DCM Shriram Limited (DCMSHRIRAM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to DCM Shriram Limited Q3 and 9 Months FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Siddharth Rangnekar from CDR India. Thank you, and over to you, Mr. Rangnekar.

Thank you. Good afternoon, and thank you for joining us on DCM Shriram Limited's Quarter 3 and 9M FY '21 Earnings Conference Call. Today, we have with us Mr. Ajay Shriram, Chairman and Senior Managing Director; Mr. Vikram Shriram, Vice Chairman and Managing Director; Mr. Ajit Shriram, Joint Managing Director; Mr. K.K. Kaul, Whole-Time Director; and Mr. Amit Agarwal, CFO of the company. We will begin the opening remarks from Mr. Ajay Shriram and Mr. Vikram Shriram, following which we will have an interactive question-and-answer session. Before we begin, please note that some of the statements made on today's call could be forward-looking in nature, and a note to that effect has been included in the conference call invite circulated earlier. I would now like to invite Mr. Ajay Shriram to give us a brief overview on the company's performance and his views going forward. Over to you, sir.

Thank you, Siddharth. Good afternoon, and a very happy and healthy New Year to everybody. Welcome to our earnings conference call for the third quarter of financial year 2021. I hope all of you and your families are keeping safe and healthy. I will share my thoughts on the developments in our businesses and our strategic direction. After that, Vikram will give you the financial perspective. Our strategic business direction includes enhancing scale along with forward integration, enhancing or rationalizing product portfolio and cost competitiveness, thereby strengthening our businesses. Our strategic initiatives taken in recent years in Sugar, Chloro-Vinyl, Farm Solutions and Bioseed businesses have started showing sustained results. Taking further steps in this direction, our Board has approved following new projects in the chemicals business at Bharuch, Gujarat, with an investment of approximately INR 1,000 crores to be implemented over a period of the next 24 months. First product we're getting into is epichlorohydrin, or ECH, with a capacity of 51,000 tonnes per annum, along with glycerine purification facilities. Second product we're getting into is hydrogen peroxide at a capacity of 52,500 tonnes per annum. Third product we are expanding is aluminum chloride, anhydrous aluminum chloride, we are going up by 32,850 tonnes. We are today 60 tonnes a day. We are adding 90 tonnes a day. So we will be 150 tonnes a day. And we are also setting up a multipurpose product research and development center in Gujarat. These projects are expected to have a return on investment of approximately 25% at optimum capacity level. ECH and aluminum chloride put together will consume about 21% of the chlorine currently generated at our Bharuch facility complex. The object of these projects is to enter into downstream chemicals linked to chlor-alkali and forward integrate the businesses. The Multipurpose Product Research and Development Center will enable adding value to our existing as well as our new products, that is ECH and hydrogen peroxide. It will also set up our base for other value-added chemicals going forward. We believe these steps auger well for augmenting scale, product portfolio and chlorine utilization, thereby strengthening our chemicals business. With respect to our already announced projects, the 120-megawatt new power plant at Bharuch is progressing as per plan. It will help to optimize the cost structures at Bharuch. The decision to implement the 700 tonnes per day caustic soda plant and 500 tonnes per day flicker will be taken in due course. We are planning all the above initiatives while ensuring financial prudence and execution capabilities. In terms of our current operations, the company has recorded a healthy operating performance during the quarter and 9 months ending December 2020. All our businesses have shown strong resilience during the pandemic in terms of operations, costs as well as working capital efficiency. Now I would like to share with you the business-wise developments. Sugar. In the current sugar season, the all-India domestic production is estimated at 30.5 million tonnes, and the demand is expected to be around 26 million tonnes. There was a delay of 3 months in announcement of export policy of 6 million tonnes for the current season, which may lead to lower exports. However, it is expected that the season-ending inventory will not be higher than the last season of 10.6 million tonnes. Government of India has increased the prices at which ethanol will be purchased by OMCs. This will help promote ethanol production and correspondingly blending. It is expected that the ethanol blending in this year will be around 6% to 7%, vis-à-vis 5% in the last year. We commenced crushing during the first week of November and have crushed 275 lakh quintiles till 20th January 2021 versus 258 lakh quintiles in the previous season. Sugar recovery on molasses -- on final molasses basis up to 20th January 2021 for sugar year '21 is at 10.7% vis-à-vis 11.3% last year. We have contracted exports of 12.5 lakh quintiles in the new sugar season. Chemicals. Chlor-alkali prices continue to be soft with supply curve moving ahead of demand. International prices are in the range of USD 250 to USD 270 per metric ton. We expect domestic demand to pick up gradually. The average utilization in the industry has picked up to approximately 80% in west zone and 70% in northern zone. Caustic soda demand from key consuming sectors, such as pulp and paper and textiles, has improved up to about 75%, 80% levels. Our capacity utilization for the quarter is 70% vis-à-vis 78% in Q2 financial year '21. The investments in chlorine and chemical downstream products will further strengthen the business with improved integration and multiple revenue streams. Plastics. The domestic PVC demand has posted further recovery during Q3 financial year '21. Sequentially, our average capacity utilization in this segment has gone up from 44% in Q1 financial year '21 to 94% in Q2 to 96% in Q3. International PVC prices continue to remain firm, increasing from an average of $925 per metric ton during Q2 to average $1,230 per metric ton during Q3, amid less-than-expected import arrivals in the country. The domestic prices are showing a similar trend. The new 66-megawatt power plant at Kota has delivered intended cost efficiencies and is facilitating better utilization for the combined production of chlor-alkali and PVC. Agri inputs. This segment includes our Shriram Farm Solutions, Bioseed and Fertilizer business. Agri inputs demand in the third quarter remained buoyant due to good monsoons. Favorable agrochemical -- favorable agronomical conditions and timely harvest of kharif season crop has led to higher sowing during the current rabi season. Shriram Farm Solutions own research seeds, especially wheat, continued to strengthen its leadership position. The business continues to focus on new technology agri inputs with launch of new products. The focus to maximize social media for demand creation and sales promotion is very active. During Q3, all product categories, namely seeds, crop care and specialty nutrients witnessed growth. For Bioseed India and Philippines, it is a small season, and they delivered stable performance. Fertilizer operations are stable. Revenues were lower due to gas prices, which is a pass-through. During the quarter, the gas prices declined to USD 7.9 million MMBtu from USD 10.4 million per MMBtu in the previous period. The urea subsidy outstanding has increased from INR 465 crores in September '20 to INR 624 crores in December '20. In November '20, the government has announced additional allocation of INR 65,000 crores for fertilizer subsidy. If implemented timely, this will significantly ease up the working capital deployed and hence, the health of this sector. Fenesta. Fenesta performance has been encouraging and improving quarter-on-quarter. We expect the trends to continue. The sales have now reached near pre-COVID levels. Order booking is higher at 16% year-on-year and 6% quarter-on-quarter. The business is focusing on new PVC as well as system aluminum and is looking forward to enhance its product portfolio. The brand has retained its premium market positioning and is using digital media to expand its reach and product awareness. I must mention, ladies and gentleman, that the company is focusing on sustainability, environment and governance in a very strong manner. I'm happy to share that business world did a survey of the few hundred companies, top 100 companies of India, and our company was ranked 24th on an all-India basis on the sustainability scale. That was very encouraging for us. With this, I would like to now request Vikram to take you through our perspectives on the financial performance.

