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Ladies and gentlemen, good day, and welcome to the Q1 FY '24 Earnings Conference Call of Grasim Industries Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ankit Panchmatia, Head, Investor Relations. Thank you, and over to you, sir.
Thank you, Jacob. Welcome everyone, for joining us today for Grasim's Q1 FY '21 Earnings Call. Trust everyone got a chance to look at the financial statements and presentation uploaded on the exchanges and also available on our website. For safe harbor, kindly refer to the cautionary statement highlighted in the last slide of our presentation. Today, we have with us Mr. S.K. Agarwal, Managing Director; and Mr. Pavan Jain, Chief Financial Officer. Also joining the call, we have our leadership team from key businesses. Mr. Himanshu Kapania, Business Head, Paints, Mr. Jayant Dhobley, Business Head, Chemicals, [indiscernible] and Insulators; and Mr Rakshit Hargave, CEO of Paints business; and Mr. Jayant Dua, CEO of [indiscernible]. I would now welcome Mr. Pavan Jain for his opening comments, post which we will open for the Q&A. Over to you, sir.
Good afternoon, everyone. It is a pleasure to share our quarter 1 performance with you. First, I would like to give some highlights on the macro environment and then would cover financial performance of our company for the quarter in the discussion. Globally, interest rate hikes continued with U.S. Fed rates rising in July ‘23 by 25 bps to 5.25-5.50, though RBI seems to have paused the rate hike for the time being. Fed has guided that the future interest rate decisions would depend on inflation data and the inflation in U.S., its steady, economy is growing at a faster-than-expected pace. Consumer sentiments are also indicating positive signs of recovery for second-half of calendar year '23. China's expected reopening led demand based on export growth and consumption revival has somewhat disappointed global expectations. With subdued domestic demand, recovery has led China's focus on exports to keep the economic growing at desirable levels. As the macro global environment continues to remain volatile, the realizations are impacted across global businesses we operate in, like Viscose and chemicals. On the Indian front, we have been on strong footing and there have been multiple upgrades to GDP estimates. According to RBI, India's Q1 FY '24, GDP growth is expected to be around 7.9%. Given the current expectations around growth, multiple agencies have had their estimates of India reaching the position of third largest nominal GDP by 2030. This is remarkable given its position of being among top 10 economies in 2010. Given majority of our revenues are from domestic markets, we remain confident of playing an integral part in India's long-term growth story. However, in the near term, global slowdown has directly impacted India's exports of textiles, which de-grew for the 12th consecutive month on Y-o-Y basis. During June'23 quarter, textile exports were lower by 10% Y-o-Y and 9% Q-o-Q, which has impacted the textile value chain from mills to garment manufacturers. The domestic demand for textiles and apparels is also exhibiting some sluggishness due to delayed festive season, which is in the latter part of the year. Cotton prices have also declined 41% Y-o-Y and 4% Q-o-Q, which, to an extent, impacts the demand for [indiscernible] as well. Chemical industry is witnessing similar global demand slowdown impact, which has resulted in higher inventories. Weak demand from end user industries globally like textiles, packaging material, constructions, et cetera, especially in the developed countries, is indicating subdued scenario in second half of calendar ‘23. Despite these headwinds, our stand-alone businesses' performance has improved for second quarter consecutively. The improvement was largely driven by strong recovery in viscose business, partly offset by subdued performance in chemical and textile businesses. The Y-o-Y performance comparisons are impacted due to unfavorable base impact compared to the peak of cyclicality in Q1 last year in respect of our VSF and chemical businesses. Our continued focus on costs and improving efficiencies, coupled with lower input prices have resulted in improved performance on a Q-o-Q basis. As already shared earlier, we are happy to share that we would be launching our 2 new businesses in the current financial year. The paints business would commence its commercial offering from Q4 FY '24. Of the 6 plants, at least 2 or more plants will be commissioned this year. Our long-term goal is to be second largest player in the Indian decorative paints market, which is growing at a healthy double-digit pace. We have launched our full-scale B2B e-commerce website this month under the name of Birla Pivot. Birla Pivot is unique experience for MSME operating and construction business, giving them one-stop shop solution from generation of quote to delivery and facilitating financing solutions. The platform is up and