Ladies and gentlemen, good morning and welcome to the earnings conference call of Dalmia Bharat Limited for the quarter and nine-month ended 31st December 2024. Please note that this conference call will be for 60 minutes, and for the duration of this call, all participant lines will be in the listen-only mode. This conference call is being recorded, and the transcript may be put up on the website of the company. After the management discussion, there is an opportunity for you to ask questions. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touch-tone phone. As a reminder, all participant lines will be in the listen-only mode.
Before I hand over the conference to the management, I would like to remind you that certain statements made during the course of this call may not be based on historical information or facts and may be forward-looking statements. These statements are based on expectations and projections and may involve a number of risks and uncertainties such that the actual outcome may differ materially from those suggested by such statements. On the call, we have with us Mr. Puneet Dalmia, Managing Director and CEO, Mr. Dharmender Tuteja , Chief Financial Officer, and the other management of the company. I would now like to hand the conference call over to Mr. Dalmia, Managing Director and CEO. Thank you, and over to you, sir.
Good morning, everyone. Let me begin with an overview of the quarter, and then Dharmender will take you through our operational and financial metrics. India continues to stand out globally as we remain one of the fastest-growing economies. However, the start to the year has been slow, with general elections in quarter one, heavy monsoons in quarter two, impacting overall economic activities and output. As a result, GDP growth dropped to a seven-quarter low of 5.4% in Q2. Despite the slowdown, I believe India's structural growth drivers are strong and that the real GDP growth should bounce back from here. We are just a few days away from the announcement of next year's budget.
While I feel that this year may experience some slippage in the budgeted CapEx spending, I remain optimistic that our government will double down its focus on the investment-driven growth and fiscal consolidation while supporting private sector investments. These efforts are crucial to steering back India towards a robust growth trajectory of 7% - 8%. During the quarter, cement demand growth in India fell short of our expectations due to lower-than-expected government spending, state elections, and unseasonal rains. As per various macro data points and the reports' estimate, cement demand grew modestly by low single digit in Q3 of FY25. In November, the government CapEx has increased by 21% YoY , utilizing 46% of the budgeted CapEx till November. Typically, government spends about 40% of the allocated budget in the last four months.
Even after assuming this run rate, CapEx spending should improve by about 20% on a YoY basis in the December to March period. With this, along with the seasonally strong quarter for construction activities, we believe that the cement demand can grow at a 6%-7% rate on a YoY basis during Q4, which translates into a full-year growth of 3%-4% YoY . During quarter three, our volumes did grow by 2% on a YoY basis, primarily because in the same quarter last year, we had 0.37 million tons of tolling volume from JP Plants. Sales from Dalmia Plants grew 3.7% on a YoY basis in this quarter. If I talk about cement prices, there is a growing sense of optimism. We have seen some price improvements in December and expect further increases in Q4 driven by stronger demand.
However, increasing competitive intensity may cap any significant gains on this front. While prices remain market-driven, we are working consistently on the cost-reduction front. While we are one of the lowest-cost cement producers, we are committed to further deepen our position by realizing the cost savings of INR 150-INR 200 per ton through internal measures by financial year 2027. We are on the advanced stage to reach 49.5 million tons of cement capacity by the end of financial year 2025. We will further announce our phase two expansion to reach 75 million tons by financial year 2028 within the next six months. I'm also proud to share that to commemorate our 75 years in Odisha, we have inaugurated a badminton academy called The Shuttle in Bhubaneswar. This academy will provide world-class coaching to deserving young athletes from Odisha and help them shine on the world stage.
This is a joint initiative of Dalmia Bharat, the government of Odisha, and national badminton coach in Padma Shri, Mr. Pullela Gopichand. This initiative embodies our values to give back to the communities that we serve. Now, I will request Dharmender to take you through the detailed financial performance for the quarter gone by. Thank you.
Thank you, Puneet-ji . Good morning, everyone. Let me take you through the key aspects of our performance. As Puneet-ji mentioned, our volumes did grow by 2% YoY to 6.7 million tons during the quarter, but sales from Dalmia Plants grew 3.7% YoY . On a YoY basis, revenue declined by 12% YoY to INR 3,181 crores due to a sharp decline in cement prices on a yearly basis. However, on a Q2 basis, since there was a reasonable price improvement in the month of December, our revenues improved by 3%. In January too, the prices seem to be holding up so far. We were able to improve our trade mix to 66% from 53% last year, while premium product mix improved to 24% during the quarter from 21% in Q3 FY24 .
Moving on to the cost line items, our raw material cost during Q3 marginally declined by 2% to INR 765 per ton of cement production on a YoY basis due to reduction in input costs, mainly fly ash and limestone raising cost. Power and fuel cost declined 9% YoY to INR 1,005 per ton of cement production, with a $26 decline in the fuel consumption cost on a YoY basis and improvement in RE from 30% - 33%. During Q3 FY25, the fuel consumption cost was $96 per ton, as against $101 per ton in Q2 FY25 and $122 per ton in Q3 FY24. Fuel cost during the quarter stood at INR 1.31 on a KCAL basis. However, on a quarterly basis, our benefit of lower fuel prices was largely offset with reduction in RE share as we had a shutdown in few plants impacting WHRS output.