Thank you. Good afternoon, everyone. I will take you through the financial highlights for our Q3 and 9-month financial '21 results. Net revenues during the quarter came in at INR 2,159 crore versus INR 2,159 crore (sic) [ INR 2,195 crore ] in Q3 financial year '20. The performance during the quarter was driven by healthy growth in domestic sugar and distillery business, Vinyl business led by PVC prices and volumes and Shriram Farm Solutions led by higher volumes in value-added segments. However, chemical prices and lower sugar exports impacted the growth in revenue. Chloro-Vinyl business saw improved utilization levels sequentially. Our Fenesta business continues to witness healthy recovery after the pandemic. Overall, sugar business revenues were down 14% year-on-year. Domestic sugar [Technical Difficulty] were at 13.5 lakh quintiles versus 12.6 lakh quintiles. However, export sales were 0 versus 7.6 lakh quintiles in the same period last year. This was [Technical Difficulty] to late announcement of export policy. Distillery volumes were higher at 148% year-on-year at 321 lakh liter, adding about INR 100 crores to revenue, out of which INR 79 crore was on account of the second 200 KLD distillery commissioned in Q3 financial year '22. In the chemicals business, revenues declined 13% year-on-year due to lower ECU prices. Prices were lower by 21% year-on-year and 7% sequentially. Lower prices had a negative impact of approximately INR 50 crores year-on-year. Volumes for the quarter remained flat. Plastics business recorded 41% growth in revenues on a year-on-year basis at INR 270 crores, driven by PVC volumes and prices. PVC prices were up 49% year-on-year and volumes up 11% year-on-year. Sequentially, the prices were up 32%. SFS value-added product businesses revenues were up 28% year-on-year, driven by product categories across value-added verticals, primarily seeds. Bioseed revenues were up 10% year-on-year, driven by higher paddy sales in domestic operations and corn in Philippines. Fenesta businesses growth remained flat on a year-on-year basis due to the setback in the first quarter. Sequentially, however, revenues were up 17%, led by volumes. The order book had a strong improvement of 16% year-on-year, a positive sign for this business. Coming to PBDIT. Q3 financial year '21 stood at INR 421 crores, higher by 30% year-on-year, supported by the sugar, plastics, SFS and fertilizer segments. Sugar PBDIT, excluding inventory valuation charge of INR 18 crores, was up 16% year-on-year at INR 135 crores, driven by distillery earnings. This inventory valuation charge will be reversed as the season progresses, and we have grown into the inventory value in due course. PBDIT for the chemicals segment was down by 21% year-on-year, at INR 98 crores, due to lower ECU. Plastics PBDIT stood at INR 101 crores versus INR 30 crores, driven by higher PVC prices and volumes. Earnings were aided by lower power and fuel costs, supplemented by savings as a result of the efficient new 66-megawatt power plant commissioned in Q4 financial year '20. Shriram Farm Solutions PBDIT was up 24% year-on-year at INR 78 crores, driven by seed volumes. Enhanced focus on value-added segment is yielding sustained profitability in this segment. Fertilizers PBDIT stood at INR 39 crores versus INR 17 crores. Current quarter includes about INR 20 crores on account of price notifications received in Q3 financial year '21 relating to financial year '18 and '19. Let me also share some highlights for the performance for 9 months financial year '21. Revenues were up 5% year-on-year at INR 6,118 crores, mainly driven by sugar, SFS and PVC segments. Sugar business was driven by sugar and distillery volumes. Sugar volumes up by 25% year-on-year at 54.5 lakh quintiles. Distillery volumes up 141% year-on-year at 940 lakh liters. PVC performance was driven by prices, and SFS performance resulted from growth across verticals -- value-added verticals. PBDIT spanned by 9% year-on-year to INR 853 crores, again due to the setback in the first quarter primarily, primarily as a result of the lower earnings of chemicals business, led by lower prices and volumes; and in Fenesta, led by volumes in the first quarter. On the balance sheet side, net debt as at 31st December 2020 stood at INR 385 crores versus INR 971 crores as on 31st December 2019 and INR 242 crores as on 30th September 2020. Cash generation remained healthy with adequate liquidity. Majority [indiscernible] remained unutilized. ROCE came in at a healthy 17.1% from 15.1% in December 2020. ROCE improved quarter-on-quarter with better performance in vinyl, sugar and SFS businesses. On the whole, we are at a healthy balance sheet position with steady liquidity position at all times. Given our operating cash generation and surplus funds, we will be able to fund the newly announced INR 1,000 crore expansion, largely from internal accruals. If required, our balance sheet has the strength to enable us to raise adequate amounts of debts. This brings me to the end of the financial discussion, and we will be happy to take questions that you may have. Thank you.

Just before we go into the questions, this is Ajit Shriram here, I just want to clarify that the -- in the chemicals business, our capacity utilization is 80% this year versus 78% last year. It was -- by mistake, it was mentioned as 70% this year. So I want to clarify, it's 80% versus 78% last year. Thank you.

[Operator Instructions] The first question is from the line of Rohit Nagraj from Sunidhi Securities.

Congrats on good set of numbers. So the first question is on the chlorine consumption. So we have announced the new CapEx for downstream product and our requirements for -- or rather consumption -- capital consumption of chlorine will go up. So after the expansion, what would be the captive consumption? I understood you mentioned 21%. Was that for the entire unit that is existing plus incremental? That's my first question.

No. I think -- see, we are today -- our chlorine consumption, we are supplying -- by pipeline, supply to 5, 6 direct buyers, which is connected directly to our factory on a pipeline. That is taking approximately -- that's taken approximately about -- how many percent?

Around 35% to 40% is supplied by pipeline...

Around 35% to 40% of our production already -- that's already going directly. Over and above [Technical Difficulty] products, which are going to come in, will take another 21% of our production. So that will then mean about 60%, 65% of our production will be consumed directly and will not have to be sold in the market in toners. It's going to be a change that way.

Right. That's helpful. Sir, the second question is in terms of the new expansion plant. So I believe that there are other players who are also trying to get into downstream products of chlor-alkali, epichlorohydrin, hydrogen peroxide. So what is the rationale behind this? A, I understand chlorine consumption would be one part. But beyond that, is it going to be import substitute or the domestic demand is so strong that we are entering into this business?

See, ECH today, there is no one in India. There's 1 more plant, which is coming up, and there'll be ourselves. There'll be only 2. India is importing the entire requirement of ECH. So that is something which we thought makes sense considering it adds value to our chlorine business straightaway. Hydrogen peroxide, yes, there are 5, 6 players already, but that's a good growing market. And there are many grades of hydrogen peroxide also which are used by various consumers. So there is adequate market in this, and we also have, again, captive hydrogen. So that gives us the benefits of having the raw material available for both these products directly within our own complex. So we have a competitive advantage on that.

And if I can just squeeze a little question. On soda -- caustic soda, what is our understanding? How it will fare during this year? Because I think we are at the trough of the cycle. So what is our expectation for the next year?

As for any commodity business, we've seen a couple of years ago, if you recollect, caustic soda was booming. It was exceedingly high. Now it's come died. Plastics are moving well just now. But I think seeing the economic growth expected in India also over the next year or 2 years, our feeling is that after another maybe 2 quarters, we should come up to a more satisfactory pricing for our ECU of chlor-alkali -- of caustic soda chlorine.

I'd just like to add to that. Vikram Shriram here. That actually caustic and chlorine are co-products when you manufacture them. So typically, in the world markets in the long run, PVC and caustic soda are countercyclical. So when PVC is strong, caustic soda tends to be soft and vice versa. I'm making a general statement, but that is the trend. So you have to keep that in mind that the strong PVC also has an influence on soft caustic.

