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

Ladies and gentlemen, good day, and welcome to the Q3 FY '24 Earnings Conference Call of J.K. Cement 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, Mr. Agarwal.

Yes. Thank you, Michelle. Good evening, everyone. On behalf of PhillipCapital India Private Limited, we welcome you to the Q3 FY '24 call for 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 of Business Information and Investor Relations. 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 conference call may be forward-looking statements related to future developments and based on current expectations. These statements are subject to a number of risks, uncertainties and other important factors, which may cause the actual developments and results to differ materially from statements made. J.K. Cement Limited and the management of the company assumes no obligation to publicly alter or update 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 for their opening remarks, which will be followed by interactive Q&A. Thank you, and over to you, Saraogi sir.

Thank you, Vaibhav. Good afternoon, and welcome to Q3 results. So the Board of Directors met on 20th of January to review the working of the company for the quarter ended 31st December, third quarter 2023. The salient features that the net sales during this quarter as compared to Q2 had risen by 9% at INR 2,690 crores as against INR 2,476 crores and if we compare them with previous year, it is up 18% at INR 2,281 crores as against INR 2,690 crores. The EBITDA during the quarter was INR 608 crores as against INR 447 crores in the previous quarter, an increase of 36% and INR 246 crores in the previous year, an increase of 147%. The EBITDA margins for the quarter was 22.6% as against 18% in the previous quarter and 10.8% in the previous year. The profit before tax in this quarter was INR 415 crores as against INR 246 crores, an increase of 69% and INR 90 crores last year, an increase of 363% over last year. The EPS was INR 37.40 as against INR 23.10, and INR 7.40 in the previous year. So during this quarter, the company also commissioned the grinding unit of 1.5 million tons at Ujjain. And the work at the grinding unit of 2 million tons at Prayagraj is at advanced stage, and this would likely get commissioned by September -- July-September quarter. So -- also, the Board of Directors in the meeting decided an expansion of 6 million tons in Central India, out of which the salient features of the expansion are that 3.3 million tons would be the Clinker Line at Panna, which will be line #2 at Panna and 6 million grinding unit. So grinding of 6 million is coming from 3 million of greenfield grinding in Bihar and 1 million incremental grinding by way of modifications in the existing systems at Panna, Prayagraj, and Hamirpur. So that would make -- so that would be 6 million tons of cement grinding. This is expected at a total project cost of INR 2,852 crores -- INR 2,850 crores, out of which it is proposed to borrow rupee term loan and some debentures from banks of INR 1,850 crores and balance would be from internal accruals. The commissioning is around within 24 months and it is expected that the work may start sometime by March, April this year. So within FY '26, we expect to complete this expansion of 6 million tons. And with this expansion, by FY '26, the company's overall gray cement capacity, installed capacity would be 30 million. The present capacity is 22 million. 2 million tons at Prayagraj is under implementation and 6 million tons, new capacity is proposed. So by end of FY '26, the company's overall gray cement capacity would be 30 million tons. During the quarter, if we see the capacity utilization for the gray cement was around 75%. The gray cement volumes was 4.15 million tons. The blended ratio was 66%, the trade mix was 62% and the premium products was 12% of the trade volumes. If we look at the gross debt as on 31st December, that was INR 4,585 crores and the net debt to EBITDA was 1.64% as against 2.21% as on 31st March 2020 -- as of 31st March 2023. So these are the major highlights and the working. If you have any questions, we'll be pleased to address the same. Thank you.

[Operator Instructions] The first question is from the line of Shravan Shah from Dolat Capital.

Congratulations, sir, for a very good set of numbers.

Thank you.

Sir, my first question is just to getting a time line confirm in terms of this 3.3 clinker and 6 million. So this 3.3 clinker at Panna would be starting in Q4 FY '26 and 6 MTPA grinding to start by Q1 FY '26, that's the fair way to look at?

No, no. See, by end of FY '26, all this will get commissioned because we are expecting the clinker line, as we have done earlier at Panna, so we are taking an outer limit, some approvals are pending. I mean, once we get the consent and all, if we start work by March, April this year, we can definitely get it commissioned within December '25, everything. The cement grinding would be complete -- can be completed earlier, but there is no point in completing it earlier when we will not have the clinker available.

