Sagar Cements Limited (502090) Earnings Call Transcript & Summary

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Thank you, Gavin. Good afternoon, everyone, and welcome to Sagar Cements earnings conference call for the quarter and the fiscal ending 31st of March 2020. I hope all of you and your loved ones are safe and well. Also, we would like to express our deep appreciation for the life-saving efforts of medical, social and other frontline workers during the COVID-19 pandemic. At a company level, yes, we have implemented stringent policies and measures to minimize the risk for those who continue to work in our facilities and offices. In fact, despite permissions to operate being granted earlier, as a matter of precaution, we continue to keep our facilities shut until the first week of May. And thereafter too, we have been operating at minimal levels. Our various initiatives towards automation have helped considerably in these times. With that, let me begin the call by briefly discussing the key demand and pricing scenario across our markets, post which I will move onto Sagar-specific developments. Starting with our key markets, demand on the overall basis was relatively steady pre-COVID basis. However, things did change materially post the lockdown announcement, which resulted virtual standstill of construction activities across the nation. Further, unavailability of workers and logistics challenges aggravated the situation even more for the infrastructure projects. Pricing environment, which remained more or less [ steady ] is now showing some signs of improvement, though it is too early to comment on whether the trend will remain the same. The only partial development for the sector has been the moderation in the input prices. Yes, that in a way has helped us to offset the impact of the low operating leverage. Going ahead though, the near-term outlook does appear challenging. One doesn't know exactly how long the situation will persist. On the other hand, which can be controlled on factors like costs and that's what we are working towards. Irrespective of the current situation, our efforts are always largely directed towards lowering the operating cost and improving our overall efficiencies. In the long term, though once things stabilize and the focus once again shifts towards the growth and development, we believe the sector will see improvement both in terms of demand as well as pricing. Moving on to Sagar-specific developments. The second half of the fiscal was challenging, which, in a way, negated the good start we had to the fiscal. Speaking fiscally about the quarter, things obviously weren't ideal for both. Demand offtake was lower amidst the outbreak of COVID-19 pandemic, which further got aggravated post the announcement of nationwide lockdown. Further exodus of labor from the construction sites also impacted the demand sentiments. With limited visibility on the demand side, we focused our attention towards lowering our costs, which helped us soften the overall impact. The completion of CPP and expansion of the Bayyavaram unit has helped us to lower our fuel and freight expenses in recent years. Presently, the ongoing projects at the subsidiaries, Satguru Cement Pvt. Ltd. and Jajpur Cement Pvt. Ltd., which were progressing at a good pace up to third week of March 2020, got impacted due to COVID-19-induced lockdown announced by government of India, which is yet to gain momentum even after relaxation made by the government due to the exodus of labor from the construction site. As a result of these unforeseen circumstances, delay of around 3 months can be anticipated in completion of these projects. Post commissioning, these projects should help us further improve our efficiencies. Moving on to our financial performance for the quarter. On a consolidated basis, revenue for the operations -- from the operations for the quarter stood at INR 306 crores as against INR 367 crores generated during the corresponding quarter last year, down by 17% Y-o-Y. EBITDA for the quarter stood at INR 47 crores as against INR 62 crores reported during Q4 FY '19, down by almost 25% year-on-year, owing to lower sales volume and realization. Average fuel cost stood at INR 712 per tonne as against INR 822 per tonne reported during Q4 FY '20. Optimization of thermal efficiency has resulted in a lower per tonne cost of fuel. Freight cost for the quarter on a consolidated basis marginally increased to INR 714 per tonne as against INR 709 per tonne during Q4 FY '20. Profit before tax for the quarter stood at INR 11 crores as against INR 29 crores reported during Q4 FY '19. Profit after tax for the quarter stood at INR 1 crore after providing deferred tax asset reversal amount of INR 6.69 crores on account of revision in income tax rates in case of wholly owned subsidy, Sagar Cements (R) Limited, as against a profit of INR 19 crores reported during Q4 FY '19. On the annual basis, revenue from the operations for the year stood at INR 1,179 crores as against INR 1,220 crores generated during the last year, down by 3% year-on-year. However, EBITDA for the year stood at INR 190 crores as against INR 152 crores reported during FY '19, up by almost 25% Y-o-Y. Profit before tax for the year stood at INR 50 crores as against INR 23 crores reported during FY '19. Profit after tax for the year stood at INR 27 crores after providing deferred tax asset reversal amount of INR 6.69 crores on account of revision in income tax rates in case of wholly-owned subsidy, Sagar Cements (R) Limited, as against a profit of INR 14 crores reported during FY '19. On an operational point of view, Mattampally plant operated at 51% utilization level, while Gudipadu and Bayyavaram plants operated at 76% and 27%, respectively, during the quarter. As far as the key balance sheet items are concerned, the gross debt as on 31st of March 2020 on a stand-alone basis stood at INR 251 crores, out of which INR 148 crores as long-term debt and the remaining constitute the working capital. But on a consolidated basis, debt stood at INR 488 crores, out of which INR 347 crores is long-term based. The net worth of the company on a consolidated basis as on 31st of March 2020 stood at INR 1,021 crores. Debt equity ratio stands at 0.34:1. Cash and bank balances were INR 13 crores as on 31st of March 2020. That concludes my opening remarks. We would now be glad to take any questions that you may have. Thank you.

Thank you, sir. Now we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of [ Mahaveer Jain ].

Yes, I think he's on mute.

We will take the next question from the line of Amit Murarka.

Just quickly on the demand situation. So now that -- because May seems to have been better and people have a lot of hope around the volume pickup in June and normalizations going ahead. So how do you see the demand situation currently in terms of the sense of operation?

