Ladies and gentlemen, good day and welcome to the Q2 FY 2021 earnings conference call of UltraTech Cement 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 statement on the basis of any subsequent development, information, or events or otherwise. 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 call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded.
I now hand the conference over to Mr. Atul Daga, Executive Director and CFO of the company. Thank you and over to you, Mr. Daga.
Hi. Thank you so much, Raymond. Good evening, everybody. Thanks for joining us today and hope that all of you are staying healthy and safe in these times. Unbelievable but true, office space seems so redundant. I visit office just to keep the memory alive of what it looked like and hopefully it will be a monument about which I will narrate stories someday to my grandchildren. I wish and pray that all of you and your near and dear ones have been safe and are doing well. I'll try and focus today on the key parameters governing the industry and UltraTech, namely demand, prices, costs and CapEx. In the early days of the pandemic, there was a marked shift and concentration of demand from the rural markets for reasons which we are already aware of.
What was thought to be a pent-up demand actually has sustained and strengthened over the past few months. Migrant labor is coming back and still not coming back. Good monsoons are all helping the rural markets grow. Over 50% of the rural districts have shown a growth over their past peak performance. The impact of COVID-19 has been lesser in rural markets as compared to Tier 1 markets. Districts having rural demand of 25% impacted as compared to 50% in urban areas. Farmer welfare expenditure is up nearly 100%. Other rural industries are also generating a good growth like fertilizers, seeds, et cetera. Both state and central government are increasing the focus, allocation and release of funds on rural housing. MSPs have been increased, second consecutive good monsoons this year.
To sum it up, our expectation is that there will be an overall improvement in rural aka retail, aka trade markets over a sustainable longer period of time. The uncertainty in the crowded urban markets will give a further boost to the trade ratios. Urban demand also is, however, slowly and surprisingly coming back as the company goes through its unlock program. Here we are where initial thoughts were that the economy will come to a grinding halt. We saw rural markets with a pent-up demand doing good for cement industry. In came the government spending program gaining momentum, payments being released on time and we are seeing infrastructure growth also happening. Tier 1 towns are seeing opening up of real estate markets. People are wanting to buy their own space or larger space and we are seeing good traction in urban real estate also.
Albeit it's very slow, it will take time to show some real growth. All these factors put together are in any case very good for the industry. Government trust and spend on infrastructure is one of the key drivers as I mentioned. Housing demand is definitely showing green shoots. Cheap housing loans and the need for space is spurring some demands. Gujarat which was amongst the bottom two states in terms of demand has also started showing signs of recovery towards the end of this quarter. Maharashtra is still to pick up. Though the large projects like coastal roads, metro, Mumbai airport extension, expressways continue to keep our manufacturing plants busy, but that is not enough because of the high base which Maharashtra as a state has because of its fairly developed state of economy as compared to the other states.
Eastern and Central markets have literally brushed aside the COVID impact and running full capacity with solid demand. North markets have started picking up largely driven more by infra projects by the government in the road project except the NCR markets where we are starting to see housing market picking up. It is generally the rural retail demand that has shown big traction as compared to the other markets. South looks promising with Andhra getting into good demand from the state capital cities, the irrigation projects. The remaining South states also, Tamil Nadu, Karnataka are starting to see positive movement in demand. As I mentioned earlier, Gujarat which had been one of the slowest states has also started growing. Demand seems to be playing very well along for the industry. Costs. If I were to talk about the costs, petcoke is no longer flavor of the season.
With crude production down, demand for aviation fuel down, demand for automobile fuel down, petcoke production has also come down. Added to that, cement industry went all out to buy petcoke which has shown increase in prices of petcoke. Today as in October, the prices have almost reached $100 if one were to buy for deliveries of January. However, as I mentioned, petcoke is no longer flavor of the season because cement industry is switching to alternate high calorific value coal which is today cheaper. Diesel, you've all seen it's up 13% this quarter, which does impact our logistics costs. At UltraTech, our journey on overhead reduction continues. In first half of this financial year, we have seen an overall reduction of 14%, which is roughly INR 450 crores. We are very confident of our mission to reach a sustainable reduction of INR 500 crores, for a year-on-year basis.
You might say that INR 450 crores has already been achieved in first half, then I am telling you a smaller number for sustainable basis, but this INR 450 crores is not necessarily sustainable. That's what I had mentioned last quarter also. As things start opening up, as economy starts opening up, spending will definitely increase. Let me now touch upon prices. Cement prices have come off marginally over the last quarter, but that is so normal about seasonality, similar trends so normal about the monsoon quarter. I have also heard about prices hardening in some of the markets as monsoons have started receding. I strongly suggest not to read too much into these price movements. It will not be prudent to analyze every price increase into profits because price movements are like your stock market prices, today up, tomorrow down. To talk about our last acquisition, Century, it has been fully integrated.
The assets have achieved an operating EBITDA per ton of over INR 700 this quarter, which is a maintenance quarter. Brand transition has been slow because movement of people has been restricted. We are hopeful to complete the brand transition before the end of this financial year. We are now investing in 20 MW of WHRS at Maihar and Manikgarh, two of the units of Century, which will result into further cost reduction and improvement, thus an improvement in EBITDA per ton. These projects are scheduled to get commissioned by March 2022. At UltraTech, we remain focused on de-leveraging, integration of our acquired assets. We have pared down our net debt by about INR 2,500 crores this quarter on the back of INR 2,200 crores that was reduced last quarter. I'm referring to net debt because we are carrying a treasury surplus on our balance sheet of over INR 10,000 crores as of now.
