Shri Keshav Cements and Infra Limited (530977) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '25 Results Conference Call of Shri Keshav Cements and Infra Limited, hosted by Kirin Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jainam Savla from Kirin Advisors. Over to you, sir.

Good evening, everyone. Thank you. On behalf of Kirin Advisors, I welcome you all to the Shri Keshav Cements and Infra Limited Q2 FY '25 Conference Call. From On the management team, we have Mr. Venkatesh Katwa, Executive Director and Chairman; Mr. [ Srinivas ] sir, Senior Finance Head. Now I hand over the call to Mr. Venkatesh sir for the opening remarks. Over to you, sir.

Yes. Thank you, Jainam, and good afternoon, everyone. I'm Venkatesh Katwa. I'm the Chairman of Shri Keshav Cements and Infra Limited. I welcome, and thank you for this conference call of SKCIL. We are delighted to have each one of you here and we explore we will explore and discuss the financial performance of second quarter of FY '25. So before we get into the details of this quarter, I would like to give you a brief overview of the company and its robust business model. SKCIL, what was known as Katwa Udyog Limited, is engaged in the manufacturing of cement and generation of renewable power in solar, and cement, we sold in North Karnataka, South Maharashtra and Goa, whereas power is sold in the entire North Karnataka region or even other parts of Karnataka. The company has a network of over 350 distributors with around 600 retail touch points and around 14 solar power consumers. Since 2018, the company has been meeting 100% of its energy requirement through renewable solar energy. Cement plants of SKCIL are likely the only ones in the country to run 100% grid power or at least we were the first company to do so, resulting in a significant reduction in the power cost, which is over 75%. We also received prestigious awards. Amongst many, one would stand out is from Bureau of Indian Standards for 3 years of consistent high-quality cement and 0 product failures. We are pleased to report significant start in FY '25 marked by key advancements that underscore our commitment to sustainable growth and financial stability of the company. One of the significant milestones this half year is the commissioning of additional 3-megawatt solar plant at Bisaralli in Karnataka, which brings our total solar capacity to around 40 megawatts. This expansion highlights our decision and dedication to focus on renewal energy and reinforces our environmental responsibility. In addition, we also secured a good credit rating upgrade from current IVR BBB- stable outlook on facilities operating total of INR 223 crores. These achievements reflect our focus on sustainable practices and financial strength, and we look forward to building on this moment of our continued progress and value creation for our steel products. So let me take you through the performance of Q2 and H1 FY '25. Q2 FY '25 SKCIL reported a total income of INR 25.36 crores to mostly revenue generation in challenging market landscape. The company achieved an EBITDA of INR 3.04 crores, translating into 12.44% EBITDA margin, reflecting our ongoing efforts to enhance operational efficiency. For the first half of FY '25 the total income reached INR 56.6 crores with EBITDA of around INR 11.11 crores, resulting in an EBITDA margin of INR 20.23 crores (sic) [ 20.23% ]. So looking ahead, we are poised to harness further demand from economies of scale as we work towards tripling our plant capacity, achieving higher utilization rates and expanding also our capacity. These strategic enhancements combined with favorable demand outlook of cement are set to significantly bolster our performance. Our goal remains to step fast to drive sustainable business growth and reinforce our market position with a strong effort on elevating our brand presence and value. To generally speak about the cement industry, first 2 quarters, Q1, Q2 have been pretty sluggish on a trail of completion of a major election in India and then followed by monsoons. However, in spite of these challenges, the company has increased the disposes compared to the previous periods. So this fiscal would again see infrastructure in affordable rural house segment to propel the growth. The highest traction is expected from roads where the total outlay from the Minister of Road Transport and Highways and National Highways Authority of India has risen 25% and 14% respectively year-on-year. The top industry analysts and cement market leaders expect about 7% to 8% growth this financial year of FY '25. Considering the first 2 sluggish quarters on account of election and monsoon, the next quarters are expected to deliver a significant cement demand due to stabilizing of central government and client focus to spend on infrastructure. Pradhan Mantri Awas Yojana announced in June 2024 in a significant scheme to build around 3-floor housing units. Construction provides one of the highest direct employment and will be a focus for all the political parties, which will drive the growth of cement. So based on this, we are optimistic on demand outlook and expect a strong growth in the coming years. So with this, I would like to -- I'll be happy to address any questions anyone would have had. Thanks a lot for patient hearing, and I'm open for the questions right now. Thank you.

