GHCL Limited (GHCL) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Business Update Conference Call of GHCL Limited on strategic divestment of Home Textiles business hosted by Emkay Global Financial Services. We have with us today Mr. R S Jalan, Managing Director; Mr. Raman Chopra, CFO and Executive Director, Finance. [Operator Instructions] Please note that this conference is being recorded. I now would like to hand the conference over to the management.

Good afternoon. Good afternoon and a warm welcome on today's call on Board decisions for disinvestment of Home Textile business and carve out Spinning business through scheme of demerger. Raman, our CFO, along with Manu, Manish and Abhishek from the finance team accompany me for this call. Requisite disclosures have been uploaded on the stock exchange. Hope you had a chance to download and go through the same. As the outset, we would like to thank you for all your utmost support and believing in us. We strive to always be agile in our conduct and aim to excel in our performance with the endeavor to create value for all our stakeholders. Your Company has come around with a remarkable performance during this unprecedented and uncertain times of pandemic and the same is communicated to you during the quarterly interactions. As you are aware, with a view to have greater focused business approach, we had initiated the process of demerger of our Textile business. In the interim, we got an opportunity to unlock value of our Home Textile business, not being a strategic growth area for us, by divesting the same to Indo Count Industries Limited as a growing concern on a slump sale basis for a consideration of INR 596 crores subject to closing adjustments. This is a strategic decision, which could help management to focus more on our core strength areas of Chemical and Spinning business. We are a marginal player in Home Textile business and generated average EBITDA of just INR 22 crores in last 3.5 years, which is less than 5% of the total EBITDA of Company and less than 20% of the Textile business. We are retaining our Spinning business, which will account for more than 80% of our Textile EBITDA and remain to be our core business. We believe that this disinvestment will unlock the value for all our stakeholders as the proceeds of the sale will be plowed back to its core business of inorganic Chemical and the Spinning, which will be a major catalyst to our growth journey going forward. In Chemical, we would like to pursue opportunities like greenfield expansion, increasing its product basket, enhancing the capacity of refined bicarbonate business, enter into JV arrangement and attaining operational leverages through IoT and AI. In Spinning Business, we would like to focus to expand our value-added product basket, as well as capacity to keep our growth momentum going. In addition to above, GHCL is continuing with its objective of having separate entity for both these business verticals. Accordingly, Board has also approved demerger of the Spinning business to GHCL Textiles Limited through scheme of demerger. The process of demerger is expected to be completed in next 6 to 8 months. I would like to reiterate that we are committed for creating the value for all our stakeholders and are putting our best efforts for that. Your support and trust drive us to pursue this endeavor with more zeal and energy. I would now request the moderator to open the forum for question-and-answers. Thank you.

[Operator Instructions] The first question is from the line of Rahul Veera from Abakkus.

Sir, I just wanted to understand, in terms of post this transaction, in terms of debt in the Textile segment, what would the debt look like? And in terms of -- given the remaining business of Textile, how will it be able to service the debt, sir?

Rahul, if you look at the total debt of Spinning business after -- see, obviously, after when we get this transaction done, some of the debt which relates to the Home Textile will get repaid. And after that tentatively, my understanding is that, total debt is around INR 140 crores will remain into the demerged entity and this figure of INR 140 crores as on September 30, 2021.

Okay. And the interest cost, in my view, would be at least 7%. So that will be close to INR 10 crores of interest cost will be there. Will the Spinning business, existing business, will be able to generate that kind of EBITDA? Because historically we've been very volatile in the segment.

No. But see, Rahul, like you look at our EBITDA of Spinning business has been in close to more than around INR 100 crores. Broadly, if I look at -- give you the number of last 3.5 years average, because as you rightly said, in the business sometime volatility is there on the Textile business, the EBITDA of 3.5 years of -- average EBITDA of Spinning business is INR 108 crores. So this INR 108 crores versus [ INR 7 crores to INR 8 crores ] is nowhere near closer to -- absolutely, there is no issue on that.

Okay, fair point. And sir, what is the CapEx outflow after -- over the next 3 years that we are looking, including the greenfield that we are planning?

See, broadly, Rahul, you know that overall our cash generation is in the range of around INR 500 crores to INR 600 crores from the entire GHCL portfolio, right. Out of the Home Textile, EBITDA was cash -- profit of average was nothing, almost nothing. The overall profitability of the -- overall GHCL will not have any significant or, I would say, minor -- even minor impact will not be there. So, profitability remains, cash generation remains and that will be sufficient to maintain our debt equity ratio of 1:1 and growing the business of greenfield project which we have announced and also side-by-side growing on the Spinning business also. As you know that we have already committed approximately around -- more than INR 240 crores into the Spinning business which project is under implementation, and they will have the sufficient cash to take care of the growth journey after the demerger. So, overall, if you look at, we have enough resources and you know that we are a completely deleveraged Company. Our debt-equity ratio is negligible. So that's why we don't see any concern on our growth journey of Chemical, as well as the remaining Spinning business, I would call it, not the Textile business.

I just wanted to understand from supply chain side, did the Home Textile business procure any materials from the Spinning division and how will it happen going forward, sir?

