Grasim Industries Limited

Ladies and gentlemen, good day and welcome to Q2FY24 earnings conference call of VASIM Industries Limited. As a reminder, all parts and lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star 10-0 on a touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ankit, Head Investor Relations from Graphium Industries Limited. Thank you and over to you sir. Yes, thank you. Wish everyone on the call a very happy and prosperous summer 2018. Thank you for joining us today to discuss Graphium Financial Results for second quarter of financial year 24. The financial statements and presentations are available on our website as well as on the website of stock exchanges. For safe harbor, kindly refer to the statement highlighted in the last slide of our presentation. Our leadership team is present today on this call to discuss our results. We have with us Mr. S.K. Azarwal, Managing Director and Mr. Baban Jain, Chief Financial Officer, Grassim Industries. Also joining the call, we have our business leadership team. We have Mr. Jayal Dugle from Chemicals, Fashion, Yarn and Installator business and Mr. Hemant Kampania and Mr. Lakshi Khargave from Trace business. I would now welcome Mr. Bhavan Jain for his opening comments, post which we will open the floor for Q&A. Over to you, sir. Yeah, good morning. Hope you all had a joyful and sparkling Jivadi celebrations. We from Grassing Management wish everyone on the call a very happy and prosperous new summer. It is a pleasure to be with you all for discussing our quarter 2 reserves on this call. First, I would give some highlights on macro and business environment and then would cover our financial performance for the quarter under discussion. Global economic activity and trade are witnessing slowdown although unevenly across geographies and sectors. While in the US, economy is showing sign of resilience with tightness in labour market, better than expected Q3 GDP and stable domestic consumption, there exists tough economic scenario in Europe zone. It appears that China is again witnessing signs of slowdown The latest reading of GDP showed that US economic activity rose by 4.9% while it is contracted by 0.1% in Germany and Eurozone and is estimated to have contracted in Japan and UK as well. Tightening financial conditions in response to monetary actions to address still elevated inflation, persisting geopolitical tensions, and growing geoeconomic fragmentation rendered the global outlook as fragile. In October-November 23, U.S. Fed, ECB, BOE, BOJ, and Bank of Canada held the weight and did not announce any change. Fed's policy statement remained hawkish as it reiterated that future rate hikes cannot be ruled out if inflation continues to remain elevated. China's expected reopening boom based on the export growth and consumption revival doesn't seem to have materialized on expected lines. As the macro global environment continues to remain volatile, weakness is seen in relations of global commodity segments in which we operate like viscose and chloral. On the domestic front, RBI's policy kept status quo on both strengths as well as on rates. Growth and inflation estimates were also retained at the same level of 6.5% and 5.4% respectively for FY24. India witnessed below normal rainfall in 2023 after a span of over 4 years of normal and during this monsoon, though in the rain-fed agricultural region, also called as monsoon core zone, the rainfall received was normal at 101% of LPA. During the quarter, most economic indicators showed signs of improvement. CPI inflation increased down. IIP saw an uptick in August 23 and September 23 after falling for two consecutive months. Sector-wise, both cement production and steel consumption recorded growth, while garments and chemicals witnessed negative growth, which could be largely attributed to lower growth in exports as these sectors have significant export-led demand. The ongoing festival season, which also coincides with the harvest time in rural areas, will be crucial. In the larger textile value chain, The pent-up demand seen in 2022 post-lifting of lockdowns is witnessing normalizing trends in 2023. Additionally, the inventory trends are also normalizing, though focus of majority of the brands remain on reducing inventories and moderating buys. Coming to our financial performance for the quarter, the consolidated revenue grew by 10% YOY, to Rs. 30,221 crore Consolidated EBITDA grew by 14% YOY to Rs. 4,509 crore The growth was driven by Cement and Financial Services businesses as both Ultratech, Cement and Ajit Kapilak Capital posted robust results At standalone level, Revenue D grew by 4% to Rs. 6,442 crore and EBITDA rate grew by 21% YOY to Rs. 1,354 crore. The sales volumes in standalone businesses, the cost and cost of soda recorded growth of 24% and 3% respectively on YOY basis. The impact from global decline of prices as well as the mismatch in demand supplies which resulted higher direct impact on realizations for discos and chloralkali businesses. In specialty chemicals, our epoxy business has recorded volume growth of 25% YOY and the expanded capacity of epoxy is under commissioning and expected to be operational in 2023. We have announced our brand for paints business, which is Birla Opus as mother brand. Sub-branding and go-to-market strategy are progressing as per internal estimates. Also, as stated earlier on commercial launch, happy to share that the company has received consent to operate four, three of the plants, namely Panipas, Lugiana and Selyar. Villa Pivot, which is B2B e-commerce business, was launched last quarter and it has crossed milestone of 100 crore in the first quarter gone by revenue of Rs. 100 crore and now inching towards monthly run rate of Rs. 100 crore. As highlighted earlier, on private level, we have launched build-up image tiles, ceramic tiles and also exploring other categories like doors and plywood. The company is witnessing high healthy repeat rate from the direct buyers in first-hand fragments. In its transformational growth journey, Graphene is implementing its highest ever capital expenditure plan. As you all would be aware, the board has approved fund raise of Rs. 4,000 crore by way of rights issue in the board meeting held on 16th October 2013. Proceeds from the rights issue would be used for ongoing CAPEX and retiring dates as well as for general corporate purposes. At this point, we would not be able to share more details about right issue and request you to avoid questions specific on this. We would share additional details with all in the due course of time. We now open floor 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 1 on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use answers 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 Naveen Sardew from ICICI Securities.

