Nuvoco Vistas Corporation Limited (NUVOCO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q1 FY '24 Earnings Conference Call of Nuvoco Vistas Corp. Ltd. We must remind you that the discussion on today's call may include certain forward-looking statements and must be, therefore, viewed in conjunction with the risk that the company faces. The company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent development, information or events or otherwise. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Madhumita Basu, Chief Marketing, Innovation, North Sales and Business Development of the company. Thank you, and over to you, Ms. Basu.

Good afternoon, and welcome to the Q1 FY '24 Earnings Call of Nuvoco Vistas Corp. Ltd. The Indian economy continues to show signs of stability and resilience supported by encouraging macro fundamentals despite global macroeconomic volatility and lingering geopolitical conflicts. The Purchasing Managers' Indices for manufacturing and services indicated sustained expansion with the manufacturing PMI at 57.9% and services PMI at 60.6%, respectively, in Q1 FY '24. Consumer price inflation fell sharply to 4.6% in Q1 FY '24 from 6.2% in the previous quarter. In its recent Monetary Policy Committee meeting, RBI states that the Indian economy presents a story of resilience and sustainability with an expected real GDP growth of 6.5% in 2023/'24. On the cement side, we believe that key government initiatives in housing and infrastructure is expected to drive growth well in the medium term. These include government programs such as PMAY scheme, where the outlay has been increased by 66% to INR 66,000 crores for FY '24; Bharatmala Phase 1 and Phase 2; and the Smart Cities program. We also foresee strong pre-election infra spending before the Union and Assembly elections in 2024. Additionally, despite El Niño, the Indian agricultural performance and its overall growth prospects may emerge with limited adverse impact, owing to the expected countervailing effects of the Indian Ocean Dipole. All these [ overwhelms ] public cement demand. However, as we have entered a seasonally deep period, cement demand might be impacted in the near term before gaining momentum with improvement in construction activities post monsoon. For our call today, I would like to start with our financial performance for the quarter. Our revenue from operations improved by 6% Y-o-Y to INR 2,805 crores. As reiterated, we continue to maintain price as we have prioritized value-over-volume growth. During the quarter, we have broadly mandated our realization per tonne quarter-on-quarter and managed a 7% Y-o-Y volume growth. It would be relevant to mention here that we have also increased our premium product at 37% on trade volumes. Our trade share also increased Y-o-Y to 73%. As a result of all these factors, we delivered an EBITDA of INR 402 crores of Q1 FY '24, which is up 7% Y-o-Y, thus registering a better performance in the current competitive landscape. Here, we would like to remind you all that we have stopped accruing incentives from Panagarh facility from April 2023, which has around INR 40 per tonne impact in the quarter. The result demonstrates our commitment towards managing our cost spend. I'll now quickly share comments on the three major cost elements. Cement raw material costs increased by 13% Y-o-Y due to increase in key commodity costs, primarily flagged with inflationary pressure. This has been partially mitigated mainly due to our long-term contracts for slag. On power and fuel costs, we effectively contained our costs by optimizing the fuel mix between pet coke, linkage coal and AFR, supported, of course, by the reduction in pet coke and coal prices. Overall, power and fuel costs decreased 10% Y-o-Y. Distribution costs, however, increased 4% in Y-o-Y, primarily with the reimposition of busy season surcharge on rail freight. Nuvoco is focusing on internal levers to improve the margins, mainly: one, getting maximum linkage coal available; two, increasing the rate of alternate fuel; three, premiumization; and four, focusing on completion of projects like our railway sidings. Net debt during the quarter increased to INR 4,506 crores due to working capital requirement and seasonality of the business. Interest rates, on the other hand, has reduced by 9 bps in the quarter against the repo rate remaining stable since March '23. I'll briefly touch now upon our ready-mix and building materials businesses. Both the businesses are performing well. Revenues from ready-mix business grew by 11% Y-o-Y. We have opened three new ready-mix concrete plants in the last quarter in Pune, Vizag and Coimbatore, making our total tally to 54 ready-mix plants. Our value-added mix in the total sales also improved to 34% during the quarter. In Modern Building Materials, construction chemicals, tile adhesives and cover blocks continued to witness sales improvement. On the sustainability front, we remain committed to our sustainability agenda, Protect Our Planet. I'm happy to mention that our carbon emission at 462 kg CO2 per ton of cementitious materials for FY '23 validated by KPMG is amongst the best in the industry. This has been primarily driven by our continuous focus on blended cement, WHRs, AFR and improving thermal efficiencies. During the quarter, we have successfully commissioned alternate fuel feeding system at Nimbol cement plant, which will enable handling of wide range of fuels while increasing base recycling tonnage. We achieved 5.2% Y-o-Y improvement in alternate fuel rate, 11.2%, in Q1 FY '24, which is amongst the best in the industry. We have maintained one of the highest cement-to-clinker ratio in the industry at 1.83 during the quarter, thus emphasizing blended cement and further decarbonization initiatives. I would now like to quickly run you through the update on our ongoing growth projects. Cement capacity expansion to 1.2 million tonnes per annum grinding unit at our Haryana cement plant is under progress. Civil and fabrication work is complete and equipment installation is on track for commissioning the cement mill by September 2023. This will take our overall cement capacity to 25 million tonnes per annum. Clinker capacity enhancement at Risda has been completed while at Nimbol, will be on stream by September 2023. As you are aware, the Nimbol facility post-capacity enhancement will also support our grinding unit expansion at Haryana. On railway sidings projects at Odisha and Sonadih, track-laying activities are underway. Continuing our focus on innovation and new product launches during the year, the company launched Duraguard F2F, a premium composite cement in the market of West Bengal. The company also launched InstaMix Superior Column Concrete and Artiste Flooring Solution, both specialized products, thereby extending the Ready-Mix Concrete range. Now let me briefly provide you some perspective on the demand and volume scenario. We achieved the volume growth of 7% Y-o-Y in Q1 FY '24. In the North, we have achieved volume growth of 12% on a Y-o-Y basis. And we are operating at near full capacity utilization. In order to cater to the demand going forward, as we have mentioned earlier, 1.2 million tonnes of incremental capacity is coming on stream at our Haryana cement plant by September 2023. In the East, demand was a mixed bag during the quarter. Amongst our core markets in East, Mejia and Jharkhand witnessed strong growth while demand in West Bengal continues to remain depressed. However, we believe that the demand in West Bengal is definitely about to revive and expect to benefit out of it due to the strong brand equity we command in the region. Notwithstanding the demand dynamics, in the East, we shall continue to focus on value-over-volume growth. Looking at our overall cement availability in the region, we are not looking at immediate capacity expansion in the East as the current capacity will provide sufficient headroom for growth. In the East, therefore, we will stay focused on our strategy of premiumization, product innovation, improving geo mix and driving healthy realizations. With this, I conclude my opening remarks. I am joined here by Mr. Jayakumar Krishnaswamy, Managing Director; and Mr. Maneesh Agrawal, Chief Financial Officer. We are here together to answer your questions. Thank you.

