DCM Shriram Limited (DCMSHRIRAM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to DCM Shriram Limited Q1 FY '22 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, sir.

Thank you. Good afternoon, and thank you for joining us on DCM Shriram Limited's Quarter 1 FY '22 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 with 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 could be forward-looking in nature, and a note to that effect has been included in the conference call and 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 morning, everyone, and thank you for taking the time to join us on our earnings call for the first quarter of financial year '22. I trust all of you have been keeping safe and healthy. Please take adequate precautions in terms of timely vaccination, masks and social distance. I will share my thoughts on operating performance and the strategic direction of our businesses. After that, Vikram will give you the financial perspective. Our businesses have registered a healthy operating performance despite the challenges of the second wave of COVID-19 pandemic. This was enabled by a better economic environment in Q1 financial year '22 versus the same period last year as well as the strong business model for each of our businesses that have evolved over the period of time. I must mention that the dedication of our employees during these difficult times has been absolutely remarkable. Our focus on scale, integration and cost efficiencies helps us in managing our businesses better in such an environment. Continuing with this strategy, our Board has approved following new projects; the first is expansion of our ethanol capacity with a new 120,000 kilo [Technical Difficulty]

Mr. Shriram, we can't hear you. We have the line from Mr. Ajay Shriram ji connected, over to you, sir.

Yes. Thank you. Sorry for this. My phone line got cut off. So just to continue, continuing with this strategy, our Board has approved following new projects. One is expansion of ethanol capacity with a new 120 kiloliters per day multi-feed, grain-based distillery at our Ajbapur factory. Second is optimizing the configuration of our construction -- under construction 120-megawatt power plant at Bharuch to sell up to 90 tonnes per hour steam. Third is replacement of 3 electrolyzers at our Kota factory unit, which will be more efficient and based on the latest technology to reduce power consumption and marginally increased capacity. Further, we have now decided to initiate the expansion of 700 tonnes per day chlor-alkali capacity along with 500 tonnes per day flaker capacity at the Bharuch complex that was put on hold because of uncertainties caused by COVID-19. All these steps will further strengthen our businesses. With that, I would like to share with you the business-wise key developments. First is sugar. Government policy for continued support to ethanol and export of sugar is reaping the benefits for the industry and the farmers. In sugar season 2021, sugar exports was about 7 million tonnes and diversion of sugar to ethanol using B-Heavy molasses is about 2 million tonnes. As a result, domestic sugar inventory is expected to come down to approximately 8 million tonnes by September '21 versus 10.5 million tonnes last year. We sold less sugar this quarter, since total sugar available for sale was about 36 lakh quintals versus 56 lakh quintals last year in the same period. Lower availability sugar leads to lower allocation of monthly release quota by the government. Exports were low since we exported most of our sugar quota by Q4 financial year '21, and this year, no additional export quota was allocated. The quarter end inventory was 25 lakh quintals versus 34.5 lakh quintals in the corresponding period. Domestic sugar prices remained firm and at around INR 3,250 to INR 3,300 per quintal. Our distillery volumes grew by 9% year-on-year. The heavy mix was about 94% of sales volume versus 73% during Q1 financial year '21. Keeping in line with our focus and continued government support for ethanol, the new 120 kiloliters per day multi-feed grain-based distillery at a capital expenditure of INR 145 crores has been approved by the Board. This is expected to be commissioned by Q2 financial year '23. Chemicals. The current quarter beginning saw demand recovery to pre-COVID levels. Our volumes on year-to-year basis were significantly higher because of -- because in the corresponding period last year, there was lower demand to production as a result of the nationwide lockdown. Even sequentially, Q1 financial year '22 saw higher volumes by 5% despite some impact of the second wave on the demand during current quarter. Industry is operating at about 85% capacity utilization. The ECU prices continue to be at reasonable levels and international prices of caustic soda continue to remain firm. The 120-megawatt power plant is expected to be commissioned by June 22 and is expected to bring further cost efficiencies in addition to asset optimization benefits by selling up to 90 tonnes per hour steam. This asset optimization will entail a capital expenditure of INR 31 crores. 120-megawatt power plant, along with the said modification, will be implemented in Q1 financial year '23. Earlier announced downstream projects are progressing as per schedule and will enable forward integration. New investment for replacing 3 electrolyzers at Kota chemical units at a cost of approximately INR 44 crores will reduce power consumption with marginal increase in capacity. This will be completed by Q4 financial year '22. We will now start implementation of our 700 tonnes per day chlor-alkali expansion along with the 500 tonnes per day flaker, which was on hold due to uncertainties posed by the pandemic. This will further increase our scale and is expected to be completed by Q4 financial year '23. Vinyls and plastics. PVC import prices have seen some correction to USD 1,420 per metric tonnes in May and June after reaching a high of over USD 1,650 metric tonnes in April '21. Domestic prices are following international prices since more than half of the domestic demand is met by imports. Prices still remain attractive. The business manifested lower demand during the current quarter vis-à-vis Q4 financial year '21 owning to the second wave of COVID-19. However, it is likely to make up in the coming quarters. Agri inputs. This segment covers Shriram Farm Solutions, Bioseed and fertilizer business. During the first quarter, the rural areas were severely affected by the second wave of COVID-19. Further, delayed monsoon has caused sluggishness in sowing. Bioseed India operations saw impact of the pandemic and erratic monsoons, particularly in the institutional segment. Acreages have been lower. International operations continued to show good growth. We have taken steps to rationalize this business along with the product portfolio. Our research has a good product pipeline. This makes us believe that Bioseed India business will deliver satisfactory performance over the medium term. All product categories of SFS had stable revenue. However, the main reason for this -- the main season for this business is the rabi season. Fertilizer plant operated at 75% capacity during the quarter due to a compressor being out at commission. Plant is operating normally now. Subsidy outstanding remained at lower levels compared to the past trends. The subsidy outstanding as on 30th June, 2021, is between INR 222 crores vis-à-vis INR 650 crores as on 30th June, 2020, and INR 153 crores on 31st March, '21. Fenesta. Fenesta recovered to pre-COVID levels during second half of financial year '21. In Q1 financial year '22, there was marginal impact on volumes. Business is back to normal operations now. Fenesta is continuously focusing on accelerating the growth trajectory by improving geographical presence and product offerings in both new PVC and system aluminum segment and enhancing customer service. Going forward, it will be our constant objective to invest in creating meaningful value-added opportunities for volume growth across our businesses, including adjacencies. We will continue to keep our balance sheet strong along with growing our businesses. With this, I would now like to invite Vikram to discuss their perspectives on our financial performance. Vikram, over to you.

