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GHCL Ltd
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Ladies and gentlemen, good day, and welcome to Q2 FY '21 Earnings Conference Call of GHCL Limited, hosted by Emkay Global Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Rohit Sinha of Emkay Global. Thank you, and over to you, sir.
Thank you. Good evening, everyone. I would like to welcome the management of GHCL and thank them for giving us this opportunity. We have with us today, Mr. R.S. Jalan, Managing Director; and Mr. Raman Chopra, CFO and Executive Director of Finance. I would like to take this moment to congratulate the management on delivering better-than-expected performance amid this challenging environment. We hope that positive performance trend to continue in the coming period as well.I would now hand over the call to the management for the opening remarks. Over to you, sir.
Thank you, Rohit. Good evening, and a warm welcome to all of you on today's earnings call of Q1 (sic) [ Q2 ] FY '21 results. Raman, our CFO; and Manu and Abhishek from the Finance team accompany me for this call. At the outset, I hope you and your family are safe during this challenging time. At GHCL, the safety of our employees remains our key priority, and we are taking appropriate measures.The global market has been impacted by the COVID-19 pandemic leading to demand erosion, particularly in Q1 FY '21. However, green shoots are now visible in economic activity across the globe. With a gradual unlock and easing out of the restriction in India, economy has started to rebound and business activities are returning towards normalcy.In soda ash, domestic demand is reviving, and capacity utilization for the Indian soda ash manufacturers has improved to around 85% to 90%. In end-user segment, detergent was least impacted. Glass industry has also witnessed a good revival and operating at around 80% to 85% capacity.While flat glass industry has improved due to revival in construction and auto industries ahead of the festive season, container glass is also showing faster recovery relatively to FMCG and pharmacies. Though weaker sector is still facing subdued demand, based on our assessment of this current situation, we believe that we will be able to attain normal utilization level in coming quarters.In Textile segment, both our home textile and yarn business have performed well. Home textile industry has witnessed a pent-up demand from our key export market as people are staying at home, spending towards the health and hygiene. Yarn demand has picked up quite strongly on the back of robust demand from user segment, especially home textile.There is a upward pricing trend for both cotton as well as yarn. As we stand today, the next half year looks to be reasonably good, and our overall textile performance for this year is likely to be significantly better than the previous year. However, long-term sustainability of this demand for home textile would most likely be known in the next few months.The demerger process of our textile business is well on track. We have received the communication from CCI in late September, which confirmed the scheme. Further, the stock exchanges have forwarded the scheme to SEBI. We are awaiting for SEBI approval, post which we will be filing the application with NCLT. We are sticking to our initial time line for 12 to 15 months.The resurgence of COVID pandemic in certain countries is a matter of concern. However, we are trying to combat the adverse impact on our business by focusing on operational efficiencies and managing costs, including finance costs.Our endeavor is to remain agile and adopt as per evolving situation. I would now request Raman to discuss this quarter's financial performance.
Thank you very much, sir. Good evening, everyone, and a warm welcome to all of you in our Q2 earnings call for FY '21. I hope all of you are safe. I will briefly cover financial highlights for the quarter and also take you through the segmental performance.Revenue for Q2 FY '21 came in at INR 779 crore as compared to INR 826 crore in the same period of last year. Year-on-year, there is a decline of 6%, which is attributable to softer realization in soda ash and lower operations.Having said that, I am glad to underline that our manufacturing plants are gradually moving towards normal utilization levels across both chemical and textiles. This is reflected in our sequential revenue growth of 77%, up from INR 440 crores in Q1 FY '21.EBITDA for the quarter stood at INR 162 crore as compared to INR 203 crore in Q2 FY '20 and INR 84 crore in Q1 FY '21. Consequently, we achieved EBITDA margin of 20.8% for the current quarter as compared to 24.6% in Q2 FY '20 and 19.1% in Q1 FY '21. The profit after tax for the quarter stood at INR 78 crores compared to INR 122 crore of Q2 FY '20 and INR 17 crore in Q1 FY '21.Let me now share the segmental perspective. In the Inorganic Chemicals segment, we have reported a revenue of INR 482 crore during the quarter, which is down 11% as compared to INR 542 crore in Q2 last year. EBITDA for the quarter came in at INR 119 crore as compared to INR 179 crore in Q2 FY '20, which translates into EBITDA margin of 24.6% in Q2 FY '21 as compared to 33% in Q2 FY '20. The primary reason for this decline was reduced soda ash realization by 13%.We have registered strong performance on a sequential basis on the back of revival and demand of user industry, and accordingly our segmental revenue is up by 39% from INR 346 crore, while our EBITDA is up by 49% from INR 80 crore.Moving on to the Textile segment. If you would recall, we were severely impacted in Q1 due to lockdown. However, this segment has bounced back strongly in Q2 on back of pent-up demand in our key export markets due to health and hygiene factors. Revenue stood at INR 297 crore as compared to INR 283 crore in Q2 FY '20. Also, EBITDA came in at INR 44 crore as compared to INR 24 crore in Q2 '20 -- FY '20, translating into an EBITDA margin of 14.7% compared to 18.6% in Q2 of last year.Compared to preceding quarter, Q1 FY '20, our revenue has tripled from INR 94 crore, and EBITDA has increased manifold from INR 4 crore to INR 44 crore. We generated INR 161 crore in cash profit after tax in first half and were able to reduce our working capital by INR 139 crore. This cash flow was utilized to lower the debt by INR 245 crore and INR 134 crore was spent on growth CapEx, whereas INR 21 crore was parked in short-term investments. We have also achieved a reduction of 20% in finance cost as compared to Q2 of last year through prepayment of high-cost debt and reduction in interest rates.That concludes my initial comments. And now I would request the moderator to operate -- to open the forum for question and answers. Thank you very much.
[Operator Instructions] First question is from the line of Navid Virani from Concept Investment Wealth (sic) [ Concept Investwell ].
Hello? Am I audible?
Yes, yes. We are listening you.
Yes. So just wanted to understand that when will the -- when do you expect the price erosion in the inorganic chemical segment to normalize? And when can we expect margins to come back to normal?
It is -- as you've seen that in last few quarters that the prices have dropped, and -- but in the last, I would say, 2 quarters, the prices are almost stable. So my understanding at this point of time, for next 2 quarters, we should assume the similar price to remain. However, some improvement you will see in the cost structure, and that will improve a little bit of your margin. '21, '22 probably should be seen as better years. However, I would say that we have to wait for some more time to really get a clear-cut guidelines on how does the number look like in the '21-'22.
