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

Ladies and gentlemen, good day, and welcome to the Sanghi Industries Limited Q3 FY '22 Conference Call hosted PhillipCapital (India) Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vaibhav Agarwal from PhillipCapital (India) Private Limited. Thank you, and over to you, Mr. Agarwal.

Thank you, Inwa. Good afternoon, everyone. On behalf of PhillipCapital (India) Private Limited, we welcome you to the Q3 FY '22 call of Sanghi Industries Limited. On the call, we have with us Mr. Alok Sanghi and Ms. Bina Engineer, full time Director 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 this conference call may be forward-looking statements related to future developments and 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 interactive Q&A. Thank you, and over to you, ma'am.

Thank you, Vaibhav. Good afternoon to everyone present on the call. We discuss the performance of the company for the quarter 3 and 9 months ended 31 December 2021. This quarter was a mixed quarter in the sense that we have had one of the highest realization comprising during this quarter. But at the same time, the power and fuel cost has been burdensome for the company. I'll take you through the numbers, and then we'll be open for the questions. During this quarter, we have had total sales of 6,01,000 lakh, out of which 1,55,000 lakh tonne was clinker, which is up by almost 5x from 29,000 in the immediately preceding quarter. Cement sales was 46,000. This is 15% better than the immediately preceding quarter. However, it is around 29% lower than the December '20 quarter. We have to see December '20 in the backdrop that first 6 months were lockdown and all the pent-up demand has been released in December '20 quarter. And therefore, we are talking also higher base for December '20. In terms of geographical mix, we have done around 86% sales in Gujarat. And outside Gujarat, we have run 14% domestic cement sales.

Am I speaking with [ Vira ]? Vira, are you an English investor? Hello? Hello? Vira, this is the operator.

Compared to the previous quarter. Total cement sales that we have achieved on a gross basis was INR 347 crores, which is 7% lower on a December '20 comparison, but it is around 29% better than the immediately preceding quarter of September '29 -- '21. The net sales was INR 278.5 crores, which is 4% lower compared to INR 289 crores of December '20. And compared to September, it is at least 32% better. In terms of the prices, we have seen a rise in the range of about INR 350 across the Western market, including Gujarat, Maharashtra, Rajasthan, et cetera. And Kerala, since we are doing ex terminal sales, that was around INR 275. Next, that was the -- average was INR 343 gross price. In terms of various cost, raw material costs has more or less remained steady. The addition has arose because of the higher volume of production. Partially, there is a bit of regrouping of certain costs, which were otherwise captured in other expenses. Now following the new format, it has been captured as a part of the raw material. So these are the -- and there are some additives, which have been improved to further improve the quality and -- of the cement, and that was the additive cost has gone up marginally. The main impact has come on account of the power fuel cost -- in line with the international trends on energy prices, we have also experienced nearly 100% increase in our coal price, and therefore, the CV cost has also gone up from about 85% to [ 92% ]. So we have seen between 100% to 125% increase in the blended cost of the fuel. To offset this, we have taken some immediate measures. One is that we have enhanced our lignite usage, which on a 9-month basis, has increased by at least 4 to 5x. And particularly in the last quarter towards November, December, we have enhanced the lignite usage. including -- which has continued in January and February also. We have used almost 10,000 tonne equivalent of alternate fuel, which adds to our other income. So there is a sharp jump in other income, which is on other operating income, which is an account of the use of alternate fuel where we are also being paid by the supplier as well as we are able to save on our energy cost to that extent. So that is another factor, which -- another initiative, which we are pushing to reduce the power fuel dependence on the imported coal. In terms of stores where packing cost, there is no significant change. Selling distribution cost is also more or less maintained excess about 4% to 5% increase, which has happened on account of the diesel price changes. On a 9-month basis, we have seen that the overall gross sales has increased by 24% in comparison and overall volume of cement has moved up by 15%. So that is the comparison for 9 months. This is all from our side to begin this.

Ma'am can we open the Q&A?

Sir, may we open the lines for questions?

Yes, I think we can. [indiscernible]

[Operator Instructions] We'll take the first question from the line of Rajesh Ravi of HDFC Securities.

Would you share the production number for the quarter, please, cement and clinker?

So generally, we don't announce production numbers. We are only announcing the sales number and are continuing to do so. There was a good production during the period, and clinker utilization has improved significantly over the previous quarter. But we would resist on going for the production number that won't have a material impact. I mean the entire impact is based on the sales.