It is now up and running, and therefore RE power should improve from this level. During the quarter, we have commissioned 4 MW of solar power capacity at Medinipur, West Bengal. A total of 46 MW of RE capacity is also commissioned under group captive arrangements during the quarter. This takes our total operational RE capacity to 252 MW. We continue to enter into multiple renewable power agreements under the group captive arrangement. We have additionally signed group captive agreements for 21 MW capacity of RE power in Q3 FY25. This is in addition to 278 MW capacity signed till September of H1 FY25. In total, we have signed 299 MW of long-term renewable power agreements under the group captive arrangement so far.
By the end of FY25, we should have total operational RE capacity of 267 MW, including 57 MW from group captive arrangements and other smaller captive capacities. We expect to exit FY25 with about 40%-45% RE power share in our overall power mix on a consumption basis. Coming to the logistic cost during the quarter, our logistic cost increased by about 2.7% on a YoY basis to INR 1,120 per ton due to supply to central market from Eastern Plants upon discontinuation of JP tolling arrangement and also high clinker movement cost due to plant shutdown amidst debug activities done during the quarter. Having said that, we were able to optimize our lead distance, which reduced from 287 kilometers in Q3 FY24 to 269 kilometers in Q3 FY25. Our EBITDA during the quarter declined by 34.5% YoY to INR 511 crores, primarily due to weak cement prices.
This works out to INR 765 on a per ton basis. During the quarter, we accrued INR 102 crores in incentives, with collections totaling INR 122 crores. Also, in the quarter, we had received an extension of incentives for one of our plants for an additional two years effective from 1st April 2024. Consequently, an additional incentive of INR 14 crore has been accrued for the previous two quarters in this current quarter of Q3 FY25, which is included in INR 102 crores.
We are expecting total incentive accruals and collections to be around INR 325 crores for the full year. Incentive outstanding on 31st December declined to INR 760 crores. Depreciation during the quarter was flattish on a YoY basis, but increased by about 8.3% Q2 to INR 354 crores as certain equipments were replaced during the debottlenecking exercise, on which an accelerated depreciation was charged during the quarter, which led to this increase.
Full year depreciation for the current year is expected to be around INR 1,330-INR 1,340 crores. Coming to the ongoing projects, we have increased our clinker capacity to 23.5 million tons through debottlenecking at Kadapa and Rajgangpur. We are near commissioning our 2.4 million ton grinding unit in Northeast and 0.5 million ton in Bihar. Our clinker unit in Northeast is also in advanced stage, and we expect it to commission in Q2 of FY26. During the quarter, we have incurred CapEx of about INR 637 crores, with the majority being spent on the before-mentioned projects. We expect CapEx for FY25 to be about INR 3,000 crores, which is largely towards Northeast and Bihar capacity expansions, land for future projects, and some cost-reduction projects besides the maintenance CapEx. With regards to debt, as of 31st December, our gross debt increased to INR 5,457 crores.
Net Debt also increased to INR 1,242 crores, resulting in a marginal increase in Net Debt to EBITDA at 0.55x . Our comfortable leverage ratio positions us well to initiate the next phase of expansion. With this, I would now like to open the floor for questions. Thank you very much.
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 one on their touch-tone 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. The first question comes from the line of Rajesh Ravi from HDFC Securities. Please go ahead.
Hi, sir. Good morning. My first question pertains to the volumes. Sequentially, the volumes are flattish. Could you throw some light that given that seasonally Q3 is expected to be better than Q2, why we haven't been able to deliver volume growth? And while the tolling arrangement with JP has been stopped, but we are still shipping volumes from our East Plants. So how much is the volume, and why should we not, when we are already underutilized, why should we see that YoY we have still grown except tolling?
I think, as we said, that the market growth has been in low single digit in our view. If we look at this quarter, the sales volume from Dalmia Plants has been around 3.7%. We are serving some of the central markets, but we are not serving all markets from Dalmia Plants. I also think that if I look at the nine-month performance, our growth is ahead of the industry growth. Overall, there has been a macro slowdown, and that macro slowdown has definitely impacted the overall growth for every company. However, I think on a nine-month basis, our growth has been faster than the industry growth.
Okay. And in terms of what would be your clinker utilization for the nine-month period at least, or maybe Q3?
Again, we don't give our clinker utilization numbers. We share our cement volume numbers, and our CC ratio keeps changing depending upon what's the demand in the market and what product mix we sell.
And lastly, Dharmender sir, could you share some of the housekeeping numbers like blended cement, traded cement, premium sales, this fuel mix, and the CC ratio piece?
Sure. CC ratio for this quarter improved to 1.7, which was 1.64 in the previous quarter, and trade sales I already covered in my remarks, it improved to 66%. The premium product also has improved from 22.4% in the last quarter to 24.2% this quarter. The blended ratio has also improved to 85.1%, which was 82.7% in the preceding quarter.
The fuel cost?
Yeah. Per KCAL was 1.31, which I covered in my opening remarks, and road percentage is 87%.
Okay. Great, sir. I'll come back in queue. Thank you.
Thank you, Rajesh.
Thank you. The next question comes from the line of Indrajit Agarwal from CLSA. Please go ahead.
