© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day and welcome to Q3 FY '23 Earnings Conference Call of Grasim Industries. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference to Mr. Ankit Panchmatia, head, investor relations. Thank you. And over to you, sir.
Thank you, Gudef. Good afternoon to all the participants joining Grasim Industries' Q3 and 9 Months FY '23 Earnings Call. First and foremost, safe harbor. This conference call may contain certain forward-looking statements about the company which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and related risks and uncertainties that are difficult to predict. From the management side, we will be hearing from Mr. H. K. Agarwal, Managing Director; and Mr. Pavan Jain, Chief Financial Officer. Also joining the call, we have leadership team from key businesses: Mr. Jayant Dhobley, business head and CEO, chemicals, fashion yarn and insulators; Mr. Jayant Dua, CEO of Chlor-Alkali Business; and Mr. Rakshit Hargave, CEO of Paints. So without taking much time, I hand over the call to Mr. Pavan Jain for his opening remarks, overall financial performance and brief overview of business performance, post which we will open up for the Q&A. Over to you, sir.
Thank you, Ankit. And good afternoon, everyone. We welcome you all to the quarter -- to our quarter 3 earnings call. I hope you had a chance to go through our investor's presentation and press release uploaded on stock exchanges and company website. The investor presentation gives a comprehensive insight on the company's quarterly results. To start with, I would like to state that financial year '22, '23 is a momentous year for us, as the company completed 75 years of its glorious existence. Despite multiple headwinds in the domestic as well as international markets and demand slowdown, this quarter will be third consecutive quarter where our consolidated revenue on trailing 12 months is trending above milestone of INR 1 lakh crores, which could be a prelude to where we would be ending our financial year '23. The key to this resilient performance is our well-diversified business model which provides much required stability across various business cycles. All 75 years of its existence, Grasim has been able to build global scale businesses through continuous innovation, investments in capacity building and new high-growth opportunities. We have demonstrated revenue and PAT growth of 15% CAGR on consolidated level since FY '20. At the stand-alone level, the company has achieved even better growth rate of 18% revenue -- at revenue and 34% for PAT since '20 CAGR. We are very excited to start the new phase of growth journey through our investments in 2 new high-growth businesses that is banks and B2B e-commerce and innovation-led growth in our existing core businesses each of these businesses are leading players in their respective segments, which aligns to our strategy to be a market leader in every business we invest or operate in. We constantly work on providing market with new products through innovation and then providing better customer experience and adopting sustainable manufacturing processes. We continue to rethink, revisit and reengineer our manufacturing processes for operational excellence to remain most competitive in respective businesses. Aligning with the industry, we are now classifying our erstwhile chemical -- Advanced Material business, which is epoxy polymers and curing agents business, as specialty chemicals. In the era where CFOs are rethinking on capital allocation strategies in order to remain agile as well as focus on long-term value, Grasim has well-defined metrics and strong internal ROI benchmarks to assess, evaluate critical and noncritical investments. That our core and established businesses continue to generate free cash flow across business cycles is a testament to the same. We have committed to create large-scale new businesses leveraging our financial strength and consistent cash flow generations. As you are well aware, Grasim is investing in 2 new high-growth businesses. And for that, we have announced a INR 10,000 crore allocation to decorative paints business, which would establish us as a strong #2 player in terms of capacity once all the capacities are operational by FY '25 end; happy to share that paints construction progress -- plant construction is progressing well across our 6 sites, which would establish our reach on pan-India level. The brand identity, design, advertising and launch portfolio are progressing as per schedule. The CapEx spend is also progressing on expected lines with total investments of more than 1,800 crore till date. Commercial launch is on schedule in Q4 FY '24 as per plan. For B2B e-commerce plan, we are heavy to share, while the full-scale rollout is expected from H1 FY '24, in a phased manner, across different geographies, the pilot operations have begun in current quarter. On the sustainability front, Grasim's strategy has been appreciated by one of the globally recognized ESG experts, that is MSCI, with a rating upgrade by one notch to BBB. The company is committed on its long-term sustainability strategy and have taken various initiatives in this regard across businesses, as detailed in our presentation. Coming to operational and financial highlights for the quarter. The consolidated revenue for the quarter is up by 17% Y-o-Y at INR 28,638 crores, led by robust revenue growth of both key subsidiaries UltraTech Cement and Aditya Birla Capital. Consolidated EBITDA at INR 3,834 crore is down by 7% mainly due to inflationary cost pressures at UltraTech as well as the stand-alone businesses. Stand-alone revenues grew by 7% for -- 7% Y-o-Y for Q3 FY '23 at INR 6,196 crore. And EBITDA stood at INR 