running in full scale across regions of Maharashtra, MP and Delhi. We have onboarded 130-plus brands, and going forward, we will also explore private label products in select categories. Initial response to Birla Pivot has been encouraging. On sustainability front, our efforts are well recognized in the industry and value chain. We constantly endeavor to reduce water consumption and emissions and increase the share of renewable power. This will be driven by process efficiencies, new technology deployment and investment in the renewable power capacities. We have improved our share of renewable power to 11% compared to 8% in last financial year. Additionally, we have been recognized as one of the most sustainable organizations by 2 prestigious media publications that is the Economic times and Business worldNow highlighting some of the key financial parameters of Q1 FY '24. Consolidated revenue grew by 11% Y-o-Y to INR 31,065 crores this quarter. Revenue from key subsidiaries, Ultratech, Aditya Birla Capital grew by 17% and 26%, respectively. The performance was moderated by degrowth of 14% at stand-alone level. Consolidated EBITDA de-grew by 5% Y-o-Y to INR 4,981 crores largely due to softening of realization in stand-alone businesses as well Ultratech Cement. Stand-alone businesses' revenue stood INR 6,238 crores compared to INR 7,253 crores in the same period previous year. Stand-alone EBITDA de-grew by 42% Q2. We grew 42% Y-o-Y to INR 789 crores compared to INR 1,364 crores. The high base impact from historically high rates of key products, namely VSF and caustic soda has led to this impact on profitability on Y-o-Y basis. EBITDA for the quarter is also net of preoperative expenses of new businesses charged to P&L. Globally, Viscose is the fastest growing sustainable fiber compared to cotton and polyester. Viscose continues to sequentially recover since Q2 FY '23, with EBITDA for the quarter at INR 390 crores. The utilization level at 90% was impacted partially by the plant shutdown of almost a month due to higher 8-hour higher unit. International caustic prices, CFR SEA are on declining trend from October ‘22 onwards. The rates were $735 per ton in October ‘22, declined to $395 per ton in June ‘23, which is a correction of 46%. The quarterly average rates during the same period previous year stood at historic high level of $769 per ton, which makes Y-o-Y comparison unviable. High operating rates with missing demand recovery in China led to oversupply, leading to global prices erosion. India impulse albeit trade base increased further adding to the capacity additions from domestic players. Our [indiscernible] only business continues to maintain its market leadership, posting volume growth of 5% Y-o-Y at 292,000 metric tons. However, the revenue for the quarter de-grew by 21% Y-o-Y to INR 2,146 crores compared to INR 2,733 crores in Q1 last year. The resulted revenue mix from caustic declined from 61% to 55% and chlorine derivatives revenue increased from 17% to 20% on Y-o-Y basis. There remains a sharp focus on developing products on chlorine derivatives. Partnership with Lubrizol is in the same direction, whereby the construction of Asia's largest CPVC resin plant at [indiscernible] is expected to commence this year and it would help to improve captive consumption of chlorine. Post completion of capacity expansion projects, the chlorine integration would be 72% compared to current 61%. The specialty chemicals, which is our epoxy resins business, posted another stable quarter led by strong demand for specialized products in key user industries. The product mix improvement in favor of specialty products and correction in raw material prices resulted profitability in this segment growing nearly 2x Y-o-Y. Delayed festive season, coupled with elevating flake prices impacted performance of our linen business in the textile segment, though wool segment performed well. Textile revenue de-grew by 11% Y-o-Y to INR 549 crores. Our focus has been to grow iconic brands like Linen Club [indiscernible] House. We have been ramping up our retail presence and the brands are now available with 210 EBOs and over 8,000 MBOs offering key brands. Here, we are making large investments in new businesses for next phase of growth. The net debt as of 30 June ‘23, stood at INR 3,515 crore. During this quarter, we have also participated in the preferential allotment by Aditya Birla Capital, wherein we have invested INR 1,000 crores. Excluding our investment in new businesses and the investment in Aditya Birla Capital, our existing businesses continue to generate free cash flows, and we have generated INR 256 crores for the quarter 1 of FY '24. The Board has approved CapEx spending of INR 5,791 crores in FY '24, including INR 4,283 crores for paints business. During first quarter, we have spent INR 1,380 crores towards CapEx. We now open the floor for Q&A.
Thank you very much. [Operator Instructions] The first question is from the line of Sumangal Nevatia from Kotak Securities.
