DCMSHRIRAM - DCM Shriram Limited Share Price

Management Outlook and Key Points:

Outlook:

• Global/India Growth: Expect global economic moderation but anticipate India to drive growth despite challenges like inflation and trade policies. Focus on agility, sustainability, and strategic capacity expansions.
• Sustainability: Targeting 74 MW renewable energy capacity for captive use by FY26; recognized in top 7% of global chemical firms for ESG (S&P 2024).

Key Business Segments:

1. Chemicals:

   • Caustic Soda: Oversupply in India pressures chlorine prices, but ECU improved in Q3. New plants (Hydrogen Peroxide at 80% utilization, Caustic Soda at 70%) to stabilize margins.
   • ECH Plant: Trial runs expected in Q4 FY25 after delays; projects like Aluminum Chloride and Calcium Chloride to enhance downstream integration.

2. Vinyl (PVC):

   • Domestic demand up 10% (agriculture/construction), but imports (China) pressure prices. Awaiting anti-dumping duties. 68 MW green energy to reduce costs by FY26.

3. Sugar & Ethanol:

   • Sugar production at 29.3 MMT (4 MMT diverted to ethanol). Ethanol blending target 18% (15.4% achieved). Margins under pressure; CBG plant commissioning in Q4 FY25.

4. Fenesta:

   • Expanding into hardware (Rs 65cr investment) and aluminum extrusion for backward integration. Healthy order book but elevated costs.

5. Agri Inputs:

   • Shriram Farm Solutions: Double-digit growth (19% revenue, 18% PBDIT); leadership in research wheat.
   • Fertilizers/Bioseed: Stable urea; Bioseed turnaround driven by corn/paddy hybrids (76% PBDIT growth).

Financials:

• Q3 FY25: Revenue up 11% YoY to Rs.3,367cr; PBDIT up 12% to Rs.537cr.
• Debt: Net debt at Rs.867cr (up YoY due to capex); ROCE at 14% (vs. 16% YoY) as projects ramp up.
• Dividend: Interim dividend of 180% (Rs.56.14cr); total FY25 dividend at 280%.

Future Focus:

• Capex: ~Rs.700cr in FY26 (renewables, extrusion, chemicals). Advanced materials (epoxy) under evaluation.
• Margins: Cost optimization in chemicals, ethanol diversification, and Fenesta's new verticals to drive growth.

Management remains cautiously optimistic, balancing growth investments with operational efficiency.

Question 1:
Nirav Jimudia (Anvil Wealth Management): Sir, I have a few questions on the chemicals side. When analyzing ECU numbers for Q3FY25 vs. Q2FY25, ECU increased by ~Rs. 3.50/ton, implying a Rs. 62 crore positive impact, yet PBDIT rose only Rs. 27 crore. Why the discrepancy? Is there a one-time loss or higher depreciation?

Answer:
The difference stems from depreciation from newly capitalized assets and elevated operational expenses (e.g., manpower) tied to higher production volumes. These costs are expected to normalize as utilization ramps up.

Question 2:
Nirav Jimudia: Chlorine realization worsened to -Rs. 9,000/ton in Q3FY25 from -Rs. 6,500/ton in Q2FY25. What is the current trend, and what's the outlook for Q4FY25?

Answer:
Chlorine realization remained negative (~Rs. 9,000"“10,000/ton) in Q3 due to oversupply. Prices are expected to stabilize but remain under pressure due to excess capacity.

Question 3:
Riya Mehta (Aequitas Investment): What is the capacity utilization for the new caustic soda plant, and how will cost savings from the 120 MW power plant impact margins?

Answer:
Overall caustic soda utilization at Bharuch is ~70%. The 120 MW plant has reduced power costs by ~20"“25%, improving margins. Additional 6.6 MW green power (to be operational by FY25 end) will further lower costs and carbon footprint.

Question 4:
Riya Mehta: Why is the ECH plant commissioning delayed, and when will aluminum chloride capacity come online?

Answer:
ECH faced technical issues, but trial runs are expected in Q4FY25. Aluminum chloride expansion (approved in Q3FY25) will commission by Q1FY27.

Question 5:
Nisarg Vakharia (NV Alpha Fund): Fenesta's order book grew 33% YoY, but revenue grew only 4%. Why the gap, and why is capital employed low (Rs. 45 crore) despite high PBT?

Answer:
Execution delays due to market liquidity issues slowed revenue conversion. Low capital employed reflects advance payments from customers and high asset turnover. Elevated fixed costs for growth initiatives will persist.

Question 6:
Nisarg Vakharia: Explain the Rs. 65 crore hardware investment and Rs. 150 crore aluminum extrusion project. How will these drive growth?

Answer:
The hardware acquisition aims to backward-integrate supply chains and enhance customer experience. The extrusion plant (commissioning in 2026) will reduce import reliance, improve quality, and enable diversification into aluminum-based products.

Question 7:
Rohit Nagraj (B&K Securities): What are the challenges for ECH operations post-commissioning, and how will domestic/exports demand absorb output?

Answer:
ECH commissioning delays are resolved, with trial runs starting in Q4FY25. Domestic epoxy demand (from expanding industries) and global outreach will absorb output. No material teething issues are anticipated.

Question 8:
Ahmed Madha (Unifi Capital): Why are sugar margins weak, and what's the ethanol mix (B-Heavy/C-Heavy/grain)?

Answer:
Lower sugarcane recovery (due to disease) and higher SAP raised production costs. Ethanol mix: 55% molasses-based (C-Heavy) and 45% grain-based. FCI rice for ethanol will aid margins from FY26.

Question 9:
Pratik Tholiya (Systematix): What is the FY26 CAPEX guidance, and when will the epoxy resin project (Rs. 1,000 crore) commence?

Answer:
FY26 CAPEX: ~Rs. 700 crore (aluminum chloride, extrusion, green energy). Epoxy project (80,000 TPA capacity) is under technical discussions; land acquired, with updates post-board approval.

Question 10:
Rohit Nagraj: How will CBG plant offtake and pricing work?

Answer:
CBG will supply OMCs at prices linked to natural gas benchmarks. IRR is projected at ~18%, with infrastructure (pipelines) under development for distribution.