Grasim Industries Ltd (GRASIM) Q3 FY22 Earnings Concall Transcript

Grasim Industries Limited (NSE: GRASIM) Q3 FY22 Earnings Concall dated Feb. 14, 2022

Corporate Participants:

Ashish Adukia — Chief Financial Officer

H K Agarwal — Managing Director

Analysts:

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst 

Chintan Chheda — Quest Investment Advisors Pvt Ltd. — Analyst

Prateek Kumar — ntique Stock Broking Limited — Analyst

Sumangal Nevatia — Kotak Securities — Analyst

Bharat Sheth — Quest Investment Advisor Pvt. Ltd — Analyst

Abhimanyu Kasliwal — Choice Institutional Equity Research — Analyst 

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Q3 FY ’22 Earnings Conference Call of Grasim Industries Limited. We have from the management, Mr. H K Agarwal, Managing Director; Mr. Jayant Dhobley, CEO, Global Chemicals and Group Business Head VFY and Insulators, Mr. Jayant Dua, Chief Executive Officer, Chemical Division; 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, CFO. Thank you, and over to you, sir.

Ashish Adukia — Chief Financial Officer

Thank you and good afternoon to all the participants. So FY ’22 till now has been a defining year for the company as the company accomplished 75 successful years of its incorporation. We are privileged to continue with legacy of our founding fathers of the company and thankful to our fellow colleagues, shareholders, customers and all the other stakeholders who’ve been part of this wonderful journey. So one of the pillars of our 75 years of existence has been resilience and that has come about from our commitment to the growth.

We have continuously invested in our capacity expansion, technology advancement and process improvement in our core businesses. Today when India, Inc. is making new capital commitments India is — sorry, Grasim is well ahead of the curve as we had planned our capacity additions in core businesses ahead of time and now nearing completion. So one of the important themes in this quarter is project commissioning. Starting with VSF Vilayat plant of 600 TPD VSF capacity at Vilayat, 300 TPD was commissioned in November 21 and the balance 300 TPD has been commissioned just this week.

So the total VSF capacity has increased by 37% to 810 KTPA from 591 KTPA. With the growing domestic demand in VSF we are confident of fast ramp-up of this capacity to make additional capacity available to our customers. In the Chlor Alkali business as of quarter three FY ’22 91 KTPA caustic soda plant at Rehla is fully commissioned. And Balabhadrapuram Phase 1 plant is partially commissioned with 26 KTPA. The total capacity will augment — will get augmented to 1,530 KTPA by quarter one of FY ’24 because there are few more commissioning that will take place from 1,147 KTPA today.

The chlorine value added plant chloromethane plant of 55 KTPA at Vilayat was also commissioned in quarter three of FY ’22. The total capex amount budgeted for the entire year was INR2,604 crore and that was excluding paints. For nine month FY ’22 the actual amount spent stood at INR1,476 crore will certainly close the year well within the budgeted capex amount. For the paints business we have received two rental clearances for two parcels of land. So the capex in those two sites will get accelerated.

The capex spend amount is at 505 crore till now on paint, which is towards mainly towards acquisition of land parcels. We completed this investment of fertilizer business on Jan 1. At the time of announcement of the transaction, which was more than an year back the enterprise value for the disinvestment of fertilizer was at INR2,649 crore, which included the outstanding subsidy amount at that time, which was part of the working capital. The final consideration amount received by the company on January 1, 2022 while that INR1,860 crore and this is after adjusting for subsidy already received from the government during the year and there has been small adjustments on account of capex and working capital.

With the sale, the company has turned net cash positive on standalone basis again after a gap of 12 quarters. Pro forma net debt adjusting the December end net debt with the proceeds of fertilizer comes to negative INR432 crores. Sustainability has been another key area of focus for the company and we have incurred more than INR500 crore in the last five years and this is in VSF and they have earmarked a total amount of INR1,000 crore towards achieving global standards. The VSF business has taken the target to achieve net zero carbon emissions across all its operations by 2040. Grasim participated for the first time in Carbon Disclosure Project, CDP, in 2021 and has received Management Band Score B-minus. At Grasim, our commitment to improve the quality of ESG reporting is increasingly being recognized by the external world.

In another major achievement, the company has received Gold Shield Award for integrated reporting and Excellence in Financial Reporting. So these are two awards from the ICAI. Another theme emerging in the quarter was unprecedented rise in prices of crude and derivatives and coal, etc, which emanated from demand-supply imbalances, logistical challenges created by countries, first the COVID restriction, and these have continued unabated. The VSF business has witnessed almost INR400 crore plus of cost escalation sequentially.

Grasim’s backward integrated model will provide relief at the time of such extreme volatility in the prices as the rise in caustic prices for example aids chemicals division’s performance. There are business wise initiatives like improvement in consumption norm, improvement and share of renewable energy, which will all benefit in long run. I’ll briefly touch upon the key performance — operational and financial performance. The strong operational performance of VSF has been induced by strong demand for textile products in India during Q3 FY ’22 despite state specific restrictions.