Thank you. Good afternoon, everyone. Let me start by sharing that given our improving financial performance over the last year, and plans to further strengthen the businesses, our long-term credit rating has been upgraded to A++ from A++ by ICRA. Our short-term rating is at A1+ by ICRA and CRISIL. I will now take you through the financial highlights for our Q1 FY '22 results. Net revenues during the quarter came in at INR 1,957 crores versus INR 1,912 crores during Q1 financial year '21. Revenue, including excise duty on country liquor, which started sales in this quarter, was INR 2,008 crores. The key highlights on the revenues are as follows: Higher volumes in chemicals and Fenesta business were due to a lower base in Q1 financial year '21 due to lockdown during the first wave of COVID-19 last year. Revenues for chemical business is up by 76% at INR 412 crores. The improvement was led by volume and prices. Sequentially also, the business has performed better. Fenesta revenues are up by 168% at INR 108 crores. Quarter-on-quarter, the business witnessed a marginal decline. Vinyl business revenues stood at INR 186 crores versus INR 82 crores during Q1 financial year '21, primarily driven by prices of both PVC and carbide. Volumes were also higher year-on-year during Q1 financial year '22 on account of lower base in Q1 financial year '21, as mentioned earlier. Quarter-on-quarter, the PVC sales volumes were lower by 34% and carbide volumes were lower by 24% because of the second wave of pandemic. However, since the production was at normal levels, we expect to cover up during the rest of the year. So the business net revenues with net of excise were down 36% year-on-year at INR 563 crores, primarily impacted by lower sugar and power sales volumes. Sugar and power volumes had an impact of negative with approximately INR 360 crores in the quarter. Domestic sales volume stood at INR 10.5 lakh quintals versus INR 1.3 lakh quintals in the corresponding period last year. Export volumes were lower at 0.2 lakh quintals versus 5 lakh quintals in Q1 financial year '21. The reasons for the lower sales volumes have already been explained. Power volumes for quarter 1 financial year '22 were lower at 294 lakh units versus 634 lakh units last year due to current sugar season ending early by about 23 days versus the same period last year. Higher distillery volumes by 9% and higher prices of sugar as well as ethanol were a positive for the business. SFS Q1 financial year '22 revenues were marginally up by 1% year-on-year at INR 212 crores. All product categories had stable revenues. Bioseed India revenues were down 6% year-on-year. The India operations were lower by 19% year-on-year to INR 136 crores due to lower volume in corn and paddy. Second wave of COVID-19 and delayed monsoon has affected the volumes. Bioseed Philippines witnessed a 59% surge in revenues at INR 51 crores. Fertilizer revenues were up 8% year-on-year at INR 220 crores. Higher prices up 15% are a reflection of higher gas prices, which are a pass-through. Volumes were lower 20% year-on-year as well as quarter-on-quarter as a result of the partial breakdown mentioned earlier. Fertilizer revenues also includes amount of INR 33 crores received through price divisions relating to previous years. Coming to profitability. In Q1 financial year '22, PBDIT stood at INR 300 crores, higher by 56% year-on-year. The key reason for higher PBDIT for higher revenues in chemicals, vinyl and Finesta businesses, which significantly impacted -- which were significantly impacted by the first wave of COVID-19 last year. Sugar and Bioseed PBDIT were impacted in the current quarter due to lower revenues. Margins on sugar as well as ethanol were better. However, overall PBDIT margins were lower year-on-year since crushing was for 14 days versus 57 days in the same period last year. And quarter-on-quarter also it was lower since crushing in quarter 4 was for 90 days versus 14 days in quarter 1 financial year '22. This impact did the cost charge to profit and loss for the period and are loaded on to inventory during the season. The Chloro-Vinyl and Fenesta businesses faced cost pressures due to rising commodity prices. P-A-T, PAT for quarter 1 financial year '22 stood at INR 158 crores versus INR 69 crores during quarter 1 financial year '21. On the balance sheet front, net debt at 30th June, '21, stood at INR 122 crores versus INR 1,167 crores as of 30th June last year and INR 180 crores as of 31st March, '21. The reduction in debt over June '20 is the result of lower sugar inventory and significantly lower urea subsidy outstanding. The company's prudent approach towards capital expenditure and working capital management across businesses also led to lower net debt. Our ROCE came in at 20.8% for first quarter '22 versus 18% in the first quarter last year -- financial year '21. Overall, we have started the new fiscal year on a steady footing. Our balance sheet position remains strong and will ensure healthy liquidity position, at the same time, enabling us to carry out all required capital expenditure programs and growth programs which are underway and under development. That brings me to the end of the financial discussion, and we will be happy to take questions that you may have. Thank you.

Thank you very much.

I just want to clarify that. I'm Ajit Shriram this side. The -- our long-term credit rating has been upgraded to AA+ from AA by ICRA. It was wrongly mentioned by mistake, A++. It's AA+. Thanks.

Sorry.

Thank you. Shall we begin with the question-and-answer session?

Yes.

[Operator Instructions] We have the first question from the line of Chirag Sureka from DSP Mutual Fund.

