DCM Shriram Ltd (DCMSHRIRAM) Q4 FY23 Earnings Concall Transcript

DCM Shriram Ltd (NSE:DCMSHRIRAM) Q4 FY23 Earnings Concall dated May. 05, 2023.

Corporate Participants:

Ajay S. Shriram — Chairman & Sr. Managing Director

Ajit S. Shriram — Joint Managing Director

Unidentified Speaker —

Analysts:

Siddharth Rangnekar — CDR India — Analyst

Riya Mehta — Equitas Investment Consultancy — Analyst

Ahmed Madha — Unifi Capital — Analyst

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Saket Kapoor — Kapoor & Company — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the DCM Shriram Q4 FY ’23 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded.

I now hand the conference over to Mr. Siddharth Rangnekar from CDR India. Thank you and over to you, Mr. Rangnekar.

Siddharth Rangnekar — CDR India — Analyst

Thank you. Good evening, and welcome to DCM Shriram Limited’s Quarter 4 and FY ’23 Earnings Conference Call. Today we have with us Mr. Ajay Shriram, Chairman and Senior Managing Director; Mr. Ajit Shriram, Joint Managing Director; Mr. K. K. Paul, Whole-Time Director; and Mr. Amit Agarwal, CFO of the company. We shall commence with remarks from Mr. Ajay Shriram and Mr. Ajit Shriram. Members of the audience will get an opportunity to post their queries to the management following these comments during the interactive question-and-answer session. Before we begin, please note that some of the statements made on today’s call could be forward-looking in nature and a note to that effect has been included in the conference call invite circulated earlier.

I would now like to invite Mr. Ajay Shriram to give us a brief overview. Over to you, sir.

Ajay S. Shriram — Chairman & Sr. Managing Director

Thank you, Siddharth. Good afternoon, ladies and gentlemen. Thank you for taking the time to join us for our Q4 and Financial Year ’23 Earnings Conference Call. I trust each of you and your families are keeping safe and are in good health. I will commence with the strategic imperative of our businesses, followed by Ajit with perspectives on our business performance. India is growing steadily at a reasonable rate of over 6% in contrast to developed nations that are facing headwinds from high inflation, rising interest rates, and slowing economy in the wake of unprecedented disruption over the last three years. So, India is in a comparatively sweet spot. We have consciously planned for managing higher volatility in key business lines and have strategically lined up effective measures in the form of higher scale, efficiencies, and diversification to create better value in our business. We’re continuing to look at growth through already announced investment programs and more are expected to follow.

Our capex projects of INR530 crores has already been commissioned related to sugar businesses and other projects of about INR2,900 crores. largely in chemicals, are likely being commissioned over the next two quarters. Our less capital-intensive businesses, our Fenesta and Shriram Farm Solutions are witnessing good growth. With this round of capex earnings completion, we are actively looking at opportunities in the rated and adjacent businesses for future growth opportunities.

Our efforts on sustainability are gaining traction. We are already — we are taking steps to enhance our shares of green power while working actively on the circular economy. The 50 megawatt hybrid green power project and the increase in biomass in a coal-based powerplant will increase our green footprint as well as help us in reducing our cost of production. The key to [Indecipherable] project — fertilizer project will add value to our distillery ash and is an import substitution. The anhydrous sodium sulfate and carbonization of sludge will reduce waste and improve resource utilization. The energy and steam saving initiatives will further reduce our carbon footprint. Some of these benefits have already started accruing.

With this, I’d like to walk you through our views on various business. First is chemicals. Global capacity utilization, especially in Europe and China, has picked up, while the global demand remains subdued driven by growth slowdown across large economies. This has put pressure on the international demand and hence prices of caustic soda. No major capacities are being added globally in the near term other than in India, which will keep the global demand-supply balance over the medium term. Domestically, the demand trend was softer owing to weaker momentum in end use industries, especially alumina. We have seeing stable demand for chlorine. New capacity additions are exacerbating the situation. Product prices have softened over the last few quarters. Energy prices have pockets starting to decline, but are still quite high. Our capacity utilization stood at 89% in financial year ’23.

The country saw exports of 4.24 lakh metric tons during financial year ’23, up from 2.71 lakh metric tons in the last year. Imports stood lower at 1.39 lakh metric tons in financial year ’23 which was 2.34 lakh metric tons in the previous year. Our Bharuch facility is amongst the highest hydrogen selling complexes in the country with daily volumes of 2 lakh cubic meters and further being expanded to 3 lakh cubic meters per day. Our projects for developing downstream chemistries, including expanding the scale, are on track, and the plants will be commissioned during the next two quarters. Lower gold prices, efficient 120 MW power plant, and access to green power itself has a cushion on the margins in light of softer product prices. Chemical is becoming a large multi-revenue business with emerging growth platforms like epichlorohydrin and hydrogen peroxide [Indecipherable]

Globally, the dual impact of inflation and high interest rates is leading to slowdown of housing and construction in U.S. and Europe. Even in China, [Technical Issues] has not picked up. This has led to lower demand for PVC globally and significant drop in international prices. Domestically, the economic activity is robust and so is the PVC demand. But imports are trending higher. The industry awaits government action in the form of anti-dumping duties and increasing customs duty. Prices for both PVC and carbide are under pressure. Cost of production stood higher due to coal and carbon material prices, but have started correcting slightly and will ease pressure on margins in the coming quarters.

