GHCL Ltd

NSE:GHCL

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, welcome to the Q1 FY '24 Results Conference Call of GHCL Limited hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded.I would now like to hand the conference over to Mr. Meet Vora, Emkay Global Financial Services. Thank you and over to you.

[Meet Vora]

Thank you. Good evening, everyone. I would like to welcome the management and thank them for giving us this opportunity to host them. We have with us today Mr. R.S. Jalan, Managing Director; and Mr. Raman Chopra, CFO and Executive Director, Finance.I shall now hand over the call to the management for their opening remarks. Thank you and over to you, sir.

[Ravi Jalan, executive]

Thank you. Thank you very much. Good afternoon, everyone, welcome to GHCLs earning call for the first quarter ended 30 June, 2023. Our results and presentation has been uploaded on the stock exchange and company website. For this call, I am accompanied by our CFO, Raman along with Manu and Abhishek from IR and the finance team.In general, the soda ash markets are soft, demand from some of the regions and end user segments has been weak, while new capacities coming live are now creating additional supply. As a result, soda ash market is oversupplied in certain regions and this has put a downward pressure on prices.In China, overall soda ash supply-demand situation is balanced. Demand is up by 7% on Y-o-Y basis from January to till May, YTD, driven by the solar glass and lithium carbonate. Other segments such as flat glass remains soft due to slow real estate sector. Soda ash producers inventory has decreased despite the producers overall operating rates are high. Exports have increased, especially to Asia and Africa and is up by 21% Y-on-Y.Market has reacted calmly to the new 1.5 million metric ton natural soda ash capacity in inner Mongolia which came onstream in June end. Another line of same capacity is expected to come onstream soon. In the recent development, authorities have decided to shift from energy control to carbon control which will -- which shall have even bigger opportunity for carbon-free energy, such as solar. The total solar glass capacity in China has reached an estimated 1 lakh metric ton per day, which requires approximately around 7.5 million metric tons of soda ash per annum at full utilization.In Americas, soda ash production is down by 5% on YTD, January-April 2023, while consumption is down by 6% and exports are flat, resulting in higher inventory level. Demand from chemicals saw an increase while demand from flat glass dropped. Some container glass units have been closed. Americas region, excluding the U.S., is quite resilient on soda ash import. Trade data [ points ] to a weaker trend in import, thus the underlying demand in South America is weak.In Europe, demand is soft, most part of -- most part, while soda ash supply continues to be readily available, resulting in a surplus soda ash availability across the region. Container glass demand has recently declined, while flat glass and detergent demand remains sluggish. Flat glass is experiencing strong competition due to increased import from Asia. Recovery may happen in fourth quarter of this year.In Turkey, soda ash demand has been weak. Turkey's export has increased by 4% Y-o-Y till YTD May. This is likely extra soda ash capacity in Turkey following Ciner's 0.4 million ton expansion.Realization has reduced mainly due to combination of oversupply situation, reduction in input cost, new supplies from China and U.S. and supply chain costs below pre-COVID levels. The global situation is likely to remain same for the next 1 or 2 quarters. China, which is the largest soda ash producer and consumer is likely to remain stable going forward. Demand may improve from additional solar glass capacities coming onstream and on some of the soda ash plants going under maintenance.The Central Bank of China has reduced lending rates in June '23 by 10 basis points to stimulate economic growth and revive the real estate demand. The Indian soda ash market has been tepid. Demand in India has been strong for flat container and solar glass. Upcoming solar glass capacities are slightly delayed due to cyclone and are likely to be commissioned in H2 of this fiscal year. However, the ongoing monsoon session will contribute to a decrease in the demand for detergents. Soda ash inventory has remained high due to increased import. As a result, the prices in India has decreased and we have taken a price correction from November 2022 by [Technical Difficulty] till quarter 1 and by another 5% in July, total to 20%. We see this as an healthy and necessary correction for domestic investors to remain competitive and also pass on the benefit of reduced input costs, especially the energy prices to customers.We continue to focus on implementation of various growth initiatives. We are making progress on the greenfield project and we are already making progress with the basic engineering activities, various growth projects for vacuum salt, salt yield improvement and digitization as well progressing ahead.Thank you. And I will hand over to Raman for the financial [Technical Difficulty].

