Sagar Cements Limited (502090) Earnings Call Transcript & Summary

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Thank you, Manish. Good day, everyone, and a warm welcome to Sagar Cements' Q1 FY '21 Analyst and Investor Conference Call. We have with us today, Mr. Sreekanth Reddy, the Joint Managing Director; Mr. K. Prasad, Chief Financial Officer; Mr. Rajesh Singh, Chief Marketing Officer; and Mr. R. Soundararajan, company Secretary. We will begin this call with opening remarks from the management, following which we will have the floor open for interactive Q&A session. Before we begin, I would like to point out that some statements made in today's discussions may be forward looking in nature and a note to this effect has been stated in the invite sent to you earlier. We trust you've had a chance to go through the results and the communications. I now -- would now like to hand over to Mr. Sreekanth Reddy for his opening remarks. Over to you, Sreekanth.

Yes. Thank you, Gavin. Good morning, everyone, and welcome to Sagar Cements earnings call for the quarter ended 30th of June 2020. Trust all of you are [ safe ] and healthy. Let me start the discussion by highlighting the key developments across our key markets, post which I will move on to Sagar specific developments. Starting with our key markets. While large part of the quarter was impacted owing to the COVID-19-related challenges, yes, we did witness some encouraging signs towards the end of the quarter as the economy started opening up in phases. The non-metro demand, as I mentioned during my previous call, continued to remain firm. Talking about South, the pricing environment improved on back of the pent-up demand and commitment of the mega irrigation projects. Yes, Eastern region as well witnessed improvements in prices on back of strong demand and some supply-led disruption. The Western region, though, saw some price volatility owing to lower construction activity. And also the availability of the labor in the region also did impact the demand in that region. Going ahead, though, while the situation remains challenging, incrementally, though, things have started to improve, though gradually. Labor nonavailability issues and supply chain problems are largely getting addressed. However, they are now getting used to functioning in the new normal, wherein while the safety [ issues are still prominent, livelihood as well is now of ] equal importance. Yes, we believe things to gradually improve, both in terms of the demand and as well as the pricing environment, led by the government’s infrastructure push and pick up in private CapEx cycle. Moving on to Sagar specific developments. While majority of the quarter was impacted by the COVID-19 [Technical Difficulty] we did witness early signs of recovery in terms of demand and realization during the quarter, in most of our key market areas. Construction work across the country, as you know, was impacted following the lockdown announcement, labor [ nonavailability at ] most of the site and supply chain disruptions. However, things have gradually improved, especially with post calibrated [ opening of the ] economy. Demand from the non-metro regions has been steady, urban demand is still a bit soft, but should pick up [ with ] time. With visibility on the revenue side remaining hazy, we shifted our focus on mostly onto the cost side and have undertaken multiple steps towards the lowering of the cost and improving of our efficiencies. Completion of the CPP and the Bayyavaram [ unit ] has started to make meaningful contribution towards driving our [Technical Difficulty] ongoing projects at Satguru Cement as well as Jajpur. As indicated in the previous call, yes, we had to push back the completion date by 3 months owing to the COVID-19 related challenges. But I'm pleased to say that work on the same is progressing well, and we don't expect any further delay in [ completion ]. The completion of the work will help us gain foothold in the faster-growing markets of the country, which will not only help grow our business, but also enhance the overall efficiencies of the business. Moving on to our financial performance for the quarter. On a consolidated basis, revenue from the operations stood at INR 264 crores as against to INR 344 crores generated during the corresponding quarter last year. [Technical Difficulty] owing to the lower sales volume on account of COVID-19-related lockdown. Operating EBITDA for the quarter stood at INR 87 crores [ as against ] INR 79 crores reported during Q1 FY '20, up by almost 11% Y-o-Y [Technical Difficulty] utilizations and the cost management. The average fuel cost stood at INR 689 per tonne as against INR 823 per tonne reported during the Q1 FY '20. Optimization of thermal efficiency, coupled with lower fuel prices resulted in lower per tonne cost of -- cost. Freight cost for the quarter stood at INR 704 per tonne as against INR 702 per tonne during Q1 FY '20. Profit after tax for the quarter stood at INR 36 crores as against a PAT of INR 30 crores reported during Q1 FY '20. From an operational point of view, Mattampally plant operated at 33% utilization level, while Gudipadu and Bayyavaram plants operated at [Technical Difficulty] and 37%, respectively, during the quarter. As far as the key balance sheet items are concerned, the gross debt as on 30th of June 2020 stood at INR 482 crores, out of which INR 354 crores as a long-term debt, the remaining construes the working capital. The net worth of the company on a consolidated basis, as on 30th of June 2020 stood at INR 1,057 crores. Debt equity ratio stands at 0.33:1. Cash and bank balances were INR 19 crores as on 30th of June 2020. That concludes my opening remarks. Yes, we would now be glad to take any questions that you may have. Thank you.

Yes, Manish, can we have questions?

[Operator Instructions] The first question is from the line of Madhav Marda.

Sir, just wanted to get your outlook. I mean, I know it's very tough to sort of give any strong outlook for demand, but if you could just give some comments state-wise as to what's happening on the ground right now. And just near term, if you have any thoughts in terms of how things would shape up, that would be very helpful.

