Grasim Industries Limited

Ladies and gentlemen, good day and welcome to Q3 FY22 Earnings Conference Call of Grassland Industries Limited. We have on the management, Mr. H.K. Agarwal, Managing Director, Mr. Jayan Doble, CEO, Global Chemicals and Group Business Head, VFY and Insulators, Mr. Jayan Dua, Chief Executive Officer, Chemical Division, and Mr. Ashish Adhukia, CFO. As a reminder, all participant lines will be in the listen-only mode. 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Adhukia, CFO, Thank you and over to you, sir.

Thank you and good afternoon to all the participants. So, FY22 till now has been a defining year for the company as the company accomplished 75 successful years of its incorporation. We are privileged to continue with legacy of our founding fathers of the company and thankful to our fellow colleagues, shareholders, customers, and all the other stakeholders who have been part of this wonderful journey. One of the pillars of our 35 years of existence has been resilience. That has come about from our commitment to the growth. We have continuously invested in our capacity expansion, technology advancement, and process improvement in our core businesses. Today, when India Inc., is making new capital commitments. India is well ahead of the curve as we had planned our capacity additions in core businesses ahead of time and now nearing completion. So one of the important themes in this quarter is project commissioning. Starting with VSF Reliance plant of 600 TPD VSF capacity at Reliance, 300 TPG was commissioned in November 21, and the balance 300 TPG has been commissioned just this week. So the total BSF capacity has increased by 37% to 810 kTPA from 591 kTPA. With the growing domestic demand in BSF, we are confident of fast ramp-up of this capacity to make additional capacity available to our customers. In the chloralcholine business, as of Q3 FY22, 91 kTPA caustic soda plant at Rehla is fully commissioned and Balbadra Puram Phase 1 plant is partially commissioned with 26 kTPA. The total capacity will augment, will get augmented to 1,530 kTPA by quarter 1 of FY24, because there are a few more commissionings that will take place, from 1,147 kTPA today. The chlorine value-added plant, chloromethane plant of 55 kTPA at Williott was also commissioned in quarter 3 of FY22. The total capex amount budgeted for the entire year was 2,604 crore, and that was excluding paints. For nine months FY22, the actual amount spent stood at 1,476 crore. We will certainly close the year well within the budgeted capex amount. For the paints business, we have received two environmental clearances for two parcels of land. So the capex in those two sites will get accelerated. The capex spent amount is at 505 crore till now on paints, which is mainly towards acquisition of land parcels. We completed disinvestment of fertilizer business on 1st of Jan. At the time of announcement of the transaction, which was more than a year back, the enterprise value for the disinvestment of fertilizer was at 2,649 crore, which included the outstanding subsidy amount at that time, which was part of the working capital. The final consideration amount received by the company on 1st Jan 2022 was at 1,860 crore, and this is after adjusting for subsidy already received from the government during the year and has been small adjustments on account of capex and working capital with this sale the company has turned net cash positive on standalone basis again after a gap of 12 quarters performa net debt adjusting The December end net debt with the proceeds of fertilizer comes to negative 432 crores. Sustainability has been another key area of focus for the company, and we have incurred more than 500 crores in the last five years, and this is in VSF, and they have earmarked a total amount of 1,000 crores towards achieving global standards. The BASF business has taken the target to achieve net zero carbon emissions across all its operations by 2020. Gratham participated for the first time in Carbon Disclosure Project, CDP, in 2021, and has received management band score B-. At Gratham, our commitment to improve the quality of ESG data reporting is increasingly being recognized by the external world. In another major achievement, the company has received Gold Shield Award for integrated reporting and excellence in financial reporting. So these are two awards from the ICAI. Another theme emerging in the quarter was unprecedented growth in prices of crude and derivatives and coal, et cetera, which emanated from demand supply imbalances logistical challenges created by countries' specific COVID restrictions, and these have continued unabated. The BSF business has witnessed almost 400 crore plus of cost escalation sequentially. Gratian's backward integrated model will provide relief at the time of such extreme volatility in the prices, as the rise in caustic prices, for example, There are business-wise initiatives like improvement in consumption norms, improvement in share of renewable energy, which will all benefit in the long run. I'll briefly touch upon the key performance, operational and financial performance. Strong operational performance of ESF has been induced by strong demand for textile products in India during Q3 FY22, despite state-specific restrictions. The domestic textile trade chain has been operating close to its peak capacity, which is led by demand uptick and is evident in the share of domestic sales, which increased to 91% in the quarter from 84% in the last quarter. The share of value-added products in the overall VSF sales mix has increased to 29% on a sequential basis from 27%. In terms of volume, the WAP volume has gone up from 41 KT to 46 KT, an increase of 11% to QOQ and 46% to YOY. And why volume becomes more important than volume The percentage is because the gray capacity has gone up due to the last expansion. BFI Business also reported a strong operational and financial performance on a sequential basis driven by strong growth in demand and improvement in realization despite the cost pressures. The viscose business reported net revenue including VFY of 3,335 crore and EBITDA of 401 crore. The VFY business reported a revenue and EBITDA of 574 crore and 80 crore respectively. The international caustic prices witnessed an upward trend for the fourth straight quarter. The domestic caustic soda prices went up on back of domestic demand and higher international prices. The caustic soda capacity utilization touched multi-year high of 93% in Q3, up 7% sequentially. The EQ is at all-time high with revenue increase more than offsetting the cost increase due to power cost. Map performance suffered from cost pressures and weak demand as well. The advanced materials, i.e. epoxy business, have also witnessed a YOY improvement in the operational and financial performance, driven by a better product mix on the back of strong demand from the wing segment. However, epoxy segment is witnessing some cost pressures, which may impact margins going forward, mainly due to timing differences. The revenue and EBITDA for chemicals with divisions to that 2,338 crore and EBITDA of 528 crore respectively. The stand-alone performance overall for Grasm for Q3 was strong with revenues up by 56% to 5,785 crore and back up 46% to 522 crore on a YOY basis. At the consolidated level, the same figures were that revenue was up 16% to 24,402 crore and fat up by 26% to 1,746 crore for the quarter on YOY basis. With this, I would like to hand over the call back to the operator to take a comment.

