Industries Q3 2013 Earnings Call 31 Jan’13 - AceAnalyser Call/100300_20130131.pdf · Grasim...

Grasim Industries Q3 2013 Earnings Call 31 Jan’13

Operator Ladies and gentlemen, good day, and welcome to the Q3 FY13 Earnings Conference Call of Grasim Industries Limited hosted by Axis Capital Limited. As a reminder for the duration of the conference, all participants line are in the listen‐only mode, and there will be an opportunity for you to ask questions at the end of today's presentation. Please note that this conference is being recorded. At this time, I would like to hand over the conference over to Mr. Jagdishwar Toppo. Thank you, and over to you, sir.

Jagdishwar Toppo, Analyst Thank you. Good afternoon, and thank you for joining us for Grasim's third quarter 2012 earnings conference call. We have with us Mr. K. K. Maheshwari, Managing Director; Mr. Adesh Gupta, Whole time Director and CFO from Grasim and the senior management team of Grasim as well as UltraTech. Grasim ‐‐ Adesh Gupta ji will begin the call with the highlights of the performance, after which we'll open the call for questions. Over to you, sir.

Adesh Gupta, Chief Financial Officer Thank you, Jagdishwar. Good afternoon, and welcome to all the participants. I will cover only the key highlights of the business and financial performance. The detailed presentation has been mailed to you and is also available on our website for your ready reference. Despite the difficult environment, sales volumes at 78,500 tonnes were sustained. Volumes for nine months were up by 14%. Global VSF prices declined by 14% on year‐on‐year basis with the rupees depreciation reducing the impact in the domestic market on parity basis. Our realizations were down by 5%. Higher caustic prices coupled with lower realizations led to pressure on margins, though the chemical business benefitted from the increase in caustic prices.

On a standalone basis, VSF PBIDT was INR188 crores against INR278 crores last year, mainly due to lower realizations while operating efficiencies are improving continuously. AV Terrace Bay, Canada, the pulp JV acquired in Q2 FY 2012‐2013 with Grasim holding 40 per cent stake, started operations from October '12 as planned.

Though initially there were losses with operations under (inaudible) these losses are expected to be reduced in a phased manner and converted into profitability through mill upgradation and cost optimization. While in Nagda, water shortage issue has been resolved with construction of reservoir, due to abnormally deficient rains in Karnataka. VSF and pulp production at Harihar plant is likely to be impacted intermittently from February onwards till the onset of monsoons. The present effective capacity of Harihar VSF plant is 69,000 tonnes and that of VS pulp plant is 70,000 tonnes.

The chemical business continued to perform well. ECU realizations of cement firm as lower chlorine offtake resulted in lower industry utilization. Grasim's plant operated at full capacity from the strength of captive consumption of floating in value‐added products. PBIDT of chemical business at 61 crore was up by 30%. In the cement business, the industry demand was subdued in the quarter with present slow down. Cement sales volumes were maintained at 10.4 million tonnes. Net revenue increased by 8% with increase in realizations on year‐on‐year basis. Variable cost remained flat year‐on‐year due to fuel mix optimization and decline in imported coal cost. Cement PBIDT increased by 6% from INR1,125 crores to INR1,189 crores. On comparable basis, PBIDT increased by 12%, as PBIDT for Q3 last year included a subsidy income of INR67 crore related to earlier year.

Now let me move on to financial performance for the quarter. The company's revenue increased by 7% from INR6,300 crores to INR6,768 crores lead by the cement business. The reported results for the current quarter are not strictly comparable, as financial results of the UltraTech cement in Q3 last year included subsidies of earlier period and Grasim's proportionate share amounting INR25 crores and loss incurred for recently acquired pulp JV, AV Terrace Bay, during the quarter. PBIDT for the quarter at INR1,485 crores was maintained on like‐to‐like basis.

On the comparable basis, the net profit was INR574 crores against INR634 crores in the corresponding quarter. On comparable basis, PBIDT and net profits for nine months increased by 9% and 77% respectively.

Coming back to CapEx expansion projects in both VSF and cement businesses are progressing well. Additional volumes from these projects will be available in year 2013, 2014. Total CapEx under implementation includes subsidiaries is INR16,200 crores, of

which 4,200 crores has already been spent up to last year as work in progress. In current year, we expect to spend INR6,500 crores, out of which INR4,500 crores has already been spent till ‐‐September‐December 2012.

Before summarizing, let me inform you that in line with the Grasim's long‐term strategy of exiting some unrelated investments, it has entered into agreement to sell its entire holding of 15% unquoted equity shares in Alexandria Carbon Black and 2.75% quoted equity shares in Thai Carbon with another Aditya Birla Group Company. While the sale of TCB is completed at market valuation in January 2013, the sale of ACB shares will be completed shortly at fair valuation done by the reputed independent valuers to maintain arm strength. This transaction has resulted in a gain of about 200 crores for the company, which will be accounted in Q4 of this quarter.

Finally to summarize, given present domestic and global market conditions, company recorded satisfactory performance with improved efficiencies. Capacity expenses after completion in both VSF and cement will provide additional volumes, driving growth and profitability and will further consolidate company's leadership. The company will continue to focus on cost reduction measures and improving assets productivity to maintain its position as a lowest I now request the moderator to open the forum for queries. Thank you.

Jagdishwar Toppo, Analyst Operator, can we start the Q&A session, please?