See, overall in the total business of Spinning, only 20% is getting consumed into the Home Textile, balance 80% we -- still today also we sell into the market. So there is absolutely no concern, these 2 businesses are always run independently, separate management, separate everything and 80% of the business has already been sold and now what we are doing, Rahul, is more on product basket expansion, value-added products, those are the things which we are doing. And like -- honestly, if you ask me, the products which we make into the Spinning business, they are much more valuable than selling to the Home Textile business. So, our focus is more on selling to the garment segment where the higher quality required, the realization is much better. So this will definitely -- of course, Home Textile, like Indo Count or other players also will be keen of buying the product from us. But for me, as a strategic vision, I will always consider to penetrate into the garment segment where the value realization -- at least, I would say, 5% higher than to the Home Textile segment. So our focus has been for last 2, 3 years, and that is the reason we have reduced our dependence on the Home Textile. Like I said, if you look at the Spinning business in totality, even the competition to whom we were selling the Home Textile, spinning yarn to the competition also, the figure would have been meager. So, therefore, going forward, this will be -- frankly speaking, this will help, even the Spinning business to enhance their margins.

The next question is from the line of Tarang from Old Bridge Capital.

One question, what is going to be the post-tax cash flow after this transaction? And when do you think this transaction will be completely consummated?

See, in terms of the period, I would say that by March 31, 2022 or April 1, 2022. The agreement is April 1 -- on or before April 1, 2022. There are certain formalities needs to be kind of completed, some export obligations, shareholders approval, all those things will be required. So, timeframe wise, on or before April 1, 2022. In terms of the post-tax, I would say that broadly the tax implication could be in the range of around INR 35 crores, INR 40 crores, okay. So, to that extent, tax will go, balance will be the net cash flow will be coming to the Company.

The next question is from the line of Sarvesh Gupta from Maximal Capital.

Sir, first, I wanted to understand the valuation at which this business is getting sold. So, if you look at Indo Count itself, it may be trading at 3, 4x of its book value, compared to that given our small tax cash flow, it is very apparent that business is being sold probably less than 2x book. Even on an EV-to-EBITDA basis, I don't know, if you are seeing. What has been the EV-to-EBITDA for this sale transaction, sir, for last 12 months or FY'22 expected for this business?

See, Sarvesh, 2 things I just want to highlight here. If you look at the valuation perspective, in any business, somebody rightly said -- Rahul, rightly said, this is a cyclical business, okay. Should you take the last 6 months of the data or should you take a longer-term data? I can only tell you, last 15 years of the data, in this business, we have never made a significant amount of EBITDA and last 3.5 years, our EBITDA -- average EBITDA was only INR 22 crores. Now, keep that INR 22 crores into mind and look at that kind of a valuation which we got for the INR 22 crores average EBITDA. Now, even if you look at for the minute you look at the data of 2021, okay, 2021 which I think last past, our revenue EBITDA -- sorry, EBITDA was in the range of around INR 42 crores of the Home Textile. So if you look at that also...

Is it FY'21, sir?

FY'21 EBITDA was INR 42 crores only.

Okay. Then what is the number for 6 months of this year, sir?

So, 6 number -- 6-month number is definitely slightly higher. It is approximately around INR 60 crores. However, like I said, you cannot take any business on the basis of the 6-month performance. If I can give you the data of 15 years, 5 years, 3 years, I have given you specific data.

I understand that. Because they -- in their presentation, they have said PBT of this business is around INR 45 crores. So does that mean that the depreciation and interest is only INR 15 crores for this business?

I don't know what number they have said, I don't have privy to say what they have said. I can only...

They have said INR 45 crores for the 6-month of FY'22 as the PBT for this business.

So, right now I don't have a number of PBT, but like I said, the EBITDA of this business of 6-month is -- how much is it, tell me?

[indiscernible] crore is the EBITDA. INR 11 crore is depreciation and [indiscernible] crore is...

Yes. So like you rightly said, the total EBITDA is INR 60 crores, depreciation is INR 11 crores and the interest is INR 3 crores. The total figure is the bottom is coming to around INR 46 crores. So like you rightly said, they must have given the right number of INR 45 crores, INR 46 crores. And in the investor presentation, I think we have already --. Okay. So, Sarvesh, like I have said, a few things, according to me, there are 3 things which are important. You sell the business at a right time. What is the right time? Right time is when everybody is positive about the business, okay? I remember that in this business, maybe if I would have been spoken about this businesses disinvestment 2 years back, probably we would have got the half of the value of what we have got just now. So you sell the business only when the people are positive about the business, that things are going in the right direction, but whether the right direction will continue for a longer period of time, that's a question mark, #1. Number 2, are you -- in 15 years, have you been able to do a good value on the creation for the shareholders on this? No, we have not, and I have said in the many -- multiple calls that in the Chemical business, we proudly say we are the best-in-class. In the Spinning business, I proudly say that we are best-in-class. Our EBITDA margin is 18%. 3 and a half years my EBITDA margin in the Spinning business is 18%, wherein in this business my EBITDA margin 3.5 years is only 4%. So, can I continue to sell -- continue to run a business with an EBITDA margin of 4%, which is a slightly longer-term view. You have to take a longer-term view and the kind of management time require to run the business, the kinds of resources required for the business, it is better not to focus on the area where you are good at. But you know that we are a marginal player in this business, we are -- we have not been able to give -- still out of my total Home Textile business my capacity, we have been filling 50% of our capacity by the job work. So, will you appreciate a business which has a lot of no return, a lot of management time and not seeing any growth? Last 5 years, I have not made any investment into this business or significant capital allocation in this because I'm not seeing a clear visibility going forward in this business, how this business will shape up. So rather do the things which you are good at. So we are good in the Chemical, we will expand in the Chemical. We are good in the Spinning, 15 years of the track record. We have one of the best margin in the Spinning business, we will do good there. We will [ clawback ] this money and management time in those businesses which creates value for all our stakeholders. So, that is why the logic of disinvestment and the valuation.

