DCM Shriram Limited analyst Q&A

Thank you. We will now begin the question -and-answer session. The first question is from the line of Parth Mehta from Vallum Capital. Please go ahead.

I just have two questions. First is on caustic soda volumes , which in the presentation it shows that there has been a flattish growth for nine months in caustic soda. Help me out for the reason why the volumes have remained flat?

And the second question?

And the second one is on epichlorohydrin, the new capacity that is coming up. So, one of our competitors is also adding new capacity. So, wanted to know what is the demand supply scenario and would that lead to any oversupply in the industry?

Just answering your first question on caustic soda volumes, so actually our new capacity is yet to be commissioned . So, these volumes are with the same capacity as was there in the previous year. So, we have marginally moved up on the sales from the existing capacity. And this quarter we will be commissioning the new capacity, and after that the volumes would see an increase. With regards to your second question on epichlorohydrin, you are right. There is one other player who has commissioned capacity, and we would be the second one commissioning capacity in this space. There is, I think with all products and chemicals, we are seeing growth in demand in parallel. So, we do expect that in the coming quarters, as we ramp up our capacity gradually, the material will be absorbed in the market, and we will be exploring markets all ove r, whether it's domestic or international as well . So, we do expect that in the coming quarters, this capacity will get absorbed.

And thank you so much for this answer. Just one more on ECH . What would be the payback period for our CAPEX? And how much CAPEX have we done in ECH?

And the CAPEX in caustic soda new capacity that we are coming up with and what would be the capacity change?

So, the capacity there is about 850 tons per day and there is also a flaker plant of about 600 tons per day. Put together, the CAPEX is again in the range of around Rs. 800 to Rs. 900 crore.

Oh, sorry, I missed out the numbers. You said 50 tons per day?

850 tons per day.

Okay, 850.

Thank you. The next question is from the line of Pratik Tholiya from Systematix. Please go ahead.

Congratulations on good set of numbers especially in the sugar, agri and Fenesta and I think even your chemical has sequentially done better. So, just firstly on chemicals on your, so what was the ECU realization for the month of January? I mean, the average price during January?

Average price.

For January, Pratik, the average prices are around Rs. 25,500.

And sir, this is ECU level. So, chlorine is still negative?

Chlorine is still negative.

And that could be how much?

Around Rs. 3,000 to Rs. 4,000.

And sir, what is the, you know, sli ghtly medium to longer -term view on the caustic demand front because of the over capacity that you are seeing? So, by when you expect the entire capacities to get fully absorbed and then we can expect the prices to go up?

Yes, you are right that in the short term, we are seeing an increase in supply and demand as we have already shared earlier in the call has been subdued. But we put up capacities with the long-term horizon. And we do expect that in the coming quarters with the robust demand for a country like India across sectors that this capacity will get absorbed. So, it's hard to put an exact time timeline or a price in the future and we normally don't give forward-looking statements. But we expect that with our chlorine integration as well that we are focusing on, that this capacity will get absorbed and running fully in the next financial year. That is FY '26, it will be full.

I will just add that, as mentioned by Amit earlier, we are also installing a 600 tons per day flaker plant. That gives us flexibility for exports. That opens up another avenue of selling our products, if the pricing is suitable.

And secondly, could you just share some details on your agri business because I think your agri has done exceptionally well in a kind of a challenging quarter because most of the other companies that are reporting numbers, especially in the agri and seeds front, are putting a top line degrowth while margins for most of them have been better. But you reported healthy top line growth as well. So, you know, if you could just share something on the product details.

Pratik, in our Farm Solutions vertical, or Farm Solutions segment, we have three verticals: the crop care, plant nutrition, and seeds. Now, crop care and plant nutrition have been flat in terms of top line, and bottom line also is largely flat, and for the reasons that we just mentioned, that industry is going through a rough patch. But our seeds vertical has done exceptionally well, and December quarter, Q3, is also a Rabi season, where the wheat seed, the research wheat seed, where we are market leaders, that is sold, and that has done exceptionally well. So, that is the key reason for the growth that you are seeing for this segment, in this quarter.

And then what can we expect going forward, the trajectory in terms of for the upcoming Kharif season?

So, as I mentioned, so in Kharif also there should be growth, is what we are expecting, across the verticals. We are seeing this growth.

No, I mean to say, in terms of any product launches that we are anticipating for Kharif, which can add to further growth?

There are launches which are lined up, but you know, these launches take time to mature. So, it would not happen that we launch in this financial year, and immediately we see, they take time to mature. And in the past, whatev er launches we have made, they are contributing about 10 -20% of the top line, are coming from the launches we have done in last 2 years. So, it takes time to pick up. So, this business will overall, as we are mentioning in the past, will grow at about 15% CAGR so we do expect that . And also as a pivot for this business is the manufacturing wherein in plant nutrition we have started manufacturing which will mature over a period of maybe about one years to two years and also when crop care where last year we started our own manufacturing. So, I think these are all steps to help the business grow.

