Orient Cement Limited (ORIENTCEM) Earnings Call Transcript & Summary

Thanks, Malika. Good evening, everyone. On behalf of ICICI Securities, we welcome you to the Q3 FY '21 investor call of Orient Cement. On the call, we have with us Mr. Deepak Khetrapal, MD and CEO; and Mr. Soumitro Bhattacharyya, CFO of the company. At this point of time, I will hand over the floor to Mr. Deepak Khetrapal, MD and CEO, for his opening remarks, which will be followed by interactive Q&A session. Thank you, and over to you, sir.

Thank you, Krupal, and my thanks to all the participants who have taken time out of their schedules to be on this call. And I will try and sort of give my, let's say, opening comments. And typically knowing the kind of questions which, are on top of everyone's mind, I'll try and answer as many as I can in the opening remarks itself. And then we'll be open to sort of more questions, which are slightly out of the way, in the sense, which I have not anticipated. So anyway, so once again, thanks, and welcome to the call. Very happy to talk to you about the quarter, which is quarter 3 of FY '21. And finally, we have, let's say, a positive growth on our top line of 7% because I think starting with, I think, Q4 of last year, we had negative growth of 13% in Q4 last year. In Q1, we had 40% degrowth in revenues; and Q2, 7%. So finally, in Q3, we are 7% up over the same quarter last year. It's happened after a break. So I'm personally feeling very delighted. On the revenue front, on a sequential basis, as all of you would have noticed, we're 27% up. The volumes wise, also, the -- I think after, let's say, the degrowth, which hit us in the -- starting with COVID time in March, I mean, if you recall, Q4 last year, the volume degrowth was 14%. And I'm talking about year-on-year basis. And in Q1, we were hit usually -- we had minus 46%. Q2, it came down to 18%. And in Q3, which we're discussing today, fortunately, the volumes are now minus by only 8% over the same quarter last year. Again, like I said, being at 92% of the volumes of the previous year is a huge advance from where, I think, all of us have been. I'm quite conscious of the fact that some of our other larger companies in the -- who are more pan-India basis companies, they have reported very significant growth over last year. We are still at 92%. People have gone beyond that, but that, I think, is more a function of the markets that we're exposed to. Well, we do hear, and I think all of you have been following that, the markets in North and then East and Central have done a lot better than the markets in South. Especially our market, Telangana, has actually stayed weak and continues to be weak even as of now largely because the government-funded project, and most important for us, that we have looking forward towards was the Kaleshwaram Phase 2, which has not taken off, and it's unlikely that it'll take off in the current financial year, at least, maybe in the next financial year, that is in April, or somewhere, we'll get a better update. But right now, it doesn't seem likely. So Telangana has remained very soft, not only rural demand front or the trade front, but on the projects front, that's been holding us back. While Maharashtra has done better than South, but somewhere -- I mean, nowhere as close to as some of the markets as we have done well. So while, yes, I would have been happier to be in the league of companies who are able to report volume growth over the last year, same quarter, but being even at 92% and having at least revenue top line in rupee crores terms up by 7% is progress in the current circumstances. And capacity utilization, as you would have calculated, in Q3, we have managed to reach 68%, which, like I said, in the previous quarter also we were just at 51%. Although last year, we were at 75% -- 74% in this quarter, but we are down to 68%, but up from 51% is a huge relief again. In terms of EBITDA, again, just a quick overview of the numbers. We have reported EBITDA INR 144 crores, which is up 2.5x of last year. Now I do remember the last year was a poor year for us, that the quarter was not so good for us. But even sequentially, where Q2 was good for us, even on that, we have EBITDA, which is 24% higher. So again, this good profitability has been a result of, I would say, while all of us do know that the prices have been under a little bit of pressure from the previous quarter, but still, they have stayed better than what we had suffered, I would say. I'm using the word suffered last year because last year price was very, very bad. And -- but the more -- the happier part is while we may have gained some bit of -- from the top line side, equally important has been the way we have managed our costs. And the contribution of our cost management is also very significantly in the improved profitability that we have in Q3. Based on that profitability and also based on the fact that there are no major CapEx that we had sort of in a way we had proposed to do then the COVID impact got over, has resulted in very good cash flows. On top of that, we've been managing our working capital much better this year. So as a result of overall cash management through cash generation, and number two, the capital employed management, we've had very strong cash flows with us. And I think what will give further happiness to most of the investors is that during this quarter, we have actually managed to reduce our debt by over INR 100 crores again in this particular quarter, over and above what we had reported earlier. So as a result of that on the books, I think our debt now stands at just about INR 920 crores. If we net off the cash that we had as on December 31, which was very close to INR 100 crores, the net debt -- net of the cash in hand would be about INR 820 crores against, let's say, the equity plus the retained earnings and reserve everything put together is over INR 1,200 crores. So on debt equity basis, I think we are well below 0.7 now. And given the fact that we've had about INR 360-odd crores of EBITDA so far in the first 3 quarters of the year. If Q4, we can maintain the momentum and sort of come out with the EBITDA number that we think all of us can just extrapolate a little bit. In that sense, even on the, let's say, debt-to-EBITDA ratio, we would be -- for a ballpark in the region of 1.6, which I think, again, would give a lot of happiness to lots of investors who were getting worried that our EBITDA to debt was looking uncomfortable to some people. So both on the debt equity front and also on the debt-to-EBITDA front, by the time we finished the year, I think we'll have taken care of most of the anxieties that our investors might have had. So that's I think the good news. You would have also seen that because of the repayment of debt that we've had during the year, just in 1 quarter, we've had a reduction in our finance cost by about INR 7 crores. And if you look at the YTD number, we have our funding cost, finance cost INR 17 crores below the same time last year, which largely has come out because we repaid debt in -- ahead of the schedule. And the further benefit we are expecting on our financing cost because our loans, which we had taken for the -- for our Gulbarga project when we completed that in 2015, every -- our -- all the rates like for most of the long-term loans are actually due for annual resets. And the reset that has happened in the month of December this year, we managed to obtain further, I would say -- or the reset as it is because the rates of interest are low, which got reset at a much better rate. So in the current year, which the reset is working, I think you we would have significant savings in funding costs also. So EBITDA level improvement is one. But if you go below the EBITDA, the funding costs also are getting rationalized to a very, very large extent, which is -- which makes us happy because at the end of the day, the PAT and earnings per share will get impacted as we improve our, I would say, leveraging and also the funding costs. On the operational front, just to sort of come back. Many of you always are curious. If we actually look at our total proportion of product mix, we have to take into account the fact that in Q3, we've actually seen a much stronger uptick in the projects area where the demand -- and I'm largely talking about projects in the Maharashtra region. And the moment that demand comes up, typically, the OPC percentage does go up in the product mix that we're able to sell. Because of that, the PPC, obviously, consequentially, it drops. So today, I'm sort of in a -- in Q3, as we report the OPC is about -- at about 40% and the balance PPC and our strong fleet put together is about 60% in Q3. On the -- and in the trade-nontrade mix, that remains another area of curiosity for most of the people. Our trade in Q3 is a little, I would say, about 52% or thereabouts, which is higher than the last year because, last year, the trade was actually lower than this, but on a sequential basis, come down purely because in the current year so far, in Q1 and Q2, because the nontrade segment, the projects was not very active. I mean, actually, in Q1, if I remember, our 75% sale was through the trade channels, which came down in Q2 and Q3, is