Yes. I think the -- April, we did some volumes, though for most of the time or for most of the month, we were in a lockdown scenario. There were some emergency orders which government wanted us to execute, so that's what we have done. And coming to May, yes, volumes relatively were much better compared to April. But if you look at April and May of this year compared with the previous year, sir, we are exactly at half of -- on a cumulative basis, slightly lower than half of what we were on a year-on-year basis. Now going forward, how the scenario is going to shape up. Yes, we strongly believe that up to September, things might be on and off kind of an event because we have to see, now that the lockdown is lifted, how the impact of COVID is going to shape up, would decide how the volumes are going -- the demand is going to come up. So given the scenario, we strongly feel that it is too soon for us to really make any comment pertaining to the demand going forward. We would like to reach to September before taking a call as to how sustainable the May month demand has been.

Okay. And are you also sharing your -- the estimates for the year that you used to do every year around the state-wise estimates or not?

Right now, it is too soon. So we wanted to wait up to September before we -- coming back to the outlook that we would want to give. We're still in a stage where market just opened up, so the field people are still not yet on ground. So most of the people have been working from home. So until they actually come back to some state where they will be working closer on to the ground and connecting with the people, till such time, giving an outlook we thought may not be a good idea or it could -- it may not mean much till the entire economy opens up in its true fashion.

Sure. And then lastly, on realization. I mean you had a wonderful improvement sequentially in realization and what we understand, the pricing has been good so far this last quarter as well. So how would you assess the realization trends currently?

Yes. I think the sales volume has been absolutely much lower than 50%. Given the scenario, of course, pricing, what started out during the entry of Q4 last year to an entry of Q1 this year, there has been a substantial improvement. Because what I have to mention here is the last Q3, we actually were touching decadal low in our markets, the decadal low pricing in our markets. From that scenario to Q4, the realizations actually moved up. From Q4 to Q1, further, the realizations have moved up, but that happened on a very -- relatively on a very low volumes. So will they sustain? Will there be an uptick in pricing? It's too soon for us to comment. Hope they remain, but it is too soon for us to comment because volumes are much lower than 50%. So once volume starts increasing, only then we can comment on the pricing scenario. What we would like to state is that realizations had -- there has been a reasonably good uptick from exit of Q4 to entry of Q1. The -- from the exit of April month -- last April month to now, yes, more or less, the prices remained at an elevated level compared to Q4. Will they remain there? Yes, I think we will wait and watch, and it's too soon for us to make any comments on that.

But will you be able to share with us currently how much it is?

See, it's actually close to INR 750 to INR 1,000 at what we call as an NCR (sic) [ NSR ], which we call as the net sales realization, you should add GST to that. So that has been an increase right from exit of Q4 prices to entry of this. More or less, we could get INR 750 to INR 1,000 at an NSR level.

The next question is from the line of Gunjan Prithyani.

Just a couple of questions. Firstly, on the demand side, which you mentioned 50%, is it possible for you to talk about where is really the demand coming from? And secondly, has it -- have you seen that the normalization towards the second half of the May is better than what you see -- saw at the early part of the month? Because the feedback that we're generally getting from some of the other cement companies is that things have been incrementally improving quite a lot towards the second half of the May. If you can share your thoughts on that? And secondly, any regional divergence that you're seeing in terms of Maharashtra and the South markets, is Maharashtra something which is still taking time to see improvement?

Yes. Good afternoon, Gunjan. See, I think the demand uptick has been very gradual. I will not talk about the first half or second half because the lockdown, as you know, started getting lifted. So as the lockdown started getting lifted, the -- and some of the red zones becoming green or orange, our volume started slowing out in proportion to the number of green zones that have been coming by. So it's natural that the volumes in the second half of month were relatively better compared to the first half. Are they sustainable going forward? Yes, that's one question which we would wait for some more time before taking a comment on. Yes, compared to April, May month was obviously much, much better because April month, as you know, has been for most of our markets were under serious lockdown. Now May month from first fortnight to the second fortnight, definitely, volumes got increased. The mix of the customers was not very different from earlier, though I have to tell that some amount of direct government orders started flowing in what have been promised by Andhra government, especially for what they call as school -- education department works, at company level, we did receive close to around 20,000 tonnes of orders from the education department of Andhra government. That's a direct order that we have received. Yes, but for that, all the other mix for us has been very similar. So for us, majority is trade. So more than 60%, 65% of our volumes usually keep coming from the trade, that has been the case even now. Now is it for inventory filling or is it for the market? Yes, as mentioned, I think we would need some more time before we can really comment on the mix of the end consumers. But at this point of time, our mix continues to be similar to how it has been in the past. But that doesn't mean that the trade volumes have picked up. We will wait for some more time before putting any comment on that or any color on that. Going into the markets of Maharashtra, see, our presence in Maharashtra is limited to certain pockets of Maharashtra, which fortunately are not in the red zones. Our exposure to Pune and Mumbai is very, very negligible. I think those are the biggest markets of Maharashtra. So on those counts, we generally hear that Maharashtra market or most part of the key Maharashtra markets are [ red ]. In our own case, our markets where we operate are more or less close to the normal at this point of time.

Okay. And just the second question I had is more broadly from an industry perspective, given what we are going through is pretty unprecedented. Do you see any case of more stress -- any stress coming through into the market? And do you see scope for any M&As or acquisitions or some opportunities which come up in this environment?

I think it is too soon to talk because for most part of the lockdown period, it was more an existential issue. So not many people knew how it is going to shape up. And I'm sure not many people know how it is going to shape up at least for short term. So given this scenario, M&A at this point of time, commenting anything on it would be too soon. I'm sure I think it is an impact across. So I don't know who the buyers are going to be. There could be a lot more sellers, but who the buyers are going to be, it is too soon for us to comment on that yet.

