DCM Shriram Limited (DCMSHRIRAM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the DCM Shriram Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Siddharth Rangnekar from CDR India. Thank you, and over to you, sir.

Thank you, Vaibhav. Good evening, and welcome to DCM Shriram Limited's Quarter 1 FY '27 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 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, Siddharth. Good afternoon, ladies and gentlemen, and a very warm welcome to all of you. Thank you for joining us today to discuss the company's performance around the Q1 financial year '27 results. I shall commence with views on the industry dynamics and our strategic direction, following which Ajit will share the financial perspective. Globally, this quarter was characterized by a complex wait-and-watch environment. The economic impact of West Asia conflict translated rapidly to energy markets and supply chain flows. This is embedding inflationary pressures, cementing expectations for a prolonged higher interest rate environment and tempering global growth. On the domestic front, along with the West Asia conflict, we are navigating rainfall deficits induced by El Nino that has resulted in uneven regional distribution across key agriculture zones. This is understandably changing the agricultural patterns, straining rural consumption and placing upward pressure on domestic food inflation. While Kharif sowing is attempting a late catch-up as July rains improved, the initial lag has created a large void in sowing. However, despite this combination of global friction and climate volatility, the broader Indian economy continues to demonstrate structural resilience. While rural markets face near-term pressure, strong urban demand and sustained public infrastructure investments and prudent macroeconomic policies continue to provide a robust anchor for the medium-term growth. We navigated this dynamic environment, this dynamic quarter, by leaning into our core strengths of deep value chain integration, stringent cost discipline, digital transformation and execution agility. Financial prudence continues to be our bedrock. By maintaining adequate liquidity in our balance sheet, we successfully absorbed commodity shocks. Today, our strong operating cash flows are fully funding our capital investments while preserving our agility to capture organic and inorganic growth opportunities. Our commitment to environment sustainability remains integral to our strategy for future readiness and long-term value creation. In line with this commitment, during the quarter, we signed a definitive agreement with Serentica Renewables to source 58 megawatts of peak hybrid renewable energy for our Bharuch chemicals complex. Upon commissioning, our peak renewable energy capacity across Bharuch and Kota is expected to increase to around 176 megawatts, further strengthening our energy security, advancing our decarbonization journey and improving long-term cost competitiveness. Now I shall take you through the perspective of each of our businesses. First is chemicals. Globally, the chlor-alkali industry continued to operate in a challenging environment during the first quarter of financial year '27. Geopolitical developments in West Asia led to heightened volatility in energy and freight markets, impacting chemical supply chains and input costs. While demand across several end user industries remain resilient, excess capacities in China continued to weigh on international chemical pricing across major chemical value chains. The domestic caustic soda market remained healthy, supported by steady demand from alumina, soaps and detergents and textile industries. The new flaker facility commissioned last year has enabled us to actively export part of our caustic soda production, improving market reach. Capacity utilization during the quarter stood at 82%. This will improve further as our downstream projects get commissioned. Hydrogen peroxide continued to face oversupply conditions across parts of Asia despite structurally growing demand from paper, water treatment and electronics industries. The plant has delivered a healthy operating performance with capacity utilization at around 85%. The advanced materials value chain comprising glycerin to epichlorohydrin to epoxy, including formulations witnessed mixed market conditions during the quarter. Glycerin market strengthened, supported by biodiesel-linked supply dynamics and improving downstream demand, while epichlorohydrin and epoxy markets experienced volatility owing to feedstock movements and geopolitical development. Our epichlorohydrin and epoxy plants are currently operating at around 70% capacity utilization each, reflecting continuous ramp-up and stable operations. Our project in aluminum chloride and calcium chloride at Bharuch are in the final stages of decommissioning and commercial