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Grasim Industries Ltd
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Good day, ladies and gentlemen, and welcome to the Q3 FY '19 Earnings Conference Call of Grasim Industries Limited. We have with us today from the management, Mr. Dilip Gaur, Managing Director; Mr. Sushil Agarwal, Whole-Time Director and CFO; and Mr. E.R. Raj Narayanan, Group Executive President and SBU Head, Chlor Alkali and Viscose Filament Yarn. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Sushil Agarwal. Thank you, and over to you.
Thanks, and good afternoon to all the participants. Our consolidated revenue for Q3 FY '19 is up by 22% Y-o-Y to INR 18,419 crores. Consolidated EBITDA is up 11% Y-o-Y to INR 2,958 crores. And consolidated PAT on a like-to-like basis, excluding the impact of erstwhile Idea Cellular in Q3 FY '18 is up by 16% Y-o-Y to INR 958 crores. Otherwise, the growth is -- reported growth is 76%.Our stand-alone performance is equally impressive for this quarter. The revenue is up by 21% to INR 5,293 crores. The EBITDA is up 21% to INR 1,111 crores. And PAT is up by 28% to INR 608 crores. Our cash profit for the quarter went up by 29% Y-o-Y to INR 830 crores. So VSF and Chemical business continues to report solid operational and financial performance.All our plants operating at full capacity, while the chlor alkali plant operated at an average utilization of over 90%, which is higher than the industry. In spite of the significant cost pressures, both of our key business continued to generate strong EBITDA.For 9 months FY '19, we have registered a 36% Y-o-Y growth in revenue to INR 15,201 crores; and a 40% Y-o-Y growth in EBITDA to INR 3,639 crores. I would like to highlight the strong financial performance generated during these 9 months of FY '19. The revenue and EBITDA are 2.5x and 3x of the FY '15 financial numbers.Our strategy of consistently investing those businesses at the right time has paid off. Grasim has emerged as a leader not only in VSF, but in Chemical business also. Today, the business model is more robust, and quality and trajectory of earnings has improved.Our key focus area, substantially sustainability, is #1. It's #1 priority for us, and we have committed significant investments toward deployment of new technologies in our plants to achieve closed-loop production. Water has been a key focus area for us and we are lowest in specifically water consumption globally in VSF industry. We have reduced water consumption at Nagda 40%, Vilayat by 36%, Kharach by 18% in last 1 year. We have further reduced the net effluent generation in some of our plants by recycling 15%, 20% of effluent.Backward -- on backward integration, Grasim has around 80% backward integration by virtue of key inputs like dissolving grade pulp, caustic soda, power and steam, et cetera, making its cost structure more competitive and less resilient in nature.Growing the value-added portfolio for both VSF and Chemicals has been a focus area for us. We have continuously improved the percentage of value-added products in both VSF and Chemicals through additional investments in new products.The launch of Dye catcher and launch of Livaeco, an eco-enhanced variant of Liva, are some significant steps taken in last 6 months. Our focus in increasing the gap in both businesses are reflecting in our financials.We have expanded our capacity in VSF and Chemical business by brownfielding and debottlenecking in the last 12 months. We have expanded the VSF capacity by 48 KT through various capital-light debottlenecking.Our balance sheet continues to remain strong. At the end of Q3 FY '19, we had surplus cash of about INR 1,000 crores, higher than INR 389 crores at the start of the financial year.The free cash flow generated at stand-alone level for 9 months FY '19 was around INR 1,042 crores, post exclusion of repayment of long-term loan but after considering a capacity of INR 1,240 crores, which was incurred during the quarter.There has been some nervousness with respect to Grasim's participation in the funding by Vodafone India Limited. I would like to reiterate that in spite of the -- I would like to reiterate that as a shareholder of Vodafone India Limited, Grasim's contribution will be limited to the shareholding, which is at 11.55%, before any investor concerns are misplaced.FY '19 is a critical year for us. The management focus will be to ramp-up the recently commissioned chemical plant and to maintain a strict control on the cost and time line of the recently announced projects in VSF, Chemical and Specialty Chemicals.Let me now share the highlights of VSF business. The VSF business in China was lower by 2% on sequential basis. The prices of cotton and polyester weakened sequentially by 8% each. The sequential drop in VSF prices was least compared to the drop in prices of other competing fibers. The VSF business reported highest ever production of 141 KT during this quarter. Viscose business reported a higher