[Operator Instructions] The first question is from the line of Bharat Gupta from Fair Value Capital.

A couple of questions from my side. So while we understand it's been a weak set of performance, particularly, can you just help us or give further color regarding the EBIT loss, which we have reported in the solar side as well as on the cement side?

Absolutely. So solar did not suffer any EBITDA loss or rather reduction in EBITDA, mainly because solar is consistent on generation and pricing. As typically expected, solar has been giving the financial boost in the company for the last many years, which is why we have taken up the work on debottlenecking of cement plants so that cement and solar together can run like a double engine [Foreign Language]. But nevertheless, coming back to solar EBITDA, for example, in Q2, we achieved a solar EBITDA of around INR 7 crores. However, cement gave a negative EBITDA because of a significant drop in the pricing. So for example, in H1 of this year compared to H1 of last financial year, even though our dispatches increased by a significant 10% to 11%, the prices also decreased by around about 10% to 11%. In spite of having such a bad market, and we are able to keep expanding our footprint by going deeper, that is -- which is why our dispatches have gone up. But basically, which is conditions of cement dispatches all our nationally, if you look at anyone right now, has been very, very negatively impacted due to like what I mentioned, the elections and the ensuing monsoons. So hoping that assuming that 7% to 8% growth is intact based on the top analyst review by many analysts, in fact, cement specialists, we are hoping Q3 and Q4 would make up for the loss of Q1 and Q2.

Right. Sir, like in terms of the overall realization, which we have witnessed, so can you just quantify the number for the current quarter and for the H1?

You're talking about the net realization for cement pricing?

Right, right.

So in Q2 of FY '24, we have net cement realization of around INR 3,710. But right now, it is INR 3,290. This is a net realization, excluding everything, ex plant, excluding, of course, taxes and any kind of logistics or -- so this is what it is. If you look at it, almost INR 400 reduction would mean that the top line has reduced by almost 12%. However, the dispatch is...

[indiscernible] reversal out there in Q3?

So Q3, what we have seen is the prices have stabilized. What we have seen as in -- from Q1 to Q2, the price keeps sliding. For example, I'll give you a rough estimate. Q4 of FY '24 price was INR 3,750. Q1 was INR 3,480 and now INR 3,219. So this either has stabilized or started to show a little uptick, but it hasn't grown any significant as of now. And if you look at the national news, typically, this is the same pattern all the cement plants are going through. It is just that we are expecting the government to begin spending on infrastructure, which is a significant contributor. And due to elections in Maharashtra as well as most of the -- like one of the biggest spending in the country is Maharashtra, which is where the infrastructure stock has been slowed down due to the local elections out there. But we are hoping from next month onwards, at least analyst saying that Q3 will end with a good demand and Q4 is going to take an upward trend in dispatches.

Right. Great to hear that. Sir, with respect to the plant commencement, so can you just give us color like what's the update with respect to the new enhanced capacity?

Sure. So as of October 3, we have completed the entire plant. In fact, technically, we have completed all the civil and mechanical work. So this new plant will require a higher power connection, which is right now, we are on a 33-kilovolt line. We will need 110-kilowatt line, which are supposed to supplied by the government, the infrastructure which was supposed to come up 2 to 3 kilometers from our plant. That got delayed from the government side. So that was supposed to come up about 3 to 4 months back, which is what we were hoping on. So now we were told that the issue has been resolved and the power station will come in the next 1 month or so. So once that comes up, then we will be able to start up our new machinery. Otherwise, as of now, the entire machinery as well as kiln is ready, only little boxing up is going on because since we knew the delay has come in, so we are making sure the boxing up is coming to the final stages. As such the plant is ready, just that because of power, we had to wait for some more time.

And sir, we expect the incremental amount of revenues to come in from FY '25 onwards only -- FY '26 onwards only?

Yes, we are hoping to start from Q4. But realistically, FY '26 will be full first year with the entire year dedicated to the new capacity. Otherwise...

