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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.
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