Sagar Cements Limited (502090) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome you all to the Q2 FY '24 Results Conference Call of Sagar Cements Limited. We have with us from the management, Mr. Sreekanth Reddy, Joint Managing Director; and Mr. K. Prasad, CFO. We are also joined by Mr. Raja Reddy, he is the Company Secretary. [Operator Instructions] I would now like to hand over the call to Gavin Desa of CDR. Over to you, Gavin.

Thank you, Manish, and thank you for the introduction. Welcome, everybody, to the call. We'd just like to add that some statements made in today's discussions may be forward-looking in nature, and a note to this effect was stated in the con call invite sent to you earlier. We trust you have had a chance to go through the financials and the communication sent along with it. I would now like to request Mr. Sreekanth Reddy to commence with his opening remarks. Over to you, Sreekanth.

Yes. Thank you, Gavin. Good morning, everyone, and welcome to Sagar Cements earnings call for the quarter and half year ended September 30, 2023. Let me begin the discussion with a brief overview of the market in terms of demand and pricing, post which I will move on to Sagar-specific developments. Overall, we have seen demand remaining more or less steady across the regions during the quarter. Volumes as well have remained buoyant amidst good demand from housing and infrastructure segments. Pricing, which was somewhat soft during recent times has seen some improvement across specific regions towards the end of the quarter. [ Input ] prices as well have been somewhat benign, although we did witness some spurt in fuel prices during the quarter. Utilization levels as well remained elevated, reflective of on-ground demand that coupled with lower input prices, should result in better profitability and margins for the industry. Going ahead, while the visibility with regards to demand and volume offtake remains high, sustained improved pricing environment is needed to help counter the vagaries of the input and the freight costs. Let me now move on to our quarterly performance. We have seen good recovery during the quarter. Profitability in the previous quarter, as many of you may recall, was impacted by low volumes owing to maintenance shutdown and high inventory costs. Volume growth during the quarter was aided by a steady demand in housing and infra projects. Pricing environment, as mentioned earlier, was better on a sequential basis. Higher volumes and better realizations resulted in revenue of INR 587 crores during second quarter, as against INR 475 crores during the corresponding quarter of last year and INR 540 crores during the sequential previous quarter, higher by almost 24% and 9%, respectively. EBITDA for the quarter stood at INR 60 crores as against INR 6 crores generated during Q2 FY '23 and INR 31 crores garnered during the sequential previous quarter, higher by almost 955% and 97%, respectively. Margins for the current period stood at 10% as against 1% reported during the corresponding period last year and 6% during the sequential previous quarter. Profitability and margin improvement during the quarter was largely on expected lines, as mentioned earlier. Q1 EBITDA was impacted by lower volumes and higher fuel inventory costs. We expect the margin and profitability trend to continue into the second half, owing to benign input costs and better volume growth on account of ramp-up of both Andhra Cements Limited and our Madhya Pradesh and Odisha plants. Also, our strategic initiatives towards increasing the share of green power, usage of electric trucks and reloaders and increased usage of alternate fuels bodes well for rationalization in operating costs over the medium to long-term period. In terms of key operational activities, as mentioned earlier, our efforts are directed towards improving the overall efficiency and ramping up the utilization levels of our recently acquired or commissioned units. Jeerabad and Jajpur units are performing as per our expectations, and we believe we will be able to achieve 80% utilization level for Jeerabad and an EBITDA breakeven for Jajpur during the current fiscal. We are also positive of retaining our volume guidance of over 6.2 million during this fiscal. Average power and fuel cost stood at INR 1,626 per tonne as against INR 2,062 per tonne reported during Q2 FY '23. Freight cost for the quarter stood at INR 848 per tonne as against INR 797 per tonne during Q2 FY '23. As mentioned earlier, we have seen some moderation in fuel and freight costs on a sequential basis. Loss after tax for the quarter stood at INR 11 crores as against loss of INR 44 crores during Q2 FY '23. From an operational point of view, Mattampally plant operated at 62% utilization while Gudipadu, Bayyavaram, Jeerabad, Jajpur and Dachepalli operated at 87%, 16%, 65%, 26% and 22%, respectively, during the quarter. As far as the key balance sheet items are concerned, the gross debt as on 30th of September 2023, stood at INR 1,533 crores, out of which INR 1,305 crores as long-term debt, the remaining constitutes the working capital. The net worth of the company on a consolidated basis as of 30th September 2023 stood at INR 1,628 crores. Debt equity ratio stands at 0.8:1. Cash and bank balances are at INR 152 crores as of 30th September 2023. In summary, we believe that our efforts towards cost rationalization, better product mix and presence across established and fast-growing markets position us well to create value for our stakeholders. That concludes my opening remarks. We will now be glad to take any questions that you may have. Thank you.