The next question is from the line of Pratiksha Daftari from Aequitas Investment Consultancy.

So sir, the CapEx that we've announced INR 1,000 crores, would it be possible to give bifurcation? And how much of this will be allocated for ECH? And how much for hydrogen peroxide? And what kind of revenue potential do we see for these products once the capacity -- like once they reach optimum capacity?

Amit, can you do that?

So for ECH, our expenditure will be in the range of around INR 400 crores to INR 450 crores, that is epichlorohydrin. For hydrogen peroxide, also, it's around INR 400 crores. And in terms of capital output ratio, I think we are investing INR 10,000 crores. It should add close to about INR 1,100 crores to INR 1,200 crores to our revenue.

And what kind of margin profile can we expect for -- like, how does that compare to our existing margins in the chemical division?

So they should be in line with our existing margins in our chemicals business. So the EBITDA margin should be in the range of around 25% to 30%. But they're all sensitive to prices, but that's what we expect in the medium term, that kind of margin we should earn.

Okay. And would we like know what is the quantum that is getting imported like for ECH right now?

Yes. So ECH, currently 100% imported.

But like how many tonnes, if like that data is available?

About 70 KTPA, kilotonnes per annum, is the current demand in the country, which largely gets imported.

Okay. And sir, you've mentioned that the power cost -- lower power cost has helped our margins and kind of offsetted the low prices in caustic. Would it be possible to quantify that how much power costs have come down because of our latest capacity, power additions?

See, that number would be anywhere -- see, it depends on how much we produce because we have not been operating to our optimal capacity right now given the factors. But yes, I think it will be in the range of around INR 20 crores -- INR 15 crores to INR 20 crores per quarter, is the kind of savings we are having because of the new power plant vis-à-vis this -- vis-à-vis last year.

Okay. Okay. And sir, I think this was covered a little earlier. I just want to confirm this. But we are seeing a lot of capacity addition coming up in caustic in next, like, few months. So how do we see this impacting? We have already mentioning that supply curve is moving ahead of demand curve -- growth. So how do you expect this to pan out, say, in next 12 months?

See, I think if you see caustic soda as a commodity, when the prices move, there's always an addition which comes in as a bit of a bump. But -- that's why we've actually decided not to invest our INR 700 crores expansion right now. We'll take that up after a couple of quarters depending on how the market situation is. And we'd rather prioritize our capital investments and to value-added products rather than this. And the focus always of our sales, how do we improve our efficiencies, how do we become the lowest-cost producer and how do we ensure that we are competitive on the world-scale in terms of our cost of production.

Okay. And my next question is with respect to Fenesta. So if you could elaborate a little bit on what kind of initiatives we are working on our growth drivers that we are working on? Are we seeing this business in medium term?

We are working on expanding our product range. This is Vikram Shriram here. We are working on expanding our product range both in PVC segment and in aluminum segment to bring different price points products available to enlarge the market to go down the pyramid. Secondly, we are working on geographical expansion, including deeper penetration in Tier 2 cities. We are already in 200 cities and towns. We have reached Ladakh. We have reached Bhutan. We have reached Srinagar. We have reached end-to-end actually. And looking on -- looking at some adjacent countries for export markets.

The next question is from the line of Pratik Tholiya from Elara Capital.

Congratulations on a very good set of numbers...

Mr. Tholiya, if you can move to handset mode, please. Your voice is not...

Yes. So is it better now?

Yes, sir.

Yes. Congratulations on a very good set of numbers considering the current business environment. So I have just a couple of questions. Firstly, sir, on the -- I don't know whether you had mentioned it in the opening remarks. But on the slide...

I'm sorry, I cannot understand what you're saying.

Sir, I'm saying that the imported caustic soda prices and the domestic DCM Shriram prices that are shown on the slide of the presentation, sir, the international prices moved up during the quarter, but our prices actually trended downwards. Sir, is it possible to -- there's extended disparity in the true direction of the prices?

I have not followed the question. Amit, can you reply if you understood?

Yes. Sure. Sure. Pratik, see, here you need to, one, understand that there can be a lag, right? If you see the chart that we have given in our presentation, you see last 1, 2 years that we have given, so there is -- there are times when there is a lag, right? So we have also seen -- so we saw a low of around INR 18,500 in December. So from that level, the prices have firmed up in line with the firming of international prices. But what we are still saying is that prices still are subdued. Even if we are at around INR 19,000, INR 19,500, the prices still are subdued.

Okay. Sir, currently, what will be the prices? It will be upwards of INR 20,000?

No. As I said, they will be in the range. They are still range bound. They're still subdued. So they will be in the range of around INR 19,000 to INR 20,000. I don't have the exact number, but that will be the range.

Okay. But you believe that these prices can catch up with the international prices, right, with the lag?

Yes.

I think I'll just add that more important is once the consuming industries in India pick up better, like the textile industry, paper industry, et cetera, once they start moving up, automatically demand will go up, which will make a difference.

Sure. Understood. And sir, secondly, Amit sir, just in the slide you mentioned, there is some inventory devaluation in the sugar business. So can you explain what is the inventory devaluation?

Well, this happens almost -- or I would say, every time in December, right, where when you start your production, your recovery is low. Therefore, your cost of sugar is high, right, whatever you are producing vis-à-vis -- at times vis-à-vis the market price. So directionally, you have to take inventory mark-to-market. And by the time you reach March, when your recoveries are better, because recoveries keep improving, so you get the best recoveries in these 3 months, that is January to March, since the cost of production balances out. And therefore, this INR 18 crores more or less will get reversed, hopefully. If the prices remain the way they are, the value should get reversed by Q4. It's only a timing difference as long as the prices remain the way they are.

Sure. Sir, any update on the MSP announcement, INR 33? Any update on that?

Not really. We are talking to the government on a continuous basis. This is Ajit Shriram here. But they've been -- the top of the MSP increase has been carrying on since June '20, but it's not really taken off. We do hope that it's announced in the near future.

Okay. And sir, just lastly, one clarification. I mean, sir, you said that at Bharuch, your captive capacity utilization of chlorine would be around 65%. But at Kota, it will be only 20%, 25%, which goes in PVC. Is that understanding correct?

No. In Kota, the percentage of chlorine going into PVC -- is what percentage?

Sir, is around 35%.

About 35%. In Kota, about 35% goes into PVC.

Okay. And remaining 65% is sold in open market?

And 65%, as I said, is including pipeline supplies to outside parties. It's not captive per se. But it is to outside parties also who are buying it directly on pipeline because they are right adjacent around our factory complex. So we have 5, 6 direct buyers through pipeline. So that's also like a fixed contract where they pick up every day their requirement. So they are working on a just-in-time philosophy of getting the raw material when they need it.

Sure. Understood. That's very helpful. Sir, lastly, since now -- even after this CapEx, we still have 35%, 40% of our chlorine still left to be -- which we export to the spot market. So any thoughts on further going downstream -- because you said that you'll be doing some R&D set up -- you'll be setting up some R&D this thing -- facility. So is there any sort of going totally, 100% of it will become internally consumed, maybe say 2, 3 years down the line, once your R&D team sets up completing these projects?

So we have to take these things gradually. We've just announced the capacity of additions by which we're going to take over 20% more for our captive consumption. And just for your clarity, the research and development center is for value-added further from various products. So it is not going to be direct caustic consumption -- chlorine consumption. It is to value-add down the line into epoxies and further other products which are value-added from epichlorohydrin and other products. It's not only for chlorine consumption. We're looking at a much longer chain for value addition down the line.