Questions And Answers

Operator Certainly, sure. Thank you very much. We will now begin the question‐and‐answer session. (Operator Instruction) We're going to take our first question from the line of Jinesh Gandhi from Motilal Oswal Securities. Please go ahead.

Jinesh Gandhi, Analyst Hi, sir. Can you give outlook on VSF pricing, which we're seeing in global market right now? How they're vis‐a‐vis quarter which went by?

Unidentified Speaker The prices have almost about bottomed out. That's what we have shared with you last time, barring, altering this side or that side and I think even time we gave you a detailed update on the overall scenario on the quarter and then the relative dynamics.

We still believe that the pressure would continue just because of the lower capacity that is there in China and rules before the pressure which we are ‐‐ if you take those in terms of people selling out at very unreasonable prices ‐‐ but hope reduction from these levels looks unlikely. In case ‐‐ the inventory levels in the pipeline are fairly low, so in case there were to be a pickup in demand, there could be some increases in prices, but we do not believe that there could be a sharp run up in prices.

Jinesh Gandhi, Analyst Okay. But what could be current global pricing for VSF, both in other markets and China?

Unidentified Speaker Roughly around $2, $2.05, $2.10. So it varies. There's no one price because different people adopt different pricing depending upon their relative pressures on their liquidity and other things. So there's always a gap of $0.10 to $0.15 which I understand.

Jinesh Gandhi, Analyst Sure.

Unidentified Speaker Jinesh Gandhi, Analyst Okay. And would it be similar for China or China would be even lower than this?

Unidentified Speaker It is a same like of course, we would generally sell slightly higher than them always.

Jinesh Gandhi, Analyst Okay.

Unidentified Speaker These are the sort of range depending upon segments, countries, et cetera. So also the who's selling to whom.

Jinesh Gandhi, Analyst Right. And for Terrace Bay, what is our action plan there? By when we expect turnaround and start seeing them contributing positively?

Unidentified Speaker We ‐‐ the very year when we acquired it that obviously that for the first few years you would have to run it on paper grade pulp till we convert it into dissolving grade pulp.

Jinesh Gandhi, Analyst Right.

Unidentified Speaker And if you really see that in a mill which was 9 crores taking it over and I think in what something like 40, 50 is, doing thorough repairing of that and starting production all for a herculean implementation of the project by our team. Now that I think the paper grade pulp production is going okay. There are always hiccups in these type of mills, though that we are trying to resolve those. So we'll working on those, plus there are some energy improvement, energy cost improvement projects which would be implementing. But eventually these are all to be seen in the larger context like I think I've been explaining and I think I'll have to keep explaining this that pulp is our long station project.

Jinesh Gandhi, Analyst Sure. And availability of wood becomes critical for those items. So you have to look at all of these. Obviously nobody would have sold this mill if it were really making tonnes of money.


Unidentified Speaker Strategic thing for us getting excess to the wood, converting it to dissolving grade pulp mill, which is meeting one of our critical raw material requirements for our like caustic or fiber plant and the initial pain was something which we had factored in. It's not

coming in as a surprise ‐‐

Jinesh Gandhi, Analyst Sure, sure.

Unidentified Speaker It doesn't mean that we would keep having those forever. Like I told you there are some plans, but those plans take time to implement over a period of time. But those are factored in and I think that with the way we've worked out, the whole scheme along with the people there with the government and others, over a period of time, they should prove to be a good valuable asset, because 800 tonnes to 1,000 tonnes per day of dissolving grade pulp mills are not easy to come by.

Jinesh Gandhi, Analyst Right, right. Sir ‐‐

Unidentified Speaker With the whole allocations.

Jinesh Gandhi, Analyst Okay, okay. But we don't see this plan turning around at least for next 12 to 18 months or so, till the time we get converted into ‐‐ grade pulp.

Unidentified Speaker You see, these are all again, like what ‐‐ if you read ‐‐ I'm sure you dragged the prices very closely and paper grade prices also came up quite significantly in the last six to eight months. Now any uptick on those obviously would be a big help to us. As also I'd mentioned to you that we are taking steps for improvement in the operations there, so those would have a positive impact. Okay. And sir, third question pertains to our India operations. Do we see volume impact in next six months or so till we see Karnataka plant getting adequate water supply? Because that's where we've added capacity and by the time will have plant stabilizers. We see fraction impact overall for domestic operations?

Unidentified Speaker Yeah, obviously if a plant is closed, it could have an impact to some extent.

Jinesh Gandhi, Analyst Okay. That would not be made by higher production at Nagda and contribution from Vilayat even during initial period?

Unidentified Speaker We run our plants fairly flat‐out as you know. And ‐‐


Unidentified Speaker

‐‐ just for the possibility of cranking up more production is always very less.

Jinesh Gandhi, Analyst Difficult, right.

Unidentified Speaker But I think with the amount of stock that we are carrying and with the global presence that we have, we'll make sure our customers are fully serviced in, though the benefits of that may not fully flow into Grasim, but we'll ‐‐


Unidentified Speaker ‐‐ make sure that our customers remain fully serviced and satisfied.

Jinesh Gandhi, Analyst Unidentified Speaker Of course, the vagaries of monsoon have again come to hit us. We resolved the problem at Nagda by building a reservoir and we didn't bargain for Karnataka having such a deficient rains, and this is a new challenge that we'll come up.

Jinesh Gandhi, Analyst Okay, okay. And last question on pulp prices, you have indicated that on dollar terms it has moderated quite meaningfully, we expect any benefit at current rupee rates or in USD rates?

