Ladies and gentlemen, good day and welcome to the UltraTech Cement Limited Q4 FY20 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 risks 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 event 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, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Atul Daga, Executive Director and CFO of the company.
Thank you, and over to you, Mr. Daga.
Thank you so much. Good evening, ladies and gentlemen, and welcome to this call to discuss our results for Q4 FY20. First and foremost, we apologize for the delay in announcing our results, which in normal circumstances should have got done in the third week of April. The delay is all due to COVID, which created obstacles for completing the statutory audit. Well, we are absolutely law-abiding corporate citizens, we have completed the audit, all kinds of physical verifications with various ways and means to the satisfaction of statutory auditors, and that's why the delay in the results. This quarter is not a representative quarter to benchmark or measure performance. We or the industry or the economy saw a heightened pullback across all fronts in the month of March due to the ongoing pandemic.
Businesses started slowing down region by region, I believe since late February, till things came to a grinding halt towards the end of March. It is worthwhile to mention that we had been seeing improving demand sentiments in January over the previous month and in February over that in January. That's the positive part. Henry Ford said, "A business that makes nothing but money is a poor business." Let me talk about first what we have been doing besides cement, especially in times of this pandemic. During the current quarter, we have almost committed INR 75 crores helping our country fight the pandemic. We are helping the authorities by arranging PPEs, N95 masks, surgical gowns, et cetera.
At the local level, across our plant locations, food packets, sanitizers, soaps, bleaching powder, disinfectants, et cetera, are being distributed to the needy people in and around the villages surrounding our plant locations. We are arranging proactive awareness programs among the local communities. We have also readied two quarantine centers with a facility of 30 beds in the state of Madhya Pradesh and Rajasthan. In the last count we have taken, more than half a million people have benefited by the company efforts. Let me now talk about the operations. First, we must tell you about our plants during COVID. We started off this year with enough inventories. By the end of third week of April, we received approvals to start manufacturing activities at all the plants as well as approvals to dispatch cement. Both these approvals are independent of each other.
Dispatches have continuously been going up and all the plants are continuing to dispatch and sell cement. Sales have been improving. Clinker feeds to the grinding units are also stabilizing. For your information, UltraTech has a network of 22 operational integrated plants, 22 grinding units, and six bulk terminals. We are dispatching cement from almost all the locations, barring one or two where there might be a situation, but 52 locations are today dispatching cement. We have the unique advantage of being able to cater to demand in different parts of the country. The question is: Where is this demand coming from? A larger part of demand is from the retail market, the rural markets, where we believe that the pending work is being completed pre-monsoon. Some of the infrastructure projects have commenced construction activities. With this demand surge, few of the plants are already operating at 70% capacity.
Few of the plants. In the urban real estate markets, we understand that large organized real estate players have accommodated labor on their sites and can commence work and have started work, wherever there is an improvement. However, as everybody knows, there has been and there will be an exodus of labor from the city work sites at the earliest available opportunity, and this could lead to a potential slowdown in construction activity and demand during the next two, three months, which otherwise also will be a lean season. If I name few of the infrastructure projects where work has commenced, almost all major national highway projects like Samruddhi Mahamarg, Delhi-Vadodara, Vadodara Greenfield, Dehradun to Char Dham Project, Mumbai-Goa Expressway, metro networks across various cities, modernization of Bengaluru Airport, DFC, Polavaram Dam. A lot of key major work is going on in Madhya Pradesh.
government authorities, I believe, are monitoring the project progress, social distancing, and other aspects with respect to COVID. We monitor through cameras at these project sites, and based on work progress, payments are being released promptly to the contractors. The idea is to expedite completion of concreting work before monsoons. Let me now talk about debt on our balance sheet. Our net debt at the end of fiscal 2020 is INR 15,096 crore. Nearly 60% of our loans are variable rate loans, which is helping us get the advantage of the reducing interest rate regime. Our gross debt is about INR 18,280 plus, with a treasury surplus of INR 5,880 crore that we ended the fiscal year 2020. All our treasury surplus is deployed in AAA liquid debt schemes. For your information, in the recent debt debacles like Franklin Templeton, Zee, IL&FS, DHFL, we had zero exposure.
All our treasury operations generate a positive carry compared to the borrowing costs. These monies are available at any point in time should there be a need for the business. During the year, we have reduced our net debt by about more than INR 5,000 crore for India. Happy to share with you that we have achieved a net debt to EBITDA ratio of 1.55x on our India balance sheet for the trailing 12 months as compared to 2.64x March 2019. ROE for the company has improved to 10% from 7% last year. I must remind you that while 10% does not sound a very nice number, but we have invested in excess of INR 36,000 crore in the last three years. The benefit of which have not yet been realized.
