UltraTech Cement Limited (ULTRACEMCO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q2 FY '27 Earnings Conference Call of UltraTech Cement Limited. [Operator Instructions] I now hand the conference over to Mr. Atul Daga, Chief Financial Officer of UltraTech Cement Limited. Thank you, and over to you, sir.

Hi. Good afternoon, good evening, everybody. Ladies and gentlemen, thank you for joining our second quarter '27 earnings call. the September quarter is always the one where monsoon write out of the script. This year, it brought a different twist, a weak monsoon that kept construction going alongside West Asia conflict that flared up again and pushed fuel costs higher. Time and again, we are hearing chatter about cement prices, which is on everybody's mind, and that's where I want to start first. In a normal year, cement prices slipped during July and August as rains slow, site and dealers chase volumes. This year, the industry largely avoided that. Pan-India, average trade prices for Q2 were stable in line with Q1, with a quarterly average 1%, 1.5% lower, mainly because of a soft August. In the second half of September, prices turned firmly upwards. Trade prices must have risen [ 7% to 10% ] per bag month-on-month and nontrade prices even higher. We exited September in trade at least about 3% above the Q1 average. The quarterly average is weighed down by a soft August, the run rate we take into Q3 is materially better. One more thing I want to clarify here for ourselves, UltraTech. We take a view on price changes with demand and macroeconomic trends. It's not a rocket science. If demand overshoot supply, it leads to price improvements. If there is a structural change in cost for the industry, ultimately, the end customers will have to better cost. Given the spread of the industry in the country, prices rise always with a lag to catch up on costs. This is nothing new. This is an old phenomenon. As for UltraTech despite increase in cost the company has achieved an improvement in operating performance, higher capacity utilization on a higher base, higher or stable realizations, improvement in efficiency and a 21% increase in net profit. Prices for your benefit have risen substantially in the month of October and continue to stay high. My sense is that there is more price improvement that will happen in the near future in the next couple of months, that is to say. If you were to split the realizations by zone for the quarter. West, the prices were steady through July and August, stepped up in September when Mumbai being the biggest market, moving strongly up by 3% to 4% per bag for both bag and bulk. Rest of Maharashtra, small dip in August was followed by a big increase in September. Eastern markets rains disruption pushed prices down during August, but we have seen prices playing catch up across most of the states in the Eastern corridor, since early October. South, North and Central -- South have been the strongest momentum in prices, volume and part of utilization. South markets are transforming. South markets are transforming. Mark my words, you might remember something which I had spoken to you a few quarters ago about the southern markets. North held steady, new prices have been absorbed, while Central has played a muted game. Into October, we are seeing continuous increase in prices the festive weeks may slow down and how quickly these prices are absorbed. So we expect the full benefit of these price increases to reflect in the Q3 earnings rather than immediately. So that's about prices. Three points stand out. Realizations in the previous quarter were essentially stable. So prices was not because of any decline in performance. Fuel costs and raw material costs rose about 13% or 3% quarter-on-quarter. Fuel costs have risen from INR 45 per bag to INR 51.5 per bag, that is a contribution of fuel cost Y-o-Y as the fuel rates climbed to about INR 2.09 per kcal. This is the West Asia effect -- West Asia crisis effect, which we can discuss separately. Third, other fixed costs per ton were 6% lower for us than the last year, even after absorbing new capacity, because absolute fixed cost grew only 4%, well below the volume growth of 13.8%. This is the operating leverage working for UltraTech as intended. September month has given a glimpse of what comes next, that is the internal number. But as volumes remain strong, price increases have been coming through, when we look month-to-month performance September was higher than the Q2 average. Let me get to the next element of our industry, which is demand. Industry estimates