[Operator Instructions] The first question is from Shravan Shah.

Are you able to hear us, sir?

Yes, Mr. Shravan.

Sir, the first question is, you mentioned 6.2 million volume that we are looking for this year, but in presentation, it was 6 million. So just correct me and also help me how are we looking at in terms of the third quarter and the fourth quarter volumes. So last time we talked about 1.8 million in third quarter and 2 million in kind of a fourth quarter.

Yes. Mr. Shravan, the small downward revision from 6.4 million, we revised it to 6.2 million. I think there is a typo in the presentation. We believe that we should be achieving close to 1.75 million in Q3. This is taking into account the election notification in Telangana. And at the same time, we are targeting at doing 2 million by -- for the Q4, Mr. Shravan. So that would be the breakup between both the quarters. So we did close to around 2.5 million for the first half. We are targeting at growing around 3.7 million to 3.75 million for the next half, Shravan.

Yes. Yes. Got it. Second, sir, in terms of the pricing. So if you can now help us in terms of the -- from Q2 average. So now -- so we understood that in East also, that is close to INR 50, INR 55, the kind of a price hike got absorbed in September and in South also INR 30 to INR 50 price hike is going on. So just wanted to understand, from Q2 average, how are the prices in East and South, particularly, till now whatever we have taken.

No, I think rather than talking about Q2, let me talk of the exit prices from September to October. Of course, in South, the price increase, we could realize only from the second week, though we initiated price increases in the 4th to 5th of October, but the real price increases started for us only during the second -- from second week onwards, Mr. Shravan. Hyderabad, we have seen almost INR 35 for that kind of an increase. I would not call off a exit of September alone, but from middle of October, we could start looking at a INR 35 increase per bag. We are looking at Vizag almost the price increase is to the tune of around INR 35 to INR 45. Bangalore, we have seen around INR 20 to 25 [ for our side ]. Chennai, we have seen INR 40 to INR 45 [ for our side ]. Sholapur, we have seen INR 20. When it comes to East, this we could see from end of August itself, we could see almost INR 30 kind of an increase from September to October. And October, we could only get an additional INR 5 over that timeline. Indore, one of the markets that we have seen yes, we have seen a plus INR 15, kind of an increase in past.

Sir, Indore, you said, how much?

Plus INR 15. It is from exit of September into the October or at this point of time, we have seen a plus INR 15 comeback.

INR 50?

INR 15. 1-5.

1-5. Okay. Okay. Got it. So now, sir, if you look at in terms of what we were looking at EBITDA of INR 400-odd crores for this year...

I think that is achievable, Mr. Shravan. So our outlook, we are very clear that we should be very close to that number.

Okay. Okay. So just trying to further understand that because in the first half, we did INR 91-odd crores. So we need INR 310 crores kind of a number for -- in second half.

Only 3.7 million, sir, we are talking of around INR 800 to INR 850 on a very conservative scale. Given the operating leverages that we have and the current fuel price trends, which we believe current fuel prices might remain more or less flat in our case with the relation jump, we are looking at around getting INR 800 on this -- on an average for ourselves.

Okay. For the second half, we are looking at INR 800 to INR 850 kind of numbers. That's great. Second, on the expansion plans last time we have talked about 3 plans that we are having and maybe we'll be sharing the details in this con call. So from currently 10 million to 12 million, so 0.75 in Andhra, 0.25 in Gudipadu and 0.5 in Jeerabad. So any update on that in terms of the impact?

We are just waiting for the clearance from our investment committee, which we should have over the next 15 days clearance. As soon as we get the clearance, we'll be happy to revert back.

But broadly, that number will remain in...

This number would remain -- the target is to reach to 12 million by end of FY '25, for which we need to initiate as soon as possible. So we are just waiting for approval from our investment committee to share it with all of you.

And even for the date also though it has increased by close to INR 120-odd crore in 1H, we were looking at INR 1,200 crore, INR 1,250 crore kind of a net debt for next 2-odd years...

Yes, I think on the debt, we would remain committed to not crossing on the gross side at INR 1,500 crore, and on the net side, somewhere around INR 1,250 crores to INR 1,300 crore, we would not cro9ss those numbers either way. We are committed to keep that number -- stay there even with the growth plans for [indiscernible].

Okay. And lastly, on the CapEx, 1H, we have done INR 130-odd crores. So how one can look at for this year at least?

