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 and 9 months ended 31st December 2022. Please note that this conference call will be for 60 minutes. [Operator Instructions] This conference call is being recorded, and the transcript of the same may be put on the website of the company. [Operator Instructions]. Before I hand over the conference to the management, I would like to remind you that certain statements made during the course of this call may be based on historical information or facts and may be forward-looking statements. The forward-looking statements are based on expectations and projections and may involve a 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, President and Chief Transformation Officer; and 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.

Thank you, Mithila. Good morning, everyone. Wish you all a very happy New Year, and I hope that you all had a great start to the year 2023. We welcome you all to the quarter 3 earnings call of Dalmia Bharat Limited. Hope you had a chance to go through the results and the earnings presentation, which is uploaded on our website and can be downloaded from there. I will now hand over the call to Mr. Dalmia for his opening remarks. Over to you.

Thank you, Aditi. Good morning, everyone. It gives me great pleasure to welcome all of you for the Q3 FY '23 earnings call of Dalmia Bharat Limited. Hope you and your families have had a good start to the new year 2023. We are meeting at a very opportune time when the government has just laid out the first Amrit Kaal budget, which is certainly a progressive direction by the Government of India to give a boost to a technology-driven and knowledge-based economy within the country. The budget once again reiterates the government's focus on building physical infrastructure to a massive 33% increase in allocation toward CapEx, which is INR 10 lakh crores this fiscal and the extension of 50-year interest-free loan to states. It is also heartening to see how the government has allocated INR 35,000 crores towards reaching net 0 emissions and achieving energy transition. Green growth has rightly been listed amongst the 7 key priorities of the government. Even while the most global economies are showing signs of slowdown, my personal faith and optimism on the economic prospects of India is quite strong. And we truly believe that the next few decades belong to our country. The Cement sector has a very crucial role to play in India's growth story, and I'm personally very bullish on the long-term prospects of the sector. We remain committed to our interim capacity milestone of 75 million tonnes by financial year '27 and long-term goal of 110 million to 130 million tonnes by 2031. In line with our vision to diversify and build a pan-India cement company, we have signed definitive agreement for acquisition of cement assets of Jaiprakash Associates Limited, located in Central India. The plants are very strategically located and will give us an entry into a very lucrative high-growth market of Central India. We are very excited about this opportunity as the transaction is at an attractive valuation and comes at a time when we are at the cusp of an infrastructure and CapEx cycle, and private CapEx starting to kick in. Continual optimization of cost is an integral part of our DNA. And this has once again led us to deliver 1 of the lowest total cost per tonne and an industry-leading EBITDA per tonne of INR 1,021 per tonne this quarter. Even as we grow further, amongst other things, our financial priorities will include improving our capacity utilization, sustenance of our total cost leadership and deliver industry-leading earnings growth and ROCE backed by a very strong, well-capitalized balance sheet. Dalmia Bharat is at an inflection point, where we have added capacity, diversified into new regions, and now I will personally be spending time upon strengthening our organization and building an institution which is scalable and sustainable. As we steer towards building Dalmia 2.0, one of my key priorities will be to invest personal time and resources into our human capital to build leadership teams which are future ready and aligned to our long-term goals. We are making collective efforts to multiply our people power and create leaders of tomorrow. As a part of our ongoing HR transformation, we have, during the quarter, launched a leadership development program called Lakshya, which has a combination of retention-cum-performance-related metrics and includes personalized leadership, coaching, trainings and career development programs. We will ensure scalability of our organization's structure through extensive automation and digitization, review of our key policies and systems, strengthening our compliance and risk framework as per best global practices and increased trust on fulfilling our ESG responsibilities. With the swiftness of transformation which I'm witnessing across our company and our people, I believe that we are just getting started and the best is yet to come. I'm personally very happy with all that we have achieved this far, and I'm very excited about the journey that we have set ourselves on. I will now hand over the call to Mr. Singhi to take you through the other details. Thank you. Mr. Singhi, over to you.