Though directionally, yes, there would be additional value-add chemicals in due course of chlorine also. But it will never be...

At the moment, we are -- our 24 months is now planned of these 2 plants coming in and expanding our aluminum chloride is to consume chlorine for the next 24 months through these plants.

[Operator Instructions] The next question is from the line of Tejas Sheth from Nippon India Asset Management.

Two questions. One, will the INR 1,000 crore of investment, the recently announced, will have any implication on the CapEx for caustic soda? Will it be deferred because we are now investing INR 1,000 crore or prioritizing INR 1,000 crore in chemical downstream products? That's the first question. Second, is there any more scope of investment towards sugar segment where we can generate more return? These are the 2 questions.

On the caustic soda one, we've consciously taken a decision about 6 -- 7 months ago to push back the 700 tonnes per day expansion, which was approved by the Board 1.5 years back because of the market and because of the corona and the way markets are going. So we've now taken a decision, it is better to invest in value-added straightaway. The 700 tonnes per day expansion is very much on our horizon. We'll take that up at the appropriate time after -- we are reviewing it every quarter. So whenever we think it's appropriate, we'll take that up. That will definitely happen. And as on the sugar, you were saying, we actually are continuously looking to see what we can expand where, what capacity will come up. As you are aware, we're already putting up alcohol -- a country liquor plant to use ethanol, to use rectified spirits for value addition down the line at our sugar factory. That's an ongoing project, which is -- should be commissioned in the next 2 months. So that is something which is being expanded in any case. And as you are aware, our distillery -- second distillery of 200,000 tonnes -- kiloliters per day just came up about a year ago. So we are on continuous expansion mode in all our businesses, and we take a decision appropriately at the right time.

Okay. Just on that, the balance sheet is not the constraint.

No. No. Our expectation is that by March '21, our debt equity will be about 0.2 or 0.25. So we are very comfortable.

Okay. So balance sheet will never be a constraint for you deciding to go ahead with the caustic investment even if, let's say, the segment volume improves or pricing improves in next 3 to 4 months, you will still go ahead with that project?

Yes. Correct. Correct.

[indiscernible] come for capacity expansion or multi-feed or anything else, balance sheet is not the constraint.

The next question is from the line of Karthik from Unifi Capital.

Sir, can you hear me?

Yes, we can hear you. Please go ahead.

So you mentioned some inventory revaluation of INR 20 crores that are adjacent for the mark-to-market. Could you explain more on the front of what exactly happened there?

Amit?

So Karthik, here it is a result of -- when the season starts -- the recovery improves as the season progresses, the sugar recovery from the sugarcane. So initially, like we are 2 months into the season. The recovery is a little low than what it will be for the entire season. So initially, the cost of sugar production is high. And if that cost is higher than your selling price, then you need to take a mark-to-market. So if you manufactured close to about 16 or 17 lakh quintiles, out of that for 7 lakh quintiles, depending on which unit being manufactured, about 7.5 lakh quintiles, the cost was higher than the market price. And therefore, we took a mark-to-market on that. As the season progresses, the recovery improves and overall cost of production on entire inventory will come down as the recovery improves. And therefore, I was mentioning in the previous question also that if the prices remain the way they are, we shouldn't be able to get this -- -- whatever we have provided, we will take the credit back.

Sure. So you're saying the recovery rate from 10.7 is going to go upwards for this quarter and next quarter?

Yes. For Q4, it is going to go up. It improves. I mean that's how the sugar works.

Sure. Just one on the ethanol front. So the realizations for the SY '21 -- sugar year '21, would it start kicking in from this quarter? So we haven't seen increase in the government price?

Because the new rate, which was announced by the government, was applicable from 1st of December, so that's where you're seeing a lower average, 54 or something. As we move forward -- for this quarter, we should see in line with the increased prices.

Sure. And our overall target for B-Heavy was 60% for the 1 crore liters of ethanol, right? But we seem like in 9 months, you have done only around 50%. So are we expecting a higher mix for this quarter?

To be -- yes, this quarter will be higher. But for the year as a whole, it will be...

Yes. We focus on B-Heavy this year. So our output of B-Heavy will be, I mean, much higher than the previous year. And our target will be to divert roughly 7.6 lakh quintiles of sugar equivalent to B-Heavy versus 4.5 lakhs last year.

Sure. Just one on the PVC front. We have overall capacity, what's the exact capacity right now here? Because we have 40 TPD that was added in Q3 FY '20, right?

Yes. Today, our capacity is 220 tonnes a day.

The next question is from the line of [ Saket Kapoor from Kapoor Company. ]

Sir, firstly, if you could, again, dwell on the inverse correlation between the PVC and the caustic soda part, sir? If you could explain something more about it. Hello?

Vikram, you want to...

Yes, I'll explain it a little. Basically, caustic and chlorine are co-products when you electrolyze brine. Both the products are produced along with hydrogen. So when PVC is strong, the chlorine full increases the caustic production also. So if the caustic users are not strong at that point in time, caustic tends to soften because caustic producers -- caustic users are aluminum, paper, die chemicals, et cetera. And the biggest -- 60% of the chlorine user worldwide is PVC, followed by epichlorohydrin. So basically, the point I'm making is that in the long run, caustic and PVC are countercyclical. And unless both engines are firing, which is -- which does happen, but happens very seldom that you've got both sides growing at full blast. So at times you have PVC soft and caustic strong, and sometimes vice versa.

Right. And sir, this application, the value additions venture, which we are doing now, the investment in ECH, so that's also find application mainly in the paper industry, [Foreign Language] which industry does it caters to?

ECH actually is utilized as a raw material for -- a large part of it goes into epoxy resins. That's a very large consuming segment of ECH. Plus there are other refined users where ECH is further processed or chemically treated to get into different products. But epoxy is the largest use of ECH in the country today.

And what are they used into, sir? [Foreign Language] what are exactly epoxy resins, sir? [Foreign Language] what they are defined?

It goes into paints. It goes into varnishes. It goes into flooring. It goes into many, many different products where you want to finish of a particular type, gives it that shine, gives it the resistance, gives it the scratch-proof surface. So it's a very versatile product, which is used very extensively in many industries.

World-wide, the single largest use for epoxy is in wind turbine blades, just for your information. So that is also a very growing strong segment in energy production. The blades are coated with epoxy for the unique properties of epoxy for strength and resistant to abrasion and other things.

Right, sir. Sir, you spoke about the country liquor segment part also, sir. What kind of revenues are we expecting? And when would that going to -- get into the PMS?

Ajit, you want to?

See the revenues -- the net revenues from that would not be very high, right? It should be in the range of around INR 25 crores -- INR 20 crores, INR 25 crores. So that's the kind of revenue. And see, essentially, that country liquor is a project that we are putting up essentially to use the mandatory diversion that we have to do to country liquor for the molasses that we produce. There is a statutory requirement that we have to divert 18% of the molasses to country liquor. Instead of selling it as molasses to country liquor manufacturers, we are putting up ourselves. So it's a small capacity, adding about INR 20 crores, INR 25 crores.

Annually?

And we have to sell that at a loss. We have to sell it at less than half the market price. That's the mandated UP government regulation.

