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.

Yeah, good evening.

Respective management and thank you for the opportunity. I have a couple of questions on the VSF front. So recently, VSF has been in the news. My first question there is what is the current price of VSF in India and how does that, for a comparable grade, how does that compare to the landed parity? What I'm basically trying to refer is the removal of anti-dumping duty here and in that context just trying to understand what can be the potential impact of this duty going away.

That's my first question.

Want to respond to this now?

Yeah, please.

I think we don't share the specific numbers, but of course, I think directly we'll be able to give the idea to Nomi.

As we speak, our price, the local price right now is very competitive with the imported price because in fact it is a little better. And that is not the case now only because for the last few quarters it has been like this. And if you may recall, in this investor call I've always been maintaining that our pricing domestic pricing is not linked to many factors which are local like it depends upon the health of the local value the price of imported yarn which has no anti-dumping duty because that governs the fiber price and the inter-fiber dynamic where the cotton price in India is different than the cotton price elsewhere so based on these factors as we speak the current price It is very, very competitive whether this land price is important. And that has been the case for quite some time. I completely agree with you. And historically also I have seen it being mixed. I mean, and as you say, there are various factors at play, including the yarn prices and competing like, you know, the margins and stuff like that. But I was also trying to just put in context here that since there was heavy lobbying from by various associations be the textile industry associations or the spinners association to get this duty removed so from that context since our new capacity is coming on board while we are of course very competitive and i fully agree with you uh as we speak but what is there a risk to the volume ramp up because we are expanding volumes at a time when uh these end consumers in a way were demanding this sort of anti-dumping duty to go. So is there, do you see some sort of a risk to the volume ramp up because of this? Let's understand two things. There's a price and there's a demand. The demand for this course is growing. In fact, as we have always been saying, the demand growth is exceedingly good. And the Indian market is one of the fastest growing markets in the world. So we don't foresee any problem in terms of the demand part of it. Because the market last four or five years has been going at 14% CAGR. The pricing, let's understand, anti-dumping duty becomes relevant. It's not an incentive. It's a penalty if somebody dumps. So anti-dumping is relevant when somebody is dumping. Otherwise, there is a global price dynamics, and I think the industry is in a pretty healthy phase. We don't foresee any major impact as long as the dumping doesn't happen. If dumping happens, then there are measures available for that. understood understood and and just one clarification uh because typically imports happen more for the gray uh yarn fiber so when we say value-added products in our overall volume makes that value-added products is the dyed yarn which is our specialty uh like you know which does not face much risk of imports is that a correct uh statement to make so these are the value-added products and they don't because not many guys make it as I told you Modal only two established players in the world V and Lenzing which is a Europe based company and you know the Europeans have a fair good of pricing discipline the second product is Dope Dye we are the world leader so it's not possible so there is no in terms of kind of color shades we make not many guys Nobody makes it that kind of a range. So we have a distinctive positioning there. The third is liaisal. Again, you see the liaisal market is because the demand is outstripping the supply. So that also, again, is not a major issue. Specialties are the strategy we have been sharing with you in all the calls. The idea is to move more and more to the specialty portfolio. And when we have shared with you that we want to be more than 50% of the portfolio has to be specialty. Understood. And just one last question, if I may. Global prices for the quarter on an average basis have been, I think, definitely a little soft. But we managed a realization increase, I think, largely with this huge surge in exports from 11% to 30% plus. And of course, I believe prices in European countries and Turkey and etc. They are far higher. And that's clearly benefiting. My question is? What has happened is if you see the water initiated the global rising dynamics is the ocean freights.

Correct.

There is a huge disruption and there is no uniform case. There is a destination A to destination B. There is a different rate. It depends upon if you choose your market right, you can get better elevation. That's where a lot of optimization happens. So from the same country, one market may have a higher freight, other market may not have. So in the digital market, a lot of optimization has to be done in terms of your product and customer needs. Appreciate. My question basically was when this exports come back because domestic demand is now reviving, export comes back to its original level of normalized level of around 10-11%. So and with current prices being weak, this realization jump which we saw should get reversed in the current quarter. Is that a safe directional statement to make? The export never gives you more relation with the domestic because you always have the freight advantage. So that is not the case. The relation jump which you are getting is because of the share of specialties has gone up. Then what happened that you had last quarter, the prices went up gradually. So there was a carry forward benefit also of that. So now the prices are got to be stabilizing at around 13,000 as Ashish mentioned to you. So I think it's now holding there.

