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GHCL Ltd
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Ladies and gentlemen, good day, and welcome to the Q4 FY '21 earnings 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 would now like to 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 shall now hand over the call to the management for the opening remarks. Over to you, gentlemen.
Thank you, Rohit. My name is R. S. Jalan. I welcome everyone to today's earnings call for the quarter and the year ended March 31, 2021. With me, I have Raman, our CFO; along with [ Amanu ] and Abhishek from the Corporate Finance team. The analyst presentation has been shared in advance on the stock exchange website. We all are going through a difficult period due to the current second wave of COVID-19 pandemic. The need of the hour is to remain safe. The priority for GHCL is more about safety of our employees. We have taken several initiatives, including vaccination of our employees and their families.FY '21 has been an unprecedented year. During H1, economic and business were severely impacted. Thereafter, business activities started to recover on backdrop of improved customer sentiment and vaccination program. As of now, a nationwide lockdown has been ruled out, but several regional restrictions are in place. However, our plants are operating with minimal disruption.We concluded the year on a positive note with Q4 revenue and PAT growth of 12% and 30%, respectively. Part of this growth is attributable to lockdown imposed during last week of March in previous year. However, due to COVID, our full year sales and tax declined by 13% and 24%, respectively.Our soda ash front, global demand revised across key regions. Imports into India has been reduced by around 14% during Q4 and by around 35% for the full year 2021. Average pricing for the quarter declined by just 1% over Q3 '21.The flat glass industry witnessed better demand scenario and also due to anti-dumping duty on import of Malaysian goods. The container glass industry is still lagging behind due to lack of demand from the tourism and hospitality sectors. The detergent industry continues to be stable. The industry has already reached a pre-COVID level and which is -- with the start of summer this season, it may get further boost in the demand.Textile industry continued to perform well, and industry is operating at a high utilization level. Our order remains strong on account of many U.S. corporates continuing work-from-home offices in 2021. Spinning business also performed well due to strong domestic demand and high prices of yarn. With our focus on value-added products, we achieved better realization for the product suite. We anticipate buoyancy in the textile business to continue as business prospects for the near future looks good.Our future growth strategy is based on several initiatives. In soda ash, we are pursuing product basket expansion, debottlenecking, augmenting backward capabilities and doubling their sodium bicarbonate capacity.We have initiated our digital journey and enablers such as AI and IoT. We'll enhance our capacity and capability in medium to long term. In the textile business, our growth strategy is around expansion of the spinning business and green energy with focus on our customers, value-added products, cost optimization and [ associated value chain ].I will now share an update on the demerger as directed by the NCLT. We conducted requisite shareholders' meeting on 8th of April 2021, wherein our shareholders and unsecured creditors accorded their consent on the scheme. Secured creditors meeting is now scheduled on 8th of July 2021. Thus, the revised time line for the scheme to conclude should be around early November 2021. With our focus on several business initiatives, we foresee better times going ahead. This should help us realize our growth inspiration and also deliver value creation for our shareholders.I would now request Raman to share an update on the financial performance.
Thank you very much, Mr. Jalan. Good evening, everyone, and warm -- and a very warm welcome once again. I hope you all are safe and healthy during this tough and challenging time. Let me share the financial highlights for the quarter and fiscal year ended March 31, 2021.The impact of COVID is clearly visible in our results for the year as a whole. While the top line and the profits declined in the half 1 of the fiscal year, we were able to reverse this trend and achieve healthy growth and margin in the second half of the year. Revenue for the quarter came in at INR 821 crore as compared to INR 734 crore in the corresponding quarter last year. This is a growth of 12% year-on-year basis. For the full year, we reported a revenue of INR 2,850 crore, which is lower by around 13% over the previous year. EBITDA for the quarter stood at INR 195 crore, which is a significant increase of 21% from INR 161 crore achieved during last year.For the full year, EBITDA declined by around 15% to INR 646 crore from INR 763 crore. The profit after tax for the quarter stood at INR 104 crore compared to INR 80 crore in the quarter 4 of previous year. For the full year, the PAT stood at INR 310 crore, which is a decline of around 24% from FY '20. In the previous year, there was a provision for tax was lower due to reversal of deferred tax liability, and we got a credit of almost INR 52 crore in the last year.In the inorganic chemical business, we achieved a revenue of INR 531 crore for the quarter, which is an increase of 2% from INR 519 crore in the corresponding quarter of last year. EBITDA for the year -- for the quarter stood at INR 142 crore compared to INR 162 crore. During this period, we achieved a volume growth, while our realization declined by around 4% from the last year. After several quarters, the pricing stabilized and declined by just 1% over Q3 of FY '21.The robust performance of our textile business has been due to strong demand and high prices of yarn. Revenue for the quarter stood at INR 290 crore, which is a growth of 35% as compared to INR 214 crore in the corresponding quarter of last year. EBITDA came at INR 53 crore, which represents a healthy margin of over 18% against a breakeven EBITDA in the corresponding quarter of last year.For the year, we generated INR 449 crore in cash profit after tax. Gross debt reduced significantly by INR 472 crore, and at the end of the year, our debt stood at only INR 768 crore. Leveraging the business is at a comfortable -- very comfortable level of just 0.29:1, which is our debt -- net debt is to equity ratio.During the year, we spent around INR 110 crore on CapEx, which was mainly focused on growth. With our continuous focus, working capital requirements were also reduced by almost INR 79 crore during the year. Despite being a challenging year, GHCL has been able to deliver well. The Board has recommended a dividend of 55% on a [ payout of ] equity capital, which is in line with our dividend payout policy.As Mr. Jalan has already mentioned earlier, we are committed to grow our business. We have identified several initiatives through which we plan to achieve our future growth plans.With this, I conclude my comments. In this difficult situation, I would request each one of you to stay safe and remain healthy. Now I would request the moderator to open the forum for question and answer. Thank you all.
[Operator Instructions] The first question is from the line of Rohit Nagraj from Sunidhi Securities.
Yes. Congrats on a good set of numbers despite big challenging time. Sir, my first question is on our strategy in terms of growth. So if I'm looking at our presentation, on Slide #17, we have given what is our target. And in that, we have specified that we would like to grow profits at a CAGR of 15% to 18% on a long-term horizon. So what is the understanding of long-term horizon? And what is the path that we are expected to follow to achieve this particular target?