Sugar. International prices have been firm, and lower production expected from major producing missions and with prospects on additional export from India also abating. World sugar balance sheet is expected to be marginally surplus in sugar season ’22, ’23. International prices are expected to remain firm. Indian sugar stocks are expected to end lower at 4.5 million metric tons for sugar season ’22, ’23 with sugar production estimated now at 32.4 million metric tons and consumption at 27.5 million metric tons. This along with higher international prices should support domestic sugar prices in coming months. The state of U.P. increased the state advised price, SAP, by INR25 per quintal to INR330 per quintal ’21, ’22. The domestic sugar prices have till now not offset the increase in sugarcane prices done in the last season. We are on the verge of concluding crushing operation. Our crush and recovery this season is expected to be higher than last season led by better climate, commissioning of our Ajbapur expansion, and conversion of Ajbapur and Hariawan sugar factories to refined sugar. Our domestic releases have been better this season and we have already executed the entire export quota on [Indecipherable]

On the other hand, the government has achieved ethanol blending of 11.6% as of April ’23 and is aggressive in reaching a target of 20% in the financial year ’25. Around 408 crore liters is said to have been blended in petrol in the supply year ended November ’22, and the contracted volume for the coming year is 505 crore liters already. We have produced 14.4 crore liters of ethanol and ENA versus 11.56 crore liters last year. We have commissioned a 120 kiloliters per day distillery on molasses feedstock and a 260 kiloliters of the grain-based distillery is ready. The approval for commissioning is likely in this quarter.

Our other agri businesses is comprises of Shriram Farm Solutions, bioseed, and fertilizer. First, I’ll touch on Shriram Farm Solutions. The business has worked well in consolidating its leadership in wheat seed. As a result in development has started yielding results with four new products introduced this year, including two in wheat seed. All the products have been received well. Growth in this business will continue from the planned expansion in the portfolio, manufacturing of [Indecipherable] protection chemicals which start this year and further cemented by our foray into manufacturing of water-soluble fertilizers and biologicals by Q4 of financial year ’24. Our manufacturing of biological based agri-inputs is our conscious choice to work on new technologies and also promote sustainable and organic farming. This business is also increasing its geographic strength and is making inroads in Southern India.

Bioseed, I would like to talk about that. Bioseed is on track to turn around its business. The losses have come down significantly. Product pipeline is more focused. Product basket or research activity is being rationalized and we expect the business to do better in the coming year. The fertilizer business has seen a correction in urea prices during the quarter led by lower energy prices. The government has energy norms with effect from October 1, 2020 till March 31, 2023 and our energy efficiencies have also been better. The subsidy outstanding as of March 31, 2023 stood at INR310 crores as compared to INR435 crores last year. The Fenesta Building Systems business is witnessing good momentum quarter-on-quarter. The project segment is driving good growth. As the core business expands, we are adding more categories, adding new offerings, and increasing our geographic spread including in the international space. We have added products in new PVC and having engineered windows and double PC and engineered wood doors and we’d be launching glass facades and also continuing to add further to this range.

In view of the rising demand, this year, we commissioned our Bhubaneswar factory and added one more factory in Hyderabad. We are commissioning an expansion as a quota extrusion plant. The fabrication unit for facade is under construction and will be commissioned by Q2 financial year ’24. Our growth strategy is underlined where there’s executed initiatives towards business expansion and product diversification, along with announcing operating efficiencies. We see our businesses of chemicals, sugar, Shriram Farm Solutions, and Fenesta as key drivers for our growth going forward.

I will now request Ajit to give you the perspective of the business performance. Ajit?

Ajit S. Shriram — Joint Managing Director

Thank you. Good afternoon, everyone. We will now go through the business performance for Q4 and FY ’23. The net revenues net of excise duty quarter were flat at at INR2,720 crores versus INR2,796 crores in the previous year, and PBDIT stood at INR372 crores, down by 44%. Chloro-vinyl business revenue was down 13% year-on-year and PBDIT was also down 53% mainly due to lower you EC that declined 17% though volumes were marginally higher. Higher energy costs impacted the margins. Also the electricity duty on auxiliary consumption had an impact of INR11 crores related to prior periods during the quarter. Vinyl business revenue declined by 44% year-on-year at INR168 crores and PBDIT was INR1 crores versus INR122 crores on account of lower product prices and volumes.

PVC prices were down 35% year-on-year and carbide prices were down 26% year-on-year. Overall capacity utilization was lower at 91% versus 96% last year. Higher cost of production — sorry, high cost of product, led by power and carbon materials impacted margins. Also, electricity duty on auxiliary consumption related to previous years had a negative impact of INR10 crores during the quarter. Sugar business revenue, net of excise duty, was up 24%, and PBDIIT increased by 10% year-on-year on account of higher volumes of sugar and distillery coupled with higher realizations. Margins were lower since the last year increase in SAP is not compensated by increase in product prices. In terms of crush, we are likely to close this season at about 650 lakh quintals versus 549 lakh quintals last season, attributed to better crop and commissioning of sugar projects. Sugar recovery till date on final molasses is better by about 20 basis points over last year. Fenesta Building Systems revenue reported a growth of 13% year-on-year and PBDIT was stable. There was volume increase in the project category. Margins were better in projects as well as retail categories. Both the categories witnessed improvement in order book that was up 10% year-on-year.

Shriram Farm Solutions revenue and PBDIT witnessed a decline due to seasonality factors. For the year as a whole, the business witnessed growth. Fertilizer revenue declined by 4% year-on-year driven by lower gas prices, which is a pass-through. Volumes were higher by 4% year-on-year. PBIT witnessed a growth of 44%, owing to higher energy efficiency, energy saving rate, and volumes. Fertilizer subsidy this year was lower as stated earlier. Bioseed revenue is better, however, Q4 is an off-season. PBDIIT improvement was led by higher volumes and inventory provisioning in last year.

