DCM Shriram Limited (DCMSHRIRAM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to DCM Shriram Limited Q3 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Shruti Joshi from CDR India. Thank you, and over to you, Ms. Joshi.

Thank you, Nirav. Good afternoon, and welcome to DCM Shriram Limited's Q3 FY '25 Earnings Conference Call. Today, we have with us Mr. Ajay Shriram, Chairman and Senior Managing Director; Mr. Ajit Shriram, Joint Managing Director; Mr. Aditya Shriram, Deputy Managing Director; and Mr. Amit Agarwal, Group CFO of the company. We shall commence with remarks from Mr. Ajay Shriram and Mr. Ajit Shriram, members of the audience will get an opportunity to post their queries to the management following these comments during the 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 invitation that has been circulated earlier and is also available on the stock exchange website. I would now like to invite Mr. Ajay Shriram to give us a brief overview. Over to you, sir.

Thank you, Shruti. Good afternoon, ladies and gentlemen, and a very warm welcome to all of you. We would like to wish all of you and your families a very happy and prosperous New Year. To start with, I should share my thoughts on the industry and business dynamics, following which, Ajit will share the views on the financial performance. Post that, we'd like to hear your viewpoints as well. The geopolitical environment is leading to economic uncertainties on various fronts. This is impacting international trade, investment and consumption patterns. We expect global growth to moderate and monetary policies to become more accommodative. While we expect growth trends to be led by Asia, with India playing a pivotal role, there may be challenges on account of trade policies and inflation. We, as an organization, must navigate this challenging life scale and our endeavor is to build an agile business to handle these evolving dynamics, along with taking opportunities for growth. Our business has seen as CD, is a well-planned initiative to strengthen capacity in core segments towards value creation and integration, both downstream and upstream. This remains a focal point for our growth strategy. Healthy balance sheet and cash flows continue to give us the confidence to pursue these growth initiatives. We are focused on strengthening on -- strengthening sustainability across the organization with continuous reduction in carbon footprint and water conservation. Over the next 15 months, we shall be adding about 74-megawatt installed capacity of renewable energy for captive use. Our efforts have led to recognition among top 7% of the 523 global chemical companies for ESG performance in the S&P Global Corporate Sustainability Assessment 2024. I will now turn the discussion on various industry dynamics across our various businesses. First, I'll take up Chemicals. At the beginning of the quarter, there were apprehensions of supply constraints due to a cyclone in the U.S. and increased demand in China, led by fiscal stimulus. This led to increase in international prices. However, now the prices have started correctly, with demand supply adequately balanced. Caustic soda capacities in India are currently operating at a rate of around 80%, and this is resulting in oversupply of chlorine in the market and, therefore, suboptimal ECUs. However, they have improved during the quarter. India continues to be a net exporter of caustics, which is a positive. Our newly commissioned projects are meeting performance norms and ramping up further steadily. As of date, hydrogen peroxide is operating at about 80% capacity utilization and caustic soda expansion is operating at about 70%. There is oversupply of hydrogen peroxide in the market. However, the caustic soda players are at a distinct cost advantage. DCM plant commissioning has taken more than anticipated time due to a technical issue. We are confident of starting the trial run in Q4 financial year '25. The project work on adding aluminum chloride capacity and the new calcium chloride plant at Bharuch that we announced in the last quarter has taken off, and our team is working to commission deals as per the stated time lines. Our efforts towards cost efficiencies continue, and we are working towards further optimizing our power costs. We have tied up another 6.6-megawatt green power and are expecting an inflow for end of this financial year. We are also working towards further optimizing energy cost in our existing power plants. Vinyl, global demand for PVC continues to be sluggish. U.S. prices of PVC remained weak owing to slower demand in downstream usage, shorter working scheduled in December and higher interest rates that continue to impact construction. PVC pricing in Asia stayed soft on the back of surplus production and higher inventories during the quarter. Domestic PVC demand has picked up on account of increase in agriculture and construction activities. This demand is estimated to have grown at approximately 10% during the 9-month period. Majority share of this demand was fulfilled by imports. China has continued dumping materials into India. In this context, the notification from finance industry on acquisition of antidumping duty on several countries, including China, Korea and U.S. is awaited. Sugar and ethanol. Global sugar balance for sugar season '24/'25 has shifted to a deficit of 0.7 million metric tons due to a downgrade revision in global production. India sugar season '24/'25 is expected to end with a stock of 7.3 million metric tons. The production estimate is 29.3 million metric tons after diversion of 4 million metric tons for ethanol production. Consumption is estimated at 29 million metric tons. Exports of 1 million metric tons has been permitted by the government, which is a positive step for the industry. Simultaneously, industry is also pushing to increase in the MSP of sugar. The current price are at INR 4,000 per quintal of refined sugar. However, this should increase by another INR 2 per kg, INR 3 per kg to enable reasonable margins in the business. On the ethanol front, for the current season, OMCs have floated tender for supply of INR 916 crore liters of ethanol, targeting a blending of 18%. As of December 15, 2024, ethanol blending in petrol reached 15.4%. Margins for producers are suboptimal given higher feedstock prices. Recently, government allowed HCI for sales of sugar to produce ethanol. This is positive for this segment. The sugar expansion at Loni Unit got operationalized in this quarter, and the compressed biogas project will be commissioned by Q4 financial year '25. Fenesta Building Systems. The business continues to make efforts towards increasing penetration of current range of products and enhancing the product portfolio by setting up new revenue platforms. By strategically aligning our efforts with market demand, we aim to optimize the customer experience along with business growth. In line with this thought, the Board has given approval to invest up to INR 65 crores in the fast-growing Hardware business, which will enable backward integration, better customer experience as well as develop into a new revenue platform. A project to establish a new aluminum exclusion facility is progressing as per schedule. As a result of these initiatives, the business will be better positioned towards becoming a more holistic player in the building material space and drive sustained growth. Moving on, the agri inputs business portfolio comprises of Shriram Farm Solutions, Fertilizers and the Bioseed business. First, Shriram Farm Solutions. The business has once again achieved double-digit growth and continues to contribute significantly to the top line and bottom line of the company. The growth is driven by volumes across the business verticals in general and research wheat, in particular, where SFS continues to consolidate its leadership position. Looking ahead, we remain optimistic about continued growth in coming quarters, buoyed by robust demand for rabi crops, increasing pharma adoption of our innovative solutions and ongoing advances in our product pipeline based on the principle of better science. Fertilizer. The urea industry continues to be stable with gas prices inching lower. By focusing on the areas of energy efficiency, maximizing production capacity and controlling fixed expenses, the company aims to enhance operational and financial performance. Bioseed. The business is on the promising turnaround journey bolstered by new and better hybrid seeds across product categories and a robust pipeline of products for future growth. There was increased acreage of corn across key states due to higher crop price driven by May's ethanol push. This, along with paddy, has driven the growth for the first 9 months of this year. I'll now request Ajit to provide the financial performance. Ajit, over to you.