Please go ahead. Mr. Naveen, your line has been unmuted. Please go ahead with your question.

Mr. Naveen, we are unable to hear you. I request you to unmute your line from your side, please.

Hello.

Yes, we can hear you now, sir. Please go ahead.

Okay, yeah. So, thank you for the opportunity, sir, and good to see VFF margins recovering on a COQ basis. My first question was on VFF, that despite the fall sequentially in the realizations, margins have still improved a tad on a COQ basis. Now, if my observation is correct, since August, I think there has been almost like a 8 to 10% kind of a recovery in global DSF prices, especially China, if I'm not wrong. So, does it mean that we can expect further margin improvement in Q3 or cost could like, you know, come back with a lag and there could not be much further improvement? And just here on this I would also like to request your views on more steady state margins for VSF in the sense if I look at last 20 years FY03 to FY23 the EBITDA per kg is roughly 25-26 rupees in VSF. Can we take that as a steady state number or in the current scheme of things like more like 2021 is a fairly stable kind of a margin expectation over the medium term.

Thank you. Good morning Naveen. Thank you for your detailed analysis on VSF profitability. So international prices for VSF have remained under pressure in Q2 also and currently. In China there was some improvement in Q2 And prices have not improved that much as you said, but they have been more steady. And lately as published information will show that the prices are inching down a bit. Having said that, the margin improvement in Q2 was that though the prices came down, but the volume increased significantly so that gave operational leverage. as well as input prices also came down. Caustic soda was the main item. Sulfur, coal and coal to some extent. So these commodities now are very volatile. Caustic prices have started to stabilize and inch up. Coal prices have also started to inch up. So difficult to predict really whether margins will remain we hope that margins remain stable but then it is anybody's guess about so many volatile factors so this is the situation helpful and on my second question the views basically about

steady state margin if I were like I said 20 year average seems like 25 rupees a kilo so if I were to take a view next 4-5 years because as you rightly said commodities can be very volatile in the interim but if I were to take a slightly longest view 4-5 years is it fair to assume that 25 rupees a kilo can be an average profitability expectation or you think because empty dumping duty is no longer there and you know see you people are more knowledgeable about how to build scenarios and how to build

for me to say that we all know the facts that ended up CTC is not there and what is the current situation so you can create different scenarios I will start the refrain from guiding you on which numbers what out of the two numbers you have said like in the long run yes we also hope and we aspire that the long term average should hold but difficult to tell you like whether it will turn out to be good in the next year, three, four years, as you said. So in the long run, yes, we all remain optimistic.

Sure. And just one more question before I get back in the queue. The losses from the other new businesses, let me put it, which is, I think, B2B business or paying business, they have been, I think, quite sticky since the past few quarters. Rightfully so, they are new businesses. So, I just wanted to understand because I believe EBITDA losses are more like 100 odd crore in the current quarter, maybe 115 to 120 odd crore from these new businesses which were around 18-19 in the past one or two quarters. So, would you request a broad makeup of this? Is it more from the pains? Is it more from B2B? And then how should one look at these losses in the coming quarters? Thank you.

