Shree Cement Limited (SHREECEM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Shree Cement Q3 FY '24 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Sahadeo from ICICI Securities. Thank you, and over to you, sir.

Thank you, Yousuf. On behalf of ICICI Securities, I welcome you all to the Q3 FY '24 Earnings Call of Shree Cement Limited. From the management, we have with us M.D., Mr. Neeraj Akhoury; Senior Advisor, Mr. Ashok Bhandari; and CFO, Mr. Subhash Jajoo. So without any further ado, I hand over the call to Mr. Akhoury for his opening comments. Over to you, sir.

Thank you, Navin. Good afternoon or good evening, ladies and gentlemen. Welcome you all to the earnings call of Shree Cement for the quarter ending December 2023. This quarter has been quite exciting for us on many things. We've just started a new plant in Rajasthan, Nawalgarh, which is one of the largest plants in the country and most probably even in the world. And -- but combined with that, we also like to inform you that Shree Cement has been able to roll out what we call our revamped brand strategy to develop and become a more preferred brand for the markets. And I would like to in the very beginning take you through what have we done with our new brand strategy and how we believe it will help us to further strengthen our market position. Last 1 year, we have been researching. We have been asking a lot of questions in the market, doing formal and informal research. And we found that there are areas where we need to redefine our business objectives. One of the business objective was, and as we have said in the past calls as well was to enhance our consumer pull in the market as well as grow our premium product business. In -- while doing so, we were very convinced that as a brand, we need to become stronger in the IHB business by offering them a superior, innovative and a differentiated product, and that was one of the objective that we took. But -- and all this required us to review our brand architecture. And based on that, we have revamped our brand strategy with a master brand approach. We have launched in the month of January the master brand for all product categories of Shree, which will be under the master brand of Bangur, this will be across the markets. There has been a lot of investments to create a new visual identity, to modernize the brand with a new logo as well as with what we do believe is one of the most modern packing designs. In addition, we have now streamlined our premium offering with one premium in the market across the country. We call it Bangur Magna, which is a product with very superior formulation and also a very unique packing design. What we are doing today is heavy multimedia ad campaign, showcasing the new brand -- Bangur Master brand. And very happy to say that our brand ambassador for the first phase is Sunny Deol. And with him, we have been able to bring some clutter-breaking advertisement campaign in the market. The first level response, though it's too early, has been encouraging. We have exposed our ad campaign to about 50% of the target group within the first week itself and received very positive feedback through our follow-up research in terms of the creative quality as well as in terms of interest of the consumers in our brand. In addition, we are doing a lot of parallel activities. We have connected to over 1.5 lakh contractors within the 3 weeks and received encouraging report from them in terms of our product and packing quality. And very happy to say that as we are moving, Magna share in our total sales is also going up sharply. And we believe that we will be able to meet our objectives in the coming months. Going back to -- I'm very happy to take more questions on our brand when we start the Q&A. Going in the results, the broad features of the financial results, both Y-o-Y and Q-o-Q basis. This is how we would like to summarize this. So December '23 was one of the better quarters, if not the best quarters in last 2, 3 years. This was a quarter where we fired all cylinders, volumes was up, realization was up and cost was down. Sales have increased from about 8 million tonnes in December '22 to about 8.9 million tonnes in '23 -- December '23, achieving a growth rate of roughly about 11%. But more importantly, our utilization rates are now increasing from 72% last year to 77% in the last December. Also, the sales realization was up by about 3% from INR 4,854 to roughly about INR 5,006, per tonne. Very encouraging to see that the average fuel cost is reduced by about 15% from about INR 2.46 per CV last year to about INR 1.78 per CV in the last quarter. This contributed to increasing the total EBITDA from INR 708 crores in December '22, to INR 1,234 crores, growth of roughly about 74%, while EBITDA per tonne was recorded at INR 1,387 per tonne against INR 881 in the last year same quarter. Even on a sequential basis, we see improvement. Volumes were up by about 9% from 8.2 million tonnes to about 8.9 million tonnes in December '23. Realizations improved by -- from INR 4,843 per tonne to again INR 5,006 per tonne, up by 3%. And fuel prices continued their downward trend and were at INR 1.78 per CV compared to INR 2.05 in the September '23 quarter. Total EBITDA increased from INR 870 crores to INR 1,234 crores, registering a growth of roughly about 42% on a sequential basis. EBITDA per tonne also increased from INR 1,062 per tonne to what I said, INR 1,387 per tonne. Very happy to say we've already commissioned our 3.5 million tonnes Nawalgarh plant. Another plant of 3 million tonnes at Guntur is likely to be commissioned by this quarter end. We have ordered one more cement mill of 3 million tonnes at our Pali, Rajasthan plant. Accordingly, we are on a target to achieve a capacity of about 75 million tonnes by March '27, a further step to reach 80 million tonnes -- over 80 million tonnes cement capacity by March 2028. On energy front, our capacity stands at 977 megawatt very close to 1 gigawatt now, and green power capacity of 73 megawatts has been commissioned in January '24, and another 133-megawatt is likely to be commissioned in the phases over '24, '25. This shall take our total power capacity to 1,110-megawatt giving us a power sufficiency of about 65% from the current levels of 61%. It is another step towards a sustainable business model. I have Mr. Ashok Bhandari and Mr. Subhash Jajoo with me, along with Mr. Khandelwal, our Company Secretary, and I would request them to take you through our financial performance.

