DCM Shriram Limited (DCMSHRIRAM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Q4 FY'21 Earnings Conference Call of DCM Shriram Ltd. [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, sir.

Thank you. Good evening and thank you for joining us on DCM Shriram Limited's Quarter Four and 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 commence the opening remarks with 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 will 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 evening, everyone. Thank you for joining our earnings conference call for the fourth quarter of financial year '21 and for financial year ending 2021. I hope all of you and your families are keeping safe and healthy. These are difficult times and we need to be very cautious. I will share my thoughts on the operating performance and strategic direction of our businesses. After that, Vikram will give you the financial perspective. Over the last couple of years, our strategic direction has been towards strengthening each of our businesses through integration, scale, optimizing costs and rationalization. These steps bode well for growth of our businesses. The chemical business has grown in scale along with steps we've taken towards downstream and value-added products as well as cost optimization. Sugar business has grown in scale and integration and is more stable. Shriram Farm Solutions has closed its bulk fertilizer business and has grown the value added portfolio. Bioseed has closed 2 of its loss making international operations and the product portfolio in India has enlarged. We continue our steps in this direction to deliver growth. On the operating front, our businesses have managed the COVID-19 pandemic in the last year with a lot of agility, which is reflected in the healthy performance during the year. Now we face another calamity of the second wave of the COVID-19, which is again making the economic environment uncertain. We are hopeful that we should be able to come out of it much stronger. Our comfortable balance sheet, cash flows and diversified businesses allows us to handle uncertainties better and enable us to continue our focus on growth. I will now share with you the business wise developments. First is sugar. India is structurally a sugar surplus country with annual production of around 30-31 million tons and consumption at close to about 26 million tons. Policy support by the government in terms of sugar exports and the heavy ethanol production has helped keeping sugar stocks at reasonable levels. Our company now has 2 destinations, with a total capacity of 350,000 kiloliters a day to produce ethanol which has along with overall government policy framework provide the stability to the business. Government of India has aggressively --aggressive plans with respect to the ethanol blending program and intends to achieve the target of 20% blend by 2025. This has opened up new investment opportunities for the sugar industry. The present ethanol supply during the year of 2021 has seen the rate reaching approximately 7% blending by March 21. In financial year '21, we had sold 1,251 lakh liters of ethanol. For the year 2021, with 60% on B heavy molasses versus 597 lakh liters in the last year with 45% on B-heavy. This is a result of the Ajbapur distillery commissioning by end of quarter 3 last year. Cane crushing during the season sugar season 2021 was at 553 lakh quintals versus 598 lakh quintals in the last year. The availability was lower given lower yields. Cane recovery on the final molasses basis stood at 11.7% vis-a-vis 11.9 %. The reason for lower yields and recovery was unfavorable climatic conditions. Though Sugar produced in the current season was 57.9 lakh quintals versus 66.3 lakh quintals in the last season. We have contracted and sold large part of our 12.5 lakh quintals quota for exports for sugar season '21. Sugar in entries as of March, 31, 2021 stood at 31.3 lakh quintals as compared to 43.5 lakh quintals on 31st March 2020. Higher sugar sales in the domestic market as well as exports and ethanol production through B heavy molasses contributed to inventory reduction. Now on the chemicals business. By the end of March '21, caustic soda demand from downstream industries had reached near pre-pandemic levels with issue prices showing quarter-to-quarter improvement by 10% with a month to month increase. Utilization levels were at an average of 79% in Q4 touching a higher drop of approximately 90%. International prices also witnessed an uptrend. However, the sustainability is yet to be seen products like hydrogen, aluminum chloride and SVP had a positive impact on earnings. The investment in downstream products announced in Q3 financial year '21 will add substantial strength to the business. Our new 120 megawatt captive power plant will add to the earnings by the cost efficiencies. Our value added growth areas at the vinyl and hydrogen are on-track as per plan. Expansion of the aluminum chloride plant, we already have 60 tons a day that's under expansion and that's moving forward satisfactorily. Next, with Vinyl and Plastics. Plastics business had high earnings in this year, led by global supply disruptions from mid Q2 onwards, leading to increasing trend of international prices for both PVC and carbide. India imports almost 55% to 60% of its PVC and carbide demand and hence closely follows international prices. The business also benefited from efficiencies owing to the new power plant at Kota and higher capacity of PVC as a result of debottlenecking done last year. Agri inputs, the segment covers Shriram Farm Solutions Bioseed and fertilizer businesses. Q4 is a small season for Shriram Farm Solutions and the Bioseed business. For the year, Shriram Farm Solutions witnessed good growth across its product portfolio with major growth in which segment, which is the market leader. Bioseed had broad-based its product portfolio over the last year to reduce dependence on any single crop. With the strong research base, it has poised for good growth in the medium term. Fertilizer business witnessed a fundamental change in the capital employed in the business. The fertilizer subsidy outstanding was at a multi-year low due to the additional subsidy allocation announced by the government during the year. This is expected to be sustainable. Fenesta, Fenesta witnessed good traction in the second half of the year, reaching pre-COVID levels of business. Trends in order booking in detail as well as project segments have been encouraging. The business is focusing on UPVC as well as system aluminum and I'm looking forward to enhance its product portfolio. The brand has retained its premium market position. Fenesta will continue its focus on improved service and product offerings along with a geographical and channel expansion in both UPVC and system aluminum segment to accelerate growth. The new wave of COVID-19 exposing new challenges. The impact of which is yet to be ascertained. As a company, we continually take initiatives to deliver consistent and growing performance over the medium term. Our operations today had better resilience as a result of the steps already undertaken and will get stronger with the new initiatives planned. With this now, I will now request Vikram to share the financial performance with you. Thank you.