No. Because -- you're right, because what seems INR 50-odd crores of stock adjustments, which implies that there is a last clinker inventory shifted at December end. Okay. Would you...

That is quite right. That is what I'm saying that we had good capacity utilization during the period. And since we were also focusing on clinker export, there is a good amount of top line at the end of the period.

Okay. So second is, how about the new line? How are they operating? What is the utilization you have received on the new clinker line, which is under -- which is yet to be commissioned?

So we are taking production from the new clinker line as well as existing clinker line. And overall utilization, as I said, has been good. And we are slowly raising the peak performance of that line also, and we are doing the final test, et cetera, during the current month now. And things are under control, they are looking good.

Okay. And any thought on the clinker export? What is the opportunity you're looking at on a recurring basis?

Alok will reply to that.

Yes. So clinker export is quite robust. The demand internationally is quite strong. However, the talent we are facing is that we've seen a sharp increase in the energy pricing. This may not be [ approved ] in most areas in some of our competition countries like Iran and other places where they're using gas. So they haven't seen this kind of energy pricing. So which is why even though we have excluded clinker in this quarter, the margins are very weak. And so while it's a good opportunity in the long term, but currently, the margin profile of the clinker export is weak.

Okay. So if I look at it, for you, even if you are able to fetch some positive contribution, given that your capacities are underutilized, wouldn't this way -- this be a lucrative opportunity for you even if the margins are low?

Yes. So that is exactly why we have exported even in Q3. When the domestic market was a little sluggish, we were able to export clinker. But like I said, we are just breaking even on the clinker exports because of the sudden jump in energy price.

Okay. And on the energy, could you -- energy first, could you share what was the per kilo cal average blended cost usually in December quarter and in September quarter? And how do these costs start up in the March quarter?

So typically, the blended cost, I had mentioned that they have moved up to about [ INR 1.92 per set ] during this quarter. And as I said, we are making efforts to enhance the lignite consumption and the lignite procurement, and quota has actually gone up during current months. Therefore, we expect the lignite component to be more in the overall wellness. Secondly, we have enhanced the alternate fuel mix significantly in this. And therefore, these are the 2 positives. However, no prediction on the coal prices because the situation was still difficult in Indonesia in January, and things are slowly easing up. But we have to wait and watch how it unfolds over the next 2 months.

Okay. No, in January, this [ INR 1.92 per set ] went up? Or are they still stable in January consumption cost?

We haven't made any significant fresh purchase during the period, so -- during January, so we'll not be able to comment on that. But...

Please go ahead.

Yes. So just if I can add a little bit on the market side. The coal market continues to be [indiscernible] on the prices. Energy prices have again started moving up after coming down in the end of Q3. So December, January, we were a little bit of an improvement in price of coal, and we expected it to stabilize. But again from February, the prices have started slowly moving up. So I believe that we must now realize that this may be the new normal, at least for the next 3 or 4 months. And then maybe after that, we may see some improvement in the coal price internationally.

[Operator Instructions] Our next question is from the line of [ Nirbhay Mahawar ] from N Square Capital.

Yes. Just wanted to hear your thoughts on the demand side, which has remained pretty muted for last 2, 3 years. Is there any change you are seeing in your key markets?

Yes. So our key market is Gujarat market. In Q3, like what Bina mentioned already, that we are sitting on a high base. And therefore, the -- and this is across India, the expectation was that demand will be lower compared to previous year. In our region, we had a demand destruction of almost about 11% in Gujarat market. This was prolonged because of 3, 4 factors in macro terms and a little bit internal issue. So from a macro perspective, we had an unseasonal rain impact, which was continuing ahead of December. So coupled with high prices and a little slower demand, we could not experience good demand improvement in Gujarat. So specifically, if you look at it in the months of November and December, the demand destruction was close to about 30%, which caused a lot of turbulence in the market. The good part is that Gujarat market, despite the slower demand remains consistent with this price. So we do not see the kind of price correction that you saw in other regions. Secondly, coming to the outside Gujarat market. Kerala, we had an impact of Omicron lockdowns as well as, again, unseasonal rain right up to December. So the demand in Kerala market was quite slow. We also saw a sharp reduction in price in Kerala market, which is unprecedented. Generally, Kerala market prices are quite strong, but we actually saw prices of Kerala lower than given Gujarat market prices. And so the advantage to transport and sell in general market is there was not from the company in this quarter. The internal issue which we faced was that we -- as you can recall, in Q2, we had a transport strike because of the sudden jump in the diesel prices, which continued for -- in the beginning of October. So when the demand was good in October, as a company, we suffered in the first 15 days because of the spillover effect of this price. But after that, everything started to normalize.