The next question is from the line of Indrajit.

Two questions from my side. So on freight, can you say how much is your current freight mix in terms of road and rails? And are you facing a lot of issues in road freight truckers right now?

Yes, we are completely on road, sir. We don't have even a single rake during this pandemic time, especially for the current quarter. Though we did try few rakes during the Q4, that's where we were tying out to reach to the Eastern markets where we were trying to get into the newer markets through the train. But during the current quarter for the April month and May month, we did not use any of the rake. And the next question, Mr. Indrajit? Sorry, I missed on that.

So are you facing in terms of truck availability? Has that improved say from May beginning...

No. I think it is part of the impact. Yes, there are some outstanding orders which we had. Yes, we could have probably delivered it, but for the logistic issue. It's not just the drivers alone, but the issues that you would have on the end customer side probably did impact some amount of material flow, and it is understandable. It's just opening up. Some of the pockets just got opened up. So preparing the unloading of the truck and the availability of the drivers and allowance of trucks into those areas, these are all the part and parcel of the impact that we are seeing, but they're relatively much better compared to the earlier part of the last couple of months.

Do you have any dedicated freight? Or is it completely outsourced?

We don't have any of the trucks owned by the company. Everything is outsourced. But they are the fleets, which have been in existence, which is as old as the company itself. So it's as good as dedicated for us.

Sure. In your opening comment, you mentioned about input costs being lower. Can you quantify what were the coal costs for the fourth quarter? And what is the current purchase price?

I think what will be relevant because we have quite a bit of stock up positions, we run 1 to 2 quarters ahead. Yes, from the previous purchase to the current purchase, we are actually doing it at close to 15% to 20% lower compared to what we have done during the last years. The average procurement cost of our coal is almost 15% to 20% lower than what we have done previously. [ That is yet ] to start in terms of the consumption. I'm sure this will start getting reflected from Q2 onwards. Yes. But the average procurement cost has come down by 15% to 20% on an average compared with previous purchases what we have done.

Sure. This is helpful. And in terms of your CapEx guidance for this year, have you deferred any CapEx guidance?

I would not comment on the deferment, sir. As such, we are expecting a delay of 3 months. So I think that's about it. I think the overall CapEx planning probably might get deferred between 3 to 6 months. But at this point of time, it is too soon for us to comment on that because most of the workforce, the civil contract, we are progressing very well, especially in Satguru, where we would -- we should have completed by September most of the civil works. Now we are running almost -- it had 800-odd people working at that site. Right now, I think we are left with 150 people. So we hope to get them back very soon, but we are not very sure how fast that could be. So given that scenario, we are estimating that the delay should be 3 months as a minimum. But we will be happy to come back to you if it is any different.

Sure. And lastly, sir, on government projects, not just for you, but for the contractors as well, have you seen any expeditement in terms of payment from the state government? Or it is still delayed?

Sir, I cannot comment much because the interactions have been very huge. Obviously -- for obvious reasons of communication, most of the people were busy trying to assess the impact and get over that. But what we have seen during these times is people were pushing some of projects because either in anticipation of onset of monsoons or outflow of the contract labor or migrant labor, especially, yes, we have seen some amount of work getting done faster. Is it going to remain like this forever? I think we have some reservations, but that was the case. We have also seen some amount of payouts given by the government. At this point of time, we do not exactly know how much that is. But what we have seen is some of these contracts usually were credit days that they were using. But one of the good things that have happened during this COVID impact is that we made it cash and carry. So we -- some of the contractors actually made the cash and carry and [ took the areas ]. So I cannot comment whether they received money for making that or they have actually took their own money. We will be happy to get back to you as soon as we get to know on how the credit days for them is shaping.

The next question is from the line of Mangesh Bhadang.

Sir, my first question is there have been disruptions on both demand side as well as supply side. So demand side because -- obviously, because of loss of labor and economic activity being slowed down due to lockdown. But even on the supply side, there are problems being faced by cement companies because they've not been able to dispatch probably because of labor unavailability, not being able to restart their plants. So my question, sir, demand, obviously, it's anyone's guess and probably we'll have to wait and see the next data set in terms of to understand when it will go up. But on supply side, when do you expect that in terms of availability of freight channels as well as labor, when do you expect that to normalize? And the reason I asked it because I think post that, there would be some changes in pricing.

No. I wish I had a correct answer to that, Mangesh. But what I could comment is, in April, obviously, we have faced a lot of issues because it was in a lockdown scenario. So there were some orders which we could not execute during that time. From that perspective, first fortnight of May, got eased up. End of May, things were relatively -- see these are all relative speaking. So things shaped up much, much better from the end of April kind of days. Now how fast we will solve all the issues? Yes, I wish we had a good answer for that. It's anybody's guess. Yes. And the onset of monsoon and what we have seen is a lot of people emotionally got disturbed with this and people still perceive lot of this. So drivers coming out openly, like how they used to do pre-COVID is, we think it is going to take at least good 4 to 5 months before things can or would come back to normalcy. Will it any way really impact the supply? The markets that we are servicing, I'm sure we have been tracking it for quite some time, historically, have operated close to 55% to 60%. Now for us to go back to even that level, yes, we think it will take another 3 to 4 months' time. That impact, from a supply perspective, we see a lesser risk than the demand risk at this point of time. So given that ramp-up might take slightly slower, more or less the order fulfillment side, there could be very few orders which might be left unfulfilled at this point of time given the difficulties in the availability of the transportation-related things, but we have to face it. I mean will they remain where they are? Will they improve? Will they become worse? It is anybody's guess, sir. We have seen some areas where all of a sudden, there was a good order, but they went into containment zone. So it's not just a supply issue. Yes, there was a demand, but we were not able to service because it was in containment zone. So all these given things, I think the ramp-up could be slower. The only silver lining is that it is not as bad as we started off with because when the COVID-induced lockdown happened, we were absolutely unsure as to when it would get lifted. Now all the governments have come back and started lifting, and it has been sequential. Given the scenario, we feel that we might come back to near normalcy during the second half, sir. That's what we would like to state.