Mr. Vikram Shriram, please unmute yourself.

Thank you. Good evening, everyone. I will take you through the financial highlights for our Q4 and financial year '21 results. During the quarter, our net revenue came in at INR 2,191 crores versus INR 1,917 crores in Q4 financial year '20, higher by 14% year-on-year. The growth was driven by healthy performance of sugar, PVC Vinyl and Fenesta businesses. Last year, there was an impact on Q4 on volumes of our Vinyl, Fenesta and chemicals businesses, as a result it of COVID-19 related lockdown announced in March 2020. Coming to segments. Overall Sugar business revenues were up 22% year-on-year. Exports stood at 10.8 lakh quintals versus 4.6 lakh quintals last year. This is more of a timing difference since on half year basis, the export numbers are similar. Distillery volumes were higher by 51% at 300 lakh liters along with better realization. In the chemicals business, revenues remained flat, while Chlor-Alkali volumes with were higher by 7% year-on-year since the ECU prices were down by 12% year-on-year. However, on a quarter-on-quarter basis, ECU prices were up 10% with upward trends seen throughout the last quarter. Plastic business recorded a strong growth of 109% year-on-year in revenue. PVC prices were up 70% and volumes are up 67%. The prices continue to be firm in line with international prices. However, as global prices stabilize, the prices, supply stabilize, the prices will also tend downwards and normalize. Carbide volumes were down 66% to accommodate incremental PVC production. Owing to its swing capability, the business was able to switch from carbide to PVC which was offering better returns. Q4 is a short season for SFS and Bioseed, hence their revenues are small with some variation. Fertilizer revenues were down 28% year-on-year. One reason is that gas prices were lower, which is a pass-through. And the second is that last year there was a reversal of provisions, with respect to fixed cost reimbursement under NPS III. Fenesta business continue to record healthy numbers with revenues up 40% year-on-year. The order book has a strong improvement of 25% -- 20% and 25% year-on-year and quarter-on-quarter, a healthy sign for the business. Now coming to profitability for the quarter. In Q4 financial year '21, PBDIT stood at INR 392 crores, higher by 10% year on year, supported by sugar and plastic segment. The new attrition 66 megawatt power plant at Kota commissioned in Q4 financial year '20 translated into healthy savings in costs at Kota complex. Sugar PBDIT was up 12% year-on-year, driven by better realizations and volumes from ethanol and sugar exports. Domestic volumes and realizations on sugar were low. Chemicals PBDIT was down 8% year-on-year, primarily due to lower ECU, although volumes were better. Plastics PBDIT stood at INR 127 crores versus INR 26 crores driven by better margins due to higher price. Fertilizer PBDIT stood at INR 4 crores versus INR 70 crores on account of provisions of the INR 53 crores up to December 19, which will reverse in Q4 financial year '20 as discussed above. Bioseed PBDIT stood at negative INR 38 crores versus negative INR 14 crores, primarily due to provision and write-off made for slow moving cotton seed inventory and higher fixed expenses. Now let me share the highlights for the performance of financial year '21. Revenues were up 17% stood at INR 8,308 crores, mainly driven by sugar, plastics and SFS segment. Sugar business revenues were up 34%, primarily driven by I mean with this one, higher sugar volumes, domestic as well as exports overall at 78 lakh quintals versus 637.7 lakh quintals last year. Ethanol volumes at 1,251 lakh liters versus 5.97 lakh liters last year. Plastics business revenue was up 32% driven by higher product prices. SFS revenues were up 13% resulting from growth across product categories of value-added segments primarily seeds. PBDIT for financial year '21 stood at 1,244 crores versus 1,295 crores, primarily as a result of lower earnings in chemical business led by lower prices and volumes. The impact of lower prices of chemicals was significantly mitigated by higher prices of PVC. Sugar and SFS businesses contributed positively, because of the factors stated above. On the balance sheet side, net debt as of 31st March' 21 stood at INR 180 crores versus INR 1,624 crores at 31st March 2020. The key reason for reduced debt was lower sugar inventory and also lower fertilizer subsidy, as well as the improvements exercised by the company on capital expenditures, given the uncertainty during the year. Overall, ROCE came in at 18% for financial year '21 from 19.8% for financial year '20, impacted by chemicals and restrictions on chemical on businesses in the first quarter due to COVID-19. Sequentially, ROCE improved from 17.4% in Q3 financial year '21. The Board recommended a final dividend of 190% amounting to INR 459.3 crores. Total dividend for the year is 465%, which is 21.5% of the pack, in line with the last year. Overall, on a full year basis, our performance despite the unprecedented environment has been quite resilient. We are happy with the progress that we had reported during the year, including reduction of net debt. On the whole, we have a robust balance sheet position and will enjoy healthy liquidity position, at the same time carrying out all the capital expenditure programs which are underway. This brings me to the end of the financial discussion. And we will be happy to take questions that you may have. Thank you very much.

The first question is from the line of Rahul Veera from AbaK.K.us Asset Management.

Congratulations for the wonderful set of numbers. Just I have a couple of questions. First is regarding the Bioseed. Sir, what is the portion of cotton within the Bioseed largely is cotton-based only? And second question is what is the strategy that we are going to adapt going forward because even with a good monsoons and good cotton acreage here year also we hardly hitting1% EBIT margins. So what is the thought process there, sir?

K.K., would you like to answer that?

See, Cotton is still the predominant crop that we are having. But unfortunately our -- the competition there -- there are one of the cotton hybrids that are hybrids doing pretty well and it's affected all the other ones. So but we are coming up with new hybrids and these hybrids are doing fairly well and be now in the process of scaling up those new fibers and they have still compete very well with the current competition.

