Shri Keshav Cements and Infra Limited (SKCIL.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Shri Keshav Cements and Infra Limited Q2 and H1 FY '26 Results Earnings Conference Call hosted by Kirin Advisors Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Harshil Ghanshyani from Kirin Advisors. Thank you, and over to you, sir.

Yes. Thank you. Good afternoon, everyone. On behalf of Kirin Advisors, I welcome you all on the conference call of Shri Keshav Cements and Infra Limited for Q2 and H1 FY '26. From the management team, we have Mr. Venkatesh Katwa, Chairman; Mr. Vilas Katwa, Managing Director. Now I'll hand over the call to Mr. Venkatesh sir for the opening remarks. Over to you, sir.

Yes. Good afternoon, everyone, and welcome to Shri Keshav Cement and Infra Limited Q2 and H1 FY '26 Earnings Call. I sincerely appreciate your time and interest in joining us today. Shri Keshav Cement and Infra Limited, formerly known as Katwa Udyog Limited, is engaged in the manufacture of cement and generation and distribution of solar power in Karnataka. Our cement plants operate from Bagalkot district supported by 40 megawatts of solar facility in Koppal, both in North Karnataka, which enables us to run entirely on green energy. We serve North Karnataka, coastal Karnataka, Goa and parts of Maharashtra through 350 distributors and over 600 retail touch points and 14 solar power consumers. Before I move to present the company's financial performance, let me briefly share our strategic progress. With the new kiln stabilized and contributing consistently, our focus has shifted towards strengthening market penetration and improving our reach across key regions. We are working on expanding volumes, improving supply chain efficiencies and ensuring better product availability across channels. Our fully renewable energy backed operations continue to provide us with a strong cost advantage, helping us remain competitive even in a dynamic pricing environment. These efforts position us well to capitalize on ongoing demand from infrastructure, housing and commercial construction across our core markets. So let me walk you through the financial performance for Q2 and H1 FY '26. In Q2 FY '26, the company delivered strong top line growth with a total income of INR 36.22 crores, rising around INR 42.81 crores year-on-year, supported by better realization and higher cement dispatches. EBITDA for the quarter stood at INR 8.38 crores with a growth of 175% and EBITDA margin improved to 23.65% compared to 12.44% in Q2 FY '25, reflecting a sharp expansion of 1,122 basis points. Q2 PAT was INR 0.69 crores, marking a clear turnaround from last year's loss, while EPS improved to INR 0.39 from a negative base. For H1 FY '26, the total income increased 37.14% year-on-year to INR 77.62 crores and EBITDA stood at INR 18.7 crores, growing at 69%, delivering a healthy margin of 24.68%, reflecting a sharp expansion of 444 basis points. PAT for the half year was INR 3.78 crores and EPS improved to INR 2.16, reflecting strong utilization, cost efficiencies and improved operational performance through the first 6 months of the year. Cement remained the strongest contributor to our performance, both in terms of revenue and profitability. Higher dispatches, improved realization and the consistent running of the new kiln have strengthened the segment's moment through the quarter. With construction activity remaining steady across Karnataka, Goa and Maharashtra, our focus is on leveraging this demand through deeper market engagement, stronger dealership and better availability of our key brands. Cement will continue to anchor our growth, and we aim to build further on this strength in the coming quarters. Looking ahead to the second half of FY '26, we will continue to prioritize disciplined execution, efficient utilization of assets and deeper engagement across our dealer and retailer network. Our aim is to maintain consistency in operations, strengthen our market position and build on the moment achieved so far. With steady cement demand across our regions and cost stability offered by solar power, we believe we are well placed to drive a sustainable performance. So before moving on to the Q&A session, I really extend my sincere thanks to all the stakeholders, partners, customers and employees for their continued support and confidence in the company. Their contribution remains central to our progress. With this, I'm pleased to open the floor for questions. Thank you once again for being with us today. Thank you.

