DCM Shriram Limited (DCMSHRIRAM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the DCM Shriram Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Siddharth Rangnekar from CDR India for opening remarks. Thank you, and over to you.

Thank you, Ryan. Good evening, and welcome to DCM Shriram Limited quarter 1 FY '26 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 ask their questions 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, Siddharth. Good evening, ladies and gentlemen, and a very warm welcome to all of you. Thank you for taking out time and joining us today to discuss the company's performance around -- quarter -- first quarter of financial year '23 results.

'26.

'26 results, sorry. I shall commence with views on the industry dynamics and our strategic direction, following which Ajit will share the financial perspectives. The global economic growth projections continue to be lower. While headline inflation is soft across most regions, tariff-driven cost pressures and geopolitical rifts continue to challenge policymakers with significant risks to market disruptions. Many emerging and developing economies face headwinds from reduced exports, lower commodity prices, tighter financial conditions and elevated debt burdens, putting the growth perspectives and development goals at risk. While India is impacted by these global developments, there is higher resilience given the domestic demand, policy fundamentals and strategic fiscal year interventions. The RBI's rate cuts and the government's continued support for infrastructure creation and manufacturing have created economic momentum. Our company is well positioned to benefit from India's growth and has over the years, taken steps to fortify presence across its businesses. Our investments have been aimed at augmenting capacities and adjacencies through integration, optimizing costs and staying competitive across business cycles. We continue to leverage digital platforms to enhance customer experience, streamline operations and deliver more efficient services across all touch points. We remain committed to follow sustainability as a guiding principle in all our existing and proposed investments. I will now share with you the industry dynamics across our businesses. First, I'll take up chemicals. With uncertainties on U.S. tariffs and deepening geopolitical conflicts, global caustic soda market was impacted with demand reducing from key end-use industries such as aluminum, textile and paper. China continued to participate aggressively in the international market, leading to oversupply. The prices of caustic soda that has reached about USD 500 per metric ton FOB last year have retracted to USD 450 per metric ton, signaling softness in prices. India's caustic soda market continued to be oversupplied with current capacity of approximately 6.5 million metric tons, operating at 80% capacity utilization. Chlorine prices also have been under pressure owing to oversupply, coupled with subdued demand of chlorine derivatives. Our capacity utilization is 80% and is ramping up gradually. We are also witnessing benefits in our cost-saving initiatives, especially in power. Hydrogen peroxide with goes in the existing caustic use segments like pulp and paper, textiles and water treatment is growing at a healthy rate. We are focusing on building our market share. The plant is operating at about 65% capacity utilization. Our target this year is to reach over 80% capacity utilization. The trial runs of the ECH plant have started and the utilities like glycerine purification, et cetera, are fully operational. We will be commissioning within this quarter and the capacity ramp-up will happen within the next few quarters. Our acquisition of Hindustan Specialty Chemicals Limited marks our foray into Advanced Materials and Epoxy resin segment. The transaction is in line with our policy of growing into adjacencies through backward and forward integration. This acquisition shall help in giving us a jump start into this business and provide us a platform for faster growth. Work on aluminum chloride and calcium chloride capacities at Bharuch continues as per time lines. In line with our objectives, our green initiatives and cost efficiency programs continue to underscore growth initiatives. The additional injection of 6.6 megawatts of green power at Bharuch has started in this quarter, taking the total peak renewable power availability at Bharuch to 50 megawatts. The 68-megawatt renewable power project for Kota is progressing as per schedule. The benefits of the CapEx programs in our chemical businesses have started showing results by providing volume-driven growth. Successful completion of the plans under implementation, along with capacity utilization reaching optimum levels shall further aid in this growth. Vinyl. Global PVC demand has remained subdued and global trends continue to indicate softer prices of PVC. While India remains a spot of confidence, supported by construction and agricultural activities, China continues to redirect surplus PVC to global markets, impacting domestic Indian PVC prices negatively. The Supreme Court interim order has cleared the way for a comprehensive antidumping investigation into imports PVC by DGTR, the Director General of Trade and Remedies, overruling the Gujarat High Court stay. Once imposed, it will bring some respite to the low-cost import prices. The cost structure in our Vinyl business has improved. We will continue to optimize production between PVC and carbide in order to derive optimal margins from this business. Sugar and ethanol. Global sugar demand for sugar season '24-'25 is expected to be higher than the supply, leading to a reduction of 4 million metric tons in the inventory levels for the current year. This was mainly due to lower production in India over the previous year by 5.8 million metric tons. The Indian sugar season '24-'25 is expected to end with a stock of 5.2 million metric tons with production estimate of 26.3 million metric tons after diversion of approximately 3.3 million metric tons for ethanol production, consumption of 28 million metric tons and export of about 1 million metric tons. Current prices are around INR 4,020 per quintal and are expected to remain range-bound. The demand in Q1 was subdued and is expected to pick up in the coming quarters. On the ethanol front, the government of India is planning to increase the target of ethanol blending in petrol and start its mixing with diesel. As of 31st May 2025, ethanol blending in petrol has reached 19%. This bodes well for the ethanol industry. However, in a aggressive move, the UP government has recently leveled export fees on export --on ethanol exported outside the state of Uttar Pradesh retrospectively from 2018 in view of a judgment from the Supreme Court. Further, the increase in sugar and ethanol prices has not fully compensated for the increase in sugarcane and grains prices for ethanol. These steps are regressive in nature and stall the growth of the industry. In this backdrop, it is important to review the overhaul to review and overhaul the sugar policy framework in order to make it remunerative in the long run for the farmers as well as manufacturers. Our compressed biogas plant commissioned in March '25 is operating at about 90% capacity utilization, Fenesta Building Systems. The company remains committed to expanding its market footprint by deepening the reach of its current offerings and broadening its portfolio through the development of new platforms. Our sales strategy is focused around enriching the customer journey through ensuring long-term sustainable growth. Meanwhile, our aluminum extrusion project is advancing as per schedule. We have successfully acquired 53% equity stake in DNB Global Private Limited, a company operating in the hardware space. These strategic actions are set to reinforce our position as an integrated solution provider in the building materials domain and support the creation of enduring stakeholder value. Moving on, the Agri Input businesses portfolio comprises of Shriram Farm Solutions, Fertilizer and the Bioseed business. Shriram Farm Solutions first. This is a consumer-facing business, and it continues its growth momentum. The company's growth trajectory was led by both robust volume expansion as well as better pricing, demonstrating agility amid climatic fluctuations, the company ensured timely deployment of need-based solutions and introduced scientifically developed crop nutrition products that strengthened the crop tolerance to stress conditions. Notably, in the current quarter, SFS has launched 8 new products in crop protection and specialty plant nutrient verticals, including 2 new products from our own R&D. The business continues to focus on its own R&D collaborations and exclusive arrangements to bring the new age products and global technologies to Indian farmers. Fertilizer. On the backdrop of early onset of monsoon, higher rain expectations and lower imports, the urea demand is expected to be healthy. As the stability in the urea industry persists, we are committed to energy efficiency and boosting operational effectiveness. India has seen stable allocation to subsidies, translating into smoother transfers to producers, Bioseed. Bioseed turnaround is gaining momentum, underpinned by a broader hybrid seed range that is fueling growth across all segments. The expansion in fall cultivation driven by attractive crop economies and rising ethanol demand, along with strong paddy performance has boosted overall results. However, cotton acreage is likely to drop for third consecutive year with organized sector in cotton seeds taking a deeper cut in volumes. I will now request Ajit to provide the financial perspective. Ajit, over to you.

