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GHCL Ltd
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Ladies and gentlemen, welcome to the Q1 FY '22 results call of GHCL Limited hosted by Emkay Global Financial Services. We have with us today Mr. R.S. Jalan, Managing Director; and Mr. Raman Chopra, CFO and Executive Director, Finance. [Operator Instructions] Please note that this conference is being recorded. I will now like to hand the conference over to Mr. Rohit Nagraj of Emkay Global. Thank you, and over to you, sir.
Thanks, Faizan. Good evening, everyone. I hope everyone is keeping safe and healthy. I would like to take this opportunity to welcome the GHCL senior management team and thank them for giving us this opportunity. I shall now hand over the call to the management for their opening remarks. Over to you, sir. Thank you.
Thank you, Rohit. Good evening, everyone. Good evening, and a warm welcome on today's earnings call for Q1 FY '22. Raman, our CFO, along with Manu and Abhishek from the finance team accompanying me for this call. The analyst presentation has been uploaded on the stock exchange and company website. I hope you had a chance to download and go through the same. I hope that you and your loved ones are safe. During the quarter ended June 2021, second wave of COVID hit the nation and spread the infection quite very fast. Unlike the initial wave, wherein national lockdown was imposed, this time, the regional restrictions were in place. As a result, the adverse impact on the Indian economy was less severe. The ongoing vaccination drive should help contain the spread of COVID-19 infection in the future. At GHCL, safety of our employees is our key priority. More than 94% of our employees and contract laborers has been vaccinated till date. We are providing financial assistance to all our contract laborers and the employees who have lost their loved ones due to COVID-19 pandemic. Let me now share the business update. Globally, demand for soda ash has recovered. Though it was slightly impacted by the recurrence of COVID cases in new few regions, cost has increased due to higher energy prices and supply chain disruptions. As a result, soda ash manufacturers have also increased their prices. Due to these factors, import of soda ash into India has reduced. Domestic demand for soda ash has recovered well. Despite some disruption due to COVID second wave, flat glass continues to remain strong due to demand from construction and solar glass segment, recovery in container glass is slow due to subdued activities in hospitality and tourism sectors. The detergent industry was impacted in April and May but is now operating at pre-COVID level. Increase in raw material and energy prices have adversely impacted our margin. However, this was partially offset by price increase effective from June. We have undertaken another price increase in the month of July. With a good demand scenario and lack of new capacity addition in near future, we expect prices to remain firm going forward. Home textile industry continues to see strong demand from various markets, including U.S. However, we are cautiously optimistic of this increased demand scenario and it may taper down at some time in future. Also, we expect that the current margin could moderate with the arrival of fresh [indiscernible]. The Indian government has now approved the continuation of RoSCTL till March 2024, with former rates. In the spinning business, yarn demand continues to be strong. As a result, higher prices are getting absorbed in the market. We are able to successfully execute our strategy and change the mix towards value-added segment. The process of demerger is on track. On 10th of July, the secured creditors have approved the scheme of demerger. The demerger is now expected to conclude by around mid -- by December 2021. I am proud to say that GHCL has been certified as a Great Place to Work for the fifth time for 5th year in a row. Also GHCL inorganic chemicals division was recognized with the gold award for its manufacturing competitiveness by International Research Institute for Manufacturing in India. Further, CARE has upgraded our long-term rating -- credit rating to AA-. At GHCL, we are agile, committed to our stakeholders and believe in long-term sustainable and profitable growth. I would now request Raman to share the financial performance.
Good evening, and a warm welcome to all of you in our quarter 1 earnings call for FY '22. I hope all of you are well. I will share the financial highlights for the quarter ended 30th June 2021 and also discuss the segmental performance. There was some disruption in this quarter due to COVID pandemic. However, business is operating with normality now. Revenue for Q1 FY '22 came in at INR 854 crore as compared to INR 440 crore in the corresponding quarter of last year. On a sequential basis, revenue increased by 4% from INR 821 crore in Q4 FY '21. EBITDA for the quarter stood at INR 189 crore, which is a significant increase from INR 84 crores from last year and declined by around 3% from INR 195 crore achieved in Q4 FY '21. This was mainly due to increase in energy costs and the raw material costs. This represents an EBITDA margin of around 22.1% for the current quarter as compared to 19.1% from last year and 23.8% in Q4 FY '21. The profit after tax for the quarter stood at INR 101 crore compared to INR 17 crore last year and INR 104 crore in the previous quarter. I will now share the segmental results. In the Inorganic Chemicals segment, we have reported revenue of INR 527 crore during the quarter, which is substantially higher than INR 346 crore in the corresponding quarter of the last year. From quarter 4, revenue declined by around 1% from INR 531 crore to lower sales volume -- due to lower sales volume but slightly better realization. EBITDA for the quarter stood at INR 112 crore as compared to INR 80 crore in the same quarter of the previous year, and INR 142 crore of Q4 of the last year. There has been a -- this decline in EBITDA compared to Q4 of the last year has largely been on account of cost increases in energy as well as solid cost increases during the quarter, which resulted in lower margin. We have taken 2 price increases in the month of June and July. The benefit of these hikes will be realized in the coming months. The performance of our textile division has been very robust. Revenue for the current quarter stood at INR 327 crore compared to INR 94 crore in the corresponding quarter of last year. On a sequential basis, revenue increased by 13% from INR 290 crore. EBITDA for Q1 came at INR 77 crore, which is a substantial increase from INR 4 crore in the same quarter of last year. Also EBITDA increased by 44% from INR 53 crore achieved in Q4 of FY '21. This translates into an EBITDA margin of 23.5% for the quarter versus 18.4% achieved in Q4 of last year. This robust performance is across both home textile as well as spinning business. Despite the disruption in quarter due to COVID-related restrictions in the month of April and May, we generated a cash profit of INR 135 crore. As on 30th June, the net debt equity stands at around 0.3:1. And net debt EBITDA is 1:1. As mentioned by our Managing Director, long-term credit rating has been upgraded to AA-. So we are now AA rated. Previously, our rating was A+. This upgrade represents the strength of our balance sheet and will further help us to reduce our finance costs. With this, I conclude my comments, I now request the moderator to open the forum for question and answers. Thank you.
