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Grasim Industries Ltd
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Ladies and gentlemen, good day, and welcome to Q3 FY '22 Earnings Conference Call of Grasim Industries Limited. We have from the management: Mr. H. K. Agarwal, Managing Director; Mr. Jayant Dhobley, CEO, Global Chemicals and Group Business Head, VFY and Insulators; Mr. Jayant Dua, Chief Executive Officer, Chemical Division; and Mr. Ashish Adukia, CFO. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Adukia, CFO. Thank you, and over to you, sir.
Yes. Thank you, and good afternoon to all the participants. So FY '22 until now has been a defining year for the company as the company accomplished 75 successful years of its incorporation. So we are privileged to continue with legacy of our founding fathers of the company, and thankful to our fellow colleagues, shareholders, customers and all those other stakeholders, who have been part of this wonderful journey. So one of the pillars of our 75 years of existence has been resilience. And that has come about from our commitment to the growth. We have continuously invested in our capacity expansion, technology advancement and process improvement in our core businesses. Today, when India Inc. is making new capital commitments, India is -- sorry, Grasim is well ahead of the curve as we had planned our capacity additions in core businesses ahead of time and now nearing completions. So one of the important themes in this quarter is project commissioning. Starting with VSF, the live plant of 600 TPDs of capacity at Vilayat, 300 TPD was commissioned in November 21 and the balance, 300 TPD, has been commissioned just this week. So the total VSF capacity has increased by 37% to 810 KTPA from 591 KTPA. With the growing domestic demand in VSF, we are confident of fast ramp-up of this capacity to make additional capacity available to our customers. In the Chlor-Alkali business, as of quarter 3 FY '22, 91 KTPA caustic soda plant at Rehla is fully commissioned and Balabhadrapuram Phase 1 plant is partially commissioned with 26 KTPA. The total capacity will augment -- will get augmented to 1,530 KTPA by quarter 1 of FY '24 because there are a few more commissioning that will take place from 1,147 KTPA today. The chlorine value-added plant, chloromethane plant of 55 KTPA at Vilayat was also commissioned in quarter 3 of FY '22. The total CapEx on budgeted for the entire year was INR 2,604 crores. And that was excluding Paints. For 9 months FY '22, the actual amount spent stood at INR 1,476 crores. We will certainly close the year well within the budgeted CapEx amount. For the Paints business, we have received two environmental clearances for two parcels of land. So the CapEx in those two sites will get accelerated. The CapEx spend amount is at INR 505 crores until now on Paints, which is towards -- mainly towards acquisition of land parcels. We completed this investment of Fertilizer business on 1st of Jan. At the time of announcement of the transaction, which was more than a year back, the enterprise value for this investment of Fertilizer was at INR 2,649 crores, which included the outstanding subsidy amount at that time, which was part of the working capital. The final consideration amount received by the company on 1st Jan 2022 was at INR 1,860 crores. And this is after adjusting for subsidy already received from the government during the year, and there has been small adjustments on account of CapEx and working capital. With this sale, the company has turned net cash positive on a stand-alone basis again after a gap of 12 quarters. Pro forma net debt adjusting the December end net debt with the proceeds of Fertilizer comes to negative INR 432 crores. Sustainability has been another key area of focus for the company, and we have incurred more than INR 500 crores in the last 5 years. And this is in VSF. And they have earmarked a total amount of INR 1,000 crores towards achieving global standards. The VSF business has taken the target to achieve net zero carbon emissions across all its operations by 2040. Grasim participated for the first time in Carbon Disclosure Project, CDP, in 2021 and has received management band score, B-. At Grasim, our commitment to improve the quality of ESG data reporting is increasingly being recognized by the external world. In another major achievement, the company has received Gold Shield Award for Integrated Reporting and Excellence in Financial Reporting. So these are two awards from the ICAI. Another theme emerging in the quarter was unprecedented rise in prices of crude and derivatives and coal, et cetera, which emanated from demand-supply imbalances, logistical challenges created by country-specific COVID restriction. And these have continued unabated. The VSF business has witnessed almost INR 400 crores-plus of cost escalation sequentially. Grasim's backward integrated model will provide relief at the time of such extreme volatility in the prices as the rise in caustic prices, for example, aids Chemicals division's performance. There are business-wide initiatives like improvement in consumption norms, improvement in share of renewable energy, which will all benefit in the long run. I'll briefly touch upon the key performance -- operational and financial performance. The strong operational performance of VSF