Mr. Rohit, thank you very much for asking this question. Let me try to give you the thought of the management. On one side, you know in our soda ash business, we have been growing by the drop down through the expansion. And there still one set of expansion is still under process, and that will get completed this year.On the other side, we are also -- as you know that we are also pursuing a new greenfield project for soda ash business because in the soda ash business, today, our market share is around 25%, and we would like to enhance our market share in the soda ash business going forward. In addition to that, also, we are expanding our sodium bicarbonate because sodium bicarbonate has a good future going forward. Because of the pandemic, the flue gas treatment had -- the sodium bicarbonate had not been used, but hopefully, coming quarters, the people will start trying to use this sodium bicarbonate. We see a good opportunity in sodium bicarbonate, so we are expanding -- doubling the capacity of sodium bicarbonate also.In addition to that, we are also looking at some product basketing, too. You see in my statement, which I said, we are -- of course, we have not yet identified this product basket, but we are definitely looking at, in the chemical space, some product basket, which matches with our core competency, which matches our kind of a business. We are looking at that opportunity. So that's on the chemical side. Of course, in addition to that, we are also looking at backward integration and some of them in the longer-term side. So that helps in terms of stabilizing the raw material side. This is on the soda ash or chemical side.On the textile side, as you will notice, which I have said, we are also looking at spinning. Our history -- Historically, if you look at -- our spinning business has always been a good return. We are expanding in the spinning business, and also, we are investing into the green energy also.So both the side -- after the merger also, both the business will continue to grow, as which we have said in the long term -- medium to long term, our goal is to grow bottom line by 15% to 18%. That is our mission is, and I'm sure that we will be able to achieve that, obviously.
Yes. Sir, my second question is in terms of the overall industry structure currently. So how are we looking at the global soda ash scenario in terms of capacity expansion, in terms of import of the products and general understanding of the overall industry and our outlook for the next 1, 2 years?
See, if you look at -- in 2021, global demand definitely has gotten serious impact because of this pandemic in the first half, but the second half, the recovery has started happening globally. Across the globe, barring 1 or 2 countries, the demand recovery has been good.In terms of the expansion, at this point of time, we are not seeing, in next 2 years, any major expansion coming in. And that is the reason we see definitely a good set of demand growth led by, I would say, no major expansion coming in to create the kind of a good pricing for the soda ash. That is number one.Yes, in the long run, you know that around 3% of the global demand growth will take place, which roughly comes around $2 million -- 2 million tonne. And that is what -- ultimately, this growth of 2 million has to happen, and therefore, some of that -- like U.S., some of the manufacturers are looking at debottlenecking or making an investment. Similarly, some of the Chinese manufacturers are also expanding. So this 2 million kind of expansion will take place, but my understanding is, next 2 years would be reasonably good for the soda ash industry.
The next question is from the line of Kaushal Shah from Dhanki Securities.
I hope everybody is safe in GHCL. Sir, I had 2 questions. One was pertaining to the soda ash business. You mentioned that you are debottlenecking the capacity. So what will it add in terms of tonnage? And when this new capacity will be available and just CapEx on that front for doubling of sodium bicarb also? And the second question was on the textile front. Do you anticipate some pressure on the spinning side because there is this renewed second wave of COVID, which has impacted, I think, exports of cotton also. That is what we hear. So is that likely to kind of put pressure on yarn as well as costing prices and maybe impact our margins?
Thank you very much. Let me give you first answer, which you spoke about there, that what is the additional volume which will be coming in. Around -- it will be around 50,000 tonne, and that will likely to be completed during this year. Maybe some benefit, we will maybe getting in the last quarter of this year, but full benefit will be coming next year.Sodium bicarbonate, I -- approximately, the investment will be roughly around INR 300 crores. And sodium bicarbonate, like I said, we are expanding to double the capacity. Invest will not be very large, but hopefully, this investment -- or the production will come maybe next year, middle of the year next year.In terms of textile, see, my understanding is that because of this geopolitical situation and the changing Chinese cotton issue globally, I think there is a structural change into the textile business, which I see slightly longer term. And because of that, good demand has been coming in into Bangladesh, India and Vietnam. And that is leading to kind of a better margin for the spinning industry.In terms of the cotton prices, let me tell you, my understanding is cotton prices are almost at a very high level, but still, Indian cottons are cheaper than the globally -- globally the cotton. I personally believe in the cotton prices -- should not be any drop in the cotton prices in domestic market. And if you look at the international market also, it went from [ $0.92, $0.90, ] $0.93 to $0.84, $0.85, and again, bounced back to $0.90. It also indicated that there is no regions that globally also the cotton prices may go down.In terms of the yarn, yes, there could be some small drop in the prices could happen. But my understanding is spinning margins will remain good for the next few quarters at the least. And overall, long term also, I see textiles should be doing -- when I say long term, at least 1 or 2 years. I see a good output out of the textile business. Good margin, you can say.
Okay. That was helpful. Sir, just one last question if I can squeeze in. In terms of our soda ash, the key customer segments, there was some analysis, which said that around 50% of the country is facing some kind of lockdown. And we've already had 15, 20 days in lockdown in various states, varying degrees.So if you can just share some thoughts on how has the month of April been for our soda ash demand. And do you anticipate -- for instance, Maharashtra has extended the lockdown by no another 14 days, and new states kind of keep -- names keep coming. So any thoughts on what impact that could have on the demand if people are not allowed to kind of make purchases? If -- and it's possible, in fact. I mean have we already noticed any dip in our demand? Or it is still too early?
See, the -- like you rightly said, some -- though the government had announced that there will be no national lockdown, but some of the local lockdown definitely has been felt into the business. I would say, up till now, there is not a very significant drop in the demand. But [ what of ] cotton? I would say that [ what of ] cotton, probably for the short-term period of time, maybe some impact can happen on the soda ash demand.But I don't see this is for a long term kind of a scenario. Maybe 1 month could be a period because, you see, overall, look at glass. Glass is basically -- because there were a lot of imports coming in, in India from Malaysia, which has been stopped now, but that is enhancing that overall -- domestic production has gone up, which has been -- which is again used for -- and you know that out of the total detergent consumes around 40% of sodas ash out of the total demand. There, the demands are better than the pre-COVID level, and I don't see that there will be a very significant drop into the detergent demand because the hygiene has become more important. Overall, my understanding is, in the short term, yes, there could be some impact, but [ bigger terms ], I don't see much.