down to about 52%. In terms of the geographical spread, no major change overall in the geographical spread that we've had. West still accounts for a little over 50% of our total sales. South is in the mid-30. And the Central region and largely MP, they are about 11%. So that's what the geographical spread has been. The other area of curiosity that all of you have, I'm just trying to anticipate the question and answer them upfront so that we can have some quality discussions later. The average distance, as we've already sent out the report to most of you, you would have seen, it's a little over 300 kilometers. By road, what we dispatched still is under 300. It's just that some of the dispatches do happen by rates using the railway. They have a longer distance. So average, in any case, crosses 300 kilometers. But the role, it's well under that. The dispatches by using the railways in this particular quarter have been at 18%, which is the same percentage as we had last year in the same quarter. So the rail-road mix is constant year-on-year if we look at that. StrongCrete as a premium product that we had launched in the market has been doing well. We are nowhere close to meeting our ambitions that we have from this premium product. The overall, if we say of the trade sales, it is still below 8%. But the good news is in the markets where we have traditionally enjoyed a very strong presence, if we talk about our markets, let's say, Telangana, especially North Telangana and then Marathwada, which is the closest to our Devapur where we existed for the longest time. So markets like these, including even markets like North Karnataka where we have a new plant, in these markets, actually, StrongCrete as a product has started reaching well into the teens as a percentage of total sales. So 15%, 16%, 13%. So these are the kind of numbers we are beginning to see regularly in our what I call the prime market is North Telangana, Marathwada, North Karnataka. So there, we basically go on to show that the acceptance of the product, even at a higher price, is actually improving as we go. Where we've enjoyed a huge amount of brand equity for a very long time, the success is a lot higher. And in the markets where we do not enjoy that traditional benefit of having been present there for a long time, a much stronger brand equity, there, the growth is lower than what we were wanting. But the fact that in some of the prime markets, our rate -- our share of StrongCrete in the trade segment is way beyond 10%, gives us a very strong confidence that we -- our product offering is right. Our strategy to penetrate the market using the word of mouth, using the technical services route is the right one rather than compromising on price. So it seems to be working, and we slowly gradually will learn from the experiences that we have from our prime markets and try and sort of replicate those practices in markets where the percentage of StrongCrete to the total sales is below 10%. So obviously, one market after the other, we'll keep pushing that. But the proof-of-concept is now available. But in our larger markets, prime markets, the percentage has gone up. On an overall basis, I think if you look at the business of the entire cement industry in India, sequential moment has been picking up and is still looking good. In the markets that we are exposed to in the month of January and February, while we should be doing better than what we did in Q3, but these are difficult months when we compare ourselves to the same months last year because we had very, very strong volumes in January, February last year. But March became a victim of the COVID hit because of March 20 onwards, you can't sell. So net-net, I think despite Jan, Feb being very large months last year, given the fact that March was muted, our effort right now is that at least in Q4 this year, we managed to do somewhat better than what we did in Q4 last year. And that obviously would mean that sequentially, there will be still a fairly strong growth. And again, we will, in Q4, perhaps come back in which the volumes would match or improve the volumes that we had over Q4 last year. So that's the -- as we see it, hopefully, things should still at least keep improving or at least stay stable. So from that perspective, we are hoping to make Q4 this year at least as good, if not better than last year. On the cost side, I think there are obviously pressures. All of you are well aware of what has happened to the pet coke because of lack of enough refining of the crude oil, the pet coke overall production globally is down. So imported pet coke is very, very difficult to find. So we managed to somehow mitigate the impact of pet coke, either not been available or being available at very, very high cost by switching to other fuels. The largest amongst that is imported coal that we've been buying. I mean we've used that extensively in Q3. And in Q4, also, we have covered them. So that will come in handy. But whatever coverage of pet coke we had done in late March, early April, that has stood us in good grounds, and that has managed to, I think, get us some very good fuel costs for Q3 because many -- some people who spoke to me privately, they said, we are be surprised how you managed to get the fuel cost under control. It was largely due with the fact that we covered our fuel well in time at prices, which made sense at that time. Although I know some of my colleagues in the industry were taking a slightly different route to what we had taken. But glad to sort of be in a situation where our forecast on which way the fuel prices are going to go has worked in our favor. And Q3 is very clear, I would say, evidence of how well we managed that bit. Would the prices in Q4 put pressure on us? Yes, they will because fuel cost -- international fuel costs going up. We can't wish away. But overall, the way we are managing so far and the way also we are managing to increase the usage of what we call alternate fuels, all of that will -- it doesn't mean that we will be able to sort of completely avoid the inflation, but we should be able to mitigate the inflation through usage of alternate fuel and also through improved efficiencies as we keep producing more clinkers and more cement. The efficiencies always go up, which we haven't had in the first 3 quarters. So we do, in fact, expect some impact to fuel cost but not a major impact for us to sort of loosely go over. The more difficult thing to avoid or mitigate is the fact that the diesel costs in India have been on a completely relentless, I would say, hike, and all of us know where they have reached. They've become the matter of the headlines in newspaper and all. So obviously, that puts pressure on the -- any load transportation that we do, whether it's sending goods out or bringing raw material in by truck into our plants, and also, obviously, that's a major, major concern right now. And things that we do not sort of reckon has big costs, but they're also under pressure because if you've been monitoring the prices of how the plastic or any sort has gone up in cost in the recent past, that -- including things like the bags that we use for packing the cement, those prices have been under tremendous pressure. So those cost pressures are there. And currently, we do not have any method in hands to mitigate or avoid this cost. So diesel price, plastic cost are the cost pressures coming in. Fuel cost pressures are there. But fortunately, I think for the current quarter, we should be able to weather that storm rather well, not completely unaffected, but not hugely impacted. So that's on the operational front. Quick, I think a comment would be in order for us to also talk about the, obviously, the growth plans and things that we always are curious about, where is our growth going to come from. So one thing that we had done, given the cash flows and given the fact that at some point in time, the demand will improve, we had, I think, in the past, mentioned about a debottlenecking project with a fairly modest CapEx of maybe just about INR 20 crores. That project is now under implementation. And by the month of June, if not May, let's say, within the Q1 of next financial year, we should -- we would have actually enhanced our grinding capacity by close to 0.5 million tonnes, and that'll support our plant in Devapur because Devapur had -- has enough clinker available, but the grinding capacity could have been a constraint on demand. So nearly 0.5 million tonnes of additional capacity can be completed at being added right now, the fairly modest cost of just about INR 20 crores, as I mentioned. So that's one good news, which should help us as the demand improves in that region. We've also been making in the recent past, we have fairly modest investments in terms of CapEx. But even then we have been -- we are actually in the process of building infrastructure to handle and feed more alternate fuels, including hazardous wastes from the pharma industry, including municipal waste that we can source from anywhere. So some -- obviously, all these fuels need some bit of processing, handling and feeding arrangements at the plants. So we've been increasing our investments there, and they should help us in managing the