GHCL Limited (GHCL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the GHCL Limited Q1 FY '23 Earnings Conference Call. We have with us today, Mr. R.S. Jalan, Managing Director; and Mr. Raman Chopra, CFO and Executive Director of Finance. This conference call may contain forward-looking statements about the company. which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ayush Chaturvedi a towed from Emkay Global Financial Services. Thank you, and over to you, sir.

Good evening, everyone. I hope everyone is doing great. So I would like to welcome the management and thank them for this opportunity. So I shall now hand over to Mr. Jalan for the opening remarks. Over to you, sir. Thanks a lot.

Good afternoon, everyone, and welcome to the GHCL's Earnings Call for the First Quarter ended June 30, 2022. For this call, I'm accompanied by our CFO, Raman, along with Manu and Abhishek. Our results and the analyst presentation has been uploaded on the stock exchange and the company's website. I will share my thoughts on the soda industry. In the first quarter, demand hedge remained good, driven by this glass industry with additional demand coming from the solar glass and Lithium Carbonate user segment. Supply is constrained by several factors such as high energy prices, disruption in the supply of natural gas to EU market and Russian, Ukraine situation. Imports into India remained low compared to last few years. And going forward, we believe that this demand and supply scenarios have continued. No significant capacity addition is coming up in the near future. However, we are watchful of any adverse development such as recession scenario impacting demand or cost inflation, putting pressure on margins. Prices have remained firm, and we have taken price increases, thus observing input -- a higher input costs resulting into better margins. Our focus is on growth initiatives, product market expansion cost leadership, government, digitization, sustainability, different CSM initiatives and HR and leadership. Now coming to the textile business. There is a slowdown in demand from various and the user segment. Prices for both cotton and yarn has started to correct from peak and is expected to further correct in the near future. Outlook for the cotton crop looks good as the indication of increased soy in certain areas. We expect that next few months shall be challenging and the business will again get-- gather positive momentum from FY '23, '24. Moving on a demerger of our textile business. We have received an order from honourable NCLT to conduct the meeting of unsecured creditors as well as the shareholders on 18 August, with this positive development, we shall be one step closer to complete the process by third quarter of this year. In the textile business, we had a fantastic journey in the last 20 years. Our revenue has grown by 15% CAGR to now to INR 1,000 crores, and EBITDA by 31% CAGR, our average EBITDA margin in the last 20 years has been 16%. Our focus going forward is on value-added segment. This will result in a margin expansion by 3% to 4%. We are also focused on green energy for that market expansion and 20% volume growth every 2 years. I will now hand over to Raman. I'll request him to share the financial performance of our company for the first quarter.

Thank you very much, sir. Good evening, everyone, and a very warm welcome to all of you in our earnings call. I'm going to share some financial highlights and segmental performance for the quarter ended 30th June 2022. Revenue for the quarter came in at INR 1,371 crores as compared to INR 699 crore in the corresponding quarter of last year. This is a growth of 96% on a year-on-year basis. On a sequential basis, revenue increased by 7% from INR 1,279 crores in Q4 of FY '22. EBITDA for the quarter stood at INR 429 crores, which has significantly increased by 169% from INR 159 crores in Q1 of FY '22, and by 4% from INR 411 crores in Q4 of FY '22. This represents an EBITDA margin of 31.3% for the current quarter compared to 22.8% in the single quarter of -- corresponding quarter of last year, and 32.1% in Q4 of FY '22. Profit after tax for the quarter stood at INR 339 crores as compared to INR 85 crores in Q1 FY '22 and INR 244 crores in Q4 FY '22. That includes onetime gain of INR 452 crores on account of HT business divestment, which is reported under exceptional items. This list demonstrates a very strong performance across all the financial parameters due to strong momentum in the underlying business. Let me now share the segmental perspective. In the Inorganic Chemicals segment, revenues came in at INR 1,096 crores, this is higher by 108% compared to INR 527 crores in the corresponding quarter of last year and by 10% from Q4 FY '22. EBITDA for the quarter stood at INR 364 crores which translates into an EBITDA margin of 33.2%. This is up by 12% from Q1 of last year and slightly down by 0.5% from Q4 FY '22, mainly due to the impact of trading activities. Our EBITDA per tonne has increased by 13% on a sequential basis. The reason for this strong performance in Soda Ash business is mainly due to price increases undertaken in the last few months. This has adequately covered the increase in energy and other raw material costs. We expect the higher realization to continue in the next quarter as well. Moving on the textile business. Revenue for the current quarter stood at INR 275 crores as compared to INR 172 crores in the corresponding quarter of last year and INR 278 crores in Q4 FY '22. This translates into a growth of 60% on a year-on-year basis and one end is down by 1% on a sequential basis. EBITDA for the quarter stood at INR 65 crores which has increased from INR 48 crores in the same quarter of last year. This translates into an EBITDA margin of 23.5% for the current quarter. The impact of price correction in cotton and yarn will be felt in the coming quarters. For the quarter, we generated a cash flow after tax of INR 407 crores. During the quarter, we have paid a dividend of INR 143 crores and have repaid a debt of INR 213 crores. Hence our gross debt at the end of the quarter stood at has reduced to INR 572 crores as compared to INR 785 crores at the end of FY '22. This represents a net debt-to-equity ratio of 0.16x only. With this, I conclude my remarks and would now request the moderator to open the forum for question and answers.