Keeping liquidity is always helpful in these times, just in case some sweet opportunity knocks the door. Yes, of course, the treasury surplus in our company generates a positive carryover borrowing cost. Otherwise, it would not make any sense of carrying the treasury. This brings me to the point of ROI and ROCE, which is quite often investors have asked me about our performance. If you were to exclude the treasury surplus of INR 10,000 crore, non-core assets which are being held for sale, the annualized ROCE that we are generating today is about 12% and ROE is improving, it has reached about 10% and will continue to improve going forward. This will further improve when the assets like the 2.3 million ton Dalla Super clinker plant and the line two Bara plant get commissioned and start generating revenues and profits. Both these assets have already been paid for.
We expect to commission Dalla Super clinker line sometime during the next financial year. The legal clearances and work on phase 2 Bara is in progress, a bit slow, but on track, on course. On our CapEx plans, there are delays on the 3.4 million ton brownfield expansions in West Bengal, Bihar, and the greenfield Cuttack plant. Largely due to the COVID impact, I'm sure we will be able to complete these projects in FY 2022. Eastern markets are expected to continue to generate strong demand, hence we are very focused on executing these projects at the earliest. All these CapEx plans are being funded with internal accruals, we are on course to reach a net debt EBITDA between around 1x by the end of this financial year. We are already at 1.22x at the end of H1.
Let me now talk about what we are doing on environment sustainability. We at UltraTech are very conscious of our commitment to build the country's infrastructure, as well as reducing CO2 emissions. Somehow both these goals get conflicted since good infrastructure needs good quality of cement, and to manufacture good quality of cement, there is a lot of CO2 emission. UltraTech will not compromise on the strength and durability of its products. As I mentioned, high purity OPC cement consumes more limestone and results into more emissions. How is UltraTech balancing both halves? The benefit of cement we make ultimately help reduce auto fuel consumption, reduce the number of automobiles that plow the road. The metro network, the expressway, the bridges that are built with our cement are definitely helping reduce CO2 and also helping build the Indian economy. We are working for the future in the present.
In these COVID times, we were able to complete work on one of the WHRS projects, taking our total capacity to 125 MW. We expect to commission additional 60 MW by FY 2022, taking our total tally to 185 MW of WHRS. There's the expansion plan of another 60 MW to reach our peak capacity of 245 MW, forming 20% of our total power consumption. Added to that, we expect to commission solar power of 350 MW and along with the alternate fuel that we consume, by the end of FY 2022, green power will constitute 30% of our current energy consumption. That is what is our contribution to Mother Nature. UltraTech is a firm believer of delivering our product to customers in markets with lowest impact to environment. To manufacture and deliver a product, there is involvement of large-scale logistics movement.
Last time when I had taken stock, we were moving 28,000 trucks on a daily basis. This number I'm referring to is somewhere in FY 2020. Things are much slower in the current pandemic times. We look at all options to transport raw material and cement and prefer to adopt low carbon transport options. Last year, a significant portion of our material and products was moved using railways. As you know, rail is less carbon-emissive mode of transport as compared to road. If we had moved the entire quantum by road instead of by rail, it would have emitted additional 3 million tons of carbon dioxide into the atmosphere. That is what we saved last year by not moving materials by road. This year, we have kept predominantly using rail and already resulted into carbon savings of more than 1.25 million TCO2.
The first half of the year, we have scaled up our ambitions and actions in climate change. I would therefore like to highlight two key actions in this area. Our company, a founding member of GCCA, Global Cement and Concrete Association, has committed to the 2050 climate ambition announced by GCCA on behalf of all its members. UltraTech has also committed to Science Based Targets initiative, SBTI. This will enable the company to set climate targets aligned to the Paris Agreement. Before I conclude, let me share with you how we have been dealing with the pandemic. No doubt, the impact of COVID-19 is unprecedented beyond imagination. It is affecting everyone worldwide in every aspect of our daily lives. UltraTech has emerged stronger and well-prepared in the wake of the ongoing COVID pandemic, managed the crisis with sharp focus on operational efficiencies.
We led the response with timely precautions and creating business continuity plans, focused first and foremost on ensuring the safety of our people. We are adapting to newer ways of working in every sphere. The company has laid down very strong SOPs for the safety of people and efficient running of our operations. As of today, we have just about 108 active cases across the company having a strength of nearly 16,000 people. Sadly, we also lost four members of our team out of the 16,000 to this damn virus. We have been increasingly working with digital technologies to help us calibrate our ways of working and collaborate more effectively. We recognize the need to ensure business as usual, and are working with experts to achieve this for our customers, our people, and partners in the value chain.
Thank you very much, ladies and gentlemen, for sparing time from your busy schedules and joining us today. With this, I end my commentary, and I am happy to take on any questions.
Thank you very much.
Over to you, Raymond.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.
