Transcript

Q1 2017 Grasim Industries Ltd Earnings Call
Nagda Aug 11, 2016 (Thomson StreetEvents) -- Edited Transcript of Grasim Industries Ltd
earnings conference call or presentation Thursday, August 11, 2016 at 1:45:00pm GMT
TEXT version of Transcript
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Corporate Participants
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* Nitesh Jain
Axis Capital - SVP - Institutional Equity Research
* Sushil Agarwal
Grasim Industries Ltd. - Whole-Time Director & CFO
* Ajay Srinivasan
Grasim Industries Ltd. - Head of the Financial Services Business
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Conference Call Participants
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* Pranav Tendolkar
Forefront Capital - Analyst
* Bhavin Chheda
Enam Holdings - Analyst
* Gunjan Prithyani
JPMorgan - Analyst
* Deepak Malhotra
Private Investor - Analyst
* Prateek Poddar
ICICI Prudential Asset Management - Analyst
* Hiren Dasani
Goldman Sachs - Analyst
* Chockalingam Narayanan
Deutsche Bank - Analyst
* Sanju Parekh
Reliance Mutual Fund - Analyst
* Sandeep Bansal
SBI Life - Analyst
* Bhavesh Shah
CLSA - Analyst
* Patricia Perez-Coutts
Westwood International Advisors - Analyst
* Anshuman Atri
Haitong Securities - Analyst
* JA Radhakrishnan
IIFL - Analyst
* Rakesh Vyas
HDFC Mutual Fund - Analyst
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Presentation
-------------------------------------------------------------------------------Operator [1]
-------------------------------------------------------------------------------Ladies and gentlemen, good day and welcome to the Conference Call of Grasim
Industries' Q1 FY17 Results and Restructuring, which got announced today, hosted by
Axis Capital Limited. As a reminder, all participant lines will be in the listen-only mode, and
there will be an opportunity for you to ask questions after the presentation concludes.
(Operator Instructions)
I now hand the conference over to Mr. Nitesh Jain from Axis Capital. Thank you, and over
to you, sir.
-------------------------------------------------------------------------------Nitesh Jain, Axis Capital - SVP - Institutional Equity Research [2]
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Thank you, Ali. Welcome everyone to this conference call. From Grasim Industries, we
have with us Mr. Dilip Gaur, Managing Director; Mr. Sushil Agarwal, Whole-Time Director
and CFO; and the senior management team of Grasim. We also have Mr. Ajay Srinivasan,
Head of the Financial Services business.
I think without much delay, I hand over the floor to Mr. Sushil Agarwal for his opening
remarks and then we'll have a Q&A session. Thank you.
-------------------------------------------------------------------------------Sushil Agarwal, Grasim Industries Ltd. - Whole-Time Director & CFO [3]
-------------------------------------------------------------------------------Thanks, Nitesh. Good evening, and welcome to all the participants for this conference call.
I hope you must have gone through the presentation on the quarterly performance. I
would like to highlight few points on the overall performance. Grasim has achieved highest
EBITDA of INR586 crores post demerger of cement business at a standalone level,
registering a growth of 81%. Consolidated EBITDA grew by 36% at INR2,214 crores.
There has been all-around growth in volume, revenue and margin across all the three
businesses. Our investment in growth in last couple of years, investment in business -improvement in business environment of VSF, strong focus on efficiency improvement,
have contributed to the strong performance.
Cash generation from operations was even stronger. Stand-alone cash profit after tax was
INR463 crores. There was reduction in working capital by INR240 crores; as a result, net
debt of INR236 crores as on March 31 got converted into net cash surplus of INR459
crores.
At a consolidated level, generation was equally strong. Cash profit after tax was INR1,670
crores, reduction in working capital contributed another INR800 crore. As a result, net debt
declined from INR3,791 crores to INR1,536 crores. With net debt to equity at 0.04 times,
we are virtually debt free at a consolidated level. Standalone and consolidated net profit
was up by 138% and 64% respectively.
Going forward, textile consumption in India expected to grow at a higher rate as compared
to global consumption, which will support the VSF growth in India. In VSF, there has been
an improvement in the business environment, capacity addition have slowed down,

