Q1 2012 Earnings Call - Grasim Industries Dt-1 Aug’11 Call/100300_20110801.pdf · Q1 2012 Earnings Call - Grasim Industries Dt-1 Aug’11 Operator Ladies and gentlemen, good day,

Q1 2012 Earnings Call - Grasim Industries Dt-1 Aug’11

Operator Ladies and gentlemen, good day, and welcome to the Grasim Industries Q1 FY12 Earnings Conference Call, hosted by Enam Securities. As a reminder for the duration of this conference, all participant lines will be 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 the conference over to Mr. Jagdishwar Toppo from Enam Securities. Thank you and over to you, sir.

Jagdishwar Toppo Thank you. Welcome everyone to Grasim Industries first quarter FY12 earnings call.

We are pleased to have Mr. Adesh Gupta, Whole-Time Director and CFO; Mr. Sharad Agarwal, GM Finance of Grasim Industries. From UltraTech, we have Mr. K. C. Birla, Senior Executive President and CFO; and Mr. Jagdish Without much delay, I hand over the floor to Mr. Adesh Gupta for his opening remarks. Over to you, sir.

Adesh Gupta, Whole-time Director Thank you, Jagdishwar. Welcome and good morning, everybody. Since I believe that most of you must be having our presentation and so, I will limit my presentation very short.

Let me start with the key highlights of the business. Both VSF and Cement businesses have shown better performance over last year. In the VSG business, after reaching peak in April, markets have shown signs of weakness and sharp decline in cotton prices and Chinese demand. Initially, volumes have been impacted as buyers have preferred to reduce pipelines stock in the value chain.

Our quarterly sales volumes at 54,839 tonnes decline by 19%. Prices of the all the fibres have witnessed sharp corrections more particularly in later part of the quarter, but they were better than the prices prevailing in the corresponding quarter last year.

Production at almost 70,000 tonnes was impacted during the quarter due to suspension of operation at Nagda because of water shortage Good news is that the plant is due operations from 30th June, 2011 with the arrival of monsoon and total shutdown this year has reduced to 27 days as against 55 days in the last year.

Despite the challenging environment, standalone revenues grew by 5% added by 29% increase in realisation. On a standalone basis, we have PBIDT increased by 15% to Rs. 350 crores. All JVs contributed to show better performance on the back of better realisation. The consolidated PBIDT grew by 22% from Rs. 314 crores to 382 crores.

The acquisition of one-third, the stake in Domsjo was completed during the quarter, consolidate results include pro-rata profits of Domsjo from 13th June, 2011. In the allied chemical business, PBIDT was up by 11% added by better ECU realizations.

Coming to cement business. In the cement business, growth slowdown continued during the quarter due to overall economic slowdown. Cement sales volume grew by 5% led by additional volumes of Star Cement. Operating cost increased due to the substantial increase in energy costs. Revenues were higher by 16% led by improved RMC and White Cement performance, acquisition of Star Cement and passing of the cost increases.

Overall quarterly profits improved despite the muted market conditions. PBIDT increased by 16% to 1,259 crores. We expect the cement industry to grow over 7.5% from the second half with expected improvement in infrastructure spending and rural demand emanating from good agricultural growth.

Now, let me move on to the financial performance. The consolidated revenue at 5,937 crores increased by 16% and consolidated PBIDT for the quarter grew by 19% to 1,748 crores. Interest and depreciations were marginally up mainly due to Star Cement. Consolidated net profit therefore was higher by 31% from Rs. 575 crores to 752 crores.

The performance on a standalone basis was impressive with increase in net profit by 40% from Rs. 224 crores to Rs. 314 crores.

Coming to the CapEx plan, expansion projects and VSF at cement businesses are progressed in as per scheduled. Orders have been place for long delivery critical equipments and civil work has already been commenced.

As informed earlier, the total CapEx including standalone is Rs. 15,400 crores, of which 3,400 crores is under implement in the standalone company and Rs. 11,000 has been in earmarked for cement business. CapEx too for the year is expected at around Rs. 6,800 crores, of which Rs. 800 crores has been spent during the quarter.

Finally, to summarize, most VSF and cement businesses have performed bad during the quarter. However, the environment in both the

businesses in the current quarter has become challenging. In VSF, the pressure is caused, the character in cotton prices and market conditions in China, with the onset of monsoons, cement prices have fallen amidst From Q3 onwards, rise in construction activities post monsoon and general revival of economies should boost demand and affect the prices ultimately. The -- while in the present scenario, while present scenario will improve gradually, the company will be able to face the present challenges through it's backward integration and cost related in VSF business, and driving distribution network in -- efficiency in cement business. The business will benefit from rising the -- as well as investment in the long run. Capacity expansions under implementation in the business will enable the company to grow at a rapid pace and consolidates it's leadership beyond further.

I am sure after the challenging quarter two, we should gradually show improved performance with existing competences and future plans. Thank you.

Jagdishwar Toppo Thank you, sir. Operator, can we commenced the Q&A session please.

Questions And Answers

Operator Sure, sir. Ladies and gentlemen, we will now begin with the question-and-answer session. [Operator Instructions]. We have the first question from the line of Jinesh Gandhi from Motilal Oswal Securities. Please go ahead.

Jinesh Gandhi Hi. Good morning, sir.

Adesh Gupta, Whole-time Director Good morning.

Jinesh Gandhi My question is on your VSF business. Can you throw some light on how demand is shipping up for VSF? And how would be the inventory levels?

Adesh Gupta, Whole-time Director See, in the last quarter as we said that the peak up was a little slow, and we have build up the stock of 15,000 tonnes in the last quarter. We believe that within our prices, standardizing in China. Probably in this quarter onwards, I think we will be able to reduce the inventory levels.

Jinesh Gandhi Okay. So the 15,000 tonnes of inventory is it company or you are showing it at the...?

Adesh Gupta, Whole-time Director Jinesh Gandhi Okay. Okay. But demand continues to remain decent, it's not under pressure?

Adesh Gupta, Whole-time Director Demand initially was under pressure because see, whenever the price correction takes place, if it takes...

Jinesh Gandhi

Right.

Adesh Gupta, Whole-time Director If it take place on a double -- side and people preferred to liquidate stock in the... and when it is on rising trend, people may try to build more inventories with that.

