Orient Cement Limited (ORIENTCEM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '22 and H1 FY '22 Earnings Conference Call of Orient Cement Limited hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rushad Kapadia from ICICI Securities. Thank you, and over to you, sir.

Thank you. Good afternoon, ladies and gentlemen, and welcome to the Orient Cement results conference call. We have with us from the management, Mr. Desh Deepak Khetrapal, Managing Director and Chief Executive Officer; and Mr. Soumitro Bhattacharyya, Chief Financial Officer. So without further delay, I would now like to hand over the floor to the management. Thank you, and over to you, sir.

Thank you. Let me start by wishing all of you a very good afternoon, and welcome to this investor and analyst briefing today from Orient Cement side. This is Deepak Khetrapal speaking for those of you who didn't recognize my voice. Well, let me begin by just reminding all of us that the Q2 that we are reviewing for which we declared the results yesterday is usually as always a seasonally weak quarter. And it's -- I think the performance of this quarter has to be viewed in line with that. Besides being a Q2 usual soft quarter, as we said, the fact of the matter this year towards the end of the quarter, that was the September -- month of September, the rainfall was exceedingly, exceedingly heavier, and this can't be sort of described as a normal monsoon, especially the month of September rainfall. I mean for the whole season also, most of the country, at least almost all the markets that we service have had excessive rainfall, but September was something else altogether. So despite July and August looking rather positive and strong for us, the month of September did cause a bit of a dent to the overall performance, both in terms of volumes and also in terms of softness that kept in pricing. But obviously, also has to factor in the fact that, the costs during this quarter were impacted by the overall, what I call the challenge that we have as an industry and as an economy on the shortfall of fuel and the humongous rise in prices. And fuel is just one of the items which perhaps has suffered the most inflation and most even the availability pressures. At the same time, we also know that when the monsoon is heavy, mining as it is becomes a little bit challenged. And from that perspective, the availability of, let's say, natural gypsum which needs to be mined, the availability of laterite bauxite, almost all the minerals not to talk about the limestone that we mine from our own mines and the limestone remains available. But in terms of everything being wet, the efficiencies also get a little bit of, I would say, headwind. The results that we are declaring, obviously, had to factor in all these factors: excessive rain, lower prices and high cost of fuel and other inputs that go into the performance overall. And in a net summary, I think it will be -- you guys have already seen the numbers, all of you. So volumes at 12 point -- nearly 12.7, 12.8 lakh tonnes mark 25% ahead of last year. But this September has not suffered as much as it actually did. We obviously would have had even standard performance. Over the previous year, we are 25% up, but sequentially, we are 6% lower, which is usual. I mean 6% lower volume compared to Q1 and Q2 is the norm that we've seen for many, many years now. This performance includes a small sale of nearly 24,000 of clinker that we -- one of our industry [indiscernible] that's included in this volume [indiscernible]. In terms of revenues because of slightly better pricing and realization, the revenues are at 28%. But because of softness in prices on a sequential basis, the revenues are down by about 11%. You guys have seen the numbers. EBITDA has been at INR 137 crores. which is 22% on sales and is a growth of 18% over the same quarter last year. But obviously, sequentially, it's 27% down. As I mentioned, due to the lower volume, lower pricing and increased costs. So sequentially, it does look a little bit distorted. In terms of profit before tax, we are up 58% over last year, sequentially down 37%. And profit after tax is up 64%. And sequentially, again, it remains down about 37%. That's the overall summary as I think it's very obvious, all of you do -- did your calculation much faster than perhaps when we do. So in terms of realization, we are up about 2.5% over last year. But sequentially, it is down by about 5.6%. And the total costs, as far as they are concerned, we have suffered the cost inflation of about 5.5% over the same quarter last year. But sequentially, the increase is rather modest, it is about 1%. And as I mentioned, the rains have impacted the cost besides the challenge on the fuel side for the industry as a whole. Within this overall thing, if we single out the cost increases in power and fuel and per ton basis, we have booked a 14% increase over the same quarter last year. And powering fuel has also been nearly 6%, 5.8% on per tonne basis higher than the preceding quarter. It just shows you the pressures on fuel, which are becoming more intense. So the total costs are up just about 1% quarter-on-quarter, but fuel is 6x of that almost. And on freight, again, on a Y-o-Y basis, we are higher by up 2.4%. But on quarter-on-quarter basis due to certain changes in the mix, rail road and a few other incentives being available from the railway side, it's moderated a little bit by about 5% sequentially over the previous quarter. The -- as I mentioned, the EBITDA that we -- if we sort of take the total volume, including the clinker volumes is slightly understating the cement EBITDA per tonne. It is about -- including clinker volume at INR 1,071, which is on per tonne basis, lower by about 5.6% over same quarter last year and sequentially down 23%. During this period, we have -- H1 now taken together, we have repaid our loans that we had for the Chittapur plant. INR 204 crores is the loan repayment in H1 total. And as we speak, in fact, in the month of October, we paid another around INR 40 crores. So as on date, if we speak, the bank borrowings are down to INR 550 crores. A total reduction of over INR 244 crores from 31st March till now. As a result, obviously, debt to equity is now under 0.4 assuming that we do maintain the, let's say, the expectation that we are having right now. But in the H1 now, we have EBITDA of around INR 325 crores. So if you keep the momentum up there is every likelihood that the EBITDA for the year should look better than INR 600 crores, at which level the borrowing and we obviously will be repaying some more loans in the rest of the year. Borrowing will keep going down further, INR 550 crores today, to my mind, it should get reduced to somewhere between INR 250 crores to INR 300 crores by the year-end. And that basically means that even debt-to-EBITDA when we look at, it will be perhaps less than 0.5, around 0.4, somewhere at that level, which basically gives us a balance sheet, which is now ready to be leveraged all over again as we get into the aggressive investment mode for our future capacity expansion. The CapEx during the year so far in the H1 is under INR 30 crores, INR 25-odd crores is the CapEx during the H1. Other usual, I think the curiosity remains around the fuel mix, although, like I said, the fuel is one thing which is so, I would say, dynamic in terms of how we are managing it in terms of not just the cost. In the past, it was always managed on the arbitrage that are available between one fuel and the other. But currently, it's also being driven by the overall availability, which plant has access to what fuel at what point in time. Now it also becoming, let's say, very relevant now, which was relevant always, but not as acute as now. Earlier, it used to be largely about the cost of fuel. Now it's also becoming for where it is available, it can be booked back for the plants. But for whatever it's worth, I can share the fuel mix with you. The good news is that to mitigate the huge inflation that we are suffering on the fuel costs, obviously, all our efforts have been made. And despite being extremely efficient already on our fuel consumption, we have improved that even further a little bit marginally. And in terms of the alternate fuels that we can use, we are close to 10% in terms of alternate fuels in Q2. And it is -- when I'm saying close to 10%, a little under 10% actually. It's a mix of a plant that we have at Devapur, for example, where the alternate fuels actually exceed 15% for the quarter, whereas at Chittapur plant, we run into some bit of difficulties in terms of being able to source it and get it to the