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Grasim Industries Ltd
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Ladies and gentlemen, good day, and welcome to the Q4 FY '22 Earnings Conference Call of Grasim Industries Limited. We have from the management, Mr. H. K. Agarwal, Managing Director; Mr. Himanshu Kapania, Business Head, Paints; Mr. Jayant Dua, Chief Executive Officer, Chemical Division; Mr. Rakshit Hargave, CEO, Paints Business; 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. Thank you, and over to you, sir.
Thank you, and good evening to all the participants. I hope you've been able to download and get the presentation. So as the company celebrates its 75th anniversary, this year, which has gone past, has actually been marked with a lot of large growth announcements, which will actually prepare Grasim for the next phase.
The core areas where we have already expanded our capacity are VSF and Chemicals. The recently commissioned 600 TPD VSF capacity operated at 83% utilization level within months from commissioning. We have also been able to find debottlenecking opportunities across 3 plants to increase our VSF capacity by further 48 TPD at a minimal CapEx. This increased supply was very well supported by the strong domestic demand. In Chlor-Alkali as well, we added capacity of 142 KTPA across Rehla, which was 91 KTPA; and Balabhadrapuram, which was 51 KTPA. In addition, we added BAT, including the chloromethanes, at Vilayat.
In the Paints business, we are currently focused on timely execution of our capacities. The civil construction has already commenced at 2 of our plant sites, Panipat and Ludhiana, and is expected to start shortly at Chamarajanagar. The remaining 3 plants are at different stages of government approval processes. Now since the announcement of our entry into the Paints business, the market dynamics of the decorative paint sector has become more attractive. We have accordingly decided to accelerate our capacity commissionings and accordingly updated our plan with a project cost of INR 10,000 crores by FY '25.
This acceleration, with revision in plant configuration, achieves economies of scale, comprehensive product offerings, improving lead time to service the market. The plant commissionings are expected to begin from Q4 of FY '24 with capacity eventually reaching 1,332 MLPA. The inflation pressure on account of commodity prices increase has been mitigated by change in the plant configuration.
We are very well capitalized for next phase of growth given our strong financial position. As on 31st March 2022, the company, at stand-alone basis, had net cash of INR 553 crores. I will briefly touch upon the key operational and financial highlights for the quarter. The textile value chain in India operated at optimum capacity utilization given strong domestic demand.
The VSF business reported sales volume increase of 30% Y-o-Y in FY '22. Our domestic sales surpassed 0.5 million mark in FY '22 and accounted for 84% of the total sales volume. The share of VAP, the value-added products, increased 57% Y-o-Y and the overall share increased to 26% in FY '22, from 22% in the year before that. The demand for VSF has also been propelled by growth in Liva-tagged garment.
Our association with end consumer is expected to further strengthen with the launch of our saree brand, Navyasa, created by Liva. Our aim is to reposition saree as a garment of choice and to offer more contemporary print designs to Indian women. The saree segment in India consumes close to 1 million tonne of different fibers and the share of VSF stands at only 1%. We would like to catapult our share to 7% in the next 5 years.
The global VSF price has weakened sequentially owing to the spread of Omicron in China. However, the consistent rise in quarter prices have led to widening the gap between VSF and cotton. The financial performance of VSF business was impacted by rising cost pressures across all raw materials right from pulp, caustic and other input cost.
Separately, the VFY business reported a revenue of INR 572 crores and EBITDA of INR 63 crores for quarter 4 FY '22.
Coming to Chlor-Alkali business. It reported another quarter of stellar performance despite mounting cost pressures in power and other costs. This was driven by sequential improvement in ECU. This was highest ever EBITDA for Chlor-Alkali, backed by all-time high ECU. The sales volume increased 16% Y-o-Y to more than 1 million tonne in FY '22. The rise in the global caustic soda prices was driven primarily by the supply chain disruptions. The domestic caustic soda prices also increased in line with global caustic soda prices and consequent to the increased demand in domestic market as well. In Q4 FY '22, the chlorine consumption in VAP was 30%.
The Advanced Materials business also witnessed a 17% Y-o-Y sales volume improvement, driven by a better product mix on the back of strong demand from the Wind Power segment. However, this segment is witnessing normalization of margins, pulling down the EBITDA from all-time highs. On an overall basis, we have outperformed our pre-COVID levels of FY '20. At a stand-alone basis, overall Grasim, our revenue was -- for FY '22, was up 14% CAGR over FY '20. And EBITDA was up 24% CAGR, which ended at INR 4,111 crores.
This quarter, on a stand-alone basis, we reported profit after tax of INR 1,068 crores, which included certain exceptional items. These include profit from sale of Fertilizer business of about INR 540 crore pretax. There were certain write-backs of tax provisions amounting to INR 321 crore as a result of favorable order of sales tax subsidy being allowed as capital receipt. There's additional reversal of deferred tax liability amounting to INR 197 crores.