EBITDA of INR 477 crores in Q3 FY '19 ahead of Q3 '18, notwithstanding the cost headwinds emanating from the higher pulp prices by 12% Y-o-Y, sulfur prices up by 28% and coal prices up by 9% on a Y-o-Y basis, and softening of VSF prices globally driven by larger capacity addition in China.We expect the global VSF demand growth to grow in the range of 6% to 7% in next few years. The Indian demand grew by 21% during the calendar year. In India, the robust VSF growth has been based on the splendid success of its brand Liva, which was launched 2 years back. This has resulted in doubling of our viscose fiber consumption in country over the past few years. Viscose business has been registering a double-digit demand growth in last few years. Livaeco, as an eco-enhanced variant of Liva, which was launched recently, Livaeco is a unique brand [ reverted ] to substantially. It is derived from FSC, which is Forest Stewardship Council certified pulp, which is based on wood sourced from sustainable forests, help conserve biodiversity and prevent endangerment of forests. Every Livaeco garment has a unique tracer, which has traced the origin and full journey of garment across the entire supply chain. Furthermore, it promises a minimal usage of water, which is turning into a scarce resource in our country vis-à-vis other natural fiber in its manufacturing process and lower greenhouse gas emissions.In the current quarter, we have reshuffled our product portfolio in view of growing domestic demand for gray VSF. This is a temporary phenomenon, and it will be -- get corrected soon.The construction of specialty fiber line was completed at Kharach and is currently under commissioning. The brownfield capacity expansion plan of 219 KTPA it will have is progressing but the construction work at the project cycle is full stream. The basic and detailed engineering strand is completed and long lead items have been ordered. Let me now share the highlight of Chemical business. The caustic soda (sic) [ chlor alkali ] price were steady during the quarter with firm demand from consuming segments. The caustic demand in domestic market is expected to remain balanced, with good demand and stable pricing. Chlorine is expected to drive the industry with a stable demand growth as new downstream capacities are expected to come online.For this quarter, the revenue and EBITDA of our Chemical business are up 19% and 23% on Y-o-Y basis to INR 1,558 crores and INR 442 crores, on back of higher growth in sales volume and better realizations. The caustic soda production was higher 9% Y-o-Y and sales were higher by 10% to 50 KT each. The capacity utilization of our caustic soda plant was at 94% during this quarter and 92% at -- in FY -- 9 months FY '19.The ECU realization for Grasim was higher Y-o-Y, driven by higher caustic soda prices and positive chlorine realization. We have a strong focus on growing the chlorine brand products in the overall product portfolio. The VAP revenue witnessed 33% Y-o-Y growth in this quarter. Let me now update you the status of various projects. The 29 KTPA phosphoric acid plant, which was commissioned in October '18, is expected to get fully ramped up by Q4 FY '19. We have commenced work in the majority of our projects. In a few of our projects, we are still awaiting regulatory clearances. The Cement business reported a healthy volume growth of 15% and a revenue growth of 19% Y-o-Y in this quarter.The sales volumes stood at 19.5 million tonnes, and revenue stood at INR 9,390 crores in Q3 FY '19. The EBITDA for Q3 FY '19 stood at INR 1,548 crores. The Financial Services Business reported revenue and net profit after minority interest for this quarter at INR 3,780 crores and INR 206 crores. The lending book, including housing, grew 29% Y-o-Y to INR 60,129 crores. The average assets under management stood at INR 2,58,833 crores in this quarter. Now we can open the floor for question-and-answer. Thank you.
[Operator Instructions] The first question is from the line of Gunjan Prithyani from JP Morgan.
Just couple of things. Firstly, on the VFY, if you can share the revenue and the EBITDA for this quarter?
Sure. Yes. Within the meanwhile, can you ask the second question, I can...
Yes. Yes, no worries. The other thing I wanted your thoughts on was on the VSF prices and how we see the domestic prices panning out? Because clearly, I mean, it's really commendable to see that it's holding out reasonably well on the pricing front in your P&L, but the -- globally prices have been under pressure. So do you think that the domestic prices play a catch-up as we go into the next quarter?
Gunjan, very difficult to predict prices. But as we have always been maintaining, the Indian market has a very different dynamic than the global market. Here, we have more on the big bundles of brand service and the product. So we hope that the Indian market should hold -- continue to hold and we should be able to deliver better prices in the Indian market compared to global markets.
