Ladies and gentlemen, good day and welcome to the UltraTech Cement Limited Q1 FY 202`1 earnings conference call. We must remind you that the discussion on today's call may include certain forward-looking statements and must be therefore viewed in conjunction with the risk that the company faces. The company assumes no responsibility to publicly amend, modify, or revise any forward-looking statements on the basis of any subsequent development, information, or events, or otherwise. As a reminder, all participant lines will be in 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. Atul Daga, Executive Director and CFO of the company. Thank you and over to you, sir.
Thank you. Good evening, ladies and gentlemen. First and foremost, I hope and wish that your family, friends, and colleagues have been safe from COVID. I pray that all of us get over this crisis safely and quickly. There's a big unpredictability and uncertainty about what will happen tomorrow. Surprisingly, the world is united in its stand on dealing with COVID, which is irrational and with utter disdain toward self-preservation and well-being of the society. Lockdowns are lifted by the regulators and the masses start celebrating. What happens after that? Well, we all know it. The scariest news article that I have read is from MIT on the 9th of July. It said India will have 3.87 lakh COVID cases a day by winter 2021 if there are no remedies found before that. In these challenging times, this quarter has been quite unique.
Companies who did their business continuity plans well have weathered the storm so far and with what panache. Numbers speak for themselves. For cement industry, demand has been buoyant since late April when the industry started operations. Industry witnessed demand pickup in east, central, north, Tamil Nadu and Kerala markets, while weak demand persisted in Western India, Andhra, Telangana, and Karnataka markets. Cement consumption has found its way into the rural and regional markets since the heat of pandemic was felt much more in the urban markets at that point in time. Rural markets, we believe, will continue to thrive in future months as well. Our retail share in overall sales for the quarter has increased to an all-time high at about 78%. Odisha is picking up development activities as part of the typhoon rehabilitation program.
West Bengal with elections approaching will keep the momentum on project execution and thus consuming cement. We are also seeing large projects unfolding in the northern markets. Road segment is gradually improving. It has gone up 3x from April, but it's not at its peak. Fingers crossed that things could stabilize post-Ramadan with return of migrant labor. Talking about UltraTech, we recorded an effective de-growth of only 2.3%, which in current COVID times we are not so unhappy about. The restated numbers for the period up to 1st October 2019 will reflect a higher de-growth. This is purely on account of the appointed date of merger of Century Cement being fixed at 20th May 2018 compared to the effective date of takeover being 1st October 2019.
Clearly reflecting the strong equity of our brand and its market potential, the strength that we derive from a network of more than 95,000 channel partners. Yes, that is what differentiates men versus boys. Even prices remained resilient during the quarter before witnessing a steep decline during the end of the month of June. Entered the monsoon with held high on prices. Average prices improved about 7% over March quarter. As was expected, most of the expansion plans across the industry are moving cautiously. We have not seen any additional capacity going on stream this quarter across the industry. As for UltraTech, work on our 1.2 million ton brownfield expansion in Bihar and West Bengal is going on. There will be delays. There are challenges in terms of labor availability and material supplies. We are now targeting to commission these plants somewhere in early next financial year.
We also expect to commission the 3.3 million ton Dalla super clinker plant in Uttar Pradesh in the next fiscal year. I'm glad to tell you that we are on track in getting approvals from the government. Total cash flow on CapEx this year will not be more than INR 3,500 crores. Bulk of the investment is towards return-based CapEx projects, which includes 66 MW of WHRS projects spread across seven plant locations. Railway sidings. There are ongoing 1.2 million ton brownfield expansion. Phase two of the Bara grinding unit, the Chirki coal block. There is a bulk packaging terminal that we are doing near Mumbai. Ready-mix concrete plants and other normal maintenance and modernization CapEx. I mentioned in the past about our endeavor to dispose of non-core assets, and to that effect, we have concluded our transaction to sell the 92.5% share in a cement subsidiary.
We held these assets in our books as assets held for disposal, and hence its PNL or capacity has not been part of our operating performance. The sale proceeds, which we expect to be received in August, will help reduce the net debt of the company further. We are working on other non-core assets, but at this moment, I don't have anything concrete to tell you. Cash flow management is a must to talk about, as it has been a hallmark of our company. We have shrunk our working capital by over INR 600 crores this quarter. This excludes the one-time provision that we have had to make for prior period adjustments. We will continue to maintain a tight hand on our overall cash flows. However, don't expect this reduction to repeat in future months. Sustainability.
UltraTech joins a growing list of companies adopting Science Based Targets initiative, which are called SBTi, as part of its climate commitment. We are committed to build our business in line with below two degree world under the Paris Agreement. To talk a little more about sustainability, we have achieved 19.14% reduction in CO2 emission levels in FY 2020 over the base of 2006. Water positive score is increased 2.8x in FY 2020, and we are targeting to reach about 4x this year or early next year. All of you are watching the fuel costs very closely. Cement industry from India went berserk between coal and pet coke, which has caused a run-up in the spot prices of fuel. We are not expecting any further benefit in terms of reduction in fuel costs. The costs seem to have plateaued for now.
What we continue to work on is improving our internal efficiency on a sustainable basis. Added to that, our green power share in total power mix base for the quarter has increased to 14% from 12% last quarter. Diesel prices have been continuously increasing since May 2020. Average all-India deemed prices are higher over 15% as compared to the prices in the beginning of April. However, the average for the year remained more or less at the same level as March quarter. Hence, we did not have any adverse impact on logistics cost during this quarter. But the increased diesel prices will have an impact for the industry in the coming periods. Average control is another important aspect which I should talk to you about.