As you're aware, we have been focusing on improving the quality of ESG reporting standards. Grasim recently featured as #1 in the Capri Global Capital Hurun list of India's most sustainable company. In the latest ESG rating released by CRISIL, Grasim was assigned a score of 63 with strong rating.
Lastly, based on our performance, the Board of Directors of Grasim has recommended a dividend of INR 5 per share for the year ended 31st March '22, and a special dividend of another INR 5, taking the total to INR 10 per share. The total outflow on account of the dividend would be INR 658 crores.
I'd like to now hand over back to the operator for Q&A. Thank you.
[Operator Instructions] Our first question is from the line of Navin Sahadeo from Edelweiss.
Hello?
Yes. We can hear you.
Yes. Right. Great. A couple of questions. First, I'll take the Paints. So here, you have doubled the CapEx like to INR 10,000 crores. So can you now give us the breakup between the debt and equity component of it? And just a clarification that this 1,332 MLPA capacity, is it the expanded capacity for the INR 10,000 crore CapEx or it was the earlier capacity which will now be doubled?
Okay. No, so I'll start off and then I'll request Himanshu to jump in to clarify some of these points. So first of all, the earlier announcement that we had given was not linked to our capacity. We just said that the initial CapEx will be that of INR 5,000 crores over next 3 years. So now we're coming in with a little bit more specific guidance that we are going to have a project cost, okay, which includes CapEx, non-plant CapEx, et cetera, the preoperative and all those kind of elements that go into it, by FY '25, okay?
And the commissioning of the 1,332 MLPA that we are talking about will start sometime around quarter 4 -- early quarter 4 of FY '24. So that's how we are -- and then it will come in a staggered way and it will complete over next few months. So that's really what the plan is. So the 2 are not comparable. To answer your question, INR 5,000 crores and INR 10,000 crores are not comparable.
Fair, but just a clarification. So this 1,332 is -- 1,332 capacity is what INR 10,000 crore CapEx will consume, right?
Yes, that's right. Roughly that's the right number. Yes.
Correct. And to the -- and just a clarification regarding the same thing that how would we then look at funding this? Is it going to be entire equity? Or it's going to be a debt component as well here?
No. So see, it's funded on the balance sheet of Grasim itself, right? It's a division of Grasim, it's not a subsidiary. So therefore, the way we will look at funding is a mix of internal accruals and debt depending on other capital needs, et cetera.
Understood. Understood. Fair. Then my second question was regarding this VSF and all the best for the new brand launch in the saree segment that you've done. But a few years back, if I recollect, there was also this foray into VSF denims as such. If you can just help us, is that product or is VSF is used in denim? And is that product getting acceptance? Or that's not really taken off? Just to get some sense there.
Okay. This is H.K. Agarwal. See, VSF is used in many applications, including denim. But denim is not the most common or most popular application for VSF. So we did not launch any brand or anything like that for VSF application in denim. So we have a new generation of man-made cellulosic fiber under our brand, Excel, which is produced by lyocell process. And that is preferred material for use in denim along with cotton.
So that is not -- we don't have any brand for denim for that range. But this initiative for Navyasa saree, we have started a brand for sarees by ourselves. And the idea is that now VSF is used only about 1% in saree application. And we want to increase it to at least 6%, 7% in the next 3, 4 years. So that is the whole idea.
Understood. And just one quick question, if I may slip in, please. Recently, UltraTech took a stake in this Middle Eastern entity called RAK white cement. And they have also, on the con call, confirmed plans to further take full control of it, if possible. My question was if white cement is like a good fit or a decent integration with the Paint business, would Grasim not -- would it not be better had Grasim looked at it and get it under its fold rather than keeping it in a different entity?
Thank you. This is Himanshu. Yes, you're absolutely right. White cement has multiple applications, and over the years, white cement application has tended to be more towards the paint side, especially towards the undercoat side. But the fact remains that Birla White is a division of UltraTech and it's a very strong brand, and it is -- it has a set of -- independent set of shareholders.
So Grasim has chosen to launch its paint services through the Grasim vehicle. UltraTech remains focused on the cement side of the business, including the white cement side of the business. And both the shareholders, at an appropriate point of time, will work out a necessary arrangement to work on synergies so that both UltraTech and Grasim profit from the growth of -- or entry of Grasim into the decorative paints business.
Our next question is from the line of Nirav Jimudia from Anvil Research.
Sir, I have 2 questions. So one on the VSF side. So sir, if we see your presentation, so in between Q3 and Q4, our volumes have improved by 22,000 tonnes, while if we see the breakup in terms of exports, I think they have gone up by just 9,000 tonnes. So this gives an additional [ 19,000 ] tonnes of volume, which I presume must have been sold in the domestic market. So if you can just help us explain that. Is this because we have replaced some of the imports which were coming to India and our domestic market share has gone up to that extent? Or is this because the market has expanded by such an extent that we've been able to garner these sort of additional volumes?
