GRASIMNSEq1fy24August 10, 2023

Grasim Industries Limited

7,854words
124turns
9analyst exchanges
6executives
Management on call
Harikrishna Agarwal
MANAGING DIRECTOR
Pavan Jain
CHIEF FINANCIAL OFFICER
Himanshu Kapania
BUSINESS HEAD, PAINTS BUSINESS
Jayant Dhobley
BUSINESS HEAD, CHEMICALS, FASHION YARN & INSULATORS BUSINESS
Jayant Dua
CEO, CHLOR-ALKALI BUSINESS
Rakshit Hargave
CEO, PAINT BUSINESS
Key numbers — 40 extracted
rs,
a – Business Head, Paints; Mr. Jayant Dhobley – Business Head, Chemicals, Fashion, Yarn & Insulators, Mr. Rakshit Hargave - CEO of Paints business and Mr. Jayant Dua - CEO of Chlor-alkali business.
25 bps
er discussion. Globally, interest rates hikes continued with U.S. fed rates rising in July '23 by 25 bps to 5.25- 5.50%. Though RBI seems to have paused the rate hike for the time being. Fed had guided
5.50%
lobally, interest rates hikes continued with U.S. fed rates rising in July '23 by 25 bps to 5.25- 5.50%. Though RBI seems to have paused the rate hike for the time being. Fed had guided that the future
7.9%
upgrades to GDP estimates. According to RBI, India's Q1FY'24 GDP growth is expected to be around 7.9%. Given the current expectations around growth, multiple agencies have pegged their estimates of
10%
12th consecutive month on Y-o-Y basis. During the June '23 quarter, textile exports are lower by 10% Y-o-Y and 9% Q-o-Q, which has impacted the textile value chain from mills to garment manufacturer
9%
ive month on Y-o-Y basis. During the June '23 quarter, textile exports are lower by 10% Y-o-Y and 9% Q-o-Q, which has impacted the textile value chain from mills to garment manufacturers. The domest
41%
delayed festive season, which is in the later part of the year. Cotton prices have also declined 41% Y-o-Y and 4% Q-o-Q which to an extent impacts the demand for viscose as well. The Chemical indu
4%
ve season, which is in the later part of the year. Cotton prices have also declined 41% Y-o-Y and 4% Q-o-Q which to an extent impacts the demand for viscose as well. The Chemical industry is witne
11%
and investment in renewable power capacities. We have improved our share of renewable power to 11% compared to 8% in last financial year. Additionally, we have been recognized as one of the most s
8%
t in renewable power capacities. We have improved our share of renewable power to 11% compared to 8% in last financial year. Additionally, we have been recognized as one of the most sustainable orga
₹31,065 crore
ghting some of the key financial parameters of Q1FY'24. Consolidated revenue grew by 11% Y-o-Y to ₹31,065 crore this quarter. Revenue from key subsidiaries UltraTech and Aditya Birla Capital grew by 17% and 26
17%
,065 crore this quarter. Revenue from key subsidiaries UltraTech and Aditya Birla Capital grew by 17% and 26% respectively. The performance was moderated by degrowth of 14% at standalone level. Conso
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Guidance — 20 items
Pavan Jain
opening
“As already shared earlier, we are happy to share that we will be launching our two new businesses in the current financial year.”
Pavan Jain
opening
“Of these six plants, at least two or more plants will be commissioned this year.”
Pavan Jain
opening
“We have onboarded 130 plus brands and going forward, we will also explore private label products in select categories.”
Harikrishna Agarwal
qa
“That should reflect in our performance in the coming months also, but then it will again depend on how severe is the winter, coming winter, and that will determine the coal prices going forward.”
Sumangal Nevatia
qa
“And so, the caustic business, sir, given the pressure on prices, coming quarter, should we expect margins also to trend in line with the price weakness or there are some offset available there?”
Jayant Dua
qa
“But yes, the trend as for this particular quarter will be lower as compared to the average of last quarter because the exit of last quarter is what we are seeing today as the new stabilization.”
Jayant Dua
qa
“So, yes, to your question will there be further margin erosion based on the exit of last quarter, it will be relative to, it will be equivalent to that, but from the average of last quarter, it will be a dip.”
Sumangal Nevatia
qa
“Sir, my second question is with respect to CAPEX, for the Paint division, should we expect a large part of our ₹10,000 crore CAPEX to be concluded by FY’25 given that FY’24 also is a very significant CAPEX for the presentation?”
Pavan Jain
qa
“So, a large part of CAPEX will be done by FY’25.”
Sumangal Nevatia
qa
“So, the peak of CAPEX will be this intensity only in a particular year or coming years FY’25, '26 you see further increasing CAPEX from what we are spending in FY’24?”
Risks & concerns — 15 flagged
As the macro global environment continues to remain volatile, the realizations are impacted across global businesses we operate in like viscose and chemicals.
— Pavan Jain
However, in the near-term, global slowdown has directly impacted India's exports of textiles, which degrew for the 12th consecutive month on Y-o-Y basis.
