JK Lakshmi Cement Limited (500380) Earnings Call Transcript & Summary

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

Thank you, Stanford. Good evening, everyone. On behalf of PhillipCapital (India) Pvt. Ltd., we welcome you to the Q2 FY '22 and H1 FY '22 call of JK Lakshmi Cement. I need to highlight that JK Lakshmi Cement is also the holding company of Udaipur Cement Works Limited, and therefore, the call is also open for discussion about the performance of Udaipur Cement Works Limited. On the call, we have with us Dr. Shailendra Chouksey, Whole-Time Director; and Mr. Sudhir Bidkar, CFO at JK Lakshmi Cement. I would like to mention on behalf of JK Lakshmi Cement 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 current performance. 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 the statements made. JK Lakshmi 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 JK Lakshmi Cement for their opening remarks, which will followed by interactive Q&A. Thank you, and over to you, sir.

Thank you, Mr. Vaibhav, and good afternoon, ladies and gentlemen. Welcome to this con call of JK Lakshmi for Q2. I am Sudhir Bidkar. Along with me is Dr. Chouksey. You would have seen already the results. I don't want to repeat that. Only 2, 3 important highlights which I would like to share with you. One is last time -- after the last results, one addition which has happened is that our long-term rating, which was hitherto being assigned by CARE, has also been now confirmed at AA by CRISIL. So we are now rated at AA by CRISIL, the #1 rating agency in the country. That is number one. Number two, today, only we got to know that CRISIL has also rated UCWL on a stand-alone basis at that same rating at AA. So even UCWL now has a AA rating on a stand-alone basis without any support from the corporate guarantee of JK Lakshmi Cement. So that is what I would like to mention and bring it to your notice. Number 3 is -- I was reading the analysis given by some of the -- I don't want to mention the name. The figures of the gross debt on a consolidated basis has been misquoted at 2,050. I've spoken to that analyst and that correction and addendum is being issued. Actual total debt consolidated as of 30th September is 1,660 and not 2,050 as was mentioned. And net debt is 970 -- 960 rather, and not 1,300-plus what was being mentioned in that commentary. So that needs to be corrected. Third thing I would like to highlight is that you would recall that we had, out of our treasury corpus, given an advance of about INR 40 crores a year back to one of our group companies, and that was yielding us a return of about 9.75. That was repaid in the month of August after 1 year. Out of that INR 40 crores, we rolled over INR 30 crores for a period of 3 months, and that has now been returned. So as on date, as we speak, the outstanding against that ICD, which we had given to the group company, is only INR 10 crores, which we'll be getting repaid by about August, which has been rolled over for a period of 1 year. INR 30 crores, as I mentioned, we want to repeat, has already been repaid. So outstanding against that is only INR 10 crores. That is out of the treasury corpus of close to about INR 600 crores sitting in the balance sheet of JK Lakshmi Cement. So with that, I'll now throw the floor open for question and answers, please. Thank you.

[Operator Instructions] The first question is from the line of Yash Jain from Choice Institutional Equity Research.

My question was regarding volumes in this quarter. If we could have the number in terms of the volumes of cement produced? And also if you could provide some kind of guidance or estimate over the next few quarters, what kind of volume numbers we can hope to see? We will be very grateful.

Yes. In this quarter, we had total sales of -- in JK Lakshmi of 23.16 lakh tonnes, which includes clinker sale of 1.48 and cement sale of 21.68 in this quarter. And in case of the subsidiary, we had the UCWL, they did a total sales of 5.36, which includes 1.34 of clinker and 4.02 of -- 4.01 of, rather, of cement. And if one were to see it on a consolidated basis after enacting the interunit sales, the total sales consolidated were 24.69 lakh tonnes, which included clinker sale of 1.69 and 23 lakh tonnes of cement on a consolidated basis after eliminating the interunit sales.

And so for going forward, if you would like, you would be able to provide some kind of estimate or guidance especially on what we are seeing in the next quarter or the next half, that would be of great help to us.

Normally, the second half is much better than the -- almost 5% to 8% better than the first half. So I do not expect any change in that trend. Secondly, we had about 13 days of mill dispatches from our retail operation, which we hope will not occur in the second half, except that we had lost further 17 days in the month of October, which are not covered in the Q2, but originally covered in the Q3. But we expect that we will to make up for the loss in the coming quarters.

