Ladies and gentlemen, good day and welcome to Orient Cement Limited Q1 FY 2025 conference call hosted by ICICI Securities. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Sahadeo from ICICI Securities. Thank you, and over to you, sir.
Thank you, Aditya. On behalf of ICICI Securities, I welcome you all to the Q1 FY 2025 earnings call of Orient Cement. From the management, we have with us MD and CEO, [Non-English content] Desh Deepak Khetrapal. Without any further ado, I hand over the call to Mr. Khetrapal for his opening comments. Over to you, sir.
Thank you, Navin, and a very warm welcome to all of you who've joined the call right on time. We were waiting for a few more people to come, but I think it's unfair to you people who've already joined in to keep you waiting any longer. Once again, as always, extremely grateful to all of you for the time that you find and show interest in our company. In terms of highlights, I'm sure all of you have seen the numbers that we published yesterday for the quarter. What has not come in the numbers, I'll mention upfront because that's always a positive for any company, and we are extremely proud of the fact that in the recently concluded survey that was there for Great Place to Work, which basically all many top companies are participating in.
Not only have we been certified once again as a Great Place to Work for the fifth consecutive year, but year after year, actually, the trust scores have kept moving up, and we are right now at a trust score of 93, which is one of the highest that gets seen anywhere. Not just that, if you look at these across sectors, we are now in the top 50 companies with trust scores like this. Top 50 for a company like cement, we're talking about the survey which is across all industry, the entire universe of the companies and industry. We're in the top 50 within the cement sector. We are the only one in top 100. In the building products and cement sector, again, we are number one.
So it is, like I said, a reaffirmation of the kind of company and the kind of culture we built in the company. Part of that one culture of trust. Secondly, the complete sense of ownership by our team members is what sort of keeps enabling the performance that we keep reporting to you all the time. That is an upfront thing.
Second thing, which I really don't know whether I should be talking about it, but since I am the spokesperson, I will also mention that a similar organization, a Great Place to Work along with Great Manager Institute, they have a process in which they pick up a few people from the across. It is not as big a list as the Great Place to Work survey does, but a short list in which I personally have been given the title of most trusted leader for the second year.
Last year also I had got, and this year again, I have got it. It is more confirmation than anything else. It does sort of even make me feel good that whatever things I end up doing, my people they trust me and they let me do the set the strategy, and they just follow it without questioning it. Thank you. Coming back to the highlights for the quarter. I think the slowdown in the cement sector is visible from the fact that DIPP data also has come out. It has actually shown flat growth over last year. This is for the country as a whole, but in terms of nuances, if you see, obviously some regions have had more growth and some actually have de-grown with fairly large numbers.
Although the DIPP data doesn't get us that, but we do know that markets in Telangana, markets in Karnataka, at least in our areas of operation, have been softer markets, not just now, for many quarters now. What is unusual about Q1 quarter this year has been the fact that even Maharashtra, total demand, including Mumbai City, the demand is down over last year. That is more to do with, I will tell you the pan-India reasons. Obviously, we know there was the national level elections for the central government. There is obviously a heat wave that we saw this year in May especially, was extremely intense, which in some of the districts, actually, the construction work had to be stopped by the local authorities with the collector, because it is inhuman for people to be able to do outdoors work, and construction is outdoors work.
Come June and the kind of rains this year we have had in the month of June across all of our markets across Maharashtra, Mumbai, all of you I think will be aware of that, including, I would say markets, not just in Mumbai. Even a region like Vidarbha, for example, this year has got really good rains. But that means that during the time when it is raining so heavily, the construction activity does slow down. All that put together obviously has hit the industry in terms of the total demand in our markets that has been acutely below. The slowdown, I am sure all of us know that slowdown had actually started somewhere in the middle of FY 2024 itself, and it just got worse with the extreme heat and the general elections and the other points that I made out just now.
In some markets like Pune, for example, there was a strike by the people who get aggregates to the construction industry earlier. Absolutely aggregates, again, we can't carry on construction activity. There are multiple factors. The fact is that we have struggled and the one thing that I would certainly like to point out is that this quarter has really been what I will call a real test of our grit and our commitment to our strategy of actually sticking to profitable business and not changing volume at the cost of margins and loss of value. I mean, we are here to create value for the shareholder, but if we start doing business which loses value for the shareholder, it is something that we don't subscribe to.