has been induced by strong demand for textile products in India during Q3 FY '22 despite state-specific restrictions. The domestic textile value chain has been operating close to its peak capacity, which is led by demand uptick and is evident in the share of domestic sales, which increased to 91% in the quarter from 84% in the last quarter. The share of value-added products in the overall VSF sales mix has increased to 29% on sequential basis from 27%. In terms of volume, the VAP volume has gone up from 41 KT to 26 KT, an increase of 11% Q-o-Q and 26% Y-o-Y. And while volume becomes more important than value mix -- or the percentages because the grey capacity has gone up due to Vilayat's expansion. VFY business also reported a strong operational and financial performance on a sequential basis, driven by strong growth in demand and improvement in realization despite the cost pressures. The Viscose business reported net revenue, including VFY, of INR 3,335 crores and EBITDA of INR 401 crores. The VFY business reported a revenue and EBITDA of INR 574 crores and INR 80 crores, respectively. The international caustic prices witnessed an upward trend for the fourth straight quarter. The domestic caustic soda prices went up on back of domestic demand and higher international prices. The caustic soda capacity utilization touched multiyear high of 93% in Q3, up 7% sequentially. The ECU is at all-time high with revenue increase more than offsetting the cost increase due to power cost. VAP performance suffered from cost pressures and weak demand as well. The Advanced Materials, i.e., Epoxy business, have also witnessed a Y-o-Y improvement in the operational and financial performance, driven by a better product mix on the back of strong demand from the wind segment. However, Epoxy segment is witnessing some cost pressures, which may impact margins going forward, mainly due to timing difference. The revenue and EBITDA for Chemicals, this division stood at INR 2,338 crores and EBITDA of INR 528 crores, respectively. The stand-alone performance overall for Grasim for Q3 was strong with revenues up by 56% to INR 5,785 crores and PAT up 46% to INR 522 crores on a Y-o-Y basis. At the consolidated level, the same figures were that revenue was up 16% to INR 24,402 crores and PAT up by 26% to INR 1,746 crores for the quarter on a Y-o-Y basis. With this, I would like to hand over the call back to the operator to take it forward.
[Operator Instructions] We have the first question from the line of Navin Sahadeo from Edelweiss.
One, in VSF, you mentioned operating rates in China are like at a recent high of 83 percentage. But yet in December end, we have seen like prices coming down. And generally, I don't think there is very good recovery. So is it all this attributable only to the Chinese New Year-related sluggishness? Or is there some more issues around that?
Do you want to go with your second question as well so that we can...
Yes, sure. So my second question then was about the Paints business. I'm glad to hear we've already received environment clearance for two plants. So would it then be appropriate to ask which locations are these, what capacities are these and by when? Can the plant see the light of the day?
Okay. On your first question about VSF operating rate in China, so it touched a high of 85% for some weeks, and now it has come down to 82% and 81% after the Chinese New Year. And inventory has also started to move up. During the Chinese New Year, most of the VSF plants continued to operate while the spinners, our customers, did not operate. So there was accumulation of inventory buildup. And this is a normal phenomenon in China because this Chinese New Year is every year phenomena. And there is a typical buying behavior. So many spinners buy the VSF before the Chinese New Year because they expect that after the New Year, the prices are normally higher than before the Chinese New Year. So they try to hedge their costs before. So it is just the 1 week of post Chinese New Year. Operators are still opening, the spinners have not yet fully resumed, the downstream is still not fully open. So we have to see. So price going down is that just normal because inventory has gone up and there was a lot of sell activity. So we have to look for the clear trend now in coming weeks. So I hope this clarifies your question.
Yes, helpful. I'm just trying to understand that we -- given that cotton has been on a rise sustainably, but we haven't really seen that kind of a sustainable increase in VSF, I'm just trying to check, do we expect prices now to improve or it's still looking difficult to really take a call on that?
The prices should increase because cotton is all-time high. And now viscose staple fiber prices are also increasing on the back of higher fuel prices. And there is a historical correlation between VSF, VSF price and VSF/cotton prices. Of course, the cotton and the VSF prices have diverged and this kind of gap is unprecedented. And that is because on cotton, there are a lot of financial players also. And there is an expectation of more shortage in cotton. Whereas in VSF, the competition among Chinese players is a little bit more intense than we would like to see. So that is the reason. But we expect the prices to go up and, to some extent, cover the cost increase more than what it has been the case last quarter.
