Grasim Industries Limited

Ladies and gentlemen, good day and welcome to the Q1 FY21 Earnings Conference Call of Crossing Industries Limited. We have with us today from the management, Mr. Dilip Kaur, Managing Director, Mr. Kalyan Ram, CEO, Global Chemicals and Group Business Head, Fertilizers and Insulators, Mr. Jain Dua, Chief Executive Officer, Chemical Division, Mr. Ashish Adukia, CFO. As a reminder, our partisan 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 touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Aditya, CFO. Thank you, and over to you, sir.

Good afternoon to all the participants. So as the virus spreads across the country and has now started reaching hinterlands, the health and safety of our employees have gained even more priority, and especially at the plants. At our plants, social distancing, rigorous screening, and health checks have become preset norms. In fact, we've initiated automatic detection system in one of our plants, which would enable detection of face mask, body temperature, social distancing norms remotely anywhere in the plant. So now coming to the quarter, quarter one FY21, we have followed four key themes for the management in this quarter. These are all mentioned on page five of the presentation, which you must have all got. The first theme is demand creation. The second theme is cost rationalization. Third theme, innovation and agility. And the fourth theme, cash flow focus. So in our first theme, we have actually reoriented our portfolio for the quarter, depending on the demand. The concerns around health and hygiene have assumed primacy in light of the current pandemic, which uplifted the demand for chlorine WAP value-added products. We witnessed WAP realization improving and chlorine turning positive in this quarter due to increased demand. The lockdown severely impacted our operational and financial performance in the month of April, The operational performance improved in June as majority of our plan resumed their operations leading to better capacity utilization for the month of June and for the quarter. As highlighted on page six, the capacity utilization of VSF business improved from a load single digit of 6% to 48% in June. And now in July, it is actually running at 79%. The capacity utilization of a caustic soda plant improved from sub-25% level in April to 70% utilization level in June 20, and 78% now in July. We're not providing any guidance for August and September, but the fact is that we're gradually reverting to normalcy. On page seven, our share of value-added products have improved across our businesses. The share of WAP in the overall VSF sales volume increased by 25% quarter-on-quarter to about 30% of the overall volume. Similarly, for fertilizer business, the product, which is the non-urea sales revenue, have registered a double-digit sequential increase. In our second theme, we have been at the forefront of innovation. Rassim's Leva brand has launched anti-microbial fiber. The fabric produced using this special fiber inherently possesses anti-microbial properties, which inhibits the growth of microbes on apparel and home textiles. We also saw emerging opportunity in the non-woven segment, and therefore we were nimble in tapping this opportunity by commencing non-woven production on our existing lines. In our third theme, our approach has been to reduce costs. Across our businesses, we have reduced fixed costs by 35%, which amounts to savings of 256 crore compared to FY20 quarterly average. Please note that not all of it is a permanent saving. However, we are targeting more actions on cost savings, which will be more permanent in nature. So, of course, this fixed cost has, for example, repairs and maintenance, which has come down because of the lockdown as well. Lastly, as a fourth theme, we continue to maintain cash flow focused approach and we continue to maintain a healthy liquidity level. We have calibrated our CapEx plan based on demand outlook and cash flows. Our interest cost has been most competitive in the market, the benefits of which is visible in this quarter with low interest costs and higher treasury income because of MTM gains. Part of interest costs is capitalized to the VSF Reliance Project. On page eight, standalone revenue and EBITDA witnessed a month-on-month improvement driven by underlying business performance of VSF chemicals and fertilizers. The month of June contributed almost 45% of quarterly revenue up from about 23% in May. Our EBITDA number turned positive in month of May and June after reporting a negative number in the month of April. And if you see, in June, we have 51 crore of EBITDA and that has COVID-related expense sitting out there of about 25 crore. So a June number would have been higher by 25 crore on a monthly basis. Given exceptional circumstances, we've shared month-on-month breakup of financials and key performance indicators for better understanding. These details will not be shared from the subsequent quarters. But moving on to the next phase, the consolidated revenue and EBITDA for the quarters to that 13,621 crore and 2,613 crore for the quarter. On a standalone basis, the reported EBITDA was negative 46 crore. However, there's one time cost of