Over the next few years, depreciation and improvement in operations and realization of cash flows from the non-core assets will only improve the ROE for future. Working cash is the biggest motive for us this year. Running a negative working capital cycle has been the key. Our net operating working capital, I'm differentiating here, operating working capital, which is your inventories and receivables and payables, stood at a negative of INR 700 crores. Our suppliers, both domestic and international, continue to partner with us, extending credit, definitely realize the benefits of long-term relationships with UltraTech, and we are equally committed to all our business partners. Luckily, input costs have also been low on account of coal and petcoke, and we are carrying sufficient inventories across all our plants to meet the production requirements. Having said this, let me now quickly touch upon our CapEx plans.
We had started planning big CapEx spends. 3.4 million tonnes of expansion had also been announced, which would require cash during this financial year. Due to COVID, we have restricted our CapEx plans to an amount of around INR 1,000 crores. We have slowed down the work on the 2.2 million tonne Kakar grinding unit which was scheduled for commissioning in March 2021. This project will now get pushed to the next financial year, depending on when we are actually able to start work. Brownfield capacity expansion work at the Rajbandh one and the Bihar grinding unit is almost coming to a close and should get commissioned by March 2021. Bicharpur coal block should also get commissioned by March 2021 as most of the work is over. The coal supplies from this will meet the requirements of Maihar plant and U.P.
We have restricted the work on new WHRS plants for the moment. However, the last one to get completed will be WHRS at Mathura plant within this financial year. At the end of which we will have 145 MW of WHRS power, about 12.5% of our total power requirements. There are no other major CapExes which are being undertaken as in new WHRS or any major modernization projects. All maintenance CapEx and other routine ongoing CapEx, which I just spoke about, would consume about INR 70 crore. Fixed cost cannot be left out of the purview. We, as a business team, have looked at our business continuity plans and taken various initiatives to reduce overheads during the current financial year. We have targeted a reduction of around 10% of our overheads during FY 2021 as compared to FY 2022. Let me share the work done on Century Assets.
We're happy to inform you that the assets were operating at more than 80%, to be exact, 83%, for this quarter, in spite of the COVID impact. I guess if we were operating full steam, we would have been operating at 90% plus for from the Century Assets. Nearly 65% of the brand conversion has already been completed as compared to 55% in the last quarter. Supplied in West and North markets from these plants are 100% operating plants. This has resulted in increase in realizations for the Century plants by about INR 160 per ton over the last quarter. Cost improvement programs have also been at play, and we have reduced costs by about INR 200 per ton. There might be a small delay in rebranding program because of COVID, which we wanted to complete by June 2020, might get pushed depending upon how the markets open up.
During this quarter, I must mention that we have accounted for one-time improvement cost of ₹40 crores. I told you all about it last quarter also. All the one-time costs with this have got over. Now the operations should be on stream at par with our other plants. Talking about Q4 2020. Cement prices remained firm in major part of the country. In fact, we saw some increases in North, Central, and Western markets. At an all-India level, the company saw an increase of about 3% in realizations over Q3. Exit prices have been higher than the quarter average. Costs remain under control with reduced fuel prices. Petcoke consumption for this quarter was at an average of $70, $10 lower than the consumption rate of Q3. The purchase prices of petcoke touched a high of $78. Now are hovering around $60.
I guess the benefit of these purchases will be visible towards the end of second quarter this financial year. Crude prices have been at historical lows, but all of us know that the benefit of crude prices has not been passed on yet to the industry. The company has achieved an operating EBITDA of INR 1,146 as compared to INR 1,000 for last quarter, which is about 14% improvement despite the slowdown in the month of March 2020. For the full year, I'm happy to share that we have achieved an EBITDA per ton of INR 1,154. This is a very unique feat because of it being an average across the country. We all know how the prices and operating margins perform in different parts of the country. INR 1,154 per ton for the year is the highest so far in last several years.
In fact, since inception, since 2004, this is the highest, and I think there is a lot more to come. One more point. There are so many adjustments which have to be done to the accounts. One more point I should tell you about accounting standards on leasing. Interest cost looks higher because of an additional non-cash impact of INR 48 crores as required by accounting standards in this quarter. Otherwise, our profits would have been to that extent higher. Thank you, ladies and gentlemen, for patiently listening to me. I must conclude by saying, when the going gets tough, the tough get going. That's UltraTech for you. Thank you.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question, you press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you press star and three. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for the moment while the question queue is pending. We take the first question from the line of Indrajit Agarwal , CLSA. Please go ahead.
Good afternoon, sir. Thank you for the opportunity. Two questions. First, on demand. We had a volume decline of 16% YOY. Based on your best understanding, do you think this replicates the industry volume, or we would have underperformed the industry demand?
Being Pan India, I think this should be little industry norm, I would say. You will not see this kind of a number anywhere else. The other challenge that you might see is Century numbers of last quarter have been added to our volumes as is where we did not have any role to play.