resulting in a better capacity utilization for the sector.
In Chemicals, our volumes will see another round of growth in the medium term, with
capacity expansion plan from 840K TPA to 1048K TPA. In Cement, UltraTech is well
positioned across the country to cater the growth in demand with a vast network of
integrated units, split grinding units, bulk terminals and large dealership network and
spanning across the country. Further, the Board of Directors have recommended split of
face value of our shares from INR10 to INR2.
Let me now move to the highlights of restructuring announced today. Aditya Birla Nuvo will
be merged into Grasim to create the premier play on India's growth with leading position in
both manufacturing and services. Though the same scheme of arrangement, we will also
demerge the Financial Services business of the merged Grasim into Aditya Birla Financial
Services, leading to consolidation of Financial Services business and listing of ABFS. Post
demerger, shareholders of merged Grasim will hold 43% and Grasim itself will hold 57% in
ABFS. We have appointed Pricewaterhouse and Bansi S Mehta to value the business.
Based on their recommendations, Nuvo shareholders holding 100 shares will get 30
shares of Grasim. Further, all the shareholders of the post-merger Grasim would get -Grasim shareholders will get 700 shares of ABFS for every 100 shares.
Let before further elaborate on the transaction. It has consolidated fast-growing business
in Financial Services and Telecom with a strong stable cash generating businesses, all the
ingredients necessary to play India growth story. It unlocks value for the shareholders by
giving them a direct holding in the Financial Services business. This is one business
which has been showing significant and profitable growth. It has consolidated similar
businesses and stake in different companies, creating a simplified Group ownership and
setting the stage for taking the business to the next level. Shareholders will benefit from a
diversified portfolio with two-third of revenue coming from manufacturing business and
one-third from services.
The combined Company will have aggregate consolidated revenue of nearly INR60,000
crores, aggregate EBITDA of nearly INR12,000 crores and PAT of over INR4,200 crores
as of March 2016. This combination would result in a blue chip with solid financial
strength, excellent operational metrics, with high-quality management team, which has
demonstrated excellence in execution in the respective businesses. Everything that goes
into making of a true blue chip, a large asset base, a well-capitalized balance sheet,
leadership position across sectors, strong free cash flows generation and a strong growth
prospective. All put together, this represents a new blue chip, which will be very well
positioned to tap opportunities going forward.
If you look at the financial performance, Grasim shareholders benefit from high-growth
business from Nuvo, including Financial Services and Telecom. This is reflected in the
four-year CAGR of 10.3% in revenue and 19% in EBITDA over the last four years. More
importantly, this sets the stage for them to capture incremental growth opportunities.
Broadly, the merged Grasim will comprise five key verticals with leadership positions in
each of those three businesses.
In Financial Services business, between the Asset Management and the Insurance
business, we will have total assets under management of $29 billion with top four ranking
position in Life Insurance and Asset Management business. Ours is one of the fastest
growing and we have seen the best-in-class asset quality with net NPA of around 0.29%
on current book size of INR27,000 crore.
In Telecom, we're third largest operator in India by revenue market share and the fastest
growing large telecom operator in India. We also own 16% stake in Indus, one of the
largest telecom tower company in the world.
In Cement, as you already know, we are number one cement company in the country,
most profitable and fastest growing pan Asia, pan India cement company, with the largest
selling cement brand and market leadership position in RMC and white cement.
In Textile, we are a leading global player in VSF. In Chemicals, we are the largest
manufacturer of chlor-alkali in India. We would like to emphasize that our leadership
position in cement, telecom and financial services represent, in our view, three of the most
attractive ways to play the India growth story. The scheme is subject to regulatory
approvals from the Stock Exchange, High Courts of Madhya Pradesh and Gujarat,
shareholders and other regulatory approvals.
We expect to be able to consummate this transaction by Q4 FY 2017 or Q1 FY 2018. DSP
Merrill Lynch has been our financial advisor. The joint independent valuers on this
transaction are Pricewaterhouse and Bansi S Mehta. The independent fairness opinion
have been provided by JM Financial Institutional Securities Limited to Grasim and by
Kotak Mahindra Capital Company Limited to AB Nuvo. Legal advisors are Khaitan & Co
with Cyril Amarchand Mangaldas advising on the Financial Services demerger.
Let me now hand over to Ajay to talk about Financial Services business.
-------------------------------------------------------------------------------Ajay Srinivasan, Grasim Industries Ltd. - Head of the Financial Services Business [4]
-------------------------------------------------------------------------------Thank you, Sushil. Let me just give you a quick overview of the Financial Services
business, and then obviously, we can take questions later as (inaudible). As Sushil
mentioned, as a result of this restructuring, what will get created as the listed entity will be
a holding company financial services business, called Aditya Birla Financial Services,
which will be held by Grasim, by the promoters of Grasim and by the public. This
Company would be quite unique in its positioning because it would be a completely
diversified financial services business along with scale in each of the businesses in which
it operates, something that I think that doesn't exist in the market today. The Holdco will
have the following businesses underneath it. We have a large NBFC, we're a life
insurance player, we have a 51% payments bank ownership, we are in the asset
management business, we are in the housing finance business, in the health insurance
business, in the equity broking business, in the general insurance advisory business, in
the private equity business and in the online personal management -- money management
business. This breadth of businesses, I think, doesn't really exist in the market today.
Alongside the breadth, I think what we built is scale in each of the businesses in which we
operate. We are amongst the top five fund managers in the country today. We manage, as
of June 30, just under INR2,00,000 crores of assets under management across our life
insurance, private equity, and asset management business.
Our lending book is about INR28,700 crores, including our Housing Finance business and
our NBFC. We're amongst the top 10 diversified private NBFCs operating in India today
and clearly amongst the fastest growing. We are amongst the top four private sector
players in life insurance and asset management. We're the number one online personal
finance management player in the country by a long way and today, through the platform,
we serve about 9 million customers through a nationwide distribution network which
includes 1,350 points of presence and a 120,000 channel partners. So really, this
platform, as I've said time and again, is unique and really provides a base for significant
growth going forward.
If I refer to four metrics that I think are critical from our business perspective, and I'll give
you a sense of how this -- how these metrics have grown over a period of time. Our assets
under management have grown from fiscal 2011 to fiscal 2016 by 2.1 times. So as of the
end of 2016, our AUM was INR1,84,000 crores. I just told you, as of June, it's now
INR1,96,000 crores. Our lending book has grown about 15 times in the last five years from
about INR1,800 crores in FY 2011 to about INR27,700 crores in FY 2016, and as I
mentioned, INR28,700 crores at the end of Q1. Our revenues have grown from INR6,300
crores in FY 2011 to INR9,300 crores in FY 2016. As of quarter one, our revenue was
INR2,169 crores, which is a 14% year-on-year growth in terms of revenue.
Profitability has kept pace with -- or actually been slightly ahead of growth in revenue.
We've grown -- we've doubled our profit before tax over the last five years. We reported
just under INR1,000 crores of profit before tax for the last fiscal year, and in the quarter,
first quarter one of FY 2017, we reported a PBT of INR286 crores, which is a 21% yearon-year growth.
I just want to give you a quick flavor of some of our larger businesses and talk about some
of the upcoming businesses in the portfolio. We're a fairly large NBFC as I mentioned. We
are amongst the top 10 diversified private NBFCs in the country. We have a totally
diversified portfolio, which I think is a great risk management strategy in the current
environment. We operate through loan against securities, loan against property, SME
financing, structured finance, and the housing finance piece. So really a diversified
portfolio, which as I said automatically leads to lower risk in the portfolio. We're very
conscious about the fact that we've been growing in an environment which is challenging
and our credit standards and our underwriting standards have been very high, which is
reflected in the fact that our net NPA at 0.22% for FY16 is probably amongst the lowest
amongst the NBFCs who operate in this country. I won't talk about the banking sector,
because you know where some of those numbers are.
Our net worth as of June 2016 was INR3,823 crores according to Indian GAAP. These
businesses are typically managed -- valued as multiples on book value. So I think you
know that the competitors in the market are broadly 3 times to 3.5 times book value, so
you will get a sense of what the NBFC could be worth. Our loan book, I've already talked
about, we have a AA plus credit rating in our NBFC.
Our Asset Management business is the fourth largest in India. Our average assets under
management as of the end of the first quarter was INR1,63,000 crores. We've been
consistently gaining market share across the platform in our AMC across all asset classes.
In equity and in debt, we've been gaining market share over the last five years, in fact, on
a consistent basis. We've been focusing on scaling up our customer acquisition and
building higher margin assets, which is leading to greater profitability flowing through to
the bottom line.
The Asset Management Business operates in a multi-channel basis. We operate through
all the channels that exist in the market, banks, brokers, IFAs, national distributors, as well
as direct online. I think the most credible part of the asset management business has
been its fund performance, top-quality fund performance across every asset class whether
it is equity or balance category or fixed income, and 97% of our funds actually were above
medium as of the end of last year, if you look at a year back in terms of time frame.
Our Life Insurance business is the top four private life insurer. We have an 8.4% market
share as of the end of Q1. We are number one in the Group business and have a very
healthy 25% market share in that segment of the market. We have a multi-channel
distribution here, about 75% of our business comes through the agency channel and the
balance through bank assurance and brokers, a very diversified portfolio across par, nonpar and ULIP products and an embedded value of INR3,275 crores as of March 2016.
Again, recent multiples in this sector have been on multiples of EV and you've seen the
multiples that exist in the market anywhere between 2.5 times to 3.2 times embedded
value. So again, it will give you a sense of what the valuation of this business could be.
Some of the newer businesses in the portfolio, we have a Housing Finance business that
started in October 2014, and that has a book size of just under INR2,500 crores today, a
net worth of just under INR300 crores. We see a lot of opportunity to grow in this segment
of the market. We're in general insurance broking. We are one of the largest players in
motor insurance segment in the retail side through this business. Last year, in fact, we
placed a total premium of INR1,600 crores for this business. So clearly, one of the largest
players operating in this space.
We have a Private Equity with over a INR1,000 crores of assets under management.
We've recently got our three license from IRDA to start a health insurance business.
That's a joint venture, 51:49 with a South African company called MMI Holdings, which is
one of the largest health insurance companies in South Africa. Our plans are to launch
this business in the second half of this fiscal year.
MyUniverse is India's number one online personal finance management platform. It's in
fact become one of the largest distributors in the country in a very short period of time.
Here, we enjoy the trust of about 2.7 million registered users. We're managing about
INR20,000 crores of their money through this platform. And this INR20,000 crores, by the
way is not counted in the numbers I was referring to earlier.
And last, but by no means the least, we are a 51% owner in the payments bank. This is
actually a unique experiment in India to see how we can leverage the telecom network and
the telecom infrastructure and get financial products to be sold through that network. You
know, the telecom network is absolutely immense compared to the financial network, and
with Idea's subscriber base of 183 million, we think it's a unique opportunity for us to be
able to distribute financial products to a very, very large base of Indians who today don't
have financial product ownership in the way many other countries do.
I'll stop there and pass back to Sushil.
-------------------------------------------------------------------------------So I think I'll just make one more statement before we open for question-and-answer
session. Just wanted to make sure that you have got the ratios correct, 100 shares, which
is held by a Nuvo shareholder will get 30 shares of Grasim and they'll also get 210 shares
of Financial Services. And Grasim, someone who was holding 100 shares will continue to
hold 100 shares of Grasim and will additionally get 700 shares of Financial Services. So I
just want to make sure that we understand this ratio right.
And now it's open for question-and-answer session.
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Questions and Answers
-------------------------------------------------------------------------------Operator [1]
-------------------------------------------------------------------------------(Operator Instructions)
Pranav Tendolkar, Forefront Capital.
-------------------------------------------------------------------------------Pranav Tendolkar, Forefront Capital - Analyst [2]
-------------------------------------------------------------------------------I just wanted to ask about investments that ABNL holds, That is, shares of Idea and
Hindalco and ABFRL, will be transferred to the Grasim, right?
-------------------------------------------------------------------------------Yes.
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And so those will be held by the Grasim shareholders ultimately and the cross-holdings
also. So only ABFS, that is the Financial Service business will be carved out. Is my
understanding correct?
-------------------------------------------------------------------------------So as I explained that on merger, whatever ABNL has will first get merged with Grasim.
And second part of restructuring, where we are consolidating all the Financial Services
business at one place, which is under ABFS, the holding company for Financial Services,
and we're listing that company where the shareholders of combined Company will own
43% and the remaining 57% will be held at the combined Grasim level.
-------------------------------------------------------------------------------So this 210 shares of ABFS will be received by Grasim shareholders during the merger,
right?
-------------------------------------------------------------------------------No. Let me first correct you. I said 100 shares, which is ABNL shareholder will get 30
shares of Grasim and will get 210 shares of ABFS, which is Financial Services business.
And Grasim shareholders, someone who is holding 100 shares will continue to hold 100 of
Grasim of that combined Company and will also additionally get 700 shares of Financial
Services.
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Pranav Tendolkar, Forefront Capital - Analyst [8]