And the EBITDA, which we have done in this quarter, of course, it's come off meaningfully because of the cost side. I mean on the VSF business itself. If -- I mean, is there anything that we are seeing on the cost reversal? So I'm just trying to get what should be an EBITDA number that I should look at for the VSF business. Because it's not a problem of realizations in this quarter, it's just very steep cost pressure.
You're absolutely right. The cost pressure has been phenomenal. But as fortunately, either we had a major decrease in the pulp prices, the coal price or sulfur prices. All 3 have started softening. So the pulp is on the downward trend. Coal has bottomed out, and I think sustaining. And sulfur prices are down. So I think we hope to have a favorable cost environment going forward.
Okay. And does this number revert back to 34, 35 KG that we were doing on a per-unit basis? Does that reverse back or should we work with the number of around 28 to 30?
So I think, Gunjan, that stuff on what Mr. Gaur kind of said, that the key input where we saw increase during this quarter are seeing bit of softening. And I think this is what we can say at this stage, because it's very difficult to say per KG what will be the implication. But it's something which we all have to kind of do a bit of a guesswork. But we are slightly better placed from a cost point of view, for sure.
Okay. And last question on the capital allocation. You clarified that your commitment will be restricted to your stake in the Vodafone Idea. Now can you give us any sense around -- because now that there is clarity around the capital raise there, by when we see this happening, and the infusion from Grasim? And secondly, is there any assessment of your capital infusion in the financial business? Has there been any discussion around that?
So first on Voda-Idea, Gunjan, I think that we don't have a sense of timing. But I think what I know is that the company is working around various approvals. So as soon as we -- they decide the board of VIL decide the pricing and timing, accordingly, we'll be able to participate there. So that's so far VIL's concern. So far Financial Services is concerned, we haven't heard anything from financial board. So at this stage, it's best to -- not to guess anything and let's wait for Aditya Capital to -- board to decide what they want to do on the funding side.
And the VFY revenues of INR 484 crores and INR 102 crores of EBITDA for the quarter.
INR 102 crores?
Yes.
The next question from the line of [ Saket Kapoor ] from Kapoor and Company.
Sir, firstly, if we take your numbers on a sequentially, September versus December, there is a fall even in the caustic soda and the allied chemicals, both in the revenue and as well as in the bottom line. How will you explain this, sir?
Raj, do you want to pick up?
So the impact, it is a total chemicals. But caustic soda, actually our volumes have very marginally come down by 4,000, 5,000 tonnes, and we don't see any issues in caustic soda business.
Right, sir. But we -- okay. Because the numbers are only slightly lower on a sequential number, it is not -- so going forward, this will go -- how is the caustic soda pricing looking? And sir, globally, how is the demand-supply now the balance, sir? And how is China playing its role in the caustic soda market?
Okay. So globally, there were some destabilization because of something which happened in India. So there was some destabilization, which drove the prices down. But that is a very temporary global phenomenon. As far as India is concerned, we were holding onto the prices fairly well. And both caustic and chlorine are holding out firm. In terms of demand and supply, they are balanced in India. In fact, in the last quarter and this quarter, we have started supplying more to the Eastern part of the country when the imports did take a hit because of some of the regulations which are put. So there are -- internationally, if you see, there are no new big caustic capacity which are coming. Second on China, we're not seeing China disturbing -- or coming into the market in a big way. So they are maintaining well. Chinese demand is also significantly going up. So we expect the global supply-demand situation in that sense fairly steady. Though there were some brief volatility because of something which happened in India, as you know.
Sir, could you clarify what happened in the domestic market?
So there is a BIS standard. The government insisted on a BIS standard certification. And this is more from the safety and environment point of view. So unless you produce the BIS certificate, the imports cannot happen. So this actually reduced the imports into the country, so because most of the importers have not taken these certificates from BIS. That is the reason there were some issues.
Did that result in any spikes, sir, in the realization? Has the realization moved up and will they eventually even out going forward? How is the realization now, sir, planning out for the first half?
That's the reason I'm saying that we don't see any major drop going forward in prices. Of course, as Mr. Gaur said, prices no one can predict for sure. But the global prices are not indicative for our future prices. Because global prices did come down because of some other reason and there is a -- temporarily, there were more products available in the Southeast Asia. But going forward, we do expect the prices to remain fairly steady.
