Grasim Industries Ltd

NSE:GRASIM

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Q4 FY '20 Earnings Conference Call of Grasim Industries Limited. We have with us today from the management, Mr. Dilip Gaur, Managing Director; Mr. Kalyan Ram, Chief Executive Officer, Global Chemicals and Group Business Head, Fertilizers and Insulators; Mr. Jayant Dua, Chief Executive Officer, Chemical Division; and Mr. Ashish Adukia, Chief Financial Officer. [Operator Instructions] Please note this conference is being recorded. I now hand the conference over to Mr. Ashish Adukia, Chief Financial Officer. Thank you, and over to you, sir.

[Ashish Adukia, Chief Financial Officer]

Good afternoon, everyone, and first of all, I hope that you and your family members are all safe. We have uploaded the presentation on our website as well as on -- I think it has appeared in the BSE and NSE websites as well. So I would request you to please download the presentation, as I will be referring to some of the slides from the presentation.So let me start with the elephant in the room, which is impact of COVID-19 on our performance. The announcement of shutdown on March 21, 2020 came without any heads up. So our businesses had to forego large part of sales that is typically achieved during month ends. The initial sales made in March could only recover the costs for that month. So while January and February were normalized months for us, month of March impacted the overall quarter performance. In Jan and Feb of 2020, VSF business achieved its highest ever production volume with a run rate of about 1,700 TPD. The prices of VSF which were on a weakening trend till Q3 had stabilized during the start of Q4, with some price improvement in the month of February and March.On the cost front, there was significant impact on account of softening of input prices like that of pulp, caustic and also the business had taken up certain cost-focused initiatives, which they called Project Cascade. In the presentation, we have given a number that emerged out of the Cascade benefit. In case of chemicals, the ECU continued to be under pressure, due to muted global prices and excess supply on account of large capacity additions in India as well as rise in the imports.Overall, we achieved an EBITDA of INR 467 crore in Q4 for stand-alone business, which if we adjust for onetime expenses of about INR 23 crore, it would be very close to our quarter 3 EBITDA despite us losing a large part of March. I would now like to walk through few slides of the presentation to provide you with better perspective on both COVID situation as well as the financial performance. So on Slide 5, when the lockdown was announced, we had temporarily suspended operations of all our plants, except for fertilizer, which had continued the operations through the lockdown.Chemicals and VSF plants received permissions to start operations over April and May as we produce certain essential items. At the current juncture, VSF plants at Nagda, Kharach, and Vilayat have assumed partial operations, while Harihar is expected to resume operations shortly. The VSF plants are operating at 30% to 40% capacity utilization, which is growing at a graded way. And all our chemicals plants have resumed operations partially in May. And for June, the capacity utilization stands at 60%. Overall quarter will be lower capacity utilization than the June utilization, obviously.Our business continuity plan is focused on employee safety, which includes ensuring safety as they resume work. Many of our plants have adjoining staff residential colonies, which helped in returning to work expeditiously. Second is cash. We have maintained healthy liquidity and have raised some amount of debt taking advantage of very competitive rates. Third, focus on entire value chain. We have optimal level of raw material inventory to run the operations. After some initial hiccups on supply chain and logistics, it seems that we are normalizing now.We've had a clear customer focus. We have to work closely with our customers and help them in their initial restarts. So if you go to Slide 10. On consolidated basis, for FY '20, Grasim reported strong financial performance with revenue of INR 77,625 crore and EBITDA of INR 13,846 crore and PAT, which is after extraordinaries, of about INR 4,425 crore. And on stand-alone basis, Grasim reported EBITDA of INR 2,836 crore and PAT of INR 1,270 crore.Let's move to Slide 13. Yes. So for the entire year, the stand-alone -- at the stand-alone level, while we generated EBITDA of INR 2,836 crore, we actually generated net cash from operations of INR 3,159 crore. This has helped us maintain strong net debt-to-EBITDA ratio of 1x. The stand-alone gross debt includes INR 322 crore of interest-free loan from special banking facility provided by government of India against the fertilizer subsidy due. In fact, in quarter 1, this loan has already been repaid with subsidy released from the government. It should ideally not be counted as debt.It was as though the subsidy had come to us through SBA, the special banking facility. And therefore, the net debt figure should be considered lower at INR 2,653 crore, which brings net debt-to-EBITDA at below 1, at about 0.94x.On Slide 15. VSF, including VFY, had sales of INR 2,102 crore and EBITDA of INR 261 crore. VSF achieved a strong performance on sequential basis due to reduction in the input prices. The pulp prices on consumption basis reduced by 11% to INR 53,782 per ton in Q4. The price premium of VAP over grey increased during the quarter as reflected in the strong blended realization in Q4. VFY revenue for Q4 was INR 415 crore with EBITDA of about INR [ 70 ] crore. If I go to Page 19. There is a consistent decline that you can see out there in ECU, which is primarily due to capacity additions by the industry of almost 610 KT during FY '20 in the domestic market. Demand for chlorine value-added products improved with increased usage in health and hygiene products post COVID-19. The VAP sales volume growth stood at 10% Y-o-Y, driven by this demand.On Page 21, we've covered fertilizer performance briefly. Key highlights are that we have received communication from government allowing us fixed cost reimbursement retrospectively. This improved the Q4 EBITDA by around INR 23 crore. This amount is for the entire year, just clarification.Second important growth levers in the business performance of fertilizer is that of PURAK. Our fertilizer business provides agri solutions, seeds, crop protection products, soil health products to farmers under this brand name PURAK. This is basically the non-urea business. These products are sold through our distribution channel, which sells urea as well and plus there are more tie-ups. PURAK actually contributed almost 28% of the overall fertilizer EBITDA for FY '20. There was maintenance shutdown during Q3 as well as in Q4 due to which we lost some production in fertilizer during the year. Grasim released its maiden sustainability report with ambitious targets to achieve global leadership in sustainability. The VSF and chemicals business and other businesses as well have taken targets on safety, water, emission front, the details are all covered on Slide 31. Yes. Overall, COVID has had a major impact in March 2020 as well as quarter 1 of FY '21. Looking at the future, which we should, we are focused on our strategy to make our business even stronger. And a few points how we are thinking of making it stronger, is to reduce fixed costs further and look at other cost optimizing measures like we did in case of Project Cascade for VSF. There is still further scope to reduce fixed cost. Focus on value-added products, which give us better margins and have a calibrated approach to CapEx, which has currently been kept on hold till we have visibility on the economic outlook. So that's it from my side. I will now hand over to the operator for Q&A.

