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

Ladies and gentlemen, good day, and welcome to the JK Cement Limited Q1 FY '27 Earnings 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, sir.

Thank you, Davin. Good evening, everyone. On behalf of PhillipCapital Private Limited, we welcome you to the Q1 FY '27 Call of JK Cement Limited. On the call, we have with us Mr. Ajay Kumar Saraogi, Deputy Managing Director and Chief Financial Officer; and Mr. Prashant Seth, President, Business Information and Investor Relations and JK Cement. I would like to mention on behalf of JK Cement and its management that certain statements that may be made or discussed on today's conference call may be forward-looking statements related to future developments and statements which are based on current management expectations. These statements are subject to a number of risks, uncertainties and other important factors, which may cause actual developments and results to differ materially from the statements made. So JK Cement Limited and the management of the company assumes no obligation to publicly update or alter the forward-looking statements, whether as a result of new information or future events or otherwise. I will now hand over the floor to the manager of JK Cement for their opening remarks, which will follow directly to Q&A. Thank you and over to you, sir.

Thank you, Vaibhav. Good evening, and welcome to Q1 calls for April, June quarter. The Board of Directors met on 18th of July to review the performance of the company. for the quarter, April to June. The major highlights are as under. During this quarter, we saw good growth in the grad business year-on-year, 19% growth in volumes. And even though this previous quarter, it was marginally lower by 2%. Also, if we see the wide business year-on-year, there is a growth of 11% in volumes marginally lower by 5% Q-on-Q. And the combined growth in volumes was 18% year-on-year and marginal 3% down quarter-on-quarter. As a result of this, the net sale during this quarter was higher by 23% year-on-year at INR 3,786 as compared to INR 3,068 crores, though -- and also, it was higher by 5% on quarter-on-quarter, which was mainly on account of the product mix and some price improvement. The EBITDA during this quarter was INR 639 crores. This is a stand-alone position, vis-a-vis INR 673 crores in the previous year and INR 670 crores in the previous quarter. The EBITDA margins were 16.9%, in this quarter, previous quarter, 18.5% and previous year, 21.9%. The profit before tax was INR 423 crores as compared to INR 460 crores in the previous quarter and INR 498 crores in the previous year. After taxes, the profit after tax was INR 291 crores as compared to INR 345 crores and INR 333 crores in the previous year. The [indiscernible] EBITDA for the quarter was INR 982 a tonne as compared to INR 1,229 previous year and INR 1,012 in the previous quarter. On the consolidated front, the net sale year-on-year grew at 22% at INR 3,962 crores as compared to INR 3,242 crores. And on quarter-on-quarter, it was up by 4%. The comparative EBITDA for the consolidated INR 648 crores for this quarter, INR 683 crores in the previous quarter and INR 688 crores in the previous year. The profit before tax was INR 406 crores as compared to INR 444 crores in the previous quarter and INR 489 crores previous year. And the EPS in this quarter was 90 compared to INR 43 10% in the previous quarter and INR 41 90% in the previous year. If you see the work on the project, the greenfield project at Jaisalmer is progressing well. And we are -- we hope that -- we are confident that it will get commissioned within the targeted time frame of first half of FY '28. And even the grinding unit at Batinda is progressing well. We have acquired the land for the -- the second split branding location in Punjab, and we are working out to start the work at that site as soon as possible. We had also taken up an expansion of the wall putty in Rajasthan. And we are -- and the work is almost on the verge of completion, and we expect that in Q2 this year, this will get commissioned. As far as the debt profile, as on 30th June, the gross debt stood at INR 5,551 crores as compared to INR 5,136 crores as on 31st March. The cash balance as of 30 June is INR 1,686 crores compared to INR 1,765 crores. The net debt is higher at INR 3,864 crores as on 30th June compared to INR 3,370 as on 31st March. If we look at the net debt to EBITDA as of 30th June, the same is at 1.69%, and net debt to equity is 0.53%. If you have -- these are the major highlights. If you have any other questions, we'll be pleased to address the same. Thank you.