See, I think outlook we have clearly mentioned even earlier call that I think in these challenging times, keeping an account for the outlook would be a challenge. So yes, we could definitely give a flair of what is happening on the ground as we speak. As you have seen post unlocking 1, situations are slowly coming back, I would not call to normal, I think I would call it as near normal. I think we have to start using the word pre-COVID, post-COVID kind of a scenario. Yes, June month was fairly strong. On a year-on-year basis also, it was very near to what we did in the last year June. July looks to be okay on a relative scale. August and September, we do expect monsoons to really pickup. We would still think that comparing with last year may not be apt, but we still think that on a relative scale, things are coming back slowly, but steadily onto the normalcy side. State-by-state, if you have to look at it, Andhra is doing very well, thanks to the government orders. Yes, thanks to the government orders, the demand looks to be fairly shaping up reasonably well. Telangana also is picking up, though most of the places in Telangana, especially the large demand center, which is Hyderabad, is still under lock-in. Most part of Hyderabad is under lockdown. But given the scenario, we cannot complain about the demand what has been. We still think that AP and Telangana together should be close to around 15 lakhs for the current month, which was almost 20 lakhs last year. But last year should not be the ideal number for comparison because we were during the electioneering. And Q1 was exceptional quarter last year. It was extremely strong. So it also got rubbed off into July. But August and September last year was extremely bad. So given that scenario, I think, yes, we should be near to last year numbers because August and September numbers were relatively bad. The base also is very low. So we should be near to those numbers is what we strongly think. Tamil Nadu, yes, as you know, the monsoon is -- cycle is slightly different from the rest of the other Southern states. Yes, the demand is steady. Again, it's only on a relative scale. Even Karnataka also is okay, because Karnataka, bulk of the demand also is dependent on Bangalore. And we are also reasonably highly dependent on Bangalore compared to most of the other pockets of Karnataka. The lockdown scenario there also is not helping us in any which way. But we think these things should start improving gradually, may not be for the current quarter, but we do strongly believe middle to end of Q3, things to start shaping up much better is what we strongly think.

And sir, just any comments on government spending in each of these states, in terms of like the government finances? Or do you think they will prioritize infra spending despite these revenues, how would we think of it?

See, I cannot comment much on the fiscal side of states. I think most of them look to be fairly stretched. But what we broadly understand is that most of the governments are preparing themselves for spending onto the construction activities. Yes, the construction could be a bit longer canvas, irrigation in some states like AP, Telangana, Karnataka, and some of the urban infrastructure and some rural infrastructure, especially the strengthening of road network or low-cost housing. Most of the governments started focusing on spending them because post agriculture season, construction sector is one of the sectors which would offer very high employment to most of the semi-skilled and less skilled kind of people. We have seen that taking good shape in Andhra, and we do strongly believe that most of the other states to follow the suite. So singling out which sector, which area is always a challenge at this point of time. We have seen in Andhra, yes, they have made use of this environment where the employment was one of the biggest challenges. Yes, they started strengthening the old school buildings, they started building village secretariat, they started strengthening the old irrigation system. That's one of the reason why Andhra government has been one of the large consumer. This we have seen only in early 2005, '06 kind of a scenario. And that actually -- similar kind of a thing is what we are seeing here. Other states, we want them to follow. But it is too soon. That's what we think, Mr. Madhav.

The next question is from the line of Gunjan Prithyani.

Sir, just first follow-up on this demand side. I mean, Andhra, you mentioned this government has been a large consumer. So is it fair to say that the normalization in Andhra or in the Southern states is more coming? I mean, maybe from Andhra, it's coming more from government than from the trade? I'm just trying to get more color, what is really driving the normalization in the Southern states? And secondly, if -- the comment that you made on the demand matching last year. So, I mean, you reasonably expect that from here on, we should not see a very significant degrowth Y-on-Y, for particularly your markets?

See, I think the -- what is normalization is a big question. What is driving the demand at this point of time, it's still hazy for us because most of the eyes -- legs are not there on the ground. So that's one of the reason why we are not able to really give the outlook for the current year. Of course, government has been one of the larger consumer because this was missing last year. So on a relative scale, this makes us strongly think that government is driving it strong, which it is. The other demand drivers are not way behind them. I mean, if they are not doing so well, I don't think we would have had such a demand or the supply dispatches from our side. But qualifying them at this point of time is a challenge. So we would still need probably some more time before we start analyzing as to what is actually driving the current demand what it is. At least till September, we are not -- we are happy that we are able to dispatch. But trying to find -- we are still working hard to try to find out as to where the demand is coming from. But still, we don't have big answers on that. And we would be extremely happy to come back and share as and when we start getting more on where the demand is coming from and what the demand drivers are. So at this point of time, it is still hazy. Yes, we are happy it is coming. But from where it is coming, yes, we are putting enough efforts to know. But still we are yet to know of those issues. Government, usually, in the past, for whatever consumption government would do, at least we have seen -- there was a correlation that the private CapEx would be twice to that of the government demand. And we strongly believe that it should be similar or higher. But for that, today, we are not in a situation to know where the demand is coming from.

Okay. And secondly, if you can just give some sense on where the prices are in the respective markets, given there has been some softening. So if you can just share where -- what -- where are the prices in specific key markets?

Yes. The easiest thing for me to tell you is that the prices have been fairly stable. When I talk of stability, I'm talking of June exit to so far in July. Yes, the prices have been more or less very, very static, which is a good thing. Yes, we, again, feel that there could be a small softening, which is marginal. It's because of the seasonal correction. Yes, the delta could be anywhere between INR 5 to INR 10 on a higher side. But for that, we are not seeing a major softening on the pricing, which is understandable given the weather scenario. But for that -- yes, now where the prices are, yes, Hyderabad is in a bandwidth of anywhere between INR 375 to INR 410. I'm talking of the retail price. Bangalore is in INR 390 to INR 410. Yes, Chennai also is in the range of INR 400 to INR 415 for a 50 kg bag. Maharashtra, we did see some softening. It's purely -- I would not call it as softening, but, yes, most of the key markets, at least for us, are under lockdown. So is it lockdown impact or is it demand impact, we are -- I mean, yes, the prices look to have softened, but the sale is not much. That's what I would like to...

So you -- by INR 5 to INR 10, you mean that this is what you're indicating is more from the June exit, right? There would have been some softening which has happened in June itself. So what would -- I mean, just a broad idea. How much would have been the softening since the peak that we saw in May, if you -- and I don't want the market specific, I understand, but just broad idea how much the decline on that part would have been?

See, I think it is logical for us to speak on the cement realization, which is the net cement realization. Yes, we have not seen any change on that, Gunjan. So that's the easier call, because one specific place is always a challenge because its price is market-driven. So there is some volatility, some prices have gone up at some places, some places it has gone down. But at an average, it is easy for us to tell that, on the net sale realization, what our observation so far is that there is not much of a change.

