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Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Earnings Conference Call of Grasim Industries Limited. We have with us today from the management, Mr. Dilip Gaur, Managing Director; Mr. Jayant Dhobley, CEO, Global Chemicals and Group Business Head, Fertilizers and Insulators; Mr. Jayant Dua, Chief Executive Officer, Chemical Division; and Mr. Ashish Adukia, Chief Financial Officer. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Adukia, Chief Financial Officer. Thank you, and over to you, sir.
Yes. Thank you. Good evening to all of you. I would also like to welcome Mr. H.K Agarwal. He's our Managing Director designate, who's joining us, and we'll be taking over from Dilip. So I would like to, first of all, thank everyone to join the call. In last 1 year, there has been a sea change in the business scenario. And with the pace of vaccination picking up in the last few months, the economic activity has resumed its momentum and so has the textile products. The same is reflected in the sales volume of VSF, VFY, linen as they have touched or rather surpassed the pre-pandemic level volumes. While demand increased across all sectors on back of economic recovery, the costs have also gone up. However, the cost increase has more than been offset by the realization improvement across all businesses. I'd like to share a few important highlights for quarter 2. The company embarked on the capacity expansion program in its key businesses. And we are delighted to share with you that we have commissioned part of our expansion plans in VSF, caustic soda and chlorine VAP in October and November of 2021. These capacities are coming on stream at the right time of the business cycle. In our VSF business, we have commissioned the first line of 300 TPD in November '21 and have achieved the benchmark quality. The second line of 300 TPD will be commissioned -- will be ready for commissioning in quarter 3, which was the earlier plan as well. In the chlor-alkali business, 170 TPD at Rehla, which is Jharkhand was commissioned in October '21. And as part of our VAP strategy, we have also commissioned 150 TPD of chloromethane plant at Vilayat, which was commissioned in November '21. The commissioning of chlor-alkali plant at Vilayat and Balabhadrapuram is due in the second half. The total CapEx that was approved by the Board to be spent for FY '22 stood at INR 2,604 crores, which is excluding paints and fertilizer business. And for -- till the first half, the actual spend is about INR 905 crore. The balance spend for the second half, there is likely to be either savings or there could be some deferment to the next year. But as of now, we're starting with the guidance of what we have -- what has been approved by the Board.In paints, the company has already acquired land at 5 locations as part of its pan-India footprint for paints manufacturing. These locations have been identified in the different regions of India on basis of their proximity to key consumption hubs across the country. While the process of environmental clearance is underway for various working sites, the contract for basic engineering, detailed engineering has been awarded. The civil work at these sites will commence only after receipt of EC. We have highlighted these developments in our investor presentation on Page 7. You can see the locations that are there on the map. Let me now discuss the operational and financial performance of the company. The VSF business reported a strong operational and financial performance, driven by demand momentum, better product mix. So the VAP is higher, as you can see in the presentation and stable realization. The business reported higher sales volume during quarter 2, boosted by textile demand. There was some buildup of inventory that was done, which was strategic inventory in June quarter, which was utilized in September quarter to utilize that high volume. The business has taken great strides in improving the share of value-added products in the overall sales mix, which has almost doubled Y-o-Y to 27%. In our VFY business, the demand recovery was driven by liquidation of inventory in the value chain and lower imports from China, etc. The Viscose business reported net revenue, including VFY, of INR 3,005 crores and EBITDA of INR 580 crores. The VFY business reported a revenue and EBITDA of INR 513 crores and INR 66 crores, respectively, in quarter 2 FY '22. Now coming to caustic. The global caustic prices have been on recovery mode since the start of the year. In quarter 2, the domestic caustic prices also started to witness a gradual recovery. This recovery from their multi-quarter lows was supported by a series of factors like recovery in demand, tightness in supply led by production losses and higher export sales, which was primarily driven by better exports realization. The caustic soda capacity utilization sequentially improved to 86%. The demand for textile and pulp and paper sectors contributed towards incremental caustic soda demand. The chlorine realization, which were on the positive territory turned negative during the quarter. It was led by weak end product demand. The chlorine consumption in VAP stood at 27% in quarter 2, which is expected to increase with the commissioning of CMS facility in Vilayat. The chlor-alkali business witnessed an improvement in operational performance and increase in ECU realization, which has continued subsequent to the quarter end as well. However, the rise in power costs and other input costs for VAPs impacted the EBITDA in Q2. Within the Chemicals segment, the advanced