Okay. And sir, my second question is on how much of these cost savings, which we have achieved, is sustainable? And how much of it is expected to come back once things normalize a bit more?
See, cost optimization entirely depends on the 2 things: one, how best you run the plant, like you've seen in the first quarter, we ran the plant only about 50%; in this quarter, we run for 86%. And going forward, my understanding is it should come to the normal production or the normal utilization. So that will definitely improve the cost per tonne. Second advantage, which is there, which is our pricing of utility or energy. That is, at this point of time, lower. And my understanding is, at least for the next 2 quarters, I see those prices should be in the same range.
Next question is from the line of Riddhesh Gandhi from Discovery Capital.
Congratulations on recovery staffing. Just have a couple of questions. Firstly, can you just update us on what's happening with the anti-dumping duty? Has it been implemented? Is it executed? Is it already reflecting in prices? And also on the, I mean, demand/supply with regards to imports of soda ash?
Riddhesh, see, first of all, on the antidumping duty, as I have updated in the last call, antidumping duty's application has been -- or recommendation has been forwarded by the Commerce Ministry to the Finance Ministry, and still no response or no final approval has come from the Finance Ministry. We're yet to -- we are still waiting on that. Normally, it does not take that much of time, but it's almost more than 2 months. So definitely at this point of time, we are not -- we don't have any clue why it is getting stuck up at the Finance Ministry. It has not yet been cleared.And obviously, when it has not been implemented, the reflection in the price is not yet there. As you know this antidumping is only a preliminary duty. Once implemented or once approved by the Finance Ministry, it will be applicable only for the 6 months. However, the final duty is going on in the Commerce Ministry, and hopefully I think in the next 2, 3 months, the final duty recommendation will also go to the Finance Ministry. This is the current status of the soda ash.
Understood. And sir, if we look at overall global demand and supply of soda ash, do you have any view on effectively how do you see overall demand growing? And if there's any incremental capacity, which is expected to come on stream? And also Ramanji had indicated about INR 35 crores of the growth CapEx, if you could just highlight the areas due which we're putting in the growth -- actually CapEx, sir?
Yes. First of all, global perspective, China has recovered very well. And now in China, the demand has grown. And they are looking at a price -- some formality in the price has happened in China. However, other parts, Europe, also, I would say that at this of point is more stable. But U.S. and some parts, like your Russia and Iran, there's no demand. And more particularly in the U.S., the demand has not been revived and that is primarily because of their own domestic demand as well as the demand in the South American market, that has not revived.I would say that in the U.S., there is some surplus situation at this point of time. But overall, I will not say that at this point of time, if I take this entire globe that the demand has come to the pre-COVID level, no. And that is primarily because of U.S. and the 2 countries which I have said.And in terms of the import, you said imports in India has dropped as compared to the last year. However, my understanding is imports will be proportional to the demand or the market share what they have, they will continue to have that.
Got it. And overall, like global prices are -- have been -- if we were like -- if you were to look at it over prices compared to, let's say, last year, and if we were to compare average realizations of Q2 and the prices where we are right now, could you give us some indication on that?
Yes. See, last year, the prices in the same quarter versus in this quarter, there is almost a drop of around 13%. However, like I said, these prices are now stable. I personally believe that the prices have come to the rock bottom. Now I don't see any further reduction from here. However, in the next 2 quarters, I also don't see too much of improvement also into the soda ash pricing. And it all depends on how does the antidumping duty goes. If it goes, then probably maybe in the last quarter or in the first quarter of next year, some improvement you can see in the pricing. But like...
Pricing, actually, I mean, decreases had already started from Q3 of last year as -- I think it is 13% lower than Q2 average, but effectively, Q3 would have already been slightly lower. So going forward, the price implication will not impact as much? Is that accurate in the way of looking at it?
Yes. I think it is -- yes. Further price implication will not be there. That is what you're 100% right. And the prices should be more or less on this level. The second question you have voiced -- the INR 35 crores which we have spent, we did primarily spent on soda ash, mostly, I would say 90% -- more than 90% I think we spent on the soda ash only because we know that another 50,000 tonnes and -- another 50,000 tonne is in the pipeline. So we have started spending the money on those -- on that growth.
And it would be expected to come on stream in how long, the incremental 50,000 tonnes?
Yes, the actual capacity will be there of 50,000 tonnes.
No, no. But I think that would be from actually which quarter onwards, would we expect it to start from?
Next, means -- April onwards, you can see that, that will be fully operational as -- early April.
Got it. And the incremental EBITDA, which we earn on this new CapEx is also materially higher, right? I mean the gross margins are high, so effectively, it would be north of 40% EBITDA on the incremental CapEx, which we do, right?
Yes, yes. 100% -- you are 100% right.
Next question is from the line of Mr. Resham Jain from DSP Investment Managers.
Congratulations on good numbers, actually, in tough times. Sir, I had a few questions. So first is, this new -- or the soda ash margins, which we have seen in quarter 2, it might also be lower because of lower utilization. So is it possible for you to help us with the impact on margins because of lower utilization?
See, Reshamji, there are 2 things I just want to highlight; one, definitely, as you rightly said utilization does impact the margin per tonne, definitely makes that impact; and second also, as you know that, I have said in the past calls also, that your second -- the quarter 2 is normally where the raw material costs are on the higher side because of the rainy season in terms of the overall efficiency of the raw material is lower. So both these put together definitely is going to help in terms of improving the per tonne margin going forward.
Okay. Understood, sir. So quarter 3, this will normalize raw materials also and some of the operating leverage also will kick in? Is that a fair assumption?
Yes, yes, it should improve. Your -- the margins should improve.
And sir, this new capacity, 50,000 tonnes, which will come by March, how much CapEx has been incurred already? And how much is left for this new capacity addition?
Raman, do you have this...
So ultimately INR 170 crore has already been spent.
INR 170 crore had been spent and balance we have to spend, how much INR 120 crores?
No, balance, this year and then something in the year also. So all put together, totally around INR 350 crore is the total spend.
Total spend is around INR 350 crore, out of that INR 170 crore has been -- we are talking per 100,000 tonnes, okay? So out of this 100,000 tonnes, we will -- have already spent INR 170 crores and roughly around INR 180 crores further will be spent on this thing in the next 2 years, this year, this 6 months, as well as next full year.