Unidentified Speaker Obviously, like if rupee changes from 55 to 56, there's a corresponding benefit that flows through to the ‐‐ on the cost side.

Jinesh Gandhi, Analyst Okay. And any indication on what correction would happen on pulp side, pulp pricing?

Unidentified Speaker We don't believe ‐‐ like all of these are again, like that possibilities ‐‐ you see it's always you ‐‐ not efficient that when I make a statement, I'm talking more about directional statement. I don't think on a day to day basis I can predict what the price movement would be, because I think I've been explaining and I think I'll have to keep repeating it, because see the prices are not being governed by a host of factors and I don't know what to control and what not to control. I don't if you've been noticing the appreciation of Brazilian real over the last decade.


Unidentified Speaker It is appreciated by something like 5%, largely driven by expectations around iron ore pricing.


Unidentified Speaker And so now that again has an impact and if you see in cotton futures have gone up. Right.

Unidentified Speaker Now those are all some positive factors now, whether they will translate into any benefit for VSF, time will tell.


Unidentified Speaker And really there's a very strange phenomena going on, both US dollar and euro have depreciated.


Unidentified Speaker All the other currencies have appreciated.

Jinesh Gandhi, Analyst Appreciated.

Unidentified Speaker Now all of these, and I haven't seen a run‐up in commodity pricing with a dollar fall. But with these are all things like ‐‐ so I would say that all of us will start having to take a more of a directional view and stick by what we believe in rather than looking at that every tick up and down because that's very difficult to do in a business environment.

Jinesh Gandhi, Analyst Sure, sure.

Unidentified Speaker Again, in pulp prices, when you ask us, that can prices fall? Answer is yes. But if they were to fall, the consequence would be that many more people would be bleeding. So I don't think that sort of a situation can continue for very long, excepting in countries like China where they're not governed by economic endeavors.

Jinesh Gandhi, Analyst Unidentified Speaker They will feel the pain. So we don't believe there's a scope for a significant reduction, and there's a whole world were to go into a some sort of a depressionary silence.

Jinesh Gandhi, Analyst Sure. Understood, sir. Thanks, and all the best. I'll come back in ‐‐

Adesh Gupta, Chief Financial Officer To add further, actually our pulp price is more related to the long‐term pulp and this paper grade pulp rate, which are relatively more stable than what you used to see. These particular prices are for the dissolving grade pulp.

Jinesh Gandhi, Analyst Okay, okay. Understood, sir. Thanks. All the best.

Operator Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please limit your questions to two per participants. We're going to take our next question from the line of Ajit Motwani Analyst Emkay Global Financial Services. Please go ahead.

Ajit Motwani, Analyst Yeah, good afternoon, sir. Sir, just wanted to know for the Vilayat front, what ‐‐ at the current prices of VSF or actually the current profitability, what could be the breakeven volumes on an annualized basis? Hello?

Unidentified Speaker Yeah. I'll tell you that though ‐‐ there are certain questions I think which I find it difficult to answer and there are 90 people listening in ‐‐ obviously there are lots of concretive sources of information asking me to disclose all my cost numbers, including what sort of cost structure I expect from a new plant, so that would be I think pretty unfair in the interest of the shareholders themselves. So I think I'll have to restrain from giving you a direct number on that, because obviously every new plant comes away different for the first and earlier plants. But I hope you'll understand the situation on that.

Ajit Motwani, Analyst Understand that.

Unidentified Speaker Having said that, again, like when we did take up this plant, it's based on very sound logic of expected growth in VSF over a period of time. And I don't think at a current lift in the prices up or down is something which would ‐‐ should worry our shareholders because eventually instead of more a efficient plant it's going to pay off for you short, medium, long‐term, all. And obviously the cost structure of this plant is ‐‐ the endeavor always is to be ‐‐make every plant to be more efficient than your previous plant.

Ajit Motwani, Analyst Okay. And my second question is on the profitability of the Chinese producers, even at these prices the profitability would have been in cash losses or ‐‐

Unidentified Speaker (inaudible)

Ajit Motwani, Analyst

No, I'm saying the recent decline in VSF prices even in China, the prices fell by about 5% sequentially so they've gone up in January, but the profitability ‐‐ how much of the percentage industry would be sort of making cash losses there?

Unidentified Speaker Many of them would be quite serious challenging times and some others would be pretty all right, those are more efficient players, because China is not one China, there are also some players who are efficient. So they're more efficient players and those who are thought of favorably placed in terms of their pulp procurement, I believe would not face ‐‐ would be in sort of relatively all right position, but a large number of players would be facing serious challenges.

Ajit Motwani, Analyst So did the industry see any ‐‐ started seeing any shut downs of capacity given the profitability levels there?

Unidentified Speaker I think, no. In fact, they've been pushing out their products. They're ‐‐ we've not seen shut down so far and I think as we explained to you that the pulp prices have ‐‐ I think also gone down to relatively low levels to help them this year so far to maintain their capacity utilization. So shut down haven't taken place there.

Ajit Motwani, Analyst Okay, sir. Yeah, that's it from my side, sir.

Operator Thank you. We're going to take our next question from the line of Siddhartha Kumar from IDBI. Please go ahead. Yeah, hi, sir. Just I think I missed an earlier statement on where your realizations for VSF stack up against previous year for the same quarter?

Adesh Gupta, Chief Financial Officer It is 5% down on ‐‐ though the global prices are down by 14%, our overall prices were down by 5%.

