Orient Cement Limited (ORIENTCEM) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the Orient Cement Q4 FY '23 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Sahadeo from ICICI Securities. Thank you, and over to you, sir.

Thank you, Lizanne. Good morning, everyone. On behalf of ICICI Securities, I welcome you all to the Q4 and full year FY '23 earnings call of Orient Cement Limited. From the management, we have with us MD and CEO, Mr. Deepak Khetrapal. So without any further ado, I hand over the call to Mr. Khetrapal for his opening comments followed by interactive Q&A. Over to you, sir.

Thank you, Navin. A very warm welcome to all of you who’ have chosen to spend time on this call today morning. With me on this call is also Prakash Jain, our CFO; and also Manish Aggarwal, who looks after Corporate Finance and also Investor Relations. So, just I thought I'll make people aware that there are others from Cement who are on this call. My usual customary update on Q4 and the full year, let me just point out some highlights, which may not be so obvious from the published results, and I think that's the main purpose of the call. So, as we all know, we had an extremely disappointing Q2, very, very soft H1. But thereafter, I think we started recovering well, and Q3 actually showed a much better performance, and in Q4 I think we bounced back with EBITDA in Q4 of close to INR 840 a ton. So that's good to be back where we belong. The overall volumes, as all of you know by now, for Q4 are 17.2 lakh ton, which is 6% growth over last year. And over Q-on-Q basis preceding quarter, we are up 20%. And I just want to highlight, this 20% growth that you are seeing in our quarter-to-quarter the volumes, this is barely any drop in the pricing. Price is barely 0.5% below the preceding quarter, and with that we have 20% growth. I just want to highlight how important and how significant this is. On a full year basis, we have total volumes nearly 58 lakh tons, up 5%. The main thing which I said, which is not in the published numbers, this year has been a strange year for us because largely we remain 60% plus towards the trade sales, B2C sales as we keep calling it. And our B2B typically has been smaller part of our portfolio, which continues to be so, but there is a big skew that happened during the year. And we, in our markets, found the B2C demand or the trade segment demand to be a lot lower. And because of the price -- demand in B2C being lower, somehow the prices in B2C segment in our markets also suffered and they were very low. And we made a quick pivot as we keep calling ourselves the agile organization. And this year, we grabbed the opportunity that is available in the B2B sales. And against a 9% degrowth in our trade sales, we actually have grown by 29% in our B2B sales. Why I'm calling that out is because it has huge implications on the overall, I would say, numbers. The B2B sale, as we know is predominantly OPC sale, unblended sale. Now what that does is that when you start selling so much more of the proportion of OPC, it actually changes the total capacity that is available to the company, because the fly ash is not getting blended with the blended cement that goes. So when we actually look at these numbers, while we would say that for the quarter, the OPC has actually gone up to about 43%. As a result of that, whatever capacity utilization we talk about, the 80% capacity utilization that we talk about at the cement level, at the clinker level, that amounts to 98% capacity utilization for the company as a whole in Q4. So clinker utilization has been 98%, although the cement level capacity utilization appears to be just about 80-odd percent and slightly more than that, which is a big, big difference. And also in terms of the efficiencies and all, they go for a toss because obviously, OPC consumes more of fuel, more of power and things like that. So when you do the per ton analysis, we need to remember, it's not quite an apple-to-apple analysis. So these are important nuances behind the numbers that I just read out to you. For us, in Q4, the trade has been actually down to 51% against 61% of last year. In Q4, it's 51% this year. In the preceding quarter, it was 61%. So, that's a big, big skew in our volumes in Q4. The import of that I've already explained. Another very important factor that I want to highlight for all of you is that despite the significant degrowth that I've mentioned to you about our trade sales or B2C sales, our premium products that we've been targeting only on the consumer of trade market, we do not offer them to the B2B segment. In those products, our super premium brand, as we call it now, Strong Crete, which is up 17% over last year’s volume. And then late in the year, we also launched Orient Green, our another premium brand, which is not super premium, which is more like a premium. It's about INR 20-odd less than Strong Crete in terms of pricing. But the positioning of Orient Green is more about sustainability, more about responsible cement. So if we combine the two, our total growth in premium cement over last year is 22%. And the Strong Crete 17% has come to us despite the fact that in Q1 itself, we had actually decided to, in a market where prices are difficult to come by, we've actually taken a bold decision to increase the premium gap of Strong Crete over our PPC another INR 10. Earlier we used to sell it at INR 35 plus PPC, now we sell it at INR 45 plus PPC. Despite that, there was a 17% growth in consumer segment, where otherwise we have a degrowth. So these are things that I just want to draw your attention to. It actually tells us that our brand strategy and our positioning strategy that we've been sort of working on in a very concerted manner as a long-term process, and with the rich portfolio of premium cement as we have already launched it, it seems that now we've taken roots and we're beginning to see the fruits of the hard work that we've been doing. And this branding strategy, which to my mind is perhaps unmatched in the industry, it will actually pay us dividends for years to come. But at this stage, at times it does appear that investing in the form of lost volumes, as we insist on the prices that our brands deserve, maybe there's some investment that's happening in terms of lost volumes, but we've as a conscious choice, as a strategic decision, we choose to pursue that route and we keep doing it. And I'm just pointing out this thing because in the overall analysis of volumes and tons and prices, some of these nuances get lost. I talked to you about the clinker utilization in Q4 at being 98%. Now if we, just to give you a full year figure also, it seems that at the cement level, as traditionally as we see, our capacity utilization is at 68%. But if we look at the clinker level utilization in the last year, we utilized total company's total clinker up to 78% for the year. Obviously, one implication which is very clearly there is that we have 98% utilization in the quarter, 78% already happening in the full year of clinker. If we want to keep growing very quickly, we need to take some action