GHCL Ltd
NSE:GHCL
Earnings Call Analysis
Q3-2024 Analysis
GHCL Ltd
The company operates in a challenging global soda ash market that is currently oversupplied, impacting prices and causing higher exports to Asian regions, including India. High inflation in Europe and subdued real estate markets in China further exacerbate the situation. Nonetheless, a domestic demand uptick in China driven by emerging sectors such as solar glass and lithium carbonate suggests a positive outlook with a growth expectation of 5% to 6% for 2023. In the medium term, as global market conditions are expected to improve, a potential decline in inflation might lead to a demand recovery by 2024, positively impacting the company's performance.
For the recent quarter, revenue was at INR 813 crores, a decline from INR 1,107 crores year-over-year, attributed mainly to reduced soda ash realization and increased imports. EBITDA was reported at INR 165 crores with an EBITDA margin of 20.3%, showing a decrease from 33.6% in the same quarter of the previous year as lower realization has impacted margins. The company generated about INR 511 crores in cash profit after taxes for the nine months ended December, utilizing INR 131 crores for debt repayment and INR 86 crores towards CapEx, which was lower than anticipated due to slower progress in a greenfield project delayed to the next financial year. There was a reduction of about INR 210 crores in working capital, primarily from optimizing raw material and stores, along with a net cash surplus of approximately INR 625 crores after reducing debt by around INR 217 crores.
The company's utilization rate over the last nine months was around 91% to 92% but is expected to improve in the fourth quarter. This decline was partly due to a scheduled annual shutdown, leading to a shortfall in production. Despite historically high EBITDA margins of around 30%, current margins are lower. However, the company anticipates a margin improvement towards the end of 2024 or 2025. Future projections are optimistic, with expected volume growth of 5% to 7% for the next year, attributed to continuous operations without shutdowns or breakdowns, leading to potential increases in revenue and margins.
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to the Q3 FY '24 Results Conference Call of GHCL hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Meet Vora from Emkay Global Financial Services. Thank you, and over to you, sir.
Thank you. Good evening, everyone. Thank you for joining us on GHCL's Q3 and 9 months FY '24 Results Conference Call. I would like to welcome the management and thank them for giving us this opportunity to host them. We have with us today Mr. R.S. Jalan, Managing Director; and Mr. Raman Chopra, CFO and Executive Director of Finance. I shall now hand over the call to the management for their opening remarks. Thank you, and over to you, sir.
Thank you, Mr. Vora. Good afternoon esteemed investors, and welcome to the GHCL Earnings Conference Call for the Third Quarter of FY '24. Please note that the results and the accompanying investor presentation has already been shared. I'm pleased to be joined by Raman Chopra, ED and CFO; and Manu Jain from the IR and finance team. Before we discuss about the details of our financial performance, let's take a moment to assess the current market conditions.
The global soda ash market continues to face challenges with the oversupply situation, resulting in higher exports to Asian regions, including India, and impacting prices. In Europe, high inflation has dampened the consumer sentiment leading to weaker export from Turkey to Europe. Further, the real estate market in China remains subdued, along with an additional 4 million metric ton natural soda ash capacity coming into operation.
Despite these challenges, during 2023, China's import of soda ash exceeded its export, indicating a strong domestic demand uptick from emerging sectors such as solar glass and lithium carbonate. This is expected to drive China's growth by 5% to 6% for 2023. Looking ahead, while we anticipate the global market to remain challenging in the near term, a potential decline in inflation could spur demand recovery in 2024.
In India, while demand is relatively stronger compared to the global scenario, higher imports have resulted in oversupply and pricing pressure. This trend may persist for some time, impacting domestic prices and our margin accordingly. Regarding our operations, the previously announced maintenance shutdown was undertaken in October 2023. This has resulted in a production shortfall of approximately around 20,000 metric tons in this quarter.
Despite the current market challenges, our current realization is better than pre-COVID period. However, it is lower than FY '23 performance when we had experienced excesses -- extensively a strong business tailwind with a peak realization in margin. Looking ahead, our EBITDA margin may remain at the current level for the next few quarters due to temporary disruption in the global business cycle.
In the medium term, we expect prices and margins to recover, which will add our performance. While a strong balance sheet -- with a strong balance sheet, significant corporate actions and disciplined capital allocation approach, we remain well positioned to face these challenges. Our growth momentum will reignite once demand rebounds, and we are committed to implementing a strategic -- a strategy that will drive our growth trajectory.
Our greenfield project is facing some delays due to pending approval from authorities, however, we are confident of securing these approvals at the earliest. Despite this, we are making progress with the basic engineering and other project-related activities. Additionally, our expansion initiatives focusing on vacuum salt production, enhancing salt yield and digital transformations are underway, which will enhance our capabilities over time.
Now I will hand over to Raman, who will provide future details -- further details on our financial performance. Following that, I look forward to addressing any questions you may have. Thank you.
Thank you, sir. Good evening, everyone, and a very warm welcome to our Q3 FY '24 earnings call for the quarter and 9 months ended December 31, 2023. The performance for the current quarter reflects the global soda ash and chemical sector sentiment in India. These factors are very well covered by Mr. Jalan in his opening remarks. I will now share the impact on our financial performance. Revenue for the quarter came in at INR 813 crores compared to INR 1,107 crores in the corresponding quarter of last year and INR 817 crores compared to Q2 of this year.
The reason for this fall is mainly due to reduction in soda ash realization from Q3 FY '23 on account of prevailing market condition and increased imports. In FY '23, we had witnessed exceptionally strong business tailwinds, leading to peak realization in margins. EBITDA for the quarter stood at INR 165 crores compared to INR 372 crores in Q3 FY '23 and INR 224 crores in Q2 of current year.