Okay. Understood. And sir, on home textile, last quarter, you mentioned that our customer profile doesn't have some of the large-box retailers and possibly compared to some of the other industry players, we are not very well positioned. But when we actually saw the results, the results are actually looking much better. So if you can help us with what has happened in the last 3 months from the customers' perspective, given that we had a lower exposure from some of the large-box retailers?
No, you're right. And the position remains the same. Our large-box retailers are same. We have not got any new customers, I would say that. But because of the pent-up demand, the volume had gone up, number one; second, we have also done a lot of cost optimization also, and we have used some of our capacity for domestic usage as well. All this put together has improved our overall margin, our overall bottom line. And my understanding Reshamji that going forward also, we will be in a better position than what we were in the last year.
Okay. And sir, given the current demand conditions in home textile, has our customer profile seen any change? Because they are also looking out for incremental quantity being supplied to them. So any comments over there in terms of any changes in our customer mix?
See 2 things. One, like I said, next 6 months looks to be good for overall home textile business for us. And how does this COVID and work from home and overall the benefit which is being given to the U.S. citizens by the U.S. government and election in November, all these things will determine how does the demand -- whether this demand grows. And one more reason of this demand growth which we have seen in the last 3 months was primarily because first 6 months -- first 3 months of last year, last year means first -- I am taking about the last January, February, March and April, May, June, these 6 months there was a lot of demand degrowth was because retails were stopped or closed and things like that. So there was an -- inventory misbalance was also there. So keeping everything into mind, my understanding is we have to wait and watch to see that next year how do you see the demand likely to happen. But these 6 months looks to be good.
Okay. Understood, sir. And sir, my last question is on the overall textile business, which is going to get demerged, it would be good if you can give us slight maybe next quarter or so on what will be -- because, as of today, it's a smaller portion of our overall business, but what will be the growth path, or what will be its own path over the next 3, 5 years?Because currently, it has just 2 divisions. And the current intent was that we don't want to invest further in textile. But once it will get separated, it will have its own course of action. So it would be good for us to understand how are we looking just textile business as a separate unit, that would be very helpful, actually.
No, no. Surely, we will present that view. But at this point of time, let me tell you what is the thought we have in our mind is, the textile business will have their own journey, and we are making that separation with a very healthy balance sheet of that company and to ensure that they have a growth opportunity into their business. In terms of the debt, we will have a very reasonable debt on that company whereas the assets are definitely much larger than the debt, which we are transferring to them.And the way I see the business Reshamji, I see personally that definitely they will have a good opportunity of growth because I see textile -- spinning will also do better going forward now, even the home textile will do better going forward now. So both this put together, definitely, they will have -- at least, they will have resources to grow. And with the right management input, I think probably they will have that journey. But detailed presentation, we will make to the investors in the next few months.
Okay. Sir, that would be helpful. And sir, just 1 bookkeeping question. Textile debt as on March end was INR 470 crores gross. What is this number as on September end?
INR 410 crores.
Next question is from the line of Rohit Nagraj from Sunidhi Securities.
Congrats on good performance on a sequential basis. Sir, the first question is regarding the domestic demand. So during last con-call, we had suggested that for domestic demand for this year in terms of soda ash would be down by the 12% to 15%. Now given that half year is over, and we have seen second quarter has been quite phenomenal, what is your expectation in overall industry in terms of this demand?
See, if you look at, as you rightly said, 6 months, if you look at the first quarter, the demand was almost around 60% broadly, okay? In this quarter, it is roughly around 85%, broadly I am giving you the number. My personal belief is in next 2 quarters, this would be normal demand. So you can calculate on that basis, probably that 10% to 12% number, which we have said or 12% to 15% number we said will be slightly on the lower side, maybe 8% to 10% kind of a number should be hitting for the overall demand of soda ash.
Right. Sir, second question is in terms of the EBITDA per metric ton. So how this metric has improved on a Q-o-Q basis? And what is it on a comparable Y-o-Y basis for soda ash business?
See, overall, the EBITDA per tonne has not improved, vis-à-vis -- I would say, it is much lower than if you look at the same quarter. And as compared to the last quarter, definitely it is better.
Okay. Okay. Sir, -- and on the home textile front, you have just answered for the previous participant as well that second half is going to be quite healthy. But given that some of the countries are facing now second wave of the pandemic, and it could have, again, impact in terms of exporting with the product from India to other countries. So how confident are we that we'll be able to supply the product and fulfill that demand in the second half?
See, based on our assessment at this point of time, we believe that this -- of course, the COVID resurgence is happening. But the way I have seen the situation, my understanding is, we are reasonably confident that next 6 months would be -- because see at least 2, 3 months of the visibility is very clearly being seen by the industry. My personal belief is it should -- for this 6 months, probably things should happen. But you don't know in this volatile market, something drastically happens wrong, then I can't say. But based on our assessment, reasonably, I have the view this 6 months would be reasonably okay.
Right. And sir, is the second quarter growth is predominantly due to pent-up demand? Or is there any other factor like probably some of the players are out of the system as of now due to the pandemic or maybe some issues and that's why we are getting benefited from this, they going out of the system?
Not really. You see like -- if you look at the home textile total, not our company, if you look at the total, there is -- every company in the home textile has shown a good growth in their numbers. This is on overall demand growth, which is primarily pent-up demand, number one.Number two, the people are living at home. And obviously, when they're living in homes, their focus is more on the home. And therefore, home-related products, there is a good growth in the demand. So I personally believe this demand is -- and third like I said, overall, the inventory because first 6 months, last year's fourth quarter and this year's first quarter, there was a disruption in the supply, that has also helped in this quarter the numbers to -- had gone up. This is the real demand, I would say.
Right. Right. That's good to hear. Sir, just last clarification. Chinese soda ash prices have gone up in last quarter. So in Q2, they have gone up on a month-on-month basis, and now I believe that they are touching close to about $230, $240. So have you seen any impact from that on domestic prices because you have completely suggested that you believe like Q3 and Q4 of flattish kind of pricing?
No, no, you're right. The Chinese prices had gone up in the last few months. And -- but the impact of that has not been felt on the Indian pricing at this point of time primarily because of Iran, Russia and the U.S. There, the prices has not improved. And as you know that China has never been a major supplier to the Indian soda ash consumers. But yes, if the situation continues, then probably, you will see a positive trend into the pricing because, ultimately, in any case, China is controlling almost around 40% of the total demand of the globe. If there is a firmness in the prices, definitely, that will help the Indian prices ultimately.