to add more clinker capacity. And the clinker capacity that we need to add, I'll come later on CapEx, but just giving an indication to you because clinker utilization, if we look at the full year last year at our Chittapur, Karnataka plant, our clinker utilization is in excess of 100%. So the capacity addition at Chittapur is now looking absolute at desperate need. So we obviously have to very quickly think about adding clinker capacity starting with Chittapur compared to earlier we were thinking about somewhere else, I'll come to that. The other details on Q4, our realizations on last year were up 3%. And like I said, on Q-o-Q basis, there is hardly any drop there. Even the full year realizations are up about 3%. While the cement prices have stayed what I call flattish, what has bothered us throughout the year is the huge spike in costs, and largely, we all know it, power and fuel costs which have been going through the ceiling. And they have been unrelenting lately. Yes, we've been having some relief. But for full year, if you look at it, our total costs, which went up to about INR 570 per ton. Out of that, INR 467 is coming only from power and fuel and INR 66 is coming from logistics costs. Obviously, there are some other small contributors to that, some additives like laterite and gypsum and there may be some fly ash costs moving up during the year. But largely, that's the cost buildup. On Q-on-Q basis, our total cost of operations in Q4 are down about 5%, but they are higher 7% year-on-year, largely as I mentioned, power and fuel and logistics because diesel cost also went up. And this cost increases, I just want to sort of again give you numbers which are otherwise not there. The full year, if we look at the AFR, the alternative fuels that we use, that we keep consuming, and we've actually been using a lot more of lower cost fuels like RDF and the municipal waste and things like that, compared to carbon black, for example, which has been classified as an alternative fuel. But we know that the carbon black is not really comparable in terms of AFR with things like municipal solid waste or the RDF and things like that. More and more focus has been to go towards lower cost alternative fuels. And also the hazardous waste, whether from pharma industry, so hazardous waste, nonhazardous waste, we will be trying to bring in. So that even the alternative fuels that we use are coming at a cheaper cost. So total savings that we estimate for the year from using alternative fuel is in excess of INR 40 crores. And the renewable power that we've been increasing during the year, those savings are in excess of INR 10 crores, coming partly out of the Jalgaon investment that we made and also partly coming from Chittapur, where we've been sourcing renewable power through open access. Unfortunately, the Telangana government policies are not friendly towards using or buying renewable power. And they are leaving no opportunity for us to utilize that at Devapur till we decide to set up our own power on our premises, which perhaps might happen later. In terms of efficiencies, I'm delighted to report that despite whatever things we talk about, the heat consumption, as we call the fuel consumption in a year, where otherwise things have been struggling, our total heat consumption for the company as a whole is under 690 kilo calories per kilo of clinker. The alternative fuels for the year as a whole have been a little lower in terms of total volume of alternative fuels, but it's been more on the cheaper low cost or negative cost fuel. But renewable power for the company as a whole for the year has now reached 15%. And encouraged by the benefits that we see of alternative fuels and of solar power, we are obviously investing more. The plan is that the renewable power for our company by FY '25, and that's in the next two years, should actually become over 35%. And we are also -- I think as an outcome of the Board meeting, we announced that we are going to be investing again in an SPV to add about 21.5 megawatts DC of solar power at Jalgaon and Chittapur separately. The waste heat recovery project that we've been talking about, which has been under construction at Chittapur, the construction got over and that plant is right now under commissioning. And the reason why we could not do it earlier, although we were planning we'll do it earlier, but one is constructing the waste heat recovery plant, but we also need to connect it to the kiln to tap into the heat. Now that connecting the kiln to waste heat recovery plant needed the shutdown of the kiln, which we could not afford in the month of March. So only in April when we took the Chittapur kiln for maintenance shutdown, at that time we took the opportunity of connecting the kiln with the waste heat recovery plant and currently the commissioning is on. Almost 80% of the power that we expect from waste heat recovery should become available to us from, I'm expecting, later this month, but if not later this month, at least definitely in the month of June, about 80% will come in, and balance 20%, hopefully, by July, August, we will start getting even the balance 20%. So that's a huge, huge, huge cost saving initiative that we are taking at Chittapur. The other project which has been on towards cost saving, the rake handling system is up and ready. We have already brought in the first rake and sort of normalizing that. So that also is up there. In terms of market exposure, we, in this year, actually have increased our volumes from Western India -- so in terms of markets, as I was mentioning, our exposure to Western India has actually gone up to 61% in Q4 from 53%, which used to be till last year, I am talking about Western India, Maharashtra and Gujarat put together. On full year basis, our exposure to West now is 57%, up from 54%. So that means we sold less to Southern India, more to Western India in this year. And this change has been enabled by the fact that today, our volumes in the Mumbai market and the Pune market, these two markets have been giving us a huge amount of traction, our brand is being preferred by lots of B2B customers. And that's why the slight skew further towards West from South has also happened. On the fuel mix and other details, one thing which I again want to call out is, as on date, we've been reporting earlier also that we've been a water-positive company. So I am delighted to report that we’ are also a plastic-positive company now, in the sense that whatever plastic we end up consuming in packaging or whichever other form, we actually bring in and burn a lot more of plastic compared to what we consume in our process. So we are not just a water-positive company, we’ are also a plastic-positive company, which I think from sustainability and ESG perspective is a very important development. In terms of fuel, as all of you know, Chittapur, besides the alternative fuel that we use, it runs entirely on petcoke; and Devapur, the main fuel continues to be domestic coal, with some petcoke as a sweetener, but largely domestic coal and some AFR. Always the question comes as to what’s my fuel