Sagar Cements Limited (502090) Earnings Call Transcript & Summary

We have with us from the management, Mr. Sreekanth Reddy, Joint Managing Director; Mr. K. Prasad, CFO; Mr. Rajesh Singh, CMO; and Mr. Soundararajan, he's the company's Secretary. We will start today's session by -- with an opening -- [Operator Instructions] I would now like to hand over the call to Mr. Gavin Desa of CDR for his opening remarks. Over to you, Gavin.

Thank you, Manish. As a -- welcome to the Sagar Cements Q2 and FY '21 Earnings Call. As Manish mentioned, we have the senior management of the team of the company, led by Mr. Sreekanth Reddy, Joint Managing Director; Mr. Prasad Kolluru, the Chief Financial Officer, Mr. Rajesh Singh, Chief Marketing Officer; and Mr. R. Soundararajan, the company Secretary. The call will begin with opening remarks from the management, following which we will have the floor open to an 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 was stated in the con call invite sent to you earlier. I would now request Mr. Sammidi Reddy to start with his opening remarks. Over to you, Sreekanth.

Thank you, Gavin. Good morning, good afternoon to everyone, and welcome to Sagar Cements' earnings call for the quarter ended September 30, 2020. First, all of you are safe and healthy. Yes, I will begin the discussion with key highlights across our key demand in terms of the demand and pricing, pricing trends, following which I will discuss Sagar's specific developments. Starting with our key markets. Demand has remained more or less steady. Obviously, we have seen some softening in demand compared to Q1, but that's largely owing to seasonality and the monsoon factor. Demand through, though, has picked up pace again with demand receding and resumption of construction activity. Also while the rural demand continued to remain strong, we are witnessing pickup in demand from metro regions also. The government demand as well, especially in Andhra and Tamil Nadu markets is gaining momentum. Noteworthy being demand under the YSR demand projects and associated payments are on time from the government. Demand in western markets, though, was understandably soft during the quarter given lockdown and monsoon. However, things are gradually picking up, following the lifting of lockdown and favorable weather. Moving to east, volumes have largely been stable during the quarter. However, we expected demand to pick up in the region post the festive season. In terms of the realizations, prices have remained relatively consistent across our markets. Both trade and non-trade prices did soften with later getting affected relatively more. As far as Sagar is concerned, though our focus primarily remains of the trade segment. Going forward, though, we expect prices to improve following the resumption of construction activities and better availability of the labor force. Moving on to Sagar-specific developments. Our performance during the first half has been relatively steady, especially when one considers the current macro environment. Revenues and profitability both have improved. Our recent strategic initiatives, the captive power plant, waste heat recovery system has started to make meaningful impact on the operational efficiencies of the business. Further improving operations on cooler installations at Gudipadu, optimal fuel mix, close proximity of the units to the port relatively have started to boost our operational efficiency. Another noteworthy development has been, the company has successfully achieved the standards as required following the level of certification under the GreenCo, that is the Green Company Rating system, and received the GreenCo Platinum certificate from CIR for its best practices, and also achieved national award for Excellence in Energy Management 2020. This is given by CII for its [ united by order ]. A good quarter on our ongoing projects at Satguru and Jajpur Cement. Work on both the projects have been progressing as per schedule after the initial delay owing to COVID-19-related challenges. Completion of the above said projects will not only help in diversifying our regional mix and also provide a foothold in fast growing markets, but will also help us in recognizing our freight expenses even further. Moving on to our financial performance for the quarter. On a consolidated basis, revenue from new operations stood at INR 326 crore as against INR 265 crore generated during the corresponding quarter last year, higher by almost 23%. Better realizations and study volumes resulted in driving the growth. EBITDA for the quarter stood at INR 105 crores as against INR 42 crores reported during Q2 FY '20, almost up by 147% year-on-year, owing to better realizations and better cost management. The average power and fuel costs stood at INR 844 per tonne as against INR 1,171 per tonne reported during Q2 FY '20. The optimization of thermal efficiency, coupled with lower fuel prices resulted in the lower per tonne cost of fuel. Credit cost for the quarter stood at INR 769 per tonne as against INR 696 per tonne during Q2 FY '20. Profit after tax for the quarter is today INR 50 crore as against PAT of INR 5 reported during Q2 FY '20. From an operational point of view, Mattampally plant operated at 44% utilization level, while Gudipadu and Bayyavaram plants operated at 61% and 45%, respectively, during the quarter. As far as the key balance sheet items are concerned, the gross debt is at INR 527 crore, out of which INR 414 crore as a long-term debt and the remaining constitutes the working capital. Cash and bank balances were at INR 76 crore. The net debt is at INR 451 crore. The net worth of the company on a consolidated basis is at INR 1,168 crore. Debt equity ratio stands at 0.35:1. That concludes my opening remarks. We would now be glad to take any questions that you may have. Thank you again.

[Operator Instructions] The first question is from the line of Badri Vishal Bajaj.