Siddhartha Kumar, Analyst Sure, sir. Secondly on your cement division, I just wanted to get an understanding of ‐‐ for fuels, have we increased petcoke and to what proportion?

Unidentified Speaker Petcoke consumption has increased by around 9% to 10% and the same time, imported coal has reduced prices to that extent, and other issues remain same.

Siddhartha Kumar, Analyst Could you give me a breakup, sir?

Unidentified Speaker Around 23% is imported coal and 23% is petcoke.

Siddhartha Kumar, Analyst Okay.

Unidentified Speaker 48% is the indigenous coal.

Siddhartha Kumar, Analyst Okay.

Unidentified Speaker And remaining is others.

Unidentified Speaker Unidentified Speaker Lower petcoke prices and we have consumed more hours in some of the plant, because it is cost effective.

Siddhartha Kumar, Analyst Sure, sir. Thank you, sir. Thank you for taking my question.

Operator Thank you. We're going to take our question from the line of Jhumpa Chatterjee from Baljit Securities Pvt Ltd. Please go ahead.

Jhumpa Chatterjee, Analyst Hello. Thank you for taking my question. My question is what is the status of payment of penalty imposed by CCI?

Adesh Gupta, Chief Financial Officer See, that matter is still under ‐‐ is pending with CCI in fact, and the next hearing is only in February. It will take its own time, but we are very confident that we should win this case.

Jhumpa Chatterjee, Analyst Okay. Sir, the amount, can you designate?

Adesh Gupta, Chief Financial Officer The amount has been ‐‐ the penalty which has been leveled is 11,175 crores.

Jhumpa Chatterjee, Analyst And any provisions you have made for that?

Adesh Gupta, Chief Financial Officer We don't not anticipate the liability, and therefore, we're not ‐‐ made any provision also in ‐‐

Jhumpa Chatterjee, Analyst Okay. Okay, thank you, sir. Thank you. We're going to take our next question from the line of Anchit Bhagat from Ambit Capital. Please go ahead.

Achint Bhagat, Analyst Good evening, sir. Sir I just wanted to confirm that the 49 million tonnes incremental capacity ‐‐ capacity that you're seeing over the next years, does it include the 21 million tonne that has already been added in the nine months or it's over and above that?

Adesh Gupta, Chief Financial Officer It's over and above, round it to 21.

Achint Bhagat, Analyst Okay. And sir, I mean now you ‐‐ after the commissioning of the Karnataka and the Chattisgarh plant ‐‐

Adesh Gupta, Chief Financial Officer Yeah.

Achint Bhagat, Analyst ‐‐ you will reach about 60 million tonnes, 60 million tonnes, 62 million tonnes as a group.

Adesh Gupta, Chief Financial Officer Yes.

Achint Bhagat, Analyst And you're saying that you'd be adding further capacities.


Achint Bhagat, Analyst So, where do you see yourself, like say five years from now? How much more capacity do you expect to add and which part of the country?

Adesh Gupta, Chief Financial Officer Achint Bhagat, Analyst Okay, okay. And sir, how do you plan to manage your fuel linkages, like do you expect to increase your petcoke or since you've given the problems of the domestic coal availability ‐‐


Achint Bhagat, Analyst With your incremental capacities coming in, how do you manage to ‐‐ how do you plan to manage your ‐‐

Adesh Gupta, Chief Financial Officer See all our plants are multiple plants.

Achint Bhagat, Analyst Okay.

Adesh Gupta, Chief Financial Officer So depending on what are the prices of petcoke, what are the prices of imported ‐‐ blended prices of that, will be dynamically adjusting, so that ‐‐ each plant how far (inaudible) it is from this port.


Adesh Gupta, Chief Financial Officer So these are some of the things which help in determining. So to give any percentage is ‐‐ it doesn't make any sense.

Achint Bhagat, Analyst Okay, okay. Sir, do you plan to take or make any global fuel linkage like a coal mine or something like that?

Adesh Gupta, Chief Financial Officer See, securing all critical sources is a priority for us but when and where ‐‐ how it will happen, it is difficult to predict. Okay, okay. Sir, one more question would be that you've given a 10.4 million tonnes of cement sales in this quarter. Can you give break up between grey cement, RMC and your international sales of that?

Unidentified Speaker So 10.4 million tonne is the grey cement.

Achint Bhagat, Analyst Yeah. And the break up between domestic and international?

Adesh Gupta, Chief Financial Officer No, no 10.4 is domestic.

Achint Bhagat, Analyst Hello?


We'll give the breakup.

Achint Bhagat, Analyst Okay, okay. Because as per your press release, it's about 9.61 million tonnes.


Achint Bhagat, Analyst So I was just wondering that, I mean ‐‐ and sir, for clinker also like 0.25 will include ‐‐ hello?

Adesh Gupta, Chief Financial Officer Yeah, 0.25 includes clinker both from Indian operations as well as Star, but that volume has is ‐‐ as you said, is very less. As far as the Star Cement volume is concerned, in quarter three, we did 0.73 million tonnes, both cement and clinker combined.

Achint Bhagat, Analyst Unidentified Speaker You see, there we have been operating at very good capacity utilization rates of 90% plus.


Unidentified Speaker Consistency.

Achint Bhagat, Analyst Okay, okay. Okay, thanks a lot, sir.

Operator Thank you. We're going to take our next question from the line of Pinakin Parekh from JP Morgan. Please go ahead.