Yes, we only have the maintenance CapEx, Mr. Shravan. So we -- at this point of time, that is the only upward we have, and that is what we have committed to spend. As we have mentioned, Mattampally went to a very deep shutdown because after 15 years, [ clinker and creator ] went through some modifications to handle much higher [ foot ] of alternate fuels and he also demanded some maintenance. So that is the only CapEx that is earmarked for the next 6 months. But for the medium-term kind of a CapEx for which we are awaiting for the investment company to approve. We would only do the maintenance [indiscernible].

The next question is from Rajesh Ravi.

Sir, am I audible?

Yes.

Sir, my question pertains to, first, the margin guidance which you gave for full year and this is second half around INR 850 versus INR 360 achieved in H1. So what are the cost levers are you looking at out of this INR 450, INR 500 improvement in second half, how much of this would be cost driven? And fuel prices apparently seems to have bottomed out. Correct me if I'm wrong.

Yes, Mr. Rajesh. I think in our case, it's a combination of operating leverage. As we have mentioned, we could only operate for -- we only sold 2.5 million for the first half where we intend to sell close to 3.7 million, that itself should add INR 100 to INR 150 overall cost reduction on the operating leverage side. We don't expect major changes to happen on the power and fuel from what we have achieved in the Q2. The reason is obvious that the pet coke and coal prices what went down aggressively actually came back from $100, again, they came back to $140 to $150 kind of dollars. So we don't expect things to be a lot more different, but we may have to review at this point of time, we do have inventory all the way to middle of Q4. But with the geopolitical issues that is happening in Middle East, we would want to keep track of it. But having said that, power and fuel costs, we expect remain flat. The balance will come from the realization jump and the -- and we -- as mentioned, the breakeven at both -- the EBITDA breakeven at both Jajpur and Dachepalli have already happened. So given the scenario, we definitely expect the margins to improve, to more than double, Mr. Rajesh, from the first half.

Okay. So this versus Q2, the INR 400 extra margin that you're looking at out of which around INR 150 is operating leverage driven and rest INR 200, INR 250 you're looking at from realization improvement?

Yes, sir. I think that conservatively is our estimate. So I...

Okay. And sir, this Andhra, what is the current clinker and cement capacity, 1.8 million and 1.65 million?

So the current Andhra's capacity is to tune of around 1.85 million is the clinker capacity, and 2.25 million is the grinding, Mr. Rajesh.

Okay. And this -- you're expected to take this to 2.3 million clinker and 3 million in grinding.

3 million grinding by FY '25, sir.

So 1.85 million clinker will become 2.3 million, and 2.2 million grinding will become 3 million tonnes by next.

The next question is from Pratish Chera.

Sir, the incremental INR 450, INR 500, which you are mentioning, isn't it a bit conservative considering that even if one takes INR 25 back that it shall be the INR 500 extra EBITDA per tonne?

So that is gross, sir, you have to remove the GST sir. GST is not...

So you're saying at the gross level. Okay. That was my clarification. And the volume that you mentioned in the -- for the full year is how much, sir?

Yes, we are talking about 6.2 million, sir.

And you have got 2.5 million in the first half, right?

Yes, sir.

Okay. And what's your peak debt after the expansions?

Yes, we are talking about INR 1,500 crore on a gross side.

The next question is from Amit Murarka.

So on Andhra Cement, I was just checking the numbers. So the EBITDA per tonne seems to be same as Mattampally but with a lower realization. So just to understand, like how come -- is it lower cost? Or could you just explain those numbers a bit better?

Yes. It's a more operating leverage, Mr. Amit, because at Andhra, we could produce more clinker. So there was a sale of clinker along with the sale of cement. So the operating leverage helped us to have a better margin in Andhra for the last quarter Mr. Amit.

Sure. So the sales volume that you have mentioned of I think, 90 -- 0.95 million tonnes. So that would include clinker or not?

No, that doesn't -- usually doesn't include clinker.

And how much was the clinker sale there?

No, that was one-off because as mentioned, Mattampally was under maintenance, so we shred some of the clinker, but it's safe to assume that it would be a combination. I would not say included at this point of time, again, depends dynamically on the market conditions, Mr. Amit. On the overall revenue, it is, but on the sales number, we are sticking to the cement sales.

Okay. Okay. Understood. Okay, fine. And -- but still like the EBITDA that is mentioned there, like could you just give a sense about how much of that EBITDA was from clinker sales just to kind of understand the cement numbers better?

See, I think [indiscernible] what percentage of EBITDA is from clinker sale, that's the question, right, Mr. Amit?

