Orient Cement Limited (ORIENTCEM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Orient Cement Q4 FY '21 and FY '21 Results Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Krupal Maniar from ICICI Securities Limited. Thank you, and over to you, sir.

Thank you, Ayisha. Good morning, everyone. On behalf of ICICI Securities, we welcome you to the Q4 FY '21 and 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. Thank you, and over to you, sir.

Thank you. Thanks, Krupal, and good morning and a very warm welcome. [Audio Gap] listen to us today morning. So typically, I guess all of you are so, I would say, always following us so closely, and most of you would have seen the results that we declared yesterday. But just to catch a few highlights. Obviously, it's been the best-ever quarter and the best-ever year in the history of our company. And this is [indiscernible] out of a year, which otherwise, I would say, has been quite a roller coaster for us in the initial few weeks, starting with 0 capacity utilization to the last few weeks, pushing us beyond our full capacity. So it's been -- I mean I don't think we've ever seen a swing within a financial year as big as we have seen this year. And as a result of that, the -- I would say, the Q4 that we've had, obviously, has been an exceptional quarter with the financial results being -- EBITDA at INR 205 crores and even the net profit at about INR 100 crores. A little bit of, I would say, understanding of that would be required, in my view. So in Q4, the results that you see have actually been enabled by -- I think the biggest factor has been a big demand upswing in the last 6 weeks of the quarter or last 6 weeks of the financial year, from mid-February until March end. We just couldn't cope with the demand, the pull that was there from the market. As a result of that, the volumes obviously went up to 18.5 lakh tonnes, which gave us a huge kicker in terms of our operating leverage because that obviously makes us efficient all over again compared to the rest of the year, when we had to really do something extra to conserve the costs. So good demand from the market, very high volumes, good operating leverage, and obviously, aided and abetted by our established track record of execution at every front, whether we are extremely busy, whether the demand is flat. There is a certain rhythm, certain way in which this company operates. And I'm delighted to say that every team member everywhere, right from the frontline salesperson to the blue-collar workers in the company, I think everyone is very clear and conscious of our ethos, our values, the way we want to be. So all that played very well in Q4 when we got the support from the market in terms of high volumes. And also, the pricing remained I would say, stable in the wake of -- I think it's adjusted high commodity cycle in which almost everything from coal to diesel, to pet coke, to steel, to whether we were buying the gypsum from somewhere, laterite from somewhere else, bauxite, every commodity has gone through the roof. And given the cost push that brings to us, fortunately, we've been managing to pass on the costs to the markets. And as a result of that, the margins have not just been preserved, but they've been strengthened, and that is what largely came. So in summary, the quarter 4 utilization as a whole for Q4 has been about 92.5%, whereas for the month of March alone, if we look at it, we are 100% plus. So that's -- and obviously, that led to -- with the pricing remaining stable, we managed to have revenues, which are up 27% year-on-year compared to last year. But on Q-o-Q basis, again, 38% because largely, the volume gain was tremendous in this particular quarter, although prices remained similar to what we had in Q3. So in Q4 to Q -- if it's Q-o-Q, the increase in revenue and increase in volume is roughly similar, indicating stable prices. The annual volumes, obviously, if we look at it, that's -- they are down about 13%. But that is in line with, I would say, the pan-India number, which DIPP has published, they have reported a degrowth of about 12% pan-India. And we believe that due to intense impact of the COVID-19 in Maharashtra, even in the first phase, and also states like Telangana not really kicking off on some of the major projects that they usually would have. So in our markets that we address, we believe the degrowth has been higher and which shows in our performance for the annual degrowth of 13%. So throughout the year, we've been mentioning that, but still I thought a recap would be useful. The price realization, as we report in terms of this thing is, for us, 8% higher compared to last year and fairly flat again over the previous quarter. And in this particular thing, lots of people, obviously, know that the pricing in the commodity cycle, most of the prices have been good in the market. But what we also have to remember is that we, as a company during this year, because the pressures from operations side but not all that great, at least in the first 3 quarters and the month, we managed to make lots of structural changes, lots of changes, which we believe are giving us now the competitive advantage in terms of cutting out the tail, rationalizing our channel network, rationalizing our customer base, rationalizing our structure in terms of how we go to market for the trade sales and how we go to market for B2B sales, how we go to market for key accounts and large project sale. Lots of those changes actually have been made, which have given us a better product mix, a better market mix, a better customer mix. All that finally results into the consolidated numbers that we report. So it's not just the market price and commodity cycle, lots of initiatives, lots of strategies that we have been implementing over a period of time. In this particular year, because of the opportunity available of time with us, we have actually pushed through a lot of what I would call, reforms within the company. So that definitely has been a big advantage. On the cost front, I think all of you who have been following us for many, many years, I think on the cost front, our theme has remained fairly constant, and by now, it starts looking boring, that we always sort of manage our costs exceedingly well. That's always been the case. Even when things look good, our focus on costs and to keep them very, very tight has always been there. That's again visible in this year also. The only costs which seem to have gone up during this quarter or during the year have been our transportation and we report packing transportation, but basically logistics and the packing costs together, and I think all of us are aware of the steep increase in diesel prices in the country and also the steep increase in the prices of plastics, all kinds of plastics in the country, which have actually added to our packing cost and added to our diesel costs. Those costs are, I mean, secular, I think, for everyone. And in our case also, we've been -- we've not been able to do anything to economize on that. But many of you always asked me the question. So yes, this quarter, we have had a little more progress with finding better, I would say, balance between rail and road. So in this particular quarter, I'm happy to report that as much as 22% of our dispatch has actually happened using railways, which obviously gives us some advantage vis-à-vis the overall logistics cost inflation. So -- but despite using railways a little more extensively, we still have an increase in our packing of freight costs, which I thought I'll explain upfront with you. That is the only cost which has seen a little bit of spike. Many of -- people privately, when they spoke to me, they were always worried throughout the year about the power and fuel cost, given the huge increase in pet coke prices, and obviously, in sympathy with pet coke prices, other fuel prices also go up. Because the overall availability of fuel -- because pet coke is now a critical part of the overall fuel mix, which is available in the entire value chain. So with pet coke not being there, obviously, other energy costs also have seen a spike. But in our case, we managed to, I would say, neutralize that largely by doing a few things. One was, I think I reported in Q1 itself when we did the Q1 results that we fortunately took some positions in the market on the booking of the fuel in time when people were not booking a particular fuel because they were reading the market in a certain way. We in this company sat down, thought a little deeper, went contra to the opinion which everybody else was holding and made bookings of fuels in time in advance, which played out well for us. We are sort of fortunate that the bit that we took or the call that we made turned out to be a very good bet. So that was the first kicker. Second has been the -- I think, throughout, we've been preparing our infrastructure at the plants to switch fuels based on their -- the net cost to us. So