580 crores, and PAT of INR 257 crore. This quarter witnessed ripple effects of global demand slowdown. As you all know, globally we are [ viewing ] recessionary market conditions because of the prolonged geopolitical issues. COVID-induced lockdowns by China added to the challenging situation across the world. While India-centric demand was stable, the overall demand was affected by decline in export-led demand across value chain partners. Putting some context to this. Indian textile exports registered its sixth consecutive degrowth over July to December 2022 time frame. On 9 months basis for FY '23, the industry export in rupee terms has registered a degrowth of 10% Y-o-Y. With lifting of COVID lockdowns in China and further improvements in the demand sentiments, there are signs of recovery as we speak. However, the volatility and inflationary pressures continue to impact the margins. During the quarter, China continued to operate its plants at utilization rates which were below break-even levels, impacting realization trends across geographies, including India. Viscose industry faced challenges globally and India was no exception. Our Viscose business reported revenue of INR 3,182 crores, and EBITDA at INR 63 crores recorded a degrowth of 84% Y-o-Y basis. The decline in EBITDA is majorly because of the lower demand due to subdued market conditions in the developed economies, inflationary pressures resulting in the cost increase of key inputs such as pulp, caustic soda and energy. Further 19% decline in global cotton prices on Q-o-Q basis impacted VSF prices adversely. Gray VSF December '22 exit prices at $1.53 per kg were down by 15% compared to September exit prices of $1.81. Average prices of fiber for the quarter stood at $1.59 per kg. However, as the current rates are unsustainable for the majority of the players, there are signs of bottoming out of the prices.
Our VSF sales volume dropped by 3% on Y-o-Y basis due to demand slowdown and low price exports by Indonesia to India at 0 import duty in India. The viscose filament yarn business reported a stable performance. Though volumes were lower by 11% Y-o-Y, improvement in realization more than offset the increase in the costs. The chemical business continued its earning momentum by reporting revenue growth of 10% Y-o-Y at INR 2,582 crore. And the EBITDA stood at INR 488 crore in Q3 FY '23. The global supply chain disruptions are now easing up, leading to decline in international caustic prices on Y-o-Y basis at $724 per MT CFR SEA in Q3 FY '22 and $694 per MT in Q3 FY '23. However, caustic prices increased on Q-o-Q basis by 5%. ECU for Q3 FY '23 stood at INR 46,689 per MT, up 10% Y-o-Y but 6% declined on Q-o-Q basis due to higher negative chlorine realizations. Overall, chlorine integration, including pipeline sales through our ancillaries, stood at 60% for the quarter compared to 56% in the corresponding quarter last year. The textiles business, which constitutes niche sustainable category products primarily in the premium segment, continues to report stable performance. The business reported its high ever -- highest-ever 9 months revenue of INR 1,773 crores. Textile business revenue for the current quarter was INR 569 crore, which is higher by 19% on Y-o-Y basis. And the EBITDA was stable at INR 49 crore for the quarter. Coming to balance sheet. As of 31st December 2022, net debt for the stand-alone balance sheet was INR 485 crore. Excluding our investments in the high-growth new businesses, the existing businesses continue to remain free cash flow -- continue to deliver free cash flows. With this, I would like to now hand over the call back to the operator for Q&A.
[Operator Instructions] The first question is from the line of Navin Sahadeo from Nuvama Institutional Equities.
Sir, my first question was regarding this VSF. And in the press release as well as in the presentation, you've mentioned cheap imports coming in now from Indonesia, so is this a recent phenomenon? And then if you could just help us understand this because, if I'm not wrong, the anti-dumping duty was removed way back in, I think, August '21, sometime. And please help me understand if this free trade agreement is anything recent. I'm just trying to understand because never in the past have you mentioned this factor to be so critical and impacting our realizations.
Yes. So imports from Indonesia started picking up from Q1 of this year, and they have now gone to the tune of almost 250 tons per day in Q3. So the main reason for this pickup of imports from Indonesia is that the traditional export markets faced demand slowdown and they found India market relatively better. So that was one reason. And India offers them 0 duty because of FTA with India and ASEAN, so it becomes -- they become more competitive in India, so it became double attractive. So yes, this is the situation. The import -- ADD was removed in August '21. And after that, they were careful not to start imports immediately because then, post ADD, there will be review. So they did not want to be caught on the wrong foot. And that time, the sea freight situation was also working to our advantage because the freight rates were almost 0.20 per kg, but now with the normalization of international supply chain and shipping industry, the freight rates have come down to 0.05, 0.06 per kg. So that is also adding the exports from anywhere to India. So these are some of the factors, but now with the situation, DGTR commerce ministry has recommended ADD on Indonesian VSF imports, to finance ministry. The matter is pending with the finance ministry and the finance ministry has 1 month to make the final decision. So we are actively awaiting the decision from finance ministry [ on this thing ].