The domestic textiles value chain has been operating close to its peak capacity, which is led by demand uptick, and is evident in the share of domestic sales, which increased from 91% this quarter from 84% in the last quarter. The share of value added products in the overall VSF sales mix has increased to 29% on sequential basis from 27%. In terms of volume, the VAP volume has gone up from 41 KT to 46 KT, an increase of 11% Q-o-Q and for 46% Y-o-Y. And while volume becomes more important than — value is mix — the percentages because the gray capacity has gone up due to relaxed expansions.

VFI business also reported a strong operational and financial performance on sequential basis driven by strong growth in demand and improvement in realization despite the cost pressures. The viscose business reported net revenue including VFI of INR3,335 crore and EBITDA of INR401 crore. The VFY business reported a revenue and EBITDA of INR574 crore and INR80 crore respectively. The international caustic prices witnessed an upward trend for the fourth straight quarter. The domestic caustic soda prices went up on back of domestic demand and higher international prices.

The caustic soda capacity utilization touched multi-year high of 93% in Q3, up 7% sequentially. The OEKO is at all-time high with revenue increase more than offsetting the cost increase due to power cost. VAP performance suffered from cost pressures and weak demand as well. The Advanced Materials, i.e., epoxy business also witnessed a Y-o-Y improvement in the operational and financial performance driven by a better product mix on the back of strong demand from the WING segment. However Epoxy segment is witnessing some cost pressures, which may impact margins going forward nainly due to timing difference.

The revenue and EBITDA for Chemicals division stood at INR2,338 crore and EBITDA of INR528 crores respectively. The standalone performance overall for Grasim for Q3 was strong at with revenues up by 56% to INR5,785 crore and PAT up 46% to INR522 crore on a Y-o-Y basis. At the consolidated level, the same figures where that revenue was up 16% to INR24,402 crore and PAT up by 26% to INR1,746 crore for the quarter-on-Y-o-Y basis.

With this, I would like to hand over the call back to the operator to take it forward.

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] We have the first question from the line of Navin Sahadeo from Edelweiss. Please go ahead.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Yeah, thank you for the opportunity. So two questions here, one in VSF you mentioned operating rates in China at recent high of 83%, but yet in December end we have seen like prices coming down and January, I don’t think there is very good recovery. So is it all this attributable only to the Chinese New Year related sluggishness or is there some more issues around it?

Ashish Adukia — Chief Financial Officer

You want to go with your second question as well, so that we can answer.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Yeah, sure. Thank you. Thank you for this. So my second question then was about the paints business. Glad to hear we’ve already received environment clearance for two plants. So would it then be appropriate to ask which locations are these, what capacities are these and by when can the plant see the light of the day? Thank you.

Ashish Adukia — Chief Financial Officer

Okay. Good afternoon Navin. On your first question about VSF operating rate in China so it touched high of 85% for some weeks, and now it has come down to 82% and 81% after the Chinese New Year. And inventory has also started to work. During the Chinese New Year most of the VSF plants continued to operate while our customers did not operate, so there was accumulation of inventory buildup. And this is a normal phenomena in China because the Chinese New Year is every year phenomena.

And there is a typical buying behavior. So many spinners buy the VSF before the Chinese New Year because they expect that after the New Year the prices are normally higher than before the Chinese New, so they like to hedge their cost before, so it is just the one week of post Chinese New Year operators are still opening, spinners have not yet fully resumed the downstream is still not fully open, we have to see. So price going down is just the normal because inventory had gone up and there was a dull activity. So we have to look for clear trend now in coming weeks. So I hope this clarifies your question.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Yeah, yeah, helpful. I’m just trying to understand that will — within that cotton has been on a rise sustainably, but we haven’t really seen that kind of a sustainable increase in VSF. So I’m just trying do we expect prices now to improve or it’s still you’re saying difficult to really take a call on that?

Ashish Adukia — Chief Financial Officer

Prices should increase because cotton is all-time high. And now, VSF staple fiber prices are also increasing on the back of our export prices. And there is a cervical correlation between VSF PSF prices and VSF cotton prices. Of course the cotton and the VSF prices have diverged and this kind of gap is are unprecedented. And that is because on cotton there are lot of financial players also and there is expectation of more shortage in cotton whereas in VSF competition among Chinese players is little bit north intense then we would like to see. So that is the reason. But we expect the prices to go up and to some extent cover the cost increase more than what it has been the case last quarter.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Okay, that’s really helpful.

Ashish Adukia — Chief Financial Officer

And Navin to your second question the ECR received basically for are north based plants, which is Panipat and Ludhiana. And we should actually ECs for others as well soon because south based plants were the first ones that we had signed up with the state government.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Correct. So congrats on that and I think I’m sure investors will then be very keen to also know that since north EC you had received so definitely more color on this as to what is the capex outflow that we can look at and the timeline for these plant commissioning what capacity, I think that color will be really helpful. Thanks.