Your next question is from the line of Jatin Damania from Kotak Securities.
Sir, just wanted to chime on the follow-up question, the previous participants. Like, as you've already mentioned that you will be enhancing your product basket. So are we venturing into chemicals, which -- where we can use our own raw materials? Or we are looking into venturing into totally different sets of chemicals?
No. Like I said, the chemicals, which we'll be talking about, of course, we are in the process of identifying the opportunities, the chemical which will be matching with our core competency. We are very clear on one thing, that we know that what is our core competency, bulk chemicals and things like that. So probably, those kind of things, we will be looking at and that process of identifying opportunities already are.
By when will we be finalizing it? And again, management hasn't decided what type of CapEx that we'll be spending into another product basket.
Like I said, at this point of time, only that, what we call, the thought has just started. We have started exploring the various opportunities. We are talking to some of the experts and so probably, at the right time, we will come back to our shareholders to give what kind of business we are looking at. But the slightly long-term view is that we need to kind of expand our baskets of the product, matching with our core competencies.
Okay. Sir, coming on to inorganic chemical business. Now this year, as a whole, you did a [ near about ] volume of around [ 933,000 ]. So in the next year, we'll be doing additional 50-odd thousand tonnes of volumes, right? Or we'll be doing more than that? What are you targeting maybe?
See, depending on -- just now some -- one of the shareholders asked me about what is the outlook for 2021, '22. If the situation continues the way we have expected a normalcy, so probably this year, you will be looking at a much better number than the last year. And this -- another 50,000 will be available for '22, '23. Maybe some portion of that could be this year. So probably, you will be looking at a good growth in the number this year as compared to last year. But as you know, that last year was -- because of the COVID, first 6 months, there was a loss of production.
Right. Sir, last question from my side, and I will come back in the queue. So if you look back during the quarter, I mean, sequentially, from the last 4 quarters, we have seen the decline in the realization that is [ -- over the results on the GP ]. But despite that, we have seen a 100 bp improvement in the soda ash margin. So what can we attribute that to, improvement in the margin?
See, overall, as you rightly said, our pricing of soda ash has dropped by around 1%. However, the overall -- our production is better as compared to -- sorry, our -- Raman, can you answer this question? I'm sorry.
Yes. Basically, the overall EBITDA margin has slightly gone down compared to the previous quarter because of the drop in price by 1%. Hello?
Yes.
And you are talking about the inorganic chemical business, no?
Yes.
And in inorganic chemical business, there is a marginal reduction of margin, 1%, and that is largely because of 1% reduction in -- drop in price compared to the previous quarter.
The next question is from the line of Rahul Veera from Abakkus.
Sir, just wanted to understand, for this additional 60,000 tonnes of sodium bicarbonate that you are adding, what is the CapEx there?
Raman, what is the total number for this, around 65,000 tonnes?
Sir, this will be in the vicinity of around INR 60 crore to INR 70 crore, something like that number.
Okay. Okay. So -- and FY '22 CapEx outlay for chemical division would be?
Raman?
There is some -- see, overall chemical division, this year should be in the vicinity of around INR 275 crore approx -- INR 275 crores to INR 300 crores because there is a carryover, which we did not do last year, which was because of the COVID level was not there. So that will -- the composition plus some fresh CapEx that we're undertaking this year. Hopefully, if that situation improves, we should be able to implement these initiatives this way.
Sure. Sir, what kind of margins does sodium bicarbonate has? Is it better than the EBIT margins of our soda ash segment?
Raman?
Definitely. See, you must be knowing that we require almost [ 0.67 ] or 0.7 tonnes of soda ash to produce a tonne of sodium bicarbonate. So -- and the price remains -- more or less you sell at the same price. So in a way, effectively, you achieve additional margin of close to 25% compared to soda ash on a like-for-like basis.
The next question is from the line of Sarvesh Gupta from Maximal Capital.
Sir, first question is, you alluded to the global scenario of not any major supply coming in. And would it be right to say that given that globally supply is not going to come in -- major supply is not going to come in, in next couple of years, so we can assume that the pricing outside will be sort of also stabilizing the pricing in India, which has been on a falling trend for the last several quarters?
No, you're right. You will be seeing the prices slightly improving from here.
Okay. And earlier, I think before -- given the COVID, I think we had a larger inventory in the market, which was also causing some disruption in the pricing. And now with the intermittent lockdowns, especially some segments like automobiles, et cetera, might be again sort of not taking in more supplies or something like that. So how is the situation panning out in terms of inventory and demand in the domestic market for you given this COVID situation?
See, at this point of time, I would not -- I would say that the inventory has slightly gone down as compared to what it was in the last quarter. However, how this pandemic second wave will happen entirely, it will decide what kind of inventory level will be there. But I just said, if I look at slightly longer term, I don't see that as a big concern.
Okay. And sir, just one more point on the demerger side. I think earlier, we were expecting that to be over on -- by maybe the first quarter of this year, but now it looks like it is now still to almost third quarter of this financial year. So I mean in terms of the management of that process, it seems like we are getting delayed a bit. So any thoughts on if there is some way to expedite that?
See, I have to kind of put -- COVID definitely has made an impact on the time line. Of course, the first time when we decided our thoughts about that, it should likely to be completed by all means by July. However, because of the COVID, the banking or the secured creditors, they have appointed some agency for evaluation. They got into the COVID [ check review ], if I use the right word. And because of this, the entire process has got delayed.So first, there was some delay by the stock exchange approval and -- which was not really big, I would say that. But this -- because of this COVID, the approval of the lenders has got delayed by 3 months. And that is where the 3 months of the delay is happening, which is purely -- according to my understanding, it purely -- not all in our control, but we are trying our best to get the secured creditors' approval on 8th of July. And once that gets completed, then probably all other processes will take -- will be done.
