Grasim Industries Ltd
NSE:GRASIM
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
2 049.6
2 843.75
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Grasim Industries Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to Q1 FY '22 Earnings Conference Call of Grasim Industries Limited. We have with us today from the management Mr. Dilip Gaur, Managing Director; Mr. Jayant Dhobley, CEO of Global Chemicals and Group Business Head, Fertilizers and Insulators; Mr. Jayant Dua, Chief Executive Officer, Chemical Division; and Mr. Ashish Adukia, Chief Financial Officer. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Adukia, Chief Financial Officer. Thank you, and over to you, sir.
Good afternoon to all the participants. We are only a couple of days away from the start of the celebration of Independence Day, which is going to be the 75th Independence Day. It's a proud moment for us at Grasim as the company got incorporated 10 days after the independence, and we'll actually be celebrating alongside with the country, the start of the 75th anniversary of our existence as well. The -- so going back to the performance, the first wave of COVID created a new learning experience for all of us, a challenge which was never faced and tested in the last 74 years. The second wave, which started in April of 2021 was even more severe. But our learnings from wave 1 helped us to counter the effect of second wave. For example, in VSF business, we switched our market mix to -- in favor of export market to cushion our sales volume impact in the domestic markets. We also advanced our maintenance shutdown of one of our plants, the Harihar plant, to May 2021 from September 2021. Let me share with you some of the key highlights of the quarter. Let me start with ESG. As a first in India, our VSF site at Vilayat became EU BAT compliant. As part of this compliance, we successfully commissioned carbon disulphide absorption plant, which is commonly called the CAP plant, and achieved the stringent level of sulfur to air emission norms stipulated by EU BAT references for the viscose manufacturing process. At Vilayat plant, the sulfur to air emission is expected to reduce by 85% by calendar year 2022. EU BAT is referred to as EU -- or rather European Best Available Technology reference. And it's one of the most stringent and comprehensive norm for VSF production. It is globally applicable, and it sets out a strict range of consumption and emission limits. We'll be replicating that for our other VSF facilities as well. Another world-leading initiative is -- in ESG is that our Nagda VSF plant will be first to achieve zero liquid discharge in viscose industry globally. The commissioning is expected to be completed by quarter 2 FY '21. This year, we have shared our integrated annual report with all our investors. And in this report, we have covered a lot of details on our ESG practices and initiatives. And in this investor presentation, we have a snapshot of sustainability indicator performance for Grasim for FY '21 and also the environmental targets and performance against the targets for both the businesses. Our endeavor has been to improve the reporting standards on the ESG front. As a company, we are evaluating climate change risks and opportunities as per Task Force on Climate-Related Financial Disclosures, the TCFD disclosures, and their recommendation. Outcomes of this study will be integrated with a long-term business strategy, risk management and business planning. Let me cover the financial performance now. Our VSF downfield project at Vilayat is progressing well and is scheduled to meet the commissioning time line of quarter 2 and quarter 3 for the 2 phases that we have in this project this year itself. This project will bring down the cost of production for overall VSF business. This quarter, with retail being shut during the limited lockdowns, the sale of textile products suffered and led to an accumulation of inventory in the value chain. To cushion the impact of slowdown in the domestic textile sector, the company proactively increased the share of VSF exports to 31% in quarter 1 FY '22 from 11% in quarter 4 FY '21. And like I said, we also advanced the Harihar shutdown by a few months to May '21. The company is committed to increase the share of value-added products in the overall sales mix. The share of VAP mix in the overall sales increased to 26% in quarter 1 from 22% in the entire financial year '21. The VSF prices in China corrected in quarter 1 and have stabilized at the current level of about RMB 13,000. China's VSF inventory at plants increased to 24 days in June '21 from 13 days in March '21, leading to readjustment of production levels by the Chinese VSF players to take care of the inventory buildup and to lend stability to the prices. The net revenue from the VSF segment, including VFY, stood at INR 2,103 crores and EBITDA was at INR 488 crores. VFY volumes were also impacted due to weak demand conditions. The domestic fiber demand recovered swiftly post easing of the lockdown and is now nearing the pre-COVID levels. The revenue and EBITDA for VFY were INR 340 crore and INR 43 crore, respectively, in quarter 1. In our Chemicals business, international caustic soda prices maintained an upsurge in quarter 1, driven by certain supply outages due to maintenance shutdown and it was also backed by improving demand outlook. The rise in domestic caustic prices, however, was subdued, owing to weak demand from textiles, organic chemicals, coupled with the excess supply situation. The caustic soda capacity utilization stood at about 85% in quarter 1, which was higher than the industry average. During FY '22, we expect significant commissioning of capacities at our chlor-alkali business. In quarter 2 of FY '22, we expect commissioning of Rehla