Grasim Industries Limited

Ladies and gentlemen, good day and welcome to the Q2FY22 earnings conference call of Krasim Industries Limited. We have with us today from the management, Mr. Dilip Kaur, Managing Director, Mr. Jayan Doble, CEO, Global Chemicals and Group Business Head Fertilizers and Insulators, Mr. Jayan Dua, Chief Executive Officer, Chemical Division, and Mr. Ashish Adukya, Chief Financial Officer. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Adukia, Chief Financial Officer. Thank you and over to you, sir.

Yeah, thank you. Good evening to all of you. You know, I would also like to welcome Mr. H.K. Agrawal. He's our managing director-designate who's joining us and will be taking over from Dilip. So I would like to first of all thank everyone who joined the call. In the last one year, there has been a sea change in the business scenario. And with the pace of vaccination picking up in the last few months, the economic activity has resumed its momentum, and so has the textile products. The same is reflected in the sales volume of VFF, VFI, linen, as they have touched or rather surpassed the pre-pandemic level volumes. While demand increased across all sectors on back of economic recovery, The costs have also gone up. However, the cost increase has more than been offset by the realization improvement across all businesses. I'd like to share a few important highlights for quarter two. The company embarked on the capacity expansion program and its key businesses. And we are delighted to share with you that we've commissioned part of our expansion plans in VSF, caustic soda, and chlorine WAP in October and November of 2021. These capacities are coming on stream at the right time of the business cycle. In our VSF business, we have commissioned the first line of 300 TPT in November 21 and have achieved the benchmark quality. The second line of 300 TPT will be commissioned will be ready for commissioning in quarter three, which was the earlier plan as well. In the chloralkali business, 170 TPD at Rehla, which is Jharkhand, was commissioned in October 21. And as part of our WAP strategy, we have also commissioned 150 TPD of chloromethane plant at Vilayat, which was commissioned in November 21. The commissioning of chlor-alkali plant at Vilayat and Balbatra Puram is due in the second half. The total capex that was approved by the board to be spent for FY22 stood at 2,604 crore, which is excluding paints and fertilizer business. And for, till the first half, the actual spend is about 905 crores. The balance spent for the second half, there is likely to be either savings or there could be some deferment to be next year. But as of now, we're standing with the guidance of what has been approved by the board. In paints, the company has already acquired land at five locations as part of its pan-India footprint for paints manufacturing. These locations have been identified in the different regions of India on basis of their proximity to key consumption hubs across the country. While the process of environmental clearance is underway for various sites, the contract for basic engineering, detail engineering has been awarded. The civil work at these sites will commence only after receipt of EC. We have highlighted these developments in our investor presentation on page 7. You can see the locations that are there on the map. Let me now discuss the operational and financial performance of the company. The VSF business reported a strong operational and financial performance driven by demand momentum, better product mix, so the VAP is higher, as you can see in the presentation, and stable realizations. The business reported highest sales volume during quarter two, boosted by textile demand. There was some buildup of inventory that was done, which was strategic inventory in June quarter, which was utilized in September quarter to utilize that high volume. The business has taken great strides in improving the share of value-added products in the overall sales mix, which has almost doubled YY to 27%. In our VFI business, the demand recovery was driven by liquidation of inventory in the value chain and lower imports from China, etc. Episco's business reported net revenue, including VFI, of 3,005 crore and EBITDA of 580 crore. The BFY business reported a revenue and EBITDA of 513 crore and 66 crore respectively in quarter two FY22. Now coming to caustic, the global caustic prices have been on recovery mode since the start of the year. In quarter two, the domestic caustic prices also started to witness a gradual recovery. This recovery from their multi-quarter lows was supported by a series of factors like recovery in demand, tightness in supply led by production losses, and higher export sales, which was primarily driven by better exports realization. The caustic soda capacity utilization sequentially improved to 86%. The demand for textile and pulp and paper sectors contributed towards incremental caustic soda demand. The chlorine realization, which were on the positive territory, turned negative during the quarter. It was led by weak end-products demand. The chlorine consumption in WAPS stood at 27% in quarter two. It is expected to increase with the commissioning of CMS facility in July. The chloralkali business witnessed an improvement in operational performance and increase in equalization, which has continued subsequent to the quarter end as well. However, the rise in power costs and other input costs for WAPs impacted the EBITDA in quarter two. Within the chemical segments, the advanced materials, i.e. the epoxy, resins business continues to witness strong demand. It was supported by pickup in the pace of construction activity, thrust for renewables, and a thin inventory across the product segments that exist in the market. The revenue in EBITDA for chemicals business was Rs. 1,627 crore, and EBITDA was Rs. 232 crore for the quarter. Overall, the standalone performance for quarter two FY22 was much stronger with revenue up 67% to 4,933 crore and EBITDA up 144% to rupees 1,504 crore on YOY basis, which is the increase I'm talking about. And by the way, 1,504 crore is highest ever quarterly EBITDA for Gresham. Of course, that includes the high dividend that we've received from Alpstech. So the EBITDA for quarter two FY22 includes dividend income of 641 crore. So on like-to-like basis, excluding dividend income, the EBITDA is up 121% YOY. The revenue and EBITDA from the discontinued operations of fertilizer business for the quarter stood at 773 crore and EBITDA at 50 crore. And this is not included in our published results as continuing business. We expect the disinvestment process of fertilizer to get completed by December of this year. Consolidated revenue for the quarter was up 26% to 22,564 crore and EBITDA was up 19% to 4,282 crore. The consolidated net debt reduced and stood at 8,780 crore and standalone debt again reduced from June stood at 1,158 crore. One of the key items that helped in reduction of the debt was release of subsidies on account of urea from the government. The outstanding fertilizer subsidy has reduced to almost a level of 450 crore in quarter two, which used to be pre-COVID levels, almost at levels of, you know, 1,000, 1,500 crore, you know, continuously. Lastly, given our constant best practices in ESG, we are pleased to announce that BSF Business was ranked number one in Canopy Hot Button Report 2021 for the third consecutive year. RASM also ranked overall seventh in India's top companies for sustainability and CSR 2021 by Economic Times Futurescape Sustainability Index report. That's it from my side. Over to you for Q&A.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on that touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sanjeev Kumar Singh from Motilal Oswal Financial Services. Please go ahead. Good evening, sir. Thanks for the opportunity.