production is expected to commence during Q2, further strengthening our downstream chemical portfolio. The 68-megawatt peak hybrid renewable power project at Kota is currently under commissioning with average power injection of 25 megawatts for the month of July. Our largest chemical site in Bharuch, Gujarat was given the Lighthouse recognition by World Economic Forum. It was an honor for us and a testimony of our journey in using digital means for efficient operations. There are only 239 companies worldwide and only 9 chemical companies in the world with such recognition. Vinyl. The escalation of the Middle East conflict pushed up PVC manufacturing costs as well as prices. To safeguard from rising global prices, the government of India granted a temporary waiver of basic customs duty on PVC, a measure that, combined with strong Chinese imports, led to a surge in imports into India and in turn, weighed on sales of domestic PVC. On the demand side, uptake remained subdued through the quarter, weighed down by labor shortages, heat wave conditions and cautious buying sentiment. With the onset of the monsoon, demand is expected to remain soft in Q2 financial year '27. Against this backdrop, a sustained pressure on domestic demand and realization, the government has now reinstated the basic custom duty on PVC imports. Additionally, DGFT has notified minimum import price of USD 766 per metric ton on suspension-grade PVC for 6 months. These measures should support domestic PVC prices and augur well for domestic producers. Sugar and ethanol. The global sugar market is expected to shift into a deficit in the year 2026-'27 season with demand projected to exceed production by around 0.7 million metric tons compared to a surplus of around 2.5 million metric tons last year. Lower production in Thailand and Europe are expected to support global sugar prices. For sugar season '25-'26, India is expected to end the season with a closing stock of around 3.75 million metric tons, supported by production of [ 27.8 ] million metric tons after diversion of around 3.1 million metric tons for ethanol, domestic consumption of 28.7 million metric tons and exports of 0.75 million metric tons. Current prices are around INR 4,450 per quintal and are expected to remain firm. On the ethanol front, installed capacity stands around 2,000 crore liters, while OMC allocations are around 1,060 crore liters with sugarcane-based feedstock accounting for a low 28%. Policy developments during the quarter signaled an intention to prepare for blending beyond E20. While these are useful enabling measures for the industry's long-term health, a clear implementation road map, balanced allocation across feedstocks and periodic alignment of ethanol procurement prices with sugarcane costs will remain important. Fenesta Building Systems. Fenesta Building Systems continued to strengthen its position as an integrated building materials solution provider, driven by healthy volumes, growth across both retail and project segments, wider market reach and continued expansion in its product portfolio. The business is setting up a facility to manufacture wooden doors. Margins continue to evolve, reflecting the changing product mix and the upfront investments associated with scaling the newer businesses and strengthening the distribution network. Moving on, the agriculture inputs business portfolio comprises of Shriram Farm Solutions, Fertilizer and the Bioseed business . First is Shriram Farm Solutions. SFS business delivered a moderate growth in the top line in Q1 financial year '27 over Q1 financial year '26 despite facing multiple headwinds in the current quarter. Performance was impacted by the delayed and deficient onset of the Southwest monsoon with rainfall remaining significantly below normal across several key agriculture regions that offset the underlying growth potential of the business. The crop protection and specialty plant nutrition verticals delivered strong margin expansion despite muted volume growth, supported by better realizations and an improved product mix. As part of our growth strategy, the business strengthened alliances, launched 4 varieties from our in-house R&D pipeline, reinforcing our innovation-led growth agenda and creating a platform for further scale-up. In parallel, we rolled out digital marketing campaigns across strategic regions, strengthening farmer outreach and improving market penetration. Fertilizer. The urea business witnessed a sharp increase in natural gas prices following supply disruptions arising from West Asia conflict. We remain focused on improving energy efficiency, maximizing urea production and maintaining strict cost discipline. Going forward, continued geopolitical uncertainties may impact LNG availability and lead to higher subsidy outstanding. Bioseed. Q1 financial year '27 has been particularly challenging for the Bioseed business as the Kharif season is the main season for this business. The current season has also marked by delayed monsoon, resulting in an overall shortfall of 15% to 20% sowing acreage in an all-India basis and much higher in some of its markets. This has impacted volumes as well as margins. Further, significantly higher productivity during the seed production season of '25-'26 owing to favorable climate conditions are putting pressure on margins as well as leading to higher inventory. 