Thank you. Good evening, everyone, and wishing you all a very happy new year. I'll now take you through the financial highlights of Q3 FY '25. The net revenues, net of excise duty for Q3 FY '25, was at INR 3,367 crores versus INR 3,035 crores in Q3 FY '24, an increase of 11% year-on-year, driven by growth across Chloro-Vinyl, SFS and business -- and Bioseed businesses. PBDIT for Q3 FY '25 was at INR 537 crores versus INR 480 crores last year, an increase of 12% year-on-year. Coming to the businesses. Chemicals. The business saw an increase in revenue of 35% year-on-year, led by caustic soda volumes that were up 21% on account of the new 850 tonnes per day, and ECUs that were up by 12%. PBDIT increased by 90%, owing to lower input prices, particularly energy prices and efficiencies from the new 120-megawatt power plant. Despite steady growth in downstream consuming industries like alumina, textile, pulp and paper, soaps and detergents, excess capacity in India is creating a pressure on product prices, especially chlorine. We have our plans in place to enhance our chlorine downstream in terms of ECH, aluminum chloride, calcium chloride and a few more ideas. Vinyl. The Vinyl business reported a growth in revenue by 26% year-on-year on account of higher volumes of PVC as well as carbide, which has grown by 27% and 38%, respectively. Last year, there was a maintenance shutdown in the same period. PBDIT for the segment improved to INR 29 crores as against a negative INR 3 crores last year, led by lower power and carbon material costs. Commissioning of the 68-megawatt green energy by ahead of next year will reduce the carbon footprint along with better cost structure going forward. Sugar and ethanol. Sugar and ethanol businesses revenue, net of excise duty was flat at INR 889 crores and the domestic volumes were lower by 6% due to lower releases in the quarter and prices of sugar were also lower by 3%. Ethanol volumes as well as prices were higher by 6% and 12%, respectively. PBDIT for the segment was lower at INR 113 crores as against INR 188 crores last year due to higher cost of production led by a higher state-advised price, SAP and lower recovery. Fenesta Building Systems. Fenesta Building Systems revenue increased 4% year-on-year, led by increase in volumes across segments. PBDIT for the quarter at INR 43 crores was similar to last year due to higher fixed expenses. These expenses are expected to remain elevated given the need to grow the existing businesses and invest in new verticals. The order book continues to be healthy. We are also excited to announce our foray into the Hardware business, which will be through an acquisition to give us a head start into those segments. Shriram Farm Solutions. Shriram Farm Solutions revenues increased 19% year-on-year, supported by volume growth across all verticals. SFS has further strengthened its leadership position in research wheat segment. PBDIT for the quarter was higher by 18% at INR 212 crores. Fertilizer. Fertilizer revenue was lower by 8% year-on-year, which is mainly attributed to the lower gas prices in the current quarter. PBDIT was at INR 29 crores as against INR 26 crores last year. Outstanding fertilizer subsidy was at INR 111 crores as against negative INR 21 crores last year. Bioseed. The Bioseed segment saw a revenue increase of 21% -- 22% year-on-year and a PBDIT increase of 76%. The improvement is led by better volumes and prices in corn, wheat, paddy and vegetable seeds, both domestic as well as international operations contributed to the growth. The company's net debt stood at INR 867 crores as of December 31, 2024, as against INR 314 crores last year and INR 1,434 crores as of 31st March 2024. The year-on-year increase because -- was because of capital expenditure over the last 1 year and a higher sugar inventory. Over March '24, the decline is primarily because of reduction in sugar inventory. Return on capital employed for December '24 came in slightly lower at 14% as compared to 16% for December '23. Since CapEx incurred on projects will start yielding the returns in the forthcoming quarters. The Board has announced an interim dividend of 180%, amounting to INR 56.14 crores, recently. This takes the total dividend announced for the year at 280% amounting to INR 87.33 crores. As this route of capacity during completion, we were in advanced stages of analyzing our foray in advanced materials as well as in value chain around our core businesses. That concludes my opening remarks, and I request the moderator to please open the forum for the Q&A session. Thank you.