fuel cost inflation as it goes up in a lot better way. On the big issue of the large investment that we have, we have been saying they're very much on the agenda for the company, they have not gone away, but there's some a little bit of rethinking on that. Rethinking is that given the fact that we are likely to finish this year with a total capacity utilization of just over 60%, definitely means that we have enough capacity available for the next 2 years before we get back to -- and the volume in the past we've done on an annual basis, we've already done sales in excess of 80% of total capacity. So if we finish the year at 62%, 63% or thereabouts, it does -- despite very strong expectation of growth in the next 2 years, we'll still -- perhaps we just about able to go back to what we managed to do about 2 years ago. I mean in FY '19, we sold in excess of 80% capacity. And starting from, let's say, about 5 million tonnes or thereabouts, there is clinker that's going to be available with us. Grinding capacity at different locations can be bit of a constraint. So given that what our thinking could be, and this is I'm just talking in terms of more indication rather inform plan, it could be that as we were talking about adding clinker capacity at Devapur and only at that time, maybe putting up a grinding unit somewhere in the -- let's say, in the northeast part of Maharashtra, taking us closer to markets in Madhya Pradesh, taking us closer to market in the even further up north, you could grow all through MP and even start reaching markets in the northern area. So from that perspective, possibly, there might be a little bit of change in thinking in terms of rather than doing the grinding. But along with the clinkerization, which needs all the mining approvals and all the environment clearance is a lot more difficult. But we could consider preponing the grinding unit that we had talked about when we talked about our growth plans and that grinding capacity would go up by 2 billion tonnes. In advance of even additional clinker capacity being added because we think we'll manage to produce enough clinker to fill this grinding unit. So that's one thought, which very clearly is there. And we would plan for us put up that grinding capacity in a time period of perhaps 18 months to 20 months from now. That's the ballpark thinking that we have. Not that we are giving up on the clinkerization, but clinkerization, as I mentioned, is subject to the approvals of the mining clearances, environmental clearances for mines as well as the -- in this any case, from the industrial site. So the positive thinking is the -- our case, which had been stuck for a long time regarding the mining approvals, in this quarter, there's a significant positive movement in our favor, which is now moving forward. And hopefully, that also should come in place in not-too-distant a future. But like I said, currently, that's not so much of a concern because as it is within clinker capacity, it's not the thing to pursue on an immediate basis. It's more the grinding capacity that might help us. And in that case, we're still grinding [indiscernible]. Another area that we could examine before even the new clinker capacity is put up is to also see if we can improve and maybe make our logistics through using options like the bulk terminals close to the very large markets where we do the grinding at our -- wherever we are doing currently. But the distribution reach and addressing the market reach becomes a lot better. Most -- many of our colleagues in the cement industry have already put up their bulk packing plants. We have not done any such until now, and we perhaps will bring that on our radar sooner than later. That will actually help us. I mean in a nutshell, what I'm basically saying is that rather than being under -- in a hurry to add clinker capacity and thereby put up more capacity overall, we are saying if we have low capacity utilization right now and even next year, we will not be where we would like it to be, perhaps the CapEx should be reallocated through which we manage to increase our capacity -- current capacity utilization. And the additional capacity creation for clinker could come but could come with a lag of maybe a couple of quarters, a few quarters here and there as long as more grinding will enable us to use the current clinker capacity and distribute that better exposed to more markets than we are exposed to today. So that's the broad thinking in terms of the growth plans. They're not being given up. They're just in, I would say, redefined or reimagined, too, so that we address the current challenge of low capacity utilization faster than otherwise. In terms of -- so in that sense, is FY '22 need very major CapEx for us to budget for and provide cash flows for? Unlikely. There will be some CapEx, yes, but no major CapEx because even if we are putting up a, let's say, a griding, investments in grinding that nowhere close to what we need to put up when we put up clinker capacity. So they will be there, but not as -- not something for which we need to sort of start worrying about where will the funding come from? Do we need to borrow more? Do we need to bring in more equity? So my capital infusion requirements even through borrowed money will not be -- is not seen at least in FY '22. Another piece of good news, which I'm sure all of us are hearing about is the new mining reforms, which the Cabinet has approved, and they perhaps will be taken up by the Parliament in the current session, which has started today. And if those things come out as a huge relief, I'm sure people have heard about huge relief to the cement industry. And not just cement industry to all the mines where transferred of mines from one to the other company as a result of corporate restructuring, that is what our Rajasthan mine is, if many of you might recall. We have a legacy, let's say, mining lease in Rajasthan, which came into a dispute after the new mining law was passed and the government started demanding additional transfer charges and all. In the new reform, we are told this transfer charges will be removed. And as a result of that, we cut an ongoing dispute under which we were not taking position of the mining lease will get resolved. And if that happens, obviously, the Rajasthan project comes on under radar far more quickly than we were anticipating. And that's purely a result of the mining reforms that have been proposed, approved by the Cabinet and now into the Parliament. So Rajasthan, which we haven't spoken for a long time, but today, I'm a lot more, I would say, confident that Rajasthan should appear on our radar. And quite honestly, as of now, if we are able to use our capacity, clinker capacity, in where we are basically Telangana and in Karnataka. If Rajasthan comes up faster, it may actually be the first kiln line to be put up where we are today. So it's so dynamic in terms of our thinking the way we'll approach it. But like I said, this I'm giving you more as to give a hint of how our thought process is going. There's no firm decision, but these are the things, which are -- which obviously come into the dynamics and you can start reviewing your decisions. On the waste heat recovery, CapEx that I had indicated that hopefully, we should be able to close that within -- by now. Unfortunately, we haven't taken a final decision. Now while I'm saying unfortunately, but it's because of a fortunate occurrence that has happened, we've come across a thought, an idea through which we have an opportunity to rationalize the total investment in the waste heat recovery by as much as INR 15 crores to INR 20 crores. It's a very interesting thought that one of our colleagues have brought up, and we are examining that. If that happens, we'll be able to do the waste heat recovery plant at a significant saving of 52% compared to what we accepted the project cost of such a project is. So although it may have caused us a delay of a month or 2, but I think when that much saving is available on the table, you don't want to just leave it there. So we are working on that. But yes, as of now, have we placed the order? No. We've done all the groundwork. And hopefully, at a more optimized cost, we should be able to place the order in the next few weeks. So we are working on that. The last bit that I just want to touch upon is also we have talked about other ways of reducing the cost. So we have, I'm sure, most of you who track us would have reports that we have signed up agreements with a solar power player in which we are investing 26% in equity to be a stakeholder for each to qualify as a group captive capacity for our plant in Jalgaon, which is in the state of Maharashtra. So that agreements have been signed up, and the solar power company is in the process of executing the project. And our expectation is that somewhere early in Q2 of FY '22, we should start getting solar power from a good capital investment that we're making currently. So that is being addressed, and there is progress on that also. So these are, let's say, all these things, which I knew that all of you would be curious about. So I'd try to quickly sum up everything in this so far and available now for questions at your end. Thank you.