put cement demand to grow closer to 10% year-on-year. Our growth of 13.8% this quarter is comfortably ahead, which means that our presence in the market is continuously increasing. North markets grew in high double digits. We have grown more than 20% in the northern market, in the range of 15% to 20% in the southern markets, East around 5%, West around closer to 10% as well as 10% in the central market. Our capacity utilization was [ INR 0.71 ] better than 66% last year on a higher base. We could have grown more. We could have sold more cement if additional capacity was available. And that's why we are excited about our next phase of growth, which is around the corner. A part utilization people often ask me, let me give you the numbers upfront. North markets were upwards of 70% capacity utilization. North and South, both were upwards of 70%. West was a close second to about 70% Central and East, East because of prolonged monsoons and heavy monsoons in the Eastern market till 2 or 3 days ago also, I believe Bengal, it was raining. That's why the capacity utilizations were a shade around [ 60% ] This quarter, we have commissioned a greenfield cement capacity in the southern market. Demand is growing in South, prices are improving, and we are in a happy place in the southern markets. Housing markets, individual homebuilder markets, the backbone of retail demand kept buying through the quarter, helped by fewer rain loss days. Public CapEx. Central government CapEx was very strong through July. Road construction -- though road construction has been weak, however, we are seeing new awards have picked up, which will result into higher demand in the following quarters or in the next couple of years. The project pipeline keeps growing. I believe there were 100 announcements worth about INR 13.4 lakh crores by early September, which include Tamil Nadu INR 55,000 crores power plant, INR 65,000 crores [indiscernible] industrial park, Asam is INR 50,000 crores, 5-year intra program, Odisha's Coastal Highway. Metro one in [indiscernible] and the [indiscernible], power, industrial parks, data centers, all are growing and all are cement intensive. In the state of Bihar, West Bengal, we are waiting for demand to unleash there are multiple projects in pipeline, which will boost capacity utilization for us in the Eastern corridor as well. Looking ahead, most estimates for industry should grow very strong. We expect to grow stronger, supported by our capacitation and market reach. Activity typically picks up mid-November or as you're all aware, after what is called [indiscernible] after all the festive season is over and monsoons out of the way completely. We have already seen good signs of strong momentum in demand. Much talked about monsoons, let me not shy away from that. Monsoons were very weak this year since 2015. And I guess, at all, it's the fourth lowest since 2001. But India has seen four very good preceding year with good monsoons, which is a very positive sign. There are drought situations in some part of the country which I'm sure you're all aware of. How does it impact us? Fewer rain loss base kept sites working and made the usual seasonal dip in volumes much lower. This is one of the reasons why industry would be growing very close to 10%, which is in a quarter, which is normally a weaker quarter. East was the exception because East had torrential rains, local spell in July and August, heavy rains, flooding the subtrade construction and pull down both volumes and prices at [indiscernible] Week monsoon can hurt farming and with a lag, rural housing. But an important point to keep in mind is that Indian economy has been evolving. There are several noncrop activities, which are contributing to almost 40% of rural economy. With the help of MSME, non-agri sectors growing, mashrooming everywhere in the country. Besides, as I mentioned, last four years of good monsoons will also help or act as a cushion. We expect rural demand might soften in some areas, while urban housing, infrastructure, private sector CapEx will continue to grow very strongly. West Asia crisis. Last quarter, we were expecting a de-escalation crude prices falling and things becoming normal but a candid acceptance from my end, predicting a roll of a dice is easier than what will be the outcome on the West Asia crisis. How it is impacting us? Coke prices have shot through the roof, they were trading around $180 per tonne as I last checked. Petcoke, what we have done is we have reduced our dependence on pet coke since the last quarter. Today, we are down to about 25% of