Exactly. That's what my next question was going to be because I did read about like representation being made, but what are the chances here you think of this antidumping duty coming back?
We have a strong case, and that's why DGTR found it appropriate to recommend the restoration of antidumping on Indonesian imports. There was an ADD on imports from China also in the previous 5-year ADD period, but this time, China has been -- ADD on Chinese imports have not been recommended. So there is a merit and we believe that merit should be also considered by finance ministry, but then we never know how the final decision is made because there are many considerations. And the value chain also makes representations to finance industry, so very difficult to have any 100% feeling, but we are working, trying our best.
Sorry. I'm just going to ask one related question here. When the imports, sir, when -- come from Indonesia for a base category, let's say the gray standard VSF category, how much is the rate difference? I am just trying to understand if that becomes -- because if the ADD is not levied, then does this become more like a pain which can stick around for a while then? What is the difference?
See, the difference is like they will always try to price the imports lower than our domestic price at any time. So they do know our domestic price, and accordingly, they offer their prices because they have to make it attractive. So that is their normal thinking. And more or less, it follows the international prices, but they have been trying to get market share in India, so they are giving aggressive prices. They have been giving aggressive prices, so we have to contend with that and adjust our pricing accordingly. We cannot also lose market share beyond a point to any imports.
Certainly, certainly, but these are -- my last question on this. These -- the exporters there will be the Lenzing entity because we also have Aditya Birla Group entity there. So just trying to understand, is it the Aditya Birla Group entity which is also exporting, or is it largely Lenzing?
No. It is neither Lenzing nor Aditya Birla Group entity. There -- in Indonesia, there are 4 VSF players. And 1 of them is Sateri group, which has large VSF capacity in China as well as in Indonesia. So mostly the imports from Indonesia is -- are coming from Asia Pacific [ region ] which is part of Sateri group, the Chinese VSF player.
The next question is from the line of Abhimanyu Kasliwal from Choice India Limited.
Am I audible?
Yes. Please go ahead.
Okay. So I really wanted to speak specifically with regards to the paints investments that we are in. I mean we've done 20%, roughly INR 1,800 crores, INR 1,900 crores. And we are planning to do up to INR 10,000 crores by the end of FY '24, if I have understood things correctly. Sir, my question...
No, FY '25. No...
FY '25. So a slip of tongue, sir. FY '25, very, very correct. Now my point, sir, is that now we are hoping to be the second largest paint -- #2 paint player, so what kind of revenues and margins are we looking at by '26, '27, '28? I mean I am sure internally the company must be having some outlook plan which will help us also forecast. Any rough idea, any rough numbers? If you could provide, that will be very helpful.
So thank you for asking this question. So I would want to repeat the reply that I gave last time that while -- we have our internal plans, which suggests there would be in that frame of time, but we would not want to be sharing internal numbers or forecasting anything in advance of the market. But obviously internally we have it worked out and there are projections.
Fair enough, fair enough, but since we are hoping like [ in this field we want to be ] -- at least you can give a rough idea. #2 player, when are we looking, FY '28, FY '29? Because we know what the #1 player makes and we know what the #3 player makes, so we will be able to kind of figure out but what -- by what time are you hoping to. And what kind of margins are we hoping to attain by that time when we are #2?
So like we have said, that we would want to be a profitable company in the near term. And then the margins will take their own place as per the market, but really for me to comment on actual margins and projections, as you will understand, in terms of revenues would not be the ask for the moment.
Okay, I understand, sir. Okay, one more question, last question, the B2B e-commerce business, regarding that, if you can provide some kind of numbers. Again we are only hoping to see what happens in '24, '25, '26. I mean personally I have looked upon it as it is being like the IndiaMART, [ so ] B2B. IndiaMART is B2B, but we will be better because we have got a very large network, et cetera. So if you could give some guidance on the B2B business.
See, we have given the broad estimates for the total building material market in the country, which is roughly $100 billion, okay, [ in all India ]. So that is the total market size of the building materials in the country. And digital penetration is about less than 2% currently, okay, so the market opportunity is big. And let's say, if the -- over the period of next 2, 3 years the market -- the digital penetration grows to, lets say, 10%. Then the digital or e-commerce business will be about $10 billion, okay? So that is the market opportunity. Now how -- as we are able to penetrate and we -- since this is a new business for us, of course, we have the required ecosystem available, but then it will depend upon how it pans out. But if you look at the 3 years opportunity which is about $10 billion, you can estimate what could be our share [ kind of thing ].