[Operator Instructions]. Our first question comes from the line of Pathanjali Srinivasan with Sundaram Mutual Fund.

Congrats on a good set of numbers. I have a couple of questions. So firstly, volume growth was very strong. Could you help me understand how much of this would be from new plant commissioning with respect to East and some color on how regions are doing, how North is doing, how Central India is doing.

So yes, the major volume growth is as a result of the expansion which we have done in Central India, including the grinding unit in Bihar. So the major volume growth is driven by that. We continue as far as the existing markets of North and South are concerned, we continue to grow as per the market because, in any case, we do not have extra volume over there.

Got it, sir. So we would have gained market share, right, this quarter based on what the volume growth we have done. Is that correct?

So we have gained certain market share definitely in Central India and major of the regions. And we have been able to maintain the market share in the all other regions in North and in the certain regions.

Got it, sir. Sir, I have 2 more questions. So one is on cost. So there has been a very sharp increase in terms of fuel costs, diesel costs and all of that. So could you give us some color on how much this would go up for us in the next quarter from the current quarter numbers?

So see, the cost should go up by about, say, INR 150 in as compared to Q1. One, we have already see some fuel cost increase would be there. There has also been like in the cost, some packaging cost, which was higher in Q1 that will go down in Q2. Overall, with diesel and everything, we expect that the costs should go up by INR 150 per tonne. Q1 had a timing difference. We had a major -- I mean not we had taken out the maintenance a preponement of some of the maintenance. So that in Q2, the maintenance would be lower what we had earlier projected.

Got it. Okay. Sir, and just one last question, sir. So with respect to our expansion, I think we are trying for INR 40 million in FY '28 and INR 50 million FY '30 just confirmation here that there are no plans or anything that we are trying to like reschedule or saw bit because a lot of competition has been talking about like taking a step back with respect to capacity expansion. So I'm assuming that we are not planning anything like that? Would that be a fair understanding?

Yes. As of now, we have no plans. We are on schedule once the INR 40 million is already in progress. And immediately, we shall -- we are already working out on the next phase of expansion and at an appropriate time, keeping our target for 2030, we shall be putting up before the -- we are going to the board for their approval.

[Operator Instructions]. Our next question comes from the line of Pinakin Parekh with HSBC.

So my first question is, can you -- can you give us some color on pricing. Where are pricing today versus your June quarter average? And monsoon is traditionally a quarter where prices generally fall very sharply, Q-on-Q. But this time, there's a context of higher energy prices. So how do you see prices in your key markets?

So as of now, there is no major variation. I mean I think if we look at an average of Q1, the prices would be more or less same because some of the price increase took in between and Q1. So keeping that in view, I think the prices are more or less same, flat as of now. And then we expect that this time in the monsoon because of the cost pressure because of the geopolitical situation, we are not seeing any -- we should not be seeing any price drop in spite of doing some low volumes because of the seasonality.

Got it, sir. Now sir, second question just coming back to your very strong volume growth in the first quarter, which you attributed to the new capacity in Bihar and market share gains. How should we look for the remainder of the year if industry environment remains the same, do you expect this volume growth of around 16%, 17% to be sustained and market share gains to continue through the year?

Yes. So we have already the plan. We are expecting closer to INR 22.5 million to INR 23 million in this quarter -- in this year. So we are working towards that. And so we will have a definitely a good double-digit growth in this fiscal, but I may not be that we sustain if the demand continues, presently, the demand is also supportive, and if support and demand continues, and we would be growing. But again, today, we have some restriction in terms of a availability of capacity in the North and South. And today, if we had that capacity, we could have grown even far more, but because the growth engine, the growth opportunities presently with [ SAD ] only in the central idea.

Got it, sir. And lastly, sir, you mentioned the 2030 line for the next 3 years of INR 50 million [indiscernible]. Should we expect the company to take those expansions to the board did you see here and the spending to start FY '28 second half?