Right, sir. Sir, I just come to the last point for my side is, what are the -- [Foreign Language] other cost -- [Foreign Language] lowering of cost initiatives that we are envisaging, sir, the power cost has come into -- the reduction in the power costs have come into play now. And this is going to be a permanent reduction. The savings which we have done, that should refigure what the power cost used to be earlier. And other than that, sir, what are the other initiatives that we are taking on the sustainability and the -- on this issue going forward, sir? Where are the key changes? And sir, the margins which we have seen in the PVC segment, although you have articulated that it is the demand pool that has happened, how sustainable are these numbers, the margin numbers going forward, sir? And how have been the scenario for this month?

First, in terms of what you're saying of the cost reduction, that's an ongoing exercise, which comes across in our raw material costs, in our plant efficiencies, in our operations, in our logistics. Thereafter, after we sell the product to the customer, how do we move through dealers or directly to customers? So it's an ongoing activity on 10 different fronts. Power is a large part of it, which we've already implemented, a 66-megawatt new plant commissioned just about October last year at Kota. We are commissioning the new 120-megawatt plant in Gujarat, which is commissioned by -- of this coming financial year. So in this, we will automatically get a lot of efficiency improvements in power generation, which will help us across the board. So it's an ongoing exercise. We are making sure that our membranes are changed on time, our salt quality is improved. There are 20 things you have to do to improve efficiencies and reduce costs. So that's an ongoing exercise. What was the second question?

My question was regarding the PVC margin sector also, sir? What is attributing to these high margins...

Well, as you are aware that the market pull and the international prices have gone up substantially. So that is why we are getting the benefit of a better price in India for PVC. And these are commodities. So moving up and down as part of the commodity business cycle, that happens in every commodity all the time. So we are lucky that the price is moving well right now. And let's hope it lasts for some time.

Okay, sir. And lastly, sir, on this caustic prices, Amit sir, you told the prices are in the region of INR 19,000. Sir, but our channel check say that it is -- correct me, sir, the prices have been INR 28, INR 26 per kilo, and the prices have risen over the month of December to Jan? So...

Pardon me. What is the number you've quoted?

Sir, I am just referring to one of the channel checks in the chemical segment, which state the prices are currently quoting INR 28 per kilo.

I think then I'll check with you where they're quoting...

That could be in...

I would suggest, if you could, Saket, please find out where it is? And please tell us who is the customer? We also want to get in touch with that customer, who is willing to buy at INR 26 a kilo. It will be very grateful to you if you could please tell us, Saket.

I just wanted that whether there is -- there should be a gap there, sir. INR 19 and INR 28 cannot -- you are more closer to the ground than the report because the report is only putting up price. You are selling and dealing in the product. So that was my point. I was just trying to understand where is the gap? I will share the reports...

I was just saying in the lighter vein. I was saying on the lighter vein. But I was just mentioning that the prices which has been indicated somewhere, we've not heard of that nor is it available in the marketplace where we are selling our product. So the prices today are in the range of INR 19,000 to INR 20,000 a tonne. And we are hoping in the next couple of quarters, it inches up.

I'd just like to clarify the interpretation of prices for us is the net realization we get at the factory gate, GST, freight, the handling charges to the customer are extra. Whereas what you are probably taking is the landed price that the customer 200, 300, 400 kilometers away. So that include GST, include freight, include handling charges, include dealer commissions. So there may be -- there is bound to be a gap between landed cost at the customer for any product and XWR. Whenever we report prices, we report XWR. And this is common across products, whether it's PVC, sugar, caustic or anything else.

The next question is from the line of Ramakrishnan from DSP Mutual Fund.

This is Vivek here. I'm delighted to hear CapEx and balance sheet stability in the same breath. So in line with that, let me just ask my 2 sets of questions. One is on the balance sheet. In terms of the Bharuch CapEx and the INR 1,000 crore that you've announced and your nominal CapEx, how much is the CapEx did you see over the next 2 years in total? The Bharuch's something is left over. And in relation to that, is the working capital CapEx, is there any sign from the government that the fertilizer subsidy will come in, in the current quarter? Because without that your balance sheet would have been even stronger. So that's question number one. I think question number two is related to what everybody has asked till now. Perhaps in the next presentation or if you could give us this data even now, how stable are the prices and demand for ECH, aluminum chloride and hydrogen peroxide over the chlorine prices, which are very volatile, which we know? It would be very useful for us to know how stable your margins would be, let's say, 2 years from now?

Amit, do you want to answer the first one, at least?

Yes. So your first question, if you could just repeat your first question?

Okay. Sorry, that was long. So in terms of the CapEx, you have INR 1,000 crores for the new CapEx and you have Bharuch. So how much is left to be spent on Bharuch? And what is your normal annual CapEx for maintenance of your plants and so on?

Yes. Yes. I think, over the next 2 years, right, now this is this CapEx of INR 1,000 crores, and we have a CapEx of around INR 400 crores, INR 450 crores for the power plant at Bharuch. So that adds up to around INR 1,450 crores, which goes into the committed CapEx that we have, right? And then our normal CapEx will be in the range of around INR 100 crores to INR 150 crores per year. So that makes up, let's say, INR 250 crores. So put together, we're talking about INR 1,600 crores to INR 1,700 crores kind of a CapEx, including normal CapEx for next 2 years.

Okay. Excellent. The second was on fertilizer subsidy. In terms of the fact that, if not for that, your balance sheet would look even stronger. Any -- you had announced that -- you said that the government has announced increased subsidy. Any sign of when they will make the payment?

K.K., can you answer that? K.K.?

Yes. We expect bulk of our payment to come in the month of January because we understand that Finance Ministry has allowed the Industry of Fertilizer to spend a significant portion of allocation which they have made. And we expect further payments in the month of February and March also. So hopefully, based on the latest information that we have in terms of allocations made by the Finance Ministry, mostly entire outstanding should get cleared at least to the extent of December bills and the January bills.

That's great news. Sir, the last one was, in terms of the stability of aluminum chloride -- your downstream chemical prices vis-à-vis that of chlorine, how stable are they? And how stable is the demand?

I think the prices of all these products, ECH, H2O to aluminum chloride, they also fluctuate like any other product. We've seen the prices over the last 10 years. And it does range in -- does move in a range of 20%, 25% plus/minus. That's part of, I think, any product. So I think, again, the issue comes in is that we are looking at the business for the long term and the long haul, not for the short term. And we have the captive availability of chlorine, captive availability of hydrogen. We don't have transport cost of freight, et cetera, et cetera to move these products around. And we are going in for the best technology. So we will be competitive down the line. It's difficult to predict how stable the selling prices of these products will be down the line. Once they come into the market, we'll then have a better idea how the prices move. But as a business, when we evaluated these as an investment opportunity, considering our strengths of existing businesses we are in, as well as of the strengths we have in our chemical business today, we think it's worthwhile getting into these 2 products right now.

Sure, sir. It does make sense for us also. Is the demand more stable, in the sense that the volatility in demand, is it steady? Is that also -- I mean I can imagine price fluctuation...

Put it this way. For both these products, the demand is growing steadily at about 3%, 4% a year worldwide. So that is the sort of a situation we've seen over the last many years.

The demand is actually growing faster than chlorine or caustic for both the products, worldwide and in India.

Amit, you wanted to say something?

No, no, I was just trying to add, in India, the ECH demand is growing at about 10%. Though globally, it is growing at about 4%. And if we talk of H2O2 also growing about 6%. Global is probably about 3%. So I think it's pretty favorable in that context.

The next question is from the line of Anand Jain, an individual investor.