[Operator Instructions] We'll take our first question from the line of Amit Murarka from Axis Capital.

Wanted to know what was the clinker production in Q1.

All in all, Amit, just overall clinker production in Q1 is what we want, okay? Our clinker production in Q1 FY '24 stood at 2.82 million tonnes, just shade short of 3 million tonnes.

So that's, I think, close to around 90% utilization on clinker, right?

Yes, that's right.

Sir, like, generally, we have not seen plants run above 95% clinker utilization for the industry. And you're saying that you don't want to expand capacity as of now. So how should we think about the volume growth for you for the next 2 to 3 years in that situation?

Yes. Look, Amit, maybe if I heard you right, I guess, your voice was a little bit low. But let me just give you a little bit of background. In the last call and the previous calls, we were saying that in the East, we have currently no big-time expansion plans. And in the North, we will take the Nimbol to 6,000 TPD. So we'll have, between Nimbol and Chittor, we'll have about 1,000 TPD that translates to about 4 million tonnes of clinker in the North. Whereas in the East, we are looking at -- between the two, we are looking at close to about 13-odd million tonnes of clinker, which will at a C/K ratio of 1.9, we are looking at about 25 million tonnes of grinding capacity and clinker capacity, which will be almost equal to 100% capacity utilization. If you were -- if you remember last year, we did close to about 18.8 million tonnes of cement. And in the previous call, I've said that we have a headroom of close to about 6 million tonnes in [ fairings ]. And as you said, 100% capacity utilization is almost impossible, so -- but however, a few years behind if you really go. Erstwhile, Nuvoco always operated at 90% capacity utilization in the East. And hence, this is in the DNA of the company. And typically, our kilns are reliable in that 98%, 98.5% reliability factor. So we are able to kind of consistently run the kilns. With these kind of numbers and last year of 18.8 million and overall grinding capacity of 25 million, we can safely take this overall, with the current investments in the company, close to about 23.5 million kind of a number is what we are envisaging, which will again translate to 90% capacity utilization. So that's the math we operated in the past. That's the ambition of the company in the near future.

And when is the 1,000 TPD clinker coming?

As we speak, I think we've taken a shutdown as we speak. 4 weeks from now, the commissioning will be complete. So from October onwards, we can safely say that North, they will have 4 million annualized clinker production rate between the two factories and as well, as Madhumita said, the grinding capacity in Bhiwani is also synchronized to commission in September. So October onwards, we'll have the 1.2 million tonnes of grinding capacity. And altogether, we'll have 6 million tonnes of grinding capacity and 4 million tones of clinker. Currently, we operate at close to about 1.41, 1.42 C/K ratio in the North. And if you treat the C/K ratio, so we can have adequate linker to produce 6 million tonnes of cement.

And what will happen to tweak the C/K ratio? Generally, we've not seen that ratio change so often for companies again.

Again, let's go back to explain the -- our ability in the past, which will help us what we want to drive in the future. East, we are one of the highest C/K ratios in the entire industry. Our C/K ratio is low at 2.1. That's the kind of number we operate in East. North also, 2, 3 years ago, we operated when we launched Duraguard in the North, we were very clear that we will not get into OPC. Almost all our trade channel sales was only PPC [indiscernible] OPC happened because certain markets were OPC markets in the past. And that's how the company ran for many years. With the -- if you remember 1.5 years ago when we did the listing and then post the Emami acquisition, we launched Double Bull in the North to kind of immediately get some market in the North. And that's where we kind of allowed some OPC to be sold in the North. But going forward, when clinker capacities are going to be limited for the company and grinding capacity restricts, our immediate focus will be to move from OPC to PPC in the core markets of the North. Hence, we will tune down OPC and ensure that we maximize blended cement in the North as well.

We have a next question from the line of Jashandeep Singh Chadha from Nomura.

I just wanted to ask what was the CapEx spend for the first quarter? And what's the CapEx guidance for FY '24?

Okay. Overall, our CapEx plan for this year is the four brownfield expansions in Nimbol, Bhiwani, Sonadih siding and Jajpur siding, in addition to that, routine CapEx and RMX expansion. All this, as we informed in the previous call, we estimated our overall FY '24 CapEx of close to INR 580 crores. As against that, we have been able to spend in Q1 close to INR 120 crores. Now with this commissioning of Bhiwani and Nimbol happening in the next 1 month, we can safely say about INR 100-odd crores will be spent in the next 2 months. Over a period of the next balance of 6 months and before 31st of March, we have plans to spend this INR 550, give or take, INR 10 crores, INR 20 crores for timing and phasing. That's the kind of money we will spend during this year.

