Grasim Industries Ltd. (GRASIM) Q4 FY22 Earnings Concall Transcript

Grasim Industries Ltd. (NSE: GRASIM) Q4 FY22 Earnings Concall dated May 24, 2022

Corporate Participants:

Ashish Adukia — Chief Financial Officer

H. K. Agarwal — Managing Director

Himanshu Kapania — Business Head – Paints

Jayant Dua — Chief Executive Officer – Chemicals Division

Analysts:

Navin Sahadeo — Edelweiss — Analyst

Nirav Jimudia — Anvil Research — Analyst

Sanjeev Kumar Singh — Motilal Financial Services — Analyst

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Pinakin — JP Morgan — Analyst

Prateek Kumar — Jefferies — Analyst

Alok Shah — Ambit Capital — Analyst

Anshuman Atri — Premji Invest — Analyst

Saket Kapoor — Kapoor Company — Analyst

Jiten Doshi — Enam Asset Management — Analyst

Bhavin Chheda — Enam Holdings — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q4 FY 2022 Earnings Conference Call of Grasim Industries Limited. We have from the management Mr. H.K. Agarwal, Managing Director; Mr. Himanshu Kapania, Business Head, Paints; Mr. Jayant Dua, Chief Executive Officer, Chemical Division; Mr. Rakshit Hargave, CEO Paints Business and Mr. Ashish Adukia CFO. [Operator Instructions]

I now hand the conference over to Mr. Ashish Adukia. Thank you and over to you, sir.

Ashish Adukia — Chief Financial Officer

Thank you and good evening to all the participants. I hope you’ve been able to download and get the presentation. So as the company celebrates it’s 75th anniversary, this year which has gone past has actually been marked with lot of large growth announcements, which will actually prepare Grasim for the next phase. The core areas where we have already expanded our capacity are VSF and chemicals, the recently commissioned 600TPD VSF capacity operated at 83% utilization level within months from commissioning. We’ve also been able to find debottlenecking opportunities across three plants to increase our VSF capacity by further 48TPD at a minimal capex.

This increased supply was very well supported by the strong domestic demand. In Chlor-Alkali as well, we added capacity of 142K TPA across Rehla which was 91K TPA and Balabhadhrampuram which was 51K TPA. In addition, we added back including the Chloromethane at Vilayat. In the paints business, we are currently focused on timely execution of our capacities. The civil construction is already commenced at two of our plant sites, Panipat and Ludhiana and is expected to start shortly at Chamarajanagar. The remaining three plants are at different stages of government approval processes. Since the announcement of our entry into the paints business, the market dynamics of the decorative paint sector has become more attractive. We have accordingly decided to accelerate our capacity commissionings and accordingly updated our plan with the project cost of INR10,000 crore by FY 2025.

This acceleration with revision in plant configuration achieved economies of scale, comprehensive product offerings, improving lead time to service the market. The plant commissionings are expected to begin from Q4 of FY 2024 with capacity eventually reaching 1,332 MLPA. The inflation pressure on account of commodity prices increase has been mitigated by change in the plant configuration.

We are very well capitalized for next phase of growth, given our strong financial position. As on 31st March 2022, the company at stand alone basis had net cash of INR553 crore. I will briefly touch upon the key operational and financial highlights for the quarter. The textile value chain in India operated at optimum capacity utilization given strong domestic demand. The VSF business reported sales volume increase of 30% Y-o-Y in FY 2022. Our domestic sales surpassed half a million mark in FY 2022 and accounted for 84% of the total sales volume. The share of VAP the value added products increased 57% Y-o-Y and the overall share increased to 26% in FY 2022 from 22% in the year before that.

The demand for VSF has also been propelled by growth in LIVA act garment. Our association with end consumer is expected to further strengthen with the launch of our saree brand, Navyasa created by LIVA. Our aim is to reposition saree as a garment of choice and to offer more contemporary print designs to Indian women. The saree segment in India consumes close to a million ton of different fibers and the share of VSF stands at only 1%. We would like to catapult our share to 7% in next five years.

The global VSF prices weakened sequentially owing to the spread of Omicron in China. However, the consistent rise in quarter prices have led to widening the gap between VSF and cotton. The financial performance of VSF business was impacted by rising cost pressures across all raw materials, right from pulp, caustic and other input costs. Separately, the VFY business reported a revenue of INR572 crore and EBITDA of INR63 crore for quarter four FY 2022.

Coming to Chlor-alkali business, it reported another quarter of stellar performance despite mounting cost pressures in power and other costs. This was driven by sequential improvement in ECU. This was highest ever EBITDA for Chlor-alkali backed by all-time high ECU. The sales volume increased 16% Y-o-Y to more than a 1 million ton in FY 2022. The rise in the global caustic soda prices was driven primarily by the supply chain disruptions. The domestic caustic soda prices also increased in line with global caustic soda prices and consequent to the increased demand in domestic market as well.

In Q4 FY 2022, the chlorine consumption in VAP was 30%. The advanced materials business also witnessed a 17% Y-o-Y sales volume improvement driven by a better product mix on the back of strong demand from the wind power segment. However, this segment is witnessing normalization of margins pulling down the EBITDA from all time highs. On an overall basis, we have outperformed our pre-COVID levels of FY 2020. At a standalone basis, overall Grasim, our revenue was for FY 2022 was up 14% CAGR over FY 2020 and EBITDA was up 24% CAGR which ended at INR4,111 crore. This quarter on a standalone basis we reported profit after tax of INR1,068 crore, which included certain exceptional items.

These include profit from sale of fertilizer business of about INR540 crore pre-tax. There were certain write-backs of tax provisions amounting to INR321 crore as a result of favorable order of sales tax subsidy being allowed as capital receipt. There is additional reversal of deferred tax liability amounting to INR197 crore. As you are aware, we have been focusing on improving the quality of ESG reporting standards. Grasim recently featured as number one in the Capri Global Capital Hurun list of India’s more sustainable company.

