Ultratech Cement S/Gdr

Ladies and gentlemen, good day and welcome to the Ultratech Cement Limited Q1 FY25 earnings conference call. We must remind you that the decisions on today's call may include certain forward-looking statements and must be therefore reviewed in conjunction with the risk that the company faces. The company assumes no responsibility to publicly amend, modify, or revise any forward-looking statement on the basis of any subsequent development, information at events, or otherwise. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Atul Daga, Business Head and Chief Financial Officer of the company. Thank you and over to you, Mr. Daga.

Thank you so much. Good afternoon, good evening, and welcome to everybody on this call for the earnings of Azotec Cement for Q1 FY25. Let me begin by talking a bit about demand and how we perceive it. I believe that the fundamentals, the foundations of our growth story remain unchanged. Because we believe that incremental supply will always chase incremental demand. In this quarter, rural demand gained significant momentum, rightly so. For Altratech Q1, rural grew about 9%. Infra was a bit slow, but is expected to pick up in the coming quarters. At a state level, we are seeing new or resurgence of construction activities in the states of Bihar and Andhra Pradesh. Andhra Pradesh obviously with Yamravati city kicking in, coming back for its growth story. The older projects which were halted will start and resume work. New projects are being launched. So all in all, it sounds like a good story for the future. One aspect which I want to talk about is capacity utilization in the country. This financial year, we started with, sorry, FY24, we started with a capacity of 585 million tons in the country, and the country ended with an overall capacity of 626 million tons installed. The estimated demand for the last financial year was about 425 million tons. That's on an average about 70% capacity utilization. However, we all know that there are capacities which are operational or shut down or inefficient. To my best estimate, there might be about 50 million tons of inefficient capacity in the system. Eliminating that, the capacity utilization for the country would be hovering around 76%. The country saw new capacity addition of 41 million tons during the last financial year. 32% of this belongs to Altertech. And we ended last financial year with a capacity utilization of 85% on an increased base. For the current year, we shall be adding almost 15 million tons which seems to be approximately 40% of the new capacities getting commissioned in the country this year. In spite of our growth remaining unsatiated, we continue to grow and it's also evident from the fact that this quarter also on a higher base, our capacity utilization is around 85%. We are big and continue to grow bigger Let me share some other dimensions about our scale of operations. Alternate fuel to speak about. As a percentage for us, it might look small. But last year, we consumed almost one and a half million tons of alternate fuel in 14 kilns out of the 47 kilns under operation. In some plants, AFR is more than 35% already. This is indeed a game changer towards reducing our carbon footprint. The calorific value of alternate fuel would be almost 50% of the imported fuel, yet it is value accretive and reduces carbon emissions. This quarter, our alternate fuel consumption was close to 6%, was about 6.5% and will keep growing, 6.5% of the overall fuel. Another dimension would be fly ash and slag. We consumed 33.6 million tons of fly ash and slag. It is a common industrial waste being used by the cement industry. I don't have to mention it, but this consumption itself is significantly larger than overall capacity of some players in the country. Let's get into the draft tags of Q1. Q1 has been eventful for us. Firstly, we concluded an open offer for rack-white cement in the UAE, consolidating our position at 54% in the company. The UAE economy is booming and provides us an opportunity to increase our footprint in the space of white cement and putty in that area, in those markets. Our staff cement operations in the UAE are also continue to do very well and are the largest or the leader in gray cement in the UAE. From next quarter onwards, Rack White Cement will also become a subsidiary of Ultratech. An update on the Kesaram Cement transaction. We have received the CJI approvals. The courts have also approved the shareholders and the creditors meeting to be held in due course. After approvals from these meetings, the final scheme for amalgamation of the cement assets of KSORAM with us will be filed with the NCLT of Kolkata and Mumbai. The effective date for merger has been set as 1st April 24, depending upon the receipt of the actual order for the consummation of the scheme. The accounts of KSORAM with respect to its cement division will be consolidated with retrospective effect with our results. Kesaram has already declared its Q1 results and you would have noticed a significant drop in their interest burden, which they have been able to demonstrate by refinancing their high cost borrowings scheme. During this quarter, we also received the order for amalgamation of our fully owned subsidiary somebody said that we had already anticipated the T20 World Cup victory for India which let us doing several one time expenses during this quarter reflects in our higher other expenses and impacting our TNF but this is a one time effort and our expenses should normalize like any other normal quarter going forward We had in the last call mentioned about efficiency improvement program that we have undertaken. It is not a segment of imagination but absolutely real with 100% touch and feel available on what is happening on the ground. The first of the programs to kick off is our logistics cost. Our lead distance has already shrunk from 400 kilometers to about 385 kilometers during this quarter. It saves almost 45 rupees per ton of cement. You'll all recognize that logistics is the largest cost driver for cement and this is an important milestone. And we expect our lead distance to go down further as The network of our plants increases from current 59 locations to more than 70 locations by the end of our current phase of growth. WHRS is worth mentioning about. We are continuously ramping up our capacity of WHRS. This quarter, 23 megawatts of WHRS was commissioned, ending the quarter with 301 megawatts of WHRS. you're all aware that the average cost of WHRS power would be almost 85 to 95, say, per unit compared to our average cost of power around seven per unit. On a production of 30 million tons average per quarter, our approximate power consumption through WHRS has been 80.2%, balancing made up by thermal and grid power and renewable power. Talking about renewable power, we now have 650 megawatts of renewable power and growing. Again, the average landed cost of renewable energy is around four per unit, resulting in substantial savings in our power costs. This year, we are witnessing good monsoons almost across most parts of the country, though I hear that northern parts are again facing some challenges. However, given the overall sentiment, I believe that the rural markets and the overall cement demand will remain strong going forward. Q2 will be typical of monsoon quarter, not so much growth that we could expect, but Q3 onwards, the momentum will start picking up. With that, I end my commentary for this quarter and over to you for questions. Thank you so much.