We have mentioned in the last call, last quarter, the efforts in cost reduction has gone full throttle, and it is evident in the numbers for Q1. It enhances our confidence on the ability to generate a 10% reduction in overage over the last year for sure. This quarter, the total fixed costs were down 21% over the previous year, thus reducing the impact on our PNL of lower capacity utilization. Ancillary assets. The integration efforts have continued in spite of the slowdown this quarter. Capacity utilization has been robust. We've also touched about 70% plus in phases when lockdowns were getting lifted. EBITDA per ton profile is almost reaching INR 1,000 mark. We reduced our net debt further by about INR 2,100 crore this quarter to INR 12,950 crore in India.
We expect to receive the fund from sale of China unit in this quarter, which will help reduce our leverage further. In addition to that, we have a loan of INR 700 crore in our overseas company at a cost of about 1.5%. Our India net debt to EBITDA on the basis of 12 months performance is at 1.40x as compared to 1.55x previous quarter. Let me just clarify on the one-time expense that we have had, and it happened only in India. State governments give incentives to invest in their state and then try and muscle their way out of their commitments. This quarter, we have recorded an exceptional expense of INR 157 crore. To give you the history, that incentive given in the year 2006 or 2007 has been reversed with interest.
We went up to the Supreme Court, unfortunately, Supreme Court also ruled in favor of the state. We are reviewing our every petition but making a full provision for this liability. Does not impact in any way the company's operating performance, where we have delivered a 28% operating EBITDA margin and an EBITDA per ton of INR 1,353. The impact of this reversal will not be there in future quarters because the incentive which was given is no longer available. It has already been exhausted. In the end, let's just discuss briefly about what lies ahead. Well, your guess is as good as mine. The crisis brought about by this pandemic is far from over, and now the local lockdowns have thrown in an additional layer of uncertainty. On the positive side, rural markets have been good so far. Monsoons have been also equally good.
In most parts of the country, kharif crop has been favorable, sowing was much higher, which will mean that the rural cash flows will continue to stay strong. In a bid to revive the economy, government will fast track its spending on infrastructure. Most of the infrastructure projects are now operational but operating at a much lower capacity due to labor availability issues. Keeping our fingers crossed. In the end, I take this opportunity of thanking you for joining us today. Stay safe, stay blessed. Thank you. Over to you for questions.
Sure, sir. Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their 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. All participants are requested to limit their question to two per participant. If time permits, we will take the follow-up question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Bhumika Nair from IDFC. Please go ahead.
Yeah. Good evening, sir, and congratulations on a great set of numbers with a strong deleveraging that we've witnessed. Sir, I just wanted to understand the July volume trend and the market trend a little better. In your sense and interaction, how are you seeing the on-ground demand with monsoon setting in and the pent-up demand being largely exhausted? Is the demand trend still continuing to remain healthy, or are you seeing rural coming off? If you can give some more color on by when do you expect institutional demand coming back? That's question number one. On debt, we've definitely seen a very strong deleveraging in the past nine months to a year.
A lot of it has also been a lot of working capital driven. Is that now behind it and incrementally the debt leveraging will be more operational and what kind of non-core asset sale can further help in terms of the entire deleveraging?
I'll take the second question first, Bhumika. Before that, thank you for the compliments for our numbers. Working capital, yes, we have squeezed it tight to the bone and as I mentioned in my commentary, don't expect further reduction in working capital. Apart from that, I think we might want to pump in some more working capital, depending upon how the markets shape up. On the non-core assets, there is a unit in Dubai and loan outstanding to this company in Europe, which is a non-cement company. Company called 3B Fiberglass. Our intent is to sell the loan and realize whatever we can realize from that loan. On the fiberglass industry, whatever I have understood, that particular unit caters to automobile sector and windmills. Both the markets are down, both the sectors are down, and COVID is also there.
We have not been able to find buyers as of now. Dubai unit is also not able to find investors to buy the asset. We will try for some more time, maybe for this quarter we will try and otherwise integrate it and start operating it as part of our own capacity. That aspect of Dubai as it is concerned and I think we can synergize because there are some advantages that we see in that Dubai unit. We will wait for this quarter before we take a final call. On July, today if you see the rain clouds in Mumbai, it's very heavy rains. Last week, it was totally dry.
Neither it would be raining here so badly today. The uncertainty is very high. What is happening is, we started off July all right, continuing the momentum that we got from June. If that makes any sense. As we are progressing monsoon, it's a normal monsoon slowdown that would take place. Last quarter, last year, July, September period, we were operating when there was no COVID and normal monsoons. We were operating at about 60% capacity utilization. Monsoon is a weak period in any case for cement industry. The challenge that the industry is facing is the local lockdowns. That becomes a problem because a project which is going on in, let's say Kolkata or Bangalore, and suddenly the state government puts a lockdown, no movement allowed. It kind of puts a very urgent brake on the sales.
Right.
This unpredictability is not in your hands, nor in my hands. Otherwise, if this unpredictability was not there, things are doing fine.
Okay. Broadly, you're saying that 60% utilization, as you said, that is what we were last year. Would we be at similar utilization? Would we be lower or higher?
That would be the overlooking number. I don't want to comment on that. I don't know. Honestly, I don't know. Tomorrow, if there's a major lockdown, we are already shooting up to 50,000 cases a day in India. If there's a major lockdown happening, things will go haywire.
Sure. On pricing, sir, versus average of 1Q 2021, are they largely holding on or are we seeing a correction?
Yeah. One thing, correction 4%-5% correction is normal.
Wish you all the best. I'll come back in the queue. I have more questions. I'll come back. Thank you.
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.