[Operator Instructions] We have our first question from the line of Rohit Sinha from Sunidhi Securities.

Congratulations sir for a very good set of numbers. So just a few things on the pricing of Soda Ash that how much the overall realization growth was there in this quarter? And going forward, how we are seeing these as you already said that prices are likely to remain firm. However, these prices are largely dependent upon the demand and input price is. So how the input prices are looking as of now with sort of commodity that has started correctly. So do we see any sort of price stability in the overall Soda Ash prices?

Yes Rohit.Overall, if you rightly said, overall, we have taken the price of -- price sale rightly has gone up by around 80%. Even in this quarter also we have taken through price increases. And as per my understanding, these prices has also remained firm, at least for next 2 quarters, are very clear. The prices are going to be very fast. Because globally also, I don't -- I'm not seeing any major supply coming in from any part of the world, and that will create -- that we also keep the prices of Soda Ash firm. Second, it is also very important that even the rupee dollar, as you know, the rupee dollar has also -- dollar has appreciated, but that also will help the prices to remain firm.

Okay, okay. And in terms of demand, I mean, as we are talking about a slow movement across the world and even this kind of inflationary pressure, which we are talking about. So are we seeing any sort of demand contraction in any particular industry as such? Or is it still we are in healthy time?

In terms of the demand, if I can say our global scenario, I'm not seeing any contracts in the demand scenario primarily because this industry or the solar investment and lithium, these are the 2 things which are definitely increasing the demand significantly. That is number one. Second, in India, one of the unique advantage is that -- because of the very global demand in firm, we are not seeing a lot of material coming into India, whereas earlier around 23% of the demand was met from the import -- now that figure has gone down to around 13% approximately. So -- and we don't see in the near future the U.S. or the China in some of the European countries also. We are not seeing a lot of material coming into India, that is number one. Second, as you know, Russia and Ukraine also had, so that the material was coming from Russia and Ukraine also to come to India, that is also soft. So overall, I personally believe that I don't see any major demand coming down as supply is also mostly restricted going forward.

And we'll be able to maintain this kind of margin for at least a few quarters going forward?

I think so.

Great. And just last question on this exceptional item, which again has got from the sales of the business. So I think all adjustments have done from next quarter, I think we don't see -- we won't see any septal numbers, correct? .

Yes.

Or still there would be some amount there. And the final payment of all dealers in there right?

Yes.

We have a next question from the line of Rohit Nagraj from Centrum Broking.

Congrats on a very good set of numbers. Sir, first question is generally how the demand supply dynamics is behaving globally. If you could just let us know because you rightly pointed out that the imports to India have come down, and that has certainly helped us. But how the overall situation across different geographies, how it is behaving currently, that's the reassessment.

