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.

In the paid business, though you have given the locations where the facilities will come, can you give us further timeline when do we expect this business to get commissioned? So around two years or one and a half years, what is the timeline which you can give?

We are not giving any such guidance. I think you can possibly make an assessment from the fact that in terms of sequencing of activities, after we acquire the land, we get the EC. EC can take up to anywhere from three to six months. And thereafter, the commissioning of the plant will get done. And of course, we are While we get the EC, we are already, like I said, appointed design team, engineering team, etc. So there's a lot of parallel processing also that is going on out here.

And secondly, in terms of VSF, so definitely there have been some production cuts in China, and I believe that realization has also moved up. So how is the scenario now? When do we expect Chinese production to get normalized? The China production cut was done largely because of the coal shortage. And what had happened in China, they had stopped a large number of coal mines because of safety issues. They were drawn in some part of China, so the hydro power had come down. Now China is trying to make up for the coal stock, but they're getting into winter. And the first priority will be getting power for the coal. individual consumers. We believe, I mean, the OR will not come back in a hurry. So the capacity cuts will still be there. Secondly, the issue of freight and containers is still there. So from China, it's not easy to move things to India or the rest of the part of the world. So to that extent, I think the outlook still remains healthy. Thanks, sir. I will come back in the queue for further questions.

Thank you. The next question is from the line of Navin Sahadev from Edelweiss. Please go ahead.

Yeah, good evening and thank you for the opportunity. Hello.

Yes, we can hear you.

Yeah, thank you so much. So thank you for the opportunity. My first question was regarding this VSS outlook. So all the production cuts in China per se, the way it led to other commodities per se surging, that we have not seen in case of VSS, even as cotton prices continue to go up. Now, you said the outlook is still because there is going to be some operating rates might stay low for some more time. But from a slightly more timeframe or from a medium-term perspective, are we also suggesting that we are unlikely to see very strong margin expansions, so to say, in the VSF segment? You're talking about the Indian market? We're looking to respect. The Indian market recovery has been very good. So the demand is very healthy. With the festive season coming, the value chain, so the pull is very strong. So Indian demand is absolutely... going at a very fast pace, much better than what we had expected. So this is better than pre-COVID levels. The second point is the China part of which the prices have already recovered. If you look at even look at China itself, what was the price in September, what was the price today? It has gone back to the earlier level of June, July. So there has been a recovery in BSF prices in China also. And the third is We can't predict what is going to happen, but the gap between cotton and viscose has gone to 9,000 RMB, the highest ever. So it has to start, I mean, logically it should reflect in the shift from cotton to viscose, but let's see how fast and when it happens. So we can only go by the leading indicators. What the outcome will be, I can't tell you. But the leading indicators are healthy. Sure, but how much has been the price recovery in October? If you can just mention China prices, how much have they recovered? That's from $1.77 to $1.95 to $2 kind of money. Okay, so similar to what they were in probably March, April. I'm giving you published prices. Understood, understood. Okay, thank you. And second is about chemicals segments. I believe sequentially... we have seen a margin decline as compared to the Q1 quarter. The segment per se, we have seen a margin decline. So is it only mainly, I mean, got to do largely to do with this chlorine realization turning negative? Or in general, like, you know, we have not been able to benefit from the high prices and got impacted by the rising costs. How should one really look at the chemical segment?

Sure. Let me probably start and then I'll request Jayant to step in. The increase in the EQ that you have seen is actually month on month. So every month there has been a sequential increase. So you've not got the benefit of the increase through and through in the quarter. And the other factor is that, yes, there is a higher power cost, you know, because of coal, et cetera, that has led to that margin coming down. Also, if you look at the WAP, okay, in WAP, you know, the input costs, you know, like aluminum, et cetera, that goes in, there's a cost increase there as well. So that has also led to, overall VAP has also led to a reduction in the margin. But Jayant, would you like to just come in and give more color out here?