So that will be a 5% to 10% push up in the sales or in the production. Sir, one last question. Coal inventory, because coal as you're all -- we are all aware is a major problem for the entire sector, do we have some kind of inventory or we are also going to face massive -- or some kind of cost increases in the coming quarter?

Yes, we do have inventories of coal. That should take care of at least up to January, February.

[Operator Instructions] The next question is from Sanjay Nandi from Ratnabali Investment Private Limited.

Sir, I just wanted to know like what kind of outlook we are having for this UCWL clinker and upcoming branding unit commissioning? Like, you mentioned that you have started the work for these 2 things. So expecting branding...

Doing about 1.5 million tonnes of clinker addition there and 2.5 million tonnes of cement. Out of that 2.5 million, 1 million will come at Udaipur and 1.5 million at a split location. So while the clinker and 1 million tonnes, which would be at Udaipur would be commissioned in 2 years' time, which is by October of '23, the split location may spill over by another 6 months to be completed maybe by March '24. So by March '24, we are hopeful that the entire 2.5 million will get commissioned.

Okay. And sir, just to mention that we have lost some 17-odd days in month of October as well. So what is the probable reason for that thing, sir?

Actually, this was because of some illegal transporter strike in Eastern region. So there, it was -- overall loss was almost 30 days. So 13 days was in the previous quarter and 17 days spread over in this current quarter. So -- but we are quite hopeful that we'll be able to recoup whatever loss was there. And that was not only restricted to JK Lakshmi but the entire dispatches in the Chhattisgarh, all the cement players who are operating therein got impacted.

Okay. Sir, this happened in state of Chhattisgarh only or it's only confined to that Eastern region as a whole?

No, Chhattisgarh only, but just take this as the feeding point for many of these companies in the East. The [indiscernible] removed from the Chhattisgarh plant. Except those with real timing, they could move some quantity, not their normal. But as we do not have any railway trading, we have the -- the total dispatches were closed.

Okay. Got it. Got it, sir. And sir, what kind of debt repayment you are eyeing for this fiscal and as well for the FY '23 on a consol basis?

Are expecting a debt repayment of about INR 330 crores in JK Lakshmi and about INR 20-odd crores in UCWL. So total INR 350 crores, out of which we have already done about INR 125 crores, INR 130 crores in the first half. Remaining will come in the second half. And it will go out of the generation, cash generations without there being any need for any refinancing or additional borrowings in either of the company.

Okay. And sir, I don't know if I'm wrong, [indiscernible] in the morning some interview came and it is listing off some right issue things. So can you please throw some light on that thing, sir, for the company?

At UCWL, they are talking of an expansion, which I just mentioned on the response to the previous question. So there, a portion of that, it will be funded through a debt equity of 2:1. So out of that INR 550 crores or INR 500 crores, whatever, some portion will come by way of the internal accruals and some will have to be equity induction by the parent company. So that equity induction could be either direct equity or the rights issue. We have not yet formed up, but at the appropriate time, we'll form it up and then announce it.

So sir, some dilution we can expect from the parent company, right?

Parent company, there is no dilution. Parent company will not raise the equity. Parent company will induct equity into UCWL. Now UCWL being listed is already having 25% public shareholding. Now if I do the entire funding by JK Lakshmi, then that minimum public subscription norm gets diluted. So that's the reason as to why we would be toying with the idea of rights issue or some other instrument. We have not yet formed up nor have we announced the means of financing, but it could -- may run into the rights issue ultimately.

Got it. Got it, sir. Sir, can you please shed some light on the current demand growth like from the exit of that Q2 '21 and as well the pricing scenario? Like, did we take any hike in the first 15 days of October or something like that?

To answer your question and the last one first, yes, there have been some price increases in our markets, which vary from about INR 15 to INR 20 a bag. It's spread over different dates through the month. But the net result today is about INR 20 a bag increase.

INR 20 bag increase. And what's the demand scenario, sir, in the first -- in the second half as compared to the exit of September quarter? Or if we get the first half numbers?