[Operator]

[Operator Instructions] We have our first question from the line of Gunjan Prithyani from JPMorgan.

[Gunjan Prithyani, Analyst]

Just 2 questions from my side. Firstly, on the VSF business, there is clearly, when I look at the slides, that the margin, I see that prices seem to be reflecting some stabilization. So could you talk about what really is happening because really I -- from a demand perspective, I don't think things would have moved too much given the overall disruption worldwide. So is it that prices have fallen so low that they can't fall any more or you're seeing some shutdown? So if you can throw some color on the VSF industry. And secondly, I missed those comments which you made on the capacity utilization on the VSF and chemicals. So I'm just trying to assess from the supply side, how normalized the things are in both these segments, VSF as well as the chemicals.

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

Yes. So I'll take the -- let me respond first, Dilip Gaur here. See, Q4 was a little unique in a way because, as you recall, China got impacted on the COVID first. So Q4 was a time when, Jan, Feb, China was suffering from COVID. So there was a issue with the Chinese supply chain, which I had briefly mentioned to you earlier. So as a result of that, so what happened, all the predatory pricing which China was doing in the market could not happen and that held up prices. So the Indian prices really started -- we could hold the prices because there was a discipline in the market. So Chinese could not intervene and kind of bring down the prices. So there was a gradual improvement in price from Jan, Feb and then March, all month-on-month. The -- I always told you that the Indian demand was always very strong. It was still intact. So -- and so the -- like in the month of Jan, Feb, we could sell almost 1,700 tonnes per day, which is never done. Normally, we do 1,400 or 1,500 tonnes per day. Pre-COVID, the market was really very booming. The demand was very good. And I think as I told you earlier, there is a definite shift in the favor of viscose vis-à-vis other fiber.Even if you look at FY '20 as a whole, the global fiber consumption has come down compared to previous years by about couple of percentage points, but viscose still remained at 7%, while others were at 2% to 3%. The demand side was very strong. There was a discipline in the market because the Chinese supply was restricted. So that led to a positive stabilization. Now what's happening today? Problem with the China is that all along the COVID thing, they kept running their viscose plants because they couldn't afford to shut the plants because the labor was there and -- but they could not sell. So by the time the COVID got resolved in China, they had a huge inventory. So the viscose inventory in China was almost 125 days, March end. And now they are finding that there is a lot of material, but downstream has not picked up. The Chinese textile demand hasn't picked up the way it was expected post COVID. So the spinning operation rates are there below 50%, historically, now they are inching up beyond 50%. So what is happening is, there's a lot of capacity cut and lot of reduction in operations there. So Chinese OR, what we call the capacity utilization has come down to around 60%.[ It was ] 750% (sic) [ 75% ] [ to 60 to 66 ]% before. So market is really balancing. So as we speak, there is still a surplus because demand hasn't picked up. So we have to wait for a couple of more months. I think textile will be the next -- in the next wave it will pick up demand. So the Chinese demand, I think, has come back. If you look at -- they have come back pretty well in terms of other areas. Like the front-facing areas it has come out very well. The digital consumption has gone up very high. The consumables have moved up. I think the textiles is next. So if the textile demand picks up in China and if the OR stays at 60%, we can hope for some kind of stability. But I think it's early days to -- this is not the time to make any predictions. To my mind, let's wait for couple of months more.

[Gunjan Prithyani, Analyst]

But do you anticipate more pressure coming from the inventory which has built up there? Or to some extent, demand taking longer to stabilize?

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

Short term, yes. We all believe that if China, everything has just picked up, then why should the textile and apparel not pick up. So to my mind, I think the European market has started opening now. So I think so far, there was no pull from the global demand. So now I think the order is -- they will start placing orders now. So the whole cycle will get back into rhythm from next month. Now for the autumn/winter launch, they will start buying fabrics now next month. And for spring/summer, in July, August. So we believe July is the time when we can see a bit of uptick in the whole thing. So next 2 months will be challenging, yes, for all of us. Because they have to liquidate the inventory, whether they liquidate here, whether they liquidate wherever it is. But in course of time -- but one good thing is they have now getting down to more reasonable OR numbers. It is no longer 75%, 80%, it is 60%, 65%. If that number remains stable and the demand goes then to pre-COVID level, we can expect some stability.

[Gunjan Prithyani, Analyst]

Okay. Got it.

[Ashish Adukia, Chief Financial Officer]

Dilip, would like to cover the capacity utilization of VSF and then Jayant, you could cover for chemicals.