In the latest ESG rating released by CRISIL, Grasim was assigned a score of 63 with strong rating. Lastly, based on our performance, the Board of Directors of Grasim has recommended a dividend of INR5 per share for the year ended 31st March 2022 and a special dividend of another INR5 taking the total to INR10 per share. The total outflow on account of the dividend would be INR658 crore.

I’d like now hand over back to the operator for Q&A. Thank you.

Questions and Answers:

Operator

Thank you very much sir. [Operator Instructions] Our first question is from the line of Navin Sahadeo from Edelweiss. Please go ahead.

Navin Sahadeo — Edelweiss — Analyst

Yeah, good evening. Hello.

Ashish Adukia — Chief Financial Officer

Yeah, we can hear you.

Navin Sahadeo — Edelweiss — Analyst

Yeah, right, clear. So, thank you. Thank you for the opportunity. Couple of questions. First, I’ll take the paints, so here you have doubled the capex like to INR10,000 crore. So can you now give us the breakup between the debt and equity component of it and just a clarification that this 1332 MLPA capacity, is it the expanded capacity for the INR10,000 crore capex or it was the earlier capacity which will now be doubled?

Ashish Adukia — Chief Financial Officer

Okay. So I’ll start off and then I’ll request Himanshu to jump in to clarify some of these points. So first of all, the earlier announcement that we had given was not beat to our capacity, we just said that the initial capex will be back up INR5,000 crore over next three years. So now we are coming with a little bit more specific guidance that we are going to have a project cost, okay, which includes capex, non-plant capex etc the pre-operative and all those kind of elements that go into it by FY 2025, okay? And the commissioning of the 1332 MLPA that we are talking about will start sometime around quarter four early quarter four of FY 2024. So that’s how we are and then it will come in a staggered way and it will complete over next few months.

So that’s really what the plan is. So the two are not comparable to answer your question 5,000 and 10,000 are not comparable.

Navin Sahadeo — Edelweiss — Analyst

Fair, but just a clarification. So this 1332 is 1332 capacity is what 10,000 crore capex will consume right?

Ashish Adukia — Chief Financial Officer

Yes, that’s right. Roughly, that’s a right number. Yeah.

Navin Sahadeo — Edelweiss — Analyst

Correct. And to the — and just a clarification regarding the same thing that, how would we then look at funding this? Is it going to be entire equity or it’s going to be a debt component as we hear?

Ashish Adukia — Chief Financial Officer

No, see it’s funded on the balance sheet of Grasim itself, right, it’s a division of Grasim, it’s not a subsidiary. So therefore, the way we will look at funding is a mix of internal accruals and debt depending on other capital needs etc.

Navin Sahadeo — Edelweiss — Analyst

Understood, understood. Fair. Then my second question was regarding this VSF and all the best for the good — for the new brand launch in the Saree segment that you’ve done, but a few years back if I recollect, there was also this foray into VSF Denims as such. So if you can just help us is that product or is VSF is used in Denim and is that product getting acceptance or that’s not really taken off, just to get some sense there?

H. K. Agarwal — Managing Director

Okay. This is H. K. Agarwal. VSF is used in many applications including Denim, but Denim is not the most common or most popular application for VSF. So we did not launch any brand or anything like that for VSF application in Denim. So we have new generation of man-made cellulosic fiber under our brand XL, which is produced by Lyocell process and that is preferred material for use in Denim along with cotton. So that is not — we don’t have any brand for Denim product range. But this initiative for Navyasa saree we have started the brand for sarees by ourselves and the idea is that now VSF is used only about 1% in saree application and we want to increase it to at least 6%, 7% in next three, four years. So that is the whole idea.

Navin Sahadeo — Edelweiss — Analyst

Understood. And just one quick question if I may slip in please. Recently UltraTech took stake in this Middle Eastern entity called Rak White Cement and they have also on the con call confirmed plans to further take full control of it, if possible. My question was, if white cement is like a good fit or a decent integration with the paint business, would Grasim not would it not be better had Grasim looked at it and get it under it fold rather than keeping it in a different entity. Thanks.

Himanshu Kapania — Business Head – Paints

Thank you. This is Himanshu. Yes, you’re absolutely right, white cement has multiple applications and over the years white cement application has tended to be more towards the paint side especially towards the under coat side. But the fact remains Birla White is a Division of UltraTech and it’s a very strong brand and it is — it has a set of independent set of shareholders. So Grasim has chosen to launch it’s paint services through the Grasim vehicle. UltraTech remains focused on the cement side of the business, including the White Cement side of the business. And both the shareholder at an appropriate point of time will work out in necessary arrangement to work on synergies at both UltraTech and Grasim profit from the growth of our entry of Grasim into the decorative paints business.

Navin Sahadeo — Edelweiss — Analyst

That’s helpful. Thank you so much.

Operator

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

Nirav Jimudia — Anvil Research — Analyst

Yeah, good afternoon. Sir, I have two questions. So one on the VSF side. So, sir, if we see your presentation, so in between Q3 and Q4, our volumes have improved by 22,000 ton, while if we see the breakup in terms of exports, I think they have gone up by just 9,000 tons. So this gives an additional 19,000 tons of volume, which I presume must have been sold in the domestic market. So if you can just help us explain that, is this because we have in place some of the imports which were coming to India and our domestic market share has gone up to that extent or is this because the market has expanded by such an extent that we have been able to garner this sort of additional volumes?

H. K. Agarwal — Managing Director

Yeah, actually both things come, market has expanded and as you know that cotton prices are at all-time high and there is more tendency among spinners to spin VSF other than cotton because of the CFI strip brands. And also to some extent imports have also come down because of the logistics issues. So yes, we have been able to place more volume in domestic market in the Q4.