-------------------------------------------------------------------------------So current ABNL shareholders will get basically 210 ABFS shares plus 30 shares of
Grasim for 100 shares of ABNL?
-------------------------------------------------------------------------------That's right. And importantly, the Grasim shareholder will get 700 shares of Financial
Services.
-------------------------------------------------------------------------------Correct. That is the second part of -- when you carve out the business.
-------------------------------------------------------------------------------Yes.
-------------------------------------------------------------------------------Also, what is the timeline that this ABFS will get listed, very rough? Will it be 1 year or 1.5
years?
-------------------------------------------------------------------------------Typically, as you know, that all the restructuring which goes to the court process and all of
that requires 9 months to 12 months timeframe, and I did cover in my initial remark that we
expect either the last quarter of FY 2016 or early quarter of FY 2017, first quarter FY 2017
is when we hopefully should be able to kind of get this whole thing done.
-------------------------------------------------------------------------------So also the ABNL shares that are held by Grasim, which is 33.45 lakh shares of ABNL
hold by Grasim, they will be extinguished, right?
-------------------------------------------------------------------------------That's right. So I didn't cover -- but you're bringing a very important point. We are
canceling these shares, so we're eliminating the cross-holding in some form.
-------------------------------------------------------------------------------Operator [16]
-------------------------------------------------------------------------------(Operator Instructions) Bhavin Chheda, Enam Holdings.
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Bhavin Chheda, Enam Holdings - Analyst [17]

-------------------------------------------------------------------------------Sir, I will just ask quickly a few questions. One is, if I calculate the equity number correctly,
the fully diluted equity of Grasim will be 13 crore shares, and ABFS would be roughly
INR213 crore shares?
-------------------------------------------------------------------------------Yes.
-------------------------------------------------------------------------------Bhavin Chheda, Enam Holdings - Analyst [19]
-------------------------------------------------------------------------------That numbers are roughly correct, right?
-------------------------------------------------------------------------------Yes. The fully diluted equity capital of Grasim is going to be INR13.56 crore shares and for
ABNL is going to be INR218 crore, is going to be the capital of the Company.
-------------------------------------------------------------------------------ABFS would be INR218?
-------------------------------------------------------------------------------ABFS.
-------------------------------------------------------------------------------Yes, it will be INR218 crores, right?
-------------------------------------------------------------------------------Yes, INR21.8 crores, which will be INR218 crores of capital.
-------------------------------------------------------------------------------Okay, INR218 crores of capital and this will be held 57% by Grasim and 43% will be
distributed to shareholders.
-------------------------------------------------------------------------------That's correct.

