Ladies and gentlemen, good day, and welcome to JK Lakshmi Cement Limited conference call to discuss the outcome of e-voting at the recently held annual general meeting hosted by PhillipCapital (India) Pvt Ltd . As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. For any 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. Vaibhav Agarwal from PhillipCapital (India) Pvt Ltd . Thank you, and over to you, sir.
Yeah. Thank you, Yashaswi. Good evening, everyone. On behalf of PhillipCapital (India) Pvt Ltd , we welcome you to this exclusive call of JK Lakshmi Cement to discuss the outcome of e-voting at the recently held AGM. On the call we have with us Mr. Sudhir Bidkar, CFO of the company. I will now hand over the floor to Mr. Bidkar for his opening remarks, which will be followed by interactive Q&A. Over to you, sir.
Thank you, Mr. Vaibhav, and good afternoon, ladies and gentlemen, for this call, which is especially being held to share with you the company's point of view of the various resolutions which were put to the vote in the just concluded AGM, and which was passed barring one resolution with overwhelming majority by the shareholders and the investors. So we take this opportunity of thanking each and every individual investor for having voted based on their recommendation which they have got from their either proxy or from their internal team on various resolutions. The idea of having this call was basically to have a good corporate governance. One, from the point of view of the company, you should understand the point and the logic on which the resolutions were proposed.
And two, from the management point of view, also wanted to understand your concerns for the resolutions which you had any reservation for, based on which the voting was against one of the resolutions. So we'll go item by item. I'd like to share. The first item was basically for the adoption of the annual accounts, which was passed with overwhelming majority. Except one of the proxy advisors had made some comments on some of the observations of the auditor's report, CARO report, but which when we shared with them the correct report, it was then reversed by SES on two things. One was the internal financial controls, and other was on whether there was any qualification. They understood the SES proxy advisor. They changed their recommendation therefore. The second resolution was for the dividend, which was again passed with overwhelming majority.
Third resolution was regarding the reappointment of our Chairman as Director, liable to retire by rotation. Here, while SES has initially given a negative recommendation, based on the representation made by the company, they understood the company's point of view and reversed their recommendation from against to for. Only ISS had recommended a negative voting. The logic which they gave was, since they have two Directors, Mr. Ravi Jhunjhunwala and Mr. N.G. Khaitan, who have longer association with the company prior to their appointment with the company in 2013. You would appreciate, the shareholders, that Companies Act itself allows any Director to continue for a term of two terms of five years each, and they will step down after their term gets vacated. That was the logic. Next resolution was for the payment of remuneration to Mr. Bharat Hari Singhania, Chairman.
He stepped down as the Executive Chairman in October 2021 and has not been drawing any salary, but he has been devoting full time. So the Board decided in the FY 2023 commission of INR 2.4 crores, which since it was more than 50% of the Board commission paid to the other non-executive Director, it was put to vote by way of a special resolution. Here also, SES, based on the explanation given by the company, reversed their initial recommendation from against to for, but ISS continued to have a negative recommendation. The logic which they gave, ISS especially, was his commission which you gave of INR 2.5 crores was exceeding the total remuneration of Executive Director Mr. Shukla, which you paid INR 2.4 crores.
What they forgot to realize was that the remuneration of Mr. Shukla was for INR 2.4 crores for a period of eight months only, which is from August 1, 2022 to March 31, 2023. So if one were to annualize that, then it comes to be INR 3.6 crores, and the remuneration or the commission which was paid to the Chairman was much lower than the salary paid to the Executive Director. So obviously, most of the shareholders and investors like you voted for favorably, and this resolution was also passed with overwhelming majority. Next resolution was for the payment of remuneration to the cost auditor, which was passed unanimously by all the shareholders, who voted in favor. The next two resolutions were regarding increasing the borrowing limits of the company from INR 4,000 crores to INR 7,000 crores.
Here also, initially SES advisors had recommended a negative voting, but after the company's representation that the company does use a lot of non-fund-based facility, which doesn't get captured in the annual Balance sheet which talks of only the fundamental limit. They also get favorable vote and both this resolution for increasing the borrowing limit and also for the creation of charge therefore of INR 7,000 crores was passed with overwhelming majority. The only resolution which some of the investors had reservation was primarily to increase the limit for making investment or giving guarantees or securities from the limits prescribed under Section 186 of the Companies Act, to about INR 10,000 crores.
Section 186 of the Companies Act, a company is eligible to make investments or offer guarantees or securities up to an amount of 60% of its paid-up share capital, previous reserve and security premium or 100% of whichever is higher. In our case, it was figured was about INR 2,650 crores. The amount was almost fully utilized. At the time the board recommended this resolution to the shareholders, the company was evaluating an acquisition opportunity, which was having an enterprise value of close to about INR 6,000 crores - INR 6,700 crores, which was though because of the confidentiality, the company did not disclose the name of the entity, but it was in the interest of the entity or the target at which the company was looking at.