No, I think you've got three aspects running. One is the timing of the increase, which Ashish talked about, it's been sequential and cost has been growing sequentially and also following the global trend. Although there is a lag which happened in respect to India, Now the global crisis went up very sharply because of a couple of environmental events like you had winter freeze followed by era as a hurricane which led to shutdown of capacities and that led to spots in places. Now no such thing happened in India, the capacity shut down. So your increase is gradual and sequential and constant. While chlorine which was trending positive has turned negative, that's the point you brought out. Third is the cost increase on coal, equally which went up very sharply, so it affected our power costs. And power costs is about 65% to 70% of our variable costs. Followed by the, you know, the Taukutai and the other cyclones, which hit the Indian West Coast, led to salt increase going up. The P4 demand, which is the phosphorus demand in fertilizer, led to raw phosphorus going up. So what has happened is that we had a sudden sort of price increase all across. And the increase in pricing on postage was no sequential. But I think going forward, you will start seeing, the way I look at it, as we look at it, you know, the lead indicators are all clearly that the postage will start happening at a faster pace because these increases have now started either stabilizing or tapering down, whereas the sequential increases in the postage price continue to happen.

Correct. So are we also saying basically the margins per se going ahead or as we speak can definitely be much better than what we saw for this quarter because previous quarter we were at 19, this quarter we are at 14 and this is despite that global prices went up 20-30%. So are we in a way directionally confident that this quarter or going ahead we can see a much healthier margin in the chemical segment?

So that's exactly what I'm saying. So the heat indicators are all pointing out the margins will be significantly healthier than what they were in Q2. Okay. Okay.

Thank you. And just one last question, if I may slip in. So it's heartening to see the development on paints with locations identified and as you updated already some time back. Just one question. Are we also open to make any acquisition or I mean, it may have been asked in the past as well, but I'm just trying to get a sense that are we open to any sort of acquisitions, big or small here, or we would largely focus on building only our own capacities?

We are fairly comfortable and confident of our organic plants. So we won't look at any acquisitions. And from the return perspective also, the organic plan makes more sense.

Understood. That's clear and very helpful. Thank you so much.

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

Yeah. Can you talk to us more about the seasonality in VSF in China? Where we are coming from is that what we are hearing on the ground is that the cement, steel, demand seems to have started improving over the last week or so. Inventories are falling, and the expectation is that as we get into the lunar new year, coal situation normalizes, and demand for at least the heavy commodities will pick up. Is there a similar seasonality that we can see in VSF, that as the power situation eases out, we can see VSF demand in China move up very sharply, plus CNY in Jan 10, which can potentially drive VSF prices higher?

November, December, January is always a peak month for textiles, not only BASF. And China has what they call 11 by 11 and 12 by 12. Like Amazon does here, they have got online big sales. Yesterday they had 11 by 11 sales, which has been exceedingly good. They will have 12 by 12. So three months are always seasonally high for textiles. And because this is the Chinese New Year. So I think it's a general trend that the demand normally in this time of the year for VASF and all textiles is always very good on relative terms.

You said it got impacted because of what has happened, right?

That will survive, but there is enough capacity in China. So they had inventory. So what got impacted because of the power cuts, the downstream plant got shut. The yarns got shut. The weavers got shut. So they could not pick up the thing for a short time. That is all now recovering again. It was a supply-driven constraint. Understood. Understood. That's very clear.

So you have any other questions? No, my question has been answered. Thank you. Thank you. The next question is from the line of Pratik Kumar from Antic Stock Broking. Please go ahead.

My first question is on the caustic segment. You mentioned that we've seen some industry trends also that the caustic prices have significantly moved up in the past fortnight or past month or so. Is there any demand destruction at this level in India or globally because of extraordinarily high prices?

No, the demand at the moment is very robust. Globally. And India, as Philip put it out, textile sector is at its all-time high, and aluminium sector is also being used. So there is no constraint in demand as of now.

So caustic plate prices, which had an earlier high of around, I think, 45 rupees per kg from whatever channel checks we do, and like three, four years back, It's currently at 70-80 rupees per kg. So Indian demand is as good as, let's say, what it was at normalized prices, even at 70-80 rupees. That's what you mean?