Yes. Actually, both things are -- market has expanded. And as you know that cotton prices are at all-time high, and there is more tendency among spinners to spin VSF rather than cotton because of the [indiscernible]. And also, to some extent, imports have also come down because of the logistics issues. So yes, we have been able to place more volume in domestic market in the Q4.
Okay. Sir, if you can help us explain what is the normal run rate of VSF imports coming to India in a quarter? Or if you can guide even for FY '22, that would be helpful, sir.
So the total imports in FY '22 have been around 90,000 tonnes. So something like 7,500 tonnes per month, which is roughly about 10%, 11% of the total market.
Okay, 10% to 11% of the total market. Okay. And predominantly, we have garnered those incremental market share because we have replaced some of those imports coming into India in Q4?
Yes. But major part is because of the increase in the market. Because our customers have been also installing more equipment, they have been installing more MVS machines, which is new technology for yarn spinning. And -- so yes, demand has been good.
Got it. Got it. Sir, my second question is from last almost 2, 3 quarters, we have seen our specialty volumes in the range of 42,000 to 45,000 tonnes. So last 2 quarters, they are almost same. So is this the optimum utilization at what we can operate for specialty? Or is there a further room of increasing our volumes with the current capacity?
In VSF business, specialties, there are -- I can make it in 2 groups. There is 1 product -- 1 or 2 products which have to be made in a special purpose plant, especially our Excel fiber plant, Excel fiber. But otherwise, we can have more flexibility. So sometimes there is a seasonal element like one of our product, Livaeco, there was a seasonal issue, which demand was much less in Q4.
But Excel fiber has improved, modal was more or less same. So we have flexibility, and we are also debottlenecking our Excel capacity. So by next February or so, we will have debottlenecked to the extent of about 30% of our existing Excel capacity with a very small investment.
Okay. But sir, apart from that, let's say, are we doing some more CapEx on the specialty side? Because eventually, we want to grow up to 40% of our total volumes from specialty. So if you can share your road map for increasing those volumes to 40%? And what sort of CapEx would be required in order to reach those volumes?
See, we have inbuilt capacity, which can take our specialty volume to almost 33%, 35% without much CapEx. Some products, we have flexibility to produce even on the existing lines where we make gray fiber. And like dyed fiber, we have capacity but the demand and -- so we are exporting also significant dyed fiber. So if the Indian demand increases, then we will solve India demand on a priority basis.
So it is not necessarily only CapEx which is required for growing the VAP volume. But yes, lyocell -- beyond 30% debottlenecking, if we want to do, then we will have to think and plan significant CapEx because then we will like to install a size of large-size plant, which is internationally economical size.
Correct. Correct. Correct. And sir, just a small clarification. In terms of this 33%, 35%, is on our expanded capacity, right?
No, no, from the existing capacity, existing capacity of lyocell.
No, no. Sir, you mentioned, no, we can go up to 33%, 35% of...
Of the total -- yes, expanded.
Got it. Got it, sir. And sir, last question would be in terms of, sir, if we see the financials. So I think this quarter, VSF margins have come under pressure. So you rightly mentioned that this is because of the increase in the raw material cost. So -- has -- apart from the raw material costs, are there any pressures on other costs also like freight or power or any other costs related to that? Or -- and adding to that, are the premiums on the specialty VSF come under pressure this quarter because of which we have seen some subdued margins on the VSF side?
Like pulp, caustic, sulfur, they are all raw materials. And coal has also increased and coal is a significant cost -- energy cost. Steam and power is almost 16%, 17% of the cost of production. And then transport cost has also increased, and there were some extra export during Q4 because of Omicron in India. We do not want to take risk of having high inventory in the last quarter. So all these things combined. But yes, once the cost -- input costs come to normal levels, then we will see our profitability improve to the normal levels.
But sir, have we taken some sort of price increases? Because in order to compensate for the cost, because I think in between the quarters, our margins have come down significantly. So have we taken some sort of price increases on the gray fiber in India in line with the international prices?
Of course, since September, we have increased our gray fiber prices to the extent of 27% until March. And we adjust the prices on a monthly basis and we compare the landed cost of imports and all other factors. And we adjust the prices. We can't survive if we don't increase the prices in this environment.
We'll take our next question from the line of Sanjeev Kumar Singh from Motilal Oswal Financial Services.
Just I want to understand this increased CapEx on the Paint segment in a better way.
Mr. Singh, sorry to interrupt this. You're on a speaker mode, can you use a handset and speak?
Am I audible now?
Better, sir.
So sir, I want to understand this increased CapEx on Paint in a better way. So when we had given a plan of INR 50 billion of CapEx in 3 years, then what was the target capacity was in our mind? And then suddenly, we have increased it to around INR 10,000 crores. So what had led to this stage and what is driving this confidence? So can you give some better sense on this?
