Ambuja Cements Limited (500425) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Ambuja Cement Limited Earnings Conference Call, hosted by ICICI Securities. This is to remind you that the discussion in today's call may include certain forward-looking statements and must be therefore viewed in conjunction with the risks that the company faces. The company assumes no responsibility to publicly amend, modify or revise any forward-looking statement on the basis of any subsequent development, information, events or otherwise. Please note that the duration of the call is for 1 hour. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Krupal Maniar from ICICI Securities. Thank you. And over to you, sir.

Thank you, Isen. Good morning and a warm welcome to everyone. On behalf of ICICI Securities, we welcome you to the earnings call of Ambuja Cements Limited. On the call, we have with us Mr. Neeraj Akhoury, CEO, Holcim India, and MD and CEO, Ambuja Cements; and Ms. Rajani Kesari, CFO, Holcim India, and CFO, Ambuja Cements. At this point of time, I will hand over the floor to the management of the company, which will be followed by interactive Q&A session. Thank you. And over to you, sir.

Good morning. Good morning, everybody, and thank you for joining Ambuja's investors call. [ We are clearly ] privileged that all of you are here. [ And just at about ] 150 participants are on the line today, so again thanks a lot. And I hope all of you are safe, all of you are well in these difficult times of corona. 2021, we start our pledge with what we describe as change the story: change the story for Ambuja Cements, change the story for ACC and change the story for Holcim in India. And we are taking strong steps now to make our contribution worthy in the society. And if you look at the title slide, it is about one of our latest technology that we bring from our group company Holcim to India. And this is a technology through which we install what we call a bubble barrier, which allows the marine [indiscernible] life to thrive but the plastics can be collected. We expect through one of these installations in Agra cleaning the Mantola canal to collect more than 2,500 tonnes of plastic. And we are confident that we are going to replicate this across India, not going -- from Mantola canal in Agra to go into [indiscernible] sea, to go into Himachal Pradesh, to Gujarat and to many other states. So with your wishes, Ambuja and ACC will do everything possible to make sure that we have -- we'll come across as responsible company to the country. Going next. So today's discussion document, we have divided into 4 parts, the company overview, with a bit of our views on economy and the sector. We'll also talk about our strategic priorities. And then we will also discuss our performance for the year 2021 as well as for the last quarter. So in terms of the company overview, Slide #5. Ambuja is a fairly large organization at 31.45 million tonnes. This is up from earlier about 30-odd million tonnes, 31 -- up from 27-odd million tonnes, coming to 31 million tonnes, with our new project commissioned last year at Marwar Mundwa in Rajasthan which will enable us to produce up to 5 million tonnes of additional cement. Last year, we also focused a lot on our journey of premiumization. As you know, a couple of years back, Ambuja's share in the premium products was roughly about 8%-odd. And now we are already at 15%. And we have -- we are doing everything to increase and multiply this going ahead. And we believe that these are high-EBITDA products. These are profitable products for us, but also they are the right products for the consumers, with the right value proposition, with the right amount of value that it adds to the construction of the individual homebuilders. We continue with our focus on blended cement. We are still convinced that Ambuja should focus on our -- the blended cement and not on the OPC, which we believe is that -- which is -- does not add too much of bottom line to the company. Currently we're at about 89%, and we expect to remain at the same levels in the coming years as well. And with that blended cement, Ambuja is recording one of the lowest clinker factors in the industry at 63%. We are 8x water positive, another feather in terms of how we contribute to the environment. I would hope to believe that 8x water positive is the highest in the Indian cement industry, much higher than many other numbers that we see. And we expect to become 10x water positive in times to come. Our journey in which we are now pushing for alternate fuel to replace the more expensive fossil fuel is on. Last year, we recorded 5%-plus replacement with -- of fossil fuel with other types of renewable fuels or, [ you call it ], alternate fuels. Our focus on the market continues as ever. We have now about 55,000 channel partners across the country, from Jammu and Kashmir right down to Kerala and from Rajasthan up to Assam; a strong talent pool of roughly about 5,000 people. As you all know, last year, we had also done a restructuring exercise, so there is a reduction in the number of people, but we expect to bring in more fresh talent to the company, more young talent and more diverse talent as we go forward. And our strength in terms of Ambuja Cement Foundation, which is our [ pillar ] of our performance across the sites: Last year, we've touched about 2.8 million lives, be it in education, be it in health, be it in for corona support, be it in...

Skill development.