plant at a reasonable cost that is accepted and the level of risks involved with that. So Chittapur has not had as much alternate fuels as we would have liked, just because of net of availability. But overall, for the company as a whole, on a blended basis, a little under 10% is the alternate fuels. And the coal which includes imported coal, we have about 65% of the mix and pet coke around 25%. So that's what makes up our fuel mix for the last quarter. But it cannot tell us anything about how the fuel mix is going to be during this quarter or coming quarters. It's a function of, like I said, too many dynamics which are happening in the energy market globally, not just within India. And all of you I'm sure how attended the conference calls of various cement companies. And across the board, I think the information is same, the imported coal is far too expensive, even when it's expensive, it's not easy to get that coal because there is a huge, huge, huge supply chain problem, which is impacting coal today. Because of huge demand in all the, let's say, countries which are in Northern hemisphere further North India, and they are currently stocking up coal for their upcoming winters. And from what we hear, that countries like U.K. today are struggling big time because they don't have even today enough gas or coal available for the heating that is essential in the winter in that country. And China has been buying huge amount of coal now because they have run short of their supplies because they stopped buying from Australia because of the geopolitical reasons. And certainly, they are finding there's not enough coal availability. And then you also had the problem of some disturbance in mining in Indonesia. So lots of things. Even where coal is available. It's an extremely arduous task to find the ships switching and bringing the coal. And when the ships are available, the freight costs are again completely haywire given the dislocation of the world's logistics caused by pandemic largely, but how -- what kind of distortion if at all, how the ships are moving and how the ships are taking longer at every port to turn around from what the usual time was. And that reduces the number of trips the ships can make in a year. So obviously, that accentuates the fuel transportation also. In terms of the total, I would say, the other items of interest from the investor perspective, the blended cement for the quarter, we are at about 63%. Trade sales are at 61%. The market mix for us moved a little bit more towards the west for us because we've started now with little availability of the windows that we got, which are selling a little bit more compared to the past in the state of Gujarat, which we were not doing much. But obviously, in the southern part of the Gujarat because beyond that, it starts becoming uneconomical. So including Maharashtra and Gujarat, we grew about 54% in west now. South would be at about 37% and balance central Madhya Pradesh, some small quantities in Chhattisgarh also, around 9%. So that's the total volume mix in the markets that we have. The average distance for us continues to be stable between 310 and 320 kilometers from the -- our -- where we grind the. So not make a movement. In some quarter, it's 2, 3 kilometers lower. In some quarter, 2, 3. But ballpark, 310, 320 kilometers continues to be the range in which we -- our average distance of cement sold is. And for Q2, the real mix in the overall dispatches have actually come to 20% of the total volumes we are transporting we think it really helps. That's on the ongoing operations, I think these are the highlights that I would like to sort of be pointing out to you. A couple of other important updates, I think, at this point in time are also important to highlight. One is the fact when I said the CapEx in H1 at about under INR 30 crores, it includes what I have been telling the markets earlier the debottlenecking or the upgradation of the grinding our cement will run at Devapur that has been commissioned in early September. And that adds the grinding capacity at Devapur by about 500,000. So the boilerplate capacity of the company can be now conservative 8.5 million tonnes against 8 million tonnes that we've been charging earlier. The total availability of clinker obviously, has not gone up because we've not added any clinker. But this will enable us to perhaps make up for some opportunities that may lie in the markets which are serviced from Devapur. Because otherwise, we had a very well-balanced capacity out of which the 2 million-ton capacity at Jalgaon was being underutilized, but Devapur could blend more than 3 million tonnes or something. So this takes Devapur grinding capacity up. So in case there is underutilization at Jalgaon, but there is an opportunity around Devapur, we can make use of that opportunity. And clinker, thankfully, given the total, let's say, sales that we are doing currently or even we are likely to do for the whole year, I've been maintaining my, I would say, internal targets that we have for sales for this year is nearly 6 million tonnes or thereabouts. So even if that -- as you people know, at 8 million tonnes also capacity utilization is just about 75%. So clinker availability continues to be the same, but will not be a challenge to feed the additional grinding capacity if the markets need more cement in and around Devapur. So that's the most important thing which people, I think, will be curious to know. So I'm pointing that out. We have -- in the past, I've been saying that we have located some land in the northern part of, rather, I would say, the Northeastern part of Maharashtra. So we -- today, I'm able to tell you the exact site that we have not just selected the sites but also have signed the MOU with Adani Power Maharashtra Limited, who has a very, very large power plant in a place called Tiroda, which is about 2, 2.5 hours' drive away from Nagpur going towards, again, north from Nagpur. And in the -- under the MOU, the land is being made available to us by Adani Power Maharashtra Limited. They are also going to be giving us access to fly ash on -- in a very advantageous manner for a prolonged period of time. And given these terms, we signed an MOU, which currently enables us to start applying for the environment clearances to put up a grinding unit in that location. So the required data that we need to compile before the environment approval can be moved is sort of being connected today. And hopefully, in the coming maybe a couple of months, we will be able to start the application also for environment clearance for the grinding unit at Tiroda. Again, while the long-term plan is to feed this new branding unit by also adding clinker capacity at Devapur, but in the meantime, if Tiroda can be put into operations before the clinker capacity gets added at Devapur but is manageable because we do have some spare clinker available. We've had it for a long time actually. And this gives an opportunity to leverage the existing clinker capacity maybe faster even -- and as the demand picks up, by that time, your clinker capacitor at Devapur should be up and running. So that's the plan currently for the split-grinding unit. So the plan is to put up 2 million grinding unit at Tiroda, and 2 million additional clinker at Devapur with the balance cancer being utilized for additional grinding that we also plan to do in the expansion of Devapur, which is -- has been planned and forest environment clearances are available for the industrial side. But as I said, the mines and forest clearances also need to be obtained. And in that, the necessary formalities at the state government level have been completed. And we are getting ready in the -- perhaps within 3 months' time will be in a position to start moving the applications for forest and environment clearance for the mines in Telangana State, which is around the Devapur mines as they are called. So the immediate, let's say, plan for capacity expansion and large investment, including Devapur, including Tiroda, which I'm stressfully [ making ] for the first time maybe in the investor conference. That is back on track and hopefully things will keep moving smoothly from here. We also have had invested about INR 4 cores to obtain solar power at Jalgaon plant. That power is likely to become available not to us within the month of November. So we're close to implementation of that project. AMP Solar actually is contract bound to start giving the power from November, and it seems that they've done their job, and the power will be available in November. So that gives us cost saving opportunities there. We have also placed an order