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on your touch-tone 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 has a question at this time may press star and 1 on your phone. We have the first question from the line of Naveen Fahadio from Edelweiss. Please go ahead.

Yeah, thank you for the opportunity. So two questions here.

One, in BSS, you mentioned operating rates in China are at a recent high of 83 percentage. But yet in December end, we have seen like, you know, prices coming down on January I don't think there is very good recovery. So is it always attributable only to the Chinese New Year related sluggishness or is there some more issues around it?

You want to go with your second question as well so that we can answer?

Yeah, sure. Thank you. Thank you for this. So my second question then was about the PINX business. I'm glad to hear we've already received environment clearance for two plants. So would it then be appropriate to ask which locations are these, what capacities are these, and by when can the plant see the light of the day?

Thank you. Okay. Good afternoon, Navneet. On your first question about VSF operating rate in China, So it touched a high of 85% for some weeks, and now it has come down to 82% and 181% after the Chinese New Year. And inventory has also started to move up. During the Chinese New Year, most of the VSA plants continued to operate while the customers did not operate. So there was accumulation of inventory buildup. And this is a normal Phenomena in China because this Chinese New Year is every year phenomena and here is a typical buying behavior. So many spinners buy the ESF before the Chinese New Year because they expect that after the New Year the prices are normally higher than before the Chinese New Year. So try to hedge the cost before. So it is just the one week of Post-Chinese New Year, operators are still opening. The spinners have not yet fully resumed. The downstream is still not fully open. So we have to see. So price going down is just normal because inventory had gone up and there was a dull activity. So we have to look for the clear trend now in coming weeks. So I hope this clarifies your question.

Yeah and so I'm just trying to you know understand that will given that cotton has been on a rise sustainably but we haven't really seen that kind of a sustainable increase in DSS. I'm just trying to check do we expect prices now to improve or it's still you think difficult to really take a call on that.

Price should increase because cotton is all-time high. And now, VSA staple fiber prices are also increasing on the back of higher school prices. And there is a historical correlation between VSA, PSA prices and VSA cotton prices. Of course, the cotton and the VSA prices have diverged, and this kind of gap is unprecedented. And that is because on cotton, there are a lot of financial players also. and there is an expectation of more shortage in cotton. Whereas in VSF, the competition among Chinese players is a little bit more intense than we would like to see. So that is the reason. But we expect the prices to go up and to some extent, cover the cost increase more than what it has been the case last fall.

