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 Q2 FY '21 call of Sanghi Industries. On the call, we have with us Mr. Alok Sanghi and Ms. Bina Engineer, Whole Time Directors of the company. I would like to mention on behalf of Sanghi Industries Limited and its management that certain statements that may be made or discussed on the conference call may be forward-looking statements related to future developments and the current performance. These statements are subject to a number of risks, uncertainties and other important factors, which may cause the actual developments and results to differ materially from the statements made. Sanghi Industries Limited and the management of the company assumes no obligation to update or alter these forward-looking statements whether as a result of new information or future events or otherwise. I will now hand over the floor to Ms. Bina Engineer from Sanghi Industries for opening remarks, which will be followed by Q&A. Thank you and over to you, ma'am.

Yes. Good morning, Vaibhav, and good morning my dear friends on the call. So we are -- I think, now the industry and the country as a whole, we are recovering from the COVID impact and things are looking up bright. And as an industry we are also now coming out of the seasonal impact of monsoon and we are into dry season from September onwards, which is reflecting in the industry performance also. So this quarter under review for the September quarter, we have had of course some fading impact of COVID in the initial about 45 to 60 days. And also, August was one with very heavy rain fall in Gujarat, and I think the rest of the country also received a lot of flooding incidents and we had heavy rainfall. Roads were cut off, construction activities was affected. And of course, the corresponding impact on the demand was there. So this quarter has seasonal as well as COVID impact to that extent. In terms of our volume numbers, we have done 3,90,307 tonnes during this quarter compared to 4,52,000 in the preceding corresponding quarter. However, if you see only the domestic cement sales, the drop is about 9% from 3,81,000 compared to 4,18,900 tonnes in the corresponding quarter. Typically, the RMC segment was affected during the quarter -- first and the second quarter of the current year, and the drop in volume has occurred mainly on account of the drop in cement export and RMC volume. In terms of our blending, we have the product mix blending. We have OPC as 62% sales and 38% blended cement. We have done about 61% nontrade and 39% trade sales. In terms of our regional mix, we have done around 86% Gujarat and the rest is outside Gujarat. Kerala and Maharashtra and Rajasthan, these 3 states are the more dominant states in outside Gujarat volume. And we have now new strategy for both Maharashtra and Kerala, which we'll delve upon later during the call. So the component of these 2 states has already increased slowly. In terms of our gross volume, we have done INR 220 crore sales compared to INR 262 crore sales in the previous corresponding quarter. As I said, some amount of drop is registered on account of the other segments, but basically domestic cement sales segment has dropped by about 13%. In terms of the average realization, we had a seasonal drop in -- correction in prices by about 4% to 5% on a Y-o-Y basis. In terms of various cost factors, we have had the cost savings during this quarter and first and foremost is the raw material. In the previous corresponding quarter, we had purchased clinker, which had impact on our raw material cost for that quarter. So we have not had to buy any clinker during this period, and we are holding good amount of clinker stock now. So almost INR 90 impact which was in the previous corresponding quarter has been eliminated. That is the first big saving. And even in terms of our own consumption of raw material for the manufacturing purpose, we have dropped the cost by roughly around 20%. These are attributed to the gypsum cost savings. As we said that gypsum is available though delivered at 0 cost and other savings on account of other mix like sludge, et cetera. So effectively, we have achieved 20% drop in raw material costs of own material and the clinker purchase is also eliminated. So there is good saving visible in the raw material cost. In terms of our power and fuel cost, our fuel continues to be the imported coal from Indonesia. And therefore, there is marginal change comes on a Y-o-Y basis that we are having on the per [ salary cost, ] which has come to about INR 1.02. So there is about 2% increase in the Y-o-Y cost on fuel that we have consumed, both for the power and the fuel. If -- however, the processes have shown savings, and therefore, we have effective saving of about 5% on the overall power and fuel cost. The production had also been stable during this quarter compared to the sequentially previous quarter of June. So that has also helped in the stabilizing the power and fuel costs. In terms of other operating costs, the -- there has not been any significant impact on foreign exchange, and there has been, in fact, appreciation. So foreign exchange impact is not registered. We had consciously controlled the advertising and other costs for this quarter. So we have done some marginal savings on these costs also. So to that extent, the operating cost, we have seen a saving of about INR 4 crore on a Y-o-Y basis. In terms of selling and distribution costs, we have INR 1,310 compared to INR 1,306 in the previous corresponding quarter. This is the comprehensive cost of freight as well as the sales distribution cost. While the fleet is about 4% lower compared Y-o-Y, the same been offsetted by the higher distribution -- higher selling and promotion cost -- selling promotion cost. So to some extent, there has been a more support to the dealer network, et cetera and which has helped -- which has been planned. So that is why the impact is there on the sales promotion cost. Finance cost has been stagnant at the same level as in Y-o-Y basis. And on a gross -- net income basis, we have INR 173.5 crore and an EBITDA of INR 37.91 crore. As you see, effectively, the EBITDA per -- operating margin has improved over net income by a good 10% improvement in the operating margin on a Y-o-Y basis. So that establishes the cost leadership once again. And the EBITDA per tonne has been at INR 971 compared to INR 894. So these are the broad operational developments during the quarter. And in terms of our project completion, we are -- as we have planned, we are expected to complete the project during the current quarter and the funds were already tied up. So things are moving as per the plan, and we're expecting to complete the project by this quarter end. So I think these are my broad remarks and we can open for the Q&A.

