Sagar Cements Limited (502090) Earnings Call Transcript & Summary

Ladies and gentlemen, I welcome you all to the 4Q FY '21 Results Conference Call of Sagar Cements Limited. We have with us from the management, Mr. Sreekanth Reddy, Joint Managing Director; Mr. K. Prasad, CFO; Mr. Rajesh Singh, Chief Marketing Officer; and Mr. Soundararajan, Company Secretary. We will start the session today with opening remarks from the management, and then this will be followed by a Q&A session. I request all the participants to be on mute mode during the course of the call. I would now like to hand over the call to Mr. Gavin Desa of CDR and for his opening remarks. Over to you, Gavin.

Thank you, Manish. Good day, everyone, and a warm welcome to Sagar Cements Q4 FY '21 Earnings Call. As Manish said, 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, the Company Secretary. We will begin this call with opening remarks from the management, following which we will have the floor open for an interactive Q&A session. Before we begin, I would like to point out that some statements made in today's discussion may be forward-looking in nature. And a note to this effect has been stated in the con call invite sent to you earlier. We trust you have had the chance to go through the financial result communications. I would now like to hand over to Mr. Reddy for his opening remarks. Over to you, Sreekanth.

Thank you, Gavin. Good afternoon, everyone. Welcome to Sagar Cement's earnings call for the quarter and year-ended March 31, 2021. Let me begin the discussion with the sector-related dynamics with respect to pricing and demand drivers across our key markets, post which I move on to Sagar-specific developments. Volume growth during the quarter remained elevated, owing to the strong underlying demand, higher government spending and steady rural economy, along with the soft base area demand sentiments. Consistent demand from individual housing in semi-urban, rural region and a healthy pickup in infrastructure activities has been driving the volumes for the quarter. Volumes in southern and western regions, to some extent, were supported by a pickup in government-led infrastructure projects. Moving on to prices. A sharp rise in input prices, necessitated price revisions during the quarter. On a sequential basis, realizations remain more or less steady. Region-wise, the price movements in AP, Tamil Nadu and Telangana were offset by the decline in Karnataka and Kerala. Stock miss in Kerala was due to falling demand ahead of state elections. Moving to the west, Maharashtra resumption of the construction equities and availability of the workers led to improved realizations in the region after a long gap. Price in the east, which we're trending below the historical average improved to some extent. Moving forward, we continue to remain positive on the business and believe the steady demand from housing, industry and infrastructure provides strong visibility, both in terms of demand as well as the pricing trajectory. Moving on to Sagar-specific developments. We are pleased with our performance for the quarter in the year as a whole. It was an extremely challenging year for all of us, which I'm sure most of you would agree. But I'm delighted and proud with the way we have dealt with it. I would like to thank our employees, dealers, distributors, bankers and all our stakeholders who have supported us throughout the year. Before moving on to the financial performance for the quarter, let me just apprise you of the latest developments with regards to our erstwhile subsidiary, Sagar Cements (R) Limited. As most of you must be aware, the Board of Sagar Cements approved the proposal to merge SCRL with itself just a couple of weeks back. Given that it's a merger of a wholly-owned subsidiary, it will not result in incremental share issuance by Sagar Cements. The rationale behind the merger was to lower the cost overheads and improve the overall efficiency. The amalgamation will result in efficient utilization of capital and then improved financial structure. Moving on to our quarterly performance now. We have delivered good revenues and profitability growth. Revenue growth was backed by good volumes on the back of strong underlying demand. EBITDA for the quarter grew by 133% over the previous year amounting to INR 104 crores. Profitability could have been higher, but for the rise in input prices. Yes, we have been steadily increasing -- I mean we have seen a steady increase in the input material prices, be it petcoke, coal or diesel. As indicated in the previous call, that we've had low-cost petcoke inventory which lasted till January, following which we had to shift to Australian coal. In addition to the low-cost inventory, higher utilization levels and the operating leverage has resulted in softening the impact of the rising variable costs and helped in normalizing the fixed costs. Going ahead, we believe the commissioning of Satguru and Jajpur plant will help us in further rationalizing our cost besides improving product mix. The average power and fuel cost stood at INR 864 per tonne as against INR 911 per tonne reported during Q4 FY '20. Optimization of thermal efficiency, coupled with the lower fuel prices, resulted in lower per tonne cost of fuel. Freight cost for the quarter stood at INR 742 per tonne as against INR 713 per tonne for Q4 FY '20. Profit after the tax for the quarter stood at INR 50 crores as against a profit of INR 1 crore reported during Q4 FY '20. On an annual basis, revenue from the operations for the year stood at INR 1,371 crores as against INR 1,175 crores generated during the last year, an increase of almost 17% Y-o-Y. EBITDA for the year stood at INR 400 crores as against INR 186 crores reported during FY '20, up by almost 116% Y-o-Y. Profit before tax for the year stood at INR 281 crores as against INR 50 crores reported during FY '20. Profit after tax for the year stood at INR 186 crores as against a PAT of INR 27 crores reported during FY '20. From an operational point of view, Mattampally plant operated at 61% utilization level, while, Gudipadu, Bayyavaram plants operated at 88% and 73%, respectively, during the quarter. As far as the key balance sheet items are concerned, the gross debt on 31st of March 2021, stood at INR 806 crores, out of which INR 704 crores is long term and the remaining constitutes the working capital. The net worth of the company on a consolidated basis as of 31st of March 2021, stood at INR 1,258 crores. Debt-to-equity ratio stands at 0.56:1. And the bank balances were INR 254 crores as of 31st of March 2021. That concludes my opening remarks. We'd now be glad to take any questions that you might have. Thank you again.