-------------------------------------------------------------------------------And sir, in the merged entity, what is the net debt number excluding the ABFS debt, the
business operational net debt number would be?
-------------------------------------------------------------------------------As you know, typically all the operating companies underneath will continue to have their
own operations and will continue to have their cash flows and the debt. At a combined
company level, at standalone level, as I was explaining, Grasim is currently a net surplus
company and no one will get, this is the current result which they have announced today,
roughly close to INR2,200 crores of net debt with an annualized EBITDA of around
INR876 crores, which would mean, on a combined basis, the Company would have net
debt of around INR1,700 odd crores with an expected EBITDA annualized basis INR3,200
crores. So net debt to EBITDA would be around 0.5 times.
-------------------------------------------------------------------------------And sir, my last question on the -- how much would be the, if I have holding on the merged
entity, I think there is a [FIL] limit of around 28% in the stock. So if you have calculated
that number, this would open up that holding percentage?
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Unfortunately, I don't have this number handy, but we'll come back to you on this, please.
-------------------------------------------------------------------------------Operator [31]
-------------------------------------------------------------------------------Gunjan Prithyani, JPMorgan.
-------------------------------------------------------------------------------Gunjan Prithyani, JPMorgan - Analyst [32]
-------------------------------------------------------------------------------I had two questions. Firstly on ABS -- Aditya Birla Nuvo, could you just give us a sense on
the debt ex NBFC, what is there on the core business?
-------------------------------------------------------------------------------I had just mentioned that as of June first quarter results, which we announced today, on a
standalone basis, Nuvo has a debt of around INR2,200 crores. To be precise, it is
INR2,192 crores and on an annualized basis, Nuvo has an EBITDA of around INR876
crores. Which would mean, on a standalone, they have a net debt to EBITDA of around
2.5 times, but on a console level, we'll have an EBITDA of around over INR3,200 crores
and net debt to EBITDA of 0.5 times.
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And sir, just one clarification, this INR2,200 crore debt is basically on the division
business, that is the manufacturing business of the Aditya Birla Nuvo, this does not have
any debt pertaining to the Financial Services?
-------------------------------------------------------------------------------No, absolutely, because Financial Services again, there are no debt by the way, except the
non-bank finance company, which is what their business is. So they don't have debt in
Financial Services business.
-------------------------------------------------------------------------------And second question, sir, I had was on the stake pertaining to Idea. So basically I had two
questions on this. Firstly, now, with -- in the consolidated entity will end up holding about
28% in Idea. So if we were to take Indus into account, is there a possibility that the Idea
debt also gets consolidated on Grasim financials?
-------------------------------------------------------------------------------No, no way. I think that's not the right way to read, because as I said, all the operating
companies, they have their own operations, and Idea, going forward bases the current Ind
AS, it would be treated as an associate company for Grasim and there would be only
equity accounting on a proportionate basis.
-------------------------------------------------------------------------------And sir, last question, a fear which market has been perceiving is on the Idea front that,
will the balance sheet of the combined entity be used to provide any support to Idea for
any upcoming options that they participating in? So could you just give some comfort to us
on those fears, please? That'll be great.
-------------------------------------------------------------------------------I will have my colleague -- actually, first of all the answer is no, and you can be completely
rest assured, and we'll tell you what we have done so far and how we have been
operating.
-------------------------------------------------------------------------------Unidentified Company Representative [40]
-------------------------------------------------------------------------------Look, Idea is a well-capitalized company. I think if we look at the balance sheet of Idea, it
is well capitalized, from a debt equity perspective it is generating. I think we had an Idea
conference call very recently where the management team addressed and talked about
what the balance sheet of the business looks like.
At the end of the day -- Idea has been listed since 2007, it has been operating as an
independent company and has been evaluating its own financing needs. It has [accessed]
capital several times from multiple sources. In all, if you look at the history of Idea since
2007 post listing, it has raised overall somewhere close to INR16,000 crores of equity in
different forms, and none of that has come as a support from the Group. It doesn't mean
that Group is not going to look at options, any options coming out from any of the
associate companies we look at on the basis of merit and the Board of Grasim, new
Grasim is going to take a call on whether it merits an investment into the Company, but
here the idea was to give a background to the whole thing, that if you look at the history
since listing, Idea has raised resources from several different pools of capital including
public markets, the strategic investor at a point of time, including private equity investor
while monetizing towers, and as it continues to do so in its journey, it will continue to
evaluate its own option.
-------------------------------------------------------------------------------Operator [41]
-------------------------------------------------------------------------------Deepak Malhotra, private investor.
-------------------------------------------------------------------------------Deepak Malhotra, Private Investor - Analyst [42]
-------------------------------------------------------------------------------Can I please understand that ratio once again, sir? There were some confusion regarding
this ABFRL finance. So could you please explain the ratio once again, if you don't mind?
-------------------------------------------------------------------------------So as I said, and it's better to understand the way I'm explaining. Someone who is holding
100 shares of ABNL will get 30 shares of Grasim, will also get 210 shares of Financial
Services business.
-------------------------------------------------------------------------------Okay. Now what will happen is first the ABFRL is going to be merged with the Grasim and
post-merger, it will be demerged into the financial company, correct?
-------------------------------------------------------------------------------The restructuring is in two stages. The first state where (inaudible) as is basis gets
merged into Grasim.
-------------------------------------------------------------------------------Right, that's the first stage, correct.
-------------------------------------------------------------------------------And at second stage, all our Financial Services business gets consolidated at one place,
which is Aditya Birla Financial Services. And Aditya Birla Financial Services actually get
listed on consolidation, which will result into 43% shares to the merged entity shareholders
and 57% shares will be held by Grasim.
-------------------------------------------------------------------------------So that means in a nutshell, I should understand that if I'm holding 100 shares of this
Aditya Birla Nuvo, I get 30 shares of Grasim plus 210 shares of the financial company,
correct sir?
--------------------------------------------------------------------------------
Sushil Agarwal, Grasim Industries Ltd. - Whole-Time Director & CFO [49]
-------------------------------------------------------------------------------That's right. And I am also saying that someone who is a shareholder for Grasim, they will
continue to kind of hold same 100 shares if they are holding in the beginning and they'll
also get 700 shares of Financial Services.
I just want to clarify earlier someone had asked this question, what would be the share
capital post this transaction. At a Grasim level, we'll have a combined number of shares
outstanding would be INR13.14 crores and for Financial Services, the ABFS, it would be
INR21.52 crores.
-------------------------------------------------------------------------------What will be the debt of Grasim post-merger, sir?
-------------------------------------------------------------------------------Post-merger, it would be around INR1,700 crores and EBITDA of over INR3,200 crores.
-------------------------------------------------------------------------------Okay, INR1,700 crores would be the debt and INR3,200 crores would be the EBITDA.
--------------------------------------------------------------------------------
Sushil Agarwal, Grasim Industries Ltd. - Whole-Time Director & CFO [53]
-------------------------------------------------------------------------------So this EBITDA has been annualized bases the first quarter results. And the debt, which
we have taken, which is as of June 2016, as of today, that's what the result which Nuvo
has announced.
-------------------------------------------------------------------------------Operator [54]
-------------------------------------------------------------------------------Prateek Poddar, ICICI Prudential Asset Management.
-------------------------------------------------------------------------------Prateek Poddar, ICICI Prudential Asset Management - Analyst [55]
-------------------------------------------------------------------------------Sir, just one small clarification, once ABFSL gets listed, would Grasim hold 57% in
ABFSL?
-------------------------------------------------------------------------------That's right, Prateek.
-------------------------------------------------------------------------------And the others would -- so 17% by promoters, 23% by public, 57% by Grasim.
-------------------------------------------------------------------------------That's right.
-------------------------------------------------------------------------------And sir, if I may ask one more question, why a partial carve out and why not a complete
demerger of ABFSL?
-------------------------------------------------------------------------------As you know, for the Financial Services business, capital is the only thing which we kind of
need for the growth of that business. And having a strong parentage always help. And as
you yourself run the Financial Services business, most of the regulator, like IRDA and the
RBI, they always support the solvent strong parentage. So that's the reason we have kind
of kept partially with the Grasim Company and partially for the benefit of the all the
shareholders.
-------------------------------------------------------------------------------And if I may stretch this question, you would obviously get a -- as a holder of Grasim,
obviously I get shares of ABFSL, but there is also a holding company discount, which gets
added to the price of Grasim, right, I'm sure you would understand that.
-------------------------------------------------------------------------------Yes.
-------------------------------------------------------------------------------So just one step forward on UltraTech, is it fair -- is there a chance that going forward, you
might look to demerge UltraTech completely and distribute the shareholders to the public
and reduce the Holdco discount or you do that in Idea by any chance? Or is it fair to say,
I'm just trying to understand would Grasim always be a holding company?
-------------------------------------------------------------------------------So I think, Prateek, let's look at questions at that particular stage. Today, this is what it is.
And as we go along, if there are any merit in new structure, which Board of Grasim will
evaluate and then we'll come back to you. So I think today, we have to see this is what it
is.
-------------------------------------------------------------------------------Operator [65]
-------------------------------------------------------------------------------Hiren Dasani, Goldman Sachs.
--------------------------------------------------------------------------------
Hiren Dasani, Goldman Sachs - Analyst [66]

