Quarterly earnings update for Q2 FY19.

Majority of the companies came out with very good set of numbers – average sales and NP grew by around 35% each.

Liquidity continued to remain an issue for NBFCs this quarter, the repercussions of which are expected to be felt going ahead. DHFL posted very strong numbers in Q2, but the growth rates are expected to moderate in the coming quarters till normalcy returns. Meanwhile, management have outlined strategies to raise liquidity which we have discussed below.

On the road construction space, newly introduced HAM model is becoming a bottleneck. Challenges in achieving financial closure of projects, along with land acquisition issues, have led to no construction activity starting for nearly 150 national highway projects including 50 HAM projects awarded in 2018. This may impact growth rates of road construction companies including DBL going forward.

More company specific highlights are outlined below.

Bodal Chemicals Ltd


Bodal Chemicals reported very good set of numbers, in-line with expectations. Revenue, EBITDA & PAT were up by 42%, 48% and 65% respectively.

Reported EBITDA margins were 19%, up from 18.2% YoY. EBITDA margins from operations, before adjusting for forex losses, were even better at 20.2% against 17.7% YoY.

Growth was due to increase in both realisation as well as volumes.

Prices of key intermediates, VS & HA were higher YoY even after normalising in August to around 272 (VS) & 451 (HA) from 325 & 750 in May. Prices had shot up earlier in May due to shutdowns in China. Current prices are around 250-260 for VS & 420-430 for HA, and this is likely to be sustained in Q3, Q4 as per management’ assessment.

Prices of Vinyl Sulphone (VS) & H-Acid (HA) in 2018

Volumes grew by 54%, 12% & 15% for Dye Stuffs, Dye Intermediates & Basic Chemicals. Major growth in volumes was supported by new DS capacity of 12K mtpa commissioned in May. This is already operating at 70% utilisation, against optimal utilization levels of 80%.

Exports were up 179% YoY reflecting demand in global market – a fallout of restrictions in China. Export contribution to sales soared to 47%, up from 24% YoY.

Commentary on global situation & business

Chinese manufacturers, like Hubei Chuyuan have re-started production of DI albeit at a lower capacity (around 40-50%). Resuming full production could be a challenge, as the necessary investments & costs to manage effluent discharge is likely to make them uncompetitive, vis-a-vis Indian counterparts.

Back in India, government is imposing restrictions on setting up of new DI plants. The last DI plant to come up was SPS Processors, which has already been acquired by Bodal (75%). SPS has operational HA capacity and some approvals to produce VS. However since acquisition, Bodal hasn’t been able to start VS production due to pending government clearances. Bodal, already the largest producer of DI in domestic market, is finding it difficult to grow further in the DI space.

On the other hand there is opportunity getting created in the DS space due to prevailing global situations.

Apart from China & India, Far East countries – Japan, South Korea & Taiwan, had been major producers of DS globally. The 2 largest producers in Far East alone accounted for greater market share than India in the world market. However DS manufacturers in the Far East are not fully integrated and relied on China & India for the intermediate supplies. With China facing capacity cuts, and Indian capacities already tied up (with limited room for further growth due to reasons mentioned earlier), the manufacturers in the Far East are facing a crisis. This has opened up opportunities for Indian integrated manufactures in the DS space.

In the domestic front, 40-50% of the DS market was controlled by the unorganised sector. These smaller players are currently facing challenges after demonetization & GST, providing opportunity to organised player like Bodal to gain market share.

To capitalize on the situation, Bodal is taking the following steps:

  1. Expansion of DS capacity by 6K mtpa ahead of schedule at a cost of 26 Crores. This is expected to be operational by Q1FY20, taking total DS capacity to 35K mtpa.
  2. Creating a fully owned subsidiary for trading Dye, DI & Basic Chemicals
  3. Planning to set up subsidiary jointly with Chinese manufacturer in Bangladesh & Taiwan, in due course

The reasons for setting up trading subsidiary is to create a more comprehensive product portfolio by sourcing complementary products from other vendors. Dye stuff is generally procured as a basket of different shades. Since Bodal is relatively a new entrant in this space, sourcing complementary shades will enable it to offer a richer basket of shades. In addition, it will also enable Bodal to offer other complementary products in DI & Basic Chemical space as well.