Okay. Got you.

Because it's very, very dynamic -- because it's very dynamic, because it could be with the product mix, it could be geography mix changes. And as you know that the government orders are discounted to the market. So any higher supply on a relative scale also could impact the net sales realization. But on a net-net world, yes, it looks fairly stable, which is a very heartening thing.

The next question is from the line of [ Sanjay Nandi ].

Sir, can you please share the current utilization scenario in the month of July?

Sir, it is too soon. We need to do the reconciliation. July month, I think, we have to wait till the first week before I can comment anything on it. It's an ongoing thing. So we need to do quite a bit of reconciliation across the -- all the units. And especially the -- are you talking utilization in terms of production or you are talking in terms of the...

In terms of production, sir.

Sir, I think production is a function where we try to balance the inventories. So that may not mean much, yes, because we have shut Gudipadu plant for more than 15 days because we were with a higher clinker inventory. So that may not mean much, but having said that, we would be extremely happy to update the exchange as and when we reconcile all the assets from a production and the dispatch perspective, which we generally do during the first -- end of first week to the early part of the second week. Yes, we will be happy updating that.

Surely, sir. Sir, one thing, sir, we just observed like in our company, we have just registered a very good like kind of volume like -- less volume drop compared to other companies like India Cement, Orient Cement. Sir, what might be the reason for that? Like, did we manage to sell something in some different markets or pockets or changing some sales mix, if you can throw some light on that?

Mr. Sanjay, you have to understand here. Yes, we are an industry player. I don't think we have done anything very different from them when it comes to the sales, sir. Our product mix, I would not call it as unique. We have GGBS, we have specialty cement. So that probably has given higher number because our sale figure constitutes all these products. So we have GGBS, which is being aggressively used by most of the RMC players in the Vizag market as well as some of the pockets of Amaravati. And at the same time, we also have SRC, sir, this is a sulphate resistant cement. Yes, probably, these are the numbers. And what I would like to highlight here is probably the April month performance, not all the companies were in the close proximity of some of those government emergency works. So I think April month probably would have been the difference, sir, because what we have seen is, during that time, most of our industry peers, not all of them were dispatching because -- we supplied quite a bit of material to GHMC and the Kaleshwaram project during the April month, probably that's the difference, along with GGBS and the SRC. Or else, it should have been same as most of the other players. Our average capacity utilization, as indicated, sir, is below 40%. So I don't think we are very different from most of the other players.

Okay. And my last question, sir, like, what is our focus, like, in 3 years down the line, like, in the next year FY '21, we're planning to come up with our Central India plant, along with the Orissa plant, so -- which will be heading to...

Our focus remains selling of cement, sir, so that -- I think we have been extremely focused on doing that. So we would continue to do that. As stated before, sir, we have 2 ongoing projects. So beyond this, we have nothing much on hand because these are in early-stage or -- and we are good 12 months away or slightly more than 12 months away from doing it. So for the next couple of years, I think commissioning these 2 assets and stabilizing them is our priority. And that remains the priority for us. These 2 assets are key for us to get into those markets, which are relatively better performing when it comes to the demand related issue. So our priority has been that, and that remains for the next 2 years, sir.

Sir, did we plan any product mix for those 2 markets, like for the Central and Orissa markets?

Sir, we don't plan. Sir, I wish we had that flexibility. We go with what the customers would want in each of the region. Yes, we have indicated the current product mix for us is 48% blended. Yes, ideally, we should have been more, but we have very limited choices because we go with what market would want. So that's what we end up doing. Fortunately, the Orissa market -- the PSC is a very popular product, and we hope to do most of it in the grinding section that we are coming up with. Yes, whereas in Madhya Pradesh, if I have to look at the regional peers there, I think most of the people do the...

Blended.

PPC grades where I'm sure we would be along with that. That -- yes, we go with the product based on what the market would want in each of the location where we are in.

The next question is from the line of Nalin Shah.

This is Nalin Shah. Sreekanth, at the outset, I must congratulate on a very, very good performance considering the lockdown and all this, the pandemic, which is going on. And I'm sure that it gives us a lot of confidence that in the rest of the year, you will be performing much better than what you have performed in probably the Q1 also. I want to say that this expansion is going to cost how much -- currently, you have about, you said INR 470 crores as a debt. So how much more you will be spending on that?

Yes. See, we did make it part of the presentation package, sir, just for your convenience, let's say. Yes, these 2 projects, 1 in Madhya Pradesh and the other 1 in Orissa, together are costing us close to INR 800 crores.

Okay.

Out of that, the equity component is close to INR 300 crores, and the borrowing is close to INR 500 crores. And this will happen over the next 2 years. The drawdown would happen over the next 2 years. The current debt is at INR 480-odd crores. This includes the working capital and also the long term loan, sir. The long-term loan is to tune of around INR 340-odd crores. The long-term -- the debt should peak up over next year close to INR 800 crores on a consolidated basis, sir, because there would be some payout and some borrowing. But we think the peak debt post implementing these projects should touch INR 800-odd crores on a gross debt side. So that we should be touching somewhere around end of next year. So that would be the peak debt, is what we think we'd be touching at INR 800 crores [ on that area, sir ].

What is the average cost of this debt? And secondly, on the equity side, you will be considering raising some equity by way of either rights issue or QIP or any such method?

Yes. Mr. Nalin, the required equity has already been raised, sir. I'm sure you would have seen the warrants which were issued in April -- in January of 2019, that got fully converted last month. So with that, we've completely raised the equity. Equity was -- almost INR 225 crores of equity was raised for the same purpose. So out of INR 800 crores, equity plus internal accrual, we are pegging it at INR 300 crores. We are done with the contribution of the equity as well as the internal accruals for the project. The debt is not fully drawn, sir. So limited debt was drawn. So what we generally do is to optimize on the interest during construction, we only start drawing the debt once the equity component is already done. So that's what...

Correct. So no more equity raising will be there. That is what we want for this expansion will be there.

Yes, sir. You are correct, sir.

The next question is from the line of Amit Murarka.

