DCM Shriram Limited (DCMSHRIRAM) Earnings Call Transcript & Summary

Ladies and gentlemen, Good day, and welcome to DCM Shriram Limited Q3 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to 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 3 and 9 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 shall 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 commence, please note that some of the statements made on today's call could be forward-looking in nature and a note to that effect has been included in the conference call invite circulated earlier. I would now like to invite Mr. Ajay Shriram to give us a brief overview on the company's performance and his views going forward. Over to you, sir.

Thank you, Siddharth. Good evening, ladies and gentlemen, and thank you for joining us on our Q3 and 9 months financial year '22 Earnings Conference Call. I would like to wish all of you a very happy new year. I hope all of you and your families are staying safe and keeping well. I will walk you through the business developments. Thereafter, Vikram will follow with his thoughts on the financial perspective. We are glad that our businesses reported an overall healthy performance despite the operating challenges during the quarter. The input and output prices of Chloro-Vinyl businesses were at levels never seen before. The volatility was extremely high and unidirectional. Compounding this problem was the supply constraint. Late rain in the Rabi season posed challenges to the Agri Input Businesses. Most of our businesses managed the situation well and delivered growth, along with better margins. You are aware that we are investing in further strengthening the businesses through scale, integration and cost optimization across our chemicals, sugar and Fenesta businesses. Other businesses like Shriram Farm Solutions are OpEx intensive and are growing in scale. In this quarter, we have announced additional investments in the sugar business. These steps will help us maintain the growth momentum as well as manage volatility better. I would now like to take you through the business-wise key developments of the company. Chemical, the operating environment in the business is very dynamic. The prices of caustic soda moved to historical highs in the first 2 months of the quarter, given the supply constraints from U.S. and China. The abnormality of high energy prices added to the cost of production, and that went up substantially. Global supplies started getting restored from November onwards post the hurricane in the United States and end of the dual control policy in China. The current international prices have come down from a peak of about USD 500 to USD 550 per metric ton. Going forward, there are planned shutdowns for some U.S. manufacturing plants and the impact is yet to be seen. Domestically, demand from key consumer sectors remained stable. However, some pressure is witnessed in the textile and paper segment towards the end of the quarter. Domestic chemicals -- caustic soda prices are moving in line with international prices. Chlorine is under pressure due to increased operating rates of chlor-alkali manufacturers and lower demand for some consuming sector. Input costs have seen significant uptick led by coal and salt prices. We are procuring optimally and using all options to mitigate the impact. We are also keeping enough supplies to ensure there is no constraint on this account. The chemicals business is implementing a 120-megawatt captive power plant, and we are expanding our caustic soda capacity by 850 tonnes per day and flaker capacity by 600 tonnes per day. Additionally, the aluminum chloride capacity is going up by 90 tonnes per day. We are also setting up 51,000 tonnes per annum, epichlorohydrin capacity plant and 52,500 tonnes per annum, hydrogen peroxide capacity plant. All these projects are underway. They are expected to get commissioned with a few months delays due to the COVID-19 and erratic rain. Project costs are also expected to increase given the reconfiguration of projects, scaled efficiencies, market demand and increase in commodity price. We are trying to minimize the delays and cost increases. However, returns from the projects continue to be