I am Bajaj from Hyderabad only. And I congratulate the operational efficiency put in figure and revenue collection as well as profit, which is record and record EPS of about 21% -- INR 21, itself gives that we have put all our efforts post-COVID and realized our targets. Now I have 2 questions, sir. One is the liability expense is still around INR 500 crores. And though your cash book is much better and healthy. So cash flow statement, if you see, so how do you reduce the liability coming 2 quarters? And how do you envisage next 2 quarters and giving financial '21 turnover much better than this quarter?

Badri-ji, thank you for the good words that you have. Yes, I think the initiatives that we have taken for the last couple of years in terms of the cost management definitely has helped us show much better margins than most of our peers. Of course, realization has been one of the core reasons for extremely good EBITDA generation, but not to forget the cost initiatives did add up to a very good relations for us to handle a very, very difficult scenario when it comes to the demand. Now going back to the liability from a debt perspective, we are reasonably sure that, no doubt, debt looks close to 500, which may inch up on the way up to 800 with the CapEx that is happening at these 2 projects should take us to 800. One of the important things that we have done in our overall financial planning is yes, we ensured that the payout for this servicing this debt in form of interest and principal, at its peak, it would not be more than INR 160 crores in any year, sir, which is likely to be FY '23. But beyond that, again, it starts reducing. So from that perspective, we are more than confident that even if market has to be any different from what it is right now. And if it becomes even more difficult, we should comfortably address the overall debt that we have. So that gives reasonably good confidence for us to address this going forward. We would be more than happy to share the numbers the interest and the principal payouts that are likely to happen on the next 5 years, we would be extremely happy sharing that. Just to summarize, it will not be more than INR 160 crores at any given point of time.

Yes. Nice, sir. Sir, about 2 -- our scheduled project, Jajpur and Satguru, as you said in your opening speech that they're on schedule. But post lockdown and corona, this one, so did you face -- what are the challenges in which you resolve that, too, beyond our other state, where migrant labors and controlling that kind of there? Can you highlight on that? And congrats for giving interim dividend even post-COVID lockout. So I may presume that you are the first company post lockout also, you have given the interim dividend. Congrats, sir.

So thank you, Badri-ji. See, the -- as stated before, even in our earlier call and as disclosed, both the projects are due for commissioning in September '21. We did revise the commissioning date by a quarter, we shifted by a quarter. That is primarily on account of the COVID impact. We did struggle. The most of the contract workmen, especially the civil related workmen did leave the works for the month of April and May. We were having close to 700 people working at that site when the COVID hit us. Except for 100, the rest of all the people went back to their homes. Fortunately, the contractors and workmen returned to work end of June to early part of July. Now we have more than 1,000 people working at site in Satna -- in Satguru. Jajpur, we did face some delay because of the COVID as well as the monsoon. But both these projects, we have such a number of people to ensure that work -- both these projects will get commissioned by September '21. We are more than hopeful that we would be commissioning [indiscernible]. Except for the labor availability, we did not face any other issues.

We'll take the next question from the line of Madhav.

Sir, if you could you just share your outlook on the demand for each of the regions in south and also pricing, which has been very strong. Just your sense on how it could be for the next 1 or 2 quarters.

Yes. Our call, still, we are not in a position to give a very detailed kind of an outlook, sir. We still think that for the markets that we operate, we have internally factored a 15% to 20% kind of a drop in numbers compared to what we have done last year. Last year, we did close to around 3.2 million. So we -- our outlook, our internal kind of an estimation for us to do the volumes is around 2.75 million. Yes, this emanates from the fact that last year, this itself was lower for the few months, but subsequently, it actually shot up. Starting from early part of November last year, each month-on-month numbers were extremely good. So whatever it is -- the low base that we had is more or less covered with October. So given that scenario, unless we grow quite sharply, we may not be in a position to really catch up with the last year number itself. That looks unlikely for us. So we think that we could still have a 15% to 20% drop on year-on-year numbers. To our view this itself is a good number given the macro environment that we are in, sir. Now coming back to the pricing regime. Q1 had an extremely good price. It got diluted. Fortunately, the dilution is not very, very severe, sir. I think we think it's a very seasonal kind of correction. The drop looks to be less than 5% to 10% from place to place, especially on the trade. Though there are some instances where the non-trade prices did drop quite sharply, but fortunately, in our case, we do not have such a large focus on to those market segments. So price drop, in our case, up to end of September has been marginally is what I would like to put. Now going forward, how it is going to be, we strongly think that we are still not out of woods when it comes to COVID. And as you have seen, we thought monsoon has receded completely. But unfortunately, there are some pockets in our key markets where we are seeing heavy rainfall and even a flood-like scenario, which we have not seen this for a very, very long time. So we are trying to believe that demand may not really shape up for short term and pricing probably may not get disturbed beyond what it has already during the current season. We strongly also think that coming year should be -- we should be doing much, much better than the current year. The momentum has been steady so far, but we strongly think that the next year could be even better than what we have seen up to now. I think that's a big outlook that we have at this point of time. We would want to wait till -- at least some more time before trying to have a firm kind of an outlook for the markets that we are in, sir.

Got it, sir. And any specific stay price trends that you would like to share? Any place where we are seeing very good recovery or demand where it is weaker, just some commentary would be really helpful?