Okay. Got it. And now considering this INR 2,900-odd crores kind of a CapEx, so what's the CapEx we have done in 9 months and what's the revised guidance for FY '24, '25 and '26?

See, we have done the actual CapEx of around INR 900 crores till now. And earlier guidance was INR 1,400 crores, but we expect to close with the spillover of INR 200 crores. So this year, the CapEx would be in the range of INR 1,200 crores. And next year, yes, against the guidance of INR 800 crores. Now we will have the CapEx for this Line-2 also, Panna Line-2 and this 6 million grinding. So it will be in the range of INR 1,200 crores and INR 200 crores of the spillover from current year, so next year CapEx would be INR 2,200 crores.

Okay, INR 2,200 crores. Okay. And in FY '26 would be then?

FY '26 would be around INR 1,800 crores.

Sorry, sir. INR 2,000 crores and -- INR 2,200 crores in FY '25 and INR 1,800 crores in...

FY '26.

FY '26. Okay. Okay. Got it. Now coming to the -- in terms of the volume and the pricing and the profitability front, so just two, three things. So in terms of the -- definitely, we are doing much better on the gray volume front. So in 9 months, we have done 21.3% kind of a growth. So is it fair to say that for the full year, definitely, we should be having a 19% kind of a growth? And any broader idea in terms of the next year in terms of the volume growth? Because for industry, I would say, it would be a slowing. So for us, how one can look at in terms of the gray volume growth for FY '25?

So you see, we should close anything around 16.5 million tons in this year by March '24. And I mean, as we said earlier, incrementally, you could say, minimum 2 million tons coming each year in FY '25 and FY '26, incremental volume.

[Operator Instructions] The next question is from the line of Aman Agarwal from Equirus.

And many congratulations on a strong set of results once again. Sir, on gray cement, while I understand, gray cement business has been doing very well. I just wanted more clarity on how the white business is doing. Last, you mentioned there were some realization cut, especially in the putty business due to steep competition. Just wanted an update on that, how is the current scenario?

So we've achieved -- the white business, there is a stiff competition in the white business, especially in the putty segment. And though we have been growing, and if you look at the white business, that has also grown by about 5% in the 9-month period if you look at over year-on-year. So with April-December '22 to April-December '23, there's a 5% growth. Yes, the profitability, I would say that the white cement is more or less flat if you look at the whole business. So we are expecting around anything between EBITDA margins of 15% to 18% in the white business.

Sure, sir. And sir, in terms of overall cost per ton, last call, you highlighted that you expect INR 50 per ton kind of a saving in 3Q as well as 4Q. In 3Q, we have already posted a cost saving in excess of INR 100 per ton. Would you be expecting further cost saving in 4Q on a sequential basis?

Yes, there could be. See, again, Q3 has been exceptionally because one, some of the cost per ton, when you see net of the stock adjustment, is also because the trade adjustment is there when you value the inventory. But definitely, we could see another -- but major savings have been already affected. We may get some marginal savings, anything between INR 30 to INR 40 in this quarter or so.

Understood, sir. And sir, would it be possible for you to share your region-wise growth for this quarter or maybe 9 months '24?

No, we are not sharing those numbers.

[Operator Instructions] The next question is from the line of Devesh Agarwal from IIFL Securities.

Sir, firstly, on the expansion itself, so you did mention that we are targeting by the end of FY '26...

I'm sorry to interrupt. Sir, your audio is not clear.

Is it better now?

Yes, sir, please continue.

Yes. So sir, on the expansion, I just wanted some more clarity in terms of whether the land is available at all the locations, except for the greenfield. Is that -- will that be the case?

Yes. Except for the Bihar grinding location, where we have identified a few locations, but we are still to close those locations. Otherwise, rest is, in a way, brownfield expansions, so there are no land issues.

Right. And in terms of ordering, sir, what will be the targets?

Pardon?

For ordering.

So we have already started getting the quotations, and I think we should be able to finalize all the orders, also the main plant and equipment within next 3 to 4 months' time.

Understood. And so in Bihar, sir, we have not finalized the location, right? It is still work -- in works, exactly where the plant would be?

Pardon?