Sure. On the first one, like for like, what would have been the volume decline in that case?
I'm sorry?
On a like for like basis, if I take out Century, then the volume decline would have been slightly lower than that. Is that a fair understanding?
Slightly lower. Yeah. Maybe a percentage also. Not too different, but a percentage also.
Sure. Thanks. The second question, like you mentioned, you have delayed your CapEx plan. Given the kind of volume or demand destruction that you could see, do you think the industry will now have a much lower capacity addition schedule over the next two years than what was earlier envisaged?
I think so. Any prudent balance sheet management and financial planning would want to re-look at CapEx plans.
Sure. Thank you. That's all from my side.
I can't comment about how others think, though. That's my view.
Thank you. We take the next question from the line of Gunjan Prithyani from JPMorgan . Please go ahead.
Yeah. Hi, sir. Thanks for taking my questions. Two questions. Firstly, on the Century, really good to see the ramp-up coming through. If you could just talk about the EBITDA per ton. Is it somewhere in the range of INR 650-INR 700? Is that assessment correct?
This quarter, if I were to exclude the one-time costs, then we would be somewhere around INR 575.
Okay, INR 575. Now if I look at the next couple of quarters.
It will go up.
Yeah. Just keeping the pricing flattish, what is the kind of improvement we can see from the brand transition and the cost levers which are still there?
It should go up to eight. Difficult to give a number, but anywhere between 800 and 900.
Okay, got it. The second question I had was on this de-leveraging now. Good to see the reduction coming through consecutively for the last couple of quarters. How should we think about the target in mind from your perspective? I do understand there's a focus, do we have some number in mind that we are looking to bring down the debt to this level? In the same backdrop, given where we are in the market right now, there could be possibilities of some stress assets. I don't know. I'm not sure. If anything comes up, what is our thought process in terms of balancing M&A versus the de-leveraging that we are pursuing right now?
As of now, we are really conserving cash. I don't rule out the possibility if something attractive comes up, we will examine it. I had already mentioned earlier that our target is to go to 1x net debt to EBITDA and then maintain the balance sheet at that level. It will be possible because the cash flow is strong, this large operation. As you saw, we knocked off nearly INR 5,000 crore of debt in one single year, where not new CapEx. I think we spent INR 1,500 crore or INR 1,700 crore on CapEx. We should be aiming towards a net debt/EBITDA of 1x, that's number 1.
At the consolidated level.
At a consolidated level, yes. I've told you in the past also that we are very well prepared for organic expansion should the situation arise, should the demand be there. This quarter, we had a capacity utilization of 74%, there is enough headroom that we have in individual markets for servicing the market should there be a demand. Plenty of headroom to think.
Okay. Just one clarification. In your initial comments, you'd mentioned that your plants are ramping up. I'm not sure if you mentioned a number where the dispatches levels are versus the pre-COVID, what we were seeing in Feb. If you can just talk about that.
We have not reached the same levels. As I said, if I were to look at last few days, which is not the correct way to look at it because ultimately average full quarter is what matters. We are only reaching around 65%-70% capacity utilization in the last few days. We started off first of April or second of April with a zero, and gradually ramp-up has been taking place. We are almost there if I were to look at some plants. In fact, in East, we are running full capacity right now. It's a mixed bag. Things are going on well. Personally, I don't think that it will last too long. Monsoons will be there. COVID, there's still no sign of COVID going out. Migrant labor problem continues to be there. This might slow down.
Keeping fingers crossed, crossing each day, living each day as of now.
Sure. Thank you so much. I'll join back the queue.
Thanks. Hello? Namish?
What happened?
Ritesh, can you hear me?
No. Khattarji's voice is coming, but yours is not.
Okay.
I think we'll have to.
Manoj, are you calling the operator?
She's connecting the exit.
Okay.
I'm sorry, sir. I'm back. We take the next question. It's from the line of Ritesh Shah from Investec Capital. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Sir, my first question is on the distribution side. Sir, given one in every four bags is UltraTech in India, now this is a challenge and it is also a blessing. Sir, wanted to understand how different is our distribution strategy as compared to its peers, basically when it comes to last mile connectivity. Anything specifically on having warehouses in each district, which probably is a blessing for us. Can you give some color here on road-rail mix? You can drill a bit down into how we look at our distribution strategy. Thank you.
Right now, the road-rail mix, road would be about 70%, maybe 7% would be rail, and 3% ocean route. Our distribution strategy during these times with the dedicated fleet that we have, we have transporters who deploy their trucks exclusively for UltraTech. I think the last number I remember is 53% of our fleet was a dedicated fleet. That is where the biggest advantage which UltraTech would have to manage distribution in these COVID times. I guess that's what you were calling about.
