Dalmia Bharat Limited (DALBHARAT) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Earnings Conference Call of Dalmia Bharat Limited for the quarter ended 31st December 2021. Please note that this conference call will be for 60 minutes. [Operator Instructions] This conference call is being recorded and the transcript for the same may be put up on the website of the company. After the management discussion, there will be an opportunity for you to ask questions. [Operator Instructions] Before I hand the conference over to the management, I would like to remind you that certain statements made during the course of this call may not be based on historical information or facts and maybe forward-looking statements. The forward-looking statements are based on expectations and projections and may involve number of risks and uncertainties and other factors that could cause actual results, opportunities and growth potential to differ materially from those suggested by such statements. On the call, we have with us Mr. Puneet Dalmia, MD, Dalmia Bharat Limited; Mr. Mahendra Singhi, Managing Director and CEO; Dalmia Cement Bharat Limited; Mr. Dharmender Tuteja, CFO, Dalmia Bharat Limited; Mr. Rajiv Bansal, Group Head, Strategy and Transformation and the other management of the company. I would now like to hand the conference over to Ms. Aditi Mittal, Head, Investor Relations. Thank you, and over to you, ma'am.

Thank you so much, Steven. Good morning, everyone. Wish you all a very happy New Year, and a very warm welcome to the Q2 earnings call of Dalmia Bharat Limited. Hope you all had a chance to go through the results and the earnings presentation, which as we speak can also be downloaded from our website under the Investors section. Without taking much time from here, I'll hand over the call to Mr. Dalmia for his opening remarks. Over to you, sir.

Thank you, Aditi. Good morning, everyone. It gives me great pleasure to welcome all of you to the Q3 earnings call of Dalmia Bharat Limited. Warm greetings of the New Year and we sincerely hope that you and your family are safe, healthy and vaccinated. The last quarter has been a tough one for the industry as there was muted demand on one side. And on the other side, there was a pressure on costs. Moreover, the last 2, 3 quarters, we have witnessed an unprecedented increase in the energy and commodity prices and whose impact has finally started to reflect in the earnings of the industry. If we do some broad cost comparisons of our key inputs, the consumption rate of pet coke has almost doubled from $83 per tonne in Q3 of FY '21 to $164 per tonne in Q3 of FY '22. And likewise, if we see the coal consumption rate, it has gone up from $82 to $127 per tonne over the same period, which is an increase of 55% in coal rates in a year's time. As a company, while we were able to mitigate some impact through our system's flexible operating structure and real-time changing the mix of fuel, yet the fuel cost has heavily impacted us. And likewise, if we see, the entire industry's margins have felt the real heat of the spike in fuel costs. Cement being a very localized and regional play, each region was seen performing very differently and we witnessed that the compression in demand was maximum in East, followed by South. November was an absolute washout month and varied factors such as monsoon and sand mining issues were the key downward drivers for cement demand in East and in the South. And in the South, it was unseasonal and extended monsoons, which had adverse impact on the demand. Having said that, December saw a rebound and growth and the trend continues this saw in the month of January. Mr. Singhi will later take you through the numbers and some broad trends in more detail. Beyond the quarterly blip, the outlook for the industry remains intact and is positive. Capital expenditure remains one of the key pivots with the government if they are able to stoke up growth amidst the pandemic. Despite the second wave impacting beginning of the current financial year, in H1 of financial year '22, the government was still able to meet 41% of its CapEx target from the overall budgetary allocation of INR 5.54 lakh crore. From the upcoming budget, we expect that the absolute allocation towards the development CapEx should only get higher, which in turn would have a multiplier impact on the economy and particularly the building materials sector. While private sector investments are still a far cry, the recent deleveraging of the balance sheets of Indian corporates and the continued fiscal and monetary support by the government and the Central Bank pose a strong case for uptick in CapEx from the private sector. We remain excited about the opportunity that lies ahead and we are diligently pursuing our capacity expansion initiatives to be able to meaningfully contribute to the increased cement demand. Further, in line with our vision to build a pan-India cement company, we have diversified our manufacturing presence into the western part of the country with the commercialization of our Murli plant in January 2022. We are not only making investments to add capacity, but also planning and executing for improving the operating efficiency and sustainability quotient of our business. Initiatives that would mitigate the impact of external volatilities and contingencies are an area of focus for us. And as a team, we are working on further strengthening the foundation of our company. We have accordingly laid out specific short-term target for enhancing the renewable power percentage, the green fuel consumption and the blended cement percentage in the company. During the quarter, we also actioned upon our commitment to the shareholders and have completed the divestment of the retail venture, Hippo Stores through a slump sale. Part consideration of INR 35 crore has been received upfront and the rest of the details on the same will be shared by Dharmender later during the call. I thank you all once again for your valuable inputs and constructive feedback. We will continue to seek your guidance, support and feedback from time to time. I would like to hand over the call to Mr. Singhi for an update on the quarterly performance. Thank you.