Getting into this June quarter, whatever interaction I had with the industry, the outlook was looking far bleaker than what the outcome has been. Like in your case, the decline is a restricted 22%, right, in terms of volumes. Now, can you just elaborate on, I understand the rural and the retail bit which helped, but who is the end user or where is the cement exactly going in your assessment and, given that there has been such a huge surprise on the positive side, so to speak.
I can elaborate on that. When I said our retail share has gone up to 78%, not only ours, practically everybody else or whatever else have been declared, everybody's retail share would have gone up dramatically. Blended cement shares have gone up dramatically because retail sells only blended. And where this material is going is to the individual home builder in the remote areas. What has happened is migrant labor normally goes back in batches. A family of seven, 10 people, three people will go back, three people will stay back in town, urban areas, and they keep on rotating their home village. This time, everybody has landed back in the remote areas, in their hometowns and are building their next room, next house or whatever work had to be done.
In the fear, because COVID is playing heavily on everybody's mind, social distancing requirements are playing on the mind, and cost of doing construction is far lower. I mean, land cost is insignificant or not there. It's only the construction cost that one has to incur. We've seen retail demand, which is what cement industry call IHB, individual home builder demand, drive bulk of the cement consumption and cement demand.
You will not see anything in metro towns Mumbai, even Delhi, Bangalore, et cetera. I know real estate companies where they started work towards, we got permissions in, I guess, April end. They started getting permissions slightly 15 days later. They started work on project sites and had to stop completely. What has also happened, the moment that migrant labor got opportunity to move out, there was an exodus of labor. Companies like L&T, L&T had mentioned on their call, they were holding back N number of people, one and a half or 1.6 lakh labor across all their project sites.
The moment the opportunity was available, people left the sites and went back remote areas, to their hometowns. MNREGA is not enough. The government paycheck is not enough. They went on to whatever project work is available in remote areas, which is not a road or a bridge or a station or a metro construction in remote areas, but these are individual houses.
Sure. Two points from here, Atul sir. One is the fact that these workers have moved from urban to rural. Does that worry you from an urban market perspective, given that these projects which they build on here in urban are far more cement intensive compared to, let's say, the rural piece? The second thing is, when they have built these IHBs, some part of this is pent up from, let's say, April and whatever happened end of March, and the other part could be some advancement from later part of the year. On the demand side, do you worry or you think that? Leave aside the comment you made about the localized lockdown. Let's assume that if that were to kind of go past, would you think that things will get incrementally better as we move over during the course of the year?
Yeah. For a split second, let's leave COVID aside. Okay?
Right.
Suppose things start moving in a normal manner, the pent-up demand that we talk about or postponing demand that we talk about will continue because it all is linked to the rural cash flows. Tractor sales are going up, two-wheeler sales are going up. People will invest in two-wheelers for individual post two-wheelers or entry-level four-wheelers for the purpose of social distancing in terms of traveling in public transport. Tractor sales are going up, agri incomes are going up. Government has also increased the MSP. There is a huge amount of support which is going in towards improving the rural cash flows. Our sense check, our dipstick tells us that rural demand will continue. There will be these hiccups. Now that we've been COVID into play, there will be these hiccups.
There are small towns where I've heard that markets which were open seven days a week have had to start operating. Smaller towns, very remote towns, which are operating only till afternoon, Saturday, Sunday closed, because there have been some cases. They don't have as good facilities as whatever level of activity you may say that cities like Mumbai or metro towns have. If COVID spike keeps happening, there will be blips of slowdown, and then demand will be there. Another positive sign is that people are realizing COVID is not so bad after all, not so difficult, because staying at home and getting cured is also a very good possibility, and that's what people are resorting to. What it does is, if there's a patient in a family or in a remote area, that family is into a lockdown.
There is a social boycott because of which work suffers. Talking about urban markets, we believe that now, we are also reading in the newspapers that labor is coming back. Yes, we are seeing labor come back. The big labor comeback will happen only after Diwali, when all the agri work is over. They have to now go back again somewhere around February, March for the April harvest, and then in the monsoons. November onwards, we will start seeing non-trade demand come back. The institutional projects will start stabilizing with whatever level of project site which was working with 100 people, and if they are an organized real estate player or a large contractor, they will continue the project site with social distancing or whatever else they have to do with slightly lesser number of people. Work will continue.
Okay. Thank you very much, Atul sir, for the elaborate explanation.
Thank you. The next question is from the line of Nitin Arora from Axis Mutual Fund. Please go ahead.
Hi, sir. Good evening. My first question is more on the core real estate sales. I remember in the last call, you talked about a proportion, and I'm talking more from perspective of, let's say, a client like L&T, Shapoorji, more on the real estate side. Has that volume started to pick up, or how do you see that? As a percentage, I'm talking on a very rough basis, let's say if we in a normal scenario sells about 80, 90 million tons of volumes, I think the hardcore real estate as such would be around 20, 30 million tons. Is that the right number to look at, Atul?
I normally look at the urban real estate, if that's what you are alluding to be about 30- 40. I'll give a wider range, 30- 50 million tons, not more than that. The urban real estate. As of now, they are suffering.
Because of labor availability?
Essentially because of labor availability and local lockdowns if they hit them.
Getting it. I understand your view. If, let's say tomorrow, it's difficult to time the timeline when the urban markets really open up in full way, but that's where the existing project developers who are still rich on their balance sheet and still not declining, being our large customers, that pent-up will eventually come once this market starts opening up. If they are not taking too much volume right now or it's an on and off situation. Is that the right way to conclude?
Yes, absolutely. The developers now, whichever developer has a strong balance sheet can tap into good projects or very good deals, I should say. This is also helping, and I'm speaking with some dealers with experience, this is helping the larger developers consolidate further. Helping them strike good deals. The landowners or the developers who had bad balance sheets are giving up on projects more rapidly. The deals are more highly available in number. All depends on how many deals would one want to sign up, till the uncertainty on this pandemic is not dying down.