Yes. Himanshu will take that question.
Hello, Sanjeev, you can hear me?
Yes, sir. Yes, sir.
You're absolutely right. In FY '21, when we last met in January, we had announced a 3-year plan of INR 5,000 crores, and we are revising that plan to INR 10,000 crores. There is obviously -- there was pressure from inflation -- commodity inflation on the CapEx side, and we also observed that the market growth in the Paint sector was far higher than what our original estimate should.
So we had drawn up our original business model. And in the original business model, we had made an estimate of our capacity, which would have taken much longer to bring in the 1,336. And what we have done now is accelerated that 1,336 MLPA capacity, which would have taken us approximately 6 to 7 years to bring in, and we are trying to bring that in 3 years because the market at this point in time is extremely buoyant.
Also by bringing -- accelerating our investments, we were able to optimize our existing plants that we had ordinarily planned for, which resulted in that the inflationary cost was compensated significantly with economies of scale. So we got -- the acceleration has helped us in bringing our economies of scale. So the cost per MLPA has remained similar levels, allowing us to be able to participate in the market in a much more aggressive manner.
I just want to remind you, at the time of January '21, we had shared our ambition that we want to be a profitable #2 player, and current market share of operators is closely linked to their capacity share. With this capacity, we will be able to achieve our ambition and guidance to the market of being a profitable #2. I hope it answered your question.
Sir, looks like Mr. Singh's line has dropped. In the meanwhile, we'll take our next question. That's from the line of Vivek Ramakrishnan from DSP Mutual Fund.
My questions were more on the balance sheet side. Number one, we saw an increase in inventories as well as payables. Is it because of the increased size of business and the cost of materials? Or is it one-off? Or how do you expect that to correct itself over the next quarter?
The second question is on the CapEx plan and related to the first question. Given the fact that you're going to spend INR 10,000 crores over the next, let's say, 4 years, in terms of -- I mean in terms of the debt profile, how do you expect in terms of control over debt-to-EBITDA or any of these ratios, which is actually currently excellent, but how do you expect that to move over the next 3 to 4 years?
Sure, sure. So overall, this increase in current assets that has taken place is mainly on account of inventory and that is on account of the price increase. So the prices of all inventory, the rates basically, while the base may not have changed, the rates have gone up, and therefore, the inventory levels have gone up, okay? So that's a factor of price. If the price come up, then you'll see the inventory levels also coming up.
On your second question on the debt profile, see, right now, we've not -- as you may have noticed in this presentation, we've not given the guidance on the CapEx for this year. So it's difficult to say where we land in terms of our debt profile. Of course, I can say one thing that this net debt position or net cash position is transitory, and we will get into a net debt situation again, given the CapEx that we have over next 1, 2 years. So it's a little premature for me to comment on exact number of the debt profile. Our underlying -- I just want to reiterate, our underlying thesis of retaining investment grade doesn't go away.
At AAA, I presume. So all the best and look forward to hearing the debt guidance in the next call.
Our next question is from the line of Pinakin from JPMorgan.
A few questions on the Paints business. So just trying to understand, at this point of time, is the INR 10,000 crore CapEx number more or less the -- captures the entire investment? Or can this number see a very substantial revision higher like we have seen from INR 5,000 crores to INR 10,000 crores?
The need for investments, both plant and non-plant, for the next 3- to 5-year time period. And once our capacity utilization crop is 80% would be the next phase of investment. So for a current phase, this fully -- almost captures this, our need.
Sure. My second question is that at this point of time, should we expect that the Paints business CapEx will be 100% funded out of Grasim? Or would the company look to derisk and bring in some kind of strategic partner into the Paints business?
No, no plan of getting any strategic partner. We'll fund it through debt.
Sure. And lastly, can you give us a sense of what are the expected IRRs that the company expects from this business? And by when does the company expects to hit those IRRs?
We had, in the last announcement, when we gave our announcement of INR 5,000 crores, indicated our IRR for this project in the range of 20%. Even though we are expanding our investment, we have reworked our business model and reaffirm that this project will be at around 20% IRR levels.
By when, sir, because given that it will be commissioning in FY '25, so should we expect this over what number of years?
No. This is an IRR of a project. I'm talking about a project IRR. And typically, you carry out the project IRR over 10, 15 years and then due to -- as we will do a normal finance -- project financing model.
Our next question is from the line of Mohit Sali from Axcelate Advisory. Mr. Mohit Sali, could you please go ahead with your questions? There seems to be no response from this line.
We will move to our next question. That's from the line of Prateek Kumar from Jefferies.
So a few questions. Firstly, on the VSF versus cotton. So while we keep mentioning about this and we keep charting it out as well, but there seems to be no real correlation of it, what we have seen, and we are really struggling to even pass through basic cost and like there has clash like anything like got 1/4 in past 4 quarters. So can you just explain a bit on how is this cotton versus VSF dynamics really playing out and not clearly helping us or anyone else in the global industry?