Ashish Adukia — Chief Financial Officer

Sure. No, the point noted. I think we are again early stages. I think land generally is a little bit always unknown how much time it will take when we look at EC. Now that we are also gaining more visibility on land and ECs so hopefully by next quarter we’ll be able to give you more picture on the capex forecast and other stuff. Thank you.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Thank you. Thank you so much.

Operator

The next question is from the line of Nirav Jimudia from Anvil Research. Please go ahead.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

Good afternoon, sir. Sir, my first question would be in terms of value-added VSF. I think we have reported best ever quarterly volumes in terms of the value-added volumes like it is up 56% from the start of the year. So my question is sir, how much further we can take this volumes based on our current value added capacity? And if we can add further that, how much more capex we need to incur in order to take our value-added volumes to 40%, which is our long-term goal?

Ashish Adukia — Chief Financial Officer

So Nirav, the question is very interesting question. So we are running our VAP capacity almost to the full but we have the flexibility to convert some of ours lines which produce grade 2 VAP depending on the demand situation. So like we have been waiting for schools to reopen for uniform market to pick up, so that we can make more of those type fiber, which is one of the VAP. We are running our excel plant, which is category of for VSF so almost full, but we are also experimenting with increasing the capacity marginally.

And if I veco is one product where capacity is not a constraint. But it depends on the seasonality of buying and getting more orders from them. So by end of next year we hope that we will increase VAP volumes significantly. And along with increase in the VAP volume percentage wise it may not increase because our grey capacity is increasing significantly. So the denominator is increasing. So that is the different thing but we are also increasing our realization on that product as much as we can. So on both sides we should expect better performance on VAP product category.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

So sir, last time on the call you explained it since we have some sort of fungible capacity where we can improve our Levi eco production, but with this won’t it shrink our premium of the margins what we get the value added VSF over the grey VSF because then we are already at the optimum level of utilization for the liocel or the model probably, which you mentioned in your opening remarks.

Ashish Adukia — Chief Financial Officer

Yeah, so we can convert one more line from grade two depending the market situation. So in India, it will take time for market to catch up, but then for some time we may export more modal out of India. So this is always matter of time for the demand to catch up capacity can be increased in one step wherever we can. Is there like increased capacity, then market increases and we utilize the capacity fully then we again find out ways to increase the capacity. Sometime it can be very small increments, sometime it has to be a little bit bigger step increment in the capacity.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

And sir, like if you can put some sort of capex numbers for improving over volumes VAP to 40% that would be helpful.

Ashish Adukia — Chief Financial Officer

Not significant capex except in excel. Excel will need more capex, but other VAPs we can increase the volume without much capex. So our focus will be to increase the VAPs — other VAPs other than excel.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

Got it sir. Sir, my second question is on VSF again. So in the opening remarks, you mentioned that VSF business has seen a cost increase of INR400 crores sequentially. So if you can attribute the increase in the power cost out of this INR400 crores because even on a sequential basis we have seen INR350 crores increase in our power cost. So some sort of understanding there in terms of the increase in the cost from the VSF business?

Ashish Adukia — Chief Financial Officer

So, out of INR400 crore roughly INR120 crores is on the energy, power and steel together like mostly natural gas and coal, etc.

H K Agarwal — Managing Director

See, I think to answer your question, I think, you’re probably talking about power cost increase at overall Grasim level.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Yes. Correct, sir, correct.

H K Agarwal — Managing Director

But that is mainly on account of caustic because that’s the power intensive plant — business. So VSF you have to focus on increase in the pulp cost and caustic cost, that’s the primary reason for the part of that INR400 crore that you’re seeing. And that’s an absolute number that we’ve given INR400 crores. So because of volume increase also there may be some variable cost increase. We are just comparing quarter-on-quarter to say there’s a INR400 crore plus increase in the variable costs.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

And sir is it possible to share like in terms of our increased capacities both for VSF as well as for the caustic division? How much currently we are based on captive requirements and probably some sort of capacities we are also adding in the renewables also say when we will be utilizing our both the capacities optimally, how much would be our power integration, if you can share?

H K Agarwal — Managing Director

So we have shared our renewable capacity share right where we are going up to 10% with whatever group captive scheme that, etc, that we are going to. So that’s roughly — and then about of 40%, 50% is our captive power from what we use.

Ashish Adukia — Chief Financial Officer

See, on VSF we have 100% captive power because we made it clear moving going forward in the expected ratio and still we cannot purchase from outside but on chloralkali side we have to stick with power from grid and renewable.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

Okay. If I can just squeeze one last question based on the bookkeeping questions just like on the pulp JV, we have reported the losses. So just a clarification, that is this because we have produced some 25,000 tons or probably 25,000 tons of lesser volume sequentially because of which our profits are lesser because if I do some arithmetic calculation in terms of the realizations what we have reported I think we would — if we adjust those less volume sold, we would have been in the profit from the pulp JV. So is that understanding correct?