[Raman Chopra, executive]

Thank you sir. Good evening, everyone, and I welcome all to our earning call for the first quarter FY '23-'24 ended on 30 June, 2023. Results for this quarter comprises of inorganic chemical business, as the demerger of textile was completed on 1 April, 2023.Revenue for the quarter 1 FY '24 came in at INR 1,029 crore. This represents a decline of 11%, year-on-year basis, compared to INR 1,153 crore in the corresponding quarter of last year. On a sequential basis, revenue has declined by 10% from INR 1,141 crore. The reason for this decline is mainly due to reduction in soda ash volume as well as realization during the quarter.EBITDA for the quarter stood at INR 310 crore, which is a decline of around 15% from INR 364 crore in Q1 FY '23. On a sequential basis, this represents a decline of 16% from INR 370 crore. For the quarter, EBITDA margin came in at 30.1% compared to 31.6% in Q1 FY '23 and 32.5% in Q4 FY '23.During the quarter, there is an exceptional gain of INR 219 crore arising from the accounting treatment as per the scheme of demerger for textile business. PAT from the continued operations, including exception gain, stood at INR 426 crore as compared to INR 310 crore in Q1 FY '23 and INR 251 crore in Q4 FY '23.For the quarter ended 30 June, we generated a cash profit of INR 231 crore after tax. We are a debt-free company and at the end of the first quarter, our gross debt stood at INR 302 crore and we had a cash surplus of INR 515 crore, resulting in a net cash surplus of INR 213 crore.With this, I conclude my comment and I would now request the moderator to open the forum for questions and answers. Thank you very much.

[Operator]

[Operator Instructions] We have our first question from the line of Jainam Ghelani from Svan Investments.

[Jainam Ghelani, analyst]

So I just have 2 questions. So what was our...

[Operator]

Mr. Ghelani, can you use your handset mode please?

[Jainam Ghelani, analyst]

Yes, can you hear me now?

[Operator]

Yes.

[Jainam Ghelani, analyst]

So what was our volume growth quarter-on-quarter and year-on-year, please?

[Ravi Jalan, executive]

See, this quarter we have lower volume, because if you remember, we have -- in the last call also we said that because of some [ discount ] in our plant, we had kind of a lower volume production. We are almost -- on the production side, we are down by around 10% to 12% on a quarter-on-quarter basis and however, in the sales side also, we are down by approximately around 13% in this quarter.

[Jainam Ghelani, analyst]

And year-on-year?

[Ravi Jalan, executive]

Sorry?

[Jainam Ghelani, analyst]

And what would be the volume growth or degrowth, year-on year?

[Ravi Jalan, executive]

Year-on-year also, if you compare from the last year -- last year fourth quarter, we are down by around 10% on the sales. Of course, on the production, we are almost at the same level.

[Jainam Ghelani, analyst]

Okay, sir. And sir, what is our volume guidance for the FY '24 and FY '25? How do we wish to grow over the next 2 years?

[Ravi Jalan, executive]

See, '23 -- sorry, '23-'24, probably, we are seeing some downward trend in volume, particularly on the domestic side. We will be down roughly around -- maybe around 7% in the sales side as compared to the '23 -- '22-'23.

[Jainam Ghelani, analyst]

Okay. Okay, sir. And sir, do we see further reduction in the prices with the commissioning of the Mongolia facilities?

[Ravi Jalan, executive]

Yes, if I can say that -- there are three, four things I just wanted to kind of highlight on the pricing front. We have all -- like I said in my opening remarks, we have taken around 20% in reduction since November 2022. We definitely see further some reduction, not a very significant one, but some reduction definitely will be there. However, the raw material prices are also softening. So probably this should be in a position to compensate this difference barring the -- some inventory what we have of the raw material, this impact will not be -- should not be there for the reduction.

[Jainam Ghelani, analyst]

Okay. So sir, would you be able to quantify, like, could it be only 5% to 10% decline in pricing or do you expect more?

[Ravi Jalan, executive]

In the same range of around 5%, my understanding, of course, if I look at from the current context.

[Jainam Ghelani, analyst]

Okay, sure. And sir, could you please help us understand the import trends as imports are cheaper compared to domestic manufacturers?

