Sagar Cements Limited (502090) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome you all to the 3Q FY '25 Results Conference Call of Sagar Cements Limited. We have with us from the management, Mr. Sreekanth Reddy, Joint Managing Director; Mr. K. Prasad, CFO; and Mr. Rajesh Singh, the Chief Marketing Officer. We will start today's session with the opening remarks from the management and then will be followed by a Q&A session. [Operator Instructions] Now I would like to hand over to Mr. Sreekanth Reddy for his opening comments. Over to you, sir.

Thank you, Manish. Good morning, everyone, and welcome to Sagar Cements earnings call for the quarter and 9 months ended December 31, 2024. Let me begin the discussion with a brief overview of the market in terms of demand and pricing, post which I will move on to Sagar-specific developments. Overall, the industry witnessed early signs of recovery as demand picked up after several months of lull. While the quarter started on a slow note moving to festive season and unavailability of labor, we did experience pickup in construction activities during the second half. Rural demand as well improved gradually, aided by better agricultural output and an increase in construction activity. Realizations as well were relatively steady, which in turn aided sales growth. Furthermore, profitability also benefited from benign input prices. Let me now move on to our quarterly performance. As indicated earlier, Q3 in part benefited from the pickup in construction activities during the second half of the quarter. Our overall volumes for the quarter stood at 1.4 million. For the full year FY '25, we believe we will be able to achieve sales volume similar to FY '24 of around 5.5 million. Moving to the headline numbers. Our revenues for the quarter stood at INR 564 crores as against INR 669 crores during Q3 FY '24, lower by almost 16%. EBITDA quarter stood at INR 38 crores as against INR 87 crores generated during Q3 FY '24. Margins for the quarter stood at 7% as against 13% in Q3 FY '24. EBITDA per ton stood at INR 273 during the quarter. Loss after tax for the quarter stood at INR 54 crores. Going ahead with the rising utilization rate, we expect EBITDA per ton to improve on account of lower power and fuel expenses and savings in employee expenses, which will enhance our operating leverage. In the coming years, we are optimistic that our efforts to optimize freight costs such as minimizing the lead distances, lowering the clinker factor, upgrading Andhra upfront and boosting the share of renewable energy to strengthen our cost efficiencies and overall profitability. In terms of key operational activities during January '25, the company has successfully commissioned a 6-megawatt solar power plant at its Gudipadu unit. Further, the company also has received approvals for implementation of another 6-megawatt solar power plant at its Dachepalli unit. The new 6 [indiscernible] freed the construction project at Dachepalli unit is progressing slightly ahead of schedule. Power and fuel cost stood at INR 1,456 per tonne as against INR 1,701 per tonne reported during Q3 FY '24. Freight cost for the quarter stood at INR 835 per tonne as against INR 864 per tonne during Q3 FY '24. From an operational point of view, Mattampally plant operated at 51% utilization while Gudipadu, Bayyavaram, Jeerabad, Jajpur and Dachepalli plants operated at 93%, 68%, 78%, 22% and 32%, respectively, during the quarter. As far as the key balance sheet items are concerned, the gross debt as on 31st December 2024 stood at INR 1,462 crores, out of which INR 1,123 crores as a long-term debt and the remaining constitutes the working capital. The net worth of the company on a consolidated basis as on 31st of December 2024 stood at INR 1,866 crores. Debt equity ratio stands at 0.66:1. Cash and bank balances were at INR 159 crores as on 31st December 2024. In summary, we believe our enhanced capacity positions us well to capture the growing infrastructure and real estate demand over the coming years. Furthermore, our efforts towards diversifying the revenue streams and increasing our regional footprint should help us improving the overall profitability profile of the company. That concludes my opening remarks. We will now be glad to take any questions that you may have. Thank you.

[Operator Instructions] The first question is from Shravan Shah.

Sir, a couple of questions. So first, in terms of the volume, now do you think that the numbers that we have revised downward 5.5 million tonnes for this year, so that translates to close to 1.68 million tonnes in the fourth quarter. So that should not be a problem. And for next year, FY '26, how much volume are we looking at?

