JSW Cement Limited (JSWCEMENT) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the JSW Cement Q1 FY '26 Results Conference Call hosted by JM Financial Institutional Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Dharmesh Shah from JM Financial Institutional Securities. Thank you, and over to you, sir.

Good morning, everyone. On behalf of JM Financial, we welcome you to the JSW Cement Q1 FY '26 Results Conference Call. I will now hand over the floor to the management for their opening remarks, which will be followed by interactive Q&A. Thank you, and over to you, sir.

Thank you, Dharmesh. Good morning all, and I would like to warmly welcome you to the first quarterly earnings call of JSW Cement as a listed company. We uploaded our results and press release yesterday and investor presentation earlier today, and I hope all of you have had the chance to review these materials. With this, I will hand over the call to Mr. Nilesh Narwekar, CEO, for his opening remarks, which will be followed by some commentary from Mr. Narinder Singh, CFO, before we open up for questions. Over to you, sir.

Thank you, Kunal. First, let me comment on the industry context. The RBI maintained its GDP growth projection for FY '26 at 6.5%, stable versus last year. Inflation has been on a declining trend and enabled by RBI to front load the rate cuts. We believe that the healthy monsoon, together with the continued government spending on infrastructure, which has been front-loaded in Q1 FY '26 compared to FY '25 will be positive undercurrent for the cement sector. Moreover, the Prime Minister has recently announced that major GST reforms will be implemented by Diwali. Lowering of rates is expected to create a positive sentiment anywayy. Despite the geopolitical events such as tariff disruptions continue to pose concern, the cement industry will be relatively unaffected by this. Cement demand in India is expected to grow at 6.5% to 7.5% in FY '26 and the outlook for all the consuming segments in our regions of operation is positive in the medium term. Let me list a few highlights for this quarter. Our total sales volume increased by 7.8% Y-o-Y, much faster than the industry growth in our regions, which we believe was in the range of about 3%. So we have outperformed industry volume growth in Q1, and this remains our aim going forward for the full year FY '26 as well. Our Q1 volume of 3.31 million tonnes was our best Q1 performance ever. Going into the main products. Cement volumes sold was 1.85 million tonnes, increased 10% Y-o-Y. GGBS volumes sold was 1.3 million tonnes, increased by 5% Y-o-Y. Within cement, trade mix has remained broadly stable at 52% and the share of premium sales within trade stood at 57%. Revenue of INR 1,560 crores increased by 8% Y-o-Y. Operating EBITDA for the quarter was INR 323 crores, improved by 39% Y-o-Y and was the best ever Q1 performance, driven by better realizations and cost reduction initiatives. We have a number of cost savings and revenue enhancement levers that we've been working on, including power and fuel cost reduction by improving the RE and alternate fuel usage, lead distance optimization and introduction of premium products. These initiatives total to around INR 400 a tonne to be realized over the next 2 years, and we will update you on these in the subsequent quarters. In terms of some of our key operational highlights, our clinker utilization stood at 87% and grinding utilization was at 62% for Q1 FY '26. Our clinker to cement factor, lowest in the industry is at 51%. With respect to our 2 main products, cement and GGBS, cement realization for quarter 1 was INR 4,894 per tonne with a substantial increase both Y-o-Y and Q-o-Q basis. GGBS realization for Q1 was INR 3,715 per tonne, flat on a Q-o-Q basis. Our lead distance was 283 kilometers in Q1 FY '26, and we're aiming to reduce this further over the course of the year. In terms of capacity expansion, we're aiming to increase grinding capacity to 41.85 million metric tonnes per annum with clinker of 13.04 million tonnes per annum. Of this, we are aiming to complete the first phase of 33.85 million tonnes per annum of grinding and 9.74 million tonnes per annum of clinkerization by calendar year '28 as outlined in our presentation. Ongoing projects update. The Sambalpur grinding unit is nearly ready and will be commissioned this month. The Nagaur integrated unit is on track for commissioning and commercial operations this fiscal. Land acquisition is near complete for the Punjab grinding units. Statutory approvals are under process and public hearing has been completed, too. We're progressing on the other projects well in terms of land acquisition and regulatory permissions as well. Finally, let me spend a moment on sustainability. You have seen our green credentials. We have the lowest CO2 emission intensity among all cement companies in India and globally. I'm pleased to announce that our Scope 1, Scope 2 CO2 emission intensity was 277 kilograms per tonne of cementation in Q1 FY '26, the lowest in the sector by far. Let me hand over to Narinder Singh, our CFO, for his comments.

