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Ladies and gentlemen, good day, and welcome to Grasim Industries Limited Q4 FY '19 Earnings Conference Call. We have with us today from the management Mr. Dilip Gaur, Managing Director; Mr. Sushil Agarwal, Whole Time Director and CFO; Mr. E. R. Raj Narayanan, Group Executive President and SBU Head, Chlor Alkali & Viscose Filament Yarn. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sushil Agarwal. Thank you and over to you, sir.
Thank you. Good afternoon to all of you. First of all, sorry for -- we started a little late. FY '19 was an exceptional year for Grasim. The company delivered a stellar performance, financial and on operational side as a stand-alone as well as consolidated level. Our consolidated revenue was highest ever at INR 72,971 crore, up by 31% on Y-on-Y basis. EBITDA rose 18% to INR 12,820 crore, which again is the highest ever. PAT for the year was INR 1,772 crores.Let me now take you through a few highlights of FY '19 at a standalone level. Our caustic soda sales volume grew by 17% and surpassed 1 million ton mark, a notable milestone and first time in the country by any company. VSF business reported highest ever sales volume of 541 KT recording growth of 6% over last year. We have also completed 2 acquisitions, both acquisitions are strategic fit for the respective chemical and textile business. We acquired Chlor-Alkali facility in Andhra Pradesh to strengthen our operation east coast of India, which is a major caustic soda consumption hub. The second acquisition is of Soktas India Private Limited, a premium fabric manufacturer which will complement linen textile business of the company and further strengthens the company's leadership in premium fabric market. Delivering the project on time has been our core commitment. We have successfully commissioned facility to manufacture third-generation specialty fiber with capacity of 16 KTPAs at Kharach in May '19. In a record time, this specialty fiber is under the ramp-up phase. The green technology for this third generation fiber has been developed in-house by R&D team, which speak of our enhanced commitment to sustainability and innovation.Moving on to costs of our stand-alone financial performance for the year. The revenues up by 30% to INR 20,550 crores. EBITDA was up 31% to INR 4,639 crores. And PAT before exceptional was up again 30% to INR 2,574 crores. Our cash profit went up by 30% Y-o-Y to INR 3,457 crores. At a stand-alone level, the revenue, EBITDA and PAT for FY '19 have almost doubled from FY '17 level. In 2 years, actually, we have doubled our -- all the key parameters. At a standalone level, we have generated free cash flow above INR 500 crores post CapEx and investment of INR 2,500 crores.In April 2019, the Vodafone Idea successfully closed India's then largest right issue of INR 25,000 crores. The strong participation from public shareholders, ex-promoters resulted in 1.2x subscription. Grasim's participation was limited to its shareholding, which is at 11.55% of the right issue amount. Let me now share the highlights of our viscose business. The price of key fiber weakened sequentially in Q4 FY '19. The dip in global VSF prices was led by commissioning of sizeable new capacities in Asia. The recent volatility in cotton prices has been on account of trade-related face-off between U.S. and China. The VSF business reported highest ever sales of 139 KT during the quarter. For the fifth successive quarter, the domestic sales percentage has stayed above 80% mark and showing an improving trend. For FY '19, the viscose business generated revenue of INR 10,325 crores, up 23% on Y-o-Y basis and an EBITDA of INR 2,052 crores, up 22% on a Y-o-Y basis. On the costs side, the pulp prices are up 15%. We expect the impact of softening pulp prices to start reflecting in the overall costs towards the end of next quarter. In FY '19, the Indian demand grew over 20% compared to 2% to 3% globally, which reflects our intense marketing efforts and the Liva brand demand pull. We expect the global VSF demand growth in the range of 6% to 7% in next 2 to 3 years. The brownfield capacity expansion plan of 219 KTPA at Vilayat is progressing well. The construction work at the project site is in full swing. I would like to highlight some key sustainability-related achievements. Water has been a key focus area for us. In FY '19, we reduced our water consumption by 37% through various initiatives. We are in the lowest specific water consumption globally in the viscose industry. We are working with the industry peers and NGOs for setting up global norms in man-made cellulosic fiber industry with an aim to achieve better environmental performance. Let me now share the highlights of chemical business. Chlor alkali prices in India remained firm during the quarter with a stable demand. The demand growth of chlorine also remained strong. We expect the demand growth for chlorine to exceed the caustic soda demand growth in India. In the near term, the caustic imports are expected to increase, which have led to softening -- which may lead to softening in the prices. For FY '19, the revenue and EBITDA of our chemicals business are up 29% and 40% Y-o-Y to INR 6,436 crores and INR 1,827 crores on back of higher growth in sales volume and better realization. We have a strong focus on growing the chlorine VAP products in overall product portfolio. The VAPs revenue witnessed 34% of Y-o-Y growth in FY '19. We have commenced work on caustic brownfield expansion, which is 91 