[Operator Instructions] Our first question is from the line of [ Bala ]. I think we have lost his line. And the next question is from the line of Pritesh Sheth.

Congrats for the great year for Sagar Cement. My first question is on -- so we saw Andhra government cement-sourcing crossing 1 million tonnes, which they had promised last year, again, which is a very good performance. I mean very good ordering from their side. From here on, how do you look at it? Will this trend continue? Obviously, March might be, because of being the last month, there might be some more push out in terms of orders. But from here on, how do you see this trend to continue?

Yes. Good morning. See, I think as committed, Andhra government has been consistently and steadily taking a lot of cement. We did suffer during the April month for obvious reasons. I think for the next couple of months, the scenario may not be very different. But given the commitments to stick into their political manifesto, which they have given earlier, and what they have indicated in a couple of meetings that we have had before the second wave really hit hard and the entire machinery being busy with it -- handling it, yes, we think that in the current year, the demand from government should be more than doubling is what we think, Pritesh. So we don't see major issues coming from the Andhra government offtake.

Right. And what do you see the impact of -- impact post the elections in Tamil Nadu and Kerala? Demand is going to continue again or might slow down a bit after that?

See, I have to go only with the historical trends. I mean our experience in the past is 6 months before and close to 6 to 9 months post-election, demand typically tends to slow down. But this time around, this is an unusual and very difficult times so predicting how it will shake up would definitely be a challenge, coupled with the regime changes in Tamil Nadu and the government coming back in Kerala, how the demand is going to shape up is anybody's guess at this point of time given the second wave of the pandemic, Pritesh. So it's too soon for us to comment anything on the demand outlook for any of the states, even on these states, for any of the states, it's likely going to be a big challenging kind of an environment now. And predicting any number also would effectively be a challenge right now. We may have to wait before we know the trend lines to a certain accuracy. The only silver lining what we have seen is the lockdowns did not really make the dispatches to 0, that there were some dispatches, which gives us some comfort that it may not be as nasty or as bad as the COVID second wave itself is.

So I think that was my second question as well. In terms of how are you seeing demand in terms of April and May? Has the fallout been very drastic? Or it's still 20%, 30% lower than the numbers we saw in January, February?

I would never go with the percentage drop, sir. The typical March -- pre-March numbers, definitely be elevated levels compared to the Q1 numbers. But the real impact we started seeing from 15th of April. From then on, we started seeing a steady slowdown in the overall kind of a demand. Yes, the only thing that we are happy about is that it has not come to a standstill or 0. There are some dispatches which are happening. But the real trend lines, we will only know probably sometime later. With the hope that the impact of COVID will start tapering down quite drastically from here on in.

So it's not that bad as last time?

These are not comparable. Like, last year, it was complete -- everything was caught out of surprise. This time probably some of the states were -- did not impose lockdown so far. And some of them have been doing in a staggering way. So, so far, it did not come to standstill, but it has slowed down quite a bit, Pritesh.

And one last from my side. It's on the cost. So have you seen a full absorption of whatever the cost increase that we have seen until now, like, petcoke reaching $250.

In our case -- have we reached full high level? So far in our case, we do fuel hedge for the 6 months or 2 quarters ahead. So from last year to expected for the current quarter and the next quarter, we think the overall cost increase could be to an extent of INR 250, mostly due to the fuel prices. Fuel, when I talk itself, the thermal fuel. And also because of the diesel price hike, it's only a matter of time when the diesel also will hit essentially. So these 2, we think that will start the overall kind of a cost increase by around INR 250 per tonne compared to the last year to the current quarter and the next quarter. That's what we think, Pritesh.

Compared to last year, not the last quarter?

Sir, for us, it's a weighted average. So if you -- if you have to compare with last quarter, probably it could be only INR 175 to INR 200. But compared to last year, it could be INR 250 kind of a number. But these are -- with an assumption that diesel price would slowly go up. Dramatically if it increases, then it could impact. But as it is, yes, we think INR 250 could be an impact for the next 2 quarters relative to the last year.

The next question is from the line of Shravan Shah.

Can you hear me?

Yes, yes. Please go ahead. Good morning.

Yes. Sir, just to reiterate, when you are saying INR 250, that is you're saying both combined power and fuel and freight cost increase for first and second quarter of this year versus the last year?

Yes, sir. You are correct, sir.

Okay. And now coming back to the -- the debt level now is INR 800 crores level. So we were looking at a peak debt of INR 775-odd crores. So what's the status there? And how much CapEx are left? And how much you are planning to do this year and the next for both the ongoing capacity?

Yes. No, our net debt position is close to INR 550 crores, Shravan. We have INR 225-odd crores still left for the CapEx. That includes both the projects as well as some of the CapEx that we do at Mattampally as well as Gudipadu. So all-in, we may have to do somewhere around INR 225 crores to INR 250 crores of CapEx is left for the current year. Yes, which is likely to be completed for the next 2 quarters itself. Bulk of the CapEx would be completed during the Q1 and Q2 of this year, with an assumption that the impact of COVID would start tapering down soon.