Good evening, sir, firstly, congratulations to Mr. Daga on a great set of numbers. My first question is on the volumes. You've done 8% on a like-to-like basis, which appears much better than industry. If you could start with just sharing what are thoughts is on our performance versus the industry in 2Q. If you look at last few quarters trends, it appeared that we are growing tad lower than the industry, which appears to have changed this quarter. Is there a deliberate change of course or any change in strategy? Your thoughts, sir, please.
I think pandemic has helped us in a way to increase our growth, better coordination amongst everybody. This is a network of 50 plants, and I don't even know the headcount of marketing people who are there out on the field. The coordination is going up and no order is being left unserviced. If Plant 1, Depot 1 is not able to service, immediately the order is picked up by Depot 2 and serviced. That is the only benefit, or I don't want to call it a strategy, but that is how things are moving right now. I don't really agree whether we've been de-growing the market in the prior periods. We have been growing because we've added new. Acquisitions don't often start ramping up at the same pace from day one. It takes time. You look at the consolidated numbers, obviously, it does not reflect properly.
Why is it that you should look at counting Century into my base when I was not operating that asset? When I put up tomorrow the 3.4 million ton of east capacity, there is no base effect. Consider this acquisition also as any organic or inorganic capacity. Why should it get counted in the base? There are several players when they announce their results, they show you a double-digit growth. If you analyze it properly, in the base, the volume was not there. Similarly, if I were to exclude Century volume, which has been included in our numbers because of NCLT order, UltraTech has grown 20% this quarter. UltraTech brand, that is far more compelling reason to be happy about. UltraTech brand has grown 15%, and that's not a joke. At a size of 115 million tons, if we are able to grow brand at 15%, let's see who can achieve it.
Got it. Sir, with respect to industry, how has the industry fared? Any sense on that in 2Q?
We will outgrow the industry for sure.
Understood. Sir, second question is with respect to the cost. We had a target of around 10% reduction in overhead cost and looks like from the run rate, our cost control is much more tighter and we are well above that target. Any latest thoughts you would share as to how we are doing on this overhead cost and other fixed cost reduction?
As I said, today H1, we are at 14% reduction. By the end of March, we will be at that 10% because this extra 4% reduction, which happened in H1, is more about not being able to spend. There was no need to advertise in Q1 or Q2. It's later part of the Q2 only when ad spends have started happening, and ad spends will be regular in H2. I will do a catch-up, and our target was, let's say, INR 500 crores per annum, INR 500 crores-INR 550 crores. Annualized number, which we have done INR 450 crores, and I specifically mentioned in my commentary also, we should be doing INR 550 crores per annum on an annualized basis.
Understood. I have more questions. I'll join the queue back. Thanks and all the best.
Thank you.
Thank you very much. The next question is from the line of Ritesh Shah from Investec. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Congratulations on good set of numbers. Would it be possible for you to provide some color on white cement and putty market? Specific comments on market share and profitability will be quite useful. Some color on the RMC margins, please, sir. That's the first question.
I think we have been gaining market share in white cement also after some setbacks that we had to face in the last few quarters, but without losing price positioning. RMC is doing all right. Total revenues from RMC were about INR 434 crores. White cement was also around the same number. RMC is very fragmented and very difficult to measure market share in RMC because the unorganized players are far higher than the organized players. I don't have any other comment on white cement and RMC, unless you have any specific questions.
Sir, would it be possible for you to quantify the market share or the volumes that we have locked this quarter or in first half? The sense that I have is basically we have lost some market share over here. Please correct me if I'm wrong. [Non-English content]
White cement, we have gained market. Hello? White cement, we have performed very well.
Sir, putty?
When I'm saying white cement, I'm talking about white cement, putty combined.
Putty together. Okay. Thanks. Sir, in the initial comment you did indicate a sweeter opportunity knocks the door and we are holding a good chunk of treasury. What is our thought process, sir, over here? We have done a phenomenal job on the balance sheet side. You did indicate year-end leverage ratio that we would end up at net debt to EBITDA. But from a capital allocation point of view, how should one look at it? Is it like we are chasing growth or should one expect a higher dividend payout going forward?
Higher dividend payout is still a long way away for UltraTech because cement, if we expect to grow at a 78% CAGR over a longer period of time, we will have to invest a lot of money. All the cash flows that get generated will be deployed back in the business, whether organic or inorganic. In my earlier commentaries, I have told you that we are geared up for about 50 million tons of expansion till 2030. First of which, Pali will be rolled out. We will start work on Pali in the next calendar year, depending upon, we get into order placement and finalizing all the details. We'll start getting into that, and then we are putting up our expansion proposals to the board. Once the board approves, I will come back to you.
Okay. Great. I'll join back the queue for more questions. Thank you so much.
Thank you. The next question is from Gunjan Prithyani from JP Morgan. Please go ahead.
Hi, sir. Thanks for taking my questions. Just two questions from my side. Just trying to understand this volume outperformance a bit better. Is it that you saw the non-trade markets also recovering in this quarter and that could position us in a better position? Is there anything to read in terms of trade, non-trade market share out here? If you can just give the mix also, what is it now for UltraTech?
Yes, non-trade market has started picking up, as I was mentioning. Lot of infrastructure projects coming back into stream. I think our trade/non-trade share, correct me, guys, Mukesh, 71% would be trade.
70%, sir.
Sorry, 70% is trade.