plant with a capacity of about 91 KTPA. And as our strategy of increasing VAP, we'll be implementing the CMS plant at Vilayat with a capacity of 55 KTPA in the same time frame. In the second half of FY '22, we expect the commissioning of Phase 1 of Vilayat expansion and Balabhadrapuram facility, which has a capacity of 73 KTPA each. The Advanced Materials business, i.e., the epoxy business, reported its best-ever performance in quarter 1. This was driven by strong demand scenario and a better pricing environment, both globally and in India. The demand continues to be driven by the wind and auto segment. The key input costs like ECH and BPA witnessed a significant increase during the quarter, primarily due to -- sorry, primarily due to supply constraints in those materials. The revenue and EBITDA for Chemicals business was INR 1,436 crores and EBITDA was INR 275 crores. Our solar business, Aditya Birla Renewable Energy Limited, which is a wholly owned subsidiary of the company, we plan to commission about 38 megawatts of new capacity, which is group captive in the first half of this year. Our consolidated revenue overall for quarter 1 rose to INR 19,919 crores, which was up 53% Y-o-Y. And the consolidated EBITDA was at INR 4,736 crores, which was up 86% Y-o-Y. The PAT was up 6x on a year-on-year basis. On a stand-alone basis, excluding the discontinued operations of fertilizer, our revenues were -- for quarter 1 stood at INR 3,763 crores. The revenue and EBITDA from the discontinued operations of fertilizer was INR 687 crores as revenue and INR 56 crores as the EBITDA. These are not included in the published results as part of the discontinuing business. The fertilizer business disinvestment process is on track, and we are expecting it to complete in quarter 2 of this year itself. Overall, on the debt side, the consolidated net debt stands reduced to INR 8,982 crores in quarter 1, closer to the March '21 levels. On a stand-alone basis, the net debt increased from INR 914 crores in March to INR 1,817 crores in -- as of the end of June 2021. This was primarily on account of working capital change and some CapEx. So if you look at the overall FY '22, we are excited about the company because -- mainly because some of our projects will be coming on stream. Of course, the benefit of those projects will be partly in this year and hopefully, fully next year. And this would help us in both bringing down the cost because these are low-cost new facilities and, of course, increasing the volume. So over to you for questions now. Thank you.
[Operator Instructions] The first question is from the line of Navin Sahadeo from Edelweiss.
I have a couple of questions on the VSF front. So recently, VSF has been in the news. My first question there is the -- what is the current price of VSF in India? And how does that -- like for comparable grade, how does that compare to the landed parity? What I'm basically trying to refer is the removal of antidumping duty here. And in that context, just trying to understand what can be the potential impact of this duty going away? That's my first question.
Do you want to respond to this now?
Yes, Dilip, please, go ahead. I think we don't share the specific numbers. But of course, I think directionally, we'll be able to give the idea to Navin.
As we speak, our price -- the local price right now is very competitive vis-a-vis imported price because -- in fact, this is a little better. And that is not the case now only because this is for last few quarters, it has been like this. And if you may recall, in the investor call, I have always been maintaining that our pricing -- domestic pricing is not linked to -- is linked to many factors which are local. Like it depends upon the health of the local value chain, the price of imported yarn, which has no antidumping duty because that governs the fiber price, and the interfiber dynamic where the cotton price in India is different than the cotton price elsewhere. So based on these factors, as we speak, the current price is very, very competitive vis-a-vis landed price, if imported. And that has been the case for quite some time.
I completely agree with you and historically also have seen -- it's been mixed, I mean. And as you say, there are various factors at play, including the yarn prices and competing like the margins and stuff like that. But I was also trying to just put in context here that since there was heavy lobbying by various associations, be it the Textile Industry Association or the Spinners' Association to get this duty removed. So from that context, since our new capacity is coming on board, while we are, of course, very competitive, and I fully agree with you, as we speak. But what -- is there a risk to the volume ramp-up because we are expanding volumes at a time when these end consumers in a way were demanding this sort of antidumping duty to go. So is there -- do you see some sort of a risk to the volume ramp-up because of this?
Let's understand 2 things. There is a price, and there is a demand. The demand for viscose is growing. In fact, as we have always been saying, the demand growth is exceedingly good. And the Indian market is one of the fastest growing markets in the world. So we don't foresee any problem in terms of the demand part of it. Because the market last 4 or 5 years has been growing at 14% CAGR, right? The pricing, let's understand, antidumping duty becomes relevant, it's not an incentive. It's -- it's a penalty if somebody dumps. So antidumping is relevant when somebody is dumping. Otherwise, there is global price dynamics. And I think there is -- and the industry is in a pretty healthy pace. So we don't foresee any major impact as long as the dumping doesn't happen. If dumping happens, then there are remedial measures available for that.