[Operator Instructions] The first question is from the line of [ Aman Sonthalia from AK Securities. ]

Ma'am, my question is that we are not able to run our capacity properly and we are expanding the capacity. So how we will manage to sell the product -- sell the cement extended capacity going forward?

So I can take that. Alok here. So first and foremost, I think it is too late in the day to discuss whether the capacity, which has been installed now, whether it is the right decision or wrong decision. The decision was taken 3 years before or more. And so today, it has no relevance to discuss whether we'll be able to sell the 6 million tonne capacity or not. COVID or unforeseen situations will happen, and we have to manage with it. What we are focused as an organization now is to how we can ramp up the capacity that is available and how to maintain healthy margins while doing so. If you think about it, now we have an established capacity. So in case there is an improvement in demand scenario, we'll be best placed to cater to the incremental demand which will come in. Having said that, we have already reiterated on the call many times that we are looking at a gradual ramp-up of capacity in the next 2 years. And we are quite confident that we should be able to do it, obviously, subject to demand opening up.

And sir, how is our power cost as coal prices has come down a lot? And in the last call when I was talking to the madam, she was telling that already you have high-cost coal in your inventory. And from October onwards, I think you will have low-cost coal. So can we expect the fuel cost to come down going forward?

There would be marginal impact on sale cost, but I don't see any significant impact because whatever savings are occurring on, for example, coal procurement, since our lignite component is reduced, that would be offsetted. So I don't see any significant changes in the cost structure. As I mentioned, we are already the lowest in the industry on all accounts and also on an overall operating cost basis. And I believe that whatever room -- little room is there for further improvement, we are always pursuing that, but I don't think there is any specific comment from us on the coal cost.

[Operator Instructions] The next question is from the line of Prateek Kumar from Antique Stockbroking.

My first question is on CapEx. Last call, you mentioned that most of our CapEx is done in this project in form of either completion or in form of advance. But first half, we did do like some INR 270 crores CapEx. So what is this attributable to?

Yes. So a lot of things which -- that -- if you see the movement in the cash flow, the movement has largely happened from the sources which were held in inventory advances which were lying with the contractors, et cetera, the project creditors as well as other assets. So you can -- only INR 68 crore was the long-term borrowing plus some component of the profit earned during the period would have been deferred. So these are more of the book entries with the material which has been received in the stores and was lying with and the various heads has now gone -- been issued and put to use in the project. So that is what is reflecting this INR 272 crore number. The project, as we have said, is complete, but there is also some time lag in the -- by the time the payments are released because there are certain retention money in the project, generally around 10% on the large equipment, et cetera. So therefore, there is a time lag between the physical completion of the project and the financial impact when it would actually go into CWIP. So the large part of that has been done now.

Okay. What would be your current gross debt and net debt position as of September, including working capital?

So balance sheet numbers are there, along with the results, you can forecast that.

Current maturities numbers, ma'am, I've not understood from the results. So what would be current maturities of debt?

I don't have that in front of me right way. So probably, you can connect with me. I will share with you later.

And just one thing on what would be -- I mean, based on, obviously, demand opening up, but would we be targeting like 1.6 million tonne for the year now or 1.5 million tonne for the year now?

So what I can assure is that the demand seems to be opening up faster than what we all had anticipated, and we should see some surprise in terms of the overall demand scenario, which is what we are seeing right up from September and October numbers are also quite healthy. If this trend continues, then a lot of things will change, and we should be able to deliver good numbers. How much will that be? It is very difficult for me to comment because now we are seeing the second wave of lockdown or cases rising. So if the trend of September and October continues, then there is very good scope for achieving volume.

[Operator Instructions] The next question is from the line of Vipul Modi from Gautam Exports.

Now my question is regarding the thermal power plant, 67 megawatts, right? So when is it will be commissioned? And how much would be the cost reduction with it?

No, we already have power plant. See, we have a 63-megawatt power plant which is already there with the existing capacity. And with the second unit which is coming in, we are adding another 67 megawatt of capacity. So with that, the total power capacity will rise to 130 megawatt. So the number that you are seeing is already reflecting captive power for the existing unit.

No. I mean, 67 is expected -- it's under construction, right?

Yes. But 63 is already operating for the existing units. So it will be more or less a replica of the same. And because the total power requirement will go up, therefore, we require additional power plant. It will not have impact on the cost number as such is what I'm trying to tell you.

So it won't result in directly savings what I -- what you mean to say is like for the new project, right?

We're already using -- yes, we are already using 100% captive power only, and we'll continue to enjoy same benefit for the new unit also.

[Operator Instructions] The next question is from the line of Gaurav Rateria from Morgan Stanley.

Sir, firstly, what would be the total sales volume back -- during the quarter? And what would be our market share there?

Market share varies region to region. So it will be difficult for me to give you exact specific market share. As what Bina has already mentioned, we sold total about 3,90,000 tonnes in this particular quarter.