Correct. Sir, this is one thing. Secondly, sir, when we look at on the distribution, we typically talk about silos and warehouses. Sir, how it pays if you can quantify in numbers, basically, over here it will be quite useful. This is very useful, 53% of fleet. That is very useful. Sir, something on the warehouses, godowns, which enhances our last mile connectivity, given the difficulties of finding labor and trucks.
There is a concept of temporary warehouse which can be hired depending upon market requirement. That is what is at play right now, and we have at any point in time, 900-1,000 distribution points at play. I am not updated today as of how many are shut down because they might be near a red zone. In a good nominal situation, 1,000-odd distribution points, SLOCs are available.
Okay. This is helpful. Sir, my second question is specifically on the mining regulation-
Third question.
Okay.
Ritesh, this is your third question.
Noted, sir.
Yeah, sorry. Go ahead.
Yeah. Sir, I wanted to know what quantum of our resources is currently placed under saved leases. The reason I'm asking is, there can be some execution which can come around this. Just wanted to understand if you can quantify what is our risk basket, and how do we look at it in RP, PL and ML?
You are speaking in Greek and Latin for me. I don't know what your question is.
Sir, I'm asking what's the reconnaissance permits that we have at UltraTech level. I'm trying to understand the incremental-
What permit?
RP.
What permit?
RPs. Sir, probably I'll start the call for this particular question.
Well, ladies and gentlemen, requesting you all to please stay connected. We've just lost the line for the management. Requesting you all to please stay connected. We are just trying to reconnect the management back to the conference. Requesting you all to please stay online. Thank you. Ritesh, we've just lost the line for the management. Requesting you all to please stay connected. We are just trying to reconnect them back to the call. Thank you. Ladies and gentlemen, thank you for patiently holding the line. We have the management reconnected on call. We also take the next question from the line of Raashi Chopra from Citigroup. Please go ahead.
Thank you. Can you hear me?
Yes, Raashi.
[Foreign language] C heck this. You mentioned that, one is of course your volumes were down around 16% for the quarter. And is there any region which has a more extreme variation? One. Second is that you said that your plants are operating at 65%-70%. Again, regionally, is there anything which is disconnected on the 65? Like is the South also around that level or is the South lower and some other region higher? How does the plan currently look?
First question on 16%. Let me see if I can give you some color around that. On the second question, it's more current. East is operating at much higher capacity. East and some plants in Central are operating at much higher capacity. West is the lowest today because that is the most impacted region in terms of COVID, whether it is Ahmedabad and surrounding markets, Mumbai and the surrounding markets where the impact is higher. If you were to look at, North is doing well, East is doing very well. West is the weakest today, and South is coming up. Telangana, Andhra, Tamil Nadu. Almost the entire South, in fact, Karnataka. We are all aware Karnataka has, in fact, now started almost all the activities.
Talking about last quarter, if I were to look at our capacity utilization, I think East was again rocking at 95%-100%. Central was weak, was the weakest. Would have been operating below 60%. All other regions were 65%-80%.
Okay. Central was weak, but Central is picking up now, you're saying?
Central is now picking up, yes.
Okay. The second thing I wanted to check was on.
Okay
firstly, on the realization I wanted to check that how much of this would be rebranding? Say about INR 100 would be rebranding? I mean, there is a natural increase in cement.
Yeah. I don't have a break-up. For example, West markets and South markets, we had 100% branded to UltraTech. Central, in fact, is not branded, and Central is the weakest in prices. Chhattisgarh, not Central. I would say Chhattisgarh as a market is the weakest in prices on an all-India basis. I don't have an answer how much is due to rebranding and how much is due to natural price increases. Natural price increases surrogate, if I were to use, on an all-India basis we saw 3% increase in prices over the last quarter.
There'll be a small component of natural price increases, maximum benefit of rebranding. That's just a surrogate which I could use to explain.
Okay, got it. For the cost side, you mentioned variable costs are down. Again, I am sure part of it is due to the petcoke prices benefit kicking in, and part of it is due to efficiency parameters. Going forward, again, how much benefit can one assume on the cost side on efficiency potential? I know you mentioned EBITDA can move around.
Yeah. Let me give it another way. We have reached a normative EBITDA pattern of 575 excluding the one-time cost. This 575 will go up anywhere between 800 to 900. Let me be conservative. Let's say we first target to touch INR 800 a ton. That's where the gain lies. 65% of the produce of Century assets has been branded UltraTech. Our target, excluding the Chhattisgarh plant, because Chhattisgarh plant will not be rebranding. 84% or 85% of the total produce from Century plants will be UltraTech. There is room for price advantage in Century assets. I guess large benefit will come from price improvement. We will take on implementation of WHRS at these locations, which will give cost improvement, but that is, I think, phase 2 now. The immediate one will come from price improvements.