Understood. Understood. And just one clarification. Because typically, imports happen more for the gray yarn fiber. So when we say value-added products in our overall volume mix, that value-added products is the dyed yarn, which is our specialty, like which does not face much risk of imports. Is that a correct statement to make?
Value-added products are dyed yarn, Modal, lyocell. So these are the valued products. And they don't -- because not many guys make it, as I told you, Modal, there are only 2 established players in the world, we and Lenzing, which is a Europe-based company. And you know the Europeans have a fair good of pricing discipline. The second product is dope-dyed, we are the world leader. So it's not -- so there is no -- in terms of kind of color shades we make, not many guys -- nobody makes that kind of a range. So we have a distinctive positioning there. The third is lyocell. Again, you see the lyocell market is, the demand is outstripping the supply. So that also, again, is not a major issue. So specialties are -- that is the strategy we have been sharing with you in all the calls. The idea is to move to more and more to the specialty portfolio. And we have shared with you that we want to have more than 40% to 50% of the portfolio as to the specialty.
Understood. And just one last question, if I may. Global prices for the quarter, on an average basis, have been, I think, definitely a little soft. But we managed a realization increase, I think, largely with this huge surge in exports from 11% to 30% plus. And of course, I believe prices in European countries and in Turkey and et cetera, they are far higher and that's clearly benefiting. My question is...
What has happened is, if you see the -- what has vitiated the global pricing dynamics is the ocean freights. So there is an acute disruption, and there is no uniform case. There is a destination A to destination B, there is a different rate than from C to D. So it depends upon -- if you choose your markets right, you can get better realizations. That's where a lot of optimization happens. So from the same country, one market may have a higher sale, other market may not have. So they -- in a difficult market, a lot of optimization has to be done in terms of your product and customer mix.
Appreciate. My question basically was when these exports come back because domestic demand is now reviving, export comes back to its original level of, normalized level of around 10%, 11%. So -- and with current prices being weak, this realization jump which we saw should get reversed in the current quarter. Is that a safe directional statement to make?
No, no, no. The export never gives you more realization than domestic because you always have the freight advantage. So that is not the case. The realization jump which you are getting is because of the share of specialties has gone up. Then what happened that you had -- last quarter, there was -- the prices went up gradually. So there was a carryforward benefit also of that. So now the prices are broadly stabilizing at around RMB 13,000, as Ashish mentioned to you. So I think it's now holding there.
The next question is from the line of Pinakin Parekh from JPMorgan.
Sir, my first question is on the outlook for the VSF business. Because at this point of time, while prices have stabilized, they have fallen. And this would partially be offset by higher volumes in the VSF business in the second and third quarters. So is it fair to say that the current margins that we are seeing in the VSF business should be maintained over the next 2, 3 quarters? Or can the margins come off because of pricing pressure?
Very difficult to predict on the pricing part of it. So I would not like to guess on the pricing part of it. But the trends if you see, the trends are showing that the demand is bouyant because the cotton prices are all-time high. So if you recall, in the quarter 4, we got a very big boost in the demand and pricing because the cotton and viscose gap went beyond RMB 4,000. Then viscose prices started going up, the gap narrowed. Today, the gap has again widened to RMB 5,000. It is higher than what was in Q4. So we believe -- I mean, it's early days, but because with this kind of gap, the shift from cotton to viscose should happen. And if that happens, demand should grow much faster than what we're currently seeing.
Understood. And sir, my second question is on the chemicals business. The ECU realizations have picked up because of the improvement that we are seeing in caustic soda prices. But clearly, the global caustic soda price increase has not yet been reflected in Grasim's realizations because of the COVID second wave. So is it fair to say that over the next 1 to 2 quarters, as the domestic demand starts picking up, we should see overall the Chemical business further improve from here given where global prices are?
Directionally, what you're saying is absolutely right. There is an oversupply situation that Ashish mentioned in the country. So that will always play a little overhang. But on a directional front, yes, you will see -- it's creeped up a little bit, so the creeping trend will continue.
The next question is from the line of Nirav Jimudia from Anvil Research.
Sir, I have 2 questions. So one is on VSF. Sir, I was just going through your presentations from FY 2018 to 2021 where approximately, we have incurred something around INR 1,000 crores for modernization, maintenance CapEx, et cetera. And in some of the calls also, you have mentioned that we have been successful in reducing our cost of production too. So if you can just give us some understanding of this reduction in our cost of production internally to Grasim and excluding external costs like freight or raw material cost, that would be helpful, sir.