[Operator Instructions] The first question is from the line of Nirav Jimudia from Anvil Wealth.

I have questions to ask on the Chemical side. So sir, when we analyze our ECU numbers for Q3 FY '25 vis-a-vis of 2Q of FY '25, our ECU was up around INR 3.50. And if I just multiply it with our volumes of 180,000 what we have reported in Q3, it gives us a positive impact of close to INR 62 crores. But, however, when we see our PBDIT numbers on a Q-on-Q basis, the net impact is only INR 27 crores. So if you can just help us explain -- why the difference between the -- both the numbers is varying and is there any specific onetime loss or increase in the depreciation because of which this number is not telling?

Yes. So see, the -- as you likely said, one is depreciation because the project is not capitalized. So there is recent increase in depreciation in the Chemical business. Also...

Sorry to interrupt you, sir. Your audio is not clear, sir.

Is it better now?

Yes, sir.

Yes. So what I was saying was that, one of the reasons -- or 2 reasons for difference. One is because the depreciation went up because of the capitalization, which happened in the first half of the year. And second is also fixed expenses went up. One, because they have earlier been capitalized and now they are being charged to P&L. And second reason is that as we move into operations, the overall expenses do go up with higher land power cost, repayment and things like that. So I think that also is up, but that should even out over the period as the volumes increase, then probably you'll see the higher impact coming in.

Got it. Sir, if you can just share what was the impact of depreciation in Q3 FY '25 because of which the numbers are there on?

I won't have it right away. Maybe you can connect with our Investor Relations team after the call, we'll provide that to you.

Fine. Sir, secondly, when we interacted last time during Q2 FY '25 con call, you mentioned that Chlorine was like negative INR 6.50 in quarter 2 FY '25, and which in Q3 FY '25, the trend was around INR 9 negative. So if you can just help us explain what was the Chlorine negative in Q3 FY '25? And what's the current trend in terms of the chlorine negative in Q4 of FY '25?

So Q3, the trend was close to, again, the range of around INR 9,000 to INR 10,000. And the similar trend continues as we speak.

Sir, you mentioned in your opening remarks that the prices have started correcting for caustic soda in January, but of late what we have seen also is that in China, the prices of caustic soda has also caused -- again started strengthening. So yes, so is it like -- and also when we see November and December ECU 24 hours, I think it is close to around INR 30.50 for DCM. So is it fair to assume that even for Q4, our ECU trend looks positive in terms of the higher numbers? Or it would be on the similar lines what we have reported in Q3 of FY '25?

So as you know, the caustic -- ECU is a combination of caustic and chlorine price. We have seen that the caustic price has been stable and has gone up. But of course, the pressure on chlorine continues due to the capacity and the demand supply balance in the country. So the current ECUs are in the range of INR 29,000, INR 30,000 per tonne. And we do expect it to remain at these levels or improved over time.

Sir, also, if you can share the production breakup of 1997 TPD in Q3 of FY '25 between the Kota and Bharuch plant?

Yes. I think that's too much of a detail, but so the -- broadly -- of course, the details, the Investor Relations, we can share with you later as well. But broadly, our Kota plant run steadily at close to 550 tonnes per day, caustic. And the Bharuch plant, therefore, is the remaining, which we are ramping up now with the new additional capacity.