[Ravi Jalan, executive]

No, if you look at in terms of our pricing strategy, we always kind of -- somewhere we benchmark on the competition and the competition -- one of the competition is also your import. And this reduction which you have seen, as I said, is primarily because of the imports coming in at a cheaper price and also the supply chain costs which is coming down, so both these factors and along with the raw material cost also. So probably, I would say that at this point of a time, we are closer to the kind of the import prices. Any further reduction or some gap, probably we need to look at slightly more at pricing reduction, which should be in the range of around 5%.

[Jainam Ghelani, analyst]

So the imports are only 5% cheaper than our products currently.

[Ravi Jalan, executive]

You see, depending upon -- it depends on -- because we definitely get some premium on our product being a domestic supply chain, so if we keep that into mind, then yes. I see that kind of a range.

[Operator]

[Operator Instructions] We have our next question from the line of Saket Kapoor from Kapoor Company.

[Saket Kapoor, analyst]

Sir, firstly, if you could elaborate on where are we in terms of our greenfield CapEx, sir? And what are the current time lines -- any new time lines we have set for the implementation and the commissioning of the projects, sir?

[Ravi Jalan, executive]

Yes, Saket Ji, if I can divide the total greenfield project into various zone, on one side, if we look at which are the most crucial thing, one is the environmental clearances. So one good news is that out of the -- 2 things which was required has been cleared. And hopefully, in next 1 month, the proposal from Gujarat will move to the central government and we are expecting in next 5 to 6 months, we should get an approval of the environmental clearance. So I would say that, yes, some delay has happened. But now the things are much under control on the environment side.So we call it, one is the forest clearances Stage 1, that we have got it. Similarly, at a local level, at GPCB level, [indiscernible] make clearances, so that meeting has happened on 4 August and hopefully, in next few days, we'll be getting their concurrence to move the application to the -- to [ Delhi ].Now come to the second point, which is again the land, which is again very crucial, we had some significant improvement for the private land during this quarter. On the government land also, the proposal has been moved from a local level to the Gujarat government. Hopefully, things will now start moving into the -- there also. Once that happens, then I think these are the 2 crucial things, which will -- which kind of define the time line for the project.On the engineering side -- on the basic engineering side, significant improvement has been done. We have appointed a consultant, the initial report has come in, we have given the feedback, and our team -- a large team has gone to see the -- some of the world's largest soda ash producers in -- outside India and they have kind of a new -- because we are talking about a new technology, different sizes, so all those things, they have gone and they have seen. So in a way, I would say that even the vendor identification to a great extent has been done. So hopefully, these are the 3 things which are there. Time line wise, I would say that once the environmental clearances has been given, probably it will take around 2 to -- 2.5 years to 3 years kind of a time to implement that, because all the basic thing on identification of the vendors, everything has been done, all basic preparation has been done. Once we get that, we can start the work.

[Saket Kapoor, analyst]

Sir, on the amount we spent earlier, I think so, we have spent some INR 100 crore or INR 150 crore on the land acquisition. Other than that, sir, how much capital work in progress have gone through for this greenfield and for FY '23-'24, what have we earmarked as the amount to be spent?

[Ravi Jalan, executive]

See, so far as the land, we have not even spent INR 100 crores also. We have invested around only INR 55 crore till now and maybe marginal amount on the other things which is very, very insignificant and we normally -- those kind of amount, we take into our revenue in the operation itself, we don't capitalize those items. Right, Raman?

[Raman Chopra, executive]

Yes. Very small...

[Ravi Jalan, executive]

So basically -- and that's a very, very insignificant amount. So in a way, you can say that the land investment which we have done is around INR 55 crores. We have not projected -- I think we have projected INR 100 crores for '23-'24 to be spent on the greenfield.

[Saket Kapoor, analyst]

Got it, sir. Sir, as you mentioned about the softening of the soda ash prices, firstly, because of the oversupplied market globally and also expecting further reduction. I think so, in the month of August also, we took further cut, which has now totaled to 20%, going ahead. So [ accepting ] these into [ concept ], we had this EBITDA trajectory of -- from INR 360 crore -- INR 370 crore to INR 310 crore. So what should likely be the EBITDA trajectory going ahead, taking into account that the [ power ] cut is also expected in the near-term and also there is a benefit of softening of the raw material prices going ahead, which will be negated by the inventory which we are carrying currently? So what should we look forward in terms of these numbers going ahead, sir?

