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Grasim Industries Ltd
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So good afternoon to all the participants. The year 2020 was a dramatic year with businesses witnessing a sharp dip followed by an equally sharp recovery, which was led by monetary and fiscal stimulus, coupled with the rebound in consumer confidence. And this is also reflected in our results. But before I get into the results, I would like to highlight certain significant developments that we have already announced. Grasim is on its path of a strategic transformation. In the last few quarters, we announced strategic decisions like sale of fertilizer business, partnership with Lubrizol and entry into the paints business. We are very excited as we potentially imbibe more growth, which makes us positive about the future direction of the company. Let me briefly update you about the progress on these initiatives. On fertilizer, we have received CCI approval and NOC from stock exchanges. We have filed our scheme with NCLT, and we are well within the time line of consummating the transaction that we indicated earlier. On paints, for the benefits of audience, I'll reiterate what we said in the previous call, that our foray into paints is a strategic portfolio choice. Entry into this B2C business will provide scale and growth to the existing portfolio of the company, and at the same time, reduce cyclicality. Within paints, decorative paints will be our focus area. We have committed to an initial CapEx amount of INR 5,000 crores over a 3-year period. We are in the process of seeking shareholder approval, and key steps in executing our strategic plan in paints will commence thereafter. We will share updates with you periodically post completion of material milestones. As of now, I would direct you to refer to the transcript of our previous investor call for further details, as there's no further update from that call. On our CapEx of current businesses, all our CapEx are progressing well, and we are scheduled to meet the commissioning time line of VSF project in 2 phases in quarter 2 and quarter 3 of FY '23. For Chemicals, all the 3 projects will commence by quarter 1 FY '22. In terms of operational performance, Q3 FY '21 has been a strong quarter with all our key businesses reporting robust operational performance and financial performance, and we have simultaneously deleveraged our balance sheet. At consolidated level, the company reported best ever EBITDA and PAT numbers. Likewise, our stand-alone financial performance demonstrated a strong rebound. Our VSF plants operated at 100% capacity utilization throughout Q3 and the utilization of VFY plants touched 89% in December 2020, and for the quarter, it stood at 77%. The VSF demand in India recovered to pre COVID levels with the share of domestic sales in the overall sales mix expanding to 91% in quarter 3 from 82% in quarter 2. The share of value-added products in our overall sales mix improved to 22% in quarter 3 from 15% in quarter 2. The uptick in the VSF price has been driven by a strong revival in domestic demand, primarily in the Tier 2 and 3 towns and rural areas, supported by festive and wedding seasons. The Chinese VSF realizations maintain an upward trend and averaged RMB 10,500 in quarter 3, up 23% sequentially; and in Jan, the prices have further climbed to about RMB 13,800 level. Favorable inter fiber dynamic widening gap between cotton and VSF led to production -- sorry, reduction in inventory levels and higher operating rates. The VSF plant inventory in China moderated from 23 days in September to about 10 days in January. The Viscose business reported best ever financial performance in the last many quarters, with revenue of a INR 2,145 crores and EBITDA of INR 482 crores in quarter 3. The Viscose EBITDA witnessed a significant 89% increase Y-o-Y. For the VFY business within the Viscose segment, the revenue was INR 436 crores, and EBITDA was INR 97 crores in quarter 3. The chlor-alkali capacity utilization touched 89% in quarter 3, a 9% improvement in utilization rate sequentially. Revenue and EBITDA of Chemicals business touched the pre COVID levels with pickup in sales volume and supported -- further supported by lower input costs, especially in power. The continued weakness in ECU realization impacted the EBITDA. The caustic soda prices in CFR terms in Asia, however, recovered a tad from the lows of $239 per metric ton to about $270 per metric ton.The demand for chlorine VAP, value-added products, witnessed some weakness from the health and hygiene segment, along with some softness in the realization. While at the same time, in the Chemicals segment, the epoxy business witnessed a strong demand from forest products, from auto and consumer durables. On the stand-alone basis, excluding the discontinued operations of fertilizer as we have signed the agreement out there, our revenues and EBITDA for quarter 3 stood at INR 3,672 crores and INR 709 crores, respectively. EBITDA reported an improvement of 53% Y-o-Y. Our PAT for the quarter nearly doubled Y-o-Y basis to INR 359 crores in quarter 3. The revenue and EBITDA from the discontinued operations of fertilizer for Q3 at -- stood at INR 597 crores and INR 57 crores. So if you had theoretically added INR 57 crores of fertilizer EBITDA to the stand-alone EBITDA, our EBITDA would have been at INR 766 crores. But the accounts is all adjusted for fertilizer being excluded line by line and only included before PAT as a specific item. Owing to lower CapEx and better cost management, we have been able to significantly delever our balance sheet during