Again, we should not look at prices from a moment or a time because the whole business works on both spot and contractual. So sometimes we get a little bit swayed with looking at what's happening on a spot basis. But to your point, have the prices significantly gone up? The answer is clearly yes. You've seen some significant price increase starting October-ish onwards. And the demand at this point in time, irrespective of the prices, because it's a combination of both contractual and spot, continues to be robust.

and particularly we did like in recent period in the past up cycle of chemical prices we used to be at 30% margins for a brief period so that is something which can be forecasted like in at least such times when prices are so high I mean I don't know where will they settle but

So you also have a commodity price increase which is impacting you everywhere. So I think it's a bit too early to do these forecasting. Because we are at this point in time, the coal prices are significantly higher. We buy a lot of aluminium and hydrous, which is high. Rock is high. Salt is high. I don't think that we can, at this point in time, give a guidance on what margins would be like. But from a realisation front, clearly, the situation is far better than what it was in 2008.

And regarding this coal, because you said 65% of your variable cost is power cost. Have you also seen any moderation in national coal price in past foot lengths?

I think in the last 15 days, there has been a slight moderation. But you see, you don't work on day-to-day basis on coal. you always have a complete in anything between 30 to 45 days of lined up because that's the way the business works otherwise you can't run your thermal power plants so we're hoping the moderation will stay will continue and the next purchase cycle of coal will start giving us the cost reductions but even the moderation which has happened is at a much higher significant level compared to what it was three months ago okay one question on BSS so despite the very stable realization of

In fact, slightly positive on a quarter-on-quarter basis. EBITDA for KG has probably dropped from 38, 39 rupees in the past two quarters to 33 rupees. So, in this segment also, I think, we have taken price hikes since the start of this month. So, is it something which should help us to take us back to 35, 40 rupees range?

Price hikes always have to follow a lag. So the input price went up in September, so I think the price has been taken. And we could make up the EBITDA because there is a huge volume growth, and that's something which we are missing out. So there is a margin improvement and volume improvement as well. And it is consistently happening.

Right. Thanks, sir. I'll get back to you.

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

Good evening, sir. I have two questions on the VSF business. Last time in our interaction in the phone call, you explained about the reduction in consumption of raw material for the finished goods. So my question is with respect to two VSF lines which are getting commission. So one is commission and one is about to get commission. on a fully ramped up basis, whenever it will happen, if you can share your assessment about the reduction in the operating cost. Let's say if we compare on a scale of 100 currently, when it will be fully ramped up, what can be the reduction in the operating cost possible? And if you can explain in context of three parameters, like one, probably we would require lesser employees at our plant because it is happening at a single location. Second, whenever we will import pulp, it would come probably in higher parcels so that it will help us in reduction in freight costs. And third would be if we are setting up some additional power plants, which will again help us to bring down our power costs. So if you can explain this in context of these three parameters, that would be helpful. So this is my first question. Shall I take first one and then go to the next one? Can I respond to the first one? Yeah, yeah. First one, if you can respond to it, then I'll start with the second question. Well, I told you that this expansion is a brownfield expansion. Correct. Our capacity is going up by 40%. Our overheads are going up by 10% only. So the fixed costs are much lower. So the employee part is responded there. So you have a 10% growth in overheads, whereas your capacity was about 40%. So we will have a fixed cost advantage, which is significant. Second, because this is a much bigger line. These are 300 tons per day lines compared to the about 120, 130 lines earlier. So the variable cost of production also is substantially low. So, I mean, I would not guess a precise number, but it can be about eight to 10% in terms of the variable cost reduction. And pulse band power, I think they won't be much different because we are getting in any case for our, so pulp, we buy on a band business level. Ship sizes don't change because of that. Okay, okay. So try to assume that probably on a scale of 100, our variable cost will come down by 10%, which is like 90%. And then a further reduction in the fixed cost would also be possible whenever we will fully ramped up. No, no, no, you should not, no, not 10%. I think what you should, because you are talking only for this plant or for the average business? For the average business as a whole, for the company. Only this plant can be, it will be about 5 to 8 to 10% maximum. Okay, okay. But for the plant, you mentioned the initial remark stands for the plant, the lab plant, correct? Correct. The 40% increase in the capacity and 10% increase in the... The last plan, not for the overall business. Okay. Okay. Got it. Got it, sir. So my second question is with respect to our specialty volumes, I think we have clocked best ever volumes so far for the specialty stems in this quarter as per the details what you have given in the presentation. So if you can walk through what sort of capacity utilization we are currently working for our specialty business, one. And second is, out of all the varieties of specialty what we are currently producing and selling in the market, what do you feel can lead us to the 40% target which we have set for next four years so far as the specialty volumes is concerned? This is my second question. If you look at the numbers, this quarter my specialty is almost more than double what was YOY basis. Absolutely. And on a QOQ basis also it is more than 33% or 34%. correct so what has happened is we have been able to make a big breakthrough in the Indian market and one of the advantage the high cotton price is helping because because the specialty like a live cell a health shift it gives you the same property with cotton gives for at the end of the day you can sell more of your discourse product into that okay right capacity wise My Liocel plant is 100% utilized. So I have no more capacity. We'll have to put a new, if it continues, we'll have to, so right now what we are doing is we are creating more value. We are going for more value added applications from the same capacity.

