HeidelbergCement India Limited (500292) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the HeidelbergCement India Limited Q2 and H1 FY '22 Conference Call hosted by PhillipCapital (India) Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vaibhav Agarwal from PhillipCapital (India) Private Limited. Thank you, and over to you.

Thank you, Stanford. Good afternoon, everyone. On behalf of PhillipCapital (India) Private Limited, we welcome you to the Q2 FY '22 and H1 FY '22 Conference Call for HeidelbergCement India Limited. On the call, we have with us Mr. Jamshed Naval Cooper, Managing Director; and Mr. Anil Sharma, Chief Financial Officer at HeidelbergCement India Limited. I would like to mention on behalf of HeidelbergCement India Limited and its management that certain statements that may be made or discussed on this conference call may be forward-looking statements related to future developments and current performance. These statements may be subject to a number of risks, uncertainties and other important factors, which may cause the actual relevance and as well to differ materially from the statements made. HeidelbergCement India Limited and management of the company assumes no obligation to update or alter these forward-looking statements whether as a result of new information or future events or otherwise. Also, HeidelbergCement India Limited have uploaded a copy of the Q2 FY '22 presentation on the stock exchanges and its website. Participants may download a copy of the presentation from these websites. I will now hand over the floor to the management of HeidelbergCement India Limited for their opening remarks, which will be followed by an interactive Q&A. Thank you, and over to you, Cooper sir.