[Ravi Jalan, executive]

See, our -- my understanding is that approximately, the range of the EBITDA margin should be in the range of around, say, 28% to 31% kind of a range, you will be able to see that range. So it's not going to be significantly lower than those numbers.

[Saket Kapoor, analyst]

Right, sir. And Raman sir, for this quarter, I think it is -- this exceptional gain item, what should be the tax incidence on the same, sir? And if you could explain...

[Raman Chopra, executive]

There is no taxation on this.

[Saket Kapoor, analyst]

Okay. So this is only a book entry as of...

[Raman Chopra, executive]

Yes, yes, this is only a book entry because the entry has to be passed on the fair valuation of the spinning business. So it's a gap between the fair valuation and the book value, net of stamp duty. So that is the gain which has been recorded in the financial -- in the books of soda ash, the chemical business.

[Saket Kapoor, analyst]

Got it, sir. And sir, what have been the net debt out-go for this quarter? So how much actual tax we have paid because we have done the provision at around INR 70 crore.

[Raman Chopra, executive]

See, against INR 71 crore, we have paid INR 27 crore tax -- advance tax this quarter.

[Saket Kapoor, analyst]

INR 27 crore is the advance tax payment for this quarter.

[Raman Chopra, executive]

Yes.

[Saket Kapoor, analyst]

And sir -- Jalan Ji sir...

[Operator]

Mr. Kapoor, may I request you to join back the queue, sir. [Operator Instructions] We'll take our next question from the line of Riddhesh Gandhi from Discovery Capital.

[Riddhesh Gandhi, analyst]

Sir, just a couple of questions around pricing. We were expecting a few quarters ago for the prices to continue to be reasonably firm. And I understand that there is some amount of extra supply, which is coming and some amount of demand slowdown because of the global economy. But actually -- I mean what is giving us the confidence that over a longer-term period that the demand-supply balance will be in favor of the manufacturers?

[Ravi Jalan, executive]

I think, Riddhesh Ji, you very rightly said, I have always been saying this, if you look at the way the solar or, I would say, green energy initiatives are being done, recently, you must have noticed that the Government of Gujarat has given a large chunk of land to various industries for green hydrogen. And for that, the soda ash is the major raw material for the glass. Similarly, if you look at globally also, I just mentioned in my opening remarks, in China alone, around 7.5 million tons of the soda ash is required from -- only for the solar -- this thing. And lithium carbonate is separate. So barring this, what -- and this I have been saying all along in my last 4, 5 years, that barring this temporary blip which happens, long-term, there is a robust demand situation and robust margin situation in this business. So therefore, from a long-term perspective, you are right, there is good growth possibilities there in this.

[Riddhesh Gandhi, analyst]

So is it such that this soda ash supply has come ahead of the solar supply, and as the solar glass supply comes in, we'd expect a more of balanced market?

[Ravi Jalan, executive]

Yes, Riddhesh Ji, if I can say in a way, like I said in China, which is the largest producer, 40% of the global production is happening there, only the real estate, which is kind of slightly on the lower side and the government of China has taken some initiatives on that, some stimulus has been announced. So hopefully, I think that -- once that demand of the real estate improves, you will see a kind of a surge in the demand in China as well. And similar to -- in a way, if I can say so, this kind of a small gap between the demand and supply for a short period of time will surely happen, and that will kind of impact some time for the oversupply situation. But that will get neutralized very soon.

[Riddhesh Gandhi, analyst]

Got it. Sir, and the other question was, we have a reasonable amount of cash on books. And our business also, despite slowdown, will still, I mean, generate a large amount of free cash flow. Just wanted to know, is the intent to just, I mean, keep the free cash flow for the greenfield expansion? Or are you guys looking to do some sort of a buyback or a dividend?