Okay. That's very helpful.
Navin, to your second question, the ECs received basically for our North-based plants, which is Panipat and Ludhiana. And we should actually receive ECs for others as well soon because South-based plants were the first ones that we had signed up with the state government.
Correct. So congrats on that. And I think I'm sure investors will then be very keen to also know that since North EC has received, so definitely more color on this as to what is the CapEx outflow that we can look at and the timeline for the plant commissioning, what capacities. I think that color would be very helpful.
Sure. No, the point noted. I think we'll be again early stages. I think land generally is a little bit always unknown how much time it will take when we should get EC. So now that we are also gaining more visibility on land and ECs, so hopefully, by next quarter, we'll be able to give you more picture on the CapEx forecast and other stuff.
The next question is from the line of Nirav Jimudia from Anvil Research.
Sir, my first question would be in terms of value-added VSF. I think you have reported best-ever quarterly volumes in terms of the value-added volumes, like it is up 56% from the start of the year. So my question is, sir, how much further we can take these volumes based on our current value-added capacity. And if you can add further that how much more CapEx we need to incur in order to take our value-added volumes to 40%, which is our long-term goal.
The question is a very interesting question. So we are running our VAP capacity almost to the full. But we have the flexibility to convert some of our lines, which produce grey to VAP, depending on the demand situation. So like we have been waiting for schools to reopen for uniform market to pick up so that we can make more dope-dyed fiber, which is one of the VAP. And we are running our Excel plant, which is lyocell category of VSF, to almost full. But we are also experimenting with increasing the capacity marginally. And Livaeco is one product where capacity is not a constraint. But it depends on the seasonality of buying and getting more orders from brands. So by end of next year, we hope that we will increase the VAP volume significantly. And along with increasing the VAP volume, percentage-wise, it may not increase because our grey capacity is increasing significantly, so denominator is increasing. So that is a different thing. But we are also increasing our realization on that product as much as we can. So on both sides, we should see -- expect better performance on VAP product category.
So sir, last time on the call, you explained that since we have some sort of fungible capacity, where we can improve our Livaeco production. But with this one did shrink our premium of the margins, what we get in the value-added VSF over the grey VSF because then we are already at the optimum level of utilization for the lyocell or the modal probably which you mentioned in your opening remarks.
Yes. So we can convert one more line from grey to modal, depending on the market situation. So in India, it will take time for markets to catch up. But then for some time, we may export more modal out of India. So this is always a matter of time for the demand to catch up. Capacity can be increased in one step wherever we can. So it's like increased capacity, then market increases. And we utilize the capacity fully, then we again find out ways to increase the capacity. Sometimes it can be very small increment, sometimes it has to be a little bit bigger step increment.
And sir, like if you can put some sort of CapEx numbers for improving your volumes of VAP to 40%, that would be helpful, sir.
So not significant CapEx except in Excel. Excel will need particularly more CapEx. But other VAPs, we can increase the volume without much CapEx. So our focus will be to increase the VAP -- other VAPs other than Excel.
Got it, sir. Sir, my second question is on VSF again. So in the opening remarks, you mentioned that VSF business has seen a cost increase of INR 400 crores sequentially. So if you can attribute the increase in the power cost out of this INR 400 crores because even on a sequential basis, we have seen INR 350 crores increase in our power cost. So some sort of understanding there in terms of the increase in the cost from the VSF business.
So out of INR 400 crores, roughly INR 120 crores is on the energy power and steel together, like mostly natural gas and coal, et cetera.
See, I think to answer your question, I think you're probably talking about power cost increase at overall Grasim level.
Yes, correct, sir.
Yes. But that is mainly on account of caustic because that's the power-intensive plant -- business rather. So VSF, you have to focus on the increase in the pulp cost and the caustic cost. That's the primary reason for the part of that INR 400 crores that you're seeing. And that's an absolute number that we've given, INR 400 crores. Of course, because of volume increase also, there may be some variable cost increase. We're just comparing quarter-on-quarter with the INR 400 crore-plus increase in the variable costs, so...
And sir, is it possible to share like in terms of our increased capacities both for VSF as well as for the caustic division, how much currently we are based on captive requirements and probably some sort of capacity we are also adding in the renewables also? So let's say when we will be utilizing our -- both the capacities optimally, how much would be our power integration, if you can share?