Yes. As you would appreciate, I can't share the specific numbers with you.
But sir, even if on a range basis, like let's say, if it was on a base of 100 in 2018, what is it now currently? Something of that understanding.
So there are 2 or 3 big things we have done. If you remember, we added a lot of capacity through debottlenecking. More than 10% of the capacity we added through debottlenecking, in fact 12%. Now you all know, when you add capacity through debottlenecking, the -- all you incur is variable cost because the fixed costs we amortize over the existing capacity. So you get a huge amount of benefit because of the additional volumes which you have generated. So that brings down the overall cost of production from the same factory. The second we did is the huge reorganization in the manpower, which we shared with you last time that we have restructured our old factories, and we saved more than 3,000 to 3,500 people we rationalized. So our fixed costs have come down significantly in the last 3 to 4 years. So the number could be anywhere between $0.03 to $0.05 kind of thing. So we have -- these are intrinsic to the operations. There is no variable cost saving in terms of this thing. The other thing we have done is we have done a lot of work on the variable cost side by reducing the caustic consumption. As I mentioned to you that we are -- our caustic consumption now is one of the lowest in the world. We have dropped them by almost about 15% to 17% through basic research. So a lot of R&D effort has gone into reducing the consumption of various chemicals and utilities. And the third thing is a new plant which we are putting right now, which is coming on at Vilayat and expansion, that plant has a cost, which is significantly cheaper than my existing plants. So overall, we believe, across this plant alone will bring down our cost by more than $0.05 to $0.06 across the Grasim base. So all put together, there is very ambitious cost reductions we have done, I think, which is going to help us going forward.
Correct. And this 13,000 tonne increase in the VSF capacity which we have seen in the latest presentation, is also an outcome of this modernization action?
That's right.
Correct. And sir, the second question, like what you mentioned to the earlier participant that for lyocell, we are seeing the demand outstripping the supply. But our nearest competitor is putting up some 1 lakh tonne plant, which will be commissioned by the end of 2021, hence are expecting ramp -- fully ramp up also by H2 of CY '22. So how do you see this development with respect to the global pricing as well as impact to Grasim. Because -- and if you can give some understanding that whether we are also expanding on the lyocell capacity, that would be helpful.
Yes. See, the thing is that if you see, the same competitor has said that the world can absorb 100,000 tonnes every year, 150,000 tonnes per year. So there is a rising demand for lyocell. And where does the demand come from? As I always told you that the lyocell is a great replacement for cotton. And cotton costs are going up and up and availability is becoming a constraint which we are already sharing with you, it is 25 million tonnes plus/minus. Now if that is the case, more and more -- and China particularly is very short on cotton requirement versus demand, and they have to import. So a lot of lyocell will go into substituting cotton. And that can be a huge ocean because cotton is a 25 million tonne base. Even if we replace 5%, we're talking of 1.25 million tonnes every year. So it is a market we need to develop. It is not a market available to you just to go and sell tomorrow. But that's what we all are working. We all are -- we are working in India, Chinese guys are working in China, other competitors working in rest of the world, but we believe there is a huge opportunity to substitute part of the cotton. Cotton will remain always, but the issue is we have to supply the -- match the supply demand. And lyocell is a -- so that's why there is a room for everybody. There's room for viscose, there's room for lyocell and there is room for cotton.
Okay. So safe to assume that we are also expanding in lyocell?
Yes. And see -- but we are trying to focus more on the specialty end of lyocell going forward. There are 2 ends of lyocell like viscose. One is which can go for this cotton substitution, which is what we call G100 grade. And there are some special variants which can go into different applications, like nonwoven applications, which should relate less. So our idea is to go to more on the specialty part of lyocell.
Okay. And sir, a small clarification on the epoxy statement which you mentioned. Sir, last time you told that in Q1, the profits have doubled on a quarter-on-quarter basis for epoxy. So how has been the situation in Q1 -- sorry, from Q4 -- in Q4, the profits have doubled from Q3. So what has been the situation in Q1?
Yes. So see, epoxy story in Q1 has actually continued. So it's more or less same as quarter 4 what we achieved in epoxy. So that tailwind on the realization continued. I think on a little bit outlook side, the raw material prices have still gone up because of supply constraint there. So now there will be more stabilization, and we don't anticipate it going up further, but some pressure will come through in the raw material prices.
Okay. So in percentage terms, if you can mention like in this quarter, how much is the percentage increase in?
In comparison to quarter 4, it is more or less in the same line -- same number.
The next question is from the line of Bhavin Chheda from Enam Holdings.