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

As I told it was because capacity utilization was more than 100% because the demand in India was [ very strong ] right now.

[Ashish Adukia, Chief Financial Officer]

For Q1. So Gunjan, the number that I had shared for VSF plant was 30% to 40% capacity utilization as we speak. We'll see how June shapes up, but that's the range at which it is currently at. And chemical, maybe I would like Jayant to throw some light on capacity utilization currently in June and April and -- yes.

[Gunjan Prithyani, Analyst]

This VSF is 30%, 40% more because demand is yet to normalize. There's no -- I'm just assessing, is there any supply chain issue that we could have in the near term, given those industries are facing a supply shock also along with the demand?

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

No, Gunjan, in case of VSF it's a little different. When we had shut our plants also, we had made sure we took some time to shut them down gradually. They are continuous process plant. So we built up enough inventory with us and in the -- at the customers' end so when they start, there will be no interruption. So we had about 10 days' inventory and the lead time to start the plant is 4 to 5 days. So that part is not there. And we have enough supplier input like pulp and caustic soda, so we don't expect any supply chain issue right now.As you rightly said, the demand -- there is a -- see, the viscose is a derived demand. So first, the apparels have to start selling, then the fabric will sell and then the fiber will sell. Now what has happened, all the malls were shut. And globally, all the markets have closed down. So what happened there were a lot of cancellations which happened from the global players for the -- and the -- and when the lockdown happened, it was spring/summer end of peak. So stocks had gone into the store, but the sales did not start. So next 2 months, they will liquidate the inventory, which is already lying in their stores. And that's why the pull is little less. So it will take some time. When they will start -- when the buying cycle restarts, the pull will come. But what is important for viscose is not the global brands and the malls. It is the local market, which is in Tier 2, Tier 3 cities and the rural market, where there's lot of money and there's lot of demand. So I think when the wholesale market gets activated, this demand will pick up. So we believe in next 2 months' time, the wholesale market should get into the action.And then I think demand should pick up faster.

[Jayant Dua, CEO of Chemical Business]

Gunjan, Jayant this side. To your question of where our capacity utilization in the chemical is, particularly in the month of June, I think our current run rate is about 60%. The -- and I think the only challenge that we have in this is with so many products and byproducts that we make, there is a continuous need to balance and rebalance your plant across the various geographies to make sure that you have safe operations. And I would echo Dilip's point that textile is a large segment for us in consumption. And the textile segment is taking time for it to come back to speed. And we expect that probably by the end of the coming quarter, textile will be back to its normal production. So we expect -- April, we started, we got some permissions in the month of April, basically using the hygiene route. And for us, even if we have to produce hygiene products while necessary, we have to produce caustic and chlorine. So our capacity utilization ramped up slowly from mid-20s to about 50%. And now we are operating at about 60% capacity utilization.

[Gunjan Prithyani, Analyst]

Okay. Actually, just one question, if I can squeeze in, and then I'll go back in the queue. On the CapEx you -- when we had the call some time back, you had mentioned that you would give us more sense on how we are reassessing the CapEx for F '21. Is there any clarity on that front because the expansions which have been underway were fairly sizable in terms of commitment? So are we going ahead? Are we -- I mean, what is the thought process around spend that we can see in F '21?

[Ashish Adukia, Chief Financial Officer]

Yes. I think it's a little early for us to assess what -- about the CapEx plan -- sorry, there was some disturbance, about the -- about our CapEx plan. So I think as we get more visibility. Right now, we are just in the phase of increasing our production and looking at the market. I think we'll have better clarity by end of the month. So next quarter, we will possibly finalize our full year plan along with CapEx. So we'll be in better position to share those numbers.

[Operator]

We have next question from the line of Rajesh Lachhani from HSBC.

[Rajesh V. Lachhani, Analyst]

So first question is on this one-off that you said that a onetime expense of INR 23 crore in Q4 led to some drop in EBITDA. However, if I see the presentation, there is, in fact, a INR 23 crore onetime gain in the fertilizer. So I just want to understand what is this INR 23 crore loss or onetime expense in Q4?

[Ashish Adukia, Chief Financial Officer]

Yes, sure. So first of all, the fertilizer number that you mentioned, it's not a onetime gain, it will be a recurring gain that we will have because now the fixed cost reimbursement of an additional amount has been allowed by the government, the -- if you recall, we were accruing some income on that account. And then we created a provision last year of INR 135 crore, which was basically 50% of all the income that we had accrued. We had made a provision because we were not sure whether the government will allow that fixed cost additional reimbursement or not. But this year, now they have allowed that reimbursement. So therefore, the fertilizer is actually a recurring gain that you see of INR 23 crore. It's just that it's accrued in this quarter, but it belongs to the entire year. On chemicals, there is INR 23 crore of onetime impact. So EBITDA should ideally -- should have been a INR 127 crore out there instead of INR 104 crore.Now that is -- there are 3, 4 items in that, okay. There is certain electricity duty that we were -- exemption that we were expecting and we had booked, which we had to reverse because right now, the clarity is that we're not going to get that. There is also some physical mismatch in the inventory or assets, which has also been provided for. So therefore, it is 4, 5 items put together, which constitutes the INR 23 crore, which has been adjusted for in this quarter, which is clearly onetime.

[Rajesh V. Lachhani, Analyst]

So sir, but this fixed cost reimbursement of INR 23 crore, it also has like full year reimbursement has been booked in this quarter. So what would be the excess amount that we have booked from the previous period?