Thank you, Vaibhav. And thank you, everybody, for joining for this call. You have received our presentations, and you would have gone through it. But nevertheless, I'll reiterate while we are on the Slide #3. On the ESG projects, which we are talking about, we are in the advanced stages of alternative fuels and also very close to our commission -- almost ready to be commissioned solar power plant of 5.5 megawatt in Narsingarh. We have signed some solar projects, some agreements on power purchase for close to about 22 gigawatts -- or gigawatt hours of power for our Jhansi unit. And that is green power. Total share of our green power as of now stands at 27% for Heidelberg. And we continue to produce 100% blended cement. As you know, that capacity utilization for us for this quarter has been 78%, and it has been a variance of multiple months. So it has [ stand ] from 90% also we have touched during the quarter, one of the month. Coming to the EBITDA, it is INR 946 per tonne, which is 17% lower than the previous -- on year-on-year quarter basis. And there are reasons for it. We can answer that. Dividend is -- we have to -- we started this journey and now since we are -- from a nondividend-paying company to a dividend-paying company, we have reached about 80% of our dividend is being paid. We continue to operate on our net working capital. And cash flow and the net cash bank is about INR 70 crores, INR 80 crores. Taking you to the slide -- next slide, which is -- which I mentioned to you, it is a picture of our Narsingarh AFR project, which is now in trial run. And I think we should be able to stabilize it in another 1.5 months or so. Initially, it will be -- the TSR will be about 5% to 7% -- between 5% to 7%. And in the long run, we intend to take it to about 20% plus. So that will take some time. But the first phase is about 6% to 7%. Next slide takes you to our -- on the green power, what we are talking about, and you can see our trajectory. We commissioned our WHR in the first quarter of calendar year 2016. And from there, we have moved. And we are now today at green power is 27%. But very soon, then this power ticks in form of solar power and all that, we will be close to touching around 30% of all green power. We have shown in the Narsingarh map, we have signed an agreement of 22-megawatt -- 22-gigawatt power and Jhansi, where we have the 5.5 megawatt is ready. And Ammasandra is virtually on -- 90% on green power. So these are the 3 plants which consume power here. Coming to the next. We are proud to announce that we continue our efforts to achieve carbon neutrality and water positivity. And you can see that today, we stand at 4.4x water positive. This journey continues to motivate us and that we are targeting to do better this year. A little bit in the [ differs ]. This is an old record, which is a year old assessment done by TUV. But when we see this year, I'm sure, definitely the efforts what we have put in for during the last year, there should be some improvement on water positivity. It should be improved from 4.4 and above. Our commitment to CSR and obligation to the society remains undated. And out of that, in the Jhansi plant, we have given up oxygen generating plants dedicated to the society. You can see the picture of that. Then we come to you -- take you to -- we are quite a lot into supporting the public health care enforcement there. And we are putting up small PHCs, in small villages, we are putting up a building with a few beds, so the people can get basic necessities of health and hygiene treatments can be given to them. Government is supportive. Government has come forward to give us the places we are constructing and handing over to them, and we will keep supporting them to whatever extent is possible to run these PHCs also in the long run. We are also committed to education for the -- and then we have done quite a lot of government schools, which we have refurbished. And this is where you can see the picture of some of the schools dedicated to the government for the good cause. Coming to the Slide #10. You can see that we have kept last 4 years of performance before you. And you will see that quarter-by-quarter, we have shown a positive trend only over the previous ones. And this year, it is 11% in the quarter -- September quarter of 2021. The growth is 11%. Now where have we suffered? Let us see this, okay? On the coal side, I've put an index of the coal here considering that. And coal has been a major impact to us, which is the -- same is the case with pet coke. pet coke has risen to the roof. We earlier used to buy pet coke at close to $85 or $100. Today, it is crossing anywhere -- a huge amount, but anyway, for Damoh and Jhansi it is a local pet coke, but the local pet coke is also priced in line with what is the export -- import landing. So nobody gives you free anything. So pet coke, the domestic pet coke is also priced aligned to the arrival price of the imported pet coke. And we are suffering here around this part. On the packaging side, because food has gone up from $40 to close to almost $78 -- $75, $78, it has almost doubled in the last few years. And you can see that when crude goes up, the PP granule goes up, and the packing material also goes costly. On the power side, there has been an improvement because of our sourcing of power from various sources, non-grid sources. Today, our grid is 60%, and close to another 40% is non-grid for us. Coming to fly ash, it is very constant. But when today we are suffering, the industry will suffer in the long run to come with -- also with the impact of power plant shutdowns and getting fly ash will become -- and for us, it is 100% blended. So we have to somehow source the power -- source the fly ash from somewhere or the other to keep our business going on. Diesel, no hidden fact that it used to be close to about INR 80 a liter. It is now shot up to close to INR 100 plus. And the journey continues. I don't think it is going to stop at this level also. You have seen the Slide #12, which is in front of you. You will observe that our volumes are better, our revenues are better. But because of the cost, there is an impact. Another thing is you may ask me that why is the price compared to -- why is our price not increased to that extent. So let me [indiscernible] on this that when I compare the quarter of last year September, our prices, you would see the results of last year's quarter, we were already running 2% plus at that point, that quarter. And that is the base effect for us, the base was higher as compared to the -- I don't want to compare it with what is happening elsewhere in the industry. But there will be definitely questions we will ask, as you know, why others are improving. But it is also because of our higher base. Taking you to Slide 13, you will observe that from INR 1,137 EBITDA per tonne, we dropped to about INR 946, and you will see power and fuel is one of the biggest disturbing points for us. GSR, minor here and there. Raw materials, everything is going up. Now everything is in a costly mode. So these are some of the areas which will be -- I think we will have to find out a way to pass it on to the market. I will be -- I will talk about this. We will have definitely questions on this. Coming to our Slide 14. You will see our balance sheet. The balance sheet is almost of the same size. Nothing major change. Probably you may have some questions on investments, which Anil will answer to you. Debt and -- our debt payments -- repayments, you can see in this particular slide, by December, we will be virtually debt free. This INR 120 crores, we will pay it in the month of December. And thereafter, there is no interest charge on this, so there will be an upside on discount in them. And then there is a long-term interest-free loan to us available with us from the government, which is about INR 235 crores, which is with us. Taking you to Slide 16. Our volumes are about 45% by road, and we have moved from pet coke. pet coke has shot to almost close to INR 580 [indiscernible] INR 600 touching now, even more than coal. Our coal is something like around INR 410, INR 420, INR 430. So coal becomes a cheaper option for us. And that's how we have changed our recipe for fuel. Coming to the -- we sell about premium bags, it is about 21%, not in a hurry. We'll touch about 25% very easily but with irrespective of the price. And this difference in price is consistently in premium. I must mention it very categorically. We started with a premium of close to about INR 25. Today, it is about more than INR 35 to INR 40 in premium bags. 83% of our trade sales is there, and there is -- I'm sure this is a very healthy balance to maintain. Taking the last thing which you must be aware of, that we have already inoculated our employees and that almost quite a lot of them have been -- most of them have been inoculated, I would say. Still, there are some people to be going for round 2. So I think in another 3 months' time, we will have 100% of our employees, including contract workmen and including their families, inoculated. So there is some resistance at some levels, but then I think now we will be able to manage that. We have elections in '22, so there is an upside there for the elections. So we should see a good run in UP for cement. Domestic coal and fuel prices, as I mentioned, it is -- this is one of our major concerns, which is a concern for a national concern, equally a concern for the cement industry. So we'll have to find ways and means to battle with this. We -- with such high prices of coal, we do not expect that the government will be kind enough to continue absorbing these and giving us subsidies. So we should expect power prices also to go up because now all -- normal coal, they were using high fly ash coal, high ash coal. And now today, they are using low ash coal also. So I'm very clear about it that the government will not be able to sustain these types of costs in the long run, and they will have to be ultimately passed on to the consumer. Raw materials had to be sourced from long distance and especially fly ashes and other things. And we have a year of -- we had this year of third wave, but I think it has subsided to a lot extent. Coming to the China crisis. When we talk about China crisis globally, I can only think that if this will help or not help, I don't know. But any equipment which are new capacities who have placed orders on China for equipment, their capacities will get delayed. And if that happens, the capacity expansions that were planned, it may not come through. Today, also the country-wide demand will be -- estimated, I expect that this year we'll end up at about 10% to 12% -- between 10% and 12%, the demand positions are there. And I think the country will deliver against that. Price trends, to talk about, I am foreseeing that these type of costs cannot be kept with us on our books, on our document. It has to be passed on to the consumer. We are taking price increases now. In UP, we started taking price increases from 1st of this month. So far, we have taken increases close to between INR 10 to INR 15 in Central India. Another increase we have taken today of about INR 10 increase in Central India. Tomorrow and day after, we will take another -- further increases. And we are expecting that Central India prices to move from an average INR 360 a bag, it should touch to about INR 400 a bag when we open up November as of now. That's my view on this because coal is getting limited with the industry and everywhere. And as the coal prices go up and with the risk of stopping production is going to be there, it is better to get your money for the assets that you have. So this will continue. And I'm sure that hopefully that November end, you should see a price plank of INR 450 and going further, I am hoping that we open up the new year, which might be a good music to your ears. I would say it is INR 500. That is what my thinking is we should open 2022 with INR 500 a bag in Central India. That's my view on this. And thank you once again, and I leave the floor to Vaibhav. And before -- I think before we conclude the meeting also, I would wish everybody here present as a Happy Diwali to you because some of you may be there for a short while and then disconnect. So I wish every one of you and their families also a Happy Diwali. All the best to you. Okay. Okay. One before I close it. We have sent out this time the industry's first digital annual report. I don't think anybody has so far -- actually, not many industries also of manufacturing sector have provided a digital -- I have seen one which was made in -- made somewhere outside the country, and I was impressed by that. And I said let us make an attempt to come out with a good annual report, which gives you a very clear snapshot of what business we do and what is our basic philosophy, so how are we driven as an organization, and that helps us whether it is sustainability or whether it is anything, we tried to capture it. And I hope you have seen it. And I would be very happy to receive your feedback on the same, so we can improve it for the year next. Thank you very much.