Okay. So sir, just wanted to understand, you've got capacity utilization less than 50% now, and that has remained so for quite some time. So with production constraints now going away, are we all set to gain market share in terms of it? Is that aggression to get back that market share is coming for the company? Or...

Yes, to -- yes, please go ahead.

Or probably, we'll have this kind and then let it continue to have a muted volume growth to maintain pricing.

Yes. So I have always stated that there is a change in half, and we believe that trying to gain market share very aggressively and the cost of price and margins is unproductive for the company. Because while you may gain about 10%, 15% additional volume, but the cost that you are able to gain back is [ 90% ] exist rate is not worthwhile. So I'm okay with a slow ramp-up. But like I have always mentioned that our target is that we will be able to go to full 100% capacity utilization or near about that in the next 2 to 3 years, depending on how the demand unfolds. The way I'm looking at it is that we have enough demand green shoots, which are opening up in our region. And with this budget being very infrastructure-led, I also foresee that the next 2 to 3 quarters, we will see very good demand growth in other regions. So I'm not too worried about the volume ramp-up strategy. But again, like I want to reiterate, we will not do it at the cost of price and margin. It is, I feel, not lucrative to try and ramp up very, very quickly by sacrificing margins and price in [indiscernible].

So when you say 100% utilization, in 3 years, what do you mean in terms of cement volume?

So the maximum, I believe, we'll be able to hit with the existing grinding capacity is about 5.5 million tonnes, taking the impact of season for the monsoon period. So I believe that we will be close to about 5 million to 5.5 million tonnes of total sales in the next 2 to 3 years. Now that depends a little bit on how the demand opens up for the company and how quickly we are able to ramp up. So -- but the prediction is that in the next 2 or 3 years, we'll be able to get to a weighted capacity of 5.5 million tonnes of [indiscernible].

[Operator Instructions] Next question is from the line of Gaurav Birmiwal from Credit Suisse.

Could you please repeat the volume numbers for the current quarter and the September quarter for these 2 quarters?

Yes. The total sales was 6,01,000 lakhs tonne in December 21, which was 2,15,000 lakhs in September '21. Out of this clinker was 1,55,000 lakhs tons compared to around 30,000 tones in September '21. And the cement domestic -- overall cement volume was 4,46,000 lakhs compared to 3,86,000 lakhs in September '21.

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

First question is on -- talk about weak November, December. How has the volume standard in the month of January and February? Has there been any recovery on a year-on-year basis, I'm saying, not on a sequential basis?

So on a year-on-year basis, January was okay. I would say that we are still a little lower than Y-o-Y number, but marginally. So it seems that demand is coming back strong. Again, you must remember that in the month of January, some of the markets were closed because of the lockdown situation, and construction activity was restricted in some of the areas to try and control the spread of Omicron. But now I feel that with February coming in, the years of massive wave is now out, and we are seeing improvement in -- on-ground activity. You should also remember that a lot of construction companies are impacted with the sudden spot prices. So a lot of government contractors have fixed price contracts. And with the sharp jump in cement and steel prices, they are not making any return. And so they are negotiating with governments to try and divide their contracts and so on and so forth. And therefore, there is a little bit of a slow pickup in construction activity in our region.

Sure. And sir, on pricing, so what would be your average price now in February, like versus what was in December in markets of Gujarat, Maharashtra Kerala?

Yes. So prices for us are very stable. Gujarat market is, I think, one of the best performing markets in India in terms of price stability. Even though we had lower demand, we did not see a price destruction. In fact, if you look at it on a Y-o-Y basis, Gujarat prices are better by about 20% in Q3. We are stronger than Q3 pricing in January, and it is continuing even in February in our core market of Gujarat. The same -- if you look at it from, let's say, Rajasthan or Kerala perspective or Maharashtra perspective, the prices have been quite weak in all other regions that we are operating in on a Y-o-Y basis in Q3. And even today, the prices are a little poor when compared to Gujarat prices in Q4 also.

So how much is Q4 better than Q3, in terms of rupees per bag?

So the important thing to notice in Gujarat market, and I mean you should look at the historical data also, that prices in Gujarat have never fluctuated too much. Either it has not gone up by a significant jump immediately or they are not even fallen by that such amount. So even though demand is hot or slow, the price movement is very marginal. So for example, the price may be better by about INR 5 to INR 10 in this quarter compared to Q3 price. And I believe that this is the trend it will continue. The price will move by not more than INR 5 to INR 10 per region at least for next 4 to 6 months.