Nirav Jimudia — Anvil Research — Analyst

Okay. Sir, if you can help us explain what is the normal run rate of VSF imports coming to India in a quarter or if you can guide even for FY 2022 that would be helpful sir?

H. K. Agarwal — Managing Director

So, the total imports in FY 2022 have been around 90,000 tons. So something like 7,500 tons per month [Speech Overlap] is roughly about 10%, 11% of the total market.

Nirav Jimudia — Anvil Research — Analyst

Okay. 10% to 11% of the total market? Okay and predominantly we have garnered those incremental market share because we have replaced some of the — those imports coming into India in Q4?

H. K. Agarwal — Managing Director

But major part is because of the increase in the market, because our customers have been also installing more equipment and they have installing more MVS machines, which is new technology for yarn spinning and so yeah, demand has been good.

Nirav Jimudia — Anvil Research — Analyst

Got it. Got it. Sir, my second question is from last almost two, three quarters, we have seen our specialty volumes in the range of 42,000 to 45,000 tons. So last two quarters they are almost team. So is this the optimum utilization at what we can operate for specialty or is there a further room of increasing our volumes with the current capacity?

H. K. Agarwal — Managing Director

See, in VSF business the specialty there are I can make in two groups, there is one product, one or two products, which have to be made in a special purpose plant especially our XL fiber plant, XL fiber. But other [Technical Issues] we can have more flexibility. So sometime there is a seasonal element like one of our product LIVA, there was a seasonal issue which demand was much less in Q4, but XL fibre has improved, model was more or less same. So we have flexibility and we are also debottlenecking our XL capacity. By next February or so, we will have debottleneck to the extent of about 30% our existing XL capacity, it’s a very small less month.

Nirav Jimudia — Anvil Research — Analyst

Okay. But sir apart from that, let’s say, are we doing some more capex on the specialty side because eventually we want to grow up to 40% of our total volumes from specialty. So if you can share your roadmap for increasing those volumes to 40%. What sort of capex would be required in order to reach those volumes?

H. K. Agarwal — Managing Director

See we have inbuilt capacity which can take our specialty volume to almost 33%, 35% without much capex. Some products we have flexibility to produce even on the existing lines where we made grey fiber. And like dye fiber we have capacity, but the demand and — so we are exporting also significant dye fiber, so if that Indian demand increases, then we will serve Indian demand on priority basis.

So it is not necessarily only capex which is required for growing the volume, but yes, Lyocell beyond 30% debottlenecking if you want to do then we will have to think and plan significant capex because then so we will like to install size of large size plant, which is internationally economical size.

Nirav Jimudia — Anvil Research — Analyst

Correct, correct. And sir, just a small clarification, in terms of this 33%, 35% is on our expanded capacity right?

H. K. Agarwal — Managing Director

No, no from the existing capacity, existing capacity of Lyocell.

Nirav Jimudia — Anvil Research — Analyst

No, no, sir, you mentioned, we can go up to 33%, 35% of…

H. K. Agarwal — Managing Director

Of the total, yeah, expand it.

Nirav Jimudia — Anvil Research — Analyst

Got it, got it, sir. And sir, last question would be in terms of, sir, if you see the financials. So I think this quarter VSF margins have come under pressure, so you rightly mentioned that this is because of the increase in the raw material cost. So has apart from the raw material costs, are there any pressures on other cost also like freight or power or any other cost related to that or and added adding to that are the premiums on the specialty VSF come under pressure this quarter because of which we have seen some subdued margins on the VSF side?

H. K. Agarwal — Managing Director

See like pulp caustic, sulphur, they are all raw materials and coal has also increased and coal is a significant cost, energy cost steam and power is almost 16%, 17% of the cost of production. And then transport costs has also increased and there were some extra export during Q4, which was of Omicron in India, we did not want to take risk of having inventory in the last quarter. So all these things combined. But yes, once the cost — input cost come to normal level, then we will see our profitability improve to the normal levels.

Nirav Jimudia — Anvil Research — Analyst

But sir have we taken some sort of price increases because in order to compensate for the cost, because I think in between the quarters our margins have come down significantly. So have we taken some sort of price increases on the grey fiber in India in the international prices?

H. K. Agarwal — Managing Director

Of course, since September, we have increased our grey fiber prices to the extent of 27% until March. And we adjust the prices on a monthly basis and we compare the landed cost of imports and all other factors and we adjust the prices, we can’t survive, we don’t increase the prices in this environment.

Nirav Jimudia — Anvil Research — Analyst

Correct, correct. Okay, sir. Thank you, sir. Thank you for answering the questions in detail and all the best.

H. K. Agarwal — Managing Director

Welcome.

Operator

Thank you. We’ll take our next question from the line of Sanjeev Kumar Singh from Motilal Oswal Financial Services. Please go ahead.

Sanjeev Kumar Singh — Motilal Financial Services — Analyst

Thanks for the opportunity, sir. I want to understand this increased capex on the paint segment in a better way, so I think…

Operator

Mr. Singh, sorry to interrupt, if you’re on a speaker mode, can you use the handset and speak?

Sanjeev Kumar Singh — Motilal Financial Services — Analyst

I’m audible now?

Operator

Better, sir. Thank you.

Sanjeev Kumar Singh — Motilal Financial Services — Analyst

So, sir, I want to understand this increased capex on paint in a better way. So when we had given a plan of 50 billion of capex in three years, then what were the target capacity was in our mind and then suddenly we have increased it to around INR10,000 crore. So what had led to this chain and what is driving this confidence, so can you give some better sense on this?

Ashish Adukia — Chief Financial Officer

Himanshu will take that question.

