Ladies and gentlemen, good day and welcome to Q1 FY 2024 earnings conference call of Nuvoco Vistas Corporation Limited. We must remind you that the discussion on today's call may include certain forward-looking statements and must be therefore viewed in conjunction with the risk that the company faces. The company assumes no responsibility to publicly amend, modify, or revise any forward-looking statements on the basis of any subsequent development, information, or events, or otherwise. 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. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Madhumita Basu, Chief Marketing, Innovation, North Sales and Business Development of the company.
Thank you. Over to you, Ms. Basu.
Good afternoon and welcome to the Q1 FY 2024 earnings call of Nuvoco Vistas Corporation Limited. The Indian economy continues to show signs of stability and resilience, supported by encouraging macro fundamentals despite global macroeconomic volatility and lingering geopolitical conflicts. The purchasing managers' indices for manufacturing and services indicated sustained expansion with the manufacturing PMI at 57.9 and services PMI at 60.6 respectively in Q1 FY 2024. Consumer price inflation fell sharply to 4.6% in Q1 FY 2024 from 6.2% in the previous quarter. In its recent monetary policy committee meeting, RBI states that the Indian economy presents a story of resilience and sustainability with an expected real GDP growth of 6.5% in 2023/24. On the cement side, we believe that key government initiatives in housing and infrastructure is expected to drive growth well in the medium term.
These include government programs such as PMAY scheme, where the outlay has been increased by 66% to INR 66,000 crore for FY 2024, Bharatmala Phase 1 and Phase 2, and the Smart Cities Mission. We also foresee strong pre-election infra spending before the Union Assembly elections in 2024. Additionally, despite El Niño, the Indian agricultural performance and its overall growth prospects may emerge with limited adverse impact due to the expected countervailing effects of the Indian Ocean dipole. All these bode well for the cement demand. However, as we have entered a seasonally peak period, cement demand might be impacted in the near term before gaining momentum with improvement in construction activities post-monsoon. For our call today, I would like to start with our financial performance for the quarter. Our revenue from operations improved by 6% YOY to INR 2,000.
It would be relevant to mention here that we have also increased our premium product mix 37% on trade one. Our trade share also increased YOY to 73%. As a result of all these factors, we delivered an EBITDA of INR 402 crores for Q1 FY 2024, which is up 7% in the current quarter. Here we would like to remind you all that we have stopped accruing incentives from Panala facility from April 2023, which has around INR 40 percent impact in the quarter. The results demonstrate our commitment towards managing our costs well. I now quickly share comments on the three major cost centers. Cement raw material costs increased by 13% YOY due to increase in key commodity costs, primarily slag with inflationary pressure. This has been partially mitigated mainly due to our long-term contracts for slag.
On power and fuel costs, we effectively contained our costs by optimizing the fuel mix between petcoke, linkage coal and AFR, supported of course by the reduction in petcoke and coal prices. Overall, power and fuel costs decreased 10% YOY. Distribution costs, however, increased 4% YOY primarily with the imposition of busy season surcharge on rail freight fees. Nuvoco is focusing on internal levers to improve the margins, mainly one, getting maximum linkage coal availability. Two, increasing the rate of alternate fuel. Three, premiumization. Four, focusing on completion of projects like our rail base filings. Net debt during the quarter increased to INR 4,506 crores due to working capital requirements and seasonality of the business.
Interest rate, on the other hand, has reduced by 9 basis points in the quarter against the repo rate remaining stable since March 20. I briefly touch now upon our readymix and building materials businesses. Both businesses are performing well. Revenues from readymix business grew by 11% YOY. We have opened three new readymix concrete plants in the last quarter in Pune, Vizag and Coimbatore, pushing our total tally to 54 readymix plants. Our value-added mix in the total sales also improved to 34% during the quarter. In modern building materials, construction chemicals, tile adhesives, and cover blocks continue to witness steady improvement. On the sustainability front, we remain committed to our sustainability agenda, Protect Our Planet. I'm happy to mention that our carbon emission at 462 kg CO2 per ton cementitious material for FY 2023, validated by KPMG, is amongst the best in the industry.
This has been primarily driven by our continuous focus on blended cements, WHRS, AFR, and improving thermal efficiencies. During the quarter, we have successfully commissioned an alternate fuel seeding system at Nimbol cement plant, which will enable handling of wide range of fuels while increasing base recycling tonnage. We achieved 5.2% YOY improvement in alternate fuel rate, 11.2% in Q1 FY 2024, which is amongst the best in the industry. We are maintaining one of the highest cement-to-clinker ratio in the industry at 1.83 during the quarter, thus emphasizing blended cement and further decarbonization initiatives. I would now like to quickly run you through the update on our ongoing growth projects. Cement capacity expansion to 1.2 million ton per annum grinding unit at our Haryana cement plant is under progress. Civil and fabrication work is complete, and equipment installation is on track for commissioning the cement mill by September 2023.
This will take our overall cement capacity to 25 million tons per annum. Clinker capacity enhancement at Risda has been completed, while at Nimbol will be on stream by September 2023. As you are aware, the Nimbol facility post capacity enhancement will also support our grinding unit expansion at Haryana. On rail-based projects at Odisha and Sonadih, track laying activities are underway. Continuing our focus on innovation and new product launches during the year, the company launched Duraguard Foundation to Finish, a premium composite cement in the market of West Bengal. The company also launched InstaMix Superior Column Concrete and Artiste Flooring Solution, both specialized products, thereby extending the ready-mix concrete range. Now let me briefly provide you some perspective on the demand and volume scenario. We achieved a volume growth of 7% YOY in Q1 FY 2024.