But isn't that too less for compensating of the kind of inflation, which we are having in our markets also? So while there are times...

Let's look at announcement versus implementation. So many regions announced price increases, very sharp price increase of INR 50, INR 70 and so on. But the actual ground implementation is missing. And so ultimately, what happens is you have made a price increase announcement and then passed on [ AP or R&D ] to the network. So ultimately, as a company, you don't end up benefiting. The evidence is there in the data. If you look at the prices in all other regions, the price movement is -- while there has been a lot of volatility, the net-net benefit to the company has not come through. And therefore, even if you look at Q3, Gujarat prices are better by 20%, which is probably the best in the country. Nowhere else where there has been wide fluctuation in prices we have managed to see this kind of improvement in price realization. So I believe the change must be that it is important to focus on price stability so that the kind of predictability in the minds of the consumer of what is the cement side and they can do the pass it accordingly. Wide fluctuation and volatility in prices have not benefited either the consumer or the producers, in my opinion.

Okay. And sir, any specific targets for FY '22 in terms of volumes now? We are like closer to the end, so it would be 2 million, like 2.2 million, 2.3 million tonnes?

Yes. So if you just give me one second. I think the 2.1 million, 2.2 million is a fair estimate for this year.

And sir, target for CapEx for FY '23 -- '22?

No, we are not looking at any significant CapEx during the next year. It would only be basic maintenance CapEx for mainly for line 1. It is normal.

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

So my question is related to last year, the Feb and March were quite very hectic in terms of the activity and we had a very still good demand perspective. Do you think the industry would be able to grow year-on-year in Gujarat for the fourth quarter? Like you had mentioned, the ground activity is looking good in the February so far. So what is your take there?

So at least in January, we have not done better than Y-o-Y figures. We have just -- we are slightly short by Y-o-Y number. I'm not too sure whether we'll be able to surpass last year's number. But as a company, I believe that we will be able to do better in Q4 compared to what we did last year.

Okay. And particular cement sales, so I'm just aggregating between cement and clinker.

Yes. Yes.

Okay. Okay. Second, in terms of cost, like do you expect incrementally to cost to go up from quarter 3 to quarter 4 or the majority of the cost, what we are seeing? So what are the benefit, what we saw that lower coal prices to an extent in some part in quarter 3 that must be reflecting part in quarter 4? Is that the right assumption?

Yes. So I think...

Yes...

Yes. Look, you can go ahead.

Yes. So what will happen in Q4 is that -- one is that coal prices will continue to hover in this region, international coal prices will continue to remain in this region. So I don't expect this to come down sharply. What will help us improve is our overall blend mix. Like what Bina was mentioning, we have started getting a better allocation of big life from GMDP, and we have started to push a lot more alternate fuel. Because of this, I believe that we are probably at a fixed cost. We are not likely to see too much improvement in -- or too much escalation in the cost number from -- at least in the next 3 to 4 months. This is my prediction on the coal prices. In terms of the cement prices, I believe that the cement prices have to move up with demand opening up further. These prices, at the current coal prices, are not really sustainable for industry to make hefty returns. So I believe with demand opening up in the next 2 or 3 months, the cement prices across the country must move up a little bit, which will help us in the improvement in margin profit.

Okay. Have you taken another price increase from 1st Feb onwards?

Yes. Like I said, Gujarat prices don't move very significantly, so you don't hear any headline announcement, but INR 3 to INR 4 price improvements keep coming every month or so.

Okay. Just a last question from my side. Looking at the current rate. Is it the current spot mix, obviously, that will reflect in last quarter 1, if you buy anything now. But is this broadly similar to what we saw in quarter 3? Or the current mix coal prices are higher compared to, let's say quarter 3?

No, I think it is pretty much similar, maybe a little improvement. But you see, we are also ramping up our production. So what is happening is while you are getting a total increase in allocation of lignite, but because your total consumption is also going up, the percentage may not change by much. This is the issue which we are facing right now.

Next question is from the line of Sameer Dalal from Natverlal & Sons Stockbrokers.

So my question was in regards to the ramp-up of the capacity. If we were to -- I'm just -- my thought process is if we were to ramp up capacity, how much additional fixed cost would we incur compared to what we are incurring now? Say you'd increase your capacity to 75%, is all the fixed cost already in place for you to be able to produce up to 75% without any additional cost?