First and foremost, I just want to highlight here is a very valid question you have raised. If you look at last month today, if you look at past many years, this is a unique industry where demand and supply has been largely having very balanced because I had a data of the last 15, 20 years. You can see that the demand and supply has almost got hand to hand. So we have not seen a very large supply hours or the demand coming down and because of that there is a latent written situation. The second data which validate this, again, important. If you look at the Soda Ash pricing, in last 15 years, Soda Ash prices has not gone down bar in 1 or 2 years. So in 15 to 17 years, the Soda Ash prices has always been on the upside. That is number two. Number three, the cost Soda Ash margin per tonne has moved very significantly in last 15, 17 years. Year after year, and the margin on the EBITDA margin in this business has been very consistent with ranging between 32%, 35%, 37%. Only the gap between these 2 is around 5% to 7%. And the last, which is not very -- it's also very important is, we have done an analysis that whether the Soda Ash followed the commodity cycle. The Soda Ash does not follow the commodity cycle. We have capture this with the coal or with the metal or the many other commodities, and we have seen there is no correlation between these 2. Even if the raw material prices have gone down, Soda Ash price has not gone down. So in a way, what I'm saying Rhit is that overall, if you look at all these things, I generally say that Soda Ash is not a commodity. It's not -- and it does not correlate with that with any of the commodity or any of the raw materials. Now coming back to your specific question on the demand dynamics. Today, if you look at the U.S., which is approximately around $13 million to $14 million of the production. There almost including -- because there natural market is more on their own market and there is South America, plus some volume that was coming from that to the year, Southeast Asia and Middle East. Now that volume has been almost slightly consistent. The demand in the U.S. has gone up in South America, the demand has gone up very significantly. So therefore, the volume coming into this part of the -- even India used to get around 200,000 tons of Soda Ash from that market. That is not now absolutely 0. Similarly, China, if we look at one of the plants of 1.5 million in stock no new capacity is coming there. And their demand because of the solar investment, the demand has also grown. So their presence also into the other part of the world has also gone down. Europe, again, balanced. So overall, if you look at in Globe, no -- and that's -- if you look at the totality, the India used to get something around 800,000 to 900,000 tons of the volume. Now that figure is not more than 5 to 6 lakh tons. So that way, what I was saying is that -- and we don't see in next 2 years, we don't see any major capacity coming in any part of the world. Nearly 25%, 26%, some volume will be coming in to China, which is a Mongolian plant or some volume may be coming in the U.S. part. But this growth of even 2% in the global scenario will require around 1.2 million tons of extra production required. So we personally believe that next 2 years, we don't see any major this balance in the demand-supply situation. I hope I am able to answer your question.

Yes, this was quite elaborate. Sir, the second question is what is the status update on our project. And generally speaking, for a synthetic greenfield expansion, I think, for us, we have indicated that it will take about 3 years. If somebody want to go for expansion for the natural Soda Ash. What is the time difference for both things?

See, if you look at the natural product, network Soda Ash only possible in some part of the world. Like I said, some parts in the Mongolia, which they are excluding the carries and others, and you have in the U.S. while in Africa one plant is there. If somebody wants to come with a new greenfield, what we call, natural plant, that also will take almost the same time frame, except one, which is the land acquisition. And more particularly, the Indian space, land acquisition still takes a lot of time. So that could be a differentiation between the greenfield and network Soda Ash versus the synthetic Soda Ash. Otherwise, the time change will remain the same. In terms of our lensing project, again, in the same land acquisition we are working on that. But it's still -- we have not come, I would say, we are not being able to close everything on that footprint. So that kind of a hinderance definitely in Indian state is their liking condition. I hope I able to answer that.

we have a next question from the line of Saket Kapur from Kapoor & Company.

Congratulations for a very steady set of numbers. Raman, you mentioned about margins being lower because of trading aspect, could you clarify more on the same, sir?

Yes, yes. Because our inorganic chemicals, we definitely undertake some trading activity on the chemical side and the trading generates for a year almost INR 200 crore of top line. On which usually we make around 2% to 3% margin. These are where we use in our existing, I would say, leverage our existing marketing infrastructure. And last year, Q4, we had almost INR 76 crores of trading volume and almost INR 2.5 crores of profit. This quarter because large volatility, we have a INR 108 crores top line with a breakeven kind of situation. So that has basically impacted the margin to -- on an inorganic chemical, if you look at, there's a slight drop in the margin. But if you look at pure-play in Soda Ash business, the margins even in terms of the percentage also have remained more or less the same, slightly increased during this quarter.

I just wanted to highlight here what Raman has said. If you look at it in terms of the percentage in the same, but if you look at the fulcrum is significantly higher compared to -- I already said in my seat, it has gone up by almost 13%. And the second point, again, as you know that in January, March is a peak quarter for everything. Because being the what you call a winter season, the production is also higher, even your cost of raw material is also on the lower side. So in spite of that, we have been able to maintain our -- we have been able to maintain the percentage margin.

Sir, what has been with the utilization level for the first quarter?

Well, like Raman has already said that 13% of the...

Margin part.

Margin further has gone up. And that is primarily, as I said, primarily because of higher realization. We are compared to last quarter. We have taken almost around 2 price increases, and that has really helped us to increase our EBITDA better.

I was asking for the utilization level, sir, what have been utilization over currency from the first quarter?