[Ravi Jalan, executive]

No, Riddhesh Ji, definitely buyback is -- will definitely be considered in appropriate time because we always believe in rewarding the shareholders, and you know that in the last few years, 2 buyback has been done. And this definitely will happen. Time lines will be very difficult for me to kind of outline the time line. But in appropriate time, definitely it will happen. Because as you rightly said, cash flow wise or the greenfield project wise, we are well positioned to fund that CapEx. And for that, we don't have to kind of have big reserves of the cash generations at this point of a time to kind of preserve for that. So surely, this will happen.

[Operator]

We have our next question from the line of S. Ramesh from Nirmal Bang Equities.

[S. Ramesh, analyst]

So going back to the numbers you shared on the decline in revenue and the decline in volumes. So if you're looking at 11% decline in revenue and 13% decline in sales volume, that means your prices are up about 2% Y-o-Y. So that doesn't add up with the kind of decline in prices. So can you just explain, if you look at the decline in revenue in 1Q '24 on a Y-o-Y basis, can you break it up in terms of the impact of the change in volume and change in price?

[Raman Chopra, executive]

Your question is on the revenue side? If I understood correctly?

[S. Ramesh, analyst]

So basically, I want to know what is the split in terms of the impact of the change in volume and change in price leading to this 11% decline. So what is the...

[Raman Chopra, executive]

If you look at the decline in the revenue compared to the same quarter of last year, largely, it is driven by the volume reduction because the volumes have declined by 13%, okay? So the large impact of that is -- but I would say, that is the only reason of decline in the revenue because of that. If you look at, compared to the previous quarter, Q4, the decline is on account of both -- the impact is both in terms of the volume as well as a reduction in the prices, realization. So it's a combination of, you can say, it's 60% volume impact and 40% realization impact.

[S. Ramesh, analyst]

Okay. Now the second thing is now, if you look at the current trend and then the -- in terms of your cost structure, when do you see the cost getting aligned with the current prices for your energy and freight, so that in terms of the decline in prices you have taken, you'll be able to report an improvement in margins on a per ton basis. So if you can just share some thoughts in terms of when you expect to get the margins per ton back to normal levels based on the benefits of the savings in input costs and energy costs and freight, which is not fully captured in the first quarter.

[Ravi Jalan, executive]

See, I would say, if you look at in terms of both, you see we have some advantage in the -- even in the selling side also at this point of a time because some of the contracts are for a longer period of time. So -- and to that extent, whatever the raw material inventory impact which we have has been compensated on that. So in a way, you can say that the margin of this kind -- the margin what we have currently, should be in a position -- we should be in a position to kind of maintain if the prices of the soda ash does not go down very significantly from here.

[S. Ramesh, analyst]

Okay. That means if you're able to increase the volumes to normal levels, you should be back to the normal margin trajectory. Is that the right way to understand?

[Ravi Jalan, executive]

Yes. If you look at in terms of the percentage, yes, you are right on that.

[S. Ramesh, analyst]

Okay. So looking at the long-term structure, in terms of the cost structure for the industry, in terms of cash costs, your [indiscernible] base capacity, cash cost used to be around $150, perhaps it's gone up to $200, based on whatever you see. So is that going to be a challenge in terms of getting further price increases even if the demand goes up, especially because if you're looking at the Chinese capacity addition, we don't know what the cash cost is going to be. But what is your sense in terms of the overall cost structure for the industry going forward? To what extent it will give you that confidence in terms of the pricing power and improvement in margins if the demand-supply were to get tighter? What is your sense on that?

[Ravi Jalan, executive]

You see, basically, if you look at this in this way, today, like you rightly said, the cash cost of the green -- what you call your green soda, which is your, basically, the natural soda ash, their cost, along with the supply chain cost to the consumption center. Probably, we are closer to the cost, what we have and versus the cost, what they have. Any upside into the demand, and as you know that the soda ash capacity does not get built on a quickly basis, any upsurge on the demand side, probably will definitely give a benefit of increase in the soda ash pricing as well as the margins.

[Operator]

[Operator Instructions] We'll take our next question from the line of Resham Jain from DSP Asset Managers.

[Resham Jain, analyst]

So I have a few questions. So first one is in terms of existing infra, you're doing several initiatives in terms of salt yield, some solar capacity or solar power you are adding up, and sodium bicarbonate also capacity increasing. So once all these 3 things come up and in case if there is anything else which you can do in the existing plant, if you can just help to understand what kind of improvement in EBITDA could happen because of all these initiatives?

