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GHCL Ltd
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Ladies and gentlemen, good day, and welcome to the Q3 FY '20 results conference call of GHCL Limited, hosted by Emkay Global Financial Services. We have with us today, Mr. R. S. Jalan, Managing Director; and Mr. Raman Chopra, CFO and Executive Director, Finance. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rohit Sinha of Emkay Global. Thank you. And over to you, sir.
Good evening, everyone. I would like to welcome the management of GHCL and thank them for giving us this opportunity. I would now hand over the call to the management for the opening remarks. Over to you, gentlemen.
Thank you, Rohit. Good evening friends, and a warm welcome to you on today's earnings call. I'm joined by Raman, our CFO, with Sunil and Abhishek from finance team. For the current quarter, we have been able to maintain profit after tax of INR 101 crores, at Q3 FY '19 level, despite the impact of INR 10 crores due to retrospective withdrawal of 4% MEIS benefit by the government. Slowdown effect in soda ash, resulting in price impact of 7%, and weak spinning scenario. However, this impact was neutralized with operational efficiency, volume gain and lower corporate tax rate. On the year-to-date basis, we have achieved a satisfactory performance, with a profit after tax growth of 35% at INR 327 crores against INR 242 crores in the corresponding 9 months. The previous 2 calls, we had communicated about the expected slowdown in soda ash industry. However, I would admit that the impact has been more than expected. Currently, also both Global and India soda ash industries are in softer [ zone ] due to lower demand growth in downstream sectors. We have been able to mitigate the impact to a reasonable extent with our initiative on optimizing operational performance and benchmark efficiencies. Going forward, we also expect that there should be a further softening of soda ash pricing by 2% to 3%, which we believe we will be able to suppress from our operational and lower cost input costs. In the textile segment, the spinning industry after facing a big slowdown, is now moving towards stabilization with the arrival of new crop. On home textile side, the markets are stable. Our flagship concept, REKOOP, has been placed in the U.K. market with a major retailer. I am also excited to inform that REKOOP has been chosen for case study in Harvard Business School. We shall continue to remain focused on our build cost efficiencies and strengthening our marketing and product development capabilities that improve our performance going forward. We are committed to creating value for our stakeholders. Board has approved a buyback of INR 60 crores, excluding tax and charges at a price up to INR 250. I would now invite Raman to take you through our quarterly financial performance. Thank you.
Good evening, everyone. I welcome you all in our Q3 FY '20 earning call. As Mr. Jalan has already covered the business overview, I will now take you through the financial performance for the quarter. Revenue for the quarter is INR 843 crores as compared to INR 875 crores of Q3 FY '19, down by around 4%, mainly due to the slowdown effect. EBITDA for the quarter is INR 186 crores as compared to INR 210 crores for Q3 FY '19, is down by 11%. Our EBITDA margin for the quarter is 22.1% as compared to 24% of the corresponding quarter last year. The profit after tax for the quarter is INR 101 crores as compared to INR 102 crores of Q3 FY '19, despite an impact of INR 10 crores due to retrospective withdrawal of MEIS of 4% on the home textile export by the government and softer market conditions in soda ash and spinning. The same has been -- however, been mitigated with the improved operational performance and lower corporate tax. EPS for the quarter stood at INR 10.30 per share. The economic slowdown had its impact on the financial performance. In the chemicals, we have recorded a net soda ash production of 2.53 lakh tonnes during the quarter as compared to 2.42 lakh tonnes in Q3 FY '19. Despite weak market condition, we have registered a volume growth of 8% in sales. There has been a sharp drop in the realization by about 7%. However, we have been able to maintain a revenue of INR 540 crores -- INR 549 crores. EBITDA for the quarter is INR 157 crores as compared to INR 176 crores in Q3 FY '19. Owing to drop in prices, the EBITDA margin for the segment has come down to 28.6% as compared to 32% in Q3 FY '19. Textile segment has continued to remain stable despite this [ domestic ] spinning industry continued to face demand slowdown and margin pressure. Revenue is down by 9% during the quarter to INR 294 crores as compared to INR 325 crores in Q3 FY '19. EBITDA for the quarter -- and this was mainly due to the spinning -- EBITDA for the quarter is INR 30 crores as compared to INR 34 crores in Q3 FY 2019. EBITDA margin for the quarter stood at 10% as compared to 10.5% in the corresponding quarter. We have reduced our debt by INR 200 crores during the year. And our debt at the end of December '19 stood at INR 1,092 crores, with a net debt equity ratio of 0.47. The ROC and ROE for the quarter is 20%. I would now open the hour for discussion and the questions that you may have. Thank you very much.
[Operator Instructions] The first question is from the line of Kaushal Shah from Dhanki Securities.
Sir, a few questions. The soda ash part on EBITDA has dropped quite sharply. It is actually much more than the volume drop than a realization drop. So what is the reason for that? And how do you see the overall macro scenario in soda ash? What is the level of imports? How is the demand from the key 2 sectors, the detergent and the auto sector? So if you can just throw more color on these aspects.
Thank you, Kaushal for raising 2 questions. One question is regarding the EBITDA per tonne has been softer than the selling price. I don't think that number looks to be correct. In any case off-line, we can check with your numbers with our finance team.Now coming back to point #2, you said about the global outlook and the Indian outlook going forward. As you rightly said, automobile industry at this point of the time is not sign -- showing a sign of recovery. However, the detergent industry, my understanding is that the detergent industry is slightly showing the sign of recovery. And our belief is that, going forward, there should be some upward trend into 2 sectors. One your detergent sector. And second, is your bottled glass, because, as you know, there's a lot of focus is there on environmental concerns and the uses of the plastics, and because of that, the bottled glass sector should show some sign of improvement. Overall, my understanding is, next year, the demand growth in soda ash, if I can say, should be around 4% to 5%.
Okay. Sir, if you can throw some light on what was the import number for either the 9 months or the 3 months overall in the country? And how is our pricing vis-à-vis import pricing?
At this point of the time, our 9-month -- our understanding is import is slightly higher than the last year same period. And we believe that next year, if I can -- the way we look at the numbers, this number should not be going up. This number should be slightly on the lower side. Because we felt that later with the new players coming in into the domestic play and there is excess supply of soda ash because of that new entrant. So because of that, obviously, that impact will be on the import as well. My understanding is the import will be slightly lower than last -- this year, in the next quarter -- next year 2020, '21, vis-à-vis 2019, '20.