materials, i.e., the epoxy resins business continues to witness strong demand. This was supported by a pickup in the pace of construction activity, thrust for renewables and the thin inventory across the product segments that exists in the market. The revenue and EBITDA for Chemicals business was INR 1,627 crores and EBITDA was INR 232 crores for the quarter. Overall, the stand-alone performance for quarter 2 FY '22 was much stronger with revenue up 67% to INR 4,933 crores and EBITDA up 144% to INR 1,504 crores on Y-o-Y basis, which is the increase I'm talking about. And by the way, INR 1,504 crores is highest ever quarterly EBITDA for Grasim. Of course, that includes the high dividend that we've received from UltraTech. So the EBITDA for quarter 2 FY '22 includes dividend income of INR 641 crores. So on a like-to-like basis, excluding dividend income, the EBITDA is up 121% Y-o-Y. The revenue and EBITDA from the discontinued operations of fertilizer business for the quarter stood at INR 773 crores and EBITDA at INR 50 crores. And this is not included in our published results as a continuing business. We expect the disinvestment process of fertilizer to get completed by December of this year. Our consolidated revenue for the quarter was up 26% to INR 22,564 crores and EBITDA was up 19% to INR 4,282 crores. The consolidated net debt reduced and stood at INR 8,780 crores and stand-alone debt, again, reduced from June, stood at INR 1,158 crores. One of the key items that helped in reduction of the debt was release of subsidy on account of urea from the government. The outstanding fertilizer subsidy has reduced to almost a level of INR 450 crores in quarter 2 which used to be pre-COVID levels almost at levels of INR 1,000, INR 1,500 crore continuously. Lastly, given our constant best practices in ESG, we are pleased to announce that VSF business was ranked #1 in Canopy Hot Button Report 2021 for the third consecutive year. Grasim also ranked overall 7th in India's top companies for sustainability and CSR 2021 by Economic Times, Futurescape Sustainability Index report. That's it from my side. Over to you for Q&A.
[Operator Instructions] The first question is from the line of Sanjeev Kumar Singh from Motilal Oswal Financial Services.
In the paint business, though you have given the locations where the facilities will come, can you give us further time line when do you expect this business to get commissioned, so around 2 years or 1.5 years, what is the time line which you can give?
Sanjeev, we are not giving any such guidance. I think you can possibly make an assessment from the fact that in terms of sequencing of activities after we acquire the land, we get the EC. EC can take up to anywhere 3 to 6 months. And thereafter, the commissioning of the plant will get done. And of course, we are -- while we get the EC, we have already, like I said, appointed design team, engineering team, et cetera. So there's a lot of federal processing also that is going on out here.
And secondly, sir, in terms of VSF. So definitely, there have been some production cuts in China, and I believe that realization has also moved up. So how is the scenario now? When do you expect Chinese production to get normalized?
The China production cut was done largely because of the coal shortage. And what had happened in China, they had cut -- they had stopped a large number of coal mines because of safety issues. And there was a drought in some part of China, so the hydel power has come down. Now China is trying to make up for the coal stock, but they're getting into winter. And the first priority will be getting power for the individual consumers. So we believe -- I mean the OR will not come back in a hurry. So the capacity cuts will still be there. Secondly, the issue of freight and container is still there. So from China, it's not easy to move things to India or rest of the part of the world. So to that extent, I think the outlook remains healthy.
The next question is from the line of Navin Sahadeo from Edelweiss.
My first question was regarding this VSF outlook. So all the production cuts in China per se, the way it led to like other commodities per se surging, that we have not seen in case of VSF even as cotton prices continue to go up. Now you said the outlook is still because there is going to be some operating rates might stay low for some more time. But from a slightly more time frame or from a medium-term perspective, are we also suggesting that we are unlikely to see very strong margin expansions, so to say, in the VSF segment?
You have to look at your talking about Indian market, we'll look at 2 respects. The Indian market recovery has been very good. So the demand is very healthy, with the festive season coming, the value chain. So the pull is very strong. So Indian demand is absolutely growing at a very fast pace, much better than what we had expected. It is better than pre-COVID levels. The second point is the China part of it, the prices have already recovered. If you look at -- even look at China itself, what was the price in September, what was the price today, it has gone back to the earlier level of June July. So there has been a recovery in VSF prices in China also. And the third is we can't predict what is going to happen, but the gap between cotton and viscose has gone to RMB 9,000, the highest ever. So it has to start -- I mean, logically, to reflect in the shift from cotton to viscose. But let's see how fast and when it happens. So we can only go by the leading indicators. What the outcome is there, I can't tell you. So the leading indicators are healthy.