Thank you very much. So we'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to limit their questions to two per participant. and use headsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Amit Madarka from Access Capital. Please go ahead.

Hi, good afternoon. Thanks for the opportunity. So the first question is around other expenses. Could you quantify how much was this one-off in marketing spend and what should be the recurring costs that we can build into our model? So the recurring costs will come back to the normal levels. So I would imagine one second. So, yeah, if you look at $7.55 per ton, the average should be around $6.50. $6.49 was last quarter. Yeah, $6.75 per ton is what we should go down to.

Oh, got it. And generally, like...

your capacity utilization has been 85% pan India but could you break it down between regions as well like earlier you used to give this comment around regional utilization as well yeah you know obviously everything is around 85% one or two regions might be slightly higher whereas the regional gone one second yeah so you would have South and west almost at 85, 86. East was the slowest at 80%. The other regions were north and central were 85%. Got it. And on this 300 rupee cost reduction, with this lead distance reduction journey that you are saying that there will be more coming, is there any target in mind as well on that? you know when we if you recall amid we had mentioned we had taken a target of a 25 kilometer lead reduction not realizing that we'll be able to achieve 15 kilometers in the first quarter uh that we kicked off so i'm raising the bar for ourselves and i'm sure uh this there is more to come as as i mentioned as our network of our plants increase uh you know intensifies so i i can't I do want to say a number and then again revise it in the next quarter, but it is definitely going beyond the 25 kilometers that we were looking at in the previous quarter. Sure. I'll come back later. Thank you. And thanks, Amit.

Thank you. The next question is from the line of Sumangal Nirathia from Kotex Securities. Please go ahead.

Thank you for the opportunity. First question is on the prices. I mean, it's been continuously weak for the last few months. Is it possible to share what sort of realization or price decline did we witness and how are July prices versus average and how should we expect prices to move forward? Do we expect some strength only towards the second half or, I mean,

I think you answered the question yourself, Sumangal. It's only the second half of the year that we could see any possibility of price improvements. Typically of monsoon quarters, we wouldn't venture into price improvements per se. What was the other point? What was the other point? I totally forgot, Sumangal.

Yeah, first one was... Realizations.

That's why you don't know what price is. Yeah, prices have been softer. We lost about 3%. 2.4% to be exact and July has been further soft only.

And July would be versus average would be down 4-5%?

What would you mean average?

1Q versus exit of 1Q over July.

About 1.5%.

About 1.5%. Got it. Got it.

So generally we've been growing ahead of the industry. I mean, so how should we look at this quarter?

I mean, industry demand, what is your sense? What has been versus our growth of six, six and a half percent?

So you would expect about three percent or anywhere between three to three and a half percent. You need to wait for some more results to come out. But our intel tells us about six and a half percent growth for the industry.

Okay. Understood. Understood. So my last question regarding the recent corporate action we saw with respect to India Cement. I just want to know if you're in a position to share what is the long-term plan there and in case we remain at current levels of stakes, will we look to get involved in the operations or collaborate in any way?

No, no collaboration. It's a pure financial investment, as you mentioned, non-controlling financial investment.

Got it. All right. Thank you, sir, and all the best.

Thank you. Ladies and gentlemen, we request you to kindly restate and limit your questions to two participants. The next question is from the line of Sati Kumar from Jefferies. Please go ahead.

