DCM Shriram Ltd

NSE:DCMSHRIRAM

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to DCM Shriram Limited Q2 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Siddharth Rangnekar from CDR India. Thank you, and over to you, Mr. Rangnekar.

[Siddharth Rangnekar]

Thank you. Good afternoon, and thank you for joining us on DCM Shriram Limited's Quarter 2 and H1 FY '23 Earnings Conference Call. Today, we have with us Mr. Ajay Shriram, Chairman and Senior Managing Director; Mr. Vikram Shriram, Vice Chairman and Managing Director; Mr. K.K. Kaul, Whole Time Director; and Mr. Amit Agarwal, CFO of the company. We shall commence with opening remarks from Mr. Ajay Shriram and Mr. Vikram Shriram. Members of the audience will get an opportunity to post their queries to the management following these comments during the interactive question-and-answer session.

Before we begin, please note that some of the statements made on today's call could be forward-looking in nature, and a note to that effect has been included in the conference call invite circulated earlier.

I would now like to invite Mr. Ajay Shriram to give us a brief overview. Over to you, sir.

[Ajay Shriram, executive]

Thank you, Siddharth. Good afternoon, ladies and gentlemen, and thank you for being part of our Q2 and H1 financial year 2023 Earnings Conference Call. I wish to take this opportunity to convey our festive greetings to each one of you ahead of Diwali.

I will commence with perspectives on industry dynamics and the associated strategic imperatives for us. I shall be followed by Vikram with a discussion on operating and financial performance.

Today, the world is witnessing historically high inflation and fears of recession are around the corner. Interest rates are rising, U.S. dollar continues to strengthen and is a cause of concern for net importing countries.

Along with this, the geopolitical environment is very unstable and the climate continues to pose new challenges. Our businesses are operating in a tough and unpredictable economic environment. We have managed to evolve and manage the situation well with the forward-looking approach, dynamic control on costs and adding strength in the business model and on the financials.

Our investment in capacity building, better integration, cost efficiency, innovation and value creation are all aimed at driving business momentum while limiting the negative impact of such a volatile operating environment. The INR 3,500 crores CapEx is on schedule and will lead to substantial enhancements in our reported results in the coming year.

In line with the desire to be more sustainable, we are pursuing projects, which will enhance resource conservation, increased use of green energy, lower energy usage and further encourage the circular economy we are already having. Some of these initiatives are underway and will bear fruits in the coming years.

Currently, we are 11x water positive and 34% of the total energy consumed in our operations is green.

With this, I would now like to walk you through the perspective on our various businesses. Firstly, I'll cover Chemicals. Global capacity utilization in chlor-alkali is at a low level, given higher energy costs and moderation in construction activities. Consequently, India has stepped up exports with H1 financial year '23 net exports at 1.39 lakh metric tons versus 1.13 lakh metric tons in the same period last year.

Average import prices are range bound around $650 a metric tonne during Q2 financial year '23. The energy prices that form a significant part of the cost of production continue to be firm. We expect the prices of caustic soda will support high energy costs and decreasing chlorine prices leading to reasonable margins. A lot will also depend upon expected recessionary pressure across the world in coming months.

Work on growth initiatives continues with additional 120-megawatt captive power plant getting online by December '22 and the aluminum chloride expansion at the Bharuch complex getting operational within this financial year. We are building value-creating businesses in the form of epichlorohydrin and hydrogen peroxide and these will be -- will see commissioning in the early part of the financial year of '24.

The 50-megawatt green power supply will be fully operational from Q2 financial year '24. Demand, globally PVC face demand pressure leading to prices reaching sub $1,000 per metric tonne level. China is pushing its production to India, and we have made representation to the government and are awaiting decision on antidumping duty and custom duty on PVC.

At these price levels, our PVC operations are suboptimal. Carbide prices have also witnessed a decline quarter-on-quarter, but continue to give reasonable margins, and hence, production is being optimized given the flexibility in the business model. It is important here that globally, no PVC demand results in lower capacity utilization. On an overall basis, we continue to earn reasonable margins.