Congratulations on the performance and the upgrade in credit rating. My question was on the debt profile over the next 1, 2 years. You made significant progress in reducing debt levels. But given the CapEx, would you envisage a substantial increase in debt levels over the next 2 years? The rough math that we have worked out is about INR 700 crores, INR 800 crores. So I just thought I'd hear your comments on that?

Amit, would you like to answer that?

Yes. So you're right. We -- by this year and we should be close to that number. But then probably, we have to see what our CapEx plans are. For this year end, ballpark, this should be the number.

The next question is from the line of Rohit Nagraj from Emkay Global.

Congrats on good numbers and good to hear that the next leg of CapEx is happening. So my question is on chlor-alkali. So what has prompted us to relook at the expansion plans? And if you could just give us what has changed in terms of dynamics of the segment in the last 3, 4 months? And in terms of domestic dynamics, are there any more players who would be putting up the capacity, so how the competitive intensity scenario?

The chlor-alkali business, you're right, we took a view about a month ago that we will go ahead with this project now. This is in 2, 3 reasons. One is it's linked to our 120-megawatt power plant also, which will give us an economical price power by which our cost of production will be very competitive. That is one advantage. Second advantage is now, besides caustic soda chlorine, we also have hydrogen, and hydrogen is again a value-added product, which is being sold to various customers around us. So that also contributes to the bottom line. And thirdly, we felt that really getting economies of scale at a single location, today also with 1,350 tonnes a day location in Gujarat, we are the largest single location plant. We will become 2,000 tonnes per day plus. That will give us economies of scale, which will, again, give us an advantage compared to competition. So we took a view as better to get into it because something or the other, and commodities [Foreign Language] will always happen. But are we competitive? Are we world-class? That is the criteria. And we think that putting in this investment, putting in this expansion with the power plant will give us an edge to be world-class. So that's why we took this decision.

Right. And any other capacities which are planned and which may come up along with our capacity?

Yes. I think there are a couple of big monies coming this now. I'm not aware of anyone else coming right now. I think couple of them are coming in this year, if I'm not mistaken. I think Aditya Birla Group is doing a little bit and big money is doing something. But you never know. I mean, these are businesses where the growth happens. For instance, we have the advantage that NALCO and BALCO, which are the 2 aluminum manufacturing plants in India, who are importing caustic soda, they are now buying from the domestic market. So that's created its own demand. So like this, the market keeps changing, but I think our objective of being competitive and being among the lowest-cost producers, that is what we are trying to achieve continuously.

Understood. Sir, the second question is on the PVC front. So we have seen the prices coming off. How are we looking at the domestic demand and the pricing scenario generally for the next foreseeable future?

KK, would you like to answer that?

Yes. I think we are expecting -- the demand has recovered a bit, which had come down in June. In July, it has recovered, and we hope, in coming months, it will recover further. In terms of prices, which had seen a bottom sometime in June, have also recovered, and we believe they will recover further in the coming months. And we're expecting it to go by another $40, $50 at least in the next 1 or 2 months and stay firm for at least 2 more quarters.

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

So I just wanted to quickly follow up on the chlor-alkali expansion that you mentioned regarding the 120-megawatt power. So how exactly is it adding to the economic power pricing? Like is it to do with replacement of coal, and we're going with some other technology? Or could you elaborate on that, sir?

No. Yes, sure. Actually, if we don't put up our own power plant, we have to buy power from the grid, which is on the Gujarat State Electricity Board. There, the cost of power is INR 7 plus. Whereas if you put up our own, we are in the range of INR 4, INR 4.50. And as you are aware, I'm sure, the coal price in the international market, because we get only imported coal for our Gujarat factory, the coal price also fluctuates up and down. So whenever it comes down a little bit, we have an added advantage over there. And the third point is that the plant coming up now 120 megawatts, as technology is keeping on improving, each new plant we put up is more efficient than the one we put up 2 years ago. So this plant is more efficient and the cost of producing power is lower than what it would be for the older plants. So that gives us an edge again. So it is a coal price issue compared to -- it's a coal price issue. It's a power rate issue vis-à-vis the state government, where we will have to buy it if we didn't manufacture our own -- did not generate our own power, and of course, the efficiency of a new plant.

Sure, sir. That's the -- and with the expansion, you already mentioned regarding hydrogen, it will give us more of hydrogen, which will help us in economy of scale and hydrogen peroxide expansion?

Hydrogen peroxide plant is still under implementation. That's a new plant and a new value-added business down the line. We are going into hydrogen peroxide. We're going into ECH and glycerine purification there on. So we are looking at these projects for value add down the line in any case. But more hydrogen is also a good thing because there's a good realization for that too.

Okay. Understood sir. Sir, and have you finalized on the technology for ECS because in the last call you mentioned you're more or less there?

We have. And as anyone...

It is finalized.

Yes, we have finalized.

Okay. That's great, sir. And just to touch up on the sugar inventory situation that mentioned that lead to lesser sales this time. I see that, as a monthly quota allocation for DCM in July has gone up to almost 4.1 lakh quintal. So how do we see it for Q2 sir? I mean, given that the inventory level was even further down from March, do we expect a better sales coming in for this Q2?

See, basically, as far as the sugar inventory is concerned, as it was mentioned in the opening remarks, the total sugar available for sale was 36 lakh quintals this year versus 56 lakh quintals last year. Now the release mechanism is such that it is proportionate to the stock level that you have. So it's very difficult to sort of quantify what the release would be for the following year. Because this also involves how much B-Heavy you've diverted for manufacturing of ethanol that gives you a little additional release. So there are many factors which are involved in the factory-wise release. So I mean, we have 4.1, 4.2 lakh quintal this month, as you mentioned. It will be difficult to quantify what will happen next month or the following.

Understood sir. Because why I'm getting...