Understood. That's really helpful. Thank you very much.

Thank you. The next question is from the line of Srinathin Parekh from JP Morgan. Please go ahead.

Thank you very much, sir. So my first question is on the outlook for the VSF business, because at this point of time, while prices have stabilized, they have fallen. And this would partially be offset by higher volumes in the VSF business in the second and third quarters. So is it fair to say that the current margins that we are seeing in the VSF business should be maintained over the next two or three quarters, or can the margins come off because of pricing pressure?

very difficult to predict on the pricing part of it. So I would not like to guess on the pricing part of it. But the trends, if you see, the trends are showing that the demand is buoyant because the quarter prices are all-time high. So if you recall, in the quarter four, we got a very big boost in the demand and pricing because the quarter and risk-force gap went beyond 4,000 R&D. Then risk-force prices started going up, the gap narrowed. Today, the gap is again widened to 5,000 RMB. It is higher than what was in Q4. So we believe, I mean, it's early days, but because of these kinds of gaps, a shift from potter to viscose should happen. And if that happens, demand should go much faster than what we're currently seeing.

Understood. And so my second question is on the chemicals business. The ECU realizations have picked up because of the improvement that we are seeing in cost of soda prices, but clearly the global caustic soda price increase has not yet been reflected in Carson's realizations because of the COVID second wave. So is it fair to say that over the next one to two quarters as the domestic demand starts picking up, we should see overall the chemical business further improve from here given where global prices are?

Directionally, what you're saying is absolutely right. You know, there is an oversupply situation as Ashish mentioned in the country. So that will always play a little overhang. But on a directional front, yes, you will see it's creeped up a little bit, so the creeping trend will continue.

Understood. Thank you very much, sir.

Thank you. The next question is from the line of Nirav Dimudia from Anvil Research. Please go ahead.

Good afternoon, sir. So I have two questions. So one is on VSS. I was just going through your presentations from 2018 to 2021, where approximately we have incurred something around 1,000 crores for modernization, maintenance, etc. And some of the calls also you mentioned that we have been successful in reducing our cost of production too. So if you can just give us some understanding of this reduction in our cost of production internally to grassy men, excluding external costs like freight or raw material costs, that would be helpful, sir. Yeah, as you would appreciate, I can't share the specific numbers with you. But sir, even if on a range basis, like let's say if it was in a base of 100 in 2018, what is this now currently? Something of that understanding, sir. So the two or three big things we have done. If you remember, we added a lot of capacity through de-bottlenecking. More than 10% of the capacity we added through de-bottlenecking, so 12%. Now you all know, when you add capacity through de-bottlenecking, all you incur is a variable cost, because the fixed cost is amortized over the existing capacity. So you get a huge amount of benefit because of the additional volume which is generated. So that brings down the overall cost of production from the same factory. The second we did is a huge reorganization of manpower, which we shared with you last time, that we have restructured our old factories and we saved more than three to three and a half thousand people we rationalized. Our fixed costs have come down significantly in the last three to four years. So the number could be anywhere between three to five cents kind of a thing. So these are intrinsic to the operation. There is no variable cost saving in terms of this. Another thing we have done is we have done a lot of work on the variable cost side by reducing the cost of consumption. As I mentioned to you that our cost of consumption now is one of the lowest in the world. We have dropped them by almost about 15 to 17% through basic research. So a lot of R&D effort has gone into reducing the for the consumption of various chemicals and utilities. And the third thing is the new plant which we are putting right now, which is coming on in the last and expansion. That plant has a cost which is significantly cheaper than my existing plants. So overall we believe across, this plant around will bring our cost by more than five to six cents across the grassing base. So all put together, there is an ambitious cost reduction that we have done, I think, which is going to help us going forward. And this 13,000 times increase in the VSS capacity, which we have seen in the latest presentation, is also an outcome of this modernization capacity. That's right. Correct. Sir, the second question, like what you mentioned to the earlier participants, that for Leosol, we are seeing the demand outstripping the supply. But our nearest competitor is putting up some 1,000,000 ton plants, which will be commissioned by the end of 2021. And they're expecting fully ramp up also by H2 of 2022. So how do you see this development with respect to the global pricing, as well as impact to grassland? Because if you can give some understanding that whether we are also expanding on the capacity, that would be helpful. Yeah, see the thing is that if you see the same competitors, the world can absorb 100,000 tons every year, 150,000 tons per year. So there is a rising demand for Liacel. And where does the demand come from? As I always told you, Liacel is a great replacement for cotton. Cotton costs are going up and up. And availability is becoming a constraint, which we have always been sharing with you, it is 25 million tons plus minus. Now, if that is the case, more and more and China particularly is very short on cotton requirement versus demand and they have to import so a lot of flyers will go into substituting cotton and that can be a huge ocean because cotton is a 25 million ton base even if you replace 5% it turns out 1.25 million tons every year so it is a market even you develop it is not a market available to you just to go and sell tomorrow But that's what we all are working. We are working in India. Chinese guys are working in China. Other competitors are working in the rest of the world. But we believe there is a huge opportunity to substitute part of the cotton. Cotton will remain always. But the issue is we have to supply the mass of supply and demand. So that's why there is room for everybody. There is room for Viscose, there is room for Liacel, and there is room for cotton. Okay. So safe to assume that we are also expanding yourself. Yeah, and I see what, but we are trying to focus more on the specialty end of LIASL going forward. There are two ends of LIASL like this course. One is it can go for this quarter substitution, which is what we call a G-100 grade. And there's some special variant which can go into different applications, like non-rower applications, which should be less. So our idea is to go to more of the specialty part of LIASL. And for a small clarification on the epoxy statement which you mentioned, the last time you told that in Q1 the profits have doubled on a quarter-on-quarter basis for epoxy. So how has been the situation in Q1? Sorry, in Q4 the profits have doubled from Q3. So what has been the situation in Q1?