[Operator Instructions]The first question is from the line of Riddhesh Gandhi from Discovery Capital.
Congratulations with the numbers. Yes, if you could just run us through the dynamics, which we are seeing in the soda ash market in terms of demand, supply and pricing?
Yes. Riddhesh, good evening, and thank you for your appreciation. My understanding about the soda ash is that the cycle of soda ash is now on the upside because of a couple of reasons. One the overall, the demand has been -- globally has been very robust. Any part of the world, China, U.S., Europe, everywhere, the demands are very robust. Frankly speaking, in China, now they have reduced their exports to a great extent. And now there is a possibility of the import happening to China. So overall, the way I look at it is that the scenario of the demand supply, whereas on the other side on the supply side, last 2 years, there was not much new addition of the supply has come in. And because of this demand supply, the scenario will be better going forward. Second, the international trade also will get some restrictions because of the supply chain cost has been significantly higher and even availability of the supply chain [ mod ] is also somewhere got impacted. So that also has a benefit to the local producers in that same country. Of course, on the other side, the cost of it -- all the commodities, coal prices -- your coal prices, which is again, energy has been significantly internationally higher and that will also have an impact on overall, I would say, that cost. In India, probably, the salt prices are also on the rise because this year, because of the unseasonal rains across India, the salt production is also on the lower side. So that will also put the prices of the salt in India. Overall, costs are significantly going up. But on the other side, my understanding like you have seen 2 price increase has already been taken. I see that the trend of price going upward should continue.
Got it. And then net-net, keeping into account the price increases and [ RM under ] pressure as well. Do we expect to see some sort of expansion in EBITDA to actually spread?
Riddhesh, honestly, the volatility in the raw material prices are so high, like I can clearly visibly see the uptrend in the prices of the final product. But on the volatility of the raw material, particularly the energy prices are really making it difficult for us to guess how the scenario will look like. But yes, if I lay current scenario, if I look at maybe quarter 1 or quarter 2 means I'm talking about the next quarter or a quarter later, probably some improvement in the margins should be seen.
Got it. Understood. And sir, the other question was with regards to -- you guys have a large amount of spinning. And we are also hearing from a lot of players that is spinning is at the record spreads. Is that something which we are also experiencing? And if you could explain to us, whether you -- is either continuing for the -- actually the next few quarters?
No, Riddhesh, you are right on one side that the current synergy of the spinning is very buoyant. The margins are really very good in the spinning, particularly primarily because of the very high demand of the yarn. And some of the mills have gotten advantage of the lower cotton prices because that has been covered during the period when the prices of the cotton were low, and we were part of one of them. Overall, the demand of the spinning will continue to be good, my understanding. However, my understanding is spinning margin will have some -- they will not be able to achieve the similar margin what we have right now. There will be some reduction in the margin because the new crop, not Indian crop, including the global crop, all the crops or all the cotton, the prices has significantly gone up. So because of this 2 scenario, probably, but margin will still be very healthy in the spinning going forward. [indiscernible] last year report, just now in the Chinese report. By this report, I can say that there will be a lot of buoyancy in the yarn market going forward as well.
Got it. And just sir, the last question is with regards to effectively, is there any update on the other -- actually, the growth areas that you had indicated that you guys are looking at?
Yes, Riddhesh, like all we know that a couple of things which we are looking at. First of all, sodium bicarbonate. I just want to give an update on the sodium bicarbonate. One good news is that one of the consumers of sodium bicarbonate for the flue gas treatment has just started using a small amount of sodium bicarbonate for the flue gas. So that will give us good opportunity for sodium bicarbonate consumption going up significantly. We have already decided, and the project is already under discussion of expanding our sodium bicarbonate to double the capacity from here. That is number one. Second, I want to update the investors on our greenfield project. As I have been mentioning in the past, the land acquisition was in the process. Now finally, we have submitted the application to the government of Gujarat for getting these lands registered in our name and we have filed an application for the greenfield, what we call our environmental clearances. That means in summary, I can say that we have started the greenfield activity aggressively. And so that's the second thing that also will bring the growth going forward. As you all know, the spinning, we have already taken a project of 40,000 spindle, which is approximately around INR 200 crores and plus the green energy of solar power. That is also on track, and that will get completed by this year end. So that means next year, you will see almost around 40,000 means we are talking about 20% of our spinning capacity will go up next year. And so overall, you will see a good growth next year in the textile in terms of the volume. And sodium bicarbonate of course, it will take some time. By July 2022 probably the sodium bicarbonate expansion will get completed. And greenfield, like I said, is projected on track. Now coming to the expansion of the market of the product, we are still in the process of we have to engage a lot of experts on this area. We are really carefully analyzing various opportunities. And as soon as we be clear that which segment we should be going because we are looking at something for a long-term perspective. We don't want to take any decision on a hurry. We are seeing many opportunities. And based on that, we will come back to you as soon as we decide which area of the product basket expansion we are going.