[Operator Instructions] The first question comes from the line of from Ishita Sen from Urban Sphere Consultancy.

So your presence is strong in North Karnataka and Goa. Which new markets like example, Pune, Bengaluru, Kerala are you planning to enter post coast optimization?

So the plan right now is we are focusing on North Karnataka and South Maharashtra. But due to turbulent prices in cement industry, we are not going further than what about 200 to 250 kilometers. As such, right now, our focus has been South Maharashtra, North Karnataka and Goa. We are looking at non-trade customers, which we are steadily developing. And recently, we have got approvals from various departments, and we would look into developing those areas currently. For now, Pune and Benhaluru, we will be holding it up for some more time till there is a general improvement in the pricing.

Okay. Okay, sir. So like finance cost has remained elevated. How do you plan to reduce debt post full commissioning of expanded capacity?

So once we start catching up with the rated capacity, I mean, for example, we are still in the range of 35% to 36% capacity utilization. That is once our plant was stabilized, the market has been a little slow. So once that picks up, any cash accrual will go towards using towards reducing the debt.

Okay. Okay. So like your fuel and power expenses are expected to fall significantly post expansion? Like what is the current cost MT versus the targeted cost MT after PH cyclones, VRM and calciner upgrades?

So I mean, in the kind of reporting that we have done, we have not shown fuel and electricity as a different cost. However, I can give a general comment stating that our electricity cost is going to be lowest in the country because entirely the production is done by renewable power and the cost of power based on O&M expenses almost INR 20, INR 25 per unit. However, the fuel cost, what is expected to reduce is showing great progress in reaching what we had earlier planned. So for example, before CapEx, our fuel consumption was extremely high, almost reaching 1,200 kilocalories. So we have to reach below 800 kilocalories, and we are reaching almost 850 to 900 right now. So it might take another couple of months before we reach that level. As such, today, with the kind of fuel cost, we are very, very close to the industry measures.

The next question comes from the line of Aditi Roy from Patel Advisors Private Limited.

My question is how much incremental volume did the new kiln contributed in Q2 FY '26? And what is your expected monthly run rate now that stabilization is completed?

I could not get the first part of the question. Can you just repeat the entire question again?

Yes, yes, sure, sir. How much incremental volume did the new kiln contributed in Q2 FY '26?

Sure. So for that part of the question, the incremental volume was 52% year-on-year. So we have been improving on our volume significantly year-on-year, be it first quarter, second quarter and H1 levels. So that only thing since we have increased the capacity by 3x, the top line will start showing once we reach at least 50% to 60% of our capacity utilization. So for the question that you asked, the incremental volume was around 52% to 53% compared to Q2 of FY '25.

Okay, sir. And my next question is, have you started seeing any miserable improvements in heat efficiency after installing the new cyclone?

Okay. I think I'm missing the question here. You mentioned the cyclone, right? What kind of cyclone are you mentioning?

PH, new PH.

Yes, yes. With the new pre-heater equipment that we have put in, it's the most advanced one with the current technology. Of course, with that, we are expecting the fuel consumption to reduce, which it has reduced considerably now. So marginal reduction is expected maybe this quarter, and we will reach to almost one of the most efficient plants by the end of this quarter.

Okay, sir. And sir, what was the average cement realization in Q2 FY '23? And how do they compare with Q1 FY '26.

So the rates have been pretty much flat. For example, in Q1 FY '26, the naked cement price was around INR 3,430 and in Q2, it is INR 3,460. There is a slight dip in volumes, which is very cyclical and related to monsoon, which is typically seen in all the cement plants. But otherwise, our EBITDA per metric ton has gone up for cement. It used to be negative in Q2 FY '25. It has become positive to INR 350 per metric ton.

Sir. And I have one last question. You reported a better operational efficiency in H1 FY '26. So what specific cost items that saw the highest reduction in Q2.