Thanks, Puneet. Happy morning, friends. Hope, all is well at your end and that your families are safe and healthy. As Puneetji has already mentioned, Q3 has come in as a bit of surprise for us, with sales volume fell short of expeditions. On a Y-o-Y basis, there has been a volume degrowth of 2.5% in Q3, and total volume for the quarter is 5.7 million tonnes. While we say that, the last 10, 15 days of December saw a reasonable growth in demand and which has sustained during the month of January thus far. While our capacity utilization for quarter averaged 69% for Q3, for the month of December, it grows to 83%, which shows that demand is going up. In the last quarter, the business was primarily driven by weak demand scenario in East and to some extent in South. Our volumes in East contracted by close to 12% on Y-o-Y basis. The silver lining, however, was that bigger cities [ there's an ] almost 23% increase in sales volume. On other key markets, South, [indiscernible] extended monsoon, but despite of that, our teams were able to continue their journey of increasing market share and we were able to deliver a volume growth of almost 2% to 3% on Y-o-Y basis. Seeing the demand trend of second half of [ this first ], we believe demand is still strong as usual in Q4, and we had witnessed a robust Q4, same as last year. For all India basis, we expect cement demand to grow around 6% to 7%. Having said that, on a full year basis, our demand growth could get contained to mid to high single digits as against the earlier [ interest rate at ] 11% to 12%. And this is primarily owing to unexpected demand for sluggishness of Q3. In terms of pricing, the prices have shown strength on Y-o-Y basis. As we exited the month of December, due to the demand pickup, which observed in the last 2 weeks of December and first 3 weeks of January, the exit price had increased [indiscernible] better than the December average price, and we hope that as demand scenarios improve from here, the same should follow in the other regions as well. Also, as is seen each year, the increasing demand should lend some [ inch-up ] to the prices across regions. The expected support in prices should be driven not only by the demand scenario, but also due to pressure of high cost in the cement sector also and other sectors also. If we speak of ourselves as a company, the trade percentage for the quarter was 59%, which is again below our desired level. And going forward, we would be improving it. As we have been working on increasing share of premium products in a sustained manner, we are happy to share that the share of DSP as a percentage of trade sales stood at 21% during the quarter as compared to 18% in the same quarter last year. On the cost front, this quarter, as Puneetji has highlighted in a major way, we have seen the [ impression ] in the energy and commodity prices has finally started to reflect the cost structure of the company. [ The lag ], as we all know, were due to the low-cost opening inventory, which has been adjusted across both companies. In line, if you see on a sequential basis, the raw material cost has remained flat and is in fact, slightly better due to a very moderate positive change in [ flat ] cost. The real debt has been due to the high fuel cost. The average [ consumption ] rate of pet coke and coal, which makes them almost 75% of our fuel, rose to almost $150 per tonne. This is as against an approximate number of $130 during Q2. Hence, the purchase price of fuel was higher at closer to almost $200 in Q3. The Q4 [ consumption ] rate should inch up slightly more due to the availability of high-cost opening stock for Q4. But later part of March and then early April, I think the softening of pet coke price may show some signs. The freight cost during the quarter has increased modestly Q-o-Q due to slight increase in the lead distance. Our lead distance during the quarter had increased to 298 kilometer as against 285 kilometer in the previous quarter. On a Y-o-Y basis, while the diesel cost increased to a staggering 21% to INR 94 a liter in the current quarter, our efficiency measures helped to contain the adverse debt and logistics costs. On an overall basis, the increased cost as seen in Q3, will probably sustain and remain at these levels for the rest of the FY '22, like Q4 due to some of the high-cost opening inventory before they eventually start to taper down. Friends, on growth part, we have spent close to INR 1,350 crores in first 9 months of the year. And considering the current plan, a further outlay of around INR 8 crores - INR 800 crores is expected in Q4. While the absolute expenditure number has fallen short of our estimation, we continue to be on track to complete the capacity announced up to 48.5 million tonnes by March '24. We are fully confident of completing plant commissioning as per our current plan, we shared with all of you. Just to detail out the capacity growth plans a little more for you, we are expecting that [ 4 billion tonne ] of debottlenecking should get completed by March '23, and we could expect the [indiscernible] capacity to reach 40 million tonnes by June '23. The initial work has already started for Bokaro and one of the Tamil Nadu Grinding Unit. We are shortly finalizing the Bihar Grinding Unit site location and would share shortly with you in our next call. Like we had mentioned in the last call that new order placed for all 4 locations and we are on track to meeting our March '24 time line. As Puneetji has highlighted about our entry to [indiscernible], we have commercialized the 2.9 million tonne plant of Murli Industries in Maharashtra on 15th January, which makes and marks the beginning of the [indiscernible] capacity in West and it is strategically in our long-term vision of building a pan-India company. The plant is supported by a clinker line of 1.98 billion tonnes and has captive power of 50-megawatts. The total installed capacity of the company stands at 35.9 million tonnes and clinker at 18.88 million tonnes. We are making all efforts also to augment the limestone reserve for the plant in [ Murli ] area. Continuing on limestone, I'm delighted to share with you that we have won a limestone Block auction in Rajasthan area. That's in Jhunjhunu district of Rajasthan, which is closer to NCR and part of Rajasthan. This Block is located exactly in Nawalgarh area and expected to have a mineable reserve of 160 million tonnes as per the government records. Friends, we at Dalmia Bharat always take pride about being the company with one of the lowest carbon footprints in the global cement world. During the quarter, our CO2 emissions have -- again came down further to 488-kg per tonne as against 492-kg per tonne for FY '21. To carry forward our journey and to put more focus on sustainability and ESG, we have during the quarter appointed Dr. Arvind Bodhankar, as our Head, ESG. He will also be playing a dual role of Chief Risk Officer and would help the organization strategize and mitigate against existing organization risks also. With this, I would now like to hand over the call to our CFO, Mr. Dharmender Tuteja, and thanks friends for your patient hearing.