To help you analyze it, Chhattisgarh, since we are not doing it, all other plants are in high price zones where they give us the bulk of the benefits. From INR 575 to INR 800 to INR 725, bulk of the gain will come from prices. Petcoke consumption has been 68%, 69% in a mix of all plants. It can go up to 75%, that has been done, or 80%. With that, over a period of time, we might not have too much of juice left over there.
Got it. Okay. What were the trade volumes % during the quarter and for the full year?
Trade volume. Trade percentage is what I will try.
Yes.
Yeah. Blended, we are at about 68% for this quarter.
Interestingly, I must share with all of you that during post-COVID, all these ratios, whether blended of 68% or trade of 68%, looks so ridiculous because now these ratios have reached 90%. Maximum sale is happening in the trade market.
Currently, you're saying trade is around INR 90?
Yeah
last year, full year on the fourth quarter?
68, 69% maybe.
Sorry, can you say again?
Minesh, you have the exact number?
66%, Rashid.
66%, yeah.
66 is for the full year?
This is for quarter. Fourth quarter.
Fourth quarter. Okay. Just one bookkeeping question, if we can just get the revenue breakdown for RMC and white cement and Putty and the white cement?
RMC was about INR 555 crores. White cement was INR 421 crores.
Okay. Do you have a white-
I'm sorry, what did you ask?
white cement in Putty volume.
About 320,000 tons.
320,000, sir?
Yeah.
Okay. Sorry, just one last question. The Bara, the remaining 2 million is still on track?
Yes. Also no. On track, no. I'm assuming a quarter delay for that because of COVID, for June. Earlier, we would have expected it in 8th of June. It could get pushed to July, September period.
Got it. Okay. Thank you. That's it from me. Thank you.
Since you asked about Bara, before the next question, let me also tell the audience about the Dalla Super, the NGT plant. I think the approvals are moving on track, and we should be seeing light of day for that plant by March 2021. Next question, please.
Thank you. Next question is from the line of Saumil Mehta from BNP. Can you please go ahead?
Over a period of time, is it fair to assume that the EBITDA ton difference, what you said, Century versus the blended, which is about 300, assuming Century goes to 900, that will remain partly because of Chhattisgarh unit and some bit of regional mix, that gap can narrow further with cost efficiencies, at least some of them, I'm assuming, will be dependent?
It will be regional dynamics. If I have achieved, let's say, for full year 1154, Century obviously will not achieve 1154. It will perform according to its regions.
Sure. To that extent, on a steady state, even one and a half, two years down the line, assuming utilizations are at optimal levels, you will continue to see at least that INR 200, INR 250 per ton of gap. That's a fair assumption, right?
From our all-India average?
Yes.
No. It could shrink because we will be investing behind improvement in the Century plants, which has already been done in other plants. For example, WHRS has to be done across all locations.
Okay.
It's a investment of, give or take, INR 300 crores between Maihar and Manesar. There will be a gap which could reduce over a longer period of time, not in this financial year.
Okay. Second, for the quarter, what was the lead distance and how it has changed Q1 to? On a per ton basis, the freight cost actually has moved up. Just wanted to check.
Yes. The lead has gone up because we've been crisscrossing flows across the country. I think we were around 440. Sorry, we were around 440 kilometers. That's what I remember.
Okay. My last question is, when you said that the west market seems to have been more impacted. Is it April and May onwards, or you saw that impact even in Q4 numbers?
No. I was talking about post-COVID.
Okay.
that we are seeing today, for example, eastern markets. As I mentioned, plants are operating at 90%, which is back to normal, nearly normal. West has not come back. West, all the cities are more impacted than any other state. We haven't been able to get control of COVID.
Sure. Last question is, what could be the possibility of a pent-up in the non-trade demand? Because as you said, the trade mix has gone up significantly. Once, assuming government spending starts in second half of this fiscal year, again, that's a hope. Will you see a lot of pent-up demand coming in?
It could. I won't have capacity.
Okay.
We have capacity.
Perfect. That's very encouraging. Thank you very much, and all the best.
Thank you. We take the next question from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please, go ahead.
Hi, Mr. Daga. Excellent performance. I just have one question. With such weakness in demand and cash flow strains which we see across the economy, do you expect that excellent improvement in working capital cycle to be distorted either in terms of build-up of some amount of inventories or in terms of needing to give more receivables periods from your customers? Thanks.
My receivables are at the lowest as we speak. Inventory build-up could happen because today we plan on a particular trajectory of performance of demand and the long lead item which is coal/petcoke is procured. God forbid, if demand collapses, then we will have higher inventory to carry. Otherwise, we intend to work with negative working capital.
Thank you.
Thank you. We take the next question from the line of Swagata Ghosh from Franklin Templeton. Please go ahead.
Yeah, thanks. Sir, for the fourth quarter for Nathdwara, what was the utilization?
About 57%.
Okay. The profitability for the quarter?