Hi. Thank you for the opportunity. My first question is on the accident at Rajgangpurr. So what is the kind of impact? Is the plant up and running now? And what kind of maybe a volume or profitability impact we can see in the forecast?
So I think, first of all, we have received the first assessment report, and it's a very unfortunate accident. The board has also acknowledged it, and we are taking action, and we fully remain committed to a safe working environment. This accident happened in our power plant, which is a captive power plant. And that power plant is shut for now till we take all the corrective measures. It is not going to impact production in any way, but it may increase our power cost slightly because we'll have to purchase power from the grid instead of supplying it from a captive power plant.
Any quantum that you can highlight now?
No, I don't think we can highlight a quantum right now.
Okay. Thank you. My second question is on the management bandwidth and the transitions that we have seen of late, the recent one being of Mr. Bansal. So how are we rebuilding the team? Are we in advanced stages of hiring people? How do you see that panning out in the next couple of years?
I think Rajiv has been with us for four years. He had built a very strong team and a very strong processes internally, and I think our team is fully geared up to take forward the agenda that he started along with me and along with our entire leadership team. We are fully equipped to handle it. I think overall, as I said a few quarters ago, we are looking at succession planning in every role. We started this exercise with I taking over from Mr. Singhi, and in all roles, all critical roles, talent is being mapped, and we are looking at proper succession planning and ensuring that we give opportunities to our internal people, as well as wherever needed, we'll also recruit people from outside, so I think this is a full detailed planning which is being done.
Over a period of time, we will continue to give you more color on it as and when situations evolve. I can say that in the last 12 months, I have personally gone very deep into the organization. I am happy to see that there are a lot of committed and sincere people here. We have been in this business for 80 years, and we have large ambitions to grow in line with the opportunity that India offers. We have a very strong team, and wherever we need to further strengthen it, we will strengthen it, and we will deliver on the ambitions that we have. We always have delivered on the growth aspirations that we took. I think now we are in a much stronger base with a much stronger foundation, and we will deliver on the growth aspirations that we've outlined for ourselves.
Sure. Thank you, and one last question, if I may. If I look at the monthly demand trajectory based on your on-field experience, has December been meaningfully better than October, November, or is it more like well spread out through the quarters, whatever the demand improvement we have seen?
It has been better. Of course, the overall quarter-to-quarter increase was not much, but definitely things have started improving because the government spending till, I think, October had not picked up at a reasonable pace, other than there was a deceleration. And now, November onwards, spending has increased, which I'm hoping that should reflect in December. It also has been somewhat better, but Jan-March should show some better improvement.
Sure. Thank you so much. That's all from my side.
Thank you.
Thank you. The next question comes from the line of Amit from Axis Capital. Please go ahead.
Yeah. Hi, there. Good morning. Thanks for the opportunity. On volumes, just wanted to check, while you mentioned that you grew 3.7% on your own plants, how much of that would have gone to Central India that was one, as against, let's say, the 0.37 million ton that was from tolling? And was there any market share loss for you in any region?
I think, as I have said earlier, we don't share region-by-region data. But I can only say one broad point that we are not serving all markets of Central India from Dalmia because it is not long-term viable. Those are not the core markets. Some markets we are serving. And I also want to say that the JP tolling arrangement was in a more spread-out market in both UP and Central India, which from Dalmia plants, we cannot serve and will not serve. So I think to that extent, there will be some the addressable market is slightly less, but we can't share with you the regional numbers in state-by-state space.
Sure. Got it. And earlier, I think you've been mentioning multiple times that you would be growing at 1.5x the market. So would you still hold on to that, particularly given that last couple of quarters, actually, it's been a tad weaker than that?
I think that's a great question. If I look at our nine-month performance, our belief is that the industry has grown around 1.5%-2% maybe, and Dalmia's growth on a nine-month basis has been around 4%.
So that trajectory will remain on these lines, but of course, quarter on quarter, these changes may be there.
The last question is in Northeast. How much CapEx would have been spent by now?
I think the remaining CapEx to be spent in Q4 and the next year is about INR 1,800 crores.
Okay. That's all. Thank you.
Thank you. The next question comes from the line of Ritesh Shah from Investec. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Sir, a couple of questions on Northeast. I appreciate we don't give region-wise profitability, but if you could give some sense on utilization levels or directionally on the profitability and how much it does contribute at the company level. So that's the first question. The second question is, what is the whole sourcing strategy specifically for Northeast plants? The reason to ask this is there have been recent unfortunate events in the region. So just to ensure that we are insulated from any of those rat-hole mining which happens. And lastly, again, the market leaders have actually made an indirect foray into the region. So what is our strategy incrementally to combat or ensure that our market share remains put and we also protect our profitability? Those are the three buckets for Northeast. Thank you.
I think, first of all, we are unable to share region-wise numbers. I can only say that we are one of the strongest players in Northeast with an unmatched footprint and an unmatched cost structure and a great brand and distribution. I think we have seen that in almost every market, wherever we have done brownfield expansions in markets where we are already present, those expansions have been very low risk. And it gives us instant access to distribution. It gives us. We are an established brand. We have a low cost structure. And our ability to serve the market better than our competitors in this market gives us an advantage. I think we are quite lucky that the timing of our investment is coming together with a likely surge in demand in Northeast. I think we are seeing a lot of announcement in hydropower projects.