Yes. Shravan, I think the guidance that we have given that we would be crossing last year number, I think, is very much doable because we have witnessed in spite of having almost more than a week of festivities in Andhra, even January month has been very, very robust. So given the situation, we don't see any risk to the number that we have given, Shravan. Going to the next year, I think we are looking at anywhere between 6.4 million to 6.5 million as a number which we should be able to comfortably achieve because the market situation is that demand has picked up well. Likely that price might take time or it might pick up gradually, but demand has been doing extremely well on the market, Mr. Shravan.

Yes. So now, sir, on the pricing and the profitability for us. So if you can help us, so now the prices versus the exit of December entire South and if possible, the state-wise and maybe MP, Odisha also, if you can tell us just -- it will help us to get an idea how the prices are.

See, I think December exit all the way up to 10th and 20th, Shravan, prices fortunately remain very, very stable. They have been steady. There has not been an increase, nor there has been a decrease, Shravan. We expect similar trend to continue with the hope that it further doesn't deteriorate. The hopes of going it up are limited. Probably it will take probably early part of Q1, only then on, we expect prices to go up because I think more or less the market -- most of the market players have set the right for the yearly targets rather than taking the price up is what it looks like, Shravan.

So currently, the prices versus if I have to compare with the third quarter average, how much it would be higher in South?

I think it is safe to assume around INR 2 to INR 3 increase, not more, Shravan, because in between, it went up, but it gradually sit down, barring INR 2 to INR 3 in some of the markets. I think the price situation has been very, very stable.

Okay. Similar in the Odisha and MP also, sir?

Yes, I think it is very similar.

Okay. And sir, now for us in terms of how we can increase the profitability. So before [indiscernible] for this quarter...?

I think in our case, the bigger advantage is operational leverage, Shravan. The EBITDA per tonne of what you're looking at INR 275 or INR 300 is with very, very limited operating leverage so far. So I think the operating leverage itself should add another INR 200 to INR 300 EBITDA per tonne kind of a number because as we have seen both Jajpur as well as Andhra cement operating rates are subpar. The best part is Jeerabad is almost nearly close to 100% capacity utilization. So it's Gudipadu and even Mattampally has picked up and so is Andhra. The good news is even Jajpur is slowly picking up. So we hope the operating leverage should help us improve the profitability rather than price alone helping us with the increased EBITDA.

Okay. So in the next entire full year FY '26, can we look at INR 500 plus kind of EBITDA per tonne available?

Our internal penciling also is very similar number, Mr. Shravan.

Okay. Got it. And sir, this quarter, employee cost has gone up INR 7 crore-odd Q-o-Q.

Appraisal, Shravan. It's annual appraisal. So annual appraisal has kicked in.

Okay. Okay. Got it. And how much CapEx already we have done in 9 months and for full year, previously, we were looking at INR 200-odd crores and next year, INR 300-odd crores. So that remains the same?

See, the total budgeted CapEx was around INR 329 crores. So the amount that we have spent during Q3 is around INR 192 crores. The amount spent so far for FY '25 is INR 88 crores is what we have spent. The balance to be spent is INR 241 crores over the next 1.5 years, Shravan.

Okay. INR 242 crores in 1.5 years.

Yes, sir. Bulk of it, as you know, is in Andhra.

Okay. And anything on the sale of land, Vizag land?

Yes, we are very happy that out of three, we received two approvals, Shravan. I think by middle of Q1 coming year, I think we should have got all the approvals. So we are just waiting for cabinet approval to come, which is likely probably during end of Q4 to early part of Q1, Shravan.

We will take the next question from [ Tanesh Mehta ].

I just had a few questions. So the first one was what is our interest rate on the bank debt? Because if we go by the reported numbers, it looks like you're paying about 12% to 13% as cost of debt. So if you can just speak on that.

Yes. The bank debt is around 10.5%, Mr. Tanesh. That includes the provisions and the other financial costs, but the bank debt is at around 10.5%, Mr. Tanesh.