So on the net debt or maybe gross debt, how much peak that we can look into?

I think at INR 800 crores, we should peak out, sir. We should be relatively lower, but I'm trying to have a conservative estimate. That includes the working capital. So we should peak out at INR 800 crores, which is the current financial year. The next year, probably too drastically for -- because this is the first year post implementation of both the projects so we will be at peak and we will have the moratorium. So I think at INR 800 crores, we should peak out on the debt side.

Okay. And last time you guided that both these plants and you already said would be operational by end of this -- by September of this year, and we would be...

We're sticking to the same guideline. Sir, we're sticking to the same guideline.

Yes. Yes. No, no, I got to the point. I'm trying to say that previously, we said we can see around 50% kind of a utilization in the second half once it will be operational, so is it intact? And if that is the thing, and let's assume the COVID normalizes by that time and things will be normal in the next year, because both of these plants are in the high demand zone, the next full year, we can see 80%, 90% kind of utilization in both the plants?

Mr. Shravan, as I mentioned, both the projects -- the impact for some, we should be -- we are commissioning by September. So that leaves 6 months of operation for both the projects. But I don't think we will be operating at 50%, sir. 50% of that 6 months will effectively translate to full year 25% capacity utilization for the current year. So we -- the guideline, what we have given from a volume outlook perspective is, last year, we did 3.1 million tonnes, sir. For the current year, what we have budgeted is around 3.6 million tonnes, where 3.2 million tonnes would be from the current -- or the assets that we have, and the 0.4 million tonnes is what we are guiding for both the assets put together, with the 0.2 million tonnes coming from each of the asset. So that gives a guidance of 3.6 million tonnes for the current year at a consolidated level for us.

The next question is from the line of [ Bala Murali ].

I would like to have some data on the capacity level utilization out of the existing footprint.

We will be more than happy sharing it off the line, sir. In fact, the investor presentation, it does carry the utilization level of plant-wise [ Mr. Bala Murali ]. I think it is already presented in the presentation. But just in case you need more, we'll be happy to share that.

And one more thing, as I see, actually, I'm looking at the sector from a few days ago. And as I see that the power consumption, the cost we are spending on power is the main factor. So do you have any idea or any plan to shift to solar power from the coal-generated power?

Yes. [ Mr. Bala Murali ], you see, I appreciate, if you look at the presentation and the integrated report of last year, you have 80% of our power is from our internal sources, sir. That includes hydro, that includes solar, that includes waste heat recovery and also we've got 2 power plants. The cushion of 20% is always kept as an insurance kind of a thing just in case of a fallback. But as we speak, 80% of our power is from internal sources, our capital sources for us.

[Operator Instructions] The next question is from the line of [ Jaspreet Singh ].

Congrats on a very good year, despite difficult conditions. Sir, my question was based on the early trends in April and May, what is -- what are you seeing? Are the larger cities -- cities and tier 3 towns as impacted as the larger ones? That's one. And within retail and institutional, is it the same? Is it, like, the retail is more impacted because again, the -- that side of the pocket is getting more hit versus the institutions. So your comment on these 2, please.

See, [ Jaspreet ], I think impact is across. I would not single out telling it's urban, rural or semi-urban kind of way. This time, it has been nasty because I think it has touched all the near and dear. The offtake in these difficult times typically tends to be more with the institutional rather than retail. Because lockdown and the understanding of how the schedule and all works did disturb some amount of retail in the initial phases in some of the states where lockdown was imposed slightly ahead of the other states. But as we speak, the institutional sale looks to be higher than the retail one, Jaspreet. I think like the first wave or the first time last year same time, it started with urban, but I think it's slowly spreading. But this spread this time was a lot more quicker, and it has been across, Jaspreet. So we did lose dealers. We -- some of them lost life. The -- some of our colleagues didn't get impacted, they recovered. Some of them -- it's an issue which is ongoing. So the real impact, probably assessing that, it's too soon. Yes, we only hope and wish that it doesn't get worse than what it has so far done.

Okay. Okay. Got it. The other one is, sir, this -- did I hear correctly? We are looking at something like 3.6 MT versus 3.2 MT last year?

We did 3.1 MT Jaspreet, last year.

3.1. Yes. Yes.

Yes. From 3.1 MT, the budgeted number is 3.6 MT. Out of which 0.4 MT is the -- 2 new projects, sir, the new projects, and 3.2 MT is from the existing.

So my question was on that 3.2 MT, what are you building in? What are your assumptions? Because the way situation is on the ground, right, so how are you -- what's your sense in terms of the ease out or unlock, et cetera, et cetera. Q1 moving up to Q2, Q3, how much do you think Q2 would be better versus Q1? Just to understand.

Yes, Jaspreet, just to remind you, last year Q1 also was very low, Jaspreet. In fact, April was 0.

Right. Correct.

So we don't see a big challenge, as we speak, with an assumption that it would taper out.

Sure.