Okay. And sir, this withdrawal of MEIS benefit, so how do you see the scenario as far as textile exports, the home textile export is concerned? And will it materially impact going forward? Because I believe there is not too much clarity about the kind of benefits that the government will give. So if you can just throw some more light on that.
My understanding is that in terms of the total volume growth or the volume, I'm not so sure growth, but I don't see any major impact on the revenue or the volume going forward because of this withdrawal of the MEIS advantage. However, obviously, that will have some impact on the margin of the industry.
Okay. And would it be possible for you to sort of quantify that number? Because some of the other players you are speaking to were a little worried about the uncertainty.
No. One thing is very clear, that, obviously, that this will definitely create a little bit of a competitiveness issue. But I don't think it will start from -- some kind of a big volume impact will happen because of this. But I said -- like I said, the overall -- my understanding, definitely some impact on the margin should be felt. In terms of our position, as you know, the spinning -- on the spinning side, we are -- this year has been challenging to us. We expect next year, the spinning will do better. And because of that, there will be an improvement. And even in the home textile also, the way we look at the customer mix and the branding side which we placed, I think was -- I personally believe that next year, our margins should be slightly better than this year. Maybe 1% or 2% higher margins we can expect out of the total textile business going forward.
Okay. And sir, last 2 questions. So on the debt number, this INR 200 crores number which Ramanji just shared, that number is for the entire 9 months. I think we retired some debt in first half also.
Yes. You see -- I just said, Raman clearly said that over a period of 9 months, we have reduced our debt from INR 1,292 crores to INR 1,092 crores. The INR 200 crores we have reduced the debt. As you see, Kaushal, in last 9 months, we have generated a cash flow of around INR 420 crores. Out of this INR 420 crores, you know that our cash flow is a very healthy cash flow. So this INR 420 crores, out of that INR 200 crores, we have reduced the debt. And approximately around INR 200 crores we have invested into the business, and we have paid around INR 60 crores of your dividend also. And working capital, we have been able to reduce. Overall, put together, we have very efficiently allocated the capital versus the growth, versus the debt. Like you remember even in my earlier calls, I have always said that we will be optimally allocating the capital towards the debt reduction and the growth. And today, I'm very happy that our cap equity ratio is 0.47, which is a very healthy -- and because of this, our interest cost is also -- we have been able to reduce the interest cost in the last 9 months. Now some of the new loans, we have even taken at the rate of around 8%. So gradually, this impact of this healthy cash flow and the -- what, good debt equity ratio, definitely helping us, interest cost rate also reduction.
Great. And last, sir, on the CapEx front, if you can just share the number that is likely for the current year March 2020 and the next year financial year 2021.
As I've been mentioning that almost we can say, we are almost allocating around 40% to 50% of cash flow towards that, towards the cap -- the growth. And 40% to 50%, we are allocating towards the growth. And as you know, that in this quarter, I don't think too much of reduction may happen in the debt in the balance 3 months because we are going for the buyback also, where we have an impact of around INR 74 crores. INR 60 crores of the buyback and plus the tax -- the dividend distribution tax, which was around INR 14 crores. Overall, put together, we are giving INR 74 crores towards to our shareholders about the value creation.
So sir, as about the CapEx -- capital expenditure planned for?
As I said, Kaushal that's approximately 50%. So you can just calculate, something around INR 250 crores next year, and this year also, within the same range. INR 250 crores to INR 300 crores kind of a range, because in the major investment which we are doing in the chemical business, brownfield expansion, and doing some investment into this business.
The next question is from the line of [ Yash Kapoor ] from Kapoor Company.
[ Saket Kapoor ] here. Sir, firstly, if you could give us -- sir, firstly, sir, what was the production -- the production number for 9 months was 764,000 tonnes for soda ash. What was the volume -- sales volume for this quarter, sir?
We -- I would not like to give you the sales volume number, but like I've given you that growth in terms of the revenue percentage, we have already given.
Sir, what was the inventory level, sir? You -- we have spoken about a higher inventory for the second quarter.
[ Saket ], I would request that, this can be taken in off-line.
No issue, sir. I'll come to the next point, sir. You have talked about this raw material -- the benign raw material prices benefit mitigating the reduction in the soda ash prices. So the entire benefit of raw material softening prices have been thrown into the P&L or we will get the benefit in the coming quarter also?
See surely we will be getting -- next year, there's a good advantage of the raw material softening price, because as I mentioned in the last call also, the energy prices have softened. However, because some volume has already been booked on the energy, and therefore, that benefit having accrued this quarter or that's not happened in the next quarter as well. Overall, that benefit -- substantial benefit will be coming in the next year.
Okay. Sir, you gave the -- Raman sir gave the debt figure -- net debt figure at INR 1,069 crores. And sir...
INR 1,092 crores.
INR 1,092 crores. Okay, sir. If we can -- if we get the breakup between the 2 businesses, 2 verticals, how will we be splitting the debt? How much is attributed to soda ash and how much to HT, the home textile segment?
See, I would like to refrain from specific debt to specific business. Overall, the company as a whole, we are around INR 1,092 crores.
Okay. So now I come to -- your -- the major one for investor benefit, which you have done is the buyback. Thanks to the team for looking into our request for buyback. And sir, firstly, sir, how did we came to this figure of INR 60 crores and INR 250 price to be the maximum price? What has gone behind these 2 figures? And what are the merits of going through open market acquisition of shares rather than a fixed price, sir?
You see -- these are all board level decisions [ Saketji ]. And in the board level discussion lot of discussions takes place where the independent directors are also there. Some of the market experts are sitting on our board also. And everybody put together had long debate on this that how much volume should we buy, what price we should buy, and what route we should adopt. And after a long deliberation, this has been decided. I think, overall, it is very difficult to kind of say that what is the merit and why it's INR 60 crores. Somebody can ask even if suppose the figure was done at INR 80 crores, you could have asked me, why INR 80 crores, why not INR 200 crores? So these numbers are based on lot of deliberation, cash flow, everything put together, this has been done. And second, as I said, in terms of the market levels, because we believe that for the value -- creation of the value for our shareholders, it is important that we should buy from the open market. And this is what the board's view was.