Coming to the highlights of FY ’23. FY ’23 net revenues net of excise duty was up 20% year-on-year at INR11,547 crores and PBDIIT, down 9% year-on-year, at INR1,786 crores. Chemicals revenue and PBDIT were up 27% and 15% respectively due to better ECUs led by prices of lye in the first nine months of the year, and improvement in chlorine prices and improved volumes of caustic. Margins were moderated by higher input costs. Vinyl revenues and PBDIT were lower by 31% and 84% respectively, led by significantly lower prices. Volumes were also lower. Margins were further affected by higher input cost of coal and carbon materials. Product prices seemed to have bottomed out and coal prices are declining. This should help margins going forward. Sugar business revenues were up 21%, mainly on account of higher domestic and export volumes of sugar together with better prices across products.

Distillery volumes were stable at 11.87 crore liters versus 11.95 crore liters. Production from distillery was higher as stated earlier. PBDIT was lower by 20% since the sugar prices increase that did not fully compensate for the increased SAP in the earlier season and non-availability of purchased molasses from the market. Better export realizations added to the profitability. Fenesta also reported a good performance. Revenues and PBDIT increased by 32% and 17% respectively. This was on account of a strong order book, which increased by 23% and growth in volumes in projects and margins across categories. Fertilizer revenues increased 50% year-on-year on account of higher gas prices, which is a pass-through, and better volumes. PBDIT was up 62% with energy efficiencies, better energy norms, and a higher savings rate as a result of prices of natural gas.

Shriram Farm Solutions revenue and PBDIT were up 7% and 37%, respectively, aided by an improved product mix and better prices. SFS witnessed healthy margins across categories and remains the leader in wheat seeds. Bioseed revenues were up 19%, and PBDIT was at negative INR2 crores versus negative INR70 crores on account of better volumes. PBDIT was also better due to higher inventory provisions made in the last year. Our income tax payout was at INR246 crores as compared to a tax charge of INR502 crores as a result of MAT credit available. With healthy cash flows across our businesses, our debt levels remained at comfortable levels despite the continuing capex. Our net debt as of March 31, 2023 was INR681 crores as compared to INR4 crores on March 31, 2022. Return on capital employed for March ’23 came in at a comfortable level of 27%. The board has recommended a final dividend of 180% amounting to INR56.14 crores in this board meeting. The total dividend for the year is at INR700 crores amounting to INR218.32 crores. Despite the macroeconomic concerns and higher input costs, our company has had a good year.

That concludes my opening remarks, and I would like to request the moderator to please open the forum for the Q&A session. Thank you.

Questions and Answers:

Operator

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We’ll take our first question from the line of Riya from Equitas Investment Consultancy. Please, go ahead.

Riya Mehta — Equitas Investment Consultancy — Analyst

Hello. Thank you for giving me the opportunity. My first one is on Fenesta. So, basically, the order book has grown by 10%, however, in the past few quarters, it was going on a higher run rate. So, what exactly — how is the demand scenario panning out there and what is the projection of Fenesta?

Ajay S. Shriram — Chairman & Sr. Managing Director

Can you just repeat the last part of your question, please?

Riya Mehta — Equitas Investment Consultancy — Analyst

Yeah. I…

Ajay S. Shriram — Chairman & Sr. Managing Director

Can you just repeat the last part of your question on Fenesta?

Riya Mehta — Equitas Investment Consultancy — Analyst

So, I want to know the demand scenario as well as the margin impact for the quarter. Why is the margins lowered with the lower raw material [Speech Overlap]

Ajay S. Shriram — Chairman & Sr. Managing Director

Yeah. So, the demand is pretty stable, right? Although in this segment, we are seeing competition coming up from larger players as well. But Fenesta continues to remain the pioneer and has a big brand value. That is point number one. Second, coming to the margin, the margin has come off, I think by about 1%, from about 21% in same period last year to about 20%. That would be very marginal. But fundamentally, as I had also mentioned in my last call, that business like Fenesta should ideally have a margin in the range of around 15% to 20%. So, let’s say ballpark 17%. That’s the right kind of margin for this business.

Riya Mehta — Equitas Investment Consultancy — Analyst

Okay. Is it because of higher competition, because — since the raw material prices are getting lower, so we should see an improvement in margin on a Q-o-Q basis?

Ajay S. Shriram — Chairman & Sr. Managing Director

As we said, if there is a reduction in raw material prices, some part of it will be passed on to consumers as well.

Riya Mehta — Equitas Investment Consultancy — Analyst

Okay.

Ajay S. Shriram — Chairman & Sr. Managing Director

So, I don’t see margins improving from here.

Riya Mehta — Equitas Investment Consultancy — Analyst

Okay. So, Q4 numbers are sustainable?

Ajay S. Shriram — Chairman & Sr. Managing Director

Yeah.

Riya Mehta — Equitas Investment Consultancy — Analyst

Okay.

Ajay S. Shriram — Chairman & Sr. Managing Director

And as I said, the range should be around 17%, plus-minus 2%. That’s the right number, because if you see in FY ’22, the margin of this business was 16%. So, that was closer to the right kind of number.

Riya Mehta — Equitas Investment Consultancy — Analyst

Got it. And with increasing competition, do you think we will have a price war kind of a scenario where we have to reduce prices more?

Ajay S. Shriram — Chairman & Sr. Managing Director

It’s difficult to say at this stage. It depends. We have just started, so we’ll see how it pans out.

Ajit S. Shriram — Joint Managing Director

I’ll just add that I think Fenesta’s position in the market is fairly sound within the market. And the good thing is the market is growing. So, I think there is space for everyone. But it depends a lot of cost on the product quality plus the service. How do you take care of right from the time you book an order till the time you install and commission and hand over the door or window to the customer. So, I think we have a good edge there. So, that’s a positive sign for us.