-------------------------------------------------------------------------------Yes. Can you just explain this ABFS INR21.52 crore share count again? I mean, how are
you arriving at that number?
-------------------------------------------------------------------------------Look, Hiren, I think this is through multiple steps. I mean there is a share capital, which
exist in ABFS today. There is going to be a transfer of our Insurance business, which is
going to happen as part of the scheme. There is a conversion of [certain] debt which is
sitting within the ABNL balance sheet that is getting converted as part of the scheme, and
rest is the preference shares, and rest is the issuance, which is going to take place to -- as
part of the demerger overall. And in summary, at the end of the process, we will end up
with INR21.5 crore shares.
I think in a separate conversation, we can take you through the details. We can sit down
with you and give you more information.
-------------------------------------------------------------------------------Hiren Dasani, Goldman Sachs - Analyst [68]
-------------------------------------------------------------------------------But -- if I'm today AB Nuvo shareholder, which is effectively holding 100% shareholding of
the Financial Services, now I'll be sharing some of that with the existing Grasim
shareholders as well, right, in the new scheme of things?
--------------------------------------------------------------------------------
Yes.
-------------------------------------------------------------------------------Operator [70]
-------------------------------------------------------------------------------Chockalingam Narayanan, Deutsche Bank.
-------------------------------------------------------------------------------Chockalingam Narayanan, Deutsche Bank - Analyst [71]
-------------------------------------------------------------------------------Sorry, on my part, I didn't understand this debt aspect better. Aditya Birla Nuvo, the May
2016 corporate presentation has consol debt at INR13,570 crores and NBFC borrowings
at INR22,914 crores. And against that cash surplus is only INR1,749 crores. Now what is
this difference between the INR13,570 crores and INR3,900 crores of standalone debt in
AB Nuvo?
-------------------------------------------------------------------------------So let me break this question in two parts for better understanding. I think Nuvo, as I said,
as of June, when they announced their result today, they have a debt of around INR2,200
crores. And Grasim has a net debt of around INR460 crores, net surplus cash. So on a
combined basis, the company will have a debt of around INR1,733 crores.
--------------------------------------------------------------------------------
Sir, I understood AB Nuvo -- Grasim standalone.

-------------------------------------------------------------------------------Yes. Let me complete that, so I am saying this is what the standalone numbers looks like.
Now NBFC business, as you know, that's the only way they function, because that debt on
the NBFC company is a typical NBFC company debt, like any other operating company,
because that's their business.
-------------------------------------------------------------------------------Sir, sorry. I didn't understand this slightly. So your capital employed in that business was
INR52,655 crores. It had a network INR14,535 crores, minority interest of INR857 crores.
There is debt of INR13,570 plus an NBFC borrowing, which is separate of INR22,914. So
this is the reason that I'm asking, because NBFC has been already demarcated, what is
the INR13,570?
-------------------------------------------------------------------------------So if you add the proportionate debt of Idea in the standalone debt of Nuvo, that is the
number which you'll get.
--------------------------------------------------------------------------------
Okay, so this is the --.

-------------------------------------------------------------------------------(multiple speakers) standalone Nuvo debt plus proportionate Idea's debt. At March 2016,
it was being accounted for as joint venture, proportionate accounting was being done for
Idea.
-------------------------------------------------------------------------------So under Ind AS, will this still keep coming like this or how should we understand this
part?
-------------------------------------------------------------------------------As I said, in Ind AS, Idea would be treated as an associate company and will only get an
equity accounting, which is on a proportionate basis.
-------------------------------------------------------------------------------So under P&L, the share of profit from -- profit or loss from associates will get -- it'll come
under the client?
-------------------------------------------------------------------------------That's right.
-------------------------------------------------------------------------------And in the balance sheet, anywhere else it'll appear or --?
-------------------------------------------------------------------------------The results proportionate, results will be added.
-------------------------------------------------------------------------------Operator [85]
-------------------------------------------------------------------------------Sandeep Bansal, SBI Life.
-------------------------------------------------------------------------------Sandeep Bansal, SBI Life - Analyst [86]
-------------------------------------------------------------------------------Sorry, sir, I couldn't understand the logic. You mentioned that the Financial Services
business requires a strong parentage. So by any chance you're referring that ABNL is not
a strong parent or you're seeing that, if you would have given one share for one ABFSL
share to all Grasim shareholders, the promoters who would end up owning 40% are not
strong promoters?
-------------------------------------------------------------------------------No, I think you know you can read the way you want to read. But I think ABNL is a strong
parentage, in any case it was. It's part of the same Aditya Birla Group. But given the
strong balance sheet of Grasim, that provides the additional support to the Financial
Services business, that's what I meant.
-------------------------------------------------------------------------------No, but -- I mean as we understand, Financial Services business and as we were being
made to understand that ABFSL had required capital for next three years and they were
able to grow on their own. And I'm sorry to say this again and again, at 14% to 15% ROE
business and capital for next three years, where is the need for capital, which we are
going to infuse?
-------------------------------------------------------------------------------So I think ABFS has its own plan and I think today is not the best time to kind of take you
through those plan of ABFS, but we can have this discussion offline and kind of take you
through what we intend doing in financial services business as we go along.
--------------------------------------------------------------------------------
Sandeep Bansal, SBI Life - Analyst [90]

-------------------------------------------------------------------------------Because we are a minority shareholder in both these companies, I would want to
understand how are we going to convince the ABNL minority shareholders to be give up
their 100% holding in Financial Services business for a 25% exchange, that is why I want
to understand this. Because this will come up for voting, right? So eventually, we'll have to
vote either in favor or no.
-------------------------------------------------------------------------------No absolutely, it will come for voting. I think we looked at multiple options of restructuring
and when we looked at all the options, I think, we felt as the management team, this is a
restructuring, which makes sense for both set of shareholders.
-------------------------------------------------------------------------------That's what I wanted to understand, how it makes sense is what I want to understand,
-------------------------------------------------------------------------------Look, that's something basically if we look at multiple options which could have been there
for restructuring, like you mentioned if we demerge completely the Financial Services from
ABNL, at the end of the day what the rest to do ABNL is left with is the businesses, which
is primarily a holding into Idea and small operating businesses, right?
And as a result of that, probably the leftover company would have been a very small sized
company with relatively low liquidity and relatively a significant lesser float. Overall in the
scheme of things, when we look at the transaction and we look at the option that we
presented to both sets of shareholders, and it's the prerogative of shareholders to decide
whether they like the scheme, has been keeping that aspect in mind and looking at an
option where we are giving a combination of businesses, which represent both high
growth businesses as well as businesses that generate cash in the business going
forward.
-------------------------------------------------------------------------------No sir, I understand the rationale and the rationale is okay, but you cannot ignore the
market reality, right? As Grasim shareholders, we've been suffering for getting our fair to
value for holding company discount for years, now we are adding more businesses which
will further trade at a holding company discount. So from a minority shareholder
perspective, we are only diluting their interest more than before.
-------------------------------------------------------------------------------Look, I think if you look at the numbers for Grasim, if we look at a one-year, three-year,
five-year, or seven-year or a 10-year horizon, the returns that have been given to
shareholders by Grasim management has been far in excess of the returns that has been
generated by Sensex. I mean you can do your own arithmetic or I can take you through
that separately on a one-on-one conversation, but we have generated returns which are
far in excess of the returns that have been compared to the Sensex. Probably it has been
more like 50% higher than what the Sensex has given, in any of these timeframe.
-------------------------------------------------------------------------------Okay. So there is no denying that. So we're not against that. Your just of the view that had
by Financial Services being demerged completely would have made more sense than
holding 57% via Grasim? That is the only (multiple speakers).
-------------------------------------------------------------------------------No, I agree with you. Absolutely there would be pros and cons for every structure which
one can consider and I think we can keep debating on that, but at the end of the day,
when we looked at the shareholders' perspective and what makes sense for shareholders,
we thought this is a great way of restructuring and giving access to shareholders directly
to Financial Services. And at the same time, take care over the (inaudible) a smaller
holding company, which would have risen as a result of a demerger of Financial Services.
So here what we presented to shareholders to look at is a very strong company, which
offers pretty much a proxy to India growth story, it's a mix of manufacturing and services
business like Sushil highlighted, and it actually is a story, which delivers significant growth
going forward. And this is an option to shareholders to either invest in this company or
look at investing in each of the operating businesses which we are giving us an option.
-------------------------------------------------------------------------------We can't keep debating this, but as a suggestion, if at all there is a scope for that, we
would prefer it to be separate entity rather than a holding company. That's the only
minimum point we wanted to make.
-------------------------------------------------------------------------------Sure. Thank you.

