Grasim Industries Limited (GRASIM) Earnings Call Transcript & Summary

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[Audio Gap] supported by widening distribution network, rising [Technical Difficulty] deeper influencer engagement and manufacturing footprint built for scale. We took a cost shock on the chin this quarter and continue to invest because we are not optimizing for one quarter, building Birla Opus into a INR 10,000 crore brand by FY '28, and every leading indicator tells us we are firmly on that path. Now let me turn Birla our B2B e-commerce business [Technical Difficulty] and I think is most underappreciated story in this portfolio The revenue for this quarter grew 75% year-on-year to INR 2,548 crores. Our annualized run rate continue to trend above INR 10,000 crores. Let me put that into perspective. This is a business we started from nothing and now [indiscernible] a 5-figure to annualized run rate. Very few businesses in India have traveled the is in such short term. You will see revenue grow frequently on a quarter-on-quarter basis. And I would rather explain it then have you permit. Three things happened. We were starting at a high -- the middle age prices acted real volatility into commodity markets. And in our customers exactly were -- government the volatile market. They bought measure rate and optimize their inventory. That is demand timing effects not [Technical Difficulty] We saw no deterioration health of the platform -- transaction capping the quarter. Beyond revenue, what the quarter actually tells us that the underlying platform, what we have is strengthening on every measure we track. Our revenue mix is getting better, not just because. We have added high potential across our 3 broad categories: building materials, -- and chemicals. And we continue to deepen those categories rather than across new ones -- that is what builds the pencil platform, is only just will get up. Private label more than doubled year-on-year. That is off a low base, and I want to be honest about that. But private label is the margin level in any marketplace and the direction of travel matters more right now than the absolute number. Consumer traction remains strong throughout improving transaction counts, sustained by addition and robust reveal purchasing from existing buyers. In the metrics, it was most closely because it is the one buyer cannot be persuaded into. They come back because the platform works and the new buyers are well diversified across infrastructure, construction, manufacturing and industrial segment, expanding both -- in the price. We are not concentrated on any single end market. It is worth stepping back to members and this business actually does India B2B trade category that is on phone calls... [Technical Difficulty]

I am sorry, sir, we are not able to hear you. Ladies and gentlemen, thank you for patiently holding. We have management connected now. Over to the management.

Our apologies for the telecom trouble. I don't know where we lost all of you, but I'm going to continue from the paragraph where we talked about private labels. private labels more than doubled year-on-year, that is off a low base, and I want to be honest about that, but private label is a margin lever in any marketplace, and the direction of travel matters more right now than the actual number. Consumer traction remains strong through -- throughout improving transaction counts, sustained new buyer additions and robust repeat porting from existing buyers. Repeat purchase in a metric we watch most closely because it is one a buyer cannot be -- They come back because the platform works, and the new buyers are well across infrastructure, construction, manufacturing and industrial segments spanning both large and midsized enterprises. We are not concentrated on any single end market. It is worth stepping back to remember what this business actually does. Indian B2B trade in these categories such as strictly done on a phone call relationship and paper. OpEx adding slow payments and uncertain deliveries, replacing that with an integrated digital platform. For the buyer, that means the ability to source quality products compare prices transparently, excess working capital, track deliveries in real time and manage the whole procurement process in one place. For a seller, it means growing sales, improving operational efficiency, accelerated cash flows and reaching markets they would never have serviced on their own. Both sites get something they genuinely could not get before. That is why this platform is compounding every satisfied buyers bring sellers, every good seller bring buyers. Underneath the marketplace, we built a robust digital financing ecosystem, expanding working capital and creative solutions for both buyers and sellers through strategic partnerships with leading financial institutions. This is the piece I will encourage you to very most heavily. In B2B trade, credit is the real constraint, not catalog, while solving for working capital alongside the transactions we make us difficult to it. Talking about profitability in this business, our position is unchanged, and I'm confident it's higher. We are not chasing breakeven by shrinking. We are leasing it by skinning into a cost base we have already built. Birla remains on track to achieve EBITDA breakeven by exit of FY '27. Now I hand over the call to our CFO, Mr. Hemant, for his remarks on company's financial performance and remaining businesses. Over to you, Hemant.