Thank you, Singhiji. Good morning, everyone. In the interest of time, I'll quickly jump into the key financial update. The moderate increase in absolute other expenses on Y-o-Y and Q-o-Q basis is due to the increase in travel expenses due to ease in travel restrictions and also the increase in selling and advertising expenditures. The packing expenses have also gone up in both Y-o-Y and Q-o-Q basis. The packing cost saw a sharp jump due to the increase in the input cost where the PP granule price escalated by almost 40% from average INR 90 per kg to about INR 124 per kg on Y-o-Y basis. On the balance sheet side, as is priority set out in our capital allocation framework, we will continue to maintain a razor sharp focus on the health of the balance sheet and the various return ratios. During the quarter, we have availed a gross debt of close to INR 538 crores, with a net of repayment of INR 856 crores. And the closing debt as on 31st December stands at INR 3,647 crores. The net debt to EBITDA as on 31st December was negative INR 0.6 crores. Also in line with our capital allocation framework and our vision to build a pure cement company, the sale of Hippostores has been concluded on 31st December. On a going concern basis, by way of a slump sale to Hippostores Technology Private Limited, which is a promotor of the company, and this is for a consideration of INR 155 crores. The company has received INR 35 crores and balance the has been received in the form of NCDs carrying coupon rate of 10% per annum and these are redeemable after 2 years. Overall, pretax net gain on Hippostores sale is [ INR 86 crores ] and is recognized under discontinuing operations and financial results. During the quarter, we have not sold any further shares of IEX. But as has been asked by many, we would like to reiterate that we are committed to building a pure-play pan-India cement company and we will continue to revisit our investment in IES from time to time. In this quarter, we have accrued INR 44 crores of incentives, which takes a 9-month accrual number to about INR 180 crores. The collection during the quarter has been INR 20 crores and the total collections for 9 month of FY '22 has been close to INR 160 crores. With this, I now open the floor for questions answer. Thank you.

Thank you very much. [Operator Instructions] The first question is from the line of Indrajit from CLSA.

Couple of questions from my side. First, can you throw some more light on demand? How do you see demand panning out in fourth quarter? You mentioned that it is improving, but is it just on a Q-o-Q basis? Or do you think after the blockbuster quarter last year, you could see some growth on Y-o-Y basis as well for the industry, not for us, but for the industry?

Yes, you're right. It would be better on Y-o-Y basis also and reason -- one of the reason maybe that, that pent-up demand of Q3, may also come up in Q4, and that's why it looks like that the demand should be better in this quarter Y-o-Y basis also.

Secondly, on the Rajasthan Block, any initial thoughts when we can start producing from that Block? Or what is the kind of timeline we are looking at? Will it be for part of that, your 48 million to 62 million tonne or will it be beyond that in terms of production and capacity?

One, I would say that we have been able to run this Block just 6 days back. And now all [indiscernible] has to start. Second, this would come beyond 60 million tonnes because the major task would be to acquire the land and then to start various activities. So, this would be beyond 60 million tonnes.

Just 2 housekeeping questions. Can you please repeat the 9-month CapEx number and the cement clinker ratio for the first 9 months?

The cement clinker ratio is [indiscernible] the CapEx.

The CapEx number has been [indiscernible].

CC ratio for first 9 months is [ 1.63 ].

The next question is from the line of Girish Choudhary from Spark Capital Advisors.

A couple of questions from my side. Firstly, on the Eastern region pricing, just wanted your thoughts, where the pricing continues to be very weak. And if I look at the difference in East pricing versus some of the other regions, this has widened. So, just your thoughts from a very medium-term perspective given your leadership in this region?

Yes. You might be aware that East is having one of the lowest per capita consumptions when compared to other regions of the country. And it is expected that in the mid-term, the demand should go up in a big way and which should lead to the better prices. Of course, presently, the prices of East are lower than Southern India or Northern India. And we are hopeful that with the increased demand and of course, the increased cost would also help the organization to have better prices.

But do you expect a strong catch-up in the East season in the medium to, let's say, over the next year or so?

It mainly depend on demand scenario. If demand continues to remain better, then yes, we can expect better prices like what we have seen in the month of January also that with the improved demand, the prices has started growing better and better.

Secondly, again, good to see the commercial production of Murli Industries asset. Again, if you could share your outlook on what kind of ramp-up we can expect in FY '23? The reason is that recently, we also saw Birla Corp. commissioning a pretty large plant in the same market, 4 million tonne and your capacity is also close to 3 million tonne, so 7 million tonne new capacity in the same market. So, what kind of ramp-up we can expect?

We can expect surely more than 60% capacity utilization for FY '23. We have already set up our marketing network and that will help us. And to some extent, also our project was there in Maharashtra on set account also, we are getting good response in the market. So, we expect that minimum 60% utilization would be there in FY '23.