Jinesh Gandhi Okay, okay. Right. But now it has normalized, demand has normalized? Okay.

Adesh Gupta, Whole-time Director Yes. It was like that it was not normalized.

Jinesh Gandhi Right, right, right. Okay. And secondly in terms of realisations after the peak which we see during the quarter...

Adesh Gupta, Whole-time Director Yeah.

Jinesh Gandhi How would the current realisations as against 152 per kg?

Adesh Gupta, Whole-time Director See current realisation between 120 to Rs. 125 per kg.

Jinesh Gandhi Adesh Gupta, Whole-time Director And basically again it is realisation for about 15 to 20% up from the 31st March, 2010 level.

Jinesh Gandhi Right, right. Yeah, that's clearly the case. Okay. And now realisations are also now they are also stabilizing after a downward trend in last quarter or there we still see some pressure?

Adesh Gupta, Whole-time Director I think we will see the stabilization in quarter in the May, the quarter stabilizes it means that also led to stabilize and then VFS also.

Jinesh Gandhi Okay.

Adesh Gupta, Whole-time Director Relatively for the cotton market is bigger than any VSF market.

Jinesh Gandhi

Sure, sure. Because on the other side, because of strengthen crude prices, VFS price were also now stabilizing?

Adesh Gupta, Whole-time Director See if you are here, then one more succeed that I mean in case of cotton, the prices have gone up on almost from 100 to 200 -- and if index from 100 to 200 -- fixed on the peak whereas in case of VSF, it has gone to -- 161 and VSF almost 141.

Jinesh Gandhi Okay, okay. Right. And lastly on the VSF, how is the cost push, I mean are we seeing cost stabilizing at higher levels or we are continue to see cost push?

Adesh Gupta, Whole-time Director See basically, the biggest component of the cost in case of VSF is the -- which constitute between 55 to 60%. And see that has shown only a sharp increase, but the good part is you see that about 80% of the cost at the consolidated level, we have many outside --. So to that extent, we are take --. Okay, okay. Right. But then pulp prices are now stabilizing at higher levels or they are still going up?

Adesh Gupta, Whole-time Director Pulp prices actually see, finally it will all... see pulp prices because the business is not in a VSF business. The pulp mill and -- is on...

Jinesh Gandhi Paper side.

Adesh Gupta, Whole-time Director Paper side.

Jinesh Gandhi Right.

Adesh Gupta, Whole-time Director See, but dissolving that pulp business has gone up to 2,700 tonnes per kg has now come down to 1,400-1,500 --.

Jinesh Gandhi Okay. Right.

Adesh Gupta, Whole-time Director Actually we do business on long-term basis. So, therefore for us the prices applicable were at around Rs. 1,100, sorry $1,100 per tonne.

Jinesh Gandhi Right. Okay. Got it. And last question on cement, how realisations now versus 3,900 in 1Q?

Adesh Gupta, Whole-time Director

See, in cement I think there is about 8 to Rs. 10 fall in per bag prices and since the month end.

Jinesh Gandhi Okay, okay. Great. Thanks. And I'll come back in the queue. Thank you. Ladies and gentlemen, let's all move on to the next question. Participants are requested to limit their questions to two during the initial round. The next question is from the line of Navin Sahadeo from Edelweiss. Please go ahead.

Navin Sahadeo Good morning, sir.


Navin Sahadeo Right. Sir, one question on VSF, I mean average realisation is about Rs. 152 a kilo for the quarter?

Adesh Gupta, Whole-time Director Yes.

Navin Sahadeo And you mentioned that there has been like declines after that. Can you please tell us what are the current prices?

Adesh Gupta, Whole-time Director Yes, as I've said it is around between 120 to Rs. 125 per kg.

Navin Sahadeo Okay, okay. And also on the volumes strengths, sir, like first quarter had been a disappointment...


Navin Sahadeo Last full year, we did about 3.05 lakhs tonnes, what are the kind of volumes do you expect similar volumes for FY12 also or...?

Adesh Gupta, Whole-time Director Navin Sahadeo So should the volumes on a year-on-year basis be flat?

Adesh Gupta, Whole-time Director No, it should improve because there will be no 47 days curtain --.

Navin Sahadeo

So you're looking at improvement in volumes in here?


Navin Sahadeo Right. And last question would be on in cement, you mentioning that second half, you're looking at a revival at the industry level of about 7.5 and.


Navin Sahadeo So which means then so far it's been just a 0% growth for the industry.


Navin Sahadeo So are we like seeing the industry for the second consecutive year to be growing by 4-5%?

Adesh Gupta, Whole-time Director Obviously, it may submit in the first half, it has not grown, our calculate is 7.5%, overall growth will be in that range only. Right, sir. That's what I'm saying so, I mean two consecutive years back-to-back, we've been seeing GDP, cement growth coming much lesser than even the GDP growth rate.


Navin Sahadeo So how do you like see, when exactly do you see recovery, do you see in FY13 expected better?

Adesh Gupta, Whole-time Director See basically, actually the more recovery will come only based on the --, how if the monsoon remains like what are today, and then if really, if you go up, see ultimately why any slowdown has come because of the deliver, some kind of... some activities have come down in the overall growth. So that is revised, it was probably any... if we are... see, we are saying 7.5% more on conservative basis, if things move faster, and this has made our -- why the demands would not grow.

Navin Sahadeo So it's 7.5, okay.


Ultimately everybody is predicting and it's the same 8% growth rate and that from a general formula of cement growing at 1.25% and have 1.25 times of, it is still applicable. It is only...

Navin Sahadeo Sure.

Adesh Gupta, Whole-time Director all this -- to present conditions which is causing some kinds of bottlenecks.

Navin Sahadeo Sure. Sir, in the present conditions, I mean for volume growth for the company. UltraTech per say...

Adesh Gupta, Whole-time Director Yeah. What is the kind of volume growth you're expecting?

Adesh Gupta, Whole-time Director It will be inline with the industry.

Navin Sahadeo Sure. Okay. Thank you. Thank you very much.

Operator Thank you. The next question is from the line of Rajesh Kumar Ravi from Karvy Stock Broking. Please go ahead.

Rajesh Kumar Ravi Good morning, sir.


Rajesh Kumar Ravi Sir, if throw some light on the RMC business performance?