Understood, understood, but sir, would you like to -- from your end, would you like to tell us something to incrementally understand the outlook or the opportunity better for the paints or for the e-commerce business? Anything additional, if you could tell us, that will be very helpful, sir.
See, I think this is not the right time to come out with our numbers, et cetera. As we reach the launching time and we are actually in the market with our products and with our platform, et cetera, everything, that will be the time possibly we can share some guidance for the numbers.
But sir, [indiscernible]. Are you getting any kind of feedbacks from the market in terms of what we are working towards, any kind of positive sentiments or so forth, so on and so forth?
No, no. See, we -- of course, we are in the market. We do take the feedback from the channel partners in both these kinds of businesses. So the required preparatory work is being done for both of these businesses. We do get the feedback from the marketplaces as to what is required to make these businesses successful in medium to long term.
Fair enough. We'll just leave it at that as the outlook is positive and we are working towards that. Am I correct in my reading, sir?
Yes.
The next question is from the line of Nirav Jimudia from Anvil Research.
Sir, first of all, I would like to applaud the good disclosures on the new PPT on the chloro derivatives segment. So I think a lot of disclosures which earlier was not there. I have 2 questions to ask, so 1 on the fiber side and 1 on the chemicals. So first, on the fiber, like -- sir, like this quarter, we have seen a volume of roughly around 1 lakh 53,000 tonnes. And if we see the specialty volumes, they were around 30,000. So if you can just walk us through, like what could be the utilization levels going forward? Because last quarter, you already guided that this quarter will be subdued volumes, but when can we see again the pickup in the VSF volumes, one? Second, sir, on the specialty fiber side, when can we reach those 45,000 tonnes of volumes which you used to do earlier? And it is safe to assume that whatever the profits, EBITDA profits, we have reported this quarter is predominantly from the VFY. And probably VSF would have made the losses. And if that is the case, probably has the premium between our specialty VSF and the gray VSF have -- also shrink in this quarter, because of which, even on the same amount of specialty volumes, sequentially we would have reported the losses on the VSF side?
Okay, thank you very much. So first question is when will the capacity utilization or volumes pick up. So as we reported, Q3, our capacity utilization was 72% -- 71%, 72%. And because the market took turn for worse in Q2 and we produced more than we could sell -- so there was inventory buildup in Q2, but in Q3, we had inventory reduction to some extent. And now we are seeing some signs of demand revival. We do not know how sustainable it will be, but we are definitely seeing a pickup in our sales volumes. And 2, 3 things have happened. One, DGTR has made a recommendation to finance ministry for ADD, although it is not a final decision, but the market people apprehend that it might happen. So they also want to avoid imports. Then commerce -- textile ministry has come up with the Indian standards for VSF, on imports, or entire VSF in India. That quality control order will be effective from end of March. So that has also a kind of -- put some [ damper ] on the imports, but then these are temporary measures. But the basic demand seems to be -- the textile industry seems to believe that the price [ there ] has bottomed out, so that's why the buying had started again. So Q4, we believe that capacity utilization should be in mid-80s or high 80s. Now on the specialty volume, the volume got impacted because most of the specialty goes for export finally from even Indian value chain. [ That is spinners of ] fabric. And since the market in Europe and U.K. and U.S.A. was impacted badly because of brands who are saddled with high inventories, so -- that segment got impacted much severely, so that will take some time. The specialty volume pickup will be a little bit slower than the pickup in gray volume. And on the margins, during this quarter, our margin on specialty volume was better than gray -- better than past, partly because the gray prices went down too much. So with the pickup in the volume, the gray prices should also pick up in due course. Then the margins will come back to normal, but actually, this quarter, the specialty margin over gray was much better than normal.
Correct, but sir, it is safe to assume that then the VSF business would have reported losses this quarter.
Yes, yes. We have made it in our communication also that the VSF business reported a marginal negative EBITDA. And mostly this profit is because of the FI business. The FI business was much more stable because there was no such aggressive exports from any country. Mostly, VFY comes from China, and it is much stable and the prices are maintained. So yes, you are -- your assessment is right, but Q4, hopefully, should be better than Q3 of -- for VSF also.