The next question is from the line of Kaushal Shah from Dhanki Securities.
Congratulations on the very good numbers. Sir, if you can share the average realization that we are selling for soda ash just now because you mentioned that we have taken a price increase in June and July. So our realizations are now -- above 18,000 or 20,000 now?
No. First of all, the price as compared to the last quarter, the price has gone up by approximately around the same. But as I mentioned to you that the price increase has been taken only in the middle of June in a way, you can say. So all this impact of the first price increase and the second price increase, which all will be seen in this quarter. Of course, as you know, some of the contracts are on an annual basis, some of the contracts are at a quarterly basis. The full benefit of this probably will take some time, but improvement in the realization because broadly, we have taken around 12% of the price increase overall. So probably in the next 1 or 2 quarters, you will see the price increase will get -- will give an advantage of around 10% to 12% of the price increase.
Sure. And sir, you mentioned about the strong demand in soda ash. And you also specifically mentioned about flat glass, but if you can also kind of throw some more light on that particular segment. Also, I think we had applied for ADD on Russia and Iran. So any update on that?
Yes. First of all, on the ADD on Russia and Iran, it's still -- it is under -- I would say, under the investigation of DGAD. And so far as that -- you spoke about the demand in that manner. See like everybody knows the flat glass. Flat glass, there is a significant improvement overall in the demand of flat glass. One of the reason is that a lot of competition were coming from the import because of the Anti-Dumping Duty imposed on Malaysia. The demand of the flat glass, domestic player demand has gone up very significantly, right.Number two, the overall, the demand in the construction and automobile has also been quite good. So there, the demands are much better than the pre-COVID level also, if I can say so. Detergent, because of the some seasonal impact and the COVID impact in the first quarter, and maybe some impact will be there in this quarter because generally, the demand -- detergent demand in the rainy season is slightly on the lower side. But you can say that detergent demand are more or less -- is come back to that pre-COVID level. I'll just give you 1 data, we have just done a comparison of '19/'20 first quarter which was, you can say, normal pre-COVID level versus quarter of '21/'22, the demand is down by only 3%. And this 3%, you can say, because of the COVID also in April, May, second wave, all those things. So keeping that into mind, I would say that more or less, the pre-COVID level situation has come. Whereas on the other side, the import has significantly gone down. The materials coming from all across the globe has significantly come down.
Sir, can you put a number to that because I think, in the last call, you had shared that there was, I think, a 25% drop in the entire last year in imports. So specifically for first quarter, sir, would you have some number, meaning what was the absolute volumes on drop or maybe percentage drop in imports?
Well, actually, if you look at the drop is around 5% as compared to the first quarter of last year. Sorry 38% drop, 38% drop, sorry, sorry. 38%. And this -- which was almost around in the Q1 2020 was approximately around the number [indiscernible].
For quarter one, the number is [indiscernible].
Okay, 1 lakh 13,000 was import -- sorry, the import has gone up from 1 13 to 1 57 for Q1 versus [ 122 ]. By the way, I am sorry, I said wrongly. 1 lakh 13,000 was the number in Q1 2021. In this quarter, imports is around 1 lakh 57,000. So number has gone up 38%. However, as you know in Q1 2021, there was a complete lockdown. Therefore, the comparison is not a right comparison. We are not making any comparison of any of our performance with the [ Q1 ] 2021, okay. If you look at Q4 '21, if I can give you a further number of FY '19, the total FY '20 -- the total import was 9 lakh 36,000. In Q1 FY '21, the total import was only 7 lakh 10,000. And there is a reduction of roughly around 2 lakh 20,000 tonnes or 2 lakh 25,000 tonnes of the import in FY '20 versus FY '21.
Which is around 22%.
Which is around 22%. Our expectation this year is this figure will be further lower. It will be in the range of around 6 lakhs.
Okay. So that means, so we would have also gained market share or we are hoping to maintain our high market share.
Yes. So obviously, the benefit will go to the domestic industry.
Right, right. And sir, some final thoughts on the -- you mentioned about spinning, but on the textile front, the home textiles, how is the demand environment? We already -- I think we may have already started shipping for the festive season. So how is the demand and how do you see the outlook for the next, let's say, 4 quarters?