Okay. Yeah.

And now into our second question, the ECs are received basically for our north-based plants, which is Panipat and Lukyana. And we should actually receive ECs for others as well soon because south-based plants were the first ones that we had signed up to the state government. Correct. So congrats on that. And I think I'm sure investors will then be very keen to also know that since north EC has received, so Definitely more color on this as to what is the outflow that we can look at and the timeline for these land commissioning work capacity. I think that color will be very helpful. Thanks. Sure. No, the point noted, I think we are in early stages. I think land generally is a little bit always unknown how much time it will take when we look at ECs. So now that we are also gaining more visibility on land and ECs, So hopefully by next quarter we'll be able to give you more picture on the capex, you know, forecast and other stuff.

Thank you. Thank you. Thank you so much.

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

Good afternoon, sir.

Good afternoon.

Sir, my first question would be in terms of value-added VASF, I think we have reported best ever quarterly volumes in terms of the value-added volumes, like it is up 56% from the start of the year. So my question is, sir, how much further we can take these volumes based on our current value-added capacity? And if we can add further that how much more capex we need to incur in order to take our value-added volumes to 40%. which is our long term goal. So Nira, the question is a very interesting question. So we are running our web capacity almost to the full. But we have the flexibility to convert some of our lines which produce grade to web, depending on the demand situation. like we have been waiting for schools to reopen for uniform market to pick up so that we can make more door type fiber which is one of the best we are running our excel plan which is live category of usf to almost full but we are also experimenting with increasing the capacity marginally and uh eco is one uh product capacity is not a constraint, but it depends on the seasonality of buying and setting more orders from them. So by end of next year, we hope that we will increase the WAP volume significantly. And along with increasing the WAP volume, Percentage-wise, it may not increase because our gray capacity is increasing significantly, so the denominator is increasing, so that is a different thing. But we are also increasing our realization on that product as much as we can. So on both sides, we should expect better performance on that product category. Last time on the call, you explained that since we have some sort of fungible capacity where we can improve our levi co-production but with this uh wanted shrink our premium of the margins what we get in the value-added vsf over the gray vsf because then we are already at the optimum level of utilization for the live cell or the model probably which you mentioned in your opening remarks so we can convert one more line from gray to mobile depending on the market situation so in India it will take time for market to catch up but then for some time we may export more model out of India so this is always a matter of time for the demand to catch up capacity can be increased in one step wherever we can so is there like increased capacity then market increases and we utilize the capacity to live and we again find out ways to increase the capacity sometime it can be very small increments of time it has to be a little bit bigger step increment and so like if you can put some sort of it takes numbers for improving our volumes of that to 40 percent that would be helpful so not significant capex except in excel excel will need more capex but other webs we can increase the volume without much capex so our focus will be to increase the web for other other webs other than excel got it sir my second question is on uh vsf again so uh in the opening remarks you mentioned that vsf business has seen a cost increase of 400 crores sequentially so if you can attribute the increase in the power cost out of this 400 crores because even on a sequential basis we have seen 350 crores increase in our power cost. So some sort of understanding there in terms of the increase in the cost from the VASF business. Out of 400 crores roughly 120 crores is on the energy power and steel together like natural gas and coal etc.

See, I think to answer your question, I think you're probably talking about power and cost increase at overall investment level.

Yes, correct, sir.

Correct. Yeah, but that is mainly on account of caustic because that's the power intensive plant, business rather. So, BSF, you have to focus on the increase in the pulp cost and the caustic cost. That's the primary reasons. for the part of that 400 crore that you're seeing. And that's an absolute number that we've given 400 crore. Of course, because of volume increase also, there may be some variable cost increase. We're just comparing quarter to quarter to say there's a 400 crore plus increase in the variable cost.

And sir, is it possible to share in terms of our increased capacities both for VSS as well as for the cost division, how much currently we are based on captive requirements and probably some sort of capacities we are also adding in the renewables also. So let's say when we will be utilizing both the capacities optimally, how much would be our power integration? If you can share.