Okay. Sir, one more question. So on the CapEx. So I -- sorry, I missed the time lines of the Satguru and -- the 2 plants, Jajpur and Satguru plants. So what are the new time lines? And have you contemplated delays in those CapEx, just to make sure?

See, the delay is as much the delay in terms of the restart. Right now, we believe that there is a definitive 3 months delay in the overall implementation of the project. So CapEx exactly will follow the same patterns. So there is a delay of 3 months, so CapEx also should follow the same pattern. At this point of time, we are only expecting the delay to be 3 months, but it is subject to the migrant labor coming back and restarting the work. We strongly believe the contractors have issued that within a month, 1.5 months, they would like to restart and take it back to where we were pre-COVID time. Yes, we are keeping our fingers crossed. But at this point of time, in our planning, yes, we have factored a 3 months delay.

I will now take a couple of questions from the chat window. The first question is from the line of Pritesh Sheth. The question is, can you give us FY '20 volume growth or the decline number in your markets? And can you update us on the upcoming capacities in your markets?

Yes. Thank you. See, I think we would not like to give any outlook for the current financial year. Given these difficult times, doing any prediction or forecasting, any of that, would always be a challenge. Though internally, as a best case scenario, we did factor a drop of 25% from what we did last year, but that is the caveat that we would come back to the market sometime during September for us to exactly state the position. Now coming back to the next part of the question about the supplies that are expected to come. Yes, we have Chettinad clinker line. Of course, their cement grinding station was commissioned during the last financial year. Yes, there's a clinker line in Dachepalli, which is in Nalgonda cluster, which is in Guntur in Andhra Pradesh, is likely to come any time now. I think they have completed their project. It's only a matter of few regulatory approvals that are required. Penna Boyareddypalli, which -- I believe it is already commissioned during the last, so we are not expecting anything more. Ramco, Kolimigundla, which is Kurnool, I do not exactly know of their current status, But we were expecting them to commission some time in the Q3 or Q4 of this year, likely that they might come during the same time. These are the 3 major supplies that were due to come into our region. Those are the status, sir.

The next question is from the line of [ Nitin Gandhi ]. Please share your view on Q2 -- Q2 of this year.

See, we don't have any view on Q2. As I told you, Q1 and Q2, we would -- it's not that we are trying to play safe, but it has been a challenge. We don't know if the demand, what we have seen from April to May, is sustainable. With the lockdown getting lifted, we feel that the COVID impact could be slightly inching up, at least for a brief while, and then start moderating or getting down. Given that scenario, taking any call on Q2 would be difficult, sir. And we believe that this time monsoon also is expected to be normal. So given that scenario, if it is a normal, medium to long term, it's a very good news. But short term, usually good monsoon will have demand impact on the cement. Given that scenario, we would not like to have any comment on the outlook for both Q1 and Q2 for the coming financial year.

The next question is from [ Gaurav ] -- sorry, [ Mayur ]. 8.25 million tonne in FY -- by 2021. What is the likely peak that post the expansion you have planned?

Yes. The numbers look close to being [ INR 800 crores ] at the peak. But what I would like to state here is our leverage position would not be very different from how it has been in the past, especially on the debt equity side or the debt-to-EBITDA side. We were less than -- we were at -- we probably would peak out in FY '22 at 0.6 and gradually come down to sub 0.5 in a reasonably quick time. That is on debt-to-equity ratio, sir. And debt to EBITDA, probably, we might peak during FY '21 at close to 5 and slowly taper down to sub 2. The way the debt has been structured is to ensure that even difficult times, we would fulfill our obligation. Yes, we probably would take out close to on a gross side at [ INR 800 crores ]. On a net side, it is too soon for us to comment. But on a gross side, we would not cross more than [ INR 800 crores ].

A follow-up question from Pritesh Sheth. How did your markets performed in FY '20? Sir, he wanted to ask volume growth or decline?

Yes, the volume did decline by almost [ 6% ] during last year. That is FY '20, sir.

We will now take the next question from the line of Prateek Kumar.

Prateek here. My first question is on your volume trend in month of May. So you mentioned that 2 months year-on-year decline on a combined basis was around 50%. April was around 80%, 90%. So this -- we have like probably like a 20%, 30% kind of decline in May and probably only 10% by like later half of the month. Is that correct assessment, sir?

Yes. Prateek, we just completed the month yesterday, which is a Sunday. So I don't have very specific numbers. The broader numbers look like we are close to 50% down on a consolidated between April and May compared to the previous April and May, sir. The specific numbers, as you know, that we just completed the month yesterday. Yes, the godown consolidation and everything probably could take -- the godown sales and all could take a couple more days, but we will be happy to share that number as and when it is right, sir.

Right. And you mentioned that government orders have started kicking in, in Andhra Pradesh. So is it that 12 million tonne annual demand, which was foreseen originally?

