Sagar Cements Limited (502090) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. We welcome you all to the 1Q FY '22 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, the Company's Secretary. We will start today's session by -- with the opening remarks from the management, and this will be followed by a Q&A session. [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, and welcome all to the Sagar Cements' Q1 FY '22 Earnings Call. As Manish mentioned, we have with us Mr. Sreekanth Reddy, the Joint Managing Director; Mr. Prasad, CFO; and Mr. Rajesh Singh, our Chief Marketing Officer; Mr. Soundararajan, the Company Secretary. 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 was stated in the con call invite sent to you earlier. We trust you've seen the communication and the presentation on the results. I would now like to hand over to Mr. Reddy to make his opening remarks. Over to you, Sreekanth.

Thank you, Gavin. Good afternoon, everyone, and welcome to Sagar Cements' Earnings Call for the quarter ended June 30, 2021. Let me begin the discussion with a brief overview of the market in terms of the demand and pricing trends, post which I will move on to the Sagar-specific developments. Volumes during the quarter were understandably low given the impact of the second wave of pandemic, the utilization levels, along with the restrictions on the material movement resulted in lower sales during the quarter. However, the demand and volume started improving by the end of the quarter following the relaxation of the restrictions in light of the ending of the second wave. Despite lower volumes, realizations, though, remain largely steady in turn helping to offset the impact of the lower volumes. In terms of demand, starting with South, while the retail demand was largely benign, the demand from real estate players and the government projects, especially in Hyderabad, remains steady. In terms of West as well, pickup in demand from non-trade segment negated the impact of the lower retail sales. Demand in Eastern Market as well improved following the easing of the restrictions. In terms of pricing, as I said, overall trend in realizations was positive, while southern and eastern markets witnessed a steady pickup in realization. Pricing environment investment market book was largely steady during the quarter. One of the key reasons behind the improved realization trend was the persistent increase in the input material prices reaching effect warranted a price hike. Going ahead, we remain positive on the business and believe the steady demand from housing, industrial and infrastructure provides a strong visibility both in terms of the demand and also the pricing trajectory. Moving on to Sagar-specific developments. We are pleased with our performance during the quarter, especially when one considers the challenge, one had to operate in the -- given the second wave. While a large part of the quarter was disrupted owing to the second wave, we did see things improving by the end of the quarter, following the relaxation of restrictions, which in turn helped us deliver steady growth in our revenues and profitability. Volumes were understandably lower during the quarter. However, supportive pricing environment helped us to offset the impact of the lower volumes. EBITDA for the quarter stood at INR 107 crores, higher by 23%. However, margins declined by 600 basis points, owing to the higher input prices. As indicated in the previous call, the prices of most of the input material, namely the thermal fuels, coal, petcoke, diesel has been trending upwards over the past few months, in turn, impacting the margins. Furthermore, lower capacity utilization during the quarter as well as contributed to the margin compression. Irrespective of the price movements of the key input material, we remain focused towards improving the efficiencies and rationalizing our expenditure. Average fuel cost stood INR 1,138 per tonne as against INR 802 per tonne reported during Q1 FY '21. Increasing fuel prices have resulted in a higher cost of fuel. Freight cost for the quarter stood at INR 762 per tonne as against INR 704 per tonne during the quarter -- Q1 FY '21. Profit after tax for the quarter stood at INR 50 crores as against a profit of INR 36 crores reported during Q1 FY '21. From an operational point of view, Mattampally plant operated at 56% utilization level, while Gudipadu and Bayyavaram plants operated at 78% and 59%, respectively, during the quarter. As far as the key balance sheet items are concerned, the gross debt as on 30th of June stood at INR 844 crore, out of which INR 731 crores is long-term debt and the remaining constitutes the working capital. The net worth of the company on a consolidated basis as on 30th of June 2021 stood at INR 1,308 crores, net equity ratio stands at 0.56:1. Cash and bank balances were at INR 172 crores as on 30th of June 2021. 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 Shravan Shah.

Sir, first of all congratulations on good set of numbers. A couple of things. First is if you can elaborate more in terms of the pricing first, if possible in the state-wise EBITDA Tamil Nadu, Karnataka, how it was? And now in July, are the prices versus the average for the quarter? Is this steady or have you started seeing a decline? So that is first. And then I will have a second question.