We tried to defend our pricing even during the time when the prices were actually low, and that obviously has come at the cost of volumes being low. Actually, while I have mentioned that in our markets, the demand has gone down, but I think our de-growth of 15% over last year will certainly be seen as a really large de-growth even in our markets. As you know, with 13.56 lakh tons, 15% de-growth over Q4 is 21% de-growth simply because Q4 was very much bigger. So there is a drop there. So a 15% de-growth is unusual over last year. Obviously, in INR grown, we've also done similar de-growth. Now, similar de-growth as volume basically indicates that our price realizations have actually been stable.
We've seen industry results, and I think any company which operates in our markets, if you look at, they have actually lost in realizations per ton on the cement they have sold. We have more or less kept it stable. There is around 1% over last year, but sequentially keeping it steady around the same level as May. I think a major thing which is I take pride because we played with a decided strategy, and this strategy is not new. Most of you who are regulars on the calls that we address every quarter, you will know that for past many quarters, we've been talking about our strategy to shift our brand positioning upward and not try to sell product which is cheap.
Now, in a difficult quarter, if you start lowering your prices in an immediate reaction to the pressure, then the brand positioning that in our case is still work in process, we haven't quite got there, and shifting brand positioning, of course, takes a number of years. We are well on the journey, and we didn't want to derail the journey at this juncture by dropping the prices and doing the same way as everybody else was doing. That is the right reason behind we not being able to keep up with the volumes of the industry, but we're happy that we managed to maintain our sales. Maintaining the sales, obviously, the price realization enabled us that despite 15% de-growth, despite falling prices in the market, we managed to sustain our profitability. We are roughly the same as we were last year.
This, I think, is something which I definitely want all investors and analysts to take note of. It's not an easy strategy. It is a contrarian strategy to the rest of the industry, and I would say some would call it risky, but I call it a bold strategy to say there is another model of running cement business within the industry, which is most of the people are following the same track and we decided that, no, we are not following that track. We set up our own strategy. We stick to it. We maintain our prices. Volumes will come when we start getting the orders which give us the kind of minimum threshold of contribution that we want.
I think this is perhaps, again, I'm just drawing your attention to the fact that last many quarters we've been saying that we give up orders unless we meet our threshold level of contribution, not at everything. In this quarter, we found many more orders which we had to refuse and the result is in front of you. The key nuance here is that even when we are saying that we give up volumes in our quest for pricing, we are not being silly in doing things which can actually hurt us in the long run. What I mean by that is we've realized that the consumer market, our trade market, if you lose the market share, it'll be very difficult to regain the market share because consumer sector is brand driven. They are loyal to brands and things like that.
If we actually don't feed them and don't retain our market share, it becomes very difficult to get the B2C market back to us. We've actually been aligning our prices with the trade sales with the industry leaders, and we are not obviously aligning our prices with Category B brands or Category C brands. We have come in the category of Category A brands, and we are aligning our prices with them and staying competitive with them. We obviously don't want market share by going to the price level of price maybe Category C brands or D minus kind of brands. But when it comes to B2B business, we have realized that B2B customers actually are not loyal to the brand. They are more driven by the right quality of cement with the pricing right.
At the current stage, when we realized that the market prices in B2B were very low and we were not happy with the net margins that we were getting, those are the orders we refused. Obviously the worry about losing market share in the consumer market should not be carried in the mind. But B2B, yes, we gave up volumes and we know when the time is right, either our costs come down or the market prices become better, we go back to competitive prices and the B2B customers always, every order, every month is based on what somebody is quoting. I just wanted to assure all of you that it's not a policy which is devoid the nuance which you necessarily need.
I think from the results which have been published, and most of the companies, any company whose exposure to the market is similar to others, I don't think there's any one company in the industry which would have reported an increase in EBITDA pattern over last year's same quarter. We were at about 650 last year. We are around 750 this year, which is, I think, something that I would like to point out to all of you and take note of. B2C, I have told you that we have retained our market share. This we are not losing. I still believe that adding capacity, which I think some of the industry leaders have been very aggressive about it, I'm sure I don't need to name them, all of you know.
These large players, leading players, who've been adding to capacity, I think their priority today seems to be increased capacity utilization of the assets that they've got. While we see that strategy on their part to sweep the assets and sell more volume in the market, their aggression to this on more volume is keeping the pricing in the markets on the lower side, more so when the demand indicates it's not robust enough. The only option for people like us then is to either succumb to the pressure of very low pricing and start losing money, literally losing money, or to follow their own strategy and policy of making sure that the business being done is not being done at a loss. That's our philosophy at our company that we are following, and I just thought I'd highlight that to you, that with us, yes.