Yes, sir. I mean just to inform all the audience, yes, there was a meeting with Mr. Jagan Reddy, Honorable Chief Minister of Andhra Pradesh, just before the lockdown during the first week of March, wherein they have indicated that they would be consuming close to 1 million tonne per month for all their key government projects. So part of that, we did receive some orders during the May month, and most of the orders have been from education department. And we started receiving during the last week of May itself some additional orders for village secretariat. We only know what we have received. I'm sure that must be the case with most of the other industry players. We received close to around 20,000 for the month of May. The indicative orders that we have received during the last month, it's on a portal, so we are just expecting. We are made to believe that we should expect close to around 35,000 to 40,000 tonnes for the month of June. So if you look at the trend, sir, it may not be 1 million a month as an industry, but it's not a bad number even during these difficult times. That's what I would like to say. But we would be more than happy to come back to you with specific numbers as and when things open up and the communication channels becomes lot more clearer, yes, we will be very happy to share. Our internal expectation was that it should be a minimum of 5 million to 6 million for the current financial year, that's what we have factored for the full year, that was pre-COVID. But with this COVID, would it have impact on that? Again, you want to wait and have interaction with the government to know how they're going to really perceive the impact and the mitigation pertaining to this. But given the employment-related issues, we strongly believe that construction sector is one of the key drivers for the employment generation, yes, we feel that government might accelerate and be close to what numbers that they have counted at. That's what we would like to state at this point in time.

And is there some projects, government projects from Telangana market also?

There are some -- the last phase of Kaleshwaram did consume during the COVID times. In fact, we did supply during the April month only for those projects, sir. Some of them got commissioned during the COVID times itself. So there are some finishing works. Those works are likely to consume cement even for the coming financial year. Quantifying them would be too soon at this point of time, but there is some amount of consumption that is expected during this time.

And just one question on your migrant labor problem, which you highlighted for your CapEx. So you as a company generally are in touch with migrant labor? Or is that the contractors who are construction -- pursuing construction?

Yes, we are the principal employer, sir. So we -- I would not say that we are in direct connect, but we are in a know of things how they are shaping up. Though the contractor has committed that he would get all the numbers back probably within a month's time. His commitment is somewhere around middle to third week of June. But all likelihood that we might end up getting somewhere around first week of July is what we strongly believe. Would we go back to those numbers? Highly unlikely. But from 800, we came down to 150. Yes, there is likelihood that we might go back to 400-odd, at least to start with, sir. That's what we strongly think for one project. The other project is still in early stage, sir. So there -- in fact it is in East. So there are a lot of people who are discussing that labor would be available, but it has always been as challenging even there.

[Operator Instructions] We have our next question from the line of [ Chirag Singhal. ]

Sir, just one question on the CapEx side. Can you give me the numbers on what's the total CapEx for those 2 expansions and how much have you already incurred?

Yes. There are 2 projects, sir. One in Madhya Pradesh, which is called Satguru Pvt Ltd. That's 1 million-tonne integrated plant. The overall CapEx plan is INR 485 crores. Then there is one Jajpur, which is 1.5 million tonne grinding block in Odisha. It's INR 310 crores top line CapEx, sir. And so far, what we have incurred -- for Satguru, we have incurred INR 120 crores in Satguru, sir. And in Jajpur, it is close to INR 80 crores. But this includes the opening of letter of credits to the suppliers. So we -- yes, half of them probably would have not been in cash, sir, because most of the equipment is still we are yet to receive.

I will now take a couple of questions from the chat window. The question is from the line of Nikhil Deshpande. What is the current capacity utilization?

Yes. As stated, sir, it is anywhere between 25% to 30%. We have reached 50% of what we were last year, which effectively translates to anywhere between 25% to 30% capacity utilization as we speak.

The next question is from Rishit Shah. Along with the shrinkage in demand by almost 50%, are we also seeing supply side constraints due to labor unavailability or supply chain disruptions? And the second question is, what are the monthly or quarterly fixed cost? And what is the kind of minimum capacity utilization necessary to meet the fixed cost?

Yes. I think supply side constraints, I already said before. Just for convenience sake, let me repeat. Yes, there are some issues, but they are not that difficult given the demand scenario. So at this point of time, there are very few orders that are left unfulfilled. There are, but there are very few. And going forward, with the lockdown restrictions getting lifted, we feel that those issues will become even lower than what they were. And the next part of the question is pertaining to the most optimal capacity utilization. One thing that I would like to state here is the south, as an industry, the cement industry has been operating sub 60%. So industry started leaving with a scenario where most of the moderation did happen over a period of time what is minimally subject to the realization. But with the given realization, what we have right now, sir, 25% to 30% capacity utilization, we should break even. Probably, it is too soon for us to talk about the margin, but I think with the current pricing scenario, even at 30% capacity utilization, we should break even. It may not be an existential issue. It's a question of survival issue. So how well we are going to survive is going to be decided by the pricing because we don't expect the operating rates to be any better than what they are already any time soon, which is till September. So if the prices remain -- the pricing environment remains where it is, yes, I think we should come out with minimal bruises for us to survive. We are not talking on margin side of this. So we are talking of more a breakeven kind of...

The next question is from Madhav Marda. Can there be pent-up demand in urban India like in rural India?

Sir, I cannot comment about the pent-up demand. Yes, there are a lot of discussions that are happening. Yes, some -- there were some of the instances where we knew that labor would go out in a certain period of time. So there was some amount of acceleration that we have seen. So if that is factored as pent-up demand, yes, that -- I think that option is slowly getting exhausted. The next part is pre monsoon, usually, there is some surge. The last but not the least and most important is, yes, there were some good amount of sales happening at a very good price. I would not call it as a [ hoarding ] from the dealers during the COVID times. So most of the inventory at the dealer cases were exhausted during the COVID times. So they were in a hurry to fill them back. And usually, when you have relatively a better margin, yes, people tend to overstock than what they normally would do. Yes, these 3 things probably would have pushed demand or the supply to a slightly higher size than what it normally would have been. Sustainability of that is in question. The sustainability, we can only comment after some time. On rural, urban -- yes, rural, urban -- yes, as you know that for the last 3 months, bulk of the lockdown restrictions and most of the cases, the most impactful has been urban areas compared to the rural ones. But that has been the case so far. Will it remain like this? I have no idea, sir, because the kind of movements that are happening, I wish it doesn't get spread, but I am not in exactly know of it. That's what I would like to state from urban, rural kind of a scenario at this point of time.