Ashish Adukia — Chief Financial Officer

Yeah, your understanding is correct. We had some reliability issues in our plants in the last quarter and that resulted in lower production and when the plants doesn’t produce and there are, on the contrary, more expenses on maintenance and on some energy things. So it become compounded, the problem becomes compounded so your understanding is right. If we had produced fully as per the previous quarter, then we would have been in profit.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

Thank you so much for answering the questions in detail, sir. All the best and I’ll join back in the queue if any, sir.

Ashish Adukia — Chief Financial Officer

Thank you.

H K Agarwal — Managing Director

Thank you Nirav.

Operator

The next question is from the line of Chintan Chheda from Quest Investment Advisors. Please go ahead.

Chintan Chheda — Quest Investment Advisors Pvt Ltd. — Analyst

Yeah, hi, thanks for the opportunity. Sir, my first question is related to caustic soda. So we are in a very good cycle of caustic soda right now, but the performance of ECU division continues to get negatively impacted by chlorine. So I just wanted to understand, like what are the plans of the management to tackle this issue.

H K Agarwal — Managing Director

So I think a fair point. So what normally happens if you look at the — chlorine becomes the kind of a bottleneck for caustic supply increase because chlorine can’t be transported. I think that’s the first understanding we need to get. And when these unrated caustic on prices is good everybody maximizes caustic production and typically chlorine gets into negative and that’s been the historical record in India because in India. The primary product is caustic in the byproduct excluding which is reversed in the global scenario because of PVC. So what we are doing at this point of time and you would have seen and you would have heard Ashish talking about the projects for one large chlorine derivative project CMS got commissioned in July.

And you would have also seen the press note of this time we talk to them about TCH which is now going to come up in ’25. So there is a progressive work which is happening on chlorine integration in the business. It is going to be a couple of years before our current captive consumption, which is a floating of around 29% to 30% will jump to around 45% to 50%. And that journey. I think as we keep on adding more and more products and production then will keep see but that’s clearly a line of focus for us going forward. And you’re seeing the initial work on it come through in the CMS part.

Chintan Chheda — Quest Investment Advisors Pvt Ltd. — Analyst

Okay. So at supposed 40% kind of utilization of chlorine with that impact on the spreads will not be negative like, what can we just get to is the sense on the margins basically? How can we this lead to our margin improvement?

H K Agarwal — Managing Director

So I think you need to look at, when I talk about chlorine consumption of 40 that the chlorine derivatives what we talking about. Then there is ex CL also. And then there is ton of sale which happens overall if you look at 93% capacity utilization that means 93% of the chlorine produces quite in the plant. So there are four ways you cut chlorine and look into it. What we control in our own production facility is today 31%, which will go to about 45% over the next three or four years.

Ashish Adukia — Chief Financial Officer

And the margin impact on that will certainly be positive and but each derivative has a very different margin because end users different chemistries different. So it’s very difficult to say what the margin improvement would be on an overall basis, but each product is very, very different. It’s not a straight line, which you can do, but clearly if you see from a negative sale of chlorine outside market. The margin accretion is positive.

Chintan Chheda — Quest Investment Advisors Pvt Ltd. — Analyst

Okay and how much we sell through pipeline today?

Ashish Adukia — Chief Financial Officer

We have approximately on our enterprise business is about 2% which is on the pipeline we have our own consumption at about cut the takes another about 12% to 15% and about 35%, 40% goes through tunnel sales.

Chintan Chheda — Quest Investment Advisors Pvt Ltd. — Analyst

Okay, got it. And sir my second question is again related to caustic soda so we along with you, there is couple of more players who are adding capacities very soon in India. So, then how do you see this impact on the overall caustic cycle for the domestic market?

Ashish Adukia — Chief Financial Officer

Here you’ll have to go a little bit into the history. And if you look at the last about 4 quarter history, India has at a discount to CFR SCA for some time. In the month of January, which we’ll talk about in the next quarter is when the [Indecipherable]. And this is a step of any country which will add capacity in any such products. We go through the 18, 24-month cycle before it normalizes that it comes back, so as capacities will come up in India you will see going forward logically excess capacity of production. But again here the question comes back to your earlier chlorine consumption. It will be the chlorine capacity utilization, which will drive the caustic capacity and not the other way around.

Chintan Chheda — Quest Investment Advisors Pvt Ltd. — Analyst

Okay. So probably in first half of FY ’23 there in a lot of capacity has come on stream. You could see a weaker second half in FY ’23 is that the right logical assumption?

Ashish Adukia — Chief Financial Officer

I think we should not look backs ahead, particularly with the volatility caustic prices have been going through within a month from a $900 to a $475 so my take is yes fundamentally every time a capacity comes in it does create market picture, but I wouldn’t really look that far ahead at this point of time.

Chintan Chheda — Quest Investment Advisors Pvt Ltd. — Analyst

Okay, got that. Thanks for the answers.

Ashish Adukia — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Prateek Kumar from Antique Stock Broking. Please go ahead.