Sir, just a follow-up on this finally. Is the cost structure of this asset higher or lower than the company average? What is the sense on the cost structure?

In a few months' time, it will be almost -- it will be almost equivalent to the company's average delivery cost.

The next question is from the line of Swagato Ghosh from Franklin Templeton.

My question to Puneet sir and Rajiv, basically, you said you have typical question. To start all over again and if you have the option of choosing any 2 reasons, if you are free to choose any 2 reasons, which 2 reasons would you have your presence in considering everything?

So, this is Puneet. I think personally, each region has its pros and cons. And I cannot take a short-term view. There are times when South has performed really well as compared to North, because prices have been very good in Tamil Nadu and Kerala. There have been times when East has done really well. There have been times in Gujarat and Gujarat has done really well, and it has not done well also. So, I think if I take a long-term view, I personally don't see that there is a huge disparity between regional performances. They could be quarter-to-quarter and maybe some years, 1 or 2 years could be here and there. But if I take a 5-year average or a 10-year average, there is not much disparity between regions. I think what I like is, in terms of our footprint, I think we have a great footprint in Deep South, where there is continued demand growth and a very good consolidation in the market in Tamil Nadu and Kerala. Andhra, Telangana remains a weak market. And that's an area where we feel it will take some time to sort out the industry structure. However, East India, we really like as a bet in long term because it has the lowest per capita consumption and great mineral resources in the country. And a lot of private CapEx is going to happen given how well the steel sector and the coal sector is doing. So, I personally really like the Eastern markets. We also like Northeast a lot because even though it's a small market, it's a segregated region and a place where we have a very strong brand. I think even in Central and North India, we have -- we had aspirations to enter. We did bid for Binani. We like that market as well. But I think it's difficult for me to choose one market over another. All I can say is that the more diversified you are, the more you can withstand the volatility that comes year-on-year or sometimes quarter-on-quarter. So, diversification helps you manage volatility. But overall, if I look at the sectoral view, I think the fortunes of this industry is dependent upon the housing and infrastructure build-out in this country. And my personal view is that we have a very strong demand environment likely in the coming decade. And also the entry barriers in this business are rising. It is difficult to build new plants. It is difficult to buy land and it is also difficult to build distribution and your brand. So, my personal view is entry barriers are rising and it's never been a better time to be in this sector. So overall, I don't think I can answer your question that I'll pick one region over another because long term, every region performs reasonably well, except, I would say, Andhra is perhaps the most fragmented market and perhaps the structurally least attractive. And also, I think Himachal Pradesh is one where I think the cost structure is really high because it is locked up in the hills and all the demand is in the plains. So apart from Himachal and Andhra Pradesh, I think all regions have their own pros and cons and over a period of time they normalize. So, I think it's difficult for me to answer that question in an academic manner. And we have a pan-India play aspiration. We like the idea of diversification. And I think we are quite bullish about the fact that structurally, this industry is heading in a good direction.

And one follow-up to that is in the Eastern market specifically, can you or some of the other market leaders drive the pace of consolidation a bit faster so that the market reaches some profitability level or [ corrective ] point faster?

Look, I'll tell you, I think, already about top 5 players control 80%, 85% of the capacity in this region. So, it is already a fairly consolidated market. My view is that if you look at even the announced plans of the most players, most players are serious players and large players are adding capacity in this region. So, everybody sees this as a long-term very attractive market. Otherwise, they would not add capacity. So, my personal view is the degree of consolidation is already pretty good and I don't expect further consolidation in this region in the short term. But the real question is how quickly can the demand come up. And regarding prices, I think as demand grows, pricing should stabilize. That's our view.

And one last question from my side. On the Murli asset, there was a bit of some an issue with the limestone. So, when you're talking about ramping up 60% capacity, et cetera. So, are we sourcing limestone externally or the reserves we have is sufficient for doing that?

We have sufficient reserves, and we'll be able to ramp up the capacity utilization also and we are quite confident that in time to come even we may go for further adding up the capacity also.

The next question is from the line of Pinakin Parekh from J.P. Morgan.

Sir, my first question is just trying to understand in your view, given that Dalmia Cement is a sizable player, both in Eastern India and Southern India, and you mentioned that Eastern India is already fairly consolidated. But even keeping the last quarter aside, Eastern India's pricing has been relatively been much more weaker than Southern India, which on paper has a higher degree of underutilization. So, what in your view differs between South and East? Or what would lead to changing East to have a similarly upward moving pricing environment?

I would say the major driver for this would be the continuous increase and sustained demand. What has happened in East many times is because of either cyclone or unseasonal rain or the sand mining problem, et cetera, there has been the disturbance on account of which prices -- pricing has not got to stabilized. But otherwise, to us, it looks like because you are fully aware that all major players, they have good presence as well they have also -- they have also gone for capacity expansion in this area, which means that each and every player looks at the better time in East. So accordingly, one of the major area for which prices can remain stable if there is good demand.