That was the reason as to why the company had proposed a resolution for increasing the limit. If one were to get that, we would have had to make an investment, one, in the equity capital of the target company and two, the company would have required to build the corporate guarantee for the substitution of the high-cost loan which the target company was carrying. About INR 4,500 - INR 4,000 was the value and about INR 2,000 crores of loan were sitting in the target balance sheet. This together would have required the company to have sufficient limit in place, based on which this resolution was proposed by the board.
Since all the three proxy advisors, IiAS, SES and ISS, had recommended negative vote, this resolution got passed with a simple majority, garner 71% voting, and was not passed by way of a special resolution which was required. Just wanted to explain, we have given that explanation to the SEBI also based on some news item that the shareholders were stripped down this resolution. We would like to mention that basically this resolution was required since the company was evaluating that opportunity. Now that since that opportunity did not materialize, this we did not pursue aggressively. I just wanted to explain that point of view and wanted to understand from the investors their concerns based on which negative voting was done for this particular resolution. I hope the company has explained its point of view.
With that, I will throw the floor open for question answers if any of the investors has any. To understand from your point of view, what are your concerns on the various items which were proposed about at this AGM, just concluded AGM. Over to you, the investors. The floor is now open for question answers, please.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on your telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to only use handsets while asking a question. Ladies and gentlemen, to ask a question, please press star and one on your phone now. We have a question from the line of Keshav Lahoti from HDFC Securities. Please go ahead.
Thanks for hosting the call. Just want to check one thing.
Your voice is not clear. Can you speak a bit louder, please?
Sure. Is it better now?
Yeah, slightly better.
Yeah. Just want to understand one thing. You said that you wanted to acquire a company at INR 6,000-INR 6,500. Have I heard it correctly? Because what we understand, the company was bought at a much lower valuations.
Yeah.
That's a bit going off sync.
Yeah. We were evaluating at that value, but obviously we would have had to final offer, which would have been much lower. But to be sure, we wanted to take an extra limit for that. Obviously, because apart from the acquisition, the opportunity which we are looking at, the company is also required to do two things. One, you would know that the company has acquired some mines in Nagaur in Rajasthan. Those mines, limestone mines, for which the company is now presently in the process of doing a land acquisition, have been awarded in our subsidiary. The subsidiary is Hansdeep Investment Limited. And for them to acquire land, we have to pay continuously the advance to them. So that was one other purpose for which this limit was to be used.
And secondly, you would know in our on-call after the quarterly results, we have mentioned that the company has made an arrangement for sourcing power from a third party under the captive route for sourcing about 40 MW of power in the state of Chhattisgarh at Durg Cement plant. Under the captive mode, you are required to make an investment up to 26% of the capital of that company which is producing power to be qualified as a captive user. This limit was partly to be used for that as well. So that was the reason as to why we had to have a sufficient cushion for keeping [inaudible].
Okay. Got it. Thank you. That is it from my side.
Thank you.
Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phones now. Participants who wish to ask a question, please press star and one on their phone now.
Mr. Vaibhav, if there are no questions, we can
Sir, we have one question. Should I take it now?
Yeah.
We have a question from the line of [Reema Basha] from Mahindra Manulife. Please go ahead.
Hello, sir. Sir, is this call only for queries regarding the AGM, or can we ask business questions as well?
Yeah, sure. I am not restricting it to that. Idea was to keep it for the AGM, but I would be happy to answer if there are any questions as well.
Okay, sir. Basically, obviously, we have a clear guidance on how JK Lakshmi Cement's category is moving and how the company will transition. What are your thoughts on what happened in the last quarters on the general change in the movement? Obviously, the entire industry has had some issues, but no one, JK Lakshmi Cement had such a big drop. Everybody would have not had the expansion that we were expecting. But very few companies in the street could have had such a big drop become hugely JK Lakshmi Cement as a way to transition. If you could throw whatever your light on that particular thought process, and when will we come back to the trajectory that we were looking at?
You are right. The first quarter was slightly, well, tackled for us, primarily on account of the fact that we sell almost 70% of our views in northern states in Rajasthan and Gujarat, which was rained by cyclone in the month of June. So that impacted us more than anybody else. That was the reason our volumes were much lower than the industry volume, resulting in our fixed cost being amortized over a lower sales volume. But we are sure, as we mentioned in the last phone call after the quarterly results, we should bounce back from the next quarter onwards. This obviously, current quarter is a monsoon impacted quarter, but there also the growth has been there and from quarter onwards, we should be able to bounce back in line with the industry growth.