Yes, overall a good set of numbers. And congrats on completing almost 75 years now on Independence Day as you mentioned in the opening remarks. Sir, my 3 questions, sir. First is on the fertilizer deal. If you can give the fertilizer debt, which is now included in the total debt number, and I believe the original divestment was at EV of INR 2,649 crores, if I'm right. So by quarter 2, we will be -- the debt will be down by INR 2,500-odd crores?
Sure. Do you want to complete -- or maybe let me answer this question and then you can ask your other questions. So on fertilizer, the number that we had given of INR 2,649 crores, that was obviously subject to the working capital adjustment and certain CapEx adjustments, okay? So those were the couple of adjustments that needed to be made. Now what has happened since the time that we have announced the deal, government has actually been releasing good amount of subsidy to the fertilizer players. And likewise, we've also got more than expected subsidy flow from the government. So almost the subsidy amount that was outstanding at the time when we announced to now, it has come down by almost INR 1,000 crores or so, that is subsidies receivable. So as we have received that amount from government already, so therefore, the value realization from the buyer will be that much less, right? So that itself brings down the number to -- and these are approximate numbers, just directionally, I want to give that to you. It comes down to about INR 1,600 crores or so, right, from INR 2,600 crore, we have realized INR 1,000 crores. And then there'll, of course, be tax implication, et cetera, because of slump sale, so there will be capital gains tax. So given all those things, it will be -- it will go slightly lower than that number. So if you look at the net debt, which is at INR 1,800 crores today and if you realize between INR 1,000 crores and INR 1,600 crores depending on the tax, et cetera, INR 1,200 crores to INR 1,600 crores or whatever, so you will be very close to...
0 debt.
You will get the net debt number. That's the number calculation for you.
Yes, sure. Second was, quarter 1 has seen obviously the VSF inventory going up since the production volumes was much more than the sales volume. So -- and as you said now, the demand has picked up and the markets are opening up. So will we see this inventory getting cleared in quarter 2?
Ashish, you want me to take this?
Yes, yes, please. So see, I think we can talk about quarter 1 where actually there has been an inventory buildup. I think going forward, we can only guess. So Dilip, you can just explain what happened in quarter 1.
The rationale for this time was specifically the learning we got from the last lockdown. Last lockdown, we had curtailed our production to match the market demand. And when we found when that pent-up demand came, we could not service and there was a shortage. And that happened across the industry. So this time, what we did was that we did not -- we believed that, look, there will be a pent-up demand because the underlyings are very strong. The European markets are very strong. The retail sales in U.S. are very strong. The orders for spring/summer are going to be very good. So we knew and the whole value chain knew that the -- that when the lockdowns get lifted, the demand will be overall vertically recovered. So as a result of that, yes, we did produce. So barring Harihar, all the plants were running. We exported a lot of volume. So that's why our performance was much better than what happened last time. And whatever has been there, I think it should get worked off over the quarter or maybe at -- at best one more month beyond that. That's the plan. But as Ashish said, we can't predict anything.
But we will be back to normal inventory, I mind, yes.
That's right, yes.
Yes. And the last one. If you can update anything further on paint business. Have you spent anything or planning to spend anything in FY '22 and some plans there?
Sure. So to give you an update, see, there are 3 phases to putting up a capacity in paint, right? It starts with based on your business plan, where the locations of your plants are going to be, and therefore, then going ahead and identifying the land for those plants. So we have actually identified land parcels in most of our locations where we want to set up the plants. So that's already done, okay? The acquisition of land itself after identification takes about 3, 4, 5 months or so because you have to discuss with state government, get their consent, et cetera, then sign that lease deed and all those things. So we are actually in the process of doing that process. And we're doing all locations in parallel. So it's not that it's sequential. We'll be achieving those -- all those locations together. So after that, there will be EC, environmental clearance and requirement, et cetera, which can take 3 to 4 months or so. So right now, what we will look at in these 2 phases is mostly what will go towards land acquisition, the CapEx, right? And not...
Any number there?
No, it's difficult to give any guidance on the number because in different regions, the land rates and everything is very different. The incentives given by government, et cetera, are also different. It's tough to give one ballpark number for land. But land is more of a time line factor rather than a big cost factor, right? And of course, we are also starting -- we've appointed, and we're starting the detailed engineering part so that as soon as the approval comes through, we are in the -- we can start ordering equipment, et cetera, for the facility. So -- which after that would take about -- to put up the facility about 18 months around. So that's the time line that we are looking at.
And originally, sir, we were also looking at wherever we had excess land in our factories or in the Birla Group, so because -- or are you looking at new land or new factory location only? I thought that we would utilize some of that also.
