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Grasim Industries Ltd
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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Grasim's Earnings Conference Call for the Q1 FY '19. [Operator Instructions] As a reminder, this conference is being recorded on Tuesday, August 14, 2018.Hosting our call today are Mr. Dilip Gaur, Managing Director; Mr. Sushil Agarwal, Group CFO, Aditya Birla Group, and Whole-Time Director of Grasim; and Mr. Raj Narayanan, Group Executive President and SBU Head-Chlor Alkali and Viscose Filament Yarn business. Following the presentation, the call will be open to analysts and investors for questions. A replay of this call will also be available on our website. I now hand the conference over to Mr. Sushil Agarwal. Thank you, and over to you, sir.
Thank you. Good afternoon to all of you. Grasim has reported its best ever quarterly financial performance at a stand-alone level. Performance at a consolidated level was equally impressive. The Q1 FY '19 stand-alone revenue, EBITDA and PAT are up 75%, 89% and 85% Y-o-Y to INR 4,789 crores, INR 1,176 crores and INR 643 crores. The like-to-like performance of Grasim without ABNL business also recorded a strong financial performance with revenue and EBITDA up 29% and 66% Y-o-Y to INR 3,531 crores and INR 1,033 crores. At a stand-alone level, the business performance of VSF and Chemicals was outstanding. The VSF business reported highest-ever quarterly production and sales in Q1 of FY '19. Similarly, the Chemical business reported highest-ever EBITDA. The Q1 FY '19 consolidated revenue, EBITDA and PAT are up -- are also up 71%, 33% and 25% Y-o-Y to INR 16,857 crores, INR 3,212 crores and INR 1,116 crore. The Board of Directors have approved a capital expenditure plan of INR 1,112 crores for expansion of caustic soda and specialty chemicals at the existing locations. A sizable portion of the capital spent will be towards specialty chemicals. The total capital expenditure to be incurred by Grasim over next 2, 3 years will be in the tune of INR 7,500 crores. Our balance sheet continues to remain in a strong position. We continue to maintain reasonable cash level at the stand-alone level. At the end of quarter 1 FY '19, we have surplus cash of INR 721 crores against INR 389 crores in Q4 FY '18. The free cash flow generation at a stand-alone level was around INR 400 crores after spending a CapEx of around INR 300 crores.I'm delighted to share with you that Grasim has been ranked 205th in the list of Global 2000: Growth Champions 2018. This is by Forbes Magazine. Grasim is the only Indian manufacturing company to feature in this list of 250 Growth Champions.FY '19 is a critical year for us as the management focuses will be to ramp up the recent-commissioned chemical plant and to maintain a strict control on the cost and time line of the recently announced projects in viscose and chemical and specialty sites. In viscose, the FY -- first quarter FY '19 financial and operational performance of the business was best-ever reported. The VSF prices remained firm during the quarter. The prices of cotton and polyester maintained its strong upward trajectory, with cotton prices rising 9% Y-o-Y and polyester prices witnessing a double-digit 25% Y-o-Y increase. The global VSF demand remained buoyant. A similar trend was witnessed in India. The VSF demand expanded at a solid pace, in line with our expectation. Our share of domestic sales and overall sales has been rising since last few quarters and stood at 82% in Q1 FY '19, substantially higher than 69% in Q1 FY '18. Our domestic VSF sales rose for the fourth consecutive quarter. The India demand growth has received a strong pull from Liva initiative. The number of Liva-tagged garments increased to 26 million in summer season '18 from 12.6 million in summer season '17. The VSF business witnessed cost pressure, essentially from rise in the caustic soda price and sulfur, which are up by 20% and 42% Y-o-Y.Let me reiterate that Grasim, by virtue, has 80% cost integration for key inputs like pulp, caustic soda, power and steam, et cetera. And is better positioned to witness -- to withstand rising cost environment, which is reflected in these results. The rise in input prices has been partially neutralized by improvement in the consumption norm of steam, power and caustic soda. The VSF business reported record production of 103 -- 134 KTPA, up by 4% and sales volume of 132 KTPA up by 9% Y-o-Y basis. We are glad to inform you that debottlenecking at various plants is almost complete and is reflected in the bump-up in the production volume. In previous years, the production level at plant suffered due to the water shortage. However, in Q1 FY '19, this