Happy morning, all dear friends. Thanks, Puneetji, for such encouraging thoughts. Friends, let me start by saying that we have once again delivered an industry-leading volume growth of 11.5% Y-o-Y to 6.3 million tonnes and our revenues have grown by almost 23% to INR 3,355 crores. So on a 9-month basis, the volume growth is 17.5%. And we are quite hopeful that we'll be able to deliver at least 1.5x the demand growth than the average industry. Our Y-o-Y and revenue growth at 21% is also there. Demand growth was healthy across each of our regions and price [ level ] was also stable with each showing a very stable recovery in pricing. In terms of cost, due to the higher cost of input materials, the raw material cost has remained on the higher side at INR 804 per tonne. The power and fuel costs also increased 29% Y-o-Y to INR 1,529 per tonne. The commission cost of fuel did see some respite from being at USD 215 during the last quarter to around USD 195 during Q3. In fact, the purchase cost during the quarter was around $185. And it is expected that during the upcoming quarters, the fuel prices could stay around $180. Our freight cost continues to remain one of the lowest in the industry at INR 1,114 per tonne. The total EBITDA for the quarter stood at INR 644 crores, which is a 57% growth on Y-o-Y basis, and it translates to INR 1,021 per tonne. We are glad that after many subdued quarters, due to high inflation, we have been able to manage the cost and have now crossed the threshold of INR 1,000 a tonne. We remain committed to continuously explore levers of long-term cost saving and are implementing suitable measures that will enable us to retain our cost leadership, both in production cost and in logistic costs. During the quarter, we have commercialized 25 megawatts renewable power, which takes our total capacity to 154 megawatts. During the quarter, renewable power constituted almost 24% of our power consumption mix. We remain on track to take our renewable power to 173 megawatts by year-end and 328 megawatts by FY '24. Another lever which adds to cost efficiency and sustainability is the announcement of our low carbon cement or blended cement, which was highest ever for the quarter at about 83%. What has really been encouraging is that in South, which has traditionally been and is a OPC market, we have managed to sustain our low carbon cement percentage at around 63%, which otherwise used to be below 50%. Our teams will continue to make efforts to move to 100% low carbon cement in all our regions in few years. Friends, we have been able to further bring down our carbon footprints to 462 kg per tonne of cement, which is probably one of the lowest in world cement sector as well that also matches the target which we had given 3 years back. Dear friends, Puneetji had already mentioned that we have signed definitive agreement for the acquisition of cement assets of Jaypee in Central India, totaling to 5.2 million tonnes of cement and 3.3 million tonne of clinker at an enterprise value of INR 3,230 crores. We are very excited about this opportunity. And as we speak, Jaypee and ourselves are actively engaged in completing the process for the remaining part of acquisition and which we plan as per the framework agreement. With regard to organic expansion, our OnPoint projects are expected to get completed to the targeted guidelines. We remain committed to our interim capacity expansion target of 75 million tonnes by FY '27 and 110 million to 130 million tonnes by 2031. I do hope that our team will take all our actions forward so that we always remain cost competitive as well are able to enhance our low carbon cement production. Thank you, Friends. And now I would request my colleague, CFO, Mr. Tuteja, to take over. Thank you.

Thank you, Singhiji. Good morning, all. Continuing on the CapEx, the total CapEx spend during the quarter and 9-month period has been about INR 900 crores and INR 2,100 crores, respectively. During current full year, as was mentioned in our earlier calls, we will be spending close to INR 3,000 crores to 3,200 crores. In terms of incentive, during the quarter, we had accrued income of INR 61 crores and during 9 months, INR 180 crores. In terms of collections, we collected INR 25 crores during the quarter and totaled INR 153 crores during 9 months. The incentive receivable as of December 31 stood at around INR 700 crores. On the debt side, our gross debt increased by about INR 750 crores and the closing debt as on December 31 stands at INR 4,050 crores. Net debt increased by INR 247 crores during the quarter due to the CapEx and the net debt-to-EBITDA on December 31 was 0.39x. With respect to our investment in IEX, we'll continue to evaluate this and will take appropriate call on divestment at opportune times. With this, I would now like to open the floor for question-answer. Thank you.

We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Rajesh Ravi from HDFC Securities.

Yes, am I audible?

Yes, please.

Yes. Congratulations to the team for a great set of numbers, all round performance. Sir, my question first on the housekeeping. Could you share what was the per kilo cal costing in Q3? And how is the scenario in Q4?

Yes. Per kilo calorie for the quarter was around INR 2,100 per kilo calorie. And it looks like that the next quarter would be around this number, maybe 3% to 5% here and there.

Okay. Great. And how was it in Q2, sir? Versus Q2, how much is the drop you have seen?

Exactly, I may not be able to say. But then maybe again, 3% to 5% only. But I'm not sure of this number.

Okay. Last quarter, it was 2.52 per calorie -- per Kcal. And this quarter, it is 2.42. There's a marginal drop because of the fall in the petcoke prices.

Okay. 2.5 to around 2.4. Okay. And in Q4, you're not looking major dip from 2.4?