Adesh Gupta, Whole-time Director Yeah. Thanks. Yeah.

Rajesh Kumar Ravi The RMC business performance?


See RMC business has generally improved with maybe organized more. Mr. K. C. Birla, will give you a little more...

K. C. Birla, Senior Executive President and Chief Financial Officer Yeah. RMC turnover during this quarter is up by 25%, last quarter, it was generate 28 crores versus this quarter, it is 411 crores. And in terms of PBDIT number also last year there was also for -- all this quarter there is a drop inflow Okay. And in terms of volumes that you did in the RMC?

K. C. Birla, Senior Executive President and Chief Financial Officer I think RMC, volume is about 9.35 last year. Now it is 11 million cubic.

Rajesh Kumar Ravi 11 million cubic. Okay. And sir, the last quarter March quarter volumes, the performance numbers if you have?

Adesh Gupta, Whole-time Director March was 1.2 million cubic meter against March of 1.2 million we have done 1.16 million cubic meter.

Rajesh Kumar Ravi Sir, like initially is it 9.35 million cubics or like cubic meter?

Adesh Gupta, Whole-time Director 1.19 million cubic meter in March. June, it was 1.16 million cubic meter.

Rajesh Kumar Ravi Okay. And similarly 9.35 million cubics in the last June.

Adesh Gupta, Whole-time Director Last June. Yeah.

Rajesh Kumar Ravi Okay. And...okay. Sir, on the CapEx data that you have shared.


Rajesh Kumar Ravi I just wanted to know what sort of... see, most of the CapEx that are around Rs. 5,000 crores worth of CapEx in the cement business is on the logistics evacuation and upgradation? Yeah.

Rajesh Kumar Ravi What sort of improvement should be missing forward based on these CapEx, performance improvement?

Adesh Gupta, Whole-time Director I'd more like to tell you specifically, I think CapEx which we do have resulted 18 to 20% in the IRR and that is what we take in the new CapEx.

Adesh Gupta, Whole-time Director So out of this 11,000 crore CapEx, what we said is 9.2 million tonnes for...

Rajesh Kumar Ravi Right.

Adesh Gupta, Whole-time Director Capacity, and then other we have a logistic, the cement mill of 25% comes from logistic. So the -- and logistics infrastructure definitely is obviously said that we are planning more than 18% IRR on the CapEx.

Rajesh Kumar Ravi Okay.

Adesh Gupta, Whole-time Director Other CapEx is on the thermal plant, power plant of 75 megawatt and -- switch down. So all this initiative definitely will help during the quarter right now capacity.

Rajesh Kumar Ravi Okay. So because we are currently like doing good utilization levels of like in peak times UltraTech and Samruddhi both have achieved 90% plus capacity utilization. So just wondering what sort of this Rs. 37 billion would further in, how would that enhance the FX rating going forward?

Adesh Gupta, Whole-time Director No, this input various power and featuring media at the different projects. Okay.

Adesh Gupta, Whole-time Director In different location. You know that every years, we take some upgradation and plant for improving the efficiency of the plant.

Adesh Gupta, Whole-time Director And actually this also includes some land that we -- which we only acquire for good advantage.

Rajesh Kumar Ravi Okay, okay. And sir, one last question. On the -- business details also like initially you used to share the RMC and put the volumes and like you share for the other three Cement Clinker and the White Cement?

Adesh Gupta, Whole-time Director See, now considering the size of our cement business, it is a small -- portion. So therefore, we are not selling, if available and you

can I mean always take come in this details of the --.

Rajesh Kumar Ravi Sure, sure, sir. Yeah. Thank you so much for taking my questions.


Operator Thank you. The next question is from the line of Vivek Maheshwari from CLSA. Please go ahead.

Vivek Maheshvari Hi. Good morning, everyone.

Adesh Gupta, Whole-time Director Good morning, Vivek.

Vivek Maheshvari Adesh Gupta, Whole-time Director Yeah.

Vivek Maheshvari What gives you confidence that things will improve because if I go back in the history, I mean it took almost four, five quarters in 2008 to... for inventory levels to come down for sales to pick up again. So, and second, a bit on volumes again is, in your presentation mentioned that China was operating, industry was operating at 60% during the quarter and most players who are incurring cash losses. Was that something that was evident only in first quarter or there were pressures in quarter prior to that as well?

Adesh Gupta, Whole-time Director See, first of all, let me actually the conditions now cannot be, they are not parallel to what has happened in 2008. Actually in 2008, the whole economy evolves. The revival was coming in generally. In this case, only the cotton prices, and all of us grow that we were behaving... each of our results that has -- to that as the prices are at the good high level. So see whenever corrections for --, there is a tendency in many textile value chain. That they try to reduce, so that losses because of falling price can be avoided. And that is what has happened. So once the prices are stabilized at any level, it will approximately... ultimately for smooth running and you required and stabilized quantity also. It is not that the demand has disappear, it is only that for sometime that because our prices were falling and they were trying to managed with whatever minimum quantity is possible.

Vivek Maheshvari Okay. So now you are seeing with price stabilization, the inventory levels will not drop further in the trade.

Adesh Gupta, Whole-time Director That is what we feel.

Vivek Maheshvari Okay. And about China sir, what is something that you saw only in first quarter, there were, problems were visible in the prior quarters

as well.

Adesh Gupta, Whole-time Director Look China the basic, quarter has started falling, mainly from April onwards only. So therefore only... it is the offshoot of quarter fall.

Vivek Maheshvari Adesh Gupta, Whole-time Director Definitely, in case of what's --, for us the integration is very high --.

Vivek Maheshvari Sure.

Adesh Gupta, Whole-time Director Again, they were more dependent on quarterly in the pricing.

Vivek Maheshvari Okay. And second just housekeeping question on what would be the pulp prices during the quarter?

Sharad Agarwal, General Manager Finance Vivek, hi. This is Sharad here.

Vivek Maheshvari Hi, Sharad.

Sharad Agarwal, General Manager Finance See untimely the pulp prices, see there are two kinds of pulp prices, I mean which prevails, one is on long-term on a contract basis and second is based on the spot prices.

Vivek Maheshvari Sure.