Yes, right.

Yes, I think you should take it half, half, if I'm not mistaken, Mr. Amit, but we will revert back to you with the specifics on that.

Got it. Got it. And like the capacity utilization then was about 40-odd percent, right? The cement utilization in the quarter, like based on the 2.25 million tonne?

You're talking of consol numbers or...

No, this is Andhra. Again, Andhra, I'm talking about.

See, Andhra, see clinker utilization was slightly more than the cement utilization Mr. Amit. So we also had to shut down because we couldn't handle the clinker beyond a point. So we had to take a forceful shutdown. Let us look at the full year number because the first half, as you know, only the Q2 was the full -- reasonably operated kind of a quarter. August month, we actually were very near to 85% at clinker level utilization, Mr. Amit. But that was only for August, not for October -- not for September. So it is fluctuating because we couldn't handle the excess inventory, so we had to take a force shutdown there. So that may not truly reflect the operating rates for the first quarter. Full year, our target is to achieve around 0.75 million. I think we are keeping that target for the cement sale at 0.75 million from Andhra for the full year.

The next question is from Shravan Shah.

Sir, just to clarify, sir, when we are saying Andhra 2.25 million, so that includes the Vizag...

No, sir, it doesn't include Vizag grinding.

Okay. Okay. And then -- and regarding the Vizag land sell, anything -- any update or...

We have time as clarified last time, we are talking about 18 months, so out of that 3 months is done. So we believe that we should conclude some transaction well within those 15 -- coming 15 months.

Okay. Okay. Not even a broader range in terms of the market value. So you...

We are still getting the government -- we are -- it's work in progress. So we completed only a small portion of this or probably out of 4 steps, we completed only 1 step. So we have 3 more steps to complete. Once we complete 2 or 3 steps only then we will start engaging with potential buyers, because the smoke of conversion and everything we are trying to keep it for ourselves. Before that, we need to get the land records and everything structured and then convert the land and then seek the government permission for potential sales. So these are all the steps that are involved. We only completed the record -- the bookkeeping and everything to be in order for us to proceed with the next few steps. So it will definitely take 15 months is what we strongly think. We would be very happy to come back to you with the status on it once we have crossed each milestone, Mr. Shravan.

But broadly, ballpark, the ready reckoner would be a kind of a 2.5, 3.

The ready reckoner, as we have mentioned earlier, yes, that remains at 4 crores per acre that remains. So that has not changed from earlier quarters. That ready reckoner is something which we are looking at the government. Government is yet to revise any of those ready reckoner rates.

Okay. Okay. Got it. And sir, our trade sale for this quarter was how much?

It should be close to around 65%. So there is a government component -- as you know, most of the governments are gearing up for the election. So there was the government component in the entire state. So trade is close to around 65%.

Okay. Okay. Okay. Got it. And the green share for this quarter was how much? Last quarter was 27%.

See, this time, it is very close to that number because the -- I think full operations, we will only be able to do it in the current -- in the second half, Mr. Shravan, because Mattampally was under maintenance. So that component remains reasonably close to that. So most of our inventory was used, so that would not have changed. So for the second half, we are talking of close to around 30%. So we should reach to that 30% in second half.

Okay. Okay...

And even hydro power station generation just started. So that component also will get added up Mr. Shravan.

Okay.

So Shravan, sorry to interrupt. Can I request you to please call back in the queue. There are other participants too. The next question is from Mangesh Bhadang.

Sir, a couple of questions from me. So firstly, any impact on demand after the price increases that were announced? And secondly, with the election dates being announced, do you feel that demand could turn out to be lower, which would actually drive pricing lower because of lack of demand?

Mr. Mangesh, our experience for the past 1, 1.5 decades, especially on this price to volume, there has never been a correlation, sir. So I cannot comment much. Secondly, demand definitely doesn't move with the increase in price. I think as mentioned previously in my earlier calls, too, the cement per se would not be a major cost component, in any of the construction activities are the end users requirements especially on the housing. If you look at low-cost housing, it is less than 3%. So luxury housing, it is definitely less than 1%. But most of the infra projects, it is less than 5%. So given the impact of cement costs in the end-use requirement I don't think the price of cement would influence in a big way the demand. Usually, it will be a knee jerk reaction to slow down just in case if it surges up, but this price increase is not that steep for demand to really contract. In Telangana, of course, the election schedule for 2 states where we are present, it's for Madhya Pradesh and Telangana. In Telangana the government influence on -- the government consumption is limited. So the demand we have not seen any major contraction so far. Madhya Pradesh, we are watching so we would be in a much better situation to comment on the election schedules influence on the demand probably a couple of weeks later. As we speak, so far, we have not seen any shrinkage of demand in the Madhya Pradesh, either because of price increase or because of the elections announcement.