See, in the home textile, the demand is really good. And let me tell you, in terms of our run rate, has significantly gone up. We are almost -- our run rate as compared to the March '21, our export percentage terms has gone up by 30%. That's number one. We see that this trend should continue. This trend of run rates would continue. Home textile overall, I see, of course, there will be some pressure on the margin, like I said, because of the cotton prices going up. I'm talking only purely home textiles not the spinning. And because of -- and by the way, they will be giving what we call the increase in the pricing. Of course, the entire industry has approached the customers for increasing the prices. To what extent they get, probably that will be seen. But some margin drop in the home textile business should be seen, my understanding. Of course, on the other end, government and given the benefit of RoSCTL to some extent, that competitiveness will do. The another good news, which is likely to happen, Europe is looking at the preferential treatment to the Pakistan to be removed. And if that happens, probably that will create another window of growth opportunity for the home textile.
We'll take the next question from the line of Resham Jain from DSP Mutual Fund.
Yes. So I have a couple of questions. So first is on the sodium bicarbonate side that we are doubling our capacity. What is the CapEx we should be looking for in this year, FY '22?
It will be around INR 50 crores, which is not very significant in terms of -- the overall production will go up by something around 60,000 to 70,000 tonnes, and the cost will be roughly around INR 50 crores.
Okay. And sir, we have also mentioned about INR 200 crores CapEx on the spending side, 40,000 spindles. So what will be the economics in terms of this project kind of -- what kind of revenue margins are we looking for?
See, as you know that overall, if I look at slightly longer term, because we need, for any new project you should be looking at, not the immediate margin. Immediate margins are very high. But if I look at it, longer term of around 5 years, probably you can assume around 15% of margin because we have been consistently getting on an average of around 15% to 17% margin on our spinning business. I'm assuming that 15% to 17% margin will be there.
And the top line, sir, at the current prices?
Top line at current prices.
Top line. Broadly, you can see -- broadly, it depends on around 1:1 ratio is obvious. Now if you are putting INR 200 crores, you assume top line will be INR 200 crores, broadly.
Okay. And what kind of land are we going to manufacture with this incremental investment because items that the first single cost is roughly around INR 50,000, which seems to be slightly higher, given that it must be in the same premises. So if you can just give some color on what kind of yarn are we going to make with this incremental addition.
See primarily, this will be all value-added yarn on and that, too, also on the synthetic side. And we are making 4 verticals into that so that value-added yarn on a smaller lot can also be produced in that.
Okay. So this will be all synthetic, is it?
Synthetic cotton, synthetic mix, melange yarn, synthetic yarn, cotton -- polyester-cotton yarn, all those kind of value added, yes. And Resham, let me also clarify one thing. In terms of the per spindle cost, it entirely depends on the average count what you produce. If you are producing a fine count, your preferential requirement is very significantly lower and your product spindle cost will go down very significantly. But if you are going for a closer count, you per spindle cost will be higher. That also depends on what kind of technology we are using for producing that. So that entire seems like if you are using compared -- or those kind of things are also important. So my understanding is this INR 50,000 per spindle cost is a very reasonable cost for the kind of 30, 35 average count which we are planning to produce.
Actually, cost is INR 47,500 and this includes GST also.
This -- like Raman has clarified, this INR 47,500 is a precise cost per spindle and this includes the GST also. We have not taken the benefit of the GST, the fund of the GST it is.
The cost lately just lower of calculation, the working capital requirement also will be there in this project. And if we take 15%, 17% kind of margin, the return ratios, post stakes comes to around 10% to 12% on lease. So I was not able to see the economics coming out of this project because [ 200 ] for the CapEx and then there will be a working capital requirement. And if you take 15%, 17% margin on that, the IRR comes to around 10%, 11% only, after [ what ] you are looking for from projects.
See, Mr. Resham, like you rightly said, IRR will be definitely be lower than the 15% to 17%. But the way that our company goes on a value-added segment, like I've given you this number of 15% to 17% on our last 5, 7 years of experience. Probably this 15% to 17% could also be on the higher side. The spinning industry is -- always is slightly volatile, as you all know, okay. But the growth is also very important. And my capital cost at this point of a time, if you look at the return on equity on this investment will be very, very good. So keeping that into mind and spinning the way we look at structurally, there is an advantage. So I think investment into this spinning and based on our experience in the past, I think investment in the spinning always makes a lot of logical sense.
The next question is from the line of S. Ramesh from Nirmal Bang.
Is it possible for you to give us the percentage share of soda ash consumption from automobile, construction and detergent in the first quarter of this year?
At this point of time, I don't have this really data for this quarter. Probably, we can share with you later on.
So broadly, if you see -- where do you see the growth coming from? Would it be equally split between auto, construction and detergents? Given that these 3 sectors have different dynamics, both in terms of the forward impact and then going forward, assuming the forward growth of [ transaction] still has some structural issues. So in the next, say, 4 to 8 quarters, what is the -- where do you see the growth coming from in terms of the -- if you were to run the 3 sectors, where do you see the growth from?
There are 2 things. One, like I said, flat glass, we clearly see a growth. We also see a growth into the container glass because now a lot of priorities you been given on the packaging side on the glass-based packaging. We see a lot of growth in the container glass also. We also see a growth in the detergent also because detergent, as you know, as the hygiene has become more important. So that will also rise to the consumption now for our detergents. So all across, we see the growth in the demand. Second, like I said, supply chain, the major advantage you will be getting into supply chain -- advantage you would be getting because supply will be lower and the demand growth will be there. So that will also give you an advantage of the overall your market share or overall, your volume.