Thank you. Good evening, everyone. I will now take you through the financial highlights for the quarter. Net revenues for Q1 FY '26 were at INR 3,262 crores versus INR 2,876 crores last year, an increase of 13% year-on-year. for Q1 FY '26 was at INR 326 crores versus INR 274 crores in Q1 FY '25, an increase of 19% year-on-year. Chemicals. The business reported an increase in revenue of 43% year-on-year, led by caustic soda volumes that were up 20% on account of the new 850 tonnes per day facility that was made operational in May 2024. PBDIT increased by 68%, owing to lower input prices, particularly energy prices and efficiencies from the 120-megawatt power plant. The excess capacities in India is creating pressure on product prices, especially chlorine. However, the downstream projects such as hydrogen peroxide and aluminum chloride commissioned last year has also supported the revenue growth. We expect volume-driven growth to continue with operationalization of our projects under implementation and capacity ramp-up. Vinyls. The Vinyl business had flat revenue at INR 209 crores in the quarter versus INR 211 crores in the quarter last year. The volumes of both PVC and carbide were higher. However, prices were down by 17% for PVC. Last year, there was a onetime positive impact of INR 16 crores each because of reversal of electricity duty on auxiliary consumption in Vinyl as well as chemicals. sugar and ethanol. Sugar and ethanol business revenue, net of excise duty was lower by 14% in the quarter. Domestic sugar volumes were low by 23% due to lower offtake. Volumes of ethanol were in line. Prices for both ethanol and sugar were slightly better. PBDIT for the segment was lower at negative INR 7 crores versus a positive INR 37 crores in last year as increase in prices did not compensate for the increase in cost of production. There was also a onetime negative impact of roughly INR 36 crores on account of provision for levy of duty on ethanol exported outside the state of UP effective 2018. The industry is exploring legal recourse against this levy. Fenesta Building Systems. Fenesta Building Systems revenue increased 21% year-on-year, led by volumes across project and the retail segment. The growth was better than the same period last year. PBDIT for the quarter was similar to last year due to higher fixed expenses for setting up new adjacent businesses, higher marketing expenses and acquisition-related costs. We anticipate continued higher levels of expenditure to support the strategies -- the strategic scaling of our operations and our expansion into newer adjacencies. The order book continues to be healthy. Shriram Farm Solutions. Shriram Farm Solutions revenue increased by 29% year-on-year, supported by volumes across verticals, especially Crop Protection. The prices were also better across the verticals, except slight moderation in crop protection vertical. PBDIT for the quarter was higher by 22% on account of better margins. Despite higher marketing expenses focused on strengthening of the Shriram brand and higher R&D expenditure. Fertilizers. The fertilizer revenue was higher by 19% year-on-year. PBDIT was also higher by 65%, led by volumes and better energy efficiency as there was a maintenance shutdown in the last year. In the current quarter, there's a onetime positive impact of roughly INR 24 crores on account of revision in the retention price of financial year 2023. Last year also, there was a onetime positive impact of roughly INR 20 crores on account of recovery of marketing margin. Outstanding fertilizer subsidy was at INR 236 crores as against INR 133 crores in the last year. Bioseeds. The segment saw a revenue increase of 30% year-on-year. Some of it, especially in Philippines, is a timing difference. PBDIT increased by 46%. The improvement is led by better margins across crop segments of corn and paddy. The company's net debt at INR 1,481 crores as on June 30, 2025, as against INR 1,459 crores as on June 30, 2024. Return on capital employed for June 2025 came in slightly lower at 13% as compared to 14% for June 2024. Since CapEx incurred on the projects will start yielding returns in the forthcoming quarters. By maintaining rigorous financial discipline, we ensure a robust balance sheet that supports agile investments in strengthening existing and adjacent better businesses and cost-saving initiatives. 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 comes from the line of Nirav Jimudia from Anivil Wealth Management.