KTPA and power plant at Vilayat. The orders for long lead items have been already placed. Let me now cover some of our sustainability initiatives. We track the chlorine [ tonner ] movement of right through the delivery from the factory to customer's end with the help of mobile application, Suraksha app, which has given the customers to give real time feedback on safety issues and achieve immediate response from our experts. We have introduced multiple water conservation measures, which will ensure reduction, recycle and reuse of water in all of our units. We are in the progress of achieve zero-liquid discharge at Rehla and Ganjam plants.In order to strengthen company's leadership in VSF and chemicals, customer centricity and strategic CapEx are the key focus area for us. We have committed a CapEx of INR 454 crores (sic) [ INR 6,454 crores ] over the next couple of years. The brand Liva has achieved great success since its launch in March '15. The number of tagged garment in SS18 and also winter '18 combined surpassed the [ 30 million ] mark. For SS19, the number of tagged garment rose to [ 22 million ]. Liva, which has gained prominence in women's wear has now been extended to home textile segment. We have tied up with some of the leading players in home textile segment and the product has been well received. The launch of Livaeco as an eco-enhanced variant of Liva strengthens our sustainability credentials, which is retaining the fashion quotient of the brand. Livaeco is a unique brand [ ported ] with sustainability that is derived from Forest Stewardship Council certified pulp, which is based on wood sourced from sustainable forest, helps conserve biodiversity and protect endangered forest. Every Livaeco garment has a unique tracer which helps trace the origin and full journey of garment across the entire supply chain, the first in the country. In Chemicals, we have launched new initiatives aimed at providing superior solution for water treatment, bio-security in aquaculture and food products. We have continuously strengthened our leadership position both in VSF and Chemicals business by expanding capacity organically and inorganically. In the past 1 month, we have expanded the VSF capacity by [ 58 ] KTPA through various capitalized de-bottlenecking and commissioning of third-generation green fiber facility. Similarly, in Chemicals, we have increased capacity by 209 KTPA in last 12 months. In order to meet the demand growth, we have outlined our plans to further expand our capacity in both VSF and chemicals business. In VSF, we plan to expand our capacity from 561 (sic) [ 566 ] KTPA to 788 KTPA by FY '21. In chemicals, we plan to expand our capacity from 1,147 KTPA to 1,457 KTPA. Additionally, investments are planned for value-added products also. We have continuously aimed at improving the percentage of value-added products in both VSF and Chemicals through development of new products. These growth initiatives are aimed at making our business model more robust and improve the quality and trajectory of earnings. Let me briefly cover the performance of Cement business. The Cement business reported a marked improvement in the volume growth of -- for FY '19, up 17% on Y-o-Y basis to 76 MTPA. The consolidated revenue and EBITDA are up 21% and 7% to INR 37,379 crores and INR 7,226 crores, up by 7%. Moving on the performance of our Financial Services business. The Aditya Birla Capital reported revenue and net profit after minority invest -- interest for FY '19 at INR 15,164 crores and INR 871 crores, up by 32% and 26%. The lending book including housing grew by 23% on Y-o-Y basis to INR 63,119 crores in FY '19. The average assets under management stood at INR 2,65,109 crores, up by 6% on Y-o-Y basis. To summarize, the company has recorded stellar performance for the year FY '19. In FY '20, company's focus would be to ramp up the recently commissioned capacities in VSF and Chemicals, integrate textile acquisitions and work on cost control measures.Now we can open the floor for questions and answers. Thank you.
[Operator Instructions] The first question is from the line of Gunjan Prithyani from JPMorgan.
Just couple of questions. Firstly, on the VSF. Could you give us some sense on what kind of incremental pressure we can further see on the realization? And where are we on the operating rates now? You mentioned that some capacities have come through. Are there even more big capacity expansions which are expected in the next 12 months?
You're talking about China, the world?
Yes, yes. China.
See the China -- the overall impact, as I was telling you last time, so there -- we are witnessing pressure on the prices. And as a result of that, the OR has come down substantially. The OR used to be 90% plus, is now running at 76%. So there are a lot of unrivaled capacities who are either turning down or stopping, but that doesn't take away the pressure on the prices. The prices in China are right now pretty low. They are almost at the level of $1.60, give and take. But what we believe is that at this price, almost entire China is bleeding. So it's a matter of time when the more shake-outs start taking place and the capacity utilization draws further or more plants go out of the system. So we expect, difficult to predict, but in next 6 months, the pressure will continue.
And are there more expansions because a big expansion came through this year, right? Are there more to come through? Or if you can give a sense on what -- how much you are expecting and what came through in this year?