Yeah, so epoxy story in Q1 has actually continued. It's more or less the same as quarter four, what we achieved in epoxy. So that tailwind on the real estate. I think on a little bit outlook side, you know, the raw material prices have still gone up because of supply constraint there. So now there'll be more stabilization and we don't anticipate it to going up further, but some pressure will come through the raw material prices.

So in percentage terms, if you can mention like in this quarter, how much is the percentage increase?

In comparison to quarter four, it is more or less in the same line, same number.

Thanks a lot, sir. And I'll join back in the Q&A.

Thank you. The next question is from the line of Bhavin Chatter from Inam Holding. Please go ahead.

Yeah, good afternoon, sir. Overall, good set of numbers and congrats on completing almost 75 years now on Independence Day, as we mentioned in the opening remarks. So my three questions are, first is on the fertilizer deal. If you can give the fertilizer debt, which is now included in in the total debt number and I believe the original divestment was at EV of 2649 crores if I'm right. So by quarter two, the debt will be down by 2500 crores?

Sure. Do you want to complete or maybe let me answer this question and then you can ask your other questions. So on fertilizer, the number that we had given of 2,649, that was obviously subject to the working capital adjustment and certain capex adjustments. Okay, so those were the couple of adjustments that needed to be made. Now, what has happened since the time that we have announced the deal, actually, been releasing good amount of subsidy to the fertilizer player. And likewise, we've also got more than expected subsidy flow from the government. So almost the subsidy amount that was outstanding at the time when we announced to now, it has come down by almost a thousand crore or so that is subsidy receivable. So as we have received that amount from government already, so therefore the value realization from the buyer will be that much less, right? So that itself brings down the number to, and these are approximate numbers, just directionally I want to give you a view. It comes down to about 1,600 or so, right, from 2,600 if I've realized 1,000. Yeah. And then there will, of course, be tax implication, et cetera, because of slump sales, so there will be capital gains tax. So, you know, given all those things, it will go slightly lower than that number. So if you look at the net debt, which is at 1,800 today, and if you realize, you know, between 1,000 and 1,600 today, depending on the tax, et cetera, 1,200 to 1,600 or whatever. So you will be very close to, you know, zero debt. You get the net debt number, you know, that's the number calculation for you.

