Grasim Industries Limited

Good afternoon to all the participants. The year 2020 was a dramatic year with businesses witnessing a sharp dip followed by an equally sharp recovery, which was led by monetary and fiscal stimulus coupled with a rebound in consumer confidence. And this is also reflected in our results. But before I get into the results, I would like to highlight certain significant developments that we have already announced. Gratium is on its path of a strategic transformation. In the last few quarters, we announced strategic decisions like sale of fertilizer business, partnership with Lubrizol, and entry into the paints business. We are very excited as we potentially imbibe more growth which makes us positive about the future direction of the company. Let me briefly update you about the progress on these initiatives. On fertilizer, we have received CCI approval and NOC from stock exchanges. We have filed our scheme with NCLT, and we are well within the timeline of consummating the transaction that we indicated earlier. On paints, For the benefits of audience, I'll reiterate what he said in the previous call, that our foray into paints is a strategic portfolio choice. Entry into this B2C business will provide scale and growth to the existing portfolio of the company, and at the same time, reduce cyclicality. Within paints, decorative paints will be our focus area. We've committed to an initial capex amount of 5,000 crore over a three-year period. We are in the process of seeking shareholder approval and key steps in executing our strategic plan in Pains will commence thereafter. We will share updates with you periodically post-completion of materials milestones. As of now, I would direct you to refer to the transcript of our previous investor call for further details, as there's no further update from that call. On our capex of current businesses, all our capex are progressing well, and we are scheduled to meet the commissioning timeline of PSF project in two phases, in quarter two and quarter three of FY20 group. For chemicals, all the three projects will commence by quarter one FY22. In terms of operational performance, Q3 FY21 has been a strong quarter with all our key businesses reporting robust operational performance and financial performance, and we have simultaneously deleveraged our balance sheet. At consolidated level, The company reported best-ever EBITDA and PAC numbers. Likewise, our standalone financial performance demonstrated a strong rebound. Our VSF plants operated at 100% capacity utilization throughout Q3, and the utilization of via five plants touched 89% in December 2020, and for the quarter, it stood at 77%. The VSF demand in India recovered to pre-COVID levels with the share of domestic sales in the overall sales mix expanding to 91% in Q3 from 82% in Q2. The share of value-added products in our overall sales mix improved to 22% in Q3 from 15% in Q2. The uptick in the VFF price has been driven by strong revival in domestic demand, primarily in the Tier 2 and 3 towns and rural areas, supported by festive and wedding seasons. The Chinese VSF realizations maintained an upward trend and averaged RMB 10,500 in Q3, up 23% sequentially, and in Jan, the prices have further climbed to about 13,800 levels. Favorable inter-fiber dynamics with widening gap between cotton and VFF led to production, sorry, reduction in inventory levels and higher operating rates. The VFF plant inventory in China moderated from 23 days in September to about 10 days in January. The viscose business reported best ever financial performance in the last too many quarters with revenue of 2,145 crore and EBITDA of 482 crore in quarter three. The viscose EBITDA witnessed a significant 89% increase YOY. For the VFY business within the viscose segment, the revenue was 436 crore and EBITDA was 97 crore in quarter three. The chloracally Capacity utilization touched 89% in quarter three, a 9% improvement in utilization rate sequentially. Revenue and EBITDA of chemicals business touched the pre-COVID levels with pickup and sales volume and further supported by lower input costs, especially in power. The continued weakness in equal realization impacted the EBITDA, The caustic soda prices in CFR terms in Asia, however, recovered a tad from the lows of $239 per metric ton to about $270 per metric ton. The demand for chlorine value-added products witnessed some weakness from the health and hygiene segment, along with some softness in the realization. But at the same time, in the chemical segment, the epoxy business witnessed a strong demand for its products from auto and consumer durables. On the standalone basis, excluding the discontinued operations of fertilizer, as we have signed the agreement out there, our revenues and EBITDA for quarter three stood at 3,672 crores, and 709 crore respectively. EBITDA reported an improvement of 53% YOI. Our FAT for the quarter nearly doubled YOI basis to 359 crore in quarter three. The revenue in EBITDA from the discontinued operations of fertilizer for Q3 stood at 597 crore and 57 crore. So if you had, you know, theoretically added 57 crore of fertilizer EBITDA to the standalone EBITDA, iEBITDA would have been at 766 crore. But the accounts is all adjusted for fertilizer being excluded line by line and only included before that as a specific item. Owing to lower capex and better cost management, we have been able to significantly de-level our balance sheet during the nine-month period at both consolidated and standalone level. The consolidated net debt stands reduced to 12,767 crore, a 39% reduction from March levels. At a standalone basis, the net debt reduced from 2,975 crore in March to 2,093 crore in December. And this will get further strengthened with the proceeds coming from the fertilizer sale. Our focus on sustainability-related initiatives are getting recognized at the global level. We are committed to improve our non-financial reporting standards further going ahead. In December 2020, Grassim released its maiden integrated report. The purpose of embracing integrated reporting is to make our stakeholders aware of how all six capitals come together at Grassim to create greater value. Recently, Grassim won Investor Relations Award being organized by Investor Relations Society in collaboration with BSE and KPMG under the category ESG Disclosures. Our BSF business won the Global Golden Peacock Award for Sustainability 2020. Our Dow Jones Sustainability Index score also witnessed a significant improvement in calendar year 20 we moved six ranks to 11th position in our sector. In the latest WBCST report, Gratham Industries featured at the top among the list of companies procuring renewable power through corporate renewable PPAs in India. Wisco's business sustainability achievement has been showcased in a case study Verla Cellular Spearheading Sustainable Fashion, which is the title, published by world's renowned Ivy publisher, and it is now available on HBS website. Finally, in terms of outlook, we expect strong tailwinds for VSCO's business with improved demand outlook, although various input costs have also started to firm up. The demand outlook for chloralkali and epoxy remains positive for the quarter. The eco-realization continues to remain weak, driven by softness in the global caustic soda prices. Our inherent strength lies in our operational excellence, financial prowess, our resilient growth, and our customer centricity. And if you see the cover of our presentation for this quarter. As a conglomerate, we combine the synergy of a conglomerate and energy of focused businesses. So back to you 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 their 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. Anyone who has a question may press star and one. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Gunjan Prithyani from Morgan Stanley. Please go ahead.