the 9-month period at both consolidated and stand-alone level. The consolidated net debt stands reduced to INR 12,767 crores, a 39% reduction from March levels. At the stand-alone basis, the net debt reduced from INR 2,975 crores in March to INR 2,093 crores in December. And this will get further strengthened with the proceeds coming from the fertilizer sale. Our focus on sustainability-related initiatives are getting recognized at the global level. We are committed to improve our nonfinancial reporting standards further going ahead. In December 2020, Grasim released its maiden integrated report. The purpose of embracing integrated reporting is to make our stakeholders aware of how all Six Capitals come together aggressive to create greater value. Recently, Grasim won Investor Relations award being organized by Investor Relations Society in collaboration with BSE and KPMG under the category ESG disclosures. Our VSF business won the Global Golden Peacock Award for Sustainability 2020 (sic) [ Golden Peacock Global Award for Sustainability ]. Our Dow Jones Sustainability Index score also witnessed a significant improvement in calendar year '20. We moved 6 ranks to 11th position in our sector. In the latest WBCSD report, Grasim Industries featured at the top among the list of companies procuring renewable power through corporate renewable PPAs in India. Viscose business sustainability achievement has been showcased in a case study, Birla Cellulose: Spearheading Sustainable Fashion, which is the title, published by world-renowned Ivey publisher, and it is now available on HBS (sic) { HBR ] website. Finally, in terms of outlook, we expect strong tailwinds for Viscose business with improved demand outlook, although various input costs have also started to firm up. The demand outlook for chlor-alkali and epoxy remains positive for the quarter. The ECU realization continue to remain weak, driven by softness in the global caustic soda prices. Our inherent strength lies in our operational excellence, financial prowess, our resilient growth and our customer-centric team. And if you see the cover of our presentation for this quarter, as a stronglomerate, we combine the synergy of a conglomerate and energy of focused businesses. So back to you for Q&A.
[Operator Instructions] Our first question is from the line of Gunjan Prithyani from Morgan Stanley (sic) [ JPMorgan ].
Gunjan from JPMorgan. I just wanted to, sir, clarify on the CapEx thing. I see that there is a balance of about INR 1,000 crores yet to be spent. That is all for Q4 we'll be spending. Is that understanding correct?
Yes. So, Gunjan, that's why INR 1,800 crores odd -- INR 1,825 crores was what was approved by the Board. And for 9 months, first quarter, we didn't spend any -- 9 months, we spent approximately INR 800 crores. The balance remaining approved is INR 1,025 crores. There's a high likelihood that some of this will spill over to quarter 1 of next year. So it's quite possible that we may not be able to spend the entire INR 1,000 crores, but there might be some spillover to quarter 1.
And have we put -- have we -- do we have an assessment of how much we are looking to spend next year? I mean, keeping the case -- the paint foray aside for the core VSF and the caustic business.
So at this time of the year, as some of you may know, we go through our CapEx planning cycle. So by next quarter, we should be able to give you guidance of what will be the budget for the year that will be approved by the Board. So as of now, it's under planning and then we'll take it to the Board and get it approved. And that should include all the businesses, including paints.
Okay. But is it fair to assume that the magnitude of INR 1,800 crores, a large part of CapEx on the core business has being done now incrementally, a dominant part of CapEx is going to be on the newer venture? And if -- I mean, just on that line only, if you can also tell us the consummation of this deal, fertilizer, when do we expect the money to come in?
Sure. So on the first part, Gunjan, my -- unfortunately, at this stage, we are in the planning stage. So for me to give any guidance on the CapEx will be very difficult as we are collecting all the figures, and then we will internally go through them and then take it to the Board, and there may be changes there as well. So I won't be able to give you that guidance. The major CapEx of Vilayat, of course, from VSF perspective will be done, so there is no major CapEx in VSF after that. In Chemicals, there are multiple projects, as you know, that goes on, unlike Vilayat, which is one large project that we were putting up. So in Chemicals, it's always difficult to give such CapEx guidance. On the fertilizer sale, when we announced the transaction, we gave a guidance of about 9 months. So somewhere around June, July is what we expect it should get over. And we are expecting the time line to be around that, looking at the development of what has happened with the regulatory approvals. So as of now, fingers crossed, we're hoping that June, we should be able to culminate the transaction, and therefore, we will get our funds as well.
Okay. The second question I had was on the industry -- VSF industry now. Clearly, a very, very sharp pricing improvement after a long time. I just wanted to understand how much of it is -- it is also the supply which had gone off the market. I mean, is there any risk that some of the capacities which were taken out of the market start to come back, given the demand environment is improving? If -- I mean, just general sense on how should we think about the whole demand supply over the next 12, 18 months.