Sure. But how much has been the price recovery in October, if you can just mention China prices, how much have they recovered?
China prices have gone back from $1.77 to $1.95 to $2 kind of again.
Okay. So similar to what they were in probably March-April?
And they are published prices. Yes.
Understood. Understood. Okay. And second is about the Chemicals segment. I believe sequentially, we have seen a margin decline as compared to the Q1 quarter. The segment per se, we have seen a margin decline. So is it only mainly -- I mean got to do largely to do with this chlorine realization turning negative? Or in general, like we have not been able to benefit from the high prices and the got impacted by the rising costs? How should one really look at the Chemicals segment?
Sure. See, let me probably start and then I'll request Jayant to step in. The increase in the ECU that you have seen is actually month-on-month. So every month, there has been a sequential increase, okay? So you've not got the benefit of the increase through and through in the quarter, okay? And the other factor is that, yes, there is a higher power cost because of coal, et cetera, that has led to that margin coming down. Also, if you look at the VAP, okay, in VAP, the input costs like aluminum, et cetera, that goes in, there's a cost increase there as well. So that has also led to -- overall VAP has also led to a reduction in the margin. But Jayant, would you like to just come in and give more color out here?
No, I think you have covered it. So you've got 3 aspects, I mean, 1 is the timing of the increase, which Ashish talked about has been sequentially and cost which has been growing sequentially and also following the global trend, although there is a lag, which happens with respect to India. And as the global prices went up very sharply because of a couple of environmental events like you had [indiscernible] followed by Ida as hurricane, which led to shut down of capacities and that led to spurt in prices. Now no such thing happened in India, the capacity shut down. So your increase is gradual and sequential on cost basis. While chlorine which was trending positive has turned negative that's point being brought out. Third is the cost increase on coal equally which went up very sharply, so impacted our power cost and power cost is about 65% to 70% of our variable costs, followed by the Tauktae and the other cyclones, which hit the Indian West Coast led to salt increase going up. The P4 demand, which is the phosphorous demand, in fertilizer led to raw caustic prices going up. So what has happened is that we had a sudden spurt of price increase all across and the increase in pricing on caustic was most sequential. But I think going forward, you will start seeing the way I look at as Dilip put it, the lead indicators are all clearly that the positives will start happening at a faster pace because these increases have now started either stabilizing or tapering down, whereas the sequential increases in the caustic side continue to happen.
Correct. So are we also saying is basically the margins per se, going ahead or as we speak, can definitely be much better than what we saw for this quarter because previous quarter, we were at 19%. This quarter, we are at 14%, and this is despite that global prices went up 20%, 30%. So are we in a way directionally confident that this quarter or going ahead, we can see a much healthier margins in the Chemicals segment?
So okay, that's exactly what I'm saying. So the lead indicators are all pointing out the margins will be significantly healthier than they were in Q2.
And just 1 last question, if I may slip in. So it's heartening to see the development on paints with locations identified and you updated already some time back. Just 1 question. Are we also open to make any acquisition? Or I mean it may have been asked in the past as well, but I'm just trying to get a sense that are we open to any sort of acquisitions, big or small, here or we would largely focus on building only our own capacities?
So we are fairly comfortable and confident of our organic plan. So we won't look at any acquisitions. And from the return perspective, also organic plan makes more sense.
Understood. That's clear and very helpful.
The next question is from the line of Pinakin from JPMorgan.
Can you talk to us more about the seasonality in VSF in China? Where we are coming from is that what we are hearing on the ground is that the cement, steel, aluminum demand seems to start -- have started improving over the last week or so. Inventories are falling and the expectation is that as we get into the Lunar New Year, coal situation normalizes and demand for at least the heavy commodities will pick up. Is there a similar seasonality that we can see in VSF that as the power situation eases out, we can see VSF demand in China move up very sharply post the NY in Jan-Feb, which can potentially drive VSF prices higher?
November, December, January is always a peak month for textiles, not only VSF. And China, China has, what they call, 11/11 and 12/12 -- like Amazon does here, they have on online big sales. Yesterday, the 11/11 sales, which has been exceedingly good. They will have 12/12. So 3 months are always seasonally high for textile so there -- and because this is the Chinese New Year. So I think it's a general trend that the demand normally in this time of the year for VSF and all textile is always very good on relative terms.
This year, it got impacted because of what has happened, right, in terms of the general store...?
