Grasim Industries Limited

Ladies and gentlemen, good day and welcome to Q1 FY22 Earnings Conference Call of Grassing Industries Limited. We have with us today from the management, Mr. Dilip Kaur, Managing Director, Mr. Jain Dhobla, CEO, Global Chemicals and Group Business Head, Fertilizers and Insulators, Mr. Jain Dua, Chief Executive Officer, Chemical Division, and Mr. Ashish Adukia, Chief Financial Officer. As a reminder, all Paris Fund 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 10-0 on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Adukia, Chief Financial Officer. Thank you, and over to you, sir.

Good afternoon to all the participants. We are only a couple of days away from the start of the celebration of Independence Day, which is going to be the 75th Independence Day. It's a proud moment for us at Gratham as the company got incorporated 10 days after the independence. And we'll actually be celebrating alongside with the country the start of the 25th anniversary of our existence as well. So going back to the performance, the first wave of COVID created a new learning experience for all of us, a challenge which was never faced and tested in the last 74 years. The second wave, which started in April of 2021, was even more severe. But our learning from wave one helped us to counter the effect of second wave. For example, in VSS business, we switched our market mix in favor of export market to cushion our sales volume impact in the domestic markets. We also advanced our maintenance shutdown of one of our plants, the Harrier plant, to May 2021 from September 2021. Let me share with you some of the key highlights of the quarter. Let me start with ESG. As a first in India, our VSF site at Williott became EU batch compliant. As part of this compliance, we successfully commissioned carbon disulfate absorption plant, which is commonly called the CAP. and achieved the stringent level of sulfur-to-air emission norms stipulated by EU BAT references for the viscose manufacturing process. At Williatt Plant, the sulfur-to-air emission is expected to reduce by 85% by calendar year 2022. EU BAT is referred to as EU, or rather, European Best Available Technology Reference. and it's one of the most stringent and comprehensive norm for VSF production. It is globally acceptable and applicable and it sets out a strict range of consumption and emission limits. We'll be replicating that for other VSF facilities as well. Another world leading initiative in ESG is that our NASA VSF plant will be first to achieve zero liquid discharge in viscose industry globally. The commissioning is expected to be completed by quarter two FY21. This year we have shared our integrated annual report with all our investors and in this report we have covered a lot of details on our ESG practices and initiatives. And in this investor presentation, we have a snapshot of sustainability indicator performance for GRASM for FY21, and also the environmental targets and performance against the targets for both the businesses. Our endeavor has been to improve the reporting standards on the ESG front. As a company, we are evaluating climate change risks and opportunities as per Task Force on Climate-Related Financial Disclosures, the TCFD disclosures, and their recommendations. Outcomes of this study will be integrated with the long-term business strategy, risk management, and business planning. Let me cover the financial performance now. Our VSF Downfield project at Williott is progressing well and is scheduled to meet the commissioning timeline of quarter two and quarter three for the two phases that we have in this project this year itself. This project will bring down the cost of production for overall VSF business. This quarter with retail being shut during the limited lockdowns, the sale of textile products suffered and led to an accumulation of inventory in the value chain. To cushion the impact of slowdown in the domestic textile sector, the company proactively increased the share of VSF exports to 31% in quarter one FY22 from 11% in quarter four FY21. And like I said, we also advanced the Harihar shut down by a few months to May 21. The company is committed to increase the share of value-added products in the overall sales mix. The share of WAPT mix in the overall sales increased to 26% in quarter one from 22% in the entire financial year 21. The BSF prices in China corrected in quarter one and have stabilized at the current level of about 13,000 RMB. China's VSF inventory at plants increased to 24 days in June 21 from 13 days in March 21, leading to readjustment of production levels by the Chinese VSF players to take care of the inventory buildup and to lend stability to the prices. The net revenue from the VSF segment, including VFY, stood at 2,103 crore and EBITDA was at 488 crore. VFI volumes were also impacted due to weak demand conditions. The domestic fiber demand recovered swiftly post-easing of the lockdown and is now nearing the pre-COVID levels. The revenue and EBITDA for VFY were 340 crore and 43 crore, respectively, in quarter one. In our chemicals business, international caustic soda prices maintained an upsurge in quarter one, driven by certain supply outages due to maintenance shutdown, and it was also backed by improving demand outlook. The rise in domestic caustic prices, however, was subdued, owing to weak demand from textiles, organic chemicals, coupled with the excess supply situation. The caustic soda capacity utilization stood at about 85% in quarter one, which was higher than the industry average. During FY22, we exceeded We expect significant commissioning of capacities at our chloralkali business. In quarter two of FY22, we expect commissioning of the Rahela plant with a capacity of about 91 kTPA. And as our strategy of increasing WAP, we'll be implementing the CMS plant at Vilayat with a capacity of 55 kTPA in the same timeframe. The second half of FY22, we expect the commissioning of Phase 1 of Willai's expansion and Balabhadrapuram facility, which has a capacity of 73 KTP each. The advanced materials business, i.e., the epoxy business, reported its best-ever performance in Quarter 1. This was driven by strong demand scenario and a better pricing environment, both globally and in India. The demand continues to be driven by the wind and auto segment. The key input costs like ECH and BPA witnessed a significant increase during the quarter, primarily due to supply constraints in those materials. The revenue and EBITDA for chemicals business was 1,436 crore and EBITDA was 275 crore. Our solar business, Aditya Perla Renewable Energy Limited, which is a wholly owned subsidiary of the company, we plan to commission about 38 megawatt of new capacity, which is group captive in the first half of this year. Our consolidated revenue overall for quarter one rose to 19,919 crore, which was up 53% YOY. And the consolidated EBITDA was at 4,736 crore, which was up 86% YOY. The PAT was up six times on a year-on-year basis. On standalone basis, excluding the discontinued operations of fertilizer, Revenues were for the four quarter ones to that 3,763 crore. The revenue in EBITDA from the discontinued operations of fertilizer was 687 crore as revenue and 56 crore as the EBITDA. These are not included in the published results as part of the continuing business. The fertilizer business disinvestment process is on track and we are expecting it to complete in quarter two of this year itself. Overall on the debt side, the consolidated net debt stands reduced to 8,982 crore in quarter one. closer to the March 21 levels. On a standalone basis, the net debt increased from 914 crore in March to 1,817 crore as of the end of June 2021. This was primarily on account of working capital change and some capex. So if you look at the overall FY22, we are excited about the company mainly because some of our projects will be coming on stream. Of course, the benefit of those projects will be partly in this year and hopefully fully next year. And this would help us in both bringing down the cost because these are low cost new facilities and, of course, increasing the volume. So over to you for questions now. Thank you.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. 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. The first question is from the line of Naveen Sahadeo from Edelweiss. Please go ahead.