[Operator Instructions] The first question is from the line of Prateek Kumar from Antique Stockbroking.

Sir, I had a question on your key market, Maharashtra. So has the demand in Maharashtra like sort of recovering like month-on-month, even in 3Q, or there was some sluggishness in December? And how is it panning out like in Q4 currently?

No. Demand in Maharashtra actually has been improving. It certainly has been improving. What I mentioned earlier, it's not improving as much as we are seeing in the markets where we are not operating. When you see some of the results coming out and people reporting huge growth in volumes, that kind of growth is not being seen in Maharashtra. But yes, sequentially, we have seen stunning demand throughout. And that's why even the major volume improvement, as I mentioned, that we found in the Q3, and most of it I said has actually come from our supplies to the B2B segment of the market, obviously, that's coming from projects that are happening in Maharashtra. And that's helping the demand in Maharashtra, certainly.

Sure. And just for your grinding expansion, which you mentioned, which might come in like 18, 20 months, what's the CapEx number we should pencil in for '21? And '21, I understand, will probably be near INR 50 crores. But '22, '23?

FY '22, '23 -- see, grinding capacity of about 2 million tonnes, typically, the cost is expected to be between INR 450 crores to INR 500 crores, right? That's the bulk or the rule of thumb, which we know. At times, we are able to get it a little around INR 400 crores, but INR 450 crores to INR 50 crores is more the ballpark, including the investment that we need to make in railway siding and things like. Without railway siding, running a strict grinding unit is very, very expensive. So that, to my mind, will be spread over FY '22 and '23.

So this is for 2 million tonnes, which you mentioned?

Correct. Correct, correct.

And this will be in Maharashtra or MP, which we mentioned again...

It will be very close to someplace where we have adequate fly ash security available at a very modest cost. So that's -- the priority is to have fly ash availability where we can transport our clinker, and from there, distribute cement further up northwards.

The next question is from the line of Sanjay Nandi from Ratnabali Investment.

I just missed out the initial conversation, can you please kind throw the volume numbers for this quarter?

Sorry. Your voice is rather weak. Can you repeat the question, please?