Be it in skill development. So we try to do everything with our local community so that we remain a strong partner to local communities in all the plants where we operate. Going to next slide, #6. Ambuja has several flagship plants located across the country, and most of them are quite profitable or highly profitable plants. So we have right from -- starting from Himachal with a clinker plant, right up to Gujarat and then in Chhattisgarh, in Maharashtra and Rajasthan, but we have also now [ spread ] our networks of grinding plants across India. And this allows us to be -- to reach our products very quickly and very easily to our consumers located in the -- located across the states of India. So when I look at Slide #7. Based on all that I have said, I believe that Ambuja is very well positioned now to capture the new opportunities in the market and to excel in delivering some better performance in the years to come. So the first thing, and I think last year also we discussed this, Ambuja is one company which has very well-defined growth plans and with a good project team, which allows us to execute the projects on time. So between both Ambuja and ACC, we have a strong project team. And it is for this reason that, despite 2 years of very difficult corona times, we were able to complete Marwar at an accelerated speed of roughly about 18, 19 months, despite corona. And we also have 2 grinding plants of ACC, both for Sindri and Tikaria, which have been commissioned in the record time of sub 12 months despite the corona-led disruption being very intense last year. We also have a -- quite a widespread presence. If you look at our earlier chart map, you will understand that we are located, across the markets, very close to the consumption centers. And therefore, once demand is -- the demand happens, then Ambuja will be very well placed to cater to that demand and to serve the customers in those markets. Ambuja remains one of the strong brands in the country [ with that ] competitive strength. Giant competitive strength remains our tagline. And we continue to produce cement which is highest in terms of strength in the market, and that gives us also an opportunity to improve our premiumization. And that is why you see 8% has now become 15%. We continue to make products which have a very sharp value proposition, which have a very high quality. And therefore, the -- we remain the preferred brand to the consumers across the market. Our I CAN project. As you know, we started it about 2 years back to drive the cost efficiency. It is driving our competitive stand. A lot of OpEx as well as CapEx actions are -- have been taken. We believe that what happened in last quarter is more because of the fuel price, but otherwise, the I CAN initiatives of Ambuja have been delivering. But my CFO, Rajani, will talk more about it. As you go around and you hear a lot about environment commitment: Ambuja and ACC are the 2 companies amongst a few others who have now committed to our SBTi targets with targets which are validated with action plans up to 2030. So we are on our journey to become a net zero company in years to come, but we will rapidly reduce our carbon footprints, our environmental impacts in the next 7, 8 years. We will remain and our strategy will remain that we should be able to create incremental values and a higher value both in terms of financial and in terms of ESG performance in the country. And we will make sure that our investors remain satisfied with the performance that we delivered both on financial and ESG. Of course, we have a strong cash generation. And that also supports our growth plans, both organic and inorganic growth, so we will continue to scan the market of additional opportunities that we might get to improve our capacities. With this work, Ambuja was -- received several accolades and several awards last year. We are now in the global top 5 in the Dow Jones in their sustainably index and, I think, one of the very few companies in India which is ranked there. We also got global bronze on the sustainability yearbook of 2022. And from CII, we got an award for our performance on alternate fuels for excellence in managing the municipal waste. As you all know, municipal waste is a big, very big, concern for all cities of India. And we at Ambuja and at ACC are doing in -- a substantial work of how do we remove those landfills and create better cities in the country. Our products are now getting recognized for its sustainability ambitions apart from the strength. Ambuja, all the products now are listed by the GRIHA listing, which is a national rating system by TERI. And this is something which is giving us advantage in the markets as well across India. We got the best -- award for the best use of influencer marketing with our flagship program for Ambuja Abhimaan and the best mobile loyalty program also last year. And last and not the least, Ambuja is the only cement company in the world to secure a place in the prestigious A List for CDB -- CDP ranking for tackling water security. I think that is something that we are extremely proud of. Going forward on economy, Slide #10, on economy and our outlook. We remain firmly optimistic and firmly confident of our country. Last year, while the GDP estimates are at about 9.2% -- and there could be some variations here and there, but overall, the demand scenario last year has been good, especially in the first half. It was quite strong. What is the only concern now is the rising inflation, especially on the fuel prices and the diesel prices. Diesel, so