situation was avoided through better water management practices and augmenting of storage infrastructure.The viscose business reported record EBITDA of INR 586 crores in this quarter, up 68%, driven by rise in volume, realization and cost efficiencies. The Vilayat brownfield expansion is progressing well as we have started ordering long-lead items. We will update you about the progress of the project on regular basis.In Chemical, caustic soda prices temporarily softened during the quarter on account of liberty of distress, consignment and delayed ramp-up of alumina plant in China post winter. The Chemical business reported another strong quarter with highest-ever production, sales, revenue and EBITDA. The revenues are up 46% and 103% Y-o-Y to INR 1,579 crores and INR 495 crores, driven by strong sales volume and better realization.The production and sales volume of caustic soda are up 18%, each Y-o-Y to 236 KTPA and 235 KTPA. Our caustic soda plant operated at 92% capacity utilization during quarter 1 of FY '19. The ECU realization for Grasim was significantly higher on Y-o-Y basis, driven by higher caustic soda prices, further supported by chlorine prices turning positive in Q1 FY '19. The chlorine price is expected to remain stable, with the demand from Agrochemicals, EDC and others. In quarter -- Q1 FY '19, we commissioned caustic soda brownfield expansion of 200 KTPA at various plant locations. Given the strong growth prospect of the industry, the Board of Directors have approved a capital expenditure plan of INR 1,112 crores for expansion of caustic soda and specialty chemicals at the existing location. In Cement, the business reported a healthy volume growth of 29% and revenue growth of 28% Y-o-Y. The sales volume stood at 18 million tons, and revenue stood at INR 9,021 crores. The EBITDA for first quarter stood at INR 1,763 crores. The operational performance of acquired assets improved significantly with capacity utilization improving to 70%. The company has taken various measures like consistent reduction in operational cost, improving the pet coke usage and increasing focus on retail sales.In Financial Services, the revenue and net profit after minority interest for Q1 FY '19 are at INR 3,024 crores and INR 216 crores. The NBFC lending book grew by 23% Y-o-Y to INR 44,408 crores, and Housing Finance book grew by almost double, doubling on Y-o-Y basis to INR 9,176 crores in Q1 FY '19. The Asset Management business was ranked #3 in India, with the average assets under management up by 19% Y-o-Y to INR 2,67,176 crores. The business reported an overall domestic market share of 10.7%, with equity AUM, including alternate and offshore, is at INR 1,00,000 crores as of June '18. Life Insurance Business reported a 40% growth in individual first year premium to INR 227 crores. It has improved its individual rank by 2 spots to #7 (sic) [ #71 ] amongst insurance companies.Wishing you all a happy Independence Day, and we can open for question-and-answer session now. Thank you.
We have the first question from the line of Gunjan Prithyani from JPMorgan.
Just 2 questions. Firstly, on the VSF. If I notice the sequential trends, realizations are pretty flat, but your margins have moved up very significantly despite the cost pressures that you spoke about. So is there -- is this kind of cost reduction sustainable? I'm just trying to understand what happened on the cost side within a quarter. Even, I mean, Q1 -- last quarter, you were at 18% margin, and this quarter, it's almost at about 23%, 24%.
Yes. There are 2 or 3 things which have happened. One is on the cost reduction through input efficiencies, and that is going to be sustainable because we could save significant amount through reduction in our chemical consumption, steam consumption, power consumption. Second is, last year if you will remember, our Harihar plant had stopped because of water shortage. And there was a downturn on account of that. Now that -- we have been able to avoid the stoppage of -- and no plant stopped because of water this time. So these are: Nagda stopped, now Harihar has stopped. So we were off slight because of the extra production from -- because when Harihar was down, Harihar has a very low cost of production of pulp. So that benefit has come in the margins. And the third one is in terms of the overall volume growth because of debottlenecking impact. We have got a full impact of debottlenecking in this quarter.
Okay. There is -- so -- I mean, basically, if I look at Q-on-Q -- again, the cost has -- I mean, I'm not comparing versus last year because there was a water shortage problem last year. But on a sequential basis, Q4 to this quarter, is -- this, you think, is a sustainable kind of margin if realizations hold up?