Okay. And just one bookkeeping question. What is the net debt in both the businesses? And would it be possible now to sort of completely give financials of these 2 companies now that we are close to the demerger process?
Raman, can you answer?
See, the total net debt approximately is around INR 725 crore, and inorganic chemicals is around INR 450 crore. And on the textile, it's around INR 275 crore. See, whatever is required as per the law in the segment reporting, we have been reporting, and in the segment reporting, the textile numbers are very clearly given separately.And in addition to that, whatever information is sought from us that we are providing, only post -- further information can only be given once this demerger process is over. But I think in our disclosure, I think in our investor presentation, we are giving all the requisite detail, which has been sought by the investor.
The next question is from the line of [ Swami ], an individual investor.
Sir, congrats on good set of numbers, especially in the textile segment. I just had a query on the consumer segment there. Can you throw some light on how is it panning out? What was some of their numbers there? What is the strategy there? Something like that.
Mr. [ Swami ], thank you very much. You see, on the consumer product, the last year has not been -- done good. In our product of salt, there was a major impact on the production of the raw salt because of the weather condition. And we could not produce the raw salt and because of that, we have not been able to produce the refined salt also, which is sold into the consumer side. So there was a drop in that also.Similarly, our honey and the spices segment has also not done well. Because of the COVID, we have not been able to kind of penetrate and supply the product to the market well in time, and because of that, there was hit on that.Going forward, Mr. [ Swami ], our thought process at this point of time is we are focusing more on our salt business more on -- to make it stabilized. And on the other product like spices and honey, we are trying to stabilize in our southern part of the country instead of looking at a global arena of that product. So probably, this year also, you will not see a big growth into the consumer product business, '21, '22.
The next question is from the line of Resham Jain from DSP Investment Managers.
So I have just 2 questions. The first one is on soda ash business. In the current month, as you mentioned, the demand has started improving, and you said there was just 1% fall in the realization. In the last month, have you seen any reversing of this falling trend in soda ash prices?
Yes. Mr. Resham, like I said, if you look at -- in the month of April, I would say, there is a slight improvement into the pricing because, last quarter, for the January-March, the prices were dropped by 1% from the last December -- October-December quarter. But you can say, end of the March, beginning April, the upward movement of a little bit also has started happening into the soda ash pricing. While going forward, my belief is improvement in the prices should be seen.
Okay. Okay. And sir, my second question is on the FY '22 in terms of the overall CapEx you guided for around INR 300 crores. And generally, if we look at your cash generation, it is upward of INR 500 crore. So how do you -- will we see further decrease in debt this year? Or you will preserve cash to go for buyback the way you did last year? Because...
Yes. Mr. Resham, buyback probably will be only possible after the demerger is done because in between the demerger, the process is on. We cannot go for the buyback. And once the process of demerger happens, and then probably, we can look at that buyback option.In terms of the cash generation, as you rightly said, our plan at this point of time is we will deploy this year's earning into the business in a way fully. So like I said, INR 300 crores to INR 400 crores because some investments are also being made in the spinning sector also. All net-on-net probably, our debt levels would be in the same range what it is today, which I think is a quite comfortable debt position.
The next question is from the line of Jayesh Gandhi from Harshad Gandhi Securities.
One of my questions has already been answered. First of all, congratulations on good set of numbers. I just wanted to know what is the rate of interest on our debt? And is it different for our inorganic chemical and textile? Or we are drawing on the sale of GHCL?
Raman, would you like to answer that?
Yes. Yes. Surely. See, on our term debt side, we are -- our approximate rate of interest is around 8.25%, and this is more or less the same for both the businesses, inorganic chemical as well as textiles. On the short-term borrowing, the rate is less than 6%. It's in the vicinity of 5% to 6% in between, something like around 5%, 5.5%.
And then last question if I can ask. Whatever CapEx which we are doing, are we thinking of doing it into -- I mean putting added money into our consumer business? Or it's going to be only chemical and B2B business?
At this point of time, the CapEx, which we are talking about, is only in the B2B business.
The next question is from the line of [ Ashish Rampuria ], an individual investor.
Sir, my first question, I think, very strategic one. The intent of this demerger was only to create value or there is some thought process that maybe the promoters will sell stake in one, [ goes to ] the investor and then raise stake in the other entities. Is there some thought around that?
Not really. It is basically to kind of -- like you rightly said, one is that creating the value. And secondly, just strategically, it makes sense that both the businesses had a different competency required, different mindsets required, different resources required, different merger and acquisitions kind of opportunity or the [ follow-on ] collaboration or the collaboration required. So I think strategically, this split was from that perspective.
Okay. So promoters will sort of continue with existing proportion that way. Have they given any indication they would want to increase stake or something like that to the Board or to the management?
At this point of time, we have -- we don't have such kind of indication -- any such indication.
Okay. Got it. My second question was that, I think given -- if I remember correctly, we used a lot of -- India has imported soda ash also from Turkey, and that was sort of impacting pricing. Given the pandemic and sort of the shortage of customers that we've seen globally, have you seen those imports going down?
Yes. If you look at -- like I said in my statement also, last year, the total overall drop in the import was 25%. And that's primarily the drop was from Turkey and U.S. And I personally believe that this year also, the numbers should be in the similar range of what it was last year. So therefore, definitely, that will have an advantage to the domestic industry in terms of the overall. If the demand grows the way the industry is predicting, 10% to 12%, and the import remains at the same level, probably that advantage would come to the domestic industries.
Sure. And I think just linked question, one last. I think there are also some talk of some anti-dumping duty, et cetera, that has been talked about. Was there any movement on that?
We have applied for a anti-dumping duty against Russia and Iran. So at this point of time, the major import, which is coming from Russia and Iran -- and as you know that earlier, we had applied for anti-dumping duty on Turkey and U.S., which has not been accepted by the government. Now the first application is on Iran and Russia.
So major proportion of import is happening from Iran, Russia as of now?
No. U.S. and Turkey also continues, but increase in the import last year, in 2021, was primarily from Russia and Iran. And they are slightly more aggressive in the pricing, so probably, if we can get an advantage of anti-dumping duty, that will really help us.
[Operator Instructions] Next question is from the line of Saket Kapoor from Kapoor Company.