Riya Mehta — Equitas Investment Consultancy — Analyst

Right. I think it makes sense. My second question is in regard with sugar sector. So, basically, what was the cost of production for us last sugar season and what is the cost of production for us this sugar season?

Ajay S. Shriram — Chairman & Sr. Managing Director

Yeah. So, the cost of production in last season was around INR3,300 per quintal. And this year, March end, we’re about INR3,210, INR3,220 per quintal.

Riya Mehta — Equitas Investment Consultancy — Analyst

It has reduced?

Ajay S. Shriram — Chairman & Sr. Managing Director

Yeah, because as we mentioned that our production is higher, and secondly, our recovery is better by about 20 basis points.

Riya Mehta — Equitas Investment Consultancy — Analyst

Okay. However, I was reading that in U.P., the wage norm has increased and there are lots of ancillary costs which has piled up. So, what kind of impact is there on the cost of production? Is the cost of [Speech Overlap]

Ajay S. Shriram — Chairman & Sr. Managing Director

So, it could have been further lower as those by maybe by about, I don’t have the number exactly by how much, but marginally lower, definitely. But that’s our cost.

Riya Mehta — Equitas Investment Consultancy — Analyst

Okay. That’s good. And in terms of production, what kind of acreage increase have we seen for the current year? Acreage or production in terms…

Ajay S. Shriram — Chairman & Sr. Managing Director

I don’t have the acreage number, but the crush is 650 lakh quintals…

Riya Mehta — Equitas Investment Consultancy — Analyst

Okay.

Ajay S. Shriram — Chairman & Sr. Managing Director

…of sugarcane that we have — so, we expect — we are nearing that number by the time our mills close…

Riya Mehta — Equitas Investment Consultancy — Analyst

Okay. And when are we expecting that to [Speech Overlap]

Ajay S. Shriram — Chairman & Sr. Managing Director

…versus 549 lakh quintals which we did last year.

Riya Mehta — Equitas Investment Consultancy — Analyst

Right. And mills will close by May end, May…

Ajay S. Shriram — Chairman & Sr. Managing Director

So, out of the four mills, three mills were closed. One mill, which is operational, will close in next three-four days.

Riya Mehta — Equitas Investment Consultancy — Analyst

Okay. And in terms of the current rainfall which — untimely rainfall, or does it have an impact on the crop?

Ajit S. Shriram — Joint Managing Director

I think it’s a very positive thing as far as the crop is concerned. In terms of — we’ve had a very dry winter spell. So, any rainfall is always welcome, because this aids the farmer in terms of irrigation free of cost literally.

Riya Mehta — Equitas Investment Consultancy — Analyst

Okay. Got it. My second question is in terms of ethanol. What is the kind of off-take are we seeing from the government? And what are the current volumes and the next-year volumes we are wanting to do with the enhanced capacity from Q1 FY ’24?

Ajay S. Shriram — Chairman & Sr. Managing Director

Yeah. So, one — In terms of off-take, you’re talking of the industry level off-take?

Riya Mehta — Equitas Investment Consultancy — Analyst

Yeah. Industry as well as for DCM?

Ajay S. Shriram — Chairman & Sr. Managing Director

Yeah. So, industry level off-take, as the CMD mentioned, the total contracted quantity this season already is about 505 crore liters. And for us, in the coming season, we have the capability to produce 18 crore liters. Last year, we did about 14 crore liter. Next year, we should be progressing towards 18 crore liters.

Riya Mehta — Equitas Investment Consultancy — Analyst

Okay. And industry-wide off-take last year would be around?

Ajay S. Shriram — Chairman & Sr. Managing Director

I don’t have it in here. Yeah, 404 — I think that’s what CMD has said, about 404 crore liters.

Riya Mehta — Equitas Investment Consultancy — Analyst

Okay. Now the diversion on an industry perspective, 4 million ton is the amount we’re seeing in this year. This was last year around 3 tons, 3.5 tons, right? 3.4 tons or something?

Ajay S. Shriram — Chairman & Sr. Managing Director

3.5 tons.

Riya Mehta — Equitas Investment Consultancy — Analyst

Okay. And for the ethanol, what would be a transfer price, molasses and — are we doing juice-based or how has it?

Ajay S. Shriram — Chairman & Sr. Managing Director

We are producing primarily on B-heavy. We have done a small experiment on juice base as well. But primarily it is B-heavy ethanol. Transfer price, I think, I think, one should look at overall issuance — if you look at business, every business, every company might have their own transfer pricing mechanism as per the accounting standards. I think we look at it as a [Indecipherable] whole because of the dynamic, whether we produce B-heavy or we produce C-heavy or different types of mix.

Riya Mehta — Equitas Investment Consultancy — Analyst

Right. And in terms of the ECH demand that we are hearing about the epoxy, I think that the demand is decreasing, and there’s a little sluggish outlook on the entire space. So, what is your opinion around it?

Ajay S. Shriram — Chairman & Sr. Managing Director

Yeah. I think these businesses, we are getting into which will come in the next couple of quarters. It will take a little while to stabilize the plant. But our way of looking at business and industry is we’re not in it for the short term. We are in it for the long haul. And our objective is to come up with a class product and supply to customers who are satisfied with our product. So, market ups and downs are part of the ballgame. We’ve seen that in every industry across the board. So, we are quite bullish on the long-term positive and medium-term positive impact ECH and H2O2 as our growth plans go forward because of the plants we are putting up, with the quality we’ve got, and the team of people we have who will make sure that the plant runs efficiently. And we have a good relationship with our customers.

