Shree Cement Limited (SHREECEM) Earnings Call Transcript & Summary

No issue sir. Sir, road rail mix for this quarter and this quarter...

Mr. Jajoo will give you.

Road/rail is 88% and 12%.

And our fuel mix, pet coke and coal and...

It's 76% pet coke, 6% coal and balance is alternative fuels.

And CapEx till now, how much we have done in 4F?

Till now, we have done around INR 1,500 crores. And another INR 400 crores, INR 500 crores is to be done in this quarter.

May we request that you return to the question queue for a follow-up question. The next question is from the line of Satyadeep Jain from Ambit Capital.

Just a first question on the strategy on pricing versus utilization. You've added capacity in North and South in the past few quarters. How do you look at an ideal utilization given these capacities have been added, but overall volume increase is not there? So is there an ideal utilization you look at when starting an asset to optimize the operating leverage, fixed cost there?

Please appreciate that I had always been maintaining when demand is not in the hand of any cement manufacturer. Demand emanates from overall growth within the economy. We do -- we are not happy with our current capacity utilization. We are taking steps to correct it. We have corrected it largely to some extent in January. I have also pointed out that we are concentrating on setting up more and more RMC plant which should give me a fillip in capacity utilization. But at this point of time, especially in this quarter because this quarter, maybe the demand may be abnormally high due to pull from the central agencies, we may better answer this question in the first quarter of '26-'27.

Sure. Sir, in that context, the focus on utilization, how do we look at the 80 million tonnes? Would you rather wait to improve utilization? And what's the progress on Jaisalmer...

Generally, your thinking is correct that we are not announcing specific sites and specific plants only because we want the capacity utilization to increase. I had hinted that 80 by '29 may get deferred or may culminate is completely dependent on how the demand comes out in '26-'27. So this is a question for which I don't have a ready answer. I would like to expand. please understand that Shree Cement has increased its capacity 110x from 1985. Since the last 40 years, we have grown 110x in capacity. So our growth has not been lagging. Our CAGR for growth is 12.5% plus. And we expect to do it better. But then you must setup capacity, not for idle capital but for productive capital, which is a function of demand. If the demand doesn't have the necessary leverage what is the point in setting up capacity and operate -- keep on operating at 56%, 60% ,62%. Ideally, we should reach 70% kind of a capacity utilization. Now whether it takes place in 1 year or in 1.5 years, time can only tell.

The next question is from the line of Siddharth Mehrotra from Kotak Securities.

Sorry if I missed this number. So what is the CapEx we are expecting for, say, 2027?

Look, my major focus is going to be 26 RMC plants, 26 or 30. Per RMC plant, it costs about INR 5 crores. So INR 150 crore visibility I have. Balance is completely dependent on how I try to attain like June '26 -- sorry, March '26, we will be completing Kodla plant. We have spent about INR 2,000 crores of CapEx in this financial year. Next financial year, I'm giving you INR 150 crores CapEx. I am also working on railway sidings which should be about how many crores per kilometer?

Around INR 150 crores, INR 200 crores.

About INR 200 crores to INR 250 crores on railway siding. So INR 400 crores to INR 500 crores of CapEx visibility is clearly there. Balanced visibility, I'll be able to give you once I start planning my further capacity addition. So you will have to give me 1 more quarter to give you more clarity on this. However, you are fully -- you may be fully aware that we are completely debt free, and we have about INR 6,000 crores of free cash sitting in our balance sheet. So we are not worried about the quantum of CapEx we can -- we need to spend. We would like to be watchful of the demand and the potential capacity utilization.

Understood, sir. So essentially, that means we are planning to put at least 2 railway sidings approximately INR 150 crores to INR 200 crores per siding as well as the RMC plant, INR 500 crores, we have clarity and maybe some additional CapEx basis, whatever your capacities you sort of decide. Is that correct?

Which I'll be able to tell you, either in next con call or in the June con call, I don't know. You will have to give us time.

Okay. Second, sir, could you sort of quantify what sort of industry growth was prevalent in 3Q for the industry sir, some ballpark number?