I was just trying to understand that overall market, specifically where we are present like Gujarat, has that also seen equivalent amount of decline? Or has there been a market share shift?

No. So let's say that Gujarat, in Q2, we had good demand in the month of September. July and August were weak because of the monsoon impact, but September was positive on a pre-COVID level. And the same trend continues in October. October, the demand in Gujarat has increased by more than double digit. And so this trend continues. What I was mentioning is that you should see healthy demand coming in for the industry. From our perspective, we are more focused on our realizations. We are more focused on our profitability than market share. However, market share is important component, and we are maintaining the same.

Got it, sir. Secondly, sir, you talked about the ramp-up strategy for the new states -- I mean the other states like Maharashtra and other ones. If you can elaborate on what are you planning from a mix perspective after the new plant is operational?

Yes. So with the -- so one development which we would like to update is that we have tied up with Zuari Cement Limited to access the Cochin terminal with them. So we will share the infrastructure. And therefore, it has given us an access into Cochin market. With that coming through, now we have access to 3 bulk cement terminals on the West Coast of India, one in Rajkot, one in Mumbai and one in Cochin. So the strategy is that we'll continue to operate Gujarat at about 70% to 75% sales mix and 25% of the sales will come from outside Gujarat.

Okay. Sir, lastly, on the pricing front, during the current quarter, the realization seems to have declined on a quarter-on-quarter. So is that also because of the impact of RMC? Or if you were to exclude the RMC on a segment basis, our domestic realization would have declined by how much? And has there been any change in the month of October?

To be honest, actually, the revenue or the prices have not really shifted much. They have remained more or less in the ballpark. However, on quarter-on-quarter basis, if you noticed, in Q1, we had very limited nontrade sales because a lot of project sites were not operating. So now that the project sites have started, there is a shift in consumption from -- or rather the nontrade markets have started, and therefore, there is a -- on a weighted average basis, there is -- there seems to be a decline in price.

Okay, sir. And anything on the October months for the pricing versus what the September...

Pricing is continuing, but October was quite healthy, similar to what we are seeing in Q2. In month of November, because of the [ holy impact, ] some of the retail consumptions will come down, but wholesale will continue or the nontrade markets will continue. So in the month of November, we may see a little bit of drop in realization, but it will come back again by December, is what we see.

The next question is from the line of [ Abhishek Jain from DCM. ] Sorry, we lost his line. The next question is from the line of [ Ritesh Sheth from Edelweiss Wealth. ]

Am I audible now?

Yes, you are.

Yes.

My question is on your volume performance versus peers. So if you see like JK Lakshmi has reported approx 10%, 15% volume growth across their markets. And considering you used to sell -- your company used to sell 6 lakh to 7 lakh of volumes in a quarter back in 2018, that base declined to approx 4 lakh to 5 lakh tonne in 2019 -- '19/'20. And now we are seeing again a decline in this quarter. So how would you rate your volume performance versus the peers? I mean we purely see your market share declining versus peers. So any comment on that would be helpful.

So it is not fair for me to comment on anybody else's performance of JK Lakshmi or any other brand that you're talking about. Obviously, we can talk about our own company and where we stand. As we have already mentioned on multiple calls, the last 2 years, we were saddled with production-related issues and not so much with sales-related issues. In Q1, as you can see that our performance is more or less been in line with what other peers have done. In Q2, the Western India is still not completely out of COVID compared to what has happened in Northeast and Central. The South and West markets are still facing COVID impact. And therefore, you see a little bit of a lag in volume growth. However, as I mentioned before also that these are circumstances which are beyond our control when it comes to market demand and performance. What we have opportunity is to access multiple markets. Like I just mentioned about Cochin, we have an access to reach the entire West Coast of India now. And therefore, it gives us a little bit of more flexibility of how we can sell our volume. And the important thing for us is to focus on, can we maintain the same level of profitability when we go to markets which are far away from our company in Mumbai or in Cochin for that matter. And so the idea is to focus on what volume is available to us, the markets which are accessible by us and to maintain a healthy profitability.

Okay. Got it. And how do you see the impact -- so JK Cement has recently commissioned its 0.7 million tonne capacity. So how you do see that in terms of competitive structure in Gujarat market? Would it -- would the market be able to absorb that volumes? Or would you see a pricing pressure?

So Gujarat as such is a 22.5 million tonne, 23 million tonne market, and they have commissioned a 0.7 million tonne of branding unit, which I don't think is very significant or would have a big impact on the pricing pressure in Gujarat. I think they will ultimately displace somebody who is weaker in the market. And there is a lot of capacity or volume which comes in from Rajasthan, which may get replaced with their volume. So I have no idea of how that will all play out, but I don't think it will impact our strategy or our sales mix.

Okay. And Surat, the capacity is still on hold, right?

Yes. It is still on hold, yes.

[Operator Instructions] The next question is from the line of Giriraj Daga from K M Visaria Family Trust.

My first question is related to our debt repayment schedule, so after taking moratorium. So what is the current status on FY '21 debt repayment? And how we are going to -- like either we are going to repay or we are going to refinance? So what is that status there? And if you can also give the FY '22 repayment schedule, project debt and nonproject debt, both?