healthy. Vinyl, the global demand continues to remain strong. The prices are still at healthy levels, although the import prices have moved lower is making a peak in October 2021, pursuant to easing of supplies from China and the U.S. Like in caustic soda, the increase in energy prices has led to a significant increase in input costs. High energy prices pose a risk if the product prices come down, given the nature of the commodities and more so in the current circumstances. The operating environment is expected to remain volatile. Sugar, the domestic sugar production expectation in the current season is 30.5 million tonnes. The sugar production till 31st December 2021, stood 4.3% higher at about 11.5 million metric tonnes compared to the same period last year. In the current season, we saw cane crush of -- our practice of cane crush of 210 lakh quintals versus 203 lakh quintals last year as on 31st December. Recoveries on final molasses basis till 31st December for the season stood at 10.5% for sugar season '22 vis-a-vis 10.7% for sugar season '21. Global sugar is expected to be deficit which will keep the international prices firm. Given that the government has not announced export subsidies, India is expected to export about 5 million to 6 million metric tonnes of sugar in the current season versus about 7 million metric tonnes in the last year. Currently, the net realization on exports is lower than the domestic price. During the quarter, we produced ethanol by cane juice route as the heavy molasses. Sugar diverted to cane juice and B-heavy ethanol in December 2021 stood at 4.3 lakh quintals versus 2.1 lakh quintals in the same period last year. We will continue to strive for an optimal mix for our distillery and sugar operation. At the sugar business, we are setting up 120 kiloliters per day multifield distillery and increasing our sugar refining capacity from 500 tonnes crush per day to 26,500 tonnes crush per day and expanding our sugar capacity by 3,000 tonnes per day, among others. These projects are expected to be commissioned within planned time and cost estimates. Agri Inputs, the segment includes Shriram Farm Solutions, Bioseed and the fertilizer business. Shriram Farm Solutions showed good growth on the back of higher sales for wheat seed and specialty nutrients during the Rabi season. During the Rabi season, sowing got delayed due to untimely monsoons which affected the business to some extent. The thrust on value-added inputs continued together with focus on research-based varieties with a view to deliver consistently good performance. Bioseed international operations are doing well. For Bioseed India, it is a short season with main season being Kharif. The business is making efforts to launch new products and scale up. We're very hopeful of a better performance over the medium term. The fertilizer business, the operations are stable. However, the urea subsidy outstanding is higher than expected levels, given the increase in cash -- in gas prices. Outstanding stood at INR 450 crores as on December 31, 2021, versus INR 624 crores as on December 31, 2020, and this is INR 153 crores as on 31st March 2021. Fenesta. Fenesta delivered a healthy momentum on the back of enhanced sales in the retail and project segment, whereas the impact of the previous waves of the pandemic has abated, there may be some impact from the third wave. Order booking was up 43% year-on-year during Q3 financial year '22 with Retail segment giving 20% growth in the period and project segment giving 91% growth. We continue to expand capacity reach and product range while enhancing service levels in order to maintain a healthy performance outlook. During the quarter, the company acquired the balance 50% stake for the joint venture partner in the previously compounding business to make it a 100% subsidiary. We are gearing up to deliver better scale and efficiencies through ongoing capital expenditure. With a stronger proposed footprint in value creating products, stronger integrated capacity -- capabilities and enhanced capacity, we are seeking a better and stable profitability across our operations. With this, I will now request Vikram to take us through the financial highlights. Vikram, up to you.