Riya Mehta — Equitas Investment Consultancy — Analyst

By when do we expect the plant to be commissioned or stabilized?

Ajay S. Shriram — Chairman & Sr. Managing Director

Before the end of Q2.

Riya Mehta — Equitas Investment Consultancy — Analyst

By the end of Q2? Okay. I think that’s it from my side. I’ll join the queue for further questions.

Ajay S. Shriram — Chairman & Sr. Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] We’ll take our next question from the line of Ahmed Madha from Unifi Capital. Please, go ahead.

Ahmed Madha — Unifi Capital — Analyst

Thank you so much. My first question is on the cement business. So, this year, we reached close to INR50 crores loss. I know that we set up this facility about 30, 35 years back. So, I just wanted to understand the rationale how this business has the relation with our chloro-vinyl business. Does any byproduct are used as raw material for this? Can you give some clarity how was the business initiated?

Ajay S. Shriram — Chairman & Sr. Managing Director

So, see, cement business is essentially a waste utilization or — yeah, the waste that…

Ajit S. Shriram — Joint Managing Director

Pollution control.

Ajay S. Shriram — Chairman & Sr. Managing Director

…yeah, pollution control mechanism in a way, because the sludge that gets generated on — when we manufacture PVC through carbide route, that sludge goes into cement for conversion. So, I think one has to — we at least look at it like that. Yes, there have been times when cement has given us reasonably good profits. And now, because we are on a wet process, our cost of production is higher vis-a-vis our peers. And therefore, the realizations are not commensurate with cost. I think the way one has to look at, at least for us, the way we look at it, it’s a pollution control, a waste management mechanism.

Ahmed Madha — Unifi Capital — Analyst

Okay. Got it. And do you expect that with the coal prices coming down and even the cost of production for vinyl business coming down, the losses will reduce going forward?

Ajay S. Shriram — Chairman & Sr. Managing Director

One, the chemicals are in the vinyl business are not into losses. Whether they will — the margins will improve or reduce will also depend on how the prices move. But yes, the costs are expected to come down definitely going forward.

Ahmed Madha — Unifi Capital — Analyst

Got it. I have few questions on the sugar business. So, number one, how much exports we are supposed to do in April or even in Q1 quarter? What — I mean, I think we have done about 8.5 lakh quintals till Q4. So, how much is left for Q1 April month?

Ajay S. Shriram — Chairman & Sr. Managing Director

It will be some — obviously, one, we’ve completed exiting by April. That is point number one. And I think we — I don’t have the exact number, 1 lakh quintal to 2 lakh quintal — yeah, 1.2 lakh quintals, 1.3 lakh quintals is what we exported in April. That ends our export quota.

Ahmed Madha — Unifi Capital — Analyst

And this was at what prices?

Ajay S. Shriram — Chairman & Sr. Managing Director

Around INR40 a kg.

Ahmed Madha — Unifi Capital — Analyst

Okay. Got it. And other question is on the ethanol side. So, we did production of more than 14 crore liters and our sales was 11.8 crore liters. So, what explains this difference? And for the next year, how should we look at the ethanol total production with the green-based facility also coming up?

Ajay S. Shriram — Chairman & Sr. Managing Director

So, once you did the timing differences based on tenders and things like that, so that gets covered up over, I mean, this quantity will get sourced. It is all committed contracted kind of thing. We have timing differences, as I said earlier. That is one. Second, with green distillery coming in, so our capacity to manufacture goes up to 18 crore liters. So, we’ll try to maximize that.

Ahmed Madha — Unifi Capital — Analyst

Okay. Got it. And how much sugar production we have done so far in Q1, roughly?

Ajay S. Shriram — Chairman & Sr. Managing Director

In Q1?

Ahmed Madha — Unifi Capital — Analyst

Yeah.

Ajay S. Shriram — Chairman & Sr. Managing Director

You can — okay. I don’t have the Q1 numbers. When you say Q1, you’re saying for this month, the month of April, right?

Ahmed Madha — Unifi Capital — Analyst

Yeah, correct. Yeah, for this month.

Ajay S. Shriram — Chairman & Sr. Managing Director

I don’t have the month’s number right now.

Ahmed Madha — Unifi Capital — Analyst

Okay. Fine. No issues.

Ajay S. Shriram — Chairman & Sr. Managing Director

I’ll share with you, Ahmed, after the call.

Ahmed Madha — Unifi Capital — Analyst

Yeah. No issues. Fine. And the last question on the caustic business. So, with the caustic prices coming down further in March and then in the April month, it is expected that obviously the realization ECU will go down. So, I have two questions on this. Number one, how is the chlorine pricing as of now in the market? And number two, with the coal prices also going, how should we look at the profitability for the caustic business? Do you expect that there will be from Q4 way there will be further significant decline, or do you see that the decline in the caustic prices will be offset by the decline in the coal prices and then our power plants coming up?

Ajay S. Shriram — Chairman & Sr. Managing Director

See, the situation is very dynamic right now, Ahmed. We do expect prices to improve from H2, right? At least that’s what the — our marketing team estimates, right? At least, in H1, we expect them to be distressed. Costs are coming down but we’ve seen coal prices, they were low in March. In April, actually they picked up marginally. So, it’s really a dynamic situation. So, it will be difficult to really comment. We also will have to just watch the trend for one or two months and then we will be able to give better guidance.

Ahmed Madha — Unifi Capital — Analyst

And any comments on the chlorine pricing?

Ajay S. Shriram — Chairman & Sr. Managing Director

Yeah. Chlorine is still negative, but it’s not that bad, like in Q3 last year, it was almost INR10,000 negative. Now it’s about INR3,000, INR4,000 negative.

