GHCL is coming up with a Greenfield project in Soda Ash; Rs 3,500 crore will be invested over the next three years: Ravi S Jalan, MD

Ravi S Jalan, Managing Director, GHCL, talks about demand and pricing trends of soda ash, divestment of the textile business, soda ash and sodium bicarbonate production, consumer business, margins, demerger of soda ash and spinning businesses, business, acquisition plans and joint venture opportunities among others during a candid chat with Swati Khandelwal, Zee Business.

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Edited Excerpts:

Q: Tell us about the demand for soda ash and pricing trend and how are the prices YoY and QoQ basis?

A: There is a firmness in the demand for soda ash due to two reasons and they are

(i) A huge growth is visible in solar glass globally including in India due to which the demand is good.

(ii) Demand is also good in flair glass and bottle glass, while there is slight slowness in detergent.

But overall demand for soda ash is quite good.

As far as pricing is concerned, the cost has increased a lot as the energy and other raw material prices have also surged a lot. But, we can pass on the cost increase to the customers. There has been a firmness in soda ash prices, which is also visible for the next two years.

Q: Input cost has risen across industries. What impact did it have on your company?

A: If seen from an overall perspective, there is a lot of volatility in energy due to which the number cannot be said with much certainty because the energy prices are still volatile. But, if I will talk about the energy prices, particularly coal then there is an increase of more than 100% in its prices. If I will talk about its overall impact on the products of the company then it will roughly have an impact of 20-25% on our cost. This is why the prices of soda ash are firm and we have been able to pass on this cost to the customers. Therefore, our margin is better than in the past at this point in time.

Q: Going ahead, what trends are visible, do you have an appetite to pass on the price hike to the customers or you will have to absorb it, which can impact your margins?

A: Amid the ongoing energy prices, I do not see any possibility of much increase in the prices of energy. If it happens then - due to the situation in which soda ash - we will be able to pass on it to the customers.

Q: Company successfully divested textile business to Indo Count for Rs 608 crore. How will you utilize the proceeds and how FY23 would be for the company in comparison to the FY22?

A: Rightly said that we have divested our home textile business to Indo Count. It was a strategic call because we were in this business for the last 13-14 years and our performance was not up to mark in this segment. It was not coming in our core competency. Instead of that spinning and soda ash business is our core competency. So, we have strategically divested this business. You are well aware that our cash generation per year stands at around Rs 600-700 crore. So, all these resources will be used in the growth journey of soda ash and spinning businesses. We are coming up with a Greenfield project in Soda Ash which will require an investment of around Rs 3,000-3,500 crore. The project will take almost three to three and a half years in being created and all these resources and cash generations will be used on that front. Even after this investment, our debt-equity ratio will lie between 0.2 and 0.3. I just want to highlight that despite this huge investment our debt-equity ratio will remain quite healthy and we will not be leveraged.

Q: The company's CapEx for the production of soda ash is likely to increase by 1 lakh tons per annum and sodium bicarbonate by 60,000 metric tons. By when will this happen and are will this CapEx of Rs 3,000 crore will be used for the same purpose?

A: The investment in Sodium Bicarbonate will be completed by September 2022 after which its production will double from 60,000 metric tons. In the case of soda ash expansion, we have completed an expansion of 1 lakh tons and now, we are establishing a Greenfield project after which the production will increase by another 5 lakh tons. It will be based at a new location, which will require an investment of Rs 3,500 crore.

Q: By when it will be completed?

A: It is likely to be completed by March 2025, which means it will be completed in the next three years. It is a massive investment and includes big land acquisitions.

Q: Tell us more about your consumer business, what sort of growth trends do you foresee in coming years and what are your expectation from this business this year and the next two years?