Yes, yes. all fixed costs have already been absorbed and reflected so there won't be any significant change in the fixed costs. And on the other hand, with better utilization of the new facility, the variable cost also will come down. So we -- notwithstanding what happens on coal, we expect that our efficiency and our cost efficiencies will improve. And probably you would have already observed even during this quarter despite all these cost escalations on power fuel, we continue to be the lowest cost producer on all the results on so far. So up to EBITDA level, we have again registered the lowest number compared to the rest of the industry. So we -- and we believe that there is still steam left for cost improvement, which we will show in coming quarters.

Good. So that's excellent. Now my question is, if we were to ramp up, how much operational benefits would we get to go from the current capacity utilization to the 75%? And if that is the case, if we even just pass on 50% of that and lower the cement prices a little bit, I mean, by whatever the differential of cost savings would be, wouldn't we be in a better position to deliver higher ROE because of the increased volumes and increased profitability? And why are we not taking that step? Because if you look across the board, there are very few cement companies working at under 50% utilization. Most are closer to 73%, 74%. Why are we not able to reach at least that point.

Yes. So the -- what we are fundamentally debating is the strategy of sustainability in pricing versus trying to discount the brand and sell it at a lower price. The challenge that you would face in that is that your competition is not going to remain static. The moment you cut the price, there is likely to be a reaction from larger players who operate in our region. In fact, in our region, all the larger players are very dominant, and it will not take them even 1 day to react on the price and reduce the price. So what will happen is that as an industry, we will bring down the price and not gain anything as a company. We have tried and tested it in the past in the wrong strategy of trying to buy your market share out of the situation. I don't think we are in a position, like due -- where we can push through a lower price and buy the market share. I don't think we are in that position as a company. And therefore, a smarter strategy would be that we try to enjoy the higher margins, because as we keep ramping up our volume, our margin profile will continue to improve. And while maintaining the price stability, even if I get a delayed volume ramp-up of about a quarter or 2, it is acceptable. But we will be able to net-net, at the end of the year, make more money than what we would have done by creating disruptions in our market. So I fundamentally disagree with the strategy which you are saying. Secondly, when you talk about the industry volume or capacity utilization versus ours, you must realize that as a company, we were at 3.5 million or 4 million-ton company. We, just now, jumped our volume. We have almost doubled it to 6 million or 6.5 million tons. So naturally, when the -- when you have doubled your capacity and you are yet to see the ramp-up of that volume, your capacity utilization numbers will appear to be a little slower or lower. And as we start ramping up in the next 2 or 3 quarters, you will see an improvement in the capacity utilization also.

So my question comes directly against the point. I agree with your strategy.

One moment. I would just like to add a couple of sentences here is that, as Alok already said, there's no reason for us to kill the goods which is laying golden eggs in that sense because already, the market is giving you good returns at a good price, and it is your home market where you are selling 80%. There's no reason for you to push harder there. Second and more importantly is also the fact that whatever is the growth in demand, we are getting significantly higher incremental share in the new demand because of the constraint of suppliers by the existing players. And therefore, we have a market which is arising and which is growing in front of us, and we are better participant, larger participant in that incremental demand, which is exactly what our strategy has been.

Absolutely, you kind of answered the question I was going to ask is -- my question is, how are you going to be able to capture more of the market in the growing market, given that even the competitors are not working at 100%? So even with demand increasing, they can also increase the production from the 75% to the 78% or the 80%. So how are we going to grab that additional market share that you are talking of or that you're saying that you're getting already? How is that additional market share working -- I mean coming in our favor, if I can ask that question?

Well, actually, our assumption is slightly misplaced. The capacities which are operating in Gujarat are operating at near 100% capacity utilization. The capacity that you're talking about, who are probably not operating at 100%, are probably based in Rajasthan or in Maharashtra region, which have a very limited impact on the sales in Gujarat. And therefore, there is a significant scope for us to improve our volume share in Gujarat without having to disturb price.

[Operator Instructions] Our next question is from the line of Kashvi Dedhia from Centra Advisors.

What is our fixed fuel mix for this quarter?

Sales mix in terms -- you are asking in terms of geography? 86% in Gujarat and...

No, no....

I asked fuel mix, what...

Oh, okay. Sorry. Yes, fuel mix, we have consumed about 6% lignite during the quarter and balance, 94%, has come from Indonesian coal. We have also used a good amount of alternate fuel. More of these has happened towards the exit of the quarter. So the impact is still not fully captured in the last quarter. But yes, lignite is increasing during current quarter. Alternate is increasing proportionately in current quarter in order to offset the coal prices.

Okay. And what is the status of Surat expansion?

