Sanghi Industries Limited (SANGHIIND.BO) Earnings Call Transcript & Summary

Thank you, Margaret. Good afternoon, everyone. On behalf of PhillipCapital India Private Limited, we welcome you to the Q3 FY '20 call of Sanghi Industries. On the call, we have with us Mr. Alok Sanghi and Ms. Bina Engineer, Whole Time Directors at the company. At this point of time, I'll hand over the floor to the management of Sanghi Industries for opening remarks, which will be followed by investor Q&A. Thank you, and over to you, Bina ma'am.

Good morning, and welcome to the discussions on the financial results for the quarter ended 31 December 2019. We have had a capacity utilization of about 45% at our plant during this period because we had taken maintenance -- annual maintenance shutdown of about 24 days during this quarter, in the month of November. And in the month of October, we were still coming out of the impact of the cyclone Vayu as well as of a extremely heavy monsoon experienced in Gujarat and particularly in Kutch, which had impacted our plant operations also. So the available capacity was around 76% at the plant, against which we have been able to produce about 4.4 lakh tonne of clinker and cement, and we have achieved utilization of around 44%. In terms of our sales, we have dispatched total volume of 4,34,500, which includes cement of 4,14,000 and RMC of about 20,000 tonnes. In terms of the product mix of our sales, we have done around 62% OPC, and we have done around 37% -- 38% of the blended cement. Therefore, the blended cement ratio has improved well during this period, partially on account of the lower volume. We have attempted to maintain the higher blended production and maintain the market. In terms of sales, gross sales was INR 242 crores. Net of GST, we have achieved sales of INR 187 crores. In terms of the price realization, the quarter was about 6% to 7% lower -- about 7% lower in terms of the net sales realization. We had 4,306 net of the taxes compared to 4,001 in the corresponding quarter and compared to 4,500 in the immediately preceding quarter. So while on a Y-o-Y basis we have about 8% increase in sales realization on average, on a sequential basis there was about 4.7% drop in the price realization. Mainly, this price drop had occurred in the month of December, while October, November, there was a small drop. And mainly, it was in the month of December. On the other hand, the volumes have actually picked up in the month of December for us because October, we were suffering on account of the extended monsoon and cyclones. And November -- most of the November -- 2/3 of the November went into the annual maintenance shutdown, and we had clinker shortage. So actually, we have purchased about 50,000 tonnes of clinker during this period and -- which has delivered cost of about roughly INR 15 crore. So therefore, this is the impact which you can also notice in the raw material cost because purchased clinker is directly accounted as a raw material purchase and, therefore, that is a substantial addition in the raw material cost. Coming back to the sales breakup. We have done about 89% sales in Gujarat and balance about 11% in rest of India. Particularly, the sales in Mumbai market was on the lower side because of lower volume availability with us as well as the pricing in Maharashtra market during last quarter was lower than the Gujarat price. So it wasn't very remunerative to be selling in Maharashtra during that period. Now in terms of the various cost analysis, primarily, there is a 30% volume -- 28% to 30% volume drop, which have had an impact on all of the cost. Now -- first, the raw material cost, as I mentioned, is around INR 31 crore. However, that includes about INR 15 crore of the purchased raw material, where if it had been the normal production cost, the raw material quantum would have been lower. So that is a one-off item which would not reoccur in the future quarters. In terms of our blending ratio within various raw material, we have used around 80% clinker compared to 83%. So the blending ratio -- as we could see in the higher production of the PPC, blending ratio has also improved with more additives being consumed during this period. In terms of power and fuel, the total power and fuel both consumed different fuels, like coal, lignite as well as extremely small quantity of pet coke. We have -- on an overall basis, we have used around 15% lignite and 85% coal. The coal prices have softened during that period, and we have average CV cost at INR 0.95 compared to INR 1.08. So that has a clear benefit in both the power and fuel cost for us. The -- in terms of actual consumption of power, we have had savings in the number of units of power consumed. On the other hand, because of the shutdown and some initial production issues in the month of October, we have had higher consumption of fuel. But on the whole, there is a positive trend on the cost of power fuel, which will continue to reflect even in the coming months. In terms of stores, spares, packing, we have slight advantage on the packing cost because the bulk volume has improved. We are dispatching around 21% of bulk cement. And there has been slight cost reduction in the packing cost per se also. So there is a saving in the stores, spares and packing cost. Other operating expenses include the shutdown expenses and, therefore, there you can see that, that has moved up from INR 8 crore to INR 13.94 crore. The selling and distribution, clearly, you can see that there is a drop of around 10% on the domestic cement logistic cost, which has come down from INR 1,351 to INR 1,222. There is inclusion of RMC freight cost and other expenses. And on the whole, we have INR 1,272 as sales and distribution cost compared to INR 1,411 in the corresponding quarter. The reasons are well known. There has been a drop in diesel cost. There has been revised payload policy, which has enabled us to improve the load factor per truck as well as the movement of the truck has also increased or have become more efficient, also the fact that the volume was on the lower side, and we've been able to distribute this material in shorter periphery. In terms of finance costs, there is an increase. Last year -- during last year-end, we have commissioned the vested recovery and some other CapExes. So the capitalization of interest expense has discontinued on those CapExes and, therefore, that has a clear impact on the interest cost. Besides that, there were some couple of one-off costs on the fresh tie up of the working capital during this period. So therefore, there is an increase in the finance cost. On the whole, we have achieved EBITDA per tonne of INR 893 without other income and INR 949 with other income, so that's a favorable trend. In terms of the project progress, we have completed around 92% work on our Sanghipuram, that is Kutch unit, where we are commissioning 3.3 million tonne clinker unit, 2 million tonne grinding unit and 67 megawatt of power plant. We are expecting the -- all of these facilities to be commissioned during the period April to June in -- at different dates on -- during this month, latest by 30 June. And in terms of the Surat unit, we had mentioned last time that we are revisiting the time line of the Surat visit. And for the time being, we have put it on hold, and we will consider that about 3 to -- about 6 months later once we have stabilized this unit in Kutch. Now I think that concludes my discussion, and we are open for the Q&A.