far, is softening, but the fuel prices is an area where we have been hit strongly last quarter. And we are trying to understand what else we can do to mitigate the very strong increase of the fuel prices globally but also in India. So in terms of the key trends for -- where we see in our [ core form ] -- I would call mega trends in 4 or 5 categories. First part is that -- the Indian population which will grow to about 150 crores by 2030. And that would mean increased need for housing, for infrastructure, for transportation systems. And therefore, this would mean that this will demand -- drive the cement demand very strongly. Let's also understand that it is expected that about 60 crore people out of these 150 crore will stay in cities. And that itself means that in cities we need to construct to -- about 40 million to 50 million new houses, and this is -- this will again help the cement demand going forward. What we have seen there was a 71% increase in the home sales last year and in the top 7 cities. And this is more due to the favorable government policies. We have taken some policy stand but also sometimes also because of the interest. So overall, at Ambuja we remain confident about the demand for cement. I think India has just started. We still have the lowest per capita consumption. We still are starting to build our infrastructure, so for years to come, cement demand will continue to remain strong in this -- in the country. In addition to that, the fact that our population is growing and more and more people are going to get into the cities should propel the cement demand. So from Ambuja's side, we are confident that this will work. Even the 2022 budget, if you refer to Slide #12, 2022 budget: The assurance from the government and the content of the budget will have positive impact on housing, on infrastructure and on industrial and commercial. We believe 2022 should see demand coming back very quickly once this -- the execution of the budgetary announcements start. In terms of the strategic priorities, as I told you last time also, we have 4 strategic priorities. One is to accelerate our growth. Second is to expand solutions and product. Third is to deliver a superior performance, and the fourth is to lead the country in sustainability. I -- we are -- as I said, we are strongly positioned to do this, to act on all the 4 performance levers. On growth, if you go to Slide #16. Yesterday, we received a Board approval to invest about INR 3,500 crores to create a new footprint for Ambuja. We'll expand our Bhatapara [ clinker field ] by putting up one brownfield of 10,000 tpd clinker line in Bhatapara but -- first time we are going to build a plant in Bihar, in a place called Barh which is next to the NTPC power plant. So [indiscernible] will be assured. We are also going to expand our Sankrail and Farakka grinding units. So all together, it will create additional capacity for Ambuja of 7 million tonnes. With this capacity, once it is commissioned, we should be closer to 40 million tonnes of capacity. So as I announced last time, we are very convinced about going to 50 million tonnes as Ambuja and at about 100 million tonnes for both ACC and Ambuja. The 50 million tonnes road map for Ambuja is very clear now, and in times to come, we will come up with new proposals for expansion. [ Yesterday's ] expansion of 7 million tonnes will help us strengthen our position in the attractive market of East India, which has a very low per capita consumption, which has also a very high concentration of individual homebuilders with -- also has a high sale of blended cement. It marries quite well with our stated strategy of our focus on blended cement, focus on trade, focus on premiumization. I hope all our investors will support Ambuja's growth plan to reach 50 million tonne as well as the 7 million tonnes program in East. In addition to that, on Slide #17, very happy to announce that the Marwar project of -- or in Rajasthan, as I said, very difficult time. We have been able to commission it last year. Clinker capacity has expanded to 3 million tonne and capacity to increase cement sales by 5 million tonnes. Marwar is now fully stabilized. It is running at its optimal capacity. We are happy to say that it was almost a vertical takeoff for Marwar despite the problems due to corona, and today, Marwar is a fully contributing plant to Ambuja. In addition, we had announced a capacity expansion of Ropar. The environment clearance process is on, and once it is finished -- which has been delayed slightly because of the Punjab elections. Once it is finished, we should be able to accelerate it and finish this Ropar expansion in about 10 months to 12 months time. In addition to that, the company continues to take several initiatives across plants on debottlenecking and making sure that we are able to fully utilize the assets that we have on the ground. Going forward, we -- our strength in terms of a strong -- our brand with a very strong equity in Indian market continues. Last year, we came up with a film, which has done quite well, 1.5 crore views, so far. And it is helping us to reach out to -- with our message to the remotest part of India. It was all over the televisions and other mediums. Our friendship with Mr. Boman Irani continues with this film as well, but in addition, we are also and -- coming out with other creatives to make sure that Ambuja remains as "top of the mind" recall for our Indian consumers. In -- if you go to Slide #21, in terms of product. Would you, Rajani, like to take it?