to the vendors to build us a rate handling system of fly ash at the Chittapur plant. As we've been experiencing multiple challenges at Chittapur in obtaining fly ash from the nearby thermal power plants, so this rate handling system actually will enable us that even if fly ash is not available nearby, we can source it from power plants, which are further away at a much more reasonable cost. I mean, this year and last year, we have sourced fly ash from further -- from power plants which are much longer way away, but only using road transport which makes it very, very expensive. And also, we are finding that there is an increasing trend on the part of the larger power plants to give priority to rates to transport fly ash because the turnaround time and the execution time for them is much faster using rates. So it will give us lot more flexibility and cost savings for fly ash at the Chittapur plant [indiscernible]. Order has been placed, and we'll try and sort of commission that in the next 7 to 8 months. The only thing on which I think -- I personally also disappointed and which is disappointing from, I think, everybody's perspective is that we still have not been able to place the order for the waste heat recovery system. And the fact of the matter is that we were trying something which was innovative. We could have saved us some CapEx. But that was -- when we went through all the details in the guarantees with the vendors, we are finding that will limit the availability of power that we can donate these into [indiscernible]. And as a result of that, we have revisited the entire plan. And now we are once again looking at maybe adding a -- maybe earlier we're thinking we just got about 6 megawatts. We're going back to about 10 megawatts of power, using the traditional waste heat recovery technology that the industry has been using. So as a result of that U-turn that we had to make on the configuration of the project and also wanting more waste -- more power from the waste heat to be available, that's taken longer, hopefully, hopefully, well, I'm keeping my fingers cross, I know I've repeated that a few times in the past also. But before we meet next time, the order for waste heat recovery plant also should have been placed. So I'm very confident this time, and that should happen. Those are, I would say, from my side, the highlights which all of you do seem interested in every meeting. So let me read that out quickly to you so that you have the full briefing from my side. Otherwise, in terms of operating in the market, I think we resumed most of the offices, which are working normally now. People -- attendance in many offices is quite regular. Some offices, we are still restricting. We have a plan to review that post Diwali. So in a few days from Diwali, if the infection levels across our office areas, especially the cities in which we operate, remain around -- maybe even if they're a little bit higher than what the current levels are, which are fairly modest, we're inclined to start opening the office in a more regular manner. But the salespeople, they travel wherever required is no longer restricted. People are traveling where they need to travel. Another that we've also started our usual engagement programs that we do with the channel, influencers and lots of dealers [indiscernible] are already happening. So life seems to be getting back to normal. And assuming that festivals like Diwali will not dislocate this, I would say, the relief that seems to be -- we seem to be getting from COVID-19 impact, we look forward to a strong second half. I know there is still a steep client to get to the target that we have of over 6 million tonnes of cement sales. Let's see. And like I said, at this point in time, I'm not inclined to go at least back and simply because when we had said that we lose 6 million tonnes, we had kept in mind that last year, we did 5 million, and this year we are actually 5.05 million. So what we had to touch add to last year's volumes was about just about -- just under 1 million tonnes in this particular financial year. Out of which we have already made up for 800,000, right? So in these 2 quarters, which are left with us, we need to achieve only 200,000 more than last year to get to the target of 6 million tons. So given the low asking rates, so to speak, in terms of growth in the second half, we are still keeping our ambitions at 6 million tonnes of sales this year. The pressure on costs don't seem to be showing any signs of relenting as of now at least. And our reading is that it might be earliest might be December or maybe even January before relief on fuel costs because it will become visible in that means. And the purchase of coal heat or energy to heat up the -- in most of the part of the world which gets very, very cold. Once that demand starts coming down, hopefully the supply, and in the meantime, I'm assuming or rather expecting that the various shipping companies in the logistics industry as a whole would be able to solve or overcome some of the challenges that we're experiencing. So availability of imported coal into India and imported pet coke for that matter, is essential. Because as you are aware, in the last decade or so, the dependence of Indian industry and Indian economy on imported coal and pet coke has gone up significantly. And I don't think the domestic suppliers will be able to raise the output where we can say that we are comfortable without access to imported coal. So we do need that coal to come in, but we it to become available, number one, and we also needed to become more competitive and a little bit cheaper. Let's see, hopefully, December, otherwise, from January, we would expect this cost pressure on fuel to start easing. In the meantime, we have no option, but to try and one, conserve as much of fuel as we can by becoming more efficient by buying more and more of alternate fuels and that we are trying every day we put our heads together and try and improve on that. But during the scale of increases which are coming in, in fuel costs, obviously, every attempt will be made to recover these costs from the customers who are finally consuming the product and benefiting from the product. So that's the -- that is going forward. Let's see. This quarter may look a little difficult because October, in any case, as you know, is part of the lean season that we have. The uptick in demand, we expect to start showing up in about a week post Diwali. So maybe 10th, 12th of November onwards we expect the market momentum to come back, and the volumes should start looking better. But just -- just in case I'm sort of creating the wrong impression, October will certainly look better than September. Because September was exceptionally poor because of the rains. October is looking better, but the real uptick in demand can be expected only from -- maybe like I said, the 10th, 12th of November, that's the expectation. In the meantime, we do have, let's say, the experience of seeing better pricing in the market, I think, purely driven by the cost of every player in the industry having to incur not just having to incur but also the replacement cost of fuel is looking a lot higher than the fuel that we've been consuming so far. Under that scenario, I think we, as a company, do not see too many options, but to find every way possible to pass on the increased costs to the customers who we are consuming the product. And therefore, maintain the profitability and the returns on capital returns to shareholders in the best way we can. We put the morning quite frankly on CNBC last was the expectation on margins going forward. My own guess is that if we are going by the experience so far in this particular financial year, for our company, we would expect to do an EBITDA of around INR 1,100 per tonne or thereabouts. And if the pricing gets a little more robust, that maybe even exceed INR 1,100 per tonne in H2 as a whole, including Q4, which normally gives us the biggest opportunity in terms of volumes and pricing. And volumes are important. So it may not be obviously, as big as volumes as Q4 would be. So EBITDA per tonne being also a function of the operating leverage. Q3, I'm not able to sort of indicate more clearly. But for H2 combined, I think we should be on track for achieving total volumes of 6 million or very close to 6 million and also the EBITDA of INR 1,100 tonne plus. So that's the overall, let's say, summary of, let's say, the operations in the Q2 that we've been through and also in terms of what we see as of now in the balance remaining year -- months of the year. Thank you. I'm open to questions now. Thank you very much.