Not the demand, that was supply, but there's enough capacity in China. So they had inventory. So what got impacted because the power cuts, the downstream plant got shut. The yarns got shut and we were got shut. So they could not pick up steam for a short time. That is all now recovering again. So it was not the demand loss, it was supply-driven constraint.
The next question is from the line of Prateek Kumar from Antique Stockbroking.
My first question is on the caustic segment. You mentioned that this is -- we're seeing -- I mean a few times also that the caustic prices have significantly moved up post fortnight or past month or so. So is there any demand disruption at this level in India or globally because of extraordinary higher prices?
No, the demand at the moment is very robust globally. And India's, as Dilip put it out, textile sector is at all-time high and aluminum sector is also doing very well. So there is no constraint on demand as of now.
So caustic flake prices, which had an earlier high of around, I think, INR 45 per kg from whatever channel that we do in like 3, 4 years back. It is currently at INR 70, INR 80 per kg. So Indian demand is as good as like, let's say, what it was at normalized prices at even INR 70, INR 80.
Again, we should not look at prices from a moment or a time because there is -- the whole business works on both spot and contractual. So sometimes we get a little bit swayed with looking at what's happening on a spot basis. But to your point, have the prices significantly gone up, the answer is clearly, yes. You've seen some significant price increase starting October-ish onwards. And the demand at this point of time, irrespective of the prices because it's the combination of both contractual and spot, continues to be robust.
And particularly, we did like in past recent periods, in the past upcycle of chemical prices, we used to be at 30% margins for a brief period. So that is something which can be forecasted like in at least such times when prices are so high. I mean I don't know where will they settle but...
We also have a commodity price increase, which is impacting you everywhere. So I think it's a bit too early to do this forecasting. Because we are -- at this point in time, the coal prices are significantly higher. We buy a lot of aluminum and hydros, which is high, rock is high, salt is high. I don't think so we can at this point in time give a guidance on what margins would be like. But from a realization front, clearly, the situation is far better than what it was in Q2.
And regarding this coal because you have -- you said 65% of your variable cost is power cost. Have you also seen any moderation in international coal prices in past fortnight...
So I think the recent last 15 days, there has been a slight moderation. But you see you don't work on a day-to-day basis on coal. You always have a complete, anything between 30 to 45 days stock lined up because that's the way the business work, otherwise you can't run your thermal power plant. So we're hoping the moderation will stay, will continue and the next purchase cycle of coal will start giving us the cost reductions. But even the moderation which has happened is at a much higher significant level compared to what it was 3 months ago.
Okay. One question on VSF. So despite the very stable realization, in fact, slightly positive on a quarter-on-quarter basis, our EBITDA per KG has probably dropped from INR 38, INR 39 in the past 2 quarters to INR 33. So in this segment also I think we have taken price hikes in start of this month. So is this something which is -- which should help us take us back to INR 35, INR 40 range?
The price hikes, they follow a lag. So the input prices went up in September. So I think the right price has been taken. It should be -- and we could make up the EBITDA because we're at huge volume growth, and that's something which we are missing out. So there is a margin improvement and volume improvement as well. That is consistently happening.
The next question is from the line of Nirav Jimudia from Anvil Research.
I have 2 questions on the VSF business. Sir, last time in our interaction in the con call, you explained about the reduction in per tonne consumption of raw material for the finished good. Sir, my question is with respect to 2 VSF lines, which are getting commissioned. So 1 is commissioned and 1 is about to get commissioned on a fully ramped-up basis, whenever it will happen, if you can share your assessment about the reduction in the operating cost, let's say, if we compare on a scale of 100 currently, when it will be fully ramped up? What can be the reduction in the operating cost possible? And if you can explain it in context of 3 parameters like one, probably we would require lesser employees at our plant because it is happening at a single location. Second, whenever we will import pulp, it would come probably in higher parcels so that it will help us in reduction in freight costs. And third would be, if we are setting up some additional power plants, which will again help us to bring down our power cost. So if you can explain this in context of these 3 parameters, that would be helpful, sir. This is my first question.
Shall I take first 1 and then go to the next one.
Yes, yes. First one, if you can respond to, then I'll start with the second question.
I told you that this expansion is a brownfield expansion While our capacity is going up by 40%, our overheads have gone up by 10% only. So the fixed costs are much lower. So what the employee part is responded there. So you have a 10% growth in overhead, whereas our capacity was up 40%. So we will have a fixed cost advantage, which is significant. Second, because this is a much bigger line, these are 300 tonnes per day lines compared to the about 125, 130 TPD lines earlier. So the variable cost of production also is substantially low. So I mean I would not guess a precise number, but it can be about 8% to 10% in terms of the variable cost reduction. And pulp and power, I think there won't be much different because we are getting in any case for our -- so pulp, we buy on a pan-business level. Ship sizes don't change because of that.