Sharad Agarwal, General Manager Finance In case of spot, the prices are as high as $2,600 per tonne in April, and it has come down now to around 1,400 level. Whereas in case of long-term contract actually, we are paying only $11,00 per tonne because we pay based on only the index to be what is applicable for paper based pulp.

Vivek Maheshvari Sure, sure. And you have JVs and subsidiaries who also supply you pulp et cetera, those are at LT or long-term levels or those are at the spot levels. Because obviously, the consolidated, it would not matter but from a standalone Sharad Agarwal, General Manager Finance No, no. See, so far on -- before the acquisition of downgrade was only Canadian company...

Vivek Maheshvari Right.

Sharad Agarwal, General Manager Finance That were -- supplying to us only, they were not supplying to the outsider.

Vivek Maheshvari And that is at long-term price?

Sharad Agarwal, General Manager Finance There price was linked to the long-term money to our price.

Vivek Maheshvari Understood. Okay. And just last question which is both on cement as well as VSF, while it maybe difficult to predict realisations in both the businesses because of the volatility et cetera, do you think that cost pressures have peaked in both the cases after say coal linkage prices being already captured in the quarter, and so is the case with VSF. Your views on that?

Sharad Agarwal, General Manager Finance See, we can always risk in the way we will not be able to state that what I think it is. But look, see as far as coal is concerned, I don't think for a long-term that we will see volatility in coal I mean that is very clear. Till -- coal supply in India is stabilized, we'll see volatility.

Adesh Gupta, Whole-time Director That is the positive for us is make that since the demand is lower, we are optimizing on the cost. Especially this year, this quarter, indigenous coal, we have come down from 43 to 36%. Imported coal again has gone down from, indigenous coal we have improved from 36 to 43. Imported coal in which was 52%, now it come down to 38%. And we are focusing on use of petcoke which has grown up from 12% to 18%. So that no doubt that 30% increase full impact has not come but we are optimizing that on the products and demand.

Vivek Maheshvari And sir, when you say indigenous, you mean both linkage as well as open market, right? Adesh Gupta, Whole-time Director Right. Absolutely.

Vivek Maheshvari Okay. Sir, do you believe, I mean other than diesel price hike impact, pretty much everything is in the numbers then as you mean now volatility for the Indian and international prices but the costs are peaked to that extent?

Adesh Gupta, Whole-time Director No, I think there is plus minus of $2 to $3 for the imported coal, and since indigenous coal, 30% is already increase, so I think that is trend likely to be.

Vivek Maheshvari All right. All right. Thank you very much, and all the best.

Adesh Gupta, Whole-time Director Thank you.

Operator Thank you. The next question is from the line of Nivedita Joshi from CRISIL. Please go ahead.

Nivedita Joshi Good morning, sir. I have two questions on the cement business front. Firstly, I wanted to understand what was the railroad mix during the quarter? And second, would it be possible to share operating data for the Star Cement like what was the production sales and realisations for Star Cement?

Adesh Gupta, Whole-time Director Basically the railroad mix during this quarter is Q1, 60% is by road.

Nivedita Joshi Okay.

Adesh Gupta, Whole-time Director 36% is by rail. Okay.

Adesh Gupta, Whole-time Director And 4% is by sea route.

Nivedita Joshi Thanks sir.

Adesh Gupta, Whole-time Director Yeah. And coming to performance of Star Cement, that scenario in the UAE is still the demand is on the lower side, there is -- growth in the UAE by 13%.


Adesh Gupta, Whole-time Director But in case of Star Cement, our capacity utilization was more than 95%.



And our market shares, our sales grown up from 12.8% to 14.3%. Yes, definitely the sales realisation is concerned area time being, the prices is not included.

Nivedita Joshi Okay, sir. Thank you, sir.

Operator Thank you. The next question is from the line of Reena Verma from Merrill Lynch. Please go ahead.

Reena Verma Hi, morning, and thank you for the call. I just have some housekeeping questions. Yeah.

Reena Verma Firstly, I just wanted to know why your standalone depreciation had declined quarter-on-quarter? Secondly, I wanted to understand why the improvement in EBITDA per tonne in VSF is lower than the improvement in prices? So, if you can share with us the pulp price data for last quarter and this quarter please?

Adesh Gupta, Whole-time Director As far as your first question depreciation, we had aircraft which we have sold, and currently depreciation have come down. Coming to your VSF, actually the cost, if you compare with the corresponding quarter last year, the cost has gone up by almost 22%.

Reena Verma Sir, I'm just comparing sequentially.

Sharad Agarwal, General Manager Finance Reena.

Reena Verma Yeah.

Sharad Agarwal, General Manager Finance This is Sharad here.

Reena Verma Yeah.

Sharad Agarwal, General Manager Finance As far as the pulp cost is concerned, that was stable on the sequential basis. But the increase has been due to increase in the energy prices and increase in the caustic soda prices.

Reena Verma

Sir, what percentage of your cost is energy and caustic soda? That would be around 15 to 20%, depending on the price levels.

Reena Verma Yeah. But just I'm trying to understand this a bit better because, for a 15 to 20% increase cost to have impacted your overall margin so much.

Adesh Gupta, Whole-time Director No, no see again, the sales were lower in May of this quarter. So, there will be some impact on the... again the products in Q1, the product... you see you can't -- cost -- for 27 days. So, the cost have also gone up.

Reena Verma Okay, sure. And so the pulp prices are stable Q-o-Q in July, have they fallen from where they were in 1Q?

Adesh Gupta, Whole-time Director See, basically as I'm repeating to the kind of prices on a small basis, are falling. So wherever we are procuring either from the domestic sources or any --, see, those prices are definitely hitting us. So, we see like in this quarter our domestic consumption was up almost by 42% because of this cost when we had compared to the last quarter, corresponding quarter. Whereas the imported prices have gone up only by 5%

Reena Verma So now that the spot prices have corrected sharply.


Reena Verma Since July-September quarter.


Reena Verma Assuming long-term contract prices remain where they were. Yes.

Reena Verma You should have much lower costs.

Adesh Gupta, Whole-time Director We have the cost, whatever is the domestic sale, that will comedown, yes.

Reena Verma Okay. And on your CapEx, can you please tell us what is the CapEx incurred on VSF and on cement in 1Q?