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

Sir, would it be possible to quantify the CapEx which we are looking to do in FY '22 as a whole now and then FY '23? You mentioned about several projects which we are undertaking.

In the current financial year, we don't think it will exceed a total of maybe INR 50-odd crores, out of which, like I said, under INR 30 crores has been incurred. And even that may not be possible. So not much happening in this particular financial year on CapEx beyond the INR 50 crores. In FY '23, again, although we would like to start the work on actual construction of the grinding unit at Tiroda, but this still remains fairly moderate -- besides the ongoing CapEx as -- 2 things. One I have said the rate handling system of fly ash at Chittapur. That obviously will happen. But again, that's fairly, fairly modest CapEx. The big one -- the next big one will be waste heat recovery plant, which if we can start construction beginning this financial year and towards the end of the financial year, that may take a little bit [ of a hit ], maybe INR 10 crores, INR 15 cores, INR 20 crores towards waste heat recovery plant, if possible, we'll try and push that. And on the grinding unit, I don't expect in FY '23 also that we'll be able to spend beyond possibly INR 120 crores because the bulk of the CapEx will come only when the grinding units start arriving, which obviously takes about a year from the time we order them. So besides making some advance payments from constructing the infrastructure and the sale construction like silos and railway slidings and all, a large part of the CapEx actually may come in FY '24.

So FY '22 as INR 50 crores, '23 as may be INR 150 crores and then '24 as maybe some INR 1,000 crores kind of CapEx?

Maybe INR 150 crores can be made to INR 200 crores in case we are able to push it further. And including -- no, I'll say rather put INR 150 cores, I was talking about that plant. But we also then need to figure out FY '22 will also take up the CapEx of the waste heat recovery, which at -- like I said, we are targeting now 10 megawatts of power, which is the average cost of INR 10 crores per megawatt is about INR 100 crores right, okay? So I would say, INR 150 crores plus another INR 250 crores in FY '23.

And just one on your time lines for this Tiroda as well as Devapur clinker would be late FY '24.