Congratulations on a great result. Just a couple of questions. One, on the regional capacities, could you help understand like the plans of Chettinad, of Penna. I mean, what is the status because they were due to start any time now.

So both have been commissioned, sir. I think Penna was commissioned close to 6 months to 9 months back. Chettinad, from what we hear, that they already got the CFO. Though they were ready, I think they were waiting for some approvals. From the market sources, we believe it is already done.

Penna had some issues in the plant. So is -- have they stabilized operations? I mean...

I have no idea on them, sir, but we know that they have been commissioned, and they're running is what we -- we think they are running, sir, so...

Okay. And on the cost side, like while you've reported a great cost control in the quarter, wanted to just understand like how much of this [ is ] sustainable? I mean, there have been reductions in dealer expenses on -- and some other fixed expenses as well.

That actually gets reflected in our net sales realization, sir. So far, some of the -- I would not call cost management or cost control -- yes, since most of the travel bills are lower, so the sales -- it also added up to the sales realization, sir. But for that, the rest of all the other cost management is more on the production. So though, in our case, fuel is one of the major cost line item and where we could see on 2 counts, one, the efficiency improvement from the plant, and at the same time, the procurement costs, both were lower. Yes, that looks to be sustainable in our case because we have stocks all the way up to the end of December. So the policy was to be -- hedge the fuel for 6 months ahead, sir. It worked well for us. So our cost on the fuel side looks to be well within control, all the way up to the end of December. So even for the next quarter, though we are seeing that petcoke prices are slowly inching up, but we are reasonably sure the cost may not significantly be very different from what it has been so far. Yes, the only cost item which is looking up for sure, and from the last quarter to this quarter is the freight, yes, because as you've seen, the diesel price has gone up quite sharply. So we see anywhere between 5% to 7.5%, for sure, incremental cost going both our inward and the outward freights. So net-net, we see that whatever savings that we have -- are expecting out of the fuel saving should be offset with the potential freight increases that are on hand, sir. We are keeping our fingers crossed and hope that there would be no further surprises when it comes to the diesel price. The way it is, it looks like we are very well shielded during Q1, but we had to take the freight increases from first week of July itself. But at this point of time, it looks like the freight increase is being more or less offset with the cost savings that have been there in the setup. But the current outlook, which is very much in the control is that costs may not surprise either positively or negatively is what we think, sir. It might remain more or less stable is what we think for the current financial year.

The next question is from the line of Pritesh Sheth.

Firstly, congratulations on very good set of numbers despite the challenging time we are in. My question is, since there's lot of fuss about increase in government procurement, I wanted to understand -- so I understand that FY '19 was the peak when government procurement was highest we saw in the last cycle. Sir, what was the government demand proportion versus the total demand in FY '19, and what is it comparatively now?

Sir, as I mentioned, trying to analyze the demand drivers and comparing them at this point of time is a challenging thing for us. But what I would like to state is that the proportion of government -- direct government vis-à-vis to the general government in the overall kind of a thing, we could not do even in FY '19 because at that point of time, government was procuring a very limited quantity, that too only for housing. That was a direct government purchase, sir, where we were supplying -- the indent has come from the government and we used to supply. But there were lot of supplies that went through contractors to most of the government projects. Now Andhra government, most of the government supply directly or indirectly is being procured by them. But still there are some ongoing projects where we are still supplying to the contractors. So what we place is we place in these 2 separate buckets, sir. The government -- we call governments only when government has placed the indent and we are supplying to them. Whereas for the government projects, if you are supplying to the contractor, sir, it is part of the nontrade. So there is some amount of realignment that is happening in Andhra. But most of the other places, though we will be supplying for government projects, but the indentor would be contractor and we will be supplying it to contractor. And sometimes this contractor would also buying it from retail. So that kind of a classification, given the current people not being available on the ground, it's too ambiguous. And I would not like to keep my neck out to give breakup on that. It's too soon for us, sir. But we would be very happy to come back to you when we are trying to understand that. But at this point of time, I don't have a good answer. So I would like to pass and would want to revert back to you with the percentages once we get to know of it.

Okay. Let me put this question other way around, if I can get the answer. Of the -- I understand FY '19, AP, Telangana were around 30 million tonne of volumes for the full year? How much in your estimation would have been from government and government-related projects?

Sir again -- see, out of 30 million, I'm sure -- I just don't want to give a number just because you have asked, sir. Honestly, that track is always a challenge, but educated guess is that it should be a minimum 25% to 30%, sir, but that's only an educated guess.

Okay. Okay. Got it. Got it. And also on the pricing front, I understand the Telangana government, which -- I mean, the project -- housing project they are planning to do right now, there have been some negotiations in terms of pricing and what cement companies would charge for those. So how much on a ballpark would that be different from the current retail pricing?

Sir, there are 2 governments where they have already fixed the price for us in the markets that we service, sir. One is the Andhra government, yes? The OPC has to be serviced at INR 230 -- INR 235 and PPC at INR 225. So Telangana government, for some of the projects. It's not just for the low-cost housing, sir, but there is also something called the Rythu Bazar which is the farmers' market. There is a specific program that is happening. So for these, Telangana government also has agreed at INR 235. Now these are, on FOR, fully serviced, yes. But these are not -- now if you have to compare with the pricing for the market that we service, sir, yes, I think the discount of anywhere between 25% to 30% has to be offered.

The next question is from the line of Mangesh Bhadang.

Congratulations on very good set of numbers. Sir, couple of questions from my side. Firstly, on the cost side. So this quarter, we have seen decline in utilization, which are already lower. But despite that, you, along with various other companies, are reporting decline in variable as well as fixed costs. So basically, the per tonne costs have come down. So how do you explain that? How much of that is because of the cost-cutting measures or efficiency measures, which can continue in the subsequent quarters? And how much probably could normalize again? That's the first question. And the second is, I think by third quarter of next year, both the expansion would be completed. So how do you -- in the first 12 months, how much utilization do you expect it to achieve?

Yes. Thank you, Mangesh. Yes, from what I understand, you are looking at what is the sustainable cost and which are unsustainable.