Gunjan, if you look at the numbers, in fact, what you are saying has already happened. The operation rate in China, which used to be, we said, a lower 65% in Q2. We're now already at 80%. 80%, 81% is a healthy utilization rate. So even at that operation rate, the inventory is coming down consistently. So what it is telling you is the demand is far outstripping the supply. And the reason for that being twofold. One is the viscose demand per se has gone up. And second, the cotton yarn prices shot up significantly, globally and everywhere else. So there is a skew from cotton to viscose. And China, as you know, consumes about 8.5 million tonnes of cotton and produces only 6 million tonnes of cotton. And then they import about 2 million, 2.5 million tonnes of cotton yarn. So they are under huge pressure because of the growing price of yarn to use more and more viscose. So -- and that is what is driving the entire pricing system. So the prices are moving exponentially. Like, if you like, Ashish mentioned, it was [ 11.8, 8 8 5 ] as we speak in China in January. In December end, it was 1.45 or that kind of a number. So I think we are now coming to almost pre COVID level of prices. And the demand because inventory has come down to 10, 11 days, which is a historic low, and this is something we do a healthy inventory. So I think this is more demand driven than supply constraints.
And there is no big capacity expected to commission on [indiscernible]
Yes, there's nothing coming. We're at, I think, 200,000, 300,000 tonnes [indiscernible] due to de-bottlenecking. Because the biggest one to come on stream in our capacity only, which I mentioned to you is only India for India.
Our next question is from the line of Sumangal Nevatia from Kotak Securities.
Congratulation on very strong quarter. First question is on the [ VSF ] business. So one is kind of $1.8 versus $1.4 price. So that is the [ Jan incentive ], wanted to confirm that. And the second is on the -- you see the cost is also catching up and we benefit out of the lag. So if we factor in the spot prices and the spot pulp cost, what sort of margin change or spread change we will see at least directionally from what we have seen in 3Q of around INR 32 per kg? If you can give some sense on that, it would be very helpful.
Sure. I think specific guidance on spread, we will not be able to give, but we can give you directionally the pulp price and how it has actually gone up in line with VSF price. So that, Dilip can give you some idea on.
You have seen the quarter 3 results, what you have seen, the pulp hasn't started running up the way -- so most of the increase happened after the quarter 3. So pulp today, as we speak, is almost at $890 per ton. Now pulp always follow the viscose one. The viscose [ can tip ], but pulp cannot go up. So while you are right that the input prices are going up, but quarter 4 will also see a rising price in viscose. So to my mind, delta will still remain favorable.
Understood. Understood. Sir, second, with respect to the Chemical business, which is still struggling. So is it possible to share some more outlook as to how we see FY '22 shaping up? Have we at this step, moved close to the bottom as far as cycle is concerned and either should move sideways or up, north in the coming quarters, especially given there so much of capacity addition happening and the pipeline is also quite built up?
Yes, Jayant?
So let me just say that the last couple of months, what we've been seeing is more lateral movement on the caustic prices. It marginally goes up, marginally coming down. So until and unless there's significant demand supply scenario changes, I think we're kind of at the bottom of the cycle. Now as you put it very correctly that there is a substantial demand-supply gap at this point of time, so we really don't see -- and that even exists today. So I think this picture will be either it will do a lateral movement or it will do a marginal upward movement. I don't really see it going down subsequently until and unless the demand side significantly changes.
We'll take our next question from the line of Gaurav Rateria from Morgan Stanley.
So firstly, on Chemicals, any outlook on what's happening on the duties which got expired? Is it going to be reinstated? Any color on that? And from what you talked about, that it appears that it has bottomed out on margins. What exactly one should try to understand that beyond this contribution margin, it will not make sense to increase supply automatically, the rebalancing of demand supply will happen?
So let's put it this way, that we're still trying to assess that. Because now if we have to go back towards the Korea, China, which expired the sunset review, we have to go through the entire process of figuring out does it, again, meet the agreed margin they were not supplying earlier in the past. So that's a long run process, which will take its own set of time. I think the industry is working towards it to see what they do next on that. To your point on the margin front. I think the picture is going to be as any more and more capacity utilization increases, and the industry also, as it is today has gone above 80% in this capacity utilization, I think the margins are expected to only increase. Because there is enough demand in the market, both on the caustic side as well as the chlorine VAP side, plus chlorine consumption per se. So while it's a very delicately poised position at this point of time. Any demand decrease could have marginal deterioration of margins, and any upside coming could lead to an increase in margin. So it's fairly fine tuned at this point of time. I won't get into margin guidance at this point of time because we're still in the process of [ determining ] what we'll do for next year.
Just to add, globally at Chemicals, I think there is a huge rebound. I think majority of chemicals overall have recovered. We expect the coming year to be significantly on a bullish side. And as Jayant said, the demand is looking strong. I think we will still see that we are at the bottom end of the cycle, and we'll continue to have a similar level of a kind of lower level pricing for the coming few months. But one thing you need to know is there has not been any significant capacity increase anywhere else in the world. Predominant capacity increases have been in India only. So as Jayant said, as and when the capacity start to be utilized further, we should see both from a global perspective as well as an India perspective, we will start to see a rebound. So I think we are waiting. Just like you, we are waiting for the coming months.
Sure. Secondly, on VSF, given that the margins are so lucrative, prices have gone up so much. Do you think that there can be new supply which can come in? And even if it happens, how long does it take for the new supplier to really come in and get commission and start producing output in the market?