Congrats for performance. I have a few questions to ask on the chemical side. Sir, when we see our Q1 performance for the caustic soda business, our PBDIT has improved by close to around INR 3.20 per kg as compared to INR 2.40 per kg in Q1 of FY '25. So just wanted to understand like the PBDIT improvement of INR 3.20, was this ECU improvement of INR 2.40 , the difference comes to around INR 0.80 per kg. So if you can just help us understand, was it all because of the savings in power or some fixed cost optimization also helped us in the improved performance.

See, the improvement in EBITDA is a function of the 2 things eventually. One is the improvement in product prices, which, as we mentioned, have been better than last year. Second is -- and even the variable costs have been lower. So variable cost ballpark have been lower by about 10% to 12%. So these are the 2 key reasons. And within variable costs, the major reason is the power cost. Power cost also had 2 components: one, because the power rate was lower, given that the fuel rate was lower than same period last year. And the efficiencies, as was mentioned in the chairman's message as well from the 120-megawatt plant, that also added. So mix of quite a few factors.

All right. And sir, when we have commissioned the plant for the expansion of 850 TPD caustic soda and 120-megawatt power plant at Bharuch. Let's say, before that, our fixed cost was how much our fixed costs would have gone up with the commissioning of these 2 capacities?

It's difficult to give you a number on -- by how much pertaining to these 2 facilities. See, overall, the chemicals business is in a growth mode. Now therefore, again, it has to hire for newer capabilities. Like, for example, if we are looking at growing in epoxy, the capabilities for epoxy were hired almost about a year back, at least the critical capabilities. So it's a mix of creating the entire infrastructure of capabilities. And as we are growth mode, these expenses will go up overall.

Got it. Got it. And sir, just an add-on on this like just we divide the production volumes, possibly we would have required 220 megawatts of power for our caustic soda business in Q1 of FY '26. So what was the mix of power between the renewables and our capital power plant?

So our renewable average that we get in Q1 was about 24, 25 megawatts against the total requirement. So what we produced during the quarter averaged about 2,200, yes, you're right. So therefore, that only about 25, 26 megawatts came from renewables.