Yes. Q4, again, just to let you know, got depressed slightly because we had to take a capacity cut because of our permissions for the debottlenecking had not come. So what -- the number we have got are sustainable this quarter. They have abnormal inputs this quarter.
Okay. And on the VSF supply, is there any clarity on what kind of commissionings we would see through the year? And how are the overseas prices trending?
Yes. See, as you know, our expansion projects, they're going onstream. They are on track. So the Vilayat expansion will come onstream by September 2020, around that time. And the debottlenecking, the entire impact of 44,000 tons of it has come in this quarter, so that'll continue. There'll be a little more debottlenecking happening as we go forward, and that's another 28 -- I think 40 tons per day. Another 40 tons per day will come. The prices, as you have seen -- in fact, the prices are -- because of the excess capacity, the prices globally are under pressure. But there is -- so the Chinese prices did come down but they are just the currency impact, the net impact was not as much as one had thought.
And the Chinese supply, has that come onstream? Or it's still deferred? When do you see that coming onstream?
It -- they got delayed, but they have started coming onstream. Last month, a lot of supplies have come. So this year, we expect about 800,000 tons of supply will come against 1.2 million which we had estimated earlier. So there is a deferment of about 400,000 to 500,000 tons of capacity from China.
So in CY '18, you mean 800,000?
Yes. Yes. Yes.
And the realizations in Chinese market have already gone down from, I think, 17,000 to around 14,000-odd level. So...
[indiscernible]
Yes. But last year, same period was 15,500. This year, same period is 14,670. So there's a kind of number. So there is a bit of softening. But what is -- what does -- what one are realizing because their costs of -- breakeven cost of one of the Chinese people. So they are not going below a certain level. The breakeven cost of Chinese have gone up significantly because of the input cost increase and also environmental compliance's cost. So their ability to dip is -- we are seeing, time and again, they revise back. They come down and then they again start up then. So hopefully, that persists.
And domestic realizations, sir, you have been pretty resilient still. It's the mix or is there anything else? I mean, do see some softening with the lag or no impact?
See, the domestic item, the story is the growth in demand. I think what has helped us is, we have grown by 31% in the domestic consumption. And that is, I think, to the bottom line because -- so that's the key issue. And then the Liva impact can be seen in the marketplace now.
So I think, Gunjan, you have to go back and kind of see last few quarters, we have been talking about this whole Liva initiative. And in some form, in our mind, I think that's making some difference. And once the local demand actually kind of increases, to me, the prices realization is the outcome of the demand.
Sure. Got it. And just one quick question on the caustic, the debottlenecking, when does it come -- start to contribute? When does it come onstream?
So -- the one with the new investment?
Yes.
Yes. The new investment caustic will come on the third quarter next year, 2020 -- December 2020 is 200 tpd. And other specialty chemicals, again, during third and fourth quarter that year. I mean -- so I think I made a mistake.
[ Current ] is that Vilayat expansion usually happening some time later [indiscernible] so...
Yes. So I think, December '19, is it?
Yes. [indiscernible]. Just what I needed.
Yes. I think -- the December '19 would be the 200 tpd expansion. And others would be in the third and fourth quarter of 2020.
The next question is from Tanuj Makhija from Bank of America.
Can you throw some light as to -- in the scenario of weakening or softening caustic soda prices, the -- why have the imports from Middle East increased in India?
Yes. So in the -- as Mr. Sushil was talking about, in the first quarter this year, we saw some momentary discrepancies from Middle East. So that has got a lot to do with the alumina. The box rate quality is still going up so the caustic demand was slightly lower. And also it is a usual turnaround time, say, in Japan, Middle East, et cetera. And the weather also had played some havoc, which forced some temporary increase in the stock levels in Middle East as well as Japan. And there was some impact on China. So -- but there is nothing structurally which has changed in both supply and demand situation, and we do think it's a temporary phenomenon.
Okay. And are you seeing any recovery in the prices in the past 1.5 months?
So -- yes. We are seeing from the low point, this has already started moving up. It started stabilizing, I would rather say, not moving up in the sense which we saw in the fourth quarter last year. But it has started stabilizing at a slightly higher level.