So we have shared a renewable capacity share, right, where we are going up to 10%. with whatever group captive teams, et cetera, that we are going to. So that's roughly, and then about 40, 50% is our captive power, from what we.

Yes. But on floor alcoolic side, we have power from grid and renewable. Okay. Sir, if I can just squeeze in one last question based on the bookkeeping questions. It's like on the pulp JV, we have reported the losses. So just a clarification that is this because we have produced some 25,000 tons or probably 25,000 tons of lesser volume sequentially because of which our are lesser because if I do some arithmetic calculation in terms of the realizations what we have reported, I think we would, if we adjust those less volume sold, we would have been in the profit from the pulp JV. Is that understanding correct? Yes, your understanding is correct. We had some reliability issues in our plants in the last quarter, and that resulted in lower production. And when the plant doesn't produce, then there are, on the contrary, more expenses on maintenance and on some energy things. So it becomes compounded. The problem becomes compounded. So your understanding is right. If we had produced as fully as for the previous quarter, then we would have been in profit. Thank you so much for answering the questions in detail, sir. All the best, and I'll join back in the Q&A, sir.

Thank you. Thank you.

The next question is from the line of Chintan Chheda from Quest Investment Advisors. Please go ahead.

Yeah, hi. Thanks for the opportunity. Sir, my first question is related to caustic soda. So we are in a very good cycle of caustic soda right now, but the performance of ECU division continues to get negatively impacted by chlorine. So I just wanted to understand, like, what are the plans of the management to tackle this issue? Well, I think, fair point. So what normally happens if you look at the, chlorine becomes the kind of a bottleneck for caustic supplies to increase because chlorine can't be transported. I mean, that's the first understanding we need to get. And when the run rate of caustic on prices is good, everybody maximizes caustic production. and typically chlorine gets into negative and that's been the historical record in India because in India the primary product is caustic and the byproduct is chlorine which is reversed in the global scenario because of PVC. So what we are doing at this point of time and you would have seen and you would have heard Ashish talking about the projects so one large chlorine derivative project CMS got commissioned in July and you would have also seen the press note of this time which talks about ECH which is now going to come up in 2025. So there is a progressive work which is happening on chlorine integration in the business. It is going to be a couple of years before our current captive consumption, which is a chlorine of around 29%, 30%, will jump to around 45%, 50%. And that journey, I think, as we keep on adding more and more products in production, we'll keep safe. that's clearly a line of focus for us going forward and you're seeing the initial work on it come through in the cms okay so at suppose say 40 percent kind of uh utilization of chlorine with that uh impact on the spreads uh will not be negative or like what can we just get to the sense on the margins basically how can we just lead to our margin improvement So I think you need to look at the chlorine. When I talk about chlorine, captive consumption of 40%, that's the chlorine derivatives that we are talking about. Then there is MCL also, and then there is tunnel sale which happens. So overall, if you look at the 93% capacity utilization, that means 93% of the chlorine producers got inactivated in the plant. So that's the thing. There are three or four ways you cut chlorine and look into it. What we control in our own production facility is today 31%. which will go to about 45% over the next few or four years. Yeah, and the margin impact on that will certainly be positive. But each derivative has a very different margin because the end user is different, chemistry is different. So it's very difficult to say what the margin improvement would be. on an overall basis, but each product is very, very different. It's not a range order. It's not a straight line, which you can do. But clearly, if you see from a negative tunnel sale of chlorine outside market phase, the margin accretion is positive. Okay. And how much we sell through pipeline today? We have approximately on an enterprise basis about 15% which is on the pipeline. uh we have our own consumption at about 30 hcl takes another about 12 15 and about 35 40 percent goes through our sales okay uh and so my second question uh is again related to caustic soda so we are along with you there is a couple of more players who are adding capacities uh very soon uh in india so then how do you see this impact on the overall caustic cycle for the domestic market Here you have to go a little bit into the history. And if you look at the last about a four-quarter history, India has been at a discount to CFRSEA for some time. In the month of January, which we'll talk about in the next quarter, is when they both have gone. And this is a step curve. Any country which will add capacity in any such product will go through an 18-24-month cycle before it normalizes and it comes back. So as capacities may come up in India, you will see going forward logically excess capacity of production. But again, here the question comes back to your earlier chlorine consumption. It will be the chlorine capacity utilization which will drive the caustic capacity and not the other way around. Okay, so probably in first half of FY23 when lot of capacities come on screen, you could see a weaker second half in FY23. Is that the right logical assumption? I think we should not look that far ahead, particularly with the volatility because the prices have been going through within a month from a $900 to a $475. So my take is, yes, fundamentally, every time a capacity comes in, it does create market pressure, but I wouldn't really look that far ahead at this point of time.