Okay. The second part is how do you see the floods in Europe impacting the local supply and demand for soda ash and that impacting the soda ash trade? Any thoughts on that?
Yes. At this point of time, I would say that not much impact has been seen because of this. But overall, supply -- because of the supply chain restrictions, which are supply from the import is lower.
Okay. And when you look at the first quarter demand and supply, this is net of whatever is a captive production consumption by, say, Rohit Surfactants, one of the recent capacity additions. So that means going forward, that captive consumption of Rohit is not going to be materially impacting the domestic merchant capacities like yours and product, right?
Yes, you're right.
[Operator Instructions]. The next question is from the line of Dikshit Mittal from LIC Mutual Fund.
My question is on soda Ash segment because historically, we have seen that the margins have been basically in a range of 28% to 32% on EBITDA level. But margins have come up quite sharply in last 2 quarters actually. So you highlighted the impact of cyclone as well. So what is the normalized margin? And with these price hikes, will be able to go back to that historical range in the near future?
I think immediately in next 1 or 2 quarters, I don't think so. But like in the longer term, if you look at probably, it should be.
Okay. And sir, because if the demand/supply is getting tight, so that means that all the energy pressure costs should have been passed on, right? Like what is like stopping in terms of getting normalized margins for the industry?
And like I said, demand/supply is a major driving force because that is the only thing which probably will be in our control. Energy prices, we don't know how the situation will look like in the near future. But my understanding is that even energy prices also in the next 1 or 2 quarters would kind of should taper down. And whereas on the other side on the soda ash side, so at least, the demand-supply situation will be slightly on the medium term to long term. So that could give an advantage of cycle going upward on the margin side.
Thank you. The next question is from the line of Saket Kapoor from Kapoor & Company.
Congratulations, sir, for a very neat set of numbers, especially the home textile part. Sir, just a very small clarification, firstly, sir, you said that 12% price hike we have taken over the base price from last quarter, including June and July, 12%, is that a hike?
Yes.
Okay. And the benefit of that would definitely improve the margins of what we have posted for the first quarter. July-September quarter will definitely be better because of this hike? You were telling it would take another 2 quarters for that to translate. So that was my understanding, sir.
See, basically 2 things. One is that the raw material prices had gone up and that raw material prices impact will also be seen in the second and third quarter. So that will have it on the negative side of the [ Q2 ]. Second, like I said, this 12% increase will get translated into the 12% by the 2 quarters because there are a lot of contracts, which are annual contracts or there are quarterly contracts and things like that. So probably that will also gradually reach to 12%. So these 2 put together, probably your margin for next 2 quarters should be in the range [ 1 ].
Okay, but slightly higher than the first quarter. This is a bottom for us at least as of now, because this other INR 4 crore impact on the cyclone also, I think.
Yes, but that's cycling-in fact, maybe, like I said, the salt prices have significantly gone up, whereas in the first quarter, we did not have that impact of the salt prices. So that will increase your salt prices, okay. The INR 4 crore in the total figure is not a big number.
Not a big number, sir. Right, sir. Sir, on the home textile part, sir, RoSCTL benefits have been accounted for once the government have announced anything? Or these are pure operational numbers? The PBT of INR 65 crore?
We have accounted for that number, and our total INR 18.5 crores. Out of that INR 18.5 crores, INR 6 crore -- INR 6.5 crore, which is relating to the March quarter. So if you remove that number for a minute, then your operational -- or your EBITDA margin comes to around 21%.
It's INR 65 crore minus INR 18.5 crore?
No, no, no. Whatever the EBITDA is there out of that, we remove INR 6.5 crores. The number which comes on that, the EBITDA margin will be around 21.5% against 23.5%, which has been given there. So 2% reduction in the margin because of that onetime [indiscernible] of March quarter.
One very small understanding, sir. Soda ash and other commodities, as you have very rightly explained that, first is the demand and then comes the supply. Sir, as we are seeing in other commodities, is soda ash also, as per your experience, entering some kind of a new super bull cycle or can be done with something like that. As we have seen in all commodities, the way the China Plus policy or the way the restrictions have happened, every commodity from the -- you name any one of them has entered into somewhat of a super bull cycle. So sir, are we -- depending upon the ground situation, are you seeing that sign, that this is going to be a secular price increase trend going forward, say, for the near future because no further new capacities are coming up?
See Saket, I can only say that the price is seen on the positive side. And now that the world is so volatile at this point of a time because of the many disturbance. But yes, on the one side, the demand is on the rise globally. As you know, that's approximately around 2 million tonnes of the soda ash growth. Higher consumptions is required every year. And the way the economic growth has been projected for across the globe, which clearly indicates that the demand of the soda ash, which will significantly go up. Whereas in last 2, 3 years, no new capacity has been added globally. So probably that should give some kind of a demand/supply disbalance. And that should definitely give us an upside on the soda ash pricing. Now all depends on how the situation, the COVID remains, how the demand remains. But positive territory is something, which I'm seeing.