From my side, like when we see our revenue of INR 721 crores in Q3 FY '25, what number I could arrive based on the ECU realization multiplied by the volumes or contribution from the value-added products was close to 27% in Q3 of FY '25. Correct me if I'm wrong, so if you can share what would be the contribution of the value-added products in the PBDIT of INR 66 crores what we have reported in Q3 of FY '25?

I would suggest we can retailing and the asthmatics, we can do it offline, right? I think broadly, we've given you the trend. The details you can check with our Investor Relations team Himanshu Bokaria and we will respond to all your queries in terms of aligning these numbers, right?

The next question is from the line of Riya Mehta from Aequitas Investment Consultancy.

My first question is in regards to the caustic plant. So the new plant, what would be the capacity utilizations like?

As I mentioned in my opening remarks, the capacity utilization in the complex at Bharuch is in the range of about 70%.

Got it. This will be the overall, right?

Yes, yes.

And just particularly for the newer plant, what would be the utilization level like?

So see, we don't look at it that way because the newer plant has its own set of efficiencies. So it may so happen we might operate newer plant at 80%, 90% and the older plant had lower capacity. So I think it's once you look at it as overall thing.

Got it. And over the next 1 year, what kind of utilization levels do we look at here? Given we are in an oversupply situation.

Yes. So we are looking to see how we can ramp up our capacity utilization. And in line with that, as you're aware, we are close to commissioning our epichlorohydrin plant. That will help us. We have also -- the Board has approved aluminum chloride, further expansion and entry into calcium chloride. So again, both these will help us in improving our utilization. So we do expect it to take a little time, but we are -- we expect that in the next 12 to 18 months, we will reach full capacity utilization.

So it is fair to say that maybe by FY '27, we would reach by around 80% or 90% capacity utilization, which is our peak capacity utilization.

Right.

Okay. And in terms of power, basically, we have commissioned a power plant and it's been running for a while. What kind of savings and cost have we seen in the last, say, this 1 quarter, with the new power plant?

Yes. So I think we are getting good savings. So we've invested close to about INR 500 crores in the power plant, and we are getting ballpark, we are running the returns of about 20%, 25% on the power plant.

20%, 25%. And that Incremental 6 megawatts, which we are buying, that would be also yielding similar returns?

Yes. That might be a little lower, but yes, that's more from our endeavor to reduce the carbon footprint. So wherever we have opportunity, we add that.

Okay. So that will not reduce our cost in a significant way which earlier 120 megawatts?

Yes, it is.

All right. So now coming, where would we see cost savings coming in the Chemical division as such?

The cost, that's what we've done over whatever investment we have done over the last 3 years, whether it is the capacity expansion, 850 TPD, which are more efficient electrolyzers. Second is the P120 power plant or the green energy that we took all the 50-megawatt, like 44 megawatt, the first tranche we did will differently add to a lot of savings. And then we also -- if you remember, I think in the last Board meeting, we had approved a project for another extraction turbine that will further improve the cost structures. So that's the cost we endeavor to keep working on costs.

Got it.

And in addition to that, we can also add that the other major raw material for us is salt. So we are seeing what steps can we take to further optimize our cost on that side. And also, there is a huge focus on digitalization and leveraging data and analytics, to further enhance our efficiency and competitiveness. So with this holistic focuses -- focus areas, we expect to remain cost competitive.

Got it. In terms of ECH, when do we see this commissioning because I think we have seen a lot of delays in this because of late approvals after you commissioned, there will be an entire 1 year, which will take for approvals and all.

So I think as mentioned earlier in the opening remarks, we have faced a technical issue with the commissioning of the ECH plant. The teams are working very actively on it. And as we shared, we expect to start the trial runs and commission the plant towards the end of this quarter, which is Q4 FY '25.

Okay. And post that, we will see approval processes across all our clients, right?

Yes. Approvals with the customers, that's part of the process. So we expect that to happen and then we expect to ramp up the capacity.

Got it. And aluminum chloride would come by then for us?

I think that has been approved by the Board. The time line for commissioning for that is Q1 FY '27.

Okay. In terms of PVC, we've seen that antidumping duty was recommended. So where in this stage, of regulatory approvals are we there? And how much time is we can foresee if everything goes smoothly?

Well, this is actually with the ministry right now, the Commerce Ministry is also aware of it. We've made our application. There are a couple of court cases, which are delaying this. Hearings are going on. The results so far in the court cases are positive. So there is an expectation that after the budget, we hope it's not too late after that, but we expect that after the budget, we should come fairly soon.

[Operator Instructions] The next question is from the line of Mr. Nisarg Vakharia from NV Alpha.

My first question is for Fenesta. Sir, we have an order book growth of 33%. Last quarter also, we had an order book growth, but it's not translating into revenue growth. And secondly, our capital employed is only INR 45 crores for about INR 120 crores of PBT per annum that we do. If you could just explain both these points.