And my next question is that if I do my calculation, there was some working capital build in this quarter. However, we have set a target of achieving INR 3,000 crores to INR 3,500 crores net debt by the end of this year. So how much of working capital release you are looking over the next 3 quarters? And what's the road map for the deleveraging? If you can just clarify on that.

I will answer one part of the question, and I'll ask my CFO, Maneesh, to answer the difficulties of it. As regards our target of reducing debt, so in all the previous calls, I have been mentioning that our target to reduce the overall debt of the company will be in the range of INR 3,500 crores to INR 4,000 crores and not a fixed point number of any one number. So we'll continue to operate at this kind of a range because that's going to kind of be an inflection point for us to make the next growth program for the company. And give or take, INR 100 crores, INR 200 crores will happen based on the overall cash flows and actual sales and demand which will happen. But suffice it to say that our plan will be to have a debt around INR 3,500 crores to INR 4,000 crores in the next 8, 9, 12 months. And based on that, we will be ready to grow further the company. As regards to the release of working capital, I'll ask Maneesh to give you a little bit of detail about the plans of the company.

So generally, in the quarter 1, because of the seasonality, the working capital has increased. Three aspects, the inventory goes up to the March period, similarly on the receivers front and also on the GST leveraging front because in March, leverage is higher and then [indiscernible]. So in quarter 2 and quarter 3, again quarter 2 because the amount of working capital is slightly higher. But as the season picks up, [indiscernible] pick up and then liquidation of inventory both on the cement and clinker stocks, so we'll be able to unlock this working capital in Q3 and Q4. Having said so, there are a lot of initiatives that have been taken by the management and the team to reduce the working capital, considering the overall operational environment.

So basically, this is a quarter where we kind of up-stock clinker simply because in monsoon, the shutdowns will start. So we need to kind of ensure the market to be fair in September, October. So there is a little bit of a buildup of cement and clinker stocks. Cement, you can't build too many stocks because you can't store cement for more than a few weeks and it's always kept as a clicker. But then as you get into post Puja and then to November and December, you will see inventory release will happen. And secondly, last year, if you recollect, a lot of inventory buildup happened due to fuel stocks because of imported pet coke and [ coal ] purchase. But this year, there's [ East fortification ] of the linkage coal, the overall fuel inventory is also stepping down. And during the course of the year, I think even there, we will have adequate control in fuel stocks. So working capital release will happen in the balance 6 to 8 months. And we will -- we are committed to paying down the debt levels of the company to the numbers which I have mentioned year-end thereabouts so that we are ready for the next phase of expansion plans for the company.

And just one more if I can squeeze in, I just wanted to understand the slag pricing. If we see over the last few quarters, slag pricing has been going up, although Nuvoco has a long-term agreement. Is it just -- can you give us a sense from last Y-o-Y, last year first quarter, how much slag prices have increased for the industry? And how do you see slag prices moving ahead? Since all the players -- most of the players are trying to increase their C-to-C ratio, so more and more slag will be required whereas the supply is limited. So if you can just give us a sense on that, that would be great, sir.

I think it's a very good question. In fact, this is -- like last year almost, we're facing the heat of fuel prices. But with fuel prices coming down internationally as well as locally, I think one of the things which really got heated up is slag prices. And they're somewhat region-specific, which is most of the slag is used in the East and not in other parts of India. Availability also in that region, consumption is also mostly in that region. And for some reason, inexplicable slag prices currently on a runaway train, not that demand of cement has gone up that much but overall market scenario. But slag availability is a challenge plus slag prices is a challenge. There are two reasons for it. One is, I think, overall, slag is still a byproduct of the steel industry. But with not very big capacities coming in the steel industry, there is generally the overall availability of slag is now kind of limited or constrained by the expansion plans of steel industry. That's one thing which none of us can control. But there is a second one that's a very unique reason is the [indiscernible] is not giving adequate amount of rakes for the cement industry. All the rakes are still being diverted on a priority basis to power sector, food grain sector and fertilizer sector. And hence, rake availability is a big challenge for the cement industry. We have been continuously representing to the railway ministry to allocate more rakes for us. Because rakes are not available, then slag momentum is a big constraint. And invariably, people move through road. And nonavailability of rakes means inability to lift the slag from steel companies is a big challenge. These are two reasons, which is main constraint. But the third important constraint is the type of slag which the steel industry is able to generate. Slag, as you would know, has got different types of slag. We've got something called a BF slag. We've got something called LD slag. So the process in which they make steel is different. The byproduct is also different. And in general, the availability of the usable or good slag available for cement industry is limited. These are the principal reasons for slag prices to go up. Having said this, in terms of number, if you want me to explain, last year, Q1, the slag rates available in the East for us -- I can't tell the overall industry for us, I will tell we were procuring slag at a blended cost of market slag as well as the long-term contracted slag was trending at about INR 1,100 per tonne, which currently is trending at about INR 1,450 per tonne. This is how it is impacting Nuvoco with the long-term contract. But I really want you to keep this in line with the kind of slag prices prevailing in the market, which is very, very challenging. People are contracting slag at INR 2,800 to INR 3,000 per tonne. And that's a massive price for slag. And in many cases, we simply walk away from the auction because it doesn't [ suit at the top ] and there's no point kind of buying slag at this price because slag price is almost equal to clinker price. So it doesn't kind of -- it does only 1:1 replacement. But we are blessed with the long-term contracts which we have, which is about 2.5 million tonnes of contracting, which we have with Tata Steel. And that's coming into use against our blended rate is much lower than many of our competition rate at about INR 1,400 per tonne. Having said so, as Mita explained, slag prices have indeed impacted the raw material prices by about 13% of the raw material price increase. And a majority of it is coming through slag price increase in Q1 vis-a-vis the previous time.