[Operator Instructions] The first question is from the line of Ashish Kacholia from Lucky Investment Managers.

Madam, I have 1 question and 1 suggestion. So I'll go with my question first. My question is that we are going to have this additional capacity coming on stream. So how are you envisaging the demand environment in the production location that we are? And the demand-supply equation, basically, if you can explain.

So as far as -- Ashish, the demand situation is improving significantly in our region. Q1 and Q2 were significant negative. Q1 was negative of about 11% in Gujarat, and Q2 was about 15% negative in Gujarat. In Q3, we have experienced a revival in demand, and we are at flat. So there is no demand loss in Q3.

Q3 versus Q3, is it?

Q2 versus Q3. So Q3, Y-o-Y, we are at flattish demand. There is no degrowth in demand anymore. And Q4, we are already -- January has started off on a positive trend. So demand seems to be reviving after all the bad news which has happened in the first and second quarter. And so we expect that 2021 should see at least a 6% to 7% improvement in demand, is what we think.

How does that help us to utilize the 3 million capacity?

So first and foremost, we are struggling with the volumes which are available even in Q1 and Q2. So that will allow us to creep back to our normal market share. And with the new line, which will come into play, we will be able to increase our market share in the market. We are at sub-10% right now. So there is adequate room to grow with the incremental demand as well as there is no new capacity which is coming in, in our region. So that will allow us to scale back the volume which has been lost and to gain back some additional market share.

No, what I understand, even our existing capacity has not been utilized fully, right?

That is because we don't have volume available. If you see, we have purchased clinker of 50,000 tonnes even in Q3. That is because of the poor availability from the unit.

So if you can talk a little bit about the utilization of this additional capacity in FY '21, '22 and '23. If you can talk a little bit about that. Is it possible for you to give some indication?

So assuming that we get the capacity in Q1, we expect that in 2021, we will be able to achieve a total sales of about 3 million to 3.5 million tonnes, depending on when the capacity gets utilized.

FY '20, what are we expecting, total production?

We'll get about 20 to 21 lakh tonnes in this year.

So next year, we are talking about, what, 3.2?

No, anywhere between 3 million to 3.5 million depending on when the capacity gets commissioned. Assuming we get it earlier in the quarter, then we'll be able to get a quick ramp-up versus if we get it a little later in the quarter, we'll be able to -- we'll get only 9 months or 10 months of utilization.

Okay. And then the year after that?

The year after that, we are -- I mean we'll be able to do probably about 4.5 million tonnes.

So you're saying 1 million extra -- 1 million to 1.2 million extra this year -- FY '21 and another 1 million to 1.2 million tonne extra the year after that?

Absolutely.

Okay. And you feel that there is a additional -- there is available space in the market to place your cement volumes?

Huge space, I think. Two reasons: one, we -- our traditional market share within Gujarat is about 13%, which has dropped to about 9.5% in the first 9 months of this year.

Why is that?

Because we have lower availability of material. So if you see, we have dropped our volume in this quarter by about 30% versus industry has not degrown. So we have lost market share in this quarter because we didn't have availability.

Because our plant was not running properly or what?

We had lower stock when we were entering Q3 because of the poor monsoons and because we did not have mines available, or rather the material was very wet, which was explained in the last quarter call.

