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

So my question is in the press release, you have talked about 80% power mix in Eastern operations as a renewal power. We also have this captive power, right, on the Eastern operation. So what happens to that once we have like the 80% renewal power mix?

Obviously, we'll not be using that because of the [indiscernible] at full cost, and 80% will be drawn from renewable, it may not be required.

Yes. So we'll be selling off that plant? Or that will be like...

We'll take a call at appropriate time. Too early to let the project [indiscernible]. We also have plans to expand there. We will see. It's not that immediately sell off the [indiscernible].

Okay. And just a clarification on the consolidated CapEx of this year and next year, we are looking at around INR 1,000 crores this year and INR 700 crores next year on consolidated basis?

Current year, we have talked of about INR 750 crores. Another INR 750 crores, next.

The INR 750 crores and INR 750 crores, this is including UCW and [indiscernible] operations combined?

Yes, yes.

And FY '25 also has this impact of CapEx of UCW?

Marginal, may be marginal. INR 100 crore to INR 200 crore, depending on what is when exactly we clost that project.

Right. And on pricing, sir, you mentioned that there's no range in pricing of late. So are we, or as an industry, it's looking at like hikes post March, like financial year-end? Or that is also, like looking out the question now?

So I don't know about the industry, but I think demand and supply is going to really decide this. And probably I think prices may go a little bit further up, much is what I see. And we'll try to take price increase, and I'm talking of JK Lakshmi [indiscernible] talking about industry [indiscernible].

Sir, we are losing your audio sir. Sorry, we couldn't hear that.

Is it audible?

Yes, sir.

Prices will inch up a little bit this quarter and in coming quarters, right? And we'll try to attempt price increase, and I'm talking about only JK Lakshmi. I am not talk about industry, what they are going to do. But based on the demand supply situation and our position, we will try to kick in.

Okay. So when we talk about like the INR 1,000 EBITDA per ton for consolidated operations from like, let's say, current net of INR 650. Would it be possible to sort of break it down to like internal efficiencies, including like power and fuel or logistics or geo market positioning or like [indiscernible] that we are looking at?

Yes. Yes. I think INR 1,000 is not going to be achieved just by saying so. We do have all those granular [indiscernible] element of manufacturing for supply chain, for top line. We do have granular details as to where we need to work and how much time is going to take to implement all those additional brands. We do have those details.

Yes. I mean is it possible to discuss them?

Sorry?

Is it possible to discuss on the call?

Yes. So I'll just tell you, if you want to let's keep a gap of INR 300, right? So I think about INR 200-plus is going to come out of this topline levers improvement. About maybe INR 50 or so will come from manufacturing, and INR 50 to INR 75 [indiscernible]. Kind of broader way. I think this is what is the because [indiscernible] but I think you have elemental analysis also in that each broader heads.

[Operator Instructions] Next question is from Ritesh Shah from Investec.

A couple of questions. First is you indicated a sale of INR 115 crore, INR 117 crore for the quarter pertaining to AAC blocks, RMC and thing else. Did I hear the number right, sir?

Yes, yes. Correct.

Right. Sir, can you give the same number for Q2 and Q3 of last year, please, and the corresponding margins?

Yes. So we can give you Q2 as well. So it was incidentally it was same, incidentally, almost [indiscernible]. Overall, [indiscernible] under RMC was INR 52 crore, right? In this quarter, the quarter which has ended [indiscernible]. Margin last quarter was [indiscernible] as against the current quarter.

Sir, I could not hear you, sir, sorry.

INR 116 Is the current non value-added product sales, which was same as in the preceding quarter. Margins have improved from 5% in the second quarter to 7% [indiscernible] a value-added product.

And sir, last year's numbers?

Last year, INR 99 crores in the [indiscernible] quarter and margin of [indiscernible].

Okay. Sir, if we have to look at the cement business, would it be fair to strip down these numbers and then look at it?

That will be the correct way of looking.

Sure. Sir, my second question is the reported numbers, what we give for cement sales and volumes. I think last year, in Q2 or Q3, you had indicated that there was an element of double counting, which we had then basically rectified. So I just wanted to check the reported number that we have for cement and clinker volumes. If you could just help us understand whether it is only for JK Lakshmi or it also includes UCW? And if you could please bifurcate it for cement and clinker for JK Lakshimi and UCW separately. For this year and last year Q3?

Q3, this year, on JK Lakshmi stand-alone basis, we had cement sale of [ 24.22 lack ]and clinker sale of [ 1.82 lakh ]that makes [indiscernible] of [ 26.04 lakh ]. And UCW, they did not sell any clinker [indiscernible]

Sir, your line is breaking. Sorry, I cannot hear you. Sir, hello?

Yes.

Yes, sir. Your voice was breaking. Sorry, I could not get you. You said UCW after that is lost you, sir.