What is the sales and capital employed for FY'21 and for H1, sir, for this business?

Total sale Home Textile is -- FY'21 --. In FY'21, my revenue was INR 455 crores.

And CapEx?

And my capital roughly around INR 550 crores or something of that sort.

And H1, sir, H1 sales?

H1 sales, revenue is roughly around INR 396 crores. Okay? And EBITDA I've already told you INR 60 crores.

Sir, and finally, now what is the plan on the capital allocation part? Because already we are leveraged beyond the -- I mean, we are lower than the optimum leverage right now in terms of debt-to-equity because -- and our greenfield is going to come with a lag and also it really back-ended and phase-wise. So there is no sort of immediate use of cash. And then we are generating INR 500 crores to INR 600 crores and then we have got INR 500 crores to INR 600 crores more from this sale also. So -- and we don't have any major CapEx plan apart from the regular CapEx increase. So where all is this going to get deployed and how much are you planning to give back to the shareholders as a special dividend or something because I really don't see any need of all this excess cash that we will be floating around with?

See, Sarvesh, 2 things. First and foremost, is it a right decision to sell and get the money at the time when you can get the money. Now, the question is, I think we -- as a management, we believe this was a perfect timing of selling this business. Now, as you rightly said, the question remains is how are we going to deploy that resources. Now, sometime what happens, even if you don't have an opportunity for a minute if I assume that there is no opportunity, but still better to slightly deleverage, wait for the opportunity and invest the money in the right business which you believe is where you can create value for the shareholders or for all stakeholder. Why should I say only for the shareholders, for everyone. Now, timing-wise, this was perfect, but like deployment, as you rightly said, deployment-wise, we have plan like sodium bicarbonate. Sodium bicarbonate we're expanding the business to double the size what we have right now. We will require CapEx there, #2. The Spinning, like I said, already we have committed INR 240 crores. We have signed the agreement of INR 500 crores of investments with the Tamil Nadu Government [Technical Difficulty] with the green energy. Similarly, yes, the rear-ended will be there. Till the time it is nothing wrong in having a slightly deleverage and invest the money at the right place. This is hurry to make the investment and make a wrong investment at a wrong place, that I personally believe that's not the right strategy for a long-term value creation. We are not in the business of a short-term value creation for our stakeholders. We are in the business of a long-term value creation. And we have seen our journey last 7, 8 years. We have been gradually creating a value -- consistently value creating for our stakeholders and we'll continue to do that, but we are in a rough -- not rough, we can always look at -- okay, buy a company of a specialty chemical at a very high price and deploy these resources. I don't want to do that because ultimately my objective is not what -- a 100 meter race, it's a marathon race, in that we have to work in a manner, so that in the long run I can create a value. I don't mind to slightly deleverage and use these resources at the right place at the right time.

But any hopes of a special dividend or any one-time payout to the shareholders?

Sarvesh, we have always rewarded our stakeholders in terms of the buyback, in terms of the dividend. If the shareholders believe that returning the capital to the shareholders will be more beneficial than creating a growth opportunity out of that business, we can always discuss this on the Board. But like you people are large shareholders, you will understand that sometimes the return on capital employed is important from the sales perspective also. How are they going to deploy the resources? But we will be open to these kind of a thought and discussion going forward to how to reward the shareholders. Right now we have not thought of any of that, because we have just concluded the deal yesterday only and still understand that the deal is going to still take 4 months time. There will be enough time to look at how do we look at that part of suggestion which you have given it to us.

[Operator Instructions] The next question is from the line of Riddhesh Gandhi from Discovery Capital.

Just wanted to understand so how much is the EBITDA of the Spinning business both in H1 FY'21 and FY'22? So just a some indication of how large that is?

Mr. Gandhi, it's a very significant number. I'll just give you the number. In FY'21, our EBITDA was INR 113 crores from Spinning business, which was 18%, whereas in the Home Textiles, it was only INR 42 crores. In the 6-month number, which I've just given, INR 60 crores is the EBITDA of Home Textile, whereas the EBITDA of Spinning was INR 116 crores, the margin was 29%. In Spinning, we have always been rewarding.

So I think INR 116 crores is the EBITDA for the remaining business for the last 6 months effectively.