Next participant is Saket Kapoor from Kapoor and Company (sic) [ Kapoor Stock Brokings Private Limited ].
Congratulations, sir, on a neat, tallied set of numbers. [Foreign Language] Sir, firstly, sir, as the figure asked about the debt number, it is INR 410 crore for the home textile debt on the books. This includes the working capital as well as the long-term debt.
Everything.
Everything. Sir, if you could give some more color on the -- how have been the finance costs and the depreciation for the home textile segment for the first half, sir, a split up of the sale?
In terms of the interest cost of the textile?
Yes, sir. Interest and depreciation.
See, interest is also down by almost around -- if I look at the same quarter last year, it is down by around 33%. And depreciation is more or less same.
Sir, I am asking about -- which is attributable to the home textile, how much -- out of the total interest cost of INR 24 crore for this quarter, how much is attributable to the home textile and out of the depreciation also, I wanted the split between the home textile and the soda ash?
Saketji, we don't give -- we don't have separate number of the spinning and home textile separately.
Okay, sir. Sir, request is there, sir, since CCI have now given clearance and we are moving ahead as per our program. So if feasible and if it's in the ambit of all regulations, please be share -- it would be good, sir, if that data can be shared, sir, and we can have an understanding of how both the segments are shaping up in respect of finance costs. Though, it is not very significant, but still, it will give more clarity.Sir, if we come to the inventory write-offs, sir, which we took in March, sir, of around INR 20 crore, can -- with the improvement in the business sentiment, are we expecting any reversal on account of that, sir, going forward?
See, Saketji, what -- our focus is more on how do we reduce the working capital. And I think we have done a good job on reducing the overall working capital deployment into the textile business. And in terms of reversal, we will see at the end of the year how the situation pans out, and then we will decide about it.
Right, sir. Sir, for the U.S. market in particular, sir, you have mentioned in your presentation also that inventories are on the high side -- are higher due to the lockdowns and the production has been cut back by 30%. Sir, is it mainly because of the COVID factor? Because what we read in papers is that the industry is -- the industries are not being affected to that extent in U.S. as has been the case in our country. This is what my very little understanding.So just wanted to understand what is the -- is there any structure probably -- and there is also the natural soda ash part being played in the U.S., so how will this shape up, sir, going forward? Because we are getting the second wave also in full force in the continent.
No. Saketji, in terms of the inventories, I'll talk about the global inventory of soda ash. Frankly speaking, the soda ash inventory has gone down since last 3 months, including in U.S. also, the inventory has gone down. Things are better than what it was in the month of June or July, okay? Even in China, U.S., everywhere, the inventory has gone down.In terms of the COVID what we said, I have already given my view on this, that I don't see personally that there'll be much significant impact of the COVID resurgence on the overall soda ash demand in my understanding. So I personally believe that things are now better, looks to be better as compared to what it was in the first quarter. We've seen in the second quarter a bit better, and I think it should continue to be better going forward also.
[Operator Instructions] Next participant is Kaushal Shah from Dhanki Securities.
Sir, if you can just throw a little bit more light on the soda ash segmental demand, how are the various segments doing? And which are the areas where you've see a revival in second quarter? And you earlier mentioned that going forward, we expect better demand and also better per tonne EBITDA. So if you could just throw some more light, sir, on which are the key sectors which are driving some demand revival?
Yes. See, detergent, as I mentioned in the past also that in the detergent, we have not seen any demand degrowth. However, currently, the -- and my personal believe is that is primarily because of the inventory adjustment. This small drop is being seen in the detergent demand. But overall, you can say this year, there will be kind of -- demand will be muted demand as compared to the last year.In terms of major driving force is more on the flat glass. The flat glass, which was in the first quarter was almost very little, maybe 20%, 30% kind of a demand is now already reached to the level of around 85%, 90%. And my belief is that going forward, there will be a further improvement in the demand of the flat glass.Even in the bottle glass also, there is an improvement in the second quarter. And my personal belief is that even in the bottle glass also, there will be an improvement going forward also. Overall, glass will be the major contributing factor for the demand growth, which has happened in the second quarter and that will continue for the third and fourth quarter as well.
Sure. And sir, last year, FY '20, we concluded the year with around, I think, 10 lakh tonne production. So now that half the year is past, and there is some visibility, some clarity, is it possible for you to kind of give some indication about the likely volume number for this year? And also, what are the likely imports that you see? First quarter imports were a little weak. In second quarter also, you've talked about soda ash import. So how do you see imports and your own soda ash volume, some clarity on that, sir?
See, if you look at the overall total demand of the -- total demand, my understanding -- on my production, I would say that roughly the production will be in the range of around -- roughly around maybe 880,000 tonnes kind of a thing. And in terms of imports, like I said, first quarter was weak, second quarter also has been a number lower than the last year.And my understanding is, going forward, it could in be the same range what it was last year, means, you can say, overall, they'll maintain the similar kind of a market share of 23%, what they had last year, they will maintain the similar kind of market share. So demand -- both along with the demand growth, the import will also improve.
Right, right. So on the home textile, just one last question, by the end of this year, you have said that the next 6 months are very good and looking good for the textile business. So by the end of this year, let's say, March 2021, do you anticipate that we will be closer to full utilization in the home textile or we still have some room for expansion?
See, 2 things. First, on the performance, which I said, spinning, my understanding is spinning will do better than what it had done even in this quarter. I think spinning will do better. And home textile will continue to do better for the next 6 months. So overall, as you rightly said, performance in the next 6 months should be better.In terms of the utilization, see, currently, as I said, we are using some of the capacity at this point of time for domestic purpose as well, which ultimately does not give us the same margin, but it definitely utilizes our complete assets on that.And at this point of time, I personally believe we are almost -- we will be using around 80% of our utilization based on these 2 parameters. So still, we will have a scope of around 10% to 15% kind of volume growth. But at this point of time, we are not looking at any investment into the home textile during this year. So we will see that this investment -- whatever the utilization we have, that gets stabilized and continues to be stabilized, then we will look at any possibility of investment.
[Operator Instructions] Next question is from the line of Rajeev Agrawal from DoorDarshi Advisors.