Correct. Sir, second question is on the epoxy side, like the acquired asset has a capacity of 17,000 tonnes. So it is all predominantly the LER capacity? Or does it also include some downstream capacities as well.

You're right. Yes, it does include some downstream capacity as well. But again, this would be the starting point for us, and we will use this acquisition to -- for entry into the business. and also for further growth. So we expect to grow the capacities relatively soon.

Correct, correct. Sir, 1 of the inter statement, you also mentioned that we intend to almost triple our capacities for the epoxy business. So given the kind of expansion, what we are looking at, what could be the time line 1 could expect on for this expansion? A and B what sort of CapEx would be required if we decide to go ahead with the expansion?

So it will be hard to share some of those details at this point, but the team is evaluating various technologies as of various capacities. And once the Board approves these expansions, that will be announced.

Got it. Sir, last bit from my side, if you can share the market size of LER as well as the specialized epoxy market in India, that would be very helpful.

See the total market size of epoxy, the liquidity for reason and its formulation put together, is about 200 kilotons per annum as on day and it's expected to grow to about 300 in the next 3 years.

We take the next question from the line of Ahmed Madha from Unifi Capital.

And congratulations on good set of numbers. I'll get you the question on the epoxy side. Can you give a little more explanation in details regarding the business on a few aspects. One is, you mentioned about the increasing capacity. But what we understand is there is enough supply in India to sort of cater the domestic market. So how do you see the exports side of the epoxy and what countries, if you can give some sense how you are pursuing the business in terms of increasing the capacity and utilizing it. And secondly, how much of the ECH which we have planned capacity will be used internally? Yes. So that's my question on epoxy.

So epoxy, you're right, there is adequate supply of epoxy in the market right now. But what we are seeing is that there is a healthy growth in the market for epoxy. So as was mentioned already by our CFO. We expect the demand epoxy to go up from roughly 200 kt to 300 kt per annum in the next 3 to 4 years. So I think that will help absorbing the increased capacity, which we will also be coming up with. Additionally, we will, of course, focus on domestic demand, but we will also focus on exports. So we cater to the global market. And I think with our cost structure being relatively competitive, and we'd have to closely monitor the tariffs that are being levied across globally. I think it positions us well for growth in the years to come.

And Ahmed just to add, a lot of capacities in Europe from players like Huntsman, Westlake, Colin, they are being proposed to shut down -- to be shut down, especially the liquid epoxy resin facility, and they probably would like to focus more on formulation. So that will also make liquid epoxy resin from India a global product. And further, a lot of these wind manufacturers are coming to India to manufacture blades and things like that. So I think there is a lot of growth, which is expected to happen within Indian market and global market for India to be a key player.

Got it. And can you answer on the epichlorohydrin part, what percentage will be using internally? And roughly, what kind of margin range you think is sustainable in epoxy business?

So I think it will depend as our capacities grow. Currently, it will be a smaller percentage of our ECH, which will be consumed captively. But as we expand our capacity for epoxy, then a larger percentage of the ECH will be consumed captively. So as -- and therefore, we will grow ECH as well in the times to come. Since this is a growth vertical for us, it will be a dynamic number, but the advantage of being across the value chain helps position us reasonably well for this business.

Got it. Got it. On the margin improvement part, you explained about the cost structure in terms of reducing coal cost as well as variable cost. I had a question on the increase in the captive chlorine consumption. So if I do the numbers, I mean, your caustic volumes are up 20%. But if I look at the value-added business in the caustic chlorine segment, it looks the number is up 70%, 80% because we have commercialized new capacities for aluminum chloride, hydrogen peroxide and so on. So in terms of percentage terms, has our chlorine captive use increased materially in last 3 to 4 quarters? If you can quantify the percentage number or you can even give the -- from the base of 100, how it has moved?

So we actually look at it in 2 parts. One is the captive chlorine consumption directly, but secondly also is our pipeline customers. So in the last 30-odd years, we have grown and our pipeline customers have also grown. They are our valued customers, and we have a very strong relationship with them. So after the current expansions, we expect approximately 40% of our chlorine to be consumed captively in Jawaria in Bharuch and approximately 30% will be with pipeline customers. So roughly 70% across captive and a pipeline customers will be consumed in the complex.

And this 70% includes the commercialization of ECH as well?

Yes, that's it.

Okay. Got it. And in March, we had a Board meeting regarding the corporate restructuring, and we had some update in last call as well. Would you like to comment how the time lines are shaping up, how is the discussion going on the board level. If you can give some sense at what level they have reached and when can we assume that it will be formalized?