So very briefly. You're all aware, Slide #21, of our base products and premium products. Neeraj has already spoken about the focus on premium products. Moving quickly to Slide 22. We do have a complete wall solutions coming out of our solutions and products portfolio, and we are looking to find a way to backward integrate this so we can help these operations to scale up. At the moment, we are operating in a trading model. And there is a plan in house to try to make this a much more stronger business model for the future. Slide 23 talks about the technology solutions. Neeraj has spoken about the accolades that have been received, but there's a fair bit of work going on in the technology side. We already have the Ambuja Certified Technology platform, which is quite powerful. We are helping customers to shift from product to solution. We have created concrete future laboratories, where our customers can come and engage and identify all the properties of how cement can get converted to concrete. And then we do have our knowledge centers as well. So this is a very powerful foundation that Ambuja has, and we are leveraging this as we further strengthen our premium products and solution and products. Moving on to the slide on superior performance. I think this is a very, very strong vertical. [ We had come to you last time ], promised to grow, promised you to deliver superior performance under our flagship program of I CAN. So in terms of enhancing efficiency, the levers across all the projects are working quite well, starting from commercial to the plants, which is focused not only on reducing consumption but also using digital frameworks or plants of tomorrow which is our global tools. Neeraj has already spoken about clinker factor. A lot of work is happening on raw material efficiencies to increase further consumption of other raw materials. Our facilities for fly ash dryers will be up and coming during the early part of this year, which will further enhance our absorption of fly ash. Logistics has been a very, very strong story for us. And you can look for -- look up -- look at it in the results as well in both the operating companies. Using of digital tools, a lot of focused activity on reducing lead distance have led us to -- and also leveraging the master supply agreement have helped us to keep these costs under control despite huge inflation in diesel costs. We have worked a lot on simplifying our organization structure, and execution of CapEx programs is like a feather in our cap. We are quite proud of the timeliness with which our projects team is able to bring the projects from planning to [ fructuation ] stage. On the digitalization phase, [ all are as planned ]. There are 3 unique sections for digital initiatives. One is on the plants of tomorrow. We spoke about it. All the data is now connected on underlying systems. We are developing [ agile ] capabilities to leverage this for efficiencies. Sales, marketing tool does have a lot of apps which are dedicated for each of the segments and each of the actors in the channel. We have also introduced a revenue and management -- margin management tool, which will come up in the quarter 2 of this year, which will help us to drive our commercial process. And logistics is further strengthening the tools that they already have to continue to keep this differentiated performance. On Slide #23 (sic) [ #27 ]. One of the key [ things ] for us is people. We have taken new internal targets for diversity and inclusion. It's not very easy in our industry. You're aware of this. We have created a strong talent and succession plan, a very high-performance culture with the I CAN attitude. Despite all the headwinds that we face, our team has clearly demonstrated that they can deliver according to the I CAN philosophy. We are very proud that we have launched a women's network called [ Oorja ], a bit late in the pipe. However, we have introduced this. This is for like-minded people to get together. And we are working very actively to remove roadblocks for women to -- and other diverse candidates to elevate themselves into leadership positions. Moving on to sustainability very quickly. The Slide #29 is on global sustainable trends. We are not very far from India. India was in COP26 [indiscernible] lead in terms of certain initiatives. So clearly, for us, the 2 key things which will impact us in our industry is -- one is decarbonization. And the second is digital tools because most of the CO2 reduction in the cement industry will come from carbon emissions in production but will equally come from the construction practices as well. So it is extremely important for us to address the full value chain. On Slide 30, you can see we do follow -- we have declared these SBTi targets. We have talked about it in the press for -- we have signed up for this business ambition of 1.5 degrees centigrade, and we are tracking our -- the guidance of our Holcim parent. And we are extremely proud that we are on track for delivering these greenhouse gas emission reductions. Slide 31 will show you the figures on how we have performed and what is the target for 2030. Our sustainability framework is divided into 4 lines. One is climate and energy, which is clearly CO2, primarily tracking scope 1, scope 2. Circular economy, which is under the Geocycle flagship brand for waste reused and recycled. Water and nature, where we are clearly leading, but we want to continue to be the leader in the pack. And people and communities that have extremely strong framework under Ambuja Cement Foundation to share value with several millions of beneficiaries. Slide 32 talks a little bit more about the details of our sustainable initiatives. I won't go through all of them, but these are linked largely to manufacturing and then also to the social part. Slide 33 is to summarize the activities we are working on cleaner India. Neeraj spoke a lot about change the story, and we are really proud of this bubble barrier. We're also cleaning up airports. We had launched in the cricket season "leave behind no waste" initiative, which helped us to bring a lot of waste into our kilns. And we are also working a lot on biomass. And as you know, biomass is a very, very low-CO2 front. It's also fuel issue as well and the stubble burning issue, so this is something we are working on very closely with our team. Biodiversity remains at the top of our agenda. Slide 35 is some statistics from Ambuja Cement Foundation in terms of what work was done across each of the levers that Neeraj described. Slide 36 talks about COVID, so we can -- I'll skip through that. Slide 37: We continue to maintain the highest standards of governance, and we are really quite proud of this. Now moving on quickly to the performance section. On the full year, which is Slide 40, 2021 was a year of many, many firsts, highest-ever volume, highest-ever operating EBITDA, highest-ever EBIT in consecutive 2 years despite COVID being there last year, so we are very proud of our results. We had some exceptional expenses due to reorganization of our company, and that has resulted in INR 65 crores of exceptional costs. If we carve that out, the profit after tax grows around 19%. Slide 41. The quarter results were impacted due to the headwinds, and I think most of the industry has seen this. We are one of the last to come out with the results now, but the operating [ bulk ] cement volume was almost flattish. The -- and the sales were higher by 6%. The operating EBITDA was lower at 26%, largely capturing an inflation from the fuel costs. And I'll talk a little bit about it in the coming slides. Moving on to the financial results on Slide 42. This is quite clear that -- a very diverse picture between the quarter and the year; very strong, positive year despite a very strongly negative quarter and largely due to operating costs of fuel. So we will talk a little bit about the fuel as we go to the next slides. Slide 43 is on volume and realization chart, so I'll move through this. Slide 44 is the EBITDA. One point to take away here is, despite all the headwinds, we have seen almost 4 to 5 months of demand pressures last year. It slowly started sometime in July, August; continued until December, with the bloodbath happening in between for November, but despite all that, the EBITDA per tonne is slightly higher in '21 compared to '20. On Slide 45. I think this is a topic of most interest, power and fuel costs. You have 2 graphs there, [ so I'll upfront ] address them. The first one is talking about the quarter, where you see a significant increase in power and fuel costs, 2 elements here. One is the impact of the procurement of fuel at a very, very high cost. I think most of our colleagues have also seen this in the industry. The second one was also additional clinker production which happened at Ambuja as we were gunning for higher and higher volumes. And we are preparing for '22 as well, so the stock also led to higher consumption of fuel. And we also had some additional coal from our Gare Palma which was extracted but not consumed. So I think these 3 things have -- 2 things have created an exceptional impact on the power and fuel costs. Otherwise, the cost inflation is equal to that of the industry. On the freight and forwarding, it's lower, 5% lower, and -- for the full year, which is quite significant. Raw material costs denotes our absorption of clinker being lower, so which is quite good from an environment point of view. The other expenses are slightly higher. Here we have additional brand and promotion expenses and the costs which are coming from packing materials. And the total cost per tonne, despite all the bloodbath into the results for the full year, is only marginally higher but for the quarter is sharply higher. So the next slide is the consolidation, so we'll skip that. The last slide is we're very proud we -- that as a team we have achieved an excellence in financial reporting. It goes in line with our commitment to governance and transparency. Thank you very much. So we hand over to Krupal now for questions.