mix. Overall, for the company as a whole in Q4, we have had about 53% of domestic coal, 35% petcoke and balance is largely alternative fuels. The alternative fuels, as I mentioned, lately we've had some problems with one of the major alternative fuels had become rice husk. But somehow in the Telangana market, there is some issue going on with the government procurement of paddy, because of which lots of rice mills which used to shell and give us the rice husk has not been available. So that's been a little bit of difficulty. Hopefully, it'll get over soon, but that slowed down our March with alternative fuels as much as we would have wanted. The overall blended cost for the company on a kilo calorific basis for us has been INR 2,110. And this is down from INR 2,230 -- sorry, INR 2,230 is the full year, sorry, my apologies. The blended fuel costs for the quarter 4 is INR 2,110, but for the full year it's INR 2,230. That means obviously in Q4, the improvement is already visible, but the more important part is, against INR 2,230 is the blended cost for the full year, the last year the blended cost was INR 1,486. Now if you look at INR 1,486 versus INR 2,230, the increase in fuel cost, which is the procurement cost, which has nothing to do with our efficiency or anything, with that steep a hike in fuel cost, AFR, EBITDA has suffered, and this is where the data is. In terms of -- what are the other details. We have -- overall power and fuel costs, despite this huge increase, and with the increase in OPC, which as I mentioned, does consume a lot more of power and heat in terms of producing, our fuel cost quarter-on-quarter in Q4 is INR 1,570, that I'm sure people would have calculated. And on an year-on-year basis, the increase is now under 19%. It i’s because last year Q4 some amount of inflation in fuel costs had already hitting us. So it's 19% now, which used to be 30%, 35%. And on full year basis, it's 41% up, but on Q-o-Q, it's down to 19% above what we had earlier. The prices, obviously, fuel cost prices have been softening, and largely, petcoke that we depend on, because the Singareni Collieries are the domestic coal supply base, there is not much change. But the petcoke prices internationally and domestically have been coming down. So that's been a huge relief. The AFR costs sort of, obviously with lack of availability, if we keep using carbon black and rice husk, those costs will go up, but we depend more on RDF and more on MSW and hazardous waste. So using all these strategies, the cost management obviously has been really solid and in place and it runs as a good process. The challenge really has been that with the variable costs, which have been pushed high because of the power and fuel and diesel costs, and the market demand also has not been, I would say, so bad, we still have growth, and the problem has been our ability to pass on the increased cost to the market. And that is not new in this Q4. This been an ongoing process throughout the year. The bottom line of the company in Q4, bottom line, we mostly restrict ourselves to EBITDA, so we are about 7% lower compared to Q4 FY '22, which is a huge recovery from how far behind we had become. So Q4 is just 7% below last year EBITDA. And in terms of the quarter-to-quarter comparison Q-on-Q basis, we are at 58% up compared to the Q3 EBITDA that we had. On per ton basis, Q4 is close to INR 840, up 31% from Q3. But on year-on-year basis, obviously, we're down from INR 958 to just about 12% down over last year. In terms of balance sheet, we obviously have been paying the term loans that our project debt that we had, which we repaid another INR 148 crores. And that project debt is down to just about INR 240 crores in our books. And again, there's a quarterly repayment program that we keep respecting. The debt that has gone up on our books, there is an important reason behind it. On 31st March, it seemed that our working capital had got stretched. And the reason behind that is actually a very positive development that we've been able to make. We perhaps are setting some kind of, I would say, world records in our ability to keep running kilns without having to take maintenance shutdowns. What I mean by that is our Chittapur kiln, while actually recently taken for shutdown after a period of 23 months, the industry norm is nine months, we ran the kiln and we took it down for regular maintenance work after 23 months. While that is one data point which obviously gives us savings in our fixed costs, as it requires maintenance, more important why I am sort of mentioning that at this particular juncture is we finally had to take maintenance shutdown of the kiln, which last we had actually done in the month of April '21. And because the markets around that area were still very strong, we had to stockpile a lot of clinker, by March end to be able to keep servicing the markets that Chittapur serves, even during April when we would have had nearly zero clinker production. So that huge pileup of clinker inventory and cement, as much as we could stock at the end of March, led to a to a huge spike in the inventory that we had on 31st March, which obviously needed more working capital, and that is a skew. But as I mentioned, we did take the shutdown work of Chittapur during the month of April. And by the time we lit up our kiln back into operation, all that excess inventory that we had piled up had been consumed. So cement stock and -- you’ would be surprised, at the end of March, if my clinker stock at Chittapur was 75,000 tons, by 20th March (sic) [ 20th April ] it was down to 2,000 tons. Even now we have total clinker stock at Chittapur just about 7,000 tons. So the blip that you see in the working capital buildup was only to be able to tide through the period that we had for the shutdown there. That's the only reason why the working capital got stretched and we had to borrow some money from the banks. Plus, obviously, from time to time when we import petcoke, it does create a little bit -- because when we import, we have to import full ship loads. And obviously when that inventory comes -- so besides that, which has become a normal cycle now, we import a vessel and then consume it. So when it comes, you certainly have a three-month inventory. By the time you import the next one, that also falls. So that's a cycle, but the clinker exceptional inventory has been already liquidated. As I mentioned, the project debt is about INR 240 crores. As we speak, the working capital debt would be a little over INR 100 crores. And in this particular year, we managed to also get part of our incentives, which our Karnataka investment had made us eligible for. So about INR 57 crores of debt we have on the books, which we call it a debt, but actually it's a soft loan from Karnataka government, which is interest free for the next 10 years, and the repayment will start only after 10 years, again in yearly installments. So it's an interest free loan available as good as equity, frankly. But still if you include that also, then we would say the debt is around INR 400 crores, but INR 57 crores out of that as I mentioned to