Correct.

I had told you on the modal side, we can convert lines from gray to modal if required. So it depends upon how the new plant stabilizes, how the modal demand goes up, we can always create capacity. So right now we are Using capacity, 100% existing capacity there also. Okay. But we have flexibility there. Okay. So what I told you was our eco-product. So what we have done now, our new plant has got capability to produce entire capacity and produce Levi eco-product. So it will depend how the market grows, I can supply more of it. So I'm creating a huge capacity there. And our idea will be to convert as much of the branded player from a traditional discourse to a Leva Eco. So we have a plan in place. You see, specialty, you have to build the demand and then put capacity. Yes, absolutely. So is it safe to assume that even Leva Eco commands the same sort of premium what we currently get for Modal or it is slightly lesser than that? Modal is my highest premium product right now. Correct. Vodal, Ayurveda, and then Levaeco. But Levaeco has a much larger volume. In the fullness of time, its volume is much larger. Got it. And for the last clarification on the chloromethane plant of 50,000 tons which we have started, so predominantly it would be for MBC, right? No other product will be produced apart from MBC?

It will be MDC, chloroform, and as well as your CPC, which is your standard chloromethane products. But the largest portion will be MDC. Got it, sir. Got it. Thanks a lot, sir.

I'll join back in the Q&A, sir.

Thank you. The next question is from the line of Saket Kapoor from Kapoor Company. Please go ahead.

Namaskar, sir, and thank you for the opportunity. So when we look at your slide number 14, wherein we have given the exit of ECU for the September quarter, the caustic realizations are at 27,387 and the ECU stands at 26,200. So can you give the exit price for at least an off-sover just to gauge what the rise has been? It is understood that contracts are not only on spot basis. That would give the color where are the prices at trading today, sir?

So I would leave it as that the pricing has trended upwards in excess of double-digit quotes, you know. But rather than getting into exit prices of promo because it's a hybrid of a lot of factors, I would not get into a guidance of that at this point in time.

Not a guidance, sir. I was just looking at the market price.

Yeah, the market price is you can say it's going to buy, you know,

at least about 10 to 15 percent clearly get bought up yeah just to clarify that graph that you're looking at that's a quarterly average of prices top for september yes sir yeah okay

Okay, that was the reason why I was asking that.

And also, different parts of the country have different price mechanisms. At this point of time, you might have one part of the country doing much better than another part of the country because there is still imports which come through over time. So let's not try to get into good prices at this point of time. I think next quarter we will all be there.

Right. And the contribution from Epoxy, what has been the contribution for this quarter?

So we don't give the specific numbers, but of course, epoxy continues to contribute significantly in the chemical segment and probably more than, when it comes to EBITDA, more than 50% in this quarter. But, you know, it's all a matter of time because now that the pricing of caustic picks up, you know, that proportion can significantly change. But, you know, suffice to say that epoxy continues to be a strong generator of EBITDA for us since the pickup that happened in epoxy last year due to the demand, et cetera, that has taken place, the surge that has taken place.

You did spoke about external factors due to which the caustic soda prices have moved up significantly. So are those factors reversed or what has been the trend that has supported? Since you have told that the demand is good, this pricing has been absorbed. So the factors that have supported this jump, if I may, astronomical jump in the prices, are those factors evened out or they are still having effect on the market?