[Operator Instructions] The first question is from the line of Pulkit from GS.

My first question is on Bhatapara. Can you highlight this 3.2 million expansion that would be it for the entire 7 million cement that you are looking to expand? Plus if you could highlight the breakdown of CapEx here in terms of whether there is going to be WHRS. I think you were already installing WHRS at Bhatapara in your ongoing projects, so if you could just talk about the expansion at Bhatapara in greater detail, that will be my first question.

Thank you for this question. Bhatapara is going to be one of -- the new line that we are establishing will -- going to be one of the more modern lines, [ as we call it, yes ]. It is true. We are doing a WHRS for the existing operations of Bhatapara. The new line of Bhatapara of 10,000 tpd will also have WHRS of 17 megawatts, so it will be a completely -- well, largely a [indiscernible] plant. And the balanced power, we will take from our existing [ CPP ] where we have some surplus capacity in Bhatapara, yes. In addition to that, Barh will be about 3 million tonnes of grinding capacity, Barh in Bihar, which will be 100% fly ash-based cement. As I told you, that -- NTPC, the power producers, mega power plant is just next door to Barh. And therefore, we get a preferred cost for the fly ash as well in that area. Sankrail and Farakka will be 1.6 million tonne each in terms of the minimum equipment, but the equipment guarantee will be much higher because of a brownfield nature of the expansion. And therefore, the total will add up to 7 million tonnes.

Okay. And the entire clinker gets supplied by Bhatapara.

Correct, correct. So Bhatapara being the -- our mother plant in Chhattisgarh. And that's where the limestone is, so the entire clinker gets supplied from Bhatapara.

Okay. And my second question is why East. I mean given the kind of supply that is expected to come in East. And you spoke about some of the macro factors and being the lowest per capita consumer in the country, but don't you worry that profitability in East could be under significant pressure and especially in areas like Chhattisgarh where already the pricing of cement is one of the lowest? So just a thought on how do you look at profitability in context of the kind of supply that East is likely to see.

Okay. So our internal calculations say that, by 2025, given the current extent of capacity announcements announced as well as -- which includes the Bhatapara expansion that we are making, the East utilization levels will move to 85%, which is strong-enough utilization levels for driving the business goals. That's part number one. Part number two, as I said, that East remains a very big market. Don't forget East is a 90 million tonnes market, which is about 26% of the national market; and as I said, very low per capita consumption of roughly about [ 2 1 6 ] versus all India at [ 2 42 ]. The cement demand, [ amongst the regions also ] -- we believe that East projection therefore is more around 8% to 9% largely because of the structural demand in East and the kind of projects that we are going to see in East. The East market is also very well consolidated. You know that -- so ACC, Ambuja, [ plus top few ] would account for 82% of the market. And the structure will further improve to roughly about -- close to 90% by 2025, with most supply -- most of new supplies coming from the existing majors, [ yes ]. And with all that in mind, we also see, in a do-nothing scenario in the East, Ambuja will lose market share. So will ACC, but with this strategy of bringing in 7 million tonnes in East, we will be able to protect not only our EBITDA but also our EBITDA margins, but more importantly, we will be able to also protect our market share in the attractive market of East.

We'll move on to the next question. That is from the line of Ritesh Shah from Investec.

A couple of questions. First is on the ESGs. Sir, you have indicated scope 1 and scope 2 together. The reduction will be 21% by 2030 versus 2020 as a base. You also indicated that blended segment will remain at the current 89% [ only ]. I wanted to get a road map, if you can break it up for this 21%, how will it be, WHRS, solar, AFR. You indicated on biomass. Any decarbonization technologies? So that's the first question. Basically how should one look at the road map on the declines? And I understand we have an internal carbon pricing of around, I think, $31 and $34 for ACC and Ambuja, respectively. How do you account for this when it comes to incremental capital allocations and when we look at ESG in perspective? That's the first question, sir.