Also sir, there has been a recent price increase by the Indian government for the steel panels?

Could you kindly repeat the question?

There has been a recent price hike that was announced by the Indian government for the cotton seed package. So will that have a positive impact for us as well, there'll be some for us or we are going to go for more market share and pass on the all the benefits to the chain --distribution chain? We are looking forward to this year. And of course a larger coverage is expected to be under cost in this year, so both the larger coverage in cotton, and as on the acreage going on cotton and the price both will improve the business. And as I said, some of our new hybrid start doing extremely well and we hope to scale them up in this year in this crisis.

So adding to, adding to what Mr. Kaul said, our product portfolio also today much wider. So corn and paddy today from almost 50% to 60% of our revenue and cotton is close to about 20%. So I think where I'm coming from is that it's a much broader portfolio than what it was couple of years back, where we were primarily a cotton dependent business. So that where it has widened. So that's another part with the strategy that we're carrying. So we are quite prominent on cotton, corn, paddy and vegetables, so these are the key crops that we deal in now.

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

This is Vivek Ramakrishnan. You've indicated CapEx of INR 1500 crores. Can you give the split across the coming year to FY '22 and '23? And in the fertilizer business, what can be done to improve profitability given that there is going to be a lot of the energy related costs, which are going to be penal in nature? So these are my 2 questions, sir.

Okay. Regarding the CapEx part of it, in Q3, well, actually even last year, we had taken approval from the Board for putting up a 120 megawatt new power plant in Gujarat in Bharuch and Shriram Market Chemicals, which is under implementation. That will be commissioned by the Q4 of this financial year. Similarly in the Q3 of last financial year, as I mentioned in my opening remarks, we have taken the approval of the Board to put up, epichlorohydrin plant, to put up hydrogen peroxide plant to expand our aluminum chloride plant and to put our Product Development Center near Baroda. So all this combined is about INR 200 crores CapEx. And as I mentioned, power plant is under implementation. For the other 2 aluminum chloride, we've already got it in phases. We have 60 tons today. But I think another 3 months time we'll increase that to 75 tons and by another 6 months after that they go to 150 tons. So that we also expand over there. The epichlorohydrin and H2O2, these 2 plants we've just been approved in Q3 last year. So we now are working on technology working on the various advisors, whereas, the design consultants and all that sort stuff. We're moving as per plan and that's expected to be commissioned, if I'm not mistaken, in early '22-'23. So I think they are moving as per plan. This is our CapEx plan. Regarding the fertilizer policy, I'll ask to Mr. K.K. Kaul. K.K., could you just please brief on the fertilizer?

Yes. As you certainly know that the energy norms are normative and this norms have been set for each manufacturer. And as a strategy to maximize our profitability, we continuously work on its as you can question. So every year there is that we achieved some of those deduction. It's different matter that after a period of time, the energy norms are again revised downwards. But today also we have a significant portion of our saving coming from the energy, and that's a continuous focus every year there is -- there are investments made to reduce the energy and also optimizing the operations. The other thing that we optimized for profitability is to maximize the production. So we also tend to produce more than the reassess capacity. So that gives us an additional profitability.

The next question is from the line of Siddharth Mehta from Principal India.

Sir, my question is on sugar division. I'm very surprised to see that there has been no announcement from the company on any further expansion on the ethanol. The last capacity announcement that we have done it was 3 years ago, even though, the capacity that's coming quarters to FY '20. Sir, so what is stopping company to be a bit aggressive in the ethanol segment than all the entire players they have an older capacity. Some of them, they haven't quite yet.

Ajit, would you like to answer that?

Yes. Siddharth, just to clarify what we here 3 years ago, the distillery capacity in our company was zero. And within the span of 36 months, we have come from zero to 350 kiloliters per day. And we are looking at options to debottleneck by 10,15, 20 kiloliters at is point of time. But we are on the ball and we are alive to the situation and we're looking at different raw materials and mix. We need to see heavy or B heavy or cane juice to further enhance our output. I hope this clarifies?

In the last few years company has put up the capacity. My only limited point it was that the large capacity which is coming from sort of full FY20 and since then it has been like around 15 months, there has been no announcement, even though the company's balance sheet is excellent and there has been a lot of initiatives from the going? Debottlenecking...

At this point of time Siddharth, just to clarify, the capacity of our distillery is in line with the crushing capacity. So the crushing capacity of the sugar mill and the output from the disposing is balanced.

Sir so do understand that complete spreading that how we can capitalize on the opportunity, which is being presented. So I know, it's a big difficult question with them marking. But can we hear something in the coming 6 months on this ethanol front?

It will be difficult to see what goes on account of 6 months. But as I mentioned to you, we are trying to see how to ramp up the seed, because the ethanol operations. And then the government has been very proactive with the ethanol policy and as have been mentioned in the opening remarks. They have preponed the 25% target. Sorry. The 20% target to the year 2025. So we are going to do it and we will be proactive.

I will further wait for any announcement coming from the company. Sir on the Bioseed division, sir it has been like 5 years where our entirely EBIT it has been around 20, 25 crores. But company commentary has been quite consistent that our product pipeline is very strong over the last 2 to 3 years. But for now, it is not being reflected in our numbers. And so what is going wrong actually? 5 years, it is not a very small period, do understand that it is an R&D driven business.

K.K.?

Well give, I mean, you mentioned you said that's an R&D driven business to scale up the new hybrid, but it does take time. And as Amit mentioned a little while ago, to answer to another question, we are also trying to diversify into many other crops also. So we definitely expect, now we have new products coming up corn in the quarter. We have the price since we have and we have in vegetables. And we have in mustard and corn also. We are definitely in place much better to scale up those high because the initial experience with the last 1 or 2 years on a smaller scale has an excellent. So it does take time in these products, because this is, these are research and then they have to be demonstrated in the fee. But now we are quite hopeful that this year we should be seeing the significant improvement.