Sir, firstly, in your presentation, you have articulated about this Turkey playing a strong part in distribution of soda ash across the globe. Sir, what is their current capacity as of now? And what have been the utilization levels at Turkey as a country, sir, since the import from -- to India has been down? So...
See, Turkey has around -- Saket, Turkey has around 5.9 million metric tonnes of the total capacity. Out of the 3 players, Eti Soda, which is 1.7 million; Kazan Soda, which is 3 million; and there is another producer, which is around 1.2 million. And average utilization is around 75% to 80%.
Okay, sir. And sir, what is our soda ash volume, sir, for the entire year, the production and the sales in India?
In India?
For us, sir. For GHCL, what was the soda ash volume number?
Roughly around 900,000 tonnes.
900,000 tonnes on an installed base of 11.5.
I would say, yes, you can say, 11 lakhs is producible quantity. Out of that, because of this COVID, first 6 months was a drop. And last quarter, our utilization was around 95%.
95% of 11 lakh.
Yes.
Okay. And sir, that 50,000 tonne, which debottlenecking is already through, sir?
Like I said, this process is on and probably, this year-end. Because of the COVID situation, it has not got completed last year. It will get completed this year, and the benefit will come next year.
Right. So coming to this home textile part for a bit. So if you take -- if you compare Q-on-Q number for home textile, how correct it is as you stand corrected, that Q3 number -- the Q4 numbers are slightly depressed on a stand-alone basis. However, on a consolidated basis, there is a good increment of INR 8 crore on a top line increase of around INR 15 crore, INR 16 crore. So if you could explain, sir, how -- what has gone into the consolidation, I think, sir, the yarn prices were on the upward side only for the March quarter also.
Raman, can you...
Yes. Basically, there are 2 reasons, Saket ji, on this. One is that this -- we -- in the previous quarter, there was an export incentive of ROSCTL benefit, which was there, which we have considered as for the government scheme. However, in this quarter, there is a new scheme, which is RoDTEP. So that scheme, the government has still not notified the rate of incentives. So on a prudent basis, we have not considered any incentive on that account. Last quarter, it was almost INR 7 crore, so that way -- that statement -- that piece is not there.In addition to that, there is one more expenditure, which is we have surrendered one land during this quarter -- in this year. So there is an impact of INR 5 crore that we have surrendered to the government to take care of the colony and the roads in that colony. So the impact of that is around INR 5 crore. So these are -- that impact or the combined impact of that is INR 12 crore vis-Ã -vis the previous quarter. I hope that explains the whole thing.
But sir, on the consolidation, it has gone up by INR 8 crore. So what explains that? I missed that.
On the consolidation, it is -- there is -- you know that there is an overseas subsidiary, which is there in U.S.A. So that subsidiary, there were certain earlier impacts. There were losses which were -- they were having there because they were [ hiring ] to the dot-com business and they're into various other products.So that -- impact of that was considered in our Indian books during the quarter, and so that was already accounted for in that in the consolidated book in the previous year. So that is the reason that you find, on a consolidated basis, the number is high.
Because we have reversed it. That is what you are saying.
See, we have taken the impact in Indian book because that impact is already there in the overseas book in the previous year.
I didn't get it. I'll take it offline, sir, anyway. And on the water -- and water power charges, there is a significant reduction quarter-on-quarter basis. So on an annualized basis, sir, what kind of reduction are sustainable, sir, the power fuel and water expenses?
You see, Saket ji, this power fuel, water reduction that happened is not sustainable because we have got some green energy charges, which was earlier booked, which was not required as per the new green notification. So we had reversed those green energy charges. And because of that, we have got that advantage, but that's not sustainable.
Right, sir. And in fact, lastly, sir. On the CapEx part, sir, you told that, this year, the entire thrust will be, of the company, to invest in the CapEx. Out of the entire cash flow, there will be no significant reduction in debt as we are already in a very good position. Sir, exactly, going forward, sir, [ car ] budget, how will we shift our cash flows for this year? What exactly are we going to do segment-wise if you could reiterate?
Mr. Saket, like I said, greenfield, brownfield expansion, is one. Sodium bicarbonate is another one. And in the spinning, we are -- green energy, also we are investing. That's the third. Investing into that spinning business also is another one.All these investments, we are also looking at some backward integration, like I said, salt -- some salt investment. So those kinds of investments. Like you rightly said, our cash generation is the level -- and going beyond this debt will probably not be prudent from that -- from the shareholders' perspective. So we are looking at an opportunity, which are -- at least gives us a 14% to 15% return on that investment. We are looking at that investments.
These are greenfield projects.
The next question is from the line of Andrey Purushottam from Cogito Advisors.
This is Sangeeta. Congratulations on a great set of numbers. I have 2 questions. One is that, if you look at the fourth quarter as a base, then would it be fair to say that in this year, in the current year, our margins are going to be either equivalent or better than what we have achieved in the fourth quarter? That's number one. Second is would you give an indication of what kind of volume growth we are likely to achieve in the current year?
So Sangeeta, thank you very much for your appreciation. Let me try to -- on one side, like I said, soda ash overall pricing, we are probably looking at kind of an upward movement. How much, it has to be seen and this pandemic -- how this pandemic's shape out to be, which is slightly uncertain situation at this point in time. But we are optimistic. If everything goes well, probably, the prices would be looking at an upward movement.As you know that even the raw material prices has also gone up, particularly the energy prices has also gone up. Now how does this energy prices also shape up because, there, also we are seeing a lot of volatility in that? At this point of time, predicting that what kind of a margin will be there during the whole year probably will be -- not be right because of so much of volatility and so much of uncertainty of all this pandemic.In terms of the volume, like you rightly said, again, it entirely depends on how the pandemic plays out. But surely, this year, we are looking at -- if the production does not stop because of the pandemic, probably, there should be a good improvement into overall production. Last year, we have achieved something around 900 something. Probably this year, it should be something around 10.5 if everything goes well, probably.
The next question is from the line of [ Kamal Jedi ] from -- an individual investor.
There is a -- our rupee has fallen by 5%. Should we expect that the imported prices will go up by 5% and that will push the prices up further?