Yes, Giriraj. So we -- as per the earlier circular, wherever we have taken moratorium on working capital interest, that is being repaid in the current half year before March '21. So we have taken partial moratorium on working capital, and that is being serviced right now. In terms of all the term debt, existing term debt, we have this NCD. Obviously, on that, no moratorium was available, and it has been serviced on due basis per the schedule. And a few other term loans from the bank and NBFC, where moratorium was available, we have availed to that. And that goes to the end of the maturity. So there is no impact on the forthcoming repayment schedule in the next 12 months or so. In terms of the project debt, there is a moratorium of about 24 -- we will have a gap of about 20 to 24 months from the date of completion. So that would only come up during the last few months of the calendar '22. So somewhere between September and December of calendar '22, it will start. So we are -- we have -- we still have about roughly 2 years before that repayment starts. So I think all the repayments are well staggered, and we have sufficient cash flow visibilty to mitigate all those repayments. And certain aspects, we are in the market for refinance for certain short-term maturity, which is a normal process, and there is nothing unusual about it. And we have also -- we are generating sufficient cash. So there's no concern on the debt repayment. And as of now, I don't have the short-term maturity numbers in front of me, but we can discuss it.

Sure. This INR 85 crore of NCD we are going to refund, right, as of now that is our plan?

Yes.

Okay. Second, a clarification about what you mentioned, I believe you had mentioned in the earlier call that the moratorium was up to December '21. So have you got a extension in a 1 year by -- of moratorium?

No, no, project debt is linked to the date of commissioning, the repayment comment is linked to the date of commissioning. So it will be a certain number of months on the date of commissioning. So I'm expecting that it will commence from September to December '22.

Okay. Because the annual report also mentioned December '21 as the starting date of...

That was based on the pre-COVID situation. So because of the COVID, there has been an extension in commissioning date by about 6 months, and that was the corresponding impact.

Okay. My second question is related to the -- you mentioned that, obviously, last 2 years, you're facing production challenges. So just want to understand, after the new unit coming in, can we ramp up the existing unit also to the full load? So can you reach 80%, 85% utilization in the existing unit, when this new unit comes, so we might not see another tenant coming? Is that the right thinking?

Yes, absolutely. Hello, hello?

Yes, I can hear.

Sorry, I lost you. What I was saying is that we -- what we faced were more production-related issues with our existing capacity. Now those are resolved, and therefore, the existing capacity itself can ramp up. The new unit has nothing to do with the existing plant. And as such, we feel that the total units can produce roughly around 6 million, 6.5 million tonnes of clicker and similar amount of cement should not be a challenge.

Okay. And last question. You mentioned that October was a double-digit growth in Gujarat. Have you also seen similar kind of growth in our volume?

Yes.

The next question is from the line of [ Sagar Parekh from One Up Financial. ]

My question is on the debt. So what is the peak debt that you're expecting? So once this capacity comes on stream, so then I'm assuming that there is no more further capacity addition. So what would be the peak debt that we can see by the end of this year?

So somewhere around INR 1,250 crore to INR 1,300 crore we include for fixed debt, including working capital and long-term borrowing.

Okay. And we will be having 6 million tonne capacity by the end of this financial year, right?

6.5 million clinker and about 6 million tonne of cement.

[Operator Instructions] The next question is from the line of Rajesh Ravi from HDFC.

Maybe clinker production and sales data for the quarter, if you could share, including RMC, please?

Yes. The domestic cement volume sales was 3,81,665 and other components were roughly around 9,000. And total the set is -- our total sales volume was 3,90,307.

Okay. And ma'am, when is this new project getting commissioned?

During this quarter.

During this quarter. Okay. And in terms of, as you mentioned, that the new -- the old plant is also ramped, the production issues have been taken care of and the new capacity coming up. What sort of distribution support we have? And what sort of capacity utilization you're looking which could be delivered on -- assuming demand remains as good as we have seen in the month of October?

So as I mentioned, it is very difficult to give this answer of how much exactly will happen in quarter 1 or quarter 2 kind of a figure. But the plan remains the same that in the next 2 to 3 years' time, we believe that we will be able to ramp up our entire capacity. We should be able to sell these volumes in the market that we are already operating in. How quickly we are able to do that will obviously depend a lot on how the COVID situation or the market demand situation plays out. If the demand remains healthy as what we are all anticipating and what we are seeing based on the figures of September and October, then I think we may be able to achieve it quickly. That's all I can say at this stage. It is very difficult for me to give quarter-by-quarter breakup at this stage.

No, no. The purpose of me asking this question was because capacity would be a sizable one given the total Gujarat market consumption overall. And given that the other players are quite aggressive, JK Lakshmi is ramping up capacity, JK Cement set up capacity. Digvijay also inching up capacity. Now with 3 million tonne new onboard and Gujarat will remain a core market for you, so how do you see in terms of your distribution because this will entail significant market share gain for you. So that is what I...