[Operator Instructions] The first question is from the line of Ritesh Shah from Investec.

Sir, my first question is, thanks for your commentary specifically on the pricing, where you indicated that it should technically move from INR 360 to INR 400 per bag in November. And then basically, target will be INR 450 and hopefully by INR 500 start of new year. So just wanted to understand the rationale. Basically, is it on back of the cost inflation that is something that we are starting at, and hence, this aggressive price increases? So I just wanted to understand the rationale, sir, if you can explain it on a rupees per kcal basis on what it is right now and what it would be next quarter and quarter after. Just trying to understand price and cost.

So I would say the costs are going up by close to INR 400, which is basically more that of fuel and other costs which are likely to be. So you can understand that these costs which we have been absorbing have to be now cumulatively passed on to the market. So these prices are purely, purely on a cost basis because we cannot take these costs any longer. You have seen our margin fall from 24.6 to [indiscernible] almost 400 basis points, it has fallen. You cannot keep this sort of arrangement with -- going on. And if I have not passed on the losses to -- largely, we could not pass it during the last few quarters mainly basically because of the monsoon season, demand remained subdued. So at that point of time, opportunity was not there. But now -- even I would have said we could have taken a smaller increase and done away with it. But I'm seeing that the pet coke and the future pet cokes which are incoming in the pipeline seems to be totally, totally on a very high load basis. So it cannot be -- now that if today we don't take a price increase, okay, then when will we take? I think it would be very unfair to the shareholders of the company.

Sir, that's very useful. Sir, if I just may dig into this. Sir, how should I understand the pure sourcing strategy for the company? Say, pet coke, thermal coal linkage, what is our sourcing strategy when it comes to -- or if I'm in the company, obviously, I'll be in a position where I have to think whether should I book the contracts for Jan to March? Or should I wait for the prices to cool off? So how should one understand it, spot buying versus long-term purchase, medium-term contracts? Sir, what is the thought process there?

