Ultratech Cement S/Gdr

Ladies and gentlemen, good day and welcome to the Ultratech Cement Limited Q2FY26 earnings conference call. 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 and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Atul Daga. Chief Financial Officer, thank you and over to you, sir.

Thank you. Good evening, everyone, and welcome to the earnings call of AlterTech Cement for the quarter ended September 25. I realize it is a Saturday and for those who are attending the call, a sincere thanks for taking time out on your weekend. Let me straight jump into the nitty gritties. Firstly, demand. I think it is very important to note that we have sold more than 31 million tons of cement this quarter when rain gods have been in full fury till almost a few days ago. On ground, things are looking up, looking better for premium cement all the more. We will talk about it in a bit. Ultratech is a very large company. We operate almost 75 physical locations, 400 plus RMC plants. And in that phase of rapid growth, the sales volumes growth will be a little complex to understand for three or four quarters. If we were to look at our sales volumes without ICL and Kesaram in the base for the last year because we were not managing them, we have grown 22.3%. Without considering India Cements in our base for the last quarter, we have recorded a growth of 9.6%. With both ICL and Kesaram cement assets in the base, we have grown about 6.8%. India Cements has already declared its results yesterday with a growth of 6%. Most important points to note is Ultratech as a brand, The brand has grown about 13.2% this quarter YOY. That is a real hard number. Rural markets are also delivering a growth of 13% and we believe that the industry will achieve a growth of around 10% in the rural markets. We have been rapidly converting India Cements and Kiswaram brands into Ultratech with a sharp focus on improving the quality of the product manufactured at the acquired plant locations. The results are quite exciting. As I mentioned, Altitech as a brand has grown 13.2% thanks to the rapid conversion of output generated from the acquired assets. Let's talk about GST. GST, while there's no impact on profitability, an important benefit of GST2 is a reduction in clean energy says Leviron Call. We believe This will be in a long-term interest of Ultratech. We balance our fuel portfolio with a mix of coal and pet coke. The strategy has always helped manage our risk. This quarter, with slightly higher coal consumption, the ratio is skewed in favor of coal at about 48% and pet coke being about 44%. This quarter, our fuel costs are higher than last quarter, increasing to 1.8%. per Kcal as compared to 1.78 per Kcal. It's a mix of coal and pet coke essentially and timing. The next few quarters will be a mix of our existing high performance assets of 166.76 million tons and the acquired assets which are ramping up rapidly, namely Kesaram cement assets 10.75 million tons and India Cements 14.75 million tons. Our existing operating assets, 166.76 million tons of capacity have delivered an EBITDA per metric ton of 966. India Cements reported its performance yesterday delivering 386 rupees per metric ton. And KSORAM assets this quarter were at 755. For your reference, India Cements Brand conversion has already happened 31% and KSO RAM has already converted 55% at the end of this quarter. This will clearly give you a perspective of how the overall average numbers will pan out when full brand conversion has been completed. We are expecting to complete the brand transition for these acquired assets not later than June 26th. There have been some specific cost items, one-off, slightly higher, which have had a dampening effect on our performance. First one, maintenance costs. You'll be shocked to know that we operate almost 56 kilns across the country in Ultratex balance sheet. And if you were to take into account India Cement's kilns also, a total number of 65 kilns are being operated by us. In Algetec, out of the 56 kilns, we had 617 kiln days shut down as compared to 207 kiln days last quarter or 511 kiln days last year for the same period. This is one of the reasons why our fixed costs are slightly higher. When we do an internal calculation, it's about an impact of Rs. 100 per tonne. Second one was the advertising cost. During this quarter, our advertising efforts had been taken up. We spent 50 crores higher than the last quarter, resulting into an impact of about 15 rupees per ton. Third item was staff costs, which were again slightly higher in this quarter, and all employees obviously enjoy this quarter because the increments and the annual bonus payments are made in the July-September period. Quarter on quarter, additional costs of 94 crores were incurred, but you don't have to worry. This impact will come down next quarter by 30-35 crores. The per ton impact is roughly 25 rupees per ton. Operating leverage impact due to lower QOQ sales volume is close to 70 rupees per ton. If I count all these items, then there is a delta impact of anywhere around 200 