J.K. Cement Limited (532644) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the J.K. Cement's Q1 FY '22 Earnings Conference Call, hosted by PhillipCapital India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Vaibhav Agarwal from PhillipCapital India Private Limited. Thank you, and over to you, sir.

Thank you, Janice. Good evening, everyone. On behalf of PhillipCapital India Private Limited, we welcome you to the Q1 FY '22 call of J.K. Cement Limited. On the call, we have with us Mr. Ajay Kumar Saraogi, Deputy Managing Director and CFO; and Mr. Prashant Seth, President and Deputy CFO. I would like to mention on behalf of J.K. Cement Limited and its management that certain statements that may be made or discussed on the conference call may be forward-looking statements related to future developments and the current performance. These statements are subject to a number of risks, uncertainties and other important factors, which may cause the actual developments and the results to differ materially from the statements made. J.K. Cement Limited and the 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. I will now hand over the floor to the management of J.K. Cement Limited for their opening remarks, which will be followed by the interactive Q&A. Thank you, and over to you, sir.

Thank you, Vaibhav. Good evening. The Board of Directors met on 14th of August to review the working of the company for the first quarter, that is, April, June '21. I'll just give you a brief outline so that -- and then take up the question and answers for the time. The revenue from operations was INR 1,634 crores as against INR 2,052 crores of last quarter, a decline of 20%. And the EBITDA during the quarter was INR 400 crores as against INR 439 crores, a drop of 9%. The finance cost was INR 56 crores as against INR 53 crores, an increase of 6%. The profit before tax was INR 305 crores as against INR 355 crores, a drop of 14%. And the profit after tax was INR 208 crores as against INR 63 crores, an increase of 229%. This is because in the previous quarter, we had an extraordinary acceptance. The EPS for the year -- for the quarter was INR 26.95 as against INR 8.20. The EBITDA margin during the quarter was 24.95% as against 21.65%. As you would have already gone through the other details, I will just take up the question and answers. Thank you.

[Operator Instructions] The first question is from the line of Navin Sahadeo from Edelweiss.

Hello?

Yes.

Okay. I'm fine. I'm audible. And congratulations on a good set of numbers. So first of all, glad to see the new logo of J.K. Cement brand. Also, it's very nice to see the new template for the quarterly presentation. So it clearly shows the change of leadership at the top. Talking about which, I would like to understand if the young management at J.K. Cement, is there any vision of capacity creation or a milestone set by the company? Recently, we saw some other companies setting milestones or capacity targets. So with a young leadership at J.K. Cement, is there any capacity or any sort of a vision target that you would like to share at this point in time?

So Navin, at this point of time, we do not have a clear target. We say that we would like to -- in next 5 to 10 years, this would be our vision. We are working at it. We have various opportunities. So we are reviewing all those opportunities. And with that, looking to our working -- or what could be our target. And maybe very shortly, we will share that also with all of you. But at the same time, broadly, yes, we want to maintain our leadership in the region where we are. So we are primarily in the North. And as immediate plan, we are expanding our market. So we are setting up a plant -- green-field plant in Central India, where we have a potential to grow up to -- 15 million tonnes of capacity can be put up at that point -- at that location. So we can say, yes, we have plans for another 10 to 12 million tonnes already there. We have other opportunities, and we are working on that, and we will share the same with everybody shortly.

Okay. That's helpful. Sir, my second question then was with regards to ESG. This is with reference to Slide 3 of your quarterly presentation, which has very specific targets set by the company for -- but these are like 2030, mainly towards CO2 emissions, the clinker factor, and most glaring, I think the green power percentage from 25% all the way up to 75%. So can you please help us understand how the company plans to achieve these targets? Are there -- is there any CapEx involved? Are there any milestones towards achieving these targets?

Yes, Navin, we have set up the milestone first towards the performance and the efficiencies, like improvement in the clinker ratio, increase in the blended cement ratio and then reduction in the power consumption, thermal substitution -- increase in the thermal substitution by using the alternate fuels and in more green power. One is that green power on account of the core emphasis on the waste heat recovery power now instead of the coal-based power. So one is in the new expansion at Panna, we are only setting up for waste heat recovery power of 22 megawatts. There is no coal-based power plant. Further, we are also looking at possibilities of more tie-up for the solar and the wind power. So these all are the factors that will contribute to the reduction in the carbon emission.