Got it. Sir, my second question is on the chemicals part, so like if we see our power integration for the caustic soda business. So if you can share about this quarter that -- what was the mix like? How much was captive? How much was through grid? And how much was the renewable share out of our total power bucket in Q3 FY '23? [Technical Difficulty]
Ladies and gentlemen, please stay connected. The line of the management got disconnected.
Sir, on the power mix, if you can share your update on...
[indiscernible] for a moment then. If you can give, ask the question again, I think. [ From the moment you ] started, we lost you. And there was a disconnecting...
No problem, sir. So sir, just wanted to understand on the caustic soda business. So what was the mix of power in Q3? Like how much we got through our captive generation. How much was through grid? And what was the renewable share in Q3 FY '23 out of our total power?
So let's say, out of our total power, if you look at it and if you look at the guidance which has been given in the press note also, by the end of FY '25, we will be at 27% of our total mix. [indiscernible] requirement -- and I'm speaking -- I'm not talking about a quarter because you should look at the holistic picture rather than just looking at a quarter number. If you look at it from -- if you go back a year, we were hardly 1% to 2% mix on a lower base, which will go to 27% by FY '25 on a much larger [ base ] of 1.5 million tonne caustic. So if you -- so what we are doing is, that carbon footprint, rather than going up with our capacity, is actually coming down. At this point of time, I think we've already commissioned our [ Karnataka ] unit, which is running at about 75% to 80% on green power. Our Gujarat units will go up to about 30% on green energy, followed by a couple of projects which are already being done, so overall taking us to -- I don't recall the exact number of units it will be, but it will be close to 100 megawatts of renewable power by FY '25 will be actually being using over there.
Correct. So sir...
And total requirement will be about 400, a little plus. 300-odd megawatts will be [ of the new one ].
Correct. Sir, on a related question on the chlorine derivatives side: I think we have mentioned some of the capacities also over there. So like, out of current capacity of 8 lakh 91,000 tonnes, what were the utilization levels in FY '22 and in 9 months of FY '23, if you can share? And -- yes.
So the capacity utilization actually varies. I think, when you talk about chlorine derivatives -- and I think it's a good idea that you asked this question. You see, they cut across multiple segments. So there is an industrial segment. There is a water segment. There is a disinfection segment. There is a pharma segment. There is an agro segment. And there is [indiscernible] segment. Now each of these segments have a different growth rate, particularly with respect to their markets. Now with the China COVID situation and the slowdown in Europe, a couple of segments have actually taken a larger hit as compared to the others. So if I talk at a broad number, [ I'd say ] overall capacity utilization will be approximately 75%, 76% on the -- all the total put together, but when you look at some of the different segmental related -- like if you look at the pharma segment. The products which relate to that, the capacity utilization will be well into 85%. When you look at the [ dye stuff ] segment which is related...
It will be much lower.
It will be much lower. So overall, about 74%, 75%. It is kind of flattish. We have not lost anything compared to last year, but yes, I think the old textile chain segment, which has gone down into a negative growth rate, has not let us grow beyond a point of time. We kind of [ get it flat ].
Correct. And sir, this 2 lakh 73,000 tonnes of incremental capacity we are putting up, that predominantly includes ECH, [ MCAA ] and [ CTC ], right? So rest of the products doesn't qualify under this 2 lakh 73,000 tonnes of volume.
See, the products which will come on the 2 lakh 71,000 is right. Of course, you're at the ECH. You're also at [ MCAA ]. You are also talking about [ CTC ], which is at Gujarat. And you're also talking about a new facility of chloromethanes and [ CTC ] at one of our units in South India.
Correct, correct. So this [ MCAA ] will be predominantly that food-grade [ MCAA ] will be produced.
[ These will be likely ] pharma grade.
Okay, pharma grade. And all those technology tie-ups and everything is [ done with ], right?
Yes. So see, a large part of pharma base is already a customer with multiple products, but we will also go through a product qualification route every time because they have their own regulation. And once the plant starts producing, we will start going there, but we don't see any challenge either in terms of our quality or in the process of getting the approval. Necessary time lines, we'll obviously take this because that's the process which you have to go through.
Correct. And all this -- so epichlorohydrin would -- when it would be commissioned. And like because you have mentioned the time line of Q4 FY '26. So for all of these 3 products, if you can share just the time line in terms of the capacities coming up, that would be helpful, sir.
So epichlorohydrin is a 50 KT plant which will come up by the end of FY '24 [indiscernible]. Again, why I'm giving a band, because there is a China factor which gets dependent on -- and a European factor which gets dependent on it because of the supply chains. While they've improved significantly, the factory working particularly in Europe and China is still not back to 100% in some of the engineering groups.
Okay.
