Ladies and gentlemen, good day and welcome to the Grasim Industries Limited Q2 FY 2023 Earnings Conference Call. We have with us today Mr. H.K. Agarwal, Managing Director of Grasim Industries Limited, Mr. Pavan Jain, CFO, Grasim Industries Limited, Mr. Jayant Dua, Chief Executive Officer, Chemical Division, Grasim Industries Limited, Mr. Rakshit Hargave, CEO, Paints Business, Grasim Industries Limited. As a reminder, all participants are in a listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference, please press star zero on your touch-tone telephone. Please note this conference is being recorded. It is now my pleasure to introduce your host, and I would now like to hand the conference over to Mr. Pavan Jain, CFO. Thank you, and over to you, sir.
Yeah. Good evening and a very warm welcome to all of you to this Earnings Call of Grasim Industries for Q2 FY 2023. As you all know, the global macro environment is passing through difficult times. We are witnessing inflation levels, especially in the developed economies, not seen in decades. Tightening of monetary policies by central banks across countries is leading to recessionary market conditions in many parts of the world. The ripple effects of the ongoing Ukraine-Russia war and COVID-induced lockdowns by China are adding to the challenging situation across the world. On the positive side, the Indian economy is showing resilience supported by the domestic consumption and expected to be the fastest-growing large economy. Coming to the company level key initiatives, as shared earlier, Grasim is investing for building its new growth engines in the form of two new high-growth businesses, namely paints and B2B e-commerce.
With our paints, we are on track for commissioning of our first paint plant by Q4 FY 2024 and remaining plants by FY 2025 in Haryana. Construction is in progress at five of the total six sites for the paint business. The statutory approval is expected to be in hand soon for the remaining one plant. Other activities for the launch of business are progressing parallelly. Progress on the B2B e-commerce business is also on track for commercial launch of the Minimum Viable Product 1, that is MVP 1, by Q2 FY 2024. Product categories to be covered by the platform include cement, steel, doors and windows, kitchen and electricals, paints, sanitary ware, plumbing and tiles. The leadership team hiring is ongoing and expected to be in place by Q4 this year. Simultaneously, technology partners for the platform are being finalized.
In our existing businesses, the board has approved an additional CapEx of INR 565 crore, out of which approx INR 382 crore is expected to be spent in current financial year and remaining will be rolled over to the next year. The additional CapEx is mainly towards land purchase for chemical business for chlorine works expansion and debottlenecking in our pulp plant at Harihar that will take the capacity of the pulp to 260 TPD, making the Harihar unit a fully integrated VSF plant. The debottlenecking will marginally increase the pulp integration by 2%, taking it to approx 37%. On the ESG front, in line with our commitment to cut carbon emissions, the chemical business now sources about 10% of its power requirement from renewable power which will increase to 14% by Q1 FY 2024.
The advanced material business is implementing a plan for sourcing 100% of its power requirement from renewable energy by Q1 FY 2024. The textile business has increased its share of renewable power to 15.7% in H1 FY 2023, which we compared with FY 2020, which was 0.8%. It is a significant increase. VSF business has consecutively for three years maintained its leadership position in Canopy's Hot Button Report 2022 by securing highest category, that is dark green shirt. Grasim's focused approach towards sustainability initiatives has led to a substantial improvement in S&P's DJSI score at 88th percentile for FY 2022 compared to 76th percentile of previous year. I will now briefly touch upon the key operational and financial highlights for the quarter.
This quarter has not been good for the MMCF industry globally, and we have been no exception to this. VSF business reported revenue of INR 3,231 crore and EBITDA of INR 210 crore. EBITDA is declined by 59% YoY. The decline in EBITDA is mainly because of lower demand due to subdued market conditions in the developed economies on account of inflationary recession and increase in cost of key inputs such as pulp, caustic soda and coal. The high cost of caustic soda is reflected and offset by the higher profit of the chemical business of the company. The VSF sales volume dropped by 14% on QOQ basis due to demand slowdown and cheaper imports from Indonesia and China. Grade VSF September 2022 exit prices were down by 9% compared to June exit prices.