-------------------------------------------------------------------------------Operator [100]
-------------------------------------------------------------------------------Sanju Parekh, Reliance Mutual Fund.
-------------------------------------------------------------------------------Sanju Parekh, Reliance Mutual Fund - Analyst [101]
-------------------------------------------------------------------------------Sir, I joined late, but just to understand this ABFS, so one is, the shareholders of ABNL
will get shares, the existing shareholders of Grasim will get shares, even Grasim will hold
shares in ABFS? I'm sorry, but I'm not clear.
-------------------------------------------------------------------------------Yes, that's right. I think -- as I was kind of (inaudible) and I'll repeat that ratios. Someone
who is holding 100 shares of Nuvo will get 30 shares of Grasim; they'll also get 210 shares
of Financial Services business. And someone who is holding Grasim 100 shares will
continue to kind of hold 100 shares of Grasim and will also get 700 shares Financial
Services business. So that's the metric which I was referring to.
--------------------------------------------------------------------------------
And Grasim will also own 57% as a Company in ABFS?

-------------------------------------------------------------------------------That's right. So ABFS will be held 57% by Grasim and 43% by the shareholders of
combined new [holding].
-------------------------------------------------------------------------------But then sir, I'm just trying to see, since 9.3 crore shares are Grasim outstanding shares,
and as I remember, 13 crore shares are ABNL outstanding shares, then how do we get
this tally of 21.52 crore shares? That outstanding equity of (multiple speakers).
-------------------------------------------------------------------------------No, no. You actually got it wrong. 21.52 crore shares which we were referring, we were
referring for financial services companies. So there are two different companies, which
we're referring to. So Grasim will have a post-merger outstanding shares of 13.14 crores
and the Financial Services, ABFS post listing will have 21.52 crores number of shares.
--------------------------------------------------------------------------------
Yes, sir, that's what I'm saying, so the outstanding final equity of ABFS, I'm not able to
understand how it could be 21.52 only? That's -- so clearly, my understanding is not right,
but if you can help me sir?
-------------------------------------------------------------------------------So maybe if you want to go through this detail of how the numbers of shares, we can take
you on offline and kind of explain you the number of shares. It's actually 215.2 crores
number of shares.
-------------------------------------------------------------------------------Operator [109]
-------------------------------------------------------------------------------Bhavesh Shah, CLSA.
-------------------------------------------------------------------------------Bhavesh Shah, CLSA - Analyst [110]
-------------------------------------------------------------------------------Sir, just help me understand, if you look at pure Grasim standalone business (inaudible)
just had a recent round of CapEx, similarly UltraTech (inaudible) recently acquired Jaypee,
I don't think so the Company needs any major form of capital. And finally, even if you look
at -- I just heard in the conference call somebody saying that probably even ABFS doesn't
need capital over next three years. So does it naturally mean, and Grasim balance sheet
is certainly very strong. Does it naturally mean that the next round of big capital
expenditure, purely from the Grasim perspective, will be actually for this telecom venture
or you do intend to scale up some of the other businesses that you have, something like
solar, textile, chemicals, these are too small, but my feeling is that the natural big capital
expenditure will actually come in the telecom sector. So is my understanding correct or

can you just throw some light on this?
-------------------------------------------------------------------------------No, I think your understanding may not be correct, because as we explained earlier, all the
businesses like cement, fiber, they have their own chemical, as you know, they're going
through their own expansion plan. And I think we had earlier articulated that Idea has its
own balance sheet and in the last 8 years, 10 years if we see, they've raised a decent
amount of capital, around INR16,000 crores to INR17,000 crores, of their own -- bases
their own balance sheet.
And I think if there is an extra weightage, which has been given to Idea financing, may not
be the right way to look at this transaction. I think this transition is focused to provide a
pure play on the Financial Services because I think Financial Services is a business that
is growing and we are the leading player in that space. It provides India -- various
businesses at India level, it's the India's growth story, which would have a presence in
Financial Services, to Cement, to Textiles and Chemical, along with Telecom. So I think
Telecom is there by way of an associate company for the Grasim.
-------------------------------------------------------------------------------Bhavesh Shah, CLSA - Analyst [112]
-------------------------------------------------------------------------------And sir, my second question is on getting the approval from the shareholders. So is it that
you need a majority approval of the minority shareholders for this deal to go through?
--------------------------------------------------------------------------------
That's right.
-------------------------------------------------------------------------------Operator [114]
-------------------------------------------------------------------------------Martin Pradier, Westwood International Advisors.
-------------------------------------------------------------------------------Patricia Perez-Coutts, Westwood International Advisors - Analyst [115]
-------------------------------------------------------------------------------Actually it's Patricia from Westwood here. We are shareholders of Grasim. So we're trying
to understand two things. We're trying to understand what value are we getting (inaudible)
you are infusing and by diluting us to buy these businesses. To begin with, you just made
-- commented with the prior caller that Idea Cellular is a growing business, but I also see
that given that the trend in the past several years, the return from capital employed -- a
very capital intensive business (inaudible) decline. So I don't agree with your statement
that we're gaining (inaudible) there is no proof point there that this a business that can
provide solid returns down the road and you will end up diluting the alternate Holdco entity.
That's one comment and I would like you to the comment on that.
The second one is, why is it that we're getting -- in terms of value for the new Financial
Services franchise that you are saying. We bought Grasim because it is a cement
company, a player in India, certainly, but not for a financial services alternate business.
For the life of mine, I don't understand really why is it, like the other caller said, why is it
that you do, even on a standalone basis and actually benefit your other shareholders from
Aditya Birla, and then now you come and claim that this is going to benefit us (inaudible).
So could you please comment on those two issues? Thanks.
-------------------------------------------------------------------------------No, I appreciate your feedback, Patricia, this is Saurabh here. And just to break up the
questions into two parts, let me take each of them one by one. As far as Telecom is
concerned, this is a sector which is going through its own up and down. I think our
Chairman (inaudible) couple of times indicated that we expect things to be tough for next
couple of years, but we do believe that industry will turn around, and as a result of that we
will be able to generate returns on capital which are commensurate for that business. We
have absolutely no doubt in our minds as shareholders of a telecom business and that's
the reason why we continue to support it.
As far as the second question is concerned, from being a pure play to having diversified
play in the form of cement, financial services as well as telecom and let's not forget, I think
the two of the divisions, which are sitting within Grasim are not small divisions. I mean,
each of these businesses individually are number one businesses in their own right, and
jointly put together, have a revenue somewhere in the region of $2 billion plus, generating
EBITDA somewhere in the region of $450 million to $500 million. So these are large
businesses in their own right. So frankly when we look at Grasim as a whole, I think when
we look at the two companies, I think there were chemical businesses, which were sitting
across both in ABNL as well as in Grasim. There was textile business which was sitting
across both in ABNL and Grasim put together. We do believe putting these two
businesses together will, again provide significant impetus to growth. And as I mentioned
earlier, I think as management of Grasim, our endeavor has been to deliver shareholder
value in the long-term and we have demonstrated that when we look at the track record
over several years in any time frame, we have generated which are significantly ahead of
what the market returns have been. I hope I have addressed some of the questions that
were raised.
-------------------------------------------------------------------------------Yes. Just a follow-up on, since you are saying that Idea Cellular is going to going to
provide better returns in the future, then I'd like to understand what your -- the level of
returns on capital employed may look like in the next two years to five years, if you are
saying that this is going to go.
-------------------------------------------------------------------------------I think we did have a management call of Idea, which was few days ago, and what we can
do is, we can help you -- we can send you access to some of those management
commentary where they've highlighted what are the growth opportunities for Idea and how
they're looking at the business today.
-------------------------------------------------------------------------------And my second follow-up is, on the Financial Services business, what valuation are you
utilizing to estimate what we consider as the value of transaction here? I'd like to
understand that.
And if I heard correctly, you are saying that this business currently carries 42% ROE, is
that correct? Can you just confirm that out? And maybe you can also let me know what the
capital (inaudible) are at the present time.
-------------------------------------------------------------------------------No sorry, I don't know where this 42% came from. I think our Financial Services business
is a mix of -- it's pretty much an umbrella of Financial Services businesses in India. It
offers opportunity in a financing business through our NBFC, which has a book of
approximately INR26,000 crores, INR27,000 crores. That business, the multiples are
available in the market, typically this business anyway gets a leverage of 5 times to 6
times, so one can look at what the net worth of that business is and what the consequent
multiples are.
We have one of the largest AMCs in the country with assets under management of
approximately $26 billion, $27 billion. We have a large insurance company, which is
amongst the leading companies in the country, and then we have several small
businesses including home finance, including payment bank, and few of the other
segments, which are still small, but we hope that we will grow and create value. So overall
Financial Services umbrella is a pretty wide umbrella, and actually offers multiple
opportunities across the Financial Services spectrum. What I'll do is, I can request Ajay to
give a little bit more color on our Financial Services business if you have -- any further
concerns that you may have. So Ajay, can you just add couple of comments on our
business?
-------------------------------------------------------------------------------Can I add anything specific, Patricia to the question that you already had?
-------------------------------------------------------------------------------I'd like to know what the return on equity of this entity is?
-------------------------------------------------------------------------------So the return on -- so it's about 20% for the last fiscal year.