Hi, that's Gunjan from JP Morgan. I just wanted to clarify on the CAPEX thing. I see that there is a balance of about 1,000 crore yet to be spent. That is all for Q4 we'll be spending. Is that understanding correct?

Yeah. So, Gunjan, that's right. 1,800 crore or 1,825 was what was approved by the board. And for nine months, first quarter, we didn't spend any. Nine months, we spent approximately 800 crores of balance. Remaining approved is 1,025. There is a high likelihood that some of this will spill over to quarter one of next year. So it's quite possible that we may not be able to spend the entire thousand, but there might be some spillover to quarter one.

And have we put, you know, do we have an assessment of how much we are looking to spend next year? I mean, keeping the pain aside for the core VSF and the caustic business?

So, you know, this time of the year, as some of you may know, we go through our CapEx planning cycle. So by next quarter, we should be able to give you guidance of what will be the budget for the year that will be approved by the board. So as of now, it's under planning, and then we'll take it to the board and get it approved. And that should include all the businesses, including Penns.

Okay. But is it fair to assume that the magnitude of 1800 crores, a large part of Capex and the core business is being done now incrementally, a dominant part of Capex is going to be on the newer venture? And if, I mean, just on that line only, if you can also tell us the consummation of this deal, fertilizer, when do we expect the money to come in?

Sure. So on the First part, unfortunately, at this stage, we are in the planning stage. So for me to give any guidance on the CAPEX will be very difficult as we are collecting all the figures and then we will internally go through them and then take it to the board and there may be changes there as well. So I won't be able to give you that guidance. You know, the major capex of vilayat, of course, from VSF perspective, will be done. So there is no major capex in VSF after that. In chemicals, there are multiple projects, as you know, that goes on, unlike vilayat, which is one large project that we were putting up. So in chemicals, it's always difficult to give such capex guidance. On the fertilizer sale, When we announced the transaction, we gave a guidance of about nine months. So somewhere around June, July is what we expect it should get over. And we are expecting the timeline to be around that looking at the development of what has happened with the regulatory approvals. So as of now, fingers crossed. We are hoping that June we should be able to culminate the transaction and therefore we will get our funds as well.

Okay. The second question I had was on the industry, VSF industry now. Clearly a very, very sharp pricing improvement after a long time. I just wanted to understand how much of it is also the supply, you know, which had gone off the market. I mean... Is there any risk that, you know, some of the capacities which were taken out of the market start to come back given, you know, the demand environment is improving? I mean, just general sense on how should we think about the whole demand supply over the next 12, 18 months?

Gunjan, if you look at the numbers, in fact, what you're saying has already happened. the operation rate in China, which used to be, which has a low of 65% in Q2, is now already at 80%. 80-81 is a healthy utilization rate. So even at that operation rate, the inventory is coming down consistently. So what it is telling you is the demand is far outstripping the supply. And the reason for that being twofold. One is the risk of demand per se has gone up. And second, the that cotton yarn prices shot up significantly, globally and everywhere else. So there is a shift from cotton to viscose, and China, as you know, consumes about 8.5 million tons of cotton, produce only 6 million tons of cotton, and then they import about 2-2.5 million tons of cotton yarn. They are under huge pressure because of the growing size of yarn to use more and more viscose. And that is what is driving the entire pricing system. So the prices are moving exponentially. Like Ashish mentioned, it was the 1.885 as we speak in China in January. In December end, it was 1.45 or that kind of a number. So I think we are now coming to almost pre-COVID level of prices and the demand because inventory has come down to 10, 11 days, which is a historic low. and this is something which is a healthy inventory. So, I think this is more demand-driven than supply constraint.