That is helpful. Sir, secondly, on the Andhra Cements expansion. So during the expansion, do we have to take a prolonged shutdown from this facility? And if that is so, when would that be?

Sir, see, this we are building a brand-new [ creator ] in parallel, so it doesn't demand a major shutdown. At the best, it might need a 30-day shutdown, that is likely to happen 15 months from now. And that can be managed with the inventory management rather than a absolute break in the complete kind of dispatches. It may not really influence the sale. To a certain extent, it might influence some cost-related issue 12 to 15 months from now, but not before.

Understood, sir. And sir, lastly, if I may ask, any -- after the increase, have you seen the interregional sales, like, basically the inputs from other regions increased in Andhra or other region?

No, fortunately, most of the contiguous regions, it's not the same, but signal kind of a price increase. So that too not really push volumes. But we are just 2 weeks into this, sir. So we will be in a much better situation to understand and revert back to you, probably it would take another couple of more weeks before we could start getting to know the movements, the interregional movements. But so far, most of the contiguous reasons had similar kind of increases, that typically doesn't prompt in a big way the changes in the interregional movement.

The next question is from Sanjay Nandi.

Sir, what has been the utilization for the clinker for this exit quarter of Q2 on a consolidated basis?

I think we are close to around 65% at a group level, Mr. Sanjay.

Yes. Okay, sir. And sir, last question is like what is the average holding rate for our pet coke inventory? Like did we book something when the prices was [indiscernible]?

So we do it irrespective of the price. The only time that we held back as it was a very, very elevated level, when it was about $200-plus we -- but now we keep buying systematically. Our historical holding was almost close to 6 months that got revised to 4 to 4.5 months right now. So we are still sticking to that, because we believe if there are any changes we may not be in a situation to get benefit out of it. So we have limited ourselves to 4 to 4.5 months.

The next question is from Keshav Lahoti.

I just want to understand, Andhra Phase 2 was expected to start in H2. You more sounded like this year would be more of a maintenance CapEx only. So whether that would be delayed and...

Mr. Keshav, let me again for clarity sake, we are talking of maintenance CapEx at all the places. Investment committee is reviewing the proposal what we have circulated as far as Andhra is concerned. That if we get approval, we should kickstart it at the earliest, but that may not lead to a huge CapEx because it's only the -- in initial phase doesn't consume much, it's more to do with the advances, Mr. Keshav. So that's not delayed. We are just awaiting for the investment committee to give the clearance. That's what we have committed. At this point of time, since we are waiting for the investment committee to clear, we have committed only for the maintenance CapEx at the rest of places. Once the investment committee clears, we would be happy to come back to you with clear CapEx plans, but it may be very, very small for the current year. That should not delay the overall kind of CapEx plans because we are only going to pay 10% to 15% of the overall CapEx -- the expansion or the modification CapEx, 10% to 15% is going to be the commitment for this quarter. That may not be much. That's what we have said, and that's what I'm trying to clarify here, Mr. Keshav.

Understood. Broadly, the understanding is the CapEx would be something like INR 300 crores. So maybe INR 30 crores, INR 40 crores might be incurred in this year and balance next year. And this project will be completed by FY '25?

I would like to stick to that. But since I'm waiting for the clearance, we will be happy to come back. So probably, we will be very happy to come back as soon as [indiscernible] but broadly similar kind of a line size as you have mentioned.

Okay. And Andhra clinker was like 1.65 million what I remember, but today, you mentioned 1.85 million.

It is always 1.85 million. Sir, grinding was 1.65 million. It was limited to 1.65 million. There was investment made by the earlier management itself of pre-grinder and all for which they did not commission. We ended up commissioning that during the takeover and the ramp-up sir. So with that, the clinker capacity remains at 1.85 million, but the grinding from 1.65 million moved to 2.25 million.

Understood. One last question from my side. What was the Jajpur sales volume in quarter 2? And are we on our target to achieve 40% utilization for this plant in this year?

So for the first half, the -- yes, we did close to around 0.14 million, sir. Our target is to do 0.4 million. So I think we should end up achieving those targets at Jajpur sir.

The next question is from [ Krutika Vispute ].

Sir, there was an announcement yesterday, [ something ] to do with the AvH resources and some special rights basis shareholders agreement, if you could throw more light on that?

Yes. Krutika, can you repeat the question, please?

