Orient Cement Limited (ORIENTCEM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Orient Cement Limited Q1 FY '22 Results 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.

Thanks, Malika. Good afternoon, everyone. On behalf of ICICI Securities, we welcome everyone to the Q1 FY '21 (sic) [ FY '22 ] Results Conference 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 stage, I will hand over the floor to Mr. Deepak Khetrapal for his opening remarks and which will be followed by interactive Q&A. Thanks, and over to you sir.

Thank you. Thank you, Krupal, and good afternoon, everyone who's found time to join us on this call to talk about how the Q1 went for Orient Cement. Before I proceed further, I just sort of [indiscernible]. I know I can't hear you, but just I hope that all of you have somehow coped with the wave 2 of COVID, which hit all of us in the Q1 in a very difficult manner. And many of us felt, including me, I also got infected. And I know some of our friends in the analyst world I knew at the time that they and their family members also. So I hope we've all recovered and went back to our own selves. Talking about -- I think the Q1 of this year. When we started out the quarter, obviously, we had the momentum of Q4 of the previous financial year with us and that continued in the initial few days, I think about 2 weeks or so. We're very happy with the momentum that we were seeing in the market in terms of demand in the first 2 weeks of April. As suddenly the wave 2 intensified, then most of the market started with Maharashtra, the lockdown, the measures to contain the infection was started off. The market, the shops limited opening times and then expect to other markets, Kerala, as you know, is perhaps the most impacted market even today and Maharashtra here. And then as the monsoon has sort of anyway become due, I think monsoon arrived in some parts of our markets really with a bang, a huge thunder and we had huge rains to start with. And so in many ways, I know it was not quite a normal quarter in many ways. And not being a normal quarter at the same time being compared with 2 quarters which were really outlier 2 quarters, I mean, if we -- normally, what do we do? We compare our performance in this quarter vis-a-vis the same quarter last year, which was an outlier quarter in terms of the impact of COVID on that. So it was not a normal quarter. And the -- sequentially, if we look at the preceding quarter, we perhaps had the strongest quarter that we can hope to see at any point in time, even when COVID is out there, in terms of demand and everything. So obviously, it's a quarter which is very difficult to compare and draw any meaningful conclusions from it because in terms of volume growth, we have reported 66% growth in our volumes and 68% value growth, which if we look at in the background where the pan-India DIPP data says that in this quarter, the industry has grown by 53%, our volumes of 66% growth seems higher than that. But I'm also conscious of the fact that last year, when the demand was hit, perhaps our markets were hit more. So from that perspective, a 66% growth also is a little bit of a reflection of the fact that perhaps the growth is coming from a lower base compared to the pan-India base that DIPP is comparing it with. But even then, like I said, it's good to sort of at least see the volumes where they have been in Q1. Compared to Q4, like I said, Q4 -- none of us, I think, expected that Q4 will get repeated in Q1 and it did. And we've had about 26% degrowth in volume in Q1 compared to the -- if we compare sequentially. That's how the markets have been, and that's how we try to cope with that. But I think overall, if you look at the situation, it's perhaps a lot better than what many of us are faring given the intensity of wave 2 of COVID. We -- if we look at realization, which obviously all of you have done your calculation, while it's more or less flat, just little over 1% increase in price realization per tonne compared to the last year's same quarter, sequentially, we've seen a significant improvement because I think what had happened was in February, March, the price had started seeing a little bit of softening, which got reversed sometime in the May -- month of May and June, we saw the -- [ this kind ] of persisting. As a result of that, we've had a good price realization coming from our markets. And although the costs were going up all the time, we still managed to sort of have the pricing in the market supporting our P&L. As a result of which, we have, I think, reported -- it does appear a little bit less sequentially compared to about a little over INR 200 crores of EBITDA to down to about INR 188 crores in this particular quarter. But compared to the same quarter last year, it's a huge increase. We're talking about 88%, 90% increase over last year. The more important thing, I think, despite the volume looking so much stronger, even a bolt-on basis, the EBITDA of this particular quarter has looked very good. We're talking about [ INR 30 or INR 80 ] or thereabout, which obviously has come largely from market pricing, but let's not also take away the impact that we are seeing that with the efforts that I have reported last quarter, even in the preceding quarter, in terms of changing our product mix, changing our market mix more towards the markets share closer to us, more towards rural and semi-urban markets, more towards markets which consume the blended cement, which is PPC. But also an impact of the increasing volumes that we are seeing in terms of this concrete, the [ A1 ] premium cement in the market. All that, on a blended basis, has given us the improvement in pricing and improvement also in the EBITDA gross figure and also EBITDA in terms of per tonne. In terms of further details, we do know that the operating costs have been marginally down over last year, but obviously, they look higher sequentially. On that, I think what's an important point to remember is that in Q1 this year, finally, we took the annual shutdown, the maintenance shutdown at our Chittapur/Gulbarga plant, which last year -- in fact, the whole year last year, we worked without taking a shutdown in that particular field. So that was completed during this particular quarter. So that had the maintenance costs coming in. Obviously, part of that also will go into variable cost, but are refractory in which we replace our booked in the materials cost. And the other snowballing impact of that was that we obviously did not want to lose the market, especially when the profitability was looking good. We shifted some clinker from our Devapur plant to Chittapur plant to make up for the required shortfall of clinker there, which obviously pushed up the operating costs. And also, the volume perhaps, I certainly think would have been a little bit better. But that demand around Chittapur was for OPC cement, which given the high cost of landed cost of clinker from Devapur did not make enough sense to keep selling OPC from Chittapur in the quantities that the market may have needed. So that also led to a little bit of volume being sacrificed purely because there's no point that there's no money being made in that sale. So those are the, I would say, impacts of -- one is the maintenance cost