Yes. I think recovery is a relative term, sir. So obviously, from April month-on-month, we have seen most of the markets that we are in, irrespective of which state we are in, all the markets have been doing very well on a month-on-month. Again, it's a relative term, sir. I cannot compare with a year-on-year kind of number. Right now, Tamil Nadu is doing extremely well, but the monsoon season in Tamil Nadu is yet to kick start, sir. So it is due in November. But for that, all the other states have actually received exceedingly good monsoon. But for this season, these markets would have done a lot better. But since season is very good, we expect, going forward, things to be even more exciting because agriculture has been extremely strong. The tempo that we have seen in non-metro markets, we strongly think that going forward, all of them to resume post this monsoon season to kick start a positive kind of a thing. But these are all relative term, sir. So month-on-month, we are seeing improvement. So we hope it to sustain. Probably next year is what -- when we see the real growth. That's what we strongly think at this point in time.

Got it, sir. And last question. Any new capacities? I'm sure some of them would have been delayed, but which are the capacities that commission in the next 12 months in South India and other regions where you operate?

See, I think the only -- 2 units are due for commission, sir. The other 2 are already commissioned quite some time back. One is Penna. And the other is Chettinad in Guntur. Both the units have been commissioned quite some time back. In fact, Penna is close to a year now. And Chettinad is close to 6 months now. The units which are due for commissioning is Ramco's Kurnool unit. And Cement Ramco's Jayanthipuram clinker line is due for commissioning. And Chettinad's grinding unit in Vizag also is due for commissioning, sir. We don't know the exact time line, but they are new. We think that Q3, it may not be possible, but probably Q4 to early part of Q1, they are likely that they would commission. But the other units, probably the ramping up is due. So we think that post festive season, along with the demand ramping up, some of these new capacities also could ramp-up in line with the demand.

[Operator Instructions] We'll take the next question from the line of Pritesh Sheth.

So first question is on your volume growth. So 2% volume growth in a very challenging quarter. And I guess your markets, basically South India, must have declined at least 10% to 15% in this quarter. And given that decline, still you have been able to report 2% growth. There's surely a market share gain, which you are seeing. But has the competitive intensity overall reduced in South as in -- are you seeing smaller players not able to operate their plants to a -- I mean, to an optimum utilization, given the challenges in the profitability? Has that changed? So this market share gains, could you -- could we see as a structural story for your [ quarter ]?

Yes, Mr. Pritesh, let me clarify. I don't think we have gained any market, sir. This 2% is very optical. Because last year, base is very, very low. So beyond that, we have not done anything new in the marketplace. We are staying put at the volumes, what we have been doing consistently across. This 2% is purely because of the fact that last year, September, the numbers are extremely low because of the weather-related scenario. And also Telangana, if you remember, sir, was going through the elections during that time. So our volumes in last September, the base impact is what I would put it. We have never gained any market share. The big or small is, again, a perception, sir. I think there are very small players who are very large in some of the markets. Is it structural? I doubt, sir. I don't think these are the times where somebody is stretching. Of course, there are 1 or 2 players who are trying to stretch themselves beyond what market is to offer. But that's very, very specific to some of them. In general, I don't think there is anything that has changed structurally. As indicated, sir, our operating rates are sub-50% even during the whole of the Q2. In fact, if you have to look at H1, it is even lower. So I don't think there is something which has changed during these times. We generally don't chase the market, sir. Market share is not an important KPI for us. That's what I would like to clarify.

Great, sir. I think that is a very detailed answer. Now you highlighted 2 points in your initial commentary about Andhra, Telangana, both governments -- or both markets doing good. I just wanted an update from your side. How has the order traction have been from the Andhra government side specifically? Just a follow-up on your last quarter's comment. So last quarter, you had said that volumes from the government have been to the tune of approx. 3 lakh tonnes in maybe in month of May and June. How has that progressed in this quarter?

So I think Andhra government consumption is growing steadily. In fact, even during the difficult months of COVID as well as monsoon, I think they consistently have been taking material. We did supply, approximately for the first half at 720,000 that we have done, we are close to 60,000 tonnes is what we have supplied, which is close to around 8-odd percent. We think that once the seasonality comes back to normal, we do strongly believe that Andhra government to consume aggressively on various projects that they have initiated. And I would encourage you to look at is YSR Nirman's portal, which should give you day-to-day or weekly kind of an update about what projects are consuming, how much. That's the portal on which we are also dependent to give the outlook on that. That has been healthy, sir. So I would actively encourage you to look at YSR Nirman to look at what's happening on the government consumption side. It is extremely healthy. At this point of time, we are going through the seasonal kind of -- seasonality related issues. But still, the run rate is more than 400,000 for each month that Andhra government has been consuming. One of the heartening things is the payment is up to date. So that itself reflects that they are very serious about the works that they've initiated.

Great. Great. That's very helpful. One last question on your expansion. So how much of pending CapEx would be there over the next 1 year, I mean, until its completion?

The overall CapEx, this includes these 2 projects and something internally. We had an outlook of close to around INR 900-odd crores for 3 years. Out of that, we have already spent around INR 350 crores in the previous year. This year, it's likely that we would be completing another INR 350-odd crores. And the residual would be spent... [Audio Gap]

We'll take the next question from the line of [ Swaroop Shroff ].