Yeah, hi, Grafton, sir. My question is on cost curve.

So on variable cost, you have highlighted, like, taken on $149, you've, like, realized cost for the quarter and the field prices.

How are you looking at field cost in near term? You have indicated earlier that we remain in, like, sort of deflation trajectory for, like, any quarters.

So how are you looking at the variable cost X of your own RE-PAR initiatives?

So basically, if I refer to coal costs, excluding RE parts, they will go down further. So interestingly, we have not been able to increase our pet coke mix. Pet coke mix was around 37% for this quarter. But going forward, I know for sure that we are ramping up our pet coke mix, which should go up for the 45%. for the full year purpose, not remaining period. So we will see an improvement in overall fuel prices.

Okay.

And on the other expense in the quantum, you mentioned of elevated marketing spend. So the quantum will be to the tune of like over 50 crores this quarter? Like how much would be there?

I already answered that question. So if you look at, I would look at it on a quantum basis. If this quarter we were at 755 rupees per ton, we should be...

Ladies and gentlemen, please stay connected. The line for management got disconnected.

Ladies and gentlemen please stay connected while we reconnect the management team.

Thank you. Thank you.

Ladies and gentlemen, thank you for your patience. We have the management line reconnected. Over to you, sir.

Thank you so much. Sorry about this. I don't know if there was some group of like the Microsoft problems world over today. Our telephone lines are also giving some trouble. Sorry about that. Can we take the next question, please? Sure.

We'll move to the next question, which is from the line of Jashundi Singh Shadda from Nomura. Please go ahead.

Hello. Hi, Jay. Good afternoon, sir. Yes, sir. Thanks for the opportunity. Sir, just wanted to understand what's the status of the six militant greenfield projects that we are putting in Andhra Pradesh?

I mean, what's the stage they are at, the ones that are coming in FY26 and 27?

They are on track. FI26 is G.U. Vishaka Patnam is on track. Dhule, Nazwara. So, yeah, it's on track. There's only one grinding unit of Vishaka Patnam. The Christians have been ordered the land. Yeah, yeah, yeah. Land already tied in long back. Okay. And sir, just wanted to understand your view on the southern market.

There are a lot of consolidation happening, a lot of expansion happening, the prices are low. So how do you see, is there enough, you know, volume and demand there to absorb the upcoming capacity in the south market?

Yeah, I guess so. You know, in fact, I alluded to how Andhra is going to shape up. That is one of the markets, big markets. So I believe that there will be demand uh enough enough demand rather to to uh absorb all the new capacity coming in okay thank you sir i'll join with you thank you so much thank you the next question is from the line of ritesha from investex please go ahead hi sir thanks for the opportunity it's a two question I said you did indicate a specific third India cement is a non-controlling financial investment just wanted to understand what is the motivation behind this historically I'm not sure whether we have done anything of the sort so why right now how should we look at this so this is always a start to everything so that is having said that we found this as a good opportunity to buy in and we will I am sure the way the markets are this should prove to be a good investment. So, my second question is how should we look at I think JP has been put under NCLP and one of our assessments is also under arbitration. So, how does the situation evolve for us? We are waiting to hear back from the RP, but I think the arbitration will continue and

step in the shoes of JP okay now that's helpful thank you so much thank you thank you the next question is from the line of Indrajeet Agarwal from CLSA please go ahead hi good evening sir a few questions first only two questions Indrajeet okay yeah two I'll take it to two

So the 2 rupees per KKL cost of fuel, while the industry has moved to 1.6, we understand there was some long dated contract. Can we get to that 1.6, 1.7 levels by fourth quarter?

I would imagine that we will see those kind of levels in the next fiscal year. And Q4 would be far better than the current quarter. Because all those long term contracts will be over by December, Jan. So Not able to put my finger on the exact number for Q4, but we will begin the April-June quarter on an absolutely clean slate, very competitive clean slate. Secondly, I just want to understand more like a bookkeeping question, the accounting for this financial investment. So would you mark to market every quarter and whatever the gain loss, would it be possible? It will not go to the P&L, it will go to OCI.

Okay, and it will be mark-to-market every quarter?

Yes, it will have to.

Okay, thank you. That's all.

Thank you. The next question is from the line of Rahul Gupta from Morgan Stanley. Please go ahead.

Hi, hello.

Hi, Rahul. Hello.

Please go ahead, Mr. Rahul.

Hi, thank you for taking my question. Sorry, Mr. Daga, to harp again on India cement investment. Given this is a financial investment, is there a way that you would look to increase stake from the currently stated 23%? Or are you happy with a non-controlling financial investment of 23%?