Any challenges, we might follow this similar kind of a suit like how we have done last year. So we are not factoring a great number increase from the existing kind of an operation. Though there was surge of demand during the second half last year, and especially Q4 was phenomenal. But we are not factoring any of that demand rises for the current year. Yes, we are still trying to have a conservative estimate so we don't see a bigger challenge achieving the 3.2 MT. But the caveat there is that we -- not only optimistically, but that has been the wish that the second wave impact should taper down from hereon is what is our assumption, Jaspreet.

Okay. Got it. Yes, just wanted to understand that, if at all, things remain as it is or it improves, we should be not surprised on the positive side on this number. So that was the last.

Yes, that's the hope and wish, but we cannot go on the hope alone, right? So...

Yes. Yes. It's a quarter-to-quarter dynamic situation. So yes, a fair point.

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

Sir, 2 questions from my side. Like, what would be the synergies from the merger what we have concluded in the month of April, like, for the SCRL margin?

Yes. The major synergy comes from the fact that though the brand and the marketing team is highly synergized, but there is a lot of duplication when it comes to the compliance related, especially the Board meetings, the planning. And it's an independent company so most of the procurement has to be done very, very independently. So from an operational standpoint, though the ownership is complete, but having 2 assets in the same business as independent kind of a thing, we thought it may not make a good business sense. The holding structure as such, it is 100% wholly owned. We never wanted to have too many step downs so we are trying to ease out the structural issue from an ownership perspective also, Sanjay. Yes, these synergies comes from the fact that we are duplicating, like, purchase department is centralized, but raising purchase orders, 2 independently; invoicing, 2 independently; and everything starts becoming -- I'm sure you'll appreciate, you see this kind of duplication for the same team. So that itself is a major synergy is what we see.

So sir, can we see any cost synergy going forward from this merger? If possible...

Cost, I would -- I see. So I think from an operational perspective, cost may not be a significant kind of a saver. Yes, one of the potential kind of thing is on the tax optimization, sir. We don't see any other cost -- basically, I think, same because of the merger. It's more an operational...

So just structural change basically? The structure will become much more...

Structural as well as the operational, sir, right? These are the 2 major benefits that we see in the merger, sir.

Okay. And sir, regarding the new capacities which are announced -- we have announced basically for that Odisha and the Central India plant, so we are starting from the September thing, right?

So far, yes, it we should be ready for the September. When the Satguru, the Madhya Pradesh project, when it had to take a complete stop 15th of April, when the oxygen supply and everything was banned for the industrial use, we had to take an abrupt stop. At that point in time, we were actually running ahead of time. Now with the stoppage, we expect the oxygen supply slowly started getting restored, and we expect that to come by first week of June. So we hope to go back to the same number of people who are working at the site. If that happens and we wish it happens, then we are due for commissioning in September. Now coming to the Odisha project, sir. It did not get impacted so far because it's part of an industrial estate. We hope it remains the way it is. So that also is likely that we should commission much before September itself.

So combining these 2 things are estimating up like volume to deliver in the quantum of 0.4 million tonne, right, for the second half of the year?

For these 2 new projects, we are expecting a 0.4 million tonne addition to our existing volumes that we would do from the existing assets.

So, sir, that basically hopefully kind of 40% kind of utilization so -- for this year. So...

No, no, sir. It doesn't come as 40%, sir. It is much lower than -- 20%, 25%. Because what you're looking at is a 2.5 million tonne addition, 1 million in Madhya Pradesh, 1.5 million tonnes at Odisha, sir. 2.5 million, we are talking of 0.4 million tonne, sir.

0.4 million tonnes. Okay. So sir, going forward, like what can we expect in the next year, like FY '23, if the things are way they are shaping up?

Yes. We think 75% to 80% at Satguru is a possibility and 70% at Jajpur, Odisha is a possibility.

Possibility. And from the debt front, sir. You just mentioned like we are still left with INR 225 crore of CapEx. So if you are standing at a gross debt level of INR 800-odd crores, so like roughly INR 1,000 crores would be the peak here, sir, right? Am I right, sir.

No, sir. No, sir. We -- on a net basis, we are only at INR 500 crore to INR 550 crore. So gross debt may not cross more than INR 800 crore is what we feel for the current year.

Okay. After the pay-offs?

Yes.

The next question is from Prateek Kumar.

My first question is on -- my first question is on cement prices. So there have been like attempts in offsetting prices like in April, then in the month of May. So sir, what -- how has been the attempt like going through in the month of May? Have they been able to -- has the industry been able to take price hike? And as logistics now impacting the operations, this is helping the price as well?

Yes. Good afternoon, Prateek. I cannot comment about the industry. I can only comment about ourselves. That's our job, sir. I mean I think we have to realize whatever we think is the best possible thing that we can do. Yes, the attempt is always there. In fact, the price regime took it slightly downward this thing last year from January and February. The prices slowly started inching up from March. Till April 15 -- from March or from February exit to March exit, I think there is INR 10 to INR 15 per bag kind of an increase that we have seen for ourselves. From March to April 15, yes, we did realize extra INR 10 that we could get. From April 15 onwards though there is -- since the volume started sinking, the clear direction that was passed on to our marketing team is to recover the fixed cost increases that are likely to happen. Yes, but in reality, we would only get to know after sometime, sir, as the retail -- most of the retail kind of regime is under pressure with the lockdown and handling the ecosystem. The real increase in prices, we'll only get to know after some time, Prateek. It's too soon for us to comment anything. But the general trend has been on upward. Compared to exit prices for March, April 15 to May entry, we have seen certain increases. But the quantum and all, we will only be in a much better situation to comment after some time.