For the quarter, EBITDA margin came in at 20.3% compared to 33.6% in Q3 FY '23 and 27.5% in Q2 of FY '24. Lower realization has now primarily impacted the margins. Also in Q3, we have incurred additional repair and maintenance costs due to planned shutdown. PAT from the continuing operations stood at around INR 100 crores compared to INR 254 crores in Q3 FY '23 and INR 143 crores in Q2 FY '24.
For 9 months ended 31st December, we generated a cash of around 511 crores in cash profit after taxes. We have utilized around INR 131 crores for repayment of debt and INR 86 crores towards the CapEx. CapEx for FY '24 is lower than anticipated levels, due to slower progress in greenfield project, which will now be shifted to early to FY '25.
Our working capital has reduced by around INR 210 crores, mainly due to raw material and stores and spares optimization. Our net cash surplus stood at around INR 625 crores after reducing a debt of around INR 217 crores. With this, I conclude my comments and would now request the moderator to open the forum for question and answer. Thank you.
[Operator Instructions] The first question is from the line of Simranjeet Bhatia from Element Financial Solutions.
Sir, I just want to understand till how long your EBITDA margins of 19% will remain in the upcoming quarters? And when we can expect the revival in the margins going forward?
See, basically, at this point of a time, giving a time line will be very difficult. As I mentioned in my opening remarks, that, currently, there is an oversupply situation in the global market and primarily in the U.S. and Europe. So the moment the Europe recovery happens, the inflation goes down and the demand picks up there, that will have a trigger point for the upside into the -- our business outlook.
Second, also, as you know that and I just indicated in the China, there is very spur demand into the solar and the lithium carbonate. And we are hoping that kind of a demand also picks up in the Indian scenario because lot of new projects are underway for solar and -- solar plant. And so if -- once that comes into stream, probably that will also spur the demand of soda ash and that will ultimately likely to improve the market situation of soda ash.
Sir, what percentage of GHCL revenue came from the Europe region?
No. We -- our revenue comes only from India. But basically, because of the slowness into the demand into the Europe, the material is flowing from Turkey and U.S.A., which are the major suppliers -- one of the major suppliers in the Europe. The material is getting diverted to the Asian countries, and India is one of them. Currently, around 1 million tons -- approximately around 100,000 tons of the import is coming every month into Asia, and that is reflecting in the price.
The next question is from the line of Saket Kapoor from Kapoor Company.
Yes, sir. As you alluded to the [Foreign Language] Jalanji and [Foreign Language] team. Sir, as you alluded to this abating -- unabated import, so you mentioned 1 lakh per month is the current run rate of imports?
Yes, approximately, Saket, current import is coming around 1 lakh ton up to the stage of around 60,000 tons, the Indian demand do require, beyond 60,000 tons, the materials are in excess supply to India, and that is definitely kind of leading to a pricing pressure in India.
Sir, taking into account the annual shutdown we took for this quarter, what were our utilization levels at Q-on-Q, if you could give the number for September quarter and December quarter?
Sorry, can you repeat your question again?
Sir, I'm looking for the utilization level for this quarter?
Saket, as you know that, otherwise -- other than this 20,000 tons, broadly, our utilization remains at a normal level, okay? So there's no kind of a production cut other than the annual shutdown. So -- and generally, if you look at the whole year -- as a year as a whole 9 months, so roughly we'll be in the range of around 92%, 93%. And if you remember that in the early part of the first 1 or 2 quarters, we had that breakdown, if you remember that I had mentioned in my earlier call.
So because of that, this year, as of now, in 9 months, approximately 91,000, 92,000 -- 91%, 92% kind of the utilization is there, which is likely to kind of in next quarter, which is the fourth quarter, this will improve.
Okay. So this number of 91%, 92% will be 96%, 97% vicinity for the fourth quarter? 4% to 5%?
Generally, it should be. But -- see, very specific number, it will be difficult for us to give you the specific number. Generally, yes.
Right. So sir, just to harpen over the point, since it is an annual shutdown quarter, is it likely to be comparable on year-on-year [Foreign Language] December quarter, say, volume terms [Foreign Language] compare[Foreign Language]?
No, Saket, because last year, we did not have the annual shutdown because annual shutdown normally will take in 18 months' time, so it will -- it cannot be compared.
So volumes were higher for December '22. This is what my point.
Yes. December '22, the production was higher as compared to December '24.
Okay. Okay. Sir, what should we look then into the increase in inventory? Is it the raw material inventory that we are holding on or the finished goods to the tune of INR 70 crores for the 9 months? What does this indicate?
See if you look at in terms of the last year, December '23 versus December '24, primarily inventory of finished goods definitely has gone up. And -- but if you compare -- compared to the last quarter of Q2 of '24, that inventory is almost on the same level.
Come again, sir. I missed your point.
No, what I'm saying, Saket, is that if you are comparing with the Q3 of '23 inventory, the inventory of Q3 '24 has gone up because the market was very, very different into the '22, '23 because of that inventory was much lower. However, if you compare the same with the Q2 of '24, the inventory is almost at the same level.
Okay. Okay, sir. And sir, you did also alluded to the fact that the benefit of lower raw material prices will be accrued in the quarters ahead. So for this quarter, the raw material prices are not aligned to the decline. That understanding is correct, sir?
No, I would say two things, Saket. On one side, because of the annual shutdown, a lot of cost gets built up because of low production, your cost goes up either in the terms of maintenance cost, even the power cost also goes up because your production is lower, whereas it is not a direct variable cost. So that's one reason. And second, as you rightly said, the full benefit of the lower value of the raw material will get accrued in the coming quarter.