If you're talking of putting up a new plant, it is anywhere between 24 to 30. More than like 30 months to 36 months, 2.5 to 3 years.
Okay. And lastly, a question on capital allocation for Ashish. Bulk of the organic CapEx will get funded by internal approval given the cycle has turned. Maybe we'll lever up the balance sheet to fund the investments in the paint business. From a medium-term 2 to 3-year perspective, are there any potential investments over and above the paints which one should keep in mind, either from a group company's point of view or any other organic investments?
Yes. So see, what we see today, as we stand, there is capital demand from viscose continuing. There is chemicals. And when I say chemicals, it's chemicals and some of the other sectors like insulator and VFY, so our stand-alone businesses. Paints will be another one. Now given all the capital demands from all these, okay, it is substantial enough for Grasim to take care from its internal accruals, and we'll, of course, take debt to meet the requirement. So it's highly unlikely that there will be capital infused or investments into any of the subsidiaries or JVs or associates or anything of that sort. Except, of course, solar, as we increase the capacity, the equity infusion is done by Grasim, and equity is always a smaller portion out there. We generally fund it through -- out there. So that would be the broad capital allocation plan for Grasim.
So Ashish, does it also include the outlook for financial services? Like from no requirement from a subsidiary or joint venture that you mentioned?
Yes. So as of now, as we stand, financial services, we've already infused to equity a year back. So we don't anticipate a requirement to come for some time. But financial services needs to be treated differently than other associate companies, et cetera, because it's a growing entity. It's delivering double-digit growth in its financials, and we would like to maintain consolidating stake out there. So if it's a big dilution event out there and if we want to maintain the stake so that it is value-accretive for Grasim shareholders as well, we may infuse capital there. But that's a very -- let me put it a framework that I'm talking about, okay? There is absolutely no plan, and there has been no proposal from financial services also that has come to us for any capital infusion.
We'll take our next question from the line of Amit Murarka from Motilal Oswal.
So I just wanted to check on the expansions like the caustic 300 KTPA and given the VSF about 200, 220 KTPA. What is the expected commissioning now of these expansions?
On the caustic side, like Ashish put it, we expect, by the end of quarter 1 of next financial year, a large portion of the caustic capacity would be more or less up.
Okay. And how will be the ramp-up of the same?
So it will be a slow ramp-up, looking at any manufacturing process. I think by the time it reaches the industry level capacity utilization, it will take the balance part of the year.
End of FY '22, you're saying that it will be normal utilization levels?
Yes. Yes, yes.
And also the VSF?
VSF, the first line will come in quarter 2 and the second will come in quarter 3. And normally, it takes about 3 to 4 months for a full ramp-up. So the VSF, the demand is there. It's all up to us to how fast we stabilize the plant. So based on the past experience, it should be doable in 3 to 4 months' time.
So when -- speaking of VSF ramp-up, will the export share go up? Or you are -- you think that you'll be able to...
Right now, as we speak, the domestic demand is really very high. We are not able to service all the demand. That's why we look at exports. So keeping the healthy level of exports that we have always been keeping, I think we should be able to sell quite a bit of it in the domestic market. As we speak, there's a lot of yarn still gets imported into India, which is slowly coming down. And that demand will come too with the fiber. So we expect a very healthy demand for the fiber at least in FY '22.
Yes. And just one more question on China. Like 2 years back when Sateri had done that big expansion, what I understand that there was a plan to expand that further actually later. So have you heard of any development on that second phase of expansion there?
No, I think the -- maybe your information -- it's all hearsay. There's not -- nothing on the piece of paper. But the announcement they have made is about a lyocell. Suddenly, Sateri is saying that they will put up a 500,000 tonnes lyocell plant in China. If you look at the number, Lenzing which has started lyocell 30 years back, is right now at about 250,000 tonnes per annum. So he is saying I'll become double the size of Lenzing in next 3 to 4 -- in the next 4 to 5 years. So to my mind, their focus right now is a lyocell plant in China. And they are trying to debottleneck like all of the other existing plants. So that everybody will do. When the market goes well, everyone starts to debottleneck their pipeline. So a few tonnes, you can always get from an existing pipeline -- existing production line.
We'll take our next question from the line of Nirav Jimudia from Anvil Research.
Sir, I have 2-part question. So 1 is on the chlorine VAP, which you mentioned in the presentation, that the EBITDAs have improved by almost 45% on a Y-o-Y basis. But if you can give some sense in terms of how it has performed on a Q-on-Q basis given the weakness in the realizations, that would be helpful. And if you can give some sense in terms of even the epoxy side. So how it has performed on a Q-on-Q basis in terms of some percentages, that would be helpful. So this is the first question, sir.
Jayant, would you like to give some direction of VAP?