Yeah, sure. Second was, quarter one has seen, obviously, the VSF inventory going up since the production volumes was much more than the sales volume. So, and as you said, now the demand is picked up and the markets are opening up. So, will we see this inventory getting cleared in quarter two?

Ashish, you want to take a... Yeah, please.

So, see, I think we can talk about quarter one, where actually there has been an inventory buildup. I think, you know, going forward, we can... you know, only gets. So, Dilip, you can just explain what happened in quarter one.

The rationale for this time was the learning we got from the last lockdown. Last lockdown, we had curtailed our production to match the market demand. And when the pandemic demand came, we could not service. And there was a shortage. And that happened across the industry. So this time, what we did was that we did not, we believe that, look, there will be a pandemic demand because the underlines are very strong. The European markets are very strong. The retail sales in the US are very strong. The orders for spring, summer are going to be very good. So we knew and the whole value chain knew that when the lockdown gets lifted, the demand will be almost vertically recovered. So as a result of that, yes, we did produce. So barring Haria, all the plants are running. We exported a lot of volume. So that way our performance is much better than what happened last night. And whatever has been there, I think it should get worked up over the quarter or maybe at best one more month beyond that. That's the plan. But as Ashish said, we can't predict anything.

Yeah, we'll be back to normal inventory, I mind. That's right, yeah. And the last one, if you can update anything further on paying business, have you spent anything or planning to spend anything in FY22 and some plans there?

To give you an update, there are three phases to putting up a capacity in pain. It starts with based on your business plan where the locations of your plants are going to be and therefore then going ahead and identifying the land for those plants. We have actually identified land parcels in most of our locations where you want to set up the plant. So that's already done. The acquisition of land itself after identification takes about three, four, five months or so because you have to discuss with state government, get their consent, et cetera, then sign the lease deed and all those things. we are actually in the process of doing that process and we're doing all locations in parallel. So, uh, it's not that it's sequential. We'll be, you know, achieving, you know, those, all those locations together. So, uh, after that, there will be easy, you know, environmental clearance and, uh, requirement, et cetera, which, you know, can take, uh, three to four months or so. So, uh, Right now, what we will look at in these two phases is mostly what will go towards land acquisition, the capex, right? And not... Any number there? No, it's difficult to give any guidance on the number because in different regions, the land rates and everything is very different. The incentives given by government, etc., are also different. So it's tough to give one ballpark number for land. but land is more of a timeline factor rather than a big cost factor, right? And of course, we are also starting, you've pointed and we're starting the detail engineering part so that as soon as the approval comes through, we can start to ordering equipment, et cetera, for the facility. So which after that would take about, you know, to put up the facility about 18 months, So that's the timeline that we are looking at. Yeah.

And originally, sir, we were also looking at wherever we had excess land in our factories or in the Birla group. So because are you looking at new land or new factory location only? I thought that we would utilize some of that also.

Yeah, there is a lot of thoughts that goes into land... acquisition, I think more important is whether it meets business objectives or not, rather than it's just that if it is available with us. I think the infrastructure that is available, the availability of utilities, et cetera, plus more importantly, it's the access to the market. How close are you to the market so that your logistics costs are optimized? So we are looking at all those factors in identifying the land. And, you know, I think each state is actually very receptive of us coming and setting up facilities in their state. So as such, the incentives, et cetera, are also pretty good for us to consider new land parcels.

Thanks a lot. Thank you. The next question is from the line of Prateek Kumar from Antics Talk Broking. Please go ahead.

Hi. Thanks for the opportunity. My first question is, through our presentation today and opening remarks, as you said that the Chinese players have responded to the current situation by dropping the operating rate. So have they been like generally, I mean, On a quarter basis, it's been a sharp drop. Have they been generally so accommodative in the past as well? Because we remember that they have been generally aggressively competing on titles. Is it a normal thing which we have seen in earlier periods?