Right. Sir, in terms of our overall guidance of achieving EBITDA of INR 80 crores to INR 90-odd crores in FY '26 and to a range of INR 120 crores to INR 150 crores in FY '27. So are we sticking to it currently? And these numbers which you have quoted in previous calls, so that is based on what kind of a cement realization?

So that is considering the price what we had in FY '24 and taking an incremental growth at around only 3% of growth in NCR. Generally, we are very conservative when we talk about the cement pricing and a little more easy on the costing. So we have taken only 3% increase in our calculation for the price growth. In fact, the last year, for example, the average price is around INR 3,800 or so, the net cement trade. Unfortunately, the first 2 quarters are pretty bad. So hoping that Q3 -- end of Q3 and Q4, they add up and we go back to what we achieved in FY '24 and then take a 3% -- 3%, 3.5% increase from there, about INR 100 to INR 115 crores EBITDA should not be very far fresh idea.

So in a way, we are sticking with our guidance, which we have done earlier, like which we have mentioned earlier?

As of now, yes. Because with the top analysts giving a very good picture on cement for next -- see, typically, what happens, we have seen this in the past many years back. When there is a dip in cement consumption, the capacity what is unused or rather that demand does not go off. It has to come back again in an extreme high demand -- as an extreme high demand case. So a lot of projects which have been slowed down or stopped. The thing is the demand has not slowed down. So what happens is for them to catch up, the demand suddenly increases. This is what we have seen in the past generally. Typically, before when the monsoon is over, we see that uptick happening. Unfortunately, not this time, but that is the trend we have seen in the past. So we will stick with this guidance as of now.

Right. And sir, in order to meet out with respect to the excess amount of production, which you'll be doing, so have we hired any kind of like what has been the hiring in the overall sales force? And in terms of addition to the distributor network, so can you give further color like how you are planning for ramping it up at the earliest?

Sure. As of now, in fact, we have already hired additional sales and marketing people. In fact, we have begun to hire it from beginning of Q2 itself, which you can see the employee benefits has taken an uptick. What we are doing -- in fact, if you look at a national character on the cement consumption, it has gone down. In our case, it has gone up. The dispatches have gone up with such a stiff resistance of -- with such a stiff resistance of market. We are just hoping that once the market opens up and the demand shows up, then there is a very high trajectory of growth. So as such, now we are meeting a lot of new people, new dealers, connect with the institutional buyers since most of the government contracts are not beginning to done right now, but we have got clearances from various departments. Quality departments have given clearances to our cement to supply when there is a project going on. So such things are happening. But like I mentioned, the moment there is an uptick, it will all start panning out.

Last question, if I'm allowed. Sir, with respect to the gross debt, it has increased to INR 235-odd crores at the time when we are yet to commence our operations in a way. So do we expect a further increase in the overall leverage position going forward once the new capacity come in? And can you just give us an idea about the debt repayment schedule?

Sure. You're talking about debt of INR 235 crores, right?

Right.

Which has reduced to around INR 223 crores as of September. And as such, first couple of years, we will continue to service the debt as per our repayment schedule. But once we have enough profits generating and cash generating, management will look forward to cutting down on debt and prepayment so that the debt burden will start coming down.

Right. So the actual repayment of the full long-term debt, it will start like when -- in which fiscal year, if you can provide some clarity with respect to it?

So all the debt that we had, except the one which we have taken recently for this CapEx is being repaid since last -- from whenever. I think we started taking the debt in 2017 and the last debt we took was in 2023. So the debt which we have taken in 2023, which is for this CapEx, will begin the repayment from October 2025. So we are still 1 year down to go for that. Otherwise, every other debt, I think from now 7 to 8 years, it is supposed to get over. Some debt will get -- for example, the debt what we have taken in 2017 will get repaid in the next 6 to 7 months now.

The next question is from the line of Manan Vandur from Wallfort PMS.

I have one question. It's about our CapEx, which we have done and you also said that...

I think I lost the connection. Yes, I can hear you, but I lost the connection from Manan.

So the next question is from the line of Kunal [indiscernible].

Am I audible?

Yes, Kunal, please go ahead.