It's a non-controlling financial investment. Can't go beyond that at the moment.

Okay. Understood. Thank you.

Thank you. The next question is from the line of Rashi Chopra from Citigroup. Please go ahead.

Thank you. Just a question. On the last quarter, Atul, you had mentioned that you're looking to reduce your cost by about 200 to 300 rupees per ton over the next three years. And, you know, is this still intact, this 200 to 300 ton?

Yes. So I would leave 200 behind and I would start marching above 300. Because the way our leadership has performed, I am very bullish on how things are shaping up and we will have far higher improvement.

Okay.

So 300 plus... Yeah, because you remember, if you remember the breakup that we had given, we had looked at only 25 kilometer reduction and we have already achieved 15 kilometer in Q1. Given the network of plants that we will have at the end of our expansion plan by in the middle of 27, 70 locations plus more than 70 locations from a 54 or 55 look 59 locations as of today it will be a good place to operate so you will be further reduction in lead distance that's the logistics cost all our other parameters are working in the right direction

And on realization, you indicated that July prices are 1.5% softer versus the average of 1 cube, right?

I'm going to exit one second. This is too confusing. It's over, yeah, 4 to 1 average.

Okay. And just last, you already mentioned this, but I missed it. Region-wise utilization, what did you say?

It was 82 to 85% between north and central. One sec, and I have one second. 85 to 90% was west to south, and east was the lowest at 80%. Okay, thank you. Thank you. Next question, please.

The next question is from the line of Patanjali Srinivasan from Sundara Mutual Fund. Please go ahead.

Thank you for the opportunity. I'm sorry to interrupt. We can't hear you.

Can you please speak a bit louder?

Yes, can you hear me now? Yes, please go ahead. I wonder what is the volume growth guidance for this quarter? We are looking at the industry growth of around 8%, 7 to 8% I would imagine. And we should be doing double digits. For the full year, yeah, for the full year. okay and in terms of capacity like what would be CCI limits for capacity addition is there Anthony but any reason there is no restriction on capacity addition sorry could you repeat what you said just one second yeah as far as organic capacity is concerned there is no restriction

okay sir and what about acquisitions there is no number which is defined by cci so they examine this case to case okay okay sure and just one last question what could i ask you sir can you please join back the queue we have participants waiting for the turn okay thank you the next question is from the line of shravan shah from dollar capital please go ahead

Hi, sir. Sir, just a couple of data points. Trade said and blended cement for this quarter. Trade was 68%. Blended was 71%.

And capex, how much we have done and last time we talked about 9,000.

Our cash outgrow was about 2,000. So we went to our 8,000 to 9,000 quote of capex in this financial year. okay and for 26, 27 it would be 11,000 odd crore the number to no 8, 9 only not more than that yeah so for this year but overall what we initially talked about in terms of 30,000 odd crore kind of there could be some retention money cash flow might not be there

Okay. Okay. Okay. Okay.

And then from the green, sir, from currently 29.4, by end of this effort, 25 and 26, where it will reach? 60% by end of 26 and 40, 26, 27 and 40 to 45% by the end of this year.

Okay. Okay. Thank you.

Thank you. The next question is from the line of Sanjay Nandy from BT Capital. Please go ahead.

Hello. Yes, please. Yeah, thank you for the opportunity, sir. Sir, can you please guide us on the current physical utilization for this quarter? I'm at around 85% only, 85-86%. Okay, what is the cement to chemical conversion ratio, sir? 1.46. Okay, okay, sir. Thank you for my attention. Wish you all the best. Thank you.

Thank you. The next question is from the line of Amit Malarika from Access Capital. Please go ahead.

Hi, thanks for the opportunity again.

So on the expansion plan, while you have given out the schedule for the expansion, is there a similar schedule for green power, like you said, to reach 45% by the end of the year? As far as WHRS is concerned, yes, there will be, which I can put in our next presentation. But that's not, okay. But this is only Q125. It's not there. So I will share it with you. It's all there. Okay. And you said that WHR is defined to 90 cents. So sorry about that. Sorry about that. uh currently captive power thermal power cost will be coming at what level seven ish one second i'll tell you that seven percent that's huh it's it is uh thermal power is about 7.3 oh and uh the captive group and the group captive solar solar and that you're doing that would be renewable yes 4.3. Okay, got it.

Thanks a lot.

Thank you. The next question is from the line of Ritesh Shah from Investec. Please go ahead. Please go ahead with the question.