Yes, Yes, Yes. Okay. Yes. Correct.

Right? And then we had to take shutdown in this year, so -- in this quarter. So when we took a shutdown, we had very limited clinker available. And so we even had to purchase clinker in this period.

Got it, got it, got it. Okay. And there was some talk that UltraTech has got some further expansion plans or they have some additional capacity available, so they're going to kill us in terms of market share and all that. Do you have any view on this?

So I don't know about that. I've not heard anything like that at least in our region. There is no talk of any expansion in our region. In any case, UltraTech controls almost about 40% market share, so their growth is more or less now stagnant with what is the industry demand growth. Say, if industry grows by 3%, 4%, I don't expect UltraTech to be able to gain significantly more market share compared to this, whereas compared -- if you look at our situation, our natural market share is about 13% because of the capacity. And with the new capacity coming in, we should easily to be able to reach 17%, 18% in Gujarat. Besides that, we have Mumbai market, which is underutilized at this stage, where we'll be able to push volume. So we are very confident that we'll be able to hit the numbers.

This additional 1 million and 2 million that we're talking in the next 2 years, how much of that are you going to supply into the Mumbai market?

So we are looking to supply roughly around 25% of the total capacity outside Gujarat, which will include Mumbai, Rajasthan and everything.

So incremental?

So incremental will be higher, obviously, because the growth will come there. And we are currently at about almost 90% Gujarat sales, which will drop to about 75% Gujarat sales and 25% will be outside Gujarat sales.

Okay. And this shipping arrangement that you have for shipping to the Mumbai markets, that is all tested and now proven? How much can you -- I mean you can ship 0.5 million tonnes to Mumbai because of all the loading, unloading and everything, all the logistics?

So in peak -- during the peak months, we may have to charter a couple of vessels. But otherwise, I don't think we have a challenge. We have 2 vessels available with us, each of about 4,400 tonnes, which should allow us to do this. We own the infrastructure at both ends, both at Mumbai as well as Gujarat. And so again, we should not have any challenges.

What is the transit time for this vessel from your port to here, Mumbai?

Roughly around 4 days.

4 days. 4 days and 4,000 tonnes per vessel. Okay. And this -- the margins in this -- in the Mumbai market are going to be better than what you're getting in Gujarat?

This quarter was not, because the pricing in Mumbai this quarter was lower than pricing in Gujarat. For example, the price in Mumbai was averaging around INR 275, whereas Gujarat gave us a price of about INR 285. So only in this quarter, it has been lower. But generally speaking, Mumbai prices are traditionally higher than Gujarat by about INR 10. So since we have the same freight to reach Mumbai and Gujarat, there is no advantage or disadvantage to feed any of this -- any of the markets.

And why did you postpone your plan in Surat?

Because we feel that 2 years have been lower. We were expecting a higher volume to be available. The outlook when we were -- when we decided to postpone in the first 2 quarters, if you look at it, were significantly negative. Q1 was about 12% negative in demand and Q2 was about 15% negative in demand. So we felt it was not worthwhile to take up the entire 4 million tonnes of grinding capacity. Anyways, if we put up the capacity and can't sell it, that capacity will lie idle. So we thought we'll postpone it by 6 months and focus on commissioning the existing unit, ramping that up and then we -- parallelly we can roll out that unit.

[Operator Instructions] The next question is from the line of Mangesh Bhadang from Nirmal Bang.

Sir, the volumes have been extremely low. You mentioned about the shutdown. I just wanted to ask if -- is there any problem with the plant that we are doing right now? Because generally, after the expansion or the 4 million capacity we reached in FY '16, we have not been able to reach above 3 million volumes consistently. This year, we'll do 2.1 million, which would be at around 60% utilization. So first question is, is there any problem or any accident that happened in the plant because of which such a long shutdown was taken?

No, there has never been any accident at the plant. What has happened is that because of the monsoon, we don't have any -- the mines were not operational. And therefore, while the plant is ready to operate, because of the heavy downfall, the mines were flooded and we were not able to extract the material. Even the material which we were extracting was very wet in nature and, therefore, was causing frequent stoppages at plant. Due to this, in Q2, we had very low production. If you notice the numbers of Q2 also, the Q2 production volumes are very low and, therefore, the exit -- we did not -- at the exit of Q2, we did not have adequate stocks to continue with our sales during Q3. In this period, obviously, we had to take the annual shutdown. And when we took that annual shutdown, we ran out of clinker and, therefore, we even had to purchase clinker. So there is no problem with the plant. This was more of the fact that there were extended monsoons which happened. And we had Vayu, which hit Kutch, which impacted our units more than any other player in Gujarat.