And sir, when is the new capacity expected? I think coming from Udaipur, right? You said up to capacity coming. Our own capacity will be a year away, right?
Yeah. Udaipur capacity clinker is coming on, which is next quarter, third quarter 2024. Next year. So I am saying the Udaipur clinkerization line will be on stream in the next quarter, which is third quarter of FY 2024, and its cement capacity of 2.5 million would be towards the end of the second quarter of FY 2025. So, those are the timelines which we are talking.
Right now we will be operating on full utilization. Incremental growth would be very difficult.
Incremental growth. Growth will come from this additional clinker and cement capacity coming up. Clinker is line, as I mentioned, will come in third quarter. That will give us additional volume for both clinker as well as cement in the coming quarter. When the cement capacity comes, that will fuel further growth.
Fair enough. Sir, is the pricing power back in the industry right now or is it a volume growth game?
Sorry, come again.
Is the pricing power, in a way, are the players looking to take price hike or yet it is a volume market share game?
This quarter is a monsoon impacted quarter. Still, as we see every year, there is a drop in the monsoon. This year there has not been. On the contrary, we have been able to increase some prices in July, especially in the northern and the western market, and in September in the eastern market also. Because the rains have now disappeared almost. Hopefully we should see good growth in demand going forward.
Okay, sir. Thank you so much.
Thanks.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. Please note, this is the final reminder for questions, and no further reminders will be placed after this. We will take the next question from the line of Ronald Siyoni from Sharekhan. Please go ahead.
Good afternoon, sir. Just a few questions. On the acquisition front, like you had highlighted, if some other kind of opportunity comes up in the future, then the same question would arise. Is there any plan B that you would go for to acquire after this approval not getting passed through? What is the management strategy of considering the acquisition-related expansions?
This was an opportunity which we were evaluating primarily for two reasons. One, it was making a strategic sense for us, and two, it was coming from the same marketing zone where we had three, which was coming again at a place where we ourselves have got the mines in Kachchh. So, this opportunity would have given us the ready facility without going through the rigmarole of first acquiring land, then going for environmental clearance, and then putting up facility, which would in any case take seven, eight years. That was the basic idea. Otherwise, our roadmap for reaching a 30 million tons capacity by 2030 is very clear. From 18 million, which would be after UCW expansion, we have two brownfield projects, one in Durg, another in UCW of 3 million each.
Two greenfield opportunities at Nagaur and Kachchh, another 3 million each, would take us to 30 million by 2030. Going forward, if some opportunity comes, we are open to that. If it comes, make strategic sense, comes at the right valuation, we are open to that. We will seek shareholders' approval as and when required if there is any such opportunity in future as well. This turning down of a resolution does not dissuade us from exploring the possibility or evaluating any good opportunity in an inorganic way in any manner. Our investors, once they appreciate the real logic, rationale, or rationale, I am sure they will support that as well in future.
In terms of balance sheets, like consolidated debt was almost around INR 2,000 crore last quarter. So, management would be comfortable to how much debt? Are you considering any net debt to EBITDA kind of figure or debt equity kind of figure having in mind with respect to acquisitions or organic expansion?
Generally, we have a threshold of having a net debt not exceeding 3.4 x. That is we have informal guidance, which we keep in mind, against which is almost on a very low level as of now, as you rightly said, only 2,000 crores of consolidated gross debt, and that on an EBITDA of close to about 800, 900, around 2 x. But usually when you go for an expansion or an acquisition, for a year or so, that ratio is diluted. Ratios get diluted. Like in case of UCW, you would see that today their EBITDA is 150 crores, and they are in the process of putting this expansion. Their existing debt is 500 crores. They are taking a loan of 1,100 crores for the expansion. In the current year, they're expecting a 200 crore EBITDA.
Let's say 200 crore EBITDA, their total debt before the expansion EBITDA comes in would be 500 plus 1,100, 1,600 crores, almost 8 x. But moment that commensurate EBITDA from the expansion comes in of around 300 crores, then obviously this ratio looks much better, healthier. 500 crores of EBITDA and 1,600 crores of debt, which is within the normative norm of less than 3.5 x. But initial, before the expansion EBITDA comes in, that looks very high. Also same thing happens in an acquisition.
Moment you do an acquisition for a year or so, that figure of net debt to EBITDA may look higher, but moment you factor the commensurate EBITDA, which comes either from expansion or from acquisition, this gets normative and comes within the normal range of 3.5x to maximum 4 x net debt to EBITDA. That is the guidance which we have, and we'll continue to follow those going forward, whether it is organic or inorganic growth.
For inorganic expansion phases, the target company should be towards the north and eastern or northeastern regions, or open to another central or southern regions as well.