In the north, we have achieved volume growth of 12% on a YOY basis, and we are operating at near full capacity utilization. In order to cater to the demand going forward, as we have mentioned earlier, 1.2 million tons of incremental capacity is coming on stream at our Haryana cement plant by September 2023. In the East, demand was a mixed bag during the quarter. Amongst our core markets in East, Bihar and Jharkhand witnessed strong growth while demand in West Bengal continues to remain depressed. However, we believe that the demand in West Bengal is definitely about to revive and expect to benefit out of it due to the strong brand equity we command in the region. Notwithstanding the demand dynamics, in East, we shall continue to focus on value over volume growth.
Looking at our overall cement availability in the region, we are not looking at immediate capacity expansion in the East, as the current capacity will provide sufficient headroom for growth. In East, therefore, we will stay focused on our strategy of premiumization, product innovation, improving geomix, and driving healthy realizations. With this, I conclude my opening remarks. I am joined here by Mr. Jayakumar Krishnaswamy, Managing Director, and Mr. Maneesh Agrawal, Chief Financial Officer. We are here together to answer your questions. Thank you.
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 their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question and are requested to restrict to two questions at a time. You may join back the queue for follow-up questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We'll take our first question from the line of Amit Murarka from Axis Capital. Please go ahead.
Yeah. Good afternoon. Thanks for the opportunity, though. I wanted to know what was the clinker production in Q1
Hold on, Amit. Just hold on. Clinker production in Q1 is what you want. Okay. Our clinker production in Q1 FY 2024 stood at 2.82 million tons. Just shade short of 3 million tons.
That's, I think, close to around 90% utilization on clinker, right?
That's right.
Yes, that's right.
Generally, we've not seen plants run above 95% clinker utilization for the industry, and you're saying that you don't want to expand capacities as of now. How should we think about your volume growth for you for the next 2-3 years in that situation?
Look, Amit, maybe I heard you right. I guess your voice is a little bit low. Let me just give you a little bit of background. In the last call and the previous calls, we've been saying that in the east, we have currently no big time expansion plans, and in north we will take the Nimbol kiln to 6,000 TPD. We'll have between Nimbol and Chittor, we'll have about 1,000 TPD, which translates to about 4 million tons of clinker in north. Whereas in the east, between the two, we are looking at close to about 13-odd million tons of clinker, which will, at a C/K ratio of 1.9, we are looking at about 25 million tons of grinding capacity and clinker capacity, which will be almost equal to 100% capacity utilization.
If you remember, last year we did close to about 18.8 million tons of cement, and in the previous call, I had said that we have headroom of close to about 6 million tons in theory, and as you said, 100% capacity utilization is almost impossible. However, a few years behind, if you really go, erstwhile Nuvoco always operated at 90% capacity utilization in the east, and hence this is in the DNA of the company. Typically, our kilns are reliable and then at 98.5 reliability factor, so we are able to kind of consistently run the kilns. With this kind of numbers and last year of 18.8 and overall grinding capacity of 25, we can safely take this overall with the current investments in the company, close to about 23.5 kind of a number is what we are envisaging, which will again translate to 90% capacity utilization.
That's the max we operated in the past. That's the ambition of the company in the near future.
Okay. When is the 1,000 TPD clinker coming?
As we speak, I think we've taken a shutdown as we speak. Four weeks from now, the commissioning will be complete. From October onwards, we can safely say that north I will have four million annualized clinker production rate between the two factories. That's when, as Madhumita said, the grinding capacity in Bhiwani is also synchronized to commission in September. October onwards we'll have the 1.2 million tons of grinding capacity, and altogether we'll have six million tons of grinding capacity and four million tons of clinker. Currently, we operate at close to about 1.41, 1.42 clinker-to-cement ratio in north. If we tweak the clinker-to-cement ratio, we'll have adequate clinker to produce six million tons of cement.
What will happen to tweak the clinker-to-cement ratio? Generally, we've not seen that ratio change so often for companies again.
I'll go back safely to explain our ability in the past, which will help us what we want to drive in the future. East, we have one of the highest C/K ratios in the entire industry. Our clinker-to-cement ratio in East is over 2.1. That's the kind of number we operate in East. North also, two, three years ago, we operated. When we launched Duraguard in North, we were very clear that we will not get into OPC and almost all our trade channel sales was only PPC. North trade, somewhat OPC happened because certain markets are OPC driven in the North. That's how the company ran many years.
If you remember a year and a half ago when we did the listing and then post the Bhiwani acquisition, we lost Double Bull in the North to kind of immediately get some market in the North, and that's where we kind of allowed some OPC to be sold in the North. Going forward, when clinker capacities are going to be limited for the company and grinding capacity at 6, our immediate focus will be to move from OPC to PPC in the core markets of North. Hence we will tune down OPC and ensure that we maximize blended cement in North as well.
Thanks. I'll come back in the queue.
Thank you. We have our next question from the line of Jaswandeep Singh Chadda from Nomura. Please go ahead.
Hello. Hi. Thank you for the opportunity. I just wanted to ask, what was the CapEx spend for the first quarter, and what's your CapEx guidance for FY 2024?
Overall, our attached plan for this year is the four brownfield expansions in Nimbol, Bhiwani, Sonadih Siding, and Jharsuguda Siding. In addition to that, routine CapEx and RMC expansion. All this, as we informed in the previous call, we estimated overall FY 2024 CapEx of close to INR 580 crores. As against that, we have been able to spend in Q1 close to INR 120 crores. Now with this commissioning of Bhiwani and Nimbol happening in the next one month, we can safely say about INR 100 odd crores will be spent in the next two months. Over and beyond the next balance six months and before 31st of March, we have plans to spend this INR 550, give or take INR 10, INR 20 crores for timing and phasing. That's the kind of money we will spend during this year.