Right, sir. So now if you could dwell some more on the soda ash as a commodity, what are your internal, sir, understanding of this segment? Where in the cycle are we in terms of soda ash prices? Because still, the commodity is imported in the country, so we are not self-sufficient. But in terms of the price drop, where are we currently? And when can this price decline can reverse? And how is the expansion at Turkey, I think -- so that has been factored in the market, the entire production. What is your take on that, sir?
See, if you look at -- and again, I would like to go back to earlier discussions on this conference call. I have been always maintaining that, if you look at the longer-term view of the soda ash, you would find that the prices are quite stable. Some -- quarter-by-quarter, some slip can happen, okay? And the margin-wise, if you look at, the margin has always been the range bound of 28% to 32% kind of a range. Even if you look at 9-months period, you'll find that the margins are in the range of around 30%, 31%. Okay. So in one quarter, prices can be slightly lower than the other quarter. But overall, if you look at the year as a whole, the margins have been maintained at the same level what it was last year. Okay. It's a quite stable business. Yes. One thing has happened because of this, I would say, that it's short-term impact in the soda ash business there. A new player has come in. We had -- approximately, our production this year will be roughly around 200,000 tonnes or 250,000 tonnes kind of a thing. Well the demand grows, because of the extended monsoon between July to November, plus a slowdown in the consuming sectors, some slip in the demand has also happened. But overall, if you look at long term, I'm very confident about this business. In terms of the global, as you rightly said Turkey, yes, one time the big production is coming. But globally, the requirement is also almost around 1.5 million tonnes of the extra requirement every year. So if you want to see the long-term view on the soda ash, I am very confident on this business.
Quarter 4 is generally the best for the industry. And the way -- after quarter 2, the price decline, the inventory buildup. Do you think that the same environment as it used to be for the -- over a couple of years as quarter 4 is the best quarter may not be the case this year, sir?
No. You see -- again, we are going on a quarter-to-quarter basis. As I mentioned already in my opening remarks, that the prices are further being seen as a 2% to 3% drop. And that 2% to 3% drop will be -- should be compensated by the internal control of the cost efficiencies and things like that. So broadly, my understanding is that we'll be in a position to 28% EBITDA margin kind of a level, which is good -- which is a very good margin as per my understanding.
And over as a whole, sir? Yes, sir?
Sorry?
Next year.
The year as a whole? Yes, if you are talking about a year as a whole, in 2019, '20, it should take 3 months of actual, which is likely of 28%. We're in the range of around same 30% -- 30%, 30.5% kind of a range. We were the same last year, which is moderate from the same margin last year because we see at the same margin.
Right, sir. And sir, on annual basis, 90% plus utilization levels can be expected for this year as a whole also?
It will be more than that sir.
It will be more than that.
Right.
Correct, sir. Last 2 points if I could make. Sir firstly, on the home textile segment, so we are seeing that green shoots which you have contemplated and articulated to us 2 quarters ago, that, quarter-on-quarter, home textile will be addition only to the bottom line. And that is happening, sir, so congratulation to the team for doing a remarkable job on that front. Sir, now do you think that -- the environment is conducive that our home textile segment has also reached that critical mass that it can stand on its own and it can be a separate entity all together? As an investor and -- an investor like us have always been debating on this fact of an independent home textile company and an independent soda ash unit. So where are we in that process, sir? Where -- when are we going to reach that critical mass where this can also happen in future?
See, my understanding, if you remember, in the last couple of years, I've been always saying that in the textile business, a margin of around 15% is a margin which should be a kind of a respectable margin into the textile business. And I'm talking of both the business put together because you should not see these 2 businesses separately. Whereas at this point of the time, we are on a 10% platter. And like I have just said, 1% or 2% upside, I'm seeing next year. So it's the case that still we are talking of 11% to 12% next year. Still the journey is there, but the question is stability or standing on the own, yes. Even today, also, if you look at, you will find that there is a positive for our EBITDA into the textile business as well. And there is a positive cash flow also. So as it stands on its own, definitely, both the business put together over textile can stand on their own.
Okay, sir. Lastly sir, Raman sir, the employee benefit expenses have gone down for this quarter by, I think, so INR 8 crores, if I'm not wrong. So how will you explain this, sir? The employee benefit quarter-on-quarter also and year-on-year also so, from INR 53 crores to INR 45 crores -- INR 44.5 crores.
You should be happy that the employee costs are going down.
Sir, just wanted to understand, generally, it doesn't happen, so that was my basic question.
Overall activity engagement, contract workers, all put together, that is the number which is there.
Okay. And for the year also, this INR 44 crores, INR 45 crores should be the -- now the average going forward? I mean this is a permanent reduction, Raman sir?
See, this should be in this range, just the overall reduction within this range of INR 6 crores, INR 7 crores, which has happened.
The next question is from the line of Jatin Damania from Kotak Securities.
Sir, as you just mentioned, the domestic demand likely to grow in the range of 4% to 5%, which mean there is an incremental demand that will come in the domestic market will be in the range of 150,000 tonnes to 200,000 tonnes. But however, incremental supply would be much more than, probably double than that. So how are we going to sell this inventory or liquidate this inventory in the coming months? Where are we seeing a green shoot coming from?
See, last -- next year, if you look at -- like you said, if suppose we take a demand growth around 200,000 tonnes, and the extra production which I could see next year, within the range of around -- staying around 150,000 tonnes to 200,000 tonnes. Okay. So there will be no further inventory buildup will happen in 2021. Okay. However, like I said, import is likely to be lower than this year. To that extent, the liquidation of the inventory which has happened during this year, should help, #1. Second, the industry is already -- and we also are focusing on some of the mature markets which are closer to India like for export markets. And some inventory will get exported to those countries as well. Overall, my understanding in 2021, the buildup of the inventory should go down.
Yes. But if you look at the -- if you say that imports will come down and we are exploring the export market, I mean we used to do this in past also as an industry. But if you look overall last 10 months data which is published by the industry sources, from January to October, the total exports have actually come down by 23% on year-on-year basis. And I mean I'm wondering whether does the -- globally, the incremental 1.2 million demand still remain intact or we can see an overall decline in the growth globally?
