Grasim Industries Limited (GRASIM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Business Update Call of Grasim Industries Limited. We have with us today on the call, Mr. Dilip Gaur, Managing Director; Mr. Kalyan Ram, CEO, Global Chemicals and Group Business Head, Fertilizers & Insulators; Mr. Jayant Dua, Chief Executive Officer, Grasim Industries Limited, Chemical Division; and Mr. Ashish Adukia, CFO. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Adukia, CFO. Thank you, and over to you, sir.

Good afternoon, everyone. At the outset, I hope everyone of your family members and friends are safe at home. It's only during these times that both personal and community resilience gets tested. This is also when the resilience of a business gets tested. At Grasim, we've been running many scenarios to evaluate the strength of our businesses. Not only that it can withstand this disruption, but looking beyond, we hope to actually come out stronger than the industry. On this call, we have the benefit of our business leaders to provide you with update on Grasim and the businesses, and to answer your questions. Before I hand over to them, we've identified key focus areas, which I would like to walk you through. Number one, employee safety. We started work from home for all our employees before the lockdown was announced. It has been very efficient and has not posed any hindrance in our work. Government regulators and banks have given us necessary support to work from home. Given that employee safety and government directives, we have shut down some of the plants and some are running at low capacity utilizations. We will have more details from the business leaders. Number two is liquidity. We have treasury of around INR 2,000 crore in December 2019. And we've been able to maintain a similar level of treasury by year-end as well. We're not sharing any specific financials on this call as we are yet to declare our March financials. We can, however, say that our liquidity position is very strong, both with treasury as well as credit lines available in order to meet and overcome the situation and look beyond. Third is CapEx on standby. As of today, we've put our large CapEx plans on hold. We are closely monitoring the situation. This is not to say that we are withdrawing all our CapEx, but we will take decision on these CapEx based on the lockdown situation as well as the demand outlook. Fourth and the last area -- focus area is cost management. We are closely monitoring our costs, and we are looking at different scenarios of lockdown to monitor our costs. And we will evaluate ways to optimize them if required. I'd now like to hand over the call to Dilip to provide us inputs and updates. Kalyan and Jayant will follow Dilip. I'd like to highlight that we cannot discuss any large numbers or any company-specific outlook or guidance. We'll upload this call on our website so that it is easily available to everyone. So over to you, Dilip.

Thank you, Ashish, and a good afternoon to everybody. I'll give you a brief update on the VSF operations before passing on to Kalyan and Jayant. As we all know, the situation world over is highly uncertain and very unpredictable. Therefore, it is extremely hazardous to make any guesses at this stage. So what we have done is we have maintained multiple recovery scenarios and developed the business continuity plan whilst -- by stress testing our business against these scenarios. The key element of our BCP is sustaining healthy liquidity, which as Ashish spoke about, extreme focus on cash and reduction in fixed costs. Our fourth dimension, very important for our BCP is the supply chain readiness. Because we have ensured that there is adequate material available in the pipeline so that whenever customers start, they don't stop for the material. We also have got permission to run 3 out of our 4 factories from the government because we are a continuous process industry and we do make priority item products. One of the factory is already running. So what we have planned out is that moment the end consumer starts, within 3 to 4 days, all my businesses will go up on stream. And therefore, we can ensure a vertical startup when the demand resumes. We have also made sure that there's adequate raw material available, we have enough stocks, enough input material. And because most of our factories are in our townships, where people live in the premises. It won't be very difficult for us to get the workers, which is going to a big problem on the start-up. So what we have done is we have also built up plans to run the factories with flexible team of what we call skeleton team because availability of workmen may have to be constrained because of the social distancing norms. What we all have done on each of our factories, we have put up very strong SOPs and controls to ensure hygiene and social distancing, things like very strict gate control. Everybody who enters the factory, including outsiders, own employees, we will monitor their temperature, there is health check done by the doctor. We are -- even things like trucks, when they come in, the drivers are not allowed to enter. We have got special drivers who ferries from the gate to the plant. The drivers leave their truck outside. We sanitize their trucks and then bring them inside. So we have built up hygiene tunnels. We have got dedicated buses to get some of our employers who come from outside. And we have done 1/3 seating, so a lot of spacing is done in the buses. And there are a lot of -- some actions we have taken. So far, with God's blessing, there have been no cases at all anywhere in our units or townships. In terms of market, I think, globally, all the textile consuming and production centers are in a lockdown stage. The biggest consumers are EU and U.S. You know what is happening there. The biggest production centers are Turkey, Bangladesh, Pakistan, Indonesia, again, similar situation. So as we speak, there is no pull from the market right now. So I can revise once the lockdown gets over. Things have started. We have started opening lot of the stores, et cetera, so I think as the demand picks up -- as the stores open, the demand will pick up because fiber is a derived demand. Supply chain wise, as I told you, we should be up and running very fast for the domestic market as well as global markets. And China supply chain also is now all -- is fully ready. So I don't think supply is an issue once the demand strengthens. I think with this background, I'll pass on to Kalyan to talk about chemicals.