So typically, with the increase in the volumes, the fixed costs remain relatively the same, plus there was a reduction in the fuel cost and also some other fixed costs, which is associated with the increased capacity, which is why you would see the better operational efficiency and continue going forward, you will always going to see improved operational efficiency since the new plant has been developed, which is giving us high efficiency in power and fuel.

The next question comes from the line of Ratan Shah from MMTC.

My first question is, what steps are you taking to strengthen the dealers' loyalty and expand the retail footprint beyond your current 600-plus touch points?

So basically, currently, of course, even though quarter 2, as you see, has given very good results compared to quarter 2 of FY '25. I wouldn't think that the pricing was very, very encouraging compared to what we have seen about 2 years back. But coming to your question regarding how are we going to improve the retailer loyalty to the company. Company is working on some digital marketing, also reaching out to the decision makers like engineers and everyone else. Plus there is a new loyalty program, which the company is willing to be launching very soon wherein there are some retail marketing hacks the company is going to use to encourage the end user to buy Keshav Cement or JJ Cement, which is our brand. And on the top of it, we are also making sure our dealers to stay loyal. We are trying to give the best possible services. And the best thing what we can do in our plant is -- which is very well known in the market is that we have a very good supply chain by which once there is a requirement, we typically deliver in less than 12 hours or so. So yes, I mean, with that, our dealers have remained extremely very high fidelity with us. It is just that the local offtake of cement has reduced because of very less congestion because of significant monsoons and a lot of labor unavailability due to elections in Bihar and many other reasons. So once that starts reversing, the same dealers who are buying less than 50% compared to the regular buy what they did last year, will again regain to full 100%, and that will show the improvement in sales.

Okay. Okay. And since your working capital requirements has generally increased with higher volumes. So has your working capital cycle stretched in quarter 2?

Not significant. The inventory days have, of course, gone a little higher. And also the receivables have gone from 14 days to 18 days. Otherwise, there is no -- we have increased our working capital limits, but there's not significant change compared to Q2 of last year.

Okay. And how have your logistics costs trended in quarter 2? And do you expect any improvement in cost economics once the plant operates at higher utilization?

So logistic cost will not have an impact on economies of scale. Typically, I would be paying the same cost per kilometer or per beam compared to all the major plants because logistics is operated by typically very small firms or the owners of the truck, which becomes very same to everyone. There is absolutely no economies of scale benefit with the logistics.

Okay. Okay. And with VRM upgrade coming online, what's the improvement in clinker factors are you targeting over the next 12 months?

So based on our planning, whatever we had expected improvement in quality and reduction in fuel consumption, reduction in power consumption to a large -- quality has, of course, improved drastically. But then fuel savings has improved by about 80%, 85% balance 15% will cover it in this quarter. Fuel consumption has reduced by about -- sorry, power consumption per unit has reduced by almost 20%, 25%. And there is a scope for reduction of another 5% to 6%, which we will most likely achieve by this quarter. So we have achieved all those key performance indicators that was planned based, which was an objective to set up -- go for this brownfield CapEx.

Okay. Okay. Okay. And my last question is what proportion of the cement sales in quarter 2 came blended cement or OPC? Do you foresee a mix shift in H2?

We are actually focusing on blended cement because that's where we get -- we tend to get the highest margin. We have -- of course, we also have 43 grade cement to sell. Generally, it is not on a very regular basis, but whenever there is a requirement, we have -- basically, we have the machinery to deliver any type of cement within instance of one hour we can deliver any type of cement. So with this new CapEx, we have made sure that we are capable of delivering any kind of cement at any given point in time.

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

I've been tracking your company for the past 2 years, and it is really joyful to see how the company has turned out to do all what it had committed. So really congratulations on the full team for that. Sir, my -- I have 2, 3 questions. First question would be, sir, if I want to check and track the cement prices, where can I track the cement prices? Like what software I can use or what website I can use to check the cement prices so that I can do my calculations on the company?