Pinakin Parekh, Analyst Thank you very much, sir. Sir, my question relates to the VSF demand situation locally in India, I mean the company has reported a strong volume growth in VSF in terms of quantity. So just trying to understand, is this growth coming from India or are you exporting out more of your volumes outside of India? I'm trying to understand is this ‐‐ has this got to do anything with the margin on the margins?

Adesh Gupta, Chief Financial Officer From where have you got the figure capacity in terms of ‐‐

Pinakin Parekh, Analyst

I mean the volumes in ‐‐ it has been flat year‐on‐year, I mean, given that overall the last three months the Indian economy was in the slightly soft patch. So just trying to understand that, is there a higher share of exports from here?

Unidentified Speaker I think the proportion between domestic to exports more or less continues at what it is was earlier because there have been certain segments of product that we've been exporting even in earlier years ‐‐ continue to export, but there has been fundamentally no change. I think more or less the proportion continues to be in line with what it was in earlier years. Okay, okay. And sir, my second question relates to the cost in VSF. I mean, so obviously the pricing is how the global demand supply dynamics move out. But in terms of cost, should we see any moderation in cost going forward or the weakness in rupee also means that the cost pressures also remain elevated?

Unidentified Speaker Again, my friend, I'll have to give you some time very long winded answers, lot of it depends like my most important cost which has gone up when you look at VSF standalone is caustic. If you look at the dynamics of caustic, it's again related to the high caustic prices, when chlorine is being sold at negative realization. With a direct consequence of what is happening to the chlorine derivative industry is largely the PVC industry.

Again it's got to do if like housing were to shoot up in US and other places, construction activities were to pick up, China will do come back into the marketing, therefore, PVC, then again one could see some sort of changing in the dynamics of these. So, those are factors which are impacting much more.

Obviously, if rupee were to appreciate then obviously my cost pressures heal, but also you must understand that in a global market then my realization could get impacted because like we'd always make sure that your customers are concretive so you have to price yourself, considering the fact that either imports or exports, your customers remain competitive.

So, there's no one particular figure or item I can look at while taking a decision on what will be impacting my cost or pricing. So those are all and then if you were to depreciate, certainly it adds to my cost on ‐‐ because my suppliers also price themselves on a rupee parity of imported materials. But then so does my realization ‐‐ and so does my customer realization improve when they're exporting or selling it even in the domestic market.

So I think these point‐to‐point variation, month‐to‐month, quarter‐to‐quarter will always continue based on the dynamic world that we're in. Fundamentally our endeavor is to always continue to improve our operating efficiencies which we measure by, and if I were to take constant prices then am I doing my fundamental efficiency? And on that front I can tell you they've been making good progress, and certainly some of the better numbers that you see ‐‐ while they may not look good in terms of comparing with earlier period, also have a big element of the efficiency building ‐‐ and therefore, you're not seeing the full impact of the ‐‐ cost increase is getting reflected, because some of them have been made up in the efficiency improvement that the business is (inaudible) over a period of time.

Pinakin Parekh, Analyst Thank you. Sir, my last question is what kind of VSF inventory would we carrying right now?

Unidentified Speaker I think the inventory levels, if I wanted to ‐‐ I've slightly elevated which I wanted to ‐‐ I could get rid of it in a day. You have to always ensure that balance yourself between volumes and realization. So I don't think we're adding unduly large inventory which would be a stream, but sometimes we do like instead of going in for distress sale and pushing material from our end to these customers end, when they don't need it, we ‐‐ allow that digestion to take place and then push our ‐‐

Pinakin Parekh, Analyst Understood, understood, sir. Thank you very much. Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please limit your questions to two per participants. We're going to take our next question from the line of Reena Verma from DSP BlackRock Mutual Fund. Please go ahead.

Reena Verma, Analyst Hello. Yeah, thank you for the call, and just to clarify, I'm calling from DSP Merrill Lynch.

Adesh Gupta, Chief Financial Officer Right, (inaudible).

Reena Verma, Analyst So, sir, just couple of questions. Firstly, on Turkey, where you've said that environment clearance is awaited. Does this mean that you now have at least a broad sense of what kind of CapEx commitment Grasim may be looking at over the next couple of years, if you can please share that with us?

And on staying on the subject of CapEx, we've had a spillover of your CapEx from '13 to '14, though your verbal commentary on all the projects is that they're on track. So if you can just please help us understand the movements in cash CapEx?

My second question is on the notice on the Harihar unit that you've given to the stock exchanges, I just wanted some clarity on whether this 190 tonnes per day of production is for the expanded Harihar capacity, or is this the pre‐expansion capacity that you've talked about as the ability to manufacture? And should we assume then that all of it goes away for becoming six months until the next rain? Those are my two questions on CapEx and on Harihar. Thank you.

Unidentified Speaker Okay. Now, Harihar, let me tell you that our fiber plant is up and running and the capacity as we had mentioned to you, we had increased from 140 tonnes to 240 tonnes.

Reena Verma, Analyst Yeah.