So Rajani speaking. So I think it's very difficult to draw you a road map for breaking it, but I'll try to answer it by giving you the plan that we have for each source of energy. One is in terms of clinker factor. Yes, blended cement will be 89%, but I guess, with the expansions now that are happening in East, et cetera, the blended cement share is bound to increase. There will continue to be a pressure on [ OTC ] volumes. We still feel that it's slightly higher than what we would like to be, so we will keep the pressure on that. That will bring an actual reduction in the clinker factor. Apart from that, we also have these efficiency programs which are happening under the I CAN structure to drive more efficiency within the production process. Coming to the, here, energy levels on the waste heat recovery: Today, we have -- the green power mix is quite low at around 4%. Once we are able to fully execute our plan, which is to take the waste heat recovery to the maximum possible kilns, get into the renewable power mix and reduce the dependence on the other sources of nongreen fossil power, I think the green power mix will go up to 25% to 28%. So I think that will also start to contribute quite significantly to the CO2 emissions. So I think, these 3 parameters, we can start counting. The next one that we are also working on is trying for -- though it is a debate on where you put it, whether you put it in scope 2 or scope 3, depending on how the contracting is done, we are also working on mining vehicles for converting them into electric vehicles, thereby reducing further carbon footprint.

We have already deployed a pilot project in one of our plant on EV vehicles for transporting of limestone. And the -- and we hope to see some good results. The initial results are not bad, but there are challenges. And there's challenges we have to understand and address, but as Rajani said, going forward, the nature of contract will determine where you put those carbon savings.

And another important thing, sorry to miss out that one, is our AFR, currently at 5%. The near-term journey is 15%. The mid-term journey is 25%. So you see we are also starting to construct kilns which will have higher capacity, absorb the alternate fuels. So those will also contribute...

For example, Bhatapara. We will have a capacity to consume up to 25% of AFR, but also with the design that we are making, Bhatapara in future will -- can go up to 50% of AFR.

Sure -- possible to reflect on the carbon internal pricing, how we are looking at it. And how -- why is it at $31, $33?

To be very honest: We do not consider it for calculation of the projects. And for the core reason -- the stated strategy of the group is that we want to expand in India. India is a key growth-plus market and in the business of cement, so we let the group do the balancing of the carbon emissions, but for us, we know in India you need to invest in cement to grow and capture the demand that is out there. So we -- strictly speaking from a return-on perspective, we do not include this into the costs of the project at the moment, but we do calculate it for the purpose of group because they need to finally balance for what we as a whole generate in terms of CO2.

Sure. My second question is on capital allocation. So it's good to see the incremental growth CapEx. I was just wondering why is it that we have selected Bhatapara. Why not, say, something like Jamul or Chaibasa which is under the group; or say, something like [indiscernible]? The reason is the lead on clinker is something which is quite huge. That is one. And secondly, if one had to look at it -- so first question is on the lead on clinker which is quite huge. So how does the company stack up on the cost curve versus a couple of other peers which are actually better positioned to capture the Eastern markets? So that's the first question. And the second question is basically on the incentives. Is it something that we are getting either for the grinding units or for the Bhatapara facility? Then when we look at the internal IRRs, how do we gauge that? Or do we have any commitments from the government [ on all the 4 projects ] that we have indicated, [ these ] grinding and [ 1 ] clinker? So one is on cost curve and second is on the incentives, yes.

I'll take the incentive one, while Neeraj will answer on between Jamul to Bhatapara. On the incentives, if you have looked at our balance sheet, we're extremely cautious now on how we're building the incentives into our returns file. So while there are incentives available for Bhatapara as well as for the grinding units, we have only taken it partially for one of the grinding units. For the coal of Bhatapara, we have not taken. So we -- in our internal modeling now, we tend to do a modeling with and without incentives to see if the business case still stands given the time value of money which is lost due to the delay in receiving incentives from the government.

On why Bhatapara and why not Jamul. So there are 2 parts. One part is that the delivered cost of Bhatapara to East market is lower compared to Jamul. Jamul is in the Durg district, which is farther away. Bhatapara is closer to Bilaspur and therefore closer to the proposed grinding plants at Barh, Sankrail and Farakka. That's part number one. Part number two, we also need to understand, when you are putting up a mega unit like one we are doing in Bhatapara which is 10,000 tpd line, typically you would require about -- close to 6 million tonnes of clinker of limestone every year. And it's a significant [ ask ], so we also require a -- stronger backup mining and mine deposits, which Bhatapara assures us with the kind of deposits that we have in Bhatapara. The second [ part ] and more importantly: I think, in terms of the cost structure, Bhatapara is ahead versus some of the other -- of other plants like Chaibasa or [ Bargar ] or Jamul.