We would like to make money on every bag of cement that we sell rather than lose even on one bag. While the market conditions are what they are, it's the fact that many other smaller players also like us, we are all struggling with the larger volumes which are coming in now from the newly acquired capacity by the industry leaders. Not just that, some of them who now have plants which are closer to our core markets, we're beginning to see that from farther distances, the volumes are coming into our core markets and they are selling at prices which are lower than ours.
I won't name the brands, but there are some of the leading brands that we've always known in our life in the Indian cement industry, who in the market will be selling their cement at INR 10-INR 15 less than the price of Orient Cement. That is the reality. I can take pride in the fact that we have a positioning at which even at our prices we feel sorry that the strategy of some very premium brands historically selling at way down our own pricing is something that is a matter of concern for us certainly, but also shows how the situation in the market is. Till date, we have accepted the pain of lower volumes while defending our pricing and profitability.
See, for us, more important is also, as I mentioned, the brand positioning that what price are we available in the market and that we don't want to disturb. As I said, that will dissipate or derail our long term strategy. At the same time, I would like to also assure all of you that we are monitoring the market dynamics very carefully and we will ensure, as any responsible management has to do, that in this process, we don't create lasting risks for the company in terms of market risks. That we maintain. Again, we keep talking about premiumization and we keep talking about the reputation of our brands.
The fact of the matter is that despite whatever challenges we've had in the market in terms of overall demand, the growth that we are seeing in our premium products is once again an evidence that the product that we've created and what we launched in the market at a fairly significant premium. I think our premium in the market is the highest on our premium brands. Despite that price gap over our normal cement, which itself is a very good quality. In Q1 of this year, the overall proportion of our premium cements put together has reached 23%. We are very closely from the beginning when we started, our target initially was 10%, then we said we want to go to 25%, and 23% has already been achieved.
I'm quite sure by the time we end this year, we will hit the target of 25% and we'll revise it upwards. Navin Sahadeo today is on the call right now. I just like to remind him, when we were launching our first premium brand in 2018, Navin's question to me was, what's your ambition for this premium cement? Because obviously, premium cement at that time was something quite not expected in the cement industry. I don't know whether Navin would recall, my promise to him was my bold order would be that Orient Cement actually should be selling only concrete and nothing else.
I do.
You remember that, Navin?
I do.
We are well on track. Let's see how long it takes us, but we are in the direction where we should be selling only premium cement. We are not deviating from that strategy. It is not a new strategy. I am not saying it because we lost volume in this particular quarter. I said it about six years ago, and that kind of a strategy needs execution which is unwavering. We are glad that we are doing that, and we keep making progress quarter after quarter. Now, coming to a little more details that all of you are always interested in. In Q1, our overall sales breakup in the West, we have sold 68% of our Q1 volumes, and in South it has been 24%. Obviously, West is even higher than what it was earlier.
The de-growth obviously is largest in our southern markets, which is basically Telangana and Karnataka, where we sell most of our cement in South India, which is in fairly strong double- digits, whereas Maharashtra is also in terms of total. Our sales to Maharashtra, although 68% as a proportion of my total sales, but in which just a minute, the de-growth in Maharashtra for us is 5.5% over last years compared to high double- digits in Telangana and Karnataka. B2B sales in Q are sort of in a way, slightly higher because the consumer market in itself are at very low level. The OPC as a percentage of our total unblended cement continues to be between 45% and 47%, in that range.
I think the last investor call I had updated a little very early May. I said that on 29th of April, the second phase of our waste heat recovery, the balance also had been commissioned. I am happy to now report that with the waste heat recovery, which became fully operational and available to us in the two months, which is month of May and June, and the solar power that we've been receiving, our total, I would say, green power component in Q1 has reached a high of 24%, which is ever highest for us, which is a good position to be in.
The benefits from waste heat recovery in Q1 itself, despite the fact that part of it was available only for two months, and also the production was not because waste heat recovery actually gives you a lot more benefit when you're running the plant all the time. Which obviously with low demand has not been possible, and we've had to take shutdown in Q also. But despite that, in the first quarter, the gain from waste heat recovery is close to INR 9 crores. And solar has given us a net benefit of over INR 2.5 crores. So these are the benefits of going green, at the same time giving value to shareholders. Our plan for expansion of solar power, which we have taken the approval from shareholders some time back. At Jalgaon plant, out of the 3.7 MW that we've proposed, 3.4 MW is already operational.