Thanks, Dilip. Good afternoon to you all. Keeping in context, the current situation, COVID situation and lockdown, one of the strengths of Grasim is that its products have significantly diverse range of industries and end user segments. If you see, the product that we produce of various chemicals, fertilizers and insulators, we actually supply into food industry, our phosphoric acid going into edible oil, sugar refining, jaggery, cheese. We supply into water industry, everything around disinfection and hygiene, essential household items. We supply into industrial -- continuous process industries, be it oil and gas, et cetera. We supply into pharmaceuticals. For example, some of the essential ones like [indiscernible] some of our products need to go there. We supply into agriculture, agri products, and also we supply raw materials into agrochemicals. And our own fertilizer plant supplies urea. So hence, our 13 manufacturing plants that we have are in various phases of start-ups. In fact, a couple of plants have not shutdown at all. If you think of urea, which is an essential commodity, the urea plant as well as our supplies, agri solutions to farmers, they have continued without any disturbance. We have 1 or 2 plants, which have been running continuously since the lockdown. And we have several plants that have been running at a lower level. And all the plants so far have received permission, it's a question of starting up in the next few days. So what have we done in the last 2 to 3 weeks? Some of it will be repetition of what Ashish and Dilip talked about, is we're really focused on ensuring our safety and health processes and systems are upgraded to the new reality. I think the new reality is, without question, anyone who is entering anywhere, we had to practice a very, very different kind of approach. And we are establishing that, and we have pretty close to being ready for -- ready with that. Second is people's well-being. It's about migrant workers, it's about drivers, it's about any other starting visitors as well as our own staff and colonies. We have also practiced running these plants at different levels from anywhere between 50%, 20%, all the way to 100% of running of these capacities. And we have also tested and we struggled, but at the same time, tested supply chains. From initial first, we're having struggles. Later on now, we have products that are moving. Of course, we had to look at our line of sight of our customers and customers' customers. It's not enough if we have the product and we produce, it is about our customers and customers' customers. So we've been actively helping them to -- on the advocacy front as well as agros, we, being the leader, we've been going back to the government to talk about what we can offer and how we can help. So -- and then, of course, Ashish spoke about, focus is -- significant cost reduction focus is there. And automatically, some of them have been stopped, but several others we've been spending a lot of time on focus. So we feel we have a very strong business continuity plan as of now because of the scenario tests that we have done. And we believe even if there are some more unpredictable changes thrown at us, given we have a global understanding of how our other plants across Southeast Asia, Europe and U.S. have run. We had some best practices learning because majority of these locations have already been running manufacturing plants under a significant amount of virus threat. So we also learned, and then we still believe we have prepared ourselves well for these changes. We are hoping for a lot more production to start in the coming days. Let me pause there. I'll now hand over to Jayant. Jayant? Jayant, are you on mute?

Sorry. Thanks, Kalyan. Afternoon, everybody. So I just wanted to give a little brief before we get into some details. One is that, potentially if you look at the chlor alkali industry is like a tandem industry, if you don't balance your cost pick in your chlorine, it's very difficult to run the plant steadily. So I think over the last couple of weeks, that is the job which we have done fairly well. We've got a couple of our plants running already at 30%, 40%, right from day 1. We've got permissions to run all the other plants. And as and when the demand balances and we see an -- the site of chlorine and phosphate moving out together to run that plant safely and successfully, that's what the plan is to start manufacturing these products. From a customer perspective, aluminum never stopped, the refineries never stopped, steel came back, local municipal corporation that is buying chlorine, disinfection has been doing pretty well. So there is a fairly large demand over it. And we've been able to cater to largely all the demand with the plants which are running at this point of time. Net-net, I think what we have seen is that there is a steady improvement in supply chain. We are also now getting a lot more fleers from the market as other product -- other plants are opening up in the facility. I think today -- yesterday's -- the note which came out today from MHA also has given how much larger direction and clarity. While coming to steady state and operations, I think will take some time and we'll evolve as we go along. But we expect that at least all our plants would be up and running by the end of this month. So with that, I think, Ashish, I would stop it. I would hand it back to you guys.

Sure. We can now, I guess, open up to questions. So I will hand over back to the operator to just to handle the queue that's set here.

[Operator Instructions] The first question is from the line of Gunjan Prithyani from JPMorgan.

I essentially had one question on the CapEx front. You did mention that we are relooking at it. Can you give us some sense on what kind of CapEx cuts can come through? What is -- at very early stages and can be put on hold? So that we have a fair assessment of what kind of outflow we see for CapEx in this environment? I mean I appreciate it's very early stage, but if you can give us some sense where it can be -- where the deferment is possible?

Yes. Sure. So Gunjan, let me start, and I will request Dilip and Kalyan, Jayant to pitch in if required. In CapEx, if you recall, we had around INR 3,200 crores kind of a number for full FY '20 and then we had budgeted it as per the last presentation for FY '20 was about INR 3,880 crores. Now -- right now, looking at the situation, both because of lockdown, because you can't mobilize workers, et cetera, as well as just to take care of the liquidity position in this situation, we have put all the CapEx substantially on hold. So the outflow that you will see during the lockout is not going to be anything meaningful. There can be some CapEx creditors that have been pending, which may need to get paid off in April or May. But other than that, we will not see any meaningful number coming out of CapEx in this -- during the lockdown. I can't say when we'll restart because we're constantly monitoring the situation there.

So let me maybe put it in this way that if you can share what is the maintenance or essential CapEx that needs to be done that, I mean, post lockout or lockdown is lifted also? I mean clearly demand will take time to come back, particularly, the VSF side, I think, it will take its own course. So from that perspective, I just wanted to gauge what is the essential CapEx, maintenance CapEx that will need to be spent in F '21?

Let me do one thing. Right now, we had prepared already broadly our planning and budgeting where we take both maintenance as well as the capacity enhancing CapEx plans, et cetera, for FY '21. Now that plan has obviously turned upside down, and we have to relook at the plan. So I think we'll be in better position to give you the numbers and possibly, if we are ready by the time we announce our March results on what the CapEx number for the year would be, I think it will be a better conversation to have rather than having it now where I give some guidance on maintenance CapEx, and it turns out that by the time we come out of the situation and when we give you the real numbers for FY '21, that won't be different.