But at best, it could be INR 10 or lower for...

Prateek -- I do not want to take any guess, Prateek. I would rather wait because, see, during this time, the challenge was to survive rather than to look at these things. So most of the marketing staff actually went back to the work-from-home and some of the dealers did get impacted. As I mentioned, even earlier, we did lose a couple of dealers, unfortunately, for COVID. So at this point of time, the impact assessment is still going on, but we will exactly be in a much comfortable scenario, probably end of this month, we'll be in a much better situation to comment on this, Prateek. I do not want to make a wild guess on this, Prateek. I'm sure you'll appreciate that.

And just one question, sir. You said that our fuel -- we have just shifted our fuel to international coal. So what would be our fuel mix now?

Yes. Prateek, we have been shifting from petcoke to Australian coal. From Australian coal now, we will be shifting back to coke as well as U.S. coal. So that's the mix that we have right now. Yes, this is a mix that is available for us for the next 6 months or 2 quarters, Prateek. So we have 1 shipload of petcoke that is arriving, and we already have 1 shipload that has arrived from a U.S. coal prospect. So we will be doing the blend of these 2 fuels over the next 2 quarters.

And this factors INR 175 increase from Q4, as you mentioned?

Yes, sir. You are correct, Prateek.

The next question is from Jashandeep.

This is actually Satyadeep Jain from AMBIT dial in using Jashandeep's name. Just a couple of questions on power and fuel costs. Firstly, we are hearing a force majeure in some ports after COVID. So as you see here, some of these shipments you've hedged. Are you seeing any impact on these commitments from this force majeure?

Fortunately, no. We have -- the entire coal, the U.S. coal 1 shipload is already dumped at the port, sir. And the petcoke also is due -- I think it's on sail. So far, we have not had any of these force majeure issues popping up.

Okay. Secondly, as you look at the current cost of Australian coal, U.S. coal and petcoke, one of our delivered cost, on a per kcal basis, what's your sense of discount of, let's say, petcoke to some of these prices? And as you're hedging, are you currently hedging for the next -- you already have hedge position for the next 2 quarters. Are you layering in additional hedges beyond? Is it possible to layer in additional hedges beyond the 6 months? And what could be -- given where prices are, what could be the increase in cost beyond the next 2 quarters? You already mentioned INR 250 per tonne increase in the next 2 quarters. How can we look at based on current prices beyond those 2 quarters?

No. I think -- see, our stated policy has been to hedge up to 2 quarters, sir. Beyond that, we generally don't hedge because it's too much of a financial commitment. For our size, I think 6 months is comfortable for us to look at the holding. Beyond that, it will become hard, too expensive in holding cost itself. So now coming to the futures, we are too small to analyze that, sir. The current trend has been flattish. It went up by 15%. And the trends are there, it is more or less sticking to that. So far, fortunately, we have not seen any incremental kind of cost increases on -- or the procurement cost increases on that beyond 6 months as we speak. But we will know this only a quarter ahead of time, sir. 6 months is too long a period for us to talk about what is likely to happen on the fuel side beyond that.

What could be, on a relative basis right, now on a per kcal basis...

Sir, I think we indicated that in our presentation.

Okay. Okay.

But it's right now at INR 1.45, sir. More or less -- petcoke, imported coal, Indian coal, more or less, they are all in a similar kind of a band. In our case, Singareni coal still looks to be slightly lower. We are even getting the domestic coal. So it's -- for us, fortunately, Singareni did not react to the international prices so far. So over 1 year, the prices of Singareni coal remained flattish. So given the scenario now, the petcoke, imported coal and domestic coal, more or less, are in the similar kind of a band, sir.

The next question is from the line of Gaurav Birmiwal.

Sir, I had one question on your realization. We are seeing a 4% quarter-on-quarter drop in realization, which is slightly higher than some of the pan-India players, what they reported. What can be the reason for this, sir? Is this a south phenomena? Or is it a result of your trade mix? Or something else?

Yes. Good afternoon, Mr. Gaurav. Yes, this is a function of product mix, market mix kind of a thing, Mr. Gaurav. I don't think this is an apples-to-apples comparison. The trend lines, as I mentioned earlier, the January and February, the prices actually declined. But that alone was not the reason for the drop in the realization. In our product portfolio, we have GGBS, we have PPC, we have PSC, we have OPC. And again, we have different market mix. So it's a highly dynamic kind of a scenario. As mentioned earlier, there was a price drop during January and February, not only for us, but I think that has been the case in most of the markets or the markets that we operate in. And when we have to compare ourselves with most of the peers, it's highly unlikely that we have a similar kind of a peer who are on the same, either market mix or the product mix, sir. I think it's a combination of various things, Mr. Gaurav.

The next question is from [ Bharath Sheth ].

Sir, I have 2 questions. How much, I mean, new capacity are we seeing in our core area, Andhra, Tamil Nadu and surrounding market, which is likely to come up in the next 2, 3 years' time.