The -- no. FY -- late FY '22, the Tiroda can't start because environment clearance will not come by the end of this financial year. It does take a little bit. But that's why even FY '23, I'm only saying INR 150 crore out of nearly INR 500 crores of investment. Because it will start sometime in FY '23 based on the environment clearance that we receive. The large part of that in FY '23 will actually be towards constructing the waste heat recovery plant at Chittapur.

No. I mean I said time lines for Tiroda plant for commissioning for the plant [indiscernible]...

For the commissioning -- No, it will be the late -- not late sometime in FY '24.

And clinker at Devapur?

Clinker at Devapur will be towards the end of FY '24. The grinding unit will try to get early in the FY '24. That will be the intent.

Next question is from the line of Sanjay Nandi from Ratnabali Investment Private Limited.

Congrats on a good set of numbers. Just a follow-up question that you clarified it during the initial comments. So can you just clarify on the follow-up thing like on the estimate to last quarter in the conference call that has some regulatory clearance are in the way. So any update on that thing, sir.

No, that's what I said earlier also, the -- last time I had briefed the investors that the necessary clearance of central government from the mines ministry had been given to state government. State government has now approved the allocation of those additional mines. And we have just now -- while the Chief Minister's approval has been granted, we are still waiting for the gazette notification to be out, which should not take much longer now that the Chief Minister has approved it. So once that notification comes, we can start the process of what we need to do for environment clearances.

Sir, what time all these things might come up, sir, when you can see, time, sir?

Well, on the state government's order will be issued. And after the environment clearances, like I said, we just want to make a certain amount of -- we need not wait for the full clearance just because that is the clearance of mines, and that we can get even during the process of construction. The environment approval to start construction of the [indiscernible] has been received and the grinding unit has been received. It is just a question are we finding the right comfort level. My own intention would be that we can start the construction of the additional clinker capacity at Devapur within the FY '23. But it will be, like I said, not in a big way. It is just starting to build some infrastructure there in FY '23. balance will go into FY '24.

Got it. That's really good things, a very good thing, sir. And what net debt standing in the books, sir, as on date?

As on date, I mean, as at the end of September, it was about INR 590 crores. As we speak, we made further repayments during the current month also. So as on date, as you speak is INR 550 crores.

That's for net debt.

It's for -- gross debt that we have to the banks. And around this time, we hardly have any cash balance. So you can take over INR 550 crores current to date.

[Operator Instructions] Next question is from the line of Dhiral from PhillipCapital.

Sir, earlier in Q1, you guided that you are looking to reduce the debt to INR 100 crores. And now you are stating that you will be reducing it to INR 250 crores, INR 300 crores, right?

See, we as much cash as we're generating are using largely for debt reduction, excepting for the fact that the fuel situation as it has emerged is forcing all of us to stock a lot more of fuel than we normally do. So given the need of the business, the debt reduction by itself, it doesn't become an end. We have to run the business first, right? So the -- what we had expected at that time that we'll be able to bring back the working capital to normal level, assuming that the inventory that we had built up in Q1 may not be needed by the end of the year. That scenario has changed. So working capital continues to take a lot of the cash that we're generating. If -- let's say, again, if we find that the energy situation has eased out by January and our need to stock up that much of fuel may not be here, then we have cash in hand to again reduce further debt. Cash is not going anywhere out of the system. It's either being used in working capital to run our operations better and also to manage the cost better or will be repaid to the bank. There's no third use for it.

Okay, okay. And sir, in Q3, this quarter, what kind of cost inflation we are witnessing on a quarter-on-quarter basis?

I wish I had the ability to forecast that. But, look, cost pressures on fuel are definitely there. From here, how much further they will go up is very difficult to forecast also, although I believe at this rate there's not too much room left for the costs of coal to go up. But even then, given the shortage scenario, I think every player will try to drive the best that they can I wouldn't expect the coal prices to go up by any significant amount. If that you maybe you can take on the best case scenario very pessimistic, maybe 10% over the current cost. Beyond that, I think it would just become dysfunction for the whole economy.

Okay. And sir, what is the typical inventory day or fuel, which we use, pet coke or coal?

Well, typically, we store less than 1 month of inventory. In these days we are sitting on much more. So what is typical in your mind, I don't understand.

Okay. So much more that, sir, how many days?

At each plant it's entirely different. One plant, we may have more than 3 months. At the other plant, we have 3, 4 weeks. That's how we're managing.

Okay. And sir, lastly, can you quantify the CapEx, which we are doing for, let's say, grinding unit, how much CapEx would be incurred for that -- for rate handling? How much we would be incurring for that waste heat recovery? Earlier, the quantum was INR 50 crores to INR 60 crores, but now when we are incurring 10 megawatts. So what would be the final CapEx required for that?

See, on the fly ash rate handling system, it will be less than INR 10 crores. For the waste heat recovery system, it's a function of how much megawatt of power we can get, right? So rather than compromising on the lower megawatt that we get and there is the saving CapEx. Right now, we are turning around. Earlier, I said we might be able to manage, but today, see it's a lot better idea to have as much of power available. So we are increasing the size to 10 megawatts. And in the marketplace, we do know that the cost per megawatt over around INR 10 crores per megawatt. So we take INR 100 crores for waste heat recovery. For Tiroda grinding unit, the total investment might be around INR 500 crores, which is a typical cost of a 2 million tonne grinding unit [indiscernible], split-grinding unit I mean. So that's the quantification.

And sir, for this Devapur clinker?

That will be about INR 16,00 crores, INR 1,700 crores.

Okay. And sir, lastly, any volume guidance for FY '23?