Yes. Thank you, Shravan. Let me address the first question. From Q4 exit, Hyderabad was at 350. It suddenly increased to almost 360 in April. And by May, it reached to 370. June, of course, there is a small compression, primarily owing to the monsoon and seasonality. Yes, it is at 365. I'm talking about the retail price. Now Bangalore, the exit price for the Q4 was around 350. It's slowly increased to 370 and 385. Same is the case we see for our brand at 380 in Bangalore. Chennai again, we look at Tamil Nadu in 2 parts, that is the North Tamil Nadu and the South Tamil Nadu. The Chennai, which is in the North Tamil Nadu, the exit price during Q4 was 375. It increased to 385, 395. Right now, our [rating], by end of June to middle of July, is around 390 prices.

Okay. Okay. Secondly, in terms of the 2 things, the volume, what we last time guided in terms of the 3.6 million tonne end up Satguru. In the presentation, we mentioned it is commissioned. So first, a clarification, when the actual commercial production will be starting? And is there any upgrade in term -- even if the marginal upgrade in the volume guidance that we are looking at? And also secondly, on the gross debt, we were looking at big debt of INR 800 crores, but now, marginally, is this higher INR 844 crore? So Q-o-Q INR 38 crore has increased, so how do we see the gross debt now?

Yes. Thank you, Mr. Shravan. See, our guidance for the current year stays at 3.6 million with 3.2 million coming from the existing plants and a 0.4 million tonne is what we have factored from both Satguru as well as Jajpur. Both the plants are in advanced stage of commissioning. We will be commissioning before end of the September. And most of the work, especially the cement -- the packing side of the Satguru is already commissioned close to a month back, so we are in the higher stage. By August 15, we are hoping to start the first dispatch of the first commercial invoice to start from 15th of August. But the full commercial production, as mentioned, would be for the end of September for both Jajpur as well as Satguru. Going specifically back to the gross debt scenario. As mentioned, there has been an overrun for the Satguru project for various reasons. We see the gross debt close to around INR 850 crores to INR 875 crores, but that includes the working capital also. The net debt should be close to around INR 700 crores at least for the short period of time, and we see that getting lower in the coming -- Q1 of next year, I think it should start coming down rapidly because there will be quite a few payouts for the existing debts, Mr. Shravan.

Sir, lastly, on the power and fuel. I understand it, what we last time told, I think, slightly higher than what we were expecting per tonne on power and fuel. So how do we now see? And we will continue to maintain 2 months of -- 2 quarters of inventory. And what the change in terms of the fuel mix of -- we were looking at, once again, starting the U.S. coal and of petcoke also. So now what's the fuel mix? And how do we see from INR 1,138, will it remain at this level? Or can we see further INR 450 increase per tonne for at least next 2 quarters?

Yes. Now Shravan, as told before, our hedging is for the 2 quarters. We know for sure from exit of Q1 to the entire Q2, we are expecting an increase of almost INR 100 on the account of power and fuel, purely because the high-cost fuel is being consumed. For Mattampally, of course, it's a petcoke plus a domestic coal combination. We would be using it for the current quarter. So for the current quarter, we see an increase of close to INR 100 incremental cost increase on the account of power and fuel. But that means we look from a context that there is some amount of product mix changes. As you would have seen from Q4 to Q1, the blended cement ratio has gone up. So that should also help us offset some amount of it. Our bigger worry is on the diesel price, though it looks like it has stabilized. As long as it remains here, we don't see major kind of cost changes from Q1 to Q2. But internally, we think that diesel price might move slightly higher, which should, in turn, start putting pressure on some amount of input material costs also because in freight also, there are some collections that are being made to the freight. All suddenly done, internally, we have factored INR 150, both on account of fuel, freight and the other input material cost to move from Q1 to Q2, Shravan.

Sir, last, just a clarification in the presentation. Second last page, Key Enablers. There is a significant decline in terms of the limestone reserves for Mattampally from 800 million tonne to 404 million tonne, is it a printing mistake or anything to be clarified?

Yes. Mr. Shravan, this is purely on account of MMRD act, as you would know. We were sitting on, what we call, as the mining memo, though it is sub judice now. But in our case, cautiously, we have put that kind of a reserve outside thing. Because as you would know, the MMRD act aided most of the mining leases which are not executed. These mining leases not executed. Most of that was canceled. But in our case, we actually crossed beyond that. The local government did not end up executing the mining memo for more than 10 years. So we -- it's a legal issue, so we would not like to comment. So as a cautious kind of thing, we have reduced that much of limestone resources from the earlier statement, Mr. Shravan.