See, this is under discussion with the Board level as well as internally our own management of this entire expense. It is a major exercise where our finance team and other teams are working with consultants and others what is the best way, what is the best time? How can we take it forward as rapidly as possible. So we are hoping in the next few months, we've taken up to the Board for their approval and then a price of the government for various commissions and clearances, which is a fairly unfortunate lending and complicated process. But we hope in a couple of months to take it to the Board.

Okay. Got it, got it. Last question on the epichlorydine part, I mean we had a delay of nearly 2 years, if I go back to the original time lines, but is it fair to assume that all the process-related component-related issues have been resolved, and it will be fully commercialized from Q3, or do you think still 1, 2 pieces are yet to be done?

Yes. So the time line for completion of the project has been longer than what we had originally anticipated. But we're happy to note now that we have started trial runs of the plant, and we expect to announce commissioning in the next couple of weeks and then ramp up in the next few quarters.

Noted, noted, noted. Just 1 question on the Farm Solutions business...

If you could please join back the queue as there are others waiting for the chance. The next question comes from the line of Pujan Shah from Molecule Ventures.

My first question pertains to the PVC side. So in the industry perspective, we have seen there was a hike of INR 3.5 per kg in April and May. While in our PPT, we are mentioning there is a price correction of 17%, so I am not able to gauge, so can you just please correct my understanding.

Yes. So the PVC prices have been soft. If you see in our presentation itself, we mentioned that PVC prices from April onwards. And actually, if you look at even Q4 of last year, where they were very good in January, INR 76,000 and then INR 78,000, and they came down in April and May. May they came to INR 66,000, INR 67,000. So they are currently continuing at that level.

So can we read that stuff that initially what the price hike announced has been again come back to the previous level because there is a continuous dumping from the Chinese end?

You're not very clear. Can you repeat your question? Or maybe you can -- if you are on speaker, you can be on the hand phone.

Sure, sure, sure. Am I audible now, sir?

Yes, that's better.

Sir, I just wanted to understand that -- so there was a price hike of INR 3.5 per kg. So can we just read out that the price increase has been again came back to the same level as there is a continuous jumping from the Chinese end?

See, one, I'm frankly not aware of this price hike because these prices, what we are giving you is giving you demonstrate. We are also giving you the international prices as well and regional prices as well. But yes, you're right. The major reason for this is the continuous dumping from China. and the delay in imposition of antidumping duty in India.

And sir, in the today's outcome, we have seen there is a precursor has been announced from the DGTR for the ADD purpose. And soon might it get converted into a final findings. So just wanted to understand in a broader perspective that how much PVC prices from Chinese and I understand the duty may be varied from country to country. But just wanted to understand as the dumping continues from the China, so is there -- if ADD comes, so what could be the industry pricing can -- like it would be around INR 73, INR 74 a kg. And if it happens, what margins which we will be able to pertain? So it will be a breakeven or flattish around 1% to 2% EBIT level? Or how it will be -- we should read on that part?

Well, frankly, the issue of ADD, what we said is right, the DGTR, in fact, has made out the report today. And they have actually now made it public today or they are going to make a public this evening or tomorrow. And waiting for, I think, maybe a week 10 days to get a feedback on that report. Thereafter, it is expected that the report will go to the finance ministry and the Finance Ministry, we hope will take action on it quickly. As you are aware, there is a court case also being filed by 1 of the users. And there, the issue in that is that they are talking, or they had talked about a couple of grades of PVC, so the industry is saying that the decision on the grades of PVC has to be taken by the DGTR. They are the ones that are qualified and educated to understand the various grades and the users of those grades. So that has now come to the DGTR. They are taking action on it. We sincerely hope that in the next couple of weeks time, it goes to the finance ministry and from there, then we take action so that we are protected. Our expectation is that the price increase should be in the range of at least INR 6, INR 7 a kilo to start with. Once the ADD comes in, which all countries they're bringing in, we are not sure yet. But I think China is the main concern right now for the industry, which we are working on with the government.

We take the next question from the line of Raj Vyas from TM Investment Technologies Private Limited.

Congratulations on a good set of numbers. So I guess last time, you had given a revenue guidance of around 10% to 15%, right? And I guess margins were around 11% to 14%. So for FY '26 for the remaining quarters, do we see the numbers in line or we are making some bit of changes to the top line as well as the margins?

Yes. We do expect our numbers to be in this range for the rest of the year. Especially, Q3 and Q4 should help us make up because seasonality in our business. So Q3, Q4 should help us make up the deficit.