itself. Second is the cost of transferring clinker. Third is the cost of business that we didn't book because it didn't make enough financial sense. So that impact is already baked in the cost numbers that all of you would have seen. Second is also actually when we are looking at pricing on the costs, the fact of the matter is that in this quarter, we were again hit by the shutdown of several power plants because the demand for power was not enough. As a result of which, all 3 of our plants had to start procuring fly ash from power plants, which are much farther away compared to normal sources of fly ash, which put some pressure on the fly ash sourcing. And when I'm saying some pressure, Devapur where our fly ash landed cost is the cheapest. Even that had suffered tremendously because we were having to -- Jalgaon plant having to get fly ash from power plant near Nampur. So you can imagine the amount of cost increase that causes. These are the -- those are the various factors which have gone in. And the power and fuel cost, in sympathy with, I think, overall increase in fuel costs all over, including the entire industry, I don't think anybody could be immune to the increase in power and fuel cost. Our good news is that compared to the inflation that we have seen in various grades of coal or in pet coke, the -- on a year-on-year basis, our increase is just about 8.6%. But on the sequential basis on the preceding quarter, it's again up by about 6.8%. Given the -- most of the reverts that we've seen from our peers in the industry, I think we have managed to absorb, let's say, the market price of price increase in fuels are rather well. And while we've been hit, but we've not been hit as badly as we could have if we had not covered our fuel in time at favorable -- on to favorable terms. So beside booking the fuel in time, we also have obviously benefiting from what we keep reporting from our company in terms of the flexibility of fuel, so whichever fuel becomes commercially most viable. We switch very, very quickly. And the sources, while they move on one hand, on the other hand, we also have been trying to increase the usage of alternate fuels at our plants. And I know that question, most of the people have that question almost every quarter. So I thought I'll just point out right now also that in this particular quarter, our total, let's say, fuel mix has been coal around 77%. Out of which, 70% have been domestic coal, about 30% imported coal. Pet coke is down to now just about 12%. And alternate fuels make up for a total of about 11% in the fuel mix that we used in the last quarter. But I would urge you people to remember that the fuel mix is -- it's moving all the time based on the pricing of different fuels. It means nothing. We don't know how it will be in Q2 or Q3. But I'm giving you the numbers as we have for Q1. In terms of the, let's say, the pressures on fuel, I'm sure all of you were quite shocked to see the domestic pet coke price the way it has been sort of jacked up suddenly by a month or about INR 1,300, INR 1,400 a tonne at the start of August. Obviously, this is how the fuel costs are -- or rather the pet coke cost going to go. Pet coke is going to sort of get out of fashion. We'll -- most of us will perhaps start using the novel coal all over again, which most of us have already shifted. But even the 12% that we consumed in the last quarter, I don't know how viable that will remain in the coming few months, unless they get -- it gets moderated. So coming back to you would have seen the EBITDA at INR 188 crores. The other important point I want to point out is that the finance costs in this quarter compared to the same quarter last year, down about 41%. Last year, we had a total finance cost in this particular -- in the same quarter, about INR 27 crores, which are now under INR 16 crores. Function of 2 factors. One, the very aggressive deleveraging of balance sheet that we've done by reducing the debt. And second, I think many of you would remember that the -- our rates of interest were reset given the improved liquidity in the country, our very soft interest rates. All that, in fact, put together has drawn down the finance costs, which obviously have resulted in the PBT showing even more magnified improvement compared to the improvement in EBITDA. So that's the important part there. In terms of the overall blended cement sale, PPC and StrongCrete put together, we are very close to 70% [indiscernible] in this quarter. And the StrongCrete itself in my -- I would say, in our what we call our core markets, the core markets where we have our strongest brand presence, which improved at North Telangana, which include Marathwada, which include Jalgaon and which also includes North Karnataka. In these markets, for many of the places, we are actually selling StrongCrete in excess of 15%, going up to 18% of our total B2C sales, which is obviously, once again in this quarter, proving that the value proposition that we have of the quality vis-a-vis the price is a very, very compelling value proposition. And as more consumers are seeing the benefits of StrongCrete, we are finding more and more customers. In fact, in the recent past, although we do sell it on completely a B2C basis, but some of the fairly large construction sites have also started buying StrongCrete at the price that we are selling clearly because it helps them to reduce their cost of construction even if they pay us more cost of StrongCrete per bag. A few other things, I think, are important to note. On the back front in the last quarter, at the end of -- 30th of June, we had paid INR 61 crores more to the banks against the outstanding loans. And between the closure of the last quarter, that is June ending quarter, and now we have repaid another INR 61 crores, INR 62 crores. So total for the repayment in terms of debt in the first 4 months of this year amount to INR 123 crores. As a result of which, when we opened the year with the bank loan of INR 774 crore, it's now down to INR 650 crores at the gross level. And on a net level, obviously, with the cash in hand being there, it would be somewhat under INR 600 crores is the debt position as we carry now. And partly, I would also like to point out that although it's a normal cycle, but this particular year, given the trend that we saw in fuel costs, we had decided to procure coal at a time which looked good. And as a result of which, a very significant amount of money in this particular quarter that ended on 30 June, we've invested in buying coal and stocking it up. One, normally, we stock it up for the monsoon period. More importantly, this time, maybe we take a slightly bigger debt on that coal because we have tried to cover the coal in advance of price inflation. And although it soaked up a significant part of our cash flow from the quarter, we believe it's a good investment because this will help us in absorbing the increase in fuel cost a little bit better in the months that we are going through. And that obviously will be beneficial to the shareholders because we could have used that money either to reduce the debt further. But on that, the saving would have been far less compared to the savings that we will be able to have in the fuel costs that we consume as we go. So there's a