Himanshu Kapania — Business Head – Paints

Hello, Sanjeev, you can hear me? Good evening.

Sanjeev Kumar Singh — Motilal Financial Services — Analyst

Yes, sir, yes, sir. Good evening, sir.

Himanshu Kapania — Business Head – Paints

You’re absolutely right in FY 2021 when we last met in January, we had announced a three-year plan of INR5,000 crores and we are revising that plan to INR10,000 crores. There is obviously — there was pressures from inflation, commodity inflation on the capex side and we also observed that the market growth in the paint sector was far higher than with what our original estimation. So we had drawn up our original business model and in the original business model, we had made an estimation of our capacity which would have taken much longer to bring in the 1336.

And what we have done now is accelerated that 1336 MLPA capacity which would have taken us approximately six to seven years to bring in and we are trying to bring that in a three year because the market at this point time is extremely buoyant. Also by bringing accelerating our investments, we were able to optimize our existing plants that we had originally planned for which resulted in that the inflationary cost was compensated significantly with economies of scale.

So we got — the acceleration has helped us in bringing our economies of scale, so the cost per MLPA has remained similar levels allowing us to be able to participate in the market in a much more aggressive manner. I just want to remind you at the time of January 2021, we had shared our ambition that we want to be a profitable number two player and current market share of operators is closely linked to their capacity share. With this capacity, we will be able to achieve our ambition and guidance to the market of being a profitable number two. I hope it answers your question?

Operator

Sir, looks like Mr. Singh’s line is dropped. In the meanwhile, we’ll take our next question, that’s from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead.

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Good evening. My questions were more on the balance sheet side, number one, we saw an increase in inventories, as well as payables. Is it because of the increased size of business and the cost of materials or is it one-off or how do you expect that to correct itself over the next quarter? The second question is on the capex plan and relate to the first question, given the fact that you’re going to spend 10,000 crores over the next, let’s say, four years, in terms of, I mean in terms of the debt profile, how do you expect in terms of control over debt to EBITDA or any of these — which is actually currently excellent, but how do you expect that to move over the next three to four years? Thank you.

Ashish Adukia — Chief Financial Officer

Sure, sure. So overall, the increase in current assets that has taken place is mainly on account of inventory and that is on account of the price increase. So the prices of all inventory, the rates basically while the days may not have changed, the rates have gone up and therefore the inventory levels have gone up. Okay? So that’s a factor of price — the price come off, then you will see the inventory levels also coming up.

On your second question, on the debt profile, see right now, we’ve not — as you may have noticed in this presentation, we’ve not appex for this year. So it’s difficult to say where we land in terms of our debt profile, of course, I can say one thing that this net debt position or net cash position is transitory and we will get into a net debt situation again given the capex that we have over next one, two years.

So it’s little premature for me to comment on exact number of the debt profile. Our underlying — I just want to reiterate, our underlying thesis of retaining investment grade doesn’t go away.

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Okay, at AAA, I presume, so all the best and look forward to hearing the debt guidance the next call.

Ashish Adukia — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question is from the line of Pinakin from JP Morgan. Please go ahead.

Pinakin — JP Morgan — Analyst

Thank you very much sir. Sir, a few question on the paints business. Sir, just trying to understand at this point of time, is the INR10,000 crore capex number more or less the captures the entire investment or can this number see a very substantial revision higher like we have seen from INR5,000 crores to INR10,000 crores?

Ashish Adukia — Chief Financial Officer

Thank you. The need for investments both plant and non-plant for the next three to five year time period. And once our capacity utilization crosses 80% would be the next phase of investment. So for a current phase fully almost captures this our need.

Pinakin — JP Morgan — Analyst

Sure. My second question is that at this point of time should we expect that the paints business capex will be 100% funded out of Grasim or would the Company look to derisk and bring in some kind of strategic partner into the paints business?

Ashish Adukia — Chief Financial Officer

No, no plan of getting any strategic partner, we’ll fund it through [Indecipherable].

Pinakin — JP Morgan — Analyst

Sure. And lastly, can you give us a sense of what are the expected IRRs that the company expects from this business and by when does the company expects to hit those IRRs?

Ashish Adukia — Chief Financial Officer

We had in the last announcement when we gave our announcement of INR5,000 crores indicated our IRR for this project in the range of 20%. Even though we are expanding our investment, we have reworked our business model and reaffirmed that this project will be at around 20% IRR levels.

Pinakin — JP Morgan — Analyst

By when sir, because given that it will be commissioning in FY 2025, so should we expect this over how — what number of years?

Ashish Adukia — Chief Financial Officer

This — IRR of a project, I’m talking of a project IRR and typically you carry out the project IRR over 10, 15 years and then due to, as we will do a normal finance — project financing model.

Pinakin — JP Morgan — Analyst

Understood. Thank you very much, sir.

Operator

Thank you. Our next question is from the line of Mohit Sally [Phonetic] from Accelerate [Phonetic] Advisory. Please go ahead. Mr. Mohit Sally, could you please go ahead with your question? There seems to be no response from this line. We will move to our next question, that’s from the line of Prateek Kumar from Jefferies. Please go ahead.

Prateek Kumar — Jefferies — Analyst

Yeah, good evening, sir. So a few questions, firstly on VSF versus cotton. So while we keep mentioning about this and we keep charting it out as well, but there seems to be no real correlation off late what we have seen and we are really struggling to even pass through basic cost and like EBITDA has clashed like anything like got one fourth in past four quarters. So can you just explain a bit on how is this cotton versus VSF dynamics really playing out and not clearly helping us or anyone else in the global industry?