[Ravi Jalan, executive]

See, like you rightly said, if you look at the salt yield improvement, which I have given the indication in the past also, probably the numbers are significant and some benefits you will see during this year as well because some benefit has started. But the overall achievement, I would say that it will take, means, 1.5 to 2 years' time from now, and we will get the total benefit. Approximately INR 100 crores will get added to the bottom line because of that. Vacuum salt, which is again very, means, big initiative we have taken, and this will get completed by December '24 to March '25. The project has already been given -- basic engineering has been given to a world's largest technology company on this. Where I would like to highlight is one of the biggest advantage we are going to get in this project is, we are going to produce the vacuum salt from the waste heat and that would have a very significant advantage to again -- to our bottom line. Approximately around INR 50 crores to INR 60 crores will be the number which will get added to the bottom line once that project gets completed.So far as the sodium bicarbonate, as you rightly said, sodium bicarbonate will also have a significant advantage. However, currently, your -- what you call, your flue gas -- some projects of NTPC has already started. They are now adding 2 more power plants into that. Even -- we have recently came to know that even some of the 3 private power producers in UP also is getting added. So probably, I would say that next year, probably you will see a significant advantage of the sodium bicarbonate. And again, that number could be in the range of around INR 30 crore to INR 40 crore will get added to the bottom line.And in terms of other initiatives, you see, one of the biggest initiatives we are taking is, we are challenging all our costs. And I think on the energy, and that also, of course, probably again, INR 30 crore, INR 40 crore will get added because of those initiatives. We have hired a global expert on that, and they are -- he is helping us to kind of a -- to challenge the various costs on the existing plant. So probably all these things will get added. Some benefit you will see of these things coming into the next year.

[Resham Jain, analyst]

Okay. Understood, sir. So just to clarify, sir, even if, let's say, price has to come down from current level, all these initiatives are in addition to what we are doing currently, what you mentioned. Now if I add up everything, it is close to INR 250 crores to INR 300-odd crores over next, let's say, 2 years or so. So is that a fair thing to consider?

[Ravi Jalan, executive]

100%. I think you will start getting some benefit this year itself, number one. And larger portion will come, as you rightly said, like vacuum salt, you will be getting in '25 -- '24-'25 -- '25-'26, sorry. Entire amount will come in. And salt I said, some benefit will be there, and maybe after 1.5 to 2 years, we will get the full benefit of the salt. And these cost reduction projects, some benefit will come this year and some portion will come next year also. As you very rightly assumed, in next 2 years, this kind of amount will get added into the bottom line.

[Resham Jain, analyst]

Sir, my second question is on capital allocation. If I just add up the cash flows over the next 3 years, a large part of your greenfield CapEx, I understand, will happen in the second half of your 3-year period, which means that the substantial cash flow generation has to be -- like what will be the -- will you build up cash so that you are not required to borrow? Or you will keep your historical like 50%, 60% debt and 40% cash? How will the funding happen for the new project? And the cash will be substantial, so dividend buyback and any inorganic acquisition also in case if you are planning? Your past track record has been quite good. So just trying to understand how should one think about this?

[Ravi Jalan, executive]

No, as you rightly said, 3 things which are important, which I have always been maintaining on that. We have to keep a balance between 3 things: growth, your debt equity and the third is rewarding the shareholders. And the similar lines, we'll continue to have that. We have very clearly articulated our debt position, 1:1. And by all this imagination of this project, which is happening, we will maintain that 1:1 ratio. Surplus cash, of course, on inorganic, as you rightly said, is in radar, we are looking at various opportunities. Unfortunately, till now, we have not been able to lay hands on a kind of a project which we believe we can create value for the shareholders. But the search is on, on that. And the buyback, I have already said, the dividend, you know our track record in the past. We'll continue to maintain that buyback and dividend to reward the shareholders. So these 3 initiatives will continue, and we'll keep a very fair balance on the capital allocation to ensure that we achieve all these 3 objectives together.

[Resham Jain, analyst]

And sir, last part is, some of the noncore assets, which we had in the combined entity earlier, has it gone to GHCL Textiles or is it a part of GHCL Limited only?