significant increase in working capital, but it's all for a good cause. I just want to point that out. In terms of railroad mix, well, this particular quarter, the rail mix is about 22% and the balance being transported by road. The, I would say, net debt position, I've already briefed all of you about. I guess all of you are fully aware already, we have once again earned the certificate of Great Place to Work for -- based on -- in this particular year, like I think I said earlier also, that I was a little worried because this was a year in which we didn't give any increments to people. On the contrary, some of the senior people, we had also asked them to make a sacrifice and some salaries were paid lower. So lots of things that happen. And we were a little worried whether our colleagues will once again vote in favor of this company still being a great place to work. The fact that despite all those hiccups, we have not only retained the certification, we've retained that with a much higher level of score, both on trust and pride for our company, which makes us very, very happy. That means the employees are the belief that their only motivator is money has been completely disproved. And the value, what we've done for the people throughout the year in terms of looking after them, whether it's the medical care, whether it's about their well-being overall, whether their families, the care or even in terms of the vaccinations now, vaccination, obviously, a little bit a function of the availability of vaccines in different states. But I'm happy to report that at our -- in the Karnataka plant, the vaccination, including to our contracts, that is almost complete with 99%-plus coverage. At least, I'm talking about first dose. At our Maharashtra plant in Jalgaon, the coverage is nearing 80%. It's 76%, 77% today. The only place where we have not been able to make enough progress in terms of vaccination is our plant in Telangana. And for some reason, Telangana state is not able to make available enough vaccine. And that is true of the -- I think yesterday in Times of India, it seemed the pan-India data on the first dose having been administered in various states. And in that particular list, I was not surprised to see Telangana at being at a fairly low level. But compared to the state-wide vaccination, the first dose, I think we have done better. Our vaccination, under 52%. Whereas I think at the state level, the first dose has been given only to just about 26%, 27% people. So we're trying to do our best. And I think everybody is appreciating the efforts that we're making in making sure that people remain safe. There have been no real progress in terms of the large projects that we have spoken about and everybody is keen to know whether we are sort of beginning to get into implementation mode. Not really because we do want the COVID impact not to get aggravated because we get into something a little more aggressively. And at the same time, because the demand also suddenly was not seen peaking as quickly as we were earlier expecting. So we are okay in terms of time. Although all the preparations are being made, we are being ready, but have we moved ahead? No. Have we placed the order for waste recovery plant? On that front, I must acknowledge that I myself am a little bit frustrated and disappointed that we've not been able to place the order. And the delay, I can assure all the investors, is not from our side. The delay is from the vendors who have kept changing their stance at times. Suddenly, they will come back with some technical confirmation. When we want to sign the contract, they said no, no, no, not this much power, it will be less. And some of the time, the plant quotations are being revised. In the meantime, when the steel prices have gone up and there's a lot more input of steel so the prices need to be revised. So that has become a little bit frustrating process of negotiations with the vendors. And that's a result that we've not been able to place the order not, but we are not keen, but obviously, we can't placed the order unless the vendor takes a position where we can place the order. So we are still hoping that we should be able to do that in the next few weeks, but I said that earlier also I've been disappointed. So I'm a little bit cautious this time in terms of not on our keenest to do, but more from perspectively the vendors being able to sign the contract with us. In terms of the current market scenario, I think all of us are aware that we are in the monsoon period. Typically, all of us do expect the impact of monsoon on the demand and see no exception. We've had extensive rainfall, as I mentioned earlier. Starting in June and July, has been one of the wettest months in most of our markets. And the -- only thing that we can say is that typically what we would expect that significant drop in demand compared to Q1 and Q2, given the fact that Q1 was impacted by COVID wave 2, we are expecting that the volume in Q2 may not go down compared to Q1, and we would expect volumes to stay somewhere around the level that we saw in Q1. So that is one indication that that's available as of now. But on pricing side, we've certainly seen that there has been pressure on pricing. And already the realization compared to the prior revaluation in Q1, they are looking softer. They're looking lower depending on which markets we're looking at and which week we're looking at. On an average, I would say between INR 10 to INR 15 per bag seems to have been the reduction in market prices of cement till now after we exited last quarter. In term of forecast beyond saying that Q2 volumes should be similar to the Q1 volumes, I'm not in a position to have further guesses in terms of total volume. But given the indication that we had given not just recently in the last quarter but even earlier, we still think our total volume in this year should get very close to 6 million tonne, if not beyond that, which is a 20% growth over last year. That's based on the visibility of things currently, assuming that even if wave 3 comes, it will be nowhere as dislocating as last year, we've done one. So 6 million tonnes, we're still running for. In terms of pricing, in terms of EBITDA, unfortunately, I will not be able to give any guidance because that, as I always claim, that is something that we take from the market and we don't make the price. Our cost indications are that despite the consistent pressure on cost of inputs, we are -- we believe that in H2, we should start seeing some softening on the cost side. How much will that be? And how will we sort of anywhere find it? It's a function of how the signals will change between now and the third quarter, which has to start after about 2 months' time. But the hypothesis still stay in place. The volume is there. Pricing, I don't give any guidance at all. On costs, hopefully, this should be the last quarter in terms of sustained increase in costs as we've seen. Going forward, there should be some relief from that. Beyond that, I don't think I have anything to add in my initial summary. But I'll try to answer most of the questions that I keep getting after I've sort of given the summary. I'll stop now and leave for the questions. Thank you very much for your patient hearing. Thank you.