Got it. Just last question on the debt reduction part on a directional side. Given that capital expenditure still remains on the lower side versus what we used to do on an average, even for this year and I think next year also, if this pandemic is assuming to be continuing for the next two, three months, we'll almost reach towards FY 2022. Directionally, should we look at more I understand you said that working capital is something which we need to infuse also, at some point in time to generate more sales and support dealers and distributors. Directionally, if you look at from a two years point of view, given whatever the CapEx level you have been investing, do you see the debt reduction to the tune of about INR 2,000 crore-INR 3,000 crore on a minimum side? Is that the right way to conclude?
We're running towards 1x.
That's right.
is up to us. We will go at breakneck speed. We don't want to give any forward-looking numbers, but we are clearly running at breakneck speed to reduce leverage. The remaining opportunity, as I said, is INR 700 crore liquidation, which has not yet reflected in the cash flows. There is more from the other non-operating assets. The new capacity which will come up will be 1.2 million tonne. We'll start generating cash flows from day one. The 2.3 million tonne, which was part of the Jaypee deal, by the way, which we consciously bought as a unit stuck in NGT, that's 2.3 million tonnes of clean coal, sitting in the hot bed of the market, which is eastern U.P. It will start generating a good amount of cash flows.
Sure.
We will run towards 1x although very fast.
Got it. Just last, if I can address one more. We saw you, and that's purely on our channel indication. We saw in MP, you really growing very high in Madhya Pradesh, I understand because of Bara as well, which has got commission and all. It's more of market share gain which you grew very fast. I mean, what we get from a channel, you're growing almost 30%, 40% in that market in June, maybe higher than that. Is it more of market share gain or is it more of increasing dealer and distributor, which is getting more volumes in? If you bet, not to answer it, but I just thought I'll try.
It's from a low base. We were not present in Madhya Pradesh at all because we were supplying from Vikram Cement, which is more closer to Rae Bareli. We were not a central player for a very long time. It's only after Jaypee acquisition, we have got new Jaypee and Satna. Those acquisitions have added to our capacity. Yes, dealer addition, dealer network creation is an important element of any B2B play. I alluded to the number of 95,000 channel partners, which is all-India, which is no mean achievement.
Got it. Thank you very much and all the best. Thank you.
Thank you.
Thank you. The next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.
Great execution, sir. Thanks for taking my questions. Two questions. Firstly, what would be the like- for- like-
Sorry, Gaurav, we have lost you. Gaurav, you're not audible, Gaurav. It seems there is no response from the line of Gaurav. We will move to the next question that is from the line of Gunjan Prithyani from JP Morgan. Please go ahead.
Yeah. Thank you so much for taking my question. Really commendable delivery, sir. I had a question specifically on the cost side, and I do note that in the presentation you've marked out 10% reduction on the overhead side. Now, when I look at the expenses on the other expenses, it's been a very material reduction. There's definitely a combination of some deferment of OpEx, like ad spend, which wouldn't have been high in this quarter, and some of the cost program that you're working on. Is it possible for you to give us some sense in terms of absolute savings that we are targeting and what we've achieved on that overhead cost control program?
We've achieved a 21% reduction in this quarter over last year on fixed overheads. Which was something like INR 989 crores, if I remember it right, as compared to INR 1,231 crores last year. Deferment. Investment is not necessarily a deferment, yeah, it was not required. We did not expense. Travel, for example, is not a deferment. It was just paused. Today, when we have achieved that 20% or 21% reduction, I'm sure that we will continue to maintain a minimum of 10%. Other expenditures, various elements are variable in nature, like packing bag, packing cost is part of my other expenses. Our selling overhead and continuing overhead is also part of other expenses.
With volumes down, they are naturally going to go down. That's why I'm not going to replicate 20%-21% over reduction in the future quarters. The reduction plan that we have put in place for a sustainable longer term, minimum 10% is guaranteed.
Which would be almost about, going by the number INR 1,200 crores a quarter, kind of a big, big spend. It can be close to about INR 120 odd crores a quarter. Your staff cost, just clarification on that.
For 1231, full year numbers you need to see instead of one year numbers. I think last year our full year overheads were close to INR 5,000 crores. Nilesh, is that correct?
Yes.
Yeah. Close to INR 5,000 crores. I would do a save of minimum INR 500 crores on an annual basis.
Okay. Got it. That's great. On the cost side, the other question was on the variable. Now, when I look at the comments on the power and fuel, I sense that directionally you're not expecting very meaningful savings on that cost item. On the freight side as well, given where the diesel price has been moving, are there any significant savings that you're expecting there? Anything from the M&A or logistic optimization?
Optimization will continue because when capacity utilization goes up, we will get the benefit of logistics optimization. As I mentioned, our green power investment, which today has reached 14%, that must be costing maybe less than 20% of the current cost of power. That green power contribution, because of the investment in WHRS and solar, will go up to about 22%-23%. That will help us reduce the fuel cost. Added to that, we will continue effort on reducing the per ton consumption of power and fuel consumption of cement. As we move forward, the incremental reduction is not in big chunks, but smaller units, smaller denomination. Those are the efforts which will lead to a sustainable reduction in costs.
Okay. Got it. Lastly, if I can just put one question on the transaction which you mentioned, which has been concluded in last quarter. Are there any outstanding liabilities to meet, or it's the net cash flow that comes to UltraTech, that $120 million?
120 was the EV, that would make it INR 900 crores. We have to pay withholding tax in China, that asset had a loan also. Net of everything, after taxes, we should get INR 700 crores in India.