Great. Thank you for that, sir. My next question is that if I do my calculation, there was some working capital build in this quarter. However, we have set a target of achieving INR 3,000-INR 3,500 crore net debt by the end of this year. How much of working capital release we are looking over the next three quarters? What's the roadmap for the deleveraging? If you can just clarify on that.
I'll answer one part of the question, and I'll ask my CFO, Maneesh, to answer the nitty-gritties of it. As regards our target of reducing debt, in all the previous calls, I've been mentioning that our target to reduce overall debt of the company will be in the range of INR 3,500 and INR 4,000 crores and not a fixed point number of any one number. We'll continue to operate at this kind of a range because that's going to be an inflection point for us to make the next growth program for the company. Give or take INR 100-INR 200 crores will happen based on the overall cash flows and actual sales and demand which will happen. But suffice to say that our plan will be to have our debt around INR 3,500, INR 4,000 in the next eight, nine, 12 months.
Based on that, we will be ready to grow further the company. As regards to the release of working capital, I will ask Maneesh to give you a little bit of details about the plans of the company.
Good afternoon, everyone. Generally in the quarter one, because of the seasonality, the working capital is increased. Three aspects, the inventory goes up as compared to the March period. Similarly on the receivables front and also on the GST liability front, because in March the GST liability is higher and then slowly it gets released. In quarter two and quarter three, again, quarter two because of monsoon, working capital is slightly higher, but as the season picks up and then liquidation of inventory both on the cement and clinker stock. We'll be able to unlock this working capital in Q3 and Q4. Having said so, there are a lot of initiatives that are being taken by the management and the team, to reduce the working capital, considering the overall operational requirement.
Basically, this is the quarter where we up-stock clinker, simply because in monsoon the shutdowns will start. We need to ensure the market to be fed in September, October. There is little bit of a buildup of cement and clinker stock. Cement you can't build too many stocks because you can't store cement for more than few weeks. Hence it's always kept as a clinker. As you get into post Puja and then to November and December, you'll see inventory release will happen. Secondly, last year if you recollect, lot of inventory buildup happened due to fuel stocks because of imported petcoke and coke purchased. This year there's ease ratification of the linkage coal. The overall fuel inventory is also tapering down. During the course of the year, I think even there we will have adequate control in fuel stocks.
Working capital release will happen in the balance 6 to 8 months. We are committed to paring down the debt levels of the company to the numbers which I mentioned herein, thereabout, so that we are ready for the next phase of expansion plans for the company.
Right. Thank you for that. Just one more if I can squeeze in. I just wanted to understand the slag pricing. If we see over the last few quarters, slag pricing has been going up, although Nuvoco has a long-term agreement. If you just can give us a sense from last YOY, last year first quarter, how much slag prices have increased for the industry, and how do you see slag prices moving ahead? Since most of the players are trying to increase their C2C ratios, more and more slag will be required, whereas the supply is limited. If you can just give us a sense on that would be great, sir.
I think, very good question. In fact, I think last year also we're facing the heat of fuel prices. With fuel prices coming down internationally as well as locally, I think one of the things which really got heated up is slag prices. This is somewhat region specific, which is most of the slag is used in east and not in other parts of India. Availability is also in that region. Consumption is also mostly in that region. For some reason, inexplicable, slag prices are currently on a runaway rate. Not that demand of cement has gone up that much, but overall somewhat market scenario. Slag availability is a challenge, plus slag prices is a challenge. There are two reasons for it. One is I think the overall slag is still a byproduct of the steel industry.
With not very big capacities coming in the steel industry, there is generally the overall availability of slag is now kind of limited or constrained by the expansion plans of steel industry. That's one thing which none of us can control. Whereas the second one is a very unique reason, with the railways not giving adequate number of rakes for the cement industry. All the rakes are still being diverted on a priority basis to power sector, food grain sector, and fertilizer sector. Hence, rake availability is a big challenge for the cement industry. We have been continuously representing to the railway ministry to allocate more rakes for us. Rakes are not available, then slag movement is a big constraint and invariably it will move through road and non-availability of rakes means inability to lift the slag from steel companies is a big challenge.
These are the two reasons which is main constraint. The third important constraint is the type of slag which the steel industry is able to generate. Slag, as you would know, has got different types of slag. You've got something called a BF slag, you've got something called a LD slag. The furnace in which they make steel is different, the byproduct is also different. In general, the availability of the usable or good slag available for cement industry is limited. These are the principal reasons for slag prices to go up. Having said this, in terms of number, if you want me to explain, last year's Q1, the slag rates available in east for us, I can't tell the overall industry, for us, I will tell.
We were procuring slag at a blended cost of market slag as well as the long-term contracted slag for Nuvoco was trending at about INR 1,100 per ton, which currently is trending at about INR 1,450 per ton. This is how it is impacting Nuvoco with the long-term contract. I really want you to keep this in line with the kind of slag prices prevailing in the market, which is very challenging. People are contracting slag at INR 2,800-INR 3,000 per ton. That's a massive price for slag. In many cases, we simply walk away from the auction because it doesn't suit us at all. There's no point buying slag at this price because slag price is almost equal to clinker price. It does only one-to-one replacement.
We are blessed with the long-term contract which we have, which is about 2.5 million tons of contracting which we have with Tata Steel. That's coming into use. Hence our blended rate is much lower than many of our competition rate at about INR 1,400 per ton. Having said so, as Megha explained, slag prices have indeed impacted the raw material prices by about 13% of the raw material price increase, and a majority of it is coming through slag price increase in Q1 vis-à-vis the previous time.