And there is no big capacity expected to commission on steam?

Yeah, there's nothing coming. I think 200,000-300,000 tons, that is routine people do. The biggest one to come on steam is our capacity only, which I mentioned to you is only India for India.

Okay, got it. I'll join back with you. Thank you so much.

Thank you. Our next question is from the line of Sumangal Naveitya from Kotak Securities. Please go ahead.

Yeah, thanks for the opportunity and congratulations on a very strong quarter. First question is on the ESF business. So one is 1.8 work is $1.4 price. So that is what Jan and Seth just wanted to confirm that. And the second is, you see the cost is also catching up and we benefit out of the lag. So if we factor in the spot prices and the spot bulk cost, what sort of margin change or the spread change we will see at least directionally from what we have seen in CREQ of around 32 rupees per kg. If you can give some sense on that, it will be very helpful. Sure. I think, you know, specific guidance on spread, we will not be able to give. But we can give you directionally the pulp price and, you know, how it has actually gone up in line with VSF price. So that, you know, Dilip can give you some idea on. You have seen the quarter three results, what you have seen, the pulp hasn't started running up the way, most of the increase happened after the quarter three. So pulp today, as we speak, is almost at $8.90 per tonne. Now, pulp always follows the viscose. So, unless viscose can take, pulp cannot go up. So, while you are right, the input prices are going up, but your quarter 4 will also see a rising price in viscose. So, to my mind, delta will still remain favorable. Understood. Second, with respect to the chemical business, which is still struggling, is it possible to share some more outlook as to how we see FY22 shaping up? Yes. heavy at this point close to the bottom as far as cycle is concerned and either should move sideways or up north in the coming quarter, especially given with so much of capacity addition happening and the pipeline is also quite filled up. Yeah, Jack.

Oh, so, hi. So, let me just say that

the last couple of months, what we've been seeing is more lateral movement on the cost of prices and marginally goes up, marginally comes down. So, until this significant demand supply scenario changes, I think we're kind of at the bottom of the cycle. Now, as you put it very correctly, that there is a substantial demand supply gap at this point of time. So, we really don't see, and that even exists today.

So,

I think the picture would be either it will do a lateral movement or it will do a marginal upward movement.

I don't really see it going down subsequently until and unless the demand side significantly changes. Understood. This is very helpful. Thanks and all the best.

Thank you. We'll take a next question from the line of Gaurav Rutteria from Morgan Stanley. Please go ahead.

Hi. Thanks for taking my question. So, firstly, on chemicals, any outlook on what's happening on the duties which got expired? Is it going to be reinstated? Any color of that? And from what you talked about, that it appears that it has bottomed out on margins. What exactly one should try to understand that, you know, beyond this contribution margin, you know, it will not make sense to increase supply automatically, the rebalancing of demand supply will happen.

So let's put it this way that we're still trying to assess that because now if we have to go back towards the Korea, China, which expired the sunset review, we have to go through the entire process of figuring out does it again lead to injury margin when they were not supplying earlier in the past.

So that's a long-run process which will take its own set of times. I think the industry is working towards it to see what they do next on that. To your point on the margin front, I think the picture is going to be as in more and more capacity utilization increases in the industry, although as it is today has gone above 80% capacity utilization. I think the margins are expected to only increase because there is enough demand in the market, both on the caustic side as well as the chlorine WAP side, plus chlorine consumption per se. So while it's a very delicately poised position at this point of time, any demand decrease could have marginal deterioration of margins, and any upside coming could lead to an increase in margins. So it's fairly fine-tuned at this point of time.

I won't get into margin guidance at this point of time because, you know, we're still in the process of ascertaining what we'll do for next year.