Good afternoon, everyone. I suggest that if you have any questions on the brand strategy or brand thought process, you may please go ahead and ask any question directly to MD. Otherwise, if you may want to go into the financial nitty-gritty, we can start it now itself.

[Operator Instructions] First question is from the line of Mr. Navin Sahadeo from ICICI Securities.

Congratulations on a great set of numbers. On the branding part of it, revamping this entire brand exercises have been done, I had 2 questions. One is, do we have milestone or a target to reduce the price gap of Shree or now, of course, Bangur versus a benchmark, let's say, any particular benchmark large company or an average, do we have a target in mind to narrow the price gap? And over what period of time you're looking at? That's my first question. And second is, apart from this brand revamp, are we also looking to touch upon some of the other technical aspects such as, let's say, setting strength of the product or even the blaine kind of things? Are we looking to do some changes with that as well?

Navin, as we said, this is the first phase of the exercise in which the objective is to improve our brand awareness. This is technically what we call the top-of-mind awareness, or TOM, where we were -- we have a very definite range that we should go above 50 in the top-of-mind awareness of the -- our brands in the market. Price is a subsequent topic. We believe as we are -- we have now established very firm standards on quality of our product. Combined this with marketing, we should be able to improve our price position. Having said that, our first target is to make sure that our premium product, Magna, sells at a better price in the market, in line with the quality which we are offering, in line with the differentiation that we are offering, in lines of be it initial strength or be it final strength that we are offering in the market. So that is the first level goal, Navin. And I'm sure brand development is a midterm topic, is a long-term topic. In fact, many brands have invested over the years to create the kind of position that they today command internationally as well as in India. We will also continue to invest in our brands with the objective that our brand should get a position in the market, which is in line with the quality that we offer and in line with the products and differentiation that we are offering.

The next question is from the line of Parth Bhavsar from Investec.

Congratulations on the good set of numbers. Sir, I have 2 questions. One is on power and fuel, which has improved significantly quarter-on-quarter basis. And you also mentioned that your consumption cost has declined to INR 1.78 per kCal. So wanted to know like if there's any further room of improvement and if this number would sustain going ahead in coming quarters?

I'm requesting my colleague Mr. Bhandari to answer your question. Go ahead, Mr. Bhandari.

Look, you have to appreciate two things. Number one is that the consumption is based on weighted average cost of inventory we carry. The decline from INR 2.05 to INR 1.76 quarter-on-quarter is because the weighted average inventory carry cost has come down. Though the pet coke prices yesterday showed a declining trend from $120 to $110, yet as per our contract and pipeline, the fuel cost for this quarter on a weighted average basis, based on the inventory and pipeline inventory, would remain almost the same at about 1.76% -- INR 1.76 per kilo calorie. Am I clear to you?

Okay, okay. So it wouldn't go down further at least in Q4, it is...

It will. That is what I wanted to caution you. If the pet coke prices have come down, our procurement prices in future will also come down. However, as I explained, the consumption is based on weighted average cost of inventory. So my inventory in last quarter would -- was at about INR 1.76 or INR 1.77. And based on the inventory which we have and the pipeline we have, it remains the same for this quarter. Next quarter, it will come down, but that will move in tandem with how the international prices of coal and pet coke changes. Another very interesting development is that the South Africans because of the Red Sea turmoil are not being able to ship it to Europe. So like Russia, they are -- they have started offering South African coal at a discount to international price to Indian consumers. So that may also play out, but this will all be next quarter. For this quarter, you please take my fuel cost at about INR 1.76 per kilo calorie.

So the reason why I asked this is, I just wanted to know if we are off the -- like we won't again see like 1,650 burden of power and fuel cost, and I understand the inventory thing and will come down...