Yeah, hi, sir. I'm audible? Yes, please. Yeah, so when we refer to the logistic cost savings, is there any change in mix, basically road, rail and sea that we are looking at besides the bleed what you indicated? No, road remains around 75%. Yeah, that's the range if I'm looking at my data sheets, it's about 73 to 75% is road, 23 to 25% is rail and 2% would be sea. Right. So are you looking to increase C or is it more focused on road on rail and basically reducing the lead? Yeah, reducing the lead and efficiency improvement. So it's not just the, you know, distance cost, but there's a lot of other costs that is there which helps us drive efficiency, you know, improvement of turnaround time, waiting time, loading time, etc. So lots of stuff So distances, right distances, right amount of travel. Lots of areas are there to improve logistics cost. Okay. And so second, one of the companies which has reported so far indicated on a sequential basis, there was some weak on discounting. Is this something that we also witnessed or is it something which was more company specific? Is it more of an industry phenomenon? I don't know about other companies. We don't have such... you know, policy shifts quarter on quarter. Sure. And the last one, sir, is there any target clinker ratio that we have in mind when we have given a number of 300 receives? 1.54. 1.54. Thank you, sir.

That helps. Thank you so much.

Thank you. The next question is from the line of Satyadeep Jain from Ambit Capital. Please go ahead.

Hi, thank you. Firstly, on the expansion, just wanted to understand, Mr. Daga, in the past, Alta Tech has obviously been expanding capacity across India. In your experience in the last few years, have you seen land acquisition or regulatory approvals improve or deteriorate? And is there any state-specific or region-specific trend you've noticed where it's become more difficult or easier compared to other regions?

No, I, you know, it's very difficult to point a finger, but it's not an easy process. Somewhere it could, you know, it all depends on the land parcel that you, if it's a private land available, a large parcel is available, it can be done very fast as compared to that. Otherwise, we start buying our land parcels well in advance. Before announcing of our projects, we would target competing 50 60 percent or even higher percentage of land purchases it's a slow process in the country yes other than that environment approvals etc these are give or take a year window okay secondly on the inorganic opportunities when you look at and given your own experiences certain acquisitions in the past the assets

that may be out there. Some may have an older footprint in terms of technology, one stage, two stage, three stage, three stage, and maybe better. I'm not sure how many of it. Is it possible to upgrade some of these plants into standards similar to the current technology?

I wasn't witness to the acquisition of L&T assets, but I have seen in my time the assets of L&T that time being upgraded. So, upgradations are possible depending upon already we would undertake upgradations depending upon the return on investment that we generate.

Okay, thank you.

Thank you. The next question is from the line of Milind Ranganwar from B.O.B. Capital Markets.

Please go ahead.

Please go ahead with your question. Your line is unmuted.

I think he's not there. Take the next question, please.

Sure. We'll move to the next question from the line of Rajesh Kumar Ravi from HDFC Securities. Please go ahead.

Hello, am I audible? Yes, please. Hi, sir. Good evening. So my question pertains to this realization, you know, If I look at your gray cement realization trend, we see that it peaked somewhere close to 5390 in Q3 FY23. And thereafter, it has been drifting lower. FY24, we have seen 40 odd million ton of capacity emissions, as you mentioned. And in cement tea, a few of the understressed capacities are also being acquired. And hence, they would be ramping up, adding to the volume pressure. incremental capacity additions are to on a rise and third point if i look at uh you know yours uh your uh so are we headed towards uh you know situation where next two to three years we may not see any price improvement at all because uh companies are benefiting from cost reduction and they would be more than happy delivering $1,100 to $1,100, I mean the frontline companies. I have a very standard answer to this kind of a question, but it's too difficult to forecast beyond next quarter for prices you are asking me to talk about two years and three years later. It's very difficult to say how the markets pan out. If the demand is very strong, all India capacity utilizations for, yeah, all India capacity utilizations start going up above 85%, you could see dramatic price improvements. It all depends upon demand and supply. And in the beginning of my commentary, I think I started off with you over there when we started. the incremental supply will always be chasing incremental demand in the country. That's a very good sign. Okay. And just last question, how much clinker capacities are getting added in this financial year and, you know, FY25, 26, 27 in line with the grinding additions that have happened?

That's right. That's right. So, I do...

Yeah, yeah.

If you look at the charts, page eight on our presentation, there are four IUs getting added, green or brown. One already just now, sorry, two IUs already commissioned in Q1. Each IU would be around 3.5 million times. Okay. So even incremental, the additions that would happen would have similar time? Yes, please. Yes, please.

Okay. Yes, please. Okay. Yeah. Great, sir. That's all from my end. Thank you. All the best.

Thank you. Thank you. The next question is from the line of Shravan Shah from Dollars Capital. Please go ahead.