Yes, 2, 3 years is a long trend, sir. Let us look at what is likely to happen in the current year. Yes, I think Ramco in Kolimigundla is due for commissioning. The grinding plant of Chettinad, and the extension of -- the expansion of the grinding plant of Penna at Krishnapatnam. And the Chettinad grinding plant in Vizag are likely to happen in the current year in the regions that we operate, sir. Odisha, I think we are due in September, along with us, there are a couple of other grinding stations that would ramp up. Probably we would be the last to commission, but there are some ramp up possibilities in the Odisha region.

Okay. Sir, second question now, some of the player, I mean from the south market are using, I mean, container rail route for dispatching over a little longer distance. So any comment on that? I mean how we are seeing that trend developing.

So I think, sir, logistics itself is a huge subject sir. I'm sure people will use all the possible modes to the transportation. Typically, in our experience, sir, international movement, typically, we don't expect it to dramatically change. Some of the opportunities probably would make people to move from unusual kind of inter-regional movements. What I meant that probably keep on happening for -- it's a case to case and very specific to each of the companies, sir. I don't think I can comment much on those issues. The conventional inter-regional movements, I think those are -- those have been and continue to remain what they have been. Sometimes we did see some players moving from south into the central markets, but that, I think, is a very opportunistic kind of a scenario. That keeps happening, but that's a very, very small percentage and once in a while kind of an event.

So what we are doing, I mean, to use digital for logistics and connecting the dealer to bring everything on that time, I mean, a real time. So are we working on that?

Sorry, Mr. Sheth. I missed out. Can you repeat the question for me, please.

I mean using digital, I mean so tracking the demand and remaining in touch with the dealer on digital platform and even logistics also. So to make it, I mean, more efficient and to bring down the logistics cost also. So what exactly is our thought process on that light?

Sir, we are one of the most sophisticated cement plant in India. I do not want to comment anything more on it. Yes, digitalization did help quite a bit, both in manufacturing side as well as on the distribution side. Yes, we are one of those companies which are in the forefront of usage of the technology, sir.

The next question is from the line of Rajesh Ravi.

Sir, I have a few questions. First on the employee cost, the spike up seen in the fourth quarter. Any specific reason for that? Or would this be a new normal, given that your capacities are expanding? And also if you could comment on the annual numbers, non-current and current asset number. Last 2 years, there has been a significant increase. So are they related to the ongoing expansions and then they will get reversed in the FY '22? And third on the debtor numbers, which have come down significantly. And what is your thought on that? I'll come back for more.

Good afternoon and deepest condolences, Rajesh. I think the current assets and all, it's an ongoing projects, I would put it. The -- secondly, on the debtor side, sir. Yes, there is a significant improvement with the government payouts happening during that time. The general debtor's position has come down. And lastly, which is the usual practices, the annual discounts for most of the attachment of annual discount, sir. There is a clear commitment from most of the people for fulfilling their payouts for being eligible for the discount structure. So these are the 3 reasons why the debtor position has significantly changed. es. Rajesh, can you help me repeat the first question, you asked me.

The employee cost in fourth quarter number has gone up from INR 18-odd crores and it has gradually increased to INR 23 crores in the fourth quarter.

Sorry, I could not hear. Can you repeat again? I'm really sorry, Rajesh.

No, no, sorry, sir. The employee cost number in fourth quarter has gone up to INR 23 crores versus Q-on-Q INR 17.5 crores and the first half also number was averaging at around INR 18 crores.

Yes. Rajesh, 2 things have happened here. One, typically, we had an incremental additional bonus that we had to pass on for the people. Because as you've seen, it's an appreciation for all the people who worked extremely hard in a very difficult time. There was 1 month basic bonus that we was given additionally to what normally we give. Yes, it was more of a performance-driven kind of a thing. Yes, we wish it becomes -- we wish it become the regular package. But that was done during the last quarter, that's the reason why there is a spike.

Okay. So in a normal subsequent quarter, this may come down, right?

We wish it goes up because it's a performance-driven kind of a number. But in a normal number, if you are to look like-to-like, it might come down compared to Q4. At certain times, most of the commission adjustments and all for the Directors and all would happen during that time, sir. So it's also coupled with that. So it's annual. Yes, it's a Q4 -- specific to Q4.

Okay. Okay. And, sir, on the net debt number, we have done very well on the net debt numbers in FY '21. Now because you -- I believe you mentioned that around INR 225-odd crore more CapEx is on the ongoing project is pending. So now what are the net debt numbers you're looking at or for it, which may peak out in FY '22?

Yes. There are 2 factors we have to look at it. We are not assuming a great year, current year. Not that we don't believe it is going to be a good one, but conservatively, we have planned that this year is going to be flat. If the year is going to be flat, sir, our net debt at its highest should not cross more than INR 800 crores. This includes incremental working capital also, which is not yet factored for the new capacities that are coming. Even factoring that, we should not cross more than INR 800 crores, Rajesh.

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

I have a few questions. Sir, firstly, what is the government volumes for us -- for if you can give the absolute number for FY '21, it would be helpful. Secondly, sir, on the industry capacity utilization for FY '21 and also the quarter ended FY '21. And further, you can just update on the absolute capacity additions coming up for Ramco and other players. And the third point is on the pricing. I missed your comment on pricing. For March to now, so we are expecting an increase in prices. Am I right in my understanding?