Okay. Okay. My second question was with regards to your subsidiary, so Sagar Cements. So that makes about INR 1,500 EBITDA per tonne on a 9-month basis. So what is driving such strong numbers for these entities? And why are the others struggling?

I think it has to do with the markets, Mr. Tanesh. I think that is in a location where demand is healthy. At the same time, there is also incentive support from the state.

Okay. Just a last question. What will take Andhra Cements to achieve breakeven? And when do you expect that to happen?

Yes. I think it is more to do with the higher capacity utilization. Had we had a very good demand and higher capacity utilization, I think it should have broke even by middle of coming year. But I think end of next financial year, we should be in a situation to break even, Mr. Tanesh, as far as Andhra is concerned. Because yes, what you have to please remember is Andhra, the asset is old. So there is an upgrade that is happening. Once the upgrade is done, I think the turnaround for that company could be a lot more quicker.

Okay. And also, why don't we merge with Andhra Cement today, like any reason for that?

Yes. Mr. Tanesh, we did state before. We are also eager to merge, but there are certain constraints at this point of time, especially the land approval process and the conversion of land from earlier owner names to Andhra itself has taken a lot of time. The idea is first to sell the land, monetize the land and then merge the company into Sagar. So we are in the process. So as soon as that part is done, we will be more than happy to merge it at the earliest.

We'll take the next question from [ Jyoti Gupta ].

My first question is, could you tell me how is the growth rate within the states in the South region? Where do you see it in quarter 4. And while my estimates are in line with what you have just announced, I would like to understand how much despite the improvement in -- however, the South prices have not increased, but still what has been the gap in trade and non-trade prices? And where do you see this going forward in the fourth quarter?

Yes, I think among all the states, except for Telangana, all the other states, there have been extremely good growth, Jyoti. Telangana slightly lagged post election, it never picked up. There is a hope that the government initiatives where the government in the manifesto promised minimum guarantees in that there is a low-cost housing. Yes, we strongly believe that, that should also help Telangana pick the demand. But for now, I think Andhra is growing very strongly, followed by Tamil Nadu and Karnataka, then only Telangana because unfortunately, the real estate in Hyderabad also has taken a back seat. So given this scenario, Telangana likely pickup is going to take some time. We believe that government push towards low-cost housing probably should be a trigger for even demand pickup in Telangana.

My other question is, sir, that what is the status of Telangana, the capital city -- Amaravati, the capital of state? What is the progress there?

Yes, I think at this point of time, the government is in a planning stage as well as getting the finances. Yes. Happy to share that some of the finances are getting tied up fairly quickly. But we believe it is a long run process. So we are very hopeful that over the next couple of years, I think Amaravati demand should actually spread the overall South demand in a big way.

The next question is from Amit Murarka.

Yes. Just on pricing, you mentioned that this quarter, it seems unlikely that there will be some hikes given the volume focus. But then in Q -- FY '26 also, I believe there is a state of supply. I mean, not just new supply, but also the ramp-up of existing capacities. I think even Deccan's capacity is not yet ramped up, and then there will be ramp-up in the acquired assets as well, along with maybe some commissioning from Aramco and others. So I was just wondering like when does this volume focus go away actually?

I wish I had an answer for that [indiscernible] focus of the industry would more on the volumes. But I think the reality is that today, people are chasing volume because they have targets to fulfill. But I think at this price point, I don't think it makes sense for any industry more so in our sector for us to continue to pursue the volumes vis-a-vis to, I would not say huge profits, but breakeven profits. It's true that there is some amount of supply that is likely to happen, and that is likely to continue. We don't see any stoppage to supply coming into the market. Fortunately, that supply is likely to be in a gradual kind of a thing, not in a single burst. But we strongly believe that industry cannot run the way it is with only volume focus. So that situation gives us comfort that at some point, all of us players would start focusing on margins also.

Right. Also, what is the current status on Deccan's clinker unit? I think they had commissioned, but is it.

I think you will be better informed by them.

We'll take the next question from [ Garwit Koel ].

Am I audible?

Yes. Please go ahead.