So Ritesh, today, you can -- today, the situation is so fluid that even long-term contracts, people are not ready to honor, so there is no strategy, okay? So if you would have a strategy, strategy depends on the commitment on both sides. So if your long-term contracts of March or whatever the contracts you had earlier contracts also, which they were supposed to mature now, they are being denied. The government itself is denying the contracts, okay, whatever the auction coal what we have, the government has refused to give it to us, they will be a priority. So there is no honoring on the commitment. There is no gentleman's promise which is coming through on the table. So what do you do under such a situation? It is a situation like COVID, okay? People had the money to buy -- get a hospital -- get to the hospital and get themselves treated. But today, in like a COVID situation, coal has become a situation. You pay any price, you don't get a coal. At the same time, COVID, when you had the money, you did not get a hospital room. Today, you want to get a coal. So this is the situation which we are into. Now there is no strategy at this point of time. It is a do-or-die situation. You have to live by the day.

Sir, we do have the fuel supply -- a long-term fuel supply agreement with the Coal India. And we have the valid allotment. In the Coal India at this moment, they are focusing and giving priority to the power plants. So I think we need to continue pursuing with the government as well as the supplier. And we are also exploring various possibility to ensure that there should not be any problem in the production for want of fuel or want of pet coke also. At the same time, we are also working on the -- this AFR part, the alternative fuel, already trialed and has started, although it will be very miniscule at this moment in consumption. But it will support to replace the fossil fuel in the long run in the business.

So Ritesh, one point which I want to make it here is that our production will not stop, okay? We will manage to run this. That is the strategy as of now.

Perfect sir. Sir, I have questions on growth. I will come back in the queue, sir.

The next question is from the line of Kunal Sharma from SMC Private Wealth.

Just one question I have. Sir, EBITDA per tonne, industry is on the positive EBITDA per tonne growth with an increase in demand and the increase in ASP in quarter 2 -- sorry, in quarter 1. But EBITDA is on the degrowth over the last 2 quarters. So is it because of the cost increase and the lower ASP price? So can we expect the more cut on EBITDA per tonne going forward? Or are we passing it to the customers?

So let me tell you that when you are comparing our EBITDA per tonne for this quarter, okay, compared to the previous year, okay? It is lower because, as I said, my base of September was higher last year, 2020.

Okay. So -- and what about the -- like are we going to passing it to the customer going forward?

That is what we have started doing it. So far, we have taken increases of almost INR 10 to INR 15. Today, we have taken another INR 10 increase, almost INR 25 into the market. So that even if I take INR 25, that is -- close to about INR 50 -- INR 500 a tonne out of 500 tonnes at least after taking out tax deduction also, INR 35 will come to you.

Okay. And lastly, what's the capacity utilization as of now?

It is about 78%.

78%. Okay. Okay. Fair enough.

[Operator Instructions] The next question is from the line of Kalpit Narvekar from Allianz Global Investors.

Sir, my first question was on the side of broader industry. So in Central India, what are the -- sir, could you share what is the sort of premium that you charge in the market versus other peers? And how is the brand perceived versus the other peers in the Central India market, some color on that?

So it's a big fabric -- Central India is a big fabric. I don't say that we -- but if I would say that, okay, if you compare it, we will be in the category of A class brands. So somewhere -- between the A category also we compete, somewhere some are higher, somewhere we are higher. So it keeps switching from market to market. But nowhere in the Central India we are under the B category.

So is it possible like on a per bag basis, say, versus UltraTech or something, how much would be...

I would refrain -- with any competition, I would refrain very strongly because it is unethical to compare with any brand or anything. I have seen some -- sometimes some companies have come out with some surveys by some other companies and reported some wrong figures, which was totally misleading. But I would still not -- I would -- ethically, I will refrain from commenting on that as a competitor. Every brand has a strategy and every brand has a, what should I say, its face value. We have a reasonably good face value in the market. And my sense is good -- I would say, quite a few customers are very loyal to us. We have a very network -- a very loyal network with us. And they have been here with us for years together. So we enjoy a premium. Mostly, it is not only the product, which enjoys the premium, it is also our dealers who enjoy the premium because of their positioning and their single-handedly dealing with us for years together. So it's a combination of everything. But I'm sorry that I cannot answer your question about premiums between -- I can only say that I'm in A category brand. Between A category and B category brand, there is a difference of easily INR 10. And then there is another INR 10 difference between B and C -- or INR 15 between B and C. So from -- if you compare from C, you will be close to INR 20, INR 20 higher -- INR 20, INR 25 higher from C category player. And if you compare this with sold rate material, which comes on fly-by-night operators, which is other materials, there you will find that between A category and the fly-by-night operator, the price difference is as high as INR 50 to INR 60, sometimes even INR 70.

Sir, that's quite helpful. Sir, and just one more question. You mentioned that the trajectory is expected to go to INR 450 per bag and INR 500 per bag in November and say next year. So just wondering how does that -- is the competitive scenario playing out. Is it necessary that all the competition or the market raises prices for this to play out? Or you can sort of go ahead and raise prices on your end?