Okay. And sir, the second question is on the expansion that we have. So we have higher clinker capacity than cement, but still our existing capacity still has some more room to grow in terms of utilization. So how confident are you in terms of achieving even a 40% or 50% utilization level in the first year because of the numbers you mentioned, 3 million, 3.5 million? And -- which actually should -- you should be having 5% incremental market share in Gujarat. So how do you plan to do it? What would be your prices for this year? And either are you looking at different markets?

So let me try and explain this a little bit. There is no mismatch in capacity. We will have 6 million tonne of clinker, and we'll have 6 million tonne of grinding capacity. First and foremost -- and what we are talking about -- roughly around 3.5 million tonne of sale for 2021 will give us about 60% cement capacity utilization. What we also plan to do is that we have international clinker export market, which I explained even on last call, where we believe that we'll be able to export some volume for the first 2 years, which will allow us to utilize our clinker plant to above 75% capacity. So the strategy is to try and maintain a healthy clinker capacity utilization, push domestic cement by 1 million tonne each and, at the same time, build up the Surat grinding unit in parallel. So once we do that, as domestic capacity keeps ramping up, we will switch over the clinker exports to domestic sales.

And just lastly, the firing cost probably was mentioned was around INR 0.90, is it?

You mean the coal cost?

Coal cost, yes.

INR 0.95.

The next question is from the line of Sanjay Nandi from Ratnabali Investments.

Sir, just wanted to know one thing. Like, can you just elaborate on the pricing scenario? Like, in December, the prices dipped a bit. So what is the current pricing as of now in the, like, first week of February and in Jan as well? And how the things are shaping up?

Pricing is quite healthy currently in Gujarat. If you -- like what Bina was explaining that the price dropped mainly in December, whereas the pricing was quite healthy in October and November month. On a sequential basis, there is a 4.5% drop in this quarter. But on a Y-o-Y basis, if you see, there is an improvement in price by almost about 7% to 8%. Now in the current quarter, which is the Q4 quarter, we have come back to the pricing which we had in Q2. So the loss which was there of about 5% sequentially from between Q2 to Q3 has been taken back by the market. And so now we are at improvement trend.

Okay. So that means we are heading -- like we are at present in the Q2 pricing kind of thing, right, sir?

Yes, we are in the Q2 pricing range. Yes. And this is holding up. So again, because -- it is holding up also because the demand is improving and, therefore, we are able to get back this pricing.

Okay. And sir, is there any headroom for further rise in the price if the demand is recovering? Because you just mentioned that we are heading to some good recovery in the demand kind of thing in the next year...

My objective right now -- rather our company's objective is to try and ensure that there is no price disruption. If you look at it, the Western region is more stable price regime versus what you see in East or South of India, where there are wild fluctuations. We believe that consistent pricing with small gains is healthier trend than trying to take big swings. So I think the price where we are is very comfortable. Maybe we'll see a couple of percentage points going up or down till the monsoon period.

Okay. And sir, we have also used coal. So is it our domestic coal or is it imported coal in our power mix?

No, we have imported it.

Import from?

From Indonesia.

It is necessarily imported coal.

Imported coal. And ma'am, is it possible to share the production numbers for this quarter and also the previous quarter, if possible?

Sir, if you can just drop me a mail offline, I'll share with you.

Surely, surely, ma'am. I'll do the same, ma'am.

The next question is from the line of Indrajit Agarwal from Goldman Sachs.

Two questions. First, can you shed some more light on the competitive scenario in Gujarat market currently? What is the total capacity utilization like for the industry? And where do you see that shaping up going into FY '21? You mentioned 6% kind of demand growth. Do you think it is enough to support the price increases that has been taken recently?

Yes. Well -- so first thing, the total capacity in Gujarat is about 29 million tonnes. This includes ABG Cement, which is a non-operating unit, of about 4 million tonne. So barring that, we are looking at a 25 million tonne of total capacity available in Gujarat. The current demand scenario, if you look at last year's figures, were about 23.5 million tonnes of total volume sales. We will probably end up with roughly around 22 million tonne in this year. 22 million to 22.5 million is what we'll end up with this year. There is no new capacity which is coming up in Gujarat other than us. So if you look at it, Gujarat, in particular, is sitting pretty healthy in terms of a balance between demand and supply. Of course, what happens is that there are capacities sitting in North India on the border of Gujarat and Rajasthan, which push almost about 20% of the volume into Gujarat. But at the same time, Gujarat players also operate in Western regions of Mumbai, Mangalore, Cochin and we export. So Gujarat is a pretty balanced market when it comes to a demand-supply scenario. This gives us an advantage that assuming that demand grows by about 5% to 6%, we are looking at 1.5 million tonne of new capacity -- or new demand generation and gives us a comfortable opportunity to take a bulk of the incremental demand because we will be the few players who have the capacity to push volumes in Gujarat.