— Pavan Jain
Weak demand from end user industries globally like textiles, packaging materials, constructions etc., especially in the developed countries is indicating subdued scenario in second half of calendar '23.
— Pavan Jain
And also, in the coming quarters as we can see prices are a bit of under pressure.
— Sumangal Nevatia
So, China now is going through very difficult phase.
— Harikrishna Agarwal
Today newspapers everybody read that China is going through deflationary pressure.
— Harikrishna Agarwal
The realization also is in the decline trend, and it depends on the pace of decline.
— Harikrishna Agarwal
Sometimes raw material prices decline faster.
— Harikrishna Agarwal
Sometime final product prices decline faster depending on the inventory levels, depending on the macro global sales trend etc., etc.
— Harikrishna Agarwal
And so, the caustic business, sir, given the pressure on prices, coming quarter, should we expect margins also to trend in line with the price weakness or there are some offset available there?
— Sumangal Nevatia
So, for next financial year, it is very difficult to say about the numbers, but as of now, yes, this year looks like CAPEX heavy year.
— Pavan Jain
So, to that an extent, assuming that there is a further fall or a downslide in India prices, will margins hold at these levels because your pulp prices and caustic prices is going down further or you can see some directionally, some pressure on margins in the coming quarters on VSF?
— Navin Sahadeo
So, there will be some pressure, but it is all very marginal.
— Harikrishna Agarwal
So, here also should we see margin stabilization or directionally some pressure can come?
— Navin Sahadeo
So, what kind of impact are we seeing since the last one or two quarters to help us understand that these numbers are including the impact of these, the operative expenses?
— Navin Sahadeo
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Q&A — 9 exchanges
Q
My first question is on the viscose business. So, clearly costs are dictating. So, if you can give detail which all areas we are seeing cost dictation? And also, in the coming quarters as we can see prices are a bit of under pressure. What all some outlook on the cost for the coming quarters if you could share?
Harikrishna Agarwal
So, on the first side, obviously, the main cost items where we have seen reduction are pulp prices, caustic prices and coal prices. So, all the important input prices have come down compared to last year significantly and also compared to the last quarter. So, that is a very positive trend. Looks like the input prices do not have much further room to go down, but we have to see. It all depends on the macro level situation and especially in China. So, China now is going through very difficult phase. Today newspapers everybody read that China is going through deflationary pressure. So, we have t
Q
Sir, I have a few questions. So, one on the chemical side. Sir, if we see our ECU realizations in Q1, they have been far better than the other players' reported numbers in the caustic chlorine division. So, just wanted to have your thoughts here that was there any specific reason for our ECU realizations higher than our peers? If you can share your thoughts here?
Jayant Dua
So, I think the reason is that, I think, tactically, we played couple of moves better than some of our competitors. From a long term, if you say, was there any strategic shift? No, I think the difference was that our back, what we call our chlorine derivatives compared to Q4 of last year to Q1 of this year, our volumes have materially gone up. And other than that, it was, I guess, more day-to-day active management. And sir, what proportion flakes forms in terms of our total sales volumes for caustic soda division? So, flakes form to the tune of around 20% to 25% of our total caustic line produ
Q
So, very happy to see the sequential improvement in margins despite realizations correcting the way they did. First question on VSF. So, I think this is again the second time that we are seeing that globally, the prices have gone up a little bit. That's what the presentation says, but our blended realization again has been a little soft or down rather Q-o-Q. I am assuming could be the similar regions like last time because of, let's say, the importing, import duty or anti-dumping duty being abolished or some material coming in from other countries which has led to this impact. And the cost, of
Harikrishna Agarwal
Yes, you have summed up it almost correctly. So, there will be some pressure, but it is all very marginal. There are not big movements either way. So, yes, prices, the international prices have reduced since end of June, and we also have to follow that trend in India also, and there is some reduction in the raw material prices also, but everything moves. There are so many moving parts, and we have a pipeline in the transit of raw materials and all these things. So, there will be small difference whatever way it is, yes. But largely, can we say that this is now the bottom, I mean, give or take
Q
My first question is on VSF business. So, from the product mix of domestic versus exports which are mentioned, it appears that domestic business was much weaker on a year-on-year basis versus international. So, is there dumping from the Southeast Asian countries increased significantly because of global environment or how should we see that?
Harikrishna Agarwal
Well, the VSF Imports are not happening much currently, but what is happening is the lot of viscose yarn is coming from China at very low prices, and that is affecting the profitability of our customers big way, and that is creating pressure on everyone. And this is all because China, the consumption is less than the production of viscose fibre yarn and all that thing. So, China exports are also low to West U.S. and Europe. So, these are all trade flows happening, but as such, VSF Imports are not very high. So, because the yarn is getting still more, we are not able to push our product to, fib
Q
So, what will be our paint capacity at the end of this year when first phase of that business gets built?