Just to add, globally as chemicals, I think there is a huge rebound. I think majority of chemicals overall have recovered. We expect coming year to be significantly on a bullish side. And Jen said that demand is looking strong. I think we will still see that we are at the bottom end of the cycle and we will continue to have a similar level of kind of lower level pricing for the coming few months. But one thing you need to know is there's not been any significant capacity increase anywhere else in the world. predominant capacity increases have been in India only. So as Jen said, as and when the capacity starts to be utilized further, we should see both from a global perspective as well as an India perspective, we'll start to see a rebound. So I think we are waiting. Just like you, we are waiting for the coming months. Sure. Secondly, on VSF, given that the margins are so lucrative, prices have gone up so much, do you think that there can be new supply which can come in? And even if it happens, how long does it take for the new supply to really come in and get commissioned and start producing output in the market? If you're talking of cooking for a new plant, it is anywhere between 24 to 30, more than like 30 months to 36 months. You don't have to see years. Okay. And lastly, a question on capital allocation for Ashish. You know, bulk of the organic CapEx will get funded by internal accruals given the cycle has turned. Maybe we'll lever up the balance sheet to fund the investments in the paint business. From a medium-term two to three-year perspective, are there any potential investments over and above the paints which one should keep in mind either from a group company's point of view or any other organic investments? Thank you. Yes. So, see, what we see today as we stand, there is capital demand from which goes continuing. There is chemicals. And, you know, when I say chemicals, it's chemicals and some of the other sectors like insulator and VFI and So our standalone businesses. Pains will be another one. Now, given all the capital demands from all these, okay, it is substantial enough for Gratham to take care from its internal accruals, and we'll, of course, take that to meet the requirement. So it's highly unlikely that there will be, you know, capital or investments into any of the subsidiaries or JVs or associates or anything of that sort. Except, of course, solar, as we increase the capacity, the equity infusion is done by Gratham, and equity is always a smaller portion out there. We generally fund it through Gratham out there. So that would be the broad capital allocation plan for Gratham. So, Ashish, does it also include the outlook for financial services, like from a more requirement from a subsidiary or joint venture, as you mentioned? Yes, as of now, as we stand, you know, financial services, we've already infused equity a year back. So, we don't anticipate a requirement to come for some time. But financial services needs to be treated differently than other associate companies, et cetera, because it's a growing entity. It's delivering double-digit growth in its financials. And we would like to maintain consolidating stake out there. So if it's a big valuation event out there and if you want to maintain the stake so that it is value-accretive for grassroots shareholders as well, we may infuse capital there. But that's a very, let me put it, a framework that I'm talking about. Okay. There is absolutely no plan and there has been no proposal from financial services also that has come to us for any capital infusion.

Sure. Thank you.

Thank you. We'll take the next question from the line of Amit Muraka from Motilal Oswal. Please go ahead.

Hi, thanks. Good afternoon. So I wanted to check on the expansions like the caustic 300 kTPA and even the VSF about 200-220 kTPA. Where is the expected commissioning now of these expansions?

On the caustic side, like Ashish put it, we expect by the end of quarter one of next financial year, a large portion of the caustic capacity would be more or less up. And how will be the ramp up of the thing? So it will be a slow ramp up.

You can make any manufacturing process. I think by the time it reaches the industry level capacity utilization, it will take the balance part of the year.

At the end of FY22, you're saying that it will be your normal utilization level? Yes, yes, yes, yes, yes, yes. And also the VSF?

VSF, the first line will come in quarter two, and the second will come in quarter three. And normally, it takes about three to four months for a full ramp-up. So the VSF, the demand is there. It's all up to us to how fast we stabilize the plant. So based on the past experience, it should be doable in three to four months' time.

So, when the VSS ramp up, will the export share go up or you think that it will be able to... Right now, as we speak, the domestic demand is really very high.

We are not able to service all the demand. That's why you have to cut exports. So, keeping the healthy level of exports that you have always been keeping, I think we should be able to sell quite a bit of it in the domestic market. As we speak, there is a lot of yarn still gets imported into India, which is slowly coming down. And that demand will come through the fibres. So we expect a very healthy demand for the fiber at least in FY22.

Yeah. And just one more question on China. Like two years back when Sateri had done that big expansion, what I understand that there was a plan to expand that further actually later. So have you heard of any development on that second phase of expansion there?

No, I think maybe your information, it's all here. There's not nothing on the piece of paper. But the announcement they made is about a lara shell. Suddenly, Sapir is saying that they will put up a 500,000 tons lara shell plant in China. If you look at the number, lensing with a started lara shell 30 years back is right now at about 250,000 tons per annum. So he's saying I'll become double the size of lensing in the next four to five years. So to my mind, their focus right now is lyosil plant in China. And they are trying to de-bottleneck like all of us existing plants. So that everybody will do. When the market goes well, everyone starts to de-bottleneck their pipelines. So a few tons you can always get from existing pipelines, existing production lines.

Okay, sure, sure. Thank you very much.

Thank you. We'll take our next question from the line of Nirav Jamoria from Anvil Research. Please go ahead.

Good afternoon, sir. Sir, I have a two-part question. So one is on the chlorine whacks which you mentioned in the presentation that the EBITDAs have improved by almost 45% on a YOY basis. But if you can give some sense in terms of how it has performed on a Q and Q basis given the weakness in the realizations, that would be helpful. And if you can give some sense in terms of even the epoxy side, so how it has performed on a Q and Q basis in terms of some percentages.

That would be helpful. So this is the first question, sir. Would you like to give some direction of WAP? Yeah. So let me put it this way.

The chlorine consumption in India at the moment is very robust. I think that's a big positive for us.

The chlorine demand is now growing at a fairly rapid clip. It is actually growing faster than the cost of demand. which again gives it a positive tick mark going forward.