But I just want to add, ladies and gentlemen, that you are seeing the geopolitics of the world. You are seeing U.S. is moving on the trades, on the tariffs, and they make on level today and other one tomorrow. So we are hoping that India can come to some agreement with the U.S. on at least some fundamental trade terms. So we have some stability and policy as well as the uncertainty is very high.

Okay. So coming to the tariff point like how you are looking at the chemical business because in the press release, we have mentioned that the global caustic so that supply chain is disrupted because of the tariffs. So how we are looking things presently currently, how does like because it will shape up for the next quarter's performance as well.

So as we have said, there is unpredictability going forward for all types of businesses, including caustic soda. India was not exporting any caustic soda directly to the U.S. neither was China exporting any caustic soda directly to the U.S. So there is no direct impact, but there will be second order and third order effects in terms of the demand from the consumer industries, including aluminum, or if China exports more to other countries, which it has started doing. So that impacts the global flow of caustic soda. So we'll have to see how this all plays out. But fundamentally, if the demand supply remains balanced, then we expect it to be a reasonable situation for the coming quarters and years.

Okay. So lastly, my question is with respect to the acquisition that we have made in Hindustan Specialty Chemicals. So though it was a loss-making company, so why we have picked up a loss-making company? And second question with respect to same is when do we see the company like breakeven or coming into profitability in numbers?

So for us, actually, this is a strategic decision and a strategic acquisition. The Board had approved previously that we will be investing INR 1,000 crores into the advanced materials, which is the epoxy business. So this is the first major step in that direction. You are right that today, some of the cost structure of this organization are not optimal. Luckily for us, with all the backward integration that we have, we will have our own ECH, which will move by pipeline. We have our own caustic, which will move by pipeline utilities, which are at optimal cost. So these initiatives or these advantages will help us improve the cost structure for this -- for the company. And as we grow, we will look to grow with growth, we will get benefits of scale. We will cater to new markets, which are higher value-added markets. So we expect this becomes an important starting point for our advanced materials business.

We take the next question from the line of Vignesh Iyer from Sequent Investment.

My 2 questions are from Shriram From Solutions vertical. So firstly, sir, if I'm not wrong, we had launched around 7 to 8 products last financial year under this segment. I wanted to understand how much percentage of our core revenue has come from -- I mean, especially growth part of 29% volume has come from our new product launch.

Yes. So the way to look at the new product launches is, as you rightly said, we have launched about 17 products in crop protection and crop nutrition vertical. In seeds vertical within that business, we keep launching new products to maintain the life cycle of seeds and to add to the revenue. Now within Crop Protection and Crop Nutrition, these new products that are launched, they obviously take time to gather momentum, which is about, let's say, it takes about 1 to 2 years to gather momentum. So the way we assess and benchmark our success of new products is how they performed over the products which have been introduced in last 2, 3 years, what has been the revenue of that. Now that is -- if I see in FY '25 for the full year basis, that was about 20% of the products that were launched in the last 3 years. Now that's a very good benchmark. So generally, industries put that benchmark at about 20% to 30% of the revenue. So we are pretty much there. And we are getting more aggressive on that. So out of those 17 products, 8 products were launched in Q1. So yes, we have got a good pipeline. So we look forward.

Also, sir, wanted to understand our capital employed base has almost some where it comes to Shriram Farm Solutions. So I wanted to understand, is it privately because of any new capital expenditures that we have done or is it because some part of R&D expenses are getting capitalized.

So it is neither of the 2. It is essentially all working capital, and it depends on the seasonality and various factors of the business. So they will all be -- on an average basis, we will be more or less at the same level as last year. But the point is since we are growing the business, basically, we are expecting higher volumes and research, we -- the overall higher volumes in the business and therefore, the working capital also is higher along with some bit of timing differences.

Okay, okay. I mean considering our quarter 2 is the strongest quarter among all quarters, and do you have enough idea of how the business would be in quarter 2 primarily because of that, any inventory stocking, et cetera? Is this the right way to read it?

If I understood you correctly, you mentioned quarter 2 is the strongest quarter for SFS, right?

Right, right.

But actually, it's quarter 3, which is the strongest quarter because some of the major products get sold in quarter 3 rabi season.

We take follow-up questions from the line of Nirav Jimudia from Annual Wealth Management.

Sir, 2 clarifications. One on the value-added products for the caustic shoring business. So what does it all include? If you can just correct me like my assumption shows that it also includes our flake plant, hydrogen peroxide, the hydrogen, what we sell in the outside market and chlorine derivatives. So is it the right assumption to work with?