Yes, sir.

From a sustainability perspective, sir, I think the big cost item is the fuel cost, the thermal fuel cost, which is the petcoke or the coal, yes? I can only comment for myself, that is for Sagar, that we are covered up to December. So more or less, we don't expect major cost changes to happen when it comes to the fuel, sir. Now when it comes to the employee cost, sir, the conscious call that we have collectively taken at Sagar is that, yes, we would want to take the increment calls only post September, once we see how the company is going to perform and then take a call. So right now, we are still going ahead with the cost of last year. But given the first quarter and likely second quarter kind of a performance, yes, there could be an incremental cost when it comes to the employee cost in our case, sir. Yes, absolute number, though at this point of time remains the same, but we expect 10% to go up going forward. And that has to be adjusted for the full year. It's not that we will be paying only for the 6 months the increment, because it's a purely performance kind of a decision. If you are doing well, we expect costs on that count to go up. The next cost item, so far we could manage for the Q1 on the freights, it remained relatively subdued. But going forward, and for sure, we took a 7.5% kind of an increment on the freight, that is definitely expected to go up. How much again is going to be decided by the diesel price. So far, what we have seen, it went up by 7.5% from exit of June to entry of July itself, that correction is done. So far, there is no changes in the diesel price. So for whole of July, yes, it is at 7.5%. Will it be there...

Sir, there will be a change in lead distance as well compared to Q1?

There could be, sir. It again is a subjective issue. In our case, the government orders, fortunately, all the strategic decisions that we have made in the past are actually working extremely well in our case. Because the government orders, which look to be steeply discounted. Specifically in our case, because our locations are reasonably spread out for -- in Andhra, so even for those orders, there is a decent margin for us. It may not be the case with most of the other players, sir. But in our case, there is. So the freight costs -- the lead distance, again, is subjective to how the government orders are likely to shape up. But we will be way below INR 300. Will we be where we are right now? Yes, that's something which I'll keep my fingers crossed and hope to be lower. But we strongly think that we should be below INR 300. That's the narration that I can give you at this point of time. It's a variable issue, Mr. Bhadang.

Yes. And on the expected capacity utilization...

Sir, we are good 12 months to 15 months away, if the markets are going to shape up well. We don't see a big challenge with the ramp-up of those markets, sir, because those markets are in a peak demand. So we don't see a major challenge with the ramp-up there. And as such, one of the locations is in a very strategic play where the key markets, which it would service, the delta between some of the other players to us, there is a -- the freight difference itself is quite large. So I would not see ramp-up issues in those markets, sir.

Okay. So we can assume 60%, 70% in the first year of operation, I think?

No, that again, if we commission in September, sir. So we have 6 months. So for that 6 month, if we have 60%, the effective for full year, it should be anywhere between 30% to 40%.

The next question is from the line of Prateek Kumar.

Sir, my first question is related to -- so this -- you mentioned about this permanent procurement of price had specific prices at INR 225 to INR 235 for both AP and Telangana market. I think Telangana you mentioned, but I think in AP also there's similar thing. So what proportion of your total volumes goes at this price?

See, I can only comment what has happened so far. Going forward, if government procures more, I cannot give a right number. But so far, it has been close to around 12%, Mr. Prateek.

So 12% of your total 100% volumes goes at this price or only of Telangana volumes, you mentioned?

No, I'm commenting on the both AP and Telangana full volumes. Yes, we are close to around 12%. On a full volume, see, again, we have a different product mix, Prateek. Should I add GGBS, should I add SRC, which is very specific to those projects. If I have to add overall, sir, yes, for the full quarter, of course, April, we did not supply much, yes, we did close to around 27,000, sir, out of 550,000. What -- that was for the Q1 that went by. Going forward, if government procurement goes up, yes, but I think it is safe to assume around 10% of -- it will be below 10% of our full volumes would be going at these prices.

Right. And, sir, there has been recent exposure in number of cases, COVID cases, in AP market, so which is slightly worrying. But is that of any impact on your retail market or any local lockdowns, et cetera?

Yes, Prateek, I think COVID did impact us, sir. So singling out -- sorry, some of the markets which were active are actually closing and vice versa. Some of the markets which were closed are also opening up. Yes, net-net, it did impact, and it -- I think it will impact for some time going forward. Even at our plants, Mattampally and Bayyavaram, so far, fortunately, we don't have any infections. But in Gudipadu and in our head office, yes, we have seen -- some of them have tested positive. The only heartening thing is that it is a mild infection. So leave alone the market, sir, yes, cement plants usually are far off from most of the urban centers, but still the infection looks to be spreading. So we -- yes, it is influencing. So that's one of the reasons why we are not in a position to really give any outlook as to how the impact is going to happen.

But June was strong because of rural segments, right? Or as I said...

Sir, let us not latch on to that rural, urban kind of a scenario, sir. I think it's a non-metro market. But just to give you an update, sir, pre-COVID, our exposure to some of the large metro districts was close to 40% of our total volume, sir. Post-COVID or post -- during the Q1 to those same very districts, it's not that it is 0, it is at 30% of our total exposure. Now you tell me, should I say that we have larger rural demand or lower urban demand? I think COVID is impacting, sir. Yes, it is known that most of the large metros were the first places to get infections, but now it looks like, unfortunately, it is spreading. In our case, the most of the government projects are in the rural landscape. So if you think that it is rural demand, yes, it should be doing well because government is doing very well, especially in Andhra.

And one last question on the petcoke prices. So what are the -- I mean you mentioned about increment in prices. What are the prices according to you, international petcoke?

See, I can only comment about at what price we are buying. The last ship that we bought was at around $57-odd, sir. Now people are negotiating anywhere between $72 to $75, sir.

And these are FOR prices or...

FOR export. For us is -- Krishnapatnam is the port that we generally make use of, sir, so...

The next question is from the line of Rajesh Ravi.

Congrats on the good set of numbers. I have few questions. You mentioned on the AP, Telangana pricing, INR 235 FOR. On a like-for-like basis, how would the retention or contribution or EBITDA numbers would be different while supplying to this project versus normal sale?