Adesh Gupta, Whole-time Director It is 200 crores in case of standalone companies and about 600 crores in the cement.

Reena Verma So, you are expecting a very, very substantial pick up in the CapEx run rate for the rest of the three quarters?

Adesh Gupta, Whole-time Director See obviously, see we have taken up this expansion projects, certainly they will, that as they come closer to the...

Adesh Gupta, Whole-time Director This were the initial advantage for opening for the CapEx, now everything the -- everything will come, so naturally the Q3, Q4, the CapEx spending will be much more.

Adesh Gupta, Whole-time Director See, the only amount I think which may fluctuate -- much is I mean what we are proposing on the land and in case of -cement, because there are uncertainties.

Reena Verma And sir, just final two questions. Sir, one is one VSF, can you share with us the per day kind of run rate that you're seeing in July on sales? And in cement, can you please share with us what is the decline in cement prices compared with 4Q with 1Q on a region wise basis? Thank you.

Adesh Gupta, Whole-time Director Reena Verma So south has also fallen in your numbers?

Adesh Gupta, Whole-time Director Reena, it will be difficult to make a forecast on regional basis --. Therefore, it is better to talk on every call of Rs. 8 to Rs.10.

Reena Verma Okay. Sure. And in VSF what is the daily sales volume run rate for July.

Adesh Gupta, Whole-time Director See, I've not understood your --, still not going to see is the sales I mean they never take place --, see like in the cement business anywhere everyday production is sold on the same day actually. In case of VSF business, the production is, the last few days of the months, only the sales, I mean it is exclude or include, it is very difficult to say what is the average rate.

Reena Verma Okay. Fine. Thank you very much.

Operator Thank you. The next question is from the line of Arjun Kanani from Citi Equity Research. Please go ahead.

Analyst Good morning, sir.


Analyst Sir, I would request you to reiterate on the CapEx of the cement business...

Adesh Gupta, Whole-time Director Analyst I mean sir, the company have decided the total CapEx of around 11,000 crores in the next three years?


Analyst And I mean the capacity that would be 9.2 million that would be coming up. So, it would be commissioned by FY14 quarter one?


Analyst So sir, I mean of the total CapEx of 11,000 crores. So how much is the envisaged for the next FY12 and FY13?

Adesh Gupta, Whole-time Director When we are giving this 11,000 crore, that is the CapEx which is presently approved for the next. This is the schemes which has started under implementation in this year. See again in '12 and '13, we will take up a fresh CapEx and also apart from this CapEx and the new CapEx is for '12 and '13, yeah '12, '13 and '13, '14 will also be approved further when we go ahead.

Analyst Okay.

Adesh Gupta, Whole-time Director So out of the 11,000 crore, we presently approved 5,140 crore will be spend almost in this year, and 5,850 crores in the next 15 months thereafter.

Analyst So sir, I mean this would be there and along with that the new CapEx that would be planned in the year going forward?

Adesh Gupta, Whole-time Director Analyst And so and what would be the mix of internal the crews and external that the company would be using for that?

Adesh Gupta, Whole-time Director See roughly, we will be trying to 1:1 and since when we are carrying a bit surplus at the moment and this is sometimes it maybe that -- may require. We may use more internal but more or less, our policy is to have a 1:1 ratio but CapEx, the debt equity for CapEx.

Analyst Okay. And sir, just wanted to ask I mean has the coal prices been peaked out in this quarter or can we expect any further price hikes going forward?

Adesh Gupta, Whole-time Director I think since this is a domestic coal in the sense the government -- has increased the price by 30%. So we doesn't expect any further increase during at least for this year, I can't say after that. And imported coal also is almost softening by due to coal order, but as I said we are focusing on mixing different types of the fuel, so that we maintain cost -- very competitive.

Analyst And sir, I mean in the CapEx plan, sir, how much extra capitals or power plant could be coming up, given that 504 megawatt is the current capacity, I mean how much extra would be coming on board?

Adesh Gupta, Whole-time Director See there were two kinds of power plants, which will be coming. One is along with the expansion, and it will be about 95 megawatt included in. then secondly, we are also putting up new wastage recovery plant which is 45 megawatt and some thermal power plants but not for only existing operations also, which is 75 megawatt. So in all, it is about 200 megawatt I think which we will be commissioning within the next.

Analyst Okay. Thank you, sir. Thank you so much, sir. That would be all from me.

Operator Thank you. A reminder to all the participants in the question queue, please limit your quetsions to two during the initial round. The next question is from the line of Risha Batra from B&K Securities. Please go ahead. Good morning sir, and thanks for taking my call. Just wanted to know what are the inventory levels for VSF segment and valued at what prices both for raw material and finished goods?

Adesh Gupta, Whole-time Director See, in case of raw material, we normally keep one months stock and, whereas in case of pulp, the levels are around 15 to 17 days.

Risha Batra In quantum terms, if you could mention?

Adesh Gupta, Whole-time Director Quantum, we have already said, it is at June and it was 15,000 tonnes?

Risha Batra 15,000 pulp?

Adesh Gupta, Whole-time Director Yes. Not 15,000 pulp, it's 15,000 tonnes for VSF fibre.

Risha Batra VSF fibre?


Risha Batra 15?


Risha Batra Okay. And finished goods? No, no fibre has the finished goods. Pulp is the raw material.

Risha Batra Sorry, sir. And valued at?

Adesh Gupta, Whole-time Director At cost, there will not be... it will somewhere around 80-85.

Risha Batra 80-85? Do you mention 80-85?

Adesh Gupta, Whole-time Director Yeah, basically what Mr. Gupta is saying that it is valued at cost as for the company's policy...

Risha Batra Okay.

Adesh Gupta, Whole-time Director Which should be around Rs. 80-85 per kg.

Risha Batra Okay. So could be there some sort of lower realisation going forward further? Because of the prices?

Adesh Gupta, Whole-time Director I think you have joined late actually. I mean what we've said earlier also, what is that we see some kind of stabilization in China now and therefore we feel -- overall the markets would have stabilized by now.

Risha Batra Okay. Sir, we are expanding our capacities which will be coming out in 1Q FY14.

Adesh Gupta, Whole-time Director Yeah. What could be the stabilization time frame for these plants to run at 100% utilization rate.