No. Hang on. Nilesh, hang on, Swagata. For UltraTech, you guys should not look at Nathdwara's capacity utilization standalone, because we pool all our capacity and then the distribution is managed. Just because Nathdwara capacity utilization is low does not say that it is a poor performing asset. It's an optimization of the overall capacities within the network.
Yeah. I understand that. Yes.
Okay.
Profitability for the quarter for Nathdwara?
Oh, yeah. It's eye-popping. INR 1,600 plus.
Okay, but in the earlier quarter slide, you generally have mentioned that 1,500 kind of number. This quarter slide you have mentioned for the full year it's 1,250, or you said exceeds 1,250, but that kind of gives an indication that the fourth quarter number is lower, but that is not the case.
No. Nilesh will just explain what was this INR 1,250.
INR 1,250 is more of operating EBITDA. Hello?
Right. Yeah.
You're asking for operating EBITDA only. We have this quarter at least about INR 1,600 per ton. On an average basis, I don't know why, but maybe because of the first couple of quarters where we might have had lower performance, that's why the average is talking.
This quarter operating is about somewhere INR 1,490.
Okay.
Okay. Sir, one other question. Do you see going forward in the medium term lead distance to be slightly higher because of how maybe chunky demand centers can be?
Yes. It could be higher in the short term.
Okay.
We have to manage distribution to not to lose our customer. Wherever we can supply from, we will do that.
Okay. Sorry, one last question on the petcoke prices. Will you say that the benefits of the current spot prices can come in from second quarter of this financial year?
Yeah. In July, September too and Yes, July, September.
Okay. Thank you.
Thank you. Next question is from the line of Nitin Arora from Axis Mutual Fund. Please go ahead.
Hi, Nitin. Good evening. Sorry, I missed your opening remarks. Just one question. You have delivered a net debt closer to what you guided. Any sense, any direction for this year given the constraints of direction in volumes, depending on what the situation pans out on the post-COVID era. Any direction can you give on that?
It's been very difficult to give any guidance on how things will pan out. Nobody knows whether there could be phase 2. I'm being extremely pessimistic. Whether there could be phase 2 or phase 3, or how fast the recovery is, how soon the economy opens. It's a million-dollar question. I'm not able to give you a clear answer.
Sure, sir. Thank you so much. Thank you.
Thank you.
Thank you. Next question is from the line of Pulkit Patni from Goldman Sachs. Please go ahead.
Sir, thanks a lot for taking my question. Sir, my first question is again on demand, but not the near-term demand. What I'm trying to understand is that once we come out of COVID, clearly the government fiscal numbers are not going to look very good, and that's why the fact that you mentioned that there's been a significant surge in trade % recently. What I'm trying to understand is what is giving you confidence that even over a 12, 18-month period, volumes could likely come back to what we've seen in the past? That would be my question number one.
All along, Pulkit, in the last two years or three years, rural and infra has been driving growth. You are right, government will have its still pressures. I don't know where they'll bring the money from. There are lots of avenues we can discuss offline, which the government could tap into. The other sector, which is more promising, remains to be rural markets. They are not dependent on MSP alone. The average prices have actually gone up on rural produce. Both the crops, the winter crop, the summer crop, have been good, which improve the cash flows in the rural markets, pumping up rural demand. Unfortunately, India is so circumspect and so much dependent on the vagaries of weather. If the crops remain good again for a longer period of time, we would see rural demand continue to surge.
Government spending, I don't know how they are managing, but we are seeing huge amount of demand for consumption pick up. I'm talking about post-COVID. I shouldn't say post-COVID, but April onward, whatever you want to call it. Wherever possible, the government has started work on its existing infra projects. Today, if you want to step out on Mumbai roads, you will see the metro work has started. Government is having some thought process on expediting infrastructure and all those commitments which were made in the last budget and subsequently also billions of dollars being committed for infrastructure in spite of these dark skies looming over the economy. I'm sure there will be some mechanism that they are thinking about.
Sure. We are all hoping that government has some money to spend on this. My second question is, assuming that there are constraints in government spending, you did talk about 10% reduction in discretionary spend that we could do. Any specific heads that you could highlight where this fixed cost reduction could come through?
We put a manpower freeze. That is one. Ad spend will go down, which was a big bucket of cost. The declining costs at plants will go down because plants have remained shut for, let's say, a month or so, gives me an extension of life on the plant. Plant maintenance costs, without compromising on the quality of the plant at all. The shutdowns, which hit a cement company very low down will reduce. Travel expenses, all admin-related stuff will go down. That's the plan that we have. These are the high big-ticket items, manpower cost, maintenance spends, ad spends, admin-related will see a reduction.
Okay. One more question, very basic. For a normal cement plant, at what % capacity utilization does it break even?
It depends upon the profitability of that particular plant or that particular company, because every company has a different level of efficiency, but I would peg it anywhere between 30% and 40% where it's a break-even capacity.