Now, in the early part of the pandemic year, you had a huge surge of requirement of WAPs, particularly on the hygiene and sanitation part, which gave a very robust EBITDA growth to the WAP products in that segment, of which we are the leaders. Now, as the pandemic has slowly, slowly gotten to control, the demand for those VAPs have now come back to the earlier levels, which is business as usual, and obviously has led to certain softening of prices, although still maintaining a positive EBITDA. So our VAPs EBITDA is very healthy. I will not get into numbers on that particular front, and we expect that they will continue to remain healthy as we go forward. because there is an intrinsic behavior change of sanitation which has come into the country and the world just say okay so if so if i would pick mark i would say chlorine demand great doing very well going at a good clip VAP on hygiene sanitation have upped their base level and are doing well. And the balance comes with seasonal VAPs, particularly as the, you know, rainfall comes or the water sanitation demand goes up. As the aquaculture comes, then goes up. So, I think we are fairly well placed on our VAP side to continuously see the robust growth, both on the volume side and a healthy area. Okay. answer on epoxy like last quarter we have some given some indications in terms of our performance uh some quantitative numbers also but even if you can't disrupt the quantitative numbers this can give some percentage growth in ebitda or something like that that would be helpful so see i think uh you know epoxy business first of all in the last quarter was still on a ramp up phase okay coming out of kovid etc But in quarter three, you enjoyed the benefit of volume and that came from auto sector as well as consumer sector. So there were actually three advantages really that epoxy business had. One is the volume pickup that happened in quarter three. Second, the realization also went up in epoxy. And the third is epoxy is in a way a pass-through business. The raw material that they import, most of it, it's mainly a pass-through to the customer, so it has to be looked at from conversion basis. If you make volume, you make that contribution per ton. There is some advantage that we got in epoxy due to the lag again of raw material prices. So we still had the inventory of some older inventory of BPA, which is at lower cost, which helped us with that small timing gap benefit that we had out. So epoxy has actually performed much better than Q2 as well as on YOY basis. And, you know, hopefully it will continue to do so in this quarter as well. Okay. So second is on a slightly strategic one. So in terms of if we see our sales of VSF, it's like around 1,42,000 tons as we have mentioned in the presentation. So if we make some breakups in terms of value-added as well as the value-added, we have sold almost close to 31,000, 32,000 tons. So as per what we have been trying to calculate it based on some backward numbers. It seems like out of our broad category of value-added products like Modal, Excel, Flame Ritter, and Optite, it seems that less premium products as compared to gray is sold more in this quarter. So if you can give some sense in terms of how this mix moves in this quarter as well as on a yearly basis, if you can give some sense on that. Do you want me to respond? Yeah, show the list, please. I think, in a way, you are right. There are four valuable products we have. Then we have Modal. Yeah. We have Excel. Yeah. And we have got the recent one, LeviCo.

Okay.

Now, in a way, it is a dope diet which goes in uniforms and office wear. Thank you. Yeah. That all you all know because of the COVID and the work from home, that segment is totally dead because the schools are closed, the children are not going to the schools. So that segment is where the consumption has come down and that's a large consumption segment. If you look at modal is a high data, high value added product, but low volume. Dope diet is a high volume, but low value added product. So you may make 20, 25 cents, But the volume is 300 tons per day.

Okay.

So the multiplier is much bigger.

Correct.

That is now reviving. As we speak now, now the offices are opening, people are starting going out. What is being told now with the schools opening around the corner, the country will need 4 crore uniforms. Okay. So we believe that is coming back. Okay. Modal has done very well. Modal has done exceedingly well. It has grown back where we are going. Viva Eco is a great success story I have told you again and again because the first time we have got a premium on a commodity risk cost because of its eco-friendly. So that is compensating to a large extent the dope diet loss. Otherwise, I would have had a much bigger loss. The fourth one was a liar sale which got impacted in China because once Satyavi announced this 500,000 tons per year plan, he said, I will bring down the price. The same story. So the last year's price and demand suffered in China. It was more emotional response to Saturday's announcement. It doesn't happen like this. It takes years to build those kinds of volumes. So you're not recovering back. So we are announcing in Q4 quite a good uptick in Liacel demand. So I think the number what you have computed is an upward trend. So as she said, 13%, 22%, 22% will go much further up in Q4. Absolutely. So, a related question to this. So, it is safe to assume that we sell more of Modal, Excel in the domestic market more than in the export market? Modal and Excel is largely export market. We have grown very well in last three to four months. I have tried to shift a lot of domestic users who are importing to our product. Correct. And shifting from cotton to lyosol because the price today is very favorable. Correct. We have done that role. Dope diet is a largely India driven. That means we are the biggest in the world. Okay. Okay. That's how it is. Okay. And sir, in terms of our competition also, if you see like our biggest competitors are in some to like 80,000 tons of modal capacity to like 60,000 tons of lyosol capacity. Not so much. 300 tons per packet. 300, lending at 300 tons per day capacity, right? Yes, sir. How much? Yes, sir. It's not so much. They can make more modal. Okay. We have got almost similar. We have added our modal capacity overseas, not here, but I think we can make a good amount of modal now. So, sir, when they try to penetrate in Indian market and when we try to fight against them, so what are parameters for? So, like, one is, like, if we try to rate them in terms of, let's say, First is the distribution network. One is the post-sale services which we provide to the customers. Third is the quality and fourth is the price. So which all parameters we would like or we actually compete with them in the domestic market when they come and sell their products into India? Speciality is a very different ballgame. Okay. There are only three parameters there. Okay. The foremost is the qualifying parameter which is nomination. Okay. Because most of the specialty goes into brands.