So, Naveen, of course, the new businesses have their initial costs which are being charged to P&L. So, obviously, the higher part is from the pains business. B2B is not a significant number. So I think once we reach a level where we need to separately disclose these numbers, we will report in our reserves. But as of now, the numbers are not very large. And yes, the higher part is from the paint business. Large teams have been already hired. in all the areas of the paint business. So the cost which is not getting capitalized is being charged through P&L.

Understood sir. Thank you. Thank you so much. I will come back to you for future questions.

Thank you. Our next question is from the line of Nilesh Raha from Julius Bear.

Please go ahead. Yes. Hi. Am I audible? Yes, sir, please go ahead.

Okay, great, great. Hi. Hi, yeah, I think, you know, I just want to thank the team for sharing more granular information about, you know, about paints, right, especially, you know, just in this call and even in the last one, right. My question is slightly more long-term, right. I, right, I think, Yeah, you know, Grassin as a company serves two functions. First, that it is the holding company of various entities of the builder group.

And second, it also has operating companies of its own, right? I'm just interested to understand how the management and the board thinks about capital allocation in the long term Because, you know, we have pains that is going on, but in the comments, you know, you mentioned also some other categories like tiles, flyboard, right?

Does the management, you know, over time you have seen also debt increase and now you are doing the rights issue, right?

I know that you would not comment on the rights issue right now, but structurally, do you have a view that

on what kind of, you know, sort of debt to equity you would like this company to be and what kind of distribution would you like your shareholders to have, right, from both the operating and the investment verticals of grasping the company.

Thank you. Yeah, so... See, first of all, let me try to explain how the company works in the sense that we have at standard level two core businesses, existing core businesses, which is our viscose and chemical businesses. And we have entered into two new businesses, which is paints, decorative paints and B2B e-commerce. And apart from that, we have other businesses like textiles and insulators, etc. So, these are the stand-alone businesses. Right now, the large capex plan is for the paints business, but we are continuing to invest in our core businesses as well. The capacity expansions have been recently completed in viscose business and also in the chemical business and chemical business still remaining some part of the capacity expansion capex. will be completed in next financial year. So, we are continuing to invest in the core businesses. We are investing in the paint business, large chepeks we have announced of 10,000 crores, part of which will be spent during current year and balance in the next financial year. In B2B e-commerce, there is no major chepeks. And as regards to your comments for the and doors etc. These are private label brands we are exploring. We have launched ceramic tiles private label but we are not manufacturing. We are not setting up any manufacturing capacity in our B2B business. We will have our contractors manufacturing arrangements with the vendors who can meet our requirement of quality and of the delivery timelines, etc. These are private label brands contracted for manufacturing from outside companies. So that is the status. Regarding debt to equity, we have very large, very strong balance sheet against our net worth of more than 50,000 crores. Our debt levels are only 8,000 crores. And with debt to EBITDA also, we have very early levels. You don't expect this to cross about 3.5, etc., even with the full context of the change in the next financial year. Hope that clarifies your point. Anything you want to comment on distribution?

See, the meta point I'm asking, right, as management, I hope you guys also realize that, you know, Blaston, the company, is undervalued, right?

And there are certain... questions that investors have, you know, for the company to really get the valuation that I think you would also feel, right, that it, you know, that it should fairly trade at and one of those are distribution, you know, more, any thoughts on that, right, you know?

So, valuation is, I mean, how the market perceives, but yes, there are large holding company discount, we can see, as far as the valuation is concerned. I think the way we are operating, we are investing in our core businesses and the new businesses as the share of the standalone numbers increase in the overall P&L of the company, the consolidated P&L of the company. We expect the evaluation should be, that should be reflected in the evaluation.

Okay, sir. Thank you so much. Appreciate your help here. Thanks.

Thank you. Our next question is from the line of Sanjeev Kumar Singh. from Motilal Oswal Financial Services, this goes.

Good morning, sir. Now, I have two questions. First, on the venture business. So, there have been an improvement in the relationship in China. It's around 85%. Inventory levels are coming down. So, which are the factors which will lead back to keeping the prices subdued in international markets? It is due to better cost. So, can you comment something on the spread for Chinese manufacturers? Or is the demand in the value chain is really weak? And secondly, how do you expect the demand to appear in the sector now?