Sure, Manan. So I can tell you this question was asked, I think, a couple of times in the last couple of years or so. Now if you look at various reports on cement, you will see that the cement prices are in the range of INR 375, INR 380, INR 400 or INR 450. Now cement is a bulk product, which means that the logistic costs weigh very heavily. Now with the new GST regime, what typically happens is, for example, when we talk about naked cement price or naked cement rate, that was a word which was very commonly used in cement industry, which is no longer used because that was revealing too much information to the competitors. Now naked cement price is something which said what was the price at which you are selling, excluding logistics, taxes and everything just outside your gate, just the naked cement cost. But then now what is happening is the general term uses cement realization. Now cement realization would mean that it is a first point building from the company to the outside world. And a lot of times, what happens is the larger plants, they transfer the cement from their plant to maybe a grinding unit and then grinding unit to the godowns. So from godowns, it becomes the first point of sale. So then like they work on those kind of cement realizations. So generally, even a person like me is finding it difficult to find that kind of an information. For us, the only source right now is some of our dealers who use -- who also sell other brands. From there, we get to get most accurate information. Otherwise, the now available data is with Cement Manufacturer Association. I think if you're an analyst, they might give membership and you will have a monthly data on dispatches as well as the price movement from them. Other than that, available in the free world, it is difficult to find out the movement of prices and dispatches.

Okay. Yes, that was very helpful. So okay. So my second question would be, sir, what was our EBITDA per ton in this quarter? EBITDA per ton in other quarters also like this quarter comparing in last quarter, H1, something like that.

Sure. So in my hand, I have something which I could -- so for Q2 FY '25, it was actually minus INR 579. Q2 FY '25 is the worst -- one of the worst quarters. And the entire year for FY '25, the EBITDA is less than INR 50 per tonne. But then -- because then our new kiln came into existence, we commissioned it. So in Q1 of FY '26, the EBITDA went up to INR 364. And FY '26, Q2, the EBITDA is around INR 352. Now I would like to add some information here. If you look at the national level, the -- if you look at North, West and Center, their EBITDAs are between INR 900 to INR 1,000. If you look at the EBITDA of the area of cement plants around mine, very specifically in my area, they're less than INR 300. For obvious reasons, I cannot give the names, but you can always find out online by looking at the plants who are very specifically located in the belt what we are operating. Now these EBITDA margins I'm talking about is, again, excluding the benefit of solar. So again, when we talk about EBITDA per ton, Northern plants will show INR 900 EBITDA per tonne, but that is because of waste heat recovery system, what they used. If I include my solar benefits in this EBITDA, then my EBITDA is in the range of INR 1113 per ton. So I don't know how you're going to make a proper comparison since we are the only cement plant in the country to run on 100% solar power, sometimes I feel apple-to-apple comparison will be a little oblique, yes.

Right, right. Okay. No, this was helpful. With the comparison with other companies, it was helpful. And sir, last question would be about for the production and sales figures, sir, just like how you did for Q2, Q1, H1, et cetera, et cetera, like that please.

Sure. So I can -- I'll give you information on 2 things. One is on the volume. So Q2 FY '25, the volume was around 51,600 tons and Q1 FY '26 volume was 89,000 tons. And FY '26 Q2, what we are discussing about, the volume is 78,995 or about 79,000 tons. These are the volumes. The volumes increased by around 53%. In fact, my only cement division sale increased by 64% because of course, very, very strong marketing push. In spite of South showing almost 0% growth year-on-year growth on cement dispatches, we pushed into 53%. So had there been a little push in the market, we would have reached almost 100%. But the important point to mention over here is the fuel price which was around INR 11,700 in Q2 FY '25, it reached INR 12,130 in Q1 FY '26 and now it reached INR 13,100 in Q2 FY '26. So there has been a steady increase in the fuel price. It appears that Q3, there has been some reduction in the price, but that benefit we will see in Q3 results itself.

Okay. So sir, these figures that you gave -- there were sales figure, right?