Okay. Thanks for the answers.

Thank you.

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

Yeah, my first question is on VSS pricing versus cotton. So, the way cotton has risen in terms of pricing, has there been any demand destruction for cotton customers and some of them have moved to us, I mean maybe not to us but to some of the other international players because our export mix seems very less. So, has there been any migration of cotton customers to the global markets and maybe also in India?

Because when the delta is so much, it is natural for textile people to start using more of ESF and optimize or reduce cotton consumption. They can divert, they do divert some spindles from cotton spinning to ESF spinning and also at the fabric stage they can do more blending. So all kinds of rivers are there in the hands of downstream. So we are seeing very robust use of BSS in India and also globally. So it's clearly happening. Now how much, I will not be able to give you a precise number, but it does happen and it is happening.

But a number of volume of BSS at 157,000 doesn't look very extraordinarily high versus I mean we are doing 140-150 annually earlier like last year and with added capacity also. I mean in such environment why industry is not able to sell much more in terms of VSS?

We were selling whatever we could produce so that was our constraint and now since we have already commissioned additional capacity so we expect to sell more. now we have more material to sell and we are able to sell increasingly higher volumes in India that is our first preference because then we don't have to incur high shipping cost and now in both businesses are 90 plus yeah so now we are actually like quarterly capacity of around 200 000 odd and so from q4 onwards

We should like model number of volumes, leaving aside some external factors like COVID impact. But number upwards of 180,000 or 170,000 should be doable on a quarterly basis. Yes.

So our India VSO capacity... Your voice is very low, I think. Our India VSO capacity has, with the commissioning of new lines, has reached about 8.1 lakh tons. So on quarterly basis, we should expect fairly equal volume, say quarter one next year onwards. So this quarter, we will be standardizing the new lines and there will be some different challenges, but from next quarter, we should expect reasonably good increase in the volume and both of our capacity.

Okay, and that's one more thing.

Given we have capacity constraints and given our cost has increased so much from quarter to quarter year on year, so what stops us from taking more price hikes to offset our increasing cost because our profitability has halved almost in the BSS segment over two quarters from around 40 rupees per kg to 20 rupees per kg. So is it import competition because we are largely selling in domestics So what prevents us from taking hikes which could offset costs as anyway we are running at very high prices?

So there are two factors we keep in mind. If we increase the prices, yes, we can increase to some extent, but then there we are opening the risk of imports from China or from Indonesia. Because after all, everybody can export even after paying the high shipping cost. And then we have to keep our prices in line with the possible landed cost of imports. we do charge premium for the domestic supply, domestic price supply and all those things, but there has to be a reasonable level. If the difference is too wide, then we are taking a huge risk of imports. And second is, if we increase the price, then yarn costs will be high, and then there is a risk of VFY yarn imports coming. So that is another need which restricts our ability to increase the prices beyond a point. So we have seen that even if the yarn prices are very high, though our prices are not so high, but yarn imports come and ultimately it leads into our demand in India. So these are the two levers we have to always keep in mind. But we try to maximize our prices as much as possible.

Shara, just to answer, what would be your opinion to imports from various countries in terms of pricing and

So roughly about 3%, 2 to 3%.

I think last time also we had mentioned that there is a conversion of landed and this thing. So more or less conversion.

We try to charge premium for our quality, for our services, for just-in-time things and all those things. But we cannot be too greedy.

Sure, sir. These are my questions. Thank you.

Thank you. The next question is from the line of Sumangal Nivetia from Codex Securities. Please go ahead.

Yeah, thank you for the opportunity.