Sanjeev, will you repeat your second comment? I could not hear it clearly.

So, how do you expect the demand supply to be in the second half?

So, the international demand for textiles in general has been subdued for last four or six quarters. The international grants have been felled with huge inventories for multiple reasons and they have been trying to correct their inventories by purchasing less so when the brands purchase less then the entire value chain also has less activity to work on and that has been going on for quite some time but still the inventory levels remain elevated mainly because the sales has not been as robust as it used to be so that is a fact and we I believe that it may take some more time. It is anybody's guess. Every time people say next two quarters, next two quarters, but then next two quarters, they have been seeing the same situation. So stay with confidence. So now new geopolitical factors keep on coming to our surprises. In China, the inventory levels have come down. I think that was because of the expectation of the demand in the holidays in China etc. But now again we see that Chinese economy is showing some signs of slowdown. So we will have to wait for clear time to emerge what is really happening on the ground in China. The margins are impacted by or improved by depression in input prices. in the last quarter and that trend is now a little bit uncertain in the same way because some of the inputs have started to stabilize but we have to see how the things go because there are so many pulls and counter pulls working so difficult to fill it with very confidence, much confidence

Thank you sir. Second question is on VRI. So as I believe that there has been some anti-dumping duties on VRI which has been very recently and in the presentation also you have mentioned about pressure on VRI due to corporations on China. So what was the impact of margins if you can comment and has there been any improvement in the pricing scenario recently?

Hi, this is Jain. So there is only a It is not yet approved by subsequent ministries. So that is a work in progress. As far as Chinese imports are concerned, as you can imagine, domestic consumption in China is very low. And that is putting a lot of pressure on Chinese producers to export. And that combined with, as Mr. H. K. Agarwal was mentioning earlier, textile demand in India during the festival season, at least less than what was anticipated, has caused a downward pressure on the filament yarn prices. So, to summarize, there is going to be a DGTR recommendation on ADT. There is not yet a final decision. China, domestic consumption is low, India demand is low, and that is putting pressure on filament yarn prices.

Thank you. Thanks a lot for your clarification.

Thank you. Next question from the line of Nirav Jimudia from Anvil Research. Please go ahead. Good morning team. Sir, I have two questions. One on the chemicals. Sir, in this quarter our ECU was 32 rupees a kg and you mentioned that the chlorine demand was slightly weaker because the downstream of chlorine was not doing well. If you can just help us walk through what was the how much was chlorine negative this quarter and what was it Q1 of FY20 and along with it if you can just clarify that was there any change in the average power cost per unit this quarter for the caustic soda business because I could see that if you just break it down in terms of the cost of production there was slightly increase in our cost of production for the chemical business so was there any change in the average cost of power this quarter Second is we break out eco but we do not break out the components of eco in terms of what is our cost and our chlorine price. So it's unlikely that I will tell you what exactly the chlorine number is. And look, we are different from many of our local competitors. We are spread all over India. Which means that we have different dynamics and different geographies and that makes our eco-fix are more balanced over the Indian market than some of our competitors. So I think they are happy to give you only eco-numbers at this stage. I think it's of course worthwhile noting that there are two main downstream industries of chloralkali. The first one is from the public industry is mostly at a global level it excels, which as you all know has been soft, not only on the viscous side but also on the potent side. particularly on the part of space, which is a bigger demand driver for us. And downstream of chlorine, you mostly get into products like agrochemicals, plasticizers, pharma intermediates, etc., which are also currently, you know, not having a strong demand. You guys are tracking the chemical industry. You know how the agrochemical players are doing in the industry today. And we are, of course, suppliers to this industry, right? So, these are the two topics which are curtailing us on the demand side. Power as I mentioned earlier is actually a favourable part for us. We have had a couple of operational issues in our chlorine derivative plants which has resulted in some higher maintenance related costs and stuff like that in this particular quarter which may point to why you are seeing certain cost numbers to be on the higher side. Sir, is it possible to quantify that one-time maintenance cost which could not be repeated from next quarter? No, I would not get into that. And sir, you mentioned that specialty business which is Epoxy, we have seen close to 25% volume growth on a YOY basis. So, has that also helped in improving the absolute EBITDA also on a YOY basis or or the spreads have come down and that has helped us to maintain the YOY EBITDA number for the epoxy business. So our epoxy profitability growth has been in line before this. Okay, so we could see 25% increase in the profitability also there. So I will not answer further than what I just said. But sir, was this driven more by this mix of specialty volumes or... It was because more of the commodity volumes were placed in this 25% volume world. So, we classify our specialty business entirely as Epoxy. So, this is the entire Epoxy volume. Okay. Okay. Sir, on the VSS side, we could see... Sir, may we request you to join the question queue for call-out questions, please? Sure. As there are several persons waiting for that. Thank you. Next question is from the line of Gaurav Nigam from Subhara Investments. Please go ahead, sir.