Ahmed Madha — Unifi Capital — Analyst

Okay. And how much exports we did for caustic in Q4?

Ajay S. Shriram — Chairman & Sr. Managing Director

How much exports for us?

Ahmed Madha — Unifi Capital — Analyst

Yeah, for caustic, yeah, for this year.

Ajay S. Shriram — Chairman & Sr. Managing Director

I wouldn’t have that export number for this quarter. I won’t have the number right now.

Ahmed Madha — Unifi Capital — Analyst

Yeah. Fine. We can connect later. Thank you so much, sir. That’s it from my side.

Ajay S. Shriram — Chairman & Sr. Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] We’ll take our next question from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please [Technical Issues]

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Good evening. My questions are around the capex. I’m sorry, I joined a little late, if I missed the number. What is the balance capex in terms of amount that has been paid off which is there in the current year? And where will your peak debt levels be? That’s my only question, sir.

Ajay S. Shriram — Chairman & Sr. Managing Director

Yeah. See, the the COVID capex program that we had was worth INR3,500 crores.

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Right.

Ajay S. Shriram — Chairman & Sr. Managing Director

Now out of this, we we have already commissioned close to about INR600 crores. INR530 crores in sugar and about INR60 crores, INR70 crores in chemicals. So, we’re left with INR2,900 crores. Now what we’ve spent till date is close to about INR2,000 crores, INR2,500 crores, or approximately INR2,000 crores and — on projects. So, we have another INR1,500 crores to go in the next financial year, which is FY ’24. And our peak debt, as I see, net debt [Technical Issues] March will be in the range of around INR1,500 crores to INR1,800 crores, INR1,900 crores. That’s the range.

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Okay, sir. Thank you very much and wish you all the best.

Ajay S. Shriram — Chairman & Sr. Managing Director

Thank you.

Operator

Thank you. We’ll take our next question from the line of Saket Kapoor from Kapoor & Company. Please, go ahead.

Saket Kapoor — Kapoor & Company — Analyst

Yeah. Namaskar, sir. Just to clarify the last number once again. Sir, when we look at your capital working progress, it stands at INR1,600 crores. So — and I think the INR530 crores sugar capex will be accounted for — has been capitalized in the the first quarter. If you did this in relation to the number of capital work in progress, how is this number going to shape up?

Ajay S. Shriram — Chairman & Sr. Managing Director

Yeah. So, I think you read it correctly, Saket. As I mentioned, we have spent close to about INR2,000 crores, right? And INR600 crores is what got capitalized. So, balance is close to about INR1,500 crores, which is standing in sugar.

Saket Kapoor — Kapoor & Company — Analyst

So, sugar, we had capitalized in March itself?

Ajay S. Shriram — Chairman & Sr. Managing Director

In Q3 and in Q4.

Saket Kapoor — Kapoor & Company — Analyst

So, that INR530 crores has been capitalized. So, sir, this INR530 capex, how is it going to contribute growth going ahead? What would be the turnover ratio?

Ajay S. Shriram — Chairman & Sr. Managing Director

See, this INR530 crores of capex should give us a ballpark return of close to about 20%. I think we should live with that.

Saket Kapoor — Kapoor & Company — Analyst

So, the turnover will be what? INR530 crores, what will be the asset turnover ratio, sir?

Ajay S. Shriram — Chairman & Sr. Managing Director

Turnover, see, there are some measures where our refinery capacity has gone up. There some measures where our feedstock has improved — I mean, the feedstock is a bigger feedstock on grain, right? So, we have some dynamics which will support cost and we have are some dynamics which will support sales.

Saket Kapoor — Kapoor & Company — Analyst

Correct, sir. Sir, in the presentation also mentioned about 120 megawatt power plant is also mentioned. So, what would be our annual savings and the commissioning of the same?

Ajay S. Shriram — Chairman & Sr. Managing Director

So, this 120 megawatt power plant, the total project cost is close to about INR500 crores, INR550 crores. And we expect this to give a savings in the range of around INR100 crores to INR125 crores on an annualized basis.

Saket Kapoor — Kapoor & Company — Analyst

So, will we be getting the benefit for the entire full year that this power plant has been commissioned or what is the update?

Ajay S. Shriram — Chairman & Sr. Managing Director

So, as CMD mentioned, the power plant is expected to be commissioned by Q1 end. Okay. For nine months, we will be getting the benefit of the segment [Indecipherable] I think it takes time to ramp up any [Speech Overlap]

Saket Kapoor — Kapoor & Company — Analyst

Correct. So, on a full-year basis, it will be INR100 crore savings that we’ll be expecting from next year onwards in totality?

Ajay S. Shriram — Chairman & Sr. Managing Director

Yes.

Saket Kapoor — Kapoor & Company — Analyst

Sir, in the opening remarks, MD sir, you mentioned about some hydrogen production part. I missed your comment on the same. What were you trying to convey for the Bharuch unit, if you could elaborate more, sir?

Ajit S. Shriram — Joint Managing Director

No, just to clarify, when we make caustic soda chlorine, another product which is made automatically in the process is hydrogen.

Saket Kapoor — Kapoor & Company — Analyst

Correct.

Ajit S. Shriram — Joint Managing Director

So, today, we make about 2 lakh cubic meters of hydrogen per day. Now once we commission our expanded capacity at our Gujarat factory, we will come to almost 3 lakh cubic meters of hydrogen per day. And we are selling this. So, that is also a good source of revenue for us.

Saket Kapoor — Kapoor & Company — Analyst

Is that — turnover wise, can you give a number for the same, what has been the contribution from the sale of hydrogen?