The next question is from the line of [ Naveen ].

Can you hear me?

Mr. [ Naveen ], I can hear you.

Sir, given that we are hearing that bulk of this current demand is driven by the rural side of the states. So wanted to get a sense first of all for us at Sagar Cements, what is the urban-rural mix, if at all, you can give some color there? And just stretching it further at the state level because I'm sure you have a great understanding of how the states demand is. So at the state level down South, what is the broad urban-rural mix of the total consumption?

Yes; Mr. [ Naveen ], see, I think, yes, most of the markets that we have supplied during the current last 2 months, part of it was government, sir. So most of the works were happening at the government -- at the rural side, especially the irrigation side and as well as the education department. So it's logical to assume that the consumption was more diverted towards rural than urban. And in last 2 months, most of our -- or more than 60% of our urban markets were shut. So again, bulk of our supply actually got diverted to the rural side. In general, by definition sir, rural and urban, we count it as even semi-urban, should I take it into rural? That would be a challenge because we have some of those big category A towns which are part of the demand places of this parts, so segregation is always a challenge. So I would not like to take a position telling that bulk of ours is rural or urban. But whenever government consumes, sir, bulk of it actually is diverted towards the rural side. Going forward, we think that once the Andhra government starts consuming, majority of that probably might be diverted towards the rural side as village secretariats, the name itself states that it is a village. So it is rural. Now urban infrastructure buildup in our own portfolio, again I'm commenting for Sagar, in our own portfolio is less, sir. So our general customer portfolio is more towards the rural side. So we remained rural even in the past. This is nothing new. Yes, our supply towards the large RMC players in all has been minimal. And of course, we had some of them, but that was mostly towards Vizag. So there, they continue to be one of our key customers. But what I would like to state is, Vizag was under lockdown until yesterday. So that did not contribute much. So currently, our supplies have been -- close to 70%, 75% has been towards the rural side. But on an average, we generally are 55% to 60% towards the rural side, sir.

Understood. And sir, also, just some sense because from again, from a state-wise perspective, just to get a sense, which states are more heavy or more dependent on these migrant labors in the construction segment, so to say? I'm not talking about cement companies because I'm sure wizards like you have obviously mastered the way of automations and how to operate companies at much lesser labor availability as well. But on the construction side, you still, I think, automation can't be possible to that an extent. So just your sense again as to state-wise, which states, according to you, see a lot of labor influx so to say, and hence, in the current scenario could see a little higher dent on demand versus others?

Yes. I think on the automation front, sir, I think the average cement industry, if you look at it, we are supposed to be one of the most sophisticated sector across the world. The Indian cement sector has been in the forefront of automation and digitalization for quite some time. So I'm not trying to single out we alone. On the supply side, especially on the manufacturing side, we see minimal disruption during even the COVID times because the supply side that is required for the manufacturing, especially the raw material input side and all, is fairly narrow. And it is -- most of it is available at least for a short period of time. So on that count, we are not -- probably we may not face big changes. Now the biggest challenges, as you rightly pointed, comes from the end consumers of us, which is the large construction sites, be it large infrastructure projects or the real estate projects. Yes, their status, it is too soon for me to comment how the availability and where the availability has been. Yes, I would like to quote some good friends like you who have always shared the labor. And sure so far, the mapping of the source of the labors, but most of them have not done so far, but they might start looking at it going forward. But in general, our past experience and what we have seen is that most of the Southern states for large irrigation projects and the large infrastructure and large real estate projects, sir, the dependence is extremely high on the migrant. That has been the case historically. Are all the sites facing this issue? I strongly feel it may not be the case, sir. But most of them, for sure, are. How long they are going to face? I think that also is something which we cannot comment at this point of time. It would take some more time before we know. But what I would like to highlight is there are some portions of migrant labor who would have anyhow gone during these monsoon times or during the monsoon time for the work on their own farms. So that also probably added to the problem. That's what we would like to highlight at this point of time.

The next question is from the line of Rashesh Shah.

So one question. Sir, there are many small players operating in your region, especially in AP and Telangana. So do you see any possibility of consolidation due to this ongoing financial stress? And second question is, what was their overall share in the demand for FY '20, if you could throw some light on this?

Yes. Mr. Rashesh, as you said, small in capacity is what my belief is.

Yes.

Yes. Small doesn't mean small in size of the balance sheet or the health of the balance sheet, sir. So small doesn't automatically qualify to be [ guide ]. I know a lot of people have liking for big, but sometimes small also is beautiful. So I believe we -- at this point of time, it would be too soon to comment anything on the consolidation. There could be one-off acquisitions, but that doesn't mean to be a big consolidation kind of a thing. And some of the players, though they are small in size in terms of the capacity, sir, they are usually big in the -- some of the markets where they operate. Yes, that's how we roughly have close to 43 players in South, the smallest being less than 0.5 million, largest being the largest in -- one among the largest in the world. So I don't think this COVID times will alter that equation in a big way. The general acquisitions might make 1 or 2 guys go off the radar irrespective of the size. But there could always be a few other guys who might come and join the bandwagon. That's what we keep on seeing. Yes, when I started my career close to 20, 25 years back, the number was only 20, sir. So now it has become 40, if you look at number of players. So though the -- on a capacity side and the market share, some of the large guys probably had a few basis points higher, sir, but the number of players, we have never seen the numbers getting reduced anyway because the product that we deal in has been very kind to people who work in it. So that makes people keep coming regularly. So I cannot comment much on the consolidation side. Yes, it's too soon. Would COVID side push some people into despair? It might be the case for the larger ones, medium ones and the smaller ones. So there -- you cannot single out there. We strongly believe that the product never pushed anybody into fatality. Probably the struggle could be more but as I mentioned, the product has been extremely kind to all of us. So that -- we are hoping that it may not push somebody into death. Yes, we might struggle, but we may not die. That's what we strongly believe in, Mr. Rashesh.