Like Q3, you see it is not comparable. I had a different strategy of operating my plants. The industry has a different strategy. So they are not apple-to-apple comparison. I was concentrating more on value, less on volume. So obviously, my growth was lower than the industry. If you want, we can share those numbers or those numbers will be available elsewhere also. But you can write a mail either to Mr. Subhash Jajoo or to me, and we will give you the reply. We have not gone to our fullest capacity -- to our fullest -- what should I say, potential by design. Now we will see how it goes.

Got it sir. Got it sir. Sir can I just please get the power mix split sir if possible? If 34 megawatts was the total green power mix there should also be additional captive power. So could you just lay out what are the individual components, the solar, WHR?

Wait a minute. Mr. Jajoo will give you exact power plant capacities of various kinds.

See, our total power capacity is currently 1,137 megawatts, out of which 503 is the thermal power capacity and balance is all green. WHR is 265-megawatt, solar is 314 and wind is 56. So 64 megawatts of green capacity, 503 of thermal, total 1,137.

Understood, sir. Just 1 last question sir, if I could squeeze in. So a couple of your peers have sort of sounded out that this is a very interesting and exciting opportunity in UAE to either sort of increase their stake in subsidiaries there or expand their capacity there in additional grinding units. So sir, given the fact that you already have a long-standing exposure to that geography...

Let me stop you here, my dear friend. Do you think that if there is a profit opportunity, Shree Cement will let it go bagging? If there is potential, if there is real demand per cap, if it is -- if the operations are profitable or good enough profitable. We'll certainly do whatever is required to be done. We have the largest cement plant in UAE today in our control.

So nothing has changed at least from our perspective in terms of the market opportunity, sir?

I would not like to comment on that as of yet. I'll comment in March.

The next question is from the line of Tushar Chaudhari from Prabhudas Lilladher P Limited.

First of all, please do me a favor. If you meet Amisha Ben tomorrow, please give my regards to her.

Sure sir. Just wanted to know this employee cost is a little bit higher this quarter. Is it because of Baloda Bazar?

Read Note #3 of the results.

Okay. I missed that. Impact, so volume actually I wanted to know how much is the...

Listen, the new labor code has made we provide for all back liabilities which is amounting to INR 56 crores. We do not show any expense as an exceptional expense because it is all in routine course of business. So we have additionally provided INR 56 crores as required by the law, and we have disclosed this by way of a note in Note #3. This is all employee cost. Now what is the second question?

Volume, 2% growth is written. Last year, it was 8.77%.

So last year, what had happened, my dear friend? Last year, what was my realization. This year, what is my realization?

Blended realization.

December '24, my realization was 4 -- INR 4,554, is it correct? Yes. And December '25, my realization is INR 4,652. So you sell to lose money or you sell to make money. We have deliberately constrained our volumes to decrease the delta between other selling price and my selling price. We have reduced it by 50% [Foreign Language]. We will see what to do.

Then no, no, I understood that, sir. You had explained it pretty well earlier. 2% volume growth is then -- is including clinker?

That I don't remember it often. I will get back to you. You send a mail to Jajoo, and Jajoo will get back to you with the exact numbers.

The next question is from the line of Navin Sahadeo.

Am I audible?

How can you not be audible? You are the host today.

So my question was on this value versus volume strategy. In the context of market share as well as industry superior profitability. Like past 4 quarters, as you mentioned in your opening comments, since October '24, the strategy of value over volume was clearly, I think, rewarding us in terms of significantly higher EBITDA per tonne or margins versus the peers. In this quarter, it is a bit of a dampener and also, of course, the volumes are also like some maybe, if I may say, some loss of market share...

Navin, Navin, Navin, slow down, slow down, slow down. Hear me out. There were 2 major changes in our sales strategy in last 1 year. One was that we had made our rebate and discount policy so transparent and nonnegotiable and nondiscretionary that the favored dealers were getting pissed off. So it took some time for them to realize that this is a nonnegotiable policy, and now they have fallen in line. And number 2 is that in November, we have inducted a new President, Marketing, and he has shown good results in the last 1 month, 1.5 months. So I expect that the things should be better in coming times. Now of course, I can say anything. I cannot be but be bullish on cement. So I will keep on talking bullish sentiment on cement, but please understand that demand is not in my hand. If demand is there, you will not find us wanting.

Helpful. Helpful. My second question then was on realizations. So in -- I think in Q3, we have sequentially, I think realization drop is about 4-odd percent...