Okay. So that's what's going to happen on the epichlorohydrin. We expect that, by the end of middle of the next financial year, [ MCAA ] will be fully operational. And we are looking at [ CTC ] coming up in FY '25 because we have to take the regulatory approvals before we'll start the construction practice.
And sir, what was the...
[ Sorry to interrupt you ], Mr. Nirav. May I request you to please rejoin the queue? We have participants waiting for their turn.
Okay.
The next question is from the line of Prateek from Jefferies.
My first question is on the VSF business. So we've talked about [indiscernible] so...
I'm sorry to interrupt you, Mr. Prateek. We are unable to hear you, sir. Your voice is breaking a lot.
Yes. Can you hear me?
Your voice is breaking, sir, in-between.
Yes, go ahead, Prateek.
So you mentioned about this increase in imports in India from Indonesia. So what would be the total import mix in VSF now for like -- in overall market?
So import mix in the overall market is about 15%.
So that has remained largely similar numbers. Basically we are -- because we are not like letting go our volumes by reducing pricing, [ asset mix ] has largely remained similar.
Yes. So if we allow the imports to come unrestricted, then there are a lot of other complications from the business point of view, so we have to take a calibrated decision on pricing, on how much to do and how much customers we can sacrifice for time being.
And on product -- this quarter, the production seems lower, while the -- while sales is higher like on an absolute basis. So next quarter, as we say, that production will increase -- I mean utilization will increase by around 10%, 15%, but sales can be lower, as the inventory gets managed, and will be like 10% down year-on-year.
So with production. We will increase the production only if we are able to sell. We are not going to produce just for building up the inventory.
Okay, so a material increase over quarter-on-quarter in terms of volumes, so that also implies that we are like looking off -- like we have like taken a -- maybe like a INR 15 cut in pricing last quarter. We could be like introducing better prices in like this quarter.
So pricing is a dynamic thing. We normally follow monthly pricing, but it is in line with the international price and the various sectors. Like what is the landed cost? What is the offer for imports, et cetera, et cetera? Exchange rate also plays a factor. And there are some other business factors. Like what is the yarn price internationally? Yarn price in India, et cetera, et cetera. So pricing is a dynamic thing, but normally international price has been stable of lately, so we believe that prices should remain stable for the remaining part of the quarter.
Okay. And sir, what will be the VSF segment revenue and EBITDA for the quarter?
So I cannot give you specific numbers for this thing, but I believe that it will be better than Q3 because the volume will be better. So at the -- even if at the same price, the revenue will be better. And EBITDA should be better because there will be some operational leverage. And then some raw material costs also are trending downwards. So it's a long inventory pipeline, but yes, there will be some positive effect on the costs side also.
No. Sorry. I meant the VFY segment revenue and EBITDA for third quarter, VFY revenue and EBITDA for third quarter.
Okay. So VFY EBITDA for the third quarter is -- see, I think we don't have VFY separately numbers. You can connect with Ankit. So -- but as we have said, the -- in the press release, if you go through, the VSF EBITDA for the quarter was negative. And overall we are -- for the segment, we have positive EBITDA, so VFY has given the good numbers offsetting the loss of VSF also.
Right, sir, okay. And sir, on CapEx, we were like sort of targeting. Including paint CapEx, sir, we were targeting, I think, around 5,000 crore, 6,000 crore kind of CapEx for this year. And we have -- in presentation, we mentioned around only, I think, INR 1,400 crores or so that we have incurred till now or ex of paints, so what is the [indiscernible] FY '23, including paint?
So for -- other than paint [ sales ], we have given the numbers for 9 months which are about INR 1,400 crore. We expect maybe around INR 1,000 crore -- another INR 1,000 crore in Q4 which includes some large lined-up CapEx outflows. For example, [ landed, we'll add ], et cetera. So the -- other than paint, the -- I mean the expectation is that some part of the CapEx outflow [ busted ] for the current year may spill over to the next year. For the paints, just...
Yes.
So for paints, our executions are as per plan. It's just that we realized that some of the materials that we had probably budgeted were coming in a bit too soon, so we have just timed the order accordingly so that we get them at the right time. Otherwise, there is no change.
No, sir. What is the CapEx number for FY '23 [ read for ] paints?
So yes, it is very difficult to give you exact, but roughly you can estimate maybe about INR 500 crore in Q4 for paints.
Sir, how much, INR 500 crores?
Yes, yes.
In Q4.
Q4.
Q4, so total cumulative CapEx for the company in stand-alone business is 2,500 crores plus 1,500 crores or so. 2,000 crores, that is the number.
So total should be about...