The next question is from the line of Mangesh Bhadang.

Sir, congrats on good set of numbers and the amazing annual report that you published. Sir, I have a couple of questions. First one is on the demand side. So if you can touch base on how much has been the FY '21 demand in the states that you operate in? And what is the outlook for '22 in terms of growth, provided that no further setbacks are there? That's the first question. And the second one is, sir, you mentioned that because of the cost push, you have increased the prices and which is the -- which is what we are hearing from most of the management. But it has actually resulted in increased margins. So is it that you expect that the cost will actually catch up and that's the reason in the ongoing quarters? And that's why the price hike has been taken already to cover that. So do you see margin contraction here on because of the cost that we are seeing?

Now let me first address -- our annual report is an integrated report, sir. It is the second integrated report that we have published. Thank you that -- and appreciate that you have liked it. The second part of the question was regarding the demand. The sales that we have operated did contract by 15% from previous year to last year. Q1, as you know, is a mixed bag with -- most of the Q1 was under strict lockdown in most of the markets that we operate. So we are not keeping any guidance at this point, giving any guidance at this point of time because COVID third wave is impending, at least we wish and hope that the impact of it is very, very negligible. Given that scenario, our internal assessment is that it could still grow by 2% against last year. As last year itself degrew by 15% a year before. So -- but internally, for our own estimations, as indicated earlier, yes, we did close to 3.15 million from the current operations that we have. So we are only going up to 3.2 million. We did not factor much internally, not that we are expecting COVID 3 to be very severe, but some amount of supply also is there in the market, and there is a ramp up. And if demand remains the way it is, we cautiously tried to estimate the similar kind of a demand for ourselves, like last year for the markets that was, Mangesh. Now the other part of the question was regarding the increased price adding to the margin. I do not think the increased price added to the margin, sir. If you look at year-on-year kind of a margin, there was a compression. It is true that quarter-on-quarter, there is -- optically, it looks like there is a margin increase, but it is only optics, sir. The reality is that input cost is going up phenomenally high. Fortunately, the market supported us to pass on the incremental kind of cost. We wish and hope similar kind of trends continue. Issue is not that it added up to the margin, that is not true that -- it did not add up to the margins, sir. It only OpEx make you think that it is added. It's only from Q4 to Q1, you think that margin got increased. But if you look from a year-on-year number, it actually contracted. We're almost 600 basis points, Mr. Mangesh.

Right, right. And sir, just one more, if I can squeeze in. Do you think that with the hold of capacity coming in, in the Eastern region and large part of it also clinker-backed? It's heading like the south way in terms of the utilization in east, do you foresee that? Or you think that demand is going to take care of the increased supply that is coming in?

Yes, Mangesh, as mentioned even earlier, our outlook for East is that East consistently has been growing for more than 2 decades or 1.5 decades consistently on 10% year-on-year. So we strongly think that East would -- East growth would continue. It's true that a lot of supply is due, but most of it is not backed by clinker, sir. Again -- only some portion of it is backed by the clinker. But [all sudden done], the supply is likely to get increased. Our own internal assessment is it should match up with the demand increase. But for ourselves, since we are -- for certain parts of the East, we are going for the new. Internally, we did factor some amount of lower capacity utilization for the asset that we are coming up with. But we -- I think it's only going to be a short-term kind of a phenomenon. But over the next couple of quarters or maybe next year same time or a few quarters there on, we think that the demand supply equation still would be skewed more towards demand rather than supply, especially in the eastern side, Mr. Mangesh.

The next question is from the line of Gaurav Birmiwal.

Congratulations on good cost control. Sir, I had 2 questions. One, you mentioned that we expect INR 100 impact from higher fuel costs going forward. So sir, this INR 100 factors in the price that you locked in earlier or is that from spot?

It is from our cost, Mr. Gaurav. Spot looks scary because if you look at the imported coal or petcoke, the -- this [rate] is actually moving extremely fast. So this is purely on the account of the price that is locked in by us.

Any assessment on what the number will be versus -- sir, I know the number will be quite scary, but any assessment on what the gap will be versus our 1Q average consumption?