Thank you, Mr. Himanshu, and good evening, everyone on the call. Let me turn now to cellulosic fibers. And I want to start with why this business matters more today than it have ever. Cotton is running into hard limits, land is finite, water is scare and yield surplateaued. That constraint has opened up what we call the cellulosic gap, a structural shortfall. The world has to fill with something, and cellulosic fiber is the natural answer. It is biodegradable, it is environmentally friendly, and it is one of the most sustainable fiber in the basket. On the demand side, our Liva brand is pulling the entire textile value chain towards cellulosic. On the supply side, our lyocell expansion is progressing as per plan. The earlier announced INR 1,350 crores Phase 1 project of 55,000 per ton per annum is completing its detailed engineering and civil work is progressing as per plan. The recently approved INR 3,094 crores Phase 2 project of 110,000 TPA is moving through environmental clearance. Now the operating environment. China remains the string factor for this industry, and the signals there are respective. Operating rates and inventories have tellers at the supply side stayed disciplined through the quarter. Talking about financial performance, sales volumes were down 4% year-on-year, 2 reasons for volume degrowth, plant maintenance and reduced production and subdued downstream Specialty driver moved from 31% to -- of the sales mix to 27%, led by exports. Revenue grew 12% year-on-year to INR 4,530 crores, despite lower volumes, driven by strong global prices, rupee depreciation and favorable product mix. EBITDA roughly doubled. Some of that is a low base, but a meaningful part is the specialty sales doing it well. Let me move to chemicals. The first thing to understand about this business is that it is not one business. It is three, and they are reinforced each other. Caustic soda prices in Southeast Asia exited the quarter at $483 a tonne, up from $468 we saw a year ago. Our recurelization followed the same path, up 6% year-on-year to INR 37,955 per tonne. Volumes were softer, and that is largely due to plant maintenance effect. Chemical segment revenue of INR 2,640 crores grew by 10% year-on-year driven by improved realization in caustic, chlorine derivatives and specialty chemical. With revenue mix -- within revenue mix, caustic soda came down to 49%, while Specialty Chemicals rose to 30%. Higher share of Specialty Chemical was aided by price increase that was passed through due to higher input costs. EBITDA of INR 491 crores, up 16%, growing faster than revenue, driven by all round performance across businesses. So the story here is straightforward. A leadership position in the base business funding a deliberate march downstream. As CPVC got recently commissioned and ECH commissioning happening in quarter 2 of FY '27, chlorine integration is expected to reach 68% by exit of the current financial year. Let me turn to Building Materials. When paints and B2B are already covered by Mr. Himanshu, let me cover cement, starting with capacity. Because in this business, scale is strategy, we added 8.7 million tonnes of gray cement capacity in the quarter taking total gray cement capacity across India and overseas to 205.5 million tonnes. Consolidated sales volume grew 12% year-on-year to 41.31 [ billion ] tonnes. Double-digit volume growth at this scale is not a small thing. The result flows through cleanly to consolidated EBITDA, which is also up 12% to INR 5,156 crores, driven by volume growth and by lower logistics and power costs. On energy, green power mix has risen to 45.6%, up 23% year-on-year, with total renewable power capacity now 1.4 gigawatts. On the retail front, UltraTech Building Solutions outlets continue to grow with total number of outlets now at 5,802, up nearly 1,000 stores compared to last year. UltraTech gives healthy cash flow to us in the form of dividends. Aditya Birla Capital delivered a strong start to FY '27. The performance reflects the strength of its diversified financial services platform, with lending, insurance and asset management businesses all contributing to growth. The overall lending portfolio grew by 32% to nearly INR 220,000 crores, while housing finance crossed the INR 50,000 crore milestone, growing 50% year-on-year. On the insurance side the business continues to build scale across both, life and health, while Asset Management business benefited from a strong AUM growth and improving market share. Importantly, the company also strengthened its growth platform by raising INR 4,000 crores of equity capital, including participation from International Finance Corporation, positioning the business well to accelerate growth while maintaining a strong balance sheet and robust asset quality. Grasim invested INR 2,880 crores, at INR 356 per share, maintaining its stake in Aditya Birla Capital on a fully diluted basis. Our smaller businesses are contributing more than their size suggests. Renewable business revenues grew 59% year-on-year. Textile business grew 26% and insulator business continues to serve the power sector in expansion. These businesses sit directly on the same structural themes as the rest of our portfolio, the energy transition, conduction and infrastructure build out. Coming to capital expenditure. The stand-alone plan for FY '27 is affected at INR 3,157 crores. Nearly 45% of this CapEx is dedicated to growth CapEx. The total spend in quarter one stood at INR 375 crores, which is nearly 12% of the budget. On balance sheet, as profitability improved, consolidated net debt to EBITDA declined to 1.45x as on 30th June 2026 compared to 1.62x in the same period last year. On a stand-alone level, net debt increased to INR 9,899 crores. This is largely due to a timing difference between recent investment made in June '26 in Aditya Birla Capital and dividend to be received from UltraTech in August '26. Now we open the floor for Q&A. Thank you. I request operator to please connect for Q&A.

[Operator Instructions] The first question is from the line of Navin Sahadeo from ICIC Securities.