Yes. About 0.9 million ton capacity got added last year and another 0.6 million will get added in FY '20 and mid of '21 overflow. But you see, the good thing about it is because at these prices, viscose has become very attractive. So the consumption of viscose is going to shoot up. So to my mind, the new capacity will get absorbed much faster than people expected. And if you know, the cotton prices -- the cotton crop has been one of the lowest this year in India and U.S. also. So cotton prices will be under pressure. So there will be a higher consumption rate. And 0.6 million capacity, I think, beyond that there is no more new announcements are there. So about 1.5 million capacity over 2 to 3 years is what we are talking about.
And on the realization, your slide mentions about 8% decline Q-on-Q for VSF. For us, VSF prices would have come by how much? Sorry, I can't calculate because I don't have the VFY revenues.
In our case, we have gained 2% Y-o-Y.
No, I'm talking about Q3 to Q4.
See, Q3 to Q4 there is a 4% drop in realization for our case. But you have to look at -- there is one positive side, there is softening in the input prices. So it has come along with -- pulp prices have gone down now. Issue is, as we told you last year, there is a lag between the pulp consumption price and the market price. But today, the consumption price is high but the market price is low. So maybe next quarter, we'll start seeing the impact. So pulp has dropped to almost $60 per ton, which is almost [ $0.6 ] a kg. Wool has softened. Caustic is kind of soft, not going up at least. So I think what I'm saying is yes, there is a little downside on the prices, but one should be able to manage [ as we can sustain ] these prices through the softening in input prices and cost reduction.
Okay. Got it. And second question on the liquid -- balance sheet. The numbers that are there as of March, if you can give us the updated numbers on debt and liquidity post the Idea transaction?
So the exact numbers I don't see readily available, but we still hold about INR 2,600 crores of treasury and of course we have taken some debts also. Post Ideal transition, our treasury side is about INR 2,600 crores.
Okay. Got it. The last question from my side, in terms of incremental capital commitment to any of the subsidiaries, now I did see Aditya Birla Capital has taken basically a capital raise recently, they're looking at it. So is there any incremental risk that we should think? I mean, of course, that -- you've mentioned it past also, but if you can give us some sense incrementally what kind of capital commitment can be to the subsidiary businesses?
So Gunjan, I think we talked about this and Aditya Birla Capital had taken this approval in the past also. But as of now, so far Grasim is concerned, we don't have any specific plan that we have any commitment to highlight to all of you. And if we receive any specific concrete plan from ABC or any other subsidiary companies, we'll certainly kind of let you know. But currently, we don't have any specific numbers to share.
The next question is from the line of Navin Sahadeo from Edelweiss.
Yes. Sir, a couple of questions. First on VSF. In your presentation itself, I'm just referring to the chart of VSF, and since the beginning of FY in '19, there has been a very steady fall in the global China VSF prices, but past 3 quarters, we remained fairly insulated, in fact, there was an increase in realizations in India. And I think in response to previous question, you mentioned there has been sort of a 4%, sort of a drop and you expect another 6 months at least to be under pressure for China prices. So how should we really look at it? Because in the past 3 quarters, we remained not just insulated, we actually grew even as the global prices kept falling. And the story there was that we were selling in domestic market because that's where there is absolutely no competition and hence you were insulated. So how should we look at it at least for the next 2, 3 quarters on this, please?
That hold, the domestic market is the key market for Grasim. 86% of my output was on domestic market. And our effort is to make it even more. And fortunately, the domestic market is growing very handsomely. Like, it grew by 22% last year. We hope to grow by 15%, 16% this year. So I -- that's why I'm saying we are not as worried as maybe Chinese are, but you can't say we are totally insulated. But the issue is we should be able to hold on reasonably well if we can manage our cost side better. So there could be some erosion on the revenue side, but I think we have to make that up through our cost effectiveness programs, through our input cost softening. So there -- and the third big leg is the specialty. And I think whether you have noticed that, we have commissioned our specialty plant in Kharach, which is a big, big thing. This is third-generation viscose, which goes at a huge premium compared to normal viscose. And we have developed that technology. So I think now that we are in this business, we will see the benefits from this investment also coming.
Sure. So I appreciate...
I think this is not a doom and gloom. I think that we should be able to sustain.
Fair. I really appreciate the efforts the company is taking on the fact to control cost. There is also a pulp raw material cost decline and the fact we are doing premium bid. I'm only trying to understand from the realization perspective, what is the, let's say threshold?
What I told you will hold. I won't say it will increase, but I think we should be able to -- it should stay in a band. It should be range bound.
Okay. Okay. No, I was only trying to understand if there is any threshold in the sense that is the, let's say an indicator that is the yarn prices are, let's say for the domestic guide are falling much more or...