Sure. That's very helpful. Thank you.
Thank you. Next question is from the line of Amit Murarka from Motilal Oswal. Please go ahead.
Hi. Good afternoon, Sir. Good evening, Sir. On the current situation where the industrial utilization clearly is close to 40%-50%. Talking about a more practical point of view, because we have a supply side there
Mr. Murarka, I'm so sorry to interrupt, sir, but you're-
Not audible.
Not audible, sir. Your voice is breaking up. If you can hear us, can you please try back and-
Is it better now?
Yes. Now it's better. Thank you.
Yeah. I was saying that while on the nameplate basis, the capacity utilizations are at 40%-50%, but there are supply constraints as well, like labor availability or logistics and others. Once you, let's say, forget about demand right now, in the current scheme of things, what could be the utilization level with the plants, you think, given these constraints around the factors of production?
As I said, today, we are operating anywhere between 65% and 70%.
Okay. Could it go to a higher number if there was no demand constraint?
Yeah, why not? If there was no demand constraint. As of today, I don't have any challenge across the network. No, there's no challenge. If it's required, we can increase more.
Okay.
There's one plant with one grinding unit which has been kept shut because of demand not being there. That is near Delhi. Yeah. Delhi is an indicated shutdown area. We have a grinding unit close by. One of the grinding units has not been started. That's demand then.
Understood. On the cost side, I believe those logistics costs have also moved up, like the road logistics. Similarly, I'm not sure how would be the raw material availability or pricing beyond fly ash and other things. Could you comment a bit on those factors, the variable cost side?
Fly ash costs, in any case, this quarter, raw material costs went up this quarter, largely driven by fly ash. Fly ash availability is not a problem because power plants in the country are not shutting down. Transportation of fly ash could become a problem at some point in time. Today, it is not a problem. Other than that, I think from the raw material perspective, this is the biggest thing, domestically.
Yeah.
Internationally, coal, Petcoke is available. That's not a problem.
Is the road fleet up 10% or so, is what I understand. Because the return load is not available for a lot of truckers.
Road fleet. No, it's almost flat over last year. As I see the data, there's no change.
Even post-COVID, talking about current, yeah, I'm asking the post-COVID. I'm asking the current post-COVID situation.
Post-COVID, I don't have the number in.
Okay, understood. Thanks. That is all from my side.
Thank you. We take the next question from the line of Navin Sahadeo from Edelweiss. Please go ahead.
Hello. Can you hear me?
Yeah.
Yeah. Good evening, sir.
Yeah.
Yeah. Good evening. Just a couple of questions. You mentioned 65%-70% kind of utilization for our plants. I just wanted to confirm this. Is it for the plants that are operating or is it at the company level that you are talking about?
At the company level. Operating plants, again, they are much higher.
All plants are operating except for the Delhi unit, which you said.
Yeah. Delhi's grinding unit has still not started. East plants are operating 90% already. West might be the Manikgarh, Awarpur cluster has begun because the supplies are going to that expressway project big way . South plants have begun. Plants are operating, yeah.
Okay. That's encouraging to know. Related to the sales, is it coming at a higher cost in the sense that the previous question was also that since there is no return load, also the fact that the driver also, obviously there was a scarcity, so to say, what we are hearing from channels like from media, and also since social distancing as a norm has to be practiced? Is this utilization ramp up coming at a higher cost to us?
From the distribution point of view, I haven't heard anything otherwise. See what happens on the ground, the same driver is not necessarily coming back, but the transporter is able to find some alternate driver. My rates are not for the driver. My rates are with the transporter, the number of trucks that he deploys with us. As long as he's deploying those trucks, it is in his interest also for his own business. He has to deploy as many trucks. Rates are not being increased for that. The reverse logistics, if the reverse logistics have gone down, we don't have a ready number on how it is impacting currently. Yeah. Do you want to say something?
Yeah. Overall, logistic cost has not increased by positions. In fact, in some of the destination costs have reduced also.
Okay. That's nice to know because in general, what we are hearing is there is scarcity of labor. I mean, apart from labor migration, there is also the set of drivers who are unwilling to come to work. The driver issue I am fully aware of. We are tracking it. Alternate drivers are coming. Earlier what used to happen is same driver would do a day trip and come back. We are finding a frequent change in drivers the way the transporters are managing it. That is their headache as long as they are delivering trucks to us.
Okay. Are you also seeing some demand, since you said some of the projects that are in a work in progress, like constructions or government projects have started? Since you said it's also the trade demand which is seeing a very high %, are you also seeing some sort of channel filling or dealers carrying in higher inventory, so to say, given there is a bit of uncertainty in the near term which could disrupt the supply or something like that?
No, Navin. Dealer community is a high ROCE business. They don't carry inventory. They don't have stock points. They will give instructions to dispatch and unload at a location. They don't carry inventory. They don't invest so much. Chances of big building inventory is highly unlikely.