Sir, out of the total consumption, sir, how much is -- are taken by our group companies only in the aluminum as well as in the textile sector? And how much is sold to other parties?
Yes. So within Grasim, we supply about 23% to VSF.
And the balance, how much goes to the aluminum companies like our group companies and Delco? And how much is sold in their market? Just wanted to understand the dynamics there.
Okay. So it will still be less than 50%, if you talk about both aluminum and textile sector put together.
In-house? 50% is their consumer in-house and 50% is -- less than 50%, in that vicinity? Sir, and one continuation question on the rights issue part for Vodafone India. So you are maintaining that -- we will be maintaining our stake of 11.5%. Whatever the rights issue come of, we will be subscribing to our full portion. That is what the rationale there is all about?
Yes, that's right.
Okay, sir. And sir, just to understand more, looking at the predatory pricing which your competitors are playing, it is not eventually looking that the game -- the endgame is near. So why risking all the good hard-earned money towards a losing game as of now, losing proposition as of now, because we are already sitting on a big CapEx implementation of something around INR 6,400 crores, INR 6,500 crores that is going to play out in the years to come. On top of that, whatever money, 10%, 11% of the sale if the issue comes about INR 20,000 crores, INR 25,000 crores, that you've just contemplated to INR 2,500 crores of money chasing in assets which we know is not going to yield a return in near or even for a considerable bit of time in the way that predatory pricing is continuing. That's all from my side.
So I'm not quite sure can I answer what would be the sector view 5 years down the line.
Nobody is, yes.
Yes, nobody can make that statement. So I think these are all board issues, which will get debated before the actual money goes into the -- an investment. But I'm sure board would be wise enough to take a right decision at the time of making investment.
Correct. Sir, do we have any dividend specified? What is the dividend distribution policy?
Yes, there is.
How much has it said to be paid out for investors?
25% to 45%.
25% to 40%.
25% to 45%.
I beg your pardon, sir?
25% to 45%.
That's a huge difference, 25% to 45%?
Yes.
Yes, but that will depend upon the growth in the business, CapEx [indiscernible].
In the underlying operational performance. There are various elements to that.
The next question is from the line of Navin Sahadeo from Edelweiss Securities.
I have some questions related to operations. In VSF, this expansion that you said of 219 KTPA, can I request some precise time lines around as to when exactly in FY '21 is this capacity likely to come on board? Is it going to be at one stage or in phases? Just to get a better sense of volumes for FY '21, please.
Yes, within 2 lines. Each of 300 tonnes per day, so the second half of FY '21 is when these will come on stream, so we can say that.
Both these will come ...
They'll be back to back. So it can just take 6 months and both the lines will come. That's right.
Okay. So basically, safe to assume that a large part of these benefits will accrue actually in FY '22, in that sense, because initially, as these lines come, as you said, in second half...
One full quarter you'll get for FY '21 also. So for Q4, you will get and maybe a bit of Q3.
Okay. Then secondly, you mentioned in VSF all the costs, key costs, pulp and everything are seen witnessing a downside correction. In [Audio Gap] similar cost reductions there or that would not apply to caustic?[Technical Difficulty]
Ladies and gentlemen, we seem to have lost the line for the management. We would request you to stay connected while we join them back, thank you.
Sir, my second question basically was since in VSF you mentioned that there is -- we're seeing cost easing off a bit from what we saw in the previous quarter, are we seeing similar cost declines in the caustic business as well?
Raj, do you want to respond it?
You can respond, Mr. Gaur.
No, no. I think you can talk about third quarter happening because coal is similar. The grid power and the sulfur, as Raj can respond here.
Yes. So on the cost side, we have taken certain actions for reducing our power cost. While the coal costs are increasing, we are seeing a drop in power cost due to certain cost effective -- or cost improvement methods we are undertaking. However, salt is slightly going up because of the export demand picking up. So we are relooking at the options of long contracts, et cetera. So these are the 2 main things for caustic soda business. And in our VAP business, the paraffin move up and down based on the crude. So it did come down for a brief moment and we are seeing some increases. But again, that is entirely linked to the crude oil prices.
Okay. Just 2 small questions, basically. In the presentation, it talks about brownfield expansion for caustic under approvals. So what exactly is the capacity you're targeting for the brownfield expansions?