My first question is on the VSF business. So clearly, costs are deflating. So, if you can give detail which all areas, we are seeing cost deflation, and also in the coming quarters, as we can see, prices are a bit of under pressure -- some outlook on the cost for the coming quarters, if you could share?
Okay. So, on the Viscose side, obviously, the main cost items where we have seen a reduction of pulp prices, caustic prices and coal prices. So, all the important input prices have come down compared to last year, significantly and also compared to the last quarter. So, that is a very positive trend. It looks like the input prices do not have much further room to go down, but we have to see, it all depends on the macro-level situation and especially in China. So, China now is going through a very difficult phase. Today newspapers, everybody that the China is going through deflationary pressure, so we have to see how the government and the Chinese economy perform in the coming months, and that will determine the input prices all over the world. The realization also is in the decline trend, and it depends on the pace of decline -- sometimes raw material prices declined faster, sometimes [indiscernible] product prices decline faster depending on the inventory levels, depending on the macro global sales trend, et cetera, et cetera. So, these are the scenarios currently going through. On the chlor-alkali side, caustic prices have come down significantly. That helps the core fiber side, but it again impacts us very badly on the chlor-alkali bottom-line performance. Energy prices, particularly in terms of coal, they have come down recently; that should reflect in our performance in the coming months also. But then it will again depend on how severe is the coming winter, and that will determine the coal prices going forward.
Okay. Sir, so I mean, as far as the spot rates are concerned for the biggest cost items, it is already largely reflected in 1Q results, so when you say there's not much further scope of reduction or there is some further inventory gains and you'll see some benefits in the coming quarters?
I think this is fairly reflected already. Small things will keep moving, but that will not be very big.
And for the caustic business, sir, given the pressure on prices, coming quarters, should we expect margins also to trend in line with the price weakness or there are some offset available there?
So this is Jayant Dua this side. So, we believe that caustic, the way it is trending, you're maybe at the end phase of further reductions. There could be marginal changes, which are obviously a function of local India movements and how the Indian consumption center moves, but we believe that largely it is more-or-less near it's bottoming out. But yet, the trend for this particular quarter will be lower as compared to the average of last quarter because the exit of last quarter is what we are seeing today as the new stabilization. So yes, to your question, will there be further margin erosion based on the exit of last quarter, it will be equivalent to that, but from the average of last quarter, it will be ended.
Understood. Understood. Sir, my second question is with respect to CapEx. For the paints division, should we expect a large part of our Rs INR 10,000 crores CapEx to be concluded by FY '25, given that INR 20 crores also is a very significant CapEx as per the presentation.
Yes, yes. So you can assume that. So, a large part of CapEx will be done by FY '25.
Okay. And sir, the B2B [indiscernible] some very low CapEx what we are spending this year, is there any other indirect way of financing in terms of working capital et cetera that just being absorbed in that business?
No, there's no in that place of now. It is not a CapEx-intensive business. We have spent on the technology side, and of course, we'll have to continue to spend on technology. So that is all for CapEx.
So the peak of CapEx will be this intensity only in a particular year or coming years FY '25-26, you see a further increase in CapEx on what we are spending in FY '24?.
So, for the board approved CapEx numbers, if you look at, this is, I think, one of the highest spending year, current financial year. For the next financial year, we will have, while the pending CapEx of paints business. For the next financial year, we will have proposals to go to the board and get board approval, et cetera. So, for next financial year, it is very difficult to say about the numbers. But as of now, yes, this year looks like CapEx reunion.
Okay. Got it.
The next question is from the line of Nirav Jimudia from Annual Research.
Congratulations on very good set. Sir, I have a few questions. So, one on the chemical side. So, if we see our ECU realizations in Q1, they have been far better than the other players reported numbers of -- in the caustic-chlorine division. So, just wanted to have your thoughts here that was there any specific reason for our ECU realizations higher than our peers? If you can share your thoughts here?
So, I think the reason is that I think tactically, we played a couple of moves better than some of our competitors. From a long term, if you say, was there any strategic shift, no I think one difference was that our map or what we call as our chorine derivatives compared to Q4 of last year to Q1 of this year, our volumes have materially gone up. And other than that, it was, I guess, more day-to-day active management.
Correct. And sir, what proportion flake forms in terms of our total sales volumes for the caustic soda division?
Flake forms to the tune of around 20% of our total caustic live production.
Okay. And has that proportion gone up this quarter?
Yes, it has gone up not, significantly marginally gone up.