Yes. So one, on the capital employed first. That is also because we get the customer advances, right? And whether it is project customers or retail customers. So we work largely on advances that leads to lower capital employed. And in any case, this is a business which has -- the capital output ratio is high in any case. So I think those are the reasons why the full capital employed is low. Coming to the bookings, you're right, the bookings are good. However, the execution is slow in the market. We have seen and that's something which we are seeing across the building material space, that the growth levels are slow, implementation is slow. And there are various reasons, I mean, liquidity issues and things like that, but yes, we are seeing execution being slow.

Sir, can you explain this INR 65 crores that we are deciding to invest for hardware manufacturing? I think I had also read a few quarters or 1, 2 quarters back where you said you want to invest INR 150 crores in aluminum. Both of these are separate projects. If you can explain in detail on how you see this business ramping up over the next 2 to 5 years in India.

Sure. So see, the aluminum extrusion project, the purpose of that, and that's where that was for about INR 150 crores. So that project was to bolster our aluminum windows business. So currently, we are importing the aluminum extrusions and the profiles. And then they go for coating separately. So there is a lot of inefficiency involved in terms of transportation logistics and delays in execution, which is not a very good consumer experience, right? So our idea was that we should have our own consumer extrusion facility where we can control the quality as well as customer service. So that was one objective. And aluminum windows are actually doing very well. They are growing faster than UPVC today at the industry as well as for us. So we see good scope there. And obviously, once we get into aluminum extrusion, it will open a door for other products within the aluminum space, which we can diversify into. So that's a little longish plan, maybe 2, 3 years after -- 2 years after commissioning. Coming to Hardware. Again, here, we procure hardware as we speak, we procure hardware of almost INR 90 crores in Fenesta, almost 50%, 60% is imported, rest is indigenous. The idea is once we are able to get into the Hardware business, it will help us, again, on the logistics front because the old suppliers are unreliable given the logistic constraints, at times what we have seen and that again delayed our service to the customer. So one, I think we can do that with our own. We can recognize more once we have our own facility. That is one. Second, upgrading our innovative products is something that we're looking at. So our research and development can be at a much faster pace. So these 2 things are more from the customer experience perspective. Last year, again, once we get more hands-on experience, we will be able to build that as a revenue platform as well.

Sir, now my second question is regarding Shriram Farm Solutions. Can you tell me what sort of volumes we have done in research wheat in this year? And do you think that we have captured enough market share or we still have potential to grow these volumes for next year also?

Yes. See, last year, we had done about 76,000 tonnes of research wheat feed. This season, we will -- we have done close to about 96,000 tonnes. These are ballpark numbers. I may be off by about 1,000 here and there. So about 96,000 tonnes of research feed what we have done this year. Our market share is close to about 65%, 70%. But the market itself is growing by about 15%, the research feed market in the overall market. So I think there is scope of growth.

I'll just add to that, that ultimately, in any of the research products, agriculture products of seeds, one as you have a strong research setup, to come out with new products, which are better than the past one and continuously going through the trials and development, et cetera, because everyone is in the business. So how do we stay competitively ahead? So we have a strong R&D setup also. So they are also coming up with new products. So we are fairly well positioned on the research feed front.

Sir, one thing is that in India, we haven't seen a company get such dominant market share in research feed. We have seen companies come and go in cotton and the market shares change every 3, 4 years. Can you please explain the research feed segment slightly better for us as to how sustainable is this? And what is the reason that DCM has sort of got this dominant market share in this segment?

So I would say, as CMD mentioned, it is primarily because of our research -- and search -- a strong research on the research wheat. We've been introducing products almost every year except this year. Last year also, we recently launched about 2 to 3 varieties. And the year before that also there was one variety, which was launched, which ensures that we are doing the right life-cycle management. It's not that other companies are not there in this segment. There are companies that are in this segment. But I would say it is -- they are not going to grow the way -- and we -- we also had the early mover advantage. So what is early mover advantage, feeding the market with newer products? And there are -- there is competition as well. So that risk continues, and that's why we need to continue to feed product into the market.

Next question is from Jainam Ghelani from Swan Investments.

So, sir, my first question is that what would be our current captive chlorine consumption. And post our expansion of all the derivatives, where do we see it going forward?

Yes. You see, post-expansion, our overall, as a Chemical both Kota and Bharuch put together, our captive chlorine consumption will be close to about 32% captive. And on top of that, we have pipeline supplies, which again will be in the range of around 35%, 40%. So if you add these, we are almost 70% captive. So what is what we own -- what is consumed captively, other is virtually captive with what we supply pipeline.

Okay. And sir, since we have announced a fundraise, are there any other derivatives that we wish to expand into as of now?

So we are continuously evaluating new opportunities and adjacencies for the Chemicals business and all our businesses. So at a suitable time, if we do decide and the Board has approved, then we will announce those as well.