As at the peak Saket. We're almost at the peak of the utilization. And the good thing is that first time I would say that in our at least for last many years that in this season, also our utilization has been that is an excellent .

Okay. I think the last time you mentioned was INR 1 lakh per ton record production and the numbers were given by you. So that INR 1 lakh for per month was repeated for any time in this quarter [Foreign Language].

Almost closer to that.

Okay. Sir, coming to the point of now the raw material basket, you spoke and elaborate on how the dynamics of the Soda Ash industry is currently failed. And as per your understanding was that it is a tight market. So -- and coming off with sir, I think the raw material prices, I think about coal and all has been started trending lower. So how is our raw material basket currently share? And do you foresee any incremental increase in volume -- incremental increase in margins on account of softening of the raw material prices going ahead? And also on the Salt integration part, I think, to give you were on the won of some contracts on optics if you were sizing earlier, which was the update that.

Two things, Saket G, on the Salt side, which I mentioned last time also, that process is on. Obviously, the benefit of that, I said in the past fall also. The benefit of that will be seen in the next year because the crop season starts from January, March onwards. So the benefit of that usage of that will be next year. That's number one. Second, in terms of the softening of the raw material prices, if you look at the salt prices, the salt prices is up till now is not softened. But people are expecting that the next crop becomes good probably some softening can happen. And definitely, that we help in overall cost reduction in the salt. However, that also the quality to me will be seen next year only because this year, we have already covered the salt requirement in this region. So I don't see any major benefits coming in. In terms of the other raw material also like Energy and obviously, and we have seen the benefit of that because we have covered on the low prices because generally, we covered all the energy for almost around 5 to 6 months. So any reduction in the energy prices Also, the benefit you will be seeing in the -- almost in the next year. So in summary, what I'm trying to say is, the way I look at it, the margin of this kind of healthy margins should be maintained this year, maybe 1% here and there. Margins should be maintained. And any major impact on the margin may be seen on the positive side maybe next year. But it all depends on how the scenario pans out in the next 9 months.

And what has been the price hike, sir, for the last -- for the first quarter, if you go 25%. And that benefit will flow, I think, in the coming quarter only.

No, we have taken the price increase in some of the contracts, which are on -- yes, some price increase will be there or some realization portions will improve. But accordingly, the cost of raw materials because we have some cheaper raw material. Now we will have a slightly higher cost of raw materials. But probably the margin will range around the same range.

And so as you were talking about the seasonality factor, Q1 being, where the production is also high. So now we are entering the monsoon or we are in the midst of this monsoon quarter. So we could be experiencing some lightening or due to this solar demand being on an uptick. Sir, what kind of Soda Ash volumes are being sold for product manufacturer panel manufacturing for -- from us? How much of our Soda Ash has been catered for this solar panel demand?

So Saket G, from the specific numbers, it will be difficult for me to give you. But I can only tell you that even in the season, except like I said in my initial remarks, except on the detergent side, the demand on the solar panel or on the flat glass or in the bottle glass, they're all very robust. We are not seeing any demand coming down or demand pressure we are not seeing. So roughly -- seasonality, some production could be slightly down for the industry because of the seasonality. Otherwise, demand, there is no issue.

So we can rely on is not on [indiscernible], but we believe we have a sense or believe that these numbers are having core strengths, and these are sustainable. I mean, and these are not one-off creation because of some raw material prices going up and increasing [the rate]. What you see in other businesses that there is fluctuation in the earning. But here, we can expect 1%, 2% here or there. a sustainable set of earnings in organic chemical part something. This is what the inference can be drawn.

Yes. .

Right, sir. And a small point, sir, then I'll come on to come to the queue. Sir, about this capital allocation policy currently sir. As earlier said when we came out with the driven distribution policy of 15% to 20% distribution. At that time sites were also having the own textile business under our pool. And now with the divestment of home textile business contributing in the first quarter. Does it warrant a relook in terms of the incremental cash flow that we are generating currently from our core business, if you [osteonecause] because this sector maybe one of the way in this -- the rerating aspect which is happening currently will get boost. That is my understanding. Depending upon how the capital allocation is going to be going to going to be ahead from now.