Okay.

to brand nominate that I want. They certify a fabric. Okay. Because they do trials, they make garments, because they don't want the customer to have a different experience.

Okay.

So every time you make a, it's not like commodity, because you can buy from XYZ, but a specialty modal, even if my quality may be as good as my competition.

Yeah.

But that customer has to first use my modal, make the product, try with the customer, get the feedback, and then nominate me. So the whole effort, while it takes time, is the nomination cycle, which can be anywhere from six months to two years. So that is where the biggest differentiator. So because the competition had a head start, they had more nominations because they're European customers. We are getting those nominations, and as we get the nominations, our volume keeps growing. That's the biggest change. Once the nomination is there, quality is a qualifying condition. It's all the same. So they all have the same quality. So price becomes number two. Even if I offer a lower price, if there's no combination, nobody will buy it.

Okay.

So these are the parameters.

Okay, okay.

And post-sale service is also a parameter because probably you would have more distribution network in India than the competitor and that also helps. They are by nature niche products. They are less for low volume, high price. So service is more important for a product like viscose. Okay. I mean, you can't default on the customer orders. You have to supply in time. But it is not the key element.

Okay, okay.

Thanks a lot, sir.

It's a very important element for the mass risk. That's why we score over. And you're a local producer. You're supplying local customers. You give just-in-time. You give technical service. You help them troubleshoot their plans. You help them with their productivity. It's a big differentiator for the mass, of course. Okay, okay. Thanks a lot, sir. Thanks for all the explanations. Very helpful. All the very best, sir. Thank you.

Thank you. Our next question is from the line of Sanjeev Kumar Singh from Systematic Shares. Please go ahead.

Thanks for the opportunity, sir. My question is related to the previous question. What I'm seeing is that in VSF, our real ISA growth is only 9% QOQ. When in international market, the prices are up by 20%. So is it because of higher share of sales in the domestic market or can we expect higher prices increases going forward? I don't know. Would you like to? No, actually, see, this is a little bit, you know, competitive, sensitive information to talk about how much increase is expected in the domestic prices from now. I think it's suffice to say that there has been increase in the global prices, and in line with that, India prices have also gone up. It may not have gone up as much as the international prices. We have to take care. One of our ingredients and inherent strength that I talked about earlier is our customer centricity. We have to discuss and make sure that we react to price increases in a calibrated way along with the customer. Dilip, if you want to add anything to that. I think you rightly said, because I think we have been saying this on the time and again on the call, we do not blindly follow the global prices. We believe that the health of the value chain is very important, domestic value chain. You can take a price increase as long as the domestic value chain, the weaver in the system, the spinner in the system can withstand that. So we always... The global price is a base. But what you actually do is also to make sure that there is a health of the value chain is maintained. So what was happening, there's a lot of yarn imports happening into the country in quarter three and quarter two. So to make sure that the imports don't happen and our spinners get the opportunity to serve in that market, we decided on the price increase in sync with that principle. So it's a... It will follow, but it follows in a calibrated manner. Yeah. Okay, sir. Got it. Thanks a lot. Thank you, sir. Because if you have two, the price and volume, you can get one and you destroy the other. It doesn't make sense. So you must have both the multipliers with you. Right, right. Thanks, sir.

Thank you. Our next question is from the line of Prateek Kumar from Antique Stock Broking. Please go ahead.

Hi, good evening. Thanks for the opportunity. My first question is on...

So, I mean, a couple of years back, we announced this plan of 7500 or 7800 which we mentioned in our presentation. So, how much of that like in FY20 and 21? I believe around 4700 would have been done. So, another 3000 left and are there significant savings which we have done on that number which we gave like a couple of years back? No, see, I think when we gave a number of 7,500, okay, it was multiple projects, and since then, you know, the estimates have undergone change. Broadly, it remains the same, but, you know, the estimates can be, you know, a few dollars here and there, okay? Okay. But broadly, my guidance to you on CapEx would be to actually focus on what we give in the next quarter rather than trying to figure out through the balance figure that is left. Though my guess is that the number that may come out will be around the balance figure over next two years, right? So that's what it should come out. That's been the history, if you see, of Gratham, where the numbers for CapEx tends to be around 2,000, 2,500, somewhere around that range. But very, very, like I told, I think, in the earlier question as well, it's best to wait until the plan is approved by the board.