Yes. And that is going retain with us, that is going remain with us, yes.

And sir, how many incremental spindles are we adding and do we expect that to come on stream?

See, as per the target, it was supposed to be coming in March 2022. However, because of this weather condition, 1 or 2 months, some machine supply delay is there. Maybe it will take another 1 or 2 months and this will get completed. And this will be 40,000 spindle. This will give us a revenue of roughly around INR 200 crores extra revenue out of that business. And again, like I said, if you look at the data of Spinning, I just want to reiterate the data again, last 4 years data in front of me, INR 112 crores into FY'19, INR 91 crores in FY'20, INR 113 crores in FY'21 and 3 years average is INR 105 crores and 6-month INR 116 crores. So what I'm trying to say, Spinning business, whereas in the Home Textile in FY'19, my EBITDA was 0, FY'20 it was minus INR 14 crores. What I'm trying to say is...

If I hear you correctly, what you are saying is, actually, if we look at your Textile business, you are primarily a Spinning player, you were trying your hand Home Textile. It has not actually played out as planned. So given there was a player who is a leader who was okay acquiring it at a reasonable cost, you exited to them, they may be able to do great things with it, but -- thus we can redeploy it at a lot more attractive rates of return, is what our view is?

Yes. You have very rightly said, which is some time you do something good like in the Spinning we do better than many people, okay. But they might be doing good in the Home Textile. They are a good player in the Home Textile. So, they will be able to create a value for their stakeholders, whereas we will be able to create value for our stakeholders by way of Spinning or the Chemical business.

And sir, just to understand, on the Spinning side of things, are we on the specialized side of it? Because how are we able to have 18%-plus EBITDA over the last 3, 4 years, that's appearing to be slightly higher than most of the other players out there? Just wanted to understand is that, are we in a specialized area? Is the way we run our cost better? Just wanted to understand that. And effectively the ROCE roughly over the last 3 years of Spinning?

See, like you very rightly said in the Spinning business we are masters, if I can use a wrong word. We are masters in 3 things. One is, our understanding about the cotton outlook has been fabulous. I can give you the data of [ 570 ] because that is the largest cost of any Spinning business. That is #1. That is 1 we have been able to do at a right time. That is #1. Second, our product baskets, the way we have transformed this business in last 5, 6 years by going into the right -- what we call it the right customers. The same product if I sell it to the Home Textile, I'll get 5% lower value than I'm selling to the garment segment and that too also specialized garment requirement, because the quality standard or the quality requirements are significantly different. So, we have been able to make our infrastructure and the culture where we have been able to create those high-quality, specialized yarn, special fiber from pima cotton or the Giza cotton or [ Australian ] cotton, you name it, we are making every type of yarn. So, that is where we get a better value from our customers and the customers would -- does not want to -- will not like to move away from us, even if we are 5% or 3% costlier than the market because consistency in the quality. That is the second thing. So, in terms of the cost competitiveness, power, we have significantly made an investment in power. Our power cost is very significantly lower than the competition. Similarly, on the labor cost, we have modernized this plant, my labor cost is only coming to 4% -- 4.5%. So all these things, cost-wise, we have aligned ourselves rightly. Similarly, on the other side, we have been able to sell to the right customer. My return on capital -- Mr. Gandhi, you asked me, my return on capital employed on a slightly longer term is around 15%.

This is all related to Spinning or this is overall textile and we should see...

I'm only talking about Spinning.

Spinning, okay. And then we look forward to hearing your plans over the next few months on the capital allocation of the free cash flows and results you have as well.

The next question is from the line of Anish Jobalia from Banyan Capital Advisors LLP.

First, sir, I wanted some clarification on the debt, so at one point of time, I think we have mentioned that our debt on the -- in the Textile side has been near to INR 300-odd crores. So if you could give a clarification on how much is related to the Home Textile and how much to the Spinning and how much would be transferred to Indo Count because of this transaction, that would be very helpful to understand, sir, a bit more granular break up?

First and foremost, there is no debt is going to be transferred to the Indo Count. It is an all-cash deal and all the debts and everything will be taken care by us. That is #1. In terms of September 2021, like I said, the remaining debt, all debt put together, I'm talking about working capital debts and everything put together is around INR 140 crores. The remaining debt is approximately around -- how much is debt for the Home Textile as of September 30.

September 30 was INR 150 crores.

INR 150 crores. So like you rightly said, the number was the INR 300 crores and something, out of that INR 160 crores remains with the Spinning business and INR 150 crores is with the Home Textile, which will get paid off from the proceeds, which we will be getting from the newer acquirer.

Okay. And secondly, sir, so, we did Spinning revenues of INR 350 crores in H1 FY'22 approximately and which means an annualized run rate of INR 700-odd crores. So do you think that this INR 700 crores of the revenue run rate is now sustainable going forward or is there any further upside here also? I mean, without this INR 200 crores of Spinning CapEx, which will come on stream in the next year, so from the existing capacity.