Okay.
It is down from non-trade has started picking up momentum.
Sorry, sir, I missed that remark. It is versus last quarter, how is it?
It's come down to about 70%. Last quarter, it was about 78%, 77%-78%.
Okay. It could be that [audio distortion]. Yeah.
It is better than last year.
Yeah. It's still higher than last year. Last year we would be around 66%-67% on trade. We are now at about 70%-71%.
Okay, got it. Looking at the outperformance, it could also be that non-trade has come back, which is, in a way, we were kind of ready for any demand that came to the market.
Yes, absolutely.
Okay. The second question I had was on the cost side. Clearly there are some pressures building up on the fuel, on the diesel and the petcoke. I just want to understand, is there any inflation that reflected in quarter two? If not, what kind of increase we should work with for second half, both on a petcoke and the freight side?
Q2, yes, no inflation has yet impacted. We did a consumption of about $71. Current prevailing prices on petcoke are $100, but other coal, the imported coal, is still cheaper. At max, if you have to look at not more than 10% inflation in energy costs in the H2. Not more than that.
Okay. The shift could happen towards international coal.
Yes, it is already happening. The way one manages the international coal at a high calorific value is available, which is cheaper than petcoke.
Okay.
Petcoke is no longer the darling for cement industry.
Okay. 10% on power and fuel and on the freight?
Freight, it's difficult. It all depends on how diesel goes up.
The diesel and-
Diesel has already gone up 13%, 14% in this first half. I don't know how much it will go up. This 13%, 14% has been largely absorbed in our efficiency improvements. Remains to be seen how diesel performs, because diesel would contribute 3% to total cost. Logistics only. No. Much more. Logistics is 20%. Diesel as a percentage of total costs, not logistics costs, contributes about 2.5%-3%. Yeah.
Okay. Got it. Okay, just last clarification on the pricing adjusted on the pure cement business. Can you give a sense on a Q- on- Q basis, how much was your realization down for the cement business?
Realization was down. You are talking about Y- on- Y or quarter- on- quarter?
Quarter-on-quarter, sir.
Quarter-on-quarter, roughly 2%-3%.
It is 2% - 3% down.
Yeah, all India numbers. Don't compare us with regional players and get misguided.
Okay, got it. I'll join back the queue. Thank you.
Thank you. The next question is from the line of Vivek Maheshwari from Jefferies. Please go ahead.
Hi. Good evening, Atul sir.
Good evening, sir.
Sir, first on the industry slide that you have put out. On the south one you have a comment, September 2020 saw a sharp increase in demand. Basically you are saying exit numbers were far better than what the quarter average was.
Absolutely.
Our understanding is that south was a sharp double-digit decline through the course of the quarter. That is like a big change. Is there a base effect to it or there was a decisive change on the ground basis?
I would say, Vivek, that the volumes have started picking up in South.
Your similar comment is in Maharashtra also, infra segment recovery in September 2020. You think both these markets will become growth markets as we move into second half, given a stronger base?
In spite of these infra projects taking off in Maharashtra, because of a high base, they are still very small numbers. The interesting market is Gujarat, where we are seeing improvement in demand.
Sure.
After a very long time.
Okay. To me, South and Maharashtra, your comments are more like change in trend because Gujarat, whatever we picked up in our checks, was doing okay for the last three, four months. Right? Maharashtra, South, if you are saying there is a big tougher change, particularly in South, that's an interesting one then.
Yes, absolutely.
How do you reconcile IIP number versus industry demand because the numbers are looking very different, right? Do you think there is some disconnect over there?
Big disconnect. The way you do your channels on industry, you should check on how these numbers are computed. We'll have a separate discussion on how the computation are done.
Right. I look forward to that. The other bit is on the energy cost you mentioned about moving from petcoke to international coal. After long, we are hearing about coal from you. Have you already moved there or it is something that you will see in case if petcoke prices further move up? The inflation has been quite a bit.
No, we are not consuming petcoke now. The high cost petcoke or whatever inventory we had is what consumption is happening. We are more into international coal at the moment till the time petcoke starts softening.
Basically, you are using at your plant international coal already.
Yes.
I see. The last bit, the previous participants asked, on a sequential basis, you are saying realizations are down up to around 3% right?
Correct.
Got it. Perfect. Thank you, and all the best.
Thank you, sir.
Thank you. The next question is from the line of Amit Murarka from Motilal Oswal. Please go ahead.
Hi. Good evening, Mr. Daga. Congratulations for a blockbuster result, if I can say. Just a few questions. Firstly, on the capacity ramp-up. While you said that East now will happen in FY 2022, will it be early FY 2022, like one Q1? Secondly, also, like in the Dalla Super now, what will be the timeline for that?
Dalla Super should go definitely to January-March 2022 quarter. That is for sure. The 1.2 million ton, which is West Bengal and Bihar, will be Q2 or Q3, depending upon how things progress. Cuttack will be again Q4 2022.
Okay. For the Dalla, has the issue been settled on that environmental front?