you is more of incentive than really a loan. The best news is, I think the energy prices, which we've seen the softening in Q4, have softened further during the last quarter. The challenge that we have is that when the prices soften, by the time they hit our P&L, there is always a lag. And that's why last year, despite prices going up in the initial quarter, quarter-and-a-half, we had the benefit of our early inventory, which was bought cheap. This year, we may have a little bit of struggle with. The prices of petcoke having gone down, the lower priced petcoke, when it only comes in is only then we start seeing the softening, otherwise we have to live with what the inventory that we have got. The good news is that the new petcoke that we booked was obviously about -- was at 12%, 13% lower compared to our previous purchase. So that's again a good price. But maybe by the time we start consuming, the prices may come down. So that's the only risk that we have when we buy fuel in bulk. The rest of the market initiatives, they keep going on. One of the changes, again, which are important is, led by several factors, including nonavailability of rakes, and also the railways have decided to reimpose the peak period surcharge. And they started laying very penal wharfage charges at the destinations. Because of that, we've had to relook our logistics mix, and for the time being, at least in Q4, the railway dispatch has come down to 16% of our volumes compared to 25%, which was there in Q4 last year. And the full year rail dispatch has actually come down to 17% for 21% last year for the full year. A little bit on the prospects. Looking forward, if people have seen my interaction on TVs and all, we are targeting, in the current year, the volumes of, I'm saying, the range is between 6.3 million tons to 6.5 million tons from about 5.8 million tons that we did last year. And one thing which I'm sure all of you who monitor the cement sectors, you would know that if we have taken the major shutdown of the kiln at Chittapur, which takes about three weeks when we take it down; had we taken that in the month of April, it might look a little softer month, purely because the maintenance shutdown comes on P&L as a very, I would say, bunched up maintenance cost. So that obviously is booked in the month of April. And also, if I was stocking 70-odd-thousand tons of clinker at Chittapur, that obviously was not good enough to meet the entire demand. So we also had to ship many rakes of clinker from Devapur to Chittapur to keep meeting the market demand. So that obviously adds a huge amount of cost of transport in clinker, which as we all know that much distance does cost about INR 800 a ton. So that obviously has been additional impact during the kiln shutdown period. And thankfully, we kept servicing all of our customers and we kept meeting their needs, but we know this impact that happens during the annual shutdown or maintenance shutdown, and it's no longer annual for us, we actually do it not annually, but a lot more longer. These are bunched up costs, but they get equalized over the year. It may look in the month of April for us, yes, bunched up, and maybe in Q1 also it will have an impact, but for the full year as a whole, they will get normalized, so nothing to get worried about. On the last item that I want to talk about before I take your questions is that CapEx actually has been slower than what we perhaps had anticipated at the start of the year. And multiple reasons, especially after Q2, we were also quite spooked by where we landed up in Q2 and H1. So for the year as a whole, against our estimates that we had shared, we could spend only about INR 130 crores for the full year on CapEx, and in Q4, it's barely INR 28 crores. So obviously, there's a backlog in terms of CapEx. Now coming back to the CapEx going forward, as I did mention to you, there are two reasons, one, at Chittapur, we already consumed 100% of clinker. More importantly, what we are now realizing is that it was okay as long as Chittapur was ramping up and we had some spare capacity there. And we could do with essential activities like maintenance shutdown very comfortably. The problem with Chittapur is that it has as of now only one kiln, unlike Devapur where we have three kilns, where even if one kiln shuts down, we can keep running the operation. At Chittapur, with one kiln, and that also being utilized 100% of capacity, there is a very, very clear need for us to prioritize the expansion of the new kiln and grinding capacity at Chittapur and we keep seeing very, very strong demand there. So we would like to take that up. And if we say -- the ambition now would be that at least we start the physical on-site work on Chittapur kiln line sometime in the third quarter of this financial year. And that obviously means that the Chittapur expansion would cost us between INR 1,550 crores, INR 1,600 crores, in that range. There can always be INR 10 crores, INR 20 crores here and there, but largely we would say, between INR 1,500 crores and INR 1,600 crores is the total CapEx there, out of which, if we have to really push it very, very hard to get the kiln line in place in time for us, so that we don't lose the market, perhaps we are wanting to spend about INR 600 crores on that project within this financial year. And there are a few other things that we have to keep doing; for example, we are obviously looking at expanding, in due course of time, our capacity at Devapur and also do the Greenfield at Rajasthan. For these two projects, we will need to do some preparatory CapEx. For example, in the forest -- our mines in Devapur happen to be in the forest areas, and for those of you who are familiar with the forest areas, we have now applied for forest clearance and the moment we get Stage 1 forest clearance, we will have to deposit close to INR 150 crores with the forest department of the government to reafforest the compensatory -- to compensate for the forest that we will be using to do our mining. So those are now all essential. These are all part of the overall CapEx that we have for Devapur, but I have seen some of that obviously – I am assuming that the Stage 1 forest clearance will be available to us within this year and that will obviously mean cash outflow of maybe INR 130 crores to INR 150 crores. Similarly, Rajasthan, land acquisition process has to start. So we obviously are keeping INR 100-odd crores for CapEx to acquire land in Rajasthan. So that the work stays on stream. So put together -- we are also wanting to put waste heat recovery plant at Devapur. And also, I talked about nearly INR 10 crores investment which will go into equity for solar power at Jalgaon and at Chittapur. So all told, INR 1,000 crores, INR 1,050 crores should be our CapEx this year if our growth plans have to stay on track and we don’t want to lose market share. So that's I would say all the highlights that I had to share. And obviously, I’ll try to answer most of the questions that the audience would normally have, but there is an opportunity for us to start addressing questions as they come. Thank you.