The first question is just continuing the previous question on our VSA volumes. Now this year, assuming we'll be doing something around 63640, now 280 per quarter, we're looking at somewhere around 25 to 30% volume growth, both in VSS and cost A. Is there the right understanding of the ballpark guidance for FY23 in terms of volume growth for both these businesses? No, so it's tough to give volume growth. I think it's easy to calculate what I said that, you know, we're running historically at 90 plus capacity utilization and we will run our new capacities at that. We should be able to. And you know, the difference that we have in Caustic is that VSS has increased, right? So Caustic will New capacity has the capability to feed into that as well. And then on the eastern side, there is alumina capacity that has come on back of strong aluminum prices. So there is market out there. And VSF, you know, Mr. Adhuan has already spoken about. And the sensor, basically in terms of ramp-ups, beyond a couple of months, we don't really require a ramp-up period. that's the understanding I'm getting and also we won't face any market constraints to place this quantity of volume in the market. So is that the right understanding of the discussion?

Yeah, you are right and domestic market may take some time to catch up and in the meantime if there is any surplus we can export but of course the net debt may be slightly less because of high shipping costs but We do not expect a serious problem in producing and selling the entire volume.

Got it. Got it.

Second question is with respect to the capex. Now we are very close to concluding our existing phase of expansion. What sort of capex will be left over in FY23? And in terms of our pain business also, next year, what sort of capex are we looking at? Yeah, so Samangal, I think right time to discuss that would be in the next quarter, mostly when we would have finished our budgeting, et cetera. I think for FY22, like I said, out of the balance capex that is there, comfortably we'll be able to finish well within that approved capex that we've mentioned on the slide.

Understood. Okay, thank you so much and all the best.

Thank you. Thank you so much. The next question is from the line of Harit Seth from Quest Investment Advisors. Please go ahead.

Hi, sir. I mean, a large part of the question has been answered, but structurally, if we have to look at, I mean, this VSA gray business, so looking at the kind of, I mean, convergence of import price and domestic price, so VSA gray as well as the VSA yarn, VFY. So how one really understand that which will be the demand driver and how the global capacity is and what level is operating and there can be a safer incrementally the way cotton prices are increasing and uh us is putting a pressure from import from china which is a reflection of high cotton yarn prices also so how if you can give some color that that will be a great help from say two three years perspective

I think, you know, some of these questions, like you said, it's covered. Is there anything specific? Because I think in terms of guidance, we don't give... I'm talking industry policy. What's the specific question on industry?

So how much is globally VSF demand is increasing VSF as well as VFI and simultaneously how much capacity is available and operating at what level and further new capacity which is getting added? Okay. So, on a global basis, CY21 demand for VSS is estimated to be around 6 million tons. Correct. The capacity is estimated to be around 8.5 million tons. Okay. So, you can calculate the overhand or capacitive digestion. Okay. Now, new capacities There was some capacity addition in 2020. In 21, not much. And in 22, there have been some announcements, but we have to watch how much of that comes on the stream. And the demand is expected to grow globally around 4%, around 4%. And in India, the demand is expected to grow at much higher rate. because India is still not at the high maturity level in terms of ESF use. In India, we have added our capacity about 220,000 tons. So you can now understand whatever color you want to give to the industry picture. And how much import is currently in India? And one is a VSF and second on VFY.

So in India there is not much import.

Yeah, not much import. And yarn is again an open commodity which happens. So statistics are available. Yarn is on the range of 80,000 tons per year. VSF imports are much lower than that.

you have to look at yarn and fiber together because of the you know depending on the prices yarn can start coming in he is asking for VFY VFY is a different thing VFY about 2 thirds of the Indian demand is meant to import 1 third is meant to potentially buy VFY and the value added product that we are talking so how is the for the industry

The limited products are good for the industry because then Indian textile value chain becomes that much more high-value-added. And it improves the industry structure and is a reflection of higher aspiration of Indian consumers. Okay. So it's the last question on this caustic soda side. see we our capacity we are increasing almost by say by till 25 almost 50% from currently 10 lectern to 15 lectern correct understanding yeah that's right from 1147 KTPA to 1530 yeah how much will that be then again now as you explained that to evaluated will be 40% by that time in for of grassing and so tunnel trail and all. So how much that will be met and how much will be the, where there could be a chances of a negative carry there?