Sure. And when you talk about 6% demand growth, could you highlight a few segments or areas where you are seeing a better demand in terms of, is it rural, housing or infrastructure?

So where we are seeing bulk of the demand generation is from the government infrastructure projects. Today, government controls -- or rather government is contributing almost about 40% of the total nontrade segment sales in Gujarat. Secondly, if you look at the real estate sector, we don't see it to improve at least for another year, maybe more. The new launches have reduced sharply, and the people are focused on more about completing their existing projects. In rural, demand scenario is more or less balanced. There is no growth or degrowth in that segment. Roads and buildings is another area where we are seeing good traction and a lot of work happening in this area. So fundamentally, it is government's spending as well as road projects which are giving us this incremental demand.

Sure. And last question from my side. You talked about imported coal. So what kind of inventory do you generally keep and given the price fluctuation? So can we expect more cost savings on power and fuel in the fourth quarter of this year and first quarter of next year?

Bina can probably take.

Last couple of months, we've also purchased some pet coke and prices continue to remain stable for coal. So -- while I don't want to give a very different picture, but we'll continue to sustain this cost or might improve marginally over this cost also.

[Operator Instructions] The next question is from the line of Amit Murarka from Motilal Oswal.

Just a couple of questions. One on trade. What was the trade mix in this quarter?

Roughly around 35% was the trade mix.

Okay. And like -- just to understand, like, given that there were limited volume available in the quarter, like, shouldn't -- I mean wouldn't it have been more profitable to sell in the trade channels more then?

No. So if you look at it, there is a -- the market is more nontrade in Western India because it is far more developed and more organized market. So therefore, the balance will not shift too much between trade and nontrade. That is one. Secondly, the margins which the company make in both trade and nontrade are more or less equal. There is no advantage to sell higher volume in trade versus nontrade and vice versa for the company because in Gujarat, the pricing of trade and nontrade are predominantly pegged. So for example, if you sell at a higher price in trade, the cost to service the trade market is more or less equal. The margins which you have to give to the trade channel, the warehousing cost which we have to incur to try and cater to small deliveries and the higher GST rate more or less offset any advantage in margins for the company, whether we sell in trade or nontrade.

Okay. And like -- given that, again, there was limited volume available, so I was -- I wanted to understand why the realization dropped 7%. I mean shouldn't the drop have been lesser given that you could have chosen which segment you want to cater to?

Yes. That is true, but we don't control the price. If the prices have dropped in the market, we would have to correct our pricing to try and meet that demand or even to address our customers. If we don't correct the price, we would have had 0 sales.

Okay. So it's largely a function of market price decline then.

Yes, absolutely.

And also just lastly, can you share the debt breakup as of December?

So in terms of debt, we would have outstanding of around INR 485 crore at the end of this quarter. And in totality, by June '20, we will be borrowing around INR 650 crore for the new project and add to it around INR 250 crore of working capital, which keeps fluctuating depending on the use.

Sorry, term loan is how much currently you said?

Around INR 485 crore, existing term loan, plus we would have drawn somewhere around INR 500 crore -- maybe 480 crore, INR 500 crore by the end of December. We'll end up doing INR 650 crore for the Kutch project in totality.

Okay. And how much is working capital debt as of now? INR 250 crores you said.

Yes.

Okay. And just one more. Like, what is your status on the Middle East in exports? I mean are we on track to kind of start exporting starting FY '21?

Yes. So as far as exports is concerned, Middle East is not a huge market when it comes to clinker exports. We have better markets in our vicinity, fundamentally Sri Lanka, Bangladesh and Africa, which are clinker markets. And -- so we are in touch with all the customers over there, and we are quite confident we'll be able to hit our numbers.

The next question is from the line of Prateek Kumar from Antique Stockbroking.

I have questions. Firstly on -- when you say you had like maintenance shutdown of 24 days -- annual maintenance shutdown this quarter. So how was this, like, last year and which period it was taken?

Last year, it was also December quarter, I think, around 17, 18 days in last year -- 16 days in last year.

So basically 9 days additional shutdown would have impacted our volumes whatsoever in this quarter?

In December, you are right, about 9 days. However, as I said earlier, in October, we still had the late monsoon impact plus the cyclone impact. So October didn't go well for us on the production side.

Right. You mentioned there was additional cost of shutdown-related cost and other expense. How much was that this quarter versus last year same quarter?

Roughly about INR 5 crore.

How much?

Around INR 5 crore in this quarter.

Okay. And similar number would be lower last year?

Yes. I don't have the last year's number in front of me because shutdown costs have variable impact. So essentially, they are not comparable from a year-to-year basis.