Some small bit is left, which should get operational any day now. The Chittapur thing that we were actually putting up for about 17 MW, that unfortunately has been delayed a little bit for us, and that will come into operation, I think in maybe five to six weeks' time. By mid-September, we expect the solar at Chittapur also to start contributing. So once Chittapur also comes in and waste heat recovery, I think the proportion of green power that we're using will go up even higher. So that's the break-up on how we are doing power. In Q1, the power and fuel costs for us are down to INR 1,337 per metric ton of cement, which is down from INR 1,571 in Q1 of last year. So obviously there's a significant drop. And sequentially, again, there's a little bit of gain there.
In Q4 of last year, we were at INR 1,351, which is now down to INR 1,337, as I mentioned. And this, let me remind you, INR 1,337 is despite the fact that we are doing in the high 40s as a percentage of OPC blending, which takes a lot more power. Our product mix right now is adverse because the OPC sales are much higher than what we would like to happen. The blended fuel cost for us has been in this quarter at INR 1,785 per million calories.
Some people want to call it INR 1.785 per calorie, but we typically have been quoting million calorie. So INR 1,785, which last year in the same quarter was INR 2,100. But quarter to quarter, basically sequentially, it's almost flat. The blended cost per ton of fuel. The fuel mix, all of you remain curious about. I get questions later as well in the call right now.
Its domestic coal is 40%, petcoke 42%, alternative fuels are 18%. That is the mix that we have. The fuel mix in TSR terms, if you want to take it, petcoke gives us a lot more of calorific value per ton. Then it will become 31% coal and 56% petcoke in terms of calorific value. But in terms of weightage, as most of the industry reports here, 40% and 42% calorific. If you go as per calorific value, 31% coal and 56% petcoke. In terms of the total renewable power, I have already mentioned it is already 24% versus last year same quarter it was 12%. I have already updated you about the more solar power that will come in soon. Very small part left at Jalgaon. Balance at Chittapur will come in September.
That will be a very small part in this quarter, but thereafter it will start becoming available. For us, the alternative fuels in this particular quarter have been slightly lower at 13% on TSR basis, which last quarter was at 16%. But if you compare ourselves with last year, we were at 5% only. So from 5%- 13%, we feel jump and we keep increasing our efforts to maximize usage of alternate fuels. As I mentioned to you there, the benefit that we have achieved from that has been very significant as high as nine. That is the wrong number. I will come back to you, but there has been obviously more than double of what we consumed as on alternate fuels over last year. In terms of other metrics that people want to follow, in this particular quarter, our overall heat and power has been similar.
But some marginal increase in grinding power, simply because when the machines are not running full and because of low volume, there are lots of stops and starts, which become, again, some inefficiency. Some slight increase in the power total consumption to 62.7, which was sequentially up to 61.7. So lower volumes can thus give us more inefficiency. But in terms of heat consumption, we are marginally lower. There is a marginal increase there. Heat consumption for the company as a whole has been 6.9 in Q1. Further breakup, if you people need. Power costs for us in this particular quarter has been at INR 397 per ton of cement. Usually Q4, that is sequentially the INR 401 But if you look at last year, it was INR 456 and below. It is down to INR 397 now.
Almost INR 60 drop largely coming in from the waste recovery that we have installed at Chittapur. Fuel cost per ton is, I am giving you the purchase price, but I am talking in terms of rupees per ton of cement. The fuel cost is down to INR 939 from INR 1,113 last year and INR 915 the preceding quarter. In all this, as you would see, in terms of efficiencies, we keep sustaining. In terms of promised renewable power and green power, we are doing our job. Alternative fuels, I have already mentioned, we doubled over last year. Our premium brand strategy seems to be panning out quite well. And we continue to follow our strategy of not trying to downgrade our brand in the markets. That leaves me, I think, with some updates on the projects before I open to questions.
Our project now, last time I had mentioned that we were struggling with the application to be moved for environment clearance for our Chittapur plant, which has been overdue. The fact of the matter is, till the central elections, general elections got over, the new government got formed. Somehow, the minutes of the public hearings that we had already conducted were not signed. But after that, they have come in. Based on all the paperwork, our applications for environmental clearance for expansion of capacity there, and also for expansion of mining, both of them are already on the portal of Ministry of Environment, Forest and Climate Change. There's some delays here because obviously central government got formed recently, ministries, a lot of shuffle of bureaucracy that will happen.