Sugar. Globally, sugar output and consumption is expected to be balanced in the coming season, and India will continue to play a major role in trade like in this year. India has exported a record approximately 11 million metric tonne sugar this year without any subsidy from the government and with a closing sugar inventory being of approximately 6 million tonnes. International sugar prices are expected to remain firm and Indian mills in west and south should benefit from exports.

In the next sugar season, India's sugar production can be expected at 36 million metric tonnes, consumption at approximately 27.5 million metric tonnes, and we will have close to 8 million metric tonnes available for exports. The UP sugar industry needs a balanced government policy for sugar export as well as cane juice blended ethanol to remove regional imbalances with Maharashtra.

We expect to start our crushing operations from first week of November. Our growth initiatives are on track to build capacities, further integration and further value capture from the distillery ash. These projects will get commissioned in Q3 financial year '23 and will add to earnings in the coming season. Our potassium sulphate project from distillery ash is coming up in a subsidiary and will be commissioned by Q1 financial year '24.

Now I'll cover the Agri businesses, which comprise of Shriram Farm Solutions, Bioseed and fertilizer. The monsoon played a critical role in performance of these businesses and also witnessing a shortfall in Q1, there has been above-average rainfall across regions, especially in South and Central India.

Shriram Farm Solutions is increasingly become research -- is increasingly becoming research based across its verticals of seeds, specialty plant nutrition and crop care with key focus on products that can sustain climate change, optimize nutrition, along with supporting life cycle of current products. It has this research center in Ludhiana, Punjab.

During the quarter, the business launched 5 new products, including 2 products from its own R&D. It is also setting up manufacturing facilities, biofertilizers and water-soluble fertilizers. All this augers well for growth of this business. Bioseed is repositioning its product sent to farmers and enhancing it's portfolio. The product pipeline is strong. The performance of India business improved during the quarter. We believe that this business should turn around over the period of next 2 years.

Fertilizer consumption stabilized after the shutdown in Q1 financial year 2023. We are continuously improving our energy consumption that adds to better performance. Subsidiary outstanding have increased significantly as a result of high gas prices and requires better support from the government.

Fenesta, I'm happy to share that we are now entering the glass facade business. This will be an added growth driver. The fabrication shop for the glass facade business is being set up in Hyderabad. This existing business is witnessing good growth momentum. This is in line with a nice footprint and the wider range of our portfolio, both with the UPVC and the system aluminum products.

The windows and doors business is seeing traction in our project segment, too, where we are seeing volume and pricing growth. Our new windows and doors fabrication units has been commissioned at Bhubaneswar and will augment our presence in that part of the -- that part of India. The investments and initiatives we have been making across businesses towards integration, scale, innovation, resource mobilization and sustainability are delivering intended positive outcomes. The enhancements underway will result in better performance and strength and will give further strength to the earnings profile.

I will now request Vikram to take you through the operating and financial performance.

[Vikram Shriram, executive]

Thank you. Good afternoon, everyone. I will take you through the financial highlights for our Q2 and H1 financial year '23 results. The net revenues, net of excise duty this quarter were up 28% year-on-year at INR 2,740 crores. This was led by better prices and volumes across all businesses, segments, except Vinyl where prices and volumes both came lower.

Chemicals business, revenues were up 62% year-on-year at INR 781 crores, led by ECU that was up 74% year-on-year, along with other product prices. Capacity utilization levels were reasonable at 87% versus 90%. Vinyl revenue were down 53% year-on-year at INR 155 crores led by volumes, which was lower due to power availability and maintenance shutdown. PVC prices were down by 32% year-on-year, and carbide prices were down 9%.

The Sugar business revenues, net of excise duty were up 5% year-on-year at INR 617 crores on account of better sugar realizations by approximately INR 100 per quintal. Sugar volumes were almost the same at 12.5 lakh quintals, whereas ethanol volumes were lower at 205 lakh liters versus 260 lakh liters last year. Ethanol volumes on a half year basis were up similar -- almost similar.

In the Agri inputs, all businesses reported strong revenues. SFS increased 33% year-on-year at INR 238 crores, witnessing price and volume growth across most product categories. Bioseed increased 13% year-on-year at INR 88 crores with India business reporting revenues of INR 60 crores, increasing by 8% year-on-year. And the international business reporting revenues of INR 28 crores, increasing 26% year-on-year.