A: We do not have any major investment in this business. It is a B2C business and does not require a huge investment. Our second focus area is the spinning business, where we have made investments to grow its volume by almost 20% and the process will be completed in July 2022. After its completion, our volume in the spinning business will increase by 20%. Plus, we are also taking a big step on green energy and are investing in 30 megawatts of solar energy of which 20 megawatts became operational in March 2022 and the other 10 megawatts will be completed by June 2022. Post this, 80% of the power requirement in the spinning business will be fulfilled by green energy. Moving forward, in our spinning business - where we are doing good, where the average of the five years EBITDA return stands at 18% - we will continue to grow it by 20%, i.e., 40,000 spinners every two years. So, in the next five years, we will invest around Rs 1,300-1,400 crore in the segment. The investment will be made mainly in spinning and green energy. We will always have a target to match the green energy portfolio, so that 80-85% of our power is met by green energy, like solar or wind.

Q: You will invest Rs 1,300-1,1400 crore in the spinning businesses as well. Is this slated for this year?

A: This investment of Rs 1,400 crore will happen in the next five years. In every second year, there will be an investment of around Rs 300-350 crore and the profit generated from the same business will be ploughed back into the same. Our debt-equity situation will not go up. It will happen through internal accruals. Hopefully, you are aware that our spinning business will demerge in September 2022 after which two different companies will be created. One will be a Soda Ash company and will be GHCL Limited and the second is GHCL Textile, which will house the spinning business. The turnover of the spinning business is around Rs 1,000 crore this year and which will go up to Rs 2,000 crore in the next five years. This is going to be our growth strategy.

Q: You are seeing a good EBITDA margin of 18% from the spinning business. Which kind of trends is visible in it and do you think that the margins will improve further in the coming future due to an increase in the capacity?

A: As I have said that our margin stood at around 18% in the last five years, however, it was higher last year and it stood around 26%. Going forward, I believe that it is a 20% EBITDA margin business. The way we are investing in green energy and expanding our product basket and are going towards value-added products in spinning, so, a long term sustainable margin of around 20% is visible in the spinning business.

Q: What kind of new products will be launched in the consumer business segment this year?

A: We are not launching any new product in that segment at present. We do not have a major focus on that business while we are focusing on the spinning and chemical business. Earlier, I have talked about sodium bicarbonate and we can see a big opportunity in sodium bicarbonate in the coming times because it is visible that sodium bicarbonate will play a big role in the food ash treatment in the coming time. So, we will majorly focus on such products as sodium bicarbonate.

Q: By when the demerger of the two businesses will happen and currently in which stage is it present?

A: We have received the regulatory approval from SEBI and also got NOC from our lenders. We will apply for the purpose in the NCLT and I believe that we will get the approval by September 2022 after which the two companies will be listed separately.

Q: This means you will get the approvals by Q2FY23 and these companies will also be demerged in the same quarter?

A: Yes, this will happen. In fact, this company will become two separate companies by Q3FY23.

Q: Have you made any decision on the ratio part among others?

A: It has happened. Basically, we are splitting it vertically and the shareholders will get shares in both of the companies. Thus, chemical shares will stay with them and they will get the same number of shares at a face value of Rs 2 per share in the textile business. Thus, they will have one share of both companies if they have one share.

Q: Tell us about your acquisition plans and do you have any good opportunities in the market

A: We have a clear focus on staying in the chemical and spinning space. We are not looking at anything beyond this because we want to focus only on our core competencies. We have two to three top priorities at present like the Greenfield project. After completion, it will provide a long term growth advantage to us as we will be able to invest in additional chemicals at the location where the soda ash plant is being built. So, this journey of soda ash along with some other products in the basket, we will be able to do there. As far as the acquisition is concerned, we do not have any such opportunity at present but whatsoever will be done will happen in the chemical space and that in chemicals related to us.

Q: Are you exploring any joint venture opportunities in automation?

A: We have a big focus on automation and are focusing on machine learning, and intelligence to increase productivity. We are also focusing to atomize of all of our processes and the works that are going on in which several machines and equipment are being automized, which will enhance our productivity and this is our journey. As far as the joint venture is concerned, we continue to explore this opportunity and if we get any opportunity in the area related to us then we will focus on it.

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