Okay. And this liquidity number which you pointed out to INR 2,000 crore, this is the cash and the liquid investments with you. But from what I recollect, there is debt -- net debt on the balance sheet, right? So post the CapEx and the Idea funding that we did?

Yes. So the debt number that was there in December that we gave was -- gross debt number was INR 4,856 crores, right? And the net debt was INR 2,585 crores, okay? What I can tell you is that in this quarter, by the end of the year, the situation is not meaningfully different than what you saw in December, both from gross debt and the liquidity position.

And last question on the multiple subset we have within Grasim's hold. Every subsidiary is, of course, going through a pretty difficult situation at the moment. Is it fair to say that at the moment -- I mean, how should I look at it as far as the capital call from the underlying subco? I mean I'm not just talking about Idea here, I'm talking about all the subsidiaries. Is there a case that we can see Grasim as being called upon to fund some of these subsidiaries? Or any adjustment, any number that you have in mind?

Yes. Yes, sure. So I'll give you -- UltraTech doesn't clearly need any funds. So they are self-sufficient, okay? The Aditya Birla Capital has already raised funds and their Advent fund had come after the approval. So they've just received the Advent fund. So there is no call that we expect from them on Grasim for equity or for debt or anything of that sort. And Aditya Birla Renewable, which is our solar business, the equity infusion out there is generally of small amounts because they do the typical renewable projects with high leverage, et cetera. And business has not disrupted because of this whole situation. So there's no call that has come, but I'm just saying that, if at all there is a call that may come, that could come from solar equity infusion but that's small numbers.

Okay. So NBFC also you don't anticipate at this point a big?

No. No. We don't anticipate anything infusion.

The next question is from the line of Bhavin Chheda from Enam Holdings.

Thanks for the update on the overall operations. We appreciate that. So just a continuation of the earlier question, but in much more detail. Just to summarize, as you said, that we surely will be looking to calibrate CapEx because where the demand situation is, there is an opportunity to do CapEx in a staggered manner, so you would be saving a quite amount of liquidity. And you also mentioned that the Aditya Birla Capital doesn't require infusion, so that looks to be a big positive. So just on the capital allocation, because since the valuations of the company have crashed and corrected to a big extent, and if I look at your numbers, which are at historic lows, like it's quoting at historic price below replacement cost, 60% to 70% holding company discount to the overall investment in subsidiaries. So as an investor, we see the buyback as the best option to use your current liquidity and capital rather than any other investment and that has been the case. I think the investors have been demanding in many of the calls. So what's the view of the Board? Because, obviously, this opportunity may not stay very long. So what's the view of the Board on that or the management on that?

See, I think today, it is our liquidity strength that gives us confidence to actually weather the storm, right? I think buyback is probably more topical at the time when there is no visible large requirements towards any outflow from the company. Right now, we are in a situation that we don't know. There's a lot of uncertainty. We don't know how long this situation will continue, what will be the demand outlook. So therefore, it's probably prudent to retain liquidity for the sake of the businesses and company.

Yes. But the VSF has always been a cash cow business. And I think from the operational business, you will keep deploying capital in various businesses. And whichever businesses generate the largest ROC, that should get the capital. And as situation stands today, the Grasim share looks to be giving the maximum ROC for all stakeholders. So wouldn't the enabling resolution would help the case? And we are AAA-rated company, so I don't think so liquidity can be a issue for Birla Group and Grasim. So any thought process you can throw on that? And the other thing on the Vodafone thing, you mentioned that the Aditya Birla Capital doesn't look to be in need of funds as of now, though the situation in NBFC is very precarious. If on the Vodafone, if you can give some clarity what can be the requirement of funds? Or if you have calculated that for next couple of years, their balance sheet should also be self-funding?

Yes. So -- see, on VIL, situation has not really changed, okay? And my response to that is same as what I had mentioned earlier that there is absolutely no call that's come on Grasim for any funds infusion from VIL. So it's difficult to respond to that question in absence of any proposal from their side. And I think we are aware of the sentiments that has already been presented by you guys on VIL, and the decision will be taken on the basis of those sentiments. So on VIL, there is nothing more and I'm just going to loop on buyback. I think the timing according to us is not right at this moment. I think when we need to make sure that the liquidity is best used on where it is required. I'm sure if we come out of the situation, when we look at our CapEx plan, again, et cetera, if you see that -- yes, we will continue to generate enough cash, then we will certainly take it to the Board and evaluate a buyback proposal.

The next question is from the line of Prateek Kumar from Antique Stockbroking.

Sir, my first question is on your -- this CapEx and the net debt provision you mentioned. So basically till 9 months, we had done around INR 2,000 crore of CapEx, which was mentioned in your presentation. For full year, we had an estimate, as you said, INR 3,200 crore. But plant lockdown happened only like last 10 days. So -- I mean pro rata basis only, we could assume that you could have spent -- you would have spent a lot of pending CapEx like before last 10 days. But you mentioned that net debt position has not materially changed over -- I mean over December. Would that mean that INR 1,200 crore CapEx would not have got spent at all? I mean because we are expected to generate around -- I mean, very rough estimate, like last quarter, you generated around INR 400 crore-odd EBITDA. So -- but you said that net debt provision has not materially changed, but your CapEx requirement ask rate was much higher than quarterly EBITDA run rate.

Sure. Sure. Is that the only question?

I have a couple of more questions. So second question is on fixed cost. So when you say that you are closely monitoring your costs, so like, for example, for overall stand-alone operations of Grasim, like what is the total -- in a normal environment, what is the total fixed cost, let's say, for a month? And how much possibly there is a scope of cutting that in a distress environment like current? And my third question is on, like a subsidiary, like, sir, mentioned about like 12 -- of -- 2 of the 13 plants in chemical segment operating, 1 of the 4 plants in VSF are operating -- is operating. Is UltraTech operating any plants during this like past 20 days?