Yes, there is lot of thoughts that goes into land acquisition. I think more important is whether it meets business objectives or not rather than it's just that if it is available with us, okay? I think the infrastructure that is available, the availability of utilities, et cetera, plus more importantly, it's the access to the market. How close are you to the market so that your logistics cost is optimized. So we are looking at all those factors in identifying the land. And I think each state is actually very receptive of us coming and setting up facilities in that state. So as such, the incentives, et cetera, are also pretty good for us to consider new land parcels.
The next question is from the line of Prateek Kumar from Antique Stockbroking.
My first question is, so presentation says and opening remarks, as you said, that the Chinese players have responded to the current situation by dropping the operating rate. So have they been like generally so? I mean, on a quarterly basis, they have seen a sharp drop. Have they been generally so accommodative in the past as well responding because you remember that they've been generally aggressively competing on prices? So is it a normal thing which we have seen in earlier periods as well?
This is a change. I mean we can only conjecture, but there is a change we have been seeing consistently in the last 6 months. Because what has happened, the Chinese people, which we -- if you recall in earlier discussions, we've told Chinese people have been losing money in viscose for the last 18 to 24 months because of their pricing policies. So if you -- so there is a publication every month, they give you the how much R&D per tonne they have lost. And if you look at 18 months publication, every month after month, they were losing money. I believe that China has tightened their liquidity system, the banking accountability and all kinds of issues. So they are under pressure to now deliver positive results. And that perhaps has changed the whole approach to the pricing policy. So I've never seen drop in -- like they went down as low as 69% OR. It was not the demand. It was basically to try to control the inventory because inventory decides the pricing. And so I hope this should continue because this we have been seeing for quite some time now.
But how come the inventory only went up because we protect...
What happened is, there's always a whiplash effect. So when we bought -- if you remember, Q4, when we discussed, there were 2 factors happened. There was an underlying demand for viscose and the pipeline is stocking. So there was issue with restocking, which happened in Q4 because of the -- in the COVID time, people did not replenish the pipeline. So to service the restocking, the plant capacities had gone up and the OR went up to 84%. By the time -- when the inventory -- the restocking got over, by that time it came back that, what we call that effect, the lag effect was there. And inventory went up. Then they started cutting OR. So what you are seeing 25 days has now come down to 22 days as we speak now, with the OR going up to more than 76%, 77%. So the whole pattern has improved. So there's always -- in a supply chain, there's a bullwhip effect. Scale happens now, but you can see it after some time. And that lag is always there. So the lag is getting corrected now.
And this drop in Chinese VSF prices has no relation to the government -- local government cutdown on commodity prices that you can see?
No, I think it was -- because see the Q4 prices, which we had told you were unusual. I mean $2.1, $2.2 was never -- is not a sustainable price. But today, also, when we are saying price is low, it's $1.75 to $1.80. That has been a standard good price of viscose historically. So that has been the historical average if you look at it. So I think -- but today, the only issue with them is the pulp price. So when the pulp price starts moderating, they should be good.
And one question on recent rise in COVID cases globally. So has that had any impact on export market? And if you can address like what are the global VSF capacity additions in next 2 years, if any?
So the capacity additions are going to -- I think ours is the biggest addition. The biggest is really our addition, 210,000 or 220,000, give and take, because there are a lot of unviable plants are closing down also. So we believe in the next 18 months, not more than 400,000 tonne capacity will get added. There's very minimal capacity addition in the next 2 years for viscose, there could be more for lyocell. So there is lot of announcements that happened in China on the lyocell capacity addition. So viscose, we don't believe -- we don't foresee much in that capacity addition. What was the other question?
Regarding your -- any export markets impact regarding the recent surge in cases globally?
Till last month, everything was very hunky-dory. So everything was looking very good. So retail sales were good. The demand -- the order booking has been good. The COVID thing has just started happening. So we even have to watch and see. But we don't believe that -- because now people have learned to live with it. So I think the business may not get affected as much as it happened last time.
I'm sorry, just one last question. On this ECU realization which you have reported at INR 26,000, is the current quarter realization significantly higher from there? And is there any impact of negative chlorine realization also in Q1?
So see chlorine demand has been subdued as compared to the caustic demand. Caustic demand from alumina and, as Dilip was talking about, from the VSF sector has been very robust. But it has not so been in the case of textiles and organic chemicals. And chlorine demand, the largest thing for chlorine in India is a product, what we call as CPW, chlorinated paraffin wax. That has materially got impacted across the country. And in the textile demand offset is the dye is in the dye chem industries. So chlorine is subdued, which has led to a pressure on pricing on chlorine, as we speak. Caustic at the moment with a lag is keeping up.