In Bihar, where exactly the plant will be that is still in works. The location has not...

We had 2, 3 options, so we are just working out and we shall freeze the same within next 2, 3, 4 months. See, again, once we get the land and we simultaneously get the approval, environment clearance and all so that, the land acquisition and environmental presence should take about anything between 6 to 9 months. And we feel that we can commission the grinding unit within a span of 12 months.

Understood. And sir, if you see the share of Central India in that total volume since kind of increasing, just wanted to understand the difference in the probability between North and Central India.

So now see, again, Central India, though the pricing is a bit lower than what it is in the northern region. But there because the plant is a new plant, we get the plant efficiencies and we have a subsidy benefit. So more or less, we can see that the profitability of Central and North is more or less the same, considering we get the benefit of the subsidy in the region.

Understood, sir. And sir, finally, what is the update on the paint business? How much has been the revenue and EBITDA? And what will be the target for FY '25?

So as we already said, yes, we are working on the paint business, and we have been able to ramp up the volumes. If we look at, I mean, we have already crossed a turnover of INR 100 crores in the 9 months. And now we feel that we should be able to close the year somewhere around INR 150 crores plus as a top line. So that was -- this is -- so we -- after launching the JK Maxx sometime in the beginning of this year in a small way and then ramping it into our main core markets, so we have -- we are getting a good traction and we feel that it would definitely be over INR 150 crores because if we look at the paint top line, we have done around INR 46 crores in quarter 3 itself. And so we expect, so around INR 150 crores plus. Yes, there would be because of the one-time asset, we have to develop the brand with the branding cost. There would be an operational loss, anything ranging from INR 15 crores to -- INR 20 crores was our plan. What we estimated could be INR 20 crores, INR 25 crores could be our loss. So in the -- up to a 9-month period, we have incurred a loss of about INR 15 crores on the paint business, but that is nothing exceptional. I mean, we are -- if we look at, we are monitoring the business on gross margin basis and, there, we are at the level where what was planned.

And for, sir, FY '25, any numbers that you can share in terms of profitability?

So FY '25, we should have a top line anything between INR 250 crores to INR 300 crores. As far as profitability is concerned, again, it will depend, I mean, how there will be a marginal profit or loss because we need to build up the brand. Actually, we become EBITDA positive in a way in FY '26, when we are closer to INR 500 crores top line -- INR 400 crores, INR 500 crores top line.

[Operator Instructions] The next question is from the line of Pathanjali Srinivasan from Sundaram Mutual Fund.

Am I audible, sir?

Yes.

Yes. Firstly, congrats on a good set of numbers. I did have a few questions. One is on gross debt, so post our CapEx, what would our gross debt levels be at the peak in the next couple of years?

So see, our present debt -- gross debt is around INR 4,600 crores. And post, we are -- by FY '26 if we see, it should be around INR 5,500 crores of -- see, we are going to borrow about INR 1,850 crores. But the 2 years, we will end up paying -- repaying about INR 800 crores, INR 900 crores of debt also. So incremental increase would be around INR 1,000 crores of debt, so we could say we can peak maximum up to INR 5,600 crores as a gross debt.

Okay. Sir, and white cement, the realization seem to have increased from the previous quarter, is it possible to quantify what the increase was?

No. See, realization increase when we're talking about, it's a -- total white cement is a combination of -- when we talk about, it's the product mix change and other things. So exactly -- as far as putty is concerned, definitely, quarter-on-quarter, there is some pressure on the pricing, but there is a product mix change where it is showing marginally higher realization per ton.

Okay. So does it mean that we've been selling more of specialized products or something, which is why the realizations have gone up a bit?

It's a combination of everything. Specialized, we make a ShieldMaxX, a premium putty, and other products. And this was a seasonal quarter, so it depends on that.

Okay. Sir, and just one last question. What is our energy cost per kcal?

It's INR 1.80.

And we see it going down by how much in the next quarter?

Marginally, if -- because we already have inventory at this rate, so I don't think so that in this quarter, there could be some marginal difference, not anything. The petcoke prices have reduced, and we should see some reduction. But it will -- it would be seen only in the first quarter of next fiscal because this is based on the inventory levels looking to -- we are more dependent on imported fuels, so we have 60, 75 days inventory with us.