Okay. So fair to assume that probably on a scale of 100, our variable costs will come down by 10%, which is like 90% and then a further reduction in the fixed cost would also be possible whenever we will fully ramped up.
No, no, no, you should not -- no, not 10%. I think what you should -- because you are talking only for this plant or for the average business.
For the average business as a whole, for the company.
The average business can be 10%. Only this plan can be -- the average will be about 8% to 10% maximum.
Okay. Okay. But for the plant, you mentioned the initial remark stands for the plant, Vilayat plant, correct? The 40% increase in the capacity and 10% increase in the...
Vilayat plant, not for the overall business.
Okay. Got it. Got it, sir. Sir, my second question is with respect to our specialty volumes, I think we have clocked best ever volumes so far as a specialty expense in this quarter as per the details what you have given in the presentation. So if you can walk through what sort of capacity utilization we are currently working for our specialty business, one? And second is, out of all the varieties of specialty what we are currently producing and selling in the market, what you feel can led us to the 40% target which we have set for next 4 years so far as the specialty volumes is concerned. This is my second question.
If you look at the numbers this quarter, specialty is almost double -- more than double quarter -- Y-o-Y basis.
Absolutely.
Right? And on a Q-o-Q basis, also it is more than 33% or 34%. So what has happened is we have been able to make a big breakthrough in the Indian market. And one of the advantage the high cotton price is helping because the specialty like lyocell helps shift -- it gives you the same property what cotton gives. But at the end of the day, you can sell more of your viscose product into that, right? Capacity-wise, my lyocell plant is 100% utilized. So I have no more capacity. We'll have to put a new --if it continues, we'll have to -- right now, what we are doing is we are creating more value. We are going for more value-added applications from the same capacity. I had told you on the Modal side, we can convert lines from gray to Modal if required. So it depends upon how the new plant stabilizes, how the Modal demand goes up, we can always create capacity. So right now, we are using capacity, 100% existing capacity there also, but we have flexibility there. Third, I told you was our eco product. So what we have done now, our new plant has got capability to produce -- entire capacity can produce Livaeco products. So it will depend how the market grows, I can supply more of it. So I'm creating a huge capacity there. And our idea will be to convert as much of the branded players from a traditional viscose to Livaeco. So we have a plan in place. You see, specialty, you have to build the demand and then put capacity.
Yes, absolutely. Absolutely. So sir, safe to assume that even Livaeco commands the same sort of premium what we currently get for Modal? Or it is slightly lesser than that.
Modal is my highest-premium product right now. Modal, lyocell and then Livaeco. That's how it is. But Livaeco is much a larger volume. In the fullness of time, its volume will be much larger.
Got it. And sir, a last clarification on the chloromethane plant of 50,000 tonnes which we have started. So predominantly, it would be for MDC, right? No other products will be produced apart from apart from MDC.
It will be MDC, chloroform and as well as your CPVC, which is the standard chloromethane products. But the largest portion will be MDC.
The next question is from the line of Saket Kapoor from Kapoor Company.
Sir, when we look at your Slide #15, wherein we have given the exit of ECU for the September quarter, the caustic realizations are at 27,387 and the ECU stands at 26,200. So can give the exit price for at least in October just to gauge what the rise has been? It is understood that all that contracts are not only on spot basis. So that would give the color, where are the prices trading today, sir?
So I would just leave it as that the pricing have trended upwards in excess of double-digit growth but rather than getting into exit prices of October because it's a hybrid of a lot of factors. I would not get into a guidance of that at this point of time.
Not a guidance, sir, I was just looking at the market price.
Yes, the market prices, you can say, it has gone up by at least about 10% to 15% clearly have gone up.
Yes. Just to clarify, the graph that you're looking at, that's a quarterly average of prices. Not the exit of September.
Yes, sir. Okay. That was the reason why I was asking that exit prices.
And also, these are different parts of the country have different price mechanisms. At this point of time, you might have 1 part of the country doing much better than another part of the country because there is still imports which come through or whatever. So let's not get into try to get into exit prices at this point of time. I think next quarter, we'll all be there.
Right, sir. And the contribution from Epox, sir, what has been the contribution for this quarter?