H. K. Agarwal — Managing Director

So normally in the past price of VSF and cotton would move more or less in tandem, but like correlation was 0.75 kind of. Off lately, cotton has been in a very tight situation and there has been I think some financial speculation also because cotton is the oldest commodity on the exchanges. Then supply chain concerns also have pushed the cotton prices very fast. These are not normal price increase in the length. And VSF being a industrial commodity, there is a different supply-demand dynamic. So this time VSF prices have not been able to keep pace with the cotton price increase. And cotton crop, again there are different estimates and people estimate that cotton crop will be less this year, demand will increase. So there is lot of psychological and speculative bullishness on cotton prices.

So this one is the main reason for — VSF is not that speculative and there is no forward available like what is available on cotton, so that explains the divergence this time.

Prateek Kumar — Jefferies — Analyst

So are these not the real prices which consumer of cotton or VSF is buying and that’s why I mean we are not able to increase our prices? I mean is VSF really replacing cotton at such high prices?

H. K. Agarwal — Managing Director

For some extent, yes, we are seeing additional demand from people who used to spin cotton, now they want to stop cotton and spin more VSF because cotton is too expensive or it is not available or some similar reasons. So it is not that these are at these prices the transactions are not happening, the transactions are happening. So we are selling VSF at current prices, we have been adjusting VSF prices also to the extent we can do, but there is a import possibility and we have to calculate the landed cost of imports and charge whatever price we can do.

So in cotton, there is no import available, import is of very high variety and even government has reduced the import duty abolished import duty, but still the prices have not come down. So there is different kind of dynamics playing out there.

Prateek Kumar — Jefferies — Analyst

Okay. And regarding pulp pricing, which was also expected to sort of come down, how has that been in terms of inventory position? And is any of the three, four cost line items, key cost line items for VSF expected to moderate over next six months?

H. K. Agarwal — Managing Director

Like pulp prices have been going up in last two, three months, in Q4 pulp price was little bit down, but off lately they have been going up. So they should stabilize now because there is a new pulp plant commissioning in Brazil. So the increase should not continue for too long. Supply chain issues are also creating shortage and the buyers have to buy in desperate, so sometimes that affects the price. So as you mean that global geopolitical situation doesn’t escalate further power and things supply chain comes back, start to improve as we have seen in some sections, so the prices should not continue to increase like they have done in the last quarter. So that will bring more reasonable impression in the market.

Prateek Kumar — Jefferies — Analyst

Okay. So for FY 2023 modeling purpose, second half of FY 2022 margins in VSF segment are more reasonable and like first half was like first half and even last year fourth quarter was maybe an aberration in terms of EBITDA per…

H. K. Agarwal — Managing Director

Second half of FY 2022 was also kind of aberration because the input prices increased very strictly. So both were unreasonable, I think average of both situations would give a better workable model.

Himanshu Kapania — Business Head – Paints

You have to appreciate that overall we are going through certain disruptions in logistics, supply chain, etc, which is creating certain price mechanisms which are breaking from the trend. So that also we have to bear in mind. I think if you look at VSF price premium over Pulp okay, that broadly we’ve been able to maintain. So it’s also the factor of some of the other cost slight caustic etc, which has led to erosion in the margin.

But the fundamental VSF to pulp premium [Speech Overlap] absolutely, that has continued to maintain.

Prateek Kumar — Jefferies — Analyst

Okay.

H. K. Agarwal — Managing Director

In the case of Grasim, although there are caustic high price comes as a cost in VSF, but the Grasim level is a inter department — inter-division. So that’s really is not extra cost in that sense.

Prateek Kumar — Jefferies — Analyst

Okay. Sir, on caustic segment while our absolute EBITDA seems bit lower on a sequential basis there as well, but on caustic chlor-alkali segment would have done better, but that has been offset by Advanced Material Epoxy segment weakening on a quarter-on-quarter basis?

Himanshu Kapania — Business Head – Paints

So what’s the question, I couldn’t figure it out.

Prateek Kumar — Jefferies — Analyst

Is that the right assessment? So epoxy has particularly weakened, that has resulted in to Q-on-Q drop in because prices of caustic clearly are high and that’s what is also hurting VSF?

Ashish Adukia — Chief Financial Officer

Yeah, so as I said in my opening statement, Chlor-alkali has actually delivered the highest ever quarterly EBITDA in Q4. So the Chlor-alkali EBITDA for Q4 is higher than Q3, it’s because of epoxy which has corrected significantly that your total EBITDA is looking lower for chemical segment in comparison to Q3. Yeah and to clarify what Jayant is also clarifying that, Epoxy has normalized, they got a run of almost I think three or four quarters of superb profit because of the high realization and low brand, yeah.

Prateek Kumar — Jefferies — Analyst

And sir, last question on paint segment, is there anything on revenue, I mean, because we are looking to start from Q4 FY 2024 in terms of plants, anything we are looking at in terms of first year of revenue in that segment?

Ashish Adukia — Chief Financial Officer

That’s premature, I think we are focusing on commissioning the plants right now, so difficult to say exactly when we’re going to launch and start the revenue stream. One thing we have clarified earlier is that, we’ll not follow any outsource or we’ll do it through the our manufacturing business.

Prateek Kumar — Jefferies — Analyst

Sure sir. These were my questions. Thanks and all the best.

Operator

Thank you. Our next question is from the line of Alok Shah from Ambit Capital. Please go ahead.

Alok Shah — Ambit Capital — Analyst

Yeah, hello, sir thanks for the opportunity. Sir my first question is, when you speak about the improving market scenario in the paints business, just wanted to check because basis our understanding this optimism is also because of not only the paints, but also the ancillary segments. So given the plan is also hence to cater to that part of growing segment or the focus would largely be in the core decor segment, just wanted to hear your views on that?

Ashish Adukia — Chief Financial Officer

No, our focus is only on the decorative paint segment. And just for clarity, decorative paint segment includes both the merchant side of the business, as well as the NML side of the business, the waterproofing side of the business as a little good finish. So these are the broad categories which all contributes to the decorative paints. We are not getting [Technical Issues].