We would be keen to do the acquisition in the place where we operate, which makes strategic sense, make synergical sense for us. To go to a new place where we have not been, we will be thinking twice before we taking a call on a place like where we are not operating.
Okay, sir. Last question was, on the demand front, July had, I think, as per cement data from various sales or DPIIT, July was a weaker month, while August a little bit better. So September onwards, we are seeing good demand and from channel checks we are seeing that Eastern and North, Western, Central regions are seeing high side. So if you can quantify, how much price per bag, because Eastern region has specifically suffered in terms of weaker prices post quarter one. So how much that portion has been recovered or how much incremental pricing action you would have been taken in the Eastern region specifically?
Yes, your observation is right. July was a subdued month. Still there was a growth as compared to the corresponding month of the last year. So just because the rains suddenly had disappeared, so there was almost no growth. September also, we expect a similar growth. Eastern side, we expect the current rains have gone because it was impacted by rains in the Eastern region. I'm saying in the month of September, we are talking of a price increase of INR 10- INR 12 per bag in the Eastern market. Since the rain has now stopped there and the demand is good. In the southern and the western market, an increase of about INR 10, INR 5-INR 7, INR 8 is expected in the western region, about INR 10 in the north region and including Rajasthan.
Okay. Just that I could not hear the August and September demand growth which you mentioned.
July was subdued, you rightly heard that. But in July, it still there, though it was subdued, but as compared to the corresponding month of the last, there was a growth. in August, it was almost a 10% growth. But September is expected to be even better.
Okay. Thank you very much, sir.
Thank you.
Thank you. We will take the last question from the line of Rajesh Ravi from HDFC Securities. Please go ahead.
Hi, sir. Good evening. My first question came to with this Sanghi Industries not getting acquired by a bigger hand, do you see the risk in terms of the non-trade market getting disturbed because of the volume push from the full operations of the Sanghi assets which were operating at low utilization in subsequent quarters?
Not so much because for two reasons. The increase in capacity or the capacity utilization in the target asset, not the entire will come in the Gujarat market because of their coastal jetties, et cetera, would also be serving other markets which they have covered. The demand is good enough to absorb that additional volumes which income. So it may not have a material impact on the pricing because the demand is quite robust in the western market.
How much of your console volume would be sold in Gujarat markets? Million ton, all which you sell.
About 50% in Gujarat.
Okay.
From whatever we produce in Sirohi and Ujjain, and 30% in Rajasthan.
Okay.
Yeah.
50% and 30% is the northern production you are saying is sold over.
In these two markets, Gujarat and Rajasthan.
Okay. Sir, this upcoming clinker expansions, this will target which markets? The capacity.
in northern markets.
Okay. That will create growth in the northern markets.
Yeah. Plus something in Madhya Pradesh, U.P. also.
Okay.
Yeah.
You are not targeting the Gujarat market from the upcoming capacity?
We are very much because 50% of that in any case goes. So that if one were to do it, at least 40% in Gujarat market will definitely go there. 30% will go to Rajasthan and balance in northern and other M.P. markets.
Sir, also please, you mentioned 50% of the northern production. On a total company basis, how much is that in?
It is almost means out of the total capacity of about 15 million before the expansion, we have 4.5 million in the eastern market and 10.5 million in the northern market. So when we talk of 70%, it is 70% of 10.5 million.
Okay. And sir last question, your current plans of two greenfield and two brownfield. So you have already said 30 million ton by FY 2029, 2030.
Yeah.
And organically, you would be having a much better balance sheet in your two ways. So why are you looking to go a leveraged balance sheet whenever you go for any organics? Anything more frequent size three years. Don't you need to have a negative cash from minority shareholders?
No, basically as I mentioned, because of the time lag. When we were to put up, we are going to take seven, eight years to put up a cement plant, and this was a ready facility coming. It would have certainly slowed down our pace of our brownfield expansion had that asset come to us. But obviously, your point is right, brownfield comes at a much cost. But because of the time value of money which we were evaluating alternatively.
Okay. Great, sir. That's all from my end. Thank you.
Thank you, Ravi.
Thank you, sir.
Thank you. Ladies and gentlemen, this was the last question for today. Now I will hand the conference over to Mr. Vaibhav Agarwal for closing comments. Over to you, sir.
Yeah, thank you. On behalf of PhillipCapital, we would like to thank you for the call, and many thanks to our participants joining the call. Thank you very much, sir.
Thank you, Mr. Vaibhav, and thank you, ladies and gentlemen, for joining us on this special call. I hope the company has been able to convey its point of view. Thank you very much.
Thank you. On behalf of PhillipCapital (India) Pvt Ltd , that concludes the conference call. Thank you for joining us, and you may disconnect the line.
Thank you.