Yes, Mr. Rajesh, as I told you, on the realization front, sir, it is 25% to 30% discounted. But on a net-net, on an NSR or the EBITDA contribution, what is at INR 1,500 for us as an overall mix, sir, yes, the government contribution is close to anywhere between INR 750 to INR 800, sir.

Okay. So it's around INR 700 difference. So if at all -- okay, so now this is fixed. We are seeing higher on the prices. So this INR 235 would be a stable price or would it also change along with the -- if the retail prices come down, would this government selling price...

Sir, it is agreed for 1 year, sir.

Okay.

But there is no substitute to any of the commitments either way, so...

Okay. Great. So at least INR 700 visibility is there versus INR 1,500 which we are seeing on the retail side?

Sir, this INR 1,500 includes the INR 750 which has contributed. That means the other markets contribution is higher.

Correct.

But yes, what you should understand is on the freight side, in our case, I can comment that cost looks to be in control. That includes the freight because whatever other cost savings we are able to save, it is being eaten away by the potential freight increases. So net-net, it looks flat for us. So on a static side, yes, your understanding is correct.

Okay. And sir, on the debt for the 2 projects, I understand for FY '20 around INR 50 crores was drawn. Is that understanding right?

Yes, sir.

And how much has been drawn so far? I understand it was around...

Sir, we were in COVID time, sir. We were in COVID time, so in the worst part. Yes, it probably -- incrementally, we should have taken around INR 15 crores to INR 20 crores incrementally.

Okay. And for this 800 project, how much CapEx has been done in FY '20? And what is the target for '21, sir?

Yes, we'll give you the breakup, Mr. Rajesh, on a project wise, we will be more than happy to share that offline.

Sure. Sure, sir, I'll check with you. And thirdly, the blended cement share, which you have shared this one on a quarterly basis. What is the thought process? Would you -- I'm asking this because in the Bayyavaram you plan to sell more of slag cement and as utilization improved there, the volume of blended cement share will go up. So what is the focus like...

Sir, our focus is customers' choice, sir. So whatever customers would want we have to sell. Yes, there are instances where we are not in a position to get fly ash because most of the large power plants were shut. Yes, we would ideally want to do as much as possible, but that's not our choice alone. So customer is a key. And what we have seen is most of the government orders are primarily OPC, sir. So there also, we have very limited -- and more -- the markets that we service, sir, are primarily, predominantly the OPC markets. That's what I would like to highlight. It's not our choice alone, sir, it's a choice of the customer also.

Right, right. And any thought on like -- you have been continuously adding capacities and expanding, diversifying your market mix. But any thought on any sustaining [Technical Difficulty] that you would want to achieve in your clinker utilization of 70% or 75% in next 2 years?

Mr. Rajesh, do I have a choice, sir. If I have a choice, I would do it at 120%, why at 100 -- 60% or 70%. See, it's not what we want, but yes, we have to understand the markets that we are in. Yes, our stated objective is to service the stakeholders in a great way. So that's what is the objective. Yes, rest of all the things, it's not what I want alone, sir. I mean, if that was possible, then I would always opt for something which is the best, but we have to see what the ground realities are also, right?

No. My question was in the context of just -- when you become a 6 million tonne capacity, another 2-odd million tonnes would come through. Would you pause for a -- if you take high utilization?

Sir, I think -- no, we stated, sir. Utilization is a function of markets that we service. And whatever market offers, I think we will accept it. Yes, what we have stated is by 2025, we are objectively trying to become a 10 million company.

Right, okay.

Part of that exercise, yes, we have opted for those markets which would offer us higher capacity utilization and the better return ratios. So we are adding this incremental 2.5 million tonnes to the existing 5.75 million. So by September '21, we should be 8.25 million, sir.

8.25, okay.

So we would have another 3 years, 3.5 years before which, yes, we need to identify the rest of the thing. But we would -- what we would like to mention is that we would look at return ratios as a key driver rather than looking at utilization levels alone. See, probably even if you were to operate at 100% and it has no returns, it makes no sense to us. So that's what I would like to highlight. The stated objective is to reach to 10 million by 2025?

Okay.

It's from a fact that every 10 years we doubled. So that's how we should be at 10 million by 2025. Part of that exercise, yes, we would be coming up with 8.25 million by September of '21. That gives us ample time for us to come up with the balance.

[Operator Instructions] We'll take the next question from the line of [ Agam Shah ].

Sir, congrats on a good set of numbers.

Thank you, sir. Thank you, Agam Shah.

I just wanted to ask a question from the follow-up, like, the last question. So when we are targeting 10 million to reach by 2025, so rest of the expansion will be towards -- more towards Central and the North side or the -- let's say for a longer 5 years period -- for a 5-year period?

Sir, at this point of time, our primary focus and the priority is to commission these 2, sir. And we have not yet -- see, wherever the opportunity offers, we go, but we are very mindful of the return ratios in the markets that we want to service in a systematic way. So we are very sure and clear up to 8.25 million, sir. This balance, I think, we have time. We will be more than happy to come back to you as and when we sum up on that.

So -- and the approval for the -- these 2 plants are on track? Any delays as such or we are on track for...

Yes. Right now, we're -- it looks like we are on track for commissioning in September '21, sir. So we should be doing it. But for some unforeseen issues, it looks to be -- project looks to be on track, sir.

The next question is from the line of [ Sanjay Nandi ].

Sir, you mentioned like we have already bought pet coke at around $57 per tonne, right, sir?

Yes, sir.

Sir, did we receive that thing in our plant or is on the way or what is the status of that?

Sir, we have 1 ship -- half of the ship is still in the port.

Okay.

It is unloaded. It is available. Yes, it is under transshipment from port to the plant, sir. So up to December, we have covered. It's only a matter of trying to receive at each of the plants, sir.

Okay. Sir, can you please help in getting the breakup like what's the ocean freight included in that $57, if possible, sir?

Yes, it -- sir, for us, it is with CIF pricing, sir, so we don't have the breakup, sir.