We are still expecting that hopefully, in the meeting that they will hold perhaps towards the end of August, our application would be coming up before the committee for presentation. All the paperwork has been done. So it's a question of now going through the process of presentations to the committees in Delhi to Ministry of Environment, Forest and Climate Change, and thereafter a few more weeks before we get the approvals, which will enable us to then start taking further action for implementation of the project. So there is a progress there. For Sarni, we are told that the one term which we wanted altered, we understand informally that the board has agreed to our request. But we have received no formal intimation as yet. Only after the formal intimation is received by us, we'll make the necessary disclosures to the authorities. But right now, progress is there.
It's looking promising. But we'll wait till we get an official letter from the Madhya Pradesh Power Generating Company Limited confirming that the terms offered are acceptable to them. So again, not too long because the board meeting got over about two weeks ago. So very soon the minutes should be out, and thereafter we should get a formal letter. On the forest clearance for Devapur mines, again all the processes are over. The file has finally reached the Minister of Forest in Telangana government. So that minister has to just now sign the file and send it across to Delhi to MoEF for evaluation by the central government of all the forest conservation measures and all that we put together. That, again, we are at the very advanced stage of clearance now. Because once it moves from Telangana government, like I said, rest of the government is in process.
It's with the minister for her to forward it to Delhi. Only thereafter we'll talk about the thing. As I said earlier, the priority remains Chittapur capacity expansion because we keep seeing more and more demand coming from that. Also to improve the situation for capacity utilization of existing kilns itself, existing capacity of kilns. Sarni would be the next priority. There's no change in that priority. In terms of CapEx, I think, seeing that we're already in the month of August, and it will only take three, four months before we can start doing some activity. The CapEx that I keep promising seem to be sort of something which keeps getting pushed back. I personally don't think there'll be too much of CapEx outflow on the projects at Chittapur.
It could be just a couple of hundred crores or something when we start doing the advance, we keep equal to mobilize and things like that. But the real investments will perhaps more certainly come in the next year because currently we are starting very start construction activity. Similar thing, I would think Sarni also will take about six months for the grounding unit for us to start some activity. So the CapEx fund, I think we will have a lot of cash with us by the time we start the heavy loading investments. But in the meantime, in any case, we are beginning to touch base with some banks to see whatever money we need to borrow to complete these two projects at a total cost as we keep talking of nearly INR 2,000 crores between Chittapur expansion and Sarni.
We are ready now. But the delays in environment clearance have been delaying our project execution schedules. But unfortunately, it could not help it. In the meantime, the demand has also not been that great that we miss a lot by not being able to add more capacity. So that, to my mind, are all the updates that I wanted to share, and I will open the forum for questions and we will be happy to answer. Thank you very much, guys. Thank you for your patience.
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 the 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. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Keshav from HDFC Securities. Please go ahead.
Hi. Thank you for the opportunity. Sir, just want to understand the Chittapur and MP expansion, which was earlier expected in H2 FY 2026, now in all likelihood, that will slip to FY 2027. That is the perfect understanding?
Look. Okay. It could be early FY 2027. I am not able to say because I still don't have all the clearances that are in hand. A little bit of uncertainty possibly. It is probable that Chittapur certainly we could be, say, clinkerization and the grinding all put together. Certainly, the simpler place because already inside the premises of a power generation and the grinding unit should normally take less time than a full integrated capacity. But yes, your anxiety perhaps is well-placed because I still don't have all the clearances that I need to start construction activity.
Understood. Got it. Few operating metrics number like trade share and lead distance for this quarter.
Lead distance, as I keep saying, is slightly marginally higher. We continue to be in the region of 310, 320. We have not violated that at all. So there is not much difference in terms of the distance traveled and in terms of freight cost also, we are more or less freight aware the previous quarter. The question was, can you just repeat the other one thing that you had mentioned?
Trade share.
Trade share for us. There's something. I did mention that B2B sales is perhaps 56% and balance 44% will be trade.
Okay, understood. One last question from my side. I want to understand how is the demand now shaping up in Telangana market, which has been pretty weak. We are seeing high double-digit de-growth. Any signs of pickup or when will it happen?