Okay. So I believe we have a kiln capacity of 1.8 million tonnes and you have planned for the future, so you make it higher than the cement capacity. So my question is, sir, if we want to increase the cement capacity, which the kiln can support, how much additional CapEx will it require?

So basically, the correct way to put this, currently, the kiln is of the capacity which can produce about 1.8 million tonnes of cement -- slag cement, basically PSC cement. So right now, we will be underutilizing the kiln because to overutilize the kiln, we will have to add the crushing capacity. And once we add the crushing capacity and the kiln capacity -- the machinery is ready. It is just that we have to have an ability to feed higher quantity. As such, we have enough to feed right now with the current project to reach about 1 million tonne cement capacity, what has been projected for this CapEx. Now to reach to 1.8 million tonnes, all that I have to do is add more crushing capacity and then more grinding capacity, of course, to make sure we reach 1.8 million tonnes. The best part about it is we don't have to change the kiln, the cooler, nothing. We just have to add an additional machinery on either side for which the land also is available and the power what we will receive now also is sufficient to take care of that CapEx. So that we will be taking up once we stabilize this existing plant for at least to around 65% to 70% capacity utilization.

So by beginning of FY '27, I believe?

Timing would be hard to guess. Assume that FY '26, FY '27 goes off, maybe the most optimistic will be around FY '28.

FY '28.

Yes.

So you're implying that by FY '28, only you will be able to get to 60%, 70% capacity utilization of this 1 million tonne that you have put up?

Yes. As per what we have reported to the banks and everyone, that is the target we are achieving, not necessarily that we will have to wait for that long. 1 million tonne is not a huge capacity for us, which will face a significant challenge. The company is poised, in fact, to try to achieve that 70% as soon as possible. But realistically, it might take maybe 1.5 years to 2 years.

And compared to the CapEx that you incurred to put up this 1 million tonne capacity, compared to guess, how much more CapEx would be required to go from 1 million to 1.8 million? I mean, if you can give a relative proportional number?

So as on today's cost, it should not take more than INR 100 crores to do so.

We already have that kiln, right?

Correct, correct. But still, we will have to -- let's say, we have an existing crushing session. Another crusher, we will need to make sure that we feed enough into the kiln and another grinding equipment, which maybe around INR 80 crores to INR 100 crores. But that's a guesstimate which I'm making. The realistic figure will happen once we do the engineering.

INR 80 crores to INR 100 crores. Okay. And sir, because of this unutilized kiln capacity do you have -- are you incurring any significant fixed cost to maintain this capacity or no? Something that might be dragging down your P&L?

No, not at all. So these kilns are fit for this capacity range what we have discussed. So only thing we're using the lower end of the capacity. Otherwise, if I have to stick to the lower end of the capacity, this kiln will continue to be a suitable one.

Okay, sir. And after you reach an optimum utilization for the 1 million tonne capacity, will you be utilizing your entire output from the solar assets?

No, maybe around 95% -- about 35, 36 megawatts we will utilize. Still 4 to 5 megawatts will continue to remain spare.

4 to 5 megawatts will continue to remain to be sold in the open market?

Correct. Yes, yes.

The next question is from the line of Manan Vandur from Wallfort PMS.

Yes, sir. Can you hear me now?

Yes, Manan, I can hear you now.

Yes. Okay. So the first question was that even as you said that there was some delay from the government for the power thing to come in. So we -- even as you said that it might take around a month to come in. So can we expect full ramp-up by January?

Absolutely.

Of course, full capacity utilization, but the start of it.

Absolutely, absolutely. See, in fact, there is a station known as [indiscernible] station, which is supposed to come up close to our existing plant, where we were supposed to draw 110 kV line. And these fluctuations are not very difficult to make. It's just a couple of months projects for the government. It was supposed to come about 6 to 8 months back. But then there was some kind of delay which got set in and they say by mid of December should come up. The moment it comes up, they draw a line to us. So once that comes up, great, otherwise, they will -- they have -- they are working on to provide alternative to us, which means on existing line, they will increase the capacity and allow us to use to certain capacity where our entire plant can run. But for now, we are waiting for that to run. But to address your question, yes, in all aspects, January will be the month where we will have a higher capacity to operate.

Okay. Got it. And there would have been a drop in production, right, due to the plant shutdown, because we would have shut down a plant for some time so that the additional capacity would have come in?