So we have shared our renewable capacity share, right, where we are going up to 10% with whatever group captive scheme, et cetera, that we are going to. So that's roughly it. And then about 40%, 50% is our captive power from what we...
On VSF, we have [ less percent captive power ]. Because we made [indiscernible] power in a certain ratio, and still we cannot compare from outside. But on Chlor-Alkali side, [indiscernible] and renewables.
Okay. Sir, if I can just please have one last question based on the bookkeeping questions, like on the pulp JV, we have reported the losses. So just a clarification that is this because we have produced some 25,000 tonnes or probably some 25,000 tonnes of lesser volume sequentially because of which our profits are lesser? Because if I do some arithmetic calculation in terms of the realizations, what we have reported, I think we would -- if we adjust those less volumes sold, we would have been in the profit from the pulp JV. So is that understanding correct?
Yes, your understanding is correct. We had some reliability issues in our plants in the last quarter. And that resulted in lower production. And when the plant doesn't produce, then they are, on the contrary, more expensive on maintenance and some energy thing. So it becomes compounded problem becomes compounded. So your understanding is right. If we have produced as fully as per the previous quarter, then we would have been in profit.
The next question is from the line of Chintan Chheda from Quest Investment Advisors.
Sir, my first question is related to caustic soda. So we are in a very good cycle of caustic soda right now. But the performance of ECU division continues to get negatively impacted by chlorine. So I just wanted to understand like what are the plans of the management to tackle this issue.
So I think fair point. So what normally happens if you look at the industry, chlorine becomes the kind of a bottleneck for caustic supplies to increase because chlorine can't be transported. I mean, that's the first understanding you need to get. And when the run rate of caustic on prices is good, everybody maximizes caustic production. And typically, chlorine gets into negative. That's been the historical record in India. Because in India, the primary product is caustic and the byproduct is chlorine, which is reversed in the global scenario because of PVC. So what we are doing at this point of time, and you would have seen and you would have heard Ashish talking about big projects. So one large chlorine derivative project CMS got commissioned in Vilayat. And you would have also seen the press note of this time which talks about ECH, which is now going to come up in '25. So there is a progressive work which is happening on chlorine integration in the business. It is going to be a couple of years before our current captive consumption, which is a flooring of around 29%, 30%, will jump to around 45%, 50%. And that journey, I think as we keep on adding more and more products in production as we'll keep saying. But that's clearly a line of focus for us going forward. And you're seeing the initial work on it come through in the CMS project.
Okay. So as supposed 40% kind of utilization of chlorine, does that impact on the spreads will not be negative? Like can you just like give us a sense on the margins, basically? How can this just lead to our margin improvement?
So I think you need to look at chlorine. When I talk about chlorine, captive consumption of 40%, that's the chlorine derivatives that you are talking about. Then there is HCl also and then there is tanner sale, which happens. So overall, if you look at 93% capacity utilization, that means 93% of the chlorine producers were evacuated in the plant. So that's the thing. So there are three or more ways you cut chlorine and look into it. What we control in our own production facility is today 30-odd percent, which will go to about 45% over the next 3 or 4 years.
Yes. And the margin impact on that will certainly be positive. But each derivative has a very different margin because end users' different chemistries, different -- so it's very difficult to say what the margin improvement would be on an overall basis. But each product is very, very different, it's not a range.
It's not a straight line, which you can do. But clearly, if you see from a negative tanner sale of chlorine outside market sale, the margin accretion is positive.
Okay. And how much we sell through pipeline today?
We have approximately on an enterprise basis about 15%, which is on the pipeline. We have our own consumption at about 30%, HCl takes another about 12%, 15% and about 35%, 40% goes through our tanner sales.
Okay. Got it. And sir, my second question is again related to caustic soda. So we are -- along with you, there's a couple of more players who are adding capacities very soon in India. So then how do you see this impact on the overall caustic cycle for the domestic market?
Here, you have to go a little bit into the history. And if you look at the last -- about a 4-quarter history, India has been at a discount to CFR/FCA for some time. In the month of January, which we'll talk about in the next quarter, is when we bought [indiscernible] and this is a step curve. Any country which will add capacity in any such product will go through the 18-, 24-month cycle before it normalizes and it comes back. So as capacities will come up in India, you will see, going forward, logically excess capacity of production. But again, here, the question comes back to your earlier chlorine consumption. It will be the chlorine capacity utilization which will drive the caustic capacity and not the other way around.