Yes, the sector prices are marginally down at the last quarter to this quarter, maybe $4, $5 per tonne. So around similar corresponding drop can be there in this also.

Okay. Okay. And yes, coming to these 2 plants, maybe, what is the status in terms of utilization and profitability?

So utilization is slowly improving. And in the month of January, it was around, say, 55%, and it's improving. And the profitability now prices in Western India, particular in Maharashtra, they are stable. So now probably it will be better.

Okay. So in terms of costing, are they in line with your company average or way over?

It's higher at the moment than it was expected also. It's moving slowly [ in the best secondary phase ] as well as higher green fuel and green power. It will come also to the company standards.

Okay. By when do you expect the cost to normalize to company's level, sir?

In another 9 to 12 months.

Okay. And lastly, on the Jaypee acquisition, we see that compared to what you had earlier announced in December, this is more a rational and the operational assets, which we are going ahead with. So this Dalla Super which was under contention with UltraTech, that is not part of this current deal?

Friend, earlier one was also very rational. And this is the process in which we are going. So in the first month, we have completed the assets which are linked to Reva and the grinding units at Churk Chunar (sic) [ Chunar Churk ] and Sadwa, and the balance are also under the process.

Okay. Okay. So that will happen later on. Okay. And sir, in terms of could you give us what sort of limestone availability is there at the plants and what optionality we have in terms of expansion opportunities? And what can be the first year after you get them acquired, how much time you'll be able to start production? And what sort of industry are you looking at, please?

I would say that there is sufficient limestone availability with whatever we have been able to understand. And then second is that for some time, we have been also able to see the operation of the kilns, and they are operating as per the stated capacity. So we are quite hopeful and quite bullish that we will be able to produce the required quantity of clinker and cement. And as far as expansion is concerned, once we are able to stabilize operations, we'll surely share with you.

May I just request the operator so that there's only 1 question asked from analysts so that everybody gets a chance to ask questions.

[Operator Instructions] The next question is from the line of Sumangal Nevatia from Kotak Securities.

Firstly, many congratulations to the management on progress on multiple fronts. Very strong quarter, the progress on JPA deal and also the divestment of the refractory business. Since I just have chance for 1 question, I have a question on capital allocation to Mr. Dalmia. Sir, now if you see IEX stake [ I think ] is almost INR 2,000 crores, where the last partial divestment happened almost 2 years back. And now also with this successful refractory divestment, the cash equivalent at DBRL is roughly around INR 3,000 crores and our stake would be around INR 1,200 crores to INR 1,300 crores. So the question is, I mean, given that we are now pursuing a sizable acquisition, can we now expect some divestment of these noncore assets to fund our acquisition? Because if you see, I mean, it kind of matches with the size of the acquisition which we are doing in the first phase. And if it can be funded through these divestments, it could be a very significant re-rating event for us from a capital allocation perspective. So sir, any broad timeline and direction on this will be very helpful.

Sumangal, I have -- we have already created. We were the first to announce and create a very formal capital allocation policy and framework, which was very detailed. And we are going to be very consistent with that. So I can tell you that we are going to keep our net debt to EBITDA below 2 and we will ensure that our growth is funded with a very strong and well-capitalized balance sheet. Now what are the decisions that we will take along the way will be evaluated time to time from -- by the management and the Board and appropriate calls will be taken. I think these companies are publicly listed companies. And I don't think I can give a very definitive and clear timeline in terms of which I will be able to -- we're going to decide this. But I can tell you that we are very strict in terms of monitoring our capital allocation policy and our capital allocation framework, and we will be well within that in this phase of growth.

Understood, sir. Sir, our capital allocation policy was quite encouraging. But I mean, at least directionally, do we look to keep the project also under control and use it in some time in the future. I mean, just broad directional sense.

Sumangal, I think I've answered what I had to.

Okay, got it. No problem. If I can just squeeze in 1 more question. I mean, on the pricing environment...

Sorry to interrupt you, Mr. Nevatia, may we request you to please rejoin the queue. We have participants waiting for their turn. [Operator Instructions] The next question is from the line of Pinakin Parekh from JPMorgan.

My question is on the capacity addition road map. Now the company has reiterated the target to reach, a vision to reach 75 million tonnes by F '27. And at this point of time, the ongoing projects takes it to 49 million tonnes by F '24. If we add Jaiprakash, it goes to 54 million tonnes. There is still a very material gap of 21 million tonnes. And the timeline says 3 years. So when should we expect announced growth projects to get announced? Or is this 21 million tonnes going to be predominated by M&A and acquisition?