The factors are clear. If you look at the plants in the US have started and are restarting again after Ida. So again, when you look at it from an international market, you look at it that everybody covers themselves for the next one quarter or so. So your current quarters have been covered. I think now it will be November middle onwards when we will start getting fresh queries for the next quarter. And that will be a first lead indicator for us that how much of normalcy has been achieved. Clearly China has more coal mines open up, more power is available. Again, it's a large production center. Again, cost of availability will increase. So I think while caustic availability is increasing at this point of time, but also the demand is also at the moment showing the same robustness. So overall, it seems to be a fairly well-balanced situation as of today.

Small point, so globally what has been the outage in the capacity?

In a percentage term if you could give an understanding that this was... I don't have the exact number but clearly in China you could say that there was about 10-15% outage because of power in different points of time. And particularly the Houston side and the Texas side in US, at least three or four large plants were shut down for about a month or 15 days to a month. But they are all back up. And even China restarted seeing that the capacity jobs started coming back online. They are yet not at what the earlier run rates were, but they clearly have increased their run rates.

But still the global prices are firm. This is what you are confirming. There is no relentlessness in demand also.

So as of now when we last did a check in terms of moving prices, the firmness continues.

And last point is that you have also mentioned that the firmness in prices are more than what the inflation due to the raw material has been. So there is going to be margin accretion on account of this, if these prices sustain.

If these prices sustain, we definitely expect margins improvement.

Right sir and on the availability of salt also sir if you could give some understanding because I think so because of the cyclone in the western coast the salt factors have also moved up so what is the status on the availability and how is this salt season looking sir going forward and how will you source them? Any long term content?

So we have long-term contracts. We actually do more or less annual contracts in salt. So salt has been tight everywhere. And it has gone tighter because in the last two years, the cyclone impact has pushed one season forward. So the current season, which normally starts around 15 to end of October, we are expecting for it to start somewhere around early December. So 15 November to 15 December, we can start producing. And once they start producing, I think then we'll get a reflection of what's going to happen for the next year. So the current financial year, from a gaping perspective, we are covered.

What have been the increases? I missed the point.

I said we have annual contracts and we are covered.

Okay, and can you give the colour of what the increase could likely be?

Again, it depends upon what the next crop is like to tell us what will be the next year increases because the crop has yet not come out. If it's a bumper crop, we don't expect an increase. If it's a short crop, then again there could be a 10% jump in prices or whatever. We really don't know today. That will be speculating.

Yes, and out of the total requirement, how much is captive for us, sir?

We hardly have very little captive. It's hardly about 5-6% is captive for us. That is also salt.

So what is the annual requirement? If we take the pricing also, sir, out of the total raw material cost, how much is the salt? 2%?

No, no. Salt is approximately about 12-14% of our cost.

12-14% of the cost. Thank you. Anything else that you want to add?

No, no, nothing.

Thank you, sir.

Thank you. The next question is from the line of Sagar Parekh from Deep Financial Consultant. Please go ahead.

Yeah, good evening, sir. Thank you for taking my question. My question was actually on the caustic side. I mean, the entire world right now is talking about hydrogen, and I believe that hydrogen is one of our you know, one of the key byproduct manufacturing caustic soda. So, A, what is the current use of hydrogen and do we plan to like significantly scale this hydrogen business up? Just if you can throw some colors on that.

So, you see, hydrogen is a different chemistry and it's not that we produce large significant amount of hydrogen in a caustic product. So, you know, it's one of the least amount which is produced which is actually as low as 0.03% of the total mix. uh but currently hydrogen for us is used internally particularly for creating uh one of the largest uses is uh you know the virgin stl which only acoustic plants can produce we also use it as fuel at some of our places which is giving us a lean fuel for running couple of our boilers we also do sell hydrogen in banks to people in the organic in the inorganic sector so these are the three ways and going forward yeah that's one area we're also very clearly exploring uh in terms of what more we can do with hydrogen and as more and more technologies form up more hydrogen wraps we will study and let's see what happens in times to come but clearly hydrogen yes you're right i think it's the energy flavor going forward at this point of time uh sure and uh ashish one question uh to you uh just wanted some clarity on this stack litigation that has come up so uh

You know, if you can just give some clarity on what is the next course of action for us and, you know, yeah. Yeah, sure, sure. I'm happy to give that clarification. So this is in corollary to the earlier tax demand itself. So earlier demand was in the nature of dividend distribution tax.