Correct. Sir, a related question to this, like when we are expanding our caustic soda capacities, does these newer capacities come at a lower power consumption per ton of production because what we have seen for a lot of players that when we interact it, they say that it is possible to reduce the per ton consumption of power. So, that and whether it is possible to modify the equipment for the older capacity, so there also, there is some scope of power reduction?
So you see the power reduction in any caustic plant is a function of the generation of the electrolyzers you buy. So, if you go towards the generation 5, 6, you will be better off compared to your 4. So, all our new capacities which are coming are coming with the latest generation of electrolyzers. So, you will get a better power-cost output compared to the older plants. But on the flip side of it, we have a very robust program of also upgrading our old membranes and electrolyzers, which is the continuous process which happens.
Correct. And sir, is the power reduction could be to an extent of 15% to 20% with the installation of sixth generation membranes?
No, it's not that material, it's not that material because it's only about close to 40-odd units per stack, which you get from one generation to another. But your real power-cost reduction comes from how do you do your power buying or your power-mix. It's not too material on the electrolyzers while that's the largest consuming center, but your power-cost saving comes from your power-mix. So, I think that's what it is, and I think the material difference that we have in our cost structure is that today, on an expanded base, 14% of our power-mix is on renewable side, which is significantly lower in cost compared to the current grid cost, or the thermal power plant costs.
Got it.
And as Mr. Agarwal was talking, the coal prices compared -- we, I think in our buying we've done better than the index values of the coal buying. So, our cost mix is lower than the industry average.
Got it. Okay. So sir, here, if you can share what was our average power cost for Q1? And how much savings we could assume from Q2 onwards because last quarter, you mentioned that our average power cost was close to INR 7.5 a unit.
If you look at it as far -- I think will go through the number. So, if you look at it, we are currently at approximately INR 7-odd on power. So, that's the way it is If it was 7.1, it has come up to 7%. But in between the coal prices have actually significantly also at points of time gone up. Today, the biggest change is the way the grids are now increasing their price by levying off various cesses. Coal price is lower, power cost is flattish for us.
Got it. Sir, second question is on the Epoxy side. So, last time we mentioned that we are in a range of 15% to 17% EBITDA margins for the Epoxy business. So, had those margins remained the same in Q1 FY '24 also? And if you can share your views in terms of the specialty volumes for our Epoxy business, so how much they are out of our total sales volume? And your thoughts of venturing into the B2C business for epoxy, whenever we'll be kept on ramping those LER capacities on commissioning and then later on going into the value-added products.
Yes. So, that was a lot of questions to ask at one point of time. So, I'll answer the last one first. So, as of now, there is now there is no immediate plan to enter into the B2C market. In fact, many of the large B2C players are our customers, right? And we do big volumes with them. Now over time, that could change. I don't when that change -- we will, of course, announce it. But as of now, there are no plans. We value all our B2C relationships with globally marquee customers such as Henkel, Mate, Sika, et cetera, et cetera, right? Then if you look at the actual margin, so we are confronted with the situation where we have treated agreements with many countries and an inverted duty structure in some of the base epoxy resins. For example, the Korean players like [indiscernible], etcetera, can supply duty free into India. And at the same time, Europe has removed the GST benefit for epoxy resins. We have managed to overcome these headwinds by actually increasing our specialty share, the one that you have mentioned. And we are particularly strong in the wind sector. So, compared to previous quarters, we have improved our specialty margin. I don't think we would like to disclose the exact number of the margin. But what I can disclose and confirm what was said earlier by our CFO, Mr. Pavan Jain, is that our profitability of epoxy has significantly improved. We have doubled over quarter-on-quarter basis. But I would not like to give the exact number of specialty sales and the segment-wise break-up.
Got it. You mentioned on a quarter-on-quarter basis, we have doubled our epoxy –
Sorry, Y-o-Y business, basis.
The next question is from the line of Navin Sahadeo from ICICI Securities. Go ahead.
Thank you. Thank you for the opportunity. So I'm very happy to see the sequential improvement in margins despite realizations correcting the way they did. First question on VSF. So, I think this is again the second time when we are seeing that globally, the prices have gone up a little bit. That's what the presentation says, but our blended realization, again, has been a little soft or down rather Q-o-Q. I'm assuming it could be the similar reasons like last time because of, let's say, the import duty or antidumping duty, I mean, being abolished or some material coming in from other countries, which has led to this impact and the cost, of course, helped us post a significant improvement quarter-on-quarter. My question is that I believe globally there has been some drop in prices in July and August. So to that extent, assuming that there is a further fall or downslide in India prices, will margins hold at these levels because your pulp prices and caustic prices is going down further? Or you can see some directionally, some pressure on margins in the coming quarters on VSF?