Congratulations on a great set of numbers, sir. My first question is on the international sugar prices. I think they are kind of at like 4-, 5-year highs now. Probably, if I were to look at ICE prices, they are around INR 32, INR 33 converted into INR. So do you think that exports today makes much more sense to us than the domestic sales? And what kind of government support do we get on exports?

So currently, you're right, the international prices have firmed up. And unfortunately, the government announced the export policy for the current sugar year only in December. So the people actually began to contract very late. We -- our contracts also have taken place in January. And we do hope that -- the government wants 6 million tonnes of export to happen, and we do hope that the entire quantity will be exported. And the government is giving a support of INR 6 per -- roughly INR 6 per kilo, or INR 6,000 per tonne, as support for export in terms of transportation and marketing charges.

So would it be fair to have, like, that our export price would actually today stretches far more profitability than our domestic sales. Is that a fair understanding?

It depends. It really depends, Anand, as to when you run the export. We contracted our exports at roughly $0.14, $0.145, which translates to roughly INR 31 in the -- INR 31 per kilo ex works, including all the subsidies.

So we have contracted all our quantity that we are supposed to export?

Yes. We contracted all the quantities, and we hope to fulfill our entire export obligation within the next 3 or 4 months.

So this INR 31 compares to what last year?

Roughly similar to last year.

Okay. So we are not going to have any advantage of this price forming up?

No. Because last year, the government support was INR 10.40 and this year INR 6.

Okay. Great. So I think that helps a lot. The second thing is in the ECU, can you give us a breakup of chlorine realization? Has it been negative, positive, chlorine and caustic soda breakup?

Sorry. Just 1 second, Anand. Amit, you were saying something on the exports?

No. I was just trying to say that when we look at exports, we also need to take into account that even at INR 31, this doesn't -- this is not including the inventory holding cost. If we are -- if we don't export, this inventory sits with us for another year. So therefore, that's a big advantage that one needs to take into account when comparing export prices versus...

Yes. I get it. Now I mean, at least...

Amit, can you give the breakup of ECU, caustic soda, chlorine?

Sir, all I can say is the chlorine is positive even now. So the prices do keep changing, but then chlorine is positive right now.

So positive, like, there is like -- there's -- we have seen variance of minus 6 to maybe like plus 8 kind of a thing. So when you say positive, it's like 1, 2, 3...

So as I said, for last 9 months, it has been positive. So we have not seen a negative number in chlorine this year.

Okay. The next thing for me is like on H2O2, you have given ECH imports at 70,000 tonnes, and we are coming up with significant quantities in ECH, 55,000 tonnes. Can you give us more data on H2O2? What is the current capacity in India? And does H2O2 get imported? If you can give more details around H2O2, that also would be beneficial.

So see...

Well, I'll just clarify the 70,000 tonnes mentioned was for ECH, not for H2O2.

Right, right, right. That is -- I'm asking similar details for H2O2.

H2O2, I don't know if anyone has that right now.

Yes. So H2O2, the total demand in the country is about 176 kilotonnes per annum, right? And about 18%, 20% is imported right now.

Okay. And the current players who make H2O2 in India, are they integrated with chlorine, like chlorine complex like we have?

Yes. So some of them would be.

Like Grasim is doing it or is -- any of these large guys...

Yes. Some of them like JCL and Grasim would be. But then there are others like national peroxide, which is not integrated on hydrogen.

JSL, [ Make Money ] and SanMar, they are all integrated with chlorine.

And they all do H2O2?

They all do H2O2.

But there is significant capacity, which is not integrated also. There are 2 players who are not integrated.

National peroxide and Indian peroxide, they're not integrated. They make hydrogen from natural gas.

The next question is from the line of Rahul Veera from Abakkus Asset Management.

Just a quick question. Sir, I believe the breakup that we gave for the CapEx for hydrogen peroxide, we've given 52,000 tonnes for INR 400 crores. Was that correct?

Yes, approximately INR 400 crores. 51,000 tonnes per annum.

Okay. Okay. Sir, because one of our competitors, like we are doing 60,000 tonnes with the CapEx of approximately INR 150 crores. That's what they've given. So just wondering, like our cost is coming to around 3x.

Probably, I think we connect with you offline to understand this.

The next question is from the line of Achal Lohade from JM Financial.

I just wanted to check, sir, in terms of the PVC products, PVC resins, what is the total imports in India? And have they seen any reduction? Or it continues to grow? What is the underlying demand? I'm just trying to assess that, sir.

K.K.?

Currently, domestic, we produce about 1.4 lakh tonnes, that's from the domestic production. The consumption is 1.4 lakh tonnes.

1.4 million tonnes, yes. 1.4 million tonnes.

1.4 lakh tonnes per month.

Per month? Okay.

Per month. And the import is about 1.2 lakh tonnes per month. So total, the consumption is about 2.6 lakh tonnes per month. I'm talking about this last Q3. But normally, if you compare it with the previous quarter, it used to be about 2.8 lakh. So there's a drop in consumption, slightly drop in consumption per month from 2.8 lakh to 2.6 lakh. So roughly, you can say about half and half, half to the [indiscernible] production.

Right. And you're saying that compared to 3Q FY '20, the volume would have seen a reduction broadly?

Yes. If you see for the 9-month period, it is -- there is a reduction of almost 21% over the last 9 months. And currently, even month-on-month also, if you see, there's a reduction. It's still not come up to the full consumption.

Okay. Okay. And the reduction is even for the domestic as well as for imports? Or domestic is -- given the price increase, the domestic is at 100%, while the imports have reduced. Is that a fair assumption?

That's right. Domestic producers are producing at the maximum rate and the imports have reduced.

Right. And how much of that would be going into plastic pipes according to your estimate, sir? Would that be 70% of this?

A little over 60% goes for the pipe manufacturing.

Right. And that would have been steady or if not increased, while the others would have reduced. Would that be right?

It's difficult to say because prices are high. Some of those which have alternative things, those -- that consumption doesn't come up. And there was a little reduction in the pipes consumption also because there are alternate materials from where the pipes can be made comparing them to PVC. So they would tend to go if the prices are very high. They tend to go down.

And in terms of the price, what is our assessment in terms of -- in terms of what has driven this global price increase? And are you looking at any correction in next month or 2? Or it's going to be a little more longer term for prices to soften?

It's largely been up because of a demand/supply mismatch. So right now, we see a little bit of softening happening. So we can't predict how it's going to go in future because if the demands go down or the production goes up largely after the Chinese holidays are over. So maybe there could be some more softening. But we do see now it's softened a bit in the last few days.

It softened a bit. Was that being 18% or 15%, 20%?

See. For example, last month, we have seen offerings from our -- imported offerings coming at around $1,400 -- was $1,350. But last offering now has been almost $1,320. So it's softened by already about $30.

Sorry, I didn't get the last price. You said...

$1,320...

$1,320. Okay. Okay. That's a $30 reduction you said?

That's right.

I'll just add that in the last 3, 4 months, the major factors that have influenced the global demand/supply has been outages of plants in U.S., Gulf because of the hurricane season, and some mishaps in Taiwan, et cetera. Gradually, those plants have come on stream. At the same time, the demand has been very strong because of U.S. and European's housing demand and China's housing demand.

Interesting. Okay. Understood. So demand is going up, supply is also going up, but the demand is also going up. As a result, prices are pretty much firm, there is a little bit of softening. And just one more thing, on the sugar sector, in terms of capacity addition, do you see an opportunity to add more distillation capacity given the push by the government in terms of the incentives on the capacity or the interest subvention?