On the backward integration part, sir, in your presentation, it was mentioned that the limestone is 25% and salt is 35%. So going forward, what steps are you taking to improve this ratio? And what kind of CapEx or what is the strategy going forward, sir?
So in terms of the limestone, as you know, that the complete mining is in the part of government. The only thing what we are looking at is we are planning -- we are in the process of executing a long-term contract with some of our strategic vendors on the limestone supplier. So that the price volatility has been captured into that. On the salt side, our understanding is -- so definitely, the way the new expansions of the salt is happening in the Gujarat probably -- '22 probably will be slightly tight supply of salt. But '23 onward, the supply of salt will significantly improve, and that will soften the prices for the salt. At this point of time, we were thinking about going for a long-term contract. But based on our understanding in the last few weeks, we decided to wait for some more time when the scenario of the salt becomes more easier. At that time, we will be talking about the long-term contract of salt. We are also looking at an opportunity of some strategic investment in some of the captive salt. And for that, we are working on.
[Operator Instructions]. The next question is from the line of Harsh Patel from Alpha Alternatives.
Sir, I wanted to understand what will drive the EBITDA margins in the soda ash business back to 30%? Because right now, you have a rupee depreciation benefit from the import side and there's -- energy costs have gone up. So according to you, what can be the better scenario for EBITDA margins to drive back to 30%?
So first and foremost, which is very important is that the demand/supply and that is giving to you price increase. Because as you have seen, price has gone down from INR 21,000 to INR 18,000. So broadly, there is a INR 3,000 price difference that's going to happen in the last 1.5 years. So our expectation is this price of INR 3,000 should be recovered. That is number one. And the second is, like I said, the overall cost. So probably, the most important thing for improvement in the EBITDA margin will be price-driven. And the second is the way you control your cost competitiveness.
And then some higher volumes.
But sir, you had just done a comparison of Q1 FY '20 numbers to Q1 FY '22 numbers and you just said that there's a 3% drop in the overall demand. So there's no problem on the demand side, I feel. So how do you see demand/supply as a problem?
No, no, I've not said the demand/supply is split problem. I said that demand is likely to be higher going forward. And once the demand is going to be on the higher side and the supply is going to be restricted, the demand/supply balance will give you an opportunity of increasing your prices. And on the other side, like cost also has gone up. So these 2 things will give you an opportunity of increasing the price. And ultimately, that leads to your better margin.
Sir, what will be the spread between the domestic price and the import price, the landed price, at least in the percentage of what we can share?
Import price. See at this point of time, I would say, see, we are in a commodity business. Normally, the prices of -- for the consumer is going to be similar because they cannot give you a higher price, barring the supply chain advantage of being delivered to them on a total basis. So the difference between a landed price to the consumer versus import versus the domestic, it could be in the range of around 3% to 5%.
So that's part of the difference for you to ask for a Anti-Dumping Duty on soda ash, sir. 3% to 5%? What are your thoughts on that?
See Anti-Dumping Duty is an exercise, it's one of the country where the government gives you a return on capital if your return on capital is less than 21% and if someone dumping the material. Of course, they will be dumping the material at the price at which you are selling, but that does not give you the sufficient margin, government protects your interest. And in this whole scenario, we are talking about only Russia and Iran from where the product which is coming is much cheaper. And that product is only limited quantity. There is not a -- out of the total import, their figures -- their percentage of import is lower.
The next question is from the line of Anish Jobalia from Banyan Capital.
Sir, just one question around the 12% price increase that we have taken. So one thing that I would like to understand is how much has been also the increase in the cost per tonne, I mean, what I'm trying to get to is like the price increase that we have taken, is it only to cover the cost increase per tonne that we have already witnessed up till now?
You can say that the way we are looking at the current cost, which may impact our cost in the next quarter or the quarter later. This 12% increase will -- to a great extent, will offset the cost. So you're right on your assumption that the margin may not significantly improve by this price increase because of the cost base. That's why I said 1 or 2 quarters, I don't see any major expansion in the market.
Okay. But -- so I mean, just -- I mean, earlier that we were speaking about we were seeing good opportunity for increasing our EBITDA per tonne, say, from H2 onwards. I mean, we did INR 5,000 in the last quarter, which has further come down to, say, INR 4,300, INR 4,500. I mean these are all approximate calculation. I mean you have the exact ones. But I'm just trying to understand that we are looking at an upward journey, but things are kind of going down. So I mean when do you expect, let's say, about INR 70,000 EBITDA per tonne that which we are doing earlier, given all this demand/supply tightness that we are expecting. So I mean, can we -- I mean, if you were to try to understand, given your experience in the industry, like can we aim for, say, in FY '22, sir? I mean -- or do you think this is like more of a 3- to 4-year journey going forward?
No, I don't think it is going to be 3 to 4 years journey. Like I said, currently, the price increase which has happened is offsetting to a great extent, the cost. But going forward, because of the supply chain and because of the demand-supply situation, you will get an opportunity of further improvement in the prices. And that will lead to your margin expansion. Secondly, at this point of time, the way the energy prices are, our understanding is that will also help -- because there are a lot of -- in South Africa, there were some problem over there. Indonesia, there was the -- there was this COVID situation. So this will get some utilization in 2 about quarters. And after that, the industry prices would also soften. So keeping that into mind, my understanding is after 1 or 2 quarters, you will start seeing that margin improvement into the -- and next year, '22, '23, will definitely be better in terms of the margin. And of course, all these things depends on a lot of volatility there. So based on our experience, I'm giving with this kind of the thoughts.