Well, during the monsoons, in any case, the demand is further lower. I mean, the fact of the matter is what we've seen of this quarter so far, the demand actually continues to be very soft all across, not just in Telangana. But Telangana as a market, we still have to see real signs of demand picking up because the necessary support and the atmosphere that needs to be there for people to start doing more investments and thereby increasing the demand. As of now, signals are still too much. We continue to remain worried about Telangana demand.
Understood. Got it. What sort of volume growth you are guiding for this year? Earlier you were guiding 8%, but that doesn't look now achievable.
If you permit me, I think, let me go through this because we've already had 15% decrease in Q1, right?
Right.
Q2, as of now, I think we'll struggle to make the same as last year. If the first half of the year does not give us the required growth, obviously the full year forecast needs to be relooked at. I'm going to wait till the monsoon gets over because the advantage with a heavy monsoon, the intense monsoon, the kind we're having right now, is that post-monsoon, the demand picks up very sharply. That is the normal trend that we've seen in the past. The two things happen. One, there's a lot of pent-up construction which did not happen because there were intense rains. One is that. Secondly, the extensive rains also cause a lot of damage to infrastructure and housing. So a lot of demand comes from the repairs work itself, right?
Why we would expect, given the past trend, we expect the demand to pick up in the second half, but I'll perhaps hold my forecast for now and see how the markets behave by the time the monsoon will end. So next time we meet, I'll give you a better idea. Right now, whatever I thought, it will be like a dark film on the board. There's no data that I have to base on to say, oh, I'll go by this much in this year.
Perfect. Got it. That is helpful. Thank you. That's it from my side.
Thank you.
Thank you. Our next question is from the line of Sumangal from Kotak Securities. Please go ahead.
Yeah, good afternoon, sir. Thank you for the chance. My first question is on this quarter's performance. In our opening remarks, we compared with the last year, same quarter, but just want to know if that is appropriate because if memory serves us right, last year we had something around INR 25 crore- INR 24 crore of impact because of extended shutdown at Chittapur. That is around INR 150 on a per ton basis.
No, no. 25 crore is never a cost of shutdown. Shutdown only cost around between INR 8 crore and INR 10 crore, never INR 25 crore.
Okay. There was some adverse logistics and fuel mix because of the shutdown. Overall, I think the impact was around INR 24 crores if our notes are correct.
Well, that is your calculation. I am not privy to that.
Okay. Was there any shutdown in any sort of maintenance-related activity this quarter?
Some small maintenance activities have happened at both the plants, but not a full plant shutdown yet. It is not that there is zero maintenance cost when we are running the plants.
Okay. Understood. Sir, with respect to mining lease in Rajasthan, has there been any start of land acquisition happening there? If you could just share some update on that.
No. We are in negotiations, but we have not closed any deal for the land in Rajasthan. Not till now.
Understood. Sir, as far as 2Q is concerned, is it possible to share how is the price environment currently in July? Year-on-year, should we continue to see volume decline given the adverse weather, or we should now come back to growth from 2Q onwards?
As I mentioned while answering the previous question, I did say that during monsoon, we have actually seen July also has been very, very soft, both in terms of volumes and in pricing. August first five days, same thing is continuing. I think today I was hearing from some of our markets that the rains are not there after many days, because basically it is rained every single day. At times very sharp, at times not so sharp, but in our market, the rains have been persistent. Obviously, I did mention that while monsoons always present a struggle in terms of volumes, and I have just said, in case you heard the previous answer, that we are struggling during the monsoon period, and we will perhaps struggle to meet what we did last year in this particular quarter. But the expectation is post-good monsoon, demand has always been far stronger.
I did say that just two minutes back. I will repeat that again for you. We do expect the demand to rise sharply once the rains stop because the construction activity has been held up. There is a lot of pent-up catch-up work that needs to be done, and there will be a lot of repair work necessary, which has been caused by extensive and very heavy rains to roads and to bridges. The repair work itself generates its own demand for cement.
Understood, sir. Is it possible to quantify the pricing, how soft it is on a sequential basis in July?
I would say it is in the region of 2.5%-3% in July over the previous quarter.
Understood. That is very helpful, sir. Thank you, and all the best.
Thank you.
Thank you. Our next question is from the line of Rajesh Kumar Ravi from HDFC Securities. Please go ahead.
Yeah. Hi, sir. Am I audible?
You are but slightly. Very well. I have to really struggle to hear.
Yeah. Just one. Yeah. Is it better now?
Oh, a lot better. Thank you.