Yes, look, all of you are saying this. Unfortunately, I don't have this number [Foreign Language], maybe this is correct. Maybe there was a drop in realization or whatever. But you asked me a pointed question on come -- you keep on coming to Calcutta, come one day. I give you a good tea. You have nice tea and I will give you a good lunch also, if you want. It is better. [Foreign Language], we talk more freely and with all the data.

The next question is from the line of Indrajit Agarwal from CLSA.

Sorry, I missed one. I just want to clarify one number. Did you say fourth quarter run rate to be similar as December and 9 million to 9.5 million tonnes volume in fourth quarter?

Yes, I did.

So that would imply more or less flattish Y-o-Y number? Is that understanding correct?

Maybe 1 or 2% growth, I don't know. I have not done the math.

The next question is from the line of Harsh Mittal from Emkay Global.

Sir, just one question. So given that our cash levels as of December ending is INR 6,000 crores, and we are expecting a healthy cash flow in the coming years with a limited CapEx. So sir, can we expect a material upside in the dividend outlay going ahead?

Let us understand. Material is a relative deflation. So let me assure you that, yes, the dividend payout will be better. It is not my prerogative to say how much better, how much not better that is up to the wisdom of the Board. But I expect the dividend payout toward '26-'27 -- sorry, for '25-'26 to be better than '24-'25. And I -- well, it is not a differential of INR 5 kind of a thing. We may give you a better one.

The next question is from the line of Lakshminarayanan from Tunga Investments.

Sir, on the return metrics for the company, we see that it's currently trending downward predominantly because of lower profitability?

No, no, no. Please let me correct you. The profitability absolute number has gone down because we had, by choice taken a value over volume path, please understand. We have achieved the convergence in vis-a-vis, say, UltraTech on per bag prices. So it is not that the capacity utilization was substantially affected by profitability. It was my design that it had of lower volumes to better my prices, which had affected the profitability.

Got it. Sir, my question is slightly different. I mean I understand your point. Now our ROCE or ROEs are trending downwards over a period of time. Given this strength, what is the primary metric the company prefers to evaluate its long-term performance?

One second my dear friend. Let us understand. If I keep on making profit, my capital employed keeps on going up. If the additional profit I am not distributing or I'm not utilizing for CapEx, then it is giving me a 4% to 5% treasury return. So if you combine everything, you find that the ROCE or the ROE is going down. On the other hand, I'm committed to add on capacity to 80 million tonnes. So what do I do? I have to bear the pain of a rather inefficient cash utilization in the form of treasury till I finalize my plan to have major CapEx. For the first time in my career, I think I have spoken of a INR 400 crores to INR 500 crores CapEx visibility in next financial year. We have never done that. But then the demand scenario is such that I cannot give you a firm commitment on when my capacities will come up. As soon as the capacities come up, the 4% return cash on cash -- the return on cash of 4% will extrapolate into 20%, which will automatically jack up the ROCE and ROE. So you will have to bear with me.

[Operator Instructions] The next question is from the line of with Uttam Srimal from Axis Securities Limited.

Sir, my question pertains to premium cement. So we have made a really good progress from 15% last year to 22% -- 10% last year to 22%. So where do we see this number going forward in next year?

Can you -- have you read any cement research report, which has talked of anything else about premium cement? So if everybody is going to make premium cement, then where is the premium here? The premium cement becomes the normal cement, number one. Number two, the brand belongs to the company. The classification of brand also belongs to the company. There is no standard, which defines premium event. So it is your 10 brands. It is your pen and it is your pencil. And whatever you want to put, you put it as a premium brand and sell it because there is no yardstick to define what a premium cement is. So please understand, we are at about 21%, 22%. We are -- we have defined our premium brands, and we are sticking to it. We are not changing the mix of my total cement as for my convenience. And at the moment, with the current demand scenario, we are at 21%, 22% and we expect to maintain the same run rate for this financial year. Next year, what will happen let us see.

And sir, next year, what would be our depreciation cost?

What will be our?

Depreciation.

Depreciation should be about INR 1,600 crores.

1,600? Sir, you said INR 1,600?

Yes, I said INR 1,600 crores. INR 1,600 crores, INR 1,700 crores, please don't hold me to the number, but it will as high as it had been.