If I can just add here, Rajiv here, I think catching on to what Puneet and Singhi said in the previous answer, see we are very bullish in East. East is now the lowest cement consumption, per capita cement consumption in the country. And there is a lot of economic activity happening [indiscernible] government. There's a lot of focus on increasing infrastructure in both states. And given that we have very large presence there, we are also seeing that competition is increasingly increasing capacity there. The fact that everybody is in the East, so East definitely has a huge potential. And we've been there and having a larger exposure as a possibly good place in the mid to long term. As companies add capacity there, initially, it is price volatility. As everybody is trying to increase the utilization initially, the price volatility will continue. But I think over the next few quarters, you will see that the price starts stabilizing in East because most of them would have ramped up the CapEx to a certain level and then you will see with the increasing demand, the price starts going up. So, I think if I look at from the next 1 year perspective, we should see that demand growing and price stabilizing as the capacity will stand up and we will see price starts stabilizing. So I think from medium-term perspective, I'm certainly very bullish on the Eastern market, given the economic [ additions ].

My second question is, if I take a step back and I look at the last 5 quarters before the December quarter, both Dalmia Cement and the industry had record profitability, record high EBITDA per tonne. Now, at this point of time, given what the announced -- announcements are from Dalmia, Shree, UltraTech, ACC, Ambuja and others. Very clearly, the next 3 years would have capacity addition far in excess of what the last 3 years were. Now demand would grow, but is it fair to say that barring a commodity price, coal price collapse, we are unlikely to see a repeat of the profitability that we saw in the calendar year 2021 for most quarters?

I would say one of the major trends in this year and in this quarter has been the energy cost. So, once energy cost gets stabilized of the previous period, then I think the EBITDA can be as good as it was earlier because we do expect better demand in cement prices. The major change which has come in is about the high cost of coal, pet coke, domestic coal, everything.

I would just add to what Singhi is saying. I think there is obviously going to be a larger capacity addition compared to the last 3 years. But I also see an increase in demand. And personally, my sense is that if input price rises so suddenly for the entire industry, typically, a few percentage points rise can get absorbed. But over a period of time, if like there's a 25% cost hike -- input cost spike, then typically over a period of time, it gets passed on. So, my view is that given that the entry barriers are rising in this industry, I can't create the next few quarters, but my sense is that I structurally believe that the profitability will reach the original levels of between INR 1,200 to INR 1,500 per tonne of EBITDA. It may take a few quarters depending upon how the demand supply situation is and -- but eventually, I think it will get passed on is my sense.

The next question is from the line of Amit Murarka from Axis Capital.

Taking forward the discussion of Eastern market, so like, [indiscernible] you mentioned the top 5 players control 80%. But my understanding is that the top 5 players actually are all equally big. I mean, give or take 3%, 4% here and there. And they all have ambitions, which we can see in the expansion plans. So, that really the top 5, 80% is not helping. I mean all of them are fighting with each other as you can see in the market. So, when do we see a more like a normalization of that heightened competitive intensity in the market? Like, demand is a good thing. We have good demand potential, but more or less, it has turned out to be a bane rather than a boon given how everyone is looking to add in East. So, like when do we see this heightened competitive intensity go down among the top 5 players themselves?

I think, look, this heightened competitive intensity gets magnified in a weak demand environment. If you look at the last quarter, in East India, there was a demand compression of almost 17%. So, when there is such a steep demand compression, I think everybody tries to sell a little bit more, in November -- and you don't have perfect data. In November, it was a complete washout month. So, my personal view is that this one quarter was a steep demand compression, coupled with a sudden spike in input costs, which was very steep. We are already seeing that in the fourth quarter demand is coming back quite strongly. December was good. January is also good. Fourth quarter, there's a little bit of seasonality as well, but the demand is coming back. Now, I think my sense is, as I said, I don't have a crystal ball in the future, but such large input price spikes typically get passed on unless the demand is -- there's a huge demand shock. But if demand is -- continues to grow normally, I think in a couple of quarters at best it should get passed on maybe -- maybe earlier.

Sir, I appreciate the November point, but the thing is in the last 4, 5 years, East has hardly seen any price hike. It's not just about 1 quarter, but whereas all other reasons if you see like price points have all moved up and next 2, 3 years also, we see a big pipeline of additions in. So the question comes more from there, like demand is good, but then capacity supply just kind of like removing all the advantages that demand can bring in?

Yes. I think in the short term, what you are saying has been true. But I continue to believe that this is perhaps one of the most attractive regions in the country. And both the demand and the pricing growth will surprise us. Now, whether it will happen in 1 year, 2 years or 3 years is difficult for me to say. But my sense is that it's going to surprise us. And that's why at least we are investing. That's the bet we are making. Now time will only tell whether we are right or wrong, but we are quite confident about this [ ceding ].

And the last one for me. Like going ahead, like you've announced your expansion, which again are centered a lot on East, but going ahead, would you look to do your next leg of expansions beyond East, let's say, the Northern limestone you have or some other regions?

Yes, I think we have already given a guidance that our aspiration is to be a pan-India company. And we are looking at projects in other regions as well. But having said that, we are also investing in South. So, we are putting up grinding units in Tamil Nadu, and we are making significant investments there. And also in the Western region, we have invested in Murli. So, I think we are investing in South and West, as well in our current phase of expansion of 48.5 million tonne. But we are looking at other regions as well. And our aspirations continue to become -- continue to remain more diversified across regions.