We are seeing a lot of announcements in infrastructure. And also, there is a huge push from the Government of India to secure our borders as well as create connectivity of Northeast with the mainland. So I think all this augurs very well with the demand growth projection in Northeast. So I would just say that we welcome competition. Competition always keeps us on our toes, makes us more efficient. But I think we have to look at what will differentiate us, what will ensure that both from a cost structure standpoint, we remain one of the lowest cost producers, and how do we ensure that we are able to serve our customers best with a good brand and a good distribution in place. And I think all these factors are well laid out in Northeast. We've been in that market for 10 years.
We see this investment as a very attractive investment opportunity timed with a market which is going very fast.
So specifically on coal sourcing?
On coal sourcing, look, this is an accident which happened in a mine which was being operated by some.
Local miners, yeah. Local miners.
Local miners. I don't think we are doing any coal mining in Northeast. So this is something which local miners have to think about and worry about.
So we have enough stock because in Northeast, we maintain enough three to four months of inventory for the fuel. And we are sure that there are enough sources which will not cause any disruption in the operations.
Sir, would you care to highlight on our sourcing mechanism? Is it Coal India? Is it imported? How should we look at it?
There are multiple sources, but mostly it is on the local miners as well as some portion comes from the Coal India subsidiaries, but that is very small.
Sir, when we measure is a short, smaller number, would it be possible for us to quantify it? I'm looking at it more from an ESG standpoint. So it would give a lot of comfort if you could help quantify this.
It's a good quantification, not impossible, but there are ways in which government is also trying to bring some kind of scientific mining. And in the medium to long term, I think that problem will get addressed.
Okay. Perfect. I'll join back with you. Thank you so much.
Thank you. The next question comes from the line of Jashandeep from Nomura. Please go ahead.
Yeah. Hi, sir. Sir, I know I understand that you don't give region-wise data for Dalmia, but just wanted to understand how you are seeing the market industry as a whole, both in East and South for this quarter and going forward. Do you think that I just want to understand whether East is performing better than South as a market? That's my first question.
You want to understand the overall demand?
Yes, sir.
Okay. I think, again, it varies state to state. And I think, again, in South, some states are growing, some states are degrowing. And in East also, we have seen that a mixed bag. But in general, I think the East market has grown better than the South market so far.
Understood, sir. And sir, my second question is on net debt. We have seen this quarter also, net debt has increased significantly. Last quarter also, we saw that. So any major components for this net debt increase? And what's a sustainable net debt level that the company feels comfortable with?
In the current quarter, the net debt increased from the preceding quarter, basically about INR 300 crore was due to the pet coke price which went down during the quarter, and another INR 300 crore was because of the CapEx or other costs which were not fully covered by the internal cash accruals, so I don't expect that even in spite of the CapEx which is going to be spent in the coming quarter, about INR 1,000 crore +, our net debt is not going to increase by the end of the year, and even the next year also, only increase which will happen in net debt will be on account of the new capacity expansions. Otherwise, net debt will not increase.
Thank you, sir, and just one last. I just want to reconfirm that the incentives for this quarter were INR 102 crores. Fourth quarter CapEx is around INR 1,800 crore, and FY26 CapEx is around INR 3,000 crore. Is my understanding right?
No, no. The total year we said is about 3,000 crores. And till nine months, we have spent about 2,040 crore or so. So about 1,000 crore CapEx will come in the Q4. And next year, CapEx will be in the range of about 2,500 to maximum 3,000 crores. But this will also include the land investment, which I'm not clubbing with the announcement of the new capacity. So 5,600 crores of land also is covered into this. So otherwise, 2,200 - 2,500 crores CapEx in the coming year will be sufficient for us.
Understood, sir. And INR 102 crore was the incentive amount for this quarter, right, sir?
That's right.
Okay. Thank you so much, sir. I'll join back with you.
Thank you.
Thank you. The next question comes from the line of Satyadeep Jain from Ambit Capital. Please go ahead.
Hi. Thank you. First, I wanted to ask on volumes. As you can understand from all these questions, if we step out the sales to Central India, it does look like in the core markets, Dalmia seems to have lost market share in this quarter. Just wanted to understand that in the last few quarters, there's been a lot of volatility. Some quarters, higher growth than DPS and lower pricing growth. Some quarters, it's the opposite. And there's been churn in management team. There's been learnings from trying to enforce pricing discipline. Just wanted to understand what have all the learnings been from this volatility in the last few quarters and the changes in the sales strategy and team, and how do you look at the stabilization in team and strategy as you look at volume growth versus pricing in the next maybe one year or so?
So I think, as I said, our long-term initiatives remain the same. We will continue to invest in a strong brand. We will continue to invest in a more retail distribution channel. And we will make sure that in each of our markets, we premiumize our product mix as well as continue our low-cost position. So I think our overall direction remains the same. Quarter- to- quarter, there will be variations. And I think my only feeling is that over the next three to five years, we want to build a culture where we can compete on practices and not on price. So I think we want to build a culture where distributors can work with us as long-term partners. And there are some anomalies in pricing in this industry, which we hope we can bring more transparency in.