Sir, yesterday, there was an announcement wherein you referred to a shareholders agreement with AvH resources and there were some special rights mentioned. So if you can talk about what exactly does that...

Yes. See, it is pertaining to getting shareholders approval for entering into shareholders agreement with AvH who has been investor for over 15 years. So formally -- we are formalizing the relationship by entering into a shareholders agreement segment with them.

Formalizing as in, in what sense?

Yes, there was never a shareholder agreement between Sagar Cements and AvH. So we are entering into a shareholder agreement with them right now. Because they own close to 19.8%, so we are getting into a shareholders agreement with them.

Okay. And what kind of special rights that the announcement refers to?

Krutika, can you -- sorry, I missed out your voice is very feeble.

Yes. I'm saying what are the special rights that the announcement refers to?

There is nothing, it is exactly on a single lines as we have entered previously with the previous large investors like Premji. It's like appointment of nominee directors, and they -- see we are a listed company, so you know these things are pretty clear. So it's more specifically getting -- formalizing the shareholders agreement with them.

The next question is from Shravan Shah.

Sir, just to -- again, clarifying what's the current total grinding capacity? Is it 10.85 million, 10 million or 10.4 million?

It is 10.85 million, Mr. Shravan.

Okay. Okay. Because it is actually not telling, so that is some...

I'm sure there are some small gaps. It is 10.85 million, Mr. Shravan.

[Operator Instructions] In the meanwhile a couple of questions from my side. Sir what is the current status in both in the ramp-up of both the plants, both in Dhar as well as in Jajpur?

Yes. Dhar, our capacity utilization is up of 85%, Mr. Manish. So the run rate is very good except for the last couple of months where the season was will impact, the run rate is up of 85% capacity utilization. As far as Jajpur is concerned, as you know, these prices have improved. And the merger is complete with both these events. We are ramping up the capacity utilization is near 50% at Jajpur.

And in terms of breakeven, we were...

We already broke even during the middle of last quarter itself at EBITDA level. So we are talking of Jajpur. Jeerabad, of course, it is more than breakeven. I think it is [indiscernible]. Mr. Manish, we are also very happy to announce that the government, the Madhya Pradesh government approved the incentives. So it was 40% of the certified CapEx, which should have been -- or INR 150 crores whichever is lower. So we are -- it should have been INR 180 crores. But since the cap is at INR 150 crores, so we got a sanction for INR 150 crores incentive to be paid over 7 years. It will be equally paid at INR 21.5 crore kind of a number per year for next 7 years. We did receive the sanction of incentives also at Jeerabad plant. Mr. Manish.

Okay. So that's approximately like INR 200 a tonne in -- if we...

Slightly more than that number.

Slightly more. Okay. Got it, sir. Sir, and in terms of -- from the demand perspective, can you give your usual commentary on state-wise demand outlook?

See, I think I would rather stick to the south demand would definitely be up in a very high single digit, which we stated. The reason why we are talking about a single-digit is election notification has come for Telangana. Given that scenario though we don't expect a major slowdown, but it would definitely impact the labor availability and all for some time. So given that scenario, we believe that the entire South, which so far has moved close to 12% to 13% for the first half. Yes, we believe it might -- we might end the year with a very high single digit or maybe very low double-digit kind of a number for South. Rest of all the other places, we believe like Odisha would be single digit -- high single digit. Madhya Pradesh, we expect again -- from a double digit, we recalibrated to single digit again because of the election notification, Mr. Manish.

The next question is from Sumangal Nevatia.

Yes. Sir, I joined the call late. So if it is repeated, please excuse me. One is -- so on the Andhra cement, we are holding 95% holding. So what is our plan? I mean what is the compulsion as far as the regulation is concerned? And how do we plan to dilute over the next 1, 2 years?

Yes, the regulation is for us to reduce it to 90% first, less than 12 months from the day of listing. That means we should reduce it by 5% before April '24. And within 3 years' time, we have to reduce it to 75 %. And we are bound by those regulations, so we would invariably fulfill those obligations at the right time, Mr. Sumangal.

Okay. And any initial thoughts as to what is our preference in terms of root of valuation?

It is not to sell Sagar shares but to go for a capital increase as we are a growing organization. So we believe that there is CapEx and there is a requirement. So we generally don't go for a high -- very high leverage, so we would like to balance that. So our preference is to go for a capital increase at Andhra for this compliant with the regulation. So that's clearly stated. Yes, we should initiate probably a 1 month, 1.5 months from now about looking at those options, at least we want to complete the first step first. So we should start the work pertaining to that for the next couple of months, Mr. Sumangal. We are more than hopeful to fulfill those things ahead of time from a regulatory compliance standpoint.