Mr. Vikram, your line is unmuted. You may please go ahead, sir.

Your phone is on mute.

Thank you. Good evening, everyone. A very happy safe and healthy new year to all of you. I will now take you through the financial highlights for the quarter. Net revenues grew 26% year-on-year to INR 2,730 crores versus INR 2,159 crores in Q3 financial year '21. Significant impact on revenues during the quarter were due to Chloro-Vinyl segment was up 90% year-on-year to INR 1,042 crores. Chemical businesses revenues were up 115% year-on-year at INR 738 crores in Q3 '22, driven by prices. ECU prices were up 126% year-on-year. Vinyl revenues were up 47% year-on-year at INR 304 crores, driven primarily by higher prices of products. Cash from carbide prices were up 94% and PVC prices up 36%. Prices continue to be at healthy levels. However, having moved in a wide range. In the Sugar business revenues, net of excise duty on country liquor sales were down 14% at INR 565 crores as a result of lower sales volume. Sugar volumes were down 29% as a result of lower monthly releases. Distillery volumes were down 17% due to lower availability of molasses in the month of October '21 and plant maintenance. Higher sugar and distillery prices partially mitigated the impact. In fertilizers, the revenue stood by higher by 39% at INR 367 crores, consequent to higher gas prices, which were at USD 15.1 million Btu versus USD 8.2 million last year which is a pass-through. Current gas prices are over USD 20. The increased gas prices for FY '22 have not yet been notified by the government and is the main reason for the increase in subsidiary dues from the government. Fenesta revenues were up 26% year-on-year at INR 137 crores during the period. We have seen an improvement in retail as well as projects vertical. On a sequential basis, revenues were up 5%. In SFS business, revenues were high about 13% year-on-year at INR 446 crores, led by wheat seeds, which we were up 15% and specialty nutrient products, which was up 28%. On profitability front, during Q3 '22, the PBIT (sic) [ PBDIT ] improved by 46% year-on-year at INR 614 crores. In chemicals, PBDIT came in at INR 286 crores, higher by 193%. Vinyl PBDIT was up 24% year-on-year at INR 125 crores. The growth was led by higher product prices and volumes. For both chemicals and vinyl renal businesses, input costs and power and fuel costs came in higher. However, they were more than offset by higher product prices, leading to absolute better margins. Sequentially, the PBDIT of vinyl business was lower, given the steep increase in input costs and lower volumes of PVC. In Sugar business, PBDIT came in higher at 13% year-on-year at INR 132 crores, mainly due to higher sugar realizations and higher ethanol prices. Volumes were lower for reasons which were explained a little while ago. In the SFS business, the PBDIT was higher by 24%, led by better volumes and higher provisions for old inventory in earlier periods. Overall margins were stable. In the Fenesta business, PBDIT is up 16%, led by better prices and volumes. In the Bioseed business, PBDIT came in at negative INR 32 crores versus negative INR 8 crores during the same period last year. The performance was impacted by lower volumes and higher write-off and provisioning of inventory. PAT came in at INR 350 crores, up 38% year-on-year. Coming to the 9 months financial year '22. Net revenues were higher by 12% year-on-year at INR 6,832 crores. The reasons for growth are largely in line as explained above. It is pertaining to mention here that chloro-vinyl and Fenesta were impacted by pandemic and lockdown due to COVID-19 during Q1 financial year '21, resulting in loss of production leading to lower sales in the last year. Moving to the PBDIT for 9 months, we saw a consolidated growth of 44% at INR 1,225 crores, led by strong PBDIT growth in Chloro-Vinyl and Fenesta segments as a result of higher prices and volumes. PAT came in at INR 666 crores, up 51%. Coming to the balance sheet. The company as on 31st December '21, had surplus cash net of debt of INR 245 crores versus net debt of INR 385 crores as on 31st December 2020 and INR 180 crores as on 31st March '21. The reduction in net debt is attributed to strong operating cash flows over the last 12 months. Further, there is seasonality in capital employed, which is high during Q4 due to the inventory buildup in sugar and urea subsidy outstanding from the government. The ROCE also saw an improvement at 27% versus 17% for December '20 and 23% for September '21. During the quarter, the Board declared a second interim dividend at 260% amounting to INR 81.1 crores. Total dividend for 9 months ending 31st December is 490% amounting to INR 152.8 crores versus 275% last year, amounting to INR 85.8 crores. Overall, despite the macro challenges, the company has delivered a robust performance. The company continues its healthy financial position with a strong balance sheet. Our growth plans continue to be on track. That brings me to the end of the financial discussion, and we will be happy to take any questions that you may have. Thank you.

[Operator Instructions] The first question is from the line of Unifi Capital.

Sir, the first question is the tax rate. I believe we had some tax holidays in the past under Section 80-IA. And this year so far and specifically in the Q3, the taxes are on higher side. So can you please explain the reason and guide on the full year tax rate for current fiscal and the next fiscal?

Amit, please?

Yes. So see, Ahmed, the tax rate is higher at about 32%. And I think for the full year, it should be around that level. And 2 key reasons why it has gone up. One, the overall profitability has gone up. And the tax benefit, as you rightly mentioned of 80-IA, they have come down also because the input prices have gone up. As the coal prices go up, the benefit on account of transfer price goes down. That's another reason why 80-IA benefit is low this year. Next year, we'll have to see how the prices of coal pan out, and that's how we will decide the tax rate. But it should be still in the range of around 30% plus next year as well.

Okay. So are you planning to move to 25% tax regime any time any soon?

See, we will see basis are -- the cash flow is because we still have credit of a higher degree of close to a little over INR 250 crores. So that also we'll have to see. So probably not immediately -- definitely not in next year, probably the year after that or maybe 1 or 2 years down the line.