No, not at this stage. We'll talk about it when we brief you for the full year FY '22, not currently.

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

Congratulations on good set of numbers, maintaining INR 1,000 plus margin in a tough environment. My question pertains to first on the clinker CapEx. You mentioned to be INR 1,600 crores or this is including the split-grinding unit?

No, no, no. See, INR 1,600 crores, INR 1,700 crores will be for the tubing and additional clinkerization line at Devapur and 1 million tonnes of additional grinding at Devapur, right. And the split-grinding unit will be another INR 500 crores.

So as you mentioned that you're looking for the clinker capacity to come by FY '24 end, so obviously, a good part of the CapEx will also be in FY '23. Is the understanding right?

FY '23, again, largely will be advances made on civil construction activity which will go on. Bulk of it does happen when the equipment starts arriving. And Rajesh, as you know, in our industry, once you order the equipment, you only pay 10% advance and balance comes around nearly a year later. So we actually come -- start coming in -- the heavy amount will come only in FY '24.

Okay. Okay. Understood, sir. And secondly, on the fuel sourcing, as -- if I understand correctly, you are also dependent on domestic coal to a good amount for Devapur operations. So given that the power crisis and we are hearing the coal availability outside power plants is becoming challenging, is that hurting you? And in that case, how are you managing your fuel? Is it more of an imported coal being used now?

Well, imported coal, you know the prices of imported coal. So using the imported coal being bought at current prices, I won't be declaring the kind of EBITDA you have seen.

Yes, sir. Correct.

So it's largely been, I would say -- yes, we are -- I did mention we are using imported coal also, but that's imported coal has actually replaced the pet coke that we -- at the Chittapur plant, if you recall, a few quarters back, almost using 90% pet coke, which has come down very significantly, and that's been replaced by imported coal, which we thankfully had procured much earlier. So that's what has given us the -- a little bit soft lending despite the very, very tough conditions. So that coal, currently, are we consuming imported coal? Yes, we consuming imported coal. Devapur plant is largely using domestic coal. And so Chittapur currently is the mix of either imported coal or pet coke whereas the Devapur is largely around domestic coal.

Okay. So there's not much of an issue with your sourcing of domestic coal over there. So where the inflation is less compared to what we are seeing with imported coal?

Correct. Correct. That's true. But also, we can't rule out the fact that the -- if we need more coal in the second half of the year, a lot of coal is procured on e-auction basis, as you know, and there's only that much linkage coal that together and beyond that is e-auction, right? And where the price ends up is a function of how many people are desperate to pick the coal. So I'm keeping my fingers crossed. Hopefully, like I said, the inflation should not be very harsh on us in coal from here on. But like I said, the situation is still dynamic, and we need to watch it very carefully.

Sure, sir. And just 2 housekeeping questions. How was trade, nontrade and your production in it?

I have already clarified the trade is 61%. The blended cement is 63%. I said that earlier. But let me clarify to you people once again, Rajesh, to your question and even the preceding question that was there. While I've given you these CapEx for FY '23, '24, this should be taken into account not that we have intent to delay this CapEx. Intention would be to spend the money and add to capacity as quickly as we can. So if we are fortunate with getting the necessary clearances from environment and forest and everyone faster, we'll try to do that because currently, our balance sheet is now ready to really start taking additional CapEx coming in. So please don't think that we want to delay the CapEx. We actually want to expedite, but our pace will be governed largely by the pace that the government functions [indiscernible] clearances, right? So if I end up surprising new people later on saying, actually, I can spend a lot more money in FY '23 on CapEx, I think we should be happy because that's what the intent is.

Thank you. The next question is from the line of Uttam from Axis Securities Limited.

Congratulations on the good set of result. Sir, my question is on what are premium cement sales during the quarter. Because last quarter, it was around 8% of trade sales. So what has -- what is the current mix for premium cement in overall trade sales, sir?

It has now started exceeding 10% of my total B2C sales, okay? For the entire total volume, it's now over 6%, but the -- I mean including -- just looking at my B2C stage, which is where I'm focusing the cement product, that's now finally crossed the hump of 10%. 10% is again of our entire B2C sales. But as I mentioned in my previous investors call, there are markets where we also have 20% of B2C sales coming from strongly, 20%, 17%. 2 large markets have been 17%, 1 large market has been 20%. But when we go through our, what I call our noncore markets, be it Madhya Pradesh, be it Tamil Nadu, there obviously, concrete is not finding enough footing. Our more important markets are all doing well in 2 digits.

Okay. And sir, what has been the price difference between normal cement and premium cement right now.

Same question every quarter, INR 35 higher than [indiscernible].

And sir -- okay. Okay. And sir, any price increase we have taken in the month of October?

Yes, I have said that earlier also. We have been able to find better pricing in the market. And in the current month, over Q2 average, I think we can -- depending on which market -- on average, I would say, somewhere INR 15 to INR 20 per bag would be the price which is higher compared to Q2.

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

Sir, any specific reason why our employee cost was lower quarter-on-quarter this?

No, this is, I think, you as a quarter-on-quarter read too much into things. One basic reason has been in the previous quarter, we have made some -- I mean we have actually made some provisions, which we did not need use, so we reversed that provision. But like the quarter-to-quarter movement will be there, but annually, you can see that it evens out. There was some extra provision in the previous quarter, which we didn't need to make this quarter. And partly, it's been reversed.

Okay. And on, sir, this blended cement mix, and I think trade mix also has sort of dropped 5%, 7% quarter-on-quarter. This is because of higher nontrade mix during the quarter.