Understood. And can you elaborate a bit more on the chlorine price movement? It's come off from a very sharp negative and spiked into FY '19. And is that sustainable at INR 500 per ton? Or could it go up? What's your outlook on that?
Yes. So the chlorine, per se, the -- there are 2, 3 major trends which have impacted this or favored this price moment. One is the -- in China, the chlorine derivative itself had some issues, so they had to move a lot of specialty chemicals to India. I mean, India benefited by those specialty chemicals, which improved overall chlorine demand. And there is also an organic growth in the NDO segments in India. So coupled with both these, we are seeing tremendous positive momentum for chlorine. We do see that -- we do hope this price level remain at this level.
But in a sense, your Chemical segment EBITDA margin of 31%, is that sustainable, going forward, if chemical prices remain at these levels?
So broadly, in this range and [ we have used these levels ] that the margins on both of these businesses, viscose and Chemical, on a sustained basis, we should assume high 20s. And -- but given the change in the -- or increase in the input cost also impacts the margins. So -- but broadly, it would remain on a higher side.
And lastly, if you can just give some more details about the specialty products that you plan to add?
So we are planning to add chloromethane and ECH. So chloromethane has a lot of demand in India. More than 1/3 of chloromethanes are still imported into the country. So we see good demand prospects for chloromethanes. ECH, for our own epoxy, it is a basically a backward integration. Epoxy requires the ECH and BPA as raw materials. So ECH, we would supply it to -- predominantly, to our own epoxy unit.
Next question is from [ Merwak Botwal ] from B&K Securities.
Sir, just had a question on caustic soda. Out of our current sales right now, what would be the percent of production that we export currently? And are we seeing better tractions in export sales? Because I believe prices in Europe and other regions are higher than India currently.
Yes. So we don't export light per se. We do export flakes. And the arbitrage, which you can get by exporting in Europe and U.S. would -- we would actually spend most of it in freight. So at this point in time, we don't envisage exporting light, but we do export flakes, which is a solid form of caustic outside the country.
So what percentages of our production would this be? And is it moving up?
Not significant enough.
Okay. Sir, looking at pricing of caustic and chlorine, would ECU realizations in this quarter be better than the fourth quarter? Or will they be a bit down?
So in Q2, you don't ask if -- and the prices -- you're talking of Q2 or Q4?
Yes, Q2 versus Q1. Our existing quarter versus the quarter which just went by.
Fourth and Q1, yes.
Fourth and Q1?
Okay. So compared to fourth quarter, Q1 prices internationally were down. But there is a lag effect between the international prices and our prices. So our prices were maintaining at the strong level even in Q1, although, internationally, it came down. So there is lag effect between those 2.
Got it. Got it. So Q2, we may see a bit of impact coming in to our performance?
We don't know because how the chlorine prices will behave is what we needed to watch. And I just want to add one more point, which was more of Tanuj's question, all these specialty chemicals which Raj talked about are primarily to use chlorine. And as you know, in this part of business, the use of chlorine is very, very critical. And we are kind of -- keep finding uses of chlorine, which actually has margins better at an equal level.
Okay. Sir, just one final question. What would be the current cost of greenfield expansion of 100 tons per day in terms of a metric?
Roughly, thumb rule, it's 1 ton of caustic would be INR 1.3 crores.
Okay. That is basically for greenfield, right?
Yes. 1 tpd, so...
[ INR 1.3 crores, INR 1.5 crores ]. Yes.
It should be INR 1.3 crores to INR 1.5 crores?
Yes. That's right.
Next question is from Prateek Kumar from Antique Finance.
Sir, my first question is, so, now after debottlenecking in both the segments, so what is the capacities in like VSF and Chemical segment -- annualized capacity?
VSF is 546,000 tons per annum and caustic soda is 1,140,000 tons per annum, 1.14 million tons per annum.
Okay. So caustic, all the expansion before the next level of INR 1,100 crores expansion is done. And there's some bit of brownfield which is expected -- sorry, debottlenecking expected in VSF still?
Yes. A small amount.
Which you mentioned has 40 tpd of expansion?
That's right.
Yes. Yes.
And sir, is there, I mean, do you see because of these trade tensions globally, so -- because all of our -- some of our commodities are, I should say, all of our products are like global in nature. So I mean, not for us. I'm generally asking, would they really straighten and impact demand-supply dynamics globally of any of these products?