At let me tell you we have a very, what we call, clear cut thoughts in our mind about their capital allocation. And one of the beneficiary of the capital allocation is our shareholders. And which you have seen a very consistent distribution of dividend along with the 2 buybacks. You have seen that. And as you know that today, because of the demerger, the buyback is not possible. But we will keep that into mind about that properly distributing the earnings to the shareholders going forward also, either in the form of dividend or in the form of buyback. Second, as you know that for any business, a responsible growth is also very important. And we keep on investing the money into the business to get a better return for the shareholders. And in terms of the debt, as you know, that we have already clearly said. We don't want to be very underlevered also, but we don't want to be overleveraged. So therefore, our capital allocation philosophy 3 reasonable debt equity, we want the shareholders in terms of the buyback of the dividend and put the money into the growth. And that will continue. And as you know, the last 6 years, we have distributed INR 500 crores to our shareholders either in the form of dividend or in the form of a buyback. And this kind of a process will continue going forward also.

We have a next question from the line of Resham Jain from DSP Investment Managers.

Congratulations on a very good set of numbers. So I have 3 questions. The first one is on the greenfield CapEx. You mentioned that some portion of the land acquisition is still going on and may close in some time. So is there any time line in terms of by when you will start the greenfield CapEx actually on the ground had with that?

The two things I just want to highlight, Resham. One, on one side, some of the work on the ground has already started. And this is not for physical activity. One of the pipeline, which is required to see pipeline, the contract has been awarded on that to an agency international agency. And on the other side, on a technical uncertainty, we are evaluating 2 international firms. And I think in the next few weeks, that contract also will get awarded. I think hopefully, by January, we should be in a position to get the environmental clearances where the public hearing is likely to happen by end of September. After that, maybe a few months will be required for getting a final approval from the government. And after that, probably by March 2023, we will be in a position to start the physical activity, am I right, Raman -- my understanding.

Absolutely.

So March 2023 onwards, January to March 2023, we will be in the position to start the activity of the greenfield. And hopefully, still our target is March '25, we should try to complete that. Because the longest duration was is the pipeline, which we have already awarded the contract.

Okay. So the -- from the cash utilization perspective, any CapEx from a cash perspective will happen only in '23 now? Maybe minor deposits or something like that happened.

This will happen '24.

Marginal CapEx will be there on the land acquisition, which we are restrict with the land we are acquiring. When the margin of this year, we have put around INR 20 crores or INR 25 crores, even INR 30 crores. But major CapEx will be only start in going towards from the middle of next year on that advance that also significant. The major significant outgrow will be under subsequent error.

And has there been any change in the CapEx outlay in terms of...

We said that this will be in the vicinity of around INR 3,500 crores. So that is what we believe will be able to completion job.

And one thing I just want to highlight here. One of the things which we are doing probably could be a benchmark for us. We are talking to many of the ports, and we are definitely looking at a much I would say better analogy, different concept because we have engaged some of the consultants, which are one of the best. A lot of thoughts are going on that, how to have that lower emission, how do we have the lower capital cost. But then how do you have a better, what we call, the operating cost. So a lot of costs are going to make because these kind of plants we have built for 100 years. So therefore, all the thoughts of green energy or the low initio the better technology, larger equipment. We are slightly growing--We are slightly going some.

There's some important call, just give us half a minute for that. And Mr. Jalan will be coming back on this.

I am extremely sorry because there was certain very important call, could not avoid the call. Of course, this is relating to the new greenfield project.

Yes, Resham.

So I don't know I was able to answer your question or...

I got it. Sir, another question, this is more on this quarter's number. The home textile amount in terms of the divestment amount, I think it's close to INR 600-odd crores. And you have generated around INR 400-odd crores. So total INR 1,000 crores of cash generation has happened in this quarter. And I think in your presentation, you mentioned INR 535 crores of total cash outflow in terms of dividend, CapEx and working capital. So I was just wondering why your debt is still there because there has been a total INR 1,000 crores kind of cash edition during the quarter. So in your March in debt number was around INR 540-odd crores. So am I missing something here?

Yes. I think Resham, the money of INR 600 crores, which had come from -- into account. But some money has come in the last year and some money is coming this year. So we'll just give you the numbers what exactly will happen this year. Our cash profit is across INR 2,400 crores, okay? And we got roughly around INR 200 crores net after tax, right? Because this INR 407 crores includes that the gain of INR 52 crores, is already built into the INR 400 crores. So over and above the INR 52 crores, we've got around INR 170 crores from, the lndo Count this year. Balance we got last year, okay? And we spent around INR 100 crores on the CapEx. Loan, we have paid INR 200 crores. Working capital, there is a change or there is an increase in the working capital around INR 250 crores. INR 143 crores, we have paid the dividend and INR 28 crores is basically the other -- because primarily what we call, deferred tax provision in a more of an accounting part. So total outflow is around INR 731 crores against INR 580 crores of inflow. We had around INR 240 crores which we got from the lndo Count last year. So that money was lying in the bank so that we are utilized. Still we have around INR 100 crores of what we call net cash into the balance sheet. Now one more thing I just want to highlight clearly. See, one of the things which will happen this is good for the GST ease. Because of the very high raw material prices as well as a very high product prices so that has a better textile. The working capital requirement has significantly gone up in the last 1.5 years because you know that the Soda Ash prices are almost gone up by 80%. And even if you keep an inventory of 30 days -- sorry, 7 days, the working capital requirement have gone up. Similarly, the receivable, similarly, the inventory coal prices have gone up. A lot of working capital requirements has gone up. And we have been able to manage this without increase in the debt. Almost as i can give you the number, almost around INR 600 crores or more than INR 600 crores.

