Ultratech Cement S/Gdr

Ladies and gentlemen, good day and welcome to the Ultratech Cements Limited Q4F826 earnings conference call. As a reminder, all participant lines will remain 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 this conference call, please signal the operator by pressing star, then zero on your touchtone telephone. Please note that this conference is being recorded. I will now hand the conference over to Mr. Urtul Garga, Chief Financial Officer, for opening remarks. Thank you, and over to you, sir.

Thank you. Good evening to everybody. I want to begin not with numbers, but with where we stand as a company, because fiscal 26, in my view, is a year that will be looked back on as a genuinely significant in AltaDeck stories. And fiscal 27 started with an achievement of major milestones. Altotec crossed 200 million tons of cement production capacity in India. A first for any company in a single country outside of China. Let me put this in context. We reached 100 million tons in 2019, added another 50 million tons in five years by 2024. And we completed the journey from 150 to 200 million tons in less than two years. This is a feat even more remarkable since we are a full year ahead of our targets as what we had set for ourselves. Let's be clear on what the number means. It's not simply a headline. It's an expression of a strategy to build scale that compounds in cost efficiency, in market reach, in raw material security and in sustainability. Every ton of capacity we add reinforces every ton that came before it. Let's look at our position globally. Outside of China, Ultratec is today the largest cement company in the world by sales volume. And we are the only cement company anywhere in the world to have over 100 million tons of production capacity within a single country. We are 200 million tons. These are not rankings we have stumbled into. These are the results of a very deliberate strategy. Disciplined organic growth, timely acquisitions at the right price, and a relentless focus on execution. From somewhere 65 million tons in 2016 to 200 million tons today, we have more than trebled our capacity in a decade. our next horizon is already set. We have committed to add a further 37 million tons, which will take us over 242.5 million tons in a phased manner by fiscal 28. Now, I want to speak to something that is very much on everybody's minds, the conflict in West Asia and what it means for us. Whilst I have given an indicative chart in our presentation on where the impact of these rising prices could be. Let's be straightforward. It's a real headwind on fuel costs, packing bags, and freight, on certain import-dependent supply chain, on near-term sentiment in some demand segments, and the way all oil prices are, we could see an increase in domestic prices of petrol and diesel. The government's monthly economic review for March 2016 also acknowledged that the outlook has become slightly uncertain. And yet, India's structural growth story is entirely intact. Government's case is exploring. Infrastructure execution continues. Housing demand is robust. IMF has also raised the growth forecast for the country. Just to rattle some numbers out for you, India... did approximately 10,660 kilometers of highways in fiscal 25, and has maintained the pace in 26. The PMA housing program is driving cement consumption at scale. That tells us something important about the underlying demand base. On the construction cost environment, cement prices have been largely stable in the last financial year with movement of maybe 0 to 5%. Steel prices have seen volatility. West Asia situation is near-term cost moderator, not a structural demand reversal. And we believe Ultratech with our domestic strength, our 1.8 gigawatt green energy platform, our scale-driven cost efficiency is better positioned, much better positioned to manage through this environment as well. Fiscal 26 was a year of extraordinary execution. We crossed 200 million tons. We completed van migration for both India Cement and KSRM ahead of schedule. We continued building our green energy capacity and we delivered volume growth and improved profitability. We said we would do things, these things, we have done them and we enter Fiscal 27 in a stronger strategic position than at any point in our history. Let me look at the Q4 performance and the full year performance. And we'll also share some insights on the integration stories and our cost efficiency program. Consolidated sales volumes, as you have already seen, has crossed a rocking 44 million tons this quarter. Most important aspect about it to note is that Ultratech as a brand year on year has grown 19%. Nobody can take away that thunder from us. Realizations improved during the quarter. Raised payment pricing sent in about 2.5% in most logger fees supported by an improving trade mix and premiumization. A blended payment share, premium portfolio contribution, Both moved higher, which is a conscious and a deliberate strategy going forward. EBITDA per ton, excluding acquired assets, is at 1296 per ton for the quarter. For