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 performance for Q1 FY '27. Net revenues net of excise duty for Q1 FY '27 were at INR 3,564 crores versus INR 3,262 crores in Q1 FY '26, an increase of 9% year-on-year. PBDIT for Q1 FY '27 was at INR 364 crores versus INR 326 crores last year, an increase of 12% year-on-year. Chemicals. The business delivered a robust 33% year-on-year growth in revenue during the quarter. While caustic soda volumes held steady, realizations improved with ECU prices firming up by 7%. The advanced materials portfolio spanning the glycerin to ECH to epoxy value chain was a meaningful contributor to this top line performance. On profitability, PBDIT rose by 24% to INR 274 crores, aided by higher volumes and better realizations in the advanced materials, though partially offset by elevated input costs. Vinyl. Capacity utilization stood at 100% for Q1 FY '27 versus 98% last year. Revenue moderated 10% versus last year as PVC volumes fell 25% year-on-year despite prices rising 22%. Carbide volumes and prices rose 15% each. PBDIT improved 88% to INR 43 crores, driven by higher realizations, partially offset by elevated input costs. Sugar and ethanol. The segment revenues for Q1 FY '27 declined 2% year-on-year. Domestic sugar volumes fell 8% on lower offtake even as realizations improved by 2%. Ethanol volumes were flat, while prices were 4% lower, a result of change in sales mix. PBDIT came in at INR 22 crores against negative INR 7 crores last year, largely due to a onetime provision for retrospective ethanol duty of approximately INR 36 crores last year. Sugar inventory stood at 20.8 lakh quintals versus 27.7 lakh quintals valued at INR 3,907 per quintal. Fenesta Building Systems. Fenesta Building Systems revenue increased 22% year-on-year, led by higher volumes across both the project and retail segments. On profitability, PBDIT for the quarter grew 13% year-on-year to INR 40 crores. The contribution from higher volumes was partially offset by a change in product mix, along with higher fixed expenses towards setting up new revenue platforms and elevated marketing spends. The order book up 4%, continues to be healthy. Shriram Farm Solutions. Shriram Farm Solutions revenue increased 2% year-on-year to INR 357 crores, supported by higher realizations across all verticals, partially offset by lower volumes in the seed and specialty plant nutrient verticals. PBDIT for the quarter was higher by 22% at INR 30 crores, led by improved margins across verticals. Fertilizer. The fertilizer revenues for Q1 FY '27 rose 11% year-on-year with realizations up 19%, while volumes stayed flat. PBDIT stood at INR 23 crores versus INR 38 crores last year, reflecting better margins from improved energy efficiency though the year ago quarter had carried a INR 24 crore onetime retention price gain. Outstanding subsidy on 30th June 2026 was INR 292 crores versus INR 236 crores last year. Bioseed. The Bioseed segment saw a revenue decline of 26% year-on-year, largely owing to delayed rainfall, which led to reduced demand during the quarter. PBDIT for Q1 FY '27 came in at a negative INR 9 crores as against a positive INR 42 crores last year on account of lower volume in corn and paddy along with lower margins in cotton. The company's PAT stood at INR 693 crores. This includes a onetime tax adjustment of INR 474 crores related to earlier years and INR 79 crores on account of sale of surplus land and stake sale to form a JV in the polymer compounding business with U.S.-based Teknor Apex Limited. Excluding these onetime items, PAT was INR 147 crores, an increase of 28% over last year. The company's net debt is INR 1,649 crores as on June 30, 2026, as against INR 1,481 crores as on June 30, 2025. Return on capital employed for June 2026 came in slightly improved at 13.6% as compared to 13.2% for June 2025. As our major growth investments transition from execution to operations, our focus is shifting towards maximizing asset utilization, preserving the value chain integration and driving operational excellence. Supported by a strong balance sheet, healthy liquidity and disciplined capital allocation, we are well positioned to navigate an evolving global environment as well as to explore growth opportunities in areas of core adjacent as well as new 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 Pratik Tholiya from Dolat Capital.