Yes. So production figures in sales wouldn't differentiate much because generally, any cement plant the holding capacity for less than half a day or 1 day of production.

Okay. Understood. So majority it is same. The production and sales is almost same.

Yes, yes. Plus or minus 500 here and there, you will have the production.

The next question comes from the line of Bharat Gupta from Fair Value Capital.

A couple of questions, sir. So first, with respect to the institutional mix, I think in the last con call, you mentioned of prioritizing the institutional mix on our Cement division. How has been the progress in regard to it? And how do you see the demand overall with respect to Q3?

So yes, there has been a strong push on institutional side. Even though we have got firm orders based on the EMD that we submitted, the offtake was not very significant from them. because of their low usage. It is not that we lost -- we lost our volumes to some other company. The total offtake itself was extremely low in spite of them giving us a high-value purchase order, mainly because from their instance, the construction activity within the state was a little slow. And then we had this -- apart from Diwali and Dussehra, a lot of workers who are supposed to be in part of this construction industry were not available. They have gone to different states where there was elections and other festivities, which is why generally, Q2 volumes have been very, very difficult for cement industry. In our case, very likewise, we had -- we were targeting almost 80% to 100% increase in sales in volume. But then because of all these factors, we had to console ourselves with 53% growth. But for the -- again, for the question that you're asking, yes, there is going to be an institutional and the regular mix and company is focusing. We have got clearances and acceptance from many new PWDs in South Maharashtra and North Karnataka. And as we move along, we'll continue to pursue them and improve our penetration in those sectors.

Right. Sir, given like you mentioned that your EBITDA per ton for the quarter stood at near about INR 364 I think with respect to 50% utilization, which we aim to achieve during this fiscal year, what kind of EBITDA per ton are we looking at?

Now assuming that price remains typically the same and there's not significant improve. So H2 should show a better EBITDA because our kiln has stabilized even further. I mean, like what I have been discussing, our EBITDA is going to be in the similar range of what other major plants are going to be having in -- very specifically in the South. So if prices do not move, they remain as it is, then EBITDA range is going to be between INR 350 to INR 450. And because the prices itself decide what EBITDA margins we're going to get. However, it is an expectation that the prices and the construction should start improving by the end of this November, but we will have to wait till it actually happens.

And sir, in regard to it, if the price remains on the current level, I think previously, we stated EBITDA guidance of somewhere close to INR 65 crores, INR 70-odd crores. That remains on cards or we see a downward revision to it?

Now typically, H2 contributes to 60% of the sales. And last 2, 3 years, all the cement plants, they go by similar phase. H1 contributes to 41%, 42% of the sales and H2 contributes to 58% to 60% of the sales. If that stays online, then our EBITDA is going to be between INR 45 crores to INR 50 crores. I wouldn't say INR 60 crores with this kind of pricing. They are very, very -- we have a very high fidelity with the pricing itself. And particularly in the region what we are selling, there has been a significant and turbulent pricing for cement as a product.

Right. And sir, with respect to like continuing on the NC mix side, so given forward, like with respect to achieving a 70% utilization rate for the next year, like do you think there will be a good amount of revenues which will be coming in probably next year from the institutional clients?

Yes, I hope so. I mean, like with the way things are going right now, Q2 -- basically, Q1, Q2, the monsoon started very early, which is why Q2 and Q1 partly suffered. Now assuming that the construction work, the pent-up demand should come up. If that happens, yes, we should be able to reach because our quantity of 1 million ton is very, very insignificant. In the areas that we sell, the total quantity requirement is around 30 million tons, whereas we sell only 1 million ton. So having said that, even a little pull in the market, like I did answer in the previous question, some of our existing retailers and the registered dealers are selling less than 50% of what they sold last year. In spite of them, we have increased the sales solely because we added new customers, new institutional buyers improved on our geographical area. Within this geographical area, if there is a little pull in the market, we should be easily able to sell 60% to 70% or even 80% without much difficulty because the area what we have covered is very, very significant.