Alok Shah — Ambit Capital — Analyst

Okay, got it. Sir, the second question is, when you talk about the capex of INR10,000 crore, what part of that would be largely gross block because I — if I heard correctly, you said it’s a mix of capex plus non-capex items. So what part of that should be gross block roughly?

Ashish Adukia — Chief Financial Officer

So clarifying it is all of it is gross block, it is broken in to plant and non-plant and the large portion of it is plant.

Alok Shah — Ambit Capital — Analyst

Got it, got it. So largely INR10,000 crore is gross block that we are looking at, again that will get around 13000 odd MLPA and while during the call I was just confirming, Asian Paints or even the leader is at around 7000 or MLPA because they denote it little differently, so just to reconcile the numbers.

Ashish Adukia — Chief Financial Officer

Yeah, to our mind there would be a slightly higher number by the time we are launching our service.

Alok Shah — Ambit Capital — Analyst

Got it, got it. Okay, thank you very much for those questions. Thank you.

Operator

Thank you. Our next question is from the line of Anshuman Atri from Premji Invest. Please go ahead.

Anshuman Atri — Premji Invest — Analyst

Hi, sir. Good evening. My question is on the paint business. So I have three questions, one is, you’re announcing a size which is almost double of the current number the player. So, by when do we see this 1.3 getting fully commissioned and what would be the timeline in terms of the capacity utilization reaching this 80%?

Himanshu Kapania — Business Head – Paints

Okay. As Ashish mentioned in his opening statement, we expect to start launching our services by the fourth quarter of FY 2024, this next financial year. And in a phased manner over the next 12 to 15 months, we would have the entire capacity available. But from quarter four of FY 2024, we will go for a nationwide launch. So our — we are hoping to — have our products available on a nationwide basis.

Anshuman Atri — Premji Invest — Analyst

And sir generally we have seen whenever Grasim launches a capacity there in one, two years you are almost close to full utilization. So can we expect something similar in the same timeline?

Ashish Adukia — Chief Financial Officer

I think it’s very premature yet. There are plans on a piece of paper, but I think we will wait to see our execution.

Anshuman Atri — Premji Invest — Analyst

Sure. And other question is on the — so if I look at your environmental assessment reports, so you are doing lot of backward integration in terms of epoxy, in terms of the emulsion and other things. So what kind of cost advantage can you have versus the existing players?

Himanshu Kapania — Business Head – Paints

So different players are in different stages of their backward integration. So as far as we are concerned, there are the two key components of raw material are titanium outside and emulsion or resins and may be applicable for water-based paints or solvent-based paint, both emulsion and resins we’ll manufacture in-house and that is one which we will — which is a bought out item for us.

So now — I won’t be able to give you a generic answer, different competition or different stages and a different percentage, but our entire requirement of emulsion and resins will be done from in-house production.

Anshuman Atri — Premji Invest — Analyst

Sure. And one last question is on the decorative side on these patti and other ancillaries, this will be done by UltraTech and whereas the paint part will be done by us?

Ashish Adukia — Chief Financial Officer

So, let me give you a sense on the putti side of the business. I don’t know how much you follow on the under coating side, Birla White is a market leader and has been strengthening its position. It improved last year it’s market share, volume market share by 2%, but it currently commands about 10% premium over the next player and over paint majors, it commands 20% premium.

So on a revenue market share, it has close to 33% to 35%. So this is the one statistics and continue to strengthen its position. Reason why it continues to strengthen its position because it’s quality and brand acceptance is significantly higher than what all is available. Why is that because it is among few companies which manufacture it’s product does the entire R&D and manufacturing in-house rather than number of paid manufacturer, they do a lot of portion in outsource, you will find that also in the paint side of the business where we are trying to do it all in-house, so the research and development is done in-house, backward integration done in-house and quality of manufacturing is completely controlled in-house.

So going forward, as I mentioned to be bale to get synergy and cost control, both the shareholders of both the company will enter into some sort of agreement and which will not only be able to make available the putti for the paints business, but also be able to have multiple other synergies, at an appropriate point of time we’ll discuss that.

Anshuman Atri — Premji Invest — Analyst

Sure, sir. So this kind of expansion is unprecedented, so wish you all the best.

Ashish Adukia — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question is from the line of Saket Kapoor from Kapoor Company. Please go ahead.

Saket Kapoor — Kapoor Company — Analyst

Yeah, [Foreign Speech] and thank you for the opportunity, as being clarified by, you said that the, if we take the segmental result and that the chemical segment caustic soda and allied chemicals, the dip in the profitability Q-on-Q is only on account of chlorine prices trending lower, sir, that is the only reason why this INR451 crore has moved down to INR390 crore?

Ashish Adukia — Chief Financial Officer

So at a conceptual level, you’ve understood it right, except that within Chemical segment there is chlor-alkali and there is Epoxy business and the ethy chloro hydrate what you’re talking about is input, it’s a raw material for the Epoxy business. So one of the reasons for epoxy business not normalizing the margin is because the PCH prices have remained high, while the realization for Epoxy has come down.So — but at a conceptual level your understanding is correct, the Q-o-Q number has come down because only because of epoxy, Chlor-alkali has gone up.

Saket Kapoor — Kapoor Company — Analyst

And sir, the factors in your presentation, you mentioned about the strong trends in the Caustic Chlor-alkali prices is also because on account of the shutdown at the — at China. So other than that, what kind of capacities globally has been mothballing, any understanding on the same or are these shutdowns temporary then, what should we take home because of that this — how sustainable is that trend going forward, whether it is a demand led trend or is it mainly because of the outage in the capacity?