Fertilizer saw a 99% year-on-year increase in revenue at INR 585 crores. Price realization for the quarter increased by 88% year-on-year on account of higher gas prices, which is a pass-through. Natural gas prices for Q2 financial year '23 were at $24 per mmbtu versus $12 per mmbtu last year. It is important to mention that increase in energy prices increases the top line and the subsidy burden without significantly changing in bottom line and therefore, lower overall margins for the company because of interest costs.

Fenesta delivered revenues of INR 178 crores, that increased 37% year-on-year, led by volumes in project segment and higher prices. The order book also increased by 6% year-on-year.

Coming to profitability. In Q2 financial year '23, PBDIT stood at INR 302 crores, down by 3% year-on-year despite cost pressures. The performance was primarily supported by Chemicals, Agri inputs and Fenesta segments. Chemicals PBDIT at INR 250 crores versus INR 108 crores during Q2 financial year '22, led by higher product prices in spite of higher energy costs and sold costs.

In Vinyl, the PBDIT was at a negative INR 10 crores versus INR 156 crores positive during the same period last year, led by lower volumes and lower prices of PVC. Energy and carbon prices continue to be much higher. At these prices of energy and carbon materials, PVC is marginally positive at contribution level. Carbide continues to be reasonably profitable.

The Sugar business, PBDIT at negative INR 15 crores, primarily being an off-season and higher cost of last year sugar inventory. Nonavailability of molasses also dragged down the earnings. Also, there was an additional charge relating to previous periods amounting to INR 15 crores on account of revision in wages with effect from October 2018 as well as increase in molasses quota from 18% to 20% for sugar season '21, '22, which also was a onetime charge in that INR 15 crores.

Agri inputs business is reported by the numbers for the reasons stated earlier. Fenesta, PBDIT was at INR 36 crores, registering a growth of 97% and 70%, respectively, led by volumes and prices.

For the half year FY '23, net revenues, net of excise, were up 36% year-on-year at INR 5,591 crores, and PBDIT was up 25% year-on-year at INR 766 crores. Growth was seen across all business segments.

With robust cash flows across our businesses, our debt levels remain at comfortable levels with surplus net debt as on 30th September '22, at INR 35 crores versus net debt of INR 4 crores as on 31st March 2022.

Return on capital employed for September '22, came in higher at 36% versus 26% for September '21. This is despite higher subsidy outstanding in urea as well as higher sugar inventory versus the same period last year. The Board has recommended an interim dividend of 230% amounting to INR 71.7 crores.

Overall, we have delivered yet another good performance in the backdrop of an uncertain macro environment and despite challenges faced in certain businesses, particularly on the cost side with the energy costs.

With our investments on track and our strong balance sheet and cash flows, we look forward to a healthy and sustainable growth going forward. While closing, I would like to convey to you my festive greetings for Diwali. We will now take the questions that you may have. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Nilam Saha from Ventura Securities Limited.

[Nilam Saha, analyst]

Congrats on a good set of numbers. So my question is some of your capacity data is in PPD format. As per you, what is the serviceable number of these, I should multiply it to get annual capacity data?

[Ajay Shriram, executive]

Generally, we look at approximately 330 days, 330 to 325 days can give you an idea of what is the annual expected production done.

[Nilam Saha, analyst]

Okay. And if I'm not wrong, then your PVC compound comes from your PVC Resins business, right?

[Ajay Shriram, executive]

Sorry.

[Nilam Saha, analyst]

Your PVC compound comes from your PVC Resins, right?

[Ajay Shriram, executive]

From the PVC, we make PVC compound with a joint venture business, which we had with Westlake for the last 5 years, and we bought out the share from Westlake and now this is a 100% subsidiary of DCM Shriram Limited.

[Nilam Saha, analyst]

And its raw materials come from the PVC Resins business, right?

[Ajay Shriram, executive]

It comes from our PVC business as well as it comes from outside. We buy some material outside also where we require different grades of PVC for making particular types of PVC compounds.

[Nilam Saha, analyst]

Okay. So is there any certain percentage of the PVC Resins that you send to PVC compound in certain percentage that you send outside and how the decision is made?

[Ajay Shriram, executive]

I'm sorry, could you kindly repeat that?