Yes. Surely, sir. I just missed out the initial conversation. So can you please help me with the volume numbers for this quarter?

Volume numbers for this quarter. Manish, please tell him the volume numbers for the quarter, yes.

13.59%.

13.59%?

I wish people join in time and don't waste everybody else's time.

13.59%?

Yes, 13.59%.

Okay. And what is the pricing scenario as of now, sir? It is exit -- from the exit of Q3?

From exit of Q3, pricing is under pressure right now in the markets that we are operating, certainly, not by a huge margin, but yes, it's -- I would say, stable with a slightly soft bias.

The next question is from the line of Gaurav Rateria from Morgan Stanley.

Sir, just want to understand what would be our clinker transportation cost right now? And what is the rule of thumb for what could be the distance one should look for as far as clinker transportation is concerned to have a decent positive contribution margin?

Yes. See, typically speaking, I mean, the grinding split makes sense at a distance of, I would say, between 400 to 600 kilometers. Less than 400 is around 300. You can actually keep doing this at your integrated plant, you're better off. You don't have to set up another infrastructure, right? But beyond 600 kilometers start becoming unviable. And from that perspective, unviable, unless you have slag distribution, because large -- being -- you can add a lot more of slag, and to that extent, a lot less clinker needs to travel. But I'm typically as of now looking at markets which have fly ash availability. So not more than 600 kilometers is -- or ballpark just about 600 would be maximum. Typically speaking, the transportation cost of clinker going by our experience right now where we are supplying clinker to Jalgaon split grinding unit, it comes to about INR 1,200 per tonne of clinker, which when you convert that OPC and obviously per tonne of cement, it gets moderated. But pure clinker, it would be ballpark, INR 1,200 per tonne.

So fair to say up to 600 kilometers, we will be competitive in the market and still have a decent contribution margin for that new split griding unit if that is what the thought process is?

That is the only logic why we'll put a grinding unit. Otherwise, we will not. We're not -- look, I keep reminding all of you, we are not here to destroy shareholders wealth.

Sure. Sir, secondly, what is the current AFR mix? And how is it likely to change after the investments you were talking about in terms of some new initiatives, which you mentioned in the call today?

I mean Gaurav, there are few aspects we need to understand. See, nuance is going to the alternate fuels, right? When we say how much percentage, what is the percentage, how much we're using second also is at what cost it is available right?

Right.

So we can actually have a much higher usage of AFR without much benefit in value because you are using AFR, which everybody is after, and obviously, the prices of those kind of alternate fuels go up. I mean there is carbon black, even, let's say, the agricultural waste. There are too many users, the cost goes up, and I can report to you a huge amount, but the net benefit doesn't come out much. So while we are using a lot of what is available as a cost-effective AFR today, the investment that we are making is to be able to handle AFR, which comes to us at a much cheaper cost, right? So as a percentage, it may not look higher. But if, for example, as I mentioned, if I'm able to get hazardous pharma waste delivered to my plant at a negative cost to me even if it is 2%, it gives you much better benefit than having 15% of a well-priced AFR, right?

Sure.

So that's what when I was saying that including handling of hazardous waste, that objective because we have sources around our plants where, actually, we can get delivered hazardous waste at our plants at a negative cost to us. And for that, the CapEx upfront becomes very viable because you're getting that -- somebody is paying you to consume it because it's a huge nuisance for those suppliers.

Sure, sure.

So I thought I'll clarify. It's not just a percentage also at what cost it's getting delivered.

[Operator Instructions] The next question is from the line of Navin Sahadeo from Edelweiss.

Can you hear me?

Yes. Navin, I can hear you, yes.

So congrats on good set of numbers. Sir, you mentioned about the 2 million tonne grinding unit, which is being conceptualized. So have we already moved with, let's say, environment clearance for all this? Or...

No, no.

Or we have already obtained? As in what is the status there?

No, no. We have not obtained. We have not sort of in a way got any clearance. So that's why I'm saying about 18, 20 months because if we had obtained that, I would talk about 12 months, right? Putting a grinding capacity does not take that much time. It's including the time we will need to get -- but knowing how grinding unit approvals are processed, those are much faster compared to clinker, right? And we have shortlisted at least the location that is on our mind. We have not -- I'm not making it very obvious because we still haven't signed up -- the MOU has been signed, but there are no firm agreement signed up yet with the location. But yes, some work has already happened, and we are considering the location where fly ash security is the biggest, biggest comfort that we have there. And our expectation is that the environment clearance for a grinding unit will be available much faster than the other approvals.

No. The reason I'm asking was in terms of the preparedness, in a sense, the acquisition of land is the most important, like, factor, which decides on the timing factor when the plant comes into action.

Good, good, Navin, that you asked the question. The site we are talking about, the land that is assured to us.

Okay. Okay. And in that case, then, even the state incentives typically, which come along with grinding units, we could be eligible for that as well, right?

Yes, yes, yes.

Interesting. Interesting. My second question was about waste heat recovery. You said probably there's some thought process being worked as to saving the cost almost about INR 15 crore, INR 20 crore. But I mean -- and definitely, we look for a positive outcome on that front. But by when do you see that ordering happening? And when -- like -- and in a broad range, do you see this waste heat capacity coming on board? And what capacity then?

The capacity is still unaltered. As we said earlier, about 10 megawatts is what -- has been conceptualized given the waste heat that is available at Chittapur currently, right? So that's the stage where it is. Last time when we were doing the call, I said the investment might be about INR 100 crores because INR 10 crores per megawatt is the rule of thumb that is being assumed, right? So the -- and the typical construction time for waste heat recovery plant is 12 months ballpark as every contractor has been quoting to us. So if you're able to take a decision in the next 3 months, then another 12 months of construction time would believe the safe enough assumption, give a month or 2 as buffers.

Sir, one last question. Please remind me -- pardon my ignorance, these Rajasthan mines which we have, are they in a subsidiary? Or what is the...