INR 780 crores. now almost INR 800 crores.

INR 800 crores of the working capital requirements has gone up in the last 1.5 years because -- mainly because of the pricing and some inventory volume also because the production had gone up. Even in the [steaming] also [steaming] also because the land prices have gone up, cotton prices from INR 40,000 INR to 100,000. So all those things have created a kind of a big requirement of working at this, we have been able to finance without any single loan on taken some. In spite of that, we have paid around INR 200 crores of debt this quarter itself. The moment that some softness happen in the raw material prices next year, '23, '24. So probably a lot of money will get released from the working capital also. I hope that...

[Operator Instructions] We have our next question from the line of [indiscernible] from [Mileage Consultants]

Congratulation on superb number. But question is on material security. Basically, I just wanted to understand -- basically, you need 3 raw materials salt, limestone and coal. So you have been using Lignite also in your process. My first question in that respect is that what is the percentage of overall coal consumption is by year of Lignite. And remaining is that coking coal or it is something normal coal, which you need. Similarly what percentage of your salt or what percentage of salt you are buying from the market? Of course, lime stone is your own money, so there is no question on that. If you can clarify, it will be thankful to me.

First and foremost, let me address the limestone itself first. We do have -- we have a captive mine, but still 80% of our limestone requirement is met from the imported limestone. So we have exported 80% of our limestone. And because of the quality of these limestone are extra INR 30 crores, and this improves our productivity very significantly. So that's to clarify that we are using imported limestone. That's number one. Now coming to the salt. Salt, last 2 years are -- because of the adverse weather condition, our captive salt production was not very significant. And because of that, all almost around 70% of the consumption we have been using from the purchase salt. However, we have now -- realized that last time in the call, we are a big initiative on the captive salt production. Hopefully, next 2 years, this figure will be growing around 50% will be the purchase salt, and 50% will be the captive salt. This is what the plan we are working out for the next 2 years. The third is on the coal and lignite. We have approximately gone on salad basis. We have approximately been using something around 30% of the lignite. We are using some of the coals in the mix and we are using approximately around 50% of the coal in the overall distribution, which is a steam coal, not a metrological coal. Coal we are using for our skill, which is more like a raw material.

So the salt will be -- you will be able to procure captively or you will have to sort to open market purchases?

Right now like I said -- right now, 80% of our...

Or your expansion.

Okay. Greenfield expansion. Right now, we have applied to the government for an installed lead. If that happens, then it will be 100% captive. But whatever the time takes there till we get that land, then it will be dependent on the purchase salt. However, one advantage in that area will be there because that area has a ample amount of salt production. A lot of new salt lineage been given by the government. So we personally believe it goes to be a competitive advantage for us to secure the salt from the from the purchase also will not have any adverse impact on us.

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

So sir, I just want to know one thing is if you see the EBIT margins seems to have come on, right? So like from quarter-on-quarter, it was 33.9% now 62.3%. So I do want to know either these 2 rate hikes that you have taken had it comments in quarter 1? Or would some of that rate hike will come up in this quarter 2?

No. If you look at in terms of the EBIT margin in inorganic chemicals, it has gone down from 31.6% to 31.2%, which Raman has already explained, this is primarily because of the trading activity because the trading activity last year had some margins and the volume was less. This year, the volume is higher and there the margin is only 2% to 3%. Because of this, in terms of the inorganic purchase, Soda Ash margin is slightly higher as compared to last quarter.

Okay. So -- but the prices hike were taken are already taken into effect on quarter 1, right? There is no fresh price hike that has been taken in quarter 2, right?

In the first quarter, we have taken a price increase. The second quarter has just started only 1 month at par. We don't know whether there's any correction of the price up start. We don't know right now.