Okay. And sir, last one before I join the queue, when we heard you today in 2 of the interviews to the leading news channels, you did alluded to the fact that now we are looking at this EBITDA margin of 20% going ahead. I think these are in my recent memories, these are historically the lowest margin -- EBITDA margin. So firstly, on this front, if you could give that -- is it the mean reversion since you're also referring to pre-COVID margins and those levels? So are these permanent mean reversion which you are observing and now it's going to be 20% in this bracket only? Or what are we trying to explain by this 20% here?
I will explain, Saket -- Saketji. First and foremost, if you look at our EBITDA margin in terms of the per ton, probably, if I look at last couple of years, you will find that EBITDA margin are on a normal level. But when you compare in terms of the percentage, since our realization is elevated at this point of a time and because of that, the margin percentage looks to be lower.
So however, the margin per ton is almost at the same level what it was pre-COVID level just now what I said, number one. Number two, as I said, my oversupply situation is there. Definitely, that is putting a pressure on the margin also. And once this pressure gets released once the Europe demand picks up, automatically, the price -- the margin will also improve. Historically, we had an EBITDA margin of around 30%. And I'm sure that after a few quarters, maybe end of 2024, '25, probably improvement will -- you will start seeing the improvement due the margin percentage as well.
Correct. Correct, sir. Right, sir. And for the volume part for the next year, you alluded that we are looking for a volume growth of 5% to 7% on what we will be exiting this year since there will be no impact of...
Yes. There two things will happen. Saketji. On one side, the annual shutdown will not be there, including even the small -- we are assuming that there will be no breakdown. And because of that, our production should be higher, which we have achieved -- in '22, '23, we have achieved higher production than what we are likely to achieve this year. So we are assuming that similar volume we will be able to achieve next year in '24-'25, and that will give you a 5% to 6% kind of a volume growth into next year.
With this, if the prices improve, which should according to me, then probably this will help in terms of the revenue growth as well as the margin growth. But for that, maybe probably a few quarters, we have to wait.
Sir, may I ask one more point and then join the queue, sir?
Do that.
Sir, for the -- you have in your presentation articulated the fact that for European players, we are expecting some reorganizing the capacity. So for China, sir, you are very -- you have very correctly mentioned in previous calls also that China will not be affecting the world market, their capacity -- and their expanded capacity will be met internal consumption to the renewables. That has worked. But what are we trying to explain in terms of the -- this European players getting reorganized the capacity, if you could throw some light?
See if you look at in the last call also, I have mentioned that, that Solvay has mothballed one or they have reduced one line into European -- in the European factory. So we are assuming that the likely scenario that Europe, because of all environmental issue, in terms of carbon costs, and things like that, probably some reorganization will happen further into the European market as well.
So there will be further reduction in capacity utilization permanent we are expecting that will balance the market, that...
Yes, it should happen, that is what our guess -- our understanding about the business.
Okay. Right, sir. And last point about, sir, our utilization of cash, sir. I think so earlier, when we were at the peak of the cycle, at that time, you did alluded to the fact that because of the corporate action due, we were unable to return cash to investors and then came the reversal in the prices and today's current environment where the vision ahead is alluding to lower margin.
So what should be investors sensing now in terms of -- I think so we have a cash reserve of around closer to INR 800 crores and net of the working capital debt, which is around INR 625 crores. So what is the current thought process? And what are the -- what would be the opportune situations or the factors that will allow you to proceed with a buyback since you have very well explained to us that buyback is always a tool, which will be used by the management to reward its investors.
So one was an extreme point when the margins were superlative huge cash flow. Today, we are looking at lower margins, we are looking at a big CapEx also going ahead. But still, we are debt free. So if you could give us some understanding whether buyback is there going ahead in the near future, whether the things are aligned or we should look for the growth trajectory for the company for the coming 2 to 3 years, and that's what should be our investors and -- what should investors anticipate in terms of this factor, sir?
see, Saketji, let me say two, three things. One, I'm sure that investors like you must have seen the journey of our rewarding to the shareholders in the -- over a period of time, 2 buybacks, liberal dividends. And we are very -- means, we are very clear in our mind is that our shareholders must be rewarded. But in the case of reward, I would only say that is it the right way of returning the capital to the shareholders is the right way or whether we should deploy these resources in a meaningful manner so that we can generate extra bucks for the shareholders.
Keeping that into mind, we are looking at many opportunities. And it's a matter of time. Something -- where there is opportunity of growth, because see ultimately growth is something which every investor would like to have from us. Of course, we have -- last couple of quarters, we have not been able to do that. But in a hurry, we don't want to take any decision of returning the money to the shareholders and compromising on the growth.
I'm not talking about the greenfield projects only. I'm also talking about inorganic growth. So keeping that into mind, we are just keeping a patience on the process. But if we don't find any opportunities in the near future, probably we will go back to our Board and go back to the shareholders of -- as rewarding the shareholders. So the rightful decision will be taken in the longer-term interest of the shareholders. That will be my objective.
We'll move on to the next question. That is from the line of Riddhesh Gandhi from Discovery Capital. .
Sir, just a question. So is the slowdown, which you are seeing in terms of prices, is it all the demand led? Or is there also some amount of incremental supply which has come on stream? Because there were a few articles about some incremental supply in China, et cetera. But I guess, you're indicating that, that may not have happened. So I just want to understand if it's only a demand issue also? Is it supply issue?