Okay.

And secondly, on fixed cost, we had several savings on fixed cost in Q2. So have that all like, I mean, some of those which are not sustainable, have they all come back or some of them still come back in Q4? So I think our approach to fixed cost was different. We attacked fixed cost to actually have sustainable savings in the fixed cost. Rather than just because of COVID, everyone enjoyed fixed costs, so we also did so. So the fixed cost saving is continued in quarter three as well, and it's YOY basis. There is a double-digit reduction in the fixed cost savings as well. So there are conscious programs that we've run to reduce the fixed cost. and just one last question on uh on the bss spread so uh uh our spread place of what uh the way we have existed uh this portal uh so can it uh i mean likely cross our previous highs which we did in q1 19 uh in q4 given the sharp increase in domestic size and i think even two four and But all well can say the demand is healthy and trends are good. That's all.

Thank you. Our next question is from the line of Bhavin Chheda from NAM Holdings. Please go ahead.

Good afternoon, gentlemen. Good set of numbers. Just on the Capex, since there is a bit of confusion. So, VSS, we are largely completing 0.8 million by first half, and chemicals also we are largely completing by quarter one, except for that 73,000 phase two, which will take time. And your slide says your pending Capex is 1,000 crores. So, over and above this for completing this VSF and chemical announced expression, there would be some number in FI22. That's the number only left, right? And is this a substantial number or it is less than 2,000 crores?

So, you know, again, I said that it's difficult to give that guidance. See, in terms of expansions in VSF, it will be over. So, unlikely that the number will be large capex coming out of VSF. In chemicals, there are multiple projects. There are VAP projects that there are power saving projects which they may want to And it's a multi-locational business, okay? So it's always difficult to say what the capex there would be. So I would still encourage that. And then we have to also look at pain, et cetera, right?

So we have to... No, Anish, it's a non-pain business. Only the current business, VSF and chemical, which is getting largely completed in first half. I understand there was a separate call and it would be my point is different.

My point is that now we have commitment towards paints as well. So we have to look at the overall picture and overall number as well. So we can't keep looking at things individually, you know, because then we have to see how much the balance sheet of Crescent can support. without us reaching the, you know, certain levels of net debt to EBITDA, etc. So, therefore, I'm suggesting that let's look at the number in the next quarter for the capex.

And earlier, you said that this BSF incremental capacity which is coming in just takes three to four months to overall stabilize. So, So, this incremental over 2,19,000 should have a full blow in second half of FY22 because with the demand situation as the market is already there, it's how much you churn out from your production line. So, if all goes well, that incremental 2,19,000 can be available at optimum in second half. Is that assumption correct?

It will come in phases. The first line is coming in quarter two, so that can possibly be available if all goes well for two quarters. But the second is coming in quarter three. So if all goes well, you'll get for one quarter full block. This all will be partial.

Okay. Thank you, sir.

Thank you. Our next question is from the line of Madhav Martav from Fidelity Investments. Please go ahead.

Hi, so good evening and thank you so much for your time. I just wanted a quick update from you on the CPVC project that we had announced. Any updates on the timeline there? And I understand that the CAPEX there will be quite limited to negligibles from that insight. But in terms of the management fees or however the contract would be, how much of an EBITDA contribution can one expect from that project?

Sure. So, on the capex front, Kalyan, would you like to give that update? I think on the beta front, we've said last time also that it will be part of the WACA beta. We're not giving out a specific number out there, like we don't give for each component in chemicals what number is. But I had also said, and I'll repeat, that the what we get as EBITDA per ton of chlorine, if you look at that measure out there, then it is likely to be better than the blended EBITDA per ton of chlorine that we get today from our wax that we produce. So that may give you that idea that it is better and it's high in terms of profitability. Kalyan, would you like to ? So when we established this alliance partnership, I think we had three things in mind. One was a full-fledged chlorine integration with a player of world-class players. We wanted to bring world-class technology, and we would then automatically have a certain fixed margin to ourselves. And three, we will be indirectly linked to a segment which is growing fastest and environmentally-friendly. I think those are the three criteria. So, as Ashish already said, the chlorine integration and then related other utilities, fluids, and related byproducts that come in, there is a value to it. We can't share in that sense because each product is quite different, and we don't go into that level of detail. We also have within the partnership and alliance a certain fixed margins, and that is another one which we take value from. As of now, the project discussions have started. I think the teams are working on layout and designing. I think we are on track with what we said we would do in terms of the timeline. Yes. Anything else, J.M., you want to add? No, I think you're right. In terms of the project timeline, there is a lot of back and forth which is happening in terms of how to expedite and the change is happening in the back end and discussions are happening right on the layout to see how soon can we get the plant run up and running. But yes, if you ask me, it will take another about 24 to 30 odd months before we will see physical production start coming in. I think one thing which I want to leave with is these are the types of alliances and partnerships you would see more of from Graphene, where world-class technologies come in. We will leverage on the capabilities of manufacturing in India and India. And we also want to invest in capacities which is not for India alone, but for globally. And hence, even these capacities that we are investing is, you know, globally the largest in these phases. So that intent will continue more often. This is, I believe, and hopefully, if all goes well, the starting point of many.