See, 6-month data of Spinning business, my revenue is around INR 400 crores and plus. See, if I take that number, then you can surely multiply that number and the figure comes to around INR 800 crores, INR 850 crores, because in this 6-month also there are few weeks where there Tamil Nadu was closed, if my memory goes right. So, if I take that, this number is coming to something around INR 800 crores, INR 850 crores and surely after this expansion, which we are doing, this number will be certainly be crossing more than INR 1,000 crores.

Okay. And, sir, to understand this expansion a bit better, so at one point we had mentioned about INR 200 crores of expansion, right. So this is the one which is already going on and then another INR 500 crores of CapEx will be coming in the future. So, is that correct that we are now looking at a total CapEx of around INR 700-odd crores between these 2 plants, which have been announced?

No, total figure is INR 500 crores, out of that, as you rightly said, INR 240 crores we are making an investment now and balance amount will get invested in next year.

Okay. So, I just want to understand, like what is the kind of debt-to-equity that you keep looking to take in the Textile business? I mean, how the numbers would look over there? So, once the demerger completes, like what would be the total or the net debt-to-equity in the Textile business itself? How are you looking at this? And secondly, also if you could give more clarity on the timelines on this CapEx and what kind of return expectation do we have over here?

See, let me answer one by one. In terms of the indicative numbers, which will get transferred. Of course, the numbers will be at the time of when the demerger gets approved that number will be visible. However, as on September 30, this number was INR 160 crores, okay. Against that my debt -- my net worth was roughly around INR 700 crores. If I take that from that perspective, you will find that we have a significant deleveraged balance sheet of the Spinning business going forward. And maybe this number can be slightly more improved because once this money coming in and we can make more deleverage that Spinning business, so that they have their own journey of growth with sufficient resources in their balance sheet. And they are also earning, like I said, they are also earning good. So they will be able to continue out their journey of a growth, #1. You said in terms of the investment which we are making, what is the visibility of a return. Like I said, if you look at math on this basis that we have been generating around 15% to 18% return from this business in the longer term period. So I would expect that this would be slightly better -- this new investment should be slightly giving a better return than this number of 15% to 18%. So you can rest assure that this return will be much better than the cost of capital which we are -- you know that 7% is approximately our cost of borrowing is there.

The next question from the line of Desh Prakash, an Individual Investor. Mr. Desh Prakash, Your line is unmuted, Please go ahead with your question. As there is no response, we will move to the next question, which is from the line of Prerna Jhunjhunwala from B&K Securities.

Congratulations, sir, on this sale. I just wanted to understand what was the capacity utilization of Home Textile division in FY'21 and in first half?

See, Prerna, if you look at in terms of the capital utilized and the processing capacity, I would like to divide that into 2 parts: one is, our own export, which we were doing, which was approximately around 50%. The balance amount we were doing job work. So in terms of the utilization, yes, doing that 90% plus. But whether I've been able to create value out of this job work, no.

Okay. So, sir, in first half was -- like first half revenue is much higher at an annual run rate than your FY'21 numbers. Is it just the time difference or [Technical Difficulty]?

No, Prerna, if I can just say that, you know that in the last few months or last few quarters, the Textile has been on the upswing because of 2 reasons. On one side, the raw material cost was on the lower side and whereas we have been able to get the better price from the market. So, one of the advantage which is coming for the Home Textile, as well as for the Spinning business. In Home Textile, what you see the jump of EBITDA expanding from INR 40 crores to INR 60 crores in 6 months, one year of data was INR 42 and 6 months, you got the data of INR 60 crores, that was primarily because of that, but now the things are changing, because the raw material prices has gone up, your cotton prices has gone up, whereas transferring these costs to the buyers is one of the biggest task for anybody in the Home Textile, because that the concentration of the buyer in the Home Textile is. And this I've been saying in the last few quarters, the margin contraction will happen into the Textile business going forward. So, probably I would call it as a reasonable margin into Home Textile in the range of around 14% to 15%, which have been -- we were not achieving that. Like I said, if you look at my EBITDA margin was in the range of average of 3 years, 3.5 years is only 4%, right? Probably the logical number is around 15%, whereas the Spinning business in 3.5 years is 18%. My understanding, of course, in 6 months we got margin of 29% in the Spinning, that is not going to sustain for a longer period of time.

Okay. And, sir, with this 50% utilization that you did with the premium customers, the customers also move with the business or they will be fresh requirement from customer side to evaluate again for procurement? How is it...

In terms of -- we are transferring the business on a going concern basis, Prerna, and all the customers, all the employees, everything, all the commitment, all the -- your vendors, everything will get transferred to them. So, they will be getting a business which is having a turnover of X value, they will be getting that, along with that they will be getting the assets and they will get all the employees. They have to secure the business themselves.

Okay. And the GHCL your net -- your inflow is around INR 370-odd crores minus the debt that you have to repay to the bankers minus that my understanding is...

No, Prerna, we are getting INR 596 crores, to be precise. Okay? Out of that, we have to pay the debt, like I've just indicated the number to you INR 150 crores, balance amount out of that probably we have to pay some other liabilities. But broadly, I would say that my finance team is giving me the figures that -- roughly around INR 400 crores or INR 450 crores kind of a number will be coming to us, out of that some taxes has to be paid, like I said, because of the income on this, one-time income, INR 30 crores, INR 40 crore will go there, the balance amount will remain with us.