This is a change that we can only conjecture. But this is a change we have been seeing consistently in the last six months. Because what has happened, the Chinese people, which we, if you recall in the earlier discussion, we saw Chinese people having losing money in this course for last 18 to 24 months because of their pricing policies. So if you, so there is a publication every month, they give you the, how much R&B per ton they have lost. And if you look at 18 months publication, every month after month, they were losing money. I believe that China has tightened their liquidity system, the banking accountability and all kinds of issues. So they are under pressure to now deliver positive results. And that perhaps has changed the whole approach to the pricing policy. So I've never seen dropping, like we went down to as long as 69% OR. It was not the demand. It was basically to try to control the inventory because the inventory decides the pricing. And so I hope this should continue because this we have been seeing for quite some time now.

But how come the inventory only went up because we thought that... What happened, there is always a whiplash effect.

If you remember Q4, when we discussed, there were two factors happened. There was the underlying demand for this code and the pipeline restocking. So there was a huge restocking which happened in Q4 because in the COVID time, people did not represent the pipeline. So to service the... restocking, the plant capacity had gone up and the OR went up to 84%. By the time when the inventory, the restocking got over, by the time it came back that what we call the lag effect was there and inventory went up. Then this fellow started cutting OR. So what you are seeing 25 days has now come down to 22 days. as we speak now, with OR going up to more than 76, 77%. So the whole pattern has improved. So there's always been a supply chain in a good way perfect. Change happens now, but you can see it after some time. And that lag is always there. So the lag is getting corrected now.

And this drop in Chinese BSF prices has no relation with local government's crackdown on commodity prices.

No, I think it was because the Q4 prices we had told you were very unusual. I mean, $2.1, $2.2 was never, is not a sustainable price. But today also, when you think price is low, it is $1.75 to $1.8. That has been a standard good price for Visco historically. So that has been a historical average if you look at it. So I think, but today the only issue with them is the pulp price. So once the pulp price starts moderating, they should be good.

And one question on recent rise in COVID cases globally to have that as any impact on export market. And if you can express like what are the global VSS capacity additions in next two years, if any?

The capacity additions are going to be the biggest addition, the biggest really our addition, 210,000 or 220,000. Give and take, because there are a lot of unviable plants that are closing down also. So we believe in the next 18 months, not more than 400,000 tons capacity will get added. So there's a very minimal capacity addition in the next two years. For viscose, there could be more for live cell. So there's a lot of announcements that happened in China on the live cell capacity addition. So viscose, we don't foresee much capacity addition. And what are the other questions?

regarding any export market impact regarding the recent surge in cases globally?

Till last month, everything was very hunky-dory. So everything was looking very good. So retail sales were good. The demand, the order booking has been good. The COVID thing has just started happening. So we're going to have to watch and see. But we don't believe that because now people have learned to live with it. So I think the business may not get affected as much as when it happened last time.

I'm sorry, just one last question. On this ECU realization which we have reported at 26,000, is the current quarter realization significantly higher from there? And is there any impact of negative chlorine realization also in Q1?

So, see, chlorine demand has been subdued as compared to the caustic demand. Caustic demand from alumina and as Dilip was talking about from the VSS sector has been very robust. but it has not so been in the case of textiles and organic chemicals. And chlorine demand, the largest thing for chlorine in India is a product what we call as CPW, Chlorinated Paraffin Bags. That has materially got impacted across the country. And in the textile demand, offset is the dyes in the dye chem industries. So chlorine is subdued, which has led to a pressure on pricing on chlorine, you know, as we speak. Caustic at the moment with a lag is creeping up.

Sure, sir.

Thank you. The next question is from the line of Amit Murarka from Motilal as well. Please go ahead.

Hi. Just on DSF, I just wanted to understand what would be the difference in realizations and margins for domestic sales and running exports?

I think Dilip, his question is domestic versus exports, realization and margin.

See, in last quarter and this quarter, they're very, very close. Very close, yeah.

It is much better.

Like Turkey as a market, just to give you an example, the freight from other producing countries to Turkey is much higher than the freight from India, where the pricing is always down the landed price from the competition. So we find that servicing Turkey market today from India is far, far more attractive than any other thing you do.

Your voice is breaking. I can't hear you.

I think his question is or be the share of domestic after the expansion of capacity?

Our projections are still, we believe, if the market goes at the current projection rate, about 85 to 90% will be domestic and 10 to 15% will be export. But there's enough room to play around.