Yes, you have summed up it almost correctly. So, there will be some pressure, but it is all very marginal. There are not big movements either way. So yes, international prices have reduced since end of June. And we also have to follow that trend in India also. And there is some reduction in the raw material prices also. But everything moves -- there are so many moving parts, and we have a pipeline in the transit of raw materials and all these things. So, there will be small difference, whatever where it takes, yes.
But largely, can we say that this is now the bottom? I mean, give or take a few basis points here or there, but the margins are largely bottomed out. Is it a safe thing to say?
We would like to think so, and you never know, there are always surprises from China or sometimes Europe, like the things changed so far within 1 month, things can change. The global sentiments can change. Anything happens has this effect on everything -- but partly, yes, you are right.
Sure. So just on this -- since you mentioned China and the global factors and recently, there were some news articles about spinning mills like seeing some shutdown or temporary closure in Tamil Nadu or the textile hub. So, does that impact our volume outlook in any way?
See globally, textile markets are not doing great, including in India. And not just in Viscose, but across all kinds of products, all kinds of things, whether it is cotton or Polyester or Linen or Viscose. It's a global trend. And exports from India have also declined Q-on-Q also and Y-on-Y also. So, everything is under a little bit of slowdown.
So, there can be some hit on volumes is what you say from the current quarter, like we did a pretty healthy utilization of 90% plus. So, are we expecting some fall?
We are trying our best to maintain the volumes and also try to get more volume in export markets. So we try to maintain our volume as best as possible.
Understood. My second question was then on the chemicals business. Is there a delay in the CapEx of chlor-alkali commissioning because I think the capacity increased from 1.3% to 1.5%, which earlier was guided at Q3 '24. I think in the latest presentation says Q1 '25.
So, there's not a significant delay. There is a lot of delay because of the monsoon and all, which has been factored in there, but the CapEx are going as per the plans. Those capacities will come by Q1 '25, could be Q4, exit ‘24. But there has been a fair amount of monsoon delay which has got [indiscernible] into the system.
Understood. And since the specialty chemicals is just on the corner to double, I believe, capacity 123 further getting added, I think, Q2 '24 as we speak, probably, so what kind of delta can we expect broadly if you can get some sense, how should we pencil in the commissioning of the Specialty Chemical segment?
When you say delta, you are asking me about the revenue ramp-up curve?
Some guidance as to like revenue will help broadly?
Yes. So look, we will be doubling our capacity. And as you can imagine, these are all batch process units, right? So there are multiple underlying SKUs that need to be tested, qualified, etcetera. A typical ramp-up curve from start of commissioning to reaching full, let's say, operational capacity after all the qualification steps is done is around 12 months, let us say. So you can assume that we will make incremental steps of 20%, 25% per quarter over a year's period. In a worst case situation, it could become 5 quarters. That would be a good underlying assumption.
Understood. And just on this margin front, similar to VSF, here also spot prices are lower versus the previous quarter, but I believe cost is also -- some probably steam left to get that. So here also, should we see margin stabilization or directionally some pressure can come?
The margin profile won't significantly change. Of course, I think at that point, I have to say that when a new factory comes on, we are more likely to increase our share of base resin as compared to specialty. So, the product-mix will change. But the inherent margin profile of the business will not change. We drive our business by spread over raw materials in this particular type of business. And sometimes there may be a time lag because of timing of purchase versus timing of sales, but that time lag also rarely exceeds the quarter given the length of our supply chain. So, the margin profile won't change, the product-mix will change because the newer capacities will probably first be consumed in base resin before we restore our base resin to specialty resin.
Understood. Just one last question. In the initial comments, Pavan sir said that the performance is net of the operating expenses of these new businesses. So just wanted to understand what kind of impact is there because of the B2B business or even the paint that we have probably started some trial runs, as I know. So what kind of impact are we seeing since the last 1 or 2 quarters to help us understand that these numbers are including the impact of these operating expenses?