I will now take a couple of questions from the chat window. This is from Ankit Gupta. How much is the rural market contributing to our overall sales?

On an average, if you look at historical sales, 55% to 60% will be on the rural side. The last couple of months, we believe it is more than 75% to 80%, but that we look to be very momentary. But when we talk of rural side, we closely eliminate all the category A towns out of the sale. So that one should mind. So we have fairly less exposure to the large metros.

The next question is from Mudit Agarwal. What is the warrants outstanding as on 31st March 2020? Would it be converted into equity shares in FY '21?

Yes, it is 1.2 million share warrants are still outstanding, sir. The last date, as per the statute, is middle of July. We are more than hopeful that everything would be getting converted.

The next question is from the line of Sumangal Nevatia.

Sir, one question on -- I mean generally you have a very bottom-up intelligence of all the state-wise demand in this environment [indiscernible] sharing your outlook is extremely difficult. But on a relative basis, any particular states which you think will outperform post this COVID, keeping in mind the COVID impact, the state finances and the state level politics among whatever regions we operate?

Yes, we strongly believe, sir. Again, we do have fairly large exposure into the both Telugu states. We strongly believe that these 2 states, from what we have seen in the past, their ability to spend on those government budgets to initiate employment generation is extremely high. So given the scenario and the current outlook, we strongly believe that these 2 governments should be spending aggressively trying to generate employment and also create infrastructure. It doesn't mean that the others are not going to do. But honestly, we are in know of these 2 governments, so we can speak more about them. The other governments, it is -- yes, for us, our exposure is fairly limited, so we cannot comment much on that. East, we have seen, especially the Odisha government has been fairly consistent on their spend on to the infrastructure side. So that also we strongly believe to continue to spend as much. But what I would like to state here is, in our experience, we have been seeing what is happening elsewhere in the world, especially the Chinese, yes. We have seen the Chinese government has come up with such a large infrastructure push that they are ending up constructing highways -- parallel highways and parallel airports, I believe there was not much of a need so immediately. But just to ensure part of the mitigation of the COVID impact, the government has been spending aggressively so as to put money back into the people who matter. So we also strongly believe that our government, both union as well as state government, should start doing that, but it's only a matter of time because in our experience, from the announcement to the grounding, it typically is a 2 to 3 quarter kind of an affair, sir. So we also strongly believe that our governments also start doing similar steps here. So that should kickstart the demand from medium to long term much, much higher than what we thought even before the pre-COVID times, but it's only a matter of time. That's what we strongly believe.

Sir, these 2 states, which you mentioned in the South?

Two states are AP and Telangana.

Okay. And sir, next question, if I may, just one last. I mean there's been some sort of discomfort expressed by you in few forums with these associations with respect to the prices. Do you think this is like a normal thing? Or I mean anything serious to keep a track on, on this [ complaint ]?

Yes. Mr. Sumangal, yes, we don't like prices to be abnormally high. I mean that's a stated fact from us as a company and generally in the industry. I mean nobody would want to [indiscernible]. Yes, the complaint -- yes, it's again from our own customer who we have always been and he has always been with us. So I would not plan to react to their complaint. We always feel that everybody has a right to complain on other's business. But we strongly would not like to react to that, sir. But it's a question of existential issue for us. So what we have done is to ensure that our support systems, the -- especially the -- our own team, our own families have to survive. So we -- as a matter of principle, much before the government has told not to take away jobs or to fulfill the salary, we strongly believe that it's important that, yes, we make -- we get -- everybody gets their view. And it is even more important during these difficult times. But just to give you a simple impact, sir, the usual salary bill runs to around INR 300 to INR 350 per tonne in a normal course of business. If you are operating at 50% of the time, it is logical to assume that it would double up. So that alone, on a per bag basis, would impact anywhere between INR 20 to INR 25 per bag. And I'm reasonably sure that the price increases were more to survive rather than to talk about the margin. So given that scenario, yes, there were some of the associations which complained to the government and some of the government did call for the meeting to discuss this scenario. Yes, we extend our position, similarly as a company and collectively as an association. We gave our workings and we were very, very transparent, as always, trying to explain our position to them. Yes, this is part and parcel, sir. Yes, whenever -- we have seen even in the past, people still keep complaining whenever the prices happen. One thing that I would like to highlight, especially the complaints from the real estate people, yes, we know that it's not good if any of the input costs go up. But this time or even in the past, either because of low operating rates or because of these difficult times, only then prices have always gone up. Though they keep branding and talking about things, which I cannot comment, but the reality is for everybody to look at it. The EBITDA margins for most of the other players related to us is for you to see. We are not even close to 1/4 of their EBITDA margins. Our influence -- our product's influence on their overall selling prices is not even 2%, sir. That's what I would like to highlight and say -- and this is what we have presented to the government about our plight rather than try to highlight the others complaint. Yes, we only highlighted our issues. And fortunately, governments have been kind to us, yes. Because this time, it is not abnormal, sir. If you're operating at less than 50% of normally what you do, the overall fixed cost [ fade ] up to such an extent that we were only talking of a breakeven at an operational level, and it's more an existential issue. So far, the response has been very kind. We hope that things would continue to be like that. That's what we think our reaction to their plight, sir.