Adesh Gupta, Whole-time Director See normally, VSF plant doesn't take much time to stabilize, they are stabilize within Q2... normally within three months.

Risha Batra Three months. And what should be the...

Adesh Gupta, Whole-time Director The only change in which we are is there -- in case of the expansion of -- that the proportion of the newer model we have et cetera is highly, and which is relatively new. So that will have to be watch that whether it will stabilize fully in three months or it will take some more time.

Risha Batra So these CapEx, when completely utilized will give a additional revenue and profitability of what tune?

Adesh Gupta, Whole-time Director See, clearly and when we start any project, actually we start the project with an IRR of minimum 15 to 18%. So -- three to four years perspective, that is returns of -- clearly.

Risha Batra Okay. And sir, you mentioned that we have long-term contract and spot contract. What's the mixed like percentage?

Adesh Gupta, Whole-time Director See, now 80% of the... actually, almost actually even including our future expansion, 80% is already recovered by our whole captive and users. So it is only the remaining 20, and that also more or less will be able to tie up with the long-term contracts.

Risha Batra Okay. Thanks, sir.

Operator Thank you. The next question is from the line of Salil Desai from IDFC Securities. Please go ahead. Yeah. Good morning, gentlemen.


Salil Desai My question is with reference to what Mr. Birla was saying. Sir, the domestic procurement of coal has improved to what 43 odd percent. Now this additional quantity has... have linkage is improved or we have increased e-Auction procurement?

K. C. Birla, Senior Executive President and Chief Financial Officer No basically, I said that, since the capacity utilization during this quarter has comedown from 85 to 81%.

Salil Desai Right.

K. C. Birla, Senior Executive President and Chief Financial Officer There was opportunity to optimize the cost restructure. Therefore, the linkage to all when the capacity were 100% or so then there was a shortage but when the capacity utilization is lower getting the sales in case quantity the percentage will improve.

Salil Desai Fair enough. Got it. And sir, any idea on how e-Auction coal prices are?

K. C. Birla, Senior Executive President and Chief Financial Officer I think there is 600 to Rs. 800 premium on e-Auction.

Salil Desai That is over a basic linkage?

K. C. Birla, Senior Executive President and Chief Financial Officer Yes.

Salil Desai K. C. Birla, Senior Executive President and Chief Financial Officer Right.

Salil Desai Now, sir in our case and what will be predominant grade of coal that we would be using?

K. C. Birla, Senior Executive President and Chief Financial Officer We are getting E and F grade coal.

Salil Desai Okay.

K. C. Birla, Senior Executive President and Chief Financial Officer Where the increase is 30%.

Salil Desai Okay. So largely, we are looking at the 30% increase. And sir, finally the tax rate seems to be a little on the lower side, any particular reason, because of the...sorry?

Corporate Participant Because of the high factory income and...

Adesh Gupta, Whole-time Director Presently our circular funds are on our side, whatever we invest in mutual fund et cetera that will give us a better.

Salil Desai Fair. Thank you very much.

Operator Thank you. The next question is from the line of Nikhil Deshpande from PINC Research. Please go ahead. Yeah. Good morning, sir.


Nikhil Deshpande Sir, on the white cement business, we have seen a decline in volume growth. Could you share with...

Adesh Gupta, Whole-time Director The -- one of the -- was close for 22 days, and therefore it was down.

Nikhil Deshpande Okay. So no such...

Adesh Gupta, Whole-time Director So, there is no demand issue or no, no.

Nikhil Deshpande Okay, okay. Sir, and the other thing is the 75 megawatt thermal power plant makes it recovery 45. When is it expected to come on stream?

Adesh Gupta, Whole-time Director About in the next year only.

{A: Nikhil Deshpande:} FY13?


Nikhil Deshpande Okay. Yeah. Thank you, sir. That's all from my side.

Operator Thank you. The question is from the line of Pritam Lala from B&K Securities. Please go ahead. Pritam Lala Yeah. Very good morning to the entire Grasim management. My questions are a bit macro in nature. And I'm not looking for accurate answers here. But just wanted a sense in the region for states that you sell, what would be the sector capacity as of now, the total capacity, a very rough sense in the regions that you sell?

Adesh Gupta, Whole-time Director You're talking of cement only?

Pritam Lala Yeah, cement.

Adesh Gupta, Whole-time Director In cement, our market fairly remains between 18 to 20 odd percent. And then we sell nearly 18 to 20% in the respective market capacity, otherwise see... or otherwise I put it otherwise that out of 100 crores what I say is 30% market is invest, the market -- 30% on the -- Mr. Birla will be able to give you.

K. C. Birla, Senior Executive President and Chief Financial Officer If you want some industry wise data, all India capacity is 308 million tonne.

Pritam Lala Yes.

K. C. Birla, Senior Executive President and Chief Financial Officer Out of this north 104 million tonnes, east 44 million, west 45 million and south 115 million.

Pritam Lala South 115. So, pertaining to the specific regions that you sell to, I'm just trying to gauge what could be the overcapacity in those regions as of now pertaining to the areas that you sell to?

K. C. Birla, Senior Executive President and Chief Financial Officer No, actually see lower we sell 30% of our sell in north and west market. And around 21% in southern market and around 19% in the east market.

Pritam Lala Adesh Gupta, Whole-time Director Since your question was more on a macro basis. See, there are always fluctuations from quarter-to-quarter between the supply utilization, but on a long-term basis, see we also plan our capacities to a particular -- we grow and line with -the chances that we will be -- so probably hit by in one region or we -- get very supervised profits in other region are also --.

Pritam Lala Considering your capacity utilization of 81%, would it be right to say that there maybe a 15 to 20% overcapacity in the regions to which you sell I mean very roughly?

Adesh Gupta, Whole-time Director We sell... we are the only -- Ambuja --, is the only -- in their player.

K. C. Birla, Senior Executive President and Chief Financial Officer I think it's only short-term goal, what we believe is considering overall Indian economy scenario. All joined will continue to grow. Presently this is because of no government spending and there is policy bottleneck.

Pritam Lala Right. I understand.

K. C. Birla, Senior Executive President and Chief Financial Officer Therefore this is the scenario.

Pritam Lala Right, right.

K. C. Birla, Senior Executive President and Chief Financial Officer Then we are the pan-India present. We take a decision, on the addition that the demand will continue.