We have a next question from the line of Rajesh Ravi from HDFC Securities.

Could you tell us what was the per kilocal costing of fuel in this quarter?

Looking at the overall, in Q1 for Nuvoco as a blended between East and North, we're looking at close to about INR 1.94 per million cal, which has a composition of AFR, imported coal, pet coke as well as non-linkage domestic coal. INR 1.94 is the number.

So your cost has already come up by 40% sequentially from INR 2.31?

Yes, [indiscernible] comes down to this kind of [indiscernible] trending.

Right. And are you looking further softening in this number or you're close to bottomed out on your costing side?

If we look at the various components of this going, Rajesh, one is the international pet coke, then we have the linkage coal, then we have the domestic open market coal as well as AFR. I'll just try and explain each one of it. Linkage coal is kind of trending at about INR 1.2 to INR 1.3. I guess, that's the number which is there currently. And I don't see a big change because I think from all the conversations we've had with officials of coal industry and rest of the market guys, I guess, coal production in the country has increased. And we don't see a major blip happening on linkage coal prices. So that's one thing, one we can probably assume this is the kind of number, it will be there. Domestic open market coal is always linked to the linkage coal. I guess, it will have some gap and that will continue. International pet coke, we're seeing it is -- it used to trade -- one order even got to $105 per ton. But that was one flash order. But currently, the going rate is $120, $125 per ton. And last few weeks, there is some upward movement of pet coke prices. It all depends on international scenario. But as of now, our read of the market is maybe for the next 2, 3, 4 months, this is the kind of number which will trend at $125 per ton, which pet coke alone will be -- stand-alone pet coke will be about INR 2.3, INR 2.4 per million kg. AFR, again has a component of [indiscernible], RDF and that support the other components which are there. Pet coke, for some reason, is very expensive, indexed along with -- [indiscernible] indexed with pet coke. And hence, the AFR rate is still not low. AFR, which used to cost at about INR 0.90 per million cal is currently trending at [ INR 1.45 ] per million cal. So my read is at INR 1.94, there is some elbow room for INR 0.1, INR 0.15. Beyond that, I don't see major tapering of costs in the next 1, 2 quarters.

Okay. And on the working capital front, March quarter, your working capital already turned quite strong, noncash working capital was INR 200 crores negative. So is there any further room? Or we -- again, there also it was close to -- you have squeezed your working capital to the maximum?

So as I said, in the quarter 1 and quarter 2, working capital gets increased. So it's all about the management of working we are doing to keep it at the appropriate level. But it's not going to go down below the level that we have seen in March.

Okay. And INR 500-odd crores is what the CapEx -- is what you are targeting, right?

Yes.

Yes, correct. So broadly, what I'm looking at, how do you see your net debt reduction this financial year?

Very difficult for me currently to put a ballpark number. But having said that, I certainly look at the market, Q1, we were about 7% volume growth. And if you are able to kind of sustain this kind of growth levels and also in Q4, typically market will open up much more and with election spending, which Mita spoke in our initial speech, give or take, the growth can be touching double-digit. If this kind of number is there, then I guess, the profitability levels, which we mentioned in our quarter of INR 402 crores, I guess, if we're able to sustain these kind of results in the balance 3 quarters with positive uptick in demand, then I guess, as we exit Q4 and enter Q1 next year, our ambition of going to debt levels in the region which I mentioned, INR 4,000-ish crores level, that's the ideal time for us to look at how do we take this company forward in terms of growth plans.

Yes. Are you talking about net debt, right, INR 4,000 crore levels?

Absolutely. Net debt is what we always anchor on. And that's the number we'll work on. Give or take, giving a range always is not going to be a fixed number. We have been assuring all of the investors in the various calls in the last 1 year, this is the number we are targeting. And I guess, we are disciplined, we are focused and we are committed to kind of reaching these levels of numbers before we kind of take up the next wave of large expansion for the company.

We have our next question from the line of Satyadeep Jain from AMBIT Capital.

A couple of questions. First, on the CapEx side, whenever the company posts a figure of CapEx, whether it is 12 months from now, 9 months from now, what is the thought behind what kind of CapEx are you looking at in terms of capacity and capital intensity? That's the first question.

If you're looking at this year, as informed in the previous call, the CapEx has got two buckets for us. One is the brownfield expansion. The second one is the mandatory routine CapEx to run the tests and make those tweaks and make the assets ready for use. And the third one is a very small amount of CapEx for the ready-mix business CapEx expansion. So if you really look at these three buckets, the first bucket is the brownfield expansion. We started half of last fiscal, H1 fiscal, was Haryana grinding unit, 1.2 million; Sonadih siding for clinker transport was the second CapEx, which we had; Nimbol debottlenecking to increase clinker capacity in the North, also AFR in Nimbol. And then also we had the Jajpur railway siding [indiscernible] to take the capacity to 11,500 TPD clinker and AFR. These were the big-ticket CapEx items in terms of increasing the capacity of the company, first from 23.3 million to 25 million tonnes of cement and also clinker to match the 25 million tonnes of installed capacity of cement. In addition to the other two CapEx were all cost savings-related CapEx. One was to reduce the freight cost by taking clinker from Sonadih into Jajpur and various siding unit. That was the first bit of internal lever to reduce the distribution cost of clinker. The second was to pare down the fuel cost by installing AFR units in two big units of Risda and Nimbol. We already added it in Chittor. So cost reduction, two projects, one for fuel, second for distribution costs. Capacity expansion, three projects: Nimbol, Chittor, Nimbol, Bhiwani and Risda. Those were the big CapEx which we did in the cement side of business. In the ready-mix side of business, will we parked some money for opening up new plants. As I mentioned in the previous calls, our ambition is to move from the current 55 plants to 70 plants in the next 1 year. And those are very small CapEx. But then there's money parked for setting up a ready-mix plant. And the last one is the land purchase and routine CapEx to run the operations. So that's close to about INR 150-odd crores. All put together, we have targeted in this fiscal to spend about INR 580 crores.