[Operator Instructions] The first question is from the line of Sumangal Nevatia from Kotak Securities.

Congratulations on stellar performance here in these challenging times. A couple of questions. Sir, firstly, very detailed and very helpful listening remark. So thanks for that. But still a couple of questions. Firstly, you said very limited progress on overall project level. But just trying to check specifically, have you moved anything forward with respect to our Rajasthan mines transfer by ground process and also with respect to debottlenecking at Devapur?

Okay. I can answer that straightaway. The debottlenecking project at Devapur, as we speak right now, is in the final state, absolutely. We -- in fact, the cement mill, which is being upgraded, is right now under a shutdown for completing this. So by the end of this month, we should have that deep automating project completely implemented at Devapur. That's as we -- like I said, finally now under a shutdown only for commissioning that part. So that's one. On Rajasthan mine, the -- fairly recently, the Rajasthan government from Jaipur has written to the mines department and also that obviously has landed up with the Udaipur area in charge of mines, I think they call it controller of mines. And I am told that, that particular office is in the process of preparing the recommendations, which should be favorable because everything that are holding it up so far has been sorted out. And a big process is on with the government, and we're hoping that in the next few days, if not within this week, the -- from the [indiscernible] controller of mine from that side, the file will move to the state government, which is in Jaipur.

Sorry, I was on mute. Understood, sir. Sir, and with respect to the delay in WHR sector, I mean, what sort of CapEx should we build this year and then large part will be pushed to next year, right? So if you can give some guidance on the CapEx part.

Yes, sure. See, as we are talking right now, we do believe that the CapEx, the total CapEx on our waste heat recovery plant should be between INR 60 crores and INR 70 crores. Given the fact that when people get in, I don't think more than INR 20 crores will get invested this year, if we can manage that. That is if we end up signing a good contract soon enough. I don't think it's more than INR 20 crores in this year. The balance will go into next financial year.

Okay. And what would be the remaining maintenance and bottlenecking CapEx this year? So overall, should we take something closer to INR 50 crores to INR 75 crores?

Well, I think that might be -- if you're not counting waste heat recovery in that, we may do the INR 60 crores to INR 70 crores in this year. It will perhaps stay, well, between -- to my mind, being INR 40 crores and INR 50 crores, not more than that.

Understood, understood. And just one last question on the cost part. So you mentioned a new exchange, a few one-offs in this quarter with respect to higher freight, fly ash and also some transfer of materials from -- towards Chittapur. So what would be the one-off or in other words, say, the cost impact of these one-off items in 1Q?

Sumangal, they are not one-offs. It's a scheduling issue. We are not in the comparable quarter. Our maintenance is not a one-off. You will incur that every year. It's that, that this quarter's maintenance is not comparable to either sequentially the preceding quarter or the same quarter last year. So I won't call them one-offs. But yes, whenever shutdowns happen, if we are short of clinker and things like that, those things are not major. Major cost is in terms of maintenance which, on an annual basis, does get sorted out, okay? I was pointing on noting the quarter-to-quarter comparison.

No, sir, but at least with respect to procuring fly ash and additional freight cost in fly ash, what that would have been?

To my mind, that impact would be close to about INR 3 crores on the 3 plants put together.

The next question is from the line of [ Pankaj Tanna ] from [ Varun ] Investments.

[indiscernible] for a long time, and I'm asking on the progress of your [indiscernible]

[ Mr. Tanna ], sir, your voice is not audible, sir. So Mr. Tanna, sir, I would request you to move to a better reception area. We are unable to hear you clearly.

Okay. Can you hear me now?