See Riddheshji, as you rightly said, it is a combination of demand as well as supply, okay? Now let's come to the -- first is the supply side. The major expansion which has happened is only in China, major, okay? Some expansion also has happened in Europe, but this is a -- that is not a very major one. In spite of such a large capacity coming into China, in spite of that, they had -- this year, they are net importer as compared to the exporter in last 9 months.
So this indicates and the demand growth till 9 months is around 7% to 8% in China. Keeping that into mind, supply to that extent, I'd would say, is not kind of a big concern at this point of a time. However, some supply in Turkey has increased, some supply in Europe -- U.S. has increased. And because of this combination and the slowdown in the demand in Europe and some parts of Southeast Asia and some parts of South America also like Brazil, these countries the demand slackness has seen.
So because of this, there is an oversupply. The metal which is -- major metal which is coming into India is primarily from Turkey and from U.S. out of this 1 lakh tons which I'm saying, most part is coming from these 2 countries. So once the Europe demand slightly picks up after this interest -- the inflation becomes lower, then things will become normal again.
Sir, the other question was keeping that...
[indiscernible]
And given the excess supply, which is -- which has come on stream and other announcements which may have happened, what's giving us the confidence to go ahead with the greenfield actually expansion?
No, Riddheshji, you are 100% right. And let me tell you, we are very optimistic about the long-term demand of soda ash. And because being an Indian player because one thing which we realized in the long term, domestic demand has to be met by the domestic supply because that's the most competitive way of supplying -- servicing to the customers. This is a short-term pain, which is happening because of the demand slowdown into the Europe and U.S., the Southeastern -- Southern America.
The way likely -- if you remember, last time also I mentioned that in India, we are looking for the demand growth from 4 million ton to 7 million ton in the next 7 years' time -- 6 to 7 years' time. And that's for sure. You know that the big players like green hydrogen, green ammonia, you talk about the solar investment by many players or you know -- recently in -- the Government of India in the budget -- interim budget, they've announced a rooftop solar in a big way, okay?
And I would say that the way I personally believe that demand will pick up very significantly in India. And we have to be ready for that. We cannot wait for the demand just to happen. And after that, we start talking about the supply because supply takes time. You know that last few years, we are working on this project -- greenfield project, still some approvals are still pending on that.
So we are preparing ourselves to be ready for the demand uptick, which is going to happen, and we're -- I'm very sure. That's the reason this year, we have signed another investment with the Government of Gujarat. And now we have announced a 1 million ton capacity on that location. And this will happen by [ 2020 ] -- of course, we will be going in a modular form. First, we'll go for 0.5 million ton, then we will go for another 0.5 million ton. But we are readying ourselves for this opportunity to capture by us.
Got it. Sir -- and the other question is that given the large increase in freight rates and given imports is what is ultimately impacting the prices and therefore the landed prices should logically go up, are you now starting to see a certain amount of uptick already? I mean just given by freight, let's leave everything else aside.
Yes, I would say that some amount of uptick in the freight has been seen. And this probably has two impacts from us. One -- on one side, as you rightly said, the import will become a little costlier and that we are seeing at this point of a time. And therefore, some slowness in the -- barring the already the contract, which has already been done by the buyers in India from import. That is happening and maybe some kind of a slowness may be seen in the end of February onwards. So that's one.
But on the other side, there is a negative part also. A lot of our glass manufacturers, which are getting exported like fashion glass, those kind of things, which are getting exported to Europe and other countries, there's also some demand impacted there because of this freight increase. But just in overall net-net, this will have -- definitely have some impact -- positive impact on to our demand in the soda ash.
Got it, sir. And last question I had for the greenfield, I know you guys have, I mean, alluded to on the previous con-calls about exploring other areas. And it's not only now it's been over the last few years, is there anything imminent because then otherwise I mean, in the absence of the PAT I mean, better use of capital would be as per your policy to sort of at least do 25% payout, either in the form dividend or buyback? So in the absence of anything, given there isn't anything appearing to be happening, would that be appropriate? Or how should we be looking at that?
See talking about very specific numbers will be difficult because this will all be subject to the Board approval, Riddheshji. But yes, we are going to be what we call mindful of rewarding shareholders at an appropriate time, either in the form of dividend or in the form of buyback. And we will always mindful be taking the feedback from you people and recommending the Board accordingly.
The next question is from the line of Resham Jain from DSP Asset Managers.
Can you hear me?
We can hear you.
Yes, yes. So just two questions. First is, on the time lines for the greenfield facilities because we have seen a significant amount of delay there. So in terms of time lines, are we -- where are we, if you can just highlight on that front? And the second question is on inorganic front. If you can highlight what kind of inorganic kind of opportunities you are looking at? Is it to do with similar salt-based chemistries or that would also be helpful? Just directionally which chemicals you are looking at? Or is it not to do with chemicals? Any color on that would be helpful.
Right. Reshamji, first and foremost, I would say that it is good that we have started this greenfield project. And in a way, I would say that in spite of that, we were not expecting this kind of a delay. But I think it was good that we have started this process. And there are certain things which are not in your control, you will understand that.
But we are vigorously pursuing this. This downward trend into the soda ash business is somewhere kind of a -- into also in a way I'd say that probably is -- but yes, in a time line wise, I would say that, hopefully, in the next few months, probably all those approvals are likely to be in place, maybe in next few weeks, they're likely to be.
We are very -- at the end of this thing, probably that should happen, and then the zero date will start. So we are not much of the uncertainty now, I would say that. In terms of the new inorganic, which you are talking about, mainly, we are focusing more on, of course, on halogen chemistry is the area which we are exploring the possibilities. Lot of opportunities are in our radar, and we are working on that.
And sir, from the sizing -- the sizing perspective of the inorganic acquisition given that you have a large greenfield capacity also lined up, how will you think about capital being deployed in the new inorganic front? What could be the quantum of that?
