Grasim Industries Limited

Ladies and gentlemen, good day and welcome to the Q2 FY20 earnings conference call of Grassem Industries Limited. We have with us today from the management, Mr. Dilip Gaur, Managing Director, Mr. Kalyan Ram, Business Head for CFI, Mr. Ashish Adhukia, CFO, and other senior management team. As a reminder, all participant lines will be in this and 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 start and zero on your touch-tone phone. Please note this conference is being recorded. I now hand the conference over to Mr. Ashish Adhukia. Thank you and over to you, sir.

Good afternoon, everyone. Before I get into the presentation, I would like to welcome Kalyan Ram and Jayant Dua. Kalyan is the business head and looks after chemicals, fertilizer, and insulator businesses. Jayant has joined us as chemical CEO in place of Raj Narayanan, who has now joined our subsidiary, Ultratech. Jayant has been with us with a group for many years, handling various leadership roles. I'll request all of Dilip, Kalyan, and Jayant to take up your questions on their respective sectors. Coming to the presentation, on the consolidated basis, RASM EBITDA grew 7% YOY, mainly due to volume, albeit a slow quarter given monsoon in Ultratech. The standalone results were muted as the quarter witnessed declining realization in most of our businesses. This is primarily the result of global capacity overhangs demand slowdown in some sectors, and continuing U.S.-China trade war, which we had also highlighted all of these in the previous quarter call. However, in the long run, we strongly believe that it is cyclical, and we are well-positioned to capture the upcycle with a planned capacity expansion in the future. Grassland balance sheet remains to be strong. As you will now notice on page eight, I'll just flip through a few pages only. just to highlight three points. Despite the comparative muted earnings, continuing CapEx plan, and one-time dividend payment this quarter, we've been able to maintain our net debt position at 0.5x to EBITDA. On pages 9 and 10, our CapEx plan has remained largely unchanged, and we are closely monitoring the same, given these are critical capacity-enhancing CapEx. Other than the capacity-enhancing CAPEX, we have some maintenance and modernization CAPEX. It constitutes a number of items, including environment-related CAPEX, such as zero liquid discharge, carbon-activated plant to reduce emissions, organic fertilizer plant to utilize phosphate, some small debottlenecking opportunities, et cetera. Our focus on sustainability in all our businesses is one of the pillars to add longevity to our businesses, and to reduce regulatory costs over a longer term. On page 11, we welcome the reduction in tax rates by the government, but we will take until the end of the year to take decision on our preference of the beneficial regime. The difference in the old and new tax rate is 9.77%, which should justify giving up the incentives that we have Currently, we enjoy three kinds of incentives, the weighted average deduction on R&D, accelerated depreciation of about 20%, and ATIA benefits. These benefits are significant enough to add to actually continue in the old regime. However, there are many factors such as profit for the year, one-off incomes, expenses for the balance year, which will eventually help us determine the tax regime to follow. On page 19, in case of viscous business, there has been some correction in the domestic realization based on declining global prices. We've been able to maintain premium overlanded cost through better customer service, brand and marketing, product innovation, and differentiating ourselves to more sustainable products. The domestic VSF demand also got impacted by rise in yarn imports. On the cost side, we got some benefit of pulp prices, partially mitigated by rupee depreciation. However, we are likely to get more visible benefits over next two quarters due to high carrying cost of current inventory. On page 17, in case of chemicals, we have now added a new chart clearly stating the ECU realization. As you can notice, there has been sharp decline in global prices over last few quarters. In line with global prices, our equalization has also corrected due to demand slowdown and excess supply. Chlorine continues to be negative realization given new capacity additions domestically. Moving to page 19, we've been able to reduce power cost through change in source mix. and we are focused on increasing share of renewable power, which is also a cheaper source of power. In our insulator business, recently we executed a JV agreement with MR from Germany to manufacture composite hollow core insulator. This type of insulator is the fastest growing insulator in its segment. MR is one of the world leaders in this segment. The project cost is around 100 crores, and it will be met through mix of debt and equity. Equity will be shared in the ratio of 51 and 49. This year, we participated in Dow Jones Sustainability Index and obtained a score well above the global industry average. The details on areas where we scored high are on page 22. Our endeavor will be to actually get better on this score with objective to improve business resilience through sustainability. Back in business front, over long run, we are focused on what we believe has helped us in the past. We'll continue to add downstream products, either directly or through partnerships. We'll continue to evaluate avenues to reduce costs through backward integration and other sources. Over short run, until the US-China trade war is resolved and industry balance is restored, We cannot be sure of immediate reversal of downturn or downward trend of realization. I would like to open up the questions now. We would endeavor to answer all the questions to the extent possible, and if there are any unanswered, we'll take them subsequent to the call.

Thank you very much, sir. 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 your touchstone 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. To ask a question, please press star one. We have a first question from the line of Gunjan Prithane from J.P. Morgan. Please go ahead.