I'll just add one more point to that, sorry, is that last year Kharif and this year Kharif I hope, I'm not sure. But farmers become risk ever to try new products due to the uncertainty brought out by Kharif. So in fact other than the market leaders in all segments, new product launches by all players have been somewhat muted last year also. So this may have a bit of an effect, but yes, the pipeline is strong and it should come up.

It is very heartening to know. So I do understand that company generally don't provide the future guidance but on this particular segment, is there any future if there is any milestone that we are looking might be for FY '23 time, a rough number, it would be very helpful sir.

We don't give numbers, but if there is a normal '22, then certainly it should be significant that will be better. Unfortunately this year has already with the second wave of COVID, we are in our case of uncertainty again somewhat, though it should definitely be better than last year.

Sir, regarding this 700 TPD caustic soda and 500 TPD flicker which company had announced, but it has been put on hold. Sir. So any update on that front. Even though the capacity by the margins that you had mentioned that it but that's the high 85% to 90% so that stopping company to grow ahead because this is related to not going to come in 3 months it will take some time.

Well, yes, you're right we debated at this point a lot. And the board we've had lot of discussions on this and we said that as a priority. Let's put our CapEx into value-added products because the commodity expansion is possible any time. There are other people who are already expanding. So rather than as it is Gujarat unit in Bharuch, the Raja Industry with it, with a largest single location plant in the country. So we are in fact is very much on our agenda. We take a view at the appropriate time whenever the Board feel so. But we would rather prioritize and put in this 1000 crores plus this 400 odd crores of the power plant as a priority.

But the cash flow continues to be quite strong, but I will take your point and a lot of it is for me. Sir, in terms of PVC, where we have seen the realization being quite high in the March and trading at 132. So the momentum sides it is still there, in the month of April and May sir.

Yes, in April the realizations were good but in May in the onset of COVID it's started bidding them package, so you're not seeing the demand is getting destroyed at this comes out in the coming days is uncertain. But overall there are still supply constraints but this COVID has impacted the demand. So last few days, we are seeing a significant reduction in the demand.

Sir the company has announced the downstream, chemical last quarter and you have also touched upon that. So can we expect some more CapEx coming in a different specialty product or we will be, we would wait for this unit to get commissioned, which is like 20, or which is like 21 months away as of now.

I'll be honest any company has 2 measures and continuously as a policy and look at expansion, and considering, we have so many businesses within the company. Something or the other, the expansion of growth, all the time. So we are not looking at only one or the other we look at the whole company for comprehensively and see which business can which project at what time, so we continue with that. So we continue to visiting something good comes up, but you have to realize also that at the moment in AGA invest in the state. The total line is going to be used up for putting up UCH and HC02, that expansion is on, I've got a feeling that at least for the next 6 months we are not going to announce anything else that's my feeling, but you know it's funding new comes up something comes up, we are, we are, we are waiting all the time. So it's not that you've taken a full stop or we've taken a running, we are there, all the time to see what is best for the company.

Thank you. I would request Mr. Mehta to rejoin the queue for follow-up questions. The next question is from the line of [ Rohit Chawla ], an individual investor.

First of all congratulations on a good quarter. My first question is with regards to the impact of the COVID on the current quarter, the coming quarter, as well as how it would shape the outlook for the year, especially in the sugar content and since -- the situation upfront the country is especially in the rural area and also getting them. So my first question was with regards to that. And my second question was with regards to the plastic prices and how do we see that shaping up. Thirdly, they can being able to sustain at this high levels or are we going to see them flat or down.

Ajit, do you want to talk about the sugar and this.

Rohit, regarding the COVID in rural India, what you're saying is right. There is a spread and our sugar operations have dropped. Our crushing stopped on 25th April in our last factory. So we don't really have any impact at this point of time regarding the rural COVID. Our distillery operations are carrying on and there is no adverse impact over there because the raw materials are stored in the distillery and the sugar complex. We do really hope that the COVID situation does come under control soon and we have to do it.

K.K., on the PVC?

Yes. Regarding PVC. Yes. PVC Prices in April were very firm, because driven by the supply constraints. The prices in India are globally controlled by the global prices because they still import about 55% to 60% of the consumption. Yes. But lately since this on sort of the second wave of COVID, we are seeing for the last week or 10 days now, a significant reduction in demand. How would it shape in the future. Very difficult to say as we go along. Right now our capability to produce is not impacted though there are lot of constraints in terms of operating plants. But we are not impacted as of now, but if it -- this COVID wave becomes in a more difficult than I can say for sure. How do you go, but so that we have in place in terms of running our operations producing. Those are still working, but demand has been impacted and though the international prices are still relatively firm and business does not happen. The price promise, we should have continued to this quarter. Now what happens is very difficult to predict.

Just one small follow-up on the PVC business, what is the path like that is not in a normal case, what is the margin, which we are going to see that the EBIT margin is going to be operating with?

Amit, can you answer?

PVC, the operating margins would generally be in the range of around 15% to 20% EBIT margins. They're earning a normal state I mean forward in this current year, I'm saying in the normal scenario, the EBIT margins to be in the range of around 20%, 15% to 20%. But you get there been fairly high at around 40% is normal. Yes, that's the number.

The next question is from the line of [ Sheetal Bhinovia ] from Unifi Capital.

So few questions on the chemical division. Firstly I think despite the increase in realizations and revenue in this segment. On a sequential basis, there has been a dip in our EBIT margin from about 24% in Q3 to about 15%. What has driven this decline on a sequential basis.