Next question is from the line of Rohit Nagraj from B&K Securities.

Sir, first question is on ECH. We've seen that the project has got delayed. Any material challenges from the sort of initial on the dealer front? And secondly, even during operations, do we expect that there will be teething problems because the technical issue has got elongated? And another adjacent question to this, given that the domestic market is now completely supplied, what is the strategy from the management in terms of placing the product, maybe partially in the domestic market or how to tap the exports market?

So you're right. I think this was shared partly in our opening remarks as well. There has been a technical issue in the ECH project. But as we discussed earlier, the team is working very actively, and there has been a solution that has been found. So we expect the commissioning of the plant to happen and trial runs to begin in this quarter itself, Q4 FY '25. And once that is done, any plant might have some small feeding issues to begin with, but we don't foresee any material issues going forward after that. In terms of the market, there are some capacity, which is already there in the market. But we feel that this additional capacity will be absorbed in the market. There is a growing market domestically with a number of epoxy players expanding their capacities. So domestically itself, there will be a significant demand. And also, we are already in touch with customers globally as well. So we do expect that we'll be able to commission and then ramp up the capacity as planned now.

That's helpful. Sir, second question is on the PVC front. So in terms of current market trends, how are we expecting that the utilization levels will move up on the PVC front and particularly the margins, what are we expecting that the last couple of years significant decline in margins because of the China overcapacity and supplies? Will that continue in foreseeable future? And another allied question that we have carbide capacity and we heard probably during pre-COVID that China's carbide capacities are also likely to get turned down. So any view from that side are -- is this happening in China from your connects or your contacts in China? Are we seeing any kind of such move?

So to answer your question on the margins, this quarter, our margins were around 19%, right? So I would say these are reasonable margins at a price realization for PVC at about INR 76,000, INR 77,000 and carbide also was in the range of around INR 64,000, INR 65,000. So I would say prices have been suboptimal. However, on cost front, there has been significant improvement both because the prices -- the raw material prices went down as well as our efficiencies improved. So I would say that one, I don't see prices coming below INR 76,000 unless something happens on cost front, a margin of 19% are quite reasonable. So that was one. What was the next question you had?

So on the carbide capacity, any cues from China that the capacities have been contained? Or there is a move from the government to contain those capacities. But I think earlier pre-COVID, there was an expectation that due to pollution issues from coal, the government was taking steps to curve those capacities, which are already in place.

Yes, that was -- ideally, there was a phase of 1, 2 quarters where they did cut capacities. But after that, all the capacities have come back. And most of the capacities are carbide base, and they are dumping their product globally. So at least I'm not aware of any further actions that we're going to take.

Next question is from the line of Ahmed Madha from Unifi Capital.

I have a few questions on the Sugar business. So there has been consistent commentary from your side and from the industry that the sugar prices have not gone up, but the SAP cane prices have gone up, the yields are low. So do you see the profitability weakness, which was in Q3 to continue for the next season entirely? Or do you have any levers since you have helped us offset the margin loss from the sugar business in the sugar ethanol segment overall?

Can you repeat the question? It was not very clear.

Yes. So my question is, we have seen the profitability margins being low in the Sugar business in Q3, right? So now this weakness because of the lower sugar prices will continue for the entire season? Or do you have any levers which can help you offset the margin loss?

I think essentially, there are 2 reasons. One is there was an increase of the state-advised price of sugar cane last year by the UP government, number one. Number two, there was a very good variety of sugarcane called 2, 3, 8, which was roughly 80% of the can being crushed by more sugar mills. That has got expensive by disease called red rot. And that has now decreased -- and that was a very highly yielding and a high recovery variety, which had come up in the last 3 or 4 years, 4, 5 years. And that has now decreased dramatically. And that's one of the primary reasons why your cost of manufacturing has gone up because of lower yield, lower recovery and also because of the higher SAP.

Okay. Okay. And what was the ethanol mix this year or rather this quarter?

Pardon me, ethanol?

Ethanol mix between BAV, CIB, brine-based ?

So we are primarily CIB.

Just primarily CIB. Okay. And the decline in the rice cost from FCI, will that help us meaningfully?

Yes, that -- yes, it will be -- I mean, probably in the next financial year, not in the current financial year. Yes, because we already covered as far as feedstock is concerned, besides the molasses or C-heavy, we've already covered in April as far as other feedstocks are concerned.

Okay. So for the financial year FY '25, what will be our molasses-based ethanol and what will be grain-based ethanol, percentage roughly?

Yes, roughly, I think, see, we'll manufacture close to about INR 16.5 crore liters. Out of that, about 45% should be grain-based.

Okay. Okay. Got it. And last question on the hydrogen peroxide and aluminum chloride. In the presentation, you have written that your utilization currently. What was the utilization for the full quarter, Q3 for these 2 products?

Yes, average for Q3 was 40%.