-------------------------------------------------------------------------------20% for the last fiscal year?
-------------------------------------------------------------------------------Yes 20%.
-------------------------------------------------------------------------------And what's the capital -- can you give me an idea of the capital ratios please?
-------------------------------------------------------------------------------Patricia, do you mind if we come back to you separately on this because you're asking a
number of specific questions, we can answer all your questions separately.
--------------------------------------------------------------------------------
Patricia, here actually just to clarify, I think there's a huge -- as a result of this
restructuring, the share capital what will evolve post-restructuring as a listed company is
going to be a little different than what Ajay referred to. So we can give you a clarification
separately (inaudible).
-------------------------------------------------------------------------------Operator [129]
-------------------------------------------------------------------------------Anshuman Atri from Haitong Securities.
-------------------------------------------------------------------------------Anshuman Atri, Haitong Securities - Analyst [130]
-------------------------------------------------------------------------------I had questions regarding cost saving synergies and financial savings could make after
this merger. So can you please provide details as to what kind of savings you'll get, be it
administrative cost savings or lower debt financing? Can you provide some color on this?
-------------------------------------------------------------------------------Look at the end of the day, I think our balance sheet is extremely strong. So from a cost
saving on interest perspective, I do not, frankly, it is pretty much a blue chip company, in
terms of its debt-equity ratio. And if we look at the overall synergies from the transition, as
I earlier mentioned, we are combining a couple of businesses, which have been sitting
across different buckets, which is the Chemical as well as our Textile business. And I hope
that basically when we bring these businesses together, there'll be a lot more operational
synergies in terms of both these businesses to chart out their own growth. So we do hope
there are going to be some synergies that are going to come out of that combination. But
frankly, we have not really put that down in the form of numbers. We will take it as the
business goes along.
-------------------------------------------------------------------------------Other question regarding few more cross-holdings like Hindalco is one of the promoters of
Idea, so what kind of further simplification of these cross-holdings can we expect going
forward?
-------------------------------------------------------------------------------As of now there is no specific plan.
-------------------------------------------------------------------------------And lastly in terms of dividends, as you said, all the entities, be it UltraTech, Idea or ABFS,
are well capitalized. So can we see more dividends or higher dividend policy from Grasim
combined going forward?
--------------------------------------------------------------------------------
As you know, these dividend policies are being decided by Board on a basis of the current
year's operations and I'm sure, given our fast trend, we'll continue to kind of maintain
healthy dividend payout.
-------------------------------------------------------------------------------Operator [136]
-------------------------------------------------------------------------------JA Radhakrishnan, IIFL.
-------------------------------------------------------------------------------JA Radhakrishnan, IIFL - Analyst [137]
-------------------------------------------------------------------------------Again, coming back to this diluted share for Grasim as well as ABFS, if I am seeing 13.14
crore shares as diluted for Grasim and you are going to issue 700 shares for every 100
shares issued, that means I am getting 91.98 crore shares for ABFS, whereas you are
telling it is going to be 215.2. What is this difference of 123, who all will be given this
shares?
-------------------------------------------------------------------------------I think we can send you and maybe as a part of the next communication, we can explain
you how the number of shares of ABFS are increasing, but just to kind of summarize,
there are existing outstanding shares of ABFS, then there are business which are getting
moved from main company level to ABFS. Then there are shares getting issued, including
the shares of Birla Sun Life Insurance and payment bank and then we are issuing
shareholders of combined company. That's another increase in the shares. So what we
can do is, we can send you -- because there are a couple of questions on this, specifically
we will send you the reconciliations around the share issuance.
-------------------------------------------------------------------------------JA Radhakrishnan, IIFL - Analyst [139]