Okay. Sir, but in general, to understand this business as a whole, as in the Soda Ash business, are we -- you've been seeing continuously that historically as well, there is not much different than the supply and demand, et cetera, and we have not moved according to the rental bulk chemical commodity types. Are we at a point where if we say take further price hike at that new price level the demand would go down to the profit. Are we at that question today? I just want to now because historically, it has been very close net. So I just wonder now today the price is at a very high level. So are we at a point where if you take 2 more price hike at that higher elevated price the demand would go down.

See, I possibly believe that the demand did not go down, maybe in the detergent a little bit because of the consumers will not be able to afford that because in the powder. But overall, in other segment now, how what will happen is because ultimately, there are competition also in the business. So if we increase the price and the competition start selling more or the [missile] coming from imports. Tomorrow if the [missile] go for the unreasonable price, the import volumes can go up and that can jeopardize your interest. So therefore, obviously, you have to take the price taking into account the global scenario as well as the domestic scenario.

Okay. Okay. Just one more question on my side, sir. On the textile division side, what is -- at this position, what inventory levels are we sitting at? Because I'm presuming these inventories are high-cost inventories, considering there has been a significant reduction in cost in last few weeks. And when by when, so we might see some margin pressure in quarter 2 or quarter 3. So by when this high cost inventory, do you think we'll get rid of? Will get -- with sale of our -- in such a way that we might see again good margin levels. So if you could give me a time line -- general time line and making understand.

So first and foremost, good news is that we don't have a large inventory of Yarn, where we can have a kind of a pressure on that margin. Similarly on the cotton side, our inventory at this point of time is even cheaper than the current price of the cotton. And we possibly believe this will not have any impact on the margin because it's a high inventory of raw material or the goods. However, going forward, if the yarn prices goes down and the cotton prices enter the yarn prices. So there could be margin pressure could be there, but there's a business cycle. But good part is that we are running the plant 100%. And because of our product at our product market or the high quality of the premium product, we are not seeing any major impact on our sales side and we are running the plant full.

We have our next question from the line of Resham Jain from DSP Investment Managers.

Yes. Sir, just one question. On the capacities which you have as of today. So on Soda Ash, I think you mentioned that there has been some debottlenecking, which is happening. So you may get some capacity available to you during the year. And on sodium bicarb also, there has been some increase in capacity. So if you can just explain this INR 1 lakh per ton. Is there any scope for it to improve until the greenfield plant comes in and also on the sodium bicarbonate.

See, listen in terms of the Soda Ash, we don't see any major capacity expense or the volume expense will happen. Of course, seasonality will make some difference. But on the sodium bicarbonate, as you are right, we are doubling the capacity. That will happen by sensitively by November-December kind of a scenario. So maybe in the last quarter of this year, probably some advantage we see but full advantage of that will also happen next year. But that will be significant. And one good thing also, I will talk about here -- the NTPC trial on the sodium bicarbonate has been going very well. We started after the cover. And hopefully, that will expand into the media demand next year. Even on the Soda Ash also, yes, you know that a lot of people are going for a massive solar investment because of the high green hydrogen. That will also help to have a significant growth into the Soda Ash demand going forward.

Do we have sort of extra land in the same location for increasing sodium bicarb capacity? Or we are now full at the existing plant? .

No. Like you said, the 1 existing plant which we are doing currently, that state is there already. And this plan does not require too much of land. And therefore, even if we have to suppose tomorrow, we have to increase by another 30%, 40%, we can do the same location. Even frankly speaking, we are looking at the old plant, how to look at the plan to increase the production in that plant itself. So overall, how do we increase the overall capacity of the plant and the current locations.

We have a next question from the line of Rohit Nagraj from Centrum Broking.

Sir, just 1 clarification. What was the price by end of Soda Ash price by end of June?

Soda Ash pricing will be difficult to -- because being a competition data, it shouldn't be difficult for us. We are in the range of the increase which has happened. And probably offline, if you want, we can give you seperate data.

Right. right No, sir. Sir, and Soda Ash current capacity is 11.5 lakh tons. That is correct, right?

In terms of capacity, if you can say that -- I would say that we have approximately around 11 lakh tons, and we are running at almost at the full.

Because I understand we had the 50,000 debottlenecking underway and are rather supposed to get commissioned.

That is already commissioned, and that's the reason you are seeing that even if I see the subsidiary is around INR 12 lakhs, and we are using 95% of the figure will be coming to the same range. We are almost at 100%. But that is because of that impact the debottlenecking which we have done. .