Sir, should we open up for questions?

Yes, please.

[Operator Instructions] The first question is from the line of Rajesh Kumar Ravi from HDFC Securities. Please go ahead.

If you could share what was the clinker production for FY '23... Hello, sir. Can you share the clinker production for FY '23, please?

The number I'm not having with me right now, but I did tell you, 78% of our capacities. I can say that...

On clinker basis, you are saying?

I'd say, clinker basis, the utilization for the last year is 78%.

Okay. And for full year, what would be your trade and nontrade mix? And what's the target?

See, targets, we obviously would want to get back to more trade as we used to have 60-odd percent. But this year, obviously, that has come down to about 54%. And balance we've been doing B2B. Target is a function of what we see in the market. This year also, the target was not to go down in B2C by the way. That will narrow the target. But if you do not have demand or the prices are not remunerated, then we pivot very quickly, right? So we'll keep feeding the demand that we see in the market. Let me not hazard a guess on that, because if you ask me, I certainly want to do about 65% trade provided the demand is there and the price is there.

Okay. And sir, 2 questions. One on the quarterly. If you see, the employee cost and other expenses this quarter were very low. Despite the high volumes, the employee cost was much lower INR 43 crore normal run rate. So how should we look into this. Obviously, there is a balancing number for the full year. And even for other expenses, what would be the normalized run rate?

See, partly, Rajesh, you have already guessed it. Partly, it always happens, at the end of the year we realize the net provisions for year-end costs like variable cost and bonuses and things like that. And when you see the final results, we know it’s not going to get paid at this level, right. So we reverse some of the numbers for sure. So partly it’s balancing, but also about I think two quarters ago, I tried to answer this question. We actually have had a fabulous process of developing talent in-house. Now when we had a very senior-level personnel, President Manufacturing, when he retired in the month of October, we didn’t go out and hire a new President Manufacturing. We had been training, we had been developing our internal people. So the new President Manufacturing was already with us. Same thing happened with history. So 5, 6 levels of succession within the company, which otherwise would have been more expensive if we had gone out. We actually use our own talent, and in-house talent typically turns out to be lower cost. So for this quarter, and even the month of December, we didn’t have to pay the salary that our previous President Manufacturing used to draw. And we have his replacement at a salary which is much lower, because he is younger, he is developed in-house, he will get to that salary, but for the time being we are saving, right? So that’s the process. And there's another change in the company that again is happening at another level, same process. Develop your talent, utilize them. Your manpower cost will remain under control. That’s what we’ve learnt, and that’s what is resulting in the numbers that you are seeing.

And sir, lastly, on the CapEx front, if you see FY '23 also, our media target was around INR 250 crores for this financial year FY'23. And we closed the year with INR 150 crores. So on a practical basis, what sort of number one should look at? Because Tiroda is not happening, but other projects are mostly brownfield in nature. So what is the Devapur and the Chittapur projects CapEx which are firmed up for this financial year? Yes.

Rajesh, as we know, Devapur, I have already mentioned many times, we will not take up Devapur expansion till we have a grinding unit under construction. So whatever we plan to spend, not only on Tiroda, but also at Devapur, the support that we had to hold back, because Tiroda got canceled. So that's why now, if I'm talking about INR 1,000 crores in this year, as I've mentioned to you, I'm not talking anything beyond the forestation charges that we have to give to the government. I am not saying much to be done at Devapur or the new grinding unit. I am, not even planning that, right? The INR 1,000 crores, INR 1,050 crores number I am saying is largely to start the kiln construction at Chittapur. And then I said INR 150 crores for deposit to the government for forest clearance, INR 100-odd crores for Rajasthan land, which I think are reasonable to take. Tiroda dislocation was a huge, huge, huge thing because of which -- when that got dislocated, there is no point in expediting Devapur construction.