Surat, right now...

Surat is...

Yes. Yes, sorry, Alok. you can, thank you.

Yes. Surat is put on hold till we are able to reach a capacity of about -- or sales of about 5 million tons. Until then, we believe that there is no point adding more capacity.

Okay. And what is our savings for the nonaccount of WHRS?

So we -- in last quarter, WHRS has contributed around 12% of our power generation and -- which is a good number given the fact that we are using both lines. And in second line, we are still not installed WHRS, the [ receipt ] is being redirected into the winter manufacturing process itself. So we are using WHRS only in Line 1, the contribution was around 12% overall.

[Operator Instructions] Our next question is from the line of Nirbhay Mahawar from M Square.

What is our gross and net debt? And how do you see it moving over the next 3 years?

So gross and net will generally be in the range of 13.60% and 13.30%. In terms of further reduction in the debt, we have a very long-term debt, and it is staggered until 2030. So there is no huge onetime outflow of debt repayment in any of the coming years. Current year, our principal outflow was only INR 45 crores. And next year, it will be about INR 85 crores to INR 90 crores. So the reduction will be gradual because we have a very long period for repayment.

Yes. But considering the cash flows you would be generating, would it be fair to assume that would be some INR 1,000 crores in the next few years?

Yes. So I mean, what I'm talking to right now is the agreed schedule with the lenders. Of course, given better availability of funds, we can retire the debt early.

Okay . And another follow-up on the strategy of holding prices and not gaining market share. Typically, most of the cement companies, smaller cement companies, whenever they have commissioned a large plant, in short term, they have to disrupt market to get market share. So is it -- is our strategy more driven by our balance sheet compulsions and at some point in time, we will change it? Or is this is the way we think about growth?

No. I, first and foremost, disagree with the assumption that we are losing market share. We are gaining market share. What the argument which is being made over here is that should we ramp up very significantly by disrupting our market prices and stability of the market, which, in my opinion, worked for the company in the past. We have tried it in the past in 2014, '15 around that period, where we gained a lot of market share. But at the end of the day, it costed company quite a lot of money. And net-net, we did not benefit out of it in an overall basis. So it is good to say that, yes, we are operating at a very high capacity utilization, but at what cost? And at the end of the day, in the overall basis, if you are losing more money, then it makes sense. In my opinion, that is not the case in Gujarat. We are anyway likely to gain market share and volume share, the moment demand starts opening up. Q3, as you have seen, has been a sluggish period and therefore, you are seeing a lower volume. But as our plants start ramping up at Maharashtra coping up, even take a higher share of incremental demand within FX means we will start getting higher market share. But the focus must remain strongly on maintaining margin profile.

[Operator Instructions] We will take our next question from the line Keshav Lahoti from HDFC Securities.

I just want to ask, as you highlighted that you're targeting 5.5 million tons of cement sales in next 2 to 3 years, what would be the target for next year?

Again, demand is something which is not in our hand, but assuming that we go by the predictions of most economies that we are likely to see 8% to 10% demand growth in India. I believe that is we'll be able to improve our sales of 1 million ton every year for the next 3 years.

Okay. What was the trade share in this quarter?

Our trade, nontrade mix is static. As always, we are about 50% trade sales and 70% nontrade sales. I mean, I want to highlight that in markets outside of Gujarat, we are, honestly, sitting [ at ] nontrade. So Maharashtra and Cochin markets are predominantly nontrade, sir, and in Gujarat, we are operating at about 60% nontrade and 40%trade.

Okay. One last question from my side. Have I heard it correct, this quarter, the fuel mix was 94% Indonesian coal, 6% lignite and the other would be less than 1%.

Correct.

AFR was not less than 1%? AFR was also a good quantum. But in current quarter, these other fuels other than the coal are increasing.

Our next question is from the line of Harsha from Emkay Global.

Sir, what is the fuel mix we can expect for Q4?

What is the?

Fuel mix we can expect for Q4?

So things still unfolding. But yes, we are trying to get a higher quantum of coal and higher quantum of AFR, alternate fuel. And therefore, we believe that at least about 15% will be the noncoal fuel in overall mix, and the balance could be the Indonesian coal.

We take a last question from the line of Rajesh Ravi of HDFC Securities.

Yes Sir, my question pertains to this 5 million, 5.5 million target next 3 years that you're targeting. So in the broad sales mix that you're looking at, what could be Gujarat and outside Gujarat sales in this? And how much clinker you are targeting there?