rupees per ton. But that doesn't mean that these costs will not exist in the next quarter. There will be some element of cost, but not such a high impact. CAPEX. Our expansion plans are going on full swing and we will complete or exit this financial year with 200 million tons of capacity under our belt. Projects like with Avonport, Amravati, development around the new Mumbai airport, data centers coming up in the country, urban real estate, Google committing $15 billion to build its AI hub in Andhra. All such mega projects are very positive for cement industry for consistent growth demand. And GST2 will definitely boost demand for premium cement. Because some people will be able to buy their aspirational brands due to a reduction in the cost of purchase. You would have also seen our next phase of growth. I have mentioned it in the past. After completing our consolidation in the southern markets in fiscal 25, we have focused our guns on north and west. With an intent to further strengthen our position in these markets, we are embarking on the next phase of our growth with 22.8 million tons of incremental capacity, which is a mix of largely brownfield and some greenfield expansions. Out of this 22.8 million tons, 18 million tons is focused on the northern markets and 4.8 million tons for the western markets. A very important point for you to note is we will always be fully invested in clinker. At the end of this expansion, we will be reaching 148 million tons of clinker capacity with a clinker conversion factor reaching close to 1.6 X. This expansion also will be funded largely by internal accruals. There might be some temporary borrowings that will be done. But by the time we complete our expansion, we will be again less than 0.7x net data bid down. Cables and wires business. The business is on track to launch production in Q3 fiscal 26. Land and buildings have been secured. Long lead machinery items have been placed. We expect delivery to start from January 26th. and the plant should get commissioned in time for Q3 production launch. Key managerial people have also started onboarding. I touched upon ICL and Kesaram assets. We, as I mentioned, India Cement's brand transition has been completed to 31%, up to 31% of their sales as Ultratech, and it will cross the 40% mark by December quarter and then further up. thereby helping us realize the benefits of synergy in the books of India Cements on a very rapid pace. As a post balance sheet event in India Cements, we have exited the coal assets held in Indonesia and the cash flows that will be realized from the sale of these assets will help reduce their debt. Another important point to highlight about India Cements is the CAPEX program of 1592 crores, which has been initiated for de-bottlenecking of a small capacity, 21 megawatt renewable energy, 21 megawatts of WHRS, 192 megawatts of renewable energy and other efficiency improvement programs. Over and above that, we are expanding the capacity at Chennai and Rajasthan plants with 2.4 million tons at a cost of 422 crores. These are high-performing markets, and the investment will yield an IRR of upwards of 20%. We acquired India Cements with a capacity of 14.45 million tons. Within no time, there was a debottle licking done, and further brownfield expansions that I have just mentioned will take us to a capacity of 17.55 million tons. we will be able to fund these investments with internal accruals and a mix of debt. However, by the time we complete the expansion, which is January or by the time the expansions are fully operational, the ICL assets will start generating EBITDA per ton of thousand and a net debt EBITDA of around 0.5x. ESORAM assets have also streamlined and a CAPEX of around 500 crores is in progress for WHRS and other efficiency improvements. The brand transition program as I mentioned earlier has already been completed to about 55% of its output and we shall complete the rest of the program by the end of June 26th. Another important point which I must leave with you is our retail footprint. We have a presence with almost 5,000 stores in the country. These retail stores, what we call the UBS stores, sold 21% of our total sales this quarter and also support the dreams of many businesses individual home builders to procure other materials required for building a house. RMC is another important aspect of our business across almost 400 plants in the country. Today, RMC has become about 4% of cement volumes for us. For some of you, the desert is the most important in terms of EBITDA per ton But at Ultratech, this quarter has been a wholesome meal. Thank you. And before taking questions, we wish you all a very happy Diwali. Over to you for questions, please.

Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and then one on their touchtone phone. If you wish to remove yourself from the question queue, You may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Again, to register for a question, please press star and then one. Our first question comes from the line of Amit Murarka from Access Capital. Please go ahead.