I would like to add here, we are also planning a waste heat at our south plant. That is the only plant where we do not have a waste heat recovery system. So as a next step, we are also planning a waste heat recovery plant in the -- for the south plant. So we are conscious about our responsibilities, and we are working towards that. And this is a target which -- and we -- definitely, we are going to -- we have a team which reviews it, and it has also been seen by our CEO directly so that we do not slip over there. We are working in this direction. And we hope that we'll be able to achieve it.

So just one follow-up on this because 75% to me, at least, it's a bit of a glaring number. So is there a broad breakup that how much will be waste heat? How much will be like the rest of the solar and wind? If you have a very broad breakup to that? Because I'll put it together in a context. C-Cement is probably the one company where the waste heat capacity is the highest amongst all the companies -- per tonne of cement, if I may say so. So that contributes around 50-odd percent of their total power requirements. So I'm just trying to understand that 75% when you say, how much of that will be waste heat and the balance that we're looking at?

So presently, we are 25%, and it is mainly driven by the waste heat. So as a next step, I don't -- we have -- so we can say definitely, going forward, 50% plus would be waste heat and balance should be for another power. So that's a broad number. So they'll be fine to catering to that. But definitely 50% plus should be waste heat.

[Operator Instructions] The next question is from the line of Amit Murarka from Motilal Oswal AMC.

So first question is on employee cost. So in this quarter, I see that there's a significant jump in cost on a Q-o-Q basis. So what would be the reason for that?

So the increase is really on account of the increments released from 1st of April. So 10% cost increase is on account of the increments quarter-on-quarter. And balance is like some new recruitments are taking place on account of the expanded markets and the expansion.

So we should see this as a sustainable number then?

Yes, yes. That is sustainable number. Yes.

Okay. And also in terms of the grey cement revenue, just wanted to confirm, there is no one-off in that, right?

No, there is no one-off.

Okay. Okay. No, just on a Q-on-Q basis, the realization seems to have improved quite a bit. I guess that would be because of lower clinker sales in that sense?

It has improved, yes.

No, sir, the per tonne realization improvement is also because of the mix -- change in mix because in the previous quarter, we had clinker sales. And since the volume was also higher in that quarter, the non-trade sales was also higher.

Right. Yes, that's what I guessed. Actually, just wanted to check if there's one-off. Fine. Also, could you share the fuel mix in this quarter?

It's around 40% of pet coke, and balance imported coal and the alternate fuels.

Sure. And also, any further update on the Panna plant? The groundbreaking, I believe, has happened, I think, and you mentioned that major equipments have been ordered.

Yes. So on the Panna plant, we -- the groundbreaking was done on 5th of May. And orders for all the main plant and equipment, the civil contractor and the mechanical, everything has already been finalized. They are already at the site. And the -- I mean, lot of work has already been done in pre-monsoon -- I mean, we've been able to complete the filing. And even the work on the preheater building and everything has already started. So there is a good progress, which has been done so far.

Right. And -- so the Panna plant and the Hamirpur grinding unit, everything will be commissioned by March '23, right?

Yes, yes. That is our -- by March '23, we should be commissioning everything.

Sure. And lastly, could you just touch upon the pricing during the monsoon months of July and August? How much has the correction been, let's say, post June?

No, there is a dip in the pricing of about INR 5 to INR 6 a bag.

So INR 5 to INR 6, both in North or South -- and South or South has been more?

Yes. It is -- the South has been marginally higher.

Okay. And are the non-trade pricing holding -- prices holding on as in the gap between trade and non-trade?

Well, the gap between trade and non-trade would be around INR 30 a bag.

Okay, sure. And lastly, just quickly on demand. So we saw a good pickup in June. I believe July was a bit softer. And would it be right to say that August would be even softer than July?

Yes, hopefully, we could may be at the same level, but still, I mean, as of now, it's more or less same.

[Operator Instructions] The next question is from the line of Prateek Kumar from Antique Stock Broking.

My first question is regarding the white cement realization during this quarter, they had particularly some pertinent decline of 3.5%, 4% quarter-on-quarter, like versus March quarter? Any specific reasons there or change in product, sir?

Yes. See, as you know, the white cement is mostly the white business, both white cement and putty, they are more sold in the urban areas. So third quarter had 2 -- practically, 2 months of lockdown. And because of the lockdown and closure of the [indiscernible] has affected the white market. The white volumes are also lower during this quarter. April and May were really bad for the white cement business.