[Nilam Saha, analyst]

Okay. Is there a certain percentage of your PVC Resins that you send to PVC compound in certain percentage that you send outside. I just wanted to know how much effect has transferred to PVC compound.

[Ajay Shriram, executive]

Let me put it this way. I think the amount we send to a PVC compounding plant would be maybe 10% or 15% of our monthly production, even less than 10% because you buy materials from outside also. So -- and we sell approximately 90% plus/minus in the open market, PVC. Our total PVC production around 90%, we sell in the market and around 10% we use in our PVC compounding because we buy from wholesale plastics also and other people for our PVC-compounding plant -- this has become great for PVC.

[Operator]

The next question is from the line of Ahmed Madha from Unifi Capital.

[Ahmed Madha, analyst]

My first question was regarding the caustic export volume. So if I look at the sequential numbers, they are more than doubled, right? So how should we interpret this number? Is this because of lower domestic demand or we see better realization in exports? Or we are setting up the export markets now so that when next year, the new capacity comes up, we can export significant quantity. How should we look at those numbers?

[Ajay Shriram, executive]

It's a good question. See, I think it's multiple reasons. One of the reasons is that in Europe, because of energy prices being high, their production has come down. So demand has risen. Because of that, we are able to export caustic into -- export caustic, as I said, we've gone into 1.39 lakh tonnes were compared to 0.13 in the corresponding period last -- for the first 6 months of the last financial year and this financial year. So this is opened up as an opportunity. And of course, the price is also satisfactory compared to the Indian situation. And you're right, the Indian plants are also coming up. So if we get an opportunity to expand, it's going to put less pressure on the domestic market. So we are looking at exports and wanting to grow there.

[Ahmed Madha, analyst]

Okay. So should we assume that going forward that export volumes would be close to 20% of total sales?

[Ajay Shriram, executive]

I'm not sure it will be close to 20% of total sales. I think that is a little high. See, all these things depends so much on what is the market position in the export market and the domestic market. I think it's a stream which happens. Yes, what India is trying to do is a couple of the large aluminum manufacturers, whether it's Vedanta or a couple of others on the east side, who used to import caustic soda. We as -- industry is trying to get into contracts with them. And rather than they're importing caustic soda, Indian manufacturers will supply caustic soda. So that will then put less pressure on the domestic market. So we are working on that direction. Exports at the moment has gone at 1.39 lakh tonnes in the first 6 months, and we are attempting to increase it, but it depends a lot on the market.

[Operator]

Does that answers your question, Mr. Ahmed?

[Ahmed Madha, analyst]

So I'm repeating again, see, if we look at the new caustic capacity which is coming up in Q1 or Q2 of next year, how will the ramp-up of this capacity will be?

[Ajay Shriram, executive]

See, the ramping up is happening. There are new plants coming up. So that is going to add to the total capacity. I mean, Indian capacity will reach almost 70 lakh tonnes, if you take the next 3 months or 4 months coming in. But I think everyone at the moment because of the demand expected for chlorine, chlorine demand is fairly low, and that is sort of pegging the manufacturing levels of the chlor-alkali plant. So it depends a lot on the chlorine how that moves and that will determine what will be the capacity utilization of the plants. Today, everyone is little apprehensive because of chlorine price, and chlorine prices as you maybe knowing is going to negative. It's almost minus INR 10,000 per tonne of chlorine. So that is having an impact on the total cost for the chlorine production.

[Ahmed Madha, analyst]

Okay. Got it. So coming back to the chlorine part and the PVC part. So this year, this quarter, we had minus INR 15 crore EBIT loss. Now if we assume that your volumes will ramp up because the breakdown in cost and it will restore. So does that mean that we will breakeven or there will be a negative contribution margin?

[Ajay Shriram, executive]

See, PVC, difficult to say because as we are saying, internationally, PVC prices also have become soft over the last couple of months. That's having an impact, as I mentioned, has come to sub $1,000 per metric tonne. It was about $970. And going forward, we'll have to see how it moves because China demand has also come down. Europe demand has come down. In America, because of the high inflation and interest cost, the economy is pulling back. The housing sector is not doing as well. So all that has reduced the demand for PVC.