as a result of that throughout the year on several occasions, we've seen a churn between -- happening between not just pet coke and coal, but also various grades of coal, depending on which mine it's coming from because coal is a natural product. So with every batch that you buy, so how do we sort of quickly manage to switch our sources from different mines change, different grades of coal depending on the pricing that was available in India. And also, we have been, I think, able to use a lot more of what we call alternate fuels, which included rice husk, which includes carbon black, which includes many other kinds of municipal waste and even bio and pharma waste, which is called hazardous waste. So we managed to sort of, in a way, increase the supplies of that. We managed to put in infrastructure to use the alternate fuels, which go right to the extent of the hazardous waste, as we call them. So that's been, let's say, helpful to us in containing the inflation in power and fuel costs. On the other successes beyond the numbers of EBITDA that you people have already seen, I am happy to have, for the year also and for the quarter also an EBITDA, which is about [ INR 1,100 ] a tonne, which gives us a lot of, I would say, oxygen to start thinking and planning the next move that we can make because that has helped us in improving our balance sheet also. But before I go to that, I think it's important to point out that with the -- one is during the quarter, some bit of B2B business, the non-trade business, did see a revival. That's why the volumes for us and for the industry have been high, compared to the previous quarters, where largely, it was the trade demand and rural demand, which are supporting us. So in Q4, with B2B coming in, obviously, there were -- in the total volume -- the total volumes [ sold to paid ] was still higher. But as a percentage, there might have been a percentage to shift into B2B and large projects, which, like I said, doesn't hurt because we still sold more trade -- cement in trade segments than the previous quarters. And if we look at our total blended cement, if I include blended, I would call our PPC cement and if I include our StrongCrete, which essentially is the blended cement, it is not OPC, put together, we are very close to 60% of blended cement, I would say, 59%, 60% in that range and the balance is obviously OPC. But I'm also delighted to report today that our premium product -- please remember, I never call it a premium brand. I always call it a premium product because we believe this product is superior to any other product in the market right now. So premium product, StrongCrete, despite the handicap we have accepted to work with of the highest prices that we charge for it, has finally, in the month of March, actually, for the total out of -- from the trade sales, the volume has actually crossed 10% in the month of March, the exit rate I'm talking about. And even for the quarter as a whole, it is up 9% of our trade sales, which is where our targets really were to come. So we're happy we reached there. And that also adds to the NSR realization, as you people see and in the profitability. Because the more premium cement we are able to sell, the better we are. And the best news in this is that if we look at some of the markets, which we actually call our core markets, our backyard. I'm sure all of you know that our highest volumes actually come from the markets in North Telangana and Marathwada. That's been our -- the stronghold of our brand. In markets like that, there are some markets, some zones that we call them within the regions, where our StrongCrete percentage of [ paid sold ] is actually well into the teens. I mean some markets are even 15% plus. Why I'm mentioning these cases of 15% plus is it basically proves the concept, that is not just the price of the product which deters customers from buying a premium product. It's the entire package that we are able to make and present to the customers in terms of, one is the quality of the product itself; secondly, the technical support because, obviously, if the customer is spending more money, the customer needs to know how to understand this product, which is actually engineered differently, how best to use, how best to take advantage in the construction costs. So all those supports and the entire package that we offer is if it's beginning to get accepted in our core markets where the percentage is going to 16%. It gives us a lot more confidence that it's just a matter of time when many more markets will start realizing the benefits. It's just that in those markets, if the overall is 10%, obviously, in some markets around 15% and some markets would have done barely 5%, 6%. So these laggard markets, as I call them, for StrongCrete are markets where additive of a brand presence has not been very strong. There, it will take -- perhaps take us longer, but wherever our brand strength of the mother brand Birla.A1 will support us with StrongCrete, we actually have taken bigger strides than any previous year. And the -- as a result of the debt that we have and also in terms of the cash flow, so against nearly INR 569 crores of EBITDA, we have had a cash flow, which is close to INR 720 crores. We have -- because in this year, there was hardly any CapEx to speak of, we obviously utilized most of the cash to reduce our debt, which from a little over INR 1,200 crores when we were talking to you around this time last year, has actually been brought down on the gross level to about INR 770 crores. And on 31st March, when we have a gross debt of INR 770 crores, we also had cash in hand or liquid assets in hand and in the liquid funds or bank deposits and all of nearly INR 150 crores. So we -- our debt as of 31st March, net debt, net of cash in hand, was below INR 650 crores. And obviously, that hopefully takes care of all the anxieties that existed around this time last year with the heavy debt overhang on our balance sheet. So that's come down. And obviously, we continue to reduce debt. So even after the month of March got over, in the month of April, we have further repaid amounts to the banks to reduce it. It's just over INR 60 crores, but we're still holding cash in hand. So as we speak today, we have reduced the number out of the 6 bankers who lent us the money, 3 banks, we are fully paid and we have no relationship with those 3 banks. The balance 3 banks also, whatever installments are going to fall due even in FY '23, have stand repaid as of now as we speak. But we are not stopping here because as we keep making profits, as we keep generating cash, the intention is to keep using this to reduce the debt. And if we are able to, let's say, carry on with the momentum and by the end of this year, the financial year that we are in, the intent would be that the debt should be just about INR 100-odd crores at best. If we can totally pay that off, obviously, that will be the effort. But I don't think it will be even at INR 200 crores. So that's the, at least, outlook that we are carrying right now. And hopefully, that will give us a fairly, I would say, debt-free kind of a balance sheet, which creates the platform to start addressing our growth needs without causing anxiety in the minds of the investors on the debt side. As it is, I think the net worth of the company is beyond INR 1,300 crores. And if the net debt is INR 650 crores, so obviously, we're talking debt equity of just 0.5. But with INR 570 crores of EBITDA, the EBITDA-to-debt also is, what, not even 1.2 now. So which -- and last year, around this time was 3 plus. So obviously, those anxieties -- we felt those anxieties and with the performance, with the cash generation, all this put together, so on the debt side, I think we are breathing a lot easier now. And the process continues, not that on 31st March it stopped, as I said. We have been just through 1 full month, and we already paid [ INR 160 crores ], which covers all the installments in FY '23. So on the debt side, that is the update. One of the things I'm really proud of and that I want to mention, I know most of the investors are not perhaps that much worried about it or not that much bothered, but I'm happy to say that we have been a Great Place to Work-certified company. This year, when we were going for the survey, there were obviously a few anxieties on our minds because we had actually taken drastic cuts. Many people, salaries were cut. No increments were given. So we were a little anxious. All said and done, people who work with the company, if they are not getting the rewards, which are usual, looking in the corporate world, it could have led to a little bit of, I would say, anxiety. If not anxiety, a little bit of dissatisfaction amongst the people in the company. But I'm very happy to report that not only have we retained -- I mean this year, just to discuss or rather explain the number, 99.3% employees of the company participated in the survey, which is a