petcoke consumption in our overall mix. Coal power plants and our being required to blend imported coal. Coal India is giving priority to the power sector, which tightens the domestic availability for the industry. Industrial diesel prices have been continuously increased by the government. I believe they are at an all-time high as we speak, which impacts. The raw material costs vis-a-vis the mining cost or the transportation costs. These cost pressures as we speak, we don't know what will happen, as I mentioned about the West Asia prices are here for some more time, that's all I can imagine. So far, we have not seen any direct impact on cement demand. Our volumes show fair trade clearly. The indirect rise are risks are higher inflation, tighter monetary conditions and less fiscal room if fuel tax, fuel and tax relief do not -- fuel does not come down in terms of cost. We are working all the three elements. Our response follows a strategic plan, price-product mix and premium products and relentless cost work across fuel sourcing power and logistics. Our growth plans is the next topic, which I want to touch upon. We commissioned 4.6 million tonnes of capacity in the month of September, taking our domestic cement capacity to 204.7 million tonnes, which includes the 3.6 million tonnes greenfield capacity at [indiscernible] and 1 million tonne of debottlenecking at three other units. During the quarter, we also added 116 megawatts of renewable power, 10 megawatts of [indiscernible] recovery. So our green power index keeps on rising. 47% of our power needs were met from non-fossil fuel sources. We have also achieved a unique status of having 2 gigawatts of the new green power for captive consumption as a manufacturing sector. We have commissioned AFR systems at two plants, taking our terminal substitution rate to about 7.2%. We are on track to reach 240 million tonnes of capacity as planned without any surprises. UltraVolt. On third September this year, we launched our wires and cables business under the brand UltraVolt. We already have a huge channel partner force in place. The investment of INR 1,800 crores, which has been planned, we have spent around INR 1,100 crores till date and the balance will get spent in the next few -- maybe 2 quarters. This is the first month of launch or first month of operation, not even full month, maybe 27 days or 25 days of operation. Please have patients we will deliver an electrifying performance. UltraTech has helped build walls and now we are getting behind walls. We have started with wires and light-duty cables. It appears to have very exciting space, and we are confident of growing rapidly. Currently, dealers, distributors, retailers, builders, contractors, electricians are all EPC firms and panel builders are all getting on board. More than 1,500 UltraTech UBS channel partners have signed up to become dealers for our UltraVualt as a bank. Retail reach has already crossed about 80,000 points and growing very rapidly. Supply chain is in place. We have mother plant at Jhagadia in Gujarat. One main warehouse with five regional distribution centers and 16-odd branch warehouses. Production and sales of house wire, panel wire and multi-core cable has already started. Remaining power and control cable lines will be commissioned through the second half. Our focus for this quarter shifts from building the network to stabilizing it. That means consistent fill rate at the counter, reliable replenishment from warehouse to dealers, credit discipline, tracking of secondary sales. The aim is that every new partner sees the business turnover steadily, not just onetime launch stock. We are building this business. Our performance will speak. To sum up, cement is our core. We are growing very strongly in cement and alluded to. We are looking forward to our next phase of growth, which will take us way beyond 240 million tonnes of capacity. Cement demand is resilient and we shall keep growing very strong. Prices are held through the monsoons are turning up at the exit and seem to be holding. Cost remains a challenge, while West Asia situation unfold on an everyday basis. We are entering now the strongest season of the year with a better price run rate, more capacity and cost structure that improves with scale. I won't pretend that second half will be free of cost pressures. What I can promise is that we will manage it much better than anybody else out of the sun. And you will see similar performance from UltraTech quarter after quarter. Thank you, as always, for trust in UltraTech and over to you for questions.