So typically, what is happening is even though we are -- our production utilization is, as we showed, is less, but it's less because of the less sales. It is not that the kiln is giving less production. So as of now, what we will be doing is once we are closer to operating the new kiln, we have to make some hookup, like change the feeding from old kiln to the new kiln. So when that comes, we will be doing that. But then there will be a 15-day shutdown, and we will have enough clinker to grind cement and sell it. So there won't be any disruption in the dispatches, if that is the answer you're looking for.

Yes. Okay. So that shutdown has not happened yet.

No, not yet. So we will take a shutdown 15 days before the hookup is going to take to the U.K.

Correct. And the last question is, sir, around how much volume was sold in this quarter and as compared to the same quarter last year?

Definitely. So this quarter -- you want quarterly figures or H1 figures?

Quarter figures, sir.

I'll give both if you want. Like quarter is around 52,000 this quarter compared to 49,300 in the earlier quarter of the previous Q2. If you look at half yearly around 115,000 tonnes compared to 105,000 tonnes in the H1 FY '24. Biggest issue is that compared to H1 of FY '24 to H1 of FY '25, the price has reduced drastic to by around 11%, 12%, given the dispatch increased by around 10%. So this is what I would be telling you. Even in this bad market, if we are able to reach higher dispatches and more taking market share, because we increased the number of sales force and other things, I'm pretty positive that once the market opens up, there is going to be a very good trajectory that we're going to look at.

The next question is from the line of from Yashwanti [indiscernible], an individual investor.

Sir, Yashwanti from [indiscernible]. Sir, I just wanted to understand how our EBITDA margin is moving up. Last year for the whole year, we reported around 32% and [indiscernible] basis point expansion. In Q1, again, it has come down to 26%. And now in Q2, we have seen 12.44%. I'm sorry if you already explained it in your opening remarks, because I couldn't join you at that time. But what kind of outlook as an investor we can foresee going forward?

Definitely. So the concern is on the EBITDA margin is what I understand.

Yes. So from 32% to 12% sharp...

Yes, it is very, very less compared to what we reached in the region of 30s in earlier quarters, like Q1, Q2 of FY '24. There's no doubt about it. But unfortunately, EBITDA becomes a derivative of the pricing. Typically, most of the raw material prices have either remained intact or they have risen in time with the inflation, but the pricing growing 10% has impacted EBITDA drastically, which is why the EBITDA margins have gone down. The only reason whatever EBITDA we have got, which is what you see is basically because of our intact solar vertical, which has remarkably shown the production also increasing as well as the pricing remaining stable, which is the nature of that particular industry. But as the prices -- if the prices continue to grow like what it has been anticipated by top analysts, we will see the EBITDA margins coming to around in the 30s figure very soon. And then with the new CapEx, we should be getting close to more than 35% to 36% as the whole project is based on the objective of reducing the variable cost.

Okay. But then what kind of time line you expect for going back to 30% or 35%?

I'm hoping the price increases as predicted by analysts, we should do as soon as in Q4 itself. There's no reason why we should hold on to that.

Sir, is the price is seen only in the Karnataka because we have a major presence over there or it is growth engine?

No. Typically, if you look at all the cement this thing, typically, this has been seen nationally. South is more impacted definitely, yes, because there are larger plants here. But typically, this has been a national character if you look at all the [indiscernible] plant.

And sir, in case the price remain at the same level or further dip down, what kind of a pressure we can see on EBITDA margin? And is it going to compensate in solar?

So even in spite of having this kind of bad pricing, it is the solar, which is kind of making sure cash is building up to take care of all other expenses. But nevertheless, we have seen the price plateau from the -- by mid of September or beginning of September, we have seen the price plateauing. It has not gone on any further. So we know that this is the bottom what every cement plant can go beyond which there is no scope for anyone. So it's just a matter of time before which it start taking upward stage. And even if it has to delay for our company, we have a strong solar vertical, which will definitely lead us to this period of short-term crisis.

Sir, in H1 EBITDA of around INR 11.11 crores, what is the contribution coming to it?

What is what coming to it? Solar component?

Solar contribution EBITDA.

Our contribution of solar in H1, is it?