And for this Chittapur, what sort of clinker and grinding capacities you're looking at?

We are replicating the -- we have a 3 million ton capacity there with a 7,000 tpd kiln, 6,000 tpd kiln. We will replicate it, exactly the same thing.

We'll move on to the next question that is from the line of Niteen Dharmawat from Aurum Capital.

A couple of questions. What is the status of the waste heat recovery plant at Chittapur that we expected to commission in the first quarter of financial year '24? And how much debt we are likely to take on the books for the CapEx that we are planning and which is undergoing right now? And -- yes, sorry, go ahead.

The capacity of waste heat recovery which is under commission today is 10.2 megawatts.

Okay. And this is now onstream, right?

No, no, it is under commissioning. It will be onstream in the month of June. Commissioning, the construction is over, then I mentioned that we had to wait for the kiln shutdown to connect it. Only then you can start getting waste heat, right? So now waste heat steam is being passed on to that. And then obviously, when you're commissioning a power plant of any sort, it is a few weeks' job before it starts giving you power, because the commissioning activities are fairly hazardous and they do take time. So it is under commissioning, it will be operational soon.

And what is the debt amount that you are likely to take for the subsequent CapEx which is going out?

Niteen, our debt will be geared towards how our cash flows go, right? So we do have the cash flows coming in. We have no other plan besides -- after paying dividend, there is no other plans to sort of do anything, so we'll use as much cash in term that we can generate and balance will go for debt. If we are able to spend INR 600 crores, my own guess would be, perhaps it will be prudent to go for a debt maybe INR 600 crores to INR 700 crores, in that range. But like I said, that will be for us a balancing number. We'll obviously try and use our own cash flow as much as we can.

We'll move on to the next question that is from the line of Rajat Setiya from ithought PMS.

Sir, just 1 clarification. Sir, because of lack of clinker capacity, we are not able to produce -- we won't be able to produce to our nameplate capacity of 8.5 million tons, is that correct?

If the OPC percentage remains as high, yes, you're right. 8.5 million or any capacity in the cement industry, we assume 65% PPC, 35% OPC is the, I would say, the default assumption when we talk about capacities. The moment OPC becomes way beyond 35%, no company can produce the boiler plate capacity, that's how it is calculated. So you're right. Your conclusion is absolutely right.

Okay. And with the help of this new clinker CapEx that we are planning at Chittapur, what will be our cement capacity then? I mean, will we be able to produce to the maximum of 8.5 million tons?

My own assumption is that these blips of suddenly B2B demand becoming so much higher and B2C going down so low, these are transient phases. I personally do not think this will sustain. So whether it happens in this quarter or the next quarter, B2C demand will come back. And then we will be back to around, like I said, 60-odd percent of PPC and 30-odd percent of OPC. So I think we'll resume normalcy within a few quarters. And the same thing, if you are going to be replicating the current size of the kiln and the mills at Chittapur, boiler plate will be 3 million tons assuming that the mix of B2C, B2B or OPC, PPC, would come back to what the industry norm is. The current aberration -- let's not carry this current aberration as something which is going to last forever.

Sure. So our total capacity will increase by how much, sir, with the help of this new kiln?

At Chittapur, it will increase by 3 million tons. So 8.5 million tons to 11.5 million tons.

So 8.5 million tons plus 3.5 million tons?

Plus 3 million tons. Total 11.5 million tons with Chittapur expansion.

Okay. And sir, you briefly mentioned that about Devapur, and you have mentioned that in the past, unless we have the grinding unit at Tiroda, I think, we won't be able to add the CapEx. So what is your thought process there? I mean, in terms of what is -- I mean, why are we not going ahead with the grinding? What is stopping? What's really happening there. If you can you help us understand?

Good question. Actually I should have briefed this in my own opening briefing. Tiroda fizzled away. They said they will not allow us to do it anymore. So what we have done now is, we are actually in very close discussions with another alternative site in Madhya Pradesh, very close to a power plant. The discussions are on and as you know, when you have a new site in -- whenever you need land and other details, you have to examine lots of things. So we have zeroed in on one site. I would not like to reveal the name at this stage because we are under negotiations. So we hope that within the next six months, we will be able to freeze the exact site and have the land in hand to put up the grinding unit. But if it takes us six months to get the land, I don't think much of CapEx will happen on that in this year, in terms of cash flow. But we will make that grinding unit. And as soon as we start the construction for that grinding unit, Devapur expansion will run in parallel. So we want to do it in a synchronized manner, so that we don't have mismatch of having clinker, but not the grinding unit, or having the grinding unit, but not the clinker.

Sure. So basically, earlier plan was 1.5 million tons of grinding unit and 3 million tons of kiln at the Devapur plant. So same would be the...

Let me correct again. Earlier plan also was that the Chittapur, the kiln that we have, which actually produces about 2 million tons of clinker, which can give up to 3 million tons of cement. So at Devapur also, line 4 is planned for clinker capacity of 2 million tons with 2 million tons of grinding at this Madhya Pradesh grinding unit, which is the alternative to Tiroda. And 1 million additional grinding at Devapur itself to cater markets nearby. Total capacity 3 million tons of cement, 2 million tons at a remote grinding unit, 1 million ton on site.