You are correct to some extent. However, if you look at it, Gujarat is not seeing any new capacity addition. What you're talking about, there is no new capacity which is coming into Gujarat. We are operating in a market of over 23 million tonnes of only Gujarat, but the total market that we have access to is roughly around 35 million tonne to 40 million tonne, right? So absorbing this amount of capacity in the markets that we are engaged in, I don't see is a big challenge because you are not trying to sell the entire 3 million tonne in year 1. There will be a gradual ramp up which will happen. And I think it should be comfortable without disrupting the price that we should be able to absorb the entire volume in the next couple of years.

Sure. And any trade and nontrade focus that you have mixed focus that -- target you have that you'd want to graduate to some X percent of trade sales in the next [ 2 to 3 years? ]

No, we don't have any such target as such because if you think about it, the trade, nontrade mix completely depends on the kind of geography that you're operating in. For example, if you look at urban markets, it will have a high proponent of nontrade sales and very low retail sales. For example, if you look at Mumbai market, it is almost 80%, 85% is nontrade sales, right? Whereas if you look at a market like Rajasthan, it will have only about 30% nontrade sales. So I may -- I will be able to only service the kind of customer which is available in the market. So urbanized markets or more developed markets like Western India, Gujarat and Maharashtra has a higher component of nontrade versus trade mix.

Yes. And lastly, will Cochin would be a nontrade market focus for you? Or you would be setting up distribution and retail distribution over there?

We already have distribution and retail setup in Cochin. Since the volumes that we are selling in Cochin are mainly through dealer network, it will be counted as trade sales.

The next question is from the line of Amit Murarka from Motilal Oswal.

So my question is, again, on volume. So I believe for last year, you had a significant decline in volumes to the tune of almost 25% to 30% in the same quarter, which was attributed to the actual value. So now that the production and the capacity is at a normalized run rate, just was a bit puzzled that still we had a Y-o-Y decline. I mean, was it still some production issue in the quarter? Or what was the reason for the decline?

No. We had a challenge in the month of July and August with severe monsoon again in Gujarat. So typically, it was lower, and there were are no really production-related issues here.

Okay. But given the favorable base, I mean, last year, I mean, it was a really bad impact that you had. So shouldn't the volumes at least have recouped that loss which we had last year?

Ideally, yes, but the market demand did not come up as quickly as what we all anticipated. So Gujarat had a little bit poorer volume compared to rest of India.

Okay. Okay. Fine. Because I thought that, generally, the Gujarat market recovered well in the quarter and it was the Maharashtra market which was facing issues actually.

It is all a relative issue, right? So if you compare it to markets of North India or East India, you have seen growth in those markets. Whereas in Western India, we have not really seen growth. Gujarat continued to be a Y-o-Y decline marginally, but it was a decline. And Maharashtra had a significant decline in Q2. This is changing in Q3, but what we're discussing right now is the performance of Q2.

Sure. And also in 1Q, you had built a lot of coal inventory. So the dilution doesn't seem to have happened to that extent. So could you help understand like how much inventory is still there for the coal that you purchased?

We generally purchase coal in dry season. So there was definitely a good amount of inventory of both coal and clinker. During this quarter, we had reduced the clinker production to some extent so that we don't accumulate too much of stock. And therefore, there is a drop in clinker volume and there is a small drop in coal volume also. But again, we have also commenced purchases of coal from this season. So the pile up of inventory as well as utilization of the existing coal stock will be continuous.

But how much inventory would you still be holding which you had purchased earlier, I mean, just to understand?

I don't think I have a number in front of me, but we generally hold 2 to 3 months minimum inventory on coal.

Okay. Okay. And just to understand the pricing better. So in October, I believe pricing had moved up a bit. So -- and this month, I guess, it's not -- I mean, it's been flat month-on-month, roughly. So could you just help understand versus exit September pricing, where are we right now?

Yes. So what I was trying to tell before also is that the prices have not really changed much from Q2 right into Q3. What is happening is that the component of nontrade sales is increasing because more and more project sites are opening up. And therefore, on a weighted average basis, you may see a little bit lower price. But in the market, there is no change in price is what I can tell you.

Sure. Sure. And also, could you help understand the CapEx guidance for this year beyond the maintenance CapEx? Like what will be the project debt drawdown in this year?

Yes. So as we said, we'll be completing the project during current quarter and most of the CapEx would have been incurred and paid out by the year-end. And then other than the normal CapEx, we don't anticipate any major CapEx. So from what you are seeing now, there could be an addition of about INR 100 crore to INR 125 crore during the current half year.

The next question is from the line of Rahul Jain from Systematix.

So you said that we are going to commission capacity in this quarter. So how long would you think it will take for you to reach sort of a near full capacity kind of status, given that market conditions are conducive? Typically, what is the schedule like?

So we are anticipating, like I already mentioned, that we hope that we'll be able to ramp up in the next 2 or 3 years, depending on how demand plays out. We are well versed or well positioned to access all the markets that we are entrenched in, which is the West Coast of India. And so we have a large network available to us already, and we have distribution setup available to us. It will all depend on how quickly the demand comes in, and we are able to ramp up our capacities.

So you're saying from your side, you will be ready. It's just that when you get the market condition, right, right. And sir, what about the...

This is not to disrupt the price. So what I've been trying to highlight again and again is that you could ramp up your capacity faster, but you would disrupt price sharply. This is not a net-net benefit of the company. So sustainability of earnings and profitability is equally important compared to just sheer ramp-up of volume.