Pritam Lala Right. I totally understand, I appreciate that. Just one more question. In the remaining couple of years, very rough sense again. I'm not looking for accurate numbers. Like you are expanding capacity, in those regions again to where you sell, what is the total incremental capacity which is coming up for the sector in those regions, a very rough figure would do? It will be difficult to exact the three -- what will be the journal capacity a regions, for our aggregate level I can say around 80 to 90 million tonnes capacity in the next five years.

Pritam Lala 80 to 90 million tonnes capacity will be added in the next?


Five years.

Pritam Lala Five years?


Pritam Lala This is on an all India basis.

Adesh Gupta, Whole-time Director That's right.

Pritam Lala Okay. Fine. Thank you very much.

Adesh Gupta, Whole-time Director No, see this question is... for benefit of other participants also actually, when we plan a new capacity, we do the bottom of our planning that what can be fairy needs ion the region et cetera and based on that we plan our capacities.

Pritam Lala And your IRR targets remains at what 14-15% I think?

Adesh Gupta, Whole-time Director No, no, IRR target is something between 16 to 18%. 16 to 18%. Okay. Thank you very much, sir.


Operator Thank you. The next question is from the line of Sandip Bansal from UBS. Please go ahead.

Sandip Bansal Good morning, sir, and thanks for taking my question. I have two questions. Firstly, what would be our imported coal cost currently per tonne?

Adesh Gupta, Whole-time Director It's around $141.

Sandip Bansal $141?


Sandip Bansal Okay. Fine. Sir, the other question that I had was we expect that industry over capacities likely to remain for the next two to three years but we are not really seeing this small players loosing money because realisations have remained good. So what are your views on consolidation in the industry, do you expect it going forward and would you be participating in the same if at all?

Adesh Gupta, Whole-time Director I think you see that definitely we are here for the growth whether it's organic or inorganic. But presently you see because of the consolidation you've got, there is a much more gap between the buyers and the seller expectation.

Corporate Participant But industry condition is to be segmented. Sir, but would you expect this gap between the prices to narrow or this expectation is not going to go away because pricing in the cement pricing in the industry remains healthy?

Adesh Gupta, Whole-time Director No, no see since, not many views in the company are taking place, we believe that the smaller place and we also doesn't -- maybe they are loosing today. They are optimistic about future as we are.

Sandip Bansal Okay, okay, fine sir. Thank you.

Operator Thank you. The next question is from the line of Mangesh Bhadang from Quant Broking. Please go ahead.

Mangesh Bhadang Good morning, everyone.


Mangesh Bhadang See, first one on the Domsjo acquisition that we had done. Basically on annual level what would be the contribution at net level from that acquisition? And secondly, how does it improve our raw material availability, the captive raw materiel availability for pulp in the Grasim standalone?


See, I can only answer the second question for much faster that it produces 2.10 lacks tonnes of pulp. And therefore since all the three companies and all of the group are participating, more or less I mean whatever our requirement for immediate future growth will be covered --. Secondly, as far as your margins are concerned, let me, in the first three months will be -- with us Domsjo earned 173 crores profit.

Mangesh Bhadang In first three months?

Adesh Gupta, Whole-time Director Yeah. Mangesh Bhadang And basically what you said is what was total production is, it may not be the necessarily be the one-third proportion in terms of giving out the pulp. So, it could be anything depending on the requirements of the company.


Mangesh Bhadang Okay. And sir, just one more question on UltraTech. See if I look at the total operating cost per tonne for UltraTech in the last three quarters, says from third quarter FY11 to first quarter FY12. It has been more or less similar like from 3,200 to 3,291. So not much of an increase has been there, but whereas all the other cost including P&F rate, the domestic other interest --. So what has led to this very slow progression in operating costs but when compared to even other companies that have reported.

Adesh Gupta, Whole-time Director Very good. Let me explain to you this way. In last five year from acquisition of UltraTec by Grasim, we put lot of CapEx relating to the capital efficiencies initiatives including setting up a power plant and all. So, all these are resulting into the advantage of UltraTech when the controllable cost are, can be controlled and the inflation related cost like rate et cetera, which are not controlled by us.

Mangesh Bhadang Right.

Adesh Gupta, Whole-time Director That is one of the reason we could contain our cost increase despite increase in the coal prices and other inflationary cost relating in -- which is raw material et cetera.

Mangesh Bhadang So basically, we don't, there was nothing one-off or probably something related to the inventory that we were holding, but it is mainly because of the improvement.

Adesh Gupta, Whole-time Director In the last three years period, if you see the inventory, the cost will be pan-out.

Mangesh Bhadang Right. Okay, sir. Thanks a lot.

Jagdishwar Toppo Melisa Jagdishwar here.

Operator Yes, sir.

Jagdishwar Toppo How many questions in the phone line?

Operator Sir, we have five.

Jagdishwar Toppo Okay, we can take.

Operator Sure. The next question is from the line of Girish Choudhary from Spark Capital. Please go ahead.

Girish Choudhary Hi, sir. Thanks for taking my question. Can you just share the details of Star Cement's revenue and PBIDT for the quarter?

Adesh Gupta, Whole-time Director Yeah. Star Cement, as we said our capacity utilization production wise we achieved volume of 6.66 lakh tonnes during this quarter.

Girish Choudhary Okay.

Adesh Gupta, Whole-time Director Realisation, -- realisation is in the range of 42 to $53 per tonne of cement. And operating PBIDT level, we are flat.

Girish Choudhary Adesh Gupta, Whole-time Director Yes.

Girish Choudhary Okay. Sir, how much of... what is the percent of stake we are holding in this company, sir?

Adesh Gupta, Whole-time Director We are holding 80%.

Girish Choudhary

Okay. How much we've paid as a consideration for this company, sir?

Adesh Gupta, Whole-time Director $356 million.

Girish Choudhary $356 million. Sir, the money...

Adesh Gupta, Whole-time Director The enterprise value has done in...

Corporate Participant Minus debt, so net-net is $158 million.

Girish Choudhary So is the consideration is fully paid for sir, as on 30%.

Adesh Gupta, Whole-time Director Yes, yes.

Girish Choudhary Thanks a lot, sir. Adesh Gupta, Whole-time Director Thank you.