No. The yarn business is doing reasonably well. But you see, the threat always remains, the yarn imported fee. It's a connected world now. So I don't know what is happening in Indonesia, what is happening in China. As of today, the yarn guys' profitability is very good. They are getting INR 196 a kg and they are making handsome money. So what happens tomorrow in the yarn side, we'll -- let us face it as it comes.
Okay, okay. And just on this pulp prices. You mentioned that they have come off sharply. And then to that effect, I think on Slide 27 of your presentation, there is also a chart, DG pulp price chart, which suggests a fairly steep fall. So just one question there. You're also -- I'm seeing the prices are falling off the pulp fairly steeply, but if I look at the EBITDA, there is still a growth as you are seeing there. So does it mean that the costs for this business of pulp JVs have fallen much more than the pulp prices? Is that the way to look at it?
Actually, the pulp JV is the biggest value driver is the real capacity utilization. But these are the old plants, so we have been ramping -- the predictability and reliability is the key thing. So now our Canadian plants are performing much better than what they used to perform a couple of years back. So because it's a capital-intensive plant, so if any tonnage I get extra, I get entire margin over the variable cost. So that is what has helped us. Secondly, in Canada, we have our own forestry. We control our own wood. So there's a lot of work happening on the supply chain efficiency. So realization is not the only thing. It matters, but I think what is important is how we manage our cost and operations also.
Okay. And just one last question. While your June -- Chemicals capacity, you've mentioning is likely to kickstart by June, but VSF, you've mentioning by and large FY '21. So is there like -- can it start? Can we see volume benefits from it in Q3, Q4? Is there more precise indication on that, please?
So I presume you are talking about caustic capacity.
No, no. I'm talking about -- caustic, you've already mentioned in June. I'm sorry, I should've just clarified this. So caustic capacity is you're saying they are commissioning by June '19. But for VSF, the new expansion of 219 KTPA, you're saying they'll come by FY '21. So my request was, is there is a precise timeline as to we can see a start -- initial production from Q3?
September '20.
The next question is from the line of Prateek Kumar from Antique Stockbroking.
Sir, my first question is on this domestic demand. When you say this has been growing at like 20%, 22% and certainly because of Liva efforts and on the segment efforts. So I mean when you compare to global competition, so I understand there is some import duties for which reason -- for that reason they are not able to send volumes into India. So when is this -- I mean, how do we compare global prices, I mean if they can -- if they send it to India versus our prices? And when does this import duty end?
There is no import duty. There is antidumping duty.
Antidumping duty, yes. Antidumping duty.
2021. I think they'll come for a review. It does not end. I mean, it depends, because you see the idea of antidumping duty is to give a level playing field. Today, the price at which China is selling, it's a price below the variable cost. So if tomorrow people start exporting, then it's going to hurt the Indian industry and the employment. So the whole idea of antidumping duty is to avoid such situations. So if things continue like this, the government will renew it. So it is not to help anybody, it is -- there is a logic to it because you see there are fixed costs. The cost of pulp is fixed, the cost of fuel is fixed. You can do a number bottoms up and I think that's how they look at it.
And so after -- I mean, the decline in prices as well as factoring the antidumping duties, the prices from China, whoever wants to import, is still higher than what we sell in India. I mean, how much it is higher than what we see in India, then?
[indiscernible] complex side, difficult to give one reply because it depends upon the Chinese currency that'll move from [ 6.2 to 6.9, not to 7 ]. So I do not know which number I have to take. So when somebody asks question about why the prices went up, if the currency becomes -- Chinese currency hardens, same RMB price converts to a higher dollar, right? So there are so many variables and it is very difficult to predict how -- which way will it go. But what we are trying to say, there is something beyond only the price because when I am talking of branding, when talking of Liva, when I am talking of customer connectivity, when I am talking of giving new solutions, there has to be value to it. A Chinese guy just can't walk in where you have built a stickiness by giving solutions to your customers. That's where the [indiscernible] different than Chinese.
But in that case, our prices will not fall. Should not fall at all. I mean, when we are pricing.
It's okay. Everybody is not so conscious. So it will be -- all I'm saying is, it will be buffered. The impact will not be as much as one is thinking. You can't be immune. But I think it is a range bond. The word I used is range bond word.
Correct. And sir, this 20%, 22% is compared to 2%, 3% demand globally growth?
That is where I think you must -- the effort is. That's what I am saying, sometimes a lower realization you can compensate with higher volumes because the volume is a multiplier, volume into margin. And what we have been able to do in India well is converting from cotton to viscose and polyester to viscose. And cotton, if you see India had -- I would just now mention we had the lowest ever cost -- last 10 years, lowest [ stop ] has happened this year plus the MSP of the cotton has gone up. So we believe cotton prices will remain high. If cotton prices remain high, there is an opportunity for people to move from cotton to viscose and that's what we are accelerating it. Our team of experts, the technical service people, go to the spinners, teach them how to move from cotton to viscose. We get them businesses from the customer. They don't know where to sell the viscose. That's where we bring the difference from China. We hand over them right not only selling products, but also selling their products. And that's where the stickiness comes.
