• COVID update: India is getting worse (Mumbai cases spiking as well as new areas), which is being accentuated by monsoon season. Despite this, they see another lock down unlikely.
  • COVID could mean less reliance on China: Global players may look to reduce their reliance on China for VSF, this could be a catalyst for Grasim to expand capacity further. When China was under lock down, Grasim saw increased demand from retailers, despite Chinese VSF producers continuing to operate.
  • Grasim have not had any supply chain issues to date: Grasim is c.50-55% DWP integrated with operations in Europe and Canada. In terms of future expansions, they are comfortable with DWP supply availability. They are ramping-up VSF production now across most locations, with an update on VSF utilisation to be provided in August. In our recent note (Download Report), we estimated that their DWP requirements were down at least 73% to 43kt/quarter.  
  • ST demand outlook remains uncertain, while global retailers are struggling: In the US, Brooks Brothers filed for Chapter 11 bankruptcy protection, and this follows on from J.C. Penney, Neiman Marcus, J. Crew and Chuck E. Cheese. Although Grasim remains a domestic VSF supplier, they strongly believe that a textile recovery is dependent on Europe and North America (more so than China). In India, Grasim are waiting to see if the upcoming festive season (September-November) is a catalyst for demand to resume. Non-woven continues to see uptick in demand (<30% of VSF demand).
  • MT-LT drivers of textile demand remain intact, in their view: In the next five years, they think viscose will be biggest beneficiary. Customers continue to shift to more natural fibre (used in clothing, curtains, towels etc.), with VSF gaining market share from Cotton, which uses more chemicals and water and competes with agriculture for land.  
  • Pricing remains weak (June +1% m/m): A few quarters back, they were nicely insulated in the domestic market. Subsequently, there was a correction. In their view, pricing continues to be irrelevant, as the market is not liquid at the moment. At current levels, VSF producers simply cannot make good money.
  • COVID-19 to flush out smaller VSF players in China: Utilisation in China remains around 60% (down from 70-80% prior to COVID). At current prices, this is below the variable cost of most producers – will take time to see how the shake-up is happening. Grasim has a facility in China, which benefits from incentives, however, it would appear that this in isolation is not enough to keep VSF producers afloat.
  • Capacity expansion plans on hold: VSF expansion from 566ktpa to 788ktpa postponed. In our view, this delay is likely to tie in with SAP’s Saiccor expansion towards the end of September 2021. In July/August, Grasim will decide best plan of action in terms of project.
  • Next reporting date: Grasim are expected to report Q1 21e in August (date to be confirmed).

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