The first question is you've talked about that you have retired high cost debt. So what is our average cost of debt that we have on the balance sheet? And how do we see that trending for the rest of the year?
See at this point of time, our average cost is roughly around 9%, approximately around 9%. And of course, we have repaid some of the high debt costs, which was in the range of around 9.9%, 10%. And this, I'm talking about -- when I say 9%, this includes your gross -- means, we have certain advantages of the commensurate schemes and things like that. So we are not accounting for that.So 9% is my average interest cost. In that, the fixed loan will be roughly -- the long-term loan will be in the range of around, I think 9 -- do you have that data with you?
Yes. But long-term will be appropriately 9% and short-term will be around -- greater that, it will be lower.
I'm sorry, I think the long-term debt is around 9%; whereas, the short-term debt is roughly around...
Around 6%, 6.5%.
6% to 6.5%.
Yes.
Got it. Got it. And do you see that continuing to come down for the -- as you progress during the year?
Yes. I think you will see that the improvement will be seen going forward.
Got it. Got it. So that has been pretty good news, especially the fact that we have been able to pay a lot of debt in the first 6 months. And do you have any sense on where we end up with the gross and net debt for -- by the end of the year?
See, my understanding is, we will be in a position to pay another INR 100 crores in the next 6 months.
Got it. Got it. Okay. Great. So that's good news. Now just moving on to soda ash, when I do the back-of-the-envelope calculation, it seems like our realization was around INR 20,000 per metric tons, am I in the ballpark or...
You are talking about the realization for soda ash?
Yes, for soda ash.
Yes. Actually, it will be lower than INR 20,000. The peak has gone to INR 21,000, and it should be in the range of roughly around INR 18,000 broadly.
Okay. Got it. And as you said, now INR 18,000, you think this is the bottom and if you -- we possibly will be around this range for a little while and then things should improve, right? So as you think though the -- we have hit the bottom, the margins should improve because of the cost efforts that you are putting on your side?
I think so, yes.
Got it. Got it. And I think given your guidance for around 8.8 lakh metric tons of soda ash, that basically tells me that you are looking at pretty much 90% to 95% capacity utilization in the next 2 quarters of soda ash. Is that again -- I just wanted to confirm that I'm understanding it correctly, what you mentioned on the call.
Your understanding is correct.
Okay. Fantastic. Okay. And then on textile, as you pointed out, we have done well. The industry has done well. As I look at other players, almost everybody is doing very well and that is because of the pent-up demand. But how much better can it be on the textile? Do we think we are at a good level in textile? Or we can continue to improve from where we are on the margin side, like EBITDA margin side?
See, my understanding is, like I said, in spinning, there will be further improvement from here onwards because of 2 reasons: one, now the garment has also started picking up. Earlier, it was only the home textile side, now the garment demand has also started picking up; and the second, I think there's some issue in relating -- in the Chinese, some of the retailers has kind of denied to have the product from one of the particular region of China. So because of that, there could be some kind of a pent-up demand in the garment also that will definitely help the spinning industry overall. And that is being seen now.So I think spinning should do better than what it has done in the last quarter, in Q2. Home textile, I would say, that these numbers are the performance what we are seeing, so these numbers should be maintained in that range. Overall, things should be better.
Got it. And just lastly on the cotton side, how is that looking? How is that impacting your outlook on textile?
See, very rightly, you said, if you look at last year, the same -- almost same period, the prices of the cotton, the price has come to the same level or slightly higher than that level, in between the prices in the month of June, which was on the lowest. So after that, the demand has picked up in the textile, the cotton prices have also gone up. So today, it is on the pre-COVID -- I would say, the same price as the same it was last year. So definitely, that will have some impact on the cost. But on the other side, good part is, yarn prices are also improving. So that will help in terms of maintaining the margin in the spinning business.
[Operator Instructions] Next question is from the line of Srivastava Venkat (sic) Srivatsa V. from UTI Mutual Fund.
Yes. Sir, I had a question on the sodium bicarbonate business wherein we have talked of good growth opportunities because of the SGD opportunity and all. So any update on that, sir, how much we have done on that part of the business? And how are things shaping up there?
No. Mr. Srivatsa, I have -- nothing has happened on that account because you know that because of this COVID, some of the customers and more -- mainly the PSU, they have started the trial, but in between they have stopped that. So at this point of time, we have not seen. When the things becomes normal, as I said, -- this is a slightly, I would say, longer-term vision. Once the utilization start happening for the flue gas, then there will be a pickup in the demand of the sodium bicarbonate. But this quarter or next few months, I don't see any major improvement happening because of that usage.
Okay. And sir, on the soda ash part, we have suffered a decline in the realization. And this has also coincided with the ramp-up of a key competitor in the last 12 to 18 months. Sir, is this decline attributable to some kind of discounting done by the competitor because he needs to sell his capacity or it's more in line with the global prices, and there is no evidence of any kind of undercutting there, sir?
You see, whenever -- Mr. Srivatsa, whenever there is an oversupply situation, definitely undercutting happens, no doubt about it. Everybody wants to sell their maximum, that do happen. But I would say that this drop in the prices is primarily because of the overall global scenario.
Okay. Okay. Okay. And sir, on this new proposed, I mean, greenfield capacity, while we have kind of deferred it until such time, the COVID impact has gone, but any thought on it, at what time frame you would want to revise it? And how would you like to go forward? Because the way I see it is, I think post in '22, '23, again, you will be short of volume. So we need something to keep us going from '24, '25 onwards, so we need to plan at some point. Any time line you have or any kind of other indicators that you would give by which you would actually start looking at the new growth CapEx on the soda ash part?
No, your point is valid because if you look at -- even if there is a growth or demand growth of around 5%, you reach -- roughly, you'll reach around 200,000 tonnes of extra production and this extra surplus situation what it has will get finished in 1 or 2 years. And after that, definitely you'll need to have that. But like I -- you rightly said, because of this COVID at this point of time, we have paused.And -- but on the other side, our efforts on land acquisition and all the other approvals, that continues. We have not stopped that, so that we are ready. And once everything is -- all this land acquisition and every approval is there, it will take almost around 2, 2.5 years to complete the project. We are trying to first complete our land acquisition and other approvals. Once that happens, then we will define the time line because it is taking time.In the land acquisition, definitely, it is taking a lot of time. We never thought that land acquisition will take so much of time. Of course, COVID has also made some impact in that, but land acquisition is taking much more than what we thought of the time.