Rakshit Hargave
So, we have announced the total capacity of 1.3 billion litres. By the end of this financial year, we will have a target of three units operational. So, the total capacity of those three units put together would be approximately 630 million litres. That is the full-scale capacity.
Q
The first question is on this Lubrizol CPVC plant per se. You did mention about it in your opening remarks. We assigned about 1 lakh metric ton of CPVC capacities that should begin by in this 2023. So, this ₹708 crore of chemicals CAPEX, does that include the CAPEX for Lubrizol or that would come later? If so, how much one should expect per se there? And any sense if you can provide there?
Jayant Dua
So, if you look at when we made the Lubrizol announcement, first, two corrections. One is that the plant startup will happen in this financial year. The construction will start up. It's not planned startup. Construction will start up. So, which means construction will come to an end by FY’25 middle to end. The second part was, if you looked at the announcement when we did with Lubrizol, this is a zero CAPEX investment for Grasim, and the entire 100% investment is being done by Lubrizol. So, there is no CAPEX impact on Grasim's balance sheet due to this particular plant coming up at the live si
Q
Sir, my first question is that brands in retail preferences are changing towards more on the sustainable product side. So, how they are collaborating with us on product development and innovation?
Harikrishna Agarwal
So, I assume you are referring to the viscose fibre. Yes, sir. Yes. So, there are a lot of work is happening on the sustainability, especially circularity where the used garments or pre-consumer waste are converted back into textile, usable textile. So, we have developed our capabilities for both mechanical recycling as well as chemical recycling of used textiles or industrial textile waste. We are also working very closely with some international brands where we use such raw material along with our virgin raw material and supply the final fibre, which has almost 30% recycled content. And thes
Q
So, one question on the pulp prices. So, last quarter our average pulp prices were close to $900 a ton. So, if you can share it for this quarter? And what are the current rates for the pulp coming to us in Q2 and…?
Harikrishna Agarwal
So, pulp prices are generally dissolving grade pulp prices are normally expressed in terms of CCF report. CCF reports pulp prices every week. So, currently, the hard wood dissolving grade pulp prices are at $840. Soft wood dissolving grade pulp is $850. So, there has been some reduction compared to previous months, and this is the current price. And what was the average for Q1 FY’24, sir? See, I do not, no, see we have our formula for procurement of pulse where we use the previous month's pulp price for shipments, and this thing, and there is a long shipment time. So, it's a continuous thing.
Q
Sir, I wanted to just ask about your market share in the wake of if there is no anti-dumping duty, then if the competitors are increasing the capacities, how do we remain confident of maintaining our market share?
Pavan Jain
Which business you are talking about, Ronald? About viscose business. So, currently, we have a market share of close to 95% because the imports are not taking place so because BIS has introduced quality control order. So, the major sources of imports like Indonesia and China are not able to export, but we do plan to, we do expect to maintain our market share at high level even when this phase is gone. So, this will again depend on competitiveness and the relationship with the prices and services and all of that. And in terms of your lyocell investments if you can elaborate on what kind of CAPE
Speaking time
Pavan Jain
19
Jayant Dua
17
Harikrishna Agarwal
15
Nirav Jimudia
14
Prateek Kumar
11
Moderator
10
Navin Sahadeo
9
Sumangal Nevatia
6
Shyam Sundar Sriram
6
Jayant Dhobley
5
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Opening remarks
Ankit Panchmatia
Thank you, Jacob. Welcome everyone for joining us today for Grasim's Q1FY'24 Earnings Call. Trust everyone got a chance to look at the financial statements and presentation uploaded on the exchanges and also available on our website. For safe harbor, kindly refer to the cautionary statement highlighted in the last slide of our presentation. Today, we have with us Mr. Harikrishna Agarwal – Managing Director and Mr. Pavan Jain – Chief Financial Officer. Also joining the call, we have leadership team from key businesses. Mr. Himanshu Kapania – Business Head, Paints; Mr. Jayant Dhobley – Business Head, Chemicals, Fashion, Yarn & Insulators, Mr. Rakshit Hargave - CEO of Paints business and Mr. Jayant Dua - CEO of Chlor-alkali business. I would now welcome Mr. Pavan Jain for his opening comments. Post which we will open for the Q&A. Over to you, sir.
Pavan Jain
Good afternoon everyone. It is a pleasure to share our quarter one performance with you. First, I would like to give some highlights on the macro environment and then cover Financial Performance of our Company for the quarter under discussion. Globally, interest rates hikes continued with U.S. fed rates rising in July '23 by 25 bps to 5.25- 5.50%. Though RBI seems to have paused the rate hike for the time being. Fed had guided that the future interest rate decisions would depend on inflation data and the inflation in U.S. is steady. The economy is growing at a faster than expected pace. Consumer sentiments are also indicating positive signs of recovery for the second half of calendar year '23. China's expected reopening led demand based on export growth and consumption revival has somewhat disappointed global expectations. The subdued domestic demand recovery has led China's focus on exports to keep the economic growing at desirable levels. As the macro global environment continues to
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