[Ashish Adukia, Chief Financial Officer]

Excess amount from previous period, so see, okay, let me put it differently for you, maybe it will give a better idea. I think on a regular recurring basis, the EBITDA of fertilizer should ideally go up by about INR 25 crore to INR 30 crore on account of this fixed cost reimbursement, okay? So quarter 1, quarter 2, quarter 3, we had not booked any of this. Quarter 4, we have booked the entire -- for the entire year. And going forward, we'll get the benefit of about INR 25 crore, INR 30 crore annually on account of this fixed cost additional reimbursement through subsidy that government will give us.

[Rajesh V. Lachhani, Analyst]

Understood. So the INR 25 crore is the annual amount and not a quarterly amount?

[Ashish Adukia, Chief Financial Officer]

Yes, absolutely.

[Rajesh V. Lachhani, Analyst]

Okay. Understood. And if I look at the trend of not only VSF, but also cotton and the PSF, the March exit -- and compare the March exit with the December exit. I can see that there is a clear continuous fall in the VSF cotton as well as PSF prices. Also, the pulp prices have actually largely stabilized in the last 2, 3 months, if I look at the chart that you have provided in the presentation. So clearly, the margins could further come under pressure going forward?

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

See. I think both of them are at the bottom right now. If you look at viscose prices also, there is -- if you do the arithmetic -- not in India, Indian prices are still better -- but I think globally, the prices are almost hovering around variable cost. So there is not much scope to go down further. Pulp also, I think it is about -- it is stable plus/minus $10 to $15 kind of a thing. See, and the issue is all demand-led issue. Right now, because of the COVID, there is no demand for any fiber. So this is -- whole thing is falling as a sentiment. So quarter has fallen because there is no demand. Second, on top of it what happened because of the COVID, lot of the cotton production also reduced. So globally cotton production is less, but the demand has fallen faster. So the production of cotton from 26 million tonnes is down to 25 million tonnes, but the demand is down to 23 million tonnes. So you are ending the year with a higher year ending stock of cotton. That will impact the cotton prices. Polyester and crude price went down to $10, so [ entity ] the PSF prices came down, but they will -- they've started picking up again. So to my mind, making any predictions from this -- these trend will be a little premature. So let's watch for a couple of months, let the world come back to normalcy after post COVID and then see what happens.But there is not much room to go below these prices anyway, whether it is -- if the pulp goes below this, the pulp plants will start softening. If viscose goes below this, viscose plants will start softening. So I think there will be -- a new equilibrium will be achieved.

[Rajesh V. Lachhani, Analyst]

So Sir, that makes sense. But if we look at the Chinese productions at the VSF prices in China are currently hovering around RMB 9,000 per ton and at these prices, close to the producers in China are making RMB 2,000 per tonne losses and yet we are seeing that 60% of the operations are still going on. And this RMB 2,000 per tonne is not a current phenomena it -- they have been making losses to a lesser extent, but still, we see -- continue to see the plants running in China. So sir, just want to understand the -- how do Chinese plants, if you can share -- throw some light on why Chinese plants continue to operate despite having losses? So what is the incentive for them, yes?

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

See, as I told you, one can only guess this because I think it's difficult to understand what is in the Chinese mind. But if you look at the Chinese there out of 24, 25 players, 4 or 5 are big players. So they don't -- they are -- they not only make viscose, they make other products and they are far bigger players. So in that case, they take a longer-term view. And shutting a plant means you have to get -- separate the labor, you have to put fixed cost. There's a huge complications involved in that. But what is happening is, the smaller players are kind of sitting out. Otherwise, this couldn't have come down from 75% to 80% capacity to 60%. And that's what we've always been saying. At the moment, the peripheral players shake out. These core players cannot meet the global demand. So automatically, the prices have to firm up. So the issue is what one has to see, how long it takes to shake out this peripheral player and that is what is happening right now.The -- it is so unviable that there are a lot of small players are just not able to manage. Bigger players, they have -- you may call them beat boxers, so they have got a salary commitment to the business. They will take it in their stride. They've been losing money for last 1.5 years. And it is not the first time they have done it, so in the hope that there'll be shakeout, the smaller players will fall apart and the bigger players will continue. And if they see -- we have done our arithmetic, if the demand goes back to the pre-COVID level and the OR remains 65%, the market is in the balance.

[Rajesh V. Lachhani, Analyst]

Understood. Understood. Sir, just last, if I may squeeze in one more. Can you tell me the exit prices of VSF currently, May end compared to March and exit price of chemical, caustic soda or chemical segment ECU compared to the March end exit?

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

For which market, India? Which market are you talking about?

[Rajesh V. Lachhani, Analyst]

India. India, the -- yes.

[Ashish Adukia, Chief Financial Officer]

So the March end, we've already shared with you in the presentation, right? On Slide 19, you will find the ECU, which is 26,600 for the quarter. We don't give prices of the current quarter as a guidance or something. And in case of viscose, again, we've given the exit price, and of course, there is some premium that we enjoy in the domestic market over the international prices.

[Rajesh V. Lachhani, Analyst]

But just share, can you share the trend? Is it upwards or still it's a declining trend compared to the March exit?

[Ashish Adukia, Chief Financial Officer]

No. So I think, see, right now, the price which Dilip has already mentioned, is little bit theoretical in April because there isn't proper uptick in demand. I think when there is a proper demand when everyone restarts is when you can really talk about the price, which is more an equilibrium price. So it is -- it would be irrelevant to give a price of, say, April or May.

[Rajesh V. Lachhani, Analyst]

Understood. No worries, sir.