You're talking about the current spot price?

Yes, versus the current spot price.

It is up by almost 15% to 20%, Mr. Gaurav.

Fair enough, sir. Second question, can you throw some light on what this inventory adjustment is? Sir, like in our consolidated number, you have INR 16 crores of stock adjustment. What does that stem from? That's the stock that you produce, but you're not able to sell at the end of the month? Or is that mark-to-market of some commodities that you have?

No, sir, it is very simple, straightforward. The closing stocks to the incremental stocks that get added up is actually adjusted.

The next question is from the line of Pritesh Sheth.

Congrats on the great set of results. Firstly, can you repeat the utilization for each of the plan you highlighted in the initial part of the commentary?

We were close to around 56% at Mattampally, 78% at Gudipadu and 59% for our Vizag grinding stations.

Yes. And my question on demand. So what were the varied trends you noticed in Q1 across the states that you cater to? For -- sir, this does indicate that for you, Andhra market did quite well because from the competitor's results, what we have seen until now, Tamil Nadu and Kerala were not as good. So can you highlight that trend across the states you saw in Q1?

Yes, Mr. Pritesh, I think irrespective of the other cement companies, I think it's a fact that some states in South went for a very deep kind of -- restrictive kind of a thing. It again depends on what kind of exposure each of us have to those states actually is reflecting on the current supply that we have done to those markets during Q1. If you look at the today's press, Kerala is going for very strict weekend lockdown, because they are seeing some spike of COVID. So our exposure to Telangana and Andhra is close to around 55% to 60% of our volumes. Both the states were relatively under less pressure because they were less restrictive compared to Tamil Nadu, Kerala or Karnataka. So that probably is making you think that we did more or our volumes are higher. It's purely because of the estates restrictions that were imposed during the Q1.

Fair enough. But just in terms of what would be underperformance fee for the states, Tamil Nadu and Kerala versus...

Sir, our exposure is limited, so it did get impacted. If you look at Q4 of our, volumes was more than 1 million that itself shrank by 15%. So my assumption is that the other states probably had that kind of an impact. But please be mindful of the fact that our exposure to Kerala is very, very minimal. So that should not be translated in any -- which way the current statement that I'm making. For somebody who has a bigger exposure into Kerala, I think the restrictions were lot more severe there. So probably the -- that kind of a supply probably would have not happened for people. In our case, we don't have. So in our case, it was 15% lower, for some, it was more than 30%. So that's how it is, Mr. Pritesh.

And one last one on the pricing. So we have already seen prices reach at a multiyear high, obviously, given the cost pressures. So for now we are seeing INR 150 per tonne of further increment in the cost and then looking at the spot prices, there's another INR 100, INR 150 per tonne pressure if they hold on to this level. So is the market ready to accept further hike in prices?

Yes. Mr. Pritesh, I think -- see, I think what we should understand is when we talk of multiyear high, sir, it is not true. If you make an inflationary adjustment, I don't think we are anywhere close to the prices where they need to be. Some of us -- margins might make you think that the prices have reached a very high, but it's primarily on account of cost management and the effort that has gone in, in terms of the CapEx in order to manage that, sir. But prices, per se, if you make the inflationary adjustments, they are not anywhere close to where they need to be or they should be. But the reality is here. So, so far, we were fortunate that market did absorb, though there was some amount of compression on the margin. We should hope that the margin compression would go away. And whatever is the additional cost that is likely to go up, we should hope to pass it on to the market. Will it take is something, which we would want to wait and watch. But we are more than hopeful that at least a portion of it, market should absorb. I don't think cement is a single commodity, which is into the similar kind of a thing, sir. It is across the commodities. And in fact, the cement is still at the lower end in terms of the inflationary price pass-through into the market, sir. And if you look at steel, if you look at any product, copper aluminum, I mean most of the commodities have gone up much, much ahead of curve. Cement is still in the early part of that curve is what we think. Because this product is a bulk product. It's such a low-cost product, and the inflationary impact on cement is much higher compared to any other bulk commodity or rather heavy commodities like steel and all. Because for us, it's -- transportation is a very key cost items. And you know the inflation impact on that. The diesel price is just going up one way. We are not even tracking how much percentage it has gone up year-on-year. Though it remains steady for a couple of years back, but that's not the case, sir. I think it's an -- everyday it is going up. So we still see some gap where the market should absorb the incremental cost that is happening, Mr. Pritesh. That's what we think. But from what we think to what we want to what market would behave is something which is staged. But last quarter was comfortable from a pass-through. So we hope and wish similar thing is -- should happen and likely to happen in the coming few quarters also.