Got it. Thank you so much. I'll join back with you.
Thank you. The next question is from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.
Good evening, Mr. Daga. Just a couple of questions. Firstly, clarification. The INR 500 crore cost reduction which we are aiming from the overhead cost, roughly, one should expect that to be achieved in FY 2021, or it's over a one to two year? Kind of.
FY 2021.
Okay. Got it. The second, with respect to the INR 700 crore which you just mentioned is what we get in India. This is net of the loan which is there against that asset or is it just net of it withholding tax?
No. Net of everything, INR 700 cash in India.
Okay. It looks like overall, when we were talking about INR 1,000 crore from divestment, it's only INR 700 crore from one asset itself. Looks like we've crossed our overall expectation in terms of divestment revenue, right?
No. Just as we made INR 700 does not necessarily mean that I'm not very hopeful on how much I can get from Dubai. I'm still working on, it's been a long time already, still not been able to crack a deal on the European loans. I'm sure we will cross INR 1,000 crore number for sure. We have two more assets to go.
Okay, understood.
We will cross that number.
Okay. Sir, second question with respect to the work, overall maintenance CapEx. This year, the guidance is around INR 1,000 crores, but we also have growth CapEx with respect to the grinding units, WHRs, and something with respect to the coal block unit.
Guidance is INR 1,500 crore, not INR 1,000 crore. That is one. This INR 1,500 crore obviously includes my balance spent on the INR 1.2 crore, which I have told is coming to a close, should get commissioned in March 2021. INR 1.2 crore expansion also, a lot of spending had already happened, so we have bulk of that and WHRS. Modernization capital requirement is INR 700 crore-INR 800 crore, give or take.
Okay. This run rate is a normalized run rate given the vintage of our plant. Without any growth CapEx, INR 700, INR 800 per year is what we should build in future?
On a current capacity, yeah, INR 750-INR 800 is a reasonable modernization or maintenance CapEx. We spend on a regular basis. That's fine.
Okay. Got it. Thanks. All the best, sir. Thanks.
Thank you.
Thank you. Before we take the next question, we would like to remind our participants to limit their question to two per participant. If time permit, you may join the question queue for any follow-up. The next question is on the line of Gaurav Rateria from Morgan Stanley. Please go ahead.
Hey, thank you for taking my question. Am I audible, sir?
Yes, you are now.
Loud and clear.
Sir, just a question on the retail volume on a like for like. For the period you were operational during the quarter, what would have been the growth compared to the same period last year? We can't compare the whole quarter, one month was completely locked down, so it doesn't make sense to compare on a quarter-on-quarter for last year.
You're right. Effectively, we had 68 days of operation and then 23rd April, permission started coming in. They were also full of controversies that they would put people, management team behind bars if there was a COVID case in any of the plants. We did not start the plants ASAP. I have not computed the number of 60 days of sale of same period last year. Obviously if you were to do that, it's a classic case of correcting the base. Right now you are using a 90-day base and comparing a 60-day performance, which is showing a 20% de-growth. If you were to correct that, the numbers will look rosier. The other way to give you some perspective, while the average capacity utilization for the quarter was 46%. Is this correct? Okay. 46%?
Yeah.
Yeah. I was looking at these 60 odd days of capacity utilization. The capacity utilization was upwards of 70% for those two months alone.
Okay.
Other than that, I haven't computed the data for last year two months.
No, sir. Actually, I was specifically asking this for the retail volume, just to understand how much of the retail can actually offset any weakness in the institutional demand during the current year. That's fine. I'm good for the answer. Just the other question on the other expenses, sir. The overall overhead reduction is INR 500 crore. This is something which one should build for on a sustainable basis going forward beyond FY 2021 also?
Yes, please.
Okay. Thanks a lot.
Thank you.
On a current capacity, INR 500 crores. If the capacity grows, then obviously expenses will have to grow.
Okay, sir. Thank you.
Yeah.
Thank you. The next question is from the line of Ritesh Shah from Investec. Please go ahead.
Thanks for the opportunity. Sir, my first question is, if you could provide some detail on this INR 157 crore of exceptional. For what asset was this and for what duration was that?
It was for Kotputli expansion and Aditya Cement 90 expansion. We had got the incentive. Actually, I don't know whether I spoke in my commentary in detail. The incentive at that point in time was 75% of VAT in case the investment size, ticket size was more than INR 100 crores. Clearly, the investment on the brownfield expansion and the greenfield Kotputli was way higher than INR 100 crores. That's why there was a special committee in Rajasthan which approved the 75% incentive for these two projects. VAT incentive of 75%. The incentive was exhausted I think by 2012, because both the units were doing very well, continued to do very well. Incentive was exhausted by 2012. Now in 2019, the state government said, "No, you should have taken only 50%" for whatever their analysis, I know what happened.
Long story short, they ruled that 75% they gave by oversight, and it should be restricted to 50%. We challenged that matter in High Court. Lost. Went to Supreme Court. Supreme Court ruled in their favor. The only saving grace is that they reduced the interest rate to 12%. I hope that answers.
That's useful, sir. My second question is on pricing and discounts. I think you have done a wonderful job on the cost side. Specifically if one looks at the pricing, what should one make of this looking at pricing and discounts both in tandem? Other managements which have come on the call, typically what we hear is there will be a reduction in price differential between the invoice price and the selling price. They are also talking about stricter working capital when it comes to dealers, more of cash and carry. Sir, some commentary on that side would be quite useful.
I don't know. What's the question again? I don't understand the question.