Thank you for the detailed explanation, sir. I'll join back with you.
Thank you. We have our next question from the line of Rajesh Ravi from HDFC Securities. Please go ahead. Mr. Rajesh Ravi?
Hello, am I audible?
Yes.
Hi, ma'am. Could you tell us what was the per kilo cal costing of fuel in this quarter?
Looking at the overall, in Q1 for Nuvoco as a blended between east and north, we're looking at close to about INR 1.94 per million gas, which composition of pet coke as well as non-linkage domestic coal. 1.94 is the number.
Cost has already come up by INR 0.40 sequentially from INR 2.31?
Yeah. Try to say that.
Great.
Come down to this kind of number which is currently trending.
Right. Are you looking further softening in this number or we are close to bottomed out on your costing side?
If you look at the various components of this going, Rajesh, one is the international pet coke, then we have the linkage coal, then we have the domestic open market coal as well as AFR. I'll just try and explain each one of it. Linkage coal is kind of trending at about 1.27, 1.3. I guess that's the number which is there currently, and I don't see a big change because I think from all the conversations we've had with officials of coal industry and rest of the market guys, I guess coal production in the country has increased, and we don't see a major blip happening on linkage coal prices. That's one thing we can probably assume this is the kind of number it will be there. Domestic open market coal is always linked to the linkage coal. I guess it'll have some gap and that will continue.
International pet coke, one order even got INR 105 per ton, but that was one flash order. Currently the going rate is INR 120, INR 125 per ton. Last few weeks, there is some upward moment of pet coke prices. It's all will be standard flow pet coke will be around maybe INR 4 per million kg. AFR is a component of carbon black. You've got RDF and rest of all the other. Pet coke for season is very expensive. Carbon black is for some reason indexed with pet coke and hence the AFR rate is still not low. AFR used to cost at about INR 0.90 per million kg. It's currently trending at INR 1.40 per million kg. My read is at 1.94, there is some elbow room for 0.1, 0.15.
Beyond that, I don't see major tempering of cost in the next one, two quarters.
Okay. Thanks, sir, for the detailed explanations. On the working capital front, last quarter, your working capital already turned quite strong. Non-cash working capital close to INR 100 crore negative. Is there any further room or we again, there also it was close to you have squeezed your working capital to the maximum?
As I said, in the quarter one and quarter two, working capital gets increased. It's all about the management, the working we are doing to keep it at the appropriate level. It's not going to go down below the level that we have seen in March.
Okay. INR 500 odd crore is what the CapEx is what you're targeting, right?
Yes.
Yeah. Correct. Broadly, what I'm looking at, how do you see your net debt reduction this financial year?
Very difficult for me currently to put a ballpark number. Having said that, I certainly look at the market. Q1 we did about 10% volume growth, and if we are able to sustain this kind of growth levels, and also in Q4, typically market will open up much more. With election spending, which Meeta spoke in her initial speech, give or take if the growth can be touching double digit, this kind of number is there, then I guess the profitability levels which we mentioned in our quarter of INR 402 crore.
I guess if we're able to sustain this kind of results in the balance three quarters with positive uptick in demand, then I guess as we exit Q4 and enter Q1 next year, our ambition of going to debt levels in the region which I mentioned, INR 4,000-ish, less than that's the ideal time for us to look at how do we take this company forward in terms of growth plans.
Yes, sir. Just, are you talking about net debt, right? INR 4,000 crore levels.
Absolutely. Net debt is what we always anchor on, that's the number we will work on. Give or take, EBITDA always is not going to be a fixed number, we have been assuring all the investors and in the various calls in the last one year, this is the number we are targeting, I guess we are disciplined, we are focused, and we are committed to reaching this levels of number before we take up the next wave of large expansion for the company.
Okay. Great, sir. That's all from me for now. Thank you. All the best.
Thank you.
Thank you.
We have our next question from the line of Satyadeep Jain from Ambit Capital. Please go ahead.
Hi. Thank you for the opportunity. A couple of questions. First, on the CapEx side. Whenever the company goes to figure out CapEx, whether it is 10 months from now or nine months from now, what is the thought behind what kind of CapEx are you looking at in terms of capacity and capital intensity? That's the first question.
If you're looking at this year, as informed in the previous call, the CapEx has got two buckets for us. One is the brownfield expansion. The second one is the mandatory routine CapEx to run the assets and make those tweaks and make the assets ready for use. Third one is a very small amount of CapEx for the ready-mix business CapEx expansion. If you really look at these three buckets, the first bucket is all the brownfield expansion. We started half-fiscal, H1 fiscal was Haryana grinding unit, 1.2 million. Sonadih railway siding for clinker transport was the second CapEx which we had. Nimbol depot connecting to increase clinker capacity in north, also AFR in Nimbol. Also we had the Jajpur railway siding. Jojobera, we had to take capacity to 11,500 TPD clinker and AFR.
These were the big-ticket CapEx items in terms of increasing the capacity of the company. From 23.8 million tons to 25 million tons of cement. Also clinker to match the 25 million tons of installed capacity of cement. Addition to that, the other two CapEx were all cost savings related CapEx. One was to reduce the freight cost by taking clinker from Sonadih into Jajpur and various siding units. That was the first bit of internal lever to reduce the distribution cost of clinker. The second was to pare down the fuel cost by installing AFR units in two big units of Risda and Nimbol. We already had it in Chittor. Cost reduction, two projects, one for fuel, second for distribution cost. Capacity expansion, three projects, Nimbol, Chittor, Nimbol, Bhabua, and Risda. Those were the big CapExes which we did in the cement side of business.