Got it, sir. That's very useful. Sir, second question. I mean at a 12 million tonne capacity, what sort of maintenance CapEx should we expect? And next year, to reach to 12 million tonnes, what sort of CapEx broadly for FY '25 are we looking at?

Yes. Mr. Sumangal pertaining to reaching to 12 million, the CapEx would revert back, except for the maintenance CapEx, yes, we are awaiting for our investment committee to clear the CapEx plan. So we are expecting anytime now. So as soon as we get, we would be happy to share that. From a maintenance CapEx perspective, when we reach to 12 million, sir, you should expect INR 50 crores per year on an average.

Got it. Got it. And sir, last question, given that this year for Andhra, we'll be at less than 1 million tonnes volumes and with the capacity of more than 2 million. So next year, incrementally, could we look at another year of very strong volume, irrespective of a normalized year as far as industry is concerned, given very low utilization both at stand-alone and Andhra?

Yes. Mr. Sumangal, the current year, the outlook is to do 0.75 million from Andhra for the current year because we only started during the Q2. The operations generally started only in Q2 so we only had 3/4 of a year. Next year, we expect volumes to move to anywhere between 1.25 million to 1.5 million next year. So we will be doubling Andhra from 0.75 million outlook, our target is to achieve 1.5 million for next year. Mr. Sumangal. So that adds up along with the ramp up of Jajpur. So rest of all the other assets, we believe that we should be doing very similar kind of a run rate given the next year is going to be a big election year, Mr. Sumangal, both in Andhra as well as in the central government and some of the operating areas, we do have the election. So given that scenario, we believe the other assets other than Jajpur and Andhra Cements to perform exactly like this year. We do expect volumes to slightly be more relative to this year from Andhra and Jajpur, Mr. Sumangal.

Okay. Sir, ballpark, 7.5 million to 8 million is what we should pencil in for next year?

I would be around 7.5 million on the higher side.

The next question is from Rajesh Ravi.

Sir, this incentive from MP government. This will be a capital subsidy or will it flow through P&L revenue?

It will go through P&L, Mr. Rajesh.

And this is irrespective of volumes or it is...

It has nothing to do with the volumes, Mr. Rajesh. It is to do with the CapEx, but structured in a way where it will go through P&L. So it is irrespective of volume. This fixed INR 150 crores to be paid over 7 years. So it's going to be lump sum INR 21.5 crore kind of a number for each year irrespective of volume.

And we will start accruing this Q3 onwards?

We should start accruing from the current year onwards.

No, no, Rajesh, we are going to account based on the receipt. So...

Based on receipt, that's great.

Yes, whenever we are going to realize the money then we're going to...

Only then we're going to...

Okay. Okay. There's no accrual you're following over here.

Yes. And for the disbursement, there is a limitation on the capacity utilization. So the limitation is that 70% capacity utilization. If suppose if it is below 70%, proportionately...

Proportionately they're going to organize the payout...

Okay. And that will be paid off later when the utilization...

See INR 150 crore is fixed, it has to be paid over 7 years, limitation is that we have to operate it minimum at 70%.

And sir, this volume guidance, 6.2 million first half we have 2.5 million which you have done around. If I remove the Andhra, which is around 2.4 million and next 6 months, you're looking Andhra to volumes to contribute another 0.65 million. So ex Andhra, the remaining assets like the stand-alone, you are not looking any volume offtake?

Sir, we should be cautious in -- we stated that even before, Mr. Rajesh, that the existing assets, we only factored in 2.5% to 3% kind of a growth. So that remains at that level. Given there is -- that's small supplies that have come in to the regions that we operate. And the demand is likely to grow only in single digits. So we should be -- we have penciled in not much of a growth for the existing assets. The bigger ramp-up is happening both at Jeerabad as well as Dachepalli. In the coming second half, we are expecting a 1 million to 1.5 million be contributed by only these 2 units.

Yes. Okay, sir. And just one last question. When we see the stand-alone 3 -- 2 subsidiaries performance where they have reported almost INR 700, INR 800 margin. Is it that most of the fixed cost is getting reflected in the standalone entity that would have also kind of benefited the other entities...

No, no, sir. I think what you should understand is the Mattampally, which is one of the largest in the stand-alone was for maintenance. So first half is one-off kind of an event that has happened in terms of [indiscernible] but for that, I don't think there is any anomaly in it. I think operating leverage is across. So once we do better, I think the spread is going to be equally impactful. Andhra is an exception because Andhra we had clinker sale and cement sale, and most of the footprint areas of Andhra remains in a close proximity, so the realization is a lot higher. But for that, I think it is across very, very similar.