But it will be in line with all the other factories or all the other companies as a percentage on a broad level.

So I'm just trying to understand, on the year basis, I get it, like hovers was around that region. But on a monthly basis, we do get allocated and by the Ministry of Food, the list is released. I'm just trying to understand what are the factors other than the inventory? Because if it's just the inventory, as you said, being lower affects it a lot because our inventory currently is even lower than Q4. So I'm just trying to understand if that will have a greater impact in this quarter?

So you need to look at it from the perspective that having a lower inventory -- even in the same period last year, we had a lower inventory because we sold more. So that function of lower inventory will continue. That delta of lower inventory is there in both the periods. But then the other factor also is what is the demand, what is the levels of demand that government is looking at. That is another factor which would play a role in terms of allocation.

Got it. Sir incremental for this quarter, if there's a better demand, we could see better results and sort of like in July, the allocation was higher, you're saying better demand environment might have the average of...

So it's -- that's the reason why it's difficult to really give you the numbers. But yes, the -- what is available for sale does make an impact, but it doesn't mean that it will fall -- it will be linear.

See, as far as demand also is concerned, it depends on the festive seasons. So I mean, generally, in September, October, the releases are a little higher than July, August.

Sure, sir. Sir, in fact, in ethanol, we had a very good quarter with 94% conversion from B-Heavy. Are we expecting this levels to go forward? Because generally, we are around 60% to 70%. So what's the outlook in that particular segment, sir?

We plan to maximize our B-Heavy to ethanol going forward.

And also...

So I mean, so as was mentioned, it was about 70% -- 67%, 70% the previous year. We've increased that to 94%. Going forward also, we will maximize our B-Heavy to ethanol.

Okay. So that's great to hear because that directly does affect our inventories also going forward. And that's why I was curious if there is any management in that front where you get in a situation where you have to probably cut down on the B-Heavy.

No. For example, in the previous sugar season, we diverted 4.5 lakh quintals of sugar equivalent to B-Heavy. And this year, we diverted 7 lakh quintals of sugar to B-Heavy. So I mean, that's the trend that's going on, and we will try and maximize B-Heavy to ethanol.

That's great, sir. So in country liquor, as a net revenue, we had a INR 50 crore coming in from this quarter. Could you have any sense of the margin contribution from that, sir?

Amit, would you take this?

See, the net revenue on country liquor was only about INR 5 crores because about -- the total sales were close to INR 55 crores, INR 56 crores. Out of that large part, the majority of it is excise duty. So the net revenue is only INR 5 crores. So initial stages to give you a margin because we are just getting into the market. So we are creating the market. So I think it's very initial state to give you a margin number from smaller revenues.

We expect this sort of a volume to carry forward in coming quarters, right?

So volume should improve. Given that there was COVID, so the volumes were lower. We do expect volumes to improve. But there is seasonality factor here as well depending on monsoons and things like that. But definitely volumes will improve as we go forward. But it will always remain a small part of the overall business.

Sure, sir. Let me just finish with my one last question. Regarding this new ethanol plant that's coming up with grain-based, you mentioned it to be a multi-field, but I'm just trying to understand what percentage of it would be from probably grains and from the broken rice? Do we have any sourcing proposition there? And what's the margin level that we're expecting from that plant?

See, as far as sourcing of green concerned, we are planning to use broken rice and there's adequate availability of broken rice in our region. So we are not seeing that as an issue. And also, as mentioned, it's a multi-feed distillery plant. So we can use cane juice, we can use B-Heavy, we can use broken rice, we can use wheat or sweet sorgum, et cetera and maze. So there are many options as far as the feed is concerned.

Sure, sir. And what's the margin level we expect from this plant sir? Will it be very similar to the ones that we have already in sugar?

The margin profile for this -- the EBITDA margin should be in the range of around 25%.

25%, sir?

Yes.

[Operator Instructions] The next question is from the line of Rohan Gupta from Edelweiss.

Sir, congratulations on the very strong set of numbers in the current quarter. Sir, couple of questions. First is on this caustic soda where you have, once again, taken the decision to go ahead with the CapEx, which earlier was put on hold because of the changing dynamic. Sir, I just wanted to understand that is this reason of caustic soda and going ahead on this chlor-alkali plants. Is there any change in structural dynamics of the country, like in most of the other countries the chlorine chlor-alkali chain is mainly driven by the chlorine cycles while the caustic soda you get more of the byproduct. While in India, it's affordable because of the less uses of the industrial chemicals and the chlorine-based derivative. Do you see that there are changes happening in the industry because the downstream chemical usages are rising, many specialty chemicals are increasing their capacity? You also mentioned that you are seeing the strong demand for hydrogen peroxide and hydrogen-based derivative. So is there any change in this chlor-alkali chain in India where moving forward over next 2 to 3 years, the pricing of chlor-alkali will be more dependent on chlorine and chlorine based derivates rather than caustic soda that will make this chain, chlorine chlor-alkali chain a more stable product line rather than a commoditized product line?

Just to add what you're saying that, In India, frankly speaking, even today, caustic soda is the main product. For instance, in the last couple of months, we've seen the caustic soda prices have firmed up a little bit. But caustic prices have -- chlorine prices have softened a little bit. That has factually happened. And I think a couple of reasons for that is India is now getting more well versed in exporting caustic soda, whether in lye form or flakes form. So that's also an advantage where we can get into the international market. For instance, there is a contract recently signed between 3, 4 manufacturers to export 25,000 tonnes of caustic soda lye to the international market. That's also moving. We ourselves last year exported about 30,000 tonnes of lye and flakes, or 35,000 tonnes. And this year, it's expected to go to 60,000, 65,000 tonnes. So I'm saying the international market is also picking up, and the export of caustic soda, lye and flakes, both of them have started moving, which is a good thing. So I think, down the line, see commodity is a commodity. There will be tugs and pulls. But in India, we are seeing caustic soda as still the main product. Chlorine consumption is going up a little bit, but it's very difficult to say like international markets, you're rightly saying that chlorine becomes the main product and caustic is more like a byproduct. But India is still the other way around. And I think it's going to carry on for some years.