Sorry, I was trying to understand, after this CapEx and when the company achieves INR 3,500 crores to INR 4,000 crores of debt, what is the kind of capacity -- once you decide on the strategy and building the figure for the next leg of CapEx, what kind of size and capital would you be looking at?

So I guess, I will say the same thing we have said, so there is -- so I've been saying it in the last few calls, and we are very consistent in what we are communicating. Once we kind of get the debt levels to the numbers that we have assured all of us and all of you guys, the first -- there are two options for us. One is to expand the Chittor factory using the Nimbol limestone for a brownfield expansion. And we also have the option of setting up Gulbarga for Western region. As I mentioned in the past, the #1 choice will be to get the brownfield CapEx going in Chittor. That would be setting up of additional kilns in Chittor and also have one more grinding unit either in West [indiscernible] or in Western UP. That's the plan. And that should target ballpark number I'm mentioning. A new kiln should cost anywhere between about INR 800 crores and the grinding unit, about INR 500 crores, so looking at about INR 1,200 crores to INR 1,400 crores of investment for a brownfield expansion. But if we really look at the greenfield, which will be -- if we had to go for a Gulbarga or a Maharashtra, it will be much higher. It should be in the tune of excess of INR 2,000 crores. But as we stand today with the positive developments in Rajasthan and Nimbahera, our primary -- what looks to be feasible or inclined is for Nimbahera. But all that depends on how do we pay the debt. And I guess, once we secure the Board approval, we'll inform all of you.

This would be 6,000 tonne per day [indiscernible]

Yes, sorry, I missed that answer, Satyadeep. I think at this point of time, we are keeping it open, whether to -- because Chittor is a 6,000 TPD line. And I can do a better image of that. But I think at this point of time, I'm keeping -- but Risda, we have a 10,000 TPD line, which is now currently debottlenecked to 11,500. So we are not hard and fast concluding at 6,000 TPD. I think when closer to the date of the debt, whether it would be a 6,000 or a 7,500 or a 10,000 TPD. But as of now, we are keeping the options open. We're still working on technical design for all these three options.

Okay. Just a second question on the entire regional market. The volume growth has been lower than what others have been reporting. Is it largely a function of micro markets? How much is West Bengal as a percentage of overall volumes? And tied to that would be one of your peers did mention that it lost market share. It's going to recoup that market share in the next few quarters. When you look at that and your own micro markets and what's happening, how would you look at the volume growth? And you mentioned that slag prices are higher, the entire cost of producing cement in the East is actually on the higher side, given what's happening. But despite that, we're seeing players losing market share, some players operating at higher -- 90% utilization. Despite that, we're seeing continued pricing pressure in [indiscernible]. So what needs to happen so that pricing improves, especially when one of the players is talking about regaining market share in the next few quarters?

Right, Satyadeep, I'll take that question. So it's really two or three parts, so I'll break it up. Your first question was how far we are seeing our growth vis-a-vis the industry. So as I mentioned, the volume thrust -- at a strategic stance, our volume thrust will be North. And in East, we will prioritize value over volume. So in North, in our judgment, the market is growing to 10% and we have grown 12%. We are well poised to take the additional capacity increase in Haryana. On the Eastern side, we have to take a look at the market in two clusters. The overall growth in our estimate has been about 11%. The two clusters for us, the cluster Bengal, Bihar, Jharkhand, this has seen about an 8%, 9% kind of growth. And we have maintained our market share in this market. A bit of growth came out of the Chhattisgarh, Odisha markets, almost at a 19% kind. These markets have traditionally been lower-priced and higher on non-trade. So as you know, we have been reiterating our trade-centricity, our premiumization. And then as our focus on Bengal, Bihar, Jharkhand, given our very large facilities in these markets, we clearly prioritize value over volume. And in principle, this will be our guiding strategy. We will calibrate as we see the demand dynamics in the market.

Mr. Jain, does that answer your question?

Yes. Just the second part of that question was overall dynamics in the region in terms of pricing and cost, and what does -- especially given one player is talking about regaining market share, what does the management think about pricing in there and what needs to happen for pricing to improve?

Yes. Sorry, Satyadeep, I missed out part two. So on part two again, as you know, we have a premium slag brand in Concreto. So we have cost advantage on the slag brand. So we will continue to prioritize on Concreto. Last year, we also upped the Concreto offer in the market with Concreto UNO. The market dynamics would be impacted by the slag cost. Here, apart from our slag-driven, Concreto-driven strategy, I'd like to clarify that we are in the business of brands. And we see good fungibility between the [indiscernible] fly ash PPC cement. So we will calibrate our mix depending on the emerging dynamics. On the overall price, we have revisited the clinker addition number of subsidies and a perspective that we've been sharing on previous calls that when you look at Eastern region demand, what you think, of course, are the clinker addition and not just the cement capacity addition. The dynamics still remain at 44 million tonnes clinker base of FY '22. 10 million tonnes of additional clinker capacity, which is to come in over the 2 years from '22, is in place now. So there is a situation of overcapacity at the moment. However, the next addition of clinker, as per stated timelines of industry players, will only come in FY '26. So we don't believe that the clinker dynamics will still drive the edge on pricing in the region. So starting where we are, it is difficult to take a call on price outlook. But we are seeing stability. We are seeing positive demand come up as we get into the election year. And as I said, our advantage lies in our ability to straddle different price lines with our brand portfolio and then as our trade-centricity. I hope that answers your question.

