Grasim Industries Limited

Ladies and gentlemen, good day and welcome to Grassim Industries Limited Q1 FY20 earnings conference call. We have with us today from the management, Mr. Dilip Kaur, Managing Director, Mr. E.R. Raj Narayanan, Group Executive President and SBU Head, Clore Alkali, and Mr. Ashish Adhukia, CFO and other senior members of the management team. As a reminder, all participant lines will be in the listen-only mode. and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Ashish. Thank you, and over to you, sir.

Thanks, thanks, and good afternoon, everyone. all to our quarter one FY20 results call. I'd like to start the call with some quarter highlights, and then I will follow it up with a few slides from the presentation. You may not have had the opportunity to go through it, but this will give you an opportunity to actually get oriented to the presentation so that you have pointed questions on strategy and operational clarifications. This quarter, Gratham reported excellent growth in consolidated numbers with 31% year-on-year improvement in EBITDA, which was primarily contributed by Ultratech and ABCL performance. On this call, I'll focus more on standalone performance, as you may have access to UTCL and ABCL call transcripts. The standalone performance witnessed growth in both VSF and chemicals volume. but overall financials were slightly muted due to softening of global prices in both VSF as well as chemicals. This was, in fact, after many quarters of consistent growth in our financial numbers. Let's take VSF to start with. While there has been softening of VSF prices, it continues to be fastest growing fiber globally with 6% to 7% growth, and India demand continues to be buoyant with actually a double-digit growth. Another positive in BFF business is that bulk prices have been correcting meaningfully. We may see this benefit coming in the next quarter given the time lag of inventory purchase and consumption. Let's look at chemicals now. Costs and prices are impacted in Asia mainly due to demand slowdown in the end-use sectors. In this quarter, there has been some impact in India, too, due to increased supply from imports and addition in domestic capacity. Cost of production, while it was higher by 2%, it was also partly impacted due to monsoon delay and disruptions due to cyclones. Our BSF expansion projects are progressing well. we started production in our third generation specialty fiber plant of 16 kTPA in Kharaj, which is based on in-house green technology. While third generation fiber is a leap forward towards quality and sustainability, amongst many other initiatives on sustainability front, we have further reduced water consumption in our other VSF plants by over 15% in this quarter. With this, in last three years, we have achieved overall reduction of over 50% water consumption, making us the lowest water consumer in Briscoe's industry. Moving to some exceptional items, we have taken a write down for our investments in Idea Payments Bank, amounting to rupees 238 crore, which is net of taxes, as they have decided to wind down the operations Now, we would like to just refer to the presentation, so maybe I'll give you a few seconds to pull that out. We will walk you through only select slides, so if you would want to just jump to slide nine. On slide nine, they provided the capacity breakdown by plant for both VSF as well as caustic soda. In case of VSF, you can see the increase in Fi20, which is basically addition of specialty fiber capacity. By Fi21, we'll be completing both phases of our Wulife expansion. Likewise, in caustic soda, as you can see, we will be completing most of our expansion in Fi21. If you move to page 12 now, You may note the decline in global prices across all fibers. VSF has witnessed similar pressure, primarily due to capacity overhang, which, by the way, we've been talking about in all our quarterly polls. And this is further accentuated by addition of capacity in Indonesia. US-China trade war has also impacted the prices. As you may know, US imports almost 50 billion worth of textiles from China. On page 13, we have further Instapower domestic sales contribution to around 85%, which actually provides us some insulation to global prices. There's an interesting chart in the bottom left on pulp prices. If you may notice, the red line, which is our own consumption price, is at a perfect lag to the orange line, which is the benchmark pulp spot prices. While in this quarter, we have not been able to see the benefit, which would have actually made our EBITDA look better, but in the subsequent quarter, we should get the benefit of reducing pulp prices. On page five, we have financials of QISCOs. And the EBITDA is better on a Q-on-Q basis due to volume improvement and consistent effort on operational existence. On a YOY basis, the business performance has been resilient, driven by volume growth and steady domestic realization. We have included VFI numbers as well for your analysis. On chemicals, if you come to page 19, By the way, just to pause on page 17, we have a picture of our specialty fiber plant which has been newly commissioned. Back to chemicals, if you come to page 19, caustic soda prices have declined in Asia due to demand slowdown. But in India, it is only recently in the last quarter that it has got impacted due to increased imports and new capacity additions. The excess of supply over demand led to negative chlorine realization, which has recently partly reversed. On page 21, despite lower sales, we have improved EBITDA due to lower power cost, amongst other factors. Our efforts to increase WAP continues. Today, WAP plus epoxy forms around 21% of chemicals EBITDA. Lastly, On page 27, you will notice we have created lease liability of 73 crore on standalone basis on account of primarily the new lease accounting policy. This has a very small impact. It has improved the EBITDA by 5.5 crore on standalone basis and around 77.9 crore on consolidated basis. We'll be now open to questions. We have Raj and Dilip here. We should take benefit of their presence to focus on operational clarification and strategic inputs. If you are unable to resolve any of your queries immediately, you can feel free to reach out to us, to the IR team, to seek notifications.

Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Gunjan Prithyani from JP Morgan. Please go ahead.