Okay. And just a second question on the Bioseed business, and we had this discussion even in the last quarter call. The business has not grown any for the last few years, and there is hardly any profitability and even the decent chunk of our capital is stuck in the business. So can you please explain strategically how does this business fit in the long-term plans of the company? I'm not asking from a perspective of the next Rabi season or next Kharif season, say from 3 to 5 years perspective. That is first question on the Bioseed and the second part is this year -- this quarter, we had about INR 30 crores to INR 35 crores loss in this business. Historically, we had about INR 10 crore, INR 12 crore loss in Q3. So the losses were also on the higher side. So can you please explain the same?

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

Yes. It's true that the performance has been under pressure for the last 2 years. And it's not only us, most of the seed companies have suffered in the last 2 years because of several reasons, but I'm not going to that. But what I can tell you that ours is a research basis company. We have a very comprehensive research program across many crops including cotton, corn, paddy, mustards and vegetables also. Our product pipelines are healthy and some of newer products which we have introduced this year. There the performance has been far more better than we have almost the sales in those products. And we have the following pipeline also very strong. So we also have taken several measures in terms of growing our processes in terms of adding on to the capability enhancement, churning our portfolio. We're also looking at export markets. So we're quite hopeful and confident in the coming years, we should see the business turn around. And as I said, with favorable regulatory policies and favorable monsoon conditions, I think, we are quite confident that there will be bigger turn date around in the next coming years.

Okay. And what was the reason for the higher losses and provision in inventory?

There are several -- I mean, you would know that industry -- seed industry across has not done well year so several reasons. If you look at the cotton, the accretives have gone down and then there are large portion of illegal seeds which are sold the market, and then there were erratic rainfall. Similarly the government subsidy programs because of the corona second wave, the government didn't spend on seed subsidy program they used to do every year. So the common purchasing went down. And for us particularly, there were some restrictions imposed directly or indirectly on paddy growing particularly in terms of our states where we have a very strong presence. So that has affected our performance more than the other seeds companies. Overall, the other seed companies also have done well both 2 successive years -- both 2 years in FY '21 and FY '22. Also the COVID effect has been more on the seed industry than the previous year. And we also have rationalizing done concerning on our inventories and taking controls on slow moving inventory in terms of creating some shortage in seed. So overall that's the reason for a little bit low performance that you see this year.

Okay. It makes sense. Sir, last question from my side. So we are seeing that cost caustic and PVC prices are cooling off, and it is very obvious from a sustainable level. But how do you see -- I know it's very hard to guess for anyone how the prices will move, but how do you see the demand-supply situation evolving in the next year or so? Will the prices continue to normalize or will remain at elevated levels considering that coal has also started to move up again. So how do you see the commodity prices?

K.K., would like to that?

Yes, the prices have been all-time high. We have seen in Q3, particularly if we look at both the caustic -- chlorine prices as well as the PVC prices. They have been at their highest ever. PVC prices touched close to $1,900 in October. But basically, they have already corrected to a large extent. We do expect that the prices will still continue to be healthy, but not in the range that we have seen in Q3. Maybe they'll be more like Q1 and Q2 kind of prices on an average. The demand is still strong. I think we don't see any problem in the demand. The demand both for PVC and caustic soda is expected to remain strong. Did I answer your question?

Yes. Okay. Just a small thing on the sugar export volume, do we expect the export volume to be same as last year Q4 in sugar export, in this next Q4?

See, as far as sugar exports are concerned, as was mentioned in the opening remarks, the exports last year was roughly 7 million tonnes. And this year, so far, 4 million tonnes have been contracted and 2 million has already been exported. We do expect export level of roughly 5 million to 5.5 million tonnes to happen this year, essentially from Karnataka and Maharashtra because there is no government subsidy this year on the sugar exports.

Okay. Okay. Makes sense. That -- and sir, is there any huge delay in the downstream projects you mentioned in press release and presentation, there is some delay because of COVID and lot of supply chain restrictions. So the downstream for this will come on in H2 FY '23, right?

Amit, do you want to take that?

Sorry, as mentioned in the -- in CMB's message as well that we are expecting delays given the COVID-19 waves and erratic rains. So yes, there will be a delay, but that delay should be not more than a quarter, and we're trying to see how best we can curtail the delay.

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

So my first question is on cost. At industry level, are we seeing similar trend for DCM Shriram? And how do we see this trajectory going ahead? Do we think that export will be a higher contributor relatively speaking?