Thank you, Nilesh. Yes. Good morning. I would like to add some points on the financial performance, cost levers and balance sheet. In terms of our financial performance, revenue was INR 1,560 crores. That's an increase of 7.8% year-on-year. Operating EBITDA improved substantially to INR 322.7 crores, which equates to INR 974 a tonne for Q1 '26. This is a substantial increase both on Y-o-Y and Q-on-Q basis. Our EBITDA margin was 20.7% in first quarter '26, which was a jump of 4.6% vis-a-vis the same quarter last year. In terms of the major cost elements, raw material and power and fuel. As you are aware, we source clinker in the West region from our JV entity at Fujairah. This is not consolidated as of now in our books. So it would be more useful to look at our raw material and power and fuel per tonne. These costs were broadly stable on Y-o-Y and Q-on-Q basis. We had some additional raw material cost in Q1 '26 due to shutdown of JSW steel blast furnace at Dolvi. So we had to procure some slag from third parties. This additional cost is not expected going forward. In terms of our fuel, our fuel cost rupees per Mcal for the quarter was INR 1.55 per Mcal. Recent purchase of our pet coke was at $105 per tonne CFR. Our fuel cost for the rest of the year is expected to be around INR 1.4 per Mcal. Our PBT before exceptional items was INR 164 crores, a substantial improvement over last year. Moreover, the performance of our JV at Fujairah has substantially improved Y-o-Y and the numbers for the rest of the year are going to be very healthy. I would draw your attention to the fair value expense arising from the financial instrument that is the CCPS, designated as FVTPL of INR 1,466 crores in this quarter. We have included a slide on this in the presentation. But let me reiterate that this is noncash expense, representing fair valuation of the CCPS liability. The CCPS liability will convert into equity in Q2. We would, therefore, urge the investor community to focus on adjusted PAT, which is nothing but adding back of the fair value adjustment. And we have highlighted this metric of adjusted PAT in our prospectus as well. Adjusted PAT for the quarter stands at INR 100 crores. In terms of the balance sheet, net debt is at INR 4,566 crores at the end of the quarter. In Q2, we will be repaying INR 520 crores of debt from the IPO proceeds. Net-debt-to-EBITDA basis trailing 12 months stood at 4.32x. We incurred a CapEx of INR 256 crores in Q1. And for the full year, including the Q1 numbers, our total CapEx is expected to be around INR 2,000 crores. Our target is to improve the net debt-to-EBITDA ratio by end of the year. And as we communicated at the time of IPO, our target is to have leverage ratio between 2 to 2.5x in the next few years. Average cost of debt currently is 8.29%. We will be now happy to address your questions. Thank you.

[Operator Instructions] The first question comes from the line of Rajesh Ravi from HDFC Securities.

Congrats on a good set of operating numbers. My first question pertains to this fair value through P&L. You see for the past 3 years, there have been a total of around INR 140 crores expenditure, which has been booked through other expenses. So those numbers also pertain to the CCPS only?

Yes.

Okay. And these are all noncash, right?

All were noncash. And if you add it up over the -- I mean, the total numbers, what we have recognized over the last 3 years since the CCPS were issued, the number would stand at about INR [ 1,740 ] something, INR 1,743 crores roughly.

Including [ Q1, ] you're saying?

Including?

Q1 expenditure that you have booked?

Yes, including everything, including the past year numbers.

Understood. And second on the -- did we also have any tax benefit when we are booking as an expenses?

So we are a MAT company. The benefit of this accrues to us. So on one hand, we have a net cash -- sorry, noncash expense of this INR 1,466 crores in the current year. On the other hand, we save cash as we will not be required to pay any MAT. That number would be roughly about INR 147 crores to INR 150 crores.

Which is booked in the -- which is lowering your tax incidence in the P&L?

Yes, because MAT is the MAT credit going forward. The face of P&L doesn't reflect, but definitely there is a cash saving.

Okay. Okay. Great. And secondly, coming on your operating performance, I see your -- like you have given quarterly realizations for the 3 corresponding quarters. Just for comparative purpose, could you give the GGBS realization for full of FY '25 and same for cement, say, like-to-like numbers?

Yes. Just a second. Just a few months for the full year FY '25. So for cement, it is INR 4,518 a tonne. And for GGBS, it is INR 3,772 -- INR 3,773 a tonne. That is for the full year FY '25.

Okay. So why have you seen a slight drop in the GGBS realization versus FY '25?

Yes. So as you are aware, I mean, this FY '25 number is for the full year, right? And through the year when the prices -- the demand dropped, the prices came under significant set and the GGBS demand reduced. So we had to correct the GGBS prices marginally to kind of catch up on the volumes. And therefore, by quarter 4 -- quarter 3 is when we actually corrected for it. And what happened at that time, our GGBS mixes -- the RMC using GGBS mixes started to become a little more comparable as compared to the RMC mixes, which are done without just using the fly-ash route. And post FY '25, I mean, post quarter 4 of FY '25 and quarter 1, we have consciously not increased the prices despite the cement prices having gone up. That's primarily being done because we want to drive adoption or penetration of GGBS in the markets that we are operating in.