The next question is from the line of Amit Murarka from Motilal Oswal.
So just on VSF. So I just wanted to understand like what would be the difference in realizations and margins for domestic sales and then exports.
I think Dilip, his question is domestic versus exports realization and margin.
See, in last quarter and this quarter, they are very, very close.
Very close, yes.
For both margins as well as...
It is much better, like Turkey as a market, just to give you an example, the freight from other producing countries to Turkey is much higher than the freight from India, where the pricing is always done on the landed price from the competition. So we find that servicing Turkey market today from India is far, far more attractive than any other thing you do.
Okay. So like in this quarter, obviously, the mix was in favor of exports because of the domestic situation. So what do you think would be the sustainable level of domestic sales in the mix, particularly post expansion of the capacity?
Your voice is breaking. I can't hear you.
Dilip, I think his question is, what will be the share of domestic after the expansion of capacity?
Our projections are still, we believe that if the market grows at the current projection rate, about 85% to 90% will be domestic and 10% to 15% will be export. But there's enough room to play around.
Okay. But -- sorry. Yes. But the 85% to 90% target for domestic sales, that would be like 3, 4 years down the line or because the capacity expansion is happening...
There's a lot of expansion happening in spinning capacity also. So there are a lot of spinners who are investing as we speak. Those expansions have got slightly delayed because of COVID. Otherwise, there is a substantial increase in the spinning capacity as well happening in the country. So they will require extra fiber. Then the specialty consumption is going up very high. Our specialty sales growth has become quite good. And third is the ESG emphasis, the eco fiber consumption is also shooting up in India, so where our Livaeco is going to grow well. So all put together, I think the domestic market also is going to grow faster than we expected in the past.
Okay. So why I asked is because your capacity is expanding by almost 40%, and that is happening just around in 12 to 15 months.
That will come in, in phased manner. I will commission the plant end of this month. So it will take about a month or so to stabilize. So we will get 6 months for the line 1, and we'll get 3 months for the line 2. So we have, based on this projection, what I'm sharing with you is our internal projections, that's the kind of our estimate based on the current market demand. If it changes, the ratio can change. But as I always tell you, in this business, volume is not a problem because I think there is enough global market where you can sell.
Yes. So is it fair to say that maybe initially the share of exports will be higher and then later on maybe stabilize to that 85% to 90% target then?
As for the current projection, we still believe we should be able to maintain the share I'm telling you, but it's only prediction. I can't guarantee that.
And also, when you talk about more spinning capacities coming on stream, we also keep reading that actually the imports of yarn has been rising consistently. So how do you think the spinners are positioned to kind of compete with those yarn imports?
What -- that's what -- the way which is happening right now, that seems to be a sweet spot. The current pricing is where the imported yarn is not viable. One advantage has been the high freight rates from China and other places. So today, at this price, even spinners are viable and the fiber prices also are okay. So there's a good balance right now. And this is -- I think this freight markets are going to be like this in the foreseeable future.
The next question is from the line of [ Vipul Shah ] from Sumangal Investments.
I just want to know what will be the share of specialty once entire expansion at Vilayat is completed in terms of volume percentage?
Have I mentioned to you that our expansion has the flexibility to make commodity and some specialties. So we can always play around with our product mix. So our target, as I told you, irrespective of the expansion, we will try to target 40% specialty in next 2 to 3 years.
What type of value addition we are getting in specialty as compared to commodity, sir?
It depends on different products. Like Modal is our highest value addition, then comes lyocell, then comes Livaeco, then comes nonwoven. So we have got -- then comes dope-dyed and then comes nonwoven. So we've got this pecking order there. I can't share the delta exact number. So that's how it is. But it varies from $0.20 to $1.
It's basically -- there is more stability at the value-added products pricing and grades of that product, so it's not a fixed delta also.
And lastly, sir, we'll be self-sufficient in pulp, even after entire expansion program is completed at Vilayat?
So if you remember, see we -- our policy has been about half we do captively and half we source from our strategic partner. So for the expansion, we already have lined up additional volumes with our strategic partner. They have already expanded in South Africa. So we have lined up the extra volume of pulp from our strategic partner at one of those favorable terms, which we normally follow.
On a long-term contract, sir?
Yes, long-term contract, yes. We've volume-linked contracts.
The next question is from the line of [ Muralidhara Reddy ] from [ Reddy and Family ].
Actually, I have 2 questions. First one regarding operating profit margin and profitability for a stand-alone basis, not the consolidated basis. We used to be in the range of between 16%, around 20%, but it is -- now it's been declined for the last 2 years or so, something like about 12%, 13% kind of stuff. What are the initiatives that we are doing at a stand-alone basis to get back to the something like about 16%, 17% kind of OPM?