Yes. If we see the performance last year and for the coming year, the fortunate part, as I mentioned earlier also was the international prices are fairly satisfactory. So because of that, we do expect exports to go up. Our exports also almost doubled. We did, I think, if I recollect 20,000, 22,000 tonnes earlier. This time, it is about 44,000 tonnes, 45,000 tonnes. So it is going up, and we expect it to go up a little more in the coming year.

Okay. And like, do we have any -- margins are better in export or domestic or vice versa. How does it work?

These are commodities. The prices of commodities vary. So I think it's a matter of really trying a balance between supply and demand. So better objective, we undertake exports whenever we can, depending on the supply-demand situation in the country also.

Right. And in your opening remarks, you mentioned that some of the supply constraints in October are back, and you expect certain plant shutdowns in USA. If you could just elaborate about how do we look at supply constraints for the next 2 quarters in overseas markets?

I think overseas is difficult to say because of climatic conditions, the changes happen so rapidly. But I think our expectation is that, yes, the international prices has subdued compared to the peaks they reached. And the peaks they reach also are unusual. I mean we have to be honest with that. That's not tenable. But it's come down to a more decent level, and we expect it to stay around this level for some more time.

Okay. And how about power factor. Do we think that, that also has peaked out or we continue to see certain input pressure ahead also?

See the power cost, the coal cost a couple of months back had peaked a lot, but it's come down, but they've picked up again a little bit because Indonesia banned the export of coal, 2 months back. Industry has taken it up in Indonesia also from India also. So it's gone up a little bit. But I think the input cost will be a little challenging going ahead because freight is also a serious matter. I think you all are aware that the international freight has also gone up substantially. So all these things are impacting the input cost.

So the Indonesia coal ban, what I understand is that it's probably going to -- it's going to be a continuing feature for some time. So then the prices we can expect to remain high and while the realizations have moderated that input costs will continue to remain high, is that understanding correct?

Well, I think the input cost because its coal available in South Africa also and other countries also. So it's not only Indonesia, and Australian coal is also coming in, a lot of that is going to China, which is going earlier from Indonesia also. So coal is moving around. And our expectation is from what we've discussed and understand that Indonesia might change their policy going forward because all the coal in Indonesia has not been picked up by the domestic users. So if they change their policy, it will definitely ease the situation. As you know, commodity prices are so volatile. No one can make any commitment.

Understandable. And on sugar, if you could just highlight what would be the mix of ethanol from juice versus B heavy versus C heavy ? And what would be our optimum target mix that we would have mix?

Ajit?

Amit, do you have the breakup?

See, in this quarter we have produced ethanol from cane directly of about 107, 110 lakh liters. And from B-heavy, we've produced in this quarter, close to about 73, 74 lakh liters. So that's the broad breakup in terms of our ethanol.

Okay. And if you could just explain why would be like -- what kind of dependence we have on outside molasses? And I would like to assume that we would be quite sufficient. So why would this such a situation be created?

Ajit?

See, essentially, we are short of molasses by roughly 12 to 13 lakh quintals. And that's one of the reasons also we are putting up this multi-feed 120 KL distillery. And using of cane juice also enhances the output of the ethanol. So a combination of the multi-feed distillery, use of cane juice, use of more B heavy. And at the end of the day, the effort is to increase the level of crush in terms of lakh quintals. So our cane division is actively working with the farmers to increase the level of cane that we crush so that we're able to have adequate feed for the ethanol manufacturing.

Okay. All right. And last question on Fenesta front. So we've seen some small -- slight margin contraction here. So is this more of a strategic call that we would want to increase our scale and we will be okay to compromise margins to a certain extent here?

Who will take that?

Yes. Actually, there have been severe cost pressures in Fenesta also because of the PVC steel, everything, rupee depreciation, et cetera. So it's more to do with cost pressure. And it's very marginal.

Okay. But would we be able to pass this on?

Sorry, could you repeat yourself?

Would we be able to pass on these input cost pressures in order to -- in our realization mix without impacting our volume?

The plan is and the working is in that direction. And so far, the new bookings are at a higher price point. But between booking and delivery, there's anywhere between 3 months to 9 months' time like or 1 to 2 months to 9 months. So one can't really forecast the long term. But yes, prices are being increased every month or every 2 months to take care of the cost pressure.