My question is basically on the broader view. I want to understand from you like one of the key growth drivers for this industry is obviously the government CapEx. So firstly, can you help me to understand like how do you see government focus? Like are you seeing any slowdown happening in the government CapEx in the upcoming months or upcoming budget? And secondly, like we all know, Q3, we were expecting it to be the better in the terms of the recovery, we can say, at least on a Y-o-Y basis. But if we see overall industry-wise, Y-o-Y, the construction sector is not doing that much good that was the expectation. So can you put some color on that aspect as well, like what is the reason like why this recovery, but slow recovery is happening? So can you put some color on it?

Yes, Mr. Garwit, see, the cement industry typically follows the election calendar, sir. 6 months before election to 6 months to a year post election, typically, things tends to slow down. So even in this election cycle, it's no exception. In fact, unfortunately, the election cycle this time has been fairly long because some of the states where we have our assets, elections happened close to a year back, like Madhya Pradesh, Telangana, and these two states had an election almost more than a year back. Then it followed with the general elections, that is federal elections. So that did not help demand to pick up fairly quickly. So it took time. Now immediately after the election, we did expect the ramp-up to happen. Unfortunately, the weather did not permit. But as the weather improved, I think demand actually shot up. Just to give you, sir, if you look at our Q1 and Q2 numbers, we are down by almost close to 30% lower. Today, we are talking of more than catching up by end of this Q4 itself. That means the pickup has been fairly sharp during the Q3, and we expect the same momentum to continue all the way up to end of Q4 similarly. Now coming back to the question that you had regarding the CapEx spend from the government. I think government has a very ambitious kind of plan in terms of the infrastructure buildup, which is a very, very good news for our industry. Now how soon that will happen and how quickly, only time will tell, but we are more than hopeful that, that should help the demand pick up to sustain and also margins to improve going forward, Mr. Garwit.

And how Q4 is going on, like in terms of -- you mentioned demand is picking up, demand already picked up actually...

I can only talk in general. See, January month in Andhra is almost -- a week of it is usually a festivities because of Sankranti. The whole week would be lost. In spite of loss of week, I think it has been an extremely strong month. That only indicates that Q4 also is going very, very strong.

We will take the next question from [ Vibha Jain ].

Sir, I wanted to understand about the fuel consumption cost, like what was the cost during the quarter? And what do we expect in the coming quarter? Hello?

Sir, you are on mute. Sorry, we cannot hear you.

It is INR 1,466 per tonne of cement in spite of having higher OPC, the fuel cost is slightly higher. That is only purely on account of blended cement being lower, Vibha. We expect similar things to continue because power and fuel more or less is flattened out for us.

Okay. Sir, sir, actually, so you talk about the operating leverage of around INR 200 to INR 300 per tonne -- EBITDA per tonne. So can you, sir, please break it up like from where we can get...

See, I think the frequent starts and stops that itself should add up another INR 50 to INR 75, Vibha, because every time there is a clinker excess stock or cement stock, we keep shutting the plant. So every time it start drops, there is a lot of inefficiency. And the best part is if you do more volumes, your fixed cost -- I mean, which is part of EBITDA, which is salaries and wages itself should give a better spread. I think these are the two major significant contributors. Other than the other fixed overheads, which are part of EBITDA, these are some of the things which we strongly believe that should help us overcome that. Andhra itself should contribute quite significantly to the overall kind of a bottom line because the negative -- I think there are losses in Andhra at EBITDA level that itself, we expect it to start breakeven. So if you remove that negative, I think we are close to around INR 350 to INR 400 EBITDA per tonne as we speak itself, Vibha.

We'll take the next question from the line of [ Eshwar Arumugam ].

So I just wanted to get your view on the evolving competition in the South market, sir. Because in the past 2 years, there has been a lot of M&A activities in the South by the top 2, 3 players. Also, like there's an opinion on the street that the prices are being artificially kept low in the South because in order to fuel more M&As. So what is your opinion on that?