The next question is from the chat window from Pritesh Sheth. Can you break out 6% decline for FY '20, which you said for your key markets in South, Maharashtra and East?

Yes. My intention is that where did we lose the volumes in terms of the markets. Yes, we effectively lost 4% in Telangana, almost 18% in Andhra Pradesh, 10% in Karnataka. However, yes, we did get some additional volumes from Odisha, from Tamil Nadu and Maharashtra, sir. Overall, we lost 6%. So that's what is our understanding of the question, sir. The 6% loss is primarily on account of 4% loss of volume in Telangana, 18% in Andhra Pradesh and 10% in Karnataka. Though there were some marginal increases elsewhere, but overall, we lost 6% because of it. But this is in general. Our experience with pre-election and post-election scenario, sir. Let me remind last year was immediately a year after election.

The next question is from the line of Debashish from Edelweiss. In the scenario of high orders from government, do you face downward price negotiation happening in authority buying? And government and infrastructure companies are not comfortable with current cement prices and they are mentioning that in various public forums. What is your thought around that?

My belief is you heard what I said earlier. So our statement is very simple, sir. Yes, we are with them, but we have no choice. That's what I would like to highlight. That has been the case in the past. It's a question of the existential issue and a survival issue. So given this, I'm sure -- we ask for their understanding for this scenario. Yes. Sorry, I missed the first part of the question. Can you help me with it?

Yes, sure. The first part of the question was, in a scenario of high orders from government, do you face downward price negotiation happening in authority buying?

See, I think it's a case-to-case scenario, sir. But whenever some price is given lower to the nongovernment price or higher to the government price or vice versa, the prices are always under the pressure, sir, because, yes, it goes without saying that government prices were negotiated. Yes, there were instances in the past, especially if you look at between Q2 and Q3 of last year, the agreed government prices were higher compared to the -- some of the institutional prices. Right now, the institutional prices look to be higher than the government prices, but that's the case before. So the prices are always -- one thing is for sure, that prices -- pressure on the prices are always there irrespective from where they come from.

The next question is from Jigar Valia. What has been the trade, nontrade mix for FY '19 and FY '20? Is this expected to change meaningfully in FY '21?

Yes. We were reasonably close to around 55% trade and 45% nontrade for past many years, sir. But one should be mindful that when government is active, your nontrade numbers look higher. That is one of the reasons why we tend to look higher on our nontrade. Will they remain same? Yes, it again depends on how the government orders are shaping up. But historically, we are at 55% to 60% trade, anywhere between 35% to 40% nontrade, sir. Will they remain there? As long as government demand is there, sir, most probably we might remain very, very close to those numbers.

The next question is from Amit Murarka.

Just a small clarification. Now you mentioned that our volumes are down 60% in April and May. So you mean average of April and May? Or is 60% decline in...

Average of April and May.

Sir, May has been far better in that case. I believe April was down close to 75%, 80%?

Sir, it is too soon because we are still trying to do the number crunching. The outline numbers look like May definitely is much, much better compared to April. I can keep my neck out. It is more than double of May for sure. The real numbers we will know probably in the next couple of days. I'm sure you are aware, sir. We just closed the month yesterday and it's too soon for us to exactly know the last numbers for the next couple of days because we have godown sales and consolidation of sales will take some time. So I'm sure you will appreciate that and we would need some more time before being very specific with any of these numbers. That's one of the reasons why we usually come with monthly disclosure. But this time, with the difficulty, we could not come out with the monthly disclosure for even April or for May, sir. So we are only trying to ensure that all the communication channels come back for us to start disclosing those numbers. But we see it as a challenge at least for the first half for us to start discussing on a month-on-month kind of numbers because the connection channels are becoming that much more challenging because most of our team members are working remotely. So consolidated is taking longer. So that's one of the reasons why we are not in a position to disclose it as quickly as what we used to do before.

The next question is from Sanjay Nandi from Ratnabali. Please share the gross and net debt numbers currently, east India market outlook and third is demand supply scenario currently post COVID.

Yes. As stated, sir, post-COVID demand-supply scenario, we would take some more time before we can start commenting anything on that. Pre and post, the gross debt position, we have given part of our commentary. But just for convenience sake, your gross debt is at INR 488 crores on the gross side at a consolidated number, sir.

So the East India market outlook and net debt numbers.

Yes, East India, as I mentioned, Manish, the outlook for any of the states, at this point of time, we would like to take some more time before putting any commentary on the outlook. So leave alone the current markets, East would always be a challenge for us to keep our neck out for how the market is going to shape up. And the net debt, INR 476 crores.

Next question is from the line of Rajesh Ravi. Why is there a sharp jump in noncurrent assets from INR 14 crores to INR 87 crores? Also, how much loan for the 2 projects have already been drawn by Sagar?

Sir, the -- some of the orders that we have [ delivered ] for the CapEx, got reflected in the current assets -- non-current assets. So that's one of the reasons. The current spend, as indicated to earlier, sir, we have spent INR 120 crores in Satguru and INR 80 crores in Jajpur. Debt drawn on account of those 2 is at INR 50 crores on a consolidated basis.

As there are no further questions, I would like to hand over the floor to Mr. Reddy for his closing comments.

We would once again like to thank each one of you for joining on the call. I hope you have got all the answers you are looking for. Please feel free to contact our team at Sagar or CDR should you need any further information or you have any further queries. We will be more than happy to discuss with them. And we would like to thank CDR and Mr. Manish Valecha in Anand Rathi, who are kind enough to help us in organizing this call. Thank you, and have a good day.

Thank you, sir. On behalf of Sagar Cements, I would like to thank all the participants for participating in the call. Thank you. You may now disconnect the line.