All right. And last thing, if you could elaborate a little bit about the aluminum offerings that we are working on. And like how do they compare to our existing -- in terms of margins, existing products?

For the aluminum systems...

The margins of aluminum systems. Aluminum we introduced. Yes. Yes. System aluminum was introduced, I think, about 1 year, 1.5 years ago. And the margin as a percentage may be lower, but the absolute amount is higher. The product is taking traction. In fact, we're expanding our manufacturing -- fabrication and manufacturing capacity because it has grown faster than we expected. And we have introduced a new series called professional series, which is at a lower price point. So it is taking a good traction, and we expect it to pick up in the time to come.

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

My question is predominantly on the chemical side. So if you could break down the revenues as well as the PBDIT between the caustic business as well as our revenue and the PBDIT from the value-added products like hydrogen, aluminum chloride?

Amit, let's see, what do we share?

Yes. See, primarily, the revenue will be from caustic soda itself, caustic soda and flakes. So from other products, it ranges between 15% to 20% in terms of the top line. Now bottom line always will keep changing depending on how much we are making on caustic. So for example, in the last quarter -- I mean, last couple of quarters, we've seen that the other products have contributed around 30%. This year, because we have earned more on caustic so it's about 10%, 12%, the other products contribution. And hydrogen is a major part of that.

Correct. Yes. So you mentioned last quarter also the same remarks. And sir, second question is on the input cost. Like you mentioned that power cost has gone up because the increase in the coal cost and even salt cost has gone up. If you can quantify in terms of in between the quarters, how much is the quantum increase for both of these raw materials?

As a practice, I'm sorry, we don't share our costs, right? But yes, there has been a significant increase is -- so that's there.

Correct. Or else, if you can say in terms of, let's say, last quarter was on a scale of 100. This quarter, how much it has gone up some sort of.

It would have gone up ballpark. I don't have the number either way, but in excess of 50% what would be the cost increase.

The next question is from the line of Pratik Tholiya from Systematix Shares.

Just a couple of questions first again on the cost front. I think in the last call, you had also mentioned that we are looking at various other inputs apart from coal, I think you were looking at something like lignite a lot. So I think we were still working on those. So If you can just share what is happening on that. Have we started using and what percentage of our [indiscernible] is coming from noncoal?

Amit?

Yes. So Pratik, both at Bharuch and Kota, it ranges between 10% to 15% as the total mix of other than coal. So whether it's lignite or biomass, depending on availability, that's the kind of mix. It gets limited because the boiler, there is a limitation of each boiler as to how much it can intake, right? So it's both a mix of availability as well as the type of boiler.

And for the cost front, how much are we able to face?

So I don't have the number right away, but definitely, both these are [indiscernible].

Yes, that's true. But then it would bring down total cost by say 10%.

I don't think that kind of an impact with the 10% because see lignite cost also has gone up significantly because coal costs went up so even lignite went up.

Sure. Right? Okay. And sir, secondly, on this [indiscernible] CapEx front. I think in the opening remarks it was mentioned that caustic soda at 750 and flaker to 600. Are these numbers correct because last call you had talked about 700 TPD of caustic soda and 500 TPD of flaker.

Right. So Pratik, there has been some reconfiguration, right? Given the market demand and certain other economies that we thought -- So we have increased it from 700 to 850 and flaker from 500 to 600.

Sir, what is the increase in our investment there? INR 700 crores.

Yes. So it's a holistic tool that we have to work at because there are cost increases, which are happening because of the scale element, and there are cost increases, which are happening also because of the price increase -- the metal price increases, especially, right? So we are still working it out how do we rebalance the whole portfolio so that the return on the projects continue to be healthy. So we're just reworking that.

Okay. So last time, I think you have mentioned that Q4 FY '23, these plants will be operational, but how is this additional CapEx that we are doing for the time line will get fit?

See additional CapEx, I don't think will impact the time line. As we mentioned, it is more to do with the delays on account of COVID as well as the extensive range that happened in that region, which have caused the delays. So last time, what we had mentioned was that despite COVID, we should be able to cover up. But with the range and the third wave also slightly impacting, we are finding it difficult to cover up the loss that was -- time loss that was there because of COVID second wave. So yes, that's why about a quarter delay is what we're expecting, but we're still working on seeing how to cover it up to a maximum extent.