[Ravi Jalan, executive]

It has gone to the GHCL Textiles.

[Resham Jain, analyst]

Okay. Understood. And we are going to host separate calls for GHCL Textiles, right?

[Ravi Jalan, executive]

Not this time. We are not -- we will have next time. This time, we are not planning to have any call on that. If you have any question on that, probably, I don't mind answering here, 1 or 2 questions, but we will have the call next time.

[Operator]

We have our next question from the line of Saket Kapoor from Kapoor Company.

[Saket Kapoor, analyst]

Yes. in continuation to your replies, sir, if you could give us some color on how the textile has performed, so that will suffice the numbers are there now. So if you could give us some color and the trajectory which you are carving out for the remaining 9 months of the year?

[Ravi Jalan, executive]

See, Saket Ji, as you rightly said, the numbers at this time has not been good if you look at on a stand-alone basis. But if you compare this with probably the industry, I think numbers are not bad. See, this industry has been on the upsurge for -- in the COVID period. And you have seen that '21-'22 as well as some portion in, I would say, the first 2 quarters of '22-'23 was also very good. Subsequently, there was a downward trend. Demand had disappeared. if I can use the right word. On the other side, the cotton prices was on the peak. So because of that, the margin has been kind of a -- almost came to the level of zero.Now things are little bit improving now, I'll say that. This is a rock bottom because on one side, the cotton prices has stabilized now and inventory in the pipelines are almost zero because people were expecting that the prices will go down and therefore, they will kind of keeping a minimum inventory for the -- of the yarn. So now that is also -- now the people are getting a confidence that now these prices are on a lowest level. Demand for the global place also, some upturn we are seeing in that therefore. So probably after 1 or 2 quarters, I think, thus, you will see a kind of a significant improvement into the textile business.

[Saket Kapoor, analyst]

So going ahead, Q2, Q3 should be on the same note. That is -- this is what we can envisage, looking at what the environment is and with the destocking and other parameters kicking in, I think so margins are low because of disproportionate expenses also [Technical Difficulty] context.

[Ravi Jalan, executive]

No, you see, like I said, the things -- you will start seeing some betterment in the Q2 also, then some betterment in the Q3 also. But full potential probably will happen after that because by the time we are assuming that the demand revival will happen. You see, basically, it is mainly impacted by the U.S. and the Europe demand. Indian demands are now recovering. And so probably, I would say that after 2 quarters, you will see a significant improvement.

[Operator]

We have our next question from the line of Rohit Nagraj from Centrum Broking.

[Rohit Nagraj, analyst]

Apologies, I have joined the call late, so the question might have been discussed earlier. Sir, first question on the power and fuel cost. So have we started gaining the entire benefit of lower coal prices or fuel prices from current quarter? Or will there be any further benefit which will be there in Q2 as well?

[Ravi Jalan, executive]

Definitely, there will be -- benefit will be there because we have not been able to capture the entire benefit of the lower prices. And I think after 2 quarters -- because generally these kinds of raw materials you keep for 6 months. So probably, you will see that -- and the prices has continuously fallen. So probably after 2 quarters, you will see the full potential coming into the play. But, yes, some benefit has been captured.

[Rohit Nagraj, analyst]

Right. Sir, second question is from the imports perspective and particularly from China. So have we seen any different set of dynamics over the last couple of months in terms of overall imports and anything new which is happening in China, because we have seen across the board, China has been dumping material in the global market? So what's your stance on soda ash? I'm sorry if I'm repeating the question again.

[Ravi Jalan, executive]

No problem. You see, basically, as you rightly said, in soda ash, we are not seeing China as a very aggressive player. Even in my opening remark also I have said that Chinese inventories are at a very low level. And their demand and supply is almost like a balance. So therefore, at this point of a time, we are not seeing very aggressive import coming in from China. The major increase in the import which has happened to India in the first quarter, I mean, in this quarter, is primarily from Turkey and U.S. and some portion from Russia as well.

[Operator]

We have our next question from the line of S. Ramesh from Nirmal Bang Equities.