Okay, but Bill, sorry.

Yes.

But the 85 to 90% target for domestic sales, that would be like three, four years down the line because the capacity expansion is happening.

There's a lot of expansion happening in spinning capacity also. So there are a lot of spinners who are investing as we speak. Those expansions have got slightly delayed because of COVID. Otherwise, there is a substantial increase in the spinning capacity as well happening in the country. So they will require extra fiber. Then the specialty consumption is going up very high. Our specialty sales growth has become quite good. And third is the ESG emphasis. The eco fiber consumption is also shooting up in India. So we have a lever eco is going to grow well. So all put together, I think the domestic market also is going to grow faster than we expected in the past.

Okay. So why I ask is because your capacity is expanding by almost 40% and that is happening just around in 12 to 13 months.

I'll commission the plant end of this month. So it will take about a month or so to stabilize. So we will get six months for the line one. Six months for the line two. So we have based on this projection, what I'm sharing with you is our internal projection. That's a kind of our estimate based on the current market demand. If it changes, the ratio can change. But as I always tell you, in this business, volume is not a problem because I think there is enough global market where you can sell.

Yes. So is it fair to say that maybe initially the share of exports will be higher and then later on maybe stabilize to that 85% to 90% target?

As for the current projection, we still believe we should be able to maintain the share I'm telling you, but it's only prediction. I can't guarantee that.

And also, when you talk about more spinning capacities coming on stream... We also keep reading that actually the imports of yarn has been rising consistently. So how do you think the spinners are positioned to kind of compete with those yarn imports?

The way it is happening right now, there seems to be a sweet spot. The current pricing is there. The imported yarn is not viable. One advantage has been the high freight rates from China and other places. So today, at this price, even spinners are viable and the fiber prices also are okay. So there is a good balance right now. Okay, sure. And this is going, I think the freight markets are going to be like this in the foreseeable future.

Right, right. Okay, great. Thank you.

Thank you. The next question is from the line of Vipul Shah from Sumangal Investment. Please go ahead.

Hi, sir. I just want to know what will be the share of speciality once entire expansion at VILAG is completed in terms of volume percentage? As I mentioned to you that our expansion has a flexibility to make commodity and some specialities. So, We can always play around with our product mix. So our target, as I told you, irrespective of the expansion, we will try to target 40% speciality in the next two to three years. What type of value addition we are getting in speciality as compared to commodity, sir? It depends on different products. Like modal is our highest value addition. Then comes live sales. then comes Leva Eco, then comes Non-Govern. So you've got, then comes Dope Guide and then comes Non-Govern. So you've got this pecking order there. I can't share the Delta exact number, but that's how it is. But it varies from 20 cents to $1.

It's basically, there is more stability at the value-added products pricing, and Gray is that, so it's not a fix to Delta also.

And lastly, sir, will we be self-sufficient in pulp even after the entire expansion program is completed at which length?

If you remember, our policy has been about half we do captively and half we source from our strategic partner. So for the expansion, we already have lined up additional volumes with our strategic partner. They have already expanded. in South Africa. So we have lined up the extra volume of pulp from our strategy partner at one of those favorable terms, which we normally follow. On a long-term contract, sir? A long-term contract, yeah. We have volume-linked contracts. Okay, sir. All the best and thank you. Thank you.

Thank you. The next question is from the line of Muridhara Reddy from Reddy and Family. Please go ahead.

Thank you for the opportunity. Actually, I have two questions.

First one regarding operating profit margin and profitability for a standalone basis, not a consolidated basis. We used to be in the range of between 16% and around 20%, but now it's been decline for last two years or so, something like about 12%, 13% kind of stuff. What are the initiatives that we are doing on a standalone basis to get back to the something like about 16, 17% kind of OPU?