So not very significant numbers, Navin, but yes, I think we are not separately disclosing these numbers. But these numbers are not very significant, considering our overall numbers.
Understood. Understood. That's it from my side. I'll come back in queue if I have more questions. Thank you so much.
The next question is from the line of Pratik Kumar from Jefferies.
Yes. Sir, my first question is on VSF business. So from the plus mix of domestic versus exports which I mentioned, it appears that domestic business was much weaker on a year-on-year basis versus international. So is there dumping some of the Southeast Asian entries increased significantly because of global environment? Or how should we see that?
So the VSF imports are not happening much currently. But what is happening is that a lot of viscose yarn is coming from China at very low prices, and that is affecting the profitability of our customers big way. And that is creating pressure on everyone. And this is all because China the consumption is less than the production of viscose fiber yarn and all that thing. So China exports are also low to U.S. and Europe. So, these are all trade flows happening. But as such VSF imports are not very high.
So because yarn is getting [indiscernible], we are not able to push our fiber product to our yarn customers. And that's why the domestic demand seems weaker now?
Domestic demand is any way weaker, even without this much import, but that import also and then some prices of yarn and the profitability of spinners – and then they evaluate which fiber to run, which is product is profitable..
Okay. Another question, sir, on your new businesses. So can you highlight how is the traction in the paints services business, which you have started with your, I think, employees or friends and family in the paint segment [indiscernible] how is the and what exactly we are doing there?
Yes. So the painting services business that we have done, it's a trial service where we are addressing painting services solutions within friends and families of Aditya Birla Group. So obviously, this is to develop and improve on certain standard operating procedures that we have developed. And as we know that we don't have our products right now, we are using products from the market. So this is to develop better SOPs and prepare service teams for the future...
And this year of CapEx in this INR 4,200 crores over INR 2,600 crores, which occurred last year. So remaining is only, I guess, around INR 3,000 crores in this segment. So, all of it is expected to get incurred in FY '25? Or some of it is like more like working capital related expenditure, so it may come as an operating kind of CapEx later in the FY '26 or '27.?
No, no, the overall CapEx spend in 30th June is INR 3,638 crores, that's the correct number. So I think you are having a different one.
Cumulative spend is INR 3,600 crores, and INR 4,283 planned for this year. Balance of the INR 10,000 crores will be spent in FY'25. Some small amount may still like the performance guarantees like payments, etcetera, that may go to FY '26. But largely, everything will be spent by FY ‘25.
Okay. And on B2B e-commerce, now we have started this quarter. So like initial expectation, what will be our gross revenues and the kind of take rate revenues which we are looking at in this segment? And will this segment be reported separately in our earnings? Or how should we look at it?
I think this segment will not require separate disclosure considering the overall number, because this year, I think only 2 quarters, we will have the full scale businesses on the B2B segment. So, as far as separate disclosure of revenue etcetera required, we will go by the numbers for the year, whether it will require separate disclosure or not. But for the current year, we will have full scale operations only for 2 quarters, kind of 2 quarters plus 1 month or something like that.
But the segment would have like gross revenue, which will be get reported? Or does our take from the gross revenue –
No, no, gross revenue because the model is that-[Technical difficulty]
Ladies and gentlemen, we have lost the line for the management. Please stay connected as we connect them. Ladies and gentlemen, thank you for being on hold. We have the line management reconnected now. Mr. Kumar, you may proceed with your question.
Yes, I was asking -- so we will be reporting gross revenue in the segment and not the net revenue which we get as a take rate for the B2B commerce segment.
No. So we will report the gross revenue because the billing is by Grasim to the customers.
And you mentioned in your opening remarks, we are looking at some private label products also in this segment. So can you elaborate on this, like you are looking at manufacturing contract of tiles, etcetera?
We are still in the -- I mean, not in the state of final disclosures in this regard. We are exploring in different product categories, private label business. I think once we reach to the finalities, we will come out with the disclosures. So the idea of telling about this is that we will be looking at private label manufacturing. And the idea is that, that should help us in augmenting the margin.
Right. So the last question on your debt, you have like INR 3,500 crores debt as of ‘24. What is the peak debt you should look at in FY '24, '25 with the conclusion of paint CapEx?
FY'25 you are asking? FY'25, you are asking or ‘24.?
Yes, during the CapEx of paint business, so what is the peak debt we should look at versus INR 3,500 crores for 1Q?