See, I think, like I said, if you look at even domestic front first. See, last many, many years, okay, what the industry has seen is an inventory buildup. And I think only this 9, 10 months, which you are talking about, there is some inventory buildup is there that is primarily because of a new player came in into the domestic place. Okay. However, if you look at the medium term, I don't think -- because like somebody, like you said, still the country is importing 25% of the total consumption. I don't see any reason that next year the situation will be better than what it is today. And I've just given you math that even if the demand growth is around 150,000 tonnes to 200,000 tonnes, the volume growth itself of 4% to 5% will take care of that supply. Regarding the inventory at this point of the time, some blockage of the inventory is there, that will get liquidated either by imports reduction, because domestic players are competitive vis-a-vis the imports.
Sir, yes, you rightly said that, domestically, we will adjust something to the production and things. But what about the global factor? Because if you look, there was a -- we had seen an announcement that -- some of the Chinese provinces will shutdown their capacity. But if you look at the Inner Mongolia region, where the Berun Group has announced the commission of the almost around 7 million ton capacity in 2 phases. So don't you think in next 1 or 2 years, the demand is only going to grow by 1.2% globally and 4% in the domestic market? There will be still oversupply in the market.
Can you guess -- when the Mongolia volume will be coming? It will take at least 7, 8 years. Not something which is easy. Mongolia is in a country where a lot of infrastructure has to be built through. Turkey has taken almost, what, more than 5 years to build this. If the 7 million comes in 7 years, what is the volume growth we are talking about? 1 million ton a year? Go back to the history. Go back to the history. See, soda ash, please understand one thing. Soda ash, it is an industry of a high capital intensive. And if you look at the history, you will find that oversupply situation has never been except few here and there, fine, but not in a long-term basis.
Okay. And sir, secondly, on this pricing front. As you said, that the prices will further go down by 2%, 3% in the coming months, have you taken any further price reductions starting January?
See, we have not taken any price reduction, but you know that when the oversupply situation is there, some reduction is possible by way of incentives and things like that. This is what my guess is. Maybe this may not happen, but this is what my guess is.
Yes, because, sir, at the same time you are saying that import will also come down in the next financial year from the level which we have seen this financial year. So just wanted to understand the price coverage inventory will take to match the imports, or probably we are currently selling at a cheaper rate than the landed prices.
No. Like I said, this is what my estimation is that the prices may drop by 2% to 3%. The reality will be known only after the quarter gets end.
The next question is from the line of Riddhesh Gandhi from Discovery Capital.
Just a couple of quick questions. Typically, do we -- so how much of our textile EBITDA is from spinning as opposed to home textile? Is it actually a majority of it?
Just -- we have -- we are not segregating this EBITDA between the spinning and home textile. But in a kind of a guidance, I can say that both the businesses, on one side, home textile has done better in this quarter as compared to earlier quarter, and spinning has not done as good as it has -- they have done in the last quarter -- same quarter last year. So overall, margins around 10% vis-a-vis last year's same quarter 8.6%. This major contribution comes from home textiles.
The spinning has been harder for everybody over the last year, but we are expecting a degree of a normalization after the new crop. So are we looking at actually get [ tough ] margins with regards to spinning and we can only see upside from here?
Yes, you can see the upside from here, Riddhesh. Like I said, Riddhesh, you can see some upside from here, like I already given that. Next year, 2021, you will find a better margin in the spinning. And overall, also the margin will be better in the textile business.
Correct. And just the other thing is, if you then look back at the history of soda ash actually pricing per se, there have been only actually smaller periods of a few months when there has been disrupted where prices have actually reduced. So just wanted to get a sense from is this in line with the cyclical blip which you see? Or could there be a structural issue which is leading to this reduction in prices? And yes, I should get some thought on that.
No. You're right. If you look at last 15 years, you will find that the soda ash price has never fallen except one year. There's not any structural issues, it is a slip for some quarters. And after that, it will recover.
Got it. Because ideally if you look at the overall -- the intensity of kind of capital required for projects, you would not see at these rates incremental [ excess ] supply coming on board.
Absolutely. Well, 100%, you are bang on. But like I've always been saying that, today, if you want to set up a plant of 0.5 million tonnes, you require something around INR 4,000 crore. And for that, this kind of a margin will never be justified. So that's the reason that lot of volume is not coming into India last 10, 15 years. After a long period of time, this new volume, new player has come in.
Got it. Got it. And just to understand, so it is effectively a combination of a slight economic slowdown with inventory buildup and new supply which has come in? How long do we -- would we expect this -- the demand supply, I mean, mismatch to then even out in the next, let's say, the 3 to 6 months?
See, 3 to 6 months is a little optimistic, but my understanding is next year, by maybe second or third quarter onwards, things will start looking up.
Got it. But we don't expect to see any reduction except for maybe the 2%, 3% in terms of pricing which would be offset by pricing and effectively efficiencies? Actually still further from here. So I mean this would be the extreme bottom, I mean, margin, which we would see.
I think so.
Got it. So if we look at both soda ash and home textiles, textile as a whole, we are pretty much at the low end of the cycle with regards to pricing and, I mean, margins.
I think so.
The next question is from the line of Rohit Nagraj from Sunidhi Securities.
Sir, you mentioned that you are expecting about 2% to 3% price decline in the quarter and you'll be able to neutralize that impact through operational efficiencies. So what is the leverage that we'll get in terms of those operational efficiencies?
See, operationally, it is the raw material cost, better efficiency, better control on the cost. This is the only way you can do it.
So effectively, you mean to say that the EBITDA margin per tonne would not get impacted. Is that right thing to think?
The EBITDA margin in terms of the percentage should be in the same range bound.
Okay, okay. And sir, another question, on the brownfield expansion. So currently, we are undergoing 50,000 metric tonnes that we had plans of doing, 50,000 metric tonnes in FY '21. So given the current scenario of oversupply situation, are there any plans to probably postpone the second phase of 50,000 tonnes which was expected to come in FY '21?
Not at all. Because if you understand the incremental cost per tonne of this volume will be much smaller, and so it is always in the advantage that in terms of -- if you look at the absolute bottom line, this will really help us.
All right. And sir, just your understanding of different global markets, such as China, Europe or U.S., what is the interpretation out there? And what do you expect from those markets?
You see, like I said, global markets, Turkey is in the full production now. And U.S. is also on the peak of the volume. Overall, there is definitely kind of a slightly slowdown, but my understanding is now in view of this China-U.S. settlement taking place, the recovery should be seen. So going forward, my understanding is things will be better.