In fact, we are doing our groundwork. And maybe in a year's time, you'll be able to know capacity-wise that how we will be putting up new capacity. So yes, we are confident whatever study we have done that we should be able to reach 75 million tonnes. And at the right time, we'll be able to share with all of you also our specific action plan.

I just want to add to what Mr. Singhi said, our growth has always been a mix of organic and inorganic. So we are going to have an organic plan in place to go to 75 million tonnes to the extent we think it is appropriate at this point in time. As you know, some of our organic expansions are in progress, and we are making a blueprint to further grow it. And the inorganic opportunities are something that we continuously evaluate. And I think Jaypee is 1 such example. I think our focus right now is to complete this acquisition, ensure that we bring it to the efficiency parameters and the market share that Dalmia hopes to gain in these markets. And only after that, we will examine what makes sense in terms of more inorganic deals.

Sure, sir. Just to understand, is this F '27, 75 million tonne a hard number? Or is it more like a vision of increasing capacity? It may be 1 year or 2 or 3 years later. How should we look at that? Because it's a very material jump going from 54 to 75 in 3 years' time.

Puneetji, can I take this.

Yes. Rajiv, go ahead.

So when we laid out a vision of 110 million to 130 million, that was the vision because that time you have 26 million tonne capacity, and we wanted to see given the opportunity in the marketplace. We said we clearly see an opportunity to exit our expansion. Then we said, firstly, [given] the milestone of 49 million tonnes by FY '24, which we are absolutely on target to meet. And then we spoke about saying that because we have come on the capital allocation framework and we said we don't want to increase our net debt to EBITDA more than 2, we need to have secular growth. We need to grow at least a 15% CAGR year-on-year. And that's the reason we put a 75 million tonne target. Now it is not a hard target in the sense that you don't see the economic condition is still volatile. And also we, as a prudent manager, we'll keep evaluating the opportunity that we have. But standing where we stand today, we believe the opportunity is huge. With all the announcements [going under] the government, we see the private CapEx, we see the pent-up demand coming, election year coming. We believe that we are on the right track. But as a prudent management, we keep looking at our strategies based on the risk parameters that these have been defined with RMC and we'll keep changing our plans. But yes, our [increment versus] 75 million tonnes, it may go up here and there. But given where we stand at 75 million is doable and we'll do it.

The next question is from the line of Indrajit from CLSA.

Congratulations on a good set of numbers, particularly on costs. My question is on the power costs. You mentioned that your per Kcal cost went down from 2.5 to 2.4 odd. But when I look at Slide 14 of the presentation, power cost per tonne has reduced from our 1,500 to 1,200. That's about 25% reduction. So are there -- is there a change in mix or anything else that has gone into this cost? And how sustainable do you think this reduction is?

Dharmender?

The reduction in the power is also contributed by increasing green power proportion, which has increased to now 24%. Previous quarter it was around 15% to 17% or so, and that is sustainable.

In terms of fuel mix, has there been any meaningful change in terms of petcoke, coal, et cetera?

Natural mix continues to be non-petcoke for the power, which is coal, domestic coal, lignite, et cetera.

And like in totality also, if you look at cement plant fuel mix, then yes, petcoke has also broadly around, say, 65% to 69%. But at the same time, other fuels, which were competitively economical, that has gone up. And on that account also the cost has come down.

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

Just on power and fuel costs. So the slide mentions that you'll be going to 69 megawatts of WHRS. But for FY '24, you have a wind and solar plant, but is there any WHRS plant as well?

There is a one WHRS, which is work in progress, so that will get commissioned in next year.

Sir, that will take it to 69 megawatts then?

And thereafter, we'll have WHRS in all kilns.

Okay, fine. So there is no scope after that to do more WHRS?

After FY '24. After FY '24. But then definitely, whatever say, a new capacity would be added or the Jaypee capacity would be added that all would have.

And how much savings will come from this in FY '24?

That definitely can be shared separately.

The next question is from the line of Girish Choudhary from Avendus Cross Spark.

Good to see this operational performance during the quarter. So on this acquired capacities from Jaypee, if you can throw some more concrete details on the utilization of these plants, the current profitability structure. And importantly, how do you plan to ramp up and bring in synergies of the -- within the existing capacity assets of yours?

Once we are able to close the transaction and we are able to take possession and start operating, then definitely, we'll be able to share our specific action plans that this is how operations would be optimized. This is how synergy will take place. We are quite hopeful that the quality of plant which we will be inheriting as well as the market which we'll be in, it would be a very good acquisition.