So the putty component in the mix is higher, so the average price is lower?

Yes. The putty mix is lower.

Putty mix is lower?

Yes. Because there's -- there were lower volumes of putty and white cement during the quarter.

But I'm asking like on like-for-like numbers only for white cement versus in March quarter -- I mean June quarter versus March quarter?

That's what I'm saying. In the month of June quarter, the volumes of white was -- I will give you the exact volumes. The white was -- the white volumes was 2,63,000 tonnes as against 3,93,000 tonnes in the previous quarter.

Yes. Okay. Maybe I'll take that offline. My second question is on -- sir, on your CapEx. So including -- I think you have mentioned some numbers on Panna CapEx on -- in your annual report. You're looking to do INR 1,600 crores related to Panna in FY '23. So what is the consolidated CapEx we are expecting for FY '22 and FY '23?

No. CapEx for FY '22 with the balance activities or balance payments of the 4.2 million expansion and the Nimbahera upgradation work which is going on, with Panna expansion, we are expecting around INR 1,250 crores of CapEx in this year. And our total CapEx in the next year would be INR 1,400 crores.

Okay. But our annual report mentions INR 1,600 crores Panna-related CapEx in FY '23. So that number is not correct or something?

No INR 1,600 crore CapEx is on Panna, then we have Hamirpur grinding unit also.

Right. Okay. And this -- earlier, we were also aggressively like targeting completion of this unit in -- by December quarter itself of '22 -- so December '22. So now we are like quite firm on this getting by March '23?

So -- see, December is still on, but the cost of the present -- because of the COVID situation, so we are -- I mean to be on a safer side, we are talking about March '23. But internally, we're still work -- we are trying to work towards till December '22 as a commissioning.

[Operator Instructions] The next question is from the line of [ Shanti Patel ] from [ Shanti Patel Investment ].

My question is, what is our capacity utilization in the previous quarter, that is, Q1?

71%.

71%. Normally, that is the case? Or it is a little lower than what it should be?

No. See, we have seen a very high capacity utilization in the previous quarter. So we do not expect lower than this because we lost 1 month because of the COVID. That is why, also, the utilization was low.

Okay. Second thing, after the expansion gets over, either in the last quarter, that is, December, or worse comes, towards March, as you reported, what will be the contribution in terms of turnover from that extra capacity, which will come into force?

So see, that capacity is 4 million tonnes. So out of -- we have 14 million tonnes present capacity. So around 25% additional volumes comes -- there should be an additional volumes coming from -- after the expansion.

And that expansion -- the capacity utilization will be -- how it will be, I mean, playing around?

60% in the year 1.

50%, correct.

60%.

60%, okay.

So we expect about 50%, 60% in year 1 and ramping up to 75% for the next -- subsequent year.

[Operator Instructions] The next question is from the line of [ Jiya Chhabria ] from [ Auris Wealth ]. [Operator Instructions] As there's no response from the current participant, we'll take the next question from the line of Shravan Shah from Dolat Capital. [Operator Instructions]

Sir, first of all, the remaining CapEx for the 4.2 MTPA, INR 50 crores, INR 60 crores, is it done? Or is it still pending?

So part of it is already done, only some balancing for the OLBC remains. So I would say a bit by September, everything should be completed.

Okay, okay. And in terms of the CapEx, when we are saying that INR 12.5 -- INR 1,250 crores for this year, so last time, we probably have given around INR 900-odd crores for Panna this year, and next year, INR 12 crores to INR 13 crores -- INR 1,200 crores to INR 1,300 crores. So that remains the same? Nothing changes?

Yes. That remains the same. Panna is about INR 900 crores and balance INR 350 crores is towards the normal CapEx and some CapEx on the spillover of 4.2 million tonnes and on the upgradation of Line 3.

Okay. Okay. Got it. And secondly, last time, we have talked about that we are keeping a benchmark in terms of the EBITDA margin, 25%. So that still remains intact?

Yes, in the first quarter, we are close to -- we are 24.95%. Our EBITDA margins are well in line. So we are working towards that.

Okay. And sir...

We have 24.95% in the first quarter.

Yes. And sir, I need a couple of data points, trade share, lead distance, OPC/PPC, sir?

Yes, one second. The trade was 68% in this quarter. And the blended cement was 62%. And average lead distance was 450 kilometers.