So normally, in the past, price of VSF and cotton would move more or less in tandem. But like correlation was 0.75, kind of. Off lately, cotton has been in a very tight situation. And there has been, I think, some financial speculation also because cotton is the oldest commodity on the exchanges. And supply chain concerns also have pushed the cotton prices very fast. These are not normal price increase in the sense.
And VSF, being an industrial commodity, there is a different supply-demand dynamics. So this time, VSF prices have not been able to keep pace with the cotton price increase. And cotton crop, again, there are different estimates and people estimate that cotton crop will be less this year, demand will increase. So there is a lot of psychological and speculative bullishness on cotton prices.
So this one is the main reason for -- VSF is not that speculative and there is no forward available like what is available on cotton. So that explains the divergence for the time -- this time.
So are these not the real prices which consumer of cotton or VSF is buying? And that's why -- I mean we are not able to increase our prices? I mean is VSF really replacing cotton at such higher prices?
To some extent, yes, we are seeing additional demand from people who used to spin cotton. Now they want to stop cotton and spin more VSF because cotton is too expensive or it is not available or some similar reason. So it is not that these are -- at these prices, the transactions are not happening. The transactions are happening. So we are selling VSF at current prices. We have been adjusting VSF prices also to the extent we can do. But there is an import possibility and we have to calculate the landed cost of imports and charge whatever price -- best price we can do.
So in cotton, there is no import available. Import is of very high variety and even government has reduced the import duty -- abolished import duty, but still the prices have not come down. So there is different kind of dynamics playing out there.
Okay. And regarding pulp pricing, which was also expected to sort of come down, how has that been in terms of inventory position? And is any of the [ 3, 4 ] cost line items -- key cost line items for VSF expected to moderate over the next 6 months?
Like pulp prices have been going up in the last 2, 3 months, in Q4, pulp prices were a little bit down, but off lately, they have been going up. So they should stabilize now because there is a new pulp plant commissioning in Brazil. So the increase should not continue for too long. Supply chain issues are also creating the shortage and the buyers have to buy in desperate. So sometimes that affects the price.
So assuming that global geopolitical situation doesn't escalate further for worse and things -- supply chain comes back -- start to improve as we have seen in some sections, so the prices should not continue to increase like they have done in the last quarter. So that will bring more reasonable situation in the market.
Okay. So for FY '23 modeling purpose, second half of FY '22 margins in VSF segment are more reasonable. And like first half was like -- first half and even last year fourth quarter was maybe an aberration in terms of...
Second half of FY '22 was also a kind of aberration because the import prices increased very steeply. So both were unreasonable. I think the average of both the situations would give a better workable model.
You have to also appreciate that overall we are going through certain disruptions in logistics, supply chain, et cetera, which is creating certain price mechanisms which are breaking from the trend. So that also we have to bear in mind. I think if you look at the VSF price premium over pulp, okay, that, broadly, we've been able to maintain. So it's also the factor of some of the other costs like caustic, et cetera, which has led to erosion in the margins. But the fundamental VSF to pulp premium -- yes, absolutely. That has continued to maintain.
Especially in the case of Grasim, although the caustic high price comes at a cost in VSF, but at the Grasim level, it is interdepartment -- interdivision, so that really is not the extra cost in that sense.
Okay. On caustic segment, while our absolute EBITDA seems a bit lower on a sequential basis there as well. But on caustic, Chlor-Alkali segment would have done better, but that has been offset by Advanced Material, Epoxy segment weakening on a quarter-on-quarter basis?
So what's the question? I couldn't figure it out.
Is that the right assessment? So Epoxy has particularly weakened, that has resulted into Q-on-Q drop in -- because prices of caustic clearly are higher and that's what is also hurting VSF?
Yes. So as I said in my opening statement, Chlor-Alkali has actually delivered the highest-ever quarterly EBITDA in Q4. So the Chlor-Alkali EBITDA for Q4 is higher than Q3. It's because of Epoxy, which has corrected significantly, that your total EBITDA is looking lower for Chemicals segment in comparison to Q3. And to clarify, which Jayant is also clarifying, that Epoxy has normalized. They got a run of almost, I think, 3 or 4 quarters of superb, yes, profit because of the high realization and low raw material price.
And sir, last question on Paint segment. Is there anything on revenue? I mean because you are looking to start from Q4 FY '24 in terms of plants. Anything we are looking at in terms of first year of revenue in that segment?
That's premature. I think we are focusing on commissioning the plants right now. So difficult to say exactly when we're going to launch and start the revenue stream. One thing we have clarified earlier is that we'll not follow any outsourced model. We'll do it through the -- our manufacturing [ systems ].
Our next question is from the line of Alok Shah from AMBIT Capital.