See, we will watch, I mean, I think closer to a bit too premature now to give a date of going to the Board because we already have a large CapEx ongoing. Normally, I mean we are ready, we are doing our base working, but definitely, as the project is about to nearing completion and looking to the overall business environment situation because we are in uncertain geopolitical situations are there. If that situation really aggregates and has some impact, it's very difficult to say anything now at this point of time. But otherwise, we are not feeling that any postponement or any delays in our plans.

[Operator Instructions]. Our next question is from the line of Navin Sahadeo with ICICI Securities.

Sir, my first question was on your white segment. So if I look at more from an annual perspective, FY '24, '25 was fairly muted for this segment. Last year, there was a good 11% growth and in Q1, I observed a very healthy, I think, almost 28%, 29% kind of a growth. And that too is coupled with reasonable realization increase as well of almost about 4% Q-o-Q. So I would just request what is driving, first of all, this kind of a volume growth and how is the pricing also the industry -- I mean, company is able to pass it on. So is it fair to say that the competitive intensity which earlier was there, has reduced? How should one look at this segment incrementally overall?

So Navin, what has happened in the wide business, this geopolitical situation. I mean had some on the white business per se had some positive impact for the company. In terms of a lot of volume was coming from UAE, the imports, which were coming from UAE, that did not come. So as a result, we had that opportunity for extra volumes in case of white cement and putty. So because the white cement ability was limited -- so we could do some extra volume. But having said so, this -- the competitiveness in the white business will continue. And I would say that this is an impact more, we have got a very good impact, a positive impact in the first quarter. We may get something also in the second quarter. But things as things would normalize, the competitiveness on putty and all will continue to be there.

Understood. Understood. My second question then was on your RMC business. I think last year, we exited with about 5 plants. So what is the there -- what is the outlook there? How much revenues did we clock in this particular quarter? And for the full year, how should one look at overall RMC revenues and profitability?

So as we see, we have a plan to have about 100 RMC plants by FY '28. FY '27. As we speak, we have 17 plants operative now -- and we -- the top line would be anything between INR 35 crores to INR 40 crores for Q1. And I think by this year-end, we should be touching a base of about definitely maybe INR 100 crores quarterly. This quarter is INR 35 crores. So we should be as things kept up by exit of maybe INR 100 crores per quarter.

And just to clarify, sir, the cost related to RMC, would that be largely under the raw material cost consumed, right?

Yes.

[Operator Instructions]. Our next question is from the line of Siddharth with Kotak Securities.

Congratulations on a good set of results. I just wanted to understand, on a subsidy basis, we have some cold blocks which we plan to operationalize -- could you tell us more about the timing? What sort of output do you expect from them? What sort of cost savings you expect from them? And perhaps if you even plan to sell some of this external coal, some of the coal externally?

So we have 2 coal blocks. And so out of which the larger coal block, which is at Mahan, where we -- because we had made a good progress. And I think we should be able to buy end of FY '28, we should be able to commission this -- have some coal starting coming from end of FY '28 from this coal block, one of the coal blocks and definitely following maybe 1 year later from the other coal blocks. We have option to sell the fuel also. We will evaluate as we go what should be our plan and strategy for sale of coal. As regards the savings, yes, there would be a substantial savings. A, there are 2 things. One, we are -- our risk exposure will reduce substantially because it's not that with the like of current geopolitical situation, and if you have -- for the domestic fuel, which is the cheapest fuel as of now, you had access to more quantity, we could have used more domestic fuel, especially for the North plants in Central, we are still using domestic fuel, which we use for our -- against our linkages as well as from the open market. And I think we -- our own the fuel from the old block of cold drop, which will be much cheaper than what is available in the market.

Understood, sir. Secondly, sir, just on the paint segment since it's been some time since we have sort of been in this segment. So what would you say are your learnings been? What has the market evaluation been like? And what are the long-term plans we have in this sector? How much do we plan to scale? What are the aspirations. Basically, your thoughts on the segment and how we plan to be positioned within itself.