And lastly, when would your next set of fuel ordering will happen, like already...

It's a continuous process, sir. See it's -- we are knowing quite a bit of hedge. We just paused because the price is moving up quite sharply, but alternate fuel arrangement is being made. We are increasing the higher domestic coal consumption now. So it's a continuous process. We -- though we have paused for some time on the imported coal and the petcoke, but we need to make the decision quickly so that the hedging fund or the principle that we follow comes back to normal. We just paused for 15 days to 20 days, so -- but I think we should be comfortably making it over. The hope was that some amount of sanity would come in terms of the price. But unfortunately, the sea freight is just moving one way up. But fortunately, the domestic coal in our case still is holding up. So we are looking at a possibility of increasing the domestic coal consumption going forward.

But U.S. stopped reporting this petcoke and coal mix used to you report 2 quarters back?

Yes, I don't think it was a deliberate attempt. It was miniscule petcoke, sir. It is 100% imported coal since it was just a traction or close to 0, we would be happy sharing it, Mr. Pritesh.

I'll take it off-line.

It was all imported coal for the last quarter.

The next question is from Ritesh Shah.

Sir, first of all, congratulations on integrated report. Honestly, it's setting a new benchmark on disclosures, a big positive overall for the industry as well. Sir, I have 2 questions. We have indicated our expansion plans to 10 million tonnes by 2025. Any sense on how should one look at the geographical footprint that you are looking at going forward? And do we have any aspiration to have a percentage of our capacity or sales, which will be ex south and east, if one has to look at, say, 3 years, 5 years out?

Yes. Mr. Ritesh, thank you. Sincerely appreciate your appreciation for the integrated report. Yes, that I think our journey into the ESG reporting has been quite long. Thanks to the IFC participation in us for more than a decade. That's an in-house work. The team did work hard for the disclosure side. We will be very happy to improve for any feedback that you might have for the further improvement. Now going back to the -- we did state our ambition to be a 10 million company by 2025, and every 10 years to double thereon. Now we are color blind from a perspective of green brown, organic, inorganic or region, it should not matter. At this point of time, we are looking at -- we are not looking at Northeast, but any other region, which offers us [for the] growth and the cardinal rules that we follow, we would end up doing in those regions. We do not have any policy to have a regional kind of a presence, sir. I think it is very asset-driven. For each of the asset, we are very conscious of the movement of the material not going beyond certain distance. So it's asset-specific and region-specific, but we are not [abase] to be in any region at any end point of time. The only thing is that the Northeast is something, which we are not looking at, at this point of time. We are regional and color agnostic is what I would like to point Mr. Ritesh.

Sure, sir. Sir, any color on the incentives of the expansion plans, which are in -- will -- the plants which will get commissioned and the incremental expansion plans that we have. Any color on the incentive trajectory? Have you already negotiated with the state governments? How should one look at this variable?

Sir, I think for our size, the issue of negotiation doesn't arise. The stated incentive plan is what we have followed. Madhya Pradesh, we are very clear, Madhya Pradesh state. We did sign the agreement which would kick in as soon as the COD is done. But as indicated, it's INR 150 crores incentive, which is capped to the total investments that we have done for that particular site to be paid over 7 years. Seven years would be compensated. And there are some small incentives in form of the electricity duty exemption. These are the assets. In Orissa, the incentive is in [transit]. So the [navy] commission, that is when we need to go and apply. And whatever is applicable incentives at that point of time would be given out to us. The incentive, as given by the state, is still under preparation. So by, I think, first week of October, that is when we will be reaching out. So we will have a lot more clarity for the incentives in Orissa, sir.

Perfect. And sir, just last one question. Any scope or plans to increase stake in Satguru? Do we have the optionality to? Or when will we consider this?