It's difficult to predict. But what has been announced so far, the thing which affects us is cotton. Because China kind of imposed a duty on the U.S. cotton, 25%. And China was importing about 0.6 million tons of cotton from U.S. So there was an knee-jerk reaction to that, and there was a little bit of a drop in the cotton prices. But finally, what I understood is that they can't source that kind of cotton from anywhere else. So cotton prices have again formed up. So to that extent, I think, the cotton year-ending stocks are going to go down. Consumption is more than the production. So even despite this trade war and the duty imposition, I don't think it's going to impact us. The second part was the import on some of the viscose product by U.S. from China. If that happens, then it helps to some -- not much goes on China to U.S., a small amount goes. So it may help them on one business slightly. The biggest thing is it just started moving in the textile as a whole, then the whole world gets destabilized. That can be difficult to predict. So as of today, I -- we don't foresee a major impact.
Okay, sir. That's helpful. And then, regarding -- I was seeing our calculations. So as per your VSF prices, I mean, pure VSF not including VFY, pure VSF price on a sequential basis, how are they? As per my calculation, they're like higher by around 5% on a Q-on-Q basis, and on year-on-year basis as well.
About 1%. So plus 1%. Almost flat. About a 1% up or down, that kind of thing. 1% higher.
1% higher.
1% higher.
[ 1% to 2% ].
So that is like quarter-on-quarter?
Yes. Sequentially.
Yes. Quarter-on-quarter, and Y-o-Y also there's not too much of a difference. So it is not range bound, 2%.
Yes. Quarter-on-quarter, it's 2% up. And Y-o-Y, 1% up.
1% up. And sir, in this particular quarter, across the other segments, we had seen some decline in fertilizer and insulator. So I saw the -- some of the comments of which, [indiscernible] in PPT, so any comment on that?
So I think in fertilizer business, there was a planned shutdown, which has impacted profitability. And second, on textile, linen part of the business, there was a strike which was reported. And although it has started again from August 7. So to that extent, the first quarter got impacted, there would be some impact in quarter 2 as well. And clearly, I think the insulator business is underperforming.
Okay. And sir, one question on -- if you give this figure, I mean, your fiber EBITDA was like INR 2,480 crores. Would you -- is it possible to share like ABNL plus Century EBITDA during the quarter?
Yes. We can give you the Century. It was around... So VSF, the prices are up INR 478 crore. And VFY is about INR 108 crore.
Sorry, sir. I missed the VSF number.
INR 478 crore.
INR 478 crore. And VFY is the remaining?
Yes. VFY is the remaining. Which is both around our AB Nuvo plant and Century there.
So sorry. There's disturbance, so I couldn't get the number.
So VFY this year, 2 parts of VFY, one is Indian Rayon, and another is Century level plant, which we got [ tender for ] last year.
Correct.
Both -- the complete VFY business EBITDA is INR 108 crore for the quarter.
1-0-8.
Okay. And Grasim VSF is INR 478 crores.
INR 478 crore.
And sir, similar numbers of revenue, if you can share?
It was INR 463 crores in revenues.
Revenue. INR 463 crores in revenue.
For what?
For quarter 1 FY '19.
VFY?
Yes. For VFY we are talking about.
For both.
VFY including Century?
Yes. Yes.
Okay. And sir, just lastly, there's lot of queries like this idea of funding. Although management has clarified time and again on this thing. So now as this Idea-Vodafone merger is now behind or mostly behind, so, sir, any -- I mean, just for clarification, is the company looking at some investment in that business? Or we remain -- I mean, our comments remain the same as like last year?
So our comments remain the same. As I kept saying that Idea is a separate balance sheet. They keep reading their own resources. And at least so far Grasim is concerned, there's no specific plans so far. And I also kind of kept repeating that if at all there is something, it would be only to the extent of Grasim's ownership in the company, which would be around 11.5% post-merger.
Next question is from [indiscernible] from [indiscernible].
Sir, just wanted to know, is the Supreme Court's recent order on the ban on the use of pet coke for fuel, can this impact on process or significant actions?
That is mainly for cement.