Right. And the raw -- and you also mentioned about raw material costs going higher because we had like INR 15 crore purchases from outside. So normalized RM costs would have been like compared to, what, INR 31 crore is what we have reported?

Normalized cost -- there is no change in the normalized cost. So you can take last year as an -- last quarter as an indicative quarter. So -- but this was only onetime impact. On a quarterly basis, there's no change in the raw material cost for our production process.

Okay. So there is a huge swing in inventory position building up during this quarter, which is, I believe, is a finished goods inventory. So despite having shutdown, why the inventory has gone up for us?

We have also purchased substantial amount of coal just when we were about to enter shutdown. That would get stored for this figure. So that would also be one of the factors for overall inventory impact. And besides that, there has been finished products as well as raw material work in progress, which would bear in this stock at the end of the quarter.

Okay. So we built like a lot of coal, but we couldn't use because we had a shutdown. That's why we have increased inventory?

Equal to that. After the shutdown, we have purchased some coal. We have purchased this clinker during that period. So all of that is -- whatever is lying at the end of the year at a higher cost, that would sit in the inventory. The clinker purchased is also to the extent of unused quantity.

Right. And are bulk cement proportional? Has it fallen like -- that crawled, I think, 30% last quarter. So it has come back to like 20% you mentioned?

So the blended ratio has improved. The blended cement sales ratio has improved. Bulk would normally be OPC. So I will sell more of PPC or you sell more of OPC, which would go in bulk. So in a scenario where you have limited volume available to sell, the preference is to go for more of PPC which has higher realization load.

Right. And ma'am, when you talk about next year's volume target of 3 million, 3.5 million tonne, so this is only cement or this includes like potential clinker exports which you're also looking at?

No, this includes both clinker and cement.

Okay. And one last question on prices. So when we say we have recovered the December losses, so how much was the increase in January? And what are the current prices in Gujarat?

So the pricing -- we have crept back about 5% in the last 2 months, in January as well as beginning of February. So we are back to the same levels as Q2 today.

So which is like INR 20, INR 30 increased price?

No. Overall, maybe about INR 20 improvement.

The next question is from the line of Ashish Kacholia from Lucky Investment Managers.

Yes. Madam, my suggestion was that you should have a quarterly investor presentation. That's all.

Quarterly investor presentation?

Yes. All the companies do it, so I mean there is no...

Sure. We'll do that.

The next question is from the line of Ritesh Shah from Investec Capital.

Sir, in the earlier question, you indicated about the infrastructure. I think Mumbai is a key market for us. Can you highlight what sort of infra do we have at Dharamtar and PNP?

Yes. So we have silos over there. We own a ship unloader, and we have rights for exclusive use at a jetty over there. This is what we own. And obviously, we have a packing unit to pack cement and discharge.

Okay. So what is the capacity for the packing unit over here?

So we will be able to -- between bag and bulk combined, we will be able to dispatch more than about 1 million -- 1.2 million tonne.

' 1.2 million tonne plus. Okay. And sir, I just had 2 follow-up questions over here. I was looking at the infrastructure at this particular port. They are under expansion from -- to 19 million tonnes from around 3 million to 4 million tonnes. So does it mean that potentially more cement players can come in the same market?

Theoretically, what you're saying is right. We don't have exclusivity on the setting up of unit over there. But obviously, we have exclusivity on one of the jetties which they have. They have 5 jetties over there, and we have exclusivity of one of the jetties. So other 4 being very congested, therefore, we had to -- and get rights for one of the jetties. If any new player comes in, we'll have to -- or rather they will have to deal with the traffic congestions at the existing port or PNP.

Okay. Sir, when we say traffic congestion -- sorry, I might deviate a bit. But when we look at evacuation, how does it stack up? Because you have JSW, which is also expanding another 5 million tonnes of steel capacity, which essentially means their inbound cargo will increase by around 8 million tonnes and so will their outbound by around 5 million tonnes. So how does the railway network actually stack up? So you did indicate congestion on the jetty side, which I was not aware of. But if you can explain both on the jetty side as well as on the rail network how convenient is it right now and how it will play out going forward?

We are not using any railway network to either bring in cargo or to evacuate cement cargo. Our catchment area is about 150 kilometers surrounding the unit, which means that we are able to cover the entire city of Mumbai, and we are able to reach Pune. That is the catchment area in which we are operating in. As far as the congestion at jetty is concerned, they are -- the current PNP Port is operating predominantly on coal cargo as well as some container cargo. And because of that, their jetties are frequently occupied. What happens is that for cement kind of a cargo, where the discharge rate is much lower than a bulk cargo like coal, the priority for vessel is not given for slow-moving vessels like cement. And therefore, what we did was, we had purchased rights for operating at one of the jetties at exclusive use for our company. And therefore, we are not bothered about what happens with the congestion at their other jetties. This is what I was trying to convey.