[Ahmed Madha, analyst]

Got it. Finally, on the Sugar business. So we have...

[Ajay Shriram, executive]

Could you kindly repeat that which business?

[Ahmed Madha, analyst]

Yes, I'm talking about sugar business.

[Ajay Shriram, executive]

Sugar?

[Ahmed Madha, analyst]

Yes. So my question was that...

[Ajay Shriram, executive]

May I request you to kindly come closer to your mic. We can't hear you properly.

[Ahmed Madha, analyst]

Am I audible?

[Ajay Shriram, executive]

Yes, that's better.

[Ahmed Madha, analyst]

So my question is that in the sugar business, we had some high-cost inventory from last quarter, right? So with cane prices further revised upward and domestic sugar that is not going up, how do you look at the sugar business margins, the first part? And the second part is increase in the sugar capacity by 4,000 TCV. Does this mean that you have sufficient velocities for [indiscernible] ethanol production? Those 2 questions.

[Ajay Shriram, executive]

So just to answer your first question, in terms of carrying the inventory. So we currently have about 14.6 lakh quintal of sugar inventory, which is at about INR 3,200 crores is the cost. So the prices have been reasonably good. However, they have not been able to cover the increased costs, gain cost and the consumable costs, which happened in the last season.

So the only good part in sugar is that because the exports are happening, the inventory is at reasonable levels. The sugar prices are expected to remain stable or depending on how the export prices are, it might inch up a little bit. But we don't see the prices coming off from current levels. That is point one.

Also just to add that whatever investment we are doing in sugar, where we are increasing our refining capacity. Now that's going to add straightaway about INR 80 to INR 90 per quintal to our margins. Along with the -- it's not capacity increase, it's not capacity we are putting in. All in all, the way you need to look at our sugar businesses that we are looking to grow volumes, not just in sugar but we are complementing the volumes with ethanol with value-added on sugar through refinery, with getting into the products like [indiscernible] and we continue to look at it. So that's our thought process. Near term, plus/minus will continue. Pricing as a strategy, we will grow well in this business.

[Ahmed Madha, analyst]

Got it. And on the molasses part, if you can answer?

[Ajay Shriram, executive]

What was the question, if you can repeat?

[Ahmed Madha, analyst]

So my question was that with 4,000 incremental TCV capacity coming up this season, do you have sufficient molasses for 350 KLPD, ethanol production capacity?

[Ajay Shriram, executive]

Yes. So our existing capacity is 350 KLD on C molasses. On B molasses, it is about 450 KLD. And so we are short of molasses -- for the entire season, we are short by about 15%. Now if you remember, when we were putting up -- when we announced this project of 120 KLD green distillery, there -- the tandem will be putting 260 KLD green. So the strategy is that we will be able to process green to meet up the shortfall to some extent, not fully although, but to some extent, we'll fill up the shortfall in the availability of molasses, so just filled up 15% of the existing capacity. I hope I have made myself clear.

[Operator]

The next question is from the line of Saket Kapoor from Kapoor & Company.

[Saket Kapoor, analyst]

As in your opening comments, you just mentioned about correlation between PVC and the caustic prices. So if you could delve slightly more into it, how historically has been the correlation with now PVC prices on a continuous slide over the last 1 quarter. What should now be the impact on the caustic? Are the dynamics aligned or the geographies you see different this time?

[Ajay Shriram, executive]

See, the way it works and the correlation that PVC that I was talking about is essentially that when the construction activity is low and we all know globally, construction activities come down, given the high interest rates. And therefore, the PVC consumption goes down. And the key ingredient or one of the key raw materials for PVC manufacturing is chlorine. And therefore, the chlorine -- chlorine goes down, which means the operating levels of global chlorine plants are coming down, which, again, as a consequence, the caustic available is a little bit less globally. And therefore, the prices have gone up. So if you see global prices, which has gone down to close to about $500, $550, I would say, at the beginning of, let's say, in the month of July, now they are about $750 level. So that's exact correlation difficulty we use, but then given some of the factors which help supporting the prices of caustic.