No. We expect the demand to be better in the second half. From the exit of September, if you compare them, obviously, it will be better because September this year, the monsoons continued. And as you know, the monsoons, the demand [ is less ]. So the October is normally better and that was the case this year, too. November, there is some hit on the -- because of the [indiscernible] about 5, 6 days. But thereafter, we would expect going forward, demand to be much better than what we may experience so far.

Got it, sir. And sir, you mentioned like we have a good coal inventory till February, Jan of '22. So can we expect any spike in the power and fuel cost on a per tonne basis in the second half? Or that would come in the Q4 quarter?

Some of that will come down because we have to constantly build our -- we have to take fresh supplies as well. So what we normally use is a mix. There will be some impact, but not the -- full impact will come only in the last quarter.

[Operator Instructions] The next question is from the line of [indiscernible] from Axis Securities.

Sir, can you please give the fuel mix this quarter?

Sorry?

Fuel mix for this quarter. Coal, pet coke and -- or alternative fuel?

We are almost doing 50% pet coke and around 40% coal and 10% around that biomass.

Okay. And sir, what has been our trade mix during this quarter and premium cement sale during this quarter?

We are about 57% trade. Balance is [indiscernible].

[ And cement ]?

Sorry?

Premiums cement out of the trade sale, percentage of premium cement out of the trade sale?

Premium cement, we are almost doing 30% of the trade sale.

Okay. Okay, sir. And sir, what about your value-added product, RMC, AAC blocks and [indiscernible] during the quarter? If you can bifurcate that.

Yes. Broadly, we have done in this quarter, total revenue of about INR 92 crores as against INR 70 crores in the corresponding quarter. So there's an almost 33% increase in the value-added product turnover.

Okay. And sir, if you can bifurcate incomes in RMC and AAC blocks and all?

Major is RMC and AAC block. AAC is around 37, 38 is RMC.

Okay. Okay. And sir, how has been the pricing in your respective markets like West, East and North India during the last quarter because we have seen realization has improved by [ 10% ] on blended basis. So if you can give some color on that?

And I've already mentioned the -- there has been some price improvement in the month of October. And going forward, because of the impact of the fuel price increase and the diesel prices, which have seen a rise of close to 26% to 28% vis-a-vis the last year's quarter, the freights have gone up. So for this, we still need to increase the prices further, but that we can only do if the demand supports. Once the Diwali season is over, we should be able to increase our pricing further.

Okay. And sir, last one, sir, what has been our lead distance during this quarter?

However, lead distance in this quarter has been about 390 [indiscernible] quarter. And first quarter, we were about 407. So it is lower by almost 27 kilometers.

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

Sir, if I just remove the RMC and other non-revenues, then also in terms of the Q-o-Q, realization is 2.1% increase and including everything is 4% -- 4.2%, which is a significant. So just wanted to understand where -- from where we are able to increase the prices. Is it because in the first quarter, we were only having lower growth in realization that has spilled over in the second quarter? Or what's the reason?

We had seen some price increase in the initial one. But I think the basic reason why our realization has gone up is also because the sales in East where the normality prices are lower than the Northwest.

Okay. Okay. Okay, got it. And sir, in terms of the CapEx, how much we have done and how much more to be done? So particularly on the 10-megawatt WHRS, which is going to come in this quarter?

We have already these first 6 months, about INR 80 crores. Another INR 60 crores would come in the remaining 6 months, including the normal CapEx.

Sorry. Sorry, how much in the second half?

About INR 60 crores. INR 60 crores, INR 65 crores. [indiscernible] company -- yes, in the second half. And are the date, as you said that we have already repaid INR 125 crores, INR 130-odd crores. So another INR 150-odd crores kind of INR 150 crores, INR 170 crores stand-alone date going to reduce in the second half.

Yes. Plus, there will be some inflow also for the fresh loan we'll taking for the Waste Heat Recovery project. So that would be there. On absolute basis, we have a debt of -- as of 30th September of INR 1,100 crores and about INR 600 crores cash is there. So net debt on a stand-alone basis is INR 500 crores. That will further come down going forward by March.

Okay. And on the fuel cost front, so last time we mentioned that for us, the costing is INR 7,000-odd per tonne for the first quarter. So now for the second quarter, how much it is? And whatever the -- now the prices have increased. So how much increase we can expect in power and fuel?

In the second quarter, we had done -- our P&L head was about at INR 8,600.