[Operator Instructions]. The next question is from the line of Rajesh Agarwal from AUM Capital.
Congratulations on your number. Sir, presently, 17% of the total revenue comes from export. Does the company plans to maintain that?
No, surely, Frankly speaking, this should slightly go up because like I said, my run rate of exports in the home -- because the major exports happen from the fixed side, okay? And that run rate has gone up as compared to the last quarter to this quarter by 30%. And some improvement here should also be further -- will be there. So definitely, this percentage should be maintained or slightly should go up. I just wanted to clarify one point to my investors. As you all know, the soda ash has always been a margin of around 28% to 31%. I'm not taking the peak margin of 35%. In the last 15 years, the margin headwind in the range of around 28% to 31%. So there is no reason that after a few quarters, the margin should not go back to those numbers. Because if that trend has been seen in 15 years, there's no reason for that to go to those range. Of course, some temporary coverage and supply chain and things like that.
Sir, my next question is that what percentage of total revenue comes from top 5 customers, both in Inorganic Chemicals and Textiles?
Readily, I don't have the numbers, we can give you offline.
The next question is from the line of Sarvesh Gupta from Maximal Capital.
So first question is, sir, if we disregard the margin and price increases for the hypothetically, then in the next 1 year, I think your SBC as well as your CapEx spending is going to come online after 12 months. So are there any volume triggers that we are seeing apart from the increase in the textile throughput. And in that regard, what is the capacity utilization that we are working currently?
See, if I have understood your question, you see, like I said, one of the revenue growth we are looking at from the spinning which will increase by around 20% volume growth. The second, we will be seeing the volume growth or the top line growth of the home textile as well next year because my run rate has improved. So that will also be seen next year in the home textile. In soda ash, there is 50,000 tonnes of the new brownfield expansion, which is likely to be completed this year, which is almost, you can say, around 5% of the total volume. All put together, you will have the volume growth next year.
All these expansions will happen next year, Ravi.
Next year, '22, '23, this kind of a growth you will be seeing. In addition to that, what about the revenue growth because of the price increase and those kinds of things will be in addition to that.
Understood, sir. And sir, what is the CapEx outlay for this year? And how is it getting funded between debt and equity?
This year, approximately around -- we are talking about around 470 -- INR 450 crores kind of a thing. Out of that, like I said, spinning will have around INR 250 crores, INR 200 crores will be roughly around soda ash. Soda ash is primarily for this brownfield expansion. And this will get funded based on our cash. I don't think it will be a very significant increase in our debt position.
Okay. If I understood your IRRs, which was alluding to a previous question on the textile CapEx, is it right that the project IRR might be 11%, 12%, but given the cost of debt for us maybe 6%, 7%. So hence, our equity IRR still will be satisfactory at 18%, 19%.
Yes, that's right.
The next question is from the line of [ Muralidhar Reddy ], Individual Investor.
Sir, I wish you all of you safety in the pandemic, all of our company, team members and your families. My -- I have 2 questions. First question is the -- with the raw materials increasing, probably your working capital requirements will keep going up. So will the debt of the company will stay at the same level? Or is it any going to go up? Or is there any debt reduction plans?
No, Mr. [ Muralidhar ], you are 100% right because even in this quarter, if you look at my working capital requirement has gone up. So the moment the prices of product is going up, your receivable goes up, your raw material prices goes up, you have your working capital requirement goes up. So you are right on that basis that overall, the total working capital requirement will go up. And our understanding at this point of time, we don't see too much of significant increase in the debt. And we are also not seeing any reduction in terms of overall debt.
Second question is that can you give us some light on the raw material integration because we have lost some captive resources in the early part, now we really want to augment that. So what are our plans to do with the backward integration so that we have secured raw material costs and other costs at the lower pace.
Very right, again, Mr. Muralidhar. This is one of the biggest, I would say, priority for us because for the chemicals business, the first and foremost, which is very important feature is the security of the raw material and the volatility of the raw material can be captured. So one of the initiatives which we have done, and of course, it is going to take slightly time. We are significantly making, I would say, investment and the process improvement in our captive salt production. Because of this cyclone, which will happen definitely has made some impact on that plan. But overall, we want to increase our captive salt production by 30%. That is where the plan is. That's one. Second, as I said, for the security of the raw material limestone, we are looking at a long-term contract with some of the strategic vendors for a 10 years contract. That is under discussion. And once that happens, and the security of raw material will also be there, and that also will -- price will also be secured on that. And that will be a very significant part of our limestone requirement. On the salt side, I just said, salt, we have been planning to go for a long-term contract to secure the supply. But since the salt prices are very high at this point of the time, we got advised that we should wait for some time. But our plan is to, one, the moment the price becomes normal, to increase or to do a long-term contract with some of the manufacturer of the salt at a fixed price. That is number one. We are also aggressively pursuing to the government of Gujarat to allow some of the land for salt production. So that will also help us to kind of have our captive conversion going up. Keeping all these things probably, we will be better secured on our raw materials.