The situation was these Rajasthan mine or mining lease, rather than mine were given to us during the time when we had not demergerd. It is Orient Paper's time, okay? So in 2012, when we got demerged we applied to Rajasthan government to transfer the mine in the name of Orient Cement under the scheme of demerger. That the Rajasthan government has not transferred till date in our name. So -- and that is what we're trying to -- because they were insisting -- see, they didn't -- we applied to them in 2013 after the court order came out. We applied to Rajasthan government. They took their own time. And in the meantime, and in January 15, the new mining law came, they started the mining transfer charges, which is a huge cost to have.

Yes. Understood. I recollect that.

It's a court approved scheme, we applied to in 2013, you do not approve it until 2015. Now you want to apply to 2015 law to a demerger, which happened in 2012, '13. So that was our fight with them. So it is still not in our name. As for Rajasthan government is comes under the name of Orient Paper Industry Limited.

Understood. No, I recollect that now. We have had this discussion in the past. And sir, my last question. Rightfully so, since we have surplus clinkers, as you said, clinker expansions can wait for a couple of quarter. Grinding units can certainly come forward, and existing clinker assets can be -- like we can sweat existing clinker assets more to get benefit out of these grinding units?

Right. So also I mentioned the bulk terminals up there.

Yes, yes. Certainly. Certainly. So don't you -- then, like, would you -- then what's your view that even that same logic applies for the grinding capacity because we're running all said and done, at about 60 or 70, so even a grinding investment can wait for a couple of quarters before we take that plant? How should one -- investors rather look at this strategy of expansions from this point of view -- utilization point of view?

Both these initiatives, whether it's a bulk terminal or a grinding unit that we speak of, enables us to markets that we are not addressing today. And that's how it can expedite usage of the existing capacity. Because, obviously, they will be putting up in a market -- will be put up in markets where today we're finding either difficult or uneconomical to service those markets, right? The logic is if you're able to reach more markets compared to whatever current footprint allows us, that amounts to utilizing, you are sweating your current resets a lot better. So that's the logic.

The next question is from the line of [ Bhoomika ] from DAM Capital Advisor.

Sir, just wanted to check when we're looking to expand into the Maharashtra market and putting up a grinding unit there, there are over the next 1 to 2 years several players also looking to expand with the likes of Birla Group, Shree Cement and also in terms of Dalmia's plant being operational.. So how are you seeing to kind of compete effectively? And will the market be able to absorb this kind of incremental supply and thereby have an impact on prices, your view on the same?

Yes. I have learned from experience there no markets where competition is either not there or is not likely to become more intense, right? But that's a given. That's a given. So how all these capacities get absorbed is through the increase in market demand, which may not have immediately when you put up the capacity, but we'll just go back to the time in 2013, '14, when we were briefing all the investors that we're putting up this new 3 million tonne integrated capacity in Gulbarga, everybody was telling me, how are you going to sell? There is [indiscernible] plant next to you. There is [indiscernible] next to you. You have [indiscernible] plant next to you. How are you going to compete with them? And look where we are. Today, we are -- last year, we're running so close to selling full capacity from Chittapur plant. And this is despite the fact that the Dalmia's capacity, the JK capacity and Shree cement capacity came up even after ours, even then, we are all managing to operate, right? Sitting there and taking a call for investments, which are much more long term in nature, are based on, let's say, your forecast of the market rather than what has happened in the recent past. So we do take into account all the capacities that exist, all the capacity is likely to exist, what are our key, I would say, competencies, which will enable us to be competitive and be successful, only then we'll take these decisions. Our current analysis -- and there's a full technical advantage feasibility that has been done on the site that I'm hinting at to sort of in a way have enough comfort in our mind that we'll be able to find enough market at a competitive return on the capital. So that obviously is a very detailed -- as you know, none of this will get approved by our boards unless we have the full technical feasibility is done by independent consultants, right?

Sure. Sure.

Yes, yes. So all that is valid. And like I said, I mean, today, we thought -- just to sort of -- one perspective is what we did in Gulbarga or Chittapur. Second perspective is when we went to, for example, Jalgaon grinding unit, I'm talking about now many years ago. At that point in time Jalgaon looked like a virgin market. Now look at that. Other people are still coming. So even when I go to a virgin market, where is the guarantee that new people will not come and put up capacity. So the competition is a way of life in any business as we pick up. And we need to find our own in our strength and capabilities to stay competitive, which I think we proved by now enough that even when we put up additional capacity, we managed to sort of pulled our own and be in the markets, even the markets which have been extremely difficult and testing for us for some quarters, as all of you know.

Sure. Sure. Sir, the other thing is, would it be fair to say that next year, we will end up being around INR 250 crores, INR 300 crores CapEx, part of the GU-related CapEx, then there will be the WHRS, maintenance, the AFR, et cetera, kind of CapEx? Would it be that kind of number that we should consider?

No. FY '22, I think it will be a slightly slow start as I was answering to Navin also because by the time we get on approvals on a little -- a significant amount would have gone. And typically, these CapEx's start a little bit slow. A large amount of time is taken in doing the civil construction work and then also at the lead time of the basic grinding mill itself, right? On those things upfront or the initial phase, costs are lower. The major cost comes towards the end when the equipment is reaching you. So from that perspective, I'd rather look at the CapEx for the next 2 years rather than singling out FY '22 and trying to bifurcate. But over the next, I would say, FY '22 and '23, all told, yes, we could look at maybe INR 650 crores or INR 700 crores or thereabout of CapEx over the next 2 years.

The next question is from the line of Prayatn Mahajan from Kotak Institutional Equity.

This is Sumangal from Kotak. A great set of results and very detailed opening remarks. That was very helpful. Sir, I just had one question. You touched on this interesting topic of mining lease. I know it's still very early stage, but is it possible to share some mores detail in terms of what are the results there? And in case these things get sorted out under mine reform, what time line and what capacity can that mining lease support?