The next question is from the line of Sumangal Nevatia from Kotak Securities.

Firstly, thanks for the detailed opening remarks and also great to see the closure of Hippo Stores divestment in line with our capital allocation policy. First question is on the CapEx. Now in the last quarter, we cut our CapEx guidance almost half from INR 4,000-odd crores in FY '20 to now close to INR 2,000-odd crores. And at the same time, we are maintaining that none of our expansion time lines are being compromised. So, is it possible to share some more detail as to why these delays are lower CapEx in this year? And also how do we see FY '23 and '24 CapEx now shaping up in the light of this delays? Do we still see around [ INR 3,000 crore ] per year and some spillover of this year?

Let me share that whatever excess which we want to take to ensure that we are able to commission all of our 48.5 million tonne capacity, that is we have already taken in most of the areas. And on that account, we have already in invested INR 1,350 crores and we are expecting maybe around INR 800 crores. I do accept that, yes, earlier, we were thinking that we will be able to expand maybe around INR 2,500 crores to INR 3,000 crores. But looking to the situation, we have already decided that in next 2 quarters, there will be like the quarter first and quarter second, there will be more expenditure on expenses and that will take care. And I can again reassure that whatever expense we have taken, we will be able to complete all the expenses by March '24. One of the major steps was to order for the grinding system. So that has already been done. We have already started work on the 2 branding units and 2 others, they are in the process of finalizing. So, this all augurs well for completing 48.5 million tonne by March '24.

Sir, total INR 10,000-odd crores CapEx, the remaining will be spending in FY '23 and '24, so that gives us INR 4,000 per year. Is that the right understanding?

This is includes CapEx, which we are having on other areas on green power and other areas also and then maybe Aditi will be able to share the full detail about the CapEx.

So Sumangal, Rajiv here, if I can add to what Singhi is saying. See what has happened is the 48.5 million tonne that we have committed to the Street by FY '24 is intact. All the investments which needs to be done, which are critical parts for achieving that capacity by FY '24 is being made. But when we initially given my estimate looking at the whole CapEx plan and in line with our pan-India vision, we had also allocated some money for looking at new regions because as you know, the land acquisition, getting the raw material, everything takes time. So, we had actually started on that. We were really looking at good assets. We have been looking at good locations and land banks and everything else in different regions. And that part has got delayed, because we still are in the process of identifying the right asset for right line. And so what the expansion beyond 48 million tonne, some part of the money was supposed to spend in FY '22. But some of that has got delayed by a couple of months here. But overall CapEx plan, overall CapEx expansions that we've spoked about remains intact and we are in track to do 48 million tonne for FY '24, by 60-odd million tonnes for FY '25. So, those are intact.

Second question is on the cost. You did share some details in the commentary. But just to confirm that I've understood it correctly. So, we are seeing cost in March falling. But any -- but at the same time, you said that starting costs, given the inventory, et cetera, will be higher for this quarter. So, any sense on the overall average basis, do we see costs peaking out in third quarter and deflating from fourth quarter or only on a run rate basis, March will start deflating and actually, you'll see some benefit in 1Q only?

I would say that the Q4 of this year, the cost part would almost remain the same and maybe few rupees here and there based on the old prices, local basis. But of course, from Q1 of FY '23, it will be surely seen tapering down.

And just one last clarification, given that we won [indiscernible] Rajasthan, in fact, which year can we actually see a capacity footprint in North? Is it fair to assume that it will be more towards the end of this decade or a bit sooner?

Like I said earlier that we have just won it, and we are exploring all the possibilities and maybe in 1 or 2 quarters call will come out that what our action plan is.

The next question is from the line of Pulkit Patni from Goldman Sachs.

Sir, my first question is on demand. If I look at your trade to non-trade ratio, clearly, the impact this quarter, not for you but for the broader industry has been much more in trade. Whereas when we talk about these factors like rainfall, et cetera, they should logically impact both trade and non-trade fully. I'm just trying to understand, is there a bigger worry on trade demand? What is your thought on that? Or do you still think that, that trade is as reversed as what it was and should come back? That would be my first question.

What has happened is that even in this tough time also when there is rains and everything, so wherever there is a structured work going on, where is the big real estate player or the road works is concerned, that goes on. But the Indian house builders, et cetera, their work goes down. And more particularly, if I talk of East, this time in general also, the rural demand has gone down. There has been a slowdown even in rural economy also. And on that account, also the trade percentage for us also maybe for others also, it has gone down. But then to us, it looks like it was a temporary phenomenon. And in time to come, it will again go up and this increased demand, the trade percentage will go up.

Sir, because that's the worry, because everybody is talking about rural continuing to be slow, so we'll have to just wait and watch how that plays out. Sir, my second question is this interesting increment that you have put on Slide #21, can you talk about how usage of green fuel has actually contributed to higher savings. Now structurally, obviously, Dalmia is doing a lot more. Other companies are also focusing on more WHRS, solar power, et cetera. Do you envisage that the savings that will come on account of this will actually contribute to EBITDA? Or will it result in prices probably increasing at a much lower pace. This is more like a structural thing over the next 2 to 3 years. How do you see this playing out the contribution of green fuel and the savings there? Will it be a EBITDA contributor or probably pricing increases a lot here?