Okay. So UltraTech, I would just defer that question to -- actually to -- or the management out there to answer that question. I'll pass on that this was the question that came up. Because again, the situation is evolving. So there's a change every day in terms of which plant is running and what capacity utilization and which one is not. On the other 2 questions, I'm happy to respond which is on net debt and fixed cost. So on the fixed cost front, frankly, if you -- fixed cost kind of a discussion is more relevant for companies in distress or those who don't have strong balance sheet. We are focused definitely to look beyond this temporary disruption. This situation, in fact, may provide an opportunity for us to come out stronger than the industry. One has said that we are doing -- we are closely evaluating cost management is when we are running all scenarios, it gives us an opportunity to just relook at things that you don't generally look at and fixed cost is one of them. So when we're looking at fixed cost, it is giving us an opportunity to break it down and to see that where we can make some savings, what are really fixed costs and what are actually semi fixed costs, like, for example, repair and maintenance, which can be classified as fixed cost, can actually be variable in nature because if the plants are not running and in this type of situation, you can't even carry out repairs and maintenance. So there will be some savings there as well. Some of the other admin costs are also of a similar nature. So therefore, my -- point I'm trying to make is that it's less relevant than other cash flow, this initiatives that we are trying to make. But there's a close look at the fixed cost that we are keeping an eye. 12-month numbers, I think you can look at the financials, it will be straightforward. You'll get a number. You'll also notice from our corporate presentations that a substantial part of cost is actually variable, which we have pointed out in our corporate presentation. I think given the sensitivity of these figures, I would not like to share very specific per month numbers. On net debt, again, like I mentioned in the beginning of the call, it's very difficult for us to share details on the numbers given we have not declared our results yet and we have crossed the quarter. So suffice to say that net debt has not changed meaningfully. Like I said, it has gone up slightly from INR 2,585 crores, which was a December number. It's tough for me to give any specific guidance, except to say that it has gone up, but not meaningfully given the EBITDA generation and CapEx. CapEx support continued till the lockdown. So therefore, I can't give a guidance on whether it is proportionate to INR 1,177 crores, which was given as a guidance for quarter 4. But more specific numbers, we'll be able to share with you in May when we disclose the results.

The next question is from the line of Amit Murarka from Motilal Oswal.

So I just also wanted to understand the impact of COVID on the regional trade. So I believe the oversupplying China in VSF was one of the key worries we had. So with this, like, has that changed anywhere? I mean are the plants per se in China, are they up and running now? What is the situation there?

Ashish, you want me to respond?

Yes. No, Dilip, please go ahead.

See the situation is very fluid right now. As you know, the Chinese VSF plant never stopped even when the COVID was at the peak in China also. So VSF is a continuous process in the industry, and they have been running those plants and building up inventory. Post the normalcy in China, the demand hasn't picked up the way it should have. So the yarn capacity is still running at a very low operation rate, less than 40%. So what has happened is because until the consumer markets open, there is not going to be any demand pull. So the Chinese VSF plants are finding it very difficult to sustain the operations. So of late, a lot of stoppages started happening. The OR, which was about 73%, 74% a few days back, has dropped to about 63% year-to-date. They dropped below 60%. So I think it is a very -- it is just an academic as well inventory versus running the plant. And they're realizing that they can't keep building inventory and not sell. So I think we are seeing some closures. But I think it's early days and very difficult to say what will happen. So I think it all depends how fast Europe and U.S. comes back to normal. So Chinese domestic demand also hasn't picked up the way we had expected.

Okay. Sir, a follow-up to that. So -- but do you anticipate that situation to kind of any -- cause further disturbance on VSF then because if demand is not picking up and those plants -- I mean currently, the operating rates are down. But generally, could that create further imbalances in the trade given that VSF prices have corrected a lot very recently?

So the fact that they are shutting the plants after 3, 4 or 5 months of running, meaning they are feeling the financial stress. That's what all I can infer from that. If there are enough financials, then the resumption may not happen until the prices are good. That's what all I can infer from that. But it has happened after a long time that some plants are now talking of closing down fully. Otherwise, they were trying to cut 10%, 5%, 20% here or buying some big players. Most of them are now -- so what I feel is there may be some rebalancing happening, but it will take time. I can't say it will happen in next quarter, but I think the pressure has started creeping in.

Got it. And could you also touch upon, like, how are you handling your associations and partnerships with the yarn makers and who are an important part of the value chain for you, they would also be having working capital stresses and all that.

Yes. So the -- see, the issue in India, right now -- before we started, the demand was -- before the lockdown happened, the demand was very good. So only towards the last 8 -- last 10, 15 days that the European retailers and brands and people started canceling orders, and the fabric side started feeling the pressure. The yarn side still didn't have as much pressure because they had still no inventory buildup in the yarn side of it. So we'll get to know only after the restart. So there was a talk that a lot of -- all brands have kind of canceled the orders, put them on hold. But later on, we had a discussion, and I think a lot of brands are going to honor their commitments. Marks & Spencer, I met them, they've told they're going to honor the commitment. The LBH people are honoring their commitments. So most of the big brands are now going, I think, that whatever they have ordered, they will honor. Maybe Autumn, Winter there could be a reduction in orders. So I think we need to wait. Very difficult to predicate this, what is going to happen. So -- and in terms of -- yes, liquidity is a big issue, but I think the RBI intervention happened last week or 10 days back, they helped us and the MSME to at least take care of the fixed costs, because they've been able to get extra loans which they are using to pay off their workers. And many of them have got their workmen on the premises. So some of them are running their plants despite the lockdown. They have been allowed to run the plant where they have got their workers on the premises. So that's what the reality is on the ground.