Sir, the question is regarding discounts. Basically, the differential, which is a practice which is in the market. I think a few companies which have already reported, they have indicated that this is something which is a good lever, and we are playing on it, and it actually helps margins. Secondly, the terms which the companies have with the dealers, it's now more on cash and carry, and there are no more freebies which are there at the dealer level. Sir, if one looks at the results overall, you have done a wonderful job on the cost side. Honestly, I was expecting something.
We have done an excellent job on sales price also, which you are not expecting anyway.
Right.
What happened? Actually, now I understood your question. What is this rate difference? What happened is we cannot keep on changing the price on a daily basis, the invoice that is getting generated. There's a market practice, is you issue an invoice at X per bag, and if the dealer is not able to sell in the retail market X plus his margin, then the dealer gets compensated with that rate difference. That is what is called the rate difference discount. Of course, there's a huge amount of waste, books, et cetera. Might be making some extra money also. Can't rule that out. This is prevalent maximum in southern markets.
Okay.
Northern markets, virtually stopped it, where sometimes and a while it happens. East doesn't have it. I think it's predominant in South only.
Okay. Sir, probably I'll give you a call offline for this. I wanted some more details. I'll take it off. Thank you so much.
Thank you. The next question is from the line of Navin Sahadeo from Edelweiss. Please go ahead.
Hello. Am I audible?
Yes, you are, sir.
Thank you. Thank you, and thank you for the opportunity. Atul sir, the last time when we spoke on the call, I think sometime in May after your Q4 results, you had mentioned around the call time that the capacity utilizations for UltraTech stood around 65% odd, with each operating at a much higher level of 85%-90%. Can I just request a similar commentary of the current state as to how do you see your capacity utilization for the company, let's say July or as we speak, and then some color on the region-by-utilization view?
Navin, I think talking about capacity utilization for a two-month period and spreading it on a three-month period, that itself is a fallacy. Secondly, we have an average of 46% capacity utilization for the full period. The low would be maybe 40%, and high would be about 70%, ranging from market to market. Obviously high 70% would be the eastern markets. This is on a 90-day. If I were to look at on a 68 days or 65 days of operation, the overall numbers will jump up. I don't know how you want to.
No. Okay. Let me put it simply this way. June would have been or maybe July as we speak, what could be the capacity utilization, so to say? Q2 last year was 64% or around that level.
July right now as of today is running very well, and I would imagine it is between 60% and 65% already for the month of July. Don't multiply it by three or add it to three, because we don't know how August, the remaining two days of July, and August and September will pan out.
Yeah, sure. That's clearly dynamic, and I'm not getting into that. That's anybody's guess, and I'm not even trying to guess it. Thank you for this. Second, sir, if I may just ask, how has been the utilization at Century Textiles? Are they similar to what we have done at a company level, which is around 46%, 47%, or are they materially different?
The eastern plant would have gone higher, the western plant would have gone back. For us, it is becoming very difficult, especially in the Century acquisition as compared to the Jaypee acquisition, because each plant was a standalone in that geography which we entered. Let me again give details on the Century acquisition. The Manikgarh plant is within 20 km of our existing Awarpur plant. Maihar plant has two other plants within 40 km, 50 km, which is Dahia and Sidhi. The Chhattisgarh Baikunth plant is also close to two other plants that we have. It's only a Sonar Bangla plant which is a tiny one, which is standalone by itself. What happens is my customer is the same. Our objective is to deliver same quality of cement from any plant. The moment I have achieved a quality equilibrium, the individual plants lose their sanctity.
I hope I'm able to explain this. My customer, an L&T, which is doing the Mumbai-Nagpur Expressway, Samruddhi Expressway, both the plants are supplying. Wherever I have material, it's supplying there. It is very difficult to segregate between them. Hence, I think now we are operating optimally on a regional basis. If my east is operating at 70% or 80%, all my plants will operate at the same level. Does that explain?
What is the revenue from the white segment and RMC business in the quarter?
RMC business was about INR 148 crores.
White INR 250 crore.
White was INR 250 crores.
Thank you very much, sir.
Thank you. The next question is from the line of Indrajit Agarwal from CLSA. Please go ahead.
Hi, sir. Thank you for the opportunity. I just have one question. Can you give us the blended cement ratio percentage in this quarter?
I'm sorry?
The blended cement percentage.
Blended 78% or-
Just to understand.
Milaresh, can you give an exact number?
Oh, it's correct, 78%.
Sure. We had been at about 68% last year. Once the non-trade or institutional sales come back, it will have some impact on the raw material cost as well as the blending goes on. Is that the correct understanding?
Yes. Absolutely right.
Sure. Thank you. That's all from me.
Okay.
Thank you. The next question is from the line of Kamlesh Jain from Prabhudas Lilladher. Please go ahead.
Yeah. Thanks for the opportunity, sir, and congratulations on good set of numbers. Sir, just one question on the CapEx side. I know that given the performance we have, we can have, let's say, excuse for that as well. Let's say last quarter, we were having a CapEx guidance of around INR 1,000 crore. This quarter we have increased it to, let's say, INR 1,500 crore. Is it only because of the project CapEx guidance in the last quarter or let's say? Guidance has increased?
Yeah. Our pessimism has reduced. In the beginning of April, we were looking at a very grim future. We are now wanting to expedite our debt. We have increased our cash flow requirements on return these CapEx, which we were going to do in any case and like a WHRS. As I mentioned, 66 MW of WHRS work has started. That's why we have increased certain more fast-tracking on some CapEx. Not doing builds, fast-tracking on some CapEx.
Okay. Sir, how much potential do we have for this WHRS? Some of the peers, I know you would be very well able to gauge that, are having 40% as a 40% share of WHRS. Are we looking at the same level of share as well from current levels?
We have reached about 15%. My guess is after the current phase of expansion, we will go up to about 20%. I'm not very sure. I'll ask Milaresh to confirm.