Okay. And, sir, could you just give me some details about the Spinning CapEx that you will be incurring post this 40,000 spindles that is going to come in FY'23 first half -- first [ quarter type ]?

No, like I said, Prerna, that around INR 250 crores is already committed to the Spinning business, then we have a sodium bicarbonate also, where there also we are doubling the capacity. So, all this investment will go there, but we will have a surplus cash, no doubt about it. For that next year, we are also looking at expansion into the Spinning business. Now we will have focus also into the Spinning business to slightly expand the business more rapidly, because now management time will also be there, resources will be there.

And you see the Spinning margins continuing at higher levels as you've seen in the last 12 months?

Not only, Prerna, on the 12 months. Like I said, respectable margin of the Spinning business in the range of around 18% to 20%. In last 3.5 years my EBITDA margin of the Spinning business has been 18 years -- 18%. So I'm assuming this 18% or slightly 1% or 2% more should be possible going forward if everything goes well in a slightly longer-term because somebody rightly said some volatility is there in this business but on a longer-term basis, this kind of a margin should be achievable in this business.

The next question is from the line of the Parin Jhaveri from JNJ Holdings Private Limited.

Sir, if you can just share some thoughts on the CapEx in Spinning? What are the number of spindles that where we are planning in Phase 1 and Phase 2, including the latest Tamil Nadu announcement?

See, right now, we are -- approximately around, I'm just giving you the round figure number, we are roughly around 190,000, 195,000 spindles right now, okay? In addition to that, we have LZ Spinning, we have a TFO, we have open-end machines and so on. So if I look at in terms of -- if I club everything then we have more than 200,000 spindles at this point of time. Then we are adding another 40,000 which is getting completed, like I said, in the next few months it is going to be completed. Next year, we have another plan of 40,000, 50,000 spindles, which plan is already under discussion and that will get implemented next year. So, probably you can say that by, in another 1, 1.5 years of time, probably we will be reaching to the level of around 300,000 spindles broadly if I take everything put together and this is reasonably a good size of the Spinning business in India.

And if you can just throw some light on the current yarn spread, how are you seeing things?

See, yarn spread at this point of time is very good. But like I said, you should -- in a longer term, you should not look at those kind of a spread and you should be looking at a reasonable spread. And like I said, the margin should be in the range of around 18% to 20%, you should expect on that business EBITDA margin. I think that should be a fair assumption of on a slightly longer-term perspective, but yes, next 6 months could be a good period for the Spinning business to continue.

Okay. And, sir, last question from my side. In terms of this sale of Home Textile division, I'm just wondering if we were in not so much of hurry of getting this cash as overall expansions, future expansions are taken care of -- by our internal cash flows and probably in Home Textile, we are at probably one of the lowest point in terms of our RM costs hitting us badly, and we are not able to pass on. So I'm just trying to understand from a longer point of view, if we were to compare as there is a ballpark figure that you are saying that Spinning 3, 3.5 years past margins are better, whereas in Home Textile is not. But if I were to see your last, say, 10 years EBITDA margin, then comparing Home Textiles with your Spinning, so I'm just trying to understand that aren't we selling at a low point of time and would have waited since we are not in that dire need of cash?

No, let me give this other way around. I think if you look at the 15 years of the data of Home Textile, we have never made money. A small portion only on 2016, 2017, we have made and always we have been losing money on this business. That is #1. In terms of the timing, see, I always believe that the best time of selling is when somebody is interested in buying and the people will be interested in buying only when they see the future is bright or looks to be better. There is a [ buoyancy ]. Even in the normal behavior, what we do, when the things are looking good then only -- at that time only we want to buy. So I think in terms of the timing wise, I think we could have been late if I would have waited for another 1 year or 6 months. And if we have not done good job in 15 years, how can we believe that we will be able to do the good job going forward. So I think in terms of the timing, I personally believe that the perfect time, perfect valuation because you get the better valuation only when the things are better. The same situation like to repeat it, had I sold this 2 years back, I would have got -- for the fixed asset valuation, we could have got maybe 60% or 50% of the value which we have got, because nobody was interested in buying. So selling at the right time is the right thing and I personally believe this is the right time.

The next question is from the line of Vikas Kasturi from Focus Capital.

My line was on mute. First of all, congratulations, sir, on this deal. Sir, I have just one question. Sir, you have a couple of retail brands, i-FLO. So, do you have any plans to divest them anytime in the future?

So, Vikas, you are right, in terms of that is also one of the business, which is a very small product basket or business what we have and we have -- there also, we have not been able to create a big value out of that, okay? So, at a right opportunity if we find some buyers, we don't mind selling that business also because again that is not making a strategically sense of INR 100 crore or INR 50 crore or INR 100 crores of the business in the basket of this thing. But at this point of time, we don't have that any such kind of a possibility, but yes if opportunity comes. And I just want to remind my investors that 2, 3 years back I have said this, we run the business not with the emotion, we run the business with a logic and we run the business with the future prospects of the business where we can do the right. And we have said that, if in the home -- because there were lot of concerns from the investors that you are not doing good in the Home Textile, where the people are doing. I said if the right time if required we will divest on this business and we have demonstrated that without having an emotion of continuing with that business where we are not doing good. Similarly on the -- in the i-FLO, which you said, at the right time if we find an opportunity, very small business in our -- no significance into the bottom line or the top line, we don't mind getting from that business if we get an opportunity.