If you ask me that the coal is something in a raw material input, which is common to all, okay? If it is hurting me, it will hurt others also. So we are not -- I'm not worried about what others are doing or not. I'm clear about it. We have started taking price increases from 1st of this month, whether who does what not. For me, it is my material is selling, okay? Even at INR 15 a bag at a higher price, if my material is selling and I'm doing well in the market till 20th of this month, my sales figures are okay with me, I would say what is wrong in increasing the prices further. And my team is aligned to this thought process that we have to pass it on to the market. Otherwise, we will end up with bad results year after month, quarter after quarter. And the team is committed, okay? So as long as the sales team understands that we have to pass it on to the consumer, and the consumer is ready to buy. Today, let me tell you, there is the steel price which has reduced, okay? We have seen in this last 6 months, it is one trajectory [indiscernible] which commodity has come down in the last 7 months, 8 months. And there is not a single team where I have found that anything has come down. Cement has been late starter. Cement has to start moving now. Now it has to pick up speed and move up to that level. I think it is very fair to pass on these increases. You can't keep it with you. And tomorrow if, God forbid, the government decides to increase power -- also cost of power, then we had it. I think we -- I think at least if you ask me, I'm impatient about it.

The next question is from the line of [ Dipanshu Jain ] from HEM Securities.

Sir, actually, I want to know views on coal and fuel costs in the coming future. So can you just throw some light on fuel costs. What will be the fuel costs in coming future down the line?

Coal, we mentioned the issue is today, it is a very fluid situation. We cannot predict today. It is at a very high price at the moment. But if -- how China fails, okay, China is really craving for materials, but it is not getting materials. So how China absorbs because if now China is under a blackout, their power plants are down, they will start pulling coal. So in the near future, in the coming 3, 4 months, I don't see that's some -- any relenting which happens. Maybe after another 3, 4, 5 months or so or maybe if it extends, it will be something in the second half of the next year -- calendar year, you can see something happening -- changes may happen -- start happening from -- today, the demand is at its peak. Everybody is running. Probably it is also a little bit of a result of a panic buying, okay? So when material is not available, panic buying when, it takes over, this sort of frenzy is not good for the market. And I cannot control the frenzy of the market. So we are -- I'm anticipating that it will -- the fuel -- the coal and the fuel will cost people now in the ranges of something like INR 600 [indiscernible] should come, these types of costs would come there.

[Operator Instructions] The next question is from the line of Harsh Mittal from Systematix.

I have one question. What is your volume guidance for the 2H FY '22? Given the price guidance you have given, do you feel the market -- Central India market will be able to stomach such type of price hike?

We have -- it is like then commodity prices have gone up. Nobody -- nothing has stopped from this. So I don't think cement is going to be an exception here. People will continue to buy. People who are building houses, building -- construction is happening, where people are still buying steel at INR 75,000 today. Okay, they were buying the same steel at INR 45,000 and INR 48,000 and INR 50,000. Today, they are still buying it. And that is also there for some of the steel rods and bars and things like that, they still have to wait for 2 days or 3 days to get material. Similar is the situation with cement is going to happen. And God forbid if some of us run out of coal stock or our fuel stock and we have to stop the plant, okay? I'm sure that this INR 500, you will see it in the coming few days only. Why wait until January of the month?

Given the -- you have given us the fly ash price trajectory. Given we have a good amount of blended cement, almost 100%, don't we have long-term contracts for fly ash with power plants?

Should we have a fly ash contract? We have everything. But it is like this. As I said, that the person who is going to supply you, he should have also that. If his power plant is shut down for the last 15 days for want of coal, whatever you try to do, where are you going to take it from? [Foreign Language]

Okay. Sir, last question. Sir, what is the lead distance for this quarter?

350.

The next question is from the line of Prateek Kumar from Antique Stock Broking.

My first question is, so you mentioned about 70% coal mix for the quarter, which has sort of grown up quarter-on-quarter. So this coal is like largely domestic coal. And if the supply stops from government, so you have to shift to imported coal completely. I mean -- or is there a large imported coal component also here?

This is all combination of -- right now we have not imported any coal. For Central India, we have not imported anything, right now. But it is a mix of auction coal, FSA agreement. So there are all sorts of -- it's a combination from local purchase, on spot buying from different sources. So it is a mix of -- Anil, if you can give him some percentages, et cetera.

Actually, sir, we -- during this quarter, we purchased some coal from open market also. It's open market tender, maybe they have some kind of mix of imported coal or maybe local coal. But we have not made any kind of import directly from the exporter. And during this quarter, actually, we could not receive a major portion from the Coal India.