Ultimately, it has to be EBITDA contributor because the more we are able to use green fuel then definitely that take cares of the volatility of the fuel prices. So, that would be the -- these are contributors and efforts are on to ensure that whatever work we have done, we should continue and we should announce that.

If I can just add, your question is that when we are seeing a steep increase in input prices, we are not able to pass it to the customer, but if an EPA is savings because of all the initiatives would not get passed on to the customer, right? And this is result in price coming down. The fact is price is a combination of multiple factors, demand, supply, input prices, [indiscernible] price competition. So, it's very difficult to answer the question saying whether you can get passed on to customer when there is lower prices. The fact is all the companies are working for certain targeted profitability in certain targeted rural, et cetera. So I think we have to see how it plays out. But the idea is how activity are saying, how do you reduce the volatility in large input costs in our fuel cost and our other input costs, by taking some of the initiatives, which would kind of recently from this volatility output, that's the whole idea, right? And it also helping, EBITDA is also helping, being more predictable.

The next question is from the line of Ashish Jain from Macquarie.

Again, my first question pertains to East. I do agree with a lot of comments you made, but my only concern is that if you go back in time 10 years back, the industry had the same commentary for Southern region also, when AP, Telangana, they were seeing very strong growth. And today, like you highlighted, AP, Telangana is seeing the worst of demand. The concern really is with such a strong demand growth in East, capacity utilization of 90%, the pricing strength has just been missing for the last, say, 3 to 4 years at least. So though obviously, East, the per capita consumption is lower versus what South was in 2010. So, that does give some comfort on that demand potential. But clearly from a pricing point of view, what do you think should change or needs to change? Or is it like competition which can then sustain for much longer because everyone is in expansion mode? So, any comment you can make on how to think about pricing from here on for East?

I would say that demand will play major role in stability of prices. And like Puneet has also said and I also said that in time to come, the demand would shape up, and that's the major driver for pricing. Otherwise, whether you have the lower cost, higher cost, that may not mean much for the pricing settlement. And in other regions also, we have seen that 2, 3 years maybe of lower price, 2, 3 years maybe of higher price. So, here since all, there are also quite hopeful that each prices would go up with the demand, and that's why everybody has thought of putting into capacity. So that way, we are quite hopeful and then to what I can say.

Sir, also, you kind of reiterated your target of going from 48 million to 60 million tonnes by '25, given it would take at least say, 18 to 24 months for that. Can you give some road map in terms of what we are planning for the 48 million to 60 million tonnes journey in terms of either region or our preparedness or does it include a fair bit of inorganic within that number? Because otherwise, in 1 year, if I think, from 48 million to 60 million tonnes looks like a humongous target.

So see, you're looking at from 1 year, 48 million to 60 million tonnes, no, that is not the way to look at it. See, when we roll out our CapEx plan and we [indiscernible] capital allocation, we did say that 48.5 million tonne by FY '24, 60 million tonne by FY '25. So, a lot of the work is starting now. As I was telling to a question from Sumangal, a lot of land acquisition, lining up the supply chain, everything the work has to happen now. So, it is not that we're going to look at doing only once you complete 48.5 million tonne. The whole idea of building out a long-term CapEx plan was to say that as a company, we are going to focus on these milestones and to work -- and we work backward from then, we start planning and signing up a lot of [ these stuff ] ahead of time. So, it is not -- don't look at it one year, it is, we have more than 3 years from now to build other 11.5 million tonnes. That's how we look at it.

Rajiv, I get that. In fact, that's precisely the reason I'm saying given we would have already started working on that 48 million to 60 million tonnes, journey, we should have a fair bit of idea in terms of which regions and all we are targeting. So any thoughts you can share on that because --?

So, we do say, when we said last time, 48 million to 60 million tonnes, we will see some part of it in existing regions and some part of it in newer region. And that is what we are working on. At this point of time, to really give more details will be premature. I think we'll have to wait for us to be able to announce at the right time. But again, coming to 60 million tonne is something that we feel very confident about FY '25, 48 million to 60 million tonnes, in the existing region and part will be in the new region.

I just have a small follow-up on that. But safe to assume the way things stand today, 48 million to 60 million tonnes, is mostly organic. We're not building in any inorganic opportunity in that?

See, normally you cannot plan 3 years ahead of time. Because if you get something great at that point of time you look at it.

The next question is from the line of Gaurav Jain from ICICI Mutual Fund.

I just had 2 questions. One is you mentioned the capacity utilization for the quarter and as on December, it will be really helpful if you can also share the capacity utilization that we are currently operating at around? And second is, while we understand the issues of the industry based in November, et cetera, are there any visible green shoots that we are seeing? And if yes, then from which segment are we seeing the same IHB, rural, government, et cetera, it would be helpful.

We would be operating in this quarter or last quarter between 80% to 85%. And second question is that there are green shoots and because, one, the increased head mining issues, they have been resolved by the government, which has again favored the demand in Bihar and West Bengal. And secondly, now in the southern part of India, also the southern rains, et cetera, those problems are not there. So, in both the areas now, we do see that the demand should come up, which will help us in our capacity utilization also and good volume also.