Yeah. Thanks, sir. Sir, my question pertains to, first on the expansions program. You mentioned that the clearances and all is delayed for Chittapur. So for FY 2025, versus INR 1,000 crore CapEx which you had guided earlier, what are the probable CapEx which will happen in FY 2025?
Again, the first question that I cannot remember. I think just a couple of maybe INR 200 crore-INR 300 crore, not more than that.
Okay. In that, you mentioned INR 100 crore odd will go towards Chittapur. This MP, what sort of CapEx you are building in the same?
In FY 2025, I don't think that Sarni would be more than INR 25 crore-INR 30 crore. Not more than that.
Oh, only INR 25 crore. In Rajasthan, nothing expected?
Rajasthan, it all depends on the land purchase. That probably will keep trying, and in this year as I had said. Land deals, when they start happening, they can happen very quickly. But I'll still say maybe INR 100 crore for Rajasthan I'm keeping with me in July in invest in Rajasthan for acquisition of land purely.
And similarly for Devapur, you are not expecting anything to happen this year?
No. Devapur, the moment stage one clearance, forest one clearance comes in, that about INR 130, INR 140 crores that I have In fact, I have talked about more. I have talked about typically INR 150 crore thereabouts that we will have to pay to the government to finally get the stage one clearance converted into stage two clearance.
Okay.
That has to happen in this particular year. That is very critical for us.
So that is around INR 125 crore you are building for the same.
Take INR 150 crore.
INR 150 crore. Okay. If I look at just your brownfield expansion potentials at both this Devapur and Chittapur, what are the peak capacity potential at both these locations, even if you do it gradually?
No. If you do, as I mentioned, the plan is to put up another 3 million ton cement capacity at Chittapur. Same to what we have today, we would like to double that straightaway.
Three to six. Okay? Devapur is divided into two parts. One is the clinkerization at Devapur, and second is the grinding capacity, right?
Right.
Because at Chittapur we are doing entire grinding on site, but at Devapur, we are going to be putting up this 2 million ton grinding unit in Madhya Pradesh. That speaks because Sarni is the main location we are going to be putting up, right?
To that extent, Devapur will do clinker expansion and only 1 million tons of additional grinding. The two together.
Correct.
All right?
Yes.
That's the configuration.
I would rather do Sarni first so that my even existing utilization of clinker at Devapur right now is a little low. My hurry would be to go to a new market using Sarni as a grinding unit and increase my capacity utilization of clinker at Devapur, and parallelly, once that grinding unit starts from there, then come back to Devapur to do the clinker addition.
Correct. The project cost, which you had earlier enumerated, INR 2,000 crore for MP and Chittapur combined, will that remain or-
MP and Devapur you mean.
Ha, MP and Devapur.
Yeah.
Sorry, 2,000 is how much? MP and Devapur together is 2,000, you are saying?
No. I think that will be slightly higher than 2,000 because we did talk about Devapur putting a waste heat recovery plant also. We have to put up a wagon tippler and some of the infrastructure that
Chittapur has adequate infrastructure, but Devapur will need more. Devapur will come later. Right now, let us focus on Chittapur, INR 1,500 crores and INR 500 for Sarni. Then, in terms of project, the two different projects are totally CapEx will be around INR 2,000. When you were saying, I got a little confused because Chittapur and Sarni are not connected. Yes.
Correct.
If on arithmetical addition, it will become INR 2,000 crores between the two of them.
Okay. Devapur, any number for the program that clinker addition or 2 million ton clinker and 1 million ton grinding waste heat and the chipper system that you are trying to ballpark, what sort of CapEx would be required?
I think by the time we complete it will be more like INR 1,700-INR 1,800 crores, it will become.
Okay. Great, sir. I will come back with you. Thank you.
Thank you.
Thank you. Our next question is from the line of Navin from ICICI Securities. Please go ahead, sir.
Yeah. Thanks for the opportunity. Sir, a couple of questions. First is on prices, and I know that you never give a guidance on prices. You said you've always maintained that stance. But since consolidation, the likes that we have seen in South, do you think there's enough consolidation that is already there to hope that prices should improve? Or in your view, what could be that one trigger, so to say, or one event that can lead to improvement in pricing scenario at a broader industry level?