Yes, it's a great question. So our view is that while in Gujarat, we will continue to be a very disciplined and competitive peer regulator of price stability. In other markets, our ramp-up will be much faster because we are don't have any sales mix or we are not at any significant impact in those regions. So our volume ramp up in -- outside Gujarat market is really faster. Overall, in the next 2 or 3 years, you will see that approximately 70% to 75% sales will come from Gujarat and about 25% sales may come from outside Gujarat market.

And this 5 million tons also includes any sizable clinker? Or that would be over and above this?

No, clinker can range anywhere between 500,000 tons to 1 million tons, depending on how the plants and markets are performing. But selling clinker is very easy in today's market.

Okay. So this 5 million ton would be cement, out of which 25% should be outside of Gujarat, an additional 0.5 million to 1 million tons is what you're looking at clinker opportunity, both export and domestic.

Correct. Correct.

Okay, and just -- when you go to 5 million -- 75% of supposed 5 million ton additionally, would we -- looking at -- like, if I look at the last fourth quarter number, you did 2 million tons cement sales, out of which 80% would be in Gujarat. Is that understanding right?

Yes. About more than 80% would be closer to about 84% to 85% base is coming from Gujarat currently.

Correct. So around 1.6 million ton and now you're looking at 5 -- almost -- so 1.25 million so more than 3.5 million ton, 3.5 million of volume. And so no, what I'm trying to say is that additional 2 million ton plus volume you're looking to capture in Gujarat market. So a market which could be 20 million, 25 million-ton opportunity?

Yes. So currently, Gujarat overall demand is roughly around 23 million tons. So as you can see, our volume share is very negligible in Gujarat. And so when we see a ramp up in Gujarat also, I believe this is a very doable number. In the next 3 years, Gujarat may be closer to about 28 million, 29 million tons and adding 3 million tons in that is not a big challenge.

Okay. And any -- what we hear is that [ Rami ] is expected to set up factory in the next 2 to 3 years. They're also working on it and even Civic Vijay is wanting to expand capacities from the regional players, and even the bigger guys would try to. How would that change the landscape?

So I don't like to comment on what my competition is doing. Everybody will do what they feel, that's it. But in terms of, as a company, what we can control is we can control our internal efficiency. This is the only thing which is in our hands. Neither the coal prices is in our hand, neither the cement prices are in our hand, neither the demand flow is in our hand. So the only thing which we can really put our energy towards is our strength, which is to remain the lowest cost producer. And whichever company comes and participates in the demand of the state or the region, I welcome them. I cannot take all the demand of that region and so we will continue to focus on our numbers, our strategy, and I'll leave the rest to the other competition to be here.

Okay. And 1 last question. On the trade mix, you mentioned you are at 50% static. But if I remember correctly, earlier, you have been mentioning 35% trade mix overall?

Yes. So I'm still saying that we are doing about 30% trade sales and 70% non-trade sale. So we are in that ballpark figure itself. Like I mentioned, we don't do any trade sale. We don't do any trade sales outside Gujarat. So depending on demand in the state, it can vary from anywhere between 30% to 35%.

Okay. Okay. Great, sir. That's all from my end, all the best -- and lastly, sir, is there any commissioning time line finalized for the clinker plant, clinker and grinding at catch?

As I said earlier is that ultimately, testing the various processes and equipment as we speak in current months to check their optimum or peak performance. And we have achieved some of those milestones successfully. So during current quarter, those tests will be completed, and this is that we'll finalize the date for the capitalization.

And this would have -- revenue 60%, 65% of the current volumes for this quarter, the new plant? Primarily on the clinker production, whatever is -- you would be maximizing the new kiln unit. Is that understanding right?

So it doesn't matter. I mean, whether new kiln or old kiln. Now that -- it's that we have a capacity of 6.5 million tons available in the company. The challenge or the focus must be how we can quickly ramp it up. The mix coming from old unit or new, as little things vary. What we can say is that now things will only improve from here because the costs will start coming down because the efficiency of the newer plant will also kick in. The maintenance cost will be -- will improve because of better availability of the unit. Demand is improving in our region. Coal prices have peaked or at least have peaked. So again, the shock of energy price going up even further is fairly low. So I'm quite optimistic over -- for the next at least predictability of next 3 to 6 months. I feel that we are in a strong wicket.

And for modeling purpose, when this new line gets commissioned, because you would be capitalizing the production costs and overheads. How much would your employee cost and this other expenses would go up once you declare commercial production?

More or less, all the costs are already being absorbed in P&L. So I don't see a significant change except interest and depreciation.