Yes. In H1 of EBITDA. So EBITDA reported is around INR 11.11 crores, of which how much is coming from solar and how much is coming from cement?

Okay. Just give me a minute here because I think INR 11.11 crores was mentioned for H1, right? All right. So out of the -- right. So typically, solar EBITDA is around, I would say -- let me -- give me a minute. The solar EBITDA is around INR 14 crores and the cement EBITDA is negative, which is why we have seen INR 11.11 crores.

Okay. In case of third quarter what was the price in November and the current month we are seeing in cement and what was in the first quarter of the current year, cement prices?

You're talking about quarter 1 FY '25 or FY '24?

I just wanted to know like what is the current ruling prices maybe at November or maybe at October end, what you are witnessing in Karnataka. So this is the place where we actually [indiscernible] the cement. And what was the price at the start of the year -- in the first quarter of the current...

So quarter 1, the price is around INR 3,480 -- INR 3,470 in quarter 1, quarter 2 average is INR 3,290. So we are seeing INR 3,300 range in October as of now, October and even November. So it has kind of plateaued since last 3 months. We're just hoping to get it back to normal. And for example, last year, the average price was around INR 3,800. Even if you add another INR 500 to the top line, your EBITDA will grow to -- will add another INR 15 crores to the EBITDA for us or around INR 250,000 into INR 500, it add around INR 12.5 crores EBITDA, which we lost due to lower pricing.

And what is the likely chance that our EBITDA may move from 12% reported in the Q2 to what extent it can go down? It is very unlikely in that case, what can be the fall we can expect?

Likelihood of going down does not appear to show any signs right now, like I mentioned, last 2, 2.5 months, there has been a plateau in the cement pricing. In fact, anything we see there could be a little increase, but not below this. All that I can say is if the top analysts' projections come to regarding cement, the cement should see in the range of INR 3,700 crores to INR 3,800 in Q4, but that is something what analysts are talking about. We are not sure how it actually will pan out in reality. So if the EBITDA -- if the prices continue to be like this, we will be in the range of 12% EBITDA -- we'll continue to be in the range of 12% EBITDA.

Okay. So that is where we can see at least it can go down from this [indiscernible]. That is very [indiscernible]. And how has been the coal and the pet coke because we shifted to the pet coke because the coal prices were higher. But then after shifting, we also seen that the pet coke prices are also higher. So how are you -- are we seeing any improvement in the pet coke prices?

Pet coke prices have reduced a little bit last month in October. Otherwise, in Q2, the pet coke prices were pretty stable. But if we compare to previous years, of course, it has come down not very significantly, maybe a little bit. But overall, if you look at all the other raw materials, the increase in the cost of other things have grown up with the inflation. But pet coke prices have relatively remained same. We are hoping that pet coke prices will continue to go down, because last 2 months, it has shown price going down.

Okay. And sir, any debt repayment we could do in the Q2?

Yes. We have a regular debt payment around -- I think, quarterly debt payment is around INR 6 crores, which we have continued to service it on time.

Okay. And my last question, as we have seen [ very little in the tunnel ]. So are we holding our expansion plan or it is running on the time?

No, the expansion from our perspective, from the point of project perspective, we have completed the project. Something which is external to our condition is holding up the commissioning. But nevertheless, we have got assurances from the department that by -- most likely by mid of December or maybe at the most end of December, we should be through with that. And they have also assured us in case there is getting further delay, they will provide an alternative arrangement in the existing line itself. So both the discussions are going on.

And what is the current capacity utilization currently and maybe in the first half or maybe at the end of the November?

So I can -- for example, compared to H1 of earlier and compared to H1 of now, there is an increase. But I can give -- in Q1, the capacity utilization was 69% and Q2 capacity utilization was 57%. But if you look at the Q1, Q4 FY '24, capacity utilization was 62% and 54%, which has increased to 69% and 57%.

The next question is from the line of [ Kunal Vasudha ] from [ Yoga Capital ].

Am I audible?

Yes.

I have a couple of questions. So recently, we are seeing even more consolidation in the South, and you did talk about it in the last call. So has there been any update on that? Have you been approached by someone else or something of that sort?

No, I could not hear the last part of your sentence. Come again.