Average was 40%. Okay. Got it. Just one more thing on the caustic side, this quarter, the volumes have further gone up sequentially. So do you see the utilizations further moving up in Q4 as well for caustic soda?

Yes. That is a continuous focus area for us to utilize the capacity, and we do see it ramping up quarter-on-quarter.

Next question is from the line of Raj Vyas from TM Investment Technologies.

I just wanted to know, with a 12% Y-o-Y increase in EBIT and a 9% increase in net profit. So any ballpark number that we are looking for going ahead, like what will be the run rate going ahead?

We can -- given that our volumes are increasing and the capital expenditure plans are coming to an end, the first round or let's say, whatever we had announced in the last 3, 4 years, we do expect volumes to increase. Our cost structures are better than what they were in the past. So we do feel our numbers should continue to get better. However, it is all a function of costs as well on the raw material cost as well as the product prices, which are not in our control. So it's difficult to say, but we do -- we are taking our steps to improve our profitability.

Okay. And any reason for the fall in ROC like it went from 16.1% to directly 13.7%.

So the other thing explained on the -- during the message by our JMD, that's because the new capital expenditure, which got commissioned in this financial year in H1. That is part of capital employed, but the returns are yet to -- because the capacity utilization is low right now. So they will come up over the next 1 year. And that's when we would see the optimum capital -- return on capital employed.

So what will be the peak capacity like we are looking for?

Pardon me?

What is the peak capacity that we're looking for?

We will -- as was mentioned by Mr. Aditya Shriram, that we will look to ramp up over the next 12, 18 months to about 90% to 100%.

Next follow-up question is from the line of Nirav Jimudia from Anvil Wealth.

Sir, you mentioned that our hydrogen peroxide plant operated around 40% in Q2. So even at 40% utilization had a positive contribution at the PBDIT in Q2 or breakeven point for hydrogen peroxide plant is slightly higher than 40%. If you can just share your views here.

Yes. So it has been positive on the contribution definitely.

Okay. Okay. And that should further improve in Q4 given the kind of utilization rates pickup we have seen in the current quarter, right?

Yes. Yes.

Sir, just a follow-up to this is like our hydrogen production is ought to go up with the increase in the caustic products, right? So some of the increased caustic soda production helps us for the excess hydrogen, which could be utilized here. But I think we also had commissioned a flaker plant. So they are also probably would require some amount of hydrogen for conversion to -- from light to flex. So at any point of time, our sales of hydrogen to the outside customers won't be curtailed on? Is this a right assumption to make here, sir?

So we've actually done the mapping and the planning for our hydrogen production and demand, whether it is captive demand or it is catering to our customers' requirements. So we very consciously evaluate where to prioritize. Obviously, we really value our customer relationships. So that always gets the highest priority. While we are ramping up our own capacity and internal utilization as well. So as it is ramping up, we are continuously optimizing and at full notes, we expect to have adequate hydrogen to cater to all the requirements.

And just to add, I think the gas that we have started with natural gas as well in our flaker plant.

Yes, yes. So our flaker plant has a dual feed fuel capability, which is one is natural gas and the other is hydrogen. So that gives us flexibility as well to balance out the hydrogen requirement.

Entirely 600 TPD is now commissioned or only 300 TPD is currently running on?

So in the flaking, so far, 300 TPD has been commissioned, and the remaining 300 TPD also is being worked on, and we expect that to be commissioned soon as well.

Got it. Sir, last bit from my side. In the hydrogen peroxide side, are either hydrogen peroxide catering to some specialized applications or it is safe to assume that it is similar to what it is available in the market? So is there any differentiation sector in our hydrogen peroxide which is getting sold in the market?

So we are working on the special grades of hydrogen peroxide as well. We have an innovation center, which is also exploring how to create differentiated hydrogen peroxide. So over time, we do expect a healthy percentage of our H202 to be specialty-grade hydrogen peroxide.

Got it. Got it, sir. But that would take some time before it is getting operationalized, right?

Yes, it will take some time, but the teams are working very actively on this. So we are very optimistic.

Next question is from the line of Pratik Tholiya from Systematix Group.

Congratulations on good set of numbers, especially in Chemical and Agri business. Sir, can you just help me understand your CapEx guidance for FY '26?

Sorry, Pratik, can you repeat that, please?

So what is the CapEx guidance for FY '26?

Yes, CapEx guidance. So CapEx should be in the range of around -- as of now, whatever we announced, it should be in the range of around INR 700 crores.

And, sir, this could be projects, this includes your aluminum chloride and aluminum extrusion, right? And what else is there?

Yes. So there's aluminum chloride, calcium chloride extrusion. And then like the INR 65 crores, which has been announced very recently. And we have this 74 megawatts of green energy that will also happen in FY '26. Yes. And there will be some CapEx happening on the infrastructure front at Bharuch like water reservoir and things like that. And is the turbine investment as well of about INR 50 crores, which is a cost improvement, which I was talking about, yes.