Okay. Okay. But despite rising demand for hydrogen and hydrogen peroxide and down the line, you don't see that there will be any significant change in this pure chlor-alkali chain in India for next -- at least next 3 to 4 years?

It's very difficult to say. It depends what sort of value-added chemicals come into the country, where the chlorine demand goes up a little more. Hydrogen is a separate product, which goes into hydrogen peroxide plus it's got its own users across the board. We have 4, 5 customers who take pipeline hydrogen from us -- from our caustic soda factory in Gujarat, and they use it for various other products. So hydrogen has its own set of users. That is separate. Chlorine has a own set of users and caustic soda has its own set of users. So it's very difficult to give any prediction as to what will be the priority 2 years or 4 years down the line.

Okay. Sir, right now, I think our chlorine base capital usage is roughly 30%. And with the usage plant coming in, it is likely to go up to almost 50% to 55% consumption in-house for the chlorine, right?

Yes, it will go up because we are expanding our aluminum chloride plant also from 60 tonnes a day, we're going on to 150 tonnes a day. So that will also increase the chlorine consumption. And epichlorohydrin is also going to come up after, I think, about 4 quarters -- 4, 5 quarters. That will also start taking chlorine. So chlorine consumption in-house will keep going up.

It will go to 50%, but question was on the 700 tonnes per day?

Sorry. Let me just correct you over our CMD. That is right that with our chlorine downstream projects coming up, our consumption will go up. So currently, if you look at our Bharuch plant, if we exclude HCL, then our capital consumption is around 4%. That will go up to around 21% once these plants come up at existing capacity. And once the new capacity comes in, and assuming the aluminum chloride and ECH, which will consume the chlorine, they remain at the same capacity levels, then the overall capital consumption will be around 14%.

14% okay.

And the chlorine consumption in our Kota factory. Amit [Foreign Language].

Yes. And the chlorine consumption in the Kota factory is in the range of 35% to 40%, active consumption.

Okay. And that was in the PVC?

PVC, yes. That was in PVC, right, correct.

Sir, second question was on your grain-based distillery where you have taken a leadership of in INR 145 crore CapEx of 120 KLD. You have already mentioned in the earlier con call that you are going to use this once it is based on sugarcane, but also want to go with a multi grain-based distillery. Sir, given that your company has a solid cash flow and we keep on bringing cash flow going forward, do you see that the grain-based distillery of 120 KLD is just on a pilot project? And if it works and dynamics works and there is a huge opportunity for you as a company to put up this expansion and keep on adding more grain-based distillery in future. Just wanted to know your thoughts on that?

See, the government has been extremely proactive on the ethanol front. As you're aware that they have brought forward the 20% blending target for all India basis from 2030 to 2025. So yes, ethanol is a very...

Sir, I think it was further reduced to 23, isn't it?

Sorry?

Sir, it was brought back to 25, but I think the target has now been 23, right?

There's a bit of confusion over there. But as on date, they've got it forward to 20, 25. Now even to achieve this target from our current 8% blend to 20% blend is a huge, huge challenge. So yes, a lot more distilleries are in the pipeline today. We are expanding our distillery, and we do hope to expand further, but it will be difficult to comment at this point of time because we have to first discuss internally. Yes. But I mean, there is a huge -- there is a very good opportunity over there.

And sir, what is the dynamics of this grain-base distillery? Will it be similar to what the kind of that period we had in sugarcane distillery, which was of I think 3 to 4 years of payback period?

Basically, I mean, you have to have attachment. The distillery part is identical to your cane juice or I mean the sugar distillery. There's only one attachment which you have to add as a -- in the beginning to process the grain into powder and take it forward. Is that clear?

Sir, slightly confusing. My question was straightforward that what is the payback period for this grain-based distillery? And given that, we tend to bring within the PAT material?

Yes. I mean, the payback we are looking at is 30%.

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

Sir, I had 2-part questions on chemical. So first, on the caustic soda. So we have -- on the chemical side, sorry. So we have reported something around INR 92 crores of PBIT from the Chemicals division. So this includes both your caustic as well as the value-added product contribution. So if you can help us explain how much is the contribution from the value-added products like aluminum chloride, hydrogen and SBP? I think these are the 3 value-added products currently in our portfolio. So this is one. Second is on, you mentioned prior that we rely on the imported coal for our power plants. So if you can help us understand like because the coal cost has gone up in the international market, so how the dynamics works like? If we consider $5 to $10 increase in the coal cost, how does it impact our generation cost in rupees per unit? So let's say, if our generation cost currently is INR 4.50, and if coal cost goes up by $10 in the international market, how does it impact? Because it also depends upon the calorific value if I presume it correct. So this is first set of questions, sir.

Yes, I'll just take one, and then I'll ask Amit to give the other detail. That's a lot of detailed accounts that you are asking for, I don't have. But I'll just mention this thing that you are right, that one is we get coal generally of 5,000 CV. So that is the sort of a fixed benchmark. You don't alter that too much with a particular sulphur content and with a particular NOx stock, et cetera, et cetera. But that is as per the pollution control norms. You have to emit -- the true gas has to be of a particular quality. So that is the benchmark, which is there straight away. You're right. In the last couple of months, the coal price from Indonesia where we get a lot of coal has gone up from about $70 to $90. So that has an impact. I'll ask Amit, if he knows the figure of how much is the impact of this in terms of cost and generation of coal, as well as on the first question, Amit, which is the breakup of the cost of -- the profit breakup of the Chemicals business?