Thank you. Ladies and gentlemen we will proceed with the next question which is from the line of Subhankar Ojha from SKS Capital. Please go ahead. Subhankar Ojha: A couple of them I have. So, with respect to this new power plant that you said 120 megawatt is likely to get commissioned in quarter 4. So, how much of cost saving will come from this one. Secondly, this caustic soda plant which is going to get commissioned in quarter 4 what are the other CAPEX basically which will probably come in quarter 4 or H1 ‘25 that second and third what will be our CAPEX for ‘25?

So, answer your first question in terms of savings from the 120 MW, that should be in the range of around Rs, 10 crore to Rs. 12 crore a month that's the kind of once it gets commissioned and is fully operational. So, that's point number one. Second in terms of CAPEX as we mentioned that the 120 MW and 850 TPD, that will get commissioned in this quarter and EC H, H2O2 will be commissioned in the next quarter. Subhankar Ojha: And the CAPEX that is announced for 25?

That we haven't announced any new CAPEX as of now. What we're already now in, what we are completing and then let's see if there is anything new that comes up in the board meeting next. Subhankar Ojha: How much of this is pending out of the announced CAPEX?

The majority of it is spent Subhankar because we are nearing completion, about 70%, 80% has already been spent in terms of cash outflow for these CAPEX. Subhankar Ojha: So, this net debt figure of 314 on December end not likely to go up much from here?

300 and… Subhankar Ojha: I think the December end net debt figure is 314.

See net debt will go up. So, by March I'm expecting the net debt to be around Rs. 1,900 to Rs. 2,000 crore and the reason for that there are three key reasons. One this is the sugar season. So, therefore debt goes up as the inventory for sugar builds up. Point number two is urea subsidy which is very abnormal right now, which is negative Rs. 20 which means we have to pay. So, if they are putting certain notifications which are pending there. If they come then probably there will be outflow about Rs. 350 crore there. So, that will add up and obviously there will be some outflow on CAPEX as well. Subhankar Ojha: And with respect to your business outlook for Fenesta I mean can you share some outlook I mean I can understand that the order book has gone up this quarter by some 9%. Can you throw some more color on the same business with respect to the prospect of this?

Broadly speaking the Fenesta business was established and has a long history and is the market leader in uPVC windows and doors. The aluminum windows and doors were established or launched about 18 months ago and have gained good traction and are moving at a fast pace and I think the order book has exceeded over Rs. 100 crore in a pretty quick period. As far as the third new business which is the facade business that is just being launched. So, in fact now it is the first launch sort of post launch trial facades that are being put up for builders on their building. We’ve got orders for those trial facades. So, the process is in the façade business, you put trials first and then you get the approvals of the technical specs and then you get the commercials and then you get the o rders. It's a bit of a longer gestation, bu t that's the nature of the business cycle of façade. So façade business will really take off maybe in terms of some meaningful volumes may be 9 months to 12 months from now because till then it will be market feeding and development. You first put up the factory, then you put up the trials, then you get the approvals of the product at the customer end and then you get the orders.

Thank you. We have the next question from the line of Riya Mehta from Aequitas Investments. Please go ahead.

My first question is in terms of the caustic demand, so a big part of the user industry 20%, 25% is the textiles and we're seeing the revival in the texti le industry. So, what's your outlook on the demand for the caustic front?

The textile industry is one of the drivers for caustic demand. I think it will be slightly lower than the range that you had mentioned, but yes it is one of the important drivers for demand. So, the advantage with caustic actually is that there's multiple industries which lead to the demand. So, even if one of the industries is slightly down, the other industry consuming industry can support. So, we do expect that in the medium term the demand will grow and will be robust and in the long term it is likely to come back fully. So, we expect in the next one or two quarters to be tight, but we are optimistic that going forward after that, there will be a good demand.

And in terms of the overcapacity situation which we are looking at what kind of growth supply are we looking at?

Pardon me what sort of oversupply.

That's right. There has been a significant increase in supply and it will be going from 5.6 million tons per annum to approximately 6.7 million tons per annum. So, we are seeing a significant increase in supply in the short term. One of the key factors with caustic is usually chlorine. So, evacuation of chlorine is often constrained as well. So, we are working actively on plans to integrate there and mitigate the impact of that. So, we do expect that it will take some time for our capacity utilization, therefore, to ramp up. So, FY25 it will ramp up gradually, but FY26 onwards we expected to be robust.

So, our incremental 850 TPD plant which will come up in maybe say the quarter end, by when do we expect to have a capacity utilization as compared to 80%, 75%- 80% like the current company utilization level?