Okay. So probably in first half of FY '23, when a lot of capacities come on stream, you could see a weaker second half in FY '23. Is that -- can be the right logical assumption?
I think you should not look that far ahead. Particularly with the volatility, caustic prices have been going through, even in a month, from $900 to $475. So my take is, yes, fundamentally, every time a capacity comes in, it does create market pressure. But I wouldn't really look that far ahead at this point of time.
The next question is from the line of Prateek Kumar from Antique Stockbroking.
My first question is on VSF pricing versus cotton. So the way cotton has risen in terms of pricing, has there been any demand discussion for cotton customers and some of them have moved to us? I mean, maybe not to us but to some other international players because our export mix seems very less. So has there been any migration of cotton customers to VSF in global markets and maybe also in India?
It happens because when the delta is so much, it is natural for the textile people to start using more of VSF and optimize or reduce the cotton consumption. They can divert -- they do divert some spindles from cotton spinning to VSF spinning. And also, if the fabric stays, they can do more blending. So all kind of levers are there in the hands of downstream. So we are seeing very robust use of VSF in India and also globally. So it's clearly happening. How much, I will not be able to give you a precise number, but it does happen and it is happening.
But a number of volume of VSF at 157,000 doesn't look very extraordinarily higher versus -- I mean, you were doing 140,000, 150,000 anywhere earlier, like last year. And with the added capacity also, I mean, in such environment, why industry is not able to sell much more in terms of VSF?
We were telling whatever we could produce. So that was our constraint. And now since we have already commissioned additional capacity, so we expect to sell more. So now we have more material to sell and we are able to sell increasingly higher volumes in India. That is our first difference because then we don't have to incur higher shipping costs.
And in both businesses are 90%-plus.
So now we are actually like quarterly capacity of around 200,000-odd. So from Q4 onwards, we should -- like modern number of volumes, leaving aside some external factors, like COVID impact, but number of 180,000 or 170,000 should be doable on a quarterly basis?
Yes. So in India, we have capacity...
Your voice is very low, I think.
Sure. Our India, we have capacity, with the commissioning of new lines, have reached about 8.1 lakh tonnes. So on a quarterly basis, we should expect fairly equal volume quarter 1 next year onwards. Because this quarter, we will be stabilizing the new lines and there will be some keeping the challenges. But from next quarter, we should expect this not only could increase in the volume [indiscernible] capacity.
Okay. And just one more thing. Given we have capacity constraints and given our cost has increased so much from quarter-to-quarter, year-on-year, so what stops us from taking more price hikes to offset our increasing cost? Because profitability has halved almost the VSF segment over 2 quarters from around INR 40 per kg to INR 20 per kg. So is it import competition because we are largely selling in domestic? So what prevents us from taking hikes which could offset cost as maybe we are running at very high utilization?
Yes. So there are two factors we keep in mind. If we increase the prices -- yes, we can increase to some extent. But then there, we are opening the risk of imports from China or from Indonesia. Because after all, everybody can export even after paying the high shipping cost. And then we have to keep our prices in line with the possible blended cost of import. We do charge premium for the domestic supply, just-in-time supply and all those things. But there has to be a reasonable level. If the difference is too wide, then we are taking huge risk of imports. And second is if we increase the price, then yarn cost will be high and then there is a risk of whereby yarn imports come in. So that is another risk which restricts our ability to increase the prices beyond the point. So we have seen that even if then yarn prices are very high, though our prices are not so high, but yarn imports come and ultimately it eats into our demand in India. So these are the two levers we have to always keep in mind. But we try to maximize our prices as much as possible.
Sure. Understood. And sir, what would be our premium to imports from various countries in terms of pricing in for VSF?
So roughly about 3%, 2% to 3%.
So I think last year, last time also, we had mentioned that there is a conversion of landed and listing. So it's more or less converged now.
Yes. We try to charge a premium for our quality, for our services, for just-in-time things and all those things. But we cannot be too greedy.
The next question is from the line of Sumangal Nevatia from Kotak Securities.
The first question, just continuing the previous question, on our VSF volumes. This year, you think we'll be doing something around 630, 640, Now 240 KT per quarter, we're looking at somewhere around 25% to 30% volume growth both in VSF and caustic. Is that the right understanding as a ballpark guidance for FY '23 in terms of volume growth for both these businesses?