What we're looking at is debottlenecking our distilleries. And also, we're exploring the option of making the multifeed in terms of using grain as well besides juice and different grades of molasses.

Okay. Okay. But there is no plan of adding new capacity greenfield or anything of that sort? Like one of our competitor in UP is going for a large capacity, converting the entire sugar into ethanol?

No. Actually, if you see in the last 2 years, we've come actually from 0 capacity to over 350 KL per day. And as I mentioned earlier, we're looking at this multifeed option and some debottlenecking at this point of time.

And how much capacity incrementally it could have in terms of klpd?

Currently, we've expanded our capacity by 20 klpd.

That's a very small one, actually, given your base.

But going forward, when you multifeed it, and we are still studying it, the multifeed and the debottlenecking. There will be something in the pipeline, but we can't be precise about it as yet.

The next question is from the line of Prateek Kumar from Antique Stockbroking.

I joined the call a bit late. I just wanted to check what is the utilization now versus like what we had in Q3? If you have already answered this question.

Utilization of what?

For caustic, sorry?

Caustic chorine is now running at about 80% capacity utilization at our Kota factory and Gujarat factory.

Which is same as the Q3 number, which we reported?

Yes. The same, yes.

Okay. And sir, the chlorine realization, while we talked about it, it is positive. Has it moderated Q-on-Q and Q3?

See, these are commodities. So there will be ups and downs. Yes, there is some minor moderation, but they are in a reasonable range.

Okay. And just one question on the competitive capacity. While we are still looking at -- like in a couple of quarters in terms of expansion, has any other competition like restarted on this expansion in your view? Or they're looking at it?

There were a couple of plants, which I think were doing an expansion of the caustic soda. But I think no one is looking at putting up new capacity right now. If there are some which are on the way, then they will get commissioned in the next couple of quarters, that's possible. But I don't think anyone is going to look at -- anyone is looking at any greenfield or brownfield right now.

The next question is from the line of Rohan Gupta from Edelweiss.

Sir, one question is on our CapEx plan. So earlier, I think that when we were looking at further CapEx in the downstream chemicals, we were looking at and contemplating multiple options to where to put money. I think at that time, we were also having and exploring the opportunity to invest in specialty chemicals segment, along with the chemical chlorine downstream derivatives. So you have announced 2 products, which ECH and hydrogen peroxide, both still remains in the commodity side. Are you planning to look at more CapEx and further CapEx in a business or in a segment in specialty chemicals, where we have not just remained on a murphy of price volatility or in commodity and can change our business model? So is there any thought process? Because as you said that by this year-end, you will already have almost debt-free balance sheet or just 0.02 debt to equity. So you will have a significant cash flow generation from next year onward. Even the caustic soda CapEx has been pushed further. So are there opportunities that there have been more plans in CapEx, which can be in a significantly different direction from the current scenario? That's it from my side, sir.

As we mentioned, that one of the projects we've initiated in the INR 1,000 crore CapEx is also putting up product development and research and development center. Objective of that is to get into value-added products further down the line. So we are looking at epoxy resins. We're looking at other products, which will add value to ECH also. So that is part of our work in progress. And in due course of time, we will definitely get into some value-added products down the line.

So any idea that maybe next 2 years where our maximum cash flows will be invested? I mean, this CapEx is already done now. So in FY '22 and FY '23, that...

It's too early to give any commitment right now.

That is the business, but it's too early for the commitment.

Okay. So we are still not clear that where we are going to invest the cash flows, which will be generating in next year, '22 and '23, probably?

Well, as we've said, INR 1,000 crores is going to be invested over the next 2 years on this project itself, plus we have INR 425 crores investment going in our power plant, which will be commissioned by the Q4 of financial year '21/'22. So this will take up a large part of our CapEx.

The next question is from the line of Anand Singh, an individual investor.

I have 3 questions. Sir, first, with regard to our CapEx plan, you mentioned INR 425 crore is for power. Now historically, we have seen power has been captive. But off late, there have been instances where companies' commission get independent power producer to build a plant in their facility and thereby, their asset goes down. So prime example of this is Tata Metaliks, whereby they brought in an independent power producer to set up a power plant in their premises and they'll buy the power capital. So have we considered that kind of an option where we moderate our CapEx on power and thereby, keep the balance sheet lighter?

We evaluated our investments across the board. In our chlor-alkali plant, 65% of the cost of production is power. Now we principally would like to keep as much control over our major raw material as possible. We have the expertise. We have the quality of people. We have the wherewithal in our locations. So we've evaluated all these options. Even in sugar, this thing happened about 7, 8 years ago, where people would come and say, "Okay, we'll run your power plant and we sell it to you at X price." But what happens is, in these sort of situations, the company does not get the full benefit. And why do we end up giving a return to someone else who's going to put up the power plant in our own premises, which we are buying 100%. So from any principal point of view, unless you don't have the expertise or you're running short of capital, it can be either of these 2 reasons. But principally, we want to have control on our raw materials as much as we can.

Sure, sir. Sir, second question about our CapEx...

The cyclicality or the improvement in margins that the raw material cost of power also pass through to us, if we keep it on with ourselves, as part of our strategy of capturing all the value.

Sure. Sure, sir. I understand. Sir, in terms of our CapEx, with this INR 1,425 crore CapEx for next 2 years, can we assume that this will be like the ballpark CapEx? There won't be any incremental CapEx? Or can there be any additional CapEx on top of this in the next 2 years?

You know my friend, we are a growing company. We are a forward-looking company. We will take decisions which are appropriate, and the Board will consider all alternatives. It's very difficult today to give a commitment saying we're not going to spend any more CapEx. I think that's not fair because our debt raising capability is sound. If you have a good project, you want to look at something, you get a good acquisition opportunity, whatever. We are an open company looking at a forward-looking way of we are in business for the next 25 years. So we are going to look at all options, and the Board will take a decision at the appropriate time on any CapEx.

In our balance sheet, it helps us to invest substantially and cash flow.

Mr. Singh, for any follow-up, request you to rejoin the queue please. We have other participants waiting for their turn. The next question is from the line of [ Saket Kapoor from Kapoor Company. ]

Sir, relating to the sugar segment as well as the fertilizer part of the story. Sir, in the sugar segment, I think so the WTO compliances would be applicable from 2022/'23, and then this -- the subsidy being provided for export won't be applicable. So the steps which we are taking in terms of the distillery and country liquor will be the mitigating step and more needs to be done in order to suffice us from the vagaries of the sugar cycle?

See, our whole effort is that -- you're right from December '23, the WTO regulations come into force. So our whole effort is to divert as much INR 2 crores as possible into ethanol and balance the production of sugar in India, equivalent to consumption. So that -- because our cane prices are much higher than the major exporting countries in the world, be it Australia, Thailand, Brazil, South Africa, et cetera. So the industry's direction is to increase the level of ethanol, and the government has also been very proactive on this front. Where earlier on, their 20% blend target was in 20%, 30%, they are bringing it forward. And hopefully, the 20% blend target will be now 20%, 25%. So the whole effort is to increase ethanol going forward.

So sir, we can conclude that the sugar segment, the fertilizer segments, both will be totally dependent on the government policy and won't be exactly the market-driven segments for sugar as well as fertilizer? These are the segments that will in continuous support of the government policies and will depend on the vagaries also of the government -- incumbent government that would be there at that time. These are subject to -- these sectors will be subject to it.