So has any other bigger player approached you of some deal or some terms or something of that sort?

No, not right now. We have not have any kind of direct approach from anyone so far.

So would you be willing to sell or -- would you be open to that?

I would say like as a cement division, if there is something which is going to come in the perspective, which will help improve the shareholders' wealth, yes, the management will always look at it in a positive manner. In fact, there are some opportunities like since we -- our plant is located close to the consuming market, we provide certain advantages what major plants do not have. So if those things pan out, there are possibilities where some major plant might come to us to do some kind of white labeling for their product, which is definitely a possibility. But that would happen once our plant gets 100% commissioned and then we would take the discussion to the next level. But that is something which we feel could be a good plan to utilize our capacity for the first couple of years where our own brand capacity utilization will be around 50% to 60%. That's something management is thinking of.

Okay, sir. And sir, you previously mentioned that your region has an annual demand of about 30 million tonnes and with the capacity serving that region being around 6.5 million to 7 million tonnes per annum. So is the supply-demand gap still there, because I'm not able to tap my head around the fact that around these numbers because it's such a sizable demand supply gap that it should invite new capacity in the region, right?

No, definitely, yes. But then what I mentioned was, say, about -- I must have mentioned about 300, 350 kilometers radius. So that comes in like almost a significant portion of South Maharashtra, significant portion of North Karnataka. By that, population density, the projection was around 30 million, because average consumption of cement on per capita basis in FY '24 was INR 260. So assuming about INR 280 now, that is the kind of outlook. So when -- what I meant to say is we were very close to these areas compared to the major plants. But there are major plants, who would be still supplying in our areas. So what would mean that the kind of location advantages we have, the major plant would not have that. So having said that, with the kind of sluggish cement market that we are seeing, a lot of major plants are cutting down on the pricing and reaching all the way to the areas that I mentioned. So let me give you an example. The Tier 1 brand, which was almost selling at almost upwards of INR 400, INR 410, if you remember last year, these prices they are selling at around INR 300 right now. When you say INR 300, I'll tell you how it pans out. So INR 300, if you take off the taxation, the net realization becomes INR 234. And for the major plants, they spend about INR 50 to INR 60 as the transportation. So they are getting a net realization of not more than INR 3,400 to INR 3,500 as of now. For example, let's take an example, Goa. Now for one major plant in -- for the closest major plant for Goa for a Tier 1 brand is around, say, 500 kilometers. And based on our discussion with the logistic firms, the logistic cost is around INR 1,900. So if you're selling cement at INR 6,000 and you take off the taxes and take away INR 1,900, your -- let me give you an example here. So they are selling cement almost at the naked cement price in the range of INR 2,800 to reach the INR 300 pricing per bag in place like Goa, where we are getting much higher naked cement price because, again, we are closer to the Goa market. Our transportation cost is like around maybe INR 800 to INR 850 compared to theirs about INR 1,900. So having said that, because of the sluggish demand, there is a lot of rush from other areas coming here and selling. But once that will evaporate the moment, there is some kind of expenditure coming from the government and also housing sector. So everyone will go back to their original home market so that everywhere, there is going to be an uptick in demand for producers like us.

Okay. So you explained the fact that -- so for Tier 1 players to sell in Goa, they have to spend a lot more than you like naked cement prices are way lesser than you. So it should attract more capacities and more CapEx in your area. So are there any current major capacities or something like that going in the region around Goa, Maharashtra and Karnataka?

No, I think there was some disconnect. So come again with the question, please?

Yes, sir. As you mentioned that for the closest Tier 1 plant to Goa is around 500 kilometers away, and we have more advantage compared to the Tier 1 plant. So it should attract more plants to come up in the similar area to better serve that region, right?

I got it. So yes. So it is not technically possible because we have a small capacity of 1 million tonnes. Maybe 1 million, 2 million tonnes that limestone belt area can have maybe. We are about -- there are about 2 other plants there, like, for example, which is having a capacity of 2 million tonnes. There is not really so much of -- it is not a limestone belt where the larger plants can have like 10 million or 15 million tonne capacity. So if you have to have a capacity of that large size, they have to go to the nationally available mine space, which in Karnataka is Gulbarga. For Rajasthan, it is like near the [ Deva ] region. Every -- in Andhra Pradesh, it is [indiscernible] region, there are very places where dense cement plants are there. For example, Gulbarga might be having 30 plants over there, all located within 20, 30 kilometers radius or maybe like 50 kilometer radius. So it is not possible for very, very large plants to come in my area. In fact, we ourselves cannot expand to a size of 10 million tonnes in the existing capacity. So that disadvantage is there for that location. For a small capacity like us, it will work out.