So let me kind of take a stab at your question. So see, I think what we are talking about is increasing caustic, right? The capacity increase. On a separate front, We are working on chlorine derivatives also. In each of our locations that we are present in, we are working on chlorine derivatives. And what we've given as a target in 2025 of, you know, 40-45% roughly, whatever, is on account of this new derivative cap that we've put up, which includes CMS, ECH, etc.

Got it.

So that's really what the plan is. And we are trying to put up both capacities in parallel so that whenever there is extra chlorine that is getting created, we have some project that is ongoing to absorb that part of that chlorine that is getting generated. Because at the end of the day, we want to avoid a lot of movement. And just to add one more reference point, and I'm not getting into data with you, The chlorine demand is growing at a faster rate as compared to the cost and demand. So, generally you have a positive cycle there relatively. Okay. Because of this demand for PVC. Because chlorine, as you know, we sell in the trade market, and it's also negative.

And currently our captive is how much in the pipeline that we are talking. So that will also be, do we have a plan to increase those?

We are continuously in talks with potential chlorine users who can then come and pick up, put their plants or joining to our plants. They are subject of, they are getting their EC land availability, so lots of ifs and buts in that.

that's the constant dialogue which goes on with prospective uh chlorine consumption players okay so by 25 sorry sorry thank you thank you uh the next question is from the line of yes jane from choice institution liquidity research please go ahead um hello yeah hi yes okay hi sir this is abhimanyu from choice institution equity um

Sir, most of my questions were answered. So I wanted to ask regarding the CAPEX. If I heard correctly, 2604 crore CAPEX was budgeted for this year and 1476 crore was completed. So roughly 1150 crores, up to 1150 crores you can say is left for this quarter. I wanted to know, and this might be a very difficult question, but Would this 1460, 76 crores include the 965 crores capex on cement?

No, this is on a standalone basis.

Okay.

If I can guide you to the chart on page 7, we cover only standalone businesses of Bratham, which is BFF. So you have the breakup of the balance capex of 1,128 into BSF and when I say other businesses, it's basically epoxy, VFI, textiles, insulator, which is all part of grassland. These are smaller businesses.

Understood, sir. Thank you. One more question, sir. Since we have roughly 1,100 crores that we are hoping to complete by this quarter, Are we seeing some kind of traction in that or are we going to pay and be well below budget or what do you see, sir?

Yeah, so this is the reflection of our ability to complete our projects at lower cost. So in the year with the lesser amount than the spending that we have given.

Okay, wonderful, sir. Thank you so much.

Thank you. The next question is from the line of Nirav Modiya from Annual Research.

Please go ahead. With respect to my earlier question, I had just one addition to that. So you mentioned that we'll be adding the capacities substantially on the value-added VSS side. And in your opening remarks, you also mentioned about the sustainability capex, what we have been doing on the VSS side. So this would help us to bring down our cost of production. if you can relate this some reduction in the cost of production with respect to the slightly lesser realizations in the value-added batch because that would be more towards DOPDIDE and the other fibers what you mentioned. So some understanding of this. Basically, my question is to understand that let's say if some premiums fall for the value-added VSS, how much we can compensate it through the reduction in the cost side? So, only these two things are not fully related. Yeah. Premium on web is a function of market situation. And sometimes we are able to pass on the cost, but many times, like recently, the cost increase has been much more than we can pass on. And sometimes it may be that cost reduce and we don't have to pass on that cost reduction in the price.

Yeah.

And increasing the production will not reduce the cost because we are anyway operating at almost 95% of almost full capacity. So it will be a question of which product we produce. And a little bit of de-bottlenecking or increasing the production, yes, there will be marginal reduction in the cost, but that will be small, not a very big thing.

And just to supplement, you know, see, I think if I get the direction of your question, see, over a longer or even medium-term horizon, so the new capacities and the bottleneck capacities that are coming are all brownfield, right? So, Velayat is brownfield and the deep bottlenecks are in the same. So, you're not really incurring large capex to achieve those volumes. So, that's where the benefit of mitigating the cost increase or any changes in realization, that's a benefit that you get by constantly reducing. In fact, every year, we come up with projects where we focus on reduction of cost overall for Gratham, including the BSF business through technology, etc. Now, on the sustainability front that you mentioned, see two, three things. One is sustainability expenditure that you do actually doesn't necessarily lead to only cost. You're able to get premium for your product from your customers because today customers are demanding that product, right? And because you have that background. Now, Lever Eco is actually an example where you work on your process, your value chain, your product, to create a sustainable, fully sustainable product. And there you clearly get premium over the gray. And the way the premium has to be looked at is not necessarily percentage margin over premium. Generally, the prices of these specialty and WAP products is quite stable and the gray is what moves up and down. So you have to look at the premiumization of WAP from that perspective.