Yes. So in terms of the contribution by the value-added products on the total breakup, this quarter, it would be around 25% coming from the other products. But this percentage keeps varying depending on what we are realizing on chemicals, on the core chemicals, which is caustic soda chlorine. This quarter it is around 25% and driven primarily by hydrogen.

Okay. Okay. Got it. And sir, on the generation cost, if you can help us understand?

The generation cost of coal?

Yes.

Of power?

Yes.

Yes. So quite -- see, we generally don't talk about what is our cost of generation. And yes, it is very cost operative, and that is the reason why our margins have been good and even the times when the caustic prices went -- the ECU went down to around 20,000, 21,000, still we were making reasonable margins. So that is driven by the fact that the power cost is reasonable, which is almost 60%, 65% of the total cost of production.

Okay. Okay. Sir, my second question is on ECH. So, sir, what we have seen in last couple of months that ECH prices have been moving up continuously, probably driven by the epoxy prices because I think that's the main application for ECS, and I think they have gone up by 50%, 60%. So I just want to check on the raw materials, like how do the glycerine prices have moved up in the last few months? And what sort of agreements are -- do we normally enter or are we intending to enter for the glycerin because I think we'll be importing crude glycerine and we'll be refining here.

I want to just clarify that we are in the process of putting up the plant. So the plant will take another 4 quarters. So we've not gotten to be details yet.

The next question is from the line of Vinod Chandra Agarwal who is an individual investor.

Yes, I just want to know about the ethanol plant expansion. So outside of this 120 kiloliter per day what we have proposed, do we have like further plan to expand...

Mr. Vinod, I'm sorry to interrupt, but your voice is breaking. We can't hear you clearly.

Okay. Can you hear me properly now?

Little bit, please try -- please carry on.

Are you able to hear proper now?

Yes sir. Now it's fine. Please go ahead.

Okay. Like the bigger plan on the ethanol production side or the ethanol capacity addition side because, as you know, that government has approved a lot of our applications, which we would have made for the bigger expansion. So is there any like time line to complete those or whatever the applications we have made for the future expansions? Is there any time lines to complete sir?

As mentioned earlier, the current 120 KL plant, which has been approved by the Board, will be commissioned in Q2 of FY '23.

Outside of this 120 kiloliter, I mean, is there any plan to expand further? Because you know that government has a big ambition to achieve that and we also made a bigger applications, right, on the -- to expand this. So is there any like plan or is there like -- that was only the applications what we have made to the government that what we want to achieve in the future. But right now, we are only proposing out of IT whatever that we have offline. Because in the least, what I see where we have got the approval of the interim submission scheme, there is a bigger chunk of the ethanol plant is there, which we have proposed. But right now, we are only proposing 120. And I think government also has a deadline to complete after getting the approval of that scheme. So I just wanted to know that what is our plan to complete like those whatever we have opposed to the government?

So Mr. Agarwal just to clarify, I mean, we are looking at the growth of the sugar business along with the ethanol and other chemicals on a continuous basis. Our cane development efforts are on, and we do hope to continually expand our existing factories. And along with that, we will look at further expansion of ethanol going forward.

Okay. Okay. And just, sir, one another thought on the just our plant, which were adding. In that, you said that the cost could come around INR 4 to INR 5, right? So I just had a thought. I'm not sure about how the dynamic works on that. But as you know, that the solar plants you will see, which is our labor or the solar plant provider, they just beat the amount around INR 2 to INR 3, right? So why can't we purchase directly from those type of producer who can provide INR 3 rather than -- I know it will work only for a little time, but is there much of issue if we can't purchase directly from that solar plant provider and solar energy provider rather than the Gujarat government or the Gujarat Power?

Vikram or KK? Vikram please.

I think, at present, regulations for purchase of power and the charges levied by the State Electricity Boards for transmission, distribution and cross subsidy are still under formulation. So we are always actively looking at that as an opportunity, but it is not -- because of the heavy cross-subsidy charges and transmission charges, at present, it is not viable. We are launching the policy, and we are watching it very closely in terms of opportunities for weather purchasing or going forward, putting up our own plants in a distant location, viable location and transmitting to ourselves. We are looking at all options.

Okay. Okay. Understood. Thank you, sir. And sir, just last one question.

And it's not yet firmed up.

Yes. Just one last question, sir, about the chemical sector. As you know that right now, everyone is looking for China plus one strategy. So in that sector, do we have any plan to expand in those type of chemicals which will benefit that China plus one thought on the field?

Yes. Go ahead, please.

Yes. I think we are looking both from the China plus one, and we are looking at other opportunities also. So it's -- we are looking at multiple opportunities in the chemical area. And in the course of the next year or so or 6 months, whatever, things should start getting firmed up and taken up and approved by the Board. So the plan is to look at growth -- further growth in chemical sector, and we are looking at multiple opportunities.

The next question is from the line of Aasim Bharde from DAM Capital Advisors.

So I had 2 questions, both on the PVC business. So I think to an earlier participant, you talked about PVC prices would remain firm for the next 2 quarters at least. So can you talk about how is the supply situation is globally at the current juncture? And if you could also comment on the visibility of supply for inputs that go to producing PVC?

Yes. See, in terms of supply side constraints, which have been due to operational issues with some of the U.S. producers and also in China, the domestic producers have slowed down due to electricity usage restrictions in China. And China is also coming to the global market increasingly for importing PVC. So there are significant inquiries coming from China for PVC imports. Recently, also, there have been some flooding issues in Europe, largely in Germany and Belgium, which is also likely to affect the production issues in the European market. So in terms of supply side, they would -- constraints would continue. In terms of strong demand for PVC in the U.S. markets, the exports from the U.S. will also remain restricted. So we expect that the Asian offers to -- would largely go to China. And so the global market is expected to be seeing supply side constraints and the prices are likely to remain firm as they are today.

Okay. But can you...