[Operator Instructions] The next question is from the line of Chandra Govind from Ashmore.

This is Ashwini here. One quick question. Why does the maintenance shutdown happen in the -- at the start of the peak season in December? Is it not possible to take it during the monsoon months when production is anyway low because of the mines being flooded, et cetera?

You are absolutely right. We used to do only in monsoon period. However, last year, we had a delay in deliveries of equipment by vendors because of which we had to push the shutdown by about 3 to 4 months' time. And because of that, now we were -- we had to take it again in the third quarter. We are trying to get back to the cycle of trying to take monsoon shutdown so that we don't face the problems that we faced this year.

And the -- from what I understand, the shutdown in cement plants typically happens -- 1 year you have a shorter shutdown, the following year you have a longer shutdown. So 1 year you -- it will be 15 days and the next year it will be about 23, 24 days. Is that cycle applicable across the board for all cement plants? Or is this...

No, Ashwini, actually, it is -- twice in a year you take a shutdown. The first shutdown you take, which is called a mini-shutdown, is for a week, where you make repairs to equipment wherever there is some major damage, which happens typically between 5- to 7-month period. And this major shutdown happens anywhere between 11- to 12-month period, which is generally about 15 to 20 days' time period.

So this time in December 2019, it was much longer than usual also?

Yes, about 4 days -- rather about 6 days longer than what we had anticipated.

And at the wrong time of the year from a production perspective?

Absolutely. We got caught out because we had 0 inventory due to the prolonged monsoons when we entered into shutdown. And so we had to ration the volume which was available. At the same time, we had to scramble to procure clinker from whatever sources were available, which are at much higher costs than our own production costs and try to feed the market. So we were caught in these 2 cycles of having a poor Q2 and then when we entered into Q3 with very low stock, we were peaking at the wrong time, and we had a shutdown at the same time.

And when does the minor shutdown happen usually, that 1 week or so?

So again, we will probably take somewhere in the beginning of Q1 or -- so about 4 to 5 months after major shutdown.

Okay. So you need to move that whole cycle back to monsoon and then maybe January or something?

Absolutely.

The next question is from the line of Mangesh Bhadang from Nirmal Bang.

Sir, just wanted to check, based on current prices, the profitability for clinker exports would be -- as a percentage to the domestic profitability, how much difference it would be?

So I've explained last time also, the current pricing for exports is roughly around $30 to $31 in the international market with a -- we can expect, let's say, a EBITDA per tonne to be close to about INR 600 to INR 700 on clinker exports. Versus domestic cement, if you look at it, we are closer to INR 1,000, even with the low volumes as well as higher purchase of clinker. So definitely, domestic sales is far more profitable than export. But the point being that when you are able to utilize your clinker capacity and export, it's still in profitable market.

Yes. Perfect. Sir, just lastly, how much -- have the mines -- the flooding-related problems in the mines sorted out? And can we have the full production or the material available in this quarter?

Yes, absolutely. That was a monsoon-related problem where -- because of the continuous rains in Kutch, which is more or less a desert region, you don't expect this kind of rainfall to happen. And because of that, the mining bench was completely filled with water and, therefore, we were unable to extract the material. That is the challenge which we faced. Now since monsoons have retreated, there is no such challenge.

The next question is from the line of Subhanu Chakrabarti from SBICAP Securities.

I have only one question. So this quarter, we have purchased INR 15 crore which is of clinker. So I just wanted to find out how many tonnes of clinker was that?

Around 50,000 tonnes.

Yes.

50,000 tonnes?

Yes. This includes -- I mean this is delivered cost, including freight, et cetera.

Okay. Okay. But from what I understand, the cost would effectively boil down to about INR 3,000 per tonne?

Yes.

The next question is from the line of [ Saurav Duggal ] from HDFC Securities.

Sir Rajesh Ravi here from HDFC Securities. I have a few questions. Sequentially, if we see, we have seen our margins have expanded even though we have seen lower pricing Q-on-Q and even on cost we have purchased clinker, incurred higher purchase cost of clinker versus own production and higher maintenance cost. So -- and utilization have remained -- grinding utilization have remained flattish. So what drove sequential margin improvement?