I think these are initiatives which will take some time to play out, but our long-term direction remains the same. My overall learning in terms of the last few years has been that whenever we undertake a big phase of expansion, the company has to reinvent itself. We have seen it from when we went from one to 10 million tons. We've seen it from 10 - 30 million tons. Now we've reached 50. I think the journey from 50-1 00 will be that of people, processes, and culture, along with the very strong focus on governance and creating a foundation to manage a large institution. I think we are working towards this diligently, and these are things which will play out over the next three to five years.
Okay. Thanks. The second question would be on the processes. So there have been two separate incidents in the last week, including one in Assam also. And there have been other companies also including an incident in UltraTech earlier this year. So just as a company, you obviously have the coverage portal. You have silver contractor audits and all. What do you think maybe remedial actions you think need to be spent for you and the entire industry to prevent some of these accidents? And do you have, in addition to net zero, everybody talks about net zero, but is the industry talking about maybe lifetime injury targets or safety targets for the next few years?
I think this is a matter which is of immense importance to me personally as well as our board and our entire leadership team. We want to provide a very, very safe working environment where human life is immensely valued, and there is zero tolerance to any incident which causes loss of human life. I think apart from creating very strong processes and ensuring that people are well trained and we continuously raise awareness about safety and create a lot of cross-checks on this, I think there has to be personal ownership at every level to ensure this. I think every incident needs to go back into a very rigorous root cause analysis, and there has to be continuous learning from it.
So I would just say that we are taking a lot of steps and putting in a lot of management time on this to ensure that things don't happen which are so tragic and which are so painful. But it is all about building a safety mindset right down to the grassroots level. I mean, I'll just give you a small example. I still see people when they are working, they use mobile phones. And I think we have banned this, and we've taken a decision to ban this in our plants. But again, implementing this with that kind of rigor is sometimes just to make sure that the safety culture penetrates to the last level. I can just say that this is a matter of serious, serious importance in the company and the whole group.
We will do whatever it takes to ensure that such incidents are absolutely eliminated, hopefully, and at least our systems and mindset to the last level is such that there is the highest level of awareness of these issues. I don't want to comment at an industry level. I think we want to learn from best practices across other industries as well. I think I can just say that as a cement industry, everybody, all my colleagues in the industry are also equally aware and feel very responsible about this issue.
Okay. Thank you.
And I know that you want to add anything.
Yeah. I think aspect has been discussed right there in a very, very serious manner in the entire leadership as well as across all plants. And the learnings are being replicated across other plants as a preventive measure. And I think the whole team accords very, very high importance to ensure that we have no lost, I think, life as well as lost time injury time also is minimized.
Okay. Thank you.
We are building safety champions in each zone of our plants. We are also ensuring that there is a lot of time spent in training people and also not just our internal people, but also the contractors who work with us, and all our unit heads and our national manufacturing head will have their KRAs linked to this very, very important parameter.
Thank you.
Thank you. The next question comes from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.
Yeah. Good morning. Thanks for the chance. My first question is to understand our rationale of supplying in the Central Region, so are we still hopeful of winning back JAL? And if yes, if you could just share what is the update and the status of the NCLT process and the JAL, and are we right in assuming that the supply to the Central India would be at very low incremental margins versus our core regions?
See, as you would have known in the public, that there was a process of first, there was an appeal against the admission of NCLT by the suspended directors, which was declined by NCLAT. And I understand even the Supreme Court has also not favored that. And on the loan side, banks have run the process of selling their loans to NARCL. And so far, NARCL stands the undisputed bidder for this. And we expect that this transition of loans to NARCL should happen in the next one or two, two months. And I think that will quicken the process because there'll be only one decision-maker versus 29 banks or 25 + banks deciding the whole matter, which takes a very, very long time to decide. And of course, we are still hopeful that we'll be in the fray to acquire cement assets of JAL.
And that is the reason we continue to maintain our presence in the markets, which we can service from our regions of East Region profitably. And of course, these sales are a bit accretive, but not a bit of pattern accretive. So naturally, the margins are lower than the rest of the company earns on the cement sales. But I think this is a right strategy we believe in.
What sort of timeline are we looking at for this NCLT purchase to kind of go to the next phase?
It's very difficult to comment because the total IBC process can take quite long, but there could be other ways within the IBC.
There are a lot of litigations also in this. So I think it's very hard to comment how quickly this process will conclude. But I think, as Amit said, clearly, because NARCL is there, there are fewer decision-makers now, hopefully, the process will get speeded up. But it's very hard to comment how quickly it will get concluded.
Understood. Understood. My next question is on our expansion plans beyond 49.5 million tons. So are we on track to give some firm plans on a bottom-up basis sometime in the coming quarter by end of the financial year? And do we expect some bit of organic plans in new regions like Central, North in the next phase of expansion?
So Sumangal, I think I've already said that we will share our plans in July. And I think we will stick to that timeline.
Okay. Understood. I mean, just following up, I mean, overall, from a capital allocation framework, I mean, is low utilization also a point of consideration? And given that we are in the range of 60%-65%, maybe not able to grow beyond the market like always, is there a case to delay expansion even beyond maybe next one or two years?