So peak debt it will depend upon how the existing businesses for cash flow -- and see, CapEx part is certain, of course. But the debt requirement will be dependent upon how the cash flows are coming from the existing businesses. But of course, it looks like whatever CapEx requirement is there, at least we will have to meet that largely by the borrowing only.
Like fair to assume it would be somewhere in the range of INR 8,000 crores to INR 10,000 crores?
Yes, the peak of these debts, it could grow debt up to that kind of level. But again, as I told you, the numbers will depend on how the cash flows are generated by the existing businesses. And net debt, of course, will be lower. Net debt will be -- we continue to hold about INR 3,000 crores plus cash surplus. So net debt, of course, will be lower.
The next question is from the line of Vipul Kumar Shah from Sumangal Investments.
So what will be our paint capacity at the end of this year when first phase of that business gets built?
So we have announced a total capacity of 1.3 billion liters. By the end of this financial year, we will have a target of 3 units operational. So the total capacity of those 3 units put together would be approximately 630 million liters. That is the full-scale capacity.
The next question is from the line of Sam Sundaram from Franklin Templeton.
So the first question is on this Lubrizol CPVC plant per se, you did mention about it in your opening remarks. We have signed about 1 lakh metric ton of CPVC capacities that should begin in this 2023. So this INR 708 crores of chemicals CapEx, does that include the CapEx for Lubrizol or that would come later? If so, how much one should expect, per se, there? Any sense if you can provide there?
So this is -- so if you look at when we made the Lubrizol announcement, first 2 corrections. One is that the plant startup will happen in this financial year, construction will start up, not launch, startup, which means construction will come to an end by FY '25 middle to end. The second part was if you looked at the announcement when we did with Lubrizol -- this is a 0 CapEx investment for Grasim. And the entire 100% investment is being done by Lubrizol. So there is no CapEx impact on Grasim balance sheet due to this particular plant coming up as well as [Indiscernible].
Understood. So this is essentially an operational – so, Grasim will lend their operational capabilities and provide the products here?
We'll supply the chlorine to them by pipeline, and we will do the operation –
Operation management for them as well as the entire CapEx, sales is their responsibility. This does not impact us. So we are actually protected from the vagaries of the market in this operation.
Understood. So therefore, you will be compensated for the OpEx costs essentially.
We'll be compensated for -- I mean we'll not get into the disclosures of that cost, but we'll be compensated to the OpEx cost plus our management fees, operation management fee.
Understood. Understood. That's helpful. Sir, are there any more such products in the pipeline? How do we see the evolution here per se?
This is the first one, which is being adapted. And I think as we proceed ahead, it will evolve as we go along. Today, very difficult to say anything beyond this.
Understood. Understood. The other point is on capital allocation. We had invested in Aditya Birla Capital sometime back in June. Now I just wanted to know, are there any such investments planned in our holdings per se over the next 2 years? Any perspective that you can share on the capital allocation?
So as you know the -- all the financial services sector is doing very well currently. So, the capital requirement was higher at Aditya Birla Capital also. That is how we have done this INR 3,000 crore equity raising in Aditya Birla Capital We are of the view that for the time being, at least for next 2, 3 years, that should meet the requirement. But I mean, as of now, there is no other plan other than whatever we have already invested INR 1,000 crores.
Understood. So, no other plan as in no other -- outside of whatever CapEx that we have outlined, nothing else outside that in the -- from our visibility perspective.
Yes.
Yes.
The next question is from the line of Mudit Agarwal from Motilal Oswal Financial Services.
Sir, my first question is on the -- like the branch and retail preferences are changing towards more on the sustainable product side. So how they are collaborating with us on the product development and renovation?
So I assume you are referring to the Viscose –
Yes.
Yes, a lot of work is happening on the sustainability, especially circularity, where the used garments or pre-consumer waste are converted back into textile, usable textile. So we have developed our capabilities for both mechanical recycling as well as chemical recycling of used textiles or industrial textile waste. We are also working very closely with some international brands where we use such raw material along with our virgin raw material and supply the final fiber, which has almost 30% recycled content. And these are initial stages for this trend, and we are well equipped to participate in this one as the things will develop. And India is going to play an important role in the entire international global textile value chain. So this is, I think, very encouraging for Indian textile and value chain also.