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

See, April nothing was running. May also, most of the textile production centers were in the red zone. So this [ how we stand ] from the price is absolutely a number. It doesn't mean anything. So actually, let's wait for the June to happen then we'll see.

[Operator]

We have next question from the line of Gaurav Rateria from Morgan Stanley.

[Gaurav Rateria, Research Associate]

2-3 questions from my side. So firstly, on the margin, sir, given that the expectation is that the prices may not fall further for VSF, it's already at the variable cost. And there will be some more input cost benefit, which could keep coming on the pulp side, on caustic side. Do we think we have bottomed out on the margins for VSF as well as for chemicals, given that input cost benefit will come for chemicals as well on the power side and some fixed cost reduction side?

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

You want to take this or -- Ashish?

[Ashish Adukia, Chief Financial Officer]

Yes. No, no, please go ahead, Dilip, with VSF, and then we can follow it up with chemical.

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

No, I think that was a prognosis I shared with you. But as I again, told you, let's wait for a month, a couple of months, and then take the call because right now, we don't believe there is a further room. But if somebody wants to get into [ our activity ] then there is nothing much you can do about it. So fact of life is yes based on the arithmetic, both of them have bottomed out. The good thing, which we have not shared in this so far is viscose goes in 2 applications, textile and nonwoven. Now one thing which -- positive has come out of COVID, the nonwoven market has boomed. It goes into the facial wipes, it goes into the hygiene applications. So there's a lot of viscose, both in China and elsewhere, and India also is getting diverted to the nonwoven side of the business. And that also will bring in some balancing. And there, you've got a much better premium. So today, every player who used to make, say, x percentage of nonwoven is making 2x percentage. So the whole market is re-equilibrating. So while the textile may go down, the nonwoven may go up. Even in India, we are going to -- we have started making nonwoven again. So I think, it's a bit of a [ flux in ] situation, let's wait the thing -- wait for things to clarify.

[Ashish Adukia, Chief Financial Officer]

Let me probably cover that differently, Gaurav. I think if you see pre-COVID, okay? I think there, we could have said that it has more or less bottomed out, right? Because we got the advantage of pulp, and we had the price, which was not fully recovered to what we had earlier in FY '19 and quarter 1 of FY '20, et cetera. But we had a reasonable stabilization in the price, right? And in case of chemical also, the ECU had come down quite a bit. And power cost, we will keep changing the mix to improve that. But it's more of a fixed cost than a variable cost. It doesn't -- it's not linked to the thing. So if you look at pre-COVID, I think let's forget about this temporary disruption that has happened. Because that will only impact your quarter 1 and maybe quarter 2 of FY '21. But hopefully, it will not go beyond that. So if you talk about a normal cycle, then I would assume that it may have bottomed out in quarter 3 and quarter 4.

[Gaurav Rateria, Research Associate]

Then also 2 more questions. One, on the ABB side, the government is probably reviewing the ABB from China -- on goods imported from China and Korea on the chemical side, any understanding or any feedback from what it looks like? And why are the import like really is an issue for chemicals if China is really not a active player in the market? And secondly, a question specifically for Ashish, in the current environment, when we are reviewing the entire organic CapEx, what is the headroom for investment in group companies? Even if on a return ratio those investments may look nominally well, what is the headroom left for us to do any investment?

[Ashish Adukia, Chief Financial Officer]

Sure. So on headroom, so ABB, you -- Dilip, you -- would you like to cover and on VSF…

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

It was about chemical, he is asking I think, in the call, Jayant…

[Ashish Adukia, Chief Financial Officer]

Yes, sorry, so chemicals, Jayant.

[Jayant Dua, CEO of Chemical Business]

Yes. So I think the point which Ashish was making that while China does not really import too much into India. But I think the local Indian capacity, which came up by around 610 KT. And if you look at from a demand perspective, and demand all India at about 4 million a shade lesser and if that kind of capacity comes onstream, it's a significant capacity increase, which has actually impacted the overall prices of caustic. And also from the overall perspective, while China does not impact directly India, but it impacts Southeast Asia and other places. And a very similar story, which Dilip was talking about in VSF, also is the state of the story in China. The only difference is that majority of the world, barring India, works on chlorine as the main product and caustic as a byproduct. So the number of dynamics by which the caustic market got impacted globally is significant. Even today, the vinyl demand has really not come back. So there is a chlorine excess available in the market. And by that matter, plants are getting re-rated or the new balances are being found out. And I think this uncertainty globally will continue. People are carrying high stocks of caustic across the system, including India. But as and when demand picks up, which is picking up slowly, I think that balancing will happen. So it's very difficult in the current environment of April and May actually to say what is going to be -- it's looking -- improving with every month. And I think the trend will continue there.

[Ashish Adukia, Chief Financial Officer]

On the headroom, Gaurav, if you see that if you spend this year INR 2,828 crore towards CapEx and the remaining from the sanction is about INR 4,900 crore, which will be spent over a period of time. We have to sit down and recalibrate on how and when we spend the amount. And also how much to spend? Is it likely to be INR 4,900 crore? Or is it likely to be lower? And so given current scenario, we may come -- we may draw the scenario where we have a lower CapEx as well. So it's difficult to say what is the headroom for investments otherwise. But if you theoretically calculate, then you will generate -- if suppose same EBITDA is this year of INR 3,000 crore and you use INR 3,000 crore towards the CapEx. And so you won't need to probably raise debt. But over a period of time, maybe if there is some deficit and you have to raise debt then also there is enough headroom to AAA ratings as said in past calls that we are comfortable to go up to 2.5x or so on a stand-alone basis. But beyond that, also, the rating won't get impacted, but I think we wouldn't like the ratios of net debt-to-EBITDA to worsen beyond that level. But that also, according to me, is little bit theoretical.So I think we are profitable at these levels, and there is no proposal at all of any investments in group companies other than we've seen the ABFL rights announcement. Our share in that is somewhere around 10%, 11% and their announcement is of [ anticipated ] on participating in that right when the time comes.