[Saket Kapoor, analyst]

But sir, if we take that into asset -- the negative chlorine, which currently the less -- because of more chlorine there in the market, that will not be allowing the caustic players to run at optimum levels going ahead. So that would directly put pressure on the utilization levels and hence, the profitability for the domestic players would also be going down. However, exports may support the volume uptake. But what -- but the gap including -- needs more management rather than lower utilization level. So that understanding is correct, sir?

[Ajay Shriram, executive]

What you're saying is right. There is chlorine. And going forward, at least with new plants, I'm sure it will affect the operating rates. One of the existing plants, it's okay. And therefore with the new plans to ramp up, my sense it will be a little slower than what would have been the expectation. But for the existing plant it will be okay, like for currently, we are operating at almost 95% capacity utilization for existing plants.

[Vikram Shriram, executive]

I'd like to just add that actually chlorine demand is also growing because a lot of our customers are also expanding. With this China plus 1 story, left the whole chemical export story from India, a lot of our customers are also under expansion mode. So they may be temporarily for some quarters or some period, there may be a mismatch. But the expansion in demand is also expected to be strong.

[Saket Kapoor, analyst]

Right. Correct on that fact. So it will be transitory in nature going back this figure has been maintained. Correct. Sir, as in the graph of the ECU realization for us was also flat for this quarter. So the trend -- the upward trend in the caustic soda prices have been post the end of the September quarter or it was mentioned as -- thus the prices started moving up then why were our realizations lower, was this negative curing impact the reason for the same?

[Ajay Shriram, executive]

So see, if you see the graph, they're already in the international prices, there is an uptick from $593 in August to $675 in September. And as I mentioned, it's already reached about $740, $750. Then our prices also on this business have gone up.

[Saket Kapoor, analyst]

And currently, the prices are in vicinity of $750. This is what you state?

[Ajay Shriram, executive]

International prices, yes.

[Operator]

The next question is from the line of Pratiksha Daftari from Aequitas Investments.

[Pratiksha Daftari, analyst]

So if you could just you may quantify the impact of a breakdown in the captive power plant? And how -- like how much of the losses that we've reported, how much of that could be attributed -- higher cost could be attributed to the power plant?

[Ajay Shriram, executive]

This is Kota power plant?

[Pratiksha Daftari, analyst]

Yes.

[Vikram Shriram, executive]

How much can we actually...

[Ajay Shriram, executive]

So because of the breakdown in Kota power plant, which was there for almost 3, 3.5 months, the total loss would be in the range of around INR 25 crores to INR 30 crores for this period.

[Pratiksha Daftari, analyst]

Okay. Okay. Understood. And just like in the presentation, we've seen that the international prices have gone up, but the domestic prices for caustic even adjusting for the chlorine hasn't really moved up, so is there anything particular in the domestic market that is impacting the positive dynamics -- demand slowdown.

[Ajay Shriram, executive]

I'll put it this way. I think one, there's always a time lag because we have contracts already which are there, so that's one.

And secondly, also, I think it depends a lot on supply demand. There may be some international deals, which are done at a higher price. But ultimately, the average price in India, we are actually happy that it's at least stable. It is looking that way for this quarter. And the price impact also happens after a little time line. So it can't happen overnight.

[Pratiksha Daftari, analyst]

So is it fair to assume that the caustic prices have gone up in October vis-a-vis September for domestic caustic for us?

[Ajay Shriram, executive]

Marginally, they've gone up, but unfortunately, chlorine prices have gone down further.

[Pratiksha Daftari, analyst]

Okay. And chlorine you said negative INR 10,000 a tonne, vis-a-vis about INR 4,000 to INR 5,000.

[Ajay Shriram, executive]

Approximately. Yes, it was approximately that, but depends deal-to-deal. But approximately, it's around that much, plus/minus.

[Pratiksha Daftari, analyst]

Okay. Any particular change in demand outlook in the domestic industry, especially from aluminum paper?

[Ajay Shriram, executive]

I think, touchwood, the domestic demand is quite stable and it's moving well.

[Pratiksha Daftari, analyst]

Okay. So basically, the capacity utilization means that like the constraint is only chlorine utilization, not demand.