So basically 2 things: one, clear change, on a sequential basis, is on the cost of production, power and fuel; and second, because, as you can see, on a purchase of fuel basis, we have achieved a substantial drop from INR 1.07 to INR 0.95. So that was about 12%, which has a clear advantage on the -- both power and fuel impact. And second key impact is that, while you can see that the other costs may not have dropped as much, but that is reflected in the -- or clubbed together in the inventory movement because of the inventory at the end of the period. So therefore, on a -- each expense side you may not see so much of drop in the cost, but overall that has been a significant change. So if you put all together, then clearly there is an expansion in the volume, even -- expansion in the profitability, even on a sequential basis, Y-o-Y, if you see, clearly, the price impact is also about 8%, 9%. So that has helped.

Okay. But you would mean to say that sequentially the reduction in power and fuel cost is significant enough to offset the higher clinker purchase and poor realization? Sequentially, I would mean. Or was there any other savings which we would have seen? And -- or are there any one-off numbers...

Marginal savings were, say, for example, in -- no, there are no one-off numbers. Marginal saving in, say, packing cost, savings in power/fuel cost, raw material also has been maintained, but for this one-off of INR 15 crore. So overall, I would say that, that has had the impact.

Okay. And what would be the operating cash flow if you may have that number available for 9 months?

I don't have in front of me, but I can work out and share with you later.

Okay, ma'am. And on the clinker exports, what is the guidance -- what are the numbers you're looking at, ma'am? And Q4, will -- would there be any contribution from the export market?

So export of cement we are even doing currently. What we...

No, no, clinker export, sir?

Clinker we are not exporting currently. Clinker exports will only start probably from Q2 or Q3 of 2021.

Okay. And what is the number you're looking at for the 6 months of FY '21?

We'll explore that closer to the date because we'll have to sign some contracts. Currently, we have exploratory interest, but no comments as of now.

Okay. But do you see that's -- earlier what was the peak on a quarterly basis we were able to export, sir?

So, let's say, very early on, we used to export about 6 lakh to 7 lakh tonnes of clinker. I'm talking about -- almost about 8, 10 years ago, when we had significant volumes coming in from export markets. So in those days, we could do 6 lakh, 7 lakh tonnes. It's very easy to get that same number.

Alok, in the demonetizing quarter also, we have done 6 lakh tonnes a quarter...

Yes, we did about 6 lakh tonne of sales during demonetization period where we thought that domestic market would not support, and we went out and procured clinker orders, and we were able to do about 5.8 lakh tonnes of clinker sales in that year.

Okay, 5.8 lakh tonnes of clinker...

I'm not worried about getting clinker volumes. Our challenge will be to try and push as much volume in domestic market to get better margins. And then the remaining volume we will be able to source via clinker exports.

Sir, gross debt, inclusive of your current maturities and all, what was it in September and current level, sir, total gross debt?

I don't think we have prepared debt numbers for the quarterly discussions. But I've already mentioned that by June when we complete the new expansion, we should be somewhere around INR 1,100 crore of gross term debt and INR 250 crore of working capital.

[Operator Instructions] And due to time constraints, we will take last 2 questions. The next question is from the line of Sumangal Nevatia from Kotak Securities.

So just 1 small question. I just wanted to Gujarat market a bit better. So last 5, 7 years, how has the growth been versus all-India growth? And given the per capita consumption is higher, does it generally underperform in all-India growth?

No. Actually, if you see, Gujarat was a better performing state for the longest period. It is -- due to the slowdown since 2014, we are seeing a slowdown in demand in Gujarat. And this is predominantly because it's a more industrialized market. And -- so the spending is driven more out of real estate, industrial institutions, government, various players who are operating. The rural housing demand is a smaller portion of the overall demand mix. Like I said, the first 6 months of the year has been quite challenging, so we were looking at double-digit demand degrowth, which has come back to flattish demand growth in Q3, and we are looking at a healthy number for the year. So we may probably end up the year somewhere around 22.5 million to 23 million tonnes of overall cement sales in this market.

Sir, what would that number be in 2014, '15, total cement demand, say, 22.5 million, what you said this year?

Maybe about 21 million tonnes would have been the total -- I don't have exactly with me, but I would guess somewhere around 21 million tonnes would have been the total sales in 2014.

We'll take the last question from the line of [ Anil Singh ] from Okasa Finvest.

I wanted to know any reason for the high pledges of the promoters.

So we have explained this before that the pledge also includes 51% nondivestment undertaking as an encumbrance as now required by the SEBI guidelines. Therefore, if you remove that, then the pledge is not very high.

And this is on account of the loans taken by the company as such, not by the promoters or anything, right?

Please go through the notes given under the shareholding pattern disclosed to the stock exchanges. That also clarifies these numbers.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Vaibhav Agarwal for closing comments.

Yes, thank you. On behalf of PhillipCapital, I would like to thank the management of Sanghi Industries for the call and also thank the participants joining the call. Thank you very much, sir. Thank you very much, ma'am. Margaret, we'll now conclude the call.