Okay. And sir, my final question is on the spinning side, where you've alluded to very good margin in the second half. But my question is on the broader -- or I mean, more on a long-term basis, sir, given the fact that this industry has seen challenges and a lot of small spinning mills are at the verge of closing down or there is one big spinning mill, which has already closed down in Gujarat. So do you see some big consolidation happening in the sector? And given the fact that not many players are putting in new capacities, which may lead to some kind of a structural increase in the profitability in the medium term?
See, your point is valid. In terms of overall -- some consolidation may happen. But you see this industry, or this spinning industry in a manner, entry barriers are very low in this. Whenever the situation becomes better, you will find some new people are coming in or the existing people are adding some capacity. So it's a very low barrier journey.But for us, our journey is completely different. We are doing in a different way so that we always have competitive advantage vis-à-vis these kind of commodity players. First of all, our cost structures are very, very competitive. And I can say that overall, if you look at historically, you'll find our EBITDA margins are much better than the industry level because of our past restructuring, the way we invested the money in the machinery or the way that -- on the energy and things like that. So that is one.Second, we are moving from a commodity space to the value-added space. We produce a lot of value-added product. Value-added product, by means I say, in yarn only, but in a different segment. And that definitely improves our margin, our realization. So these are the 2 journeys, which we are going on this. And I am sure that the competitive advantage of ours will go -- will improve it from here onwards also.
Next question is from the line of Tarang Agrawal from Old Bridge Capital.
I have a couple of questions. First on, ADD. I wanted to get a sense of which country imports has the ADD been requested? And what could be the quantum of ADD? And what was the underlying reason? I mean were these countries actually dumping the soda ash at prices lower? So that is the first question. And the second question is, you -- to an earlier participant, you said that the average cost of debt for you would be less than 8% currently. So what would this trigger the -- at the same time last year? And how is that growth? And the third is, you said that your margins in the domestic home textile industry is lower, so who would your customers be in this industry?
So first question, which you spoke about, what was the question, I'm sorry, can you repeat it?
Antidumping.
Yes, antidumping. Let me -- yes, antidumping basically, there are 2 countries on which antidumping has been recommended, which is U.S. and Turkey. And obviously, the antidumping always is only being recommended when the people are dumping and the product price is lower than the price at which they sell into the other markets or they are dumping at a price, which is injurious to the domestic industry. So that recommendation has happened only because of that.And this time, the recommendation is more on a benchmark duty. That means if they export -- the import comes into India from that country, from both these countries, is lower than $275, then the difference between the import price and the $275 will get into the antidumping duty. When I say $275, this includes the regular normal duty, which is 7.5%. In effect, that becomes $263. So 2 -- if there is export less than $263, the difference between the import price and the difference will go to the antidumping duty.
So $263 becomes the floor basically.
Floor. Yes, it becomes the floor base. That was the one. Second, your question was on home textile, the domestic. You see, domestic -- yes, basically the product which we are produce -- we are supplying to our competition only. And there are many competition of ours. They are using -- we are supplying to them for their own export or for their demand.And what was the third question you had about the interest cost?
How much is interest overall basically?
Sir, how is your interest cost moved in the last 1 year? It's currently at maybe less than...
150 basis points, the rate has gone down.
Okay. Okay. And sir, what proportion of imports can be attributed to U.S. and Turkey, cumulatively?
You see, out of the total import, I would say, if I take the total number, you will find that around 35 plus your -- 50%, roughly around 50% comes from the U.S. and Turkey.
Next question is from the line of Sachin Kasera from Svan Investment.
Sir, you mentioned that 85% is the utilization for the quarter. On a month-on-month basis, did we significant improvement? And is it like in September, October, we are trending upwards of 90% in terms of utilization of soda ash?
Yes. At this point of time, you can say that we are almost around 90% plus.
Sure. Sir, next question is regarding the CapEx. So it was mentioned the total INR 350 crores CapEx for 1 lakh tonne expansion. INR 170 crores is done and INR 180 crores is pending, which will be spent in H2 of this year and FY '22. That's correct, that's understanding, correct?
Yes.
Yes. And apart from that, there's no other major CapEx as of now in soda ash?
No.
Land acquisition.
Land acquisition of the greenfield projects roughly could be around INR 40 crore, INR 50 crore.
Okay. Okay. So you also mentioned that you will be repaying another INR 100 crores of debt, that will be primarily in the soda ash division, sir, or it will be split equally between soda ash and textiles in the second half?
It will be both. It will be both. Our effort is also there to reduce the debt on the textile also.
Next question is from Sarvesh Gupta from Maximal Capital.
Sir, while if I take the utilization as a proxy to sales data, and if I use your overall inorganic chemicals revenues, then it appears that there has been some 18% Q-o-Q drop in realization for your soda ash business? So is that the right understanding or there is meaningful difference between the production and the sales data? So...
No, you are right. In terms of -- like I said, if you look at Q-on-Q, we have already given a specific number. The price drop is around 13%.
No. That is from this -- quarter 2 of this year to quarter 2 of last year. I am talking about quarter 2 of this year from quarter 1 of this year.
No, that is primarily because of the production and sales data. The current...
So what is the number, sir? How much we have dropped?
What is that? Price -- I have told you, price, there is no drop, very insignificant drop is there, around 1%, but it is more or less the same price. The balance, whatever the difference you are seeing, that is primarily only because of the -- your inventory or the production and the sales data difference.
So H2, are we expecting better prices? And have we built in the ADD impact on that?
See, ADD, I said, let the first ADD get implemented because it still is stuck up at the Finance Ministry level. Once that happens, then probably some improvement can be seen.
[Operator Instructions] Next participant is Dhavan Shah from ICICI Securities.
So I have a question on soda ash front. So I just wanted to understand the imports from Turkey. So given that the Turkish lira has been depreciation by at least 20%, so how much incremental imports have we seen for the first half from Turkey side? And what is the realization pressure owing to the depreciation of that Turkish lira?
See, Turkish lira, you're right that the Turkish lira has definitely depreciated and -- but because of that, I don't see any major drop in the pricing. And I personally believe that there should not be any drop in the price because ultimately, the overall debt structure is also getting impacted because of the Turkish -- because a major portion of that is on the foreign currency loan.So my understanding is, we are not seeing at this point of a time any major drop in the Turkish soda ash pricing. And in terms of overall, I would say that the Turkish import into India has slightly, frankly speaking, gone down as compared to earlier period.