So it is then allowed in some of the part of the country. In kilns, the pet coke business has been allowed. Only CPP isn't impacted.
Sir, I can't hear you, sir. Hello?
Pet coke, we are using mainly on -- in the UltraTech. So what -- subsequent to the development of Supreme Court first banning, the pet coke uses has been allowed in the kilns, okay? So only in the CPPs are not allowed to use this pet coke.
Pet coke. Okay. Okay. So for cement products, sir, there is no problem?
Yes.
Yes. That's not a major component.
Yes. And that -- CPP is not a major component. Major component goes in the kilns.
Kilns only. Okay. Okay. Sir, do you expect the cement realizations to improve over a period of time? Because they have given price subdued, most of the companies have reported good volume growth, and the value growth and the EBITDA margin has fallen significantly.
So I think this is true for any industry where demand picks up, and that leads to improvement in the realization. And incidentally, for cement industry, there has been a cost push which has happened quarter-after-quarter, and that has actually kind of impacted the margins. So I would believe that at some point of time, all this anomaly would get corrected.
Okay. What do you expect good growth to excess because sizable capacities are being added over a period of next few years?
I think as you would have seen in last few quarters, many quarters, the kind of infrastructure work which has been announced and which has been done by the -- at a country level, that's clearly kind of improving the demand as for low-cost housing. All of those are actually improving the demand. And given we have a poor infrastructure, which we have to accept and believe, that only would improve the demand of cement product as we go along.
Sir, after the completion of INR 7,500 crores CapEx plan, what would be the ultimate capacity of VSF and caustic soda?
Yes.
788 KTPA of VSF.
788 KTPA. 788,000 tons VSF.
How much?
And caustic would be 1.31 million tons.
Million tons.
Okay. 1.31 million?
That's right.
That is caustic soda and VSF?
788,000 tons.
[Operator Instructions] Next question is from Rohit Nagraj from Sunidhi Securities.
My question is on chlorine. How much of chlorine are we currently using internally?
So we use about 700 tons per day.
Percentage.
So that would be in terms of percentage?
Slightly more than 30%.
Okay. And once our new capacity comes in, and plus the chloromethanes and ECH plant comes in, how much would that percentage change?
Yes. So [ 287 ] to [ 365 ]...
Yes. So roughly...
[ 287 ] to [ 365 ].
So broadly, I think percentage will not meaningfully change because we are also adding cost in capacity. So broadly, so assuming your calculation, 1/3 of our chlorine production will be consumed in-house.
Okay. And how does the chloromethanes segment looks? What kind of realizations we are expecting? I mean, what are kind of realizations are there currently? And what kind of margins that we expect once this project kicks in?
So chloromethane -- in the current context, the chloromethanes are doing very well. So we have not taken, in our estimation, the current prices. We have taken the historical average. So it yields a very healthy return even in the historical average. The current prices are -- we have not taken into our calculation.
All right. And based on the historical prices, what would be the average realization, probably, ballpark margins?
So I think, typically, board would not entertain any proposal which does not meet our hurdle return, which would be around -- closer to 2 digits. So 16%, 20% is the range minimum, which board typically will approve any CapEx proposals.
Great. And one more question on the caustic soda. So have you seen any closures of caustic soda plants? And any new announcement of maybe significant capacities?
You're talking about internationally or in India?
Both. Both.
See, in India, there is -- it's a growth story, so we have not seen any closure. But internationally, except when the mercury sells into membrane, which happened in Europe, so about close to 1 million tons got closed because of the changeover. That's the only thing I can talk about on the closure. But while the caustic demand is robust, we are not seeing any major announcements on new investments on caustic, internationally, I think.
Right. So internationally, which signifies that the supplies will be tight and the market should be in a healthy condition or -- even for the next maybe year or couple of years?
Yes. So that's what we -- we feel that there is no substantial fundamental change in both supply as well as demand, things are -- things will look pretty positive for caustic in our opinion.
[Operator Instructions] The next question is from Ashish Jain from Morgan Stanley.
Sir, my question is again on VSF margins. On a sequential basis, if I see, we have delivered 500 bps of margin expansion, and roughly 65% of our cost, which is caustic or pulp, was flat to higher, which we have seen a significant reduction in other costs. Can you elaborate a bit more on that, just to understand how sustainable that is?