Yes, Mr. Eshwar. The most respected minister has a different view than you or me. Do you think that we can synthetically keep price higher or lower? I think most of the players are trying to look at players who are new to the market or who have additional volumes, started putting more volumes than what market needed. I think that pushed the prices lower. It's true that there is some M&A activities have happened and the two on the top players. But if you look at South, again, north of south and south of South, North of South, the impact of M&A may not be as significant, sir, as we speak of south of South because south of South, obviously, you have a lot more consolidation because India Cements is with UltraTech. And if you look at North of South, UltraTech acquisition of Kesoram as well as Orient acquisition of Adani and Penna again has presence both in north of south and south of South. All in all, number of market actors, probably it got reduced by only one or two, but you still have 35-plus actors sitting in this region, Mr. Eshwar. So the competitive intensity may not have significantly come down, Mr. Eshwar. And how long will people continue to keep the prices lower? It is not in their own interest because after acquiring the assets at whatever the price, even the lowest dollar that you see in the market definitely demands a minimum of INR 1,000 to INR 1,200 EBITDA per tonne for them to justify the acquisitions that they have done. So given that scenario, this may not be forever. And we are not seeing this for the first time in our history. We did went through this situation. We went by this similar kind of a situation even in the past, close to a decade back. We believe we should come out sooner than later, Mr. Eshwar.

Got it, got it. And sir, what is your view on the pet coke and coal prices going forward in the next financial year because it has been -- pet coke prices have been depressed in the last financial year. What is...

I would not say depressed sir. I think they are more or less flat with $1 to $2 fluctuation that we have seen. Yes, we believe that the next 6 months, the prices might remain more or less stable. With Trump coming in a significant way, people talk that the oil prices might come down. That might put some influence on the pet coke prices going lower. Now coming back to the coal prices, again, in India, you're talking of imported coal prices and you are talking of domestic coal prices. Domestic coal prices have no correlation with the international market, sir. So it's more the coal companies deciding on it. We don't see them making significant moves given the economy and the coal pricing -- imported coal prices the way they are. So we expect, all in all, prices to remain more or less flat.

Got it, got it. Your CapEx updates slide you've given in the presentation, sir. So how many -- how much margin savings do you expect to accrue from this waste heat recovery and solar CapEx in the coming years?

The waste heat recovery at Gudipadu should save anywhere between INR 50 to INR 75 per tonne, primarily because of electricity. But the Andhra upgrade should help us save anywhere between INR 350 to INR 400 per tonne in terms of cost structure at Andhra level.

[Operator Instructions] In the meanwhile, sir, I have a couple of questions. Just wanted to understand the time line for Andhra commissioning of the -- of the expanded capacity basically.

Yes, Manish, as indicated we initially commented that we should be ready by March of '26. But as we speak, we are running almost good quarter to 4 months ahead of schedule. We should, in all likelihood, be ready for [ Dussehra ], which is in October, November, we should be ready to commission the Andhra plant, especially the pre [indiscernible]. I think up to clinkerization, which is a significant investment that we should be ready by October November, Mr. Manish.

Okay. So second half should see that had benefits of -- from coming flowing in from Andhra, right, to a large extent. Sir, you are on mute, sir.

I think next year, Q4, we should start seeing some amount of benefits from Andhra.

Got it. In terms of monetization of land also, yes, approvals may come in by Q1. Can we expect something by Q2, Q3?

I think that is too soon, Manish. I think next year, we should expect monetization. We did expect it to happen in a phased manner. But once you get the approval within 1.5 years, we expect the entire money to flow into the company. We -- since it's a large land parcel for Vizag, I wish there were single buyer for the entire parcel. But we expect it to be broken down into multiple pieces, and it should take 1.5 years once we get the approval for us to monetize the land.

Right. Sir, there are no further questions. I would like to hand over to you for the closing comments, sir.

So we would once again like to thank you all for joining us on the call. I hope you got all the answers you are looking for. Please feel free to connect our team at Sagar or CDR should you need any further information or any -- if you have any further queries. We'll be more than happy to address them and discuss them with you. Thank you, and have a good day.

Thank you. We will now end the call. Thank you so much.

Thank you, Manish.