Congratulations on a great set of numbers. I just have 1 question. I want to understand how we should think about margins going forward. So you've mentioned that volumes aren't going to get back to last year's numbers, understandably so. But how much of this cost saving is sort of permanent or structural? And how we should think about margins for, I guess, the remainder of the year and going ahead?

Yes. I wish I had a handle on these issues, which are with inflation. There is 2 side stories, sir: one is the energy consumption parameters and the other is the energy landed cost. We have done structurally a lot of development on the consumption side. We are reasonably sure of sustaining them. That probably would have contributed close to around 50% of the overall kind of cost savings so far that we have seen. The other 50% is on the pricing scenario or the landed cost basis. On those issues, we usually have a 6-month hedge in terms of rebuying fuel, primarily pet coke and secondly, the coal that is required for the captive power plants. We usually have a 6-month forward kind of a purchase policy. So far, we could manage. Our fuel is available all the way up to January. The low price landed cost fuel is all the way up -- available up to January. We have been advised by one of our key suppliers who were associated with us in this to wait till middle to end of November for us to take the purchase decisions pertaining to pet coke. There is some indication that it is likely to come down. How much is the question, sir. So I would not know by how much it is likely to come. The second major cost element is for us is in the freight. As indicated, sir, most of our assets are reasonably located close to the markets. But any price hike in diesel will have its own impact. If you have seen from Q1 to Q2, the freight itself has gone up by 8% to 10%, which is exactly in line with the diesel price hike that has gone up. Some of the cost items are very well managed, which is in control well within the teams that is at the plants. But there are some costs which are, again, dependent on the landed cost of each of it. On those issues, there is some effort that is happening, substituting the thermal fuel with the alternate fuels. The progress of which is again subject to arability of them. Right now, we do have around 3% to 5% subscription of the pet coke with the alternate fuels. We hope to raise this to at least 5% by end of the year, its sales, sir. That should also help us mitigate some amount of the cost increases that will -- that are likely to happen. But all in all, increased volumes should help us fixed cost reduction. So one cost should balance the other cost increases, sir. So we are reasonably sure that for the current year, cost is likely to sustain or be better than what we have done for the last year. But by how much at all, I think it's a function of time. But we are reasonably sure that costs may not be a major issue going forward. Of course, realization is so that is something which we wish it remains where it is, if not be better.

The next question is from the line of Sanjay Nandi.

Am I audible?

Yes. Please go ahead.

So I have 2 questions like what you mentioned in the power on field cost structure like the pet coke prices have shifted up significantly. So what is your outlook going forward? Like are we thinking of using some like international coal, replacing the pet coke or we are still thinking of fixing on to pet coke?

Sir, we use the fuel whatever offers the lowest cost option for us. In the past, we used coal when pet coke was higher and vice versa. So we -- as told in the -- for the previous question, we do have fuel, low-cost fuel, relatively low-cost fuel up to January. We would want to see how each of the landed costs are going to shape up. And we are more than geared up to -- for an -- dynamically to change the fuel mix to optimize on the overall cost, sir. It's a very dynamic kind of a setting that we have. We are more than a happy to change to the fuels which could offer low-cost options at any point of time. And at this point of time, still the imported coal and imported landed pet coke cost on a [ per CV ]. The gap is very minimal, sir. So more or less, both of them look to be very, very -- it's not that coal did not go up as much as pet coke went up. So net-net, both the costs have come back to be at par right now. So given the scenario, we probably would like to continue to use the pet coke. But if coal comes down or pet coke comes down, we'll dynamically switch to whatever fuel that offers the best option that -- on the cost side.

Okay. And sir, which category like we belong to? Like we belong to B category, right, in areas of operations?

We belong to cement category, sir.

Sir, one thing is very, like, I wanted to know, like in the FY '20, we just managed to register the PAT of roughly INR 30-odd crores. But in the first half of the FY '21, we have already posted like INR 90-odd crores, which is why because of the [ realization ] like, thing only. So are we thinking of some improving our premium quality of thing so that the margins get sustained going forward? Or that would be...

Mr. Sanjay, we have not changed any of our product mix. We are not changed any of our premiumization. The stability of the EBITDA margins is a function of both realization as well as cost, sir. Realizations definitely helped us to have better margins. But that alone did not help us to have a good EBITDA margin or PAT, sir. It's a combination of both. Ideally, we would want to increase our realization, but that's something which is market related. If it was in our control, obviously, we would have done it long time back.

So are we selling any premium kind of cement?

We have a portfolio. In our portfolio, we do have -- we had a perceived premium product. We do have, sir.

Okay. So what is the percentage of that in the total mix, sir?

Less than 1%.

Less than 1%. So are we thinking of increasing that percentage so as to grab the market share or...

We don't believe in market share, sir. What I would like to tell you is we would do whatever it takes to increase the margin. We are more than happy to do what it takes. The premiumization product, they don't -- as I mentioned before, they're barely 1%, sir. So by having 1%, we could reach this far. So it implies that, that alone would not solve so many other issues that is there. But we will be happy doing whatever it takes to increase our margin. That's what I will [ say ].