While I appreciate your curiosity, just give me a few more weeks. I'll come back to you. Let the government pass this law first. Right now -- like I said, we do know it's going to come together. And we are -- actually, parallelly, when this is happening, we've already deployed resources to do a complete fresh assessment of the total reserves because what the figures that we have is a little dated right now because we haven't had access to that area from 2012 onwards from the time we got demerged, right? So we have actually, as we speak, the resources already deployed doing deep drilling in that area to finally give us what are the likely reserves before we spend even a penny more. So I'll come back to you. As we -- let's say, the time for that project to sort of be brought on the execution mode comes in, I'll share all the details to all of you.

And you said in terms of taking orders, can a grinding investment also be put behind that plant in case it comes up earlier than expected?

No. Look, the difference is the Rajasthan project would be a greenfield project, including mining clearances. Environment clearances for that are going to take much longer than it will be for the grinding unit. So as a result of that, I think in the time that we managed to put up the grinding unit, we may not even get the environment clearances for a new greenfield project. That's how difficult environment clearances are for clinkerization.

The next question is from the line of Milind Raginwar from Centrum Capital Limited.

[Technical Difficulty]

Milind, I'm not hearing you well.

Your voice is not audible, Mr. Milind.

Hello? Am I audible now?

It's much better, yes.

Okay. Sir, first, one thing which I want to understand is in the fourth quarter, what would be -- as a take from the company, would it be preferring to push volume by foregoing a bit of realization or it will be the other way around? [Technical Difficulty]

Sorry to interrupt, sir. Sir, your voice is breaking. I would request you to move to a better reception area.

Hello? Is it still bad?

No. I could get the first part of your question, Milind, where you want an idea of whether we would be sort of sacrificing volumes for realization. Milind, as far as we are concerned, we have enough capacity with us. The challenge is to find enough demand within the markets that we can address. The choice of limiting volumes to protect the price or to lower the price and sell more, I think those are day-to-day struggles. We don't know what tomorrow might call -- might be. We have to maximize both. We have to maximize volumes. We have to maximize the price. And how that gets played out is a function of every micro model -- micro market and every single order that we negotiate it gets decided on that because there's no upfront policy decision that we can take at any point in time. Because if parity is both, we can't lose the price, but at the same time, we can't lose the volume also. It's a very, very dynamic situation. I won't try to -- we found the right mantra to decide what is the right volume and what's the right price. We need the highest, best possible volume at the highest price that we can expect from the market. So it's a function of what customer, what volume, what terms, what distance, what are you talking about.

Okay. Okay. Understood. Understood. And second thing, sir, which I want to understand is, if we go on a steady state for beyond FY '22, say in FY '23, for the existing grinding capacity, are we -- first year at [ 5.3 ] clinker capacity, if I'm correct? Or am I right?

No. Roughly, you're right.

Yes. So if I had to go back to, say, FY '23 on the existing capacity, do we think that the clinker for the existing capacity would be -- we will probably add the conversion ratio. So for the new capacity, if it is available by that time, will be it short of time?

No. Look, the -- what I mentioned was, one, is, in any case, we are debottlenecking the griding capacity at Devapur, right, which I did mention about 0.5 million tonnes will get added by Q1 of the next financial year. In terms of -- while the clinker is available with us, the problem is we do not have enough market demand where we can supply if we keep grinding at the current locations. That's why the grinding units or the terminal becomes very attractive as an opportunity. Coming to the fact that by FY '23, we'll be running to, let's say, a clinker constraint to feed all the grinding capacity, I would be very happy to be in that position where all my clinkering getting around and being sold. And if there is a quarter or 2 finding clinker, I'll be happy with that rather than in the current situation.

Okay. Okay. Right, right. Yes, that is -- that was what I was -- and in that case, is the 2 million tonne grinding CapEx is then factored in, then probably we would be remaining at the same level of debt at about INR 900 crores, INR 950 crores currently? Or we will be still looking for reducing the debt?

Look, the -- as I mentioned, our priority is to maximize our profitability and cash flows, okay? Now if there is a viable CapEx available, obviously, we will take up the CapEx. And if viable CapEx is not there or it's not being implemented as of now, we keep reducing debt. So it's not either or. It's what makes more sense from the perspective of shareholder value. So only keep having one unidimensional purpose of reducing the debt, even while I'm not sort of creating a future for the company by at least creating some headroom for growth, that is not going to help the shareholders, right? So the -- for me, the strategy is how do we maximize our profitability and maximize the cash flows. How do we allocate that cash available is a function of whether I have good enough opportunities to invest and create further headroom for profitable growth or I reduce the debt because I don't have enough opportunity there.

Okay. Okay. And sir, lastly, the investment in our solar unit, how much of that could be, I mean, catering to our requirement of power add till now?

I think -- Soumitro, do you have the number ready with you? The capacity which we are getting through the solar project...

[indiscernible], and it would be around 40% of the requirements.

Yes.

40% of the 2 million tonne grinder at Jalgaon.

And Milind just to sort of supplement what I said earlier about the availability of clinker. Any capacity that you put up, even if it's a pure grinding capacity, you -- as I mentioned, it'll take us to newer markets. Newer markets means the utilization of the griding capacity happens in a gradual manner. So your question about will we run short of clinker? Although I did say that, yes, if there's a little bit of lag, and I'm sending all my existing clinker fully, and I'm happy, the fact of the matter in the tactical world is unlikely to happen because it's not that I put up 2 million griding capacity, and within the first year, I'm selling 2 million tonnes of additional cement.

Sir, just lastly, I mean, this 0.5 million tonne debottlenecking will be also some availability of excess cement there? Or...

No. That is the whole purpose. That is exactly -- see, we already have clinker available at Devapur, but our clinker capacity in the past at peak times have been found slightly short. And that's what we are doing through the debottlenecking. Okay. We have past 3. Can we just limit it to maybe one, maximum 2 questions more, please?

