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    DCM Shriram

    DCMSHRIRAMNeutral
    Diversified·2 Feb 2024
    Management Summary

    DCM Shriram's Q3 FY24 results reflected a stark contrast between its industrial and consumer-facing/agri businesses. While the Chloro-Vinyl segment struggled with global oversupply and a 40% drop in ECU prices, the Sugar, Fenesta, and Farm Solutions segments provided a strong cushion. Management is aggressively pursuing efficiency through a new 120 MW power plant and diversifying into value-added chemicals like ECH and Hydrogen Peroxide to mitigate cyclicality.

    Highlights

    7

    • Net Revenue stood at ₹3,035 crore, a decline of 6% YoY, primarily due to price pressure in Chloro-Vinyl and Fertilizers.

    • PBDIT (EBITDA) fell 18% YoY to ₹480 crore, with Chloro-Vinyl margins severely impacted by a 40% drop in ECU prices.

    • Sugar segment performed strongly with revenue up 22% to ₹891 crore and PBDIT up 84% to ₹188 crore.

    • Fenesta Building Systems continued its growth trajectory with revenue increasing 20% YoY to ₹214 crore.

    • Shriram Farm Solutions saw 17% revenue growth and 26% PBDIT growth, driven by research wheat seed volumes.

    • Net Debt was ₹314 crore as of Dec 31, 2023, but is projected to rise to ₹1,900-2,000 crore by March 2024 due to capex and working capital.

    • Commissioning of 120 MW power plant and 850 TPD Caustic Soda expansion expected in Q4 FY24.

    Concerns

    2

    • Chloro-Vinyl Price Softening

    • Negative Chlorine Realizations

    What Changed3

    vs Q1 FY25

    Tone shiftGood → NeutralGuidance items4 → 5 (+1)Risks discussed3 → 4 (+1)

    Key financials

    Single quarter

    04 metrics
    1. 01Net Revenue₹3,035 Cr-6%YoY
    2. 02PBDIT₹480 Cr-18%YoY
    3. 03Net Debt₹314 Cr
    4. 04ROCE16%

    Segment breakdown

    • Chemicals₹535 Cr19.2%
    • Vinyl₹128 Cr4.6%
    • Sugar₹891 Cr32.0%
    • Fenesta Building Systems₹214 Cr7.7%
    • Shriram Farm Solutions₹596 Cr21.4%
    • Fertilizers₹418 Cr15.0%
    Donut· Share of Revenue

    Guidance & targets

    5
    CategoryTargetPriority
    Debt
    Net Debt
    ₹1,900 to ₹2,000 crores
    		High
    Profitability
    Power Cost Savings
    ₹10-12 crores per month
    		High
    Capacity
    Caustic Soda Capacity Utilization
    90%
    		Medium
    Capex
    ECH Project Capex
    ₹500 to ₹600 crores
    		High
    Revenue
    Farm Solutions CAGR
    15%
    		Medium

    Risks & concerns

    5
    RiskSeverity

    Chloro-Vinyl Price Softening

    Oversupply of Caustic in India and PVC imports from China are depressing margins. — Management acknowledged

    high

    Ethanol Policy Uncertainty

    Central government restricted sugar diversion for ethanol to 1.7 million metric tons, impacting feedstock availability. — Management acknowledged

    medium

    Negative Chlorine Realizations

    Chlorine prices are currently negative (₹3,000-4,000), making caustic soda production less profitable. — Both acknowledged

    high

    Urea Subsidy Delays

    Abnormal negative subsidy of ₹20 crore currently, with ₹350 crore outflow expected if notifications aren't cleared. — Management acknowledged

    medium

    Areas of Evasion(1)

    • Specific cost of power (cited as competitive sensitivity).

    Q&A highlights

    3

    “For January, Pratik, the average prices are around Rs. 25,500... Chlorine is still negative... Around Rs. 3,000 to Rs. 4,000.”

    Reveals the severe pressure on the chemical segment's profitability, with negative chlorine realizations acting as a significant drag.

    asked by Pratik Tholiya

    2 min read5 chapters

    Detailed Narrative

    01

    Chloro-Vinyl Segment Faces Cyclical Trough

    The Chloro-Vinyl segment saw a 31% YoY revenue decline to ₹663 crore, with PBDIT crashing from ₹237 crore to ₹56 crore. ECU prices were lower by 40% YoY, and the Vinyl business reported a negative PBDIT of ₹7 crore. Management noted that while domestic demand is healthy, excessive imports from China and a 20% increase in domestic industry capacity (from 5.6M to 6.7M tons) are keeping prices subdued. Chlorine realizations remain a major pain point, currently trading at negative ₹3,000 to ₹4,000 per ton.

    02

    Sugar and Agri Segments Provide Critical Cushion

    The Sugar business revenue increased 22% YoY to ₹891 crore, with PBDIT nearly doubling to ₹188 crore due to higher volumes and firm prices. Shriram Farm Solutions also delivered a robust performance with PBDIT growth of 26% to ₹180 crore, driven by high-yielding research wheat seeds. Bioseed is showing signs of a turnaround, with revenue up 29% and management expecting it to reach near breakeven in the current financial year.

    03

    Strategic Efficiency and Expansion Projects

    DCM Shriram is nearing the completion of several margin-accretive projects. The 120 MW power plant is set to commission in Q4 FY24, expected to save ₹10-12 crore per month in energy costs. The 850 TPD Caustic Soda expansion and a 600 TPD flaker plant are also slated for Q4 commissioning. Further downstream, the Epichlorohydrin (ECH) and Hydrogen Peroxide (H2O2) projects are expected in Q1 FY25, aiming to diversify the product mix and improve chlorine integration.

    04

    Debt Trajectory and Capital Allocation

    While net debt stood at a comfortable ₹314 crore in December 2023, management guided for a sharp increase to ₹1,900-2,000 crore by March 2024. This spike is attributed to peak sugar inventory season, a ₹350 crore outflow related to urea subsidy delays, and ongoing capex payments. The company remains committed to its capital-intensive segments (Chemicals and Sugar) while scaling asset-light growth businesses like Fenesta and Farm Solutions.

    05

    Fenesta's Continued Momentum

    Fenesta Building Systems reported a 20% YoY revenue increase to ₹214 crore, with an order book growth of 9%. The company is expanding its product range, having recently launched aluminum windows and doors (which already exceeded a ₹100 crore order book) and a new facade business. A new fabrication unit for facades was commissioned in Hyderabad, and uPVC extrusion capacity was increased at Kota to support future growth.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.