Sure. So I think I can give you an overall perspective, okay? I think the way to -- first of all, the prices have -- the realizations corrections at some places has led to the margin coming down, okay? So therefore, to take care of that, the 2 things that we do is that, one is, you bring down your cost overall, both the fixed cost as well as your variable cost. Variable costs, you bring it down by having better consumption norms like Dilip gave example of caustic consumption to produce VSF. And then in the case of Chemicals business, where power is the cost that forms 50% or so of the total cost, so there you look at ways and means to bring down the power cost, which can be by adding captive capacity or by increasing the share of renewable capacity, which is actually today much cheaper than the conventional power. So that's on the cost side. The other thing that we are trying to do is that to increase the VAP portfolio across both the businesses. So in both the businesses, we want to target 40% share of VAP by 2025, okay? So that will give more stability and higher margin to the entire business. We are also looking at many different ways to reduce the, call it, leakages or whatever. For example, we want to increase beyond 40% of VAP in Chemicals. We want to increase the way we move chlorine. So rather than moving it by road, we want to move it by pipeline. That reduces the cost, and it has many different advantages. It has positive contribution there. Your customer is close by, you straightaway supply to the customer as it is produced. So there are many advantages that you have when you have pipeline movement of chlorine. Yes, so these are the measures that we are constantly -- it's a journey over a period of time and will continue to improve margin. Dilip, Jayant, you can feel free to add anything if I've missed.
I think you've covered it, Ashish.
Sir, my second question, this is a little bit of -- we are entering to the renewable space. And it's been pretty new one for us. Is there any kind of revenues and EBITDA that we are looking, not just for the next year, maybe for a 5-year period of kind of stuff? And just kind of a plan. I know it's a forward-looking, but just kind of company and a strategic plan.
Yes. See, I think it's not that it is new business for us. I think we've been very calibrated in growing that business because there is a lot of competition in that business. And constantly, the tariffs are going down. And there is now, you can see the module prices are going up. So the players who have recently bid and won can face that issue of module prices going up and thereby impacting their returns. So we've -- plus I think the counterparty risk that exists out here, who you deal with, your state discoms, which state are you dealing with? All those things become extremely important. So therefore, we are quite careful on how we grow this business. So we've gone slow rather than in comparison to some of the other players who have gone pretty -- grown pretty aggressively. So we are right now about 500-megawatt. We also have group captive business, where the counterparty is Aditya Birla Group companies itself like Hindalco and UltraTech and Grasim businesses itself. That's about 160-megawatt right now. So that will also -- is constantly growing. So we plan to reach 845 megawatt, like I'd mentioned by FY '23. And this business, it's easy to calculate the revenues, EBITDA and cash flows depending on what you've bid at. So you'll get an idea of this business financials if you just back calculate the numbers. But that's really what our plan currently is. We may look at some of the SECI projects, et cetera, as well, which are more secure projects, but of course, more aggressively bid projects.
The next question is from the line of [ Santosh ] from Treasure Hunt.
Most of the questions have been already answered. I would like to know what is the CapEx so far then on paint business because I could read from some of the newspaper that Chief Minister -- Gujarat Chief Minister has announced that INR 1,000 crores has been invested. So I would like to know on that line.
Sure, sure. So the CapEx as of now has not been meaningful in paints because like we've said, we've put a team in place. So we've put a business plan, we're identifying land. Now is when we will start paying for land, et cetera, and that's when the CapEx will be slightly more visible. On the clarification, in UP, we are -- indeed, that region, I would say, not necessarily UP, but that region, we are -- is one of the identified locations where we could have a plant that caters to that region market demand. So that's why we are looking at land and electrified the land in that region. It's not that we have spent the amount that has been publicly stated. It's intention, if we put up a plant out there, then close to that number is what we may end up spending. But it's not that we've spent that money or have entirely tied up with that.
And sir, when do you approximately expect to kick-start the production, if everything goes well as per your plan?
Yes. No. So we've not given that guidance. I think if you -- like I said, if you look at land acquisitions, approval and then 18 months thereafter, so it could be about 24 months or so, you may look at production starting. So -- but it's tough to say because we're still in the first stage of identifying land.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to the management for closing comments.
Thanks for all the questions that I think we covered pretty much all the details that we wanted to cover on the call. Look forward to your participation in the next quarter. In the meantime, if you have any questions, clarifications, please feel free to reach out to us. You can reach out to Saket or to me, no problem at all. Thank you.
Thank you. On behalf of Grasim Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.