Given all this, management is positive about medium and long term prospects of the company.

Promoter shareholding & recent actions

Promoters have purchased further 21L shares (1.7%) in October, 2018 at an average price of about 125 rupees, taking total promoter holding up to 57.4% approximately.

Management is increasing stake and had earlier acquired another 9.3L shares in May at around similar price of 124 rupees.

Other operational details

  1. Employee cost was higher this quarter due to sales commissions, new recruitment & regular hikes
  2. Environmental clearance for newly acquired land is expected to be applied next month.
  3. Procedure to set up trading entity likely to be initiated next month
  4. Inventory (63 crores) & payables are high due to some sluggishness in September, these are expected to come down in Q3
  5. Management has pared down another 646 crores of debt last quarter making Bodal virtually a net debt free company
  6. Accidental ammonia leakage in one of the smaller plants in October. This is expected to cause shut down of the affected facility for 3-4 weeks. However since the concerned plant is a very small, contributing to only about 5% of sales, overall impact on annual figures is expected to be insignificant.

Action Construction Equipment (ACE) Ltd.


Action Construction Equipment’s reported Q2 FY19 numbers were not as good as anticipated.

Revenue & net profits were up 37% and 13% YoY respectively. EBIDTA margin declined from 7.8% in Q2FY18 to 7.2% in Q2FY19. Margins were hit by a combination of 4 factors:

  1. Raw material prices, particularly steel, continued to rise
  2. Rupee depreciation led to about 1% hit as 10-12% of input cost is imported
  3. Increase in fuel price contributed to increase in transportation cost
  4. 4 crore provision for merger of subsidiary, which is likely to be reversed by Q4

If we write back provision of 4 crores, then the YoY PAT increase is at par with top-line growth. However the benefits from operating leverage is eaten away by the remaining 3 factors.

One potential negative development is that the anticipated deal with Polish tractor manufacturer Ursus for producing tractors for exports market might fall through. Formal closure of negotiations are expected by November when we’ll come to know.

Expansion of cranes capacity (25 crores) is expected to be completed by Dec/Jan now. This is estimated to add another 500 crores to the top-line.

Management hasn’t observed any negative repercussions of the ILF&S fallout on demand, at least for now.


Updated estimates based on Q2 FY19 con-call:

Q2 volumes

  1. Hydraulic mobile cranes – 1549
  2. Self-erecting mobile crane – 23
  3. Tower cranes – 47
  4. Crawler cranes – 5
  5. Tractors – 1093
  6. Backhoe loaders – 80
  7. Fork-lifts – 235
  8. Compactors – 30
  9. Truck mounted cranes – 7
  10. Harvesters – 40
  11. Rotavators 406


Filatex India


Filatex India reported very good set of numbers this quarter, in-line with expectations. Revenue, EBITDA and PAT were up 73%, 75% and 50% respectively.

EBIDTA margin was 9.03%, up from 8.71% YoY, while PAT margin was 2.83% down from 3.26% YoY

PAT margins shrunk due to increase in finance costs (166% YoY). While long-term borrowings came down marginally, short term borrowings were up by more than 50%.

Management has guided for a 90cr PAT on a top-line of 3000 crores for FY19, which could be achievable.

Filatex intends to further expand its manufacturing capacity at Dahej through brownfield route to 1050 tpd(1). This is expected to comprise of additional 150 tonnes/day of polymerization, 180 tonnes/day of POY, and 200 tonnes/day of DTY (2).

Capital requirement for this expansion is estimated to be around 275 crores, likely to be funded through a mix of debt and equity.

Earlier in August 27, board of directors of the company approved fund raising of 150 crs by issuing equity shares, convertibles, etc.

Risks pointed out in the company analysis remain. Capital intensive nature of the business (4% RoA), high debt (167% DE in FY18), low margins (~3% PAT), commodity nature and competition from peers continue to remain risks.

Sintex Plastics Technology Ltd (SPTL)

SPTL’s Q2FY19 reported numbers came below expectations.