Cotton prices declined by 24% in comparison of quarter end exit prices. Considering the prevailing demand conditions in the VSF business, the company has rationalized the capacity utilization at approx 70% for VSF sales. VFY business reported a strong performance for increased sales volume, recording a growth of 31% YoY. High consumer demand in the domestic markets supported by the festival and wedding season has augured well for the VFY business. On the positive side, the chemical business reported yet another quarter of robust performance, recording an EBITDA of INR 609 crore in Q2 FY 2023 on the back of higher caustic soda sales volume, which increased by 17% with a stable demand environment and better Q2 realization. International caustic prices have declined on QOQ basis due to increased availability on account of easing of supply chain disruptions.
ECU for Q2 FY 2023 stood at INR 49,503 per MT, which is an 89% increase on YoY basis, but an 8% decline on QoQ basis in line with the global trend. Oversupply and low downstream demand impacted chlorine realizations, which continues to be in the negative territory. The total chlorine integration percentage, including pipeline sales to our dedicated customers, now stands at 61%, which was 56% in Q2 FY 2022. Reaping the benefits of being a conglomerate on a standalone level, revenues for Q2 FY 2023 stood at INR 6,745 crores, which is an increase of 37% YoY, and the quarterly EBITDA of INR 1,712 crore and PAT before exceptional items at INR 1,052 crore are 14% and 11% up on YoY basis.
Here, I would also like to say that both EBITDA and PAT for the quarter at standalone level, the highest ever quarterly numbers for the company. Consolidated revenue for quarter is up by 22% YoY at INR 27,486 crore, led by robust revenue growth for both key subsidiaries, that is Aditya Birla Capital and UltraTech Cement. Consolidated EBITDA at INR 3,783 crore was down by 12% YoY, mainly due to cost pressure at UltraTech Cement. As of 30th September 2022, the company continued to be net zero debt with a net surplus of about INR 230 crore. With the large growth investment plans, the company is well positioned to participate in the high growth trajectory of the country. I would like now to hand over the call back to the operator for Q&A.
Thanks a lot to all of you for joining this call today.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask question, please press star one now. We have a first question from the line of Sumangal Nevatia with Kotak Securities. Please go ahead.
Yeah, thank you for the opportunity. My first question is with respect to this increase in CapEx. There was INR 3,000 crore increase this year, both under the head of existing capacity increases. If you could just explain where it is, basically, what is the capacity increase and the bottom line incrementally happening with this CapEx, both in VSF and chemicals? I mean, there were some discussion in the opening remarks, but if you could just elaborate on that, it would be very helpful.
The new CapEx proposals approved by the board are for two main projects. One is the expansion of our pulp capacity, which we have a pulp plant at Harihar. From 210 TPD current capacity, it will be increased to 260 TPD. With this, our Harihar VSF plant will be fully integrated. In the sense, we will have full pulp requirement met by our own pulp plant. That is one part. The second part is we are acquiring a large piece of land at Vilayat location to take care of our plants for the value-added products expansion in the chemical business.
See, our current Vilayat land is almost fully utilized, and we will need the new land parcel for the plants under our RAPS business. These are the two major products, the major products. The capacities will take time to come up. The spending will start happening from this year. Like VSF, the pulp plant will take about two years to this 50 TPD increase.
The 50 for the Chemical Division, this INR 250-INR 260 crore kind of increase in FY 2023 is entirely the land acquisition which we are building, right?
Yes. This is a Vilayat site. Our Vilayat current land parcel is fully utilized. We will acquire this land for all our future expansion requirements.
Okay. For the VSF, for the pulp, what is the total expenditure? I mean, INR 100 odd crore is actually an increase in FY 2023. What will be the total expenditure towards this increasing capacity for pulp?
Total from out of which currently our spend will be about INR 85-90 crore.
In total you said, sir.
INR 227 crore.
227. Got it. That's helpful. My second question is more from a longer term perspective on the VSF versus cotton prices. Now, if you see last six months, VSF trends are outperforming cotton in the downfall. Before that, VSF prices underperformed the cotton rally for a period of 18 months- 24 months. Going forward, if you could just share some perspective as to how should we see the normalized spread between cotton and VSF and our expectation for VSF prices in the coming quarters.