Okay. So you mean to say like we will be getting a benefit of $25 to like $30-odd per tonne compared to current pricing, right, sir? Currently, it's hovering at around $80 per tonne. So if we book at $57, so it's still a headroom of $15 to $20 per tonne benefit.

Yes. But that is already bought, sir. So if I have to buy now, yes, I should be paying around $25 to $30 now, yes, if I have to buy now.

So I mean to say, the people who are buying right now, so we'll be having a better edge compared to them, right?

I cannot compare with others buying, sir. We are -- from the current spot rate, what you have bought, the delta is $25 to $30, yes.

The next question is from the line of [ Arijit Dutta ].

Congratulations, sir. Amazing set of number. Just understanding, like in Telangana, once the government project starts, say, in Q3, the prices will be around INR 225 versus a market price of around INR 400 -- INR 375, INR 400. How do you see both the prices in the same market will work? Is anything -- I mean, like channelized towards non-trade or pressure from the builders could bring down prices? How you look into such differential prices in the same market, the sustainability of such high prices?

Sir, see, they are not high, sir. Prices are not high. Prices, I think, are remunerative. So let us start...

Yes. High spread out, rather, say.

The government orders have been agreed at a relatively lower prices compared to the market prices with the fact that, yes, the government is not consuming it for any other purpose, but for the social work, sir, like low-cost housing or some of the irrigation projects. Yes, compared to the other commercial kind of a thing, it's a more market-driven. The pricing is more market-driven rather than anything else, sir. So we were servicing the governments even in the past. And there was always the difference. Sometimes commercial prices were lower than the government. And most of the time, it was vice versa also. So we do believe that similar trend might continue. But market prices have always been dynamic, sir. See what I would like to highlight here is the current pricing environment still is not peaked or they are not at historical high pricing, sir. Though people are looking at INR 400 and all after a long gap, but these are not at its historical high, sir. We have seen pre-2000 -- FY '14 kind of a regime when we have seen even higher prices on a relative scale. Again, mind you, it's on a relative scale. See, at that point of time, freight was something else and the price was different. Now freight is higher compared to 4, 5 years back. So price is yet to pick up. But when you're operating at sub 40% capacity utilization, not all the companies -- see if you -- I'm sure you've been tracking the markets, sir. Not all of us got all the EBITDA per tonne same. The reason is that it's the same prices, but it's all to do with the capacity utilization, the cost structure, the antiquity of the assets, the location of the plants, all of them actually matter. So in these prices also, some of the players in the industry might, at the best, breakeven, sir. So I would -- that is the reason why I have to say that these are not highest of the prices, sir, these are remunerative prices. I would not call that this is an existential price, but these are remunerative prices. I'm sure everybody expects to have decent return for a large CapEx involvement, sir. So from that perspective, the current price regime is a remunerative kind of a thing. It's a win-win scenario, sir. Now let us also understand the influence of cost on the end user. See, I think cement cost may not influence more than 2% to 3% of the construction cost, especially on the housing side, sir. So even if it is INR 400 or INR 500, the delta may not significantly contribute to the end user's cost structure, sir. So it's a low-cost wonder commodity. So that is the reason why there is no replacement, at least for the next 30, 40 years. So that's what we would want to highlight. Now the differential pricing, will it catch up? Yes, we wish government also increases their price, sir, because it is being subsidized now. Will the nongovernmental prices remain where it is, will it go up, will it come down, we always hope and wish it goes up. But it's very, very [ dynamic ] in nature, sir.

If I can -- on a related topic, if I can add 1 more question. Sir, current prices of Central and Andhra, Telangana are almost same. There is a gap of around INR 40, INR 50, which is fine. Considering what is the threat of inter-region movement in terms of prices, suppose if prices there have moved up, sir, at what prices difference the interstate movement or interstate push of volumes will be a comfortable level? At what spread? If you can just highlight. I know it's a subjective question, in case if you can throw some light.

Sir, I will be completing 25 years of my presence in this sector. Started as engineer, and then moved to head office to look at it. Sir, I see the interregional movement is very, very established because beyond 300 kilometers, it could be a small opportunistic kind of a window. It has never been sustainable in the past, sir. So we have not seen interregional movements changing in a big way but for lack of availability of the mix. Say if some region has excess material and some region doesn't have the material, but for that, we have never seen prices alone influencing an ICR beyond small opportunistic, sir. There were instances where we supplied cement even in Assam, but that was very, very small, sir. I mean, it's a very minuscule kind of a thing, it's an opportunistic kind of a thing. But we have not seen strategically or structurally interregional movements changing in a big way. Yes, there could be some points for each of the regions. Say, for example, Central region is healthy, sir. So if South material has to go to Central, where from South it has to go? It can only go from North of South, sir. That is probably from Nalgonda cluster or, to certain extent, Chandrapur cluster, the material can go into Central. But even from Yerraguntla cluster or from Deep South and even from Gulbarga cluster, the freight cost would be a big, big influencer, sir. And I don't think prices would move up so much that we would more than make up for the margins, sir. I mean, freight is single biggest cost item. I don't think the prices are so high. See, people are just trying to believe on a relative scale because in a year, people have seen INR 190 per bag to INR 400, people think that prices have shot up. But it's on a relative sales, sir. At INR 400, as I mentioned, it's still relative pricing, sir. Some places, at INR 450 might sound high, but cost of service that could be so high that even a INR 300 market would be lot more margin-driven than INR 450 market, sir, [Technical Difficulty] to highlight here. The past experience is, the interregional movement structural change is highly unlikely. Yes, for a very short period, if there is better market, because better market sometimes means the current markets what we are servicing could come down and the other markets remain [Technical Difficulty] or vice versa, sometimes might prompt for an opportunistic kind of a thing, but we don't think structurally, there could be a big difference in the interregional movement.

Actually, my question was on the other way. From -- I mean, in Orissa we are seeing so much capacity coming up. In Central also, currently, the demand is very good in MP region, if any movement we can see from there once the prices, like, get weaker. But you have elaborated amazingly.