I think the 2, 3 things, one is in the last year, the prices of the prices of caustic soda chlorine were quite low. They were under pressure. So I think that has come down, which is one. Secondly, the cost of coal has also gone up because the freight became a major issue. And if you see international prices of coal that went by quite a bit over the last 6 months. That was also impacted the margins for that. So I think these 2 factors have had an impact in terms of our margins for caustic soda chlorine.

Right, right. So sequentially the realizations have improved for the caustic soda on what 19,000 rupees a ton to about 20,. Thank you. 21,000 rupees a ton as we reported.

Yes. It has gone up, in fact last month, it was that in this month until about 10 days or 2 weeks ago has gone up even further. It went up to 22 plus 23 between that, but I think this impact of COVID is having an impact in all our businesses. I mean the entire economy actually in India. And no one pool it, but the demand is coming down right now. The pool has come down because finding that you know that there is the paper side or whether it's the chemical side, there is an impact because of this COVID and because of partial lockdowns and you don't know what's going to happen is there going to be an all-India lockdown, no one knows. And the rule of the port compared to what we experienced last year during the COVID times in the worst times of April, May last year compared to 4 lakh plus cases have been in India now, so no one can see what's going to happen, but we sincerely hope that we reached the peak and start coming down in our numbers. And the number of infections come down and the management is easier to handle compared to the top time today. So in the next 3, 4 months we hope it is off and the economy becomes a little smoother once again.

Just to add I think to what CMD just mentioned in terms of fuel cost being higher sequentially as well. Also, we had a maintenance shutdown at our Bharuch unit a partial maintenance shutdown so therefore, the figure were higher and the other reason also that the downstream products essentially SVP as well as aluminum chloride their prices also came down sequentially. So I think those were the reasons why sequentially the margins were lower.

Okay. What was the period of shutdown sir in quarter 4?

About 6 to 7 days.

Right. And do we still face some pressure on our cost of production in the chemicals division or it has stabilized now?

To the extent of fuel costs. Yes, there are pressures vis-a-vis we period or let's say FY'21 were the fuel are lower, currently the fuel prices are higher that's there is pressure.

Similarly, I could also see in a plastic division despite the good increase in the realization sequentially the EBIT margins have been flattish quarter on quarter even in that segment was there any inflation in the cost of production?

There would purely because of power costs because the fuel prices went up.

A question on our sugar business while we have exhausted most of our export quota for this cycle like last year is there a scope to do more exports in the sugar?

We are in touch with the government. We are in touch with the government to try and give additional allocation for sugar exports because the original allocation was $6 million tons of sugar and roughly $5.5 billion tons has already been contracted and the bulk of this is already been shipped. The prices in the international market are quite firm. So we are in touch with the government and we are hopeful that they do give us additional allocation.

So on the incentives, which the government gives on the sugar exports for about a 10.8 lakh quintals that we have done so far. A rough calculation seems to go 65 crores, is that accounted in our P&L in the last financial year or we are yet to it that from the government and not in the P&L?

Amit?

Yes, it's been accounted to the P&L. Let's say a crude. As you know, we export the income gets accrued. We may not have received the amount but we have accrued in the P&L.

And finally, just wanted to reconfirm on the time lines for and downstream expansion for 1,000 crores, you mentioned the revenues will start kicking from FY'24 is that understanding right?

No, no. Amit, do you have the exact date when is the?

So aluminum chloride will start functioning or we commenced operations in Q1 of next financial year, which is FY'23 and the PCH and hydrogen peroxide will be functional from Q4 of FY'23. So they will have full year, the year after, which is FY'24.

The next question is from the line of Shyam Babu from Sharekhan. Shyam Babu from Sharekhan, your line is in the talk mode. We lost his line. The next question is from the line of Pratik Tholiya from Elara Capital.

Congratulations on the numbers. So couple of questions that I had on already been asked. Just a clarification, so you said, Amit sir, you said the cost on the coal cost has been going up. So you meant is Y-o-Y or even Q-o-Q it has been going up?

Q-on-Q.

So versus fourth quarter even right now is higher?

Yes.

And sir, just secondly just on the sugar side. Just another clarification. Did you mean that you know of after the expansion of ethanol to 350 KLPD we are fully integrated in terms of whatever molasses we are producing on the B heavy side and there is no further scope for adding capacity on the distillery.

See, last year we did, we did lower percentage of B-heavy. And we were able to purchase some C from the open market. However, this year we have increased our BAB percentage to the maximum possible and also we don't expect to be able to get at economical price. So to that extent you think we indicated at the time.

So there are some of the other companies who are also now fully integrated and are now decided to sacrifice some of their sugar production and are putting up direct you through the plants. So have we thought in that direction? And also because of the government is now allowed producing ethanol via other feedstocks, such as grains and some other products. So had we been picking on those lines because clearly I'd like you've already mentioned and some participant also asked there is no pressure on the balance sheet front.

So I said regarding the juice or syrup, as a feedstock, this is primarily being done in Maharashtra and North Karnataka and also in South India. UP does not allow use of juice or syrup at this point of time as per their exercise policy. However, we are in constant touch with the UP government and the authorities to allow the team. And we hope that you know before the next season starts, that this provision will be given. And then there will be a project scope to diverge further 2 crores into ethanol and reduce sugar production and improve our cash flow, improve the entire bottom line.

Because I thought one of your competitors in East UP is already been putting up additional 300 kl plant via the direct to juice fruit?

Yes, that's been announced nearly a year ago, but I don't think much has happened.

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

My first question is in terms of the total PVC, what would be our market share in the domestic market? I presume ours will be entirely domestically sold. Right?