Right. Right. So we will be 6 million tonne clinker, that's what I understand, right?

Yes.

And so technically then you can at least produce 9 million tonne of cement. Is that the right way to look at it? But then, obviously, you want to get things stabilized first and then...

Absolutely. So if you look at the total project plan, there was a 2 million tonne branding in it, which was part of the original project to be set up in Surat, which we have deferred. So the 6 million tonne or 6.5 million tonne of clinker capacity can ideally do about 10 million tonnes of cement sales. So we don't need to add any more clinker going forward for at least a few more years, and we could simply add branding capacities and ramp it up to almost 10 million tonnes.

Right. And sir, what -- you would also expect some good amount of cost synergies because of higher volume and...

Absolutely. It's a far more newer plant with latest generation technology. Economies of scale will also kick in. But what that savings would be very difficult to quantify at the current state. Let us first focus on getting this capacity going. And once we ramp up, then we'll have a better clarity on what are the kind of savings we are seeing.

And sir, we have adequate limestone for the future for, maybe, say, 10 years, 20 years or whenever?

Yes, yes, absolutely.

What would be our reverse, sir, roughly?

It's quite high, let's put it that way.

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

Like you mentioned in the previous like participants' answers, like this quarter, we just faced some drop in the volumes on a Y-o-Y basis. On a regional, sir, like Digvijay also they have raised it as a Y-o-Y volume growth of roughly 3%. So what kind of a region like -- being a regional player, we are getting some volume degrowth whereas other regional players registering some volume growth. If you can kindly clarify the same, sir?

So again, it would be unfair for me to comment on the Digvijay Cement's performance. But as you clearly saw that being a Gujarat-centric player, they also saw a drop in volume, which means that there was a lower demand in the month of -- in Q2 in our region. Now compared to our company, we are not only operating in Gujarat market, we have some sales which are coming in from Maharashtra and from Cochin. And Maharashtra, as we all know, is more impacted compared to Gujarat. And therefore, there was a little bit deeper volume cut in our case.

Okay. Sir, what would be the guidance for the volume for this -- for the full fiscal?

I already just mentioned that it is very soon to give a volume guidance because there is a possibility of second wave of COVID. And so demand prediction is going to be a challenge in the next couple of months. What I can give you a guidance is on the demand outlook. The demand seems to be coming back faster than what we all anticipated in the months of September and October. And if these trends continue and if the demand continues, then volume will be quite healthy.

The next question is from the line of [ Ram Krishnan, ] an individual investor.

Sir, you were saying that we -- currently, we have around 3.6 million tonne clinker capacity and 4.2 million tonne grinding and 63-megawatt power. Now we are adding another 3.6 million tonne of clinker and 2 million tonne of grinding and 67 megawatt of power capacity. So here, you said in the earlier statement that you are going to -- this is -- gradually, you are going to do it, expansion. So how gradual, in the sense, that clinker whether you can produce partly or the grinding you can do partly? So if you can throw some light on that? And the second question is...

I don't understand that, actually. Can you repeat what you're trying to get at? Because the clinker plant is a single unit. It is -- total of both units put together will be about 6.5 million tonnes of clinker, and we'll have about 6 million tonnes of cement capacity. So the idea is to ramp up the capacity over next couple of years to reach the rated capacity levels. This is what I have been saying. How quickly that will happen is very difficult for me to say right now.

Okay. Sir, second -- so you were saying gradually. So the 3.6 million tonne or 10,000 TPD per day plant, so you can produce partly 6,000 TPD per day you can produce. Is that possible? I don't know. So that's why I wanted to ask you that gradual...

The capacity is to produce -- the capacity of the unit is to produce 10,000 tonne per day, but you could obviously produce 6,000 tonnes out of it, right?

Okay. So you will -- [Foreign Language] sir, second...

In the absence of [ feed rate ] accordingly.

Okay. As per the demand you will start?

Correct.

Okay. Sir, the second question is on the -- you planning to bulk cement, Zuari Cement tie up you are planning to ramp up...

We have already done, yes.

In the Cochin. So this -- so what will be the cost of bulk cement transportation? And do you have plans to sell as a clinker to the other players? There is a demand.

Yes. Answer to all your questions is yes. We are planning to sell clinker, both domestically and export, for the capacity that we have. Obviously, we will not be able to ramp up the total cement sales in 1 year. So the target is that if we are able to get good volumes from domestic and international clinker customers, we will take that. That is first part. The second you were asking is on, are we going to be competitive when we go into Cochin market? The answer to that question is also yes. The -- like I just mentioned that the objective for us is to maintain healthy margins. So when we have tied up with Zuari, it is to use their infrastructure which is already available at Cochin port. And by doing that, we continue to maintain the healthy margins that we enjoy in Gujarat.

[Operator Instructions] The next question is from the line of Gaurav Rateria from Morgan Stanley.

Sir, you talked about the project-related demand coming in the month of September and October. If you could a little bit elaborate on this. What drove this? Is it coming from government-related projects or the developers? And given that the labor availability will be improving further in the coming months, do you have the visibility that these projects will continue to consume more cement for the next 3, 4 months, and hence, there is a good amount of visibility for demand from these projects over the next few months?