[Ajay Shriram, executive]

Chlorine is a major factor which is impacting definitely. There's no doubt on that. That is having an impact. But I think world economy, we are seeing the geopolitics of the world, and that is affecting each industry in a different way. So what's happening today is something may be more positive tomorrow, a little less positive tomorrow, we can't commit on -- comment or commit anything going forward. But at least, it looks like in India, the caustic soda, chlorine, balance in demand as we're moving today will continue for the quarter.

[Pratiksha Daftari, analyst]

Okay. On the Sugar segment front, these rains of late, the recent rains, has that impacted the crop in UP?

[Vikram Shriram, executive]

So it's a little early to say. See, sugar is a very healthy crop. So however, the real impact will have to be seen.

[Pratiksha Daftari, analyst]

Okay. And if you could just share the cost of inventory valuation as on 30th September, for the 14.7 lakh quintal?

[Vikram Shriram, executive]

About INR 3,308 per quintal.

[Operator]

[Operator Instructions] The next question is from the line of Pratik Tholiya from Systematix.

[Pratik Tholiya, analyst]

I just wanted to just check what was the chlorine prices during the quarter if you have answered that, I actually missed that.

[Ajay Shriram, executive]

The average prices, Pratik, were around INR 6,600 for the quarter, minus. Currently, as we mentioned, it's about INR 9,000 to INR 10,000, minus.

[Pratik Tholiya, analyst]

INR 9,000 to INR 10,000. Okay. I just want to clarify that.

[Ajay Shriram, executive]

At issue level, the prices are good.

[Pratik Tholiya, analyst]

Okay. And sir, are you seeing any benefits from this Europe plus 1, they are lot of talks happening on that front? Of course, exports are slightly going up. But you -- do you see any long-term benefits of this Europe plus 1, the way China plus 1 has played out in some of the other chemicals, can that happen in our caustic soda as well?

[Ajay Shriram, executive]

I think it's difficult to say because of geopolitics. You see energy prices in Europe are going so high that factories are closing down. They're not able to operate, actually plants have closed down because there is no chlor-alkali plant. The basic raw material is power, almost 65%, 70% of the cost of production is power. So that's why it's fluctuating.

One can't -- it's very difficult to give any commitment of how it will move forward. China is also having its own problem because of COVID and because of various other factors. So frankly speaking in these sort of products, where the geopolitics is unstable, the energy prices are moving in a manner which has been unprecedented. We've never seen this level of energy costs. It is having an impact on the economy worldwide across the board.

[Pratik Tholiya, analyst]

Sure. And sir, lastly, on Fenesta in your opening remarks, you mentioned about the glass facade. If you could just elaborate anything more in terms of by when we'll start and what sort of numbers you can expect in the initial quarters?

[Ajay Shriram, executive]

Yes. So the commissioning will start in the early part of next year, it should -- the machines will be arrived, will take about a year. So yes, less than a year. So we should be starting early next year.

[Pratik Tholiya, analyst]

You mean calendar year?

[Vikram Shriram, executive]

No, the financial year.

[Pratik Tholiya, analyst]

Financial year. Okay. And what sort of numbers can we expect from there?

[Ajay Shriram, executive]

It will take time to settle the market. It will be a slow start, but we should pickup in next year.

[Pratik Tholiya, analyst]

And the margins should be comparable with our existing Fenesta margins, upwards of 18%, 15% to 18%?

[Ajay Shriram, executive]

The EBITDA margins?

[Pratik Tholiya, analyst]

Yes.

[Ajay Shriram, executive]

Yes. So EBITDA margins are in the range of around 14%, 15%.

[Operator]

[Operator Instructions]

Ladies and gentlemen, as this was the last question for today, I now hand the conference over to the management for closing comments.

[Ajay Shriram, executive]

Thank you. Ladies and gentlemen, thank you very much for your participation in our Q2 financial year '23 earnings conference call. We will continue to work on our strategic direction of growing our businesses using scale, multiple revenue streams, enhancing efficiencies, furthering innovation and moving further on circular economy and sustainability. We will also ensure that the balance sheet and cash flows remain strong. We are conscious of our responsibility towards the environment, to our community welfare and our employees who are the true assets of the company. We believe in working towards planning, people and profits together.

We thank you for taking out time during the onset of the festive season, and we take this opportunely to wish you and your families very safe and happy Diwali and healthy and prosperous year ahead. Thank you very much.

[Operator]

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