Cotton and VSF prices are directionally correlated. They generally move in the same direction, but the extent of increase in one doesn't necessarily reflect in the same increase in the other. As you said, last one and half years, cotton prices were rising much faster or much more compared to VSF. VSF has its own dynamics of capacity and demand, and cotton has its own dynamics. This time cotton prices have corrected much sharply, but VSF prices have not corrected to the same extent. Similar situation is expected to continue. We don't expect VSF prices to correct in the same proportion or same extent as cotton prices. Cotton is more speculative, more volatile.
Can we conclude that the demand supply prospects and the market bearing prospects of VSF currently is appearing to be much stronger than the cotton market?
This is not just a demand supply situation, but also a play of market expectations. Now everybody, the giants are expecting the prices to be more volatile, that they are having their inventory of garments, so they are not releasing orders. People are expecting prices to go down more or remain soft. In this high interest regime, people are they are very careful in building up inventories. Now their inventory correction is happening. There are many factors in. It is not just simple demand and supply alone.
Understood. I have more questions, but I'll join the queue. Thank you and all the best.
Thank you.
Thank you. We have next question from the line of Navin Sahadeo with Nuvama Institutional Equities. Please go ahead.
Yeah, thank you. Good evening, everyone, and thank you for the opportunity. Just taking on the previous question about VSF, during your presentation and of course even the global data suggests that VSF prices are on a kind of decline. Is the understanding correct that for us, the net realization are actually slightly higher sequentially?
Essentially, the realization is mostly flat.
Okay.
Internationally prices have come down, but Indian rupee depreciation has also helped to modify that. International prices and the general tendency of the prices is to soften.
Understood. Even then we have outperformed largely, as in the realizations for us have outperformed the global prices largely because of currency depreciation. Is that the correct understanding?
Yes.
The premise that I think the current spot prices are much weaker than even the exit prices which your presentation says were down by 4-odd%. Is it again safe to really expect that, of course, medium term can be good, but the immediate quarter, which is let's say the December quarter, can see further margin compression sequentially because the way the spot prices are?
Yeah. This is a very reasonable expectation and interpretation of the current situation. Yes.
Understood. Thank you. My second question was on the paint segment, and this was more to get like, you know, conviction or confidence in that business since it's a new business for us. When you say that pilot plant has started, can you give more color as to what exactly does it mean? Are you doing like, you know, test marketing in certain regions? Or what exactly does this mean? What is the capacity of this pilot project? And when you say Q4 commercial production, Q4 FY 2024 the commercial production is expected to start, what would that capacity be? Thank you.
Rakshit, would you like to respond?
Okay. As far as the pilot plant is considered, obviously, it is a small plant expected to make test quantities because launching for the first time, we would want to validate all the products in the market. As far as the first factory that we are talking about going online in December 2023, as we have disclosed that we are setting up 1.3 billion mL per annum capacity. The first factory would be in the range of about 200-220-odd million liters per annum.
Understood. That, that's helpful. Are we also then when we say testing the product, are we then also saying that we will be starting appointing dealers and the brand rollout also happens now to see the test success of it? Or how exactly do we get confidence on this?
No. Like we had said that, the launch can only happen once when the actual factory is commercialized, so it will follow the timeline, the timelines likewise.
Yeah. When you say pilot, a project, I think we are going to test the viability of the project.
No.
or product, you're saying.
No. The pilot plant is for testing the product performance and validity. It is for that purpose. It has got nothing to do with the commercialization.
Understood. Helpful. Thank you. Thank you very much.
Thank you. We have next question from the line of Pinakin Parekh with JP Morgan. Please go ahead.
Yeah. Thank you very much, sir. My first question is on the CapEx. The press release mentions a CapEx roughly of INR 6,500-6,700 crores versus first half spend of INR 1,500 crores. That implies second half of roughly INR 5,200 crores. Now, Grasim standalone was a net cash balance sheet of just INR 500 crores. In the second half of the year, would it be fair to say that there could be additional borrowings to fund this CapEx? Or will basically Grasim run down its existing treasury operations to fund the second half CapEx?