Unidentified Speaker And the plant is ready. Now you may say then why are we talking about 190 tonnes, because we had explained to you that along with it, we'd also to upgrade our power plant and power plant has a longer lead time than the fiber plant. And therefore, now that power plant is ready, in fact the situation around delays or equipment supplies for our power plants, so that is now ‐‐ we are late by about two months in that in power plant due to delay in some equipment supply, but that turbine is also on its way, so we should be ready with our power plant also within this quarter, and that would have taken us to 240 tonnes, 100 ‐‐ full 100 tonnes capacity, additional capacity would have, that's how it was to be build out. Now we are not going to be shut down for six months, I'm sorry if you're managed to convey that impression, because the flow in the ‐‐ based on our current expectations, it's very difficult to predict when you're dealing with nature, but based on our best estimate now it would be low because the way water gets supplied from time to time, we are likely to experience may be about 42 to 50 days of ‐‐ around 40 days or 50 days of shutdowns, not the whole six months. I'm sorry if you're managed to convey that impression in our communication. That won't be shared ‐‐

Reena Verma, Analyst No, I thought since it's due to the rains we'll have to wait for the next rain?

Unidentified Speaker No, no, what happens is that there is a flow in the river, but then that's ‐‐ it's controlled from various sources that dispatches are controlled. So on and off, there will be water availability. We have our own reservoir. So it's a combination of various factors which we'll have to look at. Our best estimate today is roughly about 40, 45 or as best 50 days of closure, not six months. I'm sorry if you're conveyed that in ‐‐

Adesh Gupta, Chief Financial Officer (inaudible) there is no running river, whereas in this case there's a running river.

Reena Verma, Analyst Okay, sure. Sir, that helps a lot. And, so this 40 to 50 days is a closure or just a slowdown in production?

Unidentified Speaker Actually you see what happens is that you ‐‐ we never really ‐‐ when we say closure, we ‐‐ very rarely it goes down in the sense of a full closure, because the viscose roots have be kept warm. So to that extent when like ‐‐ but there will be no effective production taking place. So for all practical purposes in terms of revenue, it's a closure. But not in terms of like ‐‐ I don't shut down my machines and like it's not that ‐‐ you can't bring the activity to a zero level because otherwise the start‐up cost should be significant.

Reena Verma, Analyst Sir, I'm sorry to persist, but just hopefully my last point on Harihar, which I want some help is, so effective given that you have almost 26,000 tonnes of inventory, this suspension or whatever slowdown, you should have no impact on your sales outlook?

Unidentified Speaker Yeah, you're right. To that extend that it won't have any impact on sales, but also it does have an impact because like it's not that we should not ‐‐ it should be in our history that we have never ‐‐ even though we might have temporary allowed stock to go out, we always would ‐‐ been able to sell those stocks. So to that extent, the loss of production is

Reena Verma, Analyst Okay, thank you.

Unidentified Speaker And regarding your question on Turkey, we expect environment step over to come through sometime this quarter. And certainly, I think maybe you don't like (inaudible) every time they ask that you have ‐‐ we have to give you some new information, so hopefully when we come up with our annual result maybe the right time for us to share with you all our CapEx plans.

Reena Verma, Analyst Sir, I just ‐‐ I don't want to push the envelope too much, but do you have like at least a big picture CapEx number? Is it like big or I mean I'm just looking for some sense.

Unidentified Speaker Unfortunately, we have work in industries which are capital intensive. So all our projects do require lot of investment. And then over a period of time, they are also proved to be good return to shareholders. So, yeah, but certainly any fiber project doesn't come for so much CapEx. But I think on the numbers part, I should appreciate that it's better we give it to you at the right time rather than prematurely give any number which unnecessarily creates more wrong calculation rather than the right calculations.

Reena Verma, Analyst Sure, I appreciate that. I'll wait for your inputs then.

Unidentified Speaker Yeah.

Reena Verma, Analyst I also had a follow‐up on that on the cement CapEx being a bit fluid between '13 and '14.

Adesh Gupta, Chief Financial Officer The cement that maybe our CapEx actually ‐‐ in the main plants, there is no delay because of land issues but some of the draining units and that those have been delayed because of that land acquisition, and even some land bank also which we want to build for any future plants, they're also ‐‐ because of the present land conditions, things are not moving and that is land and if you say the major reason of lower CapEx ‐Sir, that's very helpful. Just a quick small follow‐up, if you permit me on ‐‐

Operator Sorry. If you can ask a question as a follow‐up ‐‐

Reena Verma, Analyst Okay, sure. Sure, sure, sure. Thanks.

Operator Thank you. We're going to take our next question from the line of Rishab Bothra from Batlivala & Karani Securities. Please go ahead.

Rishab Bothra, Analyst Sir, shortly two things. One, you mentioned your realization were down 5%. Do you mean it's YoY?

Unidentified Speaker Yeah.


Rishab Bothra, Analyst Secondly, going through your comments recently, we had lower volumes because mainly on account of poor realization and anticipating that realization may done up going forward, or is the demand was not actually available?

Unidentified Speaker You see the ‐‐ there's a ‐‐ like no direct correlation as such between realization and volumes in this particular case. Let me again clarify that overall the VSF industries even now in this last year like December, well, if you were to calculate, have seen about a 8% year‐on‐year growth over 2011. Now the volume growth, therefore, continues.

Rishab Bothra, Analyst Okay.

Unidentified Speaker Rishab Bothra, Analyst

Okay.

Unidentified Speaker And also ‐‐ so those price pressures will remain.


Unidentified Speaker And I think the people overall who are may be bargaining for a little bit of faster pickup in the western world of demand, it has been wobbly like some places you see some strength and some places you don't see strength.


Unidentified Speaker So, I think those are the factors which have governed these thing. But I think in volume wise, a couple of days inventory going up and down, I think we've been discussing it like at least over the six, seven conference call that I've been joining in, like four, five days inventory buildup, if you start getting panic then it's very difficult to learn industries.