Understood. And lastly on the sugar CapEx and the TPD you have mentioned that there are additional CapEx that you are undertaking in sugar. If you could just highlight what are these and what is the amount that you're spending on [indiscernible].

Yes. So on -- so there's this 120 KLD multi-feed distillery where we are spending around INR 125 crores. And then there's a mix of CapEx, which is like expanding sugar at Ajbapur by 3,000 TCD then we are converting our refinery -- converting our sugar operations to refined sugar. Currently, we can do up to 5,000 TCD, going up to 26,500 TCD for refining operations. And what we're also doing is that in terms of grain-based, the millers that you have for grain -- Grain attachment, that we have for 120 KLD discovery, but we are enhancing it to 260 . Though the distillery size remains at 120 but that they are increasing to 260 KLD. All that will cost us another, if I remember correctly another INR 350-odd crores, INR 358 crores that will cost us. And the reason why we are doing this 120 to 260, is again, what was just discussed a while back that there are shortage of key molasses or the molasses in the off season. So we are trying to see that how do we ensure that our distillery don't sit idle for about a month through, and we're able to source the molasses from in-house feedstock.

Sure, sir. So all of this is happening on the Ajbapur, right?

See, the -- most of it is Ajbapur, you're right, but refining operations partly in Haryana as well. So Haryana already has a refinery, but that capacity also will go up. But majority of it is in Ajbapur, you're right.

The next question is from Chintan Chheda from Quest Investment.

So the question is related to the caustic soda business. So firstly, can you please give some insights on the current demand-supply situation of the caustic soda industry in India, right? And secondly, there was 1 antidumping being recommended in December '21 from 4 countries. So what are the chance of that getting implemented and the impact of the same on the industry and our business?

The caustic soda demand actually is moving and touch wood is growing at about 6%, 7% a year. And that's moved quite stable. We expect it to grow now also at about the same level. So that's going to be a consistent growth, which is moving well. And regarding this additional duty -- dumping duty, in fact, the chemical ministry has recommended to the finance industry. So it is in the finance industry right now. And we are waiting for them to approve this. We sincerely hope it does happen, but no one can say. But All India -- The Alkali Manufacturers Association, they are working on this and in conversation with the government on this matter.

Okay. And sir, on the supply side, so how is the industry point right now? So are we seeing some imports? Or how is that going?

Fortunately, I would say that lot of aluminum people others used to import a lot in the past. But I think the industry also felt way now it's better that why did not we supply them, especially when international prices are also better. So I think a lot of manufacturers have got in touch and have a contract going with the aluminum users directly. So we are supplying also, they are also supplying [ going by rate ] So there's a lot of material going. So good thing is imports have come down, but exports have also gone up, which is also a positive sign because of the pricing. So it's moving on both ways, but imports have come down.

Okay. So would that mean that in such a situation, there would be some tightness in this industry for, say, calendar year '22?

Pardon me.

There would be some supply tightness for the industry for the calendar year '22?

I don't think so. I don't think so because the capacity in the country is quite okay, and people are running at a good rate of production. And I think in the next 4, 5 months, if you're not mistaken, there's some expansion coming up by [indiscernible] and 6 months later by someone else. So I think all these commodities, if you see over the last 10 years the capacity expansion keeps happening somewhere or the other. So I don't see any tightness really happening 2 months much across the board. There could be marginal for a short period of time because of some dislocation and movement or something, but there's adequate availability in the country.

Okay. Okay. And sir, secondly, the chlorine that we generate as a byproduct in caustic soda, okay. So how much of that we use captively and how much is sold to the outside market?

I don't -- Amit, do you remember, how much is captive?

Yes. So at Kota plant, where we have capacity close to 500 [TPD] of caustic, there around 40% has a captive sync with our PVC business And at Bharuch, where we have a capacity of 1,350 tonnes per day, there, we have an aluminum chloride plant, which is being expanded. So that has a chlorine sync of about 4%. We are adding to the downstream there, which will further add about 15% of chlorine sync. Also, we are supplying almost 30% to 35% through pipelines to the chemicals companies close by. So there is significant sync that we have.