phenomenally high level of enrollment. The moment we saw that much of participation in the survey that we knew that we were going to get certified. Not only did we get certified, our score, which in the previous year was 77%, jumps to 84% in a year of no increments and salary cuts. So that, in some way, explains the atmosphere, the environment in the company, that the employees can overlook such harsh measures and still believe that we are a great place to work, that gives me immense satisfaction and perhaps bodes well for the kind of company we are under way, we are able to hire talent and retain talent and things like that. So it's a great signal of how we can be further going forward. That's why I'm mentioning it, more than trying to wear a badge on my sleeve. Other updates because last time when we spoke, I had briefed you that our issues that we were having with Devapur mines between central government, state government, I had mentioned there was a difference of opinion. That's been resolved. State -- the central government has given the clearance to the state government to do whatever they need to do to make sure that we keep getting limestone from the mines. So that is being resolved now. More or less, resolved in just the last few days, a few weeks, rather, the COVID situation in Hyderabad and Telangana, every person is now busy trying to just fight COVID and not moving the files on mines. But we don't even need the mines right now. Mines will be required only when we have the expanded capacity becoming available. Before that, in any case, we have enough limestone. So not an anxiety, but that is still resolved. More importantly, I think that was known. But even this environment clearance that we needed from Ministry of Environment, Forest and Climate Change, before you can start any construction activity, that environment clearance has also been received by us. I mean throughout last year, I kept telling you that we've applied, we've applied, we've applied, we are following up. But that environment clearance has now come in hand. So at our Devapur plant in Telangana, we have now all systems go for beginning the activity for capacity expansion. But obviously, this clearance -- environment clearance has come during the second wave of the COVID that we are experiencing. I mean we need to wait for this to abate before we can start working with the consultants to start designing, retail engineering, then you float the tender and then you place the order, then the lead times. So I don't expect any major investment happening on the expansion project, at least in the next 3 quarters, it could be even 4 quarters. But the fact that we have all the clearances, there's nothing to hold us back, it is now our decision. And when exactly we are going to kick it off in terms of investment cycle? The message today is we have all the enabling things in place. Now it is our call. Have we taken that call immediately? No. We just want to see the impact of COVID for the next few, whatever, weeks, months. Then sit down, think hard, take the Board -- our Board through it, and then we'll also be informing you as we are ready to actually start actual outgo of cash on investments. Like I said, it's not happening in the next 2 quarters for sure, 3 quarters also unlikely. But whenever we finalize, we'll sort of -- obviously, we keep briefing all the investors in time. So we'll keep doing that because last time when we talked, I did say that we are -- while we are mindful of the hangover of the debt on the balance sheet, we also need to be mindful about the growth opportunities, which will go missing, if we don't start investing in time. That's been the thing. And the fact of the matter is that when we had February, March situation in Q4, I wish we had more capacity, we could have easily sold 30,000, 40,000 tonnes more. I mean we were actually having that kind of order book in hand, and we were trying -- telling customer, sorry, guys, we just do not have any more cement. And those are the opportunities which you miss once the capacity becomes too tight. And in any case, capacity creation in cement, as you know, is a matter of about 2 years before you get that in hand. So knowing that 2 years is perhaps already too long for us not to have additional capacity, we will need to take a call. But as of the date, the call has not been taken, but it's likely that we'll come back to you and brief you soon as to when do we think we can start doing the construction activity and the cash flows, which will happen, whatever, next 15, 18, 20 months. So give us a little -- a few more weeks, and we'll sort of come back to you on that. On the small debottlenecking project that we were doing at Devapur in terms of increasing the grinding capacity from the current 3 million tonnes to 3.5 million tonnes. That work has been done 80% until we got hit by COVID, and then we started losing the construction labor because, obviously, this project also needed some labor, very skilled labor. We were not able to continue the work at the pace. Although we had hope that by 31st May, we'll commission that additional half million in capacity. But that's been delayed. But I guess it's a matter of a few weeks until the COVID situation comes under control and the labor can come back. And so how do we sort of look at now the year that has started, the quarter that we are in? Quite honestly, the situation in the market, looking at how bad the COVID impact has been, we actually haven't seen a collapse of demand, and that's a very redeeming feature. Demand has slowed down. Obviously, the momentum of February, March that we were expecting that it will continue until monsoons arrive when the construction activity slows down. Obviously, the momentum is lost now because of the tsunami of COVID that we have today. But it's not sort of completely bad or as poor as it was around this time last year, although the impact of infections is much worse this time. But the impact on the business is not as much as it was last year. It was way, way better than that. And we are hoping that with the new numbers emerging that the infection -- the new cases seem to be coming under control. Hopefully, this year should not get as big of an impact of the COVID as we had last year. And in that sense, I remain quite optimistic that the goals that we have taken of 20% growth, 6 million tonnes of sales in this financial year. We are -- we believe even yesterday in the Board meeting when our Board was asking us, our thing was, look, it's too early to give up on the ambition or the optimism because we know that when the market allows -- when the conditions are there for market to consume cement, they will consume cement as was proved in the last 6 weeks of FY '21. The moment situation seems under control, I mean, this country was consuming cement like there is no tomorrow. Now that gives us the confidence that even if, let's say, a few more weeks are lost due to this ongoing COVID crisis, but when it comes back and post-monsoon, we can again look for a surge in demand. And fortunately, like I said, systems are well set in terms of agility, in terms of very quickly shifting gears and approaching the market with the product that they need and making sure that at all the time, we are retaining our market share. On the price side, again, given the, I would say, inflationary commodity cycle, everybody understand that if every commodity price has gone up, cement would also be a part of that cycle and will not be an exception. So as a result of that, although there are obviously pressures on the fuel costs especially and the diesel cost and the bags cost, but we believe that margins, by and large, should be protected, given the fact that currently, the market situation is allowing us to pass on the cost inflation to the customers. So that's, like, I would say, a summary of where we've been in Q4 and last year and where we see the situation right now. We are anxious, definitely, but that anxiety is coming more out of uncertainty rather than believing that everything is lost. So if you ask me what's your sentiment today on the market? My honest answer is uncertain. When you are uncertain, a little bit of anxiety is very natural to have, and we are entertaining that uncertainty in our mind with a commitment to remain agile, to remain responsive. We make no predictions, but the response to the emerging reality would be the fastest from our company, that's what we are promising our Board. And that's what I'm promising the shareholders also. Where it would it be, I think is anybody's guess, but I still believe, for a company like us to go for 20% growth in this financial year is still reasonable. Thank you. And those are my, I would say, summary and comments. I hope I've answered most of the questions that people normally have. But I know even then there will be many questions. And I'm now going to wait for the questions to come up. Thanks, Krupal. Thank you, everyone.