In the readymix side of business, we parked some money for opening up new plants. As I mentioned in the previous calls, our ambition is to move from the current 55 plants to 70 plants in the next one year. Those are all very small CapEx, there's money parked for the setting up readymix plant. The last one is the land purchase and routine CapEx to run the operations. That's close to about INR 150 crore. All put together, we have targeted in this fiscal to spend about INR 580 crore.
Sorry, just let me clarify. I was trying to understand after this CapEx and when the company achieved INR 3,500 crore or INR 4,000 crore of debt, what is the kind of capacity, once you decide on the strategy in building the figure for the next leg of CapEx, what kind of size and capital would it be, roughly speaking?
I guess I will say the same thing which I've said. I've been saying it in the last few calls, we are very consistent in what we are communicating. Once we get the debt levels to the numbers which we have assured all of us and all of you guys, there are two options for us. One is to expand the Chittor factory using the Nimbol limestone for our brownfield expansion. We also have the option of setting up Pulverizer for western region. As I mentioned in the past, the number one choice will be to get the brownfield CapEx going in Chittor. That would be setting up of additional kiln in Chittor and also have one more grinding unit either in west MP or in western UP.
That's the plan. That should target ballpark number I am mentioning. A new kiln should cost anywhere between about INR 800 crores and the grinding unit about INR 500 crores. We are looking at about INR 1,200-INR 1,400 crores of investment for a brownfield expansion. If we look at a greenfield, if we are to go for a Gulbarga or Maharashtra, which would be much higher, it should be to the tune of excess of INR 2,000 crores. As we stand today with the positive developments in Rajasthan and Nimbahera, what looks to be feasible or we are inclined is for Nimbahera, but all this depends on how do we pair the debt. I guess once we secure the board approval, we will inform all of you.
This could be a 6,000 TPD installation, right? If I recall it.
Sorry, I missed that one, Satyadeep. At this point of time, we are keeping it open. This one is a 6,000 TPD line. I can do a better image of that. At this point of time, I am keeping. Risda we have a 10,000 TPD line, which is now currently debottlenecked to 11,500 TPD. We have not hard and fast concluding at 6,000 TPD. Closer to the date we will decide whether it could be a 6,000 TPD or a 7,500 TPD or a 10,000 TPD. As of now, we are keeping the options open. We are still working on technical design for all these three options.
Just a second question on the directional market. The volume growth has been lower than what others have been reporting. Is it largely a function of micro markets? How much is West Bengal as a percentage of overall volumes? Tied to that would be one of your peers did mention that it lost market share. It could recoup that market share in the next three quarters. When you look at that in your own micro markets and what's happening, how would you look at your volume growth? You mentioned that slack price is high. The entire cost of producing cement and slag is actually on the higher side, given what's happening. Despite that, you are seeing players losing market share, some players operating higher utility, 90% utilization. Despite that, we are seeing continued pricing pressure in specialty niche.
What needs to happen so that pricing can improve, especially when one of the players is talking about regaining market share in the next few quarters?
Right, Satdeep. I will take that question. It is really two or three parts. I will break it up. Your first question was, how are we seeing our growth vis-à-vis the industry? As I mentioned, at a strategic stance, our volume thrust will be in north, and in east, we will prioritize value over volume. In north, in our judgment, the market grew into 10%, and we have grown 12%. We are well-posed to take the additional capacity increase in Haryana. On the eastern side, we have to take a look at the market in two clusters. The overall growth in our estimate has been about 11%. The two clusters for us, the cluster is Bengal, Bihar, Jharkhand. This has seen about an 8%, 9% kind of growth, and we have maintained our market share in this market.
Good bit of growth came out of the Chhattisgarh, Odisha markets, almost at a 90% kind. These markets have traditionally been lower price and higher on lead. As you know, we have been reiterating our trade centricity, our premiumization as well as our focus on Bengal, Bihar and Jharkhand, given our very large facilities in these markets. We clearly prioritized value over volume, and in principle, this will be our guiding strategy. We will calibrate as we see the demand dynamics in the market.
Mr. Jain, does that answer your question?
Yes. Just the second part of my question was overall dynamics in the region, in terms of pricing, in costs, and especially given one player is talking about regaining market share, what does the management think about pricing in the region and what needs to happen for pricing to improve?
Yeah, sorry, Satdeep, I missed out part two. On part two, again, as you know, we have a really premium slag brand in Concreto. A procurement cost advantage on the slag front. We will continue to prioritize on Concreto. Last year, we also upped the Concreto offer in the market with Concreto Uno. The market dynamics would be impacted by the slag cost. Here, apart from our slag-driven, Concreto-driven strategy, I'd like to clarify that we are in the business of brands, and we see good fungibility between Barcelona Fly Ash PPC and PPC cement. We will calibrate our mix depending on the emerging dynamics.
On the overall price, we have revisited the clinker addition numbers, Satdeep, and our perspective that we've been sharing on previous calls, that when you look at the institute demand should take a call, the clinker addition and not just the cement capacity addition. The dynamics still remain at a 44 million tons clinker base of FY 2022. 10 million tons clinker capacity was to come in over the two years from 2022, which is in place now. There is a situation of overcapacity at the moment. However, the next addition of clinker as per stated timelines of industry players will only come in in FY 2026. We do believe that the clinker dynamics will still drive the edge on pricing in the region.
Such where we are, it is difficult to take a call on the price outlook, but we are seeing positive demand curve as we get into the election year. As I said, our advantage lies in ability to straddle different price lines with our brand portfolio and then at our trade centricity. I hope that answers your question.
Yes. Thank you so much.
Thank you for the lead.
Thank you. We have our next question from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.