Just as a follow-up, when do you expect this transaction to close?

This transaction is subject to certain specific conditions. So maybe in a few months' time, that definitely document which we have signed, that should get over.

The next question is from the line of Prateek Kumar from Jefferies.

Hello. Yes. Congrats. So a question on increasing guidance. So there's been like a pertinent improvement in sizing...

Sorry to interrupt you, Mr. Prateek Kumar, but there is a lot of disturbance from your background.

Hello.

Yes, please go ahead.

Yes, now it's clear. Now it's clear.

Yes, sorry. So I was asking regarding there is this pertinent improvement in pricing in the Eastern market in the past 3 to 5 months that sort of continued into first quarter -- fourth quarter as well. Is there any specific reason attributable to this? I mean, while other regions are literally struggling on any price changes. So what has helped pricing in Eastern market here?

Now it looks like that demand is improving and there are good prospects as well. Whatever, say, few problems which were there in past in regard to ability of [ sad and ] others, so that is also not there. So in view of that, we have experienced better demand and better price also, and we hope that this would continue.

Okay. And any major capacities which we have commissioned? I mean small capacities you have commissioned during this quarter?

No, please.

The next question is from the line of Satyadeep Jain from AMBIT Capital.

Just a question, Mr. Dalmia mentioned project Lakshya to strengthen the management team. I believe earlier we were looking at succession planning and strengthening the second layer of management team as a potential successful team [how]. And then we had some exits, I believe, last year. How -- what is the thought behind now looking at that succession planning again? And if there is, what's the progress? And that's the question.

Let me take that. We have to build a management team looking at our decadal vision. So we are looking at like by FY '31 to be 110 million to 130 million tonnes and by FY '27 to 75 million tonnes. We have to look at what capabilities and competencies we need internally to be able to achieve that vision in a sustainable manner. So I think we need to look at what are the enablers to build this scale. We have to look at what will make our business even more sustainable. And on the basis of that, we are starting to plan today. So as you know that a lot of new capacity is being added. We are also doing a very major acquisition in a new market. And I think there will be more such events in the next 5 to 8 years. So looking at that, we are planning, how do we train our people to take more challenging roles, how do we assess them, how do we coach them, how do we support them? And on that basis, we are planning our internal human capital transformation. So we are going to do a lot of metrics, which we will measure. And on this basis, a lot of opportunities will be given to youngsters in the group. So I think broadly, that's what I can say. We want to build capabilities for a scalable and sustainable operation of this size, and we want to give a lot more opportunity to youngsters in the company. Rajiv, Mr. Singhi, you want to add to this?

I think this is what we are in the process, and we are quite hopeful that in times to come also we'll have a very stringent team which will be able to achieve the result of 75 million tonnes and 130 million tonnes.

So if I can just add to what Puneet and Mr. Singhi just said. It is part of the overall organizational development and succession planning is a part of that. Even succession tonnage is not only about 1 year or 2 years. But how do we create a set of leaders who can potentially take over a larger role at the top of a hat. So we have formed an executive council of 11 people. Each 1 of them can potentially take the highest role in the company. We have identified 41 young leaders across different bands and different function who are the high potential leaders of the future. So we are doing a very structured manner in the right manner, keeping the next 10 year vision that we have in mind. And I think succession planning is rolled up into all of this.

The next question is from the line of Anupama Bhootra from Arihant Capital.

So I have a question regarding carbon credits. Since we target to become carbon negative by 2040, so how does it work? Like do we collect any certificate or do we sell any certificate? Like any involvement there in the company with the carbon credit certificates?

Presently, there is no industrial carbon market, except a little bit to voluntary carbon market. So on account of that, this interest in carbon market has not got activated. And as for this COP21 agreement now in terms of carbon market may get activated in a year or 2 for that right type of mechanism is being worked out. And at the same time, even in India also, now Indian government and Bureau of Energy Efficiency, they are exploring ways and means to create carbon market. And once it happens, then definitely, whatever projects we would be going to bring down carbon footprint, that will get -- that will become eligible.

The next question is from the line of Shravan Shah from Dolat Capital.

Sir, I need a couple of data points. Our trade share for the third quarter, lead distance, premium share, fuel mix. So please, sir.

Dharmender?

Trade percentage for the quarter was 60%. Lead distance is around 310 kilometers. On the fuel mix, we used about 70% petcoke and 16% was coke. What was the last part that you wanted to know?

Sorry, 70% petcoke, 16% coal.

And then balance is a combination of lignite, [muslate], some alternate fuel.