[Operator Instructions] The first question is from the line of Amit Murarka from Motilal Oswal Financial Services.

So just a few questions. Firstly, on your expansion plans and the investment plan. So now that deleveraging is also playing out well, I just wanted to check with, where are we on the 2 million tonne grinding unit that was planned? And also about the WHRS, has the ordering happened?

No, Amit, the 2 million grinding unit is part of the overall expansion plan, right? It's not a stand -- it will be a small grinding unit, but it needs to have the clinker also. So it will it be a part of that expansion plan. Waste heat recovery system, unfortunately, from the time that we were briefing maybe 3 months ago, unfortunately, the COVID situation in the middle where the technician needed to come and things like that, that couldn't happen because people were not traveling. And prior to end March, we were not picking up anything because we were so busy just meeting the demand in the market. But we are happy that we made that money in month of February, March, so that waste heat recovery becomes, I mean, easily paid out of the profit that we make. So no, the answer is waste heat recovery, until the COVID situation now stabilizes and the technicians from vendors can start coming in, we are not able to finalize it.

Got it. So in that context, could you also help me refresh what is the power mix right now?

Power mix, look, at the -- we have obviously a 50-megawatt power plant at our Devapur location, and we have a 45-megawatt power plant at Chittapur in Gulbarga. While the Devapur plant almost completely depends on captive power, at Chittapur we found there are opportunities for us to source nonrenewable power at a fairly competitive price, which is actually making us use half the power from our captive power plant, and balance we are actually sourcing either wind power or solar power, which is actually giving us -- so part of the reason why our power and fuel cost has been looking good is also because we've got good opportunities, good sources for renewable power at competitive prices at Chittapur, all right? So it's a function of which plant. I mean if you go to our Jalgaon grinding unit, that is 100% on grid power, where we have, as you might have read, we've invested in a small joint venture to -- in a solar power project because in Maharashtra, you can only do it as a captive -- or a group captive scheme. So we are investing in that. And so Jalgaon will start getting some solar power, hopefully, in the next 4, 5 months. So typically, it's each unit-wise. One unit is 100% captive, other unit is now 50% captive, 50% sourcing -- sorry, renewable part, not -- nonrenewable is captive, but renewable part. And Jalgaon only when the solar project comes up. Otherwise, they're all on thermal power, which is through the grid.

And just to understand the hesitancy on WHRS, is it because you are not sure about rating rates due to the second COVID wave? Or what would be the reason for that? Because generally, the returns [ have been ] rising.

Currently, it's only that the final quotation and negotiation with the vendors can happen when people are able to -- say, when we are actually negotiating the price. It's not that the courts have not come in. Courts have come in. We have started the negotiation. But when we pointed out certain areas for economy and reducing the capital cost, obviously, the vendor is saying we have to come and see your existing turbines so that we can find some cost-effective solution. But those technicians of theirs who need to come open our turbine, examine it and then give the final quotation, that got held up. So it is purely the technical matters. It's nothing else. We are not sort of any more concerned about not being able to use. That was history. That's why we didn't put it up along with the project. Now we are keen on doing it just that the COVID situation has caused many surprises for us from time to time. But it is something which needs to be done urgently. I completely buy that point.