Yes. That has been settled. There's a lot of procedural work, a lot of red tape, or I shouldn't say red tape, but a lot of procedures that have to be complied with. We are complying with that. The biggest thing is that the NGT matter has been resolved. To explain to you in simple terms, since the NGT declared that the plant and mines was on forest land, we have to identify alternate forest land and give it to the government or to the forest authority so that we can use this forest land for mining and plant operations. That has been done. Handing over to the government is in process. Formalities have to be completed at MOEF Delhi. I guess by end of November, the MOEF formalities for the plant will be completed, and by June the MOEF formalities for mines will be completed. June 2022, MOEF formalities for mines will be completed.
Okay. Understood. Just on the working capital front, like on 1H, we can see that there has been a very strong working capital release, and which has come from both payables increase as well as receivables. If I think of the September month of this year versus September last year, there must have been a very strong growth YoY for the month of September, but receivables are still down. Has the payment terms or the credit terms still remain tight in the market?
We are not reducing our credit period. We are not allowing anything extra.
Okay. In the second half the working capital will still be strong then?
Yes, it will remain strong. I'm not guaranteeing that I'll still have this INR 1,700 crores negative. It could be INR 1,500 crores, but it will remain a big negative working capital.
Sure. Lastly, on the Northeast, you've opened a zonal office now, I think for the first time. Earlier you used to cater through, I think, CFA agents. What is the plan there? I think even for Sonar Bangla, there has been an application or expansion of capacity there.
Have you been to that office? I have not seen the office yet.
No, I just heard from people that you opened some zonal office in Northeast.
Because we have a significant capacity available to the Northeast markets, we can manage it. Instead of depending upon an agent, we can do things our way better. Instead of leaving the benefit of price to the agent, we should get that price benefit. That's the whole hypothesis.
Okay. Sure. Thanks.
Thank you.
Thank you. The next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.
Great execution, sir. Sir, two questions. Firstly, on the non-trade side, how to get some visibility about the next three months sequentially. Next quarter should be better than this quarter because labor is coming back. Is that how one should look at, or there are other elements, moving parts in it?
I think essentially labor is coming back, and government is opening its purse strings and pushing for execution. They are cracking the whip on all the contracting companies for increasing the pace of execution. The classic case is road, which I always tell people that road projects are the easiest ones for the unskilled labor to get employed. You come in today, and tomorrow you could start working. That's where the good amount of employment generation and income generation takes place for the laborers. There's a huge amount of focus on roadwork that is happening.
Sequentially, the numbers should look better, right, for the non-trade segment as a whole?
Sequentially as in Q2 over Q1?
Q3 over Q2, the numbers should look better for non-trade segment in volume terms.
We are down from 78% to 71% on trade, which is, I think that is where the numbers will be now. We used to be 66% trade and 34% non-trade. Compared to that, we are now at 70%-71% trade.
Okay. Second question, sir, at what point we may need additional clinker in the East, given that East is showing very strong growth?
We are today bringing material from central plants and coastal Andhra plant. The Maharashtra plant also. Manikgarh also takes material to the eastern markets. Today, we don't have any shortage. Yes, we fall short of grinding capacity also. Without clinker, we don't have grinding in peak period. Let's say January, March 2022, we will be transporting cement from south locations because if the market remains buoyant. There's no harm in transporting long distance, provided it is a contribution accretive. At no point in time UltraTech will be falling short of clinker.
Great, sir. If I can squeeze one more, it looks like you increased your target for the green power from 22% to 30% by FY 2022. What drives this?
No. It's now investment in further WHRS into the Century plants into Nathdwara Cement, which is increasing their percentage share.
Okay. There is no CapEx implication. That's what I wanted to check.
No. For example, when we are doing WHRS, there is CapEx.
No, I meant from an outlook perspective. Whatever CapEx you have guided for, that CapEx stays intact.
Yes. It's within that.
Okay, great. Thanks a lot, sir.
Thank you. The next question is from the line of Indrajit Agarwal from CLSA. Please go ahead.
Hi. Good afternoon. Thank you for the opportunity. Couple of questions. First, sir, can you throw some light on the exceptional that you have on the consolidated level, mainly on the continued operations, for which entity it relates to the loss?
Yeah. I'll explain the full piece instead of continued and discontinued.
Sure.
All these entities are towards the acquired assets from cement legacy. China asset, when we sold off, we had a gain of INR 400 odd crores. We have tried to assess the carrying value of the UAE asset and impaired it by INR 78 crores. We have looked at the realizable value of the loan that we inherited, which is a loan outstanding to this European company. We have impaired it down by INR 250 odd crores. Fourth, in one of the subsidiaries, there's a maze of subsidiaries which is attached to erstwhile Binani Cement, which is now Nathdwara Cement. There were some advances outstanding to unknown people, not traceable people, which we have had to do an impairment. Mukesh, these are the main items? Unmute.
These are the fourth items, and net we are gaining INR 24 crore.
Thanks. That's helpful. Second is, you talked about the utilizations getting stretched. Can you throw some light on what kind of utilization either you or the industry had as of September in various regions?
It will be misleading if you look at the quarter. Month-on-month, the capacity utilization has been going up. For us, if the capacity utilization for the quarter was 66%. If I look at my September it was close to 75%. October, I must have crossed 80%-85% already.
Okay. That's helpful. One last question from me, more broad-based, as you spoke at length about ESG. I feel that the thermal substitution rate for Indian mills is significantly lower than global averages. What do you think can be done to bring about a step change in that at a country level?