Yes. That's what I'm saying. There are 2, 3 levers in that. Please understand that increase in capacity utilization from 72% to 77% has its own cascading benefits and operating efficiencies, right? So saying that it will go to 1,650 or 1,540 or 1,450, I can't say that. I can say the general trend of a declining fuel cost because of increasing operating efficiency, which is linked to capacity utilization. And as MD was suggesting, we are confident that 77% should go up only. It cannot come down. So what kind of efficiency benefit we get by uptick in capacity utilization is very difficult to determine as of now. I can only assure you that two things will help in Q4. One is the fuel cost, but the consumption may decline because of increasing operating efficiency. And the power cost will go down because the 73 megawatts of green power commissioning in January will start giving us benefit in next 2 months. So I must have better operating efficiency, better capacity utilization and lower fuel cost -- fuel and power costs. Now how much -- how it will play out, what will be the plant load factors of the renewables, it's very difficult to ascertain. But I'm fairly confident that at least this quarter performance should not deteriorate. It may only improve.

Okay. Perfect. Got it, sir. And just wanted to understand what is -- I wanted to know the CapEx guidance for '25 and '26.

Listen. Let us put it like this. Post Guntur commissioning, I'm not considering Guntur in this plan, we should be having a CapEx about INR 12,500 crores up to '27. And I have INR 6,000 crores cash in my hand. So I will be needing about INR 6,000 crores to INR 6,500 crores, which should come from internal accruals only.

Next question is from the line of Shravan Shah from Dolat Capital.

Congratulations on a great set of numbers. Sir, is it possible this way we have shared the power revenue and EBITDA for the last quarter, can you share for this quarter?

Yes, the revenue is at about INR 350 crores, and the EBITDA is about 10%. This is power only.

Okay. And for 9 months?

[Foreign Language] I have it. Just give me a second. The power revenue is INR 1,173 crores. And the EBITDA will be in the range of 10% only -- 9% to 10%. Last quarter, it was about 9%, but some benefit has come up because of lower fuel costs. So it should be at about 10%. You can take 10% as a benchmark.

Okay. Got it. And sir, cement realization, you mentioned 3% up to -- for Q2. So it should be INR 4,988 for this quarter, cement realization.

My dear friend, what is happening is because you did not have the power revenue numbers you must have used the consolidated revenue divided by cement only. You knock off 350 from there and then see the numbers are INR 5,006.

Okay. Okay. Got it. And if you can help us in terms of the timeline for all the ongoing expansion. So Guntur, will it be starting this March, April?

Yes, this March itself, not April. I'll take you broadly through the numbers. We should be 56 million tonnes by March '24; 62 million by March '25; 65 million by September '25; and March '27, it should be 75 million.

Okay. Okay. Got it. So in terms of this -- for the latest 3 MTPA Ras expansion, sir, what would be the CapEx for that?

The CapEx for 3 million tonnes, Ras will be about INR 600 crores because it's a brownfield.

Got it. Got it. So 9 months, how much CapEx we have done in...

Sir, may we please request you to rejoin in the queue as there are several participants waiting for their turn.

Hello.

Yes, sir.

Yes. It is INR 2,600 crores.

[Operator Instructions] Next question is from the line of Prateek Kumar from Jefferies.

Sir, congratulations for great set of results.

I'm happy you liked it.

Yes. So on volume growth, we have like clearly outperformed the industry growth in this quarter at 11%.

One second, my dear friend, if you have a doubt on that number, please ask so or we are the best.

Yes, so you are the best. So how do we look at -- like next year is expected to be relatively dull year for the volume growth because of 1 or 2 quarters of impact of demand because of elections. How do we look at demand growth for next year?

Let me put it like this. March '24, we should be certainly 35 million-plus. March '25, we expect to touch the magic number of 40 million tonnes. The industry should grow between 8% to 10%. So if I'm 35.2 or something, I may be hardly 1% higher than the industry average growth rate.

Okay. 8% to 10% for this year, you mean...

No, 8% to 10% next year. This year is gone, whatever. You want the number of this year, I can give you, add 9 million to the number we have already published and you will understand what the growth is, it will be 35 plus. So we will be at about 12% -- 11% to 12%.

Okay. And next year, 40 million tonnes, okay. So we'll be growing a tad higher than the industry, if industry growth are 8% to 10%.

We are in line with the industry. In fact, we should be about 12% this year, yes, hopefully.

And just on profitability. So we understand there is some price rollback in the current quarter of Q4. So...