Company’s transformation process is taking time to show desired results. Our investment hypothesis in SPTL is based on the assumption that CM will grow min. 20% with decent margins (see risk analysis, risks # 2 & 3). CM de-grew in Q2. In addition, EPS guidance of 3.5 & 6.5 provided in Q1 con-call were based on 16.5% EBITDA assumptions. Although EBITDA has improved by nearly 2% to 14%+ in Q2, it’s still below 16.5%.

FY19 H1 EPS is now 1.26, which means SPTL now has to deliver 65% in H2 to meet guidance. This appears to be a tough ask, although, management has repeatedly mentioned that 60-65% of sales happens in H2. So, we have to wait and see.

The other concern is on the communication. This has historically been a weak spot for SPTL. In Q2 con-call management diluted atleast 2 targets previously set in Q1 which is quite discomforting.

On the positive side, promoter reassured desire to subscribe remaining 33% of the warrants convertible at 90 rupees – more than 3x current market price! They must know what they are doing.

Numbers & detailed notes

In terms of numbers, revenue was down 18%, EBITDA was down 10.3%, while net profit was up 54% YoY. NP rose because of exceptional loss of 44.89 crores in Q2DY18. On a sequential basis, revenue was down 12% while NP was up 5%.

Both CM & Infra sales were down, YoY as well as QoQ. Decline in Infra sales was expected, but CM was a deviation from expectations.

EBITDA margins were up 14.2%, from 13.5% YoY and 12.3% sequential. Margins could have been better but for increase in raw material prices & transportation costs due to rise in crude price.

H2 margins expected to be 0.5% higher than H1, due to operating leverage as H2 contributes to 65-60% annual sales. Also, raw-material prices appears to have plateaued & expected to decline hereon

Gross debt is more or less unchanged at 3600 crores. Around 28 crs have been repaid in Q2, overall 228 crs in H1.

Finance costs are up around 13 crs QoQ. This is due to rupee depreciation (63 to 74). Around 1400 crs debt is in foreign currency, which is serviced locally, but consolidated and reported in INR leading to notional losses (Risk # 5).

Net Debt to EBITDA is expected to be 2 by 2 years as per management (Guidance in Q1 call was 2.3x by 2020 – Q1 target diluted)

H1 capex was 117 crores total, with India operations accounting for 24 crs and NP around 93 crs, due to an acquisition.

Prefab business continued to decline, management guided for a bottom of 400-600crs or less (this is down from 700-800crs mentioned in previous call – Q1 target diluted)

3 new tanks launched. Receivables were high due to new launches, as well as, tightness in money market.

Promoters will continue to subscribe to remaining 1/3rd of the 600 cr warrants convertible at 90 rupees, despite the fall in price to below 30. Warrants worth Rs. 110-20 crs are expected to be in CY18, with balance in Apr/May CY20. (due to 4.9% guideline)

Management expects sales to grow 3x in 6 years. Following segments are expected to trigger growth:

  • 3 new tanks launched. Tanks are the largest selling product in PPC. Water Tank expected to be largest contributor for next 2 years
  • Door & Windows contribute to small portion of the revenue. Expected to be fastest growing segment in 1.5 – 3 years
  • Urea Tank. BSVI revised deadline is 1st Apr 2020. Peak demand is expected around Sep CY19
  • Mass Transit Systems – SPTL entered this segment through an acquisition in US. Technology & machines have now been shifted to Pune. Expected to start contributing in 1-2 years.

JSPL Q1FY19 Earnings Conference Call Notes


JSPL reported good set of numbers for Q2FY19 despite Q2 historically being a weak quarter due to monsoons.

  • Revenue & EBITDA were up by 87% & 85% respectively YoY
  • For H1, the corresponding growth was 63% & 61% respectively YoY
  • Spreads between raw material and finished products came down during Q2, due to coke, iron ore price going up and INR depreciation. However, the situation is now stabilising and gradually showing signs of reversal. Iron Ore prices in Odissa are softening; further adverse impact on price of coke due to rupee slide is unlikely as currency is stabilising. NSR is also strengthening after some initial decline.