Rishab Bothra, Analyst No, I believe completely. My question basically arrives to ‐‐ because you mentioned in case we want to get rid of inventory, we can get rid in Monday. So my thought was ‐‐ you're purposely holding in for better realization ‐‐

Unidentified Speaker I think may be pardon my saying, one day in a sense obviously ‐‐ in fact not one day. But I ‐‐ when we run an industry like when ‐‐ it's a very judicious decision, you have to keep taking whether like ‐‐ you're not allowing inventory to build up to a level which would make our operations unwieldy or difficult to run. But what I meant was the five, six days increase as an inventory like we've pushed, we could have ‐‐ like with a difference on realizations, there one can always push it out into the whole world. But I don't think that's the way to run the business then.

Rishab Bothra, Analyst Unidentified Speaker No, I think the countries where we are currently operating in there is no threat as much as we are in our own home country.


Unidentified Speaker If you're always feel more threatened about problems in other countries when we read about them, because we feel the whole place is going in much more difficulty ‐‐ but I think there's no ‐‐ like the countries where we operate, Thailand, Indonesia, China, Canada, Sweden, we don't anticipate any major upheaval.

Rishab Bothra, Analyst Thanks a lot for answering my queries.

Operator Thank you. We're going to take our next question from the line of Girish Choudhary from Spark Capital. Please go ahead.

Girish Choudhary, Analyst Yeah, thanks for taking my question, sir. I have a couple of questions on your cement business. Firstly, can you share few details on Star Cement, sir, nine month volume, realization and profitability?

Unidentified Speaker At Star Cement, the profitability is improving and presently we are earning around INR400 to INR450 per tonne PBIDT.

Girish Choudhary, Analyst Okay. This is for the nine‐month number or this ‐‐

Unidentified Speaker It is three‐month as well as nine‐month. Okay, okay.

Unidentified Speaker It is ranging from INR400 to INR450.

Girish Choudhary, Analyst Okay. What kind of volume, sir, for the nine‐months?

Unidentified Speaker Volume just (inaudible)

Unidentified Speaker 90% ‐‐

Unidentified Speaker We are working on ‐‐ we are earning on 90% capacity utilization.

Girish Choudhary, Analyst Okay.


Against the industry of around 40% to 50% capacity utilization.

Girish Choudhary, Analyst Okay, okay. Sir, my next question is on the Pipavav 1 million tonne grinding plant, has it commissioned or still work is under progress?

Unidentified Speaker Yes, we have installed our (inaudible) and it has started to producing this month itself.

Girish Choudhary, Analyst Okay, okay. Sir, my question is, in one of your slides you've mentioned that the industry has added around 21 million tonnes of capacity in the nine‐month number. Is it possible for you to share the capacities? Yeah, this is available in public domain also.


Unidentified Speaker So major is again the Jaiprakash, which is 7.1 and I think JSW 4.4.


Unidentified Speaker Wonder Cement 2.5.


Unidentified Speaker And Reliance 1.5.


Unidentified Speaker Chettinad 2.5.


Unidentified Speaker Apart from that there are (inaudible) also. Sure, sir. Thanks a lot, sir.

Unidentified Speaker Yeah, thank you.

Operator Thank you. We're going to take our next follow‐up question from the line of Ajit Motwani from Emkay Global. Please go ahead.

Ajit Motwani, Analyst Just had a follow‐up question, sir. On your grinding units for the cement plant, I think for the Chattisgarh unit, we are at there grinding units?


Ajit Motwani, Analyst So, can you just ‐‐ if you can elaborate on the ‐‐ when we can expect the contribution of cement volumes from this expansions?

Adesh Gupta, Chief Financial Officer No, see, cement actually ‐‐ since there's a capacity ‐‐ for the cement ‐‐ clinker capacity build up itself take time. We have surplus capacities with the other ‐‐ which will take care of whatever clinker needs to take place in the Rawan plant.

Ajit Motwani, Analyst Okay. So you're saying that your clinker operations will start in 1Q and you have additional capacity there, and you don't have to really wait for the three grinding capacities, right?

Adesh Gupta, Chief Financial Officer See, if they come it will be more effective, but our overall volume will not ‐‐ but the capacities are not available.

Unidentified Speaker You may be aware that in cement the first year full capacity never come. It has to build up period of a time. Sure.

Unidentified Speaker By the time we have one of the grinding unit at the Chattisgarh will start. Apart from that in existing unit also we have a partly excess capacity. That will take care of our excess clinker available from this productions.

Ajit Motwani, Analyst So the delay is actually on the Bihar and Jharkhand units?

Unidentified Speaker Bihar and Jharkhand, as well as West Bengal also.

Ajit Motwani, Analyst Okay.

Unidentified Speaker All related to line only.

Ajit Motwani, Analyst Okay. And what's the status on the Hotgi and Malkhed units?

Unidentified Speaker Hotgi is ready.

Ajit Motwani, Analyst In terms of ‐‐

Unidentified Speaker And Hotgi is on time.

Unidentified Speaker On time, it is already ready. Sir, with the grinding unit ‐‐

Unidentified Speaker Grinding unit is ready but the clinkerisation, we are expecting by May.

Adesh Gupta, Chief Financial Officer And is ready ahead of the clinkerisation point.

Ajit Motwani, Analyst And Malkhed also?

Unidentified Speaker Malkhed is ‐‐ grinding unit will be later on. But by the time, Hotgi is available.