The next question is from the line of Rohit Sinha from Sunidhi Securities.

First of all, congratulations for this deal. Sir, most of my questions were already answered. Sir, I just wanted to understand in post-demerger, how would we seeing the management team of both this business and how we should see the -- basically the employee cost going forward?

See, in terms of the business, as you know, both the businesses we are good at and we will continue to grow that to both the businesses. In terms of the employee cost, I don't see any significant change into the employee cost of both the businesses separately also, because that the Spinning business is a very focused, small group of people, they are managing that business and we will continue with that journey of a -- because that's a commodity business, I must say that and therefore, the cost competitiveness in all corner, be it employee cost, be it power cost, be it any cost, we are very agile on that basis that load the business to the extent which can sustain the business in a longer-term basis, not in a short term. If we are making good money does not mean that load the cost with a lot of things. So we have -- like I said, only 4% to 5% total wages cost into the Spinning business and we will continue with that kind of a journey in the Spinning business going forward. Even in the Chemical business, my total cost is coming in, if my memory is correct, maybe around 5%, 5.5% kind of a thing and that also we will maintain. Size will become bigger into this -- in the Chemical business because that's our core competency, but my cost will proportionately not go up, it will rather come down in terms of the percentage.

[Operator Instructions] The next question is from the line of Saket Kapoor from Kapoor Company.

Congratulations, sir. Sir, firstly, what would be the effective date of this unit getting transferred, means by what time we will be booking the revenues and the profitability from this segment in our books?

See, the sate is April 1, 2022, on or before April 1, 2022. We will try to complete as quickly as possible. But as on date, the target date is on or before April 1, 2022.

So, in language the -- for this current quarter, for the December quarter and also for the -- some part of the March quarter, the revenue and the profitability from the Home Textiles would be clubbed in the GHCL combined entity.

Yes, up to March 2022 if the date remains the same, the profitability and the revenue will continue with the part of the GHCL.

Sir, when we see this announcement on November 27 of INR 500 crores MOU in the state of Tamil Nadu, that INR 500 crore CapEx will happen when, sir? And you are factoring that into the current year INR 240 crores amount, is that been clubbed together? I didn't get your number.

Yes, Saket. We have got both these figures clubbed into that because you see, as you get some incentive from the government also. So on this MOU, which we have signed, we will have some incentive from the government. So, we have clubbed these numbers and we will be getting those incentives on those numbers.

Okay. And, sir, just to come to a very small point, sir, we were in the merge -- at the anvil of the demerger, had been received order, the demerger would have happened had not that date been extended to the next January 23 and now we will be calling back the proceedings. Sir, what actually transpired inside the small span of time that we were able to conclude such an important transaction, sir, over a period of just 2 months? If you could throw some light? And also, sir, is the current soda ash prices, the realizations -- improved realizations and the factors that are contributing -- that are giving you the direction that the prices are going to remain at these levels, gave us some more impetus to exit this segment and grow the soda ash faster than what it would have happened had the prices remained at March levels. So are these things connected, if you could give some more color?

No, it is not connected, Saket-Ji, it is not absolutely not connected. These 2 businesses are somewhat completely different. And this is no where connected. Our decision has not been based on since the soda ash is doing good, and therefore, we should disinvest, no. Because we don't take a short-term view on any of the business. You know in the soda ash business consistently we have been performing very good. Yes. Currently the market scenario is very bullish. We are expanding our margins and we continue to believe that in next 1.5 year to 2 years' time, the margin should be much better than what it had been in the past, but that has no relationship with the exit of this decision. Now, coming back, as you rightly said, on the midst of demerger, we got -- see, honestly, we got this opportunity in few months back, not it is that it's not happened in 1 month or 2 months. It has taken a quite a bit of time. We were debating and we were discussing, lot of finer points -- you know that lot of finer points has to be debated, negotiated and this has taken a significant amount of time. We were in the midst of that and the moment this has got finalized, so instead of doing the demerger and waiting for this transition to wait another 6 months' time, we thought it is always beneficial for my stakeholders to complete this transaction and do the demerger in another 6 months' time. That's always better, then you go with the -- otherwise, what you do is, all the transaction you first take it to the new company, do all those changes and then, again, [Technical Difficulty] don't do that.

Yes, sir. I got your point, sir. And what is the cost of setting up this 1,000 spindles today? If we take the enterprise value of the Spinning business on a replacement basis, the current 2 lakh spindles with the modernized facility, what should be the replacement cost?

See, it depends on what kind of machine configuration you do, what kind of a thread count, is it a coarser count, is it a finer count?

For us, sir, what it is?