Operator Thank you. The next question is from the line of -- from Deutsche Bank. Please go ahead.

Analyst Hi, sir. Just most of my questions have been answered, just one thing. On the other income part, has there been any profit from the sale of the aircraft or anything, because other income is about 80 crores, slightly ahead than what we usually booked?

Adesh Gupta, Whole-time Director The sale of the aircraft has taken place in the last month itself. It is only, I mean the other income in... I mean circular from mutual fund et cetera that whatever surplus once we are carrying.

Analyst Okay, okay. Okay, sir. Thanks, sir.

Operator Thank you. The next question is from the line of Ritu Modi from Ambit Capital. Please go ahead.

Ritu Modi Hello, sir. I just wanted to know, what are the RMC realisations for this quarter as well as the previous quarter?

Adesh Gupta, Whole-time Director See RMC realization basically goes only with the rate mix and what kind of mix is there it is very difficult to, you can get in touch with Mr. Jagdish Bajaj, he will be able to give you the answer offline.

Ritu Modi Okay, okay sir. And also one more thing is that you said your coal, percentage of coal, indigenous coal has increased from 36% to 43%. So, would it be possible to share the prices of the linkage if it's possible?

Adesh Gupta, Whole-time Director See the linkage prices are the same and which is applicable to... Sorry sir.

Corporate Participant Yes, linkage coal basically we calculate the prices is, for the per tonne basis linkage coal is just around Rs. 3,500 per tonne.

Ritu Modi Rs. 3,500. Okay. And the e-Auction prices are at around 600 to Rs. 800 premium to the linkage right?


Ritu Modi Okay. And sir, if you could just tell us, has UltraTech received any notice or something from the MCA in regards to the pricing allegation?

Adesh Gupta, Whole-time Director What is that?

Ritu Modi Has UltraTech received any notice or something from the MCA in regards to the pricing allegation because we just had a news flashing on Thursday or Friday saying that there might be a...?

Corporate Participant No, this is the old case regarding this competition commission notice, which was given to our cement companies, we will be dealing in consideration with our leader.

Ritu Modi Okay. No problem. Thank you so much. Thank you.

Operator Thank you. The next question is from the line of Sri Hari Sheshadri from Sundaram Mutual Fund. Please go ahead.

Sri Hari Sheshadri Adesh Gupta, Whole-time Director Yeah. Good morning.

Sri Hari Sheshadri Sir, can you just help me out with the... what kind of benefit we will have because of the CapEx on material and logistic evacuation, because how would it affect us in the operating cost in the long-term?

Adesh Gupta, Whole-time Director See let me explain, this will help us come closer to the key cement consuming market. If it's also incidentally help us in reducing our lease distance and freight cost.

Sri Hari Sheshadri Okay.

Adesh Gupta, Whole-time Director You see our freights, lease distance is almost -- sequentially and the setting up of this terminal will give us strong advantage in terms of maintaining this type of cost value.

Sri Hari Sheshadri Region wise, can you help us, help me out, which region you would be targeting, where is that going to be?

Adesh Gupta, Whole-time Director We have already said that we are setting up terminals in our key cement consuming market.

Corporate Participant So see basically, the main advantage comes is we think we will be able to take the material in a clinker form and which is much cheaper and --. And secondly when we take the same -- actually we get almost 20% discount from the government. So, even expecting the revenues -- bulk on the distance because of much easier to some quarter the packing et cetera you can do earlier, the most -- that maybe overall when your cost comes down.

Corporate Participant Let me add further that not only the cost initiative, that 100% dependency on the railway. The railway infrastructure has not increased. So, you will always have volume loss unless you create your own setup. Right, right.

Corporate Participant And therefore we are creating number of bulk terminal more states. So that dependency on railway to some extent can be reduced and we doesn't have any volume growth.

Sri Hari Sheshadri

Sir, when we can see the benefit of this?

Adesh Gupta, Whole-time Director Sir, there will be next 15 months onwards and then you will start seeing the benefit.

Sri Hari Sheshadri Okay, sir. That helps, sir. Thank you, sir.


Operator Thank you. Sir, we have one last question from the line of Jinesh Gandhi from Motilal Oswal. Please go ahead.

Jinesh Gandhi Hello?

Adesh Gupta, Whole-time Director Yeah. -- again for the last one.

Jinesh Gandhi Hello?

Adesh Gupta, Whole-time Director Yeah. Sir, can you repeat the profit of Domsjo which you mentioned?

Adesh Gupta, Whole-time Director 173 crores in this quarter.

Corporate Participant [Inaudible].

Jinesh Gandhi Sure, sure, sure. I understand that. And secondly, the tax rate for the full year should be closer to 25-26% or we expect it be lower than that?

Adesh Gupta, Whole-time Director That should be in the same range 25.

Jinesh Gandhi

In the same range. And lastly this cost optimization which we have seen on coal side. It's more to do with the lower volumes or we expect this to be more sustainable?

Corporate Participant No, I think the cost, market rate are almost, we are expecting that what we -- increase in the cost. But definitely because of this lower capacity utilization, we are focusing on optimize, running of the plants on different fuel mix. Therefore during this quarter, fuel mix has changed which is essentially in the course. And also the power consumption during this quarter has also come down.

Jinesh Gandhi Okay. So as volumes improve maybe in second half, one can expect reversal of fuel mix to earlier levels?

Corporate Participant I think yes, right.

Jinesh Gandhi Okay. Okay, sir. Thanks, and all the best. Thank you.


Operator Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the floor back to Mr. Jagdishwar Toppo for closing comments. Please go ahead, sir.

Jagdishwar Toppo Thank you. On behalf of ENAM Securities, we thank Mr. Adesh Gupta and the senior management team of Grasim, UltraTech and all the participants for taking their valuable time out to attend this conference call. Thank you so much. Good day.

Operator, please go ahead, and conclude the conference.

Operator Thank you. Ladies and gentlemen, on behalf of Enam Securities, that concludes this conference call. Thank you for joining us. And you may now disconnect your lines.

Documents

Q1 2012 Earnings Call - Grasim Industries Dt-1 Aug’11 Call/100300_20110801.pdf · Q1 2012 Earnings Call - Grasim Industries Dt-1 Aug’11 Operator Ladies and gentlemen, good day,