Correct. And so next year's growth of 6%, 7% when, I mean, generally things are moving toward slowdown. So...
We are talking [indiscernible] 15%. We don't have volume. Our problem is...
No, no. For global growth you said and you've also written in PPT, global growth...
Yes. Global growth, it's improving because it was 2% to 3% last year. It's going to 7% because there's a fair advantage. Today, viscose is so much cheaper than cotton globally that people are shifting from cotton to viscose globally also.
Understood. And that -- is there any difference in CapEx versus what we guided? So is there an increase in CapEx versus what the guidance in Q3? Because I see some change in those numbers in table.
I don't think. I'm not sure. I don't think so.
There is no change.
Some thousand crore number.
No. That's the CapEx spend [indiscernible] we can tally that offline, how that number -- how we have arrived at that number, but there is no change on the CapEx number.
Okay. And sir, just -- can you give the [ AB and the ] total VFY revenue and EBITDA?
Yes. Can we do it offline? Or you want it right now?
Yes, whatever.
Okay. So I can give you the numbers. VFY numbers for the quarter is -- so we have a revenue of INR 487 crores and an EBITDA of INR 98.1 crores in quarter 4 FY '19.
EBITDA is how much?
INR 98.1 crores.
Next question is from the line of Rajesh Lachhani from HSBC.
Sir, so basically, if I see there is a rise in the caustic soda prices in this quarter. And also VSF prices have been falling. So just wanted to understand, since 2 months have already gone into this -- close to 2 months have gone in this quarter, the average prices of VSF and caustic if you compare to Q3 -- Q4 FY '19, what would they be?
The caustic prices in the first quarter has slightly softened, as Mr. Sushil and Mr. Gaur said. That's not necessarily reflecting the global prices. That's more from the local supply/demand. Because if there is a demand, there is a slight softening. And wherever -- however, there is chlorine. There is a positive impact. Chlorine prices are better than what it was before. So it's sort of a mixed bag in the first 2 months.
Okay. So average prices would be largely flat compared to previous quarter?
Yes.
And how about VSF, sir?
You want to know the prices for these 2 months?
Yes, on an average compared to previous quarters.
So normally, Rajesh, we don't disclose the latest prices. The latest prices we don't disclose. These are some kind of a trend, but we don't disclose.
Yes, so trend is -- do we see...
So far broadly holding, but as you -- we can't crystal gaze, but so far it is holding.
[Operator Instructions] The next question is from the line of Tanuj Mukhija from Bank of America.
[ Sir, I ask ] what could be the sustainable margin in FY '20 for the VSF segment?
Can't hear.
Mr. Mukhija, there is some disturbance in the background. Can you just speak a bit loud?
Hi, sir. Can you hear me now?
Much better.
What would be your sustainable margin for the VSF segment in FY '20?
Very, very difficult to predict. I don't think I can and nobody can. Because I think today so many things are happening. Like currency itself can play havoc. But nothing I can say. If tomorrow China goes to 7, what do I do? So it's very difficult to predict.
Okay. And given the pricing power that you enjoy in the domestic market.
We don't enjoy pricing power. We have a little better preference, that's all. We do not have pricing power. Yes, everything beyond a point, it does not work.
Okay. Understood. And on the specialty fiber line, what could be your margins?
See, today, the margins are very good on the specialty fiber. It is the Excel fiber is about 1 in 1.8 [indiscernible] about $0.50, $0.60 a kg.
And on your recent acquisition in Andhra Pradesh, what I understand is that there is a fantastic ecosystem in West India, particularly in Gujarat, which helps you to discharge chlorine and sell chlorine at good prices. So is there a similar ecosystem for you to discharge and sell chlorine on the East Coast?
Yes. So in the East Coast acquisition, it's -- there are 2 primary objectives. One is to serve the caustic in the eastern sector. And second, this particular plant also would have the chlorine derivatives there itself. But then again, there is a huge demand of chlorine in both pharma and other specialty sector between Andhra Pradesh and Tamil Nadu. So that sector is also growing. So it will be -- we will be in a much better position to cater to these 2 segments from this new acquired unit.
Okay. So would it be right to say that your margins in the acquisition would be similar to your current Chemical segment margins?
Yes. Again, as Mr. Gaur said, we are talking about 12 months down the line. And the markets are so volatile. So nobody can crystal gaze on the prices. We have to wait. But the whole intent is to service the market in the East, the metal sector profitably. We think it will continue. That whole idea will continue.