If I can look at, Reshamji, on this angle that we are talking -- we are not talking about a very, very large investment into the inorganic chemicals. That's number one. Second, we have this 1 million ton, which we have envisaged, okay? So 1 million up to the 0.5 million ton, I think, our current based on our debt equity ratio of 1:1, we will be able to manage both these things together. Because right now, we are almost around INR 600 crores of surplus cash in the balance sheet and plus going forward next 2 years, the sufficient cash will be generated. And then the debt -- including debt within a limit of 1:1, we will be able to manage both inorganic as well as this.
And beyond that, of course, depending upon how we are successfully inorganic, another 0.5 million ton probably could be kind of a tinker can be done on that for 1 or 2 years until we get the cash generation. We are very clear on one thing, Reshamji. Our debt equity ratio, we will never cross more than 1:1. That's as a philosophy, we agree. And both these things together up to 0.5 million ton and inorganic chemicals, we will be able to manage within that.
The next question is from the line of Riya Mehta from RCS.
I'm Riya Mehta from Aequitas Investment. My first question is in regards to the volume levels. So apart from the 20,000, which was under maintenance, what kind of capacity utilization that we see for the quarter?
You see, Riya, in terms of like I said in the previous question that, if you remove this 20,000, our utilization will be in the range of around 94%, 95% kind of utilization, which is a kind of a realization -- sorry, utilization, which we envisage. So barring this other than this 20,000, I think balance everything is as per the normal utilization what we have.
Got it. And Genesis Alkali is also coming with the new incremental capacity, so you think that would lead to higher import ?
Sorry, can you repeat your question again?
Genesis Alkali?
You're talking about the U.S. Genesis?
Yes, yes, yes.
As I said in the past also that the demand -- if you look at in the global scenario, Riya, there is a very clear-cut demand growth of around 20 million from here -- from 60 million to 78 million to 80 million. So new capacity has to come in. And this is only a short period of time because of this what you're seeing at this point of a time oversupply situation. Otherwise, we don't see any kind of an oversupply situation for the longer period of time. So new capacity has to come in.
Got it. And currently, in China, the incremental 2 million ton which was supposed to come in December, has the ramping up started? Or how was the scenario there?
They've already started, Riya. They've already started the volume, 3 lines is already operational. But their demand into the solar and the lithium carbonate is exponentially has happened, and because of that, their overall -- in spite of the people say, world says that globally, the demand is down. But in China, the demand growth is around 7% to 8% in 9 months period. And the moment the real estate picks up again, which is, at this point of time, is underplaying, if that recovery of the real estate happens, then this growth of 7% to 8% can go much more and that will kind of a -- and therefore, what we globally -- we realized is that China is not likely to be a major player into the global trade of Soda Ash.
Right. Right. What would be the next portion of 2 million ton which would come for Inner Mongolia, when would that be?
I think that will happen in '24 onwards. Right now, we don't have a time line on that. They have just started that process. That may take around 12 to 18 months' time as per our information.
That will be Phase 2, right?
Yes, Phase 2.
Phase 2 for Inner Mongolia. And that would also be total 4 million capacity, right?
Yes.
Got it. Also in terms of our greenfield capacity which we are setting out, what are the kind of hindrances we are finding it right now? Like where is it stuck?
No, these are all [Foreign Language] basically it's government approvals. And those government approvals require some kind of a -- sometimes the process do takes longer time. And that is what -- it is not something which -- stuck is not the right word. I would say it is taking more time.
If I'm right, it will take 2.5 years from the day we get all approvals, right?
Yes, Riya, you are right on this.
And for sodium bicarbonate, what kind of capacity utilization that we see for the quarter?
I think, Riya, very valid question you've asked about this sodium bicarbonate. Now we are seeing that fraction of usage of the sodium bicarbonate into the flue gas treatment. And if you look at in the current month, which is just passed on, January, our utilization was something around 75% to 80%, which was used to be around 57%, 58%. So there's kind of upside has been seen into the demand of sodium bicarbonate by the flue gas treatment.
And a lot of new investments are coming into the flue gas treatment. NTPC alone are -- having -- on 2 locations, they have already started. There are many other locations, they are putting to -- setting up their infrastructure. Same way, private players are also setting up. So a lot of investments are happening on the flue gas treatment, even by the private companies also are doing it.
So probably in the next few quarters, you will see the full utilization of the sodium bicarbonate going forward. Frankly speaking, we are looking at a possibility of can we increase the further production into the sodium bicarbonate at the current location?
Right. So entire or it will be on an increased capacity like 120,000 tons?
Yes. Currently, we have 120,000 tons, which we are seeing that possibility by doing some small debottlenecking, then we increase to 200,000 tons kind of a number. Currently, at this point of time, we are exploring that possibility.
Sure. And what would be the kind of revenues or margins which we are doing in sodium bicarbonate?
See, margins, if you look at in terms of sodium bicarbonate, we'll be in the same range of around 30% -- 27% to 30% kind of a range should be there on the sodium bicarbonate.
Got it. And revenue currently, what will be the revenue coming from that?
I don't have a specific number, Riya, at this point of -- I don't have a specific number on that -- the revenue -- separate revenue number.
Percentage would also do -- percentage of the total revenue would also do.
No, you can just calculate that out of my total 100,000 tons of the soda ash...
Got it. Got it. Got it.
So you have a 7.5% kind of a number is coming from there.
7.5% of the total revenue?
Yes.
Coming to the cost side of it, this quarter, we saw an incremental rise in the raw material prices. So where was this coming from? Is this just related to the shutdown, which happened in basically higher fixed cost, which could not get allocated? Or there is actually an increase in the raw material prices?