Okay, sir. And sir, coming to the solar part of the business. So what was the per unit cost of electricity that you sold in Q2 FY '25 compared to FY '24?

Q2 FY '25 to Q2 FY '24. So in Q2 FY '24, we sold average selling price around INR 6.36. Now it has come down to INR 6.09 because in Karnataka, the price of power has been reduced to 50% because of the sudden less in promise. And it is hoping that this will -- there is a realistic expectation this price will go up again in April 2025, which is when there is going to be an uptick in solar prices, too.

Okay, sir. And the current capacity expansion that you guys are doing...

For follow-up questions, can you please rejoin the queue? The next question is from the line of Kunal Tokas from Fair Value Capital.

Am I audible?

Yes, sir, you're audible.

Okay. First, just 2 quick questions. First is you said that your guidance for FY '26 EBITDA guidance was based on cement prices for FY '24. Now cement prices have fallen a lot. And if they stay at INR 3,300 for FY '25, how will that affect your EBITDA and PAT guidance for FY '26?

So assuming that the price what we have will continue to remain as it is. So of course, then we will not be able to reach the INR 100 crores to INR 120 crores level that we projected based on FY '24 figures and then the price increase at the range of 3%. So at INR 3,300, then you are talking about EBITDA level of around, maybe just a rough calculation, taking off around INR 700 out of your pricing would mean at 50% or 60% capacity, maybe the guidance will be around INR 60 crores. It will still be higher because once the new kiln starts, we will have a better production and production at a lower cost because the whole idea of this CapEx is to reduce your fuel consumption, power consumption. So assuming INR 3,300 is the price that will stay in FY '27, we're talking about EBITDA of around INR 60 crores, INR 65 crores. Almost INR 50 crores will be shaved off just because if we assume that there is no price at that time.

But you also have some operating deleveraging, right? -- because...

Much higher operating leverage. Because once my price of production goes down, everything else with the better cash flows, we can do better marketing sales, improve and try to recapture or rather capture the market share.

And your -- this plant, I assume, will be depreciated on a straight-line basis?

The cement plant?

Yes. I'm trying to get down to the PAT figure from the EBITDA figure. So how much would you say your interest and depreciation expenses would be for next year, because you have the debt and you have the property, plant and equipment figure right now?

So okay, I'll try to break down this and answer in a couple of points. So my -- if EBITDA is supposed -- even in these prices, the EBITDA is around INR 60 crores to INR 65 crores, my interest plus repayment will be around INR 40 crores, INR 40 crores to INR 42 crores, that is the projected based on our repayment structure. And the next question you asked was for?

Depreciation.

Depreciation will be on straight line for the sake of book depreciation. Yes, the point what I wanted to mention was we have around INR 90 crores to INR 100 crores carryforward loss in the income tax books, which means that at least 3 to 4 years, we will not have really income tax. So we are hoping that next 4 to 5 years, we will continue to pay income tax at the MAT level. So that is going to be an additional saving or rather advantage this balance sheet would have for the next 4 to 5 years.

What was the figure that you mentioned, sir? I missed it.

We have -- since we have invested in solar, there is almost INR 90 crores to INR 95 crores carryforward depreciation loss in the income tax books, which is why next 4 to 5 years, we may not have actual income tax rates to be paid. So we will continue to pay on a MAT level, which is 15% for next 4 to 5 years.

As there are no further questions from the participants, I now hand the conference over to Mr. Jainam Savla from Kirin Advisors for the closing comments.

Thank you, everyone, for joining the earnings conference call of Shri Keshav Cements and Infra Limited. If you have any queries, you can reach us at [email protected]. Thank you, everyone, for joining the conference call. Thank you.

Yes. Thank you, everyone. Have a nice day, everyone. Thank you.

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