At this point of time, sir, from a clinkerization perspective, I don't think we see a big scope because the limestone more or less in the neighborhood is between us and [Ultratech]. So we don't see anything new happening. Of course, there are few mines, which are still open. But given that scenario, we don't see a big -- in a short-to-medium term, we don't see a big opportunity for us to grow in Madhya Pradesh on the clinker side. Though we do see some opportunity for us to go for incremental cement kind of a thing, it is purely based on the blending, sir. So that gives 0.25 incremental kind of supply -- incremental supply possibility. Right now, we have given it as a 0.99 million tonne cement capacity. There is a possibility that we might increase cement capacity going forward. It's purely based on the product mix. We see that happening. But that we don't see it happening over the next 1 year. Probably beyond that once we stabilize the operations, we see a possibility on incremental capacity on the cement side at Madhya Pradesh. And Orissa, the layout permits has to add up, double up, but that I think we will take a call once we reach to a certain distance in this particular asset, sir. Though the other assets that we have at Mattampally and Gudipadu offer a huge opportunity for us to double, but we have always been more than double. We have always looked at market-wise kind of a scenario. So we don't see that happening for the next 2 years, for sure. But we do look at options that are available in the neighborhood. If any of them come at a reasonable price, we don't mind looking at them very, very closely, Mr. Ritesh, from an inorganic perspective.

The next question is from Rajesh Ravi.

Congratulations on good set of numbers. My questions pertain to you on the CapEx. How much has been spent in this Q1 towards those 2 expansions?

Yes, INR 75 crores would be the right number, Mr. Rajesh. But what you have to be mindful is there has been a slowdown, as you know, because of the COVID second wave. Another INR 100 crores need to be spent, which is -- which would happen in the current quarter itself. So because both the projects are due for commissioning before end of September.

Okay. Okay. So INR 70 crores, INR 75 crores spent in Q1 and the pending INR 150 crores will all get completed in September quarter, right?

Yes, sir.

Okay. And secondly, what sort of impact the new commissioning will have on your employee costs or most of it is already in the P&L?

Mr. Rajesh, can you repeat the question, sir? Sorry.

Sir, on the employee cost number because of these [ expanses ], what sort of impact it will have?

Yes. I think, sir, it's a usual practice for us is to take 8% to 10% incremental hike every year. I think Q1 is not yet factored that kind of a thing. I think going forward, that is additionality. But what you have to be mindful is that Q1, the capacitation was way below. So the spread was not very high. Going forward, I think that spread should give us the similar kind of a number. Though there could be absolute number increase, but per tonne number probably could be something very, very similar, Mr. Rajesh.

No. I was asking for the new 2 plants, are the employee expenses already part of the...

Yes, sir. I think the recruitment is already done for all the plants that we are commissioning, sir. But we keep the capitalized pre-commissioning and post commissioning, it will start getting reported in P&L.

Yes. So broadly, how much of that number will get capitalized in [P&L]?

Sir, I think it is too soon for us to comment. I think a couple of quarters later, we should be in a much better situation to report. The reason is -- absolute numbers we do have, but specific per tonne, I think it will take some time.

No, no. Sure. Okay. And on the demand front, Q1, there is also [indiscernible] in terms of extended lockdown and all. So if we had to look at from a perspective of a normal quarter, so what sort of volume loss would have been there? I'm just trying to understand how is September quarter...

Yes -- but Mr. Rajesh, I think given the pandemic impact and likely kind of still it is not out, sir. So I would not like to keep a count for anything when it comes to demand. There is nothing called normal, sir. So we have seen many in abnormal times, volumes did move. And in normal times, volumes stand. So it would be a challenge for us. As stated earlier, we are not having any specific guidelines for market, in general. Our internal assessment, as I told you, we are trying to factor in similar kind of a number what we did last year for the assets that are in operation already.

Okay. Sir, last, just September quarter numbers is what you're looking at [indiscernible] can be achieved in September quarter.

Yes. But the carrier there is -- again, we need to be watchful of how the impact is going to be, sir.

Sure, sir. That is like the another impact, it may go lower, but actually that's what is achievable if things remain where they [indiscernible].

So we are giving only annual outlook, Mr. Rajesh. It's not quarterly outlook. So please be mindful of that.

The next question is from Amit Murarka.

So a few questions. Firstly, on the debt. So I understand that the debt has gone up in this quarter versus March. And so one, I wanted to understand the reasons, I believe one would be inventory, but is there any other reason for the debt expansion?

Debt expansions, see I think it's -- we are talking about inventory costs, sir or the -- debt expansion is primarily on account of the money that we are spending for the projects.