So it's tough to give volume growth. I think it's easy to calculate when I said that we're running historically at 90%-plus capacity utilization, and we will run our new capacities at that, we should be able to.
Understood.
And the difference that we have in caustic is that VSF has increased, right? So caustic will -- new capacities has the capability to feed into that as well. And then on the Eastern side, there is alumina capacity that has come on back of strong aluminum prices. So there is a market out there. And VSF, Mr. Agarwal, has already spoken about.
And then sir, basically, in terms of ramp-ups beyond a couple of months, we don't really require a ramp-up period. That's the understanding that I'm getting. And also we won't face any market constraints to place this quantity of volume in the market. So is that the right understanding of the discussion?
Yes, you are right. And domestic market may take some time to catch up. And in the meantime, if there is any surplus, we can export. But of course, the netback may be slightly less because of high shipping costs. But we do not expect a serious problem in producing and selling the entire volume.
Got it. Second question is with respect to the CapEx. Now we are very close to concluding our existing phase of expansion. What sort of CapEx will be left over in FY '23? And in terms of our Paints business also next year, what sort of CapEx are we looking at?
Yes. So Sumangal, I think right time to discuss that would be in the next quarter, mostly when we would have finished our budgeting, et cetera. I think for FY '22, like I said, out of the balance CapEx that we have, comfortably we'll be able to finish well within that approved CapEx that we've mentioned on the Slide 7.
The next question is from the line of Bharat Sheth of Quest Investment Advisors.
I mean, a large part of the question has been answered. But structurally, if we have to look at, I mean, this VSF grey business, so looking at the kind of convergence of import price and domestic price, so VSF grey as well as VSF yarn -- VFY, so how one really understands that which will be the demand driver and how the global capacity is and what level is operating? And there can be, say, incrementally the way cotton prices are increasing and U.S. is putting a pressure from import from China, which is a reflection of a high cotton yarn prices also. So how -- if you can give some color, that will be a great help from, say, 2, 3 years' perspective?
Sorry, Bharat, I think some of these questions, like you said, is covered. Is there anything specific? Because I think in terms of guidance, we don't give...
Well, I'm talking industry per se.
What specific question in industry?
So how much globally VSF demand is increasing, VSF as well as VFY? And simultaneously, how much capacity is available and operating at what level and further new capacity which is getting added?
Sure. Okay. So on a global basis, CY '21 demand for VSF is estimated to be around 6 million tonnes. The capacity is estimated to be around 8.5 million tonnes. So you can calculate the overhang or capacity utilization.
Okay.
Now new capacities, there were some capacity addition in 2020. In '21, not much. And in '22, there have been some announcements, but we have to watch how much of that comes on stream. And the demand is expected to grow globally around 4%. And in India, the demand is expected to grow at a much higher rate because India is still not at the high maturity level in terms of VSF use. So in India, we have added our capacity about 228,000 tonnes, right? And so you can now understand whatever color you want to give to the industry picture.
And how much the import is currently in India? And what is the VSF and second on VFY?
So India, there is not much import.
Yes, negligible.
Yes, not much import. And yarn is again open commodity which happened. So statistics are available. Yarn is on the range of 80,000 tonnes per year. VSF imports are much lower than that.
You have to look at yarn and fiber together because of the -- because depending on the prices, yarn can start coming in.
He is asking for VFY. VFY is a different thing, I think, Jayant, you may...
VFY, about 2/3 of the Indian demand in [indiscernible] imports, 1/3 is [indiscernible].
And the value-added product that we are talking, so how is -- that is really playing for the industry?
Value-added products are good for the industry because then Indian textile value chain becomes that much more high value-added. And it improves the industry structure and is a reflection of higher aspiration of Indian consumers.
Okay. Sir, last question on this caustic soda side. See, our capacity, we are increasing almost by, say, by -- until 2025, almost 50% from currently 10 net tonne to 15 net tonne. Correct understanding?
Yes, that's right. 1,147 KTPA to 1,530 KTPA, yes.
Yes. And how, sir, will that be then again now, as you explained, that the value added will be 40% by that time for Grasim? And [indiscernible] and all, so how much that will be met and how much will be the -- where there could be a chances of a negative KT there?