That will depend upon the speed of spending. We will look at the opportunities if and when there are good opportunities to borrow, we will do borrowing. If there's, I mean, the current volatility in the interest rates are good enough to liquidate some part of the treasury, we'll do that. Net-net, we don't expect to be net zero debt by year-end. We will have some net debt on the balance sheet by year-end.
Sure, sir. We're just trying to understand that the second half CapEx implies more than a tripling of the first half CapEx. In terms of the spending, what are the downside risks to the budgeted program? Because this is a very sharp step-up in spending that the company proposes.
There is a possibility of some slowdown in the spending. There may not be any material difference because what happens, so generally the approvals and ordering, et cetera, take place in mostly Q1 and Q2. The actual work starts now in the second half.
Understood, sir. Just a clarification on the paints business. The pilot plant is scheduled sometime this year, and the first plant gets commissioned in Q4 FY 2024. In terms of the launching of the brand for the paint business, and the marketing and the brand building, should we expect that to happen after the first plant is commissioned, so that would be more like FY 2025? Or would that start in the next two quarters before the first plant gets commissioned? Just trying to understand the sequencing of that part of the launch.
Yeah, Rakshit.
Yeah. If I might add, the brand launch can only happen with the proper launch, which will start with the factory, and we will adhere to that schedule.
Okay. It's fair to say it will happen only after the first plant gets commissioned in the fourth quarter of 2024.
Yes.
Understood. Thank you very much.
Thank you. We have next question from the line of Nirav Jimudia with Anvil Research. Please go ahead, Nirav.
Yeah, good afternoon, sir. I have a question on the chemicals. Sir, your presentation says that we have been able to increase our VAP production substantially because of the commissioning of CMS capacity which happened in October 2021. If you can just let us know what is the capacity utilization of the CMS plant in Q2 FY 2023. Along with that, if you can help us explain what was the increase in the EBITDA of VAP in H1 FY 2023 versus H1 FY 2022. Even if a percentage margins would help, sir.
The CMS plant was actually a vertical startup. I think we reached 85% capacity within the first quarter of its launch in field October. By December or January of the production, we were able to hit about 85% mark, and we've been hovering at that capacity utilization ever since, you know. Depending upon market reactions between 90%-80% is what we found. That's why to your first,
The second one in terms of the differential in your margin of VAPS. Give me a minute, and I'll just pull the data out. You see, at the end of the day, we've got about, let's say we've got about a 20% or 20%-30% odd jump on our EBITDA, on the VAP side because the VAP side actually runs into multiple products.
Correct.
No, it's actually down by around 20%-30% or year-on-year up for a simple reason that chlorine has been highly impacted in the quarter two on its negative pricing.
Correct. Sir, when we transfer the chlorine from the caustic to the VAP side, that happens on a transfer pricing, I believe. Because in Q2, we have seen chlorine prices going as negative up to INR 9-INR 10 also. Wouldn't that have been captured in the incremental VAP profits?
Your point is absolutely fair. See, what happens is with the caustic running on high realization in the market. Everybody has been, you know, producing caustic at the cost of chlorine being sold at a high negative.
Correct.
While you might be in a situation where you're transferring at the market price, the chlorine negative price to your product.
Yeah.
Are the others doing at the same level, and there has been a lot of intensity and competition on the chlorine derivative side, along with that of chlorine. Both of them have seen a subdued margin compared to Q1.
What you mentioned is as compared to last H1, this H1 we have seen an actual 20%-30% decline in VAPS profits. This is what you have been trying to say.
While our volumes have gone up.
Yeah.
Our margins have come down, but it gets more than adequately compensated with the caustic price.
That's true. Second question.
The play is going to be between three of them.
Yeah. Second question is on the epoxy as well as the ECH CapEx. If you can just let us know the timeline of the commissioning of both the projects. What is the total CapEx for both of them, and how much we have spent till date? Now related question is because you have mentioned that we have seen the specialty share of epoxy going up in the overall portfolio this quarter. If you can just help us explain what is our current share of specialty epoxy in our overall epoxy sales, and once our new capacities will be commissioned, how that mix would look like.