In the imports, 55% to 60% of the requirement, yes, we are selling only in the domestic market.

What is the market share for us in terms of domestic consumption?

It's a very small market share of 3% to 4% we are not a very, we don't have a very large market share.

And how has been the volumes according to you, in terms of the imports for the entire full year FY'21 sir? Has it come off sharply, has it been now in terms of the volume?

Yes. In the month of April. Yes. They had increased to what we had seen in the, in the previous year 19-20. But in month of May, it's actually there has not been much import because the consumption has dropped.

What about the full year FY 21, 2021.

There was an import of roughly about 1.4 million tons and 2021 and the domestic production of about 1.36. So the consumption was also lower at 0.8 compared to the previous year because few months we are infected by impacted by the COVID.

And with respect to PVC price you said are currently prices are stable. Has I got it right, sir?

There has been a reduction in recently, there has been a reduction by roughly about $50 sort of week back. As I said, the construction is not there. So we don't know when you know this reduction is not even something in the current creating the constructions of construction is just because of the other reasons because the downstream industry who use that are impacted.

What is in terms of the expectation given the current situation we have in terms of the global market. The producers are they coming back on stream, what is our opinion? Are these types of to see or you think that could be a -- our moderation of sharp moderation anytime soon?

Really difficult to say because if they been the 2, 3 weeks since this has started happening and it's, we don't know when it's going to. And then how it's going to end because this time it's a little different, --it's not on the hit the big cities, it's in the areas also. So -- and the, in the, the impact of also different sir. Right now --we are impacted, as I said, substantial reduction in demand, but whether they at the end of the month product next increase we see some relaxation in terms of --the restrictions that happens in various states. If that improvement has the consumption should also improve, but right now, it's very difficult to predict, because we can't forecast.

I understand in terms of the global sites. Any color you can provide in terms of how the production shaping up there. Have those the U.S. and Gulf plants to come back in queue or they used to in shutdown?

So there was still constraints on the supply side, the force this COVID thing happened here. The expectation was the in prices will continue through the Q1 and maybe part of Q2 also. But India is again. It can also an influencer and the global consumption also whether that's going to have impact, some impact on the global prices. As I said, last week they dropped the prices by $50. So that's something which we'll have to see as we go along.

And just one on the sugar segment sir. You mentioned that the direct route is still not so at the moment in UP invested on I hard right now.

Can you just repeat please.

The ethanol production through the sugarcane juice is still not limited in UP?

Yes, so the excise rules do not permit use of sugarcane also for ethanol. As of now in Uttar Pradesh, but we are in touch with the government authorities to give us permission for the thing.

And is the case, or even other feedstock or just for sugarcane.

There are 3 levels of impurities which go into the distillery. One is the C-heavy molasses, the other the B-heavy molasses. For these 2 different impurities, permission is there and we are making ethanol from these 2 vegetables. However, for sugarcane juice or sugar syrup, which is a much richer sucrose content. At this point of time, permission is not available and we are talking to the relevant people to allow the [ GP ] millers to make [ this ] route.

And just a clarification. In terms of the sugar price, how are the current sugar realization and how are they about 10 days back. Have you seen any moderation in the sugar prices?

The sugar prices have been relatively stable at about 33.50 a kilo.

And that is stable in last 8 to 10 days you think?

Yes, there's no major change.

Next question is from the line of Karthik Sambhandham from Unifi Capital.

I just had one query on the country liquors potential revenue that could flow in from Q1 you had mentioned in last con call. So could you talk more on that?

I'm sorry to interrupt you. Mr. Ajay Shriram we cannot hear you clearly sir.

Yes, I see for FY22 the net revenues to be close to about 22 crores, 22-23 crores.

And are we in line for finalizing the technology for use in which is supposed to be in bio-based but lesser than that?

Sorry for ECH? We are discussing the technology suppliers' advanced stages of discussion. So I think it should be done shortly.

And just one last question, that is 120 megawatt coal-based plant that's coming in from FY Q4 FY22. So just curious if this is a big capacity and how much would exactly be the addition to the cost saving that you have been.

Amit, you have the figure of cost saving because you the new brands have a much higher efficiency.

Yes. The way we look at it is that this plant where we are investing, close to about 425 odd crores it should give us a return in terms of cost saving close to about 20%, 25% at EBITDA level.

The next question is from the line of Resham Jain from DSP Investment Managers.

And congratulations on very good set of numbers.

Thank you.

So I have just one question on sugar with so much of policy is being streamed around reducing overall sugar inventory in the country. And I think for more capacities are coming on the outside, exports are also happening healthily. Do you feel that are costly by the next year the closing stock level come to a very comfortable level of let's say around 7 to 8 million ton and then we will be and beyond that also next year is more capacity comes in the sentiment around the inventory level should be more comfortable and how can, how will the policy is the framed because then there will be a different set of position on the digital real entity itself at some point of time, so just your thoughts around this.

You're right. See, the sugar inventory is very much under control at this point of time, and we do as I mentioned earlier, we do hope that the government allows us to export at least a couple of million tons over and above the 6 million ton quota which has been announced so far. For the year going forward, we are hopeful for more a proactive policy to allow field juice in North India to make ethanol and the rough consumption of sugar in India is about 26-27 million tons. Our production is 30, 31, 32 million tons. So we do need to divert sucrose most sucrose into making ethanol going forward on a consistent basis. No, because I think it is the cane crop is extremely profitable for the farmer. And if you see where the scenery have been even up to 20-25,000 crores, the farmer has not given up on cane and has stuck on cane in spite of high higher year. This is because the profitability we get even after the delayed cane payment is much more than any other crop cycle we study or any other that.