Ajay S. Shriram — Chairman & Sr. Managing Director

So, last year, we had a turnover of about INR155 crores on account of hydrogen, and our sales was close to about 2 lakh NMQ per day. And EBITDA on account of that is about INR129 crores, INR130 crores.

Saket Kapoor — Kapoor & Company — Analyst

Okay. On a scale of INR150 crores?

Ajay S. Shriram — Chairman & Sr. Managing Director

Yeah.

Saket Kapoor — Kapoor & Company — Analyst

Right, sir. Sir, one more point about the ESOP part. If you could explain towards that why did we choose route of creating that trust and then buying the shares from the market and then — rather than going for direct ESOP, what is — what has been the differentiation, sir?

Ajit S. Shriram — Joint Managing Director

So, Saket, this is an old policy, existing policy that we have, which we had framed in 2013. The policy is continuing. We already have shares under this policy, which is reflected in our balance sheet as well. We’re adding shares for the benefit of the employees.

Saket Kapoor — Kapoor & Company — Analyst

Right, sir. But the other route of direct ESOP credit coming — why — because — yeah.

Ajit S. Shriram — Joint Managing Director

Saket, I think — I don’t think I can do the discussion here because these are long discussions to explain what is the difference between a ESOP and ESPP, what are the benefits.

Saket Kapoor — Kapoor & Company — Analyst

Right, sir. I’ll conclude with my last question, sir. So, taking into account the commentary and the type of capex that we have envisaged, going ahead for this year, this will be starting to reap the benefit of the entire capex for the chemicals segment or it will take another one year for the entire thing to capitalize? I mean, I just missed your — I want to understand the figure for FY ’24. How is the — what are the key figures going ahead?

Ajay S. Shriram — Chairman & Sr. Managing Director

As I I’ve mentioned earlier, Saket, we expect all our chemical expansions to be completed by the end of Q2 financial year ’24. Now you will appreciate whenever the expansion is done, so like a new product line comes in, we can’t say — one can’t expect that within one week to come to 100% capacity utilization. It doesn’t work that way. So, it will take a little while to get stabilized, to get the market going, which we’re already working on the market in any case. So, it will take some time. We will not get the full benefit of this financial year ’23, ’24, but we will definitely get the full benefit of that in the year ’24, ’25.

Saket Kapoor — Kapoor & Company — Analyst

Correct, sir. And on the caustic market, sir, it just takes — I think, you mentioned that, globally, there has been no — any big capex, so this is definitely is only the Indian market where 1 million ton capacity was added. So, taking into account the expanded capacity, what has been the average utilization for the country as a whole, sir?

Ajay S. Shriram — Chairman & Sr. Managing Director

I think the utilization in the country as a whole is running at about 72%, 73%, which is very good. Ours was a little higher, which is beneficial because we have a lot of our chlorine supplies issued directly by pipeline to many customers around our Gujarat factory. In our caustic soda factory at Kota, we use almost over 50% of our chlorine ourselves for making PVC and stable bleaching powder, etc. So, our utilization was higher. But with the capacity coming in, you’re right. It will take a couple of quarters to stabilize, and we hope the international economy also picks up of stabilizers so the demand from there also picks up a little bit, because ultimately, end of the day, today, whether it’s caustic, you can just import it. There is no issue. So, our objective is how do we actually have going down the line a little balance in the capacity in India and international prices going up.

Saket Kapoor — Kapoor & Company — Analyst

Correct, sir. I think just for the textile sector, sir, there was a big dampen in the demand from them. So, how is the textile sector looking for the month because, one, by has that textile sector opened up post the the corrections in the yarn and the cotton prices, the inventory written down, and also I think so getting adjusted for the year? What is the outlook from the textile sector, sir? Any fillers you can share?

Ajay S. Shriram — Chairman & Sr. Managing Director

The textile sector, discussions we’ve had and our people have had, the textile sector, as you rightly said, has gone down a little bit. I mean, the textile sector is important because it’s used in the textiles also as well as the dyes, etc. which are used in the textile sector. So, that’s used in both. So, we hope down the line with the Indian economy moving at 6% plus, the textile sector also picks up over the next few quarters, which should give us a little positivity.

Saket Kapoor — Kapoor & Company — Analyst

Okay. And lastly sir, on the power and fuel front, sir, if you could explain once again, sir, what led to this increase in power and fuel cost Q-on-Q [Indecipherable] Year-on year, there is a significant jump of INR100 crores. Even on Q-on-Q, there’s a INR40 crore, INR45 crore change on even lower turnover. So, if you could explain the mix that led to the explanation in the power and fuel cost?

Ajay S. Shriram — Chairman & Sr. Managing Director

Yeah. So, the power cost has been going up, right? It is only in this year by February, March when the spot prices of coal started coming down. But the company carries for its operational safety, so that inventory, by March, we’ve more or less liquidated the high-cost inventory which we had bought in the month of November, December, January. And now we are seeing our fuel prices or gold prices coming down, the consumption rates coming down.

Saket Kapoor — Kapoor & Company — Analyst

So, can you share the mix, sir, what is the coal part and how much is the direct purchase from grid?

Ajay S. Shriram — Chairman & Sr. Managing Director

So, about 38% we purchase from the grid for our chemicals complex in Bharuch and as well as Kota.

Saket Kapoor — Kapoor & Company — Analyst

The balance 62% is coal-based, coal and gas, both, because, I think for fertilizer, it will be gas…

Ajay S. Shriram — Chairman & Sr. Managing Director

Coal primarily, but then we are also using biomass now in a big way. So, we are using almost 20% biomass in Kota and nearing over 10% biomass in Bharuch.