Yeah. 20%. More than 20%.
It's around 20%. We will examine. The advantage some players, I know you are referring to ACC. The advantage that they have, they've done an incredible job also about it, no doubts. A single location where they could plan very well. We are looking a place like Rajashree Cement, which has four lines. A single location, six and a half million ton capacity. You have to do the rigmarole of identifying space where to put additional WHRS capacity because it's a large turbine and a boiler which has to be put in place. We keep on adding till the technical team feels that there's no more room left to put up WHRS. I don't have an end game number in plan or the end game opportunity that exists. There is still room to expand our WHRS network on a current capacity.
Thank you. Mr. Jain would request you to join the question queue for any follow-up. The next question is from the line of Raashi Chopra from Citigroup. Please go ahead.
Thank you. I just wanted to check where does the India demand decline for the quarter stand in context of your 22% organic decline? I have one question.
22% decline as in?
As in all India volumes. I am just trying to understand where you stand in respect of the all India volumes for the first quarter. As you have a 22% decline if I exclude Century. What is all India? I mean, the industry data.
Industry data.
Yeah.
We are looking at industry doing about 33% or 35% decline this quarter.
Okay. You've explained a lot of this in some of the prior questions, but essentially, when we look at the 30%-35% decline in India right now, or if you want to talk about UltraTech specifically, if anecdotally, we had to kind of ascribe some percentages to the end-use segment. Or just maybe I'll ask more straightforward, like the low-cost housing data or the IHB, what is the rate of decline there? Just trying to figure out what segments are likely to see some sort of recovery and how we can extrapolate that to the second half.
IHB is growing today. When we talk about IHB, we talk about retail demand, which is smaller towns. There is no IHB in Mumbai. Okay?
In my hypothesis, the housing demand is divided 50%, excluding the Tier 1 town, which is another 10%. 60% is the total housing demand, and that 50% demand, 35% is rural demand. Rural demand, internally, and this is our internal definition, we classify any town with a population of less than 30,000 people as a rural town. Those markets are growing. You won't believe, but Central India has grown for us this quarter over the same period last year, in spite of doing only 60 days or whatever, 65 days of operations in this quarter. The base is not correct, but on that base also, we have grown. Central India is a rural market, and it's not an institutional market. It's an IHB market. The MP, UP market.
Going forward, I'm giving you all kinds of analogies and explanations, and I think you will be able to derive a conclusion. As I mentioned, Odisha. Odisha, we are seeing a big spending coming up. Government support is happening. It is not on their government program of low income housing, but it is because of that typhoon which had hit. There's a huge amount of rehab work which is going on. Bengal, the moment they lift lockdown and they get the situation under control, they are going all out for development. That will be our institutional spend happening till elections. I think the elections are just a few months away. I don't remember the exact period, but five, six months away if I'm right. You have huge amount of spending happening in Bengal. These are the two big chunks in the eastern markets. West, unfortunately, continues to struggle.
West, whatever demand we are seeing, let's say a 30% or 42% capacity utilization that we are seeing in the western market is largely institutional or largely government spending on the big projects. Metro, you will see still some work happening in Mumbai wherever they have sites working. The road projects are still happening. Institutional demand is going up continuing. The base is so volatile that the percentages will look totally different. If my overall all India demand basket shrinks and IHB continues to grow, then IHB will occupy a higher share this year. Does that answer a bit?
Yeah. If I have understood this right, IHB is roughly about 35% of India's demand and that you're saying is up on a year-on-year basis. All India demand on the whole is down about 30%, 35%. Is that okay? Like a fair summary?
Yes.
Okay. Thank you.
Thank you. The next question is from the line of Rajesh Lachhani from HSBC. Please go ahead.
Yeah. Thanks for the opportunity. Just two questions from my side. One, earlier during the call, I heard that in July, the realizations are down by 45%. Can you please confirm that? That will be question number one.
Yeah, confirmed.
Okay.
Realized.
Yeah. Secondly, I think we have also seen employee cost decline during this quarter. Even quarter-on-quarter, we have seen a 14% employee cost decline. Just wanted to understand how much of this is sustainable and how much would reverse in Q2 and going forward.
It is sustainable.
Okay. These are sustainable. Okay. That's it from my side, sir.
Thank you.
Thank you.
The next question is from the line of Pulkit Patni from Goldman Sachs. Please go ahead.
Sir, thanks a lot for taking my question. Basically, if I understand correctly, it is obviously the trade segment that has actually driven the demand. What I'm unable to understand, why this apprehension about strong growth continuing, because project work will only get better from where it is. If projects are operating at 50%, they will only get to 60% or 70%. Given the monsoon, and as you said that rural crop has been good, that momentum should also continue. What I'm unable to relate to is that why should there be an apprehension in terms of positivity on demand? Whatever has happened in terms of a month-long lockdown across the country is probably the worst. Even if there are pockets of the country which see sporadic lockdowns, why should the momentum not stay positive?
Is your concern that project work, et cetera, could not begin for a long time, or new project awards could not happen? It seems the worst is over. From here, why should there not be a positive momentum, is what I'm trying to understand.
Pulkit, I am very positive. We have increased our CapEx by INR 500 crores. We are going ahead with our capacity expansion plans. The only uncertainty which we are worried about, just take a classic example of Kolkata lockdown. I was just alluding to the pre-election spending, which everybody is aware of what happens. Government hands are tied. They can't move an inch. What happens is, if I have an RMC plant sitting out there, can't bring raw material in, can't move trucks to the site, don't keep casual labor with you've disbanded the casual labor, then to mobilize all resources again takes time. To mobilize, demobilize again. This is the uncertainty which we are struggling with. Otherwise, in the last quarter, I think I had already mentioned that this financial year could be the best ever in terms of profitability for cement industry.