No. Riya, this is primarily because of the lower production. And because in the annual shutdown, a lot of stores and maintenance cost and -- are required, even there some of the semi-variable cost percent goes up because of shutdown in a particular month. Otherwise, the costs are on the downward trend, you will see that reflecting in the next quarter.
Q4 onwards, do we expect a 5% reduction in the cost overall?
See percentage, again, very difficult at this point of a time. But yes, definitely, in spite of the soda ash prices may soften from here because of now all the new contracts are getting implemented. And so because of that, still we will be able to maintain the margin at the same level, and that is primarily because of the cost reduction, which will happen in the next quarter.
Cost reductions would happen in the next quarter. Also coming to the EBITDA per ton, so how much -- what would be a breakeven realization for us for -- at the current cost level?
No, it's far off our EBITDA margin, Riya. Riya, if you can look at our numbers, you will find that my fixed cost is not a very significant amount. And because of that, breakeven is far -- we are far ahead of the breakeven.
But on a per ton basis, what would be the fixed cost?
Maybe around INR 2,000, INR 2,500 such kind of a number.
And total cost?
Very difficult, Riya, at this point of a time total cost to calculate and give you. Maybe offline, we will give you.
Okay. Okay. Got it. And so over a period of say last 5 to 6 quarters, you have seen a significant reduction in your employee cost also. So have we rationalized it to the maximum? Or do we see a further scope in reduction?
No, personally, I don't think there's any big opportunity into the reduction of the manpower cost. Of course, we'll continue to look at the various opportunity in all the areas of cost reduction. But significant opportunity, we don't see in that area.
The next question is from the line of Rohit Nagraj from Centrum Broking.
Am I'm audible, sir?
Yes, yes, you're audible.
Sir, first question is in terms of the domestic demand, so which are the pockets you are seeing subdued demand? Or how is the environment across different sectors in domestic market?
Yes, Rohit, if I can say look at sector by sector, in the glass, I would say that because of some import of glass is happening and because of that, there is -- of course, the demand growth is there in the glass sector. But because of import of glass is also happening because of that, the glass industries are under some pressure. That is number one.
On the detergent side, I would say that the demands are good. Actually, recently, we -- I had a meeting with one of the big players -- a big consumer of soda ash into the glass -- into the detergent. They are very optimistic of a demand growth of around 4% to 5%, and that is kind of continuing. And particularly here, the smaller players are playing a major role. A lot of convergence are happening from a soap to the detergent or the bar to the detergent.
So I would say detergent is doing good. Chemical also because of some import which is coming and as you know that the chemical industry is passing through a difficult time, so consumption in the chemical sector is also somewhere getting impacted in terms of the demand. If I come back to now on some of the silicate manufacturers and things like that, there because of some conversion or the very cheap price of caustic soda, some conversion has taken place into the caustic soda side.
And because of that also, some demand of soda ash in that sector is likely under. In spite of all these things, it's still that soda ash demand has grown by 2%. Had this situation would have not been there, probably the demand would have been around 5% to 6% because some improvement in the demand has happened in the solar glass side. In India, some new players had come in. And because of that demand growth is seen there. So in this 9 months, the demand growth in India is around 2%.
That helps. Sir, second question in terms of the exports from Turkey, so are there any incremental capacities or incremental debottlenecking that has happened? Or just that earlier the exports are routed across different geographies, including Europe, and the demand from Europe is lower, so it is getting directed. Just your thoughts on this.
So you're right, Rohit. Two things -- both the things has happened. On one side, they have increased the marginal capacity into their production. However, the major impact which is coming only because of the Europe demand has gone down.
Right. Right, sir. And one just last question on the greenfield project. So if we get approval in the next 6 months, by FY '27 end our projects will be up and running, is that a fair assumption?
I think so. Yes, Rohit, I completely agree with you that once we get this approval in the next few months, after that 2.5 years kind of a number should be there. So I'm surely because we are -- so on one side, what we are doing is we are not only waiting for these approvals. On one side, we are working on these approvals. On the other side, we have already started a lot of work. Detailing -- basic engineering is already awarded. The work is almost completed.
Detailed engineering, we have identified the vendors. We have identified the equipment vendors also. We have identified a technological partner also. A lot of things we have already done, like we have to put the pipeline. So we have identified who will be doing and more or less kind of a situation where the moment we get an approval, we can award the contract. We are in kind of a situation where we are ready with everything, just we have to blast once the approval comes.
Absolutely. Absolutely. Sir, the MoU that we have signed with Gujarat government, is there any time line that you have given? Or once the greenfield product is completed, we will start this in the next phase.
See this investment, which we have signed into the Gujarat government, is primarily to add on the capacity of the greenfield project from 0.5 million ton to 1.1 million ton, right? And there, we have given a time line. This will be in the Phase 2. First phase, like you said, '27, we will complete. And the second phase, we will start after that. And maybe once this project gets closer to the kind of starting, we'll start working on that.
And the next 2 years, we will be trying to complete that project. By '29, probably, we'll be completing both these projects. And obviously, we will be getting some benefits or, I would say, some subsidy or some benefits from the Government of Gujarat on both these accounts once we implement the project.
The next question is from the line of Jainam Ghelani from Svan Investments..
Sir, just wanted to understand that in your opening remarks, you indicated that the domestic market import is almost around 100,000 tons and requirement is 60,000 tons. So just wanted to understand how is the domestic demand in terms from the detergent market and the greener initiatives which you -- we used to indicate in the previous call? And what are the current realization as compared to the exit run rate of the last quarter?