You see, you are right in terms of the -- not only the dollar has kind of appreciated, but on the other side, the supply chain cost has also gone up because container availability and container rates, all have gone up. And surely, that should have an impact on the pricing. That is what I'm trying to maintain, that prices should be looking at an upward. But how does this pandemic -- because everything is, at this point of time, is dependent on how the pandemic pans out to be. The pandemic does not make any major impact, probably, yes, you will be seeing those kinds of improvement in the numbers.
The next question is from the line of Giriraj Daga from KM Visaria Family Trust.
So my question is related to pricing. So you mentioned that in April, we are seeing some slightly better prices compared to March. Are you able to quantify, let's say, what were the April month average versus the March quarter average?
Regarding -- I'm sorry, I've not understood your question.
Soda ash prices you mentioned that April, we are seeing from the beginning some better prices compared to last quarter. I'm asking, would you be able to quantify, sir, how the April average has been versus like the last March quarter average.
I don't think we will be -- at this point of time, we will be able to quantify those numbers because, overall, like I said, a lot of things will depend on how the things pan out to be. Quantification will be difficult at this point of time.
Okay. Second question was related to -- when I look at some of the international prices, soda ash prices, those have gone up. So has that started impacting the import segment in our country? So are the importers seeing higher pricing as of now? Or the countries where the imports are happening, Russia, there, the prices have not gone up? Can you clarify that?
Russian prices has also started going up. In last few months, we are seeing that the Russian prices also started going -- have been quoted at a higher price. Iran also started quoting -- because you see, like I said, the freight cost has gone up significantly from across the globe. That has a direct impact onto the pricing of the product. That is number one.Number two, like someone has very rightly said, rupee-dollar [ hedge ] kind of it has made an impact. Overall, definitely, the imported product has become costly as compared to what it was a few months back.
Okay. Okay. And the last question is around the CapEx. You mentioned [ INR 200 crore, INR 300 crore ]. But when will we hitting a large part of our greenfield CapEx because that is one of our growth projects?
In terms of the greenfield project, again, they are land acquisitions. We have roughly invested -- or I would say, we have acquired around -- Raman, 75%?
Yes. 75% acquisition, we have already done.
Now this 25% of the land, which is still pending, and because of this pandemic, movements are not taking place. People are on a different location, so slightly slowdown is there on that. The moment that gets completed and not -- it will not be a very significant amount to be put into that -- into the buying of that land. So we don't see a very large sum of money is getting invested into the greenfield project during '21, '22.
No. I know that you are not expecting this, but when that will start hitting in '23, '24? Which year we should assume that...
It should be -- I think it should start happening from '22 onwards. Investment will start happening. However, major portion of that amount will be '23 -- obviously, '24.
Next question is from the line of Riddhesh Gandhi from Discovery Capital.
Sir, I just had a couple of questions. You guided kind of earlier to [ INR 200 crores, INR 300 crores ] of CapEx that we're expecting to do. So all of this is growth CapEx effectively? Or is some of it is around actually maintenance? And actually, when do we see effectively the utilization of this where we can do up to, you said it is, 15% to 18% ROCE we have been targeting?
See, Mr. Gandhi, this entire investment, which we are talking, was largely on growth projects. Like I said, investment into that brownfield expansion or sodium bicarbonate or into the green energy. All these are growth CapEx, and that will definitely have -- on one side. Your top line will increase. On the other side, your revenue or your bottom line will also increase. Even the investment in the spinning also will increase your overall top line and bottom line. So this is -- it is somebody I can say, this is entirely for growth of the business. Where our expectation is in the range of around return on capital should not be less than around 14% to 15%.
Got it. But -- so we would be okay to the growth CapEx even at a 13% ROCE. Is that what we indicated?
Yes. Mr. Gandhi, see, you know that just now Raman said that our interest cost is in the range of around 8%. Okay. 7% to 8%. It has to catch all that put together. And 13%, 14% of the return on investments probably on the return on equity is a good set of numbers. And that also helps you to grow your business and capture the opportunity going forward also. So we are okay with 13%, 14% also. But at this point of time, our target is 14% to 15%.
Got it. Got it. Okay. And then, sir, you're sure indicating that you're expecting to see reasonably, actually, healthy spread in spinning over sort of next few years. Now we are obviously also hearing that from a lot of the other [ demergers ] as well. And the people are talking a record spread in spinning. I just want to understand, if you could explain to us the reason we are seeing this and how can be sustainable during [indiscernible]? Is it that demand increase has happened? Is it a supply shock? Is it China issue? Just wanted to understand that.
Yes. Mr. Gandhi, as you very rightly said, this -- overall, what I see is kind of a slightly structural change. See, in China, there are a lot of customers or a lot of consumers, consumer in a sense, I'm saying, retailer. They don't want to depend on China on their supplies. And particularly, now the issue of Xinjiang, where the [ force ] level or the compliance has become a big issue. I was attending one of the -- our strategic customers of the U.S. as a vendor, [ this thing ], and they very clearly came out that they want to reduce their dependence on the China.So I see that as an opportunity for Indian as well as Bangladesh and Vietnam as a country to supplement those supply. And that is the reason I see slightly longer terms of the benefit of that happening to Indian players. And obviously, the spinning will have advantage of that as well. And that is what we are seeing at this point of time.The second point, which is specific to us, the last 2, 3 years, Mr. Gandhi, we have been focusing on moving towards the value-added segment. So now I'm happy to say that we have been able to produce premium products like Pima yarn, [ Vijaya ] yarn, Australian yarn and air-jet spinning. So those value-add is on high-quality, what you call, strategic customers. All those movements, which we have done is also helping us to capture better margin than a normal industry. In addition to that, as you know, that our costs are also -- because we have put money into the green energy of solar power and wind energy and things like that, overall, our cost structure is also much lower. So overall, our margins are much better in the spinning [ containers ].
Got it. Understood. And just a last question, and I think you have covered it earlier, but I just wanted to understand that with the exchange rate, which would be making local prices higher, and your freight costs, which you've also indicated have been materially higher, yet, we haven't seen the impact on pricing despite the Q4 effectively being a reasonably strong quarter across industries. So just want to understand, I mean, actually what's the reason of an equivalent increase in prices even in Q4. And actually, what is it that is going to drive it to effectively the earlier levels? And how much were -- lower are we than earlier highs? And actually, when do you think we can get back into those areas of prices?