Yes. So we have one, Rehla, where we are increasing our capacity by 300 tpd. And in Vilayat, we are increasing by 200 tpd. So in Vilayat, we are waiting for certain approvals for expanding. However, in Rehla, we already got, so we are moving ahead in that site.
Okay. And one last question's related to your textiles business. This quarter, we have seen a sharp jump in the EBITDA there. I think it's down almost about INR 50 crores on the run rate of about 10 to 12. Is this sustainable or any one-offs there?
So currently, we have seen better realization in this sector, and we see no reason as of now for a realization correction. So we'll possibly assume that similar kind of performance should be there going forward.
The next question from the line of Prateek Kumar from Antique Finance.
My first question is regarding the cost in the VSF segment. So sir, you mentioned about the year-on-year increases. So what is the -- I mean, how is the cost chain like on a quarter-on-quarter basis, let's say for all these 3 items for VSF segment?
Quarter-on-quarter, it went up, although lower than the Y-o-Y, Y-o-Y for pulp went up 12%. Quarter-on-quarter, it went up by 5%. Sulfur went up by about 28%. Coal is kind of starting. So I think we had almost, if you want to put a number, it will be about INR 80-odd crores cost push for that, because of -- which should get corrected as we go along. Moderate, no? Corrected moderately.
So INR 80 crores cost push versus quarter 2, you mean?
Yes, yes, yes.
Okay. And sir, are our prices -- I mean, the way we calculate like VSF realization, is it still higher on Q-on-Q? I mean despite Chinese prices being lower by 2%, as you mentioned, are prices are still higher on a Q-on-Q basis? That's what I arrive in my calculations.
Yes, they are high, because we have a different market segment. See, there are no global -- single global prices. They depend upon the market dynamics. They are different price in Indonesia, different price in China. China is just a basis. It depends upon how the supply-demand is there. So I think that if you see Indonesia, Turkey, India, all are different price dynamics. And it is not only about the fiber, what's your mix also, because we have a mix of specialty and commodity. So there are a lot of factors. Otherwise, everyone would pay the same amount of money.
So it is around 2%. Realizations are higher on quarter-on-quarter, it's around 7% year-on-year?
That's right. That's right. It's the global, there's a softening, I mean, the channel is softening.
No. So for us, sir, is it there is an increase of 2% on a Q-on-Q basis in VSF prices?
That's right. And 7% Y-o-Y. Your numbers are right.
Correct, okay. And then regarding your capacity in VSF now, we have done some debottlenecking this quarter also. So now our capacity in VSF stand at what?
Stands now, we have it [ plus 10 ]...
We have it 546 KTP. So the capacity is pretty unchanged from last quarter, as of now.
And tpd value. So 546,000 tonnes per annum. It used to be 490-odd.
Yes.
Okay. So it's still at 546. And before the 219 KTPD, what is the next debottlenecking expected? Is it in '20 or...
Debottlenecking is a continuous exercise. So we keep on run -- when you're at your run capacity, then you look at what else. So every quarter, like last quarter also, there's a 20 tpd we did which benefit will come in this quarter. So this will go on, because I think that's something which you can't predict, but it's how well the [indiscernible] will have to do.
And after 219 KTPD, our capacity would be 788 as mentioned earlier in the presentation?
Correct.
Yes.
And sir, is there -- while our total CapEx has just marginally increased versus the previous numbers, from INR 7,500 crores to INR 7,600 crores, there is some change in timings. They've deferred some CapEx from '19 to '20 and onwards. So any specific reason there?
No. That is no different, the CapEx, that's just a speed of spending. We have some, as we talk about our caustic reliance on the source handling and all that, so I mean, it is only a speed of our...
Execution.
Execution, but there is no deferment of CapEx.
And did mark in, we still deliver.
Yes, and that will still...
Yes, sometimes these approvals also takes a bit of time, so -- which is -- there is a bit of a movement of timing because of the approvals.
Okay. And sir, one question on your -- you have talked about this capacity expansion in chemicals from 1,140 to 1,310. So what is the time line for this expansion?
Yes. So in fact, out of which about 300 tonnes would come by quarter 1 next financial year. And other 200 tpd, we would expect by Q2 of the same financial year, while we are still awaiting the fee. As Mr. Gaur and Mr. Sushil Agarwal said, we are trying to push from our side. We're ready to execute as soon as the [ EC ] comes. So Q1 and Q2, you will see both these at capacity, next financial year.