Business performance

  1. Standalone production was 1.3mt against 1.22mt in Q1. Sales was 1.28m against 1.19mt in Q1. FY19 guidance remains at 6mt (although appears optimistic)
  2. Oman production 0.47mt. Sales was 0.47mt against 0.42 in Q1. EBITDA at 46M.
  3. Ramp up in Angul continues, Iron production was up 10%, Steel up 17%. Blast Furnace production touched 9000 tpd. DRI is expected to be fired up beyond 10K tpd
  4. Additional gas supply received from Government of Oman for the DRI plant. A new caster has been added. With these changes, DRI plant can now produce upto 2.4mtpa from 2 mtpa earlier. Plant was shut-down for 1 month to make necessary changes
  5. Imports are down due to adverse exchange rates
  6. Development of mining assets in Africa & Australia continues. Mozambique is now EBITDA positive. Australia may become EBITDA positive by end FY19
  7. JPL produced 2427mu in Q2FY19, identical Q2FY18. Reduction in margins due to high coal price in auctions. Demand increasing by 6-7% year
  8. Power rates have seen sharp spikes and this is expected to remain high for next 7-8 months till 2019 general elections
  9. JPL – Merchant sales 10% on exchange, rest on PPS
  10. Coal stocks critical (couple of days). 7.5L mt linkage has been secured (with CCL?) Remaining requirement to be fulfilled using imported coal from US, SA, Indonesia
  11. Bid for coal mine auctions to be announced soon. CIL has given strict instructions to improve production from 1.5m per day to 2m per day
  12. JSPL expects to reduce debt by 12K cr in 2 years. Net debt is at 42742 Cr (416504 excluding forex adjustments of 1470). Reduction 2245 cr happened in Q2 before forex adjustments. Similar reduction expected in Q3. Oman assets may be partially monetised. Next year repayment target is 6000 cr due to increased volumes & Oman monetization.
  13. Exceptional profit 256 crs, due to early redemption of privately placed debentures (there was also some impairment of 216cr)
  14. Capex of 1500 crs for FY19. This covers residual balancing at Angul, plus maintenance 700-800 crs. H1 spent was 770 Crs. Next year capex requirement would be lower as Angul balancing will be mostly over.
    15. 96K development order from Indian Railways executed over 12m, of which 40K t already delivered. Tender coming up from RVNL (400K t). Railway bid qualification clause requires 1 year observation period of deliveries against development orders which will be completed by late next year. This is becoming a bottleneck & stringent clauses are being discussed with ministry of steel. (JSPL has also executed development order for exports, where bid qualification is even longer at 2 years.)

Cash Flow Estimates

1. FY19 India volumes revised down from 6MT to 5.5 MT due to slower than anticipated ramp-up
2. Oman EBITDA/t revised down to 9000 Rs/t
3. Oman volumes revised up to 2MT & 2.2MT for FY19 & FY20 respectively
4. Forecast power sales (units) revised for FY19 & FY20 based on Q2 numbers.
5. Depreciation revised up, marginally
6. Assumed no losses (also no profits, conservatively) from Australia & African mines at EBITDA level
7. Provisioned for around 250 Crs for exceptional losses (on account of litigations, etc)

DBL Q2FY19 Earnings con-call notes

Commentary on the industry

  • Awarding of projects by NHAI has been very subdued in H1 with only 4-500 km awarded since Apr 2018. Major reasons appear to be challenges in financial closures faced by several companies, while land acquisition of many projects awarded last fiscal is yet to be completed. Construction activity has not started for 150 national highway projects, including 50 HAM projects awarded in FY18. Banks and financial institutions have been cautious while lending to road projects due to apprehensions on cost over-runs due to delays and aggressive bidding. With several projects delayed, NHAI has been focussing on clearing the backlogs before awarding new projects.
  • Fresh awarding of projects is expected to resume from first week of December and continue for entire 4Q. NHAI has recently secured funds from SBI, LIC outside budgetary allocation. Road construction activity is estimated to touch 11000/12000 km this fiscal against 26.93km/day in FY18.
  • Of the 15K cr awarded FY19 DBL’s share has been around 8%.