See Saket, the issue is as long as the sugarcane price is determined by the government, there has to be some kind of support so that the cane price is paid. As I mentioned to you earlier, that the cane price in India is much higher than the major exporting country -- the cane prices of the major exporting countries. So the cane price is artificially high today. And in spite of there been cane arrears, the cane farmers are planting more canes because cane is more -- I mean giving much better returns to the farmers compared to any other crop cycle in India, particularly in UP, Karnataka, Maharashtra, et cetera. So in order to pay the cane price, there has to be some kind of a support.

Right, sir. And for the fertilizer segment, sir, how do we specialize in the seed part, sir? How do we justify our capital allocation policy there as the returns doesn't match the profile of the company in the chemical segment? So how -- what is our strategy for -- going forward for the fertilizer segment and our -- the seed part also, sir?

I'll tell you on the fertilizers, we set up the fertilizer plant in 1969. So now it's over 50 years old. And we have moved on a particular policy government brought in, in 1972. And that's how the subsidy to the farmer is given through the fertilizer industry. Our philosophy has been that we are not expanding the plant. We are making sure it runs efficiently, runs well and is safe. Government now has allocated INR 65,000 crores in the last month or 2 as additional outflow to fertilizer companies whose outstanding as it is were very high. So considering this position, yes, we are banking on the government because it's a subsidized product to the farmer. There's no alternative. But that's why urea manufacturing is the only thing we do. As you are aware, we used to do trading in DAP. We used to do trading in SSP and MOP. We have stopped all that trading because we are banking on the government, and the government subsidy is low, our returns are very low. Our capital was tied up. So we stopped all that. And we are now running only the urea plant. And if this money flows through and this comes in, then the returns are quite satisfactory.

Right. And what are the receivables on the urea front? As I know, you told a sufficient fund has been released. So what are the...

So the release of funds have been announced by the government of INR 65,000 crores for payment to fertilizer companies. I think our outstanding from the government in terms of our Fertilizer Industry Coordination Committee, FICC, outstanding, Amit, would be how much?

As of 31st December, it's INR 624 crores.

How much?

INR 624 crores.

INR 624 crores.

INR 624 crores.

Okay. And that -- and this entire amount, we will be receiving -- any ballpark period by which the same will be reduced? And just also on a cycle basis, I think, so the more we will produce going forward, the receivables will go up accordingly.

So this is what we have sold. So this outstanding of INR 624 crores is what we have sold. So this we hope will get liquidated in the next 2 months. And then probably we should be on a regular bill. As we submit, you said you submit your bill. And what's being said is that we should be almost on a monthly basis because the next provision in the budget, we'll know it in February. So likely to get the full allocation for the next year also. And the last outstandings would have been cleared.

Right, sir. And lastly on this Hariyali Kisaan Bazaar part, sir, we were about to restructure the entire thing, and this petrol pump and all which were there getting sold off and the lease has been cleared. What is the status on the same, sir?

Amit [Foreign Language]?

See, we are continuously selling down the properties, right? So though it is a little slow process, but now we have less than 30 properties left with us. And I think about 15, 16 petrol pumps are left. So we should liquidate them over a period of next 1 to 2 years.

We move to the next question from the line of Rohit Nagraj from Sunidhi Securities.

Just a strategy-related question. The earlier participant also cited about the same. So we have restructured a few of our businesses, which were probably not relevant or not making money for us. And now that we have announced a sizable CapEx for chemicals business, after a couple of years, the chemical segment itself will account for more than 50% of our top line with better margins and relatively better visibility in terms of earnings. So is there any thought of separating the chemicals business from the agri-related business? And if not, whether we will be thinking of the same in future once this CapEx is being done or in process?

See, this is a strategic direction we keep debating pros and cons. But we have not taken any view on this of separating the company or separating the businesses or spitting up the company. We feel that as of now, we want to continue the way we are.

The next question is from the line of Karthik from Unifi Capital.

Sir, just wanted to understand, you mentioned the export volume that will flow into the subsequent quarters. So given the run rate of 6 lakh quintiles that we usually observe in as for each quarter, can we expect at least 50% of last quarter to flow into this quarter?

6 lakh quintiles, sugar, is it?

Yes, from the sugar, sugar export volumes, sir.

So as I mentioned earlier, the export policy was announced in December 2020, and we done our contracts in January. So we will be exporting our entire quantity in the next 3, 4 months, whatever we have committed -- contracted.

Okay. So roughly, we have contracted around 12 lakh quintiles?

12.5 lakh.

And that will be done in the next 3, 4 months?

Yes.

Sure, sir. And I just wanted to understand, sir, just a normal trend in urea because Q4 has a seasonal quarter, the Farm Solutions, Bioseed, everything is quite weak. But how are we able to sustain the urea? I mean what's the business model there? Are we able to sustain our revenues across?

See -- K.K., do you want to answer that?

Sorry, I didn't understand the question. The last quarter, the consumption continues right till February. And -- so that's the season for urea consumption.

Sorry, if I may just repeat my question. If you see Q4 for agri assets for Farm Solutions and Bioseed, it's a weak quarter, we see from the revenue. But urea has been able to sustain across the last 2, 3 years in Q4. So what's the business model there? How come urea as a segment been able to survive the revenue?

It's come into the place in the beginning of the quarter. So that's when you do the sowing. So thereafter, the fertilizers come in, they apply fertilizers right through the quarter. So that's how it gets sustained through the entire Q4 -- Q3 and Q4. In Bioseed, we have products which are largely in the kharif season, and we don't have significant products for the rabi season.

And regarding Farm Solutions, sir, is this the same logic as Bioseed?

Should be largely yes.

See, they are all applied at different points in time in the farming cycle.

Okay. Okay. Okay. Sure, sir. And just a quick question on the CapEx, sir. So you mentioned the ECH plant would be of high technology. So is it going to be biotechnology based? Because one of our competitors recently went for a renewable ECH plant. So could you maybe mention more on the technology that's going to be used?

I think that is still something which we are debating. We are talking to technology suppliers across the world. And we'll take a call. We've not taken a decision yet on which technology we are going to be using.

Yes. If your question is based on glycerine, which is unlike earlier parts, which used to be based on hydrogen peroxide or polypropylene oxidation processes. They have different technology. It's a relatively new technology. And you can call it green because they say it comes out of the bio products.

Sir, and the hydrogen peroxide, what concentration are we going, sir? Because I believe there's a 50% and 100% concentration.

It will largely be the 50%, but some portion of it -- because that's a very small consumption, the higher concentration. It will be largely below concentration 1 -- 2, 3 grades together.

Sure. And so what are the time lines exactly are we looking into these? I mean you mentioned it's around 24 months. But is there a different time line to the commissioning of these plants? Or will it all be simultaneous?

See, the plan is to get into implementation as the Board is approved. And the estimate now, it will be between 20 to 24 months, between that. So as each one comes up, it will be commissioned as soon as possible.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

Thank you. Ladies and gentlemen, we thank you for your participation in our Q3 and 9 months financial year '21 earnings conference call. We have outlined our strategic direction and the steps being pursued for the same. As we achieve our milestones through these initiatives, we are confident of sustained overall growth in operating and financial performance, underlined by strong businesses, enhanced cost competitiveness, multiple earnings streams and stronger balance sheet. Our strong balance sheet, along with the strong organization, allows us to keep investing in growth. We are confident of delivering sustained top line and bottom line growth over the medium-term across our businesses. Thank you once again. Stay safe and stay healthy. Goodbye.

Thank you. Ladies and gentlemen, on behalf of DCM Shriram Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.