the context, this metric was 1225 in Q4-25. The trajectory has continued. On an aggregate basis, we have reported 1253 rupees per ton in Q4-26. This, if I were to split between India and overseas, thanks to our UAE operation doing very well, they have contributed substantially. But India has been no less. Remember, the India capacity is almost 196 million tons during this year. If I were to remove the aberrations of West Asia crisis, we have achieved a productive pattern of very close to Rs. 1240 per ton. What am I knocking out from here? The last month increase in cost of bags and impact of exchange loss, the highly volatile and the frantic devaluation of rupee that happened in the last month. So, I believe we have done very well on EBITDA platform as well. A renewable energy platform has been growing from strength to strength. Today, we are almost at 43% of our power needs being met from green sources. We are committed to reach about 85% of our power requirements from green energy by the end of fiscal 2030, and we are very confident of reaching that position. On the fuel side, we are actively managing our mix, optimizing between petcoke coal, alternative fuels, and increasing the share of domestic coal wherever possible. On the logistics strand, our lead distance has reduced to 367 kilometers. Our ever-expanding bulk terminal network, including the new Dachnau facility and other facilities are helping us reach the customer faster, thus helping us reduce our lead distance and our overall costs. Let me spend a few minutes on the two acquired businesses. The progress is, I believe, fantastic. RAN migration. 100% RAN migration has been completed at the end of March 26. In Second quarter fiscal 26, we were at 31% of ICL volumes and 55% of case around volumes were carrying out at a grand. December 25, they had moved to 58 and 59%. We have completed at the exit of March 26, 100% grand conversion. The EBITDA trajectory. India Cement Tabitha of Rs. 497 per ton in Q4-26, up from Rs. 333 in Q2 and Rs. 305 in Q3. Sequential improvement every quarter since acquisition. This quarter, the company declared a PAT of Rs. 60 crores for the quarter, which has been after a very long time. And this Rs. 497 at Vida Patan, please understand how we read it. We, as you know, under the related party transactions, we had put in place a tolling arrangement. ICL or India Cement manufactures and sells the Ultratech brand, but does not carry any direct marketing and distribution costs. Those sit with us at the consolidated level. At Ultratech, we charge a markup per bag on ICL volumes, which offset that element on a net basis. So, India's underlying operational progress towards Ultratech system is much higher than 497 per ton. And the price improvement, selling price improvement that happened in the southern markets will give it a further boost. The investment phase is now underway. We had committed 1592 crores for India Cements for efficiency improvement plus another 400 crores for CAPEX on capacity expansion. This definitely is going to take us over 1000 rupees per ton as committed by the end of fiscal 28. We are spending 400 to 500 crores for case around. Cement assets, they are already operating at thousand fees EBITDA per ton more or less in line with the other cement operations in South. These two assets today represent about 13% of our consolidated capacity. They are moving from integration drag to earnings contributor. As the cost improvement matrix matures, they will be a meaningful and growing source of group level EBITDA accretion. Let me now look at how we see fiscal 27 and beyond. We expect a sustainable volume growth of 7-8% per annum. The structural drivers are firmly in place. India's urbanization story, the government's infrastructure commitment, you would have read About Mumbai city itself spending about $50 billion in improvement of infrastructure. The female housing targets, rising rural demand, none of these have been diluted by the West Asia crisis. These are very strong structural forces and Alta Tech is better positioned than anybody else to capture that demand in the long term. The near-term environment has its complexity. Our lead distance has reduced to 367 kilometers. Our ever-expanding bulk terminal network, including the new DuckNow facility and other facilities, are helping us reach the customer faster, thus helping us reduce our lead distance and our overall costs. Let me spend a few minutes on the two acquired businesses, because the progress is... I believe fantastic. Brand migration, 100% brand migration has been completed at the end of March 26. In second quarter fiscal 26, we were at 31% of ICL volumes and 55% of KSO RAM volumes were carrying AlterTech brand. December 25, they had moved to 58 and 59%. We have completed at the exit of March 26, 100% brand conversion. The EBITDA trajectory. India Cements EBITDA of 497 rupees per ton in Q4 26, up from 333 rupees in Q2 and 305 in Q3. Sequential improvement every quarter since acquisition. This quarter, the company declared a PAT of 60 crores for the quarter, which has been