Yes, this is better.

Okay. So basically, I've been a shareholder for a long time. I've seen the progress of the company by way of improved realization, better profitability, a wonderful website. So I just -- only thing I wanted to know is why are we still hovering around at INR 5,000 per tonne enterprise value as compared to the others, which are at ridiculous price?

That, I think, our market analysts would be able to answer better than I can. Even I'm not able to understand why we are being valued at that, where we are being valued. I mean we know the intrinsic value of our company. We know the replacement cost of our establishment. We also know the value at our efficiencies and some other strength that we have as a company and the management team. We deserve a lot better valuation. Why this is so low? Perhaps some people on this call will be able to explain that better than I can. I am completely at a loss on this one.

Okay. Because the biggest shareholder of your company had mutual fund.

Yes. Well, you are right. I didn't want to sort of mention that because that's not for me to -- it's a market operation. But the fact of the matter is that we had some very large shareholders who've been invested in our company for a very long time, right? So somewhere, I'm seeing the 2 of the largest investors who are both mutual funds, both of them have decided to do their profit booking around this time. And both of them are offloading some volume for almost every week. So if the supply remains that high perhaps that could be a reason of overhang in the shares possibly, like I said, but I'm not an expert to comment on that. But I'm saying that 2 large shareholders as of now are in the profit-taking mode -- profit-booking mode rather.

And I don't think you're in the position to answer because the next query that I have is that somebody was mentioning that for price being enterprise value being so low, you could be a target for a cement inquiry for takeover. I don't want you to answer. It's just a rumor that is floating around.

That's like I said, I won't like to respond to at all, except in that we are not in [indiscernible] with anyone, nor has anyone contacted us as we speak today on anything on those lines. But yes, I completely agree with you. We're grossly undervalued. And from a market speculation perspective, yes, you're right and people will perceive that as a risk.

Okay. So I mean -- but I think you are doing a fantastic job. I mean, just it reflects in the way your website is there, the way you are marketing your products. It's definitely wonderful to be holding your company.

Thank you so much. Thank you. Really grateful.

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

Sir, can you please clarify on the volume number exactly for this quarter?

Volume number for this quarter is 13.61 lakh tonnes.

13.61 lakh tonnes. And just a sort of follow-up note on that Rajasthan mines, like we are in the process of getting all those regulatory clearances. So what kind of mining capacity do we have in Rajasthan, if we can kindly clarify that thing, sir?

As far as we are aware, the reserves in those mines are ballpark in the range of 100 million tonnes. And from the beginning, we believe that if we actually set up a 3 million tonne capacity there, it will have enough limestone from 40 to 50 years. That's what our basis for our interest remains there. But as we also know from experience, that whatever are the estimated reserves in limestone mines when we start doing the mining, invariably, you find more reserves as we go deeper. But I'm giving you the data that as we have, that's something we are talking about today.

Okay. And sir, just wanted to understand one thing, like a bit of clarification on that mine. Like that thing is like painting with Orient Papers, right?

Exactly. That was the holdup. The mine used to be with the Orient Paper. We had applied for a transfer to Orient Cement way back in 2013, which, because of the procedural delays, the government of Rajasthan did not transfer. First, they have started [indiscernible] stamp duty. The stamp duty was then clarified with whatever they want to be paid that extra stamp duty also in 2014 or -- 2014, yes. Certainly, in January 2015, as the new mining locked in, we started talking of transfer charges. [indiscernible] the transfer charges, this is not a transfer. This is demerger of a company under a court order effective 1st April 2012. The new law has come in the month of January 2015. How can we apply June -- sorry, January 2015 law to a demerger that happened in 2012, which we have applied during that time. You have delayed the transfer, why should we delay the transfer charges. So that was the dispute all along. So now with the new -- the latest amendment to the mines at [indiscernible] which has no-transfer charges applicable now, so we probably are filing moving again. Because we didn't want to take on just transfer charging on that limestone, you can imagine how much will the amount in terms of the cost of the project. So thankfully, and we were not the only one. There's several mines like this, which were getting stuck with different state governments. That's why the [indiscernible] government has amended that law. And based on the new law, we're filing it now.

Okay. Understood, sir. And sir, do we have the lease for that mine, which is like under this kind of like a litigation thing happening up?

Long history. I don't think on one call, we can go through all that, the entire matter of life of mine. But broadly, I've told you where we are right now. Otherwise, I can have a separate call on this some other time. Because otherwise, we'll spend -- my 1 hour will go into explaining the complication of the mining lease.

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

Hello?

Milind, we can hear you.

One thing, just in terms of the volume dip that we have seen, compared to that, our freight cost has been increasing on a sequential basis also. Apart of the inward movement of freight, is there anything that has contributed for this?

When the outward movement of freight, outward freight cost is not hard in inventory cost.

But you said that it is the clinker cost that we are [indiscernible] from.