So it will increase by around 100,000 in the first phase and remaining in the second phase?
Yes. So I'll make a small correction. When I say next financial year, I'm talking about FY '21. So we have just started the regular project. So it will come in the Q1 of '20, '21.
Oh, so both of these expansions will come in FY '21?
Yes.
See in terms of time line, right now, we cannot have a specific time line. The moment we are done with most of the construction work, that's when we'll come up with a firm time line.
[Operator Instructions] The next question is from the line of Madhav Marda from Fidelity Investments.
I just had one question on the Aditya Birla Capital infusion. You already clarified that it will take some time. But just any sort of comment on the quantum of the fundraise or you are basically maintaining looking to increase that stake or just maintain it? Any comments around this?
So as I said, first Aditya Birla Capital board has to kind of discuss this. I can't really comment unless we have the proposition from Aditya Birla Capital board.
Okay. Okay. And you'd mentioned that valuations seem attractive for the business. I mean, just any comment on that, given that how the market has been particularly in this sector?
You have the best place -- better placed than me.
[Operator Instructions] The next question is from the line of Bhavin Chheda from Enam Holdings.
Sir, couple of questions. Most on the Idea infusion. If you see the Idea press release, which said that the Aditya Birla Group will be putting up, up to INR 27,250 crores. But when I break up the Aditya Birla Group Holding of 26.55%, there is a shortage of roughly around INR 600 crores to INR 650 crores in the proportionate holding of Grasim, Hindalco and other Aditya Birla Group entities. So what happens to balance money? Can it -- Grasim put that additional money or the other group -- Aditya Birla Group companies? If they don't subscribe to the Idea issue, then does Grasim put in, or the Grasim board is very firm of just putting and maintaining its stake at 11.55%?
So couple of comments. One, the ownership at 26.55%, what you have said, may not be correct. In my calculation, it's 26.04%. And second, I think we have conveyed -- reiterated many, many times that Grasim board has taken a view that they would like to kind of maintain their ownership. What promoter does is something I can't comment on Grasim's call.
Okay. The additional thing that press release also mentions that in case of undersubscription, the promoter shareholders reserves the right to subscribe. So if that happens, then the promoter holding goes up. So in that case also, Grasim would like to maintain its current holding?
So I think first of all, as I am saying, if -- what are Idea's press release, I can't comment currently. And if there any specific issue, I can take off-line with you. But I'm reiterating Grasim's board has taken a view that they'll participate to the extent of their own ownership.
Okay. I think that clarifies a lot of things. The other thing on the core business. As you said that you have seen VSF and [ SRF ] have gone up quarter-on-quarter, Y-o-Y. This is more related to the higher mix of value-added segment, because you also made a comment that the VSF prices in China, what we see on the reference in RMB per ton and the other global markets have differential pricing. So these 2 combined has led to VSF higher NSR? Or how would you like to comment differential pricing between the different markets for the same grade?
Yes, I think, as I mentioned earlier, the different geographies have different prices, because the customer demands are different. The deniers are different. And I think -- and then there are some specialty products we make also, so like [ tera ] different prices, Modal have different price, Micro Modal have different price. So it's a blend of product come, geographical mix makes a difference.
So, you have been doing very well on the VSF business, so for the last 4 to 6 quarters. So can we infer that going forward because the way the mix have changed and the global market for VSF and the [ inter ] pricing is completely different, that the volatility in terms of NSR would be much less as compared to the global benchmark VSF prices volatility?
I mean, directionally yes, but we can't talk about absolute numbers.
[Operator Instructions] The next question is from the line of [ Saket Kapoor ] from Kapoor and -- sorry, the next question is from the line of Prateek Kumar from Antique Finance.
Just a couple of follow-ups. So on your other businesses, so any outlook on that insulator business in -- or the -- I mean divesting the other ventures where we have marginal presence?
So it's not an easy -- you know some of these businesses are not very easy, especially when the sector does not do well. So currently, insulator sector is having a lack of demand because of the way the power sector is. And clearly, the very small portion in our overall portfolio of Grasim stand-alone or consolidated level, whichever you want to perhaps see it. So I think I would only -- currently, the management is trying to currently improve their performance.