Some of the container -- the freight issues are also still high. They are also going to make the prices -- importing it in India, the prices will continue to remain high.

Right. But on the supply side for inputs for PVC, is there a supply constraint there as well? Or is there not much of a problem?

Earlier we have explained which largely is globally the material for PVC production, ethylene EDC, there don't seem to be any constraints on that. So ethylene, if the margins in PVC are good, it gets diverted from the other petrochemical products, which have been made. So we don't see any raw material side constraints. But in China, yes, because of the electricity usage restriction, the carbide-based PVC is likely to come down because the carbide prices in China have gone very high. So in China, the raw material constraints, particularly in the carbide-based PVC would be high.

Okay. Okay. But still fair to assume that for a while, given that PVC prices would be higher, but on the raw material side, things won't be that of a problem, margins would still be higher for you there, at least of this business?

Yes. We also, like it was mentioned, power is for us in carbide-based PVC, power is the main raw material. So the coal -- whatever increase in coal prices are happening that affects our cost also, but that's not -- that's more than offset by the prices that we are getting today.

Right, right. And do you -- I mean, I think you just slightly touched upon expanding capacities in the chemicals business. Would you be looking to increase any capacity in PVC in particular?

As we said, it's still under evaluation. So I don't think we have firmed up anything as of now.

And would you be aware if any competitors in the domestic market are planning to expand capacity?

Not the current manufacturers. Possibly some large projects have been announced, which are very big, mega projects, but the current manufacturers, I'm not aware about any expansion plans.

Okay. Just from my knowledge, if someone wants to set up a capacity right now, the lead time to set it up would still be long, right? Like 1.5 or 2 years long?

Yes, it would be of that order.

The next question is from the line of Tejas Sheth from Nippon India Asset Management.

On the green-based ethanol [Technical Difficulty]

Mr. Tejas, your voice is very low. We can't really hear you very well. May I please request you to use the handset?

Yes, hello. [Technical Difficulty].

Your voice is not clear. There is some disturbance.

Some disturbance, very strong disturbance.

We seem to have lost the line for Mr. Tejas. We'll move to the next question. The next question is from the line of Navneet Dayal who's an individual investor.

Congrats for a great set of numbers. My question was on the CapEx intensity. So currently, based on the projects that we've announced, we are doing about INR 1,100-odd crores per annum. With hopefully the COVID uncertainty reducing and our cash flows are pretty strong, balance sheet is also in a strong shape, do you see this getting a little -- do you see any scope of this increasing being a little more aggressive in terms of CapEx intensity?

I'll just put it this way that total projects which were decided earlier of the 120 megawatts plus the epichlorohydrin, hydrogen peroxide expansion, aluminum chloride, et cetera, and the new ones, which were decided by the Board 4 days ago, our total CapEx is in the range of about INR 2,325 crores. So this -- and it's not actually an annual figure. It will peak at some time because all these projects are moving simultaneously. So it's something which we are keeping a track on. We are wanting to keep our balance sheet strong. Yes, we will have to borrow money, we'll do that. But our cash flow year-on-year will take care of the position of meeting our financial requirements. Amit or anyone else, do you want to add anything else on that?

Yes. So in terms of...

Amit, just put yourself on mute.

In terms of announced CapEx, we are spending about INR 2,400 crores approximately over a period of next 2 years. So in terms of timing, they will be, whether we spend 50-50, but then, as mentioned in the beginning of the call as well, assuming that the CapEx goes the way we have planned, this year-end, our debt level should be around INR 700 crores. Net debt.

Yes. So which will still be quite comfortable. So my question was, do you see a scope of increasing the intensity beyond INR 2,400 crores divided by 2 is INR 1,200 crores. So do you see that increasing over time because COVID uncertainty, hopefully, should also reduce and our balance sheet is pretty strong right now?

Vikram, you are not on mute. Okay. Go ahead Vikram.

Yes. We are studying various growth opportunities. And we are looking at various opportunities in all our businesses possibly except urea and possibly except cement. So we expect growth opportunities to start maturing and being taken to the Board as they mature. So from next financial year onwards, yes, there will be additional CapEx. There should be additional CapEx.

The next question is from the line of Tejas Sheth from Nippon India.

Yes, apologies for earlier network issues. On the green-based ethanol, would the realizations be similar to C-Heavy or B-Heavy?

Amit, do you have the pickup of...

Yes. So the realizations for green base is INR 51.55 per liter. So it varies. I mean, depending on the feedstock, the realization varies.

Okay. Okay. On the chlor-alkali expansion of 700 KPD, are earlier interaction you have stated that it will take nearly 9 to 12 months once you people finalize. But the current time line you have mentioned is Q4 FY '23. So that's like more than 18 months to complete the project. Why is there such extension in time line?

Amit, go ahead.

Yes, sir. So what we had mentioned, Tejas, was that it would take about 15 months to 18 months because that was the time we were expecting even around that time. 18 months from now is more of an upper limit, right? Because we've just decided in this month itself that you want to go ahead and then finalizing the plants and all that also will take a month or so. And then the ordering will start. [Technical Difficulty] COVID phase also needs to be covered up.

Vikram, can you just put your thing on mute. Yes. Amit, go ahead.

Then the 18 months is a reasonable number to be very sure of that -- and we do want to over pace it either, Tejas. Now if you look at the other capacity coming in, we want to ensure that when we come in, we don't fret the market. Market should be able to absorb. So we have done our calculation in that perspective also.

Okay. On the realization of caustic soda, there's a huge gap between the import prices and the domestic prices. So how do you see those prices movement over next -- let's say, over the next 3, 4 quarters? Would the import is expected to come down? Or do you expect that the domestic prices will move up and be at import parity?

