Grasim Industries Limited Q2 FY24 Earnings Conference Call Insights

Key highlights from Grasim Industries Limited (GRASIM) Q2 FY24 Earnings Concall

• Financial Performance
  • Consolidated revenue grew 10% YoY to INR 30,221 crore, EBITDA grew 14% YoY to INR 4,509 crore.
  • Growth driven by cement and financial services businesses.
  • Standalone revenue de-grew 4% YoY to INR 6,442 crore, EBITDA de-grew 21% YoY to INR 1,354 crore.
  • Sales volumes grew in viscose and caustic soda but realizations impacted by global price decline.
• Capex and Business Updates
  • Implementing highest ever capex plan, Board approved INR 4,000 crore rights issue to fund capex.
  • Epoxy capacity expansion under commissioning, expected operational in Q3.
  • Received consent to operate for 3 paints plants – Panipat, Ludhiana, Cheyyar.
  • B2B ecommerce platform Birla Pivot crossed INR 100 cr revenue milestone.
  • Launched private label tiles on Birla Pivot.
• VSF Business Performance and Outlook
  • Margins recovered on QoQ basis despite fall in realizations.
  • Margin improvement in Q2 due to higher volumes giving operational leverage and lower input costs.
  • International VSF prices remained under pressure in Q2 and currently.
  • Margins expected to remain volatile given commodity price volatility.
  • Historical 20-year average EBITDA per kg for VSF is INR 25-26.
  • Company remains optimistic on achieving historical profitability levels over long term.
• New Businesses Losses
  • Higher losses in Q2 vs previous quarters from new businesses like B2B and paints.
  • Majority of losses from paints business as large teams hired and costs not capitalized.
  • Losses expected to continue in near term as businesses scale up.
• Capital Allocation Strategy
  • Investing in core viscose and chemicals businesses with recent capacity expansions.
  • Large capex of INR 10,000 crores for paints business over current and next year.
  • No major capex for B2B ecommerce business, exploring private labels with contracted manufacturing.
  • Expects valuation gap to reduce as standalone business share in consolidated financials increases.
• VFY Business Performance
  • Anti-dumping duty on VFY from China only at recommendation stage, not approved yet.
  • Chinese VFY exports rising amid low domestic demand putting price pressure.
  • India textile demand during festive season lower than anticipated.
  • Lower demand in India and China weighing on VFY prices.
• Chemicals Business
  • Power costs were favorable for chemicals business in Q2.
  • Weak demand environment for key chlor-alkali derivatives like textiles and agrochemicals.
  • One-time higher maintenance costs in chlorine derivative plants impacted costs.
  • Specialty chemicals (epoxy) volume grew 25% YoY, profitability grew in line with volume.
  • Ongoing investments in chlorine derivatives like ECH project.
  • No plans for polyvinyl chloride; tie up with Lubrizol for CPVC.
  • Forward integration into pipes not explored yet.
• Caustic Soda Demand Outlook
  • Key caustic end market textiles facing weak demand both in viscose and cotton.
  • Caustic also impacted by weak global demand environment.
  • Spread across different geographies provides some demand cushion vs local players.
  • Demand outlook depends on recovery in key derivatives like textiles, agrochemicals etc.
• Paints Business Update
  • 3 plants at Ludhiana, Panipat, Cheyyar received CTO, to be operational in Q4 .
  • Decorative paints launch also planned in Q4 Jan-Mar 2023.
  • PaintCraft test launch feedback satisfactory but using external products.
• Renewables Business
  • Implementing 1 GW renewable projects, to be commissioned in Q1 FY24.
  • Capex funding through 20-25% equity, rest debt varying by project.
  • Capital employed increasing reflecting project capex.
• VSF Capacity Expansion
  • Currently operating near full utilization levels.
  • Scope to increase production from existing plants through debottlenecking.
  • No significant new investment planned for capacity expansion.
  • Looking at operational improvements to maximize existing capacity.