The next question is from the line of [ Sai Mandava ], Individual Investor.
I have a couple of questions. One on soda ash business. So you mentioned the greenfield CapEx. So how long does it take for this new CapEx to be set up?
It's a very interesting question. You see, basically, that is where the opportunity also come with the soda ash business. Any project when you conceive, it takes around 5 to 7 years to get implemented. In our case, we have already spent around more than 2, 3 years' time on this project in acquiring the land and getting a lot of studies of the environment completed. Now from here onwards, probably it will take another 3 years' time to finally come with the production on the greenfield project. That will also be an advantage in terms of our CapEx requirements will be, to a great extent, will get funded because of our cash investments in the next 3, 4 years. And you know that the overall CapEx requirement will be rear-ended. So in first 1 or 2 years, there will be no major CapEx will be requirements. And in the later part, it will be there by the time, our calculation will justify that kind of investment.
Got it. And the second question is about the debt. So how is the debt split between chemicals and textile? I'm asking more from the demerger point of view? Just to understand how is that been decided?
At this point of a time, our debt -- overall debt, just give me a second.
INR 787 crores.
Total debt is around INR 787 crores. Out of that, the soda ash is roughly around INR 468 crores and textile is around INR 319 crores.
Okay. And this includes working capital that has been...
Everything. That means everything. I just wanted to clarify one point, which has been asked for the -- on IRR -- on our spinning project. IRR is around 14%.
Yes. That is working...
We are working. We have just opened our working. The way we have planned for this investment and the way that we are looking at the profitability, the IRR will be around 14%.
The next question is from the line of [ Varun Bajla ] Individual Investor.
Congratulations on a wonderful set of numbers. My question was with regards to the demerger scheme that is currently planned and for which we have already received approval from the secured creditors, are there any other challenges that we look at in terms of procedures or permissions from authorities as far as the demerger is concerned?
I don't think so.
So by when do we see this entire demerger getting completed? And do we have any record date in mind for this particular demerger?
It all depends on the way the NCLT gives an approval. And probably our internal target is around December. December, it should happen.
All right. And post the demerger, do we see any re-rating of the debt? Because currently, I believe the debt would be rated based on the cash flows of both the businesses. After the demerger and the debt is also split between both the companies, do we expect a downgrade or an upgrade in the debt based on the cash flows of individual companies?
Surely, we will be looking at an upgrade.
The next question is from the line of [ Abhi Manjula ], individual investor.
Congratulations for such a great set of numbers. My question is regarding the soda ash segment. And I was just seeing how the soda ash production is done. So I believe that we are using carbon dioxide as one of the raw materials?
We are using -- not carbon dioxide, we are using the limestone. And we are using the salt. Of course, from the limestone, you get the CO2.
So because of this, like using the boiler, we end up like emitting a lot of carbon dioxide into the atmosphere. So my question is that is our company doing any carbon capturing right now?
Yes. We have already working on carbon neutral. And if you look at our balance sheet, you'll see that we have taken targets on our carbon emission. And we are also in the process of putting a lot of green energy investments into the business, and that will reduce our carbon footprint. So the management is very, very conscious about the carbon footprint into the business. But of course, being a chemical industry, we definitely have a carbon emission into the system, but a lot of focus is being given on the -- reducing the carbon footprint into the business.
The next question is from the line of A. Anandha from PGIM India.
Sir, this is a question related to our textile business. In our textile business, could you give a breakup between yarn versus textiles either in terms of revenue or in terms of volume terms and give a broad idea of how the margins between the 2 would vary for this quarter?
See, we take this both business together, and we always have the joint number because a lot of yards are getting sold internally, interunit transfer. And therefore, the numbers are broadly -- consolidated numbers will only be the meaningful. However, just to give you a perspective, the margin in both the businesses are reasonably good, both on the home textile as well as into that spinning.
And large part of your home expense would be exported?
Sorry? Sorry, could you repeat your question, please?
Yes. Would large part of your export revenues be contributed from home textiles?
Yes.
Okay. So can that -- [ in the middle of that ], can that be directly be taken as a proxy or contribution of home textiles to the overall textile revenues?
I don't know. I'm not -- honestly, I've not understood your question.
No, I was just thinking that entire part of your home textile would be exported, that would be the broad understanding. Or that would be domestic sales in home textiles as well.
No, you are right. In terms of the home textile, a large portion is on the export front, okay? In the spinning also, there are -- exports are happening in the spinning also. We export to many parts of the country, Bangladesh, Europe and things like that. Even in soda ash also, some portion of export is happening.
Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
Thank you very much. As I have been always been repeating our commitment to the investors that we, as a management, will always do our best in the current context of making sure that we give a right return on our capital by keeping all the compliances or the sustainability goal into our domain. We always say we want to grow responsibly, and growth is going to be our driving force going forward. And surely, we will be able to deliver on that expectation also going forward. Thank you very much to all of you for participation and take care of yourself and your family and we spend the next [ session ] as well. Thank you.
Thank you. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.