-------------------------------------------------------------------------------That will be very helpful including how Grasim will be holding 57% in that entity.
-------------------------------------------------------------------------------Absolutely, we will send this as a specific communication.
-------------------------------------------------------------------------------Operator [141]
-------------------------------------------------------------------------------Prateek Poddar, ICICI Prudential Asset Management.
-------------------------------------------------------------------------------Just one small follow-up on the standalone given Grasim is fairly liquid and your cash
profits exceed your CapEx plans, which you have detailed. Could you just talk about
where does this cash get deployed going into the future? Because you will be generating
seriously substantial amount of cash. Should we expect, and I don't think so you have any
major CapEx plans as of now till F 2018. So, till F 2018, what do you plan to do of the
excess cash, that sit on your books, you take out as dividends?
--------------------------------------------------------------------------------
Ajay Srinivasan, Grasim Industries Ltd. - Head of the Financial Services Business [143]
-------------------------------------------------------------------------------I think I did capture in some form in my communication earlier that VSF business, which
has seen last strong few quarters and the capacity utilization around that sector has really
kind of reached to a -- at a full level across the globe. And appropriately, if we continue to
kind of see strong demand there, we may come back post Grasim Board approves, some
kind of expansions around that. So there are multiple ways in which cash would be
utilized. And as you know, currently we do have a Chemical business expansion going on.
So there are pool of cash which is getting utilized for a growth of that company.
-------------------------------------------------------------------------------Operator [144]
-------------------------------------------------------------------------------Rakesh Vyas, HDFC Mutual Fund.
-------------------------------------------------------------------------------Rakesh Vyas, HDFC Mutual Fund - Analyst [145]
-------------------------------------------------------------------------------Actually just wanted to have few questions. One is, I still don't understand the rationale for
this restructuring because as highlighted, you are saying Idea Cellular does not need
incremental capital, similarly the ABFS does not need incremental capital, whereas it more
simpler solution for restructuring would have been just to demerge the Yarn business and
the Textile business out of ABNL and merge it into Grasim, that would have been more
synergistic in a sense. So I'm just slightly baffled as to why the whole need for
restructuring at all?
-------------------------------------------------------------------------------No, first of all, I don't think we ever mentioned that Idea will not need cash. What we said
is Idea being an independent company, listed company, in last many years, they have
raised their own capital, which is around INR16,000 to INR17,000 crores. As of now, we
don't have any specific plan around Idea, and if something -- and around the cash use of
otherwise what is getting generated at a company level, I did explain that there is
expansion plan going on around the chemical business. And Viscose business, which is
seeing a good CapEx utilization across the globe, and hoping that if we have the similar
kind of a strong demand, we may come up with some kind of a capacity expansion plan.
-------------------------------------------------------------------------------Rakesh Vyas, HDFC Mutual Fund - Analyst [147]
-------------------------------------------------------------------------------I understand that sir. I'm just trying to understand, earlier the communication used to be
that ABNL was the incubator for new businesses and that's how that vehicle would
supposed to be, I'm just slightly baffled as to why Grasim should take that lead now, given
that if there was a need for restructuring, just the related business should ideally have got
merged with Grasim, like you have done with AB Chemical earlier, the Rayon business
and the Textile business would have been an appropriate candidates for merger, leave the
ABNL as it is.
I'm still trying to understand because as what you are communicating, the incremental
capital need in these businesses are not large in near term, and therefore I still don't
understand why is the cash flows of these entities should be funded by Grasim if at all
through this merged entity.
-------------------------------------------------------------------------------So I think you have to see in a context because you can't see any restructuring as of
today, and you have to see 5 years, 7 years, 10 years down the line and what we're doing
is we are creating a large structure -- a large company with a strong revenue of around
INR60,000 crores and INR12,000 crores EBITDA, and having presence in three most
growing business in the country, which is Financial Services, Telecom to Cement.
Cement, the Company already has, but fundamentally what you're doing is you're creating
a large growing presence in the space where India is kind of playing today.
So you're getting an India play today. And I think we're little more focused on this
restructuring as of today. I think you have to just fast-forward this whole thinking maybe 5
years, 7 years, 10 years down the line and you'll see this restructuring in a slightly better
perspective. And I think if we if -- if I can go back on last -- various years and we can pick
up the way we want to kind of do those numbers, 1 year, 3 years, 5 years, 7 years, 10
years. I think across the Group companies, we have actually demonstrated a strong
shareholders equity returns and if we compare to the peers, if we compare the Sensex,
we've actually kind of given a very healthy return.
And I think each of these businesses in which we have a presence are the leadership
businesses. And from our point of view, as a management, I think we can deliver the best
operational efficiencies around the business in which we operate and that's what we'll
continue to kind of do and which is what we have reflected all along in the last many, many
years.
-------------------------------------------------------------------------------Operator [149]
-------------------------------------------------------------------------------Sanju Parekh, Reliance Mutual Fund.
-------------------------------------------------------------------------------Just to -- now that the total outstanding shares is 215 crore shares, so what I'm saying is
we're ABNL shareholders, we were predominantly owning the whole Financial Services,
barring the Insurance and AMC, there were some (inaudible). Now, by this we as
shareholders of ABNL will be ending up with 10% of ABFS. We'll just get 27 crore shares
-- 27 plus something, 2.1 shares for 1 share, so we will turn out to be almost 10% to 11%
share of the whole ABFS and then we will own through -- indirectly through Grasim. So I
guess a little -- and secondly sir, like 123 crore shares will be issued apart from the
Grasim shareholders and the ABNL shareholders. So for 123 crore shares, let's say, the
value of this is INR25,000 crores (technical difficulty) shares worth of value to be issued to
Grasim, but what do Grasim -- so for giving that share to Grasim or what is that we do
get? That's what I'm not able to understand, sir. Please guide me.
-------------------------------------------------------------------------------I think you are missing the big picture. I think what you are getting into a large company,
and currently -- you have to see in a perspective because today you don't have a large
exposure on one of the fastest growing infrastructure inside of the country, which is the
cement. So we are the leading player in that space. I think we have to see the entire
restructuring in the context, because if we start picking up small pieces and kind of
analyzing, then we're missing the big picture. I think we are providing you an India story,
which has strong business lines. There are five different strong business lines in which
you'll get exposure to and we are also kind of giving an option to play either through
Grasim or through listed co, which is UltraTech directly or to ABFS directly or to Telecom.
So what we are doing is we are consolidating some of those things. We are providing an
option for the shareholders to either come at a combined Company level, which will get a
total India play or come to a pure play on a respective business line in which you want to
kind of have a direct interest in.
-------------------------------------------------------------------------------Yes. I got the first two sets, only just to take it last and then I'll take offline, if I'm not able to
take it -- follow. The 122 crore shares that we issue to Grasim around -- or little bit less,
what I'm saying is Grasim as a Company, for the issue of shares that we do, what is that
we get? That's what I'm not able to understand.
So I understand that if I'm in ABNL shareholder, we got the shares in the ABFS, the
Grasim shareholders got shares in ABFS, but Grasim as a Company, what they get shares
of 122 crore share, but what is that we get for it? Sir, a little in the point I'm missing, sir?
-------------------------------------------------------------------------------If you have -- you yourself has answered this question, Grasim actually is getting 57%
ownership in the Financial Services business, which is the fastest growing financial
services business. It's the largest non-bank play in the country today, with a leadership
position in 12 different business line activities in which we are operating. There are few
businesses which is a recent business for the Company, and I think with the help of a
strong parentage, we'll be able to kind of grow those business meaningfully as we go
along.
-------------------------------------------------------------------------------Operator [154]
-------------------------------------------------------------------------------Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I
now hand the call again over to Mr. Nitesh for his closing comments.
-------------------------------------------------------------------------------Nitesh Jain, Axis Capital - SVP - Institutional Equity Research [155]
-------------------------------------------------------------------------------Thank you, Ali. On behalf of Axis Capital, we sincerely thank the entire Senior
Management team of Grasim and ABFS, and all the participants for taking time out to
hear this conference session. Thanks so much. Ali, go ahead and close the session,
please.
-------------------------------------------------------------------------------And before Ali, you close, I think there are few specific questions which have been asked.
I think what we'll do is, particularly on the shareholding and some of those stuff, we will try
and kind of give you a little more clarification on that and we will be happy to kind of take
one-on-one questions wherever you have little more queries left.
Thank you so much for joining this call.
-------------------------------------------------------------------------------Operator [157]
-------------------------------------------------------------------------------Thank you. On behalf of Axis Capital Limited, that concludes this conference call. Thank
you for joining us. And you may now disconnect your lines.

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Q1 2017 Grasim Industries Ltd Earnings Call

an improvement in the business environment, capacity addition have slowed down,

Pranav Tendolkar, Forefront Capital - Analyst [8]

Bhavin Chheda, Enam Holdings - Analyst [17]

-------------------------------------------------------------------------------Bhavin Chheda, Enam Holdings - Analyst [27]

Hiren Dasani, Goldman Sachs - Analyst [66]

Sir, I understood AB Nuvo -- Grasim standalone.

Okay, so this is the --.

Sandeep Bansal, SBI Life - Analyst [90]

-------------------------------------------------------------------------------Sure. Thank you.

And Grasim will also own 57% as a Company in ABFS?

expenditure will actually come in the telecom sector. So is my understanding correct or

-------------------------------------------------------------------------------Patricia Perez-Coutts, Westwood International Advisors - Analyst [124]

-------------------------------------------------------------------------------JA Radhakrishnan, IIFL - Analyst [139]

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