No. So let me kind of take a stab at your question. So see, I think what we are talking about is increase in caustic, right, the capacity increase. On a separate front, we are working on chlorine derivatives also. In each of our locations that we are present in, we are working on chlorine derivatives. And what we've given as a target in 2025 of 40%, 45% roughly is on account of this new derivative CapEx that we'll put up, which includes CMS, ECH, et cetera. So that's really what the plan is. And we are trying to put up both capacities in parallel so that whenever there is extra chlorine that is getting created, we have some project that is ongoing to absorb that part of chlorine that is getting generated. Because end of the day, we want to avoid [indiscernible] movement.
And just to add one more reference point, and I'm not getting into data with you. The chlorine demand is growing at a faster rate as compared to the caustic demand. So clearly, you have a positive cycle there relatively.
Okay. Because of this demand for PVC...
So just a reminder, so there is no value-added product [indiscernible] The valued-added products are only in chlorine. And there's sort of two purposes. And this sort of chlorine advantage and this sort of action of value. Because chlorine, as you know, we sell in the trade market [indiscernible].
And currently, our captive is how much in the pipeline that we are talking so that will also be -- do we have a plan to increase those?
We are continuously in talks with potential chlorine users who can then come -- can pick up probably a plant adjoining to our plant. So they've got subject of if they're getting their EC land availability. So there are lots of ifs and buts in that. But that's a constant dialogue which goes on with prospective chlorine consumption players.
Okay. So by '25...
The next question is from the line of Yash Jain from Choice Institutional Equity Research.
This is Abhimanyu Kasliwal from Choice Institutional Equity. Sir, most of my questions were answered. So I wanted to ask regarding the CapEx, sir. If I heard correctly, INR 2,604 crores CapEx was budgeted for this year and INR 1,476 crores was completed. So roughly, INR 1,150 crores -- up INR 1,150 crores, you can say, is left for this quarter. I wanted to know -- and this may be a very difficult question, but would this INR 1,476 crores include the INR 965 crores CapEx on cement?
No, this is on a stand-alone basis. If I can guide you to the chart on Page 7, we cover only stand-alone businesses of Grasim, which is VSF. So you have the breakup of the balance CapEx of INR 1,128 into VSF, Chlor-Alkali. And when I say other businesses, it's basically Epoxy, VFY, textiles, insulator, which is all part of Grasim. These are smaller businesses of Grasim.
Understood, sir. One more question, sir, then since we have roughly INR 1,100 crores that we are hoping to complete by this quarter, are we seeing some kind of traction in that? Or are we going to be well below budget? What do you see, sir?
Yes. So this is the reflection of our ability to complete our projects at lower cost, so hopefully, end the year with the lesser amount than the spending that we have given.
The next question is from the line of Nirav Jimudia from Anvil Research.
Sir, with respect to my earlier questions, I had just one addition to that. So you mentioned that we'll be adding the capacities substantially on the value-added VSF side. And in your opening remarks, you also mentioned about the sustainability CapEx, what we have been doing on the VSF side. So this would help us to bring down our cost of production. So if you can relate this -- some reduction in the cost of production with respect to the slightly lesser realizations in the value-added VAPs because that would be more towards dope-dyed and the other fibers that you mentioned, so some understanding on this. Basically, my question is to understand that, let's say, some premiums fall for the value-added VSF, how much we can compensate it through the reduction in the cost side?
So commonly, these two things are not fully related. The premium on VAPs is a function of market situation. And sometimes, we are able to pass on the cost. But many times, like recently, the cost increase has been much more than we can pass on. And sometimes, it may be that cost reduced and we don't have to pass on that cost reduction in the price. And increasing the production will not reduce the cost because we are anyway operating at almost 95% or almost full capacity. So it will be a question of which product we produce. And a little bit of debottlenecking or increasing the production, yes, there will be marginal reduction in the cost, but that will be small, not a very big thing.
And just to supplement, I think if I get the direction of your question, see, over a longer or even medium-term horizon, so the new capacities and the bottleneck capacities that are coming are all brownfield, right? So Vilayat is brownfield and the debottlenecks are in the same, so you're not really incurring large CapEx to achieve those volumes. So that's where the benefit of mitigating the cost increase or any changes in realization, that's the benefit that you get by reducing -- constantly reducing. In fact, every year, we come up with projects where we focus on reduction of cost overall for Grasim, including the VSF business through technology, et cetera. Now on the sustainability front that you mentioned, see, two, three things. One is sustainability expenditure that you do actually doesn't necessarily lead to only cost. You're able to get premium for your products from your customers because today, customers are demanding that product, right, and because you have that backlog. Now Livaeco is actually an example where you work on your process, your value chain, your product to create a sustainable -- fully sustainable product. And there, you clearly get a premium over the grey. And the way the premium has to be looked at is not necessarily percentage margin over premium. Generally, the prices of these specialty and VAP products is quite stable and the grey is what moves up and down. So you look at the premiumization of VAP from that perspective.