The next question is from the line of Bhavin Chheda from Enam Holdings.
This 200 tpd, what you acquired in A.P., which is under construction, so when -- how much incremental you intend to spend? And by what time this will be commissioned?
So we expect the plant to be commissioned in 2 phases. The first one is at 200 tpd, that will be about June '20. And the next phase of the 400 tpd will come by September '20.
Next phase, 400 tpd. And how much do you intend to spend?
So we -- total project cost is expected in the ballpark of about INR 800 crores.
Total INR 800 crores? For 600 tpd?
400 tpd plus the VAP, chlorine derivative. Yes
Derivative products, too.
Yes.
It is INR 800 crores including the INR 253 crores you paid or this is over and above that?
Yes, it's including the INR 253 crores we already paid.
Okay. And there was the other -- some fabrics acquisition of 10 million meters. So what's the kind of revenue EBITDA it has been doing? And what are the numbers there?
So revenue is about [ INR 118 crores ] or so, and EBITDA is about INR 25 crores to INR 30 crores range.
And has these numbers been included in the quarter or the year? Or they have not been?
No. So for this quarter, there is no number of textile acquisition.
Okay, okay. And sir, what will be your FY '20 and '21 total CapEx at the company level be on the stand-alone side?
For that slide, we already...
The slide is there?
Yes, that slide is there. So the Slide number I can give is -- the slide number is Slide #15.
15, okay. And on the VF side, you shared the quarter revenue and the EBITDA. Can you share the fiscal revenue in EBITDA, VFY?
Full year?
Yes.
Full year we have done a revenue of...
Just a minute.
Yes. No problem.
For full year, EBITDA is about INR 435 crores. Revenue would be about INR 1,800 crores. I don't have exact numbers.
Rough numbers is fine.
INR 1,800 crores is EBITDA and about INR 425 crores -- INR 1,800 crores is revenue and EBITDA is about INR 425 crores.
INR 425 crores, okay. And sir, on the VSF side, what kind of volume growth we are looking at in FY '21? And how much is the value-added products in the VSF in FY '19? And how much this can improve in FY '20?
Right now, my specialty is about 30% in my current year.
30%. Okay.
Yes. The idea is I want exactly FY '21 will be the commission -- in next 2 years, we should go to about 40% to 50% with the specialty. With the commissioning of the plant we have done in Kharach, with the commissioning of the new facility, there will be flexible plant, which can make textile as well as non-worn product. So there will be some specialty coming there. Our intent is to go to 40% to 50% specialty. That should again insulate me from a lot of fluctuations in the market.
Right. And what kind of volume growth are we looking at VSF in FY '20?
With the new project, we have a 40% capacity expansion with the Vilayat project. So it will go to 40% of the capacity.
But that's on the capacities side. How much do you intend to produce next year?
We will produce full blast. Whatever we have right now, we're adding full capacity.
Do you have any intent to grow?
Volume growth 8% domestic.
So if you are at 20 kg additional loss [indiscernible] that 20 kg will come additionally.
Yes, but he wants the percentage.See, right now, I'm just debottlenecking some capacity. So I have already come to about 1,550 tons per day capacity and another 2,030 tpd I will add through de-bottlenecking until the time when a new product comes. And how we sell with the local market is, I [ do them an ] export.
[Operator Instructions] The next question is from the line of [ Saket Kapoor ] from Kapoor Industries.
Sir, my question is pertaining to the caustic soda industry as a whole. How is the industry shaping up globally? And with the European commission going through the cell membrane technology change over, is that over? And any new capacity that is going to hit the market?
See, globally, of course the European membrane cell technology conversion is over and that's over 2 years back, 2017 December. But globally, caustic, if someone has to put -- the chlorine derivatives also would play a major role. So the growth is certainly limited globally. If I have to say that India is one of the fastest growing. But otherwise, globally if you want to set up at the large -- since it's PVC and if you're talking right up to the corrector, you are talking about $2.5 billion investment for chlorine thinking -- using of roughly about 800 to 900 tpd, which is about 1,000 tpd of caustic. So it's too expensive and that's where caustic capacity additions are rather limited globally.
Sir, currently, domestically, I think so, all producers are ramping up their capacity, if I'm not mistaken. You, including DCM and Gujarat Alkali, all the 3 major players are adding capacity. And top of that, sir, what has been the import quantity as per last financial year? How much of caustic soda has been imported?
See, I wouldn't have the exact number, but from November onwards, the imports have stopped because of the BIS certification issues and the imports will start [indiscernible] started slowly as the BIS certification process is going on.
Okay. That is the reason why there is a softening of -- there is a demand supply which you were earlier speaking about?