And sir, in the VSF business, what was the global capacity added in 2018 calendar year? And what is the current market size in terms of capacity? And what is the expectation in 2019 as for management?
Capacity, I don't know, about 900,000 tonnes capacity in calendar year '18. So -- and total capacity now is about…
720?
Yes, 7.05 million tonnes. From 6.175 it went to 7.05 million tonnes, calendar year.
And sir, what is the expected capacity in FY -- CY '19?
0.5 million tonne may come in FY '20.
So no capacity in '19, which is expected now?
FY '20 and '19 only.
FY '20, okay. How much, 0.5 million?
0.5 million tonne, yes.
And sir, combined these 1 million, 1.5 million tonnes, is this all which you are looking like…
Looks like there's other things around, you don't know. And the lead times per plants are about 3 years. So when and if the announcement comes, we cannot -- so in foreseeable future, that's the number looks like.
And sir, what would be the utilization levels globally in CY '18?
That capacity overhang have gone to 31%, as we speak. But the good thing is, because of the global dynamics, the cotton -- as you see, the cotton prices in India have gone up. The cotton production globally also have -- prices are going up. So the growth of viscose is growing much faster than what has been happening in the past. So maybe we will bridge this capacity as we go along. So while it is 31% now, it should grow at 7% to 8%, it will come to a healthy 15%, 16% very soon.
So 31% means you're -- and the 69% is utilization, that's what you mean?
Overhang, yes, that's right. It is not 69%, it's the other way around. But with extra capacity.
83%.
[ I say to you now ], but there was the extra capacity. So the [ danna OR ] until recently, 83%. Now as the capacity comes, the marginal players start falling out, typically [ danna ] -- see because there is not 1, like [ danna ], there are 23 players and each has a different cost structure. So depending on how the market prices are, there's always some people are lower capacity, so that's how the overhang keeps changing. So capacity and operationally, these are 2 different things.
To make this clear, so the capacity overhang is for the year previously you're talking about or including the new capacity, which is 0.5 million tonne that was expecting for…
Capacity overhang is available capacity versus demand, right. So if our available capacity is 100, the demand is 101.31, whatever number, you can work it out. But actual plants run differently, because every plant depending upon how its cost structure is, even run at full capacity. So like today, even when there is overhang of 30%, 31%, the overall is 83%. So people are running up their plants, some people have shut down their plants in China.
Okay. Because the cost escalation -- I mean, we being a better player, cost escalation is being very much visible for us in terms of profitability this quarter?
The marginal players tend to moderate their production as they go along.
[Operator Instructions] The next question is from the line of [ Sanket Kapoor ] from Kapoor and Company.
Sir, the expansion, which is the work in progress in the caustic soda segment, what are the -- what is the likely new capacity that we are going to add in the coming 2 years, sir?
So the present capacity, I just informed, that we are increasing by 300 tonnes per day in Rehla and 200 tpd in Vilayat. So [ asset sales ] will take about 12 to 14 months for execution. And then we have our 5-year plan and constantly revisiting our plan and taking up with the board. So there are always plans for expansion to keep in line with the caustic soda growth, which happens between 5% and 6%.
Sir, currently this 500 tonnes, that is in the process?
Yes.
I wanted to understand fine. And the mix is going to remain the same, that there is 50% in-house consumption and to have closer to 50 and 50 for the market or this mix will also change with the expanded capacity?
At each moment, the mix will change to the lower amount. But once VSF expands, then it will likely remain at the same level.
And sir, going forward then the growth vertical will be evenly skewed between both the viscose as well as the chemical demand. I'm talking about the operational performance in Grasim, other than the cement and the financing that is the subsidization part. But going forward, both will be on the same trajectory or one of the verticals will outperform the other in terms of the expansion that is -- that will kick in, in the near future, obviously, for INR 2,000 crores?
Sorry, can you repeat the question, please?
Sir, I was trying to make sense for in between the viscose and the chemical segment, the CapEx that is in the annual. Going forward when the CapEx complete, which segment will be going to contribute on the higher side or will this proportion remain the same?