Okay. But then this would be not more than 50% for us, like combining both the capacities?

Combining both, yes, it will be around including pipeline, it should be around 50%, 55%, yes. The rest is sold in the market for HCL and things like that and to other manufacturers.

Okay, okay. And post this entire CapEx projects that we have undertaken, this will remain in a similar range or this will go up?

It should remain in a similar range. And see, our CapEx is still about a little over a year away, and we are seeing lot of growth happening in the chemical industry. So we do expect this to catch up.

Okay. Okay. And how we see the market for chlorine recently. So has there been any change or it's been the same like? And it's difficult to sell or dispose off chlorine?

See, chlorine market for most part of the year has been good. Of late, yes, we have seen some softening in demand for various factors, some of the consumer industries, their output levels have come down. So chlorine always has been a bit of a challenge, but it has been, as I said, good for the last 1, 1.5 years. Off late, yes, there is some reduction in demand because of some consuming sectors. But that should come back is what we expect. But then we -- as we said, we are working on downstream utilization of chlorine so that should help.

Okay. Okay. And sir, lastly, in your opening remarks, you mentioned that in our PVC business, there's been some supply which has started coming out from China and U.S. So how has been that impacting our business?

No, I don't think we said -- K.K. would like to handle that?

Yes. There's very little which is coming from China at this point of time not more than 6,300 to 8,000 tonnes. Practically nothing from U.S. at this point of time. But in future, yes, it comes, it can have an impact. But China prices also continue to be high. So today, globally, the prices are similar. There might be different between different regions, but all are -- everywhere the prices are quite high. So we don't see that making any impact.

Okay. So you don't foresee any major risk from imports into India, right?

The imports are -- we still are largely entire consumption, almost 40% is met by the domestic producers, 60% still comes from imports. And that sets the price of the domestic producers. So it's always the domestic production, which gets sold first. Those, obviously, they would delay the time between they book and when it comes. So we don't see that as a threat. If the current emergencies continue [indiscernible].

Okay. Okay. True. Okay, that has really enthused us.

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

Congrats on good set of numbers. Sir, the first question is on caustic front. So in your opening remarks, you indicated that the demand has been impacted from paper and textiles in the month of December. How are we currently looking at after, say, 3 weeks of January in terms of overall demand, particularly from these 2 sectors and generally across the board, given that the pricing environment is still at an elevated level?

As I mentioned earlier that the growth in India is moving at 6% to 7% a year, and we expect that to carry on. Little ups and downs happen due to aberration in this industry. Frankly speaking, I don't know exactly what is the figure of traction in paper and all. But 6% to 7% growth is likely to happen in the coming year also, which is to going to keep the industry at a fairly even key. All right.

Fair enough. And sir, the similar question, I think earlier was also asked in terms of the input cost and particularly coal power costs. So we have seen again a similar situation as opposed to Q2 in Q3. So in current quarter, has the power cost as well as the logistic cost alleviated to some extent? Or is it going in the similar direction as it was in Q3?

Amit?

So see, as I mentioned in the previous question that if I see Y-o-Y, the costs have gone up in excess of 50% on the overall variable cost trend, largely led by energy prices. Sequentially, they would have gone up in the range of 15% to 20%, 20% ballpark.

Yes. Sorry, I was asking from Q3 to Q4, that is current 3 weeks of January. Are we seeing the similar trend what it was in Q3 or there has been some softening, which is...

So there has been a marginal softening, but you've seen, again, coal prices going up but they are at least not as high as what we saw in November. So it's difficult to say we are still in January. So how would it'll pan out during the quarter, it will be difficult to say.

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

Thank you. Ladies and gentlemen, thank you for your participation in our Q3 and 9-month financial year ending '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 continue to make more strategic investments that augur well for the medium- to long-term growth of the company while maintaining a healthy balance sheet. Once again, I'd like to thank you for taking the time out and joining us today. Please take care of yourselves and your family and follow all the precautionary advisory of the government, including proper vaccination. Once again, wish you and your family good health and be safe and well. Thank you very much.

Thank you very much. On behalf of DCM Shriram Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.