Sumangal, I've told you all that utilization is not the same across all regions. And I think please trust us that we factor in utilization and market growth when we think about our expansion plans. So you don't have to worry about the fact. And we make these investments with a long-term horizon. I don't think we are going to look at our capital allocation strategy along with our strong balance sheet. We have said that we don't want to take net debt to EBITDA beyond 2X until there is a large acquisition or something strategic which comes up. And I think we will stay within that capital allocation framework. And yes, utilization and long-term demand growth and market structure will play a role in our decision-making.
Got it. Got it. That is very reassuring. Just one clarification. Is there any amount of previous period incentive in this result? I think there was something mentioned in the opening remarks, but I missed noting it.
Yeah. So in one of the plants, we got extension of the incentives effective from 1st of April. So there's accrual of incentives for nine months. Of course, the previous period is last six months, for which amount is INR 14 crores included in the INR 102 crores incentive booked.
So it is booked in the third quarter?
Third quarter, yeah. INR 14 crores pertain to the first half of the current year.
Got it. Got it. That is very helpful. Thank you and all the best to the team.
Thank you, Sumangal.
Thank you.
Thank you.
Ladies and gentlemen, we request you to restrict to one person per participant. The next question comes from the line of Raashi Chopra from Citi. Please go ahead.
Yes. Continuing on the incentive question. So the plans that you got an extension for is for two years, you mentioned, right?
That's right.
What should be the normalized level of incentives for the next year, FY26?
Close to about, I think, INR 90-INR 100 per ton.
Okay. Secondly, on the volume side, anything for the fourth quarter in December? What are you expecting of earlier volume growth to range?
See, as you said, that Q4, we expect the growth to increase by about 6%-7%. And of course, we had a last year high volume, but still, we are optimistic that we'll be growing rapidly and show the growth in line with our trajectory, what we aspire to maintain.
6%-7% was for the industry, right? Can you hear me?
Ladies and gentlemen, we have lost the line of the management. Please stay connected while I join back the management. Ladies and gentlemen, we have the management connected. Rashi, if you can please proceed with your question once again. Thank you.
Thank you. Sorry, just clarifying on the volume growth you indicated, 6%-7% is for the industry or for your both?
That is for the industry. Yeah, for the fly. We would not like to give a quarterly guidance, but I think, as you said, we'll aspire to remain one of the leaders.
Okay. Understood. On the power cost, anything for the fourth quarter? Will they be lower or flat?
It will be lower, of course, because the RE power will increase. This quarter, we ended at 33%, and next quarter, we expect it to go to about 40%-45%.
Okay. And just last question for me. Are you still maintaining your cost reduction target of about INR 150-INR 200 over the next three years?
That is right.
Okay. Got it. Thank you.
Thank you.
Thank you. The next question comes from the line of Pulkit from Goldman Sachs. Please go ahead.
So most of my questions are answered. One question on the cost reduction, INR 150-INR 200 that you spoke of by FY27. Now that you are at helm of things for a while, is most of this cost improvement coming via change in energy sources, logistics, etc.? Or are there also internal costs which you think you could cut in order to achieve this? So how much of this is just change in power sourcing, etc., and how much of this is internal controls, etc., which could drive this kind of cost saving that you are targeting?
So all this is primarily through the internal initiatives. So I'm not factoring in any price changes in the petcoke or coal prices, which we, of course, deem that it is for the entire industry. But all these initiatives which will come will become in the form of some ROI improvement budgets, which will reduce the power consumption cost, heat consumption, etc. And there'll be some initiatives like mixing, etc. And in the logistics also, as you are progressing, that the lead will get reduced. And there are other initiatives which will bring down the cost too.
For example, leads will get reduced because if the expansion in capacity isn't significant, what is going to drive reduction in leads?
So focus towards the nearer markets.
Okay. And is there a rough breakdown of the 150-200 across subsegments, what you are thinking?
Normally, I'd said that about this 100-125 will be in the VC field, and about 50-75 will be in the logistics field that we had given in the July call.
Okay. And this doesn't include any sort of changes that Puneet spoke of in terms of how the dealership or dealer discounts, etc., should work? Because I think there's some streamlining you are doing on that front as well.
Yeah. That is on the NSR part. That is a separate initiative. But of course, this is on the cost side, primarily on the variable cost and the logistics cost.
Okay. That's it from my side. Thank you.
Thank you.
Thank you. The next question we have from the line of Rahul Gupta from Morgan Stanley. Please go ahead.
Yeah. Hi. Thanks for taking my question. So one question for you, Puneet. And sorry for harping on this again. Can you help us understand how competitive landscape is evolving in East and South markets specifically? Just trying to understand if you continue to grow at, say, one and a half times of industry, will that come at the expense of cement prices over the next couple of years? I know you made a point that processes and culture shift would take three to five years, but just trying to understand what would happen over the next couple of years. Thank you.
I think, look, again, in terms of the competitive landscape, I see two or three things. One, I think consolidation will continue. We have said this earlier also, both because a larger part of the organic growth will go to larger players, and there will be remaining. So I think that story is playing out. I think consolidation will further accelerate in this industry. The second part is, I think every industry goes through a time where the players prioritize volume over value. I think this is the time when everybody is aggressive and going for market share. And I think there is added headwinds because of the lack of demand growth in the first nine months. As you know, industry has grown at a low single digit. And first half was even worse.