Congratulations on a good set of numbers. I'll start with two questions. One, in paints, of course, journey so far. But sequential growth because year-on-year, I'll not compare given we are in the ramp-up phase. Sequential growth of 17% is appearing broadly at par, I would say, to most of the paint companies that have reported performance. Of course, there is a reduction in losses, too. So my question was, how should we look at the journey incrementally? Because this quarter, like I said, is broadly at par on a Q-o-Q basis. So is it fair to assume that -- will it be fair to assume that growth is more matured and we'll focus on breaking even further? Or required will continue to keep the push and first achieve the revenue target. How should one look at it?

Thank you so much, Navin. So you're absolutely right. The sequential growth when compared to listed companies is at a similar level as the listed companies. But you have to see what is special about quarter 1, which is not a normal quarter. This quarter, most paint companies have increased the prices by double digit. So it give opportunity to the channel partners to stock up. The revenue -- reported -- high revenues reported that industry has a component of consumer and a component of extra and stocking, which will even out over a period of time. Being a new operator, we don't have the power to be able to get a stock in the channel, which the old operator based on their past and have capability to get more stocking done. This is the only factor which has dramatically changed in this quarter. So it's better to see revenues on a longer-term basis rather than on a specific quarter basis. So nothing changes. -- commentary has been very explicit. We continue to with our resolve to be able to deliver the INR 10,000 crores revenue.

My second question then was about the AB renewals business because we tend to talk a little less about it. You did mention the underappreciated business so far. But I think also maybe AB renewals needs some more slides in the presentation. So because of the recent transaction that we did. So broader question here is if you get a complete outlook of this particular segment in the sense, if the entire 9.3 gigawatt of the capacity targets will be up and running or available for the full year '29, if it's -- everything is booked under PPAs, what would be the potential debt levels? What is the infusion Grasim may require to keep it a subsidiary at 51% or more? If you could just help us understand the ADR perspective, I think it will really benefit everybody.

So we would like to organize a separate session for all the analysts who are interested in AB renewals. We have a separate management team of AB renewals, and it is best that they will give you the complete guidance. While it sits grasping a major investor, but it is best answer with them. I will -- for the time being, this question and definitely for the and also for other like-minded people who want a little more details on organized a separate session.

Next question is from the line of Prateek Kumar from Jefferies.

Congrats for fantastic results, and thank you for sharing the segment information on new businesses. With -- in paint, sir, particularly the EBITDA loss is also nearly happening versus past few quarters. You also like revisit like time line targets on profitability, whether there has been any change in the expectation of turning profitable on a full year basis in FY '28?

So our consistent stand has been that once we reach INR 10,000 crores, we will become profitable. At this point in time, we're not changing the stand.

Sure. And also, again, on the renewable base while you talked about you a separate meeting there, including the equity contribution towards recent acquisition? And how do you see capital employed expected to evolve in '27, '28 versus INR 1,200 crores as of FY '26 because this number is you need for modeling but also in terms of cash flow?

So coming to capital employed, capital -- gassing, we are already working in the current quarter, we have invested in our financial services business. We are right now undertaking expansion project of our CSO business. And cash outflow for the current financial year on account of CapEx is INR 3,157 crores.

But I think your question was patent renewals, Grasim contribution will be a small number, and will not have a material impact as far as Grasim is concerned from its own cash flow. That is what we can confirm So you don't need to cash flow requirement from Grasim -- on the renewal business. Exact number we will share with you outside.

Lastly, could you also discuss the royalty payable to Birla Holdings, particularly in context of similar arrangement being based by person that go?

What is the question?

So royalty payable. So the per entity has talked about 0.25% of sales. Is this similar applicable from FY '27 on retrogressive also?

That's right.

Is that applicable for Grasim also. So it will be 0.25% of stand-alone revenue starting from June?

I want to take a minute to be able to give you the logic why this is important from an overall perspective. Aditya Birla Group, the parent brand to us is the most valuable asset and a source of competitive advantage. It's an intangible platform that systematically builds trust and reduces friction and enhances long-term growth potential of our group companies. So because of this, I think their current model where we were earlier, we are transiting from purely primely driven stewardship to structured governance model which is consistent with global best practices for our founder and family brands of comparable scale. We were very happy that for a long period of time, the group -- the family was not charging us for this brand, and it is an appropriate time that this is getting charged. And it is at a very reasonable level of 0.25% of revenue with an upper cap that has been building. And this becomes applicable now from 1st of June.

So cap is INR 25 crores for yourself and UltraTech also because it's our subsidiary?