Got it, sir. Sir, did we take any price hike in the first week of October or in the 20 days of October?

Sir, I think the price hike is a function of regulated transfer pricing that we do to our customers or the dealers. There is some optimization that is happening, where the discounts are being adjusted. Most price, more or less, have remained there. So we did optimize somewhat of the transfer price into our dealers.

Okay. So can you just quantify that amount, sir, if possible?

I think October is too soon, sir. We just completed 15 days. So we would rather wait for some more time before taking it forward like that.

We'll take the next question from the line of Agam Shah.

Congrats on the favorable numbers. Sir, just a quick question. Most of my questions are answered. Now book-to-bill, sir, where are booked in debt? Or was this [ acquisition]?

Net debt, we are -- we believe it would be at INR 800 crores, but we did not factor the current cash flow scenario, sir. We are still going with conservative estimates. So it should be at its peak, the INR 800 crores is what we think -- somewhere around FY '26.

Sir, if I may, just 1 more question. EBITDA, but this time, maybe due to the cost saving and all you have done [indiscernible] What would be the sustainable number for, like, a longer period?

Mr. Agam, I wish I had a very direct answer to that question that you had.

I mean a qualitative number or something, whatever you can give at -- something.

See, we usually work in the banks, sir, because bulk of it actually also has been a contribution from realization. It directly means that we are resuming a certain price, what it took to be a debt. I think it is very safe to assume that we may not be lower than INR 1,000 for the entire year. I would leave it there on a very, very conservative estimate. For the full volume, see, it'll definitely be not lower than INR 1,000. This is what we strongly believe, for which I can keep my neck out. And mind you, it's a very, very conservative estimate.

We'll take the next question from the line of Rahul Jain.

Congratulations for a good set of numbers. Sir, firstly, you spoke about the next year will be much better than this year. So I'm presuming you are talking about with regards to the volumes. So if you could share some more details in terms of what kind of volumes you are looking for next year; because next year, you will have the expanded capacities also coming in, hopefully, by September '21, as guided by you.

Sir -- now let me take this in 2 parts, sir. One is for the existing assets that we have. We think that it is likely that we are going to go back to last year's number. That means we are going to be ranging between 15% to 20% higher than the current year. We think that this COVID scenario has actually taken our markets by at least 2 years behind. So the first thing that is likely to happen is to go back to last year is what we think is likely to happen. So year-on-year, we think it could be anywhere between 15% to 20% higher than the current year that we [ RF ]. Now as you are aware, we are indicating September '21 commissioning for both these projects, but this needs to be ramped up, right? So we are adding approximately around another additional $0.5 million to $0.75 million for the next year from these 2 adds put together. So it's a simple addition, sir. So likely target is going to be $3.2 million from the current assets and anywhere between INR 0.5 million and $0.75 million from those 2 assets for the next year.

Sure. And sir, with regards to the East India, a lot of capacities have come in. There are -- supply has been increasing. And it is becoming a very competitive market comparatively. So what is your view on the east market now? Because we are...

Sir, our view on East market, it is already competitive. So there is nothing new that is likely to happen. There is additional supply that is expected to come, along with us or after us, and definitely a few before us. East is a very good market from a volume perspective, sir. It has been growing consistently at 10% year-on-year. The one thing that we have seen is that, by the time we commission, our internal assumption is that from what is about 90%, 95% capacity utilization, likely that for a very short period might drop to 70% to 75% capacity utilization for new players like us. It may not be true for somebody who is already existing there. But overall, we do expect the overall cash utilization to drop and demand to grow by 10%. But the pricing regime in East has been extremely poor. Unfortunately, with such a high demand regime, prices there somehow has been non-remunerative. Short term, we don't expect a major exchange. But over 1 year, 1.5 years, we do expect the prices to, to come back to something which we think is going to be feasible. So these are the 2 scenarios that we definitely expect and sincerely hope for it. One is the overall capacity utilization of most of the players likely to come down. And especially for the newer ones, it could be -- it may not be as what it is right now. That is for sure. We know that is going to happen for a very short term. We do expect pricing regimes to start becoming better. Our basis for this essentially is purely because most of the new capacities that are coming up needs to service those markets with clinker coming from far off places, sir. So that pushed us that everybody will start looking at some remunerative pricing in those markets, sir. Right now, I think everybody is trying to look at market shares, but that may not continue forever because that's not the right way to look at any market, even on East. So that is pushing us to believe that there could be a drop in overall capacity utilization, but a better pricing regime is what we believe is likely to happen. It may not happen in immediate future, but beyond a year, we do expect things to happen in those directions.

Sir, last question on the rural demand. Yesterday, [indiscernible] also mentioned the rural demand has been quite strong. You also talked about it. And we are talking about that demand was very good in quarter 1. At the same time, in quarter 2, also, it has been quite good, given the good rainfall, government initiatives in terms of reforms. Sir, in your assessment, how sustainable this demand is, #1? #2, when we talk about the rural doing extremely well, so with the -- based on the past historical experience over the last 5, 7, 10 years, whenever rainfall has been good. So comparing that period with today's period, the rural pickup or the rural demand is at what level? So what I'm trying to understand is the -- suppose in good periods of rural economy, the demand has been x. Today, have we reached that x level? Or is it 1.1x or 0.8x? So that we understand how sustainable this rural demand is, sir.