Got it. And sir, what will be the total CapEx for this one, if it begins, whenever, let's say, sometime next year, both the kilns put together, grinding as well as the kiln?

The Devapur expansion and a split grinding unit all put together will cost about INR 2,000 crores.

So INR 2,000 crores for this, and almost INR 1,500 crores to INR 1,600 crores for the Chittapur, correct?

Yes, yes. But like I said, the timing and all, it is likely to be sequential rather than together.

Got it. And Rajasthan and region assume will be the last one, I mean...

It is the last simply because you know how difficult land acquisition is. So because of that, I'm not getting overambitious that I will be able to get the land within a year and start construction. It's unlikely to happen. You know it, I know it. Even if I say, you won't believe it, right?

Sure, sure. So what will be your -- in terms of debt, how do you think -- what kind of peak debt at any point in time, whether it be in terms of debt-to-equity or debt-to-EBITDA, how do you think about it?

We stick to our preannounced board mandate, which is, we would contain our maximum debt, meeting debt-to-equity largely 1.5, will be within our target for debt-to-equity. So 1.5 -- I don't think we'll ever exceed 1.6 in terms of debt-to-equity. So 1.5 is our comfort zone, and also mandated by our board. In terms of debt-to-EBITDA, we will stay between 3, 3.5.

Okay. And sir, at any point in time, let's say, do you envisage going for equity infusion as well?

Yes. If, let’s say, the market situation and all the things come together, and we believe there is need for us to put up capacity faster, that obviously cannot be handled through debt and internal accruals alone, in which case, if in the new projects, the Chittapur expansion, Devapur expansion with grinding unit in Madhya Pradesh and Rajasthan, if they overlap, obviously, our current capital, current balance sheet cannot sustain that. So obviously, at that point in time, we will see, if need be, bring in some equity, so that we have more room to leverage the balance sheet and do the projects faster. But as of now, like I said, I am sharing with you what is clear currently and we keep watching the market, how quickly we can build capacity in Rajasthan, and before that at Devapur. That I believe is more finite, because in six months’ time, I’m expecting to have the land in -hand for the grinding unit and that should start happening -- sometime in FY’ '26, the work can start there.

The next question is from the line of Prateek Kumar from Jefferies.

My first question is on your trade mix. So you said that trade mix has more competition. And as a result, we have lowered our trade mix. What is...

We have not lowered the trade mix. The competition has not gone up, the demand is a lot less. So this is a different way of looking at things. So competition has always been there. What has made it worse is that the B2C demand went down.

Okay. But we generally -- I mean, how do you classify this real estate demand in Mumbai market or some of the semi-metro markets in Maharashtra or Pune? Because real estate seems to be doing well. So is this counted under B2B demand?

Yes, so look, again, Prateek, as you are aware, Mumbai, Pune markets, when you say housing demand, those constructions are largely as large projects and there you have B2B sales. Whereas the same housing, if you start doing in Tier 3, Tier 4, Tier 5 towns, that becomes B2C sales. And that's precisely the reason why my exposure into Western India has gone up, my OPC has gone up, because my volumes in Mumbai and Pune have gone up dramatically. And that is all B2B and OPC.

Okay. And regarding competition, like a year before, like in FY '22, we were like commissioning Shree Cement, Dalmia, and I think Birla Corp in your market. So are these competitions like sort of now reasonably absorbed in the market and unlikely to impact going forward, or are they like sort of still ramping up and there is major competition for pricing?

No, I think the capacities that came up around us -- when we went to Chittapur, we were also new capacity. Don’t forget, in 2015, we got commissioned, and that’s around the time we had Shree Cement coming up, Dalmia’ coming up, JK coming up, lots of plant, additional capacities came up in that market, as you know. But that capacities, I’m telling you, my Chittapur plant is right now running at 100% kiln capacity. So obviously, it has been absorbed. We are not the only ones. We may have done somewhat better than some other competitors, but by and large, that capacity is already absorbed. The struggle for us, quite honestly, has been most acute around our Jalgaon grinding unit, where there are two other competitions who have put up grinding units in the market that we used to cater to earlier, right? And as they came in, they obviously have invested money there and they are following their own strategy to penetrate the market. And that’s where the struggle starts, saying should we keep selling at prices where there is competition, because don’t forget, the split grinding units, whether it’s ours or anybody else’s, clinker needs to be transported to that site and then you have to sell. And we typically have been avoiding OPC sales from our split grinding unit there in Jalgaon. Because there is hardly any margin left if we sell OPC. Typically, split grinding units are viable or attractive in terms of investment if you can sell PPC. Now that unfortunately has been not the guiding, I would say, philosophy of people who have put up grinding facilities later. And they are happily selling cement cheaper, even after incurring INR 800 a ton for transport cost. Now what do you do? And we are somehow trying to protect our prices and our contributions?

Right. So I was mentioning about the recent ...

Sorry to interrupt, Mr. Kumar. May we request that you return to the question queue. There are participants waiting for their turn.

I will just answer Prateek. Prateek, the recent ones that have come up are grinding units around Jalgaon, around Khandesh area as we call it. That’s the only current struggle. Otherwise, we're okay.

We'll move on to the next question. That is from the line of Aditya Chheda from InCred Asset Management. Please go ahead.