So Mr. Gandhi, you're very right that, overall, international prices have started going up, but we know that the supply chain and the impact to some of the contracts, which are on the fixed nature for -- even for the people who are importing, there were some of the contracts which has been made in that before. In India also, we have set certain contracts, which are on a 3-month to 6-month period of time. All those things equations are there, even in the domestic demand, supply. Everything plays out onto that [indiscernible]. Any impact of the pricing takes some time.
Got it. And so if you lag...
Mr. Gandhi...
Yes. Sorry, let him complete. Let him complete. Sorry, go ahead, Mr. Gandhi.
So is it a lag effect effectively of the pricing increase, which then is already starting, hopefully, still reflect maybe some small disruption, which may happen depending on the pandemic? But otherwise, the reason we haven't seen it in Q4 is because of the longer-term contracts we have.
Yes. Mr. Gandhi, I said -- you very rightly said that probably a slight improvement, you will start gradually seeing into the pricing going forward, depending -- but of course, subject to the pandemic.
The next question is from the line of Anish Jobalia from Banyan Capital Advisors.
I hope my voice is audible to you. I joined the call a bit late, so please apologize if I have repeated a question. But I just wanted to understand, sir, from you -- so in this year, the textile business has suddenly turned around, and we know that the reason -- one of the reasons is because the yarn spreads have also improved. So just wanted to understand what are our long-term plans with the textile business now given that you are also looking to invest into spinning. So I just want to understand what is the rationale for doing that. I mean you could invest also into other areas like home textiles or fabrics. I mean there are many other areas you can invest in the textile there. And I know that your forte has been spinning business. But how is this going to help us in terms of growth margin improvement, ROE, ROCE profile going forward? That would be helpful to understand your thought process there.
No, no, you're right. This -- that you have a very valid questions on the textile side. As you know that both the businesses are under the process of a demerger and every business has to take their own course of action. And at this point of time, why we thought of making an investment into the spinning business because that is our core competency. And we have seen, in many years, our margin in that business is reasonably very good.And ultimately, we are in the business for making margins, right? And look at -- if I look at the long-term kind of return on that investment, I see around 15% return on an average, return on the capital of -- on the spinning business. Whereas, our home textile -- as you know, that home textile is not giving that kind of a return.So for us, it makes sense to make an investment into the spinning. And that also our -- we have an inspiration that in the spinning -- of course after the demerger that they'll be a separate company. They will -- separate board will be there. At this point of time, on behalf of the spinning, we want to be a company where we have a basket of products of all the spinning type of products. Any spinning product which you think of or any yarn you think of, we should be a producer of that yarn. So we are moving in that kind of product basket and value-added investment, and that will definitely give us a good return. And that is the reason we are going for that. Home textile, we have already made an investment.
Okay. So just one thing to understand, another question. So around the RoDTEP, like we were not able to book any revenues around that. But going forward, what is your expectation now that it's been already 4 months or so since that has been abolished earlier incentives. So what is your best guess around how this is going to be going forward? I mean how will this impact our business?
See, at this point of time, it is very difficult to predict what kind of a number government will be announcing. But the previous rate was around 8.2% on ROSCTL, right? Now how much the government will be announcing, it is very difficult, and that is the reason, as a prudent basis, we have not accounted for any incentive in our groups of accounts.In terms of the competitiveness, yes, you are right. This incentive definitely has an -- will have a more competitive advantage to the Indian producers. And I'm sure that the government will keep looking at that, and surely, they will be coming out with a reasonable incentive. And this is primarily of reimbursement of all the taxes, which you are paying onto that raw materials and things like that, which is completely WTO compliant. And I'm sure the government will be coming out with a good set of number on this.
The next question is from the line of [ Pankaj Bobade ], an individual investor.
Congrats on good set of numbers, sir. Just wanted to understand more about the home textile business. I mean, there, you have highlighted Xinjiang province, issues related to that. But I wanted to understand how is the target market? Because your -- the developed markets, how are they behaving? And -- because they also had faced impact of pandemic. How is the demand with the retailers? And how are we going -- how are we responding to it?
Yes. As you rightly said, if I look at the developed market like U.S., I think the COVID impact is slowly going away from there, and the demands are picking, and particularly, the people are working from home. And since they are working from home, they want to kind of invest into their home. And that is the reason the demand of the home textile products are good.And my belief is that since this work from home will continue for a few more quarters, probably the demand for the home textiles should continue to be good going forward as well. Similarly, the same situation happens in the Europe, at this point of time, barring 1 or 2 countries. So overall demand of the home textile at this point of time is good.
So sir, what is our current capacity utilization? And do we see India benefiting from that, too?
Yes. India definitely should be getting a benefit because, as I said, Pakistan -- sorry, China issue. India should be getting a benefit. And our capacity is approximately around 45 million. Raman, it's 45 million, right?
45 million [ meters ] for the year as a whole [indiscernible] per month.
Yes. So it's 45 million. And at this point of time, we have an opportunity of making an investment into that area also, but right now, we are not making an investment on that.
So what was the capacity utilization so far?
See, overall, we are -- at this point of time, on our direct exports, probably we are doing roughly around 60%, and balance, we are doing for the domestic producers. And overall, we are running our plant fully.
So that means 80%, 85% or higher than that?
No. It is roughly around 90-plus, 90% plus. But the balance, like I said, 35% -- 30%, 35% of the production is primarily not for the export. That's an opportunity we have kind of to convert that into the export.
So you mean to say, currently, 60% of the capacity utilized for exports market, while that is underutilized, and we will be converting that for exports market going forward.
Yes, that is what I mean.
Okay. My last question, how have been the realizations so far? Are they on increasing trend or flat in nature?
In the home textile? Your question is relating to home textile?
Yes. Yes. Realizations in home textile.
Yes. Home textile, see, prices are, I would say, slightly on the upward side because the raw material prices have gone up. Yarn prices had gone up. Of course, retailers are a little reluctant of increasing the price, but the industry is pursuing with the customers for increasing the price. Similarly, we also -- some of the retailers had agreed to increase the price, and some of the retailers still we are negotiating for the pricing. But overall, prices are better than the last period. However, the cost of the raw material has also gone up.