Just couple of questions. Firstly, on the caustic soda, sir, we've seen the prices now normalizing. So what is your expectation for this quarter and maybe for the near term, maybe for FY '27, how do you see the prices moving? And what is the chlorine prices currently? I'm sure it is negative, but how much is that if you could help understand that?

Yes. Thank you. So actually, commenting on the prices going forward is normally quite difficult because the factors -- there are so many factors that go into determining the price, including the global situation, which is quite unpredictable, especially today with the geopolitical situation. So we normally don't make forward-looking statements, but we do expect the prices -- current ECU is in the range of just below 30,000. So we expect it to be in this range or higher. As for the chlorine price, currently, it's in the minus INR 7,000, minus INR 8,000 range.

Okay. Sure. And sir, secondly, on your agri business, you briefly mentioned about your performance in the SFS. But I think your performance has been pretty decent, considering the overall demand environment and also your peers also. So if you could just help understand on the SFS part, your profitability is higher despite a flattish top line. And now if the monsoons are looking good, at least for July we had a good monsoon, so if monsoon remains strong in August and September, so how do you see this profitability shaping up for this Kharif season? And what is the reason driving this kind of numbers?

So I think in SFS, 2, 3 things have been the focus area for the management. One is in terms of our farmer reach, it's been very strong. Second is our R&D activities are leading to newer products, which give better value to the farmer. So they are also happy to buy the product and carry it forward. And third is, I think that we've actually been able to, over the years, build up some credibility with the market. And they know that if Shriram Farm Solutions offer something, it will be good for the farming community. So I think, across the board, that way, it's a good situation. Our R&D focus is now the key issue, which is going to be a major driver going forward, where there's a lot of steps from the management side. Regarding the issue of how the future is going to hold or regarding the monsoon, as you were saying, you're right, July has been good. But if one sees the map of India, it has been good in pockets. It has not been across the board. That is a big challenge. And in the last couple of months, rain in some areas have been quite low because of which the sowing of crops has been pretty low by almost 15%, 20% -- has been lower sowing, which means that the demand is also a little low. And we really don't know based on the projection of El Nino, what could happen in August, September. We sincerely hope that the rain is not going to be too short. But in case we do get balanced rain or adequate rain, it will be a very positive step not only for the industry, but for the economy and for the farmers, most important for the farmers, they are the ones getting shortchanged by not having the monsoon coming in properly. So to be honest, it's very difficult to give a projection of how things will evolve because of the external parameters. But our efforts and focus is very strong in terms of making sure we are supplying good products, new products and have a good relationship with the entire farming community to provide the right products.

Sure, sir. Got that. Sir, on the sugar business, sir, we've seen in almost now 3.5, 4 years that there is no price hike on the ethanol side. You also mentioned about 2,000 crores of ethanol capacity. So sir, how do you see the profitability now moving in this segment? And are we now, therefore, going to divert more on the grain side instead of diversion of sugar, of course, because now sugar prices are also far more remunerative. So would we be operating more on -- more ethanol plants on maize and keeping sugar for the actual sales?

So Pratik, I think we have a defined capacity for grain, right, where we can go up to 250 KLD for grain. So we will optimize wherever we get better margins. And it is very dynamic because currently, the margins in maize and ethanol -- hello?

Yes, sir. Yes.

So Pratik, currently, the margins in maize and ethanol is not good. And therefore, it makes sense to optimize grain-based to whatever extent up to 260. But then it will depend how it pans out, what the government policies are. But then we don't plan to grow our capacity in any case.

Okay. Understood. And sir -- Amit sir, just on this tax, there's this INR 400-odd crores of tax [ reward ] I think some deferred tax that's included, this would be onetime I'm guessing. And what was this whole thing about? I mean why did we have this?

This is -- essentially, there was a difference in the way we were paying tax or filing our returns. And in our books of account, there was a difference. There was some additional gain that we are factoring in when we were filing our tax returns. However, since that gain was not determined, we were not taking into books of accounts. Now when there is a positive order from ITAT is when we decided that we should take it into our books of account, so it's for a period of almost 6 years. And this is cash. This is future cash because this is all MAT credit of INR 376 crores. And we will get it over a period of time. And what's happening as a result of that, there are 2 significant changes. One, we moved from last year 35% tax bracket to 25% tax bracket. On top of the 25% tax bracket, we've got this MAT. So effectively for, let's say, anywhere between 5 to 10 years, at least 5, I can see in the foreseeable future, my tax rate will be -- effective tax rate will be 19% or tax outgo will be 19%.

Okay. Got it. That's helpful. So we should build in around 19-odd percent as your effective tax for at least next 5 years.

In terms of the tax outflow. Although in our income or -- our P&L still reflect that 25%, but cash outgo will be 19%. We'll be utilizing MAT.

[Operator Instructions] The next question is from Abhinav Mandowara from Aequitas Investments.