UCW was 4.48 lakh and they did not sell any clinker. So that was their total sales. And on a consolidated basis, eliminating the interunit sales, total cement still is 26.96 lakh. Clinker sales only for JK Lakshimi, 1.82 lakh. So total is on a consol basis, 28.78 lakh.

And sir, same number for last year?

Last year, same number. So JK Lakshimi was 20.96 lakh, cement [ 2.33 lakh ] clinker. Totaled 23.29 lakh. And UCW at 4.47 lakh, cement, 0.37 lakh, clinker, total was [ 4.84 lakh ]. And consolidated basis, excluding the interunit, cement was [ 23.22 ] and clinker [ 2.7 lakh ] total is [ 26. ] On cement, there's -- on a consol basis, there is a [ 15% ] increase and overall 10%.

Sorry, if it's possible, if you could please add this on the press release from the next quarter onwards. It will help us understand and appreciate the numbers better. So that was one request. And sir, last question, how should one look at the limestone lease expiries. And I understand we have multiple optionalities also on the table. How should we look at that?

For Limestone, I think, except Sirohi, which is due in the year 2030. I think rest everywhere, I think we are secured in terms of limestone binding leases, right? And that is good enough for [indiscernible]. In case of Sirohi, I think that is going to be renewed in the year 2030, and we are hopeful that we'll be able to do that because the entire industry is going to face this issue during that time. Probably, I think that is not going to be a big issue. Rest, all other places, I think we are secured in terms of which we have and in terms of peers we have in our hand.

Right. And sir, is there any risk mitigation strategy, if at all, the Sirohi lease doesn't come to as in 2030 or if other premiums are very high. What is the plan B that's what I want to understand, sir.

Udaipur is nearby, then we do have a limestone there with us right? So that could be one fallback option for us. And probably, I think by that time, Nagore also will be ready in case of extreme eventuality that can also happen. I think -- that is something which is yes as an option but I think we are confident of Sirohi renewed in the year 2030.

Sure. And on the growth optionality, sir, we have a couple of limestone leases where we have recently won in options. Can you please detail how and when will we exercise those optionalities where we already have?

Yes. So currently, we are working on Nagore. That is what the first priority for us is, right, which is situated in North part of Rajasthan, although preliminary activities in terms of mining approval, [indiscernible] plan and things like that is already on the way. That is going to be the topmost priority for us. But before that, [indiscernible] can come because we do not have railway siding. We are trying to have railway siding very quickly maybe in the next [ 1.5 years times ]. If that happens then probably, I think it will come before [ Nagore ]. We have three locations positions with us. Durg in East Nagore in Rajasthan and Kutch in Gujarat. We are at about 15-million ton as of today. 1.5-million ton, we'll be having by March Q4 in terms of cement. Clinker, we are going to have even before at max [8,18]. And these three locations will be putting up another 12 million tons put together. Our plan is to go to 30 million ton by 2030. So the order and priorities will depend on how we are progressing at Nagore and Durg in terms of railways. Railway siding comes first then Durg is going to be the priority. Nagore progresses very well, and that is going to be ahead of those. So this is what the plan is followed by Kutch.

This was very helpful. And sir, when are we likely to decide on this incremental capital allocation decisions?

On that capital allocation, this is then would come from there in the next line here and [indiscernible], what tapping into our external exports [indiscernible].

Sure. This is helpful. And sir, if I may squeeze one question. Sir, are we looking to collapse JK Lakshmi and UCW structure, any time lines? I think there was a tax angle, and have you exhausted part?

Not that angle still continues and We have been mentioning that it would take 2 years, but [indiscernible] entitlement of about INR 150 crores [indiscernible].

Sir, your voice is breaking again. Sorry to interrupt.

[indiscernible] doesn't make it -- not a tax-efficient merger, if we do it now. But ultimately, it will happen. And we exhaust that [indiscernible] and that plan is very much dead. But without merger on paper [indiscernible] synergical benefits in any case we are driving today also in some [indiscernible] marketing -- common top management. So apart from a collapsing of the structure and having a common cash flow [indiscernible] size valuation obviously will get accident. But otherwise, will be synergical [indiscernible].

Sorry, sir, we just lost you in the last minute.

Yes. So I'm saying most of the synergical benefits, in any case are being driven now also without paper merger.

Next question is from Kamlesh Bagmar from [ Lotus Asset Managers ].

So one question on the part of like the last con call, we had told that by the month of, like, say, January, we will be more clear about how much price gap we have narrowed down with the peers. So any update on that part?

Yes. So I think we did the [indiscernible] is our price gap with the [indiscernible]. For instance, I think Western and Eastern part of India, we have reduced this quite significantly. I would say, I think where we wanted to actually position ourself. So that I think progress is there. I would not say that we have accomplished it. But I think there, we have done quite a bit. In the North, I think, yes, we need to [indiscernible] on that further. But the progress in case of North has not been that great. In the West and East, yes, we have [indiscernible].