Yes.

We have a next question from the line of Sumangal Nevatia from Kotak Securities.

My first question is with respect to our growth strategy and specifically with respect to inorganic growth because we have been evaluating a few assets, which given our balance sheet is a bit difficult to understand. So I just want to know how are we looking at inorganic growth opportunities in the market.

I think let me answer this question. As regards to our growth strategy, I think we have been clearly mentioning in the past many calls that we are focused on organic growth as well as -- which is preceded by reducing the debt levels of the company. We will stick to that strategy at this point of time. And Nuvoco's primary focus will be to reduce the debt, do the brownfield expansion, take the capacity to 25 million tonnes. And once the debt level comes down, then we find a way to set up additional capacities through brownfield in North or through a greenfield in West. And that's the current plan for the next couple of years. And that's what we are focused on.

Okay, got it. That is reassuring. One is I missed the details on the incentive income, which is discontinued. So if you could just share those details and also maybe explain what sort of incentive incomes are already in our realization. What are we benefiting? And what is the expiry schedule of those incentives?

As regards incentives, if you [indiscernible] Rajasthan. We have incentives in Jharkhand. We have incentives in Bengal. 3 years ago, we stopped Mejia to that sort of syllabus. As regards Panagarh, as we mentioned in the previous call, 1 April onwards, we stopped accruing Panagarh. And that goes away. In Rajasthan, the period of incentive has come to an end. So I guess, that's also 1 April onwards, so 1 June onwards, Rajasthan, both at Nimbol and Chittor is off. [indiscernible] was off sometime [indiscernible]. So at this point of time, the only incentive which we are accruing is the [indiscernible] incentive. Other than that, [indiscernible] doesn't have any incentive accruals at all.

Is it possible to quantify what was the total incentive income in, say, FY '23? And what is it likely to be in FY '24?

May I request you to have a reach-out to our guys to be so that we're able to give you granular details of all these details? I think we can guess. But this will run into a few colors. And best would be for you to reach out to Investor Relations, and we'll be happy to provide all the details, not a worry at all.

We have a next question from the line of Prateek Kumar from Jefferies.

My first question is on your EBITDA per tonne. So we had like the INR 780 EBITDA per tonne during this quarter with probably peak of fuel cost benefit in the business or near peak. Incentives are like sort of going out largely, as you said. So how do we see EBITDA per tonne shaping up for the company going forward versus like, obviously, we used to have like much higher target earlier, when the industry pricing and costs were supportive, like during time of IPO? But how do you see EBITDA per tonne for the company? And is the pricing -- industry pricing is the only driver left for the business?

I guess, better improvement from hereon will be still there's a lot of things that the management will do -- we are doing, we will focus to do. One of the things which we will focus on, as Mita has mentioned a few minutes ago in one of the previous questions, one of the focus areas for us will be to get the premiumization going. Last year, we had 37% premiumization. And our target is to get premiumization to excess of 40%, which means more Concreto, more Concreto UNO, more DGMF. All these will basically give us additional annuity, which will flow into the bottom line. That will be one top line lever. The second top line level will be to get higher realization markets in East and North. We have a target of improving sales in some markets, so [ BBJGR ], which means Bihar, Bengal, Jharkhand, Chhattisgarh and Haryana and Gujarat. These are the markets, Bihar, Bengal, Jharkhand, Gujarat and Rajasthan, these are the areas where we will get bulk of our sales, which will again get more geo-optimization, would mean more annuity and more realization. The third one is with the commissioning of Haryana Cement Plant, we will focus more sales in Haryana market, which would give us additional top line plus incentive benefits from approval of Haryana. So these are top three levers, two revenue-based levers to get EBITDA. On the cost line, certainly, I think we will get our AFR fully expanded, currently trending at 11.2%. Our target is to get that AFR consumption to close to 20%. Chittor already has demonstrated 22%. Nimbol also demonstrated 20%. So if we were to get it, then AFR will be the second lever for us on the cost line. And with full capacity of WHR and CPP running, we'll get some savings out of the WHR and CPP line. And last but not the least, with the Sonadih railway siding coming and the Jajpur railway siding, we expect a reduction in distribution costs coming into the company. At this point of time, all this put together will have a bottom line EBITDA improvement number over a number where we are currently trending. And the second one is all about the pricing lever which you mentioned. As we have seen from quarter 4 to quarter 1, prices went up in quarter 1 but again came back. And overall net-net price increase did not have a major impact. I only expect the prices to go up from a little bit more. So we're able to get some pricing advantage from the overall product pricing in the market plus all the internal levers and premiumization, fuel mix, AFR, CPP, WHR [indiscernible]. I guess, we certainly can improve the overall EBITDA of the company from the Q1 actuals going forward.

Sure, sir. My second question is on the freight cost. So freight cost on a sequential basis on a per tonne basis have gone up. Is this largely reflection of building up of clinker inventory and moving to respective grinding unit prior to the monsoons?

Two reasons. One is it is the decisions such which has happened by the railways. So I guess, typically, they would cut down. But they have [indiscernible]. The good news is from 1st of August, it has been withdrawn for a few months. I hope it continues for 4, 5 months. But that's an impact which should be distribution cost. Second one was nonavailability of rakes, which played havoc in Q1, which resulted in movement of clinker from [indiscernible] by road. So these two are the reasons which kind of impacted the distribution cost by which it went up. Our [indiscernible] continues to be good and comparable to rest of the major players in the industry. So there, we are very pleased with the [indiscernible]. Small changes in lead distance happened, but I can't target 3 kilometers, 2 kilometers direction in lead distance. But there is no major increase in lead distance. But the two important levers by which we got impacted was railways, not able to get adequate rake. And second one was decisions such as got withdrawn. Rake availability kind of improving. And then our engagement with railways shows that they are likely to improve going forward. These two should reduce the pressure on distribution costs.