Yes. So my first question was regarding the sugar business. I just wanted to understand -- and it's difficult to predict, but the next year crushing outlook. And does this harvest also get impacted by the sugar harvest?

So Abhinav, it's a little early to talk about, given the way the monsoon is progressing. It is too early to predict what the next year's cane harvest will look like.

And what do you think -- the current prices are around 40 to 50. Do you think it could be at that price or it could reach somewhere higher considering the deficit?

We expect it to -- it's difficult to say, but it should be firm for the next couple of months, yes.

Okay. And next is regarding the urea business. So since the global urea prices have risen a lot and recently, again, the war has prolonged. So what is your outlook on urea and outlook on urea and margins in that business?

See, in India, any urea manufacturer is governed by the Fertilizer Industry Coordination Committee rules of the Ministry of Fertilizers. So we are there where they come in and look at the details of all our elements of cost and then they work out a particular return. So frankly, the international prices do affect India as an economy because instead of buying urea, which was, let's say, delivered at $450, $500 per tonne, 2 months ago, it reached $900 a tonne. So the total subsidy amount government has to allocate for fertilizer jumps up dramatically. But for domestic manufacturers, I must compliment the government that they have been quite up to date in terms of ensuring that the subsidy, which is paid to the farmer through the Indian industry, that they are paying the industry quite on time. So any international price will not really affect the domestic industry. There can be an issue sometimes of cash flow because of the higher gas prices. But that's really a pass-through again based on government policy. So otherwise, domestic industry is not really impacted by the high international urea prices.

The next question is from [ Sai Rama ], who's an individual investor.

Can you hear me?

Yes.

Our focus is what do you see the vision of our company for the next 5 years like? Where is the focus area of the company? Is it mainly chemical business or the other segments also? Because majority of our EBITDA is coming from chemical business and vinyl business, so what is the plan company wants to take?

See, I mean, at a macro level, as we mentioned before, as a group, our objective is to grow consistently over a period of time. We have invested a lot in terms of growing each of our businesses except 2, which is urea and cement. All our other businesses, we've invested money to grow them on a periodic basis based on the market demand. Secondly, our focus is very strong on value-added businesses, like we've done in our chemical business, where we've got into epichlorohydrin, hydrogen peroxide, now epoxies, we're looking at aluminum chloride, et cetera. So we want to get into the value-added business. That's part of our strategy. That's the second part of it, it will continue growing. Third, we've also been looking at how do we sort of give strength and growth to our business by, where possible, buying or taking a shareholding in companies which are affiliated to our businesses, either as a supplier or as a buyer. So for instance, you are aware, in October last year, we bought an epoxy factory in Gujarat to add value to our chemical business. In our Fenesta business, we've already taken a shareholding percentage in a company called DNV who make the metal parts for the hinges and handles, et cetera, et cetera, for our business. We've already done that over there. So we are continuously looking at growing our businesses across the board, and we are optimistic on the Indian economy. We are bullish that with our population, with the awareness of the youth, social media, the aspirations of our people, we are bullish on the Indian economy, and we'll continue growing at the rate like we've done over the last many years. Being in commodities, there are ups and downs. That's part of the business cycle. But our job as management is to be cost competitive, be world-class in our manufacturing process and costs and have a happy customer. So that's what we are focusing on.

In terms of cost of production, can you disclose what is the price of the power you are buying currently like for caustic soda, all those things? Because that determines whether you are the lowest-cost producer or the medium-cost producer because so many new capacities are going to come up like from Reliance or Adani group. We are planning for caustic and PVC businesses. So how do you see we land in that area? Are we in the middle or are we in lowest cost?

We are among the lowest cost producers, and we continue to work on seeing that how do we further reduce costs. See, for us, energy is the key cost for our chemicals and vinyl business. And if you see the trend of last few years, we have had -- in 2019, we came up with a new power plant. In 2024, '25, we again had a 120-megawatt new coal-based power plant, which was more efficient, and we would close down our inefficient plant. And now we're looking at 176 megawatt of renewable energy. A part of it -- more than half of it has already come in. So it's like a continuous journey where we keep making our cost -- power costs more and more efficient and best in the industry. That's where we are.

Can you disclose what is the cost of power for us per kilowatt hour?