During the quarter because of excessive rains, the smaller projects on which the trade cement or B2C cement is consumed, that consumed less and more of our consumer, more organized players were all B2B players, large projects, like they are able to still continue their construction activities. And this happens in every monsoon. A small construction work is very difficult to carry out because people are not organized to carry out construction work. Whereas large projects will not suffer as much. So as a percentage, you will always find that during heavy rains, the retail sales of cement falls and as a result the percentage looks lower than normal.

The next question is from the line of [ Janhvi Kapoor ] from Kothari Capital.

My question is that now that the profitability is improving and the balance sheet is getting deleveraged, why are HDFC and Franklin selling the stock?

You need to ask them, Janhvi. I don't take their decisions, right?

Okay. And the second question which I have is...

By the way -- just one second, Janhvi, just to clarify, while HDFC Mutual Fund has been selling till fairly recently, Franklin Fund, I think they offloaded the quantum that they wanted and the recent past I'm not seeing them selling anymore. So that is their decision. I've got nothing to do with it. I'm just reporting to you that Franklin Fund has not been selling in the recent few weeks at all. And HBFC Bank is sort of -- yes, they've been the constant bidders.

Okay. Second question I had is that in the last con call, you mentioned that a company has a lot of intrinsic value. But even in this recent bull market in small cap, the stock has underperformed. So when will the intrinsic value get converted into market value?

When I start -- change my career from searching cement to running capital markets, I'll let you know. Frankly, I wish I was running the stock market. And I'm able to understand why this is happening. Look, intrinsic quality when we say typically, you need to look at the market caps of companies of similar size with similar efficiency and similar profitability, right? And the valuation of our company is not sort of commensurate with that. I'm conscious of that. And I wish I could understand what the company can do better to get a better valuation. Unfortunately, I don't know that. Every time I talk to investors, on their own, they say, yes, you are efficient, you're making good money, everything is good about you. But somewhere -- I think part of the reason could be that in the recent past, even as the -- when the market has been rising, the supply of our shares has been large because as you know, and you earlier talked about HDFC Mutual Fund and Franklin India Mutual Fund were selling. So partly, it also become the question of buying and selling. But the good news, as I take it is despite that much offloading, the share price has still stood up. That means there is enough demand coming from people to at least buy around these prices.

The next question is from the line of Dhiral from PhillipCapital.

So now when we have a big CapEx lineup in the next 2 years, so by FY '24 end, what would be the debt position you are comfortable with?

Our debt position will always be a function of how much cash on delivering operations. I'll borrow only to the extent required. And like I said, the cash flows of the company are a function of how much volume we'll have, how much profitability we'll have. So when I start funding the product I'll be able to give you a better answer. As on today, you create your own models in terms of how much growth we can have, how much profitability we can have. But the -- I just say one thing. First preference would be having repay the bank's current borrowing. The preference will be to invest as much as we can from the ongoing cash into the new projects and borrow only to the extent we need, right? So it's a little dynamic right now with 2 years' time, how much cash my operation will generate and therefore how much debt I need to raise, it's too early for me to make a comment on that.

Okay. Got your point, sir. And then lastly, how much price hike incremental you would be needed to pass on this current cost inflation?

Well, the current cost inflation, as I mentioned, if we -- let's say, over the Q2 prices, if you get about INR 20 for that higher inflation, it will be fine.

Okay. So whatever prices which we have been done in October, over that INR 20, then it will be -- compensate the cost inflation, right?

Yes, yes. That is in the current scenario. If, let's say, post December or January, as I said, the cost inflation or the cost push moderates, then that need also sort of becomes moderate.

The next question is from the line of Ritesh Shah from Investec.

Sir, just one question. You indicated on the incremental expansion plan. I just wanted to understand, is there an element of incentives that we are looking from, from the respective state governments?

Well, the situation is, in the Maharashtra, in the Tiroda's area, there is, let's say, it is one of the most backward areas in the state of Maharashtra. So therefore, the incentives for that project will be available to us in the form of -- the state government's portion of the GST that they will give it to us as a soft loan, right? So that's the big incentive. Other incentives are there, but very small. Nothing much to talk about. The Telangana government, we still have to firm up what they might offer, although we are not sort of calculating the viability of that project based on that incentive. But Telangana, I'll update you in due course, not right now. But Tiroda, there's an ongoing policy under this. I think if I remember correctly, nearly 70% of the CapEx, they give you a soft loan because we are in a very, very backward area.

So specifically for Maharashtra, you indicated a set off on [ HDFC ]. This would correspond into what percentage of CapEx and for what duration?

Well, if the -- from what I understand, the current policy of Maharashtra government is that if the project cost is less than INR 500 crores, the period of, let's say, within which you need to avail of the benefit is 7 years, whereas the cost is higher than INR 500 crores in the period of time you have 14 years. Some of it is that inflation, right? Some of it might...

7 years and 15 years, if it's [indiscernible].

Yes. 7 years and 15.

[indiscernible] 15 years.

Yes. And 70% of the project cost.

Correct. So [indiscernible] about INR 45 crores per year.

Yes, yes, correct. So that's the policy that we have. So we are going to be around INR 500 crores. Now whether we are less than INR 500 crores, over INR 500 crores [indiscernible] that we'll get from the -- when we start placing the orders. So we are also [indiscernible], whether we can avail of the benefits within 7 years or we can get 15 years of that. So let's see, but that's the policy that we understood as it operates in Maharashtra today.

So that's very useful, sir. Sir, will it be possible for you to detail the same thing for Telangana? Any indicative numbers like what you indicated would be great, sir?