Okay. Okay. And given that, the DGTR has recommended around 20% to 30% antidumping on these 2 countries, U.S. and Turkey, so do you foresee that this 20%, 30% can put you on the same page, like in terms of the production costs or maybe the selling -- on the realization front? Or do you foresee that the antidumping should be more than this 20%, 30%?
No. I think, first of all, let this antidumping duty get implemented. And definitely, like I said, if that gets implemented, definitely, that will have an advantage over the -- in the pricing of soda ash in India. Because prices, as you've seen, have 13% gone down as compared to what it was a year back. So definitely, there has been an improvement on that. And definitely, the Turkish and the U.S. products will become less competitive in India.
Next question is from the line of Sumant Kumar from Motilal Oswal.
Sir, my question is regarding, overall, you were saying the price is going to stabilize. And flat glass has already reached at 85% utilization. And other Asia industry is doing good. So considering all this factor, what is -- how things are happening for the contract soda ash price side?
See, the long-term contract, as you know, that the long-term contracts are not 100% of the total demand. It is roughly around maybe 15% to 20% of the demand is getting long-term contracts. Out of that, some of the contracts has already been finalized, and that has been finalized almost at the same price what it was last time.And some of the contracts are still under negotiation, which will get implemented from 1st of January. My personal belief is, there will not be any significant drop in those prices. So this prices of whatever the current prices, we will be in a position to close to that -- closer to that level.
Okay. So overall -- and how is the spot market when you're talking about inventory is lower globally and as well as in India, so from this quarter, we can see some strengthening in the prices. Can you quantify, are you sensing any price increase of couple of percentage from here in this quarter, coming quarter?
No, I don't think at this point of time, I would like to guess on that. Like I said, I would expect more slight stability for the next 6 months. And let's see how the things will shape up. But my sense at this point of time, I would have more on the stability of the prices.
Okay. So next 6 months, you are saying the price is going to stabilize here only?
Should be in that range, should be in that range.
And any increase in power cost could -- might impact also the margin?
I personally feel that power costs also are not seeing any impact or the upside on to the power cost also. Frankly speaking, for us, the power cost will be slightly lower down because earlier, we had that -- some inventory of the energy of the reserve -- 6 or 8 months back. After that the prices have softened. There'll be some reduction into the energy prices for us as a -- because of the consumption for a lower-price product.
Okay. So overall, inventory is lower and utilization is going to increase, so accordingly, demand is also going to increase. So that stability will be there in the price?
Yes, yes.
Next question is from Harsh Bhatia.
Sir, most of the questions have been answered. Just quickly on inventory. If you've seen in the last 6 months, it has reduced by almost INR 140 crores on a stand-alone basis to INR 580 crores. So just to understand where is this inventory reduction majorly coming from? And do we see any further reduction in inventory going forward? Or it will be mostly on the utilization level? Second question would be, if you could provide some color on the sales volume for soda ash, if possible?
Two things here. One, on the inventory, like you rightly said, INR 140 crores, primarily comes from both the businesses. Soda ash inventory has also gone down as well as the home textile inventory has also gone down. Soda ash has gone down from, sales numbers, almost around 50%, 50% from soda ash as well as from textile. And in terms of -- what was the second question you had? Hello?
Yes, sir, the second question was on soda ash sales volume. If you could provide some broad color?
It is almost, I would say, the same level what it was last year.
Next question is from Umang Shah from Edelweiss Financial Services.
Sir, I had 1 -- I had 2 questions. So on export front, if you could just explain how much of your home textile revenue is from exports? And suddenly, this quarter, we have seen a good jump in your EBITDA. Operational efficiencies would give such a huge jump and whether this efficiencies are sustainable? If you could just give me a brief on that, then I'll come to the second question.
You know in the home textile, as I mentioned, some of the -- almost around the total revenue, which we are seeing, major portion is coming from export number only. And -- but yes, we have been able to utilize the machines of the processing by taking some of the competitions' processing in our this thing. That gives you some, of course, lower margin, but that gives you a margin. So that was one of the factor that has improved our overall margin, number one.And the second reason is, a lot of cost also, we have taken down a lot of our fixed costs also and some of the variable costs also. So it was a very big focus on that total cost. So that has also helped.In terms of the sustainability, and the way, like I said, overall, the demand -- we see the demand, we believe that this should be sustainable. However, next year, how that things happen will be known only after a little bit of a stability comes in the next 6 months.
Okay. So the order book from our export market is in place, so quarter 1 might be the deferred to quarter 2 and early order book has been deferred by a quarter? Or this was a lump sum amount that given in this quarter and we could earn this revenue out of it. How does this -- how has this been...
No. I don't think it's more of an -- orders, always, you have a visibility of next 3 months. And at this point of time, my understanding is, we see a visibility of an order, and we will -- should be in a position to maintain these kind of margins.
Okay. And sir, in soda ash part of business, our majority of the clients would be large manufacturers and detergents. So detergent, you explained that the industry growth has been flat. And there is only some reversal in their inventory because of which there is some degrowth which we are looking at. But in glass, you said that in quarter 2, things have picked up and you are looking at good traction in H2 coming forward, that is the flat glass or bottle glass? Is my understanding right?
Very right.
Next question is from the line of Anish from Banyan Capital.
Sir, my first question is looking at your EBITDA degrowth in this quarter compared to revenue degrowth, so that has been much higher. So it implies that our EBITDA per tonne has gone down much more...
Anish, sorry to interrupt you. Can I request you to repeat your question a bit louder?
Yes, sir, my question is around the EBITDA number. So the degrowth has been much higher than the revenue degrowth. So this also implies that the EBITDA per tonne has come down significantly. So first question is to understand why does it happen? Is it only attributable to the pricing decline? And as we go forward, how do you see this moving in terms of EBITDA per tonne?
So, you very rightly said, the degrowth is primarily because of the selling price. As I said, the selling prices almost dropped by 10%; whereas the cost, we have been able to optimize to some extent, but still around 6% to 7% degrowth has happened. And if you are talking about the GHCL -- you are talking about the soda ash, am I right? Or you are talking about...
Yes, yes. About the soda ash.