2,000 crores.
2,500 crore -- or think 2,000 crore and maybe 2,200 crore or so in the other businesses.
Yes, 2,500 crores...
The next question is from the line of Mudit Agarwal from Motilal Oswal Financial Services.
Sir, my first question is related to the tax adjustment because of opting out of -- opting the new tax regime. So can you just tell us the effective tax rate for this quarter?
Just give us a moment...
Am I -- yes.
Can you please repeat your question, Mr. Mudit?
Yes. I just want to know the effective tax rate for this quarter because we have opted for the new tax regime in the current quarter. So what was the effective tax rate for the 3Q quarter?
See, the tax rate is to be calculated not for the quarter but for the full year, okay, so the provision has to be made based on the effective tax rate calculated for the full year. So for this quarter, if you look at the numbers in the results, we have in fact reversed provisions made in the previous quarter.
Okay, so sir...
See, there is a reversal of tax provisions in this quarter.
Okay, so can you quantify how much is the reversal because of -- in the new regime?
See, the new regime tax rate is 25.17%, so broadly the effective tax rate for the full year is likely to be around that level.
Okay, okay, I understand, sir. Sir, second question, can you just throw some lights on the key input costs in VSF business, mainly pulp, how it is trending now; and if any correction we have seen, the [indiscernible], will be reflected in the -- in our costs? I want to understand the time lag of these benefits.
So the pulp is a long-delivery item because we have to import pulp from South Africa, Canada and Sweden. So it takes about 60 days shipment and then we have a continuous shipment. Now because of this, well, capacity utilization was lower, we had pulp on -- already on the -- in the pipeline which we could not stop, so there is some inventory buildup. And of lately since October, the pulp prices have shown some declining trend, so we have for the time being a situation of pulp inventory with relatively higher cost, but this will get processed by end of this quarter, hopefully. I mean the prices have shown some decline, but of last 2, 3 weeks, they have been stable around $900 per ton. And our purchasing long-term formula also used to be price based on previous quarters, so when the pulp prices were rising, we would have advantage because that price will take effect up to 3 months, but in the declining trend it works against us, so we have changed this formula from the previous quarter to the previous month. So from January, our price is what -- based on invoicing is based on what was the price in the previous month, that is December, say for example. So now the new supplies are coming at previous month's price. So that will be more current. So I hope this answers your question.
[Operator Instructions] The next question is from the line of Ajit Motwani from Pinpoint Asset Management.
Sir, just wanted to know in terms of operating rates for China -- Chinese players. Have they not started improving in a sense that we just had end of Chinese New Year? And the markets have opened up there, so have you seen Viscose operating rates for China improving of late? And the trends in realization...
Yes. So Chinese [ industry ] operating rate has gone down as low as 56%, 57%. Now they are operating at about 65%, so yes, there is improvement, partly after Chinese New Year and after the COVID restrictions have been removed. So there seems to be better offtake in China for VSF, and that is supported by this increase in the operating rate.
Have the prices started moving up from...
[ The market, and in very small way ], they moved up, but now they are very -- like they are just stable. It's not moving very rapidly or not moving very substantially; very, very marginal. So they are [ reasonable ] around RMB 13,000.
So if I look at the way you're saying the prices are stable or like your presentation highlights that are -- or let's say the rates are still 4% lower than the quarterly average. And the benefit of RM is yet to come in, so the benefit that we'll see in margins will largely be driven by higher volumes, which is operating leverage, right, for the next couple of quarters.
See, yes, but our margins will mostly be driven by the selling price and the input costs, not so much by the volume.
Sure, got it. Secondly, I was looking at our CapEx numbers. Ex paints, we have about INR 1,800-odd crores yet to be spent. Say about INR 2,000 crores there. And on the paints business, you have mentioned about INR 1,800 crore spend from the INR 10,000 crore number. So that's also like INR 8,200 crores. So total, the 2 businesses put together, is about INR 10,000 crores, so for F '24, is it fair to assume that, given the fact that we are looking at starting our plants by FY '25 on the paints side, half of this INR 10,000 crores will be the targeted CapEx number for FY '24?
So yes, for FY '24, the CapEx spend will be more substantial, inching towards a total of INR 10,000 crores but not towards that, but you would expect a number in the range of 4,000 to 4,500.
4,500, okay.
Yes.
Yes.
And I know our stand-alone EBITDA is subdued today at INR 500 crores. We were a lot better a couple of quarters [ ahead ], so given the kind of trajectory you are looking at of cash flows from the stand-alone business, what sort of peak debt we should look at for the stand-alone business? So the slide mentions today is about INR 500 crore net debt is what we have, we are at in December, so how should the debt move over next, say, 6 to 8 quarters?