450 kilometers, slightly lower. So income -- yes. So -- and sir, 2 aspects in terms of the pet coke and the coal cost, which is increasing and the diesel price. And at the same time, we are also expecting some savings from the upgradation of the Line 3 Nimbahera. So net-net, how do we see it in terms of going forward cost increase and cost savings on this aspect?

So -- see, going forward, as far as the cost increase is there, even on the pet coke -- because we had a good inventory and some contracts, we could get some opportunate volumes. So that is why, the whole increase of the pet coke is not expected this quarter. And even in the present quarter also, only part of, say, 50% of the same would be [indiscernible] the full impact of the cost increase of the pet [Technical Difficulty] from the third quarter onwards. The diesel price increase impact is also -- already there with pet costs, but we are able to -- I mean, the benefits of -- I mean, the expansion, which we have concluded and the lower cost -- and the cost -- various cost-cutting measures which we have taken, that -- with that, we are not seeing overall increase in the cost. But even in this quarter, there would be some increase in the cost because of the Line 3 upgradation, the kiln is under shutdown, and we have to operate the low efficiency kiln, where we incurred higher cost. But the real savings of the expansion and retrofit [indiscernible] quarter 3 and -- which should be able to mitigate the cost increase because of pet coke and other things. Let's -- that is what, probably, we see on cost increase.

Okay. Lastly, sir, a clarification in terms of this quarter, if I look at in terms of the -- our net debt has actually increased by INR 265-odd crores. So -- and if I combine the PAT plus depreciation, so that is a INR 274 crores and the CapEx would be around INR 190 crores, INR 200-odd crores. So is it fair to assume that the working capital has increased and that would have led to an increase in the net debt?

In case of net debt, this is a position of a stand-alone position. But we have also during this quarter, paid about INR 100 crores of debt for Fujairah. So the disposition of the net debt increased. One, yes, we have invested on the Panna, and we have paid INR 150 crores as our debt. That is the major reason for the increase in net debt.

So our guidance of INR 3,000 crore net debt stands -- remains the same?

Yes, yes, yes. We will not -- I mean, that is a very -- on the higher side only. We -- on a net debt position of INR 3,000 crores, we will never cross that.

[Operator Instructions] The next question is from the line of Rajesh Ravi from HDFC Securities.

Sir, would you please share the revenues and volumes for your U.A.E. operations?

Yes, for U.A.E., the volume was 1,03,000 tonnes.

1,03,000 tonnes. And revenue?

Revenue, I will inform you separately.

Okay. And how much of this was already booked in stand-alone?

Actually, difference of consolidated and stand-alone is the U.A.E. revenue.

Okay, sure. That I'll get through. And how much of these was already booked in the stand-alone?

Pardon?

How much of the U.A.E. volume is sourced to India operations? How much of it is sourced to India?

No. That's about 4,000 tonnes on a...

Sir, only 4,000 tonnes in this quarter?

Sorry, 4,000 tonnes per month. It's about 12,000 tonnes.

Okay. So the normal run rate was maintained?

So in this quarter, I mean, this is a normal run rate, but in this quarter because of the pandemic, volume numbers are lower.

What was the volume number in this quarter?

12,000 tonnes.

12,000 tonnes. Okay. And also, can you share what was the average fuel cost for you in Q1? And how is the situation in Q2?

No. Fuel cost, if you see, there is a 10% increase in the pet coke pricing. So overall, yes, because of the inventory and all that, in our case, the pet coke prices -- but the imported coal price has also gone up to the similar level. So overall, we can see that there is a 10% increase in the fuel cost.

That is, you're talking of 2Q or Q1?

Q1.

So Q1, 10% increase on an overall basis was versus fourth quarter, right?

Yes.

And how much -- and what is the scenario in Q2 versus Q1?

Q2 scenario is even -- I mean, it is higher than the previous quarter. If you see the increase in the pricing, in the last quarter, pricing average at the present situation is like we have seen an increase of, say, INR 2,500 per tonne in the pet coke price from the average price of the previous quarter until now.

Okay.

And similarly, the imported prices have also gone up by $25.

Okay. So both of them are up by almost 25% or 25%, 30%?

Yes.

And this is on consumption basis you are talking about or on purchase basis?

Purchase basis.

Okay. So on a consumption basis, because you would be having some inventory of the lower cost, so the impact in 2Q may not be more than 10%, 15%?