Sir, my first question is when you speak about the improving market scenario in the Paints business, just wanted to check because -- this is our understanding, this optimism is also because of not only the Paints but also the ancillary segments. So given the plan is also, hence, to cater to that part of the growing segment or the focus would largely be in the core decor segment. Just wanted to hear your views on that.
No, our focus is only on the decorative paint segment. And just for clarity, decorative paint segment includes both the emulsion side of the business as well as the enamel side of the business, the waterproofing side of the business as well as wood finish. So these are the broad categories, which are all contributors to the decorative paints. We are not getting outside those.
Okay. Got it. Sir, the second question is when you talk about the CapEx of INR 10,000 crores, what part of that would be largely gross block? Because I -- if I heard correctly, you said it's a mix of CapEx plus non-CapEx items. So what part of that would be gross block roughly?
So clarifying, it is -- all of it is gross block. It is broken into plant and non-plant. And the large portion of it is plant.
Got it, got it. So INR 10,000 crores is the gross block that we are looking at. Again that will get around 1,300-odd MLPA. And while -- during the call, I was just confirming, Asian Paints or even the leader is at around 1,700-odd MLPA because they -- because they denote it little differently. So just to reconcile the numbers.
Yes. To our mind, there would be a slightly higher number by the time we are launching our services.
Our next question is from the line of Anshuman Atri from Premji Invest.
My question is on the Paint business. So I have 3 questions. One is you're announcing a size which is almost double of the current number of the players. So by when do we see this 1.3 getting fully commissioned? And what would be the time line in terms of the capacity utilization reaching this 80%?
Okay. As Ashish mentioned in his opening statement, we expect to start launching our services by the fourth quarter of FY '24, this next financial year. And in a phased manner, over the next 12 to 15 months, we would have the entire capacity available. But from quarter 4 of FY '24, we will go for a nationwide launch. So our -- we are hoping to be able to have our products available on a nationwide basis.
And, sir, generally, we have seen whenever Grasim launches a capacity, within 1, 2 years, you are almost close to full utilization. So can we expect something similar in the Paint segment?
That is very premature yet. There are plans on a piece of paper, but I think we will wait to see our execution.
Sure. And other question is on the -- so if I look at your environmental assessment reports, so you're doing a lot of backward integration in terms of the Epoxy and -- in terms of the emulsion and other things. So what kind of cost advantage can you have versus the existing players?
So different players are in different stages of their backward integration. So as far as we are concerned, there are -- the 2 key components of raw material are titanium dioxide and emulsion or resins, as maybe applicable for water-based paints or solvent-based paints. Both emulsion and resins, we will manufacture in-house. And titanium dioxide is one which we will -- which is a bought-out item for us.
Now to be able to -- I won't be able to give you a generic answer, different competition or different stages and a different percentage. But our entire requirement of emulsion and resins will be done from in-house production.
Sure. And one last question is on the decorative side on these putty and other ancillaries, this will be done by UltraTech and -- whereas the paint part will be done by the Grasim?
So let me give you a sense on the putty side of the business. I don't know how much you follow on the undercoating side. Birla White is the market leader and has been strengthening its position. It's improved last year its market share -- volume market share by 2%. But it currently commands about 10% premium over the next player. And over paint majors, it commands 20% premium. So on a revenue market share, it has close to 33% to 35%. So this is one statistic and continue to strengthen its position.
Reason for why it continues to strengthen its position because its quality and brand acceptance is significantly higher than what all is available. Why is that? Because it is among a few companies which manufacture its product, that's the entire R&D and manufacturing in-house rather than number of paint manufacturers, we do a lot of portion in outsourced. You'll find that also in the paint side of the business where we are trying to do it all in-house. So the research and development is done in-house, backward integration done in-house and quality of manufacturing is completely controlled in-house.
So going forward, they were -- as I mentioned, to be able to get synergy and cost control, both the shareholders of both the companies will enter into some sort of agreement and which will not only be able to make available the putty for the Paint business but also be able to have multiple other synergies. At an appropriate point of time, we'll discuss that.
Sure, sir. Sir, this kind of expansion is unprecedented, so wish you all the best.
Our next question is from the line of Saket Kapoor from Kapoor and Company.
As been clarified by you, sir, that the -- if we take the segmental results under the Chemicals segment, caustic soda and allied chemicals, the dip in the profitability Q-on-Q is only on account of epichlorohydrin prices trending lower, sir, that is the only reason why this INR 451 crore has moved down to INR 390 crore?
Yes. So at a conceptual level, you understood it right, except that within Chemicals segment, there's Chlor-Alkali and there is Epoxy business. And the epichlorohydrin, what you're talking about, is an input. It's a raw material for the Epoxy business. So one of the reasons for Epoxy business not -- or normalizing the margin is because the ECH prices have remained high while the realization for Epoxy has come down. So -- but at a conceptual level, your understanding is correct. The Q-o-Q number has come down because of -- only because of Epoxy. Chlor-Alkali has gone up.