Okay. Perfect. And sir, just one bookkeeping question on the tax side. This quarter tax rate comes out around 11.3%. So is there any adjustment? Or what was the effective tax rate for the quarter? So effective tax rate is 12%, considering our -- in terms of whatever we have, we have already shifted to the new tax regime this is the, I think, tax rate will have considering the ATM deduction for the dividend income, etcetera, so that will be the expected tax rate for the current year.
The next question is from the line of Nirav Jimudia from Annual Research.
So one question on the pulp prices. So, last quarter, our average pulp prices were close to $900 a ton. So if you can share it for this quarter? And what are the current rates for the pulp coming to us in Q2 and –
So pulp prices, so generally [Indiscernible]pulp prices are normally expressed in terms of ECF reports. ECF reports pulp prices every week. So currently, the hardwood dissolving rate pulp prices are at $840. Soft wood dissolving rate policy is $850. So there has been some reduction compared to previous months, and this is the current price.
And what was the average for Q1 FY '24, sir?
We have our formula for procurement of pulp, where we use the previous months pulp price for shipments in this thing and there is a long shipment time. So it's like a continuous thing. So I will not be able to give you average figure for the quarter for purchase -- it will be very similar to the moving trend of average of the previous month.
Got it, sir. Sir, one question on the chemical side. So if you can share like out of our total caustic sales, is there any proportion of contractual sales into, there also like out of, let's say, whatever we sell in the domestic market, what is the mix in terms of our contractual and the spot sales?
So if you look at it, our entire late slate sale is caustic. That straight ais way about 20%, 22% to 25%, which is totally spot, flakes is entirely there. On the caustic side, if you look at it, approximately, I would say, our contractual sales will be a larger proportion to be about around 60%. On the liquid side, the balance 40% would be a combination of monthly contracts and spot contracts. So if I were to look at the entire business level, you would say our contract to contraction will be a ratio of 60-40.
Okay. So some proportion of higher ECU could be because of these contractual arrangements also which –
So clearly, the flakes and the contractual, some of the long-term contracts are -- they have 6 months so they have factored in for the various -- whatever the market allows is [Indiscernible]
Got it. And sir, last question from my side is on the amount of power what we purchased from the grid because you mentioned that the that grid power has become costlier for most of the players in the industry. So if you can share how much is the power that we purchase from the grid for our total chemicals division?
I think you got it, I think you didn't read it right. I said the green power is cheaper than the grid power today. It's not more expensive. And actually, green power also comes through the grid, but they are back-to-back contracts which we work. So our to date, green power is 14%. Our overall, our own thermal power plants, which run, give us approximately 40-odd percent, and the balance is what we are buying from grid.
And sir, last question, if you allow, so what is our capacity utilization for the wax division? Because I think we have some close to 8,91,000 tons of capacity there?
Not capacity utilization, hovers between depending upon seasonality, because wax sometimes are actually have a large seasonality factor. For example, in the monsoon season, the [Indiscernible]chloride liquid sells much more, whereas CPW chlorinated paraffins wax, which goes largely into construction comes down. So, if I were to look at a weighted average annually, we are somewhere, we operate between 73% to 75%, that's where we are.
The next question is from the line of Ronald Siyoni from ShareKhan Limited.
Sir, I wanted to just ask about your market share in the wake of if there's no antidumping duty then, if the competitors are increasing the capacity, how do we remain confident of maintaining our market share?
Which business you are talking about?
About viscose business.
Yes. So currently, we have a market share of close to 95% because the imports are not taking place because BIS has introduced a quality control order. So the major sources of imports like Indonesia and China are not able to export. But we do plan to -- we do expect to maintain our market share at a high level even when this phase is gone. So this will again depend on the competitiveness and the relationship with the prices and services and all of that.
Okay. And in terms of your Lyocell investments, how -- what kind of -- if you can elaborate on what kind of CapEx you would incur on the capacities on per ton basis? Or what kind of returns you are expecting at the current rate of realizations in?
Which investment you are talking?
In lyocell capacities.
So we are not making any big new investment in lyocell capacities immediately. So we have existing lyocell capacities. We have done deep water necking dock existing lines with a very minimal CapEx. So those lines are working well and the prices are quite stable and in line with the general market trend for all the fibers. -- and they are working well. So we will inform the market when we have plans finalized and approved for the new capacity at... Thank you.
Due to time constraints, this was the last question. On behalf of Grasim Industries, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.