Yes. So -- see, let me put it this way. The chlorine consumption in India at the moment is fairly robust. So I think that's a big positive for us. The chlorine demand is now growing at a fairly rapid clip. It is actually growing faster than the caustic demand, which, again, gives it a positive tick mark going forward. Now in the early part of the pandemic year, you had a huge surge of requirement of VAPs, particularly on the hygiene and sanitation part, which gave a very robust EBITDA growth to VAP products in that segment, of which we are the leaders. Now as the pandemic has slowly, slowly gotten to control, the demand for those VAPs have now come back to the earlier levels, which is business as usual, and obviously has led to certain softening of prices, although still maintaining a positive EBITDA. So our VAPs EBITDA is very healthy. I will not get into numbers on that particular front. And we expect that they will continue to remain healthy as we go forward because there is an intrinsic behavior change of sanitation which is coming to the country and the world per se. So if I would tick mark, I would say chlorine demand, great, doing very well, growing at a good clip. VAP on hygiene, sanitation have upped their base level and are doing well. And the balance comes with seasonal VAPs, particularly as the rainfall comes, so the water sanitation demand goes up as the aquaculture comes, then those product goes up. So I think we are fairly well placed on our VAP side to continuously see a robust growth, both on the volume side and a healthy EBITDA.
Okay. And sir, on epoxy, like last quarter, you have given some indications in terms of our performance, some quantitative numbers also. But even if you can't discuss the quantitative number, just can you give some percentage growth in EBITDA or something like that? That would be helpful.
So see, I think epoxy business, first of all, in the last quarter, was still on a ramp-up phase, okay, coming out of COVID, et cetera. But in quarter 3, you enjoyed the benefit of volume and that came from auto sector as well as consumer sector. So there were actually 3 advantages really that the epoxy business had. One is the volume pickup that happened in quarter 3. Second, the realization also went up in epoxy. And the third is that epoxy is, in a way, a pass-through business, okay? So the raw material that they import, most of it, okay, it's mainly a pass-through to the customer. So it has to be looked at from conversion basis. So if you make volume, you make that contribution per ton. But there is some advantage that we got in epoxy due to the lag again of raw material prices. So we still had the inventory of -- some older inventory of DCS and BPA, which is at lower cost, which helped us with that small timing gap benefit that we had out there. So epoxy has actually performed much better than Q2 as well as on Y-o-Y basis, and hopefully it will continue to do so in this quarter as well.
Okay. Sir, second is on a slightly strategic one. So in terms of -- if we see our sales of VSF, it's like around 142,000 tons, as you have mentioned in the presentation. So if we make some breakups in terms of value-added as well as the Grey value-added, we have sold almost close to 31,000, 32,000 tons. So as per what we have been trying to calculate it based on some backward numbers, it seems like out of our broad category of value-added products like Modal, Excel, flame-retardant, dope-dyed, it seems that less premium products as compared to Grey is sold more in this quarter. So if you can give some sense in terms of how this mix moves in this quarter as well as on a yearly basis, if you can give some sense on that.
You want me to respond?
Yes. Sure, Dilip, please.
I think in a way, you are right. So there are 4 value-added products. We have dope-dyed. Then we had Modal. We have Excel. And we have got the recent one, Livaeco. Now, in a way, the dope-dyed, which goes in uniforms and office wear, trousers. That you all know because of the COVID and the work from home, that segment is totally dead because the schools are closed, the children are not going to the schools. So that segment is where the consumption has come down, and then that's a large consumption segment. If you look at -- Modal is a high delta, high value-added product, but low volume. Dope-dyed is a high-volume, but low value-added product. So you may make $0.20, $0.25, but the volume is 300 tons per day. So the multiplier is much bigger. That is now reviving. As we speak now, now offices are opening, people have started going out. What has been told now with the schools opening around the corner, the country will need INR 4 crores uniforms. There's going to be huge surge in the demand for the dope-dyed fiber for the uniform. So we believe that is coming back. Modal has done very well. Modal has done extremely well. It has grown back when we are growing. Livaeco is a great success story, I've told you again and again, because the first time we have got a premium on a commodity viscose because it is eco-friendly. So that's also -- that is compensating, to a large extent, the dope-dyed loss. Otherwise, it would have had a much bigger loss. Fourth one was the lyocell, which got impacted in China because once Sateri announced this plan of 500 tonnes per day -- 500,000 tonnes per year plan, and he say I will bring down the price. It's the same story. So the lyocell price and demand suffered in China. Although, on that, it was more emotional response to Sateri's announcement. People realize that it doesn't happen like this. It takes years to build those kinds of volumes, so it's not recovering back. So we are announcing in Q4 quite a good uptick in lyocell demand. So I think the number what you have computed is an upward trend. So as Ashish said, 13%, 20%, 22%, when it will go much further up in Q4.
Absolutely. So sir, a related question to this. So it is safe to assume that we sell more of Modal, Excel in the domestic market more than in the export market because...
Correct. Modal and Excel is largely export market. We're growing it now. We have grown very well in the last 3 to 4 months. I've tried to shift -- a lot of the domestic users are importing to our product. And cotton -- shifting from cotton to lyocell because price is very favorable. We have done that role. Dope-dyed is largely India-driven. That we are the biggest in the world. So that's how it is so.