No, no, that is only for the quantity of -- whatever quantity of clinker that we transfer from Devapur, Chittapur. That is -- the overall freight cost that we're referring to is the impact of the increase in diesel costs, which, obviously, if you are transporting goods, every transporter will increase the freight rates. That's -- all other contracts are built in a manner where the adjustment in the freight rate being given to the transporter is as part of the agreement related to the diesel costs. When diesel cost goes up, we adjust the freight cost up. When the diesel costs go down, we adjust that downwards. So whenever diesel costs move up, it will impact the freight cost. That's the nature of the cost.

Yes. Sir, on a quarter basis, this cost is about 6% on a sequential basis. I just wanted to understand, is it on a per tonne basis. So...

No, no, on a per tonne basis also, certainly, the diesel costs have moved up, and we have our freight costs higher per tonne definitely. The way we publish our accounts, you would have seen that the call, we -- the entire cost of freight, trucking, forwarding, everything is put together. So not only the impact of freight cost there, there is an impact also of the cost of plastics. If you're tracking either the industry which sells plastic or the consumer of plastic, you would have seen the impact on their costs being very, very large. Because during this quarter, there is a huge inflation in the cost of plastics. The cost of bags went up by a very, very large percentage. So what you are seeing is a combined impact of the increase in diesel costs and the cost of bags that we use. On per tonne basis, if you are looking at that cost, I would say packing, freight and forwarding charges are up at INR 1,310 in this quarter vis-a-vis the last year same quarter of INR 1,241 and the value sequentially the previous quarter at INR 1,244. And this has got nothing to do with clinker transportation. Please don't confuse it.

So that is coming from consumption of raw material, is it?

Correct. Correct. Correct.

Okay. Got it. And sir, would you like to just quantify the maintenance cost in the operations, how big that would be?

Ballpark, I think that size takes -- and when you're doing the annual maintenance of vehicle, we also typically take down the CPP also during the same time, the captive power plant. Total cost of ballpark would always work out around INR 10 crores, INR 12 crores of one single maintenance.

Okay. And in terms of power and fuel, sir, what would be our mix now?

I just gave it there.

Okay. I just missed that. I just missed that.

Yes. Maybe you'll have to refer to the recorded conversation. I've already said it.

The next question is from the line of [ Ratik Maheshwari ] from HSBC Securities.

Sir, first of all, congratulations on the results, very good set of results. Just wanted to ask you if there is any update on the Devapur line expansion and how would you think of it together with whatever it is in target time. Is that -- so any time line there?

You're talking about additional capacity being put up? Or the question that I have already answered regarding the debottlenecking.

No, no, no. Sir, the additional, another line expansion other than the debottlenecking.

We, as I mentioned, in this particular quarter, we have no progress report beyond what we reported earlier that the environment clearance for that project has received. And we still have to actually get on with the expansion work because during the COVID time, we've not been able to get the resources together, even to do the basic work before the material can be ordered, right? So -- but we do believe that sooner than later, we should be able to take up. We are very, very keen on starting that expansion at Devapur. Given where we stand today, it seems very difficult that we will be able to do that within FY '23, which was the ambition, because we've not been able to sort of form up lots of details and not take the order. And as you might know, the typical lead time for most of the -- the lead time itself is about 1 year, whether [indiscernible] or whatever. So it will perhaps move into FY '24. And hopefully, early in FY '24 is where we think this project will be available for commissioning.

Okay. And sir, the other thing was on the -- your clinical conversion ratio. So just wanted to check if PPC and StrongCrete has become 70% of volumes. Has the conversion ratio improved? And do you think things can sustain and improve further, so that it helps any volume growth going ahead after FY '22 also?

As you yourself said, it's a function of the blended. But if you're asking for Q1, the ratio is definitely at 1.42 compared to 1.33 sequentially of the preceding quarter. And FY '21 as a whole, we have 1.36, even [indiscernible]

So sir, do you see this improvement to sustain? Or do 'you see the product mix changing in the sequential quarters and probably will be at 1.36, 1.35? And any endeavors there?

I think I'll perhaps maintain just one particular issue. While we are making all our efforts to increase our blended cement sales, which should actually mean they should keep going up. But if we get good opportunity in the market to supply OPC to a large infrastructure product at a good price, I'm not going to shy away only to report this number. Total volume and the total margin multiplied give you the total profit. All these things are being plagued on an ongoing basis, intend to sell more blended, but there has been a time, and let's face it, in Q1, still, there have been times in the market where we actually have got a price better from the large projects compared to my retail marketing and that has happened. So at that time, so should I insist on better take-up ratio or should I make more money. These are practically day-to-day business operation decisions. Investors think we have a policy that we are going to keep going that way. If my OPC price realization was given and your profit is higher than my selling on PPC base, why sell [indiscernible] I will sell PPC, OPC if that situation will be [ good ]. These numbers emerge at the end of the period when we start doing the calculation. When we are doing the business, it's all a function of where can I sell, what's the best price and what's the product mix, which makes money for me today. Numbers, when we cut percentages, 1.4, these are all end-of-the-period calculations. We don't fix that in our mind and take a decision based on an order. That's purely based on how much margin is there in that particular quarter. And if it makes sense, we'll book it. The 1.42 can go down to 1.4 and the last year, the whole year, if we look at it, we operated at 1.6, right? Before that, it was 1.30. It's -- why is it looking a lot better in Q1 this year or Q1 last year? Because that time, we managed to sell more in the B2C segment. And that effort is still on. But the point I'm making is, while total PPC sales [indiscernible] may keep going up, if the OPC sales also goes up, the proportion may look different. Although the total volume of blended sales will always be there. But as the percentage volume is going up, I don't know. Are you getting a point? Percentage is...