Yes. Yes. If you see Orissa, sir, most of them are grinding stations, sir. So clinker going from here and cement coming back is challenged, sir. And most of those markets are PSC markets. So that PSC coming back into South for some of the markets where it is more a PPC or an OPC market, looks difficult. Now Central market, it's mostly UP, sir. So if you have to geographically try to service UP from any of the other clusters is always a challenge.

Yes. So no threat from the Satna cluster as of now. Got it.

Sir, Satna cluster doesn't have material to service their own market, sir. So where would be...

Right. That is also correct.

The next question is from the line of [ Sairama Venugopalan ].

I'd like to know about the planned transportation from our main plant to Orissa plant. What is the mode you are planning to?

Train, sir.

Train. And what about the existing Vizag plant?

Yes. It's a mix, sir. So bulk of it is actually road. Yes, because we have a return road -- return freight arrangement. So road looks to be lot more feasible and viable -- economically viable for us. But whereas Orissa, we are looking -- since it's only a clinker movement, yes, we are looking at more rail than road for the Jajpur grinding section, sir.

Okay. What about sea mode -- looking at a sea mode of transport?

We are not anywhere close to the port where the clinker is made nor where the grinding is there. So for us, it may not be a right option. Yes, there is a possibility, sir, we might import clinker, just in case if the sea freight and the clinker prices are lower, because the closest port that we have for the Jajpur is Paradip, sir, which is 90 kilometers away.

Okay. Okay. What about -- what kind of cement are you planning to sell from Orissa, is it the PPC or PSC? Sir, can you...

The intent there is to make bulk -- most of it to be PSC, sir, but we are open to do all based on the feasibility of it.

And what is the nearest source for it, fly ash or...

We are right next to Tata Steel. Yes, we are 4 kilometers away from their compound to our compound, sir. We are part of the steel cluster, sir. We are in Kalinganagar Industrial Estate. So we are with Jindal, we are with Mesco. Yes, we are part of that steel cluster itself.

The next question is from the line of Ritesh Shah.

First, thanks for the wonderful annual report and congratulations for warrant conversion. Sir, my question was, what gives us confidence in the long-term prospects of the cement industry, specifically, when you look at return ratios versus cost of capital? Sir, that's the first question.

Yes. Typically, what we look at is the minimum return ratio should be double of the average cost of capital for us, sir. And when specifically talking of debt, if debt is at 9, we expect a minimum return on the overall returns to be at 18%. So that's the fundamental working that we generally do internally. Yes, prospects, sir, we have completed close to -- we are nearing 40 years of our existence here. Yes, cement has been extremely kind for us. Yes, we -- so we are not seeing anything beyond this at this point of time. From prospectives perspective, sir, as you have seen, yes, we hope to double every 10 years once. So that's the understanding and that's the belief that we have in this sector. So that, I hope I've addressed the first question, Mr. Ritesh.

Okay. Sir, that helps. Sir, secondly, given we have been in the industry for the past several decades, sir, any thought on product extensions? Something like -- how do you look at something like RMC or Tyler or the construction chemicals?

Sir, we remained extremely focused on cement manufacturing, sir. There was a lot of scope for us to do that. So we looked at our own bandwidth in terms of the financial and the management bandwidth. We still feel that there is good scope for us in manufacturing of cement as we speak. So for next at least a couple of years, we would be staying focused on manufacturing of cement alone, sir. So to that extent, I can make a commitment. Beyond that, we have to reach that far before taking a call as to how we will shape up there.

All right. And sir, lastly, [Technical Difficulty] targets that we have?

Yes. Mr. Ritesh, can you repeat? Earlier, I missed out on the question.

Yes. Talk about next phase of expansion.

Sir, we double every 10 years once, sir. So we -- sir, we are chasing the 10 million by 2025.

Our [Technical Difficulty]

Yes, Mr. Ritesh, I think your voice was breaking.

That's helps. Sir, that's fine. It helps, answers the question, sir.

The next question is from the last line of [ Sanjay Nandi ].

Just a follow-up question on the, like, interstate movement of your goods. Sir, can you just share, like, what is the cost per tonne per kilometer of movement by road vis-à-vis by rail?

Sir, rail, internally, we don't look at just the freight of rail alone, sir. It also has to factor in the additional loading charges and the unloading and reloading. There are quite a bit of material handling that happens if it's a rail in our case, sir, because the end consumer may not consume the entire -- because the minimum quantity that goes by rail is around 2,500 to 3,000. If you look at the jumbo rake, it could go all the way up to 4,000. So we -- it needs quite a bit of rehandling. Those costs if you have to include, sir, for the markets that we service, road still looks viable or feasible, relative too onto the road. So in our case, if you look at it, our average lead distance has been 280 for an average freight of somewhere around 725. So if you divide, you'll get per kilometer per tonne kind of cost, sir. Generally, for a very short distance, it is extremely high. For a longer distance and for those distances or for those destinations where there is a potential return load, yes, it tends to be extremely competitive, sir. So from that perspective, we have -- we -- it's a very subjective -- specific kind of an event, sir. For example, Vizag is 450 kilometers from the mother plant, but there is a return load. So the average cost per kilometer looks extremely competitive vis-à-vis to a railway freight, sir. But that may not be a case -- sometimes if you have to come to Hyderabad, then we have to go back empty back to the plant. Though it's only 180 to 200 meters, per kilometer, it actually shoots up quite alarming. Then, in a 40-kilometer distance, per kilometer looks alarmingly high. It sometimes could be INR 8 because the number of trips that they can make and all also decide on -- it's a subjective issue, Mr. Sanjay.

That was the last question for the session today. I would now like to hand over the call to Mr. Sreekanth Reddy for his opening -- closing comments, sir.

So we would once again like to thank you for joining the call. I hope you -- you've got all the answers you are looking for. Please feel free to contact our team at Sagar or at Citigate should you need any further information or you have any further queries, and we will be more than happy to discuss them with you. Thank you again. Have a good day, and stay safe. I would like to thank Manish Valecha of Anand Rathi and Anand Rathi for facilitating this, sir. Thank you again.

Thank you, sir. We would now close the call. Thank you so much.