[Operator]

We have next question from the line of Navin Sahadeo from Edelweiss.

[Navin R. Sahadeo, Research Analyst]

A couple of questions. So first question is related to VSF. And just wanted to understand how should we look at the exports part of the business? You said China capacity utilization is down to 60%, but if they have huge inventory to be liquidated which could keep margins under pressure, now our exports are about 14-odd percent. So given that they have a pressure to liquidate that inventory, is there a possibility that our share of export as a percentage or in general those volumes can take a hit? Or is there a way that our share of exports can actually go up because globally, people may be a little averse of buying products from China? Any thought there, please?

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

I think that's a good question. In fact, the simple answer is our export is likely to go up. Why? I'll tell you why. See because as you all know, now just post COVID, it will take time for Indian demand to come back. It won't happen overnight. So one of the ways what we already started doing is, we want to fill the entire capacity in the Grasim plant. We want to have full capacity utilization. We've got about 1,600 tonnes per day of capacity with us. So what we are doing now -- and India is very advantageously placed in some market. The freight from India is much lower than freight from other countries to those markets. So what we are -- if you remember, earlier, my demand was so much in India, I could not service it so I have reduced the export. It used to be at one time 30% export, 70% domestic. The last number we spoke to was 14 -- or 12% export, 88% domestic. I think we are -- this quarter, you will see we are exporting more and more. In Feb, I did only 34 tonnes per day of export. Today, I'll do -- I'm doing much more. So I think what we are doing is whatever the demand gap between the capacity and the local demand, we are trying to maximize export from India. And in terms of freight, it might not have the same margins as what will happen in domestic market, but we do have -- we do make more money than other exporters from Southeast Asia.

[Navin R. Sahadeo, Research Analyst]

So the 30% to 40% of the current capacity utilization that we are running in the viscose, that is including the export benefit?

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

No, no, no, this was domestic. You see, it is -- what happened, you must understand. April was full lockdown. Then it got extended to May. While some opening happened on 18th of May, but all the textile centers, you take Ahmedabad, you take Surat, you take Jaipur, you take Erode, you take Bhiwandi, they all remain in red zone. So textile market did not open for entire month of May. It is only after June 2 or June 3 is that things have started opening up. So like Jayant was saying, we are seeing every week an increase in demand. So it's more sentiment than the demand for us, but the sentiments are really positive. So as we speak, the 30% to 40% was the captive demand, and the balance is, I'm not saying entirely will go to export, but we are trying to top it up with export. And the idea is as -- because this buildup will not happen to -- we expect about 80%, 85% demand in domestic market only by Q3. So till that time, we'll try to maximize exports. Then again, exports will come down and domestic will take over.

[Navin R. Sahadeo, Research Analyst]

So in the interim, you're saying -- so if India can come back only in Q3 to about 80%, 85%. Can exports -- does export really have that much potential to take it up to, let's say, I don't know, I'm just throwing some number, 60%, 70% of overall utilization? Can export be that big an opportunity in the interim?

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

Yes, but the -- it depends on what price you get. So I think we have -- we don't export like Chinese. So there is a cut off-price.So if there's a viable price, we'll do it. There is enough -- look, the global market is about 6.5 million tonne market. I'm talking about 0.5 million tonne capacity, 600,000 tonne capacity. So see we don't have a huge volume to sell. The issue is at what price we get. [ So those are ] in terms of the margins.

[Navin R. Sahadeo, Research Analyst]

Understood. Yes. Yes, understood. Second question was just about CapEx. And I know Ashish sir did say that clarity will come only post Q2, how do you'll look at CapEx. But is it fair to assume that the planned CapEx of 235 KT in VSF, that is certainly delayed and will not come then in, let's say, at least till first half of FY '22? Is that a fair thing as in -- because if, let's say, things were to normalize, I'm only trying to understand if Q3, you're expecting India to come back at 80%, 85% and are keeping fingers crossed there, and FY '22 then turns out to be a much normal year globally. When should we start looking at then the volume benefits from the new plants?

[Ashish Adukia, Chief Financial Officer]

So see, I think we -- these are the questions we are asking ourselves as well, when we are sitting down on CapEx and having a discussion. I think if you were to come back with a scenario, that let's kickstart the VSF capacity and increase immediately. Then we will lose -- we probably lose a quarter, which means that September, December, what we were talking about can spill over to quarter 1 of following year. But again, we have to sit down and discuss these time lines and then come back to you.

[Navin R. Sahadeo, Research Analyst]

Okay. Dilip ji just one follow-up, if I may, please. Has exports from China come down as a percentage? Any color that you have there? That will be helpful.

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

See Jan, Feb, March, it did come down because they could not supply. But now they are back in the export market because they also have same issue, the domestic demand hasn't picked up the way they had thought. So they are back in the export market because otherwise, China was only exporting 10% of their production. They were all locally focused. Despite all the capacity, the Chinese market could absorb most of this viscose production. So I think as we speak, they are in the export market, but I think it depends upon how well their domestic demand picks up.

[Navin R. Sahadeo, Research Analyst]

Understood. In a normal scenario, China's exports are just 10% of their total volume, correct?