Yeah, sir, thank you for taking my question. Sir, I have one question that started on the page, business and the conceptual question.

And business is two very important decision makers. One is the consumers and second is the influencers like dealers and contractors. When we think about Berla office as the new paint plant coming in the market, it's a very conceptual level. What are the levels that a brand have to influence these two important stakeholders? So, thank you for asking this question, you know, and I would want to give a slightly generic answer that for influencing both the consumers and contractors, there are established practices in the market and we will also look at to do some new things which you will come to know when we launch. But obviously, we take both these consumer sets and these contractor influencer sets very, very seriously and we have a very defined plan in terms of how to address them. Got it. Okay. Okay. Okay. And sir, just a follow-up question on this. How should we think about the profit pool of the paying industry over the next 2-3 years? Well, if you take a look at whatever other results are available in the public domain, but going ahead, we will not be in a position to comment because it is a factor of various things, including input prices and all, on which we don't really have a view. I think it's very difficult to comment about industry numbers. I think you have all the numbers available of the listed companies. So, how it will pan out for next 2-3 years, it is very difficult to say. I think we would refrain from making any statement there. Got it. I will just come again in last question on the same. When you think about this paint industry, right, so we have both one is a retail segment and one is the industrial segment. So, when we are entering the segment, are we entering both or we are targeting only one of the two segments? So, you know, we have maintained that we are entering into the decorative segment. That holds. Okay.

Okay, sir. Thank you. Thank you for answering the question, sir.

Thank you. Thank you. Our next question is from the line of Pratik Kumar from Jeffries. Please go ahead.

Hello. Yeah, good morning, sir. My first question is clarification on Excel demand in India. So, you mentioned like VSF demand benefited from strong plastic demand. probably in textiles. But for VFI, we are saying that the demand is slow and that has also hurt the segment profitability and prices.

So, are these different segments which we serve for both these products? Yes, so this is Jain Dhobla. I take this question. So, as you know, VFI is a filament yarn and within that, we have multiple categories. Potspun, Spoolspun, Continuousspun. The particular market which has not been picking up really is the embroidered market, what you would call for occasions, which is a very different segment than, for example, where staple fiber goes and then is subsequently spun into yarn. So the VFY demand issue is mostly related to ethnic wear. which is used in occasions like engagement marriages etc. etc. That is where the demand gap exists. Textile industry is not one monolithic whole. Within the textile industry there are many segments, there are many price points, there are different consumer buying patterns. So, one specific niche in which we have usually a good exposure is a certain type of ethnic

I hope that answers your question. Right, and this 24% volume growth in the segment of VSS this quarter, is it the industry growth also likewise or we have given some share from imports which are like sort of getting dumped into Indian markets like in past few quarters?

Yes, so there is definitely less imports on VSS during the quarter that is there, but the industry in India domestic textile valuation also has more activity, I think in anticipation or in preparation for the festive season. Now, how much real sales happen at the market level, at consumer level, that data will come soon. But the textile valuation prepared for that expected festive sales. So, we have to see how the things continue in the So, there was more conjunction in quarter two. Okay. And regarding your new businesses for paints, so we are looking to start like three plants by Q4.

So, I mean all these plants are expected to commission by March or like is like a staggered and as a result also if the product launch particularly also planned like by March or like slightly earlier in the pain segment and in the in your B2B e-commerce segment you said you are reaching now monthly run rate of 100 crores in revenue are there any specific like target for FY25 in terms of revenue in first year full year of operations

So, you know, I would like to reiterate again what we shared in the last call, is that we will be launching our trains in Q4, which is in the period January to March. And also that three of our plants, which we have disclosed also in the report that you have, in Gujjana, Manipur and Chhaya, they have got their CPU. So, they are expected to become operational in Q4.