I think see the project which comes up in this quarter , in FY25 the utilization should be around 50% and FY26 is when it should reach the levels of 75% - 80% and by end of that year we should be around 90%.

So, it will take 2 years to fully ramp it up?

Yes.

Also, the fourth quarter 600 TPD caustic lye project that would also have similar ramping up frequency?

That’s a 600 TPD flaker plant. So, that's like a subset. So, you have a, 850 TPD coming up, 600 TPD lye doesn't add to the capacity. It's only a subset, it drives the liquid lye, that gives us flexibility as Chairman mentioned, it gives flexibility to export and it's becoming an SKU.

Got it. Although you're seeing a lot of Chinese players dumping PVC into our market. So, currently what is the sit uation in January and do we see any improvement, also exports from India for PVC has reduced because of the Red Sea crisis. So, is there a kind of a glut and what is the scenario there?

So, in PVC see the issue is the imports coming from China were also the anti- dumping duty was removed about a year and a half back. So, although the demand is very robust in the country, there is oversupply because of imports. And unless we have the demand seeing improvement in China as well as in the Western world the prices are expected to remain in that range where they are right now.

Do we export PVC and caustic and how has that been for us?

So, PVC from India is generally not exported because Indian manufacturers only need about 45% of the demand and 55% is imported. As far as caustic is concerned we do try our very best although the quantities are lower, the information is mentioned in our investor presentation , that there ar e exports happening from country for caustic soda.

But they reduced considering if we were exporting to European regions and there are issues in the logistics sectors to reach?

We have marginally come off in the 9 month period.

So, what would that number be if I want to see YoY?

So, in terms of 9 months , our exports as a country or as industry were about 2.98 lakh metric tons versus 3.08 lakh metric tons.

And my second question is in terms of sugar. So, with a new sorry I missed the question I think earlier participants had asked what would be the capacity with the 120 KLD coming in incremental?

So, our total sugar capacity is now about close to 550 -570 KLD ethanol capacity.

And how much of that would be grain based?

250 KLD is grain based now.

Our competitors are looking taking grain based from maize etc., so are we also kind of looking at alternative feedstock?

Yes.

But they are lesser in profitability so what would be the major stuff for us in grain based?

As I said we are looking at both rice and maize and the margins are more or less the same in both the products.

I was just talking in terms of Bioseed what’s the overall outlook?

So, for Bioseed, as was mentioned in the Vice Chairman speech that we are expecting it to breakeven or near breakeven in this financial year. So, over last 2 years if you see the business is seein g improvement based on the new products introduced in the market and better marketing activities as well. So, we do expect the trend to continue, and we are working actively on certain research things as well. So, we do expect it to improve, but that impr ovement will be gradual.

And with the decrease in fertilizer prices, do we expect losses anytime soon?

No, there would not be any losses in our fertilizer business. The reduction in revenue as we mentioned is because the gas prices came down significantly from about $24 last year for MMBTU to about $15-$16 MMBTU in the current quarter which gets reflected in the revenue and has some impact on profitability as well, but we don't see any losses in this business in the near future.

Thank you. The next question is from the line of Saket Kapoor from Kapoor Company. Please go ahead.

Sir, firstly if you could give the import number for caustic soda for the quarter and also for the 9 months also net of export if that number you can give?

Saket those numbers are mentioned on investor presentations that is there on our website as well as on the stock exchange.

Sir, how are the user industry faring currently, how are the consumption rate from the user industry for this quarter and what's the trend going ahead?

So, the user industry is diverse for caustic it includes textiles, paper and pulp, alumina, other chemicals etc, So, the growth rates of each of these industries varies. In the short term like what we've seen for many chemicals, not just caustic there has been a reduction or not a reduction a slowdown in the growth in demand, but we expect that in the coming quarters the demand is going to pick up and therefore the demand overall for costing will be robust.

Sir, if we take the current realization the ECU realization sir how profitable are the global companies also and domestic companies also. So, where is the breakeven point from where which the thing starts turning given what's going God forbid, but going ahead if you could throw some light on the same?

See Saket se e breakeven point is itself a very volatile number because it depends on what the costs are and energy cost being the biggest contributor it all depends where the coal costs are moving. So, I don't think it's feasible to give a number on a breakeven price. And therefore how other globally whether they're profitable or not it ’s very difficult. I mean our business has been a profitable as you can see from the numbers, but yes the profitability has been low, it has come off significantly from last year. So, let's see how it pans out. It will be a function of cost and prices, although we've worked on cost. So, our variable costs have come off, but prices have declined more.

And sir on the utilization level I think so what have been the utilization levels for us for this quarter and QoQ how are the utilization levels were?

Around 80% Saket.

80% is for Q3 what was the number for Q2 and 9 months?