Prateek Kumar — ntique Stock Broking Limited — Analyst

Yeah, good evening, sir. My first question is on VSF pricing versus cotton. So the way cotton has risen in terms of pricing has there been any demand destruction for cotton customers and some of them have moved to us? I mean maybe not to us, but to some of the international players because our export mix seems very less. So has there been any migration of cotton customers to VSF in global markets and maybe also in India?

Ashish Adukia — Chief Financial Officer

Yes, Prateek it happens because when the delta is so much it is natural for the textile people to start using more of VSF and to optimize or reduce the cotton conjunction. They do divert some spindles from cotton spinning to lesser spinning. And also if the fabric is still they can do more blending so all kind of levers are there in the hands of downstream. So we are seeing very robust use of VSF in India, and also globally. So it’s clearly happening. Now how much, I will not be able to give you precise number, but it does happen and it is happening.

Prateek Kumar — ntique Stock Broking Limited — Analyst

But a number of volume of VSF at 157,000 doesn’t look very extraordinarily high versus, I mean we are doing 140,000, 160,000 anyway earlier like last year and with the added capacity also, I mean in such environment why industry is not able to sell much more in terms of VSF.

Ashish Adukia — Chief Financial Officer

We were selling whatever we could produce. So that was our constant amount is we have already commissioned additional capacity. So we expect to sell more so now we have more material to sell and we are able to sell increasingly higher volumes in India our prescriptions because then we don’t have to incur higher shipping cost.

H K Agarwal — Managing Director

Prediction in both businesses are 90 plus.

Prateek Kumar — ntique Stock Broking Limited — Analyst

So now we are at like quarterly capacity of around 200,000 or so from Q4 onwards we should like model number of volumes. Leaving aside some external factors like COVID impact but number of further the 180,000 or 170,000 should be do have a lot of quarterly basis.

Ashish Adukia — Chief Financial Officer

Yes. So our India VSF capacity with the commissioning of new lines has reached about 8.1 lakh tons so on quarterly basis we should expect quarter one next year onwards. So this quarter we will be stabilizing the new lines and there will be some challenges but from next quarter we should expect normally good increase in the volume also of our capacity.

Prateek Kumar — ntique Stock Broking Limited — Analyst

Okay. And just one more thing, given we have capacity constraints and given a cost has increased so much from quarter to quarter year-on-year. So what stops us from taking more price hikes to offset our increase in cost because our profitability has halved almost VSF segment over two quarters from around INR40 per kg to INR20 per kg. So is it import competition, because we are largely selling in domestic. So what prevents us from taking hikes which could offset cost I think we are running at very high utilization?

Ashish Adukia — Chief Financial Officer

Yeah. So there are two factors we keep in mind, if we increase the prices. Yes, we can increase to some extent, but then there we are opening the risk of imports from China are from Indonesia because after all, everybody can export even after paying the higher shipping cost and then we have to keep our prices in line with the possible landed cost of import. We do charge premium for the domestic supply just in time supply and all those things, but there has to be a reasonable level. If the difference is too wide then we are taking a huge risk of imports. And second is if we increase the price then yarn cost will be high. And then there is the risk we have why yarn imports coming in? So that is another lid which restricts our ability to increase the prices beyond the point so we have seen that even then the yarn prices are very high so, our prices are not so high but the yarn imports come and ultimately it fits into our demand in India. So these are the two levers we have to always keep in mind. We strive to maximize our prices as much as possible.

Prateek Kumar — ntique Stock Broking Limited — Analyst

Sure. Understood. And sir, what would be our premium to imports from various countries in terms of phasing in VSF?

Ashish Adukia — Chief Financial Officer

So roughly about 3% 2% to 3%.

H K Agarwal — Managing Director

I think last year, last time also we had mentioned that there is a convergence of landed. It’s more or less conversion.

Ashish Adukia — Chief Financial Officer

Yeah, we try to charge a premium for our quality for our services for just in time saying and all those things, but we cannot be too greedy okay.

Prateek Kumar — ntique Stock Broking Limited — Analyst

Sure sir, these are my questions. Thank you.

Operator

Thank you. The next question is from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.

Sumangal Nevatia — Kotak Securities — Analyst

Yeah, thank you for the opportunity. The first question just continuing the previous question on our cost of VSF volumes for this year we will be doing something around 630, 640, 200 kt per quarter we’re looking at from William 25% to 30% in volume growth both in VSF and caustic. Is that the right understanding as a ballpark guidance for FY ’23 in terms of volume growth for both these businesses?

Ashish Adukia — Chief Financial Officer

So tough to give volume growth. I think it’s easy to calculate when I said that we are running started if you at 90 plus capacity utilization, then we will run our new capacities at that we should be able to so understand. And you know, we believe that we have been caustic is that VSF has increased, right. So caustic will — new capacity has the capability to feed into that as well. And then on the eastern side there is alumina capacity that have come on back of strong aluminum prices. So there is a market out there. And VSF Mr. Agarwal has already spoken about.

Sumangal Nevatia — Kotak Securities — Analyst

Understand. Sir basically in terms of ramp up sort of beyond a couple of months. We don’t really require ramp-up period. That’s the understanding I am getting and also we won’t face any market constraints to place this quantity of volume in the market. So, is that the right understanding of the discussion?