Okay. Okay. And sir, in terms of our competition also. If you see like our biggest competitor is having some to like 80,000 tons of Modal capacity to like 60,000 tons of lyocell capacity. So...
Not so much. We have [ a sense ] for the target. 300 -- Lenzing has 300 tons per day capacity, right?
It's a ballpark number.
300, 350 how much?
Yes, sir.
It's not so much. They can't make more Modal. So we have got almost -- we have added Modal capacity overseas, not here, but I think we can make a good amount of Modal now.
So sir, when they try to penetrate in Indian market and when we try to fight against them, so what are parameters for? So like, one is like, if we try to rate them in terms of, let's say, first is the distribution network. One is the post-sale services, which we provide to the customers. Third is the quality. And fourth is the price. So which are the parameters we would like -- or we actually compete with them in the domestic market when they come and sell their products into India.
The specialty is a very different ball game. There are only 3 parameters there. The foremost is the qualifying parameter, which is nomination. Because most of the specialty goes into brands. So brands nominate, that I want -- or they certify a fabric. Because they do trials, they make garments because they don't want the customer to have a different experience. So every time you make a -- it's not like commodity viscose, you can buy on a X, Y, Z. But a specialty modal, even if my quality may be as good as my competition, but that customer has to first use my modal, make the product, try with the customers, get the feedback and then nominate me. So the whole effort, while it takes time, is the nomination cycle, which can be anywhere from 6 months to 2 years. So that is where the biggest differentiator. So because Lenzing or the competition had a head start, they have more nomination with their European customers. We are getting those nominations. And as we get the nomination, our volume keeps growing. That's the biggest change. Once the nomination is there, quality is a qualifying condition. It's all the same, all the same quality. About the price, so price becomes #2. Even if I offer a lower price, if there's no nomination, nobody will buy it. So these are the parameters.
Okay. Okay. And post-sale service is also a parameter because probably you have more distribution network in India than the competitor, then that also helps.
[indiscernible] by nature niche products. They are less or low volume, high price. So certainly, it's more important for a product like viscose. But the reality is, I mean, you can't default on the customer orders. You have to supply in time. But it is not the key element. That's a very important element for the [ mark ] as well. Their service [indiscernible] and you are a local producer, you're supplying local customers. You give just in time. You give technical service. You help them cover through their plants. You help them with the productivity. It's a big differentiator for the [ mark ], of course.
Our next question is from the line of Sanjeev Kumar Singh from Systematix Shares.
So my question is related to the previous question. [ Which is, sir ] what I see is that in VSF, our realized growth is only 9% Q-o-Q. Then in international markets, the prices are up by 20%. So is it because of higher share of sales in the domestic market? Or can we expect higher prices increases going forward?
I don't know -- would you like to...
Actually -- see, this is a little bit competitive sensitive information to talk about in how much increase is expected in the domestic prices from now. I think it's suffice to say that there has been increase in the global prices, and in line with that, India prices have also gone up. It may not have gone up as much as the international prices. We have to take care. One of our ingredients and strength that I talked about earlier is our customer centricity. We have to discuss and make sure that the actual price increases in a calibrated way and amount. So Dilip, if you want to add anything to that?
Yes. I think you rightly said, the fact we have been saying this on the time and again on the call, we do not blindly follow the global prices. It's our -- we believe that the health of the value chain is very important, domestic value chain. You can take a price increase as long as the domestic value chain, the weaver in the system, the spinner in the system can withstand that. So we always -- the global price bench is a base. But what you actually do is also to make sure that there is a health of the value chain is maintained. So what was happening, there are a lot of yarn imports happening into the country in quarter 3 and quarter 2. So to make sure that the import don't happen and our spinners get the opportunity to service that market, we had -- we decided on the price increase in sync with that principle. So it's a -- it will follow, but it follows in a calibrated manner. Because if you have tools, the price and volume, you can get 1 and the other doesn't make sense. So you must have both the multipliers with you.
Our next question is from the line of Prateek Kumar from Antique Stockbroking.
My first question is on CapEx. So I mean a couple of years back, we announced the start CapEx plan of INR 7,500 crores or INR 7,800 crores, which you mentioned in the presentation. So how much of that like in FY '20 and '21? I believe around INR 4,700 crores CapEx would have been done. So another INR 3,000 crores? And are there significant savings which you have done on that number, which we gave like a couple of years back?
See, I think the -- when we gave a number of INR 7,500 crores, okay, it was multiple projects and since then, the estimates have undergone change. Broadly, it remains the same, but it's -- the estimate can be a few dollars here and there, okay? But broadly, my guidance to you on CapEx would be to actually focus on what we give in the next quarter rather than trying to figure out through the balance figure that is left. Though my guess is that the number that may come out will be around the balance figure over next 2 years, right? So that's what it should come out. That's been the history, if you see, of Grasim where the numbers of CapEx tends to be around INR 2,000 crores, INR 2,500 crores, somewhere around that range. But very, very, like I told, I think, in the earlier question as well, it's best to wait until the plan is approved by the Board.