You are talking about the soda ash. So if I look at on a year-to-year basis, means Q2 '21 versus Q2 '20, the revenue has degrown by around 11% whereas your EBITDA, the drop is around 8%. This is primarily, like I said, almost the sale is the same number. So out of this 11%, 3% will be -- so overall, that attributes to the drop in the -- this is primarily because of realization.
Sir, but as I see the numbers, the chemicals business, just the chemicals business, the EBITDA degrowth is like around 36% -- 33%. And the realizations have come down by 12%, so -- and this is, I think the number is given from the presentation and also the segment numbers, so...
No, no, no. Your numbers -- you're talking about absolute number, right? You're talking about the absolute number. And we are talking about EBITDA margin percentage. So revenue degrowth as a percentage is around 11%, okay? EBITDA margin has dropped by around 8%. Absolutely number -- obviously, the number will be -- because whatever the selling price drop is there, that will have a direct impact on the absolute number. The percentage will be definitely higher, means the...
Right, sir. So the follow-up question is, given our lower realization, and, let's say, if the realizations remain low going forward, can our EBITDA per tonne come back to FY '19-'20 levels and further grow on that because of the brownfield expansion that we are doing, right? I mean where I'm coming from is that, overall, our presentation says we are having 20% profit growth. So the question is where this is going to come from like over a 3- to 5-year period?
No, you're right on that, that at this point of time, definitely unless the soda ash prices go up, the improvement of that will not happen. So definitely the soda ash prices has to go up, number one; number two, second is the textile area, where we see an opportunity. So these are the 2 areas, definitely, that will bring an opportunity for us to grow.
Ladies and gentlemen, we'll take the last question from the line of Dhruv Bhimrajka from Bharti AXA Life.
Sir, can you please give the production numbers for sold ash for first quarter of '21 and second quarter of '21?
See, our production is almost around 100,000 tonnes higher than the first quarter and approximately the production is roughly around 235,000 tonnes and it was almost around 136,000 tonnes in the first quarter.
Okay. So 136,000 tonnes in the first quarter and 235,000 tonnes in the second quarter.
Broadly, yes, broadly.
The last question is from the line of [ Saket Kapoor from Harekrishna Securities ].
Sir, my first question is regarding our honorable CMD, Radheshyam Jalan sir, regarding his vision of INR 10,000 crores of achieving enterprise value. I am not using the word market capitalization, I am using the word enterprise value, where enterprise value formula is market capitalization per long-term debt and short-term debt. So my humble submission is that, sir, in this regard, what are the steps which our company is taking, say, if you can please share your view on it? Because it is a very nice vision of our honorable CMD. So if he can, please, share some views on it? It would be very kind of him.
No. Saketji, first of all, that's a dream for us. And definitely, the growth in the business as well as the value system in the business, these are the 2 pillars, which brings up any, what you call, appreciable -- the valuation of the company. As you all know that on both these fronts, we are working hard and surely we will be in a position to create that, what you call, value systems into the system, what the -- there are many factors, which create an image in the respect of the trust of the investment in the capitalization, that's one Germany, that's a little longer journey.Second is the growth. So growth, as you know, that in soda ash, in the last 5 years, we have grown significantly. And our journey of growth in the soda ash as well in the textile, like I said, textile now the things are looking better. We will be looking at a growth journey from there also. And these 2 components will definitely bring us on a different platform than what we are today.
Yes. I firmly agree with you honorable, sir. And I would congratulate after you coming in full form and honorable Raman Radha -- Raman Chopra sir coming in full form, right from 2008, and right now, in 2020, the company has grown phenomenally. So I appreciate the effort given by the KMPs and the entire team at GHCL. I have no doubt that we will achieve, but my -- one suggestion I have that regarding our consumer product, that division, sir, India -- in India, we see that consumer product companies are doing very well, whether it is ITC, Marico. So one suggestion I have like we are in honey and detergent, like Nirma, I have seen that it has forwardly integrated, also that it has come out with detergent, they are in detergent segment.So are we also planning to launch our brand because Tata Chemicals also in this segment, they have launched their brand. So if you can share your thought process on it, I will be highly obliged, sir. If you can share your thoughts on it, sir.
See, we already have -- Saketji, we already have a brand called i-FLO into our consumer product division. And we are pursuing that brand, i-FLO, and in that, we have spices, honey and edible salt. So these are the platforms. But let me -- like you said about the detergent, you see, everybody cannot do everything. You have to much understand that what is your core competency and how do you want to leverage your core competency.And we -- our firm believe is, our core competency is large manufacturing, cost optimization. So probably, our focus will be more towards that. But still, on a smaller scale, we are doing this branding part. Let's see how these things shape up going forward.
I fully appreciate. Just final suggestion, then I will not ask you for any further questions. Just one suggestion, sir, is possible kindly approach ITC because I see a Tata Chemicals in you. Your R&D, if you can focus on R&D, you can create more value by sodium bicarbonate in pharmaceutical business than what Tatas are doing, they are doing in Rallis. Why I say so, sir, because we are only lacking on one point. After being a shareholder of this company for more than 2 decades, I can say only one thing, it is on the corporate governance part. You have done very well. I appreciate that for the past 12 years now, and the testimony to this fact is that HDFC Mutual Fund has now purchased the share of our company, they have enforced confidence in our company. So my humble submission is that kindly approach ITC because why I say I am calling from Kolkata and I can -- what I can understand why the activities they are doing, they have just gone for an acquisition of INR 2,000 crores for purchasing the spice business. And here we have a company, which is rich in manufacturing -- experience in manufacturing soda ash. If they can come into detergent, you can market -- they can market your detergent, then definitely, sir, it will create huge value for us. That's why this humble submission and suggestion was given with the right intent, sir. And I appreciate once again the efforts given by you and festival greetings to all the team members of GHCL, sir. Thank you, sir.
Thank you, Saketji. And we have noted down your suggestion. Definitely, we will work on this and see what best we can do on this.
Thank you very much. Ladies and gentlemen, that was the last question for today. I will now hand the conference to the management for closing remarks.
Thank you very much all the participants. As I have been saying always that our job is to make sure that we do our best in achieving the performance. And me and my team are continuously working on that. And your input many times helps in a big way to us to introspect ourselves and look at the opportunity of improvement. Keep on giving us the suggestions and ask us the difficult and difficult questions because that will help us to kind of improve upon us. And thank you very much for your confidence on us.
Thank you very much. On behalf of Emkay Global Financial Services Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.