Got it. And on the cost side, just wanted to understand a few aspects. So you said that you had an advantage of low-cost inventory. So how long will that inventory last for the pet coke?

That inventory is by now over. Obviously, nobody gives you fuel contracts which are longer than a year. That -- but post that, like I said, we kept switching. So initially, we started with good contracts. As things started moving, we were also very quick to move to imported U.S. coal, which again benefited us. And again, now we are trying to see as and when the opportunity arise. So it's an ongoing thing, almost every buying cycle, whenever we are booking, we look at it. And the fuel inventory, you can't -- I mean, typically, a company our size, any time we do a booking we do only 5,600 tonnes, which is not too big. And -- but the only thing is, are we doing it in time ahead of the market? And so far, we've been good at that.

Sure. And as regards, again, the fixed costs. So like last year, we saw generally the industry reframing our fixed cost as demand had dropped. So like, firstly, like how much is the demand drop now this time around, let's say, if you have to evaluate versus some large level of [indiscernible] level? And will we see, again, some fixed cost reductions coming into play?

Okay. Fixed cost, I think last year, we went through in first quarter, we squeezed every a little bit out of that. Fixed cost, you can't keep reducing because then it starts hurting the company and its basic strengths. So are we -- in fact, fixed costs are likely to be up this year, especially because, one, I think people are being given increments this year. Last year, we didn't. Last year, salaries were cut. This year, we are not likely to cut any salaries. So if the salaries are not being cut and increments have been given, salary cost go up anyway, right? Second is some of the maintenance costs, which we could postpone, we've postponed. Now you can't keep postponing them forever, then the machines will start breaking down. The other costs, which are more discretionary in terms of how much do you spend on advertising and marketing, those costs obviously will be calibrated with the demand, right? So that's on fixed cost. But overall situation, as we speak, and as I'm sure all of you know, the first 6 weeks of this financial year are obviously a lot better than the first 6 weeks of last financial year. You know that, right? Because first -- last year's first 3 weeks there was zilch operation, 0. This year, nothing has stopped even for a day. So the crisis that we went through last year when -- and when we sort of strike to cut out every single item of fixed cost, which could be reduced or deferred, that has already been done. But there's no unlimited scope to keep reducing costs. You can't say, I will -- even the second year, I will... [Technical Difficulty]

The line for Deepak, sir, got disconnected. [Operator Instructions]

Yes. My apologies, I think the call just dropped. Just couldn't help it. That's how now lines are these days. So Amit, I hope I've answered all your questions. Can someone else ask now?

The next question is from the line of Navin Sahadeo from Edelweiss.

Can you hear me?

Yes, Navin, I can hear you. Can't you?

Great. So congrats for the great set of numbers, and indeed, very heartening to know utilization is crossing 100% in the month of March. So very encouraged to see that. I just had one question because most of the questions you have already answered with your, as always, initial comments. Just one question. This MMDR amendment coming into like play now and that's seen the light of the day, where are we on the Rajasthan mines? And what is the plan there, given that I think if it's a mining lease, it requires the plant or the mine to get operational between 3 years? So that's my only question.

Absolutely valid question, Navin. Navin, the issue there was that we've been in, let's say, in touch with the Rajasthan state government, who was insisting on leading transfer charges, whereas we were saying that this was -- just to remind everyone, this was Orient Paper time mining, right, which needs to be transferred in the name of Orient Cement Limited, right? So that transfer has not taken place as yet. Under the new MMDR, right now, obviously, the state government stand that transfer charges are available. They obviously has been operated by the central government, which I had mentioned in my last quarterly call also. So now we are back with the Rajasthan government to now first transfer the lease in the name of Orient Cement from Orient Paper, only then the time limit starts applying to us.

Okay. So once this is transferred, thereafter the 3-year period...

Correct. Correct. Yes, yes. Until the transfer of the mine is in our name, that obligation doesn't kick in.

Right. So I'm sure investors will be keen to know that what is the, let's say, some scenarios there? Are you looking at it happening in a couple of quarters? And then, because since it's the time-bound thing again, are we keen on going ahead with our planned debt because it will be certainly a sizable CapEx?

Yes, absolutely, Navin. Navin, it's like this. What happens in these kind of cases is that when the plant is not put up in their lands, obviously, all the time, you will actually see that those lands, which are there, they always keep having people who start other activities there. So we are actually already in the process. We are very nearly sort of done with reassessing the limestone availability in the land, which we can access, right? And that's -- the initial estimates by [indiscernible] seem to be very encouraging. We're just double checking that because we need to make sure that before we put up any CapEx there, we need to have limestone availability of at least 40 years, if not 50 years, right? So from all indications, it seems that it will be -- yes, we should be able to do that. So we will definitely be looking at -- and like you also mentioned, Rajasthan is one market where we believe we should go because we've been looking for diversification away from our current markets. So Rajasthan remains a very attractive destination for us. It will not be a project which will be, for us like typically, we try to put up a 3-million tonne capacity. The mines there and the reserves available there may justify a capacity of around 2 million tonnes or maybe a little under that. So we'll have to size that carefully before we kick off. But yes, we will need to take it up with a little bit of urgency once the mining business transfers [ demand ].

But just one question there because since it's time-bound and then the process of acquiring land and everything is there, you think we'll be able to make justice of that -- I mean able to use this asset, that's pretty clear, right?

Look, again, fortunately, whether it's central government, state government, they are aware of the realities of land acquisition and things, right? So if it doesn't happen, but the biggest to see that we made sincere efforts, we acquired while the land -- the extension was always granted. But they would like to see our sincere action on that, which we will take, right?

Okay. Okay. Yes. Fair point, fair point. So we'll look forward to hear some more development on this front.