And so there has been no working capital, kind of, I mean expansion or anything like that at your end because of the current situation then?

No, no. in our case, you see our terms are -- we don't have -- we sell on LCs and cash, so we do not have an issue like that right now.

Okay. And is the situation same for the chemicals as well on the caustic side?

Situation is very similar on the caustic side, and the majority of our credit is secure, and we don't really see too much of stress in that. The collections are happening on a daily basis.

The next question is from the line of Sanjay Parekh from Nippon India Mutual Fund.

I mean, for both VSF and chemicals, I mean I clearly understand it's a very tough situation. But does that -- in both the businesses, when you do an end-use analysis, what part of our business would be domestic? What part would be global? I mean, I understand the direct and indirect also because your customers' customer could be an end exporter. So -- but broadly, I mean if we were to say that domestic will slowly stabilize globally, it may take time, if that's our view, then how do we understand end-use analysis on both the business -- end-use sector usage of in both the businesses broadly? I mean, domestic and global is what I'm trying to understand.

Sure. Dilip, you want to go first with VSF, and then we can cover chemicals? Selectively, it could be divided into both phosphate, chlorine and VAP, et cetera. So Dilip, why don't you go ahead first and answer the [ first ] part of it?

So if you look at -- I mean, let me see if I understood the question right. If you see the yarn part of it, the bulk of our Grasim -- bulk of the Grasim sales is in the domestic market. So about 80% to 85% is domestic market, only 15% of the yarn gets exported. And a lot of it used to go to places like Iran, et cetera. But as you rightly say, the yarn may be domestic, but some of the downstream fabric or the garment could be exported. Now if you see India, the export and domestic ratio again is initiated. The export is only $30 billion, $35 billion, and rest all is domestic. So domestic market is bigger in India. So what one is seeing is the Indian demand is the right stimulus. And if the Indian supplies start working well, the impact will be less because India is not as impacted by the global as far as China and Vietnam and Bangladesh are. Now the second issue is, in the global market, as you speak, the Autumn, Winter sampling, et cetera, is happening. So it all depends how -- I think the move that the government has done is a good move to start on the 20th and give the time when this sample will be submitted. So if that happens, I think we can hope for a faster demand. So it will depend how the unit's startup is increased and how the global markets open. So I think we will be in a better position to discuss this towards -- any other time when we have our results done.

I understand. Absolutely.

Chemicals, do you want to cover, Jayant?

Yes, of course. If we look at it, we are predominantly domestic and our export is just about 5%, 10% of our total. So that's not very material in terms of overall business plan. Now if you breakup chemical into multiple caustic chlorine and the VAP segments, there are some positive stories on the caustic side that particularly we've seen essential commodities like your aluminium side, your refineries, or power plants, they never stopped at all. So you only -- there is a continuous line, which is going over there. If you look at it from the chlorine side, you've seen pharma -- so the companies which are intermediate to pharma, sanitation, water, all the state bodies which are taking the water sanitation, they continue to pick up chlorine. There was disruption in supply chain for the first week or 2, but things are stabilizing as we move along. When you go to value-added products, where I think your question of ex segmentation actually becomes far more relevant, where we see things like pharma and agro segments coming back up. We see things like disinfectant segments, water treatment coming back up. We -- so these are the positive side. On the other side, we still look at the wires and cables segments and the segments which are dyes and pigments, which continue at this point of time to be slow, and we are awaiting maybe this current circular, which has come out, will show us over the next week, 10 days, what happens over there. So I think our story is mostly domestic, and we are seeing some positive news on certain end products for us. And that's the reason why we're seeing that at least 3, 4 plants of ours are running. The others have got the permission. And as we see demand balancing between chlorine consumption and caustic, we will start getting those plants up soon.

Yes. And just a follow-up question. In both the businesses, I mean, there are imports. And the ideal strategy for any country, in China or any other country would be to pump the products as much as to -- in other markets. I'm sure the government -- I mean these are extraordinary situation where the domestic industry has to be protected. So do you think in these -- such scenario, the government would be aware of the need of protection required so that the domestic industry actually gets insulated for a while? Or it's tough to take a call on this?

I think the point you're making is a very valid point and it is not only for VSF, it's for largely all the Indian industry because China has a huge overcapacity in all industries. And secondly, the Chinese demand, whatever you may say is going to be lower than earlier years. It has been sensitized to the government, we have presented to them, who see it through various industry bodies. And they also acknowledge this. So let's see what they come up with. But the government is very well aware of this. I advised it. Post-COVID recovery will depend upon how you protect the Indian industry. But the China supply chain is up and running. The India will have 2-pronged problem, the demand revival and at the same time getting the supply chain reenergized. So I think Indian industry, in general, will need a handholding by the government in post-COVID scenario. They're aware of it. Let's see what they come back with.

Sure, sure, sure. And can I take the last one, one more? Okay. Just on the currency front, we've depreciated. When you see the relative context to other emerging market countries, how do you think about this currency depreciation? I mean logically, it should help us, but it is a relative term. So what would be your view on that?

See, our Forex exposure per se is that we import pulp, which is a substantial part of the cost of VSF. And in a way, it helps us in realizing better domestic realization because of the landed cost. So -- but overall, if you look at it in our currency terms, we are a net importer because we are selling in the domestic market and importing pulp and some of the other chemicals, et cetera, also that we use. So keeping that in mind, depreciation is something that we have to hedge and we have to cover. But there is some national protection that we get due to the realization based on bank accounts. Both in caustic also, there is already current import happening. In VSF, there is at least a reference price, if not it is for import.