That's the biggest problem for us.

And at this moment, as we speak, there is maybe for a few days, we will see that the Coal India will supply only to the power plants. And then when the situation will ease out, then we'll start getting coal against our fuel supply agreement.

Even again, here I want to add that it is not only the Coal India made supply. Even the railways are saying that we will not give guidance for movement of coal to private sector.

And Prateek, I think we should appreciate one more point here that whatever the domestic pet coke supplier, they generally try to interlink their pricing with the international pet coke prices. So during last 1 month, all these domestic suppliers, they are increasing -- every [indiscernible] they are increasing significantly their pet coke prices. And they also know the ground reality. There is cement companies, they are not able to get the coal from the Coal India as well as the imported pet coke prices. It is $250 at this moment, $260 at this moment with the imported pet coke. That's why they have been also increasing this significantly due to pet coke prices.

Okay. Sir, my follow-up question relates to the power. So what is the power mix in terms of grid power, thermal power and green power?

So it is 60% right now grid power. 40% is non-grid and [indiscernible].

And just 1 question on other expense. Was there a one-off component in other expense? Or is it just reflecting the [indiscernible] during the quarter?

I think there is no one-off. During this quarter, we have one [ skill set ] down as well as now because of the volume growth and the market is coming back, all the admin costs which were not used to be in the last September quarter. So those are the normal expenditures. So we are coming back to normal with respect to traveling, with respect to our sales force activities. And some elements in the other expenditure is the diesel price increase. So diesel, all these [indiscernible] and consumables are also part of the other expenditure. So these are the normal ones. If the diesel price reduced, it will have some reduction, but there is no one-off item here.

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

Sir, my question was around the cost and price dynamics. So like if I got you right, you said that cost inflation is about INR 400 per tonne. So firstly, like when you are shifting from, let's say, the domestic coal availability is reducing and you are, let's say, having to go for alternate sources, be it pet coke or imported coal, won't the jump in cost be much higher given that the imports are coming in at $240, $250?

So going forward, we say that, yes, going forward, because as you get your -- we will bake in not the future values of the coal, but we will bake in whatever is available with us, what is in the pipeline and whatever we are sourced. So that will last us till the next quarter and the beginning of the quarter. On that basis, we are making our estimates that this will be like this. But yes, you are right that if I want to be an opportunistic, and then I will say, okay, let us bake in the future cost also and the future cement will be available at these prices only. And if I would say very clearly that we have told our dealers, channel partners also very clearly, that please don't be under the impression that this is a small -- these increases are temporary, and you can postpone your purchase decisions, and you will be only like the stock exchange [indiscernible] trajectory is up, movement up.

Okay. So this INR 400 per tonne inflation is what roughly 3Q inflation over 2Q?

Yes, now it is there -- already there. In the system, it is already there. September already, there is some inflation has come because whatever the coal and pet coke diesel price increased to some extent already happened in the month of September. So out of this INR 400, you can see a little bit amount already part of the Q2 results. But most of the part will come in Q3.

Okay. Okay. And then in Q4, there could be further inflation given how the coal prices have been [indiscernible]?

Depends upon how this development of the coal availability or the pet coke availability, domestic as well as international market movement happens or the development happens. At this moment, we see really extraordinary or an exceptional increase in the pet coke -- in the pet coke and the coal price.

Okay. And also like there was some inflow of material from South players. So now with the cost going up, are you seeing that also coming down the supplies from [indiscernible]?

No, there will be -- some tapering off will happen. But when we increase the prices, that balance equilibrium will again be available that of that -- that inquisitiveness of the market will remain. Central India operates at close to about 70% utilization, 70-plus. South India operates close to about 55% to 60% utilization. So attractiveness of the market will remain the moment we take the price to INR 500. We should not be very -- saying that we can't -- we will not take the price because somebody else will come to the market. At least I'm not of the view, okay? I'm of the view that what is it important for us to do in Central India as a player, as one of the lead players in the market. And we are -- I'm very clear about this. My team is very clear about it. [Foreign Language].

The next question is from the line of [ Vaibhav ] from Joyce International.

Yes, sir, I just wanted to ask what is your lead -- current lead distance?

350.

350 kilometers?

Yes.

The next question is from the line of Prateek Maheshwari from HSBC.

Sir, I wanted to ask you about the demand sentiment right now in Central India. While you are growing at 11%, one of your peers had mentioned the growth was flat during the quarter. So just wanted to understand if there is some bottleneck in terms of infrastructure segment growth.

I think the agriculture production has been good. Monsoons have been good. A little bit extended monsoons are there. The demand I think will remain strong. And we expect that next year, with elections in UP, things should be -- remain positive only. Demand, we will clock close to between 10% and 12% for financial year '22. And going next year, we should expect at least nothing less than 10% growth.