No, no. So -- but we have generated good cash flows of like -- I mean, INR 100 crores of EBITDA this quarter. So from that point of view, like the debt was still...

So I think we're talking about the cash flows. So as mentioned earlier, sir, the inventory pile up itself is to tune of around additional INR 37 crores. So it's all in the inventory. So the cash that got generated, most of it is also into the inventory and as well as receivables. Just for the clarity, Q4 is usually the time when most of the dealers would want to give away the entire thing because of the annual incentives that they would have. Q1 onwards slightly the receivable days go up. So it's a usual practice. So it's a combination of inventory plus the total quantum of receivables, so that pushed some amount of overall cash flows being slightly lower, Mr. Amit.

Okay. So what will be the peak debt number now? Like earlier, I remember you guided for INR 800 crores so.

Yes, I think it is INR 850 crores is what we are looking at, sir. This includes the working capital provision for more of the new assets, and we should be anywhere between INR 850 crores to INR 875 crores. But that number probably would be for a very short period of time because we do have [ all ] for the existing debt. So we should pick out at INR 850 crores to INR 875 crores on the gross side.

Sure. And [of] late, like we have seen a couple of announcements we made even in South, like [ Darvion ] made an announcement. So what is your view on the way of capacity expansion? Like as we see cash flows actually improving for the industry, better margins we are seeing, like are you seeing a next wave of capacity additions happening in the space?

Yes. Mr. Amit, they never stop, sir, they pause. So [indiscernible]. So are they going to come? Yes, I think at this point of time, it will be too soon for me to comment much because the announcements are just announced. So we would want to review before taking any comments on that.

Okay. And also like on the M&A side, do you see too many -- I mean many opportunities now left in the space because I believe all the larger assets have been taken out. So what is your outlook or view on the M&A potential in the sector now?

I think M&A potential always exists, sir. We have seen Ambuja and ACC, so merge in a sense they became part of the same parent. So nothing can be ruled out. There are a lot of assets in this space. So we don't know when -- who would want to make a sale or who would want to buy. So opportunities do exist. Fortunately, even the new IBC regime also prompted some of those assets, which actually were closed for either -- for want of working capital or because of any of that. We see some of the revivals keep happening in those market place. So it's a work in progress, sir. So opportunities do keep coming. Will it happen is something which we have to be mindful of. Usually, when the market is euphoric about the margins and the cash flows, we see a lot of discussions about them. And when the market is under some stress and especially the market prices are under stress, people don't talk, but it's always work in progress, Mr. Amit.

Okay. Sure. Understood. And just on the power and fuel side, if I understood you correct, you said that the spot prices are basically 10% to 15% above the 1Q, the numbers that you...

I'm not keeping my neck out. I think even 20% is not a bad number, Mr. Amit. But it's what you're looking at. So it's exactly what fuel you're looking at. But for sure -- overall -- 15% is the overall increase in the thermal fuel, sir, both...

Sir, I remember in the earlier calls, you mentioned that you have switched to U.S. coal now. I mean, so from that point of view I think U.S...

We are back to petcoke because U.S. coal is exhausted, and the price of it has also moved to petcoke. So we've moved back to petcoke, and we are also looking at a possible blend of domestic coal with the petcoke.

Okay. Okay. But is it petcoke on a calorific value is still higher compared to, let's say, some of the coal rates?

Mr. Amit, if you look at our presentation, we did indicate on a per kcal.

Yes. I saw that. Yes.

Yes. So -- yes. It's -- petcoke is higher. But what it offers is if you can blend with domestic coal because the -- when we talk of domestic coal in our case, it is Singareni. The quality of our domestic coal is reasonably lower. So blend with petcoke could overall reduce the per kcal kind of a cost for us. So that's what we are planning to do now, Mr. Amit.

The next question is from [ Sanjay Nandi ].

Sir, what would be the debt repayment for this current fiscal?

Debt -- I mean, principal plus interest put together would be INR 185 crores.

INR 185 crores. Okay. And sir, just to mention, like we have a potentiality of doubling our capacity for the Jajpur plant, so which is currently 1.5 million tonnes. So what would be the clinker supply for that thing if we go for the plan -- for the expansion, sir?