Yes. And we also are waiting for more clarity because until the transfer, the mining is in our name, there's nothing to talk about. We are still -- I mean I know enabling things have happened, but the transfer is still not there.

Yes. Yes. But I think it's -- given that it's a very lucrative region and the company is also keen to go there, I think it will be something which investors will cheer.

Absolutely, absolutely.

The next question is from the line of Prateek Kumar from Antique Stockbroking.

Great set of results. My first question is on your demand mix. You said likely you were operating at very strong utilization. So demand -- so the volume traction from Telangana market, which I guess constitutes around 20%, 30% of the volume, has that also like sort of kicked in again? Or market mix changed significantly during the quarter?

No. As we talk of either Q4 or FY '21, our mix has remained roughly the same. We still are a little over 50% in Maharashtra. We are about 30% in Telangana and Karnataka. We remain about 13% or thereabouts. So in fact, Madhya Pradesh slowly, gradually because we've been trying to go north and Telangana was not kicking in as much as we wanted. We started going further up north and the Madhya Pradesh volumes have now actually reached 13%, which is which is higher than our Karnataka volumes. So that market has expanded in that direction. Broadly the same, except a little more volume has gone into MP compared to what we used to do in the past. But generally it's, I would say, the same thing, about 50%, 52% in west, 30-odd percent in south and the rest 13%, 15% in central markets.

So maybe Telangana is compensated by Karnataka volumes being higher. Or Telangana...

Karnataka and also Madhya Pradesh, as I mentioned, because in Devapur we can go through Maharashtra to Madhya Pradesh also now.

Right. Yes. And second question is on -- is there some reclassification of expense between raw material and other expense during the quarter? And what is it exactly?

Yes, yes, yes. I think that perhaps, I will ask our finance team and both Manish and Soumitro in the call, to send out some more detail. See, what happened was that we were actually very uncomfortable last year, especially when the -- all of you starting looking at our fixed costs and all. For whatever reason, many companies in the cement industry is driven by the auditors, in fact, until a few years ago, the mining expenses for limestone we used to always book at cost of raw material. Then the auditors came in, no, no, no, large companies are booking that cost under fixed costs. So this year when Soumitro joined us, he picked this issue up very strongly with the auditors again. So it's a complete misrepresentation, that's something which is direct variable cost, and mining of limestone is like raw material cost because I'm not buying raw material, I'm just mining it. So why is it so -- and finally, the auditors have come around. So we have done classification of mining costs, which are actually variable costs into raw materials. And obviously, they go out of the other expenses, which typically everybody believes are fixed cost. They're not all fixed. So there were -- some reclassification has been done. Manish and Soumitro, can you do all the -- our usual mailing list, can you send out the detail of classifications so that they can look at it?

And royalty also has been [ reclassified ]...

Yes. Because again, royalties are directly [ is a cost ]. It plays on every ton of limestone that you take out of the mine, right? It's -- there's no fixed thing in it, but this is precisely the anomaly in reporting that I don't know why so many companies in cement industry have that. So we are correcting and that's largely credit to Soumitro who took it out and messed with auditors, who saw the point in [indiscernible]. [Technical Difficulty]

[Operator Instructions]

I am hearing you.

I think you're audible.

Okay. Maybe some [indiscernible] had happened. So that's the background. And what I'll do is I'm on the call itself, I'm requesting our CFO and Manish who himself -- the relationships to send out maybe a brief note as to what's the extent of reclassification so that you can recalibrate your historical records.

Am I audible, Deepak?

Yes, Soumitro, you are. Now you're audible.

Yes. I just want to complement one point that you've made. One is, of course, the classification that Deepak alluded to. I think also as a part of what we did last year, is a lot of our mining contracts, which were basically on a certain quantity on a take-or-pay basis, we have significantly been successful to variabilize those costs. And as a result, a large part of our binding costs are now more or less favorable and directly connected to production, which is also one of the reasons why we were able to swing it towards the raw material costs other than having a chunk of other -- chunk of mining costs in the other expense.

Soumitro, I -- that point, I do not agree with simply because those fixed costs are coming in only when the volumes drop because you have minimum [ guarantee ], which were already unusual in April-May last year. Before that, we were always doing higher the minimum guarantee so there were always variable costs.

Absolutely.

Yes. So that point is partially right, but exceptional circumstances. Otherwise, in principle, we never pay more than what we mine because the minimum guarantees are far lower than that.

Yes, yes, of course.

And just a final question on your capacity, sir. While we are still finalizing on CapEx, would it be fair to assume that capacity will increase from 8.5 million post-debottlenecking to over 11 million tonne maybe by '24?

Yes, precisely. I think we're at 8 million right now. Very soon, as I said, 8.5 million is going to happen. It just sort of got stuck. The 3 million tonne that we speak of, that is an additional clinker line at Devapur and a split grinding unit that earlier got referred to by Amit. I think those themes are very much on the cards. And given the -- one the approval status, secondly, also the balance sheet comfort and also the demand situation, we should -- I mean that will be very clearly the intent that by FY '24 we increase the capacity from currently 8 million to total 11.5 million. 0.5 million should happen very soon and another 3 million before -- within FY '24.

The next question is from the line of Milind Suresh Raginwar from Centrum Broking.

Just a few questions, sir. We have, in detail, mentioned about power cost. May I just request the average -- the fuel cost for the quarter and that comparable with the last year?

Fuel cost, I mean, I don't have the exact number right now in hand, but I know the fuel cost is marginally up, but power cost will be down. So on the blended basis, power and fuel cost, we are almost flat. So -- I mean, end of the day, that's how it gets reported. So I think, we don't know why we should be reporting these costs at [ later to you ].

Okay. So essentially, what we are seeing is the that alternate fuel -- that alternate power that was available at Chittapur helped with the rationalization of the power?

Certainly. Absolutely. It did help. Yes, yes, yes, very much.