Understood. Understood. And sir, this...

I am sorry to interrupt, Rajesh...

I'll just complete this question and move on. Just the numbers which you have shared on per tonne numbers are for the cement business alone, right, logistics, RM power, employee and other expenses?

So the rest of the expenses are combined at company level...

All the cost...

All expenses are at company level.

Okay. They include RM and power also?

Yes.

That's right.

The next question comes from the line of Gaurav Nagori from Avendus Capital.

Two questions. First one on GGBS segment specifically. Is it possible to quantify the margins or, let's say, the EBITDA per tonne that you have done in the GGBS segment? That's question number one. Second, what is the incentive that you accrued in this quarter? And are you eligible for any incentives from the upcoming North plant or the Odisha unit? These are the 2 questions from my side.

Yes. On GGBS, we are not giving a breakup. We consider it as one segment, cement and GGBS. So we're not giving a breakup of cement and GGBS. On the incentive, Narinder?

Yes. So answering the second question -- second part of your question. We have recognized incentive of INR 6.70 crores in this quarter. Going forward, we will continue to recognize a similar number for the existing operations. As far as our investments in North is concerned, in Nagaur as per the Rajasthan incentive scheme, there is a capital subsidy of 25% of investment, okay? And this is subject to limits totaling to about INR 650 crores. Now this is as per the policy. Our application, however, will be on the lines as has been offered to the other cement companies, which you all are probably aware. So that number is going to be much higher than the number that I just stated, which is about INR 650 crores as per the policy. Now coming to Punjab, where we are going to make an investment over the next 2 years, 1.5 years, 75% of the state GST for the next 7 years post commissioning, but limited to 100% of the FCI, fixed capital investment, that is the number. We expect about INR 375 crores to INR 400 crores via this incentive. We are making investments in MP and UP, our Central India operations that we are going to do. MP scheme, there is an investment promotion assistance for 20% of the value of building and plant and machinery payable equally over 7 years. At the time of acquisition of the mine from SMPL, we had an incentive order for about INR 200 crores, which we are reapplying and there is a possibility of getting a larger amount because the investment size will be substantially higher. UP scheme, we all know is very attractive. 100% of net SGST is reimbursed for 12 years, up to 300% of the eligible capital investment. That is in East UP. And any investment made in Central UP is eligible for 200% of the capital investment. This is over 7 years. So currently, these are the schemes. These are the states where we are making investments and these are the schemes.

And the Odisha one, the upcoming Sambalpur unit?

No. So Odisha, no, we won't be getting.

[Operator Instructions] The next question comes from the line of Kunal Shah from DAM Capital.

Sir, just first wanted your thoughts on the GGBS side. Now how to read the 5% volume growth in 1Q, especially given that the product attractiveness at the RMC level would have gone up post the 1Q cement price hikes, while GGBS realization was flattish? And any guidance for F '26 as a whole for GGBS volume growth?

Yes, sure. See, as I mentioned earlier, the cement prices moved up, the price table moved up primarily in the South around the third week of April and after that. And that's when the GGBS mixes start to become more attractive. Now typically, for an RMC player who has a specific mix design being played out either for any of its construction activity or any of the infrastructure projects. Once the mix becomes more profitable, they have to undergo the entire process of getting the revised mix design approved, which takes anywhere between 28 days to 35 to 40 days, which is what kicked in. And hence, the switchover after the price increase, which made the GGBS mixes attractive, took time. Hence, the volume growth that you see on GGBS sales is 5%. Now in the West, there was a slightly different story, which is the other market that we sell significant GGBS. It's the onset of early monsoon, which kind of slowed down the volume. So that's on the 5% GGBS aspect. And the outlook for GGBS, we expect it to fundamentally follow the -- I mean, we are growing at a fairly healthy clip, and we expect the numbers to stack up in favor, and we will continue to deliver what we've committed in our plans, which have been disclosed.

Understood. And this is helpful, sir. And one more bit on this. So when we look in the cement side, that growth is a strong outperformance versus what the industry cement growth was. Now could you just help with some bit of bifurcation with respect to are we gaining share and which region is sort of delivering a better outperformance here?

Yes. So the market in the South is where we've been able to make in growth. But I think the context here has to be viewed in light of the fact that when the prices started to dip, there were a lot of markets that we had to withdraw from as well. So in light of that, once the price table improved, we've identified specific geographies that will remain to be -- continue to be competitive going ahead. So South is a place where we've increased our presence and the share has gone up, followed with West and then probably with the East.