Yeah. Thank you for the opportunity. My first question is with respect to our growth strategy, and specifically with respect to inorganic growth, because we have been evaluating few assets, which, given our balance sheet, is a bit difficult to understand. Just want to know how are we looking at inorganic growth opportunities in the market?
Let me answer this question. As regards our growth strategy, I think we have been clearly mentioning in the past many calls that we are focused on organic growth as well as with this workload preceded by reducing the debt levels of the company. We will stick to that strategy at this point of time. Nuvoco's primary focus will be to reduce the debt, do the brownfield expansion, take the capacity to 25 million tons, and once the debt level comes down, then we find a way to set up additional capacities through a brownfield in north or through a greenfield in west. That's the current plan for the next couple of years, and that's what we are focused on.
Okay, got it. That is reassuring. One is, I missed the details on the incentive income which is discontinued. If you could just share those details and also maybe explain what sort of incentive incomes are already in our realization, what are we benefiting, and what is the expiry schedule of those incentives?
As regards incentive, we have a plant in Rajasthan, we had incentives in Dhaka, and we had incentives in Bangalore. Three years ago, we stopped Mejia, so that's out of syllabus. As regards Panagarh, as we mentioned in the previous call, first April onwards, we stopped accruing Panagarh, and that goes away. In Rajasthan, the period of incentive has come to an end, so I guess that's also off first April onwards. First June onwards, Rajasthan, both in Jimsar and Chittor is off. Bhabua was off some time ago as well. At this point of time, the only incentive which we are accruing is the Jojobera incentive. Other than that, our P&L doesn't have any incentive accrual at all.
Is it possible to quantify what was the total incentive income in, say, FY 2023, and what is it likely to be in FY 2024?
May I request you to reach out to our guys so that we're able to give you granular details of all these details. I think we can give, but it'll run into few columns, and best would be for you to reach out to investor relations and we'll be happy to provide all details. Not a worry at all.
Sure, sir.
We will take a call from here. Thank you so much.
You reach out to him for details.
Sure, we'll do that. Thank you so much and all the best.
Yeah. Thank you.
Thank you. We have our next question from the line of Pratik Kumar from Jefferies. Please go ahead.
Yeah. Good afternoon, everyone. My first question is on EBITDA pattern. We had this seven, eight EBITDA pattern during this quarter with probably peak of fuel cost benefit in the business or near peak. Incentives are sort of going out largely, as you said. How do we see EBITDA pattern shaping up for the company going forward versus, obviously, we used to have much higher target earlier when the industry pricing and cost was supportive, like during the time of IPO. How do you see EBITDA pattern for the company? Is the industry pricing is the only driver left for the business?
I guess EBITDA improvements from here on will be still there's a lot of things as a management we will do. We are doing, we will focus to do. One of the things which we will focus on, Mithun mentioned a few minutes ago in one of the previous questions. One of the focus areas for us will be to get the premiumization going. Last year we had 37% premiumization, and our target is to get premiumization to excess of 40%, which means more Concreto, more Concreto Uno, more DGMF. All these will basically give us additional interrogative which will go into the bottom line. That will be one top-line giver. The second top-line giver will be to get higher realization markets in east and north. We have a target of improving sales in some markets of BBJRM, which means Bihar, Bengal, Jharkhand, Chhattisgarh, Haryana, and Gujarat.
These are the markets, Bihar, Bengal, Jharkhand, Gujarat and Rajasthan. These are the areas where we will get bulk of our sales, which would again get more geo-optimization would mean more agility and more agility. The third one is with the commissioning of Haryana cement plant, we will focus more sales in Haryana market, which would give us additional top line plus incentive benefits from Lakhu, Haryana. These are top three levers to revenue-based levers get EBITDA. On the cost line, certainly, I think we will get our AFR fully expanded. Currently trending at 11.2%. Our target is to get that AFR consumption to close to 20%. Chhapar already has demonstrated 25%. Nimbol also demonstrated 20%. If we were to get it, AFR will be the second lever for us on the cost side.
With full capacity of WHR and CPP running, we'll get some savings out of the WHR and CPP line. Last but not the least, with the Sonadih railway siding coming and the Jashpur railway siding, we expect a reduction in distribution cost coming into the company. At this point of time, all this put together will have a bottom line EBITDA improvement number over number where we are currently trending. The second one is all about the pricing lever, which you mentioned. As we have seen from quarter four to quarter one, prices went up in quarter one, but again, came back and overall net-net pricing effect did not have a major impact. I only expect the prices to firm up little bit more, so we're able to get some pricing advantage from the overall product pricing in the market.
Plus all the internal levers in premiumization, geo-mix, AFR, CPP, WHR, and railway siding. I guess, we certainly can improve the overall EBITDA of the company from the Q1 actuals going forward.
Sure, sir. My second question is on a freight cost. Freight cost on a sequential basis, on a per ton basis has gone up. Is this largely reflection of building up of clinker inventory and moving to respective grinding units prior to monsoons?
Two reasons. One is it is offseason surcharge which is applied by the railways. I guess, typically they would cut down, but they haven't cut down. The good news is from 1st of August, it has been withdrawn for few months. I hope it continues for four, five months. That's an impact which hit the distribution cost. Second one was non-availability of rakes, which played havoc in Q1, which resulted in movement of clinker from IU to GU by road. These two are the reasons which impacted the distribution cost by which it went up. Our PPC case still continues to be good and comparable to rest of the major players in the industry. There we are very pleased with the work done by our logistics team.
Small changes in lead distance happened, but One can't target three kilometers, two kilometers reduction in lead distance, but there is no major increase in lead distance. The two important levers by which we got impacted was railways not able to get adequate rakes. Second one was offseason surcharge. Offseason surcharge got withdrawn now. Rake availability kind of improving and our engagement with railways shows that they're likely to improve going forward. These two should reduce the pressure on distribution cost.