Saket Kapoor — Kapoor & Company — Analyst

Okay. So, grid pricing, can you share, sir, how have the grid pricing shaped up for Q-on-Q or a year-on-year basis?

Ajay S. Shriram — Chairman & Sr. Managing Director

Grid pricing, that also keeps changing with the coal prices. So, there is a fuel surcharge. But that ranges between INR7 to INR8.

Saket Kapoor — Kapoor & Company — Analyst

Because, sir, I was just trying to make sense of this 9% to 10% increase Q-on-Q basis. Is it only because of the inventory price, sir…

Ajay S. Shriram — Chairman & Sr. Managing Director

We will discuss that offline, Saket. We will discuss that offline.

Saket Kapoor — Kapoor & Company — Analyst

Okay, sir. I’ll take it offline basis. Thank you for the [Technical Issues]

Operator

We’ll take our next question from the line of Riya from Equitas Investment Consultancy. Please, go ahead.

Riya Mehta — Equitas Investment Consultancy — Analyst

Fine.

Ajay S. Shriram — Chairman & Sr. Managing Director

Yeah.

Riya Mehta — Equitas Investment Consultancy — Analyst

This is just in regard with the cost of production for sugar. You had said that sugar season, it was INR33 rupees, and this time it’s INR32. tthis includes the INR25 rupees incremental per quintal SAP increase?

Ajay S. Shriram — Chairman & Sr. Managing Director

Yeah. So, even last year, this INR25 was there. So, this increase in SAP happened in the last season. So, what will be — what JMD sir mentioned was if you’re saying that the increase in SAP in the last season, which is ’21, ’22, the sugar that is produced that season is sold in the next season.

Riya Mehta — Equitas Investment Consultancy — Analyst

Right.

Ajay S. Shriram — Chairman & Sr. Managing Director

Right? So, that is where the cost increase had happened, but we didn’t get the benefit in terms of the price, equivalent benefit in the price increase, and therefore, the margins were lower. This year, as we know, it should be increased, but because of production and recovery, the cost is lower.

Riya Mehta — Equitas Investment Consultancy — Analyst

So, can I know the cost of production for sugar season ’21 or the year before the SAP increased?

Ajay S. Shriram — Chairman & Sr. Managing Director

That was close to about INR2,950.

Riya Mehta — Equitas Investment Consultancy — Analyst

Okay.

Ajay S. Shriram — Chairman & Sr. Managing Director

And I maybe be off by INR10, INR15, but ballpark.

Riya Mehta — Equitas Investment Consultancy — Analyst

Okay. That’s it from my side. Thank you for the clarification.

Operator

Thank you. We’ll take our next question from the line of Ahmed Madha from Unifi Capital. Please, go ahead.

Ahmed Madha — Unifi Capital — Analyst

Thank you. I had two questions. First on the epichlorohydrin realization. So, we see that the prices of epoxy and ECS have come down significantly. So, in FY ’24, as we progress for capex, will we, based on the spreads which are on the sports basis, will we do break even for ECS? I know that we have the plans for long term and the business will be very supportive for long term, but how should we look at the near term? Should we breakeven or no?

Ajay S. Shriram — Chairman & Sr. Managing Director

See, Ahmed, I think what we’re looking at is — and if I’m not wrong, you’re looking at the prices, which you’re right, over last one year have come down from about INR200 rupees per kg to now about INR120 rupees kg. But then even the glycerin price has halved, like the crude glycerin, is from INR65 rupees a kg has come down to INR32 rupees a kg, right? So, ballpark might spread. So, if I look at my margins, my EBITDA margin is still in the range of 20%, 24%. Yes, absolute number is lower and therefore quantum will come down, I don’t deny that. But it is not under too much of pressure. I would say it is fine.

Ahmed Madha — Unifi Capital — Analyst

Got it. Yeah. Thank you so much for that. And second question on the bioseed. I know that I think this year, we have done efforts to turn around the bioseed business. So, can you give some outlook how should we look at FY ’24, ’25, and how does the product pipeline and product launches look for the bioseed business?

Unidentified Speaker —

FY ’24, we are looking at the same kind of growth that we have seen in [Indecipherable] because of the products which have been accepted in the market and because of some new good products which have — which we have in the pipeline. And we are having products of almost all the crops that we did in the cotton corn or paddy, or even vegetables. So, I think FY ’24 should be better than FY ’23 and we should be coming over that in terms of turning around.

Ahmed Madha — Unifi Capital — Analyst

Got it. And over the, sir, long term, beyond FY ’24, FY ’25, how should we look at the business and the viable margins in the business?

Unidentified Speaker —

So, as of now, the long term looks good, but it has to be seen year-on-year. So, because the market also — somebody else comes with a better product. But we also have very, very good products. So, we do see in the next three, four years, we should be growing and doing better.

Ahmed Madha — Unifi Capital — Analyst

Okay, sir. Thank you. Thank you so much.

Ajay S. Shriram — Chairman & Sr. Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] As there are no further questions from the participants, I would now like to hand the conference back over to the management for closing comments. Over to you, sir.

Ajay S. Shriram — Chairman & Sr. Managing Director

Thank you. Ladies and gentlemen, thank you very much for your participation in our Q4 and Financial Year ’23 Earnings Conference Call. We are committed to deliver better earnings and growth. We are making efforts in that direction by growing our economies of scale, new product lines, increasing efficiency, fostering innovation, and promoting a circular economy and focus on sustainability. We also prioritize maintaining a strong financial position and continuing to look for new avenues of growth.

Thank you, once again, for joining our call, and wish you all good health, always. Thank you.

Operator

[Operator Closing Remarks]