Got it, sir. But sir, like since we have been demonstrating a lot of examples in terms of process intensification by almost like we have debottleneck our capacities by 10% over last 6, 7 years, so is it fair to assume that once we utilize, this capacity is fully reassessed, probably FY '23 or FY '24 -- that is a different topic. But let's say, whenever we will exhaust those capacity, there is a further scope of some debottlenecking, which would probably come at a very lesser CapEx cost?
Yes. We've done that in the past, and we'll continue to find ways and means to debottleneck and increase the capacities.
Okay. Sir, second question is the bookkeeping question. So like you mentioned that the performance for the epoxy this quarter has improved on a Y-o-Y basis. So if you can quantify some percentages, like how much it has improved on a Y-o-Y basis, that would be helpful, sir.
So we don't isolate epoxy and give that result. But if, at end of the day, if you look at epoxy also, it's, in a way, a derivative of chlorine, right? You make ECH and then goes into epoxy in that way. What has really happened in epoxy is that the raw material prices of ECH and BPA, et cetera, has gone -- has been going up, okay? And some of it is getting consumed out of the inventory of the prices that we bought in the past. So therefore, the cost pressure is coming so because of timing differences, what I have mentioned in my opening remarks. We pass on the price, yes, and the inability to pass on that price at this stage.
The next question is from the line of Prateek Kumar from Antique Stockbroking.
A couple of follow-up questions. So on caustic segment, so this oil price has started to rise again or have risen again after getting some softness, which we saw in November, December. So are the pressure on caustic segment margins again expected to come back? Or I think [indiscernible] thinking of taking price hike or the price will support the margins in that segment?
Normally, there is always a lag between the prices of coal to our consumption because there is a certain amount of inventory all of us to keep. You're right, the prices did come down, the prices have gone up again. But I think at this point of time, we believe that the caustic prices have reached a point where they're kind of stable. The volatility in the Indian market is coming down and also in the global market. So my belief is it's better to have a more stable pricing than a volatile pricing that we've seen over the last 3 or 4 months.
But I mean, being a very basic commodity, what has like particularly helped in stabilizing the [indiscernible]?
Again, it's the demand supply. You see you've got a very good demand coming from the textile sector, and you've got a very good demand coming from the aluminum sector plus along with your soaps and detergent sector. All these sectors have been doing very high on their own demand cycle, which has led to the stability of demand. And that's why you're seeing the run rates from 85% to 95% across multiple players.
And my last question on VSF inflation. So what's the -- I mean, is this pulp inflation expected to peak? Or has it already peaked in the third quarter? [indiscernible] is remaining at [indiscernible]
So pulp prices of lately have been more stable than other inputs, like caustic or coal or sulfur or zinc. So pulp prices are not going to show much higher volatility in the coming quarter. That is our expectation.
No, I meant what we booked, pulp prices have been softening as we have discussed that here from an earlier time, but what we have booked in terms of our numbers. So should we start seeing some softening?
There's lag effect that we've always talked about. So we get the benefit or the other way around, the impact of the prices almost 4 to 6 months down the line because of...
Yes, because of two factors. One, we follow the impact of previous quarter for this quarter supplies from our suppliers. And then there is a long value -- long supply chain. It takes almost 1.5 months for the pulp to arrive from the origin to destination. And then there is always some inventory. So there is a gap of almost 4, 5 months from the time of index to our conjunction.
Yes. So that's what I was asking. So has the lower cost inventory started to show up in your numbers? Or is it still 6 months away? Because the price of pulp has been falling for some time.
Yes. So we have already passed the peak. For the time being, if you want a [indiscernible] answer to your question...
So peak is behind us.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I would now like to hand the conference over to the management for their closing comments.
Thanks for everyone's participation on the call. We look forward to seeing you again in the next quarter. Please reach out to Saket for any clarification, queries that you may have on the numbers. Thank you.
Thank you, sir. Ladies and gentlemen, on behalf of Grasim Industries, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.