The next question is from the line of Dhavan Shah from ICICI Securities.
Yes. I have a few questions. So firstly, if I look at your production volume and the price -- the growth, so if I compare it with your closest competitor -- listed competitors, so I mean they haven't seen such pricing pressure for the first half, what you are discussing. So just wanted to understand your segmental industry mix out of this 9-month production volume, how much it goes to the auto, detergent, container glass, if you can share?
See, let me tell you, of course, we don't -- we don't compare our pricing vis-à-vis the competition, and we don't know whether there is any gap is there or not. But in a commodity cycle, my understanding is that size gap should not happen where ultimately the same commodity is sold to the same customers, and in the same segment, be it glass, be it bottled glass, everybody is taking the every segment.
Yes. But industry mix wise, can you share -- I mean what's your breakup segment-wise?
Segment-wise, I have a mix at this point of a time, which we can give you in off-line always. But at this point of time, we don't have that number.
Okay. And secondly, you mentioned that there is an increase in imports of soda ash for the first 9 months. So from which region this import is coming in and at what price it is?
See generally, there are 2 major import -- countries from where the imports are coming at this point of the time, which is, one is U.S. and another is the Turkey, balance are all staggered, something is coming from Europe, also something is coming from Magadi, Africa also, but major portion comes from U.S. and Turkey.
Yes. So we're also seeing that there is a higher import from U.S. So going forward, I mean there will be -- let's assume that the gas prices would remain at the lower level. So what kind of the competitive lens do you see vis-à-vis your competitors, in terms of the pricing I'm talking about for the U.S. manufacturer versus you?
See, in terms of our understanding that always the domestic players are very competitive vis-à-vis any imports because of the supply chain cost. Overall, if you look at it on delivered basis, I don't see any challenge in the competitiveness of the domestic industry versus the imported material.
So the imported material was coming to the southern market, right?
Yes.
And does it still continue? I mean is it feasible to sell in the other parts of the country?
Sure, always.
[Operator Instructions] The next question is from the line of Viraj Kataria (sic) [ Viraj Kacharia ] from Sec Invest Managers.
It is Viraj Kacharia from SIMP. I just have 3 questions. First is on soda ash. If you can just give some color on what is the inventory in the system in the domestic market. And second thing, a question related to the same is, if I look at the supply, which is coming next year, both in terms of the remaining capacity of Rohit Surfactants for ash and for possibly part of the capacity of Tata Chemicals, it seems the inventory overhang will still continue for additional 1 year or 1.5 years more considering the demand in growth we're expecting. So how should we look at the overall price trends in the market? That's the second one. And third, if I look at again soda ash, our performance both in the value and per tonne realization and profitability per tonne. For the last 2 to 3 quarters, we have seen a volume growth in an industry overhang scenario, but a per tonne profitability has seen a sharp deterioration. Now this is in sharp contrast to the competitors who have been seeing a volume pressure, but the per tonne profitability is quite robust for them. So just trying to understand, is -- are we kind of seeing price as a mechanism to drive the volumes? Is that the way to look at it?
See, no, let me answer you one by one. In terms of the inventory which you said, some inventory has definitely been built up in the industry, and that is primarily because of the demand not being there and the oversupply coming in. How much is that inventory? It should be in the range, I don't have a specific number of the competition and it is very difficult to speak about that.
I hear Raman say 3.5 million tonne, 4 million tonne, how should be the inventory?
I don't think that inventory all put together maybe around 150,000 tonne to 200,000 tonne kind of an inventory.
So it is demand...
Demand? No, no, the total demand for the year is more than 40 lakhs.
What I meant is incremental demand is equal to what the inventory is...
Yes, you can say around 150,000 tonnes to 200,000 tonnes, which is more like an...
What will be the inventory in the system?
Generally, it should be in the range of around 60,000, 70,000 tonnes should be the inventory coming through the supply chain. So broadly, you can say it's something around 100,000, 125,000 tonnes of inventory is on the high side. Now going back, like the third question is about what -- how do you see the 2021? See if the demand growth takes to around 4% to 5%, we are talking about something around 200,000 tonnes of extra supply -- demand coming in. Again, my estimate, next year, Rohit Surfactants will have approximately around 100,000 tonnes of extra volume coming in. And balance maybe 30,000 tonnes, 40,000 tonnes will be coming in from us. And we don't see too much of volume coming in from other competitors. This is of my understanding. Now what about this 125,000 tonnes I said, to you, there are 2 possibilities, which everybody is trying, and we are also trying for that, to reduce the imports. And my understanding is that some import possibility for next year, a reduction in import is likely to be seen. And the second is, the export possibility, which also are being explored by us also. So my sense is next year this inventory reduction will happen. This is what my sense is. So let's see if the demand -- because I don't know. If you look at first 4 months, the demand goes up almost around 10%. But after this extended monsoon the demand has dropped. If this 4% or 5% demand growth goes to 2% more, then whole situation will change.
And on my question on volume versus profitability per tonne, if I look at 2, 3 quarters.
I don't see -- I don't think that question is valid as per my understanding, because I personally believe -- of course, I don't have the competitor numbers, so I will not be able to comment specifically on that.
Just our own numbers, we've seen consistently volume growth for last 3 quarters, but a per tonne realization for us in terms of profitability, that has been going down. So especially in the Q2 and Q3, we have seen a decline.
I think you are talking about only -- no, I think you are talking about only for one specific quarter, 1 or 2 specific quarters. In fact, slightly 5, 6 quarters you will find that the per tonne realization has always improved. I think I don't know from where you've got the number. I cannot give you the specific number because -- obviously, because of the competition, but I will give you a kind of a sense that last year versus this year, we had a specific number of...
Our numbers are of -- all last year versus this year are same numbers.
So you can look at our margin, if you look at per tonne is same as it was last year, number one. Number two, in terms of the pricing...
Raman, I'll take it offline. Just taking numbers from the press release -- I mean, the presentation.
Specific numbers will be difficult to give, but I can only tell you that my numbers, overall, if you look at the number of FY '20 versus FY '19, 9 months, you will find that the margin per tonne is same.