Okay. And secondly, on fixed cost. We had like several cost savings on fixed cost in Q2. So has that all like -- I mean, some of those which are not sustainable, have they all come back or some of them may still come back in Q4?
So I think our approach to fixed cost was different. We attached fixed costs to actually have sustainable savings in the fixed cost rather than just because of COVID, everyone enjoyed fixed costs, so we also did so. So the fixed cost saving has continued in quarter 3 as well. And a Y-o-Y basis, there is a double-digit reduction in the fixed cost to savings as well. So there are conscious programs that we've run to reduce the fixed cost.
And just a last question on VSF spread. So a spread like what -- the way we have exited this quarter. So can it, I mean, likely cross our previous highs which we had in Q1 '19, in Q4? Given the staff increase and domestic size, and I think even in Q4 and Q3...
But all one can say the demand is healthy, and trends are good. That's all.
Our next question is from the line of Bhavin Chheda from Enam Holdings.
A good set of numbers. Just on the CapEx in -- since there is a bit confusion. So VSF, sir, we are largely completing 0.8 million by first half; and Chemicals also we are largely completing by quarter one, except for that 73,000 Phase 2, which will take time. And your slide says your pending CapEx is INR 1,000 crores. So over and above this for completing this VSF and Chemical announced expression, there will be some number in FY '22. That's the number only left, right? And is this a substantial number or it is less than INR 2,000 crores?
So again, I said that it's difficult to give that guidance. What -- see, in terms of expansions in VSF, it will be over. So unlikely that the number will be a large CapEx coming out of VSF. In Chemicals, there are multiple projects that are VAP projects that -- there are power saving projects, which they may want to take. And it's a multi-locational business, okay? So it's always difficult to say what the CapEx there would be. So I would still encourage that. And then we have to also look at paints, et cetera, right? So we have to...
No, actually, it's a non-paint business. Only the current business, VSF and Chemical, which is getting largely completed in first half. Paints, we understand, there was a separate call, and it would be...
Bhavin, my point is different. My point is that now we have commitment towards paints as well, so we have to look at the overall picture and overall number as well. So we can't keep looking at things individually because then we have to see how much the balance sheet of Grasim can support without us reaching the certain levels of net debt to EBITDA, et cetera. So therefore, I'm suggesting that let's look at the number in the next quarter for the CapEx.
And sir, earlier, you said that this VSF incremental capacity, which is coming in, just takes 3 to 4 months to overall stabilize. So this incremental over 2 lakh 19,000 should have a full blow in second half of FY '22? Because based on the demand situation is the market is already there, it's how much you churn out from your production line. So if all goes well, that incremental 2 lakh 19 can be available at optimum in second half. Is that assumption correct?
It will come in phases. The first line is coming in quarter 2. So that can possibly be available if all goes well for 2 quarters. But the second is coming quarter 3. If all goes well, it will get for 1 full -- 1 quarter full block. This all will be partial.
Our next question is from the line of Madhav Marda from Fidelity Investments.
I just wanted a quick update from you on the CPVC project that we had announced. Any update on the time line there? And I understand that the CapEx there will be quite limited to negligible from Grasim side. But in terms of the management fees or however the contract would be, how much of an EBITDA contribution can one expect from that project?
Sure. So on the CapEx front, Kalyan, would you like to give that update? I think on EBITDA front, we have said last time also, that will be part of the VAP EBITDA. We're not giving out a specific number out there like we don't give for each component in chemicals what number is. So -- but I had also said, and I'll repeat that the -- what we get as EBITDA per ton of chlorine, if you look at that measure out there, then it is likely to be better than the blended EBITDA per ton of chlorine that we get today from our VAPs that we produce. So that may give you that idea that it is better and it's high in terms of profitability. Kalyan, would you like to give some basis of your thoughts?
Yes. So when we established this alliance partnership, I think we had 3 things in mind. One was a full-fledged chlorine integration with a player, of world-class player. We wanted to bring world-class technology, and we would then automatically have a certain fixed margin to ourselves. And three, we will be indirectly linked to a segment which is growing fastest and environmentally friendlier. I think those are the 3 criteria. So as Ashish already said, the chlorine integration and then related other utilities, effluents and related byproducts have come in. There is a value to it. We can't share in that sense because each product is quite different, and we don't go into that kind -- that level of detail. We also have, within the partnership and alliance, certain fixed margins, and that is another one which we get value from. As of now, the project discussions have started. I think the teams are working on layout and designing. I think we are on track with what we said we would do in terms of the time line. Yes. Anything else, Jayant, you want to add?
No, I think you're right -- summed it up, Kalyan. But in terms of the project time lines, there is a lot of back and forth which is happening in terms of how to expedite and the [ tendering ] is happening in the back end, and discussions are happening, like on the layout, to see how soon can we get the plants up and running. But yes, if you ask me, it will take another about 24 to 30-odd months before we will see physical production start commencing.