Okay. That is...

Fuel cost is marginally high because it won't help it when the prices are up.

2 is -- sir, in the previous conversations, we had lined up for Devapur, and also we were looking at line 2 at Chittapur also. So is that also running parallelly? Or then we will now are trying to prioritize as Devapur, then if anything happens at Rajasthan and the Chittapur? Any change there, sir or...

Yes. So even, let's say, the last time when we said, I had said that we will take up these projects sequentially, not randomly. And now that all the clearances are in hand for Devapur, obviously, Devapur comes first in the queue. So we'll do the work at Devapur and some preparatory works for Chittapur we might do, but the actual projects where we will not take up Devapur is off and running. So we will tend to take it up sequentially. And as I mentioned last time also, the reasons are very clear. We need to be mindful of the balance sheet and the debt and the equity situation, our repayment capability and also the bandwidth of company and its management to be able to manage the projects, right? We are a midsized company. We -- I don't think as of now, we have the bandwidth to do 2 projects parallelly. I'm absolutely being honest about it. And also at the same time, how much debt do you want to raise, because when you're constructing it, the funds are getting consumed and no return is coming to the plant is commissioned until the capacity utilization increases. So we need to be mindful of those challenges before we dive into all the projects. And then as earlier, the question had come up, if in the meantime, Rajasthan comes up, which is a more lucrative market, which also is time-bound, we might need to then after Devapur, perhaps do Rajasthan before we do Chittapur. It's a little dynamic at this time.

Okay. Okay. The third question is, sir, on the mall expansion that we are having to debottlenecking at Devapur, how will that be supported with the clinker because clinker also from Devapur goes to Jalgaon, right?

Yes. No, the situation really has been that at Jalgaon, our grinding capacity has been underutilized for quite some time now. And that's the situation, which is a reason because of the market dynamics, because once the Chittapur plant came up, many of the markets being serviced by Jalgaon, we could service at a lower cost from Chittapur. So we shifted that. So the Jalgaon grinding capacity right now is fair with us, which we are not able to use because it's not economical for us to use it. Whereas additional grinding capacity at Devapur gives us that more economical option to grind more at the Devapur. So that's the balancing. So when you say clinker supply, because the extent and increase in capacity in Devapur is to compensate for the underutilization at Jalgaon. So the clinker will be sufficient still. The last 3 years, actually, the underutilization has been there but most maximum underutilization actually at the Jalgaon grinding unit.

And lastly, sir, if I can just squeeze in one more, is that after we [ reach ] other expenses, sir, there are some savings seen in other expenses. So any specific item that you would like to throw light on where we have gone for savings vis-à-vis the [indiscernible] recalibrate it with the volume growth?

Yes. No, see, it's like this. The 2 major expenses, which for, I'm sure, obviously, I would say, done in a manner in which they could meet the requirements, also the needs of the time that we're going through. One, as I mentioned, the one very large expense in regular cement company is the repairs and maintenance expense for the year, right? Given the fact that volumes were low, the maintenance work we -- was not required to be done with normal frequency. Typically, you will hear from the industry that 9 months is the normal life for the refractories in a kiln. So between 9 and 10 months, most of the times, you're actually doing the kiln shutdown and then you're doing it again. Obviously, every kiln shutdown, depending on the size, can cost you up there of -- upwards of INR 5 crore, and some can cost you as much INR 10 crores per year in term of maintenance, okay? Now if that 9-month cycle gets extended to 1 year, you already saved 1/3, but that's a function of -- because you didn't need that much clinker. So you ran it less, okay? So to that extent, it becomes partly variable, but it doesn't mean that you will not need to do it now. So it will get done. So largely, it was this repair and maintenance. The second large expense, which is similarly calibrated well with the market sentiment is the advertising and marketing, right, which is to support the demand. Now in a time where the market demand and people, especially on the advertising side, there is hardly anybody in a need to consume what your consumer communications are. You can economize on that and do a -- do things a little less to save money. But when the demand picks up, for example, in the month of February, March, when it picked up, we were again encouraged to start spending a little more there. So that can calibrate in our discretion as to what the market needs. So these are the 2 large expenses. Others are minor expenses here that we will keep tweaking all the time.

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

Congrats on great set of numbers. First, on the mining expenses, the reclassification. You mentioned that [indiscernible] raw materials into other expenses. So from which year is this -- the reclassification had happened earlier, sir? If you would recollect?

I'll have to look for the recorder and those are the kind of things that I'm not carrying in my mind. I can't possibly [indiscernible] classify it. Yes.

And to the CapEx front, when you mentioned that currently, Devapur would be total 3.5 million tonne expansions, and therefore -- and then most recently Rajasthan [indiscernible] total 5 million tonne. So what is the total CapEx that we are looking at? And then the WHR, which is 10 megawatts, that would also kick in? So could you just explain what [ to expect ] over the next 3 to 4 years?

You want to know everything about the future now? Or should we stick that to FY '20, so that gives you some guidance of how we will update. So just today, what it said at that time, Rajasthan was not included. But if you remember the thing you attend every briefing, we had set the total CapEx to take the capacity from our current 8 million tonnes to 14.5 million is what we had said. And that we have said, will be total -- will be about [ INR 3,500 ], out of which if you are going to do Devapur first and the split grinding unit, that is going to cost us ballpark about INR 2,000 crores, which is something which we are looking at, I mentioned by FY '24. And thereafter, it depends on whether we are doing Rajasthan as a greenfield or you're going to do Chittapur as a brownfield. That'll change, right? Because we can see the brownfields cost differently. So let's wait for the right time when we take that decision. In the meantime, my guidance would be, we will be looking to invest close to INR 2,000 crores, maybe a little under, but including waste heat recovery plants, that by FY '24 to bring the capacity up to 11.5 million tonnes. But beyond that, there are ambitions at Chittapur you can find and also Rajasthan now that is becoming viable as the [indiscernible].