Broadly, if you can say -- I would say, roughly my understanding is, it should not be less than INR 40,000 to INR 50,000 per spindle. So if you take that basis, the valuation of the Spinning business, which is 200,000 and mind it, we have -- along with that we have solar energy, we have wind energy, we have -- so if you look at, it will be not less [Technical Difficulty] the replacement value and maybe INR 1,100 crores. I'm just giving a ballpark number. I've not prepared that number, it could be in the range of around INR 1,100 crores, it should be the numbers because it's green energy itself we must have paid around INR 200 crores all put together. So, all put together something around INR 1,100 crores to INR 1,200 crores should be the kind of a value of -- maybe INR 1,000 to INR 1,200 crores kind of a thing.

And depending on today's mix of yarn, which we are selling, at optimum level what should be the peak revenue for the Spinning capacity on a stand-alone basis?

I've just said, Saket-Ji, that number could be in the range of around INR 800 crores, INR 850 crores of the top line should be kind of a number should be there and the way we are going to journey, maybe this is -- maybe touch around INR 1,000 crores.

And a very small point, sir. Sir, we have always tried to move up the value chain, whether it is from the soda ash, we have the sodium bicarbonate and looking at other product baskets. Even here also I think so, various types of yarns we are looking into. But, sir, currently, if we look at the profile of the Company, we are into the 2 commoditized product only, whether it is on the soda ash one hand and the other side, it is yarn. So what steps are in the anvil or is the management contemplating, so that we can move into that value-added segment, wherein we will have more margin accretive and products going ahead? And lastly, sir, as earlier also in the ties to share this amount with your shareholder, with this demerger proposal again being persuaded the thought for buyback again get delayed since no buyback can happen when the restructuring or demerger is in the anvil. So that get elongated again by a year or 1.5 year maybe, sir. So what is the thought on that, sir?

See, first of all, let's answer the last question first. See, I don't personally believe that this time this demerger will take such a long time, because there is a very valid thought process, one. Earlier, because of the Home Textile, the bankers' support was not as supportive as it is going to be now, because that business is doing -- there are lot of concern about the Home Textile. Now, the business which is getting demerged is a highly profitable business. So, we will not take longer time from getting the bankers approval. Second, of course, the COVID is still there, but COVID has also delayed the process of this thing. So overall, my belief is that, it should not take more than 6 to 8 months of getting the demerger completed and we will be pushing for that timeline. Now, coming back, you said commodity versus -- see, 2 things, Saket-Ji: one, sometime in the anxiety of creating a value-added product, we went to the Home Textile with the same thought. We went -- we are going for a value chain. Our experience has not been good at that. So I think my personal belief is trying to be doing the things which you are good at and you can maybe create a value in the space where you are good at. So that -- do those things, #1. Second, yes, in this space itself, we are creating a branding perspective, like I said in the Spinning. We are creating a benchmark for ourselves that we will be catering to this kind of a customer, this kind of a product basket, where the commodity will have a lesser role to play, means you will have a certain quality standards, certain customers, certain product basket, which is a value-added product. I can sell one product which is a commodity of a 30s count, but instead of that 30s count, I'm making a product which is made out of Australian cotton, same 30s count with Australian cotton that is a value-added product. Then we are adding, like I said, LZ Spinning, we are adding -- we have added TFO, so do those kind of a thing to create a basket. Now, we have come with some of the innovative products into achieving the 40,000, which we are spending -- we are investing, there we are going to produce all the innovative product of the Spinning. So, we are remaining in the Spinning but we will be moving in the value chain in going through the innovative products, that is one. In the Chemical side, 2 things, sodium bicarbonate. Sodium bicarbonate is a value-added product. We're expanding that product basket. And as you know that in the product basket expansion, we are looking at the possibility of some of the opportunity in the specialty chemical or in the API or the bulk chemical. So that is also -- so we are clear in our mind that let's do something which you are good at, creative a value in those things by doing the things differently than the other commodity players are doing. And that will be able to -- you will be able to create a value for your stakeholder, that is what the thought process is.

And lastly, sir, on the soda ash price trend, the way we exited the quarter and the last conversation and currently with the vagaries in the raw material prices now subsiding, does that trend still continues or there is a fall back in the international prices has been the case with other commodities, sir?

It continues the same way, Saket-ji. And like I said, at least for 1 or 2 years I clearly see a good return coming on from that business.

Taking into account our request and addressing those in the proper forum, sir, and all the best, sir. We are there to support the Company in the growth journey and we hope all stakeholders as have been looked -- will be looked going forward also and all the best to the team, sir. May God bless them.

Any other questions?

Due to time constraint, that was the last question. I now hand the conference over to the management for closing comments.

Well, thank you very much to all my stakeholders and my shareholders. I have always been saying that we will do our best in terms of creating a value for my stakeholders in a right spirit, in a right way. Yes, sometimes when you do the things in a good intention and good thing, sometimes you may make mistakes, but that will happen. But overall, our endeavor or the passion of the entire GHCL team is only one thing, how do I create a value for my stakeholders in a longer-term perspective, not from a shorter-term perspective. We feel pride that we have been able to do a reasonable job and we will continue to work hard on that and your support is really encouraging to us in our journey. So thank you for all your support and guidance.

Thank you. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.