And accordingly, it will happen.

Yes, we are not saying in which month, etc. We are saying in two, four, we will have all these three plants operational. And accordingly, we will also launch the product in the market. And in B2B, what we are saying is we are inching to our 100 crore monthly rent. Not that we have reached that 100 crore monthly rent.

But any specific targets in this segment also we have like for FI25 as a full year operator?

No, I don't think we can share any numbers of the targets etc. on this call. But of course we have the when the plan is approved we all have all the data when the business decision is taken. But it will all depend upon How the overall building material category works in the overall country and how the people move from physical to digital, that will help in understanding the numbers for the future. Sir, and one last question if I may.

I know this Aditya Birla Renewables is a subsidiary. I think I saw the capital employed has gone to 5600 crores and rising rapidly quarter after quarter. So, what exactly we are doing in this and what is the outlook on CAPEX and how it is funded?

So, the capital employed is increasing as we are implementing new projects. There are projects under implementation of about 1 gigawatt. And we expect by next year, first quarter, all those capacities to be commissioned. Okay, and that is how the typical employee is increasing in the business. The results of which will be reflected in next financial year. Okay, and as far as the funding is concerned, we are having about 20 to 25% from equity and balance from debt. It depends on each project or project to project.

Thank you, sir. And these are my questions for today.

Thank you. Next question is from the line of Lakshmi Narayanan from Sumra.

Please go ahead. Yes, thank you so much. A couple of questions. One is that you have launched the paint home consumer thing in cities. What has been the response so far?

Okay, so are you referring to PaintCraft?

Yeah, the PaintCraft.

Okay, so PaintCraft is a test launch. And, you know, like we said last time, it is to test the SOP and the processors. And we have put this in eight cities and the feedback is satisfactory. As you would know, we don't have our own products, so we are using products from the market. And it is of a pilot nature.

So anyway, if you look at the bank industry, you know, if I just add the district companies, it's around 53,000 crores is the approximate revenue and there's a rate close to around 7,000 crores for profit after tax, right? Now, you know, whether, you know, of course, you enhance the revenues of the industry pool or you intend to reduce the profitability of the market. both. I just want to understand your view.

So you know our view is that we don't want to make any comments which are forward looking in terms of what we are going to do. We will come to the market with our strategy and then you will see how we perform but no comments on this. Why will any player like to reduce the profitability of an industry?

So the line for Mr. Lakshmi Harayanan has dropped.

May we move to the next participant? Our next question is from the line of Dheeraj Pathak from White Oak. Please go ahead.

Yeah, thank you, sir.

Sir, what is the dividend distribution policy at the company level?

Sorry to interrupt, Mr. Pathak.

Yeah, I am using the handshake. Is it audible now?

Yes, sir.

So, yeah, sorry about that. Sir, what is the dividend distribution policy? Sir, our dividend distribution policy is that we will... have the distribution of about 25 to 45% of the profit, net profit distribution as dividend by the company. And we have also stated that we will see that whenever we get from our subsidies as dividend, we at least that much we distribute to our shareholders as dividend.

Okay. So, higher off is the standalone 25 to 45 percent of standalone net profits or the dividend amount received from the subsidiary?

Not exactly higher off. What we are saying is the range is the 25 to 45 percent. Within that, we will see that at least we distribute whatever we get from our subsidiaries.

Understood. Sir, second question is availability of renewables. So what has been the thought process for like when you are investing for 1 gigawatt assets with this 25-75 equity debt in mind, what sort of hurdle rate, payback period, whatever you thought through when you made this capital allocation decision, can you just explain the thought process there?

So, I mean, each project will have different returns, dynamics, etc. But we have our internal hurdle rates, etc., based on which we decide about the capital allocation. And most of, I mean, some of the projects are for the group companies also, where we have different kind of risks associated then the projects for the public utilities kind of project so it will vary the returns will vary between I mean among the different projects so that I understand but at a portfolio level so first of all how much of this 1 gigawatt is for group companies and at a portfolio level what returns have you underwritten on equity IRR basis No, it will depend upon different projects. It could be around, I think, anywhere between 13.5 to 15.5 kind of things.

13 to 15% equity IRR, okay. And how much of this 1 gigawatt is committed to group companies?