We have a next question from the line of Saket Kapoor from Kapoor Company.

Sir, for the increase in capacity of the sodium bicarbonate, what would be the annual increase in revenue for the next financial year?

Almost, you can say, if I take the current pricing around INR 30,000 multiplied that approximately around INR 50,000, just do the calculation -- 30,000 tonnes -- sorry, 50,000 tonnes multiple by 30,000. Approximately INR 150 crores. .

Yes, yes. INR 150 crores, sir. Okay. Now another point was that we had an enabling resolution. We were trying for some, I think, so INR 100 crores funding to some new instruments. So any update on the same? How are we going ahead of everything?

No. At this point of time, we don't have any plan to it. That was more of an energy provision, whenever we see an opportunity at the appropriate time, we will raise that. Otherwise at this point of time, no plan.

Sir. And sir, about this -- you have articulated that the downtrend with the yarn industry is currently experiencing we are somewhat insulated from the same because of our product mix. This is a good confusion we can draw from.

So Saket G, two things I just want to tell you. I think in my call 6 months back itself I have said that the yarn trend looks to be on the downward side, and which is happen. Okay. That is number one. So at this point of time in any business, you can't say that you're completely ice -- you're protected from the industry business. But the impact on that will be much better like some of the competition large competition, the top some of the machine. But in our case, we are only at full, 99% a ton. Second, we are not having a large inventory of the yarn. So these are -- but if the yarn prices have gone down in the market, that proximately that will have an impact on the this. But Like I said, say, you must understand. Like I'm saying, Sodah, I don't see too much of cyclicality of the volatility in the prices or in the margin also. Where in, if you look at the longer term, that I have given you the data, last 20 years, my average EBITDA margin on the [steaming], which is a benchmark probably, I would call of 16%, which includes the number which -- where they are on a commodity cycle. Now in the last few years, we have moved from a commodity to that on the premium segment, and that will give us around 3% to 4% better margin over 16%. However, that will be slightly on a medium-term basis. Quarter-by-quarter, you can't compare this industry.

Yes, Absolutely right, sir. In your presentation, you did mention about the situation for Soda Ash to be very difficult operation for Europe because of the gas availability. Sir, if you could articulate to us how is the Soda Ash industry currently in Europe? And how is that affecting the total the environment there because of the gas nonavailability what has gone wrong for the Soda Ash solution in Europe?

See, as of now, I don't see any major disruption on the supply side. In the production side, I don't see that. Because still they are getting the energy from either from Russia or some other country. But going forward, probably, there could be a challenge. However, they have been able to pass on this energy high cost to the consumer by way of a energy surcharge. I personally believe there will be not too much of disturbance into their supply going forward also. But who knows, I don't know, how the scenario of Ukraine and Russia war is going to be.

So thank you for all the elaborate answer and looking forward for the sustainability in the numbers that had facility and predictability as has been the case for us is being guided by you and the management team and all the best in looking forward for more future interactions.

We have a next question from the line of Vikas Kasturi from Focus Capital.

I had a question. So do we use coal in the manufacturing of Soda Ash. Is it used in any proportion at all, sir?

Yes. Vikas G, I just said in the earlier question, that we are using for the energy under steam of power and steel, we are using coal along with an Lignite as well as some [petro chemials] also. And approximately around 50% of the usage is in the form of coal and the balance 50% is Lignite and just coal.

Sir, the reason I was asking is I just read a report where Europe is banning Russian coal. And therefore, they are going to import coal from other parts of the world like Australia and so on. So therefore, the price of coal is going to go up. And so are you seeing any such thing in your business?

Yes. Regarding the like [licenses] Russian coal is much cheaper as compared to the other part of the world, and more particularly the high quality of the coal which we are buying definitely, there's an upside on that goal. But somewhere, my personal belief is that next months, the prices of the coal would get stabilized or maybe slightly going on the lower side. This is what my ability because China and India also has started a big amount of coal importing from Russia. So that will also make an impact on the overall demand from the other parts of the world. So definitely, that will soften the price of the coal.

Thank you. As there are no further questions, I would now like to hand the conference over to the management team. Over to you, sir.

Thank you very much. Thank you very much to empty Global as well as the CP and with all the participants and the questions. I always say that your questions, your thought provoking questions definitely help us to -- and our endeavor is always going to be created value for our stakeholders. That is the reason the GHCL had. And which you have seen over the period of the last 7, 8 years. We have been able to build that in our performance, and we'll continue to do that going forward as well. Thank you, everyone.

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