No, no, no. See, the imports traditionally happen in the eastern part of the country. But this particular quarter, the demand softening is basically on the NGO segments. We have a little bit of softening you've seen.
On which segment, sir?
On the western side, we are seeing a little bit of softening. That also has to do with some of the shutdowns which our downstream industries have taken. So I think it's a very temporary phenomenon only.
Sir, out of our mix of caustic soda, how much is inclined towards value-added product? And how much is just caustic soda flakes as a percentage?
The caustic soda flakes is generally used as a swing production. So it is on the supply/demand. So in terms of capacity, we should be one of the largest in the world in the caustic flakes. But if you want a particular number, I would say we have a capacity up to 25% to 28%, we can make caustic flakes.
I was looking for the mix, sir. For this year revenue, how much is value-added product? And how much is caustic soda?
Oh, okay. So when you say value-added product, I presume you are talking about chlorine derivatives.
Yes, the chlorine derivate. Yes, sir. All the derivatives.
So it is roughly about 80-20. It would be 75-25, I mean in that range.
Caustic soda is 25 and 25% is value-added.
No, no, no. Caustic soda is 75%.
Yes, yes. Just I missed the question. Currently, sir, aluminum industry is our largest customer and that is -- the aluminum prices are not remunerative right now. So do you think that this will also assert more pressure on caustic soda prices going forward because it won't be remunerative for them to be -- to pay higher price for caustic soda and lower prices for aluminum as the end product?
See, I'm not an aluminum expert, but one thing I can certainly say is there are certain aluminum industries which have got closed down in China. So there is a temporary pressure from that side, from the caustic consumption side. But if you have noticed that the Alunorte, which is in Brazil, it is going to reopen. And the requirement is pretty large. So purely from caustic consumption side, we are seeing globally a demand picking up and especially the demand in the -- Brazil with the 2 events which will happen would increase the volumes in this quarter itself.
Okay. And lastly, sir, if you take the year-on-year comparison for caustic soda prices, for FY '18 and FY '19, what were the average price trends? How have the caustic soda prices been for these financials?
The last financial year. When I say last financial year, I'm talking about '17, '18. '17, '18, especially in third and fourth quarter, the prices were ruling very high. And so the prices have softened compared to that in the financial year '18 and '19. So '17 and '18 was a very unusual year, which had a very high caustic prices. Those kinds of levels, we have no more there.
No more there, but still '18, '19, we've made record profit on account of the other downstream product and chlorine advantage that we have got. It was negative, I think, so for that year.
Yes, so we -- a couple of things which we did. One is obviously the cost improvement measures. Second is also effective utilization of chlorine within our own plant and also general market went up for chlorine, which also helped. And of course, our mix of value-added products to caustic, that was changed during this financial year. All these led to higher profitability.
Right. And sir, currently are the downstream product prices of hydrogen peroxide and other are also on subdued note? That is also reason why we are witnessing this, the softening of demand?
No. There is no real connection between these 2, hydrogen peroxide and this. But if you are wanting a larger trend, these prices have softened for a lot of commodity chemicals based on some changes which had happened in China.
Okay, sir. In percentage terms, if you can give what kind of collection achieved in the basket of the downstream product?
No. The basket is very, very large. So it's -- frankly, I won't have the number. And again, if the comparison is based on what, that is also an important step. So I won't have the number.
I was only looking for the -- how we have ended March. And April and May, has there been a softening in prices as well as in demand? Or there is only a softening in prices and the demand have remained the same in terms of the volume growth which we are anticipating?
See, apart from the prices, you also have issues on water, et cetera. So you know that in Gujarat and certain other places, you have water issues. That also -- we [indiscernible] there are some constraints which we are experiencing because of the water issue.
Next question is a follow-up question from the line of Prateek Kumar from Antique Stockbroking.
First question is, sir, in this textile business, on the new acquisitions that you have done, also for which you gave the numbers, so that will be factored in this textile segment, the Soktas acquisition?
So that is a currently wholly owned subsidiary of Grasim. So it will not be a part of stand-alone business at Grasim stand-alone until we go ahead with the merger.
I think the Board has approved a merger of that [indiscernible] of the division of textile. So for some period it would be reflected as [ 100% surety ] number, but it would get captured in the division of textile going forward.
Okay. And this number, in terms of EBITDA, is it -- I think sustainably -- I mean, now second quarter is above INR 50 crores of EBITDA. So this now, I mean, is a net -- we should take it as a net for this segment? And [indiscernible] whatever Soktas contribution is there should come in this segment?
Yes, yes.