No, no. I'm talking sequentially sir. If I look at sequentially, the per tonne margin just keeps on dropping down for the last 2, 3 quarters. I mean one can look year-on-year, but eventually, what I was trying to look is sequentially, because at the end, it's a commodity business, right?
If I can give you a slightest -- small feedback on this, if you look at last year, FY '19, okay, you will find that quarter by quarter, my margin has improved, okay, significantly improved. Almost, I would say, 30% increase or more than 35% increase was quarter 1 versus quarter 4. 35%, my margin has improved in FY '19. In FY '20, I have been always telling that the prices are under pressure. I just said that around in the 7% reduction and so I'll say that approximately around 3% reduction, almost the price is going down 10%. So obviously, the margin, price is going down by 10%, and that has gone quarter by quarter, right? So because of that, definitely, this year, you have seen the sequential drop in the -- for margins.
So the 2% to 3% price cut, which you talked about, which will happen from January, in terms of per tonne profitability, should we expect what we did in terms of Q3? Or we should see further pressure going sequentially?
I don't see any pressure in the Q4 vis-à-vis the Q3. But let me clarify the point number one first. As I have been mentioning that in the FY '19, every quarter, full quarter, the margin has improved. And from one quarter to the fourth quarter, the margin has improved more than 35%. Whereas in this year, quarter by quarter, definitely, the margin has dropped. And that is primarily because of prices have gone down. In the last quarter, the price dropped almost around 6%, which I think I had told in the last call -- in the last Q2 call, I've already said that the prices are likely to be falling to 4% to 5%.
And just one...
Sir, sorry to interrupt. We would request you to join the queue for any follow-ups as we have several participants waiting for their turn.
Yes. Just one question. Hello?
Yes, please.
Yes. Yes. On the MEIS part, what is the change in terms of the duty now first compared to what it will be? And is there any retrospective impact, which we would have to take?
We have already taken that because the government has withdrawn this from a retrospective effect of MEIS of 4%. And in this accounting, we have reversed the entire benefit.
So the 4% completely goes away, right?
Yes, completely goes away. And we have taken accounting of that. Of course, the industry is looking at some legal part of it. But within the accounting, we have taken write-off or -- of -- onetime cost of in this quarter.
The next question is from the line of Giriraj Daga from KM Visaria Family Trust.
Yes. My question relates to the CapEx part. So we are looking at about INR 250 crores kind of CapEx and I believe primarily, will be spending on this soda ash. So what is the kind of capacity addition we are looking every year?
See if you look at this year, we are talking around INR 250 crores of CapEx. In that, the segment of textile as well as soda ash is there. Out of this INR 250 crores, approximately around INR 150 crores is on the brownfield expansions and approximately around INR 50 crores we are talking about are greenfield because as I have been mentioning that we are acquiring the land for the greenfield projects. So again, this INR 155 crores, we are making a brownfield expansion of around 50,000 tonnes.
50,000 tonnes, okay. So this year, like every year, we have the INR 50 crores for land acquisition, INR 50 crores for textile and about INR 150 crores for the 50,000 tonne?
No, no, no. Not that way. I just -- figure I've given you only for this year. Next year, we will have another 50,000 crores will be there, and that could be in the range of around INR 200 crores. Okay. And there will be additional on -- approximately on the greenfield some additional CapEx will be required. All put together next year, we are talking about INR 250 crores investment into the soda ash business.
And how much possibility we have to add more on a brownfield level?
No, that's going to be last. Next year, whatever the expenses to do after that, the brownfield expansion will be over. After that, it will be greenfield only.
And the last year, you spoke about that 5 lakh tonne had CapEx of INR 3,000 crores, right?
So that will take at least 3 years, and we are looking at a kind of a sequential investment into that so that my debt-equity ratio remains at not more than 1:1 and it does not come -- the complete CapEx comes from onetime to the balance sheet to manage our cash flow in a better way.
[Operator Instructions] The next question is from the line of Pritesh Chheda from Lucky Investment Managers.
Sir, I just wanted to understand until last quarter, we've heard that the lower energy prices would offset the decline in realization. So just in this quarter end, has the energy prices or energy prices flowed in? Or it is expected to slow? Or is there any deviation in the thought process, which we mentioned until quarter 2?
See as I mentioned last quarter also, energy prices had softened. However, the major benefit of the -- full benefit of that will happen in 2021. This quarter, what we thought that the selling price of the revenue -- drop in the selling price will be in the range of around 4% to 5%. Whereas the drop has been slightly sharper than that, and that has led around 2% extra -- prices has dropped. So all put together, the margin drop is around 2%.
With another 2% incremental drop in soda ash prices, which you called out in your opening commentary, so there could be a slightly lower margin first and then the energy prices -- soft energy prices will flow into your margins, is that assessment?
No. Q4 -- my understanding is, Q4, we will be able to maintain the similar margin what we have achieved in this quarter, because it was 2 regions. Some benefit of energy prices softening will have some benefit in this quarter as well in Q4 plus efficiency will also be better. So my instinct is we will be able to maintain around 28% margin in Q4 as well.
Just continuing here, sir, can you tell us in the unit EBITDA margin or unit EBITDA for soda ash, how much of energy cost benefit will come?
We don't -- I don't have a specific number at this point of time. You can always collect that number offline.
And I just had one more question on sodium bicarb expansion, what is the status? What is the volumes? And what will be the benefit of that sodium bicarb?
We are not doing any sodium bicarbonate expenses during this year. We have already done last year, but one good thing is that there is a big upside on the sodium bicarbonate could be seen next year because as I have been mentioning, sodium bicarbonate sometime has been used by the NTCP as -- to control the different -- flue gas. And that could require a huge amount of sodium bicarbonate going forward. And that can give a different outlook for the sodium bicarbonate going forward. Just few months back, they have taken some small volume for the trial, and they are in the process of -- they have already got a bidding of around 18,000 or some volume.
30,000 tonnes.
30,000 tonnes volume they have got. If that could -- number could be seen, then probably next year, there could be around 50,000, 60,000 tonnes of extra demand may come in against a total production of what -- total production will be something around...
240,000 tonnes.
Something around 200,000 tonnes, approximately overall put together, maybe 250,000 tonnes. We are talking of almost 20% demand growth in the sodium bicarbonate that may happen next year.
What is our capacity?
We are roughly around 60,000 tonnes production, we can do.
Are you utilizing it fully or?