See two things. One, like I said, the import is more than what it should be. And because of that, the prices are under pressure. On the other side, I also said that the demand growth in India is in 9 months is around 2%. And of course, some of the volume -- of course, some of the competition has also kind of, volume is lower.
Keeping that into my mind, and some inventory built up is also happening into the system. And many of -- I mean, including us, we are also exporting a larger volume to the export market like a nearby market. So this is what the scenario is happening. And in terms of the pricing, as I mentioned to you, prices are as compared to last quarter, I would say that the prices are down by almost around 7% to 9%.
And again, I want to highlight that the likely prices further reduction will be during the next quarter. However, because of the selling price because of the cost advantage, probably we will be able to maintain the margin at a similar level in the next quarter.
So sir, that means you mean to say that whatever the cost saving that we will be having in addition to the operating leverage of the 20,000 tons that we lost during the last quarter, we will be -- the impact that will get nullified by the cost savings of near about in the power and fuel cost, right?
Yes. That's right.
So sir, if you can help us, what was the fuel cost consumption in Q3...
Sorry, your voice has gone. Sorry, we can't hear you.
Sir, what was the coal cost consumption in Q3 and in Q4? And what will be in Q4?
The coal consumption percentage remains the same. I don't think the coal consumption changes, only except like I said, in terms of the tonnage if you are talking about. But I think I don't have right now there's readily number on that. But like I said, including all costs put together, we will be able to maintain the similar kind of a margin going forward.
But sir, given the industry trend that we are seeing and probably even you are guiding that the current range of the margin of 18% or 20%, 22% were likely to remain for the next couple of quarters. So I just wanted to understand the broader view, probably by end of FY '25, '26 as per your interaction with the industry players, how do we see the growth coming -- kicking in so that the demand/supply gets balanced and we might see a margin going back to 27%, 28%?
See if I can give you a larger picture on this, probably based on our understanding or my understanding, generally, our margin historically has been in the range of around 28%, 30%. If we look at slightly longer-term average, okay? Last year, we have seen our margin has gone to 36%, 37% also, right? But prior to that, if you look at, you will find that similar kind of a margin on a longer-term basis.
So my expectation is this kind of a margin should come back in a year's time. Of course, in this volatile market, geopolitical situation, which you understand, something with a certainty cannot be said. But the way we are looking at the business and the way we are looking at the global demand and supply situation, hopefully, '24-'25 end, probably the third or fourth quarter, improvement will start looking into and probably '25-'26 definitely should be there because we have a very one -- very rationale behind it.
Without this kind of a margin, a long-term investment into this business cannot happen. And therefore, this kind of margins are much for the new capacity or new supply to come into the business. And everybody when we stop -- they are putting the money into the business, they are expecting that this margin will be coming. And therefore, this margin will likely to come.
Sure, sir. Sir, last question, as you indicated that the current price of the soda ash is 7% to 9% lower than the exit run rate of Q3. I mean, as an industry, are we anticipating further cut in month of February, March? Or probably you see that prices should somewhere hover around this level given the current demand scenario?
No, I said to you that we don't see any further price reduction into the soda ash business at this point of a time. But surely some of the contracts, which was earlier done at a higher price, now they are getting renegotiated and things like that. And that will have some impact on to the pricing also. So overall, if you look at realization portion, we'll definitely have a lower realization in the fourth quarter as well. However, that will get compensated by the cost reduction also.
The next question is from the line of Hardik Mehta from Shree Stocks. Mr. Hardik, your line is in the talk mode, please go ahead. Mr. Hardik Mehta, your line is in the talk mode, please go ahead. There seems to be no response from the current participant. We'll move on to the next question that is from the line of Riya Mehta from Aequitas Investments.
My question is, what was the generally European market, how much was the import demand for European market? And what -- how much decrease are we seeing in there?
Riya, sorry I don't have a specific number on that. So therefore, I will not be able to give you a correct number on that.
And a few months back, we were seeing some consolidation, which is happening in China. A few players shut their shops. So are we seeing that continuation of the trend somewhere globally?
Yes, definitely, Riya, that will have a consolidation, but it will take some time. See basically in China, what will happen is, some of the small players, they will start theirs and the new capacity, which is like you have seen, which has come in, in the Inner Mongolia, so smaller capacity plants will get closed because Chinese government are very sensitive about the environment. And therefore, all those plants, which are between the city -- mean, synthetic-based soda ash plant, probably gradually, they will be able to kind of -- but of course, it will take some time.
And I think one of the thing which our understanding on the -- based on the global input, which we are getting from the Global Soda Ash Conference, the China in a longer run, they have taken a decision that they would not like to be a world supplier of soda ash. And therefore, they would like to have -- of course, in the short term, this could happen. But in the long run, they would not like to be a supplier of soda ash to the world. And therefore, they will produce as much ash which is required for their own country.
The next question is from the line of Saket Kapoor from Kapoor Company.
Sir, as you were mentioning about the greenfield project, my line was dropped, sir. So are we also getting any tax rebate for setting up of this new greenfield complex?
No, see Government of Gujarat has certain policies of investments, which we will be getting the benefit of that. Of course, we will apply for that, and we'll get that, that's not a tax benefit. That's more on the GST side, more on the power side and things like that.
Right, sir. Sir -- and you have been alluding to the fact that the requirement domestically will go up from 4 million to 6 million going ahead. And major thrust will be from the solar capacity. So taking that into account, sir, how was the things shaping up for the production of these solar panels? How are the lines set up? What is the ground reality in terms of the new capacity coming up and then the incremental demand from the renewable segment kicking in?