Jayant Dua — Chief Executive Officer – Chemicals Division

So I think it’s Jayant beside. So, let me hold this way that, it’s not about mothballing of capacities, yes, I think one or two capacities in US particularly have been mothballed because they were brought into the modern technology, [Technical Issues] which is effectively not there, but to the disruption in the prices is been largely due to the supply chain disruptions which have led the current use of war has lead to the proxy movement being quite control, that’s happened too much, Europe has got into a shortage because of that. We will add a couple of outages both planned and unplanned, China too [Technical Issues] COVID. So, I think there is a current global disruption which is now getting sorted out.

And I think going forward you will start seeing a more normalized caustic prices within another month or two months, unless something new happens which is done not known to anyone of us.

Saket Kapoor — Kapoor Company — Analyst

Yeah, sir post this March quarter exit the realization, the trend has remained upward or maintained or are we seeing the softening of prices as the factors you have articulated, sir at an organization?

Jayant Dua — Chief Executive Officer – Chemicals Division

If you look at the global indices which get normally reported, there is a marginal uptrend, but it varies week to week depending upon how the supply chain moves. So it’s not materially changed much.

Saket Kapoor — Kapoor Company — Analyst

Because I think the input cost have definitely softened, I think so the energy prices in the case and they have definitely softened or there is no reliant there also sir?

Jayant Dua — Chief Executive Officer – Chemicals Division

No, their energy price also continue to be in the same range at this point of time. Actually post-March, we are not seeing too much of a significant delta on [Technical Issues].

Saket Kapoor — Kapoor Company — Analyst

Hello?

Jayant Dua — Chief Executive Officer – Chemicals Division

Yeah, I said on post March, you’ve not seen a significant delta movement on either side on both the cost front or on the realization front.

Saket Kapoor — Kapoor Company — Analyst

Right, sir. And on the other major raw material salt, sir, how much is our — are we self sufficient or backward integrated and by what portion are we dependent on the market and how are the price trend shaping up there sir?

Jayant Dua — Chief Executive Officer – Chemicals Division

So salt per se, no we are not backward integrated or we are not dependent, self-dependent, we largely buy maybe about 90% of our salt from outside the market. So, salt market actually will get governed by how the crop comes up post monsoon, ferry gets affected as there are lot of cyclones in the area and crop shortage happens, prices should top. So, I think it will be premature because I don’t think so I can predict the weather factor to wrap, but currently compared to last year, the prices continue to be at the same level, which are at the elevated level because of the fact the [Technical Issues].

Saket Kapoor — Kapoor Company — Analyst

Correct, thank you. Thank you for the answers and all the best on the value added product part, what was our target, what percentage are we going to — the internal loading consumption is going to go up say two, three and five years down the line, sir?

Jayant Dua — Chief Executive Officer – Chemicals Division

So currently we are at about 30-odd percent and with the current set of projects which are we are looking at which I think at appropriate time we will talk about, we will start about 3%, 4% increase annually, which is going to go up over the next five years time. So between, let’s say three years time we could see from 30 to 40 is where the target will be, would be a gradual increase, you will not see sudden spike there.

Saket Kapoor — Kapoor Company — Analyst

Okay, sir. And if I may squeeze just one small point, sir, for this year, I mean for the last financial year, what have been the import of caustic soda in the country and for this current current year, what are the new capacity additions that are expected here in the country?

Jayant Dua — Chief Executive Officer – Chemicals Division

So, you see, what is interestingly happened and I think that’s one change which has happened in the Indian caustic industry, which is India has become a net exporter which used to be rear kind of a balance. So I wouldn’t have the exact number, but somewhere around 2 to 2.25 lakh tons would be the import feeling. Yeah, so it’s 2 lakh tons which has happened in this year of [Indecipherable] which is going to happen.

And I think going forward, there are new capacities which have got announced, I really don’t know when they’re going to come and scream, but India would maintain its net exporter status for the next year or 2 years.

Saket Kapoor — Kapoor Company — Analyst

Okay. Earlier you said, we were net importers only, when is this trend, when this trend changed from [Speech Overlap]?

Jayant Dua — Chief Executive Officer – Chemicals Division

Last two years?Last year.

Saket Kapoor — Kapoor Company — Analyst

Last year itself, correct. Thank you for the elaborate answers and all the best to the team.

Jayant Dua — Chief Executive Officer – Chemicals Division

Thank you.

Operator

Thank you. Our next question is from the line of Jiten Doshi from Enam Asset Management. Please go ahead.

Jiten Doshi — Enam Asset Management — Analyst

Yeah, hi. Ashish, many congratulations on a good performance. I just wanted to find out that, what is the capex over the next three years apart from paints and what is the peak turnover you expect on the capex from paints?

Ashish Adukia — Chief Financial Officer

Yeah, so see at this stage, we can’t give the guidance on this — on both these numbers. When we get the capex approved for this year by the Board at that time we’ll immediately announce it to the market about the pure CapEx which is other than paints what you are mentioning.

Jiten Doshi — Enam Asset Management — Analyst

Okay, because if one just does some simple math, your next four years cash flow should be about INR8,000 crores to INR9,000 crores, which includes UltraTech payout etc, which should be nearly INR6,000 crores of dividends declared by them, as well as. So what would be your dividend policy over this period of paying out to shareholders?

Ashish Adukia — Chief Financial Officer

So, we are following our dividend policy, we have passed through this time today as well. We have passed through the UltraTech dividend to the shareholders.

Jiten Doshi — Enam Asset Management — Analyst

Would that continue into the future?

Ashish Adukia — Chief Financial Officer

See, I think every year we have to look at the situation, right? If there is huge capex demand that comes through, okay, which is unlikely, but I’m just theoretically saying okay? Then we may have to discuss at the Board level, but as of now the plan is to pass through the UltraTech dividend.