And then last question on -- there was this recent changes in BIS regulation on composite cement, which is expected to impact clinker ratio. What is our composite cement mix? And does this regulation have an impact on our clinker ratio? Also, does higher slag prices in general, because of higher number of capacities in the East, would this also have an impact on clinker ratio, I mean, for medium term?

Yes, thanks for the question. As I mentioned before, we are in the business of brands. And our Duraguard brand straddles both fly ash as well as composite cement. So we treat the mix as fungible to address any cost inflation. But specific reference to the emissions in BIS mix and its impact on cost for us, the cost impact has been nominal in our case because we were not stressed out on the highest end of the clinker optimization. So we've been able to manage the cost well on the PCC front. It's only the slag inflation which is keeping us open to product substitution.

Our thrust on PCC would always be based on how much unlock I can do on the clinker. This is what we had said 1.5 years ago, we launched our PCC cement because we've got grinding units in Jajpur and Panagarh. And hence, we put it into that. And we have a good product in the market. It's doing very well. We scaled it up very well as well. But the fly ash cement as well as the composite cement are coexisting in many markets. And as Mita said, we will be able to tweak our product strategy based on the pricing of slag in the market and the BIS standard, which is coming to go now.

We have a next question from the line of Ankit Patel from HSBC Mutual Fund.

My first question actually partly answered -- was partly answered earlier on the question on EBITDA per tonne. But I still wanted to understand in terms of what would be the expected stabilized EBITDA per tonne that the company targets. Because historically, it's been around that INR 700, INR 800 per tonne on a quarterly basis at max, whereas certain other peers or competitors, it's been going up to about INR 1,000 and higher as well. So that's my first question. And my second question, I'll -- yes, I'll ask the second question afterwards, sir.

The answer to the question is there's not been recency effect in history to it, actually. So probably you're referring to the recency effect in the last 18, 20 months, so yes, the EBITDA levels were a little bit low, reasons because of the normal increase in fuel prices, which kind of impact it. And also, the price that -- and already did not kind of compensate for the fuel price increase. But fuel prices kind of bottomed out now. And in the past, if you divide East and North, I think the East EBITDA were much higher than the last 1.5 years where we have recorded it as a company. North EBITDA per tonne also has improved. In the previous calls, we had mentioned how North EBITDA per tonne industry prices corrected. North EBITDA levels also improved in the last 2 years. I only foresee with the improvement of the various levers, which I mentioned in geo mix, premiumization, AFR, [indiscernible] products, all these are East-focused. And hence, we will unlock value out of all these initiatives, which would add to the overall EBITDA level to the East going forward in the coming years. So to pinpoint a number at this point of time will be inappropriate. But suffice to say, each one of these initiatives has got the capability to unlock value to the extent of INR 20, INR 30 per tonne.

Okay. My second question, sir, was on the -- some of the high-cost debt, which I think is there on your balance sheet. These perpetuals, which were raised erstwhile in the pre-IPO time, I think, earlier when it was part of the Nirma, I think there is about plus INR 300 crores of perpetuals, which are there at a higher cost. Just wanted to understand, would you have to raise fresh equity to meet the replacement covenant there when they become due next year and in 2027? Or would the IPO that you have done in '21 suffice to meet the equity raising requirement over there to maybe bring that down in terms of cost?

So thanks for the question. So basically, the operating cash flows that are going to be generated are sufficient enough to take care of the [ IPO ]. So we're not going to be raising any equity for meeting these payments. The operating cash flows are sufficient to take care of it.

Yes. But there was a replacement covenant, where you can only replace it by either with the leveraging coming down below a certain level or by raising or having an equity which you have raised prior to the call date of a higher value than the issuance. So would the IPO of INR 1,500 crores, which you have raised, suffice is what I was wondering?

Just a question, I think, as Maneesh mentioned, I think we will not get into the direction of equity infusion to handle the stuff. The business has got the ability to -- the cash flows of the business will be sufficient to handle the covenants and the debt repayment requirements. But in the past calls, I have mentioned, so I will restate it for one more time. We are very confident that to grow this business, we are comfortable with the continued debt levels of INR 3,500 crores to INR 4,000 crores, so which should be -- we have currently no plans to kind of reduce the debt to far lower levels. We will infuse -- we will get into growth mode if we are around at INR 3,500 crores, INR 4,000 crores. And as a corporation, we are clear that this kind of debt level is manageable because we need to fuel growth for the company.

We have a next question from the line of Navin Sahadeo from ICICI Securities.

Let me, first of all, congratulate you because your working capital was probably the best in FY '23, assuming yours are the only company which had a negative working capital. And I'm simply doing is creditors minus the inventories and receivables. So there, we saw a net negative of INR 50 crores. But my question is last year, in FY '22, this was the same way. This was over nearly INR 450 crores. So just wanted to understand, what different are we doing to be the only company in the negative zone in terms of working capital? And how sustainable is it? Is it linked to the high coal cost, which was in the past, and hence, there's a possibility that it can again turn into, instead of further release, there could be a charge of roughly around INR 300 crores, INR 400 crores, which is in line with other peers? Or this is more sustainable? How would you look at it?

