Grasim Industries Limited

Ladies and gentlemen, good day and welcome to the Q4 FY20 earnings conference call of Grassem Industries Limited. We have with us today from the management, Mr. Dilip Gaur, Managing Director, Mr. Kalyan Ram, Chief Executive Officer, Global Chemicals and Group Business Head, Fertilizers and Insulators, Mr. Jayant Dua, Chief Executive Officer, Chemical Division, and Mr. Ashish Adukia, Chief Financial Officer. As a reminder, all participants' lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during a conference call, please signal an operator by pressing star and zero on your touchstone phone. Please note this conference is being recorded. I now hand the conference over to Mr. Ashish Adhokia, Chief Financial Officer. Thank you and over to you, sir.

Good morning, everyone. And first of all, I hope that you and your family members are all safe. We have uploaded the presentation on our website as well as I think it has appeared in the BSE and NSE websites as well. So I would request you to please download the presentation as I will be referring to some of the slides from the presentation. So let me start with the room. which is impact of COVID-19 on our performance. The announcement of shutdown on March 21st, 2020 came without any heads up. So our businesses had to forego large part of sales that is typically achieved during month ends. The initial sales made in March could only recover the costs for that month. So while January and February were normalized months for us, month of March impacted the overall quarter performance. In Jan and Feb of 2020, VSF business achieved its highest ever production volume with a run rate of about 1700 TPD. The prices of VSF, which were on the weakening trend till Q3, had stabilized during the start of Q4 with some price improvement in the month of February and March. On the cost front, there was significant benefit on account of softening of input prices like that of bulk, caustic, and also the business had taken up certain cost-focused initiatives, which they called Project Cascade. In the presentation, we have given a number that emerged out of the cascade benefit. In case of chemicals, the EQ continue to be under pressure due to muted global prices and excess supply on account of large capacity additions in India, as well as rise in the imports. Overall, we achieved an EBITDA of Rs. 467 crore in Q4 for standalone business, which if we adjust for one-time expenses of about Rs. 23 crore, it would be very close to our Q3 EBITDA, despite us losing a large part of March. I would now like to walk through a few slides of the presentation to provide you with better perspective on both COVID situation as well as the financial performance. So on slide five, when the lockdown was announced, we had temporarily suspended operations of all our plants, except for fertilizer, which had continued the operations through the lockdown. Chemicals and VSF plants received permissions to start operations over April and May as we produce certain essential items. At the current junction, VSF plants at Nagda, Karach, and Vilayat have assumed partial operations, while Harrier is expected to resume operations shortly. The VSF plants are operating at 30 to 40% utilization, which is growing at a graded way. And all our chemicals plants have resumed operations partially in May. And for June, the capacity utilization stands at 60%. Overall quarter will be lower capacity utilization than the June utilization, obviously. Our business continuity plan is focused on Employee safety, which includes ensuring safety as they resume work. Many of our plants have adjoining staff residential colonies, which help in returning to work expeditiously. Second is cash. We have maintained healthy liquidity and have raised some amount of debt, taking advantage of very competitive rates. Third, focus on an entire value chain. We have optimal level of raw material inventory to run the operations. After some initial hiccups on supply chain and logistics, it seems that we are normalizing now. We've had a clear customer focus. We have to work closely with our customers and help them in their initial restarts. So if you go to slide... Then on consolidated basis for FY20, Grassin reported strong financial performance with revenue of 77,625 crore and EBITDA of 13,846 crore and PAT, which is after extraordinary of about 4,425 crore. And on standalone basis, Grassin reported EBITDA of 2,836 crore and PAT of 1,270 crore. Let's move to slide 13. Yeah. So for the entire year, at the standalone level, while we generated EBITDA of 2,836 crore, we actually generated net cash from operations of 3,159 crore. This has helped us maintain strong net debt to EBITDA ratio of 1x. The standalone gross debt includes Rs. 322 crore of interest-free loan from special banking facility provided by Government of India against the fertilizer subsidy due. In fact, in quarter one, this loan has already been repaid with subsidy release from the government. It should ideally not be counted as debt. It was as though the subsidy had come to us through SBA, the Special Banking Facility. And therefore, the net debt figure should be considered lower at 2,653, which brings net debt to EBITDA at below one, at about 0.94 times. On slide 15, VSS, including VFY, has sales of 102 crore and EBITDA of 261 crore. VSS achieved a strong performance on sequential basis due to reduction in the input prices. The bulk prices on consumption basis reduced by 11% in 53,782 per ton in Q4. The price premium of VAP over gray increased during the quarter as reflected in the strong blended realization in Q4. VFY revenue for Q4 was 415 crore with EBITDA of about 7070 crore. If I go to page 19, There is a consistent decline that you can see out there in EQ, which is primarily due to capacity additions by the industry of almost 610 KT during FY20 in the domestic market. Demand for chlorine value-added products improved with increased usage in health and hygiene products post COVID-19. The WAP sales volume growth stood at 10% YOY, driven by this demand. On page 21, we've covered fertilizer performance briefly. Key highlights are that we've received communication from government along us, fixed cost reimbursement retrospectively. This improves the Q4 EBITDA by around 23 crore. This amount is for the entire year, just clarifications. Second important growth lever in the business performance of fertilizer is that of Purok. Our fertilizer business provides agri-solutions, seeds, crop production products, soil health products to farmers under this brand name Purok. This is basically the non-urea business. These products are sold through our distribution channel, which sells urea as well, and plus there are more tie-ups. PURAC actually contributed almost 28% of the overall fertilizer EBITDA for FY20. There was maintenance shutdown during Q3 as well as in Q4, due to which we lost some production in fertilizer during the year. GRASIM released its maiden sustainability report with ambitious targets to achieve global leadership and sustainability. The BASF and chemicals business and other businesses as well have taken targets on safety, water, emission front. The details are all covered on slide 31. Yeah. Overall, COVID has had a major impact in March 2020, as well as quarter one of FY21. Looking at the future, which we should, we are focused on our strategy to make our business even stronger. And a few points, how we're thinking of making it stronger is to reduce fixed costs further. and look at other cost-optimizing measures like we did in case of Project Cascade for VSS. There is still further scope to reduce fixed cost. Focus on value-added products, which give us better margins, and have a calibrated approach to CapEx, which is currently being kept on hold till we have visibility on the economic outlook. So that's it from my side. I will now hand over to the operator for Q&A.

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 touch-tone 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 1. We have a first question from the line of Kunjan Prithyani from J.P. Morgan.