So see, it will all depend upon the existing businesses' performance over the next 6 to 8 quarters, but the large CapEx plans, we would do the borrowing for, especially for the paints business. So as we have shared earlier also, our target is to keep net debt-to-EBITDA level below 3.5x kind of numbers, but we have committed the CapEx. And how the existing businesses perform over next 6 to 8 quarters, that will be resulting the actual net debt-to-EBITDA.
The next question is from the line of Ronald Siyoni from Sharekhan Limited.
I had just one question with respect to cotton and VSF prices. Like since, I think, from quarter 4 of FY '21, we had seen a run-up in cotton prices, which eventually, after more than a year, it came down, but during the same time, we had also seen flattish VSF prices. But now cotton prices, when it reacted negatively, there was a direct correlation with respect to falling of VSF prices. So if you can explain the reasons behind the same. There were different reasons with respect to cotton moving up and also now different reasons from -- for VSF prices to come down rather than cotton prices getting corrected. So just wanted to know more about this correlation over the past 2 years.
So the cotton and VSF prices are not correlated with a very high coefficient, so when the cotton prices went to, say, $3.5, VSF price did not go in that direction so much. So it was kind of flattish. Or it went up but very marginally. And even when the cotton prices crashed 40% since its peak, VSF prices have not crashed to that extent. So yes, the direction, most of the time, is similar, but the extent of movements are much different.
So we can safely assume that there won't -- there is not much correlation to be seen in the future also we should expect from both these prices.
Yes. [ So I'm saying this thing built on ], say, 10 years data analysis. So the correlation is not very high, yes. [ There is ] correlation, but it is not very high.
The next question is from the line of Navin Sahadeo from Nuvama Institutional Equities.
Sir, my question, in VSF. Of course, globally there has always been a cycle. Like the peak can trough. And I think -- I'm sure we've seen it all, but in the Indian context, we've always had this monopoly advantage. We could still like price it better or bargain better with all the spinners, but with this Indonesian imports now coming in, I think the monopoly situation has got challenged, so then is it fair to say that, until unless the government acts in terms of some sort of an antidumping duty, which is what the representation already is -- until that happens, is it fair to say that now like the margins may not be as superior as in the past but may -- more like range bound and a lot dependent on the global demand, supply? Will that be a fair assessment of this historically monopoly business?
So I want to challenge your -- some statement that we have been monopoly. See, what is the meaning of monopoly? We have to understand it better. So just being one producer doesn't mean that it is monopoly because imports were always open. Even when there is ADD, it doesn't mean that people cannot import. So people can always import. And even especially for export, I think the ADD or even basic custom duty is not applicable. And there is so much overcapacity in countries like Indonesia or China. China is sitting on 35% capacity overhangs. Indonesia is sitting on almost 100% capacity overhangs over their respective domestic demand and domestic capacity. And they are always, they were always free to import, export. And Indian spinners are free to import and they were importing also. And even when ADD was there, we -- our prices were never unfair because then there is always a thing that the full value chain has to survive and prosper. So in the last 10 years, from, say, 2012 to 2021, when -- these 10 years, we -- there was ADD in India and we have imports, the domestic value chain, spinners, the weavers, they grew almost 3x. So if the prices were monopolistic or unreasonable, the value chain would not have grown. We rather invested in the development of value chain and grew the pipe, so I would like you to correct your understanding about the VSF and Grasim being the only producer in India. We have more responsibility because we are the only producer in India for this important raw material, so please liberate your understanding about our -- I think -- and if you need some more information, please let us connect one-on-one. We will share with you. And this is what we have shared with the commerce ministry and with the textile ministry because, even for this application of ADD, there was so much hue and cry from some Western interest importers or -- that Grasim is monopolistic. And we proved, to the satisfaction of commerce ministry, textile ministry, in front of the textile value chain or those people who were talking like this, and they agreed and admitted, that, yes, Grasim has been most responsible player in textile industry in India.
Completely appreciate your point and more than happy to connect on this front. Just 2 small questions. Other income sequentially or compared to, like, past quarters is slightly on the higher side at INR 103 crores despite like a decrease in the treasury, per se. So is there any one-off in the other income, per se? Or that also is probably the wrong way to look at it.
No, there is no any one-off kind of thing. It is largely because of the higher yields on the treasury income. And of course, the treasury size is also a little higher compared to Q3 last year. There is no one-off item, any special one-off item.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question. Thank you, senior management. On behalf of Grasim, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.