Ashish Adukia — Chief Financial Officer

Yeah, you are right. And domestic market may take some time to catch up and in the meantime, if there is, I mean surplus we can export, but of course, the net debt, slightly less because of higher shipping costs, but we do not expect serious problem in producing and selling the entire volume.

Sumangal Nevatia — Kotak Securities — Analyst

Got it, got it. Second question is with respect to the capex. Now we are very close to concluding our a boost in trades of expansion and what sort of capex will be left over in FY ’23 and in terms of the business also next year, sort of capex are we looking at?

Ashish Adukia — Chief Financial Officer

Yeah, so Sumangal, I think right time to discuss that would be in the next quarter mostly then we would have finished our budgeting, etc. I think for FY ’22 like I said, out of the balance capex that they’ve comfortably will be able to finish well within that approved capex that we have mentioned on the slide 7.

Sumangal Nevatia — Kotak Securities — Analyst

Understood. Okay, thank you so much and all the best.

Operator

Thank you. The next question is from the line of Bharat Sheth from Quest Investment Advisors. Please go ahead.

Bharat Sheth — Quest Investment Advisor Pvt. Ltd — Analyst

Hi, sir. I mean large part of the question has been answered, but structurally, if we have to look at, I mean this VSF Grey business so looking at the kind of mean convergence of import price in domestic price so VSF Grey as well as the VSF yarn. So how one really understand that which we will be the demand driver and how the global capacities and what level is operating and there can be a stable incrementally the way cotton prices are increasing and U.S. is putting a pressure from imports from China, which is a reflection of high cotton yarn prices also. So how, if you can give some color that will be a great help from, say, two, three years perspective?

Ashish Adukia — Chief Financial Officer

Sorry, Bharat. I think you know at some of these questions, like you said it’s covered. Is there anything specific because I think in terms of guidance, we don’t give.

Bharat Sheth — Quest Investment Advisor Pvt. Ltd — Analyst

I’m talking industry per se.

Ashish Adukia — Chief Financial Officer

What’s the specific question in industry?

Bharat Sheth — Quest Investment Advisor Pvt. Ltd — Analyst

How much you sir globally VSF demand is increasing VSF as well as VFY and the simultaneously, how much capacity is available and operating at what level and further new capacity which is getting added?

Ashish Adukia — Chief Financial Officer

Okay. So on a global basis FY ’21 demand for VSF is estimated to be around 6 million tons. The capacity is estimated to be around 8.5 million tons. So you can calculate the overhang or capacity legislation. Now, new capacities there were some capacity addition in 2020. In ’21, not much. And in ’22, there have been some announcements. But we have to what sure. Much of that comes on the stream and the demand is expected to grow globally around 4% around it was around 4% and in India the demand is expected to grow at much higher rate because India is still not at the high-maturity level in terms of VSF use. So in India, we have added our capacity about 228,000 tons. And then we will and so you can now understand whatever color you want to give to the industry picture.

Bharat Sheth — Quest Investment Advisor Pvt. Ltd — Analyst

And how much sir the import is currently in India? And one is VSF and second one VFY.

Ashish Adukia — Chief Financial Officer

So yeah, India, there is not much import. Yeah, not much import and beyond is again open commodity which happened so he statistics are available yarn is on the range of 80,000 tons for the year VSF imports are much lower than that.

H K Agarwal — Managing Director

You have to look at yarn and fiber together up because of the because depending on the prices can start coming in.

Ashish Adukia — Chief Financial Officer

So He is asking for VFY. Oh, VFY is a different thing. I think that and we employ about, so we prefer to see India inflows, one-third, isn’t that essentially.

Bharat Sheth — Quest Investment Advisor Pvt. Ltd — Analyst

And the value added product that we are talking. So how is that is really playing for the industry?

Ashish Adukia — Chief Financial Officer

Value added products are good for the industry because then Indian textile new chain becomes that much more high value added and it, it improves the industry structure and is a reflection of higher aspiration of Indian consumers.

Bharat Sheth — Quest Investment Advisor Pvt. Ltd — Analyst

Okay. So last question on this caustic soda side. See, we, our capacity, we are increasing almost by say right till FY almost 50% from currently 10 let and to keep correct understanding?

Ashish Adukia — Chief Financial Officer

That’s right. From, 1147 KTPA to 1530.

Bharat Sheth — Quest Investment Advisor Pvt. Ltd — Analyst

Yeah. And how much will that be then again now as you explained that value added will be 40% by that time for grassing and so tunnel chain and all, so how much that will be made and how much will be the where there could be a chances of a negative case there.

Ashish Adukia — Chief Financial Officer

No. So let me kind of take a stab at your question. So I think what we are talking about is increase in caustic right, the capacity increase. On a separate front, we are working on chlorine derivatives. So in each of our locations that we are present in we are working on chlorine derivative and what we have given as a target in 2025 of 40% to 45% roughly what it is on account of this new derivative capex that we put up which include CMS ECH, etc. So, that’s really what the plan is, and we are trying to put up both capacities in parallel, so that it whenever there is extra chlorine that is getting created we have some project that is ongoing to absorb that part of that chlorine that is getting generated end of the day, we want to avoid movement and just to add one more reference point.