[S. Ramesh, analyst]

So if you're looking at the basic drivers for growth in profits in FY '24 and then FY '25, apart from the benefits you expect from your cost savings initiatives, which is fair enough, is there any growth in volume, we can build in for FY '24 and then FY '25? Or will it be mostly driven by, say, improvement in realization in soda ash and then some of the cost savings reflecting in the P&L, say, with a lag effect? How do we see the growth trajectory in terms of the P&L based on the three drivers?

[Ravi Jalan, executive]

See, like I said, in terms of the overall, the cost initiatives or the new project of -- what we call, your vacuum salt or the salt yield, sodium bicarbonate, which we have just discussed, you will see, as compared to '23-'24, '24-'25 will have a jump into the volume, primarily because, as you know, some of the volumes we have lost in this year, and we have an annual shutdown also in October '23, and that will also have some impact on our volume. However, we will not have these issues in the '24-'25. So therefore, there could be around 50,000 tons, 60,000 tons, which is almost around, you can say, 5% to 6% of the volume growth will happen in '24-'25.

[S. Ramesh, analyst]

You mean FY '25, volume growth?

[Ravi Jalan, executive]

'24-'25.

[S. Ramesh, analyst]

Okay, FY '25. Okay. And so in terms of the lag impact of the reduction in energy cost and freight costs, should we wait for the fourth quarter? Will you see some of that occur in the third quarter? Because you said it'll take about 2 months for you to get the benefit of the new inventory at the current cost.

[Ravi Jalan, executive]

Like I said, like energy is a basic raw metal, where some benefit in the start -- you have seen in this quarter also, some benefit has come. This benefit will be there in the next quarter and this will be -- but full potential will come only in the fourth quarter.

[S. Ramesh, analyst]

Fourth quarter, okay. Just one last thought, if I may. In terms of your capital cost for the greenfield expansion for [ 3,25,000 ], I understand is about INR 3,000 crores. So if you work based on the current EBITDA per ton, I'm getting a return on capital at the EBITDA level of around 10%. So how do you see the economics of that project based on the capital cost and the return on capital employed? What are the kind of target you have in terms of ROCE there?

[Ravi Jalan, executive]

See, as you -- very, very right question you've asked, you see, when we have taken this calculation of the greenfield project, we have taken on the basis of a long-term EBITDA margin, which has been generated on this project -- on the existing project. And based on that, we have done that, and the IRR is coming around 16%, Raman?

[Raman Chopra, executive]

17%.

[Ravi Jalan, executive]

17%. Because in this project, please understand one thing, we have to kind of look at this project of a life cycle of more than 100 years. So keeping everything into mind, the return on IRR is coming to around 17%. And we have given it -- like I said, we have taken a long-term EBITDA margin on that. We have not taken an upside on the margin, whereas historically, if I go back, if I look at the 15 years of the data of our numbers, you will see that the EBITDA per ton has gone up year by year. We have not factored that also into account. So keeping everything into mind, as -- see, you have to be always in the business, and you have to keep on investing into the business, which we have been doing over a period. You have seen that I think we are the only player where we have continuously made an investment into our business, and which has given a kind of a number of the profitability, what we have. So keeping that into mind, I think this project definitely justifies of an investment.

[Operator]

I now hand the conference over to the management for closing comments. Over to you, sir.

[Ravi Jalan, executive]

Thank you very much. You see, basically, I just wanted to kind of close my comments with a remark that in this business, we have seen in the last 15, 20 years, this business has been quite stable. Some small blip had happened in quarter-to-quarter basis. But in the long run, the margins are very range-bound margins, which is ranging from 28% to kind of a 34%, 35% kind of a margin, very consistent margin in this business in spite of lot of volatility. Of course, in this business, we have not seen a major volatility in last 15, 20 years.This volatility or the reduction which you are seeing is primarily because in '21-'22 -- after '21-'22, '22-'23 was a kind of an abnormal period. And in that abnormality, the supply chain was completely globally disturbed, that has given a kind of a enhanced margin, which is now, in a way, I would call it, which is coming to the level of natural margins. And this kind of a margin will be maintained in this business. And I'm sure that we will be able to do the good work on the cost side, on the supply chain cost wise and on innovation-wise and keep on investing the money into the business to grow the business. And that initiative will continue to create the value for our shareholders.With these words, thank you very much for participation.

[Operator]

Thank you, sir. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.