Yes, yes. [indiscernible]

Volume-wise, PPC is something that will always be going up. As a percentage, I guarantee that.

Okay. And sir, as a percentage of concrete on [indiscernible], how much is it? And sir, if you could also share the market mix percentage that you said [indiscernible]

The entire market, I told you in our strongest markets where we've been, there where we are a very strong brand, we are actually between 15% and 18%. Overall, as a company, we are at about -- again, we are a little bit down in this particular quarter at 8%. And that's a function of the fact that any premium product, anytime you're trying to sell has to be -- the customer has to be converted at the retail counter. And during this quarter, most of the retail counters have either been closed or have been allowed to open only for 2 hours in the morning. If you're in one way, you would know what the -- what the instructions are for retail markets. So the conversion momentum that we saw in the preceding quarter is a little bit less in this quarter purely because retail counter is closed. They're at 8%, but it's still means that in the stronger places, stronger markets, I named them earlier also. North Telangana, Marathwada, Jalgaon, we are actually 15% to 18% of our B2C volumes in those markets on this. And obviously, there are some markets where we are not as strong, and there, the percentage is significantly lower than that. That's why the blended last quarter has been at 8%.

[Operator Instructions] The next question is from the line of [ Pankaj Tanna ] from [ Varun Investments ].

Yes. I just was wondering about volumes. One question is this quarter, we've done 1.3. I think we did 1.6 in the previous quarter. So where we probably do the same sort of run rate for the next 2 quarters, another 3-odd million tonnes?

I would expect that while the Q2 might be similar, we will be exactly, as I said earlier, 13.61 lakh tonne, 1.36 million if you wish. I'm seeing Q2 volumes remaining similar. Q3, we are hoping that post the monsoon getting over, and hopefully, there will be no large impact of wave 3 even if it comes, I would expect Q3 volumes to be better than Q1 and Q2 volumes this particular year. And obviously, Q4 volumes are always larger. I mean last year also, if you noticed the volume that we did in Q4 were far, far larger than what anybody had expected. So well, I mean, the Q4 volumes can -- last year, we did, what, 18.5 lakh tonne in Q4.

It's almost over 90%.

Precisely, 92%, 93% in that range. So like I said, Q4 is different, and Q2 -- Q3 volumes should be higher than Q2. That's how we are planning currently. So total annual volume, I've already indicated. We're gunning for 6 million tonnes this year. That's what I said earlier.

Okay. Great. And just one more question is on your [indiscernible] conversation. So what are your expansion plans in terms of today? We are at 8 million tonne. So with the additional, what are you planning as far as what's on your card? You said you should be on and running by FY '24?

Yes. So by FY '24, it will be one part of our expansion, which will take us to about 11.5 million tonnes by that time. And we would like to add another 3 million tonnes in about 2 years post that. So by FY '26, we are talking about 14.5 million tonnes. That's the plan.

And for this, the additional 3.5 million that you want to go to 11.5 million, what would be your projected cost for that, the expansion of 3 million, 3.5 million tonne?

Typically, the cost should be around INR 1,600 crores.

INR 1,600 crores, okay. Great.

The next question is from the line of [ Ashok Patel ] from Molecule Ventures.

Yes. Congratulations on a robust set of numbers despite the challenging business environment. I just wanted to know what's our debt positioning right now.

I come back to the same question, again. This is a problem. In the initial phases, that's why I answered all these questions right at the start that people maybe join late and then I have to repeat these things. Okay, once again, I just hope that I don't have to answer this question again in the same conference. We started the year, as I mentioned, at INR 774 crores. Till now, we paid INR 123 crores out of that. The gross bank loan on our books is INR 652 crores. Net of cash in hand, it's somewhat under INR 600 crores, INR 650 crore gross level. I think about INR 580 crore available also at the next level.

Okay. So as per our previous con calls, we are still on track to get debt-free by FY '22, sir?

I never -- we never said debt-free. I mean the debt should be down to just about INR 100 crores between -- just about that.

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

Can you hear me?

Yes.

Right. Right. Sir, great presentation and definitely great results. Sir, just one question, and it could be a follow-up. So you just -- in the previous question, you led from 8 million to 11.5 million and then to 14 million. Where does Rajasthan project fit in there? Is it -- because you said it can support 2 million tonnes?

Yes. Yes. No, it's not -- again, Navin, I recall we had this conversation last quarter. In Rajasthan, issues are sorted out. I'm not building any plans for that. Once that becomes absolutely certain in our hand, then we'll go back to our project, we'll have to first start acquiring land, which these days is anywhere between -- on which nobody can predict how much time frame would that take, right? So the Rajasthan project is very much on the cards. We are very keen on doing it. It's just that I'm not able to put a time line. Unlike the other 2 projects that I'm able to at least say when, in Rajasthan, I first -- I get the mining lease in my name. And then till I'm able to acquire the land, it's very, very difficult to say by this date, we'll get on with the project. We want to do it. It's on the cards. Time line, just wait till this current phase in Rajasthan government is processing our file until this gets over.