Okay. And sir, on the...

We will see the total for Chittapur and Devapur expansion, we had budgeted about, if I remember it, like INR 3,600 crores.

Sorry, how much? Can you repeat again?

INR 3,600 was the number I had given. And as of now, I have no reason to change it.

No, issue there. Ballpark number, this helps. And sir, on the 1Q?

Out of which, what we'll take-up is just nearly half of that, which will go into the additional capacity at Devapur in the split grinding unit and with [indiscernible] plants.

Okay. Okay. And sir, when we talk about this 1 quarter, the trends that are shaping up, amid this COVID second wave, how is the -- on the ground in terms of utilization you're seeing versus what was expected, are you seeing lower utilization or demand remains firm? And on the cost side because of the overall fuel cost inflation, ballpark, what sort of inflation, at least where we stand today is visible in 1Q?

I can only give you the broad industry level because...

Yes, broad industry data, sir.

[indiscernible] is the ongoing quarter, right? What I can share with you is that in the first, let's say, 6 weeks of this financial year, the demand or rather what the industry is selling is obviously a lot more than what we sold in the same time last year, obviously, because April shutdown was not -- the lockdown was not announced. In terms of volumes, when you say expectation, well, my expectation was that the momentum of March will continue until at least April, May, which obviously has not happened. So if I -- if my estate of industries, the volume is right, at least in the areas that we operate in, I will say it is maybe at about 70% of what we saw in Q4, ballpark, so there is a bit of a 30% drop from the Q4 momentum that we saw.

Okay. Okay. And on the costing side, fuel cost trend basis, how is the broad numbers looking?

Fuel costs -- I told the fuel cost is not one [ limiting ] cost for us. It's the overall fuel mix. And we are managing it well. We are slightly maybe just marginal here and there, but that we are able to pass on to the market. So that's not hurting us as of now.

Okay. Okay. So [indiscernible] is also there, which is absorbing the inflationary impact?

Yes. Yes. Yes. Can we have maybe 1 last question, maximum 2 because it's now -- we might have other commitments to go after.

The next question is from the line of [ Partiv ] from [ NBN Brokerage ].

So congratulations on amazing set of numbers. Just wanted to have a couple of things. Most of my questions have been covered. I just wanted to check, what is the sales guidance for the current year?

6 million tonnes is what we've taken up.

Is the internal understanding, yes?

Yes. Obviously, internal. I mean the budgets are always...

Okay. And what would be the -- hello?

Go ahead.

Yes. And what would be the, sir, top line and profitability growth say over the current year and next year?

Sorry, that is -- you create your module. I'm not giving you your modules. I'm indicating to you what's our expectation of sales that we'll do in the coming financial year. I'm not giving you retail budget numbers here, you create our model, please.

Okay. Okay. And just the last question, sir, the funding for the CapEx by 2024, most of the portion will be funded by internal accruals? Is my understanding correct?

It will be a mix because if we are actually -- by the time you're sort of taking it up, we will be using that cash flow at least to further reduce the debt, right? By the time we start, we may not have debt, but we also will not have much cash in hand, right? So what will happen is -- but don't forget the construction typically takes, like I said, 18 to 20 months, there will be cash flows coming in even at that time when we have no debt. So in my view, I think the -- our debt personal internal resources within FY '24, will perhaps -- I mean half of it will come from our cash flows and half of it will be [ part of the debt ]. The indication that I gave you now is up to...

Got it. Got it. Got it, sir. I got your point, sir. And sir, my last question is like just in your understanding, are the margins, what -- these spectacular margins that we achieved in quarter 4, can we -- is that understanding that the similar margins will go and come like -- will go forward in the coming year?

That is definitely the expectation. It's -- like I said, it obviously is dependent on one, the operating leverage, how much volumes happen. So what -- I feel those 6 million tonnes operating leverage is how we sort of assumed it to be. Second also is hoping that the commodity cycle, the inflation cycle amid the prices of commodity high prices that have poked out. That also stays in place because market prices of cement will be a variable with a small player like us will have to just take it from what the market gives. So our expectation, currently, we see no reason to -- for prices to flatten especially when every commodity is high. So we would expect it to be sustained, given these assumptions. 1 last question, if anyone has, and then I'll have to wind up, please.

We take the last question from [indiscernible] from CLSA.

I had one question on the current demand environment. In the last year, when we saw things setting down, Orient was not as impacted by COVID and hence ones opened approval came all on slating. However, the same around rural area, unfortunately, has been equally impacted. So the current demand scenario, where you are saying you are at 70% of pre-COVID levels or Q4 levels, where these segments are driving this demand? If you can throw some light.

As on date -- I can only give the information as on date. In fact, I've been talking to my salespeople all over. As on date, the major sector, again, to disappear so far has actually been the small projects, not the very large projects. Those -- that demand is still there. And also the rural demand against all expectations, we were all worried. But so far, at least the rural demand also has been holding up. It's not holding up at the levels of February, March, but it's still holding. I mean that's why I'm able to say we are doing about 70% of the Q4 volumes. It's largely either rural or trade demand, rural and semi-urban or it is large projects where they have labor camps on-site because that is the only construction allowed. So wherever we are able to have labor camps and labor available on site, and that is not declared as a containment zone because some of the construction sites have been declared containment zones because of the infection. So we are seeing demand from trade side definitely and from non-trade only large projects.

And how is the demand in the urban or semi-urban IHP segment? Has that been totally collapsed?

Very low there just because people not -- the construction activity is not allowed unless you have labor on site. And labor is -- I mean urban IHP, nobody has enough space to keep labor on site. Yes. Thank you very much. Thank you, everyone, for joining in. Thank you, really time and patience and asking questions, which are very relevant. And thank you to the ICICI Securities for creating this platform where we can interact so well. Thank you.

Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

Thank you very much.

Thank you.

Bye-bye. Bye.