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

Yes, yes, yes, it's not even that also.

[Operator]

We have next question from the line of Prateek Kumar from Antique Stockbroking.

[Prateek Kumar, Vice President]

Sir, my first question is on -- can you give us the split which you gave for VFY and VSF segments revenue and EBITDA?

[Ashish Adukia, Chief Financial Officer]

Yes. So VFY I had given for quarter 4, INR 415 crore of revenue and EBITDA of INR 70 crore.

[Prateek Kumar, Vice President]

Right. So I mean for yourself while the -- your presentation says that there was a 7% decline in Q4 in terms of realization, in one of the slides you have mentioned. But our realization has dropped only by 2%, right, in this quarter on a quarter-on-quarter basis?

[Ashish Adukia, Chief Financial Officer]

Sorry. What are you -- which data points are you referring to?

[Prateek Kumar, Vice President]

In the presentation, on Slide 16, you mentioned that grey VSF realization is down 7%. I think this is industry you are talking about, or this is for the company?

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

This was industrial.

[Ashish Adukia, Chief Financial Officer]

Yes, yes, that's an industry. The company…

[Prateek Kumar, Vice President]

So our decline is only 2%, right?

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

Yes, company is less.

[Prateek Kumar, Vice President]

Right. So this is due to higher share of value-added or I mean we have yielded less to exports -- imports in this quarter? Like -- because last quarter, it was worse versus, like, I think, industry.

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

And our VAP also has gone up this quarter.

[Ashish Adukia, Chief Financial Officer]

Yes. Yes. So there are 2 reasons, basically, this is stabilization of domestic price. It's not worse from what was there in quarter 3. In fact, it had improved towards Feb and March pre-COVID. And plus there is a share of product mix -- in terms of product mix a share of VAP, which there was, in fact, an expansion of premium of VAP over the grey.

[Prateek Kumar, Vice President]

Right. And when we say that we haven't commissioned our Harihar plant while we have commissioned the other 3. So this is because of some red zone issue or because demand is not there, so we have not started the plants?

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

So that's -- this is demand-led. What we are doing is there's no point opening more plants and running them at less capacity. We are maximizing the capacity utilization in the same plant, like Kharach is now running 100%. So then now Vilayat we're starting. So we'll fill up Vilayat. And then slowly we are going ahead. So we are -- in tandem with the demand, we are ramping up the plant capacity in number of plants.So Harihar will come the last. It's a small plant.

[Prateek Kumar, Vice President]

And there was like some 300,000 of some global capacity addition, which was also expected, 300,000 to 500,000 this year in 2020. Is that also delayed in Ahmedabad?

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

Yes, it is -- as I told you last time in Jan and March, some capacity came up, about 250,000 tonne, and that's all. There is nothing more will come now.Between last -- CY '19 and CY '20, there will be 250,000 addition, which has already happened in Jan and March. I think thereafter not much. It was only our capacity, if at all it comes up.

[Prateek Kumar, Vice President]

Okay. And when we say that in the caustic segment, the 610 KT capacity has come, so is this all which is supposed to come for domestic players or more like they make money, capacity was expected or some other players were expecting. So all of that have come now onboard?

[Ashish Adukia, Chief Financial Officer]

So there -- see it's a graded way, the way you look at it because all the capacities which were supposed to come in the last financial years are coming, and it's the same situation for us now that the current year, which we are going through. The capacity -- our capacities which were supposed to come up, and that we will take in a graded manner as we go forward. And then there are capacity inclusions next year, which are already work in progress, particularly on [ GSEN ]. So for the last year, all the capacities which were supposed to come in have come in.

[Prateek Kumar, Vice President]

So now you're then -- regard the alkaline capacities are pending, and everything else is done.

[Ashish Adukia, Chief Financial Officer]

As of now, as of today's plan, and there are plans which have been announced by others. But looking at, I think everybody is reviewing the situation of demand and there what we've been talking about, and I think in the next couple of quarters clarity will emerge.

[Prateek Kumar, Vice President]

Okay. And just one question on caustic prices. In the presentation from basic calculation, it seems like ECU realization has fallen by 4% for yourself in this quarter. So is the decline worse than industry because competition seems to have like lower decline on a quarter-on-quarter basis?And that's why our EBITDA drop is also steeper?

[Ashish Adukia, Chief Financial Officer]

No, I don't think so that is the fact. As a matter of fact, if we compare our ECU with a couple of our competitors, our ECU -- our gap between their ECU and our ECU is actually maintained or has even gone better.So I think the EBITDA drop could be a function more of the onetime rather than from an ECU perspective.

[Prateek Kumar, Vice President]

Okay. And on Slide 9, you have given some cost-focus numbers on viscose and chemicals. So these are for annual FY '21, which we expect like this kind of savings to…

[Jayant Dua, CEO of Chemical Business]

No, no, no.

[Ashish Adukia, Chief Financial Officer]

No, no, no.