Yes. Good afternoon, Sriram. I think you asked a question, which I'm sure you would appreciate that the industry average capacity utilization is way beyond my data set or comprehension. Our capacity utilization was in the range of around 55% for last year. Yes, we have been an industry player so a majority of the players probably could be in a similar range. But there are definitely some players who did operate 90%, and some of them did operate at 100%. But the average capacity utilization, again, I'm only making a general historical kind of a trend line what we have seen. Yes, we are at 55%. So we assume somebody similar like us would have also operated with a similar kind of a number. But somebody with an exposure to East or West, their numbers probably could be higher, who have exposure much more than us. But due South, I think the industry number should be 55%, sir. Somebody has done more -- probably, they were trying to squeeze that extra volume in.

Yes. I was referring to South, actually.

Yes. If you're looking at South, our average capacity utilization varies South is near 50%, 51%. We believe that that's where it should be for the industry. From a logical perspective, because the installed capacity to that of demand is near 40%, 45%, sir, so it should not be higher than that number from a logical perspective. But our industry most of the time works on magic and less on logic, sir. So...

Okay. And sir, on the upcoming capacities.

The upcoming capacity. Again, I go with the stores number, sir. I -- Ramco, I think it's a 2.5 million tonne integrated plant coming up in Kolimigundla. Chettinad, I think, is a 2 million tonne grinding plant, and I think Penna's is a 2 million tonne grinding plant in Krishnapatnam. These are the 3 projects which are likely to happen in the current year.

Yes. And lastly, on pricing front.

Pricing front. See, from March exit into April exit, we have seen almost a INR 50 kind of a per bag increase, sir. From April exit to May, I would rather wait for my -- for me to keep my neck out about the real price increases. Prices have gone up by how much and all, probably, I will take, slightly longer period for us to exactly know.

The next question is from [ Vaibhav Kapoor ].

Sir, I just wanted to understand about Satguru Cement. So you have a 65% stake. Any time lines or understanding of when this would go 100%?

Sir, we are partners. So generally, we don't discuss about their exit plan. The agreement has happened that we are at 65% and they're at 35%. If at all, whenever they want to exit, there is a valuation equation that is set in that. On their insistence, we said that we would not discuss this for the next 3 years. But we'd be very happy to engage with the partner just in case he has any other plan. But as indicated, sir, we did not discuss any of the exit plans that they have.

So this is long term -- it's on a long-term understanding?

Sir, it's a relationship, sir. And we always believe in the long term. So...

Sure, sure. Sir, the second question, I just wanted to understand with respect to post the commissioning of your plans, what would be the principal payment and the interest sharing? Would like to get some understanding there?

Yes, we have a moratorium for 1 year from the COD, sir. So for the next 1 year, we have a moratorium. After that, it's annual payout spread over 10 years -- 8 to 10 years, I would put it.

So that's when the interest will start -- the financial schedule will start having an increase. Paused for 1 year...

Start reducing. So if you start looking at the current trends, we see it would be at its peak because there is a moratorium and you will be paying interest even on the full amount. But from next year onwards, it will drastically start to reduce in the principal and so is the interest. So this would be our peak debt for the assets that we have that includes the 2 CapEx that we are doing. Yes, I think this year would be -- the gross debt would be at its peak, sir.

Yes. And you will definitely get some cash flows that could come from the squeeze 1 year or so?

Yes, That's the only reason why we went directly...

The next question is from the line of [ Deval Shah ].

So this 3.2 million tonne of target, which you're expecting from the existing region of operations. This is because of post-election-related slowdown you feel in next 6 to 9 months?

Sir, it is 3.1 million moving to 3.2 million. So we are looking at the growth, we are not looking at negative. The reason why we conservatively factored this is there are some new assets that are getting lined up. So whatever is the likely demand increase -- obviously, they would also consume some of that, right? So conservatively, we are estimating 3.2 million for our existing assets.

So this also includes this post-election-related slowdown?

So this includes everything. But one thing that we don't know the real impact of the COVID. As long as it actually tapers down, and we wish it does in the Q1 itself, then our numbers, we will stick to those numbers.

The next question is from Prateek Kumar.

Yes. One question. So our profit per tonne profitability has been sort of -- I mean earlier part of in FY '21 benefited some prices. I mean but on an absolute EBITDA basis, we did a phenomenally stable EBITDA in Q2, Q3, Q4. Like going forward, while it's very different to project, but annualize the profit pattern, what is the right profit pattern you think or would make you happy? I mean as an industry participant in the AP market?

Prateek, see, last year also made us happy. We would have been even more happy if it was even more. So what makes us happy is the highest possible number that we can achieve. But we have to be realistic about what is likely to happen. Yes, we did INR 400 crores with 3.1 million tonnes. Yes, we hope to cross that even with an increased volume, but these are all conservative estimates that we look at it. Not for a minute, we are trying to assume that prices would come down or volumes would come down, but these are the estimates that we generally work with because the planning would be much better. But anything more than what we have done on a specific per tonne would keep us happier, and our intent is to go on to achieve those kind of a thing. But that's not in our hands. It's a very, very dynamic and market kind of a doing. From a cost perspective, we are reasonably there, most of the effort, and it's an ongoing kind of an effort where we feel that the blending would improve. So with the blending improvement, we think that our cost structure would become even more lower than what it has been so far. I'm sure you would appreciate, we are one among the lowest cost producer of cement, in spite of having a constraint of less than 45% being blended cement. Yes, with these 2 projects, we think that our blending percentage would go up sharply. So with that, our overall costs would further come down. So it might add up to our margins is what we strongly think, Prateek.