Do you think that's possibly once the overall inventory levels come to a comfortable level and sugar prices also being a decontrolled in a way? The India may a higher production of sugar from current levels also.

I don't see the sugar prices will be controlled. As of now, for the last 3 or 4 years, there has been a month release mechanism by which the sugar prices have come under control. I mean 3 or 4 years ago, I think in the month of April, it will remain 3 years ago the sugar prices get to about 25 rupees a kilo which is very, very alarming. So by winning the control of monthly releases back, the price we have come back to what 31,32, 33 rupees which is desirable. In fact, it needs to go up more to reduce the cane arrears going forward. And there is a group of producers in the central government who had who have had deliberations to increase this minimum selling price from the current 31 rupees.

My second question is around the ethanol storage capacities, which was become a big issue somewhere in the Jan-Feb. Have those issues now resolved and with -- are there only we geared and the storage side?

See, as mentioned earlier, the Central Government has really been very proactive on the ethanol policy. They had preponed the lending the higher blending of 30% ethanol, which was due originally in the year 2030 to the year 2025. Consequently the OMCs are also building up more capacity to store ethanol, now building up this new capacity is not that quick and simple. I think it will take 6, 8, 10, 12, 15 months to happen and as that happens the offtake will improve in a more creative way.

But as of today, are you seeing issues on the storage side?

No, what we are doing is we go into further reports from motor Pradesh and we. Yes. Deposit see normally wouldn't have gone to, we want to further deposits so that you know with to clear our stocks that in basis.

And that is getting compensated or you are doing out of your pocket?

No so 2 things over here. But the OMCs have revised the transportation rate I think 6-8 months ago and we are in touch with the to further revise the transportation rates to what we would have paid to actually transfer petrol or diesel from exploration. So if the transportation rates come to come to come to that parity, then it will be much easier to transport the ethanol to really different states like Northeast as et cetera. Without any burden on sugar industry and that will also help in the, in the achievement of 20% blend in the next few years.

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

Firstly sir, as has been told that there has been a price reduction in the chemical segment sir is PVC prices and all we're already at the high end, so a $50 correction there. Has that same translated with the caustic soda prices also sir, you were telling you where it that package it moved up above the $300 also end of April. So if you could give some more clarity on the price trends.

Amit do you have that details?

Yes, so for Chemicals current prices are they come down a little bit from 300 they have come down to about 280.

And end of April they were above $300 as you have been told earlier?

See, I don't give you a specific time. But I think around 25-26 April when I checked they were 300 and now as I check, it's about 280.

And sir, how has been the utilization levels for our caustic soda complex?

There's a good, as far as April month was concerned and as we've mentioned in our earlier messaging during the call that it's to me how the moves because we are seeing some demand instruction happening so we depend, it's very difficult to say what will happen, but yes, there will be some drama demand shrinkage that will happen the quantum of it is yet to be determined.

Got since we are only in the first week of May, so if you could just given guidance many. However, the utilization levels flared up post the month of April exit.

Well, first, we can't be Saket determinant of so what will happen in the quarter. It will happen in the month. So I don't think it's right for me to give you that number at the units. And so you, as I said, April went pretty well in terms of capacity utilization.

What was the number sir for April, if you could give some idea said very strategic thought?

So April it would be in the range of our 85%, however, May we'll have to see how it pans out.

Instead of, let's say this industrial oxygen. But I think so the oxygen part of it also, I think there some quantity has been diverted. So there has been an incremental demand for caustic soda. I think so in for the paper industry, has that effected that also played out in the month of April. Because of the non-availability of oxygen by being diverted for medical purposes at had caustic soda and hydrogen peroxide?

To my understanding, caustic soda demand by the paper industry or the chemical industry on all this is, I don't think linked to the oxygen being taken away. I don't think so, but I'm not trying to be I'll be honest with you, I don't want to give an answer, which I think it's a technical issue, which had to completely prudent manager. I can answer that. But the demand was going up in the month of April as mentioned by Amit just now. And now I think in the first week of May, it's not the first week of May, which is important. It is the corona COVID-19 which is important. And that is what is creating a high degree of uncertainty right now.

And sir, on the ethanol, part of the story, sir. As the earlier speaker did articulated about the further capacities, which are going to come up. Are more will be starch-based rather than sugar based. So sir, in our distillery in the off season, are we also looking for some rectification so that in the offseason, that could be shifted to grain and we can continue with the ethanol production even during a lead periods have been given a thought to it, sir?

As I mentioned earlier, we are utilizing our distillery to the fullest in terms of 330- 335 days a year. And we are balanced with our current trucking capacity. We are exploring the option of further expansion and debottlenecking and we are exploring the option of looking at the procurement of grains or broken rights, et cetera, as automated stock, feedstock. And if we're able to do that and we'll have to be, we'll have to do a partial expansion.

Two more short questions. Firstly, only finance cost part sir. This year, there been a large 2 quarter. There have been a substantial reduction for the next year sir, what should we continue in as a absolute amount for the finance costs since, the drawn limit also is down. And I think so CapEx will happen from I think this quarter onwards. So what should be the finance cost for the period?

Saket, it's difficult to give you an exact number. But given that, when we started FY '21, we started with a net debt of 1,777 crores, let's say almost 1800 crores and we ended with 180 crores net debt. Since we are starting on a low base and we have, we are expecting the cash flows to be good. So we are not factored in so much of corona right now. So obviously the debt, the cost would be lower than what we saw last year. But exact amount is very difficult to say.

And sir out of this 1500 crore under implementation, how are these going to plan money? How much will happen in the first quarter, second, third and fourth in that phased manner?