Navin, that's a very tricky question for me to answer because people who are doing the consolidation have their strategy known to only themselves. So how do I answer that? Look, end of the day, pricing in an industry where capacity utilization pan India still remains, it struggles to get to even 70% on pan India basis, right? The only way prices become stable is when people accept the fact that trying to sell to the market more volume at a lower price does not help anyone. It does not help that company, it does not help the rest of the industry also. Now, that's rational thinking.
But when the business decisions start getting driven not so much by immediate profits, but either a longer term strategy of saying, I will win, but in the short term, I don't mind losing. As long as that approach remains, it's very difficult to, in a way, for somebody who's on the sidelines like me, to comment on which will be that event in which people will regain the priority for profitability being the top most priority. And here, the worry is, the industry leaders, and we know there are two large groups, both of them are right now in the mode to acquire more and add to their capacity. Even organically, I think they are building more capacity, right? And when they build more capacity, if they decide to prioritize their volume push higher.
Right.
Prices will always remain under threats. That's a fact, right?
Right.
In this aggression on adding to capacity both through acquisition and through organic construction, and also to utilize all the capacity when the industry is not growing at that pace, would always be detrimental to pricing. That's what our learning is. A particular trigger, it's difficult to say what the trigger would be. It's just the normal business sense that if you're adding capital. See, when you're adding capacity, what are we doing? We're actually investing more capital of the shareholders.
Right.
If we say we are not so keen on improving the return on the capital, we are more interested in getting the market share and getting the volumes in, then we're chasing a different target compared to what the shareholder would want.
Correct.
Shareholders want their investment to be profitable and accretion to their wealth, right?
Yeah, absolutely.
That's the theory of business that I have learnt, and as far as I'm concerned, that's the only thing which finally works in the long term. But there are periods in the industry, in any industry or in the market where these things are given a go by in pursuit of some other business strategy, which may be rational from that company's perspective. I'm nobody to criticize that. Because they're investors of their company. If they decide it's okay for us to reduce the return on capital that I'm employing, that's their view. There's nothing that anybody can say about it. So it's that battle between investing more capital and reducing cost, return on capital employed. If that is the strategy, it can only come by a loss to the entire industry, not to just one company.
Understood. Sir, my second question then was about the strategy stance for Orient . As you already mentioned that there are three sites that our CapEx is going to be pursued. First is of course, Chittapur, and simultaneously then Devapur, and some along with the land acquisition and maybe a project is in sight in Rajasthan as well. From a strategy perspective, since these are big ticket CapEx plans, is there somewhere a thought that we can, because there are companies who have done that we can monetize the limestone lease in the Rajasthan bed, which is not our core market as of now, and gain or rather strengthen our market presence like we are doing, prioritizing Chittapur and then Devapur. So is there a thought process that we can look to monetize the limestone in Rajasthan?
Navin, I can only talk about the strategy as approved by the board, which I think at a particular time, everybody was very concerned that we must try and diversify our market because we are too much south in Maharashtra, we should go. Rajasthan, the only opportunity available to us, I would say, at no cost of having to acquire limestone mines in another market. Because these days, the mines come to you through auctions and they put additional costs on you. Rajasthan is our best opportunity to actually diversify our markets at costs which are not crazy. I don't think our board is even considering the possibility of monetizing the Rajasthan mines now.
Understood, sir. My last question is, for the Devapur location, can you please remind if the limestone that we get there, the royalty is standard at par to the industry rate or is it linked to some IBM related formula now or for the expansion that we are looking at?
No. Devapur mines are the same royalty. Royalty everywhere is the same, which is fixed by the central government and that is levy on the minerals. If, let us say, the new Supreme Court ruling which has come recently, which has given powers to state government to levy more taxes. That will create, I think, state to state variation that might have a potential depending on where the state wants to levy more taxes. But I am telling you the situation as it pertains today. It is same INR 80 per ton royalty on limestone mining that everybody pays in India, including us.
Understood. That is really very helpful, sir. Thank you so much for responding.
Thank you.
Thank you. As a reminder to all participants, please press star and one to ask questions. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
Thank you. I always end by just thanking all of you to patiently hear me out at the start, ask me questions which enable me to clarify the situations further. Thank you for keeping faith in us. I know we are playing with a contrarian strategy to the rest of the industry, and what we can promise to you is that every decision that we take, we are accountable to all of you. We will come back and keep explaining to you how we are doing it, why we are doing. But the goal all the time is to make sure the long term of this company is being protected through whatever actions that we can take as management of this company. Thank you for support and trusting us. Grateful to you. Thank you.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you, Navin. Thank you. Bye-bye.