So this is a phase that we are going through where the players are prioritizing market share over margins. And I think every industry goes through a phase where people will start prioritizing margins over market share because beyond the level, market share will not deliver value. So I think if you take a long-term view, my conviction is that this consolidation and with the fact that large players who are very rational and value-conscious, value creation minds, who have a value creation mindset, are the people who are investing in this business. And over time, my personal view is that this industry should deliver very attractive return on capital. We have seen that in the past decade, this industry has delivered a return on capital in the mid-teens. And I personally think that if I take a long-term view, at least that's my conviction.
That's why we are betting on this industry. My conviction is that the return of capital should be higher in the coming decade than the last decade.
Okay. That's very helpful. Thank you, Puneet.
Thank you. The next question comes from the line of Prateek Kumar from Jefferies. Please go ahead.
Yeah. Good morning. My question is on rising export incentive. So I just defer, I'd say, higher incentive on a quarter-on-quarter basis. Prices appear higher by around 1.5%-2% Q2. How do they stand on the exit of the last quarter? Because December has seen meaningful price increase, which could imply, I mean, and what kind of pricing are you assuming prices remain stable into fourth quarter?
Yeah. This includes roughly about INR 14 crore of incentive pertaining to the first half because in one of the plants, we got this incentive effective from 1st April. So INR 102 crore includes INR 14 crore of the previous quarter. And as I said, our guidance for the current year is we expect incentive to be around INR 325 crore because quarter four, the volume increases, and actually the impact of the incentive also slightly increases.
Even coming year, also, we can expect INR 90-INR 100 per ton kind of incentive to be there.
Now, my question was around pricing, actually. So adjusted for one-off incentive, the price increase Q2 is around 2%. The exit price being high, what is the kind of implied price for fourth quarter, assuming they remain stable throughout the quarter?
I would not like to speculate. Of course, efforts will be to increase the prices, but in line with market, whatever will be there. So we are expecting the constant prices for this forecast.
Okay, and just one question on competitive intensity in South India, so other regions while have seen some price increases, South continues to lag sort of struggle on increases. How do you see competitive intensity with the ramp-up of large peers in the space?
Look, we expect competitive intensity to absolutely increase in South India. There have been companies which were underperforming, which have been bought by large companies with strong balance sheet and better management teams, better brands. So I think both Penna and India Cements, I think we expect ramp-up in terms of volume to take place. And there is the demand growth at this point in time is not supporting large volume expansion. So I think there will be heightened competitive intensity in South India, without any doubt. And I personally think we have to be prepared for low prices potentially in that market.
Through the FY26, because incentives are not yet accrued fully, so through the FY26, the South may remain sort of worst impacted, which?
It depends on demand also. I mean, as I said, we expect that the companies which have been acquired, their capacity will get ramped up. And depending upon demand, how demand shapes up, prices could be volatile.
Okay, but despite the South being pressured.
Sorry to interrupt you there. If you could please join back the queue.
Sure. Thank you.
Thank you.
The next question comes from the line of Shravan Shah from Dolat Capital. Please go ahead.
Yeah. Thank you. Sir, just to reconfirm, so to reach 75 million ton by FY28, 25-odd million ton. So broadly, correct me if I'm wrong, 16-18 thousand crore kind of a CapEx we need to do. So just wanted your broader assumption, if you can help us in terms of how much in terms of the Net Debt we can increase, because previously we were talking about our Net Debt EBITDA should not cross 2x . But so that means if you can broadly help in FY26, 27, 28, how much kind of operating cash flow are you assuming so that your Net Debt EBITDA will not reach? Or is it possible that there is a chance even if we don't get the JP back to us, this will further get delayed maybe FY29 to reach a 75 million ton?
I think we will give you the full roadmap by July, so please be patient till then, and we will tell you how our balance sheet will also look. We have told you that our broad capital allocation policy will remain the way we have outlined. We are going to stick to that discipline, and we will share with you the full detailed plans by July, so please wait till then.
Okay. And then, sir, is it possible to share any thought in terms of the FY26 industry-level growth? Will it be a 7% close to that? Why I'm asking is that two things. Given a kind of a 120-odd million ton+ kind of industry-level capacity will be added, how this will obviously the incremental demand is less versus incremental supply. So in terms of the pricing, how this will also impact the pricing going forward? Do you see that there is still a structural chance the cement prices can go up?
Can you repeat your question? I didn't fully get your question. Can you please repeat it short?
Yeah. Yeah. Two things. What is our expected industry-level growth in FY26? And given close to 120-odd million ton capacity will be added in FY26 and 27, do you still think that there is a structural change of cement pricing going up because incremental supply is much, much higher versus incremental demand?
So look, I think from a it's too early to say, but I would just say that if the GDP growth picks up, we think that the demand growth could be in the range of 6%-8% next year. And in terms of capacity additions and demand growth not keeping pace and there could be a slight over supply, I don't know if your number of 120 million is correct or not, but I think I had said in a few quarters ago that we are going through a phase where there are short-term headwinds and the supply growth will exceed demand growth in the short term. But I think if you look at a slightly longer-term view, all this averages out, and we think over the 5-7-year period, the capacity utilization of the industry should gradually go up.
Oh, okay. Got it. And currently, the.