So, we don't give the specific numbers. But of course, epoxy continues to contribute to significantly in the chemical segment and probably more than -- when it comes to EBITDA more than 50% in this quarter. But it's all a matter of time because now that the pricing of caustic picks up, that proportion can significantly change. But it's suffice to say that Epoxy continues to be a strong generator of EBITDA for us since the pickup that happened in the -- in Epoxy last year due to the demand, et cetera, that has taken place. So that has taken place.
Sir, you did spoke about external factors due to which the caustic soda prices have moved up significantly. So are those factors reversed? Or what has been the trend that has supported? Since you have told that the demand is good, this pricing has been absorbed. So the factors that have supported this jump, if I may, astronomical jump in the prices, are those factors evened out or they are still having effect on the market?
The factor have clearly -- if you look at the plants in U.S. have started and are restarting again after [ Ida ]. So there is further [ write-off ]. So again, when you look at it from an international market, you look at it that everybody covers themselves for the next 1 quarter or so. So current quarters have been covered. I think now it will be in November, middle onwards when we will start getting fresh queries for the next quarter. And that will be a first lead indicator for us that how much of normality has been achieved. Clearly, China has no coal mines open up, no power is available, again, it's a large production center. Again, caustic availability will increase. So I think while caustic availability is increasing at this point of time, but also the demand is also at the moment showing the same robustness. So overall, it seems to be a fairly well-balanced situation as of today.
Small point, sir, globally, what has been the outage in the capacity in a percentage term, if you could give an understanding that this was...
I don't have the exact number. But clearly, China, you could say that there was about 10% to 15% outage because of power at different points of time. And particularly, the Houston side and the Texas side in U.S., at least 3 or 4 large plants were shut down for about a month -- or 15 days to a month. But they're all back up. And even China, we started seeing that the capacities have started coming back online. They are yet not at what the earlier run rates were, but they clearly have increased their run rates.
But still the global prices are firm. This is what you are confirming. There is no relentless in demand.
As of now, when we last did a check in terms of global prices, the firmness continues.
And last point is, sir, that you have also mentioned that the firmness in prices are more than what the inflation due to the raw material has been. So there is going to be margin accretion on account of -- if these prices sustain.
If these prices sustain, we definitely expect the margins [indiscernible].
Right. And on the availability of salt, also, sir, if you could give some understanding because I think because of the cyclone in the Western Coast, the salt prices have also moved up. So what is the status on the availability? And how is this -- this salt season looking going forward and any long-time contracts...
So we like -- we have long-term contracts. We actually do more or less annual contracts in salt. So salt has been tight everywhere. And it has gone tighter because in the last few -- these last consecutive 2 years, the cyclone impact has pushed 1 season forward. So the current season, which normally starts around 15 to end of October, we are expecting for it to start somewhere around early December, say, 15 November to 15 December different salt fields will start producing. And once they start producing, I think then we'll get a reflection of what's going to happen for the next year. So this current financial year from a Grasim perspective, we are covered.
What have been the increase, sir, I missed the point?
I said, we have annual contracts, and we are covered.
Okay. And -- no, the spot price -- can you give the color on what the increase could likely be because of...
Again, it depends upon what the next crop is like to tell us. What will be the next year increases because the crop has yet not come out. If it's a bumper crop, we don't expect an increase. If it's the short crop, then again, there could be a 10% jump in prices or whatever. We really don't know today. That will be a speculating.
Yes. And what is the -- out of the total requirement, how much is captive for us, sir?
We hardly have very little captive. It's hardly about 5%, 6% is captive for us. Rest is all salt.
So what is the annual requirement -- in tonnage terms, if we take the pricing also, sir, out of the total raw material costs, how much is salt, 2%?
No, no, salt is approximately about 12% to 14% of our cost.
12% to 14% of total.
Yes.
Anything else, sir, you were telling something else.
No, no, nothing. I'm just saying -- no, nothing, nothing.
The next question is from the line of Sagar Parekh from Deep Financial Consultants.
My question was actually on the caustic side. So I mean the entire world right now is talking about hydrogen. And I believe that hydrogen is one of the key byproduct manufacturing caustic soda. So a, what is the current use of hydrogen? And do we plan to like significantly scale this hydrogen business, just if you can throw some color on that?