Yes. We are only talking about the layout potential, sir. We are not talking -- looking at that for some more time. As at this point of time, yes, we have enough clinker to support 70% capacity utilization at Jajpur, 70% capacity utilization at Vizag and 65% capacity utilization at Mattampally. So any configuration changes, we would be short of clinker. So till there is a clarity on our clinker listing, I don't think we would be in any way situation to increase the capacity of Jajpur.

Sir, currently, we are fitting the clinker for -- like for...

For Mattampally, sir.

For Mattampally plant, right, both the Vizag and Jajpur plant?

Yes, yes.

And we are going with the sea route, sir, right?

No, sir. We are going by land route, et cetera, by rail and by road.

By rail. So Vizag, we are fitting by rail, right?

By road and rail sir. Jajpur will be fitting by rail.

Jajpur will be fitting by rail. Okay. Okay. And sir, what is the outlook for your Jajpur and that Satguru plant going forward in FY '23, like what kind of utilization levels we are eying into?

Yes, we are looking at 75% capacity utilization at Satguru because that would be the first full year. So we still are trying to look at the market. So we are not in hurry to push too much of material till the brand is positioned well. Jajpur, we are looking at 60% to 65% for the coming years. A year later, we are looking at 85% for the Satguru and close to 70%, 75% for Jajpur.

So this -- I mean to say FY '23, right?

Yes.

Okay. Okay. Got it. And what is the current scenario, sir, like if we -- from the -- considered from the exit of Q1 '22? Like has the demand improved in the southern part, already mentioned like that.

Mr. Sanjay, we -- I think it is too soon. We are still assessing. And this is a season where you have monsoon impact. So it will be too short for us to take any call in any -- which way, sir. Let us look at the annual kind of an outlook. As stated earlier, we are looking at something which is very similar as last year. In our own case, though the market could grow a bit, but we are just trying to be cautious because we are trying to make provision for the incremental supply that is expected from some of the people, either by ramp-up or some new commissions that are likely to happen.

The next question is from the line of Mudit Agarwal.

My question is related to the -- this Panyam Cements, which was recently -- the resolution plan submitted by RV Consulting and Sagar Power Limited, which was approved by the NCFB. So just wanted to know your comment, is there anything related to the Sagar Cements? Because RV Consulting and Sagar Power is the promoter group of Sagar Cements. So any comment you would like to do?

Yes. Mr. Mudit, I think, as stated, you have seen the press release pertaining to that also, it's a consulting assignment, sir. It has nothing to do with Sagar Cements. RV did -- does build a lot of capacities for others. So it is part of that. Sagar Cements has nothing to do with Panyam Cements.

Okay. And by any chance we are looking for that from -- you are trying to get this company, the Panyam Cements?

I stated we have nothing to do with it, sir. If you were to get it, probably Sagar would have bid and got the asset, right? So we are not looking that asset at all.

The next question is from Indrajit Agarwal.

One question I had is the inventory buildup that you have, is it more finished goods inventory or fuel inventory in terms of petcoke...

It's a combination of all, sir. Now where do I place clinker is a question. So we -- it's a clinker plus finished goods along with the fuel and the other raw material ones.

So the finished good inventory that has been built up, is it higher than what we see in the first quarter in normal course of action and not what last year...

Sir, if you remember our March quarter, we did close to 1 million. So most of the stocks were close to 0. So the buildup typically happens for this time even the clinker level developing was very, very negligible for the closing of Q4. So from then on, it's only built up, sir. So that's the difference.

So this entire thing will be drawn down in the rest of 3 quarters, right? I mean effectively, there will not be any stress on working capital on a full year basis.

Sir, I think it's a function of how the cement industry behaves. So we typically run for 330 days. The blocks of 215 days or 18 days blocks for the maintenance. So those schedules are appropriately planned where we need to build the inventory for the shutdown, which would happen for 15 to 18 days for a [indiscernible]. So it is an explanation, sir, At the end of the year, everything will come back to a similar kind of situation.

[Operator Instructions] Sir, as there are no further questions, we would like to hand over the call to Mr. Sreekanth Reddy for his closing comments.

Thank you, Manish. As always, we would like to thank each one of you for participating here and joining in our call. I hope you got all the answers that you are looking for. Please feel free to connect with our team at Sagar or CDR should you need any further information or you have any further queries and we'll be more than happy to discuss that with you. Thank you. Have a good day, and stay safe. Thank you again. Appreciate your time and interest in us. Thank you.

Thank you. We may now disconnect. Thank you.