Sorry, INR 8,600?

A lot of trouble from back of your end. But as I mentioned, it would be marginally higher going forward as we start using the [indiscernible].

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

Many congratulations for the debt rating from CRISIL. Sir, first, on the housekeeping numbers, could you share the clinker and cement production for the quarter?

Clinker and cement production for the quarter, yes, sure. Clinker production in this quarter was 14 point -- I'm talking of JK Lakshmi stand-alone, 14.01 lakh tonnes and cement production was 19.47 lakh tonnes.

Okay. And consol, how much of these numbers be?

Consol is -- production is 25.02.

25.02 cement production. And clinker?

This is the cement only. Just a second. Consolidated you want separately for clinker and this?

Yes, consol clinker production.

Yes, yes. Clinker total in consolidated, including UCWL, is 17.56 and cement is 22.20.

Yes, 25.03, you said cement production, right?

I repeat -- I would like to repeat. Clinker consolidated is 17.56 production, which is 14.01 of JK Lakshmi and 3.55 of UCWL. That is 17.56. Cement, JK Lakshmi is 19.47, 2.73 of UCWL. Total is 22.20.

Okay, 22.20. And sir, for the non-cement revenue for last year's same quarter like Q2 FY '22, what is the number you said?

INR 70 crores I said...

INR 92 crores for this year, Q2.

[ Funding ] quarter was INR 70 crores.

7-0?

Yes.

Okay. Okay. And on the fuel cost, you just mentioned that the average cost was INR 8,600 for second quarter?

INR 8,300.

INR 8,300 [indiscernible] basis. And for third quarter, basis of inventory, what is the cost you are working with, sir, for third quarter?

Yes, it will again be marginally higher, close to maybe about INR 9,000.

Okay. So no major inflation you're looking at in Q-on-Q?

As of the third quarter, that is...

Yes, as of third quarter, okay. And sir, in terms of cost pass-through, how have been the scenario across North and East markets there, if you could give some flavor?

Sorry?

In terms of cost pass-through given that the fuel costs impact, across North and East market, what sort of price hike you have been able to effect in months of October?

October, we have been able to -- as Dr. Chouksey mentioned in the beginning, we have been able to do a price increase of about INR 15 to INR 20 in the month of October, spread over various dates. Do we need to do more if one were to cover the entire increase in the coal and the pet coke prices?

And the outwards freight cost. Inward, outward freight.

And the freight -- also the impact of the diesel price increase on the freight. So we need more. So hopefully, Diwali, we should be based on the demand, we may be able to [ reduce ] that.

Okay. And sir, one last question. Because of the supply disruption from Chhattisgarh transporter strike, how did this impact the regional pricing? Was there supply squeeze in the market? And now with that getting relaxed, do you see any pressure on the cost pass-through or other price hike impact with the Chhattisgarh sales normalizing for most players?

We have been able to get that increase working just now. If it is a bad -- of course, during the transporter strike, the retail price has gone up. Supplies are available. Obviously, the retailers could cash on to that and get the [indiscernible] bank is higher. But that's a very temporary phenomena. The moment [indiscernible] price come in the market in a normal manner, those artificial rates finish.

Correct. And sir, the split [ running ] unit in Udaipur, where is that expected to come, sir?

Yes, we are already shortlisted and increasing in Rajasthan only.

Rajasthan only. Okay. Great. CapEx outflow, any guideline like how much of this CapEx would be done this year and next year, for this Udaipur?

Excuse me, this is the operator. Participants, the line for the management has dropped. Request you all to please stay connected while we reconnect the management. Ladies and gentlemen, thank you for patiently waiting. The line is reconnected. Sir, you may go ahead.

Yes. Sir, I was asking, for this Udaipur CapEx, INR 1,600 crores, how much of this is expected to be spent this year and next year?

We -- out of that INR 1,600 crores, we expect maybe around INR 150 crores to INR 200 crores will get spent over in the current financial year. We have already done about INR 50 crores based on the orders, which we have placed long delivery items. And next year, we think it should be about close to INR 600 crores, INR 700 crores.

[Operator Instructions] The next question is from Amit Murarka from Axis Capital.

Just a couple of questions on expansion. On the financial closures, like by when do you expect to achieve the closure with the banks and the institutions?