Thank you. My last question on, there was this recent changes in BIS regulation on composite cement, which is expected to impact clinker ratio. What is our composite cement mix? Does this regulation have an impact on our clinker ratio? Does higher slag prices in general because of higher number of cement capacities in East Would this also have an impact on clinker ratio, I mean, over medium term?
Thanks for the question. As I mentioned before, we are in the business of brands, and our Duraguard brand straddles both fly ash as well as composite cement. We treat the mix as fungible to address any cost inflation. With specific reference to the revision in BIS mix and its impact on costs for us. The cost impact has been nominal in our case because we were not stretched out on the higher end of the clinker optimization. We've been able to manage the cost well on the PCC front. It is only the slag inflation which is keeping us open to product substitution.
Our thrust on PPC. PPC would always be based on how much unlock I can do on the clinker. This is what we had said a year and a half ago. We launched our PCC cement because we got grinding units in Jashpur and Panagarh, and hence we forayed into that, and we have a good product in the market which is doing very well. We scaled it up very well as well. The fly ash cement as well as the composite cement are coexisting in many markets and as Meeta said, we would be able to tweak our product strategy based on the pricing of slag in the market and the BIS standard which is coming to vogue now.
Thank you, sir. These are my questions.
Thank you.
Thank you. We have our next question from the line of Ankit Patel from HSBC Mutual Fund. Please go ahead.
Yeah. Thank you for taking my question. My first question actually was partly answered earlier when the question on EBITDA per ton. I still wanted to understand in terms of what would be the expected stabilized EBITDA per ton that the company targets. Historically, it's been around that INR 700, INR 800 per ton on a quarterly basis at max, whereas certain other peers or competitors, it's been going up to about INR 1,000 and higher as well. That's my first question. My second question, I'll ask the second question afterwards.
Okay. The answer to the question is, there's always a recency effect and a history to it, actually. Probably referring to the recency effect in the last 18, 20 months, yes, EBITDA levels were a little bit low. Reasons, first because of the abnormal increase in fuel prices, which kind of impacted. Also the price that air energy did not kind of compensate for the fuel price increase. Fuel prices kind of bottomed out now. In the past, if you divide East and North, I think the East EBITDA were much higher than the last one and a half years where they were acquired as a company. North EBITDA per ton also has improved. In the previous calls, we had mentioned how North EBITDA per ton industry prices corrected, Nuvoco EBITDA levels also improved in the two years.
I only foresee with the improvement of the various levers which are mentioned in geo mix, premiumization, AFR, revenue-setting products, all these are East focus, hence we will unlock value out of all these initiatives which would add to the overall EBITDA levels in East going forward in the coming years. To pinpoint a number at this point of time will be inappropriate, but suffice to say, each one of these initiatives has got the capability to unlock value to the extent of INR 20, INR 30 per ton.
Okay. Thank you. My second question, sir, was on some of the high-cost debt, which I think is there on your balance sheet. These perpetuals which were raised erstwhile in the pre-IPO time, I think earlier when it was part of the Nirma. I think there is about INR 300 plus INR 300 crore of perpetuals, which are there at a higher cost. Just wanted to understand, would you have to raise fresh equity to meet the replacement covenant there when they become due next year and in 2027? Or would the IPO that you have done in 2021 suffice to meet the equity raising requirement over there to maybe bring that down in terms of cost?
Thanks for the question. Basically, the operating cash flow that are going to be generated are sufficient enough to take care of pay out. We're not going to be raising any equity for meeting these payments. The operating cash flows are sufficient to take care of that.
There was a replacement covenant where you can only replace it by either with the leveraging coming down below a certain level or by raising or having equity which you have raised prior to the call date of a higher value than the issuance. Would the IPO INR 1,500 crore which you have raised suffice is what I was wondering.
Just a question, I think as Maneesh mentioned, I think we will not get into the direction of equity infusion to handle this stuff. The cash flows of business will be sufficient to handle the covenants and the debt repayment requirement. In the past calls, I have mentioned, I will restate it for one more time. We are very confident that to grow this business, we are comfortable with the continued debt levels of INR 3,500 to INR 4,000 crore. We have currently no plans to kind of reduce the debt to far lower levels. We will get into growth mode if we are around that INR 3,500, INR 4,000 crore. As a corporation, we are clear that this kind of debt level is manageable and because we need to fuel growth for the company.
Okay, fine. Thank you.
Thank you. We have our next question from the line of Navin Sahadeo from ICICI Securities. Please go ahead.
Right, thank you for the opportunity. Let me first of all congratulate you because your working capital was probably the best in FY 2023, assuming yours was the only company which had a negative working capital, simply doing this, creditors minus the inventories and receivables. There we saw a net negative of INR 50 crore. My question is, last year in FY 2022, this was the same way. This was over nearly INR 450 crore. Just wanted to understand what different are we doing to be the only company in the negative zone in terms of working capital, and how sustainable is it?
Is it linked to the high coal cost, which was in the past, hence there is a possibility that it can again turn into, instead of further release, there could be a charge of roughly around INR 300-400 crore, which is in line with other peers, or this is more sustainable. How would you look at it?
Basically, I would say, in fact, I had mentioned the same thing last time also. It was Better with the transcript. In the quarter four, in fact, the teams did quite a good job. Given our trade-sensitive business, we actually brought support from our channel partners, and we were able to get good collections in the quarter four, and this actually helped us to reduce the overall receivable front. On the overall RMX side, we are continuing to drive collections on the cash and carry model. Around 31 number of collections are coming on, this is advance payment, and the rest of the payments are also very competitive. On the inventory front also, there was a lot of inventory that got built up, which is going to be liquidated over the next 2 quarters. We have also seen that the fuel prices are softening now.