Yes. Mr. Rahul, let us not increase the complexity, which it is already. The non-metro market has done exceedingly well in Q1, okay? The reason why it has done exceedingly well, again, it's all differential, sir. The metro market, actually, at least in our region that we operate, like all the key metro markets were shut because of the COVID scenario. So on a relative scale, the non-metro market did exceedingly well. But come Q2, unfortunately, the COVID did not remain itself in the metros. It started spreading. And at the same time, the most of the metro markets were slowly opening now. So what it did, it actually evened out in terms of the demand in Q2 itself. What I would like to highlight at this point of time is, without getting into much of complexities about rural urban. In our experience, sir, whenever there is a good monsoon, in the sequent year, most of the people usually end up doing some capital asset formation on the rural side, especially the housing. The historical experience has been a good monsoon and a good pricing for the grains that they come up with, usually have pushed cement demand to the next step. That's what we strongly think it is going to happen. And secondly, if you look at some of the state governments, which are spending aggressively on the infrastructure side, bulk of it actually comes from the rural segment itself. Because if you look at the canal network or the concrete roads, bulk of it actually gets spent in those regions, sir. And not to mention the rural low-cost housing and bulk of low-cost housing also is from that particular segment. We do expect a very, very strong focused kind of spend from both central government and state governments going forward, with one intent that it will generate huge employment. It is the case. After agriculture, sir, construction sector is 1 sector, which actually absorbs a lot of people. So it definitely is 1 sector where I'm sure government would be spending a lot of money to increase the employability and all. Recently, we started hearing that even they would want to come up with something like a work-guarantee scheme even on the urban side. So all in all, we do expect things to shape up exceedingly well. But this rural urban or rather, I would look at it as a non-metro markets. I would not like to look at this as something which is very structurally, things have changed. They remain what it has been in the past, sir. Off-led, because of the COVID impact and since it impacted metro markets more in the initial phase, so people started looking at this, but India is more rural than urban. So it goes without saying that bulk of any commodities market is actually rural than urban whichever. So cement being what it is, rural is actually 60% of our market. So a healthy monsoon would invariably give a good comfort for us that the consumption is going likely to be much, much higher with a good monsoon and a good pricing for all the output that they would have would definitely increase the demand for our product. That's what we strongly think, Mr. Rahul. Now quantifying rural, urban, now what is this rural and urban, sir? I mean, for us -- we have large towns, which are big urban cities. So they'll also be doing exceedingly well. So it's a more issue of metro and non-metro rather than a rural or an urban area, sir.

Sure. That's very helpful, sir. Just last thing on this point. Are you seeing some kind of traction in housing demand, both in metro and non-metro markets? I would rather now put metro and non-metro, not rural and urban.

I think it is too soon, sir. One thing that it's very heartening is here, interest on the housing loans are at its lowest, probably, but people are still just coming out of the COVID. So I'm sure given this scenario, it's highly likely that people would want to start building their houses. But it's too soon for us to factor any of that for the current year. But I think a year from now, things could start actually paying out in a very, very good shape, whether it is urban or a metro or a non-metro market, sir. That's what we strongly think.

The next question is from the line of Rajesh Ravi.

Sir, congratulations on a great set of numbers. On the cost side, the employee cost in this quarter has significantly jumped. What could be the reason for the same?

Yes. There are 2 reasons, sir. One, as mentioned, even in my earlier calls, we have deferred the appraisal decision for the current year to September, which we have done. So our appraisal was due from 1st of April. So -- old areas. And at the same time, lesser volume, both of them have actually -- per tonne, it has gone up, and absolute number also has gone up, sir, because we have taken the appraisal fully implemented for the current year. Since it was taken for the first 6 months in the current quarter itself, it is looking higher. But as it spreads, it's roughly around -- we have taken anywhere between 9% to 10% hike is what we have taken, sir. That probably is...

Okay. So if I take the first half average, INR 18 crores, that would be the normal run rate, sir, until the new projects get commissioned?

Sir, it is very safe to assume it is 9% higher than last year. So I...

The next question is from the line of Pradnya Ganar.

Sir, my question is some more on the industry, and please pardon my ignorance, but I just want to understand this concept of premium cement and its acceptance in the market. So actually, how these products differ in their strength and various aspects? And is the market actually willing to give that premium, given the commodity nature of cement as such?

The industry believes that there is some premium product and it gets that additional premium. Our internal view is that, yes, it's more a marketing blitz rather than anything. Because there are restrictions for how the BIS actually specifies these products. So we need to slot any product that we call in the name in one of these parts, that is OPC 53, 43 grade and PPC and PSC. So irrespective of whatever premium products that we would call needs to be positioned in any of these 4 slots other than the specialty cements. I'm sure there are some products which definitely offer uniqueness like waterproofing or some of them. It's still in evolution stages what we think. It needs a very, very careful and detailed study. Some of the major players have done. So I strongly believe that there is a reason for them to do. But at this point of time, our primary focus is to look at some of the products the way they are in terms of the regulatory kind of a framework. You have to slot it to one of those 4 more popular products. It needs to be positioned. So there are some people who are actually positioned telling that it's faster setting, higher strength and all. But all of them have to comply with one of these 4 sets. So given that scenario, yes, it needs some more experience before trying to qualify, is it really offering that extra premium in terms of to the company or to the customers? It's too soon. Because there are some people who actually ended up launching the same product in a premium packing. So whatever is the margin, the premium packing itself would have consumed. But there are some who actually get a premium product, but market is taking time to appreciate. I mean it's kind of a mixed bag. But we would wait for some more time for having a better view on that. It's too soon for us to comment beyond what I have already commented. I am sure you would appreciate...