Yes, that's right. Absolutely, that's right. So the chlorine downstream would be at epichlohydrin, aluminum sulfide and calcium chloride.

Correct, correct. And sir, what would be a rough contribution from these value-added products in Q1 of FY '26?

I don't have the numbers right away. But just to mention the caustic and flakes, they continue to be the major contributors and hydrogen. These 3 product entry continue to be major contributors. Others that we recently introduced. So they are going through their life cycle or micromarket development and cost capacity ramp-up.

Correct, correct. The second question is on the chlorine realizations for Q1 of FY '26? Because last quarter, you mentioned that it was close to around INR 6.50 negative. So if you can share the similar figures for this quarter as well?

So that's about a similar level on average, if we put both our quota and Bharuch events together, it's in the same range of around INR 6.5, INR 7 as for Q1.

Correct it. And sir, last bit is on the ECH plant. So what I could make up from the annual report is that we are also having our own refined leasing plant. So we will be importing the crude rising, converting into refine and then possibly to ECH. So just wanted to understand from you, what sort of benefits it could accrue to us if we haven't put up this plant and would have bought directly the refined lessening without converting group to the refined one. If you can share your thought process here would be very helpful.

So there is a margin which comes in when you convert from fruit glycerin to refined glycerin. So in a way, that is like a backward integration for us. So we hope to capture that margin as well and then do further value addition to ECH and epoxy and beyond. So we will actually be across this margin chain.

Okay. Sir, is it safe to assume that it accrues close to around anywhere between INR 5 to INR 10 on depending upon the prices of both the products put together on a run rate basis, is a benefit of INR 5 to INR 10 per kg benefit, which could accrue to us if we keep on converting group to the refinery? Is it right assumption to make?

I think it will be hard to share an exact range of number at this point. But yes, it enables the business to be a much more robust and allows us to optimize our purchase decision.

We take the next question from the line of Rohit Nagraj from BNK Securities.

Congrats on good set of numbers. Sir, first question is in terms of the capital allocation. We have also gone ahead with downstream integration in terms of the inorganic initiative. How are we looking at from individual business perspective where the incremental capital will likely be deployed? And in regards to that, are we building up any capabilities in how to get into maybe further or making inroads into certain other streams or other areas.

See, capital allocation, 1 for us, there are -- the capital-intensive businesses are essentially chemicals and sugar and ethanol. So you have 2 capital-intensive businesses. The other 2 businesses, which are more focused in terms of growth or farm solutions and financial stuff, where the capital requirement is lower. So that is point number one. The second is the capital allocation can be for organic or inorganic growth. And it will all be a function of need of the business, our growth agenda and the return. So we have a particular financial principles or the hurdle rates before we make investments. So the capital allocation, so they are fundamental, which is chemicals tiger and the 2 businesses. But then each of the businesses can have a capital requirement, depending on the opportunity, and that becomes the basis to decide. But we want to grow all these businesses very aggressively.

Got that. The second question, I mean, historically, we have been only focused from the domestic market perspective, given all business segments have been catering to the domestic market. Is there any change in terms of thought process that we are also looking at the exports market? And I mean, what give us confidence that we will be able to make our mark in the export market in any of these product streams.

Yes. So please -- again, that is -- again, based on the opportunity, like what we mentioned in epoxy, we do see export market picking up, right? And therefore, we've invested in the property, and we feel that some part of our production will get into exports. But yes, we will still continue to be largely a domestic player, whatever product we have right now, and we are open to opportunities for exports. I mean Fenesta, we are growing our export market in a small way. In seed, we are growing our export market. So we are looking at those opportunities. But yes, majority still continues to be domestic.

The next question comes from the line of Sneha from SKS Capital.

I just wanted to ask a very specific question regarding the UP tax on sugar that you talked about. Could you elaborate on that a bit more? And how much impact did we see? And was it for like the companies who are based out of UP, like what is the thing that I wanted to understand that.

So see, there was a 9-bench Supreme Court judgment in a particular case, wherein the Supreme Court added that the denatured alcohol, which is -- ethanol is a denatured alcohol, is at par with alcohol, which is for human consumption. So they have put in the same list, which empower the state to levy charges on -- or regulate the denatured alcohol as well. Earlier the denature alcohol was in control of the center. So as soon as the judgment came, which also reversed a judgment, which came in 1990, so the state government came out and -- that was UP government, they came out with notification to levy 1% export duty on any this ethanol, which is excluded out of the state of Uttar Pradesh with the retrospective from 2018. So that's where it stands. Now whether -- and we are looking at the legal recourse if available, so we will take it accordingly as an industry.