Yes. But -- is it more of an issue with regard to the leakage of volumes from non-trade to trade? I think that even if we see today the prices, the gap is massive like INR 30, INR 35 gap with the top player and it's not like say, your gap with the [freeze] or the second run or third run companies [indiscernible] company, it's majorly with the top player and those gaps would remain. So why we are harping so much on the price gap side? And there could be some issues on the cost side because like say, the realization in the case of [say] or any other players are at the similar levels, but they are much more competitive on the cost side. I do appreciate that we have worked a lot on the cost side be it [indiscernible] recovery on the solar or renewable energy. Where is the issue on the margin front, not on the price front, but on the margin front?

I think a lot of -- price is one part and major part, I agree with. And in terms of trade, non-trade, I think we have quite a robust way of checking all those in. So I'm talking of the recent [indiscernible], I think we have really improved a little bit on that intermingling of trade and nontrade. I think I'm reasonably confident that, that is not happening in our, right? I'm not [indiscernible], they are doing, right? So given [indiscernible] or given June also, there are pockets where you have your brand is more [indiscernible] that also determines the size gap. But we do have a road map as to where we want to reach in terms of the benchmark brand, which we have fixed for us, right? So disciplined part, I think we have already worked. So I think I do not see much of an issue. More so with the technology in place, I think nothing of that sort can happen. I would not say 100% sure about it. But I'm reasonably confident maybe to the extent of 90% that, that is not happening in case of our case, trade non trade or back unloading and things like that. And more to do with the kind of elevating our brand proposition and the brand value itself, right? It is a long-term way. And when I was discussing with all of you, maybe I have to know last call also, brand positioning, that takes a little bit longer time. So this is not something which is going to give you a benefit right away. So I think, yes, that is there also we are doing quite a bit in terms of improving our brand salience. But I think our -- much more focus is on those initiatives, which is some kind of low-hanging fruit, right, if you can pluck it right away. So we have prioritized our initiatives and parallel is also, of course, so brand building, brand salience improvement and things like that, right?

Sir, honestly like sir if you take your Gujarat market, it's a purely non-trade market, I really don't understand that how the brand is going to give you such a big push. It may be in the East market, but not in your core market, like the Gujarat, because over the last 2, 3 quarters, see our performance, it has been entirely because of the low-cost cone , which you had the benefit. But as you move as like even in this quarter, the gap with your all the peers which was in the last quarter by around INR 100, INR 125. Now that again like say, widen to roughly around INR 250. Honestly, that has not really played out. And even if you do the channel check, no improvement has yet been witnessed on the pricing part.

So price sizing positioning part, yes, of course, it's going to take time. And you mentioned about Gujarat or West market, I think industry structure is [indiscernible]. That -- you have major projects out there, right? Non trade even in case of leaders also non-trade percent is high, okay? But if you see trade and nontrade gap in case of Gujarat is the list. And that is what I think I was trying to explain one gentlemen who asked the question of trade, nontrade and like explain that geo mix. Okay. So I think trade and nontrade gap is not that much, right? And if you go to other markets, non trading gap is very high. So I think we do have priority. I think price positioning is not going to really being done immediately. That is going to take some time. But what we can do is all those levers and metrics, which we can work. And probably, I think our direction is all right. I think you mentioned about 2, 3 quarters. I think if you look at our gap with the leaders have been the highest. If you look at 9 months EBITDA per ton of the leaders and our. I think drop in case of -- or the gap which we had with them was much higher before. This year, I think we have reduced this quite significantly. I think perhaps I think -- we need to really look at that, I think, as you miss that, you just look at that how much EBITDA they have kind of -- their EBITDA has declined or reduced and our have declined. That will give you a fair bit of idea that, yes, something has happened, that is what is seen as the result.

And lastly, one suggestion which has been the common suggestion that do give volumes about volumes in your press release. Your press release is just statement of the revenue EBITDA and PBT and PAT. There is no statement about the volume. Sir, every company, even, like say, half of your size, it gives the volume in their press release. I really don't understand, like, sir, for the last 10, 12 quarters, which would have been the common position, which has been made on this forum. I believe that is not getting implemented. Every time you have put up the messages or the SMS to get the volumes.

We will see if it is feasible, we will do.

Next question is from Uttam Srimal from Axis Securities.

Sir, my question relates to [indiscernible]. So how that is shutting up and what kind of volume you are expecting in [ FY 2024 ]

So we are averaging close to about between 25,000 tons and 30,000 tons because we commissioned this project during July and August in the monsoon time. Our volume has started picking up. Probably this month onward or maybe this quarter, I think we'll see an average volume of about more than 50,000 tons. In the previous quarter, we have about close to 30,000 tons. So that improvement, we see this.