Okay. And then on VSF profitability. I see that -- I just back calculated segment-wise profitability, so it seems that the whole profit margin compression has happened precisely related to realizations, so -- and not related to cost at all. So I mean when you go back -- so now probably it's at like around INR 22, INR 23 per kg, which was like over INR 25, INR 30 for like I think 12 quarters or so. So I mean seeing the past trends -- I mean past trend has also gone to like sub INR 10 per kg also. So we're not in that kind of scenario I mean in terms of our expectations. It should turn around from here.
I do not know how you have done the numbers. But there are 2 things that I was telling you. The pulp cost, what we have put in Q3 and Q4 are the historical costs. The actual cost is lower. So whenever that pulp start coming in, you will get that benefit, right? Secondly, there is one factor in Q4 which we have not discussed. We have a consent capacity of production, which is led by the -- at the time of giving the permission. So wherever there is a cut in capacity, we have to curtail our production. So we had to curtail our production by 100 tons per day in Q4. There is a bit of an impact of that also on the market, which will not happen going forward.
Sir, what did you say? What is the top? I didn't get it.
There is an environmental concern for every factory. We have got a capacity. So if we [indiscernible] de-bottlenecked our plant and we had applied to the government for [ during ] the capacity. The increase was granted, but we never got the official permission in hand. So we had to set the capacity at the old capacity only. So there were about 100 tons per day capacity I had to curtail, which will come in the following quarter. So that impact also is there.
Okay. So now our VSF year-ending capacity is [ 561,000 ], as was said earlier in the remarks. So that goes to 788. Is there any other de-bottlenecking in between? And...
[indiscernible] we would like to keep on [indiscernible] we will do this year also hopefully, but it is still being attempted.
In the first year of operation, I mean how much do you plan to utilize -- I mean let's say there is 40% increase in capacity, so there's [ 220,000 ]?
The viscose plants have a vertical ramp-up. So I think if you design them well in 6 months’ time, you can ramp-up to full capacity.
No, no. I mean you can ramp-up, but it has to be -- I mean when you say you have like 0.6 million ton expansion coming up for global capacities, is this point to include there?
Yes, there is enough demand in the world. See, right now what is happening is, because I don't have enough capacity, I'm selling 86% to 89% in India, remaining I am exporting. When I get more capacity, I will export from India. There is enough demand.
But that 0.6 million ton global capacity addition includes our capacity also? Which you said...
No, no, no. Well, our strategy is India for India.
The next question is from the line of K. Radhakrishnan (sic) [ J. Radhakrishnan ] from IIFL.
Sir, just one tallying difficulty I am having based on the presentation EBITDA numbers. So if I am taking the EBITDA for VSF at INR 413 crores and Chemicals INR 434 crores and others at INR 114 crores and adding the others income also, I'm getting a INR 62 crores difference. So where the INR 62 crores difference I have to account and it could be helpful because generally there used to be difference, but this time it looks like the difference is too large.
Sorry, Radha. I could not hear you. Can you repeat?
What is your point, Radhakrishnan? Can you please repeat?
Yes. So if you are taking -- the VSF EBITDA comes to INR 413 crores. And the caustic EBITDA comes to INR 434 crores. Other division comes to INR 114 crores.
Yes.
And if I am adding other income of close to INR 101 crores, so the total comes to somewhere, INR 1,062 crores. Whereas the EBITDA based on stand-alone number comes to INR 999 crores or INR 1,000 crores, to be precise.
No. But you -- how you can add AB Capital EBITDA?
No. I am asking stand-alone.
But this EBITDA number is after other income. And you are adding EBITDA plus other income.
Okay. I am also taking out EBITDA after other income only. After other income, the EBITDA comes to INR 999 crores, no?
See [ our reduction ], our EBITDA number, which is reported is the total EBITDA that is INR 1,000 crores, it includes other income.
Yes, that includes other income of INR 101 crores.
Yes. This EBITDA is without other income.
Yes, sir. So that's why I'm asking whether this INR 413 crores of VSF EBITDA is including other income? Or excluding other income?
I think we'll get back to you. But I'm not still very clear what exactly is the difference.
If I am making for the previous quarter, if I am taking for the March quarter, I am not getting any difference at all. So there it is exactly tallying. Whereas, for this quarter, there is -- if I am taking the same way you have presented and in stand-alone results, there is a INR 50 crores difference. So that way, in fact, what I am finding is individually it's fine. But when I am totaling, there is some deviation I am getting.
It includes other income.
It includes other income. Radha, we can check this offline.
[Operator Instructions] Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to Mr. Sushil Agarwal for closing comments. Thank you, and over to you.
Thank you so much and I just want to make one more statement. Ashish Adukia is going to be taking over as CFO for Grasim. And so maybe next time, you are going to hear from Ashish. I'm going to be in the group doing various other stuff. So I just thought it would be appropriate for me to welcome Ashish and let you know of this development.Thank you so much.
Ladies and gentlemen, on behalf of Grasim Industries limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.