And sir, the factors in your presentation, you mentioned about the strong trends in the caustic low entry prices is also because on account of the shutdown at the -- at China. So other than that, what kind of capacities globally have been mothballed? Any understanding on the same? Or are these shutdowns temporary then? What should we take home because of the -- how sustainable is the trend going forward? Whether it is a demand-led trend or is it mainly because of the outage in the capacity?
So I think it's -- this is Jayant beside. So let me put it this way that it's not about mothballing of capacities. Yes, I think 1 or 2 capacities in U.S. particularly have been mothballed because they were not into the membrane technology itself, they have different technology, which is effectively not there. But the disruption in the prices is deemed largely due to the supply chain disruptions, which have led the current [indiscernible] movement being quite controlled [indiscernible].
Europe has got into a shortage because of that. We have had a couple of outages, both planned and unplanned, China due to COVID. So I think there is a current global disruption, which is now getting sorted out. And I think going forward, we will start seeing a more normalized caustic prices in another month or 2 [Technical Difficulty] unless something new happens which is not known to anyone about it.
Sir, post this March quarter exit, the realizations, the trend has remained upward or [indiscernible] maintained? Or are we seeing the softening of prices as the factors you have articulated [indiscernible]?
If you look at the global indices, which we had normally reported, there is a marginal uptrend. But it varies week-to-week depending upon how the supply chain moves. So it's not materially changed much.
Because I think the input costs have definitely softened, I think so. The energy prices indicated and have definitely softened or there is no [ relent ] there also?
So their energy prices also continue to be in the same range at this point of time. Actually, post March, you're not seeing too much of a significant delta on either of the 2 prices.
Hello?
Yes. I said on post March, you're not seeing a significant delta movement on either side on both the cost front or on the realization front.
Right, sir. And on the other major raw material, salt side, how much is -- are we still sufficient or backward integrated? And by what portion are we dependent on the market? And how are the price trends shaping up there, sir?
So salt per se, no, we are not backward integrated or we are not dependent -- we are not self-dependent. We largely buy maybe about 90% of our salt from outside the market. So salt market actually will get governed by how the crop comes up post this monsoon. It gets affected if there are a lot of cyclones in the area, then crop shortage happens, prices shoot up.
So I think it will be premature because I don't think I can predict the weather factor to happen. But currently, compared to last year, the prices continue to be at the same level, which are at the elevated level because of the cyclones of last year.
On the value-added product part, what was our target? By what percentage are we going to -- the internal loading consumption is going to go up, say, 2, 3 and 5 years down the line, sir?
So currently, we are at about 30-odd percent. And with the current set of projects which are -- we are looking at, which I think at an appropriate time, we will talk about, you will start seeing about 3%, 4% increase annually, which is going to go up over the next 5 years' time. So between, let's say, 3 years' time, you could see from 30% to 40%, is where the target is. So it will be a gradual increase. You will not see a sudden spike there.
And sir, if I may, just one small point. For this year -- the last financial year, what have been the import of caustic soda in the country? And for this current year, what are the new capacity additions that are expected here in the country?
You see, what has interestingly happened and I think that's one change which will happen in the Indian caustic industry, which is India has become a net exporter, which used to be earlier kind of a balance. So I wouldn't have the exact number, but somewhere around 2 to 2.25 lakh tonnes would be the import.
Yes. So it's 2 lakh tonnes, which has happened in this year of import, which is going to happen. And I think going forward, there are new capacities which have got announced. I really don't know when they're going to come on stream, but India would maintain its net exporter status for the next year or 2 years.
Okay. Sir, earlier we were the net importers only. When is this trend -- when has this trend changed from a net importer to...
Last year.
Last 2 years?
Last year.
Last year itself.
Our next question is from the line of Jiten Doshi from ENAM Asset Management.
Yes. Many congratulations on a good performance. I just wanted to find out that what is the CapEx over the next 3 years apart from Paints? And what is the peak turnover you expect on the CapEx from Paints?
Yes. So see, at this stage, we can't give the guidance on this -- on both these numbers. When we get the CapEx approved for this year by the Board, at that time, we'll immediately announce it to the market for this year CapEx, which is other than Paints produced essentially.
Okay. Because if one just does some simple math, your next 4 years' cash flow should be about INR 8,000 crores to INR 9,000 crores, which includes UltraTech payout, et cetera, which should be nearly INR 6,000 crores of dividends declared by them as well as -- so what would be your dividend policy over this period of paying out to shareholders?
So we are following our dividend policy. We have passed through this time -- today as well, we have passed through the UltraTech dividend to the shareholders.
Would that continue into the future?