Yes, directionally, it helps the weakening of currency.

Yes. Yes.

The next question is from the line of Navin Sahadeo from Edelweiss.

Hello. Hello, can you hear me?

Yes, Navin.

Yes. Right. My first question was that given the western world is already talking about moving away from their dependence on China, is there some sort of an opportunity that we sense there? Are there any indicative inquiries? Or is there any effort from our side being built? First of all, if at all, if this is in the correct context. If at all, there is an opportunity. And in that same light, our CapEx, which was VSF due in the second half of next fiscal, is there a way then that it can be looked to advance? Or some color around that will really help.

Okay. I think, Dilip, I guess the question really is that, if I've understood, that because world may stiffer VSF or production coming out of other countries, does that present an opportunity to us for exporting? And if that market is large enough, should we look at advancing the CapEx? Is this rephrasing of question correct?

Yes, that's what the question is.

So I can only give my view on this. There is no real one answer to this. The whole world is talking about, yes, they may move away from China after the experience they have gone through. But the fact of life is, moment when they see the right price, people start changing their decision. So for the -- and then, people have very short memories. So it's already happening that wherever China has come back and where the -- and when the prices are good, people have started buying from them. But you are right. To some extent, we have been able to make a dent. Like, we do a business in nonwovens, which again goes into the hygiene and medical applications. And the Europe and U.S. are the big markets for that. And we are there, finding -- there is a preference, not everything else. Everything else remaining same, they would like to buy from us rather than China. That we want to build upon more and more. Second, the incentive what you're talking about is, like Japanese have spoken about this with some concrete idea, but they are talking of Chinese people moving away production from China -- the Japanese guys moving out of China to other countries. So it's about shifting the operation base. That will take time. They won't happen overnight. And U.S. is talking about it, but we're yet to hear what the concrete proposals on the ground are. So my believe is, it's a nascent idea, which will take time to mature. You can't depend upon that in the short term. But yes, we all have to build upon this sentiment. Does that answer your question? I don't know but that's what I could understand.

Then, one, just -- sorry. Hello?

Just to add to what Dilip was saying, this is Kalyan. I think there has been some trends in terms of ventures. We just entered into a venture with a German joint venture in -- with insulators. And that was Germany taking a choice between China and India, and then we were their partner, and we just entered into a few months back. And of course, China, themselves, we've been hearing and we have been also approached in terms of whether any JVs are possible or partnerships are possible with them, but outside China. So equally, China is also looking at making sure that they are not overdependent on their own location, but outside too. So you would see both other countries trying to do it as well as China themselves trying to do it. So there are, as Ashish earlier said, it is about -- if you're in a very strong balance sheet, how do we take advantage or how to be in a better position later will be an opportunity.

My second question was, if you could just help us understand what is the current VSF price globally or, let's say, indicated in China? And is that really relevant in the first place to look at it, given that, as you said, there is a lot of inventory accumulation already and there is shutdown, which is happening. So is it really a relevant price because once things start, is that price in a way be relevant for India? Or how should we look at prices in the current scenario of what we are seeing in China as of now?

Yes, I would tend to agree with you where the price has no relevance right now because this is a fixed price. So every week, there is a price being quoted for -- but in the real life, there's no transaction happening. So issues until the demand pushes up and price has no meaning, even if I -- if you offer 20% less, if I don't need, I won't buy it. So I think what is happening in China is the CCF price is a fixed number being given for the last 3 or 4 weeks. But how much business is happening, we don't know.

And what is that? And what is that recognized request? What is the reference, whatever the price indicative?

For the export, they're indicating $1.25 to $1.3. For the domestic, about $1.2. So it is all kind of price they are talking about. So I think it is -- but the issue is until the demand fixes, the price has no meaning. It is just one-sided indication. There are no big transactions happening in China right now.

The next question is from the line of Kevin Kuriakose from Alphaline.

Sir, can you give us some idea on how much EBITDA realization we can maintain in both VSF and Chemicals?

The EBITDA realization giving -- so it's -- see, I don't know what period you are talking about.

EBITDA per ton?

Yes. So no, like I said, we won't be able to provide any guidance on that. You'll have to wait for the March results, and then you'll have the numbers with you. And of course, March results also will be not at all indicative of June, as you know, because March will be 2.5 months of normal course business.

Next question is from the line of Rohit Nagraj from Sunidhi Securities.

Sir, for the month of April, our chlor alkalic plants have registered -- are at difficult stages of operation, right from maybe 25% to 30%, 40%. Now given that for the entire month the operations will be at lower level, will it result into a permanent loss of production for the entire year? Or it can be recouped in next months or quarters given the demand situation improves?

I think to your point, I think as -- we can't say that -- the situation is so fluid at the moment that what will be the demand position going forward where it's not about getting -- have a very good handle on. But to your point, as demand picks up, do we have the capability to ramp up our production very fast? That capability that we have. Now it will all be a function of how demand comes up in terms of what we can recover or not. But our capability to ramp up very fast to cater to the demand increase.

Okay. And just one question relevant to that. So as you earlier also pointed out that chlorine demand is also a factor for alkali production. So given the current circumstances and realization of chlorine has also [indiscernible] with all this activity. So is it forming a constraint in terms of going in for additional alkali production because we are not able to react the chlorine or the users, customers of chlorine are not able to take it?