Yes. No, that was very helpful.

We'll take the next question from the Indrajit.

I'm [indiscernible]. I have 1 question on your Slide 12, the pet coke price trajectory, which is INR 6,298. So this is the booking price, right, not the purchase price?

This is the landed cost, sir, yes, you're correct, it's a booking price that includes the freight and all the associated handling costs landed at each of our sites.

And at spot? Pet coke prices and spot rates, what would be this equivalent number? So this INR 6,298, what will that be on...

This should be around $65. This would be roughly around $65.

$65. And spot price is somewhere around $95. Is that right?

Right now, spot prices, the equivalent of that is at $90-odd.

Okay. And has there been any change in the sea freight rate as well? Or that has been broadly stable?

Sir, honestly, we don't track as much. We only try to listen to people because, for us, at the end of the day, we are buying it from them. So they blame either on the basic price or the freight. That keeps moving from a month-to-month. So the last that we have heard is not much of a change, not much of a change on the freight. Freight did go up a few months back. So from there, we did not hear freight being any different from what it was. I think the landed cost, what we have seen is a few dollars less for the last week. And we have been advised to seriously start taking some procurement costs only middle to end of November, not before. So we are eagerly waiting for that, and we would be happy to share that information, whether the freight or the basic product price itself has...

The next question is from the line of Prateek Kumar.

Sir, my first question is, so we operated at around probably 50% during the quarter and probably in September also, which is, I think, lower than, like, let's say, what we operated in June, primarily on monsoons' impact. So how is the October utilization -- how is the utilization in October, if we can have some view there?

See, I think we just completed 15 days from October or rather during this, Prateek. See, it may not truly reflect the overall outlook for the Q3. But in our experience, sir, 60% of average sale would happen between Q1 and Q4. 40% typically happens between Q2 and Q3. Because the seasons have not been very, very similar on a month-to-month kind of a thing. If you look at last year, the season actually was late, but it was reasonable. But this time, season started early in terms of the monsoon season, and it was heavy throughout. And we thought it receded, but if you look at last few days, again, it restarted. So given this scenario, a few days, a few weeks should not matter. But I think Q3 should be very similar or slightly better than Q2 is what I would like to highlight when it comes to the volume outlook, Prateek. So the capacity utilization may not significantly different. Right now, we are at 48% probably at the best we could touch 50%, 55%, at the best for Q3. That's what we think is likely to happen for the markets that we have in this.

Right. And you mentioned in the opening remarks, there were some price dilution in trade and non-trade segment, higher being in non-trade. So in October, so while you said that there is a recalibration of discounts. So has now the price, which is realized by company now taken back to like original levels pre-dilution?

Still work in progress. It's still work in progress. I think because the festivities are due for the end of this week, I think the whole of this month, will still go ahead with work-in-progress kind of a scenario. There is an inch up, yet we have not covered the lost ground completely.

We'll take the next question from the line of Mr. Anoop Bhaskar. We'll take the next question. We'll take -- which is from the line of Rajesh Ravi.

Sir, on the noncurrent assets, this is largely on account of capital advances, which is going up in September quarter?

Yes, sir. It is purely on account of that.

We'll take the next follow-up from Mr. Rahul Jain.

Sir, I just want to check, on your new projects. So how have we tied up the limestone? And what mine life do we have for that? I wish I had details on that. And also, generally, on the industry, how do you see the situation going forward with the auctions and all these things?

Sir, I think, auctions, I have very limited comments to offer at this point of time. When it comes to us, there are 2 projects: one is grinding station in Odisha. So there, we do not have any limestone requirement per se. The other one is a 1 million tonne plant at Madhya Pradesh, sir. It's 1 million tonne, so it effectively needs around 1.3 million tonnes of limestone for its operation. We have close to 80 million tonnes of reserve there. So that should last close to around 55 years for sure.

Just generally on the -- how do you see your competition and others? Is it easy to get limestone reserves or distribution getting tighter or something...

Sir, it's not easy said so. I'm sure it's a mixed bag. I would put it. The limestone auctions are becoming expensive by the day, but they are not impossible. That's what we strongly think but there are some auctions which have become extremely expensive. Probably it's very specific because somebody is desperately looking at those locations. So that's one of the reasons why the auctions in those locations looks to be extremely, extremely high, sir.

Right. And sir, also people who have got these reserves, what I understand is that not much work has happened. So can you like -- I mean, why is there such a time lapse in getting in the mine and starting the work?

Sir, our plant is due for commissioning in September, sir. So we'll be opening the mine 3 months before the plant gets opened up.