This is both for the company and the industry, right, sir?

Pardon?

This is both for the company and the industry?

I'm talking more about the industry growth.

Okay. Okay. Sir, the other thing that I wanted to ask was in terms of -- so the current cost increase could probably let you increase the prices so much. Actually, we are seeing the prices are after sustained, sticky at that level. So do you think like in a normal fuel price scenario, this would be an opportunity for South peers to kind of establish capacities in Central India if the prices kind of increase and sustained from a [indiscernible] perspective?

If I get you correctly, you are saying that it is -- will South players come in and establish capacities here, this is what are you saying?

Yes, yes, sir, because usually we have seen that the pet coke and fuel prices, they would kind of -- so Central India, we are seeing cement prices have been kind of stable for a very long time. And if you are able to sustain this price rise, probably, again, the pricing levels increases even if the costs will normalize later. So for any other player, it could mean that they could kind of have an opportunity to establish capacity or dealer network.

So that will happen. These are the market dynamics. We should not be getting worried about it. The supply and demand will -- we should -- will decide who will come to the market, what prices we'll sell. Automatically, if there is a lot of surplus. Today also, if you look at it, traditional players in Central India, we're seeing that in this last 7 quarters data I was observing, and I saw that almost now in Central India, 35% share belongs to nontraditional players in this market. So it used to be 8%. 7 quarters earlier or earlier, it used to be close to about 8% to 10% market share. They used to come now -- they are close to about 30% market share [indiscernible] have already penetrated this market. And so I don't think this will deter us any -- at least to me, that is not a deterrent. Okay. If somebody can come and develop a market and they can also keep themselves busy with this market, very happy, it's okay. Good to see more competition happening, no problem in that. For me, if competition was not there, then what is the sense. Our value is dependent on competition.

The next question is from the line of [ Peter Uday ] from [ Sema Wealth Management. ]

Sir, can you hear me?

Yes, yes.

I just wanted to confirm what you said before about demand. So for FY '22 we're estimating 10% to 12% demand in Central India volume-wise?

I think I'm talking about more of the country-wise.

FY '23, what was the figure you mentioned, sir?

About -- they could clock 20%, rather 10% at least.

Okay. Okay, sir. Sir, my first question is that about 1,231 kilotonnes of sales volume has been reported this quarter. So with sold at INR 574 crores, it comes about 46.8 lakhs of the selling price overall? You have made it clear that due to cost pressures, you and other participants in the industry will be rising prices. And we agree that people are willing to buy. But according to you, what is -- at what point is the price going to be elastic? Because they cannot keep exponentially growing, right? So how much is the leeway that companies like you can push from the current price increase at which the demand will have to take halt or slow down?

I think demand will halt only after, I think, after INR 550 probably.

INR 550 per tonne.

At INR 450 also and INR 475 also, there will be no relenting in demand.

So INR 550 per bag, the demand you feel might take a halt?

Yes, maybe INR 500 -- once it crosses the -- reaches the mark of INR 500. But still, they can take -- unfortunately, [indiscernible] now they are at INR 2,000. They can even get 4 bags. So not a problem. I think that now prices is -- yes, like Amit is pointing and telling me very clearly, okay, today, we are the cheapest product on our manufactured product, okay? After putting $125 to $130 per tonne investing, you are selling cement which is even cheaper than the rugby. Rugby is today at INR 11 to INR 12 a kg. Okay, today, where is cement, which is just only INR 5 a kg, INR 6 a kg. But we are not talking about the exponential price increase. We are talking about whatever the cost increase happened, that is around INR 400 per tonne of cement. Putting together, the fly ash, the diesel prices, all other commodities which is used for these, cement and clinker and including fuel, the cost impact is INR 400 at this moment. And now INR 400 is more or less when we talk about the price increase, this translates to around INR 40 per bag. More than 1/3 goes to the tax account. So the amount comes to the company in order to maintain the margin. But it is a reasonable expectation to increase the price, although depends upon the demand-supply situation. If the more people start not buying cement, then who's going to increase the price. At this moment, there is good demand. The government is also putting impetus on the infrastructure growth. And now once the festival season, Diwali, after that, hopefully, the demand will further increase, so we're able to pass on to the customers.