H K Agarwal — Managing Director

And I’m not getting into data with you the chlorine demand is as growing at a faster rate, as compared to the cost in demand, I mean clearly you have a positive cycle there relatively.

Bharat Sheth — Quest Investment Advisor Pvt. Ltd — Analyst

Okay. Because of this demand for PVC, sir.

Ashish Adukia — Chief Financial Officer

So there is no value added than caustic that but the value added products are only including correct and this was 2% the chlorine vectors and this addition of members, including as you know we sell in the trade market.

Bharat Sheth — Quest Investment Advisor Pvt. Ltd — Analyst

And currently our captive is and how much in the pipeline that we are talking. So that will also we do we have a plan to increase those we keep.

Ashish Adukia — Chief Financial Officer

We are continuously in talks with potential chlorine users who can then come and pick up put their plants adjoining to our plants are they have got subject of gets. We are getting the EC land availability, sir. A lots of ifs and buts in that, but that’s a constant dialog which goes on with respective chlorine consumption players. Sorry. Thank you. Thank you.

Operator

Thank you. The next question is from the line of Yash Jain from Choice Institutional Equity Research. Please go ahead.

Abhimanyu Kasliwal — Choice Institutional Equity Research — Analyst

Yes. Okay. Hi, sir. This Abhimanyu Kasliwal from Choice Institutional Equities. Sir, most of my questions were answered. So I wanted to ask regarding the capex, if I heard correctly INR2,604 crore capex was budgeted for this year and INR1,476 crore was completed. So roughly INR1,150 crores, you can say is left for this quarter. I wanted to more and this would be a very regular question, but would this circa INR1,467 crores include INR964 crores capex on cement?

Ashish Adukia — Chief Financial Officer

No, this is on a standalone basis. Okay. I can guide you to the chart on page 7, we cover only standalone businesses which is VSF so you have the breakup off the balance capex of INR1,128 crores into VSF chlor alkali and when I say other businesses it’s basically VFY textiles insulator which is all part of these are smaller businesses.

Abhimanyu Kasliwal — Choice Institutional Equity Research — Analyst

Understood, sir. Thank you. One more question for so, we have roughly INR1,100 crores, that we are hoping to complete it by this quarter or are we seeing some kind of traction in that or are we going to pay and be well below budget or what do you see, sir?

Ashish Adukia — Chief Financial Officer

Yeah. So this is the reflection of our ability to complete our projects at lower costs in the year with a lesser amount than the spending that we have give it.

Abhimanyu Kasliwal — Choice Institutional Equity Research — Analyst

Okay. Wonderful sir. Thank you so much.

Operator

Thank you. The next question is from the line of Nirav Jimudia from Anvil Research. Please go ahead.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

Sir, with respect to my earlier question I had just one addition to that, so you mentioned that we’ll be adding the capacities substantially on the value-added we side and in your opening remarks, you also mentioned about the sustainability capex. What we have been doing on the VSF side. So this would help us to bring down our cost of production. So if you can relate this some reduction in the cost of production with respect to the slightly lesser realizations in the value added VAX. Because that would be more towards the other fiber is what you mentioned. So some understanding on this. Basically my question is to understand that, let’s say if some fall for the value added VSF how much we can compensate it through the reduction in the cost side.

Ashish Adukia — Chief Financial Officer

So normally, these things are there not fully related yeah. Premium on is a function of market situation. And that’s something we are able to pass on the cost, but many times like the recently, the cost increase has been much more than we can pass on and sometime it may be that cost reduce and we don’t have to pass on that cost reduction in the price yeah, and increasing the production will not reduce the cost, because we are anyway operating at almost 95% of almost full capacity. So it will be a question of rich product we produce and little bit of debottlenecking or increasing the production. Yes, there will be marginal reduction in the cost, but that will be small not there is big thing.

H K Agarwal — Managing Director

And just to supplement, I think if I get the direction of your question fee over a long even medium term horizon so the new capacities and the bottleneck capacities that are coming are all brownfield right so realizes brownfield and the debottleneck side, the same. So you’re not really incurring large capex to achieve those volumes so that’s where the benefit of mitigating the cost increase or any changes in realization. That’s the benefit that you get by reducing the — constantly reducing. We come up with projects where we focus on reduction of cost overall for Grasim including the VSF business through technology, etc.