I think the prices generally are at import parity. They move in that range. And as I mentioned earlier, India started exporting a lot more caustic soda lye and flakes, which gives you advantage of not having too much excess capacity being sold in the domestic market, plus these aluminum manufacturers have started buying from here rather than importing caustic soda because caustic soda prices outside also did go up a little bit. So I think the prices keep varying. There's nothing which is -- and it depends, one is international price varies. The domestic price varies, depends on supply and demand and what is the export potential, which happens. So I think these are the variable parameters that determine how the pricing happens.

Okay. But once things normalize, you see realizations at around 25,000, 26,000?

Yes, I think we do see. We are in the range of 23 to 25 even today and it moves in that range. So we are hoping it will stabilize at this range.

The next question is from the line of Shanti Patel from Shanti Patel Investment Advisors.

My question is when all our expansion plan materializes, either in totality or step by step, what will be our return on capital and return on equity as on 31st March, '22, and as on 31st March, '23, taking into consideration the present situation?

Amit?

You're saying that it's difficult to forecast an accurate number?

No, not accurate, approximate.

I'm not giving an approximate number. I'm just saying it would be well above the cost of capital, and it will be a satisfactory return on ROCE.

No. But do you think that it will go up as compared to what it is today?

It is very difficult to forecast when you are in commodity businesses, and there are multiple new projects being commissioned and the capital intensity is going up. But you will understand that, directionally, the aim is to maintain a high ROCE and a high return on capital employed.

And Shanti Patel ji, I just mentioned, who had ever thought corona will come and look at the impact of corona. There's a second wave which has come. They talk about third wave. So one has to be realistic to see what is the market also and what is the business environment.

That I agree with you. That is why I told, taking into consideration the present situation.

It's been a satisfactory and balanced approach. So that even if there are problems, we don't have severe problems. And if things are satisfactory, we are doing well.

The next question is from the line of Shrenik Bachhawat from JM Financial.

Most of questions are answered, but I just wanted to say that recently the PVC prices have started moving up. So what do you attribute the main reasons for it? And -- so what do you attribute the reason for the price increase in PVC recently?

KK? KK, could you please take that?

The line for Mr. Kaul just dropped. We're calling him back.

Okay. Please call him back.

We have the line for Mr. K.K. Kaul connected.

Yes. Is there any question for me?

Yes, there is a question on PVC. Could you kindly repeat that?

Yes, sir. Surely. So sir, basically, recently we have seen that PvC price increased by INR 2 from 15 July, I guess. So I wanted to understand, as we are seeing INR 19 drop in PVC in the last 2 months, suddenly it has started increasing. So what has been -- what has changed? Like what is the key reason you feel about this?

See the drop -- we have seen peak of about INR 130 a kg. Today, we are at around INR 118, INR 119 a kg, even INR 120 also. So the drop happened because of the demand reduction in the COVID period, in the second wave of COVID, particularly in the month of June. Now in July, this demand is gradually recovering up. So are the prices recovering. We have seen as low as INR 110 realization. Now it's gone to INR 120. And we expect it to go by another $30, $40 as we go along. Because the demand is picking up now. But still much less than the pre-COVID period kind of a demand.

And sir, demand is coming mainly from housing segment or do you have any other?

It's coming from both, the housing, the pipes. Pipes is the largest consumer as well as the cables profiles. So it's coming from almost every sector. And we've seen a significant drop in the month of -- in Q1 -- in the month, particularly in the month of June. So it's recovering now.

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

I just wanted to understand, when you said the new ethanol plant being a multi-feed, but can we assume safely that 90% would still be from local rice, at least to have a ballpark figure?

It's difficult to say 90% or 80% or 100%. I mean, our aim is to actually try and run it on as much of broken rice as possible. We are exploring options of using cane juice as well. And if that is workable in terms of economics, then we will prefer -- we may use cane juice to also divert sucrose into ethanol -- and reduce our sugar stocks. So it's very difficult to give a percentage forecast, Karthik.

Sure, sir. So I understand. Sir, regarding one touch point on fertilizers. There was a mention regarding a breakdown that put our capacity utilization only at 75. And so do we expect this sales to come back in this quarter? Because generally, Q2 is quite strong. I mean, leading up, just so I understand. Are we seeing the volumes back?

Yes. The equipment, which had broken down, that's been restored back. So now we expect this quarter, we should be going back to the normal production, full production.

We'll take the last question from the line of Rohan Gupta from Edelweiss.

Sir, just one clarification on this CapEx of INR 2,100 crores, including this t Bharuch Chemical Complex. So we have seen some sharp rise in commodity prices. Steel, aluminum and all these commodity prices have gone up of 60% to 100%. I just wanted to review your CapEx plan. Will this CapEx number remains the same? Or there is any significant changes which are there in this CapEx plan sir -- CapEx outlook?

Amit?

Yes. So see, given the prices we are reviewing now, right, because there may be some marginal impact, we are reviewing the numbers, so we will come back with the exact amount.

So sir, if we refresh as of now, this 120-megawatt power plant, I think it was earlier some INR 450 crores. If you can, sir, will you give those reviewed number right now?

Yes. As I said, we are -- Rohan, we are reviewing it. For this 120 megawatt, there may be some increase, but those increases will not be significant, and it also does not significantly impact the return that we had targeted. So if you remember, our middle rate generally is around 25%. So we will be in that.

Thank you very much. That was the last question. I would now like to hand the conference back to the management team for closing comments.

Thanks. Ladies and gentlemen, thank you very much for your participation in our Q1 financial year '22 earnings conference call. We will continue to work on our strategic direction of growing our businesses, using scale, multiple revenue streams, enhancing efficiencies and achieving higher integration. We will also ensure that the balance sheet and cash flow remains strong. With key capital investments announced earlier and recently of approximately INR 2,350 crores, we are poised to report better outcomes in the time to come. Once again, thank you very much, and we wish you safety and health during this difficult time of corona. Thank you so much.

Thank you very much.

Thank you. Please go ahead.

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