Globally, there's a huge amount of alternate fuel that get consumed. Thermal power is not so high because they have gas as a power available form of energy. India is dependent on coal-based energy only. There are global companies where alternate fuel forms as high as 20% or 20% +. I have only one plant in the entire network which does about 30% alternate fuel because we are able to source and get alternate fuel. Lots of other plants, they don't have anything nearby to supply alternate fuel. If you go and approach, the municipal authority for municipal waste, which has energy, they ask us to do the sorting ourselves. I can't deal with that shit, literally. There are challenges in the country which do not exist overseas. Overseas, the awareness about disposal of waste is very high as compared to India.
All the manufacturing facilities generating combustible waste should be more than happy to reach out to cement companies or any other manufacturing process where they can burn their waste. The ways of working in India is different than overseas.
Sure. Thanks a lot.
Thank you. Before we take the next question, we would like to inform participants that in order that the management is able to address questions from all participants from the conference, please limit your questions to two per participant. Should you have a follow-up question, we request you to rejoin the queue. The next question is from the line of Raashi Chopra from Citigroup. Please go ahead.
Thank you. Just some bookkeeping questions. One is, what are the RMC and white cement volumes for the quarter?
White cement volumes would be about 330,000 tons. white cement, very difficult to quantify volumes. Value is about INR 430 crores.
Okay. That's fine. Secondly, how much has been the CapEx spend in the first half?
First half, INR 450 crores.
Okay. You're sticking to the INR 1,500 crores target for the year?
My guess is I will not be able to spend INR 1,500 crores. There might be some reduction. As of today, when I was looking at the forecast, we could look at INR 1,200 crores or INR 1,300 crores. This is largely due to, Raashi, availability of labor is still a challenge at most project sites.
Okay. The Bara completion is scheduled for December, two months left.
No, it will get pushed to March because cement mill is in the process of being moved. I guess it will go to March.
Okay. This year, basically we have Bara coming, and next year we have the east capacity coming. That's what's in the pipeline right, at the moment?
Yes. At the moment.
Okay.
Next year we'll start work on the 3.5 million ton Pali.
That will take how long?
It will have to be commissioned by October-December 2022. Then Pali has very less capacity left because land and boundary work, a lot of work has already been completed.
When you say October-December 2022, you mean the October-December quarter of fiscal 2022 or October-December calendar 2022?
October-December 2022, and calendar and fiscal remain the same in India.
As in October to December. What I mean is it coming fiscal 2023 or fiscal 2022, was my question?
Fiscal 2022.
October-December cal 2022. Got it. October-December 2022.
October. Yeah.
Okay. Just as we've seen these price increases that have been announced in the south, and prices seem to be generally resilient except for the east. Can we expect some sort of changes with, given that demand is quite strong in the pricing pattern in the east?
When people don't have capacity left, then obviously price hikes are limited.
Okay. We should expect these after Diwali, you think?
Very difficult. My standard response to that kind of a question is to tell me what will be the stock price or index 10 days from now.
Okay.
I'll be able to predict that.
Unfortunately.
Very difficult to predict because the opportunity, the moment the marketing team gets an opportunity, they will take the prices. If they don't have material to sell, what else to do?
Got it. Okay. Thank you.
Thank you. The next question is from the line of Swagato Ghosh from Franklin Templeton. Please go ahead.
Yeah. Thanks for taking my question. Daga Sir, I just wanted some help in reconciling your realization performance. From what I know, the sequential realization was down about 4% - 5% for the industry. You actually outgrew the market and also had an adverse mix impact because your trade mix came down this quarter. Still you delivered better realization performance. What were the reasons? Can you please help me with that?
Very difficult question. You see, it's a market mix. What happens is when you do a check in one particular market, it might be behaving differently. One is market mix and my share in each market out of my own portfolio. Depending if South is moving up and in total volume that I have done, let's say 19 million tons, what volume I have sold in South vis-a-vis in North, and so on and so forth. It's a market mix game, essentially.
Okay. You have sold more in South and less in the weaker realization markets. Can you continue to do that? Can you continue to optimize your mix in the coming quarters as well? That's the follow-up I have.
Yes. We will optimize our mix. We will not lose any opportunity to rely on that opportunity. There are times when there are plants which have gone hand-to-mouth on clinker. Everything is fresh, baked today and sold today.
Okay. Second question is, because you are a market leader, I am asking you this. Industry profitability has taken a step up in the last, say, three quarters. The utilization levels are still pretty low on an absolute basis. If I heard you right, in September, it has improved quite a bit. Still if it is 75%, there is still some room for additional improvement. Do you think that some fringe players now might go for maximizing absolute profit at the expense of slightly lower profitability? That can start happening. What's your sense there?
No, it doesn't happen that way. The moment somebody starts dumping, material prices will collapse. Today, as I also mentioned in the commentary during one of the questions, we are already reaching an 80%-85% capacity utilization without any compromise on realization. This is a phenomena I remember we had last seen in January, March 2019, where all-India cement capacity utilization was going up. What happens is, let me try and explain, it's important. If one region is seeing a good demand and consequently good prices, the neighboring region infiltrates. It's easy for central to send to north or to east if depending upon where the market is good. Today, north is good, east is good, central is very good. They don't have to travel long distance and incur additional cost for market. They are happy selling in their own home market and making more money. This we had seen in January, March 2019. Yes, January, March 2019, pre-elections. This phenomenon is coming back again.