Okay. Understood. And sir, what is your guidance on this epoxy resins. So where are we on that? Because we had announced this quite some time back, this INR 1,000 crores project, but any further development over there?

Yes. So that is something which is very much on the agenda for us as a group. You rightly said, we've taken a Board approval and the Board has approved INR 1,000 crores investment in the Advanced Materials, largely proxy space. And so there are active discussions going on internally. And as we get final approval to go ahead from the Board, we will announce.

And just to add here, we've already acquired land for that, and we are in discussions with technical suppliers and all that. So the movement is happening. Hopefully, we should close things soon and start implementing.

And sir, ballpark, what sort of capacity are we looking at?

It will depend on the technical discussions. But overall, for 1,000 crores that you're talking about, we were looking at about 80,000 tonnes.

80,000 tonnes, right? And this would -- so how much of our ECH then goes into this?

Pardon me?

So how much of our ECH will be absorbed captively for epoxy?

So it will actually depend as we ramp up the capacities. But as Amit has said, at 80,000 tonnes per annum, that would translate to roughly 50,000 tonnes per annum of ECH consumption. But over time, we will look to ramp up this entire vertical. So, therefore, there will be continuous capacity additions in this space.

Sure. So that's helpful. And sir, just lastly on Fenesta because we have seen margins coming off 18-odd percent to 15%, which is now percent, of course, you did mention that there are additional fixed costs. due to maybe some marketing activities and growing the business. So when can we then expect the margins to call back to that 18%? Or you think that a couple of years since you are in this expansion phase, it will remain in this 15%, 16% range?

Yes. So see, one -- my current last year same period, and I'm looking at the EBITDA margin. Right now, EBITDA margin was about 19%, and the same period last year were about 21%. So there's a 2% dip. And I've always said that this is a business which is a 16%, 17% EBITDA margin business, right? Given that as we increase our portfolio of products, the product will have a different set of margins. Currently, the major reason why is the down is figure at fixed cost, and as was mentioned in the opening remarks, that fixed costs are expected to be elevated because we will have to invest more on marketing, brand building and things like that as well as more on people as we are growing the platforms and even otherwise on existing people. I mean competition also adds to the cost pressure.

Next follow-up question is from the line of Rohit Nagraj from B&K Securities.

Sir, just a couple of questions. One is on the ECU. Given that the market is well supplied from the domestic point of view. Do you see that the ECH should -- the ECU should be in the similar range for the time being till again, the demand supply mismatch comes in or probably from the demand side, there are certain upticks from the domestic side?

So as you know, caustic issue was made up of caustic and chlorine. Caustic, of course, is highly dependent on the global demand-supply situation and chlorine is more dependent on the local demand-supply situation. So if you currently in the range of about INR 30,000 per tonne. And we do expect it to remain balanced in the times to come. And hopefully, over time, it will inch up further as well.

Fair enough. Sir, second question on the CBG project front, given that it will be commissioned sometime during this quarter, what is the arrangement in terms of offtake in terms of supplies to customers pricing for the same? And pardon if I have not done my homework earlier, just to get more clarity on the same.

Yes. So this will be 2 OMCs, oil market -- oil marketing companies. We'll be supplying to them.

And in terms of the infrastructure network to transport the gas as well as from the pricing perspective, how will it be priced?

So see, there is a pricing formula, which is based on the natural gas prices, right? But -- and that makes it pretty viable as a business. Transportation infrastructure is there. Further pipeline is being looked at. And also to add that we will definitely look at doing maybe some bit of supply to retail as well as we grow the business.

And just last bit on this. When we have worked out the project, what is the threshold IRR or ROCE that we had looked? I mean, is it in line with other businesses or probably slightly higher for those businesses?

If I remember correctly, this was about 18% return on capital employed business.

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

Ladies and gentlemen, thank you very much for your participation in our earnings conference call. We are dedicated to achieving long-term success by implementing strategic initiatives aimed at investing in scale, value creation and boosting operational efficiencies. To ensure that our values of integrity, agility, customer centricity, teamwork, openness and newness are reflected in our ways of working. Our approved priorities are for creating a more engaged growth force that is equipped to thrive in an ever-evolving business landscape. To this effect, we ensure effective team building and collaboration by encouraging open communication. Investing in people development through conducting skill gap analysis, upgrading skills and encouraging continuous learning is another focus area that is vital for organization growth and employee satisfaction. The integration of digital technology into management practices is transforming how organizations operate. And basing digital transformation and addressing cybersecurity concerns have become imperative to improve customer experiences and maintain competitiveness. Sensitive to our strategy is a focus on sustainability, which underpins our unwavering commitment to environmental stewardship and social impact. Thank you very much once again. Goodbye.

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