimate, I can't qualify that.
Monica Chaudhury: Could you explain what is your current working capital cycle time?
Aman Setia: The current working capital cycle time is around 60 days or two months.
Monica Chaudhury: What is the current inventory level that you are maintaining?
Aman Setia: For finished products it is just a week’s production and for raw material say in the
beginning of the procurement season we procure for four months or so.
Monica Chaudhury: How do you do this inventory valuation?
Aman Setia: Inventory valuation is basically the selling prices less the margins. It is basically on cost
you can say.
Monica Chaudhury: Do you see any change in your working capital cycle time in your coming year?
Aman Setia: No it will not have any significant change there. It will be similar to this.
Monica Chaudhury: If I ask you the full year guidance what kind of you volumes are you expecting for the
financial year 2014?
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Bhavdeep Sardana: Will be closing close to 500 Crores in the topline with some better margins we can expect.
Monica Chaudhury: Could you please tell me what is your current utilization level of your capacity?
Bhavdeep Sardana: 70%.
Monica Chaudhury: Your company has been in existence for long time, however its media presence which
drives the sentiment of the investor has been next to nil, and so what are the steps you are
taking in this direction?
Bhavdeep Sardana: This conference call is a first step, it is a small step and we hope that any questions or any
clarifications on the company’s business which can be addressed will be addressed and we
understand that we need to, this is an element which we had not followed on to look after
the shareholder interest and we hope to correct that for the future and you will regular
interaction.
Monica Chaudhury: You have just said that you are in a position of winding up your subsidiaries, are you
looking for any further merger & acquisition in your start business in the coming period?
Bhavdeep Sardana: Not as yet.
Monica Chaudhury: What are the production numbers you are targeting in the next two years?
Bhavdeep Sardana: Like I mentioned we are operationalizing 1150 tonnes and that is 1150 tonnes of corn
grinding per day which we hope to have in place by March 31 and if you see our past five
year track record we have been growing 15-20% per annum, so we have certain plants in
mind and post April we will decide on how to execute those plants and continue the same
kind of growth the company achieves.
Monica Chaudhury: Like any new markets which you will be exporting to in the recent years?
Bhavdeep Sardana: We are keeping ourselves alive to all opportunities for exports. Whatever feasibility can
happen, I mean whatever is feasible we are going to ensure that the company is expanding
its export market in times to come.
Monica Chaudhury: I asked you like what is the bargaining power for a company like yours; could you throw
some light on that?
Bhavdeep Sardana: I think our ethical working, our transparent working gives us certain leverage but it is the
quality of our products and timely deliveries which give us an edge with our customers. As
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Sukhjit Starch & Chemicals LimitedJanuary 29, 2014
far as suppliers are concerned there is a trust and hallmark of ethical working which they
recognize and they are reasonable with us, we are reasonable with them.
Moderator: The next question is a followup from the line of Pali Gupta from Hedge Funds, please go
ahead.
Pali Gupta: Hi sir, this is Pali again, there is one question which I wanted to know, there has been an
increasing noise and competition on the starch business with MNC and friendly markets, so
what is going to be the impact on your business?
Bhavdeep Sardana: We welcome their entry into the starch business. It shows that this industry is consolidating
and it is a very healthy sign and every time some consolidation happens expansion of
capacities takes place which is a good sign of a healthy demand, so it is a very positive sign
and we have taken it very positively and they will introduce better selling practices, better
management practices within the industry and we stand to benefit net-net from that.
Pali Gupta: How do you see the movement in terms of pricing, in terms of systems, in terms of
distribution, do you see the movement here with the entry of MNC in the market?
Bhavdeep Sardana: Not really, the key drivers and the key changes which have happened or which are
happening is emphasis on quality, emphasis on product performance and emphasis on
performing your contracts well and as company we have benefited tremendously from that
because we are being measured in the same league as these quality international players and
we are competing with them on an even keel because we have a quality product and we are
matching them on quality contracts with quality customers.
Pali Gupta: Sir, what is your position in international market?
Bhavdeep Sardana: Sukhjit is purely an Indian company selling in India with a positive focus on exports but
globally the starch players have consolidated and I think I am not very well qualified to talk
about growth in different parts of the world but it is safe to assume that western markets are
pretty much stagnant as far as starch business is concerned. The products whch they are
developing globally are more towards the health and wellness side for the food industry or
better products for the paper industry, paper industry is shrinking in Europe and America,
growing tremendously in India and China and South East Asia that is where all the pulp is
available. As far as textiles is concerned again the focus is on ASEAN, Asia and China and
as a starch producer I am very excited by all these opportunities because our customers are
growing in parts of the world which are closer to us.
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Sukhjit Starch & Chemicals LimitedJanuary 29, 2014
Pali Gupta: There would be one last question. What is the market share of Sukhjit in starch industry,
have there been changes in your market share as such in the past few years?
Bhavdeep Sardana: We have been growing at 15-20% per annum in the last five six years I would assume our
market share to be around 10% but then whatever figure I say I really don’t have enough
data to back it up because most of our competition is not listed and the numbers are difficult
to get by. We are only the full fledged starch company with our results, everybody else are
diversified or recently got into starch or something or the other.
Pali Gupta: What are the two positive things which will take Sukhjit to the next stage, you have to
answer this question, what would be the two positive things that you would state?
Bhavdeep Sardana: I would say that number one the circumstances the company has in its business they are all
growing verticals and number two a great management team to take it to the next level and
to encash those opportunities.
Moderator: The next question is a followup from the line of Kailash Gandhi from Walfort, please go
ahead.
Kailash Gandhi: Good morning sir and I really appreciate this initiative of having a conference call. One
more healthy requirement is contact detail of the person whom we can get in touch
whenever we have further queries, so if you can share those details it would be great.
Bhavdeep Sardana: It is Mr. Rishi K. I think.
Kailash Gandhi: But that is of research department.
Bhavdeep Sardana: He is our investor relation associate. His email ID is [email protected].
Kailash Gandhi: If we can have any company person please?
Bhavdeep Sardana: It is Aman Setia. His email id is [email protected] and telephone numbers are
01824-468800 and extension 310.
Moderator: Thank you. Ladies and gentlemen, that was the last question. I would now like the hand
floor back to Mr. Bhavdeep for closing comments. Please go ahead sir.
Bhavdeep Sardana: Thank you all for your patient hearing and we look forward to sharing our annual figures
when the time arises and I hand over to Mr. Aman Setia to give the closing remarks.
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Sukhjit Starch & Chemicals LimitedJanuary 29, 2014
Aman Setia: I on behalf of Sukhjit would like to express my gratitude to all of you for joining us today
and sparing your precious time for us. We hope to see you back in our annual results
conference call in May. If you still have queries or questions you may write to Mr. Rishi in
our investor relations agency. The email id is [email protected]. Thank you very much ladies
and gentlemen. Thank you very much.
Moderator: Thank you gentleman of the management. Ladies and gentlemen, on behalf of the Sukhjit
Starch & Chemicals that concludes this conference call. Thank you for joining us and you
may now disconnect your lines. Thank you.
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