Thank you. Before we take the next question, a reminder to participants to please limit your questions to two per participant. The next question is from the line of Pulkit Patni from Goldman Sachs. Please go ahead.
My first question was actually the same that previous participant asked because realization, despite the fact that your trade mix has gone down, it's tough to fathom how your realizations have actually not fallen meaningfully. Nonetheless, just one more question. Since you mentioned the presentation, unprecedented growth in rural consumption, could you highlight what are the end markets where this is going? Is it rural infrastructure or is it housing? If you could throw a little bit more light on rural consumption. Hello?
Sorry, can you hear me? Hello?
Yeah. Now I can.
Sorry, the mute button had got pressed. I do not realize it. When we talk about rural markets, infrastructure is not captured over there. Infrastructure is part of my infra spends. Rural markets is largely retail market, which is a housing and repair modification market. This is what has been growing very well. The entire labor, the migrant labor which has gone back, is spending time on local work because the job opportunities had dried up in the urban markets. The rural housing market has swollen up.
Sure. Sir, my last question would be on incremental capacity that is likely to come through. When COVID hit, we saw multiple players announce delays in their existing expansion plans. Do you see that changing now given that pretty much we are talking about normalcy within five months of COVID hitting us?
Yes. You see, projects where work was deferred will come back on stream because one would be losing interest on the half capital employed on that project. Those projects will come back for completion as gangs of labor are available on project sites, delivery of equipment, parts, et cetera, starts normalizing. Those projects will get completed. Going forward, as mines are starting to become expensive and costlier, new capacity and very limited players have got a surplus mine, by the way. There are a few announcements that you hear right now. They will start drying up as mines become lesser in the hands of people or mines are expensive.
Because unless they can forecast a profitability which will absorb the additional cost of limestone under the auction process, my belief has been, in the last several years, ever since MMDR came into being, that new capacity addition will slow down, and it has been actually slowing down.
Thank you. The next question is from the line of Madhav Marda from Fidelity Investments. Please go ahead.
Yeah. Hi, sir. Good evening. Congratulations on a very good set of numbers. I just had one question that was, given that we've seen good volume recovery in 2Q, if you could hazard a guess for a full year, can the volume decline for the full year despite 1Q being weak, can it just be flattish or maybe down with low to mid-single digits? What would your thought be for the full year?
As of now, I guess the remaining quarters, the industry should show a growth YoY. Barring Q1, which was a massive de-growth, 30%, 31% or 32% de-growth, the rest of the three quarters should show positive growth.
Right.
The 30% and yeah, no, the 30% de-growth of that one quarter, which is, let's say, will get reversed to a large extent on an annualized basis.
Yeah, Q4 FY 2022 was anyways hit by COVID, so we already had a decline in quarter four, so the weak base is quite easy. Which is why I was thinking if we could end up with 0%-5% decline for the full year, maybe. Is that broadly okay assumption to make?
Yeah, it's a good assumption to make because this year, I think was already in our pocket. Now I am looking forward to FY 2022, which will be a blockbuster year for cement industry because of the low base that has got created.
Got it. Okay. All right, sir. Thank you so much. All the best.
Thank you.
Thank you.
Before we take the next question, we'd like to inform participants that this call will be extended by an additional 10 minutes. The next question is from the line of Ashish Jain from Macquarie. Please go ahead.
Hi, sir. My first question is on pricing. Can you just share how your regional prices moved on a sequential basis?
That's very sensitive information. In other words, I am not able to do that.
Okay. Sir, on the cost front, in the last quarter, you had indicated a decline of INR 500, 550 crores and now, you indicated INR 450 crores of that has been achieved. Going ahead, will this start reflecting in other expenses in a material way? The context I'm asking this is also from a repair and maintenance cost point of view. How much of that have you actually done in first half, and could that be a big driver of how costs move in the second half?
What happened, Ashish, was that Q1 production was down, which helped us extend the life of bricks, which is just maintenance cost. We've got the benefit of that in this financial year. Next financial year, it'll come back to normal. As of now, I think 20-odd. Mukesh, you remember how many kilns were done for declining this quarter? No, he wants to speak on mute, so I can't help it.
Sir, actually, that was the context of my question.
Okay. We'll come back. Yeah, Mukesh.
Some kiln will come in quarter third also.
We spread because of the 41 kilns that we have, we don't take all the kilns in one quarter. Right. Q2 we have had some kilns, and Q3 also we will do some kilns for maintenance shutdown. Maintenance shutdowns are planned so that the markets don't suffer after piling up clinker stocks for the 20- odd days of kiln shutdown. To answer your point, there will be shutdown costs, which will come in Q3 also. If you were to compare it with last year's same quarter, we also had maintenance costs in Q3 last year. It's more or less, if I remember it right, it is as high as INR 100 a ton, is the maintenance cost going towards in Q3 also. YoY, you will not see too much of erosion in our numbers.
Okay. Okay. Thanks.
Welcome.
Thank you. The next question is from the line of Navin Sahadeo from Edelweiss Securities. Please go ahead.
Hello. Am I audible? Hello.