So let me put to another point here is at one point of time, the cement industry was making margins of close to about 30% plus, 35% plus. Okay. Today, we have come down to sometimes some of the players are even in a very bad shape. I think the industry requires a share of margin so that it can keep expanding. Another thing is let me -- another -- tell everybody here for those who are listening here that the future is going to be still costlier because the ESG when it starts clicking in, the investments required for carbon capture and investments, which will be -- they will be huge, stupendous. And for your information, very soon, Indonesia will have a carbon [indiscernible] of $2, which has already been contemplated. So you look at it in Europe already, there is a [indiscernible] close to about EUR 38. Now these type of investments and these type of [indiscernible] which we have to deal with, contend with. Where will the money the industry will bring in money today, if you don't start investing, if you don't have a healthy return, you will not be able to, by 2030, when you are to meet the target for the ESG, you will be really twiddling your thumbs. You don't know where to go then. So now only we have to start investing in our ESG and become compliant. So those are huge costs. This will not -- you will not be able to afford them at margins of 13% and 14%.

[Operator Instructions] The next question is from the line of Pinakin Parekh from JPMorgan.

Sir, just trying to understand the math because you mentioned INR 400 per tonne of cost increase. But you also said INR 350 a bag going to INR 400 and then INR 400 going to INR 450. So essentially, it implies that the December quarter EBITDA per tonne can be around INR 200 to INR 300 per tonne higher than the September quarter even with what the costs are baked in, given the price increases in cement?

You can -- yes, for the time being, at least to be happy with that, at least we can think of that. At least let us start thinking of it that we are able to pass this type of cost to the market and restore back to our normalcy. That's what might -- our target [indiscernible] to the shareholders [indiscernible].

When you're looking at restoring EBITDA margins, I mean as management, you are looking at going back to INR 1,300, INR 1,400 per tonne or higher than that. So when you're looking at price hikes, what is the broad EBITDA per tonne you're looking to restore after the cost increases?

So Pinakin, let us say that INR 1,300, INR 1,400 in today's time, it is a reasonable achievement to reach.

Sure, sir. Sure, sir. So basically INR 450 a bag will take you there. Would that be a fair assumption, sir?

It should go. I suppose so. It should be taking that the subject to that no further diesel increases coming or further, otherwise, it will again [indiscernible]

Understood. Understood. This is very helpful.

Ladies and gentlemen, due to time constraints, we take the last question from the line of Rajesh Ravi from HDFC Securities.

My question pertains to first on the -- could you give a breakup between your green power, which is sourcing it from WHR, solar and other; and on the costing for the various sources; and second, on your growth CapEx plan.

Okay. So on the WHR component, for my Narsingarh plant, it is -- close to about 40% of the power comes from WHR, from the Narsingarh unit alone. And if I look at the power share for the total WHR, it will be close to about 23%, 24%, between 22% to 24% of my total power. [indiscernible] our component as -- for the whole company as such is close to about 27%.

If you could talk on WHR and solar as a company on a company basis...

It may remove our unit from 27%, 23%, that is about close to 4 units -- 4% is the power of -- other than WHR.

And on the costing, sir, how are these PPA solar [indiscernible] would work at and your -- yes.

Yes, so we are working on this. These are reasonably priced. I think I would like to refrain from talking about this because these are business-critical issues how we manage this. So I would prefer to refrain from answering this question. But yes, definitely, it will come to us at [indiscernible] sub-6 for us. With a total cost of power is sub-6 because the reason is we have baked in quite a lot of other power from non-green power sources. So I can only tell you that it is sub-6 now.

Okay. Okay. And on the growth CapEx, if you can talk on what sort of any major -- or the West expansion, what is the progress over there?

We do, at this moment, the recurring replacement CapEx, which is between INR 40 crores to INR 50 crores. During the current year, we have the -- this environmental CapEx, which is classified for the alternative fuel projects. And the total CapEx for this alternative fuel is around INR 16 crores. So that we are doing last year. Part amount we have incurred in current year also, we are incurring this amount for the alternative fuels. Put together, total CapEx during the fiscal year will be in the range of INR 55 crores to INR 60 crores.

Ladies and gentlemen, we take one last question from the line of Bhavin Chheda from Enam Holdings.

Sir, I missed out if you have mentioned what type of coal inventory you normally have and what is it currently?

Normally, about 30 days.

And same you're carrying now or the tightness has led to the lower [indiscernible]?

Almost similar.

Sorry?

Almost similar. We are carrying the same capacity.

Similar. And sir, I missed out on your coal mix also. What was it?

20% coal right now and 30% pet coke.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Vaibhav Agarwal for closing comments.

Yes. Thank you. On behalf of PhillipCapital (India) Private Limited, I'd like to thank HeidelbergCement India Limited for the call and many thanks for participating on the call. Thank you very much, sir. Stanford, you may now conclude the call.

Thank you.

Thank you.

Thank you, sir. Ladies and gentlemen, on behalf of PhillipCapital (India) Private Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.