And we will be expecting to exit the next quarter also in the same vicinity?

Yes, I think we should be at this level in Q4 as well.

And for the vinyl segments sir how are the utilization levels current currently?

So, currently they're close to about 90% to 100%.

And for the last point is on the capacity that we are going to augment in this quarter. You have explained I think how the ramp up will happen. So, what should be the ramp up for the next year and also for this quarter, what kind of capitalization will happen for Q4?

Saket I think that is what Mr. Ajay Shriram had explained that utilization levels will be peaking by end of FY26.

Thank you. The n ext question is from the line of Riya Mehta from Aequitas Investments. Please go ahead.

Just a follow up what would be a current cost of powers for us considering we have so much built the captive power in so many years?

Riya we generally don't share our cost of power, but as I mentioned has been coming down with the lower coal prices as well as with the green power that we started sourcing in Q2 and with the 120-megawatt coming up, it should further decline.

What would be the quantum of decline if you could just quantify with the new capacity coming up 120 megawatt?

For Rs. 10 crore, Rs. 12 crore will be the savings on account of 120 megawatt coming on in power.

10 crore to 12 crore savings?

Per month.

And in terms of coal prices how much are we importing and how much do we have with coal India?

So, for Bharuch plant we largely import, but again it's very dynamic Riya. We actually try to follow whatever the pollution control guidelines are. So, in Bharuch there's a mix of code and there are certain other substitutes that we try and see to reduce costs . We also use biomass. Similarly, at our Kota factory also where the coal is primarily domestic, but there also a large component is biomass about 14% - 15% at Kota is biomass in terms of energy.

Are we seeing a decrease in coal pricing in the imported coal?

Thank you. The next question is from the line of Navneet an Individual Investor. Please go ahead.

I have three questions. First your new caustic plant of 300 TPD in terms of annual capacity will be about 100,000 tons. Just I wanted to reconfirm my Maths?

This is which plant?

The new caustic capacity which is coming up this quarter?

So, the capacity of a new plant is 850 tons per day whi ch is approximately 300,000 tons per annum.

And you mentioned the overall industry is increasing from 5.6 to 6.7 million tons in India the supply. So, beyond that what are the new capacities that have been announced over the next 2 years, 3 years?

These are the capacities that we are aware of at this point in time. Beyond this, we don't have any clear announcements and as they come in the public domain we'll be aware of them.

And it takes approximately 2 years, 2.5 years to set up a new capacity like it took for you?

Yes it depends on case-to-case, but it can take up to 3 years also depending on land acquisition, environment clearance and then executions.

My second question is on your capital allo cation in your presentation you mentioned that you're looking for more opportunities especially in the chemical segment for fresh projects. So, what type of chemicals are you looking at would it be commodity chemicals or similar stuff that you're already there or less cyclical commodities? What’s the thought process over there?

So, as you will be aware we are expanding our core which is caustic soda, chlorine. We are also expanding a couple of adjacencies which is epichlorohydrin and hydrogen peroxide, both those plants are expected to be commissioned in Q1 FY25 and over time we are always expl oring opportunities across the spectrum whether it is in a commodity chemicals or intermediate chemicals or even specialty chemicals. So, we are continuously evaluating opportunities and as the Board approves, we will approve them and specifically also exp loring opportunities linked to future sunrise sectors including green chemicals, etc. So, we're exploring all these opportunities.

So, bulk of your fresh projects are expected in the chemical division only, right in terms of capital allocation as the bulk of capital deployed, that's what was mentioned in the presentation as well rather than the other divisions?

See for us the capital-intensive businesses are two chemicals and sugar and the other two growth businesses which is farm so lutions and Fenesta are not so capital intensive and therefore majority of the capital allocation will happen in chemicals followed by sugar.

Thank you. The next question is from the line of Sandeep Be hl an Individual Investor. Please go ahead.

Just want to check whether you have any plans of demerging and listing separately the Fenesta, and the Shriram Farm Solutions business given that both the business has become sizable and significant as you mentioned in the presentation as well?

So, the Board will take view at the appropriate time. As of now, we have not had any discussion with the Board on that.

Thank you. Ladies and gentlemen, we have no further questions. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Thank you, Ladies, and gentlemen for your participation in today's call. Navigating and challenging global business environment our domestic landscape remains the beacon of positivity. Despite the business challenges we are diligently implementing efficiency enhancement and sustainability initiatives within our operational framew ork. Acknowledging the pivotal roles of driving efficiencies across diverse business segments, we are confident in our ability to deliver robust overall performance over the medium term. Through strategic resilience and our commitment to adaptability we a re well positioned not only to navigate prevailing challenges, but also to capitalize on emerging opportunities in the dynamic business landscape. Thank you very much once again. Goodbye.

Thank you. On behalf of DCM Shriram Limited that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

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