Got it sir. But sir, like since we have been demonstrating a lot of examples in terms of the process intensification by almost like we have de-bottlenecked our capacities by 10% over the last 6-7 years. So is it fair to assume that once we utilize these capacities fully, we assess probably FI23 or FI24, that is a different topic. let's say, whenever we will exhaust those capacity, there is a further scope of some de-bottlenecking, which would probably come at a very lesser capex cost.

We've done that in the past, and we'll continue to find ways and means to de-bottleneck and increase the capacity.

The second question is a bookkeeping question. So, like you mentioned that the performance for the epoxy this quarter has improved on a YOY basis. So, if you can quantify some percentages, like, How much it has improved on a YOY basis that would be helpful, sir?

So we don't isolate epoxy and give that figure. So at the end of the day, if you look at epoxy also, it's in a way a derivative of chlorine, right? You make ECH and then it goes into epoxy in that way. What has really happened in epoxy is that the raw material prices of ECH and BCH, et cetera, has been going up. Okay. And some of it is getting consumed out of the inventory of the prices that we bought in the past. So therefore, the cost pressure is coming through because of timing differences, what I had mentioned in my opening remark. To pass on the price. Yeah, and the inability to pass on that price at this stage.

Okay, sir. Thank you for the answering questions in detail, sir. Thanks a lot.

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

Hello. Yeah, thanks for the opportunity again. I have a couple of follow-up questions.

On caustic, in caustic segment, so this cold price has started to rise again or has risen again after I think some softness which we saw in November, December. So, are the pressure on caustic segment margins again expected to come back or like industry again thinking of taking price hike or the price will support the margins in that segment? Normally there is always a lag between the prices of coal to our consumption because there is a certain amount of inventory all of us do keep. You're right, the prices did come down, the prices have gone up again. But I think at this point of time we believe that the caustic prices have reached a point you know, they're kind of stable. The volatility in Indian market is coming down, and so also in the global market. So my belief is it's better to have a more stable pricing than a volatile pricing that we've seen over the last three or four months. But, I mean, being a very basic commodity, what has, like, particularly helped in stabilizing the price, as you said? Again, it's the demand supply. You see, you've got a very good demand coming from the textile sector, And you've got a very good demand coming from the aluminium sector plus along with your soaps and detergent sector. All these sectors have been doing very high on their own demand cycle, which has led to the stability of demand. And that's why you're seeing the run rate from 85 to 95% across multiple players. And one last question on VSF inflation. So what, I mean, is this the pulp inflation expected to peak

or is it only peak in the third quarter or is it more inflation is remaining like okay so fall prices of lately have been more stable than other inputs like caustic or coal or sulfur or zinc so fall prices are not going to show much higher volatility in the coming quarter that is our expectation

So I mean what we booked per price has been softening as we have discussed earlier some earlier time but what we have booked in terms of hard numbers so should we start seeing some softening? The lag effect that you know we've always talked about so we get the benefit or the other way around the impact of the prices

almost four to six months down the line because of because of two factors one we follow the index of previous quarter for this quarter supplies from our suppliers and then there is a long value long supply chain it takes almost one and a half months for the pulse to arrive from the origin to destination and then there is always some inventory so there is a gap of almost four five months

from the time of index to our convention. Yes, that's what I was asking.

So as the lower cost to show up in our numbers or is it still six months away because the price has been falling for some time?

Yeah, so we have already passed the peak for the time being to your question.

So peak is behind us. Sure, thank you, sir.

Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I would now like to hand the conference over to the management for their closing comments.

Thanks for everyone's participation on the call. We look forward to seeing you again in the next quarter. Please reach out to Sate for any classifications, queries that you may have on the numbers.

Thank you.

Thank you, sir. Ladies and gentlemen, on behalf of Grasm Industries, that concludes this conference call. Thank you for joining us. And you may now disconnect your lines.