I will not be able to give exact number, but roughly, I think, about maybe 35 to 40% is for the group companies, rest is for the public utilities. Why 13-15% made economic sense to you? Why was it a good hurdle paid? Which is I think the weighted average cost for the business considering the high level of debt is I think we have returns on equity better than that. Thank you. Mr. Patak may be requested to rejoin the question queue. Thank you. Next question is from the line of Sanjay Kumar Ilangor from iThought PMS. Please go ahead.

Hi, sir. Thanks for the opportunity. Most questions answered just went on in the chemicals. Wanted to understand our capital allocation plan going forward. I mean the volatility in the chemical industry. Is the base product, fluoroalkali, is it still a focus segment? And how is the market expected to grow in the next 5 to 7 years?

Oh, you have asked a somewhat broad-ranging question. So look, the fluoroalkali market more or less grows in line with GDP because it's such a basic material that is used across all industrial segments. You can always do a back testing to see. You will see usually depending on which particular year it is, it will be nearly plus or minus some range, but that's by order of magnitude. If you look at our capital allocation policy, what we have declared so far is we are continuing to invest in chlorine derivatives. We are running an epichlorohydrin project, which will be completed in calendar year 25th. we are continuing to focus also on smaller chlorine integration projects. Beyond that, I think it would be very difficult for me to make a broader statement on where we will allocate capital niche in the fluoralkali value chain. Now, having said that, I think we have declared before and I can re-emphasize right now, we are also in the process of commissioning our epoxy capacity in the lab, which will actually double our current capacity from 123 So that's about as directional as I can be. And that capital is already invested? Yeah, and that capital is already invested.

Okay, and the plant that's coming online in S5 2020, what is the capex amount?

The ECHD of the plant? About 427. Yeah, ECHD. About 427. Now the ECF is the bigger capex compared to the other chlorine derivatives, which is I think somewhere around 400 crore rupees. 425 crore rupees. 425 crore rupees of ECF plant, 50,000 tons per annum, which will get commissioned in FY26. FY26. FY26. 26, yes, calendar year 25. Calendar year 25, FY26.

Okay, so outside of this 400 crores, so we don't have any visibility for further capex in this segment.

It's a long-going project for maintenance, right? Yes. That we do from time to time.

Correct. And any, I think from the planning stage, are we looking at more specialty chemicals? If there is, what kind of products are we looking at? You know, in the country, we still import a lot of PVC resins.

Yeah, so that's a question I can only partly answer, and that is, yes, we are looking at software expansion including specialty chemicals. I will avoid to answer for many specific questions I have got from PVC. That would be beyond the scope of a research talk for this course. But I think it is expected. Which one? PVC. We are not cutting into PVC. Yeah, so we are not entering into PVC group.

Oh, yeah.

I think what we can say is that we have entered into an agreement with Luprizol and Luprizol is setting up a CPVC plant as our relaxed chemical plant. Which we have already announced that it is a 50,000 tonne first phase and the total capacity will be 1 lakh ton CPVC plant. Yeah, but this is different from the normal PVC resin one. Yeah, that's right. If your question was, are there any plans for Glasgow to get into polyvinyl chloride production, the answer is no.

Okay, and some of the CPVC resins are power integrated into pipes. Is that a possibility or they will explode?