[Operator Instructions] The first question is from the line of Indrajit Agarwal from CLSA.

Congratulations on a strong volume growth. A couple of questions. First, if we were to take spot costs across all and fuel, industrial diesel, et cetera, what kind of variable cost inflation can we see in the second half from the current levels?

Yes, you tell what is in the mind of Mr. Trump, and I'll tell you what kind of intention we'll see. Cost, as I mentioned, Indrajit are already elevated. And whether they have peaked, it's -- I'm not an authority to comment on that. So I really don't know. Sorry, I don't have an answer to that, Indrajit.

Sure. I was actually coming from if I take today's cost, as I mentioned, Pet coke is at [ $180 ] today. If I extrapolate that...

As I also mentioned, the cost of fuel has gone up from INR 45 bag to INR 51 a bag, INR 6 per bag is an impact of fuel increases. Maybe -- but that is -- just once again, Indrajit, that is in the last quarter. There might be some more increase that might happen.

Yes, but there is always inventory in the pipeline.

Yes. Inventory also is in the pipeline. So you might have $10, $20 a bag kind of increase in -- no?

No. There would be -- the reason is $180 as on today, but the past inventory with the most of the industry players. The third quarter may not have a big impact, actually maybe is a marginal impact in the fourth quarter. It's a combination of imported fuel domestic coal...

So not too much is what we are expecting going forward in [indiscernible].

Sure. That's helpful. Second question on UltraVolt. Any change in strategy over there to enter into cables or broad consumer electrical segment? And how are we pricing the current wires as the existing players?

Firstly, I think we have the feedback, the response that we have got is phenomenal. So we are scaling up our business, and we will want to grow this business at a much faster pace than we had planned. Other than that, I'm not able to comment any further. As for pricing, I think there is a lot of confusion about pricing. Now there's one thing which needs -- you need to understand is that we have launched unique products, which were not existing in the marketplace. The classic is Class 5 insulation material or e-beam technology product that nobody has, and that product is what is commanding a premium now. Our positioning is at market parity. Differentiation is being driven by our product proposition and not any undercutting of prices. So we are almost at par with whatever the market prices would be. So for example, there is green core, which is the entry-level Class 5. I'm forgetting HRFR, heat resistant, fire resistant cables wires. which are at par with any other product in the marketplace.

Next question is from the line of Amit Murarka from Axis Capital.

Just first question on India Cement. So that INR 160 per tonne of Tamil Nadi Levy is this account for in this quarter or not?

It's already accounted for. There's no reversal in that, Amit.

Whatever has been paid, it has been paid, no relive would be there -- actually...

I'm talking about like the future only like because it happened during the quarter of Q2, in Q2, was it accounted?

Yes. Yes, yes. So we're not paying incurring any additional cost.

Now onwards.

From that effective date, whatever date it was.

Okay. Okay. Okay. Great. And just also on cables and wires. So the press release that was put out that mentioned that we are also looking to expand into a broader range of electrical accessories. So could you just clarify what exactly it means to cement have being looked at?

PVC Conduit is an immediate thing that we are developing, which is required for our wires.

Okay. So it doesn't include like things like fans or other electrical appliances or anything like that?

No, no.

Just clarifying because there was some confusion.

Clarified this. Maybe we did not have a conversation, but they're not doing fans and tube lights and whatever else you might think of. Decorative and bulbs or I'm just looking around the room and thinking what is the electrical.

I get it. Just also on the CapEx the first half seems to have been pretty strong at INR 6,000-odd crores of CapEx, [ INR 5,882 crores ] as I see. So the full year guidance stands at [ INR 10,000 crores ] or like it will go higher now?

I will still stick to INR 10,000 crores, but it will be better to look at a full year number after the Q3 results. Plus minus INR 10,000 crores.

Got it. And just the last question, if I may, like interest costs jumped quite a bit in the quarter, up 22% or so Q-o-Q. Could you just understand why that happened?

I had raised NCDs of about INR 5,000 crores, at 7.25%, which were there for 2 months. So my borrowings have taken up. I think [indiscernible], it was a fantastic decision because now nobody will get the money at 7.25%.

The next question is from the line of Prateek Kumar from Jefferies.

A couple of questions. Firstly, on expenses related to wire and cables, is there any attributable amount which you can highlight this quarter and how much you expect to do in 3Q and 4Q?

No, nothing specific, Prateek. These are all routine expenses. Our brand [indiscernible] common expenses are also common. And for the next 2 quarters, as I said, we are building the business. So ramp-up, how difficult to quantify. And first month is hardly anything. So it's not as material at all.