Ajit Motwani, Analyst Okay. And will all this be about 1.5 million tonne, 2 million tonne grinding capacities?

Adesh Gupta, Chief Financial Officer Our total capacity ‐‐ grinding capacity required is 10 million tonne and ‐‐ sorry 9.9 million tonnes, and they will cover over a period of two years in that capacity.

Ajit Motwani, Analyst Okay. Good. Thank you, sir. Thanks a lot.

Operator Thank you. We're going to take our next follow‐up question from the line of Achint Bhagat from Ambit Capital. Please go ahead.

Achint Bhagat, Analyst Hello? Hello?

Adesh Gupta, Chief Financial Officer Yeah. Yeah. Sir, I wanted to ask that you're saying that the 49 million tonnes that are coming in over the next three year. Sir, do you think it's more of grinding capacity than less of clinker capacity, which can create a mismatch between clinker availability?

Adesh Gupta, Chief Financial Officer See some of them are (inaudible) also ‐‐ the grinding capacity and since if you're also tracking, you will know that what is best.

Achint Bhagat, Analyst Yeah, right. Okay, okay, sir. Rest of my questions are answered, sir. Thank you.

Operator Thank you. We're going to take our next follow‐up question from the line of Reena Verma from DSP Merrill Lynch. Please go ahead.

Reena Verma, Analyst Yeah, sir, thank you once again for the opportunity. Just a small follow‐up on VSF. In the last two, three years, typically 4Q has been a quarter where margins have seen a pullback relative to third quarter because perhaps year end discounts, et cetera. Is there any change in the way the market is behaving this year, or do you think you could have similar year‐end discounts and ‐‐

Unidentified Speaker First of all, Reena, I don't think that status is actually correct. If you go back two year ago, I think may be one of my fourth quarters was a record busting year and I regret that because that raised up the expectations. So ‐‐

Reena Verma, Analyst Mr. Maheshwari, I don't talk to you without having my numbers in front of me, because I know you're so good with numbers. So actually we looked at last year's except one year in fiscal '11?

Unidentified Speaker No, no, that's what I'm saying two years of exactly, madam. Two years ago ‐‐

Reena Verma, Analyst Yeah. So to say that every fourth quarter is lower this thing is not correct.

Unidentified Speaker No, no. She is saying better.

Unidentified Speaker No, no, she's saying full ‐‐


Unidentified Speaker That is a down thing you know. So I thought I'll just ‐‐ so that's not correct and we don't have ‐‐ unlike consumer product, this a product where in a year‐end discounting helds.

Reena Verma, Analyst Okay.

Unidentified Speaker So what I would just wanted to sort of say ‐‐ tell you is, in the context like maybe I said that in a lighter mail, when I referred to the Q4 two years ago ‐‐


Unidentified Speaker What I meant was that these are not products which you can push out. Like consumer product, if you give me 20% discount and I know that next quarter you will maybe withdraw. But in our case, it's a product which goes into the value chain and I know that if ‐‐ I would rather ‐‐ much rather I'd have a consistent sale with a plus, minus small variation based on the stocking or the value chain demand‐supply situation.

So we don't indulge in any year‐end discounting or anything like that. It would largely be a function of how the various factors that we already discussed at length in terms of competitive fiber dynamics and the global demand‐supply situation, the global pricing, the rupee, dollar parity, the currency movements across the world, et cetera play out. So those would be the factors which would have an impact, not a year‐end sale or something like that. Sure, sir. Sir, and just ‐‐ one factual input if I could get from you is that today's price of VSF, the range today, is it lower than the third quarter realization that you have reported?

Unidentified Speaker Yeah, slightly lower.

Reena Verma, Analyst Okay.

Unidentified Speaker But it's better than the last month which we got out of December.

Reena Verma, Analyst Okay. Sir, thank you very much.

Operator Thank you. (Operator Instructions)

Jagdishwar Toppo, Analyst Operator, if we don't have, can you conclude the session?

Operator Certainly, sir. Sir, we got one question ‐‐

Jagdishwar Toppo, Analyst Okay, sure.

Operator Shall we take as a last question, sir?

Unidentified Speaker No problem. Okay. We're going to take our next question from the line of Tushar Manudhane from Quant Broking. Please go ahead.

Tushar Manudhane, Analyst Just data point would like have. Grey cement realization for the quarter?

Unidentified Speaker Around INR4,200 a tonne.

Tushar Manudhane, Analyst And the previous quarter?

Unidentified Speaker It is 3,900 ‐‐

Unidentified Speaker When you say previous quarter, you mean the sequentially ‐‐

Tushar Manudhane, Analyst 2Q FY13, yeah ‐‐

Unidentified Speaker Yeah, so it will be around INR4,350.

Tushar Manudhane, Analyst Okay, sir. Thanks a lot.

Operator Thank you. (Operator Instructions) As there are no further questions at this time, I would like to hand the conference over to Mr. Jagdishwar Toppo for closing comments. Thank you.

Jagdishwar Toppo, Analyst Thank you. We thank everyone. Mr. K. K. Maheshwari ji, Adesh Gupta ji, and the senior management team of Grasim and UltraTech for joining this conference call. Operator, please conclude the conference call. Thank you. On behalf of Axis Capital Limited, that concludes this conference call. Thank you for joining us. You may now disconnect your line.

Industries Q3 2013 Earnings Call 31 Jan’13 - AceAnalyser Call/100300_20130131.pdf · Grasim...

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