Sure. So, you know, I think I can give you an overall perspective. Okay. I think the way to, first of all, the prices have, the realizations, corrections at some places has led to the margin coming down. So therefore, to take care of that, the two things that we do is that one is you bring down your cost overall, both the fixed cost as well as your variable cost. Variable cost, you bring it down by having better consumption norms like Philip gave example of cost of consumption to produce VSS. And then in the case of chemicals business, where power is the cost that forms 50% or so of the total cost. So there you look at ways and means to bring down the power cost, which can be by adding captive capacity or by increasing the share of renewable capacity, which is actually today much cheaper than the conventional power. So that's on the cost side. The other thing that we are trying to do is that to increase the WAP portfolio across both the businesses. So in both the businesses, we want to target 40% share of WAP by 2025. Okay, so that will give more stability and higher margins to the entire business. We are also looking at many different ways to, you know, reduce the, you know, call it leakages or whatever. For example, we want to increase beyond 40% of WAP in chemicals. We want to increase the way we move chlorine. So rather than moving it by road, we want to move it by pipeline. That reduces the cost to And it has many different advantages. It has a positive contribution there. Your customer is close by, you straight away supply to the customer as it is produced. So there are many advantages that you have when you have pipeline movement of chlorine. Yeah, so these are the measures that we are constantly, it's a journey over a period of time and it will continue to improve for margin. So, Dilip Jain, you can feel free to add anything if you have missed.

I think you've covered it, Ashish.

So, my second question, this is a little bit of we are entering to the renewable space and it's been pretty new one for us.

Is there any kind of revenues and EBITDA that we are looking, not just for the next year, maybe for a five-year period of kind of stuff, and just kind of a plan. I know it's a forward looking but just kind of a company strategic plan.

Yeah, see, I think, you know, it's not that it is new business for us. I think we've been very calibrated in growing that business because there is a lot of competition in that business and constantly the tariffs are going down and there is now you can see the module prices are going up. So the players who have recently bid and won can face that issue of module prices going up and thereby impacting their return. Plus, I think the counterparty risk that exists out here, who you deal with, your state discons, which state are you dealing with, all those things become extremely important. So therefore, we are quite careful on... how we grow this business. So we've gone slow rather than in comparison to some of the other players who have grown pretty aggressively. So we are right now about 500 megawatts. We also have group captive business where the counterparty is Aditya Birla Group companies like Hindalco and Altec and Gratin businesses itself. That's about 160 megawatts right now. So that also is constantly growing. So we plan to reach 845 megawatt, like I mentioned, by FY23. And this business, it's easy to calculate the revenues, EBITDA, and cash flows, depending on what you bid at. So, you know, you'll get an idea of this business financials if you just back calculate the numbers. But that's really what our plan currently is. We may look at some of the FECI projects, et cetera, as well, which are more secure projects, but, of course, more aggressively bid projects.

Thank you. Wish you all the best to your initiatives. Thank you so much.

Thank you. The next question is from the line of Santosh from Treasure Hunt. Please go ahead.

Good evening, sir. And thank you for the opportunity. Most of the questions have been already answered. I would like to know what is the CapEx so far done on paying business? Because I could read from some of the newspaper that Gujarat Chief Minister announced that 1000 crores has been invested. So I would like to know on that line.

Sure, sure. So the capex as of now has not been meaningful in pains because, you know, like we've said, we've put a team in place. So we've put a business plan. We are identifying land. Now is when we will start paying for land, etc. And that's when the capex will be slightly more visible. On the clarification, in UP we are indeed that region, I would say, not necessarily UP, but that region is one of the identified location where we could have a plant that cater to that region market demand. So that's why we are looking at land and identify the land in that region. It's not that we have spent the amount that has been publicly stated. It's intention. If you put up a plant out there, then close to that number is what we may end up spending. But it's not that we've spent that money or have entirely tied up the plant.

And when do you approximately expect to start the production if everything goes well as per your plan?

Yeah, so we've not given that guidance. Like I said, if you look at land acquisitions approval and then 18 months thereafter, so it could be about 24 months or so, you may look at production starting. But it's tough to say because we're still in the first stage of identifying land.

Thank you, sir. Thank you, ladies and gentlemen. That was the last question. I now hand the conference over to the management for closing comments.

Thanks for all the questions that I think we covered pretty much all the details that we wanted to cover on the call. Look forward to your participation in the next quarter. In the meantime, if you have any questions, clarifications, please feel free to reach out to us. You can reach out to Saket or to me, no problem at all. Thank you.

Thank you. On behalf of Grassing Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.