Sure.
Right now the demand is good.
Sure. Just related to this COVID thing and since it's so new and caught everybody of us unguarded, in general, the changes that has to probably come to the business because even at the plant, you cannot have, let's say, a loading division or some functions where there is potential crowding of labors. How do you address that? In the sense, is there more CapEx that you are planning towards having more automation at the plants or anything like that?
While there is a lot of work in parallel happening, studies being done across the network, inter-unit comparisons to see who else is more optimal and then replicate. This is a new normal that we are seeing. Today we are running the plant at 30%-35% and the plant is operating without any handicap.
Right.
It's a discovery that is happening. I cannot invest overnight in automation and reduce labor. My labor cost is not going down because I am paying everybody.
Right.
The plant is operating with lesser number of technical people on the shop floor.
Understood. Just one last question?
Let's say it has just given us an opportunity to test new ways of working.
Yeah. That's precisely my question was. When you test new ways of working, two things can happen. Either it can improve the efficiency and you realize some cost or the lesser number of people or some people become redundant. That can be a cost saving from a longer-term perspective, or in general, there could be automation. I was just trying to understand that.
Yes. As of today, we've realized that we are able to operate a plant at 35%, 40% of the normal manpower policy.
Sorry, I missed that. Can you repeat that?
We have realized when we planned all of our SOPs were done on manning norms, et cetera, where people are required. We are now operating at maybe 35% or 40% of normal manpower. That will seem to be a benefit in the longer term where for the new expansion in Pali comes up or the new mining unit comes up, it will be manned differently for sure.
Just one last question, if I may. You said in the previous quarter, the Central utilizations were the lowest. When you say Central, is it also Chhattisgarh that you include in that, or how do we look at it? Is it only the Satna cluster we're talking about?
Central is Satna and the way we look at central is the west U.P. and west M.P. Sorry, east, not west, sorry. Satna is east.
Correct.
East MP and east UP.
Correct. Right. Some of the peers in that region, like typically Birla Corporation or let's say Heidelberg for that matter, they report of a very high utilization, so to say. That's where I thought, is there a disconnect? Just wanted to clarify. Are utilizations are low?
Satna cluster is low for us as compared to somebody else because they are actually local player. Look at their distribution. They are very small market that they are catering to.
Okay.
As compared to our raw material also flowing from Satna plant to the more lucrative Bihar market, which is quite close. Understood. That's it from my side, sir. Thank you very much.
Thank you. We take the next question from the line of Mangesh Bhadang from Kotak Securities. Please go ahead.
Hi. Good evening, sir. First question is with respect to the reversal of default taxes. In any particular year, as per our assessment, when we will be moving to the new tax regime in future?
If I were to let out that secret, then you would know the EPS bump up which year it would take place. I'm not going to tell you that.
Okay.
Minimum two to three years.
Okay. Understood. Sir, with respect to CAPEX of around INR 1,000 crores, what part of that is going toward completion of Bara and the Dalla Super grinding unit, and what would be maintenance?
Meera, do you remember what is left on Bara?
Bara would be about 120.
Bara has INR 120 crores left, which will get spent this year. Bicharpur coal block also has somewhere around that number only. Dalla Super, we have not factored in any spend as of now. When we get the plant and the plant is available, it's more of a maintenance and oiling the plant that will have to be done. It's not too big a CapEx to my knowledge.
Okay. 600 also would be maintenance.
CAPEX, ± INR 600 crores will go on maintenance CAPEX.
Okay. Is this a reduced maintenance run rate given the challenges this year? Or this is something which is a normal run rate to assume in future as well?
INR 100 crores-INR 200 crores would have got reduced on a current network. Otherwise.
Okay
we're not compromising on maintenance costs.
Understand. Okay. Next question, we're quite optimistic on the rural demand. Sir, any assessment as to what proportion of the rural demand is driven by government role in terms of, say, housing schemes, subsidies, et cetera, and what is done in self-reliant? A broad intelligence on the industry.
This needs to be self-reliant or non-government because everything is going in trade. Other than that, I don't have any data source to split the demand between government support and private.
In a normal year, what would be the total rural demand as a percentage of total mix? 30%, 40%?
Sorry, what?
In a normal year, what would be the rural demand mix in the overall cement industry demand?
35% or thereabouts.
Okay. Just one last clarification. You said 65% to 70% utilization in May. I know that. April would be what % utilization?
Would be lower. April is not a month to talk about because we started around 20th of April.
Yes, sir.
Sorry.
All right. Thanks. All the best, sir.
Thank you.
Thank you. Well, ladies and gentlemen, due to paucity of time, this was the last question for today. On behalf of UltraTech Cement, let me close this conference. Thank you all for joining. You may now disconnect your lines. Thank you very much.