Right.

on account of tax authorities saying that this was not a qualifying demerger. The demerger that happened of Aditya Birla Capital from Grathim, it was not a qualifying demerger under the Income Tax Act. Therefore, there is an implication of DDT. And now what they have done is that they've completed the assessments So, sorry, by the way, let me just complete that part. So, DDT matter is still at the tribunal level. They've heard the matter. They have to come out with their order. So, we will see what order they come out with. Very difficult for us to make any judgment or statement out there. Now, what they have now done, Income Tax Authority has now completed the assessment of F517 and And based on that assessment, now they've come back and said that there is a, because it's not a qualifying demerger, there is a capital gains tax because you've transferred indirectly the Aditya Birla capital shares that was held by Grassim to the shareholders of Grassim. So therefore, there's a capital gains tax of another 8,000 odd crore. So now... Now, what has come right now is a draft order of this demand. We have gone to DRP, which is Dispute Resolution Panel. They will understand, read the order, and we are awaiting the decision. We have made all our submission. We are waiting for decisions from them. Only after they give their decision, If it is in our favor, great. The order will be quashed. It will never be issued. If it is against us, then we have an option to go to tribunal. So this is where we are in the whole DDT and capital gains matter.

So worst case, then we would be liable to pay both the taxes. Worst case, I'm saying.

No, there is no. See, I think the key point is that if it is a qualifying demerger, then there is no question of any either of the demand standing on its legs. And we have opportunity to go to tribunal after that High Court, Supreme Court, etc. So it's up to this matter right now. Okay, sure. Thanks Ashish for clarifying and that's it from my side.

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

Yeah, good evening, sir. So first one is on the recent VSF price hikes. Do they cover the cost escalation which has happened till date? Because this quarter we saw a drop in margin. So the recent hikes would cover that cost?

Broadly, yes.

Okay. Second one was, if you can give us the pulp landed cost accounted in the quarter and current pulp prices?

We don't give the pulp cost specifically. Directionally, the pulp cost has remained at the levels that it has been, which is $1,000 plus. We are consuming right now the inventory that we have, which continues to be at the high cost. the impact of the cost of the high pulp prices is actually, we have witnessed in this quarter, which is much higher than the previous quarters.

Just to add, the spot prices are softening. So maybe three or six months later, you'll get the benefit.

So we'll start seeing the benefit from, say, quarter four onwards regarding the declining pulp prices.

Yeah, quarter four, quarter one.

Sure. So on the fertilizer divestment, which would happen by December, since the subsidy number has already come down, so what's the final number which we are expecting in December from fertilizer divestment?

Again, I can give you a directional answer. So say from, you know, 14, 1500 crore of subsidy that used to be outstanding around the time when we announced the transaction. Now that is down to 450 crores. So you have recovered almost 1,000 crores. So basically that much less working capital is there in the business. So that 2,600 odd that we had announced as the enterprise value you know, the working capital is less so that, you know, it will be lower by thousand crores then because we've already got that money from the government.

Sure. And so last one, has the chlorine realization done positive or still it's negative?

It continues to be negative as it's now.

Continued to be. Okay. Thanks a lot.

Thank you. The next question is from the line of Abhimanyu Kasliwal. from Calls International. Please go ahead.

Good evening, sir. Am I audible? Yes.

Yes, you are.

Okay. I'm from Choice International, sir. So most of my questions have been answered. I was hoping if specifically regarding caustic soda, if you could give some kind of outlook on the next four to six, I mean, it's a long period, but still, a four-quarter kind of guidance or not even a guidance, a rough estimate about what's happening in the market, if we can expect the current realizations to be maintained, or they might drop significantly because of the China capacity increasing. Because we understand the China capacity is increasing, but so is demand. But net-net, what would you expect? If you could give some kind of idea, I would be very grateful.

see i i think you know you have covered a little bit of that if there's any incremental uh view that you would like to give directionally uh that that can answer the question no i think what you're saying is you believe that this quarter the demand is robust uh pricing pieces particularly have been robust

for the next quarter i think it's a bit too early looking at how the how you know how this commodity operates in the short span of time to give any guidance for the next quarter um okay so i understand okay go on sir yeah but i think demand wise it's indicators are all positive towards that even the current quarter and the next quarter demand will be positive okay wonderful sir thank you you've been

Thank you.