I think the point which you are missing is in the previous quarters...
I think the point -- one is the cost reduction through efficiency improvement. That is one part. The second part is because last time, we had a stoppage of Harihar plant, where...
No, sir. I'm talking sequentially, sir. Sequentially.
Yes, Q4. Q4, we had to cut down our production because we had an issue on the environment clearance for our plant. So both at Vilayat and [indiscernible], at that lower capacity. When you have lower capacity, your cost goes up and the margins come down. So we had to take a significant reduction in the capacity in quarter 4 because the compliance of the environmental approval, EC capacity. So Q4 was unnaturally low, and we have said that in the investor call last time. So whenever the process plant is -- runs at a lower capacity or shut down, you will lose on the cost and margins, that's right. So 18% is our underlying margin for the business. This business is 20-plus EBITDA margin business.
Volumes are up. Production is higher by 18% growth -- 19%. If we compare Q4 production with our Q1 production, it is higher by almost 19%. Q4 production was impacted because of the -- some capacity restrictions.
The volume itself plays a role in the margin expansion.
Volume has gone up. Production volume has gone up by 19% in Q1 compared to Q4. So that -- given that the...
The debottlenecking is 9% or 10% [indiscernible] because of the capacity.
That gives you cost...
Fixed cost and location, Ashish, basically. If you look at the volume...
Yes. Yes. Got it, sir. Got it, sir. That's very helpful. And sir, my second question is on the caustic side, how much is the domestic prices? Are there premium or discount to international prices now?
See, we are always largely decoupled from the international prices because these are the momentary excesses or inventory what we have in the system. So you can't -- we can't say a premium or a price of this. But our prices in Q1 was in line with the fall, what happened internationally. But you can't make a correlation because sometimes, it is more; sometimes, it is less. That is because we have local conditions.
And always have some lag effect.
Yes. It's not [ easily transportable ].
[Operator Instructions] Next, we have a follow-up question from the line Rohit Nagraj from Sunidhi Securities.
Sir, can you give us the ECU realization for the quarter and what it stands currently per ton?
You can kick off.
We can have, Rohit, this discussion off-line if you wish.
Sure, sir, no problem.
Thank you. Next question is from Prateek Kumar from Antique Finance.
Couple of questions. So sir, how are the pulp prices now? I mean, any comment on pulp prices?
Pulp prices, broadly, are holding out $930, $940, and I think that's what's the likely scenario. Because if VSF prices don't go up, the pulp prices cannot go up. So we broadly presume it should not dampen. But supply demand is tight. So the paper-based pulp is doing very well.
Okay. So there was some sharp rise in competition pulp in, like, China and like last quarter, last half year. So has that moderated now?
Yes. The pulp prices have been fairly stable.
Yes. The pulp prices have been stable.
$939, $920, $910, that kind of a thing. It is plus/minus $15, $20, around that thing there. The premium on the soft produce is -- vary, yes.
[indiscernible]
Okay. And sir, a couple of things on how you are going to capitalize this, I mean, the expansion and now in chemicals segment in the stand-alone P&L in terms of depreciation, et cetera. Because depreciation is almost similar or lower in this quarter.
So in May, we have capitalized the chemical expansion at Vilayat. So it is partly the depreciation impact that was coming in this quarter, and that is the -- another -- the value-added product is yet to be capitalized in Vilayat. So this is partly capitalized and partly to be capitalized.
And sir, you've mentioned about other chemicals, specialty chemicals timeline. You mentioned for caustic, the timeline was December 2019. For specialty chemicals Q3, Q4, FY '20 or FY '21?
FY '20.
Okay, sir. That's it for me.
FY '21.
'21.
December '20, so FY '21.
FY '21. I'm sorry. Yes. FY '21. December '20, right?
Yes.
So the caustic is December 2019, and the specialty chemical is December '20?
That's right.
Correct.
[Operator Instructions] As there are no further questions, I'd like to hand the conference back to the management for any closing comments.
Thanks to all the participant. And if there are any offline questions which you need, you can get in touch with Saket. Thank you so much.
Thank you very much.
Thank you. Good day. Bye.
On behalf of Grasim Industries Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.