[Jayant Dua, CEO of Chemical Business]

So let me just clarify out there. Those are not the -- those are what has been achieved, okay? Now this is combination of the pulp price, for example, the pulp prices have come down, caustic prices have come down. So therefore, there is overall saving of INR 460 crore overall for the year for us. Plus there is also conscious cost-cutting measures, like I said, through Project Cascade that we had done. So in Project Cascade, for example, the savings that has been achieved is INR 250 crore. Some bit of that INR 250 crore could be sitting in the reduction in the pulp, caustic pulp price also. The cost that is mentioned in the -- as INR 460 crore. The reason is, for example, one of the measures that we have done in cascade is the consumption norm. So pulp going into viscose would be a certain number, right, 1.01 tonne -- per tonne of viscose. So there, we have made some reduction so that the pulp quantity comes down. So Cascade has many such items.It has items like fixed cost reduction. It has common procurement -- trying to make common procurement. It has quality measures. It has consumption, some technical initiatives, some market initiatives where we've gone ahead and renegotiated certain contracts. So it has many items like these totaling up to INR 251 crore. And then on the chemical side, power mix change as well as raw material contract, which has cost like salt, et cetera, which has led to overall INR 100 crore of saving. So just this one, again, I will repeat for sake of clarification that there could be some overlap between INR 251 crore and INR 460 crore that you see on that slide.

[Prateek Kumar, Vice President]

But this is on which historical period, FY '20 over -- only or a period of 2, 3 years?

[Jayant Dua, CEO of Chemical Business]

FY '20.

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

FY '20.

[Jayant Dua, CEO of Chemical Business]

Yes.

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

So FY '20 over FY'19.

[Ashish Adukia, Chief Financial Officer]

'19.

[Jayant Dua, CEO of Chemical Business]

So one more important point is, of course, Project Cascade is a fundamental improvement in the business. So that benefit, in whichever areas have received, will continue going forward.

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

Yes, that's right. There is a -- cascade is occurring. It will happen year after year. Whereas the input price will -- may happen, may not happen depending upon how the market moves.

[Operator]

[Operator Instructions] We have next question from the line of Sumangal Nevatia from Kotak Securities.

[Sumangal Nevatia, Senior Vice President]

Just a couple of clarifications. Sir, in between made an interesting comment on the nonwoven market doing very well versus the textile. So just wanted to understand what is the size of the nonwoven market relative in terms of volume mix?

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

See globally, it is 30% nonwoven, 70% textile. And globally, -- and nonwoven is a global business. India is not a big market. So while we will make it in Grasim but we'll export it to most of the places. And post COVID it has become a huge marketing channel because they -- see the nonwoven is driven by 2 things. One is demand by the end industry. Second is the fiber is only an input into an intermediated state where they may cut them into the flat rolls. So the converters are keeping. So there is no conversion capacity in Europe. Whatever was there, they have already [ stated ] to 20% more. Rest has all the capacity available in China. So China has become a big nonwoven market now. So that's where we have -- so the export market will be China, Europe and U.S.A., 3 markets.

[Sumangal Nevatia, Senior Vice President]

I understand. And when you say Chinese inventory is currently at around 125 days, I mean, what's the normal inventory level they used to keep?

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

Normally, there were 10 days for VSF, 20 days for yarn and 20 -- about 40 to 50 days maximum. And this is whole. I'm taking from viscose to the yarn level. So, yes.

[Sumangal Nevatia, Senior Vice President]

Okay. And I mean, what is the expectation -- how many quarters are we looking for this to normalize?

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

See, look, the whole issue here is, and I think you all are reading in the newspapers also, that COVID has destroyed the demand. So it all depends upon the demand revival. If the demand comes up to pre-COVID level, I think this will stabilize very fast. So all one is saying is it is a V-shaped recovery, U-shaped recovery, L-shaped recovery. The current predictions look like U-shaped recovery. So it should happen by Q3, Q4, normalcy. So 2 quarters will be challenging. Third quarter, hopefully, things should improve, but we'll have to keep watching it. Now if there's a recurrence of COVID, then again, the whole thing goes back to square one. So in normal course, if one is able to control it, I think the hope by Diwali, the textile industry should have its normalcy because the festival season will be big. All the marriages have been curtailed. No festivals have happened so far. So I think there's a big pent-up demand, which should happen hopefully.

[Sumangal Nevatia, Senior Vice President]

Understand. And just one small clarification on the CapEx, Ashish, I mean, if you look at the outstanding CapEx of around INR 4,800 crores, INR 4,900 crores, INR 3,000 crore is towards the expansion and the remaining INR 1,500 crore towards the modernization and maintenance. So I think expansion is something which we might just look for 1 or 2 quarter delayed depending on our outlook on the demand recovery. I mean what sort of flexibility do we have in the modernization bucket of the CapEx to reconsider whether we want to go ahead or not? Or -- I mean are we just looking at about a delay of whether it is 1 or 2 quarters or I mean more than that?

[Ashish Adukia, Chief Financial Officer]

Yes. No. See, I think modernization and maintenance CapEx are also as important, because a lot of it is environmental- and sustainability-related other than your modernization-related CapEx. So -- and more and more, we are noticing that in VSF as well as in chemicals, the sustainability is becoming important. And in fact, you get premium for your products if you are a sustainable company. So it actually gives us an edge over the Chinese in many aspects. So therefore, when we look at -- we will do a little bit of a 0-based approach as well where we'll look at the CapEx, which one is necessary, which one is not. And what is the time line? And then only we'll be able to come back to you on this.

[Operator]

Thank you very much, sir. As there are no further questions from the participants, I would now like to hand the conference over to Mr. Ashish Adukia, CFO, for closing comments.Sir, over to you.

[Ashish Adukia, Chief Financial Officer]

Thank you. So thanks a lot for joining the call, and I really sincerely hope that all of you all are safe and all the best -- as we all resume work. So thank you.

[Dilip Singh Gaur, MD, Business Head of Fibre & Pulp and Director]

Okay, thank you.

[Operator]

Thank you.

[Ashish Adukia, Chief Financial Officer]

Thank you.

[Jayant Dua, CEO of Chemical Business]

Thanks a lot.