I think one thing which I want to leave with is these are the types of alliances and partnerships you would see more of from Grasim, where world-class technologies come in. We will leverage on the capabilities of manufacturing in India and [indiscernible]. We also want to invest in capacities, which is not for India alone for -- but for globally. And hence, even these capacities that we are investing is globally the largest in 2 phases. So that intent will continue more of, and this is, I believe, and hopefully, if all goes well, the starting point of many. Thanks.
Our next question is from the line of Sanjay Parekh from Nippon India Asset Management.
Congratulations to the team, great set of numbers. So one of the questions just Kalyan answered, which is ahead of -- can there be more of such alliances like the one that would [indiscernible]? So that is answered. But in case you want to expand on that, of what potential there is -- it's a win-win wherein the chlorine can be used for value-added products, we get a fixed type of revenues, and it reduces the cyclicality of the business. So that piece, if we can get more elaboration, it will help. If not, it's okay. The second is for Ashish. I was just seeing -- so basically the fair price now at INR 2,090 crores, and we're supposed to get money for the fertilizer plant and INR 1,000 crores plus for the -- to be spent in fourth quarter. If I take the next 3 years broadly cash profit that we make, and this is assuming that we make steady sales like what we will have in Q3, Q4, then even if we invest into the paints the entire INR 5,000 crores, we would actually -- and we spend INR 2,000 crores CapEx, let's say, for '22 and '23. In the next 3-year time frame, our debt will actually not go beyond INR 1,000 crores, INR 1,500 crores. That's the calculation I'm coming to. Am I right? I mean, it does have one assumption that the EBITDA that we see would be steady, which is not a big assumption. But if that is the case, then the debt actually doesn't go up. It will remain in the range of INR 1,000 crores, INR 1,500 crores for the next -- in the interim, it may go up. But by and large, it remains in that value in the next 3 years. Am I right in this? Or am going wrong somewhere?
Yes. So just let me add one last bit regarding overall capabilities. I think we have 2 large businesses in Chemicals, one is much more linked to petrochemicals, like epoxy resins. We now call it advanced materials. And the other is chlor-alkali, which is the foundation and a core raw material inorganic segment. But overseas, these petrochemical, inorganic and organic complexes are integrated. We haven't yet leveraged. So we are thinking how the next stage of things, how these things become more of integrated complexes. So that -- in that area, we see a lot of potential for partnership and alliances. We also not only think of alliances and partnerships on that end, but also integrating chlor-alkali and advanced materials and then downstream. So we see a lot of opportunities. So hopefully, some things will materialize in the future. Over to you, Ashish.
Yes. No. So I think the calculation seems -- it's, again, difficult to say what the debt level 3 years down line will be because it has basically, you can say, 3 components to it, right? One is EBITDA, okay, for the next 3 years. So I can give you a directional view of how you can calculate. So EBITDA, you have to make an assumption that Grasim EBITDA this year is not so relevant because you lost 2 quarters, right? But quarter 3, quarter 4 would be more representative of EBITDA out here. And then there's an expansion that will finish next year for both. So you can take second half for both expansions to come through. So there's the expanded EBITDA of Grasim that should be taken. Then there is Grasim's own CapEx, right, which you can take maintenance plus the projects that we will tell you about. But you can take a broad number out there, okay, for your -- that's your own assumption because we are not giving any guidance there. When it comes to -- sorry, the paints EBITDA, which can be negative for a few initial years, okay, and this paints CapEx, right, that we have given as of now. So these are the 3, 4 components you have to put together. Now after EBITDA, also, there are tax outflows. There are dividend outflows. There are other things also that go out, the interest, et cetera, which probably you've not taken into your account. So if you do this broad calculation, you should be able to get some idea of your own estimate of what the debt level would be.
Sure, sure. No, no. I did look at cash profit and of course, the dividend. But what I'll do is I'll call you off-line and [ ask there ].
But Ashish, your biggest guidance is that the debt EBITDA will controlled, so you will never let that go beyond the limit.
Yes. You're absolutely right. And we gave that guidance last time also, that we maintain a threshold that we focus on, which should be 3 to maybe 3.25 or something of that sort. And we don't want to -- we wouldn't like to breach that.
And one more, same with EBITDA, it can't be quantified, but we have been saving a lot of cash on the working capital side. It is an ongoing exercise. It keeps on happening year-on-year. Lot of cash business, so working capital control also.
Our next question is from the line of [ Piyur Rasha ] from PNB MetLife.
I think most of my questions have been answered. Sir, just if you could offer any comment on any potential investment that could be required on the telecom side of the business?
No, nothing at all. We've got our priorities as a stand-alone business for which funds are required.
So we don't anticipate any near-term investment on that side?
No.
As there are no further questions from the participants, I now hand the floor back to Mr. Ashish Adukia for closing comments. Over to you, sir.
Yes, thanks a lot. Great questions on back of an excellent performance in Q3. We hope that this continues. So we'll connect with you guys with more clarity on CapEx and things, et cetera, perhaps in the next quarter. Thank you.