COVID related CSR expense of about 40 crore sitting out there, adjusting for which the EBITDA would have been negative six crores. Moving on to page 11, The board has approved the capex of rupees 1,615 crore for FY21. And our capex spent for the quarter stood at 131 crore. As of now, we have decided to continue the Reliance VSS project and Brownfield project with revised timelines. We keep reviewing the balance amount of the capex on quarter-on-quarter basis based on business outlook. The other capex, so Willi projects is about 818 crore plus 46 crore this year. And the balance amount is mainly towards the upkeep of plant and environment-related capex as well as some of the commitments that were already made of payments, et cetera, that are being made now. Moving on to business performance, page 13, VSCO segment financial performance was impacted by lower sales volume and weak pricing environment. The weak operational performance of VFI weighed on the overall segmental performance. The capacity utilization of VFI has been low given the big demand condition in domestic as well as overseas markets. VFI sales was about 56 crore and EBITDA loss was about 81 crore out of the 113 crore negative that you see on the slide. The domestic VSF realization, which is in the next page, were impacted by global VSF prices, which were at historic lows. The domestic demand for VSF remained low due to extension of local lockdowns in key manufacturing hubs, non-availability of workforce, and with malls and shopping centers being non-operational. Our cost focus gained traction during the quarter, our fixed costs reduced by 186 crore in comparison to average FY20 cost. Moving on to the next page on VSF on page 15, the VSF business switched their focus from domestic market to export markets and dedicated few production lines to cater to the export demand of specialty products. This actually led to 26% rise in share of exports to 38% in June 2020. and improve the capacity utilization for overall BSF business as well. I'll move now to the chemical business performance, which is next page onwards. The operational and financial performance of chemical was better than some of the other businesses. The capacity utilization ramped up to 70% in June. closer to March utilization level. And please, if you recall, March utilization level was lower because we lost the last one week of March. The chemical business reported EBITDA of 41, positive 41 crore in the quarter, despite challenging market conditions. The caustic soda demand remained weak on account of lower demand from user-based industries. Chlorine value-added products demand remains strong and touched pre-COVID levels during the month of June 20. The chlorine realization turned positive in the quarter, driven by demand from disinfectants and hygiene-related products. On page 17, you will see that the global caustic prices were at almost a four-year low, and weakened to sub $300 level during the quarter. The equal prices were influenced by weakness in caustic soda prices, but were partly compensated by positive touring prices. The domestic caustic prices continue to be impacted by excess supply situation and continuous inflow of imports. On page 19, Fertilizer business was one of the bright spots in the company's performance. The demand for urea remained strong on back of normal monsoon and advanced crop sowing. The YOY improvement in EBITDA was driven by lower fixed costs of about 3.6 crore, one-time gain pertaining to freight subsidy arrears of about 12 crore, and improved product sales by about 4.6 crore. Product which is essentially non-urea products sold through our distribution channel contributed almost 24% of the overall fertilizer EBITDA for the quarter. If I take you to page 27 on sustainability, Our VSS business has collaborated with other global viscose players in formulating the Zero Discharge of Hazardous Chemicals, ZDHC, guidelines for manmade cellulite fiber players, covering responsible production as well as wastewater and air emission standards. We are committed to implementing ZDHC standards at all the fiber manufacturing units. In terms of outlook for the business, with the easing of lockdown conditions and gradual resumption of economic activities, demand for the company's products is expected to increase in the coming quarters. We have initiated measures to optimize operations across plants, reduce fixed costs, and conserve cash. We continue to maintain a very comfortable level of liquidity to navigate any uncertain business environment. Our inherent financial strength, our operational excellence, and diverse product portfolio with cement, financial services, viscose, chemicals, et cetera, makes us prepared to withstand temporary disruptions and sustain the leadership across these businesses. So that's it from my side. I will now hand over back to the operator for Q&A.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone 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. Anyone who would like to ask a question, please press star and one at this time. Ladies and gentlemen, we will wait for a moment while question queue assembles. The first question is from the line of Gunjan Kishyani from JP Morgan. Please go ahead.