Okay, sir. And just one last question, if I could squeeze in. What is our WHRS and renewable targets for '25, '26?

So on WHRS, see, again, one, a new WHRS plant at Muddapur is in advanced stage. It's actually under trial runs, so that will get commissioned and that will add. So in the next quarter, we will start seeing the benefit of -- and partially in this quarter and fully in the first quarter of next fiscal, we shall be seeing. So our present...

The present WHRS capacity is 64 megawatts, so that will go up to, say, by another 18 megawatts at the Muddapur. And then we will have the WHRS in the new clinker Line-2 at the Panna also. So we will be doing...

Solar and wind, we are doing the regular tie-ups and we hope to increase it by around, say, 50 megawatts -- 50, 60 megawatts every year.

So related to that, I saw something in our presentation, which said 22 megawatts agreement until 31st March '24. What does that actually mean, sir?

So that agreement [Foreign Language] that tie up will expire by that period.

Okay. So will we renew it? Or how does it like -- is that our option...

We had new tie-ups also.

Actually, we had some short-term tie-ups. Now we are entering into a long-term PPA agreement. So in between, we had a short-term tie-up also, which was included in that.

Yes, I just wanted some number on how much we target for '25, '26 in terms of renewable.

So see, '25, '26 in terms of renewal, we should definitely have -- I mean, I think we can take around additional 50 megawatts, for sure. Of which, 25 megawatt would be waste heat by FY '26 because Line-2 will have that waste heat and incremental solar power of another 25, so we could see another additional 50 megawatts coming up in FY '25, '26.

So this is an addition to our Muddapur 18 megawatt, right?

Yes, yes. This is in addition to Muddapur, yes.

Yes.

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

On Central India subsidies, how much was booked in this quarter?

So each quarter for the company, total subsidy works out to around INR 26 crores, INR 27 crores per month. It's about INR 80 crores per quarter -- INR 75 crores to INR 80 crores per quarter.

Okay. Okay. And what is the total quantum of the available fiscal incentives here?

So we expect that for total quantum, it varies at -- in Panna, total is about INR 300 crores, which we will get. And then there are fiscal incentives, which are available for the grinding locations. So year-on-year, we should get around INR 300 crores for next few years.

Okay. Okay. And then Panna phase 2 will also have incentives again, right?

Yes, so we shall be making an application and, hopefully, we should get.

Got it. And in terms of the peak net debt, you said, I think, INR 5,600 crores of gross debt, right?

Yes, that is what -- presently is INR 4,600 crores, so I said incremental INR 1,000 crores should be there, or that is what we see as a peak debt.

Understood. And also in terms of the paint revenue, you, I believe, booked some revenue in stand-alone business as well. What would be the quantum for Q3, 9 months?

So that is around INR 25 crores -- INR 26 crores, exactly.

And that would be getting clubbed into the white cement putty revenue, correct?

Yes, yes, yes.

Okay. Okay. And is there some EBITDA also of this? Or should we consider this would be neutral on EBITDA?

No, there is no -- see, as a paint -- when we talk about total -- in the stand-alone results, there could be some marginal EBITDA, but it could be zero. By balance, the advertisement goes into the MaxX business, in the paint business itself.

Right. And lastly, like on the Toshali acquisition, is there any update?

So at Toshali agreement, we are still in dialogue with the state government and the owner regarding transfer of mining lease. So the state government also had concerns with respect to that giving Toshali on our confirmation on buying out Toshali, so we are actually working at that. And -- because, one, we are also simultaneously working at an arrangement for a long-term tie-up for the limestone, pending the allocation of the mining lease. So government is also considering that in case the transfer of mining lease may take some time, they can assure a long-term supply of limestone and whether the company would be in a position to consider that as an alternate option for the interim period until the limestone is -- mines are transferred.

Sure. And just the last question on employee cost. There was some increase this quarter, it looks like some incentives and some employee bonus have been...

So the employee cost increases there because we have a variable pay option, and it had a component on a -- so since the targeted profit is being achieved, so there is an incremental provision for the variable pay, which has to be paid.

Okay. Okay. And the fourth quarter, will we see a similar number?