Okay. Sure. You talked about pricing is in September and October and thereafter further. With these price increases, do you expect to absorb cost implying your EBITDA per tonne on a year-on-year basis remain higher on the next 2 quarters as well?

That's the intention.

Okay. Lastly, on your debt, net debt has increased -- you said you have raised on NCD, but your net debt has increased in the second quarter -- is it related to dividend payment?

Multiple things. It was more about CapEx, dividends. Dividend was one slug which had to be paid out on a particular day. We were always in net debt position March, and we were at 0.9x net debt EBITDA. We are at 1.24x -- 1.26x net debt EBITDA at the end of September '26. But by the end of March, I will be below 1x net debt EBITDA.

The next question is from the line of Raashi from Citi Group.

Just a few questions. On pricing, what is the quantum increase in both September and October vis-a-vis the second quarter average account of percentage?

I knew this question was coming. So I'm better prepared average about 5% is what we have seen an increase.

Yes.

Spot realization today are 5% higher than 2Q.

Yes, please.

And on the cost side, what was the -- you mentioned in the presentation that the KKR cost of fuel is [ 2.1 ]. What does that translate into dollars per tonne? And I'm just trying to understand where we are at now.

Dollars per tonne, I think it's lost it relevant because the way rupee exchange has been fluctuating. But if I were to take a shot at it, it will be around [ $150 ] should be anywhere between $140 to $150 per ton.

Got it. And so the [ 2.1 per kcal ], where is that today?

[ 2.1 ] might have gone to [ 2.2].

And you're suggesting a 3Q, 4Q should be similar, around [indiscernible].

Yes, yes, yes.

But there should be a decent reversal on your fixed costs in the next quarter?

Yes, Please.

Other expenses, which have jumped out...

Operating leverage advantage will kick in.

Got it. I just mentioned that you want to grow faster on the cable and than your planned originally. Does that mean the pace of ramp up? Or does that mean the pace of capital expenditure beyond the INR 1,800 crores?

No, there's no [indiscernible]. The Board hasn't approved anything beyond INR 1,800 crores at the moment. Ramp-up is what I was referring to because we have still spent only about spent and committed is INR 1,100 crores and we have to double the production from where we are today. So it's still in the build mode. And with that capacity of 78,000 tonnes of copper consumption on an annualized basis, we are already #2 in our space. Let me be very clear, we does not require to invest any further to be #2 in terms of installed capacity. Second point, if you will recall, when we had announced our plans somewhere in 1st January, March quarter February '25, we had targeted a revenue of INR 10,000 crores. Now if you'll understand this market, it is driven by prices of copper. If prices of copper go up, that INR 10,000 crore number will -- has already got up by itself. It's on an autopilot mode. So a INR 10,000 crore number would be somewhere around INR 16,000 crores to INR 18,000 crores depending upon the prices of copper. We are already #2 in terms of installed capacity.

So this INR 10,000 crores on what copper price?

Whatever was prevailing in February '25. I don't remember it often, but I'll give it to you.

And this is at full run?

I'm sorry?

A full ramp up, right?

Yes, yes, yes.

And what kind of utilization are you expecting the second half of this year and next year?

It's very difficult because we're still building the business, but we should see matured performance for fiscal '28.

The next question is from the line of Ashish Jain from Macquarie.

First, just one clarification. Cable and wire will be reported in stand-alone financials for next quarter. It's not in a subsidiary or some...

It's a division. So it's part of my -- it's part of my financials.

Okay. Okay. Sir, secondly, earlier, you spoke about current prices [indiscernible] I mean our current KKL cost for energy is INR 2.2. And do you think this INR 2.2 sustains for whole of second half? Is that what you...

Unless he drops MAB on Iran and $180 becomes $300, it's very difficult to say.

No, no, no, sir. Obviously, I mean to say, assuming $180 remains $180.

Yes, yes. So if nothing else happens, then we are INR 2.2.

Okay. Okay. Sir, then with this 5% price hike, we are fairly comfortable from sequential margin standpoint, or there is some other cost element?