To that extent, on the inventory side, we no longer have that sort of a number, and also on the payable side, we were actually negotiating our terms, depending upon the various vendors, the kind of inventory that we buy on a 50 days, 90 days, 120 days sort of a thing. Depending upon what sort of opportunities the market provides us, we are going to be looking at that sort of. Overall, I would say, the numbers that we had in March 2023, corresponding to that, it has increased in quarter one, and quarter two also would be broadly in line with the quarter one numbers. Quarter three, quarter four numbers, it's going to be better off as we liquidate the inventory stock in line with the seasonality of the business. Nothing more to add beside that.
In terms of specific numbers you want, obviously, you can reach out to our investor cell, and they can give the numbers for each of these dynamics much more in detail.
Yeah. No, thank you so much, Maneesh. The only thing is, will it continue to be negative, is what, because I understand it's seasonal, and towards the second half, the working capital tends to be far more lean. I appreciate that. Just wanted to ensure or rather just confirm if this can remain negative or it can flip into positive zone per bit.
It's on the rampage, actually. At this point of time, we are committed. We tried to do few things, and I think it worked very well for us. As a management, we would still try and get the working capital, net working capital. If it is negative, that's the number which we'll try to achieve going forward. Suffice to say that it will not be at the numbers where we were a year ago, two years ago. Our endeavor will be to try and sustain this kind of numbers going forward.
Great. My second question was about expansion plans. Of course, you clarified that until unless the debt comes in the range of INR 3,500-INR 4,000 CR, it is only after that. Of course, I am aware of the on-hand project, debottlenecking projects as well. The other next leg of expansion you said is when the debt becomes more comfortable in that INR 3,500-INR 4,000 range. Here, I just wanted to, if possible, if we could get more clarity, because you said there is a plan to do a line two at Ralegaon, there is a plan to do a line two in Chikkodi, and then there is also an optionality of doing a greenfield project altogether in Gulbarga, whichever the board decides.
Here, just little bit clarity will help because if at all the company is keen on going to Gulbarga, where it is already a very overcrowded market. On day one itself, your utilizations, at least for a few years are in line with the peers who are far more in terms of utilizations. Is there a thought process that you can sell off those limestone mines in Gulbarga, deleverage or get the cash and use for expansions in line two at the existing locations where other companies are being far more aggressive in terms of their capacity share or capacity expansion. Is there some thought? I think that kind of thing will give far more conviction to investors. Thank you.
Yeah, I guess what you have given is your perspective of what we need to do. I think we have a very clear perspective of what we want to do as a company. First of all, I would like to say that I don't think we'll ever sell mines. Those are all resources for the company. That's our future. Those are all jewels on our crown going forward. We consider every mine which we have is a jewel, and then we will nurture, run, maintain, sustain, and expand. That's the first thing on mind. As regards what do we do with the options, I think in the last events, as I said, I've been doing these investor calls for now close to two years. I will maintain what I have said because we have a very strong conviction on what we are doing.
We are very clear that we have choices to grow in the company in Nimbahera. We have choices in Gulbarga. We have mines in Chikkodi. We also have a different limestone deposit in rest of the current factories. We also have limestone deposit in Nagod. Having looked at all these options, we've also mentioned that our next wave of expansion will happen in north or west. The choices which we had was to expand in Chikkodi, the brownfield, which we had capital-effective, cost-effective expansion. The other option was set up a line in Gulbarga, very clearly, Gulbarga for us will feed the western market and not the southern market. When Gulbarga comes, it will be grinding unit from Maharashtra and South Gujarat. Nimbahera will be for Rajasthan and up north or west.
Our expansion program is sustain east in the short run, expand once the debt pays down
expansion plan for the company. You asked about whether board approves. That's not that we go to the board with an approval for the board. That is a technical term to ensure that when we put up a proposal, of course, we will expand with board clearance too in this time.
Helpful. Thank you. Thank you so much for the clarity. Just one last thing. What is the exposure to domestic coal for us as a company since we are on the ECG side source?
We've got linkage coal in East as well as North. We've got linkage coal for our kilns as well as for our CPPs in Risda, Sonadih, Arasmeta, and Jojobera. All our plants in East have got linkage coal for CPP as well as the kiln coal. At this time, the maximum amount of linkage coal which will help us run our East factories is tune of about 35% of our fuel requirement. At a blended rate, North there is no linkage coal. North is all imported coal or pet coke. Overall, as a company, we can get a maximum use of about 25%, 26% of linkage coal, and that's the advantage we have as a company.
Because those linkage coal prices, I think Coal India revised it, I think a few months back by 7%, 8%. That, in fact, would have come into the numbers for the June quarter, or it will come now more so in the coming-
At one point of time, we used to get linkage coal at INR 1.1, INR 1.15 and all. I think INR 127 is as per the new prices of Coal India.
Understood. Really helpful. Thank you so much. All the very best.
Thank you. I now hand over the conference over to Ms. Madhumita Basu for closing comments. Over to you.
Thank you for your engagement and questions. In summary, cement demand is expected to witness a healthy uptick in FY 2024 with the strong momentum in the housing and government-led infrastructure development projects. We continue to focus on operational efficiencies, realization improvement, and remain committed to our cost reduction, growth, and sustainability projects. Our investor relations team is available for any further clarifications and detailing that you may require. Thank you once again for joining us today. Wish you a good day.
Thank you. On behalf of Nuvoco Vistas Corporation Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.