Right. Right. So before EBITDA, all the costs are going through P&L only?

More or less, yes.

We'll take 1 more question. That's from the line of Yash, an individual investor.

So ma'am, just as you mentioned that we are capitalizing some interest amount. So what will be our interest cost going ahead in FY '23?

For FY '23, we would expect something in the range of about 140 plus/minus a bit.

Okay. So it would be 140. And what is our average cost of borrowing then?

Around 10%, 10.5%.

Okay. So it's 10.5%. And so our tax rate is also now effectively, it would be somewhere around 25%, right?

No, we are not liable for actual tax. We have a shield there. And what we are providing is only the deferred tax, which is the notional book entry for any future tax impact of availing the tax benefits now. But actually, we are not required to pay tax.

Okay. Okay. And so this will go on for like -- so is there any time limit? Like, this particular thing will go on or something like that?

We expect it at least for next 2 to 3 years.

Okay. Okay. And the volume numbers that you have guided are an impressive of the 5.5 million tons.

Thank you.

Thank you.

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

Yes, sir. And I have a few questions, if I can ask. Sir, I missed a few, you did share on the call the current margin profile in [ some regions ] in current Q3. Any ballpark numbers you can share how much you'll make in cement and clinker if you want to bifurcate in terms of margin profile?

No. What I said, Vaibhav, was that on clinker, we have not really made any money. It is very close to break side. So over the entire margin, which you're seeing is fundamentally on cement volumes only. We have signed clinker contracts in the past, but we did not anticipate this kind of a surge in energy prices. So we are having to supply at these low prices. Secondly, the international clinker prices have also not moved up as equivalent to the increase in coal prices. So today, if you ask me as of moment, clinker is not a very lucrative [ endeavor ] if you're looking to maintain your capacity flow, but it is not giving us any significant improvement in the overall EBITDA.

So sir, is it fair to assume that because we're not get any margin in clinker in the current quarter, your pure cement margins would be upwards of INR 90 to INR 100 a ton? Or -- in the current quarter?

Yes.

If I look at your...

You can do mathematical cancellation that way. I mean, whatever margin you are seeing is fundamentally on cement., The marginal impact of clinker sales on the overall EBITDA.

Okay. Okay. Sorry, sir. And sir, also, we will keep on doing launches. So we understand that your current new capacity is already cutting off.

I don't want to give any guidance on that. But like I said, as far as where we are now equal, it is ramping up fairly well. What I can say is we are ramping up our production very well. We are seeing most -- in most areas, we have the -- hello?

Yes, yes, sir. I'm sorry, the line had trouble. Sorry.

Yes, what I was saying, Vaibhav, is that I don't want to give any guidance on the ramp-up of the unit. But for us now, both the units are same, whether it is the new units or old units for us now, we have a total clinker available. What I can state and confirm to you is that the ramp-up of the new unit is very good. The -- in most areas, we have already surpassed the guaranteed figures committed by the vendor. Few more raisers are pending, which also we will surpass in the next 1 or 2 months.

All right, sir. And so one comment which you made on the call is about the negotiation and renegotiation by contractors, the government with regards to our existing contracts. So do you also see somewhere there could be a macro, therefore, prices and then the price increase in some other regions are very large? So any thoughts on that? And if you can impact Gujarat stability also, any thoughts on that?

I cannot say what will happen in other regions. But in our regions, a lot of contractors are facing this challenge because nobody anticipated this kind of increase in cost of cement and steel and various other commodities. Diesel prices have gone up, which impacts their transport cost. Manpower cost has gone up. So we are generally seeing a lot of inflation in the market, and many contractors that they had built for the -- especially for government projects, they have not budgeted for such fluctuations in prices. So there is a little bit of an inputs and negotiation going on between the contractors and the government. So I don't think prices of other region will really have any significance on our region as...

I was asking on -- from an intervention perspective. So they come back in the this industry to reduce price...

I cannot bare anything on that. But like I said, in other regions, the prices have always remained stable, and this is one of the reasons that lower needs of the customer, not the producers prefer to have price volatility and they prefer price stability. It is net-net then benefit for everybody.

So thank you very much sir. Thank you, very much, ma'am. And now -- we can now conclude the call. Thank you very much. On behalf of PhillipCapital, we'd like to thank the members of Sanghi Industries for the call and for reporting in the call. Thank you very much, sir. Thank you very much. Thank you.

Thanks, sir.

Thank you, Vaibhav.

Thank you. On behalf of PhillipCapital India Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.