So forward integration of CPVC as you know this is a project that we are doing together with Libertasol. Libertasol is doing the capital investment. I will refer you to their press announcement which indicates what money they are putting in forward integration of CPVC. Essentially an exclusion. They are very clear in their press. You can refer to them. Thank you. Sir, may we request you to return to the question queue for follow-up questions as there are several persons waiting for their turn. Next question is from the line of Nirav Jamudia from Handel Research. Please go ahead. Yes, sir. Thanks for the opportunity again. So, I had a question on the VSS business. So, this quarter we have seen our specialty VSS volumes going up. So, that was one and secondly, if we see our result docket there are two cost line items so one is power so if we see on a YOY basis from 1202 crores it has come down to 1018 crores and other expenditure which was like 963 crores has come down to 900 crores so this increase in the VSS profitability when you mentioned that there was a benefit of the input call but was it also because our speciality volumes were better and there was decrease in the other expenditure and the power cost that is also helped us in improving the EBITDAs this quarter. there is a power cost power and fuel cost which was 1203 crores in September quarter last year and this September quarter it is 1018 crores right and other expenditure which was 963 crores last quarter last year this quarter it is 900 crores right right so if you can just help us explain that was this decrease in the power and fuel cost in the other expenditure predominantly for the VSS business and that's why we have seen the improvement in the profitability coupled with the fact that our speciality volumes have also gone up this quarter. Sir, these numbers of Neeraj which you are referring to in the results, these are combined numbers of all the businesses. Correct, correct. And the two large businesses are of course the VSS and chemical business. The power cost is the key cost in chemical business, not as much as in VSS business. So, the power cost benefit is, I can say, largely in the chemical business. Correct. Of course, the coal prices have come down. That has helped in the reduction in the power cost, power and fuel cost. And also, we are having the larger part as a renewable energy business. That is also helping in reducing. But the main component of this is in the chemical business and not in the real substance. Okay, okay. And the other cost is, of course, again, all the business side. I will not be able to give you the exact price breakup, but I think there can be many factors, like sometimes special repairs, timing issues, or some adjustments or something. But it is not something that will be meaningful or material to help you in your analysis. Got it sir. And sir on the second point of the premium for the specialty VSS as well as the volumes for the specialty VSS. So was the premiums maintained this quarter on a sequential basis and with this increase in the volumes that has helped somewhat in improving the profitability? Sir, I don't know from where have you picked up this volume information? No, no, sir. We gave in the quarterly presentation, no? The break up in terms of the grave ESF volumes and the specialty ESF volumes. So, this quarter our overall volumes have gone up. So, if we just do some mapping from the... But specialty volume has not gone significantly different from the previous quarter. I think it has gone up by 6000 tons if I am not wrong. Just a minute. We have the speciality percentage. So, it was 18%. It is not the total sales. It is not. Increase in the volume. Volume increase in the 2-3%. Q1-Q2. 1%. 1%. So anyway, profitability on the specialty VSF is better. The realization is almost 20% higher than the normal VSF realization. And the profitability is somewhat better. So we always work to develop and grow the specialty part for multiple reasons, including better profitability, better product, etc. So, but there is not that significant change as what you have understood. Correct. Because the last year... We can connect separately for... Yes, I will come back separately on this. Just a last bit of clarification. Have we taken any sort of price hike for VSF this quarter? Last quarter, no. Okay. So, it was same as of Q1, correct? No. Q2 crisis came down. Okay. It actually came down for the gray side.

Okay.

Yes sir. Thank you so much for the clarification sir. Wish you all the best. Thank you. Next question is from the client of Naveen Sadia from ICICI Securities.

Please go ahead. Thank you for the follow up. Sir, two questions. One, I would just want to inquire about the working capital requirement for the B2B e-commerce. So, When initially the announcement of graphene pouring into B2B commerce was made, the KPEX allocation given was about 2000 crores. And I understand that large part of it will be for working capital. And also heartening to know we have graphened 100 crores per month kind of a revenue run rate. So, at the current run rate, and of course it's growing, but I wanted to understand how much can we cancel in or estimate abroad net working capital requirement of current run rate of 1200 crore annualized revenue.

Sir, I don't think we can give you the exact number of working capital of the B2B as a business separately. But let me again repeat that we have not crossed 100 crore monthly revenue rate. We are inching towards that. What we are then is a 100 crore for the quarter we have crossed Q2 and as we are moving from month to month, we are inching towards 100 crores of monthly revenue. Right. Okay, and for the working capital number, I think the number is not readily available right now. We can give you separately and kids can share if required.

Sure, and so just one last question on VSF, current utilization, I mean, for the segment, it's fairly high, rather near optimal full utilization. So, wanted to understand if there is any KTX plan that we can expect in terms of expansion for domestic related capacity or there is a slightly different plan of maybe utilizing or leveraging on the group's global capacities and using those volumes into India.

Thanks. So, we have scope to increase our production from our existing plants in India and We are working on various operational plans, how we can leverage maximum our plant capacity. So that is first. And immediately there is no significant investment plan for big investment, big increase in the capacity. But small deep bottlenecking, small things are a continuous process in our team as you know.

Hello.

Thank you. So that is the last question of our question and answer session. Due to time constraint, that was the last question. We thank Lassen Management for the conference. On behalf of Bratton Industries Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.

Thank you.