I think let's put it into -- both these products run in tandem. So there is -- and interestingly, the end users are opening up at different stages. While there is a segment of the metal side of the steel and the aluminum, which continues to run on the refinery side continues to run on power side, continues to run on the caustic side. Similarly on the water side, sanitation, on chlorine side, it is running. So we are balancing it out. The number of days per which it's been running has been not adequate enough for us to figure out at this point in time which side is leading and which side is lagging. I think as more and more industries open up, that clarity will come to us.

And just industry perspective, are we balancing and running it up?

Clearly, that's the primary objective.

Okay. And just last small clarification. On the logistics front, what is the current situation as per your understanding in terms of the interstate logistics? And how is it smoothening out because consumer is having a dialogue continuously with the governments across different states and the regulatory authorities? That's it from my side.

So I think on logistics front, compared to the first week to now, which is the end of the third week. There is a substantial difference. I think it's improving on a daily base, clearly. But getting older drivers and trucks to do long distance continues to be a challenge. And I think as industry pans out, as it starts smoothing out over the next couple of weeks, we will see that quite a lot of substantial improvement. So it's improving on a daily basis with the direction, I think. Not only on the domestic front, even the container export has slowly started picking up and things are looking positive.

The next question is from the line of Saket Kapoor from Kapoor & Company.

Sir, could you give some indication on how the price trends have been for the caustic soda segments over these 2 weeks? As China market is now opening up, what have been the price trends?

So if you let -- that's what I aim, I'll go back to Dilip's statement. We've not seen any material movement as such yet to arrive at a price. So if I were to look at the published report, the contractual price continues to run the way they are. These spot pricing, actually, there is no price yet because whatever price anybody quotes, there is a contra price which is available. I think it's too early for us to really say what the pricing on a stable environment will be in this particular time. I think in another month or so, we'll have a much better clarity there.

But since we are running our plant and both the products have been reduced, how are realizations factored in? At what prices this realizations?

In terms of -- we're, again, getting into a guidance of pricing which we will not get into. But what is our plant running at? We just said our plants are running at about 20%, 25%, 30% now. And that also, some of the plants are running, some of them are still not opened up. It's not material volume yet for us to really ascertain the real price in the market.

And I think it will be a little bit of a irrelevant data point because we wouldn't want you to base the current situation and the quarter on the basis of some of these price points.

I think you've told that aluminium industry and -- didn't face any shutdown, and we were at a shutdown. So where was their demand meeting up? And how were they sourcing the caustic soda?

Again, that's what I'm saying, the contractual on some of them, they are all long contract sizes, which are continuously going up. But a large portion of our sales is also, which you do on a spot basis, both on solvents then you convert to plates and also on the spot, which happens for smaller customer. Those markets have not opened up to get a complete picture in what you've asked for.

And I think it will take some time. I think another 15, 20 days, a month, you will have much better idea. Maybe when we declare our results, we'll have a much better clarity on this part.

No, I got your point, sir. But the volume offtake from your user industries, which did not face any shutdown, how will we able to manage that? That is supply from an inventory part only, how did we manage to supply to it...

Some of it from hospitality and some of it from the limited operations.

I think one point I just want to share is, we are the only one where we have units of chlor alkali spanning across India. So we are very close to the customers. And we try and then run those plants wherever the demand is, for example, the alumina segment. We have supplied to them. It's just that, that particular unit runs harder and then rest of them don't run because they will be running at much lower because that is for chlorine and other disinfectant products. So we have catered to them. It's not that we didn't. It's just that we are much more spread out, and that's our advantage, too. And we have done that.

So if there are no more questions, should we close the call? Or are there any questions that you would want to take up?

Sorry. We'll take the next question sir, that's from the line of Sanjeev Singh from Emkay Global.

My question is related to VSF prices. So before the issue of COVID-19, it started happening globally. I think even before that, VSF prices have fallen to the range of around $1.35 per kg in China. So in FY '19, if you see, there was a price correction of 30%. If through -- in current scenario, when you expect that global economy will take some time to revive, so what is the long-term outlook on VSF prices? I'm not talking about this quarter. And in terms of our profitability also, if we exclude VFY, I think our EBITDA per kg was INR 12.5 in Q3 FY '20. And in last 10 years, we have reached our bottom budget of INR 9.5. So we are almost closer to the bottom. So if going forward, if we exclude the current quarter, considering current global environment, and last quarter also we had spoken about Chinese plants operating at 74, 75 utilization rate. But even then, they continue to operate when the COVID situation was there. So can you give some sense on long-term price outlook, maybe after this quarter, maybe after 6 months?

Ashish, do you want me to respond?

Yes. Yes, Dilip. I think specific numbers, we can avoid, but directionally we can.

Yes, it's very difficult to give you -- yes, you see the issue is, you must understand the pricing is a function of supply/demand. Now while we spoke about pre-COVID and post-COVID, when the China COVID was at the peak, the prices went up because supply was disrupted. So there was a period when VSF prices registered a significant increase in Q4 as well. So I think we all have to see how the -- this whole OR thing in China shapes up. You can't make a call because if this remains at 50% -- less than 60%, you will have a different pricing scenario. That's the ideal scenario. At less than 60% OR, I think the demand/supply will balance to the normal situation. But at the 60%, 70%, prices will change. So I think it's -- the dynamics are different. And where the bottom comes is where the worst-case players can go down the variable cost. So what happened in FY '19 and there was a huge surplus capacity, the players started selling at near variable cost plus. So that you can know is the bottom below that nobody can work. Then it starts moving up depending upon who falls out first. And I told you last time, there is not 1 China, there are 23 players in China. And the cost from each player varies, the lower to higher is the 20% to 25% range. So what happens, the high-cost player starts falling apart, and that's how the prices go up. So it is a very complex dynamic, it's very difficult to give you a number. But issue is, over the full year, you will see different ranges of prices. So one is supply/demand, and demand is seasonal again. So there are times when the -- like when the spring/summer is there and autumn/winter is there, demand is more, prices will go up again. So you will understand the cycle. When we meet later on, we'll have some little more clarity.