So see, our entry and a limited allocation to paint business because putty was already there on the paint counter. And stand, we were losing our customers because to survive on one product, it was becoming difficult that is why we entered the pain business. But having said so, since our priorities on the core business, the Board did not approve. They have limited our expenditure, INR 600 crores. We have been growing this business in the last 3 years meant last 3 years, we did about INR 380 crores. We are expecting over INR 500 crores net top line, we expect to be breakeven in this third year of operations. And definitely, I would say that it is helping our putty business. When we are showing a continuous good growth in the FT volumes. I do not know whether that growth would have been there if we had not entered into the paint business. It's very difficult to say this is the extra volume we got because of the pain. But definitely, it has helped. So that that cannot be rolled out. And I think this will help in the medium term or long term, again, our commitment is and our capital as a result for the core business. we will try to develop this business on the earnings of the business going forward.

Got it, sir. And for this quarter, what would be the revenue and EBITDA losses rigs?

So the paid the revenue was around INR 125 crores, and it was breakeven.

Okay. So there's already achieved breakeven this quarter. That's... Understood, sir. Just sir, one clarification. The entire sales business, sir, is it carried out through JK Max, which is our wholly owned subsidiary? Or is there a company, which is also sitting within the stand-alone.

No. So what we are doing is that we -- the JK cement platform, the FTI platform is being moved because you can't have 2 platforms to sell paint the customers being common. So the putty platform is being used and there are -- I mean JK Cement charges a certain charges, service charges as a platform charges from a paint company. The paint -- otherwise, the paint business. So it does appear part of the sale we have 2 brands, the Accor brand and the MAX brand. The MAX brand sale is included in the also shows in the top line of the stand-alone results. But overall, we do -- when we project, we have a separate -- we analyze what is the top line of paint and what is the EBITDA of the paint.

So sir, basically, this INR 125 crores, this is sitting in a stand-alone entity. Is that understanding correct?

Most of it, but partly is also in the Acrobind is a direct sale from the subsidiary.

Okay. Sir, most of this is in the stand alone. Got it, sir.

[Operator Instructions] Our next question is from the line of Tejas with Citigroup.

On the cost increase guidance that you had mentioned earlier of INR 150 per tonne for second quarter. Just wanted to clarify because we have like a higher maintenance in the current quarter. Is this 150 million adjusting for the benefit that you would have that next quarter would have that lower sort of maintenance expense or...

See, the second quarter would have a similar maintenance cost, maybe marginally lower. So the second quarter would have we have done -- some of our major maintenance has been done, but full maintenance is still pending, which will be taken up in the second quarter. So there will not be any further increase Q-on-Q in terms of maintenance cost. So the impact will only be shown in terms of the fuel cost and the other costs, which is where the price -- and the diesel cost which is having an impact. I mean this EUR 150 million will be like a variable cost. It is not linked to the main.

Okay. Okay. And in any way, there will be some sort of operating deleverage impact also because.

The thing will be there. So that impact would be there also.

Over and above this thing. Okay. Just a second question on the RMC revenue. You mentioned INR 35 crores to INR 40 crores recorded in first quarter. Can you just share what was it in the fourth quarter?

Fourth quarter, this number was very low, around INR 5 crores.

Okay. Okay. And then just one last question on the thermal substitution rate and the green power mix. So you have a target of 35% in FY '30. But last late couple of years, it has been in that 1% to 2% rate. And similarly, also on the green power mix, you have a 75% target for FY '30. So just wanted to get a sense on the timing of when this increase might be reflected?

So for green power, I think we will definitely be able to achieve that. It's certain -- we could have had a higher number. But because of certain delays in the approvals being for the group power housing from the state level, there were certain delays. So that has resulted in some lower solar power. So green power, we -- and we are working out on other green power projects. So we are hopeful that no green powers I mean we have to achieve, get another 20, 25. So we should be able to from maybe next year about 4%, 5% annually, and we should be able to reach that number. As far as [indiscernible] substitution is concerned, that target is given that but we have to rework out on those because in case of -- because of the changes in the fuel mix, -- so when it was done, it was the expansion which has been done was -- had not been considered. It was based on the existing capacities. So we are working out on that, and we will -- based on the revised number as per the fuel mix because of the location, we will work out on that.