So my question was more in the sense that last year, when we -- in the first quarter, we did near INR 1,600 EBITDA per tonne. This quarter...

At that time it was more optical, Prateek, with volume. And it was very, very narrowed down to the close-by markets and pricing also was very good.

Yes. I mean...

Q2 prices were bad, but we started spreading out. So once you start spreading out, obviously, your freight and everything would take away that margin. So that -- as your volumes increase, we started spreading to all the markets, which we have historically done. So prices did come down, but that alone was not the contribution for the lower rate. It's also the freight increases and the market spread also was higher. And even the product spread also was higher, Prateek.

The next question is from the line of [ Ash Shah ].

So first of all, congratulation. Second, I have 2 couple of questions. So first one is. So does -- we merged SCR with our company. So is there any plan for merger of Jajpur going ahead once the capacity is online and it's commissioned?

Yes, good afternoon, sir. The intent is very clear, sir, that we want to keep the structure as simple as possible. So any opportunities that we have, we would rather consolidate. I mean that's the stated kind of a thing. We want to simplify the structure from management, from the visibility. From all the stakeholders' perspective, it makes a lot more logical sense. So we would pursue that option, [ Mr. Shah ].

Okay. And second question is on the medium-term perspective. So as you have mentioned in your presentation also that you expect to become 10 million tonnes by FY '25. So have you shortlisted any location or if you could throw any light on what is the next phase of CapEx given that this is going to get over in the next 6 months?

Yes, sure. Just to give you a background. Yes, one of the group companies involved in the advisory side of the cement business, sir, called RV Consulting. They are very active in technical as well as the business side advisory of the business. So I would at this point of time, not like to comment, which is very speculative in nature. We do have a couple of options, sir. But at this point of time, yes, we are busy with these 2 CapEx that are coming up. As and when they stabilize, I think we have time, right? It's a long term -- I mean it's a stated thing that we want to become 10 million tonnes by 2025. I think by middle of this year, the financial year, we should commission and reach from 5.75 million tonnes to 8.25 million tonnes. Yes, we don't see a big challenge for us to come up with that capacity over the next 3.5 to 4 years, sir. So we don't see that as a challenge. There are a couple of options that are being pursued, but none has reached a stage where we can start sharing with all the stakeholders. And be rest assured, sir, we are those organization which we would be very happy coming to communicate as and when it reaches to a stage where it's due for decision-making. We will be happy to come back to you and tell you as and when it is due.

The next question is from [ Sanjay Nandi ].

Sir, just 2 questions. Just to mention, like, we have a blend thing which will get improved going forward for the Satguru and this Odisha plant, which will again further improve our cost. So can you please help us in getting known, like, what is the blend and what would be the -- for the new plant, like, for Satguru and Odisha?

See, now -- sir, we would say, I'm sure we would be able -- if you could see into our sales, we have giving it, the -- each unit has its own different blend, sir. Vizag, is right next to this pack, so their blend ratio is very different. At a consol level, as I mentioned, it is close to 44%.

44%.

Now Madhya Pradesh and -- is in a place where we have the fly ash available and the market also has good demand for the blended. So there, our target is to be more than 80% blended. And Jajpur, as you know that it was part of the steel for the -- with these 2 assets coming on board, we think we should be crossing, at a consol level, more than 50% of our product to be on a blended side, [ Sanjay ].

Sir, if I -- if you are shifting from 44% kind of blend, from an overall consol level, to 50% kind of thing. So what kind of incremental or cost savings we can guide going forward, sir? Any rough figures, if you have.

It's a tricky issue. Cost would come down, but that may not directly translate into margin. These are 2 very independent kind of a thing. Costs will definitely come down because, obviously, you're using low-cost blended material, so cost would fall, sir. Especially if you look at the power and fuel cost, the more you blend on a per tonne basis will definitely start coming down quite significantly.

Okay. And the second question, sir, from the Satguru plant, like, we are having a 1 million tonne integrated plant there, right? So what is the, sir, like, prospects like from that plan to implement or increase the capacity? Like, what kind of results do you have for that?

We have 80 -- 75 million to 80 million tonnes of limestone. I don't think that current limestone mines would support more than what is already there, sir. As we speak with the current existing volume on the mines that we have, I don't think we would be expanding because we believe on a long-term deposit life so I don't think we would be squeezing one more line in that particular location, [ Mr. Sanjay ].

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

Yes. Thank you. As always, appreciate your time and interest in talking to us. Sincerely thank you for participating in our call. Yes, kindly stay safe, stay home. Let us hope we'll come out of this pandemic at the earliest. As always, we would be more than happy, both at Sagar as well as CDR, to address any of the questions that remain unanswered. Or if you are looking at any information on us, please do connect, we would be more than happy sharing whatever we would have. Thank you again. Stay safe. Good day.

Thank you, all the participants for taking out time for this call. You may now disconnect. Thank you.