Yes, you're absolutely right. What happened during lockdown was that there was a migration of labor, which has started easing post monsoon. During monsoon, another thing happened is that all the construction work of government as well as various projects sites shutdown due to monsoon impact. In the month of September and October, these project sites have started opening up faster than what we anticipated, and that is fueling healthy demand mix in our region. Majority of the works which we are seeing are from government sector. Government has become the largest consumer of cement today in our region. And this is continuing even up till Diwali is what I can say.

Okay, sir. And what would be the difference in realization between the trade, nontrade segment? And the corresponding difference flows down to the EBITDA or there is some other costs associated, and hence, the flow down to EBITDA is a little lesser than that?

So the way we like to look at it is that the -- what is the profitability that we are enjoying in trade versus nontrade. And we maintain that whether we sell in trade or nontrade, as a company, we don't have any difference. If you look at it, when we sell in trade, you also end up paying a higher GST, you have higher logistic costs, you have branding expenses, you have dealer commissions, which do get negated when you are selling nontrade. So from a company's perspective, it really does not matter whether we sell in trade or nontrade. Our objective is to maintain the profitability. Coupled that with multiple supply chain initiatives that we are taking, we are cutting down on areas where there could be leakages when it comes to freight, when it comes to discount structures. And doing that is helping us maintain a strong profitability, both in trade and nontrade segments.

Question, sir, you talked a lot on the focus on profitability. Have you seen a similar amount of focus and discipline amongst the other players who operate in similar markets?

Again, it would be unfair for me to comment on other players on this. What I can tell you is that there is an opportunity in the market for many players to focus on improving their practices in the market, which will aid everybody, including us. So if our competitors improve their practices, it will also help improving our profitability. So it's an ongoing thing, and it cannot be pinned down to 1 quarter or 1 year. It's a long drawn affair. It's -- as an industry, we all have to slowly change and improve or cut down on all the leakages wherever they exist.

The next question is from the line of Amit Murarka from Motilal Oswal.

So on the volume ramp-up strategy from the new plant, sir, earlier, you had mentioned that you are looking at Middle East clinker export as well. So has the market revived there after COVID? And have stocks started again on that front?

So not so much Middle East, but Africa has started seeing improvement. Bangladesh has started seeing improvement in their demand. I think Bangladesh has performed better than many other countries when it comes to COVID management. And so demand is coming back equally fast in these pockets.

But in terms of the ramp-up -- so earlier, you have mentioned that you plan to sell 1 million tonnes or export 1 million tonnes of clinker. So where would that target be as of now?

The markets remain the same. Look, there are countries which don't have clinker units. They are fundamentally import dependent for their clinker supplies. And so the markets will always remain. The objective is that are we going to make adequate return when we try to sell to these geography? And so it will be subjective till we are actually able to close some of these contracts. We are in engagement with many of them, and there is strong interest to partner with us in securing their own supply on a long-term basis. So I'm not unduly worried about selling clinker. The objective for us is, can we sell clinker at a decent amount of retail.

Okay. But in terms of, let's say, the broader breakup which should be there, like what is the thought process around, let's say, this 4 million tonne capacity? I mean broader volume breakup that can be there versus like it had to flex it out, let's say, between clinker exports, Gujarat sales and export Gujarat sales, would there be any broad breakup in your mind?

So like I just mentioned on the call before, the target for us is to maintain at least 70% sales within Gujarat and 30% cement sales can come from outside Gujarat. That is what we believe is a realistic objective in the first couple of years. As far as clinker is concerned, it will all depend -- we would have the capacity to sell clinker, as much as clinker that we want. The issue will always be, are we competitive and are we making return on it. So realistically, what you just mentioned, that we feel that 1 million tonne clinker sale is a possibility without really compromising too much on profitability.

And as of now, like how much would you be selling in the Mumbai market?

We would not give market-wise breakup. Like I mentioned, almost about 80% to 85% currently is sold within Gujarat.

The next question is from the line of Jaineel Jhaveri from JNJ Holdings.

I just wanted to know that what is the kind of agreement that we would have with Zuari for the South? I mean, is it based on how much volume goes through their terminal? Or is it like a fixed fee? Or how does it work?

Yes. So a very good question. What we have done with Zuari is that they already have an infrastructure at Cochin port. They have a bulk cement terminal, which is underutilized by them. So we have tied up with them on a tolling basis, which means that we will supply volume to them, and they will do all the handling at a fee and load our trucks and do it on our truck. So as a company, we don't have any fixed expenses or we don't have any manpower deployed to manage and operate that terminal. This is the agreement that we have for sharing of this terminal. What cost we are paying is actually a little confidential. We would not be able to share that of exactly how much we are paying, but it's very profitable from a company's perspective.

Okay. And are there any more talks that you are currently doing to have like -- continuing with the same kind of strategy then for other terminals?