Hi, sir. Aditya here from InCred Asset Management. What is the cost of debt you're looking for the CapEx you would be taking up?

Cost on debt. The only thing I can tell you is that, given our strength of balance sheet and given the way we manage our business, our cost of debt will remain the finest. And it will be driven by what the market rates of interest are. I mean, it all depends on what view the central banks in India are taking in terms of how they create the interest and things. Hopefully, like I said, in the past we've borrowed at better delivery rate. I mean, we borrowed at 7% something. Currently, if I go to the market, I don’t think I will get that rate. It would be higher than that. It's a function of what are the interest rates in the economy around the time we hit the debt market. So for me, [indiscernible] everything depends on the monetary policy of Reserve Bank of India. I would like to do that. We'll see what the market is. Our spreads are extremely thin. That’s what I can say.

And second on volume growth drivers. You mentioned one of your capacity is operating almost at full capacity. And the second one is where the competition is sort of hurting us. So the incremental growth of around 10-odd percent in the volume, what would be the key drivers there? How do you see that number coming out, especially with April, you mentioned maintenance shutdown has been taken. So on a full year basis, how are you thinking about that number?

One is obviously, if there is new competition that has come around the grinding unit, we are finding our own ways to respond and we are sort of succeeding with that. Similarly, the markets in Telangana, which have been fairly low, sooner than later, they're also going into election, and in Telangana, we expect large demand growths coming in Telangana, which has been languishing for the last two years. So we are going by the situation market by market. And third, more importantly, when I said 100% capacity utilization, it was because of extreme skew which went towards OPC, which I've mentioned earlier, is likely to normalize. As that normalizes, then Chittapur is not 100% utilization of capacity. Don’t confuse the two. Clinker 100% does not mean cement 100%. So if the demand moves back to PPC, as it normally should, we have growth opportunity there also. Let’s not get confused that we can’t sell anymore cement from Chittapur. We can. If there is more OPC for me, I can give you another, whatever quantity is there in the market. So just clarifying, we believe, sooner than later, B2C demand will be back and our PPC sales will go up, one. Around Jalgaon, new competition, we are finding our ways of competing with it; and Telangana, which has been a disappointing market for the last two years, during the election, we are expecting strong growth in Telangana. So that’s my answer. There we have capacity. By the way, in Telangana, we have enough capacity to sell.

Ladies and gentlemen, we'll be taking the last question. That is from the line of Mr. Navin Sahadeo from ICICI Securities. Please go ahead.

Thank you for the opportunity. Sir, just couple of questions. For the Chittapur Line 2 clinker, if you could just clarify what is the status of the clearances and by when are you likely to see the project completion on this, please?

As I mentioned, Navin, I said we'll start construction in the third quarter. Now why we are waiting for the third quarter, only because of these clearances. Applications have been moved. And basically, we need environmental clearances both for the plant and for the mines. That process is already on. We are expecting that process to be completed in the next six months. And that's why I said in third quarter. Otherwise, I would -- given the current situation, I want to start the construction now if I could. So third quarter, only because we are awaiting clearances. And once we start construction, the typical construction time, now that’ it is a brownfield unit, should be, the best case scenario, about 15 months, for worst case, 18 months. 15 to 18 months is the time when we will expect the capacity to be available to the market.

Correct. So let's say, once the capacity comes on board, then as previous participants did ask that we might then be a little short of the grinding capacity, so to say, which you said we are already looking at a facility in Madhya Pradesh.

Again, Navin, Chittapur is independent of Madhya Pradesh. Madhya Pradesh will be supported by Devapur, Telangana. Chittapur, 3 million tons, 2 million tons kiln, 3 million tons grinding capacity on Chittapur onsite at the plant. So when I talked about INR 1,500-odd crores of investment, it is not just clinker line, it's including additional grinding at Chittapur, because there is enough demand around that area.

Understood. So the additional grinding that we are looking at is 3 million tons at Chittapur, you are saying?

Correct.

Oh, that’s helpful. And sir, just one last question then. In the scheme of things, of course, I understand Chittapur is a priority and very rightfully because of high utilization there, but Rajasthan is nonetheless, like, I think, a decent sort of a priority. So where is that in the sort of -- you did explain that land acquisition and all is in process, but if you were to take a slightly, like, view of the next three to five years, then where is Rajasthan in the overall scheme of things? And when can one ideally expect broadly the project to start? Thank you.

To my mind, Navin, I would actually believe that our land acquisition processes will take us about two years. And as we sort of are doing that, obviously, we will also be starting all the processes for the construction activity to start. So my own guess is, two, two-and-a-half years minimum before we can start the construction at Rajasthan. That’s bare minimum. And the Greenfield project will take us, like I said, 18 months to 21 months. Brownfield we can do in 15 months, but Greenfield I don’t think will happen in less than 18 months, because the railway siding and lots of new things to come up, which a Brownfield doesn’t need, right.

Understood. This is very helpful. Thank you so much.

Thank you. Thank you, Navin. Thank you, everyone.

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Navin Sahadeo for his closing comments.

Thank you, Deepak sir, for providing ICICI Securities the opportunity to host you. And thank you, everyone, for taking time out and joining the call. You may please go ahead and disconnect the line.

Thank you, everyone. Thank you. Bye-bye. See you next time.

Thank you. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.