See, I think -- every year, we have to look at the situation, right? If there is a huge CapEx demand that comes through, okay, which is unlikely, but I'm just theoretically saying, okay? Then we may have to discuss at the Board level. But as of now, the plan is to pass through the UltraTech dividend.
Because it's simple math, if you can sustain your current year's operating profit or increase it over the next 3 to 4 years, then actually you should remain debt-free in 4 years.
So it's difficult for us to comment on that, I think.
So actually, you will be swimming in a lot of cash. So will the dividends -- whatever you get from L&T -- I mean, sorry, from UltraTech, you will pass on that dividend to Grasim shareholders?
Yes. That's -- we've done it for the last 2 years and the idea is to continue doing that.
Okay. And any idea on monetizing your renewable portfolio?
Right now, we are growing the portfolio. There is no such plan to monetize it currently as we speak.
Our next question is from the line of Bhavin Chheda from Enam Holdings.
Just a continuation of the previous question on CapEx since you have not announced the broader figures. I just wanted to know how much would be the pending CapEx of the VSF and Chemical divisions, which were announced earlier and which would be ongoing and pending?
So that we'll announce it along with the CapEx figures that we announce for this year. There isn't much of pending figure that is there. So if you look at the slide on CapEx, you'll find that there is about INR 650 crores of budget but not spent. So it will definitely be within that, okay? And it can be lower than the difference as well.
Sure. Because I think earlier, some Chemical division date was postponed earlier and that CapEx was slightly postponed. So Chemical division, was there a higher number, because I have earlier model higher number for '23, or you are saying just INR 600 crores is pending for Chemical division to reach a capacity of 1.53 million?
No, no, no. So that is -- the CapEx that we've given on that slide is CapEx for that -- for last year, FY '22. On a project, there can be additional amount in FY '23 or FY '24. So don't confuse that...
Yes, yes, probably. So for Chemical division, earlier plans of reaching capacity of 15,30,000, roughly 1.53 million, there would be around INR 1,000 crores, INR 1,200 crores pending to reach that number, right?
No, no, it won't be that much. We'll come back on that number. But there will be CapEx towards that. See, I think Chemicals, you have to understand slightly differently. Chemicals is -- has already got 8 sites. So unlike VSF, which has got 4 sites and large projects, Chemicals is number of sites and number of VAPs that they keep doing. So its number of projects are large. So it comes in a staggered way in different time lines. And ticket size is smaller, yes.
And sir, maintenance CapEx is roughly INR 500 crores across both divisions. That has been the historic run rate of VSF plus Chemicals plus other. That's fine. That number should be ball mark plus/minus that, right?
No. So let me clarify one point without giving a number. INR 500 crores used to be the case earlier. So one, number of sites has gone up. And secondly, there is inflation and there is also environment-related CapEx, which is increasing across all businesses. And it's a good CapEx to have because this makes your business more resilient and future-ready. So we believe that next 2, 3, 5 years, as we're taking targets for sustainability, those CapEx should also be counted towards sustainability -- sustainment.
So therefore, I would say there are 3 categories of CapEx, right? One is just what we always traditionally call maintenance CapEx. Second is the sustainability-related CapEx, which is kind of not necessarily going to generate revenue for you, but it makes you more future-ready. And the third piece is your growth projects.
Sure, sure. Okay. Sir, second question, particularly on the VSF division, if I'm trying -- you have given annual number of exports there, it's 13%. If I try to backward calculate with the earlier quarter, which means export this quarter was almost 0?
No, there were some export.
But it was a minuscule figure because I was trying to do -- I have earlier 3 quarters and I was trying to match with the annual number. So I'm getting almost nil VSF exports in quarter 4.
So quarter 4 also, we had, I think, about 10% or so export because in India, at that time, we were suspecting this Omicron thing to happen, it was happening. So we wanted to secure our volume. But yes, now more and more volume is going to domestic.
Okay. So quarter 4 also, as per your MIS numbers, around 10% in volume term was in export in VSF?
Yes.
Okay. And I missed out on the point on the VSF margin pressure. You have mentioned this substantial cost increases in pulp, caustic soda, coal and others. So is anything reversed there or price increases have offset it? Because the margins have been substantially down. So what should we look at it over the next 2, 3 quarters?
Yes, we expect these prices will not continue to go up for all these inputs. They cannot continue to go up in one direction all the time. And we are also seeing that China prices have started increasing because there is a tremendous pressure on Chinese producers also. So accordingly, that trend, international prices will also increase. So we expect that we will be able to recover more of the cost increase going forward.
Ladies and gentlemen, that was the last question. I now hand the conference back to Mr. Ashish Adukia for closing comments. Over to you, sir.
Thanks to everyone for joining and patiently listening to our answers. If there are any further clarifications that you may have, you may please reach out to Saket, who heads IR for Grasim. Otherwise, to me as well. Thank you.
Thank you, members of the management. Ladies and gentlemen, on behalf of Grasim Industries, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.