No. My fear, frankly, is that we got a little unlucky the last time with the government as well because it was the Orient Paper's name and because of denial on their front, it got delayed. Now that an amendment has come for a free transfer, but there is also a time line which says that mining lease has to be operational by March '24. So 2 parts here that...

Navin, if you get back, we'll obviously have to meet that commitment. So we will tweak our plans. I'm not sort of talking about this barring any eventuality, which may have to take care of. [indiscernible] handle. Maybe there might be a toss-up between if we have to be Rajasthan first, then we do Rajasthan first and then do the Chittapur. So those will happen. I mean nothing that we are planning as of now can be written in stone. If we plan today, which I'm presenting to the best of our belief that this is possible. Like you said, if Rajasthan might come to us. All of us know that going to Rajasthan and opening up a new market, find diversified markets would be good for the company and good for the shareholders. I'll give that clarity. But I can't tell that today that I'm doing that currently without having a mining lease submitted, right?

Absolutely. [indiscernible]

These situations are dynamic, and we will respond to the situation in the best way possible in the interest of the shareholders.

Sir, if I were to just confirm this, then if I understood this correct, if Rajasthan comes the way ideally it should, then that will be the priority over Chittapur? Is that a fair understanding?

Yes, yes, yes.

Great. That's what I wanted to know. And I'm sure shareholders will also be equally delighted to see that as a priority over south. So great, and all the very best for it.

The next question is from the line of [ Gaurav Derimoli ] from Credit Suisse.

Sir, I wanted some color on power cost. If the spot rates that you see currently for domestic, international coal and pet coke. And by when do you expect it will flow into our numbers, assuming it's a rolling kind of booking that you do [indiscernible] numbers?

Sorry, I couldn't get exactly what you wanted to ask.

Sir, I just wanted to know what is the spot rate that you see for imported and domestic coal and pet coke. And by when do you think these current prices, spot prices will flow into our P&L?

Okay. Well, the international prices, we know it will keep fluctuating. We're talking about the ballpark about $100 a tonne of imported coal today. Imported pet coke is at about $170 a tonne. But we are not booking at these prices because we do believe these prices may soften a little bit. So currently, we're not booking it because we have covered assets for the next few months well enough. And keep in mind, the lead time -- because I'm not placing any orders at these prices, let me not give you that number. And when we're ready with that number, we'll tell you. Because if I'm able to get the prices softening up a little bit, maybe that's the time for me to look again. So as of now, we're not looking at these prices. I've given you the prices but not booking at these prices.

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

You just -- you indicated that the FX for the next leg of Devapur would be around INR 1,500 crores. This 16 million, did you like add some color on how we would be funding this?

How are you funding this is basically a function of my cash flow. We can have the time that we need the money. Typically, we do believe that even after the, let's say, if this year we're not going any newer CapEx, we should be able to get our debt down very significantly as we've already mentioned, right? So that will be the time where assuming that there is not much debt left to be repaid in the future, if you are still making similar amount of cash, that obviously will be the first thing to be used to fund the CapEx side. Over end of that, we'll raise debt. But typically, I do know that we -- this question was asked last quarter. And the way I answered was total CapEx for this, going from 8 million tonnes to 14.5 million tonnes, I had indicated the total CapEx is going to about INR 3,600 crores or thereabouts. And I had said that, hopefully, we should be able to fund that, at least half of that through our own cash flows and half of that through debt. But debt is not going to come on 1 day because these are 2 different projects at different points in time, right? Yes. So -- and I still maintain that. The broad guidelines that we have very clearly got from the Board is that we would try to always be in the debt equity range, which doesn't cross 1.5 even at the peak. That's the guideline we follow. And debt-to-EBITDA should stay at less than 3. That's the kind of debt that the Board has asked us never to cross. Right, and within that, we'll be doing it. And in case we are going wrong these numbers, then the company really need to think of perhaps getting some capital in, but that decision will be based on how the balance sheet looks at a time that we need to raise the rate. That's the only way to do it. That's the best way to do it rather than taking an upfront decision today.

And [indiscernible] small thing about [indiscernible] specific time line that we are looking at the execution of that?

The vendor, the time line that the vendor has indicated to us that they are indicating that they should be able to complete the project in 10 months after we place the order. But we've not signed up yet. So that's what I am telling you, what the offer currently is. They said 10 months.

Got it. And CapEx that you indicated there was about INR 50 crores to INR 70-odd crores in totality?

Yes, that's right, INR 50 crores to INR 70 crores.

To be spent in this year approximately?

Yes. Yes.

[Operator Instructions]

I think we are -- in any case, we run out of questions. Just about the time, we're running out of time. So maybe we should just try and close it.

There are no participants in the question queue. Ladies and gentlemen, with this, we conclude this conference. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

Thank you, everyone, for joining once again, and thank you, Krupal, for hosting us once again.

Thank you. Thank you, sir.