Okay. So just one follow-up on this because if you look at this Andhra with such low utilization, they have delivered healthy margins. And when you're looking at much higher volumes in the second half, obviously, we'll have a better operating leverage...

Yes, I think that is one of the reasons why we are talking of almost 3x the number for the second half compared to the first half.

Correct. And the stand-alone where you had maintenance impact in the first half, even that should be...

Yes, sir. I think this is what is making us very clear about the outlook when it comes to margin Mr. Rajesh, along with the realization increase, so we did factor around INR 100 to INR 150 to come from the operating leverage itself because we don't have any major maintenance issues or this thing that is likely to come up for the second half. So that itself should help us add up INR 150 on cost side or rather reduce INR 150 from cost side, which should add up to the margin. And the rest is what we are expecting from the [ realizations ], Mr. Rajesh.

My thought was that would not be operating leverage, the cost benefits would be much higher given that both the stand alone...

Sir, we are in cement. So I need to be cautious because we need to factor many things. And we are into the election year. So any notification or any of that -- and at the same time, geopolitical issues would always impact the power and fuel, which is very, very sensitive to those events.

The next question is from Vishal Periwal.

Now cement demand since it has been strong, and now we have taken industry-wide the price hike has also happened. Historically, given your past experience, has both these things gone parallelly for a consistent period of time or one comes off like after a brief strong seasons?

Sir, again, I have to go back and give you a historical kind of impact. Over the last 13, 14 years, since the South supply has been 2x of demand, we have seen price increases, coupled with reduction in demand. Sometimes we have seen price increases with increasing demand. So we have seen various permutations and combinations, sir. There is never a one single rule that was applicable. But there were instances where price increase was coupled with increase in demand. So nothing can be ruled out in our side.

Okay. So for absorption of the price hike, typically, you'll wait for how many weeks to say that, okay, things are sustaining?

Two weeks, typically, we have to wait for the 2 weeks, sir, which we just completed. So that's what makes us think that this price is at least would sustain in the present shape. Though this hike is not the highest, I don't think we are at such a high prices that we have seen in the past. And most of the people are excited with this price increase. But I think this price increase just manages most of the cost from small single-digit EBITDA margin, I think we will be reaching to 15%, sir. But the real requirement is up of 18% EBITDA requirement for all of us to survive and service the stakeholders. There is a gap. So we believe that prices still have to move up, but we have to -- since the last 1.5 years to 2 years, we have -- we struggled to increase the price, so we would want to go cautious on these issues. And coupled with the election, if this current price increase sustains, it will give some relief, but this alone is not enough. It should go up further by, in our view, another 2% to 3% advanced level for the industry to have a reasonable margin for it to sustain and service all its stakeholders as I mentioned.

The next question is from Shravan Shah.

Sir, this incentive on the MP, so first to clarify, do we have any other incentive apart from MP which we currently are booking or likely to get?

Sir, we only book on receipt. We have quite incentives that needs to come. So none of them are booked like -- especially in Andhra and Telangana we have close to INR 75 crores to INR 80 crores of receivables from the government or as incentives, but that has been due for over more than a decade. So till we receive, we generally don't book. So other than this INR 150 crores is available from Madhya Pradesh. That also is due over the next 7 years.

Yes. And there, just to clarify, we are looking at close to 0.4 million tonne volume this year.

Sorry, no, in Madhya Pradesh, we are looking at 0.8 million, the target is to be at 0.85 million. So I think we should be fulfilling the targets there in Jeerabad. So we did for the first half. We did more than 0.37 million. So for the next half, also, we are looking at slightly more than this number at 0.45 million or 0.5 million. I think that is definitely achievable there.

Okay. Okay. Got it. Got it, sir. I mistakenly took the number for Jajpur.

The next question is from Rajesh Ravi. Rajesh, do you have the question.

Sir, my questions are all over.

So as we don't have any further questions, may I hand over the call to Mr. Reddy for his closing comments.

Thank you, Manish. We would like to once again, thank you. Thank you all for joining us on the call. I hope you have got all the answers you are looking for. Please feel free to connect with us at our team in Sagar or CDR, if you need any further information or if you have any further queries, we will be more than happy to discuss with them. Thank you, again. Happy Dushera, and Happy Deepawali. Thank you, sir. Have a good day.

Thank you, sir. We now conclude the call. You may now disconnect. Thank you.