Thank you. Understood. Okay. Thank you so much for your time.

Thank you. Our next question is from the line of Sanjay Parikh from Nippon India Asset Management. Please go ahead.

Yeah, congratulations to the team. So, you know, one of the questions just Kalyan answered, which I had of, can there be more of such alliances like the one you had with the result? So that is answered. But in case you want to expand on that of what potential, then it's, you know, it's a win-win wherein the growing can be used for valuable products. We get a fixed type of revenue and it reduces the cyclicality of the So that piece, if we can get more elaboration, it will help. If not, it's okay. The second is for Ashish. I was just seeing, you know, so if we take the debt right now at 2,090 crores and we're supposed to get money for the fertilizer plant and 1,000 crores plus to be spent in fourth quarter, if I take the next three-year broadly cash profit that we make, and this is assuming that we make steady state like what we will have in Q3, Q4, then even if we invest into the entire 5,000 crores, we would actually, and we spend 2,000 crores capex, let's say, for 22 and 23, then the next three-year timeframe, our debt would actually not go beyond 1,500 crores. That's the calculation I'm coming to. Am I right? I mean, it does. have one assumption that the EBITDA that we see would be steady, which is a big assumption, but if that is the case, then the debt actually doesn't go up. It will remain in the range of $1,000 to $1,500 for the next, it's going to go up, but why is that it remains in that band for the next three years? Am I right in this or am I going to end something?

Yeah, so just let me add one last bit regarding the I think we have two large businesses in chemicals. One is much more linked to petrochemicals like epoxy resins, and we now call it advanced materials. And the other is chloralkali, which is the foundation and a core raw material in an inorganic segment. But overseas, these petrochemical inorganic and organic complexes are integrated. We haven't yet leveraged, so we are thinking how the next stage of things, how these things become more of integrated complexes. So in that area, we see a lot of potential for partnership and alliances. We also not only think of alliances and partnerships on that end, but also integrating chloralkyly and advanced materials and then downstream. So we see a lot of opportunities, so hopefully some things will materialize in the future. Over to you, Ashish. Yeah. So I think, you know, the calculation seems, again, difficult to say what the tech level three years down the line will be because it has basically, you can say, three components to it, right? One is effector, okay, for the next three years. So I can give you a directional view of how you can calculate. So EBITDA, you have to make an assumption that grapheme EBITDA, you know, this year is not so relevant because you lost two quarters, right? But quarter three, quarter four would be more representative of EBITDA out here. And then there's an expansion that will finish next year for both. So you can take second half for both expansions to come through. So there's an expanded EBITDA of GRASIM that should be taken. Then there is GRASIM's own CAPEX, right? Which you can take maintenance plus the projects that we will tell you about, but you can take a broad number out there. Okay, that's your own assumption because we are not giving any guidance there. When it comes to sparkle, sorry, the paints epita, which can be negative for a few initial years, okay, and there's paint statics, right, that we have given as of now. So these are the three, four components you have to put together. Now, After EBITDA, also there are tax outflows, there are dividend outflows, there are other things also that go out, interest, et cetera, which probably you've not taken into your account. So if you do this broad calculation, you should be able to get some idea of your own estimate of what the debt level would be.

Sure, sure. No, no, I did look at cash profit and, of course, the dividend, but what I do is I call you offline and dividend. Thank you.

Thank you very much. But, Ashish, your biggest guidance is that your debt appetite is controlled, so you never let the debt go beyond the limit. Yeah. No, absolutely right. You know, and we gave that guidance last time also that we maintain a threshold that we focus on which should be three to maybe three and a quarter or something of that sort. We don't want to – we would like to breach that. Sure, sure. Thank you. And one more thing. It can't be quantified, but we have been saving a lot of cash on the working capital side. It is an ongoing exercise. It keeps on happening year on year. A lot of cash is not close to working capital control also. Okay.

Thank you. Our next question is from the line of K. Urashar from PNB MetLife. Please go ahead.

Yeah, thanks for this opportunity.

I think most of my questions have been answered. Sir, just if you could offer any comments on any potential investment that could be required on the telecom side of the business. No, nothing at all. We've got our priorities at the standalone business for which funds are required. So we don't envisage any near-term investment on that side? No. Okay. Thank you.

Thank you. As there are no further questions from the participants, I now hand the floor back to Mr. Ashish Adukia for closing comments. Over to you, sir.

Thanks a lot. You know, great questions on back of an excellent performance in Q3. We hope that this continues, so we'll connect with you guys with more clarity on, you know, capex and paints, et cetera, perhaps in the next quarter. Thank you.