Yes. At this point of a time, we are utilizing fully, but my understanding is if this demand growth takes place, the firmness in the sodium bicarbonate prices would be seen next year.
And what is the incremental EBITDA there? So if soda ash will do INR 6 to INR 7 a kg, what is sodium bicarb?
It will be slightly better than the soda ash, because they only consume 2/3 of soda ash and the margin is almost at the same level of soda ash. Margin of soda ash, it will be better.
So it will be about INR 10 or INR 11 a kg.
Probably, yes.
The next question is from the line of Sagar Shah from Alpha Line Wealth Advisors.
This is Sagar Shah. Actually, my first question was regarding to our demand, actually, as what you had stated about domestic demand for soda ash is basically 4 million tonnes, right?
Approximately, yes.
So our -- according to your investor presentation, we are producing around 3.6 million tonnes. And basically, I think around maybe, I think, 20% odd, we would be exporting also. So [Foreign Language] how I want to assess this? Wanted to assess the situation, how that oversupply situation has come actually? And secondly, also, what is the [Foreign Language] -- what is the capacity addition, you already told, actually, it's not so much coming in next year, around 70,000 tonnes or sorts. And we have a 5% demand accretion every year, CAGR. So you will be quietly something like, would be able to absorb actually the industry according to you. But I wanted to assess the situation, how the oversupply situation has -- actually is there based on your metrics itself?
See, if you look at the overall, you'll find that out of the total demand of India, approximately around 23% to 25% is being met by the import. Balance, 75% is only being met by the domestic players. Overall, there is -- and this year, because of this new entrant of soda ash producer, there is a slightly overcapacity has been -- or oversupply situation, which -- my understanding as I explained, may get utilized next year.
Okay. So basically the imports are -- basically are coming from Turkey, right?
Turkey and U.S. General, major portion.
So is there any import duty for the same currently?
Not the anti-dumping duty. This is a normal duty.
So no anti-dumping duty is in there?
No. No, there's no anti-dumping.
And that's why the imports are being hurt maybe because that. So for this situation, are we -- is GHCL looking for opportunities outside India?
No, as I said, natural market, which are closer to India, like Bangladesh or Sri Lanka or, what you call, Nepal, these are the markets surely we are looking at. And we have a plan to export some volume.
Okay. So basically, from -- in FY '21, the outlook looks stable as far as the soda ash realization is concerned for GHCL, correct?
I think so, yes.
So it's -- it would be better than FY '20 as far as the soda ash is concerned, if my assessment is right?
Year as a whole, I don't know, but yes, if you look at the Q3 versus next year, it should be slightly better.
Okay. And we have -- we would probably have a 5% increase in the demand, right, for soda ash compared to FY '20?
I think so, 4% to 5% should be.
Okay. Okay. And in respect of textile basically, how has the REKOOP being doing, actually, especially in U.S.?
We have been successfully been able to introduce the REKOOP with a cobranding in one of the major retailer in U.K. So -- and this had just happened, I would say, a few days back. We are very hopeful that there will be good demand coming in from the consumers. And once that success happens then probably it will be a good chance of getting placed in the U.S. -- some retail in the U.S. as well. So we have a quite big hope from this brand.
Currently, we are not having any revenue from REKOOP, right?
Yes. Surely, we have just started getting the revenue out of this REKOOP by placing this thing into one of the retailers into the U.K. market.
Okay. Okay. And -- okay. So -- and one more thing, sir. On the -- again, on the soda ash front, you said we will see a further correction of 2% to 3% on the soda ash prices. So based on your experience, still this price correction of this commodity chemical of the soda ash will continue even in FY '21? Or will we see some stabilizations?
In this market, my sense at this point of the time at least see that there should be on this -- could be in this range. However, in the current context so much of volatility is there. It is very hard to predict anything.
Okay. But if the [Audio Gap] picks up as it is projected in the -- after the June -- after the first half of FY '21. So after that, maybe some stabilization can we see?
Yes, yes. Surely, we should.
The next question is from the line of Sarvesh Gupta from Maximal Capital.
Sir, one question is in the context of the textile business, which as a previous participant was mentioning that the idea was to eventually either demerge or do something about that business. So in that context, we have this appointment of one of the promoter directors as ED. So what should we read about that, sir? What are the plans there because we were also seeing that incrementally, most of our capital allocation would be towards soda ash? So how should we read that?
I don't think you should read too much on that. Our commitment as a management remains in the same way that capital allocation will always be on the chemical side. And till the textile business perform on the expected lines, which I've already articulated in my past discussion, we are not seeing any major capital allocation to the textile business. And the promoted director, which you said, he was already there in the textile business. We have just relocated him from our...
U.S. business.
U.S. business to this business. There is no extra cost to the company because of this.
Understood. So basically with no change or plan of change in terms of the overall management and the direction of the company?
Absolutely. No. Absolutely no. Absolutely no. It is being done by the professionals and it will continue to be done by the professionals.
Okay, sir. That's good to know. The other thing is, sir, overall, the idea for this year in terms of soda ash business was that, we would be able to sell the entire incremental capacity that we have built in Q4 of last year, which is around 5% or 6% of volume growth, or correct me if I'm wrong. And plus we would be able to maintain the same EBITDA level per tonne? So now...
If you are talking about 2021, I would say that -- I have already said -- articulated that. We believe that, yes, we will be in a position to sell the entire volume but whatever the inventory small built-up has happened, and that probably will have space either by replacing the import or some volume will be going for the export. All put together, my personal belief is, next year, we will be in a position to come back to the normal inventory.
And you were also mentioning that you had visited some conferences outside of India and the prevailing view was that the firmness of soda ash, pricing should be there. It looked [Audio Gap] And now given the slowdown and the changes in this quarter, does that change in any way, or how do you look at it?
See, the global view, which I said was that prices would be -- should be small -- [ calm ]. See quarter by quarter, some kind of a flip can happen, but long-term view still maintain on the product basis.
The next question is from the line of Yogansh Jeswani from Mittal Investments.
Sir, just a bookkeeping question. If I see your other expenses year-on-year, there has been a decline both on quarterly terms and for a 9-month basis. So can you throw some light on that, please?
Contract expense because reduction in the...
Yes, this is mainly because of the -- there are certain job work which we used to get done in our textile businesses. We have removed some of the customers which were not strategic to us. We have reduced that activity. And therefore, those were appearing in the other expenses because of reduction in that activity, those expenses are coming down.