The next question is from the line of Ashish Jain from Macquarie.

Sir, I had 2 questions. In terms of your other expenses, this quarter, the other expenses have actually started inching higher on a per tonne basis both Y-o-Y and sequentially. So should we think that these costs are normalized, and from here on, the risk is mostly to the upside and volume's picking up and all? And secondly, is it possible to share the capacity utilization for your Devapur plant on a grinding capacity basis?

No. We don't share the unit-wise capacity utilization deliberately because we keep moving our manufacturing, depending on which customers where we are entering. So there's no fixed pattern there because all the plants -- as I've told you, we have a wonderful situation, and our footprint gives me, what I call, a golden triangle where all 3 plants are almost the same distance from each other. It remains a dynamic situation. If my fly ash cost at one place is cheaper, if my overall, let's say, delivery cost of some of the raw material become cheaper, I just move it to that plant because every plant has fair capacity right now. So giving a sharing capacity utilization of individual units starts creating expectation in the minds of investors that there's a particular pattern where I'm saying, no, no, we are very dynamic in the way we use our capacity. And from one month to the next, we can change depending on what the situation is. So that's not relevant from the investor perspective. It's purely, purely operational.

The last question is from the line of Rajesh Ravi from HDFC Securities.

Congratulations on a good set of numbers and detailed presentation. Sir, on the demand front, particularly, could you give some sense on, state-wise, how has been the demand growth or contraction that you have seen during Q2 and Q3, like, AP, Telangana and Maharashtra, particularly, Maharashtra and Karnataka?

In the 3 markets, which we consider primary markets, which is Maharashtra, followed by Telangana, followed by Karnataka, which are in terms of total volumes sold by us, right? So the Maharashtra demand is, I would say, more or less stable, slightly positive compared to last year. And Telangana has been showing the maximum degrowth. And Karnataka is somewhere in the middle degrowth but slightly smaller degrowth. Not slightly actually, significantly smaller degrowth in Karnataka compared to Telangana. But Maharashtra fortunately is stable to positive.

Okay. And when you say Telangana large degrowth, it would be more than 20%, 30% decline that you...

That will be double digit 20%, 31% -- 30% would have destroyed all of us together. But yes, it is in double digits, yes.

Okay, in double digits. And also on the trade and nontrade perspective, where is the demand maximum hit you? Or you're seeing growth even in Telangana on your trade portion, trade exposure? Or for the market itself, has there been any growth or even that portion is witnessing pressure?

See, the market overall includes trade and nontrade. So the degrowth that we are talking about is largely because the B2B market, the nontrade market in Telangana is not seeing major investments in major projects. So overall demand in Telangana is lower. It does not mean the trade segment demand is lower. The trade segment demand is positive. But on the B2B side, we are struggling there.

Okay. And would you have some -- can we get your perspective on how is Andhra as a market doing, sir?

Andhra, frankly, I'm not exposed to, but I believe Andhra is doing better than Telangana purely because the confirmed construction of housing under Pradhan Mantri Awas Yojana scheme, there's significant work going on in Andhra Pradesh better than Telangana. So that is a positive for Andhra players, and they are buying all the cement from only Andhra manufacturers. So I assume that the affordable housing scheme under Pradhan Mantri Awas Yojana, it's progressing a lot better in Andhra today.

Okay. This is where the Andhra-based producers are seeing strong volume growth in this quarter business-wise, whereas for you, Telangana exposure, the situation is under pressure. And even in Q4, the situation is similarly -- as similar situation as you are seeing in Q3 or there is a significant recovery at least in January that you're seeing on a monthly basis?

No. Unfortunately, in Telangana, we're not seeing much recovery as of now. But fortunately, for us, the trade segment there keeps kicking in. So we are selling lower volumes, but the net realization because of selling through trade becomes better. But overall demand basis, Telangana right now is I think it's still not showing recovery.

And lastly, on the trade-nontrade mix at 50% plus/minus. What is a 2-year, 3-year view? Do you see yourself positioning at 60%, 65% trade mix? Or it would remain -- you would be more comfortable doing the 50%, 55% types?

No, no. We will be comfortable doing 100% throughput, provided the market can take it. See, it's a function of, again, market dynamics. Look, when you're sitting at so much spare capacity, am I in a position to say that even when trade segment is not buying enough cement for me, I will not sell to nontrade to improve the percentage of trade. I can't do that, no. So as a result of that, if we -- for example, in Q3, not that we have sold less to trade, but my trade percentage come down slowly because the nontrade proportion has gone up.

No. My point is...

[indiscernible] where the market is Maharashtra needs nontrade cement for large projects. I cannot afford not to be -- not supply to [indiscernible], right? And as a result of that, my trade percentage falls. I'd say that's okay, but at least I'm able to sell some underutilized capacity.

Correct. My thought was in terms of like you're inching up efforts in the trade segment likely some of the bigger players in your markets who are more trade focused. And so obviously, any surplus can be sold off in the nontrade also.

No, no. We are, let's say, keen to sell as much as possible through trade and OPC -- sorry, and PPC. Given the choice to me, I will only sell StrongCrete and PPC and only to trade. Why would I want to say anything to nontrade? Problem is the markets that I operate, is there enough demand. Obviously, I can't have 100% market share in the PPC in the trade segment in the markets that I am in. I'm not the only player, right? But I do enjoy a very strong market share in all our major markets when it comes to trade and PPC. It gets distorted when nontrade demand picks up in the market, and I can't afford to say no to them.

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Krupal Maniar from ICICI Securities Limited for closing comments.

Thanks, Malika. On behalf of ICICI Securities, we would like to thank the management of Orient Cement for the detailed call, and thanks all the participants for joining the call. Thank you very much. Malika, you may now conclude the call.

Okay, sir.