Understood. No quantifications you'll be able to give, right, the regional quantification?

No, we're not giving a geography or a segment price breakup.

[Operator Instructions] The next question comes from the line of Harsh Mittal from Emkay Global Financial Services.

Sir, firstly, congratulations on the successful listing as well as on the great set of numbers for quarter 1. My first question pertains to your Slide #11 of the investor presentation, which says that we'll be reaching around the capacity of 34 million tonnes this CY '28. Any sense of capacity milestones for this year, FY '26, '27 and CapEx cash outflow FY '27? This is the first question, sir.

So In terms of our -- first, let me take the FY '26, what we are going to achieve. So as I had mentioned in my opening remarks, so 1 million tonne of grinding capacity at Sambalpur is coming up this month. By this fiscal, we will be commissioning the integrated unit at Nagaur, which is 2.5 million of grinding and 3.5 -- sorry, 3 million of clinkerization, 3.3 million of clinkerization. So that will be the addition that will happen in FY '26. In addition to this, the additional 1 million tonne that's going to come up at Nagaur is going to be towards April '27. And thereafter, Talwandi Sabo will be coming towards June '27. And then we are talking about Vijaynagar of 2 million grinding capacity, which will be -- and the 4 million Dolvi, which will be by calendar year '28.

So sir, what would be the CapEx cash out in FY '27, given that you already said INR 2,000 crores in FY '26?

Yes, another INR 2,000-odd crores is what we intent to spend in FY '27.

The question is, sir, is that there has been -- we are going to see a...

There is a lot of background noise. Could you please move to a quieter area?

Yes. Is it better now?

Yes, go ahead.

Yes. Sir, my second question is that we are likely to see a GST rate cut on cement from 28% to 18%, right? Assuming if it happens, what should be the impact on the incentive pool, which the industry or particularly which we receive from the state governments? How should one look at that, sir?

No. See, what you receive is net liability, net SGST that we discharge. That's how the policy is in every state. Now if it has dropped to, let's say, all other things being same, from 14% to hypothetically 9%, in absolute terms, the number may drop. The time frame is again fixed. Everyone will be governed by the policy under which they might have invested. So if somebody has a time line of 7 years or 9 years, whatever business discharges the net SGST, that is what the entity is going to receive over the balance life of the policy under which they have been given the permission approval. So probably there can be a drop in absolute number. But this is assuming all other things are same.

[Operator Instructions] The next question comes from the line of Sanjay Nandi from Vt Capital.

Sir, can you just give us like broad understanding like if we are planning for 34 kind of capacity by '28. So what kind of EBITDA per tonne you would like to maintain going forward?

So INR 1,150 to INR 1,200 is our expected number because keep in mind that we are moving to very attractive geographies. So yes, that is a number which we hope is doable on a sustainable basis.

Got it. And the question is that, sir, can you throw some colors on the pet coke consumption front? Like we have seen some spikes happening from the Q1 exit of this year. So -- and we have also bought something at $105 per tonne.

Yes. So our current stocks are going to last till January, December and January mid, and we have stocks at $105. Now we all know that the prices of pet coke have moved north. That's more to do with the hardening of freight costs. Currently, U.S. pet coke is available at $115 CFR. But yes -- and the bookings that are being done in August and September. Probably pet coke prices will hover around this number for the rest of the year, that's $115 for all bookings that are made now. Domestic prices may undergo a change. If consumers move out of imported pet coke to domestic, which we read as the situation currently, there may be slight increase in the domestic pet coke prices. But the number would be difficult to quantify as of now. But yes, it follows the imported pet coke trend.

Understood, sir. It's very insightful, sir. And sir, the last question is like, can you throw some colors on the pricing front? Like what kind of prices we are just setting as of now from the exit of Q1 '26?

Yes, sure. See, we're broadly seeing the price stable hold. There has been a INR 5 to INR 10 drop. That's about it across the South. East is holding, West is holding in the market that we've got. And we believe this is how it would probably play out. And it's typically because I think all of us understand the monsoon months is usually muted and there's usually a margin drop over it. But at the moment, we're seeing the price table hold. And going forward, with the onset of the festive season kicking in, we expect it to start to improve, and that will augur well for the industry.

The next question comes from the line of Rajesh Ravi from HDFC Securities.

I just wanted to -- you mentioned margin guidance at INR 1,150 to INR 1,200 per tonne?

Yes.

Okay. And sir, any numbers for the volumes for this year, what sort of growth you're looking at?

So numbers, we are hopeful to cross 15.5 million for the current year. And for current year should be much higher than the current numbers that we have achieved in the first quarter.

Sorry, I missed it. What would you achieve?