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

Sir, just a follow-up question. On the realization, which you explained that you have bridged the gap with UltraTech, and I believe that is visual in numbers when I compare you with the like-to-like numbers of UltraTech in last 1 year, while your competitor has shown a INR 50 decline, yours realization has gone up by INR 100. And similarly, the trend in for the last 2 years, there is a sharp swing upward on your numbers. However, if I look at the margin front, your margins have been more or less flattish year-on-year while the competitor has seen a margin upswing both on a year-on-year basis on a 2-year basis. So is it like you have maintained your pricing?

Ravi, one second. Fixed cost recovery is completely dependent on capacity utilization that you appreciate. To catch up on the value terms, I had sacrificed volumes. So my fixed cost recovery was less. So margins dropped. Now if I play intelligently, my fixed cost recovery will improve and my margins will also improve. Since the first time in the history of this company that I have reported a more or less equal EBITDA per tonne net of labor code expenses vis-a-vis UltraTech. Otherwise, we had always maintained INR 100 to INR 150 delta plus side. And I expect to catch that up.

Great. That's happening. And sir, just on the adjusted for the labor cost, still your employee cost is higher by INR 20 crores quarter-on-quarter versus INR 250-odd crore?

My dear friend, what happens if I increase my capacity?

Okay. This is with regard to the new plant ramp-up.

Exactly.

Okay. So we should factor in this number as a recurring number and accordingly. And sir, lastly, just on the UAE business, you would wonder -- could you make it a practice in the press release only to share the volume metric and the numbers in AED would that be more useful for us?

I will certainly give a thought to this. Give me 1 quarter. Let us see what I can do in next quarter. I will certainly do that.

And sir, lastly, could you repeat the CapEx number for full year and next year? What are you targeting?

This year, I'll be doing INR 2000 CR. I have already done -- I have already completed INR 1500 crores. I'll be doing about INR 500 CR in next -- in this quarter, means January, March. Next year I have -- one second. Next year, I have not firmed up my plan on further cement capacity addition. We have frozen the plan to setup about 30 RMC plants. One RMC plant costs roughly INR 5 crores to INR 6 crores. So you take about INR 200 crores for RMC, INR 200 crore for my railway sidings, and 50 crores to INR 100 crores, you have normal routine CapEx [Foreign Language]. So I'm giving a guidance of next year CapEx at INR 500 CR. But I'm putting a caveat that this is only because I'm not firmed up my plan of adding up further capacity. If that gets fructified, the number will substantially change. But you will have to wait for that.

So just to confirm on -- that's clear, sir. That is clear. So there are no capacities which will come onstream next financial year, at least because nothing is -- no concrete work is going on as per...

I don't think we will go beyond 72 million tonnes, which we will achieve by March '26.

The next question is from the line of Navin Sahadeo from ICICI Securities.

Yes, I'll take the last question, sir. So in the -- like you mentioned that we have narrowed the price gap versus the industry leader from INR 30 to INR 15. So what is then the next milestone? Is it coming at par? Or is it like how should one benchmark that at that point of time onwards then we can start chasing volume?

Navin, hear me out. I don't have the capacity or capability or even the enthusiasm of saying, I will sell at par with UltraTech. If I say that, you will not believe it. But on the other hand, I -- with full confidence, I can say that I'll maintain the delta on EBITDA per tonne basis, vis-a-vis the competition, which I had been doing except in this quarter. I've been doing it for 40 years, that you know. This quarter, we lost out on volumes that's all right. It was calculated.

Sir, on the staff cost, I just wanted to know what would be the normalized cost. I mean, this quarter...

You ask this to Jajoo. I don't know.

Last question to you, sir. Last question. At a broader industry level, do you think non-trade share or non-trade exposure is rising because everybody is chasing those bulk volume, RMC units. Is that a fair thing to observe?

No, no, no. I think you have -- as I told you, my dear friend, this quarter becomes very typical. Non-trade is basically the large purchases by infrastructure projects. This quarter, the government has to finish the budget allocated in '25-'26. So this quarter, you may have a trend where non-trade may be more. But I don't think that is a sustainable trend. We will go back to 75%, 25% kind of a level. We have today at 65%, 35%. Is your last question finished?

Yes, yes, I'm done. There are no more questions.

So why are always the last one to shaft me?

Over to you, we'll discuss this. [indiscernible], you can go ahead and conclude the call, please.

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