You see hydrogen as a different chemistry. And it's not that we will produce large, significant amount of hydrogen in the caustic product. It's one of the least amount which is produced within the process, actually as low as 0.03% of the total mix. But currently, hydrogen for us is used internally, particularly for creating -- one of the largest uses is the [ virgin STL ], which only a caustic plant can produce. We also use it as fuel at some of our places, which is used as a green fuel for running couple of our boilers. We also do sell hydrogen in banks to people in the organic and in the inorganic sector. So these are the 3 ways. And going forward, that's 1 area we're also very clearly exploring in terms of what more we can do with hydrogen. And as more and more technologies firm up, more hydrogen gap we will study, and let's see what happens in times to come. But clearly, hydrogen, yes, you're right. I think it's the energy flavor going forward at this point of time.
Sure. And Ashish, 1 question to you. Just wanted some clarity on the tax litigation that has come up. So if you can just give some clarity on what is the next course of action for us? And yes...
Yes, sure, sure. No, happy to give that clarification. So this is in corollary to the earlier tax demand itself. So earlier demand was in the nature of dividend distribution tax. Okay? On account of tax authorities saying that this was not a qualifying demerger, the demerger that happened of Aditya Birla Capital from Grasim. It was not a qualifying demerger under the Income Tax Act. Therefore, there is an implication of DDP. And now what they have done is that they have completed the assessment -- so -- sorry, by the way, let me just complete that part. So DDP matter is still at the tribunal level. They've heard the matter. They have to come out with their order. So we will see what order they come out with. Very difficult for us to make any judgment or statement out there. Now what they have now done, Income Tax Authority has now completed the assessment of FY '17. And based on that assessment, now they've come back and said that there is a -- because it's not a qualifying demerger, there is a capital gains tax because you have transferred indirectly the Aditya Birla Capital shares that was held by Grasim to the shareholders of Grasim. So therefore, there's a capital gains tax of another INR 8,000-odd crores. So now what has come right now is a draft order of this demand. We have gone to DRP, which is Dispute Resolution Panel. They will -- they'll understand, read the order, and we are awaiting the decision. We have made all our submission. We are waiting for decision from them. Only after they give their decision, if it is in our favor, great, the order will be quashed. It will never be issued. If it is against us, then we have an option to go to tribunal. So this is where we are in the whole DDP and capital gains matter.
So worst case then both -- we would be liable to pay both the taxes, worst case I'm saying.
No, there is no -- see, I think the key point is that if it is a qualifying demerger, then there is no question of any -- either of the demand standing on its legs. Okay? And we have opportunity to go tribunal after that High Court, Supreme Court, et cetera. So it's a sub judice matter right now.
The next question is from the line of Bhavin Chheda from Enam Holdings.
So first one was on the recent VSF price hikes. Do they cover the cost escalation which has happened till date? Because this quarter, we saw a drop in margins. So the recent hikes would cover that cost?
Broadly, yes.
Okay. Second one was, if you can give us the pulp landed cost accounted in the quarter in current pulp prices?
So we don't give the pulp cost specifically. Directionally, the pulp cost has remained at the levels that it has been, which is $1,000 plus. And our -- we are consuming right now the inventory that we have, which is continues to be at the high cost. So the impact of the cost of the high pulp prices is actually we have witnessed in this quarter, which is much higher than the previous quarters.
Just to add, the spot prices are softening. So maybe 3 or 6 months later, you'll get the benefit.
So we'll start seeing the benefit from, say, quarter 4 onwards regarding the decline in pulp prices?
Kind of.
Yes, quarter 4, quarter 1.
On the fertilizer divestment, which would happen by December, since the subsidy number has already come down, so what's the final number which we are expecting in December from fertilizer divestment?
Again, I can give you a directional answer. So say from INR 1,400 crores, INR 1,500 crores of subsidy that used to be outstanding around the time when we announced the transaction, now that is down to INR 450 crores. So you have recovered almost INR 1,000 crores. So basically, that much less working capital is there in the business. So the INR 2,600-odd crores that we had announced as the enterprise value, the working capital is less, so that it will be lower by INR 1,000 crores then because we've already got that money from the government.
Sure. And sir, last one. Has the chlorine realization still positive or still it's negative?
It continues to be negative as of now.
The next question is from the line of Abhimanyu Kasliwal from [ Chole's International ].
Am I audible.
Yes.
Yes, you are.
Okay. I'm from Choice International, sir. Sir, most of my questions have been answered. I was hoping if specifically regarding caustic soda, if you could give some kind of outlook on the next 4 to 6 -- I mean, and it's a long period, but still a 4-quarter kind of guidance. So not in the guidance, rough estimate about what's happening in the market, if we can expect with the current realizations to be maintained? Or they might drop significantly because of the China capacity increasing. Because if we understand the China capacity is increasing, but so is demand. But net-net, what would you expect? If you could give some kind of idea it would be very helpful.