I think you have to come and sit in my office here. We can't -- because there are lots of issues which decide the proportion between the businesses, because how the pricing would be, how the cost structure would be. But the only point which I can make for sure is, what -- which I even covered during my presentation; that the company's business model has become far more robust. And it is driven because if you go back in the history, 4, 5, 6 years back, there was lot more volatility on account of what was happening in viscose international prices. We are far better today. One, because we are sitting domestic market so far viscose is concerned, which has a better realization and higher profitability, for sure. And we are constantly in the mode of creating new product, like we've just kind of launched eco Liva, and the same what we talked about in chemical business. Even in this quarter, as I mentioned that on the value-added products, our revenue has gone up by 33%. Some of these initiatives which we have taken, both on getting the market, new products and conjunctions, which contribute make the company, the EBITDA's far more robust than what we used to have in the past. So I would like to kind of maintain that as a statement. You have to kind of see what would happen to caustic soda prices few years down the line. It's very hard for me to kind of give that guidance.
And for the mix between caustic soda and the allied chemicals, what is the revenue split and the profitability also, sir?
So profitability in the revenue mix, I can tell you that caustic soda would be around 30%, 35% in terms of revenue mix. Profitability, we don't comment upon.
Allied chemicals are on the higher side?
No, no, no.
No, no. I think the question was not clear. So Mr. Raj Narayanan maybe also -- between the caustic soda and value-added products, the revenue mix and the profitability mixes you want to understand, no?
Yes, yes, yes, sir.
Maybe Raj, can you please explain?
Yes. Okay. Roughly -- very roughly, it's 20-80, 20 of VAP and 80 of caustic soda. And as Mr. Agarwal said that we are constantly working on how to add more value to our performance chemicals or value-added products. So we are looking into service element, we are looking into various blends, et cetera, to increase -- improve the value on these products.
In the allied products, are these -- all the downstream products of chlorine that are being classified under allied products or these are different verticals altogether? And are they allied chemicals?
Yes, most of them are chlorine derivatives.
Chlorine derivatives? And sir, what have been your utilization levels for the quarter for caustic soda and for the 9 months?
As Mr. Agarwal said, it's been 92%, if I remember correct for the first 9 months. And last quarter, it was higher.
The revenues are nearly up by some 30%.
34%
30% -- 33%.
This quarter.
Are you telling something, sir?
So what we are saying is the net revenue is growing faster than the caustic soda. So we are -- our focus is there on the all value-added products of the chlorine derivatives. And that is where we are trying to -- I mean the growth of the revenue is faster in those products compared to caustic soda.
Okay. And those are generally the import replacement, I think. So the product which are the value-added products?
So we have a blend. Our value-added product portfolio is fairly large now, and then we have a mix of both local variant as well as the import substitute.
The next question is from the line of Rohit Nagraj from Sunidhi Securities.
I understand that our domestic review has been quite resilient because of the positive realizations from the chlorine. How do you foresee the same segment next 1 year? I mean, the chlorine demand is still upsurging then because of which the realizations will still be in positive mode or there could be a possibility that the new capacities are coming in so the realizations would slightly moderate?
Yes. So the pricing is always a very difficult one to predict. But I can say fundamentally, there are a lot of chlorine derivative units that are coming. And we are also expanding into chlorine derivatives. So the chlorine will be evacuated more usefully going forward. On a pricing level, we have to really wait and see. It's very difficult to predict it on that. But definitely the evacuation and the utilization on chlorine derivatives are getting more and more.
[Operator Instructions] The next question is from the line of Ronald Siyoni from Sharekhan.
Sir, just wanted to know how would be the funding of this -- for our stake would be the raising -- you mentioned that INR 1,000 crores is plus cash and you generate enough cash. So will you be taking debt for funding those -- or funding that right issue or is it will be through internal accrual? So a proportion of the same would be debt and balance would be internal?
So currently, you're right that there is a net cash surplus of over INR 1,000 crores, and it will all depend when the actual fund goes. We do not have a timing yet in our hand. However, if it happens sooner, I think we will not be able to kind of generate that much of cash in next 3 to 6 months. There could be -- we have although overall surplus of over INR 3,600 crores. What I said, INR 1,000 crores is net of debt. So we can always utilize our existing cash, which is the surplus, which is there, or depending on the pricing, if there is a need for us to kind of have some borrowing then for a mismatch point of view, that also could be done. It will all depend on the timing of investment.
As there are no further questions, I would now like to hand the conference over to Mr. Sushil Agarwal for closing comments.
Thanks to all the participants. And if there are any questions, you can reach out to Saket Sah at Grasim's in Investor side. Thank you so much.
On behalf of Grasim Industries Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.