Let me give you the commissioning time of the epoxy and ECH specifically. For the epoxy, it will be Q1 of FY 2024.
Okay.
For ECH, it will be Q1 of FY 2025.
Okay.
Now, that's what the team members see at the moment. I think largely both the plants are just at the moment closing on their negotiations for capital equipment. Not a lot of material amount of CapEx has been spent. As Mr. Pavan Jain was saying, largely the CapEx trends will come in the H2 part, is when the two ordering will be happening. Here, you are mostly closing the negotiations and the technology alignments.
Correct. Sir, if you can just touch upon the total CapEx that needs to be spent on both the projects cumulatively, that would be helpful.
Epoxy, if we total our spending on the doubling of the capacity would be about INR 3,860 crore.
Okay.
ECH
Will be somewhere around INR 450 crore plus.
Okay, INR 454 crore. This is what you mentioned, right?
Yeah, yeah.
Got it. Sir, my question on the specialty epoxy, if you can just give some understanding on the same, that would be helpful.
See, if I, you know, the specialty chemical, the specialty part of epoxy is doing very well. It is in the range of about 30-35% as of now.
Okay. Is it safe to assume that once we double our capacity, that mix would continue to remain at those levels or, that mix would see an uptick once those incremental capacities would be in place?
I think it's a question a little premature to answer at this moment.
Okay.
Logically, yes, the tick would be on the positive side, but very difficult to put a number or a figure today on it.
Got it, sir. Sir, last quest-
I'm sorry to interrupt. Sir, please come back in the queue, please. Thank you. We have next question from the line of Prateek Kumar from Jefferies. Please go ahead.
Yeah, good evening, sir. My first question is a bookkeeping question. Can you give data on VSF segment revenue and EBITDA for the quarter?
See, we are not giving separately numbers of VFY EBITDA and revenue, et cetera. As I told you, the VFY revenue, VFY volumes are doing well. VFY volumes are up by 31%, this quarter on YoY basis. And the cost increase in the VFY, we have been able to pass on because of the good demand condition in quarter two.
This quarter onwards, you will not be giving VFY data because the last quarter we were giving the data.
No, I don't think we have separately given any VFY data.
We were giving every quarter this data since ever.
Okay. We will possibly share that. I think, let us recheck that. The VFY business only directionally, let me share with you, the VFY business has done well during this quarter. Their EBITDA is up and the volumes are up. The prices they are able to pass on the cost increase in the realized.
My second question is on, like, on CapEx. Second half, if hypothetically if we see some lower CapEx versus projected CapEx of over INR 5,000 crore, would that impact the timelines for first plant of paints in FY 2024 or is it related to some other projects?
No, no. See, the paints we have already told you that we, the first plant will be commissioned in Q4 next year. That we are on track. For the existing businesses, especially on the modernization and normal maintenance CapEx, there may be some slowdown or some delays and which actually gets rolled over to the next year. There may not be a large difference between what we have already projected versus actual.
Sure. One question on VSF profitability. It probably has slipped to below INR 15 per kg this quarter or closer to INR 10 per kg. This seems to be the second lowest or third lowest kind of profitability in past many quarters, like leaving aside the COVID quarter of Q1 2021. How should we like sort of look at this profitability like, let's say, beyond like 3Q, which is expected to be much weaker. Like beyond 3Q, how should we look at the profitability in this segment?
VSF profitability is expected to remain under pressure for the time being because input prices remain elevated and in line with the cotton, the sentiments are depressed and VSF price is also affected by continuous lockdown in China and slowdown in demand in Europe and U.S., which are the major textile consuming countries, centers. For the time being, the VSF margins will most likely remain subdued.
Sure, sir. These are my questions. Thank you.
Thank you. We have next question from the line of Vipul Shah with Sumangal Investments. Please go ahead.
Hi, sir. Thank you for the opportunity. My question is, sir, how do we calculate ECU per ton? Means only chlorine is included in the by-product. Means one ton of Caustic Soda produces how much chlorine?