Thank you. Thank you. The next question is from the line of Pratik Kumar from Antics.Broking. Please go ahead.

Sir, thanks for the opportunity again. I wanted to ask regarding this capex for paying business. So we are like now almost four months remaining for the fiscal year. Why are we still not willing to give a capex number even for FY22, leave aside FY23? No, so we've given the number, actual number already of 267 crore that we've spent, which has mainly gone on land, right? I think, you know, it really depends on the activities, right, that we undertake. So if we see, for example, for example, goes beyond March, okay, then we the capex will be limited because we can't do anything on the site till ECs are obtained. It depends on activity. It will not be right for me to give that next quarter what I'll be spending because it's difficult to assess that. I think there will be better visibility once you have the EC and when things are under your control of how you incur your capex. You know, that's why we gave a block number of 5,000 crore also initially. And we always said that it can be within that three-year period rather than saying that that will be for those three-year period. So, you know, as and when we will give better and more guidance, but we don't want to at the same time misguide you. Okay. And in VSS segment, can you highlight on if there's any more industry capacities globally have been talked about or what are we looking at in terms of global new capacity additions?

You want immediate timeframe?

The global new capacity additions.

As I said last time, there is no major capacity addition coming. There is a small addition has happened in Indonesia, about 50 KT. Next year, we are expecting another 140 KT there coming in Indonesia and China maybe about 100-200 KT. So, there is not a major expansion, but there are a few projects being planned. So, we do not know what shape they are going to take. So, it is too early to talk about that.

And Lyocell, so these are Lyocell patients or normal gray?

But Lyocell, there is quite a bit of capacity coming in. but 220,000 tons is coming in China. So, live cell capacity, there's a lot of announcements that happened in China. Then the lensing plant is coming in Thailand. That will come by year end and early next year. So, that's it. Of course, there is no major announcement, but some planning is happening, so we don't know how it shapes up.

And last question, we used to earlier talk about Leewa tags and we used to give some data around it. I guess that stopped during COVID because maybe we are not able to tag governments with Leewa tags.

That's going on and we are doing almost 4.5 crore tags. So I think now it has become the routine. So I think we are, as I always tell you, if Leewa was a brand, it will be the biggest apparel brand in the country. Nobody sells 4.5 crore garments. So, Liva tag is there in 4.5% government and that's going on very well. And now because of COVID, we did not see much of the branding effort in the media, which I think we are reviving now. If you would have seen, the Liva Miss Diva Universe contest was sponsored by Diva this time. And whoever is the shortlisted girl will go for Miss Universe contest. So, we are doing that. We are now kind of accelerating our media plans on Liva.

And then thanks for the feedback, would be happy to incorporate some such details in the presentation. So there's a lot of buzz around this direct to consumer brands across the board, across the segments. Is this something which we also cater to like via Leva?

We don't do direct to consumer, we do on the e-commerce. We have a big presence in e-commerce. We have a shopping shop on Myntra. And we are now dealing with all the four or five e-commerce companies. Because we are not an end government. We are a fiber supplier. So it is our customers who do the D2C. So what we have done is we have got all our vendors onto the e-commerce through Aliba site.

Okay, sir. That's helpful. Thanks and all the best.

Thank you. The next question is from the line of Ashok Shah from LFC Securities. Please go ahead.

Thanks for taking my question. Sir, my question is regarding, does caustic soda has got still anti-dumping duty? And what's the percentage?

There is no anti-dumping duty on caustic soda as of today.

So in any format, there is no duty? No. Okay. Okay.

Thank you, sir. Thank you. Thank you. I now hand the conference over to Mr. Ashish Adhukia for closing comments. Over to you, sir.

Thanks a lot for very good quality questions. Some of those feedbacks I'll definitely take for our next quarter presentation as well. So thanks a lot and enjoy the coming holiday season and see you in the next quarter.

Thank you. Ladies and gentlemen, on behalf of Grassum Industries Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.