Sir, 50,000 tons per month?

Yes, per month.

Okay. Okay. Okay. And sir, the other expenses in this quarter has been very high. So what has been the reason for that? And will this run rate will coming in the fourth quarter also?

Yes, the second quarter, we had some lower expenditure on advertisement. So this will be the normal level.

[indiscernible] this will remain in fourth quarter also?

Yes, yes.

Okay. And sir, how has been about rail road mix during this quarter?

Rail is very insignificant. In our case, they are about 10% [indiscernible].

Next question is from Ronald Siyoni from Sharekhan Limited.

Yes, sir. So wanted to repeat the quarter 3 FY '22 numbers. So last year's same quarter, if you can please repeat volume number.

Sorry?

Quarter 3 of FY '22 volume numbers, if you can repeat?

Last quarter -- last year?

Yes, last year.

Last year, we had JK Lakshmi, total volume of 20.96 lakh in cement and clinker [ 2.33 lakh ] total was [23.29 lakh]. UCW was 4.47 lakh cement and [ 0.37 lakh ] clinker. Total was [ 4.84 lakh ]. And on a consol basis [indiscernible] cement was [indiscernible] clinker [indiscernible]

Sir, we lost the audio again. Sorry to interrupt.

Consolidated, 23.44 lakh. Clinker -- that was cement. Clinker 2.7 lakh. Total is [ 26.14 lakh ].

Okay. And you said JKL stand-alone was 20.96 lakh and 0.33 lakh, clinker.

[ 2.33 lack ] clinker [indiscernible] [ 23.2 ].

Okay. And second thing was that the capacity expansion, which you spoke about. So you had said 15 million ton and thereafter, you will be adding around 0.5 or 1.5 until March. So that part, I couldn't get. 30 million ton was by 2030. But in between, what is the expansion plan of the company?

So 2.5 by March. [ 2024 ] that UCW [indiscernible].

March [ '20 ], okay. Okay that part is only included. Okay. And so, the same request on the actually sir if you can put numbers in press release, I haven't recieved actually the e-mail from the company with respect to sales volume.

[Operator Instructions] Next question is from Keshav Lahoti from HDFC Securities.

Sir, you mentioned in the call that premium [indiscernible] 11% overall and 25% of trade. And then are these correct?

Right. Yes, yes.

Because math is not working. You said that trading around 54%. And [ premium ] is total 11% then out of trade, it should be 20% only, which is a consistent trend of 20%, 21%.

I think I just mentioned approximately, and that does not include our trading volume, right? Trading volume does not include trading volume on the outsourced volume wherefrom we are seeing [indiscernible] product, right? We put everything together and I mentioned [indiscernible].

Okay. Got it. Got it. And sir, how was your non cement revenue margin will look like next year?

I think it's going to be about 7%, 8%, kind of.

Okay. Got it. And just 300% internal level, which you're talking about. So by when should we achieve those to be fully achieved?

Again, I think -- can you repeat your question, please?

So the 300% internal over which you're talking about improvement in EBITDA, by when this will be achieved?

18 to 24 months, I think you can take that. 18 to 24 months.

Okay. Got it. One last question from my side. So your sale cost is not expected to fall off in Q4. Is it like you have a very high cost inventory already? What sort of inventory you're carrying?

Yes, you're right. We have this cost in cost inventory. So we'll be having the same field cost in the coming quarters. We will start tapering down from April onwards.

Next question is from Shravan Shah from Dolat Capital.

Sir, just wanted to clarify as your voice was breaking in between a couple of times. INR 300 internal levers, you said. INR 200 -- if you can break it up INR 250, if you repeat what you mentioned?

Yes, INR 250, INR 50 approximately give and take. [indiscernible]

Sorry, sir, INR 200 from topline?

Yes.

Okay. INR 50 from manufacturing and INR 50 from?

Supply chain, logistics -- outbound logistics.

Next question is from Rajesh Kumar Ravi from HDFC Securities.

My question is to be with the [indiscernible] production consolidated for Q3 and 9 months, and second is 30 million ton by '30 which incremental 12 million ton capacity. What is the CapEx number you are factoring in for those 12 million ton?

Consolidated inter production in this quarter was [ 21.86 ]. It includes [ 18.51 ] of [indiscernible] and [3.35] of [indiscernible]

Thank you. Ladies and gentlemen, due to time constraints, that would be our last question for today. I now hand the conference back to Vaibhav Agarwal from PhillipCapital India Private Limited for closing comments. Over to you, sir.

Yes, thank you. On behalf of PhillipCapital India Private Limited, [indiscernible] Lakshmi Cement for the call and then an thank you about the [indiscernible] call. Thank you very much, sir. [indiscernible]. Thank you.

Thank you, thank you, thank you, everyone. Thank you.

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