Yes. And sir, just a related question. Sorry. This will be my last. Sir, I appreciate on the logistics side and reserves, which is very critical, but if one had to look at our competitive cost versus a peer which is operating out of [ Orissa which has ] recently commissioned, they will also be -- they have been quite aggressive. And they will also look to tap into the Eastern markets. Now the growth is something which is great, but for some reason, pricing never comes through. And eventually it boils down to the cost structure, so are we as competitive as peers when it comes to moving...

[indiscernible]. So what we -- thank you for this question. What we do normally for each grinding plant which we create, we do what we call our strategic value-added [indiscernible] we compare the total delivered cost of us versus others. In case of Barh, in case of Sankrail and in case of Farakka, as I said, they are located in some -- in the right markets very close to the consumption centers, so the value add or the total delivered cost of Barh, of Sankrail and of Farakka in our calculations is superior to some of the other players [ who will be ] bringing to the same market from farther-off distances.

[Operator Instructions] The next question is from the line of Ashish Jain from Macquarie.

Sir, my question was on I CAN. Now can you give some sense of what are the benefits? And if it is possible to quantify, what are the benefits you're already seeing from I CAN? And what is the road map from here in terms of the next 12 to 18 months? The reason I'm asking is, if I look at the last 2 years, while profitability has improved, so has been the case for peers also. And a large part of it was also driven by pricing, so I just want to differentiate between profitability improvement driven by I CAN and price hikes and all that we have seen in the last 2 years. And also, the road map, if you can share where that can head in the next 12, 18 months.

So Ashish, I will take this. If you remember, the I CAN plan is split largely into 2 headings. One is operational efficiency savings, and the second is the savings that we'll unlock through productivity CapEx. So we had commented last time that most of the operations efficiency savings are realized. And that's true as of now, but during the last year given our efficiency in terms of highest-ever production, et cetera, we have [ released ] further operational efficiency in manufacturing. So compared to a baseline of 2019 that we normally look at, the savings that have come from I CAN are on the upwards of INR 300 per tonne. Now what do you need to look for in the future? I would prefer not to give you a figure because these need to lock in and I want to [ say ] something for the next investor call as well. For the future, what you can anticipate is the fuel cost energy savings that will come through the full execution of waste heat recovery. It's important to remember that they are still to be commercialized. So they'll be commercialized in end of this quarter or beginning of next quarter, so you will see that on power and fuel. There are 2 more kilns also which we are discussing for waste heat recovery for additional 30 megawatts. So those will also come towards the end of next year. Then there's additional AFR which will come as a part of all the debottlenecking that we have done. I have put some of it in the investor presentation, especially in Ambujanagar and [ Rabri ] which are also large consumers of alternate fuel. So all these. Together with additional leverage of the master supply agreement with ACC, which is a very, very important lever for us to reduce our lead distance and reduce our delivered costs, these are the ones which you will have to watch out for in the future, but I would hesitate to give you any forward-looking number for it.

Sure, sure. Also you also touched upon the fact, that 50 million tonnes, we now have much better road map; and highlighted that there are some debottlenecking opportunities also we are tracking. So is it possible to share some idea of how we see the path to 50 million tonnes from a regional point of view, from a debottlenecking point of view?

So Neeraj had already spoken about it. The current announced plans already stacks up to 40 million. So 31.5 million plus 1.5 million of Ropar, plus 7 million of Bhatapara. And then you have -- as we announced last time, we'll look at West in the next phase, which will also be similar footprint as what we are doing for grinding, plus clinker, units. So that could add about [ 7 or 8 ], and then you have the residual which will come from debottlenecking.

Okay. And with that, we'll be done with the...

Sorry to interrupt, Mr. Jain...

[ Ashish ], she'll put you back in the queue, I guess.

Sure, not a problem. I'll come back in the queue.

The next question is from the line of Navin Sahadeo from Edelweiss.

One question was about the initiatives on the master supply agreement or more so synergies with ACC. Now as I -- if I'm not wrong, within a few months of Mr. Akhoury taking charge as India CEO, we did see a lot of changes on ground in the sense at operational level we've seen [ very ] senior marketing executives, like, moving from ACC to Ambuja and vice versa. I think even common logistics and several initiatives. So now my question was what -- have there been more such initiatives the company has already pursued or is pursuing to convince more on the forthcoming synergies with ACC? And in the same breath then, I would also like to understand. If in the current quarter we saw a sequential 8% drop in the freight cost per tonne, is that outcome of the synergies with ACC?

Yes, absolutely. [ So look ]. I mean MSA is something that is working favorably for both the companies. I believe, I mean, [ to the extent of the results that I have seen ], I think Ambuja [indiscernible] with very few companies who have been able to contain the logistics cost increases. Not only, but we have also been able to bring it down despite a very adverse environment in terms of diesel prices also. MSA is working quite well. When we started off with thinking about MSA, our ambitions were limited. We were not able to think beyond certain volume levels. Very happy to say that currently we're already in -- I don't know, about 71% higher or something.