ECU is calculated as a function of the caustic, both liquid and solid, also chlorine and then hydrochloric acid. The formula for chlorine production is 1 ton of caustic generates 0.89 ton of chlorine.
Okay. There we are carrying negative carry as on today, right?
On your own, 1 ton produces close to 0.9, and that's running in positive and one is running at INR 9-INR 10 negative as stated in our listing, which you can figure out.
Okay, sir. My second question is, we are totally self-sufficient, as far as pulp is concerned for our VSF business or we have to purchase any pulp from the market?
We do have to purchase pulp from market. Our integration is in the range of about 35%. We have long-term arrangement with one to two known suppliers. We have a formula-based pricing. We do have to purchase pulp from outside to that extent about 35%.
Okay, sir. Only 35% we are integrated.
Here just I would like to add, see we have our pulp JV. One of the JV plant is paper grade pulp. They manufacture paper grade pulp. We also sell that paper grade pulp in the market and at the same time we buy DWP grade, our VSF grade pulp. If we add that then our integration goes to about 35%. We have kind of hedging, you know, when we have the paper grade pulp which goes to the market and we buy the VSF grade pulp.
Any plan to increase our pulp integration over medium term, sir?
We are doing a small depulping making at Harihar. That is a small thing. We are working on some plans for circularity where we will have plans to use the used garment, cotton garments. It's still some time away. That is the way to increase or reduce the need for virgin pulp.
Thank you. We have next question from the line of Shalini Vasanth with DSP Mutual Fund. Please go ahead. Thank you. We have next question from the line of Aasim Bharde with DAM Capital Advisors. Please go ahead.
Just one question. What is an update on your tie-up with Lubrizol to manufacture CPVC resin? The tie-up was announced in late 2020, and the first phase was supposed to start by end 2022. What is the status on this one now?
There was a change in management at Lubrizol that has led to a delay. There was about 12-18 months of, you know, as the new management settled down and delayed. Now things are back on track, and we expect that in about 24 months the execution will be kind of over out there. That's the communication we received.
24 months from today, right?
Yeah.
That will be for the first phase or for the entire plant?
The first phase. We're only talking first phase.
First phase. Just, lastly, we are not spending anything over here, right?
No.
It's entirely their capital.
There's no capital burden on Grasim at all for this particular project.
Okay. Thank you. Thanks a lot.
Thank you. We have a next question from the line of Jiten Doshi with Enam Asset Management. Please go ahead.
Good afternoon, sir. I would like to ask you about your paint business. What is the capitalized loss that you're projecting just before commencement? What sort of interest or losses would you capitalize prior to commencement?
The interest till this plant commissioning will be capitalized. I don't have the number ready at the moment. Rakshit Hargave, do you have that interest capitalized number readily available with you?
No, I don't have it readily available, but it will.
We will share with you separately.
Sure. I wanted to ask you that at full capacity, what do you really estimate the paint business turnover? Because you'll be putting this CapEx with some calculation. Roughly going by, whatever CapEx that you're putting in, what should be your output in terms of top line in this at full capacity? You know, the way I would want to answer this question is that we have declared that we are setting up 1.3 billion liters capacity. And you would know what is the percentage utilization, capacity utilization in major paint companies. And then it becomes a function of pricing. You know, I don't think that I want to disclose anything on how would the pricing in the market, you know, develop once when we come in and after a few years.
I think the answer lies in putting those dots together. You know, that's how. We would not want to share in terms of, you know, what have been our assumptions on our business plan at the minimum. You know, these are how the building blocks will look like. No. I assume that, you know, there will be some sort of a calculation which will be a return on capital employed number that I'm looking for, not really your strategy in terms of how you're going to price, et cetera. I'm just saying what sort of return on capital employed can we expect, let's say in year three, not in year one. Okay.
The way we are looking at is, I would put, is that we are looking towards keeping the EBITDA losses to a reasonable amount and to become a profitable business as soon as possible. Okay. I mean, just to get it, at full capacity, would you be doing a 3x of the gross profit or what number can we factor in from the growth as a base? I think, Pawan, maybe we could engage separately in terms of clearing these queries, you know, with whatever numbers we can share with you.