Jiten Doshi — Enam Asset Management — Analyst

Because it’s simple math, if you can sustain your current year’s operating profit and/or increase it over the next three to four years, then actually you should remain debt free in four years?

Ashish Adukia — Chief Financial Officer

So difficult for us to comment on that, I think.

Jiten Doshi — Enam Asset Management — Analyst

So actually, you will be swimming in a lot of cash, so will the dividends you — whatever you get from L&T, I mean from UltraTech you will pass on that dividend to Grasim shareholders?

Ashish Adukia — Chief Financial Officer

Yes, that’s, we’ve done it for last two years and the idea is to continue doing that.

Jiten Doshi — Enam Asset Management — Analyst

Okay. And any idea on monetizing your renewable portfolio?

Ashish Adukia — Chief Financial Officer

Right now we are growing the portfolio, there is no such plan to monetize it currently I think.

Jiten Doshi — Enam Asset Management — Analyst

Okay, all right, fine. Thank you so much.

Ashish Adukia — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question is from the line of Bhavin Chheda from Enam Holdings. Please go ahead.

Bhavin Chheda — Enam Holdings — Analyst

Yeah, good evening, sir. Just continuation of the previous question on capex since not announced the broader figures. I just wanted to know how much would be the pending capex of the VSF and chemical divisions which were announced earlier and which would be ongoing and pending?

Himanshu Kapania — Business Head – Paints

No, sir, that we’ll announce it along with the capex because that we announced for this year. There isn’t much of pending figure that is there. So if you look at the slide on capex, you’ll find that there is about INR600 crore to INR50 crore of budget but not spent. So it will definitely be within that, okay and can be lower than the difference as well.

Bhavin Chheda — Enam Holdings — Analyst

Sure, because I think earlier some Chemical Division date was postponed earlier and that capex was slightly postponed, so Chemical Division, was there a higher number because I have earlier modeled higher number for 2023 or you’re saying just INR600 crore is pending for Chemical Division to reach a capacity of 1.5, 3 million?

Ashish Adukia — Chief Financial Officer

No, no, no, no. So that is the capex that we have given on that slide is capex for that for last year FY 2022. For a project there can be additional amount in FY 2023 or FY 2024. So you don’t, don’t confuse that.

Bhavin Chheda — Enam Holdings — Analyst

Yeah, yeah, probably. So for Chemical Division earlier plans of reaching capacity of 15,30,000 roughly 1.53 million, there would be around thousand 1200 crores pending to reach that number right?

Ashish Adukia — Chief Financial Officer

No, it won’t be that much, we’ll come back on that number, but there will be capex towards that — see I think chemicals you have to understand slightly differently, Chemicals is has already got eight sites. So unlike VSF which has got four sites and large projects, Chemicals is number of sites and number of labs as they keep growing. So it’s number of projects are large, so it comes in a staggered way in different timeline and ticket size is smaller, yeah.

Bhavin Chheda — Enam Holdings — Analyst

And sir, maintenance capex is roughly INR500 crores across both divisions that has been the historic run rate of VSF plus Chemicals plus other, that’s fine that number should be ballpark plus minus that right?

Ashish Adukia — Chief Financial Officer

No, so let me clarify one point without giving a number, 500 used to be the case earlier, so one number of sites has gone up. And secondly, there is inflation and there is also environment related capex, which is increasing across all businesses. And you know it’s a good capex to have because this makes your business more resilient and future ready. So we believe that next two, three, five years as we’re taking targets for sustainability those capex should also be counted towards sustainability — sustain it.

So therefore, I would say there are three categories of capex, right, one is just what we always traditionally call maintenance capex. Second is the sustainability related capex, which is kind of not necessarily going to generate revenue for you, but it makes you more future ready. And the third piece is your growth projects.

Bhavin Chheda — Enam Holdings — Analyst

Sure, sure. Okay. Sir, second question, particularly on the VSF division, if I’m trying, you have given annual number of exports, there is 13%, if I try to backward calculate with the earlier quarter which means export this quarter was almost zero?

H. K. Agarwal — Managing Director

No, there were some export.

Bhavin Chheda — Enam Holdings — Analyst

But it was a miniscule figure because I was trying to do — I have earlier three quarters and I was trying to match with the annual number, so I’m getting almost nil VSF exports in quarter four.

H. K. Agarwal — Managing Director

No, quarter four also we had I think about 10% or so export because in India that time we were suspecting this Omicron thing to happen, it was happening, so we wanted to secure our volume. But now, yeah more and more volume is going to domestic.

Bhavin Chheda — Enam Holdings — Analyst

Okay. So quarter four also as per your — my number around 10% in volume term was in export in VSF?

H. K. Agarwal — Managing Director

Yeah.

Bhavin Chheda — Enam Holdings — Analyst

Okay. And I missed out on the point on the VSF margin pressure you have mentioned substantial cost increases in pulp caustic soda coal and others. So, is anything reversed there or price increases have offset it because the margins have been substantially down. So what should we look at it over next two, three quarters, right?

H. K. Agarwal — Managing Director

So, yeah, we expect these prices will not continue to go up for all these inputs, they cannot continue to go up in one direction all the time and we are also seeing that China prices have started increasing because there is tremendous pressure on Chinese producers also. So accordingly, that trend — international prices will also increase, so we expect that we will be able to recover more of the cost increase going forward.

Bhavin Chheda — Enam Holdings — Analyst

Thank you, sir. Thank you, yeah.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference back to Mr. Ashish Adukia for closing comments. Over to you, sir.

Ashish Adukia — Chief Financial Officer

So, thanks. Thanks for everyone, thanks to everyone for joining and patiently listening to our answers. If there are any further clarifications that you may have, you may please reach out to Saket, who heads IR, but then otherwise to me as well. Thank you.

Operator

[Operator Closing Comments]