Prateek, let us understand like this. After all, it's a cyclical business, and it is completely dependent on the demand and supply in the market. And you must not -- you might not have interacted with me earlier. We have never given any price guidance because price is not in the control of any manufacturer. We have always given cost guidance. I have already stated that my cost should tend to be lower because of the rational explained on fuel and other things. Now it is your call completely as an equity analyst or a cement industry analyst to take a call on where the prices will go. We have never given any EBITDA guidance. We have never given any price guidance because EBITDA is a result of price minus cost. We'll give you cost guidance and we'll give you the general trend of cost. So please excuse me, I will not be in a position to give you a top line or a bottom line number. I can tell you how my cost should, yes.

Certainly. And just on -- while this question was discussed slightly earlier, on your premium product mix, how is that expected to flow into your EBITDA per tonne...

Let us understand. The incremental revenue reflected in this quarter is because of a better product mix, lower logistic costs and higher capacity utilization. The same factors should play out because whatever game we have learned in the last 6 to 9 months should only get improved, isn't it? Learning is a long learning curve. So it should improve. And we feel that on the cost front, we should not be -- there is no reason for us to believe that we will let you guys down. On the revenue, let the market take a call.

The next question is from the line of Jashandeep Singh Chadha from Nomura.

[Foreign Language]

Congratulations on a great set of numbers, sir. Sir, you have explained the power and fuel cost. I just wanted to understand the logistics cost, I think a couple of quarters back, a lot of initiatives were told to us that will be taking to reduce the logistical costs, one being putting up railway siding at various plants. So how is the progress on that if we can get an update...

[Foreign Language] All of you have to appreciate that when there is a churn in the organization, it takes its own time to settle down and become stable. On logistics front, what has really happened is that because of induction of professional managers, we have been able to cut on lead time -- lead distance rather, and we have been able to optimize the cost also to some extent. As far as railway siding is concerned, we are progressing on it. I'm on record with you that by March '27, we should be 80% to 90% dependent on our own railway siding. We are working on it. The progress is going on. Railway siding, the biggest hassle is acquiring that particular parcel of land, which becomes pricey because people know that you need that land so we are working on it. Purulia we should be able to, which is in East India, we should be able to complete it before September this year. And balance, I'll keep you updated. This is a quarter-on-quarter progress kind of a number. You can't pin me down, please. March '27 is the target.

Right. And sir, one clarification I want. So by FY'26, 75 million tonne capacity, you should have around 20 million to 20.5 million tonnes in East. And on back of that, you have around...

[Foreign Language] You are right. I'm sorry, 21 million tonnes.

Right, sir. And on back of that, the backing up clinker is around 9.2 million -- 9.5 million tonnes. So will we have a situation of clinker shortage given 1.8 [indiscernible]

You have to understand. [Foreign Language]

And is there any preferred pecking order on that or you are still there on...

[Foreign Language] Kodla is number one. And second is, of course, Ras, my north plants. Another another grinding units, we will reassess the position because [Foreign Language]

Next question is from the line of Rajesh Kumar Ravi from HDFC Securities.

Rajesh, how did you like the numbers?

Fantastic numbers, sir. That is what I was trying to start with, is a great set of numbers. Congratulations to the team. And sir, could you share what was the trade mix and blended cement production in this quarter?

It was about 76:24, if I remember correctly.

Trade mix, okay. And blended?

Blended cement?

Yes, blended cement share?

One second.

And also fuel mix?

[Foreign Language] Yes, I'll ask Mr. Jajoo to reply.

Yes. So blending ratio was around 72%. And our fuel mix for this quarter is 73% pet coke; coal 15%; and alternative fuel around 11%.

Sir, this year, 9 months of total CapEx you mentioned?

I said INR 2,600 crores.

And full year, how much will we spend, sir, this year?

[Foreign Language]

The remaining 3 months, how much CapEx we are charging and this INR 12,500 crores, which will be subsequent for next 2, 3 years, how will that...

In this quarter, we expect about INR 600 crores to INR 700 crores of CapEx.

Okay. And this INR 12,500 crores for next 3 years?

[Foreign Language]

And sir, this logistics cost, which you mentioned, you already addressed that this is now because of your various initiatives. And this number should remain steady?

For this quarter, yes, I'm telling you that this number should remain steady. If not, improving.

Incrementally, it can only go down. Is that understanding right?

[Foreign Language] The most important element is fuel, power and logistics. [Foreign Language]

Great, sir. And lastly, could you share what is -- what has been the demand trend in these East market and North markets during the quarter, your assessment of demand, industry demand?

Mr. Jajoo will address this.

The demand trend in the last quarter was the best was there in North India. East was a bit weak. So like the demand grew by around -- our sales grew by around more than 10% in North. And in East, it was around 2%, 3%. South, the growth was around 10%.

South. South including West.

South and West is combined.

Okay. South and west together, okay.