We don't have that quarterly number right away. Obviously as per our plans, we have but ballpark this 1500 crores will get incurred more or less equally between the 2 years, maybe 60:40 or 40:60 that kind of number, but more or less, it's that's level distribution between the 2 years.

Yes, 60% for this financial year. And lastly sir, on the fertilizers part sir, what is the strategy now going forward to be with lower gas cycles and this being a control sector. How is the company shaping up in terms of the fertilizer part? We are going to continue with in the same pattern or what is the foresight for us for the 2 years down the line for the fertilizer sector?

Could you please repeat the question? I've got disconnected.

Sir, I am looking about what is our growth plan or how are we going to move ahead in the fertilizer segment? This being a controlled sector and I think so there was some effect of some reversal also that resulted in the lower revenues for this year. So what is our strategy about the fertilizer segment going forward? And since the subsidy burden and all are now a things of parse as of now, so the way forward for the fertilizer segment sir.

As of now, we don't have any plans to expand. We would be optimizing our efficiencies, reducing our costs and maximizing the production that we can get from this, the given assets. This as of now, there is not plan to expand capacity.

The next question is from the line of Siddharth Mehta from Principal India.

So my question is within the sugar segment, is there any scope to increase the sugar storage capacity?

We constantly working with the farmers to increase yield, increase the cane area and then subsequently, we will increase the cane capacity. There is scope for sure and this is very live on our agenda. And we do hope, in the next couple of years, been able to increase our cane area, to such an extent that we're able to increase our cane capacity.

Sir, any figure, that you would like to put because you said that you had been looking coming 2 years point. But no CapEx capacity that is going to happen. It is one of our organic thing that we are doing.

Yes. Organic, correct.

Sir, regarding the Shriram Farm Solutions, sir, you have taken lot of strategic decisions which has lead to an increase of value addition products decrease in the bulk and this is reflected in our strong performance at the operating profit. Do you think this momentum that has seen last 2 years that has been continue further in coming 2 years?

Well, our focus in the Shriram Farm Solutions is the vertical of seeds and the crop care chemicals and value-added fertilizer segment and the growth we are looking at expanding under each of these 3 going forward. So you know when you see bottom line for us in any agriculture product it has an impact because of the market, because of the monsoon, because of government policy particular period of time and there is research involved in developing some of these products. So you know you have a good product, it moves well, but the objective of the business is to continuously keep expanding, keep growing, add value added products, have a better connect with farmers how out to provide better technology to farmers, input and advice to farmers. So the farmers can increase their yield, and their profitability. So our objective is to help the farmers and consequently we become a product and technology supplier to the farmer. So this is, I think which we do expect it keep growing.

Sir, just one clarification. Amit sir said, regarding the new upcoming power of 120 megawatt at Bharuch. Our CapEx is around 450 crores and the cost savings sir has mentioned 20-25%. So the simple calculation is 80 to 100 crore could be our saving?

Yes, at least 100 crores, yes.

The next question is from the line of [ Shriman Vidodia ] from Unifi Capital.

I had couple of questions. One on the fertilizer segment. To the statement that is mentioned in the presentation that the energy savings rate was lower due to lower gas prices impacting earnings. I just wanted to understand this better. Does that mean that the sales happened x offset of subsidy that the government gives into urea? Is that understanding right or there is no to that please help me to understand.

Saving in energies and the energy term it's a million cake. As you said a certain amount of energy. And since the energy largely comes from the gas, if your gas prices are higher or lower, and you multiply your synergy savings by the gas price, it changes with the gas price. So in the gas price is lower, they value for that same energy that you saved at a lower prices lower in terms of value terms, in terms of rupee. So that is why this year the gas prices anyway lower in that period. So that same energy consumption savings and million cake or the value terms and multiplied by the price bit of lower. And if the gas prices are higher, it'll be higher for the same energy.

And secondly, on the Bioseed, multiple participants have asked question on this segment. But I'm just trying to understand a bit detail on Bioseed. If I look at the last 5 years performance in the Bioseed segments it's on a top line and like 500 crores. And we have been taking multiple provisions write-downs in this segment. So one area you mentioned was we are coming a better variety of cost in seed than the competition. But in terms of million the capability in this segment, what text have been taken and in the medium term, could this segment have a meaningful contribution to our profitability? I wanted to understand that.

Yes. You're absolutely right. But as I've said that we have now some very promising hybrid switch initial 1 or 2 years at a lower scale, very good results and we hope that we can skim them up. But the scale that up also you need to build certain capabilities and we are working on that. We have done an in-depth study. We're although we need to build up those capabilities. We're able to scale those that kind of scaling up. And as we said, that we are in the process of taking certain ways this, which will help us to scale them up and build those capabilities, both in terms of distribution, in terms of our sales and marketing and in terms of the people also.

What milestones are we targeting sir in this segment? How should we plan to performance in this segment?

It's very difficult. But in the next 3 years, we expect that improvement.

Other than [ coffee ], what crops are we targeting?

We are [indiscernible] and we are in corn, we have mustard, we have [ badra ], we have vegetables and we also have wheat.

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. And we look forward in financial year '21 earnings conference call. We have gained so much synergic steps taken over the last few years. So our future growth initiatives efforts will be on further strengthening efficiencies, augmenting capacities and developing a stronger value-added profile across our businesses. Our strong balance sheet allows us to keep investing in growth, even during these tough times. we are confident of the sustained growth over the medium term. During the COVID-19 pandemic last year, we took attractive steps to help our people, community and the governments including local authorities. This year, the impact is far more devastating and we have accelerated our efforts in this direction. Once again, I'd like to thank you for taking out time in joining us today. We wish you good health and safety to you and your families during this difficult COVID times. Thank you very much.

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