Many terminals which are available in India as such. Whatever is available is currently used. We saw an opportunity in Cochin where we were currently moving our product. We saw an opportunity where Zuari had excess capacity which they were not able to utilize. And after discussions, we felt that it is possible for us to share that infrastructure, and it's a win-win for both the companies. And if something similar ever comes up, we will be happy to look at it. But at this stage, I'm not able to give any more color on this.

Okay. And are there any kind of other grinding units which are by the port that are underutilized which you all could supply clinker to? Or anything like any of the old kind of deals that you are looking at for grinding units?

Yes. So we are -- we have closed a couple of domestic clinker orders for grinding units which are on coast of India. So we would be able to supply to them clinker at a very, very competitive price even compared to their own existing supplies. From their own mother unit, we would be more competitive compared to their existing road and rail freight. So there is an opportunity for supplying clinker to any grinding unit which is on both West and East Coast, and we have secured few orders of them.

Okay. And one just basic question I wanted to ask is that what is the whole thought process behind keeping, say, INR 1,000 EBITDA per tonne and not selling more volume? Why not even go and sell when -- even if you're getting INR 200 EBITDA per tonne, especially knowing that you have so much more capacity that you have and not maxing out your plant and just seeing how that capacity kind of functions? And -- I mean, I don't understand the thought process only in that sense that why not sell everything even if I'm getting INR 100, INR 200, INR 300 EBITDA per tonne and maybe at an average rate for the whole company, I would be at INR 500, INR 600 EBITDA per tonne?

Again, great question. And there are 2 ways to look at it. One is the whole objective of clinker supply is to try and maximize capacity. You obviously are not going to make INR 1,000 a tonne when you sell clinker. So what you rightly mentioned, the objective is to try and maximize capacity and sell another product, which you could -- overall -- on an overall basis, it's a good thing to do. That is point one. The second is that there is -- you are ultimately using up all your limestone when you make clinker on, sell it at a low price compared to waiting for it and selling at a better price in future. You don't want to continue to simply exhaust your limestone in the whole rush to ramp up capacity and sell in every market and every geography. I don't think it would be very prudent over a long-term period.

Right. Right. I understand, Alok. But the thing is that, I mean, this is a period of time when the company really needs that kind of money to tend over the -- like the next year or 2 years, after which you would have a very clean run anyway. So why not go all out because since we have -- limestone is also over 20 years...

Completely taking your point, not arguing with your point at all. I agree with you, and that is exactly why clinker sales come in. If you look at it, last 2 or 3, there have been 0 clinker sales. The option to use clinker and sell that is exactly what you're saying that we would like to get a higher utilization of our units, which will help us average down the cost further.

Okay. So basically, now in terms of production, we don't have any other issues, and we are willing to sell clinker. So going forward, we would expect every quarter to be better than the previous quarter at least?

Yes, that's exactly our hope as well.

We'll take one last question, which is from the line of Siddhartha Roy from India SME Investments.

I just have one clarification. Sir, as you mentioned that the additional capacities are coming up in product stream. So what is the kind of additional depreciation we are looking at on an annualized basis?

So it would be nearly doubling.

So it will be around INR 120 crore?

Correct, yes.

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

Yes. Sir, before I close the call, I had just one question. On the call, you did mention that you are taking a lot of initiatives on curtailing the leakages on supply chain fund, et cetera. Sir, for my ground check, I also understand that you have driven some policy initiatives on the ground recently, some -- like some of your southern peers have done in terms of curtailing the discount structures, et cetera. Can you throw some more light as to what you are really doing in terms of curtailing your discount structures on the ground? Any more color on this, please?

Yes. So there are a lot of practices when it comes to checking of your supplies, whether they're going to the right area or not. So we have deployed a lot of technologies which enable us to check the authenticity of the product, whether it has gone to the right customer, whether the vehicle is going to the right destination, whether the nontrade material is moving into trade segment. So there are all of -- many of these practices which can be checked today with the help of technology, and we are deploying a lot of it. It is very difficult to show you the impact of it because a lot of it is subjected. Similarly, when it comes to hard numbers, whenever companies end up giving discounts, you end up losing a lot of GST benefits. So what we are trying to do is to cut down on our discounts and make it more flat price or the price which the dealer pays to us is the full and final price, and there are no further discounts which are given. That -- and one, it helps the dealer in reducing their liquidity. Second, it helps the company in saving up on the GST loss which we were all incurring. So now these are -- some of these are industry-wide practices, which will take time for things to stabilize. But as a company, we have started and we have taken many such initiatives.

Absolutely. Sir, I also hear from the [indiscernible] that some components like specific -- like something like cash discounts, et cetera, that we've also started curtailing those and also starting raising our new capital or raising debt notes instead of cash. Is that also true to kind of say...

Yes, you are right in that. And you are giving away my strategy to everybody else. But the thing is that if you look at it, most dealers end up enjoying cash discount. So as a company, when you give that cash discount, you are losing that GST benefit. So what we have done is we have reversed it. We are giving debit note to people who don't pay us on time rather than giving cash discount to 80%, 90% of our network where you will end up losing GST. So this is what we have done. We have reversed this thing. It also helps the dealer because it reduces his liquidity. Liquidity requirements come down and he ends up making a better return on his money. So it's a win-win for both company as well as the dealer network.

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

Thank you.

Thanks. Bye.