I'm not talking about us. I'm talking about generally, other people who have taken these mines, what we find is that the commissioning...

I have no idea, sir. It's a very, very case to case kind of a thing. So I have nothing very specific on those issues.

Okay. Sir, do we have to pay a premium on that -- on limestone?

Sir? Sorry.

So we have to pay any premium for those for the mine that we have got?

Sir, currently, what is in our portfolio, we don't have to pay any premium to any of our limestone at any of the assets that we have, sir. These are done...

Prior to [ amendment ], sir.

I would not compare, but we are -- we don't have to pay any premium to any of the limestone, except for the regular royalty.

We'll take our last question from the line of Mr. Anoop Bhaskar. We'll take 1 more question from the line of Karthik Chellappa.

I only have 1 question. If we look at the big distance this quarter of about 319, it is actually up sizably year-on-year and is at a 5-quarter high. What will explain this?

Yes, it's primarily because most of our market -- from Q2, it shifted to -- from Q1, it shifted to markets which are slightly far off. Yes, we were servicing more of Tamil Nadu, sir. That's the only reason why it actually slightly went up compared to the previous quarters.

Does that mean -- so does that mean that as we go into election season, because Tamil Nadu also goes into elections in another 6, 7 months' time, and if demand continues to remain strong there, there should be a 300-kilometer distance plus from the point of view of your logistics cost?

Mr. Karthik, I think this is something which is very specific now because we were active in the monsoon in the neighborhood market. So probably there is a material which got shifted to Tamil Nadu when the monsoon will become active in due course of time. But I think this should be the higher number, but we will definitely not cross beyond that. Because most of the markets which are in the neighborhood are actually under the monsoon. And the far up market was serviced because the -- from a season and from a demand perspective, that was more conducive at this point of time.

We'll take our next question from the line of [ Shivam ].

Sir, congrats for the quarter results. Sir, as you said earlier, that market share is not a way we think about business growth. Can you expand on this?

Can you repeat the question, Mr. [ Shivam ]?

Am I audible?

Yes, yes, please. Yes.

Sir, as you said earlier that market share is not a way we think of business growth. Can you expand on this, sir?

We look at sustained markets, sir. We don't look at opportunistic kind of a scenario to increase the share and reduce the share. We look at our model to be very, very straightforward and simple. We look at market for the very, very long term. We don't look at 1 singular opportunistic kind of a scenario to go and grab market shares and be happy about it. I think when the entire industry, supply-demand equation is at something, we try to get aligned with that because if you try to put more volumes than what market is absorbing, we strongly have experienced and seen this in the past, that it amounts to erosion of value. So we avoid that kind of a scenario. That's what we meant when we were not chasing the market shares.

Okay, sir, I have 1 more question. Sir, are we below the industry utilization levels? Because last...

I would say we are at par, but this answer of mine needs some bit of explanation. We are at par because we service markets -- see, if you have to compare with my neighbor, it may not be true. But you have to look at the holistic kind of a scenario, sir. We are at par with the industry. Some of my neighbors operated close to 90%. We don't because probably their market -- their volumes are lower, their markets are narrower. In our case, we are at 50%, in line with most of the industry peers who are similar to ours.

And the next question is from the line of Amit Murarka.

Just on this, NGT, recently, there was some order like, [ Investec collaboration ] project has been highlighted as having some deep issue. So do we expect that to have some adverse impact on our demand in, let's say, the medium term?

I think you should have read the order as clearly. It's a project which is already done, sir. So we have already supplied. So there is nothing new that -- except for a small finishing work, there is not much of work that is left on that particular project.

Okay. So in terms of, let's say, the general activity on the infrastructure side, both in AP, Telangana, so do you see the outlook being good? I think we mentioned that generally, the activity has been quite decent in the last few months.

Yes, sir. As mentioned to one of the queries before. I think Andhra government has been aggressively consuming cement. And I would actively encourage you to look at YSR Nirman site, that should give you -- the portal that should give you a real heads up on what's happening on the government consumption. There they have displayed which project is consuming how much, and it's updated quite frequently. So it's -- consumption is going on very, very strongly. Telangana, of course, the monsoon, since we are going through the monsoon kind of seasonality, sir, not much has been done so far. There is a general sense of hope and expectation that -- even the Telangana government, to kickstart some of the -- I would not call shelf, but some of the infra projects which are going slow, especially the collectorates built up in each of the district, the market yards, which government has promised. There were some activity that started pre-COVID. Post COVID, we are yet to see some traction on those. We do believe that post this seasonality, something to kick start on those fronts also. But those projects should have some consumption. On a relative scale side, Telangana government, at this point of time has no large infrastructure project, which would consume cement, unlike Andhra, where there are quite a few projects. We have -- there is a demand that is likely to happen from them.

As there are no further questions, we would now like to hand over the call to Mr. Reddy for his closing comments. Over to you, sir.

So I would like to thank each one of you again for joining on the call. I hope most of the queries are addressed. If not, please feel free to connect with us or CDR, and we will be more than happy to come back with specific answers to your satisfaction. Thank you again. Have a good day.

Thank you. You may now disconnect your lines.