Now on the sustainability front that you mentioned see two, three things, one is sustainability expenditure that you do actually doesn’t necessarily lead to only cost. You’re able to get premium for your products from your customers because today customers are demanding that product side and because you have that background. Now is it’s actually an example where you work on your process, your value chain, your products create a sustainable fully sustainable product and of early get to premium over the grey. And the way the premium has to be looked at is not necessarily percentage margin over premium generally the prices of these specialty and VAP products is quite stable and the gray is what meat moves up and down. So you have to look at, look at the premiumization of back from that perspective.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

Got it sir. But sir like since we have been demonstrating lot of examples in terms of the process intent is intensification by almost like we have debottleneck our capacity is by 10% over last 6, 7 years. So is it fair to assume that once we utilize this capacity is fully VSF probably FY ’23 or FY ’24 that is a different topic, but let’s say whenever we will exhaust capacity, there is a further scope of some debottlenecking which would probably come at a very lesser capex cost.

H K Agarwal — Managing Director

Yeah. We’ve done that in the past and we’ll continue to find ways and means to debottleneck and increase the capacity. Okay, sir.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

Second question is a bookkeeping question. So like you mentioned that the performance for the, this quarter has improved on a Y-o-Y basis. So if you can quantify some percentages, like how much it has improved on a Y-o-Y basis. That would be helpful sir.

Ashish Adukia — Chief Financial Officer

So we don’t isolate epoxy and give that if we’ve got. So if we end of the day, if you look at epoxy all it’s in a way a derivative of chlorine. Right. You make and then goes into epoxy in that way. What has really happened in Epoxy is that the raw material prices of the CHMP ph etc has gone have been going up. Yeah, okay. And so some of it is getting consumed out of the inventory of the prices that we bought in the past. So therefore the cost pressure is coming through because of timing differences. What I had mentioned in my opening remarks we pass on the price. Yeah. And the inability to pass on that price. So at this stage. But it sir, thank you for that. Answering the questions in detail, sir.

Nirav Jimudia — Anvil Shares & Stock Broking Pvt. Ltd — Analyst

Thanks a lot. Thank you.

Operator

The next question is from the line of Prateek Kumar from Antique Stock Broking. Please go ahead.

Prateek Kumar — ntique Stock Broking Limited — Analyst

Hello. Yeah, thanks for the opportunity. Again and have a couple of follow up questions. So on caustic in caustic segment. So this plenty have started to rise again I have risen again after I think some softness it. I know I’m not so, so the pressure on caustic segment margins again expected to come back or they can I mean thinking of taking price hike or the pricing support the margins in that segment.

Ashish Adukia — Chief Financial Officer

Normally there is always a lag between the prices of coal to our consumption because there is a certain amount of inventory. All of us to keep. You’re right, the prices did come down the prices have gone up again. But I think at this point of time, we believe that the caustic prices have reached a point where they’re kind of stable. The volatility in Indian market is coming down. Although. And so, also in the global market. So my belief is, it’s better to have a more stable pricing than a volatile pricing that we’ve seen over the last 3 or 4 months but I mean being a very basic commodity what has like particularly have been stabilizing the you see there again with the demand supply you see you’ve got a very good demand coming from the textile sector and you got a very good demand coming from the aluminum sector plus along with your swaps and detergent sector all these sectors have been doing very high on their own demand cycle, which has led to the stability of demand, and that’s why you’re seeing the run rate from 85% to 95% across multiple players

Prateek Kumar — ntique Stock Broking Limited — Analyst

And then last question on VSF inflation. So what I mean is this the pulp inflation expected to peak or is it already peaked in the 3rd quarter. I think modernization is remaining. Okay.

Ashish Adukia — Chief Financial Officer

So all prices of lately have been more stable than other inputs right. Caustic or coal some again store pulp prices are not go into so much I volatility in the coming quarter. That is our expectation.

Prateek Kumar — ntique Stock Broking Limited — Analyst

So I meant what we booked pulp prices have been softening. As we have discussed that we hear from our near time, but what we have booked in terms of numbers. So should we start seeing that soften?

Ashish Adukia — Chief Financial Officer

The lag effect that we’ve always talked about so we get the benefit the other way around. The impact of the prices almost for the 6 months down the line because of yeah because of two factors, one, we follow the that’s of previous quarter. This quarter, supplies from our suppliers. And then there is a long value supply chain takes almost one and half months for the pulp to arrive from the origin to destination and then there is always some inventory so there is a gap of almost four, five months on the time of the index to our consumption.

Prateek Kumar — ntique Stock Broking Limited — Analyst

Yeah. So that’s what I mean, I think. So, as the lower cost and decided to show up in our numbers or it still six months away. I mean, because the price of pulp has been falling for some time.

Ashish Adukia — Chief Financial Officer

Yeah. So we have already passed the peak. For the time being if you want a precise answer to your strategy. Yeah and then target. Yeah. Yeah, yeah. So peak is behind us.

Prateek Kumar — ntique Stock Broking Limited — Analyst

Sure. Thank you, sir.

Operator

Thank you. Ladies and gentlemen due to time constraint, that was the last question. I would now like to hand the conference over to the management for their closing comments.

Ashish Adukia — Chief Financial Officer

Thanks. Thanks for everyone to participation on the call. We look forward to seeing you again in the next quarter. Please reach out to Saket for any clarifications queries that you may have on the numbers. Thank you.

Operator

[Operator Closing Remarks]