As of now it is very uncertain to give any kind of numbers of year three or year four or year five. I mean, we are still away from the actual product coming to the market and how the for example input prices will behave and all that. It is not a year one, two or three kind of story. We are in paints for the long haul. I think let us come to a stage where we can give you some kind of numbers on the paint business.
Thank you. We have next question from the line of Shalini Vasanta with DSP Mutual Fund. Please go ahead.
Hi, this is Vivek. I'm sorry I got cut last time. My question, if you do a rough cut mathematics, the net debt goes up to about INR 2,000 crores as at March 2023. I just want to know whether that number is correct. Is there a debt-to-EBITDA guidance that you have for a longer period of time as you undertake this large CapEx? Is question number one. Question number two is, whether there is any working capital release that you anticipate in the second half, given the fact that, you know, prices have come down and, you know, supply chain constraints have become less. That's it from my side.
On the net debt to EBITDA, we will, at the peak of the CapEx, once we are done with the paints CapEx, everything, then we may have about 2.73 kind of net debt to EBITDA. That is our current estimate. It will all depend upon how, I mean, the profitability pans out over the years. That is one part. The second question was about what?
On the working capital release, sir. Whether there is, because, you know, supply chain constraints have come down, any working capital release we have seen.
Not any large amount. We are already working in the VSF business, for example, on a net negative working capital basis. Some kind of inventory buildup is possible because of the demand slowdown in VSF business, for example. Not any large working capital release is expected in the current year. We are actually already doing a negative working capital level in our two businesses, one textiles and VSF.
Okay. Thank you very much, sir, and wish you good luck.
Thank you. We have next question from the line of Nirav Jimudia with Anvil Research. Please go ahead.
Yes, sir. Thanks for the opportunity again. My question is on the chemical sector. I have two questions on the same. You mentioned that we have been increasing our CapEx on the chemical side for increasing the capacities of the VAP. Once this land is purchased and we keep on adding those products on that infrastructure, how much our chlorine integration would go up on the increased capacity of Caustic Soda?
Let me take that question. I think we announced earlier in last year in one of our calls that we are expanding our capacity from 1,000 tons- 1,400 tons at Vilayat.
Yes.
The purchase of land will only come into use for the chlorine consumption of Vilayat plant.
Okay.
We have Vilayat plant at full capacity utilization, let's say, at 90% capacity utilization of 1,400. With this new land, we will be able to reach, I can't give an exact number because we need to tie, between 70%-75%, 77% of total chlorine consumption.
Okay. This includes our pipeline sales also?
Actually, yes, this includes the pipeline sales also. This is the way our chlorine definition.
Correct. Sir, when we see our VAP sales, I think from 2016- 2023, we see the chlorine integration. I think it is almost double. From 160 to now a run rate of almost 330,000 tons. Once we come up with the new product at the plant what you mentioned, is it fair to assume that the margins on a per kg basis would be higher for the new product vis-a-vis the existing basket of products we manufacture?
Let me not go into any guidance of that at this point of time. I think as and when we formulate our plans and put it up to the board, the approvals will come through. I think this will be a more pertinent question at that point of time, because otherwise, what we'll be sharing with you would be, you know, our, you know, our own internal discussion rather than an approved discussion plan. So let me leave it to be.
Right.
We'll come to that question when we come to those approval stages.
Okay. Sir, one more question, if you allow and if you can share with us. What was the average coal cost for us in Q2 FY 2023 vis-à-vis Q4 of FY 2022? If we take Q4 of FY 2022 as a base, what was the coal cost for us in Q2 of FY 2023 for the chemical business? Even a percentage increase or a decrease would also help us, sir.
I wouldn't know the coal cost because at the end of the day, we look at it from a cost standardizing value and its consumption. From a Q4 of last year to Q2 of this year, my estimate would be that we would have, you know, the coal costs have kind of jumped by on a year-over-year basis about 130-142%, depending upon the country.
Okay.
If you look at it from a quarter to quarter, it's between 6%-10%.