73% higher.

73% higher than the same quarter last year, yes. So it's -- so I think this is working quite well. And we are now trying to understand other areas where a similar initiative can result in cost reduction. One of the clear examples would be same office, for example. The cost of space is very expensive across the country [ now ]. And also we are doing more in terms of what all other back-office activities can be combined. And overall, in plant and especially in spare parts, we are now really pushing for MSA to be fully implemented, which is working well. And we are also now -- even in -- for the larger-CapEx projects now, we are talking about -- talk about a standard equipment for both ACC and [ Ambuja for ] expansion. So like 10,000 tpd line that I spoke about [indiscernible] [ now going to ] Bhatapara. We are then -- going to the second phase, we'll expand. So the approach to MSA is expanding, but the key levers that will drive the results will remain the logistics MSA that we have done quite well last -- well, last year. But I believe there is a significant room of improvement as we go forward.

Appreciate, but this quarter, sequentially the decline that we are seeing and despite fuel costs...

[indiscernible] -- let me just come back to what that question is based is sequentially we have [ reduced logistics cost ].

[ Delivered ]...

How much is the MSA contribution? Is that what your question is?

Yes, because...

[ One is about the ] MSA contribution in the sequential logistics cost reduction. Is that what you're looking for?

Yes, because see, my question is fairly simple, that despite diesel prices being broadly flattish quarter-on-quarter on an average, and even rail freight -- and just one...

Yes, yes, [indiscernible]. Say -- I can say -- yes, go on. Go on.

Go on.

Sorry. Just one detail here is that I also see the absolute quantum of purchase of traded goods in both ACC and Ambuja, to me, is very similar to that in the previous quarter.

Yes. So when we talk -- let me -- this is not the quantity of goods purchased. It's where it is purchased and how does it lead in terms of cost reduction, so let me try to explain to you the logistics cost reduction. The most significant lever for logistic cost reduction -- within which the MSA is also subsumed, right? It's important to understand that -- is the reduction in the lead distance. We have reduced our primary lead by almost 40 kilometers compared to the last quarter. We have also reduced secondary lead, and we have also improved direct dispatches. So these 3 things, along with the MSA volumes, have contributed quite significantly to the TDC cost per tonne. And a part of it has been negated by the impact that we see because of the diesel price increase. So we should not underplay the logistics efficiency that are happening in terms of lead distance reduction as well.

Appreciate. It's very heartening to see your 10% drop in lead distance, a really good -- that's interesting.

Yes.

Thank you.

The next question is from the line of Madhav Marda from FIL.

Yes. Am I audible?

Yes.

Yes. So my question was just a quick one, if you look at our other expenses this quarter. It shot up quite a bit. Is there any specific reason why that is happening?

No, no. It captures -- like I told you, it has brand, promotion expenses within it. It has also got the packing bag increase. In these accounts, we also show packing bag increases; and there has been a lot of packing bag increase. The third one is the maintenance costs. 2020, as you know, there was a lot of lockdown issues, et cetera, so the base was smaller. So these are the 2 major things I will take. Our maintenance phasing is one thing, partly due to lower base of '20; packaging costs and higher branding.

There is nothing from the new Marwar Mundwa plant, like a start-up expense or something like that. Nothing like that is...

No, no, no. I think the -- we look at it as a fixed-cost expense. I don't know where that comes, but there is additional in the fixed costs of plant operating costs by roughly about 8 crores per month for Marwar. It goes through different lines, but that is not the most significant item.

Because, our other expense per tonne, if you compare it to some of the other peers who have reported, there's a pretty big delta, which is why I thought that, if this is like a sustainable number, then it's kind of moved up quite a bit from our own delivered number. If I look at just quarter 4 for us for the last...

It will ease out as the -- yes, there is a Marwar fixed cost that will be addressed. And that base will definitely come, but I -- how much -- just give me 1 second. I guess about 50% of Marwar's fixed costs, my team tells me, would come in here. So we are looking at roughly 20 crores, 25 crores of Marwar fixed costs on an annual basis which will start coming next year, but the rest of the other costs will all get baselined to '21, right? 2020 was not the right baseline that we had, so...

Okay. And in terms of our power and fuel costs, like given how volatile the movement has been, like yes, do you think like in the next 6 months we are already at a peak-ish level? Or there can be some more inflation going into, like, the March quarter and June quarter.

Very difficult to -- very, very difficult. I don't think, given the current context, even some of the gurus of this area are able to accurately say what -- how exactly the fuel cost evolution will happen. I will stop at this because it will be not proper to [indiscernible] costs given extreme conditions in many parts of the globe.

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Krupal Maniar for his closing comments.

Thank you, Isen. On behalf of ICICI Securities, we would like to thank the management of Ambuja Cements for providing us this opportunity to host the call. And I -- thanks to all the participants for joining the call. Thank you very much. Isen, you may now conclude the call.

Thank you. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.

Thank you.