I think, Jayant, you have covered a little bit of that. If there's any incremental view that you would like to give directionally that can answer the question.
No. I think what we're saying is we believe that this quarter the demand is robust. Price increases, particularly have been robust. For the next quarter, I think it will be a bit too early looking at how this commodity operates in a short span of time to give any guidance for the next quarter.
Okay. I understand. Okay, sir. Go on, sir.
Yes. But I'm saying demand-wise, it's -- the indicators are all positive towards that even the current quarter and the next quarter demand will be positive.
The next question is from the line of Prateek Kumar from Antique Stockbroking.
I wanted to ask regarding the CapEx for paint business. So we are like now almost 4 months remaining for the fiscal year. Why are we still not willing to give the CapEx number even for FY '22, FY '23.
No. So we've given the number of actual number already of INR 267 crores that we have spent of, which has mainly gone on land right? I think it really depends on the activities, right, that we undertake. So if you see, for example, for example, go beyond March, okay, then the CapEx will be limited because we can't do anything on the site until ECs are obtained. But it depends on activity. It will be -- not be right for me to give that next quarter, what I'll be spending because it's difficult to assess that. I think there'll be better visibility once you have the EC. And when things are under your control of how you incur your CapEx. That's why we gave a block number of INR 5,000 crores also initially. And we always said that it can be within that 3-year period rather than saying that, that would be for those 3-year period. So as and when we will give better and more guidance, but we don't want to, at the same time, misguide you.
And other segments, can you highlight on if there's any more industry capacities globally -- have been talked about? Or what are we looking at in terms of global new capacity addition?
What -- you want immediate time frame?
Global new capacity additions.
As I spoke to the last time, there is no major capacity addition coming. There is a small addition has happened in Indonesia about 50 KT. Next year, we are expecting another 140 KT there coming in Indonesia and China maybe about 100 to 200 KT. So there's not a major expanding, but there are a few projects being planned. We do not know what shape they're going to take. So it's too early to talk about that.
And lyocell -- so these are lyocell additions or...
The one I told you was viscose. But lyocell, there is quite a bit of capacity coming in for 220,000 tonnes is coming in China. So lyocell capacity, there's a lot of announcements that happened in China. Then the Lenzing plant is coming in Thailand that will come by year-end and early next year. So that's right. But viscose, there is no major announcement, but some planning is happening. So we don't know how it shapes up.
And last question, we used to earlier talk about the Liva tag when we used to give some data around it. I guess that stopped during COVID because maybe we are not able to tag governments with Liva tag.
That's going on, and we are doing almost 4.5 crore tags. So I think now it has become the routine. So I think we are -- as I always tell you, if Liva was a brand, it will be biggest apparel brand in the country. Nobody sales 4.5 crores garment. So Liva tag is getting 4.5 crores garments, and that's going on very well. And now because of COVID, we did not see much of the branding effort on the -- in the media, which I think they're reviving now. If you would have seen the Liva Miss Diva Universe contest was sponsored by Liva this time. And whoever is the shortlisted girl go to Miss Universe contest. So we are doing -- we are now kind of accelerating our media brands on Liva.
And then thanks for the feedback, we'll be happy to incorporate some such details in the presentation.
So there is a lot of buzz around this direct-to-consumer brands across the board, across the segments. Is this something which we also cater to like via Liva?
We don't do direct to consumer, we do on the e-commerce. We have a big presence in e-commerce. We have a shopping shop on Myntra, and we are not dealing with all the 4 or 5 e-commerce companies because we are not an end garment, we are fiber suppliers. So it is a customer who will do D2C. So what we have done is we have got all our vendors on to the e-commerce through a Liva site.
The next question is from the line of Ashok Shah from LFC Securities.
Sir, my question is regarding does caustic soda has got still antidumping duty? And what's the percentage?
There is no antidumping duty on caustic soda as of today [indiscernible].
So in any format, there is no duty.
No.
I now hand the conference over to Mr. Ashish Adukia for closing comments. Over to you, sir.
Thanks a lot for very good quality questions. Some of those feedback, I'll definitely take for our next quarter presentation as well. So thanks a lot, and enjoy the coming holiday season, and see you in the next quarter.
Thank you. Ladies and gentlemen, on behalf of Grasim Industries Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.