Sir, the current participant seems to have dropped from the queue. Our next question is from the line of Ritesh Shah with Investec Capital.

Sir, would it be possible for you to provide some color on regional utilization levels and profitability for us?

No, sorry. We do not share the regional profitability and the numbers.

Sir, even utilization levels?

No. Given that the numbers that -- on the numbers that major growth is related to Central India. And in the North and South, we have grown as per the market. So beyond that, we are not sharing.

Sir, you did indicate that we have run out of capacity in 2 regions. So would it be fair to assume that we are closer to 90% touch utilization level in those regions?

Yes, effective capacity, yes, we can say 85%, 90% definitely.

Okay. And sir, from an understanding standpoint, how different will be the fuel cost across regions because you indicated that if you get more of linkage, the better it does, I would presume that is the case for more for Eastern India, wherein the pet core component will be significantly lower?

So in case of Central India, we are consuming only the domestic fuel. We are not using any Petco or imported for Central India. The Petco or imported coal the U.S. coal imported coal has also become cheaper when we had the geopolitical and sudden spot in the pet coke prices and its availability. So all Petco and imported fuel is being used in the North plants and in the south plant. So actually, in South plant, we only use pet coke and orders. We are not even using Indian coal there. The Indian goal is also not very viable. So in the south plant, it is only petcoke and alternate fuel. In the North plant, we do get certain Indian coal, which is because road movement is not economical to get by road. Whatever we can get by rail, the Indian coal, we get for the North plant and balance, we use pet coke and alternate fuels.

Perfect. And sir, just last question. How should we look at power and fuel cost and packaging costs into the next quarter?

So our packaging cost should be more flat or marginally lower in Q2 vis-a-vis Q1. Fuel cost, we should definitely see an increase of around INR 75 to INR 200. This is INR 150 increase, it may have about INR 100 towards fuel cost and INR 50 for the increases, these are related.

Our next question is from the line of Harsh Mittal with Emkay Global Financial Services.

A couple of questions. What was the exit utilization of Panna Line 2 in the quarter 1 FY '27.

No, actually, the Panna for the complete plant as a whole, we can the utilization because we do not see separately the clicker or the [indiscernible] dispatches for Line 1 or Line 2.

No issues sir, you can give it.

Panna overall utilization is above 5%.

And sir, what was the incentive income which was accrued in this quarter?

Incentive income was around INR 50 crores.

Sir, last question, what was the maintenance cost, which we incurred in this quarter?

Maintenance costs, we incurred around INR 50 crores, INR 60 crores of the extra maintenance in this quarter.

And this is what we will also spend in quarter 2 as well, am I right?

Yes, it may be marginally lower.

Sure, sir.

Our next question is from the line of Prateek Kumar with Jefferies.

Sir, a few questions. Firstly, on RMC revenue of INR 35 crores to INR 40 crores this quarter. the related cost, which is in RM cost, is it also similar cost or like segment is an EBITDA loss for the quarter?

Marginal as we are ramping up the capacities are coming up. no significant loss, some marginal loss is definitely there. I think, see, as the plant set up the initial costs, some of the quarter may be appearing also in the -- some is cost is also there. So we do monitor, but RMC will stabilize over a period of time as we set up the plant to buy each plant takes about to get into a breakeven situation about 3 months' time.

And is the first time we have reported RMC revenues for the quarterly vessel you are discussing?

Yes. We just -- it is part of the top line. separate numbers. I was earlier, we had about 5 plants exit March. So it was just insignificant.

And now we have 15 plants going to 50 by end of this year than 100 year after?

Yes, yes. So this is our plan, hopefully, we would be able to achieve that.