Understood. And sir, in response to previous participant, you mentioned about the employee cost being down. I missed out on your commentary on that. Can you please help me through that once more?
That, again, depends upon the activity, what kind of volumes you are achieving and what kind of activity is there. Therefore that -- and there were some excess provisions are there that has also not been there. So overall, this cost has come down.
And going forward, this INR 40 crores, INR 45 crores of rate can be maintained?
Yes, yes.
Understood. And sir, couple of days back, there was a promoter share that got in moved around 4 lakh shares and that event was triggered. So can you throw some more light on what exactly happened? And we see some more shares pledged, so just can you throw some light on this whole event?
See, promoter has a company called Golden Tobacco. They were holding around approximately around 400,000 shares, which from their businesses, they took some loan and that was triggered. However, the balance shares of the promoters are completely free from any pledge. And I don't see any area of concern because of any pledge.
Right. So basically, sir, the reason I'm asking this is, we already have a very low promoter holding of around 18.5%. And after such low holding, if an event like this happens, it just looks bad for overall company perspective, so...
No, I understand your concern, but you see -- please understand one thing that, as a management, we have -- hardly have control on that's number one. Number two, as I mentioned to you that the GT or Golden Tobacco which has an operating challenges, and they had some requirement of the resources, and they did it. But balance all stocks, all players are free from any incumbents, and we don't see any concern on those shares.
Right. And sir, secondly, on your textile division, the MEIS impact that we saw of INR 10 crores, so what are your thoughts around the other policy that's coming up, ROSCTL. So do we expect that the MIES benefit will get replaced, and we shouldn't see much of an impact on the margins? Or do we anticipate that some bit of margin is going to go away because of this? And is this INR 10 crores, the impact for the whole year? Or do we still have some more to come up in the Q4 in terms of any excessive...
No, we have taken the entire provision of the retrospective withdrawal of this benefit by the government. We have taken the entire out of the system. So there is no backlog which is pending to be booked into the Q4. The second half of that question that, you said that -- as I said that definitely, I don't see a major hope that this benefit we'll get restored. And therefore, some margin drop may happen for the industry because of this withdrawal of this export incentives.
Right. Any percentages around that, sir, your expectation?
See, very difficult to -- everybody has a different mix and everything. For us, as I mentioned, that we got this feeling we'll be doing better than this year, next year. And overall, home textile will also be showing a sign of recovery, which you are seeing quarter by quarter, things are improving. My sense is that next year in Q -- next year 2021, my overall textiles, we will see a margin growth of around 1% to 2%. We have got -- such because of this into our business.
Sure. Fair enough, sir. And sir, lastly, now that you have announced a buyback, do we still plan to continue with a dividend payout that we had in, say, previously, I would say around INR 5, INR 6? Do we still intend to do that as well going forward?
See in terms of -- this is a prerogative of the Board to decide. It is very difficult for me to say something. But as per my understanding, there's no reason that we should say that we will not be rewarding our shareholders. We are always working towards the creation of value for our stakeholders. And surely, we will definitely recommend to the Board for continuing the same dividend what we have declared as per the dividend policy. This has nothing to with the buyback. The buyback is separate and the dividend policy is separate.
The next question is from the line of [ Ayush Mittal ] from [ MAPL Value Investing Fund ].
Sir, most of the questions have been answered, and I must appreciate the management from maintaining the margins in a range despite the price drop. To get some more understanding on this pricing discussion that we are having, when we look at international prices, we see that the drop has been much sharper than what we have seen in India, like international prices have fallen maybe 15% or so, while you're saying that 2%, 3% further cut may happen. Can the situation get further weak for the industry?
See as I said, if you look at the year as a whole, this year, the -- if I take another 1% or 2% drop, or maybe 2% to 3% drop, we are also...
My question is, can that drop be more because the international drop has been higher I think. The international price has dropped, I think, 15% to 20%, is that right?
Not really. My understanding is around 10% to 12%, my understanding. And of course, this keeps on fluctuating, these numbers. But my understanding is, I personally believe, of course, anything can happen. But my understanding is, I don't see any much faster reduction. If you look at my last call, I said around -- the price reduction may be in the range of around 4% to 5%, whereas the price has dropped by around 6%. So 1% or 2% higher than what I anticipated. This year -- this quarter, my understanding, is this 2%, 3%, could be 1% plus or 1% down. I personally believe that should not be more than that. But anything can happen. We don't know.
The next question is from the line of Siddarth Mohta from Principal India.
Sir, within soda -- sodium bicarb segment, you have mentioned that large opportunity can come from NTPC. So how are we planning to address this opportunity? In the sense, are we planning to convert some of our soda ash capacity into sodium bicarb?
See definitely, we are looking with a possibility of enhancing the sodium bicarbonate volume and probably, all other possibilities are also being seen of how can we increase the capacity of this. But that may take a little time. I don't think it can happen in few months. Maybe end of the year of 2020-21, something can be seen. But possibility, definitely, we are trying. We are looking at this point.
Okay. And sir, how large this opportunity it can be -- might be after 2 years or 3 years down the line?
It's a huge opportunity. Huge.
I can only give you a sense that today there's no uses of the sodium bicarbonate for flue gas. The first, NTPC is doing it. And it's -- the way that environmental focus is there with us here today entire -- in the entire global, also in India, no, I would not say that is far off, where we can say that a lot of people have to use -- to control the environment, they have to use some means and sodium carbonate is one of them. And probably, they can definitely create a big opportunity for us and for the entire industry of soda ash.
And sir, globally, whether the sodium bicarb is being used to negate this flue gas?
Yes. In a big way.
So it's more of a tried-and-testing method globally?
Yes. Yes.
As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Thank you, everyone, who has participated and asked us the questions. Because your questions definitely make us to learn more and to work towards betterment of creating a value for the stakeholders. We are committed for this business to do our best to make sure that we do all things possible to continue to have our journey. And that is one which is because of your trust and because of your engagement with us, we have been growing in this business if you look at last 5 years. We have been able to deliver 35% CAGR growth on the bottom line. And I think this all contribution from you people as well that makes us be proud of being a part of the GHCL team. Thank you very much, everyone, and good evening to all of you.
On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.