Volumes, we are in the current pandemic times, the month of July, we are doing 60%-65% capacity realization. The month is already coming to an end, so this is under the belt. Monsoon is doing pretty well in the country. Generally, everywhere we are seeing red spells or floods also for that matter. In that scenario, if July we have done 65%, there's no reason why we cannot keep on the same momentum. If that happens, well, let's stay that time. I hope you get that message. It's a neat message we have given.
Fair point. State finances also do not worry you in a big way?
No, not at all. No. We can have an offline discussion, and I've heard this. I don't have my own sources, but I've heard this from prominent economists and bankers. There is a government cash surplus, cash pool line. A huge amount of cash available in the country, don't worry about it.
Thank you. The next question is from the line of Saurabh Tukra from HDFC. Please go ahead.
Yeah. Hi, sir. Good evening. This is Rajesh from HDFC. Sir.
Hi
Two things. First on the, yeah, Pali expansion. What is your status on that project, sir? North Pali expansion.
Pali, we will start work in the next financial year positively. That project is being on stream for sure, because we can't. We have mines. We have to commission it, otherwise we lose the mines in December 2022. We will start work on it next financial year.
Okay. By 2022 end, do you expect that to be commissioned or it may extend into 2023, FY 2023?
No. It's in FY 2023, no? October, December 2023.
Sorry. Okay. 2023 would be, gotcha.
That's 2023. Yeah. Calendar 2023. Commission by October, December 2023.
Okay. Sir, on the volume card, when you say that like to like 23% volume decline. Would you please explain how that works? I would assume that the Century last year, from the record date when you were taking the merger impact, you would have taken only proportionate volumes of Century in the reported numbers that we have.
From 20th May 2018. No. The life like here is April, June 2019, so that has full 90 days volume. This quarter you have only 60 days of volume. That's another dimension. See, any acquisition that takes place. In case of Binani Cement that we acquired, we acquired Binani Cement in November 2018. When you analyze our performance for October, December 2018, there was no impact of Binani that you calculated for October, December 2017 in the base. Any acquisition that takes place, any inorganic, not just cement, any way. When a capacity acquisition takes place, you start counting the benefits from that period. Why will you debit or credit me for the performance of the previous management and the previous team? That doesn't happen.
Thank you, Mr. Datar. I request you to join the question queue for any follow-up. We'll take the next question that is from the line of Amit Murarka from Motilal Oswal. Please go ahead.
Hi. Good evening, Mr. Daga. My question is on cost. What I understand is the cost reduction has been quite phenomenal. Some of the spends, like repairs, which you have curtailed this quarter, by when can this come back? Because I believe normally we are in the maintenance season anyways. Can we expect normalization of the repairs and maintenance costs in this quarter? Secondly, on the power and fuel side, if I gathered it correctly, you mentioned that the power and fuel costs will not fall further from 1Q FY 2021 levels. While my understanding has been that the low point in pet coke was about INR 60, and the last quarter average for us was INR 70. Shouldn't there be some follow-through benefits of INR 60 pet coke into Q2?
It could be there, but if you look at the quarter, because current purchases which are happening for $75 also will hit the next quarter. Bulk weightage of $70-$75 will be higher. It's too early to say unless prices suddenly crash. As of now, the prices are stable around $75 as compared to a low of $55 or $60. The other thing that happens in the pet coke prices, this is a landed price. Ocean freight is a very high component. At times it becomes 50% also. Currently, I think Nilesh, it's around 50%? Ocean freight.
Ocean freight is 50% around.
Yeah. The FOB price might still be $35, but April ocean freight had fallen dramatically because there was no movement. Ocean freight is picking up. They are backing up the freight rates also.
In fact, there was a hardly transaction happen between the 55- 60. It was a rate only.
Yeah.
There are hardly buyers available in the market.
Yeah. I'm used to be seeing INR 70 becoming INR 60, which is INR 10, might impact INR 50 or INR 70 become INR 75. It's a swing of, let's say, INR 5 rupees a ton either ways. Either side.
Also, like this quarter was also kind of hampered by the lower kiln run rates or the utilization rates, which would have hampered efficiency. Could you quantify what could be the impact? Let's say what, a 2%-3% additional energy consumption because of that?
I think we have mentioned it in the presentation also that what is called a frequent start stop causes a higher consumption, but I don't have a separate number for that. Maybe Ankit and Nilesh can give it to you offline. We have to work it out. We haven't worked out the number.
Okay. On the repairs and maintenance part, that would largely normalize this quarter, right?
Amit, important point to note is that power consumption per ton of cement, which we had put down in the presentation, is down only if I remember it right.
It is? It is down only?
Yeah, it is down. It's not mentioned here. The power consumption per ton of cement is down. As of now, yeah. There will be a benefit in case the plants run smoothly.
I think Q1 is slightly down, but if you compare to Q4 it is higher because of the interruption in the.
Okay. Yeah. Could you quantify what will be the impact of that interruption? I mean, just to interpret the context.
Nilesh, between Q4 and Q1, how much is higher power consumption?
About one and a half units.
One unit. One unit costs less than around INR 5 a unit into INR 75.
INR 5 per ton may be the cost.
Yeah.
Thank you. Mr. Murarka, I request you to join the queue for any follow-up. Ladies and gentlemen, we'll be taking up the last question from the line of Deepak Mehta from MetLife Insurance. Please go ahead. Deepak, your line is unmuted. Please go ahead with your question.
No, I think he's dropped out.
In that case, that was the last question. Ladies and gentlemen, on behalf of UltraTech Cement, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.