Okay.
It's a fairly highly volatile scenario on the coal front as of now.
Okay. Sir, a small clarification on the VSF sales and the EBITDA, what you mentioned in your opening remarks. What you mentioned is you know, INR 3,241 crores of sales and an operating profit of INR 210 crores. This is what you mentioned in your opening remarks, right?
Yeah. Yeah.
Okay. Thanks a lot, and all the best.
Thank you. We have next question from the line of Sean Ungerer with Chronux Research. Please go ahead.
Good afternoon, everyone. Thank you for the time. Just some questions focused around the VSF business. Just in terms of the comments you made earlier about VSF capacity having to be rationalized, I think you said around 70%. I'm just confirming that number. Secondly, I guess you must've already sort of answered this, but more confirmation that it's probably likely to be like this for a couple of quarters given your comments around margins being subdued. This is my first question.
Current capacity utilizations are rationalized at about 70%. We expect the demands to be back sometime maybe in next couple of quarters. Till then, we will continue to monitor the situation and we will align the production level accordingly.
Okay. Very clear. Thanks. If I just look at your current full year capacity, that's sitting at about 824,000 tons. With the sort of planned CapEx and doing the modernizations and anything of that, which is that capacity gonna increase further? And if so, by when and how much?
There are small increases in the specialty products, which is about 13,000 tons. But these are the third generation of VSF fiber. That is all about the capacity increase. There is not much capacity increase in the normal VSF. The small debottlenecking-
Okay, great. Excellent. That's great. Your comment around DWP or Dissolving Wood Pulp integration into the VSF business earlier, I think you said it's around 35%. Is that pre or post the current debottlenecking that you got planned?
It is at the full capacity.
Once the debottleneck, then you do 35% integration, is that what you're saying?
Yeah, at the current capacity level, it is about 35% integration, and we are increasing the capacity, as we shared, at our Indian pulp plant. That will take the integration to about 37% of the capacity, the end fiber capacity.
Thank you. We have next question from the line of Abhimanyu Kasliwal with Choice India Limited. Please go ahead.
Thank you so much for taking my questions, sir. Most of my questions have been answered. I have just two specific queries. Number one was regarding your platform business, the B2B business. What can we expect? How do we forecast this business? Will this be a game changer in terms of revenues, in terms of margins? What is the company's expectations? My second question, sir, is in other income. I have noticed there's a pattern that in the September quarter there is a substantial jump up. Is this the case or is it that the past three Septembers for some reason it has jumped up? How do we forecast the other income? What is the reason? These are my two questions, sir.
The first one is about the B2B platform. The B2B e-commerce platform is expected to be a high growth business in terms of revenue. Since it is an e-commerce business, its margins are not going to be very large margins there. The top line could be very significant. Our aim is to be one of the largest e-com players in B2B segment, especially in the building material segment. That is the, I mean, B2B e-commerce-
Sir, would it be like an IndiaMART for building materials? Is it a correct way to look at it?
IndiaMART does, I think, industrial products. We are from building material segment. We-
Mm-hmm.
We have the ecosystem for the building material businesses in the group. We have large, kind of, customers who are buying cement from us or, now, they'll be buying paints from us. The same ecosystem will be available for the B2B platform business.
Okay. We're expecting easy runs on the board from this one, hopefully.
Yes.
Okay, sir. My next question.
Next question is about your other income.
Yes.
The other income in Q2 will be significantly higher every quarter because we get the dividends from our subsidiaries and other investments now.
Mm-hmm.
The large dividend income comes from UltraTech. For example, in this quarter about INR 618 crore has come from dividend from UltraTech.
Understood, sir. Thank you so much. Best of luck.
Thank you. Ladies and gentlemen, we have reached the end of the question and answer session, and I'd like to turn the conference back over to Mr. Pavan Jain for closing remarks. Over to you, sir.
Thank you all for joining us for this call today, and we'll meet next quarter again.
Thank you very much, sir. Ladies and gentlemen, on behalf of Grasim Industries Limited, that concludes this conference. Thank you for joining with us, and you may now disconnect your lines.