I just want to add to that. While we went up above 80%, I think, around 85% in December, but I think in January, we have commissioned Murli. So on a blended basis, this number will come down and it is likely to be between 70% and 75%. So, we can't ramp up Murli to 80% suddenly, it is going to take time.

Right, right.

So basically on the existing capacities, we expect it to close at kind of 80%, 85% for Q4, right?

Yes. Other than Murli, yes. But on a blended basis between 70% and 75%.

The next question is from the line of Kamlesh Bagmar from Prabhudas Lilladher.

Sir, one question on the part of the expansion. So, we had given our guidance and all that. But if I see your capacity currently in Tamil Nadu, they are operating at hardly around 55%, 56%. I'm not taking the current utilization level. It is impacted because of the rainfall. But even if I go to FY '18, '17, all those periods, all the utilizations have been hardly around 55%, 60%. And at that time, Tamil Nadu was doing very well. And on top of that, we are guiding that we are going add 2-odd million tonnes of green field unit. So, then you utilization levels at the current capacities are below like 60%. So, what incremental supplies we are going to add? Is it more of a just a capacity? Or is it going to really flow to the volumes? And even if I see your Northeast capacity, let's say, almost like say taking alternate [indiscernible] for last roughly around 7, 8 years, it is operating at hardly around 55-odd percent utilization rate. When utilization levels at the existing capacities are at so low level and we are saying that we are going to add around 20-odd million tonne capacity. So, how they are going to flow actually to the volumes part?

If you now look at our capacity utilization even for our Tamil Nadu plant or the Southern plants also, they are running 70%, 75% plus. And if we talk of last 5, 7 years, there was a different scenario of the demand in South, different capacities in South. But at the same time, if you look now, not only of Dalmia Cement, a few other cement companies in South you will find that capacity utilization to some extent has gone up. We are quite hopeful that we should be able to capture good market share in the increasing demand. And that's why a complex decision, which is a good -- for good market. You are also aware that now since last 7, 8 years, the demand came in and started going up, then the way industrialization is happening in Tamil Nadu that is also sounding well for high demand. And it's just preparedness and I'm sure the preparedness will help us in not only getting market share, but better profitability also.

My comment was particularly to -- my comment was particular to the Tamil Nadu market only. And contrary to what Puneet, sir comment was that Andhra and all those markets are not doing well, your utilization levels at the Andhra and Karnataka market are far better than what Tamil Nadu is doing. They are upwards of my estimates, there are reports of like say, 90-odd percent levels. So I was only talking about the -- your Tamil Nadu plants. So, their the utilization levels are very low.

So, in our case, now, the utilization level of Tamil Nadu plant is 70% plus. And we are that's why we are quite hopeful that the new demand to come up in this area, which is both Tamil Nadu and Kerala, we should have extra higher capacity, which should be able to give us good market share. And since you referred about last 7, 8 years, and that's why I said that the demand in Andhra has also gone up.

And sir, lastly, so we have been guiding such an elevated CapEx, which is very positive. But even on the short term, this question has been asked. But like, sir, if you see any other company, be it Ramco, UltraTech, they are delivering much higher than what they have been guiding on the CapEx side. But in our case, we are like say that the plants are so high, but ultimately on the ground, the activity is so low on the CapEx side, at least on the CapEx side and the way the capacities are situated like in the used market, particularly on Orissa, there is no clarity how much limestone reserves we have, how much useful life left there. There are a lot of land acquisition issues are there. So honestly, like on this capacity addition side, there has been very low confidence on how we are going to deliver on that part? And majority of our CapEx is through debottlenecking or the branding capacity addition. But honestly, on the clinker side, there has been not a significant development in terms of our capacity additions.

First, let me assure you that we have sufficient limestone deposits. We have sufficient limestone be it in Orissa and that's why there is not concern, and that's why we have gone ahead for putting up one of the big clinker in Orissa. Secondly, I would say that whatever we have committed for FY '22, we are on the mark. We have achieved 35.9 million tonne capacity. And third, as we have reassured that the work for 48.5 million tonnes is going ahead. And accordingly, CapEx is, yes few hundred crores here and there, that is varied because of certain circumstances. But at the same time, the work which was to be done for achieving this capacity that's already in place and that's why in my view, there should not be any concern about capacity because whatever we have said earlier also, we are good with that.

Thank you. Ladies and gentlemen, we take that as the last question for today. I would now like to hand the conference over to Mr. Puneet Dalmia for closing comments. Over to you, sir.

So once again, thank you all for your participation. And I know this has been a tough quarter for us with some demand compression as well as sudden increase in cost spikes. But I think I'm very positive about the future. We have seen this before. We have been in this business for many decades. And there will be bumps along the way, but I think I'm -- I have never been more positive and more convinced about a bright future for our country as well as our company. So once again, we continue to march ahead with our CapEx plans. We continue to become more efficient. We continue to become more green. And we are confident, as I said in my earlier calls also that the best for the company is yet to come. Once again, thank you for your feedback and wish you all a great 2022 and look forward to catching up with you in our next earnings call. Thank you.

Thank you. Ladies and gentlemen, on behalf of Dalmia Bharat Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.