Yes, Mr. Navin, you may go ahead.
Yes.
Yeah. Thank you. Thank you for the opportunity, sir, and congrats on the great set of numbers. Sir, my first question basically was on your volumes when you post an 8% growth on a like-to-like comparison basis, and with that, in your initial presentation slide says south was negative. Does it mean we have grown positively in south as well, or this 8% growth is contributed by a much higher double-digit kind of growth in other regions? How should we look at it? In the same breath, how is that in October?
October is much better than September. Firstly, as I mentioned, Navin, while the average capacity utilization for the quarter was 66%, September was 73% or 74%, and October currently we might be running anywhere between 80%-85%. The growth, if I were to look at, west was the lowest growth market YoY. Otherwise, all markets have been doing very well.
Basically, just to clarify on this, when you say west was the lowest, which means in south despite the industry being negative, we have seen a positive growth there also. Is that correct?
Marginal, yes.
That's what I just wanted to confirm. Great achievement, I'll certainly say on that. My second question then, if you could just run us through on this waste heat recovery.
Navin, this is-
Sorry, I'm losing you.
This is UltraTech Cement. This is not great achievement, this is UltraTech's ultra performance.
Yeah.
Carry on.
Certainly congrats on that. I'm sure market will also receive it very positively. My question second was on this waste heat recovery thing. You said we are going to take the total capacity to 240. If you could just help me understand this, where is it currently and how much are we adding, with timelines to understand how these efficiencies will kick in both for waste heat and solar, sir.
I mentioned it in my comments. We are at 125 today. By end of March 2022, 60 more get added. By end of March 2022, we will be at 185, and then we will launch the program for the remaining 60 MW. 2022, maybe 2024. Mid 2024, we will reach there.
Mid-2024 will be totally 240, right?
One second. FY 2021 is 185. FY 2022, yeah, 2023, 2024.
Yeah. We'll reach this 240 number, 240, 245 by mid of FY 2024. Solar, where are we and how much are we adding?
Total, we have tied up for about 350 MW of solar. Out of which, how much is completed as of today? 115 or 120 MW is already up and running.
Thank you. The next question is from the line of Mangesh Bhadang from Nirmal Bang. Please go ahead.
Yeah, good evening, sir. Thanks for taking my question. Sir, just one thing on this rural side. How much of our total volumes would be contributed by this segment? You keep saying that it has been a good performer and obviously unprecedented demand from this. How much percentage of your total volumes you would ascribe to this segment?
How much, Mangesh? I didn't get you.
So how much-
I didn't get your question.
Yeah. Rural, how much you are selling in rural segment, out of the two?
71% of our volume is retail market and give or take, 35% or 40% of that is rural market. The definition of rural also needs to be understood. What we call rural is not a remote village. There can be a town which is a population of less than 30,000 becomes a rural market for us.
And so-
How you define.
To understand, sir, this demand better, so probably Tier 3, Tier 4 towns would also be included there. Is that right?
Tier 4 for sure. Yeah, Tier 4 for sure. If I call Mumbai as Tier 1, Bangalore as a Tier 2 and Raipur as Tier 3, going in that analogy, then Tier 4 is part of my rural markets.
Okay. The reason why I'm asking, so 70% of your retail and out of that, say, 40%, when you say it goes to that market, then that has to grow by significantly large. The growth in that segment has to be significantly large to show overall growth. That means this is a broad-based demand recovery and not only restricted to rural, right?
That's why I said practically all states are generating growth, whether it's an advanced state, except for Maharashtra, all the states are generating demand.
Right.
India still is supposed to [audio distortion]
Last question.
Yes, please.
Thank you. We'll be able to take one last question. The last question is from the line of Milind Raginwar from Centrum Broking. Please go ahead.
Yeah. Thank you, sir, for this opportunity. I have some, initially to start with some bookkeeping questions. One is, in the September 2019 quarter, in the 17.77, we did something like 0.32 of white cement. What would be that number for 19.21 this time?
Sorry, I didn't get your question.
Sir, in terms of volume.
I didn't get your question.
Yes, sir.
Volume of white-
Yeah.
Volume of white cement is 3.3 lakh tons.
Okay. sir, in terms of the realization, what would be the incentive part for this quarter?
Mukesh, incentive in EBITDA per ton?
Incentive per ton? I have never worked out.
No, actually. Milind, I'll get my team to reach out to you directly with the number. Sorry, it's about INR 30 a ton.
Okay. Yeah. Sir, if I have heard it correctly, did you mention that the RMC and white cement numbers were INR 4.34 billion, INR 434 crores, INR 435 crores each? Is that the right understanding?
Yeah. Both of them were at INR 430 crore levels.
Each, right?
Yeah. Each.
Yeah.
When we speak about white cement, it includes [audio distortion] as well.
Correct. Okay. Right. Sir, just understanding, despite the RMC business coming back strongly on a sequential basis, the logistic cost on a per ton basis is still the more or less same.
Input cost is going up. Input costs are going up now, Milind, that's why.
Okay. Maybe for a better understanding, I may take this offline.
Sure.
Yes, sir. These were three, four line items question that I wanted to understand. Thank you, sir. Thank you for this opportunity.
Thank you very much. We will take that as the last question. On behalf of UltraTech Cement, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.