Okay. As you mentioned about raw material, do Indian textile makers get benefit of Indian cotton as compared to others?
Yes. Yes. Definitely.
In terms of pricing, too?
Yes. Indian cotton prices are cheaper than the international cotton prices.
Okay. So we are at advantage as compared to the global players, right?
Yes.
The next question is from the line of Jason Soans from Monarch Network Capital.
A very simple question, actually. Just want -- I mean you mentioned that demand for textile has been diverting from China to countries such as India, Vietnam, Bangladesh. Just wanted to know what is the -- what are the main reasons for the same? I mean there is definitely an anti-China sentiment due to the COVID and everything. But are there any other reasons which you find for the shift?
As you rightly said, first reason is the anti sentiment. And second is that, like I said, there is a province, Xinjiang, where the cottons are being grown. 70% or 75% of the cottons are grown there. And that -- there, there is -- child labor issue is there, and because of that, a lot of retailers, they refused to buy any product which contains the Chinese cotton of that region.
Okay. Okay. Okay. So there is a child labor issue there.
Yes.
The next question is from the line of [ Alisha Maya ] from Envision Capital.
While most of my questions have been answered, just wanted to understand that while the soda ash realizations have declined about 4% Y-o-Y, can you give us the number for full year FY '21 on FY '20?
Yes. Raman, can you give the FY -- what is the drop around overall...
Drop compared to the overall full year is around 10%.
10%.
For year-on-year, it is 4%, but for the full year, it is 10%.
Okay. Okay. And I believe, earlier in answer to another participant, you said that you are expecting your business volumes of about 10.5 next year. Can you tell us what was the volume growth for the full year in the soda ash business for FY '21 on '20?
There was a drop not because you see -- because of the pandemic, the first 6 months was a drop. So overall, my understanding is 6% -- 7% down, Raman?
Around 9% drop.
9% drop.
[Operator Instructions] The next question is from the line of Rohit Nagraj from Sunidhi Securities.
Sir, one question is on -- in terms of our debottlenecking. So after we go ahead with soda ash from 11 lakh to 11.5 lakh, and bicarb from 60,000 to maybe 120,000, do we have further scope for debottlenecking at our existing plants for soda ash or bicarb plant? Is there further scope for any other chemicals to manufacture, as you indicated, in terms of our diversification initiative?
At this point of time, in terms of the brownfield expansion, no, at the current location. However, like I said, we are making investments and the journey towards the IoT and that will definitely improve our utilization. That will also improve our overall efficiency, and that can lead to the increase in the production.In terms of the other chemical, no, at this location, probably we will not be able to make any other chemical also because of the space constraint. And there is all these thoughts, which we have is that we will be making an investment into the new location, which we are in the process of acquisition.
Sir, just to add what you said, is another question of can we add more capacity, as you said, beyond this 120. I think there -- some scope is there.
Yes. There, we have some scope, yes.
The next question is a follow-up from the line of Saket Kapoor from Kapoor Company.
Precisely, sir, everything has been answered. But on the greenfield project part, sir, as you are already interesting on the fact that there will be 2 separate companies, and they would be taking their growth on -- separately. So on this greenfield project, sir, definitely, they are slow on it because of COVID [ factor ], but still, sir, are we looking for any kind of M&A activity, a JV partner [ giving us ] some bit of equity, giving us some valuation, giving us some gap on the valuation part? Something on that and is there -- or we are going to go solo on that project? So we have seen it earlier that many of the companies coming up with projects are partnering with their consumer retail for an offtake agreement. So anything of that, that is there in the -- and will -- and for the -- and what is the time line for improving the -- expanding the product basket, sir? As you told that we are -- are we only scratching the surface now or some work has been done and now we are taking a further strike going forward?And one more point was only, sir, this reduction in royalty on soda ash for the U.S. producers. What would have been the reason, sir, from 6% to 2%? And what has that impacted the market, sir? And how that...
Mr. Saket, let me answer the last question first. The U.S. natural producers and the mining community has been lobbying for the government of U.S. to reduce the royalty on the mining products. Now at the time of the outgoing government, some government, they have agreed, and they have reduced this or they have increased -- reduced the due, what you call, royalty on that, on the soda ash. And that has got an advantage to them. And obviously, that will enhance their competitiveness or that will enhance their kind of profitability. The last question, the answer is this. The first question which you said, in terms of the opportunity of merger and acquisition, partnership, every opportunity, we are keeping our eyes and ear open, and we are looking at all the opportunities, which can be possible. But at this point of time, something on our plate? No, at this point of time, we don't have any. But we are open for any such kind of options, and we are exploring those options.Now coming back to the third point which you said -- what was the third question you have in terms of -- Mr. Saket, what was the...
Sir, even I have forgotten.
No. No. Basically, you said, when we are exploring the product basket...
Yes. Yes. Product bucket, yes, yes, yes. Thank you, Raman.
Is that it, Saket ji?
Yes, yes.
Saket ji, you can say very rightly that right now, we are scratching the surface only. How that's coming to our mind because the growth is very imperative and the kind of balance sheet we have, so we have definitely an inspiration that we should look at. But we don't want to be rushed and kind of make an investment. We want to evaluate, properly evaluate and see, which is a synergy, our core competency. Where the opportunity of growth in the future is also there, we will be going with that and not in a rush, not in a rush. so it's a thought I'm discussing at this point of time, but surely, we will be working hard towards this goal.
Lastly, sir, if you could give the volume data for December quarter and March quarter for our [ soda ash ] volume -- production and sales numbers.
As you know, Saket ji, we are not saying the data.
As there are no further questions from the participants, I now hand the conference over to the management for closing comments. Over to you, sir.
Thank you very much all the shareholders who have participated and asked us and the various questions. As I have always been saying, your questions always put us a lot of thoughts in our mind and lots of challenges in front of us, and we are happy to kind of address those advice or the challenges. And in the last, I would say that please take care of yourself. Be safe. We are passing through a very difficult time, and I'm -- I hope that all of you will be well along with your family. Thank you very much.
Thank you.
Thank you. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.