No. Grasim will be paying on a stand-alone revenues. So if you take stand-alone revenues, in fact, will be around INR 100 crores

Just to clarify, all our subsidiaries will pay the brand value under their line of business. Whereas it's AB renewals, whether it is Aditya Birla Capital, whether it is UltraTech, all will be in on their own. Grasim will pay for a stand-alone direct business. I hope it clarifies.

Next question is from the line of Praneeth from Kotak Securities.

Can you hear me?

Yes, yes.

Okay. I think that seems to be -- This is Jai Doshi from Kotak. Just one question with reference to -- so as per my understanding, some companies in paint industry have a very strong seasonally strong last quarter, depending on how their schemes are in terms of absolute sales. Some companies tend to focus more on the June quarter. So when I look at the salience of March quarter versus June quarter, it will vary from company to company. And so in context of that, what is it for Grasim? Because if I look at the last year, generally, you have a very solid March quarter. And then June quarter, absolute sales is not meaningfully higher, and then it scales up again in December and March quarter. So should QoQ metric be a relevant metric from March to June to compare market share for Grasim -- Birla Opus versus rest of the industry? And that was one question. And second question is you started on a Y-o-Y basis, when I look -- you started with a very strong 64% growth. So does this give you confidence that at a full year level, you should be able to, at least, do 50% or more on a Y-o-Y basis, full year FY '27, over FY '28? I understand your FY '28 -- sorry, FY '27 over FY '26. I know your guidance is INR 10,000 crores, but you help if you could give us some indication of FY '27 as well. Thank you for the additional disclosures.

Thank you, Jai. Yes, on a y-on-y basis, we are guiding over 50% revenue, which is the second part of your question. And for us, as we are in a high-growth model with a low base, a specific quarter is not so critical. But there is obviously -- our model is within dealer to not only participate during the quarter, but also have seen that closed during the year. So -- which will naturally -- there is some additional sales that takes place at the end of the year, which is -- which builds up. So as we -- as quarter-on-quarter revenues build up, annual sales will definitely grow. So -- while I would not say a particular quarter is going to be better than a 6 other quarter, but the model that we built in the traditional model that we are doing in all businesses. We build programs, which will encourage dealers to participate on a monthly and a quarterly basis, but the aggregation of all this revenue during the all the quarters will also get in some bonuses to at the year-end. So our loyalty program is being designed for inward programs as well. I hope this will give you a sense of how our revenue this steps up.

Next question is from the line of Rahul Gupta from Morgan Stanley.

Just two questions. Just -- when I say repayments of 0.25% of revenues. Is there a cap there like we see for Hindalco at INR 225 crores? Or there is no cap on that? That's my first question.

Yes, Rahul, there is a cut, but in our case, 0.25% will be a smaller amount. Cap is INR 225 crores. So we will not be -- as of today, we are quite far from that.

Yes. So in that case, would it be lower or the higher amount of the...

Taking an estimated amount of INR 50,000 crore revenue for Grasim, 0.25% will work out to INR 125 crores, and the cap is INR 225 crores.

Got it. Got it. That's helpful. My second question is on pain. Now when you talked about around 9% quarter-on-quarter price hikes reflected into first quarter. Was there any benefit from change in discounting or incentives as well during the quarter or volumes grew by around 8% quarter-on-quarter? And also, when you talk about pricing benefit going into the second quarter, what kind of rollbacks have you seen in the quarter-to-date? And how are volumes trending at the same time?

I think there's a little complex question that you are trying to address. Let me -- let's go back from the basics. The raw material cost has increased on a COGS basis anywhere between 20% to 25%. And as a percentage of revenue between 10% to 14%, depending on the month. But we were carrying old inventory and the older inventory has now been leased out, and most of our -- is now at the newer inventory for the raw material. The price increase was not taken in a single shot. It was taken at multiple levels during the quarter, and some of it will flow into the next quarter. The -- as I mentioned at the start of the question and answers, that the quarter one had a combination of consumer sales and stocking up of dealers because they saw the benefit to take additional volume before the price increase took place, which is for the industry. Quarter two is unlikely to have that because the dealers are bringing down their inventories going forward. So to be able to make proper estimates of volume, it is all consumer driven is going to be a little difficult between quarter one and quarter two. But I think by quarter two, it will all even out. And most likely, the market stock will come back to its normal level. So -- also quarter two typically is a weaker quarter because of monsoons. And once the season we are expecting good volume growth to be return back. So while these are our estimates, I can't give anything on this at...

Got it. Got it. This is very helpful. Just coming back to the first quarter. I was just trying to understand, given you had in the previous quarter, highlighted that you were looking to remove your 10% higher volumes in some of the products like primers. I'm just trying to understand that when 7% revenue growth came in quarter-on-quarter, was that also on back of removing some of these incentives? Or upside of price hikes, everything else was...