Business performance

  1. After many quarters, DBL witnessed a YoY drop in net profits. While Revenue & EBITDA were up 3.3% and 2% respectively, PAT was down 31% YoY. Apart from some increase in depreciation and interest costs, DBL became net tax positive in Q2 from net tax negative YoY as well as sequentially as 80A benefits started waning off
  2. Company reaffirmed full year guidance of 10,000 crs, as H2 has been historically stronger than H1.
  3. At the same time, DBL held back FY20 guidance (earlier committed to 25% growth) till more clarity emerges on the appointed dates (conservatively 10-15% guided)
  4. EBITDA margins for the quarter came down marginally to 17.98% from 18.2% YoY. Company expects to sustain margins between 17-18% going forward.
  5. Of the 12 HAM projects awarded last fiscal, none of the projects received appointed date from NHAI. Consequently no work could be started. Most projects were won on the last month which is one reason (while grapevine also has it that one new member at NHAI has been a bottleneck). DBL now expects 4 of the 12 HAM projects to start in December, another 4 in January, while the rest in end Q4 or early Q1FY20
  6. Company has already won around 6K crores worth project in FY19, and expects to win another 4-6K crores in the current fiscal.
  7. Debt is slightly higher due to investments made in the newly secured HAM projects that are yet to start. DBL expects to receive around 2000 crs in mobilisation bonus in total, once appointed dates are received – this will bring down the debt. Company expects to bring debt at FY18 year-end levels of 2800 crs by end of this fiscal
  8. Company is likely to be taxed mostly at full rate of taxation in H2, although DBL has around 400 Crs MAT credit outstanding.

Cash Flow estimates

EPC valuation & revised CF estimates based on Q2FY19 earnings review:

List of HAM Projects recently won that are yet to start. Only EPC business has been valued.

DHFL Q2FY19 Earnings con-call notes

Financial performance

  1. Q2 results were very strong & unscathed from the ILF&S issue which cropped up only at the fag end of Q2.
  2. AUM was up 38%, disbursements up 39%, PAT up 52% YoY.
  3. NIM was up 3.15% from 2.92% YoY
  4. RoA up 1.66% from 1.46% YoY. RoE up 17.3% fom 13.04% YoY
  5. Net-worth up 17% – lower compared to AUM due to securitisation
  6. CAR was at 16.19% (against mandated 15%)

Strategic decisions

  1. Strategic decision to convert DHFL to a completely retail focussed entity. This means – developer loans – which constitute 17% of the lending portfolio, amounting to around 22K as of Sep. 2018, is to be brought down to below 10K (lowered by more than 50%) by March 2019 and subsequently bring down to 5% or so by Q1, Q2 FY20. Different strategies are being considered to pare down the portfolio. This includes finding portfolio investors, particularly for projects that are 60% or more complete. Alternatively, DHFL is also considering joint development route or an AIF structure. Developer portfolio constitute entirely of home loans, where DHFL is the single lender, giving company flexibility in negotiation. Company has 2 types of projects in portfolio – SRA and non-SRA. From management commentary it appears there is interest in these assets, particularly the SRA projects, and they appeared confident of achieving the targets, although some hair-cuts are possible. (Project loans has been a growth driver, rapidly growing from 16% in Mar 2016 to 17% in Sep 2018)
  2. The second strategy is to make growth more profitable, RoE accretive and less capital intensive. This essentially means greater securitisation of retail loan pools, both home loans & LAPs to banks. This will reduce capital requirement and improve RoE
  3. The third strategy is divestment of non-core assets. This process has already been initiated and an investment banker has been identified for the purpose.

Needless to say, all strategies mentioned above are directed at raising liquidity. The next few quarters are expected to tough for the industry, DHFL included, till normalcy returns to the debt market. In the near term, fresh disbursements are expected to be minimal, spreads are expected to compress and hair-cuts are likely on the monetisation of developer portfolios. However, company has 34 years of experience in going through multiple stress cycles. Management has experience and strategies in place to handle the near term liquidity crunch.