We think we should be done -- we've already moved our application. We'll be done by about March. We already have the in-principle approval of more than INR 2,000 crores as on date. But based on the TV study, which we have now submitted, each of the bank has gone back to their Board for the final approval. Although our internal target is to close it by December, but outer based on the rates and then renegotiation with different banks, we'll close it by March.

Sure. And when do you expect to order the equipment, the kiln and all that?

Major ones have already been placed already that -- as I mentioned about -- some major items have already been placed. The kiln and...

Sir, kiln ordering has already been done?

Yes, yes.

Okay. Okay. But just as an understanding -- understanding front, like is a 10% kind of a payment made upfront when you do a kiln ordering and all?

Yes. Yes, that's why we have said we have done -- already INR 50 crores spend has already happened up to September.

Sure, sir. And for the WHRS, what is the time line now for the 10-megawatt plant?

We should be commissioning by December. And some results would start -- benefit will start flowing in, in the fourth quarter of this fiscal. Full year benefit will come next year.

Okay. And beyond that, is there any further WHRS plan as of now?

As of now, no. We would continuously be increasing our solar capacities at different plants where Udaipur is already doing one additional 5 megawatts. And then we can do further -- maybe [indiscernible] as well, not yet funded, but Udaipur is definitely adding another 5 megawatt, which would get commissioned again by December.

[Operator Instructions] The next question is from Vibha Batra from FairConnect.

Yes. So given the demand supply situation and expectation on input prices, would it be possible for you to give a guidance on a [indiscernible] lakh per tonne in near term and maybe over the next 2 to 3 years?

That will obviously be a function of the demand and the ability of us and the other players to pass on the cost increase on to the consumers, but difficult to assign a number. But certainly, first half, we have done it at about [ 7 50 ]. We should be at least INR 100 to INR 150 higher in the remaining 6 months.

Okay. But given that demand is going to remain strong and you know the capacities that are coming up, so what would be a logical take on this?

We are not seeing any major capacity additions where we are operating. So we are not expecting much of change in the dynamics in the near future in the next -- say, in the second half. So if the demand really follows the trend that we are hoping and what we mentioned earlier, then I think the second half, the results should be better, definitely.

Okay. And what do you expect the demand growth to be in volume terms -- the medium term, not really next 6 months? The next 3 years?

Yes. I would expect that the year should close at about 350 million in the current year.

And beyond that?

No, I'm talking about this year. And next year, too, I would expect 8% to 9% of growth based on the -- in [indiscernible] that is going on. Until the cost of construction goes really high, which it has because of the steel prices having gone up and coal and petroleum affecting every sector. Cement has seen the least increase, rest every other part of the construction has seen a huge increased rate. But what is expecting that the coal prices -- much will depend actually -- right now, it's not of crystal gazing. Much will depend on how the fuel prices come down going forward. So we are expecting our -- our own reading is that from June onwards -- coming year June onwards, these -- all the [indiscernible] coal, pet coke, [indiscernible] petroleum, this will start looking down. And if that happens, then the demand number that I talked about of 8% to 10% should be very much on the chart.

Ladies and gentlemen, we take the last question from the line of Mangesh Bhadang from Nirmal Bank.

Sir, I just wanted to know what is the average cost of sales this quarter and what would it be in the next?

This quarter, it was INR 8,300. Going forward, we should be closing in close to about INR 9,000.

So only INR 700 of the landed cost actually is [indiscernible]?

That is broadly we expect.

Sir, 40% coal is imported or domestic?

It's a mix of both -- domestic -- in Eastern region, it's more of domestic, but in North, we do import also.

And pet coke, sir, is it domestic or...

Yes, it's again a blend of both imported as well as domestic.

So INR 8,300 to INR 9,000, that is the [indiscernible]?

Yes, that is [indiscernible].

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

Thank you. Yes, thank you. On behalf of PhillipCapital (India) Pvt. Ltd., I would like to thank the management of JK Lakshmi Cement for the call and many thanks to the participants joining the call. Thank you very much, sir. [indiscernible].

Thank you. Thank you, Mr. Vaibhav.

Thank you, everyone, and happy Diwali.

And happy Diwali to all.

Happy Diwali, sir. Happy Diwali. Most welcome.

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