So basically, so I would say -- in fact, I mentioned the same thing last time also, if you had a look at the transcript. So in the quarter 4, in fact, the team started quite a good job. So given our trade-centricity business, we see a lot of support from our channel partners. And we were able to get good collections in the quarter 4. And this actually helped us to reduce the overall receivable front. On the overall RMX side, we are continuing to drive collections on the cash-and-carry model. Around 30% of our collections are coming on, which is advanced payment. And the rest of the payments are also very competitive. On the inventory front also, there was a lot of inventory that got built up, which is going to be liquidated over the next 2 quarters. And we have also seen that the fuel prices are softening now. So to that extent, on the inventory side, we'll not have that sort of a number. And also on the payables side, we were actually negotiating our terms, depending upon the various vendors, the kind of inventory that we buy on a 60 days, 90 days, 120 days sort of a thing. So depending upon what sort of opportunities the market provides us, we are going to be looking at that sort of [indiscernible] -- so overall, I would say the numbers that we had in March '23 point to that. It has increased in quarter 1. And quarter 2 also could be broadly in line with the quarter 1 numbers. But quarter 3, quarter 4 numbers, it's going to be better as we liquidate the cement and release the stock in line with the seasonality of the business. So nothing more to add besides that. In terms of specific numbers, obviously, you can reach out to our [ Investor Relations ] and they can give the numbers for each of these dynamics in much more detail.

Will it continue to be negative? Because I understand it's seasonal. And towards the second half, the working capital tends to be far more lean. I appreciate that. Just wanted to ensure or rather just confirm if this can remain negative or it can flip into positive zone project.

It's on the range base actually. So like kind of at this point of time, we are committed. We tried to do a few things. And I think it's worked very well for us. But as a management, we would still try and get the working capital -- net working capital [indiscernible] negative, that's a number which we'll try to achieve going forward. But suffice to say that it will not be the numbers where we were a year ago, 2 years ago. So our endeavor will be to try and sustain these kind of numbers going forward.

Great. My second question was about expansion plans. And of course, you clarified that unless the debt comes in the range of INR 3,500 crores to INR 4,000 crores, it's only after that. And of course, I am aware of the on-hand project -- debottlenecking project as well. But the other, next leg of expansion you said is when the bed becomes more comfortable in that INR 3,500 crores to INR 4,000 crores range. So here, I just wanted to -- if possible, if you could give more clarity. Because you said there is a plan to do a Line 2 at Risda. There's a plan to do a Line 2 in Chittorgarh. And then there is also an optionality of doing a greenfield project altogether in Gulbarga, whichever the Board decides. So sir, just a little bit clarity will help. Because if at all, the company is keen on going to Gulbarga, where -- which is already a very overcrowded market, on day 1 itself, your utilizations at least for a few years are in line with the peers who are far more in terms of utilization. Is there a thought process that you can sell off those limestone mines in Gulbarga, deleverage or get the cash and use for expansions in Line 2 at the existing locations where other companies are adding far more -- I mean, other companies have been far more aggressive in terms of their capacity share or capacity expansion? So is there some thoughts? I think that kind of thing will give far more conviction to investors.

I guess, what you have given is your perspective of what we need to do. But I think we have a very clear perspective of what we want to do as a company. First of all, I would like to say that I don't think we'll ever kind of sell mines. Those are all resources for the company. That's our future. And those are all jewels on our crown going forward. So we consider every mine which we have is a jewel. And then we will nurture, run, maintain, sustain and expand. So that's the first thing on mines. As regards what do we do with options, I think in the last -- ever since we've we listed, I've been doing these investor calls for now close to 2 years. And I will maintain what I have said because we have a very strong conviction on what we are doing. We are very clear that we have choices to grow in the company in Nimbahera. We have choices in Gulbarga. We have mines in Guntur. We also have lands on deposit. In the rest of the current factories, we also have lands on deposit [indiscernible]. But having looked at all these options, we also mentioned that our next wave of expansion will happen in North or West. And the choices which we had was to expand in Chittor is a brownfield, which we are capital-effective -- cost-effective expansion. The other option was a straight-up line in Gulbarga. But very clearly, Gulbarga for us will feed the Western market and North and Southern market. So when Gulbarga comes, it will be a grinding unit from Maharashtra and South Gujarat. Nimbol will be for Rajasthan up North or West. So our expansion program is sustain East in the short run, expand, once the debt is paid down, in the North or West. That's our expansion plan for the company. And you asked about whether Board approves. That's not when we go to the Board with an approval for the Board. That is a technical term to ensure that when we put up a [indiscernible], of course, we will expand this Board clearance to [indiscernible].

Just one last thing, what is the exposure to domestic coal for us as a company since you're on the Eastern side?

So we've got the linkage for the East as well as North got linkage for our kilns as well as for our CPPs in Risda, Sonadih, Arasmeta and Jojobera. All our plant needs the port linkage both for CPP as well as the kiln coal. As we stand, the maximum amount of linkage coal which will help us run these factories is the tune of about 35% of [indiscernible]. But at a blended rate, North, there is no linkage coal, it's all imported coal or pet coke. Overall, as a company, we can get a maximum use of 25%, 26% of linkage coal. And that's the advantage we have as a company.

Yes, because those linkage coal prices, I think, Coal India revised it, I think, a few months back by 7%, 8%. So that impact would have got -- come into the numbers for the June quarter? Or it will come now more so in the coming...

One point of that is the linkage coal is [ INR 1.1, INR 1.15 ] loss. So this INR 127 is -- that's what the new price of Coal India.

I now hand over the conference over to Ms. Madhumita Basu for closing comments. Over to you.

Thank you for your engagement and questions. In summary, cement demand is expected to witness a healthy uptick in FY '24 with a strong momentum in the housing and government-led infrastructure development projects. We continue to focus on operational efficiencies, realization improvement and remain committed to our cost reduction, growth and sustainability projects. Our Investor Relations team is available for any further clarifications and detailing that you may require. Thank you once again for joining us today. Wish you a good day.

Thank you. On behalf of Nuvoco Vistas Corp. Ltd., that concludes this conference. Thank you for joining us, and you may now disconnect your lines.