For?

For Telangana?

Specific one state, I don't give out the numbers, no.

The next question is from the line of Giriraj Daga from K M Visaria Family Trust.

I just wanted to clarify, have you mentioned anything about Rajasthan mine?

Rajasthan, the process is still on. I don't know what to say. I mean, this -- at times we look like -- we feel like last interval. Every time you go back, every time they say, yes, yes, yes, you're [indiscernible] will kick the price down again, it's another query and then the process starts all over again. So it's that snakes and ladders game going on currently. But the fact is we can't deny it. It's legally now our view to us is just need to complete the formalities and [indiscernible]. I wish I could give you a better idea of the time line. But all I can say is it will come to us, that the law as very clearly say. By when is something I'm not able to predict today.

Sure, sure. Second, you have mentioned INR 1,100 per tonne. That was for the second term or for the full year, just to clarify?

I was referring to the second half.

Okay. Last thing, sir, on the question of like you mentioned that the intrinsic value is not respected in the market. But [indiscernible] if you can also put across to your board. Why not -- not pay this additional INR 250 crores, INR 300 crores debt in the second half and use that money as a buy back, that will also give confidence to the market in terms of performance. We are anyway very comfortable on the debt. It was less than 1x to debt to equity. So why not use this additional money as a buyback? More better if you can do through a market purchase where the promoter may be showing confidence of not participating.

My learning, when I was on being educated as a store, that buybacks happen when we do not have a good deployment opportunity for the cash that we generate. We're talking about fairly large CapExes not just by FY '24, but to follow it up by FY '23 -- another 3 million tonne capacity. When we have growth aspirations, buybacks are normally never suggested. And since we are in growth mode, I don't think that's a -- not that our board has not discussed on material. They have discussed, but they also completely take the view that when you are actually in the investment mode and there are large growth prospects ahead of you, what's the priority? Put the money into the business, make it go.

Next question is from the line of Ritesh Shah from Investec.

Sir, this is a bit of a tangential question. So I just wanted to check. There has been a recent amendment on MMDR. I'm referring to Section 4A, which just indicate that if there are any historical legacy leases that the company has and if you do not have any plans for it, those leases will actually lapse. So for our company, are there any leases which are at risk? Or are the incremental expansions what you hinted it's partly a reflection on back of the amendment?

No, no, no. See, our growth plans have been intact as they are for the last 3 years. Every year, we've been saying that we were held up because of the mining clearances not being available. There's no mining lease at risk under that law at all for us.

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

I'll maybe just take this 1 question from Rajesh and then one more and then we need to wind this. Thank you.

Just on the CapEx amount, I wanted to reclarify the INR 1,600 crores is for the brownfield expansion at Devapur, right, which would include 1 million, 1.5 million tonne griding, and 2 million tonne clinker and CPP, WHR.

Correct.

Okay. So -- by any chance, do you see from a brownfield expansion, this to be on the higher side, you're procuring some more land and all?

See, to my mind, if we take the 3 million capacity of the greenfield, that today would cost about INR 2,200 crores to INR 2,300 crores, right, that at the same site, if you do it. And that we have decided to split the grinding unit to have better access to markets, which may be more lucrative for us, right? So because of that, it's looking higher. But if we were to do at the same location, it's economical, right? When I'm saying INR 1,600 crores vis-a-vis even at Chittapur we spent nearly INR 2,100 crores that was done 7, 8 years ago. In the meantime, the cost of revenue has gone up. If you keep using the ballpark number of $100 a tonne for constructing greenfield, at 3 million tonnes, we would be spending INR 2,300 crores, right?

Right, right.

So look at it from that perspective.

And CPP and WHR, how much quantum -- are they decided as yet?

No, not yet. Not yet. Because see, the more efficient [indiscernible] becomes, the less is the waste heat recovery, right?

Right.

It's the trade-off on what do you want to make more efficient. Should [indiscernible] more efficient or should the waste heat recovery can be more efficient. So we'll take the technical cause as we go forward.

So Devapur is just 1.5 million tonnes grinding, right?

Yes. In fact, like I said, 2 million tonnes of clinker, which hopefully it will replicate the mill that we have at Chittapur which we know is a very efficient material. And grinding capacity, yes, it could be 1, it could be depending on 1.5 and depending on what mill will decide to buy. But you'll put up only 1 grinding mill there, not 2 mills.

And Tiroda would be 2 million tonnes separate?

Tiroda will be 2 million tonnes, that's right.

The next question is from the line of Harsh Mittal from Systematix Group.

Just wanted to know what will be the GST input credit we would be receiving for the Tiroda plant and the Devapur clinker unit.

We still haven't calculated that. GST and all, we'll come to that when we start doing the detailed calculation. We're placing the orders. And depending on that consideration, we'll come to. At the moment, it's very difficult to tell.

Okay. So last question about are we entitled for the 15% tax revision with the recent tax amendments which came for these 2 plants? Are you -- is this we are incorporating as a subsidiary unit or it will be consolidated?

No, no. It's very much part of Orient Cement Limited legal entity. There's no subsidy. There's no SUV, nothing. It's the same company. Thank you very much. Thank you, everyone. I hope there is no end to the questions that we can keep answering that. Broadly, we've been managed to give you the overall good enough idea of how Q2 has been and how we see the rest of the year going forward and also some outline of the growth plans. And I think the purpose of today's call has been served. With that, let me once again thank all of you for being here, devoting your time to listening to our performance. And let me also sign off by wishing all of you a very, very happy Diwali.

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

Thank you, everyone. Bye-bye.