With the broader framework, we are seeing that larger companies will outperform the smaller companies as consolidation is continuing to happen. So I think our thesis remains the same.
Yeah. Yeah. Because that's the main thing. Because if we keep on adding the 25 million tons by FY28, and if we are not able to see the kind of support from the cement prices, then in terms of the ROC, which we were looking at to further improve, obviously, longer-term possibility is that, but at least in the next two to three years, don't we see that it will be on the lower side?
Again, as I said, I mean, these investments are not whatever investments we choose to make in whatever region, they are not made with a two to three-year time frame. We have to take a slightly longer-term view. There will be some investments in newer regions as is consistent with a pan-India footprint strategy. There could be some investments in our existing regions to better correct the diversified footprint. I think, again, when investments are made, we look at a long-term ROC through the cycle. I personally believe, and I have deep conviction that the ROC that this sector is likely to deliver in the next decade because of all the consolidation and the fact that India will offer long-term structural demand growth with multiple drivers like infrastructure, housing, manufacturing, and private CapEx.
I personally think that the ROC that this sector will deliver over the long term in this decade will be higher than the last decade. That's the conviction that we have, and that's the strategy that we will pursue.
Okay. Thank you, sir. Thank you, and all the best.
Thank you. The next question comes from the line of Jyoti Gupta from Nirmal Bang Securities Private Limited. Please go ahead. Jyoti, if you can please unmute from your end and proceed with your question.
Yeah. Hi. Good morning. I have two questions. One is, I understand that the East is not ruined while you have a larger market share in the East. Somewhere, we've seen something like a 4%-5% growth in the East in the third quarter. However, you still see a decline in your overall volumes. So one, how do you think the fourth quarter panning out for you specifically? As you say, the volumes are not impacted and will not be impacted because of this whole incident. But how do you see the fourth quarter panning out? And second thing is, even with the decline in volumes, I don't see a hit from the fixed cost absorption side. So what has suddenly changed on the fixed cost side? I mean, your other expenses, which have seen a decline of 6%. Could you please explain me that?
From the fixed cost side, we have been, of course, taking care of that our expenses remain controlled. So that is one of the reasons. And of course, the number of shutdowns, which are higher in Q2, have reduced in Q3. So that is also partly to explain that this cost is under check. And of course, for the Q4.
How did the shutdowns actually come down? I wanted to understand what kind of expenses have you actually anticipated, which you have actually cut down the third quarter? Any details could you just provide us?
The hiring is also under check. We are not increasing the hiring. Marketing costs are also being seen in line with what it can lead in terms of productivity. The ATL/BTL expenses are being reviewed and being expensed there, which are the highest productivity, and of course, the stores and spare consumption in the plants and all these expenses also are being kept under severe check that the costs are kept to the barest minimum.
Okay. And how do you see fourth quarter? How has been the first 15 days for you in?
The quarterly guidance will not give, but as you said, that the market will see an increase of about six%-seven% at least. We should be growing much faster than that from the current quarter.
Sir, but then we have not grown in the third quarter because East region, while it has been still positive at a single digit, maybe a low mid-single digit, we have actually given a negative YOY growth. So how confident are you?
Yeah. As you said, that's the key, quarter to quarter, it's difficult to measure all these parameters on a consistent basis. But in a directional sense, this growth will be seen.
Thank you, sir. Thank you, sir. That will be all from my side. Thanks a lot.
Thank you. Ladies and gentlemen, we take the last question from the line of Navin Sahadeo from ICICI Securities. Please go ahead.
Yeah. Thank you for the opportunity. And one last question indeed on realizations. Just requesting more color here because the reported realizations are broadly 3% up quarter on quarter. Previous quarter incentive was around 61 crore. This quarter is 102. So if I adjust for this 40 crore incremental and volumes being flat, realization is up around 1.5 or 1.7% quarter on quarter. So my question, sir, is if you can just give a broad breakup or throw some light as to was it driven by trade or non-trade did the better of it to help this increase? Directionally, was it south or east? And last bit is, how are the current realizations versus the average of the previous quarter? That would be all. Thank you so much.
So even if you take out this incentive increase, which happened because of the first half of quarter in this quarter, even if you remove that, our growth in the NSR is in line with the price improvement, which we saw in the quarter because of the December price increases. So we expect that the December prices, which have increased, I think should sustain in the current quarter also.
Just last bit, current realizations as we speak, how could they be? Because the December, the price increase was in December.
Yeah. These are in line with the December numbers.
Okay. Thank you so much.
Thank you.
Thank you. Ladies and gentlemen, we have concluded the question and answer session. I now hand the conference over to Mr. Puneet Dalmia for his closing comments.
Thank you very much. I just want to say one thing. At least over the last two decades, when I have been in this business, I have seen many ups and downs, and I have learned only one thing, that when things are going great, you should not get too arrogant, and when things are going a little down, you should not get too disappointed. This is an industry where you have to keep your head down, your conviction strong, and keep executing while blocking out noises, so I think our strategy continues to remain in line with our conviction that India will offer high volume growth, this industry will consolidate, and this industry will deliver good ROCs in the coming decade. So I think we want to just keep our head down and execute on that, and we, again, thank you all for your interest in us.
Thank you very much.
Thank you. On behalf of Dalmia Bharat Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.