So this was the first quarter we were impacted by that?

Yes. So because we made a provision on a conservative basis because the demand also was raised by the state also we have not paid the demands. But on a conservative basis, we thought we will account for it from 2018. So this entire amount that we have mentioned in our results, about INR 36 crores, INR 37 crores pertains to amount from 2018 onwards till date.

[Operator Instructions] We take the follow-up question from the line of Ahmed Madha from Unifi Capital.

For the Farm Solution business I had a question, what I understand is that portfolio is still majority beat and be focused? Is there any thinking on building a kharif crop portfolio? And any views on the same, please?

Our entire range of products of seeds, we are expanding it continuously. So at the moment, wheat is, of course, the major crop research wheat, which is a major crop, which we are selling, but we're also getting into vegetables in a stronger way. We are also getting into other crops in a stronger way. So our plan is to have a range of products, which will be able to be sold to suppose depending on the seasonal requirements based on the planting season. So we're going to expand that range. We are moving ahead with that, and that's part of growth plan.

And if I may just add, it is also there are 2 other verticals, which we want to grow a little more aggressively than what they are right now. So even plant nutrition, the way we set up our own manufacturing about a year back and crop protection, there we started our own formulation unit on a lease basis. So I think we will focus on them as well to grow more aggressively. So I think that will balance out the revenue quarter-on-quarter.

And for the CapEx part, obviously, we made 2 good acquisitions for Hindustan Specialty and DNV Global. On the organic side, with the renewable power plant, aluminum chloride capacity and Fenesta, what will be the broad organic CapEx expected in FY '26?

So you're saying in terms of the cash outflow on organic CapEx?

Yes, cash off.

Yes. So that should be in the range around INR 600 crores to INR 700 crores.

Can you give the breakup of the same if possible?

See about INR 300-odd crores is because on aluminum chloride and calcium chloride. And I think about INR 100 crores should be on aluminum extrusion and then there'll be a few others.

We take the next question from the line of Poojan Shah from Molecule Ventures.

Just continuation with the previous question. So sir, let suppose, I understand the carbide, we manufacture PVC from the carbide route. And let's suppose the RM prices remain the same, and let suppose the ADD comes through the place. And let's suppose the hypothetical example, that a price of what we have assumed of INR 6, INR 7 per kg, it becomes a realization for. So do you think that we can make an EBITDA margin of 5% to 7% on a blended basis, assuming capacity utilization remains 100%?

Yes. So see even today, even in Q1, my EBITDA margin was about 7%. So I think it should only increase from here by about 4% to 5% if the prices grow by INR 6, INR 7.

Okay. So base case resumption is -- so there won't be any hike in the -- RM for the PVC, right, right now because for the enough capacity has been available for the RM purposes. So that makes a better sense so that at least our EBITDA margin would be around 10% to 11% in -- when ADD comes into place?

See, in our business, both input prices are largely the carbon prices, it's anybody's guess that what they should be. We would always expect them to be stable. So it's very difficult to say whether raw material prices will remain at these levels or not. We do work on improving efficiencies and improving our cost structures, but input rates can vary.

Right, right. Got it. And my last question on the caustic soda part. So we have seen a price increase -- so could you state a reason -- so do you think it's a structural and this price would stable from here on, or it would might impact because the industry is already running at 80% capacity utilization. We are currently -- we are also operating at 80%. Now the industry doesn't have more room to at least grow at -- increase in the capacity because that will deploy more chlorine, and that will impact the margins ultimately. So do you feel that the price will remain stable from here on and it might be inch of coming quarters?

So it's, of course, hard to predict how prices will evolve for commodities, including caustic soda, there are many factors, including domestic and global factors at play. But we do expect prices again in the medium term to be range down or to move up in the medium term.

[Operator Instructions]. Ladies and gentlemen, as there are no further questions, I will now hand the conference over to the management for their closing comments.

Thank you. Ladies and gentlemen, thank you very much for your participation in our earnings conference call. In a world market economic fragmentation shifting trade flows and geopolitical instability businesses must remain agile and forward-looking. Our company is well passioned to capitalize on these strengths. We have consistently invested to expand capacities, improve integration and enhance competitiveness across cycles. We harness digital platforms and embedding sustainability across operations. Our recently concluded CapEx programs set the stage for the next chapter of volume-driven profitable growth, anchor the operational excellence and a strong balance sheet. Thank you very much once again.

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