See, two things, Saketji. On one side, even if you take the basic requirement, which we call essential, essential demand, like your detergent, normal glass, you know the way the urbanization in India is happening. Uses of the glass, which is happening into the normal buildings as compared to the last. And historically, you have seen soda ash demand has gone up by around 5% on an average.
If I take that number alone, that gives you kind of a number of every year you require something around 200,000 tons of extra volume. That's number one. Now in terms of the solar, I think a lot of new investments, you must have heard many major players, Government of India has given PLI scheme also into this, and a lot of land has also been allotted in Gujarat on the waste land for major players to kind of go for a green hydrogen or green ammonia.
All those investments is likely to happen in the next 2, 3 years' of time, and that will create further demand. In the meantime, like -- and those people will set up the glass manufacturing set up also. In addition to that, a lot of capacity is already coming like one of the company like Visaka, they have already put 3 megawatts of solar.
Then Borosil, Gold Plus, Triveni, they are the people, they are -- they are making an investment. Borosil has already put that investment into that. All those things are happening. There's a company called Gopal Glass, they're also kind of they put. So a lot of new investments are coming on this area. Of course, at this point of a time, they are also facing some difficulty because of the import of Chinese solar glass are happening into India.
And because of that, they are under pressure, but I'm sure that the Government of India will take care of their interest going forward, and they will kind of a -- they will be able to produce fully on the new capacity which they are putting in.
Sir, they will be new dedicated glass lines for solar manufacturing. These are not going to be content [Foreign Language] these are going to be greenfield projects, and they are not to be with the existing glass line. Is that understanding correct? The entire set up will be greenfield?
No, almost a greenfield, but in the current location, if they have a space, they will put the new line for the solar because solar requires a different kind of a line.
Right, sir. Correct. Correct. And sir, then in your presentation also in the growth drivers, you spoke about our -- the salt yield program and the vacuum salt from waste energy. So where are these in terms of that benefit getting accrued? And sir, you also mentioned that because of the annual shutdown, there were some incremental costs. So can you give a ballpark number of what would have been factored in, in our P&L because of ASD and that is not going to continue for the next quarter? Any ballpark number you would like to share?
I don't think I have that ballpark number at this point of a time. But let me tell you a couple of things which you asked me about the vacuum salt. Vacuum salt, as I said in my opening remarks, vacuum salt project is as per schedule and that is likely to be March '25 likely to be completed. When it come to the salt yield improvement in DCL itself in '23-'24, we have seen a significant improvement into our production of salt. Almost around 30% volume increase has happened into the salt production.
And that has added to the bottom line or cost has been kind of reduced because of that. That is also one of the reasons that we have been able to kind of lower our costs. So that benefit is there. And going forward also, the work on the -- because in my initial earlier discussion also I have said, this salt yield improvement will happen gradually because we are keeping an investment on a regular basis, and that will require some 2, 3 years of time.
But some benefit, like I said, 30% productivity has gone up. And this will continue going forward. And we will achieve our objective, what we have defined for ourselves, and this will have a significant benefit to our bottom line. In terms of the vacuum salt, I would also like to mention, the vacuum salt at this point of a time, our project will be on a B2B model. We are not envisaging any B2C model at this point of a time.
Once we stabilize this business, because we will have a significant advantage of cost because of the use of the waste energy for producing the vacuum salt, we will later on see should we venture into the B2C model or not.
So what would be the revenue from the vacuum salt segment?
Sorry to interrupt Mr. Kapoor.
Only to continue ma'am, just the point.
Yes, basically, Saketji, roughly around if I can say this INR 125 crores kind of a top line will be there where the margins will be something around 30%.
100 and -- I missed your point, sir.
You see, broadly, I said INR 125 crores to INR 150 crores kind of an additional revenue will be generated out of that and maybe EBITDA margin would be something around 30% to 40%.
Okay. Fully -- then FY '25, '26 would be the full benefit we'll get. This year, we will be just putting up the capacity.
Yes.
Okay. And sir, last point was about the dividend payout part, sir. Although mentioned in our presentation, sir, that dividend payout is in the vicinity of 15% to 20%, but we have always been releasing dividends at 15%. And since you have -- and the earlier participant looked for feedback, so a humble feedback from investing community is that this year, because of the lower profitability, we should try to look forward to distribute 25% of the profit rather than sticking to only 15%, this is my humble submission, sir, from my side.
Saketji, I have mentioned already on that, that we are always sensitive to our investors' expectation. And we will accordingly see and discuss with the board, and then we'll come with a decision, which is in longer-term interest of the shareholders because we always believe longer-term interest is more meaningful than the short-term interest. We'll keep that into mind.
Ladies and gentlemen, that is the last question. I now hand the conference over to the management for their closing comments.
Thank you very much for all the participants and the investors for your feedback and your trying to understand the market scenario. I have tried my best from my ability to give you a right feedback onto the business, and our journey of a growth for the investors, our passion to create a value for this -- for our shareholders will continue.
This small dip into the margin, it happens in the business, but our long-term objective of creating value for the shareholders will remain intact, and I'm very optimistic about this business going forward, because the structural changes we are seeing and the structural changes into the demand of soda ash because of this new venues of solar glass and globally lithium carbonate as well.
And probably, that will give us a -- once our greenfield project comes on the screen, we will have a huge opportunity of growth into the business, because there, we have visualized a 2 million ton capacity going forward.
We will have the infrastructure ready, we will have a land parcel ready. And whenever the demand growth happens in India and which we are seeing, which will happen and we will be ahead of the competition in terms of setting up our business, and we remain as one of the largest player of soda ash into India [indiscernible] thank you very much.
Thank you, members of the management team. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.