after a very long time. And this 497 rupees, please understand how we read it. We, as you know, under the related party transactions, we had put in place a tolling arrangement ICL or India Cement manufactures and sells the Ultratech brand, but does not carry any direct marketing and distribution costs. Those sit with us at the consolidated level. At Ultratech, we charge a markup per bag on ICL volumes, which offset that element on a net basis. So, India Cement's underlying operational progress towards Ultratech system is much higher than 497 per ton. And the price improvement, selling price improvement that happened in the southern markets will give it a further boost. The investment phase is now underway. We had committed 1592 crores for India Cements for efficiency improvement plus another 400 crores for CAPEX on capacity expansion. This definitely is going to take us over thousand rupees per ton as committed by the end of fiscal 28. We are spending 400 to 500 crores for KSORAM cement assets. They are already operating at thousand rupees EBITDA per ton more or less in line with the other cement operations in south. These two assets today represent about 13% of our consolidated capacity. They are moving from integration drag to earnings contributor. As the cost improvement CAPEX matures, they will be a meaningful and growing source of group level EBITDA accretion. Let me now look at how we see fiscal 27 and beyond. We expect a sustainable volume growth of 7% to 8% per annum. The structural drivers are firmly in place. India's urbanization story, the government's infrastructure commitment. You would have read about Mumbai city itself spending about $60 billion in improvement of infrastructure. The PMA housing targets, rising rural demand, none of these have been diluted by the West Asia crisis. These are very strong structural forces and Altertech is better positioned than anybody else to capture that demand in the long term. The near-term environment has its complexities. Nobody knows what will happen tomorrow, what will be the new comment that gets made which could move the markets. We will wait and watch. On the integration side, we are through the hard work. Both India Cement and Kisoram are fully migrated to the alternate brand. Cost improvements are underway. And fiscal 27 P&L will start reflecting the benefits of this investment. I should definitely mention about the dividend the board has discussed, debated, and proposed. Our balance sheet remains robust with a net debt EBITDA of 0.94x at a consolidated level and 0.92x at Ultratech India level. This gives us financial flexibility to continue investing in growth without compromising on returns to shareholders. We have already started charting out our growth story beyond 240 million tons and will come back to you next year. The Board has recommended a dividend of 240 rupees a share for fiscal 26. This dividend has been stress-tested against retained earnings remaining adequate for all planned investments and commitments. Credit metrics and debt covenants are unaffected by the proposed distribution. We'll maintain our leverage below 1X year after year after meeting our growth CAPEX. And our growth CAPEX requirement is not shrinking. We see a plan of investing around 8,000 to 10,000 crores every year for the foreseeable future. Future CAPEX pipeline remains fully funded and the growth story is intact. It's a cumulative outcome of disciplined capital allocation, operational excellence, and consistent strategic execution over many years. We know it, you know it, our operating cash flows are growing and our board has already taken a stance of improving the returns to shareholders. You would have seen our dividends grow from 10% of profits in 2020 to 37% of profits last year. And today we are where we are. Dividend is not simply a financial transaction. It is a communication of our confidence and commitment to our shareholders and investors. It says, we are confident in our earnings quality, in our forward outlook, and in our ability to generate and sustain value. We are not keeping cash on balance sheet out of uncertainty. We are sharing it because we can and because we have planned carefully enough to do so without any constraint. I want to close with something very simple. Ultratech has made commitments to investors on capacity, on integration, on brand transition, on cost efficiency, on sustainability, and on returns to shareholders. Year after year, we have delivered on these commitments, F526 being the top-notch performer. We said we would reach 200 million times ahead of schedule. We did. We said we would complete brand transition for ICL and KSRM. We did, and a quarter early. That consistency of delivery, ladies and gentlemen, is what defines us as a tech. And it is what will continue to define us in the decade ahead. Thank you, and we are now ready for your questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use their handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take the first question from the line of Rahul Gupta from Morgan Stanley. Please go ahead.