Yes. And there are so many factors out there. And in addition to what Dilip said, I think just coming out of this situation, if there is government stimulus that is provided plus there is government protection that is given on import side, et cetera, that we are actively talking to them about, then possibly you will have a divergence in domestic prices and you'll probably realize better premiums. So we have to yet see how it all pans out.

The next question is from [ Dhruv Sanghvi ] from [ Sanghvi Investments ].

Sir, my question is very normal -- and very normal. If the UltraTech market cap is INR 1,00,000 crore, then Grasim is holding 57%. It's close to INR 57,000 crores. If Grasim is available at INR 56,000 crores. If I'm given a 20 -- 75% discount, it comes to 20 -- INR 15,000 crores, INR 17,000 crores, INR 18,000 crores of the evaluation. If the Grasim is available at INR 20,000 crores, then a company will not come in to the market and buy 10% stake to restore the shareholder's value, other than asking the VIS and China and COVID, which is not in your hand, not in our hand. You could have restore the values of the shareholder to pull the INR 3,000 crores into the equity direct fee a 10% rather than putting them in Idea, which is including every time we have been asking for VIL [Technical Difficulty]

Mr. Sanghvi, your audio is breaking, not very clear.

So I think -- I can -- I have understood the question. I can answer this question in pretty much one line. I think it's an opportunity for shareholders to look at the company and the math that you did, provides an opportunity to all the shareholders.

No, no, sir. My question is very much candid and very much clear. So if you are putting some money into Idea, and it's deteriorating. The shareholders' money is deteriorating. Rather than putting the money into Idea, rather than going to market at 10% stake which is costing INR 3,000 crores, INR 3,500 crores, 10% would be -- restore the value of the shareholders. The stock price is almost 30% from the peak. So rather than asking what the fundamental of single part, coming to the point, where the investor will get return, sir? Because normal investor is always losing their money into the equity market in India. There's still few stocks -- barring few stocks, HDFC Bank or whatever the reason, best management, right? You are looking to be best. So why don't you come into market to buy 10% stake straight away rather than asking to do anything? Please reply, I'm very humble to...

Please again, the voice was not very clear, but I think on -- I heard bits and pieces. VIL bit -- so the math that you did, I just mentioned that it provides an opportunity for shareholders to buy. Second bit on VIL, you mentioned, I think VIL, I don't know why that question is coming up because we -- in the past, we have put money, okay? And we know the history. It was last year, okay? And there is no current proposal. So there is no question of us evaluating a proposal to put money in VIL when there is none, okay? And the third thing, what you're saying about 10%, I didn't really get what are you saying about buying 10% in what?

No, no, I'll tell you. If the Grasim is valuation of INR 30,000 crores, INR 35,000 crores, wherein the INR 15,000 crores, INR 17,000 crores from UltraTech, the company available is INR 20,000 crores as per my understanding. So rather than putting the money into any of the things, go to -- go and buy 10% stake straightway from the market when Sun Pharma or other promoters are doing at this of time. You could restore the shareholders value, sir, because what happens -- so let me complete, sir. All the -- of all the dictations which I heard from various people or various legendary people, they've [ asked for ] fundamental things. I'm asking straightaway, sir, that from P&L side, right? So rather than a -- coming to the balance sheet, I'm coming to P&L side. Sir, so why don't you go and buy 10%? The buy side was -- straightaway go into the bank, INR 3,000 crores, put it in the market and buy the shares. Eventually the stock prices will sustain, it will go up to restore the gain -- thinking about the shareholders, rather than asking some other things. Please throw some light on that thing, sir, would be appreciated.

Yes. Sure. I think this is a similar question to what I think Bhavin had asked earlier on buyback on just buying Grasim share itself. And I responded to that question saying that, in this time, when there is no visibility of when you'll be able to run, as you were running earlier and generate cash to meet the requirements of the business, cost and CapEx, et cetera, I think we would like to take a little bit more prudent view and look at buyback or any of those steps when we know that there is no large requirement of cash that is there in the angle. Some of the companies who are doing that, they may be doing that because they don't -- they had enough cash and they don't possibly see any deployment avenues going forward.

Sir, last question from my side. I'm a too small investor from Gujarat, right from Ahmedabad. So my always thinking is that if you put our money into such a company, right? If the management -- if the price is 30% from 100% -- 100% to 30%, why is the management will not come to restore the gain of the shareholders rather than telling the responsibility of 10% Idea will not put the money, these all are jargons for the investors. Yes, in longer term, it will, it will. I'm not denying that. But do something to the shareholders rather than turning to the -- denying to the shareholders. I'm very hungry, privileged, and I'm requiring some concrete from your side rather than some statement which I heard from the various people in the political side also. Please do something concrete on the shareholder side rather than the make a statement, please?

Sure, sure. We note your comment. Thank you.

Ladies and gentlemen, that will be the last question for today. On behalf of Grasim Industries -- Yes, sorry sir, please continue.

No. That's all right. I just wanted to thank everyone for joining the call. I hope that we come out of this complete disruption soon enough, and we come out safe. We, as group, are actively contributing to PMCare and donating PPE masks, ventilators, to fight this battle